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EXHIBIT D
CORRECTIONAL SYSTEMS, INC.
AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT
THIS AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT, dated as of August
31, 1998 (this "AGREEMENT"), by and among Correctional Systems, Inc., a
California corporation ("COMPANY"), the Persons executing this Agreement as
Holders of Securities, and such other Persons that become parties hereto after
the date of this Agreement in accordance with the terms and provisions contained
herein (collectively, "HOLDERS"). This Agreement amends and restates a
Stockholders Agreement dated July 31, 1998, among the Company and certain of the
Holders ("ORIGINAL AGREEMENT").
PRELIMINARY STATEMENT
Certain of the Holders own shares of the Company's Common Stock, par
value $.001 per share (the "COMMON").
Upon the terms and subject to the conditions of the Purchase Agreement
(defined below), the Investors (defined below) acquired shares of Series A
Preferred Stock, par value $.001 per share, of the Company (the "SERIES A
PREFERRED"). The Company and the Holders desire to amend and restate the
Original Agreement to add certain parties as Holders.
It is in the best interests of the Company and the Holders to
memorialize certain aspects of all of the Holders' stock ownership, including
restrictions with respect to transferring the Common and the Series A Preferred,
all as hereinafter set forth.
In consideration of the mutual covenants and agreements contained
herein, the parties agree to amend and restate the Original Agreement as
follows:
ARTICLE A
DEFINITIONS
SECTION A DEFINITIONS. As used in this Agreement, the following terms
herein shall have the following meanings:
"AFFILIATE" means, with respect to any person, any entity controlling,
controlled by or under common control with such designated person. For the
purposes of this definition, "control" shall have the meaning specified as of
the date of this Agreement for that word in Rule 405 promulgated by the
Commission under the Securities Act.
"BOARD" means the Board of Directors of the Company.
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"CASH EQUIVALENTS" means (a) immediately marketable, liquid and direct
obligations issued or unconditionally guaranteed by the United States federal
government or issued by any agency thereof and backed by the full faith and
credit of the United States of America, (b) immediately marketable, liquid and
direct obligations issued by any state of the United States of America or any
political subdivision of any such state or any public instrumentality thereof
and, at the time of acquisition, having the highest rating obtainable from
either Standard & Poor's Corporation or ▇▇▇▇▇'▇ Investors Service, Inc., or (c)
freely tradeable and immediately marketable equity or debt securities listed for
or admitted to trading on the New York Stock Exchange, the American Stock
Exchange or the National Association of Securities Dealers Automated Quotation
System, which in the case of any equity security are of an issue of equity
securities having an aggregate listed market value as of the day of
determination of at least $250,000,000, or in the case of a debt security are of
an issue of debt securities having an aggregate listed market value as of the
day of determination of at least $500,000,000.
"COMMISSION" means the Securities and Exchange Commission and any
successor commission or agency having similar powers.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FULLY DILUTED SECURITIES" means all issued and outstanding shares of
Common, all shares of Common issuable upon conversion of the Series A Preferred,
and all shares of Common which may be directly or indirectly issuable upon the
exercise, exchange or conversion of any other Securities.
"IEPEF" means Infrastructure and Environmental Private Equity Fund III,
L.P., a Delaware limited partnership.
"INVESTORS" means Apex Investment Fund III, L.P., Apex Strategic
Partners, LLC, IEPEF, Environmental & Information Technology Private Equity Fund
III and The Productivity Fund III, L.P.
"MANAGEMENT HOLDERS" means ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇.
"NEW SECURITIES" means all Securities issued by the Company after the
date hereof, except (a) Common issued upon conversion of the Series A Preferred,
(b) Securities offered to the public pursuant to a Qualified Public Offering,
(c) Securities issued in connection with the acquisition of another corporation
by the Company through a merger, purchase by the Company of all or substantially
all of the assets of such other corporation or other reorganization following
which the Company owns more than 50% of the Voting Stock or assets of such other
corporation, (d) Securities issued in connection with any stock split, stock
dividend or recapitalization of the Company, (e) up to 1,325,875 shares of
Common issued from time to time upon the exercise of options outstanding as of
the date hereof, and (f) up to 174,125 shares of
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Common issued from time to time upon the exercise of options to be granted in
the discretion of the Board pursuant to the Company's 1996 Stock Option Plan.
"PERMITTED TRANSFEREE" means:
A in the case of an individual, any Person who is the spouse
or a lineal ancestor or descendant of such individual, a trust for the benefit
of such individual or other described Persons, or the estate of such individual
or his Permitted Transferees;
B in the case of any Person that is a partnership, any Person
that is a current or former limited or general partner of such Person;
C in the case of any Person that is a limited liability
company, any Person that is a current or former member of such Person;
D in the case of any Holder, any voting trust established in
compliance with all applicable laws;
PROVIDED, that any such Person has agreed in writing, in
accordance with Section 5.11 hereof, to be bound and has become bound by the
terms and conditions of this Agreement to the same extent and in the same manner
as the Holder transferring Stock to him or it; and, PROVIDED FURTHER, that the
Transfer to any such Person is effected in compliance with the registration
requirements of all applicable securities laws (or exemptions therefrom) and
that the transferor or Permitted Transferee shall have paid any costs incurred
by the Company in connection with the Transfer. The term "PERMITTED TRANSFEREES"
shall mean any combination of such Permitted Transferees. A "PERMITTED TRANSFER"
shall mean a Transfer of Securities to any Permitted Transferee.
"PERSON" means an individual, partnership, corporation, business trust,
limited liability company, joint stock company, trust, unincorporated
association, joint venture, or other entity of whatever nature.
"PRO RATA AMOUNT" means, as of any date with respect to a specified
Investor, the percentage equal to (a) the number of shares of Fully Diluted
Securities held by such Investor as of that date, divided by (b) the number of
shares of Fully Diluted Securities held on that date by all Investors, and with
respect to a specified Holder, the percentage equal to (y) the number of shares
of Fully Diluted Securities held by such Holder as of that date, divided by (z)
the number of shares of Fully Diluted Securities held on that date by all
Holders.
"PURCHASE AGREEMENT" means the Series A Preferred Stock Purchase
Agreement of even date herewith among the Company and the Investors, as such
agreement may be amended from time to time.
"QUALIFIED PUBLIC OFFERING" means the first sale to the public of
Common pursuant to an effective registration statement under the Securities Act
under which (a) the gross proceeds to
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the Company of the Common actually sold to the public by the Company in such
first sale is at least $20,000,000, (b) the price per share to the public of
such Common is at least 350% of the Conversion Price (as defined in the
Company's Articles of Incorporation, as amended) of the Series A Preferred then
in effect and (c) the gross proceeds to the Investors in such first sale is at
least $2,200,000.
"SECURITIES" means any debt or equity securities of the Company,
whether now or hereafter authorized or issued, and any instrument convertible
into, or exercisable or exchangeable for, any such Securities or Security.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"STOCK" means shares of Common and Series A Preferred.
"SUBSIDIARY" means (a) any corporation at least 50% of whose
outstanding Voting Stock, or any class thereof, is owned or controlled, directly
or indirectly, by the Company or by one or more Subsidiaries or by the Company
and one or more Subsidiaries, (b) any partnership of which the Company or one or
more Subsidiaries is a general partner, for which the Company or one or more
Subsidiaries possesses the power to direct the affairs or of which the Company
or any Subsidiary owns, directly or indirectly, 50% or more of any class of
partnership interest, and (c) any limited liability company for which the
Company or one or more Subsidiaries possesses the power to direct the affairs of
the limited liability company or of which the Company or any Subsidiary owns,
directly or indirectly, 50% or more of any class of membership interest.
"THIRD PARTY" means a Person who is a prospective purchaser of Stock in
a bona fide arm's length transaction from a Holder where such purchaser is not a
Permitted Transferee of such Holder.
"TRANSFER" means any sale, assignment, transfer, negotiation, pledge,
hypothecation, other disposition, and any event or transaction in which a lien
is created.
"VOTING STOCK" as applied to the stock of any corporation, means stock
of any class or classes (however designated) having ordinary voting power for
the election of a majority of the members of the board of directors (or other
governing body) of such corporation, other than stock having such power only by
reason of the happening of a contingency.
ARTICLE B
RESTRICTIONS ON TRANSFER
SECTION A GENERAL RESTRICTIONS; EXCEPTIONS.
(a) Each Holder agrees that it or he will not Transfer any
interest in any Stock held by such Holder except Permitted Transfers or
Transfers made in accordance with the provisions of this Agreement. Any Transfer
of any Stock sought to be made in violation of this
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Agreement shall be null and void, and neither the Company nor any transfer agent
shall give any effect in the Company's stock records to such attempted Transfer.
(b) Notwithstanding the provisions of this Article 2 to the
contrary, each Management Holder shall have the right ("Management Transfer
Right"), without being subject to the transfer restrictions set forth below in
Sections 2.2 and 2.3, to Transfer in any twelve-month period up to 15,000 shares
of Stock held by such Management Holder. The Management Transfer Right shall
terminate on the fifth anniversary of this Agreement.
SECTION B RIGHTS OF FIRST REFUSAL ON PROPOSED TRANSFER.
A If a Management Holder (the "PROPOSED TRANSFEROR") wishes to Transfer
any Stock except in a Permitted Transfer, the Proposed Transferor shall do so
only for cash, Cash Equivalents or a combination of both, and shall first
deliver written notice (the "OFFER NOTICE") to the Company and each Investor
identifying the Stock proposed to be Transferred (the "OFFERED SECURITIES") and
the proposed transferee, and stating the price at which, and other material
terms on which, the Proposed Transferor wishes to Transfer the Offered
Securities, including the anticipated date of the proposed Transfer, which shall
be a date not earlier than thirty (30) days after the date the Offer Notice is
delivered.
B Delivery of an Offer Notice to the Investors shall constitute an
offer by the Proposed Transferor to Transfer all of the Offered Securities in
the aggregate, but not less than all of the Offered Securities in the aggregate
(the "OFFER"), first to the other Investors, then to the Company pursuant to
this Section 2.2, at the price and on the other terms described in the Offer
Notice.
C Upon receipt of the Offer Notice, each Investor shall have the right
to purchase the number of shares of the Offered Securities equal to such
Investor's Pro Rata Amount of such Offered Securities, exercisable by written
notice delivered to the Company and the Proposed Transferor within ten (10) days
after receipt of the Offer Notice. The participating Investors also may allocate
the right to purchase the Offered Securities between or among them in any
proportion they choose as reflected in a notice to the Proposed Transferor
within such ten-day period, with or without the purchase of Offered Securities
by the Company as described in Section 2.2(e).
D If the Investors shall not have exercised their rights to purchase
all of the Offered Securities in the aggregate, then within three (3) days after
the expiration of the period specified in Section 2.2(c) above, the Proposed
Transferor shall notify those Investors who agreed to purchase their Pro Rata
Amount of the Offered Securities of the number of shares of Offered Securities
which remain available for purchase. Each Investor shall then have the right to
purchase all of the remaining Offered Securities or, if more than one Investor
wishes to purchase all of the remaining Offered Securities, their Pro Rata
Amount of the remaining Offered Securities, with only the shares held by
Investors who wish to purchase the remaining Offered Securities considered in
computing the Pro Rata Amount. Such right shall be exercisable by
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written notice delivered to the Proposed Transferor within five (5) days after
receipt of the notice specified in this Section 2.2(d).
E If the Investors shall not have exercised their rights to purchase
all of the Offered Securities in the aggregate, then within three (3) days after
the expiration of the five-day period specified in Section 2.2(d) above, the
Proposed Transferor shall notify the Company of the number of shares of Offered
Securities which remain available for purchase by the Company. The Company shall
then have the right to purchase such remaining Offered Securities, exercisable
by written notice delivered to the Proposed Transferor within five (5) days
after receipt of the notice specified in this Section 2.2(e)
F If any of the Company and the participating Investors have either
individually or in the aggregate elected to accept an Offer in its entirety (the
"PURCHASERS"), then the Proposed Transferor shall Transfer the Offered
Securities to the Purchasers, and the Purchasers shall acquire the Offered
Securities, at the price and on the other terms described in the Offer Notice.
The consummation of the Transfer shall take place at 10:00 a.m. local time at
the offices of the Company, on the date specified for the proposed Transfer in
the Offer Notice, or at such other location or date on which the participants in
the transaction agree in writing, at which time the Purchasers shall deliver the
appropriate consideration in the form of cash or Cash Equivalents, and the
Proposed Transferor shall deliver certificates representing the Securities to be
sold, free and clear of any and all liens, claims and encumbrances whatsoever
(except those imposed by this Agreement and securities laws generally), together
with such other instruments and documents of transfer as the Purchasers shall
reasonably request.
G If the Company and the Investors do not, either individually or in
the aggregate, accept an Offer in its entirety, then the Proposed Transferor may
Transfer the Offered Securities (subject to the provisions of this Agreement,
securities laws generally and to any other agreements binding on the Proposed
Transferor) to the transferee named in the Offer Notice, at any time within the
sixty (60) day period beginning on the date that the Proposed Transferor shall
have received final notice (or by expiration of the period specified in Section
2.2(e) above) that the Company and the Investors shall not have elected to
purchase the Offered Securities in the aggregate. The provisions of this Section
2.2 shall again apply to any Transfer of Offered Securities not Transferred
within such period.
H Promptly after any sale pursuant to this Section 2.2, the Offering
Investor shall notify the Company of the consummation thereof and shall furnish
such evidence of the completion (including date of completion) of such sale and
of the terms thereof as the Company may reasonably request. The exercise or
non-exercise by any Investor of its rights under this Section 2.2 shall not
impair such Investor from exercising any rights under Section 2.3 hereof.
SECTION C TAKE ALONG RIGHTS.
A If a Proposed Transferor wishes to Transfer any Stock except in a
Permitted Transfer and neither the Company nor the Investors, either
individually or in the aggregate, accept an
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Offer with respect to such Stock in its entirety under Section 2.2, then such
Proposed Transferor may, but shall not be obligated to, Transfer his or its
Take-Along Share (as defined below) of the Offered Securities to the transferee
named in the Offer Notice on the terms and conditions set forth in the Offer
Notice only if the transferee acquires the Offered Securities as part of a
transaction in which the transferee also offers to acquire the Take-Along Share
of the Fully Diluted Securities held by each Investor (determined as of the date
of the consummation of such transaction) which chooses to Transfer in such
transaction at the same price per fully diluted Common share and on the other
material terms and conditions as specified in the Offer Notice.
B Within ten (10) days after receipt of final notice as set forth in
Section 2.2(g) (or by expiration of the period specified in Section 2.2(e)), the
Proposed Transferor will notify each Investor of the Investor's rights under
this Section 2.3.
C Any of the Investors may elect to participate in a Transfer under
this Section 2.3 with respect to all or any portion of their Take-Along Share,
by written notice delivered to the Proposed Transferor not later than fourteen
(14) days after the Investor received the notice under Section 2.3(b),
accompanied by certificates representing the appropriate number of Securities to
be sold by each such Investor pursuant to such sale, free and clear of any and
all liens, claims and encumbrances whatsoever (except those imposed by this
Agreement and securities laws generally), together with such documents and
instruments of transfer as the purchaser in such transaction may reasonably
request.
D Each participant's "TAKE-ALONG SHARE" shall equal the aggregate
number of Fully Diluted Securities that the proposed transferee offers to
acquire from the Proposed Transferor, multiplied by a percentage equal to (i)
the number of shares of Fully Diluted Securities held by the participant as of
that date, divided by (ii) the number of shares of Fully Diluted Securities
issued or issuable on that date to the Investors.
SECTION D PREEMPTIVE RIGHTS.
A Each Investor shall have the right (the "PARTICIPATION RIGHT") to
purchase its Pro Rata Amount of any New Securities that the Company may from
time to time propose to sell and issue after the date hereof, at the price and
upon the general terms specified in the New Issue Notice (as defined below)
regarding such New Securities and otherwise on the terms of this Section 2.4.
B Whenever the Company proposes to issue and sell any New Securities,
the Company shall give each Investor written notice (a "NEW ISSUE NOTICE")
describing the type and amount of New Securities proposed to be issued and the
price and general terms upon which the Company proposes to issue such New
Securities, specifying a proposed closing date at least forty-five (45) days
after the date each Investor shall have received the New Issue Notice, and
specifying in each case the recipient's Pro Rata Amount as of the date of the
New Issue Notice.
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C Each Investor may exercise its Participation Right with respect to
any proposed New Securities by notice to the Company, given within thirty (30)
days after the Investors shall have received the New Issue Notice describing the
New Securities.
D If any Investor does not exercise its Participation Right with
respect to any proposed New Securities within the thirty-day period, then within
three (3) days after the expiration of such thirty-day period, the Company shall
notify each Investor who proposed to purchase not less than its Pro Rata Amount
of such New Securities of the number of shares of New Securities which remain
available for purchase. Upon receipt of the notice specified in the preceding
sentence, each such Investor shall have the additional Participation Right to
purchase its Pro Rata Amount of the remaining New Securities (considering the
Fully Diluted Securities held by all Investors who purchased less than their Pro
Rata Amount of the New Securities not to be issued and outstanding for purposes
of computing the Pro Rata Amount), exercisable by written notice delivered to
the Company within five (5) days after receipt of the notice of the availability
of the balance of the New Securities. Such Investors also may allocate the right
to purchase the New Securities between or among them in any proportion they
choose (provided that no Investor's Pro Rata Amount may be reduced without its
consent) as reflected in a notice to the Company within such five-day period.
E The Company may sell the New Securities not committed for by
Investors at a price and upon general terms no more favorable to the purchasers
than those specified in the New Issue Notice with regard to such New Securities,
at any time during (and only during) the sixty (60) days following the
expiration of the last notice period specified in Section 2.4(d) above.
F If the Company does not sell, or obtain binding agreements to
purchase, all of the proposed issue not committed to be purchased by Investors
within the period specified in Section 2.4(e), the Company may, but shall not be
obligated to, sell any of such New Securities.
G The sale of any New Securities to Investors pursuant to this Section
2.4 shall be closed on the same terms, at the same place as, and simultaneously
with, the sale of any such New Securities to any other purchasers (provided that
the closing shall not take place earlier than the proposed closing date
specified in the applicable New Issue Notice without the consent of all
participating Investors).
ARTICLE C
DIRECTORS
SECTION A ELECTION OF DIRECTORS.
A The Company and each of the Holders agree that, so long as the voting
agreement set forth in this Section 3.1 remains in effect, each of them shall
take all action necessary from time to time (including, without limitation, the
voting of Securities, the execution of written consents, the calling of special
meetings, the removal of directors, the filling of vacancies on the Board, the
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waiving of notice and attendance at meetings, the amendment of the Company's
by-laws and the like) necessary to maintain the membership of the Board as
follows:
A The number of directors composing the Board shall not exceed
six (6);
B So long as the Investors own at least 50% of the Series A
Preferred held by the Investors on the date hereof or the Common issued upon
conversion thereof, IEPEF shall designate one (1) nominee for election to the
Board (such nominee being referred to herein as the "PREFERRED NOMINEE"); and
C The holders of a majority of the Common held by parties to
this Agreement shall designate one (1) nominee for election to the Board,
provided that such nominee is not a member of the Company's management or an
employee or officer of or consultant to the Company (such nominee being referred
to herein as the "INDEPENDENT NOMINEE"), and provided further that such
Independent Nominee is reasonably acceptable to the Investors (determined by the
vote of a majority of the Series A Preferred).
By their execution of this Agreement the Holders agree that the initial
Preferred Nominee shall be ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and the initial Independent Nominee
shall be ▇▇▇▇ ▇. ▇▇▇▇▇▇▇.
B The Persons entitled to name a director pursuant to Section
3.1(a)(ii) are referred to in this Section as the "PRINCIPALS" with respect to
that director. If the Principals give notice at any time to the Company and the
other Holders that an individual then serving as a director of the Company at
such Principals' designation is no longer their designee, then the Company and
the Holders shall take all action necessary to remove the director so
designated. If the Investors no longer agree that an Independent Nominee should
serve as a member of the Board, then the Company and the Holders shall take all
action necessary to remove the director so designated.
C If an individual then serving as a director of the Company dies,
resigns, or is removed as a director of the Company pursuant to Section 3.1(b)
above, then the Company and the Holders shall take all action necessary to elect
as a director of the Company any individual newly designated by the Principals
or approved by the Principals, with respect to the director who died, resigned,
or was removed.
D The Holders agree and shall vote all of their Stock to assure that
the Board elected pursuant to this Section 3.1 shall also serve as the Board (or
the equivalent governing body) of any Subsidiary of the Company.
E This Section 3.1 constitutes a voting agreement within the meaning of
Section 706 of the California Corporation Code.
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SECTION B MEETINGS; REIMBURSEMENT OF EXPENSES. The Board shall
meet not less frequently than six (6) times per year; provided that up to
three (3) meetings may be held telephonically. The Company agrees to
reimburse each director for the reasonable out-of-pocket expenses incurred by
such director in performing his or her services as a director of the Company,
including expenses incurred in connection with attendance at meetings of the
Board.
SECTION C COMMITTEES. The number of members of the Compensation and
Audit Committees of the Board shall be fixed at three (3). The Preferred Nominee
and the Independent Nominee shall be members of such committees.
SECTION D RESTRICTED ACTS. The following actions by the Company
require the prior approval of the Preferred Nominee:
A increasing the cash compensation of any Company executive by
more than 5% per year, excluding pursuant to written
employment arrangements existing as of the date of this
Agreement, or establishing compensation for ▇▇.
▇▇▇▇▇▇▇▇ or ▇▇. ▇▇▇▇▇▇▇▇;
B granting any stock options or entering into any phantom stock
plan or similar arrangement in excess of the 174,125 shares of
Common previously reserved for issuance under the 1996 Stock
Option Plan, and 250,000 shares of Common issuable upon the
grant, in the discretion of the Board, of options to
management of the Company;
C increasing the number of the directors composing the Board;
D causing the Company to enter into any business other than the
business presently conducted as of the date of this Agreement;
and
E forming any Subsidiary or causing it to issue any debt or
equity securities other than in connection with acquisitions,
reorganizations and transactions contemplated by the Company
at the closing of the issuance of the Series A Preferred.
ARTICLE D
MANDATORY SALE
SECTION A CAUSE OF MANDATORY SALE. If the Company has not been sold,
merged with a public company, or the subject of a Qualified Public Offering by
the fifth anniversary of the date hereof or in the event of a Financial Cause
(as defined below), then the Holders and the Company agree to take such actions
as are necessary or appropriate to cause the Company (or its issued and
outstanding Securities) to be sold (a "SALE") not less than six months after
delivery of the Sale Notice (defined herein), if written notice requesting such
Sale is delivered to the Company by Holders of a majority of the Series A
Preferred (a "SALE NOTICE") at any time after
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the fifth anniversary of the date hereof or determination of a Financial Cause.
If delivered, a Sale Notice may be rescinded by the Holders of a majority of the
Series A Preferred at any time prior to the closing of the Sale. For purposes of
this Article 4, "FINANCIAL CAUSE" means the failure of the Company to report a
profit in any calendar year beginning with the year ending December 31, 1999, as
determined by the Company's audited financial statements for such year prepared
in accordance with generally accepted accounting principles, consistently
applied, and delivered pursuant to Section 7.1 of the Purchase Agreement.
SECTION B COMPANY ACTION. Without limiting the generality of Section
4.1, the Company agrees to:
(a) call and conduct such stockholder meetings and prepare and
distribute such proxies, disclosure materials or statements and such other
documents as are necessary or appropriate to obtain stockholder approval of such
actions as may be necessary or appropriate to effect the Sale;
(b) refrain from issuing any additional securities (excluding
its obligations to issue securities pursuant to options, warrants, convertible
instruments or any similar instruments that exist as of the date of the Sale
Notice) that would cause the voting power represented by the Securities held
collectively by parties to this Agreement to represent less than the number of
votes necessary to approve the sale under California (or Delaware, if the
Company has reorganized as a Delaware corporation) law (considering the Common
Stock underlying any Securities to be issued and outstanding for such purpose)
without the consent of the Investors;
(c) refrain from registering voluntarily or taking any action
that would require the Company to register any of its equity securities under
the Exchange Act prior to receipt of any approvals required of the Company's
stockholders in connection with the Sale;
(d) engage and compensate an investment banker with respect to
the Sale who is selected for engagement by the Investors, and other
professionals as are appropriate under the circumstances to effect the Sale as
provided herein; and
(e) otherwise take such actions as are reasonably necessary or
appropriate in order to effect the sale in accordance with the terms and
conditions of this Agreement and the Purchase Agreement.
SECTION C STOCKHOLDER ACTION. Without limiting the generality of
Section 4.1, after delivery of a Sale Notice, each Holder agrees to take the
following actions promptly in order to effect the Sale within the time period
provided in Section 4.1:
(a) Vote his or its Stock, in person or by proxy, at all regular and
special meetings of the Company's stockholders;
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(b) Execute written consents of the Company's stockholders and/or such
proxies as may be convenient to vote the Holder's Stock to effect the terms and
conditions of this Agreement;
(c) Call a special meeting of the Company's stockholders;
(d) Remove members of the Board and/or fill vacancies on such Board;
(e) Waive notice of and/or attend meetings of the Company's
stockholders;
(f) Cause the Company to take and refrain from taking those actions as
are required or prohibited by Section 4.2 of this Agreement;
(g) Execute and deliver such non-competition, non-solicitation and
similar agreements as may be reasonably requested by prospective buyers in
connection with the Sale; and
(h) Otherwise take or withhold from taking any action as may be
reasonably necessary or appropriate in order to effect the Sale in accordance
with the terms and conditions of this Agreement and the Purchase Agreement.
ARTICLE E
MISCELLANEOUS
SECTION A DIVIDENDS IN STOCK. If a stock dividend is paid on any
Stock held by any party to this Agreement, or if any Stock held by any party
to this Agreement is exchanged for Stock of a different class or series, or
for voting trust certificates evidencing any beneficial interest in such
Stock, or if any other event (such as a stock split, reclassification, or
similar event) shall occur so that any Holders shall receive additional or
replacement Securities (whether of the same or a different class or series),
then such Securities of the same or a different class or series, or such
voting trust certificates, as the case may be, shall thereupon become subject
to the provisions of this Agreement upon the same terms and conditions as the
Stock originally covered by this Agreement.
SECTION B LEGENDS.
A Except with respect to Stock excluded hereunder pursuant to
Section 2.1(b), each certificate evidencing any Stock that is issued to any
Holder shall bear a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER STATE OR
FOREIGN SECURITIES LAWS AND MAY NOT BE
Page 43 of 47 Pages
OFFERED, SOLD, OR TRANSFERRED EXCEPT IN COMPLIANCE THEREWITH. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN A STOCKHOLDERS'
AGREEMENT, DATED AS OF JULY 31, 1998, COPIES OF WHICH WILL BE FURNISHED
BY THE COMPANY UPON REQUEST.
B In addition to the legends required by Section 5.2(a), except
with respect to Stock excluded hereunder pursuant to Section 2.1(b), each
certificate for Stock issued to any Holder or any subsequent transferee shall
be stamped or otherwise imprinted with any legend required pursuant to
applicable state corporation and securities laws. If any Stock shall cease to
be subject to the restrictions on transfer set forth above or otherwise
required herein, the Company shall, upon written request of the Holder
thereof, issue to such Holder a new certificate evidencing such Stock without
the applicable legend required by Section 5.2(a) endorsed thereon.
C The Company may decline to acknowledge or register a Transfer
of any Security bearing any legend required hereunder, and may instruct any
transfer agent for its Securities to decline the same, unless the Company is
reasonably satisfied that the Securities being transferred have been
registered or are exempt from registration under applicable securities laws.
SECTION C HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not control or affect the meaning or
construction of any provisions hereof.
SECTION D PRONOUNS. All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine, singular and plural as the
identity of that Person referred to requires.
SECTION E REMEDIES. The parties acknowledge that the Securities
are unique chattels and possess a special, unique and extraordinary character
which would make it difficult to assess the monetary damage which any party
hereto would sustain in the event of a breach hereof by another party hereto
and that in the event of any such breach by any Holder or the Company, the
other parties would be irreparably harmed and could not be made whole by
monetary damages. The Company and each Holder accordingly agree (a) to waive
the defense in any action for specific performance that a remedy at law would
be adequate, and (b) that an aggrieved party hereunder shall be entitled to
compel specific performance of this Agreement, in addition to any other
remedy to which they may be entitled at law or in equity.
SECTION F ENTIRE AGREEMENT. This Agreement and the other documents
and agreements executed by the parties hereto on this date or referred to
herein together constitute the entire agreement and understanding of the
parties hereto in respect of the subject matter referred to herein and
therein, and there are no restrictions, promises, representations,
warranties, covenants, or undertakings with respect to the subject matter
hereof, other than those expressly
Page 44 of 47 Pages
set forth or referred to herein or therein. This Agreement supersedes all prior
agreements and understandings between the parties hereto with respect to the
subject matter hereof.
SECTION G NOTICES. All communications in connection with this
Agreement shall be in writing and shall be deemed properly given if hand
delivered or sent by telecopier (provided that such communication is
confirmed by same-day deposit in the United States mail first class postage
prepaid) or overnight courier with adequate evidence of delivery or sent by
registered or certified mail return receipt requested and, if to a Holder,
addressed to such Holder at the address for notices set forth below such
Holder's name in Exhibit A to the Purchase Agreement, and if to any Holder
other than a purchaser under the Purchase Agreement, addressed to such
Holders at their addresses as shown on the books of the Company or its
transfer agent, and if to the Company, at its offices at:
Correctional Systems, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
and
Correctional Systems, Inc.
▇▇▇▇ ▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇
or such other addresses or Persons as the recipient shall have designated to the
sender by a written notice given in accordance with this Section. Any notice
called for hereunder shall be deemed given when received.
SECTION H GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable
to agreements between California residents entered into and to be performed
entirely within California.
SECTION I SEVERABILITY. The invalidity or unenforceability of any
provisions hereof in any jurisdiction shall not affect the validity, legality
or enforceability of the remainder hereof in such jurisdiction or the
validity, legality or enforceability hereof, including any such provision, in
any other jurisdiction, it being intended that all rights and obligations of
the parties hereunder shall be enforceable to the fullest extent permitted by
law.
SECTION J AGREEMENT TO BE BOUND. Prior to the termination of this
Agreement, no Stock (the "RESTRICTED STOCK") may be Transferred to any Third
Party or Permitted Transferee (the "RESTRICTED HOLDERS") unless such
Restricted Holder, prior to such sale, transfer or other disposition, agrees
in writing, in form and substance satisfactory to the Company, to be bound by
the terms hereof to the same extent and in the same manner as the transferor
of such Restricted Stock, a copy of which writing shall be maintained on file
with the secretary of the
Page 45 of 47 Pages
Company and shall include the address of such Restricted Holder to which notices
hereunder shall be sent. Each such supplementary agreement shall become
effective upon its execution by the Company and the Restricted Holder, and it
shall not require the signatures or the consent of any other party hereto. Upon
such execution such Restricted Holder shall be bound by all the restrictions
placed on Holders hereby, shall be subject to any additional restrictions set
forth in such supplementary agreement and shall enjoy only such rights as are
specifically set forth in such supplementary agreement.
SECTION K TERMINATION. This Agreement shall terminate and be of no
further force or effect upon the first to occur of (i) the consummation of a
Qualified Public Offering, or (ii) the written agreement of the Holders of
80% of the Fully Diluted Securities held by parties to this Agreement.
SECTION L SUCCESSORS, ASSIGNS, TRANSFEREES, AFFILIATES. All
representations, warranties, covenants and agreements of the parties
contained in this Agreement or made in writing in connection herewith, shall,
except as otherwise provided herein, be binding upon and inure to the benefit
of their respective successors and permitted assigns. In addition, and
whether or not any express assignment has been made, the provisions of this
Agreement which are for the benefit of the Holders are also for the benefit
of, and enforceable by, any subsequent Holders of Securities, except any
subsequent holder who acquires any such Security after such Security has been
sold to the public pursuant to an effective registration statement under the
Securities Act or in a sale under Rule 144 of the Commission.
SECTION M ASSURANCES. The Holders, by the signing hereof, hereby
agree to execute and deliver such other documents and agreements, including
but not limited to assignments, bills of sale, stock powers, or resolutions,
as may be reasonably necessary, desirable or convenient in order to effect
the purposes hereof.
SECTION N AMENDMENTS; WAIVERS. Any provision hereof may be
amended, modified or supplemented upon the consent in writing by the Company
and the Holders of at least 80% of the Fully Diluted Securities held by
parties to this Agreement, and upon the effectiveness of such amendment,
modification or supplement, all of the Holders will be deemed to be bound
thereby.
SECTION O COUNTERPARTS. This agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same Agreement.
SECTION P ARBITRATION. Any dispute arising in connection with this
Agreement (except any action for specific performance or other forms of
extraordinary equitable relief) shall be submitted to binding arbitration in
accordance with Section 10.15 of the Purchase Agreement.
SECTION Q CONSTRUCTION AND REPRESENTATION. The parties understand
and acknowledge that they have each been represented by (or have had the
opportunity to be
Page 46 of 47 Pages
represented by) counsel in connection with the preparation, execution and
delivery of this Agreement. This Agreement shall not be construed against any
party for having drafted it. The parties further understand and acknowledge that
▇▇▇▇▇ & ▇▇▇▇▇▇▇ has served as counsel only to the Investors in connection with
this Agreement and the agreements referred to herein. Any other Holders have
been advised to obtain independent counsel if they so desire.
Page 47-1 of 47 Pages
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders'
Agreement as of the date first above written.
THE COMPANY: CORRECTIONAL SYSTEMS, INC., a California
corporation
By
---------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Chairman
By
---------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Chief Executive Officer
HOLDERS:
MANAGEMENT HOLDERS:
----------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Page 47-2 of 47 Pages
HOLDERS (Cont'd):
INVESTORS: APEX INVESTMENT FUND III, L.P.
By: APEX MANAGEMENT III, LLC
By:
---------------------------------
By:
---------------------------------
APEX STRATEGIC PARTNERS, LLC
By: APEX MANAGEMENT III, LLC
By:
---------------------------------
By:
---------------------------------
INFRASTRUCTURE AND ENVIRONMENTAL
PRIVATE EQUITY FUND III, L.P., a Delaware
limited partnership
By: Infrastructure and Environmental Private
Equity Management III, L.L.C., Its
General Partner
By: First Analysis IEPEF Management Company
III, L.L.C., its Member
By: First Analysis Corporation, its Member
By:
---------------------------------
By:
---------------------------------
Page 47-3 of 47 Pages
HOLDERS (Cont'd)
INVESTORS: ENVIRONMENTAL & INFORMATION
TECHNOLOGY PRIVATE EQUITY FUND III,
Gesellschaft burgarlichen Rechts (mit
Haftungsbeschankung), a civil partnership with limitation
of liability established under the laws of the Federal
Republic of Germany
By: Infrastructure and Environmental Private
Equity Management III, L.L.C., its
Investment Manager
By: First Analysis IEPEF Management Company
III, L.L.C., its Member
By: First Analysis Corporation, its Member
By:
---------------------------------
By:
---------------------------------
THE PRODUCTIVITY FUND III, L.P., a Delaware limited
partnership
By: First Analysis Management Company III,
L.L.C., its General Partner
By: First Analysis Corporation, a Member
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
------------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
