UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NUMBER 1-14472
CORNELL CORRECTIONS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0433642
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(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1700 WEST LOOP SOUTH, SUITE 1500, HOUSTON, TEXAS 77027
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 623-0790
SECURITIES REGISTERED PURSUANT TO SECTION 12(d) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.001 par value per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes ( X ) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will be not contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( ).
At February 29, 2000, Registrant had outstanding 9,582,528 shares of its
common stock. The aggregate market value of the Registrant's voting stock held
by non-affiliates at this date was approximately $73,343,000 based on the
closing price of $8.13 per share as reported on the New York Stock Exchange. For
purposes of the foregoing calculation, all directors and officers of the
Registrant have been deemed to be affiliates, but the Registrant disclaims that
any of such directors or officers is an affiliate.
Documents Incorporated by Reference
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Portions of the Proxy Statement for 2000 Annual Meeting of Stockholders. Part III
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PART I
ITEM 1. BUSINESS
Cornell Corrections, Inc. (the "Company" or "Cornell Companies") is one of
the leading providers of privatized correctional, detention, pre-release, and
treatment services in the United States based on total service capacity. Service
capacity is comprised of the beds available for service in residential
facilities and the average program capacity of non-residential community-based
facilities. The Company is the successor to entities that began developing
secure institutional correctional and detention facilities in 1984, pre-release
correctional and treatment facilities in 1974 and juvenile facilities in 1973.
The Company has significantly expanded its operations through acquisitions and
internal growth and is currently operating facilities in 13 states and the
District of Columbia. As of December 31, 1999, the Company had contracts to
operate 72 facilities with a total service capacity of 14,845. The Company's
residential facilities have a total service capacity of 12,317 beds, with 49
facilities currently in operation.
Cornell Companies provides integrated facility development, design,
construction and operational services to governmental agencies within three
operating divisions: (i) secure institutional correctional and detention
services; (ii) juvenile treatment, educational and detention services and (iii)
pre-release correctional and treatment services. Secure institutional
correctional and detention services consist primarily of the operation of secure
adult incarceration facilities. Juvenile services consist of providing
residential treatment and educational programs and non-residential
community-based programs to juveniles between the ages of 10 and 17 who have
either been adjudicated or suffer from behavioral problems. Pre-release
correctional and treatment services primarily consist of providing pre-release
and halfway house programs for adults who are either on probation or serving the
last three to six months of their sentences on parole and preparing for re-entry
into society and other adult treatment programs. At the secure institutional
correctional and detention facilities, the Company generally provides maximum
and medium security incarceration and minimum security residential services,
institutional food services, certain transportation services, general education
programs (such as high school equivalency and English as a second language
programs), health care (including medical, dental and psychiatric services),
work and recreational programs and chemical dependency and substance abuse
programs. Juvenile services provided by the Company include counseling,
wilderness programs, medical services, substance abuse treatment and accredited
educational programs tailored to meet the special needs of juveniles. Additional
services provided by the Company's pre-release division typically include life
skills and employment training, job placement assistance and substance abuse
treatment in both residential and non-residential facilities. The Company
derives substantially all its revenues from operating correctional, detention,
pre-release and treatment facilities for federal, state and local governmental
agencies in the United States.
For the years ended December 31, 1999, 1998 and 1997, 19.8%, 20.1% and
31.4%, respectively, of the Company's consolidated revenues were derived from
contracts with the Federal Bureau of Prisons ("FBOP").
HISTORY OF ACQUISITIONS
Since 1994, Cornell Companies has completed eight acquisitions.
In November 1999, the Company acquired substantially all of the adult and
juvenile treatment, educational and correctional assets of Interventions, a
not-for-profit corporation headquartered in Chicago, Illinois, and certain
assets of BHS Consulting Corporation, a for-profit firm that provided management
services to Interventions (collectively, "Interventions-Illinois"). The Company
paid an aggregate purchase price of approximately $31.8 million including
transaction costs. The acquisition included more than 30 programs operated
within 13 facilities throughout Illinois serving a daily population of
approximately 1,880 adults and juveniles, and the real properties of seven
facilities.
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In August 1998, the Company acquired substantially all of the Alaskan
assets of Allvest, Inc. ("Allvest"), a privately held company based in
Anchorage, Alaska. The Allvest acquisition included the operations of five
pre-release facilities with an aggregate capacity of 540 beds in Anchorage,
Fairbanks and Bethel, Alaska, the real properties of three of the five
facilities and assignments of contracts with the Alaska Department of
Corrections. The aggregate purchase price for the acquisition was approximately
$21.3 million.
In January 1998, the Company purchased the Great Plains Correctional
Facility, an existing 812 bed medium security prison located in Hinton,
Oklahoma, for approximately $43.8 million. The purchase included an additional
20 adjacent acres of land for potential future expansion of the facility. In
December 1999, the Company transferred ownership of the Great Plains
Correctional Facility to the Hinton Economic Development Authority ("HEDA") and
retained a 75 year leasehold interest in the facility.
In September 1997, the Company acquired substantially all of the assets of
The Abraxas Group, Inc. and four related entities (collectively, "Abraxas"), a
not-for-profit juvenile operator of seven residential facilities and 11
non-residential community-based programs, serving an aggregate capacity of
approximately 1,400 juvenile offenders. The aggregate purchase price for the
acquisition was approximately $19.2 million.
In January 1997, the Company acquired substantially all of the assets of
Interventions Co. ("Interventions-Texas") for an aggregate purchase price of
$6.0 million. The acquisition included the operation of the Dallas County
Judicial Center, a 300 bed adult residential pre-release facility in Dallas,
Texas and the Griffin Juvenile Facility, a 150 bed capacity residential
transitional living center for juveniles in San Antonio, Texas.
In July 1996, the Company acquired substantially all the assets of MidTex
Detentions, Inc. ("MidTex"), the operator of secure institutional facilities in
Big Spring, Texas (the "Big Spring Complex"), for an aggregate purchase price of
approximately $23.2 million. The City of Big Spring has an Intergovernmental
Agreement (the "IGA") with the FBOP to house offenders at the Big Spring
Complex. As part of the acquisition, MidTex assigned to the Company its rights
under an operating agreement with the City of Big Spring (the "Big Spring
Operating Agreement") to manage the Big Spring Complex. The Big Spring Operating
Agreement has a lease term through 2047. The IGA has an indefinite term,
although it may be terminated or modified by the FBOP upon 90 days written
notice.
In May 1996, the Company acquired a 310 bed pre-release facility located in
Houston, Texas (the "Reid Community Correctional Center"), for approximately
$2.0 million. Included in the acquisition was the real and personal property and
the assignment of the Reid Community Correctional Center's contract with the
Texas Department of Criminal Justice ("TDCJ").
In March 1994, the Company acquired Eclectic Communications, Inc.
("Eclectic"), the operator of 11 privatized secure institutional and pre-release
facilities in California with an aggregate offender capacity of 979 beds.
Consideration for the acquisition of Eclectic was $10.0 million.
INDUSTRY AND MARKET
In the United States, there has been a growing trend toward privatization
of government services and functions, including correctional and detention
services, as governments of all types face continuing pressure to control costs
and improve the quality of services. Since December 1989, the service capacity
of privately managed adult secure institutional correctional and detention
facilities in operation or under construction has increased from 10,973 beds to
a capacity of 144,455 beds as of November 1999, representing a compound annual
growth rate in beds of 29%.
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The United States leads the world in private prison management contracts.
At December 31, 1998, there were private adult secure institutional correctional
and detention facilities in operation or under construction in 30 states, the
District of Columbia and Puerto Rico. According to reports issued by the United
States Department of Justice, Bureau of Justice Statistics (the "BJS"), the
number of adult offenders housed in United States federal and state prison
facilities and in local jails increased from 742,579 at December 31, 1985 to
1,825,400 at December 31, 1998. Management believes that the increase in the
demand for privatized adult secure institutional correctional and detention
facilities is also a result, in large part, of the general shortage of beds
available in United States adult secure institutional correctional and detention
facilities.
Prison population growth is driven by several factors including:
o INCREASES IN DRUG-RELATED CRIMES. While reported occurrences and
arrests for non-drug crimes have declined in recent years, the number
of annual arrests for drug-related offenses has increased from
approximately 1.1 million in 1990 to 1.6 million in 1998, representing
a compound annual growth rate of 4.6%. Furthermore, the number of jail
inmates held for drug-related offenses has grown substantially,
accounting for 72% of the increase in the total inmate population from
1986 to 1997.
o INCREASING PROSECUTION AND IMPRISONMENT RATES; STRICTER SENTENCING AND
LONGER INCARCERATION. Federal prosecution, conviction and incarceration
rates have been rising steadily. In addition, the Sentencing Reform Act
of 1984 took effect in 1987 and established federal sentencing
guidelines that (1) require a prison term for many offenses for which
probation had previously been imposed, (2) require longer sentences for
certain offenses, (3) eliminate parole in certain circumstances and (4)
reduce the amount of good conduct time federal offenders can earn.
Industry reports also indicate that adult offenders convicted of violent
crimes generally serve only one-third of their sentence, with the majority of
them being repeat offenders. Accordingly, there is a perceived public demand
for, among other things, longer prison sentences, as well as prison terms for
juvenile offenders, resulting in even more overcrowding in United States
correctional and detention facilities. Finally, numerous courts and other
government entities in the United States have mandated that additional services
offered to offenders be expanded and living conditions be improved. Many
governments do not have the readily available resources to make the changes
necessary to meet such mandates.
The juvenile corrections industry has also expanded rapidly in recent years
as the need for services for at-risk and adjudicated youth has risen.
The growth in the juvenile correction system population has been driven by
the following trends:
o INCREASING JUVENILE CRIME RATES. BJS studies demonstrate that juveniles
have represented a disproportionately high portion of crime and arrest
rates, particularly with regard to drug arrests.
o RAPID INCREASES IN JUVENILE POPULATION. In 1995, the National Center
for Policy Analysis projected that the 1995 population of 14-17 year
olds, which accounts for two-thirds of all juvenile crimes, would rise
by 23% by the year 2005.
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o INCREASE IN "AT-RISK" JUVENILE POPULATION. Numerous government and
academic studies have shown that certain socio-economic characteristics
increase the probability of a juvenile becoming delinquent. Current and
projected trends associated with these characteristics point to a
likely increase in juvenile delinquency.
- A Growing Number of Children Living in Single-Parent Families. In
1998, 28% of children lived in single parent families, compared to
23% in 1980 and only 10% in 1970.
- Growing Juvenile Poverty Rates. In 1997, 14.1 million juveniles
lived in poverty, representing an increase of 42% over the number
of juveniles living in poverty in 1978. In addition, in 1997, the
proportion of those under age 18 who lived below the poverty level
was almost double the poverty rate of adults.
The juvenile corrections industry is fragmented with several thousand
providers across the country, most of which are small and operate in a specific
geographic area.
Pre-release correctional and treatment programs have experienced
significant growth, driven by an increased focus on rehabilitation and
reintegration into society and by the recognition of the fact that preparation
of inmates returning to society reduces recidivism rates. The pre-release area
primarily comprises individuals who have been granted parole, sentenced to
probation or require substance abuse or mental health treatment.
Probationers (individuals sentenced for an offense without incarceration)
and parolees (individuals released prior to the completion of their sentence)
are typically placed in pre-release settings. These individuals typically spend
three to six months in halfway houses until they are prepared to re-enter
society.
A portion of the growth of the pre-release segment is driven by the overall
growth of the adult prison population, as well as the release rate. Despite the
decreasing trend in violent crimes across the nation and an increase in
incarceration rates, there are still significant numbers of prisoners released
from prison, either conditionally or unconditionally, each year. According to
the BJS studies, the number of individuals released from state and federal
prison facilities increased in excess of 20% from 1990 to 1997, from 431,753 to
521,808. Approximately 78%, or 369,808 prisoners, were conditionally released
(i.e., parole, probation, supervised mandatory release). Prisoners released
under a supervised mandatory release program comprised nearly 38% of all
prisoners released and 48% of all conditionally released prisoners. The
probation and parole populations represent approximately 71% of the total number
of adults under correctional supervision in the United States.
The demand for substance abuse and mental health treatment services is
based on the availability of services for alcohol and drug abusers. The federal
Substance Abuse and Mental Health Services Administration ("SAMHSA") estimates
that there are three to five million individuals who use and abuse alcohol and
other drugs and who significantly impact the utilization of and the cost to the
health care, adult and juvenile justice, welfare, child welfare and other
publicly funded systems. However, only 1.8 million individuals can currently be
served through the existing publicly funded treatment system. An August 1999
SAMHSA survey indicates increases in substance abuse for many of the client
populations served by the Company. Demand for private treatment services has
traditionally been, and continues to be, driven by governmental departments of
corrections, health, human services, and children and family services
recognition of the need to provide substance abuse treatment to individuals and
families in their care.
The pre-release correctional and treatment services industry is extremely
fragmented with several thousand providers across the country, most of which are
small and operate in a specific geographic area.
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OPERATING DIVISIONS
SECURE INSTITUTIONAL CORRECTIONAL AND DETENTION SERVICES. At December 31,
1999, the Company operated or had under development nine facilities with a total
service capacity of 7,940 beds that provide secure institutional correctional
and detention services for incarcerated adults. For a listing of facility
locations, see "Facilities."
The Company operates the Big Spring Complex pursuant to the Big Spring
Operating Agreement between the Company and the City of Big Spring. The City of
Big Spring in turn is a party to the IGA with the FBOP for an indefinite term
with respect to the facilities. The Immigration and Naturalization Service (the
"INS") and the United States Marshal Services ("USMS") also use the Big Spring
Complex. Offenders include detainees held by the INS, adjudicated offenders held
by the INS who will be deported after serving their sentences and adjudicated
offenders held for the FBOP. The Big Spring Complex is equipped with an
interactive satellite link to INS courtroom facilities and judges which allows
for processing of a high volume of INS detainees while reducing the time, effort
and expense incurred in transporting offenders to offsite courtrooms. The
Company completed a 560 bed expansion at the Big Spring Complex in the fourth
quarter of 1998 and additional expansions totaling 722 beds during the fourth
quarter of 1999 and the first quarter of 2000. Total service capacity, after
expansions, is 2,568 beds.
The Great Plains Correctional Facility is an 812 bed medium security prison
located in Hinton, Oklahoma. The prison is operated pursuant to a one-year
contract with nine one-year renewal options between the Oklahoma Department of
Corrections and HEDA; HEDA in turn subcontracts the daily operations of the
prison to the Company. The Company assumed complete operation of Great Plains
Correctional Facility in July 1998. The Company has a 30-year operating contract
with four five-year renewals with HEDA.
The D. Ray James Prison began operations with 550 beds during the fourth
quarter of 1998 and houses offenders from the State of Georgia. The Company
completed a 450 bed expansion in the first quarter of 1999 and a 550 bed
expansion during the fourth quarter of 1999.
The Santa Fe County Adult Detention Facility is a 661 bed adult detention
facility that houses offenders from Santa Fe County and various surrounding
counties. Construction of this facility was completed in July 1998. Prior to
construction of the new facility, the Company operated a 240 bed facility which
housed 200 adult and 40 juvenile offenders. The 240 bed facility was renovated
to house 129 juveniles exclusively.
The Wyatt Detention Facility in Central Falls opened in 1993 and primarily
houses federal offenders awaiting adjudication under federal criminal charges.
The Leo Chesney Community Correctional Facility (for females) and the Baker
Community Correctional Facility (for males) are both in California and house
offenders sentenced by the State of California, most of whom are non-violent
offenders with sentences of up to two years.
In April 1999, the Company was awarded a contract to design, build and
operate a 1,095 bed prison for the FBOP in Moshannon Valley, Pennsylvania
("Moshannon Valley Correctional Center") and immediately commenced construction
and activation activities. In June 1999, the FBOP issued a Stop-Work Order
pending a re-evaluation of their environmental documentation supporting the
decision to award the contract. The environmental study was completed with a
finding of no significant impact. While the Stop-Work Order is still in effect,
management believes it will be lifted and construction will be resumed in the
near-term. In September 1999 the Company received correspondence from the Office
of the Attorney General of the Commonwealth of Pennsylvania indicating its
belief that the operation of a private prison in Pennsylvania is unlawful. The
Company has had, and continues to have, discussions with the Attorney General's
staff regarding these issues.
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In June 1999, the Company was selected by the State of Utah to design,
build and operate a 490 bed prison ("Timpie Valley Correctional Facility"). The
Company is currently involved in contract negotiations for the project.
Under its contracts, the Company provides a variety of programs and
services at its secure institutional facilities, including secure incarceration
services, institutional food services, certain transportation services, general
education programs (such as high school equivalency and English as a second
language programs), work and recreational programs and chemical dependency and
substance abuse programs.
JUVENILE TREATMENT, EDUCATIONAL AND DETENTION SERVICES. Under the names
"Cornell Abraxas" and "Cornell Interventions," the Company offers programs to
meet the multiple needs of troubled juveniles. At December 31, 1999, the Company
operated or had contracts to operate 19 residential facilities and 18
non-residential community-based programs serving an aggregate capacity of
approximately 3,209 youths. For a listing of facility locations, see
"Facilities." Juvenile correctional and detention services consist primarily of
treatment programs for offenders that are designed to lead to rehabilitation
while providing public safety and holding offenders accountable for their
decisions and behavior. The Company operates primarily within a restorative
justice model. The basic philosophy is that merely serving time in an
institution does not relieve juvenile offenders of the obligation to repay their
victims and that incarceration alone does not compensate for the societal impact
of crimes. The use of a balanced approach gives equal emphasis to
accountability, competency development and community protection.
The 160 bed Salt Lake Valley Juvenile Detention Facility in Salt Lake City,
Utah includes an interactive satellite link to juvenile courtroom facilities and
judges, which allows for processing of a high number of juvenile detainees while
reducing the time, effort and expense incurred in transporting detainees to
offsite courtrooms.
The Santa Fe County Juvenile Detention Facility in Santa Fe, New Mexico is
a 129 bed facility that houses juvenile offenders for Santa Fe County and
various surrounding counties. The facility, which was previously a 240 bed
facility that housed 200 adults and 40 juveniles, was renovated in 1999 to house
juveniles exclusively.
The Griffin Juvenile Facility is a 170 bed capacity transitional living
center for juveniles located in San Antonio, Texas. The Company currently has
contracts for the housing of adjudicated and certain homeless non-adjudicated
juveniles.
Generally, Cornell Abraxas and Cornell Interventions programs include
education, individual and group counseling, social skills training, physical
training, community service and substance abuse treatment. The educational
schools within Cornell Abraxas are accredited, whereby graduating juveniles are
eligible to receive a full high school diploma as an alternative to the
traditional General Educational Development ("G.E.D.") certificate.
The three largest facilities operated by Cornell Abraxas include: (i) the
Cornell Abraxas I program ("A-1"); (ii) the Leadership Development Program (the
"LDP") and (iii) Cornell Abraxas of Ohio. A-1's campus is situated on
approximately 100 acres with an aggregate service capacity of 248 beds. Located
in the Allegheny National Forest, A-1 operates as an open residential facility
for the treatment of delinquent and/or dependent males who have substance abuse
problems and/or were involved in the sale of a controlled substance. A-1 also
operates a licensed school which offers a full range of educational services and
interscholastic sports programs. While at A-1, juvenile offenders may earn a
high school diploma, pursue vocational tracks or receive G.E.D. instruction and
testing. The LDP is conducted on property leased by the Company, located on
approximately 3.5 acres in South Mountain, Pennsylvania. The LDP is a 15-week
residential treatment program with a wilderness component. The program includes
group counseling,
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substance abuse treatment and licensed educational programs. Cornell Abraxas of
Ohio's facility is located on approximately 80 acres in north central Ohio and
has a service capacity of 108 beds. This residential program offers a
comprehensive substance abuse treatment and education program for males.
Individuals participate in intensive group curriculum which includes a wide
variety of topics such as: stages of denial, self-help tools for recovery, goal
setting, values, beliefs and morals, relapse process and prevention and sex
education. Individuals may earn a high school diploma, pursue vocational tracks
or receive G.E.D. instruction and testing.
The Company is in the process of constructing the 214 bed New Morgan
Academy in southeastern Pennsylvania. The New Morgan Academy, located in New
Morgan, Pennsylvania, is expected to open in the fourth quarter of 2000 and is
designed to address the need for juvenile secure residential programs with a
particular emphasis on specialized treatment services and special needs
populations.
Cornell Interventions operates various therapeutic community substance
abuse treatment programs for juveniles. The DuPage Adolescent Center is one such
program and was the first Cornell Interventions program to be accredited by the
Joint Commission on Accreditation of Healthcare Organizations ("JCAHO") in 1994.
Cornell Interventions also operates the Residential School and Maple Creek Home,
both treatment facilities for youth with severe emotional and behavioral
problems. Key features of both programs include a strong educational program and
24-hour care, including availability of nursing staff and psychiatric
consultation. The non-residential community-based programs transition juvenile
offenders from residential placement back to their home communities. The Company
provides in-home counseling and intensive case management services while
integrating an array of community resources into a comprehensive plan. This dual
role of service provider and intermediary serves to bridge the gap between
residential facilities and the community. The Company utilizes therapists and
consulting psychologists in its multi-level treatment programs.
PRE-RELEASE CORRECTIONAL AND TREATMENT SERVICES. At December 31, 1999, the
Company operated or had contracts to operate 21 residential facilities and 5
non-residential community based programs with an aggregate service capacity of
3,696 that provide pre-release correctional and treatment services. For a
listing of facility locations, see "Facilities."
At its pre-release facilities, the Company typically provides minimum
security residential services, institutional food services, general education
programs, life skills and employment training, job placement assistance and
chemical dependency and substance abuse counseling.
Cornell Interventions' Southwood facility is primarily an
inpatient/residential substance abuse treatment facility. The variety of
programs at Southwood are based on behavior modification and a team approach to
treatment and case management. The Southwood facility is also accredited by
JCAHO. At its Northside Clinic, Cornell Interventions provides outpatient
methadone maintenance treatment to adults addicted to opioids such as heroin.
This method of treatment has been shown in recent studies to improve life
functioning and decrease criminal behavior and drug use practices.
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FACILITIES
As of December 31, 1999, the Company operated 69 facilities and had 3
facilities under development or construction. The facilities currently under
development or construction are the Timpie Valley Correctional Center, the
Moshannon Valley Correctional Center and the New Morgan Academy. In addition to
providing management services, the Company has been involved in the development,
design and/or construction of many of these facilities. The following table
summarizes certain additional information with respect to facilities under
operation or development by the Company as of December 31, 1999:
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COMPANY
TOTAL INITIAL OWNED/
SERVICE CONTRACT LEASED OR
FACILITY NAME AND LOCATION CAPACITY(1) DATE(2) MANAGED(3)
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SECURE INSTITUTIONAL CORRECTIONAL
AND DETENTION FACILITIES:
Baker Community Correctional Facility............. 262 1987 Leased
Baker, California
Big Spring Complex................................ 2,568 (4) Owned/Leased(5)
Big Spring, Texas
D. Ray James Prison............................... 1,550 1998 Owned
Charlton County, Georgia
Great Plains Correctional Facility................ 812 (6) Leased (7)
Hinton, Oklahoma
Leo Chesney Community Correctional
Facility....................................... 200 1988 Leased
Live Oak, California
Moshannon Valley Correctional Center.............. 1,095 1999 Leased
Philipsburg, Pennsylvania
Santa Fe County Adult Detention Facility.......... 661 1997 Managed
Santa Fe, New Mexico (8)
Timpie Valley Correctional Facility............... 490 (9) (9)
Grantsville, Utah
Wyatt Detention Facility.......................... 302 1992 Managed
Central Falls, Rhode Island
JUVENILE TREATMENT, EDUCATIONAL AND DETENTION FACILITIES:
RESIDENTIAL FACILITIES:
City Girls Program................................ 16 (10) Leased
Ashland, Illinois
Contact........................................... 47 (10) Owned
Wauconda, Illinois
Cornell Abraxas I................................. 248 1973 Owned
Marienville, Pennsylvania
Cornell Abraxas II................................ 23 1974 Owned
Erie, Pennsylvania
Cornell Abraxas III............................... 22 1975 Owned
Pittsburgh, Pennsylvania
Cornell Abraxas Center for Adolescent
Females........................................ 46 1989 Owned
Pittsburgh, Pennsylvania
(TABLE CONTINUED ON FOLLOWING PAGE)
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COMPANY
TOTAL INITIAL OWNED/
SERVICE CONTRACT LEASED OR
FACILITY NAME AND LOCATION CAPACITY(1) DATE(2) MANAGED(3)
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JUVENILE RESIDENTIAL FACILITIES: (CONTINUED)
Cornell Abraxas of Ohio........................... 108 1993 Owned
Shelby, Ohio
Cornell Abraxas Youth Center...................... 92 1999 Leased
South Mountain, Pennsylvania
Danville Center for Adolescent Females............ 64 1998 Managed
Danville, Pennsylvania
DuPage Adolescent Center.......................... 34 (10) Owned
Hinsdale, Illinois
Erie Residential Behavioral Health................ 16 1999 Leased
Erie, Pennsylvania
Griffin Juvenile Facility......................... 170 1996 Owned
San Antonio, Texas
Leadership Development Program.................... 120 1994 Leased
South Mountain, Pennsylvania
New Morgan Academy................................ 214 (11) Leased
New Morgan, Pennsylvania
Psychosocial Rehabilitation Unit.................. 13 1994 Owned
Erie, Pennsylvania
Residential School................................ 30 (10) Owned
Matteson, Illinois
Salt Lake Valley Juvenile Detention Facility...... 160 1996 Managed
Salt Lake City, Utah
Santa Fe County Juvenile Detention Facility....... 129 1997 Managed
Santa Fe, New Mexico (8)
South Mountain Secure Residential
Treatment Unit................................. 52 1997 Managed
South Mountain, Pennsylvania
JUVENILE NON-RESIDENTIAL COMMUNITY-BASED CENTERS:
Adams County Mental Health........................ 34 1998 Leased
Oxford, Pennsylvania
Cornell Abraxas Parenting Academy................. 36 1999 Leased
Harrisburg, Pennsylvania
Cornell Abraxas Student Academy................... 110 1996 Leased
Harrisburg, Pennsylvania
Day Treatment Program............................. 58 1996 Leased
Harrisburg, Pennsylvania
Delaware Community Programs....................... 33 1994 Leased
Milford, Delaware
Erie Behavioral Health Services................... 36 1997 Leased
Erie, Pennsylvania
Illinois Youth Center - St. Charles............... 3 (10) Managed
St. Charles, Illinois
(TABLE CONTINUED ON FOLLOWING PAGE)
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COMPANY
TOTAL INITIAL OWNED/
SERVICE CONTRACT LEASED OR
FACILITY NAME AND LOCATION CAPACITY(1) DATE(2) MANAGED(3)
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JUVENILE NON-RESIDENTIAL COMMUNITY-BASED CENTERS: (CONTINUED)
Juvenile Field Services........................... 110 (10) Managed
Chicago, Illinois
Kline Plaza....................................... 251 1996 Leased
Harrisburg, Pennsylvania
Lehigh Valley Community Programs.................. 31 1992 Leased
Lehigh Valley, Pennsylvania
Lycoming/Clinton County Behavioral
Health Services................................ 30 1998 Leased
Williamsport, Pennsylvania
Maple Creek Home.................................. 8 (10) Owned
Matteson, Illinois
Non-Residential Care - West....................... 25 (10) Leased
Pittsburgh, Pennsylvania
Harrisburg........................................ 91 1999 Leased
Harrisburg, Pennsylvania
Philadelphia Community Programs................... 60 1992 Owned
Philadelphia, Pennsylvania
Supervised Home Services/Home Detention........... 64 1993 Leased
District of Columbia
Workbridge Allegheny.............................. 475 1994 Leased
Pittsburgh, Pennsylvania
Workbridge Philadelphia........................... 150 1998 Leased
Philadelphia, Pennsylvania
PRE-RELEASE RESIDENTIAL CORRECTIONAL AND
TREATMENT FACILITIES:
Bolingbrook....................................... 111 (10) Leased
Bolingbrook, Illinois
Cordova Center.................................... 192 1985 Owned
Anchorage, Alaska
Dallas County Judicial Center..................... 300 1991 Leased
Wilmer, Texas
Durham Center..................................... 75 1996 Leased
Durham, North Carolina
El Monte Center................................... 55 1993 Leased
El Monte, California
Inglewood Men's Center............................ 50 1982 Leased
Inglewood, California
Leidel Community Correctional Center.............. 150 1996 Owned
Houston, Texas
Marvin Gardens Center............................. 42 1981 Leased
Los Angeles, California
Midtown Center.................................... 32 1998 Owned
Anchorage, Alaska
(TABLE CONTINUED ON FOLLOWING PAGE)
</TABLE>
- 11 -
<PAGE>
<TABLE>
<CAPTION>
COMPANY
TOTAL INITIAL OWNED/
SERVICE CONTRACT LEASED OR
FACILITY NAME AND LOCATION CAPACITY(1) DATE(2) MANAGED(3)
- -------------------------------------------- ----------- ------- ----------
<S> <C> <C> <C>
PRE-RELEASE RESIDENTIAL CORRECTIONAL AND
TREATMENT FACILITIES: (CONTINUED)
Northstar Center.................................. 105 1990 Leased
Fairbanks, Alaska
Oakland Center.................................... 61 1981 Leased
Oakland, California
Parkview Center................................... 112 1993 Owned
Anchorage, Alaska
Reid Community Correctional Center................ 310 1996 Owned
Houston, Texas
Salt Lake City Center............................. 58 1995 Leased
Salt Lake City, Utah
San Diego Center.................................. 131 1984 Leased
San Diego, California
Santa Barbara Center.............................. 25 1996 Leased
Santa Barbara, California
Seaside Center.................................... 40 1999 Leased
Nome, Alaska
Southwood......................................... 329 (10) Owned
Chicago, Illinois
Taylor Street Center.............................. 177 1984 Leased
San Francisco, California
Tundra Center..................................... 99 1986 Owned
Bethel, Alaska
Woodridge......................................... 139 (10) Owned
Woodridge, Illinois
PRE-RELEASE NON-RESIDENTIAL COMMUNITY-BASED
TREATMENT CENTERS:
East St. Louis................................... 80 (10) Leased
East St. Louis, Illinois
Joliet............................................ 100 (10) Leased
Joliet, Illinois
Northside Clinic.................................. 202 (10) Owned
Chicago, Illinois
Santa Fe Electronic Monitoring.................... 50 1999 Leased
Santa Fe, New Mexico
Southwestern Illinois Correctional Center (12).... 671 (10) Managed
East St. Louis, Illinois
</TABLE>
- ------------------
(1) Total service capacity is comprised of the beds available for service in
residential facilities and the average program capacity of the
non-residential community-based facilities. In certain cases, the
management contract for a facility provides for a lower number of beds.
(2) Date from which the Company, or its predecessor, has had a contract for
services on an uninterrupted basis.
(3) The Company does not incur any facility use costs for facilities which the
Company only has a management contract.
(FOOTNOTES CONTINUED ON THE FOLLOWING PAGE)
- 12 -
<PAGE>
(4) The City of Big Spring entered into the IGA with the FBOP for an indefinite
term (until modified or terminated) with respect to the Big Spring Complex,
which began operations during 1989. The Big Spring Operating Agreement, as
amended, has a term through 2047 including renewal options at the Company's
discretion, pursuant to which the Company manages the Big Spring Complex
for the City of Big Spring. With respect to the 560 bed expansion of the
Big Spring Complex, the portion of the Big Spring Operating Agreement
relating to the expansion has a term of 30 years with four five-year
renewal options at the Company's discretion.
(5) In connection with the acquisition of MidTex, and as part of the purchase
price, the Company prepaid a majority of the facility costs related to
three of the Big Spring Complex units. The Company owns the 560 bed
expansion unit constructed in 1998.
(6) The prison is operated pursuant to a one-year contract with nine one-year
renewal options between the Oklahoma Department of Corrections and HEDA.
HEDA in turn has subcontracted the operations to the Company under a
30-year operating contract with four five-year renewals.
(7) In December 1999, the Company transferred ownership of the Great Plains
Correctional Facility to HEDA and retained a leasehold interest in the
property for a term of 75 years plus renewal options.
(8) The Company took over the operation of an existing 240 bed adult and
juvenile facility on July 1, 1997, while beginning construction of a new
661 bed adult detention facility, which was completed in the second quarter
of 1998. The offenders housed in the 240 bed facility were transferred to
the new 661 bed detention facility and the 240 bed facility was converted
into a 129 bed juvenile detention facility.
(9) The Utah Department of Corrections selected the Company's bid in June 1999
subject to final negotiations which are pending.
(10) The Cornell Interventions programs/facilities contract with numerous
agencies throughout Illinois. Initial contract dates vary by agency and
range from 1974 to 1997.
(11) The facility is currently under development and construction. The Company
anticipates obtaining contracts with various counties once construction is
completed in 2000.
(12) The Company manages a therapeutic community drug and alcohol program
operated within the state operated Southwestern Illinois Correctional
Center.
FACILITY MANAGEMENT CONTRACTS
The Company is compensated on the basis of the number of offenders held or
supervised under each of its facilities' management contracts. The Company's
existing facility management contracts generally provide that the Company will
be compensated at an occupant per diem rate. Such compensation is invoiced in
accordance with applicable law and is typically paid on a monthly basis. Under a
per diem rate structure, a decrease in occupancy rates would cause a decrease in
revenues and profitability. The Company is, therefore, dependent upon
governmental agencies to supply the Company's facilities with a sufficient
number of offenders to meet the contract capacities, and in most cases such
governmental agencies are under no obligation to do so. Moreover, because
certain of the Company's facilities have offenders serving relatively short
sentences or only the last three to six months of their sentences, the high
turnover rate of offenders requires a constant influx of new offenders from the
relevant governmental agencies to provide sufficient occupancies to achieve
profitability. Occupancy rates during the start-up phase when facilities are
first opened typically result in capacity underutilization for 30 to 90 days.
After a management contract has been awarded, the Company incurs facility
start-up costs consisting principally of initial employee training, travel and
other direct expenses incurred in connection with the contract. These costs vary
by contract. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
All the Company's contracts are subject to legislative appropriations. A
failure by a governmental agency to receive appropriations could result in the
termination of the contract by such agency or a reduction of the management fee
payable to the Company. To date, the Company has not lost a material contract
due to a governmental agency not receiving appropriations, although no assurance
can be given that the governmental agencies will continue to receive
appropriations in all cases.
- 13 -
<PAGE>
The Company's contracts generally require the Company to operate each
facility in accordance with all applicable laws and regulations. The Company is
required by its contracts to maintain certain levels of insurance coverage for
general liability, workers' compensation, vehicle liability and property loss or
damage. The Company is also required to indemnify the contracting agency for
claims and costs arising out of the Company's operations, and in certain cases,
to maintain performance bonds.
The Company's facility management contracts typically have terms ranging
from one to five years and many have one or more renewal options for terms
ranging from one to five years. Only the contracting governmental agency may
exercise a renewal option. To date, all but one renewal option under the
Company's management contracts have been exercised. In connection with the
exercise of the renewal option, the contracting governmental agency or the
Company typically has requested changes or adjustments to the contract terms.
Additionally, the Company's facility management contracts typically allow a
contracting governmental agency to terminate a contract without cause by giving
the Company written notice ranging from 30 to 180 days. To date, no contracts
have been terminated before expiration.
MARKETING AND DEVELOPMENT
The Company's principal customers are federal, state and local governmental
agencies responsible for adult and juvenile correctional, detention and
pre-release correctional and treatment services. These governmental agencies
generally procure services from the private sector by issuing a Request for
Proposal ("RFP") to which a number of companies may respond. Most of the
Company's efforts in securing new business are expected to be in the form of
responding to RFPs. As part of the Company's process of responding to RFPs,
management of the Company meets with appropriate personnel from the requesting
agency to best determine the agency's distinct needs. If the Company believes
that the project complies with its business strategy, the Company will submit a
written response to the RFP. When responding to RFPs, the Company incurs costs,
typically ranging from $10,000 to $75,000 per proposal, to determine the
prospective client's distinct needs and prepare a detailed response to the RFP.
In addition, the Company may incur substantial costs to acquire options to lease
or purchase land for a proposed facility and engage outside consulting and legal
expertise related to a particular RFP. The preparation of a response to an RFP
typically takes from five to ten weeks.
A typical RFP requires bidders to provide detailed information, including,
but not limited to, descriptions of the following: the services to be provided
by the bidder, the bidder's experience and qualifications and the price at which
the bidder is willing to provide the services requested by the agency (which
services may include the renovation, improvement or expansion of an existing
facility or the planning, design and construction of a new facility). Based on
proposals received in response to an RFP, the governmental agency will award a
contract; however, the governmental agency does not necessarily award a contract
to the lowest bidder. In addition to costs, governmental agencies also consider
experience and qualifications of bidders in awarding contracts.
The development process for obtaining facility management contracts
consists of several steps. These include issuance of an RFP by a governmental
agency, submission of a response to the RFP by the Company, the award of the
contract by a governmental agency and the commencement of construction or
operation of the facility. The Company's experience has been that a substantial
period of time may elapse from the initial inquiry to receipt of a new contract,
although, as the concept of privatization has gained wider acceptance, the
length of time from inquiry to the award of contract has shortened. The length
of time required to award a contract is also affected, in some cases, by the
need to introduce enabling legislation. The bidding and award process for an RFP
typically takes from three to nine months. Generally, if the facility for which
an award has been made must be constructed, the Company's experience has been
that a newly constructed facility typically commences operations between 12 and
24 months after the governmental agency's award.
- 14 -
<PAGE>
The Company also at times receives inquiries from or on behalf of
governmental agencies that are considering privatization of certain facilities
or that have already decided to contract with private providers. When such an
inquiry is received, the Company determines whether there is a need for the
Company's services and whether the legal and political climate in which the
governmental agency operates is conducive to serious consideration of
privatization. The Company then conducts an initial cost analysis to further
determine project feasibility.
When a contract requires construction of a new facility, the Company's
success depends, in part, upon its ability to acquire real property for its
facilities on desirable terms and at satisfactory locations. Management of the
Company expects that many such locations will be in or near populous areas and
therefore anticipates legal action and other forms of opposition from residents
in areas surrounding certain proposed sites. The Company may incur significant
expenses in responding to such opposition and there can be no assurance of
success. In addition, the Company may choose not to bid in response to an RFP or
may determine to withdraw a bid if legal action or other forms of opposition are
anticipated.
OPERATIONS
Pursuant to the terms of its management contracts, the Company is
responsible for the overall operation of its facilities, including staff
recruitment, general administration of the facilities, security and supervision
of the offenders and facility maintenance. The Company also provides a variety
of rehabilitative and educational programs at many of its facilities. Offenders
at most adult facilities managed by the Company may receive basic education
through academic programs designed to improve offender literacy levels
(including English as a second language programs) and the opportunity to acquire
G.E.D. certificates. Programs for offenders at the Company's juvenile facilities
typically have an increased emphasis on education and counseling. At many
facilities, the Company also offers vocational training to offenders who lack
marketable job skills. In addition, the Company offers life skills, transition
planning programs that provide offenders job search training and employment
skills, health education, financial responsibility training and other skills
associated with becoming productive citizens. At several of its facilities, the
Company also offers counseling, education and/or treatment to offenders with
chemical dependency or substance abuse problems.
The Company operates each facility in accordance with Company-wide policies
and procedures generally based on the standards and guidelines established by
the American Correctional Association ("ACA") Commission on Accreditation and/or
the appropriate licensing agencies (collectively "Accreditation Standards"). The
ACA is an independent organization comprised of professionals in the corrections
industry which establishes guidelines and standards by which a correctional
institution may gain accreditation. The Accreditation Standards describe
specific objectives to be accomplished and cover such areas as administration,
personnel and staff training, security, medical and health care, food service,
offender supervision and physical plant requirements.
Internal quality control, conducted by senior facility staff and executive
officers of the Company, takes the form of periodic operational, programming and
fiscal audits; facility inspections; regular review of logs, reports and files;
and strict maintenance of personnel standards, including an active training
program. Each of the Company's facilities develops its own training plan that is
reviewed, evaluated and updated annually. Dedicated space and equipment for
training is provided and outside resources such as community colleges are
utilized in the training process. All adult correctional officers undergo a
minimum 40-hour orientation upon their hiring and receive academy-level training
amounting to 120 hours and on-the-job training of up to 80 hours. Each
correctional officer also receives up to 40 hours of training and education
annually. All juvenile treatment employees undergo a minimum 80-hour orientation
upon their hiring and also receive up to 40 hours of training and education
annually.
- 15 -
<PAGE>
FACILITY DESIGN, CONSTRUCTION AND FINANCE
In addition to operating correctional facilities, the Company also provides
consultation and management services to governmental agencies with respect to
the development, design and construction of new correctional and detention
facilities and the redesign and renovation of older facilities. The Company or
its predecessors have consulted on and/or managed the development, design and/or
construction of a number of facilities in each of its operating divisions.
During 1999, the Company completed the development, design and construction
of: (i) a majority of the 722 bed expansions of the Big Spring Complex; (ii) the
1,000 bed expansions of the D. Ray James Prison and (iii) various other
expansions.
The Company utilizes an experienced team of outside professional
architectural consultants as part of the group that participates from conceptual
design through final construction of a project. When designing a facility, the
Company's outside architects utilize, with appropriate modifications, prototype
designs the Company has previously used in developing projects. Management of
the Company believes that the use of such proven designs allows the Company to
reduce cost overruns and avoid construction delays. Additionally, the Company
designs its facilities with the intention to improve security and minimize the
personnel needed to properly staff the facility by enabling enhanced visual and
electronic surveillance of the facility.
The Company may propose various construction financing structures to the
contracting governmental agencies. The governmental agency may finance, or the
Company may arrange for the financing of, the construction of such facilities
through various methods including, but not limited to, the following: (i) a
one-time general revenue appropriation by the governmental agency for the cost
of the new facility; (ii) general obligation bonds that are secured by either a
limited or unlimited tax levy by the issuing governmental entity or (iii) lease
revenue bonds or certificates of participation secured by an annual lease
payment that is subject to annual or bi-annual legislative appropriations. If
the project is financed using project-specific tax-exempt bonds or other
obligations, the construction contract is generally subject to the sale of such
bonds or obligations. Substantial expenditures for construction will not be made
on such a project until the tax-exempt bonds or other obligations are sold. If
such bonds or obligations are not sold, construction and management of the
facility will be delayed until alternate financing is procured or development of
the project will be entirely suspended. When the Company is awarded a facility
management contract, appropriations for the first annual or bi-annual period of
the contract's term have generally already been approved, and the contract is
subject to governmental appropriations for subsequent annual or bi-annual
periods.
The Company has in the past worked with governmental agencies and placement
agents to obtain and structure financing for construction of facilities. In some
cases, an unrelated special purpose corporation is established to incur
borrowings to finance construction and own the facilities and, in other cases,
the Company directly incurs borrowings for construction financing. A growing
trend in the privatization industry is the requirement by governmental agencies
that private operators make capital investments in new facilities and enter into
direct financing arrangements in connection with the development of such
facilities. There can be no assurance that the Company will have available
capital if and when required to make such an investment to secure a contract for
developing a facility.
- 16 -
<PAGE>
COMPETITION
The Company competes with a number of companies, including, but not limited
to, Corrections Corporation of America, Wackenhut Corrections Corporation and
Correctional Services Corporation. The Company also competes in some markets
with small local companies that may have better knowledge of local conditions
and may be better able to gain political and public acceptance. In addition, the
Company may compete in some markets with governmental agencies that operate
correctional and detention facilities.
EMPLOYEES
At December 31, 1999, the Company had approximately 3,347 full-time
employees and 264 part-time employees. The Company employs management,
administrative and clerical, security, educational and counseling services,
health services and general maintenance personnel. Approximately 282 employees
at three of the Company's facilities are represented by unions. The Company
believes its relations with its employees are good.
REGULATIONS
The industry in which the Company operates is subject to federal, state and
local regulations administered by a variety of regulatory authorities.
Generally, prospective providers of correctional, detention and pre-release
services must comply with a variety of applicable state and local regulations,
including education, healthcare and safety regulations. The Company's contracts
frequently include extensive reporting requirements and require supervision with
on-site monitoring by representatives of contracting governmental agencies.
In addition to regulations requiring certain contracting governmental
agencies to enter into a competitive bidding procedure before awarding
contracts, the laws of certain jurisdictions may also require the Company to
award subcontracts on a competitive basis or to subcontract with businesses
owned by women or members of minority groups.
INSURANCE
The Company maintains a $10 million per occurrence per facility general
liability insurance policy for all its operations. The Company also maintains
insurance in amounts it deems adequate to cover property and casualty risks,
workers' compensation and directors' and officers' liability.
The Company's contracts and the statutes of certain states in which the
Company operates typically require the maintenance of insurance by the Company.
The Company's contracts provide that, in the event the Company does not maintain
such insurance, the contracting agency may terminate its agreement with the
Company. The Company believes that it is in compliance in all material respects
with these requirements.
ITEM 2. PROPERTIES
The Company leases corporate headquarters office space in Houston, Texas
and divisional administrative offices in Ventura, California and Pittsburgh,
Pennsylvania. The Company also leases various facilities it is currently
operating or developing. For a listing of owned and leased facilities, see
"Business - Facilities."
- 17 -
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company currently and from time to time is subject to claims and suits
arising in the ordinary course of business, including claims for damages for
personal injuries or for wrongful restriction of, or interference with, offender
privileges and employment matters. In the opinion of management of the Company,
the outcome of the proceedings to which the Company is currently a party will
not have a material adverse effect upon the Company's operations or financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the Company's security holders during the
fourth quarter of 1999.
PART II
ITEM 5. MARKET FOR CORNELL CORRECTIONS, INC. COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The common stock of the Company is currently listed on the New York Stock
Exchange ("NYSE") under the symbol "CRN." As of February 29, 2000, there were
approximately 38 record holders of common stock. The quarterly high and low
closing sales prices for the common stock from January 1, 1998 through February
29, 2000 are shown below:
HIGH LOW
------- -------
1998:
First Quarter..................................... 24 1/2 19 7/16
Second Quarter.................................... 25 7/16 18 1/2
Third Quarter..................................... 21 1/16 8
Fourth Quarter.................................... 19 11
1999:
First Quarter..................................... 19 5/8 13 1/4
Second Quarter.................................... 22 5/8 15 1/2
Third Quarter..................................... 17 1/8 13 15/16
Fourth Quarter.................................... 16 3/8 8 1/8
2000:
First Quarter (through February 29, 2000)......... 11 7 9/16
The Company has never declared or paid cash dividends on its capital stock.
The Company currently intends to retain excess cash flow, if any, for use in the
operation and expansion of its business and does not anticipate paying cash
dividends on the common stock in the foreseeable future. The payment of
dividends is within the discretion of the Board of Directors and will be
dependent upon, among other factors, the Company's results of operations;
financial condition; capital requirements; restrictions, if any, imposed by
financing commitments and legal requirements. The Third Amended and Restated
Credit Agreement, dated as of December 3, 1998 ("1998 Credit Facility") and the
Company's Subordinated Bridge Loan Agreement currently prohibits the payment of
dividends. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources".
- 18 -
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1999(1) 1998 (2) 1997 (3) 1996 (4) 1995
--------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ........................................... $ 176,967 $123,119 $ 70,302 $ 32,327 $ 20,692
Income (loss) from operations ...................... 22,249 12,589 5,630 339 (10)
Income (loss) before income taxes and
cumulative effect of change in
accounting principle ............................. 13,844 10,104 5,553 (2,304) (989)
Income (loss) before cumulative effect
of change in accounting principle ................ 8,306 6,062 3,554 (2,379) (989)
Cumulative effect of change in accounting
principle, net of related income tax
benefit of $1,969 in 1999 ....................... 2,954 -- -- -- --
Net income (loss) .................................. $ 5,352 $ 6,062 $ 3,554 $ (2,379) $ (989)
Earnings (loss) per share:
- Basic
Income before cumulative effect of
change in accounting principle ................. $ .88 $ .64 $ .48 $ (.65) $ (.32)
Net income (loss) ................................ $ .57 $ .64 $ .48 $ (.65) $ (.32)
- Diluted
Income before cumulative effect of
change in accounting principle ................. $ .86 $ .62 $ .46 $ (.65) $ (.32)
Net income (loss) ................................ $ .55 $ .62 $ .46 $ (.65) $ (.32)
Number of shares used to compute EPS (in thousands):
- Basic ........................................ 9,432 9,442 7,350 3,673 3,095
- Diluted ...................................... 9,660 9,772 7,740 3,673 3,095
OPERATING DATA:
Total service capacity:
Residential ...................................... 12,137 9,135 6,172 3,577 1,640
Non-residential community-based .................. 2,708 1,390 900 -- --
Total .......................................... 14,845 10,525 7,072 3,577 1,640
Service capacity in operation
(end of period) .................................. 12,240 8,700 5,061 2,899 1,135
Contracted beds in operation
(end of period)(5) ............................... 9,029 7,310 4,161 2,899 1,135
Average occupancy based on contracted
beds in operation (5)(6) ......................... 95.8% 93.8% 97.6% 97.0% 98.9%
Average occupancy excluding start-up
operations (5)(6) ................................ 97.0% 98.3% 97.6% 97.0% 98.9%
BALANCE SHEET DATA:
Working capital (deficit) .......................... $ (12,636) $ 16,828 $ 26,220 $ 7,747 $ 1,525
Total assets ....................................... 273,991 212,695 104,109 46,824 14,184
Long-term debt ..................................... 101,500 98,480 432 745 7,649
Stockholders' equity ............................... 97,208 91,500 86,730 41,051 3,053
</TABLE>
- 19 -
<PAGE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) Includes the operations of Interventions-Illinois acquired in November
1999.
(2) Includes the operations of the Great Plains Correctional Facility acquired
in January 1998 and the Alaska facilities purchased from Allvest in August
1998.
(3) Includes the operations of Interventions-Texas and Abraxas acquired in
January 1997 and September 1997, respectively.
(4) Includes the operations of the Reid Community Correctional Center and the
Big Spring Complex acquired in May 1996 and July 1996, respectively.
(5) Occupancy percentages are based on contracted service capacity of
residential facilities in operation. Since certain facilities have service
capacities that exceed contracted capacities, occupancy percentages can
exceed 100% of contracted capacity.
(6) Occupancy percentages reflect less than normalized occupancy during the
start-up phase of any applicable facility, resulting in a lower average
occupancy in periods when the Company has substantial start-up activities.
- 20 -
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company provides integrated facility development, design, construction
and operational services to governmental agencies within three operating
divisions: (i) secure institutional correctional and detention services; (ii)
juvenile treatment, educational and detention services and (iii) pre-release
correctional and treatment services. The following table sets forth for the
periods indicated total service capacity, the service capacity and contracted
beds in operation at the end of the periods shown and the average occupancy
percentages.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
------ ------ -----
<S> <C> <C> <C>
Total service capacity:
Residential........................................................... 12,137 9,135 6,172
Non-residential community-based....................................... 2,708 1,390 900
Total............................................................... 14,845 10,525 7,072
Service capacity in operation (end of period).............................. 12,240 8,700 5,061
Contracted beds in operation (end of period) (1)........................... 9,029 7,310 4,161
Average occupancy based on contracted beds in operation (1)(2)............. 95.8% 93.8% 97.6%
Average occupancy excluding start-up operations (1)(2)..................... 97.0% 98.3% 97.6%
</TABLE>
- -----------
(1) Occupancy percentages are based on contracted service capacity of
residential facilities in operation. Since certain facilities have service
capacities that exceed contracted capacities, occupancy percentages can
exceed 100% of contracted capacity.
(2) Occupancy percentages reflect less than normalized occupancy during the
start-up phase of any applicable facility, resulting in a lower average
occupancy in periods when the Company has substantial start-up activities.
The Company derives substantially all its revenues from operating
correctional, detention, pre-release and treatment facilities for federal, state
and local governmental agencies in the United States. Revenues for operation of
correctional, detention, pre-release and treatment facilities are generally
recognized on a per diem rate based upon the number of occupant days or hours
served for the period or cost-plus reimbursement.
Factors which the Company considers in determining the per diem rate to
charge include: (i) the programs specified by the contract and the related
staffing levels; (ii) wage levels customary in the respective geographic areas;
(iii) whether the proposed facility is to be leased or purchased and (iv) the
anticipated average occupancy levels which the Company believes could reasonably
be maintained.
The Company's operating margins generally vary from facility to facility
(regardless of whether the facility is secure institutional, juvenile or
pre-release) based on the level of competition for the contract award, the
proposed length of the contract, the occupancy levels for a facility, the level
of capital commitment required with respect to a facility and the anticipated
changes in operating costs, if any, over the term of the contract.
The Company is responsible for all facility operating expenses, except for
certain debt service and lease payments with respect to facilities for which the
Company has only a management contract (nine facilities in operation at December
31, 1999).
- 21 -
<PAGE>
A majority of the Company's facility operating expenses consist of fixed
costs. These fixed costs include lease and rental expense, insurance, utilities
and depreciation. As a result, when the Company commences operation of new or
expanded facilities, fixed operating expenses increase. The amount of the
Company's variable operating expenses, including food, medical services,
supplies and clothing, depend on occupancy levels at the facilities operated by
the Company. The Company's largest single operating expense, facility payroll
expense and related employment taxes and costs, has both a fixed and a variable
component. The Company can adjust the staffing and payroll to a certain extent
based on occupancy at a facility, but a minimum fixed number of employees is
required to operate and maintain any facility regardless of occupancy levels.
Pre-opening and start-up expenses consist primarily of payroll, benefits,
training and other operating costs prior to opening a new or expanded facility
and during a period of approximately three months of operation while occupancy
is ramping up.
In January 1999, the Company adopted Statement of Position 98-5, "Reporting
on the Costs of Start-Up Activities," or SOP 98-5, and recorded a net-of-tax
charge of approximately $3.0 million for the cumulative effect of a change in
accounting principle. As a result of the Company's adoption of SOP 98-5, the
Company began to expense pre-opening and start-up costs as incurred.
General and administrative expenses consist primarily of salaries of the
Company's corporate and administrative personnel who provide senior management,
finance, accounting, human resources, payroll, information systems and other
services and costs of business development.
Newly opened facilities are staffed according to contract requirements when
the Company begins receiving offenders. Offenders are typically assigned to a
newly opened facility on a phased-in basis over a one- to three-month period.
The Company may incur start-up operating losses at new facilities until
break-even occupancy levels are reached. Quarterly results can be substantially
affected by the timing of the commencement of operations as well as development
and construction of new facilities.
Working capital requirements generally increase immediately prior to the
Company's commencing management of a new facility as the Company incurs start-up
costs and purchases necessary equipment and supplies before facility management
revenue is realized.
RESULTS OF OPERATIONS
The Company's historical operating results reflect a significant expansion
of the Company's business since 1996. Material fluctuations in the Company's
results of operations are principally the result of the timing and effect of
acquisitions, the level of development activity conducted by the Company, and
occupancy rates at Company-operated facilities. The Company's acquisitions to
date have been accounted for using the purchase method of accounting, whereby
the operating results of the acquired businesses have been reported in the
Company's operating results since the date of acquisition.
The Company's income from operations as a percentage of revenues fluctuates
depending on the relative mix of operating contracts among the Company's three
operating divisions.
- 22 -
<PAGE>
The following table sets forth for the periods indicated the percentages of
revenues represented by certain items in the Company's historical consolidated
statements of operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
------ ------ -------
<S> <C> <C> <C>
Revenues..................................................................... 100.0% 100.0% 100.0%
Operating expenses........................................................... 76.8 80.2 81.1
Pre-opening and start-up expenses............................................ 1.7 -- --
Depreciation and amortization................................................ 3.3 3.4 3.2
General and administrative expenses.......................................... 5.6 6.2 7.7
------ ------ -------
Income from operations....................................................... 12.6 10.2 8.0
Interest expense, net........................................................ 4.8 2.0 0.1
------ ------ -------
Income before income taxes and cumulative effect of change
in accounting principle................................................. 7.8 8.2 7.9
Provision for income taxes................................................... 3.1 3.3 2.8
------ ------ -------
Income before cumulative effect of change in accounting principle ........... 4.7% 4.9% 5.1%
====== ====== =======
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES. Revenues increased 43.7% to $177.0 million for the year ended
December 31, 1999 from $123.1 million for the year ended December 31, 1998.
Secure institutional division revenues increased 44.4% to $76.0 million for
the year ended December 31, 1999 from $52.6 million for the year ended December
31, 1998 due principally to (a) the opening of the 560 bed expansion unit at the
Big Spring Complex in the fourth quarter of 1998 and additional Big Spring
Complex expansions during the fourth quarter of 1999, (b) the opening of the 550
initial beds in the D. Ray James Prison in the fourth quarter of 1998 and an
additional 450 beds in the first quarter of 1999 and (c) the opening of the 661
bed Santa Fe County Adult Detention Facility in the third quarter of 1998.
Revenues attributable to start-up operations for the Big Spring Complex and D.
Ray James Prison expansions were approximately $866,000 for the year ended
December 31, 1999.
Juvenile division revenues increased 42.7% to $67.1 million for the year
ended December 31, 1999 from $47.0 million for the year ended December 31, 1998
due to (a) the opening of the Santa Fe County Juvenile Detention Facility in the
third quarter of 1998, (b) increased occupancy at the Cornell Abraxas I and
Cornell Abraxas of Ohio facilities due to facility expansions completed in the
third quarter of 1998, (c) the opening of the Danville Center for Adolescent
Females in the second quarter of 1998 and the Cornell Abraxas Youth Center late
in the first quarter of 1999, (d) the acquisition of Interventions-Illinois
during the fourth quarter of 1999, (e) increased occupancy at the Campbell
Griffin Facility in San Antonio, Texas and (f) the addition of various new
programs including two new non-residential mental health programs in
Pennsylvania. Revenues attributable to start-up operations were approximately
$432,000 for the year ended December 31, 1999.
Pre-release division revenues increased 44.2% to $33.8 million for the year
ended December 31, 1999 from $23.5 million for the year ended December 31, 1998
due principally to a full year of operations of five pre-release centers in
Alaska acquired in August 1998 and the acquisition of Interventions-Illinois
during the fourth quarter of 1999. Revenues attributable to start-up operations
were approximately $122,000 for the year ended December 31, 1999 and related to
a new facility in Alaska.
OPERATING EXPENSES. Operating expenses increased 37.6% to $135.9 million
for the year ended December 31, 1999 from $98.7 million for the year ended
December 31, 1998.
- 23 -
<PAGE>
Secure institutional division operating expenses increased 45.8% to $55.1
million for the year ended December 31, 1999 from $37.8 million for the year
ended December 31, 1998 due principally to (a) the opening of the 560 bed
expansion unit at the Big Spring Complex in the fourth quarter of 1998 and
additional Big Spring Complex expansions during the fourth quarter of 1999, (b)
the opening of the 550 initial beds at the D. Ray James Prison in the fourth
quarter of 1998 and an additional 450 beds in the first quarter of 1999 and (c)
the opening of the 661 bed Santa Fe County Adult Detention Facility in the third
quarter of 1998. As a percentage of revenues, excluding start-up operations,
secure institutional division operating expenses were 70.1% for the year ended
December 31, 1999 compared to 71.9% for the year ended December 31, 1998. The
improved operating margin was due principally to a greater mix of owned versus
leased facilities and a reduction to operating expenses of $1.0 million at the
Santa Fe County Adult Detention Facility resulting from a cost-sharing agreement
with the Company's construction contractor (See Note 3 to the Consolidated
Financial Statements).
Juvenile division operating expenses increased 39.8% to $57.6 million for
the year ended December 31, 1999 from $41.2 million for the year ended December
31, 1998. The increase in operating expenses was due to (a) the Santa Fe County
Juvenile Detention Facility which began operations late in the third quarter of
1998, (b) increased occupancy at the Cornell Abraxas I and Cornell Abraxas of
Ohio facilities due to facility expansions completed in the third quarter of
1998, (c) the Cornell Abraxas Youth Center which began operations late in the
first quarter of 1999 and the Danville Center for Adolescent Females which began
operations in the second quarter of 1998, (d) the acquisition of
Interventions-Illinois during the fourth quarter of 1999, (e) increased
occupancy at the Campbell Griffin Facility in San Antonio, Texas and (f) the
addition of new programs including two new non-residential mental health
programs in Pennsylvania. As a percentage of revenues excluding start-up
operations, operating expenses were 85.3% for the year ended December 31, 1999
compared to 87.7% for the year ended December 31, 1998. The improved operating
margin was due principally to improved results from certain expanded residential
facilities.
Pre-release division operating expenses increased 38.5% to $25.9 million
for the year ended December 31, 1999 from $18.7 million for the year ended
December 31, 1998 due principally to the acquisition of five pre-release centers
in Alaska in August 1998 and the acquisition of Interventions-Illinois during
the fourth quarter of 1999. As a percentage of revenues, excluding start up
operations, operating expenses were 75.4% for the year ended December 31, 1999
compared to 79.8% for the year ended December 31, 1998. The improved operating
margin was due principally to a greater mix of owned versus leased facilities,
including four owned facilities in Alaska.
PRE-OPENING AND START-UP EXPENSES. Pre-opening and start-up expenses were
$2.9 million for the year ended December 31, 1999 and were primarily
attributable to the pre-opening and start-up activities of the additional 450
beds during the first and second quarters of 1999 at the D. Ray James Prison,
the Cornell Abraxas Youth Center during the first quarter of 1999 and other new
juvenile programs in Pennsylvania and a new pre-release facility in Alaska.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
42.1% to $6.0 million for the year ended December 31, 1999 from $4.2 million for
the year ended December 31, 1998 due to (a) depreciation of buildings and
equipment acquired in Alaska in August 1998, (b) the opening of the 560 bed
expansion unit at the Big Spring Complex in the fourth quarter of 1998 and
additional Big Spring Complex expansions during 1999, (c) the phase in of 1,550
beds in the D. Ray James Prison from the fourth quarter of 1998 through the
fourth quarter of 1999 and (d) various facility expansions and related
equipment. Effective July 1, 1999, the lease term for the three original Big
Spring Complex units was extended from an average of 35 years to 50 years. At
this date, management revised its estimated useful lives of the Big Spring
Complex and two other secure institutions to 50 years. The effect of this change
reduced building depreciation and prepaid facility use amortization by
approximately $300,000 for the year ended December 31, 1999.
- 24 -
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 31.0% to $9.9 million for the year ended December 31, 1999 from $7.6
million for the year ended December 31, 1998. The increase in general and
administrative expenses resulted principally from additional corporate
executive, business development and administrative personnel, overhead and
travel to manage the increased business of the Company and for the development
of new contracts.
INTEREST. Interest expense, net of interest income, increased to $8.4
million for the year ended December 31, 1999 from $2.5 million for the year
ended December 31, 1998 due principally to increased borrowings to finance (a)
the acquisition of the Alaskan assets in August 1998, (b) construction costs of
new facilities and expansions including the 560 bed Big Spring Complex expansion
unit in 1998, additional Big Spring Complex expansions in 1999 and the 1,550 bed
D. Ray James Prison and (c) the acquisition of Interventions- Illinois in the
fourth quarter of 1999. For the year ended December 31, 1999, the Company
capitalized interest totaling $1.2 million related principally to costs for
construction of the D. Ray James Prison expansions and other facility
expansions.
INCOME TAXES. For the years ended December 31, 1999 and 1998, the Company
recognized a provision for income taxes at an estimated effective rate of 40%.
ACCOUNTING CHANGE. The Company adopted SOP 98-5 in January 1999 and
recorded a net-of-tax charge of approximately $3.0 million for the cumulative
effect of a change in accounting principle.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES. Revenues increased by 75.1% to $123.1 million for the year ended
December 31, 1998, from $70.3 million for the year ended December 31, 1997.
Secure institutional division revenues increased 63.0% to $52.6 million in
1998 from $32.3 million in 1997, due principally to the purchase of the Great
Plains Correctional Facility in January 1998; a full year of operations at the
Santa Fe County Adult Detention Facility, which commenced in July 1997; and the
560 bed expansion unit at the Big Spring Complex and the opening of the first
550 beds at the D. Ray James Prison, both of which began operations in the
fourth quarter of 1998.
Juvenile division revenues increased 153.7 % to $47.0 million in 1998 from
$18.5 million in 1997, due principally to a full year of results from the
Abraxas acquisition in September 1997, additional programs which began in 1998
and expansions of various facilities.
Pre-release division revenues increased 20.4% to $23.5 million in 1998 from
$19.5 million in 1997, due principally to the acquisition of Allvest in August
1998.
OPERATING EXPENSES. Operating expenses increased 73.1% to $98.7 million for
the year ended December 31, 1998, from $57.0 million for the year ended December
31, 1997.
Secure institutional division operating expenses increased 51.0% to $37.8
million in 1998 from $25.1 million in 1997, due principally to the purchase of
the Great Plains Correctional Facility in January 1998; a full year of
operations at the Santa Fe County Adult Detention Facility, which commenced in
July 1997; and the 560 bed expansion unit at the Big Spring Complex and the
opening of the first 550 beds at the D. Ray James Prison, both of which began
operations in the fourth quarter of 1998. As a percentage of revenues, secure
institutional division operating expenses were 71.9% in 1998 and 77.6% in 1997.
The higher operating margin in 1998 versus 1997 was due principally to a greater
mix of owned versus leased facilities, including the Great Plains Correctional
Facility, offset in part by lower operating margins at start-up facilities such
as the expansion unit at the Big Spring Complex, the D. Ray James Prison and the
Santa Fe County Adult Detention Facility.
- 25 -
<PAGE>
Juvenile division operating expenses increased 159.1% to $41.2 million in
1998 from $15.9 million in 1997, due principally to a full year of results from
the Abraxas acquisition in September 1997, additional programs which began in
1998 and expansions of various facilities. As a percentage of revenues, juvenile
division operating expenses were 87.7% in 1998 and 85.9% in 1997. The lower
operating margin in 1998 versus 1997 was due principally to an increase in
juvenile programs which are funded on a cost-plus basis and the results of the
Griffin Juvenile Facility, which has experienced lower occupancy in 1998.
Pre-release division operating expenses increased 17.5% to $18.7 million in
1998 from $15.9 million in 1997, due principally to the acquisition of Allvest
in August 1998. As a percentage of revenues, pre- release division operating
expenses were 79.8% in 1998 and 81.8% in 1997. The higher operating margin in
1998 versus 1997 was due principally to a greater mix of owned versus leased
facilities, including those acquired as part of the Allvest acquisition.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
89.5% to $4.2 million for the year ended December 31, 1998, from $2.2 million
for the year ended December 31, 1997, due principally to (a) depreciation of
buildings and equipment acquired from Abraxas in September 1997, (b) the Great
Plains Correctional Facility purchased in January 1998, (c) the 560 bed
expansion unit at the Big Spring Complex, (d) the opening of the first 550 beds
at the D. Ray James Prison and (e) various facility expansions and related
equipment.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 40.5% to $7.6 million for the year ended December 31, 1998, from $5.4
million for the year ended December 31, 1997. The increase in general and
administrative expenses resulted from additional corporate, business development
and administrative personnel needed to manage the increased business of the
Company and for development of new contracts. As a percentage of revenues,
general and administrative expenses decreased to 6.2% from 7.7%, due principally
to spreading the costs over a larger revenue base.
INTEREST. Interest expense, net of interest income, increased to $2.5
million for the year ended December 31, 1998, from $77,000 for the year ended
December 31, 1997. The increase in net interest expense was principally due to
borrowings under the Company's 1997 Credit Facility for the purchase of the
Great Plains Correctional Facility in January 1998, for the acquisition of
Allvest in August 1998 and for working capital for various new programs and
facility expansions. For the year ended December 31, 1998, the Company
capitalized interest totaling $2.3 million related to costs of facilities under
construction and development, including the 560 bed Big Spring Complex expansion
and the 1,550 bed D. Ray James Prison.
INCOME TAXES. For the year ended December 31, 1998, the Company recognized
a provision for income taxes at an estimated effective annual rate of 40%,
compared to 36% for the year ended December 31, 1997. The effective income tax
rate applied in 1997 included a benefit for the reversal of previously reserved
deferred tax assets resulting from prior net operating losses.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. The Company's primary capital requirements are for (a)
construction of new facilities, (b) acquisitions, (c) expansions of existing
facilities, (d) working capital, (e) start-up costs related to new operating
contracts and (f) furniture, fixtures and equipment. Working capital
requirements generally increase immediately prior to the Company commencing
management of a new facility as the Company incurs start-up costs and purchases
necessary equipment and supplies before facility management revenue (typically
through per diem occupancy fees) is realized.
NEW FACILITIES AND PROJECTS UNDER CONSTRUCTION. The New Morgan Academy is
currently under construction and is expected to be completed and operational
during the fourth quarter of 2000. In April 1999, the Company was awarded a
contract to design, build and operate a 1,095 bed prison for the FBOP in
- 26 -
<PAGE>
Moshannon Valley, Pennsylvania ("Moshannon Valley Correctional Center") and
immediately commenced construction and activation activities. In June 1999, the
FBOP issued a Stop-Work Order pending a re-evaluation of their environmental
documentation supporting the decision to award the contract. The environmental
study was completed with a finding of no significant impact. While the Stop-Work
Order is still in effect, management of the Company believes it will be lifted
and construction will be resumed in the near-term. Development and construction
costs for the New Morgan Academy and the Moshannon Valley Correctional Center
are being financed with the Company's lease financing arrangement discussed
below under "Long-Term Credit Facilities".
In June 1999, the Company was selected by the State of Utah to design,
build, finance and operate a 490 bed prison. The Company is currently involved
in contract negotiations for the project. Based on these contract negotiations,
management believes that this contract will ultimately be for management
services only and the Company will not be financing the facility's construction
costs.
As of March 24, 2000, there were approximately $61.5 million in anticipated
unfunded capital requirements for the completion of the New Morgan Academy and
the Moshannon Valley Correctional Center. The funds for these new facilities and
related furnishings are expected to be expended during the next 12 to 18 months.
The Company's lease financing arrangement is available to fund up to
approximately $7.2 million of these construction costs. Management believes that
the remaining facility construction costs will be funded with an increase in the
Company's lease financing arrangement.
WORKING CAPITAL DEFICIT. At December 31, 1999, the Company reported a
working capital deficit of $12.6 million. Excluding the $40.0 million of
borrowings outstanding under the Company's Subordinated Bridge Loan Agreement
("Bridge Facility"), which matures in October 2000, the Company had working
capital of $27.4 million.
SHORT-TERM CREDIT FACILITIES. As of December 31, 1999, $40.0 million of
borrowings were outstanding under the Company's $50.0 million Bridge Facility
which has a 363 day term and matures in October 2000. The Bridge Facility
currently bears interest at LIBOR plus a margin of 6.5% and increases by 0.5%
each quarter until repaid. At maturity, the lenders have an option to convert
the borrowings outstanding under the Bridge Facility into longer term exchange
notes. On October 15, 1999, the Company used proceeds from the Bridge Facility
to repay its $10.0 million subordinated line of credit. The Company believes
that the Bridge Facility will be refinanced prior to maturity with the issuance
of longer term subordinated debt and an expansion of its existing revolving line
of credit.
LONG-TERM CREDIT FACILITIES. In December 1998, the Company entered into the
1998 Credit Facility with a banking syndicate. The 1998 Credit Facility provides
for borrowings of up to $60.0 million under a revolving line of credit, the
availability of which is determined by the Company's projected pro forma cash
flow. The $60.0 million borrowing capacity is reduced by $3.0 million per
quarter beginning September 30, 2000. The 1998 Credit Facility matures in March
2003 and bears interest, at the election of the Company, at either the prime
rate plus a margin of up to 0.5% or a rate which is 1.75% to 2.50% above the
applicable LIBOR rate. The 1998 Credit Facility is secured by all of the
Company's assets, including the stock of all of the Company's subsidiaries, does
not permit the payment of cash dividends and requires the Company to comply with
certain leverage, net worth and debt service covenants. At March 24, 2000, the
Company had $53.0 million outstanding under the 1998 Credit Facility. The
Company is currently in the process of negotiating an expansion of its revolving
line of credit under the 1998 Credit Facility.
The Company has entered into operating lease arrangements for the
acquisition or development of operating facilities. The leases under this
arrangement each have a term of five years, include purchase and renewal options
and provide for a substantial residual value guarantee (approximately 85% of the
total cost) by the Company which could, under certain circumstances, be due upon
termination of the leases. Upon termination of a lease, the Company could either
exercise a purchase option, or the facilities could be sold to a third party.
The Company expects the fair market value of the leased facilities to
substantially reduce
- 27 -
<PAGE>
or eliminate the Company's potential obligation under the residual value
guarantee. At March 24, 2000 there was approximately $7.2 million available
under this arrangement.
The Company has outstanding $50.0 million of Senior Secured Notes ("Senior
Notes"). The Senior Notes bear interest at a fixed rate of 7.74% and mature on
July 15, 2010. Under the Senior Notes purchase agreements, the Company is
required to make eight annual principal payments of $6.25 million beginning on
July 15, 2003 and comply with certain financial covenants. Earlier payments of
principal are allowed subject to prepayment provisions. Interest is payable
semi-annually. The holders of the Senior Notes and the lenders under the 1998
Credit Facility have a collateral-sharing agreement whereby both sets of
creditors have an equal security interest in all of the assets of the Company.
As discussed above, current credit facilities do not provide sufficient
financing to fund the repayment of borrowings outstanding under the Bridge
Facility. Management believes that repayment of the Bridge Facility will be
funded from potential proceeds of one, or a combination, of the efforts the
Company is currently pursuing or negotiating to raise long term financing
including: (a) the issuance of longer term subordinated debt, (b) an expansion
of the existing revolving line of credit under the 1998 Credit Facility, (c) a
sale and leaseback of certain owned facilities and leasehold interests, or (d)
other debt or equity financing arrangements. Should the Company not be
successful in raising longer term financing pursuant to its efforts as described
above before maturity of the Bridge Facility, the lender has an option to
convert the borrowings outstanding under the Bridge Facility into eight year
exchange notes, and to purchase up to five percent of the Company's outstanding
common stock at an exercise price of 110% of the market price of the Company's
common stock as of the date of the exchange. If these contemplated financing
transactions are not consummated, the Company would be required to seek
alternative and potentially dilutive capital funding sources to repay the Bridge
Facility when due. No assurance can be made that the Company will be
able to obtain the various financings described above.
CAPITAL EXPENDITURES. Capital expenditures for the year ended December 31,
1999 were $29.1 million and related principally to (a) construction of the 1,000
bed D. Ray James Prison expansions, (b) construction for the 722 bed expansions
at the Big Spring Complex, (c) various hardware and software for information
systems upgrades, (d) the purchase of the Parkview Center and an additional
building in Anchorage, Alaska for future development, (e) leasehold improvements
at the Cornell Abraxas Youth Center and (f) normal replacements of worn
furniture and equipment.
FURNITURE AND EQUIPMENT SALE AND LEASEBACK. In November 1999, the Company
entered into an agreement for the sale and leaseback of certain of its furniture
and equipment. The Company has purchase and lease renewal options at projected
future fair market values under the agreements. The leases are classified as
operating leases. As of December 31, 1999, furniture and equipment with carrying
values totaling $11,834,000 were sold and the gains realized on the sale
totaling $7,261,000 were deferred and are being credited to income as rent
expense adjustments over the lease term.
YEAR 2000 ISSUES
During 1999, the Company implemented a broad information systems upgrade.
In connection with that upgrade, the Company upgraded certain hardware and
software systems to ensure Year 2000 compliance. The Company currently is not
aware of any Year 2000 compliance problems relating to its systems. The Company
is also not aware of any material Year 2000 problems with its third-party
suppliers or contracting governmental agencies. Accordingly, the Company does
not anticipate incurring material expenses or experiencing any material
operational disruptions as a result of any Year 2000 problems.
- 28 -
<PAGE>
INFLATION
Management believes that inflation has not had a material effect on the
Company's results of operations during the past three years. However, most of
the Company's facility management contracts provide for payments to the Company
of either fixed per diem fees or per diem fees that increase by only small
amounts during the terms of the contracts. Inflation could substantially
increase the Company's personnel costs (the largest component of facility
management expense) or other operating expenses at rates faster than any
increases in occupancy fees.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the Company is exposed to market risk,
primarily from changes in interest rates. The Company continually monitors
exposure to market risk and develops appropriate strategies to manage this risk.
The Company is not exposed to any other significant market risks, including
commodity price risk, foreign currency exchange risk or interest rate risks from
the use of derivative financial instruments. Management does not use derivative
financial instruments for trading or to speculate on changes in interest rates
or commodity prices.
INTEREST RATE EXPOSURE
The Company's exposure to changes in interest rates primarily results from
its long-term debt with both fixed and floating interest rates. The Company's
long-term debt with fixed interest rates consists of the Senior Notes. The
Company's debt with variable interest is its revolving line of credit. At
December 31, 1999, approximately 50.7% ($51.5 million) of the long-term debt was
subject to variable interest rates. The detrimental effect of a hypothetical 100
basis point increase in interest rates would be to reduce income before
provision for income taxes by approximately $640,000 for the year ended December
31, 1999. At December 31, 1999, the fair value of the Company's fixed rate debt
approximated carrying value based upon discounted future cash flows using
current market prices.
FORWARD LOOKING STATEMENT DISCLAIMER
This annual report on Form 10-K may contain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements are based on current plans and expectations of Cornell
Corrections, Inc. and involve risks and uncertainties that could cause actual
future activities and results of operations to be materially different from
those set forth in the forward-looking statements. Important factors that could
cause actual results to differ include, among others, (i) risks associated with
acquisitions and the integration thereof (including the ability to achieve
administrative and operating cost savings and anticipated synergies), (ii) the
timing and costs of expansions of existing facilities, (iii) changes in
governmental policy to eliminate or discourage the privatization of
correctional, detention and pre-release services in the United States, (iv)
availability of debt and equity financing on terms that are favorable to the
Company, and (v) fluctuations in operating results because of occupancy,
competition (including competition from two competitors that are substantially
larger than the Company), and risks of operations.
- 29 -
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Cornell Corrections, Inc.:
We have audited the accompanying consolidated balance sheets of Cornell
Corrections, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cornell Corrections, Inc.
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
/S/ARTHUR ANDERSEN LLP
Houston, Texas
February 25, 2000
- 30 -
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CORNELL CORRECTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents....................................................... $ 1,763 $ 2,519
Accounts receivable (net of allowance for doubtful accounts
of $3,002 and $3,141, respectively)........................................... 48,092 27,564
Deferred tax asset.............................................................. 1,206 1,209
Prepaids and other.............................................................. 1,356 2,203
Restricted assets............................................................... 2,339 2,613
---------- ----------
Total current assets........................................................ 54,756 36,108
PROPERTY AND EQUIPMENT, net.......................................................... 194,498 159,219
OTHER ASSETS:
Intangible assets, net.......................................................... 18,270 9,935
Deferred costs and other........................................................ 6,467 7,433
---------- ----------
Total assets................................................................ $ 273,991 $ 212,695
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities........................................ $ 27,392 $ 17,838
Deferred revenues............................................................... -- 1,369
Note payable.................................................................... 40,000 --
Current portion of long-term debt............................................... -- 73
---------- ----------
Total current liabilities................................................... 67,392 19,280
LONG-TERM DEBT, net of current portion............................................... 101,500 98,407
DEFERRED TAX LIABILITIES............................................................. -- 2,769
OTHER LONG-TERM LIABILITIES.......................................................... 7,891 739
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 10,000,000 shares authorized,
none outstanding............................................................. -- --
Common stock, $.001 par value, 30,000,000 shares authorized,
10,137,528 and 10,105,916 shares issued and outstanding, respectively......... 10 10
Additional paid-in capital...................................................... 90,394 90,038
Stock option loans.............................................................. (455) (455)
Retained earnings............................................................... 11,258 5,906
Treasury stock (697,100 shares at cost)......................................... (3,999) (3,999)
---------- ----------
Total stockholders' equity.................................................. 97,208 91,500
---------- ----------
Total liabilities and stockholders' equity.................................. $ 273,991 $ 212,695
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
- 31 -
<PAGE>
CORNELL CORRECTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
REVENUES.................................................................. $ 176,967 $ 123,119 $ 70,302
OPERATING EXPENSES........................................................ 135,850 98,721 57,047
PRE-OPENING AND START-UP EXPENSES......................................... 2,929 -- --
DEPRECIATION AND AMORTIZATION............................................. 6,007 4,228 2,231
GENERAL AND ADMINISTRATIVE EXPENSES....................................... 9,932 7,581 5,394
---------- --------- ---------
INCOME FROM OPERATIONS.................................................... 22,249 12,589 5,630
INTEREST EXPENSE.......................................................... 8,522 2,601 491
INTEREST INCOME........................................................... (117) (116) (414)
---------- --------- ---------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE............................... 13,844 10,104 5,553
PROVISION FOR INCOME TAXES................................................ 5,538 4,042 1,999
---------- --------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE......................................... 8,306 6,062 3,554
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE, NET OF RELATED INCOME TAX
BENEFIT OF $1,969 IN 1999.............................................. 2,954 -- --
---------- --------- ---------
NET INCOME................................................................ $ 5,352 $ 6,062 $ 3,554
========== ========= =========
EARNINGS (LOSS) PER SHARE:
BASIC
Income before cumulative effect of change
in accounting principle......................................... $ .88 $ .64 $ .48
Cumulative effect of change in accounting principle................ (.31) -- --
---------- --------- ---------
Net income......................................................... $ .57 $ .64 $ .48
========== ========= =========
DILUTED
Income before cumulative effect of change
in accounting principle......................................... $ .86 $ .62 $ .46
Cumulative effect of change in accounting principle................ (.31) -- --
---------- --------- ---------
Net income......................................................... $ .55 $ .62 $ .46
========== ========= =========
NUMBER OF SHARES USED IN PER SHARE COMPUTATION:
BASIC................................................................ 9,432 9,442 7,350
DILUTED.............................................................. 9,660 9,772 7,740
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
- 32 -
<PAGE>
CORNELL CORRECTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- ADDITIONAL STOCK RETAINED
PAR PAID-IN OPTION EARNINGS TREASURY
SHARES VALUE CAPITAL LOANS (DEFICIT) STOCK
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1996 ..................... 7,320,398 $ 7 $ 47,562 $ (455) $ (3,710) $ (2,353)
ISSUANCE OF COMMON STOCK .......................... 2,250,000 2 41,098 -- -- --
EXERCISE OF STOCK OPTIONS ......................... 375,506 1 948 -- -- --
STOCK-BASED COMPENSATION .......................... -- -- 76 -- -- --
NET INCOME ........................................ -- -- -- -- 3,554 --
---------- ---------- ---------- ---------- ---------- ----------
BALANCES AT DECEMBER 31, 1997 ..................... 9,945,904 10 89,684 (455) (156) (2,353)
EXERCISE OF STOCK OPTIONS ......................... 160,012 -- 176 -- -- --
INCOME TAX BENEFITS FROM STOCK
OPTIONS EXERCISED .............................. -- -- 178 -- -- --
PURCHASE OF TREASURY STOCK
(142,100 SHARES, AT COST) ...................... -- -- -- -- -- (1,646)
NET INCOME ........................................ -- -- -- -- 6,062 --
---------- ---------- ---------- ---------- ---------- ----------
BALANCES AT DECEMBER 31, 1998 ..................... 10,105,916 10 90,038 (455) 5,906 (3,999)
EXERCISE OF STOCK OPTIONS ......................... 31,612 -- 217 -- -- --
INCOME TAX BENEFITS FROM STOCK
OPTIONS EXERCISED .............................. -- -- 139 -- -- --
NET INCOME ....................................... -- -- -- -- 5,352 --
---------- ---------- ---------- ---------- ---------- ----------
BALANCES AT DECEMBER 31, 1999 ..................... 10,137,528 $ 10 $ 90,394 $ (455) $ 11,258 $ (3,999)
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
- 33 -
<PAGE>
CORNELL CORRECTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................. $ 5,352 $ 6,062 $ 3,554
Adjustments to reconcile net income to net cash provided by
operating activities --
Cumulative effect of change in account principle...................... 2,954 -- --
Depreciation.......................................................... 4,601 2,880 928
Amortization.......................................................... 1,406 1,348 1,303
Provision for bad debts............................................... 976 609 176
Gain on sale of property and equipment................................ (305) -- --
Deferred income taxes................................................. (1,741) 2,106 62
Change in assets and liabilities, net of effects from acquisitions:
Accounts receivable............................................... (21,504) (8,036) (5,056)
Restricted assets................................................. (319) (1,049) (440)
Other assets...................................................... (2,505) (5,590) (1,291)
Accounts payable and accrued liabilities.......................... 10,006 4,249 4,332
Deferred revenues and other liabilities........................... (1,478) (1,205) 2,051
--------- --------- ---------
Net cash provided by (used in) operating activities................... (2,557) 1,374 5,619
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and equipment........................... 19,278 -- --
Capital expenditures.................................................... (29,067) (49,483) (9,640)
Acquisition of businesses, less cash acquired........................... (31,786) (65,096) (23,621)
--------- --------- ---------
Net cash used in investing activities................................. (41,575) (114,579) (33,261)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable............................................. 69,335 -- --
Payments on notes payable............................................... (29,335) -- --
Proceeds from long-term debt............................................ 53,194 176,379 29,500
Payments on long-term debt.............................................. (50,174) (78,331) (29,813)
Proceeds from issuance of common stock.................................. -- -- 41,100
Proceeds from exercise of stock options................................. 356 354 949
Purchases of treasury stock............................................. -- (1,646) --
--------- --------- ---------
Net cash provided by financing activities............................. 43,376 96,756 41,736
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... (756) (16,449) 14,094
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........................... 2,519 18,968 4,874
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................. $ 1,763 $ 2,519 $ 18,968
========= ========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid, net of amounts capitalized............................... $ 7,956 $ 765 $ 720
========= ========= =========
Income taxes paid....................................................... $ 3,964 $ 3,341 $ 1,000
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
- 34 -
<PAGE>
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cornell Corrections, Inc. (collectively with its subsidiaries, the
"Company"), a Delaware corporation, provides to governmental agencies the
integrated development, design, construction and management of facilities within
three operating divisions: (i) secure institutional correctional and detention
services, (ii) juvenile treatment, educational and detention services and (iii)
pre-release correctional and treatment services.
WORKING CAPITAL DEFICIT AND FINANCING ARRANGEMENTS
At December 31, 1999, the Company reported a working capital deficit of
$12.6 million. Excluding the $40.0 million of borrowings outstanding under the
Company's Bridge Facility, which matures in October 2000, the Company had
working capital of $27.4 million. Management believes that the repayment of
borrowings outstanding under the Bridge Facility will be funded from potential
proceeds of one, or a combination, of the efforts the Company is currently
pursuing or negotiating to raise long term financing including: (a) the issuance
of longer term subordinated debt, (b) an expansion of the existing revolving
line of credit under the 1998 Credit Facility, (c) a sale and leaseback of
certain owned facilities and leasehold interests, or (d) other debt or equity
financing arrangements. Should the Company not be successful in raising longer
term financing pursuant to its efforts as described above before maturity of the
Bridge Facility, the lender has an option to convert the borrowings outstanding
under the Bridge Facility into eight year exchange notes, and to purchase up to
five percent of the Company's outstanding common stock at an exercise price of
110% of the market price of the Company's common stock as of the date of the
exchange. If these contemplated financing transactions are not consummated, the
Company would be required to seek alternative and potentially dilutive capital
funding sources to repay the Bridge Facility when due. No assurance can be made
that the Company will be able to obtain the various financings described above.
The Company's lease financing arrangement (see Note 7) does not provide
sufficient financing to fund the remaining construction costs for the New Morgan
Academy, which is currently under construction, and the Moshannon Valley
Correctional Center for which construction commenced in 1999 but as of February
2000 was still under a Stop-Work Order issued by the Federal Bureau of Prisons
in June 1999. As of February 2000, there were approximately $61.5 million in
anticipated unfunded capital requirements for the completion of these two
projects. The funds for these new facilities are expected to be expended during
the next twelve to eighteen months. The Company's lease financing arrangement is
available to fund up to approximately $7.2 million of these construction costs.
Management believes that the remaining facility construction costs will be
funded with an increase of the Company's lease financing arrangement.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements contained herein to conform to the current year presentation.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.
- 35 -
<PAGE>
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
Cornell increased its allowance for doubtful accounts during the years
ended December 31, 1997, 1998 and 1999 by $255,000, $509,000 and $1,025,000,
respectively. Write-offs totaling $432,000, $12,000 and $1,164,000 were charged
against the allowance during the periods ended December 31, 1997, 1998 and 1999,
respectively. Cornell acquired approximately $2,821,000 of allowance through its
acquisition of Abraxas in 1997.
RESTRICTED ASSETS
For certain facilities, the Company maintains bank accounts for restricted
cash belonging to offenders or residents, commissary operations, an equipment
replacement fund used in state programs and a restoration fund for certain
facilities. These bank accounts and commissary inventories are collectively
referred to as restricted assets and the corresponding obligations are included
in accrued expenses in the accompanying financial statements.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Ordinary maintenance and
repair costs are expensed, while renewal and betterment costs are capitalized.
Prepaid facility use cost, which resulted from the July 1996 acquisition of the
Big Spring Complex and the December 1999 transfer of ownership of the Great
Plains Correctional Facility to a leasehold interest, is being amortized over 50
years using the straight-line method. Buildings and improvements are depreciated
over their estimated useful lives of 30 to 50 years using the straight-line
method. Furniture and equipment are depreciated over their estimated useful
lives of 3 to 10 years using the straight-line method. Amortization of leasehold
improvements is computed on the straight-line method based upon the shorter of
the life of the asset or the term of the respective lease.
Effective July 1, 1999, the lease term for the three original Big Spring
Complex units was extended from an average of 35 years to 50 years. At this
date, management revised its estimated useful lives of the Big Spring Complex
and two other secure institutions to 50 years which management believes more
closely reflects the useful life of the specific facilities. The effect of this
change reduced building depreciation and prepaid facility use amortization by
approximately $300,000 for the year ended December 31, 1999.
CAPITALIZED INTEREST
The Company capitalizes interest on facilities under development and
construction. Interest capitalized during 1999, 1998 and 1997 was $1,171,000,
$2,293,000 and $151,000, respectively.
INTANGIBLE ASSETS
Goodwill represents the excess of the cost of acquired businesses over the
fair market value of their net tangible and identified intangible assets.
Goodwill is being amortized on a straight-line basis over 20 years, which
represents management's estimation of the related benefit to be derived from the
acquired businesses. The carrying value of goodwill is reviewed periodically if
events and circumstances suggest that it may be permanently impaired. If the
review indicates that goodwill will not be recoverable, as determined by the
undiscounted cash flow method, the asset will be reduced to its estimated
recoverable value. Accumulated amortization of goodwill was $3,004,000 and
$1,694,000 as of December 31, 1999 and 1998, respectively.
- 36 -
<PAGE>
Non-compete agreements have been obtained principally through the
acquisition of businesses and are amortized over periods of 9 to 10 years on a
straight-line basis. Accumulated amortization of non-compete agreements was
$324,000 and $80,000 at December 31, 1999 and 1998, respectively.
Intangible assets at December 31, 1999 and 1998, were as follows (in
thousands):
1999 1998
--------- ---------
Goodwill........................ $ 13,658 $ 11,109
Non-compete agreements.......... 7,940 600
--------- ---------
21,598 11,709
Accumulated amortization........ (3,328) (1,774)
--------- ---------
$ 18,270 $ 9,935
========= =========
DEFERRED COSTS
In April 1998, the American Institute of Certified Public Accountants
issued SOP 98-5, "Reporting on the Costs of Start-Up Activities," which requires
entities to expense start-up costs as incurred and to expense previously
capitalized start-up costs as a cumulative effect of a change in accounting
principle in the year adopted. In January 1999, the Company adopted SOP 98-5 and
recorded a net of tax charge of $2,954,000 for the cumulative effect of a change
in accounting principle.
Costs incurred related to obtaining credit financing are capitalized and
amortized over the term of the related indebtedness. At December 31, 1999, the
Company had recorded net deferred debt issuance costs of approximately
$2,634,000 related to obtaining the 1998 Credit Facility, the Senior Secured
Notes and the Bridge Facility. See Note 6 to the Consolidated Financial
Statements.
REALIZATION OF LONG-LIVED ASSETS
Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of,
" requires that long-lived assets be probable of future recovery in their
respective carrying amounts as of each balance sheet date. Management believes
its long-lived assets are realizable and that no impairment allowance is
necessary pursuant to the provisions of SFAS No. 121 as of December 31, 1999.
REVENUE RECOGNITION
Substantially all revenues are derived from contracts with federal, state
and local government agencies, which pay either per diem rates based upon the
number of occupant days or hours served for the period or cost-plus
reimbursement. Revenues are recognized as services are provided. Deferred
revenues result from advances or prepayments from agencies for future services
to be provided.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes as
required by SFAS No. 109, "Accounting for Income Taxes." Under the liability
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying values of existing assets and liabilities and their respective tax
bases based on enacted tax rates.
- 37 -
<PAGE>
USE OF ESTIMATES
The Company's financial statements are prepared in accordance with
generally accepted accounting principles ("GAAP"). Financial statements prepared
in accordance with GAAP require the use of management estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Additionally, management estimates affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The significant estimates made by management in the accompanying
financial statements include the allowance for doubtful accounts.
BUSINESS CONCENTRATION
Contracts with federal, state and local governmental agencies account for
nearly all of the Company's revenues. The loss of or a significant decrease in
business from one or more of these governmental agencies could have a material
adverse effect on the Company's financial condition and results of operations.
For the years ended December 31, 1999, 1998 and 1997, 19.8%, 20.1% and
31.4%, respectively, of the Company's consolidated revenues were derived from
contracts with the Federal Bureau of Prisons.
FINANCIAL INSTRUMENTS
The Company considers the fair value of all financial instruments not to be
materially different from their carrying values at the end of each fiscal year
based on management's estimate of the Company's ability to borrow funds under
terms and conditions similar to those of the Company's existing debt.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation plans under APB
Opinion No. 25, "Accounting for Stock Issued to Employees." In accordance with
SFAS No. 123, "Accounting for Stock-Based Compensation," certain pro forma
disclosures are provided in Note 8 to the Consolidated Financial Statements.
EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the year.
Diluted EPS reflects the potential dilution from the exercise or conversion of
securities, such as stock options, into common stock.
2. ACQUISITIONS
1999 ACQUISITION
In November 1999, the Company acquired certain of the adult and juvenile
behavioral health and correctional assets of Interventions, a not-for-profit
corporation headquartered in Chicago, Illinois, and BHS Consulting Corporation
("BHS"), a for-profit firm that provides management services to Interventions.
The assets acquired included more than 30 programs provided throughout Illinois
and the real properties of seven facilities. The aggregate purchase price for
the transactions was approximately $31.8 million including transaction costs.
The Company financed the transactions with borrowings under the Company's $50
million Bridge Facility. See Note 6 to the Consolidated Financial Statements.
- 38 -
<PAGE>
The acquisition costs and the estimated fair market value of the aggregate
assets acquired and liabilities assumed associated with the Interventions and
BHS acquisitions were as follows (in thousands):
Cash paid............................................ $ 30,889
Transaction costs.................................... 897
---------
Total purchase price............................. $ 31,786
=========
Net assets acquired --
Prepaids and other current assets.................. $ 69
Property and equipment............................. 23,121
Intangible assets.................................. 8,735
Accrued liabilities................................ (139)
---------
$ 31,786
=========
1998 ACQUISITIONS
In January 1998, the Company purchased the Great Plains Correctional
Facility, a secure institutional facility in Hinton, Oklahoma, with a capacity
of 812 beds. In August 1998, the Company acquired substantially all of the
Alaskan assets of Allvest, Inc. ("Allvest"), a privately held company based in
Anchorage, Alaska. The Allvest acquisition included the operations of five
pre-release facilities with an aggregate capacity of 540 beds in Anchorage,
Fairbanks and Bethel, Alaska, and the real properties of three of the five
facilities. Total consideration for these acquisitions was approximately $65.1
million.
The acquisition costs and the estimated fair market value of the assets
acquired and liabilities assumed associated with the above-mentioned
acquisitions were as follows (in thousands):
GREAT
PLAINS ALLVEST
-------- --------
Cash paid........................................ $ 43,000 $ 20,399
Transaction costs................................ 750 947
-------- --------
Total purchase price......................... $ 43,750 $ 21,346
======== ========
Net assets acquired --
Current assets................................. $ -- $ 39
Property and equipment......................... 43,750 17,014
Goodwill....................................... -- 4,306
Accounts payable and accrued liabilities....... -- (13)
-------- --------
$ 43,750 $ 21,346
======== ========
The 1999 and 1998 acquisitions have been accounted for as purchases;
therefore, the accompanying statements of operations reflect the results of
operations since their respective acquisition dates.
The unaudited consolidated results of operations on a pro forma basis as
though the 1999 and 1998 acquisitions had occurred as of the beginning of the
Company's fiscal year 1998 were as follows (amounts in thousands, except per
share data):
YEAR ENDED DECEMBER 31,
------------------------
1999 1998
---------- ----------
Total revenues................... $ 195,945 $ 151,797
Net income....................... 3,237 4,533
Net earnings per share
- Basic........................ .34 .48
- Diluted...................... .34 .46
- 39 -
<PAGE>
3. PROPERTY AND EQUIPMENT
Property and equipment were as follows (in thousands):
DECEMBER 31,
----------------------
1999 1998
--------- ---------
Land....................................... $ 19,929 $ 14,030
Prepaid facility use....................... 66,894 21,637
Buildings and improvements................. 108,605 101,549
Furniture and equipment.................... 2,378 7,880
Construction in progress................... 5,838 20,457
--------- ---------
203,644 165,553
Accumulated depreciation and amortization.. (9,146) (6,334)
--------- ---------
$ 194,498 $ 159,219
========= =========
In December 1999, the Company transferred ownership of its Great Plains
Correctional Facility to the Hinton Economic Development Authority and retained
a 75 year leasehold interest in the property plus a renewal option. Building
cost was reduced and prepaid facility use cost was increased by approximately
$43.0 million at the date of the transfer.
In November 1999, the Company entered into an agreement for the sale and
leaseback of certain of its furniture and equipment including information
systems hardware and software. See Note 7 to the Consolidated Financial
Statements.
Construction in progress at December 31, 1999, consists primarily of
construction costs attributable to expansions of the Big Spring Complex and the
Cornell Abraxas I facility.
The Company utilizes an unrelated privately owned construction company
("Construction Contractor") as its preferred contractor for construction
projects. The Construction Contractor has received contracts to construct
facilities which the Company owns and/or operates totaling approximately $68.5
million, $20.4 million, and $71.0 million during the years ended December 31,
1999, 1998 and 1997, respectively. Management believes the Company is a
substantial customer of the Construction Contractor. During the year ended
December 31, 1999, this Construction Contractor paid the Company $1.0 million
related to a cost-sharing agreement in connection with the operations of the
Santa Fe County Adult Detention Facility because the operating margins had not
reached certain levels until June 1999. These cost-sharing payments were
reported by the Company as a reduction of operating expenses. The Construction
Contractor has no obligation to make any further cost-sharing payments.
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following (in
thousands):
DECEMBER 31,
---------------------
1999 1998
-------- --------
Accounts payable....................... $ 8,974 $ 5,780
Accrued compensation expense........... 4,764 3,969
Accrued interest payable............... 2,418 1,852
Other.................................. 11,236 6,237
-------- --------
$ 27,392 $ 17,838
======== ========
- 40 -
<PAGE>
5. INCOME TAXES
The following is an analysis of the Company's deferred tax assets
(liabilities) (in thousands):
DECEMBER 31,
---------------------
1999 1998
-------- --------
Deferred tax assets:
Depreciation and amortization....... $ 2,045 $ 147
Accrued expenses.................... 1,935 1,511
Deferred compensation............... 339 331
Other............................... 303 165
-------- --------
4,622 2,154
-------- --------
Deferred tax liabilities:
Start-up costs amortization......... 89 1,877
Prepaid facility use amortization... 931 682
Prepaid expenses.................... 341 328
Other............................... 1,112 827
-------- --------
2,473 3,714
-------- --------
Net deferred tax asset (liability).. $ 2,149 $ (1,560)
======== ========
The components of the Company's income tax provision were as follows (in
thousands):
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
--------- -------- --------
Current provision............. $ 7,279 $ 1,936 $ 1,937
Deferred provision (benefit).. (1,741) 2,106 62
--------- -------- --------
Tax provision............... $ 5,538 $ 4,042 $ 1,999
========= ======== ========
A reconciliation of taxes at the federal statutory rate with the income
taxes recorded by the Company is presented below (in thousands):
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
--------- -------- --------
Computed taxes at statutory rate............. $ 4,846 $ 3,536 $ 1,888
Amortization of non-deductible intangibles... 119 119 116
State income taxes, net of federal benefit... 369 399 229
Changes in valuation allowance............... -- (420) (484)
Other........................................ 204 408 250
--------- -------- --------
$ 5,538 $ 4,042 $ 1,999
========= ======== ========
6. CREDIT FACILITIES
As of December 31, 1999, $40.0 million of borrowings were outstanding under
the Company's $50.0 million Bridge Facility which is unsecured and matures in
October 2000. At December 31, 1999, interest on the Bridge Facility was LIBOR
plus a margin of 6.0%. The margin increases by 0.5% each quarter until repaid.
At maturity, the lenders have an option to convert the borrowings outstanding
under the Bridge Facility into longer term exchange notes and to purchase up to
5% of the Company's outstanding common stock at an exercise price of 110% of the
market price of the Company's common stock on the date of the exchange.
- 41 -
<PAGE>
The Company's long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
--------- --------
<S> <C> <C>
Revolving Line of Credit due March
2003 with an interest rate of
prime plus 0% to 0.5% or
LIBOR plus 1.75% to 2.50%................. $ 51,500 $ 48,400
Senior Secured Notes due July 2010
with an interest rate of 7.74%............ 50,000 50,000
Notes Payable, interest at 4.8% to 7.15%.... -- 80
--------- --------
Total debt.................................. 101,500 98,480
Less: current maturities.................... -- (73)
--------- --------
Long-term debt.............................. $ 101,500 $ 98,407
========= ========
</TABLE>
In December 1998, the Company formalized terms under an amended and
restated credit agreement with a financial institution (the "1998 Credit
Facility"). The 1998 Credit Facility provides for borrowings up to $60.0 million
under a revolving line of credit, the availability of which is determined by the
Company's projected pro forma cash flow. The $60.0 million borrowing capacity is
reduced by $3.0 million per quarter beginning September 30, 2000. The 1998
Credit Facility matures in March 2003 and bears interest, at the election of the
Company, at either the prime rate plus a margin of 0% to 0.5% or a rate which is
1.75% to 2.50% above the applicable LIBOR rate. Interest is payable monthly with
respect to prime rate loans and at the expiration of the applicable LIBOR period
for LIBOR based loans. Commitment fees equal to 0.375% per annum are payable on
the unused portion of the facility. The 1998 Credit Facility is secured by
substantially all of the Company's assets, including the stock of all the
Company's subsidiaries, does not permit the payment of cash dividends and
requires the Company to comply with certain earnings, net worth and debt service
covenants. Additionally, the 1998 Credit Facility provides the Company with the
ability to enter into future operating lease agreements that provide for
residual value guarantees. See Note 7 to the Consolidated Financial Statements.
In July 1998, the Company completed a private placement of $50.0 million of
Senior Secured Notes ("Senior Notes"), of which $25.0 million was issued in July
1998 and $25.0 million in August 1998. The Senior Notes, which bear interest at
a fixed rate of 7.74%, mature on July 15, 2010. Under the Senior Notes purchase
agreements, the Company is required to make eight annual principal payments of
$6.25 million beginning on July 15, 2003 and comply with certain financial
covenants. Earlier payments of principal are allowed subject to certain
prepayment provisions. Interest is payable semi-annually. The holders of the
Senior Notes and the lenders under the 1998 Credit Facility have a
collateral-sharing agreement whereby both sets of creditors have an equal
security interest in substantially all the assets of the Company.
Notes payable pertain to financed insurance premiums and various vehicle
notes. Scheduled maturities of long-term debt were as follows (in thousands):
For the year ending December 31 --
2000............................. $ --
2001............................. 9,500
2002............................. 12,000
2003............................. 36,250
2004............................. 6,250
Thereafter....................... 37,500
----------
Total........................ $ 101,500
==========
- 42 -
<PAGE>
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space and certain facilities under long-term
operating leases. Rent expense for all operating leases for the years ended
December 31, 1999, 1998 and 1997, was approximately $5,358,000, $4,490,000 and
$3,583,000, respectively. Under the 1998 Credit Facility, the Company has
entered into operating lease agreements for the acquisition or development of
operating facilities. The leases under this arrangement each have a term of five
years, include purchase and renewal options and provide for a substantial
residual value guarantee (approximately 85% of the total cost) by the Company
which could, under certain circumstances, be due upon termination of the leases.
Upon termination of a lease, the Company could either exercise a purchase
option, or the facilities could be sold to a third party. The Company expects
the fair market value of the leased facilities to substantially reduce or
eliminate the Company's potential obligation under the residual value guarantee.
At December 31, 1999, there was one operating lease under this arrangement;
however, the table of future minimum lease payments below includes the
anticipated lease payments related to projects currently in process for which
the Company will enter into lease arrangements at construction completion.
In November 1999, the Company entered into an agreement for the sale and
leaseback of certain of its furniture and equipment. The Company has purchase
and lease renewal options at projected future fair market values under the
agreements. The leases are classified as operating leases. At the date of sale,
furniture and equipment with carrying values totaling $11,834,000 were sold and
the gains realized on the sale totaling $7,261,000 were deferred and are being
credited to income as rent expense adjustments over the lease term.
As of December 31, 1999, the Company had the following rental commitments
under noncancelable operating leases and anticipated lease payments under the
Company's facility lease financing arrangement (in thousands):
For the year ending December 31 --
2000.............................. $ 8,777
2001.............................. 9,533
2002.............................. 8,638
2003.............................. 7,188
2004.............................. 704
Thereafter........................ 8,441
---------
Total $ 43,281
=========
401(K) PLAN
The Company has a defined contribution 401(k) plan. The Company's matching
contribution currently represents 50 percent of a participant's contribution, up
to the first six percent of the participant's salary. For the years ended
December 31, 1999, 1998 and 1997, the Company recorded $754,000, $611,000 and
$514,000, respectively, of contribution expense.
OTHER
The Company is subject to certain claims and disputes arising in the normal
course of the Company's business. In the opinion of the Company's management,
uninsured losses, if any, resulting from the ultimate resolution of these
matters will not have a material adverse impact on the Company's financial
position or results of operations.
- 43 -
<PAGE>
8. STOCKHOLDERS' EQUITY
STOCKHOLDER RIGHTS PLAN
On May 1, 1998, the Company adopted a stockholder rights plan. Under the
plan, each stockholder of record at the close of the business day on May 11,
1998, received one Preferred Stock Purchase Right ("Right") for each share of
common stock held. The Rights expire on May 1, 2008. Each Right initially
entitles the stockholder to purchase one one-thousandth of a Series A Junior
Participating Preferred Share for $120.00. Each Preferred Share has terms
designed to make it economically equivalent to one thousand common shares. The
Rights will become exercisable only in the event a person or group acquires 15%
or more of the Company's common stock or commences a tender or exchange offer
which, if consummated, would result in that person or group owning 15% or more
of the Company's common stock. If a person or group acquires a 15% or more
position in the Company, each Right (except those held by the acquiring party)
will then entitle its holder to purchase, at the exercise price, common stock of
the Company having a value of twice the exercise price. The effect will be to
entitle the holder to buy the common stock at 50% of the market price. Also, if
following an acquisition of 15% or more of the Company's common stock, the
Company is acquired by that person or group in a merger or other business
combination transaction, each Right would then entitle its holder to purchase
common stock of the acquiring company having a value of twice the exercise
price. The effect will be to entitle the Company's stockholders to buy stock in
the acquiring company at 50% of the market price. The Company may redeem the
Rights at $0.01 per Right at any time prior to the acquisition of 15% or more of
its common stock by a person or group.
STOCK OFFERING
On October 17, 1997, the Company completed an offering of its common stock.
Net proceeds to the Company from the sale of the 2,250,000 shares of newly
issued common stock were approximately $41.1 million. Proceeds from the offering
were used to repay indebtedness of $18.0 million under a credit facility, with
the remainder used for 1998 acquisitions.
PREFERRED STOCK
Preferred stock may be issued from time to time by the Board of Directors
of the Company, which is responsible for determining the voting, dividend,
redemption, conversion and liquidation features of any preferred stock.
OPTIONS
In May 1996, the Company adopted the 1996 Stock Option Plan and amended and
restated the plan in April 1998 ("1996 Plan"). Pursuant to the 1996 Plan, the
Company may grant non-qualified and incentive stock options. The Compensation
Committee of the Board of Directors is responsible for determining the exercise
price and vesting terms for the options. Additionally, prior to the Company's
initial public offering ("IPO"), the Company made various grants of options to
purchase the Company's common stock.
Under the 1996 Plan, the Company may grant options for up to the greater of
1,500,000 shares or 15% of the aggregate number of shares of common stock
outstanding. The 1996 Plan option exercise price can be no less than the market
price of the Company's common stock on the date of grant. The 1996 Plan options
vest up to seven years and expire seven to ten years from the grant date.
- 44 -
<PAGE>
A summary of the status of the Company's 1996 Plan and other options at
December 31, 1999, 1998 and 1997, and changes during the years then ended is
presented in the tables below:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ---------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- -------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year....... 1,338,839 $ 15.73 854,454 $ 6.60 1,078,109 $ 4.32
Granted................................ 463,000 11.98 932,872 22.83 161,000 12.57
Exercised.............................. (57,200) 10.60 (177,187) 2.94 (375,505) 2.55
Forfeited or canceled.................. (502,002) 23.40 (271,300) 19.76 (9,150) 9.67
---------- ----------- -----------
Outstanding at end of year............. 1,242,637 11.46 1,338,839 15.73 854,454 6.60
========== =========== ===========
Exercisable at end of year............. 523,712 7.17 487,557 5.84 613,604 4.64
Weighted average fair value of
options granted at market........... $9.48 $16.41 $9.42
</TABLE>
In connection with the acquisition of Abraxas in September 1997, the
Company granted options to purchase 10,000 shares of common stock at an exercise
price of $7.59, which was equal to 50% of the fair market value of the Company's
common stock. The fair value of these options, which were not granted under the
1996 Plan, was $12.57 per share.
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER REMAINING EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------------------- ------------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$ 2.00 to $ 2.50............. 103,919 5.0 $ 2.07 103,919 $ 2.07
3.75 to 5.64............... 277,248 6.4 4.90 277,248 4.90
7.59 to 10.50.............. 374,000 9.6 10.33 25,000 9.93
11.75 to 16.00.............. 313,603 8.6 15.09 82,995 13.92
19.00 to 24.375............. 173,867 8.3 23.43 34.550 22.56
----------- -----------
1,242,637 8.1 $ 11.46 523,712 $ 7.17
=========== ===========
</TABLE>
Had compensation cost for the stock option grants under the 1996 Plan and
other stock options and warrants been determined under SFAS No. 123, the
Company's net income and diluted net earnings per share would have been the
following pro forma amounts (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
------------ ------------ ----------
<S> <C> <C> <C>
Net income: As reported $ 5,352 $ 6,062 $ 3,554
Pro forma 3,662 4,380 3,177
Earnings per share (diluted): As reported .55 .62 .46
Pro forma .38 .45 .41
</TABLE>
- 45 -
<PAGE>
Under SFAS No. 123, the fair value of each option grant was estimated on
the date of grant using the minimum value calculation prior to the IPO and the
Black-Scholes option pricing model subsequent to the IPO. The following weighted
average assumptions were used for grants in 1999, 1998 and 1997, respectively:
risk-free interest rates of 6.6%, 5.8% and 6.5%; dividend rates of $0, $0 and
$0; expected lives of 10.0, 10.0 and 10.0 years; expected volatility of 65.74%,
54.70% and 54.79%.
The Black-Scholes option pricing model and other existing models were
developed for use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferrable. In addition, option valuation
models require the input of and are highly sensitive to subjective assumptions
including the expected stock price volatility. The Company's employee stock
options have characteristics significantly different from those of traded
options, and changes in the subjective input assumptions can materially affect
the fair value estimate.
On July 8, 1996, the Chairman of the Board and the Chief Executive Officer
of the Company exercised options to purchase 137,110 and 82,750 shares of Class
A Common Stock and Class B Common Stock at an aggregate price of $274,220 and
$180,638, respectively. In connection with the exercise, each officer entered
into a promissory note with the Company for the respective aggregate exercise
amounts. The promissory notes, as amended, bear interest at the applicable
short-term federal rate as prescribed by Internal Revenue Service regulations,
mature in June 2004, are full recourse and are collateralized by shares of
common stock.
TREASURY STOCK
During the year ended December 31, 1998, the Company repurchased 142,100
shares of common stock on the open market under a share repurchase program at an
aggregate cost of $1,646,000.
9. SEGMENT DISCLOSURE
The Company's three operating divisions are its reportable segments. The
secure institutional segment consists of the operation of secure adult
incarceration facilities. The juvenile segment consists of providing residential
treatment and educational programs and non-residential community-based programs
to juveniles between the ages of 10 and 17 who either have been adjudicated or
suffer from behavioral problems. The pre-release segment consists of providing
pre-release and halfway house programs for adult offenders who are either on
probation or serving the last three to six months of their sentences on parole
and preparing for re-entry into society at large. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies. Intangible assets are not included in each segment's
reportable assets, and the amortization of intangible assets is not included in
the determination of a segment's operating income or loss. The Company evaluates
performance based on income or loss from operations before general and
administrative expenses, incentive bonuses, amortization of intangibles,
interest and income taxes. Corporate and other assets is comprised primarily of
cash, accounts receivable, deposits, deferred costs and deferred taxes.
- 46 -
<PAGE>
The only significant noncash item reported in the respective segments'
income or loss from operations is depreciation and amortization (excluding
intangibles):
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues
Secure institutional.............................................. $ 76,011 $ 52,630 $ 32,283
Juvenile.......................................................... 67,131 47,032 18,536
Pre-release....................................................... 33,825 23,457 19,483
---------- ---------- ----------
Total revenues......................................................... $ 176,967 $ 123,119 $ 70,302
========== ========== ==========
Depreciation and amortization
Secure institutional.............................................. $ 3,013 $ 2,145 $ 693
Juvenile.......................................................... 1,001 739 493
Pre-release....................................................... 831 685 613
Amortization of intangibles....................................... 810 415 340
Corporate and other............................................... 352 244 92
---------- ---------- ----------
Total depreciation and amortization.................................... $ 6,007 $ 4,228 $ 2,231
========== ========== ==========
Income (loss) from operations
Secure institutional.............................................. $ 17,930 $ 12,638 $ 6,532
Juvenile.......................................................... 8,482 5,058 2,128
Pre-release....................................................... 7,122 4,043 2,930
General and administrative expenses............................... (9,932) (7,581) (5,394)
Incentive bonuses................................................. (50) (803) (50)
Amortization of intangibles....................................... (810) (415) (340)
Corporate and other............................................... (493) (351) (176)
---------- ---------- ----------
Total income from operations........................................... $ 22,249 $ 12,589 $ 5,630
========== ========== ==========
Assets
Secure institutional.............................................. $ 141,268 $ 127,774 $ 38,495
Juvenile.......................................................... 53,498 37,917 27,779
Pre-release....................................................... 47,952 28,815 8,469
Intangible assets, net............................................ 17,911 9,935 6,104
Corporate and other............................................... 13,362 8,254 23,262
---------- ---------- ----------
Total assets........................................................... $ 273,991 $ 212,695 $ 104,109
========== ========== ==========
Capital expenditures
Secure institutional.............................................. $ 13,536 $ 40,243 $ 7,872
Juvenile.......................................................... 4,203 5,927 272
Pre-release....................................................... 5,184 2,188 966
Corporate and other............................................... 6,144 1,125 530
---------- ---------- ----------
Total capital expenditures............................................. $ 29,067 $ 49,483 $ 9,640
========== ========== ==========
</TABLE>
- 47 -
<PAGE>
10. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER (1) QUARTER QUARTER QUARTER YEAR
----------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1999:
Revenues..................................... $ 38,356 $ 43,609 $ 45,321 $ 49,681 $ 176,967
Income from operations....................... 3,987 4,815 5,945 7,502 22,249
Income before cumulative effect of
change in accounting principle............. 1,440 1,783 2,287 2,796 8,306
Net income (loss)............................ (1,514) 1,783 2,287 2,796 5,352
Earnings per share before cumulative
effect of change in accounting principle:
- Basic...................................... $ .15 $ .19 $ .24 $ .30 $ .88
- Diluted.................................... $ .15 $ .18 $ .24 $ .29 $ .86
Earnings per share:
- Basic...................................... $ (.16) $ .19 $ .24 $ .30 $ .57
- Diluted.................................... $ (.16) $ .18 $ .24 $ .29 $ .55
1998:
Revenues..................................... $ 27,041 $ 29,099 $ 30,731 $ 36,248 $ 123,119
Income from operations....................... 2,393 2,482 3,285 4,429 12,589
Net income................................... 1,258 1,281 1,596 1,927 6,062
Earnings per share:
- Basic...................................... $ .13 $ .14 $ .17 $ .20 $ .64
- Diluted.................................... $ .13 $ .13 $ .16 $ .20 $ .62
</TABLE>
(1) The Company adopted SOP 98-5 in January 1999 and recorded a net-of-tax
charge of approximately $3.0 million for the cumulative effect of a change
in accounting principle.
- 48 -
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Items 10, 11, 12 and 13 of Part III have been omitted from this report
because the Company will file with the Securities and Exchange Commission, not
later than 120 days after the close of its fiscal year, a definitive proxy
statement. The information required by Items 10, 11, 12 and 13 of this report,
which will appear in the definitive proxy statement, is incorporated by
reference into Part III of this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
1. Financial statements and reports of Arthur Andersen LLP
Report of Independent Public Accountants
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
2. Financial statement schedules
All schedules are omitted because they are not applicable
or because the required information is included in the
financial statements or notes thereto.
3. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION INCORPORATED BY REFERENCE
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Company. 1
3.2 Amended and Restated Bylaws of the Company. 10
4.1 Certificate representing Common Stock. 2
4.2 Registration Rights Agreement dated as of March 31, 1994, as amended, 2
among the Company and the stockholders listed on the signature pages
thereto.
4.3 Rights Agreement dated as of May 1, 1998 between the Company and 7
the stockholders listed on the signature pages thereto.
9.1 Stock Transfer and Voting Agreement dated November 23, 1994 2
between David M. Cornell and Jane B. Cornell.
10.1 Cornell Corrections, Inc. Amended and Restated 1996 Stock Option 6
Plan.(a)
10.2 Employment Agreement dated as of September 9, 1997 between Abraxas 3
Group, Inc. and Arlene R. Lissner.(a)
10.3 Covenant Not to Compete Agreement dated as of September 9, 1997 by 3
and between the Company and Arlene R. Lissner.(a)
10.4 Form of Indemnification Agreement between the Company and each of 2
its directors and executive officers.
10.5 Stockholders Agreement among certain stockholders named therein dated 3
September 15, 1997.
- 49 -
<PAGE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION INCORPORATED BY REFERENCE
10.6 Contract between CCCI and the CDC (No. 92.401) for the Baker, 2
California Facility dated June 25, 1992, as amended.
10.7 Professional Management Agreement between the Company and Central 2
Falls Detention Facility Corporation dated July 15, 1992.
10.8 Operating Agreement by and between each of MidTex Detentions, Inc., 2
the City of Big Spring, Texas ("Big Spring") and Cornell Corrections of
Texas, Inc. ("CCTI") dated as of July 1, 1996 and related Assignment
and Assumption of Operating Agreement.
10.9 Contract between CCCI and the CDC (No. R92.132) for the Live Oak, 2
California Facility dated March 1, 1993, as amended.
10.10 Asset Purchase Agreement dated as of January 31, 1997 by and between 4
CCTI and Interventions Co.
10.11 Asset Purchase Agreement dated as of August 14, 1997 by and between 3
the Company and Abraxas Group, Inc., Foundation for Abraxas, Inc.,
Abraxas Foundation, Inc., Abraxas Foundation of Ohio and Abraxas, Inc.
10.12 Contract between Texas Alcoholism Foundation, Inc. and the Texas 2
Department of Criminal Justice, Parole Division for the Reid Facility
dated January 31, 1996, as amended.
10.13 Form of Contract between CCCI and the Utah State Department of 2
Human Services, Division of Youth Corrections for the Salt Lake City,
Utah Juvenile Facility.
10.14 Asset Purchase Agreement among CCTI, Texas Alcoholism Foundation, 2
Inc. and the Texas House Foundation, Inc. dated May 14, 1996.
10.15 Asset Purchase Agreement among CCTI, the Company, Ed Davenport, 2
Johnny Rutherford and MidTex Detentions, Inc. dated May 22, 1996.
10.16 Lease Agreement between CCCI and Baker Housing Company dated 2
August 1, 1987 for the Baker, California facility.
10.17 Lease Agreement between CCCI and Sun Belt Properties dated as of May 2
23, 1988, as amended for the Live Oak, California facility.
10.18 Lease Agreement between Big Spring and Ed Davenport dated as of July 2
1, 1996 for the Interstate Unit and related Assignment and Assumption of
Leases.
10.19 Secondary Sublease Agreement between Big Spring and Ed Davenport 2
dated as of July 1, 1996 for the Airpark Unit and related Assignment and
Assumption of Leases.
10.20 Secondary Sublease Agreement between Big Spring and Ed Davenport 2
dated as of July 1, 1996 for the Flightline Unit and related Assignment
and Assumption of Leases.
10.21 Stock Option Agreement between the Company and CEP II dated July 9, 2
1996.
10.22 Form of Option Agreement between the Company and the Optionholder 10
listed therein dated as of November 1, 1995.
10.23 Third Amended and Restated Credit Agreement among the Company, 10
Subsidiaries of the Company, the Lenders and ING, as agent to the
Lenders dated as of December 3, 1998.
10.24 Senior Note Agreement by and between the Company and the Note 8
Purchasers dated July 15, 1998.
10.25 Asset Purchase Agreement dated as of November 17, 1997 by and 5
between Foresite Capital Facilities Corporation and the Hinton Economic
Development Authority.
10.26 Amendment dated December 10, 1997 to Asset Purchase Agreement 5
dated as of November 17, 1997.
10.27 Amendment No. 2 dated January 6, 1998 to Asset Purchase Agreement 5
dated as of November 17, 1997.
- 50 -
<PAGE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION INCORPORATED BY REFERENCE
10.28 Assignment of Agreement of Purchase and Sale dated as of January 5, 5
1998 by and between Foresite Capital Facilities Corporation and Cornell
Corrections of Oklahoma, Inc.
10.29 Allvest Asset Purchase Agreement dated as of June 20, 1998 by and 9
between the Company and Allvest, Inc., St. John Investments, and
William C. Weimar.
10.30 Subordinated Bridge Loan Agreement by and between the Company and 11
ING dated October 14, 1999.
10.31 Asset Purchase Agreement by and among the Company and Interventions 11
and IDDRS Foundation dated May 10, 1999.
10.32 Extension of Asset Purchase Agreement by and among the Company and 11
Interventions and IDDRS Foundation dated September 30, 1999.
10.33 Asset Purchase Agreement by and among BHS Consulting Corp., its 11
Shareholders and the Company dated May 10, 1999.
10.34 Extension of Asset Purchase Agreement by and among BHS Consulting 11
Corp., its Shareholders and the Company dated September 30, 1999.
10.35 Amendment to Asset Purchase Agreement by and among BHS 11
Consulting Corp., its Shareholders and the Company dated November 12,
1999.
10.36 Participation Agreement among the Company and certain of its
subsidiaries and Heller Financial Leasing, Inc. dated November 23, 1999.
10.37 Lease Agreement between First Security Bank, National Association,
and the Company and certain of its subsidiaries dated November 23,
1999.
10.38 Lease Agreement by and among Hinton Economic Development
Authority, the Town of Hinton, Oklahoma, and Cornell Corrections of
Oklahoma, Inc. dated December 31, 1999.
10.39 Consulting Agreement between the Company and David M. Cornell dated
December 15, 1999. (a)
10.40 Form of Severance Agreement executed by John Hendrix, Arlene
Lissner, Thomas Jenkins, Thomas Rathjen, Patrick Perrin and Steven
Logan. (a)
11.1 Computation of Per Share Earnings.
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
24.1 Powers of Attorney.
27.1 Financial Data Schedule.
</TABLE>
(a) Management compensatory plan or contract.
(1) Annual Report on Form 10-K of the Company for the year ended December 31,
1996.
(2) Registration Statement on Form S-1 of the Company (Registration No.
333-08243).
(3) Registration Statement on Form S-1 of the Company (Registration No.
333-35807).
(4) Current Report on Form 8-K of the Company dated January 31, 1997.
(5) Current Report on Form 8-K of the Company dated January 6, 1998.
(6) Definitive Proxy Statement dated March 9, 1998.
(7) Registration Statement on Form 8-A of the Company filed May 11, 1998.
(8) Quarterly Report on Form 10-Q of the Company for the quarter ended June 30,
1998.
(9) Current Report on Form 8-K of the Company dated August 13, 1998.
(10) Annual Report on Form 10-K of the Company for the year ended December 31,
1998.
(11) Quarterly Report on Form 10-Q of the Company for the quarter ended
September 30, 1999.
(b) REPORTS ON FORM 8-K
On November 24, 1999, the Company filed Form 8-K dated November
24, 1999 reporting the acquisition of Interventions, Inc.
- 51 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this annual report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CORNELL CORRECTIONS, INC.
Dated: March 30, 2000 By: /S/ STEVEN W. LOGAN
-------------------
Steven W. Logan
President and
Chief Executive Officer
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C>
/S/ STEVEN W. LOGAN President, Chief Executive March 30, 2000
Steven W. Logan Officer and Director
(Principal Executive Officer)
/S/ JOHN L. HENDRIX Vice President and March 30, 2000
John L. Hendrix Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
/S/ DAVID M. CORNELL* Chairman of the Board March 30, 2000
David M. Cornell
/S/ ANTHONY CHASE* Director March 30, 2000
Anthony Chase
/S/ JAMES H.S. COOPER* Director March 30, 2000
James H.S. Cooper
/S/ CAMPBELL A. GRIFFIN, JR.* Director March 30, 2000
Campbell A. Griffin, Jr.
/S/ PETER A. LEIDEL* Director March 30, 2000
Peter A. Leidel
/S/ ARLENE R. LISSNER * Director March 30, 2000
Arlene R. Lissner
/S/ TUCKER TAYLOR* Director March 30, 2000
Tucker Taylor
* By: STEVEN W. LOGAN
---------------
Steven W. Logan
Attorney-in-Fact
</TABLE>
- 52 -
EXHIBIT 10.36
PARTICIPATION AGREEMENT
Dated as of
November 23, 1999
Among
CORNELL CORRECTIONS, INC.,
CORNELL CORRECTIONS OF CALIFORNIA, INC.,
CORNELL CORRECTIONS OF TEXAS, INC.,
CORNELL CORRECTIONS OF OKLAHOMA, INC.,
WBP LEASING, INC.,
and
CORNELL CORRECTIONS OF ALASKA, INC.
Lessees,
HELLER FINANCIAL LEASING, INC.,
THE CIT GROUP/EQUIPMENT FINANCING, INC.,
and
SAFECO CREDIT COMPANY, INC.
Owner Participants
and
FIRST SECURITY BANK, NATIONAL ASSOCIATION
not in its individual capacity, except as expressly
provided herein, but solely as Owner Trustee
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS; INTERPRETATION OF THIS PARTICIPATION AGREEMENT...............1
ARTICLE II
SALE AND PURCHASE; PARTICIPATION IN COST OF THE EQUIPMENT; CLOSING........2
Section 2.1 SALE AND PURCHASE..........................................2
Section 2.2 PARTICIPATION BY OWNER PARTICIPANTS........................2
Section 2.3 GENERAL PROVISIONS.........................................3
Section 2.4 TIME AND PLACE OF CLOSING..................................3
Section 2.5 INTEREST PAYMENTS TO OWNER PARTICIPANTS....................3
Section 2.6 CALCULATION OF ADJUSTMENTS TO BASE RENT AND STIPULATED
LOSS VALUE................................................4
ARTICLE III
CONDITIONS................................................................5
Section 3.1 CONDITIONS PRECEDENT TO THE PARTICIPATIONS IN THE
EQUIPMENT.................................................5
ARTICLE IV
LESSEES' REPRESENTATIONS, WARRANTIES AND INDEMNITIES......................7
Section 4.1 IN GENERAL.................................................7
ARTICLE V
CERTAIN COVENANTS OF LESSEES..............................................9
Section 5.1 FURTHER ASSURANCES.........................................9
Section 5.2 MERGER, ETC................................................9
Section 5.3 FILINGS, ETC..............................................10
Section 5.4 FINANCIAL COVENANTS.......................................10
Section 5.5 PUBLICITY.................................................12
Section 5.6 NOTICES...................................................12
Section 5.7 LANDLORD WAIVER CORRECTIONS...............................12
ARTICLE VI
OWNER FOR FEDERAL TAX PURPOSES...........................................12
ARTICLE VII
NOTICES; CONSENT TO JURISDICTION.........................................12
Section 7.1 NOTICES...................................................12
<PAGE>
Section 7.2 SERVICES OF PROCESS AND JURISDICTION......................13
ARTICLE VIII
MISCELLANEOUS............................................................14
Section 8.1 SURVIVAL..................................................14
Section 8.2 MISCELLANEOUS.............................................14
Section 8.3 NONRECOURSE...............................................14
Section 8.4 LIABILITY.................................................15
Section 8.5 GOVERNING LAW.............................................15
ARTICLE IX
EXPENSES; SECURITY DEPOSIT...............................................15
Section 9.1 TRANSACTION EXPENSES......................................15
Section 9.2 SECURITY DEPOSIT..........................................15
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PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT dated as of November 23, 1999, among (i)
Cornell Corrections, Inc., a Delaware corporation, Cornell Corrections of
California, Inc., a California corporation, Cornell Corrections of Texas, Inc.,
a Delaware corporation, Cornell Corrections of Oklahoma, Inc., a Delaware
corporation, WBP Leasing, Inc., a Delaware corporation, and Cornell Corrections
of Alaska, Inc., an Alaska corporation (herein called "Lessees"), (ii) Heller
Financial Leasing, Inc., The CIT Group/Equipment Financing, Inc., and Safeco
Credit Company, Inc. (each an "Owner Participant and collectively the "Owner
Participants") and (iii) First Security Bank, National Association, a national
banking association, not in its individual capacity, except as expressly
provided herein, but solely as Owner Trustee under the Trust Agreement (herein,
in such latter capacity, together with any successor owner trustee, the "Owner
Trustee");
RECITALS:
WHEREAS, the Lessees are the owner of certain Equipment;
WHEREAS, concurrently with the execution and delivery of this
Participation Agreement, the Owner Participants are entering into a Trust
Agreement with the Owner Trustee, pursuant to which Trust Agreement the Owner
Trustee agrees, among other things, to hold the Trust Estate for the use and
benefit of the Owner Participants;
WHEREAS, pursuant to the terms of the Trust Agreement, Trustee is
authorized and directed to purchase from Lessees on each Closing Date certain of
the Equipment by paying to Lessees the Equipment Costs thereof; and
WHEREAS, concurrently with the execution and delivery of this
Participation Agreement, the Owner Trustee and Lessees are entering into the
Lease Agreement whereby, subject to the terms and conditions set forth therein,
the Owner Trustee agrees to lease to Lessees, and Lessees agree to lease from
the Owner Trustee, the Equipment, such lease to be evidenced by the execution
and delivery of one or more Interim Lease Supplements covering the Equipment;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS; INTERPRETATION OF THIS PARTICIPATION AGREEMENT
Unless otherwise defined herein or unless the context shall otherwise
require, capitalized terms used in this Participation Agreement shall have the
meanings assigned to such terms in Appendix A to the Lease Agreement, dated as
of November 23, 1999, between the Owner Trustee
<PAGE>
and Lessees. Unless otherwise indicated, all references herein to Sections,
Schedules and Exhibits refer to Sections, Schedules and Exhibits of this
Participation Agreement.
ARTICLE II
SALE AND PURCHASE; PARTICIPATION IN COST OF THE EQUIPMENT; CLOSING
Section 2.1 SALE AND PURCHASE. (a) FIRST CLOSING DATE. Subject to the
terms and conditions hereof and on the basis of the representations and
warranties set forth herein, Lessees agree to sell to the Owner Trustee, and the
Owner Trustee agrees to purchase from Lessees, on the first Closing Date the
Group of Equipment described in the Interim Lease Supplement executed and
delivered on such Closing Date and in connection therewith, the Owner Trustee
agrees to pay to Lessees the Equipment Cost for such Group of Equipment. On the
first Closing Date, Lessees shall deliver the such Group of Equipment to the
Owner Trustee, and the Owner Trustee shall accept such delivery.
(b) SECOND CLOSING DATE. Subject to the terms and conditions hereof and on
the basis of the representations and warranties set forth herein, Lessees agree
to sell to the Owner Trustee, and the Owner Trustee agrees to purchase from
Lessees, on the second Closing Date the Group of Equipment described in the
Interim Lease Supplement executed and delivered on such Closing Date and in
connection therewith, the Owner Trustee agrees to pay to Lessees the Equipment
Cost for such Group of Equipment. On the second Closing Date, Lessees shall
deliver such Group of Equipment to the Owner Trustee, and the Owner Trustee
shall accept such delivery.
(c) THIRD CLOSING DATE. Subject to the terms and conditions hereof and on
the basis of the representations and warranties set forth herein, Lessees agree
to sell to the Owner Trustee, and the Owner Trustee agrees to purchase from
Lessees, on the third Closing Date the Group of Equipment described in the
Interim Lease Supplement executed and delivered on such Closing Date and in
connection therewith, the Owner Trustee agrees to pay to Lessees the Equipment
Cost for such Group of Equipment. On the third Closing Date, Lessees shall
deliver such Group of Equipment to the Owner Trustee, and the Owner Trustee
shall accept such delivery.
(d) FOURTH CLOSING DATE. Subject to the terms and conditions hereof and on
the basis of the representations and warranties set forth herein, Lessees agree
to sell to the Owner Trustee, and the Owner Trustee agrees to purchase from
Lessees, on the fourth Closing Date the Group of Equipment described in the
Interim Lease Supplement executed and delivered on such Closing Date and in
connection therewith, the Owner Trustee agrees to pay to Lessees the Equipment
Cost for such Group of Equipment. On the fourth Closing Date, Lessees shall
deliver such Group of Equipment to the Owner Trustee, and the Owner Trustee
shall accept such delivery.
Section 2.2 PARTICIPATION BY OWNER PARTICIPANTS. Subject to the terms and
conditions of this Participation Agreement, on each Closing Date each Owner
Participant hereby agrees to participate in the payment of the Equipment Cost
for each Group of Equipment by making an equity
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investment in the beneficial ownership of the Equipment on such Closing Date by
transferring to FSB, for the account of the Owner Trustee, not later than 11:30
a.m., Salt Lake City time, on the applicable Closing Date immediately available
funds in Dollars, in the amount equal to such Owner Participant's commitment
percentage set forth on Schedule 1 hereto (the "Owner Participant's Commitment")
times the Equipment Cost for the Group of Equipment being purchased on such
Closing Date. If the conditions in Section 3.1 have been met to the Lead Owner
Participant's satisfaction with respect to any Closing Date and any Owner
Participant shall fail or refuse to make available to Owner Trustee at such time
an amount equal to its Owner Participant's Commitment for the Group of Equipment
described in the Interim Lease Supplement being delivered on such Closing Date,
then (a) the Lead Owner Participant shall make such amount available to Owner
Trustee, (b) such Owner Participant shall be deemed to have assigned its Owner
Participant's Commitment to the Lead Owner Participant, (c) the Lead Owner
Participant's commitment percentage set forth on Schedule 1 hereto shall be
automatically increased to take into account the Owner Participant's Commitment
that was not funded and (d) the Lessees shall be deemed to have assigned to the
Lead Ownership Participant any Claims it may have against the Owner Participant
that failed to fund. Upon any transfer of all or a portion of an Owner
Participant's Beneficial Interest to a Permitted Transferee in accordance with
the terms of the Trust Agreement, the parties hereto shall execute an amendment
to Schedule 1 hereto to reflect any revised Owner Participant's Commitment
caused by such transfer.
Section 2.3 GENERAL PROVISIONS. Upon receipt by the Owner Trustee of all
amounts to be furnished to it on each Closing Date pursuant to this Article II
and the satisfaction of the conditions set forth in Article III hereof, Lessees
shall transfer title to, and deliver, the Group of Equipment being purchased on
such Closing Date to the Owner Trustee, and the Owner Trustee shall purchase and
take title to and accept delivery of such Group of Equipment. In consideration
for each such transfer of title to and delivery of such Equipment, and
contemporaneously therewith the Equipment Cost thereof shall be paid by the
Owner Trustee to Lessees for such Group of Equipment.
Section 2.4 TIME AND PLACE OF CLOSING. Each Closing Date shall be selected
by Lessees, subject to compliance with the further provisions of this Article II
and provided that no Closing Date shall be a date later than December 31, 1999.
The closing (a "Closing") on each Closing Date shall take place at 11:00 a.m.,
Chicago time, at the offices of the Lead Owner Participant, or at such other
time and place as the parties hereto shall agree. At least five Business Days
prior to each Closing Date (other than the first Closing Date), Lessees shall
deliver to the Owner Participants and the Owner Trustee written notice of the
proposed Closing Date and the amounts to be made available pursuant to Article
II by each Owner Participant. Each notice shall include Lessees' estimate of the
Fair Market Sales Value of the Group of Equipment being purchased on such
Closing Date, subject to the overall limitation that the Equipment Cost shall
not exceed $21,100,000 in the aggregate for all of the Equipment.
Section 2.5 INTEREST PAYMENTS TO OWNER PARTICIPANTS. If for any reason
whatsoever (other than, as to an Owner Participant, the failure of such Owner
Participant to make available to the Owner Trustee the amount specified to be
made available by it in Article II hereof except if such
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failure is occasioned by the nonfulfillment of any condition precedent contained
in Article III hereof (other than a condition solely to be performed or complied
with by such Owner Participant)), the transactions contemplated hereby shall not
be consummated on a Closing Date proposed by Lessees in the written notice
delivered pursuant to Section 2.4, then: (i) Lessees shall reimburse each Owner
Participant for the loss of the use of any funds that it made available to the
Owner Trustee occasioned by such failure by paying on demand interest, at the
Base Rate, on the amount of such funds for the period from and including such
Closing Date to but excluding the earlier of the Business Day on which such
funds shall be returned to such Owner Participant (unless such funds shall be
returned later than 1:00 p.m., Salt Lake City time, in which event such Business
Day shall be included) or the actual date on which the transactions contemplated
for such Closing Date shall occur; and (ii) Lessees shall also reimburse the
Owner Participants for any loss reasonably incurred in liquidating or employing
deposits, swaps or other hedges with third-parties.
The Owner Trustee shall not be liable to Lessees or the Participants for
any failure to invest funds held by it under the circumstances described in this
Section 2.5.
All funds made available to the Owner Trustee by any Owner Participant
under Section 2.5 and any investments made by the Owner Trustee of such funds
shall be held in trust for the benefit of the respective Owner Participants by
the Owner Trustee.
Section 2.6 CALCULATION OF ADJUSTMENTS TO BASE RENT AND STIPULATED LOSS
VALUE.
(a) CALCULATION OF ADJUSTMENTS. In the event that (A) the actual aggregate
Equipment Cost is different from $21,100,000, (B) there is any change in, or
cost relating to a revision in, the structure of the transaction contemplated
hereby, (C) there is any change in the Code or in the regulations promulgated
thereunder or other official administrative pronouncement, which change is
proposed, enacted or effective after the date hereof and prior to the end of the
Lease Term, and which change alters or eliminates the tax assumptions used in
calculating Interim Rent, Base Rent, Renewal Rent and Stipulated Loss Values, or
(D) the Index Rate on the Base Term Commencement Date is different from 5.70%
(but in no event shall the Index Rate used for any calculation be less than
5.5%) then, in each such case, the Lead Owner Participant shall recalculate the
payments or amounts, as the case may be, of Interim Rent, Base Rent, Stipulated
Loss Values and Renewal Rent to preserve the Net Economic Return that the Owner
Participants would have realized had such event not occurred. In performing any
such recalculation and in determining each Owner Participant's Net Economic
Return, the Lead Owner Participant shall utilize the same methods and
assumptions originally used in making the computations of Interim Rent, Base
Rent, Stipulated Loss Values and Renewal Rent with respect to the Lease Term
(other than those assumptions changed as a result of any of the events described
in clauses (A) through (D) of the preceding sentence necessitating such
recalculation; it being agreed that such recalculation shall reflect solely any
changes of assumptions or facts resulting directly from the event or events
necessitating such recalculation).
(b) CONFIRMATION AND VERIFICATION. Upon completion of any recalculation
described in Section 2.6(a), the Lead Owner Participant shall provide a
certificate to Lessees either (x) stating that
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the payments of Interim Rent, Base Rent, Stipulated Loss Values and Renewal Rent
with respect to the Lease Term do not require change, or (y) setting forth such
adjustments to the payments of Interim Rent, Base Rent, Stipulated Loss Values
and Renewal Rent with respect to the Lease Term as have been calculated by the
Lead Owner Participant in accordance with Section 2.6(a). Lessees shall execute
a Lease Supplement or amendment reflecting its concurrence with such adjustment,
but in the absence of such execution, Lessees will be deemed to have approved
the same five Business Days after receipt of the certificate.
ARTICLE III
CONDITIONS
Section 3.1 CONDITIONS PRECEDENT TO THE PARTICIPATIONS IN THE EQUIPMENT.
It is agreed that the obligations of each Owner Participant to participate in
the payment to Lessees of Equipment Cost and to make available the amount of its
respective Owner Participant's Commitment therefor are subject to the
satisfaction prior to or on each Closing Date of the following conditions
precedent:
(a) The following documents shall have been duly authorized, executed and
delivered by the respective party or parties thereto, and shall be in full force
and effect and executed counterparts shall have been delivered to Lessees, each
Owner Participant, and the Owner Trustee or their respective counsel:
(i) the Lease;
(ii) an Interim Lease Supplement covering a Group of Equipment dated
such Closing Date;
(iii) the Trust Agreement;
(iv) a Trust Supplement covering the Equipment dated such Closing
Date;
(v) a Bill of Sale;
(vi) an ACH Debit Authorization, the effect of which is to permit
the Paying Agent to debit a bank account of Cornell for Rent;
(vii) an invoice addressed to the Owner Trustee from Lessees, dated
the applicable Closing Date, specifying the purchase price payable for the
Group of Equipment, such aggregate purchase price to equal the Equipment
Cost therefor; and
(viii)in the case of the final Closing Date, a Lease Supplement
covering all of the Equipment and reflecting the total Equipment Cost paid
by the Owner to Lessees.
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All of the foregoing documents, together with this Participation
Agreement, are sometimes referred to herein, collectively, as the
"Operative Documents" and, individually, as an "Operative Document."
(b) A precautionary Uniform Commercial Code financing statement or
statements shall have been executed and delivered by Lessees.
(c) The Owner Participant shall have received, in each case in form and
substance satisfactory to it, such documents and evidence with respect to
Lessees, the Owner Trustee and the other Owner Participants as it, or its
counsel, may reasonably request in order to establish the authority of such
parties to consummate the transactions contemplated by this Participation
Agreement and the taking of all corporate proceedings in connection therewith.
(d) All appropriate action required to have been taken prior to each
Closing Date in connection with the transactions contemplated by this
Participation Agreement shall have been taken by any governmental authority, and
all orders, permits, waivers, authorizations, exemptions and approvals of such
Persons required to be in effect on such Closing Date in connection with the
transactions contemplated by this Participation Agreement shall have been
issued, and all such orders, permits, waivers, authorizations, exemptions and
approvals shall be in full force and effect on such Closing Date.
(e) The Lead Participant shall have received a favorable opinion addressed
to the Owner Trustee and each Owner Participant, and reasonably satisfactory to
it, from Locke Liddell & Sapp, LLP, special counsel for Lessees, covering such
matters as the Lead Owner Participant may request.
(f) Solely with respect to each Closing Date other than the first Closing
Date, to the extent requested, the Lead Owner Participant shall have received
favorable opinions addressed to the Owner Trustee and the Owner Participants,
and reasonably satisfactory as to scope and substance, from such local counsel
for Lessees as it may require, as to such matters as it may reasonably request.
(g) The Owner Participants shall have received, at least 10 days prior to
the first Closing Date, an appraisal report of the Appraiser, which report shall
be satisfactory to the Owner Participant in its sole discretion and shall (i)
set forth the estimated Fair Market Sales Value of the Equipment and (ii) state
such other matters as the Lead Owner Participant may reasonably request.
(h) The Lead Owner Participant shall have received an independent
insurance broker's report, in form and substance satisfactory to the Lead Owner
Participant, as to the due compliance with the terms of the Lease relating to
insurance with respect to the Equipment and as otherwise required by the Lease.
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(i) On each Closing Date it shall be true that no Event of Loss with
respect to any Equipment being acquired on such Closing Date has occurred, and
the Owner Trustee has good and marketable title to the Equipment, free and clear
of Liens.
(j) In the opinion of the Lead Owner Participant and its special counsel,
there shall have been, since the date hereof, no amendment, modification,
addition, or change in or to the provisions of the Code, as amended through the
date hereof, and the Treasury Regulations (including Temporary Treasury
Regulations), Internal Revenue Service Revenue Procedures or Revenue Rulings, or
other administrative interpretations, applicable judicial precedents or
Executive Orders of the President of the United States, all as in effect on the
date hereof, the effect of which might preclude the Owner Participants from
obtaining any of the income tax benefits and consequences assumed to be
available to the Owner Participants in establishing their Net Economic Return.
(k) The Owner Participants shall have received such other documents and
evidence with respect to the other parties hereto as an Owner Participant may
reasonably request in order to establish consummation on such Closing Date of
the transactions contemplated by the Operative Documents, the taking of all
corporate proceedings in connection therewith and compliance with the conditions
set forth herein.
(l) The Lead Owner Participant shall have received from each landlord or
mortgagee of the premises on which Equipment is located, an agreement,
satisfactory to the Lead Owner Participant, that such Person waives any interest
in the Equipment, will allow the Owner Trustee access to the premises for
purposes of maintenance, repair and/or removal of the Equipment and will give
the Owner Trustee prior notice of any foreclosure by the Mortgagee on the
premises.
(m) Solely with respect to each Closing Date other than the first Closing
Date, no material adverse change in Lessees' financial condition shall have
occurred since such first Closing Date.
ARTICLE IV
LESSEES' REPRESENTATIONS, WARRANTIES AND INDEMNITIES
Section 4.1 IN GENERAL. Each Lessee represents and warrants to each Owner
Trustee and each Owner Participant that as of each Closing Date:
(a) Each Lessee is a corporation duly organized and validly existing
pursuant to the laws of the jurisdiction of its incorporation, has the corporate
power and authority to own or hold under lease its properties wherever located
or used and to enter into and perform its obligations under the Operative
Documents to which it is a party and is duly qualified to do business as a
foreign corporation in good standing wherever necessary to carry out its
obligations under the Operative Documents;
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(b) the execution, delivery and performance by each Lessee of the
Operative Documents to which it is a party have been duly authorized by all
necessary corporate action on the part of such Lessee, do not require any
stockholder approval, or approval or consent of any trustee or holders of any
indebtedness or obligations of such Lessee except such as have been duly
obtained or by such Closing Date will have been duly obtained, and none of such
agreements contravenes any applicable law binding on such Lessee or the
Certificate of Incorporation or Bylaws of such Lessee or contravenes the
provisions of, or constitutes a default under, or results in the creation of any
Lien upon the property of such Lessee under, any indenture, mortgage, contract
or other agreement to which such Lessee is a party or by which it or its
properties may be bound or affected, except as specifically provided in the
Operative Documents;
(c) neither the execution and delivery by each Lessee of the Operative
Documents to which it is a party nor the performance by each Lessee of its
obligations hereunder or thereunder requires the consent or approval of, the
giving of notice to, or the registration with, or the taking of any other action
in respect of, any Federal, state or foreign governmental authority;
(d) on each Closing Date, the Operative Documents to which it is a party
will each constitute legal, valid and binding obligations of each Lessee,
enforceable against each Lessee in accordance with the respective terms thereof,
subject to applicable bankruptcy, fraudulent transfer, fraudulent conveyance,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(e) there are no pending or threatened actions or proceedings before any
court or administrative agency which (A) involve the Equipment or (B) might
materially adversely affect the ability of each Lessee to perform its
obligations under the Operative Documents;
(f) there has not occurred any event which constitutes a Lease Default or
an Event of Default that is presently continuing;
(g) each Lessee is solvent and will not be rendered insolvent by the sale
of the Equipment; after the sale of the Equipment the capital of each Lessee
will not be unreasonably small for the conduct of the business in which such
Lessee is engaged or is about to engage; no Lessee has any intention or belief
that it is about to incur debts beyond its ability to pay as they mature; and
each Lessee's sale of the Equipment is made without any intent to hinder, delay
or defraud either present or future creditors, purchasers or other interested
Persons;
(h) the proceeds of the sale of the Equipment to the Owner Trustee will
not be used by Lessees directly or indirectly for any purpose violative of
Regulation G or U of the Board of Governors of the Federal Reserve System (12
C.F.R. Part 207, as amended);
(i) the audited financial statements of Cornell contained in Cornell's
Annual Report on Form 10-K for the year ended December 31, 1998, and the
unaudited financial statements contained in Cornell's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999 (copies of
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which have been furnished to the Lead Owner Participant), have been prepared in
accordance with generally accepted accounting principles consistently applied,
fairly set forth the financial position of Cornell as of said dates and such
financial statements do not contain any material misstatement or omission which
would render such financial statements false or misleading; since September 30,
1999, there has been no material adverse change in such financial position; and
nothing has occurred to the knowledge of Cornell which in the reasonable opinion
of Cornell is likely to materially adversely affect the ability of Lessees to
perform their obligations under the Operative Documents;
(j) the chief executive office (as such term is used in Article IX of the
UCC) of each Lessee and the office where each Lessee will keep its corporate
records concerning the Equipment are located in Houston, Texas;
(k) each Lessee has filed or caused to be filed all Federal, state and
local Tax returns that are required to be filed by it and has paid or caused to
be paid all Taxes shown to be due and payable on such returns or on any
assessment received by it to the extent that such Taxes have become due and
payable, except to the extent the same are being contested in good faith. To the
extent, if any, that such Taxes are not due and payable or are being contested
in good faith by such Lessee, each Lessee has established reserves (segregated
to the extent required by generally accepted accounting principles) that are
adequate for the payment or settlement thereof;
(l) neither the aforesaid financial statements nor any other document
furnished or to be furnished by Lessees to the Lead Owner Participant or to any
appraiser or counsel in connection with the transactions contemplated hereby or
in connection with any Operative Document contains or will contain any untrue
statement of a material fact or omits or will omit a material fact necessary to
make the statements contained therein not misleading, under the circumstances
under which any such statement shall have been made; and
(m) no Lessee is a party to any agreement or instrument or subject to any
charter or other corporate restriction that individually or in the aggregate
might adversely affect its ability to perform its obligations under the
Operative Documents to which it is or is to be a party.
ARTICLE V
CERTAIN COVENANTS OF LESSEES
Each Lessee covenants and agrees with each of the Owner Participants and
the Owner Trustee, in its capacity as such and in its individual capacity, as
follows:
Section 5.1 FURTHER ASSURANCES. Lessees will cause to be done, executed,
acknowledged and delivered all and every such further acts, conveyances and
assurances as the Owner Trustee or the Owner Participants shall reasonably
require for accomplishing the purposes of this Participation Agreement and the
other Operative Documents.
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Section 5.2 MERGER, ETC. No Lessee will consolidate with or merge into any
other corporation (except for Cornell or another Lessee) or convey, transfer or
lease substantially all of its assets as an entirety to any Person.
Section 5.3 FILINGS, ETC. Lessees, at their expense, will take, or cause
to be taken, such action with respect to the recording, filing, rerecording and
re-filing of the Operative Documents and any financing statements or other
instruments as are necessary to maintain the ownership interest of the Owner
Trustee in the Equipment or will furnish to the Owner Trustee timely notice of
the necessity of such action, together with such instruments, in execution form,
and such other information as may be required to enable the Owner Trustee to
take such action.
Section 5.4 FINANCIAL COVENANTS. Cornell will not permit its:
(a) EBITDA RATIO I: EBITDA Ratio I with respect to any period ending on a
date that falls within any period set forth below under the column entitled
"Period" to exceed the applicable ratio set forth under the caption "Ratio"
opposite such period:
PERIOD RATIO
November ___, 1999 through and including 4.00 to 1
September 30, 2000
October 1, 2000 through and including March 31, 3.75 to 1
2001
April 1, 2001 through and including September 30, 3.50 to 1
2001
October 1, 2001 through and including March 31, 3.25 to 1
2002
April 1, 2002 through and including September 30, 3.00 to 1
2002
October 1, 2002 through and including March 31, 2.50 to 1
2003
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(b) EBITDA RATIO II: EBITDA Ratio II with respect to any period ending on
a date that falls within any period set forth below under the column entitled
"Period" to exceed the applicable ratio set forth under the caption "Ratio"
opposite such period:
PERIOD RATIO
November ___, 1999 through and including 5.00 to 1
September 30, 2000
October 1, 2000 through and including March 31, 4.75 to 1
2001
April 1, 2001 through and including September 30, 4.50 to 1
2001
October 1, 2001 through and including March 31, 4.25 to 1
2002
April 1, 2002 through and including September 30, 4.00 to 1
2002
October 1, 2002 through and including March 31, 3.50 to 1
2003
(c) NET WORTH: Net Worth to be less than $80,000,000.
(d) INTEREST COVERAGE RATIO: Interest Coverage Ratio with respect to any
period ending on a date that falls within any period set forth below under the
column entitled "Period" to be less than the applicable ratio set forth under
the caption "Ratio" opposite such period:
PERIOD RATIO
November 1, 1999 through and including 2.50 to 1
September 30, 2000
October 1, 2000 through and including 2.75 to 1
September 30, 2001
October 1, 2001 through and including 3.00 to 1
March 31, 2003
(e) FIXED CHARGES RATIO: Fixed Charges Ratio to be less than 1.25 to 1 at
any time.
Upon written request of Cornell, the Owner Participants agree to review
modification of the foregoing financial covenant requirements based upon future
covenant amendments to the Credit
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Agreement, which review shall be done reasonably, but the Owner Participants
shall not be obligated to agree to any modification or amendment to any such
requirement.
Section 5.5 PUBLICITY. Lessees consent to the securing, by the Lead Owner
Participant, of printed publicity through newspapers and other media (such as
tombstones commemorating the transaction) utilizing any Lessee's name,
tradename, trademarks, the Equipment Cost or other references to the
transactions contemplated hereby (provided the cost of such publicity is not
borne by Lessees), so long as the form thereof is reasonably acceptable to
Cornell.
Section 5.6 NOTICES. No Lessee will sell, lease or grant a mortgage on the
premises on which Equipment is located or any interest therein unless prior
thereto the purchaser, lessee or mortgagee, respectively, has entered into an
agreement in favor of the other parties hereto, in form and substance
satisfactory to such parties, agreeing to grant access to such parties to the
premises on which Equipment is located for purposes of maintenance, repair
and/or removal of the Equipment, agreeing to give notice to such parties before
exercising remedies against the premises on which Equipment is located and
waiving any interest in the Equipment.
Section 5.7 LANDLORD WAIVER CORRECTIONS. To the extent any of the landlord
waivers delivered under Section 3.1(l) above in connection with the first
Closing Date reflect tenants other than Lessees or have other technical defects,
Lessees shall cause to be executed and delivered to Owner Trustee within 30 days
after such first Closing Date such additional agreements required by Owner
Trustee to ensure that Owner Trustee has the benefit of such landlord waivers.
ARTICLE VI
OWNER FOR FEDERAL TAX PURPOSES
It is hereby agreed between Lessees and the Owner Participants that for
Federal income tax purposes the Owner Trustee will be the owner of the Equipment
to be delivered under the Lease and Lessees will be the lessees thereof.
ARTICLE VII
NOTICES; CONSENT TO JURISDICTION
Section 7.1 NOTICES. All notices, demands, instructions and other
communications required or permitted to be given to or made upon any party
hereto shall be in writing and shall be personally delivered or sent by
registered or certified mail postage prepaid, or by facsimile, or by prepaid
courier service, and shall be deemed to be given for purposes of this
Participation Agreement on the day that such writing is delivered to the
intended recipient thereof in accordance with the provisions of this Section
7.1. Unless otherwise specified in a notice sent or delivered in accordance with
the foregoing provisions of this Section 7.1, notices, demands, instructions and
other communications in writing shall be given to or made upon the respective
parties hereto at their
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respective addresses as follows: (A) if to Lessees, the Owner Trustee or the
Owner Participants, to the respective addresses set forth below the signatures
of such parties at the foot of this Participation Agreement, or (B) if to a
subsequent Owner Participant, addressed to such subsequent Owner Participant at
such address as such subsequent Owner Participant shall have furnished by notice
to the parties hereto.
Section 7.2 SERVICES OF PROCESS AND JURISDICTION. Each of the parties
hereto (i) hereby irrevocably submits to the non-exclusive jurisdiction of the
Courts of Cook County, Illinois (without prejudice to the right of any party to
remove to the United States District Court for the Northern District of
Illinois) and to the jurisdiction of the United States District Court for the
Northern District of Illinois, for the purposes of any suit, action or other
proceeding arising out of this Participation Agreement, the other Operative
Documents, or the subject matter hereof or thereof or any of the transactions
contemplated hereby or thereby brought by any of the parties hereto or their
successors or assigns, (ii) hereby irrevocably agrees that all claims in respect
of such action or proceeding may be heard and determined in such Illinois State
court or, to the fullest extent permitted by applicable law, in such Federal
court, and (iii) to the extent permitted by applicable law, hereby irrevocably
waives, and agrees not to assert, by way of motion, as a defense, or otherwise,
in any such suit, action or proceeding any claim that is not personally subject
to the jurisdiction of the above-named courts, that the suit, action or
proceeding is brought in an inconvenient forum, that the venue of the suit,
action or proceeding is improper or that this Participation Agreement, the other
Operative Documents, or the subject matter hereof or thereof, may not be
enforced in or by such court. EACH PARTY HEREBY WAIVES ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS PARTICIPATION AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT. A final judgment
obtained in respect of any action, suit or proceeding referred to in this
Section 7.2 shall be conclusive and may be enforced in other jurisdictions by
suit as the judgment or in any manner as provided by applicable law. Each
Lessee, other than Cornell, irrevocably appoints Cornell as its agent, to
receive on its behalf service of copies of the summons and complaint and any
other process which may be served in any such action or proceeding. Cornell
irrevocably appoints CT Corporation Systems (the "Process Agent"), with an
office at 208 South LaSalle, Chicago, IL 60604, as its agent, to receive on its
behalf service of copies of the summons and complaint and any other process
which may be served in any such action or proceeding. Service of process may be
made by mailing or delivering by registered mail, Federal Express, DHL or
similar courier at the address to which notices to it are to be given or to
Cornell in the case of the Process Agent at the Process Agent's above address,
it being agreed that service in either such manner shall constitute valid
service upon Lessees or their successors or assigns in connection with any such
action or proceeding only; PROVIDED, HOWEVER that nothing in this Section 7.2
shall affect the right of any of such parties or their respective successors or
assigns to bring any action or proceeding against any other one of such parties
or its respective property in the courts of other jurisdictions.
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ARTICLE VIII
MISCELLANEOUS
Section 8.1 SURVIVAL. The representations, warranties, indemnities and
agreements of Lessees provided for in this Participation Agreement, and
Lessees', the Owner Trustee's, and each Owner Participant's obligation under any
of the Operative Documents, shall survive the making available of the respective
Owner Participant's Commitments, the delivery of the Equipment and the
expiration or other termination of this Participation Agreement and the other
Operative Documents.
Section 8.2 MISCELLANEOUS. This Participation Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument. Neither this Participation Agreement
nor any of the terms hereof may be terminated, amended, supplemented, waived or
modified, except by an instrument in writing signed by the party against which
the enforcement of the termination, amendment, supplement, waiver or
modification is sought; and no such termination, amendment, supplement, waiver
or modification shall be effective unless a signed copy thereof shall have been
delivered to Owner Trustee. The terms of this Participation Agreement shall be
binding upon, and inure to the benefit of, Lessees and their respective
successors and permitted assigns, each Owner Participant and its successors and
assigns and the Owner Trustee and its successors as Owner Trustee under the
Trust Agreement. This Participation Agreement shall in all respects be governed
by, and construed in accordance with, the laws of the State of Illinois,
including all matters of construction, validity and performance. This
Participation Agreement is being delivered in the State of Illinois.
Section 8.3 NONRECOURSE. The parties hereto agree that all of the
statements, representations, covenants and agreements made by the Owner Trustee
(when made in such capacity) contained in this Participation Agreement and any
agreement referred to herein, unless expressly otherwise stated, are made and
intended only for the purpose of binding the Trust Estate and establishing the
existence of rights and remedies which can be exercised and enforced against the
Trust Estate. Therefore, anything contained in this Participation Agreement or
such other agreements to the contrary notwithstanding (except for any express
provisions that the Owner Trustee is responsible for in its individual
capacity), no recourse shall be had with respect to this Participation Agreement
or such other agreements against the Owner Trustee in its individual capacity or
against any Person which becomes a successor trustee or co-trustee or any
officer, director, trustee, servant or direct or indirect parent or controlling
Person or Persons of any of them; PROVIDED, however that this Section 8.3 shall
not be construed to prohibit any action or proceeding against any party hereto
for its own willful misconduct or grossly negligent conduct for which it would
otherwise be liable; and PROVIDED, FURTHER, that nothing contained in this
Section 8.3 shall be construed to limit the exercise and enforcement in
accordance with the terms of this Participation Agreement or such other
agreements of rights and remedies against the Trust Estate. The foregoing
provisions of this Section 8.3 shall survive the termination of this
Participation Agreement and the other Operative Documents.
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Section 8.4 LIABILITY. The Owner Participants will have no liability for
any actions or omissions of the Owner Trustee unless the Owner Trustee is
acting, or is failing to act, in accordance with the instructions of the Owner
Participants.
Section 8.5 GOVERNING LAW. This Participation Agreement shall in all
respects be governed by, and construed in accordance with, the laws of the State
of Illinois, including all matters of construction, validity and performance.
ARTICLE IX
EXPENSES; SECURITY DEPOSIT
Section 9.1 TRANSACTION EXPENSES. The following expenses shall be paid by
Lessees: the reasonable and actual fees, expenses and disbursements of (1)
counsel for Owner Trustee under the Trust Agreement, such information to be
furnished by the Owner Trustee, (2) Winstead Sechrest & Minick P.C., special
counsel for the Lead Owner Participant, such information to be furnished by the
Lead Owner Participant, and (3) (i) all fees, Taxes and other charges payable in
connection with the recording or filing of instruments and financing statements,
such information to be furnished by the Person having knowledge thereof, (ii)
the initial fee and reasonable and actual disbursements of the Owner Trustee
under the Trust Agreement, such information to be furnished by the Owner Trustee
and (iii) the fee of the Appraiser (or of such other appraiser as shall be
acceptable to Lessees and the Lead Owner Participant) with respect to the
appraisal of the Equipment pursuant to Article III hereof, such information to
be furnished by the Lead Owner Participant. Notwithstanding anything herein to
the contrary, Lessees shall only be responsible for payment of a maximum amount
of up to $62,500 of initial transaction expenses under clauses (1), (2), (3)(i)
and (3)(ii) above.
Section 9.2 SECURITY DEPOSIT.
(a) On each Closing Date, Lessees agree to pay to the Owner Trustee, in
its capacity as Lessor, a security deposit equal to five percent of the
Equipment Cost being paid on such Closing Date. Upon receipt of such security
deposit, Owner Trustee shall deliver to each Owner Participant its pro rata
share of such security deposit based on the Owner Participant's Commitments.
Owner Trustee may, in its sole discretion, apply, from time to time, all or a
portion of said security deposit to the payment of Rent not timely paid by
Lessees (in such order and manner as Lessor may elect), and upon such election,
Owner Trustee shall notify each Owner Participant, who in turn shall promptly
deliver to Owner Trustee its pro rata share of such amount so applied based on
the Owner Participant's Commitments.
(b) Lessees hereby grant to Owner Trustee, for the benefit of the Owner
Participants, a security interest in the security deposit contemplated in clause
(a) above and acknowledge and agree that (i) the security deposit may be
commingled by the Owner Participants with other funds, and (ii) the security
deposit will not bear interest.
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(c) Each Owner Participant hereby acknowledges and agrees that such Owner
Participant is acting as bailee for Owner Trustee for purposes of perfecting the
security interest in the security deposit granted in clause (b) above.
(d) At the end of the Base Term, if no Lease Default or Event of Default
then exists, the Owner Trustee shall return to Cornell so much of the security
deposit as has not been applied to the payment of Rent in accordance with clause
(a) above. If any amount is to be so returned, Owner Trustee shall notify each
Owner Participant, who in turn shall promptly deliver to Owner Trustee its pro
rata share of such amount based on the Owner Participant's Commitments.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGES FOLLOW.
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IN WITNESS WHEREOF, the parties hereto have caused this Participation
Agreement to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
CORNELL CORRECTIONS, INC.
CORNELL CORRECTIONS OF CALIFORNIA,
INC.,
CORNELL CORRECTIONS OF TEXAS, INC.,
CORNELL CORRECTIONS OF OKLAHOMA,
INC.,
WBP LEASING, INC.,
CORNELL CORRECTIONS OF ALASKA, INC.
By: /s/ JOHN L. HENDRIX
John L. Hendrix
Vice President and Chief Financial Officer
of each of the companies named above
Address: 1700 West Loop South
Suite 1500
Houston, Texas 77027
Attention: John Hendrix
PARTICIPATION AGREEMENT
SIGNATURE PAGE
<PAGE>
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not in its individual capacity, except
as expressly provided herein, but solely as Owner
Trustee
By: /s/ VAL T. ORTON
Name: Val T. Orton
Title: Vice President
Address:
Corporate Trust Services
79 South Main Street
3rd Floor
Salt Lake City, Utah 84111-1921
Attention: Val Orton
PARTICIPATION AGREEMENT
SIGNATURE PAGE
<PAGE>
HELLER FINANCIAL LEASING, INC.
By: /s/ JOHN T. SMITH
Name: John T. Smith
Title: Assistant Vice President
Address:
500 West Monroe
Chicago, Illinois 60661
Attention: CEFG Region Credit Manager
PARTICIPATION AGREEMENT
SIGNATURE PAGE
<PAGE>
THE CIT GROUP/EQUIPMENT FINANCING
By: /s/ TOM VASILAKOS
Name: Tom Vasilakos
Title: Senior Vice President
Address:
5777 West Maple Road, Suite 130
West Bloomfield, Michigan 48322
Attention: Julie Rogers
PARTICIPATION AGREEMENT
SIGNATURE PAGE
<PAGE>
SAFECO CREDIT COMPANY, INC.
By: /s/ RON KOEHLER
Name: Ron Koehler
Title: Division Assistant Vice President
Address:
10865 Willows Road NE, 3rd Floor
Redmond, Washington 98052
Attention: Ron Koehler
PARTICIPATION AGREEMENT
SIGNATURE PAGE
<PAGE>
SCHEDULE 1
OWNER PARTICIPANT'S COMMITMENTS
OWNER PARTICIPANT PERCENTAGE
Heller Financial Leasing, Inc. 73.934%
Safeco Credit Company, Inc. 14.218%
The CIT Group/Equipment Financing, Inc. 11.848%
EXHIBIT 10.37
LEASE AGREEMENT
dated as of November 23, 1999,
between
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not in its individual capacity, as expressly provided herein,
but solely as Owner Trustee,
Lessor
and
CORNELL CORRECTIONS, INC.,
CORNELL CORRECTIONS OF CALIFORNIA, INC.,
CORNELL CORRECTIONS OF TEXAS, INC.,
CORNELL CORRECTIONS OF OKLAHOMA, INC.,
WBP LEASING, INC.,
AND
CORNELL CORRECTIONS OF ALASKA, INC.
Lessees
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS:..............................................................1
2. ACCEPTANCE AND LEASING OF EQUIPMENT:......................................1
4. DISCLAIMER:...............................................................2
5. QUIET ENJOYMENT:..........................................................2
6. NET LEASE; NO SET-OFF:....................................................2
7. USE, LOCATION AND POSSESSION; LIENS:......................................2
8. MAINTENANCE AND SERVICE; IMPROVEMENTS:....................................3
9. NO AGENCY:................................................................4
10.RISK OF DAMAGE AND LOSS:..................................................4
11.INSURANCE:................................................................5
12.GENERAL TAX INDEMNITY:....................................................6
13.INCOME TAX INDEMNIFICATION:...............................................7
14.GENERAL INDEMNIFICATION:..................................................8
15.DEFAULT:..................................................................9
16.REMEDIES:................................................................10
17.ASSIGNMENT...............................................................12
18.REPORTS:.................................................................13
19.REPRESENTATIONS AND WARRANTIES OF LESSEES:...............................14
20.TERMINATION OPTION:......................................................15
21.PURCHASE OPTION:.........................................................15
22.RENEWAL OPTIONS:.........................................................15
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23.RETURN OF EQUIPMENT:.....................................................16
24.MISCELLANEOUS, JURY WAIVER, GOVERNING LAW, JURISDICTION, VENUE:..........18
25.LIABILITY OF LESSOR LIMITED:.............................................20
26.JOINT AND SEVERAL LIABILITY..............................................20
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<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT, dated as of November 23, 1999 (this "Lease"), is
between FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its individual
capacity, as expressly provided herein, but solely as Owner Trustee ("Lessor"),
with an office address at 79 South Main Street, Salt Lake City, Utah 84111,
CORNELL CORRECTIONS, INC., a Delaware corporation, CORNELL CORRECTIONS OF
CALIFORNIA, INC., a California corporation, CORNELL CORRECTIONS OF TEXAS, INC.,
a Delaware corporation, CORNELL CORRECTIONS OF OKLAHOMA, INC., a Delaware
corporation, WBP LEASING, INC., a Delaware corporation, and CORNELL CORRECTIONS
OF ALASKA, INC., an Alaska corporation ("Lessees"), each with its address and
principal place of business at 1700 West Loop South, Suite 1500, Houston, Texas
77027, which parties hereby agree as follows:
1. DEFINITIONS: Unless otherwise defined herein or required by the
context, all capitalized terms used herein shall have the respective meanings
assigned to such terms in Appendix A hereto for all purposes of this Lease.
2. ACCEPTANCE AND LEASING OF EQUIPMENT: Lessor hereby agrees (subject to
satisfaction of the conditions set forth in Article III of the Participation
Agreement), on each Closing Date, to accept delivery from Lessees under a Bill
of Sale dated on such Closing Date and simultaneously to lease to Lessees
hereunder, and Lessees hereby agree to lease from Lessor hereunder, the
Equipment covered by such Bill of Sale, as evidenced by the execution by Lessor
and Lessees of an Interim Lease Supplement leasing such Equipment hereunder. In
addition, on or before the Base Term Commencement Date, Lessor and Lessees agree
to execute a Lease Supplement incorporating all of the Equipment leased under
Interim Lease Supplements. Execution of an Interim Lease Supplement shall
constitute acceptance of delivery by the Lessees of the Equipment covered by
such Interim Lease Supplement, and such execution shall irrevocably constitute
acceptance by Lessees of the Equipment for all purposes of this Lease.
3. INITIAL TERM AND RENT: (a) INTERIM TERM. Except as otherwise provided
herein, the interim term for each Group of Equipment shall commence on the
Delivery Date for such Group of Equipment and end on December 31, 1999 (the
"Interim Term").
(b) INTERIM RENT. Lessees jointly and severally agree to pay to Lessor
Interim Rent for the Equipment for the Interim Term in an amount, subject to
adjustment as provided in Section 2.6 of the Participation Agreement, equal to
.079196% per day times the Equipment Cost. Interim Rent for the Equipment shall
be payable on the Base Term Commencement Date.
(c) BASE TERM. Except as otherwise provided herein, the Base Term for the
Equipment shall commence on the Base Term Commencement Date and end on the Base
Term Expiration Date.
(d) BASE RENT. Lessees jointly and severally agree to pay Lessor Base Rent
for the Equipment for the Base Term in 45 consecutive monthly installments, each
such installment to be in an amount, subject to adjustment as provided in
Section 2.6 of the Participation Agreement, equal to 2.375889% multiplied by the
Equipment Cost and payable in immediately available Dollars via
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ACH debit from a bank account of Cornell to be designated by Cornell. Each such
installment shall be due and payable not later than each Rent Payment Date.
Payment shall not be effective until Dollars are received by the Paying Agent in
Chicago, Illinois.
(e) SUPPLEMENTAL RENT. Lessees also jointly and severally agree to pay to
Lessor, or to whomsoever shall be entitled thereto, any and all Supplemental
Rent promptly by ACH debit as the same shall become due and owing in Dollars
that are immediately available, and in the event of failure on the part of
Lessees to pay any Supplemental Rent, Lessor shall have all the rights, powers
and remedies provided for herein or by law or in equity or otherwise in the case
of nonpayment of Base Rent. Lessees jointly and severally will also pay Lessor,
on demand, as Supplemental Rent, to the extent permitted by applicable law,
interest, at the Default Rate, on any part of Base Rent not paid when due for
any period for which the same shall be overdue and on any Supplemental Rent not
paid when demanded by Lessor for the period until the same shall have been paid.
The expiration or termination of the Lessees' obligation to pay Base Rent
hereunder shall not limit or modify the obligations of Lessees with respect to
Supplemental Rent.
4. DISCLAIMER: LESSOR IS NEITHER THE MANUFACTURER NOR SELLER OF THE
EQUIPMENT, AND MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR
IMPLIED, WITH RESPECT TO THE EQUIPMENT, ALL OF WHICH ARE HEREBY EXPRESSLY
DISCLAIMED. LESSEES UNDERSTAND AND AGREE THAT NO WARRANTY IS TO BE IMPLIED WITH
RESPECT TO THE CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY, THE FITNESS OF
THE EQUIPMENT FOR A PARTICULAR PURPOSE, THE ACCURACY OF THE DESCRIPTION OF THE
EQUIPMENT, OR WITH RESPECT TO INFRINGEMENT, INTERFERENCE OR THE LIKE. LESSOR
SHALL NOT BE LIABLE IF, FOR WHATEVER REASON, THE EQUIPMENT IS DELAYED OR NOT
DELIVERED TO LESSEES.
5. QUIET ENJOYMENT: So long as no Event of Default (as defined below)
exists, Lessor will not interfere with Lessees' quiet enjoyment and use of the
Equipment during the Term therefor.
6. NET LEASE; NO SET-OFF: This Lease is a net lease and Lessees shall not
be entitled to any abatement or reduction of, or set-off against, any Rent by
reason of any (i) past, present or future claim against Lessor or any successor
or assignee of Lessor or any supplier of any Item or any other person, (ii)
defect in or damage to, or loss, prohibition, restriction on use, damage or
destruction of, any Item (except as expressly provided otherwise in Section 10)
from whatever cause, or (iii) other cause whatsoever, whether similar or
dissimilar to the foregoing, it being the intention of the parties that all Rent
shall continue to be payable in all events in the manner and at the times
specified in this Lease and that Lessees' obligation to pay Rent shall be
absolute and unconditional unless the obligation to pay the same shall be
terminated pursuant to the express provisions of this Lease.
7. USE, LOCATION AND POSSESSION; LIENS: (a) Lessees shall use each Item in
a manner such that each Item is maintained in such condition that is required
under the terms of this
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Lease and for the use contemplated by the manufacturer thereof and in compliance
with all applicable laws, rules, and regulations and the provisions of the
insurance required to be maintained hereunder and the terms of any
manufacturer's warranty. Each Item shall at all times be kept at the location
specified in the Interim Lease Supplements and the Lease Supplement unless (i)
Lessees have given prior written notice to Lessor regarding changes in location
involving Equipment with an aggregate Fair Market Sales Value of $25,000 or
greater, (ii) Lessees have delivered to Lessor a Lien waiver executed by the
landlord or mortgagee of the new location, as the case may be, (iii) Lessees
shall have executed any other agreements, instruments or documents reasonably
required by Lessor in connection with such change in location (including,
without limitation, a precautionary UCC financing statement filing for the
jurisdiction in which such new location is located), (iv) such change in
location would not otherwise result in an Event of Default, and (v) if as a
result of such change of location the aggregate Fair Market Sales Value of all
Items for which a change of location has occurred exceeds $25,000, Lessor and
Lessees shall have agreed on a new Facility Cost for all Equipment located at
each Facility to or from which any Items have been moved since the Delivery Date
for such Items. Each Lessee shall at all times keep each Item at the Facilities
it operates.
(b) Lessees shall keep each Item free and clear of all Liens and shall not
create, incur, assume or suffer to exist any thereof in, on, of or to any Item,
other than Lessor Liens.
(c) Lessor shall have the right as owner, but not the obligation, at all
reasonable times, which, so long as no Event of Default has occurred and is
continuing, shall be during normal business hours, to enter upon the premises
where the Equipment is located or used to inspect the Equipment. Such
inspections shall be for, among other things, determining whether Lessees are
properly complying with their obligations hereunder. Neither Lessees nor any
third-party may rely upon any such inspections by Lessor and Lessor shall not be
obligated to inform Lessees or any third-party of the result of any such
inspection. Any inspection that is not followed by a notice of an Event of
Default shall not constitute a waiver of any Event of Default then existing and
Lessor's failure to inspect the Equipment or to discover any information
regarding the Equipment shall not constitute a waiver of any of Lessor's rights
hereunder.
8. MAINTENANCE AND SERVICE; IMPROVEMENTS: (a) Lessees shall, at their
expense, at all times maintain, service and repair each Item as would a prudent
owner of such Item in accordance with customary industry standards, and in any
event so as to keep each Item in good operating condition, ordinary wear and
tear excepted, in compliance with all applicable laws, rules, regulations, and
manufacturer's recommended basic warranty, extended warranty and/or maintenance
program requirements, and as otherwise may be required to enforce warranty
claims against each vendor and manufacturer of each Item. To the extent that
Lessees' maintenance, repair or servicing standards exceed the foregoing, then
Lessees shall keep each Item in at least as good condition as other comparable
equipment owned or used by Lessees. Lessees shall, if at any time requested to
do so by Lessor, affix in a prominent position on each Item plates, tags or
other identifying labels showing ownership thereof by Lessor.
(b) Any alterations or modifications with respect to any Item that may be
required at any time during the Term of this Lease to comply with any applicable
law or any governmental or other
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<PAGE>
rule or regulation shall be made by Lessees, at their expense, and shall
thereupon become the property of Lessor.
(c) Unless required pursuant to subsection (b), no Lessee shall, without
Lessor's prior consent, affix or install any accessory, equipment, or device on,
or modify, any Item if such addition or modification will impair the value or
original function or use thereof or cannot be readily removed without causing
damage to such Item. Further, no Lessee shall, without Lessor's prior written
consent, affix or install any Item to or in any other personal property, or to
or in any real property so that such Item shall constitute a fixture. Lessees
shall obtain and deliver to Lessor disclaimers or waivers from all owners and/or
mortgagees of real estate in which any Item is located in form and content
acceptable to Lessor.
9. NO AGENCY: Lessees acknowledge that they alone have selected the
Equipment and the supplier(s) thereof; that it has reviewed and approved each
written supply contract and purchase order covering the Equipment, or has been
advised by Lessor in writing of the identity of each supplier; that it may have
rights under each such supply contract and purchase order; and that it may
contact each supplier for a description of any such rights and/or supplier's
warranty. Nothing herein contained shall be construed to deprive Lessees of
whatever rights Lessees may have against parties other than Lessor or Lessor's
assignee, such as the supplier or manufacturer of any Item, and Lessees agree to
look solely to such third parties with respect to any and all claims concerning
the Equipment. So long as no Event of Default exists, Lessees may pursue such
claims for the mutual benefit of Lessor and Lessees in accordance with their
interests in the Equipment. Without in any way limiting any other provision in
this Lease, Lessor shall not in any event be liable for any consequential
damages hereunder or with respect to any Item. No supplier is the agent of
Lessor and no employee of any supplier is authorized to waive, supplement or
otherwise alter any provision of this Lease. Lessees and Lessor hereby agree
that they intend this Lease to be a "Finance Lease" as defined by Article 2A of
the UCC. Lessees acknowledge that Lessees have reviewed and approved any written
"Supply Contract" covering the Equipment from any "Supplier" (as such terms in
quotation marks are defined in Article 2A of the UCC).
10. RISK OF DAMAGE AND LOSS: (a) Lessees assume and shall be solely
responsible for the entire risk of any Item being lost, destroyed, damaged,
stolen, confiscated or condemned, from whatever source, until the date such Item
is returned and accepted by Lessor in accordance with Section 23. In the event
of damage to any Item, Lessees, at their expense, shall promptly repair the
same, restoring it to the condition required to be maintained hereunder. If all
of the Items at a Facility are lost, destroyed, stolen, damaged in such a way
that it is not commercially reasonable to repair such Items (or such repairs are
not completed within 60 days of the damage or by the end of the Lease Term with
respect thereto, whichever is shorter), confiscated or condemned (each, an
"Event of Loss"), then Lessees shall either (i) replace all such Items with
replacement Items that are free and clear of all Liens and are of the same type,
have a Fair Market Sales Value, utility, residual value, remaining economic
useful life and condition at least equal to the Items so replaced (assuming such
Items were in the condition required by this Lease) or (ii) pay to Lessor the
Stipulated Loss Value of such Items and all other Rent owing with respect to
such Items, which such payment shall be due on the first to occur of (A) the end
of the Lease Term or (B)
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the sooner of (1) 60 days after such Event of Loss or (2) the second Base Rent
payment date following such Event of Loss. If any Item is lost, destroyed,
stolen, damaged in such a way that it is not commercially reasonable to repair
it (or such repairs are not completed within 60 days of the damage or by the end
of the Lease Term with respect thereto, whichever is shorter), confiscated or
condemned other than in connection with an Event of Loss, then Lessees shall
replace such Item with a replacement Item that is free and clear of all Liens
and is of the same type, has a Fair Market Sales Value, utility, residual value,
remaining economic useful life and condition at least equal to the Item so
replaced (assuming such Item was in the condition required by this Lease).
(b) At the time of replacement of any Item, Lessees, at their own expense,
shall (i) furnish Lessor with a Bill of Sale with respect to such replacement
Item and execute an amendment to, or replacement of, the Lease Supplement (when
the aggregate Fair Market Sales Value of replacement Items equals $25,000 or
more) and (ii) furnish Lessor and the Owner Participants with such documents as
they, or their counsel, shall reasonably request.
(c) If, in connection with an Event of Loss, Lessees pay to Lessor the
Stipulated Loss Value of the affected Items in accordance with Section 10(a)
above, then this Lease shall terminate with respect to such Items and Lessor
shall transfer title thereto to Lessees, without representation or warranty
other than as to Lessor Liens, and the obligation of Lessees to pay Base Rent in
respect of such Items for any period commencing after such Event of Loss shall
terminate, and the Base Rent shall be adjusted accordingly by an amendment
executed by Lessees and Lessor. If, in connection with an Event of Loss, the
affected Items are replaced in accordance with Section 10(a) above, then upon
compliance with Section 10(b) above, this Lease shall terminate with respect to
the replaced Items and Lessor shall transfer title thereto to Lessees, without
representation or warranty other than as to Lessor Liens, and the obligation of
Lessees to pay Base Rent in respect of such replaced Items for any period
commencing after such Event of Loss shall terminate, and the Base Rent shall be
adjusted accordingly by an amendment executed by Lessees and Lessor. So long as
no Event of Default exists, and provided that Lessees have complied with
Sections 10(a) and (b) above, any proceeds of insurance required hereunder
received by Lessor with respect to any damage or Event of Loss respecting any
Equipment shall be paid to Lessees. If an Event of Default exists, any proceeds
of insurance required hereunder received by Lessor with respect to any damage or
Event of Loss respecting any Equipment shall be retained by Lessor until such
Event of Default is waived or cured.
11. INSURANCE: (a) Lessees shall, at their expense, at all times through
the Return Date (i) keep the Equipment insured against all risks of loss or
damage from every cause whatsoever in an amount not less than the greater of
fair market value or the Stipulated Loss Value thereof, (ii) obtain liability
insurance, including automobile coverage if the Equipment includes motor
vehicles, respecting the Equipment covering liability for bodily injury,
including death, and property damage, in an amount of at least $3 million per
occurrence or such greater amount as may comply with general industry standards,
or such greater amount as Lessees may maintain, or in such other amounts as
Lessor may from time to time require and (iii) obtain business interruption
insurance in such amount as Lessor may from time to time require.
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(b) Lessor shall be the sole named loss-payee with respect to damage or
loss to the Equipment with no provision for co-insurance and shall be named as
an additional insured on the liability insurance. All insurance shall be with
insurers and in form satisfactory to Lessor; have a deductible not to exceed
$50,000 per occurrence, or such other amount as Lessor may from time to time
require; shall provide for at least 30 days' prior written notice to Lessor
before any cancellation or material modification thereof; shall waive any claim
for premium against Lessor; and shall provide that Lessor will be insured
regardless of any breach by Lessees or any or some of them of any
representation, warranty or covenant in any such policy or any application
therefor. Lessees shall deliver to Lessor certificates of insurance and other
evidence satisfactory to Lessor evidencing the insurance required hereby, and at
Lessor's request Lessees will furnish copies of such policies to Lessor. In the
case of renewals, evidence of renewal shall be delivered to Lessor at least five
days prior to expiration of the current policy.
(c) In the event Lessees fail to provide Lessor with evidence of the
insurance coverage required by this Lease, Lessor may purchase insurance at
Lessees' expense to protect Lessor's interests in the Equipment. This insurance
may, but need not, protect Lessees' interests. The coverage purchased by Lessor
may not pay any claim made by Lessees or any claim that is made against Lessees
in connection with the Equipment. Lessees may later cancel any insurance
purchased by Lessor, but only after providing Lessor with evidence that Lessees
have obtained insurance as required by this Lease. If Lessor purchases insurance
for the Equipment, Lessees will be responsible for the costs of that insurance,
including interest and other charges imposed by Lessor in connection with the
placement of the insurance, until the effective date of the cancellation or
expiration of the insurance. The costs of the insurance constitute part of
Supplemental Rent. The costs of the insurance may be more than the cost of
insurance Lessees are able to obtain on their own.
12. GENERAL TAX INDEMNITY: Lessees jointly and severally agree to pay and
indemnify, on an After-Tax Basis, Lessor and each Owner Participant against all
income, sales, use, personal property, ad valorem, value added, leasing, stamp
or other taxes, levies, imposts, fees, duties, charges or withholdings of any
nature, including all license and registration fees, together with any
penalties, fines or interest thereon (collectively, "Taxes") arising out of the
transactions contemplated by this Lease (including the acquisition of any Item)
and imposed against Lessor, the Owner Participants, Lessees, this Lease
(including any Rent) or the Equipment or any Item by the United States or any
state or political subdivision thereof or any foreign government or taxing
authority, excluding, however, any Taxes based on or measured by the net income
of Lessor imposed by the United States or any state or political subdivision
thereof. Lessees will notify Lessor of the need to file any reports and returns
relating to any Imposition at least 60 days before the due date thereof and will
remit any amounts payable in connection therewith to Lessor 10 days before
payment is due. Lessor shall prepare and file all returns, and pay all Taxes,
unless Lessor directs Lessees otherwise. In the event that Lessor pays any such
Taxes, Lessees will on demand reimburse Lessor for the full amount paid by
Lessor therefor. Lessor shall have no obligation to contest or refuse to pay any
Tax. Lessees acknowledge that in some jurisdictions Taxes may not be billed,
audited, assessed or due until after this Lease has terminated and agrees that
in such event Lessees will remain liable for such Taxes notwithstanding such
termination. Lessor makes no warranty, express or implied, regarding Lessees'
tax or accounting treatment of this Lease.
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13. INCOME TAX INDEMNIFICATION: (a) Each Lessee acknowledges, represents
and warrants that Lessor is the owner of the Equipment for state law and Federal
income tax purposes and that the most accelerated depreciation or cost recovery
deductions on the full amount of the Equipment Cost will be available to Lessor.
Each Lessee acknowledges that Lessor intends to claim and take the Depreciation
Deductions.
(b) Each Lessee also represents, warrants and covenants as follows:
(i) Lessor will not be required to include any amount in its
income in connection with any Item for any taxable year or part
thereof during the Lease Term other than (A) Interim Rent, Base Rent
and Renewal Rent, as such Rent accrues in accordance with the terms
hereof, (B) any amount constituting gain recognized with respect to
or by reason of the sale or other disposition of such Item upon the
termination of this Lease with respect thereto, (C) any amount
payable to Lessor to the extent such amount is required to be
determined by reference to the income tax effect to Lessor of the
receipt thereof, (D) any amount specifically identified as interest,
and (E) any other amount with respect to which Lessor shall be
entitled to a contemporaneous and equal offsetting deduction (any
amount so includable in Lessor's income other than as contemplated
in clauses (A) through (E) above being referred to herein as an
"Inclusion"); and
(ii) Each Item is classified as either five or seven year
property within the meaning of Section 168(e) of the Code and Lessor
will be entitled to Depreciation Deductions with respect to its
basis in the Equipment (which basis shall equal 100% of the
Equipment Cost for each Item) in accordance with such classification
of property.
(c) If for any reason whatsoever, including any act or omission of
Lessees or any or some of them or the inaccuracy of any representation or
warranty of Lessees or any or some of them in any of the Operative
Documents or in connection with the transactions contemplated hereby:
(i) Lessor shall lose or lose the right to claim, or be
advised or determines that it would be imprudent, improper or
inadvisable to claim, or there shall be disallowed or recaptured,
all or any portion of the anticipated Depreciation Deductions,
(ii) Lessor shall suffer an Inclusion, or
(iii) Any foreign tax credit of Lessor shall be reduced,
disallowed or recaptured, (any such loss, disallowance, reduction,
recapture or Inclusion being hereinafter called a "Tax Loss"), then
30 days after written notice to Lessees by Lessor that any Tax Loss
has occurred, Lessees shall pay Lessor, as an indemnity payment, a
lump sum amount which, on an After-Tax Basis after deduction of all
Federal, state and local Taxes required to be paid by Lessor in
respect of the receipt
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of such payment, shall provide Lessor with not less than the same
net after-tax return that Lessor would have realized if such Tax
Loss had not occurred, including any interest and penalties payable
by Lessor attributable to such Tax Loss. In computing Lessees'
liability under this Section, the Federal, state and local Taxes
payable by Lessor shall be based upon the highest marginal corporate
tax rate in effect for the taxable year in which the Tax Loss
occurred.
(d) Lessees shall not be liable for indemnification respecting a Tax
Loss occurring solely as a result of: (i) Lessor being subject to the
application of the mid-quarter convention of Section 168(d)(3) of the
Code, (ii) Lessor making any election to claim the Depreciation Deductions
in a manner less rapid than contemplated by the definition thereof, (iii)
Lessor failing to have sufficient taxable income to utilize the
Depreciation Deductions, (iv) Lessor being subject to the Alternative
Minimum Tax, (v) a voluntary transfer or other voluntary disposition by
the Lessor of any interest in any Equipment or this Lease when no Lease
Default or Event of Default exists, or (vi) Lessor's failure to comply
with the Operative Documents if failure to so comply is the sole cause of
the Tax Loss.
(e) For the purposes of this Section the term "Lessor" shall include
any affiliated group within the meaning of Section 1504 of the Code of
which Lessor or any Owner Participant is a member, if consolidated returns
are filed for such affiliated group for Federal tax purposes, and a Tax
Loss shall be deemed to have occurred upon the earliest of:
(i) The happening of any event which may cause such Tax Loss,
(ii) The payment by Lessor to the taxing authority of the tax
increase resulting from such Tax Loss, or
(iii) The adjustment of the tax return of Lessor to reflect
such Tax Loss.
14. GENERAL INDEMNIFICATION: LESSEES HEREBY JOINTLY AND SEVERALLY AGREE TO
INDEMNIFY, SAVE, PROTECT, DEFEND AND KEEP HARMLESS LESSOR, EACH OWNER
PARTICIPANT, AND THEIR RESPECTIVE AGENTS, DIRECTORS, EMPLOYEES, SUCCESSORS AND
ASSIGNS, FROM AND AGAINST ANY AND ALL LOSSES, DAMAGES (INCLUDING INDIRECT,
SPECIAL OR CONSEQUENTIAL DAMAGE), HARM, EXPENSES, INCLUDING LEGAL FEES (AND A
REASONABLE ALLOCATION OF THE COMPENSATION, COSTS AND EXPENSES OF INTERNAL
COUNSEL, BASED UPON TIME SPENT), PENALTIES, INJURIES, CLAIMS, ACTIONS AND SUITS,
OF WHATSOEVER KIND AND NATURE, IN CONTRACT, TORT OR OTHERWISE, WHETHER CAUSED BY
THE ACTIVE OR PASSIVE NEGLIGENCE OF LESSOR OR ANY OWNER PARTICIPANT (EXCLUDING,
HOWEVER, LESSOR'S OR ANY OWNER PARTICIPANT'S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT) OR OTHERWISE AND INCLUDING LESSOR'S AND OWNER PARTICIPANTS' STRICT
LIABILITY IN TORT, IN ANY WAY ARISING OUT OF, RELATED TO OR IN CONNECTION WITH
THE SELECTION, MODIFICATION, PURCHASE, ACCEPTANCE, REJECTION, OWNERSHIP,
DELIVERY, LEASE,
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POSSESSION, MAINTENANCE, USE, CONDITION (INCLUDING LATENT OR OTHER DEFECTS,
WHETHER OR NOT DISCOVERABLE BY LESSOR, OWNER PARTICIPANTS OR LESSEES OR ANY OR
SOME OF THEM, AND ANY CLAIM FOR PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT),
RETURN OF, OR OPERATION OF ANY ITEM PRIOR TO ITS RETURN DATE OR RELATING TO ANY
DEFAULT BY LESSEES OR ANY OR SOME OF THEM OR EVENT OF DEFAULT.
15. DEFAULT: Each of the following shall constitute an event of default
(an "Event of Default") hereunder:
(a) Lessees or any or some of them shall fail to make any payment of Rent
when and as the same shall become due and payable;
(b) Lessees or any or some of them shall fail to pay or perform, as and
when due (including any applicable grace period), any obligations to Lessor or
any of its Affiliates arising under or in connection with this Lease, including,
but not limited to, Lessees' obligation under Sections 7, 8, 10 and 11 hereof,
or arising under any other document or instrument including, but not limited to,
any document or instrument executed in connection with any other presently
existing or future loans, leases or other credit arrangements from Lessor or any
of its Affiliates in favor of Lessees, or otherwise, and solely with respect to
Lessees' obligations under Section 18(b) of this Lease, such failure continues
for 15 days;
(c) Lessees or any or some of them shall make any representation or
warranty, respectively, in this Lease or in any certificate or statement
furnished at any time hereunder or in connection with this Lease which proves to
have been untrue or misleading in any material respect when made or furnished;
(d) Any Lessee shall file a voluntary petition in bankruptcy or a
voluntary petition or answer seeking liquidation, administration,
reorganization, arrangement, readjustment of its debts, or for any other relief
under the Bankruptcy Code, or under any other act or law pertaining to
insolvency or debtor relief, whether state, federal, or foreign, now or
hereafter existing; or any Lessee shall enter into any agreement indicating its
consent to, approval of, or acquiescence in, any such petition or proceeding; or
any Lessee shall apply for or permit the appointment by consent or acquiescence
of a receiver, custodian administrator, or trustee for all or a substantial part
of its property; or any Lessee shall make an assignment for the benefit of
creditors; or any Lessee shall be unable or shall fail to pay its debts
generally as such debts become due; or any Lessee shall admit, in writing, its
inability or failure to pay its debts generally as such debts become due;
(e) There shall have been filed against any Lessee an involuntary petition
in bankruptcy or seeking liquidation, administration, reorganization,
arrangement, readjustment of its debts or for any other relief under the
Bankruptcy Code, or under any other act or law pertaining to insolvency or
debtor relief, whether state, federal or foreign, now or hereafter existing, or
any Lessee shall suffer or permit the involuntary appointment of a receiver,
custodian, administrator, or trustee for all or a substantial part of its
property; or any Lessee shall suffer or permit the issuance of a warrant of
attachment, diligence, execution or similar process against all or any
substantial part of its property;
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unless, in each other case, such petition, appointment or process is fully
bonded against, vacated or dismissed within 60 days from its effective date, but
not later than ten (10) days prior to any proposed disposition of any assets
pursuant to any such proceeding;
(f) The occurrence of any default in the payment or performance, and the
subsequent acceleration, of any debt or other obligations (including, but not
limited to, capital lease obligations or any corporate guaranty) owed by any
Lessee to any other Person or entity unaffiliated with Lessor with an
outstanding principal balance in excess of $1,000,000, whether now or hereafter
existing;
(g) There shall be a change in the beneficial ownership and control,
directly or indirectly, of the majority of the outstanding voting securities or
other interests entitled (without regard to the occurrence of any contingency)
to elect or appoint members of the board of directors or other managing body of
Cornell (a "change of control"), or there is any merger, consolidation,
dissolution, liquidation, winding up or sale or other transfer of all or
substantially all of the assets of any Lessee pursuant to which there is a
change of control or cessation of any Lessee or their businesses;
(h) The occurrence of any "Event of Default" under the Credit Agreement.
16. REMEDIES: (a) Upon the occurrence of any Event of Default, then, to
the extent permitted by applicable law, Lessor shall have the right to exercise
any one or more of the following remedies:
(i) Proceed by appropriate court action or actions, either at law or
in equity, to enforce performance by Lessees of their obligations
hereunder or to recover damages for breach thereof;
(ii) To take possession of any Item, wherever located, without
notice, legal process, prior judicial hearing, or liability for trespass
or other damage (WHICH RIGHTS LESSEES HEREBY VOLUNTARILY, INTELLIGENTLY
AND KNOWINGLY WAIVE) and thereafter hold, sell, operate or lease such Item
free of claims of Lessees, except as set forth below;
(iii) By notice to Lessees, to terminate or cancel this Lease and
declare all Rent then owing to Lessor hereunder immediately due and
payable (whereupon Lessees shall promptly pay the same);
(iv) To demand immediate payment of the Stipulated Loss Value of the
Equipment as liquidated damages, and not as a penalty, for all future Rent
for the remaining Lease Term (whereupon Lessees shall promptly pay the
same); and
(v) To pursue any other remedy available to Lessor at law or in
equity to the extent Lessor shall not already have recovered, in full, all
Rent due under this Lease, Stipulated Loss Value and all damages payable
by Lessees as a result of any Event of Default.
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(b) Lessor and Lessees agree that an amount equal to the Stipulated Loss
Value of the Equipment represents a reasonable return for the use of the
Equipment and for the depreciation thereof, and shall be the basis for
liquidated damages for the remaining term for which Lessees shall be jointly and
severally liable to Lessor upon the occurrence of an Event of Default. Any
amounts realized by Lessor on account of the Equipment subsequent to Lessor's
taking possession thereof pursuant to Section 16(a)(ii) shall, after
reimbursement to Lessor of all its expenses incurred in connection therewith,
including legal fees (and a reasonable allocation of the compensation, costs and
expenses of internal counsel, based upon time spent), be credited to amounts of
Stipulated Loss Value and all other Rent owing by Lessees hereunder or, if such
Stipulated Loss Value and all other Rent has been paid, paid to Lessees.
(c) If Lessor elects not to sell, re-lease, or otherwise dispose of all or
any part of the Equipment, and holds such Equipment for Lessees for the
remaining Term, Lessor may recover, in addition to all Rent accrued and unpaid
as of the date of Lessor's recovery of possession of the Equipment, the present
value, as of such date, of the Rent for the remainder of the Term respecting
such Equipment. Present value shall be computed using a discount rate equal to
the Base Rate in effect on the Base Term Commencement Date.
(d) If Lessor sells, leases, or otherwise disposes of all or any part of
the Equipment, Lessor may recover from Lessees, in addition to any Rent accrued
and unpaid as of the date of Lessor's recovery of possession of the Equipment,
the present value computed by using a discount rate equal to the Base Rate in
effect on the Base Term Commencement Date, of the difference between (i) the
Rent for the remainder of the Lease Term respecting such Equipment, and (ii)
except in the case of a substantially similar lease, the Fair Market Rental
Value for such period of time determined by Lessor in its sole discretion, or
(iii) in the case of a lease of Equipment which is substantially similar to this
Lease, the total rent for the lease term of such substantially similar lease.
(e) Time of performance of Lessees' obligations hereunder is of the
essence. All remedies of Lessor hereunder are cumulative, and may, to the extent
permitted by law, be exercised concurrently or separately, and the exercise of
any one remedy shall not be deemed to be an election of such remedy to the
exclusion of any other remedy or to preclude the exercise of any other remedy at
any other time. However, Lessor is entitled to only one satisfaction. Failure on
the part of Lessor to exercise, or delay in exercising, any right or remedy
hereunder or Lessor's failure at any time to require performance by Lessees of
any of the provisions hereof shall not operate as a waiver thereof; nor shall
any single or partial exercise by Lessor of any right or remedy hereunder
preclude any other further exercise thereof or the exercise of any other right
or remedy. Lessees shall be jointly and severally liable for all reasonable
charges, costs, expenses and attorneys' fees incurred by Lessor and the Lead
Owner Participant (including a reasonable allocation of the compensation, costs
and expenses of internal counsel, based upon time spent): (i) in defending or
protecting its interests in the Equipment, or any Item or part thereof; (ii) in
the negotiation, execution and delivery of this Lease; PROVIDED THAT, Lessees
shall only be responsible for the payment of a maximum amount of up to $62,500
of such charges, costs, expenses and fees in connection with the negotiation,
execution and delivery of this Lease and the other Operative Documents; (iii) in
the administration, amendment or enforcement of this Lease and the other
Operative Documents or the collection of any Rent hereunder; and (iv) in any
lawsuit or other legal proceeding in any way connected with this Lease
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and the other Operative Documents, including, but not limited to, any contract
or tort or other actions, any arbitration or other alternative dispute
resolution proceeding, all appeals and judgment enforcement actions and any
bankruptcy proceeding (including, but not limited to, any relief from stay
and/or adequate protection motions, cash collateral disputes,
assumption/rejection motions and disputes or objections to any proposed
disclosure statement or reorganization plan). Lessees acknowledge and agree that
the preceding sentence shall survive and not be merged with any judgment in
connection with any exercise of any remedy by Lessor provided hereunder. Lessees
shall pay to Lessor interest on any overdue payments after demand therefor and
until paid at the Default Rate.
17. ASSIGNMENT. (a) Lessor may sell, assign or otherwise transfer all or
any part of its right, title and interest in and to the Equipment and/or this
Lease to a third-party assignee, subject to the terms and conditions of this
Lease including, but not limited to, the right to the quiet enjoyment by Lessees
as set forth in Section 5 above. Any such assignee may assume all of the rights
and obligations of Lessor in connection with the Equipment sold, assigned or
otherwise transferred, in which case Lessor shall be relieved therefrom. To the
extent of any such assumption of obligations, all references to Lessor herein
shall thereafter mean such assignee.
(b) Lessor may also pledge, mortgage or grant a security interest in the
Equipment and assign this Lease as collateral. Each such pledgee, mortgagee,
lien holder or assignee shall have any and all rights as may be assigned by
Lessor but none of the obligations of Lessor hereunder. Any pledge, mortgage or
grant of security interest in the Equipment or collateral assignment of this
Lease shall be subject to the terms and conditions hereof including, but not
limited to, the right to the quiet enjoyment of the Equipment by Lessees as set
forth in Section 5 above.
(c) Lessees shall not be relieved of any of their obligations hereunder by
reason of any such sale, assignment, or other transfer referred to in subsection
(a) above, or any pledge, mortgage, grant of security interest or collateral
assignment referred to in subsection (b) above, all of which such obligations
shall remain absolute and unconditional, including, but not limited to, Lessees'
obligations to pay Rent as set forth herein. Each Lessee agrees that it will not
assert against any purchaser, pledgee, mortgagee, lien holder or assignee
(collectively, an "Assignee") any defense, counterclaim or offset that Lessee
may have against Lessor and Lessees acknowledge that any such assignment or
other transfer by Lessor, or any such pledge, mortgage, grant of security
interest or collateral assignment by Lessor, shall not change Lessees' duties or
obligations under this Lease nor increase the burdens or risks imposed on
Lessees. Upon the written request of Lessor, Lessees shall acknowledge all such
obligations to the Assignee, which acknowledgment shall be in such form and
substance as Lessor or any such Assignee may require, consistent with their
normal business practices.
(d) Lessees agree that in the case of the appointment of any successor
trustee or additional trustee pursuant to the terms of the Trust Agreement, such
successor trustee or additional trustee shall, upon written notice by such
successor trustee to Lessees, succeed all the rights, powers and title of Lessor
hereunder (or to such lesser extent as provided for in the appointment of such
additional trustee) and shall be deemed to be Lessor and the owner of the
Equipment for all purposes hereof (or for such purposes as specified in
connection with the appointment of such additional
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trustee) without the necessity of any consent or approval by Lessees and without
in any way altering the terms of this Lease or Lessees' obligations hereunder.
One such appointment and designation of a successor trustee shall not exhaust
the right to appoint and designate further successor trustees pursuant to the
Trust Agreement, but such right, as well as the right to appoint additional
trustees, may be exercised repeatedly as long as this Lease shall be in effect.
(e) NO LESSEE SHALL SELL, TRANSFER, ASSIGN, SUBLEASE, CONVEY OR PLEDGE ANY
OF ITS INTEREST IN THIS LEASE OR ANY OF THE EQUIPMENT, WITHOUT THE PRIOR WRITTEN
CONSENT OF LESSOR. ANY SUCH SALE, TRANSFER, ASSIGNMENT, SUBLEASE, CONVEYANCE, OR
PLEDGE, WHETHER BY OPERATION OF LAW OR OTHERWISE, WITHOUT THE PRIOR WRITTEN
CONSENT OF LESSOR, SHALL BE VOID.
(f) For purposes of this Section 17, each reference herein to an
"assignee", secured party or holder of a mortgage or lien shall be deemed to be
a reference to a Person who meets the requirements set forth in the definition
of a Permitted Transferee.
18. REPORTS: (a) Lessees will immediately notify Lessor of:
(i) Each Event of Loss or accident involving or allegedly involving
any Item;
(ii) Any Lien (other than a Lessor's Lien) which shall have attached
to any Item; or
(iii) The occurrence of any Lease Default or any Event of Default.
(b) Cornell shall, as soon as practicable, and in any event within sixty
(60) days after the end of each fiscal quarter, furnish to Lessor its unaudited
financial statements including in each instance, balance sheets, income
statements, and statements of cash flow, on a consolidated and consolidating
basis, as appropriate, and separate profit and loss statements as of and for the
quarterly period then ended and for its fiscal year to date, prepared in
accordance with generally accepted accounting principles, consistently applied,
and Cornell hereunder shall, as soon as practicable, and in any event within
ninety (90) days after the end of each fiscal year, furnish to Lessor its annual
audited financial statements, including balance sheets, income statements and
statements of cash flow for the fiscal year then ended, on a consolidated and
consolidating basis, as appropriate, which have been prepared by its independent
accountants. Such audited financial statements shall be accompanied by the
independent accountant's opinion, which opinion shall be in form generally
recognized as "unqualified". All such financial statements shall also be
accompanied by a compliance certificate in form and substance satisfactory to
Lessor.
(c) Lessees will permit Lessor to inspect and examine the Equipment and
any Item and Lessees' records relating thereto at such times and from time to
time as Lessor may wish upon reasonable notice and, so long as no Event of
Default has occurred and is continuing, during normal business hours.
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19. REPRESENTATIONS AND WARRANTIES OF LESSEES: Each Lessee hereby
represents and warrants to Lessor that on the date hereof, on each Closing Date
and throughout the Lease Term:
(a) COMMERCIAL PURPOSES. The Equipment will at all times be used for
commercial or business purposes.
(b) YEAR 2000 COMPLIANT. Each Lessee has made an assessment of the
microchip and computer-based systems and the software used in its business and
based upon such assessment believes that it will be "Year 2000 Compliant" by
January 1, 2000. For purposes of this paragraph, "Year 2000 Compliant" means
that all software, embedded microchips and other processing capabilities
utilized by, and material to the business operations or financial condition of,
such Lessee are able to interpret, store, transmit, receive and manipulate data
on and involving all calendar dates correctly and without causing any abnormal
ending scenarios in relation to dates in and after the Year 2000. From time to
time, at the request of Lessor, each Lessee shall provide to Lessor such updated
information as is requested regarding the status of its efforts to become Year
2000 Compliant.
(c) NO INCONSISTENT ACTION. Each Lessee agrees that neither it, nor any
Person controlled by it, in control of it, or under common control with it,
directly or indirectly, nor any Person or entity claiming by, through or under
such Lessee, nor any other user or Person in possession of any Equipment or a
part thereof (other than Lessor or the Owner Participants or any Person claiming
by, through or under Lessor or the Owner Participants other than Lessees), nor
any Affiliate of any of the foregoing, will at any time file any returns or
other documents or take any action in connection with the filing or examination
of any tax return inconsistent with the representations set forth except that
Lessees may take such action that is required by the term of the Lease, or by
any law or regulation applicable to Lessees, provided that Lessees shall notify
the Lead Owner Participant in writing of its requirement to do so.
(d) APPRAISAL. All information supplied by Lessees to the Appraiser in
connection with the appraisal obtained pursuant to the Operative Documents which
is described in such appraisal shall be accurate and complete in all material
respects at the time it was supplied by Lessees to the Appraiser and as of each
Closing Date.
(e) COMPLETENESS. As of each Closing Date, no Item of Equipment will
require any improvements, modifications or additions in order to be rendered
complete for its intended use and no Item is Limited Use Property.
(f) RECORDS. Each Lessee shall, upon request of the Lead Owner
Participant, furnish to the Lead Owner Participant such information or records
relating to each Item of Equipment which are regularly maintained by such Lessee
in the ordinary course of its business and which are reasonably necessary to
enable the Owner Participants to fulfill their respective tax return filing
obligations or respond to or contest tax audits.
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(g) NO TAX-EXEMPT USE. During the Term, no Lessee will be a "tax-exempt
entity" within the meaning of Section 168(h)(2) of the Code and Lessees will not
take any action nor suffer any action to be taken by any Person that would cause
any Item to constitute "tax-exempt use property" within the meaning of Section
168(h)(1) of the Code.
(h) NO FOREIGN USE. During the Term, no Item will be used outside the
United States.
20. TERMINATION OPTION: Provided that no Event of Default is continuing
and Lessees shall have given the notice required by the next succeeding
sentence, Lessees shall have the right and, upon giving of such notice, the
obligation, to terminate the Lease at the end of the Base Term upon payment to
Lessor, on an After-Tax Basis, of the Cancellation Fee and the Contingent Rent
and return of all the Equipment as provided in Section 23 of the Lease. Lessees
shall give Lessor written notice not less than 180 days prior to the Base Term
Expiration Date of its election to exercise the option provided in this Section
20, which notice shall be irrevocable. In the event Lessees fail to give the
required written notice provided for in the preceding sentence, Lessees shall be
deemed to have exercised their option to renew the Lease for the First Renewal
Term.
21. PURCHASE OPTION: Provided no Event of Default is continuing and
Lessees shall have given notice required by the next succeeding sentence of this
Section 21, Lessees shall have the right and upon the giving of notice under
this Section 21 the obligation to purchase all, but not less than all, of the
Equipment at a price equal to the greater of (a) the Fair Market Sales Value, on
an installed basis, in-place and in-use, of all the Equipment at the expiration
of the Base Term or, if a Renewal Term is then in effect, at the end of such
Renewal Term or (b) 16% of the original Equipment Cost of all such Equipment (or
Fair Market Sales Value if a Renewal Term is in effect at the time the notice
required hereunder is given). Lessees shall give Lessor written notice not later
than 180 days and not more than 270 days prior to the end of the Base Term or
any Renewal Term, as the case may be, of its election to exercise the purchase
option provided for in this Section 21 which notice shall be irrevocable.
Lessees agree that any sale pursuant hereto shall be of Lessor's right, title
and interest, if any, in and to the Equipment, and shall be AS IS, WHERE IS,
WITHOUT WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WARRANTY OF
MERCHANTABILITY AND FITNESS FOR PURPOSE. Any such sale shall be on an After-Tax
Basis.
22. RENEWAL OPTIONS: Provided no Lease Default then exists, and the
Lessees shall not have exercised the option to purchase the Equipment pursuant
to Section 21 above or cancel the Lease pursuant to Section 20 above, Lessees
shall have the right, and, upon giving of notice under this Section 22 as below
provided, the obligation, to lease pursuant to this Lease all (but not less than
all) of the Equipment at the expiration of the Base Term or any applicable
Renewal Term. Lessees may exercise this renewal option by giving Lessor written
notice not later than 180 days nor more than 270 days prior to the end of the
Base Term (or in the circumstances described below the then Renewal Term) that
Lessees elect to renew this Lease with respect to all, but not less than all, of
the Equipment then leased hereunder. A Second Renewal Term is available only if
Lessees have completed the First Renewal Term. Rent during the First Renewal
Term shall, subject to adjustment as provided in Section 2.6 of the
Participation Agreement, be equal to 1.459343% times the Equipment Cost for each
of the first eight months of such Renewal Term and 1.267997% times the
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Equipment Cost for each month thereafter during the First Renewal Term. Monthly
Rent in the Second Renewal Term shall, subject to adjustment as provided in
Section 2.6 of the Participation Agreement, be equal to 0.006% times the
Equipment Cost. All Rent pursuant to this Section 22 shall be payable monthly in
advance, each such payment being due on each Rent Payment Date. Notwithstanding
the foregoing, this Lease shall continue for the First Renewal Term if Lessees
do not exercise the option provided for in Section 20 hereof.
23. RETURN OF EQUIPMENT: Provided Lessees have not elected to exercise
their option to purchase the Equipment under Section 21 of this Lease, Lessees
agree that Lessee shall return all, and not less than all, of the Equipment on
or before the Return Date. Lessees shall, on or before the Return Date, return
all, and not less than all, of the Equipment to Lessor free and clear of any and
all Liens (other than Lessor's Liens) and Lessees shall, all at Lessees' sole
cost and expense, promptly return the Equipment to such location as Lessor may
specify for acceptance by Lessor in the condition required to be maintained
hereunder (Lessees agreeing to pay for any repairs required to place the
Equipment in such condition) and shall comply with the provisions that follow:
(a) provide to Lessor (1) written notice of Lessees' intent to return such
Equipment, and (2) a detailed inventory of all such Equipment and components
thereof, each to be delivered at least (i) 180 days prior to the Return Date.
The inventory shall include, but not be limited to, a listing of model and
serial numbers for all components comprising any part of the Items of Equipment
as well as the location of the Items and the name, phone number and contact
person at the location where the Items are located;
(b) provide to Lessor the following documents (as appropriate): (1) one
set of service manuals, blue prints, process flow diagrams and operating manuals
including replacements and/or additions thereto, such that all documentation is
completely up-to-date; and (2) one set of documents, detailing equipment
configuration, operating requirements, maintenance records, and other technical
data concerning the set-up and operation of each of the Items, including
replacements and/or additions thereto, such that all documentation is completely
up-to-date, such delivery to be made 180 days prior to the Return Date;
(c) at all reasonable times (which shall include, without limitation, all
normal business hours) prior to the actual return thereof, make all of the Items
available for on-site operational inspections by potential purchasers;
(d) not more than thirty (30) days prior to the Return Date, cause the
manufacturer's representative or a qualified equipment maintenance provider
acceptable to Lessor to perform a physical and operational inspection of all of
the Items, including testing all performance characteristics, materials and
workmanship thereof, and to provide to Lessor a written report detailing the
results of such inspection and testing and necessary and recommended
replacements and repairs;
(e) as of the time of return, make all necessary or recommended
replacements and proper repairs (using generally accepted procedures) detailed
in the manufacturer's representative's or
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qualified equipment maintenance provider's report and otherwise to cause all of
the Items to conform to the condition required under this Lease;
(f) as of the time of return, cause all of the Items be maintained in a
clean and cosmetically acceptable condition, and otherwise in such condition so
that such Items of Equipment may be immediately placed in service by a new
operator, buyer or lessee;
(g) as of the time of return, properly remove and treat all rust and
corrosion from each Item and remove all identification of Lessees thereon;
(h) as of the time of return, ensure that each Item of Equipment has all
component parts in good operating condition, that all of those component parts
meet or exceed the manufacturer's minimum recommended performance and
operational specifications (unless improved or updated during the Lease Term
thereof), and that each Item complies with all federal, state or local
governmental rules, regulations and other requirements, and industry standards
then in effect;
(i) cause all of the Items to be deinstalled, packed, transported, and
certified as follows: (1) the manufacturer's representative or the qualified
maintenance provider shall deinstall all the Items (including all wire, cable
and mounting hardware) in accordance with the specifications of the
manufacturer; (2) each Item shall be returned with a certificate supplied by the
manufacturer's representative or the qualified maintenance provider certifying
that the Items of Equipment are in good condition and, where applicable,
eligible for the manufacturer's maintenance plan, which certificate of
eligibility shall be transferable to another operator of the Item; (3) each Item
shall be packed properly and in accordance with the manufacturer's
recommendations; and (4) Lessees shall transport all of the Items in a manner
consistent with the manufacturer's recommendations and practices;
(j) on or before the Return Date, cause all of the Items to be
transported, reassembled and reinstalled at such locations in the continental
United States as Lessor may select;
(k) upon Lessor's request, cause to be provided to Lessor storage suitable
to Lessor, for the period between the Return Date and the date the Items are
transported, reassembled and reinstalled at the locations selected by Lessor,
which period shall not exceed 60 days; and
(l) during any period that any Lessee remains in possession of any of the
Items and during any storage period as described above, cooperate with Lessor in
attempting to remarket any such Items to prospective third party purchasers or
lessees and permit Lessor, during normal business hours, to display and
demonstrate the Items to the prospective purchasers or lessees on such Lessee's
premises or at the storage facility, as applicable, and keep each such Item
fully operational with all required power and/or fuel supplies available to
allow such demonstration. (In the event that any auction or other public sale of
any Item is deemed necessary or advisable by Lessor, such Lessee agrees that
such auction or public sale may be held on such Lessee's premises or at the
storage facility, as applicable.)
All costs of the foregoing shall be the sole responsibility of the
Lessees.
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Notwithstanding anything to the contrary in this Lease, during any
Holdover Term, Lessees agrees to pay Lessor monthly Rent, in advance for each
month or any part of a month of the Holdover Term, in an amount equal to one
hundred and twenty five percent (125%) of the highest periodic Base Rent during
the Lease Term with respect to such Equipment.
24. MISCELLANEOUS, JURY WAIVER, GOVERNING LAW, JURISDICTION,
VENUE: (a) Nothing herein contained shall give or convey to Lessees any right,
title or interest in and to any Equipment leased hereunder except as a lessee.
Should Lessor permit the use of any Equipment beyond the specified Lease Term
thereof, the obligations of Lessees hereunder shall continue (including the
obligation to pay the Base Rent at the highest rate applicable during the Lease
Term with respect thereto) and such permissive use shall not be construed as
renewal of the Lease Term thereof nor as a waiver of any right or continuation
of any obligation of Lessor hereunder. Lessees' obligations pursuant to Sections
12, 13, 14 and 23 shall survive the expiration or earlier termination of this
Lease, and Lessees shall remain liable therefor. Equipment shall at all times
remain personal property of Lessor notwithstanding any affixation to the real
estate.
(b) The Equipment subject hereto is and at all times shall be and remain
the sole and exclusive property of Lessor, and Lessees shall have no right,
title or interest therein or thereto, except as expressly set forth in this
Lease. As a precaution, each Lessee hereby also grants to Lessor a first
priority continuing lien and security interest in that portion of the Equipment
subject hereto and leased by such Lessee and the proceeds thereof to secure any
obligation of Lessees under this Lease and any other agreement between Lessor
and Lessees. Each Lessee further agrees that such Lessee's obligations hereunder
are additionally secured by all security interests, liens and encumbrances
heretofore, now or hereafter granted by such Lessee to Lessor under any
instrument, whether or not related to this Lease. Lessees agree to execute any
instrument or instruments necessary or expedient for filing, recording,
perfecting, or notifying of the interest of Lessor in the Equipment upon request
of, and as determined by, Lessor. Each Lessee hereby specifically authorizes
Lessor to file financing statements not signed by such Lessee or to execute same
for and on behalf of such Lessee as such Lessee's attorney-in-fact, irrevocably
and coupled with an interest, for such purposes.
(c) To the extent permitted by applicable law, Lessees hereby waive any
and all rights and remedies conferred upon a lessee by such applicable law
(including but not limited to Article 2A of the UCC) to: (i) cancel this Lease;
(ii) repudiate this Lease; (iii) reject the Equipment; (iv) revoke acceptance of
the Equipment; (v) recover damages from Lessor for any breaches of warranty
regarding the Equipment or for any other reason; (vi) a security interest in the
Equipment in Lessees' possession or control for any reason; (vii) deduct all or
any part of any claimed damages resulting from Lessor's default, if any, under
this Lease; (viii) accept partial delivery of the Equipment; (ix) recover any
general, special, incidental or consequential damages, for any reason
whatsoever; and (x) obtain specific performance, replevin, detinue,
sequestration, claim and delivery or the like for any Equipment identified to
this Lease. To the extent permitted by applicable law, Lessees also hereby waive
any rights now or hereafter conferred by statute or otherwise which may require
Lessor to sell, lease or otherwise use any Equipment in mitigation of Lessor's
damages of this Lease or which may otherwise limit or modify any of Lessor's
rights or remedies under this Lease.
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<PAGE>
(d) Any action by Lessees against Lessor for any default by Lessor under
this Lease, including breach of warranty or indemnity, shall be commenced within
one (1) year after any such cause of action accrues. LESSOR AND LESSEES EACH
WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY LITIGATION ARISING HEREFROM OR IN
RELATION HERETO.
(e) All notices hereunder shall be in writing and shall be delivered by
hand, by overnight courier or by certified or registered mail, return receipt
requested, to each party at its address set forth below, as such address may be
changed by such notice. All notices shall be deemed given when received, when
delivery is refused or when the same are returned for failure to be called for.
(f) If Lessees fails to perform any of their obligations hereunder Lessor
may, but shall not be obligated to, perform the same (without such performance
constituting a cure or waiver of Lessees' failure to so perform) and Lessees
will on demand reimburse Lessor for all its costs and expenses incurred in
connection therewith.
(g) THIS LEASE AND THE RIGHTS AND OBLIGATION OF THE PARTIES HEREUNDER
SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, REGARDLESS OF THE LOCATION OF THE EQUIPMENT OR THE STATE OF
INCORPORATION OR PRINCIPAL PLACE OF BUSINESS OF THE LESSEES. LESSEES (I) CONSENT
AT LESSOR'S ELECTION AND WITHOUT LIMITING LESSOR'S RIGHT TO COMMENCE AN ACTION
IN ANY OTHER JURISDICTION, TO THE EXCLUSIVE JURISDICTION AND VENUE OF ANY COURTS
(FEDERAL, STATE OR LOCAL) SITUATED IN COOK COUNTY, ILLINOIS; (II) WAIVE ANY
OBJECTION TO IMPROPER VENUE AND FORUM NON CONVENIENS; AND (III) CONSENT TO
SERVICE OF PROCESS BY CERTIFIED MAIL, POSTAGE PREPAID, TO LESSEES AT THE ADDRESS
SET FORTH ON THE SIGNATURE PAGE HEREOF, WHICH SERVICE SHALL BE DEEMED COMPLETE
WITHIN TEN (10) DAYS AFTER THE DATE OF MAILING THEREOF. If any provision of this
Lease shall contravene or be invalid under applicable law or regulation, such
contravention or invalidity shall not affect the entire Lease, the provisions
held to be invalid to be deemed deleted or modified and the Lease interpreted
and construed as though such invalid provision or provisions were not part
hereof or conformed thereto.
(h) This Lease, together with the Lease Supplements, constitutes the
entire agreement of the parties with respect to the subject matter hereof, and
supersedes and replaces any prior or contradictory representations, warranties
or agreements by Lessor and Lessees. This is a non- cancelable Lease and
Lessees' obligations hereunder are absolute and unconditional. This Lease, any
amendments to, variations or modifications of this Lease, any waiver of its
provisions or conditions, any consent hereunder shall not be valid unless in
writing and signed by an authorized officer or manager of Lessor.
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<PAGE>
25. LIABILITY OF LESSOR LIMITED: It is expressly understood and agreed
that all of the representations, warranties and undertakings of Lessor hereunder
shall be binding on Lessor only in its capacity as trustee under the Trust
Agreement, and the institution acting as Lessor shall not be liable in its
individual capacity for any breach thereof except for its gross negligence or
willful misconduct.
26. JOINT AND SEVERAL LIABILITY: Each Lessee hereby irrevocably and
unconditionally: (a) agrees that it is jointly and severally liable to the
Lessor for the full and prompt payment of Rent and the performance by each
Lessee of its obligations under this Lease and the other Operative Documents in
accordance with the terms hereof and thereof; and (b) agrees as a primary
obligation to indemnify the Lessor on demand for and against any loss incurred
by the Lessor as a result of any of the obligations of any Lessee being or
becoming void, voidable, unenforceable or ineffective for any reason whatsoever,
whether or not known to the Lessor or any Person, the amount of such loss being
the amount which the Lessor would otherwise have been entitled to recover from
such Lessee.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGES FOLLOW.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease as
of the date first above written.
LESSOR:
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, NOT IN ITS INDIVIDUAL
CAPACITY, AS EXPRESSLY PROVIDED HEREIN,
BUT SOLELY AS OWNER TRUSTEE
By: /s/ VAL T. ORTON
Name: Val T. Orton
Title: Vice President
Address: 79 South Main Street
Salt Lake City, Utah 84111
Attention: Val Orton
Facsimile No. 801-246-5053
LEASE AGREEMENT
SIGNATURE PAGE
<PAGE>
LESSEES:
CORNELL CORRECTIONS, INC.
CORNELL CORRECTIONS OF CALIFORNIA,
INC.,
CORNELL CORRECTIONS OF TEXAS, INC.,
CORNELL CORRECTIONS OF OKLAHOMA,
INC.,
WBP LEASING, INC.,
CORNELL CORRECTIONS OF ALASKA, INC.
By: /s/ JOHN L. HENDRIX
John L. Hendrix
Vice President and Chief Financial
Officer of each of the companies
named above
Address: 1700 West Loop South, Suite 1500
Houston, Texas 77027
Attention: John Hendrix
Facsimile No.: (713) 623-2853
LEASE AGREEMENT
SIGNATURE PAGE
<PAGE>
SCHEDULE 1
STIPULATED LOSS VALUE
The Stipulated Loss Value of Equipment as of any date of determination shall
mean the amount determined by multiplying the Equipment Cost for such Equipment
by the percentage set forth below opposite the Rent Payment Date on which such
Stipulated Loss Value is being determined; provided that during any Renewal
Term, "Stipulated Loss Value" shall be determined by using the last factor set
forth below:
RENT PAYMENT FACTOR RENT PAYMENT FACTOR
DATE DATE
January 1, 2000 105% November 1, 2001 86%
February 1, 2000 104% December 1, 2001 85%
March 1, 2000 104% January 1, 2002 84%
April 1, 2000 103% February 1, 2002 82%
May 1, 2000 102% March 1, 2002 81%
June 1, 2000 102% April 1, 2002 80%
July 1, 2000 101% May 1, 2002 78%
August 1, 2000 100% June 1, 2002 77%
September 1, 2000 99% July 1, 2002 76%
October 1, 2000 98% August 1, 2002 74%
November 1, 2000 98% September 1, 2002 73%
December 1, 2000 97% October 1, 2002 72%
January 1, 2001 96% November 1, 2002 70%
February 1, 2001 95% December 1, 2002 69%
March 1, 2001 94% January 1, 2003 67%
April 1, 2001 93% February 1, 2003 65%
May 1, 2001 92% March 1, 2003 64%
June 1, 2001 91% April 1, 2003 62%
July 1, 2001 90% May 1, 2003 60%
August 1, 2001 89% June 1, 2003 58%
September 1, 2001 88% July 1, 2003 57%
October 1, 2001 87% August 1, 2003 55%
September 1, 2003 53%
EXHIBIT 10.38
LEASE AGREEMENT
THIS LEASE AGREEMENT, made and entered into as of the 31st day of
December, 1999 (this "Lease"), by and among the HINTON ECONOMIC DEVELOPMENT
AUTHORITY, a public trust and agency of the State of Oklahoma, with the Town of
Hinton, Oklahoma, as its beneficiary (the "Authority"), the Town of Hinton,
Oklahoma (the "Town") and CORNELL CORRECTIONS OF OKLAHOMA, INC., an Oklahoma
corporation ("CCOI").
W I T N E S S E T H:
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WHEREAS, the Authority is the owner of certain land and the Facility
(hereinafter defined) located in Caddo County, Oklahoma, described in Section
1.06 hereinbelow and on Exhibit "A" attached hereto (such land and the Facility
being hereinafter referred to collectively as the "Land"); and
WHEREAS, the Town, acting in furtherance of its governmental purposes and
in the exercise of its police powers, has taken action to create and establish a
correctional facility to house and care for adult medium-security inmates (as
more particularly defined in Section 1.03 hereinbelow, the "Facility") and has
designated CCOI to equip, manage, maintain, and operate the Facility in the
capacity of a private prison contractor pursuant to the terms of the
Intergovernmental and Private Prison Contractor Agreement dated as of December
31, 1999, by and among the Town, the Authority and CCOI (the "Intergovernmental
Agreement"); and
WHEREAS, CCOI intends to lease the Land from the Authority pursuant to
this Lease and design, construct and equip certain improvements to the Facility.
WHEREAS, the Authority intends to grant an option to purchase its interest
in the Land and the Facility, from time to time, in the event CCOI or the Town
is required to grant an option to purchase the Land and the Facility in
connection with the execution of a contract with the State of Oklahoma to house
and care for inmates at the Facility.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter contained, the parties agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement:
Section 1.01. "Alterations" shall mean construction (including tenant
improvements), reconstruction, replacement, repairs, renovations, alterations,
changes, additions, expansions, improvements and demolitions of or to the
Facility (hereinafter defined) and all excavations at any time made or to be
made in, on or
<PAGE>
about the Land.
Section 1.02. "Events of Default" or any of the same shall mean Events of
Default as defined and described in Article VI.
Section 1.03. "Facility" shall mean that certain medium-security prison
which is currently designed to house and care for up to 812 adult inmates
situate on the Land (hereinafter defined) together with all (a) Alterations,
buildings, structures, improvements and appurtenances now and hereafter located,
constructed, erected, installed, affixed, placed, and/or maintained in or upon
the Land, together with all replacements and substitutions therefor and (b) all
fixtures and goods to become fixtures that are installed, affixed, placed and/or
maintained in or upon the Land, together with all replacements and substitutions
thereof, including, but not limited to, furnaces, steam boilers, hot water
boilers, oil burners, pipes, radiators, air conditioning and sprinkler systems,
gas and electric fixtures, carpets, rugs, shades, awnings, screens, elevators,
motors, and dynamos.
Section 1.04. "Financing Documents" shall mean all documents, instruments,
and agreements of whatsoever nature now or hereafter entered into by, between,
and among CCOI and Persons that are affiliates thereof and the Lenders (as
defined below) with respect to the Land, the Facility, and any matters related
thereto in any way whatsoever.
Section 1.05. "Impositions" shall mean, subject to Section 4.03 hereof,
all taxes, assessments, water and sewer charges, charges for public utilities,
excises, levies, license and permit fees and other governmental charges, of any
kind and nature whatsoever which at any time prior to or during the term of the
Lease may become a lien on (i) the Land; (ii) the Facility; (iii) the rent,
income or other payments received by CCOI or anyone claiming by, through or
under CCOI; (iv) any use or occupation of the Land thereon or personal property
therein; and (v) such franchises as may be appurtenant to the use of the Land or
personal property therein.
Section 1.06. "Land" shall mean a certain tract of real property situate
in Caddo County, Oklahoma, described on Exhibit "A" attached hereto and made a
part hereof and upon which the Facility is situated, and all improvements and
appurtenances, including the Facility, and all easements and rights appurtenant
thereto.
Section 1.07. "Leasehold Estate" shall mean CCOI's interest in the Land
and the Facility and all other rights of CCOI created by this Lease.
Section 1.08. "Leased Premises" shall mean all or any part of the Land.
Section 1.09. "Lenders" shall mean any Persons providing financial
accommodations related to the Facility or the Land, including, without
limitation, Leasehold Mortgagees (hereinafter defined).
Section 1.10. "Mortgage" shall mean that certain first mortgage (and any
amendments and refinancing thereof as permitted pursuant to Article IX) and any
other loan documents presently (or in the future) held by ING (U.S.) Capital
Corporation, as agent, and recorded in Book 2190, Page 34 - 59 of the records of
the County Clerk of Caddo County, State of Oklahoma, which constitutes a lien on
the
2
<PAGE>
Leasehold Estate, all executed by CCOI, as mortgagor, and any future mortgage
held by a Lender.
Section 1.11. "Person" shall mean any individual, sole proprietorship,
corporation, business trust, unincorporated organization, association, company,
partnership, joint venture, limited liability company, or governmental authority
(whether a national, federal, state, county, municipality, or otherwise, and
shall include without limitation any instrumentality, division, agency, body, or
department thereof) or other entity.
ARTICLE II
DEMISE AND TERM
Section 2.01. DEMISE. Subject to and upon the terms, conditions,
covenants, and undertakings hereinafter set forth, the Authority hereby demises
and leases to CCOI, and CCOI hereby leases from the Authority, upon the terms
and conditions herein contained, the Leased Premises.
Section 2.02. LEASE TERM. The term of this Lease (the "Lease Term") shall
commence December 31, 1999 (the "Commencement Date"), and terminate on December
30, 2075; provided, however, that Tenant may renew this Lease and extend the
Lease Term for one (1) additional period of seventy-five (75) years (commencing
December 31, 2075) on the same terms and provisions as provided in this Lease,
by delivering written notice of the exercise of such option to extend to
Landlord prior to the expiration of the Lease Term.
Section 2.03. OWNERSHIP OF FACILITY AND LAND. The Facility and the Land
shall be the property of the Authority and be a part of the realty and the
property of the Authority, without any compensation or payment therefor by the
Authority to CCOI.
Section 2.04. CCOI TO QUIT. Upon expiration of this Lease or the exercise
of a purchase option described in Section 13.01 of this Lease, the Facility
shall be vacated and surrendered by CCOI to the Authority, and, upon payment to
CCOI of any sums due it pursuant to this Lease, CCOI agrees to execute and
deliver to the Authority such assignment or other instruments of conveyance as
may be reasonably deemed necessary to evidence such termination of the Leasehold
Estate.
ARTICLE III
RENT
Section 3.01. BASE RENT. CCOI shall pay annual rental in arrears of One
Hundred Thousand and No/100 Dollars ($100,000.00) (the "Base Rent") to the
Authority on December 31, 2000, and on each anniversary thereof during the Lease
Term.
Section 3.02. ADDITIONAL RENT. In the event that CCOI is granted an
increase in the Inmate Contract Per Diem rate (as defined in the
Intergovernmental Agreement), commencing on the first day of the Lease year
following such increase, CCOI shall pay "Additional Rent" in an amount equal to
the product of the Base
3
<PAGE>
Rent multiplied by the percentage increase in the Consumer Price Index,
Dallas-Fort Worth, TX CMSA (1993-1995=100) as reported for December of such
Lease year by the Bureau of Labor Statistics of the United States Department of
Labor (the "CPI") over the monthly CPI reported for December of the prior Lease
year; provided, however, that the percentage increase represented by the
Additional Rent shall in no event exceed the percentage increase in the Inmate
Contract Per Diem rate (for example, if the Inmate Contract Per Diem rate should
increase by five percent (5%)), and the CPI should increase by ten percent
(10%), then the Additional Rent shall represent an increase over the Base Rent
of only five percent (5%). Should the CPI cease to be reported, the index used
to calculate Additional Rent shall be one selected by the parties to reflect
changes in the purchasing power of the Base Rent as nearly as possible identical
to the CPI. Base Rent and Additional Rent are hereinafter referred to
collectively as the "Rent".
ARTICLE IV
PAYMENT OF IMPOSITIONS
Section 4.01. PAYMENT. Throughout the Lease Term, CCOI shall pay (except
as hereinafter provided in Section 4.02), as and when the same become due,
before any fine, penalty, interest or cost may be added thereto, or become due
or be imposed by operation of law for the non-payment thereof, all Impositions;
provided, however, that:
(a) If, by law, any Imposition may at the option of the taxpayer be
paid in installments (whether or not interest shall accrue on the unpaid
balance of such Imposition) CCOI may exercise the option to pay the same
(and any accrued interest on the unpaid balance of such Imposition) in
installments and, in such event, shall pay such installments as the same
become due during the Lease Term and before any fine, penalty, further
interest or cost may be added thereto; provided, however, that the amount
of all installments of any such Imposition, which are to become due and
payable after the expiration of the Lease Term, shall be paid on or before
the date which shall be one (1) year immediately prior to the date of such
expiration or on such later date if such Imposition is levied thereafter;
and
(b) Any Imposition, other than Impositions which have been converted
into installment payments by CCOI pursuant to subparagraph 4.1(a),
relating to a fiscal period of the taxing authority, a part of which
period is included within the Lease Term and a part of which is included
in a period of time after the expiration of this Lease, shall (whether or
not such Imposition shall become payable during the term of this Lease) be
adjusted between the Authority and CCOI as of that portion of such
Imposition which that part of such fiscal period included in the period of
time before the expiration of this Lease bears to such fiscal period, and
CCOI shall pay such portion thereof; provided, however, that if CCOI shall
be in default in the performance of any of CCOI's covenants, agreements
and undertakings of this Lease provided, then to the extent of the amount
of any such default CCOI shall not be entitled to receive an
apportionment.
4
<PAGE>
Section 4.02. CONTEST. CCOI at CCOI's own cost and expense shall have the
right to contest the amount or validity, in whole or in part, of any Imposition
by appropriate proceedings diligently conducted in good faith. Upon the
termination of any such proceedings, CCOI shall pay the amount of such
Imposition or part thereof as finally determined in such proceedings, the
payment of which may have been deferred during the prosecution of such
proceedings, together with any costs, fees, interest, penalties or other
liabilities in connection therewith.
CCOI shall have the right to seek a reduction in the valuation of the Land
and the Facility, or any part thereof, assessed for tax purposes and to
prosecute any action or proceeding theretofore commenced by CCOI, if such
assessed valuation or valuations shall relate or pertain, in whole or in part,
to any period subsequent to the commencement of the Lease Term.
Section 4.03. ASSESSMENT OF CERTAIN TAXES. It is the intention and
understanding of the parties that no ad valorem taxes, personal property taxes,
real estate taxes, or other similar property taxes or assessments (collectively,
the "Property Taxes") will be assessed on the Land or the Facility during the
Lease Term. In the event Property Taxes are assessed (by reason of a change in
law, court ruling, agency regulation or for any other reason), then the
following shall control:
(a) To the extent that Property Taxes are assessed retroactively for
prior tax years, then (i) the Authority shall immediately pay to CCOI an
amount necessary to reimburse CCOI for such retroactive taxes, such amount
not to exceed, in the aggregate, the greater of (x) $500,000.00 or (y) the
total Rent paid for the preceding five (5) years of the Lease Term,
together with interest thereof from the date demand is made by CCOI until
paid at the rate of eighteen percent (18%) per annum, and (ii) CCOI shall
be entitled to offset against future-accruing payments of Rent an amount
not to exceed thirty percent (30%) of the then-current per diem rate
reserved to the Authority under the Intergovernmental Agreement, but only
for so long as is necessary to reimburse CCOI for the amount of
retroactive Property Taxes not reimbursed pursuant to Section 4.03(a)(i)
hereinabove.
(b) To the extent that Property Taxes are assessed (or it is
determined that Property Taxes shall be assessed) on an ongoing, yearly
basis, then (i) the Base Rent shall be decreased to the sum of $25,000.00
per year and (ii) if Property Taxes are assessed prior to December 31,
2005, then the then-current per diem rate reserved to the Authority under
the Intergovernmental Agreement shall be decreased by $0.08 per inmate. In
such event, the Base Rent shall thereafter not be subject to increase
pursuant to Section 3.02 and no Additional Rent shall be imposed pursuant
to Section 3.02.
Section 4.04. AUTHORITY'S PARTICIPATION IN CONTEST. The Authority shall
join in and assist in good faith with any proceedings referred to in Section
4.02 hereof, including, without limitation, causing such proceedings be brought
by or in the name of the Authority or any owner of the Land or the Facility or
any part thereof. Except as otherwise provided in this Lease, CCOI shall be
entitled to any refund of any Imposition and penalties or interest thereon
received which have been paid by CCOI.
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Section 4.05. ATTORNEY IN FACT. The Authority appoints CCOI the
attorney-in-fact of the Authority (which appointment is coupled with an
interest) for the purposes of making all payments to be made by CCOI pursuant to
any of the provisions of this Lease to persons or entities other than the
Authority.
ARTICLE V
INSURANCE
Section 5.01. REQUIRED COVERAGE. At all times during the term of this
Lease, CCOI shall, at CCOI's sole cost and expense, but for the mutual benefit
of, and naming as additional insureds, the Authority and any Lender or other
mortgagee of the Leased Premises and the Facility as their interests may appear,
maintain the following policies of insurance:
(a) Fire and extended coverage insurance on the Facility, including
protection against loss or damage by other risks now embraced by the
so-called all-risk coverage endorsement, in amounts at all times
sufficient to prevent the Authority or CCOI from becoming a coinsurer
under the terms of the applicable policies, but in any event in an amount
not less than $17,000,000.
(b) Comprehensive general public liability and property damage
(minimum limit of $5,000,000 per occurrence and a $5,000,000 umbrella
policy), comprehensive property hazard, riot, medical, and employee
workers compensation insurance. The liability policy or policies shall
name the Trustees of the Town, the Town, the employees of the Town, the
Trustees of the Authority and the Authority, as additional insureds and
CCOI shall seek to have such policies provide for a thirty (30) days'
notice prior to cancellation with the Town and the Authority named as
additional notice parties. CCOI shall pay any and all applicable
deductible amounts.
The foregoing policies shall be subject to a reasonable deductible or
coinsurance, but in no event shall any deductible amount for the coverage
required by Section 5.01(b) exceed the sum of $100,000 for the coverage afforded
the additional insureds. CCOI shall pay any and all applicable deductible
amounts.
Section 5.02. LOSS PAYABLE. All insurance provided for in Section 5.01(a)
hereof shall be effected under standard form policies issued by insurers of
recognized responsibility, which are rated at least "A+7" by national rating
organizations. All such insurance shall be carried in the name of the Authority
and CCOI; and loss thereunder shall be payable to CCOI and any mortgagee, as
their respective interests may appear.
Section 5.03. EVIDENCE OF POLICIES AND RENEWALS. Upon request by the
Authority and thereafter not less than seven (7) days prior to the expiration
dates of the expiring policies theretofore furnished pursuant to this Article,
certificates of insurance or insurance binders evidencing renewal of the
insurance required under this Article V. If said certificates or binders contain
language which limits the rights of the additional insureds unless their names
are specifically indorsed on the policy, CCOI shall provide copies of said
indorsements.
Section 5.04. WAIVER OF CLAIM. Any other provisions of this Lease to the
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contrary notwithstanding, the Authority and CCOI do hereby mutually waive any
and all claims which shall or may arise, in favor of one party and against the
other party to this Lease during the Lease Term or any extension thereof, for
any and all claims regarding, loss of, or damage to the Leased Premises (or any
personal property therein or thereon), which claim, loss or damage are covered
by valid and collectible fire and extended coverage insurance policies (or are
required pursuant to this Lease to be so covered). Inasmuch as the above mutual
waiver shall and does preclude the assignment of any claim aforesaid, by way of
subrogation (or otherwise) to any insurance company (or any other person), the
Authority and CCOI hereby agree to give to each insurance company issuing
policies of fire and extended coverage insurance, written notification of the
terms of the said mutual waivers, and to have such policies of insurance
coverage properly endorsed, if such endorsement may be necessary, to prevent any
invalidation of the said policies of insurance coverage by reason of the
existence of such waivers.
Section 5.05. CANCELLATION NOTICES. Each policy delivered hereunder shall,
to the extent obtainable, contain an agreement by the insurer that such policy
shall not be canceled without at least thirty (30) days prior written notice to
CCOI and the Authority (ten (10) days for non-payment), and to any additional
party or person that the Authority shall designate in writing from time to time.
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
Section 6.01. CCOI'S DEFAULT. It shall be an "event of default" or a
"default" hereunder if CCOI shall fail to observe or perform any of its material
obligations under this Lease in accordance with the terms hereof.
Section 6.02. AUTHORITY'S REMEDIES. Upon the occurrence of an event of
default by CCOI hereunder, which shall remain uncured for one hundred twenty
(120) days after receipt by CCOI of written notice of such event of default (or
such longer period as may be reasonably necessary, provided that within such 120
days CCOI has commenced cure of such default and is diligently continuing to
effect a cure), the Authority, as its sole and exclusive remedy, may thereafter
or any time subsequently during the existence of such event of default, subject
to the rights of existing lessees, sublessees, Lenders, or other entities
providing financing, file suit against CCOI for actual (but not consequential or
other) damages occasioned by the Authority as a result of CCOI's default. In no
event shall the Authority be entitled to terminate this Lease or to terminate or
disturb CCOI's possession, use or enjoyment of the Leased Premises. In the event
that the Authority attempts to terminate this Lease, it shall thereupon become
immediately liable to pay an amount equal to the sums described in Section
12.01(a) and (d) as liquidated damages and not as a penalty. The obligation of
the Authority to make such payment is absolute and unconditional and shall not
be subject to any abatement, reduction, set-off, counterclaim or recoupment for
any reason whatsoever.
Section 6.03. AUTHORITY'S DEFAULT. It shall be an "event of default" or a
"default" hereunder if the Authority shall fail to observe or perform any of its
material obligations under this Lease in accordance with the terms hereof.
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Section 6.04. CCOI'S REMEDIES. Upon the occurrence of an event of default
by the Authority hereunder, which shall remain uncured for sixty (60) days after
receipt by the Authority of written notice of such event of default (unless
within such 60 days the Authority has commenced cure of such default and is
diligently continuing to effect a cure), CCOI may thereafter or any time
subsequently during the existence of such breach or default perform any act that
the Authority is required to perform hereunder as the Authority's
attorney-in-fact (which power of attorney is coupled with an interest and is,
therefore, irrevocable) and recover its costs incurred in such performance,
bring suit for any and all damages occasioned by the Authority's default
(including, without limitation, lost profits), or to seek any other remedy to
which it may be entitled at law or in equity. CCOI shall have the right to
specific performance hereof.
ARTICLE VII
USE OF PREMISES; ADDITIONAL COVENANTS
Section 7.01. USE. CCOI shall have the right to use the Leased Premises
for any lawful purpose whatsoever, but shall not use or permit the use of the
Leased Premises for any unlawful purpose.
Section 7.02. GRANTING EASEMENTS. Upon request by CCOI, the Authority and
the Town shall grant to CCOI such permanent easements over adjacent lands
respectively owned by same as are reasonably necessary to construct, maintain,
manage and operate the Facility (or cause same to be performed on CCOI's
behalf); and to exercise CCOI's rights and obligations under this Lease. The
Authority hereby covenants to CCOI that it shall not grant or allow to be
granted any easement, license or other right to use the Leased Premises without
the prior written consent of CCOI, which consent may be withheld in CCOI's sole
and absolute discretion.
Section 7.03. CONTINUATION OF SERVICES. Notwithstanding any provision of
this Lease to the contrary, and notwithstanding that fire, police and ambulance
services (collectively, the "Services") may have previously been provided to the
Leased Premises, in consideration of the Rent and the per diem rate reserved to
the Authority under the Intergovernmental Agreement, the Services shall continue
to be provided by the Town to the Leased Premises in the same manner as
heretofore provided without charge, fee, cost or expense to CCOI.
Section 7.04. NO CONDEMNATION. To the extent allowed by applicable law,
the Town hereby covenants that, during the Lease Term, it shall not exercise any
right of eminent domain, condemnation power or similar rights or powers with
respect to the Leasehold Estate or the Leased Premises. The Authority hereby
warrants and represents to CCOI that it possesses no right of eminent domain,
condemnation power or similar rights or powers; moreover, in the event that the
Authority has or obtains such rights or powers, it shall comply with the
preceding sentence. In the event that the Leasehold Estate or the Leased
Premises is the subject of a Taking (hereinafter defined) by or on behalf of the
Town or the Authority, the award to CCOI shall be not less than that established
pursuant to Section 12.01 hereinbelow (but without deduction for the amount set
forth in
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Section 12.01(c)).
Section 7.05. LIMIT ON AMOUNT OF LEASEHOLD MORTGAGES. Notwithstanding any
provision contained in this Lease to the contrary, in no event shall the amount
of any Leasehold Mortgages incurred in connection with Alterations exceed the
principal amount of the actual costs (direct and indirect) of such Alterations,
together with accrued and unpaid interest thereon, all according to CCOI's books
and records regarding such costs.
Section 7.06. COMPLIANCE WITH MORTGAGE AND LEASEHOLD Mortgages. Cornell
covenants to fully comply with all material terms and conditions of the Mortgage
or any Leasehold Mortgages.
ARTICLE VIII
AUTHORITY'S TITLE AND LIEN
Section 8.01. TITLE TO LAND. The Authority shall have title to the Land
and the remainder of the residual interest in the Facility paramount to all
others, subject, however, to the Mortgage, and the rights of CCOI existing
hereunder. The Authority shall not without the prior written consent of CCOI and
the Lenders transfer or convey any interest in this Lease, the Facility, or the
Land, which consent shall be given or not in the sole discretion of CCOI and the
Lenders.
Section 8.02. NO RIGHT OF CCOI TO ENCUMBER TITLE. Except as provided in
this Lease, CCOI shall have no right or power to and shall not in any way
encumber the title of the Authority in and to the Land or the Authority's
residual or remainder interest in the Facility. If requested by CCOI, the
Authority agrees to grant one or more mortgages on the fee simple estate of the
Authority in the Land in connection with CCOI's financing and any refinancing of
the indebtedness secured thereby, but the Authority's fee simple estate in the
Land shall not otherwise be in any way subject to any claim by way of lien or
otherwise, whether claimed by operation of law or by virtue of any express or
implied lease or contract or other instrument made by CCOI. Other than such as
arise pursuant to the financing contemplated in this Section 8.02 and any
refinancing thereof, any claim to a lien or otherwise upon the Land arising from
any act or omission of CCOI shall accrue only against the Leasehold Estate of
CCOI in the Land and shall in all respects be subject to the paramount rights of
the Authority in the Land and the Authority's remainder or residual interest in
the Facility.
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ARTICLE IX
MORTGAGE, ASSIGNMENT, SUBLETTING, ETC.
Section 9.01. MORTGAGE OR ASSIGNMENT BY CCOI. CCOI may, without
restriction, (a) assign, pledge, mortgage, encumber and in any other manner
transfer this Lease and/or the Leasehold Estate, and any part thereof, either as
a stand-alone transaction or as part of a sale/leaseback or a lease/leaseback
transaction, and (b) sublease the Leased Premises, or any part thereof, to any
Person, all without the necessity of giving notice to, or obtaining the consent
of, the Authority. In such event, the Authority and the Town agree to execute
and deliver such assignments or amendments of this Lease or other instruments
requested by CCOI or the Lenders.
Section 9.02. RENT TO CONTINUE AFTER ASSIGNMENT. If this Lease be
assigned, the Authority may and is hereby empowered to collect rent from the
assignee and enforce the terms of this Lease against the assignee.
Section 9.03. ASSIGNEE AND SUCCESSOR LIABLE FOR RENT. Without limiting
CCOI's rights provided under Section 9.01 hereof, each and every assignee,
whether as assignee or as successor in interest of any assignee of CCOI herein
named, immediately shall be and become and remain liable for the payment of the
Rent and the charges payable under this Lease, and for the due performance of
all the covenants, agreements, terms and provisions of this Lease on CCOI's part
to be performed to the full end of the term of this Lease. Each and every
provision of this Lease applicable to CCOI shall also apply to and bind every
such assignee with the same force and affect as though such assignee were CCOI
named in this Lease. No transfer to such assignee shall be binding upon the
Authority unless such assignee shall deliver to the Authority a recordable
instrument which contains a covenant or assumption by such assignee to such
effect; but the failure or refusal of such assignee to deliver such instrument
shall not release or discharge such assignee from its obligations and liability
as above set forth. Notwithstanding the foregoing, the Authority agrees that no
assignment of this Lease as collateral for indebtedness shall thereby cause a
Lender to become liable for performance of the obligations of CCOI hereunder.
Section 9.04. MORTGAGES AND REFINANCING. The proceeds from obligations
which are secured by the Mortgage were used to acquire, design, construct,
equip, operate, and maintain the Facility and to pay other expenses associated
with the Facility. CCOI may enter into refinance agreements relating to
obligations secured by the existing Mortgage.
In furtherance of the rights granted to CCOI in Section 9.01 hereinabove,
CCOI may incur additional indebtedness secured by additional mortgages and liens
on the Leasehold Estate to secure obligations incurred for its own purposes,
including but not limited to the costs of operating expenses, refinancing
existing mortgages on the Facility or financing the cost of Alterations. CCOI
may mortgage, pledge and encumber the Leasehold Estate, but it may not further
mortgage the fee interest of the Authority in the Land and the Facility.
Section 9.05. AUTHORITY TO COOPERATE. The Authority agrees that the
existing Mortgage and any refinancing under this Article shall constitute a lien
on
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the Land as well as upon the Facility thereon. The Authority agrees to execute
such documents as may reasonably be required by CCOI or the Lenders, including,
but not limited to, modifications and amendments to this Lease, the
Intergovernmental Agreement, and any other documents executed in connection with
the transactions contemplated in this Lease or the Financing Documents. The
Authority agrees to execute such subordination, attornment and non-disturbance
or similar documents as CCOI, the Lenders or an assignee or subtenant may
request. CCOI shall have the right to grant one or more mortgages or other
encumbrances upon the Leasehold Estate and its interests in the Facility and the
Land.
Section 9.06. ESTOPPEL CERTIFICATES. The Authority agrees to execute
promptly upon presentation thereof, certificates to assignees, subtenants, or
providers of financing regarding the status of this Lease, the Rent, and whether
any defaults exist hereunder.
Section 9.07. WAIVER OF AUTHORITY'S LIEN. The Authority and the Town each
hereby waives any and all liens and claims, whether statutory, constitutional or
otherwise, in and to any equipment, personal property, inventory, furnishings
and fixtures (except to the extent of fixtures not readily removable without
material damage) from time to time located in or upon the Leased Premises.
Section 9.08. ADDITIONAL PROVISIONS REGARDING LEASEHOLD MORTGAGES. Without
limiting the foregoing, and notwithstanding any provision of this Lease to the
contrary:
(a) RIGHT TO MORTGAGE LEASE. (i) On one or more occasions, without
the Authority's consent, CCOI may mortgage or otherwise encumber CCOI's
Leasehold Estate, and assign this Lease and mortgage CCOI's interest in
the Leased Premises as security for such mortgage or mortgages. (ii)
Anything herein to the contrary notwithstanding, there shall be no
limitation or restriction on the amount or number of separate Leasehold
Mortgages (as hereinafter defined) CCOI may place upon this Lease and/or
the Leasehold Estate thereby created. (iii) CCOI's default as mortgagor
under a Leasehold Mortgage shall not constitute a default under this Lease
except to the extent that CCOI's actions or failure to act in and of
itself constitutes an event of default under this Lease.
(b) NOTICE TO LEASEHOLD MORTGAGEE AND FURTHER ASSURANCES. (i) (A) If
CCOI shall, on one or more occasions, mortgage CCOI's Leasehold Estate to
a mortgagee, and if CCOI or such mortgagee as the Leasehold Mortgagee (as
hereinafter defined) shall have provided the Authority with notice of such
Leasehold Mortgage together with a true copy of such Leasehold Mortgage,
and the name and address of the Leasehold Mortgagee, the Authority and
CCOI agree that, following receipt of such notice by the Authority, the
following provisions of this Section 9.08(b) shall apply in respect to
each such Leasehold Mortgage; provided that the following provisions of
this Section 2 shall not be binding on the Authority unless and until such
notice shall have been given and such copy delivered to the Authority. (B)
In the event of any assignment of a Leasehold Mortgage or in the event of
a change of address of a Leasehold Mortgagee, notice of the new name and
address shall be provided to the Authority; provided that the following
provisions of this Lease as to
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such mortgagee or assignee shall not be binding on the Authority unless
and until such notice shall have been given and such copy delivered to the
Authority. (ii) The Authority shall, upon request, acknowledge to CCOI and
the Leasehold Mortgagee the receipt of the notice provided for by Section
9.08(b)(i). (iii) Upon the written request of the holder of a Leasehold
Mortgage, the Authority and such Leasehold Mortgagee shall execute and
deliver a separate written instrument in recordable form signed and
acknowledged by both parties setting forth and confirming the rights of
such Leasehold Mortgagee under this Lease. (iv) Notice to the Authority of
the name and address of a Leasehold Mortgagee shall bind any successor of
the Authority, provided that such notice is given in the manner otherwise
provided for in this Section 9.08.
(c) LEASEHOLD MORTGAGES. The term "Leasehold Mortgage" as used in
this Lease shall include a mortgage, a deed of trust, a deed to secure a
debt, a UCC-1 security agreement or other security instrument by which
CCOI's Leasehold Estate and CCOI's interest in the Leased Premises,
including CCOI's right to use any improvements or fixtures and equipment
or personal property subject to this Lease, is mortgaged, conveyed,
assigned, or otherwise transferred, to secure a debt or other obligation
(but not including installment purchases, equipment leases or similar
arrangements entered into in the ordinary course of business) or in
connection with an assignment of this Lease, a purchase money leasehold
mortgage taken back by CCOI as part of the consideration for such
assignment. More than one Leasehold Mortgage may exist at any time.
(d) LEASEHOLD MORTGAGEE. The term "LEASEHOLD MORTGAGEE" as used in
this Lease shall refer to each holder of a Leasehold Mortgage in respect
to which the notice provided for by Section 9.08(b)(i) has been given and
received and as to which the provisions of this Lease are applicable. More
than one Leasehold Mortgagee may exist at any time.
(e) LEASEHOLD MORTGAGEE'S CONSENT. No cancellation, surrender, or
modification of this Lease shall be effective as to any Leasehold
Mortgagee unless consented to in writing by such Leasehold Mortgagee,
provided, however, that this provision shall not affect a cancellation
because of a default under this Lease which is not cured in accordance
with this Lease.
(f) NOTICE TO LEASEHOLD MORTGAGEE. The Authority, upon providing any
notice to CCOI, including but not limited to, notice of (i) a default or
an event of default under this Lease, or (ii) a termination of this Lease,
or (iii) a matter on which the Authority may predicate or claim a default
or event of default, shall at the same time provide a copy of such notice
to every Leasehold Mortgagee. No such notice by the Authority to CCOI
shall be deemed to have been duly given to CCOI unless and until a copy
thereof has been so given to each such Leasehold Mortgagee by registered
or certified mail at the address specified in the notice given pursuant to
Section 9.08(b)(i). From and after the date such notice has been given to
a Leasehold Mortgagee, such Leasehold Mortgagee shall have the additional
periods of time specified in Sections 9.08(g) and (h) to remedy, commence
remedying, or
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cause to be remedied the defaults or events of defaults or acts or
omissions which are specified in any such notice. The Authority shall
accept such performance by or at the instigation of such Leasehold
Mortgagee and does hereby authorize any such Leasehold Mortgagee to take
any such action at such Leasehold Mortgagee's option and does hereby
authorize entry upon the Leased Premises by the Leasehold Mortgagee for
such purposes. The Leasehold Mortgagee shall in no event be obligated to
remedy, commence remedying, or cause to be remedied any default, event of
default or any acts or omissions specified in any notice received by the
Leasehold Mortgagee.
(g) LEASEHOLD MORTGAGEE'S CURE RIGHTS. (i) Anything herein to the
contrary notwithstanding, if any event of default shall occur which
entitles the Authority to terminate this Lease, the Authority shall have
no right to terminate this Lease unless, following the expiration of the
period of time given CCOI to cure such event of default or the act or
omission which gave rise to such event of default, the Authority shall
notify every Leasehold Mortgagee of the Authority's intent to so terminate
(the "Leasehold Termination Notice") at least sixty (60) days in advance
of the proposed effective date of such termination, if such event of
default is capable of being cured by the payment of money, and at least
one hundred twenty (120) days in advance of the proposed effective date of
such termination, if such event of default is not capable of being cured
by the payment of money. The provisions of Section 9.08(h) shall apply if,
during such 60-day or 120-day Leasehold Termination Notice period, any
Leasehold Mortgagee shall: (A) notify the Authority of such Leasehold
Mortgagee's desire to nullify such Leasehold Termination Notice; (B) pay
or cause to be paid all Rent and other payments then due under this Lease
and in arrears as specified in the Leasehold Termination Notice and which
may become due during such cure period unless such payments are disputed
in good faith; (C) deposit in escrow all amounts otherwise payable under
the preceding (B) but disputed in good faith; and (D) comply or in good
faith, with diligence and continuity, commence to comply with all
non-monetary requirements of this Lease then in default and reasonably
susceptible of being complied with by such Leasehold Mortgagee. The
Authority agrees to accept the good faith, diligent efforts of the
Leasehold Mortgagee to cure such defaults, as if same were being conducted
by CCOI. (ii) A Leasehold Mortgagee shall in no event be required to cure
or commence to cure any default or event of default consisting of CCOI's
failure to satisfy or discharge any lien, charge or encumbrance affecting
the Leasehold Estate junior in priority to the lien of the Leasehold
Mortgage held by such Leasehold Mortgagee unless such lien, charge or
encumbrance is also a lien against the fee estate.
(h) DEFERRAL OF TERMINATION. (i) If the Authority shall elect to
terminate this Lease by reason of an event of default, and a Leasehold
Mortgagee shall have proceeded in the manner provided for by Section
9.08(g)(i), the specified date for the termination of this Lease as fixed
by the Authority in its Leasehold Termination Notice shall be extended for
a period of thirty (30) business days after the date proposed for
termination in the Leasehold Termination Notice, provided that such
Leasehold Mortgagee
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shall, during such thirty (30) business day period: (A) pay or cause to be
paid the Rent, and other monetary obligations of CCOI under this Lease for
the current period as the same become due, and continue its good faith
efforts to perform all of CCOI's other obligations under this Lease; and
(B) if not enjoined or stayed, take steps to commence the acquisition or
sale of CCOI's interest in this Lease by foreclosure of the Leasehold
Mortgage or other appropriate means. (ii) If at the end of such thirty
(30) business day period such Leasehold Mortgagee is complying with
Section 9.08(h)(i), this Lease shall not then terminate and the time for
completion by such Leasehold Mortgagee of its proceedings (whether in
foreclosure or otherwise) shall continue for so long as such Leasehold
Mortgagee continues to comply with Section 9.08(h)(i) and is not enjoined
or stayed and thereafter for so long as such Leasehold Mortgagee proceeds
to complete steps to acquire or sell CCOI's interest in this Lease by
foreclosure of the Leasehold Mortgage or by other appropriate means with
diligence and continuity. Nothing in this Section, however, shall be
construed to extend this Lease beyond its stated Lease Term or to require
a Leasehold Mortgagee to continue such foreclosure proceedings after the
event of default has been cured. If the event of default shall be cured
and the Leasehold Mortgagee shall discontinue such foreclosure
proceedings, this Lease shall continue in full force and effect as if CCOI
had not defaulted under this Lease. (iii) If a Leasehold Mortgagee is
complying with Sections 9.08(h)(i) and (ii), upon the acquisition of
CCOI's estate herein by such Leasehold Mortgagee or its designee or any
other purchaser at a foreclosure sale or otherwise and the discharge by
foreclosure or otherwise of any lien, charge or encumbrance against CCOI's
interest in this Lease or the Leased Premises which is junior in priority
to the lien of the Leasehold Mortgage held by such Leasehold Mortgagee and
which CCOI is obligated to satisfy and discharge by the terms of this
Lease, this Lease shall continue in full force and effect as if CCOI had
not defaulted under this Lease. (iv) The making of a Leasehold Mortgage
shall not be deemed to constitute an assignment or transfer of this Lease
or of the Leasehold Estate hereby created, nor shall any Leasehold
Mortgagee, as such, be deemed to be an assignee or transferee of this
Lease or of the Leasehold Estate created hereby so as to require such
Leasehold Mortgagee, as such, to assume the performance of any of the
terms, covenants or conditions on the part of CCOI to be performed
hereunder, but the purchaser at any sale of this Lease and of the
Leasehold Estate thereby created in any proceedings for the foreclosure of
any Leasehold Mortgage, or the assignee or transferee of this Lease and of
the Leasehold Estate created under any instrument of assignment or
transfer, in lieu of the foreclosure of any Leasehold Mortgage, shall be
deemed to be an assignee or transferee, and shall be deemed to have agreed
to perform all of the terms, covenants and conditions on the part of the
CCOI to be performed hereunder from and after the date of such purchase
and assignment. (v) Any Leasehold Mortgagee or other acquirer of the
Leasehold Estate of CCOI pursuant to foreclosure, assignment in lieu of
foreclosure or other proceedings may, upon acquiring CCOI's Leasehold
Estate, without further consent of the Authority, sell and assign such
Leasehold Estate; provided that such assignee shall have delivered to the
Authority its written
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agreement to be bound thereafter by all of the provisions of this Lease.
(vi) Any sale of this Lease and of the Leasehold Estate thereby created in
any proceedings for the foreclosure of any Leasehold Mortgage, or the
assignment or transfer of this Lease and of the Leasehold Estate thereby
created in lieu of the foreclosure of any Leasehold Mortgage shall be
deemed to be a sale, transfer or assignment of this Lease and of the
Leasehold Estate thereby created and the Authority shall recognize any
such purchaser or assignee of the Leasehold Estate (including the
Leasehold Mortgagee should it be the purchaser or assignee, and any
assignee of the Leasehold Mortgagee) as CCOI hereunder.
(i) NEW LEASE. In the event of the termination of this Lease as a
result of an event of default, or in the event CCOI (as debtor in
possession) or a trustee in bankruptcy for CCOI rejects this Lease in
connection with any proceeding involving CCOI under the Bankruptcy Code or
any similar state or federal statute, or in the event of any other
termination of this Lease, the Authority shall, in addition to providing
the notices of default and termination required by Sections 9.08(f) and
(g) provide each Leasehold Mortgagee with written notice (the "Authority's
Notice of Termination") that this Lease has been terminated, together with
a statement of all sums which would at that time be due under this Lease
but for such termination, and of all other defaults or events of default,
if any, then known to the Authority. the Authority agrees to enter into a
new lease ("New Lease") of the Leased Premises with such Leasehold
Mortgagee or its designee for the remainder of the term, effective as of
the date of termination, at the rent and additional rent, and upon the
terms, covenants and conditions (but excluding requirements which are not
applicable or which have already been fulfilled) of this Lease provided:
(i) such Leasehold Mortgagee shall make written request upon the Authority
for such New Lease within forty-five (45) days after the date such
Leasehold Mortgagee receives the Authority's Notice of Termination given
pursuant to this Section; (ii) such Leasehold Mortgagee or its designee
shall pay or cause to be paid to the Authority at the time of the making
of the request referred to in subparagraph (i) above, any and all sums
which would at the time of execution and delivery thereof be due pursuant
to this Lease but for such termination and, in addition thereto, all
expenses, including reasonable attorneys' fees, which the Authority shall
have incurred by reason of such termination and the execution and delivery
of the New Lease and which have not otherwise been received by the
Authority from CCOI or other party in interest under CCOI; (iii) such
Leasehold Mortgagee or its designee shall agree in writing to remedy any
of CCOI's defaults of which said Leasehold Mortgagee was notified by the
Authority and which are reasonably susceptible of being so cured by the
Leasehold Mortgagee or its designee; (iv) by virtue of the recording of
this Lease or a memorandum thereof, the New Lease shall have the same
priority as this Lease and the tenant under such New Lease shall have the
same right, title and interest in and to the Leased Premises as CCOI had
under this Lease; (v) the Authority shall, if requested, execute and
deliver such ordinances and other documents as shall be reasonably
necessary to enable the tenant under the New Lease to obtain title
insurance as to its leasehold interest under the New Lease, at
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such new tenant's expense; (vi) if the Authority and the new tenant
disagree regarding any payment due the Authority in connection with the
execution of a New Lease, then the tenant shall be deemed to have
performed its payment obligation if such new tenant: (A) pays the
Authority the full amount not in controversy and (B) agrees in writing to
pay any additional sum ultimately determined to be due promptly upon such
determination; (vii) effective upon the commencement of the term of any
New Lease, all subleases by CCOI shall be assigned and transferred without
recourse by the Authority to tenant under the New Lease and all monies on
deposit with the Authority pursuant to such subleases by CCOI, if any,
shall be similarly assigned to tenant under the New Lease.
(j) PRIORITY OF LEASEHOLD MORTGAGEES. If more than one Leasehold
Mortgagee desires to exercise Leasehold Mortgagee's cure rights or shall
request a New Lease, the Authority shall recognize the Leasehold Mortgagee
exercising such right or privilege and enter into such New Lease with the
Leasehold Mortgagee whose Leasehold Mortgage is prior in lien or with the
designee of such Leasehold Mortgagee, and thereupon the requests for a New
Lease of each holder of a Leasehold Mortgage junior in lien shall be, and
be deemed to be, void and of no force or effect. The Authority, without
liability to CCOI or any Leasehold Mortgagee with an adverse claim, may
rely upon either (i) a mortgagee title insurance policy issued at CCOI's
expense, by a title insurance company doing business within the State of
Oklahoma and selected by the Authority or (ii) such other Leasehold
Mortgagee as has been designated in writing by all Leasehold Mortgagees
and CCOI, as the basis for determining the appropriate Leasehold Mortgagee
who is entitled to such New Lease.
(k) CONDEMNATION PROCEEDS. CCOI's share, as provided by this Lease,
of condemnation proceeds arising from an exercise of the power of eminent
domain shall, subject to the provisions of such Lease, be disposed of as
provided for by any Leasehold Mortgage.
(l) INSURANCE. A standard mortgagee clause naming each Leasehold
Mortgagee may be added to any and all insurance policies required to be
carried by CCOI on condition that the insurance proceeds shall be applied
in the manner specified in this Lease. The Leasehold Mortgage may provide
a manner for the disposition of such insurance proceeds, if any, otherwise
payable to CCOI pursuant to the provisions of this Lease.
(m) CONDEMNATION AND INSURANCE PROCEEDS. All references in this
Lease to the disposition of condemnation and insurance proceeds are hereby
amended to clarify that the Authority's share of any condemnation or
insurance proceeds is limited to and calculated by reference to the
Authority's interest in the land subject to this Lease and not in any
improvements subject to this Lease.
(n) ADDITIONAL NOTICE PROVISIONS. Anything herein to the contrary
notwithstanding, notices from the Authority to each Leasehold Mortgagee
shall be mailed to the address furnished the Authority pursuant to Section
9.08(b) and those from each Leasehold Mortgagee to the Authority shall be
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mailed to the address designated pursuant to the provisions of this Lease.
Such notices, demands and requests shall be given in the manner described
in this Lease and shall in all respects be governed by the provisions of
this Lease.
(o) ADDITIONAL LEASES, ETC. The Authority and CCOI each agree to
execute any amendments to this Lease or other documents reasonably
required by a Leasehold Mortgagee; provided, however, that any such
amendment shall not materially change either party's rights or increase
either party's obligations hereunder.
(p) TRANSFER OF CCOI'S RIGHTS. CCOI may delegate or otherwise
transfer to a Leasehold Mortgagee any or all of CCOI's rights under this
Lease, but no such delegation or transfer shall bind the Authority unless
and until the Authority shall have received a copy of a written instrument
effecting such delegation accompanied by a photocopy of the Leasehold
Mortgagee's fully executed Leasehold Mortgage. Such delegation or transfer
of authority may be effected by the terms of the Leasehold Mortgage
itself, in which case service upon the Authority of a copy of such
Leasehold Mortgage shall be sufficient to bind the Authority to such
delegation or transfer of rights.
(q) QUIET ENJOYMENT DURING CURE PERIOD. So long as the time for a
Leasehold Mortgagee to properly exercise its cure rights pursuant to this
Lease with respect to a nonmonetary default by CCOI has not expired (and
provided that all monetary defaults are cured within the Leasehold
Mortgagee's cure period provided for under this Lease), the Authority
shall not (i) re-enter the Leased Premises, (ii) serve a notice of
election to terminate this Lease, or (iii) bring a proceeding on account
of such default or event of default to (1) dispossess CCOI and/or other
occupants of the Leased Premises, (2) re-enter the Leased Premises, (3)
terminate this Lease or the Leasehold Estate, or (4) otherwise exercise
any other rights or remedies under this Lease by reason of such default or
event of default.
(r) LEASEHOLD MORTGAGEE'S RIGHT TO ENTER PREMISES. The Authority and
CCOI authorize each Leasehold Mortgagee to enter the Leased Premises as
necessary to effect such Leasehold Mortgagee's cure rights and take any
actions reasonably necessary to effect such cure. A Leasehold Mortgagee's
rights under this Section shall not constitute control of the Leased
Premises or otherwise be construed to mean that such Leasehold Mortgagee
has assumed performance of CCOI's obligations hereunder.
(s) PAYMENTS MADE BY LEASEHOLD MORTGAGEE. Any payment made by a
Leasehold Mortgagee to the Authority to cure any claimed default or event
of default shall be deemed to have been made "under protest" and without
prejudice to CCOI's or Leasehold Mortgagee's recovery of such payment if
the Authority's claim of default or event of default shall be determined
to have been erroneous.
(t) ESCROW DEPOSITS, BONDS AND SECURITY. Notwithstanding anything in
this Lease to the contrary, no escrow deposits, bonds or security
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(to the extent otherwise required under this Lease) shall be required
pursuant to this Lease with respect to the performance of any obligation
being undertaken or performed on behalf of CCOI pursuant to the terms of a
Leasehold Mortgage by or under the supervision of any Leasehold Mortgagee.
(u) THE AUTHORITY'S BANKRUPTCY. If the Authority (as debtor in
possession) or a trustee in bankruptcy for the Authority rejects this
Lease in connection with any proceeding under the Bankruptcy Code or any
similar state or federal statute, then: (i) CCOI shall not have the right
to elect to treat this Lease as terminated except with the prior written
consent of each and every Leasehold Mortgagee whose recorded Leasehold
Mortgage requires such consent by the applicable Leasehold Mortgagee; (ii)
if CCOI does not properly elect to treat this Lease as terminated, then
this Lease shall continue in effect without change upon all the same terms
and conditions as are set forth in this Lease. Thereafter, CCOI and its
successors (including Leasehold Mortgagees) shall be entitled to offset
against rent any damages arising from such rejection, in accordance with
applicable law governing the bankruptcy proceeding, and any such offset
properly made shall not constitute an event of default. If CCOI claims a
greater offset than the offset to which CCOI is lawfully entitled, then
the taking of such excessive offset by CCOI shall constitute a monetary
default as to which CCOI and Leasehold Mortgagees shall be entitled to
notice and opportunity to cure as provided in this Lease; and (iii) the
lien of any Leasehold Mortgage that was in effect before the rejection of
this Lease shall extend to CCOI's continuing possessory rights with
respect to the Leased Premises following such rejection, with the same
priority as it would have enjoyed had such rejection not taken place.
(v) NON-CURABLE DEFAULTS. (i) Nothing herein contained shall require
any Leasehold Mortgagee or its designee as a condition to its exercise of
rights hereunder to cure any default or event of default of CCOI not
reasonably susceptible of being cured by such Leasehold Mortgagee or its
designee, in order to comply with the provisions of Sections 9.08(g) or
(h), or as a condition of entering into the New Lease provided for by
Section 9.08(i), defaults or events of default capable of being cured by
the payment of money to a third party shall, in any event, be deemed
reasonably susceptible of being cured. (ii) If the Authority shall elect
to terminate this Lease by reason of any default or event of default of
CCOI not reasonably susceptible of being cured by a Leasehold Mortgagee,
and a Leasehold Mortgagee shall have proceeded in the manner provided by
Section 9.08(g)(i), the specified date for the termination of this Lease
as fixed by the Authority in its termination notice shall be extended as
provided for in Section 9.08(h), provided that such Leasehold Mortgagee
shall proceed in the manner set forth in Section 9.08(h).
(w) NOTICE OF ARBITRATION OR LEGAL PROCEEDINGS. The Authority shall
give each Leasehold Mortgagee prompt notice of any arbitration or legal
proceedings between the Authority and CCOI involving obligations under
this Lease. Each Leasehold Mortgagee shall have the right to intervene in
any such proceedings and be made a party to such proceedings, and the
parties hereto do hereby consent to such intervention. In the event that
any
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Leasehold Mortgagee shall not elect to intervene or become a party to any
such proceedings, the Authority shall give the Leasehold Mortgagee notice
of, and a copy of any award or decision made in any such proceedings,
which shall be binding on all Leasehold Mortgagees not intervening after
receipt of notice thereof.
(x) NO MERGER. So long as any Leasehold Mortgage is in existence,
unless all Leasehold Mortgagees shall otherwise expressly consent in
writing, the fee title to the Leased Premises and the Leasehold Estate of
CCOI created by this Lease shall not merge but shall remain separate and
distinct, notwithstanding the acquisition of said fee title and said
Leasehold Estate by the Authority or by CCOI or by a third party, by
purchase or otherwise.
ARTICLE X
CONSTRUCTION, REPAIRS, ADDITIONS, ETC.
Section 10.01. EXPANSION OF FACILITY. CCOI shall at all times have the
right to make Alterations, erect additional improvements, and to remove,
remodel, alter, or otherwise change the Facility or any improvements in such
manner as shall be satisfactory to CCOI in its sole and absolute discretion,
without the necessity for prior notice to or approval of the Authority or the
Town.
Section 10.02. NO REPAIRS BY AUTHORITY. The Authority shall not be
required to furnish any services or facilities or to make any normal repairs or
alterations in or to the Facility and the Land throughout the term of this
Lease, CCOI hereby assuming the full and sole responsibility for the condition,
operation, repair, and maintenance of the entire Facility and the Land. Nothing
contained in this Lease shall impose on the Authority the obligation to make any
repairs or expend any moneys for the maintenance of the Land or the renewal,
replacement or repair of the Facility.
Section 10.03. CCOI TO MAKE REPAIRS. CCOI shall throughout the Lease Term,
at CCOI's sole expense, take good care of the Land and the Facility, promptly
make all normal repairs thereto, and shall maintain and keep the Land and the
sidewalks and curbs adjacent thereto in good order, repair and condition, normal
wear and tear and casualties excepted. CCOI shall indemnify and hold the
Authority harmless of and from any and all claims, damages, or demands upon or
arising out of the failure of CCOI to perform this covenant or arising out of
any accident, injury or damage to any person or property which shall or may
happen in or upon the Land, however caused (but excluding the negligence or
willful misconduct of the Authority or the Town or their respective employees,
agents and contractors), and except as is permitted under Article IX shall keep
the Land and the Facility free and clear of any and all mechanics' and
materialmen's liens or other similar liens or charges incidental to work done or
material supplied in or about the Land and the Facility, subject to the
provisions of Article IX.
Section 10.04. DISPOSAL OF PROPERTY. CCOI will not do, permit or suffer
any material waste or damages to or upon the Facility, the Land or any part
thereof. CCOI shall have the right at any time and from time to time, to sell or
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dispose of any fixture or other property subject to this Lease which CCOI
determines, in its sole discretion, may have become obsolete or unfit for use or
which CCOI determines, in its sole discretion, is no longer useful, necessary or
profitable in the conduct of CCOI's business.
Section 10.05. ALTERATIONS TO FACILITY. CCOI shall have the right to make
(but shall not be obligated to do so, beyond initial repairs), at CCOI's sole
cost and expense, Alterations in or to the Leased Premises
Section 10.06. NO LIABILITY TO AUTHORITY. Whether under the provisions of
this Lease or otherwise, but without limiting CCOI's rights and duties
hereunder, neither CCOI, nor any agent, employee, representative, contractor, or
subcontractor of CCOI shall have any power or authority to do any act or thing
or to make any contract or agreement which will bind the Authority. Further, the
Authority shall have no responsibility to CCOI or to any contractor,
subcontractor, supplier, materialman, workman or other person, firm or
corporation who shall engage in or participate in any construction of any
improvements or buildings or Alterations thereto unless the Authority shall
expressly undertake such obligations by an agreement in writing.
Section 10.07. EXCAVATION TO LAND. If any excavation or other building
operation contemplated to be made or shall be made upon the Land or the Facility
or any adjoining premises, street or alley, CCOI shall, and does hereby assume,
at CCOI's expense, all obligations imposed by law on both the owner and the
occupant of the Land with respect to shoring and lateral support and agrees to
prevent any claims or liens against the Authority or the Land or any part
thereof by reason of failure to furnish such lateral support or shoring.
Section 10.08. BUILDING CODES. The construction of Alterations shall be
done promptly and in good workmanlike manner and in compliance with the building
and zoning laws of the Town.
Section 10.09. PAYMENT FOR ALTERATIONS. The cost of the construction of
Alterations shall be paid promptly so that the Land and the Facility shall at
all times be free of liens for labor and materials supplied to CCOI except as
contested.
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ARTICLE XI
DAMAGE OR DESTRUCTION
Section 11.01. FIRE OR CASUALTY DAMAGE. If during the term of this Lease
the Facility or any part thereof shall be substantially injured or destroyed by
fire or any other casualty so as to render the Facility unfit for occupancy, or
makes it impossible to conduct the business of CCOI thereon, or to such extent
that the Facility and the Leased Premises cannot in the sole opinion of CCOI be
repaired with reasonable diligence within two hundred seventy (270) days from
the later of (i) occurrence of such injury or destruction or (ii) the payment of
insurance proceeds relating thereto, then CCOI at CCOI's option may terminate
this Lease and the term hereof from the date of such injury or destruction. In
such instance, CCOI immediately shall surrender the Leased Premises and the
Facility and all interest therein to the Authority, and the Authority shall
refund to CCOI a pro-rata portion of the Rent previously paid for the year in
which the termination occurs. In such event, insurance proceeds shall be first
used to clear the debris from the Land and then be applied in the order of
priority established in Section 12.01, subparagraphs (a) through (e) hereof. In
the event that CCOI fails to recover an amount equal to the sums set forth in
Sections 12.01(a) and (d), CCOI shall have the option to require that the
Authority execute and deliver a conveyance to CCOI of all of the Authority's
right, title, and interest in the Land and Facility in such manner as CCOI shall
specify.
Section 11.02. REPAIR OF FACILITY. Subject in all instances to the
requirements of the Mortgage and any Leasehold Mortgage, if the Facility has
been substantially injured or destroyed but, in the sole discretion of CCOI, can
be restored as nearly as possible to its condition immediately prior to such
injury or destruction within the aforesaid 270-day period, and CCOI does not
elect to terminate this Lease pursuant to Section 11.01 hereof, then this Lease
shall not end or terminate on account of such injury or destruction. In such
event, all insurance moneys recovered by CCOI or by the Authority (as their
respective interests may appear), on account of such damage or destruction under
the policies of insurance provided for in Section 5.01 hereof, less the cost, if
any, of such recovery (the "Insurance Proceeds"), shall be applied by CCOI, in
its sole discretion but subject to the terms of the Financing Documents, to the
payment of the cost of repairing, restoring, rebuilding the Facility or altering
the damaged property, including the cost of temporary repairs and the protection
of property pending the completion of permanent restoration, repairs, rebuilding
or alterations (all of which temporary work and permanent work are hereinafter
collectively referred to as the "Restoration").
Section 11.03. OBLIGATION TO REPAIR. Subject in all instances to the terms
of the Mortgage and this Lease, in the event the Leased Premises shall be
injured by any cause aforesaid, so as not to be rendered unfit for occupancy,
then CCOI promptly shall repair the same.
Section 11.04. EXCESS REPAIRS. It is expressly understood and agreed that
CCOI shall in no event be obligated to expend any sums for Restoration in excess
of the amount of Insurance Proceeds.
Section 11.05. RENT ABATEMENT. Except as otherwise provided in this
Article XI no destruction of or damage to the Facility, the Leased Premises or
any
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part thereof by fire or any other casualty shall terminate or permit CCOI to
surrender this Lease or shall relieve CCOI from CCOI's liability to pay the full
Rent and other charges payable under this Lease, except to the extent that Rent
shall be paid by the application thereto by the Authority of the proceeds of
insurance required pursuant to Section 5.01 or from any of CCOI's other
obligations under this Lease. CCOI waives any rights now or hereafter conferred
upon CCOI by statute or otherwise to quit or surrender this Lease or the Leased
Premises or any part thereof, or to any suspension, diminution, abatement or
reduction of Rent on account of any such destruction or damage.
Section 11.06. CCOI TO DETERMINE SETTLEMENT. With respect to the
settlement of any claim under any policy of insurance maintained pursuant to
Section 5.01, the Authority and CCOI, subject to the rights of the Lenders in
the Financing Documents, shall use their reasonable efforts to mutually agree
upon the amount of any such settlement; provided, however, that as between the
Authority and CCOI, CCOI, in CCOI's sole judgment and discretion, shall make the
final decision with respect to the amount of any such settlement.
Section 11.07. FORCE MAJEURE. Notwithstanding the above, CCOI shall not be
deemed in violation of the applicable provisions of this Lease if, while
undertaking to restore the Leased Premises and the Facility after a casualty,
the Restoration is interrupted by force majeure. CCOI shall be excused from the
performance required of CCOI hereunder, during the continuation of the
interruption by force majeure.
Section 11.08. TERMS OF MORTGAGE TO CONTROL. In the event the Mortgage, or
any other mortgage shall be in force at the time of any damage to or destruction
by fire or otherwise to the Facility, the Leased Premises or any part thereof,
then the terms of such mortgage shall control with respect to repair,
restoration and replacement of the Leased Premises and to the application of
insurance proceeds.
ARTICLE XII
CONDEMNATION
Section 12.01. DISTRIBUTION OF AWARD. If, at any time during the Lease
Term, title to the whole or substantially all of the Leased Premises shall be
taken by statute or in condemnation proceedings or by any right of eminent
domain (hereinafter called a "Taking"), this Lease shall terminate and expire on
the date of such Taking and the Rent and other charges payable hereunder shall
be apportioned and paid to (or refunded for all periods after) the date of such
Taking. For purposes of this Article XII, "substantially all" of the Leased
Premises or the Facility shall be deemed to have been taken if the remaining
portion cannot be practically and economically used or converted for use by CCOI
for the purposes permitted by this Lease, and "date of Taking" shall mean the
date that possession of the Leased Premises, the Facility or any part thereof is
denied CCOI and the Authority so that the intents and purposes of this Lease are
incapable of being fulfilled.
In the event of any such Taking and the termination of this Lease, the
Authority and CCOI shall together make one claim for an award for the combined
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interests in the subject property, and shall assist each other as shall be
reasonably necessary in the orderly and timely prosecution of their claims to
insure the maximum recovery for the Taking. The net award received (after
deduction of reasonable fees and expenses, including without limitation
reasonable fees for attorneys and experts) shall be paid as follows and in the
following order:
(a) The holders of the Mortgage shall first receive the amount of
the original promissory note made by CCOI in connection with the existing
Mortgage, which is hereby stipulated to be $43,100,000.00, together with
the amount of any increases in the indebtedness secured by such note made
in connection with Alterations to the Leased Premises.
(b) The holder of any mortgages or liens created pursuant to Article
IX shall receive amounts required in reduction of the secured
indebtedness.
(c) The Authority shall then be entitled to receive the value of the
Authority's fee interest in and to the Land for the agreed value of
$240,000.00 if the entire tract is Taken or if the Land is sold pursuant
to Section 13.01. If less than all of the tract is Taken, the Authority
shall receive the value of that interest up to the amount of $240,000.
(d) The sum of (i) an amount sufficient to compensate CCOI for all
actual direct and indirect costs and expenses incurred by CCOI in
acquiring, designing, constructing, financing and developing the Facility,
plus (ii) a fair and reasonable rate of return, which the parties agree is
18% per annum, on such costs and expenses, plus (iii) the fair market
value of the Leasehold Estate. The books and records of CCOI shall be
determinative of the total amount paid for said costs and expenses. The
fair market value of CCOI interest in the Leasehold Estate (which includes
the Land and the Facility) shall be conclusively determined by an
independent M.A.I. certified appraiser selected by CCOI (which appraiser
shall assume full occupancy of the Facility through the entire remaining
Lease Term and a per diem payment per inmate equal to the then highest
such payment, escalated annually at the then-prevailing CPI rate, over
such term, discounted at 8% per annum to the calculation date). The costs
of any such appraisal shall be paid by CCOI.
(e) The balance of said award or awards, if any, shall then be paid
to the Authority.
Section 12.02. PARTIAL CONDEMNATION. Upon a Taking of only a portion of
the Leased Premises, the Facility or of an easement therein, which does not
substantially impair, render impractical or uneconomical the future business of
CCOI (in its sole and absolute discretion), this Lease shall nevertheless
continue, and in such event CCOI agrees (subject to any Financing Documents), at
CCOI's cost and expense, to repair or restore any improvements affected by the
condemnation, to permit the continuing improvements to be used by CCOI in the
most economical manner. CCOI shall not be obligated to expend an amount in
excess of the proceeds of the net award available to CCOI for such purposes.
Section 12.03. RENT REDUCTION. From the date of such partial Taking, the
Rent to be paid by CCOI shall abate in the proportion that the remaining Leased
Premises bears to the Leased Premises as existing immediately preceding the
event of
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the condemnation.
Section 12.04. SEPARATE CLAIMS. The Authority and CCOI each reserve the
right to file separate claims and to prosecute their claims separately, arising
from the termination or taking by condemnation. However, each covenant with each
other to aid and assist each other reasonably in the orderly and timely
prosecuting of their claims to insure the maximum recovery for the Taking.
ARTICLE XIII
OPTIONS TO PURCHASE
Section 13.01. AUTHORITY TO GRANT OPTIONS TO PURCHASE. CCOI shall have the
right to grant one or more options to purchase the Land and/or the Facility to
the State of Oklahoma Department of Corrections. The Authority agrees to join in
execution of any documents executed in connection therewith. CCOI shall not,
without obtaining the prior written consent of the Authority, grant an option to
purchase the Land and the Facility which will result in the Authority's
receiving less than $240,000.00 in the event the option to purchase is
exercised.
Section 13.02. DISTRIBUTION OF PROCEEDS. In the event a third party
exercises an option to purchase granted in accordance with this Article XIII,
the proceeds of such sale of the Land and/or the Facility shall be distributed
in the order of priority established in Section 12.01, subparagraphs (a) through
(e).
Section 13.03. CCOI NOT TO PURCHASE. The parties hereto understand the
option to purchase established herein is to accommodate the requirements of
jurisdictions sending inmates to the Facility. Under no circumstances shall this
Lease be construed to allow CCOI an option to purchase the Facility or the Land.
ARTICLE XIV
QUIET ENJOYMENT
Section 14.01. NO HINDRANCE. The Authority covenants that if and so long
as CCOI in all material respects keeps and performs each and every material
covenant, agreement, term, provision and condition therein contained on the part
and on behalf of CCOI to be kept and performed, CCOI shall quietly have and
enjoy the Land during the term, subject to the covenants, agreements, terms,
provisions, and conditions of this Lease.
Section 14.02. BINDING ON ASSIGNS. It is expressly understood and agreed
that the terms the "Authority" and "CCOI" as used in this Lease mean only the
present owner of the Land and the present owner of the Leasehold Estate,
respectively. In the event of the sale, assignment or transfer of either such
owner of its interest in the Leased Premises, or this Lease as permitted under
Article IX, such owner shall thereupon be released and discharged from all
covenants and obligations of the Authority or CCOI thereafter accruing; but such
covenants and obligations shall be binding upon each new owner of any interest
in the Land. CCOI shall have the right to sell or assign its interest in the
Facility, the Land, and/or the Leasehold Estate to such Persons as it may elect.
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ARTICLE XV
NOTICES
Section 15.01. ADDRESSES. All notices, demands, requests or other
communications which may be or are required to be given, served or sent by
either party to the other shall be in writing and shall be deemed to be
sufficient for all purposes and to have been properly given or sent:
(a) If intended for CCOI, by mailing by registered or certified
mail, return receipt requested, with the postage prepaid or by nationally
recognized overnight courier, addressed to CCOI at: Cornell Companies of
Oklahoma, Inc., 1700 West Loop South, Suite 1500, Houston, TX 77027.
(b) If intended for the Authority, by mailing by registered or
certified mail, return receipt requested, with the postage prepaid or by
nationally recognized overnight courier, addressed to the Authority at:
300 West Maple, P.O. Box 519, Hinton, OK 73047.
Each party may designate by notice in writing a new address to which any
notice, demand, request or communication may hereafter be so given, served or
sent. Each notice, demand, request or communication which shall be mailed by
certified mail, return receipt requested to the Authority or CCOI in the manner
aforesaid shall be deemed sufficiently given, served or sent for all purposes
hereunder three (3) business days after the time such notice, demand, request or
communication shall be mailed by United States certified mail, return receipt
requested in any post office or branch post office regularly maintained by the
United States Government.
Section 15.02. DUTY TO ACT REASONABLY. Unless expressly provided otherwise
in this lease, if a request is received in writing by the Authority or CCOI for
a consent or approval required under this Lease or for information to which the
party making such request shall be entitled, the party receiving such request
shall act with reasonable promptness thereon and shall not unreasonably delay
notifying the party making such request as to the granting or withholding of
such consent or approval or furnishing to such party the information requested.
ARTICLE XVI
REPRESENTATIONS AND WARRANTIES
Section 16.01. OF AUTHORITY. The Authority, with knowledge that CCOI is
relying thereon in entering into this Lease, represents and warrants to CCOI
that:
(a) The Authority is a public trust duly formed, validly existing,
and in good standing under the laws of the State of Oklahoma.
(b) The Authority has all requisite right, power and authority to
enter into, execute, deliver, and perform its obligations
under this Lease. This Lease has been duly and validly
executed and delivered and
25
<PAGE>
constitutes the legal, valid, and binding obligation of the
Authority in accordance with the terms hereof, free of any
claim of immunity with respect to the performance of this
Agreement by the Authority.
Section 16.02. OF CCOI. CCOI, with knowledge that the Authority is relying
thereon in entering into this Lease, represents and warrants to the Authority
that:
(a) CCOI is a corporation duly formed, validly existing, and in
good standing under the laws of the State of Oklahoma.
(b) CCOI has all requisite right, power and authority to enter
into, execute, deliver, and perform its obligations under this
Lease. This Lease has been duly and validly executed and
delivered and constitutes the legal, valid, and binding
obligation of the Authority in accordance with the terms
hereof.
ARTICLE XVII
MISCELLANEOUS
Section 17.01. SEVERABILITY. If any term or provision of this Lease, or
the application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Lease or the application of such
term or provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Lease shall be valid and enforceable to the fullest extent
permitted by law.
Section 17.02. BINDING EFFECT. This Lease shall be binding upon, and inure
to the benefit of, the parties hereto, and their successors and assigns.
Section 17.03. COUNTERPARTS. This Lease may be executed in counterparts,
each of which shall constitute one and the same instrument.
Section 17.04. APPLICABLE LAW. This Lease shall be interpreted and
enforced in accordance with the laws of the State of Oklahoma.
Section 17.05. NO RECOURSE UNDER LEASE. All covenants, stipulations,
premises, agreements and obligations of the Authority contained in this Lease
shall be deemed to be the covenants, stipulations, promises, agreements and
obligations of the Authority and not of any member, officer, employee or agent
of the Authority in an individual capacity and no recourse shall be had for the
payment of amounts due under the Lease or for any claim based thereon or under
this Lease against any member, officer, employee or agent of the Authority.
Section 17.06. RECORDING. CCOI may record a counterpart of this Lease (or
memorandum hereof, in which event the parties hereto agree to promptly execute
and deliver counterparts of such a memorandum) in the appropriate public records
of Caddo County, Oklahoma.
[SIGNATURES BEGIN ON FOLLOWING PAGE]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
date first above written.
HINTON ECONOMIC DEVELOPMENT AUTHORITY
By: /s/ ELDON McCUMBER
Eldon McCumber, Chairman
Attest:
/s/ illegible
Secretary
(SEAL)
TOWN OF HINTON, OKLAHOMA
By: /s/ JIMMY SMITH
Jimmy Smith, Mayor
Attest:
/s/ SHERYL A. CORNELIUS
Town Clerk
(SEAL)
27
<PAGE>
CORNELL CORRECTIONS OF OKLAHOMA, INC.
By: /s/ STEVEN W. LOGAN
Steven W. Logan, President
28
<PAGE>
STATE OF OKLAHOMA )
)SS:
COUNTY OF CADDO )
The foregoing instrument was acknowledged before me this 30th day of
December, 1999, by Eldon McCumber, Chairman, of the Hinton Economic Development
Authority, a public trust, on behalf of the trust.
/s/ illegible
Notary Public
My Commission Expires: 7-8-2003
(SEAL)
STATE OF OKLAHOMA )
)SS:
COUNTY OF CADDO )
The foregoing instrument was acknowledged before me this 30th day of
December, 1999, by Jimmy Smith, Mayor of the Town of Hinton, Oklahoma, on behalf
of said town.
/s/ SHERYL A. CORNELIUS
Town Clerk
(SEAL)
29
<PAGE>
STATE OF TEXAS )
)SS:
COUNTY OF HARRIS )
The foregoing instrument was acknowledged before me this 29th day of
December, 1999, by Steven W. Logan, President of Cornell Corrections of
Oklahoma, Inc., a corporation, on behalf of said corporation.
/s/ STEPHANIE E. DONAHO
Notary Public
My Commission Expires: 12-16-2002
(SEAL)
30
<PAGE>
Exhibit A
Lease Agreement
(Legal Description)
EXHIBIT 10.39
CONSULTANT AGREEMENT
This Consultant Agreement ("AGREEMENT"), including the attached Exhibit A,
is entered into between CORNELL CORRECTIONS, INC., a Delaware corporation having
offices at 1700 West Loop South, Suite 1500, Houston, Texas 77027 ("COMPANY"),
and DAVID M. CORNELL, an individual currently residing at 4243 Emory, Houston,
Texas 77005 ("CONSULTANT"), on December 15, 1999, to be effective as of
September 1, 1999 (the "EFFECTIVE DATE").
WITNESSETH:
WHEREAS, the Company is desirous of obtaining the services of Consultant
pursuant to the terms and conditions and for the consideration set forth in this
Agreement, and Consultant is desirous of providing services to the Company
pursuant to such terms and conditions and for such consideration;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants, and obligations contained herein, the Company and Consultant agree as
follows:
ARTICLE 1: TERM AND DUTIES:
1.1 The Company agrees to retain Consultant, and Consultant agrees to
provide services to the Company, beginning as of the Effective Date and
continuing as set forth on Exhibit A, subject to the terms and conditions of
this Agreement. The Company and Consultant agree that this Agreement shall
automatically terminate at the end of the Initial Term (as defined on Exhibit
A), unless the Company and Consultant both agree in writing to renew the
Agreement for one additional period commencing at the end of the Initial Term
and continuing for a period of time as set forth on Exhibit A (the "RENEWAL
TERM").
1.2 Consultant initially shall perform the services and duties set forth
on Exhibit A.
1.3 Consultant shall, during the Initial Term and any Renewal Term, devote
Consultant's best efforts to the business and affairs of the Company. Consultant
shall serve as a director and as non-executive Chairman of the Board, as set
forth on and subject to Exhibit A.
1.4 In connection with Consultant's performance of services for the
Company, the Company will provide Consultant access to confidential information
pertaining to the business and services of the Company as is appropriate for
Consultant's duties and responsibilities. The Company also shall provide to
Consultant the opportunity to develop business relationships pertaining to the
business and services of the Company that are appropriate for Consultant's
duties and responsibilities, and all business and corporate opportunities made
known to Consultant during the Initial Term and any Renewal Term pertaining to
the business and services of the Company shall belong to the Company.
1.5 It is understood and agreed that Consultant will perform the
consulting services as an independent contractor and Consultant will not
<PAGE>
be deemed to be an employee of the Company. Consultant will not be entitled to
any benefits provided by the Company to its employees except as specifically
provided hereunder. Consultant agrees that he will be personally responsible for
any and all taxes and other payments due on payments received by him from the
Company hereunder.
1.6 It is understood and agreed that Consultant shall have no authority to
act on behalf of the Company or to bind the Company to any contract or
obligation whatsoever. The foregoing shall not affect the Consultant's ability
to identify himself as a director and as non-executive Chairman of the Board
during the time he holds such positions.
ARTICLE 2: COMPENSATION AND BENEFITS
2.1 Consultant's monthly base compensation during the Initial Term and
during the Renewal Term, if applicable, shall be not less than the amounts set
forth under the heading "Monthly Base Compensation" on Exhibit A, subject to
increase at the sole discretion of the Company, which shall be paid in monthly
installments. Any calculation to be made under this Agreement with respect to
Consultant's Monthly Base Compensation shall be made using the then current
Monthly Base Compensation in effect at the time of the event for which such
calculation is made. Consultant shall be entitled to a Fixed Bonus as described
and subject to the terms on Exhibit A. Consultant shall be entitled to a Monthly
Non-Compete Fee during the Initial Term as described on Exhibit A. The Monthly
Base Compensation, the Fixed Bonus and the Monthly Non-Compete Fee are
hereinafter referred to as the "AGREED PAYMENT AMOUNT," it being understood that
the Monthly Non-Compete Fee is paid during the Initial Term only but
Consultant's obligations with respect thereto shall remain in effect for the
full Covenant Period defined in Section 5.2.
2.2 During the effectiveness of this Agreement (both during the Initial
Term and the Renewal Term, if applicable), Consultant shall be allowed to
participate solely in those benefit plans and programs listed on Exhibit A.
Consultant shall not be entitled to participate in any benefit plans and
programs not expressly referenced herein. Notwithstanding anything to the
contrary herein, upon termination of the effectiveness of this Agreement for any
reason, Consultant (or his heirs, administrators or legatees) shall be entitled
to receive benefits vested or accrued with respect to Consultant's service prior
to such termination according to the provisions of such benefit plans and
programs.
2.3 The Company shall not by reason of this Article 2 be obligated to
institute, maintain, or refrain from changing, amending, or discontinuing, any
such benefit plan or program, so long as such actions are similarly applicable
to covered participants generally. Moreover, except as specifically provided
herein to the contrary, none of the benefits or arrangements described in this
Article 2 shall be secured or funded in any way, and each shall instead
constitute an unfunded and unsecured promise to pay money in the future
exclusively from the general assets of the Company.
2
<PAGE>
2.4 The Company may withhold from any compensation, benefits, or amounts
payable under this Agreement all federal, state, city, or other taxes as may be
required pursuant to any law or governmental regulation or ruling.
ARTICLE 3: TERMINATION PRIOR TO EXPIRATION OF INITIAL TERM OR RENEWAL TERM, IF
ANY, AND EFFECTS OF SUCH TERMINATION:
3.1 Notwithstanding any other provisions of this Agreement, the Company
shall have the right to terminate the consulting relationship created by this
Agreement at any time prior to the expiration of the Initial Term or any Renewal
Term for any of the following reasons:
a. For "CAUSE" upon the good faith determination by the Company's
Board of Directors that Cause exists for the termination of the consulting
relationship. As used in this Section 3.1.a, the term Cause shall mean (i)
Consultant's gross negligence or willful misconduct in the performance of the
duties and services required of Consultant pursuant to this Agreement, (ii)
Consultant's final conviction of a felony, or (iii) Consultant's material breach
of any provision of this Agreement which is willful and intentional and which
remains uncorrected for sixty (60) days following written notice to Consultant
by the Company of such breach;
b. for any other reason whatsoever, including termination without
Cause, in the sole discretion of the Company, on ninety (90) days prior written
notice to Consultant;
c. upon Consultant's death; or
d. upon Consultant's becoming disabled as to entitle Consultant to
benefits under the Company's long-term disability plan or, if Consultant is not
eligible to participate in such plan or if such plan is not available, then
Consultant is permanently and totally unable to perform Consultant's duties for
the Company as a result of any medically determinable physical or mental
impairment as supported by a written medical opinion to the foregoing effect by
a physician selected by the Company and Consultant's spouse or other member of
Consultant's immediate family. With respect to options granted pursuant to the
Amended and Restated 1996 Stock Option Plan, Consultant shall be considered
"disabled" in accordance with, and "disability" shall have the meaning set forth
in, the Amended and Restated 1996 Stock Option Plan, as in effect at the time of
such disability.
The termination of Consultant's consulting relationship by the Company
prior to the expiration of the Initial Term shall constitute a "TERMINATION FOR
CAUSE" if made pursuant to Section 3.1.a, and the effect of such termination is
specified in Section 3.4. The termination of Consultant's consulting
relationship by the Company prior to the expiration of the Initial Term or
Renewal Term, if any, shall constitute an "INVOLUNTARY TERMINATION" if made
pursuant to Section 3.1.b, and the effect of such termination is specified in
Section 3.5. The effect of the consulting relationship being terminated pursuant
to Section 3.1.c as a result of Consultant's death is specified in Section 3.6.
The effect of the consulting relationship being terminated pursuant to Section
3.1.d as a result of the Consultant becoming disabled is specified in Section
3.7.
3
<PAGE>
3.2 Consultant shall have the right to terminate the consulting
relationship under this Agreement at any time prior to the expiration of the
Initial Term or the Renewal Term, if applicable, for any reason whatsoever, in
the sole discretion of Consultant, on ten (10) days prior written notice to the
Company.
a. The termination of Consultant's consulting relationship by
Consultant prior to the expiration of the Initial Term or prior to the
expiration of the Renewal Term, if applicable, except upon any Change of Control
or within the ninety (90) days immediately following any Change of Control,
shall constitute a "VOLUNTARY TERMINATION" if made pursuant to this Section
3.2.a, and the effect of such termination is specified in Section 3.3.
b. The termination of Consultant's consulting relationship by
Consultant prior to the expiration of the Initial Term or prior to the
expiration of the Renewal Term, if applicable, upon or within the ninety (90)
days immediately following any Change of Control, shall constitute an
Involuntary Termination if made pursuant to this Section 3.2.b, and the effect
of such termination is specified in Section 3.5.
3.3 Upon a Voluntary Termination of the consulting relationship by
Consultant prior to expiration of the Initial Term or the Renewal Term, if
applicable, all future compensation to which Consultant is entitled and all
future benefits for which Consultant is eligible, with the exception of any and
all statutory rights and benefits, shall cease and terminate as of the date of
such termination. Consultant shall be entitled to pro rata Monthly Base
Compensation and pro rata Monthly Non-Compete Fee through the date of such
termination, but Consultant shall not be entitled to any bonuses not yet paid at
the date of such termination.
3.4 If Consultant's consulting relationship hereunder shall be terminated
by the Company for Cause prior to expiration of the Initial Term or prior to
expiration of the Renewal Term, if applicable, all future compensation to which
Consultant is entitled and all future benefits for which Consultant is eligible,
with the exception of any and all statutory rights and benefits, shall cease and
terminate as of the date of termination. Consultant shall be entitled to pro
rata Monthly Base Compensation and pro rata Monthly Non-Compete Fee through the
date of such termination, but Consultant shall not be entitled to any other
bonuses not yet paid at the date of such termination.
3.5 Upon an Involuntary Termination of the consulting relationship prior
to expiration of the Initial Term, Consultant shall be entitled, in
consideration of Consultant's continuing obligations hereunder after such
termination, to receive the payments, compensation, benefits and perquisites
upon Involuntary Termination set forth on Exhibit A under the heading "Payments
and Benefits Upon Involuntary Termination" for the remainder of the Initial
Term. Upon an Involuntary Termination of the consulting relationship subsequent
to the commencement of the Renewal Term, if applicable, but prior to the
expiration of the Renewal Term, if applicable, Consultant shall be entitled, in
consideration of Consultant's continuing obligations hereunder after such
termination, to receive the payments, compensation, benefits and perquisites
upon Involuntary Termination set forth on Exhibit A under the heading "Payments
and Benefits Upon Involuntary Termination" for the remainder of the Renewal
Term.
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<PAGE>
3.6 Upon termination of the consulting relationship during the Initial
Term as a result of Consultant's death, Consultant's heirs, administrators, or
legatees shall be entitled to receive the payments, compensation, benefits and
perquisites set forth on Exhibit A under the heading "Payments and Benefits Upon
Termination as a Result of Death." Upon termination of the consulting
relationship during the Renewal Term, if any, as a result of Consultant's death,
Consultant's heirs, administrators, or legatees shall be entitled only to
compensation and benefits accrued prior to such termination, subject to the
terms and provisions of the plans and programs pursuant to which such benefits
were accrued, and as set forth on Exhibit A under the heading "Payments and
Benefits Upon Termination as a Result of Death."
3.7 Upon termination of the consulting relationship during the Initial
Term as a result of Consultant's disability, Consultant shall be entitled to
receive the payments, compensation, benefits and perquisites set forth on
Exhibit A under the heading "Payments and Benefits Upon Termination as a Result
of Disability." Upon termination of the consulting relationship during the
Renewal Term, if any, as a result of Consultant's disability, Consultant shall
be entitled only to compensation and benefits accrued prior to such termination,
subject to the terms and provisions of the plans and programs pursuant to which
such benefits were accrued, and as set forth on Exhibit A under the heading
"Payments and Benefits Upon Termination as a Result of Disability."
3.8 Upon termination of the consulting relationship as a result of the
expiration of the Agreement upon expiration of the Initial Term or upon
expiration of the Renewal Term, if any, Consultant shall be entitled to no
further compensation or benefits, with the exception of (a) any and all
statutory rights and benefits and (b) compensation and benefits vested or
accrued prior to such termination, subject to the terms and provisions of the
plans and programs pursuant to which such benefits were accrued. Notwithstanding
anything to the contrary contained in this Agreement, any indemnification
obligations of the Company to Consultant in connection with his status as a
director shall not be affected by any termination of this Agreement.
3.9 In all cases, the compensation and benefits payable to Consultant
under this Agreement upon termination of the consulting relationship shall be
offset against any amounts to which Consultant may otherwise be entitled under
any and all severance plans, and policies of the Company or its affiliates.
3.10 Termination of the consulting relationship does not terminate those
obligations imposed by this Agreement which are continuing obligations,
including, without limitation, Consultant's obligations under Articles 5 and 6.
Termination of the consulting relationship also does not terminate Consultant's
right to receive any compensation and benefits which he is entitled to receive
as a director while Consultant remains a director.
5
<PAGE>
ARTICLE 4: CONTINUATION OF CONSULTING RELATIONSHIP BEYOND THE RENEWAL TERM;
TERMINATION AND EFFECTS OF TERMINATION:
4.1 Should the Company continue to retain the Consultant and should the
Consultant continue to provide services to the Company beyond the expiration of
the Renewal Term, if any, such consulting relationship shall convert to a
month-to-month relationship terminable at any time by either the Company or
Consultant for any reason whatsoever, with or without Cause. Upon expiration of
the Initial Term, the Company shall have no obligation to agree to any renewal
of this Agreement or to offer Consultant a new consulting agreement. Upon
expiration of the Renewal Term, if any, the Company shall have no obligation to
offer Consultant a new consulting agreement.
ARTICLE 5: POST-CONSULTING RELATIONSHIP OBLIGATIONS:
5.1 As part of the consideration for the compensation and benefits to be
paid to Consultant hereunder, in keeping with Consultant's duties as a
fiduciary, and in order to protect the Company's interest in the trade secrets
of the Company, and as an additional consideration and incentive for the Company
to enter into this Agreement, the Company and Consultant agree to the provisions
of this Article.
5.2 The obligations in this Article shall commence on the Effective Date
and shall continue for a period of ten (10) years (the "COVENANT Period"). The
obligations in this Article shall continue for the full Covenant Period
regardless of any prior termination of the consulting relationship pursuant to
Article 3 hereof.
5.3 Consultant hereby acknowledges and agrees that: (i) the Company would
not enter into this Agreement or retain the Consultant if the Consultant had not
executed and delivered this Agreement to the Company; (ii) the Consultant has
had, throughout the term of the existence of the Company, and will have
throughout his consulting relationship with the Company or its Affiliates (as
defined below), access to information that is confidential to the Company,
constitutes a valuable, special and unique asset of the Company, and with
respect to which the Company is entitled to the protections afforded by this
Agreement and to the remedies for enforcement of this Agreement provided by law
or in equity (including, without limitation, those remedies the availability of
which may be within the discretion of the court in which any action for
enforcement of this Agreement is brought); (iii) the Company would not grant the
Additional Options listed on Exhibit A to the Consultant if the Consultant had
not executed and delivered this Agreement to the Company; and (iv) the Company
would not pay the Consultant the Monthly Non-Compete Fee listed on Exhibit A if
the Consultant had not executed and delivered this Agreement to the Company.
5.4 In consideration of the Consultant's noncompetition and nondisclosure
agreements set forth herein, the Company shall pay to Consultant the Monthly
Non-Compete Fee listed on Exhibit A, subject to the other terms and conditions
of this Agreement.
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5.5 During the Covenant Period, Consultant shall not, and shall cause each
of his Affiliates not to:
1) within the United States (the "TERRITORY"), transact any
Competitive Business (as defined below), carry on or be engaged or
otherwise take part in any Competitive Business (whether for his own
account or for the account of any person or entity, other than the
Company), or render any service (whether for or without compensation) to
any person or entity (other than the Company) who or which is, to the
knowledge of Consultant, engaged in any Competitive Business at the time
the service is rendered.
2) share in the earnings of, or beneficially own or hold any
security issued by, or otherwise own or hold any interest (including,
without limitation, any debt) in, any person or entity who or which is
directly or indirectly engaged in any Competitive Business within the
Territory.
5.6 Without limiting the generality of the provisions of this Article 5,
the Consultant (or an Affiliate of the Consultant) shall be deemed to transact
or be engaged in a particular business if the Consultant or any Affiliate which
he controls (whether alone or in association with one or more other persons or
other entities) is, without limitation, an owner, proprietor, partner, member,
stockholder, officer, employee, agent, independent contractor, director or joint
venturer of, or a consultant or lender to, or an investor in any manner in, any
person or entity who or which is, to the knowledge of Consultant, directly or
through an Affiliate engaged in any such Competitive Business, including,
without limitation, any such person or entity with respect to which a member of
the immediate family of the Consultant is an Affiliate. Notwithstanding the
foregoing provisions of this Article 5, the Consultant (or an Affiliate of the
Consultant) may own, solely as an investment, securities if the Consultant (or
an Affiliate of the Consultant) (i) is not an Affiliate of the issuer of such
securities and (ii) does not, directly or indirectly, beneficially own more than
5% of the class of which such securities are a part.
5.7 During the Covenant Period, the Consultant shall not, and shall cause
each of his Affiliates not to, whether for his own account or for the account of
any other person or other entity (other than the Company or any Affiliate of the
Company), solicit the employment or services of, or cause or attempt to cause to
leave the employment or services of the Company or any Affiliate of the Company,
any person or entity who or which is employed by, or otherwise engaged to
perform services for the Company or any Affiliate of the Company (whether in the
capacity of employee, consultant, independent contractor or otherwise).
5.8 Consultant acknowledges that money damages would not be sufficient
remedy for any breach of this Article 5 by Consultant, and the Company shall be
entitled to enforce the provisions of this Article 5 by terminating any payments
then owing to Consultant under this Agreement and/or to specific performance and
injunctive relief as remedies for such breach or any threatened breach. Such
remedies shall not be deemed the exclusive remedies for a breach of this Article
5, but shall be in addition to all remedies available at law or in equity to the
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Company, including, without limitation, the recovery of damages from Consultant
and his agents involved in such breach.
ARTICLE 6: MISCELLANEOUS:
6.1 For purposes of this Agreement, "AFFILIATE" means, with respect to any
person or entity, any person or entity that, directly or indirectly, Controls,
is Controlled by, or is under common Control with, such person or entity in
question. For the purposes of the definition of Affiliate, "Control" (including,
with correlative meaning, the terms "Controlled by" and "under common Control
with") as used with respect to any person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such person or entity, whether through the ownership of voting
securities or by contract or otherwise.
6.2 For purposes of this Agreement "COMPETITIVE BUSINESS" means (i) any
business, enterprise or activity, whether or not for profit, that provides
management, maintenance, construction, consultation, services, contracts,
properties, facilities, plans or designs relating to correction, detention,
treatment, education or pre-release services or (ii) any business, enterprise or
activity, whether or not for profit, that the Company, or any of its Affiliates,
is engaged in or has stated its intent to engage in prior to the time the
Consultant commences or becomes associated with such a business, enterprise or
activity.
6.3 For purposes of this Agreement the term "CHANGE OF CONTROL" means (i)
the Company merges or consolidates with any other entity, and the Company's
stockholders do not own, directly or indirectly, at least 50% of the voting
capital stock of the surviving entity, (ii) the Company sells all or
substantially all of its assets to any other person or entity, (iii) the Company
is dissolved, (iv) if any third person or entity together with its Affiliates
shall become, directly or indirectly, the beneficial owner of the least 51% of
the Voting Stock of the Company, or (v) if the individuals who constituted the
members of the Company's Board of Directors ("INCUMBENT Board") as of the date
of this Agreement cease for any reason to constitute at least a majority
thereof, provided that for purposes of this clause (v) any person becoming a
director whose election or nomination for election by Company stockholders was
approved by a vote of at least eighty percent (80%) of the directors comprising
the Incumbent Board (either by the specific vote or approval of the proxy
statement of the Company in which such person is named as a nominee for
director, without objection to such a nomination) shall be, for purposes of this
clause (v), considered as though such person were a member of the Incumbent
Board. "VOTING STOCK" means all the outstanding shares of capital stock of
Company entitled to vote generally in elections for directors, considered as one
class; provided, however, that if Company has shares of Voting Stock entitled to
more or less than one vote for any such share, each reference to a proportion of
shares of Voting Stock shall be deemed to refer to such proportion of the votes
entitled to be cast by such shares. Notwithstanding the foregoing, a transaction
shall not be considered a Change of Control for purposes of this Agreement if
the transaction is approved by a vote of at least eighty percent (80%) of the
directors comprising the Incumbent Board.
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6.4 For purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Company, to:
Cornell Corrections, Inc.
1700 West Loop South, Suite 1500
Houston, Texas 77027
Attention: Secretary
With a copy to:
Locke Liddell & Sapp LLP
3500 Chase Tower
600 Travis
Houston, Texas 77002
Attention: Marcus A. Watts
If to Consultant, to the address shown on the first page hereof.
With a copy to:
Gibson, Dunn & Crutcher
1050 Connecticut Avenue NW
Washington, D.C. 20036-8500
Attention: Peter Wallison
Either the Company or Consultant may furnish a change of address to the other in
writing in accordance herewith, except that notices of changes of address shall
be effective only upon receipt.
6.5 This Agreement shall be governed in all respects by the laws of the
State of Texas, excluding any conflict-of-law rule or principle that might refer
to the construction of the Agreement to the laws of another State or country.
6.6 No failure by either party hereto at any time to give notice of any
breach by the other party of, or to require compliance with, any condition or
provision of this Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
6.7 If a dispute arises out of or related to this Agreement, other than a
dispute regarding Consultant's obligations under Article 5, and if the dispute
cannot be settled through
9
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direct discussions, then the Company and Consultant agree to first endeavor to
settle the dispute in an amicable manner by mediation, before having recourse to
any other proceeding or forum.
6.8 The Company's principal place of business is in Houston, Harris
County, Texas. This Agreement shall be performed in Houston, Harris County,
Texas. Any litigation that may be brought by either the Company or Consultant
involving the enforcement of this Agreement or the rights, duties, or
obligations of this Agreement, shall be brought exclusively in the state or
federal courts sitting in Houston, Harris County, Texas. In the event that
service of process cannot be effected upon a party, each party hereby
irrevocably appoints the Secretary of State for the State of Texas as its or his
agent for service of process to receive the summons and other pleadings in
connection with any such litigation. In the event of litigation between the
parties regarding this Agreement, the prevailing party shall, in addition to any
sums recovered in the litigation, be entitled to recover all sums expended by
that party (including reasonable costs, reasonable attorneys' fees and
reasonable expert witness' fees) in connection with that litigation.
6.9 It is a desire and intent of the parties that the terms, provisions,
covenants and remedies contained in this Agreement shall be enforceable to the
fullest extent permitted by law. If any such term, provision, covenants, or
remedy of this Agreement or the application thereof to any person, association,
or entity or circumstances shall, to any extent, be construed to be invalid or
unenforceable in whole or in part, then such term, provision, covenant, or
remedy shall be construed in a manner so as to permit its enforceability under
the applicable law to the fullest extent permitted by law. In any case, the
remaining provisions of this Agreement or the application thereof to any person,
association, or entity or circumstances other than those to which they have been
held invalid or unenforceable, shall remain in full force and effect.
6.10 This Agreement shall be binding upon and inure to the benefit of the
Company, and any other person, association, or entity which may hereafter
acquire or succeed to all or substantially all of the business or assets of the
Company by any means whether direct or indirect, by purchase, merger,
consolidation, or otherwise. This Agreement shall be binding upon and inure to
the benefit of Consultant, and his heirs, successors and permitted assigns.
Consultant's rights and obligations under Agreement hereof are personal and such
rights, benefits, and obligations of Consultant shall not be voluntarily or
involuntarily assigned, alienated, or transferred, whether by operation of law
or otherwise, without the prior written consent of the Company. The Company
shall not assign this Agreement without the prior written consent of Consultant.
6.11 This Agreement replaces and merges previous agreements and
discussions pertaining to the following subject matters covered herein:
Consultant's prior employment by the Company and any agreements regarding such
relationship and the nature of Consultant's relationship with the Company and
the term and termination of such relationship. This Agreement constitutes the
entire agreement of the parties with regard to such subject matters, and
contains all of the covenants, promises, representations, warranties, and
agreements between the parties with respect to such subject matters; provided
that Consultant shall also comply with all policies and procedures of the
Company as established from time to time. Each party to this Agreement
acknowledges that no representation, inducement, promise, or agreement, oral or
10
<PAGE>
written, has been made by either party with respect to such subject matters,
which is not embodied herein, and that no agreement, statement, or promise
relating to the relationship between the Company and Consultant that is not
contained in this Agreement shall be valid or binding. Any modification of this
Agreement will be effective only if it is in writing and signed by each party
whose rights hereunder are affected thereby, provided that any such modification
must be authorized or approved by the Board of Directors of the Company.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK;
COUNTERPART SIGNATURE PAGES FOLLOW.)
11
<PAGE>
IN WITNESS WHEREOF, the Company and Consultant have duly executed this
Agreement in multiple originals to be effective on the Effective Date of the
Agreement.
Company: Consultant:
CORNELL CORRECTIONS, INC. DAVID M. CORNELL
By: /s/ STEVEN W. LOGAN /s/ DAVID M. CORNELL
Name: Steven W. Logan This 1st day of September, 1999
Authorized Signatory
This 1st day of September, 1999
12
<PAGE>
EXHIBIT A TO
CONSULTANT AGREEMENT
BETWEEN CORNELL CORRECTIONS, INC.
AND DAVID M. CORNELL
Consultant Name: David M. Cornell
Initial Term: This Agreement shall commence on the Effective Date
through the Second Anniversary of the Effective Date.
This Agreement shall automatically renew for five
additional one-year terms, without any requirement for
action on the part of the Company or Consultant, unless
sooner terminated as provided in this Agreement. The
two-year term together with the five additional one-year
terms, comprising seven years in the aggregate, are
herein referred to as the "INITIAL TERM".
Renewal Term: From Conclusion of the Initial Term through the Third
Anniversary of such Conclusion
Duties and Services: Consultant shall serve the Company as non-executive
Chairman of the Board from the Effective Date through
the Fourth Anniversary of the Effective Date, to the
extent Consultant is a member of the Board of Directors
during such period. The Company shall nominate
Consultant to stand for election as a director to serve
through the expiration of the Initial Term, subject to
the fiduciary duties of the Company's Board of
Directors. Consultant shall perform such consulting
responsibilities consistent with his rank and position
with the Company as reasonably determined by the Board
of Directors, including, without limitation, assisting
with development of business, acquisitions and obtaining
financings. The projects on which Consultant works shall
be subject to Consultant's consent, not to be
unreasonably withheld.
Location: Houston, Harris County, Texas
Reporting Relationship: In his role as a Consultant, Consultant shall report
directly to the Company's Chief Executive Officer. This
reporting requirement shall not apply to Consultant's
status as Chairman of the Board and as a director.
A-1
<PAGE>
Monthly Base Compensation:
First 48 Months of Initial Term $21,250.00
Remaining 36 Months of Initial Term $15,000.00
Renewal Term, if applicable, $25,000.00
Monthly Non-Compete Fee:
Initial Term $10,000.00
Fixed Bonus: Consultant will receive a bonus equal to (i) $75,000
during the first four years of the Initial Term, and
(ii) $60,000 during the last three years of the Initial
Term and during any Renewal Term, if applicable. The
foregoing notwithstanding, in the event that the Board
determines at the end of any year that the Company does
not have or is not reasonably likely to have adequate
working capital timely to meet its obligations, the
Company shall be under no obligation to pay Consultant
such bonus for such year; however, such bonus must be
paid if a bonus is paid to a senior executive officer
for such fiscal year.
Options: As of December 9, 1999, Consultant has 296,124 options
under the Company's Amended and Restated 1996 Stock
Option Plan ("EXISTING OPTIONS"), as follows: 126,124 of
which were granted during the Company's 1996 fiscal year
and were exercisable prior to the Effective Date; 10,000
of which were granted during the Company's 1998 fiscal
year, of which 8,000 were not exercisable prior to the
Effective Date; and 160,000 of which were granted during
the Company's 1999 fiscal year, of which 160,000 were
not exercisable prior to the Effective Date. The Company
will grant Consultant options for One Hundred Twenty
Thousand (120,000) additional shares ("ADDITIONAL
OPTIONS") in four equal annual grants beginning on the
First Anniversary of the Effective Date, subject to the
terms of the Company's Amended and Restated 1996 Stock
Option Plan, or such other stock option plan of the
Company as shall be in effect from time to time (the
"PLAN"). The option agreement ("OPTION AGREEMENT")
pursuant to which the Additional Options shall be
granted to Consultant shall provide that the Additional
Options shall vest at the time such options are granted.
The exercise price of the Additional Options shall be
the Fair Market Value, as defined in the Plan, on the
date of grant. The Option Agreement pursuant to which
the Additional Options shall be granted shall specify
that the Additional Options shall be exercisable only to
the extent that Consultant has exercised,
A-2
<PAGE>
subsequent to the Effective Date, or exercises
simultaneously therewith an equal or greater number of
Existing Options.
Payments and Benefits
upon Involuntary
Termination: In the event of an Involuntary Termination of
Consultant's consulting relationship pursuant to Section
3.1.b or Section 3.2.b, Consultant shall be entitled to
the following in accordance with Section 3.5:
o Consultant will receive pro rata Agreed Payment
Amounts accrued prior to such Involuntary
Termination, but not yet paid, and a lump sum
payment equal to the net present value (calculated
on the date payment is tendered with a discount
rate of 8%) of the sum of all pro rata Agreed
Payment Amounts to become due (a) during the
remainder of the Initial Term, if such Involuntary
Termination occurs during the Initial Term, or (b)
during the remainder of the Renewal Term, if such
Involuntary Termination occurs during the Renewal
Term.
o The Company will grant and Consultant will receive
any of the Additional Options which have not been
granted prior to the date of the Involuntary
Termination on the date of the Involuntary
Termination, even if none of the Existing Options
have been exercised as of such date; provided,
however, that the Additional Options shall be
exercisable only to the extent that Consultant has
exercised, subsequent to the Effective Date, or
exercises simultaneously therewith an equal or
greater number of Existing Options.
o With regard to Existing Options which are not
vested, such Existing Options shall immediately
become vested. With regard to the Existing Options
which were granted during the Company's 1998 and
1999 fiscal year, the period during which such
Existing Options are exercisable shall be
extended, if necessary, so that such Existing
Options are exercisable until 90 days after August
31, 2006.
o Consultant shall be entitled to the same level of
medical and disability coverage through the
remainder of the Initial Term or the Renewal Term,
if applicable, as he received prior to the date of
Involuntary Termination.
A-3
<PAGE>
o Consultant shall be entitled to continue to
receive the Monthly Allowance described below
until the Fourth Anniversary of the Effective
Date.
Payments and Benefits
Upon Termination as a
Result of Death: Upon termination of the consulting relationship pursuant
to Section 3.1.c as a result of Consultant's death,
Consultant's heirs, administrators, or legatees shall be
entitled to the following in accordance with Section
3.6:
o If termination of the consulting relationship
occurs during the Initial Term, Consultant's
heirs, administrators, or legatees shall be
entitled to (i) Consultant's pro rata Agreed
Payment Amount through the date of such
termination and to a lump sum payment equal to the
net present value (calculated on the date payment
is tendered with a discount rate of 8%) of the
lesser of (a) the pro rata Agreed Payment Amount
due during the remainder of the Initial Term and
(b) the pro rata Agreed Payment Amount due during
the two (2) years immediately following such
termination, and (ii) the Additional Options
described below.
o If termination of the consulting relationship
occurs during the Renewal Term, if any,
Consultant's heirs, administrators, or legatees
shall be entitled only to compensation and
benefits accrued prior to such termination,
subject to the terms and provisions of the plans
and programs pursuant to which they were accrued.
o The Company will grant and Consultant's heirs,
administrators, or legatees will receive any of
the Additional Options which have not been granted
prior to the date of the termination on the date
of the termination, even if none of the Existing
Options have been exercised as of such date;
provided, however, that the Additional Options
shall be exercisable only to the extent that
Consultant or his heirs, administrators, or
legatees exercise, subsequent to the Effective
Date, or exercise simultaneously therewith an
equal or greater number of Existing Options.
A-4
<PAGE>
Payments and Benefits
Upon Termination as a
Result of Disability: Upon termination of the consulting relationship pursuant
to Section 3.1.d as a result of Consultant's disability,
Consultant shall be entitled to the following in
accordance with Section 3.7:
o If termination of the consulting relationship
occurs during the Initial Term, Consultant shall
be entitled to (i) Consultant's pro rata Agreed
Payment Amount through the date of such
termination and to a lump sum payment equal to the
net present value (calculated on the date payment
is tendered with a discount rate of 8%) of the
lesser of (a) the pro rata Agreed Payment Amount
due during the remainder of the Initial Term and
(b) the pro rata Agreed Payment Amount due during
the two (2) years immediately following such
termination, (ii) the Additional Options described
below and (iii) the medical coverage described
below.
o If termination of the consulting relationship
occurs during the Renewal Term, if any, Consultant
shall be entitled only to compensation and
benefits accrued prior to such termination,
subject to the terms and provisions of the plans
and programs pursuant to which such benefits were
accrued.
o The Company will grant and Consultant will receive
any of the Additional Options which have not been
granted prior to the date of the termination on
the date of the termination, even if none of the
Existing Options have been exercised as of such
date; provided, however, that the Additional
Options shall be exercisable only to the extent
that Consultant has exercised, subsequent to the
Effective Date, or exercises simultaneously
therewith an equal or greater number of Existing
Options.
o Until such time as Consultant is eligible to
receive Medicare coverage, Consultant shall be
provided with the same level of medical coverage
after the date of termination as he received prior
to the termination.
A-5
<PAGE>
Benefits: The Company reaffirms its obligations under the Cornell
Corrections, Inc. Split-Dollar Insurance Agreement
between the Company, Consultant and David M. Cornell II,
Trustee, dated April 26, 1999, and its obligations under
the Cornell Corrections, Inc. Split-Dollar Insurance
Agreement between the Company, Consultant and Mary
Catherine Cornell Wideman, Trustee, dated April 26, 1999
and shall continue to pay each life insurance premium as
it becomes due, subject to the terms of such agreements.
Notwithstanding anything to the contrary in this
Agreement, the Company shall fulfill all of its
obligations under such Split-Dollar Insurance
Agreements, even though this Agreement is terminated
prior to the time such obligations are fulfilled. During
the Initial Term and the Renewal Term, if any,
Consultant shall be provided with medical and disability
coverage with benefits and on terms and conditions at
least comparable to the coverage provided to the
Company's senior executives. Consultant will elect
Medicare coverage as soon as Consultant is eligible, and
the Company will pay for all reasonably available
supplemental coverage. During the Initial Term, so long
as Consultant is a member of the Board of Directors,
Consultant shall be entitled to receive benefits
accorded to outside directors and to participate in
benefit plans made available to outside directors,
subject to eligibility requirements and the other terms
of such plans.
Secretarial Assistance: During the period commencing on the Effective Date and
continuing through the Fourth Anniversary of the
Effective Date, the Company shall provide Consultant
with the services of a secretary who shall be Ms. Pam
Rogers. If Ms. Rogers is for any reason unavailable, the
Company shall furnish a secretary reasonably acceptable
to Consultant.
Monthly Allowance: During the period commencing on the Effective Date and
continuing through the Fourth Anniversary of the
Effective Date, Consultant shall be entitled to a
Monthly Allowance of Two Thousand Five Hundred Dollars
($2,500) for any and all direct and indirect expenses
associated with establishing and maintaining an office
at a location separate from the Company's headquarters.
Such payment is intended to cover all expenses
associated with maintaining an office, including,
without limitation, leasehold improvements, office
furniture and equipment, utilities, insurance, parking
and transportation to and from the office. No other
business expenses or costs shall be paid to Consultant
unless advance written approval of the project with
which the expenses
A-6
<PAGE>
are associated is granted by the Company's Chief
Executive Officer. Expense reimbursements shall be
subject to approval by the Audit Committee of the Board
of Directors.
Legal Fees: The Company shall pay to Consultant up to Fifteen
Thousand Dollars ($15,000.00) of Consultant's legal fees
relating to negotiation of this Agreement upon
submission of a bill or invoice to the Company.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK;
COUNTERPART SIGNATURE PAGES FOLLOW.)
A-7
<PAGE>
IN WITNESS WHEREOF, the Company and Consultant have duly executed this
Exhibit A in multiple originals to be effective on the Effective Date of the
Agreement.
Company: Consultant:
CORNELL CORRECTIONS, INC. DAVID M. CORNELL
By: /s/ STEVEN W. LOGAN /s/ DAVID M. CORNELL
Name: Steven W. Logan This 1st day of September, 1999
Authorized Signatory
This 1st day of September, 1999
EXHIBIT 10.40
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (the "AGREEMENT"), is entered into as of
_______________, 1999, by and between Cornell Corrections, Inc., a Delaware
corporation (the "COMPANY"), and ____________________ (the "OFFICER").
WHEREAS, the Compensation Committee (the "COMMITTEE") of the Company's
Board of Directors (the "COMPANY BOARD") has determined that it is in the best
interests of the Company and its stockholders to assure that the Company will
have the continued dedication of the Officer, notwithstanding the possibility,
threat or occurrence of a Change in Control (as defined herein) of the Company;
and
WHEREAS, the Committee believes that it is imperative to diminish the
inevitable distraction of the Officer by virtue of the personal uncertainties
and risks created by a pending or threatened Change in Control, to encourage the
Officer's full attention and dedication to the Company currently and in the
event of any threatened or pending Change in Control, and to provide the Officer
with compensation arrangements upon a Change in Control which provide the
Officer with individual financial security and which are competitive with those
of other corporations.
NOW, THEREFORE, in consideration of the premises and the agreements herein
contained, the receipt and sufficiency of which are hereby acknowledged, the
Company and the Officer hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have
the following meanings (the singular includes the plural, unless the context
clearly indicates otherwise):
(a) An "AFFILIATE" shall mean, with respect to any person or entity, any
person or entity that, directly or indirectly, Controls, is Controlled by, or is
under common Control with, such person or entity in question. For the purposes
of the definition of Affiliate, "CONTROL" (including, with correlative meaning,
the terms "CONTROLLED BY" and "UNDER COMMON CONTROL with") as used with respect
to any person, shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such person
or entity, whether through the ownership of voting securities or by contract or
otherwise.
(b) A "CHANGE IN CONTROL" shall be deemed to have occurred on the earliest
of the following dates:
(i) the date the Company merges or consolidates with any other
entity, and the Company's stockholders do not own, directly or indirectly,
at least 50% of the voting capital stock of the surviving entity;
<PAGE>
(ii) the date the Company sells all or substantially all of its
assets to any other person or entity; provided that the sale or other
transfer of Company facilities to a real estate investment trust, in a
sale-leaseback transaction, or any similar transaction shall not be
considered a sale of all or substantially all of the Company's assets;
(iii) the date the Company is dissolved;
(iv) the date any third person or entity together with its
Affiliates becomes, directly or indirectly, the beneficial owner of the
least 51% of the Voting Stock of the Company; or
(v) the date the individuals who constituted the members of the
Company's Board of Directors ("INCUMBENT BOARD") as of the date of this
Agreement cease for any reason to constitute at least a majority thereof,
provided that for purposes of this clause (v) any person becoming a
director whose election or nomination for election by the Company's
stockholders was approved by a vote of at least eighty percent (80%) of
the directors comprising the Incumbent Board (either by the specific vote
or approval of the proxy statement of the Company in which such person is
named as a nominee for director, without objection by such person to such
a nomination) shall be, for purposes of this clause (v), considered as
though such person were a member of the Incumbent Board;
provided, however, that notwithstanding anything to the contrary contained in
clauses (i) - (v), a Change in Control shall not be deemed to have occurred in
connection with any bankruptcy or insolvency of the Company, or any transaction
in connection therewith.
(c) "CHANGE IN CONTROL DATE" shall be the date on which a Change in
Control occurs.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(e) "TERMINATION DATE" shall mean the date on which the Officer's
employment with the Company is terminated, by either the Company or the Officer.
(f) "VOTING STOCK" means all the outstanding shares of capital stock of
Company entitled to vote generally in elections for directors, considered as one
class; provided, however, that if Company has shares of Voting Stock entitled to
more or less than one vote for any such share, each reference to a proportion of
shares of Voting Stock shall be deemed to refer to such proportion of the votes
entitled to be cast by such shares.
2. BENEFITS UPON CHANGE IN CONTROL. If, within one (1) year after a Change
in Control, the Officer's employment with the Company is terminated (for any
reason, including but not limited to death or retirement, and whether with or
without cause and whether by the Officer or the Company), the Company shall be
required to provide the following benefits to the Officer:
(a) The Company shall pay to the Officer in a lump sum in cash,
concurrently with the Termination Date if the Company discharges the Officer and
within 30 days of the Termination Date if the Officer's employment is terminated
by the Officer or upon the Officer's
2
<PAGE>
death or retirement, a payment equal to __________ times the sum of (i) the
Officer's highest annual base salary as of the Termination Date and the Change
in Control Date plus (ii) the average of the annual bonus paid or payable,
including by reason of any deferral, to the Officer by the Company or its
Affiliates in respect of the two most recent full fiscal years ending on or
prior to the Termination Date (or if the Officer has not been employed for two
full fiscal years, then the annual bonus in respect of the most recent full
fiscal year).
(b) In addition to the cash benefits payable pursuant to Section 2(a)
hereof, all stock options, restricted stock awards and similar awards granted to
the Officer by the Company prior to the Termination Date shall immediately vest
on the Termination Date, notwithstanding any existing vesting schedule or other
terms set forth in any plan or agreement governing the term of such stock
options, restricted stock awards and similar awards.
3. FULL SETTLEMENT. The Company's obligations to perform hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Officer. In no
event shall the Officer be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Officer under any of
the provisions of this Agreement. The Company agrees to pay, to the fullest
extent permitted by law, all legal fees and expenses which the Officer may incur
as a result of any contest by the Company or others of the validity or the
enforceability of, or liability under, any provision of this Agreement.
4. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit the Officer's continuing or future participation in any benefit, bonus,
incentive or other plans, programs, policies or practices provided by the
Company or any of its subsidiaries and for which the Officer may qualify, nor
shall anything herein limit or otherwise affect such rights as the Officer may
have under any stock option, restricted stock or other agreements with the
Company or any of its subsidiaries. Amounts which are vested benefits or which
the Officer is otherwise entitled to receive under any plan, policy, practice or
program of the Company or any of its subsidiaries on the Change in Control Date
shall be payable in accordance with such plan, policy, practice or program.
5. FUNDING. The Company shall pay the benefits under this Agreement out of
its general assets pursuant to the terms of this Agreement. There shall be no
special fund out of which benefits shall be paid, nor shall the Officer be
required to make a contribution as a condition of receiving benefits.
6. TAX WITHHOLDING. The Company may withhold or cause to be withheld from
any benefits payable under this Agreement all federal, state, city or other
taxes that are required by any law or governmental regulation or ruling.
7. NOTICES. Any notice required or desired to be given under this
Agreement or other communications relating to this Agreement shall be in writing
and delivered personally or mailed by United States registered or certified
mail, return receipt requested, postage prepaid, to the party concerned at the
address set forth below:
3
<PAGE>
If to the Company to: Cornell Corrections, Inc.
1700 West Loop South, Suite 1500
Houston, Texas 77027
Attn: Secretary
With a copy (which shall not
constitute notice) to:
Locke Liddell & Sapp LLP
3400 Chase Tower
600 Travis
Houston, Texas 77002
Attn: Marcus A. Watts
If to the Officer to: At his residence address as
maintained by the Company in
the regular course of its
business for payroll purposes.
8. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties hereto with respect to severance payments and supersedes any prior
agreement, arrangement or understanding, whether oral or written, between the
Company and the Officer concerning severance payments.
9. CHOICE OF LAW. This Agreement shall be governed by, and enforced
according to, the laws of the State of Texas. The invalidity of any provision
shall be automatically reformed to the extent permitted by applicable law and
shall not affect the enforceability of the remaining provisions hereof. The
Officer hereby waives any objection which he may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of or relating to
this Agreement brought in the District Court of Harris County, State of Texas,
or in the United States District Court for the Southern District of Texas, and
hereby further waives any claims that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
10. ASSIGNMENT. The rights and obligations under this Agreement of the
Company and the Officer may not be assigned, except that the Company may, at its
option, assign one or more of its rights or obligations under this Agreement to
any of its subsidiaries or affiliates, or in connection with a transfer of all
or substantially all of the assets or stock of the Company or a merger or
consolidation of the Company with and into another corporation or other entity,
provided that in each case the Company shall remain responsible for its
obligation hereunder.
11. COUNTERPARTS. This Agreement may be executed in several identical
counterparts, and by the parties hereto on separate counterparts, and each
counterpart, when so executed and delivered, shall constitute an original
instrument, and all such separate counterparts shall constitute but one and the
same instrument.
12. MODIFICATION. This Agreement may be modified only by written agreement
signed by the Officer and by the President or Secretary of the Company. The
failure to insist upon compliance with any provision hereof shall not be deemed
a waiver of such provision or any other provision hereof.
4
<PAGE>
IN WITNESS WHEREOF, the undersigned parties have executed this Agreement
effective as of the date first written above.
CORNELL CORRECTIONS, INC.
By: ___________________________
John L. Hendrix
Chief Financial Officer
THE OFFICER
_________________________________
Name:____________________________
5
EXHIBIT 11.1
Cornell Corrections, Inc.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- ---------------------
BASIC DILUTED BASIC DILUTED BASIC DILUTED
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Earnings ........................................ $ 5,352 $ 5,352 $ 6,062 $ 6,062 $ 3,554 $ 3,554
======== ======== ======== ======== ======== ========
Shares used in computing net earnings per share:
Weighted average common shares and
common share equivalents ...................... 10,129 10,129 10,032 10,032 7,905 7,905
Less treasury shares ............................ (697) (697) (590) (590) (555) (555)
Effect of shares issuable under stock options
and warrants based on the treasury stock method -- 228 -- 330 -- 390
-------- -------- -------- -------- -------- --------
9,432 9,660 9,442 9,772 7,350 7,740
-------- -------- -------- -------- -------- --------
Net earnings per share ............................. $ 0.57 $ 0.55 $ 0.64 $ 0.62 $ 0.48 $ 0.46
======== ======== ======== ======== ======== ========
</TABLE>
EXHIBIT 21.1
SUBSIDIARIES OF CORNELL CORRECTIONS, INC.
(AS OF DECEMBER 31, 1999)
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
PERCENTAGE OF VOTING SECURITIES OWNED BY A
SECURITIES OWNED BY CORNELL SUBSIDIARY
CORRECTIONS, INC. OF CORNELL CORRECTIONS, INC.
---------------------------- ----------------------------
<S> <C> <C>
Cornell Corrections Management, Inc. 100%
Cornell Corrections of Texas, Inc. 100%
Cornell Corrections of California, Inc. 100%
Cornell Corrections of Rhode Island, Inc. 100%
Abraxas Group, Inc. 100%
WBP Leasing, Inc. 100%
Cornell Corrections of Oklahoma, Inc. 100%
Cornell Corrections of Georgia, L.P. 100%
Cornell Corrections of Alaska, Inc. 100%
Cornell Interventions, Inc. 100%
CCGI Corporation 100%
</TABLE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated February 25, 2000, included herein in this Form 10-K into the
Company's previously filed Registration Statements on Form S-8 No. 333-19127 and
333-19145 filed on December 31, 1996.
ARTHUR ANDERSEN LLP
/s/ ARTHUR ANDERSEN LLP
Houston, Texas
March 30, 2000
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of Cornell Corrections, Inc., a Delaware corporation (the
"Company"), does hereby constitute and appoint Steven W. Logan his true and
lawful attorney and agent, to do any and all acts and things and to execute any
and all instruments which said attorney and agent deems necessary or advisable
to enable the Company to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Form 10-K under
the said Securities Exchange Act of said corporation, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign for and on behalf of the undersigned as officer or director, or both, of
the Company to the Form 10-K or to any amendments thereto filed with the
Securities and Exchange Commission, and to any instrument or document filed as
part of, as an exhibit to or in connection with said Form 10-K or amendments,
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
27th day of March 2000.
/s/ PETER A. LEIDEL
Peter A. Leidel
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of Cornell Corrections, Inc., a Delaware corporation (the
"Company"), does hereby constitute and appoint Steven W. Logan his true and
lawful attorney and agent, to do any and all acts and things and to execute any
and all instruments which said attorney and agent deems necessary or advisable
to enable the Company to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Form 10-K under
the said Securities Exchange Act of said corporation, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign for and on behalf of the undersigned as officer or director, or both, of
the Company to the Form 10-K or to any amendments thereto filed with the
Securities and Exchange Commission, and to any instrument or document filed as
part of, as an exhibit to or in connection with said Form 10-K or amendments,
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
27th day of March 2000.
/s/ ANTHONY CHASE
Anthony Chase
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of Cornell Corrections, Inc., a Delaware corporation (the
"Company"), does hereby constitute and appoint Steven W. Logan his true and
lawful attorney and agent, to do any and all acts and things and to execute any
and all instruments which said attorney and agent deems necessary or advisable
to enable the Company to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Form 10-K under
the said Securities Exchange Act of said corporation, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign for and on behalf of the undersigned as officer or director, or both, of
the Company to the Form 10-K or to any amendments thereto filed with the
Securities and Exchange Commission, and to any instrument or document filed as
part of, as an exhibit to or in connection with said Form 10-K or amendments,
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
27th day of March 2000.
/s/ JAMES H.S. COOPER
James H.S. Cooper
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of Cornell Corrections, Inc., a Delaware corporation (the
"Company"), does hereby constitute and appoint Steven W. Logan his true and
lawful attorney and agent, to do any and all acts and things and to execute any
and all instruments which said attorney and agent deems necessary or advisable
to enable the Company to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Form 10-K under
the said Securities Exchange Act of said corporation, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign for and on behalf of the undersigned as officer or director, or both, of
the Company to the Form 10-K or to any amendments thereto filed with the
Securities and Exchange Commission, and to any instrument or document filed as
part of, as an exhibit to or in connection with said Form 10-K or amendments,
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
27th day of March 2000.
/s/ CAMPBELL A. GRIFFIN, JR.
Campbell A. Griffin, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of Cornell Corrections, Inc., a Delaware corporation (the
"Company"), does hereby constitute and appoint Steven W. Logan his true and
lawful attorney and agent, to do any and all acts and things and to execute any
and all instruments which said attorney and agent deems necessary or advisable
to enable the Company to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Form 10-K under
the said Securities Exchange Act of said corporation, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign for and on behalf of the undersigned as officer or director, or both, of
the Company to the Form 10-K or to any amendments thereto filed with the
Securities and Exchange Commission, and to any instrument or document filed as
part of, as an exhibit to or in connection with said Form 10-K or amendments,
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
27th day of March 2000.
/s/ DAVID M. CORNELL
David M. Cornell
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of Cornell Corrections, Inc., a Delaware corporation (the
"Company"), does hereby constitute and appoint Steven W. Logan his true and
lawful attorney and agent, to do any and all acts and things and to execute any
and all instruments which said attorney and agent deems necessary or advisable
to enable the Company to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Form 10-K under
the said Securities Exchange Act of said corporation, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign for and on behalf of the undersigned as officer or director, or both, of
the Company to the Form 10-K or to any amendments thereto filed with the
Securities and Exchange Commission, and to any instrument or document filed as
part of, as an exhibit to or in connection with said Form 10-K or amendments,
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
27th day of March 2000.
/s/ ARLENE R. LISSNER
Arlene R. Lissner
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of Cornell Corrections, Inc., a Delaware corporation (the
"Company"), does hereby constitute and appoint Steven W. Logan his true and
lawful attorney and agent, to do any and all acts and things and to execute any
and all instruments which said attorney and agent deems necessary or advisable
to enable the Company to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Form 10-K under
the said Securities Exchange Act of said corporation, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign for and on behalf of the undersigned as officer or director, or both, of
the Company to the Form 10-K or to any amendments thereto filed with the
Securities and Exchange Commission, and to any instrument or document filed as
part of, as an exhibit to or in connection with said Form 10-K or amendments,
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
27th day of March 2000.
/s/ TUCKER TAYLOR
Tucker Taylor
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM (identify specific financial statements) AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,763
<SECURITIES> 0
<RECEIVABLES> 48,092
<ALLOWANCES> 3,002
<INVENTORY> 0
<CURRENT-ASSETS> 54,756
<PP&E> 194,498
<DEPRECIATION> 9,146
<TOTAL-ASSETS> 273,991
<CURRENT-LIABILITIES> 67,392
<BONDS> 0
0
0
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<OTHER-SE> 97,198
<TOTAL-LIABILITY-AND-EQUITY> 273,991
<SALES> 0
<TOTAL-REVENUES> 176,967
<CGS> 0
<TOTAL-COSTS> 154,718
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,522
<INCOME-PRETAX> 13,844
<INCOME-TAX> 5,538
<INCOME-CONTINUING> 8,306
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 2,954
<NET-INCOME> 5,352
<EPS-BASIC> .57
<EPS-DILUTED> .55
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