<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 20, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ESMOR CORRECTIONAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 7389 11-3182580
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
SUITE 1000
1819 MAIN STREET
SARASOTA, FLORIDA 34236
(941) 953-9199
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
JAMES F. SLATTERY
ESMOR CORRECTIONAL SERVICES, INC.
SUITE 1000
1819 MAIN ST.
SARASOTA, FLORIDA 34236
(941) 953-9199
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
<TABLE>
<S> <C>
SIDNEY TODRES, ESQ. H. WATT GREGORY, III, ESQ.
EPSTEIN BECKER & GREEN, P.C. GIROIR & GREGORY, PROFESSIONAL ASSOCIATION
250 PARK AVENUE 111 CENTER STREET -- SUITE 1900
NEW YORK, NEW YORK 10177 LITTLE ROCK, ARKANSAS 72201
(212) 351-4735 (501) 372-3000
</TABLE>
APPROXIMATE DATE OF PROPOSED COMMENCEMENT OF SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE OFFERING REGISTRATION
BEING REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
Common Stock, $.01 par value..... 2,817,500 shs. $44,023,438 $15.625 $15,180.50
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee based
on the average of the high and low sales prices of the Common Stock on The
Nasdaq Stock Market's National Market on June 19, 1996, pursuant to Rule
457(c).
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
ESMOR CORRECTIONAL SERVICES, INC.
CROSS-REFERENCE SHEET
(BETWEEN ITEMS IN PART I OF FORM S-1 AND PROSPECTUS)
<TABLE>
<CAPTION>
FORM S-1 ITEM NO. AND CAPTION PROSPECTUS CAPTION
----------------------------------------------- -----------------------------------------
<S> <C> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus....... Front Cover Page; Underwriting
2. Inside Front and Outside Back Cover Pages of
Prospectus................................... Inside Front Cover Page; Outside Back
Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges.................... Prospectus Summary; Risk Factors; Safe
Harbor Provisions of the Private
Security Litigation Reform Act
4. Use of Proceeds................................ Use of Proceeds
5. Determination of Offering Price................ Not Applicable
6. Dilution....................................... Not Applicable
7. Selling Security Holders....................... Principal and Selling Stockholders
8. Plan of Distribution........................... Front Cover Page; Underwriting
9. Description of Securities to be Registered..... Description of Securities
10. Interests of Named Experts and Counsel......... Certain Transactions; Legal Matters
11. Information with Respect to the Registrant
a. Description of Business.................. Prospectus Summary; Business
b. Description of Property.................. Business
c. Legal Proceedings........................ Business
d. Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters.................... Front Cover Page; Capitalization;
Dividend Policy; Description of
Securities
e. Financial Statements..................... Consolidated Financial Statements
f. Selected Financial Data.................. Selected Consolidated Financial Data
g. Supplementary Financial Information...... Not Applicable
h. Management's Discussion and Analysis
of Financial Condition and Results
of Operations.......................... Management's Discussion and Analysis of
Financial Condition and Results of
Operations
i. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure............................. Not Applicable
j. Directors and Executive Officers......... Management
k. Executive Compensation................... Management
l. Security Ownership of Certain Beneficial
Owners and Management.................. Principal and Selling Stockholders
m. Certain Relationships and Related
Transactions........................... Certain Transactions
12. Disclosure of Commission Position on
Indemnification for Securities Act Not Applicable
Liabilities..................................
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 20, 1996
PROSPECTUS
2,450,000 SHARES
ESMOR CORRECTIONAL SERVICES, INC.
COMMON STOCK
Of the 2,450,000 shares of Common Stock offered, 2,000,000 shares are being
sold by Esmor Correctional Services, Inc. (the "Company") and 450,000 shares are
being sold by certain stockholders of the Company (the "Selling Stockholders").
See "Principal and Selling Stockholders." The Company will not receive any
proceeds from the shares being sold by the Selling Stockholders.
The Common Stock is traded on The Nasdaq Stock Market's National Market
("The Nasdaq Stock Market") under the symbol "ESMR." On June 19, 1996, the
closing price of the Common Stock, as reported by The Nasdaq Stock Market, was
$16.00 per share. See "Price Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PROCEEDS TO
UNDERWRITING PROCEEDS TO SELLING
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share.................... $ $ $ $
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Total(3)..................... $ $ $ $
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</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses estimated at $400,000 payable by the Company.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to an additional 367,500 shares to
cover over-allotments, if any. If such option is exercised in full, the
total Price to Public, Underwriting Discount and Proceeds to Company will
be $ , $ and $ , respectively. See
"Underwriting."
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if issued to and accepted by them, subject to the
approval of certain legal matters by counsel for the Underwriters and to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made on or about ,
1996.
STEPHENS INC. J.C. BRADFORD & CO.
The date of this Prospectus is , 1996.
<PAGE> 4
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such material may be
inspected and copies made at the regional offices of the Commission at 7 World
Trade Center, Suite 1300, New York, New York 10048, and at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago Illinois 60661-2511. This material may
also be inspected and copies made at, and upon written request copies obtained
at prescribed rates from, the Public Reference Section of the Commission at Room
1024 at its principal office, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH OTHERWISE MIGHT PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934.
SEE "UNDERWRITING."
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements (including the notes thereto)
appearing elsewhere in this Prospectus. All references to the Company in this
Prospectus include Esmor Correctional Services, Inc. and its subsidiaries, and
unless otherwise indicated, all references to the Company's outstanding Common
Stock assume no exercise of the Underwriters' over-allotment option.
THE COMPANY
The Company is a leading developer and manager of privatized correctional
and detention facilities in the United States. Through its three divisions,
Adult, Juvenile/Youthful Offender and Community Corrections, the Company
provides a diverse range of services to local, state, and federal governmental
agencies. The Company currently has agreements to operate 14 correctional and
detention facilities in New York, Florida, Arizona, Texas and the State of
Washington. Twelve of these facilities, with a total of 2,005 beds, are
currently in operation, and two, with a total of 700 beds, are scheduled to
become operational in the first quarter of 1997. The Company is also
aggressively pursuing other privatized correctional projects both at the request
for proposal ("RFP") stage and in the pre-RFP development stage.
The Company manages both secure and non-secure facilities. Secure
facilities include a detention and processing center for illegal aliens, an
adult prison, intermediate sanction facilities, driving while intoxicated
("DWI") facilities, and military style boot camps for juvenile/youthful
offenders. Non-secure facilities include residential programs, such as community
correctional facilities for federal and state offenders serving the last six
months of their sentences, and non-residential supervision programs.
In addition to providing fundamental residential services for adult and
juvenile inmates, the Company has developed a broad range of programs intended
to reduce recidivism, including basic and special education, substance abuse
treatment and counseling, vocational training, life skills training, and
behavioral modification counseling. The Company offers to governmental agencies
management services ranging from project consulting to the design, development
and management of new correctional and detention facilities and the redesign,
renovation and management of older facilities. The Company believes that its
proven ability to operate the full spectrum of correctional facilities and its
wide variety of programs and services will increase its marketing opportunities.
The privatized correctional services industry has experienced rapid growth
in recent years. According to studies prepared by the Private Corrections
Project Center for Studies in Criminology and Law, University of Florida, the
rated capacity of international privatized secure adult correctional facilities
grew from 2,620 beds in 1986 to 63,595 beds at year-end 1995, and is projected
to grow to 197,503 beds by year-end 2000. This projection does not include the
projected growth of privatized juvenile/youthful offender and community
correctional facilities, both of which, the Company believes, are also growing
rapidly. According to the United States Department of Justice, Office of
Juvenile Justice and Delinquency Prevention, between 1988 and 1994 juvenile
arrests for violent crimes grew by more than 50%. Also, according to the United
States Department of Justice, Bureau of Justice Statistics, the number of adult
inmates housed in federal and state facilities increased from 487,593 at
December 31, 1985, to 1,104,074 at December 31, 1995. The Company believes the
growth in demand for privatized correctional facilities is attributable to a
number of factors, including a shortage of correctional beds, increasing public
demand that convicted offenders serve a longer portion of their imposed
sentences, the requirements imposed by legal and regulatory authorities to
remedy overcrowded conditions and outmoded facilities, and increasing fiscal
pressures on governmental agencies to deliver cost-effective correctional
services to address these issues.
The Company's business strategy is to enhance its position as an industry
leader and to expand its operations, both internally and through selective
acquisitions, in order to capitalize on current growth trends in the privatized
corrections industry. The Company intends to continue emphasizing the quality
management of its facilities and to continue developing and refining its
diversified programs and services. Where appropriate, the Company may commit its
own capital for the renovation or expansion of existing facilities or the
development and construction of new facilities.
3
<PAGE> 6
The Company was incorporated under the laws of the State of Delaware on
October 28, 1993 to acquire all of the outstanding capital stock of a number of
affiliated companies engaged in operating correctional or detention facilities.
The Company's executive offices are located at Suite 1000, 1819 Main St.,
Sarasota, Florida 34236 (telephone no. 941-953-9199).
THE OFFERING
Common Stock offered by the Company............. 2,000,000 shares
Common Stock offered by the Selling
Stockholders.................................... 450,000 shares. See "
Principal and Selling
Stockholders".
Common Stock to be outstanding after the
offering........................................ 7,141,178 shares(1)
Use of proceeds................................. To repay bank indebtedness,
finance start-up costs of two
Florida facilities and for
general corporate purposes
including possible funding of
construction and ownership
costs of privatized
facilities and possible
acquisitions. See "Use of
Proceeds."
The Nasdaq Stock Market symbol.................. ESMR
- ---------------
(1) Excludes (i) 651,037 shares of Common Stock reserved for issuance under the
Company's stock option plans, pursuant to which options to purchase 453,389
shares at a weighted average exercise price of $8.95 per share are
outstanding, of which options to purchase 226,212 shares are currently
exercisable (see "Management -- Stock Option Plans"); (ii) 200,000 shares
issuable at $8.875 per share upon exercise of non-qualified options granted
to two employees, of which options to purchase 66,666 shares are currently
exercisable; and (iii) 855,525 shares issuable upon exercise of outstanding
warrants at an average exercise price of $7.65 per share. See "Description
of Securities -- Warrants."
4
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................... $5,444 $10,322 $14,101 $24,273 $31,552 $ 8,123 $ 7,168
Operating expenses................ 3,840 6,292 8,651 14,899 19,732 4,920 4,897
General and administrative
expenses....................... 1,232 2,888 3,579 6,696 9,938 2,315 2,039
New Jersey facility closure
costs(1)....................... -- -- -- -- 2,610 -- --
------ ------- ------- ------- ------- ------- -------
Operating income.................. 372 1,142 1,871 2,678 (728) 888 232
Interest expense.................. 67 36 31 133 762 98 213
------ ------- ------- ------- ------- ------- -------
Earnings (loss) before income
taxes.......................... 305 1,106 1,840 2,545 (1,489) 790 19
Income tax expense (benefit)(2)... 35 390 736 1,002 (530) 325 8
------ ------- ------- ------- ------- ------- -------
Net earnings (loss)(2)............ $ 270 $ 716 $ 1,104 $ 1,543 $ (959) $ 465 $ 11
====== ======= ======= ======= ======= ======= =======
Net earnings (loss) per
share(2)....................... $ 0.08 $ 0.22 $ 0.34 $ 0.35 $ (0.21) $ 0.10 $ 0.00
====== ======= ======= ======= ======= ======= =======
Weighted average shares
outstanding.................... 3,281 3,281 3,281 4,395 4,553 4,639 4,914
OPERATING DATA:
Beds under contract............... 297 731 1,222 1,805 2,705 1,975 2,705
Actual mandays.................... 81,221 186,970 282,263 507,884 609,392 160,419 138,044
Available mandays................. 82,869 221,176 285,132 519,746 635,754 164,672 144,215
Average occupancy................. 98.0% 84.5% 99.0% 97.7% 95.9% 97.4% 95.7%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------
ACTUAL AS ADJUSTED(3)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................... $ 187 $25,377
Total assets........................................................ 24,088 48,049
Long-term debt, including current portion........................... 5,149 --
Subordinated notes.................................................. 5,318 3,986
Total stockholders' equity.......................................... 10,079 41,237
</TABLE>
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(1) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Calendar Year 1995 Compared to Calendar Year 1994."
(2) Net earnings and net earnings per share for 1991, 1992 and 1993 are shown on
a pro forma basis to reflect income taxes which were not applicable under
the Company's then Subchapter S Corporation status.
(3) Adjusted to reflect: (i) the retirement subsequent to March 31, 1996 of
$1,332,000 of the principal amount of subordinated notes upon the exercise
of related warrants to purchase 176,947 shares of Common Stock at a
purchase price of $7.75 per share; (ii) the exercise subsequent to March
31, 1996 of options to purchase 41,763 shares of Common Stock under the
Company's stock option plans at an average exercise price of $5.80 per
share; (iii) the sale of the 2,000,000 shares of Common Stock offered by
the Company hereby; and (iv) the application of the estimated net proceeds
of $29.7 million therefrom (based on an assumed offering price of $16.00
per share):
5
<PAGE> 8
SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain qualifying forward-looking statements. Certain information
included in this Prospectus and other materials filed or to be filed by the
Company with the Commission (as well as certain information included in oral
statements or other written statements made or to be made by the Company) may
contain statements that are forward-looking, such as statements relating to
projected financial items and results, plans for future expansion and other
business development activities, capital spending or financing sources, capital
structure and the effects of regulation and competition. Such forward-looking
information involves important risks and uncertainties that could significantly
impact anticipated results in the future and, accordingly, such results may
materially differ from those expressed in any forward-looking statements by or
on behalf of the Company. These risks and uncertainties include, but are not
limited to, those described under "Risk Factors" below.
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should consider carefully the following
risk factors, in addition to the other information set forth in this Prospectus,
in evaluating an investment in the shares of Common Stock offered hereby.
Risks Associated with Internal Expansion. The Company's growth is
generally dependent on its ability to obtain contracts to develop and manage new
correctional and detention facilities. The rate of such development depends on a
number of factors, including crime rates and sentencing patterns in various
jurisdictions and the Company's ability to integrate new facilities into its
management structure. Certain jurisdictions recently have required the
successful bidders to make a significant capital investment in connection with
the financing of a particular project. This trend will require the Company to
have sufficient capital resources in order to compete effectively. In some
cases, the Company may determine to construct and own a facility without a
contract award where it believes a significant shortage of beds exist and where
the likelihood of obtaining contracts is high. There can be no assurance that
the Company will be able to obtain additional contracts to construct or manage
new facilities, retain its existing contracts upon expiration thereof or obtain
contracts for facilities that it has built without a contract having been
awarded. See "Business -- Business Strategy."
Risks Associated with Acquisitions. The Company intends to grow through
internal expansion and through selective acquisitions. There can be no assurance
that the Company will be able to identify, acquire or profitably manage acquired
operations. In addition, there can be no assurance that operations acquired will
be profitable or will achieve levels of profitability that justify the
investment therein. Acquisitions involve a number of special risks, including
possible adverse short-term effects on the Company's reported operating results,
diversion of management's attention from existing business, dependence on
retaining, hiring and training key personnel, risks associated with
unanticipated problems or legal liabilities, and amortization of acquired
intangible assets, which could have a material adverse effect on the Company's
financial condition and results of operations. See "Business -- Business
Strategy."
Public Acceptance of Privatized Correctional and Detention
Facilities. Management of correctional and detention facilities by private
entities is a relatively new concept and has not achieved complete acceptance by
either governments or the public. The movement toward privatization of
correctional and detention facilities has also encountered resistance from
certain groups, such as labor unions, local sheriff's departments, and groups
that believe that correctional and detention facility operations should only be
conducted by government agencies. In addition, changes in the dominant political
party in any market in which the Company operates could result in significant
changes to the previous acceptance of privatization in such market. Further,
some sectors of the federal government and some state and local governments are
not legally permitted to delegate their traditional management responsibilities
for correctional and detention facilities to private companies.
Opposition to Facility Location. The Company's success in opening new
facilities is dependent in part upon its ability to obtain facility sites that
can be leased or acquired on economically favorable terms. Some locations may be
in or near populous areas and, therefore, may generate legal action or other
forms of
6
<PAGE> 9
opposition from residents in areas surrounding a proposed site. Certain
facilities are already located in or adjacent to such areas, and the Company has
been prevented from expanding some of these facilities.
Construction Risks. When the Company is engaged to perform design and
construction services for a facility, the Company typically acts as the primary
contractor and subcontracts with other parties who act as the general
contractors. As primary contractor, the Company is subject to the various risks
of construction including, without limitation, shortages of labor and materials,
work stoppages, labor disputes and weather interference. The Company is also
subject to the risk that the general contractor will be unable to complete
construction at the budgeted costs or be unable to fund any excess construction
costs. Under such contracts, the Company is ultimately liable for all late
delivery penalties and cost overruns.
Contract Duration. The Company's facility management contracts are
typically short term, ranging from one to three years, with renewal or extension
options in favor of the contracting governmental agency. The Company has four
contracts subject to renewal in 1996, and there can be no assurance that these
or any other contract will be renewed. Additionally, the contracting
governmental agency typically may terminate a facility contract without cause by
giving the Company adequate written notice. The Company customarily incurs
significant development and start-up costs in opening new facilities, and the
termination or non-renewal of a contract would require an immediate write-off of
any unamortized costs associated with the contract, and could have a material
adverse effect upon the Company's financial condition and results of operations.
See "Business -- Facility Management Contracts."
Contracts Subject to Governmental Funding. The Company's facility
management contracts are subject to either annual or bi-annual governmental
appropriations. A failure by a governmental agency to receive such
appropriations could result in termination of the contract by such agency or a
reduction of the management fee payable to the Company. In addition, even if
funds are appropriated, delays in payments may occur which could have a material
adverse effect on the Company's financial condition and results of operations.
See "Business -- Facility Management."
Facility Occupancy Levels. The Company is dependent upon governmental
agencies supplying inmates for its facilities. A substantial portion of the
Company's revenues is generated under facilities management contracts that
specify a net rate per day per inmate ("per diem rate"), with no minimum
guaranteed occupancy levels, while most of the Company's facilities' cost
structures are relatively fixed. Under such a per diem rate structure, a
decrease in occupancy levels may have a material adverse effect on the Company's
financial condition and results of operations. See "Business -- Facility
Management Contracts."
Facility Lease Liability. The Company currently leases five of the
facilities that it manages. If a management contract for a leased facility were
terminated, the Company would continue to be obligated to make lease payments
until the lease expires. See "Business -- Facilities."
Impact of Disturbance. An escape, riot or other disturbance at one of the
Company's facilities may have a material adverse effect on the Company's
financial condition and results of operations. As a result of a disturbance at
the Company's Elizabeth, New Jersey facility on June 18, 1995, the facility was
closed and all detainees located therein were moved by the Immigration and
Naturalization Service (the "INS") to public detention facilities. During 1995
the Company recorded charges to operations of $2,609,700, including $416,201 to
write-off the deferred development costs and $2,193,499 to adjust the carrying
value of the related assets. The Company entered into an agreement in December
1995 to sell the assets of the facility to an unaffiliated company that also
manages and operates detention centers. The INS has approved of the sale of the
assets, transfer of the facility lease and management contract, all of which was
completed in June 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Calendar Year 1995 Compared to Calendar
Year 1994." The adverse publicity generated as a result of the 1995 disturbance
could also have a material adverse effect on the Company's ability to obtain
future contracts.
Potential Legal Liability. The Company's management of correctional and
detention facilities exposes it to potential third-party claims or litigation by
prisoners or other persons for personal injury or other damages including
damages arising from a prisoner's escape or from a disturbance or riot at a
Company-managed facility. In addition, the Company's management contracts
generally require the Company to indemnify the
7
<PAGE> 10
governmental agency against any damages to which the governmental agency may be
subject in connection with such claims or litigation. The Company maintains an
insurance program that provides coverage for certain liability risks faced by
the Company, including personal injury, bodily injury, death or property damage
to a third party where the Company is found to be negligent. There can be no
assurance, however, that the Company's insurance will be adequate to cover
potential third-party claims. In addition, the Company is unable to secure
insurance for some unique business risks including, but not limited to, riot and
civil commotion or the acts of an escaped offender. See "Business -- Insurance"
and "Business -- Litigation."
Regulations. The industry in which the Company operates is subject to a
variety of federal, state and local regulations, including education, health
care and safety regulations, which are administered by various regulatory
authorities. The Company's contracts typically include extensive reporting
requirements and supervision and on-site monitoring by representatives of
contracting governmental agencies. Corrections officers are customarily required
to meet certain training standards, and in some instances facility personnel are
required to be licensed and subject to background investigation. Certain
jurisdictions also require the Company to award subcontracts on a competitive
basis or to subcontract with businesses owned by members of minority groups. The
failure to comply with any applicable laws, rules or regulations and the loss of
any required license could have a material adverse effect on the Company's
financial condition and results of operations. Furthermore, current and future
operations of the Company may be subject to additional regulations as a result
of new statutes and regulations and changes in the manner in which existing
statutes and regulations are or may be interpreted or applied. Any such
additional regulations could have a material adverse effect on the Company's
financial condition and results of operations. See "Business -- Regulation."
Competition. The Company competes on the basis of cost, quality and range
of services offered, its experience in managing facilities, the reputation of
its personnel and its ability to design, finance and construct new facilities.
Some of the Company's competitors have greater resources than the Company. There
are few barriers for companies seeking to enter into the management of
correctional or detention facilities. The Company also competes in some markets
with local companies that may have a better understanding of local conditions
and may be better able to gain political and public acceptance. In addition, the
Company Community Corrections division competes with governmental and
not-for-profit entities that are responsible for or contract to operate
community correctional facilities. See "Business -- Competition."
Dependence Upon Executive Officers and Other Key Employees. The continued
success of the Company is dependent to a significant degree upon retaining its
executive officers and the loss or unavailability of any of these officers could
have an adverse effect on the Company. In addition, the private correctional
services industry has a high turnover rate for facility operational employees,
and the Company's ability to retain existing contracts and obtain new contracts
is in part dependent upon its ability to hire and retain operational employees.
See "Management."
8
<PAGE> 11
CAPITALIZATION
The following table sets forth the Company's capitalization as of March 31,
1996 and as adjusted to reflect: (i) the retirement subsequent to March 31, 1996
of $1,332,000 of the principal amount of subordinated notes upon the exercise of
related warrants to purchase 176,947 shares of Common Stock at a purchase price
of $7.75 per share; (ii) the exercise subsequent to March 31, 1996 of options to
purchase 41,763 shares of Common Stock under the Company's stock option plans at
an average exercise price of $5.80 per share; (iii) the sale of the 2,000,000
shares of Common Stock offered by the Company hereby; and (iv) the application
of the estimated net proceeds of $29.7 million therefrom (based on an assumed
offering price of $16.00 per share):
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
------- -----------
(DOLLAR AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Long-term debt, including current portion..................... $ 5,149 --
Subordinated notes(1)......................................... 5,318 3,986
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; none outstanding............................. -- --
Common stock, $.01 par value; 10,000,000 shares authorized;
4,922,468 shares outstanding; 7,141,178 shares as
adjusted................................................. 49 71
Additional paid-in capital.................................. 9,545 40,681
Retained earnings........................................... 484 484
------- -----------
Total stockholders' equity.......................... 10,079 41,237
------- -----------
Total capitalization........................... $20,545 $45,223
======= ===========
</TABLE>
- ---------------
(1) See Note H of Notes to Consolidated Financial Statements included elsewhere
in this Prospectus.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by it hereby are estimated at $29.7 million ($35.2 million
if the Underwriters' over-allotment option is exercised in full) based on an
assumed offering price of $16.00 per share.
Approximately $6,000,000 of the net proceeds will be applied to retire bank
indebtedness, and approximately $3,000,000 will be used to fund the start-up
costs of two 350-bed detention facilities in Florida scheduled to become
operational in the first quarter of 1997. The balance will be added to the
Company's working capital to be available for general corporate purposes,
including the possible funding of construction and ownership costs of privatized
correctional facilities and possible acquisitions. Although the Company from
time to time receives information from various companies concerning potential
acquisition transactions, the Company has not entered into any agreements or
commitments regarding any such transaction, and there can be no assurance that
any such transaction will be entered into. Pending application, the net proceeds
will be invested in short-term investment grade interest-bearing securities
and/or money market funds.
Of the bank indebtedness being repaid with a portion of the net proceeds of
this offering, $4,800,000 bears interest at 8.92%, is repayable in monthly
installments and was incurred to repay indebtedness to another bank. The
remaining balance of $1,200,000 bears interest at a variable rate, currently
8.6%. The total outstanding loan balances are repayable January 15, 1998.
The Company has begun discussions with its primary bank lender to
renegotiate and expand its credit facility. There can be no assurance that such
discussions will result in a renegotiated or expanded credit facility.
9
<PAGE> 12
DIVIDENDS
The Company has not paid any cash dividends on its capital stock and does
not anticipate paying any such dividends in the foreseeable future. The
Company's bank loan agreement precludes the payment of dividends prior to
December 31, 1996. Thereafter, such dividends are limited to ten percent (10.0%)
of the Company's net earnings after taxes provided that the Company is in
compliance with the agreement's financial covenants.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on The Nasdaq National Market under
the symbol "ESMR." The following table sets forth the high and low closing
prices for the calendar quarters indicated from February 2, 1994, the date of
the Company's initial public offering, as reported by the Nasdaq National
Market:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1994:
First Quarter (from February 2)...................................... 10 1/4 6 1/2
Second Quarter....................................................... 10 1/2 7 1/2
Third Quarter........................................................ 10 1/4 8 3/8
Fourth Quarter....................................................... 10 3/4 9 3/8
1995:
First Quarter........................................................ 20 1/4 9 7/8
Second Quarter....................................................... 22 1/2 10 1/2
Third Quarter........................................................ 15 1/2 7
Fourth Quarter....................................................... 13 3/4 7 1/4
1996:
First Quarter........................................................ 13 5/8 8 9/1
Second Quarter (through June 19, 1996)............................... 20 1/8 8 5/8
</TABLE>
On June 19, 1996, the last sale price for the Company's common stock was
$16.00.
On April 17, 1996, there were approximately 2,200 holders of the Company's
Common Stock, including beneficial owners of shares registered in nominee or
street name.
The Company also has Series A Warrants to purchase Common Stock at a
purchase price of $7.75 per share, which trade on The Nasdaq Stock Market under
the symbol "ESMRW." On June 19, 1996, the last sale price for the Series A
Warrants was $9.25. See "Description of Securities -- Warrants."
10
<PAGE> 13
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for the five years
ended December 31, 1995 and as of December 31, 1995 have been derived from the
audited consolidated financial statements of the Company. The statement of
operations data for the three months ended March 31, 1995 and 1996 and the
balance sheet data for March 31, 1996 have been derived from the unaudited
consolidated financial statements of the Company and, in the opinion of
management, include all adjustments (consisting of normal and recurring
adjustments) which are necessary to present fairly the results of operations and
financial position of the Company for the periods and dates presented. The
selected consolidated financial and operating data for the three months ended
March 31, 1996 are not necessarily indicative of the results to be expected for
the full year. The information set forth below is qualified in its entirety by,
and should be read in conjunction with, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements, the Notes thereto, and the other financial and statistical
information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- ------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................... $5,444 $10,322 $14,101 $24,273 $31,552 $8,123 $7,168
Operating expenses............... 3,840 6,292 8,651 14,899 19,732 4,920 4,897
General and administrative
expenses...................... 1,232 2,888 3,579 6,696 9,938 2,315 2,039
New Jersey facility closure
costs(1)...................... -- -- -- -- 2,610 -- --
------ ------- ------- ------- ------- ------ ------
Operating income................. 372 1,142 1,871 2,678 (728) 888 232
Interest expense................. 67 36 31 133 762 98 213
------ ------- ------- ------- ------- ------ ------
Earnings (loss) before income
taxes......................... 305 1,106 1,840 2,545 (1,489) 790 19
Income tax expense
(benefit)(2).................. 35 390 736 1,002 (530) 325 8
------ ------- ------- ------- ------- ------ ------
Net earnings (loss)(2)........... $ 270 $ 716 $ 1,104 $ 1,543 $ (959) $ 465 $ 11
====== ======= ======= ======= ======= ====== ======
Net earnings (loss) per
share(2)...................... $ 0.08 $ 0.22 $ 0.34 $ 0.35 $ (0.21) $ 0.10 $ 0.00
====== ======= ======= ======= ======= ====== ======
Weighted average shares
outstanding................... 3,281 3,281 3,281 4,395 4,553 4,639 4,914
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
------ ------ ------ ------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................... $ (107) $ 269 $ (102) $ 1,356 $ 4,540 $ 187
Total assets............................. 1,961 2,807 4,745 14,518 24,120 24,088
Long-term debt, including current
portion............................... -- -- -- 3,835 5,221 5,149
Subordinated notes....................... -- -- -- -- 5,362 5,318
Total stockholders' equity............... 806 1,081 1,926 7,093 10,002 10,079
</TABLE>
- ---------------
(1) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Calendar Year 1995 Compared to Calendar Year 1994."
(2) Net earnings and net earnings per share for 1991, 1992 and 1993 are shown on
a pro forma basis to reflect income taxes which were not applicable under
the Company's then Subchapter S Corporation status.
11
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Revenues earned under federal, state and local governmental agency
contracts for the management of correctional and detention facilities are the
Company's principal source of income. Certain contracts are based on a fixed per
diem rate per offender, some of which have guaranteed minimum payments; others
provide for fixed monthly rates irrespective of the number of offenders.
The Company pays all costs of operating the managed facilities, except rent
in the case of government-owned facilities. The Company's primary expenses are
categorized as operating, general and administrative, and interest expenses.
Operating expenses consist of payroll and offender-related expenses. Payroll
includes employee salaries, wages and fringe benefits and payroll taxes.
Offender-related expenses consist of food service, medical services, utilities,
supplies and maintenance and repairs. General and administrative expenses
include rent, insurance, professional fees, travel and lodging and depreciation
and amortization.
The Company usually incurs development costs, which may range from $50,000
to $100,000, in responding to a governmental agency RFP. Such costs include
planning and developing the project, preparing the bid proposal, travel and
legal expenses, and incentive compensation for administrative employees. If
management believes the recovery of such costs is probable, the costs are
deferred until the anticipated contract has been awarded, at which time the
deferred costs are amortized on a straight-line basis over the term of the
contract (including option periods). Development costs of unsuccessful or
abandoned bids are expensed. The time period from incurring initial development
costs on a project to the commencement of operations ranges from six to eighteen
months.
After a contract has been awarded, the Company incurs start-up costs from
the date of the award until commencement of operations. Start-up costs include
recruitment, training and travel of personnel and certain legal costs, and are
capitalized until operations commence, at which time such costs are amortized on
a straight-line basis over the term of the contract (including option periods).
From the inception of operations, the Company fully staffs the facility in
accordance with the terms of its contract with the governmental agency. During
the initial period of operations (usually one to four months), an operating loss
may be sustained while the governmental agency assigns, on an incremental basis,
offenders to the facility. Revenues generated during this initial period under
per diem contracts increase as the offender population increases.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
total revenues:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses................................. 61.4 61.4 62.5 60.6 68.3
General and administrative expenses................ 25.4 27.6 31.5 28.5 28.5
New Jersey facility closure costs.................. -- -- 8.3 -- --
----- ----- ----- ----- -----
Operating income................................... 13.3 11.0 (2.3) 10.9 3.2
Interest expense................................... 0.2 0.5 2.4 1.2 3.0
----- ----- ----- ----- -----
Earnings (loss) before income taxes................ 13.1 10.5 (4.7) 9.7 0.2
Income tax expense (benefit)....................... 5.2 4.1 (1.7) 4.0 0.1
----- ----- ----- ----- -----
Net earnings (loss)................................ 7.8% 6.4% (3.0)% 5.7% 0.1%
===== ===== ===== ===== =====
</TABLE>
12
<PAGE> 15
First Quarter 1996 Compared to First Quarter 1995
Revenues decreased 11.8% from $8,123,004 in the first quarter of 1995 to
$7,167,752 in the first quarter of 1996 due principally to the closure of the
Company's Elizabeth, New Jersey facility in June 1995. This decrease was offset,
in part, by revenues generated by the Company's Canadian, Texas and Bartow,
Florida facilities, which commenced operations in April and July 1995,
respectively, and contractual increases in per diem rates.
Operating expenses decreased from $4,920,017 in the first quarter of 1995
to $4,897,231 in the first quarter of 1996, but increased as a percentage of
revenues, from 60.6% in the first quarter of 1995 to 68.3% in the first quarter
of 1996. The decrease in operating expenses resulting from the discontinuance of
operations at the Company's Elizabeth, New Jersey facility was offset by an
increase in operating expenses at the Company's Canadian, Texas and Bartow,
Florida facilities, which became operational in April and July 1995, and by
additional operating expenses due to increased staffing at the corporate level.
General and administrative expenses decreased by 11.9% from $2,315,030 in
the first quarter of 1995 to $2,038,660 in the first quarter of 1996,
attributable primarily to the closure of the Elizabeth, New Jersey facility in
June 1995, but remained relatively constant as a percentage of revenues as a
result of the decline in 1996 revenues resulting from the June, 1995 closure.
Calendar Year 1995 Compared to Calendar Year 1994
Revenues increased 30.0% from $24,272,989 in 1994 to $31,552,152 in 1995,
principally attributable to the revenues produced from the Company's Elizabeth,
New Jersey facility, the Ft. Worth, Texas facility and the Travis County, Texas
facility, whose operations commenced in September and October 1994. In addition,
on July 1, 1995, operations began at the Bartow, Florida facility pursuant to a
contract with the Florida Department of Juvenile Justice. Increases in 1995
revenues also resulted from contractual increases in per diem rates.
Operating expenses increased $4,832,605, or 32.4%, from $14,899,192 in 1994
to $19,731,797 in 1995 primarily due to increases in payroll and resident
expenses, which increased $3,862,117, or 36.2%, and $970,487, or 22.9%,
respectively. The increases in payroll and resident expenses resulted
principally from the opening in late 1994 of the facilities noted above and the
addition of management personnel in the corporate office. Payroll expenses
accounted for 43.9% and 46.0% of total revenues in 1994 and 1995, respectively.
As a percentage of total revenues, operating expenses were 61.4% and 62.5%,
respectively, in 1994 and 1995.
General and administrative expenses increased from $6,695,599 in 1994 to
$9,938,344 in 1995, an increase of $3,242,745, or 48.4%, attributable to
expenses associated with operations of the Elizabeth, New Jersey facility from
January 1 to June 18, 1995 (when the facility was closed) and to expenses
associated with the Ft. Worth and Travis facilities for a full year and to the
Bartow facility since July 1, 1995. As a percentage of revenues, general and
administrative expenses were 27.6% and 31.5% for 1994 and 1995, respectively.
Due to a disturbance at the Company's Elizabeth, New Jersey facility on
June 18, 1995, the facility was closed and all detainees located therein were
moved by the INS to public detention facilities. The INS has extended the time
it has to exercise its renewal option under the contract (the "INS Contract") in
anticipation of the assumption of the INS Contract by another operating company.
To date, the INS has not exercised its renewal option.
On December 15, 1995, the Company entered into an agreement (the "Purchase
Contract") with an unrelated company which also operates and manages corrections
and detention facilities, pursuant to which the Company agreed to sell the
equipment, inventory and supplies, contract rights and records, and leasehold
and land improvements (the "Assets") of the Elizabeth, New Jersey facility. The
purchase price for the Assets is the lesser of (a) $123,000 multiplied by the
number of months remaining on the INS Contract upon commencement of service
under the INS Contract by the buyer; or (b) $6,223,000. The purchase price is
payable in equal monthly installments of $123,000 beginning upon commencement of
operations by the buyer under the INS Contract and ending August 1, 1999.
Pursuant to a subsequent contract amendment, the remaining balance due after
August 1, 1999, is payable in the same monthly installments during the renewal
13
<PAGE> 16
period, if any, of, the INS Contact. The closing of the agreement was
conditioned upon the execution of a novation agreement by the INS, pursuant to
which the buyer would become the Company's successor in interest to the INS
Contract. On June 13, 1996, after the contract conditions were satisfied, the
sale transaction was completed. There can, however, be no assurance that the INS
Contract will be extended beyond August 1, 1999.
As of December 31, 1995 the Company recorded charges to operations of
$2,609,700, which represents $416,201 for the write-off of deferred development
costs related to the Elizabeth, New Jersey facility and $2,193,499 resulting
from the adjustment of the carrying value of the Assets. If the INS Contract is
not renewed in 1999, a further charge of approximately $1,430,000 may be
incurred in order to write-off the remainder of the Purchase Contract
receivable.
Interest expense increased $628,387 from $133,315 in 1994 to $761,702 in
1995, as a result of additional borrowings in 1995, incurred primarily to fund
development and start-up costs and fixed asset acquisitions for the Phoenix,
Arizona facility.
The provision for income taxes aggregated $1,002,000 in 1994 as compared to
an income tax benefit of $530,000 in 1995. The effective tax rate was 39.4% in
1994 and 35.6% in 1995.
The Company had a net loss of $959,391 for 1995 compared to net income of
$1,542,883 for 1994, principally as a result of the closure of the Company's New
Jersey INS facility.
Calendar Year 1994 Compared to Calendar Year 1993
Revenues increased 72.1% from $14,101,194 in 1993 to $24,272,989 in 1994.
The commencement of operations in December 1993 of the Company's south Texas
Intermediate Sanction Facility in Houston, Texas, operated for the Texas
Department of Criminal Justice, Pardons and Paroles Division and the
commencement of full scale operations in September 1994 of the Company's
Immigration and Naturalization service facility in Elizabeth, New Jersey were
the primary reasons for the increase in revenue. Operations also commenced at
the Company's Fort Worth, Texas and Travis County, Texas facilities on October
1, 1994.
Operating expenses increased $6,247,917, or 72.2%, from $8,651,275 in 1993
to $14,899,192 in 1994 primarily due to increases in payroll and resident
expenses. Payroll expenses increased $4,321,132, or 68.0%, and resident expenses
increased $1,926,786, or 83.0%, for 1994 as compared to 1993. The increases in
payroll and resident expenses resulted from the opening of the facilities noted
above. Payroll expenses accounted for 49.1% and 51.6% of total expenses for the
years ended December 31, 1994 and 1993, respectively. Resident expenses
accounted for 19.5% and 18.9% of total expenses in 1994 and 1993, respectively.
As a percentage of revenues, operating expenses were 61.4% in each of the years
ended December 31, 1993 and 1994.
General and administrative expenses for the years ended December 31, 1993
and 1994 were $3,578,738 and $6,695,599, respectively, an increase of $3,116,861
or 87.1%. The opening of the above-noted facilities accounted for a significant
portion of the increase in general and administrative expenses. As a percentage
of revenues, general and administrative expenses were 25.4% and 27.6% for the
years ended December 31, 1993 and 1994, respectively. The 1994 increase was
attributable primarily to depreciation and amortization costs associated with
the construction of the Company's New Jersey facility and related development
and start-up costs and the write-off of deferred loan costs of $111,854.
Interest expense increased $102,529 from $30,786 in 1993 to $133,315 in
1994, as a result of higher interest rates in 1994 and additional borrowings.
The provision for income taxes increased $266,000, or 36.1%, from $736,000
in 1993 to $1,002,000 in 1994. The effective tax rate was 40.0% in 1993 and
39.4% in 1994.
As a result of the forgoing factors, net earnings increased $438,488, or
39.7%, from $1,104,395 in 1993 to $1,542,883 in 1994.
14
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations through investments by
stockholders, cash generated from operations and bank loans.
The Company's working capital at March 31, 1996 was $187,436, a decline of
$4,352,660, from the Company's working capital at December 31, 1995, principally
attributable to funds used for construction of the Company's Phoenix, Arizona
facility, which opened April 11, 1996. During the three months ended March 31,
1996, the Company incurred fixed asset acquisition costs of $3,763,144, the
majority of which related to the Company's Phoenix, Arizona facility, and
expended $584,889 in additional deferred development and start-up costs. The
Company's current ratio declined to 1.04 to 1 at March 31, 1996 from 1.95 to 1
at December 31, 1995.
Net cash provided by operating activities was $3,226,138 in 1995 as
compared to net cash used in operating activities of $202,197 in 1994. The
increase in cash provided by operations resulted from the substantial add-back
of depreciation, amortization and write-down of fixed asset and deferred
development costs, net of deferred taxes (principally associated with the
Elizabeth, New Jersey facility), and from the substantial reduction in accounts
receivable and the increase in accounts payable and accrued liabilities.
Net cash of $8,684,961 was used in investing activities in 1995 compared to
$8,095,533 in 1994. During 1995, the Company incurred fixed asset acquisition
costs of $6,110,693, of which approximately $5,600,000 related to the building
of the Canadian, Texas facility and to the purchase and initial renovation costs
of the Phoenix, Arizona facility. The Company expended $1,824,268 in deferred
development and start-up costs during the year ended December 31, 1995. Such
costs related principally to the Phoenix, Arizona facility (which commenced
operations on April 11, 1996) and the Pahokee and Polk County, Florida contract
awards.
Net cash of $8,907,125 was provided by financing activities in 1995
compared to $7,915,150 in 1994. The principal source of such funds in 1995 was
the Company's private placement offering of subordinated debt and equity
securities.
FINANCING
Effective December 31, 1995, the Company entered into an $11,000,000
Revolving Credit and Term Loan Agreement (the "Loan Agreement") with
NationsBank, N.A. ("NationsBank"). Pursuant to the terms of the Loan Agreement,
the Company, from time to time, may borrow up to the lesser of $6,000,000 or
85.0% of the Company's eligible accounts receivable. Loan proceeds are to be
used for working capital, including deferred development and start-up costs in
connection with new or existing facilities. Interest on the revolving credit
loan is computed, at the Company's option, at either NationsBank prime rate plus
0.75% or the London International Bank Rate plus 3.35%. Under the Loan
Agreement, NationsBank also made a term loan to the Company in the principal
amount of $5,000,000, which was applied to repay the Company's indebtedness of
$5,002,869 to another bank. The term loan bears interest at 8.92% and is
repayable in monthly installments of $83,330 until January 15, 1998, at which
time the Loan Agreement terminates and any remaining unpaid balances are due and
payable. After September 30, 1996, the interest rate payable under the revolving
credit loan will be based on the Company's financial performance set forth in
the Loan Agreement. The Company may prepay any borrowings without interest or
penalty. The Company has granted NationsBank a first priority security interest
in all of its assets, including a first real estate mortgage on the land and
building of the Phoenix, Arizona facility. The Company is required to pay
NationsBank 0.25% of the average unused portion of the revolving credit loan.
The Company was not in compliance with its debt service coverage ratio as of
March 31, 1996. NationsBank has agreed to waive this covenant for March 31,
1996, and amend the debt service coverage ratio covenant under the Loan
Agreement.
During the year ended December 31, 1995, the Company completed a private
placement of 5,676.6 units at $1,000 per unit, each unit consisting of (i) a ten
percent (10.0%) subordinated promissory note due July 1, 1998 in the principal
amount of $1,000; and (ii) four-year warrants to purchase 154 shares of Common
Stock at $7.75 per share. The Company received gross proceeds of $5,676,600 from
the sale of the units, of which $365,000 was attributed to the value of the
warrants. During such period, the Company also completed the
15
<PAGE> 18
private placement of 496,807 shares of Common Stock at $7.75 per share,
receiving gross proceeds of $3,850,254. Approximately $8,500,000 of the proceeds
of the two placements was used to finance costs associated with the Company's
Phoenix, Arizona facility and the balance for expenses related to the private
placements and for working capital.
INFLATION
Inflation has not affected the Company's results of operations. Certain
multi-year contracts have built-in fixed price adjustments in succeeding years
which take into account increases in various type of expenses (i.e., payroll and
related expenses, rent, insurance).
IMPACT OF NEW ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock Based Compensation." With respect to stock options
granted to employees, SFAS No. 123 permits companies to continue using the
accounting method promulgated by the Accounting Principles Board Opinion No. 25
("APB No. 25"), "Accounting for Stock Issued to Employees," to measure
compensation or to adopt the fair value based method prescribed by SFAS No. 123.
If APB No. 25's method is continued, pro forma disclosures are required as if
SFAS No. 123 accounting provisions were followed. Management has determined not
to adopt SFAS No. 123's accounting recognition provisions related to stock
options granted to employees and accordingly, will continue following APB No.
25's accounting provisions. See Note A of Notes to Consolidated Financial
Statements.
16
<PAGE> 19
BUSINESS
The Company is a leading developer and manager of privatized correctional
and detention facilities in the United States. Through its three divisions,
Adult, Juvenile/Youthful Offender and Community Corrections, the Company
provides a diverse range of services to local, state, and federal governmental
agencies. The Company currently has agreements to operate 14 correctional and
detention facilities in New York, Florida, Arizona, Texas and the State of
Washington. Twelve of these facilities, with a total of 2,005 beds, are
currently in operation, and two, with a total of 700 beds, are scheduled to
become operational in the first quarter of 1997. The Company is also
aggressively pursuing other privatized correctional projects both at the RFP
stage and in the pre-RFP development stage.
The Company manages both secure and non-secure facilities. Secure
facilities include a detention and processing center for illegal aliens, an
adult prison, intermediate sanction facilities, DWI facilities, and military
style boot camps for juvenile/youthful offenders. Non-secure facilities include
residential programs, such as community correctional facilities for federal and
state offenders serving the last six months of their sentences, and
non-residential supervision programs.
In addition to providing fundamental residential services for adult and
juvenile inmates, the Company has developed a broad range of programs intended
to reduce recidivism, including basic and special education, substance abuse
treatment and counseling, vocational training, life skills training, and
behavioral modification counseling. The Company offers governmental agencies
management services ranging from project consulting to the design, development
and management of new correctional and detention facilities and the redesign,
renovation and management of older facilities. The Company believes that its
proven ability to operate the full spectrum of correctional facilities and its
wide variety of programs and services will increase its marketing opportunities.
MARKET FOR THE COMPANY'S SERVICES
The continuing pressure to control costs and address increasing inmate
populations has generated strong growth in the privatization of correctional
services. According to the Private Corrections Project Center for Studies in
Criminology and Law, University of Florida, the rated capacity of international
privatized adult secure correctional facilities grew from 2,620 beds in 1986 to
63,595 beds at year-end 1995, and is projected to grow to 197,503 beds by
year-end 2000. This projection does not include any projected growth for
privatized juvenile/youthful offender and community correctional facilities,
both of which, the Company believes, are also growing rapidly. According to the
United States Department of Justice, Office of Juvenile Justice and Delinquency
Prevention, between 1988 and 1994 juvenile arrests for violent crimes grew by
more than 50%.
The Company believes the growth in demand for privatized correctional and
detention facilities is being fueled by a number of factors. First, the United
States continues to experience a shortage of correctional beds. According to the
United States Department of Justice, Bureau of Justice Statistics, the number of
adult inmates housed in federal and state facilities increased from 487,593 at
December 31, 1985, to 1,104,074 at June 30, 1995. Second, inmates convicted of
violent crimes generally serve only one-third of their sentences, and the public
is demanding that a longer portion of their sentences be served. Third, courts
and various governmental agencies are requiring overcrowded conditions to be
remedied, outdated facilities to be replaced, and services to be expanded. As a
result of increasing fiscal pressures, many governmental agencies are turning to
the private sector to deliver cost-effective correctional services to address
these needs.
BUSINESS STRATEGY
The Company's business strategy is to enhance its position as a leading
developer and manager of a diverse range of quality privatized correctional and
detention facilities, and to expand its operations, both internally and through
acquisitions, in order to capitalize on current growth trends in the industry.
Key elements of the Company's strategy are as follows:
Maintaining Quality Facility Operations. The Company recognizes the
importance of maintaining high quality management and operations at its
facilities. The Company seeks to operate all its facilities in
17
<PAGE> 20
accordance with the guidelines of the American Correctional Association
("ACA"), and uses compliance audit teams to rigorously examine all aspects
of the Company's facilities and operations. The Company's senior level
ethics and compliance officer, who reports directly to the President and
Board of Directors, provides additional oversight and monitoring of
facility operations. The Company also promotes quality performance by its
facility administrators and management teams and holds Company-wide
conferences for facility administrators to exchange information and enhance
performance at all its facilities. The Company encourages tours of its
facilities for governmental representatives as it believes the quality of
its operations can be best demonstrated through on-site visits.
Capitalizing on Diversity of Services. The diversified correctional
services provided by the Company include housing adult inmates or detained
persons in secure facilities, providing non-secure residential and
management services in community corrections facilities and managing and
operating juvenile/youthful offender facilities, both secure and
non-secure, including military-style boot camps. The Company believes that
its proven ability to manage the full spectrum of privatized correctional
facilities will increase its marketing opportunities and will be beneficial
where particular governmental policies favor certain types of programs or
services over others.
Enhancing Proven Programs. In awarding management contracts,
contracting governmental agencies frequently give significant weight to the
potential effectiveness of the programs to be provided by the bidder. The
Company's programs include basic and special education, substance abuse
treatment and counseling, vocational training, job placement, life skills
training and behavioral modification counseling, all of which are intended
to reduce recidivism. The Company's staff of professionals seek to
continually enhance and improve these programs, monitor resident offender
performance and develop new programs to address perceived needs.
Developing New Business Opportunities. The growing demand for
privatized correctional facilities at all levels of government has enabled
the Company to pursue more projects meeting its criteria. The Company
pursues projects based on the probability of success, geographic location,
size, potential profitability, and political and community acceptability.
This approach is intended to optimize resource allocation, profitability
and financial return. The Company currently owns a correctional facility in
Arizona, and has used its capital to renovate and improve other facilities
it operates. The Company believes that its willingness to commit its
capital to facility ownership and renovation enhances its growth
opportunities.
Strategic Acquisitions. Historically, the Company's growth has been
generated internally, primarily through the competitive bid process.
However, the Company continues to evaluate strategic acquisitions,
particularly where an acquisition would enhance the Company's capabilities
or add to the services it offers. At present, the Company has not entered
into any agreements or commitments for an acquisition.
DIVISIONAL STRUCTURE
In January 1996, the Company organized its operations into three divisions,
Adult, Juvenile/Youthful Offender and Community Corrections.
Adult. The Adult Division has 1,216 beds under contract in five
secure facilities located in Seattle, Washington; Houston, Del Valle and
Mansfield, Texas; and Phoenix, Arizona. In addition to providing housing
for adult inmates, the Company provides a variety of rehabilitation and
educational services intended to reduce recidivism. The Company also
provides health care, transportation, food services and work and
recreational programs for adult inmates.
Juvenile/Youthful Offender. The Juvenile/Youthful Offender Division
has 984 beds under contract in six facilities located in Bartow, Polk City
and Pahokee, Florida; and Canadian, Mansfield and Cleburne, Texas, for
convicted youths aged 13 to 24. The Polk City and Pahokee facilities are
scheduled to open in the first quarter of 1997. The Company manages secure
and non-secure juvenile/youthful offender facilities for low, medium, and
high risk youths in highly structured programs, including military style
boot camps, wilderness programs, secure education and training centers, and
detention facilities.
18
<PAGE> 21
The Company believes that these programs, by instilling the qualities of
self-respect, respect for others and their property, personal
responsibility and family values, can help reduce the recidivism rate of
its program participants.
Community Corrections. The Community Corrections Division has 505
beds under contract in three facilities, located in Brooklyn and Manhattan,
New York; and Ft. Worth, Texas. These are non-secure residential facilities
for adult male and female offenders transitioning from institutional to
independent living. Offenders are eligible for these programs based upon
the type of offense committed and offender behavior while incarcerated in
prison. If qualified, offenders may generally spend the last six months of
their sentence in a community corrections program, whose mission is to
reduce the likelihood of an inmate committing an offense after release by
assisting in the reunification process with family and the community.
Normally, in order to remain in the program, offenders must be employed,
participate in substance abuse programs, submit to frequent random drug
testing, and pay a predetermined percentage of their earnings to the
government to offset the cost of the program. The Company supervises these
activities and also provides life skills training, case management, home
confinement supervision and family reunification programs at these
facilities. The Company believes that community correction facilities help
reduce recidivism, result in prison beds being available for more violent
offenders and, in appropriate cases, represent cost-effective alternatives
to prisons.
FACILITY MANAGEMENT CONTRACTS
Each facility is managed under an agreement with a federal, state or local
corrections agency which provides for fixed per diem payments to the Company for
each offender assigned to the facility or a fixed monthly payment irrespective
of the number of offenders so assigned. Some contracts also provide for minimum
revenue guarantees to the Company. As is standard in the industry, the Company's
contracts are short-term, generally one to three years, and contain multiple
renewal options in favor of the contracting governmental agency. The exercise of
the renewal option by the governmental agency is discretionary, and is
contingent upon appropriation of funds. If funds are not appropriated, the
contract may be terminated by the governmental agency, the per diem rate payable
to the Company may be reduced or delays in payment may occur. The contracts also
generally contain "termination for the convenience of the government" and "stop
work order" clauses which allow the agency to terminate a contract without cause
or financial penalty to the government. Termination or non-renewal could have a
material adverse effect on the Company's financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation -- Calendar Year 1995 Compared to Calendar Year 1994."
CONTRACT AWARD PROCESS
Most governmental procurement and purchasing activities are controlled by
procurement regulations, and take the form of RFPs, and most of the Company's
new business results from responding to these requests. Interested parties
submit proposals in response to an RFP within a time period of 15 to 120 days
from the time the RFP is issued. A typical RFP requires a bidder to provide
detailed information, including the services to be provided by the bidder, the
bidder's experience and qualifications and the price at which the bidder is
willing to provide the services. Such services may include the renovation,
improvement or expansion of an existing facility or the planning, design and
construction of a new facility. The Company engages independent consultants to
assist it in responding to RFPs. Approximately six to eighteen months is
generally required from the issuance of the RFP to the contract award. In some
cases, the Company has been asked to assist governmental agencies in developing
their RFPs.
Before responding to an RFP, the Company researches and evaluates, among
other factors: (i) the current size and growth projections of the available
correctional and detention population; (ii) whether or not a minimum capacity
level is guaranteed; (iii) the willingness of the contracting authority to allow
the Company to house populations of similar classification within the proposed
facility for other governmental agencies; and (iv) the willingness of the
contracting authority to allow the Company to make adjustments in operating
activities, such as work force reductions, in the event the actual population is
less than the designed capacity.
19
<PAGE> 22
Under the RFP, the bidder may be required to design and construct a new
facility or to redesign and renovate an existing facility at its own cost. In
such event, the Company's ability to obtain the contract award is dependent on
its ability to obtain the necessary financing or fund such costs internally.
In addition to issuing formal RFPs, governmental agencies may use a
procedure known as Purchase of Services or Requests for Qualification ("RFQ").
In the case of an RFQ, the requesting agency selects a firm it believes is most
qualified to provide the necessary services and then negotiates the terms of the
contract, including the price at which the services are to be provided.
OPERATIONS
The Company is responsible for the overall operation of each facility under
its management, including staff recruitment, general administration of the
facility, security of inmates and employees, supervision of the offenders and
facility maintenance. The Company, either directly or through subcontractors,
also provides health care (including medical, dental and psychiatric services)
and food service. Certain facilities also offer special rehabilitation and
educational programs, such as academic or vocational education, job and life
skills training, counseling, substance abuse programs, and work and recreational
programs.
The Company's contracts generally require the Company to operate each
facility in accordance with the standards and guidelines of the American
Correctional Association and all applicable local, state and federal laws, rules
and regulations. The ACA is an independent organization, comprised of
professionals in the corrections industry, which establishes guidelines and
standards by which an adult correctional institution may gain accreditation. The
Company believes that the ACA, which currently only recommends operating
guidelines, but does not accredit juvenile correction facilities, will
ultimately provide for accreditation of these kinds of facilities. The ACA
standards, designed to safeguard the life, health and safety of offenders and
personnel, describe specific objectives with respect to administration,
personnel and staff training, security, medical and health care, food service,
inmate supervision and physical plant requirements. The Company believes the
benefits of operating its facilities in accordance with ACA standards include
improved management, better defense against lawsuits by offenders alleging
violations of civil rights, a more humane environment for personnel and
offenders and measurable criteria for upgrading programs, personnel and the
physical plant on a continuous basis. The Company's Seattle INS Detention Center
and Tarrant County Community Correctional Facility are fully accredited by the
ACA, and certain other facilities currently are being reviewed for
accreditation. The Company's goal is to obtain and maintain ACA accreditation
for all of its facilities.
EMPLOYEE TRAINING
All jurisdictions require corrections officers to complete a specified
amount of training prior to employment. In most cases, Company employees must
undergo at least 160 hours of training before being allowed to work in a
position that will bring them in contact with offenders or detainees. This
training consists of approximately 40 hours relating to Company policies,
operational procedures and management philosophy, and 120 hours relating to
legal issues, rights of offenders and detainees, techniques of communication and
supervision, improvement of interpersonal skills and job training relating to
the specific tasks to be performed. Each Company employee having contact with
offenders receives a minimum 40 hours of additional training each year, and each
management employee receives a minimum 24 hours of training each year.
FACILITIES
The Company operates both pre-disposition and post-disposition secure and
non-secure correctional and detention facilities, and non-secure community
corrections facilities for federal, state and local correctional agencies.
Pre-disposition secure detention facilities provide secure residential detention
for individuals awaiting trial and/or the outcome of judicial proceedings, and
for illegal aliens awaiting deportation or the disposition of deportation
hearings. Post-disposition secure facilities provide secure incarceration for
individuals who have been found guilty of a crime by a court of law. The Company
operates three types of post-disposition facilities: secure prisons,
intermediate sanction facilities and military-style boot camps. Secure
20
<PAGE> 23
prisons and intermediate sanction facilities provide secure correctional
services for individuals who have been found guilty of one or more offenses.
Offenders placed in intermediate sanction facilities are typically persons who
have committed a technical violation of their parole conditions, but whose
offense history or current offense does not warrant using a prison bed. Both
types of facilities offer vocational training, substance abuse treatment and
offense specific treatment. Boot camps provide intensely structured and
regimented residential correctional services which emphasize disciplined
activities modeled after the training principles of military boot camps. These
facilities stress physical challenges, fitness, discipline and personal
appearance. Generally, these facilities limit participants to offenders between
the ages of 17 and 25.
The Company also operates non-secure residential and non-residential
community corrections programs. Residential facilities, which are also known as
half-way houses, provide residential correctional services for offenders in need
of less supervision and monitoring than otherwise provided in a secure
environment. Offenders in community corrections facilities are typically allowed
to leave the facility to work in the immediate community and/or participate in
community based educational and vocational training programs during daytime
hours. Generally, persons in this kind of facility are serving the last six
months of their sentence. Non-residential services permit the offender to reside
at home or in some other approved setting under supervision and monitoring by
the Company. Supervision may take the form of either requiring the offender to
report to a correctional facility a specified number of times each week and/or
having Company employees monitor the offender on a case management basis at
his/her work site and home.
The following information is provided with respect to the facilities
operated by the Company:
<TABLE>
<CAPTION>
NUMBER OF CONTRACTING OWNED,
FACILITY NAME, LOCATION AND CONTRACTED GOVERNMENTAL LEASED OR
YEAR OPERATIONS COMMENCED BEDS(1) TYPE OF FACILITY AGENCY MANAGED(2)
- -------------------------------------------------------- ---------------- ------------ ----------
<S> <C> <C> <C> <C>
ADULT DIVISION
Seattle INS Detention Center 150 Secure INS Managed
Seattle, Washington (1989) Detention
Facility
South Texas Intermediate Sanction Facility 400 Secure State Managed
Houston, Texas (1993) Intermediate
Sanction
Facility
Tarrant County Community Correctional Facility 190 Secure County Managed
Mansfield, Texas (1992) Intermediate
Sanction
Facility
Travis County Substance Abuse Treatment 76 Secure County Managed
Facility Intermediate
Del Valle, Texas (1994) Sanction
Facility
Arizona State Prison, Phoenix West 400 State Prison State Owned
Phoenix, Arizona (1996)
JUVENILE/YOUTHFUL OFFENDER DIVISION
Hemphill County Juvenile Facility 60 Secure Boot Camp County Leased
Canadian, Texas (1995) Facility
Bartow Youth Training Center 74 Secure and State Managed
Bartow, Florida (1995) Residential
Correctional
Facility
Johnson County Juvenile Detention Facility 30 Secure Detention County Managed
Cleburne, Texas (1996)(3) Facility
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
NUMBER OF CONTRACTING OWNED,
FACILITY NAME, LOCATION AND CONTRACTED GOVERNMENTAL LEASED OR
YEAR OPERATIONS COMMENCED BEDS(1) TYPE OF FACILITY AGENCY MANAGED(2)
- -------------------------------------------------------- ---------------- ------------ ----------
<S> <C> <C> <C> <C>
JUVENILE/YOUTHFUL OFFENDER DIVISION (CONTINUED)
Pahokee Correctional Facility 350 Secure State Managed
Pahokee, Florida (est. 1997) Correctional
Facility
Polk County Correctional Facility 350 Secure State Managed
Polk City, Florida (est. 1997) Correctional
Facility
Tarrant County Community Correctional Center 120 Secure Boot Camp County Managed
Mansfield, Texas (1992) Facility
COMMUNITY CORRECTIONS DIVISION
Brooklyn Community Corrections Center 95 Residential Federal Leased
Brooklyn, New York (1989) Correctional Bureau of
Facility Prisons
Manhattan Community Corrections Center 60 Residential Federal Leased
New York, New York (1990) Correctional Bureau of
Facility Prisons
New York State Community Corrections Center 150 Residential State Leased
Brooklyn/New York, New York (1992) Correctional
Facility
Fort Worth Community Corrections Center 200 Residential State Leased
Forth Worth, Texas (1994) Correctional
Facility
</TABLE>
- ---------------
(1) The number of contracted beds is not necessarily a guaranteed minimum or
maximum, but rather an estimate of the number of offenders expected to be
sent to such facility by the contracting agency. All of the Company's
facilities have adequate capacity for all offenders placed in such
facilities. See "Prospectus Summary -- Summary Consolidated Financial and
Other Data" regarding average occupancy rates at the facilities.
(2) A managed facility is a facility for which the Company provides management
services pursuant to a management contract with the applicable governmental
agency but, unlike a leased or owned facility, the Company has no property
interest in the facility.
(3) This facility is being closed by the Company effective June 30, 1996.
COMPETITION
The business in which the Company engages is highly competitive, with few
barriers to entry. The Company's competitors include local companies with
significant local relationships and knowledge of local conditions, as well as
companies that manage and operate facilities in many states and abroad, with
financial resources substantially greater than the Company's. The Company's
community corrections division also competes with not-for-profit entities.
The Company competes on the basis of the cost, quality and range of
services offered, its experience in managing facilities, the reputation of its
personnel, and its ability to design, finance and construct new facilities. The
Company also attempts to achieve a competitive advantage by seeking additional
contracts from governmental agencies with which it has existing contractual
relationships and by identifying and marketing its services to correctional
agencies that have no previous experience with privatization services.
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<PAGE> 25
EMPLOYEES
At May 31, 1996, the Company had approximately 695 full-time employees,
consisting of clerical and administrative personnel, security personnel, food
service personnel and facility administrators. None of the Company's employees
is subject to a collective bargaining agreement. The Company believes its
relationship with its employees is good.
Each of the Company's facilities is managed as a separate entity by an
experienced facility administrator. Other facility personnel include
administrative, security, medical, food service, counseling, classification and
educational and vocational training personnel. The Company conducts background
screening checks and drug testing on potential facility employees. Some of the
services rendered at certain facilities, such as medical services and education
or training, are provided by third-party contractors.
INSURANCE
Each management contract with a governmental agency requires the Company to
maintain certain levels of insurance coverage for general liability, worker's
compensation, vehicle liability and property loss or damage and to indemnify the
contracting agency for claims and costs arising out of the Company's operations.
The Company maintains general liability insurance in the amount of $5,000,000
and an umbrella policy in the amount of $20,000,000 for itself and each of its
subsidiaries. There can be no assurance that the aggregate amount and kinds of
the Company's insurance are adequate to cover all risks it may incur or that
insurance will be available in the future. In addition, the Company is unable to
secure insurance for some unique business risks including, but not limited to,
riot and civil commotion or the acts of an escaped offender.
REGULATION
The industry in which the Company operates is subject to federal, state and
local regulations which are administered by a variety of regulatory authorities.
Generally, providers of correctional services must comply with a variety of
applicable state and local regulations, including education, health care and
safety regulations. Management contacts frequently include extensive reporting
requirements. In addition, many state and local governments are required to
follow competitive bidding procedures before awarding a contract. Certain
jurisdictions may also require the successful bidder to award subcontracts on a
competitive bid basis and to subcontract to varying degrees with businesses
owned by women or minorities.
The Company's failure to comply with any applicable laws, rules or
regulations or the loss of any required license could have a material adverse
effect on the Company's financial condition and results of operations. Further,
the current and future operations of the Company may be subject to additional
regulations as a result of new statutes and regulations and changes in the
manner in which existing statutes and regulations are or may be interpreted or
applied. Any such additional regulations could have a material adverse effect on
the Company's financial condition and results of operations.
LEGAL PROCEEDINGS
The nature of the Company's business results in numerous claims or
litigation against the Company for damages arising from the conduct of its
employees or others. A former employee of the Company filed suit in the United
States District Court, Southern District of New York in May 1993, claiming he
was intentionally assaulted by employees of the Company and claiming $5,000,000
in damages on each of six causes of action. The Company believes such claims to
be without merit and is vigorously defending this action.
In March 1996, former inmates at one of the Company's facilities filed an
action in the Supreme Court of the State of New York, County of Bronx on behalf
of themselves and others similarly situated, alleging personal injuries and
property damage purportedly caused by negligence and intentional acts of the
Company and claiming $500,000,000 each for compensatory and punitive damages. At
the Company's request, the action was transferred to the United States District
Court, Southern District of New York, in April 1996. The Company believes such
claims to be without merit and will vigorously defend this action.
23
<PAGE> 26
In January 1996, a lawsuit was filed with the Supreme Court of New York,
Kings County, relating to claims by a former Esmor employee of sexual harassment
and discrimination, physical assault, rape and negligent screening of employees.
Total damages sought by plaintiff amount to $4,000,000 plus attorney fees. The
Company believes such claims to be without merit and intends to vigorously
defend itself in this action.
The Company believes the outcome of all current legal proceedings to which
it is a party will not have a material adverse effect upon its results of
operations or financial condition. However, there is an inherent risk in any
litigation and a decision adverse to the Company could be rendered.
OFFICES
The Company leases approximately 6,400 square feet of executive office
space located at 1819 Main Street, Sarasota, Florida from an unaffiliated party
at a base monthly rental of approximately $8,300 with an increase of
approximately $530 per month on each October 1 through the expiration of the
lease on September 30, 2000. The lease does not contain any renewal options. The
Company leases an office at 9603 Gayton Road, Richmond, Virginia from an
unaffiliated party at a current base monthly rental of $1,661, increasing five
percent (5%) per year during the term ending May 31, 1998. The Company also
leases an office at 276 Fifth Avenue, New York, New York from an unaffiliated
party at a monthly rental of $2,231, expiring October 31, 1998.
The Company believes that all of its properties are well maintained and in
good repair and are adequate for the purpose for which they are maintained. For
information with respect to correctional facilities owned, leased or managed by
the Company, see "Business -- Facilities."
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<PAGE> 27
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table lists the executive officers and directors of the
Company, together with their respective ages and offices:(1)
<TABLE>
<CAPTION>
NAME AGE OFFICE
- --------------------------------- --- --------------------------------------------
<S> <C> <C>
James F. Slattery................ 46 Chairman, President, Chief Executive Officer
and Director
Michael C. Garretson............. 50 Executive Vice President and Chief Operating
Officer
Aaron Speisman................... 48 Executive Vice President, Secretary and
Director
Ira M. Cotler.................... 33 Executive Vice President-Finance
Richard P. Staley................ 64 Senior Vice President and Director
Lee Levinson..................... 53 Chief Financial Officer
Melvin T. Stith(2)............... 49 Director
Raymond S. Evans(2).............. 59 Director
Stuart M. Gerson(2).............. 52 Director
Shimmie Horn..................... 23 Director
</TABLE>
- ---------------
(1) See information below with respect to recent resignations of certain
officers and directors.
(2) Member of Audit, Compensation and Stock Option Committees.
JAMES F. SLATTERY co-founded the Company in October 1987 and has been its
Chairman since August 1984 and President, Chief Executive Officer and a director
since the Company's inception. Prior to co-founding the Company, Mr. Slattery
had been a managing partner of Merco Properties, Inc., a hotel operation
company, and Vice President of Coastal Investment Group, a real estate
development company, and had held several management positions with the Sheraton
Hotel Corporation.
MICHAEL C. GARRETSON joined the Company in August 1994 as its Vice
President of Business Development. In October 1995, he became the Director of
Planning and Economic Development for the City of Jacksonville, Florida and
served in such position until rejoining the Company in January 1996, during
which period he also acted as a consultant to the Company. Mr. Garretson was
elected Executive Vice President and Chief Operating Officer in March 1996. From
September 1993 to August 1994, Mr. Garretson was Senior Vice President of
Wackenhut Corrections Corp. and from August 1990 to August 1993 was Director of
Area Development for Euro Disney S.C.A.
AARON SPEISMAN co-founded the Company in October 1987 and has been its
Executive Vice President, Secretary and a director since the Company's
inception. From October 1987 to March 1994, Mr. Speisman also served as Chief
Financial Officer of the Company. Since June 1, 1996, Mr. Speisman has been
employed by the Company on a part-time basis.
IRA M. COTLER was elected the Company's Executive Vice President-Finance in
March 1996. Prior to joining the Company, from June 1989 to February 1996, Mr.
Cotler was employed by Janney Montgomery Scott Inc., an investment banking firm,
serving in several capacities, most recently as Vice President of Corporate
Finance.
RICHARD P. STALEY has served as the Company's Senior Vice President since
November 1988 and as a director since May 1994. From 1984 to 1987, Mr. Staley
was the Evaluation and Compliance Director for Corrections Corporation of
America and from 1953 to 1983, held various positions with the United States
Department of Justice, Immigration and Naturalization Service. Mr. Staley is a
certified American Correctional Association standards auditor for jail and
detention facilities.
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<PAGE> 28
LEE LEVINSON became an employee of the Company in February 1994 and was
elected Chief Financial Officer in March 1994. From 1989 until December, 1993,
Mr. Levinson was a partner at Fleischman & Company, independent certified public
accountants. Mr. Levinson is a certified public accountant.
MELVIN T. STITH was elected a director of the Company in November 1994.
Since July 1991, Mr. Stith has been Dean of the Florida State University College
of Business. From December 1989 to July 1991, Mr. Stith was Chairman of the
Marketing Department of the Florida State University College of Business where
he was also a Professor. Mr. Stith is also a director of Sprint and United
Telephone of Florida.
RAYMOND S. EVANS was elected a director in May 1994. For more than the past
five years, Mr. Evans has been a partner of the law firm of Ruskin, Moscou,
Evans & Faltischek, P.C.
STUART M. GERSON was elected a director in June 1994. Since March 1993, Mr.
Gerson has been a partner of the law firm of Epstein Becker & Green, P.C. From
January 1993 to March 1993, he was acting Attorney General of the United States.
From January 1989 to January 1993, Mr. Gerson was the Assistant U.S. Attorney
General for the Civil Division of the Department of Justice.
SHIMMIE HORN was elected a director of the Company in June 1996. Mr. Horn,
received a B.A. degree in Economics from Yeshiva College in 1993, and graduated
from the Benjamin Cardozo School of Law in 1996. He is the son of the late
Morris Horn, the former Chairman and a founder of the Company.
All directors hold office until the next annual meeting of stockholders and
until their successors have been duly elected and qualified.
In June 1996, Diane McClure, Executive Vice President -- Business
Development and a director of the Company, resigned her employment and as a
member of the Company's Board of Directors. In June 1996, John L. Morgenthau,
Vice President -- Juvenile/Youthful Offender Division, resigned his employment
with the Company. In June 1996, William J. Barrett, a Senior Vice President of
Janney Montgomery Scott, Inc., resigned his position as a member of the Board of
Directors. Janney Montgomery Scott Inc. was the managing underwriter of the
Company's initial public offering in 1994. None of the above gave any reason for
their resignations.
COMPENSATION OF DIRECTORS
Employee-directors receive no compensation for serving on the Board of
Directors other than reimbursement of expenses incurred in attending meetings.
Non-employee directors elected or appointed to the Board of Directors are paid
an annual directors' fee of $5,000 plus $500 for each Board meeting attended and
$250 for each Committee meeting attended. In addition, all non-employee
directors participate in the Company's 1994 Non-Employee Director Stock Option
Plan and are reimbursed for expenses incurred in attending meetings.
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<PAGE> 29
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation earned in
1993, 1994 and 1995 by the Company's Chief Executive Officer and by each other
executive officer whose compensation exceeded $100,000 in 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
--------------------------------- COMPENSATION AWARDS
OTHER ANNUAL -------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
- --------------------------------- ----- -------- ------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
James F. Slattery 1995 $189,000 -- $ 43,273(1) 5,000
President and 1994 $180,000 $77,230 $ 23,063(1) 13,125
Chief Executive Officer 1993 $179,621 -- $ 18,012(1) --
Aaron Speisman 1995 $106,014 -- $ 22,976(1) 5,000
Executive Vice 1994 $ 98,092 $ 1,000 $ 14,363(1) 13,125
President and Secretary 1993 $ 85,629 -- $ 22,021(1) --
Lee Levinson 1995 $111,615 -- $ 4,167(2) 5,000
Chief Financial Officer 1994 $ 91,269 -- $ 7,615(2) 12,813
1993 -- -- -- --
</TABLE>
- ---------------
(1) Consists of life insurance premium payments and car lease payments.
(2) Consists of car lease payments.
In addition to the compensation described above, for 1993 and 1994, Mr.
Slattery received S Corporation distributions of $389,200 and $28,000 and Mr.
Speisman received S Corporation distributions of $264,100 and $25,000.
The following table sets forth information concerning stock options granted
executive officers named in the Summary Compensation Table:
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE
INDIVIDUAL GRANTS AT ASSUMED
----------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SHARES APPRECIATION FOR
UNDERLYING % OF TOTAL EXERCISE OPTION TERM
OPTIONS OPTIONS PRICE EXPIRATION -------------------
NAME GRANTED(#) GRANTED TO ALL EMPLOYEES PER SHARE DATE 5% 10%
----------------- ----------- ------------------------ ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
James F.
Slattery....... 5,000 9.2% $ 20.63 6/15/2000 $28,498 $62,974
Aaron Speisman... 5,000 9.2% $ 20.63 6/15/2000 $28,498 $62,974
Lee Levinson..... 6,250 9.2% $ 11.00 3/1/2000 $15,195 $33,578
</TABLE>
The following table sets forth the value of unexercised stock options held
by the executive officers named in the Summary Compensation Table:
OPTION VALUES AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED IN-
UNEXERCISED THE-MONEY
OPTIONS AT OPTIONS AT
YEAR END(#) YEAR END($)
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
---------------------------------------------------- ------------------ -----------------
<S> <C> <C>
James F. Slattery................................... 6,563/11,562 $ 6,497/$ 6,496
Aaron Speisman...................................... 6,563/11,562 $ 6,497/$ 6,496
Lee Levinson........................................ 6,407/12,656 $ 15,439/$15,435
</TABLE>
27
<PAGE> 30
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Mr. Slattery
which expires February 9, 1999 and provides for minimum annual compensation of
$189,000, cost of living increases, use of an automobile, reimbursement of
business expenses, health insurance, related benefits and a bonus equal to 5% of
pre-tax profits in excess of $1,000,000, such bonus not to exceed $200,000. As
of June 1, 1996, Mr. Speisman is employed under an agreement which provides for
Mr. Speisman's employment on a part-time basis at an annual salary of $35,000.
The Company has also entered into employment agreements with Messrs.
Garretson and Cotler which expire January 20, 1999 and provide for compensation
of $115,000 and $129,000, respectively, annual salary increases, automobile
allowances, reimbursement of business expenses, health or disability insurance,
related benefits, a bonus equal to 3% of pre-tax profits in excess of
$1,000,000, such bonus not to exceed $50,000 and $75,000, respectively, and the
grant to each of options to purchase 100,000 shares of Common Stock. See "Stock
Options -- Other Options." Mr. Cotler is also entitled to payment for relocation
and related costs.
In October 1989, Esmor, Inc., presently a subsidiary of the Company,
entered into an employment agreement with William Banks. Under this agreement,
Mr. Banks was responsible for developing and implementing community relations
projects on behalf of the Company and for acting as a liaison between the
Company and local community and civic groups who may have concerns about
establishment of the Company's facilities in their communities, and government
officials throughout the state of New York. As compensation, Mr. Banks received
3% of the gross revenue from all Federal Bureau of Prisons, state or local
correction agency contracts within the state of New York with a guaranteed
minimum monthly income of $4,500 which was paid by Esmor (Brooklyn), Inc. and
Esmor, Manhattan, Inc., although there is no agreement obligating them to
continue making such payments on behalf of Esmor, Inc. in the future. In
December 1993, Mr. Banks agreed to become a consultant to Esmor, Inc., upon the
same terms and conditions in order to accurately reflect the level and nature of
the services he provided to Esmor, Inc. In 1994 and 1995, Mr. Banks earned
approximately $238,000 and $334,000, respectively.
STOCK OPTIONS
The Company has adopted two stock option plans.
1993 Stock Option Plan. Under the 1993 Stock Option Plan (the "1993
Plan") 500,000 shares of Common Stock are reserved for issuance upon
exercise of options designated as either (i) incentive stock options
("ISOs") under the Internal Revenue Code of 1986, as amended (the "Code")
or (ii) non-qualified options. Under the 1993 Plan, ISOs may be granted to
employees and officers of the Company and non-qualified options may be
granted to consultants, directors (whether or not they are employees),
employees or officers of the Company.
The 1993 Plan is administered by the Company's Stock Option Committee
which determines the persons to whom options will be granted, the number of
shares to be covered by each option, whether the options granted are
intended to be ISO's, the rate of exercise of each option, the option
purchase price per share, the manner of exercise, the form of payment upon
exercise, and whether restrictions such as repurchase rights are to be
imposed on the shares following exercise. Options granted under the 1993
Plan expire five years after the date of grant and may not be granted at a
price less than the fair market value of the Common Stock on the date of
grant (110% of fair market value in the case of persons holding 10% or more
of the voting stock of the Company). The aggregate fair market value of
shares for which ISOs granted to any employee are exercisable for the first
time by such employee during any calendar year (under all stock option
plans of the Company and any related corporation) may not exceed $100,000.
No options may be granted under the 1993 Plan after October 2003; however,
options granted under the 1993 Plan prior thereto may extend beyond that
date. Options granted under the 1993 Plan are not transferable during an
optionee's lifetime but are transferable at death by will or by the laws of
descent and distribution.
28
<PAGE> 31
During fiscal 1994 and 1995, options to purchase 225,313 shares and
54,375 shares, respectively, were granted under the 1993 Plan at exercise
prices ranging from $4.76 to $20.63 per share. In 1996, options to purchase
40,200 shares were granted under the 1993 Plan at exercise prices ranging
from $8.875 to $15.50 per share.
1994 Non-Employee Director Stock Option Plan. Under the 1994
Non-Employee Director Stock Option Plan (the "Directors Plan") 196,875
shares of Common Stock are reserved for issuance to non-employee Directors.
Under the Directors Plan, each non-employee Director is automatically
granted, (i) a non-qualified option to purchase 10,000 shares of Common
Stock upon election to the Board of Directors; and (ii) a non-qualified
option to purchase 5,000 shares of Common Stock on the date of each annual
meeting of stockholders at which the Director is reelected to the Board of
Directors. The exercise price of each option is the fair market value of
the Common Stock on the date of grant. Each option expires five years from
the date of grant and vests in two annual installments of 50% each on the
first and second anniversary of the date of grant. Options granted under
the Directors Plan are generally not transferable during an optionee's
lifetime but are transferable at death by will or by the laws of descent
and distribution. In the event an optionee ceases to be a member of the
Board of Directors (other than by reason of death or disability), then the
non-vested portion of the option immediately terminates and becomes void
and any vested and unexercised portion of the option may be exercised for a
period of 180 days from the date the optionee ceased to be a member of the
Board of Directors. In the event of death or permanent disability of an
optionee, all options accelerate and become immediately exercisable until
the scheduled expiration date of the option.
During the fiscal 1994 and 1995, options to purchase 65,000 shares and
25,000 shares, respectively, were granted under the Directors Plan at
exercise prices ranging from $7.05 to $18.75 per share. In May 1996,
options to purchase 20,000 shares were granted under the Directors Plan at
an exercise price of $17.875 per share.
Other Options. In January 1996, in connection with their respective
employment, the Company granted Messrs. Garretson and Cotler options to
purchase 100,000 shares each, at an exercise price of $8.875 per share. The
options, which were not granted pursuant to the 1993 Plan and are
non-qualified options under the Code, vest one-third upon grant, an
additional one-third one year from the date of grant and the one-third
balance two years from the date of grant.
CERTAIN TRANSACTIONS
The Company subleases a building located at 12-16 East 31st Street, New
York, New York from LeMarquis Operating Corp. ("LMOC"). LMOC is a corporation
owned 25% by Esther Horn and 8% by James F. Slattery. The Company currently
utilizes approximately fifty percent of the building for the Manhattan Community
Corrections and the New York Community Corrections programs. LMOC leases this
building from an unaffiliated party at a current base monthly rental of
approximately $15,456 (the "Base Rent"), plus taxes and other charges in the
approximate current amount of $17,346 for a total monthly rental of
approximately $32,802. The Company has the right to use as much of the building
as it requires for its business subject to the rights of certain residential
subtenants to remain in the building. These rights include the right to housing
at a predetermined rental for an indefinite period of time pursuant to New York
State rent stabilization laws.
The Company pays rent of $18,000 per month above the rent paid by LMOC to
the building's owner for a total monthly rent of approximately $50,802. The
Company has, to date, invested $690,000 in leasehold improvements and will not
receive any credit, in terms of a reduction in rent or otherwise, for these
improvements. The initial term of the Company's sublease expired April 30, 1995,
and is currently in its first renewal term expiring April 30, 2000. The sublease
contains two additional successive five-year renewal options beginning May 1,
2000. The monthly rent above the rent paid by LMOC to the building's owner will
increase to $22,000 per month during the second renewal term beginning May 1,
2000 and to $26,000 per month during the third renewal term beginning May 1,
2005. The Company paid $40,000 to LMOC for the renewal options. These renewal
options were separately negotiated between the Board of Directors of the
29
<PAGE> 32
Company and LMOC. Mr. Slattery participated in such negotiations. Mrs. Horn and
Mr. Slattery will receive their proportionate shares of rents received by LMOC
under the terms of this sublease. The terms of this sublease were not negotiated
at arm's length due to the relationship of Mrs. Horn and Mr. Slattery with both
the Company and LMOC.
Previously, residential and commercial tenants of the building paid annual
rent of approximately $300,000 to LeMarquis Enterprise Corp. ("Enterprises"), a
company owned 30% by Mrs. Horn, 28% by Mr. Slattery and 25% by Mr. Speisman, and
Enterprises paid all expenses of operating the residential and commercial
portions of the building as well as a portion of the overall expenses of the
building. The Company paid any cash flow deficiency to Enterprises. This
arrangement terminated in February 1994, and all of the building's revenues,
including rent from the residential and commercial tenants, are now received and
expenses paid by the Company. The revenue from this portion of the building was
approximately $210,000 in 1994 and $205,000 in 1995. The Company anticipates
that operating the portion of the building occupied by residential and
commercial tenants will result in a net expense to the Company of approximately
$25,000 per month. Due to New York rent stabilization laws, the Company is
unable to increase the rent paid by the residential tenants in this building in
response to increased rent or expenses incurred by the Company.
The Company leases the entire building located at 988 Myrtle Avenue,
Brooklyn, New York from Myrtle Avenue Family Center, Inc. ("MAFC") pursuant to a
lease which commenced January 1, 1994 and expires December 31, 1998. The lease
establishes a monthly rental of $40,000 and contains three five-year renewal
options. The monthly rental for the first option period, which runs from January
1, 1999 through December 31, 2003, is $40,000. The monthly rental for the second
option period, which runs from January 1, 2004 through December 31, 2008, is
$45,000, and the monthly rental for the third option period, which runs from
January 1, 2009 through December 31, 2013, is $50,000. In addition, the Company
pays taxes, insurance, repairs and maintenance on this building. MAFC is a
corporation owned by Mrs. Horn (27.5%) and Messrs. Slattery (8%) and Speisman
(27.5%). The terms of the lease were not negotiated at arm's length due to their
relationship with MAFC and the Company. Messrs. Slattery and Speisman
participated in such negotiations.
Pursuant to the terms of a Board of Directors resolution adopted in 1994,
all transactions between the Company and any of its officers, directors or
affiliates (except for wholly-owned subsidiaries) must be approved by a majority
of the unaffiliated members of the Board of Directors and be on terms no less
favorable to the Company than could be obtained from unaffiliated third parties
and be in connection with bona fide business purposes of the Company. In the
event the Company makes a loan to an individual affiliate (other than a
short-term advance for travel, business expense, relocation or similar ordinary
operating expenditure), such loan must be approved by a majority of the
unaffiliated directors.
Stuart M. Gerson, a director of the Company, is a member of Epstein Becker
& Green, P.C., a law firm which has represented the Company on certain matters
and which is representing the Company in connection with this offering. In April
1996, in consideration for certain consulting services provided to it, the
Company granted Mr. Gerson, a director of the Company, options to purchase a
total of 15,000 shares of Common Stock at an exercise price of $8.75 per share,
the fair market value of the shares on the date of grant. The options, which
were not granted pursuant to either the 1993 Plan or the Directors Plan and are
non-qualified options under the Code, vest 50% one year from the date of grant
and the remaining 50% two years from the date of grant. See "Legal Matters."
30
<PAGE> 33
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth as of the date of this Prospectus
information with respect to the beneficial ownership of the Common Stock by (i)
each person known by the Company to own beneficially five percent or more of
such Common Stock, (ii) each director of the Company, (iii) each person named in
the Summary Compensation Table, (iv) each Selling Stockholder and (v) all
executive officers and directors as a group, the shares being sold by each of
them together with their respective percentage ownership of such shares before
this Offering and as adjusted to reflect the sale of the Common Stock offered
hereby:
<TABLE>
<CAPTION>
SHARES OWNED PRIOR SHARES OWNED AFTER
TO OFFERING OFFERING
------------------- -------------------
NAME AND ADDRESS(1) NUMBER PERCENT SHARES BEING SOLD NUMBER PERCENT
--------------------------------- --------- ------- ----------------- --------- -------
<S> <C> <C> <C> <C> <C>
Aaron Speisman(2)................ 842,639 16.3% 205,000 637,639 8.9%
Esther Horn(3)................... 793,438 15.4% 175,000 618,438 8.6%
James F. Slattery(4)............. 788,125 15.3% -- 788,125 11.0%
David Fuld....................... 328,125 6.4% 70,000 258,125 3.6%
Ira M. Cotler(5)................. 50,701 1.0% -- 50,701 *
Richard P. Staley(6)............. 44,206 * -- 44,206 *
Michael Garretson(7)............. 36,458 * -- 36,458 *
Raymond S. Evans(8).............. 24,044 * -- 24,044 *
Lee Levinson(9).................. 18,061 * -- 18,061 *
Stuart Gerson(10)................ 19,475 * -- 19,475 *
Melvin T. Stith(11).............. 8,750 * -- 8,750 *
Shimmie Horn..................... 2,000 * -- 2,000 *
All officers and directors as a
group (ten
persons)(2)(4)(5)(6)(7)
(8)(9)(10)(11)................. 1,834,459 34.2% 205,000 1,629,459 22.1%
</TABLE>
- ---------------
* Less than 1%.
(1) Except for David Fuld, whose address is 88-55 161st Street, Flushing, New
York 11367, all addresses are c/o Esmor Correctional Services, Inc., 1819
Main Street, Suite 1000, Sarasota, Florida 34236.
(2) Shares owned includes 98,438 shares of Common Stock owned by the Jennifer
Anna Speisman 1992 Trust and 98,438 shares of Common Stock owned by the
Joshua Israel Speisman 1992 Trust, as to which Mr. Speisman disclaims
beneficial ownership. Shares being sold includes 15,000 shares of Common
Stock owned by the Jennifer Anna Speisman 1992 Trust and 15,000 shares
owned by the Joshua Israel Speisman 1992 Trust. Shares owned also includes
options to purchase 15,625 shares of Common Stock and a Series A Warrant to
purchase 7,700 shares of Common Stock but does not include options to
purchase 2,500 shares of Common Stock not exercisable within 60 days.
(3) Includes options to purchase 9,063 shares of Common Stock. Does not include
options to purchase 9,062 shares of Common Stock not exercisable within 60
days.
(4) Includes options to purchase 15,425 shares of Common Stock. Does not
include options to purchase 7,500 shares of Common Stock not exercisable
within 60 days.
(5) Includes 2,612 shares of Common Stock owned by his wife as to which he
disclaims beneficial ownership. Also includes options to purchase 44,239
shares of Common Stock and a Series A Warrant to purchase 3,850 shares of
Common Stock. Does not include options to purchase 66,667 shares of Common
Stock not exercisable within 60 days.
(6) Includes options to purchase 44,206 shares of Common Stock. Does not
include options to purchase 19,544 shares of Common Stock not exercisable
within 60 days.
(7) Consists of options to purchase 36,458 shares of Common Stock. Does not
include options to purchase 66,667 shares of Common Stock not exercisable
within 60 days.
(8) Includes options to purchase 15,625 shares of Common Stock. Does not
include options to purchase 2,500 shares of Common Stock not exercisable
within 60 days.
(9) Includes 3,282 shares of Common Stock owned by wife and 1,969 shares of
Common Stock owned by his minor child, as to which he disclaims beneficial
ownership. Also includes options to purchase 12,813
31
<PAGE> 34
shares of Common Stock. Does not include options to purchase 11,250 shares
of Common Stock not exercisable within 60 days.
(10) Includes options to purchase 15,625 shares of Common Stock and a Series A
Warrant to purchase 3,850 shares of Common Stock. Does not include options
to purchase 22,500 shares of Common Stock not exercisable within 60 days.
(11) Consists of options to purchase 8,750 shares of Common Stock. Does not
include options to purchase 13,750 shares of Common Stock not exercisable
within 60 days.
The Company is unaware of any arrangements which may result in a change in
control of the Company.
DESCRIPTION OF SECURITIES
The Company is authorized to issue 10,000,000 shares of Common Stock, par
value $.01 per share, and 1,000,000 shares of Preferred Stock, par value $.01
per share.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share held of
record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors, with the result that holders
of more than 50% of the shares voted for the election of directors can elect all
of the directors. The holders of Common Stock are entitled to receive dividends
when, as and if declared by the Board of Directors from sources available
therefor. In the event of liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of Common Stock are entitled to
share ratably in the assets of the Company available for distribution to
stockholders after payment of liabilities and after provision for each class of
stock, if any, having preference over the Common Stock. Holders of Common Stock
have no preemptive rights. All outstanding shares are, and all shares to be sold
and issued as contemplated hereby will be, fully paid and non-assessable and
legally issued. The Board of Directors is authorized to issue additional shares
of Common Stock within the limits authorized by the Company's charter and
without stockholder action.
PREFERRED STOCK
The Preferred Stock may be issued from time to time without stockholder
approval in one or more classes or series, and the Board of Directors is
authorized to fix the dividend rights, dividend rates, any conversion rights or
rights of exchange, any voting rights, rights and terms or redemption (including
sinking fund provisions), the redemption price or prices, the liquidation
preferences and any other rights, preferences, privileges and restrictions of
any class or series of Preferred Stock, the number of shares constituting such
class or series and the designation thereof. The shares of any class or series
of Preferred Stock need not be identical. Depending upon the rights of such
Preferred Stock, the issuance of Preferred Stock could have an adverse effect on
holders of Common Stock by delaying or preventing a change in control of the
Company, making removal of the present management more difficult or resulting in
restrictions upon the payment of dividends and other distributions to the
holders of Common Stock. There are currently no shares of Preferred Stock
outstanding.
WARRANTS
Each Series A Warrant entitles the registered holder to purchase one share
of Common Stock at an exercise price of $7.75 per share, subject to adjustment
in the event of a stock split, recapitalization, stock dividend, combination,
consolidation or certain sales or issuances of Common Stock at less than market
value, at any time through July 1, 1999. The Series A Warrants are not
redeemable. As of June 12, 1996, there were Series A Warrants outstanding to
purchase 686,469 shares of Common Stock.
As compensation for services rendered in connection with the Company's
initial public offering and 1995 private placements, the Company issued warrants
to purchase 109,375 (after giving effect to the Company's
32
<PAGE> 35
5% stock dividend and five for four stock split) and 59,681 shares of Common
Stock, respectively, at purchase prices of $5.76 and $10.00, respectively. All
of such warrants remain outstanding.
TRANSFER AGENT AND WARRANT AGENT
The transfer agent for the Common Stock and the warrant agent for the
Series A Warrants is American Stock Transfer & Trust Co., New York, New York.
CERTAIN PROVISIONS OF THE COMPANY'S CHARTER AND BY-LAWS
The Company's Certificate of Incorporation and By-Laws provide that the
Company shall indemnify each director and such of the Company's officers,
employees and agents as the Board of Directors shall determine from time to time
to the fullest extent provided by the laws of the State of Delaware.
The Company carries insurance providing indemnification, under certain
circumstances, to all of the Company's directors and officers for claims against
them by reason of, among other things, any act or failure to act in their
capacities as directors or officers. The current annual premium for this
insurance is approximately $60,000, all of which is paid by the Company. To
date, no sums have been paid to any past or present director or officer of the
Company under this or any prior indemnification insurance policy.
The Company has also entered into Indemnity Agreements with certain of its
directors and executive officers. The Indemnity Agreements provide for
indemnification of such persons to the fullest extent permitted by the
provisions of the General Corporation Law of the State of Delaware. The
Indemnity Agreements provide that the Company will pay any costs which an
indemnitee actually and reasonably incurs because of the claims made against him
by reason of the fact that he is or was a director or officer of the Company,
except that the Company is not obligated to make any payment where: (i) a final
determination is rendered that the indemnitee obtained remuneration in violation
of law; (ii) a final determination is rendered against the indemnitee relating
to a claim for an accounting of profits made in connection with a violation of
Section 16(b) of the Securities Exchange Act of 1934, or similar state or common
law provisions; (iii) a claim where the indemnitee's conduct was adjudged to be
deliberately dishonest or to constitute willful misconduct; or (iv) a final
determination is rendered that indemnification is not lawful.
33
<PAGE> 36
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to each of the
Underwriters named below, and each of the Underwriters, for whom Stephens Inc.
and J.C. Bradford & Co. are acting as Representatives (the "Representatives"),
has severally agreed to purchase the aggregate number of shares of Common Stock
set forth opposite its name below, at the public offering price less the
underwriting discounts set forth on the cover page of this Prospectus. In the
Underwriting Agreement, the several Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the shares of Common
Stock offered hereby if any shares of Common Stock are purchased. In the event
of default by an Underwriter, the Underwriting Agreement provides that, in
certain circumstances, purchase commitments of the nondefaulting Underwriters
may be increased or the Underwriting Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Stephens Inc. ....................................................................
J.C. Bradford & Co. ..............................................................
---------
Total................................................................... 2,450,000
========
</TABLE>
The Company has granted the Underwriters an option, exercisable in whole or
in part, from time to time, for thirty days after the date hereof, to purchase
up to 367,500 additional shares of Common Stock to cover over-allotments, if
any, at the public offering price, less the underwriting discounts set forth on
the cover page of this Prospectus. If the Underwriters exercise this option,
each of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage thereof which the
number of shares of Common Stock to be purchased by it shown in the foregoing
table bears to the 2,450,000 shares of Common Stock offered hereby.
The Underwriters have advised the Company that sales of Common Stock to
certain dealers may be made at a concession of an amount not in excess of $
per share and that the Underwriters may allow, and such dealers may re-allow,
discounts not in excess of $ per share on sales to certain other dealers.
After this offering, the public offering price, the concession and the
re-allowance may be changed by the Underwriters.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain civil liabilities under the Securities Act
and to afford the Underwriters certain rights of contribution.
The Underwriters do not intend to confirm sales of shares of Common Stock
to any account over which they exercise discretionary authority without prior
authorization. The Representatives intend to continue to make a market in the
Common Stock after the completion of this offering.
The Selling Stockholders and the Company's directors and executive officers
have agreed with the Underwriters not to offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock or any securities convertible
into, or exchangeable or exercisable for, shares of Common Stock, with limited
exceptions, for a period of 180 days from the date of this offering.
In connection with the this offering, the Representatives have advised the
Company that certain Underwriters and dealers, if any, or their respective
affiliates who are qualified registered market makers on The Nasdaq Stock
Market, may engage in passive market making transactions in the Common Stock on
The Nasdaq Stock Market in accordance with Rule 10b-6A under the Exchange Act
during the two business day period before commencement of offers or sales of the
Common Stock. The passive market making transactions must comply with applicable
volume and price limits and be identified as such. In general, a
34
<PAGE> 37
passive market maker may display its bid at a price not in excess of the highest
independent bid for such security; if all independent bids are lowered below the
passive market maker's bid, however, such bid must then be lowered when certain
purchase limits are exceeded.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company and the Selling
Stockholders by Epstein Becker & Green, P.C., New York, New York. Stuart M.
Gerson, a director of the Company, is a member of Epstein Becker & Green, P.C.
and members of the firm own, directly and indirectly, $195,000 of the Company's
10% subordinated promissory notes, 3,400 shares of Common Stock and warrants and
options to purchase 65,615 shares of Common Stock. Giroir & Gregory,
Professional Association, Little Rock, Arkansas, has acted as counsel to the
Underwriters with respect to certain legal matters in connection with this
offering.
EXPERTS
The consolidated financial statements of Esmor Correctional Services, Inc.
and subsidiaries as of December 31, 1994 and 1995 and for each of the three
years in the period ended December 31, 1995 have been audited by Grant Thornton
LLP, independent certified public accountants, as stated in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form S-1 with the
Commission in Washington, D.C., in accordance with the provisions of the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
For further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and the exhibits filed
as part thereof. Statements herein contained concerning the provisions of any
document are not necessarily complete and, in each instance, reference is made
to the copy of such document filed as an exhibit to the Registration Statement.
The Registration Statement and the exhibits may be inspected, without charge, at
the offices of the Commission, or copies thereof obtained at prescribed rates
from the Public Reference Section of the Commission at the address set forth
above.
35
<PAGE> 38
CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Certified Public Accountants................................... F-2
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996
(Unaudited)..................................................................... F-3
Consolidated Statements of Operations (for the Years Ended December 31, 1993, 1994
and 1995, and the Three Months Ended March 31, 1995 and 1996 (Unaudited)........ F-4
Consolidated Statement of Stockholders' Equity (for the Year Ended December 31,
1993, 1994 and 1995, and the Three Months Ended March 31, 1996 (Unaudited)...... F-5
Consolidated Statements of Cash Flows (for the Years Ended December 31, 1993, 1994
and 1995, and the Three Months Ended March 31, 1995 and 1996 (Unaudited)........ F-6
Notes to Consolidated Financial Statements......................................... F-7
</TABLE>
F-1
<PAGE> 39
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Esmor Correctional Services, Inc.
We have audited the accompanying consolidated balance sheets of Esmor
Correctional Services, Inc. and Subsidiaries as of December 31, 1994 and 1995,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1995.
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 of the financial statements provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Esmor
Correctional Services, Inc. and Subsidiaries as of December 31, 1994 and 1995,
and the consolidated results of their operations and their consolidated cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
New York, New York
March 1, 1996 (Except for Note L,
as to which the date is March 6, 1996)
F-2
<PAGE> 40
ESMOR CORRECTIONAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................. $ 308,446 $ 3,756,748 $ 451,080
Restricted cash....................................... -- 750,000 750,000
Accounts receivable................................... 4,804,014 3,374,229 3,058,240
Prepaid expenses and other............................ 640,643 1,415,306 697,794
----------- ----------- -----------
Total current assets.......................... 5,753,103 9,296,283 4,957,114
BUILDING, EQUIPMENT AND LEASEHOLD IMPROVEMENTS -- AT
COST, NET............................................. 7,518,001 6,689,184 10,887,193
EQUIPMENT AND LEASEHOLD IMPROVEMENTS UNDER AGREEMENT FOR
SALE.................................................. -- 4,507,882 4,657,882
OTHER ASSETS
Deferred development and start-up costs, net.......... 1,061,671 2,266,409 2,262,679
Deferred income taxes................................. -- 600,000 600,000
Other................................................. 185,562 760,769 722,702
----------- ----------- -----------
$14,518,337 $24,120,527 $24,087,570
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities.............. $ 2,639,515 $ 3,535,165 $ 3,542,133
Current portion of long-term debt..................... 1,757,384 1,221,022 1,227,545
----------- ----------- -----------
Total current liabilities..................... 4,396,899 4,756,187 4,769,678
LONG-TERM DEBT.......................................... 3,028,020 4,000,000 3,921,151
SUBORDINATED PROMISSORY NOTES........................... -- 5,362,295 5,318,227
COMMITMENTS AND CONTINGENCIES........................... -- -- --
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none issued and outstanding............ -- -- --
Common stock, $.01 par value, 10,000,000 shares
authorized, 4,407,828, 4,911,688 and 4,922,468
shares issued and outstanding as of 1994, 1995 and
March 31, 1996, respectively....................... 44,079 49,117 49,224
Additional paid-in capital............................ 5,616,456 9,479,436 9,545,076
Retained earnings..................................... 1,432,883 473,492 484,214
----------- ----------- -----------
7,093,418 10,002,045 10,078,514
----------- ----------- -----------
$14,518,337 $24,120,527 $24,087,570
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 41
ESMOR CORRECTIONAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- -----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
Resident fees.................. $14,062,059 $23,655,226 $30,482,683 $7,878,123 $6,948,544
Other income................... 39,135 617,763 1,069,469 244,881 219,208
----------- ----------- ----------- ---------- ----------
14,101,194 24,272,989 31,552,152 8,123,004 7,167,752
----------- ----------- ----------- ---------- ----------
Expenses
Operating...................... 8,651,275 14,899,192 19,731,797 4,920,017 4,897,231
General and administrative..... 3,578,738 6,695,599 9,938,344 2,315,030 2,038,660
Interest....................... 30,786 133,315 761,702 97,974 213,139
New Jersey facility closure
costs....................... -- -- 2,609,700 -- --
----------- ----------- ----------- ---------- ----------
12,260,799 21,728,106 33,041,543 7,333,021 7,149,030
----------- ----------- ----------- ---------- ----------
Earnings (loss) before
income taxes......... 1,840,395 2,544,883 (1,489,391) 789,983 18,722
Income tax expense (benefit)..... 736,000 1,002,000 (530,000) 325,000 8,000
----------- ----------- ----------- ---------- ----------
NET EARNINGS (LOSS).... $ 1,104,395(1) $ 1,542,883 $ (959,391) $ 464,983 $ 10,722
========== ========== ========== ========= =========
Net earnings (loss) per common
share.......................... $ .34(1) $ .35 $ (.21) $ .10 $ 0.00
========== ========== ========== ========= =========
Weighted average shares
outstanding.................... 3,281,250 4,394,734 4,552,707 4,638,920 4,914,176
========== ========== ========== ========= =========
</TABLE>
- ---------------
(1) Net earnings and earnings per share for 1993 are shown on a pro forma basis
to reflect income taxes which were not applicable under the Company's prior
Subchapter S Corporation status.
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 42
ESMOR CORRECTIONAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON CAPITAL PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1993.............. $ 21,000 $1,934,429 $ (874,309) $ 1,081,120
Net earnings............................ 1,840,395 1,840,395
Cash distributions to stockholders...... (910,000) (910,000)
Noncash distributions to stockholders... (87,000) (87,000)
Investment in Esmor Houston, Inc........ 1,000 -- -- 1,000
------- -------- ---------- ---------- -----------
BALANCE AT JANUARY 1, 1994.............. 22,000 1,934,429 (30,914) 1,925,515
Common stock issuance................... $33,583 (22,000) 4,093,437 -- 4,105,020
5% common stock dividend................ 1,680 -- (1,680) -- --
Combined deficit of affiliated companies
prior to recapitalization of
Company............................... -- -- (30,914) 30,914 --
Cash distributions paid prior to
recapitalization of Company........... -- -- (480,000) -- (480,000)
Five-for-four common stock split........ 8,816 -- (8,816) -- --
Net earnings............................ -- -- 110,000 1,432,883 1,542,883
------- -------- ---------- ---------- -----------
BALANCE AT DECEMBER 31, 1994............ 44,079 -- 5,616,456 1,432,883 7,093,418
Exercise of stock options............... 70 -- 33,250 -- 33,320
Common stock issuance................... 4,968 -- 3,464,730 -- 3,469,698
Issuance of warrants with subordinated
promissory notes...................... -- -- 365,000 -- 365,000
Net loss................................ -- -- -- (959,391) (959,391)
------- -------- ---------- ---------- -----------
BALANCE AT DECEMBER 31, 1995............ 49,117 -- 9,479,436 473,492 10,002,045
Exercise of warrants (unaudited)........ 107 65,640 -- 65,747
Net earnings (unaudited)................ 10,722 10,722
------- -------- ---------- ---------- -----------
BALANCE AT MARCH 31, 1996 (UNAUDITED)... $49,224 $ -- $9,545,076 $ 484,214 $10,078,514
======= ======== ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 43
ESMOR CORRECTIONAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- -------------------------
1993 1994 1995 1995 1996
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) earnings.................................. $1,840,395 $ 1,542,883 $ (959,391) $ 464,983 $ 10,722
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization...................... 243,445 776,255 1,168,850 479,896 155,754
Write-off of bad debt.............................. 66,000 -- -- -- --
Amortization of subordinated promissory note
discount......................................... -- -- 50,695 -- 22,306
New Jersey facility asset impairment............... -- -- 1,471,424 -- --
New Jersey deferred development costs writedown.... -- -- 416,201 -- --
Amortization of deferred loan costs................ -- 111,854 127,568 -- 63,729
Deferred income tax benefit........................ -- -- (600,000) (85,000)
Changes in operating assets and liabilities
Accounts receivable.............................. (570,813) (3,148,806) 1,429,785 1,004,074 315,989
Prepaid expenses and other....................... (188,187) (269,641) (774,644) (311,861) 717,512
Advances and unearned revenue.................... (613,649) -- -- -- --
Accounts payable and accrued liabilities......... 980,002 785,258 895,650 1,022,354 6,964
Reserve for New Jersey facility carrying costs... -- -- -- -- (150,000)
---------- ----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities................................... 1,757,193 (202,197) 3,226,138 2,574,446 1,142,976
---------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures................................. (116,497) (7,693,761) (6,110,693) (1,623,728) (3,763,144)
Development and start-up costs....................... (698,543) (401,772) (1,824,268) (350,906) (584,889)
Proceeds from related company........................ 320,000 -- -- -- --
Payments to related company.......................... (338,000) -- -- -- --
Other assets......................................... (71,763) -- -- -- --
Increase in unexpended construction funds............ -- -- (750,000) -- --
---------- ----------- ----------- ----------- -----------
Net cash used in investing activities.......... (904,803) (8,095,533) (8,684,961) (1,974,634) (4,348,033)
---------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Investments by stockholders.......................... 1,000 -- -- -- --
Proceeds from issuance of common stock............... -- 4,105,020 3,469,698 -- --
Proceeds from long-term borrowing.................... -- 4,078,261 1,500,000 925,000 17,421
Payments on long-term borrowings..................... -- (242,857) (1,282,715) (202,177) (65,500)
Proceeds (payments) on short-term debt............... 726,848 (15,198) 218,333 (950,000) (89,746)
Issuance of subordinated promissory notes and
warrants........................................... -- -- 5,676,600 -- --
Debt issuance costs.................................. -- -- (652,101) -- --
Proceeds from exercise of stock options and
warrants........................................... -- -- 33,320 -- 64,874
Other assets......................................... (717,115) 469,924 (56,010) (41,173) (27,662)
Distributions to stockholders........................ (910,000) (480,000) -- -- --
---------- ----------- ----------- ----------- -----------
Net cash provided by financing activities...... (899,267) 7,915,150 8,907,125 (268,350) (100,613)
---------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... (46,877) (382,580) 3,448,302 331,462 (3,305,670)
Cash and cash equivalents at beginning of year......... 737,903 691,026 308,446 308,446 4,506,749
---------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of year............... $ 691,026 $ 308,446 $ 3,756,748 $ 639,908 $ 1,201,079
========= ========== ========== ========== ==========
Supplemental disclosures of cash flows information:
Cash paid during the year for
Interest........................................... $ 31,000 $ 179,500 $ 602,700 $ 83,246 $ 218,740
Income taxes....................................... -- $ 927,800 $ 789,500 $ 67,489 $ 23,385
</TABLE>
Supplemental disclosure of noncash activity:
The valuation of the warrants issued, $365,000, with the subordinated
promissory notes in 1995 are included in Additional Paid-in Capital.
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 44
ESMOR CORRECTIONAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Esmor Correctional Services, Inc. and Subsidiaries operate and manage
detention and correctional facilities for Federal, state and local government
agencies.
1. Principles of Consolidation
The consolidated financial statements include the accounts of Esmor
Correctional Services, Inc. and its wholly-owned subsidiaries, Esmor, Inc.,
Esmor Management, Inc., Esmor Brooklyn, Inc., Esmor Seattle, Inc., Esmor
Manhattan, Inc., Esmor Mansfield, Inc., Esmor Houston, Inc., Esmor New Jersey,
Inc., Esmor Ft. Worth, Inc., Esmor Canadian, Inc. and Esmor Travis, Inc.
(collectively the "Company" or the "Esmor companies"). All significant
intercompany balances and transactions have been eliminated.
2. Revenue Recognition
Revenue is recognized at the time the service is provided. Revenues are
principally derived from government agencies. The Company's accounts receivable
balance is considered fully collectible based on historical experience and
management's current evaluation. Accordingly, no allowance for doubtful accounts
has been provided in the accompanying financial statements.
3. Building, Equipment and Leasehold Improvements
Building, equipment and leasehold improvements are carried at cost.
Depreciation of building is computed under the straight-line method over a 20
year period. Depreciation of equipment is computed under the straight-line
method over a five-year period. Leasehold improvements are being amortized over
periods ranging from five to ten years.
4. Deferred Development and Start-up Costs
Deferred development costs consist of costs that can be directly associated
with a specific anticipated contract and, if the recoverability from that
contract is probable, they are deferred until the anticipated contract has been
awarded. At the commencement of operations of the facility, the deferred
development costs are amortized over the life of the contract (including option
periods) as development costs. Costs of unsuccessful or abandoned contracts are
charged to expense when their recovery is not considered probable. Facility
start-up costs are incurred in connection with the opening of new facilities.
These costs are capitalized from the date of award until commencement of
operations, at which time they are amortized on a straight-line basis over the
term (including option periods) ranging from one to five year periods of the
government contracts.
5. Income Taxes
The Company adopted Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" ("SFAS No. 109") in 1994. The standards for SFAS
No. 109 required that the Company utilize an asset and liability approach for
financial accounting and reporting for income taxes. The primary objectives of
accounting for income taxes under SFAS 109 are to (a) recognize the amount of
tax payable for the current year and (b) recognize the amount of deferred tax
liability or asset based on management's assessment of the tax consequences of
events that have been reflected in the Company's consolidated financial
statements. The adoption of SFAS No. 109 had an insignificant effect on the
Company's financial statements.
Prior to 1994 the Company was a Subchapter S Corporation. As such, the
Company's taxable income was includable in the individual income tax returns of
its shareholders for federal and certain state income tax purposes. The
statement of operations for the year ended December 31, 1993 reflects the pro
forma effect on
F-7
<PAGE> 45
ESMOR CORRECTIONAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
income taxes as if the Company's earnings had been subjected to federal and
state income taxes as a C Corporation.
6. Earnings (Loss) Per Share
The computation of net earnings (loss) per common share is based upon the
weighted average number of common shares outstanding during the year plus common
stock equivalents representing shares issuable upon the assumed exercise of
stock options and warrants. Common stock equivalents were not included for the
year ended December 31, 1995, as their effect would be anti-dilutive. The
Company is contemplating an offering in the amount of approximately $32,000,000,
from which proceeds will be used to retire approximately $5,149,000 of debt (See
Note N). The supplementary pro forma earnings (loss) per common share for the
year ended December 31, 1995 and three months ended March 31, 1996 as if this
debt has been retired at the beginning of the respective period, would be $(.14)
and $.02 per share (assuming 4,960,713 and 5,235,969 weighted average common
shares outstanding).
7. Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents.
Restricted cash of $750,000 represents a final payment to be made in 1996
to a contractor for the completion of the Phoenix, Arizona facility.
8. Reclassifications
Certain reclassifications have been made to the 1994 balances to conform to
the 1995 presentation.
9. Use of Estimates in Consolidated Financial Statements
In preparing consolidated financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the consolidated financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. While actual results could differ from those estimates,
management does not expect the variances, if any, to have a material effect on
the consolidated financial statements. For discussion of the realization of
Equipment and Leasehold Improvements Under Agreement for Sale, see Note L.
10. Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of
The Company has adopted Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS No. 121"). The standards for SFAS No. 121 require that
the Company recognize and measure impairment losses of long-lived assets and
certain identifiable intangibles and to value long-lived assets to be disposed
of. The primary objectives under SFAS No. 121 are to (a) recognize an impairment
loss of an asset whenever events or changes in circumstances indicate that its
carrying amount may not be recoverable or (b) if planning to dispose of
long-lived assets or certain identifiable intangibles, such assets have been
reflected in the Company's consolidated financial statements at the net asset
value less cost to sell. The effect of adopting SFAS 121 was not considered
material to the consolidated financial statements.
F-8
<PAGE> 46
ESMOR CORRECTIONAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. Interim Financial Statements
Information in the accompanying consolidated financial statements and notes
to the consolidated financial statements for the interim periods is unaudited.
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and Article 10 of Regulation S-X. Accordingly, they do not include
all the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the interim periods
are not necessarily indicative of the results that may be expected for the full
year.
12. Impact of new accounting standard
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock Based Compensation." With respect to stock options
granted to employees, SFAS No. 123 permits companies to continue using the
accounting method promulgated by the Accounting Principles Board Opinion No. 25
("APB No. 25"), "Accounting for Stock Issued to Employees," to measure
compensation or to adopt the fair value based method prescribed by SFAS No. 123.
If APB No. 25's method is continued, pro forma disclosures are required as if
SFAS No. 123's accounting provisions were followed. Management has determined
not to adopt SFAS No. 123's accounting recognition provisions related to stock
options granted to employees and accordingly, will continue following APB No.
25's accounting provisions. All other requirements of SFAS No. 123 were
implemented on January 1, 1996 and are not expected to have a material effect on
the Company's financial statements.
NOTE B -- CONTRACTUAL AGREEMENTS WITH GOVERNMENT AGENCIES
The Company currently operates eleven secure and non-secure corrections or
detention programs in the states of Florida, New York, Texas and Washington for
Federal, state and local government agencies. The Company has entered into
agreements with the state of Arizona, whereby operations are scheduled to
commence in April 1996, and the state of Florida, whereby operations are
scheduled to commence in the first quarter of 1997. The Company's secure
facilities include a detention and processing center for illegal aliens,
intermediate sanction facilities for parole violators and a shock incarceration
facility, which is a military style "boot camp" for youthful offenders.
Non-secure facilities include residential programs such as community corrections
facilities for federal and state offenders serving the last six months of their
sentences and non-residential programs such as home confinement supervision.
The Company is compensated on the basis of the number of offenders held in
each of its facilities. The Company's contracts may provide for fixed per diem
rates or monthly fixed rates. Some contracts also provide for minimum
guarantees.
The terms of each contract vary and can be from one to five years.
Contracts for more than one year have renewal options which either are
exercisable on mutual agreement between the Company and the government agency or
are exercisable by the government agency alone.
NOTE C -- FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (SFAS No. 107), "Fair
Value of Financial Instruments," requires disclosure of the estimated fair value
of an entity's financial instrument assets and liabilities. For the Company,
financial instruments consist principally of cash and cash equivalents,
subordinated promissory notes and long-term debt.
F-9
<PAGE> 47
ESMOR CORRECTIONAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
1. Cash and Cash Equivalents
The carrying amount reasonably approximates fair value because of the short
maturity of those instruments.
2. Subordinated Promissory Notes and Long-Term Debt
The fair value of the Company's subordinated promissory notes and long-term
debt is estimated based upon the quoted market prices for the same or similar
issues or on the current rates offered to the Company for debt of the same
remaining maturities.
<TABLE>
<CAPTION>
MARCH 31,
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------- -----------------------
1994 1995
----------------------- ----------------------- (UNAUDITED)
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............. $ 308,000 $ 308,000 $4,507,000 $4,507,000 $1,201,080 $1,201,080
Long-term debt............ $4,785,000 $4,785,000 $5,221,000 $5,221,000 $5,148,696 $5,148,696
Subordinated promissory
notes................... -- -- $5,362,000 $5,362,000 $5,318,227 $5,318,227
</TABLE>
NOTE D -- PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1994 1995 1996
-------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Prepaid insurance................................... $393,605 $ 190,754 $ 159,905
Prepaid real estate taxes........................... 126,174 122,473 101,039
Prepaid and refundable income taxes................. -- 665,878 269,280
Other............................................... 120,864 436,201 167,570
-------- ---------- ------------
$640,643 $1,415,306 $ 697,794
======== ========= =========
</TABLE>
NOTE E -- BUILDING, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Building, equipment and leasehold improvements, at cost, consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------- 1996
1994 1995 ------------
---------- ---------- (UNAUDITED)
<S> <C> <C> <C>
Building.......................................... $ -- $5,205,610 $ 9,178,744
Equipment......................................... 3,477,778 1,138,276 1,465,985
Leasehold improvements............................ 4,962,912 1,000,678 1,009,037
---------- ---------- ------------
8,440,690 7,344,564 11,653,766
Less accumulated depreciation..................... (922,689) (655,380) (766,573)
---------- ---------- ------------
$7,518,001 $6,689,184 $ 10,887,193
========= ========= ==========
</TABLE>
F-10
<PAGE> 48
ESMOR CORRECTIONAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation expense for the years ended December 31, 1993, 1994 and 1995,
and for the three months ended March 31, 1995 and 1996 was approximately
$113,000, $639,000, $1,040,000, $418,000 (unaudited) and $102,000 (unaudited),
respectively.
NOTE F -- OTHER ASSETS
Deferred development and start-up costs are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1994 1995 1996
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Development costs................................ $ 874,286 $2,200,943 $ 1,794,406
Start-up costs................................... 425,043 354,880 739,168
---------- ---------- ------------
1,299,329 2,555,823 2,533,574
Less accumulated amortization.................... (237,658) (289,414) (270,895)
---------- ---------- ------------
$1,061,671 $2,266,409 $ 2,262,679
========= ========= =========
</TABLE>
The March 31, 1996 and December 31, 1995 balance of $2,262,679 (unaudited)
and $2,266,409, respectively includes development costs of $48,500 related to
unawarded contracts.
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred refinancing costs.......................... $ 43,946 $587,424 $ 537,384
Deposits............................................ -- 125,773 142,748
Deferred lease option costs......................... 40,000 34,664 32,663
Other............................................... 101,616 12,908 9,907
-------- -------- -----------
$185,562 $760,769 $ 722,702
======== ======== =========
</TABLE>
Amortization expense of deferred development and start-up costs for the
years ended December 31, 1993, 1994 and 1995, and for the three months ended
March 31, 1995 and 1996 was approximately $130,000, $137,000, $120,000, $62,000
(unaudited) and $51,000 (unaudited), respectively.
NOTE G -- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1994 1995 1996
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Accounts payable................................... $1,289,334 $1,324,963 $1,654,411
Accrued expenses................................... 509,812 1,722,848 1,183,220
Payroll and related taxes.......................... 357,956 284,633 517,066
Construction costs (including retainage)........... 349,683 120,120 120,120
Income taxes....................................... 132,730 82,601 67,316
---------- ---------- ----------
$2,639,515 $3,535,165 $3,542,133
========= ========= =========
</TABLE>
F-11
<PAGE> 49
ESMOR CORRECTIONAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H -- DEBT
Effective December 31, 1995, the Company and NationsBank, N.A. entered into
a loan and security agreement totaling $11.0 million expiring on January 15,
1998. The agreement consists of $5 million term loan at a fixed rate of 8.92%,
which refinanced previous debt with another bank, and a $6 million revolving
line of credit for working capital purposes. The term loan is repayable in
monthly installments of $83,333 until the facility's expiration date, at which
time the remaining balance is due. Borrowings under the revolver are based, at
the Company's option, on .75% over the bank's prime rate or the London
International Bank Rate (LIBOR) plus 3.35%. After September 30, 1996 the
interest rate charged under either method will be based on the Company's
financial performance as specified in the agreement. Further, the Company is
required to pay an annual commitment fee of .25% of the average unused portion
of the facility. The Company may prepay any borrowings without interest or
penalty. The Company's subsidiaries have guaranteed the Company's obligation
under the agreement. The Company has granted the bank a first priority security
interest in all of its assets, including a first real estate mortgage on the
land and building to be used for its Phoenix, Arizona facility. The lending
agreement contains certain financial covenants including a debt service coverage
ratio and a senior liabilities to tangible net worth and subordinated debt
ratio. The Company was not in compliance with its debt service coverage ratio as
of March 31, 1996. NationsBank, N.A. has agreed to waive this covenant for March
31, 1996, and amend the debt service coverage ratio covenant under the
agreement. The agreement precludes the payment of dividends and stock repurchase
or redemptions prior to December 31, 1996. Thereafter, such dividends, purchase
or redemptions is limited to 10% of the Company's net earnings after taxes
provided that the Company is in compliance with the above-noted financial
covenants.
Through a series of transactions that closed in July, August and September
1995, the Company issued 5,676.6 units at $1,000 per unit, in a private
placement of its securities ("1995 Private Placement"). Each unit consists of
(i) a 10% subordinated promissory note due July 31, 1998 in the principal amount
of $1,000, interest payable quarterly and (ii) a four year warrant to purchase
154 shares of common stock at $7.75 per share. The Company received gross
proceeds of $5,676,600 in connection with the 1995 Private Placement and
recorded the market value of the warrants, $365,000, as promissory note discount
amortized over three years. The net proceeds from such issuance are being used
to construct and renovate its Phoenix, Arizona facility.
The Company's prior revolving credit and term loan agreement dated July 18,
1994, with a bank, provided the Company with maximum borrowings of $5,000,000,
at the bank's prime rate plus 1% per annum, in the form of: (i) a $1,000,000
revolving credit agreement expiring July 28, 1996 and (ii) a $4,000,000 term
loan agreement with the outstanding principal payable in monthly installments
through August 31, 1999. The Company had granted the prior bank a first priority
security interest in all of its assets. On March 24, 1995, the Company entered
into a $1,500,000 project loan and term loan agreement with a bank. Proceeds
from the loan were used to finance the cost of construction of the Company's
Canadian, Texas facility. As noted above, these loans have been repaid in full
by the loan and security agreement with NationsBank, N.A.
On July 28, 1995, the Company entered into an agreement with the bank under
which this bank (i) waived its right to declare the revolving credit and term
loan agreement dated July 28, 1994 and the project loan and term loan agreement
dated March 24, 1995 in default in the event of the expiration of the Company's
Elizabeth, New Jersey contract with the United States Department of Justice,
Immigration and Naturalization Services ("INS"), and (ii) consented to the
Company's 1995 Private Placement, see above. In addition, the Company granted
the prior bank a first priority deed of trust, assignment of rents and security
interest on its Phoenix, Arizona facility and the assignment of leases and rents
on its Elizabeth, New Jersey facility. Pursuant to the agreement, the maturity
date of the term loan agreements became July 1, 1997, payable in monthly
installments of $92,000 with the balance due July 1, 1997. Under the agreement,
the Company prepaid $250,000 of the term loans in September 1995. In connection
with the agreement, the
F-12
<PAGE> 50
ESMOR CORRECTIONAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
President and Executive Vice President gave limited personal guarantees, not to
exceed $1,200,000 each. On December 31, 1995, the term loan, revolving line of
credit and project loan agreements were paid in full by the loan and security
agreement with NationsBank, N.A.
Borrowings under the long-term debt and revolving line of credit agreements
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1994 1995 1996
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Term loans....................................... $4,785,404 $5,000,000 $4,925,696
Revolving line of credit......................... -- 221,022 223,000
---------- ---------- ----------
4,785,404 5,221,022 5,148,696
Less
Current maturities............................. 1,757,384 1,221,022 1,227,545
---------- ---------- ----------
$3,028,020 $4,000,000 $3,921,151
========= ========= =========
</TABLE>
Aggregate maturities of long-term debt as of December 31, 1995 are as
follows:
<TABLE>
<S> <C>
1996......................................................... $1,221,022
1997......................................................... 1,000,000
1998......................................................... 3,000,000
----------
$5,221,022
=========
</TABLE>
NOTE I -- RENTAL AGREEMENTS
Minimum rental commitments under non-cancelable leases as of December 31,
1995, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING RELATED
DECEMBER 31, TOTAL COMPANIES
------------- ---------- ----------
<S> <C> <C>
1996..................................................... $1,770,000 $1,080,000
1997..................................................... 1,735,000 1,080,000
1998..................................................... 1,670,000 1,080,000
1999..................................................... 980,000 600,000
2000..................................................... 700,000 600,000
Thereafter............................................... 200,000 200,000
---------- ----------
$7,055,000 $4,640,000
========= =========
</TABLE>
The Company leases one of its facilities from a related party under a
sublease arrangement, which expires April 30, 2000. The Company has a five-year
option to renew this sublease arrangement. A portion of this building and annex
are occupied by residential and commercial tenants.
The Company leases another building from a related party. The lease
commenced January 1, 1994 and expires December 31, 1998. Thereafter, the Company
has three successive five-year options to renew. In addition to the base rent,
the Company pays taxes, insurance, repairs and maintenance on this building.
Rental expense for the years ended December 31, 1993, 1994 and 1995 and the
three months ended March 31, 1995 and 1996 aggregated $1,360,000, $1,428,000,
$1,510,000, $395,000 (unaudited) and $351,000 (unaudited) respectively, and is
included in general and administrative expenses. Rent expense to related
companies aggregated $1,218,000, $966,000, $1,038,000 and $246,000 (unaudited)
and $242,000 (unaudited) for the years ended December 31, 1993, 1994 and 1995,
and the three months ended March 31, 1995 and 1996, respectively.
F-13
<PAGE> 51
ESMOR CORRECTIONAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J -- INCOME TAXES
The income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------------- -----------------
1993 1994 1995 1995 1996
---------- ---------- --------- -------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal......................... $ 625,000 $ 800,000 $ (42,000) $337,000 $ --
State and local................. 111,000 202,000 112,000 73,000 8,000
Deferred
Federal, state and local........ -- -- (600,000) (85,000) --
---------- ---------- --------- -------- ------
$ 736,000 $1,002,000 $(530,000) $325,000 $8,000
========= ========= ========= ======== ======
</TABLE>
The Company's effective income tax rate differs from the Federal statutory
income tax rate primarily due to the effects of state and local income taxes.
Deferred income taxes reflect the tax effected impact of "temporary
differences" between the amounts of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws and regulations. The
components of the Company's deferred tax assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Depreciation...................................... $ 27,000 $466,000 $ 466,000
Vacation accrual.................................. 42,000 52,000 52,000
Development costs................................. -- 42,000 42,000
Accrued expenses.................................. -- 70,000 70,000
Other............................................. -- (30,000) (30,000)
-------- -------- -----------
69,000 600,000 600,000
Valuation allowance............................... (69,000) -- --
-------- -------- -----------
$ -- $600,000 $ 600,000
======== ======== =========
</TABLE>
The Company, after considering its previous pattern of profitability,
excluding the New Jersey facility charge, and its anticipated future taxable
income, believes it is more likely than not that the deferred tax assets will be
realized.
NOTE K -- STOCKHOLDERS' EQUITY
On August 4, 1994, the Company's Board of Directors declared a 5% stock
dividend payable on September 16, 1994 to stockholders of record on September 2,
1994. On March 8, 1995, the Company's Board of Directors authorized a
five-for-four stock split in the form of a 25% stock dividend payable on April
5, 1995 to stockholders of record on March 23, 1995. All references in the
financial statements to average number of shares outstanding, per share amounts
and stock option data for prior periods presented have been restated to reflect
the 5% stock dividend and five-for-four stock split.
During September 1995, the Company completed the private placement of
496,807 shares of common stock at $7.75 per share. The Company received gross
proceeds of $3,850,254, net of issuance costs of $380,556. The net proceeds are
being used for its Phoenix, Arizona facility.
F-14
<PAGE> 52
ESMOR CORRECTIONAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On February 2, 1994, the Company completed a public offering of 833,333
shares of common stock. The net proceeds received by the Company after deducting
applicable issuance costs and expenses aggregated $4,105,020. In connection with
the public offering, the Company sold to the representative of the underwriters,
for a nominal sum, warrants to purchase from the Company 109,375 shares of
common stock. The warrants are exercisable for a period of four years commencing
February 2, 1995 at an exercise price of 107% of the initial public offering
price ($4.76), increasing to 114% of the initial public offering price on
February 2, 1996, 121% of the initial public offering price on February 2, 1997
and 128% of the initial public offering price on February 2, 1998. As of March
31, 1996 all of the warrants remain outstanding.
In connection with the 1995 Private Placement, the Company sold to the
agent for the private placement, for a nominal sum, warrants to purchase from
the Company 119,362 share of common stock. The warrants are exercisable for a
period of five years commencing September 15, 1995 at an exercise price of
$10.00. As of March 31, 1996 all of the warrants remain outstanding.
In connection with the 1995 Private Placement, warrants issued with units
totalled 874,198 which are exercisable at $7.75 per share. At December 31, 1995
and March 31, 1996 warrants outstanding totalled 874,198 and 868,418
(unaudited), respectively. (See Note H).
NOTE L -- COMMITMENTS AND CONTINGENCIES
1. New Jersey Facility Closure
Due to a disturbance at the Company's Elizabeth, New Jersey facility on
June 18, 1995, the facility was closed and all detainees located therein were
moved by the INS to other facilities. The INS has extended the time it has to
exercise its renewal option under the contract in anticipation of the agreement
described below. To date the INS has not exercised its renewal option for its
contract.
On December 15, 1995, the Company and a publicly-traded company (the
"Buyer") which also operates and manages detention and correctional facilities,
entered into an asset purchase agreement whereby the Buyer purchased for
$6,223,000 the equipment, inventory and supplies, contract rights and records,
leasehold and land improvements of the Company's New Jersey facility. The
purchase price will be payable in monthly non-interest bearing installments of
$123,000 following the month that the Buyer commences operations under the
present INS contract through August 1, 1999. The remaining balance due after
August 1, 1999, shall be payable if and only if the INS extends its contract for
an additional five year period and shall be due within 30 days of the exercise
by the INS of its renewal option. On June 13, 1996 the Company, the Buyer and
the INS executed a Novation Agreement whereby the Buyer became the Company's
successor in interest in and to the contract with the INS. In addition, the
Company's lease agreement on the New Jersey facility was assigned to the Buyer.
The Equipment and Leasehold Improvements Under Agreement for Sale reflected
in the balance sheet at December 31, 1995, and March 31, 1996 represents the
fair value of the consideration to be received of $4,507,882 and $4,657,882
(unaudited), respectively ($6,223,000 discounted using an interest rate of 11.5%
per annum) reduced by the agreement's estimated closing costs (legal and
consulting) and the facility's estimated carrying costs of $300,000 (at December
31, 1995) and $150,000 (at March 31, 1996) through July 1, 1996, the expected
transfer date. The statement of operations for 1995 reflects a provision, "New
Jersey facility closure costs," of $2,609,700 which represents $416,201 from the
write-off of deferred development costs related to the facility and $2,193,499
resulting from the adjustment of the carrying value of the related assets
discussed above. During the three months ended March 31, 1996 the reserve for
carrying and closing costs were reduced by approximately $150,000 of cash
payments for rent and other carrying and closing costs.
F-15
<PAGE> 53
ESMOR CORRECTIONAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
There can be no assurance that the INS will extend the contract beyond
August 1, 1999. The ultimate realization of the carrying costs and the gross
minimum rental commitment of this facility of $1,080,000, is not certain at this
time; accordingly, the consolidated financial statements do not include any
additional adjustments than discussed above that might result from the outcome
of this uncertainty.
2. Legal Matters
A former employee of the Company filed suit in the United States District
Court, Southern District of New York in May 1993, claiming that he was
intentionally assaulted by employees of Esmor Management, Inc. This employee
alleges six causes of action, claiming, among other things, that he was deprived
of due process and equal protection and is claiming $5,000,000 in damages on
each of his six causes of action. The Company believes such claims to be without
merit and is vigorously defending this action. The ultimate outcome of the
lawsuit cannot be determined at this time, and accordingly, no adjustment has
been made to the consolidated financial statements.
On January 25, 1996 a lawsuit was filed with the Supreme Court of New York
on a matter, James Smith vs. Esmor, Inc. The plaintiff, a former Esmor employee,
claims sexual harassment and discrimination, as well as physical assault, rape
and negligent screening of employees. Total damage sought by plaintiff amount to
$4,000,000 plus attorney fees. The Company believes that such claims to be
without merit and intends to vigorously defend itself in this action. The
ultimate outcome of the lawsuit cannot be determined at this time, and
accordingly, no adjustment has been made in the consolidated financial
statements.
On March 6, 1996, Samson Brown, et. al. v. Esmor Correctional Services,
Inc., et. al., was filed in the Supreme Court of the State of New York, County
of Bronx. Plaintiffs claim on behalf of themselves and others similarly
situated, personal injuries and property damage purportedly caused by negligence
and intentional acts of the Company. The lawsuit claims $500,000,000 each for
compensatory and punitive damages. The Company intends to vigorously defend
itself in this action. The Company has notified its insurance carrier and has
requested indemnity and defense. The ultimate outcome of the lawsuit cannot be
determined at this time, and accordingly, no adjustment has been made to the
consolidated financial statements.
The Company is subject to claims and suits in the ordinary course of
business. Management believes that the ultimate outcome of all such proceedings
will not have a material adverse effect on the results of operations or
financial condition of the Company.
3. Contracts
Renewal of government contracts (Note B) is subject to, among other things,
appropriations of funds by the various levels of government involved (Federal,
state or local). Also, several contracts contain provisions whereby the Company
may be subject to audit by the government agencies involved. These contracts
also generally contain "termination for the convenience of the government" and
"stop work order" clauses which generally allow the government to terminate a
contract without cause. In the event one of the Company's larger contracts is
terminated, it may have a material adverse effect on the Company's operations.
4. Officers' Compensation
Effective February 9, 1994, the President and Executive Vice President
entered into five-year employment agreements. Annual compensation increases are
based on the Consumer Price Index. In addition, the President will receive an
annual bonus of five percent of pre-tax earnings greater than $1,000,000, not to
exceed $200,000.
In January 1996, the Company entered into three-year employment agreements
with its Chief Operating Officer and Executive Vice President -- Finance.
Pursuant to the terms of the employment agreement, each executive was granted an
option to purchase 100,000 shares of common stock. The option was granted at the
F-16
<PAGE> 54
ESMOR CORRECTIONAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fair market value of the stock on the date of grant which was $8.875 per share.
The options are exercisable as follows: one-third on the date of grant,
one-third one year from the date of grant and the remaining one-third two years
from the date of grant.
Compensation to such officers aggregated $265,000, $280,000, $294,000,
$73,000 (unaudited), and $75,000 (unaudited) for the years ended December 31,
1993, 1994 and 1995 and the three months ended March 31, 1995 and 1996,
respectively.
5. Other
Approximately 99.7%, 97.5% and 96.6% and of the Company's revenues for the
years ended December 31, 1993, 1994 and 1995, respectively, relate to amounts
earned from Federal, state and local contracts. The Company's contracts with
government agencies where revenues exceeded 10% of the Company's total
consolidated revenues were with the U. S. Bureau of Prisons, INS, the New York
State Department of Corrections, and the Texas Department of Criminal Justice.
6. Phoenix, Arizona Facility -- Renovation Costs to Complete
At December 31, 1995 and March 31, 1996, the Company has incurred
approximately $604,000 and $4,330,000 (unaudited) for the renovation of the
Phoenix, Arizona facility. Total anticipated construction costs upon completion
approximate $4,516,000. In addition, the Company has restricted cash of $750,000
for the final payment of the renovation costs of this facility.
NOTE M -- STOCK OPTIONS
In October 1993, the Company adopted a stock option plan (the "Stock Option
Plan"). This plan provides for the granting of both: (i) incentive stock options
to employees and/or officers of the Company and (ii) nonqualified options to
consultants, directors, employees or officers of the Company. The total number
of shares which may be sold pursuant to options granted under the stock option
plan is 500,000. The Company, in June 1994, adopted a Non-employee Directors
Stock Option Plan, which provides for the grant of nonqualified options to
purchase up to 196,875 shares of the Company's common stock.
Options granted under both plans may not be granted at a price less than
the fair market value of the Common Stock on the date of grant (or 110% of fair
market value in the case of persons holding 10% or more of the voting stock of
the Company). Options granted under the Stock Option Plan will expire not more
than five years from the date of grant.
Information regarding the Company's stock option plans is summarized below:
<TABLE>
<CAPTION>
NON-EMPLOYEE
STOCK DIRECTORS STOCK NON-PLAN
OPTION PLAN OPTION PLAN OPTIONS
----------- --------------- --------
<S> <C> <C> <C>
Balance at January 1, 1994.......................... -- -- --
Granted........................................... 225,313 65,000 --
----------- ------- --------
Outstanding at December 31, 1994.................... 225,313 65,000 --
Granted........................................... 54,375 25,000 --
Exercised......................................... (7,000) -- --
----------- ------- --------
Outstanding at December 31, 1995.................... 272,688 90,000 --
Granted........................................... 13,500 -- 200,000
----------- ------- --------
Outstanding at March 31, 1996 (unaudited)........... 286,188 90,000 200,000
========= =========== =======
Option prices per share
Granted................................................ $4.76-$20.63 $7.05-$18.75
Exercised.............................................. $4.76
</TABLE>
F-17
<PAGE> 55
ESMOR CORRECTIONAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1995 and March 31, 1996, stock options for 225,314 shares
($4.76-$8.00 a share) and 240,939 shares ($4.76-$11 a share) were exercisable
under the Stock Option Plan, respectively.
NOTE N -- SUBSEQUENT EVENTS
1. Proposed Public Offering of Securities
The Company is in the process of filing a registration statement for a
proposed sale of 2,430,000 shares of common stock. Of the 2,430,000 shares of
common stock offered, 2,000,000 shares are being sold by the Company and 430,000
shares by certain stockholders. The Company will not receive any proceeds from
the shares being sold by stockholders. The Company intends to retire bank
indebtedness (Note H) with a portion of the net proceeds of the proposed
offering.
2. New Jersey Facility
On June 13, 1996 the INS agreed to transfer the facility lease and
management contract to a unrelated Company. (See Note L-1.)
F-18
<PAGE> 56
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING HEREIN CONTAINED AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE FACTS HEREIN SET FORTH SINCE THE DATE HEREOF.
---------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Prospectus Summary.................... 3
Safe Harbor Provisions of the Private
Securities Litigation Reform Act.... 6
Risk Factors.......................... 6
Capitalization........................ 9
Use of Proceeds....................... 9
Dividends............................. 10
Price Range of Common Stock........... 10
Selected Consolidated Financial
Data................................ 11
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 12
Business.............................. 17
Management............................ 25
Certain Transactions.................. 29
Principal and Selling Stockholders.... 31
Description of Securities............. 32
Underwriting.......................... 34
Legal Matters......................... 35
Experts............................... 35
Additional Information................ 35
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,450,000 SHARES
ESMOR CORRECTIONAL
SERVICES, INC.
COMMON STOCK
--------------------
PROSPECTUS
--------------------
STEPHENS INC.
J.C. BRADFORD & CO.
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 57
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of this Offering, all of which will be paid by
Registrant, are as follows:
<TABLE>
<S> <C>
S.E.C. Registration Fee................................................... $ 15,181
N.A.S.D. Filing Fee....................................................... 4,902
Nasdaq National Market Listing Fee........................................ 17,500
Accounting Fees........................................................... 75,000
Legal Fees and Expenses................................................... 150,000
Blue Sky Qualification Fees and Expenses.................................. 15,000
Printing and Engraving.................................................... 85,000
Miscellaneous Expenses.................................................... 37,417
--------
Total........................................................... $400,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law grants corporations the
power to indemnify their directors, officers, employees and agents in accordance
with the provisions thereof. Article Tenth of Registrant's Certificate of
Incorporation and Paragraph 11.6(a) of Registrant's by-laws provide for
indemnification of Registrant's directors, officers, agents and employees to the
fullest extent permissible under Section 145 of the Delaware General Corporation
Law. Registrant presently maintains directors' and officers' liability insurance
coverage with an aggregate policy limit of $5,000,000 for each policy year.
See also Section 8 of the Underwriting Agreement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In February 1994, Registrant issued an aggregate of 2,500,000 shares of its
Common Stock to the stockholders of seven affiliated corporations in exchange
for all outstanding shares of capital stock of such corporations. The name and
number of shares of Registrant's Common Stock issued to each of such
stockholders are as follows:
<TABLE>
<CAPTION>
STOCKHOLDER NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
Morris Horn.......................................................... 750,000
James F. Slattery.................................................... 700,000
Aaron Speisman....................................................... 475,000
David Fuld........................................................... 250,000
Steve Orlow.......................................................... 75,000
The Jennifer Anna Speisman 1992 Trust................................ 75,000
The Joshua Israel Speisman 1992 Trust................................ 75,000
Joel Shafran......................................................... 50,000
Bernard Shafran...................................................... 50,000
-------------
Total...................................................... 2,500,000
=============
</TABLE>
In September 1995, Registrant completed private placements of its
securities, issuing (i) to five accredited investors an aggregate of 496,807
shares of its Common Stock at $7.75 per share (ii) to approximately 100
accredited investors an aggregate of $5,676,600 of its 10% subordinated
promissory notes due July 1, 1998 combined with warrants to purchase an
aggregate of 874,198 shares of its Common Stock at
II-1
<PAGE> 58
$7.75 per share, and (iii) to Janney Montgomery Scott, Inc. (the placement agent
for the private placements) a warrant to purchase 59,681 shares of its Common
Stock at $10.00 per share.
In November 1993, July 1994, and December 1995, Registrant executed
promissory notes and other documents to evidence a $4 million credit facility
with Extebank, N.A., a $5 million combined term loan from and credit facility
with Marine Midland Bank, N.A., and an $11 million combined term loan from and
credit facility with NationsBank, N.A.
The foregoing transactions of Registrant were exempt from registration
under the Securities Act of 1933, as amended, under Section 4(2) thereof and/or
Regulation D promulgated thereunder, and all equity securities issued in
connection therewith were legended to reflect their restricted status.
The number of shares of Common Stock described in the foregoing
transactions has not been adjusted to give effect to Registrant's 5% stock
dividend or 5 for 4 stock split.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<C> <C> <S>
1 -- Form of Underwriting Agreement.
+2.1 -- Stock Transfer Agreements between the Company and the stockholders of each
of Esmor Management, Inc. Esmor (Brooklyn), Inc., Esmor Manhattan, Inc.,
Esmor (Seattle), Inc., Esmor New Jersey, Inc., Esmor Texas, Inc., and Esmor
Houston, Inc.
+3.1 -- Copy of Registrant's Certificate of Incorporation dated October 28, 1993
3.2 -- Copy of Registrant's By-Laws, as amended.
+4.2 -- Form of Underwriter's Warrant between the Company and Janney Montgomery
Scott Inc.
4.3 -- Form of Series A Warrant.
4.4 -- Form of 10% Subordinated Promissory Note.
4.5 -- Form of Placement Agent's Warrant.
*5 -- Opinion by Epstein Becker & Green, P.C., as to legality.
10.1 -- Copy of Registrant's 1993 Stock Option Plan, as amended.
10.1.1 -- Form of Stock Option Agreement under the 1993 Stock Option Plan, as
amended.
+10.5 -- Employment Agreement between the Company and James F. Slattery.
+10.6 -- Employment Agreement between the Company and Aaron Speisman.
10.6.1 -- Amendment to Employment Agreement between the Company and Aaron Speisman.
@10.11.2 -- Contract between the Company and the Judicial District Community
Supervision and Corrections Department of Tarrant County, dated September
26, 1995 for the operation of the Tarrant County Community Corrections
Facility.
+10.12 -- Contract between the Company and the New York State Department of
Corrections, dated July 17, 1992.
@10.13.2 -- Contract between the Company and the Texas Department of Criminal Justice
for operation of the South Texas Intermediate Sanction Facility.
+10.14 -- Contract between the Company and the U.S. Immigration and Naturalization
Service for operation of the New Jersey Processing Center, dated August 13,
1993.
@10.14.1 -- Contract between the Company and the U.S. Immigration and Naturalization
Service extending the period which the INS has to exercise its renewal
option under its contract for the operation of the New Jersey Processing
Center.
+10.15 -- Agreement between the Company and William Banks, dated October 31, 1989.
+10.15.1 -- Letter dated December 9, 1993 from William Banks to the Company.
+10.16 -- Form of Sub-Lease between the Company and LeMarquis Operating Corp.
+10.17 -- Form of Lease between the Company and Myrtle Avenue Family Center, Inc.
+10.18 -- Lease between the Company and T. NY (USA).
</TABLE>
II-2
<PAGE> 59
<TABLE>
<C> <C> <S>
#10.19 -- Contract by and between Esmor Canadian, Inc. and the Board of Trustees for
the Hemphill County Juvenile Detention Center for operation of the Hemphill
County Juvenile Detention Center.
#10.20 -- Contract between Esmor Fort Worth, Inc. and the Texas Department of
Criminal Justice, Pardons and Paroles Division for the Fort Worth Community
Corrections Facility.
@10.21.1 -- Contract dated October 1, 1995 by the Community Supervision and Corrections
Department of Travis County, Texas for the Travis County Substance Abuse
Treatment Facility.
#10.22 -- Contract between the Company and the U.S. Department of Justice,
Immigration and Naturalization Service for operation of the Seattle
Processing Center, effective August 1, 1994.
@10.22.1 -- Exercise of second option of the contract for operation of the Seattle
Processing Center.
#10.23 -- Lease between Esmor Fort Worth, Inc. and Region Enterprises, Inc.
#10.24 -- Revolving Credit and Term Loan Agreement with Marine Midland Bank dated as
of July 28, 1994.
@10.25 -- 1994 Non-Employee Director Stock Option Plan.
10.25.1 -- Form of Stock Option Agreement under the 1994 Non-Employee Director Stock
Option Plan.
@10.26 -- Loan and Security Agreement with NationsBank, N.A. (South) dated as of
December 31, 1995.
@10.27 -- Lease between the Company and Zell/Merrill Lynch Real Estate Opportunity
Partners Limited Partnership dated as of June 30, 1995.
@10.28 -- Lease between the Company and Gayton Crossing dated as of May 26, 1995.
@10.29 -- Contract between the Company and the State of Florida, Correctional
Privatization Commission dated October 6, 1995 for operation of the Pahokee
Youth Facility.
@10.30 -- Contract between the Company and the State of Florida, Correctional
Privatization Commission dated October 6, 1995 for operation of the Polk
City Youth Facility.
@10.31 -- Contract between the Company and the State of Arizona, Department of
Corrections for operation of the Arizona DWI Facility.
@10.32 -- Contract between the Company and the State of Florida, Department of
Juvenile Justice for operation of the Bartow Youth Facility.
@10.33 -- Contract, effective as of December 22, 1995, between the Company and
Johnson County, Texas for the Johnson County Juvenile Detention Center.
@10.34 -- Asset Purchase Agreement dated as of December 15, 1995 between the Company
and Corrections Corporation of America ("CCA").
10.34.1 -- Amendment No.1 to Asset Purchase Agreement between the Company and CCA.
10.34.2 -- Amendment No.2 to Asset Purchase Agreement between the Company and CCA.
10.34.3 -- Amendment to Section 2.1 of Asset Purchase Agreement between the Company
and CCA.
10.34.4 -- Novation Agreement among the Company, CCA and the United States of America.
10.34.5 -- Assignment of Lease between the Company and CCA and Owner's Consent to
Assignment by Elberon Development Co. ("Elberon").
10.34.6 -- Agreement between the Company and Elberon relating to Assignment of Lease.
10.34.7 -- Indemnity and Hold Harmless Agreement between the Company and Elberon.
@10.35 -- Construction Contract dated as of December 28, 1995 between the Company and
Bison Industries, Inc. for construction of the Pahokee (Florida) Youth
Facility.
@10.36 -- Design and Construction Contract dated as of December 1, 1995 by and
between the Company, the Florida Correctional Finance Corporation and the
State of Florida, Correctional Privatization Commission for the design and
construction of the Polk City (Florida) Youth Facility.
</TABLE>
II-3
<PAGE> 60
<TABLE>
<C> <C> <S>
@10.37 -- Contract dated July 1, 1995, between the Company and the U.S. Department of
Justice, Federal Bureau of Prisons for operation of a facility in New York,
New York.
@10.38 -- Contract between the Company and the U.S. Department of Justice, Federal
Bureau of Prisons for operation of a facility in Brooklyn, New York.
10.38.1 -- Modification No. 1 to Contract between the Company and the U.S. Department
of Justice, Federal Bureau of Prisons for operation of a facility in
Brooklyn, New York.
10.39 -- Construction Contact, dated December 28, 1995, between the Company and
Bison Industries, Inc. for construction of the Polk City (Florida) Youth
Facility.
10.40 -- Design and Construction Contract, dated December 1, 1995, among the
Company, the Florida Correctional Finance Corporation and the State of
Florida, Correctional Privatization Commission for the design and
construction of the Pahokee (Florida) Youth Facility.
10.41 -- Employment Agreement, dated January 21, 1996, between the Company and Ira
M. Cotler.
10.42 -- Employment Agreement, dated January 21, 1996, between the Company and
Michael C. Garretson.
10.43 -- Stock Option Agreement, dated January 21, 1996, between the Company and Ira
M. Cotler.
10.44 -- Stock Option Agreement, dated January 21, 1996, between the Company and
Michael C. Garretson.
10.45 -- Stock Option Agreement, dated April 8, 1996, between the Company and Stuart
M. Gerson.
11 -- Computation of Per Share Earnings.
21.1 -- List of Subsidiaries.
23.1 -- Consent of Grant Thornton LLP (contained on page II-8).
*23.2 -- Consent of Epstein Becker & Green, P.C. (included in Exhibit 5).
24 -- Power of Attorney (included as part of Signature Page).
27 -- Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------
+ Incorporated by reference to the Exhibit of corresponding number filed with
the Company's Registration Statement on Form SB-2 (File No. 33-71314-NY).
# Incorporated by reference to the Exhibit of corresponding number filed with
the Company's Annual Report on Form 10-KSB for the year ended December 31,
1994.
@ Incorporated by reference to the Exhibit of corresponding number filed with
the Company's Annual Report on Form 10-KSB for the year ended December 31,
1995.
* To be filed by amendment.
(b) Financial Statement Schedules:
Schedules have been omitted for the reason that they are not required or
are not applicable or because the required information is included in the
financial statements or the notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of Registrant pursuant to the provisions of its Certificate
of Incorporation, its By-Laws, the Delaware General Corporation Law or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
for expenses incurred or paid by a director, officer or controlling person of
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling
II-4
<PAGE> 61
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-5
<PAGE> 62
POWER OF ATTORNEY TO SIGN AMENDMENTS
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below does hereby constitute and appoint James F. Slattery and Ira M. Cotler,
and each of them, with full power to act without the other, his true and lawful
attorney-in-fact and agent for him and in his name, place and stead, in any and
all capacities, to sign any or all amendments to this Registration Statement and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises in order to effectuate the same, as fully, for all
intents and purposes, as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Registrant has
duly caused this Registration Statement or amendment thereto to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Sarasota,
State of Florida, on the 20th day of June, 1996.
ESMOR CORRECTIONAL SERVICES, INC.
By: /s/ JAMES F. SLATTERY
------------------------------------
James F. Slattery
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- -------------------------------- --------------
<C> <S> <C>
/s/ JAMES F. SLATTERY President and Director June 20, 1996
- --------------------------------------------- (Principal Executive Officer)
James F. Slattery
/s/ AARON SPEISMAN Executive Vice President, June 20, 1996
- --------------------------------------------- Secretary and Director
Aaron Speisman
/s/ LEE LEVINSON Chief Financial Officer June 20, 1996
- --------------------------------------------- (Principal Financial and
Lee Levinson Accounting Officer)
/s/ RAYMOND S. EVANS Director June 20, 1996
- ---------------------------------------------
Raymond S. Evans
/s/ SHIMMIE HORN Director June 20, 1996
- ---------------------------------------------
Shimmie Horn
/s/ STUART M. GERSON Director June 17, 1996
- ---------------------------------------------
Stuart M. Gerson
</TABLE>
II-6
<PAGE> 63
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- -------------------------------- --------------
<C> <S> <C>
/s/ MELVIN T. STITH Director June 20, 1996
- ---------------------------------------------
Melvin T. Stith
/s/ RICHARD P. STALEY Senior Vice President and June 20, 1996
- --------------------------------------------- Director
Richard P. Staley
</TABLE>
II-7
<PAGE> 64
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 1, 1996 (except for Note L, as to
which the date is March 6, 1996), accompanying the financial statements of Esmor
Correctional Services, Inc. contained in the Registration Statement and
Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus, and to the use of our name as it appears
under the caption "Experts".
GRANT THORNTON LLP
New York, New York
June 20, 1996
II-8
<PAGE> 1
EXHIBIT 1
DRAFT
ESMOR CORRECTIONAL SERVICES, INC.
2,450,000 SHARES*
COMMON STOCK
($.01 PAR VALUE)
UNDERWRITING AGREEMENT
____________, 1996
STEPHENS INC.
J.C. BRADFORD & CO.
As Representatives of the several
Underwriters named in Schedule I hereto.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
Gentlemen:
Esmor Correctional Services, Inc., a Delaware corporation (the "Company"),
together with the Company's stockholders named on the signature page hereof
(collectively, the "Stockholders") confirm their agreement with the several
underwriters (the "Underwriters") for whom you are acting as representatives
(the "Representatives") for the Company and the Stockholders to issue and sell
2,000,000 shares and 450,000 shares, respectively, of the Company's common
stock, par value $.01 per share (the "Underwritten Shares") to the
Underwriters. The Company's common stock is more fully described in the
Registration Statement and the Prospectus hereinafter mentioned.
For the sole purpose of covering over-allotments in connection with the
sale of the Underwritten Shares, the Company shall grant to the Underwriters
the option (the "Option") described in Section 2 hereof to purchase all or any
part of 367,500 shares of common stock (the "Option Shares") owned by it. The
Underwritten Shares and the Option Shares purchased pursuant to this
Underwriting Agreement (this "Agreement") are herein called the "Shares" and
the proposed offering of the Shares by the Underwriters is hereinafter referred
to as the "Public Offering."
- --------------------
*Plus up to 367,500 additional shares of common stock to cover over-allotments.
<PAGE> 2
The Company has filed with the Securities and Exchange Commission (the
"Commission"), pursuant to the Securities Act of 1933, as amended (the "Act"),
and published rules and regulations adopted by the Commission under the Act
(the "Rules"), a registration statement on Form S-1 ("Form S-1") (File No.
333-_______), including a Preliminary Prospectus, relating to the Shares, and
such amendments to such registration statement as may have been filed with the
Commission to the date of this Agreement. The Company will next file with the
Commission one of the following: (A) prior to effectiveness of such
registration statement, a further amendment to such registration statement,
including the form of final prospectus, (B) after effectiveness of such
registration statement, a Term Sheet (if required by Rule 434) relating to the
Shares that shall identify the Preliminary Prospectus that it supplements,
and/or an Integrated Prospectus, in either case in accordance with Rules 434,
430A and 424(b), (C) after effectiveness of such registration statement (if the
Company does not rely on Rule 434), a final prospectus in accordance with Rules
430A and 424(b). The Company has furnished to the Representatives copies of
such registration statement, each amendment to it filed by the Company with the
Commission, each Preliminary Prospectus and Integrated Prospectus filed by the
Company with the Commission. The registration statement as amended at the time
it becomes or became effective (the "Effective Date"), including financial
statements and all exhibits and any information deemed to be included by Rule
430A, is called the "Registration Statement." The term "Preliminary
Prospectus" means any Preliminary Prospectus (as referred to in Rule 430 or
Rule 430A of the Rules) included at any time as a part of the registration
statement. The term "Integrated Prospectus" means a prospectus relating to the
Shares that is first filed pursuant to Rules 434(c)(2) and 424(b). The term
"Prospectus" means (1) if the Company relies on Rule 434 in connection with the
offering of the Shares, the Term Sheet relating to the Shares that is first
filed pursuant to Rule 424(b) (7) after the date hereof; (2) if the Company
does not rely on Rule 434, the prospectus relating to the Shares that is first
filed pursuant to Rule 424(b) after the date hereof; or (3) if the Company does
not so rely on Rule 434 and no filing pursuant to Rule 424(b) is required, the
form of final prospectus relating to the Shares included in the Registration
Statement at the Effective Date. The term "Term Sheet" means any abbreviated
term sheet that satisfies the requirements of Rule 434.
Any reference herein to the Registration Statement, any Preliminary
Prospectus, any Integrated Prospectus or the Prospectus shall be deemed to
refer to and include any documents incorporated by reference therein on or
before the Effective Date or the date of such Preliminary Prospectus,
Integrated Prospectus or the Prospectus, as the case may be.
As the Representatives, you have advised the Company and the Stockholders
that (a) you are authorized to enter into this Agreement on behalf of the
several Underwriters and (b) the Underwriters are willing, acting severally and
not jointly, to purchase the amounts of the Underwritten Shares set forth
opposite their respective name in Schedule I hereto, plus their pro rata
portion of the Option Shares if you elect to exercise the over-allotment Option
in whole or in part for the accounts of the several Underwriters.
2
<PAGE> 3
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the Company,
the Stockholders and the Underwriters hereby agree as follows:
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND THE
STOCKHOLDERS
(a) The Company represents and warrants to, and agrees with, each
Underwriter as follows:
(i) The Company has been duly organized, is in compliance with its
Certificate of Incorporation, and is validly existing as a corporation in
good standing under the laws of the State of Delaware, with full power and
authority (corporate and other) to own its properties and conduct its
business as described in any Integrated Prospectus and the Prospectus.
Each significant subsidiary (as defined by the Act) of the Company (each a
"Subsidiary" and collectively, the "Subsidiaries") has been duly
incorporated and is validly existing as a corporation, in good standing
under the laws of the jurisdiction of its organization, with full power
and authority (corporate and other) to own or lease its properties, and
conduct its business. The Company and the Subsidiaries are duly qualified
to transact business in all jurisdictions in which the conduct of its
business or the ownership or lease of its properties requires such
qualifications. The Company owns all of the outstanding capital stock of
its subsidiaries free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest.
(ii) The outstanding shares of common stock of the Company have been
duly and validly authorized and issued and are fully paid and
non-assessable; the Shares are duly and validly authorized, and, if not
now issued, when issued and paid for as contemplated herein, will be fully
paid and non-assessable. There are no preemptive or other restrictive
rights to subscribe for or to purchase, or any restriction upon the voting
or transfer of any class of the Company's common stock pursuant to the
Company's Certificate of Incorporation, Bylaws, or other governing
documents or any agreement or other instrument to which the Company or any
of its Subsidiaries is a party or by which any of them may be bound.
Neither the filing of the Registration Statement nor the offering of the
Shares as contemplated by this Agreement gives rise to any rights, other
than those which have been waived or satisfied, for or relating to the
registration of any shares of any class of the Company's capital stock.
The Shares have been approved for quotation on The Nasdaq National Market
System (the "NMS"), subject to official notice of issuance.
(iii) The Shares conform with the statements concerning them in any
Integrated Prospectus and the Prospectus. As of the Closing Date (as
defined below) and any Option Closing Date (as defined below), if
applicable, the Company will have the authorized capitalization set forth
under the caption "Use of Proceeds," "Capitalization"
3
<PAGE> 4
and "Description of Capital Stock" in any Integrated Prospectus and the
Prospectus. No further corporate approval or authority on behalf of the
Company will be required for the issuance and sale of the Shares to be
sold by the Company as contemplated herein. The description of the
Company's stock option, stock bonus and other stock plans or arrangements,
and the options or other rights granted and exercised thereunder, set
forth in any Preliminary Prospectus, Integrated Prospectus or the
Prospectus, and any amendments and supplement thereto, accurately and
fairly presents in all material respects the information required to be
shown with respect to such plans, arrangements, options and rights.
(iv) Any Preliminary Prospectus, Integrated Prospectus, the
Prospectus and the Registration Statement have been carefully prepared by
the Company in conformity with the requirements of the Act and the Rules,
including Form S-1. The Company meets the requirements of, and is
entitled to use, Form S-1 for the Public Offering. The Registration
Statement has been filed with the Commission pursuant to the Act.
(v) Neither the Commission nor any other agency, body, authority,
court or arbitrator of competent jurisdiction has, by order or otherwise,
prohibited or suspended the use of any Preliminary Prospectus, Integrated
Prospectus or the Prospectus relating to the proposed offering of the
Shares or instituted proceedings for that purpose. The Registration
Statement, the Prospectus, any Integrated Prospectus and any Preliminary
Prospectus and any amendments or supplements thereto at the time they
became or become effective or were filed or are filed with the Commission
contained or will contain all statements which are required to be stated
therein by, and in all material respects conformed or will conform to the
requirements of, the Act and the Rules. Neither the Registration
Statement, Integrated Prospectus nor any Preliminary Prospectus nor any
amendment thereto, and neither the Prospectus nor any supplement thereto,
as of its date contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that
neither the Company nor the Stockholders make any representations or
warranties as to information contained in or omitted from the Registration
Statement or any Preliminary Prospectus or the Prospectus, or any such
amendment or supplement, in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of any Underwriter
through the Representatives, expressly for use in the preparation thereof
as hereinafter set forth in Section 13.
(vi) The consolidated financial statements of the Company and the
Subsidiaries, together with related notes and schedules as set forth in
the Registration Statement, present fairly the consolidated financial
position and the results of operations and changes in financial conditions
of the Company and the Subsidiaries, at the indicated dates and for the
indicated periods. Such financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP"),
consistently applied
4
<PAGE> 5
throughout the periods involved, and all adjustments necessary for a fair
presentation of results for such periods have been made. The Summary
Consolidated Financial Information and the Selected Consolidated Financial
Data included in the Prospectus and any Integrated Prospectus present
fairly in accordance with GAAP the information shown therein and have been
compiled on a basis consistent with that of the audited and unaudited
financial statements from which they were derived. The Company and its
Subsidiaries have maintained and will maintain and keep accurate books and
records reflecting their assets and maintain internal accounting controls
which provide reasonable assurance that (A) transactions are executed in
accordance with management's authorization, (B) transactions are recorded
as necessary to permit the preparation of the Company's consolidated
financial statements and to maintain accountability for the assets of the
Company, (C) access to the assets of the Company and the Subsidiaries is
permitted only in accordance with management's authorization, and (D) the
recorded accounts of the assets of the Company and the Subsidiaries are
compared with existing assets at reasonable intervals.
(vii) Except as is disclosed in the Prospectus or any Integrated
Prospectus, there is no action or proceeding pending or, to the knowledge
of the Company, threatened against the Company, any of its Subsidiaries or
any of their respective officers or any of their properties, assets or
rights before any court or administrative or governmental agency or other
body which might (A) result in any material adverse change in the
condition (financial or otherwise), or in the earnings, business, affairs,
properties, business prospects or results of operations of the Company or
its Subsidiaries ("Material Adverse Change" or "Material Adverse Effect,"
as the case may be), whether or not arising in the ordinary course of
business, (B) affect the performance of this Agreement or the consummation
of the transactions herein contemplated, except as disclosed in the
Prospectus or any Integrated Prospectus, and for which the Company
maintains a reserve in an amount which it believes is adequate to cover
potential liabilities, or (C) be required to be disclosed in the
Registration Statement.
(viii) The Company and each of its Subsidiaries is not in violation
of any law, ordinance, governmental rule or regulation or court decree to
which they may be subject which violation might have a Material Adverse
Effect.
(ix) The Company and its Subsidiaries have good and marketable title
to all of the properties and assets reflected in the consolidated
financial statements hereinabove described or as described in the
Prospectus and any Integrated Prospectus as being owned by them, subject
to no lien, mortgage, pledge, charge or encumbrance of any kind except
those securing indebtedness described in such financial statements or as
described in the Prospectus and any Integrated Prospectus or which do not
materially affect the present or proposed use of such properties or
assets. The Company and its Subsidiaries occupy their leased properties
under valid, subsisting and binding leases with only such exceptions as in
the aggregate are not material and do not interfere with the conduct of
the business of
5
<PAGE> 6
the Company and its Subsidiaries. There exists no default under the
provisions of any lease, contract or other obligation to which the Company
is a party which may result in a Material Adverse Change.
(x) The Company and its Subsidiaries have filed all Federal, State
and other tax returns and reports which have been required to be filed and
has paid all taxes indicated by said returns and all assessments received
by it to the extent that such taxes have become due and there is no tax
deficiency that has been or, to the Company's knowledge, might be asserted
against the Company or any of its Subsidiaries that might have a Material
Adverse Effect (as defined herein). All material tax liabilities are
adequately provided for on the books of the Company and its Subsidiaries.
(xi) Since the respective dates as of which information is given in
the Registration Statement, any Integrated prospectus and the Prospectus,
as they may be amended or supplemented, (A) there has not been any
Material Adverse Change nor is any such change threatened, (B) there has
not been any transaction entered into by the Company or its Subsidiaries
that is material to the earnings, business, affairs, properties, business
prospects or operations of the Company or its Subsidiaries, other than
transactions in the ordinary course of business and changes and
transactions contemplated by the Registration Statement, any Integrated
Prospectus and the Prospectus, as they may be amended or supplemented,
(C) there has not been any material change in the capital stock, long term
debt or material liabilities of the Company or its Subsidiaries. Neither
the Company nor any Subsidiary has any material contingent obligations or
liabilities which are not disclosed in the Registration Statement, any
Integrated Prospectus and the Prospectus, and (D) there has not been any
dividend or distribution of any kind declared, paid or made on the capital
stock of the Company or any of its Subsidiaries.
(xii) The filing of the Registration Statement, any Integrated
Prospectus and related Prospectus and the execution and delivery of this
Agreement have been duly authorized by the Board of Directors of the
Company; this Agreement constitutes a valid and legally binding obligation
of the Company enforceable in accordance with its terms except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditors' rights generally and by
general principles of equity. The Company is not in breach or violation
of or default under any indenture, mortgage, deed of trust, lease,
contract, note or other agreement or instrument to which it is a party or
by which it or any of its properties is bound and which breach, violation
or default is of material significance in respect of the condition
(financial or otherwise), earnings, business, affairs, properties,
business prospects or results of operations of the Company. The
consummation of the transactions herein contemplated and the fulfillment
of the terms hereof will not result in a breach or violation of any of the
material terms and provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, lease, contract, note or other
agreement or instrument to which the Company or any Subsidiary is a party,
or of the Company's or any Subsidiary's Certificate of Incorporation or
by-laws
6
<PAGE> 7
or any law, decree, order, rule, writ, injunction or regulation applicable
to the Company or any Subsidiary of a court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(xiii) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery
by the Company of this Agreement and performance of its obligations
hereunder (except such additional steps as may be necessary to qualify the
Shares for public offering by the Underwriters under state securities or
Blue Sky laws) has been obtained or made and is in full force and effect.
(xiv) The Company and each Subsidiary hold all material licenses,
authorizations, charters, certificates and permits from governmental
authorities which are necessary to the conduct of their businesses and
neither the Company or any Subsidiary has received notice of any
proceeding relating to the revocation or modification of any of such
licenses, authorizations, charters, certificates or permits. The Company
and its Subsidiaries own or otherwise possess rights to the patents,
patent rights, licenses, inventions, copyrights, trademarks, service marks
and trade names presently employed by them in connection with the
businesses now operated by them, and neither the Company nor any of its
Subsidiaries has infringed or received any notice of infringements of or
conflict with asserted rights of others with respect to any of the
foregoing.
(xv) Grant Thornton, L.L.P, independent auditors, who have certified
certain of the financial statements filed with the Commission and included
as part of the Registration Statement and Prospectus, are independent
public accountants within the meaning of the Act, the Rules and Regulation
S-X of the Commission and Rule 101 of the Code of Professional Ethics of
the American Institute of Certified Public Accountants.
(xvi) There are no agreements, contracts or other documents of a
character required to be described in the Registration Statement, any
Integrated Prospectus or the Prospectus or required by Form S-1 to be
filed as exhibits to the Registration Statement or incorporated by
reference in the Registration Statement which are not described, filed or
incorporated as required.
(xvii) No labor dispute exists or is imminent with the Company's or
any Subsidiary's employees which could result in a Material Adverse Effect
and the Company is not aware of any existing or imminent labor disturbance
by the employee of any of its principal suppliers or distributors that
might be expected to result in any Material Adverse Effect to the Company
or its Subsidiaries. No collective bargaining agreement exists with any
of the Company's employees and, to the Company's knowledge, no agreement
is imminent.
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(xviii) Except as contemplated by Section 2 hereof and as disclosed
in any Integrated Prospectus or in the Prospectus and permitted by the
Rules, the Company has not (itself or through any person) taken and will
not take, directly or indirectly, any action designed to or which might
reasonably be expected to, cause or result in a violation of Section 5 of
the Act or Rule 10b-6 under the Exchange Act ("Rule 10b-6") or in
stabilization or manipulation of the price of the Company's common stock.
(xix) Without limiting the generality of any of the foregoing
representations and warranties, none of the operations of the Company or
its Subsidiaries is in violation of any environmental law, regulation or
any permit; and neither the Company nor any of its Subsidiaries is under
investigation or under review by any governmental agency with respect to
compliance therewith or with respect to the generation, use, treatment,
storage or release of hazardous material. Neither the Company nor any of
its Subsidiaries have any liability or contingent or potential liability
in connection with the past generation, use, treatment, storage, disposal
or release of any hazardous material. There is no hazardous material that
may reasonably be expected to pose any material risk to safety, health, or
the environment, on, under or about any property owned, leased or operated
by the Company or any of its Subsidiaries or any property adjacent to any
such property, and there has heretofore been no release of any hazardous
material on, under or about such property, or any such adjacent property.
None of the present or past property of the Company or any of its
Subsidiaries is listed or proposed for listing on the National Priorities
List pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA") or on the Comprehensive
Environmental Response Compensation Liability Information System List
("CERCLIS") or any similar state list of sites requiring remedial action.
Neither the Company nor any of its Subsidiaries is subject to any
Environmental Property Transfer Act, or to the extent that any such
statute is applicable to any property, the Company and its Subsidiaries
have fully complied with their obligations under such statute(s), and
neither has any outstanding obligations or liabilities under any
Environmental Property Transfer Act.
(xx) The Company and its Subsidiaries maintain insurance of the types
and in the amounts generally deemed adequate for their businesses,
including, but not limited to, insurance covering liability and real and
personal property owned or leased by the Company against theft, damage,
destruction, acts of vandalism and all other risks customarily insured
against, all of which insurance is in full force and effect.
(xxi) Neither the Company nor any Subsidiary has at any time during
the last five years (a) made any unlawful contribution to any candidate
for foreign office, or failed to disclose fully any contribution in
violation of law, or (b) made any payment to any federal or state
governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or permitted
by the laws of the United States or any jurisdiction thereof.
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<PAGE> 9
(xxii) Each officer and director of the Company and each Stockholder of
the Company has agreed that such person will not, for a period of
_______ days after the effective date of the Registration Statement, offer
to sell, contract to sell, sell short, or otherwise sell or dispose of
any shares of common stock of the Company, or any securities convertible
into or exchangeable for shares of the common stock owned directly by such
person or with respect to which such person has the power of disposition
otherwise than hereunder or with the prior written consent of Stephens
Inc., in accordance with a lock-up agreement to be executed by such
person, a form of which is attached hereto as Exhibit "A" and included
herein (the "Lock-Up Agreement").
(b) Any certificate signed by any officer of the Company or by any
Stockholder, as the case may be, and delivered to you or counsel for the
Underwriters shall be deemed a representation and warranty by the Company or
such Stockholder to the Underwriters as to the matters covered thereby.
(c) Each Stockholder represents and warrants to, and agrees with each
Underwriter as follows:
(i) As of the Effective Date, the Stockholder shall be the lawful
owner of the number of Shares to be sold by him, and has or at such time
or times, as required, will have good and marketable title to all such
Shares, free of all restrictions on transfer (other than those imposed by
the Act, the Company's Certificate of Incorporation and Bylaws and the
securities or Blue Sky laws of certain jurisdictions) liens, encumbrances,
security interests and claims whatsoever;
(ii) The Stockholder has full legal right, power and authority, and
any approvals required by law and any agreement or instrument to which the
Stockholder is a party, to enter into this Agreement, and this Agreement
has been fully executed and delivered by the Stockholder;
(iii) Upon delivery of payment for the Shares to be sold by the
Stockholder pursuant to this Agreement, good and marketable title to such
Shares will pass, free of all restrictions on transfer (other than those
imposed by the Act, the Company's Certificate of Incorporation and the
securities or Blue Sky laws of certain jurisdictions) liens, encumbrances,
security interests and claims whatsoever, to each Underwriter;
(iv) The Stockholder has duly authorized (if applicable), executed
and delivered a power of attorney, a form of which is attached hereto as
Exhibit "B" and included herein (the "Power of Attorney"), appointing
________________________ and ____________________ as attorneys-in-fact
(collectively the "Attorneys" and individually the "Attorney"), and a
custody agreement, a form of which is attached hereto as Exhibit "C" and
included herein (the "Custody Agreement"), with _______________ as
custodian (the "Custodian"). Each of the Power of Attorney and the
Custody
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<PAGE> 10
Agreement constitutes a valid and binding agreement of such Stockholder,
enforceable in accordance with its terms, except as the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors'
rights generally or by general equitable principles; and the Stockholder's
Attorney, acting alone, is authorized to execute and deliver this
Agreement and the certificate referred to in Section 6(l) hereof, on
behalf of such Stockholder to determine the purchase price to be paid by
the several Underwriters to such Stockholder as provided in Section 2
hereof, to authorize the delivery of the Stockholder Shares under this
Agreement and to duly endorse (in blank or otherwise) the certificate or
certificates representing such Shares or a stock power or powers with
respect thereto, to accept payment therefor, and otherwise to act on
behalf of such Stockholder in connection with this Agreement;
(v) All authorizations, approvals, consents and orders necessary for
the execution and delivery by such Stockholder of the Power of Attorney
and the Custody Agreement, the execution and delivery by or on behalf of
such Stockholder of this Agreement and the sale and delivery of the
Stockholder Shares under this Agreement (other than, at the time of the
execution hereof (if the Registration Statement has not yet been declared
effective by the Commission), the issuance of the order of the Commission
declaring the Registration Statement effective and such authorizations,
approvals or consents as may be necessary under state or other securities
or Blue Sky Laws) have been obtained and are in full force and effect;
such Stockholder, if other than a natural person, has been duly organized
and is validly existing and in good standing under the laws of the
jurisdiction of its organization as the type of entity that it purports to
be; and such Stockholder has full right, power and authority to enter into
and perform its obligations under this Agreement and such Power of
Attorney and Custody Agreement, and to sell, assign, transfer and deliver
the Shares to be sold by such Stockholder under this Agreement.
(vi) Such Stockholder will not for a period of _____ days after the
effective dated of the Registration Statement, offer to sell, contract to
sell or otherwise sell or dispose of any shares of common stock, any
options or warrants to purchase any shares of common stock, or any
securities convertible into or exchangeable for shares of common stock,
owned directly by such Stockholder or with respect to which such
Stockholder has the power of disposition, otherwise than hereunder or with
the prior written consent of Stephens Inc. Such Stockholder agrees and
consents to the entry of stop transfer instructions with the Company's
transfer agent against the transfer of shares of common stock held by such
Stockholder except in compliance with the foregoing restrictions.
(vii) Certificates in negotiable form for all Shares to be sold by
such Stockholder under this Agreement, together with a stock power or
powers duly endorsed in blank by such Stockholder, have been place in
custody with the Custodian for the purpose of effecting delivery
hereunder;
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<PAGE> 11
(viii) This Agreement has been duly authorized by such Stockholder
that is not a natural person and has been duly executed and delivered by
or on behalf of such Stockholder and is a valid and binding agreement of
such Stockholder, enforceable in accordance with its terms, except as the
indemnification and contribution provisions hereunder may be limited by
applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general
equitable principles; and the performance of this Agreement and the
Commission of the transactions herein contemplated will not result in a
breach of or default under any material bond, debenture, note or other
evidence of indebtedness, or any material contract, indenture, mortgage,
deed of trust, loan agreement, lease or other agreement or instrument to
which such Stockholder is a party or by which such Stockholder or any
Stockholder Shares hereunder may be bound or, to the best of such
Stockholder's knowledge, result in any violation of any law, order, rule,
regulation, writ, injunction or decree of any court or governmental agency
or body or, if such Stockholder is other than a natural person, result in
any violation of any provisions of the charter, bylaws or other
organizational documents of such Stockholder;
(ix) The Stockholder has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and
sale of the Shares;
(x) All information furnished by or on behalf of such Stockholder
relating to such Stockholder and the Stockholder Shares that is contained
in the representations and warranties of such Stockholder in such
Stockholder's Power of Attorney or set forth in the Registration Statement
and any Preliminary Prospectus, Integrated Prospectus, or the Prospectus
and any amendments or supplements thereto is, and on the Closing Date and
on any later date on which Option Shares are to be purchased as the case
may be, will be, true, correct and complete, and does not, and on the
Closing Date and on any later date on which Option Shares are to be
purchased, as the case may be, will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make such statements not misleading;
(xi) The Stockholder will review the Prospectus and will comply with
all agreements and satisfy all conditions on its part to be complied with
or satisfied pursuant to this Agreement on or prior to the Closing Date,
or any later date on which Option Shares are to be purchased, as the case
may be, and will advise one of its Attorneys prior to the Closing Date or
such later date on which Option Shares are to be purchased, as the case
may be, if any statement to be made on behalf of such Stockholder in the
certificate contemplated by Section 6(l) would be inaccurate if made as of
the Closing Date or such later date on which Option Shares are to be
purchased, as the case may be;
(xii) The Stockholder does not have, or has waived prior to the date
hereof, any preemptive right, co-sale right or right of first refusal or
other similar right to purchase
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<PAGE> 12
any of the Shares that are to be sold by the Company or any of the other
Stockholder to the Underwriters pursuant to this Agreement; and such
Stockholder does not own any warrants, options or similar rights to
acquire, and does not have any right or arrangement to acquire, any
capital stock, rights, warrants, options or other securities from the
Company, other than those described in the Registration Statement and any
Preliminary Prospectus, Integrated Prospectus, or the Prospectus and any
amendments or supplements thereto;
(xiii) The Stockholder is not aware that any representations and
warranties of the Company set forth in Section 2 above is untrue or
inaccurate;
(xiv) The Stockholder has not taken, nor will he take, directly or
indirectly, any action designed to, or which might reasonably be expected
to, cause or result in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares
owned by him pursuant to the distribution contemplated by this Agreement;
(xv) The Stockholder will pay or cause to be paid all transfer taxes,
if any, with respect to the Shares to be sold by him;
2. PURCHASE, SALE AND DELIVERY OF THE UNDERWRITTEN SHARES. On the basis
of the representations, warranties and covenants herein contained, and subject
to the terms and conditions herein set forth, the Company and the Stockholders
agree to sell each Underwriter, severally and not jointly, and each Underwriter
agrees, severally and not jointly, to purchase, at a price of $____ per share,
the number of the Underwritten Shares set forth on Schedule I attached hereto,
subject to adjustment in accordance with Section 10 hereof.
Payment for the Underwritten Shares shall be made by certified or bank
cashier's checks in clearing house funds (which will be next day funds) or,
upon mutual agreement of the parties, by wire transfer of U.S. Funds to a
designated account of the Company and the Stockholders, drawn to the order of
the Company as applicable, against delivery of certificates for the Shares to
the Representatives for the accounts of the several Underwriters. Delivery of
certificates shall be to the Representatives c/o Stephens Inc. ("Stephens"),
111 Center Street, Little Rock, Arkansas 72201, or at such other address as
Stephens may designate in writing. Payment will be made at the offices of
Stephens, or at such other place as shall be agreed upon by Stephens and the
Company, at approximately 9:00 a.m., central time, on _______________, 1996,
such time and date being herein referred to as the "Closing Date." The
certificates for the Underwritten Shares will be delivered in such
denominations and in such registrations as Stephens requests in writing and
will be made available for inspection at such locations as Stephens may
reasonably request at least one full business day prior to the Closing Date.
The certificates in negotiable form for the Stockholders Shares have been
placed in custody (for delivery under this Agreement) under the Custody
Agreement. Each Stockholder
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<PAGE> 13
agrees that the certificates for the Stockholder Shares of such Stockholder so
held in custody are subject to the interests of the Underwriters hereunder,
that the arrangements made by such Stockholder for such custody, including the
Power of Attorney, is to that extent irrevocable and that he obligations of
such Stockholder hereunder shall not be terminated by the ct of such
Stockholder or by operation of law, whether by the death or incapacity of such
Stockholder or the occurrence of any other event, except as specifically
provided herein or in the Custody Agreement. If any Stockholder should die or
be incapacitated, or if any other such event should occur, before the delivery
of the certificates for the Stockholder Shares hereunder, the Stockholder
Shares to be sold by such Stockholder shall, except as specifically provided
herein or in the Custody Agreement, be delivered by the Custodian in accordance
with the terms and conditions of this Agreement as if such death, incapacity or
other event had not occurred, regardless of whether the Custodian shall have
received notice of such death or event.
In addition, on the basis of the representations, warranties, agreements
and covenants herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants the Option to the several Underwriters to
purchase the Option Shares at the price per share as set forth in the first
paragraph of this Section 2. The Option may be exercised in whole or in part
(from time to time), at any time upon written notice (or oral notice,
subsequently confirmed in writing) given not more than thirty (30) days
following the date of this Agreement, by Stephens, on behalf of the
Representatives of the several Underwriters, to the Company setting forth the
number of Option Shares as to which the several Underwriters are exercising the
Option and the names and denominations in which the Option Shares are to be
registered. Closing on the purchase of the Option Shares (the "Option Closing
Date"), if any, shall occur no later than three (3) business days following the
date upon which notice of exercise of the Option is given to the Company, and
shall take place at the offices of Stephens, or at such other place as shall be
agreed upon by Stephens and the Company. The number of Option Shares to be
purchased by each Underwriter shall be in the same proportion to the total
number of shares of the common stock being purchased by such Underwriter bears
to 2,300,000 shares, adjusted by you in such manner as to avoid fractional
shares. The Option may be exercised only to cover over-allotments in the sale
of the Underwritten Shares by the Underwriters. Stephens, on behalf of the
Representatives of the several Underwriters, may cancel such option at any time
prior to its expiration by giving written notice (or oral notice, subsequently
confirmed in writing) of such cancellation to the Company. To the extent, if
any, that the Option is exercised, payment for the Option Shares shall be made
at such closing by certified or bank cashier's checks in clearing house funds
(which will be next day funds) or, upon mutual agreement of the parties, by
wire transfer of U.S. Funds to a designated account of the Company, drawn to
the order of the Company. Certificates for the Option Shares shall be
delivered in the same manner and upon the same terms as the Underwritten
Shares.
3. OFFERING BY THE UNDERWRITERS. It is understood that the Public
Offering of the Underwritten Shares is to be made as soon as the
Representatives deem it advisable to do so after the Registration Statement has
become effective. The Underwritten Shares are to be initially offered to the
public at the public offering price set forth in the Prospectus. The
Representatives
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<PAGE> 14
may from time to time thereafter change the public offering price and other
selling terms. To the extent, if at all, that any Option Shares are purchased
pursuant to Section 2 hereof, the Underwriters will offer them to the public on
the foregoing terms.
It is further understood that you will act as the Representatives for the
Underwriters in the offering and sale of the Shares, in accordance with an
Agreement Among Underwriters which has been entered into by you and the several
other Underwriters.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with each
of the several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective and will not, either before or after
effectiveness, file any amendment thereto or supplement (including any
Term Sheet) to the Prospectus or any Integrated Prospectus (including a
prospectus filed pursuant to Rule 424(b) which differs from the Prospectus
on file at the time the Registration Statement becomes effective) or file
any documents under the Exchange Act before the earlier to occur of (A)
the 35th day following the Effective Date or (B) the closing date of the
Underwriters' purchase of the Option Shares if such document would be
deemed to be incorporated by reference into the Registration Statement,
the Preliminary Prospectus, any Integrated Prospectus or the Prospectus of
which the Representatives shall not previously have been advised and
furnished with a copy or to which the Representatives shall have
reasonably objected in writing or which is not in compliance with the Act
or Rules.
(b) The Company will advise the Representatives promptly of any
request of the Commission or other securities regulatory agency ("Other
Securities Regulator") for amendment of the Registration Statement or for
supplement (including any Term Sheet) to the Prospectus or any Integrated
Prospectus or for any additional information, or of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or any Integrated
Prospectus or of the institution of any proceedings for that purpose, or
comparable action taken or initiated by any Other Securities Regulator,
and the Company will use its best efforts to prevent the issuance of any
such stop order preventing or suspending the use of the Prospectus or any
Integrated Prospectus and to obtain as soon as possible the lifting
thereof, if issued.
(c) The Company will use its best efforts with the Representatives
in endeavoring to qualify the Shares for sale under the securities laws of
such jurisdictions (including foreign jurisdictions) as the
Representatives may reasonably designate, and will make such applications,
file such documents, and furnish such information as may be reasonably
required for that purpose; provided however, the Company shall not be
required to qualify as a foreign corporation or to file a general consent
to service of process in any jurisdiction where it is not so qualified or
required to file such a consent. The Company will, from time to time,
prepare and file such statements, reports, and other
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<PAGE> 15
documents, as are or may be required to continue such qualifications in
effect for so long a period as the Representatives may reasonably request
for distribution of the Shares.
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary
Prospectus, Integrated Prospectus or the Prospectus as the Representatives
may reasonably request. The Company will deliver to, or upon the order
of, the Representatives, on the Trade Date and thereafter from time to
time during the period when delivery of a Prospectus is required under the
Act as many copies of the Prospectus in final form, or as thereafter
amended or supplemented, as the Representatives may reasonably request.
The Company will deliver to the Representatives at or before the Closing
Date, three (3) manually signed copies of the Registration Statement and
all amendments thereto including all exhibits filed therewith (including
any document filed under the Exchange Act and deemed to be incorporated by
reference into the Registration Statement, the Preliminary Prospectus, any
Integrated Prospectus or the Prospectus) and will deliver to the
Representatives such number of copies of the Registration Statement, but
without exhibits, and of all amendments thereto, as the Representatives
may reasonably request.
(e) During the time during which a Prospectus or any Integrated
Prospectus relating to the Shares is required by law to be delivered, the
Company shall comply with all requirements imposed upon it by the Act, as
now and hereafter amended, and by the Rules, as from time to time in
force, so far as is necessary to permit the continuance of sales of or
dealings in the Shares as contemplated by the provisions hereof and the
Prospectus or any Integrated Prospectus. If, during the period in which a
Prospectus or any Integrated Prospectus is required by law to be
delivered, any event shall occur as a result of which, in the judgment of
the Company or in the opinion of counsel for the Underwriters, it becomes
necessary to amend or supplement the Prospectus or any Integrated
Prospectus in order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus or any Integrated
Prospectus is delivered to a purchaser, not misleading, or, if it is
necessary at any time to amend or supplement the Prospectus or any
Integrated Prospectus to comply with any law or to file under the Exchange
Act any document which would be deemed to be incorporated by reference in
the Prospectus or in any Integrated Prospectus in order to comply with the
Act or the Exchange Act, the Company promptly will notify the
Representatives and, subject to the Representatives' prior review, prepare
and file with the Commission and any appropriate Other Securities
Regulator an appropriate amendment or supplement to the Prospectus or any
Integrated Prospectus (at the expense of the Company) so that the
Prospectus or any Integrated Prospectus as so amended or supplemented will
not, in light of the circumstances when it is so delivered, be misleading,
or so that the Prospectus or any Integrated Prospectus will comply with
the law.
(f) The Company will make generally available to its security holders
in the manner contemplated by Rule 158(b) under the Act, as soon as it is
practicable to do so,
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but in any event not later than the forty-fifth day after the fiscal
quarter first occurring one year after the Effective Date, an earnings
statement in reasonable detail, covering a period of at least twelve
consecutive months beginning after the Effective Date, which earnings
statement shall satisfy the requirements of Section 11(a) of the Act and
will advise you in writing when such statement has been so made available.
(g) For so long as the Company is subject to the reporting
requirements of the Exchange Act, the Company will furnish to its
stockholders, as soon as practicable after the end of each respective
period, annual reports (including financial statements audited by
independent public accountants) and unaudited quarterly reports of
earnings, and will furnish to the Representatives (a) concurrently with
furnishing of such reports to its stockholders, statements of income of
the Company for each quarter in the form furnished to the Company's
stockholders and certified by the Company's principal financial or
accounting officer; (b) concurrently with furnishing to its stockholders,
a balance sheet of the Company as at the end of such fiscal year, together
with statements of earnings, stockholders' equity and cash flow of the
Company for such fiscal year, all in reasonable detail and accompanied by
a copy of the certificate or report thereon of independent public
accountants; (c) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders; (d) as soon as they are
available, copies of all reports and financial statements furnished to or
filed with the Commission, the National Association of Securities Dealers,
Inc. ("NASD") or any securities exchange; (e) every press release and
every material news item or article in respect of the Company or its
affairs which was released or prepared by the Company; and (f) any
additional information of a public nature concerning the Company or its
business which you may reasonably request. During such period, if the
Company shall have active subsidiaries the foregoing financial statements
shall be on a consolidated basis to the extent that the accounts of the
Company and its subsidiaries are consolidated, and shall be accompanied by
similar financial statements for any significant subsidiary (as defined by
the Act) which is not so consolidated.
(h) As soon as the Company is advised thereof, it will advise the
Representatives, and confirm in writing, that the Registration Statement
and any amendments shall have become effective.
(i) The Company will use the net proceeds from the sale of the Shares
in the manner set forth in the Prospectus or in any Integrated Prospectus
under the caption "Use of Proceeds."
(j) Other than as permitted by the Act and the Rules, the Company
will not distribute any prospectus or offering materials in connection
with the offering and sale of the Shares and prior to the Closing Date or
the Option Closing Date will not issue any press releases or other
communications directly or indirectly and will hold no press conferences
with respect to the Company, the financial condition, results of
operations,
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<PAGE> 17
business, properties, assets or liabilities of the Company, or the
offering of the Shares, without your prior written consent.
(k) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for
its common stock and will, use its best efforts to maintain the quotation
of the Shares on The Nasdaq National Market.
(l) Except as contemplated hereby or by the Prospectus, neither the
Company, its executive officers and directors nor the Stockholders will,
for a period of [two hundred seventy (270) days] after the Effective Date
of the Registration Statement, offer to sell, contract to sell, sell or
otherwise dispose of any shares of the Company's common stock or
securities convertible into shares of the Company's common stock without
your prior written consent. The Company covenants to obtain the foregoing
commitment from each of the aforementioned persons.
(m) If at any time during the 90-day period after the Registration
Statement becomes effective, any rumor, publication or event relating to
or affecting the Company shall occur as a result of which in the
Underwriters' opinion the market price of the common stock has been or is
likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from the Underwriters
advising the Company to the effect set forth above, forthwith prepare,
consult with Stephens Inc. concerning the substance of, and disseminate a
press release or other public statement, reasonably satisfactory to the
Underwriters, responding to or commenting on such rumor, publication or
event.
The foregoing covenants and agreements shall apply to any successor of the
Company, including without limitation, any entity into which the Company might
convert or merge.
5. COSTS AND EXPENSES. Whether or not the Registration Statement becomes
effective, the Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting
fees of the Company; the fees and disbursements of counsel for the Company; the
cost of printing and delivering to Underwriters copies of the Registration
Statement, Preliminary Prospectus, any Integrated Prospectus, the Prospectus,
this Agreement, the Agreement Among Underwriters, the Selected Dealer
Agreement, Underwriters' Questionnaire and Power of Attorney, and the Blue Sky
Survey and any supplements thereto; the filing fees of the Commission; the
filing fees incident to securing any required review by the NASD of the terms
of the sale of the Shares; the cost of printing certificates representing the
Shares; the cost and charges of any transfer agent or registrar; and the
expenses, including the reasonable fees and disbursements of counsel for the
Underwriters, incurred in connection with the qualification of the Shares under
State securities or Blue Sky laws and the laws of any
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<PAGE> 18
foreign jurisdiction. Any transfer taxes imposed on the sale of the Shares to
the Underwriters will be paid by the Company or the Stockholders as the case
may be. The Company shall not, however, be required to pay for any of
Underwriters' expenses (other than those related to qualification under State
securities or Blue Sky laws) except that, if this Agreement shall not be
consummated because the conditions in Section 7 hereof are not satisfied, or
because this Agreement is terminated by the Representatives pursuant to Section
6 hereof, or by reason of any failure, refusal or inability on the part of the
Company to perform any undertaking or satisfy any condition of this Agreement
or to comply with any of the terms hereof on their part to be performed, unless
such failure to satisfy said condition or to comply with said terms is due to
the default or omission of any Underwriter, then the Company shall reimburse
the several Underwriters for all costs and expenses, including attorney fees
and out-of-pocket expenses, reasonably incurred in connection with
investigating, marketing and proposing to market the Shares or in contemplation
of performing their obligations hereunder but the Company shall not in any
event be liable to any of the several Underwriters for damages on account of
loss of anticipated profits from the sale by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein, are
subject to the accuracy, as of the Closing Date and as of the Option Closing
Date, of the representations and warranties and agreements of the Company and
the Stockholders contained herein, to the performance by the Company and the
Stockholders of their obligations hereunder and to the following additional
conditions:
(a) The Registration Statement shall have become effective not later
than 11:00 a.m., central daylight time, on the date of this Agreement,
unless a later time and date is agreed to by the Representatives, and no
stop order or other order suspending the effectiveness thereof or the
qualification of the Shares under the State securities or Blue Sky laws of
any jurisdiction shall have been issued and no proceeding for that purpose
shall have been taken or, to the knowledge of the Company, shall be
contemplated or threatened by the Commission or any Other Securities
Regulator. If the Company has elected to rely upon Rule 430A of the
Rules, the price of the Shares and any price-related information
previously omitted from the effective Registration Statement pursuant to
such Rule 430A shall have been transmitted to the Commission for filing
pursuant to Rule 424(b) of the Act within the prescribed time period, and
prior to the Closing Date the Company shall have provided evidence
satisfactory to the Representatives of such timely filing, or a
post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements
of Rule 430A under the Act. All requests for additional information on
the part of the Commission or any other government or regulatory authority
with jurisdiction (to be included in the Registration Statement, any
Integrated Prospectus or Prospectus or otherwise) shall be complied with
to the satisfaction of the Commission or such authorities.
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(b) The Representatives shall have received on the Closing Date and on the
Option Closing Date the opinion of Epstein, Becker & Green, P.C., counsel for
the Company and the Stockholders, dated the Closing Date and the Option Closing
Date, as the case may be, addressed to the Underwriters in form and substance
satisfactory to Giroir & Gregory, Professional Association, counsel to the
Underwriters, to the effect that:
(i) The Company and its Subsidiaries have been duly organized
and are validly existing as corporations in good standing under the
laws of the State of their organization with full corporate power
and authority to own its properties and conduct its business as
described in the Registration Statement, any Integrated Prospectus
and Prospectus; the Company and its subsidiaries are duly qualified
to transact business in all jurisdictions in which the conduct of
their businesses or the ownership or lease of the properties
requires such qualification; and all of the outstanding shares of
capital stock of the Company have been validly authorized and
issued, are fully paid and non-assessable, and except as set forth
in the Prospectus, any Integrated Prospectus, and the Registration
Statement and except for directors' qualifying shares, if any, no
options, warrants or other rights to purchase, agreements or other
obligations to issue or other rights to convert any obligations into
any shares of capital stock are outstanding. Except as set forth on
Schedule ____ attached hereto the Company has no corporate
subsidiaries.
(ii) The Company has authorized or outstanding the capital
stock set forth under the caption "Use of Proceeds,"
"Capitalization" and "Description of Capital Stock" in the
Registration Statement, any Integrated Prospectus and Prospectus;
the outstanding shares of its capital stock have been duly and
validly authorized and issued and are fully paid and non-assessable;
all of the Shares conform to the description thereof contained in
the Prospectus and any Integrated Prospectus; the certificates for
the Shares are in due and proper form, the Underwritten Shares, and
the Option Shares, if any, to be sold pursuant to this Agreement
have been duly authorized and will be validly issued, fully paid and
non-assessable when issued and paid for as contemplated by this
Agreement; there are no preemptive or other restrictive rights to
subscribe for or to purchase or any restriction upon the voting or
transfer of any shares of any class of the Company's capital stock
pursuant to the Company's Certificate of Incorporation, Bylaws,
other governing documents or any agreement or other instrument to
which the Company is a party or by which it is bound; neither the
filing of the Registration Statement nor the offering or sale of the
Shares as contemplated by this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or
relating to the registration of any class of the Company's capital
stock.
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(iii) The Registration Statement has become effective under the
Act and to the knowledge of such counsel no stop order proceedings
with respect thereto have been instituted or are pending or
threatened under the Act and any and all filings required by Rule
424 and Rule 430A of the Rules have been made.
(iv) The Registration Statement, all Preliminary Prospectuses,
any Integrated Prospectus, the Prospectus and each amendment or
supplement thereto comply as to form in all material respects with
the requirements of the Act and the Rules except that such counsel
need express no opinion as to the financial statements, schedules
and other financial or statistical information included therein.
(v) The conditions for use of Form S-1 have been satisfied in
full.
(vi) The information required to be set forth in the
Registration Statement in answer to Form S-1 is accurately and
adequately set forth therein in all respects and the description of
the Company's stock option plans and agreements and the options
granted and which may be granted thereunder, as set forth in the
Prospectus and any Integrated Prospectus, accurately and fairly
presents the information required to be shown with respect to said
plans, agreements and options by the Act and the Rules.
(vii) The statements under the captions "Certain Transactions,"
"Description of Capital Stock" and "Shares Eligible for Future Sale"
in the Prospectus or any Integrated Prospectus that constitute a
summary of documents referred to therein or matters of law, are
accurate summaries and fairly and correctly represent the material
information required with respect to such documents and matters.
(viii) Except as set forth in the Registration Statement, any
Integrated Prospectus, and the Prospectus, no holders of common
stock or other securities of the Company have registration rights
with respect to such securities, and except as set forth in the
Registration Statement and the Preliminary Prospectus, any
Integrated Prospectus, and the Prospectus, all holders of securities
of the Company having rights to registration of such shares of
common stock, or other securities, because of the filing of the
Registration Statement by the Company have, with respect to the
offering contemplated thereby, waived such rights or such rights
have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement, or have
included securities in the Registration Statement pursuant to the
exercise of such rights.
(ix) All descriptions, in the Preliminary Prospectus, any
Integrated Prospectus, and the Prospectus, of statutes, regulations,
legal or governmental
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<PAGE> 21
proceedings, contracts and other documents are accurate and fairly
present the information required to be shown; and, after due
inquiry, such counsel does not know of any contracts or documents of
a character required to be summarized or described therein or to be
filed as exhibits thereto which are not so summarized, described or
filed.
(x) There are no legal, regulatory or administrative
proceedings pending or threatened against the Company or any of its
Subsidiaries which are material to the earnings, business, affairs,
properties, business prospects or operations of the Company or any
Subsidiaries, except as set forth in the Prospectus or any
Integrated Prospectus.
(xi) Neither the Company nor any of its Subsidiaries is, nor
with the giving of notice or lapse of time or both would be, in
violation of or in default under, nor will the execution or delivery
hereof or consummation of the transactions contemplated hereby
result in a violation of, or constitute a default under, the
Certificate of Incorporation, By-laws or other governing documents
of the Company or any of its Subsidiaries, or any agreement,
indenture or other instrument known to such counsel, to which the
Company or any of its Subsidiaries is a party or by which it is
bound, or to which their properties are subject, nor will the
performance by the Company of its obligations hereunder violate any
law, rule, administrative regulation or decree of any court or any
governmental agency or body having jurisdiction over the Company or
any of its Subsidiaries or their properties, or result in the
creation or imposition of any lien, charge, claim or encumbrance
upon any property or asset of the Company or any of its
Subsidiaries.
(xii) This Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding obligation of
the Company enforceable against the Company in accordance with its
terms, except as rights to indemnity which may be limited by Federal
or state securities laws and except as to all applicable bankruptcy,
insolvency, moratorium, receivership and other laws relating to or
affecting the rights of creditors generally and subject to the
discretion of a court of equity in administering any such rights or
remedies.
(xiii) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the
execution and delivery of this Agreement and the consummation of the
transactions herein contemplated (other than required by state
securities and Blue Sky laws as to which such counsel need express
no opinion) except such as have been obtained or made, specifying
the same.
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(xiv) The Company and its Subsidiaries hold all material
licenses, authorizations, charters, certificates and permits from
governmental authorities that are necessary for the conduct of their
businesses and the Company and its Subsidiaries have not received
notice of any proceeding relating to the revocation or modification
of any of such licenses, authorizations, charters or permits. The
Company and its Subsidiaries have good and marketable title to all
property owned by them, free and clear of all liens, encumbrances,
restrictions and defects except such as are described in the
Registration Statement or do not interfere with the use made and
proposed to be made of such property; and any property held under
lease by the Company and its Subsidiaries is held under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be
made of such property by the Company and its Subsidiaries, and to
the knowledge of such counsel, after due inquiry, the Company and
its Subsidiaries have not received any notice of any material claim
of any sort which has been, or may be, asserted by anyone adverse to
the Company's or any of its Subsidiaries' rights as lessee or
sublessee under any lease or sublease described above, or affecting
or questioning the Company's or any of its Subsidiaries' rights to
the continued possession of the leased or subleased premises under
any such lease or sublease in conflict with the terms thereof. The
Company and its Subsidiaries own or otherwise possess rights to the
patents, patent rights, licenses, inventions, copyrights,
trademarks, service marks and trade names presently employed by it
in connection with the business now operated by them, and neither
the Company nor its Subsidiaries have infringed or received any
notice of infringements of or conflict with asserted rights of
others with respect to any of the foregoing.
(xv) To the knowledge of such counsel after due inquiry: (a)
none of the operations of the Company or any of its Subsidiaries is
in violation of any environmental law, regulation or any permit, and
the Company or any of its Subsidiaries is not under investigation or
under review by any governmental agency with respect to compliance
therewith or with respect to the generation, use, treatment, storage
or release of hazardous material; (b) neither the Company nor any
of its Subsidiaries has liability or contingent or potential
liability in connection with the past generation, use, treatment,
storage, disposal or release of any hazardous material; (c) there is
no hazardous material that may reasonably be expected to pose any
material risk to safety, health, or the environment, on, under or
about any property owned, leased or operated by the Company or any
of its Subsidiaries or any property adjacent to any such property,
and there has heretofore been no release of any hazardous material
on, under or about such property, or any such adjacent property; (d)
none of the present or past property of the Company and its
Subsidiaries is listed or proposed for listing on the National
Priorities List pursuant to CERCLA or on the CERCLIS or any similar
state list of sites requiring remedial action; and (e) neither the
Company nor any of its
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<PAGE> 23
Subsidiaries is subject to any Environmental Property Transfer Act,
or to the extent that any such statute is applicable to any Company
or its Subsidiaries property, the Company and its Subsidiaries have
fully complied with its obligations under such statute(s), and
neither the Company nor any of its Subsidiaries has outstanding
obligations or liabilities under any Environmental Property Transfer
Act.
(xvi) Each Stockholder which is not a natural person has full
right, power and authority to enter into and to perform has full
right, power and authority to enter into and to perform its
obligations under the Power of Attorney and Custody Agreement to be
executed and delivered by it in connection with the transactions
contemplated herein; the Power of Attorney and Custody Agreement of
each Stockholder that is not a natural person has been duly
authorized by such Stockholder; the Power of Attorney and the
Custody Agreement of each Stockholder has been duly executed and
delivered by or on behalf of such Stockholder; and the Power of
Attorney and the Custody Agreement of each Stockholder constitutes
the valid and binding agreement of such Stockholder, enforceable in
accordance with its terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
(xvii) Each Stockholders has full right, power and authority to
enter into and to perform its obligations under this Agreement and
to sell, transfer, assign and deliver the Shares to be sold by such
Stockholder hereunder.
(xviii) This Agreement has been duly authorized by each
Stockholder that is not a natural person and has been duly executed
and delivered by or on behalf of each Stockholder and, assuming due
authorization, execution and delivery by the Underwriters, is a
valid and binding agreement of such Stockholder, enforceable in
accordance with its terms, except insofar as the indemnification and
contribution provisions hereunder may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general
equitable principles.
(xix) Upon the delivery and payment for the Shares as
contemplated in this Agreement, each of the Underwriters will
receive valid title to the Shares purchased by it from such
Stockholder, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest. In rendering such
opinion, such counsel may assume that the Underwriters are without
notice of any defect in the title of any of such Stockholders Shares
being purchased from such Stockholders.
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<PAGE> 24
In addition to the matters set forth above, such opinion shall also include
a statement to the effect that nothing has come to the attention of
such counsel which leads them to believe that the Registration Statement or any
amendment thereto at the time the Registration Statement or amendment became
effective or the Preliminary Prospectus, any Integrated Prospectus or the
Prospectus or any amendment or supplement thereto as of their respective dates
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, not
misleading (except that such counsel need express no view as to financial
statements, schedules and other financial or statistical information included
therein).
Such opinion shall be to such further effect with respect to other
legal matters relating to this Agreement and contain only those qualifications
as Giroir & Gregory, Professional Association, counsel to the Underwriters, may
reasonably request or allow.
(c) The Representatives shall have received from Giroir & Gregory,
Professional Association, counsel to the Underwriters, an opinion dated the
Closing Date, substantially to the effects specified in subparagraph (iii) and
(iv) of paragraph (b) of this Section 6, and that the Company is a validly
organized and existing corporation under the laws of the State of Delaware. In
rendering such opinion, Giroir & Gregory, Professional Association, may rely as
to all matters governed other than by Federal law on the opinions of counsel
referred to in paragraphs (b) and (c) of this Section 6. In addition to the
matters set forth above, such opinion shall also include a statement to the
effect that nothing has come to the attention of such counsel which leads them
to believe that the Registration Statement or any amendment thereto at the time
the Registration Statement or amendment became effective or the Preliminary
Prospectus, any Integrated Prospectus, or the Prospectus or any amendment or
supplement thereto as of their respective dates contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, not misleading (except that such
counsel need express no view as to financial statements, schedules and other
financial or statistical information included therein).
(d) The Representatives shall have received at or prior to the Closing
Date from Giroir & Gregory, Professional Association, a memorandum or summary,
in form and substance satisfactory to the Representatives, with respect to the
qualification or exemption therefrom for offering and sale by the Underwriters
of the Shares under the State securities or Blue Sky laws of such jurisdictions
as the Representatives may reasonably have designated.
(e) The Representatives shall have received on the Closing Date and on
the Option Closing Date, as the case may be, signed letters from Grant
Thornton, LLP, addressed to the Underwriters dated as of the Effective Date and
again dated as of the Closing Date and as of the Option Closing Date, as the
case may be, with respect to the financial statements and certain financial and
statistical information contained in the
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<PAGE> 25
Registration Statement, any Integrated Prospectus and the Prospectus. All such
letters shall be in form and substance satisfactory to the Representatives and
Giroir & Gregory, Professional Association, counsel to the Underwriters.
(f) The Representatives shall have received a signed letter from Grant
Thornton, LLP, independent auditors, stating that their review of the Company's
system of internal accounting controls to the extent they deemed necessary in
establishing the scope of their examination of the Company's financial
statements, any Integrated Prospectus did not disclose any weakness in internal
controls that they considered to be a material weakness.
(g) The Representatives shall have received on the Closing Date and on
the Option Closing Date, as the case may be, a certificate or certificates of
the President & Chief Executive Officer and Executive Vice President, Finance,
of the Company to the effect that, as of the Closing Date and on the Option
Closing Date, as the case may be, each of them severally represents as follows:
(i) (A) the representations and warranties of the Company in
this Agreement are true and correct on and as of the Closing Date
and on the Option Closing Date, as the case may be, and (B) the
Company has complied with all of its agreements and covenants and
has satisfied all of the conditions on its part to be performed or
satisfied at or prior to the Closing Date and at or prior to the
Option Closing Date, as the case may be.
(ii) (A) The Registration Statement has become effective under
the Act; (B) no stop order suspending the effectiveness of the
Registration Statement or the use or effectiveness of the Prospectus
and any Integrated Prospectus has been issued; (C) no proceedings
for such purpose have been taken or, to his knowledge, are
contemplated by the Commission or any Other Securities Regulator;
and (D) all requests for additional information on the part of the
Commission or any Other Securities Regulator have been complied
with.
(iii) No litigation has been instituted or threatened against
the Company or any of its Subsidiaries of a character required to be
disclosed in the Registration Statement which is not so disclosed;
and there is no material contract required to be filed as an exhibit
to the Registration Statement which is not so filed.
(iv) They have carefully examined the Registration Statement,
any Integrated Prospectus and the Prospectus and, in their opinion,
since the Effective Date, (A) the statements contained in the
Registration Statement, any Integrated Prospectus and the Prospectus
remain true and correct, (B) such Registration Statement, any
Integrated Prospectus and Prospectus did not omit to state a
material fact required to be stated therein or necessary in order to
make the
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statements therein not misleading and (C) since the Effective Date,
no event has occurred which should have been set forth in a
supplement to or an amendment of the Prospectus which has not been
so set forth in such supplement or amendment.
(h) At or prior to the Closing Date, the Board of Directors of the
Company shall have adopted a resolution to the effect that any services to be
provided to the Company by any of its affiliates or any other arrangements or
agreements between the Company and such affiliates shall be subject to the
approval of a majority of the Company's outside and disinterested directors and
shall be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties for comparable services.
(i) The Company and the Stockholders shall have furnished to the
Representatives such additional information and further certificates and
documents confirming the representations and warranties contained herein and
related matters as the Representatives may reasonably have requested.
(j) Since the respective dates as of which information is given in the
Prospectus, there shall not have been any Material Adverse Change.
(k) The Shares shall have been approved for trading on The Nasdaq
National Market.
(l) The Representatives shall have received from Stockholders a
certificate or certificates, dated as of the Closing Date, to the effect that
as of such date, each of them severally represent as follows:
(i) The representations and warranties of the Stockholders in
this Agreement are true and correct as of the Closing Date;
(ii) The Stockholders have in all material respects complied
with all the agreements and have satisfied all of the conditions on
their part to be performed or satisfied at or prior to the Closing
Date; and
(iii) The Stockholders have carefully examined the Registration
Statement, any Integrated Prospectus and the Prospectus, and as of
the date of the Prospectus and as of the Closing, neither the
Registration Statement, any Integrated Prospectus nor the
Prospectus, nor any amendment or supplement thereto include an
untrue statement of a material fact required to be stated therein or
necessary in order to make the statement therein not misleading and,
since the date of the Prospectus or any Integrated Prospectus, no
event has occurred which should have been set forth in an amendment
or supplement to the Registration Statement, any Integrated
Prospectus or Prospectus, which has not been set forth,
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and since the respective date as of which such information is given
in the Registration Statement, any Integrated Prospectus and
Prospectus there has not been any Material Adverse Change.
The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects satisfactory to the Representatives and Giroir & Gregory, Professional
Association, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representatives by notifying the Company of such termination in writing or by
confirmed telefax at or prior to the Closing Date. In such event, the Company
and the Underwriters shall not be under any obligation to each other (except to
the extent provided in Sections 5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligations of the
Company and the Stockholders to sell and deliver the Shares are subject to the
conditions that (a) at or before 11:00 a.m., central daylight time, on the date
of this Agreement, or such later time and date as the Company and the
Representatives may from time to time consent to in writing or by confirmed
telefax, the Registration Statement shall have become effective, and (b) at the
Closing Date no stop order suspending the effectiveness of the Registration
Statement shall have been issued or proceedings therefor initiated or
threatened. If either of the Conditions hereinabove provided for in this
Section 7 shall not have been fulfilled when and as required by this Agreement
to be fulfilled, this Agreement may be terminated by the Company or the
Stockholders by notifying the Representatives of such termination in writing or
by confirmed telefax at or prior to the Closing Date.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of the
Act, the Rules and the Exchange Act from and against any and all losses,
claims, damages, liabilities, joint or several, and all expenses (including
costs of investigation and legal expenses) to which such Underwriter or such
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions or
proceedings in respect thereof) arise out of or are based upon any breach of
any representation, warranty, agreement, or covenant of the Company, or any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Integrated Prospectus, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and the Company will reimburse each Underwriter and
each such controlling person for legal and other expenses incurred in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding;
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provided, however, that the Company will not be liable in any such case to the
[Bextent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement, or alleged untrue statement, or omission or
alleged omission made in the Registration Statement, any Integrated Prospectus,
any Preliminary Prospectus, the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representatives specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) The Stockholder severally and not jointly agrees to indemnify and hold
harmless each Underwriter and each person, if any, who controls any Underwriter
within the meaning of the Act, the Rules and the Exchange Act from and against
any and all losses, claims, damages, liabilities, joint or several, and all
expenses (including costs of investigation and legal expenses) to which such
Underwriter or such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions or proceedings in respect thereof) arise out of or are based upon any
breach of any representation, warranty, agreement, or covenant of the
Stockholder, or any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Integrated
Prospectus, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; and the Stockholder
will reimburse each Underwriter and each such controlling person for legal and
other expenses incurred in connection with investigating or defending any such
loss, claim, damage, liability, action or proceeding; provided, however, that
the Stockholder will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement, or alleged untrue statement, or omission or alleged omission made in
the Registration Statement, any Integrated Prospectus, any Preliminary
Prospectus, the Prospectus, or such amendment or supplement, in reliance upon
and in conformity with written information furnished to the Company by or
through the Representatives specifically for use in the preparation thereof.
This indemnity agreement will be in addition to any liability which the
Stockholder may otherwise have.
Notwithstanding anything herein to the contrary, any amounts payable by
the Stockholders pursuant to the indemnification and contribution provisions
set forth in this Section 8 shall be limited to an amount not exceeding net
proceeds received by such Stockholder from the sale of Shares hereunder.
(c) Each Underwriter severally, but not jointly, will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and any Integrated Prospectus, the
Stockholders, and each person, if any, who controls the Company, within the
meaning of the Act, the Rules and the Exchange Act, from and against any
losses, claims, damages, liabilities or expenses to which the Company, the
Stockholders or any such director, officer, or controlling person may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof)
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arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, any Integrated
Prospectus, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances under which they were made; and will reimburse any legal or other
expenses reasonably incurred by the Company, the Stockholders or any such
director, officer, or controlling person in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding;
provided, however, that each Underwriter will be liable in such case only to
the extent that such untrue statement, or alleged untrue statement or omission
or alleged omission has been made in the Registration Statement, any Integrated
Prospectus, any Preliminary Prospectus, the Prospectus, or such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company by or through the Representatives expressly for use in
the preparation thereof. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action or proceeding, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party
under this Section 8, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section 8, except to the extent that the indemnifying party is
substantially prejudiced by the omission of such notification. In case any
such action or proceeding is brought against any party, and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein, and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof with counsel satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding. Any Indemnified Party shall
have the right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party unless (i) the employment of such counsel has
been specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party has failed to assume the defense and employ counsel, or
(iii) the named parties to any such action (including any impleaded parties)
include such Indemnified Party and the indemnifying party, as the case may be,
and such Indemnified Party shall have been advised in writing by such counsel
that there may be one or more legal defenses available to it which are
different from or additional
29
<PAGE> 30
to those available to the indemnifying party, in which case the indemnifying
party shall not have the right to assume the defense of such action on behalf
of such Indemnified Party, it being understood, however, that (A) the
indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys (in addition to
any local counsel) for all such Indemnified Party, which firm shall be
designated in writing by the Indemnified Party, and that (B) all such fees and
expenses shall be reimbursed as they are incurred. Subject to the foregoing
provisions of this Section 8(d), the indemnifying party shall not be liable for
the costs and expenses of any settlement of any action without the consent of
the indemnifying party.
(e) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 8 is
for any reason held to be unavailable to an indemnified party under subsection
(a) or (b) above in respect to any losses, claims, damages, liabilities or
expenses referred to therein, then each applicable indemnifying party, in lieu
of indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities and expenses (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company and the Stockholders on the one
hand and the Underwriters on the other hand from the offering of the Shares or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault
of the parties in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the
Company and the Stockholders on the one hand and the Underwriters on the other
hand shall be deemed to be in the same proportion as the total proceeds from
the offering (net of underwriting discounts and commissions but before
deducting expenses) received by the Company bears to the underwriting discounts
and commissions received by the Underwriters. The relative fault of a party
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a material
fact relates to information supplied by each party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The amount paid or payable by a party as a result
of the losses, claims, damages, liabilities and expenses referred to above
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any such
action or claim.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 8, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the
public were offered to the public exceeds the
30
<PAGE> 31
amount of any damages that such Underwriters have otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this subsection (d) to contribute shall be several in proportion
to their respective underwriting obligations and not joint.
(f) In any proceeding relating to the Registration Statement, any
Integrated Prospectus, any Preliminary Prospectus, the Prospectus or any
supplement or amendment thereto, each party against whom contribution may be
sought under this Section 8 hereby consents to the jurisdiction of any court
having jurisdiction over any other contributing party, agrees that process
issuing from such court may be served upon him or it by any other contributing
party and consents to the service of such process and agrees that any other
contributing party may join him or it as an additional defendant in any such
proceeding in which such other contributing party is a party.
9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties and agreements of the Company, the Stockholders and
the officers of the Company herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Section 8
hereof, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriters or any controlling
person, or by or on behalf of the Company or any of its officers, directors or
controlling persons, and shall survive delivery of the Underwritten Shares and,
if appropriate, the Option Shares to the Representatives or termination of this
Agreement.
10. DEFAULT BY UNDERWRITERS. If any Underwriter shall fail to purchase
and pay for the Shares which such Underwriter has agreed to purchase and pay
for hereunder (otherwise than by reason of any default on the part of the
Company or the Stockholders), you, as the Representatives of the Underwriters,
shall use your best efforts to procure within twenty-four hours thereafter one
or more of the other Underwriters, or any others, to purchase from the Company
and the Stockholders such amounts as may be agreed upon and upon the terms set
forth herein, the Shares which the defaulting Underwriter or Underwriters
failed to purchase. If during such twenty-four hours you, as such
Representatives, shall not have procured such other Underwriters, or any
others, to purchase the Shares agreed to be purchased by the defaulting
Underwriter or Underwriters, then (a) if the aggregate number of Shares with
respect to which such default shall occur does not exceed 10% of the Shares
which the Underwriters are obligated to purchase hereby, the other Underwriters
shall be obligated, severally, in proportion to the respective number of Shares
which they are obligated to purchase hereunder, to purchase the Shares which
such defaulting Underwriter or Underwriters failed to purchase, or (b) if the
aggregate number of Shares with respect to which such default shall occur
exceeds 10% of the Company's common stock covered hereby, the Company or you,
as the Representatives of the Underwriters will have the right, by written
notice given within the next twenty-four hour period to the parties to this
Agreement, to terminate this Agreement without liability on the part of the
31
<PAGE> 32
non-defaulting Underwriters, the Company or the Stockholders except to the
extent provided in Section 8 hereof. In the event of a default by any
Underwriter or Underwriters, as set forth in this Section 10, the time of
closing may be postponed for such period, not to exceed seven days, as you, as
the Representatives, may determine in order that the required changes in the
Registration Statement, any Integrated Prospectus, the Prospectus or in any
other documents or arrangements may be effected. The term "Underwriters"
includes any person substituted for a defaulting Underwriter. Any action taken
under Section 10 shall not relieve any defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.
11. NOTICES. All communications hereunder shall be in writing and, except
as otherwise provided in, will be mailed, delivered or telefaxed and confirmed
as follows: if to the Underwriters, c/o the Representatives as follows: to
Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201, Attention:
Michael R. Smith, Sr., with a copy to H. Watt Gregory, III, Giroir & Gregory,
Professional Association, 111 Center Street, Suite 1900, Little Rock, Arkansas
72201; if to the Company, to Esmor Correctional Services, Inc., 1819 Main
Street, Suite 1000, Sarasota, Florida 34236, Attention: James F. Slattery, with
a copy to Epstein, Becker & Green, P.C. 250 Park Avenue, New York, New York
10177 Attention: Sidney Todres.
12. TERMINATION. This Agreement may be terminated by notice to the
Company as follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii)
twenty-four (24) hours following the time at which the Registration
Statement becomes effective;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given
in the Registration Statement, any Integrated Prospectus and the
Prospectus, any Material Adverse Change which would, in your reasonable
judgment, materially impair the investment quality of the Shares, (ii) any
outbreak of hostilities or other national or international calamity or
crisis or change in economic or political conditions if the effect of such
outbreak, calamity, crisis or change on the financial markets of the
United States would, in your reasonable judgment, make the offering or
delivery of the Shares impracticable, (iii) suspension of trading or
general trading halts in securities on the New York Stock Exchange, the
American Stock Exchange, The Nasdaq National Market or the
over-the-counter market or limitation on prices (other than limitations on
hours or numbers of days or trading) for securities on either such
Exchange, The Nasdaq National Market or the over-the-counter market, (iv)
the enactment, publication, decree or other promulgation of any federal or
state statute, regulation, rule or order of any court or other
governmental authority which in your reasonable opinion materially and
adversely affects or will materially or adversely affect the business or
operations of the Company, (v) declaration of a banking moratorium by
either federal or state authorities, or (vi) the taking of any action by
any federal, state or local government or agency in respect of its
monetary or
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<PAGE> 33
fiscal affairs which in your reasonable opinion has a material adverse
effect on the securities markets in the United States; or
(c) as provided in Sections 6 and 10 of this Agreement.
13. INFORMATION FURNISHED BY UNDERWRITERS. The information set forth in
the Prospectus: (a) in the last paragraph on the cover page, (b) on page ___
regarding stabilization, and (c) (i) in the table under the caption
"Underwriting" on page ___, listing the Underwriters and the number of shares
each has agreed to purchase, and (ii) in the ____ paragraph below said table on
page ___, relating to the concession to dealers and the reallowance to certain
other dealers under the caption "Underwriting" in the Prospectus, constitute
the written information furnished by or on behalf of any Underwriters referred
to in paragraph (a) (v) of Section 1 hereof and in paragraphs (a) and (b) of
Section 8 hereof.
14. SUCCESSORS. This Agreement has been and is made solely for the
benefit of the Underwriters, the Company, the Stockholders and their respective
successors, executors, administrators, heirs, and assigns, and the officers,
directors and controlling persons referred to herein, and no other person will
have any right or obligation hereunder The term "successors" shall not include
any purchaser of the Shares merely because of such purchase.
15. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants of the Company and the Stockholders in this Agreement shall remain in
full force and effect regardless of (a) any termination of this Agreement, (b)
any investigation made by or on behalf of the Underwriters or controlling
person or (c) delivery of any payment for the Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Arkansas, without giving effect to the choice of law or
conflict of law principles thereof.
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<PAGE> 34
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
ESMOR CORRECTIONAL SERVICES, INC.
By:
-----------------------------
Name:
Title:
[STOCKHOLDERS]
The foregoing Underwriting Agreement
is hereby confirmed and accepted as of
the date first above written.
STEPHENS INC.
J.C. BRADFORD & CO.
By:
-----------------------------
Stephens Inc. Senior Manager
Name:
----------------------------
Title:
---------------------------
As Representative of the several Underwriters
named in Schedule I hereto
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<PAGE> 35
SCHEDULE I
Name No. of Underwritten Shares
- ---- --------------------------
Stephens Inc.
J.C. Bradford & Co.
Total -------------
- ----- 2,450,000
<PAGE> 1
EXHIBIT 3.2
* * * * *
ESMOR CORRECTIONAL SERVICES, INC.
* * * * *
AMENDED
BY-LAWS
* * * * *
I. OFFICES
1.1 The registered office and the registered agent of
the Corporation shall be located at such place as the Board of Directors may
from time to time designate.
1.2 The Corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the Corporation may
require.
II. ANNUAL MEETING OF STOCKHOLDERS
2.1 All meetings of Stockholders shall be held at such
time and place as may be fixed from time to time by the Board of Directors.
<PAGE> 2
2.2 Written notice of the Annual Meeting stating the
time, place, and purpose or purposes of the meeting shall be delivered either
personally or by mail, not less than ten nor more than sixty days before the
date of the meeting, to each Stockholder of record entitled to vote at such
meeting.
2.3 When a meeting is adjourned to another time or
place, it shall not be necessary to give notice of the adjourned meeting if the
time and place to which the meeting is adjourned are announced at the meeting
at which the adjournment is taken, and at the adjourned meeting only such
business is transacted as might have been transacted at the original meeting.
However, if after the adjournment the Board of Directors establishes a new
record date for the adjourned meeting, a notice of the adjourned meeting shall
be given to each Stockholder of record on the new record date.
2.4 Notice of meeting need not be given to any
Stockholder who signs a waiver of notice, in person or by proxy, whether before
or after the meeting. The attendance of any Stockholder at a meeting, in
person or by proxy, without protesting prior to the conclusion of the meeting
the lack of notice of such meeting, shall constitute a waiver of notice by him.
2.5 Any action required or permitted to be take at a
meeting of Stockholders by statute, the Certificate of Incorporation, or these
By-Laws, may be taken without a meeting upon the written consent of the
stockholders entitled to vote who in the aggregate own the requisite amount of
issued and outstanding shares of stock of the Corporation which constitutes the
minimum number of votes necessary to authorize such action at a meeting at
which all Stockholders entitled to vote thereon were present and voting.
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<PAGE> 3
III. SPECIAL MEETING OF STOCKHOLDERS
3.1 Special Meetings of Stockholders for any purpose
other than the election of directors may be held at such time and place within
or without the State of Delaware as shall be stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
3.2 Special Meetings of the Stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the President or the Board of
Directors.
3.3 Written notice of a Special Meeting stating the
time, place, and purpose or purposes of the meeting for which the meting is
called, shall be delivered not less than ten nor more than sixty (60) days
before the date of the meeting, personally, by mail, or by telegram, by or at
the direction of the President, the Secretary, or the officer or persons
calling the meeting, to each Stockholder of record entitled to vote at such
meeting.
IV. QUORUM AND VOTING OF STOCK
4.1 The holders of a majority of the shares of stock
issued and outstanding and entitled to vote, represented in person or by proxy,
shall constitute a quorum at all meeting of the Stockholders for the
transaction of business, except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the Stockholders, the Stockholders present in
person or represented by proxy shall have the power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented.
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<PAGE> 4
At such adjourned meeting at which a quorum shall be present or represented,
any business may be transacted which might have been transacted at the meeting
as originally notified.
4.2 If a quorum is present, the affirmative vote of a
majority of the shares of stock represented at the meeting shall be the act of
the Stockholders unless the vote of a greater number of shares of stock is
required by law or the Certificate of Incorporation.
4.3 Each outstanding share of stock, having voting
power, shall be entitled to one vote on each mater submitted to a vote at a
meeting of Stockholders, unless otherwise provided in the Certificate of
Incorporation. A Stockholder may vote either in person or by proxy.
V. DIRECTORS
5.1 The number of Directors which shall constitute the
whole Board of Directors shall be not less than one nor more than twelve, such
number to be increased or decreased by an amendment to these By-Laws.
Directors need not be residents of the State of Delaware or Stockholders of the
Corporation. The Directors, other than the first Board of Directors, shall be
elected at the Annual Meeting of the Stockholders, except as hereinafter
provided, and each Director elected shall serve until the next succeeding
Annual Meeting and until his successor shall have been elected and qualified.
5.2 Unless otherwise provided in the Certificate of
Incorporation, any vacancy occurring in the Board of Directors that results
from an increase in the number of Directors or the death, resignation or
removal of a Director, shall be filled by a majority of the Directors then in
office, even if less than a quorum of the Board of Directors, or by the sole
remaining director. A Director elected to fill a vacancy not resulting from an
increase in
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<PAGE> 5
the number of directors shall be elected for the unexpired portion of the term
of his predecessor in office.
5.3 One or more or all the Directors of the Corporation
may be removed for cause by the Stockholders by the affirmative vote of the
majority of the votes cast by the holders of shares entitled to vote for the
election of Directors.
5.4 The business affairs of the Corporation shall be
managed by its Board of Directors which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Certificate of incorporation or by these By-laws directed or required to be
exercised or done by the Stockholders.
5.5 The Directors may keep the books and records of the
Corporation, except such as are required by law to be kept within the state,
outside of the State of Delaware, at such place or places as they may from time
to time determine.
5.6 The Board of Directors, by the affirmative vote of a
majority of the Directors then in office, and irrespective of any personal
interest of any of its members, shall have the authority to establish
reasonable compensation of all Directors and Officers of the Corporation.
VI. MEETINGS OF THE BOARD OF DIRECTORS
6.1 Meetings of the Board of Directors, regular or
Special, may be held either within or without the State of Delaware, and at
such time and place as shall be determined by the Board.
-5-
<PAGE> 6
6.2 Regular meetings of the Board of Directors may be
held upon such notice, or without notice, and at such time and at such place as
shall from time to time be determined by the Board. 6.3Special Meetings of the
Board of Directors may be called by the President on ten (10) days notice to
each Director, either personally or by mail or by telegram; Special Meetings
shall be called by the President or Secretary in like manner and on like notice
on the written request of two Directors. Notice need not be given to any
Director who signs a waiver of notice, whether before or after the meeting.
6.4 Attendance of a Director at any meeting shall
constitute a waiver of notice of such meeting, except where a Director attends
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or Special Meeting of the Board
of Directors need be specified in the notice or waiver of notice of such
meeting.
6.5 A majority of the then current number of Directors
shall constitute a quorum for the transaction of business unless a greater or
lesser number is required by statute or by the Certificate of Incorporation.
The act of a majority of the Directors present at any meeting at which a quorum
is present shall be the act of the Board of Directors, unless the act of a
greater or lesser number is required by statute or by the Certificate of
Incorporation. If a quorum shall not be present at any meeting of Directors,
the Directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present.
-6-
<PAGE> 7
6.6 Unless otherwise provided by the Certificate of
Incorporation, any action required to be taken at a Meeting of the Board, or
any committee thereof may be taken without a meeting and, shall be deemed the
action of the Board of Directors or of a committee thereof, if all Directors or
committee member, as the case may be, execute either before or after the action
is taken, a written consent thereto, and the consent is filed with the records
of the Corporation.
VII. EXECUTIVE COMMITTEE OF THE BOARD OF DIRECTORS
7.1 The Board of Directors, by resolution adopted by a
majority of the number of Directors then in office, may designate one or more
Directors to constitute an executive committee, which committee, to the extent
provided in such resolution, shall have and exercise all of the authority of
the Board of Directors in the management of the Corporation, except as
otherwise required by law. Vacancies in the membership of the committee shall
be filled by the Board of Directors at a regular or Special Meeting of the
Board of Directors. The Executive Committee shall keep regular minutes of its
proceeding and report the same to the Board when required.
-7-
<PAGE> 8
VIII. NOTICES
8.1 Whenever, under the provisions of the statues or of
the Certificate of Incorporation or of these By-Laws, notice is required to be
given to any Director or Stockholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, addressed to
such Director or Stockholder, at his address as it appears on the records of
the Corporation, with postage thereon prepaid, and such notice shall be deemed
to be given at the time when the same shall be deposited in the United States
mail. Notice to Directors may also be given by telegram.
8.2 Whenever any notice is required to be given by law
or under the Certificate of Incorporation or these By-Laws, a waiver thereof in
writing signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice.
IX. OFFICERS
9.1 The Board of Directors at its first meeting after
each Annual Meeting of Stockholders shall choose the Officers, none of whom
need be a member of the Board of Directors.
9.2 The Board of Directors may appoint such Officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board of Directors.
9.3 The salaries of all Officers and agents of the
Corporation shall be fixed by the Board of Directors.
-8-
<PAGE> 9
9.4 The Officers of the Corporation shall hold office
until their successors are chosen and qualify. Any Officer elected or
appointed by the Board of Directors may be removed with or without cause at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors.
THE PRESIDENT
9.5 The President, if one be appointed, shall preside at
all meetings of the Stockholders and in the absence of the Chairman of the
Board of Directors, at the meeting of the Board of Directors, and shall have
general and active management of the business of the Corporation and shall see
that all orders and resolutions of the Board of Directors are carried into
effect.
9.6 The President shall execute bonds, mortgages and
other contracts requiring a seal, under the seal of the Corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the singing and execution thereof shall be delegated by the Board
of Directors to some other Office or agent of the Corporation.
THE VICE PRESIDENTS
9.7 The Vice President, if one be elected, or if there
shall be more than one, the Vice Presidents in the order determined by the
Board of Directors, shall, in the absence or disability of the President,
perform the duties and exercise the powers of the President and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
-9-
<PAGE> 10
9.8 The Secretary, if one be elected, shall attend all
meetings of the Board of Directors and all meetings of the Stockholders and
record all the proceedings of the meetings of the Corporation and of the Board
of Directors in a book to be kept for that purpose and shall perform like
duties for standing committees when required. The Secretary shall give, or
cause to be given, notice of all meetings of the Stockholders and Special
Meetings of the Board of Directors, and shall perform such other duties as may
be prescribed by the Board of Directors or President. The Secretary shall have
custody of the corporate seal of the Corporation and he, or an Assistant
Secretary, shall have authority to affix the same to any instrument requiring
it and when so affixed, it may be attested by his signature or by the signature
of such Assistant Secretary. The Board of Directors may give general authority
to any other Office to affix the seal of the Corporation and to attest the
affixing by his signature.
9.9 The Assistant Secretary, if one be elected, or if
there be more than one, the assistant secretaries in the order determined by
the Board of Directors, shall, in the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
9.10 The Treasurer, if one be elected, shall have the
custody of the corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation
and shall deposit all monies and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the
Board of Directors.
-10-
<PAGE> 11
9.11 The Treasurer shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the President and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his transactions as Treasurer and of the financial condition
of the Corporation.
9.12 If required by the Board of Directors, the Treasurer
shall give the Corporation a bond in such sum and with such surety or sureties
as shall be satisfactory to the Board of Directors for the faithful performance
of the duties of his office and for the restoration to the Corporation, in case
of his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his possession
or under his control belonging to the Corporation.
9.13 The Assistant Treasurer, if one be elected, or, if
there shall be more than one, the Assistant Treasurers in the order determined
by the Board of Directors, shall, in the absence or disability of the
Treasurer, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
CHIEF FINANCIAL OFFICER
9.14 The Chief Financial Officer, if one be elected,
shall have such duties as may from time to time be prescribed by the Board of
Directors.
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<PAGE> 12
CHIEF EXECUTIVE OFFICER
9.15 The Chief Executive Officer, if one be elected,
shall have such duties as may from time to time be prescribed by the Board of
Directors.
CHIEF OPERATING OFFICER
9.16 The Chief Operating Officer, if one be elected,
shall have such duties as may from time to time be prescribed by the Board of
Directors.
X. CERTIFICATES FOR SHARES
10.1 The shares of the Corporation shall be represented
by certificates signed by the President or a Vice President and by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the corporation, and may be sealed with the seal of the Corporation or a
facsimile thereof.
10.2 When the Corporation is authorized to issue shares
of more than one class, there shall be set forth upon the face or back of the
certificate, or the certificate shall have a statement that the Corporation
will furnish to any Stockholder upon request and without charge, a full
statement of the designations, preferences, limitations and relative rights of
the shares of each class authorized to be issued and, if the Corporation is
authorized to issue any preferred or special class in series, the variations in
the relative rights and preferences between the shares of each such series so
far as the same have been fixed and determined and the authority of the Board
of Directors to fix and determine the relative rights and preferences of
subsequent series.
10.3 The signatures of the Officers of the Corporation
upon a certificate may be facsimiles if the certificate is countersigned by a
transfer agent, or registered by a
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<PAGE> 13
registrar, other than the Corporation itself or an employee of the Corporation.
In case any Officer who has signed or whose facsimile signature has been placed
upon such certificate shall have ceased to be such Officer before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such Officer at the date of its issues.
LOST CERTIFICATES
10.4 The Board of Directors may direct a new certificate
to be issued in place of any certificate theretofore issued by the Corporation
alleged to have been lost or destroyed. When authorizing such issue of a new
certificate, the Board of Directors, in its discretion and as a condition
precedent to the issuance thereof, may prescribe such terms and conditions as
it deems expedient, and may require such indemnities as it deems adequate, to
protect the Corporation from any claim that may be made against it with respect
to any such certificate alleged to have been lost or destroyed.
TRANSFERS OF SHARES
10.5 Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate representing shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, a new certificate shall be issued to the person entitled thereto, and
the old certificate canceled and the transaction recorded upon the books of the
Corporation.
CLOSING OF TRANSFER BOOKS
10.6 For the purposes of determining Stockholders
entitled to notice of or to vote at any meeting of Stockholder, or any
adjournment thereof or entitled to receive payment of any dividend, or in order
to make a determination of Stockholders for any other proper
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<PAGE> 14
purpose, the Board of Directors may provide that the stock transfer books shall
be closed for a stated period but not to exceed, in any case, sixty (60) days.
If the stock transfer books shall be closed for the purpose of determining
Stockholders entitled to notice of or to vote at a meeting of Stockholders,
such books shall be closed for at least ten (10) days immediately preceding
such meeting. In lieu of closing the stock transfer books, the Board of
Directors may fix in advance a date as the record date for any such
determination of Stockholders, such date in any case to be not more than sixty
(60) days and, in case of a meeting of Stockholders, not less than ten (10)
days prior to the date on which the particular action, requiring such
determination of Stockholders, is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of Stockholders
entitled to notice of or to vote at a meeting of Stockholders, or Stockholders
entitled to receive payment of a dividend, the record date for the
determination of Stockholders entitled to notice of or to vote at a meeting of
Stockholders shall be the close of business on the day next preceding the day
on which notice is given, or, if no notice is given, the day next preceding the
day on which the meeting is held; and the record date for determining
Stockholders for any other purpose shall be at the close of business on the day
on which the resolution of the board relating thereto is adopted. When a
determination of Stockholders entitled to vote at any meeting of Stockholders
has been made as provided in this section. such determination shall apply to
any adjournment thereof.
REGISTERED STOCKHOLDERS
10.7 The Corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the
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<PAGE> 15
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such shares or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of the State of Delaware.
LIST OF STOCKHOLDERS
10.8 The Officer or agent having charge of the transfer
books for shares shall make, and certify a complete list of the Stockholders
entitled to vote at a Stockholders' meeting, or adjournment thereof, arranged
in alphabetical order within each class and series, with the address of, and
the number of shares held by each Stockholder, which list shall be produced and
kept open at the time and place of the meeting and shall be subject to the
inspection of any Stockholder during the whole time of the meeting. Such list
shall be prima facie evidence as to who are the Stockholders entitled to
examine such list or to vote at any meeting of the Stockholders.
XI GENERAL PROVISIONS
DIVIDENDS
11.1 Subject to the provisions of the Certificate of
Incorporation relating thereto, if any, dividends may be declared by the Board
of Directors at any regular or Special Meeting, pursuant to law. Dividends may
be paid in cash, in its bonds, in its own shares or other property including
the shares or bonds of other corporations subject to any provisions of law and
of the Certificate of Incorporation.
11.2 Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Directors from time to time, in their absolute discretion, think
proper as a reserve fund to meet contingencies, or
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<PAGE> 16
for equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Directors shall think conducive
to the interest of the Corporation, and the Directors may modify or abolish any
such reserve in the manner in which it was created.
CHECKS
11.3 All checks or demands for money and notes of the
Corporation shall be signed by such Officer or Officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
11.4 The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.
SEAL
11.5 The Corporation seal shall have inscribed thereon
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware." The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in any manner reproduced.
INDEMNIFICATION
11.6 (a) The Corporation shall, to the maximum extent
permitted from time to time under the law of the State of Delaware, indemnify
and upon request shall advance expenses to any person who is or was a party to
any threatened, pending or completed action, suit, proceeding or claim, whether
civil, criminal, administrative or investigative, by reason of the fact that he
or she is or was or has agreed to be a trustee, director, officer, employee or
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<PAGE> 17
agent of the Corporation, or is or was serving at the request of the
Corporation as a trustee, director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees and expenses), judgment, fines, penalties
and amounts paid in settlement incurred in connection with the investigation,
preparation to defend or defense of any such action, suit, proceeding or claim.
Such indemnification shall not be exclusive of other indemnification rights
arising under any by-law, agreement, vote of directors or stockholders or
otherwise and shall inure to the benefit of the heirs and legal representatives
of such person.
(b) The Corporation may purchase and maintain
insurance on any person who is or was a trustee, director, officer, employee or
agent of the Corporation or is or was serving at the request of the Corporation
as a trustee, director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
incurred by him in any such position or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under Paragraph 11.6(a).
AMENDMENTS
12.1 These By-Laws may be altered, amended, or repealed
or new By-Laws may be adopted by the affirmative vote of a majority of the
Board of Directors at any regular or Special Meeting of the Board of Directors,
subject to any provision in the Certificate of Incorporation reserving to the
Stockholders the power to adopt, amend, or repeal By-Laws, but By-Laws made by
the Board of Directors may be altered or repealed and new By-Laws
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<PAGE> 18
made by the Stockholders. The Stockholders may prescribe that any By-Law made
by them shall not be altered or repealed by the Board of Directors.
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<PAGE> 1
EXHIBIT 4.3
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THIS WARRANT MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (I) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR (II) AN EXEMPTION FROM REGISTRATION UNDER SAID ACT WHERE THE HOLDER HAS
FURNISHED TO THE COMPANY AN OPINION OF ITS COUNSEL THAT AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE.
WARRANT CERTIFICATE
NO. WA 29 SERIES A WARRANTS
VOID AFTER JULY 1, 1999
WARRANT CERTIFICATE FOR
PURCHASE OF COMMON STOCK
ESMOR CORRECTIONAL SERVICES, INC.
This certifies that FOR VALUE RECEIVED F. Gerry Lauro (IRA) or
registered assigns (the Registered Holder") is the owner of 25 Series A
Warrants ("Warrants") of Esmor Correctional Services, Inc., a Delaware
corporation (the "Company"). Each Warrant represented hereby initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Warrant Certificate and the Warrant Agent Agreement (as
hereinafter defined), that number of fully paid and nonassessable shares of
Common Stock, $.01 par value, of the Company as is set forth on Exhibit I
hereto and at any time prior to the Expiration Date (as hereinafter defined),
upon the presentation and surrender of this Warrant Certificate with the
Subscription Form on the reverse hereof duly executed, at the corporate office
of American Stock Transfer & Trust Company as Warrant Agent, or its successor
(the "Warrant Agent"), accompanied by payment of the per share purchase price
as set forth in Exhibit I hereto (the "Warrant Price") in lawful money of the
United States of
<PAGE> 2
America in cash or by official bank or certified check made payable to Esmor
Correctional Services, Inc.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respect to the terms and conditions set
forth in the Warrant Agent Agreement (the "Warrant Agreement"), dated July 28,
1995, by and among the Company, the Warrant Agent and Janney Montgomery Scott,
Inc.
In the event of certain contingencies provided for in the Warrant
Agreement, the Warrant Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York time) on July
31, 1999. If such date shall in the state of New York be a holiday or a day on
which banks are authorized to close, then the Expiration Date shall mean 5:00
P.M. (New York time) the next following day which in the State of New York is
not a holiday or a day on which banks are authorized to close. The Warrants
represented hereby shall not be exercisable by a Registered Holder in any state
where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant
2
<PAGE> 3
Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment with any tax or
other governmental charge imposed in connection therewith, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
3
<PAGE> 4
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile, by two of its officers.
ESMOR CORRECTIONAL SERVICES, INC.
Dated: July 28, 1995 By:/s/ James F. Slattery
--------------------------------
James F. Slattery, President
By:/s/ Aaron Speisman
--------------------------------
Aaron Speisman, Secretary
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY
as Warrant Agent
By: /s/
------------------------------------
Authorized Officer
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<PAGE> 5
EXHIBIT I
This Warrant shall entitle the holder to purchase 625 shares of Common
Stock plus the amount determined by dividing $25,000 by the Warrant Exercise
Price. The Warrant Exercise Price shall mean the lower of (a) $7.75 or (b) the
lowest average of the high closing bid price of the Common Stock for three
trading days prior to any closing date of (c) the average high closing bid
price of the Common Stock for the last ten consecutive trading days in
September, 1995.
<PAGE> 6
ASSIGNMENT
TO BE EXECUTED BY THE REGISTERED HOLDER
IN ORDER TO ASSIGN WARRANTS
FOR VALUE RECEIVED,______________________________________________ hereby
sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
[please print or type name and address]
____________________________of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints___________
_______________________________________________________________________
Attorney to transfer this Warrant Certificate on the books of the
Company, with full power of substitution in the premises.
Dated: _____________________ X__________________________________
Signature
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE
FACE OF THE WITHIN INSTRUMENT WITHOUT ALTERATION
OR ANY CHANGE WHATSOEVER
__________________________________
Signature
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
SIGNATURE(S) GUARANTEED BY:
<PAGE> 1
EXHIBIT 4.4
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THIS NOTE MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR (ii) AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT WHERE THE HOLDER HAS FURNISHED TO
THE COMPANY AN OPINION OF ITS COUNSEL, THAT AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT IS AVAILABLE.
ESMOR CORRECTIONAL SERVICES, INC.
10% PROMISSORY NOTE
Due July, 1998
July 28, 1995
$25,000 Melville, New York
FOR VALUE RECEIVED, the undersigned, Esmor Correctional
Services, Inc., a Delaware corporation (the "Payor"), having its principal
place of business at 275 Broadhollow Road, Melville, new York 11747, hereby
promises to pay to the order of F. Gerry Lauro (IRA) (the "Payee"), having an
address at 237 Meadowbrook Road, Wyckoff, New Jersey 07481 on July 1, 1998, the
principal sum of Twenty-Five Thousand ($25,000) Dollars, in such coin or
currency of the United States of America as at the time shall be legal tender
of the payment of public and private debts.
This Note is one of a series of notes in the aggregate
principal amount of up to $6,900,000 (the "Offering Notes") being issued
pursuant to the payor's Confidential Private payor's offering (the "Offering")
of its units (the "Units"), each Unit consisting of (i) an Offering Note in the
Principal amount of $1,000; and (ii) a four year Series A Warrant to purchase,
at the "Warrant Exercise Price", Twenty-Five (25) shares of Common Stock, par
value $.01 per share, and an additional number of shares of Common Stock
determined by dividing $1,000 by the Warrant Exercise Price. Reference to the
Memorandum shall in no way impair the absolute and unconditional obligation of
the Payor to pay both principal and interest hereon as provided herein.
1. INTEREST AND PAYMENT; PREPAYMENTS.
1.1 Interest.
The unpaid principal amount hereof shall bear simple
interest from the date hereof at the rate of 10% per annum until the Maturity
Date (or until any such earlier date of payment if this Note is prepaid as
hereinafter provided).
<PAGE> 2
1.2 Payments
Interest shall be payable quarterly on the first day
of January, April, July and October of each year until paid in full, commencing
on October 1, 1995, and the remaining accrued interest shall be payable in full
on the Maturity Date (or on any such earlier date of payment if this Note is
prepaid as hereinafter provided.)
1.3 Prepayment.
At the option of the Payor, after payment in full of
the Senior Debt which, for purposes hereof, shall mean any indebtedness of the
Payor or any Subsidiary of the Payor, including without limitation, Esmor
Canadian, Inc. or any guarantee of any indebtedness of the Payor or any
Subsidiary of the Payor, whether outstanding on the date hereof or hereafter
created, incurred, assumed or guaranteed: (i) for money borrowed from Marine
Midland Bank or any other indebtedness or obligation, evidenced by a note or
other similar instrument including, without limitation, commercial paper, bank
drafts, banker's acceptances and letters of credit and all interest that may
accrue after the commencement of a petition in bankruptcy, and (ii) renewals,
extensions and refundings of any such indebtedness, unless in any such case it
is provided by the terms of the instrument creating or evidencing such that
such indebtedness is not senior in right of payment to the Offering Notes, this
Note may be prepaid in whole and not in part at any time without penalty or
premium.
1.4 Allocation of Payments
All payments on this Note, including any interest
payment or any prepayment of this Note, will be made only under circumstances
where ratable payments are made on all Offering Notes in accordance with the
unpaid outstanding principal amount of the Offering Notes.
2. COVENANTS OF THE PAYOR
The Payor covenants and agrees that, from and after the date
hereof and continuing so long as the Note remains outstanding and unpaid:
2.1 Corporate Existence.
Except as other wise permitted by Section 2.7 and
Section 2.8, the Payor will take all steps necessary to preserve and keep in
full force and effect its corporate existence, rights and franchises and will
continue to engage in substantially the same line of business in which it is
engaged on the date hereof.
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<PAGE> 3
2.2 Payment of Taxes and Claims.
The Payor, will, and will cause each of its
Subsidiaries to, duly pay and discharge all taxes or other claims which might
become a lien upon any of its property except to the extent that any thereof a
re being in good faith appropriately contested with adequate reserves provided
therefor.
2.3 Preservation of Properties; Compliance with
Law and Obligations.
The Payor will and will cause each of its
Subsidiaries to, maintain and preserve all of its properties which are used or
which are useful in the conduct of its business in good working order and
condition, ordinary wear and tear excepted, and comply with all contractual
obligations and requirements of law except to the extent non-compliance could
not, in the aggregate, have a material adverse effect on its business,
operations, properties or financial condition or on its ability to perform its
obligations hereunder.
2.4 Effective Net Worth.
The Payor will at all times keep and maintain
Effective Net Worth in an amount not less than the sum of (i) the outstanding
principal amount of any outstanding principal amount of any Subordinate Debt;
plus (ii) an amount equal to fifty (50%) percent of Consolidated Net Income for
each quarterly fiscal period of the Payor from and after July 1, 1995 to an
including the date of any determination thereof, computed on a cumulative basis
for said entire period.
For purposed of the Agreement:
(a) Consolidated Net Income shall mean, for any
period, the aggregate net income (or net loss) of the Payor and its
Subsidiaries for such period equal to net revenues and other proper income less
the aggregate of any and all items that are treated as expenses (including
taxes based on income), but excluding from the definition of Consolidated Net
Income any extraordinary gains or any gains from the sale or disposition of
assets other than in the ordinary course of business, all treated, computed and
calculated in accordance with generally accepted accounting principles (GAAP)
applied on a consistent basis.
(b) Net Worth shall mean with respect to the
Payor and its subsidiaries on a consolidated basis, at any date, the net book
value of assets less liabilities in each case computed in accordance with GAAP.
(c) Effective Net Worth shall mean the Net Worth
of the Payor and its Subsidiaries on a consolidate basis, plus the outstanding
principal amount of any subordinate debt ("Subordinate Debt") including that of
the Offering Notes.
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<PAGE> 4
2.5 Dividends, Stock Purchases.
The Payor will not:
(a) Declare or pay any dividends, either in cash
of property, on any share of its capital stock of any class
(except dividends or other distributions payable solely in
shares of Common Stock of the Payor); or
(b) Directly or indirectly, or through any
Subsidiary, purchase, redeem or retire any shares of its
capital stock of any class or any warrants, rights or options
to purchase or acquire any shares of its capital stock; or
(c) Make any other payment or distribution,
either directly or indirectly or through any Subsidiary, in
respect of its capital stock (provided, however, no Subsidiary
of the Payor is limited or prohibited from paying any dividend
to the Payor is limited or prohibited from paying any dividend
to the Payor or from making any distribution, loan, advance to
or guarantee on behalf of, the Payor);
(such declaration of payments of dividends, purchases, redemptions or
retirements of capital stock and warrants, rights or options and all such other
distributions being herein collectively called "Restricted Payments"), if after
giving effect thereto any Default or Event of Default shall have occurred and
be continuing or the sum of the aggregate amount of Restricted Payments made or
declared during the period after June 30, 1995 to and including the date of the
making of the Restricted Payment in question would exceed twenty-five (25%)
percent of Consolidated Net Income for such period plus $500,000, computed on a
cumulative basis for said entire period (or if such Consolidated Net Income is
a deficit figure, then minus 100% of such deficit).
2.6 Limitation on Liens.
The Payor will not, and will not permit any
Subsidiary to, create or incur, or suffer to be incurred or to exist, any Lien
omits or their property or assets, whether now owned or hereafter acquired
(except with respect to Liens which exist on property or assets which the
Payor, or any Subsidiary, acquires), or upon any income or profits therefrom,
or transfer any property for the purpose of subjecting the same to the payment
of obligations in priority to the payment of its or their general creditors,
except:
(a) Liens for property taxes and assessments or
governmental charges or levies and Liens securing claims or
demands of mechanics and materialmen, provided payment thereof
is not at the time required by Section 2.2;
(b) Liens of or resulting from any judgment or
award, the time for the appeal or petition for rehearing of
which shall not have expired, or in respect of which the Payor
or a subsidiary shall at any time in good faith be prosecuting
an
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<PAGE> 5
appeal or proceeding and in respect of which a stay of
execution pending such appeal or proceeding shall have been
secured;
(c) Liens incidental to the conduct of business
or the ownership of properties and assets (including Liens in
connection with worker's compensation, unemployment insurance
and other like laws, warehousemen's and attorney's liens and
statutory landlords' liens) and Liens to secure the
performance of bids, bonds or other liens of like general
nature incurred in the ordinary course of business and not in
connection with the borrowing of money; provided in each case,
the obligation secured is not overdue or, if overdue, is being
contested in good faith by appropriate actions or proceedings;
(d) Minor survey exceptions or minor
encumbrances, easements or reservations, or rights or other
for rights-of-way utilities and other similar purposes, or
zoning or other restrictions as to the use of real properties,
which are necessary for the conduct of the activities of the
Payor and its Subsidiaries or which customarily exist on
properties of corporations engaged in similar activities and
similarly situated and which do not in any event materially
impair their use in the operation of the business of the Payor
and its Subsidiaries;
(e) Liens (including any renewals, extensions or
perfection) existing as of the date hereof; and
(f) Liens given in favor of any holder of Senior
Debt.
2.7 Merger or Consolidation; Sale of Assets.
In the event the Payor, with the consent of the
holder of the Senior Debt: (i) consolidates with or is party to a merger with
any other corporation, other than a merger or consolidation of any Subsidiary
into the Payor or any Wholly-Owned Subsidiary of Payor so long as the Payor
shall be the surviving or continuing corporation; or the merger or
consolidation of the Payor with or into any other corporation, partnership,
trust or enterprise where the Payor shall be the surviving or continuing
corporation; and at the time of such consolidation or merger and after giving
effect thereto, no Default or Event of Default shall have occurred and be
continuing or (ii) sells or otherwise disposes of all or any substantial part
of the assets of the Payor and such Subsidiaries, taken as a whole; other than
the sale, lease or disposal of all or any part of such assets to the Payor to a
Wholly-Owned Subsidiary or to any other person so long as such transaction is
not part of a transaction in which all of the properties and assets of the
Payor are being sold or disposed of, the Payor will give at least thirty (30)
days notice thereof to the holders of the Offering Notes setting forth the
proposed date of such transaction. Upon receipt of such notice, any holder of
an Offering Note may advise the Payor in writing prior to the date of the
transaction specified in the Notice of his election to require
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<PAGE> 6
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<PAGE> 7
to the Senior Debt until the principal of, premium, if any, and interest on the
Offering Notes shall be paid in full; and no payments or distributors (direct
or indirect) to the holders of the Senior Debt of cash, property o Securities
to which the holders would be entitled except for the provisions of this
Section 3.1 shall, as between the Payor, its creditors (other than the holders
of Senior Debt) and the holders of the Offering Notes, be deemed to be a
payment by the Payor to or on account of the Senior Debt.
Each and every holder of any Offering Note by its
acceptance of an Offering Note undertakes and agrees for the benefit of each
holder of Senior Debt to execute, verify, deliver and file any proofs of claim
which any holder of Senior Debt may at any time require in order to prove and
realize upon any rights or claims pertaining to the Offering Notes and to
effectuate the full benefit of the subordination contained herein; and upon
failure of any holder of an Offering Note so to do, any such holder of Senior
Debt shall be deemed to be irrevocably appointed the agent and attorney-in-fact
of such holders to execute, verify, deliver and file any such proofs of claim.
The Payor agrees for the benefit of the holders of
Senior Debt, that in the event that the Offering Notes are declared due and
payable before their expressed maturity because of the occurrence of a default
hereunder; (i) the Payor will give prompt notice in writing of such happening
to the holders of Senior Debt; and (ii) all Senior Debt shall forthwith become
immediately due and payable upon demand, regardless of the expressed maturity
thereof.
No right of any holder of any Senior Debt to enforce
subordination as herein provided shall at any time or in any way be affected or
impaired by any failure to act on the part of the Payor or the holders of
Senior Debt, or by any non-compliance by the Payor with any of the terms,
provisions and covenants of the Offering Notes, regardless of any knowledge
thereof that any such holder of Senior Debt may have or be otherwise charged
with.
In the event that any payment or distribution of
assets of the Payor shall be received by any holder of an Offering Note on
account of principal of or interest on the Offering Notes in violation of the
provisions of this Section 3.1, such payment or distribution shall be promptly
delivered to the holders of Senior Debt in the form received (except for any
necessary endorsements) for application to the payment of such Senior Debt,
until all such Senior Debt has been paid in full. Until so delivered, any such
payment or distribution shall be held by the recipient in trust for the holders
of the Senior Debt and shall not be commingled with other funds or property of
the recipient.
The foregoing provisions are solely for the purpose
of defining the relative rights of the holders of Senior Debt on the one hand,
and the holders of the Offering Notes on the other hand, and nothing herein
shall impair, as between the Payor and the holders of the Offering Notes the
obligation of the Payor which is unconditional and absolute, to pay the
principal, premium, if any, and interest on the Notes in accordance with their
terms, nor shall anything herein prevent the holders of the Offering Notes from
exercising all remedies otherwise
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<PAGE> 8
permitted by applicable law or hereunder upon default hereunder, subject to the
rights of the holders of Senior Debt as herein provided for.
3.2 Changes to Senior Debt.
The holder of the Senior Debt may extend, renew,
modify or amend the terms of the Senior Debt, obtain any different or
additional collateral or security from the Payor or any Subsidiary or any
security therefor and release, sell or exchange such security and otherwise
deal freely with the Payor, all without notice to or consent of the holders of
the Offering Notes and without affecting the liabilities and obligations of the
Payor or the holders of the Offering Notes.
3.3 Changes to Subordinated Debt.
No provision in any amendment to this Note which
affects the superior position of the holders of the Senior Debt shall be
effective against holders of the Senior Debt who have not consented thereto.
4. EVENTS OF DEFAULT AND REMEDIES THEREFOR.
4.1 Events of Default.
If any of the following conditions, event or acts shall occur:
(a) Default in the payment of interest on this
Note (or any Offering Notes) when due and such default shall
continue for more than five (5) days;
(b) Default in the payment when due of the
principal of or interest on any Senior Debt having an unpaid
principal amount in excess of $100,000, and such default or
event shall continue beyond the period of grace, if any,
allowed with respect thereto;
(c) Default in the observance or performance of
any other covenant or provision of this Note which is not
remedied within thirty (30) days after the earlier of (i) the
day on which the Payor first obtains knowledge of such
default; or (ii) the day on which written notice thereof is
given to the Payor by any holder;
(d) The Payor becomes insolvent or bankrupt, is
generally not paying its debts as they become due or makes an
assignment for the benefit of creditors, or the Payor causes
or suffers an order of relief to be entered with respect to
its under applicable Federal bankruptcy law or applies for or
consents to the appointment of a custodian, trustee or
receiver for the Payor or for the major part of the property
of the Payor;
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<PAGE> 9
(e) A custodian, liquidator, trustee or receiver
is appointed for the Payor or for the major part of the
property of the Payor and is not discharged within forty-five
(45) days after such appointment; or
(f) Bankruptcy, reorganization, arrangement or
insolvency proceedings, or other proceedings for relief under
any bankruptcy or similar law or laws for the relief of
debtors, are instituted by or against the Payor and, if
instituted against the Payor, are consents to or are not
dismissed within sixty (60) days after such institution.
4.2 Notice of Holders
When any Event of Default described in Section 4.1
has occurred, or if any holder of any other evidence of Senior Debt gives any
notice or takes any other action with respect to a claimed default, Payor
agrees to give notice within three business days of such event to the holder of
this Note and the holders of all Offering Notes.
4.3 Acceleration of Maturities
When any Event of Default described in Section 4.1
above has happened and is continuing, any holder ( or group of holders) holding
twenty-five (25%) percent more of the principal amount of the outstanding
Offering Notes may, by notice in writing sent by registered or certified mail
to the Payor, declare the principal of all of the Offering Notes to be, and all
principal of and interest on all outstanding Offering Notes shall thereupon
become, forthwith due and payable, without any presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived. The Payor
further agrees, to the extent permitted by law to pay to the holder or holders
of all Offering Notes all expenses incurred by them in the collection of any
Offering Note upon any default hereunder or thereon, including reasonable
compensation to such holder's or holders' attorneys for all services rendered
in connection therewith.
4.4 Rescission of Acceleration
The provisions of Section 4.3 are subject to the
condition that if the principal of and accrued interest on all or any
outstanding Offering Notes has been declared immediately due and payable by
reason of the occurrence of any Event of Default described in Paragraph (a)
through (g), inclusive, of 4.2, the Holders holding at least 51% in aggregate
principal amount of the outstanding Offering Notes may, by written instrument
filed with the Payor, rescind and annul such declaration and the consequences
thereof, provided that at the time such declaration is rescinded and annulled:
(a) no judgement or decree has been entered for
the payment of any monies due pursuant to the Offering Notes;
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<PAGE> 10
(b) all arrears of interest upon all the Offering
Notes and all other sums payable under the Offering Notes
(except any principal, interest or premium of the Notes which
has become due and payable solely by reason of such
declaration under Section 4.3) shall have been dully paid; and
(c) each and every other Default and Event of
Default shall have been made good, cured or waived pursuant to
Section 5.1;
and provided further, that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right
consequent thereon.
5. AMENDMENTS, WAIVERS AND CONSENTS.
5.1 Consent Required
Subject to the provisions of Section 3.3, any term,
covenant, agreement or condition of this Note may, with the consent of the
Payor, be amended or compliance therewith may be waived (either generally or in
a particular instance and either retroactively or prospectively), if the Payor
shall have obtained the consent in writing of the Holders of at least 66 2/3%
in aggregate principal amount of outstanding Offering Notes; provided that
without the written consent of all of the Holders and the holders of the Senior
Debt, no such waiver, modification, alteration or amendment shall be effective
which will (i) extend the time of payment of the principal of or the interest
or premium, if any, on any Note or reduce the principal amount thereof or
change the rate of interest thereon; or (ii) change any of the provisions with
respect to optional prepayments; or (iii) change any of the provisions of
Section 3.1, or (iv) change the percentage of Holders to consent to any such
waiver, amendment, alteration or modification of any of the provisions of this
Section 5 or Section 4.
5.2 Effect of Amendment or Waiver.
Any such amendment or waiver shall apply equally to
all of the Holders and shall be binding upon them, upon each future Holder and
upon the Payor, whether or not any Offering Note shall have been marked to
indicate such amendment or waiver. No such amendment or waiver shall extend to
or affect any obligation not expressly amended or waiver or impair any right
consequent thereon.
6. UNCONDITIONAL OBLIGATION; FEES, WAIVERS, OTHER.
6.1 The obligations to make the payments provided
for in this Note are absolute and unconditional and not subject to any defense,
set-off, counterclaim, rescission, recoupment or adjustment whatsoever.
6.2 If the Payee shall institute any action to
enforce the collection of any amount of principal of and/or interest of this
Notes, there shall be immediately due and
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<PAGE> 11
payable from the Payor, in addition to the then unpaid sum of this Note, all
reasonable costs and expenses incurred by the Payee in connection therewith,
including, without limitation, reasonable attorneys' fees and disbursements.
6.3. No forbearance, indulgence, delay or failure
to exercise any right or remedy with respect to this Note that operate as a
waiver, nor as an acquiescence in any default, nor shall any single or partial
exercise of any right or remedy preclude any other or further exercise thereof
or the exercise of any other right or remedy.
6.4. Except as provided in Section 5, this Note
may not be modified or discharged except by a writing duly executed by the
Payor and the Payee.
6.5. The Payor hereby expressly waives demand and
presentment for payment, notice of nonpayment, notice of dishonor, protest,
notice of protest, bringing of suit, and diligence in taking any action to
collect amounts called for hereunder, and shall be directly and primarily
liable for the payment of all sums owing and to be owing hereon, regardless of
and without any notice, diligence, act or omission with respect to the
collection of any amount called for hereunder or in connection with any right,
lien, interest or property at any and all times which the Payee had or is
existing as security for any amount called for hereunder.
6.6. The Payor shall bear all of its expenses,
including attorneys' fees incurred in connection with the preparation of this
Note.
7. MISCELLANEOUS.
7.1. The headings of the various paragraphs of
this Note are for convenience of reference only and shall in no way modify any
of the terms or provisions of this Note.
7.2. All notices required or permitted to be given
hereunder shall be in writing and shall be deemed to have been duly given when
personally delivered or sent by registered or certified mail, return receipt
requested, postage prepaid, to the address of the intended recipient set forth
in the preamble to this Note or at such other address as the intended recipient
shall have hereafter given to the other party pursuant to the provisions
hereof.
7.3. This Note and the obligations of the payor
and the rights of the Payee shall be governed by and construed in accordance
with the laws of the State of New York with respect to contracts made and to be
fully performed therein.
7.4. The Payor (a) agrees that any legal suit,
action or proceeding arising out of or relating to this Note will be instituted
exclusively in New York state Supreme Court, County of New York, or in the
United States District Court for the Southern District of New York, each and
any of which shall apply New York law; (b) waives objection which the Payor may
have now or hereafter to the venue of any such suit, action or proceeding; and
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<PAGE> 12
(c)irrevocably consents to the jurisdiction of the New York State Supreme
Court, County of New York and the United States District Court for the Southern
District of New York in any such suit, action or proceeding. The Payor further
agrees to accept and acknowledge service of any and all process which may be
served in any such suit, action or proceeding in the New York State Court,
County of New York or in the United States District Court for the Southern
District of New York and agrees that service of process upon the Payor mailed
by certified mail to the Payor's address will be determined in every respect
effective service of process upon the Payor, in any suit, action or proceeding.
7.5 This Note shall bind the Payor and its
successors and assigns.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 13
ATTEST: ESMOR CORRECTIONAL SERVICES, INC.
/s/ Aaron Speisman By: /s/ James F. Slattery
- ------------------------- ----------------------------
Aaron Speisman, Secretary James F. Slattery, President
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<PAGE> 1
EXHIBIT 4.5
SUBJECT TO EARLIER TERMINATION AS SET FORTH IN SECTION 7.01, VOID AFTER 5:00
P.M., NEW YORK CITY TIME, ON SEPTEMBER 15, 2000 OR IF NOT A BUSINESS DAY AS
DEFINED HEREIN, AT 5:00 P.M., NEW YORK CITY TIME, ON THE NEXT FOLLOWING
BUSINESS DAY, AS PROVIDED HEREIN.
No. 7
WARRANTS TO PURCHASE
24,840 COMMON SHARES
AGENT'S WARRANT TO PURCHASE
TWENTY FOUR THOUSAND EIGHT HUNDRED FORTY
COMMON SHARES OF
ESMOR CORRECTIONAL SERVICES, INC.
This certifies that, for value received, JANNEY MONTGOMERY SCOTT INC.,
or registered assigns (the "Warrant Holder") is entitled to purchase from ESMOR
CORRECTIONAL SERVICES, INC., a corporation incorporated under the laws of the
State of Delaware (the "Company"), subject to the terms and conditions hereof,
at any time on or after 9:00 A.M., New York City time, on September 15, 1995
and before 5:00 P.M., New York City time, on September 15, 2000 (or, if such
day is not a Business Day, as defined herein, at or before 5:00 P.M., New York
City time, on the next following Business Day) except if such date is
accelerated as provided in Section 7.01 of this Agreement, then to such earlier
date, the number of Common Shares of the Company (the "Common Shares") stated
above at the Warrant Price (as defined herein). The Warrant Price per Common
Share and the number of Common Shares purchasable hereunder are subject to
adjustment as provided below.
ARTICLE I
Definitions
Section 1.01. (1) The term "Warrant Holder" as used herein means
the person or entity named above or any person or entity in whose name this
Warrant shall be registered upon the books to be maintained by the Company for
that purpose.
(2) The term "Business Day" as used herein shall mean
a day other than a Saturday, Sunday or other day on which banks in the
State of New York are authorized by law to remain closed.
(3) The term "Warrant Price" as used herein means
$10.00 such price being subject to adjustment pursuant to Article III.
(4) The term "Expiration Date" as used herein means
5:00 P.M., New York City time, on September 15, 2000, or such later date to
which the Warrant shall be extended by the Company by corporate resolution
adopted prior to September 15, 2000.
<PAGE> 2
(5) The term "Warrants" as used herein means this Agent's Warrant and
all options of like tenor (together evidencing the right to purchase an
aggregate of 59,681 Common Shares of Esmor Correctional Services, Inc., and any
Warrants issued in any partial exercise exchange or transfer as provided in
Section 2.02(3).
(6) The term "Common Shares" as used herein means the common shares of
the capital stock of Esmor Correctional Services, Inc.
(7) The term "Common Share Equivalent" as used herein means securities
that are convertible into or exercisable for Common Shares.
ARTICLE II
Duration and Exercise of Warrant
Section 2.01. Subject to the provisions of Section 4.01 and 7.01 hereof,
this Warrant may be exercised at any time after 9:00 A.M., New York City time,
on September 15, 1995, and before 5:00 P.M., New York City time, on September
15, 2000, or such later date to which the Warrant shall be extended by the
Company by corporate resolution adopted prior to September 15, 2000 (or, if
such day is not a Business Day, at or before 5:00 P.M., New York City time, on
the next following Business Day). The Company shall give the Warrant Holder
prompt written notice of any such extension. If this Warrant is not exercised
at or before 5:00 P.M. New York City time, on the Expiration Date, or such
earlier date upon which it may expire pursuant to the provisions of Section
7.01 it shall become void, and all rights hereunder shall thereupon cease.
Section 2.02. (1) The Warrant Holder may exercise this Warrant, in whole
or in part, upon surrender of this Warrant with the Subscription Form hereon
duly executed, to the Company at its corporate office at 1819 Main Street,
Suite 1000, Sarasota, FL 34236, together with the full Warrant Price for each
Common Share to be purchased in lawful money of the United States, or by
certified check, bank draft or postal or express money order payable in United
States Dollars to the order of the Company and upon compliance with and subject
to the conditions set forth herein.
(2) Upon receipt of this Warrant with the subscription
duly executed and accompanied by payment of the aggregate Warrant Price for the
number of Common Shares for which this Warrant is then being exercised, the
Company will cause to be issued, certificates for the total number of Common
Shares (as provided in Section 4.04) for which this Warrant is being exercised
in such denominations as are required for delivery to the Warrant
<PAGE> 3
Holder, and the Company shall thereupon deliver such certificates to the
Warrant Holder.
(3) In case the Warrant Holder shall exercise this Warrant
with respect to less than all of the Common Shares that may be purchased under
this Warrant, the Company will execute a new Warrant for the balance of the
Common Shares that may be purchased upon exercise of this Warrant and deliver
such new Warrant to the Warrant Holder.
(4) The Company covenants and agrees that it will pay when
due and payable any and all taxes which may be payable in respect of the issue
of this Warrant, or the issue of any Common Shares. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in issuance or delivery of this Warrant or of the Common
Shares in a name other than that of the Warrant Holder at the time of
surrender, and until the payment of such tax, shall not be required to issue
such Common Shares.
ARTICLE III
ADJUSTMENT OF WARRANT PRICE
AND NUMBER OF COMMON SHARES
Section 3.01. The Warrant Price specified in this Article III shall
be subject to adjustment from time to time as follows:
(1) If the Company shall (i) pay a dividend on Common
Shares in Common Shares, (ii) subdivide its outstanding Common Shares or (iii)
combine its outstanding Common Shares into a smaller number of shares, the
Warrant Price in effect immediately prior to each of those events shall be
adjusted proportionately so that the adjusted Warrant Price will bear the same
relation to the Warrant Price in effect immediately prior to the event as the
total number of Common Shares outstanding immediately prior to the event
will bear to the total number of Common Shares outstanding immediately after
the event. An adjustment made pursuant to this clause (1) shall become
effective immediately after the record date in the case of a dividend and
immediately after the effective date in the case of a subdivision or
combination.
(2) If the Company (i) issues or sells any Common
Shares or Common Share Equivalents without consideration or for consideration
per share less than the current market price per share (as defined in clause
(4) below) on the date of such issuance or sale, or (ii) fixes a record date
for the issuance of subscription rights, options or warrants to all holders of
Common Shares entitling them to purchase Common Shares (or Common Share
Equivalents) at a price per share (or having an exercise or conversion price
per share) less than the then current market price per Common Share (as defined
in clause (4) below, the Warrant
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<PAGE> 4
Price shall be adjusted so that it will equal the price determined by
multiplying the Warrant Price in effect immediately prior to the adjustment by
a fraction, of which the numerator shall be (i) the number of Common Shares
outstanding on the record date for such sale or issuance, plus (ii) the number
of additional Common Shares which the aggregate consideration received by the
Company upon such issuance or sale (plus the aggregate of any additional amount
to be received by the Company upon the exercise of such subscription rights,
options or warrants) would purchase at the current market price per Common
Share (as determined in accordance with the provisions of clause (4) below),
and of which the denominator shall be (x) the number of Common Shares
outstanding on the record date for such issuance or sale, plus (y) the number
of additional Common Shares offered for subscription or purchase (or into which
the Common Stock Equivalents so offered are exercisable or convertible). Each
adjustment shall become effective retroactively immediately after the record
date for the issuance. To the extent that Common Shares (or Common Share
Equivalents) are not delivered after the expiration of such subscription
rights, options or warrants, the Warrant Price shall be readjusted to the
Warrant Price which would then be in effect had the adjustments made upon the
issuance of such rights, options or warrants been made upon the basis of
delivery of only the number of Common shares (or Common Share Equivalents)
actually delivered.
(3) If the Company distributes to all holders of its Common
Shares, its capital stock (other than common shares issuable upon exercise of
the Warrant), evidences of its indebtedness or assets (excluding cash dividends
or distributions) or rights or warrants to subscribe for the purchase of
shares, evidences of indebtedness or assets (excluding cash dividends or
warrants to purchase Common Shares), then in each such case the Warrant Price
shall be adjusted so it will be equal to the price determined by multiplying
the Warrant Price in effect immediately prior to the adjustment by a fraction,
of which the numerator shall be (i) the total number of outstanding Common
Shares, multiplied by (ii) the current market price per Common Share (as
determined in accordance with the provisions of clause (4) below) on the record
date mentioned below, less (iii) the fair market value (as determined by the
Board of Directors, whose determination shall be deemed conclusive, unless
arbitrary or unreasonable, described in a statement mailed to the Warrant
Holder) of the capital stock, assets or evidences of indebtedness, or rights or
warrants, so distributed, and of which the denominator shall be (x) the total
number of outstanding Common Shares multiplied by (y) the current market price
per share of Common Stock. Each adjustment shall become effective
retroactively immediately after the record date for the determination of
stockholders entitled to receive a distribution.
(4) For the purpose of any computation under clause (2) or (3)
above, the current market price per Common Share
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<PAGE> 5
at any date if traded on NASDAQ shall be deemed to be the average of the high
daily bid closing price for the five consecutive business days before the day
in question. If on an exchange, the closing price for each day shall be the
last reported sales price regular way or, in case no such reported sale takes
place on that day, the average of reported closing bid and asked prices
regular way. If at any time the Common Shares are not listed or admitted to
trading on such Exchanges, on the principal national securities exchange on
which the Common Shares are listed or admitted to trading, or if not listed or
admitted to trading on national securities exchange, the average of the highest
reported bid reported asked prices as furnished by the National Association of
Securities Dealers Inc.'s Automated Quotations System, or the nearest
comparable system or, in the absence of either, the fair market value as
determined by the Board of Directors (whose determination shall be deemed
conclusive, unless arbitrary or unreasonable and described in a statement
mailed to the Warrant Holder).
No adjustment of the Warrant Price shall be made if the amount of the
adjustment would be less than 1 share in the number of Common Shares
purchasable upon exercise of a Warrant, but any adjustment which would
otherwise be required to be made will be carried forward and be made at the
time of and together with the next subsequent adjustment which, together
with all adjustments so carried forward, amounts to not less than 1 share in
the number of Common Shares purchasable upon exercise of a Warrant. As used in
this Section, "Common Shares" shall include any class of the Company's capital
stock, now or hereafter authorized, having the right to participate in the
distribution of either earnings or assets of the Company without limitation as
to amount or percentage.
Section 3.02. Upon each adjustment of the Warrant Price pursuant to
this Article III, the number of Common Shares shall be adjusted to the number
of Common Shares, calculated to the nearest one hundredth of a share, obtained
by multiplying the number of Common Shares purchasable on exercise of the
Warrant immediately prior to the adjustment by the Warrant Price in effect
prior to the adjustment and dividing the product so obtained by the new Warrant
Price.
Section 3.03. In case of any capital reorganization of the Company or
of any reclassification of the Common Shares, or the consolidation of the
Company with any other corporation or entity, the sale of the properties and
assets of the Company as, or substantially as, an entirety to any other entity,
after such capital reorganization, reclassification, consolidation or sale,
this Warrant will be exercisable, upon the terms and conditions specified in
this Agreement, for the number of Common Shares, other securities or property
which the Warrant Holder would have been entitled to receive upon the capital
reorganization,
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<PAGE> 6
reclassification, consolidation or sale if this Warrant had been exercised
immediately before the first such capital reorganization, reclassification,
consolidation or sale. In the case of a merger of the Company into or with any
other corporation or entity (provided that on such merger securities of the
Company are changed into, changed for, or converted into securities of any
other issuer), after such merger, this Warrant shall be exercisable, upon the
terms and conditions specified in this Agreement, for the number of Common
Shares or other securities or property which the Warrant Holder should have
been entitled to receive upon the merger if this Warrant had been exercised
immediately before the effective date of such merger and for such amount of
such shares, securities or property per share as had a book value on the
effective date of such merger equal to the then exercise price of this
Warrant. The subdivision or combination of Common Shares at any time
outstanding into a greater or lesser number of Common Shares shall not be
deemed to be a reclassification of the Common Shares of the Company for the
purposes of this Section 3.03. The Company shall not effect any consolidation,
merger or sale unless prior to or simultaneously with its consummation the
successor entity (if other than the Company) resulting from the consolidation
or merger or the entity purchasing the Company's assets and any other entity
the shares of stock or other securities or property of which are receivable as
a result of the transaction agree, by written instrument executed and delivered
to the Warrant Holder, to (i) the obligation to deliver to the Warrant Holder
the Common Shares or other securities or property to which the Warrant Holder
will be entitled on exercise of this Warrant, and (ii) all other obligations of
the Company under this Agreement.
section 3.04. Whenever the Warrant Price and the Common Shares are
adjusted as provided in this Article, the Company shall compute the adjusted
Warrant Price in accordance with Section 3.01 and shall prepare a certificate
signed by its President or a Vice President and its principal accounting
officer setting forth the adjusted Warrant Price and showing in reasonable
detail the method of calculation of the adjustment and the facts requiring the
adjustment and upon which the calculation is based, and that certificate shall
forthwith be mailed to the Warrant Holder.
Section 3.05. If at any time after the date of this Agreement:
(1) the Company shall declare a dividend (or any
other distribution) on its Common Shares payable otherwise than in cash out of
its earned surplus; or
(2) the Company shall authorize the granting to the
Holders of its Common Shares of rights to subscribe for or purchase any shares
of capital stock of any class or of any other rights; or
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<PAGE> 7
(3) the Company shall authorize any reclassification of the
Common Shares (other than a subdivision or combination of its outstanding
Common Shares), any capital reorganization, or any consolidation or merger to
which it is a party and for which approval of any shareholder of the company is
required, or the sale or transfer of all or substantially all of its assets; or
(4) events shall have occurred resulting in the voluntary or
involuntary dissolution, liquidation or winding up of the Company;
then the Company shall cause to be mailed to the Warrant Holder at least 20
days (or 10 days in any case specified in clause (1) or (2) above) prior to the
applicable record date, a notice stating the date on which a record is to be
taken for the purpose of the dividend, distribution or rights, or, if a record
is not to be taken, the date as of which the holders of record of Common Shares
to be entitled to such dividend, distribution or rights are to be determined
or the date on which the reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common
Shares of record shall be entitled to exchange their shares for securities or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation or winding up. Failure to give any
such notice or any defect therein shall not affect the validity of the
proceeding referred to in clauses (1), (2), (3) and (4) above.
Section 3.06. The form of Warrant need not be changed because of any
change in the Warrant Price or in the number of Common Shares purchasable upon
exercise of this Warrant pursuant to this Article, and Warrants issued after
such change may state the same Warrant Price and the same number of Common
Shares as are stated in the form of Warrant initially issued pursuant to this
Agreement. However, the Company may at any time in its sole discretion (which
shall be conclusive) make any change in the form of Warrant that it may deem
appropriate and that does not affect the substance thereof; and any Warrant
thereafter issued, whether in exchange or substitution for an outstanding
Warrant or otherwise, may be in the form as so changed.
Section 3.07. The Company may elect on or after the date of adjustment
of the Warrant Price to adjust the number of Warrants, in substitution for an
adjustment in the number of Common Shares covered by a Warrant as provided in
Section 3.02; provided, however, that in the event of a 50% or greater split of
the Common Shares, the Company shall adjust the number of Warrants rather than
adjusting the number of Common Shares covered by a
Warrant.
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<PAGE> 8
ARTICLE IV
OTHER PROVISIONS RELATING TO
RIGHTS OF WARRANT HOLDER
Section 4.01. The Warrant Holder, as such, shall not be entitled to
vote to receive dividends or be deemed the holder of Common Shares for any
purpose, nor shall anything contained in this Warrant be construed to confer
upon the Warrant Holder, as such, any of the rights of a shareholder of the
Company or any right to vote, give or withhold consent to any action by the
Company (whether upon any recapitalization, issue of stock, reclassification of
stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings or other action affecting shareholders (except for notices provided
for in this Warrant), receive dividends or subscription rights, or otherwise
until this Warrant shall have been exercised and the Common Shares shall have
become deliverable as provided in Article II, at which time the person or
persons in whose name or names the certificate or certificates for the Common
Shares being purchased shall be deemed the holder or holders or record of such
Common Shares for all purposes; provided, however, that any such exercise on any
date when the stock transfer books of the Company shall be closed shall
constitute the person or persons in whose name or names the certificate or
certificates for such Common Shares are to be issued as the record holder or
holders thereof for all purposes at opening on business on the next succeeding
day on which such stock transfer books are open and this Warrant shall not be
deemed to have been exercised, in whole or in part as the case may be, until
such next succeeding day on which stock transfer books are open for the
purpose of determining entitlement to dividends on such Common Shares, and such
exercise shall be at the actual warrant price in effect at such date.
Section 4.02. If this Warrant is lost, stolen, mutilated or
destroyed, the Company may, on such terms as to indemnity or otherwise as it
may in its discretion impose (which shall, in the case of a mutilated Warrant,
include the surrender thereof), issue a new Warrant of like denomination and
tenor as, and in substitution for, this Warrant.
Section 4.03. (1) The Company covenants and agrees that at all
times it shall reserve and keep available for the exercise of this Warrant such
number of authorized Common Shares as are sufficient to permit the exercise in
full of this Warrant.
(2) Prior to the issuance of any Common Shares upon
exercise of this Warrant, the Company convenants and agrees to secure the
listing of such Common Shares upon the securities exchange or automated
quotation system upon which shares of Common Shares are then listed.
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<PAGE> 9
(3) The Company covenants that all Common Shares issued on
exercise of this Warrant, will be validly issued, fully paid, nonassessable and
free of preemptive rights.
Section 4.04. Anything contained herein to the contrary
notwithstanding, the Company shall not be required to issue any fractional
Common Shares in connection with the exercise of this Warrant. In any case
where the Warrant Holder would, except for the provisions of this Section 4.04,
be entitled under the terms of this Warrant to receive a fraction of a Common
Share upon the exercise of this Warrant, the Company shall, upon the exercise of
this Warrant and receipt of the Warrant Price, issue the largest number of
whole shares purchasable upon exercise of this Warrant. The Company shall not
be required to make any cash or other adjustment in respect of such fraction of
a Common Share to which the Warrant Holder would otherwise be entitled. The
Warrant Holder, by the acceptance of the Warrant, expressly waives his right
to receive a certificate of any fraction of a Common Share upon the exercise
hereof.
Section 4.05. Notices to the Warrant Holder provided for in this
Warrant shall be deemed given or made by the Company if delivered or sent by
mail, certified or registered, return receipt requested, postage prepaid,
addressed to the Warrant Holder at his last known address as it shall appear on
the books of the Company.
ARTICLE V
TREATMENT OF WARRANT HOLDER
Section 5.01. Prior to due presentment for registration of transfer of
this Warrant, the Company may deem and treat the Warrant Holder as the absolute
owner of this Warrant (notwithstanding any notation of ownership or other
writing hereon) for the purpose of any exercise hereof and for all other
purposes and the Company shall not be affected by any notice to the contrary.
ARTICLE VI
SPLIT-UP, COMBINATION, EXCHANGE AND
TRANSFER OF WARRANTS
Section 6.01. This Warrant may be split up, combined or exchanged for
another Warrant or Warrants of like tenor to purchase a like aggregate number
of Common Shares. If the Warrant Holder desires to split up, combine or
exchange this Warrant, he shall make such request in writing delivered to the
Company at its office in Sarasota, Florida and shall surrender this Warrant and
any other Warrants to be so split up, combined or exchanged at said office.
Upon any such surrender for a split-up, combination or exchange, the Company
shall execute and deliver to the person entitled thereto a Warrant or Warrants,
as the case may be, as so requested. The Company may require such Warrant
Holder to pay a sum sufficient
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<PAGE> 10
to cover any tax or governmental charge that may be imposed in connection with
any split-up, combination or exchange of Warrants.
Section 6.02. Any assignment permitted hereunder shall be made by
surrender of this Warrant to the Company at its principal office with the Form
of Assignment annexed hereto duly executed together with funds sufficient to
pay any transfer tax. In such event the Company shall, without charge, execute
and deliver a new Warrant in the name of the assignee named in such instrument
of assignment and this Warrant shall promptly be cancelled. This Warrant may
be divided or combined with other Warrants which carry the same rights upon
presentation thereof at the principal office of the Company together with a
written notice signed by the Warrant Holder, specifying the names and
denominations in which new Warrants are to be issued. Upon receipt by the
Company of evidence satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation of
this Warrant, if mutilated, the Company will execute and deliver a new Warrant
of like tenor and date and any such lost, stolen or destroyed Warrant shall
thereupon become void. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not the Warrant so lost, stolen, destroyed or mutilated shall be at
any time enforceable by anyone.
ARTICLE VII
REGISTRATION UNDER THE SECURITIES ACT OF 1933
Section 7.01. (1) Upon the written request, of the then holders of at
least fifty percent (50%) in interest (taken as a single group) of the
registered holders of the Warrants and/or the Common Shares which have been or
may be issued upon exercise of the Warrants, the Company shall, at its sole
cost and expense (a) during a period of five years from the effective date of
the offering, three times, as requested, include such Warrant, the Common
Shares and the underlying Common Shares, in any registration statement filed by
the Company prior to September 15, 2000 and (b) during the period of five years
from the effective date of the offering, file one registration statement as may
be appropriate to cover a public offering of such Warrants, Common Shares, and
the underlying shares prior to September 15, 2000. The Company agrees to give
written notice of any such registration statement to any registered holder of
the Warrants, Common Shares, and the underlying Common Shares, including JMS,
at least 30 days prior to filing any registration statement.
(2) The following provisions shall also be applicable
to any such registration statement:
(a) The holders whose Warrants, Common Shares and
the underlying Common Shares are to be included therein
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<PAGE> 11
(the "Sellers") shall furnish the Company with such appropriate information
(relating to the intentions of such holders) in connection therewith as the
Company shall reasonably request in writing. Following the effective date of
such registration statement, the Company shall upon the request of any Seller
forthwith supply such number of prospectuses meeting the requirements of the Act
as shall be requested by such Seller to permit such Seller to make a public
offering of all Warrants and the underlying Common Shares of such Seller
included therein. The Company shall use its best efforts to register the Common
Shares for sale under the securities laws in such dates as the Sellers shall
reasonably designate.
(b) The expense to be borne by the Company relating to any offering of
the Warrants and/or the underlying Common Shares shall not include underwriting
commissions, if any, or fees of the Sellers' counsel which will be paid by the
Seller.
(c) The Company shall indemnify and hold harmless Seller and the agent,
from and against any and all losses, claims, damages and liabilities caused by
any true statement or alleged untrue statement of a material fact in the
Company's Private Placement Memorandum dated July 10, 1995, or any amendment
thereto or any registration statement under the Act or any prospectus included
therein required to be filed or furnished by reason of this Section 7.01, or
caused by omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or untrue statement or omission based upon
information furnished or required to be furnished in writing to the Company by
Seller or agent expressly for use therein, which indemnification shall include
each person, if any, who controls any such Seller or agent within the meaning of
such Act; provided, however, that the Company shall not be obliged to indemnify
any such Seller or agent or controlling person unless such Seller or agent shall
at the same time indemnify the Company, its directors, each officer signing the
related registration statement and each person, if any, who controls the Company
within the meaning of the Act from and against any and all losses, claims,
damages and liabilities caused by any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or any
prospectus required to be filed or furnished by reason of this Section 7.01 or
caused by any omission or alleged omission to state therein a material fact or
required to be stated therein or necessary to make the statements therein not
misleading, insofar such losses, claims, damages or liabilities are caused by
any untrue statement or alleged untrue statement or omission or alleged
omission based upon information furnished in writing to the Company by any
such Seller or agent expressly for use therein.
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<PAGE> 12
The Company's agreements in this Section 7.01 shall continue in effect
regardless of the exercise and surrender of this Warrant.
ARTICLE VIII
OTHER MATTERS
Section 8.01. The Company will from time to time promptly pay, subject
to the provisions of paragraph (4) of Section 2.02, all taxes and charges that
may be imposed upon the Company in respect of the issuance or delivery of Common
Shares upon the exercise of Warrant.
Section 8.02. All the covenants and provisions of this Warrant by or
for the benefit of the Company shall bind and inure to the benefit of its
successors and assigns hereunder.
Section 8.04. Notice or demand pursuant to this Warrant to be given or
made by the Warrant Holder to or on the Company shall be sufficiently give or
made if delivered or sent by registered or certified mail, postage prepaid,
return receipt requested, and addressed, until another address is designated
in writing by the Company, as follows:
Esmor Correctional Services, Inc.
1819 Main Street
Suite 1000
Sarasota, Florida 34236
Attention: President
Any notice or demand authorized by this Warrant to be given or made by
the Company to or on the Warrant Holder shall be given in accordance with the
provisions of Section 4.05.
Section 8.04. The validity, interpretation and performance of this
Warrant shall be governed by the laws of the State of New York.
Section 8.05. Nothing in this Warrant expressed or nothing that may be
implied from any of the provisions hereof is intended, or shall be construed, to
confer upon, or give to, any person or Corporation other than the Company and
the Warrant Holder any right, remedy or claim under promise or agreement hereof,
and all covenants, conditions, stipulations, promises and agreements in this
Warrant contained shall be for the sole and exclusive benefit of the Company and
its successors and of the Warrant Holder.
Section 8.06. The Article headings herein are for convenience only and
are not part of this Warrant and shall not affect the interpretation thereof.
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<PAGE> 13
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company
under its corporate seal as of the 15th day of September, 1995.
Attest: ESMOR CORRECTIONAL SERVICES, INC.
/s/ By: /s/
- --------------------------- ----------------------------------
Secretary Name:
Title:
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<PAGE> 14
FORM OF ASSIGNMENT
------------------
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ___________________________________ the right to purchase ________________
Common Shares evidenced by the within Warrant, and to transfer same on the books
of ESMOR CORRECTIONAL SERVICES, INC., with full power of substitution the
premises.
Dated:_________________________ 1995
By:_________________________________
Name:
Title:
(Signature must conform in all
respects to the name of Warrant
Holder as specified on the face
of the Warrant, without alteration,
enlargement or any change whatsoever,
and the signature must be guaranteed
in the usual manner)
Signature Guaranteed:
_______________________________________
<PAGE> 15
SUBSCRIPTION FORM
-----------------
(To be Executed By A Warrant Holder Who Desires
To Exercise The Warrant In Whole Or In Part)
ESMOR CORRECTIONAL SERVICES, INC.
Undersigned_______________________________________________________________
(____________________________________________)
Please insert Social Security or other
identifying number of Subscriber
hereby irrevocably elects to exercise the right of purchase represented by the
within Warrant for, and to purchase thereunder, _________________ Common Shares
provided for therein and tenders payments herewith to the order of ESMOR
CORRECTIONAL SERVICES, INC. in the amount of ______________________. The
undersigned requests that certificates for such Common Shares be issued as
follows:
Name: ____________________________________________________________
Address: ____________________________________________________________
Deliver to: ____________________________________________________________
Address: ____________________________________________________________
Social Security (or other identifying)
Number ____________________________________________________________
and, if said number of Common Shares shall not be all the Common Shares
purchasable hereunder, that a new Warrant for the balance remaining of the
Common Shares purchasable under the within Warrant be registered in the name
of, and delivered to, the undersigned at the address stated below:
Address: ____________________________________________________________
Date:___________________ Signature______________________________
(Note: The signature of this
Subscription must correspond with the
name as written upon the face of this
Warrant in every particular, without
alteration or enlargement or any change
whatsoever.)
<PAGE> 1
EXHIBIT 10.1
ESMOR CORRECTIONAL SERVICES, INC.
STOCK OPTION PLAN, AS AMENDED
1. Plan; Purpose; General. The purpose of this Stock
Option Plan (the "Plan") is to advance the interests of Esmor Correctional
Services, Inc. (the "Company") by enhancing the ability of the Company to
attract and retain selected employees, consultants, advisors to the Board of
Directors and qualified directors (collectively the "Participants") by creating
for such Participants incentives and rewards for their contributions to the
success of the Company, and by encouraging such Participants to become owners
of shares of the Company's Common Stock, par value $0.01 per share, as the
title or par value may be amended (the "Shares").
Options granted pursuant to the Plan may be incentive stock
options ("Incentive Options") as defined in the Internal Revenue Code of 1986,
as amended (the "Code") or non-qualified options, or both. The proceeds
received from the sale of Shares pursuant to the Plan shall be used for general
corporate purposes.
2. Effective Date of Plan. The Plan will become
effective upon approval by the Board of Directors (the "Board"), and shall be
subject to the approval by the holders of at least a majority of all Shares
present in person and by proxy and entitled to vote thereon at a meeting of
stockholders of the Company within 12 months after the Company has a class of
equity securities registered under the Securities Act of 1933, as amended (the
"Act").
3. Administration of the Plan. The Plan will be
administered by the Board of the Company. The Board will have authority, not
inconsistent with the express provisions of the Plan, to take all action
necessary or appropriate thereunder, to interpret its provisions, and to decide
all questions and resolve all disputes which may arise in connection therewith.
Such determinations of the Board shall be conclusive and shall bind all
parties.
<PAGE> 2
The Board may, in its discretion, delegate its powers with
respect to the Plan to an employee benefit plan committee or any other
committee (the "Committee"), in which event all references to the Board
hereunder, including without limitation the references in Section 9, shall be
deemed to refer to the Committee. The Committee shall consist of not fewer
than three members. Each of the members must be a "disinterested person" as
that term is defined in Rule 16b-3 adopted pursuant to the Securities Exchange
Act of 1934 (the "Exchange Act"). A majority of the members of the Committee
shall constitute a quorum, and all determinations of the Committee shall be
made by the majority of its members present at a meeting. Any determination of
the Committee under the Plan may be made without notice or meeting of the
Committee by a writing signed by all of the Committee members.
The Board and the Committee, if any, shall have the authority
to determine eligibility, the number of options granted and the exercise price
of options.
4. Eligibility. The Participants in the Plan shall be
all employees, consultants, advisors to the Board of Directors and qualified
directors of the Company or any of its present or future subsidiaries (as
defined in Section 8) whether or not they are also officers of the Company.
Members of the Committee are eligible only if they do not exercise any
discretion in selecting Participants who receive grants of options, in
determining the number of shares to be granted to any Participant or in
determining the exercise price of any options, or if counsel to the Company may
otherwise advise the Committee that the taking of any such action does not
impair the status of such eligible Committee members as "disinterested persons"
within the meaning of Exchange Act Rule 16b-3.
5. Grant of Options.
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<PAGE> 3
(a) The Board shall grant options to Participants
that it, in its sole discretion, selects. Options shall be granted on such
terms as the Board shall determine except that Incentive Options shall be
granted on terms that comply with the Code and Regulations thereunder.
(b) No options shall be granted after October 28,
2003 but options previously granted may extend beyond that date.
6. Terms and Conditions of Options
(a) Exercise Price. Except as provided in
Section 5(b) of this Plan, the purchase price per Share for Shares issuable
upon exercise of options shall be a minimum of 100% of fair market value on the
date of grant and shall be determined by the Board. For this purpose, "fair
market value" will be determined as set forth in Section 8. Notwithstanding
the foregoing, if any person to whom an option is to be granted owns in excess
of ten percent of the outstanding capital stock of the Company, then no option
may be granted to such person for less than 110% of the fair market value on
the date of grant as determined by the Board.
(b) Period of Options. Unless earlier terminated,
options shall terminate and no longer be exercisable five years from the date
of grant.
(c) Payment for Delivery of Shares. Shares which
are subject to options shall be issued only upon receipt by the Company of full
payment of the purchase price for the Shares as to which the option is
exercised. The purchase price shall be payable by the Participant to the
Company either (i) in cash or by check, bank draft or money order payable to
the order of the Company; or (ii) for Incentive Options, through the delivery
of Shares owned by the Participant for a period of not less than six months and
for which the Participant has good title
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<PAGE> 4
(free and clear of any liens and encumbrances) having a fair market value equal
to the purchase price; or (iii) for non- qualified options, by a combination of
cash and Shares as provided in (i) and (ii) above.
The Company shall not be obligated to deliver any Shares
unless and until, in the opinion of the Company's counsel, all applicable
federal and state laws and regulations have been complied with, nor, if the
outstanding common stock is at the time listed on any securities exchange,
unless and until the Shares to be delivered have been listed (or authorized to
be added to the list upon official notice of issuance) upon such exchange, nor
unless or until all other legal matters in connection with the issuance and
delivery of Shares have been approved by the Company's counsel. Without
limiting the generality of the foregoing, the Company may require from the
person exercising an option such investment representation or such agreement,
if any, as counsel for the Company may consider necessary in order to comply
with the Act and applicable state securities laws.
A Participant shall have the rights of a shareholder only as
to Shares actually acquired by him under the Plan.
(d) Vesting. Except for options granted pursuant
to Section 5(b) of this Plan, the Board may impose such vesting restrictions as
it sees fit at the time of grant.
(e) Non-Transferability of Options. Options may
not be sold, assigned or otherwise transferred or disposed of in any manner
whatsoever except as provided in Section 6(g).
(f) Forfeiture of Options upon Termination of
Relationship. Except as otherwise provided in an option agreement between the
Company and a Participant, all previously
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<PAGE> 5
unexercised options including options which have not vested shall terminate and
be forfeited automatically upon the termination for any reasons whatsoever of a
Participant's status as an employee, consultant on advisor to the Board.
Except as provided in Section 6(g) below, unexercised options granted to
directors shall not terminate or be forfeited in the event such person is no
longer a director of the Company.
(g) Death. If a Participant dies at a time when
he is entitled to exercise an option, then at any time or times within one year
after his death (or such further period as the Board may allow) such options
may be exercised, as to all or any of the Shares which the Participant was
entitled to purchase immediately prior to his death, by his personal
representative or the person or persons to whom the options are transferred by
the will or the applicable laws of descent and distribution, and except as so
exercised such options will expire at the end of such period.
(h) Loans to Exercise Option. If requested by any
Participant to whom a grant of non-qualified options has been made, the Company
or any subsidiary may loan such person the amount of money necessary to pay the
federal income taxes incurred as a result of the exercise of any options (or
guarantee a bank loan for such purpose), assuming that the Participant is in
the maximum federal income tax bracket six months from the time of exercise and
assuming that the Participant has no deductions which would reduce the amount
of such tax owed. The loan shall be made on or after April 15th of the year
following the year in which the amount of tax is determined as may be requested
by the Participant and shall be made on such terms as the Company or lending
bank determines.
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<PAGE> 6
(i) Withholding Taxes. To the extent that the
Company is required to withhold taxes for federal income tax purposes in
connection with the exercise of any options, the Company shall have the right
to assist the Participant to satisfy such withholding requirement by (i) the
Participant paying the amount of the required withholding tax to the Company,
(ii) the Participant delivering to the Company Shares of its common stock
previously owned by the Participant or (iii) the Participant having the
Company retain a portion of the Shares covered by the option exercise. The
number of Shares to be delivered to or withheld by the Company times the fair
market value as defined by Section 9 of this Plan shall equal the cash required
to be withheld. To the extent that the Company elects to allow the Participant
either to deliver or have withheld Shares of the Company's common stock, the
Board or the Committee may require him to make such election only during
certain periods of time as may be necessary to comply with appropriate
exemptive procedures regarding the "short-swing" profit provisions of Section
16(b) of the Exchange Act or to meet certain Code requirements.
7. Shares Subject to Plan.
(a) Number of Shares and Stock to be Delivered.
Shares delivered pursuant to this Plan shall in the discretion of the Board be
authorized but unissued Shares of common stock or previously issued Shares
acquired by the Company. Subject to adjustments as described below, the
aggregate number of Shares which may be delivered under this Plan shall not
exceed 500,000 Shares of common stock of the Company.
(b) Changes in Stock. In the event of a stock
dividend, stock split or combination of Shares, recapitalization, merger in
which the Company is the surviving corporation or other change in the Company's
capital stock, the number and kind of Shares of
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<PAGE> 7
stock or securities of the Company to be subject to the Plan and to options
then outstanding or to be granted thereunder, the maximum number of Shares or
securities which may be delivered under the Plan, the option price and other
relevant provisions shall be appropriately adjusted by the Board, whose
determination shall be binding on all persons. In the event of a consolidation
or merger in which the Company is not the surviving corporation or which
results in the acquisition of substantially all the Company's outstanding stock
by a single person or entity, or in the event of the sale or transfer of
substantially all the Company's assets, all outstanding options shall thereupon
terminate.
The Board may also adjust the number of Shares subject to
outstanding options, the exercise price of outstanding options and the terms of
outstanding options to take into consideration material changes in accounting
practices or principles, consolidations or mergers (except those described in
the immediately preceding paragraph), acquisitions or dispositions of stock or
property or any other event if it is determined by the Board that such
adjustment is appropriate to avoid distortion in the operation of the Plan.
8. Definitions.
(a) For purposes of the Plan, a subsidiary is any
corporation (i) in which the Company owns, directly or indirectly, stock
possessing 50 percent or more of the total combined voting power of all classes
of stock or (ii) over which the Company has effective operating control.
(b) The fair market value of the common stock
shall be deemed to be:
(i) the closing price of the Company's
common stock appearing on a national securities exchange if the Company's
common stock is listed on such an exchange, or
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<PAGE> 8
if not listed, the average closing bid price appearing on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ");
(ii) if the Shares are not listed on NASDAQ,
then the average bid price for the Company's stock as listed in the National
Quotation Bureau's pink sheets;
(iii) if there are no listed bid prices
published in the pink sheets, then the market value shall be based upon the
average closing bid price as determined following a polling of all dealers
making a market in the Company's Shares.
9. Indemnification of Board. In addition to and
without affecting such other rights of indemnification as they may have as
members of the Board or otherwise, each member of the Board shall be
indemnified by the Company to the extent legally possible against reasonable
expenses, including attorney's fees, actually and reasonably incurred in
connection with any appeal therein, to which he may be a party by reason of any
action taken or failure to act under or in connection with the Plan, or any
option granted thereunder, and against all judgments, fines and amounts paid by
his in settlement thereof; provided that such payment of amounts so indemnified
is first approved by a majority of the members of the Board who are not parties
to such action, suit or proceedings, or by independent legal counsel selected
by the Company, in either case on the basis of a determination that such member
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company; and except that no
indemnification shall be made in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such Board member is liable
for a breach of the duty of loyalty, bad faith or intentional misconduct in his
duties; and provide, further that the Board
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<PAGE> 9
member shall in writing offer the Company the opportunity, at its own expense,
to handle and defend same.
10. Amendments. The Board may at any time discontinue
granting options under the Plan. The Board may at any time of times amend the
Plan or amend any outstanding option or options for the purpose of satisfying
the requirements of any changes in applicable laws or regulations or for any
other purpose which may at the time be permitted by law, provided that (except
to the extent explicitly required or permitted herein above) no such amendment
will, without the approval of the stockholders of the Company, (a) increase the
maximum number of Shares available under the Plan, (b) reduce the option price
of outstanding options or reduce the price at which options may be granted, (c)
extend the time within which options may be granted, (d) amend the provisions
of this Section 10 of the Plan, (e) extend the period of an outstanding option
beyond five years from the date of grant, (f) adversely affect the rights of
any Participant (without his consent) under any options theretofore granted or
(g) be effective if stockholder approval is required by applicable statute,
rule or regulation.
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<PAGE> 1
EXHIBIT 10.1.1
INCENTIVE STOCK OPTION AGREEMENT
THIS OPTION AGREEMENT is made and entered into this ___ day of ____,
by and between Esmor Correctional Services, Inc., a Delaware corporation (the
"Corporation") and __________ (the "Optionee").
WHEREAS, the Optionee is a valued employee, director or consultant of
the Corporation; and
WHEREAS, the Corporation considers it desirable and in its best
interests that Optionee be given an opportunity to acquire a proprietary option
to purchase shares of Common Stock of the Corporation, par value $.01 per share
(the "Common Shares"), in accordance with the provisions of the Corporation's
Stock Option Plan (the "Plan").
NOW, THEREFORE, for good and valuable consideration paid by the Optionee
to the Corporation, the adequacy of which is hereby acknowledged, and the mutual
covenants hereinafter set forth, the parties agree as follows:
1. Grant of Option. The Corporation hereby grants to the Optionee
the right and option (hereinafter the "Incentive Option") to purchase all or any
part of an aggregate of ___________________ Common Shares (subject to
adjustment as provided in Paragraph 6 hereof), on the terms and conditions set
forth herein and in the Plan, which is incorporated herein by reference. The
Optionee acknowledges receipt of a copy of the Plan.
2. Purchase Price. The purchase price of the Common Shares covered
by the Incentive Option shall be ______ per share (subject to adjustment as
provided in Paragraph 6 hereof).
<PAGE> 2
3. Term of the Option. The Incentive Option shall be exercisable
as to _____ shares commencing one year from the date hereof and as to an
additional _____ shares commencing ___ years from the date hereof. The
Incentive Option granted hereby shall expire _____________, unless earlier
terminated as hereinafter set forth.
4. Method of Exercising Option. If the Optionee elects to exercise
the Incentive Option, he may do so in whole or in part at any time subject to
the termination dates specified herein.
The Incentive Option, or any part thereof, may be exercised by the
Optionee in either of the following ways:
(a) If the Optionee decides to exercise all or part of his
Incentive Option and make payment for the Common Shares in full, he shall give
written notice to the Corporation, specifying therein the number of Common
Shares which he then elects to purchase, accompanied by cash or certified check
payable to the order of the Corporation, including issued and outstanding shares
of the Corporation and in the amount of the full option price of the Common
Shares being purchased.
(b) If the Optionee decides to exercise all or part of the
Incentive Option and make payment in installments, the Optionee shall give
written notice to the Corporation specifying therein the number of Common Shares
which he then elects to purchase, accompanied by a promissory note, in form
satisfactory to the Corporation, executed by the Optionee and evidencing the
obligation of the Optionee to pay the Option Price to the Corporation in equal
annual installments payable on the annual anniversary date of exercise
beginning one year after the date of such exercise and terminating on the third
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<PAGE> 3
anniversary of the date of exercise of the Incentive Option, together with
interest at the lowest rate imputed by the Internal Revenue Service when an
interest rate is not stated in a contract. Notwithstanding the foregoing, in
the event the Optionee's relationship with the Corporation is terminated for any
reason, (a) then any such promissory note shall immediately be due and
payable, and (b) the Optionee shall not be eligible to exercise the Incentive
Option and make payment in installments, but shall be required to make payment
by cash or certified check payable to the order of the Corporation.
As soon as practicable after receipt by the Corporation of such notice
and of payment in full of the Incentive Option price of all the Common Shares
with respect to which the Incentive Option has been exercised (including
interest if payment is made in installments), a certificate or certificates
representing such Common Shares shall be issued in the name of the Optionee, or,
if the Optionee shall so request in the notice exercising the Option, in the
name of the Optionee and another person jointly, with right of survivorship, and
shall be delivered to the Optionee. All Common Shares shall be issued only upon
receipt by the Corporation of the Optionee's representation that the shares are
purchased for investment and not with a view toward distribution thereof.
5. Availability of Shares. The Corporation, during the term of this
Incentive Option, at all time shall keep available the number of shares of
common stock required to satisfy the Incentive Option.
The Corporation shall utilize its best efforts to comply with the
requirements of each regulatory commission or agency having jurisdiction in
order to issue and sell the Common Shares to satisfy the Incentive Option;
provided, however, that the Corporation
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<PAGE> 4
shall not be required to register the Common Shares issuable on exercise of the
Incentive Option under the Securities Act of 1933. Such compliance will be a
condition precedent to the right to exercise the Incentive Option. The
inability of the Corporation to effect such compliance with any such regulatory
commission or agency which counsel for the Corporation deems necessary for the
lawful issuance and sale of the Common Shares to satisfy this Incentive Option
shall relieve the Corporation from any liability for failure to issue and sell
the Common Shares to satisfy the Incentive Option for such period of time as
such compliance is not effectuated.
6. Adjustments. If prior to the exercise of any option granted
hereunder the Corporation shall have effected one or more stock split-ups, stock
dividends, or other increases or reductions of the number of shares of its
common stock outstanding without receiving compensation therefor in money,
services or property, the number of Common Shares subject to the option hereby
granted shall (a) if a net increase shall have been effected in the number of
outstanding shares of the Corporation's Common Shares, be proportionately
increased and the cash consideration payable per Common Share shall be
proportionately reduced; and (b) if a net reduction shall have been effected in
the number of outstanding shares of the Corporation's Common Shares, be
proportionately reduced and the cash consideration payable per Common Share be
proportionately increased.
7. Restrictions. The holder of this Incentive Option, by
acceptance hereof, represents and warrants as follows:
-4-
<PAGE> 5
(a) This Incentive Option and the right to purchase common
stock hereunder is personal to the holder and shall not be transferred to any
other person, other than by will or the laws of descent and distribution.
(b) The holder hereof has been advised and understands that
the Incentive Option has been issued in reliance upon exemptions from
registration under the Securities Act and applicable state statutes; the
exercise of the Incentive Option and resale of the Incentive Option and the
Common Shares have not been registered under the Securities Act or applicable
state statutes and must be held and may not be sold, transferred, or otherwise
disposed of for value unless they are subsequently registered under the
Securities Act or an exemption from such registration is available; except as
set forth herein, the Corporation is under no obligation to register the
Incentive Option or the Common Shares under the Securities Act or the
applicable state statues; in the absence of such registration, the sale of the
Incentive Option or the Common Shares may be practicably impossible; the
Corporation's registrar and transfer agent will maintain stop-transfer
instructions against registration or transfer of the Incentive Option and the
Common Shares and any certificate issued upon exercise of the Incentive Option
representing the Common Shares will bear on its face a legend in substantially
the following form restricting the sale of the Common Shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
AND ARE "RESTRICTED SECURITIES" WITHIN THE
MEANING OF RULE 144 PROMULGATED UNDER THE
SECURITIES ACT. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD
-5-
<PAGE> 6
OR TRANSFERRED WITHOUT COMPLYING WITH RULE
144 IN THE ABSENCE OF EFFECTIVE REGISTRATION OR
OTHER COMPLIANCE UNDER THE SECURITIES ACT.
(c) In the absence of registration, prior to two years from
the date the Incentive Option has been exercised and the Common Shares fully
paid for, the Corporation may refuse to transfer the Common Shares unless the
holder thereof provides an opinion of legal counsel reasonably satisfactory to
the Corporation or a "no action" letter or interpretive response from the staff
of the Securities and Exchange Commission to the effect that the transfer is
proper; further, unless such opinion letter or response states that the Common
Shares are free of any restrictions under the Securities Act, the Corporation
may refuse to transfer the Common Shares to any transferee who does not furnish
in writing to the Corporation the same representations and agree to the same
conditions with respect to such Common Shares as are set forth herein.
Notwithstanding any of the foregoing, the Corporation may refuse to transfer the
Common Shares if any circumstances are present reasonably indicating that the
transferee's representations are not accurate.
(d) In the absence of registration, after two years but
prior to three years from the date the Incentive Option has been exercised and
the Common Shares fully paid for, the Corporation may refuse to transfer the
Common Shares unless the holder either (i) meets the requirements of
Subparagraph (b) above; or (ii) sells such Common Shares in accordance with Rule
144 and furnishes to the Corporation written assurances of compliance therewith
in the form of a copy of the Notice of Form 144 and appropriate letters of
compliance from the holder of such Common Shares and the securities
broker-dealer to or through which such Common Shares are being sold. No opinion
of counsel for the holder of
-6-
<PAGE> 7
the Common Shares shall be required respecting sales in reliance on Rule 144
pursuant to Clause (ii) of this Subparagraph (d).
(e) In the absence of registration, after three years from
the date of Incentive Option has been exercised and the Common Shares fully paid
for, the Corporation shall, upon the written request of any persons who have
held the Common Shares for three years (excluding any tolling period provided
for by Rule 144) and who is not, and has not been during the preceding three
months, an affiliate of the Corporation, re-issue to such holder in such names
and denominations as the holder shall request, one or more certificates for the
Common Shares without any restriction whatsoever on their further transfer and
cancel any and all stop transfer instructions regarding such Common Shares on
the books and records of the Corporation.
8. Shareholder's Rights. This Incentive Option is non-transferable
by the Optionee, except in the event of the Optionee's death as provided in
Section 9(d) hereof and during the Optionee's lifetime is exercisable only by
the Optionee. On any attempt to transfer or otherwise dispose of this Incentive
Option other than pursuant to the terms hereof or the terms of the Plan, this
Incentive Option shall immediately become null and void. The Optionee shall
have no rights as a shareholder with respect to Incentive Option Shares until
payment of the Incentive Option price and delivery to the Optionee of the Common
Shares as provided herein.
9. Termination of Option. Except as otherwise stated herein, the
Incentive Option to the extent not heretofore exercised shall terminate upon the
first of the following dates to occur.
-7-
<PAGE> 8
(a) In the event of the Optionee's death, the Optionee's
executors or administrators may exercise, within twelve (12) months following
the date of the Optionee's death, the Incentive Option as to all or part of such
number of shares which the Optionee was entitled to purchase at the time of his
death, as determined in accordance with Article 2, not theretofore exercised
during the Optionee's lifetime.
(b) On the date of the termination of the Optionee's
employment for cause or on the date of the Optionee voluntarily quits his
employment.
(c) The expiration of three months after the date on which
the Optionee's employment by the Corporation is terminated not for cause
(except if such termination be by reason of death or permanent and total
disability).
(d) The expiration of twelve (12) months after the date on
which the Optionee's employment by the Corporation is terminated, if such
termination be by reason of the Optionee's permanent and total disability.
(e) _____ _, ____, the fifth anniversary of this Agreement.
10. Validity and Construction. The validity and construction of
this Incentive Option shall be governed by the laws of the State of Delaware.
Such construction is vested in the board and its construction shall be final and
conclusive.
-8-
<PAGE> 9
IN WITNESS WHEREOF, the Corporation has caused this Option Agreement to
be executed by its proper corporate officers thereunto duly authorized.
ESMOR CORRECTIONAL SERVICES, INC.
By:
-----------------------------------
(Authorized Officer)
-----------------------------------
__________, Optionee
-9-
<PAGE> 1
EXHIBIT 10.6.1
ESMOR CORRECTIONAL SERVICES, INC.
MEMORANDUM
- -------------------------------------------------------------------------------
TO: Aaron Speisman
FROM: Jim Slattery
DATE: June 13, 1996
SUBJECT:
Per our meeting earlier today, the following is my understanding of your
compensation effective June 1st, 1996.
Your monthly base salary will be $2,916.66. Until September 15, 1996 the
company will reimburse you for all business related expenses. After September
1996 you will be responsible for any and all expenses.
This modification will stay in effect until the end of your employment
agreement. If the company is sold than this modification terminates and the
terms and conditions of the original employment agreement goes back into effect.
/s/ Aaron Speisman
- ----------------------------
Agreed to, Aaron Speisman
/s/ J F. Slatery
- ----------------------------
Agreed to, James F. Slattery
President
<PAGE> 1
EXHIBIT 10.25.1
ESMOR CORRECTIONAL SERVICES, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS OPTION AGREEMENT is made and entered as of the ___ day of ______,
____, by and between Esmor Correctional Services, Inc., a Delaware corporation
(the "Corporation") and ______ ____ (the "Optionee").
WHEREAS, the Optionee is an outside director of the Corporation; and
WHEREAS, the Corporation considers it desirable and in its best interests
that Optionee be given an opportunity to acquire a proprietary interest in the
Corporation by possessing a non-qualified option to purchase shares of Common
Stock of the Corporation, par value $.01 per share (the "Common Stock"), in
accordance with the provisions of the Corporation's 1994 Non-Employee Director
Stock Option Plan (the "Plan").
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the parties agree as follows:
1. Grant of Option. The Corporation hereby grants to the Optionee
the right and option (hereinafter the "Option") to purchase all or any part of
an aggregate of ___ ________ ________ shares of Common Stock (such number being
subject to adjustment as hereinafter provided), on the terms and conditions
herein set forth and in the Plan, which is incorporated herein by reference.
The Optionee acknowledges receipt of a copy of the Plan.
The Optionee acknowledges that the Option is not an "incentive option"
within the meaning of an "incentive stock option plan" and Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
<PAGE> 2
This Option is granted subject to the approval of the Plan by the
shareholders of the Corporation.
2. Purchase Price. The purchase price of the Common Stock covered by
the Option shall be _____ per share (the "Purchase Price").
3. Term of the Option. The Option shall be exercisable as to ____
_______________ shares of Common Stock commencing ____________ and as to an
additional ___________________ shares of Common Stock commencing ________
1996. The Option granted hereby shall terminate ______ _, ____ unless earlier
terminated as provided herein or in the Plan.
4. Method of Exercising Option. The Option may be exercised in whole
or in part at any time (to the extent that it is exercisable in accordance with
its terms) by giving written notice to the Corporation, together with the tender
of the Purchase Price of the Common Stock covered by the Option. Payment of the
Purchase Price may be made in any of the following ways:
(a) in United States dollars in cash or by check payable to the
Corporation; or
(b) by delivery of shares of Common Stock of the Corporation
already owned by the Optionee, valued at fair market
value; or
(c) by a combination of cash or check and Common Stock as
provided in (a) and (b) above; or
(d) in the discretion of the Corporation, by the issuance by
the Optionee of a promissory note, which shall be payable
in one or more installments and over such period of time
(not in excess of five years) as determined by the
Corporation and shall bear interest at such rate as shall
be determined by the Corporation, which in no event shall
be less than the
-2-
<PAGE> 3
minimum rate required by the provisions of Section 483 of
the Code to award the imputation of income to such
Optionee.
As soon as practicable after receipt by the Corporation of such notice
and of payment in full of the Option price of all the Common Stock with respect
to which the Option has been exercised (including interest if payment is made in
installments), a certificate or certificates representing such Common Stock
shall be issued in the name of the Optionee, and shall be delivered to the
Optionee. All Common Stock shall be issued duly upon receipt by the Corporation
of the Optionee's representation that the shares of Common Stock are purchased
for investment and not with the view toward distribution thereof.
5. Availability of Shares. The Corporation, during the term of this
Option, at all times shall keep available the number of shares of Common Stock
required to satisfy the Option. Notwithstanding the foregoing, the Corporation
shall not be obligated to deliver any Common Stock unless and until, in the
opinion of the Corporation's counsel, all applicable federal and state laws and
regulations have been complied with, nor, if the outstanding Common Stock is at
the time listed on any securities exchange, unless and until the Common Stock to
be delivered has been listed (or authorized to be added to the list upon
official notice of issuance) upon such exchange, nor unless or until all other
legal matters in connection with the issuance and delivery of the Common Stock
have been approved by the Corporation's counsel.
6. Adjustments. (a) If prior to the exercise of the Option granted
hereunder the Corporation shall have effected one or more stock split-ups, stock
dividends, or other increases or reductions of the number of shares of its
common stock outstanding
-3-
<PAGE> 4
without receiving compensation therefor in money, services or property, the
number of shares of Common Stock subject to the option hereby granted shall (i)
if a net increase shall have been effected in the number of outstanding shares
of the Corporation's Common Stock, be proportionately increased and the Purchase
Price per share of Common Stock shall be proportionately reduced; and (ii) if a
net reduction shall have been effected in the number of outstanding shares of
the Corporation's Common Stock, be proportionately reduced and the Purchase
Price per share of Common Share be proportionately increased.
(b) In the event the Corporation is merged into or consolidated
with another corporation under circumstances where the Corporation is not the
surviving corporation, or if the Corporation is liquidated or sells or otherwise
disposes of all or substantially all of its assets to another corporation while
any unexercised Options remain outstanding;
(i) subject to the provisions of clauses (iii), (iv) and
(v) below, after the effective date of such merger,
consolidation or sale, as the case may be, the
Optionee shall be entitled, upon exercise of the
Option, to receive in lieu of shares of Common
Stock, shares of such stock or other securities as
the holders of the shares of Common Stock received
pursuant to the terms of the merger, consolidation
or sale; or
(ii) the Corporation may waive any discretionary
limitations imposed with respect to the exercise of
the Option so that the Option from and after a date
prior to the effective date of such merger,
consolidation, liquidation or sale, as the case may
be, specified by the Corporation, shall be
exercisable in full; or
(iii) the Option may be cancelled by the Corporation as of
the effective date of any such merger,
consolidation, liquidation or sale, provided that
notice of such cancellation shall be given to the
Optionee, and the Optionee shall have the right to
exercise such option in full (without regard to any
discretionary
-4-
<PAGE> 5
limitations imposed with respect to the option)
during a 30-day period preceding the effective date
of such merger, consolidation, liquidation or sale;
or
(iv) the Option may be cancelled by the Corporation as of
the date of any such merger, consolidation,
liquidation or sale, provided that notice of such
cancellation shall be given to the Optionee and the
Optionee shall have the right to exercise the Option
but only to the extent exercisable in accordance
with any discretionary limitations imposed with
respect to the Option prior to the effective date of
such merger, consolidation, liquidation or sale; or
(v) the Corporation may provide for the cancellation of
the Option and for the payment to the Optionee of
some part or all of the amount by which the value
thereof exceeds the payment, if any, which the
Optionee would have been required to make to
exercise such option.
(c) Except as expressly provided herein, no issuance by the
Corporation of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or Purchase Price of shares of Common
Stock subject to the Option, provided, however, in the event the Corporation
issues or sells any Common Stock or Common Stock Equivalents without
consideration or for consideration per share less than the current fair market
value per share (as defined in the Plan) on the date of such issuance or sale,
or fixes a record date for the issuance or subscription rights, options or
warrants to all holders of Common Stock entitling them to purchase Common Stock
(or Common Stock Equivalents) at a price per share (or having an exercise or
conversion price per share) less than the then current fair market value per
share, the Purchase Price shall be adjusted so that it will equal the price
determined by multiplying the Purchase Price in effect immediately prior to the
adjustment
-5-
<PAGE> 6
by a fraction, of which the numerator shall be (i) the number of shares
outstanding on the record date for such sale or issuance, plus (ii) the number
of additional shares which the aggregate consideration received by the
Corporation upon such issuance or sale (plus the aggregate of any additional
amount to be received by the Corporation upon the exercise of such subscription
rights, options or warrants) would purchase at the fair market value, and of
which the denominator shall be (x) the number of shares outstanding on the
record date for such issuance or sale, plus (y) the number of additional shares
offered for subscription or purchase (or into which the Common Stock Equivalents
so offered are exercisable or convertible). Each adjustment shall become
effective retroactively immediately after the record date for the issuance. To
the extent that Common Stock (or Common Stock Equivalents) are not delivered
after the expiration of such subscription rights, options or warrants, the
Purchase Price shall be readjusted to the Purchase Price which would then be in
effect had the adjustments made upon the issuance of such rights, options or
warrants been made upon the basis of delivery of only the number of shares (or
Common Stock Equivalents) actually delivered. No adjustments shall be made for
dividends paid in cash or in property other than securities of the Corporation.
7. Restrictions. The holder of this Option, by acceptance hereof,
represents and warrants as follows:
(a) This Option and the right to purchase common stock
hereunder is personal to the holder and shall not be transferred to any other
person, other than by will or the laws of descent and distribution or pursuant
to a qualified domestic relations order as defined by the Code, or Title I of
the Employee Retirement Income Security Act of 1974, as
-6-
<PAGE> 7
amended ("ERISA"), or by the rules thereunder. The Option shall not be assigned,
pledged or hypothecated in any way (whether by operation of law or otherwise)
and shall not be subject to execution, attachment or similar process. Any
attempted transfer, assignment, pledge, hypothecation or other disposition of
the Option or of any rights granted hereunder contrary to the provisions of this
Section 7, or the levy of any attachment or similar process upon the Option or
such right, shall be null and void.
(b) The holder hereof has been advised and understands that the
Option has been issued in reliance upon exemptions from registration under the
Securities Act and applicable state statutes; the exercise of the Option and
resale of the Option and the Common Stock have not been registered under the
Securities Act or applicable state statutes and must be held and may not be
sold, transferred, or otherwise disposed of for value unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available; except as set forth herein, the Corporation is under
no obligation to register the Option or the Common Stock under the Securities
Act or the applicable state statutes; in the absence of such registration, the
sale of the Option or the Common Stock may be practicably impossible; the
Corporation's registrar and transfer agent will maintain stop-transfer
instructions against registration or transfer of the Option and the Common Stock
and any certificate issued upon exercise of the Option representing the Common
Stock will bear on its face a legend in substantially the following form
restricting the sale of the Common Stock:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT")
-7-
<PAGE> 8
AND ARE "RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144
PROMULGATED UNDER THE SECURITIES ACT. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED
WITHOUT COMPLYING WITH RULE 144 IN THE ABSENCE OF EFFECTIVE
REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT.
(c) Prior to two years from the date the Option has been
exercised and the Common Stock fully paid for, the Corporation may refuse to
transfer the Common Stock unless the holder thereof provides an opinion of legal
counsel reasonably satisfactory to the Corporation or a "no action" letter or
interpretive response from the staff of the Securities and Exchange Commission
to the effect that the transfer is proper; further, unless such opinion letter
or response states that the Common Stock are free of any restrictions under the
Securities Act, the Corporation may refuse to transfer the Common Stock to any
transferee who does not furnish in writing to the Corporation the same
representations and agree to the same conditions with respect to such Common
Stock as are set forth herein. Notwithstanding any of the foregoing, the
Corporation may refuse to transfer the Common Stock if any circumstances are
present reasonably indicating that the transferee's representations are not
accurate.
(d) After two years but prior to three years from the date the
incentive Option has been exercised and the Common Stock fully paid for, the
Corporation may refuse to transfer the Common Stock unless the holder either (i)
meets the requirements of Subparagraph (b) above; or (ii) sells such Common
Stock in accordance with Rule 144 and furnishes to the Corporation written
assurances of compliance therewith in the form of a copy of the Notice of Form
144 and appropriate letters of compliance from the holder of
-8-
<PAGE> 9
such Common Stock and the securities broker-dealer to or through which such
Common Stock are being sold. No opinion of counsel for the holder of the Common
Stock shall be required respecting sales in reliance on Rule 144 pursuant to
Clause (ii) of this Subparagraph (d).
(e) After three years from the date of the Option has been
exercised and the Common Stock fully paid for, the Corporation shall, upon the
written request of any persons who have held the Common Stock for three years
(excluding any tolling period provided for by Rule 144) and who is not, and has
not been during the preceding three months, an affiliate of the Corporation,
re-issue to such holder in such names and denominations as the holder shall
request, one or more certificates for the Common Stock without any restriction
whatsoever on their further transfer and cancel any and all stop transfer
instructions regarding such Common Stock on the books and records of the
Corporation.
8. Shareholder's Rights. The Optionee shall have no rights as a
shareholder with respect to the Common Stock issuable upon exercisable of this
Option until payment of the Option price and delivery to the Optionee of the
Common Stock as provided herein.
9. Termination of Option. Except as otherwise stated herein, the
Option to the extent not heretofore exercised shall terminate upon the first of
the following dates to occur:
(a) In the event the Optionee ceases to be a member of the
Board of Directors of the Corporation for any reason other than death or
permanent disability, any
-9-
<PAGE> 10
then unexercised portion of the Option granted to the Optionee shall, to the
extent not then vested, immediately terminate and become void; any portion of
the Option which is then vested but has not been exercised at the time the
Optionee so ceases to be a member of the Board of Directors may be exercised, to
the extent it is then vested, by the Optionee within 180 days of the date the
Optionee ceased to be a member of the Board; and all options shall terminate
after such 180 days have expired.
(b) In the event that the Optionee ceases to be a member of the
Board by reason of his or her death or permanent disability, any option granted
to such optionee shall be immediately and automatically accelerated and become
fully vested and all unexercised options shall be exercisable by the Optionee
(or by the Optionee's personal representative, heir or legatee, in the event of
death) until the scheduled expiration date of the Option.
(c) ______ _, ____, the fifth anniversary of this Agreement.
10. Validity and Construction. The validity and construction of this
Option shall be governed by the laws of the State of Delaware. Such construction
is vested in the Board of Directors and its construction shall be final and
conclusive.
-10-
<PAGE> 11
IN WITNESS WHEREOF, the Corporation has caused this Option Agreement to
be executed by its proper corporate officers thereunto duly authorized.
ESMOR CORRECTIONAL SERVICES, INC.
By:
---------------------------------
James F. Slattery, President
---------------------------------
___________
-11-
<PAGE> 1
EXHIBIT 10.34.1
AMENDMENT NO. 1
TO
AGREEMENT FOR PURCHASE AND SALE OF PROPERTY
BETWEEN
ESMOR CORRECTIONAL SERVICES, INC. SELLER
AND
CORRECTIONS CORPORATION OF AMERICA, BUYER
DATED February 28, 1996
--------------------
Esmor Correctional Services, Inc. ("Seller") and Corrections Corporation
of American ("Buyer") hereby agree to amend the Asset Purchase Agreement dated
December 15, 1995 as follows:
Section 9.1(b) is amended to read:
"(b) by either Buyer or Seller if the transaction
has not been consumated by April 30, 1996,"
SELLER: BUYER:
ESMOR CORRECTIONAL SERVICES, CORRECTIONS CORPORATION
INC. OF AMERICA
By: /s/ James F. Slattery By: /s/ Doctor R. Crants
---------------------------- ------------------------------------
Name: James F. Slattery Name: Doctor R. Crants
------------------------- ----------------------------------
Title: President Title: Chairman & Chief Executive Officer
------------------------- ----------------------------------
Date: February 28, 1996 Date: February 28, 1996
------------------------- ----------------------------------
<PAGE> 1
EXHIBIT 10.34.2
AMENDMENT NO. 2
TO
AGREEMENT FOR PURCHASE AND SALE OF PROPERTY
BETWEEN
ESMOR CORRECTIONAL SERVICES, INC. SELLER
AND
CORRECTIONS CORPORATION OF AMERICA, BUYER
DATED May 1, 1996
-------------------
Esmor Correctional Services, Inc. ("Seller") and Corrections Corporation
of American ("Buyer") hereby agree to amend the Asset Purchase Agreement dated
December 15, 1995 as follows:
Section 9.1(b) is amended to read:
"(b) by either Buyer or Seller if the transaction
has not been consumated by June 30, 1996,"
SELLER: BUYER:
ESMOR CORRECTIONAL SERVICES, CORRECTIONS CORPORATION
INC. OF AMERICA
By: /s/ James F. Slattery By: /s/ Doctor R. Crants
---------------------------- ------------------------------------
Name: James F. Slattery Name: Doctor R. Crants
------------------------- ----------------------------------
Title: President Title: Chairman & CEO
------------------------- ----------------------------------
Date: Date:
------------------------- ----------------------------------
<PAGE> 1
EXHIBIT 10.34.3
(b) Inventory and Supplies. All inventory and supplies
acquired by Seller for resale or use in the performance of the INS Contract and
located at the Facility at Closing (as hereinafter defined).
(c) Contract Rights and Records. All assignable contracts,
contract rights and agreements relating to the operation of the Facility,
including, without limitation, the INS Contract and all purchase orders and
agreements with the INS related thereto, which are assumed by Buyer, together
with copies of all administrative records and other books and records relating
to the performance of the INS Contract.
(d) Leasehold and Land Improvements. All right, title and
interest in the following leasehold and land improvements located at the
Facility ("Improvements"): leasehold improvements under Seller's account number
210400, and land improvements, including fencing under Seller's account number
210401.
Seller shall transfer the Assets to Buyer free and clear of all
liabilities, obligations, liens, and encumbrances, security interests, mortgages
and similar interests of any kind or nature whatsoever excepting only those
liabilities and obligations which are expressly to be assumed by Buyer in
accordance with Section 1.2 hereof. Buyer shall take possession of the Assets
at Closing, which Closing shall occur as soon as practical after the INS
executes the Novation Agreement (as defined in Section 6.3 hereof).
1.2 Liabilities. Except as set forth on Schedule 1.2 hereto,
Buyer shall not assume any debt, account payable, liability (whether arising in
the normal course of business, in connection with an employer-employee
relationship or otherwise), obligation, agreement, lien, encumbrance, contract,
or lease, nor any liability under local, state, or federal laws, of Seller.
ARTICLE II
PURCHASE PRICE
2.1 Purchase Price. In consideration of the sale, transfer,
conveyance, assignment, and delivery of the Assets by Seller or Buyer, and in
reliance upon the representations and warranties made herein by Seller, Buyer
will, in full payment thereof, pay to Seller a total purchase price (the
"Purchase Price") of the lessor of (i) $123,000 multiplied by the number of
months remaining on the INS Contract upon commencement of service by Buyer under
the terms thereof, or (ii) $6,222,905. The Purchase Price will be paid by the
Buyer in equal monthly installments of $123,000 payable on the first day of each
month with the first payment due on the first day of the month following the
month of commencement of operations by Buyer under the INS Contract, and the
last payment due on August 1, 1999. If the INS extends the contract beyond
August 1, 1999, CCA shall pay to Esmor $123,000 for each month of the contract
extension up to a maximum amount of the difference between payments made through
August 1, 1999 and $6,222,905. These payments of $123,000 each shall be made
upon the first day of the month during the extension until the total difference
is paid.
2
<PAGE> 1
EXHIBIT 10.34.4
NOVATION AGREEMENT
Esmor Inc. (Transferor) a corporation duly organized and existing under
the laws of the state of Delaware with its principal office in Sarasota,
Florida; the Corrections Corporation of America (Transferee), a corporation duly
organized and existing under the laws of the state of Delaware, with its
principal office in Nashville, Tennessee; and the UNITED STATES OF AMERICA
(Government) enter into this Agreement as of June 13, 1996.
(a) THE PARTIES AGREE TO THE FOLLOWING FACTS:
(1) The Government, represented by the Contracting Officers of the
United States Department of Justice, Immigration and Naturalization Service,
has entered into a contracts with the Transferor, Contract ERO-93-C-0004. The
term "the contract", as used in this Agreeement, means the above contract,
modifications, and delivery orders including all modifications, made between
the Government and the Transferor before the effective date of this Agreement
(whether or not performance and payment have been completed and releases
executed if the Government or the Transferor has any remaining rights, duties,
or obligations under this contract and delivery orders). Included in the term
the contracts are also all modifications made under the terms and conditions of
these contracts and delivery orders between the Government and the Transferee,
on or after the effective date of this Agreement.
(2) As of June 13, 1996, the Transferor has transferred to the
Transferee all the assets of the Transferor related to the performance of this
contract by virtue of a purchase and sales agreement dated December 15, 1995 and
a lease transfer agreement dated June 13, 1996, between the Transferor and the
Transferee.
(3) The Transferee has acquired all the assets of the Transferor
utilized in the performance of this contract by virtue of the above transfer.
(4) The Transferee has assumed all obligations and liabilities of
the Transferor under the contract by virtue of the above transfer.
(5) The Transferee is in a position to fully perform all obligations
that may exist under the contract.
(6) It is consistent with the Government's interest to recognize the
Transferee as the successor party to the contract.
(7) Evidence of the above transfer has been filed with the
Government.
<PAGE> 2
(b) IN CONSIDERATION OF THESE FACTS, THE PARTIES AGREE THAT BY THIS AGREEMENT.
(1) The Transferor confirms the transfer to the Transferee, and
waives any claims and rights against the Government that it now has or may have
in the future in connection with the contract.
(2) The Transferee agrees to be bound by and to perform the contract
in accordance with the conditions contained in the contract. The Transferee
also assumes all obligations and liabilities of, and all claims against, the
Transferor under the contracts as if the Transferee were the original party to
the contract.
(3) The Transferee ratifies all previous actions taken by the
Transferor with respect to the contract, with the same force and effect as if
the action had been taken by the Transferee.
(4) The Government recognizes the Transferee as the Transferor's
successor in interest in and to the contract. The Transferee by this Agreement
becomes entitled to all rights, titles, and interests of the Transferor in and
to the contracts as if the Transferee were the original party to the contract.
Following the effective date of this Agreement, the term Contractor, as used in
this contract, shall refer to the Transferee.
(5) Except as expressly provided in this Agreement, nothing in it
shall be construed as a waiver of any rights of the Government against the
Transferor, however, the Government hereby waives any releases the Transferor
from any claims or rights it had against the Transferor as of the date of this
novation.
(6) All payments and reimbursements previously made by the
Government to the Transferor, and all other previous actions taken by the
Government under the contract, shall be considered to have discharged those
parts of the Government's obligations under the contract. All payments and
reimbursements made by the Government after the date of this Agreement in the
name of or to the Transferor shall have the same force and effect as if made to
the Transferee, and shall constitute a complete discharge of the Government's
obligations under the contract, to the extent of the amounts paid or reimbursed.
(7) Solely with the respect to the calculation of costs charged to
Government contracts, the Transferee will not write-up the value of the
depreciated assets transferred to it by the Transferor with respect to any
current contracts or any future contracts entered into with the Government.
(8) The Transferor and the Transferee agree that the Government is
not obligated to pay or reimburse either of them for, or otherwise give effect
to, any costs, taxes, or other expenses, or any related increases, directly or
indirectly arising out of or resulting from the transfer or this Agreement,
other than those that the Government in the absence of this transfer or
Agreement would have been obligated to pay or reimburse under the terms of the
contract.
<PAGE> 3
(10) The contract shall remain in full force and effect, except as
modified by this Agreement. Each party has executed this Agreement as of the
day and year first above written.
UNITED STATES OF AMERICA,
By /s/ G. J. Riordan
--------------------------------------
Title Administrative Contracting Officer
-----------------------------------
ESMOR, Inc.
By /s/ J. F. Slattery
--------------------------------------
Title President
-----------------------------------
(CORPORATE SEAL)
CORRECTIONS CORPORATION OF AMERICA,
By /s/ Doctor R. Crants
--------------------------------------
Title Chairman & CEO
-----------------------------------
(CORPORATE SEAL)
<PAGE> 4
CERTIFICATE
I, Aaron Speisman, certify that I am the Secretary of ESMOR Inc.; that James
F. Slattery who signed this Agreement for this corporation, was then President
of this corporation; and that this Agreement was duly signed for and on behalf
of this corporation by authority of its governing body and within the scope of
its corporate powers.
Witness my hand and seal of this corporation this 20th day of April 1996
By /s/ Aaron Speisman
---------------------------
(CORPORATE SEAL)
CERTIFICATE
I, Darrell K. Massengale, certify that I am the Secretary of CORRECTION
CORPORATION of AMERICA; that Doctor R. Crants, who signed this Agreement
for this corporation, was then Chairman & CEO of this corporation; and that
this Agreement was duly signed for and on behalf of this corporation by
authority of its governing body and within the scope of its corporate powers.
Witness my hand and the seal of this corporation this 3rd day of May 1996.
By /s/ Darrell K. Massengale
--------------------------
(CORPORATE SEAL)
<PAGE> 1
EXHIBIT 10.34.5
ASSIGNMENT OF LEASE
AND OWNER'S CONSENT
Agreement made this 13th day of June, 1996 between ESMOR, INC., a
corporation of the State of Delaware located at 1819 Main Street, Suite 1000,
Sarasota, Florida 34236 (hereinafter "Esmor"), and CORRECTIONS CORPORATION OF
AMERICA, a corporation of the State of Delaware located at 102 Woodmont
Boulevard, Nashville, Tennessee 37205 (hereinafter "CCA").
RECITALS
Esmor entered into a lease (hereinafter the "Lease") as Tenant, on December
13, 1993, effective December 15, 1993, with Elberon Development Co. of 235
Birchwood Avenue, Cranford, New Jersey 07016 (hereinafter "Elberon") with
respect to premises 625 Evans Street, Elizabeth, New Jersey (a portion of Block
8, Lot 428-Y-11 on the Tax Map of the City of Elizabeth), a true copy of the
Lease being attached hereto and incorporated herein as Exhibit A.
Esmor desires to assign and CCA desires to assume, the rights, duties and
liabilities of Esmor as Tenant under the Lease.
Elberon, as Owner under the Lease, is willing to consent to the assignment
by Esmor to CCA of all of Esmor's rights, title and interest as Tenant under
the Lease and to the assumption by CCA of all obligations under the Lease,
except as to the deposit security as provided in paragraph 24 of the Lease
which matter is otherwise herein provided for.
<PAGE> 2
NOW, THEREFORE, for valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto agree as follows:
(1) Esmor does hereby assign, transfer and set over to CCA all of
its rights, title and interest as Tenant under the Lease except as to the
deposit security provided in paragraph 24 of the Lease, the subject of a
separate Agreement between Elberon and Esmor.
(2) CCA herewith deposits with Elberon security in the amount of
Fifty One Thousand Four Hundred Nine and 04/100 Dollars ($51,409.04) to be held
and applied by Elberon as provided in paragraph 24 of the Lease and hereby
assumes each and every other Lease obligation and agrees to perform and
discharge these obligations in full and timely accordance with all of their
terms.
ATTEST: ESMOR, INC.
/s/ Aaron Speisman By: /s/ J.F. Slattery
- --------------------------- -----------------------------------
Secretary President
ATTEST: CORRECTIONS CORPORATION OF AMERICA
/s/ Darrell K. Massengale By: /s/ Doctor R. Crants
- --------------------------- -------------------------------------
Secretary Chairman & CEO
<PAGE> 3
CONSENT OF OWNER
Elberon, as Owner under the Lease, effective upon receipt of the sum of
Fifty One Thousand Four Hundred Nine and 04/100 Dollars ($51,409.09) security
from CCA as above provided, consents to the assignment by Esmor of Esmor's
rights, title and interest as Tenant under the Lease to CCA and to the
assumption of CCA of all obligations under the Lease.
This consent to the assignment and assumption shall not be deemed a
release of Esmor from any liability or responsibility under the Lease incurred
or existing either prior to, as of the date of this consent or subsequent
thereto, any such release to be the subject of a separate independent agreement
with Esmor.
Excepting only as above provided with respect to deposit security
(paragraph 24 of the Lease), no provision of this consent alters or modifies any
of the terms and conditions of the Lease, including the requirement that the
written consent of Owner be obtained with respect to any future assignment of
the Lease.
WITNESS: ELBERON DEVELOPMENT CO.
/s/ By: /s/ Anne E. Estabrook
- --------------------------- --------------------------
Anne E. Estabrook
Dated: June 12, 1996
<PAGE> 1
EXHIBIT 10.34.6
AGREEMENT
Agreement made this 12th day of June, 1996, between ELBERON DEVELOPMENT
CO. of 235 Birchwood Avenue, Cranford, New Jersey 07016 (hereinafter "Owner")
and ESMOR, INC., a Delaware Corporation of 1819 Main Street, Suite 1000,
Sarasota, Florida 34236 (hereinafter "Tenant").
RECITALS
Owner and Tenant entered into a lease covering premises 625 Evans
Street, Elizabeth, New Jersey, dated December 13, 1993, effective December 15,
1993 (hereinafter the "Lease"), which Lease Tenant desires to assign to
Corrections Corporation of America (hereinafter "CCA"), CCA to deposit with
Owner new security to be held and applied as provided in paragraph 24 of the
Lease. All other obligations of Tenant under the Lease also to be assumed by
CCA.
Owner is willing to release Tenant from future performances of Lease
obligations and to refund the security heretofore deposited by Tenant in
accordance with paragraph 24 of the Lease but only upon the terms and conditions
herein set forth.
For valuable consideration, Owner will release Tenant from future
performances of Lease obligations and return the $47,454.50 security within
thirty (30) days after:
1. the receipt by Owner of replacement security from CCA;
2. the payment in full to Owner of Tenant of all outstanding
invoices;
3. the receipt by Owner from Tenant of a true copy of its application
for a Letter of Non-Applicability (LNA) from the New Jersey Department of
Environmental Protection (DEP) evidencing that the assignment from tenant to
CCA is not a covered transaction under the New Jersey Industrial Site Recovery
Act;
<PAGE> 2
4. the receipt of Owner of the required consent of Phoenix Mutual
Insurance Co., mortgagee of the premises, to the assignment of the Lease by
Tenant to CCA and to this Agreement;
5. the receipt by Owner from Tenant of its agreement to indemnify
and hold Owner harmless of any and all claims, actions, proceedings, judgments,
awards, charges and all costs and expenses, including, but not limited to,
attorneys' fees and costs arising out of or in any way related to the tenancy of
Tenant under the Lease, and evidence in form satisfactory to Owner of the Lease
general liability insurance coverage continuing in effect for any claims made
within two (2) years from the effective date of the assignment of the Lease by
Tenant to CCA; and
6. the receipt of payment by Owner from Tenant in reimbursement of
Owner's attorneys' invoice for services rendered in connection with the Lease
assignment and assumption agreement between Tenant and CCA, Owner's consent
thereto and this conditional release agreement.
Tenant hereby agrees to promptly perform items 2,3,5 and 6 above.
WITNESS: ELBERON DEVELOPMENT CO.
/s/ By: /s/ Anne E. Estabrook
- --------------------------- --------------------------
Anne E. Estabrook
ATTEST: ESMOR, INC.
/s/ Aaron Speisman By: /s/ J.F. Slattery
- --------------------------- -----------------------------------
Secretary James Slattery, President
<PAGE> 1
EXHIBIT 10.34.7
INDEMNITY AND HOLD HARMLESS
Esmor, Inc. agrees, for good and valuable consideration including but
not limited to Anne E. Estabrook, T/A Elberon Development Co.'s ("Owner")
consent of the assignment of Esmor's lease of 625 Evans Street, Elizabeth, New
Jersey to Corrections Corporation of America ("CCA"), that Esmor will indemnify
and hold Owner harmless from any and all claims, actions, or proceedings,
judgments, awards, charges, costs and expenses, including but not limited to,
reasonable attorney fees, (1) arising out of Esmor's occupation and use of the
premises, (2) any work or thing done in or about the premises by or on behalf of
Esmor, (3) any breach or default by Esmor in performing any obligation under the
lease, or (4) any act or negligence of Esmor or its agents, contractors,
servants, employees, and licensees, through the effective date of the lease
assignment. CAA will assume all rights and responsibilities under the lease
after that date.
ESMOR, INC.:
By: /s/ James F. Slattery
------------------------------------------
James F. Slattery, President
Date: 5/6/96
---------------------------------------
Accepted
ANNE E. ESTABROOK, T/A ELBERON DEVELOPMENT CO.:
/s/ Anne E. Estabrook
----------------------------------------------
Date: June 12, 1996
-----------------------------------------
<PAGE> 1
EXHIBIT 10.38.1
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
1. CONTRACT ID CODE PAGE OR PAGES
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT J200c-223 1 2
- -----------------------------------------------------------------------------------------------------------------------------------
2. AMENDMENT/MODIFICATION NO. 3. EFFECTIVE DATE 4. REGISTRATION/PURCHASE REQ. NO. 5. PROJECT NO. (If applicable)
MODIFICATION NO. 1 See Blk. 16C Brown
- -----------------------------------------------------------------------------------------------------------------------------------
6. ISSUED BY CODE 7. ADMINISTERED (If other than Item 6) CODE
------------------- ---------------------------
Dept. of Justice/Bureau of Prisons
Attn: CCC Contracting Victoria L. Johnson
320 First Street, N.W. Contracting Officer
Washington, D.C. 20534 (202) 307-3069
- -----------------------------------------------------------------------------------------------------------------------------------
8. NAME AND ADDRESS OF CONTRACTOR (No. street, county, State and ZIP Code) (X) 9A. AMENDMENT OF SOLICITATION NO.
ESMOR, INCORPORATED -------------------------------------------
275 BROADHOLLOW ROAD, SUITE 433 9B. DATED (SEE ITEM 11)
MELVILLE, NEW YORK 11747
ATTN: MR. JAMES F. SLATTERY, PRESIDENT -------------------------------------------
(516) 694-7161 10A. MODIFICATION OF CONTRACTOR/ORDER
NO.
J200c-223
X BROOKLYN, NY
-------------------------------------------
- ------------------------------------------------------------------------------- 10B. DATED (SEE ITEM 13)
CODE FACILITY CODE 04/01/95
- -----------------------------------------------------------------------------------------------------------------------------------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
- -----------------------------------------------------------------------------------------------------------------------------------
[ ] The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers
[ ] is extended. [ ] is not extended.
Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of
the following methods:
(a) By completing items 8 and 15, and returning ___________copies of the amendment; (b) By acknowledging receipt of this amendment
on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and
amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE
HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the
solicitation and this amendment, and is received prior to the opening hour and date specified.
- -----------------------------------------------------------------------------------------------------------------------------------
12. ACCOUNTING AND APPROPRIATION DATA (If required)
52-T-270-420-215-2506 FUNDS ARE OBLIGATED BY EACH DELIVERY ORDER
- -----------------------------------------------------------------------------------------------------------------------------------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS,
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
- -----------------------------------------------------------------------------------------------------------------------------------
A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT
ORDER NO. IN ITEM 10A.
- -----------------------------------------------------------------------------------------------------------------------------------
B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office,
appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b).
- -----------------------------------------------------------------------------------------------------------------------------------
C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
- -----------------------------------------------------------------------------------------------------------------------------------
D. OTHER (Specify type of modification and authority)
X FAR 43.103(a) BILATERAL AGREEMENT
- -----------------------------------------------------------------------------------------------------------------------------------
E. IMPORTANT: Contractor [ ] is not, [X] is required to sign this document and return ALL copies to the issuing office.
- -----------------------------------------------------------------------------------------------------------------------------------
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where
feasible.)
CONTRACT NO. J200C-223 IS MODIFIED TO REFLECT THE FOLLOWING:
1. DELETE IN ITEM 5, PARAGRAPH 2 ON STANDARD FORM 26 (AWARD/CONTRACT) AND THE PROVISION
IN SECTION B.1(A), PARAGRAPH 2, THAT READS: "THE CONTRACTOR AGREES THAT THESE ESTIMATED
REQUIREMENTS MAY BE EXCEEDED BY UP TO 25 PERCENT (25%) UNDER THE AUTHORITY OF THE CHANGES
CLAUSE (CHANGES-FIXED PRICE, FAR 52.243-1)."
(CONTINUED)
EXCEPT AS PROVIDED HEREIN, ALL TERMS AND CONDITIONS OF THE DOCUMENT REFERENCED IN ITEM 9A AND 10A, AS HERETOFORE CHANGED, REMAINS
UNCHANGED AND IN FULL FORCE AND EFFECT.
- -----------------------------------------------------------------------------------------------------------------------------------
15A. NAME AND TITLE OF SIGNER (Type or print) 16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
/s/ James F. Slattery, President VICTORIA L. JOHNSON
CONTRACTING OFFICER
- -----------------------------------------------------------------------------------------------------------------------------------
CONTRACTOR/OFFEROR 15C. DATE SIGNED 16B. UNITED STATES OF AMERICA 16C. DATE SIGNED
/s/ J. F. Slattery 6/9/95 BY /s/ Victoria L. Johnson 6/12/95
- ---------------------------------------- ----------------------------------
(Signature of person authorized to sign) (Signature of Contracting Officer)
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
- -------------------------------------------------------------------------------
REFERENCE NO. OF DOCUMENT BEING PAGE
CONTINUED
CONTINUATION SHEET J200c-223 2 of 2
- -------------------------------------------------------------------------------
NAME OF ______________ OR CONTRACTOR
Esmor, Incorporated, Brooklyn, New York
- -------------------------------------------------------------------------------
- --MODIFICATION NO. 1. CONTINUED
2. Revise Section I, FAR 52.216-19, Delivery-Order Limitations
(APR 1984) to read:
"...(b) (1) There is no excess order limitation for
a single item applicable to this contract.
(2) There is no excess order limitation for a
combination of items applicable to this contract...."
- -------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 10.39
CONSTRUCTION CONTRACT
THIS CONSTRUCTION CONTRACT (hereinafter referred to as "Contract") is made and
entered into by and between ESMOR CORRECTIONAL SERVICES, INC., 1819 Main
Street, Suite 1000, Sarasota, Florida 34236, and BISON INDUSTRIES, INC. d/b/a
A&S STEEL BUILDINGS INC., 5744 Canyon Drive, Amarillo, Texas 79109 (hereinafter
referred to as "A&S").
WITNESSETH:
WHEREAS, the State of Florida Correctional Privation Commission and First Union
National Bank of Florida (hereinafter referred to as the "Trustee") intend to
issue Certificates of Participation to finance the acquisition, design and
construction of a 350 bed secure correctional facility for Youth Offenders
between the ages of 14 to 18 years old to be located in Polk County, Florida
(hereinafter referred to as the "Project");
WHEREAS, the Commission has found that Esmor meets the qualifications of
Sections 957.04, Florida Statutes, and has the requisite:
(a) qualifications, experience and management personnel necessary
to carry out the terms of this Contract;
(b) the ability to expedite the siting, design and construction of
correction of correctional facilities, including the proposed
correctional facility; and
(c) the ability to comply with applicable leases, court orders and
national correction standards.
Page 1
<PAGE> 2
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter contained, and subject to the conditions herein set
forth, the parties do hereby covenant, agree, and bind themselves as follows:
ARTICLE I
DEFINITIONS
For the propose hereof, the following capitalized terms shall have the meanings
stated in this Article I, except as otherwise expressed provided or unless the
context otherwise requires:
ACA Standards means the Standards for Adult Correctional Institutions (Third
Editions, January 1990, as the same may be modified, amended, or supplemented
in the future) published by the American Correctional Association.
Application of Payment means the form to be submitted by A&S as described in
Section 7.02 hereof.
Architect/Engineer or A/E means Hellmuth, Obata & Kassabaum, Inc. of Tampa,
Florida.
A&S means Bison Industries, Inc., a Texas corporation, doing business as A&S
Steel Buildings Inc.
Authorized Representative means any Person(s) at the time designated as such in
writing by each party hereto and furnished to the other party which designation
authorizes the designee(s) act for and bind the designating party with respect
to matters covered hereby. In the case of Esmor, such designation shall be
signed by the President or Vice President of Esmor. In the case of A&S such
designation shall be signed by the President or Vice President of A&S. At the
time, Esmor or A&S may designate any other person(s) as its Authorized
Representative(s) by delivering to the other parts
Page 2
<PAGE> 3
a written designation signed in the case of Esmor by Esmor's President, or in
the case of A&S by A&S's President. Such designation shall remain effective
until a new written instrument is filed with or actual notice is given to the
other party that such designation has been revoked.
Bid Proposal means that certain letter dated December 23, 1995, from W.H.
Attebury, President of A&S, to James F. Slattery, President of Esmor, setting
forth A&S's bid proposal for the Project.
Certificate for Payment means the form to be submitted by A/E to Trustee, as
described in Section 7.02 hereof.
Change means any addition to, deletion from, or modification of the Project or
the Services that is made in accordance with the provisions of Article VIII
hereof made by Change Order or Construction Change Directive.
Claim means a demand or assertion by a party hereto seeking, as a matter of
right, adjustment or interpretation of contract terms, payment of money,
extension of time or other relief with respect to the terms hereof, including
any disputed or matters in question arising out of or related to the Contract
Documents which pertain to the requested relief hereunder, as described in this
sentence. All Claims must be made in writing, and the party making any such
Claims shall be responsible for substantiating same, and for making such claims
in a timely manner as they arise.
Commission means the Correctional Privatization Commission.
Commission Representative means the individual or firm selected by the
Commission to represent its interests pursuant to Section 4.02 of the
Development Agreement. The Commission Representative may also serve as the
Project Inspector.
Page 3
<PAGE> 4
Construction Fund means the financing proceeds held by the Trustee pursuant to
the Indenture for the purpose of funding the development of the Project.
Construction Schedule means, as to the Project, the schedule of performance
measures and benchmark or milestone for construction of such Project, which is
set forth in Exhibit A attached hereto.
Contract Documents means this Contract, the Plans, Specifications, Bid
Proposal, Development Agreement, and Related Construction Documents, together
with Request for Proposals issued by the Commission and Esmor's response
thereto as modified by the Bid Proposal, all of which documents are attached
hereto by reference and become a part here of. In the event of a conflict
between any requirement or provision of the Plans and Specifications and any
other of the Contract Documents, the Plans and Specifications shall control.
Contract Price means all cost for services for the Projects, and any
enlargements, improvements or extensions thereof or additions thereto (which
amy affect the amount of the Contract Price), whether incurred prior to or
after the date of this Contract, and, without limiting the generality of the
foregoing, shall include:
(1) the cost of the construction of all buildings and structures
to be used as or in conjunction with such Project;
(2) the cost of site preparation, including the cost of
demolishing or removing any buildings or incident to providing
such Projects;
Page 4
<PAGE> 5
(3) the cost of architectural, engineering, legal, accounting and
related services including the cost of preparation of plans,
specifications, studied, surveys, inspection, estimates of
cost and/or revenue;
(4) cost incurred in connection with carrying out any inspections
required or made pursuant to statute, rule, or agreement by
the parties; and
(5) the cost of all machinery, equipment, furnishings, and
facilities necessary or incident to the equipping of the
Project to the extent that cost is attributable to A&S under
the Contract Documents; items of machinery, equipment,
furnishings and facilities not included as a part of the
Contract Price include, but may not be limited to, those items
listed on Exhibit C to this Contract.
Corporation or Issuer means the Florida Correctional Finance Corporation
located at Tallahassee, Florida.
Development Agreement means the contract for design and construction of the
Project among Esmor, the Commission, and the Corporation, dated as of December
1, 1995.
Effective Date means the date specified as such in Section 2.01 hereof.
Esmor means Esmor Correctional Services, Inc.
Event of Default means any of the events or circumstances described in Section
12.01 with respect to A&S or Sections 12.03 with respect to Esmor.
Page 5
<PAGE> 6
Final Acceptance/Completion means, as to the Project, the date as of which the
Project is accepted in accordance with Section 9.03, hereof.
Indenture means that certain Indenture of Trust, dated as of December 1, 1995,
between the Corporation and the Trustee.
Minimum Standards means all local, state, and federal regulations, codes, laws,
or other lawful requirements, ACA Standards and court orders applicable to the
Project.
Payments means the installments of the Contract Price agreed to be paid in
accordance with Sec. 6.02 of the Indenture directly to A&S, in accordance with
the Schedule of Values required in Article VII hereof.
Person means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof.
Plans and Specifications means the surveys, plans and specifications prepared
for the Project having been, or to be, accepted in writing by the Commission
and which are made a part hereof by reference, as those surveys, plans and
specifications may be modified from time to time by Value Engineering or
otherwise upon by Esmor and A&S in writing. The Plans and Specifications
include those plans and specifications dated June 20, 1995, as well as all
addendums to those plans and specifications which may have been agreed upon by
Esmor and A&S prior to or at any time after the date of this Contract.
Project means the 350 bed secure correctional facility for Youthful Offenders
between the ages of 14 and 18 years old to be located in
Page 6
<PAGE> 7
Polk County, Florida, to be constructed in accordance with the Plans and
Specifications and the terms hereof.
Project Inspector means an individual or firm hired and compensated by the
Commission to proved independent Project oversight for the Commission.
Punchlist Items means a list of items of work to be completed and deficiencies
to be corrected, which items shall not affect the attainment of Substantial
Completion. Such items must be complete before Final Acceptance can take
place.
RFP means the Request for Proposal issued by the Commission dated as of October
21, 1994 for the designing, financing, acquiring, leasing, construction and
operating of the Project.
Schedule of Values means the schedule of values to be used as a basis for
progress payments to be made to A&S by Esmor during performance of Services,
based on the then current percentage-of-progress of construction of the
Project, and the value assigned to the different components of construction of
the Project, as set forth in Exhibit B attached hereto.
Scheduled Completion Date means on or before expiration of the time period
specified in Section 6.03 hereof, and is that date by which the Project must
achieve Final Acceptance by the Commission.
Services or Work means all architectural and engineering design, procurement
and construction of the Project furnished by A&S, including all labor,
materials and facilities, and all other things that are required of A&S under
the Contract Documents.
State means the State of Florida.
Page 7
<PAGE> 8
Substantial Completion means the date jointly certified by A/E, the Project
Inspector, the Commission, Esmor and A&S that construction is so sufficiently
complete in accordance with the Contract Documents that the Project may be
utilized for its intended use, in accordance with Article 9, including that the
project is operating and ready to accept state prisoners.
Term means the duration of the Contract as specified in Section 2.01.
Trustee means First Union National Bank of Florida.
Value Engineering - The use of products, designs, materials, or methods to
accomplish the intended purpose of a component of the Project in a manner
determined by A&S to be more cost effective than the manner provided for in the
Plans and Specifications without compromising the goals of the Project.
ARTICLE II
TERM AND SCOPE
2.01 Effective Date and Term. This Contract shall become effective upon its
execution and delivery by the parties (the "Effective Date"), and shall
continue in full force and effect as to Project until expiration of the
warranty and guaranty period provided for in Section 10.1 hereof (the "Term"),
unless terminated prior thereto in accordance with the provisions hereof.
2.02 Independent Contractor. For all purposes hereunder, A&S is an
independent contractor and shall not be deemed an "employee" of Esmore.
Neither A&S nor any of its subcontractors, sub-subcontractors, or vendors of
any tier, nor any of their employees employed at the Project shall be deemed to
be agents, representatives, employees, or servants of Esmor in the performance
of their duties with respect to the Project.
Page 8
<PAGE> 9
2.03 Subcontractors and Subcontractors. A&S, in accordance with and taking
into account State minority hiring policies, may subcontract any portion of the
Services to be performed hereunder, but shall not hereby be relieved of any of
its obligations set forth herein. At least five (5) calendar days before the
execution of any subcontract by A&S, Esmor shall receive from A&S the name of
the subcontractor with which it intends to subcontract, and A&S shall cause the
subcontractor to identify its major sub-contractors to Esmor. Esmor may
furnish A&S with any comments with respect to any such subcontractors. Esmor
shall have the right to reject any subcontractor and bind A&S to that rejection
if, and only if, the Commission rejects such subcontractor under its contract
with the Commission for the construction of the Project. A&S shall bind each
subcontractor to the terms hereof as far as applicable to such subcontractor's
work, and shall require that each subcontractor performs it work in conformance
with the Contract Documents. A&S may not change subcontractors without the
prior written approval of Esmor.
ARTICLE III
REPRESENTATIONS
3.01 Representations of A&S. A&S makes the following representations as the
basis for undertakings hereunder.
(a) A&S is a Corporation duly created and existing under the laws
of the state of Texas, and is authorized to do business in the
State of Florida;
(b) A&S has due power and authority to enter into the transactions
contemplated by this Contract and to carry out its obligations
hereunder;
(c) A&S has duly authorized the execution and delivery hereof and,
assuming due execution and delivery by Esmor, this
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Contract constitutes a legal, valid, and binding agreement of
A&S, enforceable against A&S in accordance with its terms;
(d) The Services performed by A&S under the Contract Documents
including the Plans and Specifications shall be in accordance
with applicable ACA Standards, applicable codes and standards
including, but not limited to, Standard Building Code,
Standard Mechanical Code, Standard Plumbing Code, National
Electric Code, National Fire Protection Association Standards
and applicable local, state, and federal laws, including, but
not limited to, the laws concerning labor, equal employment,
safety and minimum wages; without limitation, the Plans and
Specifications, shall conform with applicable ACA Standards,
applicable codes and standard, including but not limited to,
Standard Building Code, Standard Mechanical Code, Standard
Plumbing Code, National Electric Code, National Fire
Protection Association Life Safety Code 101 and applicable
local, state and federal laws, including, but not limited to,
the laws concerning labor, equal employment, safety and
minimum wages;
(e) Neither the execution and delivery of this Contract, the
consummation of the transactions contemplated hereby, nor the
fulfillment of or compliance with the terms and conditions
hereof, conflicts with or results in a breach of the terms,
conditions, or provisions of any restriction or any agreement
or instrument to which A&S is now a party or by which it is
bound, or constitutes a default under any of the foregoing or
results in the creation or imposition of any lien, charge, or
encumbrance whatsoever upon the Project, except as provided in
the Contract Documents; and
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(f) The Contract Price established in Article 7.01 is sufficient
to construct and equip the Project in accordance with the
Contract Documents with the exception of the FFE as listed in
Exhibit C.
3.02 Representations of Esmor. Esmor makes the following representations as
the basis for its undertakings hereunder:
(a) Esmor has the requisite power to enter into this Contract and
perform its obligations hereunder;
(b) Esmor has duly authorized the execution and delivery hereof
and, assuming due execution and delivery by A&S, the Contract
constitutes a legal, valid, and binding agreement of Esmor,
enforceable against Esmor in accordance with its terms;
(c) Esmor is not in violation of any provision of any law that is
in any manner material to its ability to perform its
obligations hereunder; and
(d) Neither the execution and delivery of this Contract, the
consummation of the transition contemplated hereby, nor the
fulfillment of or compliance with the terms and conditions
hereof, conflicts with or results in a breach of the terms,
conditions, or provisions of nay restriction or any agreement
or instrument to which Esmor is now a party or by which it is
bound or constitutes a default under any of the foregoing, or
results in the creation or imposition of any lien, charge, or
encumbrance whatsoever upon the Project, except as provided in
the Contract Documents.
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ARTICLE IV
SERVICES
4.01 Architectural/Engineering. A&S shall perform, or cause to be performed
by properly registered and qualified architects and engineers all necessary
professional architectural and engineering services to design, prepare and
detail the Plans and Specifications for the Project. A&S has retained the A/E
with the approval of Esmor and the A/E has agreed to perform the following
services:
(a) design the Project so as to comply with Minimum Standards, the
Request for Proposal, and Esmor's response thereto as modified
by the Bid Proposal; provide administration of the contract
for construction of the Project as described in the Contract
acceptance by the Commission;
(b) visit the Project site, as required by the agreement for
architectural and engineering services between A&S and the
A/E, and at intervals appropriate to the then current stage of
construction in order to become generally familiar with the
progress and quality of the completed construction work and to
determine in general if the construction work is being
performed in accordance with the Contract Documents;
(c) review and approve or take other appropriate action upon
submittals such as shop drawings, product data and samples,
but only for the purpose of checking for conformance with
information given and the design concept expressed in the
Contract Documents, which reviews shall not be for the purpose
of determining accuracy or completeness of any details such as
dimensions and quantities, or for substantiating instructions
for
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installation or performance of equipment or systems, which
items remain the responsibility of A&S;
(d) review A&S's Applications for Construction Payments, and based
on its observations and evaluations thereof, certify the
amounts due A&S in accordance with the Schedule of Values, and
issue Certificates for Construction Payment in such amounts,
all as set forth in Article VII hereof;
(e) receive and review all written warranties and related
documents required to be assembled by A&S upon Substantial
Completion, and issue a final Certificate for Construction
Payment upon A&S's compliance with the requirements of the
Contract Documents, all as set forth in Article VII hereof;
(f) prepare Change Orders, Construction Change Directives and
addendum to the Plans and Specifications when initiated by
Esmor or A&S, if necessary, and authorize minor changes in the
construction work as provided in Article VIII;
(g) conduct inspections to determine the date or dates of
Substantial Completion and the date of Final Acceptance.
A/E will not have control over or charge of, and is not responsible for,
construction means, methods, techniques, sequences or procedures or for safety
precautions and programs in connection with the Services. Interpretations and
decisions of A/E will be consistent with the intent of, and reasonably
inferable from, the Contract Documents and will be in writing or in the form of
drawings.
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4.02 Commission's Representative. The following duties will be performed by
a qualified individual to be designated in writing by the Commission. That
individual shall not be an employee, agent, partner or business associate of
Esmor in any manner. Such person shall file with the Commission, prior to
undertaking any of the following duties, a certificate of his independence from
A&S:
(a) reject construction work that does not conform to the Contract
Documents and, when deemed necessary or advisable, require
additional inspection or testing of the construction work;
(b) prepare Change Orders and Construction Change Directives
initiated by the Commission or Corporation;
(c) conduct inspection to determine, in conjunction with the A/E,
the date or dates of Substantial Completion and the date of
Final Completion;
(d) interpret and decide matters concerning performance under, and
requirement of, the Contract Documents upon written request of
either Esmor or the Commission, which interpretation and
decision shall be made with reasonable promptness and within
any time limits agreed upon; provided, however, that if there
is no agreement concerning any such time limits, then
Commission's Representative shall furnish such interpretations
within five (5) days after receipt of a written request
therefor. Interpretations or determinations of the intent of
the Plans and Specifications created by A/E shall be issued
only after consultation with the A/E.
The authority of the Commission Representative to approve change orders and to
provide inspections to determine progress is specifically for the benefit of
the Commission, and in no way is to
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be interpreted as replacing the duties of the A/E as set forth in Article 4.01,
above.
4.03 The Project Inspector will be the on-site Authorized Representative of
the Commission and the Corporation during construction of the Project. The
Project Inspector has the authority to act on behalf of the Commission and the
Corporation to the extent provided in the Contract Documents and its agreement
with the Commission. The Project Inspector, among other things, shall:
(a) validate amounts owing to A&S based on observations at the
site and evaluations of the A&S's Application for Construction
Payment;
(b) approve proposed Changes to the Project;
(c) provide inspections to determine progress, the date of
Substantial Completion and Final Completion;
(d) reject construction work that does not conform to the Contract
Documents and, when deemed necessary or advisable, require
additional inspection or testing of the construction work; and
review written warranties and other documents required to be
assembled by A&S.
The authority for the Project Inspector or Commission Representative to approve
change orders and to provide inspects to determine progress is specifically for
the benefit of the Commission, and in no way is to be interpreted as replacing
the duties of the A/E as set forth in Article 4.01 above.
4.04 Construction. A&S shall perform or cause to be performed, the following
construction services:
(a) Provide for permitting for construction of the Project;
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(b) provide for all construction supervision, inspection, labor,
materials (unless otherwise specified all materials to be
incorporated into the Project shall be new), tools,
construction equipment and subcontracted items necessary for
construction of the Project in accordance with the Contract
Documents, including handling and warehousing of materials,
supplies and equipment;
(c) maintain or cause to be maintained an adequate inspection
system and perform or cause to be performed such inspections
and testing as will ensure that construction of the Project is
performed in accordance with the requirements of the Contract
Documents, recording all such inspections so performed and
providing a copy thereof to Esmor, the A/E and the Project
Inspector, which the Commission, or its Authorized
Representatives, may review at their discretion from time to
time; and
(d) construction of the Project in accordance with the Contract
Documents.
4.05 Machinery, Equipment and Furnishings. A&S shall procure or cause to be
procured for the Project all machinery, equipment and other furnishings
provided for in the Contract Documents including the Plans and Specifications.
Such machinery, equipment and furnishings shall not include any of the
fixtures, furnishings and equipment included in Exhibit C. Such machinery,
equipment and furnishings shall be included in the Construction Costs of the
Project and delivered prior to Final Acceptance of the Project. To the extent
a brand, type, model number and quantity for any such capital asset was
specified in Esmor's proposal submitted to the Commission (and not superseded
by a specification in the Plans and Specifications or this Contract), the
designation in Esmor's proposal to the Commission shall control; provided,
however, that
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A&S is entitled and encouraged to use Value Engineering in satisfying its
obligations under this Contract. On or before Final Acceptance, Esmor, the
Commission, and A&S or their Authorized Representatives shall jointly prepare a
property inventory listing of each item and noting the condition of each such
item of machinery and equipment for the Project as provided by A&S. Unless
otherwise specified herein, all furniture, fixtures and equipment incorporated
into the Project shall be new and shall be installed by Esmor. The fixtures,
furniture and equipment as indicated on Exhibit C will be provided by Esmor.
4.06 Commencement of Services. A&S shall commence performance of Services
hereunder when the following conditions precedent have occurred:
(a) all necessary permits and approvals, including modification
thereof, that are preconditions to commencement of
construction of the Project have been issued;
(b) A&S has furnished or caused to be furnished the certificates
of insurance evidencing that A&S has obtained or caused to be
obtained the insurance required in Article XI and the RFP as
to the Project, which certificates shall contain a provision
that coverage afforded under the policies will not be canceled
or changed until at least thirty (30) days prior written
notice has been given to Esmor, the Corporation and the
Commission;
(c) A&S has furnished or caused to be furnished performance bonds
as required by Section 11.05;
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(d) notwithstanding delays caused by the provisions of this
Article 4.05, the date for Substantial Completion set forth in
Article 6.03 shall not be extended.
4.07 Incorporation of the Bid Proposal by Reference. The Bid Proposal is
hereby incorporated by reference into and made a part of this Contract. The
terms and provisions of the Bid Proposal will remain in effect with respect to
all work performed on the Project except as heretofore or hereafter expressly
modified in a writing signed by both Esmor and A&S.
4.08 Sewer and Water Lines. Esmor shall cause to be brought to the property
line for the site of the Project sewer and water lines for connection to the
facility in accordance with the Plans and Specifications, and shall cause those
lines to be in operating condition no later than seventy-five days prior to the
Scheduled Completion Date. The sewer and water lines shall be adequate to
serve the needs of the facility consistent with the requirements of the Plans
and Specifications for all purposes. A&S shall not be required to install
pumps, storage tanks, or other devices or equipment to cause adequate volume
and pressure to be available to the facility at any time, including times of
peak usage.
ARTICLE V
INFORMATION AND ITEMS TO BE FURNISHED BY ESMOR
5.01 Information. Esmor shall provide A/E and A&S with all technical
information relative to court orders, regulations and policy changes, that are
possessed by or accessible to Esmor that have been or may be issued regarding
the Project or are pertinent thereto, and such requirements shall be ongoing
during the term hereof.
5.02 Titles and Permits. Esmor shall cooperate in a reasonable and timely
manner with A&S to enable A&S to secure, at A&S's expense,
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permits, environmental permits, and licenses necessary for the engineering,
procurement, construction and completion of the Project, including licenses
required to permit A&S to do business in the jurisdictions where Services are
to be performed, and local building permits and licenses that are required for
actual construction of the Project; any failure by Esmor to cooperate in
accordance with the foregoing may result only in adjustment to the Construction
Schedule and not an adjustment to the Contract Price.
5.03 State Sales Tax. The parties hereto agree that the Project, as
constructed in accordance with this Contract, will be subject to state and
local sales taxes. The Contract Price of the Services as provided in Section
7.01 hereof includes the cost of such taxes and such costs will be paid by A&S
from said amount, it being expressly understood that the Corporation, the
Commission and Esmor shall have no liability with respect to the payment of
such taxes.
ARTICLE VI
CONSTRUCTION COMMENCEMENT AND MONITORING
6.01 Construction Commencement. Actual physical commencement of construction
shall occur:
(a) Upon the date of this Contract and shall continue until the
Project is complete. A&S shall within thirty (30) days of the
date of this Contract prepare and submit to the A/E a
construction schedule in quadruplicate graphically depicting
the activities contemplated to occur as a necessary incident
to performance of the work required to complete the Project,
showing the sequence in which A&S proposes for each such
activity to occur and the duration (dates of commencement and
completion, respectively) of each such activity. An example
of an acceptable form of such a construction schedule is
contained in Appendix A of the Corps of Engineers'
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Regulation ER 1-1-11 entitled "Network Analysis System", a
copy of which is available to A&S from the
Architect/Engineers, upon request. Other forms of
construction schedules, such as "Timeline", "Primavera",
"Project Workbench", or "Super project", which provide the
same kind of information and employ the same basic principles
as illustrated in Appendix A of the Corps of Engineers'
Regulation ER 1-1-11 will be acceptable to Esmor if used by
A&S.
(b) Following development and submittal of the construction
schedule as aforesaid, A&S shall, at the end of each calendar
month occurring thereafter during the period of time required
to finally complete the subject Project, or at such earlier
intervals as circumstances may require, update and/or revise
the construction schedule to show the actual progress of the
work performed and the occurrence of all events which have
affected the progress or performance of the work already
performed or will affect the progress of the performance of
the work yet to be performed in contrast with the planned
progress of performance of such work, as depicted on the
original construction schedule and all updates and/or
revisions thereto as reflected in the updated and/or revised
construction schedule last submitted prior to submittal of
each such monthly update and revision. Each such update
and/or revision to the construction schedule shall be
submitted to the A/E in duplicate. Failure of A&S to update,
revise, and submit the construction schedule as aforesaid
shall be sufficient grounds for the A/E to find A&S in
substantial default and certify to the Commission's
Representative that sufficient cause exists to terminate the
Contract or to withhold payment to A&S until a schedule or
schedule update acceptable to the A/E is submitted.
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6.02 Scheduled Completion Date. A&S shall perform services to achieve
Substantial Completion of the Project on or before 365 days after the closing
of the sale of the certificates of participation referred to in Article IV of
the Trust Agreement. Within forty-five (45) days after Substantial Completion,
the Project shall achieve Final Completion.
6.03 ACA Standards. The design and construction of the facility shall meet
the applicable standards of the American Correctional Association and the
requirements of all applicable court orders and state law, and the Contract
Documents, including the RFP. In the absence of its receipt of written notice
to the contrary, A&S shall be entitled to presume that the Contract Documents,
including the Plans and Specifications, satisfy the requirements of this
paragraph.
ARTICLE VII
COMPENSATION
7.01 Fixed Price. In consideration of the performance and subject to the
conditions of the Contract, A&S shall be paid for its services the fixed price
of Thirteen Million Nine Hundred Ninety-six Thousand One Hundred Fifty and
No/100 Dollars ($13,996,150.00). The Contract Price shall be paid to A&S in
accordance with the Schedule of Values set forth in Exhibit B, and the further
provisions of Article VII hereof. At the time of the Construction Commencement
Date, A&S shall be paid a mobilization payment of One Million Five Hundred
Forty-Seven Thousand Twenty and No/100 Dollars ($1,547,020.00) for costs
incurred on or before the Construction Commencement Date. This mobilization
payment is part of the Fixed Price.
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7.02 Payments
(a) Progress Payments. A progress payment disbursement from the
Construction Fund, subject to the procedures set forth herein
and in the Indenture and in the Related Documents which
pertain to approval of Construction Fund disbursements, shall
be made to A&S by the Trustee each month in the amount of
Ninety-five percent (95%) of the portion of the contract sum
properly allocable to labor, materials and equipment
incorporated into the work and Ninety-five percent (95%) of
that portion of the contract sum properly allocable to
materials and equipment suitable stored at the site or at some
other locations agreed upon in writing by the parties, less
the aggregate of previous payments. Five percent (5%) of the
amount of each Certificate for Payment shall be retained from
A&S until the date of Final Acceptance. Disbursements from
the Construction Fund shall be made to A&S upon receipt by the
Trustee of an Application or Requisition for Payment executed
by an authorized officer of A&S, together with a Certificate
for Payment (the form of both of which is attached hereto as
Exhibit D) executed by the A/E and concurred with by the
Corporation and the Commission in accordance with Sec. 6.03 of
the Indenture and subsection (c) below. A&S, Esmor, the
Corporation and the Commission in accordance with Sec. 6.03 of
the Indenture and subsection (c) below. A&S, Esmor, the
Corporation and the Commission shall comply with all
requirements contained in the Indenture and Related Documents
with respect to Applications and Certificates for Payment.
Title to all material and work covered by Payments made shall
thereupon become the sole property of the Corporation, subject
to the Trustee's lien, if any; provided that (i) the work and
material shall remain in the possession and control of A&S
pending final acceptance; (ii) no such progress payment or
transfer shall constitute an acceptance or begin the running
of
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any time period within the meaning of the performance bond;
(iii) the work and material shall remain covered by and
insured pursuant to any insurance policy, including builders'
risk and/or casualty loss policy, required pursuant to this
Construction Contract; and (iv) this provision shall not be
construed as relieving A&S from the responsibility for the
care and protection of such material and work or the
restoration of any damaged construction work, or as a waiver
of the right of Esmor to require the fulfillment of all of the
terms hereof. Notwithstanding any provision of this
subsection 7.02 (a) to the contrary, A&S shall be deemed to
have a property interest in and to the material and work,
prior to the Final Acceptance of the Project, to the extent,
if any, as may be necessary to retain all the benefits and
protections afforded to the Corporation, the Commission, the
Trustee, A&S and Esmor by the terms and provisions of any
insurance policy or performance bond.
(b) There shall be a monthly progress meeting between Esmor, A&S,
the Project Inspector, the A/E, the Corporation, and the
Commission, at which time the parties will consider and review
A&S's proposed Application for Payment for that month. On the
twenty-fifth (25th) day of each calendar month, A&S shall
submit to the A/E and Esmor an itemized Application for
Payment for the Project in accordance with the Schedule of
Values and based on the percentage of work completed and
materials delivered to the Project or stored off site in a
bonded warehouse, less the amount of prior payments. The
Application for Construction Payment to be submitted by A&S
shall include:
(1) the requisition number;
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(2) the amount to be paid;
(3) that each obligation evidenced thereby is presently
due in accordance with the Schedule of Values set
forth in EXHIBIT B, as same may have been adjusted in
accordance with the terms hereof, and has not been
the basis of any previous payment;
(4) that A&S is not on the date thereof in default of any
of its representations, warranties, and covenants
under the Contract Documents; and
(5) that A&S warrants that title to all Project work
covered by the Application for Payment will have
passed to the Corporation no later than the time of
payment. A&S further warrants that upon submittal of
an Application for Payment all Project work for which
Certificates for Payments have been previously issued
and payments received from the Trustee shall, to the
best of the A&S's knowledge, information and belief,
be free and clear of liens, claims, security
interests or encumbrances in favor or A&S,
subcontractors, material suppliers, or other persons,
or entities making a claim by reason of having
provided labor, materials and equipment relating to
the Project.
(6) Copies of invoices from suppliers for all
furnishings, equipment and fixtures which have been
received by A&S and are stored on site or stored in a
facility approved by the Commission.
(c) Certificate for Payment. Immediately upon receipt of an
Application for Payment, the A/E shall forward a copy thereof
to Esmor, the Corporation, and the Project
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Inspector. Within seven (7) days after receipt of A&S's
Application for Payment, A/E shall notify Esmor, the
Corporation, the Project Inspector, and the Commission in
writing of its analysis of A&S's basis for Application for
Construction Payment and that it either intends to issue a
Certificate for Payment, or that it intends to withhold
certification in whole or in part. The Corporation, the
Project Inspector, and the Commission shall evidence in
writing their concurrence or nonconcurrence with such A/E
intended action within three (3) business days after receipt
of said notices. Any disputes with respect to the amount of
any Application or Certificate for Construction Payment shall
be resolved in accordance with subsection (e) below. The
issuance of a Certificate for Construction Payment by A/E and
signed by A&S, Esmor, the Project Inspector, the Corporation
and the Commission will constitute a representation by A/E
that based on observations at the site up to the date of the
Application for Payment, the construction work has progressed
to the point indicated and that, to the best of A/E's
knowledge, information and belief, the quality of the work is
in accordance with the Contract Documents.
(d) Upon Trustee's receipt of a Certificate for Payment and
Application for Payment as provided in this Article 7.02,
Trustee shall make payment to A&S in accordance with Sec. 6.02
of the Indenture.
(e) A/E may refuse to certify payment and withhold a Certificate
for Payment in whole or in part, either on its own or because
of Esmor's, the Corporation's or Project Inspector's failure
to concur therewith, in accordance with subsection (c) above.
If A/E is unable to certify payment in the amount of the
Application submitted by A&S, A/E will promptly notify A&S
thereof.
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If A&S, Esmor, the Commission, A/E, the Corporation and the
Project Inspector cannot agree on a revised amount, A/E will,
within five (5) days of the aforesaid notification, promptly
issue a Certificate for Payment as to the undisputed amount,
if any, with respect to which A/E certifies and the
Corporation and the Project Inspector concur in writing with
such payment, if any. Either A/E or the Project Inspector
may, because of subsequently discovered evidence or subsequent
observation, revise the whole or a part of a Certificate for
Payment previously issued as may be necessary because of:
(1) defective work not remedied;
(2) third party claims filed against A&S;
(3) failure of A&S to make payments promptly for labor,
materials or equipment or to subcontractor;
(4) reasonable evidence that the Project cannot be
completed for the unpaid balance of the Contract
Price;
(5) reasonable evidence that the Project will not be
completed within the Construction Schedule, and that
the unpaid balance would not be adequate to cover
actual or liquidated damages for the anticipated
delay; or
(6) persistent failure to carry out the Project work in
accordance with the Contract Documents.
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Any dispute regarding the amount certified for payment by A/E shall be subject
to resolution in accordance with the provisions of Article XIV.
7.03 Source of Payment. Notwithstanding any other term of this Contract, the
parties hereto agree that the obligation to make any payment to A&S, shall be
satisfied solely to the extent there are amounts on deposit in the Construction
Fund sufficient to pay the amount owed; provided, however, that in the event
sufficient funds should not be on deposit in the Construction Fund with which
to make payment to all parties then entitled to payment from the Fund, A&S
shall be paid all amounts then due to it even if as a result of making payment
to A&S there are not sufficient funds remaining in the Construction Fund with
which to make payment in full to other parties. Neither the Corporation nor
the Commission shall be obligated to issue additional certificates of
participation (as defined in the Indenture) to complete the Project or to pay
any obligation due hereunder. A&S agrees to look solely to the Construction
Fund for payment of any and all sums of whatever kind and nature, due on or to
become due under this Contract, not to exceed the Contract Price. Esmor's
liability to A&S for any sums due or to become due under this Contract is
expressly conditioned and contingent upon the release of such sums from the
Construction Fund; provided, however, that A&S shall be entitled to rely upon
instruction from Esmor with respect to modifications or additions to the
performance of A&S's work and if, for whatever reason, funds are not released
from the Construction Fund with which to Pay for such modifications or
additions performed pursuant to Esmor's instructions, Esmor shall nonetheless
be responsible to A&S for the cost of such additions or modifications and they
shall be paid for by Esmor upon the same schedule of payment which would apply
if payment was being made by release from the Construction Fund.
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ARTICLE VIII
CHANGES
8.01 Changes to Project. The provisions of this Article VIII shall apply to
any change in the Project after execution of this Contract. No change shall
be made that would cause the Project to fail to conform with applicable Minimum
Standards, the standards contained into he RFP and Esmor's response thereto as
modified by the Bid proposal, or any other of the Contract Documents. Subject
to A&S's right to use Value Engineering, it is understood and agreed that no
substitutions for major components of the Project specified in the Contract
Documents to be used in construction of the Project shall be made by A&S with
out prior written approval of Esmor, the A/E, the Commission, and the Project
Inspector.
8.02 Minor Changes. In addition to Value Engineering, the A/E and A&S may
order minor changes to the Project that enhance or do not detract from the
reliability or utility of the Project or any components parts thereof, provided
that such Changes are not inconsistent with the intent of the Contracts
Documents, do not substantially alter the design or appearance of the Project
or result in any adjustment to the Contract Price, Schedule of Values, or
Scheduled Completion Date. Prompt notice to Esmor, A&S, the A/E and the
Project Inspector of any such Changes shall be required.
8.03 Changes in the Work. During the course of A&S's performance of the work
necessary to complete the subject Project, certain events may occur which will
have the effect of changing the conditions under which the work is to be
performed as specified and described in the RFP and Esmor's response thereto,
and/or the nature and extent of the work as specified and described in the
Contract Documents. The occurrence of such events may cause A&S to incur
greater or less cost expense to perform the work required to complete the
subject Project than planned to be incurred in
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A&S's proposal, in which event A&S or Esmor shall respectively be entitled to
either an increase or decrease in the Contract Sum, whichever is the case, to
the extent such greater or less cost and expense results, and in which event
the party entitled to the benefits of any such adjustment to the Contract Price
shall, within twenty-one (21) calendar days from the first occurrence of such
event(s), present written demand therefore on the other party. Should A&S and
Esmor be unable to settle and dispose of such demand within thirty (30)
calendar days from the date any such claim is presented, upon terms and
conditions mutually agreeable to A&S and Esmor, then such demand shall be
subject to the provisions of Article XIV of this Contract.
The parties acknowledge that in negotiating the fixed Contract Price to be paid
to A&S under this Contract, certain cost estimates and projections have been
made by A&S in establishing the amount of its fixed price proposal. No
variation in the actual costs incurred by A&S (as a result of Value Engineering
or otherwise) shall in and of itself be considered to be an event which has the
effect of changing the conditions under which the work is to be performed.
All adjustments to the Contract Price resulting from a change in the work shall
be determined by the measure of actual, or estimated as the case may be,
out-of-pocket costs and expenses incurred or spared by A&S, for labor,
materials, equipment, and equipment rental, plus overhead and profit thereon,
for performing the changed work.
(a) Labor costs shall be inclusive of all direct job site costs
for estimation, laying out, mechanics' wages and laborers'
wages, together with all payroll taxes, payroll assessments,
and insurance premiums paid for such labor.
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(b) All material costs equipment costs and equipment rental costs
shall be trade discount rates, plus State Sales Tax, where
applicable.
(c) Overhead and profit shall be inclusive of all project
management, project administration, superintendence, project
coordination, project scheduling and other administrative
support functions and services, whether performed on the job
site or off the job site and general support equipment.
Overhead and profit shall be determined as follows:
(1) Overhead and profit shall be calculated at the rate
of 15% of A&S's labor, material, equipment and
equipment rental costs, incurred or spared, as
measured under the preceding paragraphs for changes
in the work performed by the officers, employees or
subsidiaries of A&S;
(2) Overhead and profit shall be calculated at the rate
of 7.5 percent of A&S's sub-contractors' actual
labor, material, equipment rental costs, incurred or
spared, as measured under the preceding paragraphs,
plus 15% of all such costs, as overheads and profit
to A&S's subcontractors, for all changes in the work
performed by the officers, employees or subsidiaries
of A&S's sub-contractors.
(d) In addition to the foregoing, all adjustments to the Contract
Sum resulting from a change in the work shall include all
out-of-pocket expenses, incurred or spared, in performing the
changes in the work for:
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(1) Paying the premiums required to obtain Performance
Bonds and Labor and Material Payment Bonds called for
by the Contract Documents;
(2) Paying the fee(s) required for licenses or permits
called for by changes in the work;
(3) Paying for delivery of materials or equipment to the
job site;
(4) Paying for storage of materials or equipment before
use thereof in performing changes in the work; and
(5) Paying for testing required by the changes in the
work.
(e) In the event A&S demands in the Contract Price, such demand
shall be accompanied by paid receipts or other such written
evidence reasonably satisfactory to Esmor itemizing the costs
and expenses incurred as a result of the event(s) constituting
the changes in the work.
8.04 Delays. A&S's remedies for delays in the progress of the Work, or for
changes in the Work, shall be limited to those provided in this Article. A&S's
exclusive remedy for delays in performance of the contract caused by events
beyond its control shall be a claim for equitable adjustment in the contract
time; provided, however, in as much as the parties expressly agree that
overhead costs incurred by A&S in constructing the Project for delays in
performing the Work cannot be determined with any degree of certainty, it is
hereby agreed that in the event A&S is delayed in the progress of the Work
after Commencement of Construction or causes beyond its control and
attributable only to acts or
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omissions of the Commission or Esmor, A&S shall be entitled to compensation for
overhead and profit costs either:
(a) as a fixed percentage of the actual cost of the change in the
Work, if the delay results from a change in the Work, or
(b) if the delay results from other than a change in the Work, at
an amount for each day of delay calculated by dividing an
amount equal to a percentage of the original contract sum
determined on the graph enclosed as Exhibit G by the number of
calendar days of the original contract time.
In the event of a change in the Work, A&S's claim for adjustments in contract
sum are limited exclusively to A&S's actual costs for such changes plus fixed
percentages for overhead, additional, costs, as specified in herein.
The forgoing remedies for delays and changes in the Work are to the exclusion
of, and thus eliminate, the total cost concept (that is, computing A&S's
additional costs for changes in Work or the costs of a delay in the progress of
the Work by comparing A&S's total actual costs with its original estimate, see
McDevitt & Street Company v. Department of Management Services State of
Florida, 377 So. 2d 191, (Fla. 1st DCA 1979)) as a method of determining A&S's
costs associated with a change in the Work or with a delay in the progress of
the Work.
No provision of this contract shall be construed as a waiver of sovereign
immunity by the Owner.
8.05 Claims and Disputes. Claims must be made by written notice. The
responsibility to substantiate Claims shall rest with the party making the
claim.
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No provision of the Contract Documents makes or is intended o make provision
for recovery by A&S of damages for delay. All claims, disputes or
controversies under this contract shall be determined and settles as provided
herein.
8.06 Time Limits on Claim. Claims by either party must be made within 21
days after occurrence of the event giving rise to such Claim or within 21 days
after the claimant first recognizes the condition giving rise to the Claim,
whichever is later. Claims must be made by written notice. An additional
Claim made after the initial Claim has been implemented by Change Order will
not be considered unless submitted in a timely manner.
8.07 Continuing Contract Performance. Pending final resolution of a Claim
unless otherwise agreed in writing A&S shall proceed diligently with
performance of the Contract and payments shall continue to be made in
accordance with the Contract Documents.
ARTICLE IX
ACCEPTANCE
9.01 Substantial Completion of Project. When A&S considers that the Project
is substantially complete, A&S shall notify the A/E and the Project Inspector
that the Project is ready for a Substantial Completion Inspection. Upon
receipt of A&S's notice, the A/E, Esmor, and Project Inspector or Commission
Representative will make an inspection to determine whether the Project is
substantially complete and will compile a list of items needing completion. If
such inspection discloses any item, whether or not included on A/E's lists,
which is not in accordance with the requirements of the Contract Documents, A&S
shall, before issuance of the Certificate of Substantial Completion, complete
or correct such item. Failure to include an item on such list does not alter
the responsibility of A&S to complete all work in accordance with the Contract
Documents. A&S, after notice to Esmor, shall then submit
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a request for another inspection by the A/E and Project Inspector or Commission
Representative to determine Substantial Completion. When the A/E and Project
Inspector or Commission Representative determine that the Project is
substantially complete, the A/E will prepare, and the A/E, Esmor, and A&S shall
execute and deliver to the Corporation, the Commission and the Trustee a
Certification of Substantial Completion. The Certification of Substantial
Completion shall establish responsibilities of Esmor and A&S for security,
maintenance, heat, utilities and insurance. A list of any outstanding items
required for Final Acceptance of the Project (the "Punchlist Items") shall
accompany the Certificate of Substantial Completion. Warranties required by
the Contract Documents shall commence on the date of Substantial Completion
unless otherwise provided in the Certificate of Substantial Completion. The
Certificate of Substantial Completion shall be submitted to the Corporation,
Project Inspector, and the Commission for their written acceptance. The
Certification of Substantial Completion shall include a certificate by the A/E,
based upon its knowledge, information, and belief, that the Project as contract
documents and the record drawings for the Project.
9.02 Punchlist Items. Upon Substantial Completion of the Project, A&S shall
remain responsible for any Punchlist Items that are required for Final
Acceptance of the Project. A&S shall complete all such Punchlist Items within
forty-five (45) calendar days after Substantial Completion, unless the parties
agree otherwise. A&S shall provide Esmor, or its designees, with all equipment
manuals and a record set of drawings.
9.03 Final Acceptance. Upon receipt of the Completion Certificate issued by
the A/E, together with an Application for Final Payment, the Project Inspector
and/or other Authorized Representative of the Commission will promptly make
such inspection of the Project and when the project if found acceptable under
the Contract Documents,
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shall issue an acceptance certificate. At such time the A/E will promptly
issue a final Certificate for Construction Payment and arrange for the issuance
of a Certificate of Occupancy from the appropriate agency. Final Acceptance
shall occur when the A/E's Final Certificate for Construction Payment is
approved by the Corporation and the Commission, the A/E has issued his
certification and a Certificate of Occupancy has been issued. The A/E's final
Certificate for Construction Payment will constitute a further representation
that conditions listed in Subparagraph 9.04 precedent to A&S's being entitled
to final payment have been fulfilled.
9.04 Final Payment. Neither the final payment nor the remaining retained
percentage shall become due until A&S submits to A/E for transmittal to Esmor,
the Corporation, and the Commission (1) an affidavit that all payrolls, bills
for materials and equipment, and other indebtedness connected with the work for
which the Corporation, Esmor, or their respective property is responsible, have
been paid or will be paid or otherwise satisfied within thirty (30) days after
receipt of final payment, (2) consent of surety to final payment, (3) documents
purporting to be complete and legally effective releases or waivers
(satisfactory to Esmor, the Corporation and the Commission) of all liens
arising out of or filed in connection with the project, (4) the inventory
required by Section 4.04 hereof. If any subcontractor or supplier refuses to
furnish a release wavier as required herein, or if A&S genuinely disputes the
amount claimed to be due to nay subcontractor or supplier, A&S may furnish a
bond satisfactory to Esmor, the Corporation and the Commission to indemnify the
Corporation and Esmor against any such claim. Following Final Acceptance, A&S
shall submit to A/E and Esmor a statement showing the balance of the Contract
Price remaining due, excluding the amount of such request shall be paid to A&S.
It is understood and agreed however that the amount held as retainage shall not
be paid to A&S until thirty (30) days after the
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date of Final Acceptance. Final Payment hereunder shall not constitute an
acceptance of any work not in accordance with the Contracts Document, and shall
not constitute a wavier of any claims against A&S.
ARTICLE X
RESPONSIBILITIES AND LIABILITIES OF A&S
10.01 Warranties. In addition to any other warranties of A&S contained
herein, A&S and its subcontractors, suppliers and vendors of every tier shall
perform Services in accordance with good engineering and construction practices
and in accordance with approved practices and customs and Minimum Standards.
A&S will provide to Esmor all warranties and guarantees required by the Plans
and Specifications, which warranties and guarantees shall be furnished by its
subcontractors and vendors of every tier, and all such warranties and
guarantees shall be addressed to and in favor of the Corporation and the
trustee, in accordance with the Indenture, and delivered to Esmor at
Substantial Completion. The Services shall be provided and the Project shall
be constructed, erected, and assembled in a good and workmanlike manner, in
accordance with the Plans and Specification. A&S warrants and guarantees all
work required by this contract against defects in materials, equipment, and
workmanship for one (1) year from the date of Substantial Completion. Upon
receipt of written notification required by Section 10.02, A&S agrees, and
shall have its subcontractors and suppliers agree, to remedy any defects in
materials, equipment, or workmanship or nay other deficiencies occurring
within the warranty and guarantee period. After notice, if A&S fails to
promptly comply with their terms of the warranties contained in the Section
10.01, Esmor, the Corporation, the Commission, or the Trustee may have the
defects corrected and A&S and the Project surety shall be liable for all
expenses thereby incurred.
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10.02 Deficiencies. After discovery of any defects or deficiencies in the
Project, A & S shall correct it promptly after receipt of written notice from
the A/E, Esmor, Commission, Project Inspector or Corporation to do so. The one
year warranty period shall be extended with respect to portions of the work
first performed after Substantial Completion by the period of time between
Substantial Completion and the actual performance of the work. This obligation
shall survive final acceptance of the project and termination of the contract.
10.03 Warranties and Implied Warranties. A&S warrants to Esmor that
materials and equipment furnished under the Contract will be of good quality
and new unless otherwise required or permitted by the Contract Documents, that
the Project will be free from defects not inherent in the quality required or
permitted, and that the Project will conform to the Contract Documents. Work
not conforming to these requirements, including substitutions not properly
approved and authorized, may be considered defective. A&S's warranty excludes
remedy for damage or defect caused by abuse, modifications not executed by the
A&S, improper or insufficient maintenance, improper operation, or normal wear
and tear under usage. If required by the A/E, A&S shall furnish satisfactory
evidence as to the kind and quality of material and equipment.
EXCEPT AS MAY PROVIDED IN THIS ARTICLE 10, THERE ARE NO IMPLIED WARRANTIES OR
GUARANTEES OF A&S THAT EXTEND BEYOND THOSE EXPRESSED IN THIS CONTRACT, IF ANY,
AND A&S DISCLAIMS, AND ESMOR WAIVES, ANY IMPLIED WARRANTY OR WARRANTIES IMPOSED
BY LAW, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, OF
FITNESS FOR PARTICULAR PURPOSE, AND OF CUSTOM AND USAGE.
10.04 Liquidated Damages In as much as failure to complete the project
within the time fixed above will result in substantial injury to the Esmor, and
as damages arising from such failure
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cannot be calculated with any degree of certainty, it is hereby agreed that if
the project is not Substantially Completed by the date established as the
Completion date established as the Completion Date in Article 6.02 above, or
within such further time, if any, as in accordance with the provisions of the
Contract Documents shall be allowed for such Substantial Completion, subject to
any delay excused by other provisions of this Contract, A&S shall pay to Esmor
as liquidated damages for such delay, and not as a penalty, Two Thousand Three
Hundred Sixty-Four and No/100 Dollars ($2,364.00) for each and every calendar
day elapsing between the date fixed for Substantial Completion above the date
such substantial completion shall have been fully accomplished. It is also
hereby agreed that if, following the issuance of the Substantial Completion
Certificate, the project is not finally completed within the time requirements
of Article 6.02 above and the contract Document, A&S shall pay to Esmor as
liquidated damages and not as a penalty, for each day of such delay, the sum of
Two Hundred and Fifty ($250.00) Dollars. This provision of liquidated damages
for delay shall in no manner affect Esmor's right to terminate the contract as
provided in the contract Documents. Esmor's exercise of the right to terminate
shall not release A&S from its obligation to pay said liquidated damages in the
amounts set out below. Esmor is entitled to completion of the project within
the time fixed above or within such further time, if any, as may be allowed in
accordance with the provisions of the contract. In the event of termination of
the contract by Esmor for cause prior to completion as provided in the
Contract Documents, A&S shall be liable to Esmor for the per diem liquidated
damages described above for each day A&S is in arrears in the performance of
its work.
10.05 Indemnification. A&S hereby assumes entire responsibility and
liability for any and all damages or injury of any kind or nature whatever
(including death resulting therefrom) to all persons, whether employees of A&S
or otherwise, and to all property caused by, resulting from, arising out of or
occurring in
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connection with the execution of this contract and/or the work performed by A&S
to the extent, but only to the extent, that such damage or injury results from
the negligence of A&S, by act or omission, or any of its agents, employees or
representatives. If any claims for such damage or injury (including death
resulting therefrom) be established by a final non-appealable judgment issued
by a court of competent jurisdiction, A&S agrees to indemnify, defend and save
harmless, Esmor, the State, the Commission and Corporation, their officers,
agents, servants and employees from and against any and all such claims.
10.06 Patent Indemnity. A&S shall pay all royalties and license fees and
shall defend all suites on claims for infringement of any patent right and
shall indemnify and save Esmor and its officers, agents, and employees harmless
from and against all claims for patent infringement based on materials or
equipment incorporated into the Project.
ARTICLE XI
PROJECT INSURANCE AND BONDS
11.01 Insurance. A&S shall secure and retain, or shall cause to be secured
and retained, such policy or policies of insurance as are required by the RFP
and other Contract Documents, including (i) coverage against all claims; (ii)
coverage to protect against all claims arising form Services performed
hereunder; and (iii) coverage to protect from actions by a third party against
A&S and Esmor as a result of this Contract, and (iv) builders risk/casualty
loss coverage for the Project. The insurance required by this Section 11.01
shall be written for not less than any limits of liability specified herein and
in Related Documents, or required by law, whichever is greater, and shall
include "coverage for liabilities assumed by this contract", as applicable to
the obligations of Esmor and A&S hereunder. A&S shall submit insurance as
shown on Exhibit E to Esmor for review and approval, which
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approval shall not be unreasonably withheld, but all insurance carriers must
have an A.M. Best & co. rating of at least "A". the insurance coverage
provided by A&S hereunder shall name Esmor, the commission and Trustee (as
their interests may appear) as additional insureds and loss payees.
11.02 Amounts and Types. During the performance of Services hereunder, A&S
shall maintain insurance for the mutual protection and benefit of it, Esmor and
the commission to cover claims that may arise out of our result from A&S's
Services hereunder, whether same bye by A&S or a subcontractor or by anyone
directly or indirectly employed by any of them, or by anyone for whose acts any
of them may be liable; and such insurance shall include the types and shall be
for amounts set forth on the attached Exhibit E. Such insurance set forth on
the attached Exhibit E shall cover claims for damages insured by usual personal
liability coverage that are sustained (a) by any person as a result of an act
directly or indirectly related to the employment of such person by A&S or (b)
by any other person; and (c) claims for damages because of injury to or
destruction of tangible property, including loss of use resulting therefrom.
Compliance with the foregoing insurance requirements shall not relieve A&S from
any liability under the indemnity provisions of Article X hereof.
11.03 Cancellation. Esmor, the Commission, the Corporation and Trustee will
be given written notice thirty (30) days prior to any cancellation of any
insurance required to be maintained hereunder. A&S shall be diligent in
replacing any canceled insurance and, subject to the next sentence hereof,
shall replace such insurance in a timely fashion to avoid any potentially
uninsured liabilities of the type required to be covered by insurance. In the
event that any insurance described herein or any portion thereof becomes
commercially unavailable, A&S shall obtain, with the approval of Esmor, the
Commission and the Corporation, such suitable
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replacement insurance as any be available and the insurance coverage required
by this Contract shall be modified accordingly.
11.04 Subcontractors. A&S shall require all subcontractors to obtain,
maintain, and keep in force insurance coverage in accordance with accepted
industry standards during the time they are engaged hereunder.
11.05 Bonds. A&S shall furnish to Esmor performance and payment bonds each
in the amount of Thirteen Million Nine Hundred Ninety-Six Thousand One Hundred
Fifty and No/100 Dollars ($13,996,150.00) for the Project which bond shall name
Esmor, the Commission and the Corporation as obligees. Each bond shall be
executed by a corporate surety or corporate sureties that are acceptable to
Esmor, and duly authorized to do business in the State, and are executed on
forms approved by Esmor. If a surety upon any bond furnished in connection
herewith becomes insolvent, or otherwise not authorized to do business in the
State, A&S shall promptly replace the bond or furnish equivalent security
acceptable to Esmor.
ARTICLE XII
EVENTS OF DEFAULT AND REMEDIES
12.01 Default by A&S. The following events shall be considered events of
default by A&S:
(a) A material failure to keep, observe, perform, meet or comply
with any covenant, agreement, term or provision of this
Contract, or of any of the contract Documents, which are to be
kept, observed, met performed or complied with by A&S;
(b) If A&S shall (i) admit in writing its inability to pay its
debts; (ii) make a general assignment for the benefit
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of creditors; (iii) suffer a decree or order appointing a
receiver or trustee for it or substantially all of its
property to be entered and, if entered without its consent,
not to be stayed or discharged with sixty (60) days; (iv)
suffer proceedings under any law relating to bankruptcy,
insolvency, or the reorganization of relief of debtors to be
instituted by or against it and, if contested by it, not to be
dismissed or stayed within sixty (60) days; or (v) suffer any
judgment, writ of attachment or execution, or any similar
process to be issued or levied against a substantial part of
its property which is not released, stayed, bonded, or vacated
within sixty (60) days after issue or levy.
12.02 Esmor's Remedies. Upon an Event of Default by A&S, esmor without
prejudice to its other rights and remedies hereunder, shall be entitled to
terminate this Contract for cause and the procedure outlined in the performance
bond for completion of the contraction work shall be followed; provided,
however, that no default by A&S shall constitute an Event of Default unless and
until:
(a) Esmor has given at least ten (10) business days prior written
notice thereof to A&S specifying that a default(s) has
occurred that will, unless corrected, constitute a material
breach hereof; and
(b) A&S either (i) has not corrected such default or has not
initiated reasonable steps to do so within said ten (10)
business day period, or (ii) if such reasonable steps have
been initiated within such period, did not thereafter continue
to take reasonable steps to correct such default within such
time period as Esmor and A&S shall have previously agreed in
writing to constitute a sufficient time within which to
accomplish such correction.
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12.03 Other Default. The following shall constitute Events of Default on the
part of Esmor:
Failure by Esmor to observe and perform any covenant, condition, or agreement
on its part to be observed or performed, or its failure or refusal to
substantially fulfill any of its obligation hereunder, unless caused by the
default of A&S, which action continues for twenty days after receipt of written
notice from A&S specifying that a default has occurred that will, unless
corrected, constitute a material breach hereof.
12.04 Remedy of A&S. Upon an Event of Default by Esmor, A&S shall be
entitled to take the following remedial steps, provided that the default has
not been cured prior to termination of the time periods indicated below:
With respect to the failure of Esmor to pay any installment of the Contract
Price within thirty calendar days from the due date thereof, A&S may suspend
its performance of Services (and the Construction Schedule shall be adjusted
accordingly); and, if such failure to pay continues for a period of thirty
(30) days thereafter, terminate this Contract, which termination shall be
without prejudice to A&S's other rights and remedies hereunder.
12.05 No Remedy Exclusive. The termination rights and remedies of A&S and
Esmor provided herein are cumulative and in addition to any other rights and
remedies provided by law or hereunder.
ARTICLE XIII
TERMINATION
13.01 Termination Payment. Upon termination of A&S's Services hereunder A&S
shall be paid, in accordance with the provision of Article VII, for all work
satisfactorily performed in accordance with the Contract Documents up to and
including the date of
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termination, including any earned retain age and materials purchased, delivered
or stored but not installed, less the cost for correcting any work that was not
satisfactorily performed in accordance with the contract Documents, and less
any Liquidated Damages applicable to A&S. In no event shall A&S be paid monies
for any portion of the Project in excess of the values set forth in the
Schedule of Values attached hereto as Exhibit B.
13.02 A&S Responsibility. After receipt of a notice of termination and
unless otherwise directed by the Commission, A&S shall immediately proceed with
the following obligations:
(a) Stop work as specified in the notice;
(b) Place not further contracts or orders for materials or
Services; and
(c) Deliver to Esmor all supplies, equipment, and materials for
which A&S has been reimbursed
ARTICLE XIV
RESOLUTION OF CLAIMS AND DISPUTES
14.01 Binding Effect. The dispute resolution procedures contained in this
Article XIV shall govern disputes between Esmor and A&S. Disputes resolved in
accordance with such procedures shall be binding on Esmor and A&S.
14.02 Architect/Engineer Review. All Claims as defined herein must be
submitted in writing by A&S to the A/E not later than thirty (30) calendar days
from the date of the occurrence of the event which gives rise to the Claim.
Failure to submit any Claim to the A/E within such thirty calendar day notice
period will bar any relief hereunder. The A/E will review Claims and take on
or more of the following preliminary actions within ten (10) days (the
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"review period") of receipt thereof. (1) request additional supporting data
from the claimant, (2) reject the Claim in whole or in part, and request
additional supporting data from the claimant, (3) reject the Claim in whole or
in part, stating reasons for rejection, (4) recommend approval of the Claim by
the other party, or (5) suggest a compromise. If the A/E does not believe that
the dispute can be resolved within the review prior and the resolution period
referenced below, it shall submit a schedule to the parties indicating when it
expects to take action and the parties shall agree thereto or proceed in
accordance with the provisions of Section 14.03. The A/E shall also notify A&S
if the Claim involves an adjustment in the Contract price, Construction
schedule and/or Schedule of Values. The A/E shall not incur any liability for
any action taken pursuant to this Section 14.02 provided that such action is
taken in good faith.
14.03 Decision. If a Claim is not resolved by mutual agreement of the
parties, the party making the Claim shall within ten (10) days (the "resolution
period") after Commission's Representative preliminary response, take one or
more of the following actions in writing: (1) submit additional supporting
date requested by the Commission's Representative, (2) modify the initial
Claim, or (3) notify the Commission's Representative tat it affirms the initial
Claim. If a Claim has not been resolved in accordance with the foregoing, the
Commission's Representative will notify the parties in writing that a decision
will be make within seven (7) days after expiration of the resolution period,
which decision will be final and binding on the parties, unless appealed in
accordance with Section 14.04, in which case the Commission's Representative
decision shall not be implemented. Within such time period, the commission's
Representative will render to the parties its written decision relative to the
Claim, including, subject to Section 7.03 hereof, any adjustment in the
Construction Price, Construction Schedule, or Schedule of Values.
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14.04 Appeal of Decision. When the Commission's Representative issues a
schedule in accordance with the provisions of Section 1.02 or a written
decision in accordance with the provisions of Section 14.03, either A&S, the
commission or Esmor may appeal such schedule or decision by giving written
notice to the other parties with thirty (30) calendar days of receipt of the
Commission's Representative written decision of its intent to appeal the
Commission's Representative decision. Appeal of (i) the Commission's
Representative schedule including the merit of the claim with respect thereto,
or (ii) the Commission's Representative written decision, shall be settled by
arbitration in accordance with the procedures of Chapter 60-4 Florida
Administrative Code.
ARTICLE XV
SPECIAL COVENANTS
15.01 Right of Access. A&S hereby agrees that employees and agents of Esmor,
the Commission, the Corporation, the State, and the Trustee shall have the
right to enter upon the Project at any time for inspections and other purposes;
provided, however, that during the performance of Services the procedures,
described in Exhibit F hereto, to be provided by the Commission must be
satisfied in order for any persons who are not employees of A&S to be admitted
to the Project. The Governor, members of the Legislature, and all other
members of the Executive and judicial Departments of the State, as well ass any
other persons designated, shall be admitted into the Project at any time,
subject to compliance with the procedures set forth in Exhibit F.
15.02 Time of Essence. Time is of the essence in the performance of this
Contract.
15.03 Right to Audit. The Commission, the Corporation, and Esmor (if
requested to do so by the Commission and the Corporation) shall have the right
to examine and/or audit all financial
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transactions and data, reports, correspondence, and other documents relating to
the Project. All subcontracts shall contain similar audit provisions that
provide Esmor, the Commission and the Corporation with the right to examine and
audit all records pursuant to such subcontracts that relate to the Project.
15.04 Site Drawings. A&S shall maintain at the site of the Project one copy
of all record plans and Specifications, in good order and marked to record all
Changes made during construction of the Project. On or before final payment to
A&S hereunder, one contract set of the record Plans and Specifications as built
shall be provided to Esmor; provided, however, that the Plans and
Specifications furnished by A&S shall remain the property of the A/E to the
extent provided for in A&S's contract with the A/E and the Plans and
Specifications are not to be used by A&S or Esmor on any other Project.
15.05 Damage to Property. A&S shall not have any liability for loss or
damage to property owned or leased or otherwise in the possession, control or
custody of Esmor, the Corporation or the Commission, that is wrongly or
incorrectly on the premises of the Project, unless such damage is caused solely
or partially by A&S's fault or negligence, in which case A&S shall be liable
for only the portion so caused.
15.06 Consequential Damages. Neither party hereto nor any of their
subcontractors, suppliers or vendors of any tier providing equipment, materials
or services for the Project shall be liable to the other party for
consequential loss or damage, including but not limited to, loss of use, loss
of profit, loss of revenue, debt service or rental payments, and each party
hereby, to the extent allowed by law, releases the other and such
subcontractors, suppliers and vendors therefrom.
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15.07 Statutory Requirements. This contract shall be subject to F.S.
255.2502 and 255.2503.
ARTICLE XVI
MISCELLANEOUS
16.01 Counterparts. This Contract may be executed in any number of
counterparts and by the different parties hereto on separate counterparts.
16.02 Headings. The headings used herein are for convenience of reference
only and shall not constitute a part hereof or affect the construction of
interpretation hereof.
16.03 Severability. If any clause, provision, or section hereof be held
illegal, invalid, or unenforceable by any court, the illegality, invalidity, or
unenforceability of such clause, provision or section shall not affect any of
the remaining clauses, provisions, or sections hereof, and this Contract shall
be construed and enforced as if such illegal, invalid, or unenforceable clause,
provisions or section had not been contained herein.
16.04 Trustee. Trustee shall have no obligation, liability or responsibility
hereunder, its only obligations being set forth in the Indenture, and to make
disbursements as directed under the Indenture, and Trustee shall be fully
protected and shall incur no obligation, liability or responsibility hereunder
in making payments as directed under the Indenture.
16.05 Assignment. A&S shall not assign any portion of this Contract without
the express prior written consent of Esmor and the Commission and such consent
to assignment shall not be unreasonably withheld.
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16.06 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 the
exercise of any other rights or remedies provided by law or in equity, except
as expressly set forth herein.
16.07 Notices. All notices, certificates, requests, or other communications
hereunder shall be sufficiently given and shall be deemed given when mailed by
first class mail (except as otherwise specified herein), postage prepaid,
addressed as follows:
TO Esmore: Esmor Correctional Services, Inc.
1819 Main Street, Suite 1000
Sarasota, Florida 34236
Attn: James F. Slattery
TO A&S: Bison Industries, Inc., d/b/a
A&S Steel Buildings, Inc. of Amarillo
5744 Canyon Drive
Amarillo, Texas 79109
Attn: President
TO THE COMMISSION: Correctional Privatization Commission
Knight Building, Suite 312, Room B
2737 Centerview Drive
Tallahassee, Florida 32399-0950
TO THE CORPORATION: Florida Correctional Finance
Corporation
4030 Esplanade Way, Suite 315
Tallahassee, Florida 32399-0950
Attn: President
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Each party may, by notice given under this Section, designate any further or
different addresses to which subsequent notices, certificates, requirements, or
other communications shall be sent.
16.08 Amendment. This Contract shall not be amended except by written
agreement by the parties hereto.
16.09 Governing Law. This contract shall be governed by the laws of the
State of Florida and any suits for breach hereof shall be instituted and
maintained in any court of competent jurisdiction.
16.10 Terminology. All personal pronouns used herein whether used in
masculine, feminine, or neuter gender, shall include the singular.
16.11 Integration. This Contract sets forth the entire agreement and
understanding between the parties as to the subject matter hereof and merges
and supersedes all prior agreements, commitments, representations, writings,
negotiations, and discussions between them.
16.12 Inspection. A&S acknowledges that it has had an adequate opportunity
to inspect the Plans and Specifications, all legal requirements applicable to
the construction of the Project and the visible appearance of the site upon
which the Project will be constructed. A&S has not relied upon any
information, representations, or warranties furnished to A&S by Esmor except as
specifically set forth in this Contract and the Request for Proposals issued by
the Commission for the design, construction, financing and operation of 350 bed
facility.
16.13 Public Records. This contract may be unilaterally cancelled by Esmor
for the refusal by A&S to allow public access to all documents, papers,
letters, or other material subject to the
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provisions of Chapter 119, Fla. Stat., and made or received by A&S in
conjunction with the contract when such access has been determined by the
Commission to have been denied by A&S.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be duly
executed by its duly authorized representatives on the respective dates set for
below.
Esmor Correctional Services, Inc.
DATE: December 28, 1995 BY: /s/ James F. Slattery
-----------------------------
James F. Slattery, President
Bison Industries, Inc. d/b/a
A&S Steel Buildings, Inc.
DATE: December 28, 1995 BY: /s/ W.H. Attebury
-----------------------------
W.H. Attebury, President
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<PAGE> 1
EXHIBIT 10.40
THIS DESIGN AND CONSTRUCTION CONTRACT (hereinafter referred to as "Contract")
is made and entered this 01st day of December, 1995, by and between ESMOR
CORRECTIONAL SERVICES, INC., located at 1819 Main Street, Suite 1000, Sarasota,
Florida 34236, (hereinafter referred to as "CONTRACTOR"), the FLORIDA
CORRECTIONAL FINANCE CORPORATION, located at 4030 Esplanade Way, Suite 315,
Tallahassee, Florida 32399-0950 (hereinafter referred to as "CORPORATION") and
the STATE OF FLORIDA, CORRECTIONAL PRIVATIZATION COMMISSION, located at the
Office of the Executive Director; Building 4030, Suite 315; 4050 Esplanade Way;
Tallahassee, Florida 32399-0950 (hereinafter referred to as the "COMMISSION").
WITNESSETH:
WHEREAS, the CORPORATION, the COMMISSION and FIRST UNION NATIONAL BANK OF
FLORIDA (hereinafter referred to as the "TRUSTEE") intend to issue Certificates
of Participation to finance the acquisition, design, and construction of a 350-
bed, secure correctional facility for Youthful Offenders between the ages of
14-18 years old to be located in Pahokee, Florida (hereinafter referred to as
the "Project");
WHEREAS, CONTRACTOR has agreed to design and construct the Project;
WHEREAS, the COMMISSION has found that CONTRACTOR meets the qualifications of
Section 957.04, Florida Statutes, and has the requisite:
(a) Qualifications, experience and management personnel necessary to
carry out the terms of this Contract;
(b) The ability to expedite the siting, design and construction of
correctional facilities, including the proposed correctional
facility; and
(c) The ability to comply with applicable laws, court orders and
national correctional standards.
NOW, THEREFORE, for and in consideration of the premise and the mutual
covenants hereinafter contained, and subject to the conditions herein set
forth, the parties do hereby covenant, agree, and bind themselves as follows:
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ARTICLE I
DEFINITIONS
For the purposes hereof, the following terms shall have the meanings stated in
this Article I, except as otherwise expressly provided or unless the context
otherwise requires:
ACA Standards means the Standards for Adult Correctional Institutions (Third
Edition, January 1990, as the same may be modified, amended, or supplemented in
the future) published by the American Correctional Association.
Application for Payment means the form to be submitted by CONTRACTOR as
described in Article 7.02 hereof.
Architect/Engineer or A/E means the design professional COMMISSIONed by the
CONTRACTOR and approved by the COMMISSION.
Authorized Representative means any Person(s) at the time designated as such in
writing by any party hereto and furnished to the other party with respect to
matters covered hereby. In the case of CONTRACTOR, such designation shall be
signed by the President or Vice President of the CONTRACTORS. In the case of
the COMMISSION, its initial authorized representative(s) is the Chairperson of
the COMMISSION. In the case of the CORPORATION, its initial authorized
representative(s) for the purposes hereof is the President of the Corporation.
At any time, CONTRACTOR, the COMMISSION or the CORPORATION may designate any
other Person(s) as its Authorized Representative(s) by delivering to the other
parties a written designation signed in the case of CONTRACTOR, by CONTRACTOR's
President, or in the case of the COMMISSION and the CORPORATION, the Director
of that entity. Such designation shall remain effective until a new written
instrument is filed with or actual notice is given to the other party that such
designation has been revoked.
Certificate for Payment means the form to be submitted by A/E to TRUSTEE, as
described in Article 7.02 hereof.
Change means any addition to, deletion from, or modification of the Project or
the Services that is made in accordance with the provisions of Article VIII
hereof made by Change Order or Construction Change Directive.
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Claim means a demand or assertion by a party hereto seeking, as a matter of
right, adjustment or interpretation of contract terms, payment of money,
extension of time or other relief with respect to the terms hereof, including
any disputes or matters in question arising out of or related to the Contract
Documents which pertain to the requested relief hereunder, as described in this
sentence. All Claims must be made in writing, and the party making any such
Claims shall be responsible for substantiating same, and for making such Claims
in a timely manner as they arise.
Construction or Project Fund means the fund containing the financing proceeds
held by the TRUSTEE pursuant to the Indenture for the purpose of funding the
development of the Project.
Construction Schedule means, as to the Project, the schedule of performance
measures and benchmarks or milestones for construction of such Project, which
is set forth in Exhibit A attached hereto.
Contract Documents means this Contract, the Plans, Specifications and Related
Construction Documents, together with the Request for Proposals issued by the
COMMISSION and the CONTRACTOR's response thereto, all of which documents are
attached hereto by reference and become a part hereof.
Contract Price means all costs for services for the Project, and any
enlargements, improvements or extensions thereof or additions thereto, whether
incurred prior to or after the date of this Contract and, without limiting the
generality of the foregoing, shall include:
(a) The cost of the construction of all buildings and structures to be
used as or in conjunction with such Project;
(b) The cost of site preparation, including the cost of demolishing or
removing any buildings or structures, the removal of which is
necessary or incident to providing such Project;
(c) The cost of architectural, engineering, legal, accounting and
related services including the cost of preparation of plans,
specifications, studies, surveys, inspection, estimates of cost
and/or revenue;
(d) Costs incurred in connection with carrying out any inspections
required or made pursuant to statute, rule, or agreement of the
parties; and
(e) The cost of all machinery, equipment, furnishings, and facilities
necessary or incident to the equipping of each Project so that it
may be placed in operations.
For purposes of this contract, the Contract Price is established in the amount
of $14,891,061.00.
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Corporation or Issuer means the Florida Correctional Finance Corporation.
Effective Date means the date specified as such in Article 2.01 hereof.
Event of Default means any of the event or circumstances described in Section
12.01 with respect to CONTRACTOR or Article 12.03 with respect to the
COMMISSION.
Final Acceptance/Completion means, as to the Project, the Date as of which the
Project is accepted in accordance with Article 9.03, hereof.
Indenture means that certain Trust Indenture, dated December 01, 1995, between
the CORPORATION and the TRUSTEE and accepted by the COMMISSION.
Minimum Standards means all local, state and federal regulations, codes, laws,
requirements, or ACA Standards and court orders applicable to the Project.
Payments means the installments of the Contract Price agreed to be paid to
CONTRACTOR, in accordance with the Schedule of Values required in Article VII
hereof.
Person means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof.
Plans and Specifications means the surveys, plans and specifications prepared
for the Project having been accepted in writing by the COMMISSION, and which
are made a part hereof by reference.
Project means the 350-bed, secure correctional facility for Youthful Offenders
between the ages of 14-18 years old to be constructed by CONTRACTOR in Pahokee,
Florida, in accordance with the Plans and Specifications and the terms hereof.
Project Inspector means an individual or firm hired and compensated by the
COMMISSION to provide independent Project oversight for the COMMISSION.
Punchlist Items means a list of items of work to be completed and deficiencies
to be corrected, which items shall not affect the attainment of Substantial
Completion. Such items must be complete before Final Acceptance can take
place.
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RFP means the Request for Proposal issued by the COMMISSION on October 21, 1994
for the designing, financing, acquiring, leasing, constructing and operating of
three facilities designed to have a capacity of up to 350-beds and house
inmates sentenced or classified as Youthful Offenders within the custody of the
Florida Department of Corrections under Chapter 958, F.S.
Schedule of Values means the schedule of values to be used as a basis for
progress payments to be made to CONTRACTOR by TRUSTEE in accordance with
Section 6.02 of the Indenture during performance of Services, based on the then
current percentage-of-progress of construction of the Project and the value
assigned to the different components of construction of the Project, as set
forth in EXHIBIT B attached hereto.
Scheduled Completion Date means the date on or before expiration of the time
period specified in Section 6.02 hereof, and is the date by which the Project
must achieve Final Acceptance by the COMMISSION.
Services means all architecture and engineering design, procurement and
construction of the Project furnished by CONTRACTOR, including all labor,
materials and facilities, and all other things that are required to provide for
or arrange permitting for construction of the Project and construction of the
Project.
State means the State of Florida.
Substantial Completion means the date jointly certified by A/E, the Project
Inspector, CONTRACTOR and the COMMISSION that construction is so sufficiently
complete in accordance with the Contract Documents that the Project may be
utilized for its intended use, in accordance with Article IX, including that
the Project is operating and ready to accept state prisoners.
Term means the duration of the Contract as specified in Article 2.01.
Trustee means First Union National Bank of Florida.
ARTICLE II
TERM AND SCOPE
2.01 Effective Date and Term. This Contract shall become effective upon
its execution and delivery by the parties (the "Effective Date"), and shall
continue in full force and effect as to Project
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until expiration of the warranty and guaranty period provided for in Section
10.1 hereof (the "Term"), unless terminated prior thereto in accordance with
the provisions hereof.
2.02 Independent Contractor. For all purposes hereunder, CONTRACTOR is
an independent contractor and shall not be deemed an "employee" of the
COMMISSION. Neither CONTRACTOR nor any of its subcontractor,
sub-subcontractors, or vendors of any tier, nor any of their employees employed
at the Project shall be deemed to be agents, representatives, employees, or
servants of the COMMISSION in performance hereunder.
2.03 Subcontractors and Sub-subcontractors. CONTRACTOR, may subcontract
any portion of the Services to be performed hereunder, but shall not thereby be
relieved of any of its obligations set forth herein. At least five (5)
calendar days before the execution of any subcontract by CONTRACTOR, the
COMMISSION shall receive from CONTRACTOR the name of all subcontractors. The
COMMISSION may furnish CONTRACTOR with any comments with respect to any such
subcontractor and may disapprove of any subcontractor within said five (5) day
period, which disapproval shall be binding on CONTRACTOR. Such disapproval
must not be unreasonable. CONTRACTOR shall require that each subcontractor
perform its work in conformance with the Contract Documents. CONTRACTOR may
not change subcontractors without the prior written approval of the COMMISSION.
ARTICLE III
REPRESENTATIONS
3.01 Representations of Contractor. CONTRACTOR makes the following
representations as the basis for undertakings hereunder:
(a) CONTRACTOR is a Corporation duly created and existing, and is
qualified to do business under and pursuant to the laws of the
State;
(b) CONTRACTOR has due power and authority to enter into the
transactions contemplated by this Contract and to carry out its
obligations hereunder;
(c) CONTRACTOR has duly authorized the execution and delivery hereof
and, assuming due execution and delivery by CONTRACTOR, this
Contract constitutes a legal, valid, and binding agreement of
CONTRACTOR, enforceable against CONTRACTOR in accordance with its
terms;
(d) The Services performed by CONTRACTOR hereunder, including, without
limitation, the Plans and Specifications, shall conform with
applicable ACA Standards, applicable codes and
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standards, including but not limited to, Standard Building Code,
Standard Mechanical Code, Standard Plumbing Code, National Fire
Protection Association Electric Code 70, National Fire Protection
Association Life Safety Code 101, and applicable local, state and
federal laws, including, but not limited to, the laws concerning
labor, equal employment, safety and minimum wages;
(e) Neither the execution and delivery of this Contract, the
consummation of the transactions contemplated hereby, or the
fulfillment of or compliance with the terms and conditions hereof,
conflicts with or results in a Breach of the terms, conditions, or
provisions of any restriction or any agreement or instrument to
which CONTRACTOR is now a party or by which it is bound, or
constitutes a default under any of the foregoing; and
(f) The Contract Price established in Article 7.01 is sufficient to
construct and equip the project in accordance with the Contract
Documents.
3.02 Representations of the COMMISSION. The COMMISSION makes the
following representations as the basis for its undertakings hereunder:
(a) The COMMISSION is authorized by proviso for line item number 1433,
1994-95 General Appropriations Act, to enter into this Agreement;
(b) The COMMISSION has duly authorized the execution and delivery hereof
and, assuming due execution and delivery by the COMMISSION, the
Contract constitutes a legal, valid, and binding agreement of the
COMMISSION, enforceable against the COMMISSION in accordance with
its terms;
(c) The COMMISSION is not in violation of any provision of any law that
is in any manner material to its ability to perform its obligations
hereunder; and
(d) Neither the execution and delivery of this Contract, the
consummation of the transaction contemplated hereby, nor the
fulfillment of or compliance with the terms and conditions hereof,
conflicts with or results in a Breach of the terms, conditions, or
provisions of any restriction or any agreement or instrument to
which the COMMISSION is now a party or by which is bound, or
constitutes a default under any of the foregoing, or results in the
creation or imposition of any lien, charge, or encumbrance
whatsoever upon the Project, except as provided in the Related
Documents.
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ARTICLE IV
SERVICES
4.01 Architectural/Engineering, (A/E). CONTRACTOR shall perform, or
cause to be performed by properly registered and qualified architects and
engineers all necessary professional, architectural and engineering services to
design, prepare and detail the Plans and Specifications for the Project. A/E
will perform the following architecture/engineering services:
(a) Design the Project so as to comply with Minimum Standards, the
Request for Proposal, and CONTRACTOR's response to the proposal;
provide administration of the contract for construction of the
Project as described in the Contract Documents during construction
and until final acceptance by the COMMISSION;
(b) Visit the Project site at intervals appropriate to the then current
stage of construction in order to become generally familiar with the
progress and quality of the contemplated construction work and to
determine in general if the construction work is being performed in
accordance with the Contract Documents;
(c) Review and approve or take other appropriate action upon submittals
such as shop drawings, product data and samples, but only for the
purpose of checking for conformance with information given and the
design concept expressed in the Contract Documents, which reviews
shall not be for the purpose of determining accuracy or completeness
of any details such as dimensions and quantities, or for
substantiating instructions for installation or performance of
equipment or systems;
(d) Review CONTRACTOR's Applications for Construction Payments, and
based on its observations and evaluations thereof, certify the
amounts due CONTRACTOR in accordance with the Schedules of Values,
and issue Certificates for Construction Payment in such amounts, all
as set forth in Article VII hereof; and
(e) Receive and review all written warranties and related documents
required to be assembled by CONTRACTOR upon Substantial Completion,
and issue a final Certificate for Construction Payment upon
CONTRACTOR's compliance with the requirements of the Contract
Documents, all as set forth in Article VII hereof;
A/E will not have control over or charge of, and is not responsible for,
construction means, methods, techniques, sequences or procedures or for safety
precautions and programs in connection with the Services. Interpretations and
decisions of A/E will be consistent with the intent of, and reasonably
inferable from, the Contract Documents and will be in writing or in the form of
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drawings. Claims shall be referred initially to A/E for a decision in
accordance with the provisions of Article XIV.
4.02 COMMISSION's Representative. The following duties shall be
performed by a properly registered and qualified individual who is neither an
employee, agent, partner or business associate of CONTRACTOR in any manner.
Such individual may, at the option of the COMMISSION, be the Project Inspector.
Such person shall file with the COMMISSION, prior to undertaking any of the
following duties, a certificate of his independence from CONTRACTOR:
(a) Reject construction work that does not conform to the Contract
Documents and, when deemed necessary or advisable, require
additional inspection or testing of the construction work;
(b) Prepare Change Orders and Construction Change Directive initiated by
the COMMISSION or CORPORATION;
(c) Conduct inspections to determine, in conjunction with the
CONTRACTOR. A/E, the date or dates of Substantial Completion and
the date of Final Completion;
(d) Interpret and decide matters concerning performance under, and
requirements of, the Contract Documents upon written request of
either CONTRACTOR or the COMMISSION, which interpretation and
decision shall be made with reasonable promptness and within any
time limits agreed upon; provided, however, that if there is no
agreement concerning any such time limits, then COMMISSION's
Representative shall furnish such interpretations within five (5)
days after receipt of a written request therefor. Interpretations
or determinations of the intent of the plans and specifications
created by the A/E shall be issued only after consultation with the
A/E.
The authority of the Project Inspector or COMMISSION Representative to approve
change orders and to provide inspections to determine progress is specifically
for the benefit of the COMMISSION, and in no way is to be interpreted as
replacing the duties of the A/E as set forth in Article 4.01, above.
4.03 The Project Inspector will be the on-site Authorized Representative
of the COMMISSION and the CORPORATION during construction of the Project. The
Project Inspector has the authority to act on behalf of the COMMISSION and the
CORPORATION to the extent provided in the Contract Documents and its agreement
with the Commission. The Project Inspector, among other things, shall:
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(a) Validate amounts owing to CONTRACTOR based on observations at the
site and evaluations of the CONTRACTOR's Application for Payment;
(b) Approve proposed Changes to the Project;
(c) Provide inspections to determine progress, the date of Substantial
Completion and Final Completion;
(d) Reject construction work that does not conform to the Contract
Document and, when deemed necessary or advisable, require additional
inspection or testing of the construction work; and
(e) Review written warranties and other documents required to be
assembled by CONTRACTOR.
The authority of the Project Inspector or COMMISSION Representative to approve
change orders and to provide inspections to determine progress is specifically
for the benefit of the COMMISSION, and in no way is to be interpreted as
replacing the duties of the A/E as set forth in Article 4.01, above. The
COMMISSION's Project Inspector will be paid from proceeds of the Certificates
of Participation.
4.04 Construction. CONTRACTOR shall perform or cause to be performed,
the following construction services:
(a) Provide for permitting for construction of the Project;
(b) Provide for all construction supervision, inspection, labor,
materials (unless otherwise specified all materials to be
incorporated into the Project shall be new), tools, construction
equipment and subcontracted items necessary for the construction and
equipping of the Project in accordance with the Contract Documents,
including handling and warehousing of materials, supplies and
equipment;
(c) Maintain or cause to be maintained an adequate inspection system and
perform or cause to be performed such inspections and testing as
will ensure that construction of the Project is performed in
accordance with the requirements of the Contract Documents,
recording all such inspections so performed and providing a copy
thereof to A/E and the Project Inspector, which the COMMISSION, or
its Authorized Representatives may review at their discretion from
time to time; and
(d) Construction of the Project.
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4.05 Machinery, Equipment and Furnishings. CONTRACTOR shall procure or
cause to be procured for the Project all machinery, equipment and other
furnishings and fixtures considered capital assets that are incident and
related to the operation, maintenance, and administration of the Project, and
which are identified as being a part of the project in CONTRACTOR's response to
the RFP. Such machinery and equipment shall be included in the Construction
Costs of the Project and delivered prior to Final Acceptance of the Project.
To the extent a brand, type, model number and quantity for any such capital
asset was specified in the CONTRACTOR's response to the RFP submitted to the
COMMISSION (and not superseded by a specification on the Plans and
Specifications or this Contract), the designation in CONTRACTOR's proposal to
the COMMISSION shall control. On or before Final Acceptance, CONTRACTOR and the
COMMISSION or their Authorized Representatives shall jointly prepare a property
inventory listing each item and noting the condition of each such item of
machinery and equipment for the Project as provided by CONTRACTOR. Unless
otherwise specified herein, all furniture, fixtures and equipment incorporated
into the Project shall be new. The furniture, fixtures, and equipment as
indicated on EXHIBIT C will be provided by CONTRACTOR, and shall be identified
by location and include the quantity, description, unit cost, net cost,
freight, gross cost, and depreciation and term.
4.06 Commencement of Services. CONTRACTOR shall commence performance of
Services hereunder when the following conditions precedent have occurred:
(a) All necessary permits and approvals, including modification thereof,
that are preconditions to commencement of construction of the
Project have been issued;
(b) CONTRACTOR has furnished or caused to be furnished the certificates
of insurance evidencing that CONTRACTOR has obtained or caused to be
obtained the insurance required in Article XI and the RFP, as to the
Project, which certificates shall contain a provision that coverage
afforded under the policies will be canceled or changed until at
least 30 days prior written notice has been given to CONTRACTOR, the
CORPORATION and the COMMISSION;
(c) CONTRACTOR has furnished or caused to be furnished the payment and
performance bonds as required by Article 11.05 and the RFP.
(d) Notwithstanding delays caused by the provisions of this Article
4.05, the date for substantial completion set forth in Article 6.02
shall not be extended.
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ARTICLE V
INFORMATION AND ITEMS TO BE FURNISHED BY THE COMMISSION
5.01 Information. The COMMISSION shall provide A/E and CONTRACTOR with
all technical information relative to court orders, regulations and policy
changes, of which is or may become aware, that have been or may be issued
regarding the Project or are pertinent thereto, and such requirement shall be
ongoing during the term hereof; provided, however, that the COMMISSION shall
not have any liability nor responsibility whatever with respect to information
provided to CONTRACTOR regarding design of the Project or the Plans and
Specifications. The failure of the COMMISSION to provide the above information
shall not relieve CONTRACTOR from its duty to construct the Project in
conformance with all applicable laws, rules, regulations, applicable standard
or judicial ruling.
5.02 Title and Permits. The COMMISSION shall cooperate in a reasonable
and timely manner with CONTRACTOR, if necessary, for CONTRACTOR to secure, at
CONTRACTOR's expense, permits, environmental permits, and licenses necessary
for the engineering, procurement, construction and completion of the Project,
including licenses required to permit CONTRACTOR to do business in the
jurisdictions where Services are to be performed, and local building permits
and licenses that are required for actual construction of the Project; any
failure by the COMMISSION to cooperate in accordance with the foregoing may
result only in adjustment to the Construction Schedule and not an adjustment to
the Contract Price.
5.03 State Sales Tax. The parties hereto agree that the Project, as
constructed in accordance with this Contract, will be subject to state and
local sales taxes. The Contract Price of the Services as provided in Article
7.01 hereof includes the cost of such taxes and such costs will be paid by
CONTRACTOR from said amount, it being expressly understood that neither the
CORPORATION nor the COMMISSION shall have any liability with respect to the
payment of such taxes.
ARTICLE VI
CONSTRUCTION COMMENCEMENT AND MONITORING
6.01 Construction Commencement. Actual physical commencement of
construction shall not occur until the CONTRACTOR has delivered to the
COMMISSION the following:
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(a) An appraisal of the project performed by a M.A.I. appraiser approved
by the State of Florida Department of Environmental Protection,
which appraisal must indicate a value in at least the amount
indicated in the CONTRACTOR's response to the RFP;
(b) An environmental audit of the property on which the project will be
built, which audit must satisfy the requirements for properties to
be acquired in the name of the State of Florida;
(c) Presentation of partial construction drawings and project
specifications which show to the satisfaction of the COMMISSION,
that the project as designed conforms to the CONTRACTOR's response
to the RFP;
(d) The bonds required by Article 11.05 hereof;
(e) Within 30 days after the date of the COMMISSION's issuance of a
Notice to Proceed, the CONTRACTOR shall prepare and submit to the
Architect-Engineer a construction schedule in quadruplicate
graphically depicting the activities contemplated to occur as a
necessary incident to performance of the work required to complete
the project, showing the sequence in which the CONTRACTOR proposes
for each such activity to occur and the duration (dates of
commencement and completion, respectively) of each such activity.
An example of an acceptable form of such a construction schedule is
contained in Appendix A of the Corps of Engineers' Regulation ER
1-1-11 entitled "Network Analysis System", a copy of which is
available to the CONTRACTOR from the Architect/Engineers, upon
request. Other forms of construction schedules, such as "Timeline",
"Primavera", "Project Workbench", or "Superproject", which provide
the same kind of information and employ the same basic principles as
illustrated in Appendix A of the Corps of Engineers' Regulation ER
1-1-11 will be acceptable to the COMMISSION if used by the
CONTRACTOR; provided, however, that the Architect-Engineer shall
determine whether the construction schedule developed and submitted
by the CONTRACTOR meets the requirements stated above and such
determination shall be binding on the CONTRACTOR. Failure of the
CONTRACTOR to develop and submit a construction schedule as
aforesaid shall be sufficient grounds for the Architect-Engineer to
find the CONTRACTOR in substantial default and certify to the
COMMISSION that sufficient cause exists to terminate the contract or
to withhold any payment; and
(f) Following development and submittal of the construction schedule as
aforesaid, the CONTRACTOR shall, at the end of each calendar month
occurring thereafter during the period of time required to finally
complete the subject project, or at such earlier intervals as
circumstances may require, update and/or revise the construction
schedule to show the actual progress of the work performed and the
occurrence of all events which have affected the progress of
performance of the work already performed or will affect the
progress of the performance of the work yet to be performed in
contrast with the planned progress of
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performance of such work, as depicted on the original construction
schedule and all updates and/or revisions thereto as reflected in
the updated and/or revised construction schedule last submitted
prior to submittal of each such monthly update and revision. Each
such update and/or revision to the construction schedule shall be
submitted to the Architect/Engineer in duplicate. Failure of the
CONTRACTOR to update, revise, and submit the construction schedule
as aforesaid shall be sufficient grounds for the Architect-Engineer
to find the CONTRACTOR in substantial default and certify to the
COMMISSION that sufficient cause exists to terminate the contract or
to withhold payment to the CONTRACTOR until a schedule or schedule
update acceptable to the Architect-Engineer is submitted.
6.02 Completion Date. CONTRACTOR shall perform services to achieve
Substantial Completion of the Project on or before 365 days after the closing
of the sale of the Certificates of Participation referred to in Section II of
the Trust Indenture, as same may be adjusted in accordance with the terms
hereof. Within 45 days after Substantial Completion, the project shall achieve
Final Completion.
6.03 ACA Standards. The design and construction of the facility shall
meet the applicable standards of the American Correction Association and the
requirements of all applicable court orders and state law, and the Correct
Documents, including the RFP.
ARTICLE VII
COMPENSATION
7.01 Fixed Price. In consideration of the performance and subject to the
conditions of the Agreement, CONTRACTOR shall be paid solely from the Project
Fund for its services the fixed price of Fourteen Million Eight Hundred
Ninety-One Thousand Sixty-One Dollars and No Cents ($14,891,061.00). The
Contract Price shall be paid to CONTRACTOR in accordance with the Schedule of
Values set forth in EXHIBIT B, and the further provisions of Article VII
hereof. At the time of the Construction Commencement Date, CONTRACTOR shall be
paid a mobilization payment of Two Million Five Hundred Eighty-Three Thousand
Thirty-Seven and No Cents ($2,583,037.00), for costs incurred on or before the
Construction Commencement Date. This mobilization payment is part of the Fixed
Price.
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7.02 Payments.
(a) Progress Payments. A progress payment disbursement from the Project
Fund, subject to the procedures set forth herein, in the Indenture
and in the Related Documents which pertain to approval of
Construction Fund disbursements, shall be made to CONTRACTOR each
month in the amount of 95% of the portion of the contract sum
properly allocable to labor, materials and equipment incorporated in
to the work and 95% of that portion of the contract sum properly
allocable to materials and equipment suitably stored at the site or
at some other locations agreed upon in writing by the parties, less
the aggregate of previous payments. Five percent (5%) of the amount
of each Certificate for Payment shall be retained from CONTRACTOR
until the date of Final Completion. Disbursements from the Project
Fun shall be made to CONTRACTOR upon receipt by the TRUSTEE of an
Application or Requisition for payment executed by an authorized
officer of CONTRACTOR, together with a Certificate for Payment (the
form of both of which is attached hereto as EXHIBIT D) executed by
the A/E and concurred with by the CORPORATION and the COMMISSION in
accordance with Section 6.02 of the Indenture and subsection (c)
below. CONTRACTOR, the CORPORATION and the COMMISSION shall comply
with all requirements contained in the Indenture and Related
Documents with respect to Applications and Certificates for Payment.
Title to all material and work covered by Payments shall thereupon
become the sole property of the CORPORATION, subject to the
TRUSTEE's lien, if any; provided that (i) the work and material
shall remain in the possession and control of CONTRACTOR pending
final acceptance; (ii) no such progress payment or transfer shall
constitute an acceptance or begin the running of any time period
within the meaning of the performance bond; (iii) the work and
material shall remain covered by and insured pursuant to any
insurance policy, including builders risk and/or casualty loss
policy, required pursuant to this Construction Contract, and (iv)
this provision shall not be construed as relieving CONTRACTOR from
the responsibility for the care and protection of such material and
work or the restoration of any damaged construction work, or as a
waiver of the right of the COMMISSION to require the fulfillment of
all of the terms hereof. Notwithstanding any provision of this
subsection 7.02 (a) to the contrary, CONTRACTOR shall be deemed to
have a property interest in and to the material and work, prior to
the Final Acceptance of the Project, to the extent, if any, as may
be necessary to retain all the benefits and protections afforded to
the CORPORATION, the COMMISSION, the TRUSTEE, and CONTRACTOR by the
terms and provision of any insurance policy or performance bond.
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(b) There shall be a monthly progress meeting between the CORPORATION,
CONTRACTOR, the Project Inspector, and the A/E, at which time the
parties will consider and review CONTRACTOR's proposed Application
for Payment for that month. On the 25th day of each calendar month,
CONTRACTOR shall submit to the A/E and the COMMISSION an itemized
Application for Payment for the Project in accordance with the
Schedule of Values and based on the percentage of work completed and
materials delivered to the Project or stored off-site in a bonded
warehouse, less the amount of prior payments. The Application for
Construction Payment to be submitted by CONTRACTOR shall state:
(1) The requisition number;
(2) The amount to be paid;
(3) That each obligation evidenced thereby is presently due in
accordance with the Schedule of Values set forth in Exhibit
B, as same may have been adjusted in accordance with the
terms hereof, and has not been the basis of any previous
payment;
(4) That CONTRACTOR is not on the date thereof in default of any
of its representations, warranties, and covenants under the
Contract Documents;
(5) That CONTRACTOR warrants that title to all Project work
covered by the Application for Payment will have passed to
the CORPORATION no later than the time of payment.
CONTRACTOR further warrants that upon submittal of an
Application for Payment all Project work for which
Certificates for Payments have been previously issued and
payments received from the TRUSTEE shall, to the best of the
CONTRACTOR's knowledge, information and belief, be free and
clear of liens, claims, security interests or encumbrances
in favor or CONTRACTOR, subcontractors, material suppliers,
or other persons, or entities making a claim by reason of
having provided labor, materials and equipment relating to
the Project; and
(6) Invoices from suppliers for all furnishings, equipment and
fixtures which have been received by the CONTRACTOR and are
either stored on site or stored in a facility approved by
the COMMISSION.
(c) Certificate of Payment. Immediately upon receipt of an Application
for payment, the A/E shall forward a copy thereof to the Project
Inspector and the COMMISSION. Within seven (7) days after receipt
CONTRACTOR's Application for Payment, A/E shall notify the
CORPORATION, the Project Inspector, and the COMMISSION in writing of
its analysis of CONTRACTOR's basis for Application for Construction
Payment and that it either
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intends to issue a Certificate of Payment, or that it intends to
withhold certification in whole or in part. The CORPORATION, the
Project Inspector, and the COMMISSION shall evidence in writing
their concurrence or non concurrence with such A/E intended action
within three (3) business days after receipt of said notices. Any
disputes with respect to the amount of any Application or
Certificate for Construction Payment shall be resolved in accordance
with subsection (e) below. The issuance of a Certificate for
Construction Payment by A/E and signed by the CONTRACTOR, the
Project Inspector, the CORPORATION and the COMMISSION will
constitute a representation by A/E that based on observations at the
site up to the date of the Application for Payment, the construction
work has progressed to the point indicated and that, to the best of
A/E's knowledge, information and belief, the quality of the work is
in accordance with the Contract Documents.
(d) Upon TRUSTEE'S receipt of a Certificate for Payment and Application
for Payment as provided in this Article 7.02, TRUSTEE shall make
payment in accordance with Section 6.02 of the Indenture.
(e) A/E may refuse to certify payment and withhold a Certificate for
Payment in whole or in part, either on its own or because of the
CORPORATIONS's or Project Inspector's failure to concur therewith,
in accordance with subsection (C) above. If A/E is unable to
certify payment in the amount of the Application submitted by
CONTRACTOR, A/E will promptly notify CONTRACTOR thereof. If
CONTRACTOR, the COMMISSION, A/E, the CORPORATION and the Project
Inspector cannot agree on a revised amount A/E will, within five (5)
days of the aforesaid notification, promptly issue a Certificate for
Payment as to the undisputed amount, if any, with respect to which
A/E certifies and the CORPORATION and the Project Inspector concur
in writing with such payment, if any. Either A/E or the Project
Inspector may, because of subsequently discovered evidence or
subsequent observation, revise the whole part of a Certificate for
Payment previously issued as may be necessary because of:
(1) Defective work not remedied;
(2) Third party claims failed or reasonable evidence indicating
probable filing of such claims;
(3) Failure of CONTRACTOR to make payments promptly for labor,
materials or equipment or to subcontractor;
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(4) Reasonable evidence that the Project cannot be completed for
the unpaid balance of the Contract Price;
(5) Reasonable evidence that the Project will not be completed
within the Construction Schedule; or
(6) Persistent failure to carry out the Project work in
accordance with the Contract Documents.
Any dispute regarding the amount certified for payment by A/E shall
be subject to resolution in accordance with the provisions of
Article XV.
7.03 Source of Payment. Notwithstanding any other term of this Contract,
the parties hereto agree that the obligation to make any payment to CONTRACTOR,
shall be satisfied solely to the extent there are amounts on deposit in the
Project fund sufficient to pay the amount owed. Neither the COMMISSION nor the
CORPORATION shall be obligated to issue additional certificates of
participation (as defined in the Indenture) to complete the Project or to pay
any obligation due hereunder. CONTRACTOR agrees to look solely to the Project
fund for payment of any and all sums of whatever kind and nature, due on or to
become due under this Contract, not to exceed the contract Price. The
CORPORATION'S liability to CONTRACTOR for any sums due or to become due under
this contract is expressly conditioned and contingent upon the release of such
sums from the Project Fund.
ARTICLE VIII
CHANGES
8.01 Changes to Project. The provisions of this Article VIII shall apply
to any Change in the Project after execution of this Agreement. No change
shall be made that would cause the Project to fail to conform with applicable
Minimum Standards, the standards contained in the RFP and the CONTRACTOR's
response thereto, or nay other of the Contract documents. It is understood and
agreed that no substitutions for major components of the Projects specified in
the Contract Documents to be used in construction of the Project shall be made
by CONTRACTOR without the prior written approval of the COMMISSION, the A/E and
the Project Inspector.
8.02 Minor Changes. A/E may order minor changes to the Project that
enhance or does not detract from the reliability or quality of the Project or
any component parts thereof, provided that such Changes are not inconsistent
with the intent of the Contract Documents, do not substantially alter the
design or appearance of the Project or result in any adjustment to the Contract
Price,
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Schedule of Values, or Scheduled Completion Date. Prior written notice to the
CORPORATION, CONTRACTOR, the COMMISSION and the Project Inspector shall be
required.
8.03 Changes In the Work. During the course of the CONTRACTOR's
performance of the work necessary to complete the subject Project, certain
events may occur which have the effect of changing the conditions under which
the work is to be performed as specified and described in the Bidding
documents, and/or the nature and extent of the work as specified and described
in the Contract documents. The occurrence of such events may cause the
CONTRACTOR to incur greater or less cost and expense to perform the work
required to complete the subject Project than planned to be incurred in the
CONTRACTOR's proposal, in which event the CONTRACTOR or the COMMISSION shall
respectively be entitled to either an increase or decrease in the Contract Sum,
whichever is the case, to the extent such greater or less cost and expense
results, and in which event the party entitled to the benefit of any such
adjustment to the Contract Sum shall, within 21 calendar days from the first
occurrence of such event(s), present written demand therefore on the other
party through the COMMISSION. Should the CONTRACTOR and COMMISSION be unable
to settle and dispose of such demand within 30 calendar days from the date any
such claim is presented, upon terms and conditions mutually agreeable to the
CONTRACTOR and the COMMISSION, then such demand shall be referred to the
COMMISSION for determination, which determination shall be final and binding
upon the CONTRACTOR, unless appealed in accordance with applicable provisions
of the Contract Documents, and if the COMMISSION, upon considering any such
demand, determines that Contract Sum should be increased or decreased, the
determination of the amount of any such increase or decrease in the Contract
Sum shall be governed and controlled by strict adherence to the following
described guidelines and limitations, and neither the CONTRACTOR or the
COMMISSION shall be entitled to receive any monetary consideration beyond that
which is authorized herein below.
All adjustments at the Contract Sum resulting from a change in the work shall
be determined by the measure of actual, or estimated as the case may be,
out-of-pocket costs and expenses incurred or spared by the licensed builder
constructing the project for the CONTRACTOR, for labor, materials, equipment,
and equipment rental, plus overhead and profit thereon, for performing the
changed work:
(a) Labor costs shall be inclusive of all direct job site cost for
estimation, laying out, mechanics' wages and laborers' wages,
together with all payroll taxes, payroll assessments, and insurance
premiums paid for such labor;
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(b) All material costs, equipment costs and equipment rental costs shall
be trade discount rates, plus State Sales Tax, where applicable;
(c) Overhead and profit shall be inclusive of all project management,
project administration, superintendence, project coordination,
project scheduling and other administrative support functions and
services, whether performed on the job site or off the job site and
general support equipment. Overhead and profit shall be determined
as follows:
(1) Overhead and profit shall be calculated at the rate of 15%
of the builder's labor, material, equipment and equipment
rental costs, incurred or spared, as measured under the
preceding paragraphs for changes in the work performed by
the officers, employees or subsidiaries of the builder; and
(2) Overhead and profit shall be calculated at the rate of 7
1/2% of the builder's sub-contractors' actual labor,
material, equipment and equipment rental costs, incurred or
spared, as measured under the preceding paragraphs, plus 15%
of all such costs, as overhead and profit to the builder's
subcontractors, for all changes in the work performed by the
officers, employees or subsidiaries of the builder's
sub-contractors.
(d) In addition to the foregoing, all adjustments to the Contract Sum
resulting from a change in the work shall include all out-of-pocket
expenses, incurred or spared, in performing the changes in the work
for:
(1) Paying the premiums required to obtain Performance Bonds and
Labor and Material Payment Bonds called for by the Contract
Documents;
(2) Paying the fee(s) required for licenses or permits called
for by changes in the work;
(3) Paying for delivery of materials or equipment to the job
site;
(4) Paying for storage of materials or equipment before use
thereof in performing changes in the work, and
(5) Paying for testing required by the changes in the work.
(e) In the event CONTRACTOR demands an adjustment in the Contract Sum,
such demand shall be accompanied by paid receipts or other such
written evidence satisfactory to the COMMISSION itemizing the costs
and expenses incurred as a result of the event(s) constituting the
changes in the work.
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8.04 Delays. CONTRACTOR's remedies for delays in the progress of the
Work, or for changes in the Work, shall be limited to those provided in this
Article. The contractor's exclusive remedy for delays in performance of the
contract caused by events beyond its control shall be a claim for equitable
adjustment in the contract time; provided, however, inasmuch as the parties
expressly agree that overhead costs incurred by builder constructing the
Project for delays in performing the Work cannot be determined with any degree
of certainty, it is hereby agreed that in the event such builder is delayed int
he progress of the Work after Commencement of Construction for causes beyond
its control and attributable only to acts or omissions of COMMISSION, the
builder shall be entitled to compensation for overhead and profit costs either
(a) as a fixed percentage of the actual cost of the change in the Work, if the
delay results from a change in the work, or (b) if the delay results form other
than a change in the Work, at an amount for each day of delay calculated by
dividing an amount equal to a percentage of the original contract sum
determined on the graph enclosed as EXHIBIT G by the number of calendar days of
the original contract time.
In the event of a change in the Work, CONTRACTOR's claim for adjustments in
contract sum are limited exclusively to the builder's actual costs for such
change plus fixed percentages for overhead, additional profit and bond costs,
as specified in herein.
The forgoing remedies for delays and changes in the Work are the exclusion of
and thus eliminate, the total cost concept (that is, computing the builder's
additional costs for changes in Work or the costs of a delay in the progress of
the work by comparing the builder's total actual costs with its original
estimate, see McDevitt & Street Company v. Department of Management Services
State of Florida, 377 So.2d 191, (Fla. 1st-DCA 1979)) as method of determining
CONTRACTOR's costs associated with a change in the Work or with delay in the
progress of the Work.
No provision of this contract shall be construed as a waiver of sovereign
immunity by the COMMISSION.
8.05 Claims and Disputes. A claim is demand or assertion by one of the
parties seeking as a matter of right, adjustment or interpretation of Contract
terms, payment of money, extension of time or other relief with respect to the
terms of the Contract. The term "Claim" also includes other disputes and
matters in question between the COMMISSION and CONTRACTOR arising out of or
relating to the Contract. Claims must be made by written notice. The
responsibility to substantiate Claims shall rest with party making claim.
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No provision of the Contract Documents makes or is intended to make provision
for recovery by CONTRACTOR of damages for delay or for Breach of contract. All
claims, disputes or controversies under this contract shall be determined and
settled as provided herein.
8.06 Time Limits on Claim. Claims by either party must be made within
212 days after occurrence of the even giving rise to such Claim or within 21
days after the claimant first recognizes the condition giving rise to the
Claim, whichever is later. Claims must be made by written notice. An
additional Claim made after the initial Claim has been implemented by Change
Order will not be considered unless submitted in a timely manner.
8.07 Continuing Contract Performance. Pending final resolution of a
Claim unless otherwise agreed in writing the CONTRACTOR shall proceed
diligently with performance of the contract and the COMMISSION shall continue
to make payments in accordance with the Contract Documents.
ARTICLE IX
ACCEPTANCE
9.01 Substantial Completion of Project. When the CONTRACTOR considers
that the Project is substantially complete, he shall notify the A/E and Project
Inspector that the Project is ready for a Substantial Completion Inspection.
Upon receipt of CONTRACTOR'S notice, the A/E and Project Inspector or
COMMISSION Representative will make an inspection to determine whether the
Project is substantially complete, and will compile a list of items needing
completion. If such inspection discloses any item, whether or not included on
A/E's list, which is not in accordance with the requirements of the Contract
Documents, CONTRACTOR shall, before issuance of the Certificate of Substantial
Completion, complete or correct such item. Failure to include an item on such
list does not alter the responsibility of contractor to complete all work in
accordance with the Contract Document. CONTRACTOR shall then submit a request
for another inspection by the A/E and Project Inspector or COMMISSION
Representative to determine Substantial Completion. When the A/E and Project
Inspector or commission Representative determine that the Project is
substantially complete the A/E will prepare, and the Architect and CONTRACTOR
shall execute and deliver to the CORPORATION, the COMMISSION and the TRUSTEE a
Certificate of Substantial Completion. The Certificate of Substantial
Completion shall establish responsibilities of the CORPORATION and CONTRACTOR
for security, maintenance, heat, utilities and insurance. A list of any
outstanding items required for Final Acceptance of the
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Project (the "Punchlist Items") shall accompany the Certificate of Substantial
Completion. Warranties required by the Contract documents shall commence on
the date of Substantial completion unless otherwise provided in the Certificate
of substantial Completion. The Certificate of substantial Completion shall be
submitted to the CORPORATION, Project Inspector, the COMMISSION and CONTRACTOR
for their written acceptance. The Certificate of Substantial Completion shall
include a certificate by the Project A/E that the project as constructed has
been constructed in accordance with the contract documents and the record
drawings for the Project.
9.02 Punchlist Items. Upon Substantial Completion of the Project,
CONTRACTOR shall remain responsible for any Punchlist Items that are required
for Final Acceptance of the Project. CONTRACTOR shall complete all such
Punchlist Items within 45 calendar days after Substantial Completion, unless
the parties agree otherwise. CONTRACTOR shall provide the COMMISSION, or its
designees, with all equipment manuals and a record set of drawings.
9.03 Final Completion. Upon receipt of a Completion Certificate issued
by the A/E, together with an application for Final Payment, the A/E, Project
Inspector and/or other Authorized Representative of the COMMISSION will
promptly make an inspection of the Project and, when the Project is found to be
completed and in accordance with the Contract Documents, shall issue an
acceptance certificate. At such time the A/E will promptly issue a final
Certificate for Construction Payment, and arrange for the issuance of a
Certificate of Occupancy from the appropriate agency. Final Acceptance shall
occur when the Architect's Final Certificate for Construction Payment is
approved by the CORPORATION and the COMMISSION, the A/E has issued his
certification and a Certificate of Occupancy has been issued. The Architect's
final Certificate for Construction Payment will constitute a further
representation that conditions listed in Subparagraph 9.04 precedent to
CONTRACTOR's being entitled to final payment have been fulfilled.
9.04 Final Payment. Neither the final payment nor the remaining retained
percentage shall become due until CONTRACTOR submits to A/E for transmittal to
the CORPORATION and the COMMISSION (1) an affidavit that all payrolls, bills
for materials and equipment, and other indebtedness connected with the work for
which the CORPORATION or its property might in any way be responsible, have
been paid or will be paid or otherwise satisfied within 30 days after receipt
of final payment, (2) consent of surety to final payment, (3) complete and
legally effective releases or waivers (satisfactory to the CORPORATION and the
COMMISSION) of all liens arising out of or filed in connection with the
Project. (4) the inventory required by Article 4.05 hereof. If any
subcontractor or supplier refuses to furnish a release or waiver as required
herein,
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CONTRACTOR, if approved by the COMMISSION and the CORPORATION, may furnish a
bond satisfactory to the CORPORATION and the COMMISSION to indemnify the
CORPORATION against any such claim. Following Final Acceptance, CONTRACTOR
shall submit to A/E, the CORPORATION and the COMMISSION a statement showing the
balance of the Contract Price remaining due, excluding the amount held as
retainage, and the undisputed amount of such request shall be paid to
CONTRACTOR in accordance with Section 6.02 of the Indenture. It is understood
and agreed however that the amount held as retainage shall not be paid to
CONTRACTOR until 30 days after the date of Final Acceptance. Final Payment
hereunder shall not constitute an acceptance of any work not in accordance with
the Contract Documents, and shall not constitute a waiver of any claims against
CONTRACTOR.
ARTICLE X
RESPONSIBILITIES AND LIABILITIES OF CONTRACTOR
10.01 Warranties. In addition to any other warranties of the CONTRACTOR
contained and/or required herein, CONTRACTOR and its subcontractors, suppliers
and vendors of every tier shall perform Services in accordance with good
engineering and construction practices and in accordance with approved
practices and customs and Minimum Standards. CONTRACTOR will provide to the
CORPORATION all warranties and guaranties required by the Plans and
Specifications, which warranties and guaranties shall be furnished by its
subcontractors and vendors of every tier, and all such warranties and
guaranties shall be addressed to and in favor of the CORPORATION and the
TRUSTEE, in accordance with the Indenture, and delivered to the CORPORATION at
Substantial Completion.
The Services shall be provided and the Project shall be constructed, erected,
and assembled in a good and workmanlike manner, in accordance with the Plans
and Specifications. CONTRACTOR warrants and guarantees all work required by
this contract against defects in materials, equipment, and workmanship for one
(1) year from the date of Substantial Completion. Upon receipt of written
notification required by Section 10.02, CONTRACTOR shall remedy any defects in
materials, equipment or workmanship or any other deficiencies occurring within
the warranty and guarantee period.
10.02 Deficiencies. After discovery of any defects or deficiencies in
the Project, the CONTRACTOR shall correct it promptly after receipt of written
notice from the A/E, COMMISSION, Project Inspector or CORPORATION to do so.
The one year warranty period shall be extended with respect to portions of the
work first performed after Substantial Completion
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by the period of time between substantial Completion and the actual performance
of the work. This obligation shall survive final acceptance of the project and
termination of the contract.
10.03 Warranties and Implied Warranties. The CONTRACTOR warrants to the
COMMISSION, the A/E and the CORPORATION that materials and equipment furnished
under the Contract will be of good quality and new unless otherwise required or
permitted by the Contract Documents, that the Project will be free from defects
not inherent in the quality required or permitted, and that the Project will
conform to the Contract Documents. Work not conforming to these requirement,
including substitutions not properly approved and authorized, may be considered
defective. The CONTRACTOR's warranty excludes remedy for damage or defect
caused by abuse, modifications not executed by the CONTRACTOR, improper or
insufficient maintenance, improper operation, or normal wear and tear under
normal usage. If required by the A/E, the CONTRACTOR shall furnish
satisfactory evidence as to the kind and quality of material and equipment.
EXCEPT AS MAY BE PROVIDED IN THIS ARTICLE X, THERE ARE NO IMPLIED WARRANTIES OR
GUARANTEES OR CONTRACTOR THAT EXTEND BEYOND THOSE EXPRESSED IN THIS CONTRACT,
IF ANY, AND CONTRACTOR DISCLAIMS, AND CONTRACTOR WAIVES, ANY IMPLIED WARRANTY
OR WARRANTIES IMPOSED BY LAW, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
MERCHANTABILITY, OF FITNESS FOR PARTICULAR PURPOSE, AND OF CUSTOM AND USAGE.
10.04 Liquidated Damages. In as much as failure to complete the Project
within the time fixed above will result in substantial injury to the
COMMISSION, and as damages arising from such failure cannot be calculated with
any degree of certainty, it is hereby agreed that if the Project is not
Substantially Completed by the date established as the Completion Date in
Article 6.02 above, or within such further time, if any, as in accordance with
the provisions of the Contract Documents shall be allowed for such Substantial
Completion, the CONTRACTOR shall pay to COMMISSION as liquidated damages for
such delay, and not as a penalty, Two Thousand Five Hundred Seventy-One Dollars
and No Cents ($2,571.00) for each and every calendar day elapsing between the
date fixed for substantial completion above and the date such substantial
completion shall have been fully accomplished. It is also hereby agreed that
if, following the issuance of the Substantial Completion Certificate, the
project is not finally completed within the time requirement of Article 6.02
above and the Contract Documents, the CONTRACTOR shall pay to the COMMISSION as
liquidated damages and not as a penalty, for each day of such delay, the sum of
Two Hundred and Fifty Dollars and No Cents ($250.00). This provision of
liquidated damages for delay shall in not manner affect the COMMISSION's right
to terminate the contract as provided in the Contract Documents.
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The COMMISSION's exercise of the right to terminate shall not release the
CONTRACTOR from its obligation to pay said liquidated damages in the amounts
set out above.
The COMMISSION is entitled to completion of the Project within the time fixed
above or within such further time, if any, as may be allowed in accordance with
the provisions of the contract. In the event of termination of the contract by
the COMMISSION for cause prior to completion as provided in the Contract
Documents, the CONTRACTOR, shall be liable to the COMMISSION for the expenses
for additional managerial and administrative services provided in the Contract
Documents and also for the per diem liquidated damages agreed above:
(1) For each day he is in arrears in his work at the time of said
termination as determined by the A/E, and
(2) For each day of 30 additional calendar days hereby stipulated and
agreed to be the time it will require the COMMISSION to effect
another contract for completion of the project and for resumption of
work thereon.
Provided, however, that the sum of 1 and 2 above shall not exceed the number of
days beyond the original agreed completion date, or any extension thereof as
herein provided, reasonably required for completion of the project.
It is further agreed that the COMMISSION may deduct from the balance retained
by the COMMISSION, under the provisions above, the liquidated damages
stipulated therein for delay or termination, as the case may be, or such
portions thereof as the said retained balance will cover.
10.05 Indemnification. The CONTRACTOR hereby assumes entire
responsibility and liability for any and all damages or injury of any kind or
nature whatever (including death resulting therefrom) to all persons, whether
employees of the CONTRACTOR or otherwise, and to all property caused by,
resulting from, arising out of or occurring in connection with the execution of
this contract and/or the work performed by the CONTRACTOR. If any claims for
such damage or injury (including death resulting therefrom) be made or
asserted, whether or not such claims are based upon CONTRACTOR's, or its
subcontractor's (if any) active or passive negligence or participation in the
wrong, or upon any alleged Breach of any statutory duty or obligation on the
part of the above parties, the CONTRACTOR agrees to indemnify, defend and save
harmless, the State, the COMMISSION and CORPORATION, their officers, agents,
servants and employees from and against any and all such claims, and further
from and against any and all loss, cost expense, liability, damage or injury,
including legal fees and disbursements, that the State, COMMISSION or
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CORPORATION, their officers, agents, servants or employees may directly or
indirectly sustain, suffer, or incur as a result thereof and the CONTRACTOR
agrees to and does hereby assume, on behalf of the State, COMMISSION and
CORPORATION, their officers, agents, servants and employees, the defense of any
action at law or in equity which may be brought against the State, COMMISSION
or CORPORATION, their contractors (if any), its officers, agents, servants or
employees, arising by reason of such claims and to pay on behalf of the State,
COMMISSION or CORPORATION, their officers, agents, servants and employees, upon
demand of either of them, the amount of any judgement that may be entered
against them, individually, jointly or severally, its officers, agents,
servants of employees in any such action.
As part of the CONTRACTOR's assumption of all responsibility and liability for
any and all damage or injury as detailed above, CONTRACTOR further agrees to
hold harmless, defend and indemnify the State, COMMISSION and CORPORATION for
any loss, expense, recovery or settlement, including counsel fees and costs of
defense, which arise form any demand, claim (whether frivolous or not) or suit
which may be asserted or brought against the State, COMMISSION, CORPORATION or
CONTRACTOR as a result of any injury or damage to any person or persons
(including death) or property (i) allegedly caused by, resulting from, arising
out of, or occurring in connection with the furnishing of any goods, equipment
or services or the performance or preparation for performance of any of the
work or any duties of the CONTRACTOR hereunder, or incidental or pertaining
thereto, and (ii) whether or not such injury or damage is due to or chargeable
to the COMMISSION or any contractor or subcontractor under a contract for which
the goods or services herein ordered are required, including, but not limited
to, any claim based on liability without fault for injury caused by defective
goods supplied by CONTRACTOR. CONTRACTOR also agrees to assume responsibility
for, hold harmless, defend and indemnify the State, COMMISSION and CORPORATION
for payment of any expenses, costs (including delay costs), direct and
consequential damages, penalties, taxes or assessments (including punitive
damages), including counsel fees and costs of defense, which may be imposed or
incurred (a) under any Federal, State, or local law, ordinance or regulation
upon or with respect to any compensation of any person employed by the
CONTRACTOR, and (b) under any Federal, State or local law, ordinance or
regulation upon or with respect to discrimination in employment against any
individual employed by the Contractor on the basis of race, color, religion,
sex, or national origin, and (c) under any Federal, State, or local law,
ordinance or regulation upon or with respect to any compensation of any person
for claims or civil actions alleging deprivation of right, privilege or
immunity secured by the United States Constitution and laws pursuant to 42 USC
Section 1983 or similar statutes as well as claims for attorneys fees brought
pursuant to 42 USC Section 1988 or similar statutes.
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10.06 Patent Indemnity. CONTRACTOR shall pay all royalties and license
fees and shall defend al suits on claims for infringement of any patent right
and shall indemnify and save CONTRACTOR and its officers, agents, and employees
harmless from and against all claims for patent infringement based on materials
or equipment incorporated into the Project.
ARTICLE XI
PROJECT INSURANCE AND BONDS
11.01 INSURANCE. CONTRACTOR shall secure and retain, or shall cause to be
secured and retained, such policy or policies of insurance as are required by
the RFP and other Contract Documents, including (I) coverage against all
claims; (ii) coverage to protect against all claims arising from Services
performed hereunder; and (iii) coverage to protect from actions by a third
party against CONTRACTOR as a result of this Contract, and (iv) builders
risk/casualty loss coverage for the Project. The insurance required by this
Section 11.01 shall be written for not less than any limits of liability
specified herein and in Related Documents, or required by law, whichever is
greater, and shall include "coverage for liabilities assumed by this contract",
as applicable to the obligations of CONTRACTOR hereunder. CONTRACTOR shall
submit insurance as shown on EXHIBIT E to COMMISSION for review and approval,
which approval shall not be unreasonably withheld, but all insurance carriers
must have an A. B. Best & Co. Rating of at least "A". The insurance coverage
provided by CONTRACTOR hereunder shall name the TRUSTEE and the COMMISSION (as
their interests may appear) as additional insureds and loss payees.
11.02 Amounts and Types. During the performance of Services hereunder,
CONTRACTOR shall maintain insurance for the mutual protection and benefit of
it, the CORPORATION and the COMMISSION to cover claims that my arise out of or
result from CONTRACTOR's Services hereunder, whether same be by CONTRACTOR or a
subcontractor or by anyone directly or indirectly employed by any of them, or
by anyone for whose acts any of them may be liable; and such insurance shall
include the types and shall be or amounts set forth on the attached EXHIBIT E.
Such insurance set forth on the attached EXHIBIT E shall cover claims for
damages insured by usual personal liability coverage that are sustained (a) by
any person as a result of an act directly or indirectly related to the
employment of such person by CONTRACTOR, or (b) by any other person; and
(c)claims for damages because of injury to or destruction of tangible property,
including loss of use resulting therefrom. Compliance with the foregoing
insurance requirements
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<PAGE> 29
shall not relieve CONTRACTOR from any liability under the indemnity provisions
of Article X hereof.
11.03 Cancellation. The COMMISSION, the CORPORATION, TRUSTEE will be
given written notice 30 days prior to any cancellation of any insurance
required to be maintained hereunder. CONTRACTOR shall be diligent in replacing
any canceled insurance and, subject to the next sentence hereof, shall replace
such insurance in a timely fashion to avoid any potentially uninsured
liabilities of the type required to be covered by insurance. In the event that
any insurance described herein or any portion thereof becomes commercially
unavailable, CONTRACTOR shall obtain, with the COMMISSION and the CORPORATION
approval, such suitable replacement insurance as may be available and the
insurance coverage required by this Contract shall be modified accordingly.
11.04 Subcontractors. CONTRACTOR shall require all subcontractors to
obtain, maintain, and keep in force insurance coverage in accordance with
accepted industry standards during the time they are engaged hereunder.
11.05 Bonds. CONTRACTOR shall cause to be furnished by Subcontractor,
performance and payment bonds, each in the amount of $14,891,061.00 naming the
COMMISSION, CORPORATION and CONTRACTOR as Co-obligees. The bonds shall be
executed by a corporate surety or corporate sureties that are acceptable to the
COMMISSION, and duly authorized to do business in the State of Florida, and are
executed on forms approved by the COMMISSION. If a surety upon any bond
furnished in connection herewith becomes insolvent, or otherwise not authorized
to do business in this State, CONTRACTOR or Subcontractor shall promptly
replace the bond or furnish equivalent security acceptable to the COMMISSION.
ARTICLE XII
EVENTS OF DEFAULT AND REMEDIES
12.01 Default by Contractor. The following events shall be considered
events of default by the Contractor:
(a) A material failure to keep, observe, perform, meet or comply with
any covenant, agreement, term or provision of this contract, or of
any of the contract Documents, which are to be kept, observed, met,
performed or complied with by the CONTRACTOR.
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<PAGE> 30
(b) If the CONTRACTOR shall (I) admit in writing its inability to pay
its debts: (ii) make a general assignment for the benefit of
creditors; (iii) suffer a decree or order appointing a receiver or
trustee for it or substantially all of its property to be entered
and, if entered without its consent, not to be stayed or discharged
within 60 days; (iv) suffer proceedings under any law relating to
bankruptcy, insolvency, or the reorganization of relief of debtors
to be instituted by or against it and, if contested by it, not to be
dismissed or stayed within 60 days; or (v) suffer any judgment, writ
of attachment or execution, or any similar process to be issued or
levied against a substantial part of its property which is not
released, stayed, bonded, or vacated within 60 days after issue or
levy.
12.02 The COMMISSION's Remedies. Upon an Event of Default by CONTRACTOR,
the COMMISSION, without prejudice to its other rights and remedies hereunder,
shall be entitled to terminate this Contract for cause and the procedure
outlined in the performance bond for completion of the construction work shall
be followed; provided, however, that no default by CONTRACTOR shall constitute
an Event of default unless and until:
(a) The COMMISSION has given at least ten (10) business days prior
written notice thereof to CONTRACTOR specifying that a default(s)
has occurred that will, unless corrected, constitute a material
breach and cause termination hereof; and
(b) CONTRACTOR either (i) has not corrected such default or has not
initiated reasonable steps to do so within said ten (10) business
day period, or (ii) if such reasonable steps have been initiated
within such period, did not thereafter continue to take reasonable
steps to correct such default within such time period as CONTRACTOR
and the COMMISSION shall have previously agreed in writing to
constitute a sufficient time within which to accomplish such
correction.
12.03 Other Default. The following shall constitute Events of Default on
the part of the COMMISSION and/or the CORPORATION:
Failure by the COMMISSION and/or the CORPORATION to observe and
perform any covenant, condition, or agreement on its part to be
observed or performed, or its failure or refusal to substantially
fulfill any of its obligations hereunder, unless caused by the
default of CONTRACTOR, which action continues for twenty days after
receipt of written notice from the CONTRACTOR specifying that a
default has occurred that will, unless corrected, constitute a
material Breach hereof.
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12.04 Remedy of Contractor. Upon an Event of Default by the COMMISSION or
the CORPORATION, CONTRACTOR shall be entitled to take the following remedial
steps, provided that the default has not been cured prior to termination of the
time periods indicated below:
With respect to the failure of the COMMISSION or the CORPORATION to
pay any installment of the Contract Price within thirty calendar
days from the due date thereof, CONTRACTOR may suspend its
performance of Services (and the Construction Schedule shall be
adjusted accordingly); and, if such failure to pay continues for a
period of 30 days thereafter, terminate this Contract, which
termination shall be without prejudice to CONTRACTOR's other rights
and remedies hereunder.
ARTICLE XIII
TERMINATION
13.01 Termination Payment. Upon termination of CONTRACTOR's Services
hereunder CONTRACTOR shall be paid, in accordance with the provision of Article
VII, for all work satisfactorily performed in accordance with the Contract
Documents up to and including the date of termination, including any earned
retainage and materials purchased, delivered or stored but not installed, less
the cost for correcting any work that was not satisfactorily performed in
accordance with the Contract Documents, and less any Liquidated damages
applicable to CONTRACTOR. In no event shall CONTRACTOR be paid monies for a
portion of the Project in excess than the values set forth in the Schedule of
Values attached hereto as EXHIBIT B.
13.02 Contractor Responsibility. After receipt of a notice of termination
and unless otherwise directed by the COMMISSION, CONTRACTOR shall immediately
proceed with the following obligations:
(a) Stop work as specified in the notice;
(b) Place no further contracts or orders for materials or Services;
(c) Properly secure the Project site; and
(d) Deliver to the COMMISSION or the CORPORATION all supplies,
equipment, and materials for which CONTRACTOR has been reimbursed.
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<PAGE> 32
ARTICLE XIV
RESOLUTION OF CLAIMS AND DISPUTES
14.01 Binding Effect. The dispute resolution procedures contained in this
Article XIV shall govern disputes between CONTRACTOR and the COMMISSION and the
CORPORATION. Disputes resolved in accordance with such procedures shall be
binding on CONTRACTOR, the COMMISSION, and the CORPORATION.
14.02 Review. All Claims as defined herein must be submitted in writing
to the COMMISSION's Representative designated in Article 4.02 herein, not later
than 30 calendar days from the date of the occurrence of the event which gives
rise to the Claim. Failure to submit any claim to the COMMISSION's
Representative within such thirty calendar day notice period will bar any
relief hereunder. The COMMISSION's Representative will review Claims and take
on or more of the following preliminary actions within ten (10) days (the
"review period") of receipt thereof:
(1) Request additional supporting data from the claimant;
(2) Reject the Claim whole or in part, and request additional supporting
data from the claimant;
(3) Reject the Claim in whole or in part, stating reasons form
rejection;
(4) Recommend approval of the Claim by the other party; or
(5) Suggest a compromise.
If COMMISSION's Representative does not believe that the dispute can be
resolved within the review period and the resolution period reference below, it
shall submit a schedule to the parties indicating when it expects to take
action and the parties shall agree thereto or proceed in accordance with the
provisions of Article 14.03. The COMMISSION's Representative shall also notify
CONTRACTOR if the claim involves an adjustment in the Contract Price,
Construction schedule and/or Schedule of Values.
14.03 Decision. If, after a Claim has been submitted to the COMMISSION's
Representative, it is resolved by mutual agreement of the parties, the
COMMISSION's Representative will prepare or obtain appropriate documentation
thereof. If a claim is not resolved by mutual agreement of the parties, the
party making the Claim shall within ten (10) (the "resolution period") after
the COMMISSION's Representative's preliminary response, take one or more of the
following actions in writing: (1) submit additional supporting date requested
by COMMISSION's Representative, (2) modify the initial claim, or (3) notify
COMMISSION's Representative that it affirms the initial
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<PAGE> 33
Claim. If a Claim has not been resolved in accordance with the foregoing,
COMMISSION's Representative will notify the parties in writing that a decision
will be made within seven (7) days after expiration of the resolution period,
which decision will be final and binding on the parties, unless appealed in
accordance with Article 14.04, in which case COMMISSION'S Representative will
render to the parties and the TRUSTEE is written decision relative to the
Claim, including, subject to Section 7.03 hereof, any adjustment in the
Construction Costs, Construction Schedule, or Schedule of Values.
14.04 Appeal of Decision. When COMMISSION's Representative issues a
schedule in accordance with the provisions of Article 14.02 or a written
decision in accordance with the provisions of Article 14.03, either the
COMMISSION or CONTRACTOR may appeal such schedule or decision by giving written
notice to the other party within 30 calendar days or receipt of COMMISSION's
Representative's written decision of its intent to appeal COMMISSION's
Representative's decision. Appeal of (i) the COMMISSION's Representative's
schedule including the merit of the Claim with respect thereto, or (ii)
COMMISSION's Representative's written decision, shall be settled in accordance
with the procedures of Chapter 60-4, Florida Administrative Code.
ARTICLE XV
SPECIAL COVENANTS
15.01 Right of Access. CONTRACTOR hereby agrees that employees and agents
of the COMMISSION, the CORPORATION, the State, and the TRUSTEE shall have the
right to enter upon the Project at any time for inspections and other purposes;
provided, however, that during the performance of Services the procedures,
described in EXHIBIT F hereto, to be provided by the COMMISSION must be
satisfied in order for any persons who are not employees of CONTRACTOR to be
admitted to the Project. The Governor, members of the Legislature, and all
other members of the Executive and Judicial Departments of the State, as well as
any other persons designated, shall be admitted into the Project at any time,
subject to compliance with the procedures set forth in EXHIBIT F.
15.02 Time of Essence. Time is of the essence in the performance of this
Contract.
15.03 Right to Audit. The COMMISSION and the CORPORATION or their agents,
designees or duly Authorized Representatives shall have, at all times, the right
to examine and/or audit all financial transactions and data, reports,
correspondence, and other documents relating to the
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<PAGE> 34
Project. All subcontracts shall contain similar audit provisions that provide
the COMMISSION and the CORPORATION with the right to examine and audit all
records pursuant to such subcontracts that relate to the Project.
15.04 Site Drawings. CONTRACTOR shall maintain at the site of the Project
one copy of all record Plans and Specifications, in good order and marked to
record all Changes made during construction of the Project. On or before final
payment to CONTRACTOR hereunder, one contract set of the record Plans and
Specifications as built shall be provided to the COMMISSION; provided however,
that the Plans and Specifications furnished by CONTRACTOR shall remain
CONTRACTOR's property and they are not to be used by the COMMISSION on any
other Project.
15.05 Damage to Property. CONTRACTOR shall not have any liability for
loss or damage to property owned or leased or otherwise in the possession,
control or custody of the CORPORATION or the COMMISSION, that is wrongly or
incorrectly on the premises of the Project, unless such damage is caused solely
or partially by CONTRACTOR's fault or negligence, in which case CONTRACTOR
shall be liable for only the portion so caused.
15.06 Consequential Damages. Neither party hereto shall be liable to the
other party for consequential loss or damage, including but not limited to,
loss of use, loss of profit, loss of revenue, debt service or rental payments,
and each party hereby, to the extent allowed by law, releases the other and
such subcontractors, suppliers and vendors therefrom.
15.07 Financing Authorization. The use of tax exempt financing through
the issuance of certificates of participation or other tax exempt financing
methods approved by the COMMISSION is hereby authorized. Such issuance shall
be in substantially the form of the Lease Agreement with the Option to Purchase
between the CORPORATION and the COMMISSION dated as of December 01, 1995 and
the Trust Agreement by and among the TRUSTEE, the CORPORATION and the
COMMISSION, dated as of December 01, 1995, which documents are hereby
incorporated herein and made a part hereof by reference, which are hereby
approved, subject to such changes, insertions and omissions and such filling of
blanks therein a be approved in a manner consistent with the provisions of the
resolution approving the Construction Contract and made a part hereof and such
other documentation as shall be approved by the COMMISSION.
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It is expressly understood and agreed that CONTRACTOR and not the COMMISSION
shall obtain the financing required to design and construct the Project and the
COMMISSION shall cooperate to the extent needed in order to facilitate the
financing.
It is expressly understood and agreed that neither the State of Florida nor the
COMMISSION nor any other agency of the State shall be obligated for any lease
purchase payments that exceed the amount of the current annual appropriation.
15.08 Statutory Requirements. This contract shall be subject to F.S.
225.2502 and 255.2503.
ARTICLES XVI
MISCELLANEOUS
16.01 Counterparts. This Contract may be executed in any number of
counterparts and by the different parties hereto on separate counterparts.
16.02 Headings. The headings used herein are for convenience of reference
only and shall not constitute a part hereof or affect the construction or
interpretation hereof.
16.03 Severability. If any clause, provision, or section hereof be held
illegal, invalid, or unenforceable by any court, the illegality, invalidity, or
unenforceability of such clause, provision or section shall not affect any of
the remaining clauses, provisions, or sections hereof, and this Contract shall
be construed and enforced as if such illegal, invalid, or unenforceable clause,
provisions or section had not been contained herein.
16.04 Trustee. TRUSTEE shall have no obligation, liability or
responsibility hereunder, its only obligations being set forth in the
Indenture, and to make disbursements as directed under the Indenture, and
TRUSTEE shall be fully protected and shall incur no obligation, liability or
responsibility hereunder in making payments as directed under the Indenture.
16.05 Assignment. The CORPORATION shall assign to the TRUSTEE, for the
benefit of the Certificate holders and in order to subject such rights to the
Trust Estate created by the Indenture, all its rights, but not its obligations,
hereunder, to the extent necessary to accomplish the purposes and intents of
the Indenture and the Related Documents. CONTRACTOR shall not assign any
portion of this Contract without the express prior written consent of the
COMMISSION and such consent to assignment shall not be unreasonably withheld.
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<PAGE> 36
16.06 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 the exercise of any other right. The remedies provided by law or in equity,
except as expressly set forth herein.
16.07 Notices. All notices, certificates, requests, or other
communications hereunder shall be sufficiently given and shall be deemed given
when mailed by first class mail (except as otherwise specified herein), postage
prepaid, addressed as follows:
TO CONTRACTOR: Esmor Correctional Services, Inc.
1819 Main Street, Suite 1000
Sarasota, Florida 34236
Attn: James Slattery
TO THE CORPORATION: Florida Correctional Finance Corporation
4030 Esplanade Way, Suite 315
Tallahassee, Florida 32399-0950
Attn: President
TO THE COMMISSION: Correctional Privatization Commission
Office of the Executive Director
Building 4030, Suite 315
4050 Esplanade Way
Tallahassee, Florida 32399-0950
Attn: Executive Director
Each party may, by notice given under this Section, designate any further or
different addresses to which subsequent notices, certificates, requirement, or
other communications shall be sent.
16.08 Amendment. This Contract shall not be amended except by written
agreement by the parties hereto.
16.09 Governing Law. This contract shall be governed by the laws of the
State of Florida and any suits for any Breach hereof shall be instituted and
maintained in any court of competent jurisdiction.
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16.10 Terminology. All personal pronouns used herein whether used in the
masculine, feminine, or neuter gender, shall include the singular.
16.11 Integration. This Contract, together with all of the Contract
Documents, sets forth the entire agreement and understanding between the
parties as to the subject matter hereof and merges and supersedes all prior
agreements, commitments, representations, writings, negotiations, and
discussions between them.
16.12 Inspection. CONTRACTOR acknowledges that had an adequate
opportunity to inspect the Plans and Specifications, all legal requirements
applicable to the construction of the Project and the visible appearance of the
site upon which the Project will be constructed. CONTRACTOR has not relied
upon any information, representations, or warranties furnished to CONTRACTOR by
the CORPORATION or the COMMISSION except as specifically set forth in this
Contract and the Request for Proposals issued by the COMMISSION for the design,
construction, financing and operation of up to three (3) 350-bed Youthful
Offender facilities.
16.13 Annual Appropriation. The State of Florida's performance and
obligation to pay under this contract is contingent upon an annual
appropriation by the Legislature.
16.14 Public Records. This contract may be unilaterally cancelled by the
COMMISSION for refusal by the CONTRACTOR to allow public access to all
documents, papers, letters, or other material subject to the provisions of
Chapter 119, F.S., and made or received by the CONTRACTOR in conjunction with
the contract.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to
be duly executed by its duly authorized representatives on the respective dates
set for below.
ESMOR CORRECTIONAL SERVICES, INC.
DATE: 12/20/95 BY: /s/ James F. Slattery
----------- ---------------------------
James F. Slattery
---------------------------
Its President
----------------------
(Corporate Seal) ATTEST: /s/ Wendy Donaldson
-----------------------
Wendy Donaldson
-----------------------
Its Pres. Assistant
-------------------
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CORRECTIONAL PRIVATIZATION COMMISSION
DATE: December 1, 1995 BY: /s/ Joel J. Freedman
---------------- ---------------------------
Joel J. Freedman
Its Chairperson
ATTEST: /s/ C. Mark Hodges
-----------------------
C. Mark Hodges
Its Executive Director
FLORIDA CORRECTIONAL FINANCE CORPORATION
DATE: December 1, 1995 BY: /s/ C. Mark Hodges
---------------- ---------------------------
Its President
(Corporate Seal) ATTEST: /s/ Joel J. Freedman
-----------------------
Its Assistant Secretary
-------------------
38
<PAGE> 1
EXHIBIT 10.41
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of January 21, 1996, by and between
ESMOR CORRECTIONAL SERVICES, INC., a Delaware corporation with offices located
at 1819 Main Street, Suite 1000, Sarasota, Florida 34236 (the "Company") and
IRA M. COTLER, residing at 12 Underwood Drive, West Orange, New Jersey 07052
(the "Executive").
W I T N E S S E T H :
WHEREAS, the Company wishes to assure itself of the services of the
Executive during the term of this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the
Company upon the terms and conditions herein provided.
NOW, THEREFORE, the Company and the Executive, intending to be legally
bound, hereby agree as follows:
1. Employment. The Company hereby employs the Executive who
accepts employment with the Company as its Executive Vice President - Finance
to perform duties as the Company's President may from time to time determine
and assign to him, including without limitation, the following: supervise
accounting department; perform investor relations function; act as intermediary
in commercial banking and borrowing activities; develop long range financial
planning strategy; review possible mergers and acquisitions; provide financial
data to Board of Directors and participate in bidding activities. The
Executive shall devote all of his business time, attention and energy to his
duties and to the business and affairs of the Company and shall not engage,
directly or indirectly, in any other business, employment or occupation,
whether or not such other business, employment
<PAGE> 2
or occupation is competitive with the business of the Company without the prior
written consent of the Company. Notwithstanding the foregoing, until March 1,
1996, Executive shall be allowed to devote a portion of his time to complete
his responsibilities to his former employer.
2. Term. The term of this Agreement shall commence as of January
21, 1996 (the "Commencement Date") and shall terminate on the date immediately
preceding the third anniversary date of the Commencement Date (the "Term");
provided, however, that the term of Executive's employment hereunder shall
continue thereafter unless and until the Company or Executive shall have
provided ninety (90) days notice of termination to the other party, which
notice, in no event, shall be provided earlier than ninety (90) days prior to
the expiration of the Term.
3. Compensation. 3.1 As full compensation for all
services to be rendered by the Executive to the Company pursuant to the terms
of this Agreement, commencing February 26, 1996, the Company shall pay to the
Executive a base salary (the "Base Salary") as follows: (a) one hundred
twenty-nine thousand ($129,000) dollars per annum during the first year of the
Term, (b) one hundred thirty-five thousand ($135,000) dollars per annum during
the second year of the Term, and (c) one hundred forty-two thousand ($142,000)
dollars per annum during the third year of the Term. The Base Salary shall be
payable at such regular times and intervals as the Company customarily pays its
employees from time to time. Executive's salary shall be reduced to give
effect to his reduced activities on behalf of the
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<PAGE> 3
Company during the transition from employment by his former employer to full
time employment by the Company.
3.2 For each year after February 1, 1996 or portion
thereof during which Executive is employed by the Company, he shall be entitled
to receive a bonus equal to three (3%) percent of the Company's earnings before
income tax provision ("pre-tax profits") in excess of $1,000,000, which bonus
shall not exceed $75,000. Payment of the bonus, if any, shall be made within
one hundred twenty (120) days after the end of each fiscal year of the Company.
Each bonus payment shall be accompanied by the Company's financial statement
for the requisite period and a schedule calculating such bonus. Pre-tax
profits determined by the Company and audited by the Company's independent
auditors shall be final and binding on the Executive. For purposes hereof,
pre-tax profits shall not include extraordinary gains and losses and shall be
determined in accordance with generally accepted accounting principles
consistently applied. In the event the Executive works for less than a full
year, his bonus for that year shall be pro-rated.
3.3 The Company shall deduct from the Executive's Base
Salary, bonus or incentive compensation any federal, state or city withholding
taxes, social security contributions and any other amounts which may be
required to be deducted or withheld by the Company pursuant to any federal,
state or city laws, rules or regulations.
3.4 The Company shall reimburse the Executive, or cause
him to be reimbursed, for all reasonable out-of-pocket expenses incurred by him
in the performance of his duties hereunder or in furtherance of the business
and/or interests of the Company;
-3-
<PAGE> 4
provided, however, that the Executive shall have previously furnished to the
Company an itemized account, satisfactory to the Company, in substantiation of
such expenses.
3.5 The Executive shall have the right to participate, on
the same basis as other executive employees of the Company, in the Company's
employee benefit programs, if any, including, without limitation, group life,
health, accident and hospitalization insurance programs covering the Executive
and his dependents.
3.6 During the Term hereof, the Executive shall be
entitled to an automobile allowance of five hundred ($500) dollars per month to
be applied to fuel, repairs, insurance, lease or loan payments and the like.
Any expenses in excess thereof shall be the responsibility of the Executive.
4. Grant of Stock Options. Simultaneously herewith, the Company
has granted to Executive a stock option as evidenced by a Stock Option
Agreement between the parties hereto dated as of the date hereof.
5. Moving Expenses.
5.1 The Company shall reimburse the Executive, or cause
him to be reimbursed for all reasonable expenses incurred by the Executive in
relocating himself and his family to Florida, in an amount to be mutually
agreed upon by the Company and the Executive.
6. Loss Reimbursement on Sale of Residence.
6.1 Upon execution of this Agreement, the Company will
engage the services of three licensed (if required by the state or other
municipality where the Executive's principal residence is located) real estate
appraisers doing business in the area
-4-
<PAGE> 5
where the Executive's principal residence (the "Residence") is located, which
appraisers shall be mutually agreeable to the Company and the Executive, to
appraise the Residence. In the event the Executive sells the Residence
(without regard to the contents thereof) for an amount less than ninety (90%)
percent of the appraised value of the Residence (which, for purposes hereof,
shall be the average of the three appraisals), the Company shall reimburse the
Executive for such loss up to twenty-five ($25,000) thousand dollars.
6.2 The Executive shall give the Company seven (7) days
advance notice of his intention to enter into an agreement to sell the
Residence and the price at which he intends to sell the Residence. In the
event the sale of the Residence would result in a loss to the Executive, the
Company shall have the right, exercisable within fifteen (15) days of receipt
of Executive's notice, to purchase the Residence at a price equal to ninety
(90%) percent of the appraised value, closing of which shall be promptly
effected following notice by the Company of its intention to do so. In the
event the Company fails to exercise its right to purchase the Residence, the
Executive shall provide evidence of loss by delivery to the Company of a
closing statement setting forth the financial details of the sale of the
Residence.
7. Termination.
7.1 If the Executive dies or becomes disabled during the
Term, his Base Compensation and all other rights under this Agreement shall
terminate at the end of the month during which death or disability occurs. For
purposes of this Agreement, the Executive shall be deemed to be "disabled" if
he has been unable to perform his duties for
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three (3) consecutive months or an aggregate of five (5) months in any
consecutive twelve (12) month period.
7.2 The Company shall, in the manner described in Section
7.3 hereof, have the right to terminate the employment of Executive under this
Agreement and Executive shall forfeit the right to receive any and all further
payments hereunder, other than the right to receive any compensation then due
and payable to Executive pursuant to Section 3 hereof to the date of
termination, if Executive shall have committed any of the following acts of
default:
(a) Executive shall have committed any material breach of
any of the provisions or covenants of this Agreement;
(b) Executive shall have committed any act of gross
negligence in the performance of his duties or obligations
hereunder, or, without proper cause, shall have willingly
refused or habitually neglected to perform his employment
duties or obligations under this Agreement;
(c) Executive shall have committed any material act of
willful misconduct, dishonesty or breach of trust which
directly or indirectly causes the Company or any of its
subsidiaries to suffer any loss, fine, civil penalty,
judgment, claim, damage or expense;
(d) Executive shall have been indicted or convicted of,
or shall have plead guilty or NOLO CONTENDERE to, a felony or
indictable offense (unless committed in the reasonable, good
faith belief that the Executive's actions were in the best
interests of the Company and its stockholders and would not
violate criminal law);
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(e) A court or other tribunal of competent jurisdiction
shall have issued an order prohibiting the Company from
employing Executive; or
(f) Executive shall have violated the Company's
discipline rules as set forth in the Company's Employee
handbook, as may be modified from time to time at the sole
discretion of the Company.
7.3 If the Company elects to terminate this Agreement as
set forth above, it shall deliver notice thereof to the Executive, describing
with reasonable detail, the action or omission of the Executive constituting
the act of default (the "Termination Notice"), and thereupon no further
payments of any type shall be made or shall be due or payable to Executive
hereunder, except as provided in the first sentence of Section 7.2 hereof;
provided, however, with respect to any act of default set forth in clauses (a),
(b) and (f) of Section 7.2, prior to any termination by the Company of
Executive's employment, Executive shall first have an opportunity to cure or
remedy such act of default within thirty (30) days following the Termination
Notice.
7.4 In the event the Company merges into, consolidates
with or otherwise reorganizes or combines (the "Merger") with another company,
wherein immediately following such Merger, the shareholders of the Company
prior to the Merger own either (a) less than 50% of the outstanding voting
stock of the Company (if the Company is the survivor of the Merger), or (b)
less than fifty (50%) percent of the outstanding voting stock of the surviving
entity, the Executive shall have the right, at his option, to terminate his
employment hereunder upon 90 days advance notice ("Notice") to the Company.
Notice of Executive's intention to terminate his employment hereunder shall be
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given to the Company within thirty (30) days of the effective date of the
Merger and failure by the Executive to give Notice of termination within such
thirty (30) day period shall result in the automatic lapse of such right of
termination. If Notice of termination is duly given by the Executive, or is
given at any time thereafter by the Company, then the Company shall pay to the
Executive within fifteen (15) days following termination an amount equal to the
greater of (y) the Base Salary described in Paragraph 3.1 hereof through the
balance of the term of this Agreement, or (z) the Base Salary paid to Executive
during the year immediately preceding termination of employment, plus, within
thirty (30) days after such information can be determined in the normal course,
the bonus described in Paragraph 3.2 hereof shall be computed and paid through
the date of termination of Executive's employment.
8. Restrictive Covenants.
8.1 Confidential Information; Covenant not to Disclose.
The Executive covenants and undertakes that he will not at any time during or
after the termination of his employment hereunder reveal, divulge, or make
known to any person, firm, corporation, or other business organization (other
than the Company or its affiliates, if any), or use for his own account any
trade secrets, or secret or confidential information of any kind used by the
Company during his employment by the Company, and made known (whether or not
with the knowledge and permission of the Company, whether or not developed,
devised, or otherwise created in whole or in part by the efforts of the
Executive, and whether or not a matter of public knowledge unless as a result
of authorized disclosure) to the Executive by reason of his employment by the
Company. The Executive further covenants and agrees that he shall retain such
knowledge and information which he has
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acquired or shall acquire and develop during his employment respecting such
trade secrets, and secret or confidential information in trust for the sole
benefit of the Company, its successors and assigns.
8.2 Covenant Not to Compete; Non-Interference.
8.2.1 The Executive covenants and undertakes that, during the
period of his employment hereunder and for a period of two (2) years
thereafter, he will not, without the prior written consent of the Company,
directly or indirectly, and whether as principal, agent, officer, director,
employee, consultant, or otherwise, alone or in association with any other
person, firm, corporation, or other business organization, carry on, or be
engaged, concerned, or take part in, or render services to, or own, share in
the earnings of, or invest in the stock, bonds, or other securities of any
person, firm, corporation, or other business organization (other than the
Company or its affiliates, if any) engaged in a business in the Continental
United States which is similar to or in competition with any of the businesses
carried on by the Company (a "Similar Business"); provided, however, that the
Executive may invest in stock, bonds, or other securities of any Similar
Business (but without otherwise participating in the activities of such Similar
Business) if (i) such stock, bonds, or other securities are listed on any
national or regional securities exchange or have been registered under Section
12(g) of the Securities Exchange Act of 1934; and (ii) his investment does not
exceed, in the case of any class of the capital stock of any one issuer, 2% of
the issued and outstanding shares, or in the case of bonds or other securities,
2% of the aggregate principal amount thereof issued and outstanding.
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8.2.2 The Executive covenants and undertakes that during the
period of his employment hereunder and for a period of two (2) years thereafter
he will not, whether for his own account or for the account of any other
person, firm, corporation or other business organization, interfere with the
Company's relationship with, or endeavor to entice away from the Company, any
person, firm, corporation or other business organization who or which at any
time during the term of the Executive's employment with the Company was an
employee, consultant, agent, supplier, or a customer of, or in the habit of
dealing with, the Company.
8.2.3 If any provision of this Article 8.2 is held by any
court of competent jurisdiction to be unenforceable because of the scope,
duration or area of applicability, such provision shall be deemed modified to
the extent the court modifies the scope, duration or area of applicability of
such provision to make it enforceable.
8.3 Covenant to Report.
8.3.1 The Executive shall promptly communicate and disclose
to the Company all intellectual property, including, without limitation,
inventions, discoveries, improvements and new writings, in any form whatsoever
("Intellectual Property"), including, without limitation, all software,
programs, routines, techniques, procedures, training aides and instructional
manuals conceived, developed or made by him during his employment by the
Company, whether solely or jointly with others, and whether or not patentable
or copyrightable, (i) which relate to any matters or business of the type
carried on or being developed by the Company, or (ii) which result from or are
suggested by any work done by him in the course of his employment by the
Company. The Executive shall also promptly
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communicate and disclose to the Company all other data obtained by him
concerning the business or affairs of the Company in the course of his
employment by the Company.
8.3.2 All written materials, records and documents made by
the Executive or coming into his possession during the Term concerning the
business or affairs of the Company shall be the sole property of the Company;
and, upon the termination of the Term or upon the request of the Company during
the Term, the Executive shall promptly deliver the same to the Company. The
Executive agrees to render to the Company such reports of the activities
undertaken by the Executive or conducted under the Executive's direction
pursuant hereto during the Term as the Company may request.
8.3.3 The Executive will assign to the Company all rights in
and to the Intellectual Property and will assist the Company or its designee
during or subsequent to his employment, at the Company's sole expense, in
filing patent and/or copyright applications on, and obtaining for the Company's
benefit, patents and/or copyrights for, such Intellectual Property in any and
all countries, and will assign to the Company all such patent and/or copyright
applications, all patents and/or copyrights which may issue thereon, said
Intellectual Property to be and remain the sole and exclusive property of the
Company or its designee whether or not patented and/or copyrighted.
9. Injunction. It is acknowledged and agreed by the Executive
that a breach or violation by the Executive of any of the covenants or
agreements contained herein may cause irreparable harm and damage to the
Company, the monetary amount of which may be virtually impossible to ascertain.
As a result, the Executive acknowledges and agrees that the Company shall be
entitled to an injunction, without posting bond or security in
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connection therewith, from any court of competent jurisdiction enjoining and
restraining any breach or violation of any of the restrictive covenants
contained in Article 8 of this Agreement by the Executive, either directly or
indirectly, and that such right to an injunction shall be cumulative and in
addition to such other rights or remedies the Company may possess. Nothing
contained in this Article 9 shall be construed to prevent the Company from
seeking and recovering from the Executive damages sustained as a result of any
breach or violation by the Executive of any of the covenants or agreements
contained herein, and in the event of any such breach or violation, the Company
may avail itself of all remedies available both in law and at equity.
10. Compliance with Other Agreements. The Executive represents
and warrants to the Company that the execution of this Agreement by him and the
performance of his obligations hereunder will not, with or without the giving
of notice, the passage of time or both, conflict with, result in the breach of
any provision of or the termination of, or constitute a default under, any
agreement to which the Executive is a party or by which the Executive is or may
be bound.
11. Miscellaneous.
11.1 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally
or mailed, postage prepaid, by certified or registered mail (return receipt
requested) to the parties at the following address or at such other address for
a party as shall be specified by such party by like notice:
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If to the Company:
Esmor Correctional Services, Inc.
1819 Main Street, Suite 1000
Sarasota, FL 34236
Attention: President
With a copy to:
Ruskin, Moscou, Evans & Faltischek, P.C.
170 Old Country Road
Mineola, NY 11501
Attention: Raymond S. Evans, Esq.
If to the Executive:
Ira M. Cotler
12 Underwood Drive
West Orange, NJ 07052
or
at his residence in Florida
as he shall notify the Company
11.2 Benefit. This Agreement shall be binding
upon and inure to the benefit of the respective parties hereto and their legal
representatives, successors and assigns. Insofar as the Executive is
concerned, this Agreement being personal, cannot be assigned.
11.3 Validity. The invalidity or unenforceability
of any provisions hereof shall in no way affect the validity or enforceability
of any other provision.
11.4. Entire Agreement. The Agreement constitutes
the entire Agreement between the parties with respect to the subject matter
hereof and supersedes all prior agreements between them. It may only be
changed or terminated by an instrument in writing signed by both parties. The
covenants of the Executive contained in Article 8 of this Agreement shall
survive the termination of Executive's employment.
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11.5 Florida Law to Govern. This Agreement shall
be governed by, construed and interpreted in accordance with the laws of the
State of Florida.
11.6 Corporate Action. The execution and delivery
of this Agreement by the Company has been authorized and approved by all
requisite corporate action.
11.7 Waiver of Breach. The failure of either
party to insist on strict adherence to any provision of this Agreement on any
occasion shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that provision or any other
provision of this Agreement. The waiver of any provision of this Agreement
must be in a writing signed by the party waiving such compliance.
11.8 Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an original, and all
of which, when taken together, shall constitute one and the same instrument.
11.9 Paragraph Headings. Paragraph headings are
inserted herein for convenience only and are not intended to modify, limit or
alter the meaning of any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have set their hands
and executed this Agreement as of the day and year first above written.
ESMOR CORRECTIONAL SERVICES, INC.
By: /s/ James F. Slattery
--------------------------------------
James F. Slattery, President
/s/ Ira M. Cotler
--------------------------------------
Ira M. Cotler
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EXHIBIT 10.42
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of January 21, 1996, by and between
ESMOR CORRECTIONAL SERVICES, INC., a Delaware corporation with offices located
at 1819 Main Street, Suite 1000, Sarasota, Florida 34236 (the "Company") and
Michael Garretson, residing at 8028 Sandpoint, Orlando, Florida 32819 (the
"Executive").
W I T N E S S E T H :
WHEREAS, the Company wishes to assure itself of the services of the
Executive during the term of this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the
Company upon the terms and conditions herein provided.
NOW, THEREFORE, the Company and the Executive, intending to be legally
bound, hereby agree as follows:
1. Employment. The Company hereby employs the Executive who
accepts employment with the Company as its Executive Vice President - Operations
and Chief Operating Officer to perform duties as the Company's President may
from time to time determine and assign to him. The Executive shall devote all
of his business time, attention and energy to his duties and to the business and
affairs of the Company and shall not engage, directly or indirectly, in any
other business, employment or occupation, whether or not such other business,
employment or occupation is competitive with the business of the Company.
2. Term. The term of this Agreement shall commence as of January
21, 1996 (the "Commencement Date") and shall terminate on the date immediately
preceding the third anniversary date of the Commencement Date (the "Term").
<PAGE> 2
3. Compensation.
3.1 As full compensation for all services to be rendered
by the Executive to the Company pursuant to the terms of this Agreement,
commencing February 20, 1996, the Company shall pay to the Executive a base
salary (the "Base Salary") as follows: (a) one hundred fifteen thousand
($115,000) dollars per annum during the first year of the Term, (b) one hundred
twenty thousand ($120,000) dollars per annum during the second year of the
Term, and (c) one hundred twenty-six thousand ($126,000) dollars per annum
during the third year of the Term. The Base Salary shall be payable at such
regular times and intervals as the Company customarily pays its employees from
time to time.
3.2 For each year after February 20, 1996 or portion
thereof during which Executive is employed by the Company, he shall be entitled
to receive a bonus equal to three (3%) percent of the Company's earnings before
income tax provision ("pre-tax profits") in excess of $1,000,000, which bonus
shall not exceed $75,000. Payment of the bonus, if any, shall be made within
one hundred twenty (120) days after the end of each fiscal year of the Company.
Each bonus payment shall be accompanied by the Company's financial statement
for the requisite period and a schedule calculating such bonus. Pre-tax
profits determined by the Company and audited by the Company's independent
auditors shall be final and binding on the Executive. For purposes hereof,
pre-tax profits shall not include extraordinary gains and losses and shall be
determined in accordance with generally accepted accounting principles
consistently applied. In the event the Executive works for less than a full
year, his bonus for that year shall be pro-rated.
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3.3 The Company shall deduct from the Executive's Base
Salary, bonus or incentive compensation any federal, state or city withholding
taxes, social security contributions and any other amounts which may be
required to be deducted or withheld by the Company pursuant to any federal,
state or city laws, rules or regulations.
3.4 The Company shall reimburse the Executive, or cause
him to be reimbursed, for all reasonable out-of-pocket expenses incurred by him
in the performance of his duties hereunder or in furtherance of the business
and/or interests of the Company; provided, however, that the Executive shall
have previously furnished to the Company an itemized account, satisfactory to
the Company, in substantiation of such expenses.
3.5 In lieu of the Executive's participation in the
Company's health, accident and hospitalization insurance programs, the Company
will provide the Executive with disability insurance which, in the event of
Executive's disability, will provide Executive with annualized disability
payments equal to not less than fifty (50%) percent of the Executive's Base
Salary.
3.6 During the Term hereof, the Executive shall be
entitled to an automobile allowance of five hundred ($500) dollars per month to
be applied to fuel, repairs, insurance, lease or loan payments and the like.
Any expenses in excess thereof shall be the responsibility of the Executive.
3.7 During the Term hereof, the Company will reimburse
the Executive, or cause him to be reimbursed, up to five hundred ($500) dollars
per month towards the cost of renting a residence in Florida for himself and
his dependents.
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4. Grant of Stock Options. Simultaneously herewith, the Company
has granted to Executive a stock option as evidenced by a Stock Option
Agreement between the parties hereto dated as of the date hereof.
5. Termination.
5.1 If the Executive dies or becomes disabled during the
Term, his Base Compensation and all other rights under this Agreement shall
terminate at the end of the month during which death occurs or the Executive is
deemed disabled. For purposes of this Agreement, the Executive shall be deemed
to be "disabled" if he has been unable to perform his duties for three (3)
consecutive months or an aggregate of five (5) months in any consecutive twelve
(12) month period.
5.2 The Company shall, in the manner described in Section
5.3 hereof, have the right to terminate the employment of Executive under this
Agreement and Executive shall forfeit the right to receive any and all further
payments hereunder, other than the right to receive any compensation then due
and payable to Executive pursuant to Section 3 hereof to the date of
termination, if Executive shall have committed any of the following acts of
default:
(a) Executive shall have committed any material breach of
any of the provisions or covenants of this Agreement;
(b) Executive shall have committed any act of gross
negligence in the performance of his duties or obligations
hereunder, or, without proper cause, shall have willingly
refused or habitually neglected to perform his employment
duties or obligations under this Agreement;
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(c) Executive shall have committed any material act of
willful misconduct, dishonesty or breach of trust which
directly or indirectly causes the Company or any of its
subsidiaries to suffer any loss, fine, civil penalty,
judgment, claim, damage or expense;
(d) Executive shall have been indicted or convicted of,
or shall have plead guilty or NOLO CONTENDERE to, a felony or
indictable offense (unless committed in the reasonable, good
faith belief that the Executive's actions were in the best
interests of the Company and its stockholders and would not
violate criminal law);
(e) A court or other tribunal of competent jurisdiction
shall have issued an order prohibiting the Company from
employing Executive; or
(f) Executive shall have violated the Company's
discipline rules as set forth in the Company's Employee
handbook, as may be modified from time to time at the sole
discretion of the Company.
5.3 If the Company elects to terminate this Agreement as
set forth above, it shall deliver notice thereof to the Executive, describing
with reasonable detail, the action or omission of the Executive constituting
the act of default (the "Termination Notice"), and thereupon no further
payments of any type shall be made or shall be due or payable to Executive
hereunder, except as provided in the first sentence of Section 5.2 hereof;
provided, however, with respect to any act of default set forth in clauses (a),
(b) and (f) of Section 5.2, prior to any termination by the Company of
Executive's employment, Executive shall first have an opportunity to cure or
remedy such act of default within thirty (30) days following the Termination
Notice.
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5.4 In the event the Company merges into, consolidates
with or otherwise reorganizes or combines (the "Merger") with another company,
wherein immediately following such Merger, the shareholders of the Company
prior to the Merger own either (a) less than 50% of the outstanding voting
stock of the Company (if the Company is the survivor of the Merger), or (b)
less than fifty (50%) percent of the outstanding voting stock of the surviving
entity, the Executive shall have the right, at his option, to terminate his
employment hereunder upon 90 days advance notice ("Notice") to the Company.
Notice of Executive's intention to terminate his employment hereunder shall be
given to the Company within thirty (30) days of the effective date of the
Merger and failure by the Executive to give Notice of termination within such
thirty (30) day period shall result in the automatic lapse of such right of
termination. If Notice of termination is duly given by the Executive, or is
given at any time thereafter by the Company, then the Company shall pay to the
Executive within fifteen (15) days following termination an amount equal to the
greater of (y) the Base Salary described in Paragraph 3.1 hereof through the
balance of the term of this Agreement, or (z) the Base Salary paid to Executive
during the year immediately preceding termination of employment, plus, within
thirty (30) days after such information can be determined in the normal course,
the bonus described in Paragraph 3.2 hereof shall be computed and paid through
the date of termination of Executive's employment.
6. Restrictive Covenants.
6.1 Confidential Information; Covenant not to Disclose.
The Executive covenants and undertakes that he will not at any time during or
after the termination of his employment hereunder reveal, divulge, or make
known to any person,
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firm, corporation, or other business organization (other than the Company or
its affiliates, if any), or use for his own account any trade secrets, or
secret or confidential information of any kind used by the Company during his
employment by the Company, and made known (whether or not with the knowledge
and permission of the Company, whether or not developed, devised, or otherwise
created in whole or in part by the efforts of the Executive, and whether or not
a matter of public knowledge unless as a result of authorized disclosure) to
the Executive by reason of his employment by the Company. The Executive
further covenants and agrees that he shall retain such knowledge and
information which he has acquired or shall acquire and develop during his
employment respecting such trade secrets, and secret or confidential
information in trust for the sole benefit of the Company, its successors and
assigns.
6.2 Covenant Not to Compete; Non-Interference.
6.2.1 The Executive covenants and undertakes that, during the
period of his employment hereunder and for a period of two (2) years
thereafter, he will not, without the prior written consent of the Company,
directly or indirectly, and whether as principal, agent, officer, director,
employee, consultant, or otherwise, alone or in association with any other
person, firm, corporation, or other business organization, carry on, or be
engaged, concerned, or take part in, or render services to, or own, share in
the earnings of, or invest in the stock, bonds, or other securities of any
person, firm, corporation, or other business organization (other than the
Company or its affiliates, if any) engaged in a business in the Continental
United States which is similar to or in competition with any of the businesses
carried on by the Company (a "Similar Business"); provided, however, that the
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Executive may invest in stock, bonds, or other securities of any Similar
Business (but without otherwise participating in the activities of such Similar
Business) if (i) such stock, bonds, or other securities are listed on any
national or regional securities exchange or have been registered under Section
12(g) of the Securities Exchange Act of 1934; and (ii) his investment does not
exceed, in the case of any class of the capital stock of any one issuer, 2% of
the issued and outstanding shares, or in the case of bonds or other securities,
2% of the aggregate principal amount thereof issued and outstanding.
6.2.2 The Executive covenants and undertakes that during the
period of his employment hereunder and for a period of two (2) years thereafter
he will not, whether for his own account or for the account of any other
person, firm, corporation or other business organization, interfere with the
Company's relationship with, or endeavor to entice away from the Company, any
person, firm, corporation or other business organization who or which at any
time during the term of the Executive's employment with the Company was an
employee, consultant, agent, supplier, or a customer of, or in the habit of
dealing with, the Company.
6.2.3 If any provision of this Article 6.2 is held by any
court of competent jurisdiction to be unenforceable because of the scope,
duration or area of applicability, such provision shall be deemed modified to
the extent the court modifies the scope, duration or area of applicability of
such provision to make it enforceable.
6.3 Covenant to Report.
6.3.1 The Executive shall promptly communicate and disclose
to the Company all intellectual property, including, without limitation,
inventions, discoveries,
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<PAGE> 9
improvements and new writings, in any form whatsoever ("Intellectual
Property"), including, without limitation, all software, programs, routines,
techniques, procedures, training aides and instructional manuals conceived,
developed or made by him during his employment by the Company, whether solely
or jointly with others, and whether or not patentable or copyrightable, (i)
which relate to any matters or business of the type carried on or being
developed by the Company, or (ii) which result from or are suggested by any
work done by him in the course of his employment by the Company. The Executive
shall also promptly communicate and disclose to the Company all other data
obtained by him concerning the business or affairs of the Company in the course
of his employment by the Company.
6.3.2 All written materials, records and documents made by
the Executive or coming into his possession during the Term concerning the
business or affairs of the Company shall be the sole property of the Company;
and, upon the termination of the Term or upon the request of the Company during
the Term, the Executive shall promptly deliver the same to the Company. The
Executive agrees to render to the Company such reports of the activities
undertaken by the Executive or conducted under the Executive's direction
pursuant hereto during the Term as the Company may request.
6.3.3 The Executive will assign to the Company all rights in
and to the Intellectual Property and will assist the Company or its designee
during or subsequent to his employment, at the Company's sole expense, in
filing patent and/or copyright applications on, and obtaining for the Company's
benefit, patents and/or copyrights for, such Intellectual Property in any and
all countries, and will assign to the Company all such patent and/or copyright
applications, all patents and/or copyrights which may issue thereon, said
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Intellectual Property to be and remain the sole and exclusive property of the
Company or its designee whether or not patented and/or copyrighted.
7. Injunction. It is acknowledged and agreed by the Executive
that a breach or violation by the Executive of any of the covenants or
agreements contained herein may cause irreparable harm and damage to the
Company, the monetary amount of which may be virtually impossible to ascertain.
As a result, the Executive acknowledges and agrees that the Company shall be
entitled to an injunction, without posting bond or security in connection
therewith, from any court of competent jurisdiction enjoining and restraining
any breach or violation of any of the restrictive covenants contained in
Article 6 of this Agreement by the Executive, either directly or indirectly,
and that such right to an injunction shall be cumulative and in addition to
such other rights or remedies the Company may possess. Nothing contained in
this Article 7 shall be construed to prevent the Company from seeking and
recovering from the Executive damages sustained as a result of any breach or
violation by the Executive of any of the covenants or agreements contained
herein, and in the event of any such breach or violation, the Company may avail
itself of all remedies available both in law and at equity.
8. Compliance with Other Agreements. The Executive represents
and warrants to the Company that the execution of this Agreement by him and the
performance of his obligations hereunder will not, with or without the giving
of notice, the passage of time or both, conflict with, result in the breach of
any provision of or the termination of, or constitute a default under, any
agreement to which the Executive is a party or by which the Executive is or may
be bound.
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9. Miscellaneous.
9.1 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally
or mailed, postage prepaid, by certified or registered mail (return receipt
requested) to the parties at the following address or at such other address for
a party as shall be specified by such party by like notice:
If to the Company:
Esmor Correctional Services, Inc.
1819 Main Street, Suite 1000
Sarasota, FL 34236
Attention: President
With a copy to:
Ruskin, Moscou, Evans & Faltischek, P.C.
170 Old Country Road
Mineola, NY 11501
Attention: Raymond S. Evans, Esq.
If to the Executive:
Michael Garretson
8028 Sandpoint
Orlando, FL 32819
9.2 Benefit. This Agreement shall be binding
upon and inure to the benefit of the respective parties hereto and their legal
representatives, successors and assigns. Insofar as the Executive is
concerned, this Agreement being personal, cannot be assigned.
9.3 Validity. The invalidity or unenforceability
of any provisions hereof shall in no way affect the validity or enforceability
of any other provision.
9.4. Entire Agreement. The Agreement constitutes
the entire Agreement between the parties with respect to the subject matter
hereof and supersedes all
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<PAGE> 12
prior agreements between them. It may only be changed or terminated by an
instrument in writing signed by both parties. The covenants of the Executive
contained in Article 8 of this Agreement shall survive the termination of
Executive's employment.
9.5 Florida Law to Govern. This Agreement shall
be governed by, construed and interpreted in accordance with the laws of the
State of Florida.
9.6 Corporate Action. The execution and delivery
of this Agreement by the Company has been authorized and approved by all
requisite corporate action.
9.7 Waiver of Breach. The failure of either
party to insist on strict adherence to any provision of this Agreement on any
occasion shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that provision or any other
provision of this Agreement. The waiver of any provision of this Agreement
must be in a writing signed by the party waiving such compliance.
9.8 Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an original, and all
of which, when taken together, shall constitute one and the same instrument.
9.9 Paragraph Headings. Paragraph headings are
inserted herein for convenience only and are not intended to modify, limit or
alter the meaning of any provision of this Agreement.
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have set their hands
and executed this Agreement as of the day and year first above written.
ESMOR CORRECTIONAL SERVICES, INC.
By: /s/ James F. Slattery
---------------------------------
James F. Slattery, President
/s/ Michael Garretson
---------------------------------
Michael Garretson
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<PAGE> 1
EXHIBIT 10.43
ESMOR CORRECTIONAL SERVICES, INC.
STOCK OPTION AGREEMENT
AGREEMENT, made as of the 21st day of January, 1996, between Esmor
Correctional Service, Inc., a Delaware corporation (the "Corporation") and Ira
Cotler (the "Optionee").
WHEREAS, the simultaneously herewith the Corporation has entered into an
employment agreement with the Optionee pursuant to which the Corporation has
agreed to grant to the Optionee an option to purchase an aggregate of one
hundred thousand (100,000) authorized but unissued shares of the Corporation's
Common Stock, par value $.01 per share (the "Common Shares").
NOW, THEREFORE, for good and valuable consideration paid by the Optionee
to the Corporation, the adequacy of which is hereby acknowledged, and the mutual
covenants hereinafter set forth, the parties agree as follows:
1. Grant of Option. The Corporation hereby grants to the Optionee
the right and option to purchase all or any part of an aggregate of one hundred
thousand (100,000) Common Shares (subject to adjustment as provided in Paragraph
6 hereof) on the terms and conditions set forth herein (the "Option"). The
Optionee acknowledges that the Option is not an "incentive option" within the
meaning of an "incentive stock option plan" and Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Purchase Price. The purchase price of the Common Shares covered
by the Option shall be $8.875 per share (subject to adjustment as provided in
Paragraph 6 hereof).
<PAGE> 2
3. Vesting of Option. The Option is exercisable as to 33,333
shares commencing on the date hereof, as to an additional 33,334 shares
commencing one year from the date hereof and as to an additional 33,334 shares
commencing two years from the date hereof. The Option granted hereby shall
expire January 21, 2001, unless earlier terminated as hereinafter set forth.
4. Method of Exercising Option. If the Optionee elects to exercise
the Option, he may do so in whole or in part at any time subject to the
termination dates specified herein. The Option, or any part thereof, may be
exercised by the Optionee in either of the following ways:
(a) If the Optionee decides to exercise all or part of his
Option and make payment for the Common Shares in full, he shall give written
notice to the Corporation, specifying therein the number of Common Shares which
he then elects to purchase, accompanied by cash or certified check payable to
the order of the Corporation.
(b) If the Optionee decides to exercise all or part of the
Option and make payment in installments, the Optionee shall give written notice
to the Corporation specifying therein the number of Common shares which he then
elects to purchase, accompanied by a promissory note, in a form satisfactory to
the Corporation, executed by the Optionee and evidencing the obligation of the
Optionee to pay the option price to the Corporation in equal annual installments
payable on the annual anniversary date of exercise beginning one year after the
date of such exercise and terminating on the third anniversary of the date of
exercise of the Option, together with interest at the lowest rate imputed by the
Internal Revenue Service when an interest rate is not stated in a contract.
Notwithstanding
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<PAGE> 3
the foregoing, in the event the Optionee's relationship with the Corporation is
terminated for any reason, (a) then any such promissory note shall immediately
be due and payable, and (b) the Optionee shall not be eligible to exercise the
Option and make payment in installments, but shall be required to make payment
by cash or certified check payable to the order of the Corporation.
As soon as practicable after receipt by the Corporation of such notice
and of payment in full of the Option price of all the Common Shares with respect
to which the Option has been exercised (including interest if payment is made in
installments), a certificate or certificates representing such Common Shares
shall be issued in the name of the Optionee, or, if the Optionee shall so
request in the notice exercising the Option, in the name of the Optionee and
another person jointly, with right of survivorship, and shall be delivered to
the Optionee. All Common Shares shall be issued only upon receipt by the
Corporation of the Optionee's representation that the shares are purchased for
investment and not with a view toward distribution thereof.
5. Availability of Shares. The Corporation, during the term of
this Option, at all times shall keep available the number of shares of common
stock required to satisfy the Option.
The Corporation shall utilize its best efforts to comply with the
requirements of each regulatory commission or agency having jurisdiction in
order to issue and sell the Common Shares to satisfy the Option; provided,
however, that the Corporation shall not be required to register the Common
Shares issuable on exercise of the Option under the Securities Act of 1933.
Such compliance will be a condition precedent to the right to
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<PAGE> 4
exercise the Option. The inability of the Corporation to effect such compliance
with any such regulatory commission or agency which counsel for the Corporation
deems necessary for the lawful issuance and sale of the Common Shares to satisfy
this Option shall relieve the Corporation from any liability for failure to
issue and sell the Common Shares to satisfy the Option for such period of time
as such compliance is not effectuated.
6. Adjustments. If prior to the exercise of any option granted
hereunder the Corporation shall have effected one or more stock split-ups, stock
dividends, or other increases or reductions of the number of shares of its
common stock outstanding without receiving fair market compensation therefor in
money, services or property, the number of Common Shares subject to the option
hereby granted shall (a) if a net increase shall have been effected in the
number of outstanding shares of the Corporation's Common Shares, be
proportionately increased and the cash consideration payable per Common Share
shall be proportionately reduced; and (b) if a net reduction shall have been
effected in the number of outstanding shares of the Corporation's Common Shares,
be proportionately reduced and the cash consideration payable per Common Share
be proportionately increased.
7. Restrictions. The holder of this Option, by acceptance hereof,
represents and warrants as follows:
(a) This Option and the right to purchase common stock
hereunder is personal to the holder and shall not be transferred to any other
person. The Option may not be pledged or otherwise hypothecated.
(b) The holder hereof has been advised and understands that
the Option has been issued in reliance upon exemptions from registration under
the Securities
-4-
<PAGE> 5
Act and applicable state statutes; the exercise of the Option and resale of the
Option and the Common Shares have not been registered under the Securities Act
or applicable state statutes and must be held and may not be sold, transferred,
or otherwise disposed of for value unless they are subsequently registered under
the Securities Act or an exemption from such registration is available; except
as set forth herein, the Corporation is under no obligation to register the
Option or the Common Shares under the Securities Act or the applicable state
statutes; in the absence of such registration, (i) the sale of the Option or the
Common Shares may be practicably impossible, and (ii) the Corporation's
registrar and transfer agent will maintain stop-transfer instructions against
registration or transfer of the Option and the Common Shares and any
certificate issued upon exercise of the Option representing the Common Shares
will bear on its face a legend in substantially the following form restricting
the sale of the Common Shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") AND ARE "RESTRICTED SECURITIES" WITHIN THE
MEANING OF RULE 144 PROMULGATED UNDER THE SECURITIES ACT. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD
OR TRANSFERRED WITHOUT COMPLYING WITH RULE 144 IN THE ABSENCE OF
EFFECTIVE REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES
ACT.
(c) In the absence of registration, prior to two years from
the date the Option has been exercised and the Common Shares fully paid for, the
Corporation may refuse to transfer the Common Shares unless the holder thereof
provides an opinion of legal counsel reasonably satisfactory to the Corporation
or a "no action" letter or interpretive
-5-
<PAGE> 6
response from the staff of the Securities and Exchange Commission to the effect
that the transfer is proper; further, unless such opinion letter or response
states that the Common Shares are free of any restrictions under the Securities
Act, the Corporation may refuse to transfer the Common Shares to any transferee
who does not furnish in writing to the Corporation the same representations and
agree to the same conditions with respect to such Common Shares as are set forth
herein. Notwithstanding any of the foregoing, the Corporation may refuse to
transfer the Common Shares if any circumstances are present reasonably
indicating that the transferee's representations are not accurate.
(d) In the absence of registration, after two years but
prior to three years from the date the Option has been exercised and the Common
Shares fully paid for, the Corporation may refuse to transfer the Common Shares
unless the holder either (i) meets the requirements of Subparagraph (b) above;
or (ii) sells such Common Shares in accordance with Rule 144 and furnishes to
the Corporation written assurances of compliance therewith in the form of a copy
of the Notice of Form 144 and appropriate letters of compliance from the holder
of such Common Shares and the securities broker-dealer to or through which such
Common Shares are being sold. No opinion of counsel for the holder of the
Common Shares shall be required respecting sales in reliance on Rule 144
pursuant to Clause (ii) of this Subparagraph (d).
(e) In the absence of registration, after three years from
the date of the Option has been exercised and the Common Shares fully paid for,
the Corporation shall, upon the written request of any persons who have held the
Common Shares for three years (excluding any tolling period provided for by Rule
144) and who is not, and has not been
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<PAGE> 7
during the preceding three months, an affiliate of the Corporation, re-issue to
such holder in such names and denominations as the holder shall request, one or
more certificates for the Common Shares without any restriction whatsoever on
their further transfer and cancel any and all stop transfer instructions
regarding such Common Shares on the books and records of the Corporation.
8. Shareholder's Rights. This Option is non-transferable by the
Optionee, except in the event of the Optionee's death as provided in Section
9(d) hereof and during the Optionee's lifetime is exercisable only by the
Optionee. On any attempt to transfer or otherwise dispose of this Option other
than pursuant to the terms hereof or the terms of the Plan, this Option shall
immediately become null and void. The Optionee shall have no rights as a
shareholder with respect to Option Shares until payment of the Option price and
delivery to the Optionee of the Common Shares as provided herein.
9. Registration Rights. The Corporation agrees to promptly file a
registration statement on Form S-8, or other permissible form, with the
Securities and Exchange Commission with respect to the Common Shares.
10. Mergers, Reorganizations, Etc. In the event the Corporation
merges into, consolidates with or otherwise reorganizes or combines (the
"Merger") with another company, wherein immediately following such Merger, the
shareholders of the Corporation prior to the Merger own either (a) less than 50%
of the outstanding voting stock of the Corporation (if the Corporation is the
survivor of the Merger), or (b) less than fifty (50%) percent of the outstanding
voting stock of the surviving entity, then, notwithstanding anything
-7-
<PAGE> 8
in this Agreement to the contrary, all unvested options shall vest and become
immediately exercisable, subject to the provisions of Section 11 hereof.
11. Termination of Option. Except as otherwise stated herein, the
Option to the extent not heretofore exercised shall terminate upon the first of
the following dates to occur:
(a) In the event of the Optionee's death, the Optionee's
executors or administrators may exercise, within twelve (12) months following
the date of the Optionee's death, the Option as to all or part of such number of
shares which the Optionee was entitled to purchase at the time of his death, as
determined in accordance with Section 2, not theretofore exercised during the
Optionee's lifetime.
(b) On the date of the termination of the Optionee's
employment for cause or on the date the Optionee voluntarily quits his
employment.
(c) The expiration of three months after the date on which
the Optionee's employment by the Corporation is terminated not for cause (except
if such termination be by reason of death or permanent and total disability).
(d) The expiration of twelve (12) months after the date on
which the Optionee's employment by the Corporation is terminated, if such
termination be by reason of the Optionee's permanent and total disability.
(e) January 21, 2001, the fifth anniversary of this
Agreement.
12. Validity and Construction. The validity and construction of
this Option shall be governed by the laws of the State of Delaware. Such
construction is vested in the board and its construction shall be final and
conclusive.
-8-
<PAGE> 9
IN WITNESS WHEREOF, the Corporation has caused this Option Agreement to
be executed by its proper corporate officers thereunto duly authorized.
ESMOR CORRECTIONAL SERVICES, INC.
By: /s/ James F. Slattery
-------------------------------------
James F. Slattery, President
/s/ Ira Cotler
-------------------------------------
Ira Cotler, Optionee
-9-
<PAGE> 1
EXHIBIT 10.44
ESMOR CORRECTIONAL SERVICES, INC.
STOCK OPTION AGREEMENT
AGREEMENT, made as of the 21 day of January, 1996, between Esmor
Correctional Service, Inc., a Delaware corporation (the "Corporation") and
Michael Garretson (the "Optionee").
WHEREAS, the simultaneously herewith the Corporation has entered into an
employment agreement with the Optionee pursuant to which the Corporation has
agreed to grant to the Optionee an option to purchase an aggregate of one
hundred thousand (100,000) authorized but unissued shares of the Common Stock of
the Corporation, par value $.01 per share (the "Common Shares").
NOW, THEREFORE, for good and valuable consideration paid by the Optionee
to the Corporation, the adequacy of which is hereby acknowledged, and the mutual
covenants hereinafter set forth, the parties agree as follows:
1. Grant of Option. The Corporation hereby grants to the Optionee
the right and option to purchase all or any part of an aggregate of one hundred
thousand (100,000) Common Shares (subject to adjustment as provided in Paragraph
6 hereof) on the terms and conditions set forth herein (the "Option"). The
Optionee acknowledges that the Option is not an "incentive option" within the
meaning of an "incentive stock option plan" and Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Purchase Price. The purchase price of the Common Shares covered
by the Option shall be $8.875 per share (subject to adjustment as provided in
Paragraph 6 hereof).
<PAGE> 2
3. Vesting of Option. The Option is exercisable as to 33,333
shares commencing on the date hereof, as to an additional 33,333 shares
commencing one year from the date hereof and as to an additional 33,334 shares
commencing two years from the data hereof. The Option granted hereby shall
expire January __, 2001, unless earlier terminated as hereinafter set forth.
4. Method of Exercising Option. If the Optionee elects to exercise
the Option, he may do so in whole or in part at any time subject to the
termination dates specified herein. The Option, or any part thereof, may be
exercised by the Optionee in either of the following ways:
(a) If the Optionee decides to exercise all or part of his
Option and make payment for the Common Shares in full, he shall give written
notice to the Corporation, specifying therein the number of Common Shares which
he then elects to purchase, accompanied by cash or certified check payable to
the order of the Corporation.
(b) If the Optionee decides to exercise all or part of the
Option and make payment in installments, the Optionee shall give written notice
to the Corporation specifying therein the number of Common Shares which he then
elects to purchase, accompanied by a promissory note, in a form satisfactory to
the Corporation, executed by the Optionee and evidencing the obligation of the
Optionee to pay the option price to the Corporation in equal annual installments
payable on the annual anniversary date of exercise beginning one year after the
date of such exercise and terminating on the third anniversary of the date of
exercise of the Option, together with interest at the lowest rate imputed by the
-2-
<PAGE> 3
Internal Revenue Service when an interest rate is not stated in a contract.
Notwithstanding the foregoing, in the event the Optionee's relationship with
the Corporation is terminated for any reason, (a) then any such promissory note
shall immediately be due and payable, and (b) the Optionee shall not be eligible
to exercise the Option and make payment in installments, but shall be required
to make payment by cash or certified check payable to the order of the
Corporation.
As soon as practicable after receipt by the Corporation of such notice
and of payment in full of the Option price of all the Common Shares with respect
to which the Option has been exercised (including interest if payment is made in
installments), a certificate or certificates representing such Common Shares
shall be issued in the name of the Optionee, or, if the Optionee shall so
request in the notice exercising the Option, in the name of the Optionee and
another person jointly, with right of survivorship, and shall be delivered to
the Optionee. All Common Shares shall be issued only upon receipt by the
Corporation of the Optionee's representation that the shares are purchased for
investment and not with a view toward distribution thereof.
5. Availability of Shares. The Corporation, during the term of this
Option, at all times shall keep available the number of shares of common stock
required to satisfy the Option.
The Corporation shall utilize its best efforts to comply with the
requirements of each regulatory commission or agency having jurisdiction in
order to issue and sell the Common Shares to satisfy the Option; provided,
however, that the Corporation shall not be
-3-
<PAGE> 4
required to register the Common Shares issuable on exercise of the Option under
the Securities Act of 1933. Such compliance will be a condition precedent to
the right to exercise the Option. The inability of the Corporation to effect
such compliance with any such regulatory commission or agency which counsel for
the Corporation deems necessary for the lawful issuance and sale of the Common
Shares to satisfy this Option shall relieve the Corporation from any liability
for failure to issue and sell the Common Shares to satisfy the Option for such
period of time as such compliance is not effectuated.
6. Adjustments. If prior to the exercise of any option granted
hereunder the Corporation shall have effected one or more stock split-ups, stock
dividends, or other increases or reductions of the number of shares of its
common stock outstanding without receiving compensation therefor in money,
services or property, the number of Common Shares subject to the option hereby
granted shall (a) if a net increase shall have been effected in the number of
outstanding shares of the Corporation's Common Shares, be proportionately
increased and the cash consideration payable per Common Share shall be
proportionately reduced; and (b) if a net reduction shall have been effected in
the number of outstanding shares of the Corporation's Common Shares, be
proportionately reduced and the cash consideration payable per Common Share be
proportionately increased.
7. Restrictions. The holder of this Option, by acceptance hereof,
represents and warrants as follows:
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<PAGE> 5
(a) This Option and the right to purchase common stock
hereunder is personal to the holder and shall not be transferred to any other
person. The Option may not be pledged or otherwise hypothecated.
(b) The holder hereof has been advised and understands that the
Option has been issued in reliance upon exemptions from registration under the
Securities Act and applicable state statutes; the exercise of the Option and
resale of the Option and the Common Shares have not been registered under the
Securities Act or applicable state statutes and must be held and may not be
sold, transferred, or otherwise disposed of for value unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available; except as set forth herein, the Corporation is under
no obligation to register the Option or the Common Shares under the Securities
Act or the applicable state statutes; in the absence of such registration, the
sale of the Option or the Common Shares may be practicably impossible; the
Corporation's registrar and transfer agent will maintain stop-transfer
instructions against registration or transfer of the Option and the Common
Shares and any certificate issued upon exercise of the Option representing the
Common Shares will bear on its face a legend in substantially the following form
restricting the sale of the Common Shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
AND ARE "RESTRICTED SECURITIES" WITHIN THE
MEANING OF RULE 144 PROMULGATED UNDER THE
SECURITIES ACT. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD
-5-
<PAGE> 6
OR TRANSFERRED WITHOUT COMPLYING WITH RULE
144 IN THE ABSENCE OF EFFECTIVE REGISTRATION OR
OTHER COMPLIANCE UNDER THE SECURITIES ACT.
(c) Prior to two years from the date the Option has been
exercised and the Common Shares fully paid for, the Corporation may refuse to
transfer the Common Shares unless the holder thereof provides an opinion of
legal counsel reasonably satisfactory to the Corporation or a "no action" letter
or interpretive response from the staff of the Securities and Exchange
Commission to the effect that the transfer is proper; further, unless such
opinion letter or response states that the Common Shares are free of any
restrictions under the Securities Act, the Corporation may refuse to transfer
the Common Shares to any transferee who does not furnish in writing to the
Corporation the same representations and agree to the same conditions with
respect to such Common Shares as are set forth herein. Notwithstanding any of
the foregoing, the Corporation may refuse to transfer the Common Shares if any
circumstances are present reasonably indicating that the transferee's
representations are not accurate.
(d) After two years but prior to three years from the date the
Incentive Option has been exercised and the Common Shares fully paid for, the
Corporation may refuse to transfer the Common Shares unless the holder either
(i) meets the requirements of Subparagraph (b) above; or (ii) sells such Common
Shares in accordance with Rule 144 and furnishes to the Corporation written
assurances of compliance therewith in the form of a copy of the Notice of Form
144 and appropriate letters of compliance from the holder of such Common Shares
and the securities broker-dealer to or through which such Common
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<PAGE> 7
Shares are being sold. No opinion of counsel for the holder of the Common
Shares shall be required respecting sales in reliance on Rule 144 pursuant to
Clause (ii) of this Subparagraph (d).
(e) After three years from the date of the Option has been
exercised and the Common Shares fully paid for, the Corporation shall, upon the
written request of any persons who have held the Common Shares for three years
(excluding any tolling period provided for by Rule 144) and who is not, and has
not been during the preceding three months, an affiliate of the Corporation,
re-issue to such holder names and denominations as the holder shall request, one
or more certificates for the Common Shares without any restriction whatsoever on
their further transfer and cancel any and all stop transfer instructions
regarding such Common Shares on the books and records of the Corporation.
8. Shareholder's Rights. This Option is non-transferable by the
Optionee, except in the event of the Optionee's death as provided in Section
9(d) hereof and during the Optionee's lifetime is exercisable only by the
Optionee. On any attempt to transfer or otherwise dispose of this Option other
than pursuant to the terms hereof or the terms of the Plan, this Option shall
immediately become null and void. The Optionee shall have no rights as a
shareholder with respect to Option Shares until payment of the Option price and
delivery to the Optionee of the Common Shares as provided herein.
-7-
<PAGE> 8
9. Registration Rights. The Corporation agrees to promptly file a
registration statement on Form S-8, or other permissible form, with the
Securities and Exchange Commission with respect to the Common Shares.
10. Mergers, Reorganizations, Etc. In the event the Corporation
merges into, consolidates with or otherwise reorganizes or combines (the
"Merger") with another company, wherein immediately following such Merger, the
shareholders of the Corporation prior to the Merger own either (a) less than 50%
of the outstanding voting stock of the Corporation (if the Corporation is the
survivor of the Merger), or (b) less than (50%) percent of the outstanding
voting stock of the surviving entity, then, notwithstanding anything in this
Agreement to the contrary, all unvested options shall vest and become
immediately exercisable, subject to the provisions of Section 11 hereof.
11. Termination of Option. Except as otherwise stated herein, the
Option to the extent not heretofore exercised shall terminate upon the first of
the following dates to occur:
(a) In the event of the Optionee's death, the Optionee's
executors or administrators may exercise, within twelve (12) months following
the date of the Optionee's death, the Option as to all or part of such number of
shares which the Optionee was entitled to purchase at the time of his death, as
determined in accordance with Section 2, not theretofore exercised during the
Optionee's lifetime.
(b) On the date of the termination of the Optionee's employment
for cause or on the date the Optionee voluntarily quits his employment.
-8-
<PAGE> 9
(c) The expiration of three months after the date on which the
Optionee's employment by the Corporation is terminated not for cause (except if
such termination be by reason or death or permanent and total disability).
(d) The expiration of twelve (12) months after the date on
which the Optionee's employment by the Corporation is terminated, if such
termination be by reason of the Optionee's permanent and total disability.
(e) January __, 2001, the fifth anniversary of this Agreement.
12. Validity and Construction. The validity and construction of this
Option shall be governed by the laws of the State of Delaware. Such
construction is vested in the board and its construction shall be final and
conclusive.
IN WITNESS WHEREOF, the Corporation has caused this Option Agreement to
be executed by its proper corporate officers thereunto duly authorized.
ESMOR CORRECTIONAL SERVICES, INC.
By: /s/ J.F. Slattery
--------------------------------------
(Authorized Officer)
/s/ Michael C. Garretson
--------------------------------------
Michael Garretson, Optionee
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<PAGE> 1
EXHIBIT 10.45
ESMOR CORRECTIONAL SERVICES, INC.
STOCK OPTION AGREEMENT
AGREEMENT, made as of the 8th day of April, 1996, between Esmor
Correctional Service, Inc., a Delaware corporation (the "Company") and Stuart
Gerson (the "Optionee").
WHEREAS, the Corporation has agreed to grant to the Optionee an option
to purchase an aggregate of fifteen thousand (15,000) authorized but unissued
shares of the Corporation's Common Stock, par value $0.01 per share (the "Common
Shares").
NOW, THEREFORE, for good and valuable consideration provided by the
Optionee to the Corporation, the adequacy of which is hereby acknowledged, and
the mutual covenants hereinafter set forth, the parties agree as follows:
1. Grant of Option. The Corporation hereby grants to the Optionee
the right and option to purchase all or any part of an aggregate of fifteen
thousand (15,000) Common Shares (subject to adjustment as provided in Paragraph
6 hereof) on the terms and conditions set forth herein (the "Option"). The
Optionee acknowledges that the Option is not an "incentive option" within the
meaning of an "incentive stock option plan" and Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Purchase Price. The purchase price of the Common Shares covered
by the Option shall be $8.75 per share (subject to adjustment as provided in
paragraph 6 hereof).
<PAGE> 2
3. Vesting of Option. The Option is exercisable as to 7,500 shares
commencing one year from the date hereof and as to an additional 7,500 shares
commencing two years from the date hereof. The Option granted hereby shall
expire April 8, 2001, unless earlier terminated as hereinafter set forth.
4. Method of Exercising Option. If the Optionee elects to exercise
the Option, he may do so in whole or in part at any time subject to the
termination dates specified herein. The Option, or any part thereof, may be
exercised by the Optionee in either of the following ways:
(a) If the Optionee decides to exercise all or part of his
Option and make payment for the Common Shares in full, he shall give written
notice to the Corporation, specifying therein the number of Common Shares which
he then elects to purchase, accompanied by cash or certified check payable to
the order of the Corporation.
(b) If the Optionee decides to exercise all or part of the
Option and make payment in installments, the Optionee shall give written notice
to the Corporation specifying therein the number of Common Shares which he then
elects to purchase, accompanied by a promissory note, in a form satisfactory to
the Corporation, executed by the Optionee and evidencing the obligation of the
Optionee to pay the option price to the Corporation in equal annual installments
payable on the annual anniversary date of exercise beginning one year after the
date of such exercise or terminating on the third anniversary of the date of
exercise of the Option, together with interest at the lowest rate imputed by the
Internal Revenue Service when an interest rate is not stated in a contract.
Notwithstanding the foregoing, in the event the Optionee's relationship with the
Corporation is terminated for
-2-
<PAGE> 3
any reason, (a) then any such promissory note shall immediately be due and
payable, and (b) the Optionee shall not be eligible to exercise the Option and
make payment in installments, but shall be required to make payment by cash or
certified check payable to the order of the Corporation.
As soon as practicable after receipt by the Corporation of such notice
and of payment in full of the Option price of all of the Common Shares with
respect to which the Option has been exercised (including interest if payment
is made in installments), a certificate or certificates representing such
Common Shares shall be issued in the name of the Optionee, or, if the Optionee
shall request in the notice exercising the Option, in the name of the
Optionee and another person jointly, with right of survivorship, and shall be
delivered to the Optionee. All Common Shares shall be issued only upon receipt
of the Corporation of the Optionee's representation that the shares are
purchased for investment and not with a view toward distribution thereof.
5. Availability of Shares. The Corporation, during the term of
this Option, at all times shall keep available the number of shares of common
stock required to satisfy the Option.
The Corporation shall utilize its best efforts to comply with the
requirements of each regulatory commission or agency having jurisdiction in
order to issue and sell the Common Shares to satisfy the Option; provided,
however, that the Corporation shall not be required to register the Common
Shares issuable on exercise of the Option under the Securities Act of 1933.
Such compliance will be a condition precedent to the right to exercise the
Option. The inability of the Corporation to effect such compliance with any
-3-
<PAGE> 4
such regulatory commission or agency which counsel for the Corporation deems
necessary for the lawful issuance and sale of the Common Shares to satisfy this
Option shall relieve the Corporation from any liability for failure to issue and
sell the Common Shares to satisfy the Option for such period of time as such
compliance is not effectuated.
6. Adjustments. If prior to the exercise of any option granted
hereunder the Corporation shall have effected one or more stock split-ups, stock
dividends, or other increases or reductions of the number of shares of its
common stock outstanding without receiving compensation therefor in money,
services or property, the number of Common Shares subject to the option hereby
granted shall (a) if a net increase shall have been effected in the number of
outstanding shares of the Corporation's Common Shares, be proportionately
increased and the cash consideration payable per Common Share shall be
proportionately reduced; and (b) if a net reduction shall have been effected in
the number of outstanding shares of the Corporation's Common Shares, be
proportionately reduced and the cash consideration payable per Common Share be
proportionately increased.
7. Restrictions. The holder of this Option, by acceptance hereof,
represents and warrants as follows:
(a) This Option and the right to purchase common stock
hereunder is personal to the holder and shall not be transferred to any other
person. The Option may not be pledged or otherwise hypothecated.
(b) The holder hereof has been advised and understands that
the Option has been issued in reliance upon exemptions from registration under
the Securities Act and applicable state statutes; the exercise of the Option and
resale of the Option and the
-4-
<PAGE> 5
Common Shares have not been registered under the Securities Act or applicable
state statutes and must be held and may not be sold, transferred, or otherwise
disposed of for value unless they are subsequently registered under the
Securities Act or an exemption from such registration is available; except as
set forth herein, the Corporation is under no obligation to register the Option
or the Common Shares under the Securities Act or the applicable state statutes;
in the absence of such registration, (i) the sale of the Option or the Common
Shares may be practicably impossible, and (ii) the Corporation's registrar and
transfer agent will maintain stop-transfer instructions against registration or
transfer of the Option and the Common Shares and any certificate issued upon
exercise of the Option representing the Common Shares will bear on its face a
legend in substantially the following form restricting the sale of the Common
Shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
AND ARE "RESTRICTED SECURITIES" WITHIN THE
MEANING OF RULE 144 PROMULGATED UNDER THE
SECURITIES ACT. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD
OR TRANSFERRED WITHOUT COMPLYING WITH RULE
144 IN THE ABSENCE OF EFFECTIVE REGISTRATION OR
OTHER COMPLIANCE UNDER THE SECURITIES ACT.
(c) In the absence of registration, prior to two years from
the date the Option has been exercised and the Common Shares fully paid for, the
Corporation may refuse to transfer the Common Shares unless the holder thereof
provides an opinion of legal counsel reasonably satisfactory to the Corporation
or a "no action" letter or interpretive response from the staff of the
Securities and Exchange Commission to the effect that the
-5-
<PAGE> 6
transfer is proper; further, unless such opinion letter or response states that
the Common Shares are free of any restrictions under the Securities Act, the
Corporation may refuse to transfer the Common Shares to any transferee who does
not furnish in writing to the Corporation the same representations and agree to
the same conditions with respect to such Common Shares as are set forth herein.
Notwithstanding any of the foregoing, the Corporation may refuse to transfer the
Common Shares if any circumstances are present reasonably indicating that the
transferee's representations are not accurate.
(d) In the absence of registration, after two years but
prior to three years from the date the Option has been exercised and the Common
Shares fully paid for, the Corporation may refuse to transfer the Common Shares
unless the holder either (i) meets the requirements of Subparagraph (b) above;
or (ii) sells such Common Shares in accordance with Rule 144 and furnishes to
the Corporation written assurances of compliance therewith in the form of a
copy of the Notice of Form 144 and appropriate letters of compliance from the
holder of such Common Shares and the securities broker-dealer to or through
which such Common Shares are being sold. No opinion of counsel for the holder
of the Common Shares shall be required respecting sales in reliance in Rule 144
pursuant to Clause (ii) of this Subparagraph (d).
(e) In the absence of registration, after three years from
the date of the Option has been exercised and the Common Shares fully paid for,
the Corporation shall, upon written request of any persons who have held the
Common Shares for three years (excluding any tolling period provided for by Rule
144) and who is not, and has not been during the preceding three months, an
affiliate of the Corporation, re-issue to such holder in
-6-
<PAGE> 7
such names and denominations as the holder shall request, one or more
certificates for the Common Shares without any restriction whatsoever on their
further transfer and cancel any and all stop transfer instructions regarding
such Common Shares on the books and records of the Corporation.
8. Shareholder's Rights. This Option is non-transferable by the
Optionee, except in the event of the Optionee's death as provided in Section
10(b) hereof and during the Optionee's lifetime is exercisable only by the
Optionee. On any attempt to transfer or otherwise dispose of this Option other
than pursuant to the terms hereof or the terms of the Plan, this Option shall
immediately become null and void. The Optionee shall have no rights as a
shareholder with respect to Option Shares until payment of the Option price and
delivery to the Optionee of the Common Shares as provided herein.
9. Registration Rights. The Corporation agrees to promptly file a
registration statement on Form S-8, or other permissible form, with the
Securities and Exchange Commission with respect to the Common Shares.
10. Termination of Option. Except as otherwise stated herein, the
Option to the extent not heretofore exercised shall terminate upon the first of
the following dates to occur:
(a) In the event the Optionee ceases to be a member of the
Board of Directors of the Corporation for any reason other than death or
permanent disability, any then unexercised portion of the Option granted to the
Optionee shall, to the extent not then vested, immediately terminate and become
void; any portion of the Option which is then vested but has not been exercised
at the time the Optionee so ceases to be a member of the
-7-
<PAGE> 8
Board of Directors may be exercised, to the extent it is then vested, by the
Optionee within 180 days of the date the Optionee ceased to be a member of the
Board; and all options shall terminate after such 180 days have expired.
(b) In the event that the Optionee ceases to be a member of
the Board by reason of his or her death or permanent disability, any option
granted to Optionee shall be immediately and automatically accelerated and
become fully vested and all unexercised options shall be exercisable by Optionee
(or by the Optionee's personal representative, heir or legatee, in the event of
death) until the scheduled expiration date of the Option.
(c) April 8, 2001.
11. Validity and Construction. The validity and construction of
this Option shall be governed by the laws of the State of Delaware. Such
construction is vested in the board and its construction shall be final and
conclusive.
-8-
<PAGE> 9
IN WITNESS WHEREOF, the Corporation has caused this Option Agreement to
be executed by its proper corporate officers thereunto duly authorized.
ESMOR CORRECTIONAL SERVICES, INC.
By: /s/ James F. Slattery
------------------------------------
James F. Slattery, President
/s/ Stuart Gerson
-------------------------------------
Stuart Gerson, Optionee
-9-
<PAGE> 1
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
ESMOR CORRECTIONAL SERVICES, INC.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------------- ----------------------------
1993 1994 1995 1995 1996
---------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Average shares outstanding . . . . . . . . 3,281,250 4,306,709 4,552,707 4,407,828 4,914,176
Net effect of dilutive stock options
and warrants based on the treasury
stock method using average market
prices . . . . . . . . . . . . . . . . . -- 88,025 --(1) 231,092 --
---------- ---------- --------- --------- ---------
TOTAL . . . . . . . . . . . . . . . 3,281,250 4,394,734 4,552,707 4,638,920 4,914,176(2)
Net earning (loss) per financial statements . . $1,104,395 $1,542,883 $(959,391) $ 464,983 $ 10,722
Per share amount . . . . . . . . . . . . . . . $ .34 $ .35 $ (.21) $ .10 $ 0.00
========== ========== ========= ========= =========
</TABLE>
- -----------------------
(1) Common stock equivalents were not included for the year ended December
31, 1995, as their effect would be anti-dilutive as a result of the
Company's net loss for year then ended.
(2) The net effect of common stock equivalents (799,139 shares) and
adjustments to net earnings relating to interest expense
(approximately $48,000), based on the modified treasury stock method
(total number of options and warrants exceeded 20% of outstanding
shares of common stock) were not included for the three months ended
March 31, 1996, as their effect would be anti-dilutive.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
ESMOR MANAGEMENT, INC.
ESMOR (BROOKLYN), INC.
ESMOR MANHATTAN, INC.
ESMOR (SEATTLE), INC.
ESMOR NEW JERSEY, INC.
ESMOR MANSFIELD, INC.
ESMOR HOUSTON, INC.
ESMOR, INC.
ESMOR CANADIAN, INC.
ESMOR TRAVIS, INC.
ESMOR FORT WORTH, INC.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS
OF ESMOR CORRECTIONAL SERVICES, INC. FOR THE YEAR
ENDED DECEMBER 31, 1995, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,506,748
<SECURITIES> 0
<RECEIVABLES> 3,374,229
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,296,283
<PP&E> 7,344,564
<DEPRECIATION> 655,380
<TOTAL-ASSETS> 24,120,527
<CURRENT-LIABILITIES> 4,756,187
<BONDS> 10,583,317
0
0
<COMMON> 49,117
<OTHER-SE> 9,952,928
<TOTAL-LIABILITY-AND-EQUITY> 24,120,527
<SALES> 30,482,683
<TOTAL-REVENUES> 31,552,152
<CGS> 0
<TOTAL-COSTS> 19,731,797
<OTHER-EXPENSES> 9,938,344
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 761,702
<INCOME-PRETAX> (1,489,391)
<INCOME-TAX> (530,000)
<INCOME-CONTINUING> (959,391)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (959,391)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
