UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, 20549
FORM 10-K/A
Amendment No. 1
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Fiscal Year Ended December 31, 1999
[ ] Transition Report to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from__________to__________.
Commission File No.: 0-23038
CORRECTIONAL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 11-3182580
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1819 MAIN STREET, SARASOTA, FLORIDA 34236
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (941) 953-9199.
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, par value $.01 per share Nasdaq National Market
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of 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. [ ]
The aggregate market value of the voting stock (Common Stock) held by non-
affiliates of the Registrant as of the close of business on March 30, 2000
was approximately $55,443,687 based on the closing sale price of the common
stock on the Nasdaq National Market consolidated tape on that date.
<PAGE> 1
Number of shares outstanding of each of the Registrant's classes of Common
Stock, as of the close of business on March 29, 2000:
Common Stock, $.01 par value 11,373,064 Shares
INFORMATION NOTE:
This Form 10-K/A is being filed to correct 1999 stock price information
in Item 5 and to include Items required in Part III of a Form 10-K.
Part II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters.
The common stock of CSC is traded on the Nasdaq National Market. The
following table sets forth, for the calendar quarters indicated, the high
and low sale prices per share on the Nasdaq National Market, based on
published financial sources.
<TABLE>
<CAPTION>
CSC COMMON
STOCK
SALE PRICE
HIGH LOW
<S> <C> <C>
1998
First Quarter 15 3/4 10 3/16
Second Quarter 16 7/8 12 1/2
Third Quarter 15 1/2 8 7/8
Fourth Quarter 14 1/4 6 3/4
1999
First Quarter 12 1 1/8 7 5/8
Second Quarter 9 11/16 7 3/8
Third Quarter 9 1/4 4 13/16
Fourth Quarter 6 6/16 3 17/32
</TABLE>
On the record date there were 199 holders of record and approximately
4,275 beneficial shareholders registered in nominee and street name.
Part III
Item 10. Directors and Executive Officers of the Registrant.
Information Regarding Directors and Officers
The following table sets forth the Directors and Executive Officers of
the Company, together with their respective ages and positions.
<PAGE> 2
<TABLE>
<CAPTION>
NAME AGE OFFICE
<S> <C> <C>
James F. Slattery (3) 50 President, Chief Executive Officer
and Chairman of the Board
Michael C. Garretson 52 Executive Vice President, Chief Operating Officer
Ira M. Cotler 36 Executive Vice President, Chief Financial Officer
Aaron Speisman 52 Executive Vice President and Director
Richard P. Staley 68 Senior Vice President and Director
Stuart M. Gerson (1)(2)(3) 56 Director
Shimmie Horn 27 Director
Bobbie L. Huskey(2) 51 Director
Melvin T. Stith (1)(2) 53 Director
</TABLE>
(1) Member of the Audit Committee and Compensation Committee
(2) Member of the Stock Options Committee
(3) Member of the Rights Committee
James F. Slattery co-founded CSC in October 1987 and has been its
President, Chief Executive Officer and a director since CSC's inception,
and Chairman since August 1994. Prior to co-founding CSC, 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 company, and had held several management positions with the
Sheraton Hotel Corporation.
Michael C. Garretson joined the Company in August 1994 as its Vice
President of Business Development. In October 1995, he became the Director of
Planning and Economic Development for the City of Jacksonville, Florida and
served in such position until rejoining the Company in January 1996, during
which period he also acted as a consultant to the company. Mr. Garretson was
elected Executive Vice President and Chief Operating Officer in March 1996.
From September 1993 to August 1994, Mr. Garretson was Senior Vice President of
Wackenhut Corrections Corp. and from August 1990 to August 1993 was Director of
Area Development for Euro Disney S.C.A., the operator of a European theme park.
Ira M. Cotler was elected Chief Financial Officer in January 1998, having
served as the Company's Executive Vice President-Finance since joining CSC 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.
Aaron Speisman co-founded CSC in October 1987 and has been its
Executive Vice President, Secretary and a director since CSC'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.
<PAGE> 3
Richard P. Staley has served as a Director since May 1994. From 1988
to 1998, Mr. Staley was the company's Senior Vice President of Operations
and in 1999 was named Senior Vice President of Strategic Planning. 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.
Stuart M. Gerson was elected a director of CSC in June 1994. Since
March 1993, Mr. Gerson has been a member 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 CSC in June 1996. Mr. Horn is
President of Iroquois Properties, Inc. a real estate holding company. 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 of the Board and a founder of
CSC, and Esther Horn, a principal stockholder of CSC.
Bobbie L. Huskey was a director of Youth Services International, Inc.,
which was acquired by CSC in March 1999, at which time Ms. Huskey became a
director of the Company. Ms. Huskey has been president of Huskey &
Associates since 1984 and has 27 years in corrections, specializing in
juvenile justice planning, facilities and program development. She has led
more than 60 needs assessments and planning studies in 20 states. Ms.
Huskey has hands-on experience in juvenile justice facilities, having
worked with delinquent girls in a treatment facility in Kentucky and has
served in executive leadership positions in corrections in Virginia,
Indiana and Chicago. She has held every elective office in the American
Correctional Association, including president, and was a member of the
association's executive committee for 12 years. Ms. Huskey has authored
numerous articles and appeared on national news programs discussing
corrections and juvenile justice issues. She has won national awards
including the E.R. Cass Award for outstanding achievement in the
correctional field.
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.
Compliance with Section 16(a) of the Exchange Act
<PAGE> 4
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors and persons who own more than ten percent
of a registered class of the Company's equity securities (collectively, the
"Reporting Persons"), to file reports of ownership and changes in ownership
with the Securities and Exchange Commission and to furnish the Company with
copies of these reports. Based solely on the Company's review of the
copies of such forms received by it during the Company's fiscal year ended
December 31, 1999, the Company believes that the Reporting Persons complied
with all filing requirements applicable to them, with the exception of
Messrs. Staley and Slattery, directors of the Company. [After a review of
documentation available to the Company, it is the Company's belief that]
Mr. Staley failed to timely file one Form 4 comprising one transaction and
Mr. Slattery failed to timely file two Form 4s comprising three
transactions during 1999.
Item 11. Executive Compensation.
The following table sets forth a summary of the compensation paid or
accrued by CSC during the three fiscal years ended December 31, 1999, 1998
and 1997 with respect to CSC's Chief Executive Officer and for CSC's
executive officers whose total cash compensation for 1999 exceeded $100,000
(the "Named Executives"):
SUMMARY COMPENSATION TABLE
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
Number of
Other Annual Securities All Other
Salary Bonus Compensation Underlying Compensation
Name and Principal Position Year ($) ($) ($)(1) Options (2)
<S> <C> <C> <C> <C> <C> <C>
James F. Slattery 1999 270,000 200,000 11,815 40,000 9,625
Chairman, Chief 1998 260,519 200,000 11,815 150,000 18,365
Executive Officer 1997 208,373 200,000 17,988 0 27,270
and President
Michael Garretson(3) 1999 194,307 0 12,000(3) 0 292
Executive Vice President 1998 128,814 75,000 12,000(3) 0 292
1997 118,834 75,000 12,000(3) 0 288
Ira Cotler 1999 191,077 82,827 6,000 25,000 67
Executive Vice President 1998 141,431 75,000 6,000 0 67
Chief Financial 1997 135,115 75,000 6,000 0 54
</TABLE>
(1) Consists of car lease payments.
(2) Consists of life insurance premiums.
(3) Also includes housing allowance.
<PAGE> 5
Employment Agreements
On September 29, 1999, CSC entered into an employment agreement with
its Chief Executive Officer, James F. Slattery, replacing the existing
employment agreement between the Company and Mr. Slattery dated February
17, 1998. The new agreement has a term of three years with automatic
annual renewal provisions. Mr. Slattery's minimum annual compensation is
$270,000 until September 29, 2000, thereafter the base compensation will be
adjusted through annual costs of living increases of at least 3.5%. Mr.
Slattery also receives use of an automobile, reimbursement of business
expenses, health insurance, related benefits and a bonus equal to 5% of
CSC's pre-tax profits in excess of $1,000,000, such bonus not to exceed
$200,000.
Also, on September 29, 1999, CSC entered into a Change in Control
Agreement with Mr. Slattery which provides for payments of specified
benefits to Mr. Slattery in the event his employment terminates under
specified circumstances following a change in control of CSC. For the
purposes of this agreement, a change in control is deemed to take place
whenever:
for any period of two consecutive years beginning on any date from and
after September 29, 1999, if the Board of Directors at any time during or
at the end of such period is not comprised so that a majority of the
directors are either (i) individuals who constitute the Board of Directors
at the beginning of such period or (ii) individuals who joined the Board
during such period who were elected or nominated for election pursuant to a
vote of at least two-thirds of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved (but not including, for
purposes of (i) or (ii), a director designated by a person who has entered
into an agreement with the Company to effect a transaction described in
clause (B) of Subsection 1(b) of the Change in Control Agreement relating
to stockholder approval of a merger, share exchange or consolidation of the
Company);
the stockholders of CSC approve a merger, share exchange or
consolidation of CSC with or into any other corporation wherein immediately
following such merger, the stockholders of CSC prior to the transaction own
less than 51% of the outstanding voting stock of CSC (if it is the survivor
of the transaction) or the surviving entity; or
the stockholders of CSC approve a plan of complete liquidation of CSC
or an agreement for the sale or disposition by CSC of all or substantially
all CSC's assets.
Benefits made available to Mr. Slattery under the terms of the change
in control agreement in the event that his employment is terminated under
the above specified circumstances may include:
Payment of his full base salary through the date of termination at the
rate in effect at the time notice of termination is given, plus all other
amounts and benefits to which Mr. Slattery is entitled under his employment
agreement or pursuant to any plan of CSC in which he is participating at
the time of termination,
<PAGE> 6
A lump sum severance payment equal to the sum of (A) three times Mr.
Slattery's annual base salary and incentive bonus in effect immediately
prior to the occurrence of the change in control and (B) $1,000,000 as
payment for Mr. Slattery's agreement to extend his agreement not to compete
under his employment agreement to four years following the date of
termination,
Any deferred compensation allocated or credited to Mr. Slattery or his
account as of the date of termination,
Certain additional payments to cover any excise tax imposed by Section
4999 of the Internal Revenue Code,
Maintenance of life, disability, accident and health insurance
benefits substantially similar to those that Mr. Slattery was receiving
immediately prior to the notice of termination, for the period beginning on
the date of termination and ending on the earlier of (A) the end of the
36th month after the date of termination or (B) the date Mr. Slattery
becomes eligible for such benefits under any plan offered by an employer
with which he is employed on a full-time basis, and
All benefits payable to Mr. Slattery under any applicable retirement,
thrift, and incentive plans as well as any other plan or agreement
sponsored by CSC or any of its subsidiaries relating to retirement
benefits.
On December 5, 1998 CSC entered into a new three year employment
agreement with Mr. Garretson, which provides for minimum annual
compensation of $200,000, annual salary increases, automobile allowances,
reimbursement of business expenses, health or disability insurance, and
related benefits. The agreement also entitles Mr. Garretson to an annual
bonus of $100,000 in the first year and $110,000, and $120,000 in the
second and third years respectively, provided that the CSC's total bed
count at each year-end exceeds certain amounts.
On May 3, 1999, CSC amended the employment agreement with its Chief
Financial Officer, Ira Cotler, dated July 9, 1997 to provide for a term of
three years with automatic annual renewal provisions. Mr. Cotler's minimum
annual compensation is $200,000 until February 26, 2000, $210,000 until
February 26, 2001 and an amount to be renegotiated by the parties, but in
no event less than $210,000 until February 26, 2002. Mr. Cotler also
receives automobile allowances and a bonus equal to four tenths of 1% of
CSC's earnings before interests, taxes, depreciation, amortization and
start-up, such bonus not to exceed $100,000. Mr. Cotler is entitled to
terminate his employment with CSC and to receive in a lump sum payment
three times his annual base salary plus a bonus at the bonus cap ($100,000
per annum or the pro rata amount) if he is required to relocate to a
location not within 50 miles of his present office, except for required
travel on CSC's business to an extent substantially consistent with his
present travel obligations.
<PAGE> 7
Also, on May 3, 1999, CSC entered into a Change in Control Agreement with
Ira Cotler which provides for payments to Mr. Cotler of specified benefits
in the event that his employment terminates under specified circumstances
following a change in control of CSC. The definition of a change in
control is substantially similar to that set forth in Mr. Slattery's change
in control agreement previously described.
Benefits made available to Mr. Cotler under the terms of the change in
control agreement in the event that his employment is terminated under the
above specified circumstances may include:
Payment of his full base salary through the date of termination at the
rate in effect at the time notice of termination is given, plus all other
amounts and benefits to which Mr. Cotler is entitled under his employment
agreement or pursuant to any plan of CSC in which he is participating at
the time of termination,
A lump sum severance payment equal to the sum of (A) 2.99 times Mr.
Cotler's annual base salary in effect immediately prior to the occurrence
of the change in control and (B) $600,000 as payment for Mr. Cotler's
agreement to extend his agreement not to compete under his employment
agreement to three years following the date of termination,
Any deferred compensation allocated or credited to Mr. cotler or his
account as of the date of termination,
Certain additional payments to cover any excise tax imposed by Section
4999 of the Internal Revenue Code,
Maintenance of life, disability, accident and health insurance
benefits substantially similar to those that Mr. Cotler was receiving
immediately prior to the notice of termination, for the period beginning on
the date of termination and ending on the earlier of (A) the end of the
36th month after the date of termination or (B) the date Mr. Cotler becomes
eligible for such benefits under any plan offered by an employer with which
he is employed on a full-time basis, and
All benefits payable to Mr. Cotler under any applicable retirement,
thrift, and incentive plans as well as any other plan or agreement
sponsored by CSC or any of its subsidiaries relating to retirement
benefits.
Stock Options
The following table sets forth information relating to options granted
to the only executive officers named in the Summary Compensation Table who
was granted options during CSC's fiscal year ended December 31, 1999:
<PAGE> 8
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value At Assumed
Annual Rates
of Stock Price
Appreciation For
Option Term
5% ($) 10% ($)
Percent Of
Total
Number Of Options Exercise
Name Securities Granted to Of
Underlying Employees Base
Options In Fiscal Price Expiration
Granted(1) Year ($/sb) Date
<S> <C> <C> <C> <C> <C> <C>
James F. Slattery 40,000 8.5% $7.43 6/25/09 186,907 473,660
Ira Cotler 25,000 5.3% $11.13 2/01/04 174,990 443,459
</TABLE>
(1) Exercisable at the annual rate of 50% of the underlying shares,
commencing one year after the date of grant.
The following table sets forth the value of unexercised stock options
held by the Named Executives. No options were exercised by the Named
Executives in 1999:
Option Values at December 31, 1999
<TABLE>
<CAPTION>
Name Number of Shares Vaue of In-The Money
Underlying Options at Options at Year End
Year End Exercisable/Unexercisable
Exercisable/Unexcercisable
<S> <C> <C>
James F. Slattery 175,000/20,000 $0/$0
Mike Garretson 90,000/0 $0/$0
Ira Cotler 121,666/3,334 $0/$0
</TABLE>
<PAGE> 9
Item 12. Security Ownership of Certain Beneficial Ownership and Management.
The following table sets forth the beneficial ownership of the Common
Stock on April 30, 2000 by (i) each person known by the Company to own
beneficially more than five percent of such shares, (ii) each director,
(iii) each person named in the Summary Compensation Table under "Executive
Compensation" of this Annual Report on Form 10-K, and (iv) all directors
and executive officers as a group, together with their respective
percentage ownership of the outstanding shares:
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership
Acquirable
Name and Address of Number of Within 60 Percent
Beneficial Owner Shares Days** Outstanding
<S> <C> <C> <C>
Esther Horn(1) 637,175 5.6%
James F. Slattery(1) 806,500 175,000 8.6
Aaron Speisman(1) 427,485 25,000 4.0
Jennifer Anna Speisman 1992 Trust 83,438 - *
Joshua Israel Speisman 1992 Trust 83,438 - *
Ira M. Cotler 18,518 (2) 121,666 *** 1.2
Richard P. Staley 9,450 26,340 *
Michael C. Garretson - 90,000 *
Stuart Gerson 1,000 45,850 *
Melvin T. Stith - 30,850 *
Shimmie Horn 14,312 22,500 *
Bobbie L. Huskey - 15,800 *
Gilder, Gagnon, Howe & Co. (3) 2,043,351 - 18.0
Greenville Capital Management 480,466 - 4.2
Inc.(4)
All officers and directors as a 1,444,141 553,006 17.6
group (eight persons)
</TABLE>
* Less than 1%
** Consists of shares issuable upon exercise of options unless
otherwise noted.
*** Includes 5,000 shares issuable upon exercise of warrants.
(1) Address is c/o Correctional Services Corporation, 1819 Main Street,
Suite 1000, Sarasota, Florida 34236.
(2) Includes 2,612 shares of CSC common stock owned by his wife, as to
which he disclaims beneficial ownership.
(3) Address is 1775 Broadway, 26th Floor, New York, New York 10019. Based
on a Schedule 13G filed with the SEC by Gilder, Gagnon, Howe & Co.
("Gilder, Gagnon") on March 14, 2000, Gilder, Gagnon has shared power to
dispose or to direct the disposition of 2,043,351 shares and has shared
power to vote or to direct the vote of 14,775 shares. The shares reported
include 1,979,083 shares held in customer accounts over which partners
and/or employees of Gilder, Gagnon have discretionary authority to dispose
of or direct the disposition of the shares. 49,493 shares held in accounts
owned by the partners of Gilder, Gagnon and their families, and 6,700
shares held in the account of the profit-sharing plan of Gilder, Gagnon.
(4) Address is P.O. Box 220, Rockland, Delaware 19732. Based on a Schedule
13G filed with the SEC by Greenville Capital Management Inc. on February
10, 1999, Greenville Capital Management Inc., an investment adviser, has
sole dispositive power over these shares.
<PAGE> 10
Item 13. Certain Related Transaction.
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. 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.
<PAGE> 11
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 expired on December 31,
1998. The lease established a monthly rental of $40,000 and contained three
five-year renewal options. The Company is currently in its first option
period, which runs from January 1, 1999 through December 31, 2003. The
monthly rental payment during the first option period 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.
Stuart M. Gerson, a director of CSC, is a member of Epstein Becker &
Green, CSC's legal counsel, which has received fees for legal services
rendered to CSC during the last fiscal year.
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> 12
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 1998 and 1999, Mr. Banks earned approximately
$300,000 and $272,000 respectively.
<PAGE> 13
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
James F. Slattery, President
Dated: May 1, 2000
