AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CORNELL CORRECTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
8361, 8744
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
DELAWARE 76-0433642
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
DAVID M. CORNELL
CHIEF EXECUTIVE OFFICER
4801 WOODWAY, SUITE 100E 4801 WOODWAY, SUITE 100E
HOUSTON, TEXAS 77056 HOUSTON, TEXAS 77056
(713) 623-0790 (713) 623-0790
(ADDRESS, INCLUDING ZIP CODE, AND (NAME, ADDRESS, INCLUDING ZIP CODE,
TELEPHONE NUMBER, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S INCLUDING AREA CODE, OF AGENT FOR
PRINCIPAL EXECUTIVE OFFICES) SERVICE)
COPIES TO:
MARCUS A. WATTS BART FRIEDMAN
LIDDELL, SAPP, ZIVLEY, HILL & LABOON, CAHILL GORDON & REINDEL
L.L.P. 80 PINE STREET
3400 TEXAS COMMERCE TOWER NEW YORK, NEW YORK 10005
HOUSTON, TEXAS 77002 (212) 701-3000
(713) 226-1200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE PER OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001 3,162,500
per share.......................... Shares $15.00 $47,437,500 $14,375
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</TABLE>
(1) Includes 412,500 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
******************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
* *
******************************************************************************
SUBJECT TO COMPLETION, DATED SEPTEMBER , 1997
PRELIMINARY PROSPECTUS , 1997
- --------------------------------------------------------------------------------
2,750,000
CORNELL CORRECTIONS, INC.
Common Shares
- --------------------------------------------------------------------------------
Of the 2,750,000 shares of Common Stock, par value $.001 per share (the "Common
Stock"), offered hereby (the "Offering"), 2,250,000 shares are being offered
by Cornell Corrections, Inc. (the "Company"), and 500,000 shares are being
offered by the Selling Stockholders. See "Principal and Selling Stockholders."
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Stockholders.
The Common Stock is listed on the American Stock Exchange (the "AMEX") under
the symbol "CRN." On September 15, 1997, the last reported sales price of the
Common Stock on the AMEX was $16.00 per share. See "Price Range of Common Stock
and Dividend Policy."
FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON STOCK
OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 8-14.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Underwriting Discounts Proceeds to Proceeds to
Public and Commissions(1) Company(2) Selling Stockholders
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<S> <C> <C> <C> <C>
Per Common Share $ $ $ $
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Total(3) $ $ $ $
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) THE COMPANY AND THE SELLING STOCKHOLDERS HAVE AGREED TO INDEMNIFY THE
UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE
SECURITIES ACT OF 1933. SEE "UNDERWRITING."
(2) BEFORE DEDUCTING ESTIMATED EXPENSES OF THE OFFERING OF $ WHICH WILL BE
PAID BY THE COMPANY.
(3) THE SELLING STOCKHOLDERS HAVE GRANTED THE UNDERWRITERS A 30-DAY OPTION TO
PURCHASE UP TO 412,500 ADDITIONAL SHARES OF COMMON STOCK ON THE SAME TERMS
PER SHARE SOLELY TO COVER OVER-ALLOTMENTS, IF ANY. IF SUCH OPTION IS
EXERCISED IN FULL, THE TOTAL PRICE TO PUBLIC WILL BE $ , THE TOTAL
UNDERWRITING DISCOUNTS AND COMMISSIONS WILL BE $ AND THE TOTAL PROCEEDS
TO THE SELLING STOCKHOLDERS WILL BE $ . SEE "UNDERWRITING."
The Common Stock is being offered by the Underwriters as set forth under
"Underwriting" herein. It is expected that the delivery of the certificates
therefor will be made at the offices of SBC Warburg Dillon Read Inc., New York,
New York, on or about , 1997. The Underwriters include:
<PAGE>
SBC WARBURG DILLON READ INC.
EQUITABLE SECURITIES CORPORATION
WASSERSTEIN PERELLA SECURITIES, INC.
<PAGE>
[Photograph of control center in secure institutional facility] Secure
institutional correctional and detention services primarily consist of the
operation of secure adult minimum to maximum incarceration facilities.
o The Company and its predecessors have over 10 years experience in the
secure institutional market.
o Has contracts to operate six residential facilities with a total
offender capacity of 3,882.
o Includes general educational and substance abuse programs, certain
transportation services and
institutional food services.
[Photograph of counseling session at pre-release center] Pre-release
correctional services primarily consist of providing pre-release and halfway
house programs for adult offenders serving the last three to six months of their
sentences and preparing for re-entry into society at large.
o The Company and its predecessors have over 20 years experience in the
pre-release market.
o Has contracts to operate 14 residential facilities with a total
offender capacity of 1,324.
o Focus is upon rehabilitation and re-entry into society at large.
o Programs include life skills and employment training and job placement
assistance.
[Photograph of juvenile participating in wilderness program] Juvenile
correctional and detention services primarily consist of providing residential
treatment and educational programs and non-residential community-based programs
to juvenile offenders between the ages of 10 and 17 who have either been
adjudicated or suffer from behavioral problems.
o The Company and its predecessors have over 24 years experience in the
juvenile market.
o Has contracts to operate 10 residential and 11 non-residential
facilities with a total offender capacity of 1,866.
o Programs include counseling, wilderness, medical and accredited
educational programs tailored to meet the special needs of juveniles.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT COVERING TRANSACTIONS IN THE
COMMON STOCK AND THE IMPOSITION OF A PENALTY BID, DURING AND AFTER THE OFFERING.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE
INDICATES: (I) ALL REFERENCES TO THE "COMPANY" INCLUDE CORNELL CORRECTIONS,
INC. AND ITS SUBSIDIARIES AND THEIR RESPECTIVE PREDECESSORS; (II) THE
INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION; (III) ALL REFERENCES TO NUMBER OF BEDS WITH
RESPECT TO THE COMPANY'S RESIDENTIAL FACILITIES ARE TO DESIGN CAPACITY AND (IV)
ALL REFERENCES TO TOTAL OFFENDER CAPACITY INCLUDE DESIGN CAPACITY BEDS PLUS THE
PROGRAM CAPACITY OF THE COMPANY'S NON-RESIDENTIAL, COMMUNITY-BASED OPERATIONS.
THE COMPANY
The Company is one of the leading providers of privatized correctional,
detention and pre-release services in the United States based on total offender
capacity. The Company is the successor to entities that began developing secure
institutional correctional and detention facilities in 1987, pre-release
facilities in 1977 and juvenile facilities in 1973. The Company has
significantly expanded its operations through acquisitions and internal growth
and is currently operating or developing facilities in 10 states and the
District of Columbia. As of September 9, 1997, the Company has contracts to
operate 41 facilities with a total offender capacity of 7,072, which has
significantly increased from 3,577 offenders at December 31, 1996. For the six
months ended June 30, 1997, the Company's revenues were $28.0 million,
representing an increase of 147% from $11.3 million for the six months ended
June 30, 1996. The Company had net income of $1.3 million compared to a net loss
of $710,000 for the same respective six month periods.
The Company provides integrated facility development, design, construction
and operational services to governmental agencies within three areas of
operational focus: (i) secure institutional correctional and detention services;
(ii) pre-release correctional services and (iii) juvenile correctional and
detention services. Secure institutional correctional and detention services
primarily consist of the operation of secure adult incarceration facilities.
Pre-release correctional services primarily consist of providing pre-release and
halfway house programs for adult offenders who are either on probation or
serving the last three to six months of their sentences on parole and preparing
for re-entry into society at large. Juvenile correctional and detention services
primarily consist of providing residential treatment and educational programs
and non-residential community-based programs to juvenile offenders between the
ages of 10 and 17 who have either been adjudicated or suffer from behavioral
problems. At the adult facilities it operates, the Company generally provides
maximum and medium security incarceration and minimum security residential
services, institutional food services, certain transportation services, general
education programs (such as high school equivalency and English as a second
language programs), health care (including medical, dental and psychiatric
services), work and recreational programs and chemical dependency and substance
abuse programs. Additional services provided in the Company's pre-release
facilities typically include life skills and employment training and job
placement assistance. Juvenile services provided by the Company include
counseling, wilderness, medical and accredited educational programs tailored to
meet the special needs of juveniles. The Company derives substantially all its
revenues from operating correctional, detention and pre-release facilities for
federal, state and local governmental agencies in the United States. Of the
facilities operated by the Company, 11 are owned, 26 are leased and four are
operated or currently under development through other arrangements. See
"Business -- Properties."
In the United States, there is a growing trend toward privatization of
government services and functions, including correctional and detention
services, as governments of all types face continuing pressure to control costs
and improve the quality of services. According to the Private Adult Correctional
Facility Census dated March 15, 1997 ("1996 Facility Census"), the design
capacity of privately managed adult secure institutional correctional and
detention facilities in operation or under construction worldwide increased from
10,973 beds at December 31, 1989 to 85,201 beds at December 31, 1996, a compound
annual growth rate of 29%. In addition, the design capacity of privately managed
adult secure institutional correctional and detention facilities increased 34%
in the last year.
3
<PAGE>
The United States leads the world in private prison management contracts.
The 1996 Facility Census reports that at December 31, 1996 there were private
adult secure institutional correctional and detention facilities in operation or
under construction in 25 states, the District of Columbia and Puerto Rico.
According to reports issued by the United States Department of Justice, Bureau
of Justice Statistics (the "BJS"), the number of adult offenders housed in
United States federal and state prison facilities and in local jails increased
from 744,208 at December 31, 1985 to 1,630,940 at June 30, 1996, a compound
annual growth rate of 7.8%. Management believes that the increase in the demand
for privatized adult secure institutional correctional and detention facilities
is also a result, in large part, of the general shortage of beds available in
United States adult secure institutiional correctional and detention facilities.
The pre-release correctional services industry has experienced substantial
growth. According to the BJS, the number of parolees increased from 220,438 at
December 31, 1980 to 690,159 at December 31, 1994, representing a compound
annual growth rate of 8.5%. During the same period, the number of individuals on
probation increased from 1.1 million to approximately 3.0 million, representing
a compound annual growth rate of 7.4%. The probation and parole populations
represent approximately 71% of the total number of adults under correctional
supervision in the United States. The pre-release correctional services industry
is extremely fragmented with several thousand providers across the country, most
of which are small and operate in a specific geographic area.
The juvenile corrections industry has also expanded rapidly in recent years
as the need for services for at-risk and adjudicated youth has risen. According
to the Criminal Justice Institute, the population in the juvenile correctional
system, both residential and non-residential community-based, has increased from
62,268 youths at January 1, 1988 to 102,582 youths at January 1, 1995,
representing a compound annual growth rate of 7.4%. In 1994, there were
approximately 2.7 million juvenile arrests and 5.3 million youths in special
education programs. The juvenile corrections industry is also fragmented with
several thousand providers across the country, most of which are small and
operate in a specific geographic area.
OPERATING STRATEGIES
The Company's objective is to enhance its position as one of the leading
providers of privatized correctional, detention and pre-release services. The
Company is committed to the following operating strategies: (i) diversifying its
business within all three areas of its operational focus; (ii) delivering cost
effective and quality management programs in all of its markets and (iii)
providing specialized and innovative services to address the unique needs of
governmental agencies and certain segments of the offender population.
GROWTH STRATEGIES
The Company expects the growth in privatization of correctional, detention
and pre-release facilities by governmental agencies to continue in the
foreseeable future. The Company continues to seek to increase revenues by
pursuing the following growth strategies: (i) selectively pursuing opportunities
to obtain contract awards for new privatized facilities; (ii) increasing design
capacity and program capacity at existing facilities and (iii) pursuing
strategic acquisitions. By expanding the number of beds under contract and its
program capacities, the Company increases economies of scale and purchasing
power and enhances its opportunities for larger contract awards.
4
<PAGE>
RECENT DEVELOPMENTS
ACQUISITIONS
The Company has completed four acquisitions since May 1996 and believes
that the private correctional and detention industry is positioned for further
consolidation. The Company believes that the larger, better capitalized
providers will continue to acquire smaller providers that are insufficiently
capitalized to pursue the industry's growth opportunities. The Company intends
to pursue selective acquisitions of other operators of private correctional and
detention facilities in secure institutional, pre-release and juvenile areas of
operational focus to enhance its position in its current markets, to expand into
new markets and to broaden the types of services which the Company can provide.
In addition, the Company believes there are opportunities to eliminate costs
through consolidation and coordination of the Company's current and subsequently
acquired operations.
In September 1997, the Company acquired substantially all of the assets of
The Abraxas Group, Inc. and four related entities (collectively, "Abraxas").
Abraxas is a non-profit provider of residential and non-residential
community-based juvenile programs, serving approximately 1,400 juvenile
offenders throughout Pennsylvania, Ohio, Delaware and the District of Columbia.
In January 1997, the Company acquired substantially all of the assets of
Interventions Co. ("Interventions"), a non-profit operator of a 300 bed adult
residential pre-release facility in Dallas, Texas and a 150 bed capacity
residential transitional living center for juveniles in San Antonio, Texas.
During 1996 the Company acquired (i) a 310 bed adult residential
pre-release facility located in Houston, Texas (the "Reid Center") and (ii)
substantially all of the assets of MidTex Detentions, Inc. ("MidTex"), a
private correctional operator for the Federal Bureau of Prisons ("FBOP").
MidTex operated secure institutional facilities in Big Spring, Texas with a
design capacity of 1,305 beds (the "Big Spring Complex").
NEW CONTRACT AWARDS
In June 1997, the Company was awarded a contract with the State of Georgia
to design, build, finance and operate a 550 bed minimum to medium security adult
correctional facility. The facility will be owned and financed by the Company,
and is scheduled to be completed during the third quarter of 1998.
In February 1997, the Company received an award from Santa Fe County to
design, build and operate a 760 total bed project in Santa Fe, New Mexico, which
will be completed in phases. The Company took over the operation of an existing
240 bed adult and juvenile jail on July 1, 1997, with construction of a new 604
bed adult detention facility currently scheduled to be completed during the
second quarter of 1998. The 240 bed jail will subsequently be converted into a
156 bed residential juvenile detention facility and is scheduled to be completed
during the fourth quarter of 1998.
INTERNAL EXPANSION
In addition to smaller expansions within certain of its existing
facilities, the Company recently began construction of a 516 bed expansion of
the Big Spring Complex. This expansion is scheduled to be completed during the
second quarter of 1998 and will bring the total design capacity at the Big
Spring Complex to 1,868 beds, making it one of the largest correctional
facilities operated by a private provider in the State of Texas.
EXPANDED CREDIT FACILITY
To fund its growth and operating strategies, in September 1997 the Company
entered into a new $60 million revolving line of credit (the "1997 Credit
Facility"), which replaced its prior $15 million revolving line of credit (the
"1996 Credit Facility"). The 1997 Credit Facility, which matures in 2002, will
be used by the Company for acquisitions and working capital purposes.
------------------------
The Company's principal executive offices are located at 4801 Woodway,
Suite 100E, Houston, Texas 77056, and its telephone number at such address is
(713) 623-0790.
5
<PAGE>
THE OFFERING
Common Stock offered by the
Company............................ 2,250,000 shares
Common Stock offered by the Selling
Stockholders....................... 500,000 shares(1)
Total Common Stock offered...... 2,750,000 shares
Common Stock to be outstanding after
the Offering....................... 9,355,404 shares(2)
Use of Proceeds by the Company....... For repayment of borrowings, working
capital and general corporate purposes.
See "Use of Proceeds."
American Stock Exchange symbol....... CRN
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(1) An aggregate of 209,073 of the shares of Common Stock offered by the Selling
Stockholders results from warrant exercises immediately prior to the
Offering. See "Principal and Selling Stockholders."
(2) Excludes an aggregate of: (i) 594,498 shares of Common Stock reserved for
issuance upon exercise of outstanding stock options granted under the
Company's 1996 Stock Option Plan (the "Stock Option Plan"); (ii) 295,856
shares of Common Stock reserved for issuance upon exercise of outstanding
stock options and warrants not included under the Stock Option Plan and
(iii) 354,334 shares of Common Stock to be reserved for issuance upon the
exercise of long-term incentive stock options proposed to be granted by the
Company's Board of Directors which grants will be subject to approval by the
stockholders of an amendment to the Stock Option Plan or the adoption of a
new stock option plan (the "Long-Term Incentive Options"). See
"Management -- Stock Option Plan," "Management -- Proposed Stock Option
Grants" and Note 6 of Notes to the Company's Consolidated Financial
Statements.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The summary consolidated financial data set forth below should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto, "Pro Forma Financial Data" and "Selected Consolidated Historical and
Pro Forma Financial Data" included elsewhere in this Prospectus. The Pro Forma
Statement of Operations Data for the year ended December 31, 1996 and for the
six months ended June 30, 1997 and the Pro Forma Balance Sheet Data as of June
30, 1997 reflect the results of operations and consolidated financial position
of the Company and its subsidiaries as if: (i) the acquisitions by the Company
in 1996 and 1997; (ii) the exercise of outstanding warrants relating to the
shares of Common Stock to be sold by the Selling Stockholders in the Offering
and (iii) the Offering and the application of the estimated net proceeds
therefrom by the Company, had occurred, in the case of the Statement of
Operations Data, on January 1, 1996, and, in the case of the Balance Sheet Data,
on June 30, 1997.
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------------------------------- PRO FORMA
SIX MONTHS ------------
ENDED YEAR
YEAR ENDED DECEMBER 31, JUNE 30, ENDED
---------------------------------------------------- --------------------- DECEMBER 31,
1992 1993 1994(1) 1995 1996(2) 1996 1997 1996
--------- --------- ------- --------- ------- --------- --------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................... $ 2,540 $ 3,198 $15,689 $ 20,692 $32,327 $ 11,337 $28,041 $ 80,385
Income (loss) from operations...... 910 (960) (343) (10) 339 (263) 2,147 4,076
Interest expense(3)................ -- -- 294 1,115 2,810 498 209 177
Income (loss) before income
taxes............................. 940 (915) (499) (989) (2,304) (710) 2,024 4,080
Net income (loss).................. 940 (915) (600) (989) (2,379) (710) 1,295 2,448
Earnings (loss) per share.......... $ .38 $ (.34) $ (.16) $ (.25) $ (.53) $ (.20) $ .18 $ .28
Number of shares used in per share
computation(4).................... 2,491 2,695 3,811 3,983 4,466 3,523 7,139 8,775
OPERATING DATA:
Total offender capacity:
Residential...................... -- 302 1,281 1,640 3,577 2,044 5,872 4,527
Non-residential community-
based........................... -- -- -- -- -- -- -- 900
Total........................ -- 302 1,281 1,640 3,577 2,044 5,872 5,427
Beds under contract (end of
period)........................... -- 282 1,155 1,478 3,254 1,796 5,367 4,098
Contracted beds in operation (end
of period)........................ -- 282 1,155 1,135 2,899 1,561 3,541 3,743
Average occupancy based on
contracted beds in operation(6)... -- -- 92.1% 98.9% 97.0% 95.8% 96.4% 92.7%
</TABLE>
SIX MONTHS
ENDED
JUNE 30,
1997
-----------
STATEMENT OF OPERATIONS DATA:
Revenues........................... $45,165
Income (loss) from operations...... 3,347
Interest expense(3)................ 88
Income (loss) before income
taxes............................. 3,345
Net income (loss).................. 2,141
Earnings (loss) per share.......... $ .24
Number of shares used in per share
computation(4).................... 8,795
OPERATING DATA:
Total offender capacity:
Residential...................... 6,372
Non-residential community-
based........................... 900
Total........................ 7,272
Beds under contract (end of
period)........................... 5,867
Contracted beds in operation (end
of period)........................ 4,041
Average occupancy based on
contracted beds in operation(6)... 95.1%
JUNE 30, 1997
-------------------------
HISTORICAL PRO FORMA
---------- ---------
(UNAUDITED)
BALANCE SHEET DATA:
Working capital.................... $ 5,318 $24,236
Total assets....................... 53,282 90,304
Long-term debt, including current
portion........................... 2,592 592
Stockholders' equity............... 42,537 76,385
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(1) Includes operations purchased by the Company in March 1994.
(2) Includes operations purchased by the Company in May and July 1996.
(3) Interest expense for 1996 includes a $1.3 million non-recurring charge
($726,000 of which was non-cash) to expense deferred financing costs
associated with the early retirement of debt.
(4) Prior to March 31, 1994, the Company was organized as a partnership. For
purposes of computing average shares outstanding for the period prior to
March 31, 1994, the partnership units were converted to common shares using
a one-to-one unit-to-share conversion ratio.
(5) Supplemental per share data is presented to show what the earnings would
have been if the repayment of debt with proceeds from the Offering had taken
place at the beginning of the period.
(6) For any applicable residential facilities, includes reduced occupancy during
the start-up phase. See "Business -- Facility Management Contracts." For
the year ended December 31, 1993, occupancy did not commence until December
1993.
7
<PAGE>
RISK FACTORS
ANY INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING
FACTORS, WHICH CAN AFFECT THE COMPANY'S CURRENT POSITION AND FUTURE PROSPECTS,
IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, IN CONNECTION
WITH ANY INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY.
HISTORY OF LOSSES
Although the Company reported net income of $1.3 million for the six months
ended June 30, 1997, the Company incurred net losses of $600,000, $989,000 and
$2.4 million for the years ended December 31, 1994, 1995 and 1996, respectively.
No assurance can be given that the Company will not incur losses in future
periods. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations."
ACQUISITION RISKS; INTEGRATION OF ACQUISITIONS
The Company's business strategy includes growth through acquisitions. This
strategy presents risks that, singly or in any combination, could materially
adversely affect the Company's business and financial performance. These risks
include the possible adverse effects of acquisitions on existing operations of
the Company, the diversion of management attention and resources to
acquisitions, the dependence on retaining key personnel, the contingent and
latent risks associated with the past operations of, and other unanticipated
problems arising in, acquired businesses and the possible adverse earnings
effects resulting from the amortization of goodwill and other intangible assets.
The success of the Company's acquisition strategy will depend on the extent to
which it is able to acquire, successfully integrate and profitably operate
additional businesses, and no assurance can be given that the Company's strategy
will succeed. In addition, no assurance can be given that the Company can
acquire additional businesses at prices and on terms the Company deems
reasonable. In this regard, the Company likely will be competing with other
potential acquirers, some of which are larger and have greater resources than
the Company, and the cost of acquiring businesses could increase materially.
As a result of the acquisitions of Interventions and Abraxas (the "1997
Acquisitions"), total offender capacity has increased by approximately 1,850
since December 31, 1996. Prior to the 1997 Acquisitions, both Interventions and
Abraxas were operated as non-profit organizations. Consequently, no assurance
can be given that the Company will be able to successfully integrate the
operations and personnel of the 1997 Acquisitions with those of the Company on a
profitable basis, and the Company's 1997 pro forma financial information may not
be indicative of the future financial condition or performance of those entities
when combined with the Company. See "Pro Forma Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General." The inability of the Company to successfully integrate
the businesses and operations of the 1997 Acquisitions could have a material
adverse effect on the Company's financial condition and results of operations.
REVENUE AND PROFIT GROWTH DEPENDENT ON EXPANSION
The internal growth of the Company will depend on its ability to obtain
additional management contracts for privatized correctional and detention
facilities. The Company's ability to obtain new contracts will depend on the
extent to which federal, state and local governmental agencies turn to the
private sector in general and the Company in particular for the management of
new or existing facilities or the expansion of existing facilities.
Additionally, since contracts to operate existing public facilities have
historically not been offered to private operators, the Company's growth rate
will generally be dependent on the construction and operation of new
correctional and detention facilities. Because correctional and detention
services are essential public services, governmental agencies (and, in many
states, state legislatures as well) will have to be persuaded that privatization
will result in high-quality services at less cost than that which the agencies
themselves could provide. The Company's ability to obtain new contracts also
will depend on the extent to which the Company is able to secure awards in
competition with other private-sector providers. Factors that will affect the
Company's ability to compete effectively in bidding against other providers will
8
<PAGE>
include (i) the price and other terms of the Company's bids; (ii) the financial
ability of the Company to make capital investments or post bonds or other credit
support which may be required and (iii) particularly in the case of secure
institutional adult facilities, the extent to which the Company is able to
effectively compete with the two companies now holding the major share of
contracts for currently privatized adult facilities. No assurance can be given
that the Company will be able to obtain additional contracts to develop or
operate new facilities on favorable terms.
NEED FOR ADDITIONAL FINANCING
The Company's ability to compete effectively in bidding for new contracts
will depend on certain factors, including, in certain circumstances, the ability
of the Company to make capital investments and finance construction costs
relating to secure institutional contract awards. In addition, the Company's
acquisition strategy will require the Company to obtain financing for such
acquisitions on terms the Company deems acceptable. The Company currently
intends to use debt to finance such activities although, in certain
circumstances, the Company may use shares of its Common Stock in making future
acquisitions. No assurance can be given that the Company will be able to obtain
debt financing on terms it considers acceptable or in the amounts necessary to
finance acquisitions or the construction of new facilities. The extent to which
the Company will be able or willing to use Common Stock as a financing source
for acquisitions will depend on its market value from time to time and the
willingness of potential sellers to accept it as full or partial payment. The
use of a significant amount of debt financing would increase interest expense
and could adversely affect operating results. In the event the Company issues
additional Common Stock in connection with future acquisitions, purchasers of
Common Stock in the Offering may experience further dilution in the net tangible
book value per share of the Common Stock.
FACILITY OCCUPANCY LEVELS AND CONTRACT DURATION
A substantial portion of the Company's revenues are generated under
residential facility management contracts that specify a rate per day per
offender ("per diem rate"), while a substantial portion of the Company's cost
structure is fixed. Under a per diem rate structure, a decrease in occupancy
rates would cause a decrease in revenues and profitability. For each of its
facilities the Company is, therefore, dependent on the contracting governmental
agency or agencies to supply the facility with a sufficient number of offenders
to meet and exceed the facility's break-even design capacities, and in most
cases the applicable governmental agency or agencies are under no obligation to
do so. In certain cases, soliciting additional offenders from other governmental
agencies to meet capacity shortfalls in Company facilities is not a viable
alternative. Moreover, because many of the Company's facilities have offenders
serving relatively short sentences or only the last three to six months of their
sentences, the high turnover rate of offenders requires a constant influx of new
offenders from the relevant governmental agencies to provide sufficient
occupancies to achieve profitability. A failure of a governmental agency to
supply sufficient occupancies for any reason may cause the Company to forego
revenues and income. Moreover, occupancy rates during the "start-up" phase
when facilities are first opened typically result in capacity underutilization
for a one-to three-month period after the facilities first receive offenders. As
a result, as the Company opens or begins operating new facilities under new
contracts, there may be a delay in reaching sufficient occupancies to meet the
break-even level of the facilities' design capacities, and the Company may incur
operating losses at such new facilities until these occupancy levels are
reached.
The Company's facility management contracts typically have terms ranging
from one to five years, and renewal is at the option of the contracting
governmental agency. No assurance can be given that any agency will exercise a
renewal option in the future. Additionally, contracting governmental agencies
typically may terminate a facility contract without cause by giving the Company
adequate written notice. Any such termination could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Facility Management Contracts."
9
<PAGE>
FIXED REVENUE STRUCTURE
Most of the Company's facility management contracts provide for payments to
the Company of either fixed per diem rates or per diem rates that increase by
only small amounts during the terms of the contracts. If, as a result of
inflation or other causes, the Company experiences increases in personnel costs
(the largest component of facility management expense) or other operating
expenses at rates faster than increases, if any, in per diem rates, then the
Company's results of operations would be adversely affected.
POSSIBLE LOSS OF LEASE RIGHTS
The site of the Big Spring Complex (1,352 beds, currently being expanded to
1,868 beds) is part of a larger tract of land (the "Larger Tract"), which was
formerly part of a United States Air Force base conveyed to the City of Big
Spring by the United States government in 1978. The document conveying the
Larger Tract to the City of Big Spring (the "Conveyance") contains certain
restrictive covenants relating to the use of the Larger Tract that apply to the
City of Big Spring and its lessees and any successors and assigns to the
ownership of the Larger Tract. These restrictive covenants include provisions
generally requiring use of the Larger Tract for public airport purposes unless
otherwise consented in writing by the Federal Aviation Administration (the
"FAA"), requiring certain maintenance of facilities on the Larger Tract and
requiring the availability of the Larger Tract for use by federal aircraft. The
Conveyance also permits the United States government to use the Larger Tract in
the case of a national emergency and permits the FAA to be furnished portions of
the Larger Tract and any structures located thereon for use in construction,
operation or maintenance of facilities for air traffic control activities. The
Conveyance further provides that, at the option of the grantor, title to the
Larger Tract would revert to the grantor upon any breach of the provisions of
the Conveyance, following notice of breach by the FAA and a 60-day grace period
to cure any such breach.
The FAA reviewed the operating agreement and the related agreements between
the City of Big Spring and the Company which permit the Company to operate the
Big Spring Complex and advised the City of Big Spring in writing that it had no
objections to the execution thereof by the parties thereto. While the Company
believes that (i) the City of Big Spring is in substantial compliance with the
terms of the Conveyance and (ii) even if not in substantial compliance, the FAA
is aware of (and has not objected to) all past and present uses of the Larger
Tract by the City of Big Spring and its lessees, the FAA could assert that such
uses of the Larger Tract violate the Conveyance. In addition, the City of Big
Spring has used and leased, and may in the future use or lease, other portions
of the Larger Tract for other purposes with respect to which the Company is not
involved and may not be aware. The continued compliance by the City of Big
Spring (or its successors or assigns or other lessees) with the terms of the
Conveyance is not within the control of the Company, and any breach by the City
of Big Spring (or its successors or assigns or other lessees) could result in
reversion of title of all or a portion of the Larger Tract to the United States
government. The agreements between the Company and the City of Big Spring do not
give the Company recourse against the City of Big Spring in the case of such a
reversion. In addition, the Company does not have any assurances from the FAA
that it would give effect to the Company's lease rights in the event of such a
reversion. Accordingly, in the case of a reversion of the Larger Tract, or in
any case in which the United States government or the FAA has superior rights to
use the Larger Tract, the continued ability of the Company to lease and use the
Big Spring Complex could be subject to the discretion of the United States
government or the FAA. The inability of the Company to continue to operate the
Big Spring Complex would have a material adverse effect on the Company's
financial condition and results of operations.
BUSINESS CONCENTRATION
Contracts with the FBOP and the California Department of Corrections
("CDC") currently account for approximately 58% of the Company's revenues. The
loss of, or a significant decrease in, business from one or both of these
governmental agencies would have a material adverse effect on the Company's
financial condition and results of operations.
10
<PAGE>
CONTRACTS SUBJECT TO GOVERNMENT 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
negatively affect the Company's cash flow. See "Business -- Facility Management
Contracts." Furthermore, in many cases the development and construction of
facilities to be managed by the Company are subject to obtaining permanent
facility financing. Such financing currently may be obtained through a variety
of means, including private bank debt, the sale of tax-exempt bonds or other
obligations or direct government appropriation. The sale of tax-exempt bonds or
other obligations may be adversely affected by changes in applicable tax laws or
adverse changes in the market for such securities.
The Company has in the past worked with governmental agencies and placement
agents to obtain and structure financing for construction of facilities. In some
cases, an unrelated special purpose corporation is established to incur
borrowings to finance construction and, in other cases, the Company directly
incurs borrowings for construction financing. A growing trend in the
privatization industry is the requirement by governmental agencies that private
operators make capital investments in new facilities and enter into direct
financing arrangements in connection with the development of such facilities.
There can be no assurance that the Company will have available capital if and
when required to make such an investment to secure a contract for developing a
facility. See "Business -- Facility Design, Construction and Finance."
GOVERNMENT REGULATION; OVERSIGHT, AUDITS AND INVESTIGATIONS
The Company's business is highly regulated by a variety of governmental
authorities which continuously oversee the Company's business and operations.
For example, the contracting governmental agency typically assigns full-time,
on-site personnel to secure institutional facilities to monitor the Company's
compliance with contract terms and applicable regulations. Failure by the
Company to comply with contract terms or regulations could expose it to
substantial penalties, including the loss of a management contract. In addition,
changes in existing regulations could require the Company to modify
substantially the manner in which it conducts business and, therefore, could
have a material adverse effect on the Company.
Additionally, the Company's contracts give the contracting agency the right
to conduct audits of the facilities and operations managed by the Company for
the agency, and such audits occur routinely. An audit involves a governmental
agency's review of the Company's compliance with the prescribed policies and
procedures established with respect to the facility. The Company also may be
subject to investigations as a result of an audit, an offender's complaint or
other causes.
ACCEPTANCE OF PRIVATIZED CORRECTIONAL AND DETENTION FACILITIES
Management of correctional and detention facilities by private entities has
not achieved acceptance by many governmental agencies. Some sectors of the
federal government and some state governments are legally unable to delegate
their traditional management responsibilities for correctional and detention
facilities to private companies. The operation of correctional and detention
facilities by private entities is a relatively new concept, is not widely
understood and has encountered resistance from certain groups, such as labor
unions, local sheriffs' departments and groups that believe correctional and
detention facility operations should be conducted only by governmental agencies.
Such resistance may cause a change in public and government acceptance of
privatized correctional facilities. In addition, changes in political parties in
any of the markets in which the Company operates could result in significant
changes in elected officials' previously established views of privatization in
such markets.
OPPOSITION TO FACILITY LOCATION AND ADVERSE PUBLICITY
The Company's success in obtaining new awards and contracts may depend in
part upon its ability to locate land that can be leased or acquired on
economically favorable terms by the Company or other entities working with the
Company in conjunction with the Company's proposal to construct and/or manage a
facility. Some locations may be in or near populous areas and, therefore, may
generate legal action or other
11
<PAGE>
forms of opposition from residents in areas surrounding a proposed site. The
Company's business is subject to public scrutiny. Typically, the Company must
obtain and comply with zoning approvals and/or land use permits from local
governmental entities with respect to a facility. These approvals and permits
provide for the type of facility and, in certain cases, the types of offenders
that can be placed in the facility. In certain circumstances, public hearings
are required before obtaining such approvals and permits.
In addition to possible negative publicity about privatization in general,
an escape, riot, internal incident or other disturbance at a Company-operated
facility or another privately operated facility, or placement of one or more
notorious offenders or criminal or violent actions by offenders at a Company-
operated facility may result in publicity adverse to the Company and its
industry, which could materially adversely affect the Company's business.
Although the Company has not experienced any material adverse effect on its
business or results of operations as a result of previous escapes or
absconsions, no assurance can be given that any future escapes or absconsions
would not have a material adverse effect on the Company's business or results of
operations.
POTENTIAL LEGAL LIABILITY
The Company's management of correctional, detention and pre-release
facilities exposes it to potential third-party claims or litigation by offenders
or other persons for personal injury or other damages resulting from contact
with Company-operated facilities, programs, personnel or offenders, including
damages arising from an offender's escape or absconscion or from a disturbance
or riot at a Company-operated facility. The U.S. Supreme Court has recently held
that prison guards employed by private firms are not entitled to qualified
immunity from suit by prisoners for violations of their rights. In addition,
certain of the Company's correctional, detention and pre-release centers
(including certain of the Company's medium and minimum security facilities)
contain a high-risk population, many of whom have been convicted of or charged
with violent offenses. As a result, certain offenders at Company-operated
facilities could pose risks to the public at large for which it may be alleged
that the Company should be held liable. Moreover, the Company's management
contracts generally require the Company to indemnify the governmental agency
against any damages to which the governmental agency may be subject in
connection with such claims or certain other liability risks faced by the
Company, including personal or bodily injury, death or property damage to a
third party if the Company is found to be negligent. Insurance is a
pre-requisite for obtaining and maintaining the Company's management contracts.
While insurance is currently readily available to the Company, there can be no
assurance that insurance will continue to be available on commercially
reasonable terms or will be adequate to cover all potential claims. See
"Business -- Insurance." In addition, the Company is involved in certain
litigation matters resulting from the ordinary course of business at its
facilities. In the opinion of management of the Company, the outcome of the
proceedings to which the Company is currently a party, in the aggregate, will
not have a material adverse effect upon the Company's operations or financial
condition. See "Business -- Litigation."
COMPETITION
The Company competes with a number of companies, including, but not limited
to, Corrections Corporation of America ("CCA"), Wackenhut Corrections
Corporation ("WHC"), Youth Services International, Inc. and Correctional
Services Corporation. At December 31, 1996, CCA and WHC accounted for more than
75% of the privatized secure institutional adult beds under contract in the
United States, according to the 1996 Facility Census. The Company also competes
in some markets with small local companies that have better knowledge of the
local conditions and may be better able to gain political and public acceptance.
Although certain states require substantial capital investments in new projects,
other states may allow potential competitors to enter the Company's business
without substantial capital investment or previous experience in the management
of correctional and detention facilities. In addition, the Company may compete
in some markets with governmental agencies that operate correctional and
detention facilities. The Company believes its industry is subject to
consolidation on both a national and a regional scale. Other companies having
growth objectives similar to the Company's objectives may enter the industry.
These companies may have greater financial resources than the Company to finance
12
<PAGE>
acquisition and internal growth opportunities. Consequently, the Company may
encounter significant competition in its efforts to achieve its growth strategy.
See "Business -- Competition."
ECONOMIC RISKS ASSOCIATED WITH DEVELOPMENT ACTIVITIES
When the Company is engaged to act as project manager for the design and
construction of a facility, the Company typically acts as the primary contractor
and subcontracts with other parties that act as the general contractors. As
primary contractor, the Company is subject to the various risks of construction
(including shortages of labor and materials, work stoppages, labor disputes and
weather interference) which could cause construction delays, and the Company is
subject to the risk that the general contractor will be unable to complete
construction at the budgeted costs or to fund any excess construction costs.
Under such contracts the Company is ultimately liable for all late delivery
penalties and cost overruns.
DEPENDENCE ON EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
The Company depends greatly on the efforts of its executive officers and
key personnel to obtain new contracts, to make acquisitions and to manage the
Company's operations. The loss or unavailability of any of the Company's
executive officers could have an adverse effect on the Company. The Company's
ability to perform under current and new contracts will depend, in part, on its
ability to attract and retain qualified senior executives and operating
personnel. There is significant competition for qualified facility
administrators, managers, counselors and other key personnel, and no assurance
can be given that the Company will be successful in recruiting or training a
sufficient number of officers or employees of the requisite caliber to enable
the Company to operate its business and implement its growth strategy as
planned. See "Management."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
Sales of a substantial number of shares of Common Stock in the public
market following the Offering, or the perception that such sales could occur,
could have an adverse effect on the market price of the Common Stock. Upon
completion of the Offering, 9,355,404 shares of Common Stock will be
outstanding, and 890,354 shares will be issuable upon exercise of outstanding
warrants and stock options. The 2,750,000 shares of Common Stock sold in the
Offering will be freely tradeable without restriction or further registration
under the Securities Act of 1933, as amended (the "Securities Act"), except
for any shares purchased by an "affiliate" of the Company (as that term is
defined under the Securities Act), which will be subject to the resale
limitations of Securities Act Rule 144. A total of 2,146,742 outstanding shares
of Common Stock (including shares issuable upon exercise of outstanding options
and warrants) held by the Company's current stockholders will be "restricted
securities" (within the meaning of Rule 144) and, therefore, will not be
eligible for sale to the public unless they are sold in transactions registered
under the Securities Act or pursuant to an exemption from Securities Act
registration, including pursuant to Rule 144. The Company has agreed to provide
holders of 2,416,201 of these shares (including shares issuable upon exercise of
outstanding options and warrants) with certain rights to have their shares
registered under the Securities Act for public resale. See "Certain
Relationships and Related Party Transactions -- Registration Rights Agreement."
In 1996, the Company filed a registration statement on Form S-8 under the
Securities Act to register 880,000 shares of Common Stock reserved or to be
available for issuance pursuant to the Stock Option Plan.
The Company and persons who will beneficially own in the aggregate
2,702,251 shares of Common Stock (including shares issuable upon exercise of
outstanding options and warrants) upon completion of the Offering, including the
Company's directors and executive officers, have agreed not to offer or sell any
shares of Common Stock prior to the expiration of at least 90 days following the
date of this Prospectus without the prior written consent of SBC Warburg Dillon
Read Inc. ("SBC Warburg Dillon Read"), subject to certain exceptions. See
"Underwriting."
13
<PAGE>
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock after the Offering may be subject to
significant fluctuations from time to time in response to numerous factors,
including variations in the reported periodic financial results of the Company,
changing conditions in the economy in general or in the Company's industry in
particular and unfavorable publicity affecting the Company or its industry. In
addition, stock markets generally, and the stock prices of competitors in the
Company's industry, experience significant price and volume volatility from time
to time which may affect the market price of the Common Stock for reasons
unrelated to the Company's performance.
IMMEDIATE SUBSTANTIAL DILUTION
Purchasers of Common Stock in the Offering will experience an immediate and
substantial dilution of $8.48 in the pro forma net tangible book value per share
of their investment. In the event the Company issues additional Common Stock in
the future, including Common Stock that may be issued in connection with future
acquisitions, purchasers of Common Stock in the Offering may experience further
dilution in the net tangible book value per share of the Common Stock. See
"Dilution."
POTENTIAL ADVERSE EFFECTS OF AUTHORIZED PREFERRED STOCK
The Company's Restated Certificate of Incorporation (the "Certificate of
Incorporation") authorizes the Board of Directors to issue, without stockholder
approval, one or more series of preferred stock having such preferences, powers
and relative, participating, optional and other rights (including preferences
over the Common Stock respecting dividends and distributions and voting rights)
as the Board of Directors may determine. See "Description of Capital
Stock -- Preferred Stock."
POTENTIAL ADVERSE EFFECTS OF CONTROL OF COMPANY BY EXISTING STOCKHOLDERS
Certain current stockholders of the Company (the "Applicable
Stockholders"), who beneficially own in the aggregate approximately 9.4% of the
outstanding Common Stock following completion of the Offering assuming exercise
of their outstanding stock options, are parties to a Stockholders Agreement (the
"Stockholders Agreement"). The Stockholders Agreement provides that the
Applicable Stockholders agree to vote all shares of Common Stock owned by them
to elect two directors out of a six-member Board of Directors of the Company.
Consequently, the Applicable Stockholders, through their Common Stock holdings
and representation on the Board of Directors of the Company, will be able to
exercise influence over the policies and direction of the Company. The
Stockholders Agreement will terminate upon the first to occur of (i) October 7,
2000 or (ii) an Applicable Stockholder owning less than 350,000 shares of the
outstanding Common Stock (including shares of Common Stock issuable upon the
exercise of currently vested options). See "Certain Relationships and Related
Party Transactions -- Stockholders Agreement" and "Principal and Selling
Stockholders."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,250,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$33.4 million assuming a public offering price of $16.00 per share and after
deducting underwriting discounts and commissions and estimated offering
expenses. The Company will not receive any of the net proceeds from the sale of
Common Stock by the Selling Stockholders.
The net proceeds received by the Company in the Offering will be used to
repay the outstanding borrowings under the 1997 Credit Facility, which amounts
can be reborrowed from time to time after the Offering. Remaining proceeds will
be used for future acquisitions, partial repayment of new construction
financings, working capital and general corporate purposes.
As of September 9, 1997, the outstanding borrowings under the 1997 Credit
Facility totaled $21.0 million, with a stated interest rate of 8.75%. The
Company used borrowings under the 1997 Credit Facility to finance the 1997
Acquisitions and to fund a portion of the construction financing for the
expansion of the Big Spring Complex and the development of the facility in
Charlton County, Georgia (the "Charlton County Facility"). See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock of the Company is currently listed on the AMEX under the
symbol "CRN." On September 15, 1997, the last reported sales price for the
Common Stock on the AMEX was $16.00 per share. As of September 15, 1997, there
were approximately 44 record holders of the Common Stock. The high and low sales
prices for the Common Stock on the AMEX since the Common Stock began trading on
October 3, 1996 are shown below:
HIGH LOW
---- ----
1996:
Fourth Quarter (from
October 3).............. $12 3/4 $ 8 7/8
1997:
First Quarter.............. 11 5/8 9
Second Quarter............. 18 9
Third Quarter (through
September 15)........... 16 5/8 14 7/16
The Company has never declared or paid cash dividends on its capital stock.
The Company currently intends to retain excess cash flow, if any, for use in the
operation and expansion of its business and does not anticipate paying cash
dividends on the Common Stock in the foreseeable future. The payment of
dividends is within the discretion of the Board of Directors and will be
dependent upon, among other factors, the Company's results of operations,
financial condition, capital requirements and restrictions, if any, imposed by
financing commitments and legal requirements. The 1997 Credit Facility contains
restrictions on the payment of dividends. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
15
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company: (i) as of June 30, 1997; (ii) on a pro forma basis to give effect to
the Abraxas acquisition and (iii) on a pro forma basis adjusted to give effect
to the Offering and the application of the estimated net proceeds therefrom and
the exercise of outstanding warrants relating to the shares of Common Stock to
be sold by the Selling Stockholders in the Offering. See "Use of Proceeds."
This table should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto and "Pro Forma Financial Data"
included elsewhere in this Prospectus.
JUNE 30, 1997
----------------------------------------
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED
---------- --------- -----------
(DOLLARS IN THOUSANDS)
Long-term debt, including current
portion:
Credit Facility.................... $ 2,000 $21,000 $ --
Other.............................. 592 592 592
---------- --------- -----------
Total long-term debt,
including current
portion.................... 2,592 21,592 592
---------- --------- -----------
Stockholders' equity:
Preferred Stock, par value $.001
per share, 10,000,000 shares
authorized, none issued and
outstanding..................... -- -- --
Common Stock, par value $.001 per
share, 30,000,000 shares
authorized, 7,413,384 shares
issued and outstanding
historical and 9,872,457 shares
issued and outstanding pro forma
as adjusted(1).................. 7 7 10
Additional paid-in capital......... 47,753 47,753 81,598
Stock option loans................. (455) (455) (455)
Accumulated deficit................ (2,415) (2,415) (2,415)
Treasury stock (555,000 shares of
Common Stock, at cost).......... (2,353) (2,353) (2,353)
---------- --------- -----------
Total stockholders' equity.... 42,537 42,537 76,385
---------- --------- -----------
Total capitalization....... $ 45,129 $64,129 $76,977
========== ========= ===========
- ------------
(1) Excludes: (i) 594,498 shares of Common Stock reserved for issuance upon
exercise of outstanding stock options granted under the Stock Option Plan;
(ii) 295,856 shares of Common Stock reserved for issuance upon exercise of
other outstanding stock options and warrants and (iii) shares issuable with
respect to the Long-Term Incentive Options. See "Management -- Stock Option
Plan" and Note 6 of Notes to the Company's Consolidated Financial
Statements.
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<PAGE>
DILUTION
The pro forma net tangible book value of the Common Stock as of June 30,
1997 was $36,243,000, or approximately $5.28 per share. Pro forma net tangible
book value per share represents the amount of the Company's total tangible
assets less total liabilities, divided by the pro forma number of shares of
Common Stock outstanding. Pro forma net tangible book value dilution per share
represents the difference between the amount per share paid by purchasers of
shares of Common Stock in the Offering and the pro forma net tangible book value
per share of Common Stock immediately after completion of the Offering. After
giving effect to the Offering at an estimated public offering price of $16.00
per share and after deducting the underwriting discounts and commissions and
estimated offering expenses payable by the Company, the pro forma net tangible
book value of the Company as of June 30, 1997 would have been $70,091,000, or
approximately $7.52 per share. This represents an immediate increase in pro
forma net tangible book value of $2.24 per share to existing stockholders and an
immediate dilution in pro forma net tangible book value of $8.48 per share to
new investors in the Offering.
The following table illustrates this per share dilution:
Estimated public offering price per
share.............................. $ 16.00
Pro forma net tangible book value per
share before the Offering.......... $ 5.28
Increase per share attributable to
the Offering....................... 2.24
---------
Pro forma net tangible book value per
share after the Offering........... 7.52
---------
Dilution of net tangible book value
per share to new investors......... $ 8.48
=========
The following table sets forth, on an unaudited pro forma basis at June 30,
1997, the difference between the number of shares of Common Stock purchased from
the Company, the total consideration paid and the average price per share paid
by the existing holders of Common Stock and by the new investors, before
deducting the underwriting discounts and commissions and estimated offering
expenses payable by the Company at an estimated public offering price of $16.00
per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- -------------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 6,858,384 75.3% $ 47,760,000 57.0% $ 6.96
New investors........................ 2,250,000 24.7 36,000,000 43.0 16.00
---------- ------- -------------- -------
Total......................... 9,108,384 100.0% $ 83,760,000 100.0%
========== ======= ============== =======
</TABLE>
The foregoing table excludes (i) 594,498 shares of Common Stock reserved
for issuance upon exercise of outstanding stock options granted under the Stock
Option Plan; (ii) 295,856 shares of Common Stock reserved for issuance upon
exercise of other outstanding stock options and warrants and (iii) shares
issuable with respect to the Long-Term Incentive Options. See
"Management -- Stock Option Plan" and Note 6 of Notes to the Company's
Consolidated Financial Statements.
17
<PAGE>
PRO FORMA FINANCIAL DATA
The following unaudited pro forma condensed consolidated balance sheet as
of June 30, 1997 and the unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 1996 and for the six months ended
June 30, 1997 reflect the consolidated financial position and results of
operations, respectively, of the Company and its subsidiaries as if: (i) the
acquisition of Abraxas by the Company; (ii) the exercise of outstanding warrants
relating to the shares of Common Stock to be sold by the Selling Stockholders in
the Offering and (iii) the Offering and the application of the estimated net
proceeds therefrom, had occurred, in the case of the balance sheet, on June 30,
1997, and, in the case of the statements of operations, on January 1, 1996. In
addition, the unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 1996 and for the six months ended
June 30, 1997 reflect the results of operations as if the Company's initial
public offering in October 1996 ("IPO") and the acquisitions by the Company in
1996 and the acquisition of Interventions had occurred on January 1, 1996. These
statements do not purport to be indicative of the consolidated results of
operations of the Company that might have been obtained had these events
actually then occurred or of the Company's future results.
The pro forma condensed consolidated financial statements are based on
certain assumptions and estimates which are subject to change.
18
<PAGE>
CORNELL CORRECTIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
------------------ PRO FORMA PRO FORMA AS
THE PRO FORMA FOR THE OFFERING ADJUSTED FOR
COMPANY ABRAXAS ADJUSTMENTS ACQUISITION ADJUSTMENTS THE OFFERING
------- ------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents........ $1,579 $ 1,607 $ (853)(1) $ 2,333 $12,430(10) $ 15,181
418(11)
Receivables, net................. 8,383 8,398 -- 16,781 -- 16,781
Other current assets............. 3,071 829 (737)(2) 3,163 -- 3,163
------- ------- ----------- ---------- ----------- ------------
Total current assets........ 13,033 10,834 (1,590) 22,277 12,848 35,125
Property and equipment, net.......... 31,743 12,380 1,950(3) 46,073 -- 46,073
Intangibles.......................... 5,694 -- 600(4) 6,294 -- 6,294
Other assets......................... 2,812 2,261 (2,261)(2) 2,812 -- 2,812
------- ------- ----------- ---------- ----------- ------------
Total assets................ $53,282 $25,475 $(1,301) $ 77,456 $12,848 $ 90,304
======= ======= =========== ========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable and accrued
liabilities.................... $5,432 $ 3,752 $ 1,422(5) $ 10,606 $ -- $ 10,606
Current portion of long-term
debt........................... 2,283 3,154 (3,154)(6) 283 -- 283
(2,000)(7)
------- ------- ----------- ---------- ----------- ------------
Total current liabilities... 7,715 6,906 (3,732) 10,889 -- 10,889
Other long-term liabilities.......... 2,721 -- -- 2,721 -- 2,721
Long-term debt, excluding current
portion............................ 309 12,364 (12,364)(6) 21,309 (21,000)(10) 309
2,000(7)
19,000(8)
Stockholders' equity................. 42,537 6,205 (6,205)(9) 42,537 33,430(10) 76,385
418(11)
------- ------- ----------- ---------- ----------- ------------
Total liabilities and stockholders'
equity............................. $53,282 $25,475 $(1,301) $ 77,456 $12,848 $ 90,304
======= ======= =========== ========== =========== ============
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated balance
sheet.
19
<PAGE>
CORNELL CORRECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(1) Records a reduction to cash used to fund a portion of the Abraxas
acquisition costs.
(2) Records an adjustment to eliminate a reserve fund and other assets not
acquired in the Abraxas acquisition.
(3) Records a net increase in the carrying value of Abraxas property and
equipment to estimated fair value.
(4) Records the cost of a non-compete agreement with the President of Abraxas.
(5) Records accrued transaction costs and other Abraxas acquisition related
liabilities.
(6) Records the elimination of Abraxas current and non-current debt which was
not assumed by the Company in the Abraxas acquisition.
(7) Records the reclassification of the Company's current portion of long-term
debt to long-term debt as a result of refinancing amounts due under the
1996 Credit Facility with the 1997 Credit Facility.
(8) Records the increase in long-term debt related to financing the Abraxas
acquisition.
(9) Records the elimination of net assets of Abraxas prior to the acquisition.
(10) Records the sale of 2,250,000 shares of Common Stock, par value $.001 per
share, at $16.00 per share, net of underwriting discounts and commissions
and aggregate offering expenses of $500,000, the use of $21.0 million of
the net proceeds thereof to repay outstanding indebtedness, and the use of
the remaining proceeds of $12.4 million as an increase to cash.
(11) Records the assumed proceeds upon the exercise, concurrently with the
Offering, of stock warrants by certain Selling Stockholders in order to
purchase 209,073 shares of Common Stock that will be sold by such Selling
Stockholders in the Offering.
20
<PAGE>
CORNELL CORRECTIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------- TOTAL PRO FORMA
THE REID INTER- PRO FORMA FOR THE OFFERING
COMPANY MIDTEX CENTER VENTIONS ABRAXAS ADJUSTMENTS ACQUISITIONS ADJUSTMENTS
------- ------ ------ -------- ------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $32,327 $8,603 $1,131 $7,244 $31,080 $ -- $ 80,385 $ --
Operating expenses................... 26,038 5,774 997 5,608 24,078 5,270(1) 68,373 --
500(2)
108(3)
Depreciation and amortization........ 1,390 407 22 162 1,316 (866)(4) 2,387 --
60(5)
(18)(6)
(97)(7)
11(8)
General and administrative
expenses........................... 4,560 672 -- 644 4,943 (5,270)(1) 5,549 --
------- ------ ------ -------- ------- ----------- ------------ -----------
Income from operations............... 339 1,750 112 830 743 302 4,076 --
Interest expense..................... 2,810 843 -- 173 1,226 939(9) 1,671 (1,494)(14)
(1,281)(10)
(3,039)(11)
Interest income...................... (167 ) (14 ) -- (300) -- 300(12) (181) --
------- ------ ------ -------- ------- ----------- ------------ -----------
Income (loss) before provision for
income taxes....................... (2,304 ) 921 112 957 (483) 3,383 2,586 1,494
Provision for income taxes........... 75 -- -- -- -- 959(13) 1,034 598(13)
------- ------ ------ -------- ------- ----------- ------------ -----------
Net income (loss).................... $(2,379) $ 921 $ 112 $ 957 $ (483) $ 2,424 $ 1,552 $ 896
======= ====== ====== ======== ======= =========== ============ ===========
Earnings (loss) per share............ $ (.53 ) $ .22
======= ============
Number of shares used in per share
computation (thousands)(15)........ 4,466 7,119
======= ============
</TABLE>
PRO FORMA AS
ADJUSTED FOR
THE OFFERING
------------
Revenues............................. $ 80,385
Operating expenses................... 68,373
Depreciation and amortization........ 2,387
General and administrative
expenses........................... 5,549
------------
Income from operations............... 4,076
Interest expense..................... 177
Interest income...................... (181)
------------
Income (loss) before provision for
income taxes....................... 4,080
Provision for income taxes........... 1,632
------------
Net income (loss).................... $ 2,448
============
Earnings (loss) per share............ $ .28
============
Number of shares used in per share
computation (thousands)(15)........ 8,775
============
See accompanying notes to unaudited pro forma condensed consolidated statement
of operations.
21
<PAGE>
CORNELL CORRECTIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
------------------ PRO FORMA PRO FORMA AS
THE PRO FORMA FOR THE OFFERING ADJUSTED FOR
COMPANY ABRAXAS ADJUSTMENTS ACQUISITION ADJUSTMENTS THE OFFERING
------- ------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................. $28,041 $17,124 $ -- $ 45,165 $ -- $ 45,165
Operating expenses................... 22,556 13,060 1,860(1) 37,726 -- 37,726
250(2)
Depreciation and amortization........ 1,120 601 (376)(4) 1,375 -- 1,375
30(5)
General and administrative
expenses........................... 2,218 2,359 (1,860)(1) 2,717 -- 2,717
------- ------- ----------- ---------- ----------- ------------
Income from operations............... 2,147 1,104 96 3,347 -- 3,347
Interest expense..................... 209 606 314(9) 1,129 (1,041)(14) 88
Interest Income...................... (86 ) -- -- (86) -- (86)
------- ------- ----------- ---------- ----------- ------------
Income (loss) before provision for
income taxes....................... 2,024 498 (218) 2,304 1,041 3,345
Provision for income taxes........... 729 -- 100(13) 829 375(13) 1,204
------- ------- ----------- ---------- ----------- ------------
Net income........................... $1,295 $ 498 $ (318) $ 1,475 $ 666 $ 2,141
======= ======= =========== ========== =========== ============
Earnings per share................... $ .18 $ .21 $ .24
======= ========== ============
Number of shares used in per share
computation (thousands) (15)....... 7,139 7,139 8,795
======= ========== ============
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated statement
of operations.
22
<PAGE>
CORNELL CORRECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(1) Records reclassification of general and administrative expenses for
Abraxas, Interventions and MidTex to operating expenses to conform to the
Company's policy.
(2) Records an adjustment to operating expenses to reflect estimated property
taxes for land and buildings acquired from Abraxas which were tax-exempt
prior to the acquisition.
(3) Records an adjustment to operating expenses to reflect annual payments in
lieu of property taxes to the City of Big Spring resulting from the
acquisition of substantially all the assets of MidTex.
(4) Records adjustments to depreciation expense for revised basis in
depreciable assets as follows for Abraxas:
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
(DOLLARS IN THOUSANDS)
Elimination of historical
depreciation expense............... $(1,316) $ (601)
Depreciation expense for revised
basis in depreciable assets........ 450 225
-------- ------
$ (866) $ (376)
======== ======
(5) Records amortization expense of $60,000 for the year ended December 31,
1996 and $30,000 for the six months ended June 30, 1997 for the non-compete
agreement with the President of Abraxas.
(6) Records adjustments to depreciation expense for revised basis in
depreciable assets for Interventions.
(7) Records adjustments to depreciation and amortization as follows for MidTex:
YEAR ENDED
DECEMBER 31, 1996
----------------------
(DOLLARS IN THOUSANDS)
Elimination of historical
depreciation and amortization
expense............................ $ (407)
Amortization of prepaid facility use
costs.............................. 310
------
$ (97)
======
(8) Records adjustments to depreciation expense for the revised basis in
depreciable assets for the Reid Center.
(9) Records additional interest expense for the year ended December 31, 1996 on
bank borrowings of $50.8 million incurred to consummate the Abraxas,
Interventions, MidTex and Reid Center acquisitions and additional interest
expense for the six months ended June 30, 1997 on bank borrowings of $19.0
million incurred to consummate the acquisition of Abraxas based on a stated
interest rate of 8.00%, plus amortization of debt issuance costs incurred
under terms of the 1997 Credit Facility.
(10) Records an adjustment to reverse a $1.3 million non-recurring charge in
1996 to expense deferred financing costs associated with the 1996 Credit
Facility.
(11) Records a reduction in interest expense of $3.0 million to reduce assumed
indebtedness with proceeds of $38.0 million from the IPO.
(12) Records an adjustment to eliminate investment income earned on investments
not acquired in the Interventions acquisition.
(13) Records adjustments to record the income tax effects of the foregoing
adjustments.
(14) Records a reduction in interest expense of $1.5 million of the year ended
December 31, 1996 and $1.0 million for the six months ended June 30, 1997
as a result of the repayment in full of borrowing outstanding under the
1997 Credit Facility from the net proceeds of the Offering.
(15) Pro forma shares for the Offering include only 1,656,000 of the 2,459,073
shares (which includes 209,073 shares issued upon the exercise of warrants)
sold in the Offering. The 803,073 shares represent shares assumed
repurchased with the excess cash proceeds received by the Company.
23
<PAGE>
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The selected consolidated financial data for the Company set forth below
with respect to the Statement of Operations Data and Balance Sheet Data as of
and for the five years ended December 31, 1996 is derived from the consolidated
financial statements of the Company, which statements have been audited by
Arthur Andersen LLP, independent public accountants, and of which the statements
relating to 1994, 1995 and 1996 are included elsewhere in this Prospectus. The
selected consolidated financial data with respect to the Statement of Operations
Data and Balance Sheet Data as of and for the six month periods ended June 30,
1996 and 1997 is derived from the unaudited consolidated financial statements of
the Company which, in the opinion of management of the Company, reflect all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of such data. The data for the six months ended June 30, 1997
is not necessarily indicative of the results that may be expected for the entire
year. The pro forma financial data of the Company as of and for the year ended
December 31, 1996 and the six months ended June 30, 1997 is derived from the pro
forma financial statements of the Company that appear elsewhere in this
Prospectus. The pro forma Statement of Operations Data gives effect to: (i) the
acquisitions by the Company in 1996 and 1997; (ii) the exercise of warrants
relating to the shares of Common Stock to be sold by the Selling Stockholders in
the Offering and (iii) the Offering and the application of the estimated net
proceeds therefrom to the Company, as if such events had occurred on January 1,
1996. The pro forma Balance Sheet Data as of June 30, 1997 gives effect to such
events as if they had occurred on June 30, 1997. The pro forma financial
information does not purport to represent what the Company's results of
operations or financial position actually would have been had these events, in
fact, occurred at the beginning of the period or on the date indicated, nor are
they intended to project the Company's results of operations or financial
position for any future period or date. The selected consolidated financial data
should be read in conjunction with the Company's Consolidated Financial
Statements and Notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ------------
---------------------------------------------------------------------------
SIX MONTHS YEAR
YEAR ENDED DECEMBER 31, ENDED JUNE 30, ENDED
----------------------------------------------------- -------------------- DECEMBER 31,
1992 1993 1994(1) 1995 1996(2) 1996 1997 1996
--------- --------- --------- --------- --------- --------- --------- ------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................... $ 2,540 $ 3,198 $ 15,689 $ 20,692 $ 32,327 $ 11,337 $ 28,041 $ 80,385
Operating expenses................. -- 2,827 12,315 16,351 26,038 9,461 22,556 68,373
Depreciation and amortization...... 3 16 758 820 1,390 510 1,120 2,387
General and administrative
expenses......................... 1,627 1,315 2,959 3,531 4,560 1,629 2,218 5,549
--------- --------- --------- --------- --------- --------- --------- ------------
Income (loss) from
operations....................... 910 (960) (343) (10) 339 (263) 2,147 4,076
Interest expense(3)................ -- -- 294 1,115 2,810 498 209 177
Interest income.................... (30) (45) (138) (136) (167) (51) (86) (181)
--------- --------- --------- --------- --------- --------- --------- ------------
Income (loss) before income
taxes............................ 940 (915) (499) (989) (2,304) (710) 2,024 4,080
Provision for income taxes(4) -- -- 101 -- 75 -- 729 1,632
--------- --------- --------- --------- --------- --------- --------- ------------
Net income (loss).................. $ 940 $ (915) $ (600) $ (989) $ (2,379) $ (710) $ 1,295 $ 2,448
========= ========= ========= ========= ========= ========= ========= ============
Earnings (loss) per share.......... $ .38 $ (.34) $ (.16) $ (.25) $ (.53) $ (.20) $ .18 $ .28
========= ========= ========= ========= ========= ========= ========= ============
Number of shares used in per share
computation(5)................... 2,491 2,695 3,811 3,983 4,466 3,523 7,139 8,775
=========
</TABLE>
SIX
MONTHS
ENDED
JUNE 30,
1997
--------
STATEMENT OF OPERATIONS DATA:
Revenues........................... $45,165
Operating expenses................. 37,726
Depreciation and amortization...... 1,375
General and administrative
expenses......................... 2,717
--------
Income (loss) from
operations....................... 3,347
Interest expense(3)................ 88
Interest income.................... (86 )
--------
Income (loss) before income
taxes............................ 3,345
Provision for income taxes(4) 1,204
--------
Net income (loss).................. $ 2,141
========
Earnings (loss) per share.......... $ .24
========
Number of shares used in per share
computation(5)................... 8,795
(TABLE CONTINUED ON FOLLOWING PAGE)
24
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ------------
---------------------------------------------------------------------------
SIX MONTHS YEAR
YEAR ENDED DECEMBER 31, ENDED JUNE 30, ENDED
----------------------------------------------------- -------------------- DECEMBER 31,
1992 1993 1994(1) 1995 1996(2) 1996 1997 1996
--------- --------- --------- --------- --------- --------- --------- ------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total offender capacity:
Residential...................... -- 302 1,281 1,640 3,577 2,044 5,872 4,527
Non-residential
community-based................ -- -- -- -- -- -- -- 900
Total.......................... -- 302 1,281 1,640 3,577 2,044 5,872 5,427
Beds under contract (end of
period).......................... -- 282 1,155 1,478 3,254 1,796 5,367 4,098
Contracted beds in operation (end
of period)....................... -- 282 1,155 1,135 2,899 1,561 3,541 3,743
Average occupancy based on
contracted beds in
operation(7)..................... -- -- 92.1% 98.9% 97.0% 95.8% 96.4% 92.7%
BALANCE SHEET DATA:
Working capital.................... $ 812 $ 810 $ 2,015 $ 1,525 $ 7,747 $ 2,098 $ 5,318
Total assets....................... 1,300 2,048 13,095 14,184 46,824 19,773 53,282
Long-term debt..................... -- -- 3,447 7,649 745 13,868 2,592
Stockholders' equity............... 896 1,085 6,631 3,053 41,051 2,367 42,537
</TABLE>
SIX
MONTHS
ENDED
JUNE 30,
1997
--------
OPERATING DATA:
Total offender capacity:
Residential...................... 6,372
Non-residential
community-based................ 900
Total.......................... 7,272
Beds under contract (end of
period).......................... 5,867
Contracted beds in operation (end
of period)....................... 4,041
Average occupancy based on
contracted beds in
operation(7)..................... 95.1%
BALANCE SHEET DATA:
Working capital.................... $24,236
Total assets....................... 90,304
Long-term debt..................... 592
Stockholders' equity............... 76,385
- ------------
(1) Includes operations purchased by the Company in March 1994.
(2) Includes operations purchased by the Company in May and July 1996.
(3) Interest expense for 1996 includes a $1.3 million non-recurring charge
($726,000 of which was non-cash) to expense deferred financing costs
associated with the early retirement of debt.
(4) Although the Company incurred a loss for financial reporting purposes for
the year ended December 31, 1994, a provision was recognized for taxable
income resulting principally from adding back nondeductible amortization of
goodwill to the loss for financial reporting purposes. There was no
provision for income taxes prior to March 31, 1994 because the Company was
organized as a partnership until that time.
(5) Prior to March 31, 1994, the Company was organized as a partnership. For
purposes of computing average shares outstanding for the period prior to
March 31, 1994, the partnership units were converted to common shares using
a one-to-one unit-to-share conversion ratio.
(6) Supplemental per share data is presented to show what the earnings would
have been if the repayment of debt with proceeds from the Offering had taken
place at the beginning of the period.
(7) For any applicable facilities, includes reduced occupancy during the
start-up phase. See "Business -- Facility Management Contracts." For the
year ended December 31, 1993, occupancy did not commence until December
1993.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company provides integrated facility development, design, construction
and operational services to governmental agencies within three areas of
operational focus. The following table sets forth the number of facilities and
beds under contract or award at the end of the periods shown.
DECEMBER 31,
------------------------------- JUNE 30,
1994 1995 1996 1997
--------- --------- --------- --------
Facilities in operation(1)........... 13 12 16 21
Total offender capacity:
Residential..................... 1,281 1,640 3,577 5,872
Non-residential
community-based............... -- -- -- --
Total...................... 1,281 1,640 3,577 5,872
Beds under contract (end of
period)............................ 1,155 1,478 3,254 5,367
Contracted beds in operation (end of
period)............................ 1,155 1,135 2,899 3,541
Average occupancy based on contracted
beds in operation(2)............... 92.1% 98.9% 97.0% 96.4%
- ------------
(1) As of September 9, 1997, the Company had 39 facilities in operation and
contracts to operate two additional facilities under development. Of the 41
facilities, 11 are non-residential community-based facilities.
(2) For any applicable facilities, includes reduced occupancy during the
start-up phase.
The Company derives substantially all its revenues from operating
correctional, detention and pre-release facilities for federal and state
governmental agencies in the United States. Revenues for operation of
correctional, detention and pre-release facilities are generally recognized on a
per diem rate based upon the number of occupant days for the period.
Factors which the Company considers in determining the per diem rate to
charge include: (i) the programs specified by the contract and the related
staffing levels; (ii) wage levels customary in the respective geographic areas;
(iii) whether the proposed facility is to be leased or purchased and (iv) if the
contract is currently being operated by a competitor, the historical average
occupancy levels maintained or, if a new contract, the anticipated average
occupancy levels which the Company believes could reasonably be maintained.
The Company's operating margins generally vary from facility to facility
(regardless of whether the facility is secure institutional, pre-release or
juvenile) based on the terms negotiated with each contracting governmental
agency, which terms depend on factors such as the level of competition for the
contract award, the proposed length of the contract, the historical (for
existing facilities) or anticipated (for new facilities) occupancy levels for a
facility, the level of capital commitment required with respect to a facility
and the anticipated changes in operating costs, if any, over the term of the
contract.
The Company incurs all facility operating expenses, except for certain debt
service and lease payments with respect to facilities for which the Company has
only a management contract (two facilities in operation at June 30, 1997).
A majority of the Company's facility operating expenses consist of fixed
costs. These fixed costs include lease and rental expense, insurance, utilities
and depreciation. As a result, when the Company commences operation of new or
expanded facilities, fixed operating expenses increase. The amount of the
Company's variable operating expenses depends on occupancy levels at the
facilities operated by the Company. These variable operating expenses include
food, medical services, supplies and clothing. The Company's largest single
operating expense, facility payroll expense and related employment taxes and
costs, has both a fixed and a variable component. The Company can adjust the
staffing and payroll to a certain extent based on occupancy at a facility, but a
minimum fixed number of employees is required to operate and maintain any
facility regardless of occupancy levels. Since a majority of the Company's
operating expenses are fixed, to the extent that the Company can increase
revenues at a facility through
26
<PAGE>
higher occupancy or expansion of the number of beds under contact, the Company
should be able to improve operating results.
General and administrative expenses consist primarily of salaries of the
Company's corporate and administrative personnel who provide senior management,
accounting, finance, personnel and other services and costs of developing new
contracts.
Newly opened facilities are staffed according to contract requirements when
the Company begins receiving offenders. Offenders are typically assigned to a
newly opened facility on a phased-in basis over a one to three-month period. The
Company may incur operating losses at new facilities until break-even occupancy
levels are reached. However, the Company does not have a break-even occupancy
level for the Company as a whole. Quarterly results can be substantially
affected by the timing of the commencement of operations as well as development
and construction of new facilities and by expenses incurred by the Company
(including the cost of options to purchase or lease proposed facility sites and
the cost of engaging outside consultants and legal experts related to submitting
responses to requests for proposals ("RFPs")).
Working capital requirements generally increase immediately prior to the
Company commencing management of a new facility as the Company incurs start-up
costs and purchases necessary equipment and supplies before facility management
revenue is realized.
RESULTS OF OPERATIONS
The Company's historical operating results reflect that the Company has
significantly expanded its business since 1993. Material fluctuations in the
Company's results of operations are principally the result of the timing and
effect of acquisitions and the level of development activity conducted by the
Company and occupancy rates at Company-operated facilities. The Company's
acquisitions to date have been accounted for using the purchase method of
accounting, whereby the operating results of the acquired businesses have been
reported in the Company's operating results since the date of acquisition.
The Company's income from operations as a percentage of revenues fluctuate
depending on the relative mix of operating contracts among the Company's three
areas of operational focus. See "Business -- General." Since pre-release
facilities involve contracts with a fewer number of beds than secure
institutions, fluctuations in the occupancy levels in such facilities have a
more significant impact on their operating margins.
The following table sets forth for the periods indicated the percentages of
revenues represented by certain items in the Company's historical consolidated
statements of operations.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses................... 78.5 79.0 80.5 83.5 80.4
Depreciation and amortization........ 4.8 4.0 4.3 4.5 4.0
General and administrative
expenses........................... 18.9 17.0 14.1 14.3 7.9
--------- --------- --------- --------- ---------
Income (loss) from operations........ (2.2) 0.0 1.1 (2.3) 7.7
Interest expense (income)............ 1.0 4.8 8.2 4.0 0.5
--------- --------- --------- --------- ---------
Income (loss) before income taxes.... (3.2) (4.8) (7.1) (6.3) 7.2
Provision for income taxes........... 0.6 0.0 0.2 0.0 2.6
--------- --------- --------- --------- ---------
Net income (loss).................... (3.8)% (4.8)% (7.3)% (6.3)% 4.6%
========= ========= ========= ========= =========
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
REVENUES. Revenues increased by 147.3% to $28.0 million for the six months
ended June 30, 1997 from $11.3 million for the six months ended June 30, 1996.
The increase in revenues of $16.7 million was due principally to the acquisition
of MidTex in July 1996, the acquisition of the Reid Center in May 1996,
27
<PAGE>
the acquisition of Interventions in January 1997, and the opening of two new
juvenile facilities and one new pre-release center during the first quarter of
1997.
OPERATING EXPENSES. Operating expenses increased by 138.4% to $22.6
million for the six months ended June 30, 1997 from $9.5 million for the six
months ended June 30, 1996. The increase in operating expenses was due
principally to the acquisition of MidTex in July 1996, the acquisition of the
Reid Center in May 1996, the acquisition of Interventions in January 1997, and
the opening of two new juvenile facilities and one new pre-release center during
the first quarter of 1997. As a percentage of revenues, operating expenses
decreased to 80.4% from 83.5%. The decrease in operating expenses as a
percentage of revenues is principally due to higher operating margins at the Big
Spring Complex which was acquired in July 1996, and improved occupancy of
certain facilities as compared to the prior year period.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$1.1 million for the six months ended June 30, 1997 from $510,000 for the six
months ended June 30, 1996. The increase was due principally to the amortization
of prepaid facility use costs of the Big Spring Complex acquired in July 1996,
depreciation of the Reid Center acquired in May 1996 and the 150 bed capacity
transitional living center for juveniles located in San Antonio, Texas (the
"Griffin Juvenile Facility") acquired in January 1997, and depreciation and
amortization of deferred start-up costs of the three new facilities opened
during the first quarter of 1997. In addition, amortization costs include
approximately $187,000 to expense start-up costs related to the non-renewal of a
120 bed juvenile contract as of June 30, 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by 36.2% to $2.2 million for the six months ended June 30, 1997 from
$1.6 million for the six months ended June 30, 1996. The increase in general and
administrative expenses resulted from adding corporate and administrative
personnel, including a new chief operating officer, to manage the increased
business of the Company, and from additional costs of administering the Company
as a result of the IPO in the fourth quarter of 1996. As a percentage of
revenues, general and administrative expenses decreased to 7.9% from 14.4% due
principally to spreading fixed costs over a larger revenue base.
INTEREST. Interest expense, net of interest income, decreased to $123,000
for the six months ended June 30, 1997 from $447,000 for the six months ended
June 30, 1996. The decrease in net interest expense was principally due to lower
outstanding borrowings under the Company's 1996 Credit Facility and 1995 credit
facility (the "1995 Credit Facility") for the respective periods.
INCOME TAXES. For the six months ended June 30, 1997, the Company
recognized a provision for income taxes at an estimated effective annual rate of
36.0% compared to no provision for income taxes for the six months ended June
30, 1996 due to a loss. The effective income tax rate applied in 1997 includes a
benefit for the reversal of previously reserved deferred tax assets resulting
from prior net operating losses which are expected to be utilized in 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Revenues increased by 56.2% to $32.3 million for the year ended
December 31, 1996 from $20.7 million for the year ended December 31, 1995. The
increase in occupancy fees of $11.3 million, or 54.8%, was due principally to
the acquisition of MidTex in July 1996, the opening of two new pre-release
facilities during the first quarter of 1996, and the acquisition of the Reid
Center in May 1996. The increase in other income for the year ended December 31,
1996 to $450,000 from $98,000 for the year ended December 31, 1995 was due
principally to the recognition of revenue related to a previously reserved note
receivable of $206,000 pertaining to 1994 operations of the 302 bed medium and
maximum security facility operated primarily for the U.S. Marshals Service (the
"USMS") in Central Falls, Rhode Island (the "Wyatt Facility"), the
realization of which improved from prior periods due to payments received on the
note and due to the additional operating experience with the facility.
Additional other income related to commissary operations and commissions earned
at the Big Spring Complex.
OPERATING EXPENSES. Operating expenses increased by 59.2% to $26.0 million
for the year ended December 31, 1996 from $16.4 million for the year ended
December 31, 1995. This increase was principally attributable to the acquisition
of MidTex in July 1996, the opening of two new pre-release
28
<PAGE>
facilities during the first quarter of 1996, and the acquisition of the Reid
Center in May 1996. As a percentage of revenues, operating expenses increased to
80.5% from 79.0% due primarily to the relative increase in secure institutional
operations.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
69.5% to $1.4 million for the year ended December 31, 1996 from $820,000 for the
year ended December 31, 1995. The increase was due principally to the
amortization of prepaid facility use costs of the Big Spring Complex, the
opening of two new pre-release facilities in January 1996, and the acquisition
of the Reid Center in May 1996.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by 29.1% to $4.6 million for the year ended December 31, 1996 from
$3.5 million for the year ended December 31, 1995. Included in general and
administrative expenses for the year ended December 31, 1996 was a non-
recurring, non-cash charge of $870,000 in connection with the July 1996 grant of
certain options to purchase shares of the Company's Common Stock. As a
percentage of revenues, excluding the non-recurring charge, general and
administrative expenses decreased to 11.4% from 17.0% due principally to
spreading fixed costs over a larger revenue base.
INTEREST. Interest expense, net of interest income, increased to $2.6
million for the year ended December 31, 1996 from $979,000 for the year ended
December 31, 1995. The increase in net interest expense was due principally to
the $1.3 million non-recurring charge ($726,000 of which was non-cash) to
expense deferred financing costs associated with the early retirement of
significant portions of the 1996 Credit Facility, borrowings under the Company's
1995 Credit Facility and the 1996 Credit Facility related to the acquisition of
MidTex in July 1996, the Company's financing of the purchase of certain
outstanding stock in November 1995, the construction and development of the two
new pre-release facilities which opened during the first quarter of 1996 and the
acquisition of the Reid Center in May 1996.
INCOME TAXES. The Company did not recognize any provision for federal
income taxes due to a taxable loss in both years. The Company recognized a
provision for state income taxes of $75,000 for the year ended December 31,
1996. As of December 31, 1996, the Company had recognized a deferred tax asset
of $608,000. Management of the Company believes that this deferred tax asset is
realizable.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES. Revenues increased 31.9% to $20.7 million for the year ended
December 31, 1995 from $15.7 million for the year ended December 31, 1994. The
revenue increase was due principally to the recognition of occupancy fees for a
full 12 months in 1995 related to the acquisition of Eclectic Communications,
Inc. ("Eclectic") versus the recognition of nine months in 1994. Additionally,
an increase in occupancy fees of approximately $1.1 million was attributable to
the Wyatt Facility principally as a result of a higher occupancy and per diem
rate in 1995 compared to 1994.
OPERATING EXPENSES. Operating expenses increased 32.8% to $16.4 million
for the year ended December 31, 1995 from $12.3 million for the year ended
December 31, 1994. The increase in operating expenses was due principally to the
recognition of operating expenses of Eclectic for a full 12 months in 1995. As a
percentage of revenues, operating expenses increased to 79.0% from 78.5%
principally for the same reason.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased by
8.2% to $820,000 for the year ended December 31, 1995 from $758,000 for the year
ended December 31, 1994. The increase was due principally to recognizing 12
months of contract value and goodwill amortization in 1995 as compared to nine
months of amortization in 1994 resulting from the acquisition of Eclectic,
offset in part by an accounting adjustment in the first quarter of 1995 to
adjust depreciation expense in prior periods.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 19.3% to $3.5 million for the year ended December 31, 1995 from $3.0
million for the year ended December 31, 1994. The increase in general and
administrative expenses was due principally to the addition of the operations of
Eclectic and an increase in RFP and development costs. Development costs
increased by $457,000 for the year ended December 31, 1995 compared to the year
ended December 31, 1994. As a percentage of
29
<PAGE>
revenues, general and administrative expenses decreased to 17.0% from 18.9% due
principally to spreading fixed costs over a larger revenue base.
INTEREST. Interest expense, net of interest income, increased to $979,000
for the year ended December 31, 1995 from $156,000 for the year ended December
31, 1994. The increase resulted from the expensing of debt issuance costs and
commitment fees of $472,000 associated with the 1995 Credit Facility, the
incurrence of $4.0 million of debt and other long-term obligations in connection
with the acquisition of Eclectic and increased borrowings under the 1995 Credit
Facility to purchase treasury stock.
INCOME TAXES. There was no provision for income taxes for the year ended
December 31, 1995 due to a taxable loss. The Company recognized a provision for
income taxes of $101,000 for the year ended December 31, 1994, even though the
Company incurred a loss for financial reporting purposes in 1994, principally
because certain goodwill amortization contributing to the loss for financial
reporting purposes was not deductible for income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. The Company's primary capital requirements are for working
capital, start-up costs related to new operating contracts, furniture, fixtures
and equipment, supply purchases, new facility renovations and acquisitions.
Working capital requirements generally increase immediately prior to the Company
commencing management of a new facility as the Company incurs start-up costs and
purchases necessary equipment and supplies before facility management revenue
(through occupancy fees) is realized. Some of the Company's management contracts
have required the Company to make substantial initial expenditures of cash in
connection with the opening or renovating of a facility. Substantially all of
these start-up expenditures are fully or partially recoverable as pass-through
costs or are reimbursable from the contracting governmental agency over the term
of the contract.
CHANGES IN FINANCIAL POSITION. As of June 30, 1997, total assets had
increased $6.5 million to $53.3 million since December 31, 1996. The increase
related principally to the acquisition of Interventions in January 1997. The
Company paid $6.0 million for substantially all of the assets of Interventions,
including the retirement of $2.3 million of pre-acquisition bank debt. The
purchase price was paid with $2.0 million of borrowings from the 1996 Credit
Facility, and the remainder with cash. As of December 31, 1996, total assets had
increased $32.6 million to $46.8 million since December 31, 1995. The increase
related principally to the acquisitions of MidTex and the Reid Center for which
total consideration was $25.7 million, and excess cash proceeds from the IPO.
Total stockholders' equity increased by $38.0 million to $41.1 million as of
December 31, 1996, largely as a result of the IPO and certain other equity
transactions. The Company utilized the net proceeds from the IPO to retire all
of its then outstanding borrowings. Therefore, immediately following the
consummation of the IPO, the Company had no material debt. The Company used
borrowings under the 1996 Credit Facility to refinance outstanding borrowings
under the 1995 Credit Facility, to finance a portion of the MidTex acquisition
and for working capital. As of June 30, 1997, the Company had $2.0 million
outstanding under the 1996 Credit Facility.
WORKING CAPITAL. The Company's working capital decreased to $5.3 million
at June 30, 1997 from $7.7 million at December 31, 1996. This decrease was
principally due to the use of cash to fund a portion of the Interventions
acquisition in January 1997 and the classification of $2.0 million of borrowings
outstanding under the 1996 Credit Facility as current at June 30, 1997.
Increases to working capital include increased receivables resulting from newly
opened facilities and the timing of certain collections, and a $2.0 million cash
advance from the State of Georgia to be applied toward the construction and
development of the newly awarded 550 bed contract at the Charlton County
Facility. The Company's working capital increased to $7.7 million at December
31, 1996 from $1.5 million at December 31, 1995. This increase was principally
due to excess cash proceeds from the IPO after repayment of borrowings, and an
increase in receivables resulting from the acquisitions of MidTex in July 1996
and the Reid Center in May 1996.
EXISTING CREDIT FACILITY. In September 1997, the Company entered into the
1997 Credit Facility, which is a $60.0 million revolving line of credit, the
availability of which is determined by the Company's
30
<PAGE>
projected pro forma cash flow. The amount currently available under the 1997
Credit Facility is approximately $48.0 million. The 1997 Credit Facility matures
in 2002 and bears interest at rates ranging from LIBOR plus 1.75% to 2.50%.
In January 1997, the Company financed the acquisition of substantially all
of the assets of Interventions with, among other things, $2.0 million of
borrowings under the 1996 Credit Facility. In September 1997, the Company
purchased substantially all of the assets of Abraxas. The Company financed the
$19.8 million purchase price with $19.0 million of borrowings under the 1997
Credit Facility, and the remainder with cash. In addition, the $2.0 million of
outstanding borrowings under the 1996 Credit Facility was refinanced with
borrowings under the 1997 Credit Facility. See Note 8 to the Company's
Consolidated Financial Statements.
CAPITAL EXPENDITURES. Capital expenditures for the six months ended June
30, 1997 of $1.8 million were related to construction-in-progress for the 516
bed expansion of the Big Spring Complex and the 550 bed Charlton County
Facility, improvements and furniture and equipment at the newly opened
facilities and normal replacement of furniture and equipment at various
facilities. The Company anticipates expending an additional $28.0 million
through 1998 to complete the Big Spring Complex expansion and the development of
the Charlton County Facility, and is currently seeking to obtain additional
long-term project financing in the amount of approximately $25.0 million for
these capital expenditures. Capital expenditures for the year ended December 31,
1996 were $1.3 million and related to construction-in-progress for a new
pre-release facility which opened during the first quarter of 1997, completion
of construction and purchase of furniture and equipment for the two pre-release
facilities which opened during the first quarter of 1996 and normal replacement
of furniture and equipment at various facilities.
CASH PROVIDED BY OPERATING ACTIVITIES. The Company had net cash provided
by operating activities of $2.1 million for the six months ended June 30, 1997.
Significant sources of cash include $2.4 million of net income plus depreciation
and amortization, and a $2.0 million advance from the State of Georgia for the
construction and development of the Charlton County Facility. This advance will
be applied to future per diem billings to the State of Georgia once the facility
begins operations. Significant uses of operating cash during the period include
increased accounts receivable and start-up costs for facilities under
development, and increased prepaid insurance and other items related to the
additional acquired and newly opened facilities. The Company had net cash used
in operating activities of $540,000 for the year ended December 31, 1996.
Significant uses of operating cash during 1996 include start-up costs for
facilities under development, and increased prepaid insurance and other items
related to the additional acquired facilities.
Management of the Company believes that the cash flows anticipated to be
generated from operations, together with the credit available under the 1997
Credit Facility and the net proceeds of the Offering, will provide sufficient
liquidity for its foreseeable needs. The Company anticipates it will need to
obtain separate additional sources of financing for significant acquisitions and
construction costs related to future secure institutional contract awards.
INFLATION
Management of the Company believes that inflation has not had a material
effect on the Company's results of operations during the past three years.
However, most of the Company's facility management contracts provide for
payments to the Company of either fixed per diem rates or per diem rates that
increase by only small amounts during the terms of the contracts. Inflation
could substantially increase the Company's personnel costs (the largest
component of facility management expense) or other operating expenses at rates
faster than any increases in occupancy fees.
31
<PAGE>
BUSINESS
GENERAL
The Company is one of the leading providers of privatized correctional,
detention and pre-release services in the United States based on total offender
capacity. The Company is the successor to entities that began developing secure
institutional correctional and detention facilities in 1987, pre-release
facilities in 1977 and juvenile facilities in 1973. The Company has
significantly expanded its operations through acquisitions and internal growth
and is currently operating or developing facilities in 10 states and the
District of Columbia. As of September 9, 1997, the Company has contracts to
operate 41 facilities with a total offender capacity of 7,072, which has
significantly increased from 3,577 offenders at December 31, 1996. The Company's
residential facilities have a total design capacity of 6,172 beds, with 28
facilities currently in operation (4,586 beds), two facilities under development
(1,070 beds) and the existing Big Spring Complex under expansion (516 beds). For
the six months ended June 30, 1997, the Company's revenues were $28.0 million,
representing an increase of 147% from $11.3 million for the six months ended
June 30, 1996. The Company had net income of $1.3 million compared to a net loss
of $710,000 for the same respective six month periods.
The Company provides integrated facility development, design, construction
and operational services to governmental agencies within three areas of
operational focus: (i) secure institutional correctional and detention services;
(ii) pre-release correctional services and (iii) juvenile correctional and
detention services. See "Business -- Facility Design, Construction and
Finance." Secure institutional correctional and detention services primarily
consist of the operation of secure adult incarceration facilities. Pre-release
correctional services primarily consist of providing pre-release and halfway
house programs for adult offenders who are either on probation or serving the
last three to six months of their sentences on parole and preparing for re-entry
into society at large. Juvenile correctional and detention services primarily
consist of providing residential treatment and educational programs and
non-residential community-based programs to juvenile offenders between the ages
of 10 and 17 who have either been adjudicated or suffer from behavioral
problems. At the adult facilities it operates, the Company generally provides
maximum and medium security incarceration and minimum security residential
services, institutional food services, certain transportation services, general
education programs (such as high school equivalency and English as a second
language programs), health care (including medical, dental and psychiatric
services), work and recreational programs and chemical dependency and substance
abuse programs. Additional services provided in the Company's pre-release
facilities typically include life skills and employment training and job
placement assistance. Juvenile services provided by the Company include
counseling, wilderness, medical and accredited educational programs tailored to
meet the special needs of juveniles. The Company derives substantially all its
revenues from operating correctional, detention and pre-release facilities for
federal, state and local governmental agencies in the United States. Of the
facilities operated or currently under development by the Company, 11 are owned,
26 are leased and four are operated through other arrangements. See "Business --
Properties."
OPERATING STRATEGIES
The Company's objective is to enhance its position as one of the leading
providers of private correctional, detention and pre-release services. The
Company is committed to the following operating strategies:
DIVERSIFY ITS BUSINESS. The Company continues to diversify its business
within all three areas of its operational focus. The Company believes that, by
being a diversified provider of services, it will be able to compete for more
types of contract awards and adapt to changes in demands within its industry for
varying categories of services. In addition, by providing services from juvenile
through long-term adult incarceration, and finally through pre-release, the
Company is better equipped to meet the needs within its three areas of
operational focus. The Company continues to actively pursue contracts to provide
services for specialized segments of the offender population categorized by age
(such as services for aging offenders or juvenile offenders), medical status,
gender or security needs.
32
<PAGE>
DELIVER COST EFFECTIVE AND QUALITY MANAGEMENT PROGRAMS. The Company seeks
to deliver high quality services in all its markets on a cost effective basis.
The Company focuses on improving operating performance and efficiency through
standardization of practices, programs and reporting procedures, efficient
staffing and attention to productivity standards. The Company also emphasizes
quality of services by providing trained personnel and effective programs
designed to meet the needs of contracting governmental agencies.
PROVIDE SPECIALIZED AND INNOVATIVE SERVICES. The Company implements
specialized and innovative services to address unique needs of governmental
agencies and certain segments of the offender population. For example, certain
facilities of the Company are equipped with interactive satellite links to
courtrooms and judges, which reduce the time, effort and expense related to
transporting offenders to offsite courtrooms.
GROWTH STRATEGIES
The Company expects the growth in privatization of correctional, detention
and pre-release facilities by governmental agencies to continue in the
foreseeable future. By expanding the number of beds under contract and its
program capacities, the Company increases economies of scale and purchasing
power and enhances its opportunities for larger contract awards. The Company
seeks to increase revenues by pursuing the following growth strategies:
BID FOR NEW CONTRACT AWARDS. The Company selectively pursues opportunities
to obtain contract awards for new privatized facilities. As of September 9,
1997, the Company has submitted written bids to operate seven new projects with
an aggregate design capacity of over 1,500 beds. Awards for these projects
should be made by the applicable governmental agencies by the end of 1998.
INCREASE DESIGN CAPACITY AND PROGRAM CAPACITY OF EXISTING FACILITIES. The
Company has the potential to expand its design capacity and program capacity at
certain existing facilities with modest capital investment. As a result, the
Company intends to pursue expansion of such facilities by obtaining awards of
additional or supplemental contracts to provide services at these facilities. In
addition, as evidenced by the current 516 bed expansion of its Big Spring
Complex, the Company will make greater capital investments for more substantial
facility expansions when it deems it appropriate.
PURSUE STRATEGIC ACQUISITIONS. The Company has completed four acquisitions
since May 1996 and believes that the private correctional and detention industry
is consolidating. The Company believes that the larger, better capitalized
providers will acquire smaller providers that are insufficiently capitalized to
pursue the industry's growth opportunities. The Company intends to pursue
selective acquisitions of other operators of private correctional and detention
facilities in secure institutional, pre-release and juvenile areas of
operational focus to enhance its position in its current markets, to expand into
new markets and to broaden the types of services which the Company can provide.
In addition, the Company believes there are opportunities to eliminate costs
through consolidation and coordination of the Company's current and subsequently
acquired operations.
As a public company, the Company has increased its access to capital
markets, allowing the Company the flexibility to use various combinations of its
Common Stock, cash and debt financing to make additional acquisitions. The
Company from time to time considers acquisitions of all or a portion of other
companies managing private correctional and detention facilities and related
businesses. There are no current agreements or understandings with respect to
any such acquisitions. The timing, size and success of the Company's acquisition
program efforts and the associated potential capital commitments are not
predictable.
HISTORY OF ACQUISITIONS
Since 1994, the Company has completed five acquisitions and believes that
the private correctional and detention industry is positioned for further
consolidation.
In September 1997, the Company acquired substantially all of the assets of
Abraxas, a juvenile operator of seven residential facilities and 11
non-residential community-based programs, serving an
33
<PAGE>
aggregate capacity of approximately 1,400 juvenile offenders. The aggregate
purchase price for the acquisition was approximately $19.8 million. Founded in
1973, the 24 years of operating history and approximately 750 employees of
Abraxas add a significant depth of juvenile management expertise and a vast
network of relationships within the corrections industry. Abraxas has received
national recognition, including multiple "Pennsylvania Residential Program of
the Year" awards, and has been a featured program for the Ohio governor's crime
summit. Following consummation of the acquisition, approximately 750 employees
of Abraxas became employees of the Company.
In January 1997, the Company acquired substantially all of the assets of
Interventions for an aggregate purchase price of $6.0 million. The acquisition
included the operation of a 300 bed adult residential pre-release facility in
Dallas, Texas and a 150 bed capacity residential transitional living center for
juveniles in San Antonio, Texas. Following the consummation of the acquisition,
approximately 160 employees of Interventions became employees of the Company.
In July 1996, the Company acquired substantially all the assets of MidTex,
the operator of the Big Spring Complex, for an aggregate purchase price of
approximately $23.2 million. The City of Big Spring has an Intergovernmental
Agreement (the "IGA") with the FBOP to house up to 1,352 offenders at the Big
Spring Complex, and as part of the acquisition, MidTex assigned to the Company
its rights under an operating agreement with the City of Big Spring (the "Big
Spring Operating Agreement") to manage the Big Spring Complex. The Big Spring
Operating Agreement has a base term of 20 years from the closing of the
acquisition and three five-year renewal options at the discretion of the
Company. See "Risk Factors -- Possible Loss of Lease Rights." The IGA has an
indefinite term, although it may be terminated or modified by the FBOP upon 90
days written notice. Following consummation of the MidTex acquisition,
approximately 250 employees of the City of Big Spring and MidTex became
employees of the Company. The MidTex acquisition more than doubled the number of
secure institutional facility beds managed at that time by the Company, and the
Company believes that the acquisition strengthened its base for continued
expansion of the Company's secure institutional area of operational focus.
In May 1996, the Company acquired the Reid Center, a 310 bed pre-release
facility located in Houston, Texas, for approximately $2.0 million. Included in
the acquisition were the Reid Center facility property and buildings, the
equipment, inventory and supplies used in the operation of the Reid Center
facility and the assignment of the Reid Center's contract with the Texas
Department of Criminal Justice ("TDCJ"). Following the consummation of the
acquisition, approximately 100 employees of the Reid Center became employees of
the Company. The Company believes that the Reid Center is the largest single
facility pre-release center in Texas and that its acquisition enhances the
Company's position as one of the leaders in providing pre-release services.
In March 1994, the Company acquired Eclectic, the operator of 11 privatized
secure institutional and pre-release facilities in California with an aggregate
design capacity of 979 beds. Consideration for the acquisition of Eclectic was
$10.0 million, consisting of $6.0 million in cash, $3.3 million of subordinated
indebtedness and $0.7 million of other long-term obligations.
INDUSTRY AND MARKET
In the United States, there is a growing trend toward privatization of
government services and functions, including correctional and detention
services, as governments of all types face continuing pressure to control costs
and improve the quality of services. According to the 1996 Facility Census, the
design capacity of privately managed adult secure institutional correctional and
detention facilities in operation or under construction worldwide increased from
10,973 beds at December 31, 1989 to 85,201 beds at December 31, 1996, a compound
annual growth rate of 29%. In addition, the design capacity of privately managed
adult secure institutional correctional and detention facilities increased 34%
in the last year.
The United States leads the world in private prison management contracts.
The 1996 Facility Census reports that at December 31, 1996, there were private
adult secure institutional correctional and detention facilities in operation or
under construction in 25 states, the District of Columbia and Puerto Rico.
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According to reports issued by the BJS, the number of adult offenders housed in
United States federal and state prison facilities and in local jails increased
from 744,208 at December 31, 1985 to 1,630,940 at June 30, 1996, a compound
annual growth rate of 7.8%. Management believes that the increase in the demand
for privatized adult secure institutional correctional and detention facilities
is also a result, in large part, of the general shortage of beds available in
United States adult secure institutional correctional and detention facilities.
Industry reports also indicate that adult offenders convicted of violent
crimes generally serve only one-third of their sentence, with the majority of
them being repeat offenders. Accordingly, there is a perceived public demand
for, among other things, longer prison sentences, as well as prison terms for
juvenile offenders, resulting in even more overcrowding in United States
correctional and detention facilities. Finally, numerous courts and other
government entities in the United States have mandated that additional services
offered to offenders 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.
Similar to the adult secure institutional correctional and detention
industry, the area of pre-release correctional services has experienced
substantial growth. The pre-release area is primarily comprised of individuals
that have been granted parole or sentenced to probation. Probationers
(individuals sentenced for an offense without incarceration) and parolees
(individuals released prior to the completion of their sentence) are typically
placed in pre-release settings. These individuals typically spend three to six
months in halfway houses until they are prepared to re-enter society.
According to the BJS, the number of parolees increased from 220,438 at
December 31, 1980 to 690,159 at December 31, 1994, a compound annual growth rate
of 8.5%. During the same period, the number of individuals on probation
increased from 1.1 million to approximately 3.0 million, a compound annual
growth rate of 7.4%. The probation and parole populations represent
approximately 71% of the total number of adults under correctional supervision
in the United States. The pre-release correctional services industry is
extremely fragmented with several thousand providers across the country, most of
which are small and operate in a specified geographic area.
The juvenile corrections industry has also expanded rapidly in recent years
as the need for services for at-risk and adjudicated youth has risen. According
to the Criminal Justice Insititute, the population in the juvenile correctional
system, both residential and non-residential community-based, has increased from
62,268 youths at January 1, 1988 to 102,582 youths at January 1, 1995, a
compound annual growth rate of 7.4%. In 1994, there were approximately 2.7
million juvenile arrests and 5.4 million youths in special education programs.
The juvenile corrections industry is also fragmented with several thousand
providers across the country, most of which are small and operate in a specific
geographic area.
AREAS OF OPERATIONAL FOCUS
SECURE INSTITUTIONAL. The Company currently operates or has contracts to
operate six facilities (3,882 beds) that provide secure institutional
correctional and detention services for incarcerated adults. These facilities
consist of: (i) the 1,868 bed Big Spring Complex (which includes the 516 bed
expansion expected to be completed during the second quarter of 1998), a minimum
to medium security facility operated primarily for the FBOP; (ii) the 302 bed
Wyatt Facility, a medium to maximum security facility operated primarily for the
USMS in Central Falls, Rhode Island; (iii) two minimum security facilities with
a total design capacity of 558 beds in California operated for the CDC; (iv) the
Santa Fe County Detention Center, a contracted 604 bed adult jail scheduled to
be completed during the second quarter of 1998 (which is currently being
operated with 200 adult beds within an existing 240 bed facility) to be operated
for Santa Fe County and (v) the 550 bed Charlton County Facility, a minimum to
medium security facility, scheduled to be completed during the third quarter of
1998, to be operated for the State of Georgia.
The Company operates the Big Spring Complex pursuant to the Big Spring
Operating Agreement between the Company and the City of Big Spring. The City of
Big Spring in turn is a party to the IGA with the FBOP for an indefinite term
with respect to the facilities. The Immigration and Naturalization Service (the
"INS") and the USMS also use the Big Spring Complex. Offenders include
detainees held by the INS,
35
<PAGE>
adjudicated offenders held by the INS who will be deported after serving their
sentences and adjudicated offenders held for the FBOP. The Big Spring Complex is
equipped with an interactive satellite link to INS courtroom facilities and
judges, which allows for processing of a high volume of INS detainees, while
reducing the time, effort and expense incurred in transporting offenders to
offsite courtrooms.
The Wyatt Facility in Central Falls opened in 1993 and houses primarily
federal offenders awaiting adjudication under federal criminal charges. In
addition, the Wyatt Facility houses certain other offenders under a contract
with the Sheriff's Department of Suffolk County, Massachusetts.
The Leo Chesney Correctional Facility (for females) and the Baker
Correctional Facility (for males) are both in California and house primarily
offenders sentenced by the State of California, most of whom are non-violent
offenders with sentences of up to two years.
The Santa Fe County Detention Center currently consists of a 240 bed
detention facility, with approximately 200 adult and 40 juvenile beds. The adult
population will be moved into a 604 bed adult detention facility upon the
completion of its construction during the second quarter of 1998. The Santa Fe
County Detention Center houses offenders from Santa Fe County and various
surrounding counties.
The Charlton County Facility is scheduled to open during the third quarter
of 1998. The Company was awarded a 500 bed contract in June 1997, which was
later expanded by an additional 50 beds. The Charlton County Facility will house
offenders from the State of Georgia.
Under its contracts, the Company provides a variety of programs and
services at its secure institutional facilities, including secure incarceration
services, institutional food services, certain transportation services, general
education programs (such as high school equivalency and English as a second
language programs), work and recreational programs and chemical dependency and
substance abuse programs.
PRE-RELEASE. The Company currently operates or has contracts to operate 14
facilities (with an aggregate design capacity of 1,324 beds) that provide
pre-release correctional services. Of these facilities, six are operated
primarily for the FBOP, five are operated primarily for the CDC, one is operated
for the TDCJ, one is operated for the North Carolina Department of Corrections
(the "NCDC") and one is operated for Dallas County, Texas. Most residents of
these facilities are or will be serving the last three to six months of their
sentences and preparing for re-entry into society at large.
At its pre-release facilities, the Company typically provides minimum
security residential services, institutional food services, general education
programs, life skills and employment training, job placement assistance and
chemical dependency and substance abuse counseling. About 20% of the offenders
at the FBOP pre-release facilities in California, Utah and Texas are on home
confinement; monitoring is primarily done by required check-ins and by
unscheduled visits to places of residence and employment.
JUVENILE SERVICES. The Company offers programs to meet the multiple needs
of troubled juveniles, and currently operates or has contracts to operate 10
residential facilities and 11 non-residential community-based facilities serving
an aggregate capacity of 1,866 youths. Juvenile correctional and detention
services primarily consist of treatment programs for offenders that are designed
to lead to rehabilitation while providing public safety and holding offenders
accountable for their decisions and behavior. The Company operates primarily
within a restorative justice model. The basic philosophy is that merely serving
time in an institution does not relieve juvenile offenders of the obligation to
repay their victims and that incarceration alone does not compensate for the
societal impact of crimes. The use of a balanced approach gives equal emphasis
to accountability, competency development and community protection.
The 160 bed Salt Lake City juvenile detention facility includes an
interactive satellite link to juvenile courtroom facilities and judges, which
allows for processing of a high number of juvenile detainees, while reducing the
time, effort and expense incurred in transporting detainees to offsite
courtrooms.
The Santa Fe County Detention Center is a contracted 156 bed juvenile
detention facility scheduled to be completed during the fourth quarter of 1998
(which is currently being operated for 40 offenders within an existing 240 bed
facility).
36
<PAGE>
The Griffin Juvenile Facility is a 150 bed capacity transitional living
center for juveniles located in San Antonio, Texas. The Company currently has a
44 bed contract for the housing of adjudicated and certain homeless
non-adjudicated juveniles.
In September 1997, the Company acquired substantially all the assets of
Abraxas, a nationally recognized provider of juvenile services which began
operations in 1973. The operations of Abraxas add a significant depth of
juvenile management and program expertise to the Company's existing juvenile
operations. The Abraxas operations include the operation of seven residential
facilities and 11 non-residential community-based programs, serving an aggregate
capacity of approximately 1,400 juvenile offenders in Pennsylvania, Ohio,
Delaware and the District of Columbia. The operations of Abraxas are now
conducted through Abraxas Group, Inc., a wholly-owned subsidiary of the Company.
The seven residential and 11 non-residential community-based facilities of
Abraxas provide multiple programs including education, individual and group
counseling, social skills training, physical training, community service,
substance abuse treatment and wilderness challenges. The educational schools
within Abraxas are accredited, whereby graduating juveniles are eligible to
receive a full high school diploma as an alternative to the traditional General
Educational Development ("G.E.D.") certificate.
The three largest facilities operated by Abraxas include: (i) the A-1
program ("A-1"); (ii) the Leadership Development Program (the "LDP") and
(iii) Abraxas of Ohio. In the acquisition, the Company acquired A-1's property
comprised of approximately 16 buildings situated on approximately 100 acres with
an aggregate design capacity of 191 beds. Located in the Allegheny National
Forest, A-1 operates as an open residential facility for the treatment of
delinquent and/or dependent males who have substance abuse problems and/or are
involved in the sale of a controlled substance. A-1 also operates a licensed
school which offers a full range of educational services and interscholastic
sports programs. While at A-1, juvenile offenders may earn a high school
diploma, pursue vocational tracks or receive G.E.D. instruction and testing. The
LDP is leased by the Company with property located on approximately 3.5 acres in
South Mountain, Pennsylvania. The LDP is a 15-week residential treatment program
with a wilderness component. The LDP includes group counseling, substance abuse
treatment and licensed educational programs. The Company also acquired Abraxas
of Ohio's facility located on approximately 80 acres in north central Ohio. This
residential program offers a comprehensive substance abuse treatment and
education program for males. Individuals participate in intensive group
curriculum which includes a wide variety of topics such as: stages of denial,
self-help tools for recovery, goal setting, values, beliefs and morals, relapse
process and prevention and sex education. Individuals may earn a high school
diploma, pursue vocational tracks or receive G.E.D. instruction and testing.
The non-residential community-based programs of Abraxas transition juvenile
offenders from residential placement back to their home communities. Abraxas
provides in-home counseling and intensive case management services while
integrating an array of community resources into a comprehensive plan. This dual
role of service provider and intermediary serves to bridge the gap between
residential facilities and the community. The Company utilizes therapists and
consulting psychologists in its multi-level treatment programs.
The Company intends to pursue additional contract awards to provide
juvenile detention and correctional services, and to continue to increase its
number of contracts for specialized rehabilitation programs and services for
juvenile offenders such as wilderness programs and secure education and training
centers.
FACILITIES
As of September 9, 1997, the Company operates 39 facilities and has been
awarded contracts to operate two additional facilities that are currently under
development. In addition to providing management services, the Company has been
involved in the development, design and/or construction of many of these
facilities. The facilities currently under development are the Charlton County
Facility, which is scheduled to commence operations during the third quarter of
1998, and the Santa Fe County Adult Detention Center scheduled to open during
the second quarter of 1998. The following table summarizes certain additional
37
<PAGE>
information with respect to contracts and facilities under operation by the
Company as of September 9, 1997:
<TABLE>
<CAPTION>
PRINCIPAL
CONTRACTING TOTAL INITIAL COMMENCEMENT
GOVERNMENT OFFENDER CONTRACT OF CURRENT TERM RENEWAL
FACILITY NAME AND LOCATION AGENCY CAPACITY(1) DATE(2) CONTRACT (YEARS)(3) OPTION(4)
- ---------------------------------------- ------------ ------------ --------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
SECURE INSTITUTIONAL CORRECTIONAL AND
DETENTION FACILITIES:
Baker Correctional Facility............. CDC 288 1987 7/97 1 1/2 None
Baker, California(5)
Big Spring Complex...................... FBOP(6) 1,868(7) (6) (6) (6) (6)
Big Spring, Texas
Wyatt Facility.......................... USMS 302 1992 11/93 5 One
Central Falls, Rhode Island(5) (8) Five-Year
Leo Chesney Correctional Facility....... CDC 270 1988 4/93 6 1/2 None
Live Oak, California(5)
Santa Fe County Adult Detention Center.. Santa Fe 604 1997 7/97 3 Two
Santa Fe, New Mexico(9) County One-Year
Charlton County Facility................ State of 550 1998 9/98 1 Nine
Charlton County, Georgia Georgia One-Year
PRE-RELEASE FACILITIES:
Dallas County Judicial Center........... Dallas 300 1991 9/97 1 None
Wilmer, Texas County
Durham Center........................... NCDC 75 1996 12/96 4 1/2 One
Durham, North Carolina Five-Year
El Monte Center......................... FBOP 52 1993 4/93 (10) (10)
El Monte, California(5)
Indiana Street Center................... CDC 96 1990 7/94 6 None
San Francisco, California(5)
Inglewood Men's Center.................. CDC 53 1982 7/94 4 None
Inglewood, California(5)
Inglewood Women's Center................ CDC 27 1984 7/92 (11) None
Inglewood, California(5)
Leidel Community Correctional Center.... FBOP 94 1996 1/96 3 Two
Houston, Texas One-Year
Marvin Gardens Center................... CDC 42 1981 7/94 4 None
Los Angeles, California(5)
Oakland Center.......................... FBOP(12) 61 1981 9/93 (13) (13)
Oakland, California(5)
Reid Community Correctional Center...... TDCJ 310 1996 1/96 (14) (14)
Houston, Texas
Salt Lake City Center................... FBOP(12) 58 1995 12/95 2 Three
Salt Lake City, Utah One-Year
San Diego Center........................ FBOP 50 1984 11/95 2 Three
San Diego, California(5) One-Year
Santa Barbara Center.................... CDC(15) 25 1977 7/94 4 None
Santa Barbara, California(5)
Taylor Street Center.................... FBOP(16) 81 1984 2/96 2 Three
San Francisco, California(5) One-Year
</TABLE>
(TABLE CONTINUED ON FOLLOWING PAGE)
38
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
CONTRACTING TOTAL INITIAL COMMENCEMENT
GOVERNMENT OFFENDER CONTRACT OF CURRENT TERM RENEWAL
FACILITY NAME AND LOCATION AGENCY CAPACITY(1) DATE(2) CONTRACT (YEARS)(3) OPTION(4)
- ---------------------------------------- ------------ ------------ --------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
JUVENILE FACILITIES:
RESIDENTIAL FACILITIES:
A-1..................................... (17) 191 1973 7/97 1 Annual
Marienville, Pennsylvania
A-2..................................... (17) 23 1974 7/97 1 Annual
Erie, Pennsylvania
A-3..................................... (17) 20 1975 7/97 1 Annual
Pittsburgh, Pennsylvania
ACAF.................................... (17) 43 1989 7/97 1 Annual
Pittsburgh, Pennsylvania
Griffin Juvenile Facility............... Bexar 150 1996 7/97 Annual None
San Antonio, Texas County
LDP..................................... (17) 115 1994 7/97 1 Annual
S. Mountain, Pennsylvania
Abraxas of Ohio......................... (17) 96 1993 7/97 1 Annual
Shelby, Ohio
PSRU.................................... (17) 12 1994 7/97 1 Annual
Erie, Pennsylvania
Salt Lake City Juvenile Detention
Facility.............................. State of 160 1996 6/96 3 None
Salt Lake City, Utah Utah(18)
Santa Fe County Juvenile Detention
Center................................ Santa Fe 156(9) 1997 7/97 3 Two
Santa Fe, New Mexico County One-Year
NON-RESIDENTIAL COMMUNITY-BASED CENTERS:
Bensalem................................ (17) 100 1994 7/97 1 Annual
Bensalem, Pennsylvania(19)
Day Treatment Program................... (17) 25 1996 7/97 1 Annual
Harrisburg, Pennsylvania
Dauphin County Mental Health............ (17) 120 1996 7/97 1 Annual
Harrisburg, Pennsylvania
Delaware................................ (17) 22 1994 7/97 1 Annual
Milford, Delaware
Erie Mental Health...................... (17) 20 1997 7/97 1 Annual
Erie, Pennsylvania
Lehigh Valley........................... (17) 25 1992 7/97 1 Annual
Lehigh Valley, Pennsylvania
NRC..................................... (17) 40 1991 7/97 1 Annual
Pittsburgh, Pennsylvania
Philadelphia Family Preservation/SCOH... (17) 48 1992 7/97 1 Annual
Philadelphia, Pennsylvania
Washington DC........................... (17) 20 1993 7/97 1 Annual
District of Columbia
Workbridge.............................. (17) 445 1994 7/97 1 Annual
Pittsburgh, Pennsylvania
Wyoming Valley.......................... (17) 35 1992 7/97 1 Annual
Wyoming Valley, Pennsylvania
(FOOTNOTES ON FOLLOWING PAGE)
</TABLE>
39
<PAGE>
- ------------
(1) Total offender capacity includes design capacity plus the program capacity
of the non-residential, community-based operations. Design capacity is
based on the physical space available presently, or with minimal additional
expenditure, for offender or residential beds in compliance with relevant
regulations and contract requirements. In certain cases, the management
contract for a facility provides for a lower number of beds.
(2) Date from which the Company, or its predecessor, has had a contract with
the contracting governmental agency on an uninterrupted basis.
(3) Substantially all contracts are terminable by the contracting governmental
agency for any reason upon the required notice to the Company.
(4) Except as otherwise noted, the renewal option, if any, is at the discretion
of the contracting governmental agency.
(5) Facility is accredited by the American Correctional Association.
(6) The City of Big Spring entered into the IGA with the FBOP for an indefinite
term (until modified or terminated) with respect to the Big Spring Complex,
which began operations during 1989. The Big Spring Operating Agreement has
a term of 20 years with three five-year renewal options at the Company's
discretion, pursuant to which the Company manages the Big Spring Complex
for the City of Big Spring. With respect to the expansion of the Big Spring
Complex, the portion of the Big Spring Operating Agreement relating to the
expansion has a term of 30 years with four five-year renewal options at the
Company's discretion.
(7) Includes the 516 bed expansion, expected to be completed during the second
quarter of 1998.
(8) The USMS entered into an intergovernmental agreement with the Central Falls
Detention Facility Corporation ("DFC") in August 1991 for an indefinite
term (until modified or terminated) with respect to the Wyatt Facility. The
DFC, in turn, entered into a Professional Management Agreement with the
Company for the Company to operate this facility effective November 1993
for a term of five years, with one five-year renewal option. In addition,
pursuant to a contract between the DFC and the Sheriff's Department of
Suffolk County, Massachusetts, entered into in March 1996, Massachusetts
state offenders are housed under the Company's management at this facility.
(9) These facilities are currently housed in a single 240 bed facility. This
project will be completed in phases, whereby, on July 1, 1997, the Company
took over the operation of an existing 240 bed adult and juvenile facility,
while beginning construction of a new 604 bed adult detention facility,
scheduled to be completed during the second quarter of 1998. The offenders
housed in the 240 bed facility will then be transferred to the new 604 bed
detention facility, along with offenders from surrounding counties at which
time, the 240 bed facility will be converted into a 156 bed juvenile
detention facility, scheduled to be completed during the fourth quarter of
1998.
(10) The current contract term was less than one year, with an original
termination date of September 1993; the FBOP has exercised three of its
four one-year renewal options. The existing term expires September 30,
1997. The Company has submitted a rebid and is waiting for a response.
(11) The current contract expires September 30, 1997. The Company has submitted
a rebid and is waiting for a response.
(12) In addition to its contract with the FBOP with respect to these facilities,
the Company has contracts with the Administrative Office of the United
States Courts, Pretrial Services ("Pretrial Services") to provide beds at
these facilities.
(13) The current contract term was two years, with an original termination date
of August 1995; the FBOP has exercised the last of its three one-year
renewal options.
(14) The current contract expired August 31, 1997 and TDCJ granted a one-year
extension.
(15) In addition to its contract with the CDC with respect to this facility, in
March 1996 the Company entered into a contract with the FBOP, with a term
of two years and three one-year renewal options, to provide beds at this
facility.
(16) In addition to its contract with the FBOP with respect to this facility,
the Company has contracts with Pretrial Services and with the City of San
Francisco to provide beds at this facility.
(17) The Abraxas programs/facilities contract with numerous counties throughout
Pennsylvania, Ohio and Delaware, and with the District of Columbia.
(18) Utah Department of Human Services, Division of Youth Corrections.
(19) Operates within Pennsylvania's Youth Development Center/State Facility.
40
<PAGE>
FACILITY MANAGEMENT CONTRACTS
The Company is compensated on the basis of the number of offenders held or
supervised under each of its facilities' management contracts. The Company's
existing facility management contracts generally provide that the Company will
be compensated at an occupant per diem rate. Such compensation is invoiced in
accordance with applicable law and is typically paid on a monthly basis. Under a
per diem rate structure, a decrease in occupancy rates would cause a decrease in
revenues and profitability. The Company is, therefore, dependent upon
governmental agencies to supply the Company's facilities with a sufficient
number of offenders to meet the contract capacities, and in most cases such
governmental agencies are under no obligation to do so. Moreover, because
certain of the Company's facilities have offenders serving relatively short
sentences or only the last three to six months of their sentences, the high
turnover rate of offenders requires a constant influx of new offenders from the
relevant governmental agencies to provide sufficient occupancies to achieve
profitability. Occupancy rates during the start-up phase when facilities are
first opened typically result in capacity underutilization for 30 to 90 days.
After a management contract has been awarded, the Company incurs facility
start-up costs consisting principally of initial employee training, travel and
other direct expenses incurred in connection with the contract. These costs vary
by contract and have ranged between $30,000 and $1.5 million. See "Risk
Factors -- Facility Occupancy Levels and Contract Duration."
All the Company's contracts are subject to legislative appropriations. A
failure by a governmental agency to receive appropriations could result in
termination of the contract by such agency or a reduction of the management fee
payable to the Company. To date, the Company has not lost a material contract
due to to a governmental agency not receiving appropriations, although no
assurance can be given that the governmental agencies will continue to receive
appropriations in all cases. See "Risk Factors -- Contracts Subject to
Government Funding."
The Company's contracts generally require the Company to operate each
facility in accordance with all applicable laws and regulations. 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 agency for
claims and costs arising out of the Company's operations, and in certain cases,
to maintain performance bonds.
The Company's facility management contracts typically have terms ranging
from one to five years, and many have one or more renewal options for terms
ranging from one to five years. Only the contracting governmental agency may
exercise a renewal option. To date, all but one renewal option under the
Company's management contracts have been exercised. In connection with the
exercise of the renewal option, the contracting governmental agency or the
Company typically has requested changes or adjustments to the contract terms.
Additionally, the Company's facility management contracts typically allow a
contracting governmental agency to terminate a contract without cause by giving
the Company written notice ranging from 30 to 180 days. To date, no contracts
have been terminated before expiration. See "Risk Factors -- Facility Occupancy
Levels and Contract Duration."
MARKETING
The Company's principal customers are federal, state and local governmental
agencies responsible for adult and juvenile correctional, detention and
pre-release services. These governmental agencies generally procure these
services from the private sector by issuing an RFP to which a number of
companies may respond. Most of the Company's activities in the area of securing
new business are expected to be in the form of responding to RFPs. As part of
the Company's process of responding to RFPs, management of the Company meets
with appropriate personnel from the requesting agency to best determine the
agency's distinct needs. If the Company believes that the project complies with
its business strategy, the Company will submit a written response to the RFP.
When responding to RFPs, the Company incurs costs, typically ranging from
$10,000 to $75,000 per proposal, to determine the prospective client's distinct
needs and prepare a detailed response to the RFP. In addition, the Company may
incur substantial costs to acquire options to lease or purchase land for a
proposed facility and engage outside consulting and legal expertise related to a
particular RFP. The preparation of a response to an RFP typically takes from
five to 10 weeks.
41
<PAGE>
A typical RFP requires bidders to provide detailed information, including,
but not limited to, descriptions of the following: 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 requested by the agency
(which services may include the renovation, improvement or expansion of an
existing facility or the planning, design and construction of a new facility).
Based on proposals received in response to an RFP, the governmental agency will
award a contract; however, the governmental agency does not necessarily award a
contract to the lowest bidder. In addition to costs, governmental agencies also
consider experience and qualifications of bidders in awarding contracts.
The marketing process for obtaining facility management contracts consists
of several critical events. These include issuance of an RFP by a governmental
agency, submission of a response to the RFP by the Company, the award of the
contract by a governmental agency and the commencement of construction or
operation of the facility. The Company's experience has been that a substantial
period of time may elapse from the initial inquiry to receipt of a new contract,
although, as the concept of privatization has gained wider acceptance, the
length of time from inquiry to the award of contract has shortened. The length
of time required to award a contract is also affected, in some cases, by the
need to introduce enabling legislation. The bidding and award process for an RFP
typically takes from three to nine months. Generally, if the facility for which
an award has been made must be constructed, the Company's experience has been
that a newly constructed facility typically commences operations between 12 and
24 months after the governmental agency's award.
The Company also at times receives inquiries from or on behalf of
governmental agencies that are considering privatization of certain facilities
or that have already decided to contract with private providers. When such an
inquiry is received, the Company determines whether there is a need for the
Company's services and whether the legal and political climate in which the
governmental agency operates is conducive to serious consideration of
privatization. The Company then conducts an initial cost analysis to further
determine project feasibility.
As of September 9, 1997 the Company has submitted written bids to operate
seven new projects with an aggregate offender capacity of over 1,500. Awards for
these projects should be made by the applicable governmental agencies by the end
of 1998.
When a contract requires construction of a new facility, the Company's
success depends, in part, upon its ability to acquire real property for its
facilities on desirable terms and at satisfactory locations. Management of the
Company expects that many such locations will be in or near populous areas and
therefore anticipates legal action and other forms of opposition from residents
in areas surrounding certain proposed sites. The Company may incur significant
expenses in responding to such opposition and there can be no assurance of
success. In addition, the Company may choose not to bid in response to an RFP or
may determine to withdraw a bid if legal action or other forms of opposition are
anticipated.
OPERATIONS
Pursuant to the terms of its management contracts, the Company is
responsible for the overall operation of its facilities, including staff
recruitment, general administration of the facilities, security and supervision
of the offenders and facility maintenance. The Company also provides a variety
of rehabilitative and educational programs at many of its facilities. Offenders
at most adult facilities managed by the Company may receive basic education
through academic programs designed to improve offender literacy levels
(including English as a second language programs) and the opportunity to acquire
G.E.D. certificates. Programs for offenders at the Company's juvenile facilities
typically have an increased emphasis on education and counseling. At many
facilities, the Company also offers vocational training to offenders who lack
marketable job skills. In addition, the Company offers life skills, transition
planning programs that provide offenders job search training and employment
skills, health education, financial responsibility training and other skills
associated with becoming productive citizens. At several of its facilities, the
Company also offers counseling, education and/or treatment to offenders with
chemical dependency or substance abuse problems.
The Company operates each facility in accordance with Company-wide policies
and procedures generally based on the standards and guidelines established by
the American Correctional Association
42
<PAGE>
("ACA") Commission on Accreditation and/or the appropriate licensing agencies
(collectively "Accreditation Standards"). The ACA is an independent
organization comprised of professionals in the corrections industry which
establishes guidelines and standards by which a correctional institution may
gain accreditation. The Accreditation Standards describe specific objectives to
be accomplished and cover such areas as administration, personnel and staff
training, security, medical and health care, food service, offender supervision
and physical plant requirements.
Internal quality control, conducted by senior facility staff and executive
officers of the Company, takes the form of periodic operational, programmatic
and fiscal audits; facility inspections; regular review of logs, reports and
files; and strict maintenance of personnel standards, including an active
training program. Each of the Company's facilities develops its own training
plan that is reviewed, evaluated and updated annually. Dedicated space and
equipment for training is provided and outside resources such as community
colleges are utilized in the training process. All adult correctional officers
undergo a minimum 40-hour orientation upon their hiring and receive
academy-level training amounting to 120 hours and on-the-job training of up to
80 hours. Each correctional officer also receives up to 40 hours of training and
education annually. All juvenile treatment employees undergo a minimum 80-hour
orientation upon their hiring and also receive up to 40 hours of training and
education annually.
Abraxas has received awards and recognition for its operations and
programs, including being recognized: (i) in 1995 by the Pennsylvania Juvenile
Court Judges' Commission as "Residential Program of the Year" and (ii) in 1994
by the Office of Juvenile Justice and Delinquency Prevention in its Program
Report titled "What Works: Promising Interventions in Juvenile Justice."
FACILITY DESIGN, CONSTRUCTION AND FINANCE
In addition to operating correctional facilities, the Company also provides
consultation and management services to governmental agencies with respect to
the development, design and construction of new correctional and detention
facilities and the redesign and renovation of older facilities. The Company or
its predecessors have consulted on and/or managed the development, design and/or
construction of a number of facilities in each of its three areas of operational
focus, including:
<TABLE>
<CAPTION>
TOTAL
OFFENDER
FACILITY NAME CAPACITY SERVICES PROVIDED
- ------------------------------------- --------- ------------------------------------------
<S> <C>
Wyatt Facility....................... 302 Development, design and construction
Plymouth, Massachusetts Detention
Center............................. 1,140 Development, design and construction
Baker Correctional Facility.......... 288 Development
Leo Chesney Correctional Facility.... 270 Development
Leidel Community Correctional
Center............................. 94 Development, design and construction
Salt Lake City Juvenile Detention
Facility........................... 160 Development, design and construction
A-1.................................. 191 Development
Abraxas of Ohio...................... 96 Development
LDP.................................. 115 Development
</TABLE>
The Company is currently managing the development, design and construction
of: (i) the 516 bed expansion of the Big Spring Complex; (ii) the 550 bed
Charlton County Facility; (iii) the 604 bed adult facility in Santa Fe County,
New Mexico and (iv) the renovation of the 156 bed juvenile facility in Santa Fe
County, New Mexico. Currently, the Company operates or will operate all of the
facilities it has developed, designed and constructed with the exception of the
detention center in Plymouth, Massachusetts, which is operated by the Sheriff's
Department of the County of Plymouth, Massachusetts.
The Company utilizes an experienced team of outside professional
architectural consultants as part of the group that participates from conceptual
design through final construction of a project. When designing a facility, the
Company's outside architects utilize, with appropriate modifications, prototype
designs the Company has previously used in developing projects. Management of
the Company believes that the use of such proven designs allows the Company to
reduce cost overruns and avoid construction delays. Additionally, the Company
designs its facilities with the intention to improve security and minimize the
personnel needed to properly staff the facility by enabling enhanced visual and
electronic surveillance of the facility.
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The Company may propose various construction financing structures to the
contracting governmental agencies. The governmental agency may finance, or the
Company may arrange for the financing of, the construction of such facilities
through various methods including, but not limited to, the following: (i) a
one-time general revenue appropriation by the governmental agency for the cost
of the new facility; (ii) general obligation bonds that are secured by either a
limited or unlimited tax levy by the issuing governmental entity or (iii) lease
revenue bonds or certificates of participation secured by an annual lease
payment that is subject to annual or bi-annual legislative appropriations. If
the project is financed using project-specific tax-exempt bonds or other
obligations, the construction contract is generally subject to the sale of such
bonds or obligations. Substantial expenditures for construction will not be made
on such a project until the tax-exempt bonds or other obligations are sold. If
such bonds or obligations are not sold, construction and management of the
facility will be delayed until alternate financing is procured or development of
the project will be entirely suspended. When the Company is awarded a facility
management contract, appropriations for the first annual or bi-annual period of
the contract's term have generally already been approved, and the contract is
subject to governmental appropriations for subsequent annual or bi-annual
periods. Of the 41 facilities the Company operates or has contracted to operate,
four were funded using various of the above-described financing methods, 11 are
owned by the Company and 26 are leased. The Big Spring Complex is operated under
long-term leases ranging from 34 to 50 years including renewal options at the
discretion of the Company. As part of the purchase price for the MidTex
acquisition, the Company prepaid a majority of the facility costs related to the
Big Spring Complex through at least the year 2030. See "Risk Factors -- Possible
Loss of Lease Rights."
The Company has in the past worked with governmental agencies and placement
agents to obtain and structure financing for construction of facilities. In some
cases, an unrelated special purpose corporation is established to incur
borrowings to finance construction and, in other cases, the Company directly
incurs borrowings for construction financing. A growing trend in the
privatization industry is the requirement by governmental agencies that private
operators make capital investments in new facilities and enter into direct
financing arrangements in connection with the development of such facilities.
There can be no assurance that the Company will have available capital if and
when required to make such an investment to secure a contract for developing a
facility. See "Risk Factors -- Contracts Subject to Government Funding."
COMPETITION
The Company competes with a number of companies including, but not limited
to, CCA, WHC, Youth Services International, Inc. and Correctional Services
Corporation. At December 31, 1996, CCA and WHC accounted for more than 75% of
the privatized secure institutional adult beds under contract in the United
States, according to the 1996 Facility Census. The Company also competes in some
markets with small local companies that have better knowledge of the local
conditions and may be better able to gain political and public acceptance. In
addition, the Company may compete in some markets with governmental agencies
that operate correctional and detention facilities. See "Risk
Factors -- Competition."
EMPLOYEES
At September 9, 1997, the Company had approximately 1,000 full-time
employees and 215 part-time employees. The Company employs management,
administrative and clerical, security, educational and counseling services,
health services and general maintenance personnel. Approximately 165 employees
at one of the residential facilities of Abraxas are represented by a union. The
union's collective bargaining agreement effectively terminated on September 9,
1997, the closing date of the Abraxas acquisition. The Company is currently
negotiating with the union's representative over terms for a new agreement. The
correctional officers of the Wyatt Facility have voted to have the Rhode Island
Private Correction Officers represent them for purposes of collective
bargaining. On September 4, 1997, the National Labor Relations Board certified
this union as the exclusive representative for purposes of collective bargaining
for these employees. To date no collective bargaining has been scheduled. The
Company believes its relations with its employees are good.
44
<PAGE>
REGULATIONS
The industry in which the Company operates is subject to federal, state and
local regulations administered by a variety of regulatory authorities.
Generally, prospective providers of correctional, detention and pre-release
services must comply with a variety of applicable state and local regulations,
including education, health care and safety regulations. The Company's contracts
frequently include extensive reporting requirements and require supervision with
on-site monitoring by representatives of contracting governmental agencies.
In addition to regulations requiring certain contracting governmental
agencies to enter into a competitive bidding procedure before awarding
contracts, the laws of certain jurisdictions may also require the Company to
award subcontracts on a competitive basis or to subcontract with businesses
owned by women or members of minority groups.
INSURANCE
The Company maintains a $10 million per occurrence per facility general
liability insurance policy for all its operations. The Company also maintains
insurance in amounts it deems adequate to cover property and casualty risks,
workers' compensation and directors' and officers' liability. There can be no
assurance that the aggregate amount and types of the Company's insurance are
adequate to cover all risks it may incur or that insurance will continue to be
available in the future on commercially reasonable terms.
The Company's contracts and the statutes of certain states in which the
Company operates typically require the maintenance of insurance by the Company.
The Company's contracts provide that, in the event that the Company does not
maintain such insurance, the contracting agency may terminate its agreement with
the Company. The Company believes that it is in compliance in all material
respects with respect to these requirements.
LITIGATION
The Company currently and from time to time is subject to claims and suits
arising in the ordinary course of business, including claims for damages for
personal injuries or for wrongful restriction of, or interference with, offender
privileges. In the opinion of management of the Company, the outcome of the
proceedings to which the Company is currently a party will not have a material
adverse effect upon the Company's operations or financial condition.
PROPERTIES
The Company leases corporate headquarters office space in Houston, Texas
and regional administrative offices in Ventura, California, Dallas, Texas, Big
Spring, Texas and Pittsburgh, Pennsylvania. The Company also leases space for 26
of the facilities it is currently operating or developing. In connection with
the acquisition of MidTex, and as part of the purchase price, the Company
prepaid a majority of the facility costs related to the Big Spring Complex
through at least the year 2030. For information concerning lease rights relating
to a portion of the Big Spring Complex, see "Risk Factors -- Possible Loss of
Lease Rights."
The Company owns, or will own upon completion of construction, 11
facilities: (i) the Leidel Center and the Reid Center, both located in Houston,
Texas; (ii) the Griffin Juvenile Facility in San Antonio, Texas; (iii) the A-3
and ACAF facilities in Pittsburgh, Pennsylvania; (iv) the A-2 and PSRU
facilities in Erie, Pennsylvania; (v) the A-1 facility in Marienville,
Pennsylvania; (vi) Abraxas of Ohio in Shelby, Ohio; (vii) the Philadelphia
Family Preservation/SCOH facility in Philadelphia, Pennsylvania and (viii) the
Charlton County Facility in Charlton County, Georgia. The Company is not
required to lease space at the Wyatt Facility, which is owned by the DFC, the
Salt Lake City juvenile facility, which is owned by the County of Salt Lake and
leased to the State of Utah, or the Santa Fe County Adult Detention Center and
the Santa Fe County Juvenile Detention Center, which are owned by Santa Fe
County. For a list of the locations of each facility, see "-- Facilities."
The Company is currently constructing and financing the 550 bed Charlton
County Facility which it will own. Additionally, the Company is currently
constructing and financing the 516 bed expansion at the Big Spring Complex and
has the right to use the facility for 50 years.
45
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
The following table sets forth the names, ages (as of September 9, 1997)
and positions of the Company's directors, executive officers and certain other
key employees:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------- --- ------------------------------------------------------------
<S> <C>
David M. Cornell........................ 62 Director, Chairman of the Board, President and
Chief Executive Officer(1)
William J. Schoeffield, Jr.............. 47 Chief Operating Officer(1)
Marvin H. Wiebe, Jr..................... 50 Vice President(1)
Steven W. Logan......................... 35 Chief Financial Officer, Treasurer and Secretary(1)
Arlene R. Lissner....................... 66 Director; President of Abraxas Group, Inc.(1)
Thomas R. Jenkins....................... 50 Vice President -- Operations of Abraxas Group, Inc.
Charles J. Haugh........................ 58 Managing Director of Secure Institutions
Laura Shol.............................. 42 Managing Director of Pre-Release Centers
Richard T. Henshaw III.................. 58 Director
Peter A. Leidel......................... 41 Director
Campbell A. Griffin, Jr................. 68 Director
Tucker Taylor........................... 58 Director
</TABLE>
- ------------
(1) Executive officer of the Company.
DAVID M. CORNELL co-founded a predecessor of the Company in 1991 and has
been the Chairman and Chief Executive Officer of the Company since its founding.
Previously, Mr. Cornell was Operations Manager -- Special Projects for the
Bechtel Group and Chief Financial Officer of its wholly owned subsidiary, Becon
Construction Company, from 1983 to 1990. Prior to joining the Bechtel Group, Mr.
Cornell served as President and Director of Tenneco Financial Services Inc., an
investment advisory firm, from 1981 to 1982. He also served as Executive Vice
President of Philadelphia Life Insurance Company and President of its
subsidiary, Philadelphia Life Asset Management Company from 1972 to 1981.
WILLIAM J. SCHOEFFIELD, JR. became Chief Operating Officer of the Company
effective October 16, 1996. Mr. Schoeffield had been Vice President -- Eastern
Regional Ground Operations of Federal Express Corp. since 1990. Prior thereto,
Mr. Schoeffield was Vice President -- Western Regional Ground Operations of
Federal Express from 1988 to 1990 and has held numerous positions with Federal
Express since 1976.
MARVIN H. WIEBE, JR., has been Vice President of the Company since the
Company acquired Eclectic in 1994 and was previously Vice
President -- Administration and Finance, Vice President -- Secure Detention and
Chief Financial Officer of Eclectic, where he was employed for 11 years. Prior
to joining Eclectic, Mr. Wiebe served as Executive Director and Business
Administrator of Turning Point of Central California, Inc., a non-profit
provider of correctional and substance abuse programs from 1975 to 1984. Mr.
Wiebe has served as President of the International Community Corrections
Association ("ICCA") and as an auditor for the ACA Commission on Accreditation
for Corrections and is a member of the ICCA, the California Probation Parole &
Correctional Association and the ACA.
STEVEN W. LOGAN has been Chief Financial Officer, Treasurer and Secretary
of the Company since 1993. From 1984 to 1993, Mr. Logan served in various
positions with Arthur Andersen LLP, Houston, most recently as an Experienced
Manager in the Enterprise Group, a group specializing in emerging, high-growth
companies which Mr. Logan helped form in Houston in 1987. Mr. Logan is a
Certified Public Accountant.
ARLENE R. LISSNER has been a director of the Company since September 10,
1997, and has served as President of Abraxas Group, Inc. since September 9,
1997. Ms. Lissner founded Abraxas in 1973, where she served as President and
Chief Executive Officer until 1977, at which time she left that position to
become Chairperson of the Board of Directors of Abraxas. Ms. Lissner resumed her
role as President and
46
<PAGE>
Chief Executive Officer of Abraxas from April 1996 through September 1997. Prior
to founding Abraxas, Ms. Lissner directed a variety of programs for the Illinois
Department of Mental Health, Office of Drug Abuse Programs.
THOMAS R. JENKINS has served as Vice President -- Operations of Abraxas
Group, Inc. since September 9, 1997. From November 1995 through September 1997
he served as Vice President -- Operations of Abraxas. From 1973 through November
1995, Mr. Jenkins served with the Department of Public Welfare, Commonwealth of
Pennsylvania in various capacities ranging from Director of various juvenile
facilities to Director of the Pennsylvania Child Welfare Services.
CHARLES J. HAUGH has served as Managing Director of Secure Institutions of
the Company since May 1997. He previously served as Executive Director of
Facilities of the Company since the Company acquired MidTex in July 1996 through
May 1997. From 1988 to July 1996, Mr. Haugh was Vice President of MidTex and
Executive Director of Facilities of Big Spring Correctional Center. Prior to
joining MidTex, Mr. Haugh was involved in consulting for correctional
organizations as President of CJH Cortech, Inc. for a year. From 1963 to 1988,
Mr. Haugh served in numerous capacities for the FBOP, including Special
Assistant to Director Administrator of Correctional Services Branch, Associate
Warden, Chief Correctional Supervisor and Correctional Officer. Mr. Haugh has
been an auditor for the ACA and is on the Board of Directors of various local
organizations.
LAURA SHOL has served as the Company's Managing Director of Pre-Release
Centers since May 1997. She previously served as Director of Community
Corrections of the Company from June 1996 through May 1997, and was Senior
Regional Administrator of Eclectic from 1986 to June 1996. From 1982 to 1986,
Ms. Shol was a Facility Director for Eclectic. Prior to joining Eclectic, Ms.
Shol was a Program Director with the Salvation Army, Inc.
RICHARD T. HENSHAW III has been a director of the Company since March 1994.
Mr. Henshaw has been a Managing Director of Charterhouse Group International,
Inc. ("Charterhouse"), a private investment firm specializing in leveraged
buy-out acquisitions, since January 1997, and was a Senior Vice President since
1991. Mr. Henshaw is also a director of American Disposal Services, Inc., a
solid waste services company.
PETER A. LEIDEL has been a director of the Company and its predecessor
since May 1991. Mr. Leidel is founder and a Senior Manager of Yorktown Partners
LLC, and a partner of Ticonderoga Partners III, L.P. and Concord Partners II,
L.P. ("Concord II"), all private investment funds. As of September 2, 1997,
Mr. Leidel resigned as Senior Vice President of Dillon, Read & Co. Inc. (a
predecessor of SBC Warburg Dillon Read) where he worked since 1983 and became a
member of Yorktown Partners LLC. Mr. Leidel is a director of Willbros Group,
Inc. and seven private companies.
CAMPBELL A. GRIFFIN, JR. became a director of the Company in October 1996.
Mr. Griffin joined the law firm of Vinson & Elkins L.L.P. in 1957 and was a
partner from 1968 to 1992. He was a member of the Management Committee of Vinson
& Elkins L.L.P. from 1981 to 1990 and the Managing Partner of the Dallas office
from 1986 to 1989. From 1991 to 1993, Mr. Griffin served as an Adjunct Professor
of Administrative Science at William Marsh Rice University and, from 1993 to
1995, he was a Councilman for the City of Hunters Creek Village. Mr. Griffin has
been a director of various local organizations and is an arbitrator for the
American Arbitration Association, the New York Stock Exchange and the National
Association of Securities Dealers and a member of the American, Texas and
Houston Bar Associations.
TUCKER TAYLOR became a director of the Company in October 1996. Mr. Taylor
has been Vice President of a division of Columbia/HCA Healthcare System since
1994. From 1992 to 1994, he was Executive Vice President for Marketing, Sales
and Strategic Planning at Medical Care America. Prior thereto, Mr. Taylor worked
as a Marketing and Planning Consultant from 1982 to 1990 and at Federal Express
Corporation from 1974 to 1982. Mr. Taylor currently serves on the Board of
Directors of SuperShuttle.
Currently, there are two committees of the Board of Directors: an Audit
Committee and a Compensation Committee. The members of the Audit Committee are
Mr. Griffin and Mr. Taylor. The Audit Committee recommends the appointment of
independent public accountants to conduct audits of the Company's financial
statements, reviews with the independent accountants the plan and results of the
47
<PAGE>
auditing engagement, approves other professional services provided by the
independent accountants and evaluates the independence of the accountants. The
Audit Committee also reviews the scope and results of procedures for internal
auditing of the Company and the adequacy of the Company's system of internal
accounting controls. The members of the Compensation Committee are Mr. Leidel
and Mr. Henshaw. The Compensation Committee approves, or in some cases
recommends to the Board, remuneration arrangements and compensation plans
involving the Company's directors, executive officers and certain other
employees and consultants whose compensation exceeds specified levels. The
Compensation Committee also acts on the granting of stock options, including
grants under the Stock Option Plan. The members of the Audit and Compensation
Committees are not employees of the Company.
DIRECTOR COMPENSATION
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company (a "Nonemployee Director") and who was or will be elected or
appointed after October 3, 1996 receives a fee of $1,000 for attendance at each
Board of Directors meeting and $500 for each committee meeting (unless held on
the same day as a Board of Directors meeting). Individuals who first became or
will become Nonemployee Directors after October 3, 1996 receive a grant of
nonqualified options to purchase 15,000 shares of Common Stock under the Stock
Option Plan. Such options vest 25% on the date of grant and the remainder
ratably over three years with a term of 10 years and a per share exercise price
equal to the market value of a share of Common Stock at the date of grant. All
directors are reimbursed for out-of-pocket expenses incurred in attending
meetings of the Board of Directors or committees thereof and for other expenses
incurred in their capacity as directors.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth certain summary
information concerning the compensation paid or accrued by the Company during
the year ended December 31, 1996 to the Company's chief executive officer and
the other executive officers of the Company whose combined salary and bonus from
the Company during such period exceeded $100,000 (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION(1) -------------------
--------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING OPTIONS COMPENSATION
- ------------------------------------- --------- ---------- --------- ------------------- ------------
<S> <C> <C> <C> <C> <C>
David M. Cornell..................... 1996(2) $ 168,750 $ 29,167 126,124 $4,750(3)
Chairman of the Board, 1995 125,000 -- 137,110 3,750
President and Chief
Executive Officer
William J. Schoeffield, Jr........... 1996(2) $ 33,333 $ 8,333 100,000 $ --
Chief Operating Officer 1995 -- -- -- --
Marvin H. Wiebe, Jr.................. 1996(2) $ 90,500 $ 59,500(4) 15,000 $5,206(5)
Vice President 1995 90,500 82,475 -- 7,726
Steven W. Logan...................... 1996(2) $ 113,333 $ 11,667 126,124 $3,466(3)
Chief Financial Officer, 1995 90,000 -- 65,000 2,700
Treasurer & Secretary
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
48
<PAGE>
- ------------
(1) Other annual compensation for each Named Executive Officer did not exceed
the lesser of $50,000 or 10% of the annual compensation earned by such
individual.
(2) The Compensation Committee has approved current annual salaries of $200,000,
$160,000, $130,000 and $150,000 for Messrs. Cornell, Schoeffield, Wiebe and
Logan, respectively.
(3) The amounts shown represent contributions by the Company under its 401(k)
Profit Sharing Plan.
(4) Excludes $56,750 representing Mr. Wiebe's portion of an annual fixed
installment payment in 1996 relating to an acquisition by the Company in
1994.
(5) The amount for Mr. Wiebe includes contributions by the Company under its
401(k) Profit Sharing Plan of $2,602, an automobile allowance of $1,767, and
payment by the Company of $837 for excess life insurance for 1996.
OPTION GRANTS. The following table sets forth information on grants of
stock options during 1996 to the Named Executive Officers.
STOCK OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS GRANT
UNDERLYING GRANTED TO EXERCISE DATE
OPTIONS GRANTED EMPLOYEES PRICE EXPIRATION PRESENT
NAME IN 1996(1) IN 1996 (PER SHARE) DATE VALUE(2)
- ------------------------------ --------------- ------------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
David M. Cornell.............. 126,124 31.4% $ 4.86 7/9/2006 $ 215,672
William J. Schoeffield, Jr.... 100,000 24.9 12.00 10/16/2006 571,000
Marvin H. Wiebe, Jr........... 15,000 3.7 5.64 5/1/2003 28,800
Steven W. Logan............... 126,124 31.4 4.86 7/9/2006 215,672
</TABLE>
- ------------
(1) The options granted to Mr. Cornell and Mr. Logan were granted on July 9,
1996 and became exercisable immediately. The options granted to Mr. Wiebe
were granted on May 1, 1996 and became exercisable in 25% increments on each
of the date of grant, and the first, second and third anniversaries of the
date of grant. The options granted to Mr. Schoeffield were granted on
October 16, 1996 and became exercisable in 20% increments on each of the
date of grant and the first, second, third and fourth anniversaries of the
date of grant. All of the above options were granted pursuant to the Stock
Option Plan.
(2) Based on the Black-Scholes option pricing model. The actual value, if any,
that may be realized will depend on the excess of the underlying stock price
over the exercise price on the date the option is exercised, so there is no
assurance the value realized will be at or near the value estimated by the
Black-Scholes option pricing model. The estimated values under the model are
based on the following assumptions for the grants to Mr. Cornell, Mr.
Schoeffield, Mr. Wiebe and Mr. Logan, respectively: expected volatility
based on a historical volatility of month-end common stock prices of a
comparable company for the applicable option term (0.0%, 32.5%, 0.0% and
0.0%), a risk-free rate of return based on a zero-coupon U.S. Treasury rate
at the time of grant for the applicable option term (6.9%, 6.6%, 6.6% and
6.9%), an average of dividend yields on Common Stock (0.0%), and option
exercise periods (10 years, 10 years, 7 years and 10 years) with the
exercise occurring at the end of such period.
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<PAGE>
OPTION EXERCISES AND 1996 YEAR-END OPTION HOLDINGS. The following table
sets forth information with respect to exercises of options by the Named
Executive Officers during 1996 pursuant to the Stock Option Plan and information
with respect to unexercised options to purchase Common Stock granted in 1996 and
prior years to the Named Executive Officers and held by them at December 31,
1996.
1996 YEAR-END OPTION HOLDINGS
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT
NUMBER OPTIONS HELD AT DECEMBER
OF SHARES DECEMBER 31, 1996 31, 1996(2)
ACQUIRED VALUE ------------------------------ -----------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE(1) EXERCISABLE
- ---------------------------------------- ------------ ----------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
David M. Cornell........................ 137,110 $ (3) 126,124 -- $ 506,388
William J. Schoeffield, Jr.............. -- -- 20,000 80,000 --
Marvin H. Wiebe, Jr..................... -- -- 3,750 11,250 12,131
Steven W. Logan......................... 82,750 (4) 139,874 7,500 595,282
</TABLE>
NAME UNEXERCISABLE(1)
- ---------------------------------------- ----------------
David M. Cornell........................ $ --
William J. Schoeffield, Jr.............. --
Marvin H. Wiebe, Jr..................... 36,394
Steven W. Logan......................... 50,288
- ------------
(1) All of these options become immediately exercisable upon a change in control
of the Company.
(2) The excess, if any, of the market value of Common Stock at December 31, 1996
($8.875) over the option exercise price(s).
(3) On July 8, 1996, Mr. Cornell acquired 137,110 shares of Common Stock at a
per share exercise price of $2.00. The IPO price per share on October 3,
1996 was $12.00 and the per share market value on December 31, 1996 was
$8.875.
(4) On July 8, 1996, Mr. Logan acquired 82,750 shares of Common Stock at the
following per share exercise prices: 50,000 shares at $2.00, 29,000 shares
at $2.50, and 3,750 shares at $2.17. The IPO price per share on October 3,
1996 was $12.00 and the per share market value on December 31, 1996 was
$8.875.
STOCK OPTION PLAN
The Stock Option Plan was approved by the Board of Directors and
stockholders of the Company effective as of May 15, 1996. The objectives of the
Stock Option Plan are to (i) attract, retain and motivate certain key employees,
Nonemployee Directors and consultants who are important to the success and
growth of the business of the Company and (ii) to create a long-term mutuality
of interest between such persons and the stockholders of the Company by granting
options to purchase Common Stock.
The Company reserved 880,000 shares of Common Stock for issuance in
connection with the Stock Option Plan, which is administered by the Compensation
Committee of the Board of Directors. Pursuant to the Stock Option Plan, the
Company may grant (i) Non-Qualified Stock Options (as defined therein) or
Incentive Stock Options (as defined therein) to key employees and (ii)
Non-Qualified Stock Options to eligible Nonemployee Directors and consultants.
See "-- Director Compensation." The exercise price and vesting terms for the
options are determined by the Compensation Committee and shall be set forth in
an option agreement. The exercise price is at least 100% of the fair market
value of the Common Stock on the date of grant in the case of Incentive Stock
Options and Non-Qualified Stock Options that are intended to be
performance-based under Section 162(m) of the Internal Revenue Code, and the
exercise price of any other Non-Qualified Stock Options shall be at least equal
to the par value of the Common Stock. Non-Qualified Stock Options will be
exercisable for not more than ten years, and Incentive Stock Options may be
exercisable for up to ten years except as otherwise provided in the Stock Option
Plan. The Compensation Committee may provide that an optionee may pay for shares
upon exercise of an option: (i) in cash; (ii) in already-owned shares of Common
Stock; (iii) by agreeing to surrender then exercisable options equivalent in
value; (iv) by payment through a cash or margin arrangement with a broker; (v)
in shares otherwise issuable upon exercise of the option or (vi) by such other
medium or by any combination of (i), (ii), (iii), (iv) or (v) as authorized by
the Compensation Committee. In the event of certain extraordinary transactions,
including a merger, consolidation, a sale or transfer of all or substantially
all assets or an acquisition of all or substantially all the Common Stock,
vesting on such options will generally be accelerated.
50
<PAGE>
Pursuant to an employment agreement with Arlene R. Lissner, the Company has
granted to Ms. Lissner an option to purchase 10,000 shares of the Company's
Common Stock, with an exercise price equal to 50% of the fair market value of
the Company's Common Stock on September 9, 1997. See "Certain Relationships and
Related Party Transactions -- Employment Arrangements."
As of September 9, 1997, options to purchase 824,358 shares of Common Stock
had been granted under the Stock Option Plan, of which 221,110 had been
exercised, 8,750 had been canceled, 594,498 were outstanding and 320,748 were
exercisable. No options may be granted under the Stock Option Plan after May 15,
2006.
PROPOSED STOCK OPTION GRANTS
The Board of Directors of the Company has proposed long-term incentive
stock option grants of an aggregate of 354,334 shares to Messrs. Cornell, Logan,
Schoeffield and Wiebe. The future grant of such long-term incentive stock
options will be subject to stockholder approval of an amendment to the Stock
Option Plan or a new stock option plan. The grant date of such long-term
incentive stock options will be the date of approval of the amendment to the
Stock Option Plan or the new stock option plan, and the exercise price of the
long-term incentive stock options will be equal to the fair market value of the
Common Stock of the Company on the grant date. When granted, the long-term
incentive stock options are intended to be treated as "incentive stock
options" under the Internal Revenue Code.
The long-term incentive stock options will not vest until September 5,
2005; however, early vesting can occur on the attainment of certain performance
objectives. An amount equal to 25% of the long-term incentive stock options vest
upon the Company achieving revenues of $200 million over any period of 12
consecutive months; 25% upon the Company achieving earnings per share of $1.00
in any period of 12 consecutive months; 25% upon the Company achieving an
average stock price of $25.00 per share for any 90 consecutive trading days and
25% upon the Company achieving a 12% return on equity over any period of 12
consecutive months.
OFFICER AND DIRECTOR LIABILITY
Pursuant to the Company's Certificate of Incorporation and under Delaware
law, directors of the Company are not liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty, except for liability in
connection with a breach of the duty of loyalty, for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, for dividend payments or stock repurchases illegal under Delaware law or
any transaction in which a director derived an improper personal benefit. Under
the Certificate of Incorporation, the Company will indemnify the officers and
directors of the Company to the full extent permitted under the Delaware General
Corporation Law (the "DGCL").
The Company maintains indemnification agreements with its officers and
directors, pursuant to which it agrees to pay certain expenses, including
attorney's fees, judgments, fines and amounts paid in settlement incurred by
such officers and directors in connection with certain actions, suits or
proceedings. These agreements require officers and directors to repay the amount
of any expenses if it is determined that they were not entitled to
indemnification.
The Company maintains liability insurance for the benefit of its directors
and officers.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
MANAGING UNDERWRITERS
SBC Warburg Dillon Read is a managing underwriter in the Offering.
Immediately prior to the Offering, certain private investment partnerships
managed by SBC Warburg Dillon Read, and persons related to SBC Warburg Dillon
Read, owned an aggregate of 7.6% of the shares of Common Stock (assuming the
exercise of their options, but not the options or warrants of other persons,
into shares of Common Stock). Immediately after the completion of the Offering,
such persons will own an aggregate of 5.1% of the outstanding shares of Common
Stock (assuming the exercise of their options, but not the
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<PAGE>
options or warrants of other persons, into shares of Common Stock).
Additionally, Concord II, a private venture capital fund in which SBC Warburg
Dillon Read has an indirect interest, owned an aggregate of 7.4% of the shares
of Common Stock immediately prior to the Offering (4.9% immediately after
completion of the Offering). See "-- Certain Equity Transactions,"
"-- Registration Rights Agreement," "Principal and Selling Stockholders" and
"Underwriting." Mr. Leidel, a director of the Company and its predecessors
since May 1991, and a partner in Concord II, has recently resigned as an
employee of Dillon Read. In addition, 3,774 shares of Common Stock beneficially
owned by Mr. Leidel are held by SBC Warburg Dillon Read, as agent for Mr.
Leidel. See "Management -- Directors, Executive Officers and Other Key
Employees."
CERTAIN EQUITY TRANSACTIONS
At the time of its IPO, the Company's Class A Common Stock and Class B
Common Stock were reclassified as the Common Stock (the "Reclassification").
Prior to the Reclassification, Class B Common Stock did not provide holders
thereof the right to vote or to receive dividends.
ROLL-UP TRANSACTION. On March 31, 1994, in connection with the
reorganization of the Company from a partnership to a corporation, the Company
issued an aggregate of 2,100,376 shares of the Company's Common Stock (which was
reclassified as Class A Common Stock on March 8, 1995 pursuant to an amendment
to the Company's charter) to the following individuals and entities: (i) an
aggregate of 519,500 shares to Concord Partners ("Concord") and Concord II in
exchange for an aggregate of 519,500 Series A Preferred Units in the Partnership
owned, directly and indirectly, by Concord and Concord II; (ii) an aggregate of
380,876 shares to Concord Partners Japan Limited ("Concord Japan"), Lexington
Partners III, L.P. ("Lexington III"), Lexington Partners IV, L.P. ("Lexington
IV"), and SBC Warburg Dillon Read, as agent (collectively with Concord Japan,
Lexington III and Lexington IV, the "Lexington Investors"), in exchange for an
aggregate of 380,876 Series A Preferred Units in the Partnership owned, directly
and indirectly, by the Lexington Investors; (iii) 600,000 shares to Norman R.
Cox, Jr., a former officer of the Company, in exchange for all of the stock
owned by Mr. Cox in NRC, Inc. (which, in turn, owned 600,000 Common Units in the
Partnership); and (iv) 600,000 shares to David M. Cornell in exchange for all of
the stock owned by Mr. Cornell in Mayo, Inc. (which, in turn, owned 600,000
Common Units in the Partnership).
CAPITAL INVESTMENTS. On March 31, 1994, the Company issued an aggregate of
1,088,009 shares of the Company's Common Stock (which was reclassified as Class
A Common Stock on March 8, 1995 pursuant to an amendment to the Company's
charter) for an aggregate purchase price of approximately $6.5 million to the
following entities: (i) an aggregate of 768,790 shares to Charterhouse Equity
Partners II, L.P. ("CEP II") and a related party; (ii) an aggregate of 181,499
shares to Concord II; (iii) an aggregate of 57,975 shares to certain of the
Lexington Investors; and (iv) 79,745 shares to another institutional investor.
1995 CREDIT FACILITY. On March 14, 1995, the Company and its subsidiaries
entered into the 1995 Credit Facility with Internationale Nederlanden (U.S.)
Capital Corporation ("ING") to obtain credit in an aggregate principal amount
not exceeding $15 million primarily to refinance certain indebtedness of the
Company and its subsidiaries and to pay certain accounts payable and for working
capital purposes and certain capital expenditures. In connection with the 1995
Credit Facility, the Company issued warrants to ING to purchase 162,500 shares
of Class B Common Stock at an exercise price of $1.00 per share, which warrants
were exercised in connection with the IPO.
STOCK REPURCHASE. On November 1, 1995, in connection with the financing of
the repurchase of 555,000 shares of Class A Common Stock from Mr. Cox (the
"Stock Repurchase"), the Company issued options to purchase an aggregate of
555,000 shares of Class B Common Stock at an exercise price of $2.00 per share
pursuant to stock option agreements to Concord (19,114 shares), Concord II
(60,639 shares), the Lexington Investors (49,929 shares), CEP II (87,466
shares), David M. Cornell (137,110 shares), Jane B. Cornell (32,669 shares),
Steven W. Logan (50,000 shares), certain other investors and ING (59,000
shares), which provided the financing for the Stock Repurchase pursuant to an
amendment to the 1995 Credit Facility.
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<PAGE>
OPTION EXERCISE AND INDEBTEDNESS OF MANAGEMENT. On July 8, 1996, Mr.
Cornell and Mr. Logan exercised options to purchase 137,110 and 82,750 shares
consisting of both Class A Common Stock and Class B Common Stock for aggregate
exercise prices of $274,220 and $180,638, respectively. In connection with such
exercise, Mr. Cornell and Mr. Logan each issued a promissory note in favor of
the Company for the respective exercise amounts. The promissory notes have terms
of four years and bear interest at the applicable short-term federal rate as
prescribed by Internal Revenue Service regulations. The maturity of the
promissory notes will be accelerated upon certain events, including termination
of employment. The notes are full recourse and collateralized by the shares
received upon the exercise of the options.
MIDTEX ACQUISITION FINANCING. In connection with the financing of the
acquisition of substantially all the assets of MidTex, the Company entered into
the 1996 Credit Facility with ING and issued a short term convertible note (the
"Convertible Bridge Note"). As part of the consideration to ING for the 1996
Credit Facility and the proceeds under the Convertible Bridge Note, the Company
issued warrants to ING to purchase 264,000 shares of Class B Common Stock at an
exercise price of $2.82 per share. The warrants expire July 3, 2003. As a
condition to funding, the 1996 Credit Facility required Concord II and certain
of the Lexington Investors to purchase at least $200,000 of Class B Common
Stock. On July 9, 1996, Concord II purchased an aggregate of 53,355 shares of
Class B Common Stock and certain of the Lexington Investors purchased an
aggregate of 36,976 shares of Class B Common Stock for an aggregate of $254,733
(or $2.82 per share). In connection with the transaction, the Company issued
options to CEP II to purchase 60,221 shares of Class B Common Stock at $2.82 per
share.
EMPLOYMENT ARRANGEMENTS
On September 9, 1997, Abraxas Group, Inc., a Delaware corporation and
indirect wholly-owned subsidiary of the Company, and the Company entered into an
employment agreement with Arlene Lissner pursuant to which Ms. Lissner agreed to
serve as President of Abraxas Group, Inc. As compensation for her services,
Abraxas Group, Inc. agrees to pay Ms. Lissner an annual salary of $125,000 for a
period of three years. See "Management -- Stock Option Plans." The Company is
a party to the employment agreement solely to guarantee the performance of
Abraxas Group, Inc.'s obligations thereunder.
On September 9, 1997, in connection with the acquisition of Abraxas, the
Company entered into a Covenant Not to Compete Agreement with Ms. Lissner,
pursuant to which she agreed for a period of 20 years not to: (i) engage in any
business in competition with any business operation of the Company or its
affiliates; (ii) request that any customer or supplier of the Company or any of
its affiliates curtail or cancel its business with the Company or any such
affiliate or (iii) induce or attempt to influence any employee of the Company or
any of its affiliates to terminate his or her employment with the Company or any
such affiliate, or hire or retain the services of any such employee. In
consideration of Ms. Lissner's agreements, the Company will pay Ms. Lissner 10
annual installments of $60,000 each, commencing on January 2, 1998. Such
payments may be accelerated upon the mutual agreement of Ms. Lissner and the
Company.
REGISTRATION RIGHTS AGREEMENT
The Company and certain stockholders, option holders and warrant holders of
the Company, including Concord II, the Lexington Investors, CEP II, Chef
Nominees Limited, Brown University Third Century Fund, ING, Mr. Cornell, Ms.
Cornell, Mr. Logan and Wade H. Whilden, are parties to a registration rights
agreement dated as of March 31, 1994, as amended (the "Registration Rights
Agreement"). The Registration Rights Agreement provides demand registration
rights upon a request (subject to a maximum of two registrations) of holders of
shares of Common Stock (or other securities of the Company) subject to the
Registration Rights Agreement (the "Registrable Securities") holding at least
15% of the outstanding Registrable Securities, if the request occurs after March
31, 1997. Under the Registration Rights Agreement, upon such request the Company
is required to use its best efforts to file a registration statement under the
Securities Act to register Registrable Securities held by the requesting holders
and any other stockholders who are parties to the Registration Rights Agreement
and who desire to sell Registrable Securities pursuant to such registration
statement. In addition, subject to certain conditions and limitations, the
Registration Rights Agreement provides that holders of Registrable Securities
may participate in any
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<PAGE>
registration by the Company of equity securities pursuant to a registration
statement under the Securities Act on any form other than Form S-4 or Form S-8.
The Registration Rights Agreement provides that the number of shares of
Registrable Securities that must be registered on behalf of such participating
holders of Registrable Securities is subject to limitation if the managing
underwriter determines that market conditions require such a limitation. The
stockholders who are party to the Registration Rights Agreement have waived
their rights with respect to the Offering to the extent they are not selling
shares of Common Stock pursuant to the Offering.
The registration rights conferred by the Registration Rights Agreement are
transferable to transferees of the Registrable Securities covered thereby. The
Registration Rights Agreement contains no termination provision, although
securities cease to be Registrable Securities upon the earlier of: (i) being
disposed pursuant to an effective registration statement; (ii) being transferred
so that subsequent disposition of such securities does not require registration
or qualification of such securities under the Securities Act or any state
securities law and (iii) ceasing to be outstanding. After completion of the
Offering, 2,416,201 shares of Common Stock (including shares issuable upon
exercise of outstanding options and warrants) will be subject to the
Registration Rights Agreement.
Under the Registration Rights Agreement, the Company is required to pay all
expenses incurred in complying with the agreement, except for underwriter fees,
discounts or commissions and fees or expenses of counsel to the selling
stockholders (other than one counsel for the selling stockholders as a group).
Under the Registration Rights Agreement, the Company will indemnify the selling
stockholders thereunder, and such stockholders will indemnify the Company,
against certain liabilities in respect of any registration statement or offering
covered by the agreement.
STOCKHOLDERS AGREEMENT
The Applicable Stockholders are parties to the Stockholders Agreement. Upon
completion of the Offering, the Applicable Stockholders will beneficially own in
the aggregate approximately 9.4% of the outstanding Common Stock assuming
exercise of their outstanding stock options. The Stockholders Agreement will
provide that the Applicable Stockholders agree to vote all shares of Common
Stock owned by them to elect two directors of the Company to a Board of
Directors consisting of six members. Consequently, the Applicable Stockholders,
through their Common Stock holdings and representation on the Board of Directors
of the Company, will be able to exercise influence over the policies and
direction of the Company. The Stockholders Agreement will terminate upon the
first to occur of (i) October 7, 2000 or (ii) an Applicable Stockholder owning
less than 350,000 shares of the outstanding Common Stock (including shares of
Common Stock issuable upon the exercise of currently vested options).
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information as of the date hereof
and as adjusted to reflect the sale of securities offered hereby (assuming the
Underwriters' over-allotment option is not exercised), based on information
obtained from the persons named below, with respect to the "beneficial
ownership" (as defined for purposes of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), of shares of Common Stock and outstanding
warrants and options to purchase shares of Common Stock by: (i) each stockholder
known to the Company to beneficially own more than 5% of the outstanding shares
of Common Stock; (ii) each director and executive officer of the Company; (iii)
all executive officers and directors of the Company as a group and (iv) other
Selling Stockholders. Outstanding warrants and options to purchase shares of
Common Stock represent shares that may be acquired within 60 days after the date
hereof pursuant to the exercise of options or warrants; such shares are also
included in the total number of shares beneficially owned in the following
table. Unless otherwise stated, all the addresses are in care of the Company,
4801 Woodway, Suite 100E, Houston, Texas 77056.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING(1)
---------------------------------- ---------------------------------
OUTSTANDING NUMBER OF OUTSTANDING
TOTAL OPTIONS AND SHARES TOTAL OPTIONS AND
NAME AND ADDRESS NUMBER WARRANTS PERCENT OFFERED NUMBER WARRANTS PERCENT
- ---------------------------------------- -------- ----------- ------- --------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Charterhouse Equity Partners II, L.P.... 916,477 147,687 13.0% 171,182 745,295 147,687 9.7%
c/o Charterhouse Group
International, Inc.(1)(2)
535 Madison Avenue
New York, NY 10022
Concord Partners II, L.P.(1)............ 506,994 -- 7.4 50,000 456,994 -- 4.9
c/o Ticonderoga Capital Inc.
535 Madison Avenue
New York, NY 10022
Internationale Nederlanden (U.S.)
Capital Corporation................... 235,500 235,500 3.3 200,000 35,500 35,500 *
135 E. 57th St.
New York, NY 10022
Concord Partners Japan Limited et
al(1)(3).............................. 525,756 -- 7.6 50,000 475,756 -- 5.1
535 Madison Avenue
New York, NY 10022
Brown University Third Century Fund..... 88,818 9,073 1.3 28,818 60,000 -- *
164 Angell St., Box C
Providence, RI 02912
David M. Cornell(4)..................... 509,987 126,124 7.3 -- 509,987 126,124 5.4
Richard T. Henshaw III(5)............... -- -- -- -- -- -- --
Peter A. Leidel(6)...................... -- -- * -- -- -- *
Campbell A. Griffin, Jr................. 7,500 7,500 * -- 7,500 7,500 *
Tucker Taylor........................... 10,000 7,500 * -- 10,000 7,500 *
Arlene R. Lissner....................... -- -- * -- -- -- *
Steven W. Logan......................... 252,962 143,624 3.6 -- 252,962 143,124 2.7
Marvin H. Wiebe, Jr..................... 14,507 7,500 * -- 14,507 7,500 *
William J. Schoeffield, Jr.............. 65,588 40,000 * -- 65,588 40,000 *
All executive officers and directors as
a group (nine persons)(7)............. 860,544 332,248 11.9 -- 860,544 332,248 8.9
</TABLE>
- ------------
* Less than one percent.
(1) If the Underwriters' over-allotment option is exercised, CEP II, Concord II,
Concord Japan, ING and SBC Warburg Dillon Read, as agent will sell up to an
aggregate 412,500 shares of Common Stock.
(2) Includes 914,986 shares (147,687 of which would be received upon exercise of
options) held by CEP II and 1,491 shares held by a party related to CEP II.
The general partner of CEP II is CHUSA Equity Investors II, L.P., whose
general partner is Charterhouse Equity II, Inc., a wholly owned subsidiary
of Charterhouse. As a result of the foregoing, all of the shares of Common
Stock held by CEP II and a party related to CEP II would, for purposes of
Section 13(d) of the Exchange Act be deemed to be beneficially owned by
Charterhouse.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
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<PAGE>
(3) Includes 127,839 shares held by Concord Japan, which is a private venture
capital fund managed by SBC Warburg Dillon Read. Also includes 60,249 shares
held by Lexington III, 2,435 shares held by Lexington IV, each of which is a
private investment fund for certain SBC Warburg Dillon Read affiliated
persons, managed by SBC Warburg Dillon Read, and 335,233 shares held by SBC
Warburg Dillon Read as agent for certain affiliated persons.
(4) Includes 88,665 shares over which Jane B. Cornell, the former wife of David
M. Cornell, has sole investment power and, pursuant to a voting agreement,
over which Mr. Cornell has sole voting power.
(5) Mr. Henshaw is Managing Director of Charterhouse. He disclaims any
beneficial ownership of the shares beneficially owned by Charterhouse.
(6) Mr. Leidel is a partner of Concord II. He disclaims any beneficial ownership
of the shares held by Concord II. SBC Warburg Dillon Read, as agent for Mr.
Leidel, holds 3,774 shares (116 of which would be received upon exercise of
options). Mr. Leidel does not have voting or investment power with respect
to such shares.
(7) Excludes shares of which Mr. Henshaw and Mr. Leidel disclaim beneficial
ownership. See notes 5 and 6.
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DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 30,000,000 shares of
Common Stock, par value $.001 per share, and 10,000,000 shares of preferred
stock, par value $.001 per share (the "Preferred Stock"). Upon completion of
the Offering, the Company will have outstanding 9,355,404 shares of Common Stock
and no shares of Preferred Stock, and the Company will have outstanding options
or warrants to purchase an additional 890,354 shares of Common Stock. The
following summary is qualified in its entirety by reference to the Certificate
of Incorporation, which is incorporated as an exhibit to this registration
statement on Form S-1 (the "Registration Statement") of which this Prospectus
is a part.
COMMON STOCK
The Common Stock possesses ordinary voting rights for the election of
directors and in respect of other corporate matters, each share being entitled
to one vote. There are no cumulative voting rights, meaning that the holders of
a majority of the shares voting for the election of directors can elect all the
directors if they choose to do so. The Common Stock carries no preemptive rights
and is not convertible, redeemable or assessable or entitled to the benefits of
any sinking fund. The holders of Common Stock are entitled to dividends in such
amounts and at such times as may be declared by the Board of Directors out of
funds legally available therefor. See "Price Range of Common Stock and Dividend
Policy" for information regarding dividend policy.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Certificate of Incorporation and limitations prescribed by law, the Board
of Directors is expressly authorized to adopt resolutions to issue the shares,
to fix the number of shares, to change the number of shares constituting any
series and to provide for or change the voting powers, designations, preferences
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any class or series of the
Preferred Stock, in each case without any action or vote by the holders of
Common Stock.
Although the Company has no present intention to issue shares of Preferred
Stock, the issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For instance, the issuance of a series of Preferred Stock might impede
a business combination by including class voting rights that would enable the
holders to block such a transaction. In addition, under certain circumstances,
the issuance of Preferred Stock could adversely affect the voting power of the
holders of the Common Stock. Although the Board of Directors is required to make
any determination to issue such stock based on its judgment as to the best
interests of the stockholders of the Company, the Board of Directors could act
in a manner that would discourage an acquisition attempt or other transaction
that some or a majority of the stockholders might believe to be in their best
interests or in which stockholders might receive a premium for their stock over
the then market price of such stock. The Board of Directors does not currently
intend to seek stockholder approval prior to any issuance of currently
authorized stock, unless otherwise required by law or the rules of any market on
which the Company's securities are traded.
STATUTORY BUSINESS COMBINATION PROVISIONS
The Company is a Delaware corporation subject to Section 203 of the DGCL.
In general, Section 203 prevents an "interested stockholder" of a Delaware
corporation (defined generally as a person owning 15% or more of the
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined therein) with that corporation for three years
following the date such person became an interested stockholder unless: (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder (the "initial transaction") or approved the
business combination; (ii) as a result of the initial transaction, the
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<PAGE>
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time that transaction commenced (excluding, for purposes of
determining the number of shares outstanding, stock owned by directors who are
also officers of the corporation and stock owned by employee stock plans that do
not provide employees with the rights to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer); or
(iii) following the initial transaction, the business combination is approved by
the board of directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of at least 66% of the
outstanding voting stock of the corporation not owned by the interested
stockholder. Under Section 203, the restrictions described above also do not
apply, among other things, to certain business combinations proposed following
the announcement or notification of one of certain extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors, if
such extraordinary transaction is approved or not opposed by a majority of the
directors who were directors prior to any person becoming an interested
stockholder during the previous three years or were recommended for election or
elected to succeed such directors by a majority of such directors. Section 203
does not apply to transactions between the Company and either Concord II or the
Lexington Investors.
OTHER MATTERS
The DGCL authorizes Delaware corporations to limit or eliminate the
personal liability of directors to corporations and their stockholders for
monetary damages for breach of directors' fiduciary duty of care. The duty of
care requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by Delaware law,
directors are accountable to corporations and their stockholders for monetary
damages for conduct constituting gross negligence in the exercise of their duty
of care. Delaware law enables corporations to limit available relief to
equitable remedies such as injunction or rescission. The Certificate of
Incorporation limits the liability of directors of the Company to the Company or
its stockholders to the fullest extent permitted by Delaware law. Specifically,
directors of the Company will not be personally liable for monetary damages for
breach of a director's fiduciary duty as a director, except for liability for
(i) any breach of the director's duty of loyalty to the Company or its
stockholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the DGCL or (iv) any transaction from which the director derived an
improper personal benefit.
The inclusion of this provision in the Certificate of Incorporation may
have the effect of reducing the likelihood of derivative litigation against
directors, and may discourage or deter stockholders or management from bringing
a lawsuit against directors for breach of their duty of care, even though such
an action, if successful, might otherwise have benefited the Company and its
stockholders. The Certificate of Incorporation and the Company's Bylaws provide
indemnification to the Company's officers and directors and certain other
persons with respect to certain matters, and the Company has entered into
agreements with each of its directors providing for indemnification with respect
to certain matters.
The Certificate of Incorporation provides that stockholders may act only at
an annual or special meeting of stockholders and may not act by written consent.
The Bylaws provide that special meetings of the stockholders can be called only
by the Chairman of the Board or at least two directors of the Company. The
Certificate of Incorporation provides that the number of directors will be no
greater than 13 and no fewer than three.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American
Securities Transfer & Trust, Inc.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the Offering, 9,355,404 shares of Common Stock will
be outstanding and 890,354 shares will be issuable upon exercise of outstanding
warrants and stock options. The 2,750,000 shares of Common Stock sold in the
Offering will be freely tradeable without restriction or further registration
under the Securities Act, except for any shares purchased by an "affiliate" of
the Company (as that term is defined under the Securities Act), which will be
subject to the resale limitations of Rule 144 under the Securities Act. A total
of 2,146,742 outstanding shares of Common Stock (including shares issuable upon
exercise of outstanding options and warrants), which are held by the Company's
current stockholders, will be "restricted securities" (within the meaning of
Rule 144) and, therefore, will not be eligible for sale to the public unless
they are sold in transactions registered under the Securities Act or pursuant to
an exemption from registration, including pursuant to Rule 144. The Company has
entered into a Registration Rights Agreement with certain of its existing
stockholders, which provides such stockholders with certain rights to have their
shares of Common Stock registered under the Securities Act, in order to permit
the public sale of such shares. See "Certain Relationships and Related Party
Transactions -- Registration Rights Agreement."
In general, under Rule 144 as currently in effect if a minimum of one year
(including the holding period of any prior owner, except an affiliate) has
elapsed since the later of the date of acquisition of the restricted securities
from the issuer or from an affiliate of the issuer, a person (or persons whose
shares of Common Stock are aggregated), including persons who may be deemed
affiliates of the Company, would be entitled to sell within any three-month
period a number of shares of Common Stock that does not exceed the greater of
(i) 1% of the then outstanding shares of Common Stock (i.e., 93,554 shares
immediately after completion of the Offering) or (ii) the average weekly trading
volume during the four calendar weeks preceding the date on which notice of the
sale is filed with the Securities and Exchange Commission (the "Commission").
Sales under Rule 144 are also subject to certain provisions as to the manner of
sale, notice requirements and the availability of current public information
about the Company. In addition, under Rule 144(k), if a period of at least two
years (including the holding period of any prior owner, except an affiliate) has
elapsed since the later of the date restricted securities were acquired from the
Company or the date they were acquired from an affiliate of the Company, a
stockholder who is not an affiliate of the Company at the time of sale and has
not been an affiliate for at least three months prior to the sale would be
entitled to sell shares of Common Stock in the public market immediately without
compliance with the foregoing requirements under Rule 144. The foregoing summary
of Rule 144 is not intended to be a complete description thereof.
The Company and persons who will beneficially own in the aggregate
2,716,758 shares of Common Stock (including shares issuable upon exercise of
outstanding options and warrants) upon the completion of the Offering, including
the Company's directors and executive officers, have agreed that they will not
sell, contract to sell, grant any option to sell or otherwise dispose of,
directly or indirectly, any shares of the Common Stock or any securities
convertible into or exchangeable for Common Stock or warrants or other rights to
purchase Common Stock or permit the registration of any shares of Common Stock,
prior to the expiration of at least 90 days following the date of this
Prospectus, without the prior written consent of SBC Warburg Dillon Read,
subject to certain exceptions. See "Underwriting."
The Company filed a registration statement on Form S-8 under the Securities
Act to register 880,000 shares of Common Stock reserved or to be available for
issuance pursuant to the Stock Option Plan. Shares of Common Stock issued
pursuant to such plan after the effective date of such registration statement
generally will be available for sale in the open market by holders who are not
affiliates of the Company and, subject to the volume and other limitations of
Rule 144, by holders who are affiliates of the Company.
No prediction can be made of the effect, if any, that future sales of
Common Stock or the availability of shares for future sale will have on the
market price prevailing from time to time. Following the Offering, sales of
substantial amounts of Common Stock in the public market or otherwise, or the
perception that such sales could occur, could adversely affect the prevailing
market price for the Common Stock.
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UNDERWRITING
The names of the Underwriters of the shares of Common Stock offered hereby
and the aggregate number of shares of Common Stock which each has severally
agreed to purchase from the Company and the Selling Stockholders, subject to the
terms and conditions specified in the Underwriting Agreement, are as follows:
UNDERWRITER NUMBER OF SHARES
- ---------------------------------------- ----------------
SBC Warburg Dillon Read Inc.............
Equitable Securities Corporation........
Wasserstein Perella Securities, Inc.....
----------------
Total.............................. 2,750,000
================
The Managing Underwriters are SBC Warburg Dillon Read, Equitable Securities
Corporation ("Equitable Securities"), and Wasserstein Perella Securities, Inc.
If any shares of Common Stock offered hereby are purchased by the
Underwriters, all such shares will be so purchased. The Underwriting Agreement
contains certain provisions whereby if any Underwriter defaults in its
obligation to purchase such shares and if the aggregate obligations of the
Underwriters so defaulting do not exceed ten percent of the shares offered
hereby, the remaining Underwriters, or some of them, must assume such
obligations.
The Underwriters propose to offer the shares of Common Stock to the public
initially at the offering price set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not to exceed $ per
share. The Underwriters may allow, and such dealers may re-allow, a concession
not to exceed $ per share on sales to certain other dealers. The offering of
the shares of Common Stock is made for delivery when, as and if accepted by the
Underwriters and subject to prior sale and withdrawal, cancellation or
modification of the offer without notice. The Underwriters reserve the right to
reject any order for the purchase of the shares. After the shares are released
for sale to the public, the public offering price, the concession and the
reallowance may be changed by the Managing Underwriters.
Certain stockholders of the Company have granted to the Underwriters an
option for 30 days from the date of the Underwriting Agreement to purchase up to
an additional 412,500 shares of Common Stock from them at the offering price
less the underwriting discount set forth on the cover page of this Prospectus.
The Underwriters may exercise such option only to cover over-allotments made of
the shares in connection with this Offering. To the extent the Underwriters
exercise this option, each of the Underwriters will be obligated, subject to
certain conditions, to purchase the number of additional shares proportionate to
such Underwriter's initial commitment.
The Company, each of its directors and officers and certain of its
stockholders have agreed that they will not sell, contract to sell, grant any
option to sell or otherwise dispose of, directly or indirectly, any shares of
the Common Stock or any securities convertible into or exchangeable for Common
Stock or warrants or other rights to purchase Common Stock, for a period of at
least 90 days after the date of this Prospectus, without the prior written
consent of SBC Warburg Dillon Read, except for (i) the registration and sale of
shares of Common Stock pursuant to the Offering; (ii) the issuance of shares of
Common Stock by the Company upon the purchase of outstanding warrants or the
exercise of outstanding options, provided that the Company shall have obtained
an agreement substantially to the effect set forth in this paragraph from each
such person to whom such shares of Common Stock are issued and (iii) the grant
of options and other rights by the Company to purchase up to an aggregate of
55,642 shares of Common Stock to the
60
<PAGE>
Company's employees, officers and directors pursuant to the Stock Option Plan,
provided that the Company shall have obtained an agreement substantially to the
effect set forth in this paragraph from each such employee, officer and director
of the Company to whom such options and rights are granted.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including any liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required to
make in respect thereof.
Immediately prior to the Offering, certain private investment partnerships
managed by SBC Warburg Dillon Read, and persons related to SBC Warburg Dillon
Read, owned an aggregate of 7.6% of the outstanding shares of Common Stock
(assuming the exercise of their options, but not the options or warrants of
other persons, into shares of Common Stock). Immediately after the consummation
of the Offering, such persons will own an aggregate of 5.1% of the Common Stock
(assuming the exercise of their options, but not the options or warrants of
other persons, into shares of Common Stock). Additionally, Concord II, a private
venture fund in which SBC Warburg Dillon Read has an indirect interest, owned an
aggregate of 7.4% of the shares of Common Stock immediately prior to the
Offering (4.9% immediately after completion of the Offering). See "Principal
and Selling Stockholders" and "Certain Relationships and Related Party
Transactions -- Managing Underwriters." Mr. Leidel, a director of the Company
and its predecessors since May 1991 and a partner in Concord II, has recently
resigned as an employee of SBC Warburg Dillon Read. In addition, 3,774 shares of
Common Stock beneficially owned by Mr. Leidel are held by SBC Warburg Dillon
Read as agent. See "Management -- Directors, Executive Officers and Other Key
Employees."
The provisions of Rule 2720 of the National Association of Securities
Dealers, Inc. (the "NASD") Conduct Rules apply to this Offering. Under Rule
2720, when an NASD member such as SBC Warburg Dillon Read distributes an
affiliated company's equity securities, one of the following two criteria must
be met: (i) the price of such equity securities can be no higher than that
recommended by a "qualified independent underwriter" or (ii) the offering must
be for a class of equity security for which a "bona fide independent market"
exists. Because a "bona fide independent market" for the Common Stock exists,
the public offering price of the Common Stock offered hereby will not be passed
upon by a "qualified independent underwriter." Pursuant to Rule 2720, NASD
members may not execute transactions in the shares of Common Stock offered
hereby in discretionary accounts without the prior approval of the customer. The
Underwriters do not intend to confirm sales to accounts over which they exercise
discretionary authority.
The Managing Underwriters, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
Common Stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the Managing
Underwriters to reclaim a selling concession from a syndicate member when the
Common Stock originally sold by such syndicate member is purchased in a
syndicate covering transaction to cover syndicate short positions. Such
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the Common Stock to be higher than it would otherwise be in
the absence of such transactions. These transactions may be effected on the AMEX
or otherwise and, if commenced, may be discontinued at any time.
Equitable Securities has in the past performed financial advisory services
for the Company for which it has received customary fees. Equitable Securities
also provided financial advisory services to Abraxas in connection with the sale
of Abraxas to the Company, for which it received customary fees, including a fee
paid upon consummation of the acquisition. In addition, SBC Warburg Dillon Read
and Equitable Securities acted as managing underwriters in connection with the
IPO.
61
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the sale of the Common Stock
offered hereby by the Company are being passed upon for the Company by Liddell,
Sapp, Zivley, Hill & LaBoon, L.L.P., Houston, Texas. Certain legal matters in
connection with the Offering will be passed upon for the Underwriters by Cahill
Gordon & Reindel (a partnership including a professional corporation), New York,
New York.
EXPERTS
The audited financial statements included in this Prospectus and the
Registration Statement of which this Prospectus is a part have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
ADDITIONAL INFORMATION
The Company has been subject to the reporting requirements of the Exchange
Act since the completion of the IPO and in accordance therewith, has been
required to file periodic reports and other information with the Commission.
Such information can be inspected without charge at the public reference
facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at Suite 1400, Northwest Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material may also be obtained at prescribed rates
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission also maintains a Web site
(http://www.sec.gov) that will contain all information filed electronically by
the Company with the Commission.
The Company has filed the Registration Statement with the Commission under
the Securities Act with respect to the shares of Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement,
including the exhibits and schedules thereto. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
the Registration Statement, exhibits and schedules. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and, with respect to each such contract or document filed
as an exhibit to the Registration Statement, reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement, and
each such statement is qualified in all respects by such reference. A copy of
the Registration Statement, including the exhibits and schedules thereto, may be
inspected and copies thereof may be obtained as described in the preceding
paragraph with respect to periodic reports and other information filed by the
Company under the Exchange Act.
62
<PAGE>
CORNELL CORRECTIONS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
NUMBERS
-------
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets of Cornell Corrections, Inc. as
of December 31, 1995 and 1996 (Audited), and June 30, 1997
(Unaudited)............................................... F-3
Consolidated Statements of Operations of Cornell
Corrections, Inc. for the Years Ended December 31, 1994,
1995 and 1996 (Audited), and for the Six Months Ended June
30, 1996 and 1997 (Unaudited)............................. F-4
Consolidated Statements of Stockholders' Equity of Cornell
Corrections, Inc. for the Years Ended December 31, 1994,
1995 and 1996 (Audited), and for the Six Months Ended June
30, 1997 (Unaudited)...................................... F-5
Consolidated Statements of Cash Flows of Cornell
Corrections, Inc. for the Years Ended December 31, 1994,
1995 and 1996 (Audited), and for the Six Months Ended June
30, 1996 and 1997 (Unaudited)............................. F-6
Notes to Consolidated Financial Statements.................. F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Cornell Corrections, Inc.:
We have audited the accompanying consolidated balance sheets of Cornell
Corrections, Inc. (formerly Cornell Cox, Inc., a Delaware corporation and
successor to the Cornell Cox Group, L.P., a Delaware limited partnership), and
subsidiaries as of December 31, 1995 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, 1996. 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 financial position of Cornell Corrections, Inc.
and subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 7, 1997
F-2
<PAGE>
CORNELL CORRECTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 390 $ 4,874 $ 1,579
Accounts receivable, net........... 3,436 4,976 8,383
Current portion of notes
receivable....................... 216 211 403
Prepaids and other................. 214 1,248 1,337
Restricted assets.................. 284 1,124 1,331
--------- --------- -----------
Total current assets.......... 4,540 12,433 13,033
PROPERTY AND EQUIPMENT, net............. 1,909 26,074 31,743
OTHER ASSETS:
Notes receivable, noncurrent....... 519 620 501
Goodwill, net...................... 6,204 5,864 5,694
Contract value, net................ 206 -- --
Deferred tax asset, noncurrent..... 409 488 488
Deferred costs and other........... 397 1,345 1,823
--------- --------- -----------
Total assets.................. $ 14,184 $ 46,824 $53,282
========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities...................... $ 2,991 $ 4,403 $ 5,432
Current portion of long-term
debt............................. 24 283 2,283
--------- --------- -----------
Total current liabilities..... 3,015 4,686 7,715
LONG-TERM DEBT, net of current
portion............................... 7,625 462 309
OTHER LONG-TERM LIABILITIES............. 491 625 2,721
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 and $.001 par
value, respectively, 1,000,000
and 10,000,000 shares authorized,
respectively, none outstanding... -- -- --
Common stock, $.01, $.001 and $.001
par value, respectively,
9,000,000, 30,000,000 and
30,000,000 shares authorized,
respectively, 3,189,385,
7,320,398 and 7,413,384 shares
issued and outstanding,
respectively..................... 32 7 7
Additional paid-in capital......... 6,955 47,562 47,753
Stock option loans................. -- (455) (455)
Retained deficit................... (1,331) (3,710) (2,415)
Treasury stock (555,000 shares of
common stock, at cost)........... (2,603) (2,353) (2,353)
--------- --------- -----------
Total stockholders' equity.... 3,053 41,051 42,537
--------- --------- -----------
Total liabilities and
stockholders' equity.......... $ 14,184 $ 46,824 $53,282
========= ========= ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
CORNELL CORRECTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES:
Occupancy fees..................... $ 15,389 $ 20,594 $ 31,877 $ 10,967 $ 27,886
Other income....................... 300 98 450 370 155
--------- --------- --------- --------- ---------
15,689 20,692 32,327 11,337 28,041
OPERATING EXPENSES...................... 12,315 16,351 26,038 9,461 22,556
DEPRECIATION AND AMORTIZATION........... 758 820 1,390 510 1,120
GENERAL AND ADMINISTRATIVE EXPENSES..... 2,959 3,531 4,560 1,629 2,218
--------- --------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS........... (343) (10) 339 (263) 2,147
INTEREST EXPENSE........................ 294 1,115 2,810 498 209
INTEREST INCOME......................... (138) (136) (167) (51) (86)
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES.......................... (499) (989) (2,304) (710) 2,024
PROVISION FOR INCOME TAXES.............. 101 -- 75 -- 729
--------- --------- --------- --------- ---------
NET INCOME (LOSS)....................... $ (600) $ (989) $ (2,379) $ (710) $ 1,295
========= ========= ========= ========= =========
INCOME (LOSS) PER SHARE................. $ (.16) $ (.25) $ (.53) $ (.20) $ .18
========= ========= ========= ========= =========
NUMBER OF SHARES USED IN PER SHARE
CALCULATION........................... 3,811 3,983 4,466 3,523 7,139
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CORNELL CORRECTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
PARTNERSHIP COMMON STOCK ADDITIONAL STOCK RETAINED
CAPITAL ------------------- PAID-IN OPTION EARNINGS TREASURY
BALANCE SHARES AMOUNT CAPITAL LOANS (DEFICIT) STOCK
----------- ----------- ------ ---------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1993........... $ 1,085 -- $ -- $ -- $ -- $ -- $ --
ALLOCATION OF JANUARY 1, 1994, TO MARCH
31, 1994 (i.e., PRE-INCORPORATION),
LOSS TO RESPECTIVE PARTNERS
ACCOUNTS.............................. (258) -- -- -- -- 258 --
CONVERSION OF PARTNERSHIP INTO CORNELL
CORRECTIONS, INC., A C CORPORATION.... (827) 2,100,376 21 806 -- -- --
ISSUANCE OF COMMON STOCK................ -- 1,088,009 11 6,490 -- -- --
DIRECT COSTS RELATED TO ISSUANCE OF
COMMON STOCK.......................... -- -- -- (355) -- -- --
NET LOSS................................ -- -- -- -- -- (600) --
----------- ----------- ------ ---------- ------ --------- --------
BALANCES AT DECEMBER 31, 1994........... -- 3,188,385 32 6,941 -- (342) --
EXERCISE OF STOCK OPTIONS............... -- 1,000 -- 3 -- -- --
PURCHASE OF TREASURY STOCK (555,000
shares, at cost)...................... -- -- -- -- -- -- (2,603)
ISSUANCE OF WARRANTS.................... -- -- -- 11 -- -- --
NET LOSS................................ -- -- -- -- -- (989) --
----------- ----------- ------ ---------- ------ --------- --------
BALANCES AT DECEMBER 31, 1995........... -- 3,189,385 32 6,955 -- (1,331) (2,603)
CONVERSION OF PAR VALUE FROM $.01 to
$.001................................. -- -- (29) 29 -- -- --
ISSUANCES OF COMMON STOCK............... -- 3,618,091 3 37,670 -- -- --
EXERCISE OF STOCK OPTIONS AND
WARRANTS.............................. -- 512,922 1 1,140 (455) -- --
INCOME TAX BENEFITS FROM STOCK OPTIONS
EXERCISED............................. -- -- -- 172 -- -- --
STOCK-BASED COMPENSATION................ -- -- -- 1,596 -- -- --
REVERSAL OF PUT RIGHT COST.............. -- -- -- -- -- -- 250
NET LOSS................................ -- -- -- -- -- (2,379) --
----------- ----------- ------ ---------- ------ --------- --------
BALANCES AT DECEMBER 31, 1996........... -- 7,320,398 7 47,562 (455) (3,710) (2,353)
ISSUANCES OF COMMON STOCK (Unaudited)... -- 92,986 -- 191 -- -- --
NET INCOME (Unaudited).................. -- -- -- -- -- 1,295 --
----------- ----------- ------ ---------- ------ --------- --------
BALANCES AT JUNE 30, 1997 (Unaudited)... $ 7,413,384 $ 7 $ 47,753 $ (455) $ (2,415) $ (2,353)
=========== =========== ====== ========== ====== ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CORNELL CORRECTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................. $ (600) $ (989) $ (2,379) $ (710) $ 1,295
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities --
Depreciation.................. 271 166 498 185 394
Amortization.................. 487 654 892 325 725
Deferred income taxes......... 101 -- (172) -- --
Non-cash stock-based
compensation and financing
charges.................... -- -- 1,596 -- --
Change in assets and
liabilities, net of effects
from acquisition of
businesses --
Accounts receivable...... (1,161) (1,086) 1,090 (472) (1,971)
Restricted assets........ (71) (5) (233) (41) (207)
Other assets............. 779 166 (1,765) (282) (759)
Accounts payable and
accrued liabilities... 92 (137) (67) 43 559
Other liabilities........ -- -- -- -- 2,020
--------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities....... (102) (1,231) (540) (952) 2,056
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............... (167) (1,159) (1,256) (467) (1,795)
Acquisition of businesses, less
cash acquired.................... (5,921) -- (25,174) (4,251) (5,594)
Redemption of commercial paper and
U.S. Treasury notes.............. 585 -- -- -- --
--------- --------- --------- --------- ---------
Net cash used in investing
activities................. (5,503) (1,159) (26,430) (4,718) (7,389)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt....... 50 11,360 40,841 9,520 9,000
Payments on long-term debt......... (284) (7,158) (47,745) (3,301) (7,153)
Proceeds from issuances of common
stock............................ 6,146 3 37,673 24 --
Proceeds from exercise of stock
options and warrants............. -- -- 685 -- 191
Direct costs related to issuance of
common stock..................... -- -- -- (407) --
Purchase of treasury stock......... -- (2,353) -- -- --
--------- --------- --------- --------- ---------
Net cash provided by financing
activities................. 5,912 1,852 31,454 5,836 2,038
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... 307 (538) 4,484 166 (3,295)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD............................. 621 928 390 390 4,874
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 928 $ 390 $ 4,874 $ 556 $ 1,579
========= ========= ========= ========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid (net of interest
capitalized)..................... $ 293 $ 520 $ 1,454 $ 460 $ 294
========= ========= ========= ========= =========
Income taxes paid.................. $ -- $ -- $ 75 $ -- $ 412
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cornell Corrections, Inc. (collectively with its subsidiaries, the
"Company"), a Delaware corporation, provides to governmental agencies the
integrated development, design, construction and management of facilities within
three areas of operational focus: (i) secure institutional correctional and
detention services; (ii) pre-release correctional services and (iii) juvenile
correctional and detention services.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
RESTRICTED ASSETS
For certain facilities, the Company maintains bank accounts for restricted
cash belonging to offenders and commissary operations, for an equipment
replacement fund for the replacement of equipment used in state programs, and
for a restoration fund for any necessary restorations of the related facilities.
These bank accounts and commissary inventories are collectively referred to as
"restricted assets" in the accompanying financial statements.
DEFERRED COSTS
Facility start-up costs, which consist of costs of initial employee
training, travel and other direct expenses incurred in connection with the
opening of new facilities, are capitalized and amortized on a straight-line
basis over the lesser of the initial term of the contract plus renewals or five
years. Direct incremental development costs paid to unrelated third parties
incurred in securing new facilities, including certain costs of responding to
requests for proposal ("RFPs"), are capitalized as deferred costs and
amortized as part of start-up costs. Internal payroll and other costs incurred
in securing new facilities are expensed to general and administrative expenses.
Deferred development costs are charged to general and administrative expenses
when the success of obtaining a new facility project is considered doubtful.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Ordinary maintenance and
repair costs are expensed while renewal and betterment costs are capitalized.
Prepaid facility use cost, which resulted from the July 1996 acquisition of
MidTex, is being amortized over 35 years using the straight-line method.
Buildings and improvements are depreciated over their estimated useful lives of
20 to 40 years using the straight-line method. Furniture and equipment are
depreciated over their estimated useful lives of 3 to 10 years using the
straight-line method. Amortization of leasehold improvements is computed on the
straight-line method based upon the shorter of the life of the asset or the term
of the respective lease.
F-7
<PAGE>
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and equipment at December 31, 1995 and 1996, are as follows (in
thousands):
1995 1996
--------- ---------
Land.................................... $ -- $ 561
Prepaid facility use.................... -- 21,637
Buildings and improvements.............. -- 2,651
Leasehold improvements.................. 598 1,100
Furniture and equipment................. 407 938
Construction in progress................ 1,334 439
--------- ---------
2,339 27,326
Accumulated depreciation and
amortization.......................... (430) (1,252)
--------- ---------
$ 1,909 $ 26,074
========= =========
Construction in progress at December 31, 1996 represents construction and
development costs attributable to a new pre-release facility which opened during
the first quarter of 1997.
CONTRACT VALUE
Contract value represents the estimated fair value of the contracts
acquired with the acquisition of Eclectic Communications, Inc. ("Eclectic")
which were amortized over the remaining term of the contracts. Accumulated
amortization was $542,000 as of December 31, 1995 and contract value was fully
amortized as of December 31, 1996.
GOODWILL
Goodwill represents the total consideration the Company paid to acquire
Eclectic in excess of the fair market value of the net tangible and identifiable
intangible assets acquired. Goodwill is being amortized on a straight-line basis
over 20 years, which represents managements estimation of the related benefit to
be derived from the acquired business. Under Accounting Principles Board
("APB") Opinion No. 17, the Company periodically evaluates whether events and
circumstances after the acquisition date indicate that the remaining balance of
goodwill may not be recoverable. If factors indicate that goodwill should be
evaluated for possible impairment, the Company would compare estimated
undiscounted future cash flow from the related operations to the carrying amount
of goodwill. If the carrying amount of goodwill were greater than undiscounted
future cash flow, an impairment loss would be recognized. Any impairment loss
would be computed as the excess of the carrying amount of goodwill over the
estimated fair value of the goodwill (calculated based on discounting estimated
future cash flows). Accumulated amortization of goodwill was $599,000 and
$939,000 as of December 31, 1995 and 1996, respectively.
REALIZATION OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of."
SFAS No. 121 requires that long-lived assets be probable of future recovery in
their respective carrying amounts as of each balance sheet date. The Company
adopted SFAS No. 121 effective January 1, 1996. Management believes its
long-lived assets are realizable and that no impairment allowance is necessary
pursuant to the provision of SFAS No. 121.
REVENUE RECOGNITION
Substantially all occupancy fees are derived from contracts with federal
and state government agencies, which pay per diem rates based upon the number of
occupant days for the period. Such revenues are recognized as services are
provided.
F-8
<PAGE>
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenues related to other income include development fees and miscellaneous
other income. The development fees relate to the development, design and
supervision of facility construction activities. Revenues are recognized as
services are provided.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes as
required by SFAS No. 109, "Accounting for Income Taxes." Under the liability
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying values of existing assets and liabilities and their respective tax
bases based on enacted tax rates.
USE OF ESTIMATES
The Company's financial statements are prepared in accordance with
generally accepted accounting principles ("GAAP"). Financial statements
prepared in accordance with GAAP require the use of management estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Additionally, management estimates affect the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
BUSINESS CONCENTRATION
Contracts with federal and state governmental agencies account for nearly
all of the Company's revenues.
FINANCIAL INSTRUMENTS
The Company considers the fair value of all financial instruments not to be
materially different from their carrying values at the end of each fiscal year
based on management's estimate of the Company's ability to borrow funds under
terms and conditions similar to those of the Company's existing debt.
ACCOUNTING FOR STOCK-BASED COMPENSATION
In 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which is effective for the Company's 1996 fiscal year. SFAS No.
123 allows the Company to adopt either of two methods for accounting for stock
options. The Company intends to continue to account for its stock-based
compensation plans under Accounting Principles Board, Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB Opinion No. 25"). In
accordance with SFAS No. 123, certain pro forma disclosures are provided in Note
6.
PER SHARE DATA
Per share data is based on the weighted average number of common shares and
common share equivalents outstanding for the period. Common shares equivalents
have been included in the calculation of the shares used in computing net income
(loss) per common share using the treasury stock method.
INITIAL PUBLIC OFFERING
On October 3, 1996, the Company completed an initial public offering
("IPO") of its common stock. Net proceeds to the Company from the sale of the
3,523,103 shares of newly issued common stock were approximately $37.4 million.
Proceeds of the IPO were used to repay indebtedness and for general working
capital purposes.
NON-RECURRING CHARGES
In connection with the Company's July 1996 credit facility ("1996 Credit
Facility"), the Company incurred expenses, issued certain options and warrants,
and sold shares of common stock, for which the Company recognized total deferred
financing costs of $1.3 million, of which $726,000 was noncash, to be
F-9
<PAGE>
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amortized over the life of the 1996 Credit Facility. Since the use of proceeds
from the IPO were used to retire significant portions of the 1996 Credit
Facility, the total deferred financing costs were charged to interest expense as
of September 30, 1996. In addition, the Company recognized noncash compensation
expense of $870,000 during the third quarter of 1996 in connection with options
to purchase shares of common stock granted in July 1996 to certain officers of
the Company based upon the estimated valuation of the shares of common stock
compared to the exercise price on the date of grant.
INTERIM FINANCIAL INFORMATION
The financial information for the interim periods ended June 30, 1996 and
1997 has not been audited by independent accountants. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted from the unaudited interim financial information. In the opinion of
management of the Company, the unaudited interim financial information includes
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation. Results of operations for the interim periods are not
necessarily indicative of the results of operations for the respective full
years.
2. ACQUISITIONS
In July 1996, the Company completed the acquisition of substantially all
the assets of MidTex Detentions, Inc. ("MidTex"), a private correctional
center operator for the Federal Bureau of Prisons, operating secure
institutional facilities in Big Spring, Texas with a capacity of 1,305 beds at
the date of acquisition ("Big Spring Complex"). In May 1996, the Company
acquired a 310-bed facility located in Houston, Texas ("Reid Center"),
previously operated by Texas Alcoholism Foundation, Inc., and The Texas House
Foundation, Inc. (collectively, "Texas House"). Total consideration for these
acquisitions was approximately $25.7 million. The acquisitions were financed
primarily through borrowings under the 1996 Credit Facility and a short term
convertible note ("Convertible Bridge Note"). In connection with the MidTex
acquisition, the Company entered into various agreements for the use of the
facilities and the annual payment of $216,000 (in lieu of property taxes) per
year for approximately the next 35 years.
The acquisition costs and the estimated fair market value of the assets
acquired and liabilities assumed associated with the above-mentioned
acquisitions are as follows (in thousands):
MIDTEX REID CENTER
------- -----------
Cash paid............................... $23,200 $ 1,986
Transaction costs....................... 470 90
------- -----------
Total purchase price.......... $23,670 $ 2,076
======= ===========
Net assets acquired --
Cash............................... $ 486 $ --
Receivables, net................... 2,726 --
Other current assets............... 755 --
Property and equipment, net:
Prepaid facility use.......... 21,710 --
Other......................... 10 2,090
Other assets....................... 5 --
Accounts payable and accrued
liabilities...................... (2,022) (14)
------- -----------
$23,670 $ 2,076
======= ===========
The carrying value of the prepaid facility use relates to the Company's
right to use the three detention facilities retained by the City of Big Spring
for 19, 20, and 23 years, respectively, plus three five-year
F-10
<PAGE>
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
extensions. Extensions of the lease agreement are at the option of the Company.
The costs will be amortized over the respective periods, including the option
periods. The Company currently intends to exercise these extensions.
Both the Reid Center and MidTex acquisitions have been accounted for as
purchases; therefore, the accompanying statements of operations reflect the
results of operations since their respective acquisition dates.
The unaudited consolidated results of operations on a pro forma basis as
though the Reid Center and MidTex had been acquired as of the beginning of the
Company's fiscal years 1995 and 1996 are as follows (amounts in thousands,
except per share data):
YEAR ENDED DECEMBER
31,
--------------------
1995 1996
--------- ---------
Total revenues.......................... $ 38,716 $ 42,061
Net loss................................ (8) (2,030)
Loss per share.......................... (.00) (.45)
The unaudited consolidated results of operations on a pro forma basis (i)
assuming the Reid Center and MidTex had been acquired as of the beginning of the
Company's fiscal year 1996, (ii) assuming the IPO had occurred at the beginning
of the Company's fiscal year 1996, and (iii) excluding the $2.1 million of
non-recurring charges described above, are as follows (amounts in thousands,
except per share data):
YEAR ENDED
DECEMBER 31, 1996
-----------------
Total revenues.......................... $42,061
Net income.............................. 1,772
Earnings per share...................... .25
Effective March 31, 1994, the Company purchased all outstanding stock of
Eclectic, a California-based operator of residential care and secure
correctional facilities. Consideration for the Eclectic acquisition was $10.3
million, consisting of $6 million in cash, $3.3 million in seller subordinated
debt, approximately $700,000 of other long-term obligations, and $300,000 of
transaction costs. The Eclectic acquisition was accounted for as a purchase, and
the accompanying statement of operations reflects the operating results of
Eclectic since the acquisition date.
F-11
<PAGE>
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The consideration paid and total net book value of the assets acquired and
liabilities assumed associated with the Eclectic acquisition were as follows (in
thousands):
Cash paid (including transaction
costs)................................ $ 6,334
Debt issued and other obligations
incurred.............................. 4,000
---------
Total purchase price............... $ 10,334
=========
Net assets acquired --
Current assets..................... $ 2,532
Property and equipment............. 586
Contract value..................... 748
Goodwill........................... 6,799
Other assets....................... 1,717
Current liabilities................ (1,577)
Other liabilities.................. (471)
---------
$ 10,334
=========
3. INCOME TAXES
The following is an analysis of the Company's deferred tax assets (in
thousands):
DECEMBER 31,
--------------------
1995 1996
--------- ---------
Deferred tax assets relating to --
Net operating loss carryforwards... $ 380 $ 609
Accelerated depreciation and
amortization of property and
equipment for financial reporting
purposes......................... 114 290
Accrued expenses recorded for
financial reporting purposes and
deferred for tax purposes........ 217 282
Deferred compensation.............. -- 331
--------- ---------
711 1,512
Deferred tax liabilities................ -- --
--------- ---------
Net deferred tax asset before
valuation allowance.............. 711 1,512
Valuation allowance..................... (275) (904)
--------- ---------
Net deferred tax asset............. $ 436 $ 608
========= =========
The components of the Company's income tax provision were as follows (in
thousands):
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
Current provision....................... $ -- $ -- $ 247
Deferred provision (benefit)............ 101 -- (172)
--------- --------- ---------
Tax provision...................... $ 101 $ -- $ 75
========= ========= =========
F-12
<PAGE>
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of taxes at the federal statutory rate with the income
taxes recorded by the Company is presented below (in thousands):
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
Computed taxes at statutory rate of 34
percent............................... $ (170) $ (336) $ (783)
Amortization of non-deductible
intangibles........................... 166 162 186
1994 first quarter loss reported in
partnership tax return................ 88 -- --
State income taxes, net of federal
benefit............................... 35 -- (39)
Changes in valuation allowance.......... -- 190 629
Other................................... (18) (16) 82
--------- --------- ---------
$ 101 $ -- $ 75
========= ========= =========
As of December 31, 1996, the Company has a net operating loss ("NOL")
carryforward for income tax purposes of approximately $1,600,000 available to
offset future taxable income. This carryforward will expire beginning 2008.
4. LONG-TERM DEBT
The Company's long-term debt consisted of the following (in thousands):
DECEMBER 31,
--------------------
1995 1996
--------- ---------
1995 Credit Facility (all repaid in
1996):
Revolving credit................... $ 740 $ --
Term loan.......................... 4,000 --
Multiple-advance term loan......... 500 --
Stock repurchase loan.............. 2,350 --
--------- ---------
Total......................... 7,590 --
Other notes payable, interest at 2.9% to
9.9%.................................. 59 745
--------- ---------
7,649 745
Less -- current maturities.............. 24 283
--------- ---------
$ 7,625 $ 462
========= =========
In conjunction with the acquisition of MidTex, the 1995 Credit Facility was
replaced with the 1996 Credit Facility. The 1996 Credit Facility provided up to
$35,000,000 in loans pursuant to four separate facilities consisting of a
$2,500,000 revolving credit facility, a $23,200,000 term loan facility that was
used to finance a portion of the Mid-Tex acquisition costs, a $6,950,000
multiple-advance term loan facility for new and expanded facilities costs and a
$2,350,000 facility that was used to refinance the stock repurchase loan. In
addition, in July 1996, the Company borrowed $6.0 million under the Convertible
Bridge Note.
On October 8, 1996, the Company repaid a total of $33.9 million of
borrowings under the 1996 Credit Facility and the Convertible Bridge Note using
proceeds from the IPO. As a result of the repayments of the term loan facility
and the stock repurchase loan facility, such facilities were canceled.
In December 1996, the 1996 Credit Facility was amended to increase the
revolving credit facility to $5.0 million and the multiple-advance term loan
facility to $10.0 million. Loans under the 1996 Credit Facility bear interest at
a designated prime rate plus the following margins: revolving credit, 1%;
multiple-advance term loan, 1.75%. Commitment fees equal to 0.5% per annum are
payable on the unused portions of the revolving credit and multiple-advance term
loan facilities. The revolving credit facility and the
F-13
<PAGE>
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
multiple-advance term loan facility will mature and all amounts, if any,
outstanding thereunder will be due on December 31, 1997. The 1996 Credit
Facility is secured by all of the Company's assets, including the stock of all
the Company's subsidiaries, does not permit the payment of cash dividends and
requires the Company to comply with certain earnings, net worth and debt service
covenants. At December 31, 1996, there were no borrowings outstanding under the
1996 Credit Facility.
Other notes payable pertain to financed insurance premiums and various
vehicle notes. Scheduled maturities of long-term debt are as follows (in
thousands):
DECEMBER 31,
------------
1997.................................... $ 283
1998.................................... 316
1999.................................... 119
2000.................................... 27
------------
Total.............................. $ 745
============
In connection with the 1996 Credit Facility, the Company issued warrants to
the lender enabling the lender to purchase 264,000 shares of Class B Common
Stock at a per share exercise price of $2.82. The warrants are fully vested and
expire in 2003. As a condition to funding, the 1996 Credit Facility required
certain existing stockholders to purchase at least $200,000 of Class B Common
Stock. On July 9, 1996, the existing stockholders purchased an aggregate of
90,331 shares of Class B Common Stock for $254,733 (or $2.82 per share). As a
condition to the Convertible Bridge Note, the lender and certain existing
stockholders entered into a put agreement dated as of July 3, 1996 ("Put
Agreement"). The Company issued options to an existing stockholder to purchase
60,221 shares of Class B Common Stock at $2.82 per share in consideration for
entering into the Put Agreement (see Note 6--"Treasury Stock" regarding the
expiration of this Put Agreement in 1996). Total financing costs of $1,261,000
(which includes (i) transaction costs of $535,000; (ii) the $568,000 difference
between the exercise price of the warrants granted to the lender and an existing
stockholder and the estimated valuation of the shares of common stock underlying
such options and (iii) the $158,000 difference between the purchase price and
the estimated valuation of the 90,331 shares of common stock purchased by an
existing stockholder) were capitalized as deferred financing costs.
5. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space and certain facilities under long-term
operating leases. Rent expense for all operating leases for the years ended
December 31, 1994, 1995 and 1996, was approximately $1,667,000, $2,244,000, and
$2,358,000, respectively. As of December 31, 1996, the Company had the following
rental commitments under noncancelable operating leases (in thousands):
For the year ending December 31 --
1997............................... $ 2,209
1998............................... 1,378
1999............................... 874
2000............................... 447
2001............................... 175
Thereafter......................... 1,257
---------
$ 6,340
=========
F-14
<PAGE>
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
401(K) PLAN
The Company has a defined contribution 401(k) plan. The Company's matching
contribution represents 50 percent of a participants contribution, up to the
first six percent of the participants salary. The Company can also make
additional discretionary contributions. For the years ended December 31, 1994,
1995 and 1996, the Company recorded $100,000, $139,000, and $210,000,
respectively, of contribution expense.
OTHER
The Company is subject to certain claims and disputes arising in the normal
course of the Company's business. In the opinion of the Company's management,
uninsured losses, if any, resulting from the ultimate resolution of these
matters will not have a material adverse impact on the Company's financial
position or results of operations.
6. STOCKHOLDERS' EQUITY
CAPITALIZATION
Upon the completion of the IPO, the Company's authorized stock was as
follows:
CLASS AUTHORIZED PAR VALUE
- ---------------------------------------- ---------- ---------
Common stock............................ 30,000,000 $ .001
Preferred stock......................... 10,000,000 .001
Preferred stock may be issued from time to time by the Board of Directors
of the Company, which is responsible for determining the voting, dividend,
redemption, conversion and liquidation features of any preferred stock.
The Company effected a reclassification of its equity in 1996 in connection
with the IPO which resulted in the reclassification of each share of Class A
Common Stock and Class B Common Stock of the Company into one share of Common
stock, par value $.001 per share, of the Company.
OPTIONS AND WARRANTS
In May 1996, the Company adopted the 1996 Stock Option Plan ("1996
Plan"). Pursuant to the 1996 Plan, the Company may grant non-qualified and
incentive stock options. The Compensation Committee of the Board of Directors is
responsible for determining the exercise price and vesting terms for the
options. Additionally, prior to the IPO, the Company made various grants of
options and warrants to purchase the Company's common stock.
The Company may grant options for up to 880,000 shares under the 1996 Plan.
The Company has granted options on 673,358 shares through December 31, 1996. The
1996 Plan option exercise price can be no less than the stock's market price on
the date of grant. The 1996 Plan options vest up to four years, and expire after
seven to ten years.
On July 8, 1996, the chairman of the board and the chief financial officer
of the Company exercised options to purchase 137,110 and 82,750 shares of Class
A Common Stock and Class B Common Stock at an aggregate price of $274,220 and
$180,638, respectively. In connection with the exercise, each officer entered
into a promissory note with the Company for the respective aggregate exercise
amounts. The promissory notes bear interest at the applicable short-term federal
rate as prescribed by Internal Revenue Service regulations, mature in four
years, are full recourse and are collateralized by shares of common stock
exercised.
F-15
<PAGE>
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the Company's stock option plan and other
options and warrants at December 31, 1995 and 1996 and changes during the years
then ended is presented in the table and narrative below:
<TABLE>
<CAPTION>
1995 1996
-------------------- ----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------- -------- ----------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year........ 83,062 $ 5.11 814,562 $ 2.12
Granted................................. 732,500 1.78 776,469 5.24
Exercised............................... (1,000) 2.50 (512,922) 2.22
Forfeited............................... -- -- -- --
Expired................................. -- -- -- --
--------- -----------
Outstanding at end of year.............. 814,562 2.12 1,078,109 4.32
========= ===========
Exercisable at end of year.............. 793,562 2.11 930,609 3.46
Weighted average fair value of options
granted............................... $.55 $4.10
</TABLE>
Of the 1,078,109 options outstanding at December 31, 1996, 948,109 options
have exercise prices between $2.00 and $5.64, with a weighted average exercise
price of $3.26 and a weighted average remaining contractual life of 7.3 years.
The remaining 130,000 options have exercise prices of $12.00 and a weighted
average remaining contractual life of 9.8 years.
Had compensation cost for the stock option grants under the 1996 Plan and
other stock options and warrants been determined under SFAS No. 123, the
Company's net loss and loss per share would have been the following pro forma
amounts (in thousands, except per share amounts):
YEAR ENDED DECEMBER
31,
--------------------
1995 1996
--------- ---------
Net loss: As reported............................. $ (989) $ (2,379)
Pro forma............................... (1,391) (3,503)
Loss per share: As reported............................. (.25) (.53)
Pro forma............................... (.35) (.80)
Because SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
Under SFAS No. 123, the fair value of each option grant was estimated on
the date of grant using the minimum value calculation prior to the IPO, and the
Black-Scholes option pricing model subsequent to the IPO. The following weighted
average assumptions were used for grants in 1995 and 1996, respectively:
risk-free interest rates of 6.1% and 6.8%; dividend rates of $0 and $0; expected
lives of 7.0 and 7.5 years; expected volatility of 32.5% since the Company's
stock began trading in October 1996.
The Black-Scholes option valuation model and other existing models were
developed for use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferrable. In addition, option valuation
models require the input of and are highly sensitive to subjective assumptions
including the expected stock price volatility. The Company's employee stock
options have characteristics significantly different from those of traded
options, and changes in the subjective input assumptions can materially affect
the fair value estimate.
TREASURY STOCK
Effective November 1, 1995, the Company repurchased 555,000 shares of Class
A Common Stock from a former officer of the Company ("Stock Repurchase"). The
Stock Repurchase and related expenses were financed with borrowings under the
1995 Credit Facility. In connection with the Stock Repurchase, the
F-16
<PAGE>
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company issued options to purchase 555,000 shares of Class B Common Stock, each
with an exercise price of $2.00 per share, to certain existing stockholders and
to the lender under the 1995 Credit Facility. Also, in connection with the Stock
Repurchase, the Company granted the lender under the 1995 Credit Facility the
Put Agreement to require the Company to repurchase options to purchase 31,250
shares of Class B Common Stock for an aggregate price of $250,000 (i.e., $8.00
per share) upon the first to occur of (a) the closing of an initial public
offering of shares of common equity of the Company, (b) the repayment by the
Company of the Stock Repurchase Loan or (c) December 31, 1996. The Put
Agreement, which was accrued in 1995, expired and was reversed in 1996.
7. SUBSEQUENT EVENTS
ACQUISITIONS
On January 31, 1997, the Company acquired substantially all of the assets
of Interventions Co. ("Interventions"). The Company paid an aggregate purchase
price of $6,003,000 comprised of $3,523,000 in cash, $2,250,000 for the
repayment of Interventions' outstanding notes payable, and $230,000 of
transaction costs. The Company financed the purchase with $2,000,000 of
borrowings from the multiple-advance term loan facility under its 1996 Credit
Facility and the remainder with cash. The acquisition was treated as a purchase
for accounting purposes. The operations acquired from Interventions include (i)
a 300 bed residential pre-release correctional center in Dallas County, Texas,
(ii) various non-residential aftercare treatment programs for an additional 170
probationers in Dallas, Texas, and (iii) a 44 bed juvenile residential
transitional living center program in San Antonio, Texas. In addition, the
Company acquired from Interventions the 72,000 square foot, 150 bed capacity
facility in San Antonio in which the juvenile transitional living center is
operated.
The acquisition costs and the estimated fair market value of the assets
acquired and liabilities assumed associated with the Interventions acquisitions
are as follows (in thousands):
Cash paid............................... $ 5,773
Transaction costs....................... 230
---------
Total purchase price............... $ 6,003
=========
Net assets acquired --
Cash............................... $ 409
Receivables, net................... 1,509
Other current assets............... 54
Property and equipment............. 4,577
Accounts payable and accrued
liabilities....................... (546)
---------
Total purchase price.......... $ 6,003
=========
8. EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)
ACQUISITION
On September 9, 1997, the Company acquired substantially all of the assets
of The Abraxas Group, Inc. and four related entities ("Abraxas"). The Company
paid an aggregate purchase price of $19.8 million. The Company financed the
purchase with borrowings under the 1997 Credit Facility (see below). The
acquisition is being treated as a purchase for accounting purposes. Abraxas was
a non-profit provider of residential and community-based juvenile programs
serving approximately 1,400 youths.
F-17
<PAGE>
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CREDIT FACILITY
On September 9, 1997, the Company entered into a new $60 million revolving
line of credit (the "1997 Credit Facility"), which matures in 2002 and bears
interest at rates ranging from LIBOR plus 1.75% to 2.50%.
The unaudited consolidated results of operations on a pro forma basis as
though all 1997 and 1996 acquisitions, the IPO, the Offering and the 1997 Credit
Facility had been consummated as of the beginning of the Company's fiscal year
1996 and the six month period ended June 30, 1997 are as follows (amounts in
thousands, except per share data):
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
(UNAUDITED) (UNAUDITED)
----------------- ----------------
Revenues................................ $80,385 $ 45,165
Net income.............................. 2,448 2,141
Earnings per share...................... .28 .24
F-18
<PAGE>
INSIDE BACK COVER
[MAP OF UNITED STATES AND FACILITY LOCATIONS]
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus in connection with the offer contained herein, and if given or made,
such information or representation must not be relied upon as having been
authorized by the Company, the Selling Stockholders or any Underwriter. This
Prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy, shares of Common Stock in any jurisdiction to any person to whom it is
not lawful to make any such offer or solicitation in such jurisdiction or in
which the person making such offer or solicitation is not qualified to do so.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create an implication that there has been no change in the
facts set forth in this Prospectus or in the affairs of the Company since the
date hereof.
TABLE OF CONTENTS
------------------------------------------------------
Prospectus Summary .................................................... 3
Risk Factors .......................................................... 8
Use of Proceeds ....................................................... 15
Price Range of Common Stock and Dividend Policy ....................... 15
Capitalization ........................................................ 16
Dilution .............................................................. 17
Pro Forma Financial Data .............................................. 18
Selected Consolidated Historical and Pro Forma Financial Data ......... 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations .......................................... 26
Business .............................................................. 32
Management ............................................................ 46
Certain Relationships and Related Party Transactions .................. 51
Principal and Selling Stockholders .................................... 55
Description of Capital Stock .......................................... 57
Shares Eligible for Future Sale ....................................... 59
Underwriting .......................................................... 60
Legal Matters ......................................................... 62
Experts ............................................................... 62
Additional Information ................................................ 62
Index to Consolidated Financial Statements ............................ F-1
PROSPECTUS , 1997
[Logo]
2,750,000
CORNELL CORRECTIONS, INC.
Common Shares
SBC WARBURG DILLON READ INC.
EQUITABLE SECURITIES CORPORATION
WASSERSTEIN PERELLA SECURITIES, INC.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than underwriting
discounts and commissions) expected to be incurred in connection with issuance
and distribution of the securities being registered, all of which shall be paid
by the Company. All of such amounts (except the Securities and Exchange
Commission Registration Fee, the NASD Filing Fee and the American Stock
Exchange, Inc. Fees) are estimated.
Securities and Exchange Commission
Registration Fee...................... $ 14,375
NASD Filing Fee......................... 5,243
American Stock Exchange Fees and
Expense................................. 17,500
Printing Expenses....................... *
Legal Fees and Expenses................. *
Accounting Fees and Expenses............ *
Blue Sky Fees and Expenses.............. *
Transfer Agent and Registrar Fees and
Expenses.............................. *
Miscellaneous Expenses.................. *
----------
Total.............................. $ 500,000
==========
- ------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
DELAWARE GENERAL CORPORATION LAW
Section 145(a) of the DGCL provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the
II-1
<PAGE>
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith; provided,
however, that with respect to acts or omissions occurring after July 1, 1997,
indemnification is not mandatory.
Section 145(d) of the DGCL states that any indemnification under
subsections (a) and (b) of Section 145 (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in subsections (a) and (b) of Section 145. Such determination shall be
made (i) by a majority vote of the directors who are not parties to such action,
suit or proceeding, even though less than a quorum; (ii) by a committee of
directors who are not parties to such action, if the committee is designated by
a majority of such directors, even though less than a quorum; (iii) if there are
no such directors, by independent legal counsel in a written opinion or (iv) by
the stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in Section 145. Such
expenses (including attorneys' fees) incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145.
Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
CERTIFICATE OF INCORPORATION
The Certificate of Incorporation of the Company provides that a director of
the Company shall not be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) under Section 174 of
the DGCL or (iv) for any transaction from which the director derived an improper
personal benefit. If the DGCL is amended to authorize the further elimination or
limitation of the liability of directors, then the liability of a director of
the Company, in addition to the limitation on personal liability described
above, shall be limited to the fullest extent permitted by the amended DGCL.
Further, any repeal or modification of such provision of the Certificate of
Incorporation by
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<PAGE>
the stockholders of the Company shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Company existing at the time of such repeal or modification. Additionally, the
Certificate of Incorporation provides that the Company will indemnify its
officers and directors to the fullest extent permitted by the DGCL.
BYLAWS
The Bylaws provide that the Company shall indemnify and hold harmless any
person who is, or is threatened to be made, a witness in or a party to any
action, suit, alternate dispute resolution mechanism, hearing or any other
proceeding, whether civil, criminal, administrative, arbitrative, investigative
or mediative (collectively, a "Proceeding"), any appeal in any such
Proceeding, and any inquiry or investigation that could lead to any such
Proceeding, except one initiated by any such person to enforce his or her rights
under Article VI of the Bylaws (an "Indemnitee"), by reason of his or her
status ("Corporate Status") as a director, officer, employee or agent of the
Company or any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise which such person is or was serving at the
written request of the Company, from and against any and all judgments, fines,
penalties (including excise taxes), amounts paid in settlement and expenses
(including all reasonable attorneys fees, retainers, court costs, and other
similar disbursements or expenses of the types customarily incurred in
connection with the prosecuting, defending, preparing to prosecute or defend,
investigating, or being or preparing to be a witness in a Proceeding)
(collectively, "Expenses") arising out of any event or occurrence related to
the fact that an Indemnitee is or was a director or officer of the Company. The
Company may, but shall not be required to, indemnify and hold harmless an
Indemnitee from and against any Expenses arising out of any event or occurrence
related to the fact that an Indemnitee is or was an employee or agent of the
Company or is or was serving in another Corporate Status.
If an Indemnitee is, by reason of serving as a director, officer, employee
or agent of the Company, a party to and is successful, on the merits or
otherwise, in any Proceeding, the Company shall indemnify such Indemnitee
against all Expenses actually and reasonably incurred by such Indemnitee or on
the Indemnitee's behalf in connection therewith. If the Indemnitee is not wholly
successful in such Proceeding but is successful, or, if such Indemnitee is, by
reason of any Corporate Status other than his serving as a director, officer,
employee or agent of the Company a party to and is successful, on the merits or
otherwise, as to any claim, a material issue or a substantial request for relief
(a "Matter") in such Proceeding, the Company shall indemnify the Indemnitee
against all Expenses actually and reasonably incurred by him or her in
connection with such Matter. In the event of any threatened or pending
Proceeding which may give rise to a right of indemnification under Article VI of
the Bylaws, the Company may, but shall not be required to, pay an Indemnitee
amounts to cover Expenses reasonably incurred by the Indemnitee in such
Proceeding in advance of its final disposition upon the receipt by the Company
of (i) a written request by the Indemnitee, (ii) a written undertaking by or on
behalf of such Indemnitee to repay the advance if it is ultimately determined
that the indemnitee is not entitled to indemnification and (iii) satisfactory
evidence as to the amount of such expenses.
INDEMNIFICATION AGREEMENTS
The Company maintains Indemnification Agreements with each of its officers
and directors. The Indemnification Agreements provide that the Company shall
indemnify the officer or director and hold him harmless from any losses and
expenses which, in type or amount, are not insured under the directors and
officers' liability insurance maintained by the Company, and generally
indemnifies the officer or director against losses and expenses as a result of a
claim or claims made against him for any breach of duty, neglect, error,
misstatement, misleading statement, omission or other act done or wrongfully
attempted by the officer or director or any of the foregoing alleged by any
claimant or any claim against the officer or director solely by reason of him
being an officer or director of the Company, subject to certain exclusions. The
Indemnification Agreements also provide certain procedures regarding the right
to indemnification and for the advancement of expenses.
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<PAGE>
UNDERWRITING AGREEMENT
The Underwriting Agreement will provide for the indemnification of the
directors and officers of the Company in certain circumstances.
INSURANCE
The Company maintains a policy of liability insurance to insure its
officers and directors against losses resulting from certain acts committed by
them in their capacities as officers and directors of the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information relates to securities of the Company issued or
sold within the past three years which were not registered under the Securities
Act. As of October 3, 1996, the Company's capital stock was reclassified,
whereby each share of Class A Common Stock and Class B Common Stock was
reclassified into one share of Common Stock and the following information gives
effect to the reclassification.
Between November 1, 1993 and July 9, 1996, the Company and its predecessor
granted compensatory stock options to six employees covering an aggregate of
105,000 shares of Common Stock (including options for Partnership units that
have been converted into options for Common Stock) at exercise prices ranging
from $2.17 to $5.64 and 252,248 shares of Common Stock at an exercise price of
$4.86 per share. Such issuances were exempt from the registration requirements
of the Securities Act by virtue of Rule 701 thereunder.
On March 14, 1995, the Company granted warrants to ING to purchase 162,500
shares of Common Stock at an exercise price of $1.00 per share in connection
with the execution of the 1995 Credit Facility. The warrants expire March 14,
2002. Such issuance was exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof as a transaction not involving
any public offering.
In connection with the exercise of stock options held by Steven W. Logan,
effective as of October 2, 1995, the Company issued 1,000 shares of Common Stock
to Mr. Logan. Such issuance was exempt from the registration requirements of the
Securities Act by virtue of Rule 701 thereunder.
On November 1, 1995, in connection with the financing of the Stock
Repurchase, the Company issued options to purchase an aggregate of 555,000
shares of Common Stock at an exercise price of $2.00 per share to the following
persons or entities: David M. Cornell (137,110 shares), Wade H. Whilden (50,000
shares), Steven W. Logan (50,000 shares), Jane B. Cornell (32,669 shares), CEP
II (87,466 shares), Dillon Read, as agent (31,618 shares), Concord (19,114
shares), Concord II (60,639 shares), Concord Japan (11,982 shares), Lexington
III (6,154 shares), Lexington IV (175 shares), Brown University Third Century
Fund (9,073 shares) and ING (59,000 shares). The options expire October 31,
2002. Such issuances were exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof as transactions not involving
any public offering.
On April 25, 1996, Mr. Wiebe used a portion of the bonus he received from
the Company for fiscal year 1995 to purchase 4,657 shares of Common Stock from
the Company at 90% of the fair market value of the shares, as determined by the
Board of Directors, (or $5.08 per share). Such issuance was exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof as a transaction not involving any public offering.
On July 8, 1996, Mr. Cornell exercised options to purchase 137,110 shares
of Common Stock for an aggregate exercise price of $274,220 and Mr. Logan
exercised options to purchase 32,750 shares of Common Stock and 50,000 shares of
Common Stock for an aggregate exercise price of $180,638. Mr. Cornell and Mr.
Logan each entered into promissory notes in favor of the Company for the
respective exercise amounts. Such issuances were exempt from the registration
requirements of the Securities Act by virtue of Rule 701 thereunder.
On July 9, 1996, the Company granted warrants to purchase 264,000 shares of
Common Stock at the exercise price of $2.82 per share to ING in connection with
the 1996 Credit Facility and the execution of the Convertible Bridge Note. The
options expire July 3, 2003. Such issuance was exempt from the registration
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<PAGE>
requirements of the Securities Act by virtue of Section 4(2) thereof as
transactions not involving any public offering.
On July 9, 1996, the Company granted options to purchase 60,221 shares of
Common Stock at the exercise price of $2.82 per share to CEP II. The options
expire June 30, 2006. Such issuances were exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof as
transactions not involving any public offering.
On July 9, 1996, the Company issued 90,331 shares of Common Stock to
certain of the Concord Investors for an aggregate purchase price of
approximately $254,733 in connection with funding under the 1996 Credit
Facility. Such issuance was exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof as transactions not involving
any public offering.
On July 12, 1996, the Company granted options to purchase 20,000 shares of
Common Stock at an exercise price of $5.64 per share to Mazza & Riley, Inc.
("Mazza") in consideration for executive recruiting services rendered by
Mazza. Such issuance was exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof as a transaction not involving
any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ----------------------------------------------------------------
*1.1 -- Form of Underwriting Agreement.
3.1 -- Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996 (the "1996 Form 10-K")).
*3.2 -- Amended and Restated Bylaws of the Company adopted
September 10, 1997.
4.1 -- Certificate representing Common Stock (incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-1 (Reg. No. 333-08243) (the "Form
S-1")).
4.2 -- Registration Rights Agreement dated as of March 31,
1994, as amended, among the Company and the stockholders
listed on the signature pages thereto (incorporated by
reference to Exhibit 4.2 to the Form S-1).
**5.1 -- Opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
9.1 -- Stock Transfer and Voting Agreement dated November 23,
1994 between David M. Cornell and Jane B. Cornell
(incorporated by reference to Exhibit 9.1 to the Form
S-1).
10.1 -- Cornell Corrections, Inc. 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.1 to the Form
S-1).
*10.2 -- Employment Agreement dated as of September 9, 1997
between Abraxas Group, Inc. and Arlene Lissner.
*10.3 -- Covenant Not to Compete Agreement dated as of September
9, 1997 by and between Cornell Corrections, Inc. and
Arlene Lissner.
10.4 -- Form of Indemnification Agreement between the Company
and each of its directors and executive officers
(incorporated by reference to Exhibit 10.3 to the Form
S-1).
*10.5 -- Form of Stockholders Agreement among certain
stockholders named therein.
10.6 -- Contract between CCCI and the CDC (No.92.401) for the
Baker, California Facility dated June 25, 1992, as
amended (incorporated by reference to Exhibit 10.5 to
the Form S-1).
10.7 -- Professional Management Agreement between the Company
and Central Falls Detention Facility Corporation dated
July 15, 1992 (incorporated by reference to Exhibit 10.6
to the Form S-1).
10.8 -- Operating Agreement by and between each of MidTex
Detentions, Inc., the City of P Big Spring, Texas ("Big
Spring") and Cornell Corrections of Texas ("CCTI") dated
as of July 1, 1996 and related Assignment and Assumption
of Operating Agreement (incorporated by reference to
Exhibit 10.7 to the Form S-1).
10.9 -- Contract between CCCI and the CDC (No.R92.132) for the
Live Oak, California Facility dated March 1, 1993, as
amended (incorporated by reference to Exhibit 10.8 to
the Form S-1).
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<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ----------------------------------------------------------------
10.10 -- Asset Purchase Agreement dated as of January 31, 1997 by
and between Cornell Corrections of Texas, Inc. and
Interventions, Co. (incorporated by reference to the
Company's Current Report on Form 8-K filed February 14,
1997).
*10.11 -- Asset Purchase Agreement dated as of August 14, 1997 by
and between Cornell Corrections, Inc. and Abraxas Group,
Inc., Foundation for Abraxas, Inc., Abraxas Foundation,
Inc., Abraxas Foundation of Ohio and Abraxas, Inc.
10.12 -- Contract between Texas Alcoholism Foundation, Inc. and
the Texas Department of Criminal Justice, Parole
Division for the Reid Facility dated January 31, 1996,
as amended (incorporated by reference to Exhibit 10.12
to Form S-1).
10.13 -- Form of Contract between CCCI and the Utah State
Department of Human Services, Division of Youth
Corrections for the Salt Lake City, Utah Juvenile
Facility (incorporated by reference to Exhibit 10.14 to
Form S-1).
10.14 -- Asset Purchase Agreement among CCTI, Texas Alcoholism
Foundation, Inc. and The Texas House Foundation, Inc.
dated May 14, 1996 (incorporated by reference to Exhibit
10.15 to Form S-1).
10.15 -- Asset Purchase Agreement among CCTI, the Company, Ed
Davenport, Johnny Rutherford and MidTex Detentions, Inc.
dated May 22, 1996 (incorporated by reference to Exhibit
10.16 to Form S-1).
10.16 -- Lease Agreement between CCCI and Baker Housing Company
dated August 1, 1987 for the Baker, California facility
(incorporated by reference to Exhibit 10.17 to Form
S-1).
10.17 -- Lease Agreement between CCCI and Sun Belt Properties
dated as of May 23, 1988, as amended for the Live Oak,
California facility (incorporated by reference to
Exhibit 10.18 to Form S-1).
10.18 -- Lease Agreement between Big Spring and Ed Davenport
dated as of July 1, 1996 for the Interstate Unit and
related Assignment and Assumption of Leases
(incorporated by reference to Exhibit 10.19 to Form
S-1).
10.19 -- Secondary Sublease Agreement between Big Spring and Ed
Davenport dated as of July 1, 1996 for the Airpark Unit
and related Assignment and Assumption of Leases
(incorporated by reference to Exhibit 10.20 to Form
S-1).
10.20 -- Secondary Sublease Agreement between Big Spring and Ed
Davenport dated as of July 1, 1996 for the Flight Line
Unit and related Assignment and Assumption of Leases
(incorporated by reference to Exhibit 10.21 to Form
S-1).
10.21 -- Amended and Restated Credit Agreement among the Company,
subsidiaries of the Company, the lenders listed therein
(the "Lenders"), and ING, as agent to the Lenders, dated
as of July 3, 1996 (incorporated by reference to Exhibit
10.23 to Form S-1).
10.22 -- Convertible Subordinated Promissory Note from the
Company to ING dated as of July 3, 1996 (incorporated by
reference to Exhibit 10.24 to Form S-1).
10.23 -- Put Agreement among the Company, Concord II, CEP II, and
ING dated as of July 3, 1996 (incorporated by reference
to Exhibit 10.25 to Form S-1).
10.24 -- Subordination Agreement among the Company and ING dated
July 3, 1996 (in- corporated by reference to Exhibit
10.26 to Form S-1).
10.25 -- Extension Agreement among the Company, Concord II and
CEP II dated as of July 3, 1996 (incorporated by
reference to Exhibit 10.27 to Form S-1).
10.26 -- Warrant Issuance Agreement between the Company and ING
dated July 3, 1996 (incorporated by reference to Exhibit
10.28 to Form S-1).
10.27 -- Stock Option Agreement between the Company and CEP II
dated July 9, 1996 (incorporated by reference to Exhibit
10.29 to Form S-1).
10.28 -- Warrant Issuance Agreement between the Company and ING
dated March 14, 1995 (incorporated by reference to
Exhibit 10.30 to Form S-1).
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<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ----------------------------------------------------------------
10.29 -- Investors Agreement among the Company, ING and certain
stockholders of the Company listed therein dated as of
November 1, 1995 (incorporated by reference to Exhibit
10.31 to Form S-1).
10.30 -- Option Agreement between the Company and ING dated as of
November 1, 1995 (incorporated by reference to Exhibit
10.32 to Form S-1).
10.31 -- Form of Option Agreement between the Company and the
Option holder listed therein dated as of November 1,
1995 (incorporated by reference to Exhibit 10.33 to Form
S-1).
*11.1 -- Computation of Per Share Earnings.
*21.1 -- Subsidiaries of the Company.
*23.1 -- Consent of Arthur Andersen LLP.
**23.2 -- Consent of Liddell, Sapp, Zivley, Hill and LaBoon,
L.L.P. (contained in Exhibit 5.1).
*24.1 -- Power of Attorney (included on the signature page of
this Registration Statement).
- ------------
* Filed herewith
** To be filed by amendment
(b) Financial Statement Schedules.
All schedules are omitted because they are not applicable or because the
required information is contained in the Consolidated Financial Statements or
Notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Underwriting Agreement,
certificates representing the shares of Common Stock offered hereby in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as a part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
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<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS,
ON SEPTEMBER 17, 1997.
CORNELL CORRECTIONS, INC.
Dated: September 17, 1997 By: /s/ DAVID M. CORNELL
DAVID M. CORNELL
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints DAVID M. CORNELL and STEVEN W. LOGAN and each of
them, his or her true and lawful attorney-in-fact and agents, with full power of
substitution and resubstitution for him or her and in his or her name, place and
stead, in any and all capacities, to sign, execute and file this Registration
Statement under the Securities Act and any and all amendments (including,
without limitation, post-effective amendments and any amendment or amendments or
additional registration statements filed pursuant to Rule 462 under the
Securities Act increasing the amount of securities for which registration is
being sought) to this Registration Statement, and to file the same, with all
exhibits thereto, and all other documents in statements, notices or other
documents necessary or advisable to comply with the applicable state securities
laws, and to file the same, together with other documents in connection
therewith, with the appropriate state securities authorities, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
SIGNATURE TITLE DATE
- ----------------------------- --------------------------- -------------------
/s/DAVID M. CORNELL Chairman of the Board, September 17, 1997
DAVID M. CORNELL President and Chief
Executive Officer
(Principal Executive
Officer)
/s/STEVEN W. LOGAN Chief Financial Officer, September 17, 1997
STEVEN W. LOGAN Treasurer and Secretary
(Principal Financial
Officer and Principal
Accounting Officer)
/s/CAMPBELL A. GRIFFIN, JR. Director September 17, 1997
CAMPBELL A. GRIFFIN, JR.
/s/RICHARD T. HENSHAW III Director September 17, 1997
RICHARD T. HENSHAW III
/s/PETER A. LEIDEL Director September 17, 1997
PETER A. LEIDEL
/s/ARLENE R. LISSNER Director September 17, 1997
ARLENE R. LISSNER
/s/TUCKER TAYLOR Director September 17, 1997
TUCKER TAYLOR
II-8
EXHIBIT 1.1
CORNELL CORRECTIONS, INC.
2,750,000 Shares
Common Stock
($.001 Par Value)
FORM OF
UNDERWRITING AGREEMENT
[ ], 1997
<PAGE>
UNDERWRITING AGREEMENT
[ ], 1997
SBC WARBURG DILLON READ INC.
EQUITABLE SECURITIES CORPORATION
WASSERSTEIN PERELLA SECURITIES, INC.
as Managing Underwriters
c/o SBC Warburg Dillon Inc.
535 Madison Avenue
New York, New York 10022
Ladies and Gentlemen:
Cornell Corrections, Inc., a Delaware corporation (the "COMPANY"),
proposes to issue and sell, and the persons named in Schedule B annexed hereto
(the "FIRM SELLING STOCKHOLDERS") propose to sell, to the underwriters named in
Schedule A annexed hereto (the "UNDERWRITERS") an aggregate of 2,750,000 shares
(the "FIRM SHARES") of Common Stock, par value $.001 per share (the "COMMON
STOCK"), of the Company, of which 2,250,000 shares are to be issued and sold by
the Company and an aggregate of 500,000 shares are to be sold by the Firm
Selling Stockholders in the respective amounts set forth under the caption
"Number of Firm Shares" in Schedule B annexed hereto.
In addition, solely for the purpose of covering over-allotments, the
persons named in Schedule C annexed hereto (the "ADDITIONAL SELLING
STOCKHOLDERS," and, together with the Firm Selling Stockholders, the "SELLING
STOCKHOLDERS") propose to grant to the Underwriters the option to purchase from
the Additional Selling Stockholders up to an additional 412,500 shares of Common
Stock (the "ADDITIONAL SHARES") in the respective amounts set forth under the
caption "Maximum Number of Additional Shares" in Schedule C annexed hereto. The
Firm Shares and the Additional Shares are hereinafter collectively sometimes
referred to as the "SHARES." The Shares are described in the Prospectus which is
referred to below.
The Company has filed, in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(collectively, the "ACT"), with the Securities and Exchange Commission (the
"COMMISSION") a registration statement on Form S-1 (333- ), including a
prospectus, relating to the Shares. The Company has furnished to you, for use by
the Underwriters and by dealers, copies of one or more preliminary prospectuses
(each, a "PRELIMINARY PROSPECTUS") relating to the Shares. Except where the
context otherwise requires, the registration statement, as amended when it
becomes effective, including all documents filed as a part thereof, and
including any information contained in a prospectus subsequently filed with the
Commission pursuant to Rule 424(b) under the Act and deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Act, is herein called the "REGISTRATION STATEMENT," and the prospectus, in
the form filed by the Company with the Commission pursuant to Rule 424(b) under
the Act or, if no such filing is required, the form of final prospectus included
in the Registration Statement at the time it became effective, is herein called
the "PROSPECTUS." If the Company has filed an abbreviated registration statement
to register additional shares of Common Stock pursuant to Rule 462(b) under the
Act, then any reference herein to Registration Statement shall be deemed to
include such Rule 462(b) registration statement.
The Company, the Selling Stockholders and the Underwriters agree as
follows:
1. SALE AND PURCHASE. Upon the basis of the warranties and
representations and the other terms and conditions herein set forth, the Company
and each of the Firm Selling Stockholders, severally and not jointly, agree to
sell to the respective Underwriters and each of the Underwriters, severally and
not jointly, agrees to purchase from the Company and each Firm Selling
Stockholder the respective number of Firm Shares (subject to such adjustment as
you may determine to avoid fractional shares) which bears the same proportion to
the number of Firm Shares to be sold by the Company or by such Firm Selling
Stockholder, as the case may be, as the number of Firm Shares set forth opposite
the name of such Underwriter in Schedule A annexed hereto bears to the total
number of Firm Shares to be sold by the Company and the Firm Selling
Stockholders, in each case at a purchase price of $ per Share. You shall release
the Firm Shares for public sale promptly after this Agreement becomes effective.
You may from time to time increase or decrease the public offering price after
the initial offering to such extent as you may determine.
In addition, the Additional Selling Stockholders hereby grant to the
several Underwriters the option to purchase, and upon the basis of the
warranties and representations and the other terms and conditions herein set
forth, the Underwriters shall have the right to purchase, severally and not
jointly, from the Additional Selling Stockholders, all or a portion of the
Additional Shares as may be necessary to cover over-allotments made in
connection with the offering of the Firm Shares, at the same purchase price per
share to be paid by the Underwriters to the Company and the Firm Selling
Stockholders for the Firm Shares. This option may be exercised at any time (but
not more than once) on or before the thirtieth day following the date hereof, by
written notice from SBC Warburg Dillon Read Inc. ("SBC WARBURG DILLON READ") to
the Company and the Additional Selling Stockholders. Such notice shall set forth
the aggregate number of Additional Shares as to which the option is being
exercised, and the date and time when the Additional Shares are to be delivered
(such date and time, the "ADDITIONAL TIME OF PURCHASE"); PROVIDED, HOWEVER, that
the additional time of purchase shall not be earlier than the time of purchase
(as defined below) nor earlier than the second business day after the date on
which the option shall have been exercised nor later than the eighth business
day after the date on which the option shall have been exercised. As used
herein, "BUSINESS DAY" shall mean a day on which the American Stock Exchange,
Inc. (the "AMERICAN STOCK EXCHANGE") is open for trading. The number of
Additional Shares to be sold to each Underwriter shall be the number which bears
the same proportion to the aggregate number of Additional Shares being purchased
as the number of Firm Shares set forth opposite the name of such Underwriter in
Schedule A annexed hereto bears to the total number of Firm Shares (subject, in
each case, to such adjustment as you may determine to avoid fractional shares).
The number of Additional Shares to be sold by each Additional Selling
Stockholder shall be the number which bears the same proportion to the aggregate
number of Additional Shares being sold by all Additional Selling Stockholders as
the maximum number of Additional Shares set forth opposite the name of such
Selling Stockholder in Schedule B annexed hereto bears to [412,500] (subject, in
each case, to such adjustment as you may determine to avoid fractional shares).
Pursuant to a power of attorney, which shall be satisfactory to the
Underwriters, granted by each of the Selling Stockholders ("POWER-OF-ATTORNEY"),
David M. Cornell and Steven W. Logan will act as representatives of such Selling
Stockholders. The foregoing representatives (the "REPRESENTATIVES OF THE SELLING
STOCKHOLDERS") are authorized, on behalf of such Selling Stockholders, to
execute any documents necessary or desirable in connection with the sale of the
Shares to be sold hereunder by such Selling Stockholders, to make delivery of
the certificates for such Shares, to receive the proceeds of the sale of such
Shares, to give receipts for such proceeds, to pay therefrom the expenses to be
borne by such Selling Stockholders in connection with the sale and public
offering of the Shares, to distribute the balance of such proceeds to such
Selling Stockholders in proportion to the number of Shares sold by such Selling
Stockholders, to receive notices on behalf of such Selling Stockholders and to
take such other action as may be necessary or desirable in connection with the
transactions contemplated by this Agreement.
2. PAYMENT AND DELIVERY. Payment of the purchase price for the Firm
Shares shall be made to the Company and each of the Firm Selling Stockholders by
Federal (same day) funds, at the office of SBCWDR in New York City, against
delivery of the certificates for the Firm Shares to you for the respective
accounts of the Underwriters. Such payment and delivery shall be made at 10:00
A.M., New York City time, on , 1997 (unless another time shall be agreed to by
you and the Company or unless postponed in accordance with the provisions of
Section 10 hereof). The time at which such payment and delivery are actually
made is hereinafter sometimes called the "TIME OF PURCHASE." Certificates for
the Firm Shares shall be delivered to you in definitive form in such names and
in such denominations as you shall specify on the second business day preceding
the time of purchase. For the purpose of expediting the checking of the
certificates for the Firm Shares by you, the Company and the Firm Selling
Stockholders agree to make such certificates available to you for such purpose
at least one full business day preceding the time of purchase.
Payment of the purchase price for the Additional Shares shall be
made at the additional time of purchase in the same manner and at the same
office as the payment for the Firm Shares. Certificates for the Additional
Shares shall be delivered to you in definitive form in such names and in such
denominations as you shall specify on the second business day preceding the
additional time of purchase. For the purpose of expediting the checking of the
certificates for the Additional Shares by you, the Additional Selling
Stockholders agree to make such certificates available to you for such purpose
at least one full business day preceding the additional time of purchase.
The Selling Stockholders will pay all applicable state transfer
taxes, if any, involved in the transfer to the several Underwriters of the
Shares to be purchased by them from the Selling Stockholders.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each of the Underwriters that:
(a) (i) each Preliminary Prospectus when filed as a part of the
Registration Statement, or filed pursuant to Rule 424 under the Act, and
the Registration Statement and the Prospectus at the time the Registration
Statement became or becomes effective, including at the time of
effectiveness of any post-effective amendment, complied when so filed and
will fully comply in all material respects with the provisions of the Act,
(ii) the Registration Statement at all such times did not and will not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and (iii) the Prospectus at all such times did not
and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; PROVIDED, HOWEVER, that the Company makes no
warranty or representation with respect to any statement contained in the
Registration Statement or the Prospectus in reliance upon and in
conformity with information concerning the Underwriters and furnished in
writing by or on behalf of any Underwriter through you to the Company
expressly for use in the Registration Statement or the Prospectus;
(b) as of the date of this Agreement, the Company has an authorized
capitalization as set forth under the heading entitled "Pro Forma" in the
section of the Registration Statement and the Prospectus entitled
"Capitalization" and, as of the time of purchase, the Company shall have
an authorized capitalization as set forth under the heading "Pro Forma As
Adjusted" in the section of the Registration Statement and Prospectus
entitled "Capitalization." Except as described in the Registration
Statement and the Prospectus, there are no outstanding options, warrants
or other rights to acquire any capital stock of the Company and the
Company has no shares of capital stock reserved for issuance; all of the
issued and outstanding shares of capital stock including Common Stock of
the Company have been duly authorized and validly issued and are fully
paid and non-assessable; none of the issued shares of capital stock of the
Company have been issued or are owned or held in violation of any
preemptive rights of stockholders; the Company has been duly incorporated
and is validly existing as a corporation in good standing under the laws
of the State of Delaware, with full power and authority to own its
properties and conduct its business as described in the Registration
Statement and the Prospectus, to execute and deliver this Agreement and to
issue and sell the Shares to be sold by the Company as herein
contemplated;
(c) all of the issued and outstanding shares of capital stock of
each of the subsidiaries of the Company listed on Exhibit 21.1 to the
Registration Statement (the "SUBSIDIARIES") (A) are owned directly by the
Company or by a wholly-owned Subsidiary of the Company, (B) have been duly
authorized and validly issued and are fully paid and non-assessable, and
(C) except as described in the Registration Statement and the Prospectus,
are owned free and clear of any pledge, lien, encumbrance, security
interest or other claim; there are no outstanding rights, subscriptions,
warrants, calls, preemptive rights, options or other agreements of any
kind with respect to the capital stock of any of the Subsidiaries; other
than the Subsidiaries, the Company does not own, directly or indirectly,
any capital stock or other equity securities of any other corporation or
any ownership interest in any partnership, joint venture or other
association; each of the Subsidiaries has been duly incorporated and is
validly existing as a corporation in good standing under the laws of its
respective jurisdiction of incorporation, with full corporate power and
authority to own its respective properties and to conduct its respective
business;
(d) the Company and each of the Subsidiaries are duly qualified or
licensed by and are in good standing in each jurisdiction in which they
conduct their respective businesses and in which the failure to be so
licensed or qualified, singly or in the aggregate with all other such
failures, could have a material adverse effect on the operations,
business, condition (financial or otherwise), or prospects of the Company
and the Subsidiaries, taken as a whole (a "MATERIAL ADVERSE EFFECT"); and
the Company and each of the Subsidiaries are in compliance in all material
respects with the laws, orders, rules, regulations and directives issued
or administered by such jurisdictions;
(e) the Board of Directors of the Company has duly adopted
resolutions authorizing the issuance and sale of the Shares to be sold by
the Company; the Shares to be sold by the Company, when issued and
delivered to and paid for by the Underwriters as contemplated hereby, will
be duly authorized and validly issued and fully paid and non-assessable,
free and clear of any pledge, lien, encumbrance, security interest,
preemptive right or other claim;
(f) neither the Company nor any of the Subsidiaries is in breach of,
or in default under (nor has any event occurred that with notice, lapse of
time, or both would constitute a breach of, or default under), (i) its
respective charter or by-laws, (ii) the performance or observance of any
obligation, agreement, covenant or condition contained in any license,
indenture, lease, mortgage, deed of trust, bank loan or credit agreement
or other agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which any of them or their respective
properties may be bound or affected, or (iii) any Federal, state or local
foreign law, regulation or rule or any decree, judgment or order
applicable to the Company or any of the Subsidiaries or any regulation,
guideline or other policy of any Federal, state or local governmental or
regulatory commission, board, body, authority or agency applicable to the
business of the Company or any of the Subsidiaries, except, in the case of
breaches or defaults described in clauses (ii) and (iii) above, where such
breaches or defaults, singly or in the aggregate with all other such
breaches or defaults, would not have a Material Adverse Effect; the
execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby will not conflict with, or result
in any breach of or constitute a default under (nor constitute any event
that with notice, lapse of time, or both would constitute a breach of, or
default under) (i) any provision of the charter or by-laws of the Company
or any of the Subsidiaries, (ii) any provision of any license, indenture,
lease, mortgage, deed of trust, loan or credit agreement or other
agreement or instrument to which the Company or any of the Subsidiaries is
a party or by which any of them or their respective properties may be
bound or affected, or (iii) any Federal, state, local or foreign law,
regulation or rule or any decree, judgment or order applicable to the
Company or any of the Subsidiaries or any regulation, guideline or other
policy of any Federal, state or local governmental or regulatory
commission, board, body, authority or agency applicable to the business of
the Company or any of the Subsidiaries;
(g) this Agreement has been duly authorized, executed and delivered
by the Company;
(h) the capital stock of the Company, including the Shares, conforms
in all material respects to the description thereof set forth under the
caption "Description of Capital Stock" contained in the Registration
Statement and the Prospectus and the certificates for the Shares are in
due and proper form and the holders of the Shares will not be subject to
personal liability by reason of being such holders;
(i) no approval, authorization, consent or order of or filing with
any Federal, state or local governmental or regulatory commission, board,
body, authority or agency is required in connection with the issuance and
sale of the Shares to be sold by the Company as contemplated hereby other
than registration of such Shares under the Act;
(j) no person has the right, contractual or otherwise, to cause the
Company to register pursuant to the Act any shares of capital stock or
other securities of the Company upon the issue and sale of the Shares to
the Underwriters hereunder (except pursuant to registration rights which
have been waived and except with respect to Shares registered under the
Registration Statement), nor does any person have preemptive rights,
rights of first refusal or other rights to purchase any of the Shares
which have not been waived;
(k) Arthur Andersen LLP, whose reports on the consolidated financial
statements of the Company and its Subsidiaries are filed with the
Commission as part of the Registration Statement and the Prospectus, are
independent certified public accountants as required by the Act and the
applicable published rules and regulations thereunder;
(l) each of the Company and the Subsidiaries has all necessary
licenses, authorizations, consents and approvals and has made all
necessary filings required under any Federal, state, local or foreign law,
regulation or rule, and has obtained all necessary authorizations,
consents and approvals from other persons, in order to conduct its
respective business, except where the failure to have, make or obtain such
licenses, authorizations, consents, approvals or filings, singly or in the
aggregate with all other such failures, would not have a Material Adverse
Effect; neither the Company nor any of the Subsidiaries is in violation
of, or in default under, any such license, authorization, consent or
approval, which violation or default, singly or in the aggregate with all
other such violations and defaults, could have a Material Adverse Effect;
(m) all legal or governmental proceedings, contracts or documents of
a character required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement have
been so described or filed as required;
(n) there is no action, suit or proceeding pending or, to the
Company's knowledge, threatened against the Company or any of the
Subsidiaries or any of their respective properties, at law or in equity,
or before or by any Federal, state, local or foreign governmental or
regulatory commission, board, body, authority or agency that, singly or in
the aggregate with all other such actions, suits and proceedings, could
have a Material Adverse Effect or which seeks to enjoin or restrain the
execution, delivery and performance of this Agreement, the incurrence of
the obligations herein set forth and the consummation of the transactions
contemplated hereby;
(o) the audited and unaudited financial statements included in the
Registration Statement and the Prospectus present fairly the consolidated
financial position of the Company and its Subsidiaries as of the dates
indicated and the consolidated results of operations and changes in
financial position of the Company and the Subsidiaries for the periods
specified; such financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis
during the periods presented; the pro forma financial information included
in the Registration Statement and the Prospectus has been prepared in
accordance with the applicable requirements of Rule 11-02 of Regulation
S-X and the assumptions used in the preparation thereof are, in the
opinion of the Company, reasonable;
(p) subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as may be
otherwise stated in the Registration Statement or Prospectus, there has
not been (A) any material and unfavorable change or any development
involving a prospective material and unfavorable change in or affecting
the business, properties, results of operations or condition (financial or
otherwise), present or prospective, of the Company and the Subsidiaries,
taken as a whole, (B) any transaction, which is material to the Company
and its Subsidiaries, taken as a whole, contemplated or entered into by
the Company or any of its Subsidiaries or (C) any obligation, contingent
or otherwise, directly or indirectly incurred by the Company or any of the
Subsidiaries which is material to the Company and the Subsidiaries, taken
as a whole;
(q) the Company has obtained the written agreement (each, a "LOCK-UP
AGREEMENT") in the form previously provided by the Underwriters of each of
its directors and officers and certain of its stockholders previously
specified by the Managing Underwriters not to sell, contract to sell,
grant any option to sell or otherwise dispose of, directly or indirectly,
any shares of Common Stock or securities convertible into or exchangeable
for Common Stock or warrants or other rights to purchase Common Stock for
a period of 90 days after the date of the Prospectus, without the prior
written consent of SBCWDR;
(r) except as disclosed in the Registration Statement and the
Prospectus, each material contract, agreement or arrangement to which the
Company or any Subsidiary is a party or by which it is bound is in full
force and effect; neither the Company nor any Subsidiary has received
notice from any of the other parties to any such contract, agreement or
arrangement that such other party intends not to perform or terminate such
contract, agreement or arrangement, and neither the Company nor any
Subsidiary has any reason to believe that any of the other parties to any
such contract, agreement or arrangement will be unable to perform or
intend to terminate such contract, agreement or arrangement; neither the
Company nor any subsidiary has been informed by any contracting entity,
whether governmental, quasi-governmental or non-governmental, that the
Company or such Subsidiary will not be permitted to rebid for a material
contract;
(s) except as described in the Registration Statement and the
Prospectus, the Company and the Subsidiaries have good title to all
properties and assets owned by them and have good leasehold interests in
each property and asset leased by them, in each case free and clear of all
pledges, liens, encumbrances, security interests, charges, mortgages and
defects, except such as do not materially affect the value of such
property and such as do not interfere with the use made and proposed to be
made of such properties by the Company and the Subsidiaries;
(t) the business, operations and facilities of the Company and each
of the Subsidiaries have been and are being conducted in compliance with
all applicable laws, ordinances, rules, regulations, licenses, permits,
approvals, plans, authorizations or requirements relating to occupational
safety and health, or pollution, or protection of health or the
environment, or reclamation (including, without limitation, those relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants or hazardous or toxic substances, materials or wastes into
ambient air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of chemical substances, pollutants, contaminants or
hazardous or toxic substances, materials or wastes, whether solid, gaseous
or liquid in nature) or otherwise relating to remediating real property of
any governmental department, commission, board, bureau, agency or
instrumentality of the United States, any state or political subdivision
thereof, or any foreign jurisdiction, and all applicable judicial or
administrative agency or regulatory decrees, awards, judgments and orders
relating thereto, except any violation thereof which would not, singly or
in the aggregate, have a Material Adverse Effect; and neither the Company
nor any of its Subsidiaries has received any notice from a governmental
instrumentality or any third party alleging any violation thereof or
liability thereunder (including, without limitation, liability for costs
of investigating or remediating sites containing hazardous substances
and/or damages to natural resource);
(u) except as described in the Registration Statement and the
Prospectus, to the Company's knowledge, no labor union or any
representative thereof has made any attempt to organize or represent
employees of the Company or the Subsidiaries; neither the Company nor any
of the Subsidiaries has been subject to a strike or other work stoppage
since the respective dates of their organization and, to the Company's
knowledge, no strikes or work stoppages are contemplated against the
Company or the Subsidiaries;
(v) the Company and each of the Subsidiaries have filed all federal
or state income and franchise tax returns required to be filed and have
paid all taxes shown thereon as due and there is no material tax
deficiency which has been or is reasonably likely to be asserted against
the Company or any of the Subsidiaries; all material tax liabilities of
the Company and the Subsidiaries are adequately provided for on the books
of the Company and the Subsidiaries; and
(w) the Company, either directly or through one or more
Subsidiaries, has in effect, with financially sound insurers, insurance
with respect to its business and properties and the business and
properties of the Subsidiaries against liability, loss or damage of the
kind customarily insured against by corporations engaged in the same or
similar businesses and similarly situated, of such type and in such
amounts as are customarily carried under similar circumstances by such
other corporations.
(x) neither the Company nor any of its officers, directors or
affiliates (within the meaning of the Act) has taken, directly or
indirectly, any actions in violation of Regulation M ("Regulation M")
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
4. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
Selling Stockholder, severally and not jointly, represents and warrants to each
Underwriter that:
(a) such Selling Stockholder now is, and at the time of delivery of
its Shares (whether at the time of purchase or the additional time of
purchase, as the case may be) will be, the lawful owner of the number of
Shares to be sold by such Selling Stockholder pursuant to this Agreement
and has and, at the time of delivery thereof (whether at the time of
purchase or the additional time of purchase, as the case may be), will
have valid and marketable title to such Shares, and upon delivery of and
payment for such Shares, the Underwriters will acquire valid and
marketable title to such Shares free and clear of any claim, lien,
encumbrance, security interest, community property right, restriction on
transfer or other defect in title;
(b) such Selling Stockholder has and at the time of delivery of the
Shares to be sold by such Selling Stockholders (whether at the time of
purchase or the additional time of purchase, as the case may be) will have
full legal right, power and capacity, and any approval required by law
(other than those imposed by the Act and the securities or blue sky laws),
to sell, assign, transfer and deliver such Shares in the manner provided
in this Agreement;
(c) this Agreement, the Custody Agreement, dated as of the date
hereof, among the Company, as custodian, and the Selling Stockholders (the
"CUSTODY AGREEMENT"), and the Lock-Up Agreement executed by such Selling
Stockholder have been duly executed and delivered by such Selling
Stockholder;
(d) when the Registration Statement becomes effective and at all
times subsequent thereto through the latest of the time of purchase,
additional time of purchase and the termination of the offering of the
Shares, the Registration Statement and any amendments thereto, solely as
it relates to such Selling Stockholder, will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading, and the Prospectus, and any supplements thereto, solely as it
relates to such Selling Stockholder, will not contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(e) the Power-of-Attorney has been duly executed and delivered by
such Selling Stockholder and is a legal, valid and binding agreement of
such Selling Stockholder enforceable in accordance with its terms; such
Selling Stockholder has duly and irrevocably authorized the
Representatives of the Selling Stockholder, on behalf of such Selling
Stockholder, to execute and deliver this Agreement and any other document
necessary or desirable in connection with the transactions contemplated
hereby and to deliver the Shares to be sold by such Selling Stockholder
and receive payment therefor pursuant hereto; and
(f) the sale of such Selling Stockholder's Shares pursuant to this
Agreement is not prompted by any information concerning the Company which
is not set forth in the Prospectus.
(g) neither such Selling Stockholder nor any of its affiliates has
taken, directly or indirectly, any action in violation of Regulation M.
5. CERTAIN COVENANTS OF THE COMPANY. The Company hereby agrees:
(a) to make available to you in New York City, as soon as
practicable after the Registration Statement becomes effective (but in any
event not later than 1:00 P.M. on the business day immediately following
the date hereof), and thereafter, from time to time to furnish to the
Underwriters, as many copies of the Prospectus (or of the Prospectus as
amended or supplemented if the Company shall have made any amendments or
supplements thereto after the effective date of the Registration
Statement) as the Underwriters may request for the purposes contemplated
by the Act;
(b) to advise you promptly and (if requested by you) to confirm such
advice in writing, (i) when the Registration Statement has become
effective and when any post-effective amendment thereto becomes effective
and (ii) if Rule 430A under the Act is used, when the Prospectus is filed
with the Commission pursuant to Rule 424(b) under the Act (which the
Company agrees to file in a timely manner under such Rule);
(c) to advise you promptly (and to confirm such advice in writing)
of any request by the Commission for amendments or supplements to the
Registration Statement or the Prospectus or for additional information
with respect thereto or the issuance by the Commission of a stop order
suspending the effectiveness of the Registration Statement or the
threatening or initiation of any proceedings for that purpose; to make
every reasonable effort to prevent the issuance of any stop order or if
any stop order should have been entered by the Commission, to obtain the
lifting or removal thereof as soon as possible; to advise you promptly of
any proposal to amend or supplement the Registration Statement or the
Prospectus and to file no such amendment or supplement to which you shall
object in writing;
(d) to furnish to you and, upon request, to each of the other
Underwriters, for a period of five years from the date of this Agreement
(i) copies of any reports or other communications which the Company shall
send to its stockholders or shall from time to time publish or publicly
disseminate, (ii) copies of all annual, quarterly and current reports
filed with the Commission on Forms 10-K, 10-Q and 8-K, or such other
similar form as may be designated by the Commission, and (iii) such other
information as you may reasonably request regarding the Company or the
Subsidiaries;
(e) to advise the Underwriters promptly of the happening of any
event known to the Company within the time during which a prospectus
relating to the Shares is required to be delivered under the Act which, in
the judgment of the Company, would require the making of any change in the
Prospectus then being used so that the Prospectus would not contain an
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they are made, not misleading, and, during such
time, to prepare and furnish, at the Company's expense, to the
Underwriters promptly such amendments or supplements to such Prospectus as
may be necessary to reflect any such change and to furnish you a copy of
such proposed amendment or supplement before filing any such amendment or
supplement with the Commission;
(f) to make generally available to its security holders, and to
deliver to you, an earning statement of the Company (which will satisfy
the provisions of Section 11(a) of the Act, including, without limitation,
Rule 158) covering a period of twelve months beginning after the effective
date of the Registration Statement but not later than the last day of the
fifteenth full calendar month following the calendar quarter in which such
effective date falls, as soon as is reasonably practicable after the
termination of such twelve-month period;
(g) to furnish to you four signed copies of the Registration
Statement, as initially filed with the Commission, and of all amendments
thereto (including all exhibits thereto) and sufficient conformed copies
of the foregoing (other than exhibits unless specifically requested) for
distribution of a copy to each of the other Underwriters;
(h) to furnish to you as early as practicable prior to the time of
purchase and the additional time of purchase, as the case may be, but not
later than two business days prior thereto, a copy of the latest available
unaudited interim consolidated financial statements, if any, of the
Company and the Subsidiaries which have been read by the Company's
independent certified public accountants, as stated in their letter to be
furnished pursuant to Section 8(c) of this Agreement;
(i) to apply the net proceeds from the sale of the Shares by the
Company in the manner set forth under the caption "Use of Proceeds" in the
Registration Statement and Prospectus;
(j) to furnish to you, contemporaneously with the filing with the
Commission subsequent to the effective date of the Registration Statement
and during the period referred to in paragraph (f) above, a copy of any
document proposed to be filed pursuant to Sections 13, 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (collectively, the "EXCHANGE ACT");
(k) to cause the Shares to be listed on the American Stock Exchange;
and
(l) not to take, directly or indirectly, any action in violation of
Regulation M.
6. CERTAIN COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDERS.
(a) The Company agrees with each Underwriter that, the Company will
pay all expenses, fees and taxes (other than any transfer taxes and fees
and disbursements of counsel for the Underwriters except as set forth
under Section 7 hereof or (iii) or (iv) below) in connection with (i) the
preparation and filing of the Registration Statement, each Preliminary
Prospectus, the Prospectus, and any amendments or supplements thereto, and
the printing and furnishing of copies of each thereof to the Underwriters
and to dealers (including costs of mailing and shipment), (ii) the
issuance, sale and delivery of the Shares by the Company and the Selling
Stockholders, (iii) the word processing and/or printing of this Agreement,
any Agreement Among Underwriters, any dealer agreements, any Statements of
Information, the Custody Agreement and the Power-of-Attorney and the
reproduction and/or printing and furnishing of copies of each thereof to
the Underwriters and dealers (including costs of mailing and shipment),
(iv) the printing and furnishing of copies of any blue sky surveys or
legal investment surveys to the Underwriters and to dealers, (v) any
listing of the Shares on the American Stock Exchange, (vi) the filing for
review of the public offering of the Shares by the NASD and (vii) the
performance of the Company's and the Selling Stockholders' other
obligations hereunder.
(b) The Company and each of the Selling Stockholders agree with each
Underwriter that, for a period of 90 days after the date of the
Prospectus, the Company will not issue, and the Company and the Selling
Stockholders will not sell, contract to sell, grant any option to sell or
otherwise dispose of, directly or indirectly, any shares of Common Stock
or securities convertible into or exchangeable for Common Stock or
warrants or other rights to purchase Common Stock or permit the
registration under the Act of any shares of Common Stock without the prior
written consent of SBCWDR, except that (i) the Company may register the
Shares, and the Company and the Selling Stockholders may sell the Shares
to the Underwriters, pursuant to this Agreement, and (ii) the Company may
issue shares of Common Stock upon the exercise of outstanding warrants or
the exercise of outstanding options, provided that the Company shall have
obtained a Lock-Up Agreement from each such person to whom such shares of
Common Stock are issued. [Additional exceptions, if any, to be discussed].
(c) Each of the Selling Stockholders agree with each Underwriter
that such Selling Stockholder shall advise the Company and the
Underwriters promptly of any additional or changed information relating to
such Selling Stockholder known by such Selling Stockholder which, within
the time during which a prospectus relating to the Shares is required to
be delivered under the Act, would require the making of any change in the
Prospectus then being used so that, with respect to the information
concerning such Selling Stockholder, the Prospectus would not contain an
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
7. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the Shares are not
delivered for any reason other than the termination of this Agreement pursuant
to the first two paragraphs of Section 10 hereof or the default by one or more
of the Underwriters in its or their respective obligations hereunder, the
Company shall reimburse the Underwriters for all of their out-of-pocket
expenses, including the reasonable fees and disbursements of their counsel.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations
of the Underwriters hereunder are subject to the accuracy of the representations
and warranties on the part of the Company and the Selling Stockholders on the
date hereof and at the time of purchase (and the several obligations of the
Underwriters at the additional time of purchase are subject to the accuracy of
the representations and warranties on the part of the Company and the Selling
Stockholders on the date hereof and at the time of purchase (unless previously
waived) and at the additional time of purchase, as the case may be), the
performance by the Company and the Selling Stockholders of their obligations
hereunder and to the following conditions:
(a) The Company shall furnish to you at the time of purchase and at
the additional time of purchase, as the case may be, an opinion of
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P, counsel for the Company,
addressed to the Underwriters, and dated the time of purchase or the
additional time of purchase, as the case may be, with reproduced copies
for each of the other Underwriters and in form satisfactory to Cahill
Gordon & Reindel, counsel for the Underwriters, stating that:
(i)the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware, with corporate power and authority to own its
properties and conduct its business as described in the Registration
Statement and the Prospectus, to execute and deliver this Agreement
and to issue, sell and deliver the Shares being sold by it as herein
contemplated;
(ii) each of the Subsidiaries of the Company listed on
Schedule D annexed hereto (each, a "Designated Subsidiary") has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of its respective jurisdiction of
incorporation with corporate power and authority to own its
respective properties and to conduct its respective business as
described in the Registration Statement and Prospectus;
(iii) the Company and the Designated Subsidiaries are duly
qualified to do business, and are in good standing as a corporation,
in each state listed opposite the name of such corporation on
Schedule D annexed hereto;
(iv) all of the issued and outstanding shares of capital stock
of each of the Subsidiaries (A) are owned directly by the Company or
by a wholly-owned Subsidiary of the Company, (B) have been duly
authorized and validly issued and are fully paid and non-assessable,
and (C) to such counsel's knowledge, except as described in the
Registration Statement and the Prospectus, are owned free and clear
of any claim, security interest, preemptive rights, restriction on
transfer or other defect in title; and, to such counsel's knowledge,
except as described in the Registration Statement and the
Prospectus, there are no outstanding rights, subscriptions,
warrants, calls, options or other agreements of any kind with
respect to the capital stock of the Company or any of the
Subsidiaries;
(v) this Agreement has been duly authorized, executed and
delivered by the Company;
(vi) the Shares have been duly and validly authorized, and the
Shares to be issued by the Company, when issued and delivered to and
paid for by the Underwriters in accordance with this Agreement, will
be duly and validly issued and will be fully paid and
non-assessable;
(vii) as of the date of the opinion, the Company has an
authorized capitalization as set forth under the caption
"Capitalization" in the Registration Statement and the Prospectus;
(viii) the outstanding shares of capital stock of the Company
have been duly and validly authorized and issued, and are fully
paid, non-assessable and free of statutory and, to such counsel's
knowledge, contractual preemptive rights; the Shares to be sold by
the Company when issued will be free of statutory and contractual
preemptive rights and will not be issued in violation of any rights
of first refusal or similar rights to purchase any Shares which have
not been waived; the certificates for the Shares conform to the
requirements of the Delaware General Corporation Law, the Company's
restated certificate of incorporation and by-laws as in effect on
the date of the opinion and the rules and regulations of the
American Stock Exchange and the holders of the Shares, after making
payment therefor as contemplated hereby and absent conduct on the
part of the holder that would make the failure to impose liability
on such holder inequitable under Delaware law, will not be subject
to personal liability by reason of being such holders;
(ix) the capital stock of the Company, including the Shares,
conforms as to legal matters in all material respects to the
description thereof set forth under the caption "Description of
Capital Stock" in the Registration Statement and Prospectus;
(x) the Registration Statement and the Prospectus (other than
(a) the financial statements and related schedules contained therein
or omitted therefrom, including the notes thereto and the auditors'
reports thereon, (b) the other financial and statistical data
contained therein or omitted therefrom and (c) the exhibits thereto,
as to which such counsel need express no opinion) comply as to form
in all material respects with the requirements of the Act;
(xi) the Registration Statement has become effective under the
Act and, to such counsel's knowledge, no stop order proceedings with
respect thereto are pending or threatened under the Act;
(xii) no approval, authorization, consent or order of or
filing with any Federal, state or local governmental or regulatory
commission, board, body, authority or agency is legally required to
be obtained by the Company in connection with the issuance and sale
of the Shares to be sold by the Company as contemplated hereby other
than registration of such Shares under the Act (except such counsel
need express no opinion as to any necessary qualification under the
state securities or blue sky laws of the various jurisdictions in
which such Shares are being offered by the Underwriters);
(xiii) the execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby do not and will not result in any
breach of, or constitute a default under (nor constitute any event
which with notice, lapse of time, or both, would constitute a breach
of or default under), (a) any provisions of the charter or by-laws
of the Company or any of the Subsidiaries or (b) any provision of
any license, indenture, lease, mortgage, deed of trust, loan, credit
agreement or other agreement or instrument known to such counsel to
which the Company or any of the Subsidiaries is a party or by which
any of them or their respective properties are bound or affected, or
(c) any law, regulation or rule or any decree, judgment or order
known to such counsel to be applicable to the Company or any of the
Subsidiaries;
(xiv) to such counsel's knowledge, neither the Company nor any
of its Subsidiaries is in breach of, or in default under (nor has
any event occurred which with notice, lapse of time, or both, would
constitute a breach of, or default under), (a) any license,
indenture, lease, mortgage, deed of trust, loan, credit agreement or
any other agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which any of them or their respective
properties are bound or affected, or (b) any law, regulation or rule
or any decree, judgment or order applicable to the Company or any of
its Subsidiaries, which breach or default would, singly or in the
aggregate, have a Material Adverse Effect;
(xv) to such counsel's knowledge, there are no contracts,
licenses, agreements, leases or documents of a character which are
required to be filed as exhibits to the Registration Statement which
have not been so filed;
(xvi) to such counsel's knowledge, there are no actions, suits
or proceedings pending or threatened against the Company or any of
the Subsidiaries or any of their respective properties, at law or in
equity or before or by any commission, board, body, authority or
agency which are required to be described in the Prospectus but are
not so described; and
(xvii) to such counsel's knowledge, no person has the right,
contractual or otherwise, to cause the Company to register pursuant
to the Act any shares of capital stock or other securities of the
Company upon the issue and sale of the Shares to the Underwriters
hereunder (except pursuant to registration rights which have been
waived and except with respect to Shares registered under the
Registration Statement).
In addition, such counsel shall state that in connection with the
preparation of the Registration Statement and the Prospectus, such counsel
has participated in various discussions and meetings with officers and
other representatives of the Company, representatives of the independent
public accountants of the Company and representatives of the Underwriters
at which the contents of the Registration Statement and Prospectus were
discussed and, although such counsel is not passing upon and does not
assume responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or Prospectus (except
as and to the extent stated in subparagraphs (vii) and (ix) above), on the
basis of the foregoing (relying as to materiality to a large extent upon
the opinions of officers and other representatives of the Company) nothing
has come to the attention of such counsel that causes it to believe that
the Registration Statement (other the than (i) financial statements and
related schedules contained therein or omitted therefrom (including the
notes to the financial statements and auditors' reports on the financial
statements), (ii) the other financial and statistical information
contained therein or omitted therefrom and (iii) the exhibits thereto, as
to which such counsel need not express an opinion) at the time such
Registration Statement became effective contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
that the Prospectus (other than (i) the financial statements and related
schedules contained therein or omitted therefrom (including the notes to
the financial statements and the auditors' reports on the financial
statements) and (ii) the other financial or statistical information
contained therein or omitted therefrom, as to which such counsel need not
express an opinion) at the date of such Prospectus, and as of the time of
purchase or additional time of purchase, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading.
In rendering their opinion, Liddell, Sapp, Zivley, Hill & LaBoon,
L.L.P. may limit their opinion to the Delaware General Corporation Law,
the general contract law of the State of New York, the laws of the United
States of America and the laws of the State of Texas, in each case as in
effect on the date of such opinion, and may rely as to factual matters on
certificates of public officials and officers of the Company or the
Subsidiaries, provided that copies of such certificates are provided to
you.
(b) The Selling Stockholders shall furnish to you at the time of
purchase or the additional time of purchase, as the case may be, (i) an
opinion of , in the case of Concord Partners II, L.P. and
Concord Partners Japan Limited ("Concord"), counsel for Concord, (ii) an
opinion of , in the case of Internationale Nederlanden (U.S.)
Capital Corportion ("ING Capital"), counsel for ING Capital, (iii) an
opinion of, in the case of Charterhouse Equity Partners II, L.P.
("Charterhouse"), counsel for Charterhouse, and (iv) an opinion of
, in the case of Brown University, counsel for Brown
University, in each case addressed to the Underwriters, and dated the time
of purchase or the additional time of purchase, as the case may be, with
reproduced copies for each of the other Underwriters, and in form and
substance satisfactory to Cahill Gordon & Reindel, counsel for the
Underwriters, stating that:
(i) this Agreement, the Custody Agreement and a Lock-Up
Agreement have been duly executed and delivered by or on behalf of
such Selling Stockholder and each of the Custody Agreement and the
Lock-Up Agreement is a legal, valid and binding agreement of such
Selling Stockholder;
(ii) the Power-of-Attorney has been duly executed and
delivered by such Selling Stockholder and is the legal, valid and
binding agreement of such Selling Stockholder;
(iii) such Selling Stockholder has full legal right and power,
and has obtained any authorization or approval required by law
(other than those imposed by the Act and the securities or blue sky
laws of certain jurisdictions), to sell, assign, transfer and
deliver the Shares to be sold by such Selling Stockholder in the
manner provided in this Agreement;
(iv) delivery of certificates for the Shares by such Selling
Stockholder pursuant hereto will pass valid and marketable title
thereto to the Underwriters, free and clear of any claim, lien,
encumbrance, security interest, community property right,
restriction on transfer or other defect in title;
(v) each of the Representatives of the Selling Stockholder has
been duly authorized by such Selling Stockholder to execute and
deliver on behalf of such Selling Stockholder this Agreement and any
other document necessary or desirable in connection with the
transactions contemplated hereby and to deliver the Shares to be
sold by such Selling Stockholder; and
(vi) to the best of such counsel's knowledge, the statements
in the Prospectus under the caption "Principal and Selling
Stockholders" insofar as such statements constitute a summary of the
matters referred to therein present fairly the information called
for with respect to such matters.
(c) You shall have received from Arthur Andersen LLP, letters dated,
respectively, the date of this Agreement and the time of purchase and
additional time of purchase, as the case may be, and addressed to the
Underwriters (with reproduced copies for each of the Underwriters) in the
forms heretofore approved by the Managing Underwriters.
(d) You shall have received at the time of purchase and at the
additional time of purchase, as the case may be, the favorable opinion of
Cahill Gordon & Reindel, counsel for the Underwriters, dated the time of
purchase or the additional time of purchase, as the case may be, in form
and substance satisfactory to you.
(e) No amendment or supplement to the Registration Statement or
Prospectus shall be filed prior to the time of purchase or the additional
time of purchase to which you object in writing.
(f) The Registration Statement shall have become effective at or
before 5:00 P.M., New York City time, on the date of this Agreement, or if
Rule 430A under the Act is used, the Prospectus shall have been filed with
the Commission in accordance with Rule 424(b) under the Act at or before
5:00 P.M., New York City time, on the date of this Agreement, unless a
later time, but not later than 5:00 p.m., New York City time, on the
second full business day after the date of this Agreement, shall have been
agreed to by you and the Company; PROVIDED, HOWEVER, that the Company and
you or any group of Underwriters, including you, who have agreed hereunder
to purchase in the aggregate at least 50% of the Firm Shares may from time
to time agree on a later time for the effectiveness of the Registration
Statement.
(g) Prior to the time of purchase or the additional time of
purchase, as the case may be: (i) no stop order with respect to the
effectiveness of the Registration Statement shall have been issued under
the Act or proceedings initiated under Section 8(d) or 8(e) of the Act;
(ii) the Registration Statement and all amendments thereto, or
modifications thereof, if any, shall not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and
(iii) the Prospectus and all amendments or supplements thereto, or
modifications thereof, if any, shall not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they are made, not misleading.
(h) Between the time of execution of this Agreement and the time of
purchase or the additional time of purchase, as the case may be, (i) no
material and unfavorable change or any development involving a prospective
material unfavorable change in or affecting the business, properties,
results of operations or condition (financial or otherwise) of the Company
and its Subsidiaries, taken as a whole shall occur or become known, (ii)
no transaction which is material and unfavorable to the Company and its
Subsidiaries, taken as a whole shall have been entered into by the Company
or any of its Subsidiaries and (iii) there has not been any obligation,
contingent or otherwise, directly or indirectly, incurred by the Company
or any of its Subsidiaries which is material to the Company and its
Subsidiaries, taken as a whole.
(i) The Company will, at the time of purchase or the additional time
of purchase, as the case may be, deliver to you a certificate of two of
its executive officers to the effect that the representations and
warranties of the Company as set forth in this Agreement and the
conditions set forth in paragraphs (g) and (h) of this Section 8 have been
met and that they are true and correct as of each such date.
(j) The signed Lock-Up Agreements shall remain in full force and
effect.
(k) The Shares shall have been listed on the American Stock
Exchange, subject only to notice of issuance, at or prior to the time of
purchase.
(l) The Selling Stockholders will at the time of purchase or the
additional time of purchase, as the case may be, deliver to you a
certificate to the effect that the representations and the warranties of
the Selling Stockholders as set forth in this Agreement are true and
correct as of each such date.
(m) The Company and the Selling Stockholders shall have furnished to
you such other documents and certificates as to the accuracy and
completeness of any statement in the Registration Statement and the
Prospectus as of the time of purchase and the additional time of purchase,
as the case may be, as you may reasonably request.
(n) The Company and the Selling Stockholders shall have performed
such of their respective obligations under this Agreement as are to be
performed by the terms hereof at or before the time of purchase and at or
before the additional time of purchase, as the case may be.
9. EFFECTIVE DATE OF AGREEMENT; TERMINATION. This Agreement shall
become effective (i) if Rule 430A under the Act is not used, when you shall have
received notification of the effectiveness of the Registration Statement, or
(ii) if Rule 430A under the Act is used, when the parties hereto have executed
and delivered this Agreement.
The obligations of the several Underwriters hereunder shall be
subject to termination in the absolute discretion of you or any group of
Underwriters (which may include you) which has agreed to purchase in the
aggregate at least 50% of the Firm Shares, if, at any time prior to the time of
purchase or, with respect to the purchase of any Additional Shares, the
additional time of purchase, as the case may be, trading in securities on the
New York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market shall have been suspended or minimum prices shall have been established
on the New York Stock Exchange, the American Stock Exchange or the Nasdaq
National Market, or if a banking moratorium shall have been declared either by
the United States or New York State authorities, or if the United States shall
have declared war in accordance with its constitutional processes or there shall
have occurred any material outbreak or escalation of hostilities or other
national or international calamity or crisis of such magnitude in its effect on
the financial markets of the United States as, in your judgment or in the
judgment of such group of Underwriters, make it impracticable to market the
Shares.
If you or any group of Underwriters elects to terminate this
Agreement as provided in this Section 9, the Company, the Representatives of the
Selling Stockholders and each other Underwriter shall be notified promptly by
letter or telegram.
If the sale to the Underwriters of the Shares, as contemplated by
this Agreement, is not carried out by the Underwriters for any reason permitted
under this Agreement or if such sale is not carried out because the Company or
the Selling Stockholders, as the case may be, shall be unable to comply with any
of the terms of this Agreement, the Company or the Selling Stockholders, as the
case may be, shall not be under any obligation or liability under this Agreement
(except to the extent provided in Sections 6(a), 7 and 11 hereof), and the
Underwriters shall be under no obligation or liability to the Company and the
Selling Stockholders under this Agreement (except to the extent provided in
Section 11 hereof) or to one another hereunder.
10. INCREASE IN UNDERWRITERS' COMMITMENTS. If any Underwriter shall
default in its obligation to take up and pay for the Firm Shares to be purchased
by it hereunder and if the number of Firm Shares which all Underwriters so
defaulting shall have agreed but failed to take up and pay for does not exceed
10% of the total number of Firm Shares, the non-defaulting Underwriters shall
take up and pay for (in addition to the aggregate principal amount of Firm
Shares they are obligated to purchase pursuant to Section 1 hereof) the number
of Firm Shares agreed to be purchased by all such defaulting Underwriters, as
hereinafter provided. Such Shares shall be taken up and paid for by such
non-defaulting Underwriter or Underwriters in such amount or amounts as you may
designate with the consent of each Underwriter so designated or, in the event no
such designation is made, such Shares shall be taken up and paid for by all
non-defaulting Underwriters pro rata in proportion to the aggregate number of
Firm Shares set opposite the names of such non-defaulting Underwriters in
Schedule A.
Without relieving any defaulting Underwriter from its obligations
hereunder, the Company and the Selling Stockholders agree with the
non-defaulting Underwriters that they will not sell any Firm Shares hereunder
unless all of the Firm Shares are purchased by the Underwriters (or by
substituted Underwriters selected by you with the approval of the Company or
selected by the Company with your approval).
If a new Underwriter or Underwriters are substituted by the
Underwriters or by the Company for a defaulting Underwriter or Underwriters in
accordance with the foregoing provision, the Company or you shall have the right
to postpone the time of purchase for a period not exceeding five business days
in order that any necessary changes in the Registration Statement and Prospectus
and other documents may be effected.
The term Underwriter as used in this Agreement shall refer to and
include any Underwriter substituted under this Section 10 with like effect as if
such substituted Underwriter had originally been named in Schedule A.
11. INDEMNITY BY THE COMPANY, THE SELLING STOCKHOLDERS AND THE
UNDERWRITERS.
(a) The Company and the Selling Stockholders, individually and not
jointly, agree to indemnify, defend and hold harmless each Underwriter and any
person who controls any Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act, from and against any loss, expense, liability
or claim (including the reasonable cost of investigation) which, jointly or
severally, any such Underwriter or any such controlling person may incur under
the Act, the Exchange Act or otherwise, insofar as such loss, expense, liability
or claim arises out of or is based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or in the
Registration Statement as amended by any post-effective amendment thereof by the
Company) or in a Prospectus (the term Prospectus for the purpose of this Section
11 being deemed to include any Preliminary Prospectus, the Prospectus and the
Prospectus as amended or supplemented by the Company), or arises out of or is
based upon any omission or alleged omission to state a material fact required to
be stated in either such Registration Statement or Prospectus or necessary to
make the statements made therein not misleading, except insofar as any such
loss, expense, liability or claim arises out of or is based upon any untrue
statement or alleged untrue statement of a material fact contained in and in
conformity with information furnished in writing by any Underwriter through you
to the Company expressly for use with reference to such Underwriter in such
Registration Statement or such Prospectus or arises out of or is based upon any
omission or alleged omission to state a material fact in connection with such
information required to be stated in either such Registration Statement or
Prospectus or necessary to make such information not misleading; PROVIDED,
HOWEVER, that the indemnity agreement contained in this subsection (a) with
respect to any Preliminary Prospectus or amended Preliminary Prospectus shall
not inure to the benefit of any Underwriter (or to the benefit of any person
controlling such Underwriter) from whom the person asserting any such loss,
expense, liability or claim purchased the Shares which are the subject thereof
if the Prospectus corrected any such alleged untrue statement or omission and if
such Underwriter failed to send or give a copy of the Prospectus to such person
at or prior to the written confirmation of the sale of such Shares to such
person; PROVIDED, FURTHER, that no Selling Stockholder shall be responsible for
losses, expenses, liability or claims arising out of or based upon such untrue
statement or omission or allegation thereof based upon information other than
information provided in writing by such Selling Stockholder expressly for use in
the Registration Statement.
If any action is brought against an Underwriter or controlling
person in respect of which indemnity may be sought against the Company or any
Selling Stockholder pursuant to the foregoing paragraph, such Underwriter shall
promptly notify the Company and the Representatives of the Selling Stockholders
in writing of the institution of such action and the Company or such Selling
Stockholder, as the case may be, shall assume the defense of such action,
including the employment of counsel and payment of expenses. Such Underwriter or
such controlling person shall have the right to employ its or their own counsel
in any such case, but the fees and expenses of such counsel shall be at the
expense of such Underwriter or of such controlling person unless the employment
of such counsel shall have been authorized in writing by the Company or such
Selling Stockholder in connection with the defense of such action or the Company
or such Selling Stockholder shall not have employed counsel to have charge of
the defense of such action or such indemnified party or parties shall have
reasonably concluded that there may be defenses available to it or them which
are different from or additional to those available to the Company or such
Selling Stockholder (in which case the Company or such Selling Stockholder shall
not have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events such fees and expenses
shall be borne by the Company or such Selling Stockholder, as the case may be,
and paid as incurred (it being understood, however, that the Company or such
Selling Stockholder shall not be liable for the expenses of more than one
separate counsel in any one action or series of related actions in the same
jurisdiction representing the indemnified parties who are parties to such action
which firm shall be designated in writing by SBCWDR). Anything in this paragraph
to the contrary notwithstanding, neither the Company nor such Selling
Stockholder shall be liable for any settlement of any such claim or action
effected without its written consent.
(b) Each Underwriter severally agrees to indemnify, defend and hold
harmless the Company, the Selling Stockholders, their respective directors and
officers, and any person who controls the Company or any Selling Stockholder
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
from and against any loss, expense, liability or claim (including the reasonable
cost of investigation) which, jointly or severally, the Company, any Selling
Stockholder or any such person may incur under the Act, the Exchange Act or
otherwise, insofar as such loss, expense, liability or claim arises out of or is
based upon any untrue statement or alleged untrue statement of a material fact
contained in and in conformity with information furnished in writing by or on
behalf of such Underwriter through you to the Company expressly for use with
reference to such Underwriter in the Registration Statement (or in the
Registration Statement as amended by any post-effective amendment thereof by the
Company) or in the Prospectus, or arises out of or is based upon any omission or
alleged omission to state a material fact in connection with such information
required to be stated in either such Registration Statement or Prospectus or
necessary to make such information not misleading.
If any action is brought against the Company, any Selling
Stockholder or any such person in respect of which indemnity may be sought
against any Underwriter pursuant to the foregoing paragraph, the Company, such
Selling Stockholder or such person shall promptly notify such Underwriter in
writing of the institution of such action and such Underwriter shall assume the
defense of such action, including the employment of counsel and payment of
expenses. The Company, such Selling Stockholder or such person shall have the
right to employ its own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of the Company, such Selling Stockholder or
such person unless the employment of such counsel shall have been authorized in
writing by such Underwriter in connection with the defense of such action or
such Underwriter shall not have employed counsel to have charge of the defense
of such action or such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it or them which are different
from or additional to those available to such Underwriter (in which case such
Underwriter shall not have the right to direct the defense of such action on
behalf of the indemnified party or parties), in any of which events such fees
and expenses shall be borne by such Underwriter and paid as incurred (it being
understood, however, that such Underwriter shall not be liable for the expenses
of more than one separate counsel in any one action or series of related actions
in the same jurisdiction representing the indemnified parties who are parties to
such action). Anything in this paragraph to the contrary notwithstanding, no
Underwriter shall be liable for any settlement of any such claim or action
effected without the written consent of such Underwriter.
(c) If the indemnification provided for in this Section 11 is
unavailable to an indemnified party under subsections (a) and (b) of this
Section 11 in respect of any losses, expenses, liabilities or claims referred to
therein, then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, expenses, liabilities or claims
(i) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Selling Stockholders on the one hand and the
Underwriters on the other hand from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Selling Stockholders on the one hand and of the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
expenses, liabilities or claims, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total proceeds from the offering (net of
underwriting discounts and commissions but before deducting expenses) received
by the Company and the Selling Stockholders bear to the total underwriting
discounts and commissions received by the Underwriters. The relative fault of
the Company and the Selling Stockholders on the one hand and of the Underwriters
on the other shall be determined by reference to, among other things, whether
the untrue statement or alleged untrue statement of a material fact or omission
or alleged omission relates to information supplied by the Company, by the
Selling Stockholders or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the
losses, expenses, liabilities and claims referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any claim or action. Notwithstanding
anything to the contrary contained in this Section 11(c), in no event shall any
Selling Stockholder be required to pay an aggregate amount of contribution or
other payments in respect of losses, expenses, liabilities or claims under this
Section 11(c) which would be greater than the aggregate amount such Selling
Stockholder would have been required to pay under Section 11(a) in respect of
such losses, expenses, liabilities or claims if such indemnification were
available.
(d) The Company, the Selling Stockholders and the Underwriters agree
that it would not be just and equitable if contribution pursuant to this Section
11 were determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in subsection (c)
above. Notwithstanding the provisions of this Section 11, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by such Underwriter and distributed to
the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue
statement or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriter's obligations to contribute
pursuant to this Section 11 are several in proportion to their respective
underwriting commitments and not joint.
(e) The indemnity and contribution agreements contained in this
Section 11 and the covenants, warranties and representations of the Company and
the Selling Stockholders contained in this Agreement shall remain in full force
and effect regardless of any investigation made by or on behalf of any
Underwriter, or any person who controls any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, or by or on behalf of
the Company, its directors and officers, the Selling Stockholders or any person
who controls the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, and shall survive any termination of this Agreement or
the issuance and delivery of the Shares. The Company, such Selling Stockholder
and each Underwriter agree promptly to notify the others of the commencement of
any litigation or proceeding against it and, in the case of the Company, against
any of the Company's officers and directors in connection with the issuance and
sale of the Shares, or in connection with the Registration Statement or
Prospectus.
(f) The Company acknowledges for all purposes under this Agreement
(including this Section 11 and Section 3(a) hereof) that the statements set
forth in the last paragraph on the cover page of the Prospectus, the last
paragraph on the inside front cover page of the Prospectus and the fourth and
twelfth paragraphs under the caption "Underwriting" in the Prospectus constitute
the only written information furnished to the Company by or on behalf of the
Underwriters through you or your counsel expressly for use in the Registration
Statement, any Preliminary Prospectus, or the Prospectus (or any amendment or
supplement to any of them) and that no Underwriter shall be deemed to have
provided any information (and therefore are not responsible for any statements
or omissions) pertaining to any arrangement or agreement with respect to any
party other than such Underwriter.
(g) Notwithstanding any other provision of this Section 11, none of
the Selling Stockholders shall be liable for indemnification or contribution
payments or any other payments under this Section 11 in an aggregate amount
exceeding the proceeds received by such Selling Stockholder from the sale of
Shares hereunder.
12. NOTICES. Except as otherwise herein provided, all statements,
requests, notices and agreements shall be in writing or by telegram and, if to
the Underwriters, shall be sufficient in all respects if delivered or sent to
SBC Warburg Dillon Read Inc., 535 Madison Avenue, New York, New York 10022,
Attention: Syndicate Department, if to the Company or to any of the Selling
Stockholders, shall be sufficient in all respects if delivered or sent to the
Company at the offices of the Company at 4801 Woodway, Suite 100E, Houston,
Texas 77056, Attention: Chief Executive Officer.
13. CONSTRUCTION. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York. The Section headings in
this Agreement have been inserted as a matter of convenience of reference and
are not a part of this Agreement.
14. PARTIES AT INTEREST. The Agreement herein set forth has been and
is made solely for the benefit of the Underwriters, the Company, the Selling
Stockholders and the controlling persons, directors and officers referred to in
Section 11 hereof, and their respective successors, assigns, executors and
administrators. No other person, partnership, association or corporation
(including a purchaser, as such purchaser, from any of the Underwriters who
shall not be deemed a successor or assign by reason of such purchase) shall
acquire or have any right under or by virtue of this Agreement.
15. ACTION ON BEHALF OF MANAGING UNDERWRITERS. Any action required
or permitted to be taken by the Managing Underwriters under this Agreement may
be taken by them jointly or by SBCWDR.
16. COUNTERPARTS. This Agreement may be signed by the parties in
counterparts which together shall constitute one and the same agreement among
the parties.
<PAGE>
If the foregoing correctly sets forth the understanding among the
Company, the Selling Stockholders and the Underwriters, please so indicate in
the space provided below for the purpose, whereupon this letter and your
acceptance shall constitute a binding agreement among the Company, the Selling
Stockholders and the Underwriters, severally.
Very truly yours,
CORNELL CORRECTIONS, INC.
By:__________________________
Name:
Title:
The Selling Stockholders listed on Schedules
B and C hereto
By:__________________________
Name:
Attorney-in-Fact
Accepted and agreed to as of the
date first above written, on
behalf of themselves and the other
several Underwriters named in
Schedule A
SBC WARBURG DILLON READ INC.
EQUITABLE SECURITIES CORPORATION
WASSERSTEIN PERELLA SECURITIES, INC.
By: SBC WARBURG DILLON READ INC.
By: ________________________
Name:
Title:
<PAGE>
SCHEDULE A
NUMBER OF FIRM SHARES
UNDERWRITER
SBC Warburg Dillon Read Inc.............................
Equitable Securities Corporation .......................
Wasserstein Perella Securities, Inc. ...................
Total.............................................. 2,750,000
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<PAGE>
SCHEDULE B
NUMBER OF
FIRM SELLING STOCKHOLDERS FIRM SHARES
Charterhouse Equity Partners II, L.P..................
Concord Partners II, L.P. ............................
Concord Partners Japan Limited .......................
The Brown University Third Century Fund...............
Internationale Nederlanden
(U.S.) Capital Corporation..........................
Total ................................................ 500,000
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<PAGE>
SCHEDULE C
MAXIMUM NUMBER OF
ADDITIONAL SELLING STOCKHOLDERS ADDITIONAL SHARES
Charterhouse Equity Partners
II, L.P.....................................
[Concord Entities]............................
Total......................................... 412,500
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<PAGE>
SCHEDULE D
DESIGNATED SUBSIDIARIES1
STATE OF STATES IN WHICH
NAME OF DESIGNATED SUBSIDIARY INCORPORATION QUALIFIED TO DO BUSINESS
- ----------------------------- ------------- ------------------------
Cornell Corrections, Inc. Delaware Texas, California,
Pennsylvania
Cornell Corrections
Management, Inc. Delaware Texas, Colorado
Cornell Corrections of
Texas, Inc. Delaware Texas
Cornell Corrections of
California, Inc. California Utah, North Carolina
Cornell Corrections
of Rhode Island, Inc. Delaware Rhode Island, Texas
Abraxas Group, Inc. Delaware District of Columbia,
Ohio, Pennsylvania
- --------
1 To be updated for other material subsidiaries.
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
CORNELL CORRECTIONS, INC.
ADOPTED SEPTEMBER 10, 1997
<PAGE>
AMENDED AND RESTATED BYLAWS OF
CORNELL CORRECTIONS, INC.
Table of Contents
Page
ARTICLE I OFFICES.........................................................1
1.1 Registered Office.................................................1
1.2 Other Offices.....................................................1
ARTICLE II MEETINGS OF STOCKHOLDERS........................................1
2.1 Place of Meetings.................................................1
2.2 Annual Meetings...................................................1
2.3 Special Meetings..................................................1
2.4 Registered Holders of Shares; Closing of
Share Transfer Records; and Record Date...........................2
2.5 Quorum............................................................2
2.6 Voting by Stockholders............................................3
2.7 Proxies...........................................................3
2.8 No Shareholder Action Without Meeting.............................4
ARTICLE III DIRECTORS.......................................................4
3.1 Number and Election of Directors..................................4
3.2. Vacancies........................................................4
3.3. Duties and Powers................................................4
3.4. Meetings.........................................................5
3.5. Quorum...........................................................5
3.6. Actions Without a Meeting........................................5
3.7. Telephonic Meetings..............................................5
3.8. Committees.......................................................5
3.9. Reimbursement of Expenses........................................6
3.10. Protection for Reliance.........................................6
ARTICLE IV OFFICERS........................................................6
4.1. General..........................................................6
4.2. Election.........................................................6
4.3. Duties...........................................................7
4.4. Chairman.........................................................7
4.5. President........................................................7
4.6. Vice Presidents..................................................7
4.7. Secretary and Assistant Secretaries..............................7
4.8. Treasurer and Assistant Treasurers...............................8
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4.9. Removal..........................................................8
4.10. Voting Securities Owned by the Corporation......................8
ARTICLE V STOCK...........................................................8
5.1. Form of Certificates.............................................8
5.2. Signatures.......................................................9
5.3. Lost Certificates................................................9
5.4. Transfers........................................................9
5.5. Beneficial Ownership.............................................9
5.6. Dividends........................................................9
ARTICLE VI INDEMNIFICATION................................................10
6.1 General..........................................................10
6.2 Expenses.........................................................10
6.3 Advances.........................................................10
6.4 Request for Indemnification......................................11
6.5 Nonexclusivity of Rights.........................................11
6.9 Definitions......................................................11
ARTICLE VII NOTICES..........................................................12
7.1. Notices.........................................................12
7.2. Waiver of Notice................................................12
ARTICLE VIII MISCELLANEOUS...................................................13
8.1. Fiscal Year.....................................................13
8.2. Amendments......................................................13
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<PAGE>
AMENDED AND RESTATED BYLAWS OF
CORNELL CORRECTIONS, INC.
ARTICLE I
OFFICES
1.1 REGISTERED OFFICE. The registered office of Cornell
Corrections, Inc., a Delaware corporation (the "Corporation"), is The
Corporation Trust Company, 1209 Orange Street, in the City of Wilmington, County
of New Castle, State of Delaware, 19801.
1.2 OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors of the Corporation (the "Board of Directors") may from time to time
determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS. Annual or special meetings of the
stockholders for the election of directors or for any other purpose shall be
held at such time and place, either within or without the State of Delaware, as
may be designated from time to time by the Board of Directors and stated in the
notice of the meeting or in a duly executed waiver of notice thereof. If not so
designated or stated, such meeting shall be held at the registered office of the
Corporation.
2.2 ANNUAL MEETINGS. The annual meeting of stockholders shall be
held on such date and at such time as may be designated from time to time by the
Board of Directors and stated in the notice of such meeting. At the annual
meeting, the stockholders shall elect by a plurality vote a Board of Directors
and transact such other business as may properly be brought before the meeting.
Written notice of the annual meeting of stockholders of the Corporation stating
the place, date and hour of the meeting shall be sent to each stockholder
entitled to vote at such meeting not less than 10 nor more than 60 days before
the date of the meeting. Failure to hold the annual meeting shall not work a
forfeiture or dissolution of the Corporation or affect otherwise valid corporate
acts.
2.3 SPECIAL MEETINGS. Unless otherwise prescribed by the Delaware
General Corporation Law ("DGCL") or by the Certificate of Incorporation of the
Corporation (as amended or restated from time to time, the "Certificate of
Incorporation"), special meetings of stockholders of the Corporation for any
purpose or purposes may be called at any time by the Chairman of the Board of
Directors or by any two or more directors of the Corporation. Written notice of
the special meeting stating the place, date and hour of the meeting and the
purpose or purposes for which the meeting is called shall be given not less 10
nor more than 60 days before the date of the meeting to each stockholder
entitled to vote at such meeting.
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<PAGE>
2.4 REGISTERED HOLDERS OF SHARES; CLOSING OF SHARE TRANSFER
RECORDS; AND RECORD DATE.
(a) REGISTERED HOLDERS AS OWNERS. Unless otherwise
provided under Delaware law, the Corporation may
regard the person in whose name any shares issued
by the Corporation are registered in the stock
transfer records of the Corporation at any
particular time (including, without limitation, as
of a record date fixed pursuant to paragraph (b) of
this Section 2.4) as the owner of those shares at
that time for purposes of voting those shares,
receiving distributions thereon or notices in
respect thereof, transferring those shares,
exercising rights of dissent with respect to those
shares, entering into agreements with respect to
those shares, or giving proxies with respect to
those shares; and neither the Corporation nor any
of its officers, directors, employees or agents
shall be liable for regarding that person as the
owner of those shares at that time for those
purposes, regardless of whether that person
possesses a certificate for those shares.
(b) RECORD DATE. For the purpose of determining
stockholders of the Corporation entitled to notice
of or to vote at any meeting of stockholders of the
Corporation or any adjournment thereof, or entitled
to receive a distribution by the Corporation (other
than a distribution involving a purchase or
redemption by the Corporation of any of its own
shares) or a share dividend, or in order to make a
determination of stockholders of the Corporation
for any other proper purpose, the Board of
Directors may fix in advance a date as the record
date for any such determination of stockholders of
the Corporation, such date in any case to be not
more than 60 days and, in the case of a meeting of
stockholders, not less than 10 days, prior to the
date on which the particular action requiring such
determination of stockholders of the Corporation is
to be taken. The Board of Directors shall not close
the books of the Corporation against transfers of
shares during the whole or any part of such period.
If the Board of Directors does not fix a record date for any meeting of the
stockholders of the Corporation, the record date for determining stockholders of
the Corporation entitled to notice of or to vote at such meeting shall be at the
close of business on the day next preceding the day on which notice is given,
or, if in accordance with Section 7.2 of these Bylaws notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held.
2.5 QUORUM. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders of the Corporation for the transaction of business. If, however,
such quorum shall
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<PAGE>
not be present or represented at any meeting of the stockholders of the
Corporation, the stockholders of the Corporation entitled to vote at such
meeting, present in person or represented by proxy, shall have the power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder entitled to vote at the
meeting.
2.6 VOTING BY STOCKHOLDERS.
(a) VOTING ON MATTERS OTHER THAN THE ELECTION OF
DIRECTORS. With respect to any matters as to which no other voting
requirement is specified by the DGCL, the Certificate of Incorporation
or these Amended and Restated Bylaws (these "Bylaws"), the affirmative
vote required for stockholder action shall be that of a majority of the
shares present in person or represented by proxy at the meeting (as
counted for purposes of determining the existence of a quorum at the
meeting). In the case of a matter submitted for a vote of the
stockholders of the Corporation as to which a stockholder approval
requirement is applicable under the stockholder approval policy of any
stock exchange or quotation system on which the capital stock of the
Corporation is traded or quoted, the requirements under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or any provision
of the Internal Revenue Code, in each case for which no higher voting
requirement is specified by the DGCL, the Restated Certificate of
Incorporation or these Bylaws, the vote required for approval shall be
the requisite vote specified in such stockholder approval policy, the
Exchange Act or Internal Revenue Code provision, as the case may be (or
the highest such requirement if more than one is applicable). For the
approval of the appointment of independent public accountants (if
submitted for a vote of the stockholders of the Corporation), the vote
required for approval shall be a majority of the votes cast on the
matter.
(b) VOTING IN THE ELECTION OF DIRECTORS. Unless otherwise
provided in the Certificate of Incorporation or these Bylaws in
accordance with the DGCL, directors shall be elected by a plurality of
the votes cast by the holders of outstanding shares of capital stock of
the Corporation entitled to vote in the election of directors at a
meeting of stockholders at which a quorum is present.
(c) OTHER. The Board of Directors, in its discretion, or
the officer of the Corporation presiding at a meeting of stockholders of
the Corporation, in his discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
2.7 PROXIES. Each stockholder of the Corporation entitled to vote
at a meeting of stockholders of the Corporation may authorize another person or
persons to act for him by proxy. Proxies for use at any meeting of stockholders
of the Corporation shall be filed with the Secretary, or such other officer as
the Board of Directors may from time to time determine by resolution, before
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<PAGE>
or at the time of the meeting. All proxies shall be received and taken charge of
and all ballots shall be received and canvassed by the secretary of the meeting
who shall decide all questions relating to the qualification of voters, the
validity of the proxies and the acceptance or rejection of votes, unless an
inspector or inspectors shall have been appointed by the chairman of the
meeting, in which event such inspector or inspectors shall decide all such
questions.
2.8 NO SHAREHOLDER ACTION WITHOUT MEETING. From and after the
first date as of which the Corporation has a class or series of capital stock
registered under the Exchange Act, no action required to be taken or that may be
taken at any annual or special meeting of the stockholders of the Corporation
may be taken without a meeting, and the power of the stockholders of the
Corporation of the Corporation to consent in writing to the taking of any action
by written consent without a meeting is specifically denied, except for action
by unanimous written consent, which is expressly allowed.
ARTICLE III
DIRECTORS
3.1 NUMBER AND ELECTION OF DIRECTORS. The number of directors of
the Corporation shall be six, and thereafter such number of directors may be
increased or decreased from time to time (but not to a number greater than or
less than permitted by the Certificate of Incorporation) by an amendment to
these Bylaws. Any director of the Corporation may resign at any time upon
written notice to the Corporation. To be effective, such notice of resignation
need not be formally accepted by the Board of Directors. A director of the
Corporation need not be a stockholder of the Corporation or a resident of the
State of Delaware.
3.2. VACANCIES. Newly created directorships resulting from any
increase in the authorized number of directors of the Corporation and any
vacancies on the Board of Directors resulting from the death, resignation or
removal of a director of the Corporation shall be filled by (i) the affirmative
vote of at least a majority of the remaining directors then in office, even if
such remaining directors of the Corporation constitute less than a quorum or
(ii) the affirmative vote of holders of at least a majority of the then
outstanding Voting Stock (as defined below), voting together as a single class.
The term "Voting Stock" shall mean all outstanding shares of all classes and
series of capital stock of the Corporation entitled to vote generally in the
election of directors of the Corporation, considered as one class; and, if the
Corporation shall have shares of Voting Stock entitled to more or less than one
vote for any such share, each reference in these Bylaws to a proportion or
percentage in voting power of Voting Stock shall be calculated by reference to
the portion or percentage of votes entitled to be cast by holders of such shares
generally in the election of directors of the Corporation.
3.3. DUTIES AND POWERS. The business, affairs and property of the
Corporation shall be managed by or under the directorship of the Board of
Directors, which may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by law, the Certificate
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<PAGE>
of Incorporation or these Bylaws authorized or required to be exercised or done
by the stockholders of the Corporation.
3.4. MEETINGS. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman, if there be one, or by the President or by any two or more
directors of the Corporation. Notice thereof stating the place, date and hour of
the meeting shall be given to each director either by mail not less than 48
hours before the date of the meeting, by telephone, telegram or facsimile on 24
hours' notice or on such shorter notice as the person or persons calling such
meeting may deem necessary or appropriate in the circumstances. Unless otherwise
required by law, neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the Board of Directors need be specified in
the notice or waiver of notice of such meeting.
3.5. QUORUM. Except as may be otherwise specifically provided by
law, the Certificate of Incorporation or these Bylaws, at all meetings of the
Board of Directors, a majority of the entire Board of Directors shall constitute
a quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
3.6. ACTIONS WITHOUT A MEETING. Unless otherwise provided by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
3.7. TELEPHONIC MEETINGS. Unless otherwise provided by the
Certificate of Incorporation or these Bylaws, members of the Board of Directors,
or any committee designated by the Board of Directors, may participate in a
meeting of the Board of Directors or such committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this Section 3.7 shall constitute presence in person at such
meeting.
3.8. COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors of the
Corporation as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of any such committee. In the absence or
disqualification of a member of a committee, and in the absence of a designation
by the Board of Directors of an alternate member to replace the absent or
disqualified member, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a
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<PAGE>
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in place of any absent or disqualified member. Any committee, to
the extent allowed by law and provided in the resolution establishing such
committee, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation.
Each committee shall keep regular minutes and report to the Board of Directors
when required.
3.9. REIMBURSEMENT OF EXPENSES. The directors of the Corporation
shall be paid their expenses, if any, of attendance at each meeting of the Board
of Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary or other consideration as director. No
such reimbursement shall preclude any director from serving the Corporation in
any other capacity and receiving compensation therefor. Members of special or
standing committees shall be allowed like reimbursement for attending committee
meetings.
3.10. PROTECTION FOR RELIANCE. Any member of the Board of
Directors, or any member of any committee designated by the Board of Directors,
shall, in the performance of his duties, be fully protected in relying in good
faith upon the records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of the Corporation's
officers or employees, or committees of the Board of Directors, or by any other
person as to matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
ARTICLE IV
OFFICERS
4.1. GENERAL. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a President and a Secretary. The Board of
Directors, in its discretion, may also choose a Chairman of the Board of
Directors, a Chief Financial Officer, a Treasurer and one or more Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any
number of offices may be held by the same person, unless otherwise prohibited by
law, the Certificate of Incorporation or these Bylaws. The officers of the
Corporation need not be stockholders of the Corporation nor, except in the case
of the Chairman of the Board of Directors, need such officers be directors of
the Corporation.
4.2. ELECTION. The Board of Directors shall elect or appoint the
officers of the Corporation who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the Board of Directors; and all officers of the Corporation
shall hold office until their successors are elected and qualified, or until the
earlier of their resignation or removal. Any officer elected by the Board of
Directors may be removed at any time by the affirmative vote of a majority of
the Board of Directors. Any vacancy occurring in any office of the Corporation
may be filled by the Board of Directors.
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<PAGE>
4.3. DUTIES. The officers of the Corporation shall have such
powers and duties as generally pertain to their offices, except as modified
herein or by the Board of Directors, as well as such powers and duties as from
time to time may be conferred by the Board of Directors.
4.4. CHAIRMAN. The Chairman of the Board of Directors shall be
the Chief Executive Officer of the Corporation and, subject to the control of
the Board of Directors, shall have general supervision and control of the
business, affairs and properties of the Corporation and its general officers.
The Chairman shall possess the same power as the President to sign all
contracts, certificates and other instruments of the Corporation which may be
authorized by the Board of Directors. The Chairman shall also perform such other
duties and may exercise such other powers as from time to time may be assigned
to him by the Board of Directors.
4.5. PRESIDENT. The President shall, subject to the control of
the Board of Directors, have general supervision of the business of the
Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. If there is no Chairman of the Board, the
President shall be the Chief Executive Officer of the Corporation; otherwise, he
shall be the Chief Operating Officer of the Corporation and shall execute all
bonds, mortgages, contracts and other instruments of the Corporation, except
where required or permitted by law to be otherwise signed and executed and
except that the other officers of the Corporation may sign and execute documents
when so authorized by these Bylaws, the Board of Directors, the Chairman of the
Board or the President. The President shall preside at all meetings of the
stockholders of the Corporation and the Board of Directors, unless the Board of
Directors has appointed a Chairman of the Board, who would preside at all such
meetings. The President shall also perform such other duties and may exercise
such other powers as from time to time may be assigned to him by these Bylaws or
by the Board of Directors.
4.6. VICE PRESIDENTS. At the request of the President or in his
absence or in the event of his inability or refusal to act, any Vice President
may perform the duties of the President and, when so acting, such officer shall
have all the powers of and be subject to all the restrictions upon the
President. Each Vice President shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe. If there
is no Vice President, the Board of Directors shall designate the officer of the
Corporation who, in the absence of the President or in the event of the
inability or refusal of the President to act, shall perform the duties of the
President and, when so acting, such officer shall have all the powers of and be
subject to all the restrictions upon the President.
4.7. SECRETARY AND ASSISTANT SECRETARIES. The Secretary or an
Assistant Secretary shall attend all meetings of the Board of Directors and all
meetings of stockholders of the Corporation and record all the proceedings at
such meetings in a book or books to be kept for that purpose, and the Secretary
or an Assistant Secretary shall also perform similar duties for the standing
committees when required. The Secretary or an Assistant Secretary shall give, or
cause to be given, notice of all meetings of the stockholders of the Corporation
and special meetings of the Board of Directors, and shall perform such other
duties as may be prescribed by the Board of Directors, the Chairman of the
Board, the President or any Vice President. If a Secretary or Assistant
Secretary shall be unable or shall refuse to cause to be given notice of any
meeting of the stockholders of the
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Corporation or any special meeting of the Board of Directors, then either the
Board of Directors, the Chairman of the Board, the President or any Vice
President may choose another officer to cause such notice to be given. The
Secretary or an Assistant Secretary shall see that all corporate books, reports,
statements, certificates and other documents and records required by law to be
kept or filed are properly kept or filed, as the case may be.
4.8. TREASURER AND ASSISTANT TREASURERS. The Treasurer or an
Assistant Treasurer shall have custody of the corporate funds and securities and
shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may be designated by the Board of Directors, the Chairman of the Board, the
President or any Vice President. The Treasurer or an Assistant Treasurer shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the Chairman of the Board, the President and the Board of Directors, at its
regular meetings, or when the Board of Directors so requires, an account of all
his transactions as Treasurer or Assistant Treasurer and of the financial
condition of the Corporation.
4.9. REMOVAL. Any officer may be removed, with or without cause,
by the Board of Directors. Any such removal shall be without prejudice to any
rights such officer may have pursuant to any employment contract he may have
with the Corporation. Any vacancy in an office may be filled by the Board of
Directors.
4.10. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name and
on behalf of the Corporation by the Chairman of the Board, the President or any
Vice President, and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person or by proxy at any meeting of security holders of any corporation in
which the Corporation may own securities and at any such meeting shall possess
and may exercise any and all rights and powers incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present. The Board of Directors may, by resolution, from time
to time, confer like powers upon any other person or persons.
ARTICLE V
STOCK
5.1. FORM OF CERTIFICATES. The shares of stock of the Corporation
shall be represented by certificates of stock, signed in the name of the
Corporation (i) by the Chairman of the Board, the President or a Vice President
and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary, of the Corporation, certifying the number of shares of
stock in the Corporation owned by the holder named in the certificate.
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5.2. SIGNATURES. Where a certificate is countersigned by (i) a
transfer agent other than the Corporation or its employee or (ii) a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
5.3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the delivery to
the Secretary of the Corporation of an affidavit of the fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate, or his legal
representative, to advertise the same in such manner as the Board of Directors
shall require and/or to give the Corporation a bond in such sum as it may direct
as indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
5.4. TRANSFERS. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these Bylaws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by his attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be cancelled before a new certificate shall be
issued.
5.5. BENEFICIAL OWNERSHIP. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
5.6. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special meeting
thereof, and may be paid in cash, in property or in shares of capital stock of
the Corporation. Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
Board of Directors from time to time, in its absolute discretion, deems proper
as a reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
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ARTICLE VI
INDEMNIFICATION
6.1 GENERAL. The Corporation shall indemnify and hold harmless an
Indemnitee (as this and all other capitalized words used in this Article VI not
previously defined in these Bylaws are defined in Section 6.6 hereof) from and
against any and all judgments, penalties, fines (including excise taxes),
amounts paid in settlement and, subject to Section 6.2, Expenses (including all
interest, assessments and other charges paid or payable in connection with or in
respect of such judgments, fines, penalties, amounts paid in settlement or
Expenses) arising out of any event or occurrence related to the fact that
Indemnitee is or was a director or officer of the Corporation. The Corporation
may, but shall not be required to, indemnify and hold harmless an Indemnitee
from and against any and all judgments, penalties, fines (including excise
taxes), amounts paid in settlement and, subject to Section 6.2, Expenses
(including all interest, assessments and other charges paid or payable in
connection with or in respect of such judgments, fines, penalties, amounts paid
in settlement or Expenses) arising out of any event or occurrence related to the
fact that Indemnitee is or was an employee or agent of the Corporation or is or
was serving in another Corporate Status.
6.2 EXPENSES. If Indemnitee is, by reason of his serving as a
director, officer, employee or agent of the Corporation, a party to and is
successful, on the merits or otherwise, in any Proceeding, the Corporation shall
indemnify him against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to any Matter
in such Proceeding, the Corporation shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf relating to
such Matter. The termination of any Matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such
Matter. If Indemnitee is, by reason of any Corporate Status other than his
serving as a director, officer, employee or agent of the Corporation, a party to
and is successful, on the merits or otherwise, in any Proceeding, the
Corporation may, but shall not be required to, indemnify him against all
Expenses actually and reasonably incurred by him or on his behalf in connection
therewith. To the extent that the Indemnitee is, by reason of his Corporate
Status, a witness in any Proceeding, the Corporation may, but shall not be
required to, indemnify him against all Expenses actually and reasonably incurred
by him or on his behalf in connection therewith.
6.3 ADVANCES. In the event of any threatened or pending
Proceeding in which Indemnitee is a party or is involved and that may give rise
to a right of indemnification under this Article VI, following written request
to the Corporation by Indemnitee, the Corporation may, but shall not be required
to, pay to Indemnitee amounts to cover Expenses reasonably incurred by
Indemnitee in such Proceeding in advance of its final disposition upon the
receipt by the Corporation of (i) a written undertaking executed by or on behalf
of Indemnitee providing that Indemnitee will repay the advance if it shall
ultimately be determined that Indemnitee is not entitled to be indemnified by
the Corporation as provided in these Bylaws and (ii) satisfactory evidence as to
the amount of such Expenses.
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6.4 REQUEST FOR INDEMNIFICATION. To request indemnification,
Indemnitee shall submit to the Secretary of the Corporation a written claim or
request. Such written claim or request shall contain sufficient information to
reasonably inform the Corporation about the nature and extent of the
indemnification or advance sought by Indemnitee. The Secretary of the
Corporation shall promptly advise the Board of Directors of such request.
6.5 NONEXCLUSIVITY OF RIGHTS. This Article VI shall not be deemed
exclusive of any other rights to which Indemnitee may at any time be entitled to
under applicable law, the Restated Certificate of Incorporation, these Bylaws,
any agreement, a vote of stockholders or a resolution of directors of the
Corporation, or otherwise. No amendment, alteration or repeal of this Article VI
or any provision hereof shall be effective as to any Indemnitee for acts, events
and circumstances that occurred, in whole or in part, before such amendment,
alteration or repeal. The provisions of this Article VI shall continue as to an
Indemnitee whose Corporate Status has ceased for any reason and shall inure to
the benefit of his heirs, executors and administrators. Neither the provisions
of this Article VI nor those of any agreement to which the Corporation is a
party shall be deemed to preclude the indemnification of any person who is not
specified in this Article VI as having the potential to receive indemnification
or is not a party to any such agreement, but whom the Corporation has the power
or obligation to indemnify under the provisions of the DGCL.
6.6 INSURANCE AND SUBROGATION. To the extent the Corporation
maintains an insurance policy or policies providing liability insurance for
directors or officers of the Corporation, an Indemnitee who is a director or
officer of the Corporation shall be covered by such policy or policies in
accordance with its or their terms to the maximum extent of coverage available
for any such director or officer under such policy or policies. In the event of
any payment hereunder, the Corporation shall be subrogated to the extent of such
payment to all the rights of recovery of Indemnitee, who shall execute all
papers required and take all action necessary to secure such rights, including
execution of such documents as are necessary to enable the Corporation to bring
suit to enforce such rights. The Corporation shall not be liable under this
Article VI to make any payment of amounts otherwise indemnifiable hereunder if,
and to the extent that, Indemnitee has otherwise actually received such payment
under any insurance policy, contract, agreement or otherwise.
6.7 SEVERABILITY. If any provision or provisions of this Article
VI shall be held to be invalid, illegal or unenforceable for any reason
whatsoever, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby; and, to the
fullest extent possible, the provisions of this Article VI shall be construed so
as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
6.8 CERTAIN PERSONS NOT ENTITLED TO INDEMNIFICATION.
Notwithstanding any other provision of this Article VI, no person shall be
entitled to indemnification or advancement of Expenses under this Article VI
with respect to any Proceeding, or any Matter therein, brought or made by such
person against the Corporation.
6.9 DEFINITIONS. For purposes of this Article VI:
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(a) "CORPORATE STATUS" describes the status of a person
who is or was a director, officer, employee or agent of the Corporation
or of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise which such person is or was serving at
the written request of the Corporation. For purposes of this Agreement,
"serving at the written request of the Corporation" includes any service
by Indemnitee which imposes duties on, or involves services by,
Indemnitee with respect to any employee benefit plan or its participants
or beneficiaries.
(b) "EXPENSES" shall include all reasonable attorneys'
fees, retainers, court costs, transcript costs, fees of experts, witness
fees, travel expenses, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service fees, and all other
disbursements or expenses of the types customarily incurred in
connection with prosecuting, defending, preparing to prosecute or
defend, investigating, or being or preparing to be a witness in a
Proceeding.
(c) "INDEMNITEE" includes any person who is, or is
threatened to be made, a witness in or a party to any Proceeding as
described in Section 6.1 or 6.2 hereof by reason of his Corporate
Status.
(d) "MATTER" is a claim, a material issue or a substantial
request for relief.
(e) "PROCEEDING" includes any action, suit, alternate
dispute resolution mechanism, hearing or any other proceeding, whether
civil, criminal, administrative, arbitrative, investigative or
mediative, any appeal in any such action, suit, alternate dispute
resolution mechanism, hearing or other proceeding and any inquiry or
investigation that could lead to any such action, suit, alternate
dispute resolution mechanism, hearing or other proceeding, except one
initiated by an Indemnitee to enforce his rights under this Article VI.
ARTICLE VII
NOTICES
7.1. NOTICES. Whenever written notice is required by law, the
Certificate of Incorporation or these Bylaws to be given to any director, member
of a committee or stockholder, such notice may be given by mail, addressed to
such director, member of a committee or stockholder at his address as it appears
on the records of the Corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
United States mail. Written notice may also be given personally or by telegram,
telex, facsimile or cable.
7.2. WAIVER OF NOTICE. Whenever any notice is required by law,
the Certificate of Incorporation or these Bylaws to be given to any director,
member of a committee or stockholder of the Corporation, a waiver thereof in
writing, signed by the person or persons entitled to said notice, whether before
or after the time stated therein, shall be deemed equivalent thereto.
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ARTICLE VIII
MISCELLANEOUS
8.1. FISCAL YEAR. The fiscal year of the Corporation shall end on
December 31 of each year.
8.2. AMENDMENTS. These Bylaws may be altered, amended or
repealed, in whole or in part, or new Bylaws may be adopted, by the stockholders
of the Corporation or by the Board of Directors as provided in the Certificate
of Incorporation.
Adopted September 10, 1997
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EXHIBIT 10.2
EMPLOYMENT AGREEMENT
(ARLENE LISSNER)
This Employment Agreement (this "AGREEMENT") is entered into by and
between ABRAXAS GROUP, INC., a Delaware corporation ("EMPLOYER"), and ARLENE
LISSNER, an individual residing at 144 N. Dithridge ("EMPLOYEE"). CORNELL
CORRECTIONS, INC. ("CORNELL") has joined this Agreement for purposes of
paragraph 9. below.
1. EMPLOYMENT; INITIAL TERM. Employee agrees to be employed by Employer,
and Employer agrees to employ Employee, to serve as President of Employer and to
perform by and on behalf of Employer such services relating to Employer's
juvenile correction operations (i) as are typical of a president or an employee
in a substantially similar position, and (ii) as may be requested by the Chief
Executive Officer of Employer or the board of directors of Cornell from time to
time. This Agreement will commence on the date hereof. During the period from
the date of this Agreement until September 9, 2000 (the "INITIAL TERM"),
Employee's employment hereunder may not be voluntarily terminated by Employer or
Employee; provided, however, that Employer can terminate Employee for cause at
any time, if any of the following events has occurred:
(a) Employee willfully and continually, without proper legal cause,
has failed or refused to use her best efforts to follow the directions of
the Chief Executive Officer or the board of directors of Cornell;
(b) Employee has been convicted of, or has pleaded guilty or nolo
contendere to a charge that she committed, a felony;
(c) Employee has perpetrated a fraud against, or theft of property
of, the Employer or any affiliate of Employer;
(d) As a result of her negligence or willful misconduct, Employee
has violated any applicable federal or state law or regulation and, as a
result of such violation, has become, or has caused Employer to become,
the subject of any legal action or administrative proceeding or a
suspension of any right or privilege, which action, proceeding or
suspension could have a material adverse effect on the condition or
operations of Employer. In the event Employer makes a determination that
Employee has violated any applicable federal or state law or regulation
and provides written notification to such effect to Employee and Employee
objects in writing to such determination within 10 business days of being
notified by Employer, such determination shall be submitted to binding
arbitration on an expedited basis which shall be binding on all parties.
The losing party in such arbitration shall bear all costs of arbitration,
except attorneys fees shall be the obligation of each party separately.
(e) as a result of her negligence or willful misconduct, Employee
has committed any act that causes, or shall knowingly or recklessly fail
to take reasonable and appropriate action to prevent, any material adverse
effect to the financial condition or business reputation of Employer;
(f) Employee has violated any of the provisions of this Agreement or
the Covenant Not to Compete Agreement with Employer dated of even date
herewith; or
(g) Employee dies or becomes physically or mentally unable to
perform her duties hereunder at any time.
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At any time after the Initial Term, Employee's employment hereunder may be
voluntarily terminated by Employee or Employer upon 30 days prior written notice
by either party to the other, without the payment of severance pay of any kind.
2. COMPENSATION. Commencing on the date hereof and hereafter during
Employee's employment hereunder, Employer shall pay to Employee the compensation
specified on EXHIBIT A hereto, which is hereby incorporated herein by reference.
Employer shall also reimburse Employee for all authorized expenses incurred or
paid by Employee in connection with the performance of Employee's services under
this Agreement upon presentation of expense statements or vouchers and such
other supporting information as Employer may from time to time require or
request.
3. PERFORMANCE. Employee shall devote her entire business efforts to the
performance of her duties hereunder; provided, however, that Employee may engage
in personal investment and charitable activities so long as they do not
interfere with the performance of her duties hereunder. Employee hereby warrants
and represents that her employment, and the performance of her duties as
required by this Agreement, do not violate any agreements or relationships
existing between Employee and any other person.
4. INVENTIONS, DESIGNS AND PRODUCT DEVELOPMENTS. All inventions,
innovations, designs, ideas and product developments, developed or conceived by
Employee, solely or jointly with others, whether or not patentable or
copyrightable, at any time during Employee's employment by Employer or during
her employment by the Abraxas Group of companies prior to the commencement of
the Initial Term and that relate to the business activities of Employer or its
affiliates (collectively, the "DEVELOPMENTS") and all of Employee's right, title
and interest therein, shall be the exclusive property of Employer. The Employee
hereby assigns, transfers and conveys to the Employer all of her right, title
and interest in and to any and all such Developments. At any time and from time
to time, upon the request of Employer, Employee shall execute and deliver to
Employer any and all instruments, documents and papers, give evidence and do any
and all other acts that, in the opinion of counsel for Employer, are or may be
necessary or desirable to document such transfer or to enable Employer to file
and prosecute applications for and to acquire, maintain and enforce any and all
patents, trademark registrations or copyrights under United States or foreign
law with respect to any such Developments or to obtain any extension,
validation, reissue, continuance or renewal of any such patent, trademark or
copyright.
5. ASSIGNMENTS. The rights and obligations under this Agreement of
Employer and Employee may not be assigned, except that Employer may, at its
option, assign one or more of its rights or obligations under this Agreement to
any of its subsidiaries or affiliates, or in connection with a transfer of all
or substantially all of the assets or stock of Employer or a merger or
consolidation of Employer with and into another corporation or other entity;
provided, however, any such assignment shall not relieve Employer of its
obligations hereunder.
6. NOTICES. All notices required to be given under this Agreement shall be
in writing and shall be deemed to have been given when personally delivered or
when mailed by registered or certified mail, postage pre-paid, return receipt
requested, or when sent by Federal Express or other overnight delivery service
addressed (i) in the case of the Employer, to the Employer at its principal
executive offices, to the attention of the Chairman, and (ii) in the case of the
Employee, to the Employee at the Employee's residential address on the records
of the Employer at that time.
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7. REMEDIES; GOVERNING LAW. Employee and Employer acknowledge that damages
are inadequate remedy at law for the breach of the terms hereof and,
accordingly, Employer is hereby granted and shall have the right of injunction
(any requirements for posting of bonds for injunction are hereby expressly
waived) and such other and further relief, both in law and in equity, as
Employer may be entitled to receive under the laws of the State of Texas, in the
event Employee breaches or threatens to breach any of the covenants or
agreements contained herein. In the event any provisions 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 hereof,
and the provisions hereof shall be enforced to the maximum extent allowed by
law. This Agreement shall be governed by the laws of the State of Texas.
8. MISCELLANEOUS. The parties hereto have read the terms and conditions of
this Agreement before signing the same, and hereby agree that no statement,
agreement or understanding, whether oral or written, not contained herein will
be recognized or enforced. This Agreement may not be amended except by a written
agreement executed by Employer or Employee which makes specific reference to
this Agreement.
9. CORNELL GUARANTY. Cornell hereby guarantees the performance of
Employer's obligations under this Agreement.
IN WITNESS WHEREOF, the undersigned have set their hands this 9th day of
September, 1997.
ABRAXAS GROUP, INC.,
a Delaware corporation
By: /s/ STEVEN W. LOGAN
Name: Steven W. Logan
Title: Secretary and Treasurer
"Employer"
/s/ ARLENE LISSNER
Arlene Lissner
"Employee"
CORNELL CORRECTIONS, INC.
By: /s/ STEVEN W. LOGAN
Name: Steven W. Logan
Title: Chief Financial Officer,
Secretary and Treasurer
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EXHIBIT A
(1) Employer shall pay to Employee a salary of $125,000 per annum, payable in
accordance with Employer's customary payroll practices which amount shall
be subject to annual review and salary increases if deemed appropriate by
Employer.
(2) Employee shall participate in all retirement plans and group health,
accident and life insurance plans sponsored by Employer on the same terms
that Employer provides such benefits to its executive officers generally.
Employer agrees to allow Employee four weeks paid vacation at such time as
is mutually satisfactory between Employer and Employee.
(3) Employer shall grant an option to purchase 10,000 shares of the common
stock of Cornell Corrections, Inc., having an exercise price equal to 50%
of the fair market value of Cornell Corrections, Inc. common stock on the
date hereof.
EXHIBIT 10.3
COVENANT NOT TO COMPETE AGREEMENT
(ARLENE LISSNER)
This Covenant Not to Compete Agreement dated September 9, 1997, (this
"Agreement"), is by and between CORNELL CORRECTIONS, INC., a Delaware
corporation (the "Purchaser"), and ARLENE LISSNER ("LISSNER").
1. ACKNOWLEDGMENTS AND AGREEMENTS BY LISSNER. Lissner hereby acknowledges
and agrees that:
(a) The Purchaser would not have purchased the assets pursuant to
the Asset Purchase Agreement dated August 14, 1997 by and among the
Purchaser and the Abraxas Group of companies named therein (collectively,
the "SELLER") if Lissner had not executed and delivered this Agreement to
the Purchaser;
(b) Lissner has had, and throughout the term of Lissner's employment
with the Purchaser will continue to have, access to information that is
confidential to the Purchaser, that constitutes a valuable, special and
unique asset of the Purchaser, and with respect to which the Purchaser is
entitled to the protections afforded by this Agreement and to the remedies
for enforcement of this Agreement provided by law or in equity (including,
without limitation, those remedies the availability of which may be within
the discretion of the court in which any action for enforcement of this
Agreement is brought); and
(c) In consideration of Lissner's non-competition and non-disclosure
agreements set forth herein, the Purchaser will pay Lissner 10 annual
installments of $60,000 each payable on the second day of January
commencing on January 2, 1998. No interest will accrue on any installment.
Payments under this Agreement may be accelerated upon the mutual agreement
of the parties.
2. NON-COMPETITION COVENANTS.
(a) During the period of time that ends on the 20th anniversary of
the date hereof (the "COVENANT PERIOD"), Lissner agrees that she will not,
directly or indirectly, acting alone or as a member of a partnership, as a
holder or owner of any security, as an agent, advisor, consultant to or
representative of any Person, or through any Affiliate:
(i) engage in any business in competition with the Business or
any other business operation of Purchaser or its Affiliates in the
adult or juvenile prison, substance abuse/chemical dependency or
halfway-house construction or management field in the United States;
or
(ii) request that any present or future customer or supplier
of the Purchaser or any of its Affiliates curtail or cancel its
business with Purchaser or any such Affiliate; or
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(iii) induce or attempt to influence any employee of the
Purchaser or any of its Affiliates to terminate his or her
employment with the Purchaser or any such Affiliate, or hire or
retain the services of any such employee, whether as an employee,
consultant, independent contractor or otherwise.
(b) Upon termination of Lissner's employment with Purchaser and its
Affiliates, Lissner may act as an advisor for state and local governmental
mental health and drug and alcohol abuse programs, provided that Lissner
(i) continues to comply with the provisions of this Agreement, including
but not limited to this SECTION 2, (ii) does not direct or advise such
programs to use the services of any competitor of the Purchaser or its
Affiliates, and (iii) does not advise such programs in the development of
facilities or departments which directly or indirectly compete, or will
compete, with Purchaser or its Affiliates.
(c) For purposes of this Agreement:
(i) AFFILIATE: with respect to any Person, shall mean any
Person directly or indirectly controlling, controlled by or under
common control with such Person, and any natural Person who is an
officer, director or partner of such Person. A Person shall be
deemed to control another Person if such Person possesses, directly
or indirectly, the power to direct or cause the direction of the
management and policies of such other Person, whether through the
ownership of voting securities, by contract or otherwise.
(ii) BUSINESS: shall mean the businesses engaged in by Seller,
consisting primarily of owning and operating juvenile correction and
detention facilities.
(iii) PERSON: shall mean any individual, partnership, joint
venture, corporation, limited liability company, association, trust,
unincorporated organization, government or agency or subdivision
thereof or any other entity.
3. CONFIDENTIAL INFORMATION. During the Covenant Period and thereafter,
Lissner shall hold in strict confidence, and shall not disclose to any person
(other than officers, directors, employees, agents and consultants of the
Purchaser) any confidential information of the Purchaser and its Affiliates. For
purposes of this Section 3, the term "CONFIDENTIAL INFORMATION" shall include,
without limitation, trade secrets, client and customer lists, client or
consultant contracts and the details thereof, pricing policies, operational
methods, marketing plans or strategies, business acquisition and expansion
plans, personnel acquisition plans and all other information pertaining to the
business of the Purchaser and its Affiliates that is not publicly available,
including but not limited to confidential information relating to the Business.
Lissner shall not use such confidential information except for the sole benefit
of the Purchaser.
4. PROPERTY OF THE COMPANY AND THE PURCHASER. Promptly upon the
termination of the employment of Lissner with the Purchaser or any Affiliate of
the Purchaser, as the case may be, Lissner shall surrender to the Purchaser all
written materials (and all copies thereof), and all information stored in
computer memories or on microfiche, magnetic tape or diskette, that are at the
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<PAGE>
time in her possession or control and that pertain to the business or affairs of
the Purchaser or its Affiliates.
5. REMEDIES.
(a) The parties hereto hereby agree that if Lissner violates or
threatens to violate any of the provisions of this Agreement, it would be
difficult to determine the entire cost, damage or injury which the
Purchaser and its Affiliates would sustain; accordingly, the Purchaser and
its Affiliates shall have the right to withhold payment of all or any part
of the consideration to be paid to Lissner pursuant to Section 1(c).
Notwithstanding the above, Lissner acknowledges that if she violates or
threatens to violate any of the provisions of this Agreement, the
Purchaser and its Affiliates may have no adequate remedy at law. In that
event, the Purchaser and its Affiliates shall have the right, in addition
to any other rights that may be available to them, to obtain in any court
of competent jurisdiction injunctive relief to restrain any violation or
threatened violation by Lissner of any provision of this Agreement or to
compel specific performance by Lissner of one or more of her obligations
under this Agreement (any requirements for posting of bonds for injunction
are hereby expressly waived). The seeking or obtaining by the Purchaser or
its Affiliates of such injunctive relief shall not foreclose or in any way
limit the right of the Purchaser or its Affiliates to obtain a money
judgment against Lissner for any damage to the Purchaser or its Affiliates
that may result from any breach by Lissner of any provision of this
Agreement.
6. REFORMATION OF COVENANTS. Lissner acknowledges that the covenants
contained in Sections 2 and 3 are reasonable in geographical and temporal scope
and in all other respects. If any court determines that any of such covenants,
or any part thereof, are unenforceable, then (a) the remainder of such covenants
shall not be affected by such determination and (b) those of such covenants that
are determined to be unenforceable because of the duration or scope thereof
shall be reformed by the court to reduce their duration or scope so as to render
the same enforceable against Lissner.
7. MISCELLANEOUS.
(a) SEVERABILITY AND BREACH. The unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement. A material breach of the
contemporaneous Employment Agreement by Abraxas Group, Inc. and/or
Purchaser shall constitute a breach of this Agreement.
(b) WAIVERS. No delay or omission by the Purchaser in exercising any
right of the Purchaser under this Agreement shall operate as a waiver of
that or any other right. A waiver by the Purchaser on any one occasion of
any particular right shall be effective only in that particular instance
and shall not be construed as a waiver of that or any other right on any
other occasion.
(c) AMENDMENT OF THIS AGREEMENT. This Agreement may be amended only
by an amendment hereto in writing that is executed by the Purchaser and
Lissner.
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<PAGE>
(d) HEADINGS FOR CONVENIENCE ONLY. The headings contained in this
Agreement are intended solely for the convenience of the parties to this
Agreement and shall not affect their rights.
(e) NOTICES. All notices and other communications required or
permitted to be delivered pursuant to any provision of this Agreement
shall be in writing and addressed as follows:
(i) If to the Purchaser:
Cornell Corrections, Inc.
4801 Woodway, Suite 100E
Houston, Texas 77056
Attention: Mr. Steven W. Logan
Telecopy No.: (713) 623-2853
With copies (which shall not constitute notice) to:
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
3400 Texas Commerce Tower
Houston, Texas 77002
Attention: Mr. Michael T. Peters
Telecopy No.: (713) 223-3717
(ii) If to Lissner, to her at:
144 N. Dithridge
Pittsburgh, PA 15213
Telecopy No.:__________
With copies (which shall not constitute notice) to:
Obermayer Rebman Maxwell & Hippel, L.L.P.
USX Tower, Suite 4440
600 Grant Street
Pittsburgh, PA 15219
Attention: Marvin S. Lieber
Telecopy No.: (412) 566 1508
The address of either party set forth above may be changed by such
party by delivering notice of such change to the other party to this
Agreement. Any notice mailed shall be deemed to have been given and
received on the third business day following the day of deposit in
the United States mail.
(f) ASSIGNMENTS. The rights and obligations of the parties under
this Agreement may not be assigned, except that the Purchaser may, at its
option, assign one or more of this rights or obligations under this
Agreement to any of its Affiliates or in connection with a
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<PAGE>
transfer of all or substantially all of the assets or stock of Purchaser
or a merger or consolidation of Purchaser with and into another
corporation or other entity; provided, however, any such assignment shall
not relieve Purchaser of its obligations hereunder.
(g) GOVERNING LAW. This Agreement shall be governed by the laws of
the State of Texas.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
CORNELL CORRECTIONS, INC.
By: /s/ STEVEN W. LOGAN
Name: Steven W. Logan
Title: Chief Financial Officer,
Secretary and Treasurer
/s/ ARLENE R. LISSNER
Arlene R. Lissner
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EXHIBIT 10.5
FORM OF
STOCKHOLDERS AGREEMENT
BY AND AMONG
CERTAIN STOCKHOLDERS OF
CORNELL CORRECTIONS, INC.
SEPTEMBER 15, 1997
<PAGE>
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT, executed September __, 1997 but effective as of
the Effective Date, by and among (a) David M. Cornell ("Cornell") and (b)
Concord Partners; Concord Partners II, L.P.; and Concord Partners Japan Limited
(collectively, the "Concord Group"). Cornell and the Concord Group are also
collectively referred to herein as the "Holders."
WITNESSETH:
WHEREAS, the Holders and certain other stockholders of Cornell
Corrections, Inc., a Delaware corporation (the "Company"), entered into that
certain Stockholders Agreement dated as of October 8, 1996 (the "Existing
Stockholders Agreement"), which Existing Stockholders Agreement is anticipated
to terminate in accordance with its terms if a secondary offering (the
"Offering") of the Company's Common Stock is consummated;
WHEREAS, the Holders desire to enter into this Agreement effective as of
the Effective Date;
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree,
effective as of the date hereof, as follows:
Section 1. DEFINITIONS. The following shall have (unless otherwise
provided elsewhere in this Agreement) the following respective meanings (such
meanings being equally applicable to both the singular and plural form of the
terms defined).
"AGREEMENT" means this Stockholders Agreement, including all amendments,
modifications and supplements and any exhibits or schedules to any of the
foregoing, and shall refer to the Agreement as the same may be in effect at the
time such reference becomes operative.
"COMMON STOCK" means the Common Stock, par value $.001 per share, of the
Company.
Section 2. CERTIFICATE OF INCORPORATION; BY-LAWS; DIRECTORS.
(a) The Company has previously furnished to the Holders copies of the
Restated Certificate of Incorporation of the Company and the Amended and
Restated Bylaws of the Company (collectively, the "Charter Documents"). From and
after the date hereof, each Holder shall vote all shares of Common Stock
beneficially held by him or it (including any shares of Common Stock hereafter
acquired or owned by such Holder), at any regular or special meeting of
stockholders of the Company and shall otherwise take all actions necessary to
ensure that the Charter Documents do not, at any time, conflict with the
provisions of this Agreement.
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(b) From and after the date hereof, each Holder shall vote all shares of
Common Stock beneficially held by him or it (including any shares of Common
Stock hereafter acquired or owned by such Holder), at any regular or special
meeting of stockholders of the Company called for the purpose of filling
positions on the Board of Directors of the Company and shall vote for and
otherwise take all actions necessary to ensure that the following members are
elected to the Board of Directors of the Company: (i) one individual designated
by David M. Cornell (the "Cornell Nominee") and (ii) one individual designated
by Concord Group (the "Concord Nominee").
(c) If, prior to his or her election to the Board of Directors of the
Company pursuant to Section 2(b) hereof, any nominee shall be unable or
unwilling to serve as a director of the Company, the entity designating such
nominee shall be entitled to nominate a replacement who shall then be the
Cornell Nominee or Concord Nominee, as the case may be, for the purposes of this
Section 2. If, following election to the Board of Directors of the Company
pursuant to Section 2(b) hereof, any Cornell Nominee or Concord Nominee shall
resign or be removed or be unable to serve for any reason prior to the
expiration of his or her term as a director of the Company, then the person or
entity designating such nominee may, at any time thereafter, notify the other
Holder in writing of a replacement, and the remaining Cornell Nominee and
Concord Nominee, as applicable, and Cornell and Concord Group, shall use their
respective best efforts to elect to the Board of Directors of the Company such
replacement nominee to fill the unexpired term of the prior nominee.
(d) Each Holder hereby agrees to use such Holder's best efforts to call,
or cause the appropriate officers and directors of the Company to call, a
special or annual meeting of stockholders of the Company and to vote all of the
shares of Common Stock owned or controlled by such Holder for the removal (with
or without cause) of any nominee designated and elected pursuant to Section 2(b)
hereof if the person or entity designating such nominee shall have given written
notice to each of the other Holders of its desire to have such nominee removed.
(e) Each Holder hereby agrees that, except as provided in Section 2(d)
hereof, he or it shall not vote to remove any director who is a Cornell Nominee
or Concord Nominee without Cause (as such term is hereinafter defined). For the
purposes of this Section 2(e) only, "Cause" shall mean (i) the commission by a
director of an act of fraud or embezzlement against the Company or any of its
subsidiaries or (ii) a conviction for a felony (or a plea of NOLO CONTENDERE
thereto) or guilty plea of such director with respect to a felony.
(f) In order to effectuate the provisions of this Section 2, the Holders
hereby agree that when any action or vote is required to be taken by such
Holders pursuant to this Agreement, such Holders shall use their respective best
efforts to call, or cause the appropriate officers and directors of the Company
to call, a special or annual meeting of stockholders of the Company, as the case
may be, to effectuate such stockholder action.
Section 3. EFFECTIVE DATE. This Agreement shall become effective only upon
the occurrence of (i) the closing of the Offering and (ii) the termination of
the Existing Stockholders
2
<PAGE>
Agreement. If the Effective Date has not occurred prior to December 31, 1997,
this Agreement shall become null and void and be of no force or effect.
Section 4. TERMINATION.
(a) This Agreement will terminate at the end of the day on October 7,
2000.
(b) This Agreement will terminate (but in no event later than October 7,
2000) if any Holder owns less than 350,000 shares of Common Stock of the
Company. Ownership for such purpose shall be determined in accordance with Rule
13d-3 of the Rules and Regulations under the Securities Exchange Act of 1934, as
amended. Such number of shares of Common Stock shall be proportionately adjusted
to reflect any increase or decrease in the number of issued shares of Common
Stock resulting from a consolidation of shares or the payment of a stock
dividend (but only on the Common Stock), a stock split, a reverse stock split or
any other increase or decrease in the number of such shares effected without
receipt of consideration by the Company.
Section 5. SPECIFIC PERFORMANCE. Each of the Holders acknowledges and
agrees that in the event of any breach of this Agreement, the non-breaching
party or parties would be irreparably harmed and could not be made whole by
monetary damages. It is accordingly agreed that the Holders shall waive the
defense in any action for specific performance that a remedy at law would be
adequate and that the Holders, in addition to any other remedy to which they may
be entitled at law or in equity, shall be entitled to compel specific
performance of this Agreement.
Section 6. MISCELLANEOUS.
(a) 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.
(b) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein, and there are no restrictions, promises, representations, warranties,
covenants, or undertakings with respect to the subject matter hereof, other than
those expressly set forth or referred to herein. This Agreement supersedes all
prior agreements and understandings between the parties hereto with respect to
the subject matter hereof.
(c) NOTICES. Any notice, demand, request, consent, approval, declaration,
delivery or other communication hereunder to be made pursuant to the provisions
of this Agreement shall be sufficiently given or made if in writing and (i)
delivered in person with receipt acknowledged, (ii) sent by registered or
certified mail, return receipt requested, postage prepaid, (iii) sent by
overnight courier with guaranteed next day delivery or (iv) sent by telex or
telecopier to the party to whom directed at the following address:
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1. If to Cornell, to him at:
David M. Cornell
Cornell Corrections, Inc.
4801 Woodway, Suite 100E
Houston, Texas 77056
(713) 623-2853 Facsimile
2. If to any Concord Group entity, to it at:
SBC Warburg Dillon Read Inc.
535 Madison Avenue
New York, New York 10022
Attention: Peter A. Leidel
(212) 308-5107 Facsimile
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, three (3) business days after the same
shall have been deposited in the United States mail, one business day after sent
by overnight courier or on the day telexed or telecopied.
(d) APPLICABLE LAW. The laws of the State of New York shall govern the
interpretation, validity and performance of the terms of this Agreement,
regardless of the law that might be applied under applicable principles of
conflicts of laws.
(e) SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement in any jurisdiction shall not affect the validity, legality or
enforceability of the remainder of this Agreement in such jurisdiction or the
validity, legality or enforceability of this Agreement, including any 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.
(f) SUCCESSOR, ASSIGNS, TRANSFEREES. The provisions of this Agreement
shall be binding upon and accrue to the benefit of the parties hereto and their
respective heirs, successors and permitted assigns.
(g) AMENDMENTS; WAIVERS. This Agreement may not be amended, modified or
supplemented and no waivers of or consent to departures from the provisions
hereof may be given unless consented to in writing by the Concord Group and
Cornell.
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(h) 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.
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement as of the date first above written.
DAVID M. CORNELL
CONCORD PARTNERS
By:
Title:
CONCORD PARTNERS II, L.P.
By:
Title:
CONCORD PARTNERS JAPAN LIMITED
By:
Title:
5
EXHIBIT 10.11
ASSET PURCHASE AGREEMENT
by and among
CORNELL CORRECTIONS, INC.
and
ABRAXAS GROUP, INC., FOUNDATION FOR ABRAXAS, INC.,
ABRAXAS FOUNDATION, INC., ABRAXAS
FOUNDATION OF OHIO AND
ABRAXAS, INC.
Dated as of August 14, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS.......................................................1
SECTION 1.1 ACCOUNTING TERMS. .........................................1
SECTION 1.2 DEFINED TERMS. ............................................1
ARTICLE II CLOSING..........................................................2
SECTION 2.1 CLOSING. ..................................................2
ARTICLE III PURCHASE, SALE AND DELIVERY.....................................2
SECTION 3.1 ACQUISITION ASSETS. .......................................2
SECTION 3.2 EXCLUDED ASSETS............................................5
SECTION 3.3 PURCHASE PRICE.............................................5
SECTION 3.4 ADJUSTMENT AMOUNT. ........................................6
SECTION 3.5 ADJUSTMENT PROCEDURE. ....................................7
SECTION 3.6 ALLOCATION REPORTING. .....................................7
ARTICLE IV LIABILITIES AND OBLIGATIONS......................................8
SECTION 4.1 ASSUMED LIABILITIES. ......................................8
SECTION 4.2 LIABILITIES NOT ASSUMED BY PURCHASER. .....................8
ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLER..........................9
SECTION 5.1 ORGANIZATION; QUALIFICATION. ..............................9
SECTION 5.2 AUTHORITY; ENFORCEABILITY. ...............................10
SECTION 5.3 SUBSIDIARIES. ............................................10
SECTION 5.4 CONFLICTING AGREEMENTS AND OTHER
MATTERS; CONSENTS. .............................................10
SECTION 5.6 FINANCIAL STATEMENTS. ....................................11
SECTION 5.7 NO UNDISCLOSED LIABILITIES. ..............................12
SECTION 5.8 ABSENCE OF CERTAIN CHANGES. ..............................12
SECTION 5.9 CONTRACTS, AGREEMENTS, PLANS AND COMMITMENTS..............13
SECTION 5.10 ACTIONS PENDING. ...................................14
SECTION 5.11 ENVIRONMENTAL. ....................................15
SECTION 5.12 INSURANCE. .........................................17
SECTION 5.13 TITLE. .............................................17
SECTION 5.14 REAL ESTATE.........................................17
SECTION 5.15 SUPPLIES. ..........................................18
SECTION 5.16 ACCOUNTS RECEIVABLE. ...............................18
SECTION 5.17 TAXES. ............................................18
SECTION 5.18 EMPLOYEE BENEFIT PLANS..............................19
SECTION 5.19 EMPLOYEES AND LABOR MATTERS.........................20
SECTION 5.20 INTELLECTUAL PROPERTY RIGHTS. ......................21
SECTION 5.21 RELATIONSHIPS. .....................................21
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SECTION 5.22 CERTAIN PAYMENTS. ..................................22
SECTION 5.23 BOOKS AND RECORDS. .................................22
SECTION 5.24 CONDITION AND SUFFICIENCY OF ASSETS. ...............22
SECTION 5.25 CERTAIN EXPENSES. ..................................22
SECTION 5.26 CLIENT BANK ACCOUNTS. ..............................23
SECTION 5.27 STUDIES, ETC. ......................................23
SECTION 5.28 DISCLOSURE. ........................................23
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER.....................23
SECTION 6.1 CORPORATE EXISTENCE. .....................................23
SECTION 6.2 AUTHORITY; NO CONFLICTS. .................................23
SECTION 6.3 BINDING AGREEMENT. .......................................23
SECTION 6.4 REGULATORY APPROVALS. ....................................24
SECTION 6.5 PENDING LITIGATION........................................24
ARTICLE VII CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES...........24
SECTION 7.1 EMPLOYEES. ..............................................24
SECTION 7.2 TAXES.....................................................25
SECTION 7.3 CONSENTS. ................................................26
SECTION 7.4 TITLE. ..................................................26
SECTION 7.5 SURVEYS. .................................................27
SECTION 7.7 FURTHER ASSURANCES........................................28
SECTION 7.8 MAIL RECEIVED AFTER CLOSING. .............................28
SECTION 7.9 UNCOLLECTIBLE ACCOUNTS RECEIVABLE. .......................28
SECTION 7.10 BILLS AND PAYMENTS RECEIVED AFTER CLOSING...........29
SECTION 7.11 LOSS DUE TO CONDEMNATION. ..........................29
SECTION 7.12 LOSS DUE TO CASUALTY. ..............................29
SECTION 7.13 NOTICE OF ENVIRONMENTAL CLAIMS. ...................30
SECTION 7.14 PROJECT. ..........................................30
SECTION 7.15 SCHEDULES...........................................30
ARTICLE VIII COVENANTS.....................................................31
SECTION 8.1 SELLER'S COVENANTS. ......................................31
SECTION 8.2 PURCHASER'S COVENANTS. ...................................32
ARTICLE IX CONDITIONS TO CLOSING...........................................33
SECTION 9.1 CONDITIONS TO OBLIGATIONS OF PURCHASER.
33
SECTION 9.2 CONDITIONS TO OBLIGATIONS OF SELLER........39
ARTICLE X TERMINATION......................................................40
SECTION 10.1 GROUNDS FOR TERMINATION. ..........................40
SECTION 10.2 EFFECT OF TERMINATION. .............................40
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ARTICLE XI INDEMNIFICATION.................................................41
SECTION 11.1 SELLER'S INDEMNITY OBLIGATIONS. ....................41
SECTION 11.2 PURCHASER'S INDEMNITY OBLIGATIONS. .................42
SECTION 11.3 INDEMNIFICATION PROCEDURES. .......................42
SECTION 11.4 DETERMINATION OF INDEMNIFIED AMOUNTS. ..............44
SECTION 11.5 ESCROW. ............................................44
SECTION 11.6 LIMITATION OF SELLER'S LIABILITY. .................44
SECTION 11.7 LIMITATION OF PURCHASER'S LIABILITY.................44
SECTION 11.8 SELLER TO MAINTAIN EXISTENCE AFTER CLOSING..........45
ARTICLE XII COVENANTS NOT TO COMPETE.......................................45
SECTION 12.1 SELLER'S COVENANTS NOT TO COMPETE. .................45
ARTICLE XIII MISCELLANEOUS.................................................46
SECTION 13.1 COMMISSIONS. ......................................46
SECTION 13.2 SURVIVAL. ..........................................46
SECTION 13.3 EXPENSES. ..........................................47
SECTION 13.4 NOTICES. ...........................................47
SECTION 13.5 ENTIRE AGREEMENT. ..................................48
SECTION 13.6 GOVERNING LAW. .....................................48
SECTION 13.7 ARBITRATION. ......................................48
SECTION 13.8 ASSIGNMENTS AND THIRD PARTIES. .....................49
SECTION 13.9 SEVERABILITY. ......................................49
SECTION 13.10 AMENDMENTS; NO WAIVERS. ............................49
SECTION 13.12 BEQUESTS, DEVISES AND GIFTS. ......................50
SECTION 13.13 NO THIRD PARTY BENEFICIARIES. ......................50
SECTION 13.14 HEADINGS; USE OF CERTAIN TERMS. ....................50
SECTION 13.15 COUNTERPARTS. ......................................50
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EXHIBITS
Exhibit 1.2 Definitions
Exhibit 7.5 Real Property Descriptions
Exhibit 9.1(o) 1997 Projections
Exhibit 9.1(q) Modified Standard Rate Schedules
Exhibit 9.1(s) Purchaser Employee Benefit Plans
SCHEDULES
Schedule 3.1(i) Acquired Property
Schedule 3.1(iv) Assumed Leases
Schedule 3.1(v) Equipment
Schedule 3.1(vi) Motor Vehicles
Schedule 3.1(viii)Contracts
Schedule 3.1 (ix) Accounts Receivable
Schedule 3.1(x) Cash and Investments
Schedule 3.1 (xiv)Permits
Schedule 3.3(b) Retired Debt
Schedule 3.6 Purchase Price Allocation
Schedule 4.1(a) Assumed Liabilities
Schedule 5.4 Conflicting Agreements and Other Matters; Consents
Schedule 5.5(a) No Default; Compliance with Laws and Regulations
Schedule 5.7 No Undisclosed Liabilities
Schedule 5.8 Absence of Certain Changes
Schedule 5.9 Contracts
Schedule 5.10 Actions Pending
Schedule 5.11 Environmental
Schedule 5.12 Insurance
Schedule 5.14 Real Estate
Schedule 5.16 Accounts Receivable
Schedule 5.18 Employee Benefit Plans
Schedule 5.19 Employees and Labor Matters
Schedule 5.20 Intellectual Property Rights
Schedule 5.21 Relationships
Schedule 5.24 Condition and Sufficiency of Assets
Schedule 5.25 Projected Costs
Schedule 5.26 Client Bank Accounts
Schedule 8.2(a) Existing Contracts
Schedule 9.1(v) Additional Positions
Schedule 13.1 Commissions
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "AGREEMENT"), dated August 14, 1997,
is by and between ABRAXAS GROUP, INC., a Pennsylvania nonprofit corporation
("TAG"), FOUNDATION FOR ABRAXAS, INC., a Pennsylvania nonprofit corporation
("FFA"), ABRAXAS FOUNDATION, INC., a Pennsylvania nonprofit corporation ("TAF"),
ABRAXAS FOUNDATION OF OHIO, an Ohio nonprofit corporation ("TAFO"), and ABRAXAS,
INC., a Delaware nonprofit corporation ("AI"), and CORNELL CORRECTIONS, INC., a
Delaware corporation ("PURCHASER"). For purposes of this Agreement, TAG, FFA,
TAF, TAFO and AI are collectively referred to as "SELLER".
WHEREAS, Seller is in the business of operating juvenile treatment
programs and educational programs and/or facilities in Delaware, the District of
Columbia, Ohio and Pennsylvania; and
WHEREAS, Purchaser wishes to purchase from Seller and Seller wishes to
sell, transfer, assign and deliver to Purchaser substantially all of the assets
of Seller on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements stated herein, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto covenant and agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles and on a basis not inconsistent with those applied in the
preparation of the financial statements referred to in SECTION 5.6 hereof.
SECTION 1.2 DEFINED TERMS. As used in this Agreement, other words and
terms have the meanings specified in EXHIBIT 1.2. Other capitalized terms have
the meanings assigned to them elsewhere in this Agreement.
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ARTICLE II
CLOSING
SECTION 2.1 CLOSING. The closing of the purchase and sale provided for
herein (the "CLOSING") shall take place at the offices of Liddell, Sapp, Zivley,
Hill & LaBoon, LLP, 600 Travis, 34th Floor, Houston, Texas 77002, on or before
August 31, 1997, unless extended as provided in SECTION 3.3(a), or at such other
place, time or date as may be agreed upon by the parties hereto. Subject to the
provisions of SECTION 10.1, the failure to consummate the purchase and sale
provided for in this Agreement on the date and time and at the place determined
pursuant to this Section shall not result in the termination of this Agreement
and shall not relieve any party to this Agreement of any obligation hereunder.
For purposes of this Agreement, the date on which the Closing actually occurs is
referred to as the "CLOSING DATE".
ARTICLE III
PURCHASE, SALE AND DELIVERY
SECTION 3.1 ACQUISITION ASSETS. Subject to the terms and conditions of
this Agreement, and on the basis of the representations and warranties
hereinafter set forth, at the Closing, Seller shall sell, transfer, convey,
assign and deliver to Purchaser, and Purchaser shall acquire and purchase from
Seller, subject to SECTION 3.2 hereof, all of the assets, properties and rights
of Seller, including without limitation all of Seller's right, title and
interest in and to the following:
(i) the fee simple interest in and to the properties described on
SCHEDULE 3.1(i) (the "ACQUIRED PROPERTY" or "ACQUIRED PROPERTIES");
(ii) all buildings, structures, fixtures and other improvements
located on the Acquired Properties (the "IMPROVEMENTS");
(iii) all right, title and interest of Seller in and to (i) all
easements, tenements, hereditaments, privileges and appurtenances in any
way belonging to the Acquired Properties and the Improvements, (ii) any
land lying in the bed of any highway, street, road, avenue or access way,
open or proposed, in front of or abutting or adjoining the Acquired
Properties and the Improvements, (iii) the use of all strips and rights of
way, if any, abutting, adjacent, contiguous to or adjoining the Acquired
Properties and the Improvements, and (iv) all other rights and
appurtenances belonging or in any way pertaining thereto including,
without limitation, all water, wastewater and other utility rights and
capacities (the "APPURTENANCES");
(iv) all right, title and interest in, to and under all real
property leases to which Seller is a party as a tenant or lessee on the
Closing Date including, without limitation, those listed on SCHEDULE
3.1(iv) hereto (the "ASSUMED LEASES");
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(v) all of the machinery, equipment, trade fixtures, tools,
furniture, appliances, implements, spare parts, supplies, leasehold
improvements, construction in progress and all other tangible personal
property owned by Seller, or of which Seller has the current possession
and use, on the Closing Date, including, without limitation, those listed
on SCHEDULE 3.1(v) hereto (collectively, the "EQUIPMENT");
(vi) all motor vehicles and rolling stock owned by Seller on the
Closing Date, including, without limitation, those listed on SCHEDULE
3.1(vi) hereto (collectively, the "MOTOR VEHICLES");
(vii) all office supplies, kitchen supplies, laundry supplies,
medical supplies, spare parts, safety equipment, maintenance supplies,
other supplies used or consumed in the Business and other similar items
which exist on the Closing Date (collectively, the "SUPPLIES");
(viii) all right, title and interest in, to and under all contracts
(including, without limitation, all of the fee-for-service, operating and
other contracts of Seller), leases, agreements, equipment or other lease
licenses, government contract awards, management agreements and building
service agreements to which Seller is a party on the Closing Date or by
which any of the Acquisition Assets (as hereinafter defined) are then
bound including, without limitation, those listed on SCHEDULE 3.1(viii)
hereto (collectively, the "CONTRACTS");
(ix) all accounts receivable of Seller and all other rights of
Seller to payment for goods sold or leased or for services rendered,
including, without limitation, those which are not evidenced by
instruments or chattel paper, whether or not they have been earned by
performance or have been written-off or reserved against as a bad debt or
doubtful account in any financial statements, together with all
instruments and all documents of title representing any of the foregoing,
all rights in any merchandise or goods which any of the same represent,
and all rights, title, security and guaranties in favor of Seller with
respect to any of the foregoing (collectively, the "ACCOUNTS RECEIVABLE"),
including, without limitation, those listed on SCHEDULE 3.1(ix) hereto;
(x) with the exception of the Debt Service Reserve Fund (as defined
in SECTION 3.2 below), all cash and investments of Seller which exist at
the Closing Date, including but not limited to those listed on SCHEDULE
3.1(x) hereto;
(xi) all prepaid items, deposits and other similar assets of Seller
which exist at the Closing Date;
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(xii) all cash or cash equivalents representing fund accounts of
Clients ("CLIENT BANK ACCOUNTS");
(xiii) all goodwill and going concern value;
(xiv) all right, title and interest in all licenses, permits,
applications, registrations, exemptions, notices of intent, franchises,
consents, waivers, variances, authorizations, approvals and orders issued
by any federal, state, municipal or other Governmental Authority
(collectively, the "PERMITS") relating to the Acquisition Assets or the
Business, including, without limitation, those listed on SCHEDULE 3.1(xiv)
hereto;
(xv) all patents, patent applications, processes, shop rights,
formulas, brand names, trade secrets, servicemarks, tradenames,
trademarks, copyrights, intellectual property, drawings, and any similar
items and related rights owned by or licensed to Seller, together with any
goodwill associated therewith and all rights of action on account of past,
present and future unauthorized use or infringement thereof, including,
without limitation, the use of the names "Abraxas," "The Abraxas School,"
"The Abraxas Group, Inc.," "The Abraxas Group," and all derivations
thereof;
(xvi) all rights under express or implied warranties from the
suppliers of Seller with respect to the Acquisition Assets, to the extent
they are assignable;
(xvii) all books, records, papers and instruments of whatever nature
and wherever located that are in the possession or control of Seller, that
relate to the Business or the Acquisition Assets or which are required or
necessary in order for Purchaser to conduct the Business from and after
the Closing Date in the manner in which it is presently being conducted,
including, without limitation, blueprints of the Improvements, if any,
accounting and financial records relating to the Contracts, maintenance
records, environmental records, analytical data and reports,
correspondence with Governmental Authorities relating to the Business,
supplier lists and other supplier data relating to the purchase of
supplies, notices of claims or demands by third parties, and confidential
information relating to the Business;
(xviii) all personnel files and other materials relating to
employees of Seller who are to be offered employment by Purchaser as
contemplated by SECTION 7.1 hereof;
(xix) all records of compliance and noncompliance with the laws,
regulations, ordinances and orders applicable to the Acquisition Assets or
the Business;
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(xx) all right, title and interest in, to and under all rights,
privileges, claims, causes of action, and options relating or pertaining
to the Acquisition Assets or the Business;
(xxi) all insurance policies relating to the Acquisition Assets, the
Business and any underlying property on which the Business is or has been
conducted and rights to make claims under any such current or prior
insurance policy; and
(xxii) subject to the exclusions set forth in SECTION 3.2 hereof,
all other or additional privileges, rights, interests, properties and
assets of every kind and description and wherever located that are used or
intended for use in connection with, or that are necessary to the
continued conduct of, the Business as presently conducted.
Subject to SECTION 3.2 hereof, all of the assets referenced in this
SECTION 3.1 are collectively referred to as the "ACQUISITION ASSETS"
SECTION 3.2 EXCLUDED ASSETS. Notwithstanding SECTION 3.1 hereof, Seller is
not selling and Purchaser is not purchasing pursuant to this Agreement any of
the following, all of which shall be retained by Seller (collectively, the
"EXCLUDED ASSETS"):
(a) the following accounts determined as of Closing, (i) the replacement
reserve with respect to the urban redevelopment authority mortgage (which amount
equaled $20,320 as of December 31, 1996) (the "REPLACEMENT RESERVE"), (ii) the
long term investment account with respect to the urban redevelopment authority
mortgage (which amount equaled $200,752 as of December 31, 1996) (the "LONG TERM
INVESTMENT ACCOUNT"), (iii) the debt service reserve fund (which amount equaled
$1,255,321 as of December 31, 1996), (iv) the sinking fund (which amount equaled
$412,484 as of December 31, 1996), and (v) the unexpended fund proceeds (which
amount equaled $524,747 as of December 31, 1996) (which accounts listed in (i)
through (v) above are collectively referred to as the "DEBT SERVICE RESERVE
FUND"). Any similar funds, proceeds or accounts in addition to those listed in
the preceding sentence shall be included in Acquisition Assets purchased by
Purchaser pursuant to this Agreement;
(b) any minute books, tax returns and similar corporate documents; and
(c) all employee benefit plans (as defined in ERISA) and all other similar
benefit plans, programs, arrangements or commitments (whether written of oral)
of Seller; PROVIDED, HOWEVER, that Purchaser shall make available to the
employees of Seller hired by Purchaser participation in any employee benefit
plan which Purchaser offers to its employees generally, subject to the terms of
such plan.
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SECTION 3.3 PURCHASE PRICE. The aggregate consideration for the purchase
of the Acquisition Assets and Seller's covenants set forth in ARTICLE XII
hereof, shall be $18,083,250 LESS the Adjustment Amount, if any, calculated
pursuant to SECTIONS 3.4 and 3.5 (as adjusted, the "PURCHASE PRICE") consisting
of and payable in accordance with the following:
(a) Prior to the execution of this Agreement, Purchaser delivered to
Seller the sum of $250,000 to serve as an option fee (including any additional
amounts paid pursuant to this SECTION 3.3(a) and interest on the aggregate
amount thereof, the "OPTION FEE"), which has been and shall remain segregated
from other Seller assets and deposited in an interest bearing account. Purchaser
may extend the Closing Date to September 30, 1997 by paying to Seller an
additional $50,000 on or before August 31, 1997. Any additional extensions shall
be subject to the written consent of Seller, which will not be unreasonably
withheld. The amounts paid pursuant to this Section (together with interest
thereon) shall be part of the Option Fee, and such amounts shall be subject to
the same terms of refundability and application against the Purchase Price as
the original $250,000 Option Fee. The Option Fee shall be applied against the
Purchase Price at Closing.
(b) At the Closing, (i) Seller shall use the entire Debt Service Reserve
Fund to prepay the indebtedness of Seller described on SCHEDULE 3.3(b) and (ii)
Purchaser shall pay directly to the applicable creditors the balance of the
amounts listed on SCHEDULE 3.3(b) after application of the Debt Service Reserve
Fund. The entire amount of the indebtedness (principal and interest) paid by
Seller and Purchaser at Closing and described on SCHEDULE 3.3(b) is referred to
in this Agreement as the "RETIRED DEBT" and the amount paid by Purchaser at
Closing shall be applied against the Purchase Price as set forth in SECTION
3.3(d) below.
(c) Upon the terms and subject to the conditions hereof, at the Closing,
Purchaser shall pay $1,200,000 (the "ESCROWED PURCHASE PRICE") of the Purchase
Price to an escrow agent mutually acceptable to Purchaser and Seller (the
"ESCROW AGENT"), to be held by the Escrow Agent and disbursed by the Escrow
Agent in accordance with the terms and conditions of the Escrow Agreement, in a
form reasonably agreed to by the parties (the "ESCROW AGREEMENT"), to be
executed by Purchaser and Seller at the Closing.
(d) Upon the terms and subject to the conditions hereof, at the Closing
and in full satisfaction of the Purchase Price, Purchaser shall pay to Seller an
amount equal to the Purchase Price LESS (i) the Option Fee, (ii) the Retired
Debt paid by Purchaser at Closing on behalf of Seller pursuant to SECTION 3.3(b)
above, (iii) the Escrowed Purchase Price, (iv) the Transaction Expenses paid by
Seller prior to Closing, (v) an amount equal to the sum of the Replacement
Reserve and Long Term Investment Account, and (vi) any other payments of
principal or prepayments of interest on indebtedness of Seller included within
the Retired Debt made after June 30, 1997, by wire transfer to an account
designated in writing by Seller or by a cashier's check made payable to Seller,
as determined by Purchaser.
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SECTION 3.4 ADJUSTMENT AMOUNT. The "ADJUSTMENT AMOUNT" shall be equal to
$1.00 for every $1.00 Net Working Capital is less than $5,664,592.
For purposes of this Agreement, "NET WORKING CAPITAL" shall mean total
current assets included within the Acquisition Assets MINUS total current
liabilities (excluding all Retired Debt) included within the Assumed
Liabilities, as determined in accordance with generally accepted accounting
principles and, to the extent consistent with such principles , on a basis
consistent with prior years.
SECTION 3.5 ADJUSTMENT PROCEDURE.
(a) Seller shall prepare, within 90 days following the Closing Date, a
balance sheet (the "CLOSING DATE BALANCE SHEET") of Seller as of the Closing
Date, including a listing of the Acquisition Assets and Assumed Liabilities and
a computation of Net Working Capital as of such date. The Closing Date Balance
Sheet shall be prepared in accordance with generally accepted accounting
principles and, to the extent consistent with such principles, on a basis
consistent with prior years. If, within 15 days following delivery of the
Closing Date Balance Sheet to Purchaser, Purchaser has not objected in writing
thereto, then the Net Working Capital reflected therein shall be utilized in
computing the Adjustment Amount. If Purchaser shall object in writing to the
computation, then Seller and Purchaser shall negotiate in good faith and attempt
to resolve their disagreement. Should such negotiations not result in an
agreement within 20 days, then the matter will be submitted to a mutually agreed
national accounting firm as is jointly selected by Purchaser and Seller (the
firm accepting the engagement being referred to as the "ACCOUNTING ARBITER"),
whose decision with respect thereto shall be final and binding on the parties in
all respects, except that Seller may withdraw from the transaction if the
Purchase Price is adjusted in favor of Purchaser by an amount in excess of
$3,000,000 unless Purchaser agrees to limit the Adjustment Amount to $3,000,000.
Fees and expenses incurred in preparing the Closing Date Balance Sheet shall be
borne by Seller and shall not be reflected as an expense in the Closing Date
Balance Sheet; provided, however, to the extent necessary, Purchaser shall make
its financial staff at its Pittsburgh, Pennsylvania offices available to Seller
free of charge. Fees and expenses incurred by Purchaser and their auditors in
reviewing the Closing Date Balance Sheet shall be borne by Purchaser. The fees
of any Accounting Arbiter shall be borne equally by Purchaser and Seller.
(b) On the tenth business day following the final determination of the
Adjustment Amount, Seller shall pay the Adjustment Amount to the Purchaser in
immediately available funds, which shall be a joint and several obligation of
each Seller.
(c) For purposes of determining Net Working Capital and due to the parties
agreement that the Transaction Expenses be subtracted from the Purchase Price in
SECTION 3.3(D) above, any paid and any accrued and unpaid Transaction Expenses
shall not be considered current liabilities.
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SECTION 3.6 ALLOCATION REPORTING. Unless otherwise agreed in writing by
Purchaser and Seller, (i) SCHEDULE 3.6 hereto sets forth the allocations
established by Purchaser and Seller of the Purchase Price and the Assumed
Liabilities (as hereinafter defined) (and any other items constituting
consideration paid by Purchaser or received by Seller in connection with the
disposition of the Acquisition Assets) among the Acquisition Assets; (ii) the
allocations set forth on SCHEDULE 3.6 hereto will be used by Purchaser and
Seller as the basis for reporting asset values and other items for purposes of
all required Tax Returns (including any Tax Returns required to be filed under
Section 1060(b) of the Code and the Treasury regulations thereunder); and (iii)
Purchaser and Seller shall not assert, in connection with any audit or other
proceeding with respect to Taxes, any asset values or other items inconsistent
with the allocations set forth on SCHEDULE 3.6 hereto.
ARTICLE IV
LIABILITIES AND OBLIGATIONS
SECTION 4.1 ASSUMED LIABILITIES. In addition to the consideration
specified in SECTION 3.3, and subject to SECTION 4.2 hereof, at the Closing,
Purchaser shall assume, pay, perform and discharge solely the following:
(a) the trade accounts payable and accrued liabilities of Seller incurred
in the normal course of operations, as of the Closing Date, to the extent (i)
recorded on the books of Seller and set forth on SCHEDULE 4.1(a) and (ii)
included in the calculation of Net Working Capital for purposes of SECTIONS 3.4
and 3.5 above; and
(b) any commitments arising after the Closing Date pursuant to the
Contracts (provided that the rights thereunder have been duly and effectively
assigned to Purchaser).
The liabilities referenced in SECTIONS 4.1(a) and 4.1(b) above are
collectively referred to as the "ASSUMED LIABILITIES."
SECTION 4.2 LIABILITIES NOT ASSUMED BY PURCHASER. Except as expressly
provided in SECTION 4.1 hereof, Purchaser does not assume or agree to pay,
perform or discharge, and shall not be responsible for, any other liabilities or
obligations of Seller of any nature whatsoever, whether accrued, absolute,
contingent or otherwise, including, without limitation, liabilities or
obligations based on, arising out of or in connection with the following
(collectively, the "EXCLUDED LIABILITIES"):
(a) any indebtedness (whether short-term or long-term) for borrowed money,
together with all interest thereon, including but not limited to the Retired
Debt;
(b) any Taxes for which Seller is liable (taking into account the
provisions of SECTION 7.2(a) hereof);
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(c) any prepayment penalties or other liabilities related to retiring or
extinguishing any indebtedness of Seller including, without limitation, the
Retired Debt;
(d) any liabilities arising out of or in connection with periods or
activity prior to the Closing Date related to OSHA, EEOC, EPA or any other
Governmental Authority, or any violation of law, and any unrecorded liabilities
or contingencies that are not expressly identified on SCHEDULE 4.1(a);
(e) any liability or obligation (contingent or otherwise) of Seller
arising out of any claim, litigation, or proceeding threatened or pending on or
before the Closing Date or any claim, litigation, or proceeding threatened or
initiated after the Closing Date to the extent based on an act or omission of
Seller or any current or former officer, director, employee, agent or
representative of Seller, or the operation of the Business and/or Acquisition
Assets occurring before the Closing Date, whether or not set forth on SCHEDULE
5.10;
(f) any claims or conditions arising under or relating to Environmental
Laws or similar legal requirements attributable or relating to the Acquisition
Assets (including, without limitation, the operation thereof) or the business of
Seller, including any liability or obligation resulting from Environmental Laws
with respect to the Business Property arising after the Closing Date resulting
from, caused by or related to any act or omission of Seller or any current or
former officer, director, employee, agent, representative, tenant or invitee of
Seller which occurred prior to the Closing Date, or the continuation of
practices or operations with respect to the Acquisition Assets or the Business
Property, that were occurring or in effect on or prior to the Closing Date;
(g) any liability arising out of or in connection with Seller's defective
performance of any Contract or any express or implied warranty with respect to
performance of any Contract prior to the Closing Date;
(h) any unpaid Transaction Expenses;
(i) any liability or obligation arising out of any employee benefit plan
(as defined in ERISA) and all other similar benefit plans, programs,
arrangements or commitments (whether written or oral) of Seller;
(j) any contingent or unknown liability of Seller; and
(k) any liability or obligation under or in connection with or related to
the Excluded Assets.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller, jointly and severally, represents, warrants and agrees to and with
Purchaser as follows:
SECTION 5.1 ORGANIZATION; QUALIFICATION. TAG is a nonprofit corporation
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. FFA is a nonprofit corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania. TAF is a nonprofit corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of Pennsylvania. TAFO is
a nonprofit corporation duly organized, validly existing and in good standing
under the laws of the State of Ohio. AI is a nonprofit corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Seller has heretofore delivered to Purchaser true, correct and
complete copies of its articles of incorporation and bylaws, each as amended or
restated through the date of this Agreement. Seller has all requisite power and
authority to own and operate its assets and properties and to carry on its
business and the Business as it is now being conducted. Seller is duly licensed
or qualified as a foreign entity to do business and is in good standing in all
jurisdictions wherein the character of the properties owned or held by it or the
nature of the business transacted by it requires it to be so licensed or
qualified.
SECTION 5.2 AUTHORITY; ENFORCEABILITY. Seller has all requisite corporate
power and authority to enter into this Agreement. All necessary action on the
part of Seller has been taken to authorize the execution and delivery of this
Agreement, the performance of its obligations hereunder and the consummation of
the transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Seller. This Agreement constitutes, as of the date
hereof, and this Agreement and all documents and instruments required hereunder
to be executed and delivered by Seller at or prior to Closing will constitute,
on the Closing Date, legal, valid and binding obligations of Seller enforceable
against Seller in accordance with their terms, subject to the effect of any
applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting creditors' rights generally.
SECTION 5.3 SUBSIDIARIES. Seller does not have any Subsidiaries, nor does
Seller hold any equity interest in or control (directly or indirectly, through
the ownership of securities, by contract, by proxy, alone or in combination with
others, or otherwise) any corporation, limited liability company, partnership,
business organization or other Person, except that Seller, as defined in this
Agreement, is a group of five related entities, pursuant to which the parent
corporation is the sole corporate member of the other corporations and, as such,
exercises voting power and direct control over such corporations.
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SECTION 5.4 CONFLICTING AGREEMENTS AND OTHER MATTERS;
CONSENTS. Seller is not a party to any contract or agreement or subject to any
charter or other corporate restriction which materially and adversely affects
its business, property or financial condition as of the date hereof. Except as
set forth on SCHEDULE 5.4 hereto, the execution and delivery of this Agreement
does not, the fulfillment of or compliance with the terms and provisions hereof
will not, and the consummation of the transactions contemplated hereby will not:
(a) violate or conflict with any provision of, or require any notice,
consent, authorization or approval under, the articles of incorporation or
bylaws of Seller;
(b) violate or conflict with any provision of, or require any filing,
consent, authorization or approval under, any Permit, law or administrative
regulation or any judicial, administrative or arbitration order, award,
judgment, writ, injunction or decree applicable to or binding upon Seller or to
which Seller's assets or properties are subject; or
(c) conflict with, result in a material breach of, constitute a material
default under (whether with notice or the lapse of time or both), accelerate or
permit the acceleration of the performance required by, or require any consent,
authorization or approval under, (i) any mortgage, indenture, deed of trust,
loan or credit agreement or any other agreement or instrument evidencing
indebtedness for money borrowed to which Seller is a party or by which Seller is
bound or to which Seller's properties are subject or (ii) any material lease,
license, contract or other agreement or instrument to which Seller is a party or
by which Seller is bound or to which Seller's assets or properties are subject.
SECTION 5.5 NO DEFAULT; COMPLIANCE WITH LAWS AND REGULATIONS.
(a) Except as set forth on SCHEDULE 5.5(a) and except where such default
would not have a Material Adverse Effect, Seller is not in default under, and no
condition exists that with notice or lapse of time or both would constitute a
default under, (i) any mortgage, indenture, deed of trust, loan or credit
agreement, or any other agreement or instrument evidencing indebtedness or
borrowed money to which Seller is a party or by which Seller or any of its
properties is bound, (ii) any judgment, order or injunction of any court or
Governmental Authority or (iii) any other agreement, contract, lease or license,
including but not limited to the Contracts and the Assumed Leases.
(b) Except where such violation would not have a Material Adverse Effect,
Seller is not in violation of any law, regulation, order, judgment or decree of
any federal or state court or Governmental Authority applicable to its business
or operation.
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(c) Except where failure to hold a permit would not have a Material
Adverse Effect, Seller holds all Permits as are necessary to carry on its
business and the Business as currently conducted in compliance with all
applicable laws rules, regulations and decisions of Governmental Authorities
having jurisdiction over Seller, the Business and the Acquisition Assets. Seller
is not in violation of any such Permit. All such Permits are in full force and
effect, and no written or oral notice of suspension, revocation or cancellation
thereof has been threatened, and Seller is fully authorized, subject to the
approval of the licensing agencies, to assign to Purchaser such Permits. To the
Best Knowledge of Seller, upon assignment of the Permits to Purchaser, such
Permits will not impose any restrictions, limitations, terms or conditions that
were not in effect prior to such assignment.
SECTION 5.6 FINANCIAL STATEMENTS. Seller has heretofore furnished
Purchaser with the following financial statements: (a) the audited balance
sheets of Seller as of June 30 in each of the fiscal years ending June 30, 1995
and 1996, and the related income statements for the years then ended, and (b) an
unaudited balance sheet of Seller as of December 31, 1996 and the related income
statement for the six months ending December 31, 1996. Such financial statements
(including any related schedules and notes) are true, complete and correct, and
fairly present the financial position of Seller as of their respective dates and
the results of operations of Seller for the periods therein indicated, and were
prepared in accordance with generally accepted accounting principles and, to the
extent consistent with such principles, on a basis consistent with prior years.
Except for ordinary and customary liabilities that have arisen in the ordinary
course of business of Seller since December 31, 1996, Seller does not have any
liabilities or obligations of any nature (absolute, accrued, contingent or
otherwise) that are not reflected in the Balance Sheet. The projections set
forth on EXHIBIT 9.1(o) are based upon assumptions that management of Seller
made in good faith and believes are reasonable.
SECTION 5.7 NO UNDISCLOSED LIABILITIES. Except as set forth on SCHEDULE
5.7, there is no existing, contingent or threatened liability, obligation, Lien
or claim of any nature (absolute, accrued, contingent or otherwise) that relates
to the Business or has been asserted or threatened to be asserted against
Seller, other than liabilities arising after the date of the Balance Sheet in
the ordinary course of business consistent with past practice.
SECTION 5.8 ABSENCE OF CERTAIN CHANGES. Except as disclosed on SCHEDULE
5.8 hereto, since the date of the Balance Sheet there has not been:
(a) any material adverse change in the business, financial condition,
properties, prospects, net worth or results of operations of Seller;
(b) any material damage, destruction or loss suffered by Seller, whether
covered by insurance or not;
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(c) any change by Seller in tax methods, principles or elections or in
accounting methods or principles that would be required to be disclosed under
generally accepted accounting principles;
(d) any sale, lease or other disposition of properties and assets of
Seller, other than those in the ordinary course of business consistent with past
practices;
(e) any merger or consolidation of Seller with any other Person or any
acquisition by Seller of the stock or business of another Person;
(f) any borrowing, agreement to borrow funds or guaranty by Seller or any
termination or amendment of any evidence of indebtedness, contract, agreement,
deed, mortgage, lease, license or other instrument to which Seller is bound or
by which Seller or any of its properties is bound other than in the ordinary
course of business and consistent with past practices;
(g) any cancellation of debt by Seller or waiver of any claim or right of
substantial value to Seller;
(h) any increase in the compensation payable or to become payable by
Seller to the directors, officers or employees of Seller, any increase in
benefits or benefit plan costs or any increase in any bonus, insurance,
compensation or other benefit plan made for or with or covering any directors,
officers or employees of Seller;
(i) any employment, consulting, severance or indemnification agreement
entered into or made by Seller with any of its employees, or any collective
bargaining agreement or other obligation to any labor organization incurred or
entered into by Seller;
(j) the creation or imposition of any Lien, other than a Permitted
Encumbrance, on any of the Acquisition Assets;
(k) any reduction in accruals or reserves, except to the extent of related
cash payments or other reductions consistent with past practice;
(l) any write-up or write-down of the value of Seller's assets, except for
write-ups or write-downs in accordance with generally accepted accounting
principles and in the ordinary course of business and consistent with past
practice;
(m) the making of any capital expenditure or commitments therefor in
excess of $10,000 in the aggregate;
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(n) any amendment to the articles of incorporation or bylaws of Seller;
(o) any contract bid for an amount in excess of $10,000;
(p) any contract or commitment to do any of the foregoing;
(q) any principal payment due or paid on any of the Retired Debt with the
exception of the payment made on April 1, 1997 in the aggregate amount of
$60,000 and the payment made in June, 1997, in the aggregate amount of $63,750;
or
(r) any imposition of any new or additional restriction, limitation, term
or condition under any Permit or any Environmental Law.
SECTION 5.9 CONTRACTS, AGREEMENTS, PLANS AND COMMITMENTS.
SCHEDULE 5.9 hereto sets forth a complete list of the following contracts,
agreements, plans and commitments to which Seller is a party or by which Seller
or any of its properties is bound as of the date hereof:
(a) any contract, commitment or agreement that involves aggregate
expenditures by Seller of more than $10,000 per year;
(b) any contract or agreement (including any such contracts or agreements
entered into with any Governmental Authority) relating to the maintenance or
operation of the Business that involves aggregate expenditures by Seller of more
than $10,000 per year;
(c) any indenture, loan agreement or note under which Seller has
outstanding indebtedness, obligations or liabilities for borrowed money;
(d) any lease or sublease for the use or occupancy of real property,
including but not limited to the Assumed Leases;
(e) any agreement that restricts the right of Seller to engage in any type
of business;
(f) any guarantee, direct or indirect, by any Person of any contract,
lease or agreement entered into by Seller;
(g) any partnership, joint venture or construction and operation
agreement;
(h) any agreement of surety, guarantee or indemnification with respect to
which Seller is the obligor, outside of the ordinary course of business;
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(i) any contract that requires Seller to pay for goods or services
substantially in excess of its estimated needs for such items or the fair market
value of such items;
(j) any contract, agreement, agreed order or consent agreement that
requires Seller to take any actions or incur expenses to remedy non-compliance
with any Environmental Law; and
(k) any other contract material to the Business. True, correct and
complete copies of each of such contracts, agreements, plans and commitments
have been delivered to or made available for inspection by Purchaser. All such
contracts, agreements, plans and commitments (i) were duly and validly executed
and delivered by Seller and, to the best knowledge of Seller, the other parties
thereto and (ii) are valid and in full force and effect. Seller has fulfilled
all material obligations required of Seller under each such contract, agreement,
plan or commitment to have been performed by it prior to the date hereof,
including timely paying all interest on its debt, including but not limited to
the Retired Debt, as such interest has become due and payable. Except as set
forth on SCHEDULE 5.9, there are no counterclaims or offsets under any of such
contracts, agreements, plans and commitments. The assignment of the Contracts
will vest in Purchaser the right to operate the Business and Acquisition Assets
under the terms of the Contract and to use the Acquisition Assets in the manner
currently operated and used by Seller. Set forth on SCHEDULE 5.9 is a listing of
all Contracts which have expired and all Contracts which have been renewed since
December 31, 1996.
SECTION 5.10 ACTIONS PENDING. Except as set forth on SCHEDULE 5.10 hereto,
there is no action, claim, suit, investigation or proceeding pending or, to the
best knowledge of Seller, threatened against Seller, the Acquisition Assets, the
Business, the Business Property or involving any properties or rights of Seller
by or before any court, arbitrator or Governmental Authority. There is no
action, claim, suit, investigation or proceeding pending or threatened against
Seller which purports to affect the validity or enforceability of this Agreement
or that seeks to prohibit, restrict or delay the consummation of the
transactions contemplated hereby or that reasonably may be expected to have a
Material Adverse Effect on Seller or its assets or property. SCHEDULE 5.10 sets
forth a summary description (including the cost to Seller of each such lawsuit
(including any settlements or judgments paid by Seller) and the amount, if any,
covered by insurance) of all current and prior lawsuits (which were filed or
resolved within the last three years) by or against Seller or any of Seller's
Affiliates.
SECTION 5.11 ENVIRONMENTAL. Except as set forth on SCHEDULE 5.11 and
without in any manner limiting any other representations and warranties set
forth in this Agreement:
(a) Neither Seller, nor the Acquisition Assets, nor any Business Property,
is in violation of, or has violated, or has been or is in non-compliance with,
any Environmental Laws in connection with the ownership, use, maintenance,
operation of, or conduct of the Business or any Business Property.
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(b) Without in any manner limiting the generality of (a) above:
(i) Except in compliance with Environmental Laws (including, without
limitation, by obtaining necessary Permits) and to the Best Knowledge of
Seller, no Materials of Environmental Concern have been used, generated,
extracted, mined, beneficiated, manufactured, stored, treated, or disposed
of, or in any other way released (and no release is threatened), on, under
or about any Business Property or transferred or transported to or from
any Business Property, and to the Best Knowledge of Seller, no Materials
of Environmental Concern have been generated, manufactured, stored,
treated or disposed of, or in any other way released (and no release is
threatened), on, under, about or from any property adjacent to any
Business Property;
(ii) Seller is not, as a result of the operation or condition of the
Business, the Acquisition Assets, or any Business Property on or prior to
the Closing Date, subject to any: (a) contingent liability in connection
with any release or threatened release of any Materials of Environmental
Concern into the environment whether on or off any Business Property; (b)
reclamation, decontamination or Remediation requirements under
Environmental Laws, or any reporting requirements related thereto; or (c)
consent order, compliance order or administrative order relating to or
issued under any Environmental Law;
(iii) There are no Environmental Claims known, pending or threatened
against Seller, the Acquisition Assets, or any of the Business Properties;
(iv) Seller and all of its current Business Properties, to the Best
Knowledge of Seller, have all Permits necessary to comply with all
Environmental Laws and have made all capital improvements necessary for
compliance with all Environmental Laws (including, without limitation, for
compliance with all Permits), and operation of Seller's Business and each
Business Property is in compliance in all material respects with all terms
and conditions of such required Permits;
(v) To the Best Knowledge of Seller, there are no, nor have there
ever been any, storage tanks or solid waste management units (not exempt
from permit requirements) located on or under any Business Property of
Seller, and there are no Materials of Environmental Concern in, under or
on any Business Property in an amount exceeding naturally occurring
background levels for such geographic area or which would require
reporting to any Governmental Authority or Remediation to comply with the
most stringent requirements of Environmental Laws;
(vi) To the Best Knowledge of Seller, none of the off-site locations
where Materials of Environmental Concern generated from any Business
Property or for which Seller has arranged for treatment, storage, or
disposal has been nominated or identified as
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a facility requiring Remediation which is subject to an existing or
potential claim under Environmental Laws;
(vii) Seller has not been named as a potentially responsible party
under, and no Business Property has been nominated or identified as a
facility which is subject to an existing or potential claim under CERCLA
or similar Environmental Laws, and no Business Property is subject to any
claim or lien arising under Environmental Laws;
(viii) Seller has not received any notice of any release or
threatened release of Materials of Environmental Concern, or of any
violation of, noncompliance with, or remedial obligation under,
Environmental Laws or Permits, relating to the ownership, use,
maintenance, operation of the Business, the Acquisition Assets or any
Business Property, nor is there any basis for any of the foregoing, nor
has Seller voluntarily undertaken Remediation or other decontamination or
cleanup of any facility or site or entered into any agreement for the
payment of costs associated with such activity;
(ix) Seller is not aware of any requirement of any Environmental
Laws that will require future compliance costs on the part of Seller in
excess of Ten Thousand Dollars ($10,000) above costs currently expended in
the ordinary course of business;
(x) Seller has filed all notices, notices of intent, notifications,
financial security, waste managements plans, waste generation reports,
Form R and chemical inventory reports, or other applications and documents
which are required to be obtained or filed by Seller for the lawful
operation of the Business or the use or operation of any Business
Property; and
(xi) To the Best Knowledge of Seller, no current Business Property
(or equipment thereon) contains any asbestos containing materials or
polychlorintated biphenyls in any form nor any wetland areas or other land
subject to restricted development under Environmental Laws.
(c) No improvements or alterations been made to any Business Property
without a Permit where one was required, nor is there any unfulfilled order
directive of any applicable Governmental Authority or casualty insurance company
that any work of investigation, Remediation, repair, maintenance or improvement
required to be performed on the Business Property;
(d) With regard to any Business Property, there is no unfulfilled
requirement that any environmental impact statement (or similar document) be
prepared by or filed with any Governmental Authority to evaluate its impact on
the environment; and
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(e) To the Best Knowledge of Seller, there is no consent necessary or
application required to be filed under any Environmental Law to transfer the
Acquisition Assets.
SECTION 5.12 INSURANCE. SCHEDULE 5.12 hereto sets forth a list of all
insurance policies owned by Seller by which Seller or any of its properties or
assets is covered against present losses, all of which are now in full force and
effect. No insurance has been refused with respect to any operations, properties
or assets of Seller nor has coverage of any insurance been limited by any
insurance carrier that has carried, or received any application for, any such
insurance during the last three years. No insurance carrier has denied any
claims made against any of the policies listed on SCHEDULE 5.12 hereto.
SECTION 5.13 TITLE. Seller has good and marketable title to its personal,
tangible and intangible properties and assets, including such properties and
assets reflected in the Balance Sheet and, except as noted in the financial
statements and the notes thereto delivered pursuant to SECTION 5.6 hereof, said
properties and assets are not subject to any Lien, other than Permitted
Encumbrances. Seller has not received any written notice of any material adverse
claim that has not been satisfied with respect to its title to any material
Permit, right-of-way, easement or lease on or under which any of its facilities
are located. Seller enjoys peaceful and undisturbed possession under all
material Permits or leases under which it is operating, and all such Permits and
leases are valid, subsisting and in full force and effect with respect to the
Seller and to the knowledge of Seller, with respect to the other parties
thereto.
SECTION 5.14 REAL ESTATE.
(a) SCHEDULE 5.14 hereto contains an accurate and complete list of all
real property owned in whole or in part by Seller as part of or related to the
Business (including but not limited to the Business Property), and includes the
name of the record title holder thereof and a list of all indebtedness secured
by any Lien thereon. Seller has good and marketable title in fee simple to all
the real property owned by it, free and clear of any Lien, except for Permitted
Encumbrances. None of the buildings, structures or appurtenances (or any
equipment therein) located on any such currently owned or operated real
property, nor the operation or maintenance thereof, violates in any respect any
restrictive covenant, or encroaches on any property owned by others. No
condemnation proceeding is pending or, to the knowledge of Seller, threatened
which would preclude or impair in any material respect the use of such real
property by Seller for the purpose for which it is currently used.
(b) SCHEDULE 5.14 hereto sets forth a list and summary description
(including property location, parties and annual rental payments) of all leases,
subleases, management agreements and other agreements as part of or related to
the Business under which Seller is lessor or lessee of, or uses or occupies or
allows the use or occupancy of, any real property, including but not limited to
the Assumed Leases. All such leases, subleases and other agreements are valid
and subsisting and in full force and effect
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(c) The real and leased property listed on SCHEDULE 5.14 (i) has full and
free access to and from highways, streets and roads and there is no proceeding
pending or, to the knowledge of Seller, threatened that could result in the
termination of or material limitations on such access (ii) is connected to and
serviced by utilities and public services all of which are adequate for the use
of the real property listed thereon as the Business is currently conducted, and
(iii) is zoned, platted and permitted for use in the manner in which it is
currently being used. Seller has not experienced during the three years
preceding the date hereof any material interruption in the delivery of adequate
quantities of any utilities (including, without limitation, electricity, natural
gas, potable water, water for cooling or similar purposes and fuel oil) or other
public services (including, without limitation, sanitary and industrial sewer
service) required in the operation of the Business during such period and no
such material interruption is, to the knowledge of Seller, threatened.
SECTION 5.15 SUPPLIES. The Supplies of Seller are of a quantity and
quality that have been normal for Seller in the ordinary course of business of
Seller and are owned by Seller free and clear of any Liens. Seller neither
records nor maintains a supplies inventory on its books.
SECTION 5.16 ACCOUNTS RECEIVABLE. All accounts receivable reflected on the
Balance Sheet represent sales actually made in the ordinary course of business
and are fully collectible (within six months after the Closing Date) except as
reflected in the reserve for doubtful accounts in the Balance Sheet, including
but not limited to the $1.5 million of receivables which have been fully
reserved as further described on SCHEDULE 5.16 (the "PAST DUE RECEIVABLES"). The
reserve for doubtful accounts reflected in the Balance Sheet has been determined
in accordance with generally accepted accounting principles and on a basis
consistent with prior years.
SECTION 5.17 TAXES.
(a) Seller has provided Purchaser with true and correct copies of all Tax
Returns, if any, of Seller for the past five years.
(b) Seller has caused to be duly filed in a timely manner with the
appropriate Governmental Authorities all Tax Returns required to be filed by or
with respect to the Business or the Acquisition Assets and has caused to be paid
or deposited all Taxes (including estimated Taxes) required with respect to the
periods covered by such Tax Returns or by any taxing authority. All Taxes
required to be collected or withheld with respect to the Business or the
Acquisition Assets have been duly collected or withheld, and all Taxes with
respect to the Business or the Acquisition Assets required under generally
accepted accounting principles to be accrued on the financial statements of
Seller have been so accrued
(c) No liens with respect to Taxes exist, and Seller has no reason to
expect that any lien with respect to Taxes will arise, on or with respect to the
Business or the Acquisition Assets, except for liens imposed by law and incurred
in the ordinary course of business for obligations
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not yet due. No extension of time is in effect with respect to the date on which
any Tax Return is to be filed by or with respect to the Business or the
Acquisition Assets. There are no outstanding agreements or waivers extending the
period for assessment or collection of any Taxes relating to the ownership or
operation of the Business or the Acquisition Assets.
(d) Except as set forth on SCHEDULE 5.17(D), there is no pending action,
proceeding or investigation, and, no action, proceeding or investigation has
been threatened by any Governmental Authority, for assessment or collection of
Taxes with respect to the Business or the Acquisition Assets. No claim for
assessment or collection of Taxes has been asserted during the past five years
and no actual or proposed assessment has been made with respect to Taxes
relating to the ownership or operation of the Business or the Acquisition
Assets.
SECTION 5.18 EMPLOYEE BENEFIT PLANS.
(a) Each Plan and each Benefit Program (defined in SECTION 5.18(b)(iv)
below) is listed on SCHEDULE 5.18 hereto. No Plan or Benefit Program is or has
been (i) covered by Title IV of ERISA, (ii) subject to the minimum funding
requirements of Section 412 of the Code or (iii) a "multi-employer plan" as
defined in Section 3(37) of ERISA, nor has Seller contributed to, or ever had
any obligation to contribute to, any multi-employer plan. Each Plan and Benefit
Program intended to be qualified under Section 401(a) of the Code is designated
as a tax-qualified plan on SCHEDULE 5.18 and is so qualified. No Plan or Benefit
Program provides for any retiree health benefits for any employees or dependents
of the Seller other than as required by COBRA. There are no claims pending with
respect to, or under, any Plan or any Benefit Program, other than routine claims
for benefits, and there are no disputes or litigation pending or, to the
knowledge of Seller, threatened, with respect to any such Plans or Benefit
Programs.
(b) Seller has heretofore delivered to Purchaser true and correct copies
of the following, if any:
(i) each Plan and each Benefit Program listed on SCHEDULE 5.18, all
amendments thereto as of the date hereof and all current summary plan
descriptions provided to employees regarding the Plans and Benefit
Programs;
(ii) each trust agreement and annuity contract (or any other funding
instruments) pertaining to any of the Plans or Benefit Programs, including
all amendments to such documents to the date hereof;
(iii) each management or employment contract or contract for
personal services and a complete description of any understanding or
commitment between Seller and any officer, consultant, director, employee
or independent contractor of Seller; and
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(iv) a complete description of each other plan, policy, contract,
program, commitment or arrangement providing for bonuses, deferred
compensation, retirement payments, profit sharing, incentive pay,
commissions, hospitalization or medical expenses or insurance or any other
benefits for any officer, consultant, director, annuitant, employee or
independent contractor of Seller as such or members of their families
(other than directors' and officers' liability policies), whether or not
insured (a "BENEFIT PROGRAM").
(c) Each Plan and Benefit Program has been maintained and administered in
compliance with its terms and in accordance with all applicable laws, rules and
regulations. Seller has no commitment or obligation to establish or adopt any
new or additional Plans or Benefit Programs or to increase the benefits under
any existing Plan or Benefit Program.
(d) Except as set forth in SCHEDULE 5.18, neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby will (i) result in any payment to be made by Seller,
including, without limitation, severance, unemployment compensation, golden
parachute (defined in Section 280G of the Code) or otherwise, becoming due to
any employee of Seller, or (ii) increase any benefits otherwise payable under
any Plan or any Benefit Program.
SECTION 5.19 EMPLOYEES AND LABOR MATTERS.
(a) Seller has provided Purchaser with a true and complete list dated as
of June 30, 1997 (the "EMPLOYEE SCHEDULE ") of all employees of Seller listing
the title or position held, base salary or wage rate and any bonuses,
commissions, profit sharing, Seller's vehicles, club memberships or other
compensation or perquisites payable, all employee benefits received by such
employees and any other material terms of any written agreement with Seller. As
of the date of this Agreement and as of the Closing Date, the combined projected
annual payroll for the calendar year ending December 31, 1997 of Seller required
to operate the Business is not materially different from that as listed on the
Employee Schedule, and Seller has not entered into any agreement or agreements
pursuant to which the combined annual payroll of Seller, including projected pay
increases, overtime and fringe benefit costs, required to operate the Business
(including all administrative and support personnel) would be greater than as
listed on the Employee Schedule. Set forth on SCHEDULE 5.19 is a detailed
description of all health, dental, life and disability insurance plans of Seller
and a description of the cost per employee under each such plan for individual
coverage as well as for coverage of such employee's dependents.
(b) Except as set forth on SCHEDULE 5.19, Seller is not a party to or
bound by any written employment agreements or commitments, other than on an at
will basis. Seller is in compliance with all applicable laws respecting the
employment and employment practices, terms and conditions of employment and
wages and hours of its employees and is not engaged in any unfair labor
practice. All employees of Seller who work in the United States are lawfully
authorized to work in the United States according to federal immigration laws.
There is no labor
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strike or labor disturbance pending or, to the knowledge of Seller, threatened
against Seller with respect to the Business and, during the past five years,
Seller has not experienced a work stoppage with respect to the Business.
(c) Except as set forth on SCHEDULE 5.19, (i) Seller is not a party to or
bound by the terms of any collective bargaining agreement or other union
contract applicable to any employee of Seller and no such agreement or contract
has been requested by any employee or group of employees of Seller, nor has
there been any discussion with respect thereto by management of Seller with any
employees of Seller, (ii) Seller is not aware of any union organizing activities
or proceedings involving, or any pending petitions for recognition of, a labor
union or association as the exclusive bargaining agent for, or where the purpose
is to organize, any group or groups of employees of Seller, or (iii) there is
not currently pending, with regard to any of its facilities, any proceeding
before the National Labor Relations Board, wherein any labor organization is
seeking representation of any employees of Seller.
SECTION 5.20 INTELLECTUAL PROPERTY RIGHTS. Except as set forth on SCHEDULE
5.20, all patents, trademarks (whether registered or not), trade names, computer
software, copyrights and patent or know-how licenses (wherein Seller is either
licensee or licensor) and any other intellectual property of Seller (the
"INTELLECTUAL PROPERTY RIGHTS") are lawfully owned, possessed or used by Seller,
as the case may be. No past due royalties or other payments subsequent to the
Closing Date are or will be required to be paid to any Person who is the
licensor under such license agreements as they currently exist, and Seller is
not now nor upon consummation of the transactions contemplated hereby will be in
default in any obligation with respect to any agreement with others concerning
the Intellectual Property Rights. There is no existing or threatened
infringement, misuse or misappropriation by others of the Intellectual Property
Rights; there is no pending or threatened claim by Seller against others for any
such infringement, misuse or misappropriation; and there is no pending judicial
proceeding involving any claim, and Seller has not received any notice or claim
of any infringement, misuse or misappropriation by Seller of any patent,
trademark, trade name, copyright, Intellectual Property Rights license or
similar right owned by any third party during the past five years.
SECTION 5.21 RELATIONSHIPS. Except as set forth on SCHEDULE 5.21, the
Seller has not received notice from any supplier or from any party to any
Contract involving more than $10,000 annually with Seller (each a "CONTRACT
PARTY"), during the past two years that such supplier or Contract Party intends
to discontinue doing business with Seller, and no supplier or Contract Party
during the past two years has indicated any intention (a) to terminate its
existing business relationship with Seller or (b) not to continue its business
relationship with Seller, whether as a result of the transactions contemplated
hereby or otherwise. Seller has not entered into any related party transaction
during the past year. The consummation of the transactions contemplated in this
Agreement, including but not limited to assignment of the Contracts by Seller to
Purchaser, will not affect Purchaser's rights to any previous grants to, or
contracts with Seller, except as related to school breakfast, lunch and food
stamp programs in an
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annual amount not to exceed $850,000, and except to the extent such grants are
reflected in the records of Seller as an accrued liability.
SECTION 5.22 CERTAIN PAYMENTS. Neither Seller nor any officer, director or
employee of Seller has paid or received or caused to be paid or received,
directly or indirectly, in connection with the business of Seller (a) any bribe,
kickback or other similar payment to or from any domestic or foreign government
or agency thereof or any other Person or (b) any contribution to any domestic or
foreign political party or candidate (other than from personal funds of such
officer, director or employee not reimbursed by Seller or as permitted by
applicable law).
SECTION 5.23 BOOKS AND RECORDS. The corporate minute books, and other
corporate records of Seller are correct and complete in all material respects
and the signatures appearing on all documents contained therein are the true
signatures of the person purporting to have signed the same. All actions
reflected in said books and records were duly and validly taken in compliance
with the laws of the applicable jurisdiction and no meeting of the board of
directors of Seller or any committee thereof has been held for which minutes
have not been prepared and are not contained in the minute books. To the extent
that they exist, all personnel files, reports, strategic planning documents,
financial forecasts, accounting and tax records and all other records of every
type and description that relate to the business of Seller have been prepared
and maintained in accordance with good business practices and, where applicable,
in conformity with generally accepted accounting principles and applicable laws
and regulations. All such books and records are located in the offices of
Seller.
SECTION 5.24 CONDITION AND SUFFICIENCY OF ASSETS. Except as set forth on
SCHEDULE 5.24, the Improvements and Equipment are structurally sound, are in
good operating condition and repair (subject to normal wear and tear) and are
adequate for the uses to which they are being put, and Seller is not aware that
any of such Improvements or Equipment is in need of maintenance or repairs
except for ordinary, routine maintenance and repairs that are not material in
nature or cost. Except as set forth on SCHEDULE 5.24, the Improvements,
Equipment and Motor Vehicles reflected in the Balance Sheet (except any such
tangible property disposed of since December 31, 1996 in the ordinary course of
business) or acquired since December 31, 1996 by Seller constitute all of the
operating assets held for use or used in connection with Seller's business other
than those disposed of in the ordinary course of business, and are sufficient
for the continued conduct of the Business at the Closing in substantially the
same manner as conducted prior to the Closing.
SECTION 5.25 CERTAIN EXPENSES. The projected costs as determined under
generally accepted accounting principles to Seller to operate the Business
during the fiscal year 1997 as listed on SCHEDULE 5.25 are reasonable based on
historical financial data.
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SECTION 5.26 CLIENT BANK ACCOUNTS. SCHEDULE 5.26 lists each of the Client
Bank Accounts.
SECTION 5.27 STUDIES, ETC. Seller has provided to Purchaser all studies,
reports, plans, analyses or similar documents (including all drafts thereof and
whether prepared by Seller's employees or others) in their possession or control
relating to Materials of Environmental Concern and Environmental Laws or
relating to the Business, any Business Property and the Improvements.
SECTION 5.28 DISCLOSURE. To the best knowledge of Seller, there is no fact
known to Seller that has specific application to Seller (other than general
economic or industry conditions) that would have a Material Adverse Effect that
has not been set forth in this Agreement or in the Schedules attached hereto.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants that:
SECTION 6.1 CORPORATE EXISTENCE. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is duly qualified to transact business in all jurisdictions wherein
the nature of its business or ownership of its assets require such
qualification.
SECTION 6.2 AUTHORITY; NO CONFLICTS. Purchaser has all requisite corporate
power to carry on its business as presently conducted, to enter into this
Agreement and to perform its other obligations under this Agreement. The
consummation of the transactions contemplated by this Agreement will not
violate, or be in conflict with, any provision of Purchaser's charter, bylaws,
any agreement or instrument to which Purchaser is a party or by which Purchaser
is bound or any law applicable to Purchaser. Prior to Closing, the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby will have been duly and validly authorized by all requisite corporate
action on the part of Purchaser. There is no action, claim, suit, arbitration,
investigation or proceeding pending or threatened against Purchaser which
purports to affect the validity or enforceability of this Agreement or that
seeks to prohibit, restrict or delay the consummation of the transactions
contemplated hereby.
SECTION 6.3 BINDING AGREEMENT. This Agreement constitutes, as of the date
hereof, and this Agreement and all documents and instruments required hereunder
to be executed and delivered by Purchaser at Closing will constitute, on the
Closing Date, legal, valid and binding obligations of Purchaser enforceable
against Purchaser in accordance with their respective terms, subject to the
effect of any applicable bankruptcy, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally.
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SECTION 6.4 REGULATORY APPROVALS. Except with respect to Purchaser's
applications for required licenses or permits, no filings or other regulatory
approvals are required to be filed or obtained by Purchaser in connection with
the execution, delivery and performance by Purchaser of this Agreement prior to
the consummation of the transactions contemplated herein.
SECTION 6.5 PENDING LITIGATION. There is no action, claim, suit,
investigation or proceeding pending, or, to the best knowledge of Purchaser,
threatened against Purchaser which purports to affect the validity or
enforceability of this Agreement or that seeks to prohibit, restrict, delay or
enjoin the consummation of the transactions contemplated hereby.
ARTICLE VII
CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES
SECTION 7.1 EMPLOYEES.
(a) Purchaser may, but shall not be obligated to, offer employment to any
of the employees of the Seller with the exception of Arlene Lissner and Tom
Jenkins. Seller will not solicit, or endeavor to solicit, after the Closing Date
any employee or discourage any such person from accepting such employment with
Purchaser. Seller has not made any representations or promises, oral or written,
to employees of Seller concerning employment by Purchaser.
(b) Purchaser shall not be responsible for any costs, obligations or
liabilities which may result from the termination of employment by Seller of any
employee of the Business not hired by Purchaser as of the first payroll date
after the Closing; provided, however, Purchaser shall be responsible for and
shall assume any and all costs, obligations or liabilities directly related to
the termination by Purchaser of any employee of the Business who is hired by
Purchaser on or after the Closing Date solely to the extent that such costs,
obligations or liabilities relate directly to the period beginning with the
hiring of such employee by Purchaser and ending with such termination by
Purchaser. Purchaser makes no representation with respect to the comparability
of Purchaser's employee benefits to those offered by Seller. Purchaser
specifically disclaims any obligation to remunerate employees of Seller who,
following the Closing Date, will be employed by Purchaser, at levels comparable
to the aggregate remuneration provided to such employees while employed by
Seller. Prior to the Closing Date, Seller shall have taken all necessary actions
to comply with the Worker Adjustment and Retraining Notification Act (the "WARN
ACT") to the extent it is subject to the WARN Act, and Purchaser shall not have
any disclosure or announcement obligations or any other responsibilities under
the WARN Act as a result of the transactions contemplated by this Agreement.
(c) Seller shall take such actions as it deems appropriate to terminate,
modify, alter or amend the existing Plans or Benefit Programs with respect to
employees of the Business due to the transactions contemplated by this
Agreement. Purchaser does not and shall not assume any of such Plans or Benefit
Programs, including, without limitation, any severance plans of Seller.
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(d) Except for obligations, if any, expressly included within the Assumed
Liabilities, Seller shall be solely responsible for and shall pay in full to all
of Seller's employees all compensation, bonuses and other payments, and all sick
pay, vacation pay, and any other benefits otherwise payable under the Benefit
Programs, accrued to the Closing for which Seller is obligated thereunder, and
Seller shall satisfy all such obligations to such employees.
(e) Seller will retain responsibility for, and continue to pay, all
hospital, medical, life insurance, disability, supplemental unemployment and all
other welfare plan expenses and benefits for each Seller employee hired by
Purchaser (and covered dependents) with respect to claims incurred by such
employee or their covered dependent prior to the Closing. Seller will retain
responsibility for, and continue to pay, any life, health or other welfare
benefits payable to each former employee of Seller who terminated employment
with Seller (and their dependents) prior to the Closing in respect of claims
incurred on their behalf prior to the Closing. For purposes of this paragraph, a
claim is deemed incurred when the event that first gave rise to the claim
occurred, notwithstanding the fact that such benefits may be paid at a
subsequent date.
(f) Seller is responsible for any liabilities that may arise with respect
to application of Section 4980B of the Internal Revenue Code of 1986 or Part 6
of Subtitle B of Title I of ERISA ("COBRA") with respect to any of its employees
or covered dependents as a result of the transactions contemplated by this
Agreement, as well as for any prior COBRA violations which occurred prior to
Closing. Purchaser is not a successor employer for COBRA purposes.
(g) Purchaser is not, and shall not be deemed to be, a successor employer
to Seller with respect to any Plans or Benefit Programs; and no plan or other
program adopted or maintained by Purchaser after the Closing is or shall be
deemed to be a "successor plan", as such term is defined in ERISA or the Code,
of any such Plan or Benefit Program.
SECTION 7.2 TAXES.
(a) LIABILITY FOR TAXES. Subject to SECTION 7.2(d) hereof, Seller shall be
liable for, and shall indemnify and hold Purchaser and its Affiliates harmless
from, (i) all Taxes that are imposed on or incurred by Seller, (ii) all Taxes
that are imposed on or incurred with respect to the Acquisition Assets or the
Business for any taxable period ending on or before the Closing Date, except to
the extent that accruals were made therefor at December 31, 1996 and such Taxes
are included in the Assumed Liabilities, (iii) a portion, determined as
described below, of any Taxes that are imposed on or incurred with respect to
the Acquisition Assets or the Business for any taxable period beginning prior to
and ending after the Closing Date ("STRADDLE PERIOD") which is allocable to the
period ending on or before the Closing Date, but not otherwise, (iv) any Taxes
payable as a result of a breach by Seller of any of the representations set
forth in SECTION 5.17 hereof, and (v) any attorneys' fees or other costs
incurred by Purchaser or its Affiliates in connection with any payment from
Seller under this SECTION 7.2(a). The determination of the portion of any Taxes
imposed on or incurred with
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respect to the Acquisition Assets or the Business for a Straddle Period which is
allocable to the period ending on or before the Closing Date shall be made, in
the case of ad valorem, property or similar Taxes, if any, which are not
measured by or based upon production, or franchise or capital Taxes which are
not measured by or based upon net income, by allocating such Taxes on a per diem
basis, and, in the case of all other Taxes, by assuming that the period ending
on or before the Closing Date constitutes a separate taxable period and by
taking into account the actual taxable events occurring during such period.
(b) TAX RETURNS. Seller shall be responsible for the preparation and
filing of any Tax Return relating to the Acquisition Assets or the Business that
is originally due on or before the Closing Date. Purchaser shall be liable for
the preparation and filing of all other Tax Returns that relate to the
Acquisition Assets or the Business.
(c) RIGHT TO REFUNDS. If Seller, on the one hand, or Purchaser, on the
other hand, receives a refund of any Taxes for which the other is liable, then
the party receiving such refund shall, within 10 days after its receipt, remit
it to the other party.
(d) RECAPTURE AND TRANSFER TAXES. Notwithstanding any other provisions
set forth herein, Seller and Purchaser shall each be liable for and pay one-half
of any transfer and recapture taxes incurred by Seller and/or Purchaser relating
to the sale by Seller of the Acquired Property and Improvements to Purchaser as
contemplated in this Agreement.
(e) OTHER TAXES. Except as expressly set forth in SECTION 7.2(d) above,
Seller shall be liable for and pay, and shall indemnify and hold Purchaser
harmless from all transfer, sales, use, gross receipts, stamp, value added,
excise, or similar Taxes imposed on or relating to the sale or transfer of the
Acquisition Assets or the Business.
SECTION 7.3 CONSENTS. Seller shall use best efforts to procure all
consents, novations, approvals or waivers in a form reasonably satisfactory to
Purchaser which must be obtained by Seller pursuant to this Agreement or which
are necessary to assign the Contracts and transfer any other Acquisition Assets
to Purchaser. At the Closing, Purchaser may, but shall not be obligated to,
elect to close the transactions contemplated hereby, notwithstanding the fact
that Seller may have failed to obtain consents to the transfer.
SECTION 7.4 TITLE.
(a) Seller has caused Chicago Title Company (the "TITLE COMPANY"), to
furnish Purchaser a Commitment for Title Insurance (the "COMMITMENT") from the
Title Company addressed to Purchaser covering (i) each Acquired Property and the
Improvements and (ii) each Assumed Lease requested by Purchaser, pursuant to
which the Title Company shall commit to issue to Purchaser an Owner's Policy of
Title Insurance (the "TITLE POLICY"), together with legible copies of all
instruments described in the Commitment evidencing defects in, exceptions or
objections to or encumbrances upon title to each Acquired Property and the
Improvements.
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Seller and Purchaser shall each bear one-half of all costs associated with the
Commitment and Title Policy.
(b) Seller shall have provided Purchaser with a report of searches made of
the Uniform Commercial Code Records in jurisdictions determined by Purchaser in
the name of Seller (the "UCC SEARCHES"), evidencing any Liens relating thereto
granted by Seller. Seller and Purchaser shall each bear one-half of all costs
associated with the UCC Searches.
(c) Purchaser shall have 15 business days following receipt of the later
of the Commitment provided for in this SECTION 7.4 and the Survey provided for
in SECTION 7.5 hereof to deliver to Seller its written objections to any matters
reflected in the Commitment or the Survey. Any such matters which are not
objected to by Purchaser within said 15 business days shall all be considered
Permitted Encumbrances. Seller shall in good faith diligently work to have the
title and survey exceptions raised by Purchaser, other than the Permitted
Encumbrances, cured or removed to the reasonable satisfaction of Purchaser
within 15 days after Purchaser notifies Seller in writing of such exceptions or
objections. If Seller fails to cure or satisfy such objections for any reason
within such time period, Purchaser may either (i) accept conveyance of title to
the Acquired Properties, the Improvements and the Assumed Leases subject to such
uncured matters and proceed with the Closing contemplated herein (in which event
all such matters shall be deemed Permitted Encumbrances), or (ii) give written
notice to Seller electing to terminate this Agreement pursuant to ARTICLE X
hereof.
SECTION 7.5 SURVEYS. Seller has caused surveys (the "SURVEYS") of (i) each
of the Acquired Properties and (ii) each of the Properties which are the subject
of Assumed Leases as requested by Purchaser, to be made by a licensed surveyor.
The Surveys shall be acceptable to Purchaser and the Title Company and shall
contain a certification in favor of Purchaser and the Title Company that the
Surveys are correct and accurate and that the Properties are free of
encroachments, except as shown, the form and content of which certification
shall be approved by the Purchaser and the Title Company. For purposes of the
description of the land to be included in the deeds to be delivered pursuant to
SECTION 9.1(e) hereof, the descriptions prepared by the surveyor shall control
any conflicts or inconsistencies with the descriptions of the Properties on
EXHIBIT 7.5 hereto, and such descriptions shall be deemed to be incorporated
into this Agreement upon its completion and approval by Purchaser. Seller and
Purchaser shall each bear one-half of all costs associated with the Surveys.
SECTION 7.6 ENVIRONMENTAL DUE DILIGENCE. Seller hereby grants to
Purchaser, and its counsel, accountants, consultants and other representatives,
such access to its respective business facilities (whether owned, operated, or
leased), personnel and records (including without limitation for purposes of
conducting site inspections, asbestos surveys, or sampling and analyses of soil,
groundwater or other media) as Purchaser may reasonably request, including for
the purpose of conducting an investigation of the (a) compliance of Seller and
any of its Business Properties with applicable Environmental Laws, and (b) the
exposure to, presence, release, or any aspect of management, handling, or use of
Materials of Environmental
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Concern at any such facility ("ENVIRONMENTAL DUE DILIGENCE"). If the Closing
under this Agreement does not occur, Seller shall cause, at its expense, (x) any
investigation-derived waste generated or created in connection with performance
of the Environmental Due Diligence (including without limitation, drill
cuttings, purged or developed water, or sample remnants) to be disposed in
compliance with applicable Environmental Laws, and (y) any wells or borings
installed during the Environmental Due Diligence to be plugged and abandoned.
Seller shall be responsible for executing on its own behalf any and all
manifests, shipping documents, plugging and abandoning reports and similar
documents in connection with its obligations hereunder, and Seller agrees to
indemnify and hold Purchaser harmless from and against any and all claims,
liabilities, damages and causes of action arising out of its failure to fulfill
such obligations hereunder. Seller shall provide to Purchaser copies of all (a)
Permits, (b) reports or results of all inspections, audits, assessments, and
analytical data and (c) such other information as Purchaser may reasonably
request in the possession or control of Seller regarding any of Seller's current
or prior business facilities or operations and relating to (i) compliance with
applicable requirements of Environmental Laws or (ii) the exposure to, presence,
release, or any aspect of management, handling, or use of Materials of
Environmental Concern.
SECTION 7.7 FURTHER ASSURANCES. Seller and Purchaser shall execute and
deliver to the other, at the Closing or thereafter, any other instrument which
may be requested by the other and which is reasonably appropriate to perfect or
evidence any of the sales, assignments, transfers or conveyances contemplated by
this Agreement or to transfer any Acquisition Assets identified after the
Closing or to obtain any consents or licenses necessary for Purchaser to operate
the Business in the manner operated by Seller prior to Closing.
SECTION 7.8 MAIL RECEIVED AFTER CLOSING. Following the Closing,
Purchaser may receive and open all mail addressed to Seller and, to the extent
that such mail and the contents thereof relate to the Business or the
Acquisition Assets, deal with the contents thereof in its discretion. Purchaser
shall notify Seller of (and provide Seller copies of the relevant portions of)
any mail that obliges Seller to take any action or indicates that action may be
taken against Seller. To the extent that such mail and the contents thereof do
not relate to the Business or the Acquisition Assets, such mail and the contents
thereof shall be promptly forwarded to Seller at Seller's address for notices
set forth in SECTION 13.4, or at such other address as may be designated in
writing by Seller.
SECTION 7.9 UNCOLLECTIBLE ACCOUNTS RECEIVABLE. Seller, jointly and
severally, will indemnify Purchaser for 75% of any accounts receivable included
in the Acquisition Assets (other than the Past Due Receivables) that Purchaser,
using its reasonable efforts, is unable to collect within 180 days after the
Closing Date. The Seller shall indemnify the Purchaser for the remaining 25% of
the account receivables including in the Acquisition Assets (other than the Past
Due Receivables) that Purchaser, using its reasonable efforts, is unable to
collect within one year after the Closing Date. Seller shall pay Purchaser
pursuant to Seller's obligations under this SECTION 7.9 within 30 business days
after written notice from Purchaser of the amount Seller owes Purchaser pursuant
to this SECTION 7.9. After receipt of
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payment from Seller for the full amount for any Uncollectible Accounts
Receivable, Purchaser shall assign the rights and interests to such
Uncollectible Accounts Receivable to Seller.
SECTION 7.10 BILLS AND PAYMENTS RECEIVED AFTER CLOSING. Purchaser
shall promptly send Seller any bills or other notices that payment is due that
Purchaser receives after Closing related to obligations of Seller not assumed by
Purchaser under this Agreement, and Seller shall timely pay such bills or other
debts on or before the date that such bills are due. Seller shall promptly send
Purchaser any bills or other notices that payment is due that Seller receives
after Closing related to obligations of Seller expressly assumed by Purchaser
under this Agreement, and Purchaser shall timely pay such bills or other debts
on or before the date that such bills are due. Seller and Purchaser shall each
promptly send to the other any payments received by them after Closing that is
an asset of the other.
SECTION 7.11 LOSS DUE TO CONDEMNATION. In the event of a condemnation
proceeding commenced on or before the Closing Date with respect to all or any
material portion of any of the Acquired Properties or the Improvements,
Purchaser may, upon written notice to Seller given within 10 days of receipt of
written notice of such event, terminate this Agreement pursuant to ARTICLE X of
this Agreement. In the event that Purchaser does not elect to terminate, then
this Agreement shall remain in full force and effect, and the transaction hereby
contemplated shall close in accordance with the terms and conditions of this
Agreement except that Seller shall assign to Purchaser at Closing all of
Seller's rights and interests in and to any condemnation awards which have been
paid or are or become payable to Seller.
SECTION 7.12 LOSS DUE TO CASUALTY. In the event of a Substantial Loss or
damage (defined below) to any of the Acquired Properties or the Improvements by
fire or other casualty prior to the Closing Date, Purchaser may, upon written
notice to Seller within 10 days of receipt of written notice of such event,
terminate this Agreement pursuant to ARTICLE X of this Agreement. In the event
that Purchaser does not elect to terminate, then this Agreement shall remain in
full force and effect, and the transaction hereby contemplated shall close in
accordance with the terms and conditions of this Agreement except that Seller
may elect, with the consent of Purchaser, such consent not to be unreasonably
withheld, to repair the damaged property or improvement prior to Closing. In the
event Seller elects not to repair the property, Seller shall assign to Purchaser
at Closing all of Seller's rights and interests in and to any insurance proceeds
which have been or are or become payable to Seller as a result of such damage or
loss, less reasonable costs and attorneys fees of Seller in connection therewith
plus the amount of the deductible delivered to Purchaser in cash. "SUBSTANTIAL
LOSS OR DAMAGE" shall mean a loss or damage of 10% or more of the square footage
of the Improvements or material damage to a particular Acquired Property or
Improvement which results in the loss of the use thereof for a period exceeding
six months. In the event of a loss or damage arising prior to the Closing Date
that constitutes less than a Substantial Loss or damage by fire or other
casualty, Purchaser shall not have the right to terminate this Agreement
pursuant to this SECTION 7.12; HOWEVER, Seller shall assign to Purchaser at
Closing all of Seller's rights and interests in and to any
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insurance proceeds which have been or are or become payable to Seller as a
result of such damage or loss.
SECTION 7.13 NOTICE OF ENVIRONMENTAL CLAIMS. In Seller shall give prompt
written notice to Purchaser of the commencement of any Environmental Claim, or
inspection by any Governmental Authority with responsibility for enforcing or
implementing any applicable Environmental Laws, and provide to Purchaser such
information as Purchaser may reasonably request regarding such Environmental
Claim, any developments in connection therewith, and, as applicable, Seller's
anticipated or actual response thereto.
SECTION 7.14 PROJECT. Purchaser shall use its commercially reasonable
efforts to complete the efforts of Seller and bring the successful commencement
of operations of the new 250-bed juvenile detention facility. For purposes of
this paragraph "successful commencement of operations" shall be deemed to have
occurred when (i) the facility has been opened and is operating, (ii) a fee for
service contract has been signed with appropriate governmental agencies, and
(iii) the facility maintains an average occupancy of at least 90% for a
consecutive 60 day period. In the event the "successful commencement of
operations" does not occur within three years from the Closing Date, the
Purchase Price shall be reduced by $500,000 and said amount shall be due and
paid by Seller, jointly and severally, to Purchaser. Notwithstanding any other
provision in this SECTION 7.14, in the event that Purchaser determines in good
faith that the requirements for successful commencement of operations will not
occur within the parameters set forth herein or that the cost and per diem
structure as reasonably agreed upon exceeds that which would otherwise make the
project economically feasible or desirable to Purchaser and Arlene Lissner
concurs in such determination (which concurrence will not be unreasonably
withheld), Purchaser's obligations under this SECTION 7.14 shall cease and
Seller shall promptly pay Purchaser the amount of $500,000. Amounts payable by
Seller to Purchaser under this Section shall be paid out of funds in the Escrow
Agreement to the extent available. In the event adequate funds are not available
in the Escrow Agreement, Seller, jointly and severally, shall pay any shortfall
to Purchaser in immediately available funds.
SECTION 7.15 SCHEDULES.
(a) Within 10 days after the date of this Agreement, Seller shall deliver
all schedules required by Seller to be delivered pursuant to this Agreement (the
"SCHEDULES") together with a certificate from an executive officer of Seller
certifying on behalf of Seller that all representations and warranties of Seller
in this Agreement are true and correct as of the date of the delivery of the
Schedules. Purchaser shall have 20 days after receipt of the Schedules to accept
the Schedules or terminate this Agreement in accordance with SECTION 10.1 of
this Agreement. The decision by Purchaser to accept the Schedules or terminate
this Agreement shall be made by Purchaser in Purchaser's sole and absolute
discretion.
(b) Except for Schedule 4.1(a), a Schedule to this Agreement shall not be
considered deficient for an inadvertent failure to disclose certain information
required to be disclosed on
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such Schedule if the same information is disclosed on another Schedule for
substantially the same purpose.
SECTION 7.16 NAME CHANGE. Seller agrees to change within 30 days after
Closing all of Seller's names to names which do not incorporate the name
"Abraxas" or any derivation thereof or name similar thereto.
ARTICLE VIII
COVENANTS
SECTION 8.1 SELLER'S COVENANTS. Seller, jointly and severally, covenants
and agrees with Purchaser as follows:
(a) CONDUCT OF BUSINESS. Except as permitted hereunder or contemplated
hereby or as consented to in writing by Purchaser, through the Closing Date
Seller will (i) conduct the Business in the usual and ordinary course thereof,
including, without limitation, the making of proposals, quotations, bids and
solicitations, and the entering into of contracts for the purchase of products
and purchase and sale of services; (ii) communicate regularly with Purchaser and
keep Purchaser closely advised of any material developments relating to the
Business; (iii) permit Purchaser to have access at reasonable times to the
Seller's facilities and to review and copy the books and records of the
Business; (iv) maintain and preserve the assets of Seller in customary repair,
order and condition, reasonable wear and tear and loss by fire and casualty
(which loss shall be governed by SECTION 7.12 hereof) excepted, and proceed with
any improvements in progress at the Improvements associated with the Business
subject to SECTION 8.1(a)(viii) below; (v) use best efforts to preserve Seller's
business organization intact, to retain the services of Seller's officers and
employees and to preserve Seller's relationships with its suppliers and all
Governmental Authorities with which Seller has engaged in business related to
the Business; (vi) use its Best Efforts to cause all of the representations and
warranties in ARTICLE V hereof to continue to be true and correct; (vii)
continue to purchase supplies and similar items in the ordinary course through
the Closing Date; (viii) not make any new commitments or capital purchases in an
amount greater than $10,000, without the prior written consent of Purchaser
which will not be unreasonably withheld; and (ix) not prepay in whole or in part
any indebtedness of Seller or increase the balance of the Debt Service Reserve
Fund or any similar fund or account.
(b) MAINTENANCE OF INSURANCE. Seller will (i) maintain or cause to be
maintained the insurance policies or risk retention programs (or policies or
programs of substantially the same nature) of Seller in full force and effect at
all times until the Closing Date and (ii) assign to Purchaser rights accruing
under such policies, programs or coverage (including self-insurance or any
insurance reserves) from and after the Closing with respect to incidents
occurring prior to the Closing.
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(c) INFORMATION AND ACCESS. At all times until the Closing, Seller will
afford representatives of Purchaser access during normal business hours to its
offices, personnel, Improvements, equipment and records, for the purpose of
conducting an investigation thereof. Seller will furnish to Purchaser such
additional financial and operating data and other information as Purchaser may
reasonably request; PROVIDED, HOWEVER, that the confidentiality of any data or
information so acquired shall be maintained by Purchaser and its representatives
in accordance with SECTION 8.2(a) hereof.
(d) BEST EFFORTS. Seller will use its best efforts to obtain the
satisfaction of the conditions to Closing set forth in SECTION 9.1 hereof.
(e) PUBLIC ANNOUNCEMENTS AND DISCLOSURE OF COMPANY
INFORMATION. Subject to applicable law, at all times until the Closing, Seller
will promptly advise, and obtain the approval of, Purchaser before (i) issuing,
or permitting any of Seller's directors, officers to issue, any press release
with respect to this Agreement or the transactions contemplated hereby or (ii)
disclosing, or permitting any of Seller's directors, officers, employees,
representatives or agents to disclose, to any Person (other than Seller or
Purchaser or their respective directors, officers, employees, representatives or
agents) nonpublic information regarding Purchaser.
(f) OTHER OFFERS. Except in connection with the transactions contemplated
by this Agreement, from and after the date hereof, Seller shall not, and shall
not permit any of its officers, directors, employees, Affiliates,
representatives or agents to, directly or indirectly, (i) solicit, initiate or
knowingly encourage any offer or proposal for, or any indication of interest in,
a merger or business combination involving Seller or the acquisition of an
equity interest in, or a substantial portion of the assets of, Seller or (ii)
engage in negotiations with or disclose any nonpublic information relating to
Seller or Purchaser, or afford access to the properties, books or records of
Seller, to any Person. Seller shall promptly notify and provide copies to
Purchaser of any offer, proposal or indication of interest, or communication
with respect thereto, received from any third party.
(g) NOTIFICATION OF CERTAIN MATTERS. Seller shall give prompt notice to
Purchaser of (i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would be likely to cause any representation or warranty
of such party contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Closing Date and (ii) any material failure
by Seller to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; PROVIDED, that the delivery of any
notice pursuant to this SECTION 8.1(g) shall not limit or otherwise affect the
remedies available hereunder to Purchaser.
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SECTION 8.2 PURCHASER'S COVENANTS. Purchaser covenants and agrees with
Seller as follows:
(a) PUBLIC ANNOUNCEMENTS AND DISCLOSURE OF COMPANY
INFORMATION. Purchaser shall keep confidential any information regarding Seller
that is not otherwise generally available to the public or has not been made
available to the public by persons other than Purchaser, its representatives,
agents or employees, except as is necessary in connection with the preparation
of this Agreement and the documents contemplated herein, arranging acceptable
financing of this transaction or as may be required by applicable law. If for
any reason the transaction contemplated herein is abandoned or terminated prior
to being consummated, Purchaser will return promptly all confidential or
proprietary information concerning Seller previously disclosed to Purchaser, and
will not use or allow the use of any such information for any purpose, except as
may be required by law. If for any reason this transaction is not consummated,
Purchaser agrees that for a period of two years after this Agreement is
abandoned or terminated it will not compete with Seller for any of Seller's
existing contracts specified on the list attached hereto as SCHEDULE 8.2(a).
(b) BEST EFFORTS. Purchaser will use its best efforts to cause the
representations and warranties contained in ARTICLE VI hereof to continue to be
true and correct through the Closing Date and to obtain the satisfaction of the
conditions to Closing set forth in SECTION 9.2 hereof.
ARTICLE IX
CONDITIONS TO CLOSING
SECTION 9.1 CONDITIONS TO OBLIGATIONS OF PURCHASER. The obligations of
Purchaser to consummate the transactions contemplated herein are subject, at the
option of Purchaser, to satisfaction or waiver of the following conditions:
(a) COMPLIANCE. Seller shall have complied in all material respects with
all of its covenants and agreements contained herein, and all of the
representations and warranties contained in ARTICLE V hereof shall be true and
correct in all material respects on the date hereof and as of the Closing Date.
(b) OFFICER'S CERTIFICATE. Purchaser shall have received a certificate
dated the Closing Date of an executive officer of Seller certifying as to the
matters specified in SECTION 9.1(a) hereof in a form satisfactory to Purchaser.
(c) SELLER'S RESOLUTIONS. Seller shall deliver to Purchaser certified
copies of resolutions duly adopted by the board of directors of Seller,
authorizing and approving the execution and delivery of this Agreement,
including the exhibits and schedules hereto, and the consummation of the
transactions contemplated herein.
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(d) NONCANCELLATION OF OPERATING CONTRACTS. No Contracts listed on
SCHEDULE 3.1(viii) hereto shall have been canceled, amended or renewed at
reduced per diem levels or otherwise adversely affected prior to Closing.
(e) TRANSFER DOCUMENTS. At Closing, Seller shall execute and deliver to
Purchaser such bills of sale and other instruments of sale, transfer,
conveyance, assignment and delivery covering the Acquisition Assets or any part
thereof, executed by Seller or other appropriate parties, as Purchaser may
reasonably require to assure the full and effective sale, transfer, conveyance,
assignment and delivery to Purchaser of the Acquisition Assets free and clear of
any rights and claims of third parties (other than Permitted Encumbrances)
including, but not limited to, the following:
(i) a general warranty deed in a form acceptable to Purchaser, duly
executed by Seller, or its duly authorized agent, duly acknowledged and in
form for recording, conveying to Purchaser good and marketable fee simple
title to each Acquired Property and the Improvements thereon and all of
Seller's right, title and interest in and to the Appurtenances related
thereto free and clear of all liens, encumbrances, covenants, conditions,
restrictions, rights of way, easements, and other matters effecting the
title to the Acquired Property and the Improvements thereon, except for
the Permitted Encumbrances.
(ii) a general assignment in a form acceptable to Purchaser, duly
executed by Seller, or its duly authorized agent, duly acknowledged and in
form for recording, conveying to Purchaser all of Seller's right, title
and interest in and to each of the Assumed Leases, free and clear of all
liens, encumbrances, covenants, conditions, restrictions, rights-of-way,
easements and other matters affecting the title to the Assumed Leases
except for the Permitted Encumbrances.
(iii) the standard form of Owner's Policy of Title Insurance issued
by the Title Company in each applicable jurisdiction insuring good and
marketable fee simple title to the Acquired Property and Improvements,
subject only to the Permitted Encumbrances with such endorsements and/or
deletions thereto as are set forth on EXHIBIT D thereto, or as otherwise
acceptable to Purchaser.
(iv) the standard form of Leasehold Policy of Title Insurance issued
by the Title Company in each applicable jurisdiction insuring good and
marketable leasehold title to the Assumed Leases, subject only to the
Permitted Encumbrances with such endorsements and/or deletions thereto as
are acceptable to Purchaser.
(v) a bill of sale, general assignment and conveyance by Seller
transferring to Purchaser good and marketable title to all of the
Acquisition Assets in a form satisfactory to Purchaser.
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(vi) all documents in a form satisfactory to Purchaser required for
the assignment of Seller's rights under all registrations, Permits and
licenses (to the extent permitted by law), equipment or motor vehicle
leasing agreements, motor vehicle and rolling stock titles, rights under
sales and/or purchase orders and of Seller's rights under all other
Contracts (including the operating contracts of Seller listed on SCHEDULE
3.1(viii) hereto) constituting a part of the Acquisition Assets.
(vii) originals of all of the Assumed Leases, contracts, agreements,
commitments, books, records, files and other data that (x) are included in
the Acquisition Assets or (y) relate to or affect the Acquisition Assets
and are reasonably necessary for the continued conduct of the Business.
(viii) such other instruments of transfer and assignment in respect
of the Acquisition Assets as Purchaser shall reasonably require and as
shall be consistent with the terms and provisions of this Agreement.
(ix) Prior to the Closing Date, Seller will take such reasonable
steps as may be requisite or appropriate so that no later than the close
of Business on the Closing Date, Purchaser will be in actual ownership and
control of all of the Acquisition Assets.
(f) ABSENCE OF MATERIAL ADVERSE EFFECT. No Material Adverse Effect
shall have occurred since the date hereof or shall occur as a result of the
consummation of the transactions contemplated by this Agreement.
(g) FACILITY PERMITS. To the extent required under applicable law,
Purchaser shall have obtained or received a transfer of all required permits or
licenses allowing Purchaser to operate the Business at the Acquired Property
under the requirements of any applicable Governmental Authority, or a letter
from the appropriate Governmental Authority satisfactory to Purchaser regarding
the issuance of such required permits to Purchaser subsequent to Closing.
(h) ENVIRONMENTAL REVIEW. Purchaser shall have received an environmental
audit at its expense regarding such Business Property as Purchaser deems
relevant and Purchaser shall be satisfied in its sole discretion with the
environmental condition of all Business Property, and including without
limitation the Acquired Property.
(i) SURVEYS. Purchaser shall have received surveys of the Acquired
Property and Improvements and such survey shall not have raised any questions as
to the accuracy of Seller's representations and warranties in SECTION 5.11
hereto.
(j) ORDERS, ETC. No action, suit or proceeding shall have been commenced
or shall be pending or threatened, and no statute, rule, regulation or order
shall have been enacted, promulgated, issued or deemed applicable to the
Business, the Acquisition Assets or the transactions contemplated by this
Agreement, by any Governmental Authority or court that
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reasonably could be expected to (i) materially impair Purchaser's ownership or
operation (as currently conducted) of all or a material portion of the Business
or the Acquisition Assets, or compel Purchaser to dispose of or hold separate
all or a material portion of Purchaser's or Seller's business or assets, as a
result of the transactions contemplated by this Agreement or (ii) prohibit
consummation of the transactions contemplated by this Agreement.
(k) REMOVAL OF LIENS. Seller shall have caused any and all Liens on the
Acquisition Assets, other than Permitted Encumbrances, to be released and shall
have provided Purchaser with documentary evidence to such effect.
(l) ADDITIONAL REAL PROPERTY MATTERS.
(i) Purchaser shall have timely received the Title Commitment, the
Survey, and each of the items described in SECTION 7.4 hereof and any
objections of Purchaser thereto shall have been addressed or waived
pursuant to such Section;
(ii) Except as provided in SECTION 7.2(d) hereof, there shall be no
unpaid ad valorem taxes or assessments levied or assessed against the
Acquired Property for years prior to the year in which Closing occurs. If
the Acquired Property, or any part thereof, shall be or shall have been
affected by any such assessments for any period prior to Closing, which
are or may become payable in installments, then for the purposes of this
Agreement all the installments of any such assessment whether due or
payable prior to or after the date of Closing shall be paid and discharged
by Seller at the Closing and Purchaser shall take title free of the lien
of all the unpaid installments of any such assessment;
(iii) Each Assumed Leased shall be in full force and effect without
any uncured default and Purchaser shall have received estoppel
certificates in a form reasonably acceptable to Purchaser from each of the
lessors with respect to each such Assumed Lease.
(m) CONSENTS. All consents and approvals required in connection with (i)
the execution, delivery and performance of this Agreement and (ii) the
assignment of the Contracts and all other agreements necessary for Purchaser to
conduct the Business as it is currently being conducted by Seller, including,
without limitation, those consents listed on SCHEDULE 5.4 hereto, shall have
been obtained in form satisfactory to Purchaser.
(n) OTHER DOCUMENTS; VERIFICATION BY INDEPENDENT AUDITOR.
Seller shall have delivered to Purchaser such other documents, instruments and
certificates as may be reasonably requested by Purchaser. Purchaser, at its sole
cost and expense, shall have the right to have an independent public auditing
firm verify the accuracy of Seller's representations and warranties and
satisfaction of conditions to Closings which relate the financial condition of
the Business, provided, that such verification shall not delay Closing by more
than seven days.
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(o) REVENUES.
(i) Purchaser shall have received reasonable evidence that the
revised fiscal 1997 projected revenues, direct expenses and related net
earnings of Seller are not materially different than as reflected on
EXHIBIT 9.1(o) for fiscal 1997, including any stop increase pay
adjustments.
(ii) Purchaser shall have received reasonable evidence that Seller's
projected revenues (including other income) listed on EXHIBIT 9.1(o) are
supported by appropriate contracted funding from the relevant Governmental
Authorities.
(iii) Purchaser shall have received reasonable evidence that the
impact upon revenues and expenses resulting from the conversion of
Seller's operations from a non-profit to for-profit entity has been
accurately reflected in the revised 1997 project statement of operations
set forth on EXHIBIT 9.1(o).
(iv) Purchaser shall have received reasonable evidence that
financial projections related to all Facilities within the revised 1997
projected statement of operations set forth on EXHIBIT 9.1(o) are accurate
based upon year-to-date December 1996 through June 30, 1997 actual
results.
(p) NO EFFECT ON CONTRACTS OR GRANTS. Purchaser shall have received
written evidence from applicable Governmental Authorities that consummation of
the transactions contemplated in this Agreement, including but not limited to
assignment of the Contracts by Seller to Purchaser, will not affect Purchaser's
rights to any previous grants to, or contracts with Seller, except as related to
school breakfast, lunch and food stamp programs in an annual amount not to
exceed $850,000 for fiscal 1998, as reflected in EXHIBIT 9.1(o), and except to
the extent such grants are reflected in the records of Seller as an accrued
liability.
(q) MEETINGS; CONSENTS. Purchaser shall have engaged in meetings with, and
received written consents in form satisfactory to Purchaser from, all applicable
Governmental Authorities and other third parties permitting the assignment of
all Contracts which comprise the total projected revenues as listed on EXHIBIT
9.1(o) to Purchaser as a "for-profit" company at revenue and profitability
levels not less than as currently in effect as specified on EXHIBIT 9.1(q) and
not less than the 1997 projected amounts as set forth on EXHIBIT 9.1(o).
(r) NO PREPAYMENT PENALTIES. Purchaser shall incur no prepayment penalties
related to the Retired Debt (i.e., any prepayment penalties will be paid by
Seller out of the Purchase Price).
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(s) EMPLOYEE BENEFIT PLANS. Purchaser shall have received evidence
satisfactory to Purchaser that all eligible employees of Seller have either been
offered, or are currently covered by, the health insurance and pension plans,
listed on EXHIBIT 9.1(s) at the approximate cost as scheduled on EXHIBIT 9.1(s).
Purchaser shall have received evidence to its satisfaction that replacing
Seller's employees' benefit plans with Purchaser's benefit plans will be
accomplished on terms acceptable to Purchaser without jeopardizing the
continuity of employees which are considered for employment, including but not
limited to, any unionized employees which are considered for employment. Seller
agrees, to the extent directed by Purchaser, to immediately and diligently
proceed with discussing Purchaser benefit plans with all appropriate Seller
employees.
(t) UNIONS. Except for employees at the Abraxas I facility, the employees
of Seller shall not be unionized, nor shall there be any plans or other
developments for unionization.
(u) MINIMUM EBIT. Only to the extent that such is needed to achieve an
annualized $3,000,000 run-rate minimum earnings before interest and taxes
("EBIT") level, Purchaser shall have received evidence to Purchaser's
satisfaction that up to $800,000 of the combined total of (i) annualized direct
expense compensation payroll and related direct payroll fringe cost and (ii)
corporate administrative overhead (without giving effect to any consolidation
into Purchaser) has been identified by Seller for elimination ("DIRECT EXPENSE
COMPENSATION AND G&A REDUCTION") by the Closing Date without impairing the
integrity or revenue stream of the related programs. This Direct Expense
Compensation and G&A Reduction must be detailed program, by specific employee,
etc. and may not include reductions from changes in benefit programs (i.e.,
insurance, retirement, paid-days-off, etc.) related to non-terminated employees
or any reductions in real estate taxes, but may include reductions in other
out-of-pocket direct operating expenses. Prior to Closing, Seller shall have
implemented at least $250,000 of the Direct Expense Compensation and G&A
Reduction, without impairing the integrity or profitability of the Seller's
operations.
(v) EMPLOYEES. Purchaser shall have received evidence to its satisfactions
that the number and compensation of employees as listed on Seller's "Staff
Information Report-Distribution Month of January 1997" ("1/97 SIR") are
sufficient to operate the level of operations listed on the revised 1997
projected statement of operations set forth on EXHIBIT 9.1(o). The parties
acknowledge that, to achieve this level of operations, there will need to be
added to the 1/97 SIR the positions (at the locations and at the compensation
and fringe levels) as set forth on SCHEDULE 9.1(v).
(w) PURCHASER REVIEW. Within 20 days of receipt of the Schedules,
Purchaser shall have toured and/or reviewed the Acquired Property and
Improvements thereon, Seller's leased facilities, Contracts and Seller's
operations which shall be reasonably satisfactory to Purchaser.
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(x) CONTRACT RENEWALS. All Contracts which expire between December 31,
1996 and the later of the Closing Date or July 1, 1997 shall be renewed on terms
satisfactory to Purchaser.
(y) BOARD APPROVAL. The board of directors of Purchaser shall have
approved this Agreement and the transactions contemplated herein.
(z) OFFICER AND DIRECTOR RELEASES. The officers and directors of Seller
shall have delivered to Purchaser an instrument dated the Closing Date releasing
the Seller from any and all claims of such officers and directors (except as to
accrued compensation prior to the Closing Date in accordance with the terms of
this Agreement).
(aa) OPINIONS OF COUNSEL. Purchaser shall have received the opinions of
counsel to Seller reasonably acceptable to Purchaser and its counsel as to the
matters reasonably requested by Purchaser. Purchaser shall have received an
opinion from qualified bond counsel that the consummation of the transactions
contemplated in this Agreement will not adversely affect the tax-exempt
character of any bonds included within the Retired Debt. Any fees incurred with
respect to obtaining such opinion shall be borne equally by Purchaser and
Seller.
(bb) NO INDEBTEDNESS. There shall be no indebtedness of any kind (whether
or not evidenced by one or more promissory notes and whether or not reflected in
the Balance Sheet or the notes thereto) owed by Seller to any officer, director
or affiliate of Seller, or owed by any officer, director or affiliate of Seller
to Seller.
(cc) EMPLOYMENT AGREEMENTS. Purchaser shall have entered into employment
agreements with Arlene Lissner and Tom Jenkins and a noncompete agreement with
Arlene Lissner in form reasonably satisfactory to Purchaser.
SECTION 9.2 CONDITIONS TO OBLIGATIONS OF SELLER. The obligations of
Seller to consummate the transactions contemplated herein are subject, at the
option of Seller, to satisfaction of the following conditions:
(a) COMPLIANCE. Purchaser shall have complied with its covenants and
agreements contained herein, and the representations and warranties contained in
ARTICLE VI hereof shall be true and correct in all respects on the date hereof
and as of the Closing Date.
(b) OFFICER'S CERTIFICATE. Seller shall have received a certificate dated
the Closing Date of an executive officer of Purchaser certifying as to the
matters specified in SECTION 9.2(a) hereof in a form satisfactory to Seller.
(c) PURCHASER'S RESOLUTIONS. Purchaser shall deliver to Seller certified
copies of resolutions duly adopted by the board of directors of Purchaser
authorizing and
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approving the execution and delivery of this Agreement and the consummation of
the transactions contemplated herein.
(d) ORDERS, ETC. No action, suit or proceeding shall have been commenced
or shall be pending or, to the actual knowledge of the officers and directors of
Purchaser, threatened, and no statute, rule, regulation or order shall have been
enacted, promulgated, issued or deemed applicable to the Business, the
Acquisition Assets or the transactions contemplated by this Agreement, by any
Governmental Authority or court that reasonably may be expected to (i) prohibit
Purchaser's ownership or operation of all or a material portion of the Business
or the Acquisition Assets, or compel Purchaser to dispose of or hold separate
all or a material portion of Seller's business or assets, as a result of the
transactions contemplated by this Agreement or (ii) prohibit consummation of the
transactions contemplated by this Agreement.
(e) FAIRNESS OPINION; APPROVALS. Seller shall have obtained, at Seller's
expense, a fairness opinion in form reasonably satisfactory to Seller and
approval from the attorney general of each state for which approval is required.
Seller shall use its best efforts to have obtained such approvals on or before
August 31, 1997.
ARTICLE X
TERMINATION
SECTION 10.1 GROUNDS FOR TERMINATION. This Agreement may be terminated
at any time prior to the Closing Date:
(a) by the mutual written agreement of Seller and Purchaser;
(b) by Purchaser by written notice thereof to Seller if any of the
conditions set forth in SECTION 9.1 hereof shall have become incapable of
fulfillment by or before the Closing Date, and shall not have been waived by
Purchaser;
(c) by Seller by written notice thereof to Purchaser if any of the
conditions set forth in SECTION 9.2 hereof shall have become incapable of
fulfillment by or before the Closing Date, and shall not have been waived by
Seller;
(d) by Purchaser, as set forth in SECTIONS 7.4, 7.11, 7.12 and 7.15
hereof;
(e) by Purchaser or Seller, as set forth in SECTION 7.6 hereof;
(f) by Seller or Purchaser by written notice thereof to the other if the
transactions contemplated hereby shall not have been consummated by August 31,
1997 (or such later date as shall apply pursuant to SECTION 3.3(b) hereof), or
such other date as Seller and Purchaser shall agree upon in writing; or
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(g) by Seller or Purchaser by written notice thereof to the other if the
consummation of the transactions contemplated hereby would violate any
nonappealable final order, decree or judgment of any court or Governmental
Authority having competent jurisdiction enjoining, restraining or otherwise
preventing, or awarding substantial damages in connection with, or imposing a
material adverse condition upon, the consummation of this Agreement or the
transactions contemplated hereby.
SECTION 10.2 EFFECT OF TERMINATION. The following provisions shall apply
in the event of a termination of this Agreement:
(a) Subject to subsections (b) and (c) of this SECTION 10.2, if this
Agreement is terminated by Seller or by Purchaser as permitted under SECTION
10.1 hereof, such termination shall be without liability to any party to this
Agreement or any stockholder, director, officer, employee, agent or
representative of such party; PROVIDED, that if this Agreement is terminated by
Seller or Purchaser as permitted by SECTION 10.1, unless the event giving rise
to such termination right shall be due to the material breach by Purchaser of
its obligations under this Agreement, Seller shall refund the Option Fee to
Purchaser promptly after such termination of this Agreement;
(b) If this Agreement is terminated as a result of the material breach by
Purchaser of its obligations under this Agreement, Purchaser shall forfeit the
Option Fee to Seller as full payment for damages for such breach. The parties
hereto acknowledge and agree that the actual damages that Seller might sustain
by reason of such breach by Purchaser to perform its obligations hereunder are
uncertain and would be difficult, if not impossible, to ascertain, and that the
Option Fee would be reasonable compensation for any such breach by Purchaser;
(c) If this Agreement is terminated as a result of the breach by Seller of
its obligations under this Agreement, Seller shall promptly refund to Purchaser
the Option Fee. The parties hereto acknowledge and agree that Purchaser, as a
result of the actual damages Purchaser would sustain by reason of such negligent
or willful failure of Seller to perform its obligations hereunder, could not be
made whole by monetary damages, and it is accordingly agreed that Purchaser
shall have the right to elect, in addition to any and all other remedies at law
or in equity, to enforce specific performance under this Agreement and Seller
waives the defense in any such action for specific performance that a remedy at
law would be adequate; and
(d) The parties hereto hereby agree that the provisions of SECTIONS 10.2,
13.1, 13.3, 13.5 and 13.7 hereof and ARTICLE XI hereof shall survive any
termination of this Agreement.
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ARTICLE XI
INDEMNIFICATION
SECTION 11.1 SELLER'S INDEMNITY OBLIGATIONS. Seller (except for TAF)
shall, jointly and severally, indemnify and hold harmless Purchaser and
Purchaser's officers, directors, stockholders, employees, agents,
representatives and Affiliates (each a "PURCHASER INDEMNIFIED PARTY") from and
against any and all claims (including without limitation, Environmental Claims),
actions, causes of action, arbitrations, proceedings, losses, damages,
remediations, liabilities, strict liabilities, judgments, fines, penalties and
expenses (including, without limitation, reasonable attorneys' fees)
("INDEMNIFIED AMOUNTS") incurred by a Purchaser Indemnified Party or for which a
Purchaser Indemnified Party bears responsibility as a result of (a) any breach
or misrepresentation in any of the representations and warranties made by or on
behalf of Seller in this Agreement, including without limitation with respect to
environmental matters, or any certificate or instrument delivered in connection
with this Agreement, (b) any violation or breach by Seller of or default by
Seller under the terms of this Agreement or any certificate or instrument
delivered in connection with this Agreement, (c) except for the Assumed
Liabilities, any act or omission by Seller or any officer, director, employee,
agent or representative of Seller, occurring on or prior to the Closing Date
with respect to the Business or the Acquisition Assets (including any claim by a
third party, including employees and Clients arising out of or related to any
act or omission by Seller or any officer, director, employee, agent or
representative of Seller occurring on or prior to the Closing Date with respect
to the Business or Acquisition Assets), (d) any Environmental Claim, or (e) any
liabilities or obligations of Seller or any officer, director, employee, agent
or representative of Seller not expressly assumed by Purchaser pursuant to this
Agreement. For purposes of this SECTION 11.1, Indemnified Amounts shall include
without limitation those Indemnified Amounts ARISING OUT OF THE STRICT LIABILITY
OR NEGLIGENCE OF ANY PARTY, INCLUDING ANY PURCHASER INDEMNIFIED PARTY, WHETHER
SUCH NEGLIGENCE BE SOLE, JOINT OR CONCURRENT, ACTIVE OR PASSIVE
SECTION 11.2 PURCHASER'S INDEMNITY OBLIGATIONS. Purchaser shall indemnify
and hold harmless Seller and Seller's officers, directors, employees, agents,
representatives and Affiliates (each a "SELLER INDEMNIFIED PARTY") from and
against any and all Indemnified Amounts incurred by a SELLER INDEMNIFIED PARTY
as a result of (a) any breach or misrepresentation in any of the representations
and warranties made by or on behalf of Purchaser in this Agreement or any
certificate or instrument delivered in connection with this Agreement, (b) any
violation or breach by Purchaser of or default by Purchaser under the terms of
this Agreement or any certificate or instrument delivered in connection with
this Agreement, or (c) the Assumed Liabilities.
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SECTION 11.3 INDEMNIFICATION PROCEDURES. All claims for indemnification
under this Agreement shall be asserted and resolved as follows:
(a) A party claiming indemnification under this Agreement (an "INDEMNIFIED
PARTY") shall with reasonable promptness (i) notify the party from whom
indemnification is sought (the "INDEMNIFYING PARTY") of any third-party claim or
claims asserted against the Indemnified Party ("THIRD PARTY CLAIM") for which
indemnification is sought and (ii) transmit to the Indemnifying Party a copy of
all papers served with respect to such claim (if any) and a written notice
("CLAIM NOTICE") containing a description in reasonable detail of the nature of
the Third Party Claim, an estimate of the amount of damages attributable to the
Third Party Claim to the extent feasible (which estimate shall not be conclusive
of the final amount of such claim) and the basis of the Indemnified Party's
request for indemnification under this Agreement.
Within 15 days after receipt of any Claim Notice (the "ELECTION PERIOD"),
the Indemnifying Party shall notify the Indemnified Party (i) whether the
Indemnifying Party disputes its potential liability to the Indemnified Party
with respect to such Third Party Claim and (ii) whether the Indemnifying Party
desires, at the sole cost and expense of the Indemnifying Party, to defend the
Indemnified Party against such Third Party Claim.
If the Indemnifying Party notifies the Indemnified Party within the
Election Period that the Indemnifying Party elects to assume the defense of the
Third Party Claim, then the Indemnifying Party shall have the right to defend,
at its sole cost and expense, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this SECTION 11.3(a). The Indemnifying
Party shall have full control of such defense and proceedings. The Indemnified
Party is hereby authorized, at the sole cost and expense of the Indemnifying
Party, to file, during the Election Period, any motion, answer or other
pleadings that the Indemnified Party shall reasonably deem necessary or
appropriate to protect its interests. If requested by the Indemnifying Party,
the Indemnified Party agrees to cooperate with the Indemnifying Party and its
counsel in contesting any Third Party Claim that the Indemnifying Party elects
to contest, including, without limitation, the making of any related
counterclaim against the person asserting the Third Party Claim or any
cross-complaint against any person. Except as otherwise provided herein, the
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party claim controlled by the Indemnifying Party pursuant to this
SECTION 11.3 and shall bear its own costs and expenses with respect to such
participation.
If the Indemnifying Party fails to notify the Indemnified Party within the
Election Period that the Indemnifying Party elects to defend the Indemnified
Party pursuant to the preceding paragraph, or if the Indemnifying Party elects
to defend the Indemnified Party but fails to prosecute or settle the Third Party
Claim as herein provided, then the Indemnified Party shall have the right to
defend, at the sole cost and expense of the Indemnifying Party, the Third Party
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Claim by all appropriate proceedings, which proceedings shall be promptly and
vigorously prosecuted by the Indemnified Party to a final conclusion or settled.
The Indemnified Party shall have full control of such defense and proceedings.
The Indemnifying Party may participate in, but not control, any defense or
settlement controlled by the Indemnified Party pursuant to this SECTION 11.3,
and the Indemnifying Party shall bear its own costs and expenses with respect to
such participation.
The Indemnifying Party shall not settle or compromise any Third Party
Claim unless (i) the terms of such compromise or settlement require no more than
the payment of money (i.e., such compromise or settlement does not require the
Indemnified Party to admit any wrongdoing or take or refrain from taking any
action), (ii) the full amount of such monetary compromise or settlement will be
paid by the Indemnifying Party, and (iii) the Indemnified Party receives as part
of such settlement a legal, binding and enforceable unconditional satisfaction
and/or release, in form and substance reasonably satisfactory to it, providing
that such Third Party Claim and any claimed lability of the Indemnified Party
with respect thereto is being fully satisfied by reason of such compromise or
settlement and that the Indemnified Party is being released from any and all
obligations or liabilities it may have with respect thereto. The Indemnified
Party shall not settle or admit liability to any Third Party Claim without the
prior written consent of the Indemnifying Party unless (x) the Indemnifying
Party has disputed its potential liability to the Indemnified Party, and such
dispute either has not been resolved or has been resolved in favor of the
Indemnifying Party or (y) the Indemnifying Party has failed to respond to the
Indemnified Party's Claim Notice.
(b) In the event any Indemnified Party should have a claim against any
Indemnifying Party hereunder that does not involve a Third Party Claim, the
Indemnified Party shall transmit to the Indemnifying Party a written notice (the
"INDEMNITY NOTICE") describing in reasonable detail the nature of the claim, an
estimate of the amount of damages attributable to such claim to the extent
feasible (which estimate shall not be conclusive of the final amount of such
claim) and the basis of the Indemnified Party's request for indemnification
under this Agreement.
SECTION 11.4 DETERMINATION OF INDEMNIFIED AMOUNTS. The Indemnified Amounts
payable by an Indemnifying Party hereunder shall be determined (i) by the
written agreement of the parties, (ii) by mediation, (iii) by binding
arbitration pursuant to SECTION 13.7 hereof, (iv) by a final judgment or decree
of any court of competent jurisdiction, or (v) by any other means agreed to in
writing by the parties. A judgment or decree of a court shall be deemed final
when the time for appeal, if any, shall have expired and no appeal shall have
been taken or when all appeals taken have been fully determined. In calculating
or determining the Indemnified Amounts, such calculation or determination shall
take into account the actual receipt of any amounts from any insurance company
or other third party.
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SECTION 11.5 ESCROW. Seller and Purchaser expressly acknowledge that the
indemnification obligations of Seller and Purchaser and the payment of
Indemnified Amounts pursuant to this ARTICLE XI shall not be limited to or by
the Escrowed Purchase Price or the terms of the Escrow Agreement.
SECTION 11.6 LIMITATION OF SELLER'S LIABILITY.
(a) Notwithstanding anything to the contrary contained in ARTICLE XI, the
aggregate liability of Seller for any event or occurrence giving rise to Seller
being required to indemnify Purchaser Indemnified Parties pursuant to ARTICLE XI
or any other ARTICLE under this Agreement shall be limited to the Purchase Price
less the Transaction Expenses and the portion of the Retired Debt paid by the
Purchaser pursuant to SECTION 3.3(b) above. Reasonable attorney's fees and costs
incurred by Seller in defending any Third Party Claim shall be considered
Transaction Expenses for purposes of the preceding sentence solely to the extent
mutually agreed by the parties to this Agreement; provided, however, that in no
event shall such attorney's fees and costs exceed $150,000 in the aggregate.
(b) Purchaser Indemnified Parties are entitled to indemnification pursuant
to ARTICLE XI or any other ARTICLE under this Agreement only to the extent that
the amount of any Indemnified Amount, individually or in the aggregate, exceeds
$50,000 and then only to the extent of such excess.
SECTION 11.7 LIMITATION OF PURCHASER'S LIABILITY.
(a) Notwithstanding anything to the contrary contained in ARTICLE XI, the
aggregate liability of Purchaser for any event or occurrence giving rise to
Purchaser being required to indemnify Seller Indemnified Parties pursuant to
SECTION 11.2 shall be limited to $2,000,000.
(b) Seller Indemnified Parties are entitled to indemnification pursuant to
SECTION 11.2 only to the extent that the amount of any Indemnified Amount,
individually or in the aggregate, exceeds $50,000 and then only to the extent of
such excess. Provided, however, this paragraph does not apply to the forfeiture
of the Option Fee by Seller to Purchaser under ARTICLE X of this Agreement.
SECTION 11.8 SELLER TO MAINTAIN EXISTENCE AFTER CLOSING. Seller,
jointly and severally, agrees and covenants (a) to maintain its existence and
good standing in the State of Pennsylvania for a period of three years following
the Closing Date (the "CONTINUATION PERIOD"), and (b) to maintain during the
Continuation Period an aggregate net worth (determined in accordance with
generally accepted accounting principles consistently applied) of not less than
(i) the Purchase Price LESS the Transaction Expenses and the portion of the
Retired Debt paid by the Purchaser pursuant to SECTION 3.3(b) above, MULTIPLIED
BY (ii) 80% throughout the first two years of the Continuation Period, and 50%
during the third year
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of the Continuation Period. Notwithstanding the preceding sentence, immediately
after Closing, TAF shall transfer all of TAF's assets, including but not limited
to the Purchase Price proceeds received in connection with the transactions
contemplated herein, to TAG, which assets shall remain with TAG.
ARTICLE XII
COVENANTS NOT TO COMPETE
SECTION 12.1 SELLER'S COVENANTS NOT TO COMPETE. Except as otherwise
consented to or approved in writing by Purchaser, Seller shall not, at any time
for a period of five years following the Closing Date, directly or indirectly,
acting alone or as a member of a partnership, as a holder of any security, as a
contributor of funds, as an agent, owner in full or in part, advisor, consultant
to or representative of, any Person:
(a) engage in any business in competition with the Business or any other
business of Purchaser relating to the operation of juvenile treatment programs
and educational programs and/or facilities in the United States; or
(b) request any present or future customer or supplier of the Business to
curtail or cancel its business with Purchaser in respect to the Business; or
(c) unless otherwise required by law, disclose to any person, firm or
corporation any details of organization or business affairs of the Business, any
names of past or present customers of Seller or any other nonpublic information
concerning the Business; or
(d) induce or attempt to influence any employee of Purchaser engaged in
the conduct of the Business to terminate his or her employment; or (ii) at any
time following the date hereof, disclose to any person, firm or corporation any
trade, technical or technological secrets used by the Business or any other
knowledge or information of a confidential nature (which knowledge and
information is not otherwise in the public domain) with respect to the Business.
Seller acknowledges that this covenant not to compete is being provided as
an inducement to Purchaser to acquire the Acquisition Assets and that this
ARTICLE XII contains reasonable limitations as to time, geographical area and
scope of activity to be restrained and no broader than necessary to protect
legitimate business interests of Purchaser directly or indirectly associated
with the transactions pursuant to this Agreement. Seller acknowledges that, in
the event the scope of the covenants set forth in this ARTICLE XII is deemed to
be too broad in any court proceeding, the court may reduce such scope to that
which it deems reasonable under the circumstances. The parties hereto agree and
acknowledge that Purchaser does not have any adequate remedy at law for the
breach or threatened breach by Seller of the covenants and agreements set forth
in this ARTICLE XII and, accordingly, Seller further agrees that Purchaser may,
in addition to the other remedies which may be available to it hereunder, file a
suit in equity
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(without the posting of bond) to enjoin Seller from such breach or threatened
breach and consent to the issuance of injunctive relief hereunder. If Seller is
found to have violated this ARTICLE XII, Seller shall pay all costs and
reasonable attorneys' fees incurred by Purchaser to enforce its rights under
this ARTICLE XII.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1 COMMISSIONS. Except as set forth on SCHEDULE 13.1, Seller
represents and warrants that it has done nothing to create any liability for the
payment of any commission or compensation in the nature of a finder's fee or
similar fee to any broker or any other Person in connection with this Agreement
and the transactions contemplated hereby. Seller shall indemnify and hold
Purchaser harmless from and against any and all claims for finders' fees,
brokers' commissions or similar fees made by any party as a result of this
Agreement and the transactions contemplated hereunder to the extent that any
such commission or fee was incurred, or alleged to have been incurred, by,
through or under Seller. Purchaser shall indemnify and hold Seller harmless from
and against any and all claims for finders' fees, brokers' commissions or
similar fees made by any party as a result of this Agreement and transactions
contemplated hereunder to the extent that any such commission was incurred, or
alleged to have been incurred, by, through or under Purchaser.
SECTION 13.2 SURVIVAL. The representations and warranties set forth in
this Agreement and in any certificate or instrument delivered in connection
herewith shall be continuing and shall survive the Closing for a period of two
years following the Closing Date; PROVIDED, HOWEVER, that in the case of all
representations and warranties, there shall be no such termination with respect
to any such representation or warranty as to which a bona fide claim has been
asserted by written notice of such claim delivered to the party or parties
making such representation or warranty prior to the expiration of the survival
period; PROVIDED, FURTHER, that the representations and warranties set forth in
SECTIONS 5.2, 5.11, and 5.13 hereof shall survive the Closing indefinitely and
SECTIONS 5.17 and 5.18 shall survive the Closing for the statutory survival
period. The covenants and agreements, including but not limited to
indemnification obligations, set forth in this Agreement and in any certificate
or instrument delivered in connection herewith shall be continuing and survive
Closing; PROVIDED, HOWEVER, that the indemnification obligations of the parties
hereto (i) set forth in SECTIONS 11.1(a) and 11.2(a) with respect to a breach of
a representation or warranty shall terminate at the time such particular
representation or warranty shall terminate, and (ii) set forth in SECTIONS
11.1(b) and 11.2(b) shall terminate two years following the Closing Date.
SECTION 13.3 EXPENSES. Except as otherwise expressly provided herein, each
party shall bear its own respective expenses incurred in connection with the
negotiation, preparation and execution of this Agreement and the transactions
contemplated hereby (as well as in connection with negotiations with other
potential purchasers), including its legal, accounting, advisory, travel,
finders and brokers and other professional fees and expenses.
48
<PAGE>
SECTION 13.4 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been received only if and when(i)
personally delivered or (ii) on receipt after mailing, by United States mail,
first class, postage prepaid, by certified mail return receipt requested, or by
facsimile transmission to the respective parties, addressed in each case as
follows (or to such other address as may be specified by like notice):
If to Seller, to:
Obermayer Rebmann Maxwell & Hippel LLP
USX Tower, Suite 4440
800 Grant Street
Pittsburgh, PA 15219
Attention: Marvin S. Lieber
Telephone: 412-566-1500
Facsimile: 412-566-1508
If to Purchaser, to:
Cornell Corrections, Inc.
4801 Woodway, Suite 100E
Houston, Texas 77056
Attention: Steve W. Logan
Telephone: 713-623-0790
Facsimile: 713-623-2853
With a copy (which shall not constitute notice) to:
Liddell, Sapp, Zivley, Hill & LaBoon, LLP
3400 Texas Commerce Tower
600 Travis Street
Houston, Texas 77002
Attention: Marcus Watts
Telephone: 713-226-1200
Facsimile: 713-223-3717
SECTION 13.5 ENTIRE AGREEMENT. This Agreement, including all schedules and
exhibits hereto, which schedules or exhibits are incorporated herein by
reference and deemed to be a part of this Agreement, constitutes the entire
agreement of the parties with respect to the subject matter hereof, and may not
be modified, amended or terminated except by a written instrument specifically
referring to this Agreement signed by all the parties hereto.
49
<PAGE>
SECTION 13.6 GOVERNING LAW. This Agreement shall be governed, construed
and enforced in accordance with the laws of the State of Texas without giving
effect to the principles of conflicts of laws thereof.
SECTION 13.7 ARBITRATION.
(a) Any issue, controversy or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
within 60 days' notice thereof shall be resolved exclusively by final and
binding arbitration in Delaware in accordance with the commercial arbitration
rules of the American Arbitration Association ("AAA"), and judgment on the award
rendered by the arbitrator may be entered by any court having jurisdiction
thereof; PROVIDED, HOWEVER, that the parties shall have the right to agree among
themselves as to the amount of the claim
(b) The arbitrators shall be selected by mutual agreement of the parties,
if possible. If the parties fail to reach agreement upon appointment of
arbitrators within 30 days following receipt by one party of the other party's
notice of arbitration, each party shall select one arbitrator and the two
resulting arbitrators shall mutually agree on a third arbitrator from a list or
lists of proposed arbitrators submitted by AAA. The selection process shall be
that which is set forth in the AAA commercial arbitration rules then prevailing,
except that (i) the number of preemptory strikes shall not be limited and (ii)
if the parties' arbitrators fail to select an arbitrator from one or more lists,
AAA shall not have the power to make an appointment but, subject to SECTION
13.7(c) hereof, shall continue to submit additional lists until an arbitrator
has been selected. Initially, however, promptly following its receipt of a
request to submit a list of proposed arbitrators, AAA shall convene the parties'
arbitrators in person or by telephone and attempt to facilitate their selection
of the third arbitrator by agreement. If an arbitrator should die, withdraw or
otherwise become incapable of serving, replacement shall be selected and
appointed in the same manner as the initial third arbitrator.
(c) If the third (or successor) arbitrator has not been selected following
submission of three or more lists by AAA, either party may declare the existence
of an impasse by giving written notice to the other. In that event, the third
(or successor) arbitrator shall be selected in the following manner: Each party
shall designate three proposed arbitrators whose names appear on any of the
lists previously submitted by AAA. The parties shall then eliminate five of the
designated names by alternately striking one, and the person whose name remains
shall serve as arbitrator. If necessary, the party to make the first strike
shall be designated by lot.
(d) All aspects of the arbitration shall be confidential, and the parties
and arbitrators shall not disclose to others, or permit disclosure of, any
information related to the proceedings, including but not limited to discovery,
testimony and other evidence, briefs and the award.
50
<PAGE>
(e) Upon the motion of either party, and for good cause shown, the
arbitrators, by majority vote, may make any order which justice requires to
protect a party from the disclosure of proprietary, privileged or confidential
business information, including orders (i) that depositions or hearings be
conducted with no one present except the lead attorney for the respective
parties and persons designated by a majority of the arbitrators, and (ii) that
depositions, exhibits, other documents filed with the arbitrators or transcripts
of the hearing be sealed and not disclosed except as specified by the
arbitrators.
SECTION 13.8 ASSIGNMENTS AND THIRD PARTIES. Except as otherwise provided
herein, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. No party hereto
shall assign this Agreement or any part hereof without the prior written consent
of the other party; PROVIDED, HOWEVER, that it is understood and agreed that
Purchaser may assign all or any portion of its rights and delegate all or any
portion of its duties hereunder to an Affiliate of Purchaser, in which event the
assignee of Purchaser shall execute and deliver all documents, certificates and
other instruments to be executed and delivered by Purchaser at the Closing in
lieu of Purchaser, which documents, certificates and other instruments shall be
appropriately modified to conform to such assignee's organizational status. No
assignment shall release a party of any of its obligations under this Agreement;
PROVIDED, HOWEVER, Purchaser shall be released from its obligations under this
Agreement upon Purchaser's assignment of its rights and obligations under this
Agreement to an Affiliate of Purchaser.
SECTION 13.9 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any of the parties hereto. Upon such determination that
any term or other provision is invalid, illegal or incapable of being enforced,
the parties hereto shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible in an
acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the extent possible
SECTION 13.10 AMENDMENTS; NO WAIVERS. Any provision of this
Agreement may be amended or waived prior to the Closing Date if, and only if,
such amendment or waiver is in writing and signed, in the case of an amendment,
by all parties hereto, or in the case of a waiver, by the party against whom the
waiver is to be effective. No failure or delay by any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
51
<PAGE>
SECTION 13.11 ACCESS; COOPERATION. Upon consummation of the
transactions provided herein and for a period of three (3) years thereafter,
Purchaser agrees that upon the reasonable written request of Seller, Purchaser
will provide Seller with reasonable access to Purchaser's personnel and
Purchaser's financial books and records (or copies thereof) transferred by the
Seller to the Purchaser pursuant to this Agreement. All material costs and
expenses associated with providing such personnel and financial books and
records (or copies thereof) shall be borne by Seller. Purchaser agrees to use
reasonable efforts post-Closing to cooperate with Seller in Seller's efforts to
(i) cure or remedy Seller's defective performance prior to Closing of any
Contract, and (ii) administer Seller's COBRA obligations relating to the
transactions contemplated herein; provided, however, that Seller shall promptly
reimburse Purchaser for all reasonable out-of-pocket expenses incurred by
Purchaser with respect to (i) and (ii) above.
SECTION 13.12 BEQUESTS, DEVISES AND GIFTS. Purchaser agrees to
promptly forward to Seller all bequests, devises and gifts received by Purchaser
after the Closing Date which are intended for the benefit of or use of Seller as
a Section 501(c)(3) organization.
SECTION 13.13 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement
shall entitle any Person other than the parties hereto or their respective
successors and assigns permitted hereby to any claim, cause of action, remedy or
right of any kind.
SECTION 13.14 HEADINGS; USE OF CERTAIN TERMS. The headings and table of
contents herein are for convenience only and shall have no significance in the
interpretation hereof. Unless the context shall otherwise require, the singular
shall include the plural and vice versa, and each pronoun in any gender shall
include all other genders.
SECTION 13.15 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed for all purposes to be an
original, but all of which together shall constitute one and the same agreement.
52
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first written above.
ABRAXAS GROUP, INC.
By:/s/ ANTHONY N. CIVELLO
Name: Anthony N. Civello
Title: Director
FOUNDATION FOR ABRAXAS, INC.
By:/s/ ANTHONY N. CIVELLO
Name: Anthony N. Civello
Title: Director
ABRAXAS FOUNDATION, INC.
By:/s/ ANTHONY N. CIVELLO
Name: Anthony N. Civello
Title: Director
ABRAXAS FOUNDATION OF OHIO
By:/s/ ANTHONY N. CIVELLO
Name: Anthony N. Civello
Title: Director
ABRAXAS, INC.
By:/s/ ANTHONY N. CIVELLO
Name: Anthony N. Civello
Title: Director
53
<PAGE>
CORNELL CORRECTIONS, INC.
By:/s/ STEVE W. LOGAN
Name: Steve W. Logan
Title: Chief Financial Officer,
Secretary and Treasurer
54
<PAGE>
EXHIBIT 1.2
DEFINITIONS
AFFILIATE: with respect to any Person, means any Person directly or
indirectly controlling, controlled by or under common control with such Person,
and any natural Person who is an officer, director or partner of such Person and
any members of their immediate families living within the same household. A
Person shall be deemed to control another Person if such Person possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of such other Person, whether through the ownership of
voting securities, by contract or otherwise.
BALANCE SHEET: means the balance sheet of Seller as of December 31, 1996
described in SECTION 5.6.
BEST KNOWLEDGE OF SELLER: means, with respect to any matter in question,
knowledge of any of the directors or officers of Seller or Seller's onsite
management or knowledge that would have been disclosed through reasonable
diligence.
BUSINESS: means the business engaged in by Seller, consisting primarily of
owning and operating juvenile treatment programs and educational programs and/or
facilities, and holding certain rights under contracts, including without
limitation the Contracts set forth on SCHEDULE 3.1(viii).
BUSINESS PROPERTY: means the Acquired Property, the Improvements, the real
property and improvements that are the subject of the Assumed Leases and any
other property (whether real or personal) which Seller currently owns, leases,
manages or operates in any manner or which Seller or any of its organizational
predecessors formerly owned, leased, managed or operated in any manner.
CERCLA: means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended from time to time.
CLIENT: means any adult or juvenile parolee, probationer or other
resident, some of whom may be homeless juveniles, utilizing the facilities
operated as part of the Business.
CODE: means the Internal Revenue Code of 1986, as amended, or any amending
or superseding tax laws of the United States of America.
DAMAGES: includes damages, losses (including, but not limited to, any
diminution in value), shortages, liabilities, payments, obligations, penalties,
claims, causes of action, litigation, demands, defenses, judgments, suits,
proceedings, costs, disbursements or expenses (including,
<PAGE>
without limitation, fees, disbursements and expenses of attorneys, accountants
and other professional advisors and of expert witnesses and costs of
investigation, testing and preparation) of any kind or nature whatsoever.
EEOC: means United States Equal Employment Opportunity Commission.
ENVIRONMENTAL CLAIM: means any claim; litigation; demand; action; cause of
action; suit; loss; cost, including, but not limited to, attorneys' fees,
diminution in value, expert's fees; damage; punitive damage; fine, penalty,
expense, liability, criminal liability, judgment, governmental or private
investigation and testing; notification of status of being potentially
responsible for clean-up of any facility or for being in violation or in
potential violation of any Environmental Law; proceeding; lien; personal injury
or death of any person; or property damage, whether threatened, sought, brought
or imposed, that is related to or that seeks to recover Damages related to, or
seeks to impose liability regarding Seller or any of its subsidiaries or
operations conducted by any of them for: (i) improper use or treatment of
wetlands, pinelands or other protected land or wildlife; (ii) noise; (iii)
radioactive materials (including naturally occurring radioactive materials
["NORM"]); (iv) explosives; (v) pollution, contamination, preservation,
protection, decontamination, remediation or clean-up of the air, surface water,
groundwater, soil or protected lands; (vi) solid, gaseous or liquid waste
generation, handling, discharge, release, threatened release, treatment,
storage, disposal or transportation; (vii) exposure of persons or property to
Materials of Environmental Concern and the effects thereof; (viii) the release,
threatened release, generation, extraction, mining, beneficiating, manufacture,
processing, distribution in commerce, use, transfer, transportation, treatment,
storage, disposal or Remediation of Materials of Environmental Concern; (ix)
injury to, death of or threat to the health or safety of any person or persons
caused directly or indirectly by Materials of Environmental Concern; (x)
destruction caused directly or indirectly by Materials of Environmental Concern
or the release or threatened release of any Materials of Environmental Concern
on any property (whether real or personal); (xi) the implementation of spill
prevention and/or disaster plans relating to Materials of Environmental Concern;
(xii) community right-to-know and other disclosure laws; or (xiii) maintaining,
disclosing or reporting information to governmental authorities under any
Environmental Law. The term, "Environmental Claim" also includes, without
limitation, any Damages incurred in testing for the need for Remediation or for
breach or violation of any Environmental Laws; monitoring or responding to
efforts to require Remediation and any claim based upon any asserted or actual
breach or violation of any Environmental Law.
ENVIRONMENTAL LAWS: means any and all laws, common law, statutes,
ordinances, rules, regulations, judgments, guidance documents, orders or other
official acts or determinations of any Governmental Authority relating to the
preservation or protection of the environment, human health or safety, a
community's right to know, or regulating or imposing liability or standards of
conduct concerning any hazardous or solid waste, hazardous, toxic or other
regulated substances, elements, compounds, mixtures or materials in any and all
jurisdictions in which property of Seller is located or the Business is
conducted or in which such Business at any
<PAGE>
time has been conducted, including, without limitation, (a) CERCLA, (b) RCRA,
(c) the Solid Waste Disposal Act, as amended, (d) the Hazardous and Solid Waste
Amendments Act of 1984, as amended, (e) the Clean Air Act, as amended, (f) the
Toxic Substances Control Act, as amended, (g) the Safe Drinking Water Act, as
amended, (h) the Federal Water Pollution Prevention and Control Act, as amended,
(i) the Occupational Safety and Health Act of 1970, as amended, (j) the
Hazardous Materials Transportation Act, as amended, (k) the Rivers and Harbors
Act of 1899, as amended, and (l) any rules and regulations promulgated pursuant
to any or all of (a) through (k) above. The terms "RELEASE"or "THREATENED
RELEASE" shall have the meanings specified in CERCLA, and the terms "SOLID
WASTE" and "DISPOSAL" (or "DISPOSED") shall have the meanings specified in RCRA;
PROVIDED, HOWEVER, that, to the extent the laws of any jurisdiction applicable
to Seller or any of its properties or assets establish a meaning for "release,"
"solid waste" or "disposal" which is broader than that specified in either
CERCLA or RCRA, such broader meaning shall apply in such jurisdiction.
EPA: means the United States Environmental Protection Agency and any
successor organization.
ERISA: means the Employee Retirement Income Security Act of 1974, as
amended.
GOVERNMENTAL AUTHORITY: means any nation or government, any state or
political subdivision thereof and any agency or entity exercising executive,
legislative, judicial, regulatory or administrative functions of, or pertaining
to, government.
KNOWLEDGE OF SELLER: means, with respect to any matter in question, actual
knowledge of any of the directors or officers of Seller.
LIEN: means any mortgage, pledge, hypothecation, security interest,
encumbrance, right of first refusal, option, lien, charge, condition,
restriction or burden of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, any lease in
the nature thereof and the filing of, or agreement to give, any financing
statement under the Uniform Commercial Code of any jurisdiction).
MATERIAL ADVERSE EFFECT: means any material adverse effect on the
business, financial condition, properties, prospects, net worth or results of
operations of Seller.
MATERIALS OF ENVIRONMENTAL CONCERN: means: (i) those substances
included within the statutory and/or regulatory definitions of "hazardous
substance," "hazardous waste," "extremely hazardous substance," "regulated
substance," "hazardous materials," or "toxic substances," under any
Environmental Law; (ii) any material, waste or substance which is or contains:
(A) petroleum, oil or a fraction thereof, (B) explosives, (C) radioactive
materials (including naturally occurring radioactive materials), or (D) solid
wastes that post imminent and substantial endangerment to health or the
environment; and (iii) such other substances, materials, or wastes that are or
become classified or regulated as hazardous or toxic under any applicable
<PAGE>
federal, state or local law or regulation. To the extent that the laws or
regulations of any applicable state or local jurisdiction establish a meaning
for any term defined herein through reference to federal Environmental Laws
which is broader than the meaning under such federal Environmental Laws, such
broader meaning shall apply.
OSHA: means the United States Occupational Safety and Health
Administration.
PERMITTED ENCUMBRANCES: means (a) materialmen's, mechanics', repairmen's,
employees', contractors', operators', tax and other similar liens or charges
arising in the ordinary course of business prior to the Closing Date (i) if they
relate to obligations that have not yet become due and payable or (ii) if their
validity is being contested in good faith by appropriate actions; (b) minor
defects and irregularities affecting title to the assets of Seller, but only if
such defects and irregularities do not and will not impair the operation, value,
marketability or use of the asset affected by such defect or irregularity; (c)
rights reserved to or vested in any governmental body to control or regulate any
asset in any manner that does not materially impair the value or use of such
asset; and (d) encumbrances deemed to be Permitted Encumbrances pursuant to
SECTION 7.4(c) hereof.
PERSON: means any individual, partnership, joint venture, corporation,
limited liability company, association, trust, unincorporated organization,
government or agency or subdivision thereof or any other entity.
PLAN: means an "employee benefit plan" (as defined in Section 3(3) of
ERISA) which is or has been established or maintained, or to which contributions
are or have been made, by Seller or by any trade or business, whether or not
incorporated, which, together with Seller, is under common control, as described
in Section 414(b) or (c) of the Code.
RCRA: means the Resources Conservation and Recovery Act of 1976, as
amended from time to time.
SUBSIDIARY or SUBSIDIARIES: means, with respect to any specified Person, a
corporation, partnership, joint venture, trust, limited liability company,
unincorporated organization or other Person at least a majority of whose
securities having ordinary voting power for the election of its board of
directors or other similar managing body are, at the time as of which any
determination is being made, owned legally or beneficially by such Person or one
or more Subsidiaries thereof.
TAX RETURN: means any return, report, statement, information return or
other document (including any related or supporting information) filed or
required to be filed with any Governmental Authority in connection with the
determination, assessment or collection of any Taxes or the administration of
any laws, regulations or administrative requirements relating to any Taxes.
<PAGE>
TAXES: means all federal, foreign, state, local or other net or gross
income, gross receipts, sales, use, transfer, real property gains or transfer,
school, ad valorem, property, value-added, franchise, production, severance,
windfall profit, withholding, payroll, employment, excise or similar taxes,
assessments, duties, fees, levies or other governmental charges, together with
any interest thereon, any penalties, additions to tax or additional amounts with
respect thereto and any interest in respect of such penalties, additions or
additional amounts.
TRANSACTION EXPENSES: means all fees, costs and expenses of Seller
incurred in connection with the negotiation, preparation and execution of this
Agreement and the transactions contemplated hereby or in previous negotiations
with other potential purchasers, including but not limited to Seller's
attorneys' fees and brokers' and finders' fees.
<PAGE>
EXHIBIT 11.1
CORNELL CORRECTIONS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------------------------------------------------------- ------------
SIX MONTHS ENDED YEAR ENDED
YEAR ENDED DECEMBER 31, JUNE 30, DECEMBER 31,
----------------------------------------------------- -------------------- ------------
1992 1993 1994 1995 1996 1996 1997 1996
--------- --------- --------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss).................... $ 940 $ (915) $ (600) $ (989) $ (2,379) $ (710) $ 1,295 $2,448
========= ========= ========= ========= ========= ========= ========= ============
Weighted average shares outstanding
Weighted average common shares
and common share equivalents... 1,603 1,807 2,923 3,188 4,228 3,190 7,359 6,881
Less treasury shares............. 0 0 0 (93) (555) (555) (555) (555)
Effect of shares issuable under
stock options and warrants
based on the treasury stock
method......................... 888 888 888 888 793 888 335 793
Common shares offered by the
Company(1)..................... 1,656
--------- --------- --------- --------- --------- --------- --------- ------------
Weighted average common
shares and common share
equivalents................ 2,491 2,695 3,811 3,983 4,466 3,523 7,139 8,775
========= ========= ========= ========= ========= ========= ========= ============
--------- --------- --------- --------- --------- --------- --------- ------------
Earnings (loss) per share............ $ 0.38 $ (0.34) $ (0.16) $ (0.25) $ (0.53) $ (0.20) $ 0.18 $ 0.28
========= ========= ========= ========= ========= ========= ========= ============
</TABLE>
PRO FORMA
----------
SIX MONTHS
ENDED
JUNE 30,
-----------
1997
-----------
Net income (loss).................... $ 2,141
===========
Weighted average shares outstanding
Weighted average common shares
and common share equivalents... 7,359
Less treasury shares............. (555)
Effect of shares issuable under
stock options and warrants
based on the treasury stock
method......................... 335
Common shares offered by the
Company(1)..................... 1,656
-----------
Weighted average common
shares and common share
equivalents................ 8,795
===========
-----------
Earnings (loss) per share............ $ 0.24
===========
- ------------
(1) Pro forma shares for the Offering include only 1,656,000 of the 2,459,073
shares (which includes 209,073 shares issued upon the exercise of warrants)
sold in the Offering. The 803,073 shares represent shares assumed
repurchased with the net cash proceeds received by the Company.
EXHIBIT 21.1
SUBSIDIARY STATE OF INCORPORATION
Cornell Corrections Management, Inc. Delaware
Cornell Corrections of Texas, Inc. Delaware
Cornell Corrections of Rhode Island, Inc. Delaware
Cornell Corrections of California, Inc. California
Abraxas Group, Inc. Delaware
WBP Leasing, Inc. Delaware
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and all references to our Firm included in this registration statement on
Form S-1 filed by Cornell Corrections, Inc.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Houston, Texas
September 16, 1997
