U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934
For fiscal year ended December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File No.: 0-23038
CORRECTIONAL SERVICES CORPORATION
(Exact name of Company as specified in its charter)
Delaware 11-3182580
(State of other jurisdiction of (I.R.S. Employee
incorporation or organization) Identification No.)
1819 Main Street, Sarasota, Florida 34236
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (941) 953-9199
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
Warrants to Purchase Common Stock
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [x]
Issuer's revenues for its most recent fiscal year are $59,936,101.
The number of shares of Common Stock, par value $.01 per share, outstanding
as of March 13, 1998 is 7,693,854. The aggregate market value of Common Stock
held by non-affiliates of the Company as of March 13, 1998 is $115,407,810.
<PAGE>
PART I
Item 1. Description of Business.
Corporate Structure
Correctional Services Corporation (the "Company") was incorporated in
Delaware on October 28, 1993 to acquire all of the outstanding capital stock of
a number of affiliated corporations engaged in the operation of corrections and
detention facilities. All references to the Company include the Company and all
wholly-owned subsidiaries on a consolidated basis.
Description
The Company is a leading developer and manager of privatized correctional
and detention facilities in the United States. Through its three divisions,
Adult, Juvenile and Community Corrections, the Company provides a diverse range
of services to local, state, and federal governmental correctional agencies. The
Company currently has agreements to operate 26 correctional and detention
facilities in New York, Florida, Arizona, Texas, New Mexico, Washington,
Mississippi and Puerto Rico, with a total of 4,641 beds. The Company is also
aggressively pursuing other privatized correctional projects both at the request
for proposal ("RFP") stage and the pre-RFP development stage.
The Company manages both secure and non-secure facilities. The Company's
secure facilities include a detention and processing center for illegal aliens,
adult prisons, adult jails, intermediate sanction facilities, juvenile detention
and treatment facilities, driving while intoxicated ("DWI") facilities, and
military-style boot camps for juvenile offenders. Its 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 offender, 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 management services offered by the
Company range 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 its proven ability to
manage the full spectrum of correctional facilities and its wide variety of
programs and services will increase its marketing opportunities.
Operational Divisions
The Company has organized its operations into three divisions: Adult,
Juvenile and Community Corrections.
Adult. The Adult Division operates 9 secure facilities located in
Seattle, Washington; Houston, Texas; Del Valle (Travis), Texas; Pearsall (Frio
County), Texas; Mansfield (Tarrant County), Texas; Florence and Phoenix,
Arizona; Grenada, Mississippi; and Gallup (McKinley County), New Mexico, with
a total of 2,495 beds. In addition to providing housing for adult inmates, the
Company provides a variety of rehabilitation and educational services. The
Company also provides health care, transportation, food services and work and
recreational programs for adult inmates.
<PAGE>
Juvenile. The Juvenile Division operates 8 facilities and has contracts
to operate 5 additional facilities in Eagle Lake (Colorado County), Texas;
(Bayamon Detention and Treatment Centers), Puerto Rico; Salinas, Puerto Rico and
Okaloosa, Florida. The current facilities are located in Bartow, Polk City, and
Pahokee, Florida; Canadian (Hemphill), Texas; Mansfield (Tarrant County), Texas;
Rockdale (Milam County), Texas; Killeen (Bell County), Texas and Medical Lake
(Spokane), Washington. The facilities house convicted youths aged 12 to 20, and
represent a total of 1,692 beds under contract. The Company manages secure and
non-secure juvenile 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. The
Company believes 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 operates four
facilities, located in Ft. Worth, Texas; and Brooklyn, Manhattan and the Bronx,
New York with a total of 454 beds. 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 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 correctional facilities
help reduce recidivism, result in prison beds being available for more violent
offenders and, in appropriate cases, represent cost-effective alternatives to
prisons.
Marketing and Business Development
The Company engages in extensive marketing and business development on a
national basis and markets selected projects in the international arena.
Marketing efforts are spearheaded by the Company's business development team
in conjunction with the CEO and outside consultants.
The Company's business development department is responsible for marketing
the full range of services to clients. Marketing responsibilities include
identifying new clients, preparing and delivering formal presentations and
identifying strategic partners.
The Company receives frequent inquiries from or on behalf of governmental
agencies. Upon receiving such an inquiry, the Company determines whether there
is an existing or future need for the Company's services, whether the legal and
political climate is conducive to correctional operations and whether or not the
project is viable.
<PAGE>
Contract Award Process
Most governmental procurement and purchasing activities are controlled by
procurement regulations take the form of RFPs, and to date 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. From time to time, the Company engage
independent consultants to assist in responding to the RFPs. Approximately six
to eighteen months is generally required from the issuance of the RFP to the
contract award.
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 contracted capacity.
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 upon
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.
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 in the correctional
services industry. Acquisitions include companies with one or more contracts as
well as individual facilities with government agencies.
Market
Through the United States, there is a growing trend toward privatization of
corrections and detention functions as governments of all types have faced
continuing pressure to control costs and improve the quality of services.
Further, as a result of the number of crimes committed each year the correspond-
ing number of arrests, incarceration costs generally grow faster than many other
parts of budget items. In an attempt to address these pressures, governmental
agencies responsible for correctional and detention facilities are increasingly
privatizing facilities.
<PAGE>
Numerous studies have proven there is a general shortage of beds available
in detention and treatment facilities. That fact, coupled with the high rate of
recidivism and the public demand for longer sentences, has resulted in over-
crowding in these facilities and an increasingly viable market.
In addition, numerous courts and other governmental entities in the United
States have mandated that additional services offered to inmates be expanded and
living conditions be improved. Many governments do not have the readily
available resources to make the changes necessary to meet such mandates.
According to the United State Department of Justice Office and Juvenile
Justice Delinquency Prevention, "Juvenile Offenders and Victims: 1996 Update of
Violence" and "Juvenile Arrests 1995", in 1996 there were 2.7 million arrests of
persons under 18, up 67% from 1986. One-fourth of juvenile arrests in 1995 were
of females - a steady increase since 1991. By the year 2010, juvenile arrests
for violent crime are expected to more than double.
In the international sector, the demand for privately managed facilities is
increasing due to fiscal pressures, overcrowding, increasing recidivism and an
overall desire to deliver augmented services while minimizing their cost impact.
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. The Company also
competes in some markets with local companies that may have a better
understanding of local conditions and a better ability to gain political and
public acceptance. In addition, the Company's Community Corrections and
Juvenile Divisions compete with governmental and not-for-profit entities. The
Company's main competitors include Wackenhut Corrections Corporation, Cornell
Corrections, Corrections Corporation of America and Youth Services
International.
Recent Events
CSC Management de Puerto Rico, Inc. In July, 1997 the Company formed
CSC Management de Puerto Rico, Inc., a Puerto Rican corporation, to pursue the
operation and management of facilities in the Commonwealth of Puerto Rico.
Later in the year, the Company was awarded three contracts for the design,
construction, operation and management of juvenile treatment and detention
facilities in Bayamon and Salinas, Puerto Rico.
Correctional Services Corporation (UK), Ltd. In February, 1998 the Company
formed Correctional Services Corporation (UK) Ltd., a British company, to pursue
correctional projects in the United Kingdom. The Company intends to build
relationships with international joint venture partners to maximize its
capabilities abroad.
Bayamon and Salinas, Puerto Rico. In February 1998, the Company signed
contracts with the Juvenile Institutions Administration of the Commonwealth
of Puerto Rico to operate two Juvenile Treatment Centers and one Juvenile
Detention Center. The Salinas Treatment Center has a 100 bed capacity and will
be designed, built, owned and operated by CSC. It is estimated that the costs
of construction will be $11,000,000. It is expected to become fully
operational in the first quarter of 1999. The Bayamon Treatment Center has a
<PAGE>
141 bed capacity and is currently undergoing renovation. Until the renovations
are complete, which is anticipated to be the first quarter of 1999, the facility
will operate at a reduced capacity. The Company will assume operation of
the facility in the second quarter of 1998. The Bayamon Detention Center has a
120 bed capacity and will begin accepting residents in the second quarter of
1998. Each of the three contracts has a base period of 5 years with one 5 year
renewal option. Once completed and fully operational these facilities are
expected to contribute approximately $15 million in revenue on an annualized
basis.
New York State Community Corrections Programs. Due to substantially reduced
occupancy rates and the lack of a long-term contract with New York State, the
Company had previously determined it would wind down the operation of its New
York State Community Corrections Program.
In the second quarter of 1997, the Company closed its Manhattan location
and placed all remaining residents in its Brooklyn location. Throughout the
year, the Company continued its effort to ascertain the likelihood of
increased population and a long-term contract. In the third quarter of 1997,
the Company understood the State would be issuing a formal Request for
Proposal (RFP) relating to its Community Corrections Programs. In addition,
the State indicated to the Company that the population rates would improve. At
that time the Company decided to re-open its Manhattan location and to prepare
to bid on the pending RFP. In February of 1998, the Company was awarded
contracts to operate two Community Corrections Programs in its Manhattan
location for a total capacity of 130.
Although the Company has recently signed contracts to operate these two
programs, the State has given no minimum occupancy guarantee and did not
increase the per diem rate. It is the Company's belief that the populations
in New York will continue to fluctuate and the New York operations will not
produce income for the Company. The Company believes that the remaining.
balance of the accrued closure costs reserves at December 31, 1997 is adequate
to offset the estimated losses associated with this contract. From a financial
point of view, the Company's decision to operate these programs is based on
its desire to offset the fixed obligations of the Company pertaining to the
lease of the buildings. These obligations will continue regardless of whether or
not the Company actually operates a program.
Fort Worth Community Corrections Program. Due to substantially reduced
occupancy levels at its Fort Worth Community Corrections Program, the Company
began winding down the operations of the Program in the first quarter of 1997.
Subsequently, the Company was asked by the Texas Department of Criminal Justice
(TDCJ) to leave a portion of the facility open until an alternative site could
be located.
In August of 1997, the Company signed an amendment to its contract with
TDCJ which significantly lowered the expected population of the facility in
addition to increasing the per diem rate to $33.00 from $29.95. The Company has
continued to run the Program at the reduced levels pending the locating of
an alternate site. Although the facility is expected to generate a loss, the
Company believes that the remaining balance of the accrued closure costs
reserves at December 31, 1997 is adequate to offset the estimated losses
associated with this contract. From a financial viewpoint, the Company's
decision to continue to operate the facility is based on its desire to offset
the fixed obligations of the Company pertaining to the building. These
obligations will continue regardless of whether or not the Company actually
operates the Program.
<PAGE>
Facilities
The Company operates both pre-disposition and post-disposition secure and
non-secure correctional and detention facilities and non-secure community
correctional 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 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
four types of post-disposition facilities: secure prisons, intermediate
sanction facilities, military-style boot camps, and secure treatment and
training facilities. Secure 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
incarceration in a prison. 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 and stress physical challenges, fitness, discipline and
personal appearance. Secure treatment and training facilities provide numerous
services designed to reduce recidivism including: educational and vocational
training, life skills, anger control management, and substance abuse counseling
and treatment.
The Company also operates non-secure residential and non-residential
community corrections programs. Non-secure residential facilities, known as
half-way houses, provide residential correctional services for offenders in need
of less supervision and monitoring than are 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 community correctional facilities are serving the
last six months of their sentence. Non-residential programs 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.
<PAGE>
The following information is provided with respect to the facilities for
which the Company has management contracts:
<TABLE>
FACILITY CONTRACT LISTING
<CAPTION>
Facility Name, Location and Contracting Owned,
Year Operations Commenced Contracted Type of Governmental Leased, or
Beds Facility Agency Managed
(1) (2)
<S> <C> <C> <C> <C>
ADULT DIVISION
Seattle INS Detention Center 150 Secure Detention INS Managed
Seattle, Washington (1989) Facility
South Texas Intermediate 400 Secure Intermediate State Managed
Sanction Facility Sanction Facility
Houston, Texas (1993)
Tarrant County Community 230 Secure Intermediate County Managed
Correctional Facility(3) Sanction Facility
Mansfield, Texas (1992)
Travis County Substance 76 Secure Intermediate County Managed
Abuse Treatment Facility Sanction Facility
Del Valle, Texas (1994)
Arizona State Prison 400 State Prison State Owned
Phoenix, West
Phoenix, Arizona (1996)
AZ State Prison, Florence 600 State Prison State Owned
Florence, Arizona (1997)
Gallup 200 Jail/Long-term County Managed
Gallup, New Mexico (1997) Detention
Frio County Jail 279 Jail/Long-term County/State Leased
Pearsall, Texas (1997) Detention
Grenada County Jail 160 Jail County Managed
Grenada, Mississippi
(1997)
JUVENILE DIVISION
Tarrant County Community 120 Secure Boot Camp County Managed
Correctional Center(3) Facility
Mansfield, Texas (1992)
Hemphill County Juvenile 60 Secure Boot Camp County Leased
Detention Center Facility
Canadian, Texas (1994)
Bartow Youth Training Center 74 Secure & Residential State Managed
Bartow, Florida (1995) Treatment Facility
Pahokee Youth Training Center 350 Secure Treatment State Managed
Pahokee, Florida (1997)
Polk City Youth Training 350 Secure Treatment State Managed
Center Facility
Polk City, Florida (1997)
Bell County Youth Training 96 Secure Detention County Managed
Center Facility
Killeen, Texas (1997)
Okaloosa County Juvenile 65 Half Way House County Owned
Residential Facility
Okaloosa, Florida (1997)
Bayamon Detention Center 120 Secure Detention Commonwealth Managed
Bayamon, Puerto Rico Facility of PR
(Est. 1998)
Bayamon Treatment Center 141 Secure Treatment Commonwealth Managed
Bayamon, Puerto Rico Facility of PR
(Est. 1998)
Salinas Treatment Center 100 Secure Treatment Commonwealth Owned
Salinas, Puerto Rico Facility of PR
(Est. 1999)
Colorado County Boot Camp 100 Secure Detention County Managed
Eagle Lake, Colorado Facility
(Est. 1998)
Judge Roger Hashem Juvenile 64 Secure Detention County Managed
Justice Center Facility
Rockdale, Texas (1997)
Martin Hall Juvenile Facility 52 Secure Correctional County Managed
Medical Lake, WA (1997) Facility
<PAGE>
COMMUNITY CORRECTIONS DIVISION
Brooklyn Community 99 Residential Federal Leased
Correctional Center Correctional Bureau
Brooklyn, New York (1989) Facility of Prisons
Manhattan Community 60 Residential Federal Leased
Corrections Center Correctional Bureau
New York, New York (1990) Facility of Prisons
Bronx Community 40 Residential Federal Leased
Corrections Center Correctional Bureau
Bronx, New York (1996) Facility of Prisons
New York State 130 Residential State Leased
Community Corrections Center Correctional
Manhattan, NY (1998) Facility
Fort Worth Community 125 Residential State Leased
Corrections Center Correctional
Fort Worth, Texas (1994) Facility
(1) The number of beds under contract generally is an estimate in the
contract by the contracting government agency of the number of offenders
expected to be assigned to the facility and not a guarantee of a minimum or
maximum number of offenders to be so assigned. Certain facilities have bed
capacity in excess of the number of beds under contract and therefore may be
occupied by a greater number of offenders than is estimated pursuant to the
contract.
(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. The Company has granted NationsBank a first
priority security interest in all its assets.
(3) This facility is listed both as part of the Company's Adult Division
and its Juvenile Division as the facility houses both adult and juvenile
offenders.
</TABLE>
Facility Management Contracts
The Company is compensated on the basis of the population in each of its
facilities on a fixed basis. Contracts usually either provide fixed per diem
rates and some have a minimum revenue guarantee. Invoices are sent on a
monthly basis. Occupancy rates for facilities tend to be low when first opened
or when expansions are first available. However, after a facility gets beyond
the start-up period (typically 3 months), the occupancy rate tends to
stabilize.
The Company's contracts generally require the Company to operate each
facility in accordance with all applicable laws, rules and regulations.
Furthermore, the Company is required by its contracts to maintain certain
levels of insurance coverage for general liability, workers' compensation,
vehicle liability and property loss or damage. The Company is also required to
indemnify the contracting agencies for claims and costs arising out of the
Company's operations and in certain cases, to maintain performance bonds.
As is standard in the industry, the Company's contracts are short term in
nature, generally ranging from one to three years and contain multiple renewal
options. Most facility contracts also generally contain clauses which allow
the governmental agency to terminate a contract without cause. The Company's
contracts are generally subject to legislative appropriation of funds. To
date, none of the Company's contracts have been terminated though any of these
methods.
<PAGE>
Operating Procedures
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 all applicable local, state and federal laws, rules
and regulations, and the standards and guidelines of the American Correctional
Association. 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. Richard P. Staley, the Company's Senior
Vice President and director, is a member of the ACA and a certified ACA
standards auditor for jail and detention facilities. James Irving, the Company's
Vice President for Juvenile Justice, is a past Chairman of the ACA Standards
Committee and a certified ACA standard auditor for jail and detention
facilities.
Facility Design and Construction
In addition to its facility management services, the Company also consults
with various governmental entities to design and construct new correctional and
detention facilities and renovate older facilities to provide enhances services
to the population. The Company manages all of the facilities it has designed
and constructed or redesigned and renovated.
Pursuant to the Company's design, build and manage contracts, it is
responsible for overall project development and completion. Typically, the
Company develops the conceptual design for a project, then hires architects,
engineers and construction companies to complete the development. When
designing a particular facility, the Company utilized, with appropriate
modifications, prototype designs the Company has used in developing other
projects. Management of the Company believes that the use of such prototype
designs allows it to reduce cost overruns and construction delays.
<PAGE>
Facilities Under Construction
Construction is nearly complete on the 65 bed juvenile facility in
Okaloosa, Florida. The facility is scheduled to open in April, 1998.
Renovations are underway in the 141 bed juvenile treatment facility in
Bayamon, Puerto Rico. The Company is expected to accept its first residents in
this facility June, 1998.
Construction will begin on a 100 bed juvenile detention center in Salinas,
Puerto Rico. The facility will house minimum to medium risk inmates ages 12 to
17 and is expected to be completed in the first quarter of 1999.
Employees
At March 13, 1998, the Company had approximately 1,730 full-time employees,
consisting of clerical and administrative personnel, security personnel, food
service personnel and facility administrators. 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.
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 held. Each Company employee having contact with
offenders receives a minimum of 40 hours of additional training each year, and
each management employee receives a minimum of 24 hours of training each year.
Insurance
Each management contract with a governmental agency requires the Company to
maintain certain levels of insurance coverage for general liability, workers'
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 two umbrella policies in the amount of $5,000,000 and $20,000,000,
respectively, 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.
<PAGE>
Regulations
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 federal, state and local regulations, including education, health
care and safety regulations. Management contracts frequently include extensive
reporting requirements. In addition, many federal , 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.
Litigation
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. Under the rules of the Securities and Exchange Commission,
the Company is obligated to disclose lawsuits which involve a claim for damages
in excess of 10% of its current assets notwithstanding the Company's belief as
to the merit of the lawsuit and the existence of adequate insurance coverage.
In May 1993, a former employee of the Company filed suit in the United
States District Court, Southern District of New York, claiming he was
intentionally assaulted by employees of the Company and claiming $5,000,000 in
damages on each of six causes of action. In January 1996, a lawsuit was filed
with the Supreme Court of New York, County of Kings, by a former employee
alleging sexual harassment and discrimination, physical assault, rape and
negligent screening of employees and claiming damages of $4,000,000 plus
attorney fees. The Company is awaiting court rulings in both of these cases
which are expected to result in dismissals of these actions by mid-1998.
In March 1996, former inmates at one of the Company's facilities filed suit
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,
which suit was transferred to the United States District Court, Southern
District of New York, in April 1996. In July 1996, seven detainees at one of the
Company's facilities (and certain of their spouses) filed suit in the Superior
Court of New Jersey, County of Union, seeking $10,000,000 each in damages
arising from alleged mistreatment of the detainees, which suit was
transferred to the United States District Court, District of New Jersey, in
August 1996. In July 1997, former detainees of the Company's Elizabeth, New
Jersey facility filed suit in the United States District Court for the
District of New Jersey. The suit claims violation of civil rights, personal
injury and property damage allegedly caused by the negligent and intentional
acts of the Company. No monetary damages have been stated. Through
stipulation, all these actions will now be heard in the United States District
Court for the District of New Jersey. This will streamline the discovery
process, minimize costs and avoid inconsistent rulings.
The Company believes the claims made in each of the foregoing actions to be
without merit and will vigorously defend such actions. The Company further
believes the outcome of these actions and all other current legal proceedings to
which it is a party will not have a material adverse effect upon its results of
operations, financial condition or liquidity. However, there is an inherent risk
in any litigation and a decision adverse to the Company could be rendered.
<PAGE>
Risks Associated with Company's Business
Safe Harbour Statement Under The Private Securities Litigation Reform Act
Of 1995
This document contains forward-looking statements involving various risks
and uncertainties. Actual results could differ materially from those projected
due to factors which may include population fluctuations, acquisition risks,
market conditions, government funding and availability of financing. These and
other risk factors are outlined in the reports filed by the Company with the
Securities and Exchange Commission.
Internal Expansion. The Company's growth is generally dependent upon 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, a trend which will require the Company to have sufficient capital
resources in order to compete effectively.
Acquisitions. The Company intends to grow through internal expansion and
through selective acquisitions of both companies and individual facilities.
There can be no assurance that the Company will be able to identify, acquire or
profitably manage acquired operations or that operations acquired will be
profitable or achieve levels of profitability that justify the related
investment. Acquisitions involve a number of special risks, including possible
adverse short-term effects on the Company's 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, any of
which could have a material adverse effect on the Company's financial condition,
results of operations and liquidity.
Resistance to Privatization of 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
governmental 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.
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, results of operations and liquidity. See
"Business - Facility Management Contracts."
<PAGE>
Uncertain Occupancy Levels. The Company is dependent upon the governmental
agency with which it has a management contract to provide inmates for, and
maintain the occupancy level of, the managed facility. A substantial portion of
the Company's revenues is generated under facility 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, results of operations and liquidity. See "Business
Facility Management Contracts" and "Business-Recent Events."
Speculative Projects. The Company makes capital expenditures on personnel,
fixtures, facilities and equipment for facilities where no contracts have yet
been awarded. If contracts do not materialize, the initial outlay may be lost.
In some cases, the Company may decide to construct and own a facility
without a contract award when it believes there is significant shortage of beds
and a strong likelihood it will be awarded a contract; however, there can be no
assurance that any contract will, in fact, be awarded. Further, there can be no
assurance that the Company will be able to obtain contracts to construct and/or
manage new facilities or retain existing contracts upon their expiration.
Regulation. 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 the contracting governmental agencies. Corrections
officers customarily are 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,
results of operations and liquidity. Further, current and future operations of
the Company may be subject to additional regulation as a result of new statues
and regulations or changes in the manner in which existing statutes and
regulations are or may be interpreted or applied, which could have a material
adverse effect on the Company's financial condition, results of operations
and liquidity.
Dependence on Senior Management. The success of the Company's operations
will depend upon the continued services of its executive management, including
James F. Slattery, Chairman and Chief Executive Officer, Ira Cotler, Executive
Vice President and Chief Financial Officer, and Michael Garretson, Executive
Vice President and Chief Operating Officer. The loss of two or more of the
Company's senior management could have an adverse effect on the Company's
business and financing. The Company has an employment agreement with all three
executive officers.
Volatility of Market Price. From time to time, there may be volatility in
the market price for the Company's Common Stock. Operating results of the
Company or of other private prison operators, economic conditions, natural
disasters or incidents at competitor's facilities could cause the market price
<PAGE>
of the Company's stock to fluctuate. In addition, in recent years the stock
market has experienced extreme price and volume fluctuations resulting in a
significant effect on the market prices of the securities issued by many
companies for reasons unrelated to their operating performance.
Item 2. Description of Property.
Brooklyn, New York Lease
The Company leases this 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 the building.
MAFC is a corporation owned by Esther Horn (27.5%), James F. Slattery (8%)
and Aaron Speisman (27.5%), significant stockholders of the Company. The terms
of the lease were not negotiated at arms length due to their relationship with
both the Company and MAFC.
Bronx, New York Lease
The Company leases a building located at 2534 Creston Avenue, Bronx, New
York from Creston Realty Associates, L.P. ("CRA"), which is owned 10% by Esther
Horn, a significant stockholder of the Company.. The lease term is two years
commencing October 1, 1996 and has three additional one year option periods. The
Company also pays a base rent of $180,000 per year which will escalate five
percent per year for each of the three year options if they are exercised. The
Company pays taxes, insurance, repairs and maintenance on this building which
will be used to house a community correctional center. The terms of this lease
were not negotiated at arms length due to the relationship between the Company,
Ms. Horn and CRA. However, pursuant to the terms of a Board of Directors
resolution adopted in connection with the Company's initial public offering, 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.
Manhattan, New York Lease
The Company subleases the building located at 12-16 East 31st Street, New
York, New York as well as an annex located at 11 East 30th Street, New York, New
York from LeMarquis Operating Corp. ("LMOC"). The Company currently utilizes
approximately fifty percent of the building for the LeMarquis Correctional
Center and for the New York Community Correctional Program. LMOC is a
corporation owned 25% by Ms. Horn and 8% by Mr. Slattery. 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
<PAGE>
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. The Company
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 in its first renewal period which expires April 30, 2000. The
sublease contains two additional 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.
Fort Worth, Texas Lease
The Company leases the facility located at 600 North Henderson Street, Fort
Worth, Texas from an unaffiliated party at a monthly rental of $10,200 for the
period May 16, 1994 through May 15, 1996; $10,400 for the period May 16, 1996
through May 15, 1997; $10,815.20 for the period May 16, 1997 through May 15,
1998; and $11,252.97 for the period May 16, 1998 through April 15, 1999. The
lease for these premises commenced May 16, 1994 and expires April 15, 1999. The
lease contains three renewal options. The term of the first renewal option is
for three years and the second and third renewal options are for two years. The
Company's rent is to increase four percent per annum during each year of the
renewal term.
Frio County, Texas Lease
The Company leases the facility at 410 S. Cedar in Pearsall, Texas from the
County for the period ending December 1, 2009. The Company has prepaid twelve
years of rent equaling $4,750,760. The lease may be extended for one additional
five year period at a price to be negotiated by the parties.
Executive Office Leases
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 $8,278 for the period October 1, 1995 through
September 30, 1996; $8,812 for the period October 1, 1996 through September 30,
1997; $9,346 for the period October 1, 1997 through September 30, 1998; $9,880
for the period October 1, 1998 through September 30, 1999; $10,415 for the
period October 1, 1999 through September 30, 2000. The lease does not
contain any renewal options. On March 1, 1997 the Company entered into a lease
amendment for approximately 1,399 square feet in its existing executive offices.
The lease amendment calls for an additional base rental of $1,924 with annual
increases of approximately $100 per month on each October 1st until the
expiration of the lease amendment on September 30, 2000.
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. The lease for these
premises, which commenced November 1, 1993, expires October 31, 1998.
<PAGE>
Item 3. Legal Proceedings.
Information with respect to this item is incorporated herein by
reference to Item 1 "Business-Litigation."
Item 4. Submission of Matters to a Vote of Stockholders.
None.
PART II
Item 5. Market for Common Equity and Related Stockholder Material
Item 6. Management's Discussion and Analysis or Plan of Operation.
The Company's primary source of revenue is generated from the management
of correctional and detention facilities under federal, state and local
governmental agency contracts. The majority of the Companies contracts are
based on a daily rate per offender, some of which have guaranteed minimum
payments; others provide for fixed monthly payments irrespective of the number
of offenders housed.
The Company typically pays all facility operating expenses, except rent
in the case of certain government-provided facilities. The Company's primary
expenses are categorized as either operating or general and administrative.
Operating expenses consist of payroll (corporate and facility employee
salaries, wages and fringe benefits, and payroll taxes) and resident expenses
which include food, medical services, supplies and clothing. General and
administrative expenses consist of rent, utilities, insurance, professional
fees, travel and lodging and depreciation and amortization.
The Company usually incurs development costs, which may range from
$50,000 to $200,000, in responding to a governmental agency RFP. Such costs
include planning and developing the project, preparing the bid proposal, travel
and legal expenses and consulting fees. 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 not to
exceed five years). 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 not to exceed five years). Revenues generated during this initial
period under per diem contracts increase as the offender population increases.
In anticipation of the millennium, management has completed a corporate
program which has prepared all Company computer systems and applications for the
year 2000. No incremental infrastructure costs have been, or will be, incurred
as a result of these enhancements.
<PAGE>
Results of Operations
<TABLE>
The following table sets forth certain operating data as a percentage of
total revenues:
<CAPTION>
Percentage of Total Revenues
----------------------------
Years Ended
December 31,
-----------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Resident Fees 97.8% 98.0% 96.8%
Other Income 2.2 2.0 3.2
----- ----- -----
Total Revenues 100.0 100.0 100.0
----- ----- -----
Expenses:
Operating 72.5 69.6 62.7
General and Administrative 19.8 27.5 31.5
Ft. Worth & NYCC Closure Costs - 10.6 -
New Jersey Facility Closure Costs - - 2.4
----- ----- -----
Total Expenses 92.3 107.7 106.6
----- ----- -----
Operating Income (Loss) 7.7 (7.7) (6.6)
Interest Income (Expense), Net 0.7 (1.5) (2.2)
----- ----- -----
Income (Loss) Before Income Taxes 8.4 (9.2) (8.8)
Income Tax Benefit (Expense) (3.4) 3.3 3.3
----- ----- -----
Net Income (Loss) 5.0% (5.9)% (5.5)%
----- ----- -----
</TABLE>
Year ended December 31, 1997 Compared to Year ended December 31, 1996
Revenue increased 90.3% from $31,501,658 for the year ended December 31,
1996 to $59,936,101 for the year ended December 31, 1997. The increase in
revenue from 1996 to 1997 was primarily attributable to the opening of seven new
facilities during 1997 (Bronx, New York, Polk, Florida and Pahokee, Florida in
January 1997; Frio County, Texas in March 1997; Milam County, Texas in June
1997; Gallup, New Mexico in July 1997; and Florence, Arizona in October 1997).
In addition, the Company experienced increased occupancy levels in certain
facilities and generated a full year of revenue in the Bell County, Texas and
Phoenix, Arizona facilities that were opened only a partial year in 1996.
Compensated mandays was 1,115,000 in 1997 and 641,000 in 1996.
Operating expenses increased 98.2% from $21,928,329 for the year ended
December 31, 1996 to $43,472,402 for the year ended December 31, 1997 primarily
due to increases in payroll and related payroll taxes and benefits related to
the opening of the new facilities. As a percentage of revenues, operating
expenses increased from 69.6% in 1996 to 72.5% in 1997. The increase in
operating expenses as a percentage of revenues can be attributed to lower
operating margins on the Company's community corrections programs, the opening
of new facilities and an increase in corporate staff to support the Company's
expanded operations.
General and administrative expenses increased 37.0% from $8,655,628 for the
year ended December 31, 1996 to $11,859,399 for the year ended December 31,
1997. The increase in general and administrative expenses was primarily
attributable to the opening of new facilities. As a percentage of revenues,
general and administrative expenses decreased to 19.8% in 1997 from 27.5% in
1996. The decrease in general and administrative expenses as a percentage of
revenue is a result of the increase in revenues and the Company's efforts in
controlling fixed costs.
At December 31, 1996 the Company wrote-off $3,329,000 for its Fort Worth,
Texas and New York State Community Corrections programs. The Company wrote-off
<PAGE>
fixed assets, development and start-up costs and other costs associated with the
closure of each program.
The operating loss for the year ended December 31, 1996 of $2,411,299 was
attributable principally to the above mentioned facilities closure costs.
Interest income, net of interest expense, was $444,077 for the year ended
December 31, 1997 compared to interest expense, net of interest income, of
$481,728 for the year ended December 31, 1996, a net change of $925,805. This
increase resulted from utilizing a portion of the net proceeds received from the
September 1996 public offering of common stock to repay bank indebtedness which
reduced interest expense, and from investing the balance of the net proceeds in
cash equivalents which increased interest income. Also, interest expense was
reduced by interest capitalized on facilities under construction. During 1996,
interest of $103,576 was capitalized on the Phoenix facility construction and
during 1997, $371,500 was capitalized on the construction of the Florence,
Arizona facility.
For the year ended December 31, 1997 the Company recognized a provision for
income taxes of $2,022,853. For the year ended December 31, 1996 the Company
recognized an income tax benefit of $1,025,000 principally from the utilization
of operating losses. The effective tax rate was 35.4% in 1996 and 40.1% in 1997.
As a result of the foregoing factors, the Company had a net loss of
$1,868,027 or $0.32 per share for the year ended December 31, 1996 compared to
net income of $3,025,524 or $0.39 per share for the year ended December 31,
1997.
Year ended December 31, 1996 Compared to Year ended December 31, 1995
Revenue increased slightly from $31,490,026 for the year ended December 31,
1995 to $31,501,658 for the year ended December 31, 1996. A full year's revenues
in 1996 generated by the Canadian, Texas facility which began operations in
April, 1995 and the Bartow, Florida facility which began operations in July
1995, as well as revenues generated by the Phoenix, Arizona facility which began
operation in April 1996, were offset by the loss in revenues stemming
principally from the discontinuance of the Company's operations at its
Elizabeth, New Jersey INS facility on June 18, 1995 and lower occupancy rates at
the Company's Fort Worth and Houston, Texas and New York State Community
Corrections facilities.
Operating expenses increased 11.1% from $19,731,797 for the year ended
December 31, 1995 to $21,928,329 for the year ended December 31, 1996 primarily
due to increases in payroll which increased $1,839,967 or 15.1%. These changes
resulted primarily from the opening of the facilities noted above, and the
addition of management personnel in the corporate office. As a percentage of
revenues, operating expenses increased from 62.7% for the year ended
December 31, 1995 to 69.6% for the year ended December 31, 1996.
General and administrative expenses decreased 12.9% from $9,938,344 for the
year ended December 31, 1995 to $8,655,628 for the year ended December 31, 1996.
The decline in general and administrative expenses was primarily attributable to
the closure of the Elizabeth, New Jersey INS facility in June 1995. As a
percentage of revenues, general and administrative expenses were 31.6% and 27.5%
for the years ended December 31, 1995 and 1996 respectively. In addition, at
December 31, 1995 and 1996, the Company wrote-off $3,909,700 and $3,329,000
respectively in facility closure costs for its Elizabeth, New Jersey INS
<PAGE>
facility (1995) and for its Fort Worth, Texas and New York State Community
Corrections programs (1996). In each year, the Company wrote-off fixed assets,
development and start-up costs and other costs associated with the closure of
each program.
The operating losses for the 1995 and 1996 years of $2,089,815 and
$2,411,299 respectively are attributable principally to the above mentioned
facility closure costs.
Interest expense, net of interest income, decreased 31.1% from $699,576 for
the year ended December 31, 1995 to $481,728 for the year ended December 31,
1996 This decrease resulted primarily from utilizing a portion of the net
proceeds received from the September 1996 public offering of common stock to
repay bank indebtedness which reduced interest expense, and from investing the
balance of the net proceeds in cash equivalents which increased interest income.
The income tax benefits of $1,050,000 and $1,025,000 respectively for the
years 1995 and 1996 result principally from the utilization of operating losses
sustained in each year. The effective tax rate was 37.6% in 1995 and 35.4% in
1996.
As a result of the foregoing factors, the Company had a net loss of
$1,739,391 or $0.38 per share for the year ended December 31, 1995 compared to a
net loss of $1,868,027 or $0.32 per share for the year ended December 31, 1996.
Liquidity and Capital Resources
The Company has financed its operations through public and private sales of
securities, cash generated from operations and borrowings from banks. The
Company had working capital at December 31, 1997 of $6,691,704 compared
$23,560,360 at December 31, 1996. The Company's current ratio decreased from
5.83 to 1 at December 31, 1996 to 1.58 to 1 at December 31, 1997. The decrease
is principally attributable to the funding of the construction of the Florence,
Arizona facility, startup costs relating to the Company's new facilities and the
inclusion of the subordinated notes due in July 1998 as a current liability at
December 31, 1997. The Company's long-term debt to stockholders' equity ratio
was 0.7% at December 31, 1997 as compared to 9.8% at December 31, 1996.
Net cash provided by operating activities was $3,352,504 for the year ended
December 31, 1997 as compared to $ 1,022,759 for the year ended December 31,
1996. The change was attributed primarily to increases in net income,
depreciation and amortization, and accounts payable partially offset by an
increase in accounts receivable. Net cash of $16,119,117 was used in investing
activities during the year ended December 31, 1997 as a result of the capital
xpenditures associated with the construction of the Florence, Arizona facility
and start-up costs relating to the opening of new facilities.
Net cash of $2,949,532 was used in financing activities in the year ended
December 31, 1997 as compared to $25,738,273 provided by financing activities in
the year ended December 31, 1996. During 1997 $4,750,760 was used to prepay a
12 year lease for the Frio County facility and was partially offset by
$1,248,800 (net of imputed interest) installment payments received from the
sale of equipment and leasehold improvements. The principal source of funds
provided by financing activities for the year ended December 31, 1996 was the
public offering of Common Stock (see below).
<PAGE>
Financing
On September 12, 1996 the Company completed a public offering of 2,450,000
shares of Common Stock at $13.625 per share. Of the 2,450,000 shares of Common
Stock offered, 2,070,000 were sold by the Company and 380,000 shares by certain
stockholders. The Company did not receive any proceeds from the shares sold by
the stockholders. The net proceeds received by the Company after deducting
applicable issuance costs and expenses aggregated $25,938,514. The net proceeds
were used to repay short-term and long-term bank indebtedness in the amount of
$7,198,468, and to finance construction, start-up and related costs of two
Florida facilities, the Florence, Arizona Facility and other facilities and for
general corporate purposes, including the financing of working capital needs.
Also, in October, 1996 pursuant to the underwriters' over-allotment option, the
Company sold an additional 367,500 shares of Common Stock, which aggregated an
additional $4,569,542 in net proceeds.
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 may borrow up to the lesser of $6,000,000 or 85.0% of the Company's
eligible accounts receivable (none outstanding at December 31, 1997). 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%. On January 14, 1998 the Company extended the term of the revolving
credit portion of its loan agreement until April 3, 1998. The Company is
currently in negotiations with NationsBank for a new and expanded credit and
lease agreement.
The Company has granted NationsBank the first priority security interest in
all of its assets. The Company is required to pay NationsBank 0.25% of the
average unused portion of the revolving credit loan.
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 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.
The Company received $185,388 and $426,890 from the exercise of stock
options and warrants during the years ended December 31, 1997 and 1996
respectively.
The Company anticipates making cash investments in the acquisition and
construction of new facilities and the expansion of existing facilities. In
addition, the Company expects to use its cash to finance startup costs in
connection with new contracts. The Company believes that its cash, cash flow
<PAGE>
from operations, and amounts available under its anticipated credit and lease
agreement will be sufficient to meet its capital requirements for the
foreseeable future. However, the Company is continuing to evaluate
opportunities, which could require significant outlays of cash. If such
opportunities are pursued the Company would require additional financing
resources. Management believes these additional resources may be available
through alternative financing methods.
Item 7. The information required by this Item is contained on Pages F-1
through F-30 hereof.
Item 8. None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Executive Officers and Directors
<TABLE>
The following table lists the executive officers and directors of the
Company, together with their respective ages and offices:
<CAPTION>
Name Age Office
<S> <C> <C>
James F. Slattery 48 President, Chief Executive Officer and Director
Michael C. Garretson 53 Executive Vice President and Chief Operating Officer
Aaron Speisman 50 Executive Vice President, Secretary and Director
Ira M. Cotler 34 Executive Vice President and Chief Financial Officer
Richard P. Staley 66 Senior Vice President and Director
Melvin T. Stith(1) 51 Director
Raymond S. Evans(1) 61 Director
Stuart M. Gerson(1) 54 Director
Shimmie Horn 25 Director
- -------------------------
(1) Member of Audit, Compensation and Stock Option Committees.
James F. Slattery co-founded the Company in October 1987 and has been its
President, Chief Executive Officer and a director since the Company's inception
and Chairman since August 1994. Prior to co-founding the Company, Mr. Slattery
had been a managing partner of Merco Properties, Inc., a hotel operation
company, Vice President of Coastal Investment Group, a real estate development
</TABLE>
<PAGE>
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., a developer and manager of privatized correctional
and detention facilities, and from August 1990 to August 1993 was Director of
Area Development for Euro Disney S.C.A., the operator of a European theme park.
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 Chief Financial Officer in January, 1998. He 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 of
Operations 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.
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.
<PAGE>
Item 10. Executive Compensation
The following table sets forth a summary of the compensation earned in
1995, 1996 and 1997 by the Company's Chief Executive Officer and by each other
executive officer whose compensation exceeded $100,000 in 1997:
<TABLE>
Summary Compensation Table
<CAPTION>
Long Term
Annual Compensation Compensation Awards
Number of Shares All Other
Other Annual Underlying Options Compensation
Name and Principal Position Year Salary Bonus Compensation (1) Granted (2)
<S> <C> <C> <C> <C> <C> <C>
James F. Slattery 1997 $208,373 $200,000 $17,988 0 $27,270
President and
Chief Executive Officer 1996 $208,685 0 $19,984 0 $20,139
1995 $189,000 0 $13,010 5,000 $30,263
Michael Garretson 1997 $118,834 $ 75,000 $12,000(3) 0 $ 288
Executive Vice President
1996 $112,406 $ 507 $13,000(3) 100,000 0
1995 $ 55,926 0 0 6,250 0
Ira Cotler 1997 $135,115 $ 75,000 $ 6,000 0 $ 54
Executive Vice President
Chief Financial Officer 1996 $107,261 $ 507 $50,396(4) 100,000 0
1995 N/A N/A N/A N/A N/A
- ------------------
(1) Consists of car lease payments.
(2) Consists of life insurance premiums.
(3) Also includes housing allowance.
(4) Also includes relocation and related costs.
In addition to the compensation described above, for 1995, Mr. Slattery
received S Corporation distributions of $134,400.
</TABLE>
The following table sets forth information concerning stock options granted
executive officers named in the Summary Compensation Table:
Option Grants in 1997: None
<PAGE>
<TABLE>
The following table sets forth information concerning stock options granted
executive officers named in the Summary Compensation Table:
<CAPTION>
Option Values at December 31, 1997
Number of Value of
Shares Underlying In-The-Money Options
Options at Year End at Year End
Name Exercisable/Unexercisable Exercisable/Unexercisable
<S> <C> <C>
James F. Slattery............... 16,458/ 1,667 $ 8,939/$ 4,471
Mike Garretson.................. 70,832/35,366 $109,199/$ 54,601
Ira Cotler...................... 66,666/33,334 $109,199/$ 54,601
</TABLE>
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 entered into an employment agreement with Mr. Garretson
which expires January 20, 1999 and provides for compensation of $115,000, 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 $75,000, and the
grant to purchase 100,000 shares of Common Stock.
The Company's current employment agreement with Mr. Cotler was extended in
July, 1997 and has a term of three years with automatic annual renewal
provisions. Mr. Cotler receives $135,000, annual salary increases, automobile
allowances and a bonus equal to 3% of pre-tax profits in excess of $1,000,000,
such bonus not to exceed $75,000.
In October 1989, 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 Company's facilities being established
in their communities, and with 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 and local correctional agency contracts within
the State of New York with a guaranteed minimum monthly income of $4,500. In
December 1993, Mr. Banks agreed to become a consultant to the Company upon the
same terms and conditions in order to accurately reflect the level and nature of
the services he provided. In 1996 and 1997, Mr. Banks earned approximately
$296,000 and $239,000 respectively.
<PAGE>
Stock Options
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 (or 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.
During fiscal 1995 and 1996, options to purchase 54,375 and 50,700 shares,
respectively, were granted under the 1993 Plan at exercise prices ranging from
$4.76 to $20.63 per share. In 1997, options to purchase 155,500 shares were
granted under the 1993 Plan at exercise prices ranging from $8.75 to $17.88 per
share.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of March 13, 1998,
based on information obtained from the persons named below, with respect to the
beneficial ownership of shares of the Company's Common Stock by (i) each person
known by the Company to beneficially own more than 5% of the outstanding shares
of Common Stock, (ii) each executive officer and director of the Company, and
(iii) all officers and directors of the Company as a group:
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percentage of
Beneficial Owner(1) Beneficial Ownership Beneficial Ownership
<S> <C> <C>
Esther Horn................................ 659,175 8.6%
James F. Slattery(2)....................... 788,125 10.2%
Aaron Speisman(3).......................... 447,263 5.8%
Jennifer Anna Speisman 1992 Trust.......... 83,438 1.1%
Joshua Israel Speisman 1992 Trust.......... 83,438 1.1%
Ira M. Cotler (4).......................... 117,368 1.5%
Richard P. Staley (5)...................... 62,583 *
Michael C. Garretson (6)................... 106,198 1.4%
Raymond S. Evans(7)........................ 17,925 *
Stuart Gerson (8).......................... 26,975 *
Melvin T. Stith (9)... .................... 17,500 *
Shimmie Horn (10).......................... 3,333 *
All officers and directors as a group
(nine persons) (2) (3) (4) (5) (6) (7)
(8) (9) (10).............................. 2,413,321 31.4%
- ------------------------
* Less than 1%
(1) All addresses are c/o Correctional Services Corporation, 1819 Main
Street, Suite 1000, Sarasota, Florida 34236.
(2) Includes options to purchase 16,458 shares of Common Stock. Does not
include options to purchase 1,667 shares of Common Stock not exercisable within
60 days.
(3) Director and founder. Does not include 83,438 shares of Common Stock
owned by the Jennifer Anna Speisman 1992 Trust and 83,438 shares of Common Stock
owned by the Joshua Israel Speisman 1992 Trust, trusts for the benefit of Mr.
Speisman's children, as to which Mr. Speisman disclaims beneficial ownership.
Includes options to purchase 16,458 shares of Common Stock and a Series A
Warrant to purchase 6,700 shares of Common Stock but does not include options to
purchase 1,667 shares of Common Stock not exercisable within 60 days.
(4) Includes 2,612 shares of Common Stock owned by his wife as to which he
disclaims beneficial ownership. Also includes options to purchase 100,000 shares
of Common Stock, a Series A Warrant to purchase 3,850 shares of Common Stock and
other warrants to purchase 10,906 shares of Common Stock.
(5) Includes options to purchase 62,083 shares of Common Stock. Does not
include options to purchase 1,667 shares of Common Stock not exercisable within
60 days.
(6) Consists of options to purchase 106,198 shares of Common Stock.
<PAGE>
(7) Includes options to purchase 17,925 shares of Common Stock. Does not
include options to purchase 10,000 shares of Common Stock not exercisable
within 60 days.
(8) Consists of options to purchase 23,125 shares of Common Stock and a
Series A Warrant to purchase 3,850 shares of Common Stock. Does not include
options to purchase 10,000 shares of Common Stock not exercisable within 60
days.
(9) Consists of options to purchase 17,500 shares of Common Stock. Does
not include options to purchase 10,000 shares of Common Stock not exercisable
within 60 days.
(10) Consists of options to purchase 3,333 shares of Common Stock. Does not
include options to purchase 10,000 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.
</TABLE>
Item 12. Certain Relationships and Related Transactions
The Company subleases a building located at 12-16 East 31st Street, New
York, New York from LeMarquis Operating Corp. ("LMOC"), a corporation owned 25%
by Ester 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 $16,074 (the "Base Rent"), plus taxes, currently approximately
$14,000, and water and sewer charges, currently approximately $3,500, for a
total monthly rental of approximately $33,000. 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.
As a result of the lease negotiations, under a sublease dated as of January
1, 1994, since May 1, 1995, the Company has paid rent of $18,000 per month above
the rent paid by LMOC to the building's owner for a total monthly rent of
approximately $51,420. The Company has, to date, invested $739,000 in leasehold
improvements and will not receive any credit, in terms of a reduction in rent or
otherwise, for these improvements. 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. The negotiation of the sublease, including the
renewal terms, was requested by the Representative of the Underwriters of the
Company's February 2, 1994 initial public offering to substantially track the
renewal terms of the Company's management contract. The negotiations were not
subject to the board resolution, adopted subsequent to the negotiations,
relating to affiliated transactions, although the terms were approved by all of
the directors. 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.
<PAGE>
These renewal options were separately negotiated between the Board of Directors
of the 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.
Previously, residential and commercial tenants of this building paid rent
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. As of February 1994,
however, 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 $193,000 in 1996 and
$184,000 in 1997. 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 $6,500 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.
The Company leases a building located at 2534 Creston Avenue, Bronx, New
York from Creston Realty Associates, L.P. ("CRA"), the corporation owned 10% by
Ester Horn. The lease term is two years commencing October 1, 1996 and has three
additional one year option periods. The Company also pays a base rent of
$180,000 per year which will escalate five percent per year for each of the
three year options if they are exercised. The Company pays taxes, insurance,
repairs and maintenance on this building which will be used to house a community
correctional center. The terms of this lease were not negotiated at arms length
due to the relationship between the Company, Ms. Horn and CRA.
Pursuant to the terms of a Board of Directors resolution adopted in
connection with the Company's initial public offering, 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
<PAGE>
ITEM 13. EXHIBITS AND REPORTS
(a) Exhibits
*2.1 Stock Transfer Agreements between the Company and the stock-
holders 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 Certificate of Incorporation dated October 28, 1993
##3.1.1 Copy of Certificate of Amendment of Certificate of Incorporation
of Esmor Correctional Services, Inc. dated July 29, 1996
*3.2 By-Laws
*4.2 Form of Underwriter's Warrant between the Company and Janney
Montgomery Scott Inc.
*10.1 Stock Option Plan
*10.5 Employment Agreement between the Company and James F. Slattery
*10.6 Employment Agreement between the Company and Aaron Speisman
##10.6.1 Modification to the Employment Agreement between the Company
and Aaron Speisman, dated June 13, 1996
#10.8.3 Exercise of third option of the contract for operation of a
facility in New York, New York for women through June 30, 1995
*10.9 Contract between the Company and the U.S. Department of Justice,
Federal Bureau of Prisons for operation of a facility in Brooklyn, New York,
dated November 13, 1990
*10.9.1 Letter dated September 23, 1993 from the U.S. Department of
Justice, Federal Bureau expressing its intent to exercise the third option year
of the contract
*10.9.2 Exercise of third option year of the contract for operation of a
facility in Brooklyn, New York
#10.9.3 Extension of contract for operation of a facility in Brooklyn,
New York through March 31, 1995
*10.10 Bridge Contract between the Company and the U.S. Department of
Justice, Immigration and Naturalization Service for operation of the Seattle
Processing Center, dated September 28, 1993
##10.10.1 Contract Amendment between the Company and the U.S. Immigration
and Naturalization service for operation of the Seattle Processing Center, dated
October 1, 1996
*10.11 Contract between the Company and the Judicial District Community
Supervision and Corrections Department of Tarrant County, dated September 1,
1993
#10.11.1 Renewal and Amendment of Agreement between the Company and the
Judicial District Community Supervision and Corrections Department of Tarrant
County, dated October 5, 1994
**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
<PAGE>
*10.12 Contract between the Company and the New York State Department of
Corrections, dated July 17, 1992
**10.12.1 Extension of Contract between the Company and the New York State
Department of Corrections
*10.13 Contract between the Company and the Texas Department of
Criminal Justice, Pardons and Paroles Division
#10.13.1 Extension to the contract between the Company and the Texas
Department of Criminal Justice, Pardons and Paroles Division for operation of
the South Texas Intermediate Sanction Facility
**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
Corporation
*10.17 Form of Lease between the Company and Myrtle Avenue Family
Center, Inc.
*10.18 Lease between the Company and T. NY (USA)
#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
<PAGE>
#10.20 Contract between Esmor Fort Worth, Inc. and the Texas Department
of Criminal Justice, Pardons and Paroles Division for the Fort Worth Community
10.20.1 Addendum One to the Contract between Esmor Fort Worth, Inc. and
the Texas Department of Criminal Justice, Pardons and Paroles Division for the
Fort Worth Community
10.20.2 Amendment Two to the Contract between Esmor Fort Worth, Inc. and
the Texas Department of Criminal Justice, Pardons and Paroles Division for the
Fort Worth Community dated April 1, 1997
10.20.3 Amendment Three to the Contract between Esmor Fort Worth, Inc.
and the Texas Department of Criminal Justice, Pardons and Paroles Division for
the Fort Worth Community dated September 1, 1997
#10.21 Contract dated September 1, 1994 by the Community Supervision and
Corrections Department of Travis County, Texas for the Travis County Substance
Abuse Treatment 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
<PAGE>
++10.21.2 Amendment to the Contract and the Company for the Operation and
Management of 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.
#10.23 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
10.24.1 Renewal of the Revolving Line of Credit Note dated January 15,
1998
**10.25 1994 Non-Employee Director Stock Option Plan
**10.26 Loan and Security Agreement with NationsBank, N.A. (South) dated
as of December 31, 1995
10.26.1 Intentionally blank
10.26.2 Deed of Trust Modification Agreement dated January 14, 1998
10.26.3 Third Amendment to Loan Agreement dated January 5, 1998
10.26.4 Fourth Amendment to Loan Agreement dated January 14, 1998
**10.27 Lease between the Company and Zell/Merrill Lynch Real Estate
Opportunity Partners Limited Partnership dated as of June 30, 1995
##10.27.1 Amendment to the Lease Agreement between the Company and Zell
Merrill Lynch Real Estate Opportunity Partners Limited Partnership dated
November 15, 1996
**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 in Phoenix, Arizona
dated July 1995
10.31.1 Amendment Number One to the contract between the Company and the
State of Arizona, Department of Corrections for the operation of the Arizona DWI
Facility in Phoenix, Arizona dated April 1997
10.31.2 Amendment Number Two to the contract between the Company and the
State of Arizona, Department of Corrections for the operation of the Arizona DWI
Facility in Phoenix, Arizona dated December 1997
**10.32 Contract between the Company and the State of Florida, Department
of Juvenile Justice for operation of the Bartow Youth Facility
<PAGE>
**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
**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
**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
10.39 (Intentionally blank)
##10.40 Contract between the Company and the U.S. Bureau of Prisons for
operation of the Bronx Community Corrections Center, dated October, 1, 1996
##10.41 Contract between the Company and the State of Arizona for
operation of the DWI Secure Prison in Phoenix, Arizona dated January 1997
##10.42 Contract between the Company and McKinley County New Mexico for
operation of the McKinley County, New Mexico Adult Detention Facility, dated
October 3, 1996
##10.43 Contract between the Company and Colorado County, Texas for the
operation of the Colorado County, Texas Juvenile Residential Facility
##10.44 Lease Agreement between the Company and Creston Realty
Associates, L.P., dated October 1, 1996
*10.45 Lease between the Company and Elberon Development Company
##10.45.1 Assignment of Lease between the Company and Elberon Development
Company
##10.46 Contract between the Company and Bell County Texas for operation
of the Bell County Juvenile Residential Facility
##10.47 Employment Agreement between the Company and Ira M. Cotler,
dated January 21, 1996
+10.47.1 Amended Employment Agreement between the Company and Ira M.
Cotler dated July 9, 1997
##10.48 Employment Agreement between the Company and Michael C.
Garretson, dated January 21, 1996
+10.49 Contract between the Company and Okaloosa County, Florida for the
Design, Build and Operation of a Moderate Risk Residential Program and a High
Risk Residential Program dated June 13, 1997
<PAGE>
+10.49.1 Amendment to Contract between the Company and Okaloosa County,
Florida for the Design, Build and Operation of a Moderate Risk Residential
Program and a High Risk Residential Program dated June 16, 1997
++10.50 Contract between the Company and Grenada County, Mississippi for
the Operation and Management of a 200 bed jail dated September 1, 1997
++10.50.1 Lease Agreement between the Company and Grenada County dated
September 1, 1997
++10.51 Asset Purchase Agreement between the Company and Dove Development
Corporation, Consolidate Financial Resources/Crystal City, Inc., dated
August 27, 1997
++10.51.1 First Amendment to Asset Purchase Agreement between the Company
and Dove Development Corporation, Consolidate Financial Resources/Crystal City,
Inc., dated August 27, 1997
++10.52 Contract between the Company and McKinley County, New Mexico for
the Operation and Management of the McKinley County Adult Detention Facility in
Gallup, New Mexico, executed August 21, 1997
++10.53 Contract between the Company and the Martin Hall Juvenile
Facility Board dated October 15, 1997 for the Operation and Management of the
Martin Hall Juvenile Detention Center in Medical Lake, Washington
10.54 Lease Agreement between the Company and Frio County dated
November 26, 1997
10.55 Contract between CSC Management de Puerto Rico and the Juvenile
Institutions Administration of the Commonwealth of Puerto Rico dated
December 22, 1997 for the operation and management of a secure residential
treatment program for youths at the Salinas facility in Puerto Rico
10.56 Contract between the Company and the Juvenile Institutions
Administration dated February 6, 1998 for operation of the Metropolitan Juvenile
Detention Center in Puerto Rico
10.57 Contract between the Company and the Juvenile Institutions
Administration dated February 6, 1998 for operation of the Metropolitan Juvenile
Treatment Center in Puerto Rico
10.58 Contract between the Company and the New York State Department of
Corrections for Community Reintegration Services dated March 1, 1998
10.59 Resolution from the City Council of the City of Eagle Lake, Texas
to the Company to construct and operate a 1,000 bed prison facility in Eagle
Lake, Colorado County, Texas dated July 22, 1997
**21.1 List of Significant Subsidiaries
21.2 Amended List of Subsidiaries
27. Financial Data Schedule
- ------------------------
* Incorporated by reference to the Company's Registration Statement on Form
SB-2 (File No. 33-71314-NY).
# Incorporated by reference to the Company's Annual Report on Form-10-KSB
for the year ended December 31, 1994.
<PAGE>
** Incorporated by reference to the initial filing of the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1995.
## Incorporated by reference to the Company's Annual Report on Form-10-KSB
for the year ended December 31, 1996.
+ Incorporated by reference to the Company's filings on Form 10-Q for
June 30, 1997.
++ Incorporated by reference to the Company's filings on Form 10-Q for
September 30, 1997.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K in fiscal 1997.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CORRECTIONAL SERVICES CORPORATION
Registrant
By: /s/James F. Slattery, President
---------------------------------
James F. Slattery, President
Dated: March 30, 1998
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signature Title Date
/s/James F. Slattery President (Principal Executive Officer) March 30, 1998
- -------------------- and Director
James. F. Slattery
/s/Aaron Speisman Vice President, Secretary and Director March 30, 1998
- --------------------
Aaron Speisman
/s/Ira C. Cotler Chief Financial Officer (Principal March 30, 1998
- -------------------- Financial Officer)
Ira C. Cotler
/s/Raymond S. Evans Director March 30, 1998
- --------------------
Raymond S. Evans
/s/Stuart Gerson Director March 30, 1998
- --------------------
Stuart Gerson
/s/Melvin Stith Director March 30, 1998
- --------------------
Melvin Stith
/s/Shimmie Horn Director March 30, 1998
- --------------------
Shimmie Horn
/s/Richard Staley Vice President and Director March 30, 1998
- --------------------
Richard Staley
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
CORRECTIONAL SERVICES CORPORATION
AND SUBSIDIARIES
December 31, 1997, 1996 and 1995
<PAGE>
C O N T E N T S
Page
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-2
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 F-3
Consolidated Statement of Stockholders' Equity for the years
ended December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 F-5-6
Notes to Consolidated Financial Statements F-7-30
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Correctional Services Corporation
We have audited the accompanying consolidated balance sheets of Correctional
Services Corporation and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Correctional
Services Corporation and Subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
GRANT THORNTON LLP
Tampa, Florida
March 11, 1998
<PAGE>
<TABLE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
------------------------
ASSETS 1997 1996
---------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,216,106 $20,932,309
Restricted cash 60,626 -
Accounts receivable, net 10,672,018 4,023,620
Receivable from sale of equipment and
leasehold improvements 1,380,000 1,476,000
Prepaid expenses and other 964,576 2,001,973
---------- ----------
Total current assets 18,293,326 28,433,902
BUILDING, EQUIPMENT AND LEASEHOLD IMPROVEMENTS -
AT COST, NET 23,717,172 12,040,149
LONG-TERM RECEIVABLE FROM SALE OF EQUIPMENT AND
LEASEHOLD IMPROVEMENTS 879,082 2,031,882
OTHER ASSETS
Deferred development and start-up costs, net 8,043,380 5,817,959
Deferred income taxes - 1,495,000
Other 4,933,327 485,157
---------- ----------
$55,866,287 $50,304,049
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 7,539,062 $ 4,873,542
Subordinated promissory notes 3,935,760 -
Deferred tax liability 125,000 -
Current portion of long-term debt 1,800 -
---------- ----------
Total current liabilities 11,601,622 4,873,542
LONG-TERM DEBT 321,491 -
LONG-TERM PORTION OF ACCRUED CLOSURE EXPENSES 755,000 1,606,000
SUBORDINATED PROMISSORY NOTES - 3,899,841
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value,
1,000,000 shares authorized,
none issued and outstanding - -
Common stock, $.01 par value,
30,000,000 shares authorized,
7,693,854 and 7,660,779 shares
issued and outstanding
as of 1997 and 1996, respectively 76,938 76,608
Additional paid-in capital 42,260,247 42,022,593
Accumulated earnings (deficit) 850,989 (2,174,535)
---------- ----------
43,188,174 39,924,666
---------- ----------
$55,866,287 $50,304,049
---------- ----------
---------- ----------
The accompanying notes are an integral part of these statements.
F-2
</TABLE>
<PAGE>
<TABLE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Years Ended December 31,
-----------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues
Resident fees $58,593,217 $30,866,162 $30,482,683
Other income 1,342,884 635,496 1,007,343
---------- ---------- ----------
59,936,101 31,501,658 31,490,026
---------- ---------- ----------
Expenses
Operating 43,472,402 21,928,329 19,731,797
General and administrative 11,859,399 8,655,628 9,938,344
Fort Worth and New York Community
Corrections closure costs - 3,329,000 -
New Jersey facility closure cost - - 3,909,700
---------- ---------- ----------
55,331,801 33,912,957 33,579,841
---------- ---------- ----------
Operating income (loss) 4,604,300 (2,411,299) (2,089,815)
Interest income (expense) 444,077 (481,728) (699,576)
---------- ---------- ----------
Income (loss) before income taxes 5,048,377 (2,893,027) (2,789,391)
Income tax expense (benefit) 2,022,853 (1,025,000) (1,050,000)
---------- ---------- ----------
NET INCOME (LOSS) $ 3,025,524 $(1,868,027) $(1,739,391)
---------- ---------- ----------
---------- ---------- ----------
Net earnings (loss) per common
share:
Basic $0.39 $(0.32) $(0.38)
Diluted $0.37 $(0.32) $(0.38)
Number of shares used in per common
share computation:
Basic 7,675,220 5,781,853 4,552,707
Diluted 8,117,922 5,781,853 4,552,707
The accompanying notes are an integral part of these statements.
F-3
</TABLE>
<PAGE>
<TABLE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31, 1997, 1996 and 1995
<CAPTION>
Additional Retained
Common Paid-in Earnings
Stock Capital (Deficit) Total
-------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1995 $ 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 (1,739,391) (1,739,391)
------ ---------- ---------- ----------
Balance at December 31, 1995 49,117 9,479,436 (306,508) 9,222,045
Common stock issuance
through public offering 24,375 30,483,681 - 30,508,056
Exercise of stock options 649 411,338 - 411,987
Exercise of warrants 2,467 1,648,138 - 1,650,605
Net loss (1,868,027) (1,868,027)
------ ---------- ---------- ----------
Balance at December 31, 1996 76,608 42,022,593 (2,174,535) 39,924,666
Reduction in stock
issuance cost - 46,902 - 46,902
Exercise of stock options 26 12,443 - 12,469
Exercise of warrants 304 178,309 - 178,613
Net income - - 3,025,524 3,025,524
------ ---------- ---------- ----------
Balance at December 31, 1997 $76,938 $42,260,247 $ 850,989 $43,188,174
------ ---------- ---------- ----------
------ ---------- ---------- ----------
The accompanying notes are an integral part of this statement.
F-4
</TABLE>
<PAGE>
<TABLE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years Ended December 31,
-----------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss) $ 3,025,524 $(1,868,027) $(1,739,391)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and amortization 2,164,110 778,462 1,168,850
Amortization of subordinated
note discount 88,515 173,247 50,695
Amortization of deferred loan
costs 250,836 243,258 127,568
Deferred income tax expense
(benefit) 1,620,000 (375,000) (1,120,000)
Ft. Worth deferred development
cost writedown - 98,446 -
Ft. Worth and NYCC facilities
asset impairment - 564,050 -
New Jersey facility asset
impairment - - 2,771,424
New Jersey deferred development
costs writedown - - 416,201
Changes in operating assets and
liabilities:
Accounts receivable (6,648,398) (649,391) 1,429,785
Refundable income taxes 562,499 (650,000) -
Prepaid expenses and other
current assets 474,900 63,333 (774,644)
Accounts payable and
accrued liabilities 2,643,283 377,877 895,650
Reserve for Ft. Worth and
NYCC facilities closure
costs (828,763) 2,566,504 -
Reserve for New Jersey
facility closure costs - (300,000) -
---------- ---------- ----------
Net cash provided by
operating activities 3,352,506 1,022,759 3,226,138
---------- ---------- ----------
Cash flows from investing
activities:
Capital expenditures (12,648,961) (6,018,195) (6,110,693)
Development and start-up costs (3,409,590) (4,317,276) (1,824,268)
(Increase) decrease in restricted
cash - unexpended construction
and maintenance funds (60,626) 750,000 (750,000)
---------- ---------- ----------
Net cash used in
investing activities (16,119,177) (9,585,471) (8,684,961)
---------- ---------- ----------
Cash flows from financing
activities:
Proceeds from issuance of common
stock - 30,508,056 3,469,698
Proceeds from long-term borrowing 325,000 - 1,500,000
Payments on long-term borrowings (1,709) (4,000,000) (1,282,715)
Proceeds (payments) on short-term
debt, net - (1,221,022) 218,333
Issuance of subordinated notes
and warrants - - 5,676,600
Proceeds from sale of equipment
and leasehold improvements 1,248,800 - -
Debt issuance costs (100,000) - (652,101)
Net proceeds from exercise of
stock options and warrants 185,388 426,890 33,320
Long-term portion of prepaid
lease (4,335,482) - -
Other assets (271,529) 24,349 (56,010)
---------- ---------- ----------
Net cash provided by
(used in) financing
activities (2,949,532) 25,738,273 8,907,125
---------- ---------- ----------
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<CAPTION>
Years Ended December 31,
-----------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $(15,716,203) $17,175,561 $ 3,448,302
Cash and cash equivalents at
beginning of period 20,932,309 3,756,748 308,446
---------- ---------- ----------
Cash and cash equivalents at
end of period $ 5,216,106 $20,932,309 $ 3,756,748
----------- ---------- ----------
----------- ---------- ----------
Supplemental disclosures of cash
flows information:
Cash paid (refunded) during the
period for:
Interest $ 436,178 $ 883,900 $ 602,700
----------- ---------- ----------
----------- ---------- ----------
Income taxes, net $ (211,609) $ (2,200) $ 789,500
----------- ---------- ----------
----------- ---------- ----------
The accompanying notes are an integral part of these statements.
F-6
</TABLE>
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Correctional Services Corporation and Subsidiaries operate and manage
detention and correctional facilities for federal, state and local
government agencies. On August 1, 1996, the Company's Certificate of
Incorporation was amended which changed the name of the Company to
Correctional Services Corporation and increased the number of authorized
shares of Common Stock from 10,000,000 to 30,000,000 shares.
1. Principles of Consolidation
The consolidated financial statements as of December 31, 1996 include
the accounts of Correctional Services Corporation and its wholly-owned
subsidiaries, Esmor, Inc., Correctional Services 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 " companies"). As of December 31, 1996 all of the
aforementioned subsidiaries (except Esmor, Inc. and Esmor New Jersey, Inc.)
were merged into the parent company. An additional corporation, CSC
Management de Puerto Rico, Inc., was added to the Company's consolidated
group as of July 1, 1997. All significant intercompany balances and
transactions have been eliminated.
2. 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. Actual results could
differ from those estimates. For discussion of the realization of
Receivable from Sale of Equipment and Leasehold Improvements and costs
pertaining to New York and Fort Worth closures, see Note L.
3. Revenue Recognition
Revenue is recognized at the time the service is provided. Revenues
are principally derived from contracts with federal, state and local
government agencies.
4. 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 $60,626 at December 31, 1997 represents a major
maintenance and repair reserve fund established by the Company as required
by contracts in Polk and Pahokee, Florida.
F-7
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
5. Building, Equipment and Leasehold Improvements
Building, equipment and leasehold improvements are carried at cost.
Depreciation of buildings is computed using the straight-line method over
twenty and thirty year periods. Depreciation of equipment is computed
using the straight-line method over a five-year period. Leasehold
improvements are being amortized over the shorter of the life of the asset
or the applicable lease term (ranging from five to twenty years).
6. Capitalized Interest
In accordance with Statement of Financial Accounting Standards No. 34
Capitalization of Interest Costs the Company capitalizes interest on
facilities during construction. During 1997 the Company capitalized
interest of $371,500 related to the construction of the Florence, Arizona
facility. During 1996 interest of $103,576 was capitalized relating to the
construction of the Phoenix, Arizona facility.
7. 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 expense but not to
exceed five years. Costs of unsuccessful or abandoned contracts are
charged to expense when their recovery is not considered probable.
Facility start-up costs, which include costs of initial employee training,
travel and other direct expenses are incurred (after a contract is awarded)
in connection with the opening of new facilities. These costs are
capitalized and amortized on a straight-line basis over the term (including
option periods) of the contracts not to exceed five years.
In April 1997, the American Institute of Certified Public Accountants
issued a proposed accounting standard on "Accounting for the Costs of
Start-up Activities." If adopted in 1998, the standard would require the
Company to expense start-up and deferred development costs as incurred. In
addition, the standard may require that all previously capitalized start-up
costs be expensed and reported as a cumulative effect of a change in
accounting principle at the time of the adoption. As of December 31, 1997,
unamortized startup costs and deferred development were $8,043,380.
8. Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long- Lived
Assets and for Long- Lived Assets to
F-8
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
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,
adoption and application of SFAS No. 121 was not considered material to the
consolidated financial statements in 1997 and 1996.
9. Income Taxes
The Company utilizes an asset and liability approach for financial
accounting and reporting for income taxes. The primary objectives of
accounting for income taxes 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.
10. Earnings Per Share
In 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, Earnings per Share ("SFAS No. 128"). The standard
requires the disclosure of basic and diluted earnings per share for periods
ending after December 15, 1997 and restatement of prior periods to conform
with the new disclosure format. The computation under SFAS No. 128 differs
from the primary and fully diluted earnings per share computed under APB
Opinion No. 15 primarily in the manner in which potential common stock is
treated. Basic earnings per share is computed by dividing net income by the
weighted-average number of common shares outstanding. In the computation of
diluted earnings per share, the weighted-average number of common shares
outstanding is adjusted for the effect of all potential common stock and
the average share price for the period is used in all cases when applying
the treasury stock method to potentially dilutive outstanding options. The
1996 and 1995 earnings per share amounts presented herein have been
restated to reflect the adoption of SFAS No. 128.
11. Stock Based Compensation
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"). 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. Management has not adopted
SFAS No. 123's accounting recognition provisions related to stock options
granted to employees and
F-9
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
accordingly, will continue following APB No. 25's accounting provisions.
All other requirements of SFAS No. 123 were implemented on January 1, 1996.
12. New Accounting Pronouncements
SFAS No. 130 Reporting Comprehensive Income is effective for fiscal
years beginning after December 15, 1997. This statement establishes
standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. The
requirements of this statement include: (a) classifying items of other
comprehensive income by their nature in a financial statement and (b)
displaying the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section
of the balance sheet. The Company plans to adopt SFAS No. 130 for the year
ending December 31, 1998 and expects no material impact to the Company's
financial statement presentation.
SFAS No. 131 Disclosures about Segments of an Enterprise and Related
Information is effective for fiscal years beginning after December 15,
1997. This statement supercedes SFAS No. 14 Financing Reporting for
Segments of a Business Enterprise and amends SFAS No. 94 Consolidation of
All Majority-Owned Subsidiaries. This statement requires annual financial
statements to disclose information about products and services, geographic
areas and major customers based on a management approach, along with
interim reports. The management approach requires disclosing financial and
descriptive information about an enterprise's reportable operating segments
based on reporting information the way management organizes the segments
for making decisions and assessing performance. It also eliminates the
requirement to disclose additional information about subsidiaries that were
not consolidated. The Company plans to adopt SFAS No. 131 for the year
ending December 31, 1998 impacting only the Company's disclosure
information and not its results of operations.
13. Reclassifications
Certain reclassifications have been made to the 1996 and 1995 balances
to conform to the 1997 presentation.
F-10
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B - CONTRACTUAL AGREEMENTS WITH GOVERNMENT AGENCIES
The Company currently operates nineteen secure and non-secure corrections
or detention programs in the states of Arizona, Florida, New Mexico,
Mississippi, New York, Texas and Washington for Federal, state and local
government agencies exclusive of two programs which are expected to wind
down in 1998 and for which a write-down has been provided for the year
ended December 31, 1996 (see Note L). 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
correction 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.
F-11
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C - FAIR VALUE OF FINANCIAL INSTRUMENTS
For the Company, financial instruments consist principally of cash and cash
equivalents, subordinated promissory notes and long-term debt.
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. As of December 31, 1997 and 1996
the estimated fair values of the subordinated promissory notes and
long-term debt approximated their carrying values.
3. Receivable from Sale of Equipment and Leasehold Improvements
The carrying value of the receivable from sale of equipment and
leasehold improvements at December 31, 1997 and 1996 is $2,259,082 and
$3,507,882, respectively. The Company believes the fair value of the
receivable from sale of equipment and leasehold improvements is not
practicable to estimate (See Note L-1(b)).
F-12
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D - PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
December 31,
1997 1996
---------- ----------
Prepaid insurance $ 153,875 $ 214,231
Prepaid real estate taxes 133,110 165,061
Prepaid and refundable income taxes 87,501 819,199
Prepaid rent - current portion 383,333 -
Other 206,757 803,482
--------- ---------
$ 964,576 $2,001,973
--------- ---------
--------- ---------
NOTE E - BUILDING, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Building, equipment and leasehold improvements, at cost, consist of the
following:
December 31,
1997 1996
---------- ----------
Buildings and land $21,125,911 $10,072,687
Equipment 3,464,003 2,221,427
Leasehold improvements 998,502 645,341
---------- ----------
25,588,416 12,939,455
Less accumulated depreciation (1,871,244) (899,306)
---------- ----------
$23,717,172 $12,040,149
---------- ----------
---------- ----------
Depreciation expense for the years ended December 31, 1997, 1996 and 1995
was approximately $972,000, $640,000 and $1,040,000, respectively.
F-13
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F - OTHER ASSETS
Deferred development and start-up costs are comprised of the following:
December 31,
1997 1996
---------- ----------
Development costs $4,343,247 $3,158,242
Start-up costs 5,301,229 3,079,272
--------- ---------
9,644,476 6,237,514
Less accumulated amortization (1,601,096) (419,555)
--------- ---------
$8,043,380 $5,817,959
--------- ---------
--------- ---------
The December 31, 1997 and 1996 balance of $8,043,380 and $5,817,959
includes development costs of approximately $1,005,500 and $306,300,
respectively, related to unawarded contracts. Deferred development at
December 31, 1997 and 1996, includes $637,500 paid to Colorado County,
Texas for the Company's contractual commitment to finance 25% of the
facility's construction cost. Colorado County, Texas is obligated to fund
the balance.
Other assets consist of the following:
December 31,
1997 1996
---------- ----------
Deferred refinancing costs, net $ 193,330 $ 344,167
Deposits 355,160 106,820
Deferred lease option costs 18,656 26,660
Prepaid rent - net of current portion 4,335,482 -
Other 30,699 7,510
--------- ---------
$4,933,327 $ 485,157
--------- ---------
--------- ---------
During the year, the Company entered into a prepaid lease agreement with
a facility located in Frio, Texas. The term of the lease is for twelve
years and began in December 1997. The current portion of the lease
payments are included in prepaid expenses (Note D) and the long-term
portion is included above in other assets.
F-14
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
December 31,
1997 1996
---------- ----------
Accounts payable $1,906,454 $1,900,867
Accrued expenses 2,610,299 1,193,348
Payroll and related taxes 1,523,475 691,540
Construction costs (including
retainage) 499,250 10,950
Income taxes - 116,333
Other 16,843 -
Accrued closure costs of Fort Worth
and New York Community Corrections 982,741 960,504
--------- ---------
$7,539,062 $4,873,542
--------- ---------
--------- ---------
NOTE H - DEBT
Long-term debt consists of the following:
December 31,
1997 1996
---------- ----------
Mortgage payable due in semi-annual
installments of $17,083 which
includes principal plus interest at
10% per annum due in full
October 2006 $323,291 $ -
Less current portion (1,800) -
------- -------
$321,491 $ -
------- -------
Effective December 31, 1995, the Company and NationsBank, N.A. entered into
a loan and security agreement totaling $11.0 million. 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. On September 17, 1996, the outstanding
balances of both the term loan ($4,333,360) and the revolving line
($2,865,108) were repaid in full with interest from the net proceeds raised
from the public offering (see Note K). 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 is 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
F-15
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H - DEBT - (Continued)
bank a first priority security interest in all of its assets. The lending
agreement contains certain financial covenants including debt service
coverage ratio and senior liabilities to tangible net worth and
subordinated debt ratio. 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. The Company was in compliance with
all financial covenants as of December 31, 1997. There were no bank
borrowings at December 31, 1997 and 1996.
On January 14, 1998 the Company extended the term of the revolving credit
portion of its loan agreement until April 3, 1998. The Company is
currently in negotiations with NationsBank for a new and expanded credit
and lease agreement.
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 1, 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 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 were used to purchase and renovate the Phoenix, Arizona
facility.
At December 31, 1997, aggregate maturities of long-term debt were as
follows:
Year ending December 31,
-----------------------
1998 $ 1,800
1999 2,000
2000 2,300
2001 2,500
2002 2,800
Thereafter 311,891
-------
TOTAL $323,291
-------
-------
F-16
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I - RENTAL AGREEMENTS
The Company has operating leases for certain of its facilities and certain
machinery and equipment which expire at various dates through 2002.
Substantially all the facility leases provide for payment by the Company of
all property taxes and insurance.
Future minimum rental commitments under non-cancelable leases as of
December 31, 1997, are as follows:
Related
Total Companies
---------- ----------
Year ending December 31,
1998 $2,500,000 $1,232,000
1999 1,818,000 642,000
2000 1,158,000 222,000
2001 756,000 -
2002 543,000 -
Thereafter 2,739,000 -
--------- ---------
$9,514,000 $2,096,000
--------- ---------
--------- ---------
The Company leases one facility 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. Residential and commercial
tenants occupy a portion of this building and annex.
The Company leases a second facility 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 facility.
The Company leases a third facility from a related party. The lease
commenced October 1, 1996 and expires September 30, 1998. Thereafter, the
Company has three successive one-year options to renew. In addition to the
base rent, the Company pays taxes, insurance, repairs and maintenance on
this facility.
Rental expense for the years ended December 31, 1997, 1996 and 1995
aggregated $1,439,000, $1,549,000 and $1,632,000, respectively, and is
included in general and administrative expenses. Rent expenses for the
year ended December 31, 1997 is net of $539,000 related to rental costs
incurred at the Company's Fort Worth and New York facilities that was
written off against accrued closure costs. (See Note L) Rent to related
companies aggregated $1,260,000, $1,090,000 and $1,038,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
F-17
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J - INCOME TAXES
The income tax expense (benefit) consists of the following:
Years Ended December 31,
-----------------------
1997 1996 1995
---------- ---------- ----------
Current:
Federal $ 242,853 $ (695,000) $ (42,000)
State and local 160,000 45,000 112,000
Deferred:
Federal, state and local 1,620,000 (375,000) (1,120,000)
--------- --------- ---------
$2,022,853 $(1,025,000) $(1,050,000)
--------- --------- ---------
--------- --------- ---------
The following is a reconciliation of the federal income tax rate and the
effective tax rate as a percentage of pre-tax income:
Years Ended December 31,
-----------------------
1997 1996 1995
---------- ---------- ----------
Statutory federal rate 34.0% (34.0)% (34.0)%
State taxes, net of federal
tax benefit 5.0 1.4 5.0
Non-deductible items 0.9 1.5 1.2
Other 0.2 (4.3) (9.8)
---- ---- ----
40.1% (35.4)% (37.6)%
---- ---- ----
---- ---- ----
F-18
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J - INCOME TAXES - (Continued)
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
(liabilities) are summarized as follows:
December 31,
1997 1996
---------- ----------
Facility closure costs $ 678,000 $ 969,000
Vacation accrual 129,000 70,000
Development costs (1,021,000) 111,000
Accrued expenses 392,000 33,000
Depreciation ( 373,000) -
Net operating loss carryforward - 242,000
Alternative minimum tax credit 70,000 70,000
--------- ---------
( 125,000) 1,495,000
Valuation allowance - -
--------- ---------
$( 125,000) $1,495,000
--------- ---------
--------- ---------
The Company, after considering its pattern of profitability, excluding the
New Jersey, Ft. Worth, and NYCC facility closure charges, 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 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 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 and incurred issuance costs of $380,556. The
net proceeds were used for its Phoenix, Arizona facility.
In connection with the 1995 Private Placement, warrants issued with units
totaled 874,198, which are exercisable at $7.75 per share. During the
years ended December 31, 1997 and 1996, 10,800 and 216,703 of such warrants
were exercised simultaneously with the tendering of subordinated notes. At
December 31, 1997 and 1996, warrants outstanding totaled 646,695 and
657,495, respectively. (See Note H).
F-19
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE K - STOCKHOLDERS' EQUITY - (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. During the year ended December 31,
1997, 7,100 and 16,500 of such warrants were exercised at an exercise price
of $5.43 and $5.77 per share, respectively. During the year ended
December 31, 1996, 30,000 of such warrants were exercised at an exercise
price of $5.43 per share.
On September 12, 1996, the Company completed a public offering of 2,070,000
shares of Common Stock at $13.625 per share. The net proceeds of the public
offering after deducting applicable issuance costs and expenses
aggregated approximately $25,790,000. In October, 1996, pursuant to the
underwriters' over-allotment option, the Company sold an additional 367,500
shares of Common Stock at $13.625 per share. The net proceeds received
from the exercise of the over-allotment option aggregated approximately
$4,716,000. The net proceeds of the public offering and the over-allotment
option were used to repay bank loans of $7,198,468 (See Note H) and are
being used for construction, start-up and related costs of the Florence,
Arizona and Eagle Lake, Texas facilities and for start-up costs of the Polk
and Pahokee, Florida facilities and for general corporate purposes.
F-20
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L - COMMITMENTS AND CONTINGENCIES
1(a). Fort Worth and New York Closures
During the fourth quarter of 1996, due to substantially reduced occupancy
levels and operating losses being sustained at two of the Company's
community-based halfway houses, the Company decided to discontinue the
operations of two programs (one in Fort Worth, Texas and the other in New York,
New York). As a result, the Company accrued certain expenses at December 31,
1996, and has written down certain assets related to each program.
In Fort Worth, the Company notified the contracting agency (Texas
Department of Criminal Justice) that the entire facility will be closed.
In addition, all incremental closure related costs, from April 1, 1997
until the expiration of the facility's operating lease in May, 1999, have
been charged to operations at December 31, 1996. Such expenses include the
write-off of fixed assets, deferred development and start-up costs, and a
provision for rent expense, real estate taxes, insurance and closure costs.
The Company began winding down the operations of the Program in the first
quarter of 1997. Subsequently, the Company was asked by the Texas
Department of Criminal Justice (TDCJ) to leave a portion of the facility
open until an alternative site could be located.
In August of 1997, the Company signed an amendment to its contract with
TDCJ which significantly lowered the expected population of the Facility in
addition to increasing the per diem rate to $ 33.00 from $29.95. The
Company has continued to run the Program at the reduced levels pending the
locating of an alternate site. The Company operated this facility at a
loss in 1997 and estimates that it will continue to incur a loss in the
future based on the terms of the amended contract with TDCJ. The Company
believes that the remaining balance of the accrued closure costs reserved
at December 31, 1997 is adequate to offset the estimated losses associated
with this contract. The Company's decision to continue to operate the
Facility is based on its desire to offset the fixed obligations of the
Company pertaining to the building. These obligations will continue
regardless of whether or not the Company actually operates the Program.
At the Company's Brooklyn and Manhattan, New York facilities, the Company
has written-off a portion of fixed assets and expenses during the year
ended December 31, 1996 related to the program it manages for the New York
State Department of Corrections. Such expenses include rents and related
costs of operating each facility, real estate taxes, insurance and closure
costs from April 1, 1997 through the expiration of the facilities'
operating leases on December 31, 1998 and April 30, 2000, respectively.
Costs and expenses associated with the Company's ongoing programs in New
York with the Federal Bureau of Prisons have not been written down except
for certain costs anticipated at the Manhattan facility resulting from the
closure of the New York program. In the second quarter of 1997, the
Company closed its Manhattan location and placed all of its remaining
residents in its Brooklyn location. Throughout the year, the Company
continued its efforts to ascertain the likelihood
F-21
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L - COMMITMENTS AND CONTINGENCIES - (Continued)
1(a). Fort Worth and New York Closures
of increased population and a long-term contract. In the third quarter of
1997, the Company understood the State would be issuing a formal Request
for Proposal (RFP) relating to its Community Corrections Programs. In
addition, the State indicated to the Company that the population rates
would improve. At that time the Company decided to re-open its Manhattan
location and to prepare to bid on the pending RFP. In February of 1998,
the Company was awarded contracts to operate two Community Corrections
Programs in its Manhattan location for a total capacity of 130.
Although the Company has recently signed contracts to operate these two
programs, the State has given no minimum occupancy guarantee and did not
increase the per diem rate. It is the Company's belief that the
populations in New York will continue to fluctuate and the New York
operations will not produce income for the Company. The Company believes
that the remaining balance of the accrued closure costs related to these
operations at December 31, 1997 is adequate to offset the estimated losses
associated with these programs. The Company's decision to operate these
programs is based on its desire to offset the fixed obligations of the
Company pertaining to the lease of the buildings. These obligations will
continue regardless of whether or not the Company actually operates a
program.
The December 31, 1996 write-down of $3,329,000 represents actual charges to
operations incurred for each program at December 31, 1996 and the present
value of those expenses subsequent to April 1, 1997, attributable to the
closure of each program which total $3,600,000 discounted using an interest
rate of 9% per annum.
The composition of the writedown at December 31, 1996 is as follows:
Fixed assets, net $ 564,050
Deferred development and start-up costs, net 98,446
Accrued closure costs 2,566,504
Closure related costs incurred in 1996 100,000
---------
$3,329,000
---------
---------
Accrued closure costs are as follows:
December 31,
1997 1996
---------- ----------
Accrued closure costs $1,737,741 $2,566,504
Less current portion 982,741 960,504
--------- ---------
Long-term portion of accrued
closure costs $ 755,000 $1,606,000
--------- ---------
--------- ---------
F-22
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L - COMMITMENTS AND CONTINGENCIES - (Continued)
1(a). Fort Worth and New York Closures
For each of the aforementioned programs, the operating losses
incurred until the facilities are closed will be reflected in the financial
statements applicable to those periods.
1(b). 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 the INS moved all detainees
located therein to other facilities. 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 pursuant to which the Buyer purchased the equipment, inventory
and supplies, contract rights and records, leasehold and land improvements
of the Company's New Jersey facility for $6,223,000. The purchase price is
payable in non-interest bearing monthly installments of $123,000 (through
August 1999) effective January 1997, the month the Buyer commenced
operations of the facility. If the INS re-awards the contract to the
Buyer, the unpaid balance is payable in monthly non-interest bearing
installments of $123,000 beginning in the first month of the re-award term
and the Company will record as income the unpaid balance. On June 13, 1996
the Company, the Buyer and the INS executed a novation agreement whereby
the Buyer became the successor-in-interest to the contract with the INS.
In addition, the Company's lease for the New Jersey facility was assigned
to the Buyer. The Company has no continuing obligation with respect to the
Elizabeth, New Jersey facility.
The receivable from sale of the equipment and leasehold improvements
reflected in the balance sheet at December 31, 1997 and December 31, 1996,
represents the present value of the consideration to be received through
August 1999 of $2,259,082 and $3,507,882, respectively, ($4,428,000
discounted using an interest rate of 11.5% per annum) reduced by the
estimated closing costs (legal and consulting) and the facility's estimated
carrying costs through December 31, 1996. The statement of operations for
1995 reflects a provision, "New Jersey facility closure costs," of
$3,909,700 which represents $416,201 from the write-off of deferred
development costs related to the facility and $3,493,499 resulting from the
adjustment of the carrying value of the related assets discussed above.
During the year ended December 31, 1996 the entire reserve established at
December 31, 1995 for carrying and closing costs was reduced by
approximately $300,000 of payments for rent and other carrying and closing
costs.
F-23
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L - COMMITMENTS AND CONTINGENCIES - Continued
2. Legal Matters
In May 1993, a former employee of the Company filed suit in the United
States District Court, Southern District of New York, claiming he was
intentionally assaulted by employees of the Company and claiming $5,000,000
in damages on each of six causes of action. In January 1996, a lawsuit was
filed with the Supreme Court of New York, County of Kings, by a former
employee alleging sexual harassment and discrimination, physical assault,
rape and negligent screening of employees and claiming damages of
$4,000,000 plus attorney fees. The Company is awaiting court rulings in
both of these cases which are expected to result in dismissals of these
actions during 1998.
In March 1996, former inmates at one of the Company's facilities filed suit
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, which suit was transferred to the United States District Court,
Southern District of New York, in April 1996. In July 1996, seven detainees
at one of the Company's facilities (and certain of their spouses) filed
suit in the Superior Court of New Jersey, County of Union, seeking
$10,000,000 each in damages arising from alleged mistreatment of the
detainees, which suit was transferred to the United States District Court,
District of New Jersey, in August 1996. In July 1997, former detainees of
the Company's Elizabeth, New Jersey facility filed suit in the United
States District Court for the District of New Jersey. The suit claims
violation of civil rights, personal injury and property damage allegedly
caused by the negligent and intentional acts of the Company. No monetary
damages have been stated. Through stipulation, all these actions will now
be heard in the United States District Court for the District of New
Jersey. This will streamline the discovery process, minimize costs and
avoid inconsistent rulings.
The Company believes the claims made in each of the foregoing actions to be
without merit and will vigorously defend such actions. The Company further
believes the outcome of these actions and all other current legal
proceedings to which it is a party will not have a material adverse effect
upon its results of operations, financial condition or liquidity.
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.
F-24
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L - COMMITMENTS AND CONTINGENCIES - (Continued)
4. Officers' Compensation
Effective February 9, 1994, the President entered into a five-year
employment agreement with the Company that provides annual compensation of
$189,000, annual cost of living increases and 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, which provide annual compensation of $115,000 and $129,000,
respectively, and a bonus equal to 3% of pre-tax profits in excess of
$1,000,000 not to exceed $75,000 and $75,000, respectively. 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
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.
5. Concentrations of Credit Risk
Approximately 97.8%, 98.0% and 96.6% of the Company's revenues for the
years ended December 31, 1997, 1996 and 1995, respectively, relate to
amounts earned from Federal, state and local contracts. The Company's
contracts in 1997, 1996 and 1995 with government agencies where revenues
exceeded 10% of the Company's total consolidated revenues were with the U.
S. Bureau of Prisons, the INS, the New York State Department of
Corrections, the Texas Department of Criminal Justice, and the Arizona
Department of Corrections (1997 and 1996 only).
6. Fiduciary Funds
The Company has acted as a fiduciary disbursing agent on behalf of a
governmental entity whereby certain governmental entity funds are
maintained in a separate bank account. These funds have been paid to the
general contractor, which constructed the government owned facilities. The
Company is responsible for managing the construction process. The Company
has no legal rights to the funds nor the constructed facility, and
accordingly, such funds do not appear in the accompanying financial
statements.
7. Construction Commitments
The Company has various construction contracts related to ongoing
projects totaling approximately $1,439,000 as of December 31, 1997.
F-25
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L - COMMITMENTS AND CONTINGENCIES - (Continued)
8. Letter of Credit
In connection with the Company's workmen's compensation insurance
coverage requirements, the Company has obtained a $258,000 Letter of Credit
from its bank in favor of the insurance carrier.
NOTE M - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share in accordance with SFAS No. 128:
Years Ended December 31,
-----------------------
1997 1996 1995
---------- ---------- ----------
Numerator:
Net income (loss) $3,025,524 $(1,868,027) $(1,739,391)
--------- --------- ---------
--------- --------- ---------
Denominator:
Basic earnings per share:
Weighted average shares
outstanding 7,675,220 5,781,853 4,552,707
Effect of dilutive securities
- stock options and warrants 442,702 - -
--------- --------- ---------
Denominator for diluted
earnings per share 8,117,922 5,781,853 4,552,707
--------- --------- ---------
--------- --------- ---------
Net income (loss) per common
share - basic $0.39 $(0.32) $(0.38)
---- ---- ----
---- ---- ----
Net income (loss) per common
share - diluted $0.37 $(0.32) $(0.38)
---- ---- ----
---- ---- ----
The effect of dilutive securities for 1996 and 1995 were not included in
the calculation of diluted net loss per common share as the effect would
have been anti-dilutive.
NOTE N - 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) non-qualified
options to consultants, directors, employees or officers of the Company.
The total number of shares that 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
non-qualified options to purchase up to 196,875 shares of the Company's
Common Stock.
F-26
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE N - STOCK OPTIONS - (Continued)
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.
In 1996, the Company granted 215,000 options to two key employees and a
director of the Company. The exercise price of the options is equal to the
fair market value of the Common Stock at the date of the grant. These
options vest over a two-year period and expire five years from the date of
grant.
The Company has adopted only the disclosure provisions of SFAS No. 123. It
applies APB No. 25 and related interpretations in accounting for its plans
and does not recognize compensation expense for its stock based
compensation plans other than for restricted stock. If the Company had
elected to recognize compensation expense based upon the fair value at the
grant date for awards under these plans consistent with the methodology
prescribed by SFAS No. 123, the Company's net income (loss) per share would
be adjusted to the pro forma amounts indicated below:
Years Ended December 31,
-----------------------
1997 1996 1995
--------- --------- ---------
Net income (loss)
As reported $3,025,524 $(1,868,027) $(1,739,391)
Pro forma (unaudited) 2,215,352 $(2,716,910) $(1,972,438)
Income (loss) per common share -
basic
As reported $ 0.39 $ (0.32) $ (0.38)
Pro forma $ 0.29 $ (0.47) $ (0.43)
Income (loss) per common share -
diluted
As reported $ 0.37 $ (0.32) $ (0.38)
Pro forma (unaudited) $ 0.27 $ (0.47) $ (0.43)
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense related
to grants made before 1995. The fair value of these options was estimated
at the date of grant using Black-Scholes option-pricing model with the
following weighted-average assumptions for the years ended December 31,
1997, 1996 and 1995.
Years Ended December 31,
-----------------------
1997 1996 1995
--------- --------- ---------
Volatility 70% 72% 72%
Risk free rate 6.00% 5.64% 6.38%
Expected life 3 years 3.32 years 4 years
F-27
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE N - STOCK OPTIONS - (Continued)
The weighted average fair value of options granted during 1997, 1996 and
1995 for which the exercise price equals the market price on the grant date
was $5.65, $5.71 and $8.81, respectively, and the weighted average
exercise prices were $11.32, $10.56 and $15.04, respectively. The
weighted average fair value and weighted average exercise price of options
granted in 1995 for which the exercise price exceeded the market price on
the grant date were $10.50 and 20.63, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially effect the fair value estimate, in management's opinion the
existing models do not necessarily provide a reliable single measure
of the fair value of its employee stock options.
Stock option activity during 1997, 1996 and 1995 is summarized below:
Weighted-Average
Options Exercise Price
------- ----------------
Balance, January 1, 1995 290,313 $ 6.19
Granted 81,875 15.73
Exercised (7,000) 4.76
Canceled - -
------- -----
Balance, December 31, 1995 365,188 8.35
Granted 293,700 10.56
Exercised (64,888) 6.37
Canceled (43,750) 12.67
------- -----
Balance, December 31, 1996 550,250 9.40
Granted 170,750 11.32
Exercised (2,625) 4.76
Canceled (21,950) 16.01
------- -----
Balance, December 31, 1997 696,425 9.75
------- -----
------- -----
F-28
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE N - STOCK OPTIONS - (Continued)
The following table summarizes information concerning currently outstanding
and exercisable stock options at December 31, 1997:
Weighted-Average
Remaining
Range of Number Contractual Life Weighted-Average
Exercise Prices Outstanding (Years) Exercise Price
--------------- ----------- ---------------- ----------------
$ 4 - 8 202,050 1.35 $6.06
8 - 12 312,625 3.35 9.31
12 - 18 146,750 4.17 13.75
18 - 21 35,000 2.46 19.29
-------
696,425
-------
-------
Range of Number Weighted-Average
Exercise Prices Exercisable Exercise Price
--------------- ----------- ----------------
$ 4 - 8 202,050 $ 6.06
8 - 12 240,375 9.08
12 - 18 51,750 16.50
18 - 21 35,000 19.29
NOTE O - EMPLOYEE BENEFIT PLANS
On July 1, 1996, the Company adopted a contributory retirement plan under
Section 401(k) of the Internal Revenue Code, for the benefit of all
employees meeting certain minimum service requirements. Eligible employees
can contribute up to 15% of their salary but not in excess of $9,500 in
1997 and 1996. The Company's contribution under the plan amounts to 20% of
the employees' contribution. In 1997 and 1996, the Company contributed
$62,000 and $15,886, respectively, to the plan.
NOTE P - SELF INSURANCE
During 1996, the Company decided to self-insure for workers' compensation
insurance. The Company has obtained an aggregate excess policy, which
limits the Company's exposure to a maximum of $600,000 and $400,000 as of
December 31, 1997 and 1996, respectively. The estimated insurance
liability totaling $451,000 and $120,000 on December 31, 1997 and 1996,
respectively is based upon review by the Company and an independent
insurance broker of claims filed and claims incurred but not reported.
On October 1, 1997 the Company entered into a group health plan subject to
a self-insured retention. The Company's maximum annual self-insured
retention per employee is $1,687, which includes
F-29
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE P - SELF INSURANCE - (Continued)
fixed costs of $418 and claims costs $1,269. The fixed costs include the
loss limit charges. The fixed costs are reduced by 5% upon reaching a
threshold of 750 participating employees and by another 5% upon a reaching
a threshold of 1,000 participating employees. At December 31, 1997 the
plan had 878 participants and medical insurance liability of $179,000.
This liability represents the maximum claim exposure under the plan less
actual payments made during 1997. In addition, the Company is subject to a
maximum terminal liability of $168 per participating employee and an
administrative charge of $27 per participating employee in the event of
termination. Since termination is not anticipated, no terminal accruals
were made at December 31, 1997.
NOTE Q - SUBSEQUENT EVENTS
In February, 1998 the Company formed Correctional Services Corporation (UK)
Ltd., a British company, to pursue correctional projects in the United
Kingdom. The Company intends to build relationships with international
joint venture partners to maximize its capabilities abroad.
In February, 1998 the Company signed contracts with the Juvenile
Institutions Administration of the Commonwealth of Puerto Rico to operate
two Juvenile Treatment Centers and one Juvenile Detention Center. The
Salinas Treatment Center has a 100 bed capacity and will be designed,
built, owned and operated by CSC. It is estimated that the costs of
construction will be $11,000,000. It is expected to become fully
operational in the first quarter of 1999. The Bayamon Treatment Center has
a 141 bed capacity and is currently undergoing renovation. Until the
renovations are complete, which is anticipated to be the first quarter
of 1999, the facility will operate at a reduced capacity. The Company will
assume operation of the facility in the second quarter of 1998. The
Bayamon Detention Center has a 120 bed capacity and will begin accepting
residents in the second quarter of 1998. Each of the three contracts has a
base period of 5 years with one 5 year renewal option. Once completed and
fully operational these facilities are expected to contribute approximately
$15 million in revenue on an annualized basis.
F-30
[CIK] 0000914670
[NAME] CORRECTIONAL SERVICES CORPORATION
STATE OF TEXAS
COUNTY OF TRAVIS
ADDENDUM NO. 1
TO THE
PAROLE & MANDATORY FACILITY
MANAGEMENT & OPERATIONS AGREEMENT
THIS ADDENDUM TO THE MANAGEMENT AND OPERATIONS AGREEMENT (as herein
provided, the "AGREEMENT") is made and entered into by and between Esmor Fort
Worth, Inc. (Ft. Worth), a duly organized CORPORATION of the State of New York
(CONTRACTOR), and the TEXAS DEPARTMENT OF CRIMINAL JUSTICE, PAROLE DIVISION,
together with any successor to its functions, the "DIVISION", which is an
agency or department of the State of Texas.
4.02 CONTRACT RENEWAL
(a) The DIVISION shall have an option to renew the terms of this
contract for fiscal years 1999 and 2000.
(b) If the DIVISION chooses to exercise its option, the DIVISION shall
give at least 30 days written notice prior to the expiration of the contract
of its intent to renew.
WHEREAS, the parties to this addendum expressly ratify all parts of the
above referenced stipulations in the original contract, as well as any prior
modifications and extensions granted, and hereby reaffirm their acceptance of
all other provisions.
Texas Department of Criminal Justice
Parole Division
By: Date:
(Division Director)
By: (President & CEO) Date:
[CIK] 0000914670
[NAME] CORRECTIONAL SERVICES CORPORATION
AMENDMENT TWO
TO THE
PAROLE AND MANDATORY FACILITY
MANAGEMENT AND OPERATIONS AGREEMENT
BETWEEN
TEXAS DEPARTMENT OF CRIMINAL JUSTICE
AND
ESMOR FORT WORTH, INC.
This Amendment Two is to the Management and Operations Agreement between
the Texas Department of Criminal Justice and Esmor Fort Worth, Inc. which began
on May 1, 1994 and expires on August 31. 1998.
The parties agree to the following changes in the contract:
1. Page One, Witnesseth: this section shall be amended to modify the
following language:
WHEREAS, the DlVISION desires that CONTRACTOR provide a community
corrections facility, with associated programs within the State of Texas for the
housing, training, education, rehabilitation, and reformation of persons
released on supervision pursuant to TEX. CODE CRIM. PRO. ANN. art. 42.18 (Vernon
Supp. 1991-1992), and shall be capable of housing a maximum daily population
generally not to exceed 125 persons, and CONTRACTOR desires to provide said
facility. However, it is anticipated that the average population shall range
from 50 to 80;
2. Article One shall be amended to include the following sections:
1.2.11 Required Disclosures by CONTRACTOR.
a. If any person who is an employee of, director of, or
Subcontractor for CONTRACTOR is required to register as a lobbyist under Texas
Government Code, Chapter 305, at any time during the period of this contract,
CONTRACTOR shall provide to DEPARTMENT timely copies of all reports filed with
the Texas Ethics Commission as required by Chapter 305.
b. If any person who is an employee of, director of, or
Subcontractor for CONTRACTOR is or becomes an elected official during the period
of this contract, CONTRACTOR shall notify DEPARTMENT of that fact prior to
execution of the contract or within ten days of the event, if the event causing
the notification occurs during the period of the contract. For purposes of this
section, "elected official" means a state legislator, a United States
congressman or senator, or a member of the judiciary. For purposes of this
section, a member of the judiciary means an individual who is elected and whose
salary is paid pursuant to the Judiciary Article of The General Appropriations
Act.
c. CONTRACTOR shall not conduct any related party transaction
without the knowledge and approval of the DEPARTMENT.
1.2.12 Under Section 231.006, Family Code (relating to child support),
the contractor certifies that the individual or business entity named in this
agreement is not ineligible to receive the specified payment and acknowledges
that this contract may be terminated and payment may be withheld if this
certification is inaccurate.
3. Article Two, Section 2.07(j) shall be amended to the following
language:
(j) CONTRACTOR shall have written policies and procedures for the
prompt notification of the resident's next of kin in case of serious illness,
surgery, injury, or death. CONTRACTOR shall comply with the DEPARTMENT'S policy
regarding death of a resident. A death in the facility shall be immediately
reported to the DEPARTMENT and to the proper local authorities.
4. Article Two, Section 2.09 shall include the following language:
(d) In the event DEPARTMENT requires CONTRACTOR to transport a resident
to or from a specific destination, in a county other than the county in which
the facility is located, DEPARTMENT shall reimburse CONTRACTOR $.28/mile for
mileage to and from the specified destination. Mileage reimbursement shall be
based on "The Official State Mileage Guide". CONTRACTOR shall utilize a
transportation log to include, at a minimum: Destination, Client name and
number, purpose of trip, and beginning and ending mileage to each point, and
shall attach said log to the monthly invoice each month to obtain reimbursement.
5. Article Two, Section 2.10 shall include the following language:
(e) All funds abandoned in the facility by residents for a period of
three (3) years shall be deposited with the office of the State Treasurer, no
later than fifteen (15) days following the expiration of said period.
6. Article Two, Section 2.1 1 (c) shall be amended to the following
language:
(c) Substance Abuse Program: The CONTRACTOR'S facility shall be staffed
with a Substance Abuse Case Manager. Residents assessed as having a history of
substance abuse shall be required to attend two hours of group substance abuse
education per week. Additional attendance at AA/NA meetings shall be required
according to their individual program plans. AA and NA meetings shall be held at
the facility seven days a week.
7. Article Two, Section 2.11 (e) shall be amended to the following
language:
(e) Attachment "An shall serve as approved program for all sex offenders
(as defined by DEPARTMENT) assigned to the facility.
8. Article Two, Section 2.14(a) shall be amended to include the following
language:
(a) The CONTRACTOR shall be required to complete a written client
assessment for each resident for every level of service provided. Information
utilized to complete the assessment shall include, but not be limited to,
information received from resident interviews, case histories and special
conditions.
9. Article Two, Section 2.19 shall be amended to include the following
language:
Performance Outcome Measures
CONTRACTOR shall comply with performance outcome measures and the
measurement of such. CONTRACTOR shall report process measures by the 30th of the
month following the end of each quarter. CONTRACTOR shall report final process
measures and outcome measures by the 45th day after the end of each fiscal year
of the contract period. CONTRACTOR shall utilize the following Performance
Outcome Measures:
GOAL 1: To assist each release to establish stable and adequate
employment (or income maintenance, as appropriate) to provide the means for
independent living and reduce the likelihood of recidivism.
(1) Strategy: Provide initial assessment and develop a written
Individual Program Plan based on identified needs.
Measure: 100% of residents have a written Individual Program
Plan identifying needs developed within three working days of arrival.
(2) Strategy: Provide employment services for residents identified
as employable.
Measures: 95% of all residents will be referred to Project RIO.
75% of all employable residents will obtain full time
employment (30 hrs./wk. or more) at or above minimum wage.
95% of residents will pay 25% of their gross salary and/or
income to the facility to reduce state costs.
(3) Strategy: Provide Life Skills training.
Measure: 95% of all residents will attend Life Skills classes
for the duration of their stay.
GOAL 2: To reduce anti-social behavior to enable releasees to become
productive, contributing members of society.
(1) Strategy: Provide substance abuse education classes.
Measure: 95% of residents referred will attend substance abuse
education classes.
GOAL 3: To facilitate releasees convicted of sexual offenses in a
successful transition from confinement to an approved residence in the Tarrant
County community or other approved area to reduce the likelihood of recidivism.
(1 ) Strategy: To provide sex offender treatment services.
Measure: 100% of all sex offenders will attend the weekly sex
offender treatment program.
10. Article Three, Section 3.01 shall include the following language:
(d) CONTRACTOR shall comply with all procedures and guidelines as
defined by DEPARTMENT as it relates to this Agreement.
(e) CONTRACTOR shall have policy and procedure that prohibit kickbacks,
referral fees, headhunter fees, bounties, etc. in all operations as it relates
to this Agreement.
11. Article Three, Section 3.04(h) shall be amended to the following
language:
(h) The CONTRACTOR shall use its best efforts to determine actual wages
earned by residents. However, if the CONTRACTOR is unable to provide proof of
the number of hours worked and wages earned by resident, the 25% credit to the
State shall be calculated as 8 hours x current minimum wage.
12. Article Three, Section 3.08 shall be amended to the following language
and 3.08(e) and (f) shall be added:
(d) CONTRACTOR shall not hire any employee on active parole or probation
without prior approval of DEPARTMENT. CONTRACTOR shall provide DEPARTMENT with a
current list of all employees including position title and whether or not the
employee is currently on active parole and/or probation, at the beginning of the
contract year, and upon each occurrence. CONTRACTOR shall notify DEPARTMENT
within seventy-two (72) hours of an employees arrest. CONTRACTOR shall notify
DEPARTMENT at least one (1) working day prior to the termination of the Facility
Director or other key staff.
(e) It is understood and agreed that from time to time a vacancy may
occur in staff positions required by the staffing pattern. For purposes of this
Agreement, a vacancy in a position to occurs when the employee assigned to that
position has resigned, been terminated, is reassigned to another position or
facility, and no other qualified person or employee is available to perform the
duties of that position. A vacancy does not occur when an employee is
temporarily absent due to vacation, sick leave, or other temporary leave
condition. Any vacant position shall be filled as soon as possible by
CONTRACTOR. CONTRACTOR shall notify DEPARTMENT's Contract Monitor in writing
within three (3) working days after the date a position becomes vacant.
CONTRACTOR shall fill the vacant position within thirty (30) days after the
position becomes vacant. If a position remains vacant for more than thirty (30)
days, the Approved Program Budget for the months during which the position
remains vacant for more than thirty (30) days shall be reduced by an amount
equal to the base salary of the position for each day on which such position is
vacant for more than thirty (30) days. CONTRACTOR shall exercise due diligence
to attempt to fill any vacant position within thirty (30) days after the date
upon which the position becomes vacant. Due diligence is defined as that degree
care ordinarily exercised by a reasonable and prudent person under the
particular circumstance. In the event that CONTRACTOR determines that a position
is likely to remain vacant longer than thirty (30) days, CONTRACTOR shall
immediately notify the Authorized Representative of DEPARTMENT and DEPARTMENT's
Contract Monitor of that fact and provide evidence that due diligence has been
exercised. CONTRACTOR may, prior to the expiration of the thirty (30) day
period, request that DEPARTMENT grant an extension of thirty (30) days. The
request for extension shall include (i) evidence that CONTRACTOR has diligently
advertised the vacant position, (ii) copies of all applications or resumes
submitted for the vacancy, and (iii) a salary review demonstrating that the
salary offered is commensurate with salaries offered for similar positions in
the area. If, in the judgement of DEPARTMENT, CONTRACTOR has shown due
diligence, DEPARTMENT shall grant a thirty (30) day extension. CONTRACTOR may
request further extensions as necessary.
(f) CONTRACTOR shall provide in service trainings on a quarterly basis
to all facility staff and contractors that have contact with residents, such
that the training will total at least 20 hours per year to ensure the efficient
operation of the facility. In addition, CONTRACTOR shall provide training
regarding multiple needs offenders, to include the oversight and monitoring of
mentally impaired, mentally retarded, and sex offenders. Prior to the scheduled
training, CONTRACTOR shall submit to the Contract Monitor, the proposed date(s)
of training, staff positions to be trained, topics and synopsis of each, and the
duration of the training. In the event scheduled programming for residents will
not be available, CONTRACTOR shall submit proposed alternate programming to
occur during the training period. The Contract Monitor shall review the proposal
and approve or disapprove.
13. Article Four, Section 4.01 shall delete 4.01(b) 2, 3, and 4, and amend
4.01(a) to include the following language:
(a) The CONTRACTOR shall make available to the DIVISION during the
contract term those services for a daily population generally not to exceed 125
residents as referred from the DIVISION.
14. Article Four, Section 4.04(f) shall be amended to the following
language and (j) through (n) shall be added:
(f) The DIVISION agrees to pay CONTRACTOR $33.00 per DIVISION resident
per day, less amount paid by the resident.
(j) Services or expenditures submitted by CONTRACTOR that cannot be
verified will be disallowed for reimbursement.
(k) CONTRACTOR shall reimburse DEPARTMENT for free goods and services
received which are included in the approved budget.
(l) CONTRACTOR shall not transfer funds from one budget line to another
without prior approval from DEPARTMENT.
(m) Interfund or interprogram loans shall be approved by DEPARTMENT.
(n) CONTRACTOR shall not use commissary funds for operational costs.
15. Article Five, Section 5.02, second and third paragraphs shall be
amended to the following language and the fourth and subsequent paragraphs shall
be added.
Upon default by the CONTRACTOR, an if an Event of Default continues
following the 30th day after the CONTRACTOR has received written notice of
default from the Division Director, and such thirty (30) day period has not been
extended by DIVISION and the Division Director has convened the meeting with the
CONTRACTOR, the DIVISION shall give ten (10) business days' written notice of
its intention to deduct sums from the funds payable to CONTRACTOR. Written
notice shall be given by certified mail as provided herein. Notice shall include
statements as to what Events remain uncured and what specific actions are
required to cure. If the additional ten (10) business day period has expired and
the Event(s) of Default of the ten (10) business days, a sum of $125 (one (1)
dollar per day per bed) may be deducted from funds payable to CONTRACTOR under
this AGREEMENT as penalties until such Event(s) of Default are cured. The amount
of per day penalty shall be determined by DIVISION and shall bear a demonstrated
and reasonable relationship to the harm done by the default.
CONTRACTOR shall have the right to appeal to the Director of Financial
Services of the Texas Department of Criminal Justice the deduction of funds
pursuant to this subsection.
Upon the filing of the appeal, any and all accrual of penalties shall
be tolled and shall be reinstituted only upon the Director's final denial of the
appeal.
CONTRACTOR shall have the right to appeal the deduction of funds,
fiscal sanctions and/or termination of this AGREEMENT.
CONTRACTOR shall file appeal through DEPARTMENT'S three (3) step
process. CONTRACTOR shall not circumvent the process by forwarding an appeal to
the next step until it has been addressed at the previous step.
(a) First Step - Director of Specialized Supervision. CONTRACTOR has
five (5) business days from the receipt of notice of deduction of funds, fiscal
sanctions and/or termination of agreement to file the appeal to the Director of
Specialized Supervision. The appeal shall be submitted via certified mail.
CONTRACTORS may forward the grievance to the second step if they reject the
First Step response.
(b) Second Step - Director of Parole Division. CONTRACTOR has five (5)
business days from the receipt of decision from the Director of Specialized
Supervision of deduction of funds, fiscal sanctions and/or termination of
agreement to file the appeal to the Director of Parole Division. The appeal
shall be submitted via certified mail. CONTRACTORS may forward the grievance to
the third step if they reject the Second Step response.
(c) Third and Final Step - Director of Financial Services. CONTRACTOR
has five (5) business days from the receipt of decision from the Director of
Parole Division of deduction of funds, fiscal sanctions and/or termination of
agreement to file the appeal to the Director of Financial Services.
The decision of the Director of Financial Services is final.
16. This Amendment Two shall be effective as of the 1st day of April. 1997.
All other terms and conditions of the Management and Operations
Agreement not amended by this Amendment Two shall remain in full force and
effect.
In Witness Whereof, the parties hereto have caused this Amendment Two to the
Management and Operations Agreement to be duly executed by its authorized
representatives on the respective dates set forth below.
Texas Department of Criminal Justice
by: \s\ David McNutt August 22, 1997
Date
David McNutt
Director of Financial Services
Esmor Fort Worth Inc.
by: \s\James F. Slattery Date
President
[CIK] 0000914670
[NAME] CORRECTIONAL SERVICES CORPORATION
AMENDMENT THREE TO THE
SOUTH TEXAS
INTERMEDIATE SANCTION FACILITY
MANAGEMENT AND OPERATIONS AGREEMENT
BETWEEN
TEXAS DEPARTMENT OF CRIMINAL JUSTICE
AND CORRECTIONAL SERVICES CORPORATION (CSC)
(formerly known as Esmor, Inc.)
This Amendment Three is to the Management and Operations Agreement
between the Texas Department of Criminal Justice and Correctional Services
Corporation (CSC) effective the 1st day of January, 1996.
The parties agree as follows:
1. Article Four, Subsection 4.1 shall be amended as follows:
The term of this contract shall begin upon execution of this
contract and terminate on August 31, 1998.
2. Article Five, Subsection 5.3.3 shall be amended to include the
following language:
At the end of the contract period (August 31, 1998), remaining
Department funds in the welfare fund shall be returned to the Department.
These funds shall be submitted by Contractor to Department, via separate
check, within forty-five (45) days of the contract expiration date.
3. Article Five, Subsection 5.3.4 shall be amended to include the
following language:
At the end of the contract period (August 31, 1998), remaining
Department funds in the welfare fund shall be returned to the
Department. These funds shall be submitted by Contractor to Department,
via separate check, within forty-five (45) days of the contract
expiration date.
4. Article Five, Subsection 5.3.6 shall be amended to include the
following language:
At the end of the contract period (August 31, 1998), remaining
Department funds in the welfare fund shall be returned to the
Department. These funds shall be submitted by Contractor to Department,
via separate check, within forty-five (45) days of the contract
expiration date.
5. Article Five, Subsection 5.3.2 shall be amended to include the
following language:
Contractor shall not employ ex-offenders or TDCJ clients without
the consent and written approval of the Department.
This Amendment Three shall be effective the 1st day of September, 1997.
All other terms and conditions of the Management and Operations
Agreement not amended by this Amendment Three shall remain in full force
and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment Three
to the Management and Operations Agreement to be duly executed by
its authorized representatives on the respective dates set forth below.
Texas Department of Criminal Justice Correctional Services Corporation (CSC)
By: \s\ David McNutt By: \s\ James F. Slattery
Title: Director President
TDCJ - Administrative Services
Date: September 25, 1997 Date: August 27, 1997
[CIK] 0000914670
[NAME] CORRECTIONAL SERVICES CORPORATION
RENEWAL
REVOLVING LINE OF CREDIT NOTE
$6,000,000
Date of Execution January 14, 1998
Effective Date: January 15, 1998
Place of Execution: Atlanta, Georgia
FOR VALUE RECEIVED, CORRECTIONAL SERVICES CORPORATION, a Delaware
corporation (f/k/a ESMOR CORRECTIONAL SERVICES, INC. and successor by merger
with ESMOR, INC., a New York corporation, ESMOR (BROOKLYN), INC., a New York
corporation, ESMOR CANADIAN, INC., a Texas corporation, ESMOR FORT WORTH, INC.,
a Texas corporation, ESMOR HOUSTON, INC., a Texas corporation, ESMOR MANHATTAN,
INC., a New York corporation, ESMOR MANSFIELD, INC., a Texas corporation, ESMOR
((SEATTLE)), INC., a Washington corporation and ESMOR TRAVIS, INC., a Texas
corporation, CORRECTIONAL SERVICES MANAGEMENT, INC., a Delaware corporation
f/k/a Esmor Management, Inc.) and ESMOR NEW JERSEY, INC., a New Jersey
corporation, jointly and severally (collectively herein called the "Maker"),
hereby promises, jointly and severally, to pay to the order of NationsBank,
N.A., a National Banking Association ("Lender"), at 1605 Main Street,
Suite 101, Sarasota, Florida 34236, or at such other place as the holder hereof
may from time to time designate in writing, the principal sum of SIX MILLION
AND NO/100 DOLLARS ($6,000,000.00) or so much thereof as may be disbursed by
Lender to Maker or for Maker's account from time to time, together with interest
at the rate hereinafter specified on such indebtedness as shall from time to
time remain unpaid, until paid in full, such principal and interest being
payable in lawful money of the United States which shall be legal tender in
payment of all debts at the time of payment.
Principal and interest shall be payable in accordance with the following:
1. As used herein the following terms shall have the following
meanings:
(a) "Prime Rate" shall mean the per annum rate of interest as
announced from time to time by NationsBank, N.A. as its prime
rate of interest. The Prime Rate is the rate Lender utilizes,
in its sole discretion, as an index and is not necessarily the
lowest rate charged by Lender to its borrowers.
(b) "FLOATING LIBOR RATE INDEX" shall mean the fluctuating
interest rate per annum published in the Wall Street Journal
at which deposits in U.S. dollars are offered in the London
interbank market for each day for which the Lender's FLOATING
LIBOR RATE is being calculated in an amount equal to the
outstanding amount of the loan and with a term equal to ninety
(90) days (i.e. three month period)
(d) "Prime Rate Margin" shall mean the applicable percentage which
shall be determined and adjusted based upon the Debt Service
Coverage Ratio, as defined and calculated in accordance with
the certain Loan Agreement between Maker and Lender, with the
adjustment occurring on the first date of the calendar quarter
following the quarterly period for which the Debt Service
Coverage Ratio is determined. If the Debt Service Coverage
Ratio is less than 1.6 to 1.0, the percentage shall be 1.25
percent; if the Debt Service Coverage Ratio is equal to or
greater than 1.6 to 1.0 but equal to or less than 3.0 to 1.0,
the percentage shall be .75 percent; if the Debt Service
Coverage Ratio is equal to or greater than 3.0 to 1.0 but
equal to or less than 4.0 to 1.0, the percentage shall be .5
percent and if the Debt Service Coverage Ratio is greater than
4.0 to 1.0, the percentage shall be .25 percent.
(e) "Libor Rate Margin" shall mean the applicable percentage which
shall be determined and adjusted based upon the Debt Service
Coverage Ratio, as defined and calculated in accordance with
the certain Loan Agreement between Maker and Lender, with the
adjustment occurring on the first date of the calendar quarter
following the quarterly period for which the Debt Service
Coverage Ratio is determined. If the Debt Service Coverage
Ratio is less than 1.6 to 1.0, the percentage shall be 3.75
percent; if the Debt Service Coverage Ratio is equal to or
greater than 1.6 to 1.0 but equal to or less than 3.0 to 1.0
the percentage shall be 3.35 percent; if the Debt Service
Coverage Ratio is greater than 3.0 to 1.0 but equal to or less
than 4.0 to 1.0, the percentage shall be 3.0 percent and if
the Debt Service Coverage Ratio is greater than 4.0 to 1.0,
the percentage shall be 2.75 percent.
2. INTEREST RATE: Provided Maker is not in default hereunder and
complies with the terms hereof for selection of a particular interest
rate, Maker shall be entitled to choose the interest rate due on the
outstanding principal balance which interest rate shall apply to the
entire outstanding principal balance, as follows:
(a) PRIME RATE. Except as otherwise provided in subparagraph 2(b)
and 2(c) below, the entire principal balance from time to time
outstanding shall bear interest at a rate per annum equal to
the Prime Rate plus the applicable Prime Rate Margin. With
each change in the Prime Rate, there shall be a corresponding
change in the rate payable hereunder to become effective on
the effective date of such change in the Prime Rate.
(b) FLOATING LIBOR RATE. Maker may select the FLOATING LIBOR
RATE, which shall be determined in accordance with the
following:
(i) "Lender's FLOATING LIBOR RATE" shall be equal to (A) the
quotient (rounded up to the nearest 1/16 of 1%) of (1)
the Floating Libor Rate Index, divided by (2) an amount
equal to one (1) minus the appropriate reserve
requirement imposed on Lender by the Federal Reserve
System, if any, plus (B) the applicable Libor Rate
Margin. The Floating Libor Rate shall be adjusted on a
daily basis to reflect changes in the Floating Libor
Rate Index and each adjustment shall be effective on the
date the change occurs.
(ii) Once selected, the Lender's FLOATING LIBOR RATE shall be
set until Borrower notifies Lender in writing choosing
a different interest rate. Prepayment of all or any
portion of the principal balance to which Lender's
FLOATING LIBOR RATE applies shall only be allowed upon:
(a) Maker giving Lender two (2) business day(s) notice
that Maker intends to make a prepayment and the exact
amount of the prepayment.
(iii) The Maker shall pay to Lender, from time to time and on
demand, any sum(s) required to compensate the Lender for
any additional cost (such as, but not limited to, a
reserve requirement) incurred by the Lender at any time
which (i) is attributable to the Lender's obtaining a
deposit or deposits to cover the outstanding principal
balance for which the Maker has elected to pay Lender's
FLOATING LIBOR RATE, (ii) decreases the effective spread
or yield represented by the applicable Libor Rate Margin
component, that would be earned by the Lender but for
such cost, and (iii) is caused or occasioned by any
subsequently introduced law, rule, regulations or other
requirement (or by any change therein, changed effect or
interpretation thereof or change in the Lender's cost of
complying therewith) imposed, interpreted, administered
or enforced by any federal, state or other governmental
or monetary authority, which is imposed on or applied to
the Lender or any assets held by, deposits or accounts
in or with, or credits extended by the Lender. The
Lender shall notify the Maker from time to time of any
such additional cost and such notice shall be binding
and conclusive evidence of the Maker's obligation to pay
the stated sum upon receipt of the notice.
(iv) The Lender's reference to and use of the FLOATING LIBOR
RATE INDEX to define and determine the Lender's FLOATING
LIBOR RATE, shall not obligate the Lender to obtain
funds from any particular source in order to charge
interest at the Lender's FLOATING LIBOR RATE.
(c) Notwithstanding any other provision of this Note, if the
introduction of or any change in or in the interpretation of
any law or regulation shall make it unlawful, or any central
bank or other governmental authority shall assert that it is
unlawful, for Lender to perform its obligations hereunder to
make loans at Lender's Floating Libor Rate or to continue to
fund or maintain Lender's Floating Libor Rate, or the Floating
Libor Rate Index is no longer available, then, upon notice
thereof (which Lender shall use its best efforts to provide
ten (10) days prior to any such conversion) and demand
therefor by Lender to the Borrower, (i) interest rate on the
portion of the loan bearing interest at Lender's Floating
Libor Rate will automatically, on the date set forth in
Lender's notice, convert to the Prime Rate, and (ii) the
obligation of Lender to make, continue, or offer the Lender's
Floating Libor Rate, shall be suspended until Lender shall
notify Borrower that Lender has determined that the
circumstances causing such suspension no longer exist.
(d) All interest due hereunder shall be computed on a daily basis,
based upon a three hundred sixty (360)-day year and be paid
upon the actual number of days upon which the principal
balance has been disbursed and remains outstanding from time
to time. Each determination of the interest rate shall be
made by the Lender and shall be conclusive, absent manifest
error.
3. PAYMENTS.
Interest only payments for all accrued and unpaid interest shall be
made monthly commencing February 1, 1998, and on the same date of
each month thereafter until maturity as set forth below.
4. MATURITY. On April 3, 1998, the maturity date of this Note, the
remaining unpaid principal balance and accrued and unpaid interest
shall be due and payable in full.
5. PREPAYMENT. This Note may be prepaid, in whole or in part, at any
time without penalty. All payments made hereunder shall be applied
as follows: (a) first against accrued interest then due and owing;
(b) next to amounts expended by Lender to cure any default under
this Note, the Deed of Trust or any other loan documents executed in
connection herewith; (c) next to costs, expenses, or attorneys' fees
due and payable to Lender pursuant to this Note, the Deed of Trust,
or any other loan document executed in connection herewith; and (d)
thereafter against the principal installments due hereunder except
for prepayments, which shall be applied against the principal
installments in inverse order of their due dates. The making of any
prepayment shall not relieve Maker from the obligation to make the
payments next due hereunder on a timely basis.
It is understood and agreed that additional amounts may be advanced by
holder as provided in the Loan Documents which secure this Note and such
advances will be added to the principal of this Note and will accrue interest
at the rate of interest applicable under this Note until paid.
If any payment to be made by Maker to Lender according to the terms hereof
shall be due on a Saturday, Sunday or other day which is a legal holiday under
the laws of the State of Illinois, the due date of such payment shall be
extended to the next business day and the amount of such payment shall include
interest accrued during such extension.
If any payment is more than fifteen (15) days late, Maker agrees to pay to
Lender a late charge equal to five percent (5%) of the payment.
This Note is secured by a Deed of Trust and security agreement (herein
called the "Mortgage" or "Deed of Trust") of even date herewith made by Maker in
favor of Lender encumbering real property and personal property described
therein (the "Mortgaged Property") located in Maricopa County, Arizona.
Each and every party to this Note, whether as Maker, endorser, surety,
guarantor, or otherwise ("Obligor"), hereby waives all rights of homestead and
other exemptions granted by the constitution or laws of Florida or Arizona, and
further waives presentment, demand, protest, notice of dishonor, notice of
nonpayment, notice of protest, and diligence in collection, and assents to the
terms hereof and to any extension or postponement of the time for payment or any
other indulgence. It is further specifically agreed that this Note or any part
of the principal or interest due hereon may be renewed, modified or extended, in
whole or in part, such modification to include but not be limited to changes in
payment schedules and interest rates, from time to time by the holder of the
Note, at the request of the then owners of all or part of the Mortgaged
Property, or at the request of any party bound hereon or who has assumed or may
hereafter assume payment hereof, without the consent of or notice to other
parties bound hereon and without releasing them from any liabilities then
existing.
Each and every Obligor hereby consents that the real or personal property
securing this Note, or any part of such security, may be released, exchanged,
added to or substituted for by Lender, without in any way modifying, altering
releasing, affecting or limiting their respective liabilities or the lien of the
Deed of Trust, and further agrees that Lender shall not be required first to
institute any suit, or to exhaust any of its remedies against Maker or any other
person or party liable or to become liable hereunder, in order to enforce
payment of this Note, and further agrees that Maker or any other party liable
hereunder may be released by Lender from any or all liability under this Note
and such release shall in no way affect or modify the liability of the remaining
parties hereto.
Each and every Obligor hereby consents and agrees that he is bound,
jointly and severally, under the terms hereof and is subject to all of the
provisions set forth herein as fully as though each was an undersigned hereof,
and further consents and agrees that any Obligor may be sued by Lender without
joining any other Obligor, whether primarily or secondarily liable.
Notwithstanding anything contained herein to the contrary or in the Deed
of Trust, or other loan documents executed in connection herewith, no payee or
holder of this Note shall ever be entitled to receive, collect or apply as
interest on the obligation evidenced hereby any amount in excess of the maximum
rate of interest permitted to be charged by applicable law and, in the event
Lender or any holder hereof ever receives, collects or applies as interest any
such excess, such amount which would be excessive interest shall be applied to
the reduction of the principal sum; and, if the principal sum is paid in full,
any remaining excess shall forthwith be paid to Maker. In determining whether
or not the interest paid or payable under any specific contingency exceeds the
highest lawful rate, Maker and Lender shall, to the maximum extent permitted
under applicable law: (a) characterize any non-principal payment as an expense,
fee or premium rather than as interest; (b) exclude voluntary prepayments and
the effects thereof; and (c) spread the total amount of interest, or charges in
the nature of interest, pursuant to applicable law.
It is expressly agreed that if any Event of Default occurs hereunder, then
or at any time thereafter at the option of Lender, the whole of the principal
sum remaining unpaid hereunder, together with all accrued and unpaid interest
thereon, shall become due and payable immediately without presentment, notice,
protest or demand of any kind, anything contained therein to the contrary in
anyway notwithstanding, and in any such event Lender shall have the right to
set-off against this Note all money owed by Lender in any capacity to any
Obligor, whether or not due, and Lender shall be deemed to have exercised such
right of set-off and to have made a charge against any such money immediately
upon the occurrence of such default although made or entered on the books
subsequent thereto. Lender is hereby authorized upon the occurrence of an Event
of Default to charge against any deposit accounts of any Obligor to this note,
as well as any other property of such Obligor at or under the control of Lender,
without notice, any and all obligations of such Obligor, whether due or not.
From and after acceleration of the loan pursuant to this paragraph, the interest
rate on the entire outstanding principal balance hereunder shall accrue at the
highest rate permitted to be charged by applicable law or twenty-five percent
(25%) per annum, whichever is the lesser ("Default Rate"). Upon the occurrence
of an Event of Default the holder of this Note may employ an attorney to enforce
the holder's rights and remedies and the makers, principals, sureties,
guarantors and endorsers of this Note hereby agree to pay to the holder its
reasonable attorneys' fees, plus all other reasonable expenses incurred by the
holder in exercising any of the holder's rights and remedies. The term
"attorneys' fees" shall include but not be limited to any such fees incurred in
any appellate or related ancillary or supplementary proceedings, whether before
or after final judgment related to the enforcement or defense of this Note.
The provisions herein for a Default Rate or a delinquency charge shall not be
deemed to extend the time for any payment hereunder or to constitute a "grace
period" giving the Obligors a right to cure any default.
If at any time any federal, state, county or municipal government or
agency thereof shall impose any documentary stamps tax, intangible tax, or any
other type of tax upon this Note or the Deed of Trust, or upon the indebtedness
evidenced hereby (other than any federal, state or local income tax imposed upon
Lender), then Maker shall pay same within ten (10) days after demand by Lender,
together with any interest and penalties thereon.
Maker shall be in default under this Note upon the happening of any of the
following events or conditions (each is an "Event of Default"): (a) failure or
omission to pay within five (5) days of when due this Note (or any installment
of principal or interest thereunder) or (b) default in the payment or
performance of any obligation, covenant, agreement or liability contained or
referred to in this Note, the Deed of Trust, the Loan Agreement of even date
between Lender and Maker or any other loan document executed in connection
herewith and the failure to cure such default within any applicable grace
period. Any default hereunder shall constitute a default under any other
mortgage, note, obligation or agreement of each Obligor held by Lender.
Time is of the essence of this Note. The remedies of Lender as provided
herein or in the Deed of Trust, or any other loan document executed in
connection herewith, shall be cumulative and concurrent, and may be pursued
singularly, successively or together, at the sole discretion of Lender, and may
be exercised as often as occasion therefor shall arise. No act or omission of
Lender, including specifically any failure to exercise any right, remedy or
recourse, shall be deemed to be a waiver or release. A waiver or release may be
effected only through a written document executed by Lender and then only to the
extent specifically recited therein. A waiver or release with respect to any
one event shall not be construed as continuing as a bar to, or as a waiver or
release of, any subsequent right, remedy or recourse as to any subsequent event.
The term "Lender" where used herein shall include NationsBank, N.A., its
successors and assigns. The term "Maker" shall include each person signing this
Note, jointly and severally, and their respective heirs, successors and assigns.
The term "Obligor" shall include Maker and every person who is an endorser,
guarantor, or surety of this Note, or who is otherwise a party hereto, and their
respective heirs, successors and assigns. The terms "person" and "party" shall
include individuals, firms, associations, joint venturers, partnerships,
estates, trusts, business trusts, syndicates, fiduciaries, corporations, and all
other groups or combinations.
This Note is to be governed and construed in accordance with the laws of
the State of Florida. Except for an action to enforce the Deed of Trust which
will be brought in Maricopa County, Arizona, any action brought to interpret,
construe or enforce this Note shall be brought in the state courts for the State
of Florida, County of Sarasota, or in the United States District Court for the
Middle District of Florida, which forum shall be the exclusive venues of any
such controversy or action. Maker expressly consents to the jurisdiction of
such courts.
ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THE Mortgage OR
THIS NOTE OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON
OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN
ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW). THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION
OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC.
(J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY
INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS NOTE
MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL
ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS NOTE APPLIES IN ANY COURT
HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY
OF SARASOTA AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF
J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN
THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL
BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 30 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THE Mortgage OR THIS NOTE
SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE
STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS NOTE; OR (II)
BE A WAIVER BY THE LENDER OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91
OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE
LENDER HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO)
SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL,
OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT
LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A
RECEIVER. THE LENDER MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THE
Mortgage OR THIS NOTE. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE
INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR
ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OF CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
[CIK] 0000914670
[NAME] CORRECTIONAL SERVICES CORPORATION
DEED OF TRUST MODIFICATION AGREEMENT
THIS AGREEMENT, executed this 14th day of January, 1998, by and between
NATIONSBANK, N.A., a National Banking Association, as successor in interest to
NATIONSBANK, N.A. (SOUTH) herein called "Beneficiary" and CORRECTIONAL SERVICES
CORPORATION, f/k/a ESMOR CORRECTIONAL SERVICES, INC., a Delaware corporation,
herein called "Trustor".
W I T N E S S E T H:
WHEREAS, Trustor being indebted to the Beneficiary executed and delivered
to the Beneficiary a certain note dated December 31, 1995, as evidence of said
debt, and also executed and delivered a Deed of Trust as security therefor of
like date, said Deed of Trust being recorded in Official Records of Maricopa
County, Arizona as Document No. 96-0005811 (the "Deed of Trust").
and
WHEREAS, Trustor has requested Beneficiary to modify the terms of the Note
and Deed of Trust and Beneficiary has agreed to modify the Note and Deed of
Trust in accordance herewith.
NOW, THEREFORE, in consideration of Ten Dollars ($10.00) paid by each
party to the other, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and the mutual covenants
hereinafter set forth, the parties jointly and severally hereby agree as
follows:
1. Trustor acknowledges and certifies that Trustor has no claim, demand
or setoff whatsoever against Beneficiary and that Trustor is justly indebted to
Beneficiary for the sums set forth above.
2. The maturity date of the Revolving Credit Note secured by the Deed
of Trust is extended to April 3, 1998, as evidenced by the Renewal Note having
an effective date of January 14, 1998, in the amount of SIX MILLION AND NO/100
DOLLARS ($6,000,000.00) (the "Renewal Note"), which Renewal Note is secured by
the Deed of Trust.
3. It is the intent of the parties that this instrument shall not
constitute a novation and shall in no way adversely affect the lien priority of
the Deed of Trust or any other loan documents delivered by Trustor to
Beneficiary (collectively, the "Loan Documents"). It is the full purpose and
intent of the parties hereto that the priority of the Deed of Trust remains
effective as the original recording date and time of the Deed of Trust.
4. AS A MATERIAL INDUCEMENT FOR BENEFICIARY TO EXECUTE THIS AGREEMENT,
TRUSTOR DOES HEREBY RELEASE, WAIVE, DISCHARGE, COVENANT NOT TO SUE, ACQUIT,
SATISFY AND FOREVER DISCHARGE ITS OFFICERS, DIRECTORS, EMPLOYEES, AND AGENTS
AND ITS AFFILIATES AND ASSIGNS FROM ANY AND ALL LIABILITY, CLAIMS,
COUNTERCLAIMS, DEFENSES, ACTIONS, CAUSES OF ACTION, SUITS, CONTROVERSIES,
AGREEMENTS, PROMISES AND DEMANDS WHATSOEVER IN LAW OR IN EQUITY WHICH TRUSTOR
EVER HAD, NOW HAS, OR WHICH ANY PERSONAL REPRESENTATIVE, SUCCESSOR, HEIR OR
ASSIGN OF TRUSTOR HEREAFTER CAN, SHALL OR MAY HAVE AGAINST BENEFICIARY, ITS
OFFICERS, DIRECTORS, EMPLOYEES, AND AGENTS, AND ITS AFFILIATES AND ASSIGNS,
FOR, UPON OR BY REASON OF ANY MATTER, CAUSE OR THING WHATSOEVER THROUGH THE
DATE THEREOF. TRUSTOR FURTHER EXPRESSLY AGREES THAT THE FOREGOING RELEASE AND
WAIVER AGREEMENT IS INTENDED TO BE AS BROAD AND INCLUSIVE AS PERMITTED BY
APPLICABLE LAWS. IN ADDITION TO, AND WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, AND IN CONSIDERATION OF BENEFICIARY EXECUTION OF THIS AGREEMENT,
TRUSTOR COVENANTS WITH AND WARRANTS UNTO BENEFICIARY, AND ITS AFFILIATES AND
ASSIGNS, THAT THERE EXIST NO CLAIMS, COUNTERCLAIMS, DEFENSES, OBJECTIONS,
OFFSETS OR CLAIMS OF OFFSETS AGAINST BENEFICIARY OR THE OBLIGATION OF TRUSTOR
TO PAY THE LOAN TO BENEFICIARY WHEN AND AS THE SAME BECOMES DUE AND PAYABLE.
5. All references in the Deed of Trust to the "Revolving Credit Note"
shall be deemed to include the Renewal Note. All terms, covenants, and
conditions of said Deed of Trust remain unchanged except as specified above.
This Agreement shall not waive any right or remedy afforded Beneficiary under
said Deed of Trust. This Agreement shall be binding on the parties, their
heirs, personal representatives, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
effective as of the day and year first above written.
[CIK] 0000914670
[NAME] CORRECTIONAL SERVICES CORPORATION
THIRD AMENDMENT TO LOAN AGREEMENT
THIS Amendment to Loan Agreement is dated as of January 5, 1998 by and
between NATIONSBANK, N.A. f/k/a NATIONSBANK, N.A. (SOUTH), a National Banking
Association (hereinafter called the "Lender" or "Bank") and CORRECTIONAL
SERVICES CORPORATION, a Delaware corporation (f/k/a ESMOR CORRECTIONAL SERVICES,
INC., and successor by merger with ESMOR, INC., a New York corporation, ESMOR
(BROOKLYN), INC., a New York corporation, ESMOR CANADIAN, INC., a Texas
corporation, ESMOR FORT WORTH, INC., a Texas corporation, ESMOR HOUSTON, INC.,
a Texas corporation, ESMOR MANHATTAN, INC., a New York corporation, ESMOR
MANSFIELD, INC., a Texas corporation, ESMOR (SEATTLE), INC., a Washington
corporation, ESMOR TRAVIS, INC., a Texas corporation and CORRECTIONAL SERVICES
MANAGEMENT, INC., a Delaware corporation f/k/a Esmor Management, Inc.,) and
ESMOR NEW JERSEY, INC., a New Jersey corporation, jointly and severally
(collectively hereinafter called the "Borrower")and CSC Management de Puerto
Rico, Inc. a Puerto Rico corporation ("Guarantor").
RECITALS:
WHEREAS, in connection with a $5,000,000 Term Loan and a $6,000,000, Line
of Credit Loan from Lender to Original Borrower, Lender and Borrower entered
into that certain Loan and Security Agreement dated effective December 31, 1995,
as amended by Amendment to Loan Agreement dated January 19, 1996 and Second
Amendment to Loan Agreement dated June 28, 1996 (collectively the "Loan
Agreement") and Original Borrower executed and delivered to Lender the Loan
Documents, as defined in the Loan Agreement; and
WHEREAS, the Term Loan has been paid in full and Borrower has requested
Lender to modify the Loan Agreement and Lender has agreed to do so provided that
Borrower and Guarantor enter into this Amendment and Guarantor execute and
deliver its guarantee to Lender.
NOW THEREFORE, in consideration of the modification of the $6,000,000 Line
of Credit Loan and the covenants and provisions set forth herein, and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties mutually agree as follows:
1. The above recitals are true and correct.
2. The following is added to paragraph 2.1(c):
If Line of Credit Note is in default or if any Letter of
Credit which shall have an expiration date subsequent to
the Maturity Date of the Line of Credit Note and the
term of the Line of Credit Note is not renewed for a
period beyond such expiration date, upon such default or
the maturity date of the Line of Credit Note, as
applicable, Borrower hereby agrees that Borrower shall
either: (i) deposit with Lender and pledge as security
for all outstanding Letter(s) of Credit, cash in the
amount of all outstanding Letter(s) of Credit or other
collateral satisfactory to Bank in its sole discretion,
or (ii) Borrower shall immediately make application to
another financing institution to issue such letters of
credit in replacement of the Letters of Credit and shall
agree to such financial institution's conditions to the
issuance of the replacement letters of credit without
reservation. The failure to provide the Bank with (i)
replacement letters of credit for the benefit of
beneficiary, as defined in the Letters of Credit, and
the beneficiary's authorization to cancel the Letters of
Credit or (ii) the cash or additional collateral, within
fifteen (15) days of Bank's written request shall
constitute an event of default under this Restated Loan
Agreement. In connection with the deposit of cash or
additional collateral, Borrower agrees to execute and
deliver such pledges, security agreements, financing
statements or other loan documents reasonably required
by Lender.
4. The following paragraph 2.1(d) is added to the Loan Agreement:
2.1(d) Borrower and Guarantor acknowledge and agree
that pursuant to their request, Bank has structured and
entered into an $800,000.00 loan transaction wherein
Bank has loaned $800,000.00 to First Security Bank,
National Association as owner/trustee under the CSC
Trust 1997-1 ("First Security"), pursuant to which First
Security has executed and delivered to Lender an
$800,000.00 promissory note dated January 12, 1998
and pursuant to which First Security, Borrower and
Guarantor have executed and delivered to Bank an
Indemnification Agreement dated January 12, 1998.
Borrower and Guarantor acknowledge and agree that the
unpaid principal balance together with any and all other
amounts owed by First Security, Borrower and/or
Guarantor to Bank pursuant to the terms of the
$800,000.00 Promissory Note or Indemnification Agreement
shall not be available for advances under the Line of
Credit. Further, Borrower and Guarantor acknowledge and
agree that in the event of default under the $800,000.00
Promissory Note or the Indemnification Agreement, or in
the event Borrower or Guarantor are required to take
title to the real property, as described in the
Indemnification Agreement, Borrower and Guarantor
acknowledge and agree that Lender shall be entitled to
draw as an advance under the Line of Credit all sums
necessary to pay Bank any and all sums due to Bank under
the terms and provisions of the $800,000.00 Note and the
Indemnification Agreement. Borrower and Guarantor
acknowledge and agree that they requested the specific
structure, as a benefit to them, for the $800,000.00
loan to First Security, that they shall receive direct
financial benefit and gain therefrom, and have given
this covenant and agreement in consideration of Bank
making such loan pursuant to the requested loan
structure and agreeing to the terms and provisions of
this Third Amendment."
4. The parties acknowledge and agree that as additional collateral for
Borrower's obligations under the Loan Agreement, Note and other loan documents,
Guarantor has executed and delivered to Lender its continuing and unconditional
guaranty (the "Guaranty") dated of even date herewith, guaranteeing Borrower's
obligations to Lender. Borrower and Guarantor covenant and agree with Lender
that a default under the Guaranty shall be a default under the Loan Agreement,
Note and other loan documents from Borrower to Lender, and similarly, a default
by Borrower under the Loan Agreement, Note and other loan documents shall be a
default under the Guaranty.
5. Borrower acknowledges and certifies to Lender that Borrower has no
claim, demand or setoff whatsoever against Lender and that Borrower is justly
indebted to Lender pursuant to the terms and provisions of the Line of Credit
Note, Loan Agreement and other loan documents, as defined in the Loan Agreement.
6. As amended hereby, the Loan Agreement remains in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date and year first above written.
[CIK] 0000914670
[NAME] CORRECTIONAL SERVICES CORPORATION
FOURTH AMENDMENT TO LOAN AGREEMENT
THIS Amendment to Loan Agreement is dated as of January ___, 1998
by and between NATIONSBANK, N.A. f/k/a NATIONSBANK, N.A. (SOUTH), a
National Banking Association (hereinafter called the "Lender" or "Bank")
and CORRECTIONAL SERVICES CORPORATION, a Delaware corporation (f/k/a
ESMOR CORRECTIONAL SERVICES, INC., and successor by merger with ESMOR,
INC., a New York corporation, ESMOR (BROOKLYN), INC., a New York
corporation, ESMOR CANADIAN, INC., a Texas corporation, ESMOR FORT WORTH,
INC., a Texas corporation, ESMOR HOUSTON, INC., a Texas corporation,
ESMOR MANHATTAN, INC., a New York corporation, ESMOR MANSFIELD, INC., a
Texas corporation, ESMOR (SEATTLE), INC., a Washington corporation, ESMOR
TRAVIS, INC., a Texas corporation and CORRECTIONAL SERVICES MANAGEMENT,
INC., a Delaware corporation f/k/a Esmor Management, Inc.,) and ESMOR NEW
JERSEY, INC., a New Jersey corporation, jointly and severally
(collectively hereinafter called the "Borrower")and CSC Management de
Puerto Rico, Inc. a Puerto Rico corporation ("Guarantor").
RECITALS:
WHEREAS, in connection with a $5,000,000 Term Loan and a $6,000,000,
Line of Credit Loan from Lender to Original Borrower, Lender and Borrower
entered into that certain Loan and Security Agreement dated effective
December 31, 1995, as amended by Amendment to Loan Agreement dated
January 19, 1996, Second Amendment to Loan Agreement dated June 28, 1996
and Third Amendment to Loan Agreement dated January 5, 1998 (collectively
the "Loan Agreement") and Original Borrower executed and delivered to
Lender the Loan Documents, as defined in the Loan Agreement; and
WHEREAS, Guarantor guaranteed the loan by executing and delivering
its Continuing and Unconditional Guarantee dated January 5, 1998 (the
"Guaranty").
WHEREAS, the Term Loan has been paid in full and Borrower has
requested Lender to renew the $6,000,000 Line of Credit Loan and modify
the Loan Agreement and Lender has agreed to do so provided that Borrower
and Guarantor enter into this Amendment.
NOW THEREFORE, in consideration of the renewal and modification of
the $6,000,000 Line of Credit Loan and the covenants and provisions set
forth herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties mutually agree
as follows:
1. The above recitals are true and correct.
2. The parties acknowledge and agree that from and after the date
hereof the term "Line of Credit Note" shall include that
certain $6,000,000 Renewal Line of Credit Note of even date
here from Borrower to Lender, together with any renewals,
extensions or modifications thereof, in whole or in part.
3. Paragraph 2.1(d) is replaced in its entirety with the
following:
2.1(d) Borrower and Guarantor acknowledge and
agree that pursuant to their request, Bank has
structured and entered into an $800,000 loan
transaction wherein Bank has loaned $800,000 to
First Security Bank, National Association as
owner/trustee under the CSC Trust 1997-1 ("First
Security"), pursuant to which First Security has
executed and delivered to Lender an $800,000
promissory note dated January 12, 1998 and pursuant
to which First Security, Borrower and Guarantor
have executed and delivered to Bank an
Indemnification Agreement dated January 12, 1998.
Further, Borrower may from time to time request
Bank to make further loans to First Security and in
connection therewith First Security may executed
additional promissory notes and/or modifications,
amendments, renewals, replacements or
consolidations of all of such notes. The $800,000
note and any additional notes or amendments,
modifications, renewals, replacements or
consolidations thereof are herein called the
("First Security Note"). In connection with the
First Security Note, First Security, Borrower and
Guarantor shall from time to time execute and
deliver either new indemnification agreements
and/or amendments, modifications, renewals,
replacements or consolidations thereof. The
Indemnification Agreement together with any new
indemnification agreements executed and delivered
by First Security, Borrower and/or Guarantor and
all amendments, modifications, renewals,
replacements and consolidations thereof are herein
collectively called the "First Security
Indemnity"). Borrower and Guarantor acknowledge
and agree that the unpaid principal balance
together with any and all other amounts owed by
First Security, Borrower and/or Guarantor to Bank
pursuant to the terms of the First Security Note or
First Security Indemnity shall not be available for
advances under the Line of Credit. Further,
Borrower and Guarantor acknowledge and agree that
in the event of default under the First Security
Note or the First Security Indemnity, or in the
event Borrower or Guarantor are required to take
title to the real property, as described in the
First Security Indemnity, Borrower and Guarantor
acknowledge and agree that Lender shall be entitled
to draw as an advance under the Line of Credit all
sums necessary to pay Bank any and all sums due to
Bank under the terms and provisions of the First
Security Note and the First Security Indemnity.
Borrower and Guarantor acknowledge and agree that
they requested the specific structure, as a benefit
to them, for the loan to First Security, that they
shall receive direct financial benefit and gain
therefrom, and have given this covenant and
agreement in consideration of Bank making such loan
pursuant to the requested loan structure and
agreeing to the terms and provisions of this Fourth
Amendment."
4. Borrower and Guarantor acknowledge and certify to Lender that
Borrower and Guarantor have no claim, demand or setoff whatsoever against
Lender and that Borrower and Guarantor are justly indebted to Lender
pursuant to the terms and provisions of the Line of Credit Note, Loan
Agreement, Guaranty and other loan documents, as defined in the Loan
Agreement.
6. As amended hereby, the Loan Agreement remains in full force
and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of
the date and year first above written.
[CIK] 0000914670
[NAME] CORRECTIONAL SERVICES CORPORATION
A.G. Contract D.C. Contract
No: KR97-0592 No: DC-PO-PRIV-96/97-6626-1
STATE OF ARIZONA
DEPARTMENT OF CORRECTIONS
1601 West Jefferson
Phoenix, Arizona 85007
AMENDMENT NUMBER ONE
The Agreement entered into between Correctional Services Corporation,
hereinafter referred to as CSC and the Director of the Arizona Department of
Corrections, hereinafter known as the Department, is hereby amended as
follows:
Purpose of Amendment:
To add the following as Paragraph 3.12 to Article III: The parties
agree that from time to time the total bed capacity of 400 at ASP-PW may be
exceeded on a temporary basis when the number of DUI inmates committed to the
Department exceeds the number of beds dedicated to DUI inmates within the
state prison system.
All other terms and conditions of the Agreement shall remain in full force
and effect.
IN WITNESS WHEREOF, the parties hereto agree to carry out the terms of this
Agreement.
CORRECTIONAL SERVICES CORPORATION ARIZONA DEPARTMENT OF CORRECTIONS
\s\ J.F. Slattery \s\ Terry L. Stewart 12/18/97
Signature of Authorized Individual Signature of Authorized Individual
James F. Slattery Terry L. Stewart
Typed Name Typed Name
President, Chief Executive Officer Director
Typed Title Typed Title
1819 Main Street, Suite 1000 1601 West Jefferson, M/C 445
Sarasota, Florida 34236 Phoenix, Arizona 85007
Address Address
Additional Signatures as Applicable
______________________________________ \s\ Charles L. Ryan 4/7/97
Signature Date Signature Date
______________________________________ Charles L. Ryan
Typed Name Typed Name
______________________________________ Deputy Director, Prison Operations
Typed Title Typed Title
Approved as to form this 26th day of March, 1997.
GRANT WOODS
The Attorney General
By: \s\Graham A. Turner
Assistant Attorney General
[CIK] 0000914670
[NAME] CORRECTIONAL SERVICES CORPORATION
A.G. Contract D.C. Contract
No: KR97-2485 No: DC-PO-PRIV-96/97-6626-2
STATE OF ARIZONA
DEPARTMENT OF CORRECTIONS
1601 West Jefferson
Phoenix, Arizona 85007
AMENDMENT NUMBER TWO
The Agreement entered into between Correctional Services Corporation,
hereinafter referred to as CSC and the Director of the Arizona Department of
Corrections, hereinafter known as the Department, is hereby amended as follows:
Purpose of Amendment:
1. To update the Agreement to reflect current titles, the Contractor's
corporate name, terms and operational functions.
2. To revise designated Attachments to update language and reflect
additional requirements regarding the provision of armed escorts.
All other terms and conditions of the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto agree to carry out the terms of this
Agreement.
CORRECTIONAL SERVICES CORPORATION ARIZONA DEPARTMENT OF CORRECTIONS
\s\ J.F. Slattery \s\ Terry L. Stewart 12/18/97
Signature of Authorized Individual/Date Signature of Authorized Individual/Date
James F. Slattery Terry L. Stewart
Typed Name Typed Name
President, Chief Executive Officer Director
Typed Title Typed Title
1819 Main Street, Suite 1000 1601 West Jefferson, M/C 445
Sarasota, Florida 34236 Phoenix, Arizona 85007
Address Address
Additional Signatures as Applicable
______________________________________ \s\ Charles L. Ryan 12/15/97
Signature Date Signature Date
______________________________________ Charles L. Ryan
Typed Name Typed Name
______________________________________ Deputy Director, Prison Operations
Typed Title Typed Title
Approved as to form this 27th day of October, 1997.
GRANT WOODS
The Attorney General
By:______________________________________
Assistant Attorney General
The Agreement number is changed from DC-CCD-PRIV-94/95-6626 to
DC-PO-PRIV-94/95-6626.
To change the name of Esmor Correctional Services, Inc. to Correctional Services
Corporation (CSC). This change in name is supported by Amendment to Articles of
Incorporation filed August 1, 1996, with the State of Delaware and the
Corporation's Application for new authority to Transact Business in Arizona
dated August 7, 1996. Copies of which are on file with the Department. All
references to Esmor throughout this document shall now mean CSC.
ARTICLE I - Definitions
Now Reads...
ASSISTANT DIRECTOR, COMMUNITY CORRECTIONS DIVISION - Department employee charged
with managing this Agreement and providing direction to Esmor relative to the
Agreement.
Change to Read...
DEPUTY DIRECTOR, PRISON OPERATIONS - Department employee charged with managing
this Agreement and providing direction to CSC relative to the Agreement.
Now Reads...
CONTRACTS ADMINISTRATION OFFICE - Office within the Department of Corrections
charged with the responsibility of managing and maintaining professional
services contracts and, as such, serves as the official repository for all
professional service contracts entered into between the Department and private
entities.
Change to Read...
CONTRACTS ADMINISTRATION UNIT - Office within the Department of Corrections
responsible for managing professional services procurements and maintaining
master files related to such procurement activities. This office serves as the
repository for all documentation, correspondence, financial and monitoring data,
etc., generated during the term of a contract, to include renewal terms.
Now Reads...
DEPARTMENT POLICIES, DIRECTOR'S MANAGEMENT ORDERS (DMOs), FINANCIAL SERVICES
PROCEDURES AND INTERNAL MANAGEMENT PROCEDURES (IMPs) - Department regulations
and management directives issued by executive staff of the Department which
govern the administration and operation of the Department as a whole and the
individual institutions consistent with statutes, rules and sound correctional
practices. At some future date, written guidelines currently referred to as
Department Policies, DMOs, IMPs and Financial Services Procedures will be called
either Department Orders or Technical Manuals. Unless otherwise specified,
Department Orders or Manuals when used herein, shall mean all forms of written
instructions as identified in Attachment #8 and applicable to the specific
situation. Refer to Attachment #8 for definitions of all types of written
instructions used by the Department.
Change to Read...
DEPARTMENT WRITTEN INSTRUCTIONS - Department Orders issued by the Director
which govern the administration and operation of the Department consistent with
statutes, rules and sound correctional practices. Attachment #8 is hereby
retired, but left in sequence to show the previous agreement.
Now Reads...
DWI OR DUI INMATE - An inmate committed to the Department under A.R.S. 28-692.01
or 28-692.02 as amended to 28-697 for driving while under the influence of
intoxicating liquor or drugs.
Change to Read...
DUI INMATE - An inmate committed to the Department under A.R.S. 28-692.01 or
28.697 for driving while under the influence of intoxicating liquor or drugs.
Now Reads...
ESMOR'S PROCEDURES - Those procedures prepared by Esmor and approved by the
Department that are based on Department Orders and/or Technical Manuals. The
procedures provide broad direction to Esmor's staff in the operation, management
and maintenance of the secure DWI prison.
Change to Read...
CSC INSTITUTIONAL ORDERS - Those procedures prepared by CSC and approved by the
Department that are based on Department Written Instructions. The procedures
provide broad direction to CSC's staff in the operation, management and
maintenance of the secure prison.
Now Reads...
INMATE WORK CONTRACT - A three-party Agreement entered into between the
Department, Esmor and another governmental entity whereby inmates assigned to
the private prison can provide labor for public works activities or other work
projects authorized by the Department.
Change to Read...
INMATE WORK AGREEMENTS - Multi-party agreements entered into between the
Department, CSC and other parties for the provision of inmate labor for work
activities with public or private entities as authorized by the Department.
Now Reads...
PRE-SERVICE SECURITY TRAINING - Training specified by the Department as
equivalent to that provided by the Department for security officers and required
to be provided by Esmor to all staff designated by Esmor as security officers.
Such training shall consist of 215 academy hours followed by at least 40 hours
of on-the-job (OJT) training under direct supervision of an experienced security
officer.
Change to Read...
PRE-SERVICE SECURITY TRAINING - Training specified by the Department as
equivalent to that provided by the Department for security officers and required
to be provided by CSC to all staff designated by CSC as security officers. Such
training shall be in compliance with Attachment #3, as changed by Amendment
Number Two, followed by at least 40 hours of on-the-job (OJT) training under
direct supervision of an experienced security officer.
Add the following definition:
CAPITAL EQUIPMENT - Item(s) acquired by CSC with monies from the Welfare and
Benefits Fund with a unit cost of $5,000 or more and a useful life of at least
one year. Unit cost includes applicable sales tax, freight and other ancillary
costs to place the asset in its intended location.
ARTICLE II, Term of the Agreement,
Paragraph 2.3.3 et. seq.
Now Reads...
2.3.3 If it is determined by the Director that the renewal term option shall
be exercised, negotiations for cost or price adjustments may be conducted by the
Department with Esmor relative to the provision of contracted services superior
in quality to service provided by the State at essentially the same cost as the
State.
2.3.3.1 If cost or price adjustments are recommended as a result of
negotiations, such recommendations shall be made in accordance with A.R.S.
41-1609.01.
Change as follows:
Delete in their entirety and replace as follows:
2.3.3 If the Director determines that the option to renew shall be exercised,
written notice shall be provided to CSC by certified mail, return receipt
requested, prior to the expiration date. Subsequent to provision of written
notice, an amendment shall be generated to reflect:
2.3.3.1 The new expiration date.
2.3.3.2 Negotiated agreements regarding changes in services, annual cost
adjustments and any other requests for changes submitted by CSC in accordance
with A.R.S. 41-1609.01 and parameters stipulated by Article IX.
Paragraph 2.3.4 et seq.
Now Reads...
2.3.4 If the Agreement is to be renewed, a formal Amendment shall be prepared
and executed in accordance with Article IX prior to the expiration date of the
Agreement. The amendment shall reflect any negotiated change in services and
the amended expiration date as well as price or cost adjustments authorized by
the Legislature, if any.
2.3.4.1 If the Agreement is not renewed, the Department shall remove all
inmates from Esmor's private prison no later than the date of termination.
Change as follows:
Delete in their entirety and replace as follows:
2.3.4 If the Agreement is not renewed, the Department shall remove all
inmates from the CSC facility no later than the expiration date.
ARTICLE IV - Recruitment/Hiring/Staff Training
Subparagraph 4.1.4.2
Now Reads...
4.1.4.2 Personnel hired by Esmor for the positions listed below shall be
registered by DPS as a security guard (officer) in accordance with the
requirements of A.R.S. Title 32, Chapter 26, Article 3 prior to initiation of
service. Additionally, prior to assuming job responsibilities, Esmor shall
ensure that each security officer has passed all required physical and
psychological examinations as well as attended and successfully completed
required pre-service security officer training, to include non-lethal weapons
training, physical fitness training and 40 hours of OJT.
Esmor's designated security officer positions:
- Chief of Security - Central Control Center Officer
- Shift Supervisor - Public Works Supervision Officer
- Housing Unit Officer - Visitation Officer
- Intake Officer - Transportation Officer
- Recreation Officer
Change to Read...
4.1.4.2 Personnel hired by CSC for the positions listed below shall be
registered by DPS as a security guard (officer) in accordance with the
requirements of A.R.S. Title 32, Chapter 26, Article 3 prior to initiation of
service. Additionally, prior to assuming job responsibilities, CSC shall ensure
that each security officer has passed all required physical and psychological
examinations as well as attended and successfully completed required pre-service
security officer training, to include weapons training, physical fitness
training and 40 hours of on-the-job-training (OJT). Security officers
designated by CSC as armed escorts shall complete firearms training as specified
in Attachment #3.
CSC's designated security officer positions:
- Chief of Security - Central Control Center Officer
- Shift Supervisor - Public Works Supervision Officer
- Housing Unit Officer - Visitation Officer
- Intake\Release Officer - Transportation Officer
- Recreation Officer
Add Subparagraph 4.5.4.5 as follows:
4.5.4.5 Security officers designated by CSC and approved by the Department as
armed escorts shall qualify annually with a revolver as required by Department
Order 510.
Paragraph 4.13
Now Reads...
4.13 Prior to receipt of the first inmate, the Department shall provide up
to forty (40) hours of training relative to inmate trust accounts to designated
Esmor staff. If requested by Esmor, additional training may be provided
relative to dedicated discharge accounts and inmate payments for health services
in order to ensure inmate trust account records and transactions satisfy
requirements of the law and the needs of the Department. Esmor shall maintain
inmate trust account information in accordance with the Department's
recordkeeping requirements.
Change to Read...
4.13 Initial training for the specialty training and inmate systems as well
as supplemental training required due to the introduction by the Department of
procedural revisions shall be provided by the Department at no cost to CSC. The
Department shall furnish to the CSC Warden at the conclusion of each training,
technical manuals or curriculum for use by CSC in the provision of training to
replacement staff or as refresher training, except for training for the Inmate
Accounting System. Technical manuals relative to the Inmate Accounting System
shall be used by CSC staff relative to required procedures. The Department
shall not provide further no cost training to CSC staff.
4.13.1 CSC shall not be required to train staff relative to the Inmate
Accounting System. Department Central Office staff shall provide initial
training and necessary supplemental training to those CSC staff assigned
responsibilities for inmate accounting activities. The Department shall charge
CSC as described below if requested to repeat Inmate Accounting System training
for the same CSC staff within six months after a training session has been
conducted.
4.13.2 CSC requests to the Department for training relative Specialty
Training or Inmate Systems in excess of what is described above shall require,
if approved, CSC to reimburse the Department for staff time and any other
associated costs, e.g., travel expenses and overtime (as such costs are
applicable). The Department shall, within thirty (30) days after training is
provided, invoice CSC based on actual costs as determined from travel receipts,
Positive Attendance Reports (PAR) and salary for each employee providing
training. CSC shall make a check payable to the Arizona Department of
Corrections within ten (10) days after receipt of invoice at the following
address:
Arizona Department of Corrections
Attn: Administrator, Bureau of Business & Finance
1601 West Jefferson M/C 210
Phoenix, Arizona 85007
ARTICLE V - Provision, Operation and Management of Secure DWI Prison
Paragraph 5.6.1
Now Reads...
5.6.1 A "secure" armory, i.e., hardened walls and ceiling, to store non-
lethal weapons, ammunition and chemical agents in compliance with DMO 93-14.
Change to Read...
5.6.1 A "secure" armory, i.e., hardened walls and ceiling, to store all
weapons, ammunition and chemical agents in compliance with Department written
instructions.
Paragraph 5.9.6 and Subparagraph 5.9.6.1
Now Reads...
5.9.6 Esmor shall ensure that information relative to each inmate trust
account is maintained to reflect all account transactions from the date of
receipt of the inmate and the inmate's account balance until the date the inmate
is released from the secure DWI prison and the account is closed (see Article
VI, Paragraph 6.4). Esmor shall be responsible for all account transactions
that occur during an inmate's assignment to the private prison.
5.9.6.1 If an inmate is returned to a Department institution, Esmor
shall prepare a check made payable to the "Department of Corrections" in the
amount of the inmate's account balance. A transmittal indicating the inmate's
name and Department number shall accompany the check. The check and transmittal
shall be forwarded either with the inmate's records or within three (3) workdays
after the inmate is transferred to the receiving institution.
Change to Read...
5.9.6 CSC shall utilize the Department's Inmate Accounting System and shall
be accountable for inmate banking transactions from the date of receipt of an
inmate until the date the inmate is either transferred, i.e., returned to a
State prison, transferred to another private prison under contract with the
Department, and the account is transferred to the inmates new location; or the
inmate is released and the account is closed.
Paragraph 5.10 Now Reads...
5.10 Inmate Work Activities. Inmates assigned to the secure DWI prison
shall be required to work in compliance with A.R.S. 31-251 Hard labor required
of prisoners; labor classification; definition. Esmor shall comply with this
statutory requirement by: (I) being a party to Agreements between and among the
Department, Esmor, and existing public entity Contractors in the local area to
enable the private prison to supply the inmate labor pool; (ii) locating
additional public entities in the local area who want to contract with the
Department and Esmor for the provision of inmate labor from the private prison;
(iii) implementing a Prison Work Program whereby jobs within the secure DWI
prison will be created for inmates to perform; and (iv) fully cooperating in
such activities.
5.10.1 Three-Party Agreements - Contracts between and among the
Department, another public entity and Esmor that will allow provision of inmate
labor off the grounds of the private prison to support the work projects of the
public entity.
5.10.1.1 Esmor shall identify public entities who are interested
in using inmate labor to assist in their public works projects. Negotiations
conducted by the Department regarding such Agreements shall include concerns of
Esmor. The Department shall be responsible for preparation, finalization and
maintenance of all inmate work contracts generated in support of the secure DWI
prison.
5.10.1.2 Esmor shall be responsible, if required by the terms of
each inmate work contract, for providing security supervision, transportation,
lunches, etc., for such work activities.
5.10.1.3 Esmor shall be responsible for ensuring the provision
of medical services for injuries or illnesses incurred by inmates while
participating in a contracted work program.
- Emergency medical services required due to an injury or
illness that occurs at a work site may be provided or arranged for by the public
entity Contractor in order to protect the life or limb of an inmate.
5.10.2 Prison Work Program - Work tasks identified by Esmor to be
performed by assigned inmates to support the operations and maintenance of the
private prison. Wages earned by inmates shall be in compliance with Department
policy, i.e. IMP 309.0. The Department Contract Monitor shall approve the jobs
identified in Esmor's Prison Work Program and allocation of said jobs by skill
level to ensure that each is in compliance with Department objectives regarding
pay and work assignments.
5.10.3 In accordance with A.R.S. 31-255, as amended, DWI inmates may
keep a portion of wages earned from work activities as follows:
5.10.3.1 Thirty-three percent (33%) of an inmate's wage shall be
deposited in the inmate's spendable account. Sixty-seven percent (67%) of an
inmate's wage shall be provided to the Department to be deposited in the Alcohol
Abuse Treatment Fund (Fund).
5.10.3.2 Esmor shall ensure a record keeping system is
established to track inmate wages so monies can be apportioned in accordance
with A.R.S. 31-255 and Article VI of this Agreement.
Change to Read...
5.10 Inmate Work Activities
5.10.1 Prison Work Activities - Inmates assigned to the secure prison
shall be required to work in compliance with A.R.S. 31-251 Hard labor required
of prisoners; labor classification; definition. All prison work activities
shall be performed within the perimeter of the secure prison, except that the
Department may consider, consistent with Department written instructions,
allowing selected inmates to work outside the secure perimeter of the prison.
CSC shall comply with A.R.S. 31-251 by implementing a Prison Work Program
whereby jobs within the secure prison will be created for assigned inmates.
5.10.1.1 The Department Monitor shall approve the jobs identified in
CSC's Prison Work Program and the allocation of said jobs by skill level to
ensure that each is in compliance with Department objectives regarding pay and
work assignments. After initial approval of jobs, skill levels and wages,
changes shall not be initiated by CSC without prior written approval of the
Department Monitor.
5.10.1.2 Wages earned by inmates participating in the Prison Work
Program shall be in compliance with Department written instructions, regarding
inmate wages.
5.10.1.3 During the term of this Agreement, CSC shall process inmate
payroll sheets for payment of inmate wages on a bi-weekly basis and in
accordance with the inmate accounting system. All payroll sheets are to be
processed through the Department's Contract Monitor for verification of payroll
charges prior to submittal to the CSC inmate banking technician.
5.10.1.4 Each month, during the term of this Agreement, a list of all
jobs within the CSC Prison Work Program shall accompany the second inmate
payroll request. The list shall indicate which jobs have been filled during the
last thirty-day period, total inmate wages earned for each job, and the average
wage earned for the thirty-day period. The list shall also identify any
problems or concerns CSC may have regarding the Prison Work Program in any given
thirty-day period. The Department Contract Monitor may request CSC to provide
additional information to verify that the CSC Prison Work Program is meeting the
intent of A.R.S. 31-251 and the mission of the secure prison.
- The Department Monitor shall immediately advise the CSC
Warden of concerns identified in review of the monthly listing of inmate jobs,
average pay or level of work activity based on the content of the report or
based on observation of inmate performance as part of the routine monitoring of
inmate activity within the secure prison.
5.10.2 Inmate Work Agreements - Work activities authorized by multi-party
agreements between and among the Department, CSC and other entities that will
allow provision of inmate labor off the grounds of the secure prison (A.R.S. 31-
252 or A.R.S. 41-1624.01).
5.10.2.1 Entities interested in using DUI labor shall be
identified. Negotiations conducted by the Department regarding such agreements
shall include concerns of CSC. The Department shall be responsible for
preparation, finalization and maintenance of all DUI inmate work agreements
generated in support of the secure prison. This does not restrict CSC from
seeking and developing work arrangements for Department consideration.
5.10.2.2 CSC shall be responsible, if required by the terms of
each inmate work agreement, for providing security supervision, transportation,
lunches, etc., for such work activities.
5.10.2.3 CSC shall be responsible for ensuring the provision of
medical services for injuries or illnesses incurred by inmates while
participating in a work program, contracted or otherwise, unless otherwise
specified in an agreement.
- Emergency medical services required due to an injury
or illness that occurs at a contracted work site may be provided or arranged for
by the work Contractor in order to protect the life or limb of an inmate.
Add Paragraph 5.15.6.2 as follows:
5.15.6.2 Any non-emergency medical care for an inmate which
requires hospitalization shall require compliance with the Department's outside
review committee procedures and shall meet the Constitutional mandate of the 8th
and 14th amendments. CSC's primary medical care provider shall participate in
the Department's Health Services Provider Orientation Program.
Paragraph 5.17 et seq.
Now Reads...
5.17 Inmate Activities and Recreation Fund (A&R Fund) - The private prison
shall have an A&R Fund managed by Esmor to be used for the benefit of assigned
inmates. This account shall be funded from profits from the inmate commissary
and inmate telephone system.
5.17.1 Esmor shall provide to the Department's Administrator, Bureau of
Business & Finance, all financial reports required by Department Financial
Services Procedure #2115, Special Services (A&R) Fund Reports.
5.17.2 In the event this Agreement is terminated as permitted herein,
Esmor shall return all funds deposited in the private prison's A&R Fund along
with the closeout Special Service (A&R) Fund Report to the Department at the
following address:
Department of Corrections
Attention: Administrator, Bureau of Business & Finance
1601 West Jefferson, M/C 210
Phoenix, Arizona 85007
Change to Read...
5.17 Inmate Welfare and Benefits Fund (W&B Fund) - The secure prison shall have
a W&B Fund managed by CSC to be used for the benefit of assigned inmates. The
account shall be funded from profits resulting from the sale of commissary goods
and from revenues received by CSC from the Department's vendor for the inmate
telephone system.
5.17.1 CSC shall manage the W&B Fund in a manner identical to the
Department's management of the Special Services Fund to include compliance with
the provisions of written instructions which govern the Special Services Fund.
5.17.1.1 Monies earned by CSC from the inmate telephone system
shall be forwarded from the vendor of the Department's inmate telephone system
directly to CSC for deposit in the W&B Fund.
5.17.1.2 Net income from the sale of commissary goods is to be
distributed to the W&B Fund in accordance with Paragraph 5.19.2.
5.17.1.3 At the conclusion of this Agreement, whether due to
expiration or termination, all remaining equipment, capital and inventorial,
which was purchased with W&B funds shall be transferred to the Department.
5.17.2 CSC shall submit for Department approval written institutional
orders supporting the management of the W&B Fund to include directions relative
to the use of a competitive bidding process for purchases from the W&B Fund.
5.17.3 During the term of this Agreement, the Department shall review all
proposed CSC expenditures from the W&B Fund relative to compliance with all
related Department written instructions and to assure that security and safety
issues are not compromised by a proposed purchase. Such review by the
Department shall not be considered to be an approval of any purchase or of any
fiscal issues relating to the W&B Fund or purchases therefrom.
5.17.3.1 Costs for the operation of the Inmate Commissary may be
paid by CSC from the W&B Fund, e.g., salary costs of a Commissary Manager,
equipment required to provide commissary goods to inmates such as ice machines,
freezer boxes, etc.
- If the Commissary Manager's salary was previously
paid via per diem, and CSC wishes to pay the Manager's salary from the W & B
Fund, the per diem shall be decreased accordingly.
5.17.3.2 Major purchases by CSC with W&B Funds shall require the
use of competitive sealed bidding processes that conform to standard procurement
practices. Major purchases are defined as:
- Purchases estimated to cost from $1,000 to $5,000
which shall require multiple verbal or written quotations.
- Purchases estimated to cost in excess of $5,000 which
shall require multiple written quotations.
5.17.3.3 Purchases made with monies from the W&B Fund must
conform to and be consistent with the types of items authorized for purchase
from the Department's Special Services Fund.
5.17.3.4 CSC shall provide to the Department's Administrator,
Bureau of Business & Finance, all financial reports required by Department
written instructions. A copy of each report shall be provided to the Department
Monitor.
5.17.3.5 In the event this Agreement is terminated as permitted
herein, CSC shall return all funds deposited in the secure prison's W&B Fund,
less commissary capitalization, if still applicable, along with the closeout
Special Services (A&R) Fund Report to the Department at the following address:
Department of Corrections
Attn: Administrator, Bureau of Business and Finance
1601 West Jefferson, M/C 210
Phoenix, Arizona 85007
5.17.3.6 During the term of this Agreement, or renewal thereof,
the financial status of the W&B Fund shall be reviewed by CSC and the Department
to determine whether adequate funds are available to accommodate per diem
expenses in the form of costs for recreational and library supplies and
equipment. If it is mutually agreed that adequate monies are available within
the W&B Fund to accommodate such expenses, the per diem rates shown on
Attachment #9 shall be reduced to reflect the transfer of the expenses to the
W&B Fund.
5.17.3.6.1 Any reduction in per diem shall be verified by
submittal by CSC of revised Fee Schedule and Budget Narrative forms, as provided
by Attachment #10, to reflect removal of such expense items from the per diem.
The completed Fee Schedule and Budget Narrative forms shall be submitted to the
Deputy Director, or designee with a copy provided to the Contracts
Administration Office in accordance with time frames stipulated by the
Department.
5.17.3.6.2 The Deputy Director or designee shall review the CSC
documents and request, if necessary, additional information. A revised
Attachment #9 shall be prepared by the Contracts Administration Office to
reflect the mutually agreed reduced per diem rates.
5.17.3.6.3 The revised Attachment #9 shall replace the existing
Attachment; however, the former Attachment shall be retained on file to reflect
the former agreement. A formal written amendment shall not be required to
accommodate a reduction in per diem due to transfer of expenses from per diem to
the W&B Fund, unless such reduction impacts programmatic aspects of required
services. If required services are impacted, a formal amendment as required by
Article IX shall be required.
Attachment #10, Fee Schedule and Budget Narrative Forms are made part of this
Contract by Amendment Number Two. Copies are included herein.
Paragraph 5.18 et seq.
Now Reads...
5.18 Inmate Telephone System - Esmor shall install the same inmate telephone
system as the Department uses to ensure that calls are collect only and can be
monitored, recorded and archived. In addition, the inmate telephone system
shall network with the Department's system so the same intelligence data/reports
obtained from Department institutions can be collected from the private prison
Revenues generated by the telephone system shall be received by the Department.
Esmor shall be allocated a fair share for deposit in the private prison A&R
Fund.
5.18.1 During the term of this Agreement, the Department shall provide
information relative to its telephone system to Esmor.
Change to Read...
5.18 Inmate Telephone System - Inmates assigned to the secure prison shall have
access to an inmate telephone system. For reasons of security, the same inmate
telephone system and vendor as used by the Department shall be used by CSC.
Inmate telephone services shall be made available in a manner identical to that
described in Department written instructions.
5.18.1 Revenues earned as a result of CSC's use of the inmate telephone
system shall be directed from the Department's vendor to CSC for deposit in the
W&B Fund to be used for the benefit of assigned inmates.
5.18.2 CSC shall submit for Department approval written procedures
regarding the provision and use of the inmate telephone system to include use of
revenues received from the telephone system.
Paragraph 5.19
Now Reads...
5.19 Inmate Commissary (Store) shall be provided by Esmor in accordance with
Department policy, i.e. 302.1.4. The commissary shall be operated at times that
shall allow all inmates access whether it be weekdays and/or weekends. Profits
from the inmate commissary shall be deposited in the private prison's A&R Fund
managed by Esmor.
Change to Read...
5.19 Inmate Commissary (Store) Inmates shall have access to a commissary for
purchase of goods. Items sold in the commissary may include items described in
Department Written Instructions but, for reasons of security, shall not include
any additional items.
Paragraph 5.19.1
Now Reads...
5.19.1 The cost for the initial commissary inventory shall be borne by
Esmor. After recovery of such costs from profits generated by sale of inventory
items to inmates or from profits generated from the Inmate Telephone System,
profits shall then be deposited in the A&R Fund.
Change to Read...
5.19.1 The maximum allowable mark-up of goods for sale in the commissary
may not exceed ten percent (10%).
Add paragraphs as follows:
5.19.2 Net income from the sale of commissary goods shall be distributed
as follows:
5.19.2.1 Fifty percent (50%) for reimbursement to CSC for initial
commissary capitalization.
5.19.2.2 Fifty percent (50%) to the W&B Fund.
5.19.2.3 Upon reimbursement of CSC's initial commissary
capitalization, 100% of the profits earned from the sale of commissary goods
shall be deposited in the W&B Fund.
5.19.3 CSC may have access, through the Department's Central Office
Purchasing Manager, to State contracts for goods to be sold in the commissary.
Use of State contracts is not required and CSC may negotiate directly with
suppliers in accordance with Department written instructions and guidelines
provided herein. It is the expectation of the Department that commissary
inventory shall be purchased at the lowest possible cost.
5.19.4 CSC shall submit for Department approval written procedures
regarding inmate commissary operations to include directions relative to the use
of a competitive bidding process for purchase of commissary goods.
5.19.5 At the conclusion of this Agreement, whether due to expiration or
termination, the remaining inventory in the commissary shall be sold and the
proceeds shall be directed to the remaining balance of the initial commissary
capitalization. Revenues in excess of the original capitalization shall be
deposited in the W&B fund. The final closing balance of the W&B Fund shall be
transferred to the Department's Central Office A&R Fund. If CSC has recouped
its initial commissary capitalization, all revenue from the inventory
liquidation shall be deposited in the W & B Fund for subsequent transfer to the
Central Office A & R Fund.
Article VI - Payment Obligations and Procedures/Financial Reports
Paragraph 6.3.15
Now Reads...
6.3.15 The Assistant Director, Community Corrections Division, or
designee, shall authorize payment. The warrant shall be made payable to Esmor
Correctional Services, Inc. and sent to Esmor at the following address:
Esmor Correctional Services, Inc.
275 Broadhollow Road
Melville, New York 11747
Change to Read...
6.3.15 The Deputy Director, Prison Operations, or designee, shall
authorize payment. The warrant shall be made payable to Correctional Services
Corporation and sent to CSC at the following address:
Correctional Services Corporation
1819 Main Street, Suite 1000
Sarasota, Florida 34236
Paragraph 6.4.5
Now Reads...
6.4.5 Within ten (10) days after receipt of payment from a Contractor,
Esmor shall send a check to the Department made payable to the "Arizona
Department of Corrections - Alcohol Abuse Treatment Fund" for 67% of wages
earned by assigned inmates for all work activities (three-party Agreements,
Prison Work Program) during the previous month. Checks shall be sent to:
Department of Corrections
Health Services Business Office
363 North First Avenue, M/C 940
Phoenix, Arizona 85003
Change to Read...
6.4.5 Within ten (10) days after receipt of payment from a Contractor,
CSC shall send a check equal to the entire amount of the payment to the
Department made payable to the "Arizona Department of Corrections - Alcohol
Abuse Treatment Fund." Checks shall be sent to:
Department of Corrections
Attn: Business Administrator, Prison Operations
1601 West Jefferson, M/C 410
Phoenix, Arizona 85007
Paragraph 6.6.7.5
Now Reads...
6.6.7.5 Esmor shall pay the charges by the tenth (10th) workday
each month by check made payable to the Department of Corrections and sent to:
Department of Corrections
Attention: Business Manager
Community Corrections Division
363 North First Avenue, M/C 920
Phoenix, Arizona 85003
Change to Read...
6.6.7.5 CSC shall pay the charges by the tenth (10th) workday
each month by check made payable to the Department of Corrections and sent to:
Department of Corrections
Attn: Administrator, Bureau of Business and Finance
1601 West Jefferson, M/C 210
Phoenix, Arizona 85007
Add Subparagraphs as follows:
6.6.12 All costs for remediation and/or correction to modify the
secure prison in order to comply with Department requirements and applicable
laws, rules, standards, codes and guidelines as specified in Articles III and V.
6.6.13 All costs to deliver services to the assigned inmate
population. (Refer to Article V)
6.6.14 All costs to duplicate or obtain Department forms used in
special purpose records.
6.6.15 Costs for Department provision of staff training requested
by CSC in excess of required levels relative to Specialty Training Topics.
(Refer to Article IV)
6.6.16 All costs for emergency, public safety or security
services provided to CSC by the State or any political subdivision of the State
(A.R.S. 41-1609.03).
Add Paragraph 6.7.2 as follows:
6.7.2 Discharge allowance reimbursement, as invoiced by CSC and approved
by the Deputy Director, or designee.
Paragraph 6.10 et seq.
Now Reads...
6.10 Financial Reports
6.10.1 In accordance with A.R.S. 41-1609 M.1., Esmor shall provide
audited financial statements to the Department on an annual basis due on or
before March 31. Audited statements shall include, at a minimum, income
statements and balance sheets for the previous calendar year.
6.10.2 The Department shall have the right to request additional
financial data in order to obtain information deemed necessary.
6.10.3 Esmor shall provide two (2) copies of the audited financial
statements to the Department Contract Monitor. The Monitor shall forward one
complete copy each to the Assistant Director, Community Corrections Division and
the Administrator, Bureau of Business and Finance.
Change to Read...
6.10 Financial Reports
6.10.1 In accordance with A.R.S. 41-1609 M.1., CSC shall provide audited
and unaudited financial statements to the Department. Audited financial
statements shall be due on or before March 31 annually. The unaudited financial
statements shall be provided on a quarterly basis beginning on or before March
31. Audited statements shall include, at a minimum, income statements and
balance sheets for the previous calendar year. Unaudited statements shall
include, at a minimum, income statements and balance sheets for the previous
quarter.
6.10.2 The Department shall have the right to request additional
financial data in order to obtain information deemed necessary. Time frames for
submittal and type(s) of financial data required shall be noted in the
Department's written request for information.
6.10.3 CSC shall provide two (2) copies of the audited financial
statements to the Department Monitor. The Monitor shall forward one complete
copy each to the Deputy Director and the Administrator, Bureau of Business and
Finance.
Add Subparagraph 6.10.4 as follows:
6.10.4 CSC must ensure that financial reports specific to the Phoenix-
West Prison, i.e., balance sheets, income statements, can be provided upon
request. All such information shall comply with generally accepted accounting
principles. Time frames for submittal of financial reports and any other data
shall be noted in the Department's written request for information.
Add Paragraph 6.11 et seq. as follows:
6.11 Requirements of A.R.S. 31-239, Utility fees
6.11.1 A.R.S. 31-239, requires inmates who possess at least one major
electrical appliance to pay a fixed fee of $2.00 per month for electricity
usage. When Department written instructions are executed, CSC shall comply with
the requirements of the referenced statute and Department written instructions
in charging assigned inmates for electricity usage.
6.11.2 Upon receipt of written notice from the Department to begin
deducting the monthly fee, CSC shall comply with Department written instructions
and the following procedure:
6.11.2.1 By the tenth (10th) workday each month, CSC shall send a
check made payable to the Department of Corrections for monies paid by inmates
for electricity usage incurred the previous month. Department required
reporting forms shall accompany each check to reflect monies received and
debited. Checks shall be sent to:
Department of Corrections
Attn: Administrator, Bureau of Business & Finance
1601 West Jefferson, M/C 210
Phoenix, Arizona 85007
Add Paragraph 6.12 et seq. as follows:
6.12 CSC shall invoice the Department quarterly for reimbursement of discharge
allowance paid to eligible inmates in accordance with Department written
instructions.
6.12.1 Invoices requesting reimbursement shall be submitted by CSC to the
Department's Contract Monitor by the tenth work day of October, January, April
and July during the term of the Agreement. Each invoice shall indicate the
following information relative to each inmate who received discharge allowance:
name of each inmate, Department assigned inmate number, amount paid, purpose of
payment (clothing or transportation) and date of discharge.
6.12.1.1 The Department Monitor shall verify the invoiced
information and submit the invoice to the Deputy Director, or designee for
authorization of payment.
6.12.2 The Department shall reimburse CSC for discharge allowance within
fifteen (15) workdays after receipt of invoice and verification of supporting
detail from the Department Monitor. Warrants for reimbursement shall be made
out to Correctional Services Corporation and shall be sent to ASP-PW at the
following address:
Correctional Services Corporation
ASP-Phoenix West
Attention: Business Manager
3402 West Cocopah
Phoenix, Arizona 85009
This Amendment shall be executed when all signatures are affixed.
[CIK] 0000914670
[NAME] CORRECTIONAL SERVICES CORPORATION
LEASE AGREEMENT
BETWEEN
FRIO COUNTY, LESSOR
AND
CORRECTIONAL SERVICES CORPORATION, LESSEE
THIS LEASE AGREEMENT (Lease) is made and entered into pursuant to
Subchapter F of Chapter 351 of the Texas Local Government Code, as amended,
dated to be effective as of November 26, 1997 (the "Effective Date"), between
Frio County, a political subdivision of the State of Texas ("FRIO") (Lessor),
having an office at 500 East San Antonio Street, Box 7, Pearsall, Texas 78061
and Correctional Services Corporation ("CSC") (Lessee), a Delaware
corporation, having an address at 1819 Main Street, Suite 1000, Sarasota,
Florida 34236.
1. Definitions. As used in this Lease the following terms have the
meanings set forth below:
Bankruptcy Code means Title 11 of the United States Code or any other
Federal or state bankruptcy, insolvency or similar law, now or hereafter in
effect in the United States.
Business Day means any day except Saturday, Sunday and any days on which
banks in the State of Texas shall be closed.
Environmental Laws means and includes but shall not be limited to the
Resource Conservation and Recovery Act (42 U.S.C. Sec. 6901 et seq.), as
amended by the Hazardous and Solid Waste Amendments of 1984, the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. Sec. 9601 et
seq.), as amended by the Superfund Amendments and Reauthorization Act of 1986,
the Hazardous Materials Transportation Act (49 U.S.C. Sec. 1801 et seq.), the
Toxic Substances Control Act (15 U.S.C. Sec. 2601 et seq.), Clean Air Act (42
U.S.C. Sec. 9402 et seq.), the Clean Water Act (33 U.S.C. Sec. 1251 et seq.) the
Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. Sec. 136 et
seq.), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Sec. 690
et seq.) and the Occupational Safety and Health Act (29 U.S.C. Sec. 651
et seq.) (collectively CERCLA) and all applicable federal, state and local
environmental laws, including obligations under the common law, ordinances,
rules, regulations, private agreements (such as covenants, conditions and
restrictions) as any of the foregoing may have been or may be from time to
time amended, supplemented or supplanted, and any other federal, state or
local laws, including obligations under the common law, ordinances, rules,
regulations, private agreements (such as covenants, conditions and
restrictions) now or hereafter existing relating to regulation or control of
Hazardous Substances or environmental health and safety. As used herein,
"private agreements" shall not include any private agreements entered into by
Lessee that purport to be binding upon either Lessor or the Premises unless
Lessor has expressly consented thereto in writing prior to Lessee's entering
into the same.
Governmental Requirements means any law, statute, ordinance, order, rule,
regulation or determination of any federal, state, county, municipal, local or
other governmental or quasi-governmental authority having jurisdiction over
Lessor, Lessee, the Premises, the Sheriff's Offices or any activities or
operations engaged in at the Premises by any Person at any time.
Hazardous Substances means (i) those substances included within the
definitions of or identified as "hazardous substances", "hazardous
materials", or "toxic substances" in or pursuant to, without limitation, CERCLA
and in the regulations promulgated pursuant to said laws, all as amended;
(ii) those substances listed in the United States Department of Transportation
Table (40 CFR 172.101 and amendments thereto) or by the Environmental
Protection Agency (or any successor agency) as hazardous substances (40 CFR
Part 302 and amendments thereto); (iii) any material, waste or substance
which is or contains (A) petroleum, including crude oil or any fraction
thereof, natural gas, or synthetic gas usable for fuel or any mixture
thereof, (B) asbestos, (C) polychlorinated biphenyls, (D) designated as
"hazardous substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C.
Sec. 1251 et seq., (33 U.S.C. Sec. 1321) or listed pursuant to Section 307 of
the Clean Water Act (33 U.S.C. Sec. 1317); (E) flammable explosives;
(F) radioactive materials; and (iv) such other substances, materials and wastes
which are or become regulated as hazardous, toxic or "special wastes" under
applicable local, state or federal law, or the United States government, or
which are classified as hazardous, toxic or as "special wastes" under
federal, state or local laws or regulations.
Lessee Entity means Lessee or any corporation or partnership more than
fifty percent of the voting power or partnership interests or membership
interests of which are owned directly or indirectly by Lessee or one or more of
its shareholders or members who in the aggregate hold more than fifty percent of
the voting power of Lessee.
Lessor's Inmates means inmates the Lessor has responsibility to confine as
part of its governmental obligations.
Lessor's actual knowledge or any other reference to the knowledge of
Lessor shall mean only those facts that are within the current actual
knowledge of Lessor's Commissioners Court or the Sheriff, no independent
investigation or inquiry having been undertaken by or required of any such
persons.
Person means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, trustee of a trust, unincorporated
organization or government or governmental authority, agency or political
subdivision thereof.
Qualified Assignee means a person or entity (a) with, at the time of an
assignment of this Lease to such person or entity, a net worth of at least Ten
Million Dollars as of the end of its most recent fiscal year as certified by a
public accountant; (b) which has been in existence and doing business for not
less than three years; and (c) has experience operating detention facilities
similar to the Facility.
Renter's Price Index shall mean that component of the Consumer Price Index
as reported by the United States government.
2. Demise: Condition.
(a) Lessor hereby agrees to lease to Lessee, and Lessee hereby agrees to
lease from Lessor, subject to the terms and conditions hereof and all matters
of record with respect to the Premises (hereinafter defined) in Frio County,
Texas, (i) the parcel of land (the Land) described in Exhibit B attached
hereto, (ii) the facility on the Land currently known as the Frio County
Detention Facilities as depicted on Exhibit A (the Facility), buildings and
improvements now or hereafter existing on the Land and fixtures appurtenant
thereto (collectively the Improvements) and (iii) all easements, rights and
appurtenances thereto (the Land, Improvements and all such easements, rights and
appurtenances collectively, the Premises) save and except that space
described as the Sheriff's office on Exhibit B hereto and all easements, rights
and appurtenances thereto, including, without limitation, the right to
utilize common spaces on the Premises, such as access hallways, booking
areas, and parking spaces (the "Sheriff's Offices"). As the attached survey
indicates, a certain portion of the recreation yard as well as that portion
of the Facility currently utilized for administrative space is not unde
possession of Lessor and is not a part of the Premises.
(b) Lessee has examined the Premises and Lessor's interest in and title
to the Premises, and has found the same to be satisfactory for all purposes.
Lessee's taking possession of the Premises shall constitute conclusive
evidence for all purposes of Lessee's acceptance of the Premises in a state and
condition satisfactory, acceptable and suitable for Lessee's use pursuant to
this Lease. LESSEE ACCEPTS THE PREMISES AS IS, WHERE IS, AND WITH ALL
FAULTS, AND WITHOUT ANY WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO
THE PREMISES' CONDITION, SUITABILITY OR FITNESS FOR ANY PURPOSE OR THE
PREMISES' COMPLIANCE WITH ANY GOVERNMENTAL REQUIREMENTS.
(c) Lessor warrants and represents that once the obligations noted in
Section 37 of this Lease are extinguished by the Purchase of the Premises, it
will have the unilateral right to lease the Land, Facility, Improvements and
Premises to Lessee.
(d) Lessee has the unilateral right at any time to make alterations,
additions or improvements to the Premises, including the unilateral right to
expand the bed capacity of all buildings without Lessor's consent (the
Expansion). All Expansions shall be performed in a good and workmanlike
manner in compliance with all applicable Governmental Requirements. Upon
completion of all Expansions, a full set of as-built plans covering such
Expansion shall promptly be delivered to Lessor. All Expansions shall become
part of the Premises and shall be surrendered along with the Premises upon the
expiration or termination hereof. In no event shall the aggregate of al
Expansions exceed beds more than exist as of the date hereof.
3. Term.
(a) Subject to the provisions hereof, Lessee shall hold the Premises for
a term (the Term) which shall begin on the date that all outstanding debt of
Lessor relating to the Premises is discharged and title to the Premises has
been conveyed to Lessor and end at midnight on December 1, 2009, unless sooner
terminated or extended as expressly provided herein.
(b) Lessee shall vacate the Premises upon the expiration of the Lease
Term or earlier termination of this Lease. Lessee shall reimburse Lessor for'
and indemnify Lessor against all damages incurred by Lessor as a result of
any delay by Lessee in vacating the Premises. If Lessee does not vacate the
Premises upon the expiration of the Lease Term or earlier termination of the
Lease, Lessee's occupancy of the Premises shall be a "month to month" tenancy,
subject to all of the terms of this Lease, and Lessee shall pay to Lessor, as
Additional Rent hereunder (which shall be in addition to, and not in lieu of,
all other Basic Rent, Additional Rent and other sums payable from Lessee to
Lessor hereunder) holdover rental in the amount of $50,000.00 per month,
payable in advance on or before the first day of each month or fraction thereof
that Lessee remains in occupancy of the Premises after the expiration or
earlier termination hereof.
(c) This Lease may be extended for one (1) additional five (5) year term
upon mutual agreement of the parties.
4. Rent and Other Consideration.
(a) On the Effective Date, Lessee shall pre-pay one hundred forty-four
(144) months [twelve (12) years] of rent equaling $4,500,000 (Basic Rent) for
the Premises to Lessor.
(b) During the Term of the Lease, Lessor shall be entitled to 30 beds
for Lessor's Inmates in the Premises at no cost to Lessor. It is agreed that
Lessor's Inmates will be confined to the extent of its capacity in the Sanders
Facility on the Premises.
(c) For beds in excess of such 30 free beds, up to a total of 40 beds
(including the 30 free beds), Lessor shall pay $28 per day per bed for each
bed used by Lessor during the first 12 months of the Term. Thereafter,
Lessor shall pay $28 per bed per day plus the increase as determined by the
Renter's Price Index.
(d) For all other beds beyond forty (40), Lessor shall be entitled to
additional beds in the Premises to house Lessor's own Inmates by paying the
prevailing market rate as established by Lessee as it pertains to non-Frio
County inmates housed in the Facility.
(e) To the extent permitted by law, Lessee shall provide telephone
service at the Facility. Lessee shall remit to Lessor: 1) 50% of all
monthly telephone revenue received by Lessee for phone services used by
inmates at the Premises plus; 2) 50% of the monthly value of all per diem
increases in the rates charged for housing inmates (above $39.75 for
out-of-state inmates, and above $35.25 for all other non-Lessor inmates).
In no event shall the aggregate amount received by the Lessor pursuant to
subsections 1) and 2) exceed the sum of $1 times the number of non-Lessor
Inmates times the number of days of incarceration.
(f) Upon any expansion of at least 25 beds, in lieu of the monies set
forth in subparagraph (e), Lessor shall receive $1 for each non-Lessor Inmate
per day.
(g) All amounts which Lessee is required to pay or discharge pursuant to
this Lease in addition to Basic Rent shall constitute additional rent hereunder
(Additional Rent). Lessee may pay Additional Rent directly to the Person
entitled thereto. All sums payable as Additional Rent to Persons other than
Lessor shall be paid when they become due to such Persons, and Lessee shall
indemnify Lessor against any liens or claims against Lessor or the Premises
arising out of Lessee's failure to timely pay any such sums. All sums payable
as Additional Rent to Lessor shall be paid monthly in arrears, not later than
the tenth day of the month immediately following the month in which they
accrue. Neither phone revenue nor per diem payments shall be deemed to
accrue until such time as the monies have been received by Lessee. Each such
payment of Additional Rent to Lessor shall be accompanied by (i) a daily
prisoner count (specifically identifying those Inmates constituting Lessor
Inmates) for the month for which Additional Rent is being paid, (ii) a
statement of Lessee's income and expenses for the Premises for such month,
and (iii) a statement of phone revenue for such month. Lessor shall have the
right, not more than once each year, at Lessor's expense and upon at least five
day's notice to Lessee, to perform or, to cause a firm of independent public
accountants or auditors to perform, an audit of Lessee's books and records
pertaining to the Premises, and if such audit establishes that Lessee has
underpaid or failed to pay Lessor any sums due to Lessor by Lessee hereunder,
Lessee shall promptly pay to Lessor such deficiency.
(h) All payments Lessee is required to make to Lessor under this Lease
shall be paid to the Frio County Auditor and deposited in an escrow account
to be established for the exclusive (subject to the provisions hereof)
benefit of Lessee.
(i) All monies received under Intergovernmental Agreements by Lessor
which relate to the Premises must be paid to Lessee within ten (10) business
days of receipt.
(j) Lessee's covenants to pay Basic Rent and Additional Rent are
separate and independent covenants from all other covenants of Lessor and
Lessee hereunder.
IT IS UNDERSTOOD AND AGREED THAT ALL REVENUES RELATED TO THE FACILITY WILL
BELONG EXCLUSIVELY TO LESSEE EXCEPT FOR AMOUNTS LESSEE IS EXPRESSLY REQUIRED TO
PAY PURSUANT TO THIS SECTION 4.
5. Use.
(a) Lessee shall use and operate the Premises throughout the Term as a
minimum or medium security correctional facility. Lessee and Lessor shall
comply with Sec. 511.0092 of the Government Code at Lessee's sole expense
pursuant to Texas law and the rules and standards promulgated or adopted by the
Texas Commission on Jail Standards. Lessor shall provide Lessee with
sufficient spaces to meet its governmental obligations to maintain a County
jail and shall provide the Sheriff of Lessee with sufficient access to such
space to carry out his duties as imposed by state law.
(b) Lessee shall not do or permit anything to be done in or about the
Premises nor bring or keep anything therein which will in any way caus
cancellation of any insurance policy covering the Premises or any part thereof.
(c) Except as provided in this Lease, or as required by law, Lessor or
its successors or assigns shall in no way have responsibility for, interfere or
oversee Lessee's operations on the Premises.
(d) Lessee shall comply with all covenants, conditions, restrictions and
Governmental Requirements applicable to the Premises, and shall promptly comply
with all governmental orders and directives for the correction, prevention
and abatement of nuisances, hazards and other conditions or activities in or
upon, or connected with the Premises, all at Lessee's sole cost, risk and
expense, including any expense or cost resulting from the compliance wit
improvements for handicapped or disabled persons or any other costs, fees or
expenses mandated by Governmental Requirements.
(e) Lessee shall pay the cost of all utility services, including but not
limited to, all charges for gas, water, sewerage, storm water disposal, trash
disposal, communications and electricity used on the Premises and in the
Sheriff's Offices.
(f) Upon 24 hours notice, Lessor and its authorized agents shall have
the reasonable right, during normal business hours, to enter the Premises, at a
time set by the Warden, (a) to inspect the general condition and state of
repair thereof, (b) to make repairs required or permitted under this Lease,
or (c) for any other reasonable purpose. In the event of an emergency,
Lessor may enter the Premises at any time.
6. Net Lease.
This Lease is a "net lease" and Lessee shall pay all Basic Rent and
Additional Rent without notice, demand, counterclaim, set-off, deduction,
defense, abatement, suspension, deferment, diminution or reduction. All costs,
expenses and obligations of every kind and nature whatsoever relating to the
Premises and the appurtenances thereto and the use and occupancy thereof by
Lessee or anyone claiming by, through or under Lessee which may arise or become
due during or with respect to the period constituting the Term hereof shall
be paid by Lessee. Lessee assumes during the Term the sole responsibility for
the condition, use, operation, maintenance and management of the Premises and
for obtaining and paying for all utilities serving the Premises and Lessor
shall have no responsibility in respect thereof and shall have no liability for
damage to the property of Lessee or any approved sublessee or assignee of Lessee
or any agent, employee, inmate, officer representative, licensee or invitee of
Lessee or for any reason whatsoever.
7. Taxes and Other Charges; Law and Agreements.
(a) Nothing in this Lease shall require payment by Lessee of:
(i) any property or related taxes on the Lessor's fee interest in
the Premises;
(ii) any franchise, estate, inheritance, succession, or transfer
taxes (other than transfer taxes, recording fees, or similar charges payable
in connection with a conveyance hereunder to Lessee or in connection with
Lessor's exercise of remedies after an Event of Default hereunder);
(iii) net income or profits taxes of Lessor or anyone claiming by, through
or under Lessor including without limitation (other than any gross receipts
or similar taxes imposed or levied upon, assessed against or measured by the
Basic Rent, Additional Rent or any other sums payable by Lessee hereunder or
levied upon or assessed against the Premises, unless such taxes are in lieu of
or a substitute in whole or in part for an income, profit or revenue tax of
Lessor, but only to the extent of such substitution and only to the extent that
such tax, assessment or other charge would be payable if the Premises were the
only property of Lessor subject thereto); or
(iv) any taxes imposed by any federal, state or local government on, or
measured by, the gross or net income of Lessor, tax preferences or dividends
paid, taxes in the nature of capital gains, excess profits, accumulated
earnings or personal holding company taxes, unless any such tax is in lieu of or
a substitute for any other tax or assessment upon or with respect to the
Premises, which, if such other tax or assessment were in effect, would be
payable by Lessee hereunder.
Lessee and its lease hold interest in this Lease shall be subject to tax
as otherwise imposed by applicable law. However, Lessor agrees that it will
not impose any taxes, levies, fees or other impositions upon Lessee which are
for Lessor's benefit and are not either a) mandated by state law, or
b) generally applicable to the citizens or businesses within Frio Count
which is not designed to place a disproportionate burden on Lessee or c) able
to be passed back to Lessee's clients through higher per diem rates. Lessee
shall pay any taxes assessed against trade fixtures, furnishings, equipment, or
any other personal property belonging to Lessee for which it is not
tax-exempt. Lessee shall use reasonable efforts to have its personal
property taxed separately from the Premises, but if any of Lessee's personal
property is taxed with the Premises, Lessee shall pay the portion of all such
taxes attributable to the personal property of Lessee.
Lessee shall furnish to Lessor promptly, and in any event within 20 days
after the same becomes due and payable, proof of the payment of any tax
assessment, fee, rent or charge which is payable by Lessee. Such taxes
assessments, fees, water and sewer rents and other governmental charges shall
be apportioned pro rata between Lessor and Lessee as of the date on which this
Lease terminates or expires with Lessee responsible for all such taxes, fees and
charges attributable to the periods during which this Lease was in effect, and
Lessor responsible for all such taxes, fees and charges attributable to periods
thereafter. Lessor and Lessee agree to use reasonable efforts to cause bills for
taxes and other assessments and all assessment notices with respect to the
Premises to be sent directly to Lessee.
(b) Lessee shall obtain and pay all charges for utility, communication
and other services to the extent rendered or used during the Term on or about
the Premises, whether or not payment therefor shall become due after the Term.
8. Liens.
Lessee will promptly, but in any event no later than 30 days after its
knowledge of the filing thereof but in any event prior to the enforcement of the
same, at its own expense remove and discharge of record, by bond or
otherwise, any charge, lien, security interest or encumbrance upon the
Premises, any Basic Rent, or any Additional Rent or other sums payable by
Lessee under this Lease which arises for any reason (except for any act or
omission of Lessor or anyone claiming by, through or under Lessor, without the
consent of Lessee), including all liens which arise out of Lessee's possession,
use, operation and occupancy of the Premises, but not including any permitted
encumbrances. Nothing contained in this Lease shall be construed as constituting
the consent or request of Lessor, express or implied, to or for the performance
by any contractor, laborer, materialman, or vendor of any labor or services or
for the furnishing of any materials for any construction, alteration, addition,
repair or demolition of or to the Premises or any part thereof. Notice is hereby
given that Lessor will not be liable for any labor, services or materials
furnished or to be furnished to Lessee, or to anyone holding an interest in the
Premises or any part thereof through or under Lessee, and that no mechanic's or
other liens for any such labor, services or materials shall attach to or affect
the interest of Lessor in and to the Premises.
9. INDEMNIFICATION: FEES AND EXPENSES.
(a) LESSEE SHALL UNCONDITIONALLY AND IRREVOCABLY PAY, AND SHALL PROTECT,
DEFEND, AND INDEMNIFY LESSOR, AND ITS COMMISSIONERS, OFFICERS, EMPLOYEES,
LICENSEES, AND AGENTS (INDEMNIFIED PARTY), AGAINST AND HOLD INDEMNIFIED PARTY
HARMLESS FROM ALL LIABILITIES, LOSSES, FINES, PENALTIES, DAMAGES, COSTS,
EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES, PRE AND POST JUDGEMENT
INTEREST, COSTS OF COURT, AND EXPENSES), CLAIMS, DEMANDS OR JUDGMENTS OF ANY
NATURE (A) ARISING OR ALLEGED TO ARISE IN CONNECTION WITH THE CONDITION, USE,
OPERATION, MAINTENANCE, SUBLETTING AND MANAGEMENT OF THE PREMISES, (B) RELATING
TO THE PREMISES AND THE APPURTENANCES THERETO AND THE USE AND OCCUPANCY THEREOF
BY LESSEE OR ANYONE CLAIMING BY, THROUGH OR UNDER LESSEE OR (C) ARISING OR
ALLEGED TO ARISE FROM OR IN CONNECTION WITH: (I) ANY INJURY TO, OR DEATH OF,
ANY PERSON OR ANY DAMAGE TO OR LOSS OF PROPERTY ON OR ADJACENT TO THE PREMISES
OR GROWING OUT OF OR DIRECTLY OR INDIRECTLY CONNECTED WITH, OWNERSHIP, USE,
NONUSE, OCCUPANCY, OPERATION, POSSESSION, CONDITION, CONSTRUCTION, REPAIR OR
REBUILDING OF THE PREMISES, OTHER THAN ANY INJURY, DEATH, DAMAGE OR LOSS
ARISING OUT OF SUCH INDEMNIFIED PARTY'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT;
OR (II) ANY CLAIMS BY THIRD PARTIES RESULTING FROM ANY VIOLATION OR ALLEGED
VIOLATION BY LESSEE OF (A) ANY PROVISION OF THIS LEASE, OR (B) ANY
GOVERNMENTAL REQUIREMENT, OR (C) ANY OTHER AGREEMENT RELATING TO THE PREMISES.
IF INDEMNIFIED PARTY SHALL BE MADE A PARTY TO ANY SUCH CLAIM, DEMAND OR
LITIGATION, AND IF LESSEE, AT ITS EXPENSE, SHALL FAIL TO PROVIDE INDEMNIFIED
PARTY WITH COUNSEL APPROVED BY SUCH PARTY, WHICH APPROVAL SHALL NOT BE
UNREASONABLY WITHHELD, LESSEE SHALL PAY ALL COSTS AND REASONABLE ATTORNEY'S
FEES AND EXPENSES INCURRED OR PAID BY INDEMNIFIED PARTY IN CONNECTION WITH
SUCH LITIGATION. TO THE EXTENT LEGALLY PERMISSIBLE, EACH INDEMNIFIED PARTY
CONSENTS TO BEING REPRESENTED BY THE SAME COUNSEL AS LESSEE IN SUCH ACTION;
PROVIDED, HOWEVER, THAT ANY INDEMNIFIED PARTY MAY BE REPRESENTED BY SEPARATE
COUNSEL AT LESSEE'S EXPENSE IF, IN SUCH INDEMNIFIED PARTY'S REASONABLE
JUDGMENT, SEPARATE COUNSEL IS NECESSARY TO PROTECT SUCH INDEMNIFIED PARTY'S
INTEREST.
(b) LESSOR SHALL NOT BE LIABLE TO LESSEE OR TO LESSEE'S EMPLOYEES,
AGENTS, INVITEES OR VISITORS, OR TO ANY OTHER PERSON WHOMSOEVER, FOR ANY INJURY
TO PERSONS OR DAMAGE TO PROPERTY ON OR ABOUT THE PREMISES OR ANY ADJACENT AREA
OWNED BY LESSOR CAUSED BY THE NEGLIGENCE OR MISCONDUCT OF LESSEE, ITS
EMPLOYEES, SUBLESSEES, LICENSEES OR CONCESSIONAIRES OR ANY OTHER PERSON
ENTERING THE PREMISES UNDER EXPRESS OR IMPLIED INVITATION OF LESSEE, OR
ARISING OUT OF THE USE OF THE PREMISES BY LESSEE AND THE CONDUCT OF ITS
BUSINESS THEREIN, OR ARISING OUT OF ANY BREACH OR DEFAULT BY LESSEE IN
THE PERFORMANCE OF ITS OBLIGATIONS HEREUNDER; AND LESSEE HEREBY AGREES TO
INDEMNIFY AND HOLD LESSOR HARMLESS FROM ANY LOSS, EXPENSE OR CLAIMS ARISING OUT
OF SUCH DAMAGE OR INJURY.
(c) Each party hereto waives any and every claim which arises or may
arise in its favor against the other party hereto during the term of this Lease
or any renewal or extension thereof for any and all loss of, or damage to, any
of its property located within or upon, or constituting a part of, the Premises,
which loss or damage is covered by valid and collectible fire and extended
coverage insurance policies, to the extent that such loss or damage is
recoverable under such insurance policies. Such mutual waivers shall be in
addition to, and not in limitation or derogation of, any other waiver or release
contained in this Lease with respect to any loss of, or damage to, property of
the parties hereto. Inasmuch as such mutual waivers will preclude the
assignment of any aforesaid claim by way of subrogation or otherwise to an
insurance company (or any other person), each party hereby agrees immediately to
give to each insurance company which is issued to such party policies of fire
and extended coverage insurance, written notice of the terms of such mutual
waivers, and to cause such insurance policies to be properly endorsed, if
necessary, to prevent the invalidation of such insurance coverages by reason of
such waivers.
10. Environmental Matters.
(a) Lessor represents, covenants and warrants to Lessee that:
(i) no notices, complaints or orders of violation or non-compliance of
any nature whatsoever have been issued to Lessor or, to Lessor's actual
knowledge, to any Person regarding the Premises, and to Lessor's actual
knowledge, no federal, state or local environmental investigation or legal
action by a private party is pending or overtly threatened, in each case with
regard to the Premises or any use thereof or any alleged violation of, or
strict liability arising under, Environmental Laws with regard to the
Premises; to Lessor's actual knowledge, no liens have been placed upon the
Premises in connection with any actual or alleged liability under any
Environmental Laws;
(ii) the Premises (a) have not been used by Lessor or to Lessor's actual
knowledge by any other Person to generate, manufacture, refine, produce or
process any Hazardous Substance or to store, handle, transfer or transport any
Hazardous Substance other than normal and lawful uses of such Hazardous
Substances, taking into account Lessor's use of the Premises, in lawful
quantities and in compliance with Environmental Laws, and (b) will not be used
by Lessor or any other Person acting under Lessor's actual control (which
excludes among others, Lessee and its agents, employees, officers,
representatives, licensees, invitees and all inmates) at any time during the
Term to generate, manufacture, refine, produce or process any Hazardous
Substance or to store, handle, transfer or transport any Hazardous Substance;
(iii) to Lessor's actual knowledge, no Hazardous Substances have been
disposed of or otherwise released on, from or to the Premises except in
compliance with applicable Environmental Laws;
(iv) the use which Lessor makes and intends to make of the Premises will
not result in the disposal or other release of any Hazardous Substances on, from
or to the Premises except in compliance with applicable Environmental Laws.
(v) Lessor has no notice or knowledge that any lien has been created on
the Premises pursuant to any Environmental Law, nor, Lessor's actual knowledge,
is the Premises listed on or proposed for listing on the National Priorities
List under CERCLA or any similar state registry.
(vi) Lessor has no actual notice or actual knowledge that any lien has
been created on the Premises pursuant to any Environmental Law, nor, to
Lessor's actual knowledge, are the Premises listed on or proposed for listing
on the National Priorities List under CERCLA or any similar state registry.
(b) Lessee represents, covenants and warrants to Lessor that:
(i) at all times during the Term, the Premises, Lessee, and all of its
officers, employees, agents, representatives, licensees, invitees, inmates,
sublessees and any assignee of Lessee shall comply in all respects with all'
applicable Environmental Laws; Lessee has, and will ensure that Lessee and all
of its officers, employees, agents, representatives, licensees, and invitees
have obtained all permits, licenses, and any other authorizations to conduct
operations at the Premises that are required under all applicable Environmental
Laws; Lessee is, and will take all reasonable steps to ensure that Lessee and
all of its officers, employees, agents, representatives, licensees, invitees
and inmates of the Premises are, in compliance with all terms and conditions of
all permits, licenses, and any other authorizations required under all
applicable Environmental Laws;
(ii) at all times during the Term, the Premises, Lessee, all sublessees
and any assignee of Lessee shall comply in all respects with all applicable
Environmental Laws; Lessee has and will ensure that all sublessees of the
Premises have, obtained all permits, licenses, and any other authorizations to
conduct operations at the Premises that are required under all applicable
Environmental Laws; Lessee is, and will take all reasonable steps to ensure that
all sublessees of the Premises are, in compliance with all terms and conditions
of all permits, licenses, and any other authorizations required under all
applicable Environmental Laws;
(iii) no notices, complaints or orders of violation or non-compliance of
any nature whatsoever have been issued to Lessee or, to Lessee's actual
knowledge, to any Person regarding the Premises, and to Lessee's actual
knowledge, no federal, state or local environmental investigation or legal
action by a private party is pending or overtly threatened, in each case with
regard to the Premises or any use thereof or any alleged violation of, or
strict liability arising under, Environmental Laws with regard to the Premises;
to Lessee's actual knowledge, no liens have been placed upon the Premises in
connection with any actual or alleged liability under any Environmental Laws;
(iv) the Premises (a) have not been used by Lessee or to Lessee's actual
knowledge by any other Person to generate, manufacture, refine, produce or
process any Hazardous Substance or to store, handle, transfer or transport any
Hazardous Substance other than normal and lawful uses of such Hazardous
Substances, taking into account Lessee's use of the Premises, in lawful
quantities and in compliance with Environmental Laws, and (b) will not be used
by Lessee or any other Person at any time during the Term to generate,
manufacture, refine, produce or process any Hazardous Substance or to store,
handle, transfer or transport any Hazardous Substance, other than normal and
lawful uses of such Hazardous Substances, taking into account Lessee's intended
use of the Premises, in lawful quantities and in compliance with Environmental
Laws where such uses will have no material adverse effect upon the Premises;
(v) to Lessee's actual knowledge, (i) no contaminants have been disposed
of or otherwise released on, from or to the Premises except in compliance with
applicable Environmental Laws and (ii) the use which Lessee makes and intends
to make of the Premises will not result in the disposal or other release of any
Hazardous Substances on, from or to the Premises except in compliance with
applicable Environmental Laws.
(vi) Lessee has no actual notice or actual knowledge that any lien has
been - created on the Premises pursuant to any Environmental Law, nor, to
Lessee's actual knowledge, are the Premises listed on or proposed for listing
on the National Priorities List under CERCLA or any similar state registry.
(vii) Lessee will obtain and will require subtenants to obtain and
properly maintain all permits, licenses, registrations, approvals and consents
required for the Premises and Lessee's and any subtenants' operations and
facilities thereon.
(viii) IF LESSEE BREACHES THE OBLIGATIONS STATED IN THE PRECEDING
SECTIONS OR SENTENCES, OR IF THE PRESENCE OF HAZARDOUS SUBSTANCES ON THE
PROPERTY CAUSED OR PERMITTED BY LESSEE RESULTS IN CONTAMINATION OF THE PROPERTY
OR ANY OTHER PROPERTY, OR IF CONTAMINATION OF THE PROPERTY OR ANY OTHER
PROPERTY BY HAZARDOUS SUBSTANCES OTHERWISE OCCURS FOR WHICH LESSEE IS LEGALLY
LIABLE TO LESSOR FOR DAMAGE RESULTING THEREFROM, THEN LESSEE SHALL INDEMNIFY,
DEFEND AND HOLD LESSOR HARMLESS FROM ANY AND ALL CLAIMS, JUDGMENTS, DAMAGES,
PENALTIES, FINES, COSTS, LIABILITIES OR LOSSES (INCLUDING, WITHOUT LIMITATION,
DIMINUTION IN VALUE OF THE PROPERTY, DAMAGES FOR THE LOSS OR RESTRICTION ON USE
OFRENTABLE OR UNUSABLE SPACE OR OF ANY AMENITY OR APPURTENANCE OF THE PROPERTY,
DAMAGES ARISING FROM ANY ADVERSE IMPACT ON MARKETING OF BUILDING SPACE OR LAND
AREA, AND SUMS PAID IN SETTLEMENT OF CLAIMS, ATTORNEYS' FEES, CONSULTANT FEES
AND EXPERT FEES) WHICH ARISE DURING OR AFTER THE LEASE TERM AS A RESULT OF SUCH
CONTAMINATION. THIS INDEMNIFICATION OF LESSOR BY LESSEE INCLUDES, WITHOUT
LIMITATION, COSTS INCURRED IN CONNECTION WITH ANY INVESTIGATION OF SITE
CONDITIONS OR ANY CLEAN-UP, REMEDIAL WORK, REMOVAL OR RESTORATION WORK REQUIRED
BY ANY FEDERAL, STATE OR LOCAL GOVERNMENT AGENCY OR POLITICAL SUBDIVISION
BECAUSE OF HAZARDOUS SUBSTANCES PRESENT IN THE SOIL OR GROUND WATER ON OR UNDER
THE PROPERTY. WITHOUT LIMITING THE FOREGOING, IF THE PRESENCE OF ANY HAZARDOUS
SUBSTANCES ON THE PROPERTY OR ANY OTHER PROPERTY CAUSED OR PERMITTED BY LESSEE
RESULTS IN ANY CONTAMINATION OF THE PROPERTY, LESSEE SHALL PROMPTLY TAKE ALL
ACTIONS AT ITS SOLE EXPENSE AS ARE NECESSARY TO RETURN THE PROPERTY TO THE
CONDITION EXISTING PRIOR TO THE INTRODUCTION OF ANY SUCH HAZARDOUS SUBSTANCES
TO THE PROPERTY, PROVIDED THAT LESSOR'S APPROVAL OF SUCH ACTIONS SHALL FIRST BE
OBTAINED. THE FOREGOING INDEMNITY SHALL SURVIVE THE EXPIRATION OR EARLIER
TERMINATION OF THIS LEASE.
11. Maintenance and Repair.
Lessee will, at its sole cost, risk and expense, keep and maintain the
Premises, including any Expansions and any altered, rebuilt, additional or
substituted buildings, structures and other improvements thereto, in a good
condition, ordinary wear and tear excepted. Lessee will make all structural and
non-structural, and ordinary and extraordinary changes, capital and other
repairs and replacements, foreseen or unforeseen, which may be required,
whether or not caused by its act or omission, to keep the Premises in such
condition, ordinary wear and tear excepted, including taking, or causing to be
taken, action necessary to maintain the Premises in compliance with all
applicable Governmental Requirements, including all applicable Environmental
Laws. Lessee shall keep the Premises orderly and free and clear of rubbish.
Lessor shall not be required to maintain, alter, repair, rebuild or replace any
portion of the Premises or to maintain the Premises, and Lessee expressly
waives the right to make repairs at the expense of Lessor pursuant to any law
at any time in effect. Without in any way limiting the foregoing, Lessee shall
also be responsible for maintaining the Sheriff's Offices, including, without
limitation, the roof, interior and exterior walls, foundation and all
structural components thereof, as well as all HVAC, gas, electric, telephone
and other utility facilities and equipment serving the Sheriff's Offices, and
for providing routine janitorial service for the Sheriff's Offices.
12. Trade Fixtures.
Title to all trade fixtures or other personal property placed on or
affixed to the Premises by or on behalf of Lessee during the Term shall be and
remain vested in Lessee. All such personalty of Lessee shall be removed at the
expiration of the Term. Lessee shall restore the Premises to the extent damaged
by any such removal.
13. Condemnation and Casualty.
(a) If during the Term less than "substantially all" (hereinafter
defined) of the Premises shall be damaged by fire or other casualty, then
Lessee shall give prompt written notice of such damage to Lessor and shall, at
Lessee's own cost and expense, proceed with diligence and promptness to carry
out any necessary demolition and to restore, repair, replace, and/or rebuild
the Premises in order to restore the Premises, as nearly as practicable, to a
condition not less than the condition required to be maintained hereunder and
to a fair market value not less than the fair market value immediately prior to
such damage. All repair work shall be undertaken and completed in a good and
workmanlike manner and in compliance in all material respects with all
Governmental Requirements then in effect with respect to the Premises.
(b) If all or substantially all of the Premises shall be destroyed or
damaged by fire or other casualty, then Lessee may, at its sole election, (1)
use the insurance proceeds to restore the Premises, as nearly as practicable,
to a condition not less than the condition required to be maintained hereunder
and to a fair market value not less than the fair market value immediately
prior to such damage. All repair work shall be undertaken and completed in a
good and workmanlike manner and in compliance in all material respects with all
Governmental Requirements then in effect with respect to the Premises, or (2)
give notice to Lessor of Lessee's intention to terminate this Lease and
immediately assign to Lessor all of Lessee's insurance proceeds and benefits in
connection therewith and pay any required deductible. "Substantially all" of
the Premises shall be deemed to have been damaged or destroyed if the cost of
restoring the Improvements is more than one-third of the greater of the fair
market value of or the replacement cost of the Improvements immediately before
the Destruction occurs. In the event that Lessee elects to terminate this Lease
in accordance with the provisions of this paragraph (b), Lessor shall have no
duty or obligation to refund to Lessee all or any portion of the prepaid Basic
Rent.
(c) In the event of a temporary condemnation, this Lease shall remain in
full force and effect and Lessee shall be entitled to the portion of the
condemnation award or proceeds in connection therewith that is attributable to
the leasehold interest hereunder.
(d) If the Premises shall be taken or condemned for any public purpose
to such extent as to render the Premises, in the reasonable opinion of Lessor
or Lessee, not reasonably suitable for Lessee's occupancy, this Lease shall, at
the option of either party, terminate on the date title shall vest in the
condemnor or transferee. Lessor and Lessee shall attempt to cause any proceeds,
to be determined by separate awards and to the extent that they are, such award
will be the exclusive compensation to both Lessor and Lessee for such taking or
condemnation. To the extent that there is not a separate award for Lessee's and
Lessor's interest, the entire award shall be paid to Lessor, who shall refund a
portion of the Basic Rent paid under this Lease according to the following
formula: Basic Rent times number of beds lost due exclusively to the taking or
condemnation divided by (295 plus the number of beds added in any expansion)
times the number of days remaining in the Term divided by 4,380. The refund of
Basic Rent shall be paid exclusively from, and is limited by, the award Lessor
receives due to such taking or condemnation.
14. Insurance.
(a) Lessee shall, at its cost and expense, maintain or cause to be
maintained insurance of the following character and shall cause to be delivered
to Lessor annual certificates of the insurers as to such coverage:
(i) "All risk" property insurance covering the Premises and all
replacements and additions thereto, in amounts not less than the actual
replacement cost of the Premises less Land and other uninsurable items against
perils as are insurable under then available "all risk" policies.
(ii) Public liability insurance covering liability against claims for
bodily injury, death or property damage, occurring on, in or about the Premises
and the adjoining land, streets, sidewalks or ways or occurring as a result of
construction, use or occupancy of the Premises or the use of products sold, or
services rendered, on the Premises, in the minimum amount of $20,000,000 with
respect to any one occurrence, accident or disaster or incidence of negligence.
Coverage should include "premises/operations", "independent contractors", and
"blanket contractual" liabilities. Up to the first $20 million of such coverage
may be a self-insured retention, so long as Lessee maintains at least $20
million in additional coverage and has a tangible net worth of $30 million as
shown on its last audited financial statements.
(iii) Worker's compensation insurance (or other similar insurance or self
insurance program permitted and in compliance with the laws of the State of
Texas) covering all Persons employed in connection with any work done on or
about the Premises with respect to which claims for death or bodily injury
could be asserted against Lessor, Lessee or the Premises, complying with the
laws of the State of Texas.
(iv) Such other insurance, in such amounts, against such risks, and with
such other provisions as is customarily and generally maintained by private
operators of facilities similar to those at the Premises.
Such insurance shall not limit Lessee's liability nor relieve Lessee of
any obligation hereunder; although such insurance shall, in part, insure
Lessee's performance of any indemnity provision of this Lease. Such insurance
shall be written by insurance companies legally qualified to issue such
insurance and shall name Lessee as insured, and Lessor as additional insured
with respect to insurance described in clause (ii) and, to the extent
applicable, clause (iv), above, and shall name Lessor as loss payee, as its
interest may appear, with respect to insurance described in clause (i) and, to
the extent applicable, clause (iv) above. Lessee shall obtain such insurance
policies from insurance companies with a General Policy Rating of A or better
in Best's Key Rating Guide or such other insurance companies or risk management
programs approved in writing by Lessor's Mortgagee.
(b) Each policy shall (i) provide that 30 days advance written notice of
cancellation, modification, termination or lapse of coverage shall be given to
Lessor; and (ii) be primary and without right or provision of contribution as to
any other insurance carried by Lessor or any other interested party.
(c) Lessee shall deliver to Lessor such original or duplicate policies
or certificates of insurers, evidencing all of the insurance required under
paragraph 14(a). Lessee shall, within ten (10) Business Days prior to the
expiration of any such policy, deliver to Lessor such original or duplicate
policies or such certificates evidencing the renewal of any such policy and
payment of the premiums for such policy. If Lessee fails to maintain or renew
any insurance required by this Lease and timely deliver evidence thereof as
required pursuant to the preceding sentence, or to pay the premium therefor,
then Lessor, at its option, but without obligation to do so, may, upon three
days' notice to Lessee, procure such insurance. Any sums so expended by Lessor
shall be Additional Rent hereunder and shall be repaid by Lessee immediately
after notice to Lessee o f such expenditure.
(d) Lessee shall comply with all of the terms and conditions of each
insurance policy maintained pursuant to the terms of this Lease.
(e) As long as their respective insurers so permit, Lessor and Lessee
hereby mutually waive their respective rights of recovery against each other
for any loss insured by fire, extended coverage, and other property insurance
policies existing for the benefit of the respective parties and Lessor and
Lessee shall each use their best efforts to cause their respective insurers to
waive all rights of recovery by way of subrogation against the other party.
Each party shall obtain any special endorsements, if required by its insurer,
to evidence compliance with the aforementioned waiver by such party and its
insurer.
15. Responsibilities of Lessor.
(a) To the extent permitted by law, Lessor will enter into all
intergovernmental agreements, including those relating to prisoners from
out-of-state, presented by Lessee that are authorized by, and comply with all
applicable Governmental Requirements, including but not limited to Sec. 511
of the Governmental Code, are for the type of prisoners for which the Premises
are licensed and which contain a satisfactory indemnification of the Lessor.
An indemnification substantially equivalent to the indemnification provided by
Lessee to Lessor pursuant to Section 9 of this Lease will be deemed to be
satisfactory to Lessor. Even though such Intergovernmental Agreements are
between Lessor and a third party, Lessee assumes all obligations of Lessor
thereunder and shall pay all reasonable expenses to be incurred thereunder
directly related to the Agreement, and, except as provided in this Lease, shall
retain all income therefrom. If Lessor pays any amounts due or required under
such an Intergovernmental Agreement and such payment is not reimbursed by
Lessee within 60 days after it is made by Lessor, such failure to r eimburse
Lessor shall constitute a breach of this Lease by Lessee.
For Intergovernmental Agreements involving out-of-state inmates, Lessor
will take such actions at Lessee's expense as necessary to comply with Texas
law and regulations governing contracts for out-of-state inmates and federal
prisoners in order to permit Lessee to house such out-of-state inmates or
federal prisoners in the Facility.
(b) Lessor will at Lessee's expense cooperate with Lessee for the term
of the Lease to obtain all necessary approvals for operation of the Facility,
including but not limited to securing use permits and licensing.
(c) Prior to Lessor incurring any expenses for which it will seek
reimbursement from Lessee, Lessor shall obtain Lessee's prior written approval.
(d) Lessor will cooperate with Lessee to obtain all necessary approvals
for expansions of Facility and will consent to any reasonable expansion plan up
to approximately fifty (50) beds.
16. Fees.
Lessee shall pay reasonable professional fees up to and not to exceed
$100,000 in the aggregate to Lessor for legal and financial advisors upon the
execution of this Lease and presentation of itemized bills. Lessee shall have
no objection to Lessor's legal and financial advisors.
17. Quiet Enjoyment.
So long as no Event of Default under this Lease shall have occurred and be
continuing, Lessor covenants that Lessee shall and may at all times peaceably
and quietly have, hold and enjoy the Premises during the Term subject to the
provisions of this Lease.
18. Survival.
In the event of the termination of this Lease as herein provided, the
obligations and liabilities of Lessee, actual or contingent, under this Lease
which arose at or prior to such termination shall survive such termination.
19. Subletting: Assignment.
(a) Except as permitted under subparagraph (b), Lessee may not assign
this Lease or sublet all or any portion of the Premises without Lessor's
consent, which consent will not be unreasonably withheld or delayed. Each such
request for consent shall be accompanied by the form of the proposed assignment
or sublease and financial statements of the proposed assignee or sublessee. The
Lessor will place the request on the agenda within fifteen (15) business days.
Lessor's consent shall in no event be conditioned on an increase in the Basic or
Additional Rent and/or any amendment to this Lease. Any assignment or subletting
without Lessor's consent shall be voidable at Lessor's election. The consent to
one assignment or subletting shall not be deemed to be a consent to any
subsequent assignment or subletting.
(b) Lessee may assign this Lease or sublet all or any part or its
interests in the Premises, without the consent of Lessor, in any of the
following situations:
(i) If the assignment or subletting is to a Lessee Entity which is a
Qualified Assignee; or
(ii) If the assignment or subletting is made to a Qualified Assignee in
connection with a merger, consolidation or reorganization involving a Lessee
Entity.
(c) No such sublease or assignment, whether to a Lessee Entity or to a
Qualified Assignee or otherwise, shall affect or reduce any obligations of
Lessee or rights of Lessor hereunder, and all obligations of Lessee hereunder
shall continue in full effect as the obligations of a principal and not of a
guarantor or surety, as though no subletting or assignment had been made. Each
such sublease shall specifically provide that the rights, title and estate of
the sublessee are subordinate and inferior to the rights, title and estate of
Lessor hereunder and shall be bound by the provisions of this Lease.
(d) For purposes of this Lease, the following events shall be deemed an
assignment or sublease, as appropriate: (i) the issuance of equity interests
(whether stock, partnership interests or otherwise) in Lessee or any subtenant
or assignee, or any entity controlling any of them, to any person or group of
related persons, in a single transaction or a series of related or unrelated
transactions, such that, following such issuance, such person or group shall
have Control (as defined below) of Lessee; or (ii) a transfer of Control of
Lessee or any subtenant or assignee, or any entity controlling any of them,
in a single transaction or a series of related or unrelated transactions
(including, without limitation, by consolidation, merger, acquisition or
reorganization), except that the transfer of outstanding capital stock or other
listed equity interests by persons or parties other than "insiders" within the
meaning of the Securities Exchange Act of 1934, as amended, through the
"over-the-counter" market or any recognized national or international
securities exchange, shall not be included in determining whether Control has
been transferred. "Control" shall mean direct or indirect ownership of 50% or
more of all of the voting stock of such corporation or 50% or more of all the
legal and equitable interest in any other business entity.
20. Events of Default and Remedies.
(a) Any of the following occurrences or acts shall constitute an Event
of Default under this Lease:
(i) if Lessee shall fail to keep in full force and effect the insurance
coverage required to be maintained by Lessee hereunder from Lessor; or
(ii) if Lessee shall default in making payment of any Basic Rent or
Additional Rent and such failure shall continue for ten Business Days after
receipt of written notice of such failure from Lessor; or
(iii) if Lessee shall default in the performance of any material
covenant, agreement or obligation on the part of Lessee to be performed under
this Lease and such default shall continue for 30 days after Lessee's receipt
of written notice thereof from Lessor; provided, however, that in the case of a
default which can with reasonable diligence be remedied by Lessee, if Lessee
shall commence within such 30 days after its receipt of such written notice to
remedy the default and thereafter shall prosecute such remedy with all
reasonable diligence, the period of time within which to remedy the default
shall be extended for such period as may be reasonable to remedy the same
ith reasonable diligence not to exceed an extension of ninety (90) days; or
(iv) if Lessee shall vacate or abandon the Premises, provided a temporary
decrease in the number of inmates shall not be deemed to be a vacation or
abandonment so long as Lessee is actively seeking inmates; or
(v) if Lessee shall file a petition in bankruptcy, reorganization or
arrangement pursuant to the Bankruptcy Code, or shall be adjudicated a
bankrupt, make an assignment for the benefit of its creditors, admit in writing
its inability to pay its debts generally as they become due, be dissolved, or
suspend payment of its obligations; or
(vi) if a petition or answer shall be filed proposing the adjudication of
Lessee as a bankrupt or its reorganization pursuant to the Bankruptcy Code, and
(A) Lessee shall consent to such filing, or (B) such petition or answer shall
not be discharged or denied within 60 days after such filing; or
(vii) if a receiver, trustee or liquidator (or similar official) shall be
appointed for or take possession or charge of Lessee, of Lessee's estate or
interest in the Premises, and shall not be discharged within 60 days, or if
Lessee shall consent to or acquiesce in such appointment.
(b) At any time after the occurrence of an Event of Default by Lessee,
Lessor shall be entitled to exercise any and all rights and remedies available
to it at law or in equity, provided, Lessor shall only be entitled to terminate
this Lease as a result of a default by the Lessee in the case of a default
which: (1) continues undisputed for thirty (30) days after Lessee's receipt of
a written notice thereof from Lessor; provided, however, that in the case of a
default which can with reasonable diligence be remedied by Lessee, if Lessee
shall commence within such thirty (30) days after its receipt of such written
notice to remedy the default and thereafter shall prosecute such remedy with
all reasonable diligence until the cure of same, the period of time within
which to remedy such default shall be extended for such period as may be
reasonably necessary to remedy the same; or (2) is disputed in writing by
Lessee within thirty (30) days after its receipt of notice of default fro
Lessor and, within ninety (90) days of Lessee's receipt of such notice either
(i) is not resolved to the mutual satisfaction of Lessor and Lessee, or (ii) is
not the subject of a pending action in an appropriate judicial court within
Texas; or (3) results in the termination of the license or authority to operate
the Facility. Lessor may also terminate this Lease in the event an event of
default is disputed as provided in (b) (2) above and results in a final
nonappealable judgment in its favor, in whole or in part, which is not paid to
Lessor or otherwise implemented to Lessor's satisfaction within thirty (30)
days of such judgment.
21. Notices.
All communications made pursuant to this Lease shall be in writing and
shall sent by (i) registered or certified mail, return receipt requested, and
the giving of such communication shall be complete on the third Business Day
after deposit, postage prepaid, in a United States Post Office, (ii) reputable
overnight delivery service, and the giving of such communication shall be
complete on the immediately succeeding Business Day after deposit with such
delivery service or (iii) legible fax with original to follow in due course
(failure to send such original shall not affect the validity of such fax
notice), and the giving of such communication shall be complete upon receipt.
Communications to Lessor and Lessee shall be sent to the respective
addresses first shown above or to such other address as Lessor and Lessee shall
subsequently provide in writing to the other.
22. Protection of Lenders
(a) Subordination. Lessor shall have the right to subordinate this Lease
to any existing or future ground lease, deed of trust or mortgage encumbering
the Premises, and advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever
made or recorded. Lessor's right to obtain such a future subordination is
subject to Lessor's providing Lessee with a written Subordination,
Nondisturbance and Attornment Agreement reasonably acceptable to Lessors's
Mortgagee and Lessee from any such ground lessor, beneficiary or
mortgagee wherein Lessee's right to peaceable possession of the Premises during
the Lease Term shall not in any way or at any time be disturbed if Lessee pays
all rental due and performs all of Lessee's obligations under this Lease and is
not otherwise in default. If any ground lessor, beneficiary, or mortgagee
elects to have this Lease superior to the lien of its ground lease, deed of
trust or mortgage and gives written notice thereof to Lessee, this Lease shall
be deemed superior to such ground lease, deed of trust or mortgage whether this
Lease is dated prior or subsequent to the date of said ground lease, deed of
trust or mortgage or the date of recording thereof. Lessee's rights under this
Lease, unless specifically modified at the time this Lease is executed, are
subordinated to any existing ground lease, deed of trust or mortgage
encumbering the Premises.
(b) Attornment. If Lessor's interest in the Premises is transferred
voluntarily or involuntarily to any ground lessor, beneficiary under a deed of
trust, mortgagee or purchaser at a foreclosure sale, Lessee shall attorn to the
transferee of or successor to Lessor's interest in the Premises and recognize
such transferee or successor as Lessor under this Lease.
(c) Signing of Documents. Lessee shall sign and deliver any instruments
or documents necessary or appropriate to evidence any such attornment or
subordination or agreement to do so or any estoppel certificate.
(d) Estoppel Certificates. Each party hereto agrees that at any time and
from time to time (but not more than two (2) times in any fiscal year), it will
within ten days after request by the other party, execute, acknowledge and
deliver to such other party a certificate stating, to the best of such party's
knowledge, (a) that this Lease is unmodified and in force and effect (or if
there have been modifications, that this Lease is in force and effect as
modified, and setting forth any modifications); (b) the date to which Basic
Rent, Additional Rent and other sums payable hereunder have been paid; (c)
whether or not there is an existing default by Lessee in the payment of Basic
Rent or any other sum required to be paid hereunder, and whether or not there is
any other existing default by Lessee with respect to which a notice of default
has been served or of which the signer has knowledge, and, if there is any such
default, specifying the nature and extent thereof; (d) whether or not there are
any setoffs, defenses or counterclaims against enforcement of the obligations to
be performed hereunder existing in favor of the party executing such
certificate; and (e) stating that Lessee is in possession of the Premises.
23. No Merger.
Lessee agrees that there shall be no merger of this Lease or of any
sublease under this Lease or of any leasehold or subleasehold estate hereby or
thereby created with the fee or any other estate or ownership interest in the
Premises or any part thereof by reason of the fact that the same entity may
acquire or own or hold, directly or indirectly, (a) this Lease or any sublease
or any leasehold or subleasehold estate created hereby or thereby or any
interest in this Lease or any such sublease or in any such leasehold or
subleasehold estate and (b) the fee estate or other estate or ownership
interest in the Premises or any part thereof.
24. Surrender.
(a) Upon the expiration or earlier termination of the Term, Lessee shall
peaceably leave and surrender the Premises to Lessor in the same condition in
which the Premises was originally received from Lessor, except as repaired,
rebuilt, restored, altered or added to as required by or permitted by this
Lease; ordinary wear and tear excepted.
(b) Lessee shall remove from the Premises on or prior to such expiration
or earlier termination all property which is not the property of Lessor, and
shall repair any damage caused by such removal.
(c) All fixed assets installed by Lessee after the date first written
above remain the property of Lessee, upon termination, provided the same are
removed by Lessee in accordance with paragraph (b) of this Section 24.
(d) Except for surrender upon the expiration or earlier termination of
the Term hereof, no surrender to Lessor of this Lease or of the Premises shall
be valid or effective unless agreed to and accepted in writing by Lessor.
25. Separability.
If any provision of this Lease or the application thereof to any Person or
circumstance shall be invalid or unenforceable, the remainder of this Lease, or
the application of such provision to persons or circumstances other than those
as to which it is invalid or unenforceable, shall not be affected thereby, and
each provision of this Lease shall be valid and enforceable to the extent
permitted by law.
26. Signs.
Lessor shall not, at any time without Lessee's consent (not to be
unreasonably withheld or delayed), place on or about the Premises any signs,
including "For Sale" signs except for signs identifying the Sheriff's Offices or
related to the activities conducted therein. Lessee shall have the right to
place, construct and maintain on the Premises one or more signs identifying
Lessee, any assignee or sublessee and advertising any business located at the
Premises that is permitted under this Lease, subject to compliance with all
applicable Governmental Requirements.
27. Recording.
Lessor and Lessee will execute, acknowledge, deliver and cause to be
recorded in the manner and place required or permitted by any present or future
law, a memorandum hereof, and all other instruments, including financin
statements, continuation statements, releases and instruments of similar
character, which shall be reasonably requested by Lessor or Lessee as being
necessary or appropriate to protect their respective interests in the Premises.
28. Lessee's Right Of First Refusal.
(a) To the extent permitted by law, if during the Term Lessor determines
to sell, transfer, or exchange the Premises, or any part thereof, Lessor shall
first notify Lessee of the terms of such transaction. If a Lessee Entity,
within thirty (30) days after Lessee's receipt of Lessor's notice, indicates in
writing its agreement to purchase the Premises or part of the Premises on the
terms stated in Lessor's notice, including terms of any required down payment
and delivery to Lessor of such down payment, Lessor shall sell and convey the
Premises or a part thereof to such Lessee Entity on the terms stated in the
notice. If a Lessee Entity does not so indicate its agreement within thirty
days, Lessor thereafter shall have the right to sell and convey the Premises
or part of the Premises to a third party on substantially the same material
terms as stated in the notice. If Lessor does not sell and convey the Premises
or part of the Premises within one hundred eighty days following the date of
notice given to Lessee, any further sale shall be deemed a new determination by
Lessor to sell and convey the Premises or a part of the Premises, and the
provisions of this Section shall be applicable.
(b) The right of first refusal set forth in this Article shall not apply
to any foreclosure sale or any transfer of the Premises by deed in lieu of
foreclosure. All indebtedness of Lessor to Lessor's Mortgagee shall be paid in
full to Lessor's Mortgagee or assumed by the purchaser from Lessor in
connection with any sale of the Premises or any part thereof.
29. Time is of the Essence.
Time is of the essence of this Lease and of the performance of each
provision hereof.
30. Miscellaneous.
Subject to the limitations on Lessee's assignment and subletting set forth
in Section 19 hereof, this Lease shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. This Lease may not be amended, changed, waived, discharged or
terminated orally, but only by an instrument executed by the party against whom
enforcement is sought. No failure, delay, forbearance or indulgence in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, or as an acquiescence in any breach, nor shall any single or partial
exercise of any right, power or remedy hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. This Lease and the rights and obligations in respect hereof shall be
governed by, and construed and interpreted in accordance with, the laws of the
State of Texas. This Lease may be executed in any number of counterparts, each
of which shall be an original, and such counterparts together shall constitute
but one and the same instrument.
31. Broker.
Each of the parties hereto represent and warrant to the other that no
commissions or fees are due and payable to any broker or other person as a
result of the execution, delivery or performance of this Lease by the
warranting party, and each party agrees, to the extent permitted by law, to
indemnify, defend and hold the other party harmless from and against all claims
for commissions or other brokerage claims by an person claiming by, through or
under the indemnifying party.
32. Interpretation.
The captions of the Articles or Sections of this Lease are to assist the
parties in reading this Lease and are not a part of the terms or provisions of
this Lease. Whenever required by the context of this Lease, the singular shall
include the plural and the plural shall include the singular. For convenience,
each party hereto is referred to in the neuter gender, but the masculine,
feminine and neuter genders shall each include the other. In any provision
relating to the conduct, acts or omissions of Lessee, the term "Lessee" shall
include Lessee's agents, employees, contractors, invitees, successors or others
using the Premises with Lessee's expressed or implied permission.
33. Termination of Prior Agreements; Modifications.
This Lease is the only agreement between the parties pertaining to the
Premises and no other agreements are effective, except for that certain
Contract between Lessor and Lessee whereby Lessee agrees to pay Lessor
$1,700,000. All amendments to this Lease shall be in writing and signed by all
parties. Any other attempted amendment shall be void. All prior agreements
between the parties are hereby terminated, including any agreements Lessee
acquired from Dove Development Corporation. Lessee agrees to execute any
required termination statements or releases requested by Lessor. Lessor and
Lessee shall enter into a separate management and operations agreement dated
of even date herewith with regard to the housing of Lessor Inmates.
34. Venue.
All obligations hereunder shall be performable and payable in the county
in which the Property is located.
35. Governing Law.
The laws of the State of Texas shall govern this Lease.
36. No Waiver.
None of Lessor's obligations herein nor any other terms or provisions of
this Lease are intended or shall operate as a waiver by Lessor of any
immunities, limitations of liability, or other rights afforded Lessor under the
Texas Tort Claims Act, V.T.C.A., Civil Practice & Remedies Code Sec. 101.001
et seq., including all amendments and successor statutes thereto.
37. Pre-Existing Agreements.
All obligations connected to the Lease-Purchase Agreements set forth below
will be extinguished by Lessor purchasing the property covered by such
Agreements at the earliest date such option may be exercised:
(a) Lease Purchase Agreement dated September 1, 1987, between Consolidated
Financial Resources, Inc. ("CFR"), as lessor, and the County, as lessee;
(b) Lease Purchase Agreement dated June 1, 1988, between CFR, as lessor,
and County, as lessee; and
(c) Municipal Lease Purchase Agreement dated April 19, 1994, between
County, as lessee and CFR, as lessor.
38. Payments and Notices.
All payments and notices under this Lease shall be sent to:
LESSOR at: LESSEE at:
Frio County Auditor Chief Financial Officer
FRIO COUNTY COURTHOUSE CORRECTIONAL SERVICES CORPORATION
500 E. San Antonio St. 1819 Main Street, Suite 1000
Box 3 Sarasota, FL 34236
Pearsall, TX 78061-3100
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease to be duly
executed and delivered as of the date first written above.
Lessor:
FRIO COUNTY
By: \s\ Carlos A. Garcia
Title: County Judge
Date: 11-26-97
Lessee:
CORRECTIONAL SERVICES CORPORATION,
a Delaware corporation
By: \s\ Ira Cotler
Title: Executive VP
Date: 11-24-97
[CIK] 0000914670
[NAME] CORRECTIONAL SERVICES CORPORATION
ESTADO LIBRE ASOCIADO DE PUERTO RICO
ADMlNlSTRAClON DE INSTITUCIONES JUVENILES
SAN JUAN, PUERTO RICO
CONTRACT
This contract, is made this twenty second day of December of nineteen
ninety seven, by the Juvenile Institutions Administration of the Commonwealth
of Puerto Rico, hereinafter "AIJ" represented by Miguel A. Rivera, of legal
age, married and resident of Trujillo Alto, PR, and the CSC Management de
Puerto Rico, social security number 66-0548275, hereinafter referred to as
"Contractor", represented in this act by James F. Slattery, President and CEO,
married and resident of Florida.
WHEREAS, authority exists in the Law and Funds have been budgeted,
appropriated, and otherwise made available for encumbering and subsequent
payment of this contract under federal program.
WHEREAS, required approval, clearance and coordination has been
accomplished from and with appropriate agencies; and
WHEREAS, the Contractor having special knowledge, expertise, and skill
operating secure residential treatment programs for delinquent youths; and
WHEREAS, the Juvenile Institutions Administration (AIJ) has procured
funding for such programs and facilities from a federal program; and
WHEREAS, the Contractor's programs have been licensed by several states as
secure residential treatment center and selected as the qualified vendor to
provide services in Puerto Rico.
WHEREAS, the Juvenile Institutions Administration (AIJ) is vested with the
authority to make placements in secure residential treatment programs pursuant
to Commonwealth of Puerto Rico Public Law 154 of August 5, 1988, and;
WHEREAS, the Contractor and the AIJ desire to use the aforementioned
appropriations to fund the Contractors Secure Residential Treatment Program.
NOW THEREFORE, it is hereby agreed that:
I. Statement of Work
A. The Contractor shall provide a secure residential treatment program
at the Salinas facility and shall provide youths, placed by the AlJ, appropriate
supervision, care, education, training, treatment and rehabilitation.
B. The above services shall be provided in accordance with the program
description as set forth in Exhibit A (Contractor's proposal), incorporated
herein by reference, together with AIJ's Program requirements.
C. The program shall be in operation twenty-four (24) hours a day,
seven (7) days per week, and shall provide staff-to-client ratios as specified
in Exhibit A, and in accordance to the federal guides as established in the
settlement stipulations with the Federal Court in the Civil Case 94-2080 (U.S.
vs Commonwealth).
D. This contract between the two parties is for a secure residential
treatment program for youth placed by the AIJ with an average of 100 youths per
day being served by the Contractor during the contract period of five years.
E. The Contractor shall provide and maintain a facility and program
that will satisfy all applicable ordinances and standards, and shall
substantially comply with the appropriate Commonwealth of Puerto Rico licensing
requirements. It will also comply with the standards agreed in the settlement
stipulations made in the Federal Civil Case 94-2080 (U.S. vs Commonwealth)
supervised by the Federal Monitor as specified in exhibit "B" as well as the
standards set by the American Correctional Association as specified in exhibit
"C".
F. Contractor shall complete proposed facilities in approximately ten
months of the signing of the present contract, and be able to accept youths in
said facilities as to perform all contracted services with AIJ. If for
circumstances beyond the Contractor's control, there is a delay in the
facility's construction the Contractor will notify the AIJ within 5 days of the
delaying event, and if the Administrator determines just cause for the delay, an
extension for the completion will be granted.
G. The Contractor shall be responsible for provisions of all on-site
and off site health care services and shall be responsible for all costs for
such services. Health care services shall be defined as physician health care,
mental health care, and dental health care. Health care services shall be
delivered in accordance with AIJ Policies and Procedures, and in accordance with
stipulations set forth in the Settlement Agreement of the Federal Civil Case No.
94-2080 CC. Services shall include, but not limited to: on-site nursing staff
with at least one register nurse; routine on-site sick call by a licensed
physician; provision for routine and emergency mental health evaluation and
treatment by licensed professionals; provision for routine and emergency dental
health treatment by licensed dentists; provision of a licensed dietitian;
provision for off-site specialty consultations and hospitalizations, both
routine and emergency; provision of all ancillary services, to include
radiology, laboratory, and pharmaceuticals; and provisions of
paramedic/ambulance services. All such services whether performed on site or off
site shall be delivered by professionals licensed by the Commonwealth of Puerto
Rico and who have specific knowledge O r the care of adolescents.
H. The Contractor shall provide for transportation of youths from the
AIJ's detention centers to the program at the time of placement and provide all
subsequent transportation to court hearings, and to any locale necessary to
provide specialized services required by the youth's treatment plan. In
addition, if a juvenile must be transferred to an outside medical facility, the
Contractor shall provide security for any juvenile temporarily placed in a
hospital or other medical facility.
I. The Contractor shall maintain procedures in accordance with Federal
and Commonwealth of Puerto Rico statutes and regulations governing special
education and in compliance with procedures established by the Education
Department of Puerto Rico. Such procedures shall include an individual staffing
on each student placed to determine the need for special education services.
Cost related to student staffing, the implementation of the Individualized
Education Plan (IEP) and the special education needs of the offender are the
responsibility of the Contractor.
J. The Contractor agrees to provide all client information requested
by the AIJ and shall submit to the AIJ adjustment and progress reports, which
include but are not limited to: progress reports, a summary release report
including educational transcripts, medical reports, statistical reports, case
management data, and other reports documenting the types of services provided
all clients served by the program. All records and information maintained by the
Contractor pertaining to a placed client shall remain confidential and shall not
be released to anyone other than thc person in interest of the Commonwealth of
Puerto Rico without specific order of the court with proper jurisdiction. Prior
to the release of any information of record, the Contractor shall notify the
AIJ.
K. The Contractor shall maintain an individual file for each client
participating in the Contractor's program and shall allow the AIJ to review all
information, data, and reports relating to any client when requested to do so.
L. The Contractor shall allow the AIJ to inspect the facility provided
by the Contractor to determine the conditions under which the clients are housed
and to audit and monitor the Contractor's operations, services, and conditions
of confinement on a regular basis.
M. The Contractor shall develop, in writing and implement appropriate
policies and procedures manual for institutional care in both English and
Spanish, within 90 days of the signing of this contract. AIJ shall approve these
policies and procedures manual.
N. The AIJ shall establish billing procedures for actual, reasonable
and necessary expenses incurred in providing services pursuant to this contract.
Submission of monthly or bi-weekly billing expenditure to the AIJ shall be on
forms prescribed by the AIJ, in accordance with encumbered funds. The amount of
funds allocated to each line item of the budget may be reallocated upon written
request of the Contractor and the subsequent written approval of the AIJ,
subject to the limitation of provision I.O., below.
O. AIJ guarantees to the Contractor a minimum bed occupancy of 80% or
a daily payment not to exceed $10,448.00 daily ($130.60 per bed day). Payment
exceeding the guaranteed 80% bed occupancy will be made at earned in whole or in
part and will be made as earned, in whole or in part, from available AIJ funds
encumbered in an amount not to exceed $13,060.00 daily or 100 bed-days at the
rate of $130.60 (per bed-day) for the purchase of the within-described services.
The liability of the AIJ, at any time, for such payments shall be limited to the
encumbered amount remaining of such funds.
P. Either monthly or bi-weekly, the Contractor shall submit a request
for reimbursement for beds used by the AIJ during the month at a rate of $130.60
per secure residential bed-day. All reimbursement requests shall be submitted
to and approved by the office of the administrator of AIJ or its representative.
Q. The total contract amount may be increased or decreased by an
annual revision and contract amendment.
R. The Contractor shall adhere to written accounting procedures
established by the AIJ.
S. The Contractor shall provide in advance a copy of the plans and
copies of all the necessary permits required for the construction of the
facilities, to be part of this contract. Contractor should provide to AIJ
certify copies of the construction permits as well as the approved plans within
the 120 days following the signing of this contract can be revised every year.
T. The term of this contract shall be five years to be renewed for an
additional five-year term by thc agreement of the parties' contingent upon the
availability of funds. Terms of this contract are to be revised every year.
U. Notice and Representatives
Representatives:
For the purposes of this Contract, the individuals identified below
are hereby-designated representatives of the respective parties. Either party
may from time to time designate in writing a new or substitute representative(s)
For the AIJ: For the Contractor:
Name: Miguel A. Rivera Name: Ramon Horta
Title: Administrator Title: Agent in charge
Notice:
All notices required to be given by the parties hereunder shall be
given by certified or registered mail or courier to the above named individuals
at the addresses set forth below. Either party may from time to time designate
in writing a substitute person (s) or address to whom such notices shall be
sent:
To the AIJ: To the Contractor:
P.O. Box 19175 Calle Amapola Final
Fernandez Juncos Sta. Condominio Playamar, Apt. 14-B
San Juan, P. R. 00910 Isla Verde, P.R. 00979
GENERAL PROVISIONS
II. Contract General Clauses
The following clauses apply to this contract. In some instances, these
general clauses have been expanded upon in other sections of this contract. To
the extent that other provisions of the contract provide more specificity than
these general clauses, the more specific provision shall control.
A. Federal Funds Contingency
Payment pursuant to this contract, if in federal funds, whether
in whole or in part, is subject to and contingent to and contingent upon the
continuing availability of federal funds for the purposes hereof. In the event
that said funds or any part thereof, become unavailable as determined by the
AIJ, who may immediately terminate this contract or amend it accordingly.
B. INDEPENDENT CONTRACTOR. THE CONTRACTOR SHALL PERFORM ITS
DUTIES HEREUNDER AS AN INDEPENDENT CONTRACTOR AND NOT AS AN EMPLOYEE. NEITHER
THE CONTRACTOR NOR ANY AGENT OR EMPLOYEE OF THE CONTRACTOR SHALL BE OR SHALL BE
DEEMED TO BE AN AGENT OR EMPLOYEE OF THE A J. CONTRACTOR SHALL PAY WHEN DUE ALL
REQUIRED EMPLOYMENT TAXES AND INCOME TAX WITHHOLDING, INCLUDING ALL FEDERAL AND
COMMONWEALTH OF PUERTO RICO INCOME TAX AND LOCAL TAX ON ANY MONIES PAID PURSUANT
TO THIS CONTRACT. CONTRACTOR ACKNOWLEDGES THAT THE CONTRACTOR AND ITS EMPLOYEES
ARE NOT ENTITLED TO UNEMPLOYMENT INSURANCE BENEFITS UNLESS THE CONTRACTOR OR A
THIRD PARTY PROVIDES SUCH COVERAGE AND THAT THE AIJ DOES NOT PAY FOR OR
OTHERWISE PROVIDE SUCH IMPLIED, TO BIND THE AIJ TO ANY AGREEMENTS, LIABILITY, OR
UNDERSTANDING EXCEPT AS EXPRESSLY SET FORTH HEREIN. CONTRACTOR SHALL PROVIDE
AND KEEP IN FORCE WORKER'S COMPENSATION (AND SHOW PROOF OF SUCH INSURANCE) AND
UNEMPLOYMENT COMPENSATION INSURANCE AS WELL AS ANY OTHER INSURANCE REQUIRED BY
LAW IN PUERTO RICO, IN THE AMOUNTS REQUIRED BY LAW, AND SHALL BE SOLELY
RESPONSIBLE FOR THE ACTS OF THE CONTRACTOR, ITS EMPLOYEES AND AGENTS.
C. Beneficiary
Except as herein specifically provided otherwise, this contract
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns. It is expressly understood and agreed that
the enforcement of the terms and conditions of this contract and all rights of
action relating to such enforcement shall be strictly reserved to the AIJ and
the named Contractor. Nothing contained in this agreement shall give or allow
any claim or right of action whatsoever by any such person entity, other than
the AIJ or the Contractor, receiving services or benefits under this agreement
shall be deemed an incidental beneficiary only.
D. *Liability Insurance/Fidelity Coverage-Contractor
1. During the term of this contract, and any extension(s) hereof,
Contractor agrees that it will keep in force an insurance policy or policies,
issued by a company authorized to do business in the Commonwealth of Puerto
Rico, in the kinds and minimum amounts specified below unless specifically
waived herein. In the event of cancellation of any such coverage, the Contractor
shall immediately notify the AIJ of such cancellation.
a. Standard Worker's Compensation and Employer's Liability as
required by the Commonwealth of Puerto Rico statute, including occupational
disease; covering all employees on or off the work site, acting within the
course and scope of their employment.
b. Except as to a "public entity" described below, General
Personal Injury, Professional, Automobile Liability (including bodily injury,
personal injury and property damage) minimum coverage's:
(1) Occurrence basis policy: combined single limit of
$600,000.
(2) Annual Aggregate Limit policy: Not less than $1,000,000
plus agreement that the Contractor will purchase additional insurance to
replenish the limit to $1,000,000 f claims reduce the annual aggregate below
$600,00.
(3) Claims-Made policy: combined single limit of $600,000;
plus endorsement that extends coverage two years beyond the policy expiration
date.
2. The AIJ shall be named as an additional insured on all
liability policies.
3. The insurance shall include provisions preventing
cancellation without thirty (30) calendar days prior written notice to the AIJ
by certified mail.
4. The Contractor shall provide certificates of adequate
insurance coverage to the AIJ within ten (10) working days of receipt of award,
unless otherwise provided.
5. The Contractor shall provide such other insurance as may be
required by law, or in a specific solicitation.
E. Licenses/Approvals/Insurance
The Contractor certifies that, at the time of entering into this
contract, it has currently in effect all necessary licenses, certifications,
approvals, insurance, etc. required to properly provide the services and/or
supplies covered by this contract. Additionally, all employees of the
Contractor performing services under this contract shall hold the required
license or certification, if any, to perform their responsibilities. Any
revocation withdrawal or nonrenewal of necessary license, certification,
approval, insurance, etc. required for the Contractor to properly perform this
contract, shall be grounds for termination of this contract by the AIJ. The
Contractor further certifies that, if a foreign corporation, a limited liability
company, a limited liability partnership or a limited liability partnership, it
currently has a Certificate of Good Standing or Certificate of Existence to do
Business in the Commonwealth of Puerto Rico. The AIJ shall provide proof of
such certification upon request.
F. Record Maintenance
The Contractor shall maintain a complete file of all records,
documents, communications, and other materials, which pertain to the operation
of the program/project or the delivery of services under this contract. Such
files shall be sufficient to properly reflect all direct and all indirect cost
of labor, materials, equipment, supplies and services, and other costs of
whatever nature for which a contract payment was made. These records shall be
maintained according to generally accepted accounting principles and shall be
easily separable from other Contractor records.
G. Records Retention and Availability
All such records, documents communications, and other materials
shall be the property of the AIJ unless otherwise specified herein and shall be
maintained by the Contractor, for a period of five (5) years from the date of
final payment or submission of the final federal expenditure report under this
Contractor, unless the AIJ request that the records be retained for a longer
period, or until an audit has been completed with the following qualification.
If an audit by or on behalf of the federal and/or AIJ government has begun but
is not completed at the end of the three (3) year period, or if an audit finding
has not been resolved after a three (3) year period, the materials shall be
retained until the resolution of the audit findings. At any time AIJ can
request the record or copy of the records from Contractor.
H. Performance Monitoring
The Contractor shall permit the AIJ, appointed Federal Monitor
(as agreed in the stipulations case 94-2080 at the Federal Court) and any other
governmental agency authorized by law or their authorized designee, to monitor
all activities conducted by the Contractor pursuant to the terms of this
contract. As the monitoring agency may in its sole discretion deem necessary or
appropriate, such monitoring may consist of internal evaluation procedure,
reexamination of program data, special analyses, on-site verification, formal
audit examinations, or any others reasonable procedures. All such monitoring
shall be performed in a manner that will not unduly interfere with contract
work.
I. Audits
The Contractor authorizes the AIJ or its representatives to
perform audits and/or inspections of its records at any reasonable time during
the term of this contract and for a period of three (3) years, (unless the AIJ
determines a longer timeframe is required) following the date of final payment
under this contract, to assure compliance with its terms and/or to evaluate the
Contractor's performance. Any amounts, which have been paid by the AIJ which,
are found to be improper in accordance with other terms of this contract shall
be immediately returned to the AIJ or may be received in accordance with other
remedies.
J. Confidentiality of Records
The Contractor shall protect the confidentiality of all records
and other materials containing personally identifying information that are
maintained in accordance with this contract. Except as provided by law, no
information in possession of the Contractor about any individual constituent
shall be disclosed in a form including identifying information without the prior
written policies governing access to, duplication and dissemination of, all such
information. The Contractor shall advise its employees, agents and
sub-Contractors, if any, that they are subject to these confidentiality
requirements. The Contractor shall provide its employees, agents and
sub-Contractors, if any, with a copy or written explanation of these
confidentiality requirements before access to confidential data is permitted.
K. Conflict of Interest During the term of this contract, the
Contractor shall not engage in any business or personal activities or practices
or maintain any relationship which conflict in any way with the Contractor fully
performing his/her obligation under this contract. Additionally, the Contractor
acknowledges that, in governmental contracting, even the appearance of a
conflict of interest is harmful to the interest of the AIJ. Thus, the Contractor
agrees to refrain from any practices, activities or relationships which could
reasonably be considered to be in conflict with the Contractor's fully
performing his/her obligations to the AIJ under the terms of this contract,
without the prior written approval of the AIJ. In the event that thc Contractor
is uncertain whether the appearance of a conflict of interest may reasonable
exist, the Contractor shall submit to the AIJ a full disclosure AIJ setting
forth the relevant details for the AIJ's consideration and direction. Failure
to promptly submit a disclosure AIJ or to follow the AIJ's directions in regard
to the apparent conflict shall be grounds for termination of the contract.
L. Conformance with Law The Contractor shall at all times during
the term of this contract strictly adhere to all applicable federal and
Commonwealth of Puerto Rico laws and implementing regulations as they currently
exist and may hereafter be amended. The Contractor acknowledges that the
following laws are included:
- Age Discrimination Act of 1975 42 U.S.C. Section 6101 et. seq.
- Age Discrimination in Employment 29 U.S.C. 621-634
Act of 1967
- American with Disabilities Act 42 U.S.C. 12101 et. seq.
of 1990 (ADA)
- Drug Free Workplace Act of 1988 41 U.S.C. 701 et seq.
- Equal Pay Act of 1963 29 U.S.C. 206 (d)
- Immigration Reform and Control 8 U.S.C. 1324 b
Act 1986
- Pro-Children Act of 1994 20 U.S.C. 6081 et seq.
- Section 504 of the Rehabilitation 29 U.S.C. 794
Act 1973
- Title VI of the Civil Rights 42 U.S.C. 2000d
Act of 1964
- Title VII of the Civil Rights 42 U.S.C. 2000e
Act of 1964
- Title IX of the Educational 20 U.S.C. 1681 et seq.
Amendments 1972
- Commonwealth of Puerto Rico tax code, as amended.
- Stipulations in the Federal Civil Case 94-2080 (U.S. Vs.
Commonwealth)
- As well as any other Laws and Regulations not listed in this
contract
The Contractor also shall comply with any and all laws and
regulations prohibiting discrimination in the specific program(s) which is/are
the subject of this contract. In consideration of and for the purpose of
obtaining any and all federal and/or Commonwealth of Puerto Rico financial
assistance, the Contractor makes the following assurances, upon which the AIJ
relies.
1. The Contractor will not discriminate against any person on the
basis of race, color, national origin, age, sex, religion and disabilities.
2. At the times during the performance of this contract, no
qualified individual with a disability shall, by reason of such disability, be
excluded from participation in, or denied benefits of the service, programs, or
activities performed by the Contractor or be subjected to any discrimination by
the Contractor.
3. The Contractor shall take all necessary affirmative steps, as
required by Commonwealth of Puerto Rico laws under this contract.
M. Assignment/Delegation/Subcontracting
Except as herein specifically provided otherwise, the duties and
obligations of the Contractor arising hereunder cannot be assigned, delegated
nor subcontracted except with the express prior written consent of the AIJ. The
subcontracts permitted by the AIJ shall be subject to the requirements of this
contract, and the Contractor is responsible for all subcontracting arrangements
and the delivery of services as set forth in this contract. The Contractor shall
be responsible for the performance of any sub-Contractor. Failure of the
sub-Contractor to provide services in accordance with the requirements of this
contract shall be the responsibility of the Contractor. The Contractor warrants
and agrees that any subcontract resulting from its performance under the terms
and conditions of this contract, shall include a provision that the said
sub-Contractor shall abide by the terms and conditions hereof, as well as all
other applicable federal and Commonwealth of Puerto Rico laws, and rules and
regulations pertinent hereto that have been or may hereafter be established.
Also, the Contractor warrants and agrees that all subcontracts shall include a
provision that the sub-Contractor shall indemnify and hold harmless the AIJ. The
sub-Contractors must be certified to work on any equipment for which their
services are obtained.
N. Litigation
The Contractor shall promptly notify the AIJ in the event that
the Contractor learns of any actual litigation in which it is party defendant in
a case, which involves services, provided under this contract. The Contractor,
within five (5) calendar days after being served with a summons, complaint, or
other pleading which has been filed in any federal or Commonwealth of Puerto
Rico court or administrative agency, shall deliver copies of such document(s) to
the AIJ's Administrator. The term "litigation" includes an assignment for the
benefit of creditors, and filings in bankruptcy, reorganization and/or
foreclosure.
O. Disputes
Except as herein specifically provided otherwise, disputes
concerning the performance of this contract which cannot be resolved by the
designate contract representatives shall be referred in writing to a senior
departmental management staff designated by the department and a senior manager
designated by the Contractor. Failing resolution at that level, disputes shall
be presented in writing to the Executive Director and the Contractor chief
executive officer for resolution. This Process is not intended to supersede any
other process for the resolutions of controversies provide by law.
P. Remedies
The Administrator of the Juvenile Institutions Administrator
(AIJ) or designee may exercise the following remedial actions, in additional to
all other remedial actions authorized by law, should they find the Contractor
substantially failed to satisfy the scope of the work found in this contract.
Substantial failure to satisfy the scope of work shall be define to mean
incorrect or improper activities or inaction by the Contractor. These remedial
actions are follows:
1. Withhold payment to the Contractor until the necessary
services or corrections in performances are satisfactorily completed;
2. Request the removal from work on the contract of employee(s)
and/or agent(s) of the Contractor whom the Executive Director or designee
justifies as being incompetent, careless, insubordinate, unsuitable, or
otherwise unacceptable, or whose continued employment; on the contract she/he
deems to be contrary to the public interest or not in the best interest of the
AIJ;
3. Deny payment or recover reimbursement for those services or
deliverables which have not been performed and which due to circumstances caused
by the Contractor cannot be performed or if performed would be of no value to
the AIJ. Denial of the amount of payment shall be reasonably related to the
amount of work or deliverables lost to the AIJ;
4. Incorrect payments to the Contractor due to omission, error,
fraud, and/or defalcation shall be recovered from the Contractor by deduction
from subsequent payments under this contract or other contracts between the AIJ
and the Contractor, or by the AIJ as a debt due to the AIJ or otherwise as
provided by law.
5. Contractor will be responsible for any payments of fines,
imposed by any administrative agency or court of law with jurisdiction, as a
result of a violation to the stipulations in the civil case 94-2080 (U.S. vs.
Commonwealth) or any other federal or state rule in the management of the
program the Contractor establishes as a result of this agreement.
6. Contractor may be fined by AIJ whenever it fails to operate
at a minimum standard, does not comply with the Court Orders and Policies and
Procedures Manual, violates local laws, rules and regulations, when minimum
staff is not provided, when critical post are not manned, and upon breach of any
contractual clause by the Contractor. Except in the case of escapees, AIJ will
notify by certified mail the first violation and will allow Contractor to remedy
deficiencies within five working days from the receipt of notification without
imposing the fine. If the violation is not corrected within the grace period of
five days, AIJ will impose the fine for each day since receipt of the
notification. A repetition of the same kind of violation will be fined without
allowing a grace period. A violation of the same kind means a violation of the
same concept of service or lack of it, or acts similar in nature that can be
repeated and/or are continuous. Minimum amount of fine will be $750.00 a day for
the first incident and double that amount per day of violation for every
incident thereafter. In case of escapes, the fine will be of $750.00 per
escapee. In the event of a dispute the parties will refer to clause O.
Q. Termination
1. The AIJ may terminate the contract for cause without
compensation for termination costs. Prior to termination, the AIJ will notify an
intention to terminate the contract for cause, by giving written notice to the
Contractor. The notice will state the reasons for cancellation, procedures to
correct problems, if any, and the date the contract will be terminated in the
event problems have not been corrected. Notification will also be given to the
Performance Bond Agency.
a. In the event this contract is terminated for cause, the AIJ
will only reimburse the Contractor for acceptable work or deliverables received
up to the date of termination.
b. In the event this contract is terminated for cause, final
payment to the Contractor may be withheld at the discretion of the AIJ until
completion of final audit.
2. Either party shall have the right to terminate this contract by
giving the other party at least thirty (30) days prior written notice. If notice
is so given, this contract shall terminate on the expiration of the specified
time period. The AIJ liability hereunder for further performance of the terms of
this contract shall thereupon cease, but the parties shall not be released from
the duty to perform their obligations up to the date of termination.
3. This contract is subject to immediate termination by the AIJ in
the event that the AIJ determines that the health, safety, or welfare of persons
receiving services may be in jeopardy. Additionally, the AIJ may immediately
terminate this contract upon verifying that the Contractor has engaged in or is
about to participate in fraudulent acts.
4. The Contractor may terminate the contract for cause. If the
Contractor intends to terminate the contract for cause, it will first give
thirty (30) days prior written notice to the AIJ, stating the reasons for
cancellation, procedures to correct problems, if any, and date the contract will
be terminated in the event problems have not been corrected.
R. Severability
To the extent that this contract may be executed and
performance of the obligations of the parties may be accomplished within the
intent of the contract, the terms of this contract are severable, and should any
term or provision hereof be declared invalid or become inoperative for any
reason, such invalidity or failure shall not affect the validity of any other
term or provision hereof. The waiver of any breach of a term hereof shall not be
construed as a waiver of any other term, or the same term upon subsequent
breach.
S. Integration of Understandings
This contract is intended as the complete integration of all
understandings between the parties. No prior or contemporaneous addition,
deletion, or other amendment hereto shall have any force or effect whatsoever,
unless embodied herein in writing. No subsequent novation, renewal, addition,
deletion, or other amendment hereto shall have any force or effect unless
embodied in a written contract executed and approved pursuant to the
Commonwealth of Puerto Rico Fiscal Rules.
THE PARTIES after reviewing, reading and understanding the contents of this
document state that it reflects the pact between them. Therefore, they
consummate this contract and in virtue of it shall be obligated to its
compliance.
This 20th day of December 1997, in San Juan, P. R.
MIGUEL A. RIVERA JAMES F. SLATTERY
Administrator President and CEO President and CEO
Juvenile Institutions Administration CSC MANAGEMENT DE PUERTO RICO
[CIK] 0000914670
[NAME] CORRECTIONAL SERVICES CORPORATION
(ONE OF TWO DOCUMENTS)
COMMONWEALTH OF PUERTO RICO
JUVENILE INSTITUTIONS ADMINISTRATION
SAN JUAN, PUERTO RICO
METROPOLITAN JUVENILE DETENTION CENTER
APPEAR
PARTY OF THE FIRST PART: The JUVENILE INSTITUTIONS ADMINISTRATION,
represented in this agreement, under the power vested by the Act of August 5,
1988, No. 154, known as the "Organic Act of Juvenile Institutions
Administration," by its Administrator, Miguel Angel Rivera, of legal age,
married and resident of Trujillo Alto, Puerto Rico, hereinafter referred to as
the ADMINISTRATOR or AIJ, the acronym for the agency's name in Spanish.
PARTY OF THE SECOND PART: CSC Management de Puerto Rico, tax
identification number 66-0548275, represented in this act by- James F.
Slattery, President and CEO, married and resident of Florida, hereinafter
referred to as CONTRACTOR.
BOTH PARTIES assure that they have the necessary legal capacity to execute
this contract; wherefore they freely and voluntarily:
STATE, THAT
INASMUCH AS: The Juvenile Institutions Administration (AIJ) is vested with
the authority to make placements in secure residential treatment programs
pursuant to Commonwealth of Puerto Rico Public Law 154 of August 5, 1988 and
funds have been budgeted, appropriated and made available to fund this program,
and the Contractor has the special knowledge, expertise and skill for operating
secure residential treatment programs for delinquent youths, the parties
AGREE
To the following,
CLAUSES AND CONDITIONS
FIRST: Statement of Work; The Contractor shall provide a secure residential
treatment program at the Metropolitan Juvenile Treatment Center in Bayamon and
shall provide youths, placed by the Administrator, appropriate supervision,
care, education, training, treatment and rehabilitation.
The above services shall be provided in accordance with the program
description as set forth in Exhibit A (Revised Contractor's Proposal with
Mr. John Stetler and Ms. Patricia Palterfield's notes), incorporated herein by
reference, together with the Administrator LS Program requirements, provided in
Exhibit C (Request For Proposal For The Operation, Management and Maintenance).
The program shall be in operation twenty-four (24) hours a day, seven (7)
days per week, and shall provide staff-to-client ratios as specified in Exhibit
A, and in accordance with the federal guides established in the settlement
stipulation in Civil Case No. 94-2080 (U.S v Commonwealth) (USDC-PR),
hereafter, Civil Case No. 94-2080.
This contract between the two parties is for a secure residential
treatment program for youth placed by the Administrator with an average 120
youths per day being served by the Contractor during the contract period of five
years.
SECOND: Applicable Ordinances and Standards: The Contractor shall provide
and maintain a facility and program that will satisfy all applicable ordinances
and standards, and shall fully comply with the appropriate Commonwealth of
Puerto Rico licensing requirements. It will also comply with the standards
agreed in the settlement stipulations in Civil Case No. 94-2080 supervised by
the Federal Monitor as specified in Exhibit "B", as well as the standards set
by the American Correctional Association.
THIRD: Commencement : The Contractor shall commence operations the date
Administrator and Contractor agree the contractor complies with all Request For
Proposal # 98-010 governmental and legal requirements. These include among
others: Workmen's Compensation, unemployment and Disability Insurance, Health
Certificates for Kitchen Workers.
FOURTH: Health Care Services: The Contractor shall be responsible for
provisions of all on-site and off-site health care services and shall be
responsible for all costs for such services. Health care services shall be
defined as physician health care, mental health care, and dental health care.
Health care services shall be delivered in accordance with Administrator
Policies and Procedures, and in accordance with stipulations set forth in the
Settlement Agreement in Civil Case No. 94-2080. Services shall include, but not
are limited to: on-site nursing staff with at least one registered nurse;
routine on-site sick call by a licensed physician; provision for routine and
emergency mental health evaluation and treatment by licensed professionals;
provision for routine and emergency dental health treatment by licensed
dentists; provision of a licensed dietitian; provision for off-site specialty
consultations and hospitalizations, both routine and emergency; provision of
all ancillary services, to include radiology, laboratory, and pharmaceuticals;
and provisions of paramedic/ambulance services. All such services whether
performed on site or off site shall be delivered by professionals licensed by
the Commonwealth of Puerto Rico and who have specific knowledge of the care of
adolescents.
FIFTH: Transportation: The Contractor shall provide for transportation of
youths from the Administrator's detention centers to the program at the time of
placement and provide all subsequent transportation to court hearings, and to
any locale necessary to provide specialized services required by the youth's
treatment plan. In addition, if a juvenile must be transferred to an outside
medical facility, the Contractor shall provide security for any juvenile
temporarily placed in a hospital or other medical facility.
SIXTH: Special Education: The Contractor shall maintain procedures in
accordance with Federal and Commonwealth of Puerto Rico statutes and
regulations governing special education and in compliance with procedures
established by the Education Department of Puerto Rico. Such procedures shall
include an individual staffing on each student placed to determine the need for
special education services. Costs related to student staffing, the
implementation of the Individualized Education Plan (IEP) and the special
education needs of the offender are the responsibility of the Contractor. The
Administrator agrees that the ratio of special education youths to the general
population of the facility will be similar to that of other treatment
facilities in Puerto Rico.
SEVENTH: Client Information :The Contractor agrees to provide all client
information requested by the Administrator and shall submit to the
Administrator adjustment and progress reports, which include but are not
limited to: progress reports, a summary release report including educational
transcripts, medical reports, statistical reports, case management data, and
other reports documenting the types of services provided all clients served by
the program. All records and information maintained by the Contractor
pertaining to a placed client shall remain confidential and shall not be
released to anyone other than the person in interest of the Commonwealth of
Puerto Rico without specific order of the court with proper jurisdiction. Prior
to the release of any information of record, the Contractor shall notify the
Administrator.
EIGHTH: Client File: The Contractor shall maintain an individual file for
each client participating in the Contractor's program and shall allow the
Administrator to review all information, data, and reports relating to any
client when requested to do so.
NINTH: Inspection: The Contractor shall allow the Administrator to inspect
the facility provided by the Contractor to determine the conditions under which
the clients are housed and to audit and monitor the Contractor's operations,
services, and conditions of confinement on a regular basis.
TENTH: Policies and Procedure Manual: The Contractor shall develop in
writing and implement appropriate policies and procedures manual for
institutional care in both English and Spanish, within 90 days of the signing
of this contract. Administrator shall approve these policies and procedures
manual.
ELEVENTH: Billing: The Administrator shall establish billing procedures
based on the guaranteed per diem and for actual bed occupancy in excess of the
guaranteed per diem. Submission of monthly or bi-weekly billing expenditures to
the Administrator shall be on forms prescribed by the Administrator, in
accordance with encumbered funds. The amount of funds allocated to each line
item of the budget may be reallocated upon written request of the Contractor
and the subsequent written approval of the Administrator.
TWELFTH: Guarantee: Administrator guarantees to the Contractor a minimum
daily bed occupancy of 75% of 120 beds during the five years term of the
contract. Payment exceeding the guaranteed 75% bed occupancy will be made at
earned in whole or in part and will be made as earned.
THIRTHEENTH: Request for Payment: Either monthly or bi-weekly, the
Contractor shall submit a request for payment for beds used by the
Administrator during the month at a rate of one hundred fourteen dollars and
sixty three cents ($114. 63) per secure residential bed-day during the five
year term of the contract. All payment requests shall be submitted to and
approved by the office of the Administrator of AIJ or its representative.
FOURTEENTH: Immediate termination by Administrator: This contract is
subject to immediate termination by the Administrator in the event that the
Administrator determines that the health, safety, or welfare of persons
receiving services may be in jeopardy due to Contractor's negligence or willful
misconduct. Additionally, the Administrator may immediately terminate this
contract upon verifying that the Contractor has knowingly engaged in or is
about to participate in fraudulent acts.
FIFTHTEENTH: Accounting Procedures and Permits: The Contractor shall
adhere to written accounting procedures established by the Administrator. The
Contractor shall provide in advance a copy of the plans and copies of all the
necessary permits required for commencement of construction.
SIXTEENTH: Term of Agreement and Renewal: The term of this Agreement is
for five years to be renewed for an additional five-year term by
Administrator's decision, contingent upon the availability of funds. The terms
of this contract are to be revised every year. The Parties agree that this
contract shall terminate automatically if in the next fiscal year there are
insufficient government funds to make the payments for the services. The
Administrator shall give Contractor prompt written notice of any anticipated
insufficiency of funds. For the purposes of this contract a fiscal year will be
from July 1 to June 30. The payment will be disbursed from the account number
98-111-072-03-081 in the term of this fiscal year (February, 1998 to June 30,
1998). The total amount in this fiscal year will be two million sixty three
thousand three hundred forty dollars ($2,063,340.00).
SEVENTEENTH: Termination for cause by the Administrator: The Administrator
may terminate the contract for cause without compensation for termination
costs. Prior to termination, the Administrator will notify an intention to
terminate the contract for cause, by giving ninety- (90) day written notice to
the Contractor. The notice will state the reasons for cancellation, procedures
to correct problems, if any, and the dates the contract will be terminated in
the event problems have not been corrected. Notification will also be given to
the Performance Bond Agency.
EIGHTEENTH: Non-cause Termination: After the first two years the
Administrator may decide to issue a no-cause cancellation notice to the
Contractor; at which time the ninety (90) day transition plan, shall take
effect. In the event of termination, the Administrator's liability for payments
to the Contractor will be limited to services provided prior to the date of
cancellation per notice of termination. All services/materials paid for under
this contract will become the property of the Administrator.
NINETEENTH: Notice and Representatives:
Representatives:
For the purposes of this Contract, the individuals identified below are
hereby-designated representatives of the respective parties. Either party may
from time to time designate in writing a new or substitute representative(s)
For the AIJ: For the Contractor:
Name: Miguel A. Rivera Name: Ramon Horta
Title: Administrator Title: Agent in charge
Notice:
All notices required to be given by the parties hereunder shall be given by
certified or registered mail or courier to the above named individuals at the
addresses set forth below. Either party may from time to time designate in
writing a substitute person (s) or address to which such notices shall be sent:
To the ADMINISTRATOR: To the CONTRACTOR:
P.O. Box 19175 Calle Amapola Final
Fernandez Juncos Sta. Condominio Playamar, Apt. 14-B
San Juan, P. R. 00910 Isla Verde, P.R. 00979
GENERAL PROVISIONS
TWENTIETH: Contract General Clauses: The following clauses apply to this
contract. In some instances, these general clauses have been expanded upon in
other sections of this contract. To the extent that other provisions of the
contract provide more specificity than these general clauses, the more specific
provision shall control.
TWENTY-FIRST: Beneficiary: Except as herein specifically provided
otherwise, this contract shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns. It is expressly
understood and agreed that the enforcement of the terms and conditions of this
contract and all rights of action relating to such enforcement shall be
strictly reserved to the Administrator and the named Contractor. Nothing
contained in this agreement shall give or allow any claim or right of action
whatsoever by any such person or entity, other than the Administrator or the
Contractor, receiving services or benefits under this agreement shall be deemed
an incidental beneficiary only.
TWENTY-SECOND: Liability Insurance/Fidelity Coverage-Contractor: During
the term of this contract, and any extension(s) hereof, Contractor agrees that
it will keep in force an insurance policy or policies, issued by a company
authorized to do business in the Government of Puerto Rico, in the kinds and
minimum amounts specified below, unless specifically waived herein. In the
event of cancellation of any such coverage, the Contractor shall immediately
notify the Administrator of such cancellation.
The Contractor will maintain at least one million dollars ($1,000,000.00)
per person, three million dollars ($3,000,000.00) per incident, five million
dollars ($5,000,000.00) aggregate-comprehensive and general liability,
including civil rights, business, liability and professional malpractice,
personal property insurance; and at least one million dollars ($1,000,000.00)
automobile liability, worker's compensation per statute, and other insurance
during the course of this Contract.
The Administrator shall be named as an additional insured on all liability
policies. The insurance shall include provisions preventing cancellation
without thirty- (30) calendar day's prior written notice to the Administrator
by certified mail. The Contractor shall provide certificates of adequate
insurance coverage to the Administrator within ten (10) working days of receipt
of award, unless otherwise provided.
The Contractor shall provide such other insurance as may be required by
law, or in a specific solicitation.
TWENTY-THIRD: Licenses/Approvals/Insurance: The Contractor certifies that,
at the time of entering into this contract, it has currently in effect all
necessary licenses, certifications, approvals, insurance, etc, required to
properly provide the services and/or supplies covered by this contract
including license to operate pharmacy and licenses to supply medicine.
Additionally, all employees of the Contractor performing services under this
contract shall hold the required license or certification, if any, to perform
their responsibilities. Any revocation withdrawal or expiration of necessary
license, certification, approval, insurance, etc. required for the Contractor
to properly perform this contract, shall be grounds for termination of this
contract by the Administrator.
TWENTY-FOURTH: Record Maintenance: The Contractor shall maintain a
complete file of all records, documents, communications, and other materials,
which pertain to the operation of the program/project or the delivery of
services under this contract. Such files shall be sufficient to properly
reflect all direct and indirect cost of labor, materials, equipment, supplies
and services, and other cost of whatever nature for which a contract payment
was made. These records shall be maintained according to generally accepted
accounting principles and shall be easily separable from other Contractor
records.
TWENTY-FIFTH: Records Retention and Availability: All inmates records,
documents, communications, and other materials shall be the property of the
Administrator. The Contractor shall transfer those documents to Administrator
when the contract is terminated; no photocopies will be taken or kept it of
those documents by Contractor when the contract is ended.
TWENTY-SIXTH: Contract Supervision: The Administrator will assign an
official representative to oversee compliance with the contract as well as
Court Mandates; with the same broad powers and authority of the Court Monitor.
Automatic payment adjustments will be levied in the contract supervisor when
the provider fails to perform at a minimum standard, does not comply with the
Court Orders and Administrator Policies and Procedures, violates local laws,
rules and regulations, when minimum staff is not provided, when critical posts
are not manned, and upon breach of any contractual clause by the Contractor.
Minimum amount of adjustment will be seven hundred fifty dollars ($750.00) a
day for the first incident and double that amount per day of violation for
every incident thereafter. In the case of critical posts not staffed, the
automatic penalty will consist of double the amount of the base salary of the
post not covered per shift of non-compliance. All other personnel vacancies
double the amount of the base salary per day of vacancy following thirty (30)
days from the date it was vacated. In the case of escapes, the adjustment will
consist of seven hundred fifty dollars ($750.00) per escape.
The Administrator will have unlimited access to all files, accounting
books and records, tax forms and other governmental requirements as filed,
juvenile records and all information relating to the managers, management and
operation, personnel, contractors and the juveniles and will provide all
information requested by Administrator.
TWENTY-SEVENTH: Audits: The Contractor authorizes the Administrator or its
representatives to perform audits and/or inspections of its records at any
reasonable time during the term of this contract and for a period of three (3)
years, (unless the Administrator determines a longer time frame is required)
following the date of final payment under this contract, to assure compliance
with its terms and/or to evaluate the Contractor's performance. Any amounts,
which have been paid by the Administrator which, are found to be improper in
accordance with other terms of this contract shall be immediately returned to
the Administrator or may be received in accordance with other remedies.
TWENTY-EIGHTH: Confidentiality of Records: The Contractor shall protect
the confidentiality of all records and other materials containing personally
identifying information that are maintained in accordance with this contract.
Except as provided by law, no information in possession of the Contractor about
any individual constituent shall be disclosed in a form including identifying
information without the prior written policies governing access to, duplication
and dissemination of, all such information. The Contractor shall advise its
employees, agents and sub-Contractors, if any, that they are subject to these
confidentiality requirements. The Contractor shall provide its employees,
agents and sub-Contractors, if any with a copy or written explanation of these
confidentiality requirements before access to confidential data is permitted.
TWENTY-NINTH: Conflict of Interest: During the term of this contract, the
Contractor shall not engage in any business or personal activities or practices
or maintain any relationship which conflicts in any way with the Contractor
fully performing his/her obligation under this contract. Additionally, the
Contractor acknowledges that, in governmental contracting, even the appearance
of a conflict of interest is harmful to the interest of the Administrator.
Thus, the Contractor agrees to refrain from any practices, activities or
relationships which could reasonably be considered to be in conflict with the
Contractor's fully performing his/her obligations to the Administrator under
the terms of this contract, without the prior written approval of the
Administrator. In the event that the Contractor is uncertain whether the
appearance of a conflict of interest may reasonably exist, the Contractor shall
submit to the Administrator a full disclosure setting forth the relevant
details for the Administrator's consideration and direction. Failure to
promptly submit a disclosure to the Administrator or to follow the
Administrator's directions in regard to the apparent conflict shall be grounds
for termination of the contract.
THIRTIETH: Assignment/Delegation/Subcontracting Except as herein
specifically provided otherwise, the duties and obligations of the Contractor
arising hereunder cannot be assigned, delegated nor subcontracted except with
the express prior written consent of the Administrator. The subcontracts
permitted by the Administrator shall be subject to the requirements of this
contract, and the Contractor is responsible for all subcontracting arrangements
and the delivery of services as set forth in this contract. The Contractor
shall be responsible for the performance of any sub-Contractor. Failure of the
sub-Contractor to provide services in accordance with the requirements of this
contract shall be the responsibility of the Contractor. The Contractor warrants
and agrees that any subcontract resulting from its performance under the terms
and conditions of this contract, shall include a provision that the said
sub-Contractor shall abide by the terms and conditions hereof, as well as all
other applicable federal and Commonwealth of Puerto Rico laws, and rules and
regulations pertinent hereto that have been or may hereafter be established.
Also, the Contractor warrants and agrees that all subcontracts shall include a
provision that the sub-Contractor shall indemnify and hold harmless the
Administrator. The sub-Contractors must be certified to work on any equipment
for which their services are obtained.
THIRTY-FIRST: Litigation: The Contractor shall promptly notify the
Administrator in the event that the Contractor learns of any actual litigation
in which it is party defendant in a case, which involves services, provided
under this contract. The Contractor, within five (5) calendar days after being
served with a summons, complaint, or other pleading which has been filed in any
Federal or Commonwealth of Puerto Rico court or administrative agency, shall
deliver copies of such document(s) to the Administrator. The term "litigation"
includes an assignment for the benefit of creditors, and filings in bankruptcy,
reorganization and/or foreclosure.
THIRTY-SECOND: Disputes: Except as herein specifically provided otherwise,
disputes concerning the performance of this contract which cannot be resolved
by the designated contract representatives shall be referred in writing to a
senior departmental management staff designated by the Administrator and a
senior manager designated by the Contractor. Failing resolution at that level,
disputes shall be presented in writing to the Administrator and the Contractors
chief executive officer for resolution. This Process is not intended to
supersede any other process for the resolutions of controversies provided by
law.
THIRTY-THIRD: Remedies: The Administrator or designee may exercise the
following remedial actions, in additional to all other remedial actions
authorized by law, should he find the Contractor substantially failed to
satisfy the scope of the work found in this contract. Substantial failure to
satisfy the scope of work shall be defined to mean incorrect or improper
activities or inaction by the Contractor. These remedial actions are as
follows:
(a) Withhold payment to the Contractor of portion of work in question
until the necessary services or corrections in performances are satisfactorily
completed;
(b) Request the removal from work on the contract of employee(s) and/or
agent(s) of the Contractor whom the Administrator or designee justifies as
being incompetent, careless, insubordinate, unsuitable, or otherwise
unacceptable, or whose continued employment on the contract s/he deems to be
contrary to the public interest or not in the best interest of the
Administrator;
(c) Deny payment or recover reimbursement for those services or
deliverables which have not been performed and which due to circumstances
caused by the Contractor cannot be performed or if performed would be of no
value to the Administrator. Denial of the amount of payment shall be reasonably
related to the amount of work or deliverables lost to the Administrator;
(d) Incorrect payments to the Contractor due to omission, error, fraud,
and/or misappropriation may be recovered from the Contractor by deduction from
subsequent payments under this contract or other contracts between the
Administrator and the Contractor, or by the AIJ as a debt due to the AIJ or
otherwise as provided by law.
THIRTY-FOURTH: Payments of Fines: Contractor will be responsible for any
payments of fines, imposed by any administrative agency or court of law with
jurisdiction, as a result of a violation to the stipulations in Civil Case No.
94-2080 (U.S. v. Commonwealth) or any other federal or state rule in the
management of the program the Contractor establishes as a result of us
agreement.
THIRTY-FIFTH: Integration of Understandings: This contract is intended as
the complete integration of all understandings between the parties. No prior or
contemporaneous addition, deletion, or amendment hereto shall have any force or
effect whatsoever, unless embodied herein in writing. No subsequent novation,
renewal, addition, deletion, or other amendment hereto shall have any force or
effect unless embodied in a written contract executed and approved pursuant to
the Commonwealth of Puerto Rico Fiscal Rules.
THIRTY-SIXTH: Governing Law: This Agreement shall be governed by and
construed in accordance with the laws of Puerto Rico. In the event that a
dispute arises with respect to any of the provisions herein contained or any
other matter affecting the relationship between Administrator and Contractor,
it shall be resolved by the Courts of Puerto Rico. The Administrator will
select the jurisdiction. All reasonable attorneys' fees and associated expenses
shall be awarded to the prevailing party.
THIRTY-SEVENTH: Severability: In the event any provision hereof shall be
modified or held ineffective by any court in any respect, such adjudication
shall not invalidate or render ineffective the balance of the provisions of
this Agreement.
THIRTY-EIGHTH: Nondiscrimination: Both parties shall prohibit
discrimination based on race, creed, color, age, sex, national origin, social
status or disability.
THIRTY-NINTH: Income Tax: Contractor certifies and guarantees, at the
signature of this contract, that it does not have any debt with the Treasury
Department of the Commonwealth of Puerto Rico.
Contractor certifies and guarantees that it was recently established.
Therefore, it has not filed income tax reports for the past five- (5) years. A
sworn declaration indicating the reason for not been obligated to render income
tax returns for the past five years is attached as Exhibit. Contractor knows
this is an essential element of the contract and to state untrue information is
enough for the Contractor to cancel the contract.
FORTIETH: Double Compensation: Contractor certifies that it does not
receive any kind of salary, compensation or payment for services rendered under
a regular job relationship or that it occupies a position in the Commonwealth of
Puerto Rico, in any of its departments, municipalities or agencies. Contractor
understands that the action of accepting a regular job by any of its agents in
any departments, agencies or municipalities under the jurisdiction of the
Commonwealth of Puerto Rico will constitute a violation of this contract and
will cause the immediate termination of the contract relationship. Contractor
certifies that it does not have another contract relationship for its services
with any other department, agency, municipality, or instrumentality of the
Commonwealth of Puerto Rico. If it has another contract, Contractor certifies
that it does not constitute a conflict of interest with this contract.
FORTY-FIRST: Drug Detection: Contractor's representatives will participate
in the program for drug and substance abuse detection implemented by the
Contractor.
FORTY-SECOND: Labor Law: Contractor is an employer and has certification
from the Department of Labor and Human Resources indicating that it has no
unemployment insurance or State Insurance Fund debts. The Contractor knows and
accepts that this is an essential condition to the present contract and that
offering untrue information is sufficient cause for the Contractor to cancel
the contract. In such event, the Contractor will return all the payments
received from the first party under this contract.
The parties stipulate that this contract does not constitute an employment
or job relationship, between Contractor's employees and the Contractor.
Contractor will be responsible for all deduction prescribed by law of their
employees. Contractor will notify the Treasury Department of the Commonwealth
of Puerto Rico the amount paid to its employees and will be responsible for
rendering appropriate Federal Social Security Tax Forms. Contractor agrees that
its employees are not entitled to regular vacation time, sick leave,
compensatory time, Christmas Bonus, or any other kind of privileges or benefits
that apply to regular employees of the Contractor.
FORTY-THIRD: Services: Both parties agree that no service will be
rendered under this contract until both parties have signed it and no services
will be rendered after the termination of the same contract, unless an
amendment has been signed by both parties extending the life of the present
contract. Payments will not be made if this clause is violated. Any employee or
official of the Contractor that requests services or accepts such services will
be doing so without the authority of the Contractor and in violation of the
present clause.
Any replacement equipment, furnishing and supplies required during the
term of the contract will be the sole responsibility of the Contractor.
FORTY-FOURTH: Salvation Clause: Unless there is a showing of impossibility
by the Contractor, an Act of God, or other situations that reasonably prohibit
compliance with the terms of this contract, Contractor agrees to build and
operate the facility within the terms and standards contained in this contract
and the accepted Revised Contractor's Proposal. The government's liability
under this contract will be limited to the amounts specified in the price
sections of the Request for Proposal and the accepted Revised Contractor's
Proposal. Neither the Administrator nor the Contractor will be held responsible
for non-performance or delays caused by Acts of God, vandalism, war or other
conditions beyond their control.
FORTY-FIFTH: Hold Harmless: Contractor shall indemnify and save the
Administrator, the Government of Puerto Rico and its offices, agents, agencies
and employees harmless from and against: (a) any and all claims arising from
the operation, maintenance, and management services including without
limitation, any and all claims arising from (i) any breach or default on the
part of the Contractor in the performance or lack of performance with the terms
hereof, (ii) any act of negligence of the Contractor, or any of its agents,
subcontractors, servants, employees, or licensees, and (iii) any accident,
injury, or damage whatsoever caused to any person including violation of civil
rights, and (b) costs, reasonable attorney's fees, expenses and liabilities
incurred in or about any such claim, action, or proceeding brought thereon.
In case any action or proceeding is brought against Administrator or the
Government by reason of any such claim, Contractor, upon notice from the
Administrator or the Government, shall defend against such action with counsel
satisfactory to Administrator. The aforementioned indemnification shall not be
affected by a claim that negligence of the Government, Administrator or its
respective officers, agents, contractors, employees, or licensees contributed
in part to the loss or damage indemnified against. Said indemnification shall
not apply to injury, agents, or independent contractors (other than Contractor)
who are directly responsible to Administrator.
FORTY-SIXTH: Possession: The Contractor agrees that immediately upon the
signature of this contract it will enter in possession of the real estate and
within one hundred twenty (120) days from said date it will hire and train
personnel to operate the facility. No time extension will be granted.
FORTY-SEVENTH: Negligence: The Administrator will assume not responsibility
for any negligence or criminal conduct perform or incurred by the Contractor or
an employees. In the case of such conduct the Contractor will be committed to
take corrective action based on its on investigation or the one conducted by the
Administrator. The corrective action taken by the Contractor will always be
oriented toward to the welfare of the minors.
FORTY-EIGHTH: Isolation: The Administrator's Panel will be entitled to
authorize the Isolation of inmates following policies and procedures manual
previously submitted by the Contractor and approved by Administrator and
FORTY-NINTH: Hiring: The Contractor is committed to conducting background
investigation prior to hiring employees. The result of such investigation will
be submitted to Administrator for final approval prior to hiring. Administrator
may decline to approve hiring without giving any reason about its decision,
unless an issue of discrimination is raised by candidate.
FIFTIETH: Advertising: The Contractor will not place any outside sign of
CSC in the Metropolitan Center. Both parties agree that Contractor will not
communicate with any media and will not give any information to media without a
previously written authorization of Administrator.
FIFTY-FIRST: Alterations: No alteration, changes or modifications to the
real state will be made by Contractor without previously written authorization
from Administrator.
THE PARTIES after reviewing, reading and understanding the contents of
this document state that it reflects the agreement between them. Therefore,
they consummate this contract and in virtue of it shall be obligated to its
compliance.
This 6th day of February 1998, at San Juan, P. R.
MIGUEL A. RIVERA JAMES F. SLATTERY
Administrator President and CEO
Juvenile Institutions Administration CSC MANAGEMENT DE PUERTO RICO
(TWO OF TWO DOCUMENTS)
COMMONWEALTH OF PUERTO RICO
JUVENILE INSTITUTIONS ADMINISTRATION
SAN JUAN, PUERTO RICO
ANEXO ENHACEMENTS
APPEAR
PARTY OF THE FIRST PART: The JUVENILE INSTITUTIONS ADMINISTRATION,
represented in this agreement, under the power vested by the Act of August 5,
1988, No. 154, known as the "Organic Act of Juvenile Institutions
Administration', by its Administrator, Miguel Angel Rivera, of legal age,
married and resident of Trujillo Alto, Puerto Rico, hereinafter referred to as
the ADMINISTRATOR or AIJ, the acronym for the agency's name in Spanish.
PARTY OF THE SECOND PART: CSC Management de Puerto Rico, tax identification
number 66-0548275, represented in this act by James F. Slattery, President and
CEO, married and resident of Florida, hereinafter referred to as CONTRACTOR.
BOTH PARTIES assure that they have the necessary legal capacity to execute
this contract; wherefore they freely and voluntarily agree the following:
CLAUSES AND CONDITIONS
FIRST: Statement of Work; CONTRACTOR shall furnish all labor, equipment,
materials and services or as otherwise indicated, for the purchase and
installation, within the startup period, of security enhancements as identified
in ADDENDUM # 1 dated October 14, 1997. Please refer to Attachment # 1 for a
detail list of security enhancements to be accomplished though this Agreement.
Additional work not described in Addendum # 1 shall be considered by the
Administrator with no impact on the Contract Price.
SECOND: Contract Price: For the performance of work described in Article
First of this Agreement, the Administrator shall pay to the Contractor the cost
of the Work plus fifteen percent (15%) with a guaranteed maximum Price of
three hundred fifty thousand dollars ($350,000.00). Payments will be disbursed
from the account number 97-161-072-00-081 and 98-111-072-03-081. Pay
applications will document actual expenditures with material receipts and
subcontractor invoices.
THIRD: Change Orders: This Agreement is not subject to Change Orders
unless the scope of work is expanded by the Administrator and approved in
writing prior to commencement of the work.
FOURTH: Time for Completion: The Contractor shall commence work under this
agreement upon the execution of this document. All work shall be complete
within one hundred twenty (120) consecutive days.
FIFTH: Liquidated damages: There are no liquidated damages associated with
this agreement.
SIXTH: Hold Harmless Clause: The Contractor shall save the AIJ harmless
from all suits, actions, or claims of any nature brought on account of any
injuries or damages sustained by any person or persons including death or
property, through these acts or omissions of the Contractor or his
subcontractors, his agents or servants, in safeguarding the work or through the
use of unacceptable or defective workmanship or materials in the project.
SEVENTH: Contract Documents: The Contract Documents consist of the
following component parts:
a. This agreement, including:
1. Attachment # 1 detailing "Scope of Work
2. Evidence of the following insurance coverage required:
Workman's Compensation, Employer's Liability, Comprehensive General
and Automobile Liability including Administrator's Protective Liability
Insurance, and Builders Risk.
3. Agreement between Contractor and Construction Company.
b. Addenda No. 1 dated October 14, 1997.
All documents enumerated in this Article Seventh form the Agreement,
and they are as fully a part of the Agreement as if hereto attached or herein
repeated.
EIGHTH: Governing Law: This Agreement shall be governed by and construed
in accordance with the laws of Puerto Rico. In the event that a dispute arises
with respect to any of the provisions herein contained or any other matter
affecting the relationship between Administrator and Contractor, it shall be
resolved by the Courts of Puerto Rico. The Administrator will select the
jurisdiction. All reasonable attorneys' fees and associated expenses shall be
awarded to the prevailing party.
NINTH: Severability: In the event any provision hereof shall be modified
or held ineffective by any court in any respect, such adjudication shall not
invalidate or render ineffective the balance of the provisions of this
Agreement.
TENTH: Nondiscrimination: Both parties shall prohibit discrimination based
on race, creed, color, age, sex, national origin, social status or disability.
ELEVENTH: Income Tax: Contractor certifies and guarantees, at the
signature of this contract, that it does not have any debt with the Treasury
Department of the Commonwealth of Puerto Rico.
Contractor certifies and guarantees that it was recently established.
Therefore, it has not filed income tax reports for the past five- (5) years. A
sworn declaration indicating the reason for not been obligated to render income
tax returns for the past five years is attached as Exhibit. Contractor knows
this is an essential element of the contract and to state untrue information is
enough for the Contractor to cancel the contract.
TWELFTH: Double Compensation: Contractor certifies that it does not receive
any kind of salary, compensation or payment for services rendered under a
regular job relationship or that it occupies a position in the Commonwealth of
Puerto Rico, in any of its departments, municipalities or agencies. Contractor
understands that the action of accepting a regular job by any of its agents in
any departments, agencies or municipalities under the jurisdiction of the
Commonwealth of Puerto Rico will constitute a violation of this contract and
will cause the immediate termination of the contract relationship. Contractor
certifies that it does not have another contract relationship for its services
with any other department, agency, municipality, or instrumentality of the
Commonwealth of Puerto Rico. If it has another contract, Contractor certifies
that it does not constitute a conflict of interest with this contract.
THIRTHEENTH: Drug Detection: Contractor's representatives will participate
in the program for drug and substance abuse detection implemented by the
Contractor.
FOURTHEENTH: Labor Law: Contractor is an employer and has certification
from the Department of Labor and Human Resources indicating that it has no
unemployment insurance or State Insurance Fund debts. The Contractor knows and
accepts that this is an essential condition to the present contract and that
offering untrue information is sufficient cause for the Contractor to cancel
the contract. In such event, the Contractor will return all the payments
received from the first party under this contract.
The parties stipulate that this contract does not constitute an employment
or job relationship, between Contractor's employees and the Contractor.
Contractor will be responsible for all deduction prescribed by law of their
employees. Contractor will notify the Treasury Department of the Commonwealth
of Puerto Rico the amount paid to its employees and will be responsible for
rendering appropriate Federal Social Security Tax Forms. Contractor agrees that
its employees are not entitled to regular vacation time, sick leave,
compensatory time, Christmas Bonus, or any other kind of privileges or benefits
that apply to regular employees of the Contractor.
FIFTHEENTH: Salvation Clause: Unless there is a showing of impossibility by
the Contractor, an Act of God, or other situations that reasonably prohibit
compliance with the terms of this contract, Contractor agrees to build and
operate the facility within the terms and standards contained in this contract
and the accepted Revised Contractor's Proposal. The government's liability under
this contract will be limited to the amounts specified in the price sections of
the Request for Proposal and the accepted Revised Contractor's Proposal. Neither
the Administrator nor the Contractor will be held responsible for non-
performance or delays caused by Acts of God, vandalism, war or other conditions
beyond their control.
SIXTEENTH: Conflict of Interest: The parties certify that no employee,
officer or direct member of the immediate family of the Administrator's
personnel has direct or indirect economic interest in the present contract.
SEVENTH: Nondelegation: The present contract can not be transferred to any
person, natural or legal, without a previous agreement and the consent of the
Administrator.
THE PARTIES after reviewing, reading and understanding the contents of
this document state that it reflects the agreement between them. Therefore,
they consummate this contract and in virtue of it shall be obligated to its
compliance.
This 6th day of February 1998, at San Juan, P. R.
MIGUEL A. RIVERA JAMES F. SLATTERY
Administrator President and CEO
Juvenile Institutions Administration CSC MANAGEMENT DE PUERTO RICO
[CIK] 0000914670
[NAME] CORRECTIONAL SERVICES CORPORATION
(ONE OF THREE DOCUMENTS)
COMMONWEALTH OF PUERTO RICO
JUVENILE INSTITUTIONS ADMINISTRATION
SAN JUAN, PUERTO RICO
METROPOLITAN JUVENILE TREATMENT CENTER
APPEAR
PARTY OF THE FIRST PART: The JUVENILE INSTITUTIONS ADMINISTRATION,
represented in this agreement, under the power vested by the Act of August 5,
1988, No. 154, known as the "Organic Act of Juvenile Institutions
Administration', by its Administrator, Miguel Angel Rivera, of legal age,
married and resident of Trujillo Alto, Puerto Rico, hereinafter referred to as
the ADMINISTRATOR or AIJ, the acronym for the agency's name in Spanish.
PARTY OF THE SECOND PART: CSC Management de Puerto Rico, tax
identification number 66-0548275, represented in this act by James F.
Slattery, President and CEO, married and resident of Florida, hereinafter
referred to as CONTRACTOR.
BOTH PARTIES assure that they have the necessary legal capacity to
execute this contract; wherefore they freely and voluntarily:
STATE, THAT
INASMUCH AS: The Juvenile Institutions Administration (AU) is vested with
the authority to make placements in secure residential treatment programs
pursuant to Commonwealth of Puerto Rico Public Law 154 of August 5, 1988 and
funds have been budgeted, appropriated and made available to fund this
program, and the Contractor has the special knowledge, expertise and skill for
operating secure residential treatment programs for delinquent youths, the
parties
AGREE
To the following,
CLAUSES AND CONDITIONS
FIRST: Statement of Work; The Contractor shall provide a secure
residential treatment program at the Metropolitan Juvenile Treatment Center in
Bayamon and shall provide youths, placed by the Administrator, appropriate
supervision, care, education, training, treatment and rehabilitation.
The above services shall be provided in accordance with the program
description as set forth in Exhibit A (Revised Contractor's Proposal),
incorporated herein by reference, together with the Administrator 's Program
requirements.
The program shall be in operation twenty-four (24) hours a day, seven (7)
days per week, and shall provide staff-to-client ratios as specified in
Exhibit A, and in accordance with the federal guides established in the
settlement stipulation in Civil Case No. 94-2080 (U.S. v. Commonwealth)
(USDC-PR), hereafter, Civil Case No. 94-2080.
This contract between the two parties is for a secure residential
treatment program for youth placed by the Administrator with an average of 141
youths per day being served by the Contractor during the contract period of
five years.
SECOND: Applicable Ordinances and Standards: The Contractor shall provide
and maintain a facility and program that will satisfy all applicable
ordinances and standards, and shall fully comply with the appropriate
Commonwealth of Puerto Rico licensing requirements. It will also comply with
the standards agreed in the settlement stipulations in Civil Case No. 94-2080
supervised by the Federal Monitor as specified in Exhibit "B", as well as the
standards set by the American Correctional Association.
THIRD: Commencement : The Contractor shall commence operations the date
Administrator and Contractor agree the contractor complies with all Request
For Proposal with Addendum # 98-021 governmental and legal requirements in
Exhibit "C". These include among others: Workmen's Compensation, unemployment
and Disability Insurance, Health Certificates for Kitchen Workers.
FOURTH: Health Care Services: The Contractor shall be responsible for
provisions of all on-site and off-site health care services and shall be
responsible for all costs for such services. Health care services shall be
defined as physician health care, mental health care, and dental health care.
Health care services shall be delivered in accordance with Administrator
Policies and Procedures, and in accordance with stipulations set forth in the
Settlement Agreement in Civil Case No. 94-2080. Services shall include, but
are not limited to: on-site nursing staff with at least one registered nurse;
routine on-site sick call by a licensed physician; provision for routine and
emergency mental health evaluation and treatment by licensed professionals;
provision for routine and emergency dental health treatment by licensed
dentists; provision of a licensed dietitian; provision for off-site specialty
consultations and hospitalizations, both routine and emergency; provision of
all ancillary services, to include radiology, laboratory, and pharmaceuticals;
and provisions of paramedic/ambulance services. All such services whether
performed on site or off site shall be delivered by professionals licensed by
the Commonwealth of Puerto Rico and who have specific knowledge of the care of
adolescents.
FIFTH: Transportation: The Contractor shall provide for transportation of
youths from the Administrator's detention centers to the program at the time
of placement and provide all subsequent transportation to court hearings, and
to any locale necessary to provide specialized services required by the
youth's treatment plan. In addition, if a juvenile must be transferred to an
outside medical facility, the Contractor shall provide security for any
juvenile temporarily placed in a hospital or other medical facility.
SIXTH: Special Education: The Contractor shall maintain procedures in
accordance with Federal and Commonwealth of Puerto Rico statutes and
regulations governing special education and in compliance with procedures
established by the Education Department of Puerto Rico Such procedures shall
include an individual staffing on each student placed to determine the need
for special education services. Costs related to student staffing, the
implementation of the Individualized Education Plan (IEP) and the special
education needs of the offender are the responsibility of the Contractor. The
Administrator agrees that the ratio of special education youths to the general
population of the facility will be similar to that of other treatment
facilities in Puerto Rico
SEVENTH: Client Information: The Contractor agrees to provide all client
information requested by the Administrator and shall submit to the
Administrator adjustment and progress reports, which include but are not
limited to: progress reports, a summary release report including educational
transcripts, medical reports, statistical reports, case management data, and
other reports documenting the types of services provided all clients served by
the program. All records and information maintained by the Contractor
pertaining to a placed client shall remain confidential and shall not be
released to anyone other than the person in interest of the Commonwealth of
Puerto Rico without specific order of the court with proper jurisdiction.
Prior to the release of any information of record, the Contractor shall notify
the Administrator.
EIGHTH: Client File: The Contractor shall maintain an individual file for
each client participating in the Contractor's program and shall allow the
Administrator to review all information, data, and reports relating to any
client when requested to do so.
NINTH: Inspection: The Contractor shall allow the Administrator to
inspect the facility provided by the Contractor to determine the conditions
under which the clients are housed and to audit and monitor the Contractor's
operations, services, and conditions of confinement on a regular basis.
TENTH: Policies and Procedure Manual: The Contractor shall develop in
writing and implement appropriate policies and procedures manual for
institutional care in both English and Spanish, within 90 days of the signing
of this contract. Administrator shall approve these policies and procedures
manual.
ELEVENTH: Billing: The Administrator shall establish billing procedures
based on the guaranteed per diem and for actual bed occupancy in excess of the
guaranteed per diem. Submission of monthly or bi-weekly billing expenditures
to the Administrator shall be on forms prescribed by the Administrator, in
accordance with encumbered funds. The amount of funds allocated to each line
item of the budget may be reallocated upon written request of the Contractor
and the subsequent written approval of the Administrator, subject to the
limitation of provision I.O., below.
TWELFTH: Guarantee: Administrator guarantees to the Contractor a minimum
daily bed occupancy of 75% of 96 beds in Phase I;75% of 95 beds in Phase II;
75% of 94 beds in Phase III and when all construction has been completed, 75%
of 141 beds. Payment exceeding the guaranteed 75% bed occupancy will be made
at earned in whole or in part and will be made as earned.
THIRTEENTH: Request for Payment: Either monthly or bi-weekly, the
Contractor shall submit a request for payment for beds used by the
Administrator during the month at a rate of $106.93 per secure residential
bed-day for the first year; $110.66 per secure residential bed day for the
second year; $115.08 per secure residential bed day for the third year; $
119.10 per secure residential bed day for the fourth year, and $ 122.87 per
secure residential bed day for the fifth year. All payment requests shall be
submitted to and approved by the office of the Administrator of AIJ or its
representative.
FOURTEENTH: Immediate termination by Administrator: This contract is
subject to immediate termination by the Administrator in the event that the
Administrator determines that the health, safety, or welfare of persons
receiving services may be in jeopardy due to Contractor's negligence or
willful misconduct. Additionally, the Administrator may immediately terminate
this contract upon verifying that the Contractor has knowingly engaged in or
is about to participate in fraudulent acts.
FIFTEENTH: Accounting Procedures and Permits: The Contractor shall adhere
to written accounting procedures established by the Administrator. The
Contractor shall provide in advance a copy of the plans and copies of all the
necessary permits required for commencement of construction.
SIXTEENTH: Term of Agreement and Renewal: The term of this Agreement is
for five years to be renewed for an additional five-year term by
Administrator's decision, contingent upon the availability of funds. The terms
of this contract are to be revised every year. The Parties agree that this
contract shall terminate automatically if in the next fiscal year there are
insufficient government funds to make the payments for the services. The
Administrator shall give Contractor prompt written notice of any anticipated
insufficiency of funds. For the purposes of this contract a fiscal year will
be from July 1 to June 30. The payment will be disbursed from the account
number 98-111-072-03-081 in the term of this fiscal year (February, 1998 to
June 30, 1998). The total amount in this fiscal year will be one million five
thousand thirty nine seven hundred ninety two dollars ( $ 1,539,792.00).
SEVENTEENTH: Termination for cause by the Administrator: The
Administrator may terminate the contract for cause without compensation for
termination costs. Prior to termination, the Administrator will notify an
intention to terminate the contract for cause, by giving ninety- (90) day
written notice to the Contractor. The notice will state the reasons for
cancellation, procedures to correct problems, if any, and the dates the
contract will be terminated in the event problems have not been corrected.
Notification will also be given to the Performance Bond Agency.
EIGHTEENTH: Non-cause Termination: After the first two years the
Administrator may decide to issue a no-cause cancellation notice to the
Contractor; at which time the ninety (90) day transition plan, shall take
effect. In the event of termination, the Administrator's liability for
payments to the Contractor will be limited to services provided prior to the
date of cancellation per notice of termination. All services/materials paid
for under this contract will become the property of the Administrator.
NINETEENTH: Notice and Representatives:
Representatives:
For the purposes of this Contract, the individuals identified below are
hereby-designated representatives of the respective parties. Either party may
from time to time designate in writing a new or substitute representative(s)
For the AIJ: For the Contractor:
Name: Miguel A. Rivera Name: Ramon Horta
Title: Administrator Title: Agent in charge
Notice:
All notices required to be given by the parties hereunder shall be given
by certified or registered mail or courier to the above named individuals at
the addresses set forth below. Either party may from time to time designate in
writing a substitute person (s) or address to which such notices shall be
sent:
To the ADMINISTRATOR: To the CONTRACTOR:
P.O. Box 19175 Calle Amapola Final
Fernandez Juncos Sta. Condominio Playamar, Apt. 14-B
San Juan, P. R. 00910 Isla Verde, P.R. 00979
GENERAL PROVISIONS
TWENTIETH: Contract General Clauses: The following clauses apply to this
contract. In some instances, these general clauses have been expanded upon in
other sections of this contract. To the extent that other provisions of the
contract provide more specificity than these general clauses, the more
specific provision shall control.
TWENTY-FIRST: Beneficiary: Except as herein specifically provided
otherwise, this contract shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns. It is expressly
understood and agreed that the enforcement of the terms and conditions of this
contract and all rights of action relating to such enforcement shall be
strictly reserved to the Administrator and the named Contractor. Nothing
contained in this agreement shall give or allow any claim or right of action
whatsoever by any such person or entity, other than the Administrator or the
Contractor, receiving services or benefits under this agreement shall be
deemed an incidental beneficiary only.
TWENTY-SECOND: Liability Insurance/Fidelity Coverage-Contractor: During
the term of this contract, and any extension(s) hereof, Contractor agrees that
it will keep in force an insurance policy or policies, issued by a company
authorized to do business in the Government of Puerto Rico, in the kinds and
minimum amounts specified below, unless specifically waived herein. In the
event of cancellation of any such coverage, the Contractor shall immediately
notify the Administrator of such cancellation.
The Contractor will maintain at least one million dollars
($1,000,000.00) per person, three million dollars ($3,000,000.00) per incident,
five million dollars ($5,000,000.00) aggregate-comprehensive and general
liability, including civil rights, business, liability and professional
malpractice, personal property insurance; and at least one million dollars
($1,000,000.00) automobile liability, worker's compensation per statute, and
other insurance during the course of this Contract.
The Administrator shall be named as an additional insured on all
liability policies. The insurance shall include provisions preventing
cancellation without thirty (30) calendar day's prior written notice to the
Administrator by certified mail. The Contractor shall provide certificates of
adequate insurance coverage to the Administrator within ten (10) working days
of receipt of award, unless otherwise provided.
The Contractor shall provide such other insurance as may be required by
law, or in a specific solicitation.
TWENTY-THIRD: Licenses/Approvals/Insurance: The Contractor certifies
that, at the time of entering into this contract, it has currently in effect
all necessary licenses, certifications, approvals, insurance, etc, required to
properly provide the services and/or supplies covered by this contract
including license to operate pharmacy and licenses to supply medicine.
Additionally, all employees of the Contractor performing services under this
contract shall hold the required license or certification, if any, to perform
their responsibilities. Any revocation withdrawal or expiration of necessary
license, certification, approval, insurance, etc. required for the Contractor
to properly perform this contract, shall be grounds for termination of this
contract by the Administrator.
TWENTY-FOURTH: Record Maintenance: The Contractor shall maintain a
complete file of all records, documents, communications, and other materials,
which pertain to the operation of the program/project or the delivery of
services under this contract. Such files shall be sufficient to properly
reflect all direct and indirect cost of labor, materials, equipment, supplies
and services, and other cost of whatever nature for which a contract payment
was made. These records shall be maintained according to generally accepted
accounting principles and shall be easily separable from other Contractor
records.
TWENTY-FIFTH: Records Retention and Availability: All inmates records,
documents, communications, and other materials shall be the property of the
Administrator. The Contractor shall transfer those documents to Administrator
when the contract is terminated; no photocopies will be taken or kept it of
those documents by Contractor when the contract is ended.
TWENTY-SIXTH: Contract Supervision: The Administrator will assign an
official representative to oversee compliance with the contract as well as
Court Mandates; with the same broad powers and authority of the Court Monitor.
Automatic payment adjustments will be levied in the contract supervisor when
the provider fails to perform at a minimum standard, does not comply with the
Court Orders and Administrator Policies and Procedures, violates local laws,
rules and regulations, when minimum staff is not provided, when critical posts
are not manned, and upon breach of any contractual clause by the Contractor.
Minimum amount of adjustment will be seven hundred fifty dollars ($750.00) a
day for the first incident and double that amount per day of violation for
same kind of incident thereafter. A repetition of the same kind of incident
means an infraction of the same kind of service or lack of it, or acts similar
in nature that can be repeated and/or continuous. In the case of critical
posts not staffed, the automatic penalty will consist of double the amount of
the base salary of the post not covered per shift of noncompliance. All other
personnel vacancies double the amount of the base salary per day of vacancy
following thirty (30) days from the date it was vacated. In the case of
escapes, the adjustment will consist of seven hundred fifty dollars ($750.00)
per escape.
The Administrator will have unlimited access to all files, accounting
books and records, tax forms and other governmental requirements as filed,
juvenile records and all information relating to the managers, management and
operation, personnel, contractors and the juveniles and will provide all
information requested by Administrator.
TWENTY-SEVENTH: Audits: The Contractor authorizes the Administrator or
its representatives to perform audits and/or inspections of its records at any
reasonable time during the term of this contract and for a period of three (3)
years, (unless the Administrator determines a longer time frame is required)
following the date of final payment under this contract, to assure compliance
with its terms and/or to evaluate the Contractor's performance. Any amounts,
which have been paid by the Administrator which, are found to be improper in
accordance with other terms of this contract shall be immediately returned to
the Administrator or may be received in accordance with other remedies.
TWENTY-EIGHTH: Confidentiality of Records: The Contractor shall protect
the confidentiality of all records and other materials containing personally
identifying information that are maintained in accordance with this contract.
Except as provided by law, no information in possession of the Contractor
about any individual constituent shall be disclosed in a form including
identifying information without the prior written policies governing access
to, duplication and dissemination of, all such information. The Contractor
shall advise its employees, agents and sub-Contractors, if any, that they are
subject to these confidentiality requirements. The Contractor shall provide
its employees, agents and sub-Contractors, if any, with a copy or written
explanation of these confidentiality requirements before access to
confidential data is permitted.
TWENTY-NINTH: Conflict of Interest: During the term of this contract, the
Contractor shall not engage in any business or personal activities or
practices or maintain any relationship which conflicts in any way with the
Contractor fully performing his/her obligation under this contract.
Additionally, the Contractor acknowledges that, in governmental contracting,
even the appearance of a conflict of interest is ] armful to the interest of
the Administrator. Thus, the Contractor agrees to refrain from any practices,
activities or relationships which could reasonably be considered to be in
conflict with the Contractor's fully performing his/her obligations to the
Administrator under the terms of this contract, without the prior written
approval of the Administrator. In the event that the Contractor is uncertain
whether the appearance of a conflict of interest may reasonably exist, the
Contractor shall submit to the Administrator a full disclosure setting forth
the relevant details for the Administrator's consideration and direction.
Failure to promptly submit a disclosure to the Administrator or to follow the
Administrator's directions in regard to the apparent conflict shall be grounds
for termination of the contract.
THIRTIETH: Assignment/Delegation/Subcontracting Except as herein
specifically provided otherwise, the duties and obligations of the Contractor
arising hereunder cannot be assigned, delegated nor subcontracted except with
the express prior written consent of the Administrator. The subcontracts
permitted by the Administrator shall be subject to the requirements of this
contract, and the Contractor is responsible for all subcontracting
arrangements and the delivery of services as set forth in this contract. The
Contractor shall be responsible for the performance of any sub-Contractor.
Failure of the sub-Contractor to provide services in accordance with the
requirements of this contract shall be the responsibility of the Contractor.
The Contractor warrants and agrees that any subcontract resulting from its
performance under the terms and conditions of this contract, shall include a
provision that the said sub-Contractor shall abide by the terms and conditions
hereof, as well as all other applicable federal and Commonwealth of Puerto
Rico laws, and rules and regulations pertinent hereto that have been or may
hereafter be established. Also, the Contractor warrants and agrees that all
subcontracts shall include a provision that the sub-Contractor shall indemnify
and hold harmless the Administrator. The sub-Contractors must be certified to
work on any equipment for which their services are obtained.
THIRTY-FIRST: Litigation: The Contractor shall promptly notify the
Administrator in the event that the Contractor learns of any actual litigation
in which it is party defendant in a case, which involves services, provided
under this contract. The Contractor, within five (5) calendar days after being
served with a summons, complaint, or other pleading which has been filed in
any Federal or Commonwealth of Puerto Rico court or administrative agency,
shall deliver copies of such document(s) to the Administrator. The term
"litigation" includes an assignment for the benefit of creditors, and filings
in bankruptcy, reorganization and/or foreclosure.
THIRTY-SECOND: Disputes: Except as herein specifically provided
otherwise, disputes concerning the performance of this contract which cannot
be resolved by the designated contract representatives shall be referred in
writing to a senior departmental management staff designated by the
Administrator and a senior manager designated by the Contractor. Failing
resolution at that level, disputes shall be presented in writing to the
Administrator and the Contractors chief executive officer for resolution. This
Process is not intended to supersede any other process for the resolutions of
controversies provided by law.
THIRTY-THIRD: Remedies: The Administrator or designee may exercise the
following remedial actions, in additional to all other remedial actions
authorized by law, should he find the Contractor substantially failed to
satisfy the scope of the work found in this contract. Substantial failure to
satisfy the scope of work shall be defined to mean incorrect or improper
activities or inaction by the Contractor. These remedial actions are as
follows:
(a) Withhold payment to the Contractor of portion of work in question
until the necessary services or corrections in performances are satisfactorily
completed;
(b) Request the removal from work on the contract of employee(s) and/or
agent(s) of the Contractor whom the Administrator or designee justifies as
being incompetent, careless, insubordinate, unsuitable, or otherwise
unacceptable, or whose continued employment on the contract s/he deems to be
contrary to the public interest or not in the best interest of the
Administrator;
(c) Deny payment or recover reimbursement for those services or
deliverables which have not been performed and which due to circumstances
caused by the Contractor cannot be performed or if performed would be of no
value to the Administrator. Denial of the amount of payment shall be
reasonably related to the amount of work or deliverables lost to the
Administrator;
(d) Incorrect payments to the Contractor due to omission, error, fraud,
and/or misappropriation may be recovered from the Contractor by deduction from
subsequent payments under this contract or other contracts between the
Administrator and the Contractor, or by the AIJ as a debt due to the AIJ or
otherwise as provided by law.
THIRTY-FOURTH: Payments of Fines: Contractor will be responsible for any
payments of fines, imposed by any administrative agency or court of law with
jurisdiction, as a result of a violation to the stipulations in Civil Case No.
94-2080 (U.S. v. Commonwealth) or any other federal or state rule in the
management of the program the Contractor establishes as a result of this
agreement.
THIRTY-FIFTH: Integration of Understandings: This contract is intended as
the complete integration of all understandings between the parties. No prior
or contemporaneous addition, deletion, or amendment hereto shall have any
force or effect whatsoever, unless embodied herein in writing. No subsequent
novation, renewal, addition, deletion, or other amendment hereto shall have
any force or effect unless embodied in a written contract executed and
approved pursuant to the Commonwealth of Puerto Rico Fiscal Rules.
THIRTY-SIXTH: Governing Law: This Agreement shall be governed by and
construed in accordance with the laws of Puerto Rico. In the event that a
dispute arises with respect to any of the provisions herein contained or any
other matter affecting the relationship between Administrator and Contractor,
it shall be resolved by the Courts of Puerto Rico. The Administrator will
select the jurisdiction. All reasonable attorneys' fees and associated
expenses shall be awarded to the prevailing party.
THIRTY-SEVENTH: Severability: In the event any provision hereof shall be
modified or held ineffective by any court in any respect, such adjudication
shall not invalidate or render ineffective the balance of the provisions of
this Agreement.
THIRTY-EIGHTH: Nondiscrimination: Both parties shall prohibit
discrimination based on race, creed, color, age, sex, national origin, social
status or disability.
THIRTY-NINTH: Income Tax: Contractor certifies and guarantees, at the
signature of this contract, that it does not have any debt with the Treasury
Department of the Commonwealth of Puerto Rico.
Contractor certifies and guarantees that it was recently established.
Therefore, it has not filed income tax reports for the past five- (5) years. A
sworn declaration indicating the reason for not been obligated to render
income tax returns for the past five years is attached as Exhibit. Contractor
knows this is an essential element of the contract and to state untrue
information is enough for the Contractor to cancel the contract.
FORTIETH: Double Compensation: Contractor certifies that it does not
receive any kind of salary, compensation or payment for services rendered
under a regular job relationship or that it occupies a position in the
Commonwealth of Puerto Rico, in any of its departments, municipalities or
agencies. Contractor understands that the action of accepting a regular job by
any of its agents in any departments, agencies or municipalities under the
jurisdiction of the Commonwealth of Puerto Rico will constitute a violation of
this contract and will cause the immediate termination of the contract
relationship. Contractor certifies that it does not have another contract
relationship for its services with any other department, agency, municipality,
or instrumentality of the Commonwealth of Puerto Rico. If it has another
contract, Contractor certifies that it does not constitute a conflict of
interest with this contract.
FORTY-FIRST: Drug Detection: Contractor's representatives will
participate in the program for drug and substance abuse detection implemented
by the Contractor.
FORTY-SECOND: Labor Law: Contractor is an employer and has certification
from the Department of Labor and Human Resources indicating that it has no
unemployment insurance or State Insurance Fund debts. The Contractor knows and
accepts that this is an essential condition to the present contract and that
offering untrue information is sufficient cause for the Contractor to cancel
the contract. In such event, the Contractor will return all the payments
received from the first party under this contract.
The parties stipulate that this contract does not constitute an
employment or job relationship, between Contractor's employees and the
Contractor. Contractor will be responsible for all deduction prescribed by law
of their employees. Contractor will notify the Treasury Department of the
Commonwealth of Puerto Rico the amount paid to its employees and will be
responsible for rendering appropriate Federal Social Security Tax Forms.
Contractor agrees that its employees are not entitled to regular vacation
time, sick leave, compensatory time, Christmas Bonus, or any other kind of
privileges or benefits that apply to regular employees of the Contractor.
FORTY-THIRD: Services: Both parties agree that no service will be
rendered under this contract until both parties have signed it and no services
will be rendered after the termination of the same contract, unless an
amendment has been signed by both parties extending the life of the present
contract. Payments will not be made if this clause is violated. Any employee
or of official of the Contractor that requests services or accepts such
services will be doing so without the authority of the Contractor and in
violation of the present clause.
Any replacement equipment, furnishing and supplies required during the
term of the contract will be the sole responsibility of the Contractor.
FORTY-FOURTH: Salvation Clause: Unless there is a showing of
impossibility by the Contractor, an Act of God, or other situations that
reasonably prohibit compliance with the terms of this contract, Contractor
agrees to build and operate the facility within the terms and standards
contained in this contract and the accepted Revised Contractor's Proposal. The
government's liability under this contract will be limited to the amounts
specified in the price sections of the Request for Proposal and the accepted
Revised Contractor's Proposal. Neither the Administrator nor the Contractor
will be held responsible for non-performance or delays caused by Acts of God,
vandalism, war or other conditions beyond their control.
FORTY-FIFTH: Hold Harmless: Contractor shall indemnify and save the
Administrator, the Government of Puerto Rico and its offices, agents, agencies
and employees harmless from and against: (a) any and all claims arising from
the operation, maintenance, and management services including without
limitation, any and all claims arising from (i) any breach or default on the
part of the Contractor in the performance or lack of performance with the
terms hereof, (ii) any act of negligence of the Contractor, or any of its
agents, subcontractors, servants, employees, or licensees, and (iii) any
accident, injury, or damage whatsoever caused to any person including
violation of civil rights, and (b) costs, reasonable attorney's fees, expenses
and liabilities incurred in or about any such claim, action, or proceeding
brought thereon.
In case any action or proceeding is brought against Administrator or the
Government by reason of any such claim, Contractor, upon notice from the
Administrator or the Government, shall defend against such action with counsel
satisfactory to Administrator. The aforementioned indemnification shall not be
affected by a claim that negligence of the Government, Administrator or its
respective officers, agents, contractors, employees, or licensees contributed
in part to the loss or damage indemnified against. Said indemnification shall
not apply to injury, agents, or independent contractors (other than
Contractor) who are directly responsible to Administrator.
FORTY-SIXTH: Possession: The Contractor agrees that immediately upon the
signature of this contract it will enter in possession of the real estate and
within one hundred twenty (120) days from said date it will hire and train
personnel to operate the facility. No time extension will be granted.
FORTY-SEVENTH : Negligence: The Administrator will assume not
responsibility for any negligence or criminal conduct perform or incurred by
the Contractor or an employees. In the case of such conduct the Contractor
will be committed to take corrective action based on its on investigation or
the one conducted by the Administrator. The corrective action taken by the
Contractor will always be oriented toward to the welfare of the minors.
FORTY-EIGHTH: Isolation: The Administrator's Panel will be entitled to
authorize the Isolation of inmates following policies and procedures manual
previously submitted by the Contractor and approved by Administrator and
FORTY-NINTH: Hiring: The Contractor is committed to conducting background
investigation prior to hiring employees. The result of such investigation will
be submitted to Administrator for final approval prior to hiring.
Administrator may decline to approve hiring without giving any reason about
its decision, unless an issue of discrimination is raised by candidate.
FIFTIETH: Advertising: The Contractor will not place any outside sign of
CSC in the Metropolitan Center. Both parties agree that Contractor will not
communicate with any media and will not give any information to media without
a previously written authorization of Administrator.
FIFTY-FIRST: Alterations: No alteration, changes or modifications to the
real state will be made by Contractor without previously written authorization
from Administrator.
THE PARTIES after reviewing, reading and understanding the contents of
this document state that it reflects the agreement between them. Therefore,
they consummate this contract and in virtue of it shall be obligated to its
compliance.
This 6th day of February 1998, at San Juan, P. R.
MIGUEL A. RIVERA JAMES F. SLATTERY
Administrator President and CEO
Juvenile Institutions Administration CSC MANAGEMENT DE PUERTO RICO
(TWO OF THREE DOCUMENTS)
COMMONWEALTH OF PUERTO RICO
JUVENILE INSTITUTIONS ADMINISTRATION
SAN JUAN, PUERTO RICO
REHABILITATION OF (3) LIVING MODULES
CONTRACT
APPEAR
PARTY OF THE FIRST PART: The JUVENILE INSTITUTIONS ADMINISTRATION,
represented in this agreement, under the power vested by the Act of August 5,
1988, No. 154, known as the "Organic Act of Juvenile Institutions
Administration', by its Administrator, Miguel Angel Rivera, of legal age,
married and resident of Trujillo Alto, Puerto Rico, hereinafter referred to as
the ADMINISTRATOR.
PARTY OF THE SECOND PART: CSC Management de Puerto Rico, tax
identification number 66-0548275, represented in this act by James F.
Slattery, President and CEO, married and resident of Florida, hereinafter
referred to as CONTRACTOR.
BOTH PARTIES assure that they have the necessary legal capacity to
execute this contract; wherefore they freely and voluntarily:
STATE, THAT
ARTICLE 1 Statement of Work: CONTRACTOR shall furnish all labor,
equipment, materials and services or as otherwise indicated, for
rehabilitation of the Orange Module, Yellow Module and Green Module described
as follows; all in strict accordance with the contract documents, the Request
for Proposal as amended, the General, Special and Supplementary Conditions of
the Government as amended, as well all local and Federal laws, rules and
regulations. Contract documents are made a part hereof and listed in Article 7
of this contact.
ARTICLE 2: Contract Price: For the performance of the Work described in
Article 1 of this contract, the ADMINISTRATOR shall pay to the CONTRACTOR the
lump sum amount of six million two hundred thirty eight seventy six dollars
($6,238,076.00). The payment will be disbursed from the account number
98-397-072-03-081 in the term of this fiscal year. For the purposes of this
contract a fiscal year will be from July lst, 1997 to June 30TH, 1998.
ARTICLE 3: Change Orders: No change orders and time extensions will be
granted for this Contract, under any circumstances, since the Contractor will
have full rehabilitation responsibilities.
ARTICLE 4: Time for Completion: Rehabilitation of Module Green shall be
completed within one hundred twenty (120) calendar days, from the date of
Notice to Proceed to Modules Blue and Green, knows as PHASE 1. Following the
Rehabilitation of Module Green, the operator shall proceed to transfer inmates
from Yellow to Green and commence all construction work to be completed within
ninety (90) days from the date of Notice to Proceed on Module Yellow, knows as
PHASE 2. Following the Rehabilitation of Module Yellow, the operator shall
proceed to transfer inmates from Green to Yellow and from Orange to Green, and
commence all works to be completed within ninety (90) days from the date of
Notice to Proceed on Module Orange, knows as PHASE 3.
ARTICLE 5: Equipment i Contractor is strongly encouraged to order all
equipment for the three (3) Phases during rehabilitation stage to avoid
penalties for not meeting the tight time schedule.
ARTICLE 6: Module Capacity: Capacity of the Institution will be
ninety-six (96) during Phase l; ninety-five (95) during Phase 2; ninety-four
(94) during Phase 3.
ARTICLE 7: Liquidated Damages: As actual damages for delay in completion
are almost impossible to determine, the Contractor and the Sureties shall be
liable for and shall pay to the Administrator the amount of one thousand
dollars ($1,000.00), as fixed agreed liquidated damages for each calendar day
of delay in the completion of this work not beyond the control of the
Contractor, until the work is completed to the satisfaction of the
Administrator.
ARTICLE 8: Hold Harmless Clause: The Contractor shall save the AIJ and
the architect harmless from all suits, actions or claims of any nature brought
on account of any injuries or damages sustained by any person or persons,
including death or property, through these acts or omissions of the
Contractor, or of this subcontractors, his agents or servants, in safeguarding
the work or through the use of unacceptable or defective workmanship or
materials in the project.
ARTICLE 9: Contract Documents; The Contract Documents consist of the
following component parts:
A. This Agreement, including:
1. Performance bond
2. Payment Bond
3. Evidence of the following insurance coverage required:
a. Workmen's Compensation Insurance-Statutory
b. Employer's Liability
c. Comprehensive General and Automobile Liability including
Administrator's Protective Liability Insurance (Hold Harmless
Clause)
d. Builder's Risk
e. Agreement between Contractor and Construction Company
f. Notice to Proceed
B. Request for Proposal
C. Addenda No. 1-2
D. General Conditions
E. Special Condition F. Technical Specification
G. Drawings
H. Contractor's Proposal dated December 15, 1997 (with Mr. John Stetler
and Ms. Patricia Palterfield's notes)
All documents enumerated in this Article 9 form the Contract, and they
are as fully a part of the Contract as if hereto attached or herein repeated.
In the event that any provision in any of the parts of this contract conflicts
with any provisions of any other component part, the provision in the
component part first enumerated in this Article 9 shall govern, except as
otherwise specified.
ARTICLE 10: Schedule for Documents: The Contractor will be present a
Preliminary Drawings in forty (40) days after contract award; comments to
Preliminary Drawings in ten(10) days after Administrator receive Preliminary
Drawings; corrections to Drawings, if any, ten(10) days after Administrator
receive comments to Preliminary Drawings; and Final Drawings and Applicable
permits, thirty(30) days following Administrator approval of Preliminary
Drawings.
ARTICLE 11: Governing Law This Agreement shall be governed by and
construed in accordance with the laws of Puerto Rico. In the event that a
dispute arises with respect to any of the provisions herein contained or any
other matter affecting the relationship between Contractor and Administrator,
it shall be resolved by the Courts of Puerto Rico. The Administrator will
select the jurisdiction. All reasonable attorneys' fees and associated
expenses shall be awarded to the prevailing party.
ARTICLE 12: Severability, In the event any provision hereof shall be
modified or held ineffective by any court in any respect, such adjudication
shall not invalidate or render ineffective the balance of the provisions of
this Agreement.
ARTICLE 13: Nondiscrimination: Both parties shall prohibit discrimination
based on race, creed, color, age, sex, national origin, social status or
disability.
ARTICLE 14: Income Tax: Contractor certifies and guarantees, at the
signature of this contract, that it does not have any debt with the Treasury
Department of the Commonwealth of Puerto Rico. Contractor certifies and
guarantees that it was recently established. Therefore, it has not filed
income tax reports for the past five- (5) years. A sworn declaration
indicating the reason for not been obligated to render income tax returns for
the past five years is attached as Exhibit. Contractor knows this is an
essential element of the contract and to state untrue information is enough
for the administrator to cancel the contract.
ARTICLE 15: Double Compensation; Contractor certifies that it does not
receive any kind of salary, compensation or payment for services rendered
under a regular job relationship or that it occupies a position in the
Commonwealth of Puerto Rico, in any of its departments municipalities or
agencies. Contractor understands that the action of accepting a regular job by
any of its agents in any departments, agencies or municipalities under the
jurisdiction of the Commonwealth of Puerto Rico will constitute a violation of
this contract and will cause the immediate termination of the contract
relationship. Contractor certifies that it does not have another contract
relationship for its services with any other department, agency, municipality,
or instrumentality of the Commonwealth of Puerto Rico. If it has another
contract, Contractor certifies that it does not constitute a conflict of
interest with this contract.
ARTICLE 16; Drug Detection; Contractor's representatives will participate
in the program for drug and substance abuse detection implemented by the
Administrator.
ARTICLE 17; Labor Law; Contractor is an employer and has certification
from the Department of Labor and Human Resources indicating that it has no
unemployment insurance or State Insurance Fund debts. The Contractor knows and
accepts that this is an essential condition to the present contract and that
offering untrue information is sufficient cause for the administrator to
cancel the contract. In such event, the Contractor will return all the
payments received from the first party under this contract.
The parties stipulate that this contract does not constitute an
employment or job relationship, between Contractor's employees and the
Administrator. Contractor will be responsible for all deduction prescribed by
law of their employees. Contractor will notify the Treasury Department of the
Commonwealth of Puerto Rico the amount paid to its employees and will be
responsible for rendering appropriate Federal Social Security Tax Forms.
Contractor agrees that its employees are not entitled to regular vacation
time, sick leave, compensatory time, Christmas Bonus, or any other kind of
privileges or benefits that apply to regular employees of the Administrator.
ARTICLE 18: Nondelegation; The present contract can not be transferred to
any person, natural or legal, without a previous agreement and the consent of
the Administrator.
ARTICLE 19: Conflict of Interest; The parties certify that no employee,
officer or direct member of the immediate family of the Administrator's
personnel has direct or indirect economic interest in the present contract.
ARTICLE 20: Both parties agree that no service will be rendered under
this contract until both parties have signed it and no services will be
rendered after the termination of the same contract, unless an amendment has
been signed by both parties extending the life of the present contract.
Payments will not be made if this clause is violated. Any employee or official
of the Administrator that requests services or accepts such services will be
doing so without the authority of the Administrator and in violation of the
present clause.
Any replacement equipment, furnishing and supplies required during the
term of the contract would be the sole responsibility of the Contractor.
ARTICLE 21: Salvation Clause: Neither the Government nor the Contractor
will be held responsible for non-performance or delays caused by Acts of God,
natural disasters, vandalism, war or other conditions beyond their control.
IN WITNESS WHEREOF, the parties have caused this instrument to be
executed in four original counterparts this 6th day of February in the year
nineteen hundred ninety eight.
(THREE OF THREE DOCUMENTS)
COMMONWEALTH OF PUERTO RICO
JUVENILE INSTITUTIONS ADMINISTRATION
SAN JUAN, PUERTO RICO
METROPOLITAN JUVENILE TREATMENT CENTER
DESIGN/BUILD CONTRACT
APPEAR
PARTY OF THE FIRST PART: The JUVENILE INSTITUTIONS ADMINISTRATION,
represented in this agreement, under the power vested by the Act of August 5,
1988, No. 154, known as the "Organic Act of Juvenile Institutions
Administration', by its Administrator, Miguel Angel Rivera, of legal age,
married and resident of Trujillo Alto, Puerto Rico, hereinafter referred to as
the ADMINISTRATOR
PARTY OF THE SECOND PART: CSC Management de Puerto Rico, tax
identification number 66-0548275, represented in this act by James F.
Slattery, President and CEO, married and resident of Florida, hereinafter
referred to as CONTRACTOR
BOTH PARTIES assure that they have the necessary legal capacity to
execute this contract; wherefore they freely and voluntarily:
STATE, THAT
ARTICLE 1 Statement of Work: CONTRACTOR shall furnish all labor,
equipment, materials and services or as otherwise indicated, for the design
and construction of the blue Module described as follows; conversion from a
living module to a Vocational/Programs area all in strict accordance with the
contract documents, the Request for Proposal as amended, the General, Special
and Supplementary Conditions of the Government as amended, as well all local
and Federal laws, rules and regulations. Contract documents are made a part
hereof and listed in Article 7 of this contact.
ARTICLE 2: Contract Price: For the performance of the Work described in
Article 1 of this contract, the ADMINISTRATOR shall pay to the CONTRACTOR the
lump sum amount of two million two thousand eighteen five hundred eight
dollars ($ 2,218,508.00). The payment will be disbursed from the account
number 98-397-072-03-081 in the term of this fiscal year. For the purposes of
this contract a fiscal year will be from July lst, 1997 to June 30th, 1998.
ARTICLE 3: Change Orders: This Contract is not subject to Change Orders
since full Design and Construction work is the sole responsibility of the
Contractor.
ARTICLE 4: Time for Completion: The Contractor shall commence work under
this Contract on a date to be specified in a written order by the
Administrator and shall obtain final completion of all work thereunder within
150 consecutive days computed from the date stated in the Notice to Proceed
ordered to the Contractor (January 14,1998)
ARTICLE 5: Liquidated Damages: As actual damages for delay in completion
are almost impossible to determine, the Contractor and the Sureties shall be
liable for and shall pay to the Administrator the amount of one thousand
dollars ($1,000.00), as fixed agreed liquidated damages for each calendar day
of delay in the completion of this work not beyond the control of the
Contractor, until the work is completed to the satisfaction of the
Administrator.
ARTICLE 6: Hold Harmless Clause: The Contractor shall save the AIJ and
the architect harmless from all suits, actions or claims of any nature brought
on account of any injuries or damages sustained by any person or persons,
including death or property, through these acts or omissions of the
Contractor, or of this subcontractors, his agents or servants, in safeguarding
the work or through the use of unacceptable or defective workmanship or
materials in the project.
ARTICLE 7: Contract Documents; The Contract Documents consist of the
following component parts:
A. This Agreement, including:
1. Performance bond
2. Payment Bond
3. Evidence of the following insurance coverage required:
a. Workmen's Compensation Insurance-Statutory
b. Employer's Liability
c. Comprehensive General and Automobile Liability including
Administrator's
Protective Liability Insurance (Hold Harmless Clause)
d. Builder's Risk
e. Installation Floater
f. Architect's error's and omission policy
g. Agreement between Contractor and Construction Company
h. Notice to Proceed
B. Request for Proposal
C. Addendum No. 1-2
D. General Conditions
E. Special Condition
F. Technical Specification ( only general conditions of government
contract)
G. Drawings
H. Contractor's Proposal dated December 15, 1997 (with Mr. John Stetler
and
Ms. Patricia Palterfield's notes)
All documents enumerated in this Article 7 form the Contract, and they are as
fully a part of the Contract as if hereto attached or herein repeated. In the
event that any provision in any of the parts of this contract conflicts with
any provisions of any other component part, the provision in the component
part first enumerated in this Article 7 shall govern, except as otherwise
specified.
ARTICLE 8: Governing Law This Agreement shall be governed by and
construed in accordance with the laws of Puerto Rico. In the event that a
dispute arises with respect to any of the provisions herein contained or any
other matter affecting the relationship between Contractor and Administrator,
it shall be resolved by the Courts of Puerto Rico. The Administrator will
select the jurisdiction. All reasonable attorneys' fees and associated
expenses shall be awarded to the prevailing party.
ARTICLE 9: Severability, In the event any provision hereof shall be
modified or held ineffective by any court in any respect, such adjudication
shall not invalidate or render ineffective the balance of the provisions of
this Agreement.
ARTICLE 10: Nondiscrimination: Both parties shall prohibit discrimination
based on race, creed, color, age, sex, national origin, social status or
disability.
ARTICLE 11: Income Tax: Contractor certifies and guarantees, at the
signature of this contract, that it does not have any debt with the Treasury
Department of the Commonwealth of Puerto Rico. Contractor certifies and
guarantees that it was recently established. Therefore, it has not filed
income tax reports for the past five- (5) years. A sworn declaration
indicating the reason for not been obligated to render income tax returns for
the past five years is attached as Exhibit. Contractor knows this is an
essential element of the contract and to state untrue information is enough
for the administrator to cancel the contract.
ARTICLE 12: Double Compensation; Contractor certifies that it does not
receive any kind of salary, compensation or payment for services rendered
under a regular job relationship or that it occupies a position in the
Commonwealth of Puerto Rico, in any of its departments, municipalities or
agencies. Contractor understands that the action of accepting a regular job by
any of its agents in any departments, agencies or municipalities under the
jurisdiction of the Commonwealth of Puerto Rico will constitute a violation of
this contract and will cause the immediate termination of the contract
relationship. Contractor certifies that it does not have another contract
relationship for its services with any other department, agency, municipality,
or instrumentality of the Commonwealth of Puerto Rico. If it has another
contract, Contractor certifies that it does not constitute a conflict of
interest with this contract.
ARTICLE 13; Drug Detection; Contractor's representatives will participate
in the program for drug and substance abuse detection implemented by the
Administrator.
ARTICLE 14; Labor Law; Contractor is an employer and has certification
from the Department of Labor and Human Resources indicating that it has no
unemployment insurance or State Insurance Fund debts. The Contractor knows and
accepts that this is an essential condition to the present contract and that
offering untrue information is sufficient cause for the administrator to
cancel the contract. In such event, the Contractor will return all the
payments received from the first party under this contract.
The parties stipulate that this contract does not constitute an
employment or job relationship, between Contractor's employees and the
Administrator. Contractor will be responsible for all deduction prescribed by
law of their employees. Contractor will notify the Treasury Department of the
Commonwealth of Puerto Rico the amount paid to its employees and will be
responsible for rendering appropriate Federal Social Security Tax Forms.
Contractor agrees that its employees are not entitled to regular vacation
time, sick leave, compensatory time, Christmas Bonus, or any other kind of
privileges or benefits that apply to regular employees of the Administrator.
ARTICLE 15: Nondelegation; The present contract can not be transferred to
any person, natural or legal, without a previous agreement and the consent of
the Administrator.
ARTICLE 16: Conflict of Interest; The parties certify that no employee,
officer or direct member of the immediate family of the Administrator's
personnel has direct or indirect economic interest in the present contract.
ARTICLE 17: Both parties agree that no service will be rendered under
this contract until both parties have signed it and no services will be
rendered after the termination of the same contract, unless an amendment has
been signed by both parties extending the life of the present contract.
Payments will not be made if this clause is violated. Any employee or official
of the Administrator that requests services or accepts such services will be
doing so without the authority of the Administrator and in violation of the
present clause. Any replacement equipment, furnishing and supplies required
during the term of the contract would be the sole responsibility of the
Contractor.
ARTICLE 18: Salvation Clause: Neither the Government nor the Contractor
will be held responsible for non-performance or delays caused by Acts of God,
natural disasters, vandalism, war or other conditions beyond their control.
IN WITNESS WHEREOF, the parties have caused this instrument to be executed in
four original counterparts this 6th day of February in the year nineteen
hundred ninety eight.
MIGUEL A. RIVERA JAMES F. SLATTERY
Administrator President and CEO
Juvenile Institutions Administration CSC MANAGEMENT DE PUERTO RICO
[CIK] 000914670
[NAME] CORRECTIONAL SERVICES CORPORATION
STATE AGENCY:
State of New York
Department of Correctional Services
Stage Office Campus, building 2
Albany, New York 12226
NYS COMPTROLLER'S NUMBER: ___ ORIGINATING AGENCY CODE: 10160
CONTRACTOR:
Correctional Services Corporation
1819 Main Street, Suite 1000
Sarasota, Florida 34236
941-953-9199
TYPE OF SERVICES: Community Reintegration Services
INITIAL CONTRACT PERIOD: From: 03/01/98 To: 02/28/99
FUNDING AMOUNT FOR INITIAL PERIOD: $3,448,757.25
STATUS: Contractor is for profit corporation.
RENEWALS: Two (2) one-year terms.
<PAGE>
STATE OF NEW YORK
DEPARTMENT OF CORRECTIONAL SERVICES
AGREEMENT
THIS AGREEMENT is hereby made by and between the State of New York
Department of Correctional Services (hereinafter DOCS) and the CONTRACTOR
identified on the face page thereof.
WITNESSETH:
WHEREAS, THE DOCS has the authority to provide funding for Community
Reintegration Services and desires to contract with skilled parties
possessing the necessary resources to provide such services; and
WHEREAS, the DOCS has solicited bids in order to procure the services of
a well-qualified service provider in order to provide such services and has
selected CONTRACTOR in order to provide such services for DOCS; and
WHEREAS, the CONTRACTOR is ready, willing and able to provide such
services and possesses or can make available all necessary qualified
personnel, licenses, facilities and expertise and perform or have performed
the services required pursuant to the terms of this AGREEMENT;
NOW THEREFORE, in consideration of the promises, responsibilities and
covenants herein, the DOCS and the CONTRACTOR agree as follows:
1. SERVICES: CONTRACTOR will carry out all responsibilities and
services identified in DOCS' "Request for Proposal," attached as Exhibit "B,"
in accordance with CONTRACTOR'S "Proposal," attached as Exhibit "C," for the
following "RFP" work components:
A1 - 70 - Parkside
A3 - 65 - Lincoln
2. COMPENSATION AND PAYMENT: DOCS shall compensate CONTRACTOR not more
than the amount of $3,448,757.25 for the provision of services set forth in
Exhibits B and C, which shall be paid on a bed-per-day basis as follow:
Component A-1 (Park. - 70) 69.99 per bed per day
Component A-3 (Lincoln - 65) 69.99 per bed per day
BILLED MONTHLY, IN ARREARS, BASED ON
USE OR ACTUAL SERVICE RECEIVED,
ON PRESENTATION OF STATE VOUCHER.
3. INCORPORATED PAGES: This AGREEMENT incorporates the face pages
attached and all of the marked appendices identified on the face page hereof.
4. EFFECTIVE DATE: This AGREEMENT shall become effective upon the
approval of the Attorney General and Comptroller of the State of New York.
5. SUBCONTRACTING: This AGREEMENT shall be binding upon the parties,
their successors and heirs. Certain responsibilities may be subcontracted
with the written approval of DOCS.
6. STATE OF LAW: This AGREEMENT shall be construed and interpreted in
accordance with the Laws of the State of New York.
7. ACCOUNTING: DOCS shall be entitled to and shall receive from
CONTRACTOR an accounting of its expenditures at the conclusion of the period
of this AGREEMENT.
8. CIVIL-EQUAL-HUMAN RIGHTS: The CONTRACTOR agrees to comply with all
applicable federal, State and local Civil Rights and Human Rights laws with
reference to equal employment opportunities and the provision of services.
9. LATE PAYMENTS: Interest on late payments is governed by State
Finance Law Sect. 179-m.
10. TERMINATION: This AGREEMENT may be terminated at any time upon
mutual written consent of the DOCS and the CONTRACTOR. Also, the DOCS may
terminate the AGREEMENT immediately, upon written notice of termination to
the CONTRACTOR, if the CONTRACTOR, fails to comply with the terms and
conditions of this AGREEMENT and/or with any laws, rules, regulations,
policies or procedures affecting this AGREEMENT.
<PAGE>
IN WITNESS THEREOF, the parties hereto have executed or approved the
AGREEMENT on the dates below their signatures.
CONTRACTOR STATE AGENCY
CORRECTIONAL SERVICES CORPORATION DEPARTMENT OF CORRECTIONAL SERVICES
[CIK] 0000914670
[NAME] CORRECTIONAL SERVICES CORPORATION
RESOLUTION
A RESOLUTION IN SUPPORT OF CONSTRUCTION OF A PRISON FACILITY IN EAGLE LAKE
TEXAS, AND PLEDGING THE COOPERATION OF THE CITY COUNCIL OF THE CITY OF EAGLE
LAKE, TEXAS TO CORRECTIONAL SERVICES CORPORATION IN SAID CONSTRUCTION.
WHEREAS, the City of Eagle Lake, Texas has aggressively pursued the
construction of a prison in the City of Eagle Lake; and
WHEREAS, the construction of a prison in Eagle Lake, Colorado County, Texas
would provide an economic boost to the area by providing jobs to area
taxpaying citizens and by providing additional business for local business
establishments; and
WHEREAS, the prison facility, proposed for the City of Eagle Lake, will meet
all requirements and specifications as set forth by the State of Texas:
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Eagle
Lake, hereby requests Correctional Services Corporation to locate a new 1,000
bed prison facility in Eagle Lake, Colorado County, Texas; and
FURTHER, that the City of Eagle Lake, will deal exclusively with Correctional
Services Corporation, so long as Correctional Services Corporation maintains a
commitment to build a 1,000 bed prison in the City of Eagle Lake, and
FURTHER, that the City Council of the City of Eagle Lake will enter into
inter-local agreements with other jurisdictions in order to obtain inmates for
the prison facility should the Texas Department of Criminal Justice not be
able to fill all 1,000 beds, and
FURTHER, that the City Council of the city of Eagle Lake will fulfill all of
the conditions specified by Mr. Michael E. Garretson, in his letter of
July 14, 1997, by: (1) locating an acceptable site for a 1,000 bed prison, and
(2) insure proper zoning, should the City of Eagle Lake decide to adopt a
zoning ordinance prior to the construction of a prison, such ordinance will
provide for proper zoning of the prison site as of the effective date of any
such ordinance, and (3) will bring adequate water and sewer services to the
site, and (4) has already provided the means for the issuance of tax exempt
bonds to finance the construction of a prison, through the creation of the
Eagle Lake Correctional Development Corporation, and
FURTHER, that the City Council of the City of Eagle Lake commits by the
passage of this resolution that it will work diligently in cooperation with
Correctional Services Corporation to facilitate the construction and operation
of said prison in Eagle Lake, Colorado County, Texas.
PASSED AND APPROVED by the City Council of the City of Eagle Lake, this 22nd
day of July, 1997.
ATTEST:
By: \s\ David Mann \s\ Lucille Perry
David Mann, Mayor Lucille Perry, City Secretary
[CIK] 0000914670
[NAME] CORRECTIONAL SERVICES CORPORATION
CORRECTIONAL SERVICES CORPORATION
Amended List of Significant Subsidiaries
Name
CSC Management de Puerto Rico, Inc.
Place of Incorporation
Commonwealth of Puerto Rico
d/b/a
CSC Management de Puerto Rico, Inc.
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<NAME> Correctional Services Corporation
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<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-1-1997
<PERIOD-END> Dec-31-1997
<CASH> 5,216,106
<SECURITIES> 0
<RECEIVABLES> 10,672,018
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<PP&E> 25,588,416
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0
0
<COMMON> 76,938
<OTHER-SE> 43,111,236
<TOTAL-LIABILITY-AND-EQUITY> 55,866,287
<SALES> 58,593,217
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