SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
CORNELL CORRECTIONS, INC.
(Name of Registrant as Specified in its Charter)
_____________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid: __________________________________________
2. Form, Schedule or Registration Statement No.: _____________________
3. Filing Party: _____________________________________________________
4. Date Filed: _______________________________________________________
<PAGE>
CORNELL CORRECTIONS, INC.
1700 West Loop South, Suite 1500
Houston, Texas 77027
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 25, 2000
To the Stockholders of Cornell Corrections, Inc.:
Notice is hereby given that the annual meeting of stockholders (the
"Annual Meeting") of Cornell Corrections, Inc. (the "Company") will be held at
the Houston Marriott West Loop, 1750 West Loop South, Houston, Texas 77027, at
10:00 a.m., Central time, on Thursday, May 25, 2000, for the following purposes:
1. To elect eight directors to the Board of Directors.
2. To approve an amendment to Article First of the Company's Restated
Certificate of Incorporation to change the name of the Company to
"Cornell Companies, Inc.," as more fully set forth under "Proposal
No. 2."
3. To approve the Cornell Employee Stock Purchase Plan, as more fully
set forth under "Proposal No. 3."
4. To approve the appointment of Arthur Andersen LLP as independent
public accountants for 2000.
5. To transact such other business as may properly come before the
Annual Meeting, or any adjournment or adjournments thereof.
Stockholders of record at the close of business on April 12, 2000 will be
entitled to notice of and to vote at the Annual Meeting, or any adjournment or
adjournments thereof. You are cordially invited to attend the Annual Meeting in
person. Even if you plan to attend the Annual Meeting, you are requested to
mark, sign, date and mail promptly the enclosed proxy for which a return
envelope is provided.
By Order of the Board of Directors
Kevin B. Kelly, SECRETARY
Houston, Texas
April 17, 2000
WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE ANNUAL MEETING, YOU ARE URGED
TO MARK, SIGN, DATE AND MAIL PROMPTLY THE ENCLOSED PROXY. IF YOU ATTEND THE
ANNUAL MEETING, YOU CAN VOTE EITHER IN PERSON OR BY YOUR PROXY.
<PAGE>
CORNELL CORRECTIONS, INC.
1700 WEST LOOP SOUTH, SUITE 1500
HOUSTON, TEXAS 77027
PROXY STATEMENT
SOLICITATION AND REVOCABILITY OF PROXIES
This Proxy Statement and accompanying proxy card are furnished in
connection with the solicitation of proxies on behalf of the Board of Directors
of Cornell Corrections, Inc., a Delaware corporation (the "Company"), for use at
the annual meeting of stockholders to be held on Thursday, May 25, 2000, at the
Houston Marriott West Loop, 1750 West Loop South, Houston, Texas 77027, at 10:00
a.m., Central time, or at any adjournment or adjournments thereof (such meeting
or adjournment(s) thereof referred to as the "Annual Meeting"). Copies of the
Proxy Statement and the accompanying proxy card are being mailed to stockholders
on or about April 17, 2000.
In addition to solicitation by mail, solicitation of proxies may be made
by personal interview, special letter, telephone or telecopy by regular
employees of the Company. Brokerage firms will be requested to forward proxy
materials to beneficial owners of shares registered in their names and will be
reimbursed for their reasonable expenses. The cost of solicitation of proxies
will be paid by the Company.
A proxy received by the Board of Directors of the Company may be revoked
by the stockholder giving the proxy at any time before it is exercised. A
stockholder may revoke a proxy by notification in writing to the Company at 1700
West Loop South, Suite 1500, Houston, Texas 77027, Attention: Corporate
Secretary. A proxy may also be revoked by execution of a proxy bearing a later
date or by attendance at the Annual Meeting and voting by ballot. A proxy in the
form accompanying this Proxy Statement, when properly executed and returned,
will be voted in accordance with the instructions contained therein. A proxy
received by management which does not withhold authority to vote or on which no
specification has been indicated will be voted FOR the election as directors of
the nominees listed therein, FOR the other proposals set forth in this Proxy
Statement, and in the discretion of the persons named in the proxy in connection
with any other business that may properly come before the Annual Meeting. A
majority of the outstanding shares will constitute a quorum at the Annual
Meeting. Information regarding the vote required for approval of particular
matters is set forth in the discussion of those matters appearing elsewhere in
this Proxy Statement. Abstentions and broker non-votes are counted for purposes
of determining the presence or absence of a quorum for the transaction of
business.
COMMON STOCK OUTSTANDING AND PRINCIPAL HOLDERS THEREOF
The Board of Directors has fixed the close of business on April 12, 2000,
as the record date for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting. At that date there were outstanding 9,582,528
shares of common stock, par value $0.001 per share ("Common Stock"), of the
Company and the holders thereof will be entitled to one vote for each share of
Common Stock held of record by them on that date for each proposal to be
presented at the Annual Meeting.
The following table sets forth information with respect to the shares of
Common Stock (the only outstanding class of voting securities of the Company)
owned of record and beneficially as of April 12, 2000, unless otherwise
specified, by (i) all persons known to possess voting or dispositive power over
more than 5% of the Common Stock, (ii) each director and named executive
officer, and (iii) all directors and executive officers of the Company as a
group:
-2-
<PAGE>
- -------------------------------------------------------------------------------
AMOUNT AND NATURE
OF
BENEFICIAL PERCENTAGE
OWNERSHIP (1) OF CLASS
Lord, Abbett & Co. (2)................ 1,241,210 12.9%
90 Hudson Street
Jersey City, New Jersey 07302
Scudder Kemper Investments, Inc.(3)... 885,600 9.2%
Two International Place
Boston, Massachusetts 02110
J & W Seligman & Co. Incorporated (4). 822,096 8.6%
100 Park Avenue
New York, New York 10017
Wellington Management Company, LLP (5) 594,100 6.2%
75 State Street
Boston, Massachusetts 02109
Dimensional Fund Advisors Inc. (6).... 491,300 5.1%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Anthony R. Chase...................... 2,000 *
James H. S. Cooper.................... 12,000 *
David M. Cornell (7).................. 515,987 5.3%
Campbell A. Griffin, Jr............... 20,000 *
John L. Hendrix....................... 7,200 *
Thomas R. Jenkins..................... 14,237 *
Peter A. Leidel....................... 28,876 *
Arlene R. Lissner..................... 10,525 *
Steven W. Logan....................... 264,957 2.7%
Tucker Taylor......................... 27,500 *
Marvin H. Wiebe, Jr................... 28,007 *
All directors and executive officers as
a group (11 persons)................ 942,539 9.5%
- -----------------
* Less than 1.0%.
(1) Shares of Common Stock listed include shares subject to stock options
exercisable within 60 days (5,750 for Mr. Chase, 5,750 for Mr. Cooper,
132,124 for Mr. Cornell, 19,000 for Mr. Griffin, 13,999 for Mr. Jenkins,
15,250 for Mr. Leidel, 8,000 for Ms. Lissner, 141,374 for Mr. Logan,
19,000 for Mr. Taylor, 21,000 for Mr. Wiebe, and 381,247 for all the above
as a group).
(2) Based on a filing made with the SEC reflecting ownership of Common Stock
as of December 31, 1999. The filing indicates sole voting and dispositive
power for 1,241,210 shares of Common Stock.
(3) Based on a filing made with the SEC reflecting ownership of Common Stock
as of December 31, 1999. The filing indicates sole voting power for
593,200 shares of Common Stock, shared voting power for 12,600 shares of
Common Stock and sole dispositive power for 885,600 shares of Common
Stock.
-3-
<PAGE>
(4) Based on a filing made with the SEC reflecting ownership of Common Stock
as of December 31, 1999. The filing indicates shared voting power for
673,800 shares of Common Stock and shared dispositive power for 822,096
shares of Common Stock.
(5) Based on a filing made with the SEC reflecting ownership of Common Stock
as of December 31, 1999. The filing indicates shared voting power for
486,800 shares of Common Stock and shared dispositive power for 594,100
shares of Common Stock.
(6) Based on a filing made with the SEC reflecting ownership of Common Stock
as of December 31, 1999. The filing indicates sole voting and dispositive
power for 491,300 shares of Common Stock.
(7) Based on a filing made with the SEC reflecting ownership of Common Stock.
The filing indicates sole voting power for 515,987 shares of Common Stock
and sole dispositive power for 427,322 shares of Common Stock. Includes
88,665 shares over which Jane B. Cornell, the former wife of David M.
Cornell, has sole dispositive power and, pursuant to a voting agreement,
over which Mr. Cornell has sole voting power.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers to file
with the Securities and Exchange Commission and the New York Stock Exchange
initial reports of ownership and reports of changes in ownership of Common
Stock. Based solely on a review of the copies of such reports furnished to the
Company and written representations that no other reports were required, the
Company believes that all its directors and executive officers during 1999
complied on a timely basis with all applicable filing requirements under Section
16(a) of the Exchange Act, except that Mr. Leidel, director of the Company, did
not timely file a Form 4.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
GENERAL
Eight directors are to be elected at the Annual Meeting. Each nominee is
currently a director of the Company. The persons named as proxy holders in the
accompanying proxy intend to vote each properly signed and submitted proxy FOR
the election as a director of each of the persons named as a nominee below under
"Nominees for Director" unless authority to vote in the election of directors is
withheld on such proxy. The directors will be elected to hold office until the
next annual meeting of stockholders or until their successors are elected and
qualified. If, for any reason, at the time of the election one or more of the
nominees should be unable to serve, the proxy will be voted for a substitute
nominee or nominees selected by the Board of Directors. In accordance with the
Company's Amended and Restated Bylaws, the directors will be elected by a
plurality of votes cast at the Annual Meeting. Abstentions and broker non-votes
will not be taken into account in determining the outcome of the election.
THE COMPANY RECOMMENDS VOTING "FOR" THE NOMINEES.
-4-
<PAGE>
NOMINEES FOR DIRECTOR
The following table sets forth the name, age and principal position of
each nominee for director:
NAME AGE POSITION
---- --- --------
David M. Cornell......... 64 Director; Chairman of the Board
Steven W. Logan.......... 38 Director; President and Chief Executive Officer
Anthony R. Chase......... 45 Director
James H.S. Cooper........ 45 Director
Campbell A. Griffin, Jr.. 70 Director
Peter A. Leidel.......... 43 Director
Arlene R. Lissner........ 69 Director; Director, National Marketing
Tucker Taylor............ 61 Director
DAVID M. CORNELL has been a director of the Company and the Chairman of
the Board of the Company since its founding. Mr. Cornell also served as
President and Chief Executive Officer of the Company from its founding until
August 1999.
STEVEN W. LOGAN has been a director and the President and Chief Executive
Officer of the Company since August 1999. Prior to August 1999, Mr. Logan served
as Executive Vice President of the Company since April 1998 and was Chief
Operating Officer from April 1998 through December 1998. Previously, Mr. Logan
served as Senior Vice President of the Company from November 1997 to April 1998,
and Chief Financial Officer, Treasurer and Secretary of the Company from 1993 to
April 1998. From 1984 to 1993, Mr. Logan served in various positions with Arthur
Andersen LLP, Houston, most recently as an Experienced Manager. Mr. Logan is a
Certified Public Accountant.
ANTHONY R. CHASE has been a director of the Company since October 1999.
Mr. Chase has served as Chairman and Chief Executive Officer of ChaseCom Limited
Partnership since December 1998 and as President and Chief Executive Officer of
Faith Broadcasting, L.P. since November 1993. Mr. Chase is also Chairman of the
Board of the Telecom Opportunity Institute, a national, non-profit organization
founded by ChaseCom Limited Partnership to increase career, education and job
training opportunities in the telecommunications industry for people in
historically underserved communities. Mr. Chase is also a Professor of Law at
the University of Houston Law Center.
JAMES H. S. COOPER has been a director of the Company since October 1999.
Mr. Cooper is the founder and Chairman of Brentwood Capital Advisors LLC of
Brentwood, Tennessee, where he has been since May 1999. Mr. Cooper was a
Managing Director of SunTrust Equitable Securities Corporation of Nashville,
Tennessee from April 1995 to April 1999, and served as Congressman, 4th District
of Tennessee in the United States House of Representatives from 1983 to 1995.
Mr. Cooper has also been an Adjunct Professor at the Owen School of Management
at Vanderbilt University since 1995.
CAMPBELL A. GRIFFIN, JR. has been a director of the Company since October
1996 and is currently managing personal investments. 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.
PETER A. LEIDEL has been a director of the Company and its predecessor
since May 1991. Mr. Leidel is founder and Managing Director of Yorktown Partners
LLC, and a partner of Ticonderoga Capital, both of which manage private
investment funds. In September 1997, Mr. Leidel resigned as Senior Vice
President of Dillon Read & Co, Inc. (a predecessor of SBC Warburg Dillon Read,
Inc.) where he worked since 1983 managing private investment funds. Mr. Leidel
is a director of Willbros Group, Inc. and five private companies.
-5-
<PAGE>
ARLENE R. LISSNER has been a director of the Company since September 1997
when the Company acquired Abraxas, and is President of Cornell Abraxas Group,
Inc., a wholly-owned subsidiary of the Company. 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 Chief
Executive Officer of Abraxas from April 1996 through September 1997.
TUCKER TAYLOR has been a director of the Company since October 1996. Mr.
Taylor, an advisor to the health care and corrections industries, joined Medical
Care International as Executive Vice President in 1992, and remained with
Columbia/HCA through 1997 following its acquisition of Medical Care
International. Prior thereto, he was a marketing and planning consultant. Mr.
Taylor is also a director of SuperShuttle, a privately held ground
transportation company, and Alta Healthcare Systems, a privately held hospital
company.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Audit Committee and Compensation Committee,
the members of which are not employees of the Company, and a Nominating
Committee. The Audit Committee, which is composed of James H.S. Cooper, Campbell
A. Griffin, Jr., and Tucker Taylor, held 10 meetings during the last fiscal
year. Mr. Cooper became a member of the Audit Committee in October 1999. 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 auditing engagement,
approves other professional services provided by the independent accountants and
evaluates the independence of the accountants. The Audit Committee also reviews
the adequacy of the Company's system of internal accounting controls.
The Compensation Committee, which is composed of Anthony R. Chase, Peter
A. Leidel and Tucker Taylor, held six meetings during the last fiscal year. Mr.
Chase became a member of the Compensation Committee in October 1999. 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 whose compensation
exceeds specified levels. The Compensation Committee also acts on the granting
of stock options, including those under the Company's Amended and Restated 1996
Stock Option Plan (the "1996 Plan"). The Board does not have a standing
nominating committee or other committee performing a similar function.
The Nominating Committee, which is composed of David M. Cornell, Campbell
A. Griffin, Jr., and Peter A. Leidel, held one meeting during the last fiscal
year. The Nominating Committee recommends candidates for the Board of Directors
and approves the naming of the Company's executive officers.
During 1999, the Board of Directors held 16 meetings. During 1999, all
members of the Board of Directors attended at least 75% of the total of all
Board meetings and applicable committee meetings.
DIRECTOR COMPENSATION
Messrs. Cornell and Logan and Ms. Lissner do not receive compensation for
serving as directors. Messrs. Griffin, Leidel, Taylor, Chase and Cooper receive
an annual fee of $15,000, a fee of $1,500 for attendance at each Board of
Directors meeting and a fee of $1,000 for attendance at each committee meeting
(unless held on the same day as a Board of Directors meeting). In December 1999,
the Company granted to Mr. Chase and Mr. Cooper nonqualified options to purchase
15,000 shares of Common Stock under the 1999 Plan. The options to Messrs. Chase
and Cooper vested 25% on the date of the grant and the remainder vest ratably
over three years with a term of 10 years and have a per share exercise price
equal to the market value of a share of Common Stock on the date of the grant.
Additionally, Messrs. Chase, Cooper, Griffin, Leidel and Taylor were each
granted nonqualified options to purchase 2,000 shares of Common Stock under the
1996 Plan in January 2000. These options vested 100% on the date of the grant
with a term of 10 years and have a per share exercise price equal to the market
value of a share of Common Stock on December 31, 1999. 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.
-6-
<PAGE>
EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
The following table sets forth the names, ages and positions of the
persons who are not directors and who are executive officers and other key
employees of the Company:
NAME AGE POSITION
---- --- --------
John L. Hendrix.............. 51 Vice President and Chief Financial Officer
Thomas R. Jenkins............ 52 Vice President and Chief Operating Officer
Marvin H. Wiebe, Jr.......... 52 Senior Vice President
Gary L. Henman............... 60 Vice President, Adult Secure Institutions
John C. Godlesky............. 53 Vice President, Eastern Region
Laura J. Shol................ 44 Vice President, Western Region
Leslie A. Balonick........... 48 Vice President, Mid-West Region
JOHN L. HENDRIX has been Vice President and Chief Financial Officer of the
Company since September 1999. Mr. Hendrix previously served as Senior Vice
President and Chief Financial Officer of GC Services from 1998 to August 1999.
From 1996 to 1998, Mr. Hendrix served as Senior Vice President and Chief
Financial Officer of APS Holding Corporation. Mr. Hendrix served as Senior Vice
President and Chief Financial Officer at Kay-Bee Toy Stores in 1996 and held
various financial positions at Kay-Bee Toy Stores since 1991. Mr. Hendrix is a
Certified Public Accountant.
THOMAS R. JENKINS has been Vice President of the Company since May 1999
and Chief Operating Officer of the Company since January 1999. Mr. Jenkins
previously served as Vice President, Juvenile since September 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.
MARVIN H. WIEBE, JR. has been Senior Vice President of the Company since
November 1997 and Vice President of the Company since the Company acquired
Eclectic Communications, Inc. ("Eclectic") in 1994. He was previously Vice
President---Administration and Finance, Vice President---Secure Detention and
Chief Financial Officer of Eclectic, where he was employed for 11 years. Mr.
Wiebe has served as President of the International Community Corrections
Association ("ICCA") and as an auditor for the American Correctional Association
("ACA") Commission on Accreditation for Corrections and is a member of the ICCA,
the California Probation Parole & Correctional Association and the ACA.
GARY L. HENMAN has been Vice President, Adult Secure Institutions since
October 1998 and National Director of Quality Assurance since June 1998. He was
previously an associate professor at Louisiana State University from 1997 to
September 1998. From 1973 to 1997, Mr. Henman was with the Federal Bureau of
Prisons ("FBOP"), progressing to Deputy Regional Director and Warden of five
facilities, including the United States Penitentiaries at Leavenworth, Kansas
and Marion, Illinois. Mr. Henman was Chairman of both the FBOP High Security
Facility Task Force and the FBOP Task Force on Vocational Training.
JOHN C. GODLESKY has been Vice President, Eastern Region, since November
1999 and Vice President, Juvenile since January 1999. He previously served as
Director, Division of Residential Programs of Abraxas from June 1993 to December
1998, and was responsible for the overall development, direction and management
of Abraxas' juvenile residential programs.
LAURA J. SHOL has served as Vice President, Western Region since November
1999 and as Vice President, Pre-Release since November 1997, and was 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.
-7-
<PAGE>
LESLIE A. BALONICK has been Vice President, Mid-West Region since the
Company acquired Interventions in November 1999. She previously served as Acting
Clinical Director for BHS Consulting Corp. from September 1998 to November 1999
and as Director of Planning and Business Development from 1996 to August 1998.
From 1991 to 1996, she served as Regional Manager for Interventions. Ms.
Balonick serves as a member of the Women's Committee of the Illinois Department
of Human Services, Office of Alcoholism and Substance Abuse Advisory Board and
is a Clinically Certified Substance Abuse Counselor.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At December 31, 1999, the Company had notes and accrued interest
receivable from Mr. Cornell and Mr. Logan in the amounts of $654,988 and
$319,570, respectively. These amounts were the largest amount of indebtedness
outstanding at any time during 1999. Interest on the notes, which were incurred
upon the exercise of stock options and in connection with other personal
matters, is charged annually at a rate of 6.63% and the notes mature in June
2004.
In September 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 agreed to pay Ms. Lissner
10 annual installments of $60,000 each beginning on January 2, 1998. Such
payments may be accelerated upon the mutual agreement of Ms. Lissner and the
Company.
Effective as of September 1, 1999, as part of the consultant agreement
that the Company entered into with Mr. Cornell, Mr. Cornell agreed for a period
of 10 years not to: (i) within the United States, transact or take part in any
competitive business (as defined in the consultant agreement) or render any
service to any person or entity engaged in a competitive business; (ii) share in
the earnings of, beneficially own any security issued by, or otherwise own any
interest in any person or entity engaged in a competitive business within the
United States; or (iii) hire or solicit the services of any person or entity
employed or engaged to perform services for the Company or any of its
affiliates, or cause any such person or entity to leave the employment or
services of the Company or any of its affiliates. In consideration of Mr.
Cornell's agreements, the Company agreed to pay Mr. Cornell $10,000 per month
during the seven-year initial term of the consultant agreement.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors is responsible for
all decisions regarding compensation for the Company's executive officers. The
Compensation Committee is composed of Anthony R. Chase, Peter A. Leidel and
Tucker Taylor, each an independent non-employee director.
The Company's executive compensation program is focused on stockholder
value, the overall performance of the Company, success of the Company as
impacted by the executive's performance and the performance of the individual
executive.
The Compensation Committee's objective is to provide competitive levels of
compensation to the Company's executive officers that are integrated with the
Company's annual long-term performance goals, reward above-average corporate
performance, recognize individual initiative and achievements and assist the
Company in attracting and retaining qualified executives. The compensation
policies and programs utilized by the Compensation Committee and endorsed by the
Board of Directors generally consists of the following:
(i) Recommend executive officer total compensation in relation to
Company performance;
(ii) Provide a competitive compensation program in order to
attract, motivate, and retain qualified personnel;
-8-
<PAGE>
(iii) Provide a management tool for focusing and directing the
energies of key executives toward achieving individual and
corporate objectives; and
(iv) Provide long-term incentive compensation in the form of annual
stock option awards and performance-based stock option awards
to link individual success to that of the Company.
The Company's executive compensation consists of three key components:
base salary, annual incentive compensation in the form of cash bonuses, and
stock options, each of which is intended to complement the others and, taken
together, to satisfy the Company's compensation objectives. The Compensation
Committee's policies with respect to each of the three components are discussed
below.
BASE SALARY. Each fiscal year the Compensation Committee, along with the
CEO, reviews and approves an annual salary plan for the Company's executive
officers. This salary plan is developed by the CEO. Many factors are included in
determining base salaries, such as the responsibilities borne by the executive
officer, the scope of the position, length of service with the Company and
corporate and individual performance.
CASH BONUSES. The Compensation Committee provides annual incentives to the
Company's executive officers in the form of cash bonuses. These bonuses are
discretionary and are based on (i) the relative success of the Company in
attaining certain financial objectives and the individual's contribution to the
achievement of those financial objectives, and (ii) certain subjective factors
as established from time to time by the Compensation Committee.
STOCK OPTIONS. The primary objective of the stock option program is to
link the interests of the Company's executive officers and other selected
employees to the stockholders through significant annual grants of stock
options. The Company's existing 1996 Plan authorizes the issuance of both
incentive and non-qualified stock options to officers and key employees of the
Company. Subject to general limits prescribed by the 1996 Plan, the Compensation
Committee has the authority to determine the individuals to whom stock options
are awarded, the terms of the options and the number of shares subject to each
option. The size of any particular stock option award is based upon position and
the individual performance during the related evaluation period.
CHIEF EXECUTIVE OFFICER'S COMPENSATION. The Compensation Committee's basis
for compensation of the CEO is derived from the same considerations addressed
above. During 1999, Mr. Cornell served as CEO until August 1999. Mr. Logan has
served as CEO since August 1999. Mr. Cornell and Mr. Logan participate in the
same executive compensation plans available to the other executive officers.
From January 1999 to August 1999, the salary of Mr. Cornell was $375,000. In
January 2000, The Compensation Committee increased the salary of Mr. Logan to
$300,000. The compensation level established for Mr. Logan was in response to
Mr. Logan's promotion to CEO and the continued recognition of Mr. Logan's
leadership of the Company.
Submitted by the Compensation Committee of the Company's Board of
Directors.
Peter A. Leidel, Chairman
Anthony R. Chase, Member
Tucker Taylor, Member
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Board are Messrs. Chase,
Leidel and Taylor. None of these directors has at any time been an officer or
employee of the Company and none of these directors serves as a member of the
board of directors or compensation committee of any entity that has one or more
executive officers serving as a member of the Company's Board or Compensation
Committee.
-9-
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth compensation information for the chief
executive officer and the four other most highly compensated executive officers
(the "named executive officers") of the Company during the Company's fiscal
years 1999, 1998 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------- ------------
SECURITIES ALL
FISCAL UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION (1)
- ------------------------------------ ------ ------- ------- ---------- ----------------
($) ($) (#) ($)
<S> <C> <C> <C> <C> <C>
David M. Cornell (2) ............... 1999 226,961 -- 160,000 129,654
Chairman of the Board .......... 1998 280,000 205,000 250,000 7,308
1997 200,000 75,000 -- 5,452
Steven W. Logan (3) ................ 1999 252,024 -- 100,000 5,380
President and Chief ............ 1998 187,500 130,000 160,000 4,764
Executive Officer .............. 1997 136,666 50,000 -- 5,024
John L. Hendrix (4) ................ 1999 64,904 -- 100,000 1,869
Vice President and Chief
Financial Officer
Thomas R. Jenkins (5) .............. 1999 172,822 -- -- 17,805
Vice President and Chief ....... 1998 116,713 40,000 25,000 3,300
Operating Officer .............. 1997 32,812 -- 10,000 1,100
Arlene R. Lissner (6) .............. 1999 153,694 -- -- 8,935
Director, National Marketing ... 1998 127,412 40,000 10,000 5,641
1997 38,464 -- 10,000 --
Marvin H. Wiebe, Jr ................ 1999 148,466 -- --
Senior Vice President .......... 1998 146,324 25,000(7) 33,667 5,677
1997 130,000 25,000(7) 10,000 7,856
</TABLE>
- ---------------
(1) Amounts in 1999 for Messrs. Cornell, Logan, Hendrix, Jenkins, Ms. Lissner
and Mr. Weibe include (i) the Company's 401(k) matching contributions of
$3,250, $5,000, $1,529, $3,200, $3,777 and $5,000, respectively, and (ii)
group term life insurance premiums of $1,404, $380, $340, $913, $152, and
$923, respectively. Additionally, the amounts in 1999 for Mr. Jenkins and
Ms. Lissner include (i) $14,265 and $567, respectively for moving
expenses, and (ii) $4,439 for personal use of an automobile for Ms.
Lissner. Additionally, the amount in 1999 for Mr. Cornell includes
$125,000 of payments under Mr. Cornell's consulting agreement effective
September 1, 1999.
(2) Mr. Cornell served as President and Chief Executive Officer until August
1999.
(3) Mr. Logan has served as President and Chief Executive Officer since August
1999.
(4) Mr. Hendrix has served as Vice President and Chief Financial Officer since
September 1999.
(5) Mr. Jenkins joined the Company on September 9, 1997.
(6) Ms. Lissner joined the Company on September 9, 1997.
(7) Excludes $50,750 and $53,750 representing Mr. Wiebe's portion of an annual
fixed installment payment in 1998 and 1997, respectively, relating to an
acquisition by the Company in 1994
-10-
<PAGE>
The following table presents information regarding options granted to each
of the named executive officers in 1999.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED RATES OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR OPTION TERM(1)
OPTIONS EMPLOYEES PRICE EXPIRATION -------------------------------
NAME GRANTED IN 1999 PER SHARE DATE 5% 10%
---- ---------- ----------- --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
David M. Cornell.......... 160,000(2) 34.6% $10.50 12/9/2009 $1,056,543 2,677,487
Steven W. Logan........... 100,000(2) 21.6% $10.50 12/9/2009 $660,339 1,673,430
John L. Hendrix........... 100,000(3) 21.6% $16.00 9/30/2009 $1,006,231 $2,549,988
Thomas R. Jenkins......... -- -- -- -- -- --
Arlene R. Lissner......... -- -- -- -- -- --
Marvin H. Wiebe, Jr....... -- -- -- -- -- --
</TABLE>
- ----------------
(1) The values shown are based on the indicated assumed annual rates of
appreciation compounded annually. Actual gains realized, if any, on stock
option exercises and Common Stock holdings are dependent on the future
performance of the Common Stock and overall stock market conditions. There
can be no assurance that the values shown in this table will be achieved.
(2) Represents a single grant of options on December 9, 1999 for Messrs,
Cornell and Logan. These options vest on September 5, 2005; however, early
vesting can occur on the attainment of certain performance objectives. An
amount equal to 25% of the options vests 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.
(3) Represents a single grant of options on September 30, 1999, which is
exercisable in five equal installments beginning September 30, 2000.
-11-
<PAGE>
The following table presents information regarding options exercised in
1999 and the value of options outstanding at December 31, 1999 for each of the
named executive officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR END FISCAL YEAR END(1)
ACQUIRED VALUE ------------------------------ ------------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE(2) EXERCISABLE UNEXERCISABLE(2)
----------- -------- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
David M. Cornell ........................ -- $ -- 128,124 168,000 $ 443,326 $ --
Steven W. Logan ......................... -- $ -- 149,374 108,000 $ 571,882 $ --
John L. Hendrix ......................... -- $ -- -- 100,000 $ -- $ --
Thomas R. Jenkins ....................... -- $ -- 9,000 26,000 $ -- $ --
Arlene R. Lissner ....................... -- $ -- 6,000 14,000 $ 3,140 $ 4,710
Marvin H. Wiebe, Jr ..................... -- $ -- 21,000 37,667 $ 41,025 $ --
</TABLE>
- ---------------
(1) The excess, if any, of the market value of Common Stock at December 31,
1999 ($8.38) over the option exercise price(s).
(2) All of these options become immediately exercisable upon a change in
control of the Company.
-12-
<PAGE>
PERFORMANCE GRAPH
The following performance graph compares the cumulative total stockholder
return on the Common Stock to the cumulative total returns of the Russell 2000
Stock Index and the Company's peer group since the date the Common Stock began
trading on the American Stock Exchange (October 3, 1996) and on the New York
Stock Exchange beginning December 10, 1998. The graph assumes that the value of
the investment in the Common Stock and each index was $100 as of October 3, 1996
and that all dividends were reinvested on a quarterly basis.
TOTAL RETURN TO STOCKHOLDERS
(ASSUMES $100 INVESTMENT ON 10/3/96)
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
TOTAL RETURN ANALYSIS
10/3/96 12/31/96 12/31/97 12/31/98 12/31/99
CORNELL CORRECTIONS ... $100.00 $ 72.45 $169.59 $155.29 $ 68.45
PEER GROUP ............ $100.00 $ 97.70 $118.65 $ 82.54 $ 34.53
RUSSELL 2000 .......... $100.00 $104.85 $127.46 $124.61 $151.23
- -----------
(1) The Company's 1999 peer group consists of the following companies: Prison
Realty Trust, Wackenhut Corrections Corporation, Correctional Services
Corporation and Children's Comprehensive Services, Inc.
EMPLOYMENT AGREEMENTS
Effective as of September 1, 1999, the Company entered into a consultant
agreement with David M. Cornell pursuant to which Mr. Cornell agreed to serve as
Chairman of the Board for a period of four years. As compensation for his
services, the Company agreed to pay Mr. Cornell an annual salary of at least
$255,000 for each of the first four years of the seven-year initial term of the
consultant agreement and an annual salary of at least $180,000 for each of the
last three years of the seven-year initial term. If the Company and Mr. Cornell
agree to renew the consultant agreement for an additional three-year renewal
term, the Company has agreed to pay Mr. Cornell an annual salary of at least
$300,000 for each of the three years of the renewal term.
As additional compensation for his services, the Company has agreed to pay
Mr. Cornell an annual bonus equal to $75,000 during the first four years of the
initial term and an annual bonus of $60,000 during the last three years of the
initial term and during any renewal term. The Company has also agreed to grant
Mr. Cornell options to purchase an aggregate of 120,000 shares of the Common
Stock in four equal annual installments beginning on September 1, 2000. The
options have an exercise price equal to the fair market value of the Common
Stock on the date of grant and vest at the time such options are granted.
In September 1997, Cornell Abraxas Group, Inc., a Delaware corporation and
a wholly-owned subsidiary of the Company, and the Company entered into
employment agreements with Arlene R. Lissner and Thomas R. Jenkins. As
compensation for their services, Cornell Abraxas Group, Inc. agreed to pay Ms.
Lissner an annual salary of at least $125,000 for a period of three years and
Mr. Jenkins an annual salary of at least $105,000 for a period of three years.
As additional compensation for their services under the employment agreements,
in September 1999 Ms. Lissner and Mr. Jenkins were each granted options to
purchase 10,000 shares of the Common Stock. Ms. Lissner's options have an
exercise price equal to half of the fair market value of the Common Stock on the
date of grant. Her options vested 20% on September 9, 1998 and 20% on September
9, 1999, with the remainder vesting on September 9, 2000. Mr. Jenkins' options
have an exercise price equal to the fair market value of the Common Stock on
-13-
<PAGE>
the date of grant. His options vested 20% on September 9, 1998 and 20% on
September 9, 1999, with the remainder vesting 20% on each September 9 thereafter
until fully vested. The Company is a party to the employment agreements solely
to guarantee the performance of Cornell Abraxas Group, Inc.'s obligations
thereunder.
SEVERANCE AGREEMENTS
In December 1999, the Company entered into severance agreements with
John L. Hendrix, Thomas R. Jenkins, Arlene R. Lissner and Steven W. Logan. If a
listed officer's employment with the Company is terminated for any reason within
a year after a change in control (as defined in the severance agreements), the
Company has agreed that all stock options, restricted stock awards and similar
awards granted to the terminated officer by the Company prior to the termination
date will vest immediately on the termination date. In addition, the Company has
agreed to make the following severance payments upon such a termination:
(i) with respect to Mr. Logan, a payment equal to four times the sum of
(a) his highest annual base salary as of the termination date and
the change in control date and (b) the average annual bonus paid to
him by the Company or its affiliates in respect of the two most
recent full fiscal years (or one year if not employed for two years)
ending on or prior to the termination date;
(ii) with respect to each of Mr. Hendrix and Mr. Jenkins, a payment equal
to two times the sum of (a) his highest annual base salary as of the
termination date and the change in control date and (b) the average
bonus paid to him by the Company or its affiliates in respect of the
two most recent full fiscal years (or one year if not employed for
two years) ending on or prior to the termination date; and
(iii) with respect to Ms. Lissner, a payment equal to the sum of (a) her
highest annual base salary as of the termination date and the change
in control date and (b) the average bonus paid to her by the Company
or its affiliates in respect of the two most recent full fiscal
years (or one year if not employed for two years) ending on or prior
to the termination date.
The Company has agreed to pay the severance amounts in a lump sum in cash
(i) on the termination date if the Company terminates the officer and (ii)
within 30 days after the termination date if the officer's employment is
terminated by the officer or upon the officer's death or retirement.
-14-
<PAGE>
PROPOSAL NO. 2 -- PROPOSAL TO AMEND ARTICLE FIRST OF THE RESTATED CERTIFICATE
OF INCORPORATION TO CHANGE THE COMPANY'S NAME
The Board of Directors of the Company has approved an amendment to Article
First of the Company's Restated Certificate of Incorporation to change the name
of the Company to "Cornell Companies, Inc." and has directed that such amendment
be submitted to the stockholders for approval. To be approved, Proposal No. 2
must receive this affirmative vote of a majority of the shares of Common Stock
present in person or by proxy at the Annual Meeting and entitled to vote.
Uninstructed shares may not vote on Proposal No. 2, and therefore broker
non-votes do not affect the outcome. Abstentions have the effect of negative
votes. If Proposal No. 2 is approved, Article First of the Restated Certificate
of Incorporation shall be amended to read as follows:
FIRST: The name of the Corporation is Cornell Companies, Inc.
The Company is the third largest provider of private adult secure
institutional correctional and detention services in the United States, based on
total offender capacity. However, the Company is also one of the leading
providers of juvenile treatment, educational and detention services and
pre-release services in the United States, based on total offender capacity. The
Board of Directors believes that the name "Cornell Corrections, Inc." focuses on
the Company's adult secure institutional correctional and detention services
without reflecting the juvenile and pre-release services provided by the
Company, which have become a significant portion of the Company's business. The
Board of Directors believes that the name "Cornell Companies, Inc." is a more
appropriate name for the Company in light of the Company's strong participation
in all three of the principal segments of the private corrections industry.
THE COMPANY RECOMMENDS VOTING "FOR" PROPOSAL NO. 2
PROPOSAL NO. 3 -- APPROVAL OF CORNELL EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors believes that the Cornell Employee Stock Purchase
Plan (the "Plan") is an important way to enhance stockholder value by
encouraging employees to acquire an ownership interest in the Company and by
aligning employee efforts with the financial success of the Company. Therefore,
the Board of Directors has approved the Plan and directed that the Plan be
submitted to the stockholders for approval. The description of the Plan
contained herein is qualified in its entirety by reference to the copy of the
Plan attached as Exhibit A to this Proxy Statement.
GENERAL. The Plan provides employees of the Company a grant of rights to
purchase stock of the Company so that employees of the Company are encouraged to
acquire an ownership interest in the Company in order to align both investor and
employee purposes with the financial success of the Company. Pursuant to the
Plan, participating employees ("Participants") may purchase up to an aggregate
of 250,000 shares of the Company's Common Stock (the "Shares"). The Plan became
effective on July 1, 1999 and, unless terminated earlier by the Board of
Directors, will terminate on a date when Participants have purchased all Shares
available under the Plan (the "Term of the Plan"). To determine when rights of
employees accrue under the Plan, each January 1st during the Term of the Plan
will serve as a given Commencement Date of the Plan, with July 1, 1999 serving
as the initial Commencement Date. The Plan is not subject to the Employee
Retirement Income Security Act of 1974. The Plan is not qualified under Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code").
ADMINISTRATION. The chief administrative officer of the Company (the "Plan
Administrator") will administer the Plan and enforce its terms and provisions.
To do so, the Plan Administrator will adopt rules of procedures and regulations
necessary for the administration of the Plan, provided the rules are not
inconsistent with the provisions of the Plan. Subject to the terms of the Plan
and the requirements of applicable law, the Plan Administrator will have full
authority to interpret and apply the terms of the Plan, including the power to
determine the rights of Participants. Such rights include, but are not limited
to rights of eligibility of an employee to participate in the Plan. Furthermore,
the Plan Administrator will maintain records that disclose all required
information about the Plan.
-15-
<PAGE>
RIGHTS TO PURCHASE STOCK Generally, all employees of the Company who are
employed before a given Commencement Date will be eligible to participate in the
Plan. Employees who are not eligible, or become ineligible, may not participate
in the Plan. An eligible employee may elect to enroll and become a Participant
in the Plan as of the first Commencement Date on which such employee qualifies,
or on any later Commencement Date on which such employee continues to be
eligible.
To enroll in the Plan, an eligible employee must complete and file a
payroll deduction authorization on a form provided by the Plan Administrator.
Thereafter, the Company will maintain a payroll deduction account for each
Participant. Each Participant will have a separate payroll deduction account
established for each period (the "Offering Period") from a given Commencement
Date, usually January 1st, to approximately December 31st (the "Corresponding
Exercise Date"). Therefore, each Offering Period will generally be approximately
one year, with each Participant having a separate payroll deduction account each
year. Payroll deductions made for Participants will be credited to their
accounts under the Plan.
With respect to any offering made under the Plan, a Participant may
authorize a payroll deduction of any whole percentage, up to a maximum of ten
percent of the compensation he or she receives during the Offering Period;
provided, however, that no Participant may purchase Shares pursuant to the Plan
in excess of $20,000. The Plan Administrator may at any time in his or her sole
discretion designate a maximum payroll deduction percentage of less than ten
percent or a maximum payroll deduction amount of less than $20,000 for a given
Offering Period. Subject to the payroll deduction percent and amount
limitations, a Participant may increase or decrease the amount of the
Participant's payroll deduction by completing and filing an amended payroll
deduction authorization on a payroll deduction authorization form provided by
the Plan Administrator. Any such amendments will become effective on the January
1st following receipt of the amendment by the Plan Administrator. Participants
may not make separate cash payments into their payroll deduction accounts.
As of each Commencement Date on which a Participant has an effective
payroll deduction authorization, the Participant will be granted an option to
purchase a maximum number of Shares equal to (A) divided by (B), where (A) is
the LESSER of (1) ten percent multiplied by the Participant's compensation for
the Offering Period, or (2) $20,000, and (B) is 85% of the fair market value of
a Share on the Commencement Date. Unless a Participant provides written notice
to the Plan Administrator, a Participant's option for the purchase of Shares
will be exercised automatically for the Participant as of the Corresponding
Exercise Date. Unexercised options will lapse on the Corresponding Exercise Date
and all payroll deductions attributable to these options will be distributed to
the Participant in cash, without interest and earnings, as soon as practicable
after the Corresponding Exercise Date on which such options lapse.
Even though an employee is eligible to participate under the Plan, an
employee may not exercise options to purchase stock in the Company under the
Plan if such employee owns Shares possessing five percent or more of the total
combined voting power or value of all classes of Shares of the Company or a
parent or a subsidiary of the Company. Furthermore, an otherwise eligible
employee may not exercise options to purchase stock in the Company under the
Plan if the exercise, when considered in conjunction with all other options
granted under the Plan (or other stock-based compensation plans of the Company,
or any parent or subsidiary of the Company), results in the employee accruing
rights in a calendar year to acquire Shares having a value in excess of $25,000
measured at the date of grant.
Participants will have no interest in Shares covered by an option until
such option has been exercised. Following exercise and purchase of Shares on
behalf of a Participant and before any sale or transfer of such Shares, the
Participant will have the right to vote such Shares and any cash dividends paid
on such Shares will be paid to the Participant or retained and reinvested in
additional Shares in the sole discretion of the Plan Administrator. Any
additional Shares accruing as a result of a stock split or a stock dividend that
are attributable to Shares purchased on behalf of the Participant under the Plan
will belong to the Participant, subject to a pro rata allocation by the Plan
Administrator for Shares that accrue over the 250,000 Share limitation for the
Plan. The Shares sold to Participants under the Plan may, at the election of the
Company, be either treasury shares, shares originally issued for such purpose,
shares purchased on the open market, or shares from a combination of such
sources.
-16-
<PAGE>
TRANSFERABILITY OF RIGHTS AND RESTRICTIONS ON SALES OF SHARES. Rights to
purchase Shares under the Plan are not transferable by a Participant, and no
person other than a Participant will have the right to elect to exercise the
Participant's option during his or her lifetime. Participants may not request
that the Company distribute the Participant's stock certificates and may not
sell, transfer, or otherwise dispose of any Shares before the end of the
six-month period after the Corresponding Exercise Date on which such Shares were
purchased. However, Participants, including terminated Participants, may request
that the Company distribute to the Participant the stock certificates evidencing
the ownership of all or part of the Shares previously purchased for the
Participant, or may request that such Shares be sold and the proceeds paid to
the Participant; provided that the Participant waits until the six-month period
described above has lapsed.
TAX TREATMENT. Consistent with Section 423 of the Code, contributions to
the Plan will be included in the Participant's taxable income and will not be
tax deductible. A Participant's purchase of Shares under the Plan will not
result in the recognition of income for tax purposes, nor will it result in an
income tax deduction for the Company. When a Participant sells Shares acquired
under the Plan at least two years after the date on which such Shares were
acquired, the Participant will recognize ordinary income equal to the lesser of
(1) fifteen percent of the fair market value of the Shares on the first date of
the respective Offering Period, or (2) the amount by which the fair market value
of the Shares at the time of sale exceeded the price paid by the Participant. If
the amount received upon such a disposition exceeds the fair market value of the
Shares on the first date of the respective Offering Period, then the excess will
be characterized as a long-term capital gain. If the Participant has incurred a
loss in connection with such a disposition, then the Participant will realize no
ordinary income, and the loss will be characterized as a long-term capital loss.
If a Participant sells Shares before the expiration of the two-year holding
period, the Participant will recognize ordinary income equal to the difference
between the fair market value of the Shares on the date such Shares were
acquired and the price paid by the Participant. The Participant will have a
capital gain or loss to the extent of the difference, if any, between the amount
received upon sale and fair market value of the Shares on the date such Shares
were acquired. Such capital gain or loss will be characterized as long-term or
short-term depending on whether or not the Shares were held for more than one
year from the applicable date such Shares were acquired. The Company is not
entitled to a deduction for amounts taxed as ordinary income in cases where the
Participant realizes ordinary income by reason of a sale of the Shares before
the expiration of the two-year holding period described above.
ADJUSTMENTS. If a change is made in the number and/or kind of shares or
securities of the Company (through a reorganization, merger, recapitalization,
reclassification, stock split, reverse stock split, or similar transaction), the
Plan Administrator will make appropriate and proportionate adjustments in the
number and/or kinds of Shares which are subject to purchase under outstanding
options and on the option exercise price or prices applicable to each
outstanding option. Additionally, the number and/or kind of Shares that may be
offered under the Plan will also be proportionately adjusted. Any such
adjustments, however, must comply with the provisions of the Code. No
adjustments will be made for stock dividends.
RETIREMENT, TERMINATION AND DEATH. During an Offering Period, a
Participant may elect to terminate payroll deductions by giving written notice
to the Plan Administrator. If a Participant makes such an election, then payroll
deductions will terminate and the Participant's payroll deductions credited to
the Participant's accounts to that date will be either: (1) retained in the
account and automatically exercised on the Corresponding Exercise Date; or (2)
if the Participant chooses, distributed in cash to the Participant without
interest or earnings as soon as practicable following the Participant's
election. If a Participant elects to terminate payroll deductions, such
Participant may not later elect to resume payroll deductions with respect to the
same Offering Period. However, as of any later Commencement Date, the same
eligible employee may elect to resume payroll deductions with respect to a
different Offering Period.
Upon a Participant's termination of employment for any reason other than
death of the Participant during an Offering Period, participation in the Plan
and payroll deductions will automatically discontinue and the payroll deductions
already credited to the Participant's account will be distributed in cash,
without interest or earnings, to the Participant as soon as practicable after
the Participant's termination. In the event of the death of a Participant during
an Offering Period, a deceased Participant's beneficiary or beneficiaries may
give notice to the Plan
-17-
<PAGE>
Administrator electing to have the accumulated payroll deductions distributed in
cash without interest or earnings as soon as practicable after such notice.
AMENDMENT OF PURCHASE PLAN. The Board of Directors may at any time, by
written resolution, amend or terminate the Plan or outstanding options granted
under the Plan; provided, however, that no amendment (1) which would require the
sale of Shares in excess of the number authorized under the Plan or (2) which
would change the rules regarding eligibility for participation will be effective
unless the Company obtains approval of its stockholders.
STOCKHOLDER APPROVAL REQUIREMENT. The approval of the Plan requires the
affirmative vote of a majority of the outstanding shares of Common Stock.
Uninstructed shares of Common Stock may not be voted on Proposal No. 3. For
purposes of Proposal No. 3, abstentions and broker non-votes have the effect of
negative votes.
THE COMPANY RECOMMENDS VOTING "FOR" PROPOSAL NO. 3
PROPOSAL NO. 4 -- APPROVAL OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon recommendation of its Audit Committee, has
approved and recommends the appointment of Arthur Andersen LLP as independent
public accountants to conduct an audit of the Company's financial statements for
the year 2000. This firm has acted as independent public accountants for the
Company since 1992.
Members of Arthur Andersen LLP will attend the Annual Meeting and will be
available to respond to questions which may be asked by stockholders. Such
members will also have an opportunity to make a statement at the Annual Meeting
if they desire to do so.
The Board of Directors recommends that stockholders approve the
appointment of Arthur Andersen LLP as the Company's independent public
accountants. In accordance with the Company's Amended and Restated Bylaws,
approval of the appointment of independent public accountants will require the
affirmative vote of a majority of the shares of Common Stock voted on the
matter. Accordingly, abstentions and broker non-votes applicable to shares of
Common Stock present at the Annual Meeting will not be included in the
tabulation of votes cast on this proposal.
THE COMPANY RECOMMENDS VOTING "FOR" PROPOSAL NO. 4
-18-
<PAGE>
PROPOSALS, NOMINATIONS AND OTHER BUSINESS FOR NEXT ANNUAL MEETING
The Board of Directors knows of no other matters than those described
above which are likely to come before the Annual Meeting. If any other matters
properly come before the Annual Meeting, persons named in the accompanying form
of proxy intend to vote such proxy in accordance with their best judgment on
such matters.
Any proposals of holders of Common Stock of the Company intended to be
presented at the annual meeting of stockholders of the Company to be held in
2001 must be received by the Company, addressed to the Secretary of the Company,
1700 West Loop South, Suite 1500, Houston, Texas 77027, no later than December
18, 2000, to be included in the proxy statement relating to that meeting.
Any holder of Common Stock of the Company desiring to bring business
before the 2001 annual meeting of stockholders in a form other than a
stockholder proposal in accordance with the preceding paragraph must give
written notice that is received by the Company, addressed to the Secretary of
the Company, 1700 West Loop South, Suite 1500, Houston, Texas 77027, within the
period set forth in the provisions of the Company's Amended and Restated Bylaws
summarized below. The written notice must comply with the provisions of the
Company's Amended and Restated Bylaws summarized below.
The Company's Amended and Restated Bylaws provide that, for business to be
properly brought before a stockholder meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Company. To be timely, a stockholder's notice must be delivered to, or mailed
and received at, the principal executive offices of the Company not less than 50
days prior to the meeting; provided, however, that in the event that less than
55 days' notice or prior public disclosure of the date of the meeting is given
or made to stockholders, notice by the stockholder to be timely must be received
no later than the close of business on the tenth (10th) day following the day on
which such notice of the date of the meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set forth as
to each matter the stockholder proposes to bring before the meeting (a) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (b) the name and address,
as they appear on the Company's books, of the stockholder proposing such
business, (c) the class and number of shares of the Company which are
beneficially owned by the stockholder, and (d) any material interest of the
stockholder in such business.
By Order of the Board of Directors
Kevin B. Kelly, SECRETARY
April 17, 2000
THE COMPANY WILL FURNISH WITHOUT CHARGE ADDITIONAL COPIES OF ITS ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 TO INTERESTED
SECURITY HOLDERS ON REQUEST. THE COMPANY WILL FURNISH TO ANY SUCH PERSON ANY
EXHIBITS DESCRIBED IN THE LIST ACCOMPANYING SUCH REPORT UPON PAYMENT OF
REASONABLE FEES RELATING TO THE COMPANY'S FURNISHING SUCH EXHIBITS. REQUESTS FOR
COPIES SHOULD BE DIRECTED TO THE SECRETARY AT THE COMPANY'S ADDRESS PREVIOUSLY
SET FORTH.
-19-
<PAGE>
CORNELL
EMPLOYEE STOCK
PURCHASE PLAN
Effective as of July 1, 1999
<PAGE>
CORNELL
EMPLOYEE STOCK
PURCHASE PLAN
TABLE OF CONTENTS
Article I Purpose and Effective Date.................................... 1
Article II Definitions................................................... 1
Article III Eligibility and Participation................................. 5
Article IV Payroll Deductions............................................ 5
Article V Terms and Conditions of Options............................... 7
Article VI Exercise of Option............................................ 9
Article VII Withdrawal, Termination, Death................................ 11
Article VIII Shares Under Option, Distribution or Sale of Shares........... 12
Article IX Administration................................................ 14
Article X Amendment and Termination of the Plan......................... 17
Article XI Nontransferability............................................ 17
Article XII Ownership and Use of Funds.................................... 18
Article XIII Changes in Capitalization, Merger, etc. and
Adjustments to Shares......................................... 18
Article XIV Beneficiaries of Deceased Participants........................ 21
Article XV Registration and Qualification of Shares...................... 22
Article XVI Stockholder Approval.......................................... 22
Article XVII Restrictions On Participants Subject to Short-Swing
Profit Rules.................................................. 23
Article XVIII Miscellaneous................................................. 23
i
<PAGE>
ARTICLE I
PURPOSE AND EFFECTIVE DATE
1.1 The Cornell Employee Stock Purchase Plan is intended to encourage
employees of Cornell Corrections, Inc. (the "Company") and its participating
subsidiary corporations to acquire an ownership interest in the Company through
the purchase of Shares of common stock of the Company. It is believed that this
Plan will enhance stockholder value by aligning employee efforts with the
financial success of the Company. It is the intention of the Company to have the
Plan qualify as an "employee stock purchase plan" under Section 423 of the
Internal Revenue Code of 1986, as amended. The provisions of the Plan shall be
construed so as to extend and limit participation in a manner consistent with
the requirements of Section 423 of such Code.
1.2 The Plan is effective as of July 1, 1999.
ARTICLE II
DEFINITIONS
2.1 "Code" means the Internal Revenue Code of 1986, as amended.
2.2 "Commencement Date" means each January 1st during the Term of the Plan;
provided, however, that the Plan Administrator may designate as to any given
January 1st that such date shall not be a Commencement Date and that no options
shall be granted as of such date. Notwithstanding the foregoing, the initial
Commencement Date shall be July 1, 1999.
1
<PAGE>
2.3 "Company" means Cornell Corrections, Inc., a Delaware corporation and any
successor corporation which shall continue this Plan.
2.4 "Compensation" means all wages, salaries, overtime pay, shift
differentials, incentive compensation, fees for services and other amounts
received during the calendar year for personal services actually rendered in the
course of employment with the Employer to the extent that the amounts are
includible in gross income, plus any amounts contributed by the Employer
pursuant to a salary reduction agreement that are not includible in gross income
of the Employee under Section 125 of the Code (regarding contributions to a
cafeteria plan), Section 402(a)(8) of the Code (regarding contributions to a
401(k) plan) or Section 451 of the Code (regarding contributions to a plan of
deferred compensation) and less any prizes, awards, automobile allowances,
relocation expenses, severance pay and similar types of extraordinary
compensation.
The term "Compensation" shall not include the following:
(i) Any distributions from a plan of deferred compensation (regardless
of whether such amounts are includible in gross income of the Employee
for federal income tax purposes in the taxable year of distribution);
(ii) Amounts realized from the exercise of a nonqualified stock option;
(iii) Amounts realized from the sale, exchange or other disposition of
stock acquired under a qualified stock option;
(iv) Amounts realized when restricted stock (or property) held by the
Employee either becomes freely transferable or is no longer subject to
a substantial risk of forfeiture; or
(v) Other amounts that receive special tax benefits, such as premiums
for group term life insurance (but only to the extent that the premiums
are not includible in the gross income of the Employee).
2
<PAGE>
2.5 "Corresponding Exercise Date" with regard to a given Commencement Date
means the December 31st following such Commencement Date or, if such date is not
a trading day on the New York Stock Exchange or other established securities
market on which the Company's stock is traded, the nearest prior business day on
which such trading occurs.
2.6 "Election Period" means the period, commencing on a date determined by the
Plan Administrator prior to any Corresponding Exercise Date and ending on the
7th day preceding such Corresponding Exercise Date, during which a Participant
may elect, in accordance with Article VI, not to exercise any options and to
withdraw his payroll deductions for the Offering Period. The Participant's
election must be received by the Plan Administrator within the Election Period
in order for the election to be effective.
2.7 "Eligible Employee" means an Employee of the Employer who is eligible for
participation in the Plan in accordance with Article III.
2.8 "Employee" means any person, including an officer, who is carried on the
Employer's books as an employee for payroll tax purposes, provided such employee
is customarily employed more than five (5) months in a calendar year and more
than twenty (20) hours per week by the Employer. Any Employee otherwise meeting
the foregoing criteria but who is a member of the Board of Directors of an
Employer shall nevertheless be eligible to participate in the Plan.
2.9 "Employer" means the Company and any of its present or future subsidiaries
or affiliated organizations constituting a "subsidiary corporation" within the
meaning of Section 424(f) of the Code and designated by the Plan Administrator
as a participating employer as to the offering beginning as of any particular
Commencement Date.
3
<PAGE>
2.10 "Offering Period" means a period of approximately one (1) year in duration
from a given Commencement Date to the Corresponding Exercise Date.
Notwithstanding the foregoing, the first Offering Period shall be a short period
commencing July 1, 1999 and ending December 31, 1999.
2.11 "Participant" means an Eligible Employee of the Employer who elects to
participate hereunder.
2.12 "Payroll Period" means each weekly, biweekly, semi-monthly or monthly
payroll period, as applicable, for which an Eligible Employee is paid.
2.13 "Plan" means this Cornell Employee Stock Purchase Plan, as amended from
time to time.
2.14 "Plan Administrator" means the Chief Administrative Officer of the
Company, who shall administer the Plan in accordance with Article IX.
2.15 "Shares" means shares of common stock of Cornell Corrections, Inc.,
par value $.01, subject to adjustments that may be made in accordance with
Article XIII.
2.16 "Term of the Plan" means the time period from the initial Commencement
Date of July 1, 1999 to the Termination Date of the Plan.
2.17 "Termination Date" means, unless the Plan has been earlier terminated by
the Board of Directors, the final Corresponding Exercise Date on which all of
the Shares available to the Plan have been purchased by Participants through the
Plan.
4
<PAGE>
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 Any Employee of the Employer who is employed prior to a given Commencement
Date shall be an Eligible Employee and shall be eligible to participate in the
Plan on such Commencement Date, subject to the limitations imposed by Section
423 of the Code.
3.2 An Eligible Employee may elect to enroll as of, and become a Participant
on, the first Commencement Date on which such Employee qualifies as an Eligible
Employee or on any subsequent Commencement Date on which such Employee continues
to be an Eligible Employee. To enroll in the Plan, an Eligible Employee shall
complete a payroll deduction authorization on the form provided by the Plan
Administrator and file it with the Plan Administrator on or before the deadline
established by the Plan Administrator.
3.3 A Participant who ceases to be an Eligible Employee, although still
employed by the Employer, thereupon shall be deemed to discontinue participation
in the Plan, and the Participant shall have the rights provided in Section 7.2.
3.4 Participation in the Plan shall be voluntary.
ARTICLE IV
PAYROLL DEDUCTIONS
4.1 For each Offering Period, payroll deductions for a Participant shall begin
on the first payroll date following the Commencement Date for which an Eligible
Employee returns a timely payroll deduction authorization and shall end on the
last payroll date prior to the Corresponding
5
<PAGE>
Exercise Date, unless sooner terminated by the Participant as provided in
Article VII or as otherwise provided herein.
4.2 Payroll deductions shall be elected by a Participant in full percentage
points not in excess of the LESSER of (i) ten percent (10%) of such
Participant's Compensation for each Payroll Period during the Offering Period or
(ii) $20,000 during the Offering Period.
Notwithstanding the foregoing, the Plan Administrator may at any time and in its
sole discretion designate a maximum payroll deduction percentage of less than
ten percent (10%) or a maximum payroll deduction amount of less than $20,000 for
a given Offering Period; provided that if a lesser percentage or amount is
designated for a given Offering Period, the percentage or amount referred to in
Section 5.2 shall be modified to be equal to the lesser percentage or amount
determined under this Section.
4.3 All payroll deductions made for Participants shall be credited to their
accounts under the Plan. Participants may not make any separate cash payments
into such accounts. A separate account will be established for each Offering
Period.
4.4 A Participant may discontinue participation at any time with respect to
any Offering Period and terminate the payroll deduction authorization as
provided in Section 7.1. All terminations of payroll deductions shall become
effective as soon as practicable after the date the amended payroll deduction
authorization form is received by the Plan Administrator.
4.5 Subject to the limitations described in Section 4.2 and Section 7.1, a
Participant may increase or reduce the amount of the Participant's payroll
deduction by completing an amended payroll deduction authorization on a payroll
deduction authorization form provided by the Plan
6
<PAGE>
Administrator and filing it with the Plan Administrator. All changes in payroll
deduction amounts shall become effective on the January 1st which next follows
the date the amended payroll deduction authorization form is received by the
Plan Administrator; provided that if such form is received immediately prior to
a January 1st such that it is not received in time to permit the payroll
deduction change to begin on the next following January 1st, the payroll
deduction change shall begin as soon as practicable after such January 1st.
4.6 Payroll deductions for a Participant shall cease as of the date of the
Participant's termination of employment for any reason and the Participant shall
have the rights provided in Article VII.
ARTICLE V
TERMS AND CONDITIONS OF OPTIONS
5.1 Stock options granted pursuant to the Plan shall be evidenced by
agreements in such form as the Plan Administrator shall approve, provided that
all Employees shall have the same rights and privileges and provided further
that such options shall comply with and be subject to the terms and conditions
of this Article V and other applicable provisions of the Plan.
5.2 Subject to the limitations of this Article and Article VIII, as of each
Commencement Date on which a Participant has an effective payroll deduction
authorization, the Participant shall be granted an option to purchase a maximum
number of Shares equal to (A) divided by (B), where (A) is the LESSER of (i) ten
percent (10%) multiplied by the Participant's Compensation for the Offering
Period or (ii) $20,000, and (B) is 85% of the fair market value of a Share on
the Commencement Date. The fair market value of a Share shall be determined as
provided in Section 5.4. For purposes of this Section 5.2 only, a Participant's
Compensation for the Offering
7
<PAGE>
Period shall be deemed to be equal to the Participant's annual rate of base pay
in effect on the December 31st preceding the Commencement Date for such Offering
Period, plus incentive compensation paid during the calendar year preceding the
Commencement Date for such Offering Period.
5.3 The option price of Shares purchased with payroll deductions on a given
Corresponding Exercise Date shall be equal to eighty-five percent (85%) of the
lower of (i) the fair market value of the Shares as of the Commencement Date or
(ii) the fair market value of the Shares as of the Corresponding Exercise Date.
5.4 The fair market value of the Shares as of the Commencement Date shall be
equal to the closing price of the Company's common stock on the Commencement
Date or the nearest prior business day on which such trading occurred if the
Commencement Date is not a trading day on the New York Stock Exchange (or other
established securities market on which the Company's common stock is traded).
The fair market value of the Shares as of the Corresponding Exercise Date shall
be equal to the closing price of the Company's common stock on such date. If the
Company's common stock is not admitted to trading on any of the aforesaid dates
for which closing prices of the Shares are to be determined, then reference
shall be made to the fair market value of the stock on that date, as determined
on such basis as shall be established or specified for this purpose by the Plan
Administrator in a manner acceptable under Section 423 of the Code.
8
<PAGE>
5.5 Notwithstanding any provision of the Plan to the contrary, no Employee
shall be granted an option:
(a) if such Employee, immediately after the option is granted,
owns Shares possessing five percent (5%) or more of the total combined
voting power or value of all classes of Shares of the Company or a
parent or a subsidiary of the Company. For purposes of determining share
ownership the rules of Section 424(d) of the Code shall apply and Shares
which the Employee may purchase under outstanding options shall be
treated as Shares owned by the Employee; or
(b) which, when considered in conjunction with all other options
granted under this Plan (or other stock-based compensation plans of the
Company, or any parent or subsidiary of the Company, required under
Section 423(b)(8) to be aggregated with the Plan), results in the
Employee accruing rights in a calendar year to acquire Shares having a
value in excess of twenty-five thousand dollars ($25,000) measured at
the date of grant. For this purpose, all determinations of accrual and
the value at which Shares are taken into account shall be made in
accordance with Section 423(b)(8) of the Code.
ARTICLE VI
EXERCISE OF OPTION
6.1 Unless a Participant (or a deceased Participant's beneficiary) gives
written notice to the Plan Administrator as provided in Section 6.2
(or Section 7.3), the Participant's option for the purchase of Shares will be
exercised automatically for the Participant as of the Corresponding Exercise
Date for the purchase of the number of full Shares which the accumulated payroll
deductions in the Participant's account (established for that Offering Period)
at that time will purchase at the applicable option price, but in no event shall
the number of full Shares be greater than the number of full Shares which the
Participant would have been eligible to purchase under
9
<PAGE>
Section 5.2 or allowed to purchase under Section 8.1. All options granted on a
given Commencement Date that are not exercised on the Corresponding Exercise
Date shall lapse on such Corresponding Exercise Date and all payroll deductions
attributable to these options shall be distributed to the Participant in cash,
without interest or earnings, as soon as practicable after the Corresponding
Exercise Date on which such options lapse.
6.2 By written notice to the Plan Administrator within the Election Period, a
Participant may elect not to exercise the Participant's option and to withdraw
the entire balance in the Participant's account, without interest or earnings.
The Participant's written notice electing not to exercise must be received by
the Plan Administrator within the Election Period to be effective.
6.3 Payroll deductions remaining in a Participant's individual account
representing less than the option price of a single Share as of any
Corresponding Exercise Date, shall be carried over to the next succeeding
Offering Period and credited to that Participant's account for such succeeding
Offering Period, without interest or earnings, provided the Participant elects
to participate in the Plan for such succeeding Offering Period. All other
payroll deductions for an Offering Period not applied to the exercise of an
option as of the Corresponding Exercise Date for such Period shall be refunded
to the Participant as soon as practicable after such Exercise Date, without
interest or earnings.
6.4 During a Participant's lifetime, no person other than the Participant
shall have the right to elect to exercise the Participant's option.
10
<PAGE>
ARTICLE VII
WITHDRAWAL, TERMINATION, OR DEATH
7.1 During an Offering Period, a Participant may elect to terminate payroll
deductions by giving written notice to the Plan Administrator. In the event a
Participant makes such election, the payroll deductions shall terminate as
provided in Section 4.4 and the Participant's payroll deductions credited to the
Participant's accounts to that date shall be retained in the account and, in
accordance with Section 6.1, automatically exercised on the Corresponding
Exercise Date or, at the Participant's election in accordance with Section 6.2,
distributed in cash to the Participant, without interest or earnings, as soon as
practicable following the Participant's election. If a Participant elects to
terminate payroll deductions, such Participant may not thereafter elect to
resume payroll deductions with respect to the same Offering Period. As of any
subsequent Commencement Date, such Eligible Employee may elect to resume payroll
deductions, with respect to a different Offering Period, in accordance with
Article IV.
7.2 Upon termination of the Participant's employment for any reason other than
the death of the Participant during an Offering Period, the payroll deductions
credited to the Participant's account shall be distributed in cash, without
interest or earnings, to the Participant as soon as practicable following the
Participant's termination.
7.3 In the event of the death of a Participant during an Offering Period, a
deceased Participant's beneficiary or beneficiaries, determined in accordance
with Article XIV, may give notice to the Plan Administrator electing to have the
accumulated payroll deductions distributed in cash, without interest or
earnings, as soon as practicable following such notice. Such notice must be
given to the Plan Administrator not later than the last day of the applicable
Election Period.
11
<PAGE>
7.4 If, in the event of the death of a Participant during an Offering Period,
no timely election is made to have accumulated payroll deductions refunded, the
beneficiary or beneficiaries shall be deemed to have elected to exercise, in
which event the accumulated payroll deductions in the account of the Participant
shall be used to purchase the number of full Shares which the accumulated
payroll deductions in the account of such deceased Participant will purchase at
the option price specified in Section 5.3, subject to the limitations of Article
V, and to have any remaining payroll deductions refunded, without interest or
earnings, promptly following the Corresponding Exercise Date for the Offering
Period for which deducted.
ARTICLE VIII
SHARES UNDER OPTION,
DISTRIBUTION OR SALE OF SHARES
8.1 The Shares to be sold to Participants under the Plan may, at the election
of the Company, be either treasury Shares, Shares originally issued for such
purpose, Shares purchased on the market or Shares from a combination of such
sources. The maximum number of Shares that shall be made available for sale
under the Plan shall be 250,000 Shares, subject to adjustment upon changes in
capitalization of the Company or other events, as provided in Article XIII. If
the total number of Shares for which options are granted or to be granted on any
Commencement Date exceeds the number of Shares then available under the Plan
(after deduction of all Shares for which options have been exercised or are then
outstanding), then, not later than the Corresponding Exercise Date, the Plan
Administrator shall make a pro rata allocation of the Shares remaining available
in as nearly a uniform manner as shall be practicable and as it shall determine
to be equitable taking into account the amount each Participant elected to defer
under Section 3.2. All excess options shall lapse and may not be exercised at
any time. In such event, payroll deductions to be made shall be reduced
accordingly and the Plan Administrator shall give
12
<PAGE>
written notice of such reduction to each Participant affected thereby and, if
necessary, excess payroll deductions previously credited to the Participants'
accounts shall be returned to such Participants without interest or earnings.
Notwithstanding the foregoing, if stockholder approval for the requisite number
of additional Shares is obtained within twelve (12) months of the date that the
excess options are granted, no such adjustments to the number of options
previously granted shall be required.
8.2 As promptly as practicable after the Corresponding Exercise Date, the
Company shall make the appropriate entries to show the purchase of Shares on
behalf of Participants. The Company, or its designee, will retain all the
certificates evidencing ownership of the Shares on behalf of each Participant
until such time as the Participant requests the certificates. A Participant may
not request that the Company distribute the Participant's stock certificates and
may not sell, transfer or otherwise dispose of any Shares prior to the end of
the six-month period following the Exercise Date on which such Shares were
purchased. Shares issued pursuant to the Plan shall be subject to such other
restrictions and for such period as the Company may designate and the
certificates representing the Shares shall include a legend reflecting such
restrictions.
8.3 A Participant, including a terminated Participant (or the beneficiary of a
deceased Participant), may request that the Company, or its designee, distribute
to the Participant the stock certificates evidencing the ownership of all or a
part of the Shares previously purchased for the Participant or may request that
such Shares be sold and the proceeds paid to the Participant; provided that the
Participant may not request that the Company, or its designee, distribute or
sell any Shares purchased within the six-month period preceding the date of the
requested distribution or sale. A Participant who wishes to request a
distribution or sale of Shares shall complete and file a distribution request
form with the Plan Administrator or his delegate. Distribution of the requested
stock certificates or cash proceeds of sale, as applicable, shall be made as
soon as
13
<PAGE>
practicable after a properly completed distribution request form is received by
the Plan Administrator or his delegate. All costs associated with the
distribution of stock certificates to a Participant or with the sale, transfer
or other disposition of the Shares, including commissions, certificate fees,
transfer fees, taxes and the like, shall be the responsibility of the
Participant. The Participant shall pay such commissions and/or fees directly to
the third party administrator of the Plan, to the transfer agent for the Shares,
to the broker or to another party, as appropriate, it being the intention of the
Company that any costs incurred after the applicable Exercise Date with regard
to Shares purchased for the Participant shall be borne by the Participant.
8.4 The Participant shall have no interest in Shares covered by an option
until such option has been exercised as provided in Section 6.1. Following
exercise and purchase of Shares on behalf of a Participant and prior to any sale
or transfer of such Shares, the Participant shall have the right to vote such
Shares and any cash dividends paid on such Shares shall be paid to the
Participant or retained and reinvested in additional Shares in the sole
discretion of the Plan Administrator. Any additional Shares accruing as a result
of a stock split or stock dividend that are attributable to Shares purchased on
behalf of the Participant under the Plan shall belong to the Participant and
shall be subject to the provisions of this Article VIII.
ARTICLE IX
ADMINISTRATION
9.1 The Plan Administrator shall be responsible for administering the Plan.
9.2 The Plan Administrator shall have the following discretionary powers
and duties:
14
<PAGE>
(a) to direct the administration of the Plan in accordance with the
provisions herein set forth;
(b) to adopt rules of procedure and regulations necessary for the
administration of the Plan, provided the rules are not inconsistent
with the terms of the Plan;
(c) to determine all questions with regard to rights of Participants of
the Plan, including, but not limited to rights of eligibility of an
Employee to participate in the Plan;
(d) to enforce the terms of the Plan and the rules and regulations it
adopts;
(e) to furnish the Employer with information which the Employer may
require for tax or other purposes;
(f) to engage the service of advisors, including consultants and counsel
(who may be consultants or counsel for the Employer) and agents whom
it may deem advisable to assist it with the performance of its
duties;
(g) to receive from the Employer and from Employees such information as
shall be necessary for the proper administration of the Plan;
(h) to select a third party administrator to recordkeep and carry out
other necessary functions under the Plan; and
15
<PAGE>
(i) to interpret and construe the Plan, to make findings of fact, to
correct errors, and to supply omissions under the Plan. The Plan
Administrator shall use its discretion to interpret the terms and
purpose of the Plan so as to resolve any conflict or contradiction.
9.3 The Plan Administrator shall administer the Plan in a uniform,
nondiscriminatory manner for the benefit of the Participants.
9.4 The Plan Administrator may delegate responsibilities for the operation and
administration of the Plan and may allocate or reallocate responsibilities under
the Plan.
9.5 The Plan Administrator and any delegate (other than a delegate that is a
corporation) shall be fully indemnified by the Company and by each Employer
against all liabilities, costs, and expenses (including defense costs, but
excluding any amount representing a settlement unless such settlement is
approved by the Company) imposed upon it in connection with any claim, action,
suit, or proceeding to which it may be a party by reason of being the Plan
Administrator or having been assigned or delegated any of the powers or duties
of the Plan Administrator, and arising out of any act, or failure to act, that
constitutes or is alleged to constitute a breach of such person's
responsibilities in connection with the Plan.
9.6 The Plan Administrator shall maintain, or cause to be maintained, records
that will adequately disclose all required information about the Plan. The
books, forms, and methods of accounting shall be the responsibility of the Plan
Administrator or his delegate.
16
<PAGE>
ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors of the Company may at any time, by written resolution,
amend or terminate the Plan or outstanding options granted under the Plan.
Provided, however, that no amendment (i) which would require sale of Shares in
excess of the number authorized under Article VIII of the Plan or (ii) which
would change the rules regarding eligibility for participation, shall be
effective unless approval of the stockholders of the Company is obtained within
the period beginning twelve (12) months prior to the adoption date of the
amendment and ending on the date which is twelve (12) months after the adoption
date of the amendment. Provided further that, except as provided in Article XIII
or as otherwise expressly provided in the Plan, no amendment or termination of
the Plan shall adversely affect the rights of an optionee under any outstanding
option without the optionee's consent.
ARTICLE XI
NONTRANSFERABILITY
Except as provided in Section 7.3, neither payroll deductions credited to a
Participant's account nor any rights with regard to the exercise of an option or
to receive Shares under the Plan may be assigned, transferred, pledged, or
otherwise disposed of in any way by the Participant and any such attempted
assignment, transfer, pledge, or other disposition shall be null and void and
without effect, but the Plan Administrator may, at its option, treat such act as
an election to withdraw funds in accordance with Article VII. In the event of an
attempted transfer pursuant to a divorce decree affecting the Participant, the
Plan Administrator may distribute the existing payroll deductions, to the extent
of the attempted transfer, as soon as practicable following receipt by the Plan
Administrator of the divorce decree, without interest or earnings. Except to the
17
<PAGE>
extent required by law, in no event, shall a divorce decree create or recognize
any right in the Participant's former spouse to exercise options under the Plan
or to receive Shares under the Plan.
ARTICLE XII
OWNERSHIP AND USE OF FUNDS
All payroll deductions received or held by the Company under this Plan shall be
and remain general corporate assets of the Company and may be used by the
Company for any corporate purposes and any and all amounts earned on such
payroll deductions shall be general corporate assets of the Company. The Company
shall not be obligated to segregate such payroll deductions or to accrue or pay
interest or earnings on such payroll deductions, except as specifically provided
in this Plan.
ARTICLE XIII
CHANGES IN CAPITALIZATION, MERGER, ETC.
AND ADJUSTMENTS TO SHARES
13.1 Except as otherwise determined by the Plan Administrator, if the Company
is merged or consolidated into a new surviving company and the holders of the
Company's voting securities (on a fully-diluted basis) immediately prior to the
merger or consolidation own less than a majority of the ordinary voting power to
elect directors of the new surviving company (on a fully-diluted basis), or if
there is a sale of all or substantially all of the Company's assets or capital
stock in any transaction or series of related transactions, or upon the
dissolution or liquidation of the Company, then the holder of each option then
outstanding under the Plan will be entitled to receive at the Corresponding
Exercise Date, upon the exercise of such option for each Share as to
18
<PAGE>
which such option shall be exercised, as nearly as reasonably may be determined,
the cash, securities and/or property which a holder of one Share was entitled to
receive upon and at the time of such transaction. For purposes of this Section
13.1 only, "Corresponding Exercise Date" shall be a date designated by the Plan
Administrator which may be a date earlier than the normal Corresponding Exercise
Date. Alternatively, the Company may designate that the dissolution or
liquidation of the Company shall cause each outstanding option to terminate,
provided in such event that immediately prior to such dissolution or
liquidation, each Participant shall be repaid the payroll deductions credited to
the Participant's account, without interest or earnings.
13.2 If, under circumstances not governed by Section 13.1, the outstanding
Shares have increased, decreased, changed into, or been exchanged for a
different number or kind of shares or securities of the Company through
reorganization, merger, recapitalization, reclassification, stock split, reverse
stock split or similar transaction, appropriate and proportionate adjustments
shall be made by the Plan Administrator in the number and/or kind of Shares
which are subject to purchase under outstanding options and on the option
exercise price or prices applicable to such outstanding options. In addition, in
any such event, the number and/or kind of Shares that may be offered under the
Plan shall also be proportionately adjusted. No adjustments shall be made for
stock dividends. For the purposes of this Section 13.2, any distribution of
Shares to stockholders in an amount aggregating twenty percent (20%) or more of
the outstanding shares shall be deemed a stock split and any distribution of
shares aggregating less than twenty percent (20%) of the outstanding shares
shall be deemed a stock dividend.
13.3 In the event of a change in the Shares of the Company as presently
constituted, which is limited to a change of all its authorized Shares with par
value into the same number of Shares with a different par value or without par
value, the Shares resulting from any such change shall be deemed to be Shares
within the meaning of this Plan.
19
<PAGE>
13.4 To the extent that the foregoing adjustments relate to Shares or
securities of the Company, such adjustments shall be made by the Plan
Administrator, and its determination in that respect shall be final, binding,
and conclusive, provided that each option granted pursuant to this Plan shall
not be adjusted in a manner that causes the option to fail to continue to
satisfy as an option issued pursuant to an "employee stock purchase plan" within
the meaning of Section 423 of the Code.
13.5 Except as herein before expressly provided, the Participant shall have no
right by reason of any subdivision or consolidation of Shares of any class or
the payment of any dividend or any other increase or decrease in the number of
Shares of any class or by reason of any dissolution, liquidation, merger, or
consolidation or spin-off of assets or stock of another corporation, and any
issue by the Company of Shares of any class, or securities convertible into
Shares of any class, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of Shares subject to the option.
13.6 The grant of an option pursuant to this Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations, or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
ARTICLE XIV
BENEFICIARIES OF DECEASED PARTICIPANTS
A Participant may file a written designation of beneficiary with the Plan
Administrator. Such designation of beneficiary may be changed by the Participant
at any time by written notice to the
20
<PAGE>
Plan Administrator. If upon the death of a Participant there is no surviving
beneficiary duly designated as above provided, the surviving spouse, or if no
such surviving spouse exists, then to the executor or administrator of the
Participant's estate, if an executor or administrator has been appointed, shall
be deemed the deceased Participant's beneficiary under the Plan. If there is no
surviving spouse and no executor or administrator has been appointed (to the
knowledge of the Plan Administrator) following the Participant's death, in the
discretion of the Plan Administrator, the Plan Administrator may determine the
beneficiary or beneficiaries under the Plan as follows; (i) the Participant's
beneficiary or beneficiaries pursuant to his Employer's group term life
insurance plan, or if none, (ii) all or any one or more of the persons
comprising the group consisting of the Participant's lineal descendants, the
Participant's ancestors, or the Participant's heirs at law, and the Plan
Administrator may pay the entire amount to any member of such group or apportion
such amount among any two or more of them in such shares as the Plan
Administrator, in its sole discretion, shall determine. Any payment made to any
person pursuant to the power and discretion conferred upon the Plan
Administrator by the preceding sentence shall operate as a complete discharge of
all obligations under the Plan in respect of such deceased Participant and shall
not be subject to review by anyone, but shall be final, binding and conclusive
on all persons ever interested hereunder. Neither the Plan Administrator nor the
Employer shall be liable for any transfer or attempted transfer of Shares or
payroll deductions pursuant to any will or other testamentary disposition made
by such Participant, or because of the provisions of law concerning intestacy,
or otherwise, nor shall the Plan Administrator or the Employer be liable for
transferring or distributing any Shares and/or payroll deductions pursuant to
any will. No designated beneficiary or other person or entity to whom Shares
and/or payroll deductions are transferable or distributable after a
Participant's death shall, prior to the death of the Participant by whom the
beneficiary has been designated, acquire any interest in the Shares or payroll
deductions credited to the Participant under the Plan.
21
<PAGE>
ARTICLE XV
REGISTRATION AND QUALIFICATION OF SHARES
The offering of the Shares hereunder shall be subject to the effecting by the
Company of any registration or qualification of the Shares under any federal or
state law or the obtaining of the consent or approval of any governmental
regulatory body which the Company shall determine, in its sole discretion, is
necessary or desirable as a condition to, or in connection with, the offering or
the issue or purchase of the Shares covered thereby. The Company shall make
reasonable efforts to effect such registration or qualification or to obtain
such consent or approval.
ARTICLE XVI
STOCKHOLDER APPROVAL
The Plan is expressly made subject to the approval of the holders of a majority
of the outstanding Shares of the Company (as described by the laws of the State
of Delaware) within the period commencing twelve (12) months before the date
this Plan is adopted and ending twelve (12) months after the date the Plan is
adopted.
ARTICLE XVII
RESTRICTIONS ON PARTICIPANTS SUBJECT TO SHORT-SWING PROFIT RULES
Notwithstanding any provision of this Plan to the contrary, those Participants
who are directors, executive officers, and ten percent (10%) or greater
stockholders subject to Section 16 of the Securities Exchange Act of 1934 (the
"1934 Act") must effect transactions in Shares, including without limitation
initial or periodic transactions resulting from an election to participate in
22
<PAGE>
the Plan or change levels of participation with respect to Shares, in accordance
with Section 16 and the rules promulgated thereunder to the extent such rules
are applicable. To the extent any provision of the Plan or action by the Plan
Administrator fails to so comply, it shall be deemed null and void to the extent
permitted by law and deemed advisable by the Plan Administrator. Moreover, in
the event the Plan does not include a provision required by Rule 16b-3 to be
stated therein, such provision (other than one relating to eligibility
requirements or the price and amount of an option) shall be deemed automatically
to be incorporated by reference into the Plan insofar as Participants subject to
Section 16 of the 1934 Act are concerned.
ARTICLE XVIII
MISCELLANEOUS
17.1 The Plan does not, directly or indirectly, create any absolute right for
the benefit of any Employee or class of Employees to purchase any Shares under
the Plan, or create in any Employee or class of Employees any right with respect
to continuation of employment by the Employer, and it shall not be deemed to
interfere in any way with the Employer's right to terminate, or otherwise
modify, an Employee's employment at any time.
17.2 The laws of the State of Delaware, other than its principles of conflicts
of laws, shall govern all matters relating to this Plan except to the extent
superseded by the laws of the United States. Exclusive jurisdiction and venue of
all disputes arising out of or relating to this plan shall be in any court of
appropriate jurisdiction in Houston, Harris County, Texas.
17.3 The masculine or feminine genders, where appearing in the Plan, shall be
deemed to include the opposite gender, unless the context clearly indicates to
the contrary.
23
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly
authorized officer as of the 1st day of July, 1999.
CORNELL CORRECTIONS, INC.
By:______________________________
Title:___________________________
24
<PAGE>
PROXY CORNELL CORRECTIONS, INC. PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder(s) of Cornell Corrections, Inc. (the
"Company") hereby appoints David M. Cornell and Steven W. Logan, and each of
them, attorneys-in-fact and proxies of the undersigned, with full power of
substitution, to vote in respect of the undersigned's shares of the Company's
Common Stock at the Annual Meeting of Stockholders of the Company to be held at
the Houston Marriott West Loop, 1750 West Loop South, Houston, Texas 77027, at
10:00 a.m., Central time, on Thursday, May 25, 2000, and at any adjournment(s)
thereof, the number of shares the undersigned would be entitled to vote if
personally present.
<TABLE>
<CAPTION>
<S> <C>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES SET FORTH BELOW AND "FOR" PROPOSALS 2, 3 AND 4 BELOW.
PROPOSAL 1: ELECTION OF DIRECTORS [ ] FOR the nominees listed below [ ] WITHHOLD AUTHORITY to vote
(except as marked to the contrary below) for the nominees listed below
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
David M. Cornell Arlene R. Lissner
Steven W. Logan Tucker Taylor
Campbell A. Griffin, Jr. Anthony R. Chase
Peter A. Leidel James H. S. Cooper
PROPOSAL 2: APPROVAL OF THE NAME CHANGE AMENDMENT TO THE FOR AGAINST ABSTAIN
COMPANY'S RESTATED CERTIFICATE OF INCORPORATION [ ] [ ] [ ]
PROPOSAL 3: APPROVAL OF THE CORNELL EMPLOYEE STOCK FOR AGAINST ABSTAIN
PURCHASE PLAN [ ] [ ] [ ]
PROPOSAL 4: TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP FOR AGAINST ABSTAIN
AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS [ ] [ ] [ ]
FOR 2000
</TABLE>
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder(s). IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED "FOR" THE DIRECTOR NOMINEES SET FORTH ON THE REVERSE SIDE AND
"FOR" PROPOSALS 2, 3 AND 4. All prior proxies are hereby revoked.
__________________________________________________
__________________________________________________
Signature(s)
Dated ______________________________________, 2000
(PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON.
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE, GUARDIAN, ETC., GIVE FULL TITLE AS SUCH.
FOR JOINT ACCOUNTS, EACH JOINT OWNER SHOULD SIGN.)
________________________________________________________________________________
PLEASE COMPLETE, SIGN, DATE AND RETURN PROMPTLY THE PROXY CARD USING THE
ENCLOSED ENVELOPE.
