<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1997
REGISTRATION NO.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES
---------------------
CCA PRISON REALTY TRUST
(Exact name of Registrant as Specified in its Governing Instruments)
---------------------
2200 ABBOTT MARTIN ROAD
SUITE 201
NASHVILLE, TENNESSEE 37215
(615) 460-7452
(Address of Principal Executive Offices)
---------------------
J. MICHAEL QUINLAN
CHIEF EXECUTIVE OFFICER
CCA PRISON REALTY TRUST
2200 ABBOTT MARTIN ROAD
SUITE 201
NASHVILLE, TENNESSEE 37215
(615) 460-7452
(Name and Address of Agent for Service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
ELIZABETH E. MOORE F. MITCHELL WALKER, JR.
STOKES & BARTHOLOMEW, P.A. BASS, BERRY & SIMS PLC
SUNTRUST CENTER, NASHVILLE, TENNESSEE 37219 FIRST AMERICAN CENTER, NASHVILLE, TENNESSEE 37238
(615) 259-1450/FAX (615) 259-1470 (615) 742-6200/FAX (615) 742-6298
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this Registration Statement.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same
offering. [] ________________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [] ________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. []
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================================
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES BEING OFFERING PRICE AGGREGATE OFFERING REGISTRATION
BEING REGISTERED REGISTERED(1) PER SHARE(2) PRICE FEE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares............................ 19,550,000 shares $21.00 $410,550,000 $124,410
==============================================================================================================================
</TABLE>
(1) Includes 2,550,000 Common Shares which the Underwriters have an option to
purchase from the Company to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 24, 1997
PROSPECTUS
17,000,000 COMMON SHARES
CCA PRISON REALTY TRUST
CCA Prison Realty Trust, a Maryland real estate investment trust (the
"Company"), has been formed to capitalize on the opportunities created by the
growing trend towards privatization in the corrections industry, including the
increased demand for private correctional and detention facilities. The
principal business strategy of the Company will be to acquire correctional and
detention facilities, that meet the Company's investment criteria, from both
private prison managers and government entities, to expand its existing
facilities, and to lease all such facilities under long-term leases. The Company
initially will acquire nine correctional and detention facilities (collectively,
the "Initial Facilities") which have an aggregate design capacity of 6,687 beds,
currently owned and operated by Corrections Corporation of America, a Delaware
corporation ("CCA"). CCA is the largest developer and manager of privatized
correctional and detention facilities worldwide. The Company will also have an
option for a period of three years following the closing of the purchase of the
Initial Facilities, to acquire up to five additional correctional and detention
facilities (collectively, the "Option Facilities") which have an aggregate
design capacity of 5,638 beds currently owned and operated or under construction
or development by CCA (The Initial Facilities and the Option Facilities are
sometimes referred to collectively as the "Facilities"). The Company will lease
all of the Facilities to CCA, and CCA will continue to manage the Facilities. In
addition, the Company will have an option to acquire any correctional or
detention facility acquired or developed and owned by CCA in the future for a
period of three years following the Service Commencement Date (as hereinafter
defined) with respect to such facility. Upon completion of the Offering (as
hereinafter defined) and the Formation Transactions (as hereinafter defined),
the Company will be the only publicly-traded, self-administered and self-managed
real estate investment trust ("REIT") focused on acquiring and owning
correctional and detention facilities. The Company intends to pay regular
quarterly distributions, initially at a rate of $1.70 per share per annum,
beginning with a pro-rated dividend for the quarter ended September 30, 1997.
See "Distributions."
All of the common shares, $0.01 par value per share, of the Company (the
"Common Shares") offered hereby (the "Offering") are being sold by the Company.
Doctor R. Crants, Chairman of the Company and Chairman and Chief Executive
Officer of CCA, has agreed to acquire in the Offering 500,000 Common Shares at a
price per share equal to the initial public offering price. Upon completion of
the Offering, Doctor R. Crants and other members of the management of the
Company will collectively own, or will have options to acquire, approximately
10.1% of the Common Shares. To ensure compliance with certain requirements
related to qualification of the Company as a REIT, the Company's Declaration of
Trust limits the number of Common Shares that may be owned by any single person
or affiliated group to 9.8% of the outstanding Common Shares and restricts the
transferability of Common Shares if the transfer would prevent the Company from
qualifying as a REIT. See "Risk Factors -- Ownership Limit" and "Description of
Capital Shares -- Restrictions on Ownership."
Prior to the Offering, there has been no public market for the Common
Shares. It is currently anticipated that the initial public offering price per
Common Share will be between $19.00 and $21.00. See "Underwriting" for a
discussion of factors to be considered in determining the initial public
offering price. The Company intends to apply for listing of its Common Shares on
the New York Stock Exchange (the "NYSE") under the symbol "PZN."
SEE "RISK FACTORS" BEGINNING ON PAGE 16 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON SHARES OFFERED HEREBY, INCLUDING:
- The significant dependence on CCA, as the sole lessee of the Facilities,
for the Company's initial revenues and ability to make distributions to
shareholders;
- Potential conflicts of interest of affiliates of the Company and CCA,
including risks associated with the lack of third party appraisals for the
Facilities and the lack of arm's-length negotiations in connection with
certain aspects of the Formation Transactions;
- The risk that actual Cash Available for Distribution (as hereinafter
defined) will be insufficient to allow the Company to maintain the
Company's proposed initial distribution rate;
- Risks associated with owning correctional and detention facilities;
- The Company's lack of operating history and lack of experience in
operating in accordance with the requirements for maintaining its
qualification as a REIT;
- The taxation of the Company as a regular corporation if it fails to
qualify as a REIT; and
- Risks associated with debt to be incurred in connection with future
acquisitions and expansions.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
========================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.......................................... $ $ $
- ------------------------------------------------------------------------------------------------------------------------
Total(3)........................................... $ $ $
========================================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses estimated at $3,000,000 payable by the Company.
(3) The Company has granted to the Underwriters a 30-day over-allotment option
to purchase up to 2,550,000 additional Common Shares on the same terms and
conditions as set forth above. If all such shares are purchased by the
Underwriters, the total Price to Public will be $ , the total
Underwriting Discount will be $ and the total Proceeds to Company
will be $ .
---------------------
The Common Shares are offered subject to receipt and acceptance by the
several Underwriters, to prior sale, and to the several Underwriters' right to
reject any order in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that certificates for the Common Shares will be
available for delivery on or about , 1997.
---------------------
<TABLE>
<S> <C> <C> <C> <C>
JC BRADFORD & CO. LEGG MASON WOOD WALKER LEHMAN BROTHERS PAINEWEBBER STEPHENS INC.
INCORPORATED INCORPORATED
</TABLE>
, 1997
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES,
INCLUDING STABILIZATION AND SHORT-COVERING TRANSACTIONS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY............................... 1
The Company.................................... 1
Business of the Company and its Properties..... 2
Business Objectives and Strategies............. 5
Risk Factors................................... 7
Selected Historical and Pro Forma Financial
Data......................................... 7
The Private Corrections Industry............... 9
Corrections Corporation of America............. 10
Relationship Between CCA and the Company after
the Formation Transactions................... 10
Leases......................................... 12
The Formation Transactions..................... 12
Distributions.................................. 14
Tax Considerations and Tax Status of the
Company...................................... 15
The Offering................................... 15
RISK FACTORS..................................... 16
The Significant Dependence on CCA, as the Sole
Lessee of the Facilities, for the Company's
Initial Revenues and Ability to Make
Distributions................................ 16
Conflicts of Interest.......................... 16
Risks Related to the Company's Initial
Distribution Policy.......................... 18
Risks Associated With Owning Correctional
Facilities, Including Risks Associated With
the Operation of Those Facilities............ 18
Lack of Operating History...................... 19
Dependence on Key Personnel.................... 19
Lack of Control Over Day-to-Day Operations and
Management of the Facilities................. 19
Adverse Impact on Distributions of Failure of
Company to Qualify as a REIT................. 19
Changes in Investment and Financing Policies
Without Vote of Shareholders................. 20
Real Estate Investment Considerations.......... 20
No Prior Market for Common Shares; Factors
Affecting Market Price....................... 21
Ownership Limit................................ 21
Limits on Changes in Control................... 21
ERISA Risks.................................... 22
Dependence on Financing For Growth and Adverse
Consequences of Debt Financing on Ability to
Make Distributions........................... 22
THE COMPANY...................................... 23
General........................................ 23
Business Objectives and Strategies............. 24
Future Growth of the Company................... 24
USE OF PROCEEDS.................................. 27
CAPITALIZATION................................... 27
DISTRIBUTIONS.................................... 27
DILUTION......................................... 30
PRO FORMA FINANCIAL STATEMENTS................... 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............ 34
General........................................ 34
Results of Operations.......................... 34
Pro Forma Results of Operations................ 34
Liquidity and Capital Resources................ 34
Inflation...................................... 35
THE PRIVATE CORRECTIONS INDUSTRY................. 36
CORRECTIONS CORPORATION OF AMERICA............... 37
Facility Operations............................ 37
Certain Selected Financial Information......... 38
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 40
BUSINESS OF THE COMPANY AND ITS PROPERTIES....... 46
The Facilities................................. 46
Description of the Facilities.................. 48
Legal Proceedings.............................. 50
Competition.................................... 51
Government Regulation.......................... 51
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RELATIONSHIP BETWEEN CCA AND THE COMPANY AFTER
THE FORMATION TRANSACTIONS..................... 51
LEASES........................................... 53
MANAGEMENT....................................... 57
Trustees and Executive Officers................ 57
Committees of the Board of Trustees............ 59
Compensation of Trustees....................... 59
Indemnification................................ 59
Executive Compensation......................... 60
The Share Incentive Plan....................... 60
Non-Employee Trustees' Plan.................... 61
Dividend Reinvestment Plan..................... 62
Deferred Compensation Plan..................... 62
Employment Agreements.......................... 62
CERTAIN RELATIONSHIPS AND TRANSACTIONS........... 63
Share Acquisitions by Management............... 63
Purchase of Initial Facilities................. 63
Option Facilities.............................. 63
Right to Purchase.............................. 63
Noncompetition Agreement....................... 64
Employment Agreements.......................... 64
POLICIES AND OBJECTIVES WITH RESPECT TO CERTAIN
ACTIVITIES..................................... 64
Investment Objectives and Policies............. 64
Dispositions; CCA's Right of First Refusal..... 65
Financing...................................... 65
Working Capital Reserves....................... 66
Conflict of Interest Policies.................. 66
Other Policies................................. 66
CONFLICTS OF INTEREST............................ 67
General........................................ 67
Relationships Which May Give Rise to Conflicts
of Interest.................................. 67
Situations in Which Conflicts of Interests Have
Arisen and May Continue to Arise............. 67
Steps Taken by the Company to Address Potential
Conflicts of Interest........................ 68
THE FORMATION TRANSACTIONS....................... 69
Advantages and Disadvantages to Unaffiliated
Shareholders................................. 69
Benefits to the Company and its Officers and
Trustees..................................... 70
Benefits to CCA................................ 70
PRINCIPAL SHAREHOLDERS OF THE COMPANY............ 71
DESCRIPTION OF CAPITAL SHARES.................... 71
General........................................ 71
Restrictions on Ownership...................... 72
Certain Provisions of Maryland Law and of the
Company's Declaration of Trust and Bylaws.... 73
Limitations on Changes in Control.............. 75
Limitation of Liability and Indemnification of
Trustees..................................... 75
Transfer Agent and Registrar................... 76
SHARES AVAILABLE FOR FUTURE SALE................. 77
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS....... 77
Taxation of the Company........................ 77
Failure to Qualify............................. 83
Taxation of Taxable Domestic Shareholders...... 83
Backup Withholding............................. 84
Taxation of Tax-Exempt Shareholders............ 84
Taxation of Foreign Shareholders............... 85
Other Tax Consequences......................... 86
ERISA CONSIDERATIONS............................. 87
UNDERWRITING..................................... 88
EXPERTS.......................................... 89
LEGAL MATTERS.................................... 89
GLOSSARY......................................... 90
INDEX TO FINANCIAL STATEMENTS.................... F-1
</TABLE>
i
<PAGE> 5
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-11 under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Common Shares
offered hereby (the "Registration Statement"). This Prospectus, which is part of
the Registration Statement, does not contain all of the information set forth in
the Registration Statement and the exhibits and financial schedules thereto. For
further information with respect to the Company and the Common Shares, reference
is made to the Registration Statement and such exhibits and financial schedules
filed therewith. Any statements contained herein concerning the provisions of
any document are not necessarily complete, and, in each instance, reference is
made to the copy of such document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference.
For further information with respect to the Company and the Common Shares,
reference is made to the Registration Statement and such exhibits and financial
schedules, copies of which may be examined without charge at, or copies obtained
upon payment of prescribed fees from, the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be
available for inspection and copying at the regional offices of the Commission
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and at
Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois
60661-2511. The Commission also maintains a web site that contains reports,
proxy and information statements and other information regarding registrants
that file documents with the Commission, including the Company, and the address
is http://www.sec.gov. Moreover, the Company intends to apply for listing of its
Common Shares on the NYSE. Accordingly, if the Common Shares are so listed on
the NYSE, periodic reports, proxy material, and other information concerning the
Company, when filed, may be inspected at the offices of the NYSE, Operations, 20
Broad Street, New York, New York 10005.
Following consummation of the Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and will, therefore, be required to file reports, proxy and
information statements and other information with the Commission pursuant to the
reporting requirements of Section 13(a) thereof, in addition to any other legal
or NYSE requirements. Such reports, statements and information can also be
inspected and copied at the Commission's offices and web site listed above.
CAUTIONARY STATEMENT
Information contained in this Prospectus contains "forward-looking
statements" relating to, without limitation, future economic performance, plans
and objectives of management for future operations and projections of revenue
and other financial items, which can be identified by the use of forward-looking
terminology such as "may," "will," "should," "expect," "anticipate," "estimate"
or "continue" or the negative thereof or other variations thereon or comparable
terminology. The cautionary statements set forth under the caption "Risk
Factors" and elsewhere in this Prospectus identify important factors with
respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to differ materially from those
in such forward-looking statements.
ii
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial information and statements, and the notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise indicated, the
information contained in this Prospectus assumes(i) an initial public offering
price per Common Share of $20.00; (ii) the consummation of the Formation
Transactions (as hereinafter defined); and (iii) no exercise of the
Underwriters' over-allotment option. See "Glossary" for the definitions of
certain terms used in the Prospectus.
THE COMPANY
The Company has been formed to capitalize on the opportunities created by
the growing trend towards privatization in the corrections industry, including
the increased demand for private correctional and detention facilities. The
principal business strategy of the Company will be to acquire correctional and
detention facilities that meet the Company's investment criteria, from both
private prison managers and government entities, to expand its existing
facilities, and to lease all such facilities under long-term leases. The Company
initially will acquire the nine Initial Facilities currently owned and operated
by CCA. CCA is the largest developer and manager of privatized correctional and
detention facilities worldwide. The Company will also have an option to acquire
any or all of the five Option Facilities currently owned and operated or under
construction or development by CCA for a period of three years following the
closing of the purchase of the Initial Facilities. The Company will lease all of
the Facilities to CCA, and CCA will continue to manage the Facilities. In
addition, the Company will have an option to acquire any correctional or
detention facility acquired or developed and owned by CCA in the future for a
period of three years following the date CCA first receives inmates at such
facility (the "Service Commencement Date"). Upon completion of the Offering and
the Formation Transactions, the Company will be the only publicly-traded,
self-administered and self-managed REIT focused on acquiring and owning
correctional and detention facilities.
The Company believes that for the Initial Facilities and, if acquired, the
Option Facilities, it will benefit significantly from the continuity of
management provided by CCA. CCA has developed and operated the Facilities since
they were acquired or constructed by CCA at various times ranging from 1984
through 1997. See "Business of the Company and its Properties."
The Company will purchase the Initial Facilities for an aggregate cash
purchase price of approximately $308.1 million concurrent with the closing of
the Offering. The Initial Facilities will be leased to CCA pursuant to
long-term, non-cancelable "triple net" leases (the "Leases") which require CCA
to pay all operating expenses, taxes, insurance and other costs. All of the
Leases will provide for base rent with certain annual escalations and will have
primary terms ranging from 10 to 12 years which may be extended at fair market
rates for three additional five-year periods upon the mutual agreement of the
Company and CCA. The Initial Facilities are expected to generate aggregate
initial annual rent of approximately $33.9 million. The Company will have
general recourse to CCA under the Leases, but CCA's payment obligations under
such Leases are not secured by any assets of CCA. The shareholders of the
Company will have no recourse to CCA under the Leases.
The Company expects to have a $150.0 million syndicated credit facility
(the "Bank Credit Facility") which will be used for the acquisition of
additional correctional facilities, including the Option Facilities, and for
certain other purposes, including the expansion of existing facilities and
working capital, as necessary. The Company has not, however, finalized
negotiations for the Bank Credit Facility and there can be no assurance that the
Company will obtain the Bank Credit Facility. Upon consummation of the Offering,
the Company will have no outstanding indebtedness. The Company believes that its
lack of debt, coupled with the available financing through the Bank Credit
Facility, will provide it with significant financial resources in pursuing
correctional facility acquisition and expansion opportunities, including some or
all of the Option Facilities. The Company intends to maintain a capital
structure which limits consolidated indebtedness to no more than 50% of its
total capitalization. See "Policies and Objectives With Respect to Certain
Activities -- Financing."
1
<PAGE> 7
The Company believes that CCA has been successful in identifying,
analyzing, developing and acquiring private correctional facilities that have
generated significant growth in revenues and, as a result, the Company intends
to initially focus on privately-managed facilities which are owned and operated
by CCA or its subsidiaries. However, the Company will also pursue other
opportunities, including acquisitions of or financings for correctional
facilities owned and operated by various government entities. Certain members of
the Company's management team have extensive experience in developing, acquiring
and operating correctional and detention facilities as well as in negotiating
leases of all types, including triple net leases such as the Leases. See
"Management -- Trustees and Executive Officers."
The Company is a self-administered and self-managed real estate investment
trust that expects to qualify as a REIT for federal income tax purposes. In
order to qualify as a REIT, the Company's income must be derived from certain
sources, including rents from real property (and generally excluding income from
the operation of a correctional facility). See "Material Federal Income Tax
Considerations -- Taxation of the Company -- Income Tests." Accordingly, the
Company is precluded from operating correctional facilities and, consequently,
intends to lease such properties pursuant to long-term, non-cancelable triple
net leases.
The Company was formed as a Maryland real estate investment trust in April
1997. The Company's principal executive offices are located at, and its mailing
address is, 2200 Abbott Martin Road, Suite 201, Nashville, Tennessee 37215. The
Company's telephone and fax numbers are (615) 460-7452 and (615) 460-1206,
respectively.
BUSINESS OF THE COMPANY AND ITS PROPERTIES
THE FACILITIES
The Company has negotiated a purchase agreement for the nine Initial
Facilities with an aggregate design capacity of 6,687 beds, and option
agreements to purchase any or all of the five additional Option Facilities with
an aggregate design capacity of 5,638 beds which may be exercised at any time
during the three-year period following the closing of the purchase of the
Initial Facilities. In addition, the Company will have an option to acquire any
correctional or detention facility acquired or developed and owned by CCA in the
future for a period of three years following the Service Commencement Date with
respect to such facility. The Company will acquire a 100% interest in each of
the facilities purchased. Certain information for the Initial Facilities and the
Option Facilities is set forth in the following tables and accompanying
descriptions. In general, the Facilities are the correctional and detention
facilities owned or currently under development by CCA which will not be owned
by the contracting government entity or are not the subject of below market
purchase options held by contracting government entities.
2
<PAGE> 8
THE INITIAL FACILITIES
<TABLE>
<CAPTION>
INITIAL
ANNUAL LEASE
DESIGN DATE RENT TERM
FACILITY AND LOCATION CAPACITY OPENED TYPE OF FACILITY CONTRACTING ENTITIES(1) (IN MILLIONS) (YEARS)
- --------------------- -------- --------- ---------------- ----------------------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Houston Processing Center... 411 April Medium Security INS $ 1.5 12
Houston, Texas 1984 Processing Center
Laredo Processing Center.... 258 March Medium Security INS and BOP 1.2 12
Laredo, Texas 1985 Processing Center
Bridgeport Pre-Parole
Transfer Facility......... 200 November Minimum Security State of Texas 0.4 12
Bridgeport, Texas 1987 Pre-Parole Transfer
Facility
Mineral Wells Pre-Parole
Transfer Facility......... 1,119 July Minimum Security State of Texas 3.0 12
Mineral Wells, Texas 1989 Pre-Parole Transfer
Facility
West Tennessee Detention
Facility.................. 600 September Multi-Security INS, USMS, BOP, 3.7 10
Mason, Tennessee 1990 Detention Center State of North Carolina
Leavenworth Detention
Center.................... 327 June Maximum Security USMS 3.3 10
Leavenworth, Kansas 1992 Detention Center
Eloy Detention Center....... 1,500(2) July Medium Security INS and BOP 6.0 12
Eloy, Arizona 1994 Detention Center
Central Arizona Detention
Center.................... 1,792 October Multi-Security USMS, States of Oregon, 12.3 10
Florence, Arizona 1994 Detention Center Alaska and New Mexico
T. Don Hutto Correctional
Center.................... 480 January Medium Security Williamson County, Texas 2.5 12
Taylor, Texas 1997 Correctional States of Colorado and
Facility Wyoming
</TABLE>
- ---------------
(1) U.S. Immigration and Naturalization Service (the "INS"), Federal Bureau of
Prisons (the "BOP") and U.S. Marshals Service (the "USMS").
(2) Includes a 250-bed expansion which is expected to be completed in June 1997.
The Initial Facilities will be purchased from CCA for an aggregate purchase
price of approximately $308.1 million in cash. The Company will lease the
Initial Facilities to CCA pursuant to Leases with terms ranging from 10 to 12
years with aggregate initial annual rents of approximately $33.9 million.
Throughout the terms of the initial Leases, annual rents will escalate by a
percentage of the rent applicable to a particular Facility in the preceding
year, such percentage being equal to the greater of (i) 4% or (ii) the
percentage which is 25% of the percentage increase in the gross management
revenues realized by CCA from the facility exclusive of any increase
attributable to an expansion in the size of or number of beds in such facility
(the "Base Rent Escalation"). The Leases may be extended at fair market rates
for three additional periods of five years each upon the mutual agreement of the
Company and CCA.
The initial public offering price and, accordingly, the aggregate
consideration to be paid by the Company in the Formation Transactions are based
on an evaluation of CCA's operation of the Initial Facilities as a whole and the
factors discussed under "Underwriting" herein, rather than the valuation of
individual properties. Independent valuations were not obtained to determine the
purchase price to be paid by the Company for, or the fair market value of, the
Initial Facilities, and the purchase price to be paid by the Company for the
Initial Facilities exceeds their historical costs. No consideration was given to
obtaining an independent valuation of individual properties because the cash
consideration to CCA for the Initial Facilities was determined primarily based
on an evaluation of the current and anticipated cash flows and operating results
of such facilities. See "Risk Factors -- Conflicts of Interest." It is possible
that if the Company were to have obtained third-party valuations, the sum of the
values of the Initial Facilities might have been lower than
3
<PAGE> 9
the valuation of the Company. There has not been, nor will there be, any
valuation of the Company other than the initial public offering price of the
Common Shares.
THE OPTION FACILITIES
<TABLE>
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ANTICIPATED
DESIGN OPENING
FACILITY AND LOCATION CAPACITY DATE TYPE OF FACILITY CONTRACTING ENTITIES
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Northeast Ohio Correctional Center............. 2,016 June Medium Security Pending(1)
Youngstown, Ohio 1997 Correctional Facility
Torrance County Detention Facility............. 910 October Multi-Security USMS, BOP, State of New
Estancia, New Mexico 1997(2) Detention Facility Mexico, Torrance County
Southern Colorado Correctional Facility........ 752 October Medium Security State of Colorado
Walsenburg, Colorado 1997 Correctional Facility
North Fork Correctional Facility............... 960 January Medium Security Under negotiation(3)
Sayre, Oklahoma 1998 Correctional Facility
Whiteville Correctional Center................. 1,000 July Medium Security Under negotiation(4)
Whiteville, Tennessee 1998 Correctional Facility
</TABLE>
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(1) CCA is reserving all 2,016 beds in this facility for use by the District of
Columbia, pending the outcome of the District's expedited solicitation
process for bids to house inmates.
(2) Anticipated opening date for a 624-bed expansion. The current 286-bed
facility was opened in December 1990.
(3) CCA is currently negotiating with the State of Colorado with respect to beds
in this facility.
(4) CCA is currently negotiating with various states with respect to beds in
this facility.
The Company will have options to purchase, for a period of three years from
the closing of the purchase of the Initial Facilities, any or all of the five
Option Facilities. The purchase price of each Option Facility shall be equal to
CCA's actual cost of developing, constructing and equipping such Option
Facility, plus 5% of such costs. The initial annual rent for each Option
Facility will be 11% of such purchase price. The Company and CCA believe that
the purchase price and initial annual rent, respectively, for each Option
Facility, if purchased, will be: (a) Northeast Ohio Correctional Center -- $58.0
million and $6.4 million; (b) Torrance County Detention Facility -- $36.0
million and $4.0 million; (c) Southern Colorado Correctional Facility -- $27.5
million and $3.0 million; (d) North Fork Correctional Facility -- $29.5 million
and $3.2 million; and (e) Whiteville Correctional Center -- $42.0 million and
$4.6 million. Total estimated purchase price and first-year rent for the Option
Facilities amount to approximately $193.0 million and $21.2 million,
respectively.
The Company will lease to CCA the Option Facilities, if acquired, pursuant
to long-term, non-cancelable triple net leases on substantially the same terms
and conditions as the Leases for the Initial Facilities, including the Base Rent
Escalation. The Company does not intend to acquire an Option Facility until it
is fully constructed, is the subject of an enforceable management contract
between CCA and a government entity and has an occupancy rate acceptable to the
Company. See "The Company -- Business Objectives and Strategies."
Because the Option Facilities are currently under development, construction
or expansion by CCA, the cash consideration to be paid by the Company for each
of the five Option Facilities will be determined based on CCA's costs of
developing, constructing and equipping such facilities plus 5% of such costs.
Independent valuations were not obtained to determine the purchase price of the
Option Facilities, and the purchase price to be paid by the Company for the
Option Facilities exceeds their historical costs. See "Risk Factors -- Conflicts
of Interest -- Situations in Which Conflicts of Interest Have Arisen and May
Continue to Arise -- Valuation of the Facilities."
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BUSINESS OBJECTIVES AND STRATEGIES
The Company's primary business objectives are to maximize current returns
to shareholders through increases in cash flow available for distribution and to
increase long-term total returns to shareholders through appreciation in the
value of the Common Shares. The Company will seek to achieve these objectives
through:
- The acquisition of the Initial Facilities and, if acquired, the Option
Facilities;
- The strategic expansion of its correctional and detention facilities
portfolio through the selective acquisition from both private prison
managers and government entities, of correctional and detention facilities
that demonstrate potential for significant revenue and cash flow;
- The expansion of its existing facilities;
- The construction and/or development of new correctional and detention
facilities;
- The improvement and enhancement of the Company's holdings through proper
maintenance and capital improvements;
- The structuring of fair market leases under which the lessees pay base
rent with certain annual escalations and pay certain expenses in
connection with the operation of the property such as real estate taxes,
insurance, utilities and services, maintenance and other operating
expenses;
- Providing mortgages or other appropriate financing vehicles to
correctional facility operators in circumstances where ownership by the
Company is not otherwise attractive;
- The monitoring of operating performance of the facilities in its
portfolio to ensure that the lessees comply with their lease obligations;
and
- The maintenance of a ratio of debt to total capitalization (i.e., total
debt of the Company as a percentage of shareholders' equity plus total
debt) of 50% or less. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
FUTURE GROWTH OF THE COMPANY
Acquisition Opportunities. In addition to the possible acquisition of the
Option Facilities, the Company intends to acquire from both private prison
managers and government entities additional correctional and detention
facilities that meet its investment criteria, as described below. The Company
believes it has a competitive advantage in the acquisition of new correctional
facilities due to its relationship with CCA and the Company's significant
capital resources. The primary source of private correctional facilities to be
initially acquired or financed by the Company will be facilities owned and
operated by CCA. Following any such acquisition from CCA, the Company intends to
lease such properties to CCA. The Company has an option to acquire at fair
market value, and lease back to CCA at fair market rental value, any
correctional or detention facility acquired or developed and owned by CCA in the
future, for a period of three years following the Service Commencement Date with
respect to such facility. Additionally, the Company has a right of first refusal
in the event CCA decides to sell an interest in or use mortgage financing to
finance more than 90% of the cost of any correctional or detention facilities
now owned or which are acquired or developed by CCA or its affiliates in the
future. See "Relationship Between CCA and the Company after the Formation
Transactions." In 1996, CCA invested approximately $165.0 million in
approximately 15 correctional facility projects and increased its beds under
contract from 28,607 to over 41,000. Moreover, as of December 31, 1996, CCA was
the largest private prison management company in the United States with an
estimated market share of 52%. Of the 21,706 beds awarded to the private sector
in 1996, CCA was awarded 12,872 beds or 58%. Notwithstanding CCA's market share
growth, less than 5% of all adult prison beds in the United States are privately
managed. Management believes that as CCA and the private prison management
industry continue to grow, many opportunities will exist to acquire additional
private correctional facilities from CCA on attractive terms. See "Risk
Factors -- Risks Associated With Owning Correctional Facilities, Including Risks
Associated With The Operation of Those Facilities."
The Company also believes that attractive opportunities exist to acquire
correctional facilities from various government entities. Historically,
government entities have used various methods of construction financing to
develop new correctional facilities, including but not limited to the following:
(i) one-time general
5
<PAGE> 11
revenue appropriations by the government agency for the cost of the new
facility; (ii) general obligation bonds that are secured by either a limited or
unlimited tax levied by the issuing government entity; or (iii) revenue bonds
secured by an annual lease payment that is subject to an annual or bi-annual
legislative appropriation of funds. Many jurisdictions are operating
correctional facilities at well above their rated capacities, and as a result
are under federal court order to alleviate prison overcrowding within a certain
time period. These jurisdictions are often not in a position to appropriate
funds or obtain financing to construct a correctional facility because of other
fiscal demands or requirements for public approval. Accordingly, the Company
believes that, in an attempt to address fiscal pressures of matching revenue
collections with projected expenses, many such government entities have been and
will be forced to consider private ownership with respect to the development of
new correctional facilities and sale leaseback transactions or other financing
alternatives with respect to existing correctional facilities. Management
believes that such situations will enable the Company to acquire and develop
correctional facilities from and on behalf of governments at all levels
including those which might not be the subject of a private management contract.
In pursuing such opportunities, the Company expects to utilize the industry
knowledge, experience and relationships of its Board of Trustees and management,
particularly J. Michael Quinlan, its Chief Executive Officer.
In making its decision with respect to the Initial Facilities and in
evaluating the acquisition of any or all of the Option Facilities and other
facilities, the Company has considered and will consider the following criteria:
- The reputation and creditworthiness of the current owner, manager or
developer of the facility;
- The proposed terms for purchasing the facility;
- The proposed terms of leasing the facility, including rental payments and
lease term;
- The quality of construction of the facility;
- The quality of operations at an existing facility or the quality of other
operations of a prison manager for a new facility;
- The status of accreditation by the American Correctional Association (the
"ACA"); and
- The relationship between the prison manager and the contracting
correctional authority.
Expansion Opportunities. The Company's growth objectives will also focus
on the selective expansion of its existing correctional facilities to increase
cash flows and property values. In 1996, CCA expanded four of its domestic
facilities by an aggregate of 992 beds and used the expansion space for its
existing contracting government entities as well as to house inmates from other
jurisdictions under new contracts. The Company believes that CCA will continue
to attempt to achieve economies of scale through expansions of existing
facilities. Management of the Company intends to actively participate in its
tenants' expansion plans and intends to provide expansion space as needed.
Financing Opportunities. High occupancy rates and prison over-crowding
have resulted in an increased demand for new federal, state and local
correctional facilities. This demand has not been fully met because of budgetary
constraints and the reduced availability of construction financing. While the
Company intends to grow primarily from acquisitions and expansions of
correctional facilities, the Company believes that opportunities exist for it to
provide mortgage or other appropriate financing vehicles to government entities
and private prison operators in circumstances where ownership by the Company is
not otherwise attractive.
The Company's ability to acquire new facilities, expand its existing
facilities or provide mortgage financing will depend on its access to financing.
Although as a public company the Company expects to have several sources of
financing, including the Bank Credit Facility, no commitments relating to such
financing have been finalized. There can be no assurance that the Company will
be able to acquire correctional facilities that meet its investment criteria.
Moreover, acquisitions and expansions entail risks that acquired or expanded
facilities will fail to perform in accordance with expectations. See "Risk
Factors -- Real Estate Investment Considerations" and "Risk Factors -- Risks
Related to the Company's Initial Distribution Policy."
6
<PAGE> 12
RISK FACTORS
Investors should carefully consider the matters discussed under "Risk
Factors" in this Prospectus prior to making an investment decision regarding the
Common Shares offered hereby. Such risk factors include:
- The significant dependence on CCA, as the sole lessee of the Facilities,
for the Company's initial revenues and ability to make distributions to
its shareholders;
- Potential conflicts of interest among affiliates of both CCA and the
Company, and risks associated with the lack of third party appraisals for
the Facilities and the lack of arm's-length negotiations in connection
with certain aspects of the Formation Transactions;
- The risk that actual Cash Available for Distribution will be insufficient
to allow the Company to maintain its proposed initial distribution rate;
- Risks associated with owning correctional and detention facilities;
- The Company's lack of operating history and lack of experience in
operating in accordance with the requirements for maintaining its
qualification as a REIT;
- The taxation of the Company as a regular corporation if it fails to
qualify as a REIT;
- Risks associated with debt to be incurred in connection with future
facility acquisitions and expansions;
- The ability of the Company to make changes in its investment and
financing policies without the approval of its shareholders, which could
result in decisions that do not fully reflect the interests of all
shareholders of the Company;
- Certain real estate investment considerations, which may affect the value
of the Common Shares and the Company's ability to make expected
distributions to shareholders, including (i) the potential liability of
the Company for unknown or future environmental matters; and (ii) the
possibility that a facility could sustain an uninsured loss;
- The lack of a prior market for the Common Shares and the potential impact
of market interest rate increases and other factors in the trading price
of the Common Shares; and
- The restrictions on the ownership of outstanding Common Shares to ensure
compliance with certain requirements related to qualification of the
Company as a REIT.
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth (i) selected historical financial
information for the Company and (ii) unaudited selected pro forma financial
information for the Company. The pro forma operating information is presented as
if the Formation Transactions had occurred as of the beginning of the period
indicated and therefore incorporates certain assumptions that are included in
the Notes to Pro Forma Statement of Operations. The pro forma balance sheet
information is presented as if the Formation Transactions had occurred on
December 31, 1996. The pro forma information does not purport to represent what
the Company's financial position or results of operations actually would have
been had the Formation Transactions, in fact, occurred on such date or at the
beginning of the period indicated, or to project the Company's financial
position or results of operations at any future date or for any future period.
7
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CCA PRISON REALTY TRUST
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
PRO FORMA
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YEAR ENDED
DECEMBER 31, 1996
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OPERATING DATA:
Revenue:
Rent income(1)......................................... $33,891
Costs and expenses:
Operating and administrative(2)........................ 1,500
Provision for depreciation and amortization(3)......... 8,588
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Total costs and expenses.......................... 10,088
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Net income................................................ $23,803
=======
Net income per share...................................... $ 1.38
=======
Weighted average number of shares outstanding(4).......... 17,301
=======
OTHER DATA:
Funds from operations(5).................................. $32,391
Cash available for distribution........................... 32,391
Distributions............................................. 29,412
Distributions per share................................... $ 1.70
</TABLE>
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<CAPTION>
PRO FORMA AS OF AS OF
DECEMBER 31, 1996 APRIL 23, 1997
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BALANCE SHEET DATA:
Real estate before accumulated depreciation............... $311,103 $ --
Total assets.............................................. 316,200 1
Shareholders' equity...................................... 316,200 1
</TABLE>
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(1) Annual rent income from CCA recorded in accordance with the terms of the
Leases as if the Initial Facilities had been in operation at the leased
design capacity for the entire year. The Company will lease the Initial
Facilities to CCA under operating leases.
(2) Administrative expenses of the Company, including franchise and excise
taxes, based upon expected operations.
(3) Depreciation expense on fixed assets purchased from CCA based on the
estimated useful lives of the Initial Facilities.
(4) Weighted average shares outstanding include the founder's shares, shares
issued to management and Common Shares sold in the Offering as if such
shares were outstanding for the entire period.
(5) Industry analysts generally consider funds from operations to be an
appropriate measure of the performance of an equity REIT. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- General." Pro forma funds from operations is generally defined
as income (loss) before minority interest and gains on sale of property plus
certain non-cash items, depreciation and amortization. Funds from operations
should not be considered an alternative to (i) operating income (as
determined in accordance with generally accepted accounting principles) as
an indicator of the Company's operating performance or (ii) cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles) as a measure of liquidity.
8
<PAGE> 14
THE PRIVATE CORRECTIONS INDUSTRY
The Company believes the United States private corrections industry is in a
period of significant growth. In the United States, there is a growing trend
toward privatization of government services and functions, including corrections
and detention services, as governments of all types face continuing pressure to
control costs and improve the quality of services. As a result of increased
costs, some governments have been forced to limit the provision of public
services and to seek more cost-effective means of providing the remaining
services. Since correctional and detention facilities are viewed as essential
services, fiscal pressures have caused governments to seek to deliver these
services more cost effectively. Further, as a result of the number of crimes
committed each year and the corresponding number of arrests, incarceration costs
generally grow faster than any other part of a government's budget. In an
attempt to address these pressures, government agencies responsible for the
operation of correctional and detention facilities are increasingly privatizing
such facilities.
According to the Private Adult Correctional 1996 Facility Census, prepared
by Private Corrections Project Center for Studies in Criminology and Law,
University of Florida, dated March 15, 1997 (the "1996 Facility Census"), the
design capacity of privately managed adult correctional and detention facilities
worldwide has increased dramatically since the first privatized facility was
opened by CCA in 1984. The majority of this growth has occurred since 1989 as
the number of privately managed adult correctional and detention facilities in
operation or under construction worldwide increased from 26 facilities with a
design capacity of 10,973 beds in 1989 to 132 facilities with a design capacity
of 85,201 beds in 1996. The majority of all private prison management contracts
are in the United States. At December 31, 1996, 118 of the 132 private prison
management contracts were for United States facilities with the remaining 14
equally divided between Australia and the United Kingdom. According to the 1996
Facility Census, the aggregate capacity of private facilities in operation or
under construction rose from 65,593 beds at December 31, 1995 to 85,201 beds at
December 31, 1996, an increase of 34%. Additionally, the 1996 Facility Census
reports that the number of private facilities for which contracts have been
awarded increased 27% from 104 in 1995 to 132 in 1996 and the prisoner
population housed in privately managed facilities expanded by 28% in 1996.
The 1996 Facility Census reports that at December 31, 1996 there were 27
state jurisdictions, including the District of Columbia and Puerto Rico, within
which there were private facilities in operation or under construction. Four of
these were state jurisdictions within which facilities were located but where
the facilities are not intended to house the local or state level prisoners of
those state jurisdictions. An additional six state jurisdictions were
contracting for the housing of state-level or local-level prisoners in private
facilities located beyond their geographical boundaries. Further, all three
federal agencies with prisoner custody responsibilities (i.e., the BOP, INS and
USMS) continued to contract with private management companies.
Management believes that the increase in the demand for privatized
correctional and detention facilities is also a result, in large part, of the
general shortage of beds available in United States correctional and detention
facilities. According to reports issued by the United States Department of
Justice, Bureau of Justice Statistics (the "BJS"), the number of inmates housed
in United States federal and state prison facilities and local jails increased
from 744,208 at June 30, 1985 to 1,630,940 at June 30, 1996, a compound annual
growth rate of 7.4%.
At December 31, 1996, 40 of the 118 privately managed facilities in
operation or under construction in the United States were privately rather than
publicly owned. To date, all private ownership of correctional facilities has
been in connection with private prison management. However, management of the
Company believes that the number of privately owned facilities will grow,
independent of the growth in the private prison management industry. In an
attempt to address the fiscal pressures of matching revenue collections with
projected expenses, many government entities have been and will continue to be
forced to consider private ownership in connection with the development of new
correctional facilities and sale leaseback and other financing arrangements with
respect to existing facilities.
9
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CORRECTIONS CORPORATION OF AMERICA
CCA is the largest developer and manager of privatized correctional and
detention facilities worldwide. At December 31, 1996, CCA had an estimated
United States market share of 52% and an estimated global market share of 48%.
CCA will be the sole lessee of the Initial Facilities and, if acquired, the
Option Facilities. CCA is expected to continue to sell additional correctional
and detention facilities to the Company in the future and to enter into
long-term non-cancelable leases with the Company with respect to those
facilities. CCA's facilities are located in 17 states in the United States, the
District of Columbia, Puerto Rico, Australia and the United Kingdom. As of April
23, 1997, CCA had contracts to manage 60 correctional and detention facilities
with an aggregate design capacity of 43,049 beds, of which 48 facilities
representing 28,062 beds are in operation.
The services provided by CCA to government agencies include the integrated
design, construction and management of new correctional and detention facilities
and the redesign, renovation and management of older facilities. In addition to
providing the fundamental residential services relating to adult and juvenile
inmates, CCA's facilities offer a large variety of rehabilitation and education
programs including basic education, life skills and employment training and
substance abuse treatment. CCA also provides health care (including medical,
dental and psychiatric services), institutional food services, transportation
services, and work and recreational programs. CCA's management believes that
CCA's proven ability to deliver a full range of high quality correctional and
detention facility management services on a cost-effective basis to government
agencies provides such agencies with sufficient incentives to choose CCA when
awarding new contracts or renewing existing contracts.
The Initial Facilities and the Option Facilities have been owned and
operated by CCA since the facilities were acquired or developed by CCA at
various times ranging from 1984 to 1997. CCA will operate the Initial Facilities
and, if acquired, the Option Facilities under the Leases with the Company. See
"Business of the Company and its Properties" and "Leases."
RELATIONSHIP BETWEEN CCA AND THE COMPANY AFTER THE FORMATION TRANSACTIONS
For the purpose of governing certain of the ongoing relationships between
CCA and the Company after the Formation Transactions and to provide mechanisms
for an orderly transition, CCA and the Company have entered or will enter into
the various agreements, and will adopt policies as described herein. The Company
believes that the agreements are fair to it and contain terms which generally
are comparable to those which would have been reached in arm's-length
negotiations with unaffiliated parties. In each case, the terms of these
agreements have been reviewed by the Board of Directors of CCA and by the
Independent Committee (as hereinafter defined) of the Board of Trustees of the
Company. Such agreements include (a) the Purchase Agreement (as hereinafter
defined), (b) the Option Agreements (as hereinafter defined), (c) the Right to
Purchase Agreement (as hereinafter defined), and (d) certain other agreements
governing the relationship between CCA and the Company following the Formation
Transactions.
Purchase Agreement. Prior to the consummation of the Offering, the Company
and CCA and certain of its subsidiaries will enter into an agreement of sale and
purchase which provides the terms of the sale of the nine Initial Facilities for
aggregate cash consideration of approximately $308.1 million (the "Purchase
Agreement"). Pursuant to the Purchase Agreement, the transfer of the Initial
Facilities is subject to the completion of the Offering as well as the normal
and customary conditions to the closing of real estate transactions. The
Purchase Agreement will contain representations and warranties by CCA concerning
the Initial Facilities customarily found in agreements of such types.
Option Agreements. Prior to the consummation of the Offering, the Company
and CCA and certain of its subsidiaries will enter into Option Agreements
(collectively, the "Option Agreements"), pursuant to which CCA and certain of
its subsidiaries will grant the Company exclusive options to acquire any or all
of the five Option Facilities for a period of three years following the closing
of the purchase of the Initial Facilities for a
10
<PAGE> 16
purchase price equal to CCA's cost of developing, constructing and equipping
such facilities plus 5%, which aggregate approximately $193.0 million.
Right to Purchase. It is anticipated that CCA will acquire or develop
additional correctional or detention facilities in the future. The Company and
CCA will enter into a right to purchase agreement (the "Right to Purchase
Agreement") whereby the Company has an option to acquire, at fair market value,
and lease back to CCA, at fair market rental value, any correctional or
detention facility acquired or developed and owned by CCA in the future for a
period of three years following the Service Commencement Date with respect to
such facility. For the first two years of such option period, fair market value
is deemed to be CCA's cost of developing, constructing and equipping such
facilities, plus 5% of such costs. Thereafter, fair market value will be based
on cash flows and operating results of such facilities. Additionally, the
Company will have a right of first refusal in the event CCA obtains an
acceptable third party offer to acquire or provide mortgage-secured financing to
finance more than 90% of the cost of any correctional or detention facility now
owned or which is acquired or developed by it or its subsidiaries in the future.
Pursuant to such right, prior to selling any such facility, or mortgaging more
than 90% of the cost of such facility, CCA must first offer to sell such
facility to the Company or have the Company finance such facility, as
applicable, on the same terms and conditions contained in such third party
offer. With respect to a sale of any such facility, if the Company declines to
purchase such facility at the price and on terms set forth in such third party
offer, CCA will be free to sell such facility for a specified period of time at
a price at least equal to the price offered to the Company, and on terms and
conditions substantially consistent with those offered to the Company. With
respect to a first mortgage financing of 90% of the cost of any such facility,
if the Company declines to provide such financing on the terms set forth in such
third-party offer, CCA will be free to obtain first mortgage financing from a
third-party on terms and conditions more favorable to CCA than those contained
in the third party offer.
Trade Name Use Agreement. Pursuant to the terms of a trade name use
agreement (the "Trade Name Use Agreement"), the Company will be granted the
right to use the trade name "CCA" as part of its name, subject to specified
terms and conditions therein.
Noncompetition Agreement. CCA and the Company will enter into a
noncompetition agreement (the "Noncompetition Agreement") that defines the
parties' rights and obligations with respect to certain businesses to be
operated by the Company and CCA. Under the Noncompetition Agreement, the Company
and its subsidiaries will be prohibited from acquiring or financing correctional
or detention facilities which would be competitive with facilities now or
hereafter owned, managed or leased by CCA without the prior written consent of
CCA. Pursuant to the Noncompetition Agreement, competitive facilities (the
"Competitive Facilities") are defined as any Company facility located within a
300-mile radius of any CCA facility, if such Company facility would house
inmates for one or more of the same contracting entities as such CCA facility.
The term of the Noncompetition Agreement will be for a period expiring on the
expiration or termination of all of the Leases and any future leases between CCA
and the Company.
Policies and Procedures for Addressing Conflicts. After completion of the
Formation Transactions, CCA and the Company will have significant contractual
and other ongoing relationships, as described above and under "Leases" herein.
Such ongoing relationships may present certain conflict situations for certain
trustees and officers of the Company and certain directors and officers of CCA.
See "Risk Factors -- Conflicts of Interest." The Company and CCA will adopt
appropriate policies and procedures to be followed by the Board of Trustees of
the Company and the Board of Directors of CCA to attempt to address those
conflicts. Such procedures will include requiring Doctor R. Crants to abstain
from making management decisions in his capacity as an officer, trustee or
director of the Company and CCA, respectively, and to abstain from voting as a
director or trustee of either company, with respect to matters that present a
conflict of interest between the companies. Whether or not a conflict of
interest situation exists will be determined by the Independent Committee on a
case-by-case basis in accordance with the policies and procedures to be
developed by the Board of Trustees. In addition, Michael W. Devlin, the
Company's Chief Development Officer, and Vida H. Carroll, the Company's Chief
Financial Officer, both of whom have no prior affiliation with CCA, will assist
the Independent Committee with respect to certain potential conflicts of
interest between the Company and CCA, including the negotiation and enforcement
of all Leases. See "Risk Factors -- Conflicts of Interest."
11
<PAGE> 17
LEASES
Concurrently with CCA's conveyance of the Initial Facilities to the
Company, the Company will lease each such facility to CCA. Each Facility will be
the subject of a separate Lease that will incorporate the provisions of a master
agreement to lease between the Company as landlord and CCA as tenant (the
"Master Lease"). The Leases will have primary terms ranging from 10 to 12 years
(the "Fixed Term"). The Lease for each Facility may be extended at fair market
rates for three additional five-year terms (the "Extended Term"), upon the
mutual agreement of the Company and CCA. The Leases are triple net leases which
require CCA to pay substantially all expenses associated with the operation of
the Facilities, such as real estate taxes, insurance, utilities and services,
maintenance and other operating expenses. Each Lease requires that CCA operate
the leased property only as a correctional or detention facility.
The rent schedule under the Leases provides for a relatively stable source
of cash flow. The rent for the first year for each Facility under the Leases is
initially set at a fixed amount and will be increased each year by the Base Rent
Escalation.
The obligations of CCA under each Lease are cross-defaulted to each of the
other Leases with respect to payment defaults, certain bankruptcy and insolvency
related defaults and defaults relating to any CCA default on a material debt
obligation or any substantial adverse judgment not covered by insurance and not
promptly paid by CCA. The Company will have general recourse to CCA under the
Leases, but CCA's payment obligations under such Leases are not secured by any
assets of CCA. The shareholders of the Company will have no recourse to CCA
under the Leases.
Pursuant to the Master Lease, CCA shall have a right of first refusal with
respect to the sale of any Initial Facility, any Option Facility or any interest
in a correctional or detention facility acquired or developed by the Company in
the future and operated by CCA. See "Leases" for a more detailed discussion of
the terms and conditions of the Leases.
THE FORMATION TRANSACTIONS
Prior to or simultaneously with the completion of the Offering, the Company
and CCA will engage in a series of transactions (collectively, the "Formation
Transactions") which are designed to consolidate the ownership interests in the
Facilities in the Company, to facilitate the Offering and to enable the Company
to qualify as a REIT for federal income tax purposes commencing with its taxable
year ending December 31, 1997. These transactions include the following:
- The Company, which was formed in Maryland in April 1997, will sell
17,000,000 Common Shares in the Offering for net proceeds of approximately
$313.2 million (assuming an initial public offering price of $20.00 per
share);
- Doctor R. Crants, Chairman of the Company and Chairman and Chief
Executive Officer of CCA, will acquire in the Offering 500,000 Common
Shares at a price per share equal to the initial public offering price;
- The Company will use the net proceeds of the Offering to acquire the nine
Initial Facilities from CCA for an aggregate purchase price of
approximately $308.1 million payable in cash;
- The Company will lease the Initial Facilities to CCA pursuant to the
Leases for initial terms ranging from 10 to 12 years. Each Lease may be
extended at fair market rates for three additional five-year renewal terms
upon the mutual agreement of CCA and the Company. Pursuant to the Leases,
the Company will grant to CCA a right of first refusal to acquire the
Initial Facilities, the Option Facilities or any other correctional and
detention facilities subsequently acquired by the Company and operated by
CCA;
- The Company will enter into the Option Agreements with CCA pursuant to
which the Company will be granted the option to acquire any or all of the
five Option Facilities from CCA for a period of three years following the
closing of the purchase of the Initial Facilities, for a purchase price
equal to CCA's
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costs of developing, constructing and equipping such facilities plus 5%,
which aggregate approximately $193.0 million. If acquired, the Option
Facilities will be leased to CCA on terms substantially similar to those
contained in the Leases;
- In addition to the Option Agreements, CCA will grant the Company a right
to acquire, at fair market value, and lease back to CCA, at fair market
rental value, any correctional or detention facility acquired or developed
and owned by CCA in the future for a period of three years following the
Service Commencement Date with respect to such facility. Additionally, CCA
will grant the Company a right of first refusal to acquire any CCA-owned
correctional or detention facility should CCA receive an acceptable third
party-offer to acquire any such facility. CCA will also grant the Company
a right of first refusal to provide mortgage financing to finance 90% of
the cost of any correctional or detention facility should CCA receive an
acceptable third-party offer to provide any such financing.
- The Company will enter into employment agreements with its executive
officers, including J. Michael Quinlan, Chief Executive Officer, D. Robert
Crants, III, President, and Michael W. Devlin, Chief Development Officer;
- The Company and CCA will enter into the Noncompetition Agreement pursuant
to which the Company will agree not to purchase or finance Competitive
Facilities without the prior written consent of CCA. The term of the
Noncompetition Agreement will be for a period expiring on the expiration
or termination of all of the Leases and any future leases between CCA and
the Company.
- Upon consummation of the Offering, D. Robert Crants, III and Michael W.
Devlin will each receive 150,000 Common Shares as a development fee and as
reimbursement for expenses incurred in connection with the consummation of
the Offering and the closing of the purchase of the Initial Facilities
which would have a valuation for each of them, based upon the initial
public offering price, of $3.0 million. The reimbursed expenses include
certain costs related to property due diligence, employee compensation,
travel and overhead.
ADVANTAGES AND DISADVANTAGES TO UNAFFILIATED SHAREHOLDERS
The potential advantages of such transactions to unaffiliated shareholders
of the Company include their ability to participate in the substantial cash flow
of the Initial Facilities, through their ownership in the Company and the
Leases, and in all future acquisitions by the Company, primarily from CCA. See
"The Company -- Business Objectives and Strategies." The potential disadvantages
of such transactions to unaffiliated shareholders of the Company include the
lack of arm's-length valuations in determining the consideration in such
transactions and the influence of certain trustees and significant shareholders.
See the more complete discussion of such matters under "Risk Factors."
BENEFITS TO THE COMPANY AND ITS OFFICERS AND TRUSTEES
The advantages of the foregoing structure to the Company and its officers
and trustees include:
- The ability to access public capital markets;
- The creation of an entity which, through its payment of dividends, is
able to reduce or avoid the incurrence of federal income tax, allowing its
shareholders to participate in real estate investments without the "double
taxation" of income that generally results from an investment in a regular
corporation;
- The ability to expand the Company's acquisition and development
opportunities through its strong capital base;
- The Company will enter into employment agreements with J. Michael
Quinlan, D. Robert Crants, III and Michael W. Devlin providing for annual
salaries of $150,000, $100,000 and $100,000, respectively;
- J. Michael Quinlan, Chief Executive Officer, will be granted options to
acquire 350,000 Common Shares at the initial public offering price. Each
of Doctor R. Crants, Chairman of the Board of
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Trustees, D. Robert Crants, III, President and Michael W. Devlin, Chief
Development Officer, will be granted options to acquire 200,000 Common
Shares at the initial public offering price. Vida H. Carroll, Chief
Financial Officer, will be granted options to acquire 50,000 Common Shares
at the initial public offering price. The options will vest ratably over a
three-year period;
- Upon consummation of the Offering, D. Robert Crants, III and Michael W.
Devlin will each receive 150,000 Common Shares as a development fee and as
reimbursement for expenses incurred in connection with the consummation of
the Offering and the closing of the purchase of the Initial Facilities
which would have a valuation for each of them, based upon the initial
public offering price, of $3.0 million. The reimbursed expenses include
certain costs related to property due diligence, employee compensation,
travel and overhead;
- Each non-employee trustee will receive options to acquire 5,000 Common
Shares at the initial public offering price.
BENEFITS TO CCA
CCA will receive the following benefits as a result of the Formation
Transactions:
- CCA will receive approximately $308.1 million in cash in exchange for the
nine Initial Facilities it will sell to the Company. The historical cost
of the Initial Facilities at December 31, 1996 was approximately $170.5
million;
- In the event the Independent Committee determines to exercise the
Company's option to purchase any or all of five Option Facilities, CCA
could receive up to approximately $193.0 million in cash;
- CCA will use certain of the proceeds of the sale of the Initial
Facilities to repay certain indebtedness incurred in connection with
facility acquisitions; and
- CCA will expand its marketing opportunities through increased access to
capital.
DISTRIBUTIONS
The Company intends to pay regular quarterly distributions to its
shareholders. The Board of Trustees, in its sole discretion, will determine the
actual distribution rate based on the Company's actual results of operations,
economic conditions, tax considerations (including those related to REITs) and
other factors. The first distribution, for the period ending September 30, 1997,
is expected to equal a pro rata share of the anticipated initial quarterly
distribution of $0.425 per Common Share. On an annualized basis, the anticipated
distribution is $1.70 per share, or approximately 8% to 9% of the estimated
range of the initial public offering price. The Company does not expect to
change its estimated initial distribution per Common Share if the Underwriters'
over-allotment option is exercised. See "The Formation Transactions."
The Company has established the initial annual distribution rate based on
the Company's estimate of Cash Available for Distribution (defined as the
Company's net income (loss) plus depreciation and amortization less capital
expenditures and principal payments on indebtedness (as defined in accordance
with generally accepted accounting principles)) for the 12 months following the
Offering, which was derived from the Company's Pro Forma Funds from Operations
(as defined in Note 6 to Pro Forma Statement of Operations) for the 12 months
ended December 31, 1996. Funds from Operations does not represent cash generated
from operating activities in accordance with generally accepted accounting
principles and should not be considered an alternative to net income as an
indication of the Company's performance or to cash flows as a measure of
liquidity or ability to make distributions. The expected distribution for the 12
months following completion of the Offering will equal approximately 90.8% of
the estimated Cash Available for Distribution for the 12 months ending June 30,
1998. The Company's estimate of Cash Available for Distribution does not include
any revenues or expenses related to the purchase of the Option Facilities or
additional facilities. The Company intends to maintain its approximate initial
distribution amount for at least 12 months following the consummation of the
Offering unless actual results of operations, economic conditions or other
factors differ from the assumptions used in calculating the estimate. Based on
the Company's estimated results of
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operations for the 12 months ending June 30, 1998, the Company estimates that
approximately 10% to 20% of the anticipated initial annual distribution to
shareholders will represent a return of capital for federal income tax purposes
and that the Company would have been required to distribute $22.6 million or
$1.31 per share during such 12-month period in order to maintain its status as a
REIT. If future taxable income increases above or decreases below the estimated
taxable income for the 12 months following the Offering, the percentage of the
anticipated initial annual distribution representing a return of capital will
decrease or increase, respectively. See "Distributions" for the calculation of
estimated pro forma cash available for distributions and related assumptions.
TAX CONSIDERATIONS AND TAX STATUS OF THE COMPANY
The Company will elect to be taxed as a REIT under sections 856 through 860
of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with
its taxable year ending December 31, 1997. If the Company qualifies for taxation
as a REIT, with certain exceptions, the Company will not be subject to federal
income tax at the corporate level on its taxable income that is distributed to
its shareholders. A REIT is subject to a number of organizational and
operational requirements, including a requirement that it distribute at least
95% of its annual taxable income. Failure to qualify as a REIT will render the
Company subject to federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates, and distributions
to the shareholders in any such year will not be deductible by the Company.
Although the Company does not intend to request a ruling from the Internal
Revenue Service (the "Service") as to its REIT status, the Company will receive
an opinion of its legal counsel, Stokes & Bartholomew, P.A., as to such status,
which opinion is based on certain assumptions and representations and will not
be binding on the Service or any court. Even if the Company qualifies for
taxation as a REIT, the Company may be subject to certain state and local taxes
on its income and property. In connection with the Company's election to be
taxed as a REIT, the Company's Declaration of Trust (the "Declaration of Trust")
will impose restrictions on the transfer of Common Shares. The Company will
adopt the calendar year as its taxable year. See "Risk Factors -- Adverse Impact
on Distributions of Failure of Company to Qualify as a REIT," "-- Limits on
Changes in Control," "Material Federal Income Tax Considerations" and
"Description of Capital Shares -- Restrictions on Ownership."
THE OFFERING
Common Shares offered by the
Company............................... 17,000,000 shares
Common Shares to be outstanding after
Offering.............................. 17,301,000 shares(1)(2)
Use of proceeds....................... To pay the purchase price for the
Initial Facilities and for working
capital. See "Use of Proceeds,"
"Capitalization" and "The Formation
Transactions."
Proposed NYSE symbol.................. PZN
- ---------------
(1) Does not include an aggregate of 1,850,000 shares reserved for issuance
pursuant to the Company's Employee Share Incentive Plan and the Company's
Trustees' Plan (each as hereinafter defined) of which 1,075,000 shares will
be subject to outstanding options at the closing of the Offering. See
"Management -- The Share Incentive Plan" and "Management -- Non-Employee
Trustees' Plan."
(2) Includes (i) 1,000 founder's shares and (ii) 300,000 shares issued to D.
Robert Crants, III and Michael W. Devlin as a development fee and as
reimbursement for certain expenses incurred in connection with the formation
of the Company and the consummation of the Offering. See "Dilution" and "The
Formation Transactions."
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RISK FACTORS
An investment in the Common Shares offered hereby involves various risks.
Prospective investors should carefully consider the following risk factors in
conjunction with the other information contained in this Prospectus before
purchasing Common Shares in the Offering.
THE SIGNIFICANT DEPENDENCE ON CCA, AS THE SOLE LESSEE OF THE FACILITIES, FOR THE
COMPANY'S INITIAL REVENUES AND ABILITY TO MAKE DISTRIBUTIONS
CCA will be the sole lessee of all the Initial Facilities and, if acquired,
the Option Facilities. The Company's initial revenues, and its ability to make
distributions to its shareholders, will depend on rental payments by CCA under
the Leases. The Company believes that CCA has sufficient assets and income to
enable it to satisfy its obligations under the Leases at this time; however,
there can be no assurance that CCA will have such assets or income in the
future.
Failure by CCA to materially comply with the terms of a lease would give
the Company the right to terminate such lease and enforce the obligations
thereunder, but could also require the Company to find another lessee to lease
such facility or risk losing its ability to elect or maintain REIT status, as
applicable. Moreover, there can be no assurance that CCA will elect to renew a
lease upon expiration of its initial term, which would also force the Company to
find a suitable replacement lessee. In either circumstance, due to the nature of
the corrections and detention industry, the Company may be unable to locate a
suitable lessee or to attract such a lessee, and may, therefore, be required to
reduce the rent, which would have the effect of reducing the Company's Cash
Available for Distribution. See "Corrections Corporation of America," "Leases"
and "Conflicts of Interest."
CONFLICTS OF INTEREST
Several conflicts of interest exist on the part of the Company, its
trustees and officers and CCA, and its directors and officers. The following
description sets forth the principal conflicts of interest, including the
relationships through which they arise, and the policies and procedures
implemented by the Company to address those conflicts.
Relationships Which May Give Rise to Conflicts of Interest
Doctor R. Crants is the Chairman and Chief Executive Officer of CCA and the
Chairman of the Board of Trustees of the Company. D. Robert Crants, III,
President of the Company, is the son of Doctor R. Crants. Doctor R. Crants and
D. Robert Crants, III, as well as certain other trustees or officers of the
Company or directors or officers of CCA, may also own, directly or indirectly,
shares in both companies following the Offering. D. Robert Crants, III and
Michael W. Devlin, Chief Development Officer of the Company, are principals of
DC Investment Partners LLC, a limited liability company which serves as the
general partner of three private investment partnerships. DC Investment Partners
LLC is owned by D. Robert Crants, III, Michael W. Devlin, Stephens Group, Inc.,
an affiliate of Stephens Inc., a managing underwriter of this Offering, and one
other individual. Doctor R. Crants and three other directors of CCA are
investors in one or more of the private investment partnerships managed by DC
Investment Partners LLC. Rusty L. Moore, a trustee, is the spouse of a
shareholder of Stokes & Bartholomew, P.A., tax and securities counsel to the
Company. Stokes & Bartholomew, P.A. also provides legal services to CCA,
including representing CCA in certain of the Formation Transactions. J. Michael
Quinlan is a former employee of CCA. C. Ray Bell, a trustee, is the principal of
a construction company which, as a part of its business, builds correctional and
detention facilities, including facilities for CCA. Because of Mr. Bell's
experience in building correctional and detention facilities, it is anticipated
that Mr. Bell's company may build correctional and detention facilities for or
on behalf of the Company.
Situations in Which Conflicts of Interest Have Arisen and May Continue to
Arise
Valuation of the Facilities. The valuation of the Initial Facilities and
the Option Facilities was determined by management of CCA and management of the
Company and were not negotiated on an arm's-
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length basis. Had such valuations been determined on an arm's-length basis, or
been the subject of independent valuations or appraisals, the price paid for the
Initial Facilities and, if acquired, the Option Facilities, might have been more
or less favorable to the Company. The terms of the purchase of the Facilities
were approved by the Independent Committee of the Company's Board of Trustees.
Terms of Leases. The Lease payment obligations with respect to the Initial
Facilities were determined by management of CCA and management of the Company
and were not negotiated on an arm's-length basis. However, the lease payments
that CCA is obligated to make are based on an initial capitalization rate of
approximately 11%, which the Company believes reflects the fair rental value of
the Initial Facilities to the Company. Moreover, the terms and conditions of the
Leases were the subject of independent negotiations between the Company and CCA,
and the amount of the Lease payment obligations and the terms and conditions of
the Leases were approved by the Independent Committee of the Company's Board of
Trustees.
Potential for Future Conflicts. After the Offering, CCA and the Company
may be in situations where they have differing interests resulting from the
ongoing relationship between the companies. Such situations include the fact
that after the Offering (i) CCA will lease the Initial Facilities which will be
owned by the Company; (ii) the Company will have an exclusive option to acquire
the Option Facilities and a right to purchase and a right of first refusal to
purchase any correctional or detention facility developed or acquired and owned
by CCA or its subsidiaries in the future and to provide mortgage financing for
any correctional or detention facilities financed in excess of 90% of their cost
by CCA or its subsidiaries in the future; and (iii) CCA will have a right of
first refusal to acquire the Facilities. Accordingly, the potential exists for
disagreements as to the compliance with the Leases or the values of the
facilities acquired or lease payments therefor in the future pursuant to the
Right to Purchase Agreement. Additionally, the possible need by the Company,
from time to time, to finance, refinance or effect a sale of any of the
properties managed by CCA may result in a need to modify the Lease with CCA with
respect to such property. Any such modification will require the consent of CCA,
and the lack of consent from CCA could adversely affect the Company's ability to
consummate such financings or sale. Because of the relationships described
above, there exists the risk that the Company will not achieve the same results
in its dealings with CCA that it might achieve if such relationships did not
exist.
Steps Taken by the Company to Address Potential Conflicts of Interest
Use of Independent Committee. Upon completion of the Offering, the
Company's Board of Trustees will consist of 13 trustees. Four of the trustees
include Doctor R. Crants, the Chairman of the Board of Trustees and Chairman and
Chief Executive Officer of CCA, J. Michael Quinlan, Chief Executive Officer of
the Company, D. Robert Crants, III, President of the Company, and Michael W.
Devlin, Chief Development Officer of the Company. Of the remaining nine
trustees, seven will not be employees of the Company or affiliated with CCA (the
"Independent Trustees"). The Board of Trustees has established an Independent
Committee consisting of the Independent Trustees (the "Independent Committee")
to evaluate transactions involving the Company and CCA, such as the acquisition
of additional facilities from CCA and lease negotiation and enforcement. Certain
other significant actions of the Board of Trustees will require the approval of
a minimum of two-thirds of the trustees. In addition, Michael W. Devlin, the
Company's Chief Development Officer, and Vida H. Carroll, the Company's Chief
Financial Officer, both of whom have no prior affiliation with CCA, will assist
the Independent Committee with respect to potential conflicts of interest
between the Company and CCA, including the negotiation and enforcement of all
Leases. See "Management," and "Conflicts of Interest."
Agreements Between CCA and the Company. Prior to the Offering, the Company
and CCA will enter into certain agreements, the terms of which are more
completely described herein, designed to address in advance certain situations
in which conflicts might arise. For example, CCA will grant the Company an
option to acquire and lease back to CCA on fair market terms, any facility
acquired or developed and owned by CCA in the future for a period of three years
following the Service Commencement Date with respect to such facility, and CCA
will grant the Company a right of first refusal pursuant to which, prior to
selling any facilities, or mortgaging more than 90% of the cost of a facility,
the Company will have the right to purchase such facility, or provide first
mortgage financing for 90% of the acquisition costs of any facility, as
applicable,
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on terms equal to those offered by a third party. The Company and CCA will also
enter into the Noncompetition Agreement pursuant to which the Company has agreed
not to purchase or finance Competitive Facilities without the prior written
consent of CCA. Pursuant to the Leases, CCA will also have a right of first
refusal with respect to any sale of the Facilities or any interest in a
correctional or detention facility acquired or developed and owned by the
Company in the future. See "Relationship between CCA and the Company after the
Formation Transactions," "Certain Relationships and Transactions" and "Conflicts
of Interest."
RISKS RELATED TO THE COMPANY'S INITIAL DISTRIBUTION POLICY
The Company initially plans to distribute annual dividends, payable in
quarterly installments of approximately 8.0% to 9.0% of the estimated range of
the initial public offering price per share. If actual Cash Available for
Distribution falls short of estimates, the Company may be unable to maintain its
proposed initial distribution rate. The Company's success in implementing its
distribution policy will depend significantly on the Company's ability to
acquire additional facilities at attractive prices. Internal growth through
increases in revenues from the Facilities is not expected to provide as much
growth in Cash Available for Distribution as will the acquisition, development
or expansion of additional facilities.
There can be no assurance that CCA or other entities engaged in the private
corrections and detention industry will develop or acquire additional facilities
to transfer to the Company. See "Risk Factors -- Risks Associated With Owning
Correctional Facilities, Including Risks Associated With The Operation of Those
Facilities." If the Company is unable to acquire additional facilities from such
entities at attractive prices, the Company's ability to increase revenues and
maintain or increase Cash Available for Distribution per share may be adversely
affected.
RISKS ASSOCIATED WITH OWNING CORRECTIONAL FACILITIES, INCLUDING RISKS ASSOCIATED
WITH THE OPERATION OF THOSE FACILITIES
The ability of lessees of the Company's facilities to make rental payments
and the value of the Company's facilities are subject to operating risks
generally inherent in the corrections and detention industry.
Short-Term Nature of Government Contracts. Private prison managers
typically enter into facility management contracts with government entities with
terms of one to five years, with one or more renewal options that may be
exercised only by the contracting government agency. No assurance can be given
that any agency will exercise a renewal option in the future. Moreover, the
contracting agency typically may terminate a facility contract without cause by
giving the private prison manager written notice. Therefore, there exists the
risk that a facility owned by the Company may not be the subject of a contract
with a government entity at some point during its ownership by the Company since
the Company's leases generally extend for periods substantially longer than the
underlying contracts with government entities.
Dependence on Government Appropriations. A private prison manager's cash
flow is subject to the receipt of sufficient funding and timely payment by
contracting government entities. If the appropriate government agency does not
receive sufficient appropriations to cover its contractual obligations, a
contract may be terminated, or the management fee may be deferred or reduced.
Any delays in payment could have an adverse effect on the private prison
manager's cash flow. Further, it is part of the Company's business strategy to
acquire facilities from government entities and to lease those facilities to the
government entity or to finance the facility for the government entity. The
ability of the government entity to make payments under such leases or in
connection with such financing may be dependent upon annual appropriations.
Dependence on Government Agencies for Inmates. Private prison managers are
dependent on government agencies supplying those facilities with a sufficient
number of inmates to meet the facility's design capacities. A failure to do so
may have a material adverse effect on a private prison manager's financial
condition and results of operations which could affect the private prison
manager's ability to make payments under a lease.
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Risks Associated With New Prison Development. The success of a private
prison manager in obtaining new awards and contracts may depend, in part, upon
its ability to locate land that can be leased or acquired under favorable terms.
Otherwise desirable locations may be in or near populated areas and, therefore,
may generate legal action or other forms of opposition from residents in areas
surrounding a proposed site. Moreover, the private corrections industry is
subject to public scrutiny. Negative publicity about an escape, riot or other
disturbance at a privately managed facility may result in publicity adverse to
the Company and the private corrections industry, thereby making it more
difficult for a private prison manager to renew existing contracts, or to obtain
new contracts or sites on which to operate new facilities.
Each of the foregoing factors, among others, either individually or
collectively, could adversely affect a private prison manager's or government
entity's ability to generate revenues or make lease payments to the Company,
which may, therefore, affect the Company's ability to make expected
distributions to its shareholders.
LACK OF OPERATING HISTORY
The Company has been recently organized and has no operating history. There
can be no assurance that the Company will be able to generate sufficient revenue
from operations to make anticipated distributions. The Company also will be
subject to the risks generally associated with the formation of any new
business. The Company's management has no experience operating a public company
or a REIT.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its executive officers, J.
Michael Quinlan, D. Robert Crants, III and Michael W. Devlin. The loss of the
services of any one of these individuals could have a material adverse effect on
the performance of the Company. The Company has entered into employment
agreements with each of the above named executive officers. See
"Management -- Employment Agreements."
LACK OF CONTROL OVER DAY-TO-DAY OPERATIONS AND MANAGEMENT OF THE FACILITIES
To qualify as a REIT for federal income tax purposes, the Company may not
operate, or participate in decisions affecting the operations of the Initial
Facilities and, if acquired, the Option Facilities. CCA will control the
operations of the Facilities under the Leases, each of which will have initial
terms ranging from 10 to 12 years and three renewal terms of five years each,
exercisable upon the mutual agreement of CCA and the Company. During the terms
of the Leases, the Company will not have the authority to require CCA to operate
the Facilities in a particular manner or to govern any particular aspect of
their operation except as set forth in the Leases. Thus, even if the Company
believes CCA is operating the Facilities inefficiently or in a manner adverse to
the Company's interests, the Company may not require CCA to change its method of
operation. The Company is limited to seeking redress only if CCA violates the
terms of a Lease, in which case the Company's primary remedy is to terminate the
Lease or, in certain circumstances, all of the Leases, and seek to recover
damages from CCA. If a Lease is terminated, the Company will be required to find
another suitable lessee or risk losing its ability to elect or maintain REIT
status, as applicable.
ADVERSE IMPACT ON DISTRIBUTIONS OF FAILURE OF COMPANY TO QUALIFY AS A REIT
The Company intends to operate so as to qualify as a REIT under the Code.
Although the Company believes that it will be so organized and will operate in
such a manner, no assurance can be given that the Company will qualify or remain
qualified as a REIT. Qualification as a REIT involves the application of highly
technical and complex Code provisions for which there are only limited judicial
or administrative interpretations. The determination of various factual matters
and circumstances not entirely within the Company's control may affect its
ability to qualify as a REIT. In addition, no assurance can be given that
legislation, new regulations, administrative interpretations or court decisions
will not significantly change the tax laws with respect to qualification as a
REIT or the federal income tax consequences of such qualification. The Company
is relying on the opinion of Stokes & Bartholomew, P.A., tax counsel to the
Company,
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regarding various issues affecting the Company's ability to qualify, and retain
qualification, as a REIT. Such opinions are not binding on the Service or any
court. See "Material Federal Income Tax Considerations."
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would not be allowed a deduction for distributions to shareholders in
computing taxable income and would be subject to federal income tax on its
taxable income at regular corporate rates. Unless entitled to relief under
certain statutory provisions, the Company would also be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification was lost. As a result, the funds available for distribution to the
Company's shareholders would be reduced for each of the years involved. Although
the Company currently intends to operate in a manner designed to qualify as a
REIT, it is possible that future economic, market, legal or tax considerations
may cause the Company to fail to qualify as a REIT or may cause the Board of
Trustees to revoke the REIT election if the Board and the holders of 66 2/3% of
all outstanding shares of beneficial interest of the Company determine that such
factors make it no longer beneficial to qualify as a REIT. See "Policies and
Objectives with Respect to Certain Activities" and "Material Federal Income Tax
Considerations."
CHANGES IN INVESTMENT AND FINANCING POLICIES WITHOUT VOTE OF SHAREHOLDERS
The Board of Trustees determines the Company's investment and financing
policies with respect to certain activities, including its growth,
capitalization, distribution and operating policies. Although the Board of
Trustees has no present intention to amend or revise these policies, the Board
of Trustees may do so at any time without a vote of the Company's shareholders.
See "Policies and Objectives With Respect to Certain Activities -- Investment
Objectives and Policies."
REAL ESTATE INVESTMENT CONSIDERATIONS
General. Investments in the Facilities and any additional properties in
which the Company may invest in the future are subject to risks typically
associated with investments in real estate. Such risks include the possibility
that the Facilities and any additional properties will generate total rental
rates lower than those anticipated or will yield returns lower than those
available through investment in comparable real estate or other investments.
Revenue from the Initial Facilities and, if acquired, the Option Facilities, and
yields from investments in such properties may be affected by many factors,
including changes in government regulation, general or local economic
conditions, the available local supply of prison beds and a decrease in the need
for prison beds.
Equity investments in real estate are relatively illiquid and, therefore,
the ability of the Company to vary its portfolio promptly in response to changed
conditions will be limited. There are no limitations on the percentage of the
Company's assets that may be invested in any one property or venture. The Board
of Trustees may establish limitations as it deems appropriate from time to time.
No limitations have been set on the number of properties in which the Company
will seek to invest or on the concentration of investments in any one geographic
region.
Environmental Matters. Operating costs may be affected by the obligation
to pay for the cost of complying with existing environmental laws, ordinances
and regulations, as well as the cost of future legislation. Under various
federal, state and local environmental laws, ordinances and regulations, a
current or previous owner or operator of real property may be liable for the
costs of removal or remediation of hazardous or toxic substances on, under or in
such property. Such laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The cost of complying with environmental laws could materially
adversely affect Cash Available for Distribution. Phase I environmental
assessments have been obtained on all of the Facilities. The purpose of a Phase
I environmental assessment is to identify potential environmental contamination
that is made apparent from historical reviews of the Facilities, review of
certain public records, visual investigations of the sites and surrounding
properties, toxic substances and underground storage tanks. The Phase I
environmental assessment reports have not revealed any environmental
contamination that the Company believes would have a material adverse effect on
the Company's business, assets, results of operations or liquidity, nor is the
Company aware of any such
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liability. Nevertheless, it is possible that these reports do not reveal all
environmental liabilities or that there are material environmental liabilities
of which the Company is unaware.
Uninsured Loss. The Leases require CCA to maintain insurance with respect
to each of the Facilities. CCA carries comprehensive liability, fire, flood (for
certain Facilities) and extended insurance coverage with respect to such
properties with policy specifications and insurance limits customarily carried
for similar properties. There are, however, certain types of losses (such as
from earthquakes) which may be either uninsurable or not economically insurable.
See "Leases." The Company will obtain new title insurance policies for each of
the Facilities in connection with the Offering. There is no assurance, however,
that the amount of title insurance coverage for any of the Facilities accurately
reflects the current value of such correctional facilities or that title losses
would be completely covered by such insurance. Subject to the terms of the
Leases, should an uninsured loss occur, the Company could lose both its capital
invested in, and anticipated profits from, one or more of the Facilities. In the
opinion of management of the Company, the Facilities are adequately insured in
accordance with industry standards.
NO PRIOR MARKET FOR COMMON SHARES; FACTORS AFFECTING MARKET PRICE
Prior to the Offering, there has been no public market for the Common
Shares. Although it is expected that application will be made for listing of the
Common Shares on the NYSE, there can be no assurance that an active trading
market will develop or be sustained or that the Common Shares may be resold at
or above the initial public offering price. The initial public offering price
will be determined through negotiations between the Company and the Underwriters
and may not be indicative of the market price for the Common Shares after the
Offering. See "Underwriting."
The market price of the Common Shares could be subject to significant
fluctuations in response to variations in quarterly and yearly operating
results, the success of the Company's business strategy, general trends in the
corrections and detention industry, competition, changes in the laws affecting
the Company and other factors. In addition, the stock market in recent years has
experienced price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of affected companies. These
fluctuations may adversely affect the market price of the Common Shares.
Moreover, the price of the Company's shares in public markets may be
affected by the amount of the annual distributions paid by the Company relative
to the price paid for Common Shares. As a result, an increase in market interest
rates could adversely affect the market price of the Common Shares to the extent
that the yield on those shares compares less favorably to yields on fixed-income
securities and other investments.
OWNERSHIP LIMIT
For the Company to maintain its qualification as a REIT, not more than 50%
in value of its outstanding shares may be owned, directly or constructively, by
five or fewer individuals (as defined in the Code). In addition, rent from
related party tenants is not qualifying income for purposes of the gross income
tests under the Code. See "Material Federal Income Tax
Considerations -- Taxation of the Company." Two sets of constructive ownership
rules (one to determine whether a REIT is closely held and one to determine
whether rent is from a related party tenant) apply in determining whether these
requirements are met. For the purpose of preserving the Company's REIT
qualification, the Declaration of Trust prohibits direct or constructive
ownership by any person of more than 9.8% of the Common Shares or more than 9.8%
of any preferred shares, $0.01 par value per share, of the Company (the
"Preferred Shares") (such ownership limit being referred to as the "Ownership
Limit"). The constructive ownership rules are complex and may cause Common
Shares owned, directly or constructively, by a group of related individuals
and/or entities to be deemed to be constructively owned by one individual or
entity. As a result, the acquisition of less than 9.8% of the Common Shares (or
the acquisition of an interest in an entity which owns Common Shares) by an
individual or entity could cause that individual or entity (or another
individual or entity) to own constructively in excess of 9.8% of the Common
Shares, and thus subject such Common Shares to the Ownership Limit. Direct or
constructive ownership of Common Shares in excess of the Ownership Limit would
cause the violative transfer or
21
<PAGE> 27
ownership to be void, or cause such shares to be held in trust as
Shares-in-Trust (as hereinafter defined) for the benefit of one or more
charitable organizations. See "Description of Capital Shares -- Restrictions on
Ownership."
LIMITS ON CHANGES IN CONTROL
Certain provisions of the Company's Declaration of Trust and Bylaws (the
"Bylaws") and certain provisions of Maryland law regarding business combinations
to which the Company is subject could have the effect of delaying, deferring or
preventing a change in control of the Company or the removal of existing
management and, as a result, could prevent the shareholders of the Company from
being paid a premium for their Common Shares. In addition to the Ownership
Limit, the Declaration of Trust provides for staggered terms for the Board of
Trustees and authorizes the Board of Trustees to issue Preferred Shares without
shareholder approval. See "Description of Capital Shares -- Certain Provisions
of Maryland Law and of the Company's Declaration of Trust and Bylaws."
ERISA RISKS
Depending upon the particular circumstances of the plan, an investment in
the Common Shares may not be an appropriate investment for an ERISA plan, a
qualified plan or individual retirement accounts and individual retirement
annuities (collectively "IRAs"). In deciding whether to purchase Common Shares,
a fiduciary of an ERISA plan, in consultation with its advisors, should
carefully consider its fiduciary responsibilities under ERISA, the prohibited
transaction rules of ERISA and the Code, and the effect of the "plan asset"
regulations issued by the U.S. Department of Labor.
DEPENDENCE ON FINANCING FOR GROWTH AND ADVERSE CONSEQUENCES OF DEBT FINANCING ON
ABILITY TO MAKE DISTRIBUTIONS
The Company intends to continue to pursue a growth strategy which includes
acquiring correctional and detention facilities. There is a risk that the
Company will not have access to sufficient debt or equity capital it may need to
pursue its acquisition strategy. The Company may need access to debt or equity
capital for several reasons. First, the Company generally cannot retain cash
generated by operating activities. See "Material Federal Income Tax
Considerations." Second, the Company's current business strategy is to maintain
a ratio of debt to total capitalization of 50% or less. The Company believes
that this debt policy balances the Company's desire for growth with a prudent
capital structure. The Company intends to enter into the Bank Credit Facility
contemporaneously with the Offering, or shortly thereafter, although there can
be no assurance that the Company will enter into the Bank Credit Facility.
Moreover, the Company may, from time to time, incur additional indebtedness to
acquire any or all of the Option Facilities or any other facilities.
Accordingly, since the Company generally cannot retain earnings, and the amount
of debt that it can incur is limited by its internal policies, the Company's
ability to continue making acquisitions will depend primarily on its ability to
obtain additional private or public equity financing. There is no assurance that
such financing will be available.
Although the Company does not intend to incur indebtedness in connection
with the Offering, the Company is authorized to raise additional funds for its
future operations through debt financing. As a result of incurring debt, the
Company will be subject to the risks normally associated with debt financing,
including the risk that the Company's Funds from Operations will be insufficient
to meet required payments of principal and interest or that Cash Available for
Distribution may decrease. In addition, the Company will be subject to the risk
that interest rates may increase, which could adversely affect its ability to
make distributions. If a property is mortgaged to secure payment of
indebtedness, and the Company is unable to meet mortgage payments, the property
could be transferred to the mortgagee with a consequent loss of income and asset
value to the Company. See "Policies and Objectives With Respect to Certain
Activities -- Financing."
22
<PAGE> 28
THE COMPANY
GENERAL
The Company has been formed to capitalize on the opportunities created by
the growing trend towards privatization in the corrections industry, including
the increasing demand for private correctional and detention facilities. The
principal business strategy of the Company will be to acquire correctional and
detention facilities that meet the Company's investment criteria, from both
private prison managers and government entities, to expand its existing
facilities, and to lease all such facilities under long-term leases. The Company
will initially acquire the nine Initial Facilities from CCA. CCA is the largest
developer and manager of privatized correctional and detention facilities
worldwide. The Company will also have options to acquire any or all of the five
Option Facilities for a period of three years following the closing of the
purchase of the Initial Facilities. In addition, the Company will have an option
to acquire any correctional or detention facility acquired or developed and
owned by CCA in the future, for a period of three years following the Service
Commencement Date with respect to such facility. Upon completion of the Offering
and the Formation Transactions, the Company will be the only self-administered
and self-managed publicly-traded REIT in the United States focused on owning and
acquiring correctional and detention facilities.
The Company believes that, for the Initial Facilities purchased and, if
acquired, the Option Facilities, it will benefit from the continuity of
management provided by CCA. CCA has developed and operated the Initial
Facilities and the Option Facilities since they were acquired or constructed by
CCA at various times ranging from 1984 through 1997. See "Business of the
Company and its Properties."
The Company will purchase the Initial Facilities for an aggregate purchase
price of approximately $308.1 million in cash concurrent with the closing of the
Offering. The Initial Facilities will be leased to CCA pursuant to triple net
Leases which require CCA to pay all operating expenses, taxes, insurance and
other costs. All of the Leases will provide for base rent with certain annual
escalation and will have primary terms of 10 to 12 years which may be extended
at fair market rates for three additional five-year periods upon the mutual
agreement of the Company and CCA. The Initial Facilities are expected to
generate aggregate initial annual rent of approximately $33.9 million. The
Company will have general recourse to CCA under the Leases, but such Leases are
not secured by any properties of CCA. The shareholders of the Company will have
no recourse to CCA under the Leases.
The Company expects to have the $150.0 million Bank Credit Facility which
will be used for acquiring additional correctional facilities, including the
Option Facilities, and for certain other purposes, including expanding existing
facilities and working capital, as necessary. The Company has not, however,
finalized negotiations on the Bank Credit Facility and there can be no assurance
that the Company will obtain the Bank Credit Facility. Upon the consummation of
the Offering, the Company will have no outstanding indebtedness. The Company
believes that its lack of debt, coupled with its ability to obtain financing
through the Bank Credit Facility will provide the Company with significant
financial resources in pursuing correctional facility acquisition and expansion
opportunities, including some or all of the Option Facilities. The Company
intends to maintain a capital structure which limits consolidated indebtedness
to no more than 50% of its total capitalization. See "Policies and Objectives
With Respect to Certain Activities -- Financing."
The Company believes that CCA has been successful in identifying,
analyzing, developing and acquiring private correctional facilities that have
generated significant growth in revenues and, as a result, the Company intends
to focus its investments on facilities which are owned and operated by CCA or
its subsidiaries. However, the Company will also pursue other opportunities,
including acquisitions or financings of facilities owned and operated by
government entities. Certain of the Company's management team has extensive
experience in developing, acquiring and operating correctional and detention
facilities as well as in negotiating leases of all types, including triple net
leases such as the Leases contemplated in the Offering. See "Management."
The Company is a self-administered and self-managed REIT that expects to
qualify as a REIT for federal income tax purposes. In order to qualify as a
REIT, the Company's income must be derived from certain sources, including rents
from real property (and generally excluding income from the operation of a
23
<PAGE> 29
correctional facility). See "Material Federal Income Tax
Considerations -- Taxation of the Company -- Income Tests." Accordingly, the
Company is precluded from operating correctional facilities and, as a
consequence, intends to lease such properties pursuant to long-term
non-cancelable leases.
The Company was formed as a Maryland real estate investment trust in April
1997. The Company's principal executive offices are located at, and its mailing
address is, 2200 Abbott Martin Road, Suite 201, Nashville, Tennessee 37215. The
Company's telephone and fax numbers are (615) 460-7452 and (615) 460-1206,
respectively.
BUSINESS OBJECTIVES AND STRATEGIES
The Company's primary business objectives are to maximize current returns
to shareholders through increases in cash flow available for distribution and to
increase long-term total returns to shareholders through appreciation in the
value of the Common Shares. The Company will seek to achieve these objectives
through:
- The acquisition of the Initial Facilities and, if acquired, the Option
Facilities;
- The strategic expansion of its correctional and detention facilities
portfolio through the selective acquisition of correctional facilities
that demonstrate potential for significant revenue and cash flow from both
private prison managers and government entities;
- The expansion of its existing facilities;
- The construction and/or development of new correctional and detention
facilities;
- The improvement and enhancement of the Company's holdings through proper
maintenance and capital improvements;
- The structuring of fair market leases under which the lessee pays base
rent with certain annual escalations and pays certain expenses in
connection with the operation of the property such as real estate taxes,
insurance, utilities and services, maintenance and other operating
expenses;
- Providing mortgages or other appropriate financing vehicles to
correctional facility operators in circumstances where ownership by the
Company is not otherwise attractive;
- The monitoring of operating performance of the facilities in its
portfolio to ensure that the lessees comply with their lease obligations;
and
- The maintenance of a ratio of debt to total capitalization (i.e., total
debt of the Company as a percentage of shareholders' equity plus total
debt) of 50% or less. See "Policies and Objectives with Respect to Certain
Activities -- Financing."
FUTURE GROWTH OF THE COMPANY
Acquisition Opportunities. In addition to the possible acquisition of the
Option Facilities, the Company intends to acquire from both private prison
managers and government entities additional correctional and detention
facilities that meet its investment criteria, as described below. The Company
believes it has a competitive advantage in the acquisition of new private
correctional facilities due to its relationship with CCA and the Company's
significant capital resources. The primary source of private correctional
facilities to be initially acquired or financed by the Company will be
facilities owned and operated by CCA. Following any such acquisition from CCA,
the Company intends to lease such properties to CCA. The Company has an option
to acquire and lease back to CCA any correctional or detention facility acquired
or developed and owned by CCA in the future, for a period of three years
following the Service Commencement Date with respect to such facility. The
Company has a right of first refusal in the event CCA decides to sell an
interest in or use mortgage financing to finance more than 90% of the cost of
any correctional or detention facilities now owned or which are acquired or
developed by CCA or its affiliates in the future. See "Relationship Between CCA
and the Company after the Formation Transactions." In 1996, CCA invested
approximately $165.0 million in approximately 15 correctional facility projects
and increased its beds under contract from 28,607 to over 41,000. Moreover, as
of December 31, 1996, CCA was the largest private prison management company in
the United States with an estimated national market share of 52%. Of the 21,706
beds awarded to the private
24
<PAGE> 30
sector in 1996, CCA was awarded 12,872 beds, or 58%. Notwithstanding CCA's
market share and growth, less than 5% of all adult prison beds in the United
States are privately managed. Management believes that as CCA and the private
prison management industry continue to grow, many opportunities will exist to
acquire additional private correctional facilities from CCA on attractive terms.
See "Risk Factors -- Risks Associated With Owning Correctional Facilities,
Including Risks Associated With the Operation of Those Facilities."
The Company also believes that attractive opportunities exist to acquire
correctional facilities from various government entities. Historically,
government entities have used various methods of construction financing to
develop new correctional facilities, including but not limited to the following:
(i) one-time general revenue appropriations by the government agency for the
cost of the new facility; (ii) general obligation bonds that are secured by
either a limited or unlimited tax levied by the issuing government entity; or
(iii) lease revenue bonds secured by an annual lease payment that is subject to
annual or bi-annual legislative appropriation of funds. Many jurisdictions are
operating their correctional facilities at well above their rated capacities,
and as a result are under federal court order to alleviate prison overcrowding
within a certain time period. These jurisdictions are often not in a position to
appropriate funds or obtain financing to construct a correctional facility
because of other fiscal demands or requirements for public approval.
Accordingly, the Company believes that, in an attempt to address fiscal
pressures of matching revenue collections with projected expenses, many such
government entities have been and will be forced to consider private ownership
with respect to the development of new correctional facilities and
sale-leaseback transactions or other financing alternatives with respect to
existing correctional facilities. Management believes that such situations will
enable the Company to acquire and develop correctional facilities from and on
behalf of governments at all levels including those which might not be the
subject of a private management contract. In pursuing such opportunities, the
Company expects to utilize the industry knowledge, experience and relationships
of its Board of Trustees and management, particularly J. Michael Quinlan, its
Chief Executive Officer.
In making its decision with respect to the Initial Facilities and in
evaluating the future acquisition of any or all of the Option Facilities and
other facilities, the Company has considered and will consider the following
criteria:
- The reputation and creditworthiness of the current owner, manager or
developer of the facility;
- The proposed terms for purchasing the facility;
- The proposed terms of leasing the facility, including rental payments and
lease term;
- The quality of construction of the facility;
- The quality of operations at an existing facility or the quality of other
operations of a prison manager for a new facility;
- The status of accreditation by the ACA; and
- The relationship between the prison manager and the contracting
correctional authority.
Expansion Opportunities. The Company's growth objectives will also focus
on the selective expansion of its existing correctional facilities to increase
cash flows and property values. In 1996, CCA expanded four of its domestic
facilities by an aggregate of 992 beds and used the expansion space for its
existing contracting government entities as well as to house inmates from other
jurisdictions under new contracts. The Company believes that CCA (and other
tenants of the Company) will continue to attempt to achieve economies of scale
through expansions of existing facilities. Management of the Company intends to
actively participate in its tenants' expansion plans and intends to provide
expansion space as needed.
Financing Opportunities. High occupancy rates and prison overcrowding have
resulted in an increased demand for new federal, state and local correctional
facilities. This demand has not been fully met because of budgetary constraints
and the reduced availability of construction financing. While the Company
intends to grow primarily from acquisitions and expansions of correctional
facilities, the Company believes that opportunities exist for it to provide
mortgage or other appropriate financing vehicles to government entities and
private prison managers in circumstances where ownership by the Company is not
otherwise attractive.
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<PAGE> 31
The Company's ability to acquire new facilities, expand its existing
facilities or provide mortgage financing will depend on its access to financing.
Although as a public company the Company expects to have several sources of
financing, including the Bank Credit Facility, no commitments relating to such
financings have been finalized. There can be no assurance that the Company will
be able to acquire correctional facilities that meet its investment criteria.
Moreover, acquisitions and expansions entail risks that acquired or expanded
facilities will fail to perform in accordance with expectations. See "Risk
Factors -- Real Estate Investment Considerations" and "Risk Factors -- Risks
Related to the Company's Initial Distribution Policy."
Lease Negotiation. Concurrently with the performance of due diligence
procedures related to new acquisition opportunities and/or the negotiation of
the terms and conditions of new acquisitions, the Company will generally begin
discussions regarding proposed lease terms. Based on current market conditions,
the Company will generally seek lease terms which provide an initial annual base
rent with an appropriate escalation factor in an amount similar to the Base Rent
Escalation, and other terms similar to the terms of the Leases. The Company may,
however, negotiate lease terms different from the foregoing.
Due Diligence Process. CCA has developed a comprehensive analytical
approach to bidding on and developing new correctional projects or facilities.
This deliberation process has allowed CCA to assemble a portfolio of privatized
correctional and detention facilities that has shown sustained growth in
revenues and cash flows. The Company expects that CCA will continue to follow
these procedures in acquiring privatized correctional facilities in the future.
Accordingly, the Company believes it will be able to acquire or finance
correctional and detention facility properties from CCA with physical and market
characteristics similar to the Facilities. The Company will use a similar
approach in evaluating the acquisition or financing of correctional and
detention facilities, including those from government entities.
In conjunction with each prospective acquisition, the Company will conduct
comprehensive real estate and legal due diligence on the property and on the
private prison manager or government entity that will operate the facility. This
due diligence will include Phase I environmental assessments to the extent such
assessments are not already existing. In addition, the Company will conduct
customary real estate due diligence, including a survey of the property, a
review of all title documents, operating leases and contracts, zoning, and
government permits and licenses, and a determination of whether the property is
in compliance with all applicable laws.
26
<PAGE> 32
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Shares offered
hereby are estimated to be approximately $313.2 million ($360.6 million if the
Underwriters' over-allotment option is exercised in full) after deduction of the
underwriting discount and estimated Offering expenses. Approximately $308.1
million of the net proceeds of the Offering will be used by the Company to
purchase the nine Initial Facilities from CCA. The purchase of the Initial
Facilities will close contemporaneously with the closing of the Offering. See
"The Formation Transactions." Any remaining net proceeds from the Offering or
from the exercise of the Underwriters' over-allotment option will be used, along
with funds available from the Bank Credit Facility, to acquire additional
properties consistent with the Company's investment policies, including the
Option Facilities, and for working capital and general corporate purposes.
Pending such uses, the remaining net proceeds will be invested in short-term
investment grade instruments, interest bearing bank accounts, certificates of
deposit, money market securities, U.S. government securities or mortgage-backed
securities guaranteed by U.S. federal agencies.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
April 23, 1997, the date of its formation, after giving effect to the Formation
Transactions and as adjusted to reflect the sale by the Company of the
17,000,000 Common Shares offered hereby and the application of the estimated net
proceeds therefrom as described under "Use of Proceeds." The information set
forth in the following table should be read in conjunction with the financial
statements and notes thereto, the pro forma financial information and notes
thereto included elsewhere in this Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
<TABLE>
<CAPTION>
APRIL 23, 1997
---------------------
ACTUAL AS ADJUSTED
------ -----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Shareholders' Equity:
Preferred Shares, $0.01 par value, 10,000,000 shares
authorized, no shares issued and outstanding........... $-- $ --
Common Shares, $0.01 par value, 90,000,000 shares
authorized, 1,000 shares issued and outstanding;
17,301,000 shares, as adjusted, issued and
outstanding(1)......................................... -- 173
Additional paid-in capital................................ 1 316,027
--- --------
Total shareholders' equity........................ 1 316,200
--- --------
Total capitalization............................ $ 1 $316,200
=== ========
</TABLE>
- ---------------
(1) Does not include 1,850,000 Common Shares reserved for issuance pursuant to
the Company's Share Incentive Plan or the Company's Non-Employee Trustees'
Plan of which 1,075,000 shares will be outstanding upon consummation of the
Offering. See "Management -- The Share Incentive Plan" and " -- Non-Employee
Trustees' Plan."
(2) Includes (i) 1,000 founder's shares and (ii) 300,000 shares issued to D.
Robert Crants, III and Michael W. Devlin as a development fee and as
reimbursement for certain expenses incurred in connection with the formation
of the Company and the consummation of the Offering which are valued based
upon the initial public offering price. See "Dilution" and "The Formation
Transactions."
DISTRIBUTIONS
The Company intends to pay regular quarterly distributions to its
shareholders. The Board of Trustees, in its sole discretion, will determine the
actual distribution rate based on the Company's actual results of operations,
economic conditions, tax considerations (including those related to REITs) and
other factors. The first distribution, for the period ending September 30, 1997,
is expected to equal a pro rata share of the
27
<PAGE> 33
anticipated initial quarterly distribution of $0.425 per Common Share, which on
an annualized basis, will represent a distribution of $1.70 per share, or
approximately 8% to 9% of the estimated range of the initial public offering
price. The Company does not expect to change its estimated initial distribution
per Common Share if the Underwriters' over-allotment option is exercised. See
"The Formation Transactions."
The Company's initial intended distribution rate is based on an estimate of
Cash Available for Distribution. This estimate is derived from pro forma cash
flows provided by operations of the Company for the 12 months ended December 31,
1996. Management has not included any revenues or expenses related to the
purchase of the Option Facilities. Investing and financing activities are not
expected to have a material adverse effect on estimated Cash Available for
Distribution. The estimate of Funds from Operations is being made solely for the
purpose of setting the initial distribution rate and is not intended to be a
prediction or forecast of the Company's results of operations or of its
liquidity.
The following table illustrates the adjustments made by the Company to its
pro forma Funds from Operations for the 12 months ended December 31, 1996 in
order to calculate initial estimated distributions.
<TABLE>
<CAPTION>
PRO FORMA
-----------------
YEAR ENDED
DECEMBER 31, 1996
-----------------
(IN THOUSANDS,
EXCEPT PER
SHARE DATA)
<S> <C>
Pro forma net income........................................ $23,803
Pro forma depreciation...................................... 8,588
-------
Pro forma funds from operations(1)........................ 32,391
Estimated cash available for distribution................... 32,391
Expected initial annual distribution........................ 29,412
Expected initial distribution per common share(2)........... $ 1.70
Expected initial payout ratio based on estimated cash
available for distribution(3)............................. 90.8%
</TABLE>
- ---------------
(1) The Company generally considers Funds from Operations an appropriate measure
of liquidity of an equity REIT because industry analysts have accepted it as
a performance measure of equity REITs. Funds from Operations, as defined by
the National Association of Real Estate Investments Trusts ("NAREIT"),
represents net income (loss) (computed in accordance with generally accepted
accounting principles ("GAAP")), excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization on
real estate assets and after adjustments for unconsolidated partnerships and
joint ventures. Funds from Operations, therefore, does not represent cash
generated from operating activities in accordance with GAAP and should not
be considered an alternative to net income as an indication of the Company's
performance or to cash flow as a measure of liquidity or the ability to pay
distributions.
(2) Represents expected initial annual distribution per Common Share multiplied
by the 17,301,000 Common Shares to be outstanding upon completion of the
Formation Transactions.
(3) Represents the anticipated initial aggregate annual distribution divided by
Cash Available for Distribution.
The Company believes that its estimated Cash Available for Distribution
constitutes a reasonable basis for setting the initial distribution rate on the
Common Shares and intends to maintain its initial distribution rate for the 12
months following the Offering unless actual results from operations, economic
conditions or other factors differ from the assumptions used in its estimate.
The actual return that the Company will realize and the amount available for
distributions to shareholders will be affected by a number of factors, including
the revenues received from the Initial Facilities, the operating expenses of the
Company, the interest expense incurred on its borrowings and unanticipated
capital expenditures. No assurance can be given that the Company's estimate will
prove accurate. In addition, pro forma results of operations do not purport to
represent the actual results that can be expected for future periods. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
28
<PAGE> 34
The Company anticipates that Funds from Operations will exceed earnings and
profits due to non-cash expenses, primarily depreciation and amortization,
expected to be incurred by the Company. Distributions by the Company to the
extent of its current or accumulated earnings and profits for federal income tax
purposes will be taxable to shareholders as ordinary dividend income.
Distributions in excess of earnings and profits generally will be treated as a
non-taxable reduction of the shareholder's basis in the Common Shares to the
extent thereof, and thereafter as capital gain. Distributions treated as a
non-taxable reduction in basis will have the effect of deferring taxation until
the sale of a shareholder's Common Shares. The Company does not intend to reduce
the expected initial distribution per share if the Underwriters' over-allotment
option is exercised. Based on the Company's estimated results of operations for
the 12 months ending June 30, 1998, the Company estimates that approximately 10%
to 20% of the anticipated initial annual distribution to shareholders will
represent a return of capital for federal income tax purposes and that the
Company would have been required to distribute $22.6 million or $1.31 per share
during such 12-month period in order to maintain its status as a REIT. If actual
Funds from Operations or taxable income vary from these amounts, the percentage
of distributions may vary substantially in future years. For a discussion of the
tax treatment of distributions to holders of Common Shares, see "Material
Federal Income Tax Considerations -- Taxation of Taxable Domestic Shareholders"
and "-- Taxation of Foreign Shareholders." In order to qualify to be taxed as a
REIT, the Company must make annual distributions to shareholders of at least 95%
of its REIT taxable income (determined by excluding any net capital gain), which
the Company anticipates will be less than its share of adjusted Funds from
Operations. Under certain circumstances, the Company may be required to make
distributions in excess of Cash Available for Distribution in order to meet such
distribution requirements. In such a case, the Company may find it necessary to
arrange for short-term (or possible long-term) borrowings or to raise funds
through the issuance of Preferred Shares or additional Common Shares.
Future distributions by the Company will be at the discretion of the Board
of Trustees and will depend on the actual Funds from Operations of the Company,
its financial condition, capital requirements, the annual distribution
requirements under the REIT provisions of the Code (see "Material Federal Income
Tax Considerations -- Taxation of the Company -- Requirements for
Qualification"), and such other factors as the Board of Trustees deems relevant.
See "Risk Factors -- Changes in Investment and Financing Policies Without Vote
of Shareholders."
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<PAGE> 35
DILUTION
As of April 23, 1997, the founding shareholder owned 1,000 Common Shares.
The net tangible book value of the Common Shares immediately subsequent to this
Offering (based on an initial public offering price of $20.00 per share, after
deduction of the estimated underwriting discount and Offering expenses) will be
$18.28 per share, an increase of $18.27 from the $0.01 net tangible book value
per share prior to the Offering (or a net tangible book value per share of
$18.32 and a per share increase of $18.31, respectively, assuming full exercise
of the Underwriters' over-allotment option). A $1.72 per share dilution will be
experienced by the purchasers of shares in this Offering (or $1.68 per share
dilution assuming full exercise of the Underwriters' over-allotment option).
The following table illustrates this dilution on a per share basis based on
the initial public offering price and assuming no exercise of the Underwriters'
over-allotment option:
<TABLE>
<S> <C> <C>
Initial public offering price per Common Share.............. $20.00
Historical net tangible book value per Common Share before
the Offering(1)........................................ $ 0.01
Increase in net tangible book value per Common Share
attributable to new investors.......................... 18.27
Pro forma net tangible book value per Common Share after
the Offering(2)........................................ 18.28
------
Dilution per Common Share to new investors.................. $ 1.72
======
</TABLE>
- ---------------
(1) Based on the Company's historical April 23, 1997 Balance Sheet contained
elsewhere in this Prospectus.
(2) Based on the pro forma shareholders' equity of $316.2 million divided by
17,301,000 Common Shares outstanding after the Offering and the Formation
Transactions. Does not give effect to the Common Shares issuable
under the Company's Share Incentive Plan or the Company's Non-Employee
Trustees' Plan. See "Management -- The Share Incentive Plan" and
" -- Non-Employee Trustees' Plan."
The following table summarizes, as of April 23, 1997, after giving effect
to the sale of the Common Shares offered hereby and the Formation Transactions,
(i) the number and percentage of Common Shares purchased from the Company, (ii)
the total consideration for the Common Shares and (iii) the average price per
Common Share paid by the public investors and the current shareholders.
<TABLE>
<CAPTION>
SHARES OWNED TOTAL CONSIDERATION
--------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- -------------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Common Shares issued or to be
issued in the Formation
Transactions..................... 301,000(1) 1.7% $ % $
Common Shares to be sold in the
Offering......................... 17,000,000 98.3
</TABLE>
- ---------------
(1) Includes (i) 1,000 founder's shares and (ii) 300,000 shares issued to D.
Robert Crants, III and Michael W. Devlin as a development fee and as
reimbursement for certain expenses incurred in connection with the formation
of the Company and the consummation of the Offering which are valued based
upon the initial public offering price. See "Dilution" and "Formation
Transactions."
Upon closing of the Offering, the Company will grant options to purchase
1,075,000 Common Shares at an exercise price equal to the initial public
offering price per share. The foregoing table assumes no exercise of outstanding
share options. See "Management -- The Share Incentive Plan" and
" -- Non-Employee Trustees' Plan."
30
<PAGE> 36
PRO FORMA FINANCIAL STATEMENTS
The following financial statements represent the unaudited pro forma
financial results for the Company as of December 31, 1996 and the year ended
December 31, 1996. The pro forma Statement of Operations is presented as if the
Formation Transactions had occurred as of the beginning of the period indicated
and therefore incorporates certain assumptions that are included in the Notes to
Pro Forma Statement of Operations. The pro forma Balance Sheet is presented as
if the Formation Transactions had occurred on December 31, 1996. The pro forma
information does not purport to represent what the Company's financial position
or results of operations actually would have been had the Formation
Transactions, in fact, occurred on such date or at the beginning of the period
indicated, or to project the Company's financial position or results of
operations at any future date or for any future period.
The Company's audited historical balance sheet as of April 23, 1997, and
notes thereto are included elsewhere in this Prospectus along with the Report of
the Independent Public Accountants. Total assets and shareholders' equity
totaled $1,000 each at April 23, 1997.
31
<PAGE> 37
CCA PRISON REALTY TRUST
PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------
ACTUAL ADJUSTMENTS PRO FORMA
------ ----------- ---------
<S> <C> <C> <C>
OPERATING DATA:
Revenues:
Rent income............................................ $-- $33,891(1) $33,891
Cost and expenses:
Operating and administrative........................... -- 1,404(2) 1,500
96(3)
Provision for depreciation and amortization............ -- 8,588(4) 8,588
--- ------- -------
Total costs and expenses.......................... -- 10,088 10,088
--- ------- -------
Net income................................................ $-- $23,803 $23,803
=== ======= =======
Net income per share...................................... $ 1.38
=======
Weighted average number of shares outstanding(5).......... 17,301
=======
OTHER DATA:
Funds from operations(6).................................. $32,391
Cash Available for Distribution........................... 32,391
Distributions............................................. $29,412
Number of facilities...................................... 9
</TABLE>
- ---------------
(1) To record annual rent income from CCA in accordance with the terms of the
Leases as if the Initial Facilities had been in operation at the leased
design capacity for the entire year. The Company will lease the Initial
Facilities to CCA under operating leases.
(2) To record administrative expenses of the Company based upon expected
operating and administrative costs.
(3) To record state franchise taxes based upon the corporate structure of the
Company.
(4) To record depreciation expense on fixed assets purchased from CCA based on
the estimated useful lives of the Initial Facilities.
(5) Weighted average shares outstanding include the founder's shares, shares
issued to management and shares sold in the Offering as if such shares were
outstanding for the entire period.
(6) Industry analysts generally consider funds from operations to be an
appropriate measure of the performance of an equity REIT. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- General." Pro forma funds from operations is generally defined
as income (loss) before minority interest and gains on sale of property plus
certain non-cash items, depreciation and amortization. Funds from operations
should not be considered an alternative to (i) operating income (as
determined in accordance with generally accepted accounting principles) as
an indicator of the Company's operating performance or (ii) cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles) as a measure of liquidity.
32
<PAGE> 38
CCA PRISON REALTY TRUST
PRO FORMA BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
----------------------------------
ACTUAL ADJUSTMENTS PRO FORMA
------ ----------- ---------
<S> <C> <C> <C>
ASSETS
Land and buildings, net..................................... $ -- $311,103(1) $311,103
Cash........................................................ -- 313,200(2) 5,097
(308,103)(1)
---- -------- --------
$ -- $316,200 $316,200
==== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders' equity:
Preferred Shares, $0.01 par value; 10,000,000 shares
authorized; none outstanding........................... $ -- $ -- $ --
Common Shares, $0.01 par value; 90,000,000 shares
authorized, 17,301,000 issued and outstanding, as
adjusted............................................... -- 173(2) 173
Additional paid-in capital................................ -- 313,027(2) 316,027
3,000(1)
---- -------- --------
$ -- $316,200 $316,200
==== ======== ========
</TABLE>
- ---------------
(1) To record the purchase of the nine Initial Facilities from CCA.
(2) Reflects the initial capitalization (1,000 shares) of the Company, 300,000
shares issued to management, and issuance of 17,000,000 Common Shares, $0.01
par value, in connection with the Offering at an assumed initial public
offering price of $20.00 per share. The estimated costs of the Offering,
including the underwriting discount, estimated Offering expenses and the
development fee, totaling $29.8 million have been reflected as an offset to
additional paid-in capital. The resulting net cash proceeds of the Offering
total $313.2 million.
33
<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was organized as a Maryland real estate investment trust in
April 1997, and intends to make an election to qualify under the Code as a REIT
commencing with its taxable year ending December 31, 1997. Substantially all of
the Company's initial revenues are expected to be derived from: (i) rents
received under triple net leases of correctional and detention facilities; and
(ii) interest earned from the temporary investment of funds in short-term
instruments. With respect to Leases for the Initial Facilities, base rent is the
annual rental payment set forth in such Leases. All such Leases also provide for
annual increases equal to the Base Rent Escalation.
The Company will incur operating and administrative expenses including,
principally, compensation expense for its executive officers and other
employees, office rental and related occupancy costs and various expenses
incurred in the process of acquiring additional properties. The Company will be
self-administered and managed by its executive officers and staff, and will not
engage a separate advisor or pay an advisory fee for administrative or
investment services, although the Company will engage legal, accounting, tax and
financial advisors from time to time.
The primary non-cash expense of the Company will be the depreciation of its
correctional and detention facilities. The Company expects to depreciate
buildings and improvements over a 40-year period and certain equipment
transferred with the Facilities over a seven-year period for both tax and
financial reporting purposes.
The Company also expects to leverage its portfolio of real estate equity
investments and will incur long and short-term indebtedness, and related
interest expense, from time to time. See "Risk Factors -- Dependence on Debt
Financing for Growth and Adverse Consequences of Debt Financing on Ability to
Make Distributions."
The Company intends to declare and pay dividends to its shareholders in
amounts not less than the amounts required to maintain REIT status under the
Code and, in general, in amounts exceeding taxable income. The Company's ability
to pay dividends will depend upon its Cash Available for Distribution.
RESULTS OF OPERATIONS
The Company has had no operations prior to April 23, 1997, (the date of
organization) or through the date of this Prospectus. The Company's future
results of operations will depend upon the acquisition of the Initial Facilities
and other properties, including the Option Facilities, and the terms of any
subsequent investments the Company may make.
PRO FORMA RESULTS OF OPERATIONS
For The Year Ended December 31, 1996
The Company estimates that after giving effect to the Offering and the
acquisition of the Initial Facilities, revenues would have been $33.9 million
and net income would have been $23.8 million or $1.38 per share for the year
ended December 31, 1996. Depreciation, amortization and other non-cash expenses
would have been $8.6 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that its initial working capital and cash from
operations, together with the Bank Credit Facility anticipated to be available
to the Company, will provide adequate liquidity to conduct its operations, fund
administrative and operating costs, interest payments, and acquisitions and
allow distributions to the Company's shareholders in accordance with the Code's
requirements for qualification as a REIT and to avoid any corporate level
federal income or excise tax.
34
<PAGE> 40
In order to qualify as a REIT for federal income tax purposes, the Company
will be required to make substantial distributions to its shareholders. The
following factors, among others, will affect funds from operations and will
influence the decisions of the Board of Trustees regarding distributions: (i)
scheduled increases in base rent under the leases with respect to the
facilities; and (ii) returns from short-term investments pending application of
the net proceeds of the Offering. Although the Company will receive most of its
rental payments on a monthly basis, it intends to pay dividends quarterly.
Amounts accumulated for distribution will be invested by the Company in
short-term money market instruments.
Under the terms of the Leases, CCA is responsible for all operating
expenses and taxes, including property and casualty insurance. See "Business of
the Company and its Properties -- The Facilities" and "Leases." As a result of
these arrangements, the Company does not believe it will be responsible for any
major expenses in connection with the Initial Facilities during the terms of the
respective Leases. The Company anticipates entering into similar leases with
respect to additional properties, including the Option Facilities. After the
terms of the respective leases expire, or in the event a lessee is unable to
meet its obligations, the Company anticipates that any expenditures it might
become responsible for in maintaining the facilities will be funded by cash from
operations and, in the case of major expenditures, possibly by borrowings. To
the extent that unanticipated expenditures or significant borrowings are
required, the Company's Cash Available for Distribution and liquidity may be
adversely affected.
The Company expects to establish a $150.0 million Bank Credit Facility
which will be used to finance the acquisition of additional properties,
including the Option Facilities, and for other general operating purposes,
including the expansion of the Company's existing facilities. There can be no
assurance that the Bank Credit Facility will be made available to the Company.
Other than the purchase of the Initial Facilities, the Company has no
commitments with respect to other capital expenditures. However, the Company has
options at any time during the three-year period following the acquisition of
the Initial Facilities to purchase any or all of the five Option Facilities for
CCA's costs of developing, constructing and equipping the Option Facilities,
plus 5% of such costs, aggregating approximately $193.0 million.
The Company may, under certain circumstances, borrow additional amounts in
connection with the renovation or expansion of the Initial Facilities, the
acquisition of additional properties, including the Option Facilities or, as
necessary, to meet certain distribution requirements imposed on REITs under the
Code. See "Policies and Objectives with Respect to Certain
Activities -- Investment Objectives and Policies." The Company may raise
additional capital by issuing, in public or private transactions, equity or debt
securities, but the availability and terms of any such issuance will depend upon
the market and other conditions. The Company anticipates that as a result of its
initially low debt to total capitalization and its intention to maintain a debt
to total capitalization of 50% or less, it will be able to obtain financing for
its long-term capital needs. However, there can be no assurance that such
additional financing or capital will be available on terms acceptable to the
Company.
Acquisitions will be made subject to the investment objectives and policies
to maximize both current income and long-term growth in income described
elsewhere in this Prospectus. The Company's liquidity requirements with respect
to future acquisitions may be reduced to the extent the Company uses Common
Shares as consideration for such purchases.
INFLATION
Management believes that inflation should not have a material adverse
effect on the operating expenses of the Company because such expenses are
relatively insignificant as a percentage of revenues. Because the Bank Credit
Facility provides for a variable interest rate, inflation could have a material
adverse effect on the Company's interest expense if interest rates increase
substantially during any year. Accordingly, when appropriate, based on the then
current interest rates, management may seek to replace the Bank Credit Facility
with a credit facility that provides for a fixed interest rate.
35
<PAGE> 41
THE PRIVATE CORRECTIONS INDUSTRY
The Company believes the United States private corrections industry is in a
period of significant growth. In the United States, there is a growing trend
toward privatization of government services and functions, including corrections
and detention services, as governments of all types face continuing pressure to
control costs and improve the quality of services. As a result of increased
costs, some governments have been forced to limit the provision of public
services and to seek more cost-effective means of providing the remaining
services. Since correctional and detention facilities are viewed as essential
services, fiscal pressures have caused governments to seek to deliver these
services more cost effectively. Further, as a result of the number of crimes
committed each year and the corresponding number of arrests, incarceration costs
generally grow faster than any other part of a government's budget. In an
attempt to address these pressures, government agencies responsible for the
operation of correctional and detention facilities are increasingly privatizing
such facilities.
According to the 1996 Facility Census, the design capacity of privately
managed adult correctional and detention facilities worldwide has increased
dramatically since the first privatized facility was opened by CCA in 1984. The
majority of this growth has occurred since 1989 as the number of privately
managed adult correctional and detention facilities in operation or under
construction worldwide increased from 26 facilities with a design capacity of
10,973 beds in 1989 to 132 facilities with a design capacity of 85,201 beds in
1996. The majority of all private prison management contracts are in the United
States. At December 31, 1996, 118 of the 132 contracts were for United States
facilities with the remaining 14 equally divided between Australia and the
United Kingdom. According to the 1996 Facility Census, the aggregate capacity of
private facilities in operation or under construction rose from 65,593 beds at
December 31, 1995 to 85,201 beds at December 31, 1996, an increase of 34%.
Additionally, the 1996 Facility Census reports that the number of private
facilities for which contracts have been awarded increased 27% from 104 in 1995
to 132 in 1996 and the prisoner population housed in privately managed
facilities expanded by 28% in 1996.
The 1996 Facility Census reports that at December 31, 1996 there were 25
state jurisdictions, the District of Columbia and Puerto Rico, within which
there were private facilities in operation or under construction. Four of these
were state jurisdictions within which facilities were located but where the
facilities are not intended to house the local or state level prisoners of those
state jurisdictions. An additional six state jurisdictions were contracting for
the housing of state-level or local-level prisoners in private facilities
located beyond their geographical boundaries. Further, all three federal
agencies with prisoner custody responsibilities (i.e., the BOP, INS and USMS)
continued to contract with private management firms.
Management believes that the increase in the demand for privatized
correctional and detention facilities is also a result, in large part, of the
general shortage of beds available in United States correctional and detention
facilities. According to reports issued by the United States Department of
Justice, Bureau of Justice Statistics (the "BJS"), the number of inmates housed
in United States federal and state prison facilities and in local jails
increased from 744,208 at June 30, 1985 to 1,630,940 at June 30, 1996, a
compound annual growth rate of 7.4%.
Industry reports also indicate that inmates 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 inmates 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 demand for privately-managed correctional and detention centers is also
increasing internationally. Management believes that many countries are faced
with the same fiscal pressures as the United States and, as a result, are
seeking more cost-effective means of providing prison management services. At
December 31, 1996, there were a total of 14 privatized facilities in the United
Kingdom and Australia, with an aggregate design capacity of 7,617 beds.
36
<PAGE> 42
At December 31, 1996, 40 of the 118 privately managed facilities in
operation or under construction in the United States were privately rather than
publicly owned. To date, all private ownership of correctional facilities has
been in connection with private prison management. However, management believes
that the number of privately owned facilities will grow, independent of the
growth in the private prison management industry. In an attempt to address the
fiscal pressures of matching revenue collections with projected expenses, many
government entities have been and will continue to be forced to consider private
ownership in connection with the development of new correctional facilities and
sale leaseback and other financing arrangements with respect to existing
facilities.
CORRECTIONS CORPORATION OF AMERICA
FACILITY OPERATIONS
CCA is the largest developer and manager of privatized correctional and
detention facilities worldwide. The Company initially will acquire the nine
Initial Facilities from CCA. The Company will also have an option to acquire any
or all of the five Option Facilities from CCA for a period of three years
following the closing of the purchase of the Initial Facilities. In addition,
the Company will have an option to acquire any correctional or detention
facility acquired or developed and owned by CCA in the future for a period of
three years following the Service Commencement Date with respect to such
facility. The Company will also have a right of first refusal to acquire and
provide mortgage financing for any correctional or detention facilities owned
and operated by CCA in the future. CCA's facilities are located in 17 states of
the United States, the District of Columbia, Puerto Rico, Australia and the
United Kingdom. As of April 23, 1997, CCA had contracts to manage 60
correctional and detention facilities with an aggregate design capacity of
43,049 beds of which 48 facilities representing 28,062 beds are in operation.
The services provided by CCA to government agencies include the integrated
design, construction and management of new correctional and detention facilities
and the redesign, renovation and management of older facilities. In addition to
providing the fundamental residential services relating to adult and juvenile
inmates, CCA's facilities offer a large variety of rehabilitation and education
programs including basic education, life skills and employment training and
substance abuse treatment. CCA also provides health care (including medical,
dental and psychiatric services), institutional food services, transportation
services, and work and recreational programs. CCA's management believes that its
proven ability to deliver a full range of high quality correctional and
detention facility management services on a cost-effective basis to government
agencies provides such agencies with sufficient incentives to choose CCA when
awarding new contracts or renewing existing contracts. In addition to the
opening of new facilities, over the last few years, CCA has expanded its service
capabilities and broadened its geographic presence in the United States market
through a series of strategic acquisitions of prison management companies and
individual facilities as well as the acquisition of an inmate transportation
company.
In addition to its domestic operations, CCA has obtained and is pursuing
construction and management contracts for correctional and detention facilities
outside the United States. CCA presently has contracts to operate one facility
in the United Kingdom, two facilities in Australia, and also has contracts to
provide inmate transportation services in Australia. In June 1994, CCA entered
into an international strategic alliance with Sodexho S.A. ("Sodexho"), a French
conglomerate, for the purpose of pursuing prison management business outside the
United States. In connection with the alliance, Sodexho purchased a significant
ownership in CCA and entered into certain agreements with CCA relating to future
financings by the Company and corporate governance and control matters.
The Initial Facilities and the Option Facilities were owned and operated by
CCA since the facilities were acquired or developed by CCA at various times
ranging from 1984 to 1997. CCA will operate the Initial Facilities and, if
acquired, the Option Facilities under the Leases with the Company. See "Business
of the Company and its Properties" and "Leases."
CCA is a Delaware corporation and is the successor to a Tennessee
corporation of the same name incorporated in January 1983. CCA's principal
executive offices are located at 102 Woodmont Boulevard,
37
<PAGE> 43
Nashville, Tennessee 37205, and its telephone and fax numbers are (615) 292-3100
and (615) 269-8635, respectively. CCA's common stock and warrants are listed on
the NYSE under the symbols "CXC" and "CXC/WS" respectively. CCA is not offering
any of the securities offered hereby.
CERTAIN SELECTED FINANCIAL INFORMATION
The following table sets forth (i) certain selected historical financial
information concerning CCA for each of the five years ended December 31, 1996
and (ii) unaudited selected consolidated pro forma financial information
concerning CCA. The pro forma operating information is presented as if the
Formation Transactions had occurred as of the beginning of the period indicated
and therefore incorporates certain assumptions that are included in the Notes to
Pro Forma Statement of Operations included elsewhere in this Prospectus. The pro
forma balance sheet information is presented as if the Formation Transactions
had occurred on December 31, 1996. The pro forma information does not purport to
represent what the Company's financial position or results of operations
actually would have been had the Formation Transactions, in fact, occurred on
such date or at the beginning of the period indicated, or to project the
Company's financial position or results of operations at any future date or any
future period. The selected historical financial information for each of the
five years ended December 31, 1996 is derived from CCA's consolidated financial
statements and has been included in this Prospectus due to the Company's initial
dependence on CCA as the sole lessee of the Facilities. All information
contained in the following table should be read in conjunction with the
consolidated financial statements and related notes of CCA included elsewhere in
this Prospectus. Investors should review the financial statements and other data
set forth herein with respect to CCA, as well as the financial statements and
other data set forth herein with respect to the Company and the Facilities.
38
<PAGE> 44
CORRECTIONS CORPORATION OF AMERICA
SELECTED PRO FORMA AND HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER 31, YEAR ENDED
--------------------------------------------------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996(1)
--------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues........................ $ 95,518 $ 132,534 $ 152,375 $ 207,241 $ 292,513 $ 292,513
Expenses:
Operating.................... 74,796 108,026 123,540 158,814 213,173 227,475
General and administrative... 8,408 7,885 9,413 14,288 13,428 13,342
Depreciation and
amortization............... 5,468 5,759 5,753 6,524 11,339 9,008
--------- --------- --------- --------- --------- ---------
88,672 121,670 138,706 179,626 237,940 249,825
Operating income................ 6,846 10,864 13,669 27,615 54,573 42,688
--------- --------- --------- --------- --------- ---------
Interest expense, net........ 4,264 4,424 3,439 3,952 4,224 452
--------- --------- --------- --------- --------- ---------
Income before income taxes...... 2,582 6,440 10,230 23,663 50,349 42,236
Provision for income taxes... 50 832 2,312 9,330 19,469 13,549
--------- --------- --------- --------- --------- ---------
Net income...................... 2,532 5,608 7,918 14,333 30,880 28,687
--------- --------- --------- --------- --------- ---------
Preferred stock dividends.... 71 425 204 -- -- --
--------- --------- --------- --------- --------- ---------
Net income allocable to common
stockholders................. $ 2,461 $ 5,183 $ 7,714 $ 14,333 $ 30,880 $ 28,687
========= ========= ========= ========= ========= =========
Net income per share:
Primary...................... $ 0.06 $ 0.10 $ 0.13 $ 0.19 $ 0.38 $ 0.35
Fully diluted................ $ 0.05 $ 0.10 $ 0.13 $ 0.18 $ 0.36 $ 0.34
Weighted average common shares
outstanding.................. 41,544 51,762 61,908 75,110 81,664 81,664
OTHER DATA:
Beds in operation (year end).... 7,844 10,368 13,404 20,252 24,310 24,310
Beds under contract (year
end)......................... 8,737 12,254 19,735 28,607 41,135 41,135
Compensated mandays(2).......... 2,210,682 3,338,411 3,768,095 4,799,562 7,113,794 7,113,794
Available mandays(3)............ 2,463,496 3,628,114 4,012,881 5,133,221 7,557,988 7,557,988
Average occupancy(4)............ 89.7% 92.1% 93.5% 93.9% 94.1% 94.1%
BALANCE SHEET DATA (END OF
PERIOD):
Total assets.................... $ 103,295 $ 109,285 $ 141,792 $ 213,478 $ 468,888 $ 551,603
Total long-term debt............ 56,277 50,558 47,984 74,865 117,535 64,500
Total liabilities excluding
deferred gain................ 75,367 75,103 80,035 116,774 187,136 129,626
Stockholders' equity............ 27,928 34,182 61,757 96,704 281,752 281,752
</TABLE>
- ---------------
(1) See Corrections Corporation of America Pro Forma Consolidated Financial
Statements and related notes thereto appearing elsewhere in this Prospectus.
(2) Compensated mandays is equal to the number of beds for which CCA is paid
multiplied by the number of days the beds are occupied.
(3) Available mandays is the total number of beds in operation multiplied by the
number of days in operation.
(4) Average occupancy is the quotient of dividing compensated mandays by
available mandays.
39
<PAGE> 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following financial analysis should be read in conjunction with the
above financial information concerning CCA.
General
CCA presently has contracts to manage 59 correctional and detention
facilities with an aggregate design capacity of 42,537 beds. Of these 59
facilities, 47 are currently in operation and 12 are under development by CCA,
three of which are Option Facilities and nine of which will be financed and
owned by a contracting government entity. CCA, through its United Kingdom joint
venture, UK Detention Services ("UKDS"), manages one facility in the United
Kingdom and, through its Australian joint venture, CC Australia, manages two
facilities in Australia. CCA's ownership interest in CC Australia is accounted
for under the equity method. Of the 12 facilities under development by CCA,
seven are scheduled to commence operations during 1997 (three in the second
quarter and four in the third quarter) and five are scheduled to commence
operations during 1998. In addition, at March 18, 1997, CCA had outstanding
written responses to Request for Proposals and other solicitations for 12
projects with an aggregate design capacity of 11,035 beds.
The following table sets forth the number of facilities under contract or
award at the end of the periods shown:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Contracts(1).......................................... 39 47 59
Facilities in operation............................... 31 38 42
Design capacity of contracts.......................... 19,735 28,607 41,135
Design capacity of facilities in operation............ 13,404 20,252 24,310
Compensated mandays(2)................................ 3,768,095 4,799,562 7,113,794
</TABLE>
- ---------------
(1) Consists of facilities in operation and facilities under development for
which contracts have been finalized.
(2) Compensated mandays for a period ended are calculated, for per diem rate
facilities, as the number of beds occupied by residents on a daily basis
during the period ended and, for fixed rate facilities, as the design
capacity of the facility multiplied by the number of days the facility was
in operation during the period.
CCA derives substantially all of its revenues from the management of
correctional and detention facilities for national, federal, state and local
government agencies in the United States and abroad.
40
<PAGE> 46
Geographic Market Concentration
CCA currently manages facilities in 14 states, the District of Columbia and
Puerto Rico. Management revenues by state, as a percentage of CCA's total
revenues for years ended December 31, 1995 and 1996, respectively, are as
follows:
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996
--------------------------- ---------------------------
NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF
STATE FACILITIES TOTAL REVENUES FACILITIES TOTAL REVENUES
- ----- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Arizona................................. 2 16.5% 2 14.7%
Colorado................................ -- -- 1 0.3
Florida................................. 5 7.8 4 10.3
Indiana................................. 1 1.4 1 0.4
Kansas.................................. 2 4.6 1 3.0
Louisiana............................... 1 6.1 1 4.7
Minnesota............................... -- -- 1 0.7
Mississippi............................. -- -- 1 1.1
New Mexico.............................. 3 8.4 3 6.7
Oklahoma................................ 1 1.9 2 3.0
Puerto Rico............................. 1 0.1 1 4.7
South Carolina.......................... -- -- 1 2.1
Tennessee............................... 8 25.2 8 19.2
Texas................................... 12 22.7 12 23.6
</TABLE>
To the extent favorable or unfavorable changes in regulations or market
conditions occur in these markets, such changes would likely have a
corresponding impact on CCA's results of operations.
Revenues for operation of correctional and detention facilities are
recognized as the services are provided, based on a net rate per day per inmate
("per diem" rate) or on a fixed monthly rate ("fixed or determined" rate). Of
CCA's 44 domestic facilities in operation, 40 are compensated on a per diem
basis and four are compensated at fixed monthly rates. The per diem rates or
fixed monthly rates vary according to the type of facility and the extent of
services provided at the facility. Transportation revenues are based on a per
mile charge or a fixed fee per trip.
CCA incurs all facility operating expenses, except for certain debt service
and lease payments with respect to certain facilities that CCA does not own or
lease. CCA owns 13 of the domestic facilities it currently manages. CCA
currently manages 31 domestic facilities that are owned or leased by a
government agency, construction of which has been financed by the agency through
one or more of a variety of methods.
Facility payroll and related taxes constitute the majority of facility
operating expenses for CCA. Substantially all other operating expenses consist
of food, clothing, medical services, utilities, supplies, maintenance, insurance
and other general operating expenses. As inmate populations increase following
the start-up of a facility, operating expenses generally decrease as a
percentage of related revenues. Each facility is fully staffed at the time it is
opened or taken over by CCA, although it may be operating at a relatively low
occupancy rate at such time.
CCA's general and administrative costs consist of salaries of officers and
other corporate headquarters personnel, legal, accounting and other professional
fees (including pooling expenses related to certain acquisitions), travel
expenses, executive office rental, and promotional and marketing expenses. The
most significant component of these costs relates to the hiring and training of
experienced corrections and administrative personnel necessary for the
implementation and maintenance of the facility management and transportation
contracts.
Operating income for each facility depends upon the relationship between
operating costs, the rate at which CCA is compensated per manday, and the
occupancy rate. The rates of compensation are fixed by contract and
approximately two-thirds of all operating costs are fixed costs. Therefore,
operating income will vary from period to period as occupancy rates fluctuate.
Operating income will be affected adversely as CCA
41
<PAGE> 47
increases the number of newly-constructed or expanded facilities under
management and experiences initial low occupancy rates. After a management
contract has been awarded, CCA incurs facility start-up costs that consist
principally of initial employee training, travel and other direct expenses
incurred in connection with the contract. These costs are capitalized and
amortized on a straight-line basis over the shorter of the term of the contract
plus renewals, or five years. Depending on the contract, start-up costs are
either fully recoverable as pass-through costs or are billable to the
contracting agency over the original term of the contract plus renewals. CCA has
historically financed start-up costs through available cash, the issuance of
various securities, cash from operations and borrowings under CCA's revolving
credit facility.
Newly opened facilities are staffed according to contract requirements when
CCA begins receiving inmates. Inmates are typically assigned to a newly opened
facility on a regulated, structured basis over a one-to-three month period.
Until expected occupancy levels are reached, operating losses may be incurred.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
of revenues of certain items in CCA's statement of operations and the percentage
change from period to period in such items:
<TABLE>
<CAPTION>
PERIOD-TO-PERIOD
PERCENTAGE CHANGES
--------------------
DECEMBER 31, 1995 1996
----------------------- COMPARED COMPARED
1994 1995 1996 TO 1994 TO 1995
----- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues.............................. 100.0% 100.0% 100.0% 36.0% 41.1%
Expenses:
Operating........................... 81.1 76.6 72.9 28.6 34.2
General and administrative.......... 6.1 6.9 4.6 51.8 (6.0)
Depreciation and amortization....... 3.8 3.2 3.9 13.4 73.8
----- ----- -----
Operating income...................... 9.0 13.3 18.6 102.0 97.6
----- ----- -----
Interest expense, net................. 2.3 1.9 1.4 14.9 6.9
----- ----- -----
Income before income taxes............ 6.7 11.4 17.2 131.3 112.8
Provision for income taxes............ 1.5 4.5 6.6 303.5 108.7
----- ----- -----
Net income............................ 5.2 6.9 10.6 81.0 115.4
Preferred stock dividends............. 0.1 -- -- (100.0) --
----- ----- -----
Net income allocable to common
stockholders........................ 5.1% 6.9% 10.6% 85.8 115.4
===== ===== =====
</TABLE>
Year Ended December 31, 1996 Compared with Year Ended December 31, 1995
Revenues. CCA's total revenues increased 41% from 1995 to 1996 with
increases in both management and transportation services. CCA's management
revenues increased 43% in 1996, or $84.2 million. This increase is due to the
opening of new facilities and the expansion of existing facilities by CCA in
1995 and 1996. In 1996, CCA opened four new facilities with an aggregate design
capacity of 2,501 beds, assumed management of two facilities with an aggregate
design capacity of 899 beds and expanded five existing facilities to increase
their design capacity by an aggregate of 1,058 beds. Accordingly, 4,458 new beds
were brought on line in 1996. Due to the growth in beds, compensated mandays
increased 48% in 1996 from 4,799,562 to 7,113,794. Average occupancy remained
stable at 94.1% for 1996 as compared to 93.9% for 1995.
CCA's transportation revenues increased $1.1 million or 12% in 1996 as
compared to 1995. The 1996 growth was due to a continued marketing effort that
expanded the customer base and resulted in increased compensated mileage.
During the second and fourth quarters of 1996, CCA purchased the remaining
two-thirds of UKDS from its original joint venture partners. After consideration
of several strategic alternatives related to UKDS, CCA sold 20% of the entity to
Sodexho, and recognized an after-tax gain of $515,000. In conjunction with this
42
<PAGE> 48
transaction, Sodexho was also provided the option to purchase an additional 30%
of UKDS, which option expires in 1997.
Facility Operating Expenses. CCA's facility operating expenses increased
34.2% to $213.2 million in 1996 compared to $158.8 million in 1995. This
increase was due to the additional beds on line that increased compensated
mandays and the growth in the transportation services. The average management
operating cost per manday was $28.82 for 1996 as compared to $31.59 for 1995.
The decrease in average cost per manday was due to CCA's ability to realize more
economies of scale as additional beds were brought on line. As a percentage of
revenues, facility operating expenses decreased to 73% from 77%. This decrease
is primarily attributable to the expansion of various facilities that added
lower incremental operating expenses and improved economies of scale. Salary and
related employee benefits constituted approximately 63% and 58% of facility
operating expenses for 1996 and 1995, respectively.
General and Administrative. CCA's general and administrative costs
decreased 6% in 1996 to $13.4 million as compared to $14.3 million in 1995. This
decrease is due to the non-recurring pooling expenses associated with
acquisitions during fiscal 1995 as well as CCA's ability to reduce duplication
in the general and administrative areas by integrating the acquired companies
into its systems. Management believes that as CCA continues to grow, general and
administrative expenses should increase in volume but continue to decrease as a
percentage of revenues.
Depreciation and Amortization. CCA's depreciation and amortization
increased 74% to $11.4 million in 1996 as compared to $6.5 million in 1995. The
1996 increase is due to the growth in total beds in Company-owned facilities as
well as the one-time, non-recurring reserve of $850,000 established for the
termination of CCA's contract with South Carolina.
Interest Expenses, Net. CCA's interest expense, net increased 7% in 1996,
consisting of a 48% or $2.7 million, increase in interest expense and a 151%, or
$2.4 million, increase in interest income. Interest expense increased due
primarily to the addition of $50.0 million in convertible subordinated notes
issued in February and April 1996, bearing interest at 7.5%. Interest income
increased as a result of CCA investing the net proceeds from an equity offering,
which closed in June 1996.
Year Ended December 31, 1995 Compared with Year Ended December 31, 1994
In 1994 and 1995, CCA expanded its service capabilities and broadened its
geographic presence in the United States through a series of strategic
acquisitions that complemented CCA's development activities (collectively, the
"Acquisitions"). In December 1994, CCA acquired TransCor America, Inc.
("TransCor"), a nationwide provider of inmate transportation services. In April
1995, CCA acquired Concept Incorporated ("Concept"), a prison management company
with eight facilities and 4,400 beds under contract at the time of acquisition.
In August 1995, CCA acquired Corrections Partners, Inc. ("CPI"), a prison
management company with seven facilities and 2,900 beds under contract at the
time of acquisition. CCA's operating results for 1995 were significantly
affected by the Acquisitions. All of these business combinations were accounted
for as a pooling-of-interests and, accordingly, the operations of TransCor,
Concept and CPI have been combined in the accompanying consolidated financial
statements. The discussion herein is based upon the combined operations of CCA,
TransCor, Concept and CPI for all periods presented in the accompanying
consolidated financial statements.
Revenues. CCA's total revenues increased 36% from 1994 to 1995 with
increases in both management and transportation services. Management revenues
increased 37% in 1995, or $53.2 million. This increase was due to the opening of
new facilities and the expansions of existing facilities in 1994 and 1995 by CCA
and the related Acquisitions. In 1995, CCA opened five new facilities with an
aggregate design capacity 3,390 beds and assumed management of three facilities
with an aggregate design capacity 1,688 beds. CCA also realized the full-year
effect of three facilities added in 1994 with an aggregate design capacity 1,560
beds. The third contributing factor to growth was the expansion of 13 existing
facilities to increase their design capacity by 1,887 beds. Due to the growth in
the number of beds, compensated mandays increased 27% in 1995 from 3,768,095 to
4,799,562. Average occupancy remained stable at 93.9% for 1995 as compared to
93.5% for 1994.
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<PAGE> 49
CCA's transportation revenues increased $1.7 million or 21% in 1995 as
compared to 1994. The 1995 growth was due to a continued marketing effort that
expanded the customer base and resulted in increased compensated mileage.
During the first quarter of 1995, CCA purchased the remaining 50% of CC
Australia from its original joint venture partner. After consideration of
several strategic alternatives related to CC Australia, CCA then sold 50% of the
entity to Sodexho during the second quarter of 1995. CCA accounted for the 100%
ownership period on the equity basis of accounting and recognized an after-tax
gain of $783,000 on the sale.
Facility Operating Expenses. CCA's facility operating expenses increased
29% to $158.8 million in 1995 compared to $123.5 million in 1994. This increase
was due to the additional beds on line that increased compensated mandays and
the growth in the transportation services. The average management operating cost
per manday was $31.59 for 1995 as compared to $31.16 for 1994. The increase in
average cost per manday was due to the significant number of new beds brought on
line in 1995. As the five new facilities were opened, the full complement of
fixed costs was being incurred prior to full occupancy. As a percentage of
revenues, however, facility operating expenses decreased to 77% from 81%. This
decrease was primarily attributable to the expansion of various facilities that
added lower incremental operating expenses and improved economies of scale.
Salary and related employee benefits constituted approximately 58% and 55% of
facility operating expenses for 1995 and 1994, respectively.
General and Administrative. CCA's general and administrative costs
increased 52% in 1995 to $14.3 million as compared to $9.4 million in 1994.
Included in 1995 were approximately $950,000 of non-recurring pooling expenses
related to the Acquisitions. CCA has also expanded its management staff to
manage its significant growth. Additional staff was added to bring new business
on line, resulting in cost being incurred prior to revenue being realized. Also,
as all transition issues are finalized from the acquired operations and the
duplicate services are consolidated, general and administrative costs should
decrease as a percentage of revenues.
Depreciation and Amortization. CCA's depreciation and amortization
increased $771,000, to $6.5 million in 1995 as compared to $5.8 million in 1994.
The 1995 increase was due to the growth in total beds in Company-owned
facilities.
Interest Expenses, Net. CCA's interest expense, net increased 15% in 1995
due to the assumption of debt related to the Eloy Detention Center in Eloy,
Arizona. In July 1995, CCA acquired the remaining 50% of the investment in a
partnership and assumed the assets and debts.
Income Taxes. In 1995, CCA's effective income tax rate increased to 39% as
compared to 23% in 1994. This increase in taxes was due to CCA's complete
utilization of net operating loss carry forwards, therefore becoming subject to
full statutory tax rates.
Liquidity and Capital Resources
CCA's business is capital intensive in relation to the development of a
correctional facility. CCA's efforts to obtain contracts, construct additional
facilities and maintain its day-to-day operations have required the continued
acquisition of funds through borrowings and equity offerings. Historically, CCA
has financed these activities with cash generated from operating and bank
borrowings, the issuance and sale of capital stock, subordinated convertible
notes and senior secured debt, taxable and tax-exempt bonds, and by assisting
governmental agencies in their issuance of municipal bonds.
CCA's current ratio increased to 1.79 in 1996 as compared to 1.31 in 1995.
The increase was due to the increase in accounts receivable that resulted from
additional beds on line, as well as an increase in construction receivables for
facilities being constructed by CCA. The ratio of long-term debt to total
capitalization was 29% at December 31, 1996 compared to 44% at December 31,
1995. In October 1995, CCA declared a two-for-one stock split paid in the form
of a one-share dividend for every share of its common stock held on the record
date. In June 1996, CCA declared a second two-for-one stock split paid in the
form of a one-share dividend for every share of its common stock held on the
record date. All references to number of shares have been adjusted for both
stock splits.
44
<PAGE> 50
CCA's cash flow from operations for 1996 was approximately $24.4 million as
compared to $17.8 million in 1995 and $11.6 million in 1994. CCA has
strengthened its cash flow through its expanded business, additional focus on
larger, more profitable facilities, its expansion of existing facilities where
economies of scale could be realized, and its continuing effort of cost
containment.
In 1994, CCA entered into an international strategic alliance with Sodexho
for the purpose of pursuing prison management business outside the United
States. In connection with this alliance, Sodexho purchased a significant
ownership interest in CCA and entered into certain agreements with CCA relating
to future financings by CCA and certain corporate governance and control issues.
These issues included the grant by CCA to Sodexho of a preemptive right to
purchase additional shares of CCA's common stock in securities convertible into
or exchangeable for common stock in any amount necessary to enable Sodexho to
maintain a percentage ownership in CCA equal to 20% of the common stock on a
fully diluted basis.
In February 1996, CCA issued $30.0 million of its convertible subordinated
notes to an investor. The proceeds were used to repay the outstanding principal
under CCA's working capital credit facility and construction loan. The notes
bear interest at 7.5%, payable quarterly, and require CCA to maintain specific
ratio requirements relating to net worth, cash flow and debt coverage. The notes
are convertible into shares of CCA's common stock at a conversion price, as
adjusted, of $25.91 per share. In April 1996, due to the triggering of its
preemptive right in connection with the issuance of the convertible subordinated
notes, Sodexho purchased $20.0 million of convertible subordinated notes under
the same terms and conditions.
In June 1996, CCA completed a public offering of 3,750,000 shares of its
common stock at a price to the public of $37.50 per share. The proceeds of the
offering, after deducting all associated costs, were $131.8 million.
In August 1996, CCA issued $24.7 million of revenue bonds to finance the
construction of a 480-bed medium security detention facility located in Taylor,
Texas. These bonds are taxable and bear interest at a variable rate. The bonds
are secured by an irrevocable direct pay letter of credit issued by a group of
banks.
In September 1996, CCA entered into a new revolving credit facility with a
group of banks. The new revolving credit facility replaced the $25.0 million
revolving line of credit which was scheduled to mature in May 1997. The new
revolving credit facility provides for general corporate borrowings up to $170.0
million, which includes the issuance of a maximum of $136.0 million in letters
of credit and matures in September 1999. The credit facility is secured by the
pledge of stock of CCA's first tier domestic subsidiaries and bears interest, at
the election of CCA, at either the agent bank's prime rate or a rate which is
0.5%, 0.75% or 1.0% above the applicable 30-, 60- or 90-day LIBOR rate,
depending on CCA's leverage ratio. Interest is payable quarterly with respect to
prime rate loans and at the expiration of the applicable period with respect to
LIBOR rate-based loans. There are no prepayment penalties associated with the
credit facility. The credit facility requires CCA, among other things, to
maintain specific ratio requirements relating to net worth, leverage and debt
service coverage. The facility also limits certain payments and distributions.
As of December 31, 1996, there were $4.0 million in borrowings under the
facility. Letters of credit totaling $65.0 million had been issued, leaving the
unused commitment at $101.0 million.
In September 1996, CCA also closed a $2.5 million credit facility with a
bank that provides for the issuance of letters of credit and matures in
September 1999. As of December 31, 1996, there were $1.4 million in letters of
credit issued, leaving the unused commitment at $1.1 million.
45
<PAGE> 51
BUSINESS OF THE COMPANY AND ITS PROPERTIES
THE FACILITIES
The Company has negotiated a purchase agreement for the nine Initial
Facilities with an aggregate design capacity of 6,687 beds, and option
agreements to purchase any or all of the five additional Option Facilities with
an aggregate design capacity of 5,638 beds at any time during the three year
period from the closing of the purchase of the Initial Facilities. In addition,
the Company will have an option to acquire any future correctional or detention
facilities acquired or developed and owned by CCA in the future for a period of
three years following the Service Commencement Date with respect to such
facility. The Company will acquire a 100% interest in each of the facilities
purchased. Certain information for the Initial Facilities and the Option
Facilities is set forth in the following tables and accompanying descriptions.
THE INITIAL FACILITIES
<TABLE>
<CAPTION>
INITIAL ANNUAL LEASE
DESIGN DATE RENT TERM
FACILITY AND LOCATION CAPACITY OPENED TYPE OF FACILITY CONTRACTING ENTITIES (IN MILLIONS) (YEARS)
- --------------------- -------- ------ ---------------- -------------------- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
Houston Processing
Center.................. 411 April Medium Security INS $1.5 12
Processing
Houston, Texas 1984 Center
Laredo Processing
Center.................. 258 March Medium Security INS and BOP 1.2 12
Processing
Laredo, Texas 1985 Center
Bridgeport Pre-Parole
Transfer Facility....... 200 November Minimum Security State of Texas 0.4 12
Pre-Parole
Bridgeport, Texas 1987 Transfer
Facility
Mineral Wells Pre-Parole
Transfer Facility....... 1,119 July Minimum Security State of Texas 3.0 12
Pre-Parole
Mineral Wells, 1989 Transfer
Texas Facility
West Tennessee
Detention Facility...... 600 September Multi-Security INS, USMS, BOP 3.7 10
Mason, Tennessee 1990 Detention Center State of North Carolina
Leavenworth Detention
Center.................. 327 June Maximum Security USMS 3.3 10
Leavenworth, 1992 Detention Center
Kansas
Eloy Detention Center..... 1,500(1) July Medium Security INS and BOP 6.0 12
Eloy, Arizona 1994 Detention Center
Central Arizona Detention
Center.................. 1,792 October Multi-Security USMS, States of Oregon, 12.3 10
Florence, Arizona 1994 Detention Center Alaska and New Mexico
T. Don Hutto
Correctional Center..... 480 January Medium Security Williamson County, Texas 2.5 12
Correctional
Taylor, Texas 1997 Facility States of Colorado and
Wyoming
</TABLE>
- ---------------
(1) Includes a 250-bed expansion which is expected to be completed in June 1997.
The Initial Facilities will be purchased from CCA for an aggregate purchase
price of approximately $308.1 million in cash. The Company will lease the
Initial Facilities to CCA pursuant to Leases with terms ranging from 10 to 12
years and with aggregate initial annual rents of approximately $33.9 million.
Throughout the terms of the initial Leases, annual rents will escalate by the
Base Rent Escalation. The Leases may be extended at fair market rates for three
additional periods of five years each upon the mutual agreement of the Company
and CCA.
46
<PAGE> 52
The initial public offering price and, accordingly, the aggregate
consideration to be paid by the Company in the Formation Transactions are based
on an evaluation of CCA's operation of the Initial Facilities as a whole and the
factors discussed under "Underwriting" herein, rather than the valuation of
individual properties. Independent valuations were not obtained to determine the
purchase price to be paid by the Company for the fair market value of the
Initial Facilities and the purchase price paid by the Company for the Initial
Facilities exceeds their historical costs. No consideration was given to
obtaining an independent valuation of individual properties because the cash
consideration for the nine Initial Facilities to be sold by CCA to the Company
was determined primarily based on an evaluation of the current and anticipated
cash flows and operating results of such facilities. See "Risk
Factors -- Conflicts of Interest." It is possible that if the Company were to
have obtained any such third-party valuations, the sum of the values of the
Initial Facilities might have been lower than the valuation of the Company.
There has not been, nor will there be, any valuation of the Company other than
the initial public offering price of the Common Shares.
THE OPTION FACILITIES
<TABLE>
<CAPTION>
DESIGN ANTICIPATED
FACILITY AND LOCATION CAPACITY OPENING DATE TYPE OF FACILITY CONTRACTING ENTITIES
- --------------------- -------- ------------ ---------------- --------------------
<S> <C> <C> <C> <C>
Northeast Ohio Correctional Center... 2,016 June Medium Security Pending(1)
Youngstown, Ohio 1997 Correctional Facility
Torrance County Detention Facility... 910 October Multi-Security State of New Mexico, Torrance
Estancia, New Mexico 1997(2) Detention Facility County, USMS, and BOP
Southern Colorado Correctional 752 October Medium Security State of Colorado
Facility...........................
Walsenburg, Colorado 1997 Correctional Facility
North Fork Correctional Facility..... 960 January Medium Security Under negotiation(3)
Sayre, Oklahoma 1998 Correctional Facility
Whiteville Correctional Center....... 1,000 July Medium Security Under negotiation(4)
Whiteville, Tennessee 1998 Correctional Facility
</TABLE>
- ---------------
(1) CCA is reserving all 2,016 beds in this facility for use by the District of
Columbia, pending the outcome of the District's expedited solicitation
process for bids to house inmates.
(2) Anticipated opening date for a 624-bed expansion. The current 286-bed
facility was opened in December 1990.
(3) CCA is currently negotiating with the State of Colorado with respect to beds
in this facility.
(4) CCA is currently negotiating with various states with respect to beds in
this facility.
The Company will have options to purchase, for a period of three years from
the closing of the purchase of the Initial Facilities, any or all of the five
Option Facilities. The purchase price of each Option Facility shall be equal to
CCA's actual cost of developing, constructing and equipping such Option
Facility, plus 5% of such costs. The initial annual rent for each Option
Facility will be 11% of such purchase price. The Company and CCA believe that
the purchase price and initial annual rent, respectively, for each Option
Facility, if purchased, will be: (a) Northeast Ohio Correctional Center -- $58.0
million and $6.4 million; (b) Torrance County Detention Facility -- $36.0
million and $4.0 million; (c) Southern Colorado Correctional Facility -- $27.5
million and $3.0 million; (d) North Fork Correctional Facility -- $29.5 million
and $3.2 million and (e) Whiteville Correctional Center -- $42.0 million and
$4.6 million. Estimated aggregate purchase price and first-year rent amount to
approximately $193.0 million and $21.2 million, respectively.
The Company will lease the Option Facilities, if acquired, pursuant to
long-term, non-cancelable triple net leases on substantially the same terms and
conditions as the Leases for the Initial Facilities, including Base Rent
Escalation. The Company does not intend to acquire an Option Facility until it
is fully constructed, is the subject of an enforceable management contract
between CCA and a government entity and has an occupancy rate acceptable to the
Company. See "The Company -- Business Objectives and Strategies."
Because the Option Facilities are currently under development, construction
or expansion by CCA, the cash consideration to be paid by the Company for each
of the five Option Facilities will be determined based on CCA's costs of
developing, constructing and equipping such facilities plus 5% of such costs.
Independent valuations were not obtained to determine the purchase price of the
Option Facilities, and the purchase price
47
<PAGE> 53
to be paid by the Company for the Option Facilities exceeds their historical
costs. See "Risk Factors -- Conflicts of Interest -- Situations in Which
Conflicts of Interest Have Arisen and May Continue to Arise -- Valuation of the
Facilities."
DESCRIPTION OF THE FACILITIES
The Initial Facilities
Set forth below are brief descriptions of each of the Initial Facilities.
Unless otherwise noted, the Company will own fee title to the Facilities, free
and clear of any material liens. In general, the Facilities are operated under
management contracts with various government entities with terms shorter than
the terms of the Leases. The contracts, generally, have current terms that
require renewals every two to five years. CCA expects to renew these contracts
for periods consistent with the remaining renewal options allowed by the
contract or other reasonable extensions. It has been CCA's experience generally
that renewals proposed by it have been accepted by the corresponding contracting
government entity. See "Risk Factors -- Risks Associated with Owning
Correctional Facilities, Including Risks Associated with the Operation of Those
Facilities."
Pre-Parole Transfer Facilities. Pre-parole transfer facilities are used to
hold inmates who have been arrested for technical violations of their parole
agreements with a State Department of Criminal Justice, Board of Pardons and
Paroles. Pre-parole transfer facilities are classified as minimum security
facilities. The pre-parole transfer facilities to be acquired by the Company are
the Bridgeport Pre-Parole Transfer Facility and the Mineral Wells Pre-Parole
Transfer Facility.
The Bridgeport Pre-Parole Transfer Facility is located on approximately
three acres in Bridgeport, Texas and has a design capacity of 200 beds. The
31,000 square foot facility houses females who have been arrested for technical
violations of their parole agreements with the Texas Department of Criminal
Justice, Board of Pardons and Paroles. The facility was opened in 1987 and was
managed by Concept prior to CCA's acquisition of Concept in 1995. The facility
has been operated pursuant to a contract with the State of Texas since its
opening. CCA's current management contract with the State of Texas expires in
August 1997 with a two-year renewal option available to CCA.
The Mineral Wells Pre-Parole Transfer Facility is located on a 23 acre
tract in Mineral Wells, Texas and has a design capacity of 1,119 beds. The
196,000 square foot facility houses male inmates who have been arrested for
technical violations of their parole agreements with the Texas Department of
Criminal Justice, Board of Pardons and Paroles. The facility has been in
operation since July 1989 and was previously managed by Concept. CCA's current
management contract with the State of Texas expires in August 1997 with a two-
year renewal option available to CCA.
Processing Centers. Processing centers are used to house undocumented
aliens for the INS and are classified as minimum to medium security facilities.
The processing centers to be acquired by the Company include the Houston
Processing Center and the Laredo Processing Center.
The Houston Processing Center is located on approximately six acres in
Houston, Texas and has a design capacity of 411 beds. The 68,000 square foot
medium security facility, completed in April 1984, represents CCA's first
design, construction and management contract. CCA has contracted with the INS to
detain juveniles and adults at the center. The facility was accredited by the
ACA in April 1986 and is the first privately managed adult detention facility to
be awarded this status. CCA's management contract with the INS expires in
September 1997 with a one-year renewal option available. CCA has managed this
facility since 1984 under similar contract renewals.
The Laredo Processing Center is located on approximately four acres in
Laredo, Texas and has a design capacity of 258 beds. Constructed originally as a
48,000 square foot facility, the medium security facility underwent a 50-bed,
6,400 square foot expansion in March 1990, bringing the rated capacity to its
current level. Though the facility was designed and constructed under a contract
with the INS, CCA has also contracted with the BOP to detain juveniles and
adults at the center. The USMS has entered into an intergovernmental contract
with the BOP to detain inmates at the facility as well. CCA's current management
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contracts with the INS and BOP expire in December 1997. CCA is currently under
negotiations with the INS, BOP and USMS regarding an additional series of
contracts totaling a five-year term. CCA has managed this facility under similar
contract renewals since 1985.
Detention Facilities. Detention facilities are multi-security level
facilities used to house inmates of all levels, including pre-trial and
pre-sentence prisoners for the USMS, inmates sentenced but not yet housed in
correctional facilities, inmates awaiting trial, sentencing or hearing and
persons detained by the INS. The detention facilities to be acquired by the
Company include the Central Arizona Detention Center, the Leavenworth Detention
Center and the West Tennessee Detention Facility.
The Central Arizona Detention Center is located on two tracts totaling 68
acres in Florence, Arizona and has a design capacity of 1,792 beds. The 275,000
square foot, minimum to medium security facility houses male prisoners for the
USMS and the States of Alaska, Oregon and New Mexico. The facility was
constructed in three phases with the original construction completed in October
1994 and the final expansion completed in February 1997. CCA anticipates the
facility will seek ACA accreditation. CCA's current contracts with the USMS and
the States of Alaska, Oregon and New Mexico expire at various times through June
1999.
The Eloy Detention Center is located on a 146 acre tract in Eloy, Arizona
and has a design capacity of 1,500 beds. The 299,500 square foot medium security
center, originally designed, built and managed by Concept, represents a joint
arrangement between INS and the BOP, each of which uses these beds to house
either illegal aliens awaiting deportation or illegal aliens serving a short
prison term prior to deportation. Originally constructed as a 1,000-bed
facility, the facility was expanded by 250 beds in October 1996 and is currently
undergoing a second 250-bed expansion. The facility is seeking ACA
accreditation. CCA's management contract with INS commenced in July 1994 with a
three-year base period that expired in February 1997 and with two one-year
option periods. The current extension will expire in February 1998 and the
remaining extension will expire in February 1999.
The Leavenworth Detention Center is located on a 20 acre tract in
Leavenworth, Kansas and has a design capacity of 327 beds. The 75,000 square
foot, maximum security facility primarily houses federal prisoners awaiting
trial, sentencing or hearing and persons detained by the USMS. Opened in June
1992, the center received ACA accreditation in August 1993. CCA's current
management contract with the USMS originally extended through June 1997. CCA has
received a six-month extension of its current contract which will now expire in
December 1997, and will be entering into negotiations with the USMS regarding a
new contract.
The West Tennessee Detention Facility is located on a 45 acre tract in
Mason, Tennessee and has a design capacity of 600 beds. The 121,000 square foot,
multi-level security facility houses adult male and male juveniles certified as
adults for the USMS, the INS, the BOP and the North Carolina Department of
Corrections (the "NCDC"). The facility received its ACA accreditation in August
1992. CCA's current management contract with the State of North Carolina extends
through June 1997. CCA's current management contract with the USMS, INS and BOP
is set to expire in August 2001.
Correctional Facilities. Correctional facilities are used to house inmates
on a permanent basis for the duration of their sentences. The correctional
facility to be acquired by the Company is the T. Don Hutto Correctional Center.
The T. Don Hutto Correctional Center is located on approximately 64 acres
in Taylor, Texas and has a design capacity of 480 beds. Opened in January 1997,
the 136,000 square foot, secure facility was developed, designed and constructed
by CCA and is CCA's newest facility. CCA anticipates the facility will seek ACA
accreditation in the next two to three years. The facility currently houses
inmates for Williamson County, Texas and the States of Wyoming and Colorado
under contracts which extend through January 2000.
Historical Occupancy Rates of the Initial Facilities. The following chart
summarizes the historical occupancy rates of the Initial Facilities for the five
year period ended December 31, 1996.
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<PAGE> 55
HISTORICAL OCCUPANCY OF INITIAL FACILITIES
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Bridgeport............................................. 48.4% 67.3% 94.2% 83.2% 98.4%
Mineral Wells.......................................... 121.4 99.6 93.9 83.0 96.9
Houston................................................ 101.0 105.3 111.6 75.5 59.8
Laredo................................................. 82.0 87.7 109.3 94.0 90.0
Central Arizona........................................ NA NA 33.7 92.7 104.9
Eloy................................................... NA NA 47.8 92.2 93.2
Leavenworth............................................ 91.2 90.6 82.9 94.2 88.4
West Tennessee......................................... 100.7 87.2 86.4 95.8 97.1
T. Don Hutto........................................... NA NA NA NA NA
</TABLE>
The Option Facilities
Of the five Option Facilities, four are medium security correctional
facilities, and one is a multi-level security detention center.
The Northeast Ohio Correctional Center is located on approximately 72 acres
in Youngstown, Ohio. The 365,000 square foot, medium security facility was
completed in March 1997 with a design capacity of 1,504 beds. A 512 bed, 60,000
square foot expansion, is scheduled for completion in July 1997, bringing the
design capacity to 2,016 beds. CCA is reserving all 2,016 beds in this facility
for use by the District of Columbia, pending the outcome of the District's
expedited solicitation process for bids to house inmates. The facility will seek
ACA accreditation.
The Southern Colorado Correctional Facility is located on two tracts
totaling 82 acres in Walsenburg, Colorado. The 207,000 square foot, medium
security facility has a design capacity of 752 beds and is scheduled to open in
late summer of 1997. The facility will seek ACA accreditation and will house
inmates for the State of Colorado under a contract that consists of a one-year
initial agreement with a series of automatic renewals.
The North Fork Correctional Facility is located on a 75 acre tract in
Sayre, Oklahoma. Scheduled for completion by the first quarter of 1998, the
207,000 square foot, medium security facility will have a design capacity of 960
beds. The facility will seek ACA accreditation. CCA is currently under
negotiations with the State of Colorado with regard to beds in this facility.
The Torrance County Detention Facility is located on a 2,840 acre tract in
Estancia, New Mexico and has a design capacity of 910 beds. The 60,000 square
foot, multi-security level facility houses pre-trial and pre-sentence prisoners
for the USMS and BOP and sentenced inmates for the New Mexico Department of
Corrections and Torrance County. The facility was originally constructed in
December 1990 with a design capacity of 286 beds and is currently being expanded
by 624 beds. The facility is seeking ACA accreditation. CCA's contracts with
Torrance County, New Mexico extends through May 1997. CCA's contracts with USMS
and the State of New Mexico do not have specific expiration dates.
Whiteville Correctional Center will be located in Whiteville, Tennessee and
will have a design capacity of 1,000 beds. The medium security facility is
scheduled to open in July 1998, and the facility will seek ACA accreditation.
CCA is currently negotiating with various states regarding the housing of
inmates in the facility.
LEGAL PROCEEDINGS
Owners and operators of privatized correctional and detention facilities
are subject to a variety of legal proceedings arising in the ordinary course of
operating such facilities, including proceedings relating to personal injury and
property damage. Such proceedings are generally brought against the operator of
a correctional facility, but may also be brought against the owner. Although the
Company is not currently a party to any legal proceeding, it is possible that in
the future the Company could become a party to such proceedings. CCA is a party
to certain litigation relating to the Facilities arising in the ordinary course
of operations. The Company does not believe that such litigation, if resolved
against CCA, would have a material adverse effect upon its business or financial
position. The Leases provide that CCA is responsible for claims
50
<PAGE> 56
based on personal injury and property damage at the Facilities and require CCA
to maintain insurance for such purposes.
COMPETITION
The Facilities are, and any additional correctional and detention
facilities acquired by the Company will be, subject to competition for inmates
from private prison managers. The number of inmates in a particular area could
have a material effect on the revenues of the Facilities. In addition, revenues
of the Facilities will be affected by a number of factors including the demand
for inmate beds and general economic conditions. The Company will also be
subject to competition for the acquisition of correction and detention
facilities with other purchasers of correctional and detention facilities.
GOVERNMENT REGULATION
Environmental Matters. Under various federal, state and local laws,
ordinances and regulations, an owner or operator of real property may become
liable for the costs of removal or remediation of certain hazardous substances
released on or in its property. Such laws often impose such liability without
regard to whether the owner or operator knew of, or was responsible for, the
release of such hazardous substances. The presence of such substances, or the
failure to remediate such substances properly when released, may adversely
affect the owner's ability to sell such real estate or to borrow funds if the
borrower is using such real estate as collateral. Neither the Company, CCA nor
any of their affiliates has been notified by any government authority of any
material non-compliance, liability or other claim in connection with any of the
Facilities and neither the Company, CCA or any of their affiliates is aware of
any other environmental condition with respect to any of the Facilities that is
likely to be material to the Company. All of the Facilities have been subjected
to a preliminary environmental investigation. No assurance can be given that
such investigation would reveal all potential environmental liabilities, that no
prior or adjacent owner created any material environmental condition not known
to the Company or that future uses or conditions (including, without limitation,
changes in applicable environmental laws and regulations) will not result in
imposition of environmental liability. The Company does not intend to conduct
any further environmental investigation in connection with the Offering. The
Leases provide that CCA will indemnify the Company for certain potential
environmental liabilities at the Facilities. See "Leases."
Americans with Disabilities Act. The Facilities are subject to the
Americans with Disabilities Act of 1990 (the "ADA"). The ADA has separate
compliance requirements for "public accommodations" and "commercial facilities"
but generally requires that public facilities such as correctional facilities be
made accessible to people with disabilities. These requirements became effective
in 1992. Compliance with the ADA requirements could require removal of access
barriers and other capital improvements at the Facilities. Noncompliance could
result in imposition of fines or an award of damages to private litigants. Under
the Leases, CCA is required to make any necessary modifications or improvements
to comply with the ADA. The Company does not believe that such costs will be
material because it believes that relatively few modifications are necessary to
comply with the ADA. CCA has undertaken, where necessary, a capital improvement
program to cause the Facilities to comply with the ADA.
RELATIONSHIP BETWEEN CCA AND THE COMPANY AFTER THE
FORMATION TRANSACTIONS
For the purpose of governing certain of the ongoing relationships between
CCA and the Company after the Formation Transactions and to provide mechanisms
for an orderly transition, CCA and the Company have entered or will enter into
the various agreements, and will adopt policies as described herein. The Company
believes that the agreements are fair to it and contain terms which generally
are comparable to those which would have been reached in arm's-length
negotiations with unaffiliated parties. In each case, the terms of these
agreements have been reviewed by the Board of Directors of CCA and by the
Independent Committee (as hereinafter defined) of the Board of Trustees of the
Company. Such agreements include (a) the Purchase Agreement, (b) the Option
Agreements, (c) the Right to Purchase Agreement, and (d) certain other
agreements governing the relationship between CCA and the Company following the
Formation Transactions.
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<PAGE> 57
Purchase Agreement. Prior to the consummation of the Offering, the Company
and CCA and certain of its subsidiaries will enter into the Purchase Agreement
which provides the terms of the sale of the nine Initial Facilities for
aggregate cash consideration of approximately $308.1 million. Pursuant to the
Purchase Agreement, the transfer of the Initial Facilities is subject to the
completion of the Offering as well as the normal and customary conditions to the
closing of real estate transactions. The Purchase Agreement will contain
representations and warranties by CCA concerning the Initial Facilities
customarily found in agreements of such types.
Option Agreements. Prior to the consummation of the Offering, the Company
and CCA and certain of its subsidiaries will enter into the Option Agreements,
pursuant to which CCA and certain of its subsidiaries will grant the Company
exclusive options to acquire any or all of the five Option Facilities for a
period of three years following the purchase of the Initial Facilities for CCA's
costs of developing, constructing and equipping such facilities, plus 5% of such
costs, which aggregate approximately $193.0 million.
Right to Purchase. It is anticipated that CCA will acquire or develop
additional correctional or detention facilities in the future. The Company and
CCA will enter into the Right to Purchase Agreement whereby the Company will
have an option to acquire any correctional or detention facility acquired or
developed and owned by CCA in the future, for a period of three years following
the Service Commencement Date with respect to such facility. Additionally, the
Company will have a right of first refusal in the event CCA obtains an
acceptable third party offer to acquire or provide mortgage secured financing to
finance more than 90% of the cost of any correctional or detention facility now
owned or which is acquired or developed by it or its subsidiaries in the future.
Pursuant to such right, prior to selling any such facility, or mortgaging more
than 90% of the cost of such facility, CCA must first offer to sell such
facility to the Company or have the Company finance such facility, as
applicable, on the same terms and conditions contained in such third party
offer. With respect to a sale of any such facility, if the Company declines to
purchase such facility at a price or on terms set forth in such third party
offer, CCA will be free to sell such facility for a specified period of time at
a price at least equal to the price offered to the Company, and on terms and
conditions substantially consistent with those offered to the Company. With
respect to a first mortgage financing of 90% of the cost of any such facility,
if the Company declines to provide such financing on the terms set forth in such
third party offer, CCA will be free to obtain first mortgage financing from a
third-party on terms and conditions no more favorable to CCA than those
contained in the third party offer.
Trade Name Use Agreement. Pursuant to the terms of the Trade Name Use
Agreement, the Company will be granted the right to use the trade name "CCA" as
part of its name, subject to specified terms and conditions therein.
Noncompetition Agreement. CCA and the Company will enter into the
Noncompetition Agreement, that defines the parties' rights and obligations with
respect to certain businesses to be operated by the Company and CCA. Under the
Noncompetition Agreement, the Company and its subsidiaries will be prohibited
from acquiring or financing Competitive Facilities without CCA's prior written
consent. The Noncompetition Agreement will have a term expiring on the
expiration or termination of all of the Leases and any future leases between CCA
and the Company.
Policies and Procedures for Addressing Conflicts. After completion of the
Formation Transactions, CCA and the Company will have significant contractual
and other ongoing relationships, as described above and under "Leases" herein.
Such ongoing relationships may present certain conflict situations for certain
trustees and officers of the Company and certain directors and officers of CCA.
See "Conflicts of Interest." CCA and the Company will adopt appropriate policies
and procedures to be followed by the Board of Trustees of the Company and the
Board of Directors of CCA to attempt to address those conflicts. Such procedures
will include requiring Doctor R. Crants to abstain from making management
decisions in his capacity as an officer, trustee or director of the Company and
CCA, respectively, and to abstain from voting as a director or trustee of either
company, with respect to matters that present a conflict of interest between the
companies. Whether or not a conflict of interest situation exists will be
determined by the Independent Committee on a case-by-case basis in accordance
with the policies and procedures to be developed by the Board of Trustees. In
addition, Michael W. Devlin, the Company's Chief Development Officer, and Vida
H. Carroll, the Company's
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<PAGE> 58
Chief Financial Officer, both of whom have no prior affiliation with CCA, will
assist the Independent Committee of the Company's Board of Trustees with respect
to certain potential conflicts of interest between the Company and CCA,
including the negotiation, and enforcement of all Leases. See "Conflicts of
Interest."
LEASES
The following summary of the Leases between the Company and CCA is
qualified in its entirety by reference to the Leases, a form of which is filed
as an exhibit to the Registration Statement, of which this Prospectus is a part.
The following description of the Leases does not purport to be complete but
contains a summary of all material provisions thereof. Capitalized terms used
below but not otherwise defined have the meanings set forth in the "Glossary."
Concurrently with CCA's conveyance of the Facilities to the Company, the
Company will lease each of the Facilities to CCA. Each such Facility will be the
subject of a separate Lease that will incorporate the provisions of the Master
Lease between the Company and CCA. The Lease of each Facility will include the
land, the buildings and structures and other improvements thereon, easements,
rights and similar appurtenances to such land and improvements, and permanently
affixed equipment, machinery, and other fixtures relating to the operation of
the Facility and all personal property necessary to operate the facility for its
intended purpose, other than a limited amount of CCA's proprietary property (the
"Leased Property"). Each Facility will be leased to CCA under the Master Lease
which will have a primary term of 10 to 12 years (the "Fixed Term"). The Lease
for each Facility may be extended at fair market rates for three additional
five-year terms beyond the Fixed Term (the "Extended Terms"), but only upon the
mutual agreement of the Company and CCA. The Fixed Term and Extended Terms under
each Lease shall be subject to earlier termination upon the occurrence of
certain contingencies described in the Lease. Any additional properties acquired
(other than the Facilities) will be leased pursuant to similar terms and
conditions as may be agreed upon between CCA and the Company at the time of such
acquisitions, and such terms and conditions may vary from the terms and
conditions described herein with respect to the Facilities.
Use of the Facilities. Each Lease permits CCA to operate the Leased
Property solely as a correctional or detention facility. CCA has the
responsibility in each Lease to obtain and maintain all licenses, certificates
and permits in order to use and operate each Facility.
Amounts Payable Under the Leases; Net Provisions. During the Fixed Term
and the Extended Terms, CCA will pay annual base rent ("Annual Base Rent"),
which will be payable in monthly installments. Annual Base Rent for each Leased
Property will be increased each year by the Base Rent Escalation. Annual Base
Rent and Base Rent Escalation are collectively referred to in the Master Lease
as "Rent." The Company believes that the Rent CCA will pay to the Company under
the Leases represents the fair rental value for each Leased Property.
Each Lease of a Leased Property is what is commonly known as a triple net
lease or absolute net lease, under which CCA is to pay Annual Base Rent and all
additional charges. All additional charges include every fine, penalty, interest
expense and cost which may be added for nonpayment or late payment thereof, all
taxes, assessments and levies, excises, fees, and all other government charges
with respect to each Leased Property, and all charges for utilities and
services, including, without limitation, electricity, telephone, trash disposal,
gas, oil, water, sewer, communication and all other utilities used in each
Leased Property.
CCA's Right of First Refusal. Pursuant to the Master Lease, CCA will have
a right of first refusal in the event the Company obtains an acceptable third
party offer to acquire any interest in any Facility or in any correctional or
detention facility acquired or developed by the Company in the future and
operated by CCA (each a "Future Facility"). Pursuant to such right, prior to
selling any interest in any Facility or Future Facility, the Company must first
offer to sell each Facility or Future Facility to CCA on the same terms and
conditions contained in such third party offer. If CCA declines to purchase such
facility on such terms and conditions, the Company will be free to sell each
Facility or Future Facility for a specified period of time at a price at least
equal to the price offered to CCA and on terms and conditions substantially
consistent with those offered to CCA.
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Maintenance, Modification and Capital Additions. Under each Lease, CCA
will, at its sole cost and expense, maintain each Leased Property in good order,
repair and appearance and will make structural and non-structural, interior and
exterior, foreseen and unforeseen, and ordinary and extraordinary repairs which
may be necessary and appropriate to keep such Leased Property in good order,
repair and appearance (excluding ordinary wear and tear). The Company will not
be required to build or rebuild any improvements to any Leased Property, or to
make any repairs, replacements, alterations, restorations or renewals to any
Leased Property.
CCA, at its sole cost and expense, may make alterations, additions, changes
and/or improvements to each Leased Property without the consent of the Company,
provided that the value and primary intended use of such Leased Property
(determined in the Company's reasonable judgment) is not impaired. All
machinery, equipment, furniture, furnishings, and other personal property
installed at the expense of CCA on any Leased Property, will remain the property
of CCA until the expiration or earlier termination of the Lease.
Each Lease provides that, at the request of CCA, the Company may construct
one or more new buildings or other improvements to a particular Leased Property
which are not normal or recurring to the maintenance of a Leased Property (a
"Capital Addition"). A Capital Addition to a Leased Property may necessitate an
amendment to an existing Lease or new lease agreement setting forth any changes
in the premises, rent, or other similar terms of the Lease as a result of the
Capital Addition. In certain situations, a Capital Addition to a Leased Property
may be made directly by CCA and financed by third parties. In the case of a
Capital Addition not undertaken or financed by the Company, the Company will
have an option to acquire and lease back to CCA such Capital Addition for a
period of three years following the Service Commencement Date with respect to
such Capital Addition, at a fair market price and rental rate. For the first two
years of such option, the fair market price of any such Capital Addition is
deemed to be CCA's actual cost and expense to acquire, develop, design,
construct and equip such Capital Addition ("CCA's Cost") plus 5% of CCA's Cost.
Insurance. Each Lease provides that CCA will maintain insurance on each
Leased Property under CCA's insurance policies providing for the following
coverages: (i) fire, vandalism and malicious mischief, extended coverage perils,
and all physical loss perils; (ii) comprehensive general public liability
(including personal injury and property damage); and (iii) worker's
compensation. Under the Lease, the Company will have the right to periodically
review CCA's insurance coverage and provide input with respect thereto.
Environmental Matters. Each Lease provides that CCA makes various
representations and warranties relating to environmental matters with respect to
each Leased Property. Each Lease also requires CCA to indemnify and hold
harmless the Company and any Company Mortgagee from and against all liabilities,
costs and expenses imposed upon or asserted against the Company or the Leased
Property on account of, among other things, any federal, state or local law,
ordinance, regulation, order or decree relating to the protection of human
health or the environment in respect of the Leased Property. The Leases also
provide, however, that CCA will not be liable with respect to matters or events
that arise after the commencement date of the applicable Lease as a result of
the negligence or misconduct of the Company.
Assignment and Subletting. The Leases provide that CCA may not, without
the prior written consent of the Company, assign, sublease, mortgage, pledge,
hypothecate, encumber or otherwise transfer (except to a subsidiary of CCA,
performance of whose obligations will be guaranteed by CCA) any Lease or any
interest therein, all or any part of the Leased Property. The Leases further
state that such consent may be granted or withheld by the Company in its sole
discretion. An assignment of a Lease will be deemed to include any Change of
Control of CCA (as defined herein), as if such Change of Control were an
assignment of the Lease. A "Change of Control" of CCA means, for purposes of the
Leases, the sale by CCA of a controlling interest in CCA, or the sale or other
transfer of all or substantially all of the assets of CCA. A Change of Control
also means any transaction pursuant to which CCA is merged with or consolidated
into another entity, and CCA is not the surviving entity. The Leases further
provide that no assignment will in any way impair the continuing primary
liability of CCA under the Leases.
Damage to, or Condemnation of, a Leased Property. In the event of any
damage or destruction to any Facility, CCA has the obligation fully to repair or
restore the same at CCA's expense, with the Annual Base Rent, real estate taxes
and other impositions on the particular Facility being proportionately abated
during the
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time of restoration, but only to the extent of any rental interruption insurance
proceeds actually received by the Company. If any Facility is damaged to such an
extent that 50% of the Facility is rendered unsuitable for use as a correctional
or detention facility, and if CCA has fully complied with the insurance
obligations with respect to such Facility (including maintaining insurance
against loss of rents), CCA may terminate the Lease of that facility, upon
turning over all insurance proceeds to the Company with respect to such
Facility, together with an amount equal to the difference, if any, between the
amount of such insurance proceeds and the net book value of the damaged
facility, as reflected on the Company's financial statements on the date of
damage.
In the event of a condemnation or taking of any Leased Property, so long as
such condemnation was not due to CCA's failure to maintain the particular Leased
Property, the Lease will terminate as to the portion of the Leased Property
taken, and in the event of a partial taking, CCA is obligated to repair the
portion not taken, if the same does not render the Leased Property unsuitable
for CCA's then use and occupancy, but only to the extent of the condemnation
award. The total condemnation award shall be payable to the Company, except that
CCA may recover the value of its improvements and the value of its leasehold
interest so long as the amount of the award paid to the Company is equal to the
net book value of the facility, as reflected on the Company's financial
statements on the date of the condemnation.
Indemnification Generally. Under each Lease, CCA indemnifies, and is
obligated to save harmless, the Company from and against all liabilities, costs
and expenses (including reasonable attorneys' fees and expenses) imposed upon or
asserted against the Company as owner of the applicable Leased Property on
account of, among other things, (i) any accident, injury to or death of a person
or loss of or damage to property on or about the Leased Property; (ii) any use,
misuse, non-use, condition, maintenance or repair by CCA of the Leased Property;
(iii) any impositions (which are the obligations of CCA to pay pursuant to the
applicable provisions of such Lease); (iv) any claim of any person incarcerated
in the Leased Property, including claims alleging breach or violation of such
persons's civil or legal rights; (v) any failure on the part of CCA to perform
or comply with any of the terms of the Lease or any sublease; (vi) any claims by
a prisoner arising from or relating to such individual's incarceration or
detention in any Leased Property; and (vii) any liability the Company may incur
or suffer as a result of any permitted contest by CCA under any Lease. Under
each Lease, the Company indemnifies, and is obligated to save harmless, CCA from
and against all liabilities, costs and expenses (including reasonable attorneys'
fees) imposed upon or asserted against CCA as a result of the Company's active
negligence or willful misconduct.
Events of Default. An "Event of Default" will be deemed to have occurred
under the Master Lease and any individual Lease if CCA fails to perform any
covenant and does not diligently undertake to cure the same after 30 days'
notice from the Company; if the interest of CCA in any Leased Property is levied
upon or attached and is not discharged in a specified period of time; or if any
representation or warranty of CCA is incorrect. An "Event of Default" will be
deemed to have occurred under the Master Lease and all of the Leases, if CCA
fails to pay any rent within 15 days after notice of non-payment from Company,
if any bankruptcy proceedings are instituted by or against CCA and, if against
CCA, they are not dismissed within 90 days; if any material part of the property
of CCA is levied upon or attached in any proceeding; CCA defaults in any payment
of any obligations for borrowed money having a principal balance of $25.0
million or more in the aggregate are not discharged within 90 days; or CCA is
the subject of a non-appeallable final judgment in an amount greater than $10.0
million, which is not covered by insurance or discharged by CCA within a
specified period of time.
In the event of any Event of Default referable to a specific Leased
Property, the Company may evict CCA from such Leased Property and either
terminate the Lease or re-let the Leased Property. In either event, CCA shall
remain responsible for the rental value of such Leased Property for the
remainder period of the term in excess of rents received by the Company from any
successor occupant. In addition, the Company may exercise any other rights that
it may have under law. With respect to certain Events of Default under the
Master Lease which are not referable to a specific Leased Property (including
CCA's failure to timely pay Rent), the Company shall have all of the foregoing
rights and remedies with respect to all of the Leased Properties.
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The Leases will be governed by and construed in accordance with Tennessee
law (but not including Tennessee's conflict of laws rules) except for certain
procedural laws which must be governed by the laws of the location of each
Leased Property. Because the Facilities are located in various states, the
Leases may be subject to restrictions imposed by applicable local law.
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MANAGEMENT
TRUSTEES AND EXECUTIVE OFFICERS
Upon completion of the Offering, the Board of Trustees will consist of 13
members divided into three classes serving staggered three-year terms. Four of
the trustees include Doctor R. Crants, the Chairman of the Board of Trustees and
Chairman and Chief Executive Officer of CCA, J. Michael Quinlan, Chief Executive
Officer of the Company, D. Robert Crants, III, President of the Company, and
Michael W. Devlin, Chief Development Officer of the Company. Of the remaining
nine trustees, seven will be Independent Trustees who are not employees of the
Company or affiliated with CCA. See "Conflicts of Interest." The first annual
meeting of shareholders of the Company after the Offering at which Trustees will
be elected will be held in 1998. Subject to rights pursuant to any employment
agreements, executive officers of the Company serve at the discretion of the
Board of Trustees.
Set forth below is information with respect to the current trustees and
executive officers of the Company, each of whom has served in such capacity
since the formation of the Company. The Company expects to add four additional
Independent Trustees prior to the consummation of the Offering.
<TABLE>
<CAPTION>
TERM
AS TRUSTEE
NAME AGE POSITION EXPIRES
- ---- --- -------- ----------
<S> <C> <C> <C>
Doctor R. Crants......................... 52 Chairman of the Board of Trustees 2000
J. Michael Quinlan....................... 55 Chief Executive Officer; Trustee 2000
D. Robert Crants, III.................... 28 President; Trustee 1999
Michael W. Devlin........................ 37 Chief Development Officer; Trustee 1998
C. Ray Bell.............................. 56 Trustee 1998
Jackson W. Moore......................... 48 Independent Trustee 1999
Rusty L. Moore........................... 37 Trustee 1999
Joseph V. Russell........................ 56 Independent Trustee 2000
Charles W. Thomas, Ph.D. ................ 54 Independent Trustee 1998
Vida H. Carroll.......................... 36 Chief Financial Officer;
Secretary/Treasurer
M. Susan Smith........................... 33 Vice President, Finance
</TABLE>
DOCTOR R. CRANTS is the Chairman of the Board of Trustees. Since June 1994,
Mr. Crants has served as the Chief Executive Officer and Chairman of the Board
of CCA, which he co-founded in 1983. From June 1983 to June 1994, he served in
various capacities with CCA, including President, Chief Executive Officer, and
Vice Chairman of the Board of Directors. Mr. Crants was graduated from the
United States Military Academy at West Point in 1966, and received a joint
MBA/J.D. degree from the Harvard Business School and the Harvard Law School,
respectively, in 1974. Mr. Crants is the father of D. Robert Crants, III.
J. MICHAEL QUINLAN is a trustee and the Chief Executive Officer of the
Company. Mr. Quinlan has been employed in the corrections and detention industry
for over 25 years. Prior to joining the Company, Mr. Quinlan served as the
Director of Strategic Planning for CCA for over three years. From July 1987 to
December 1992, Mr. Quinlan served as the Director of the Federal Bureau of
Prisons. In such capacity, Mr. Quinlan was responsible for the total operations
and administration of a federal agency with an annual budget of more than $2
billion, more than 26,000 employees and 75 facilities. In 1988, Mr. Quinlan
received the Presidential Distinguished Rank Award, which is the highest award
given by the United States government to civil servants for service to the
United States. In 1992, he received the National Public Service Award of the
National Academy of Public Administration and the American Society of Public
Administration, awarded annually to the top three public administrators in the
United States. Mr. Quinlan is a 1963 graduate of Fairfield University with a BSS
in History and received a J.D. from Fordham University Law School in 1966. He
also received an LLM from the George Washington University School of Law in
1970.
D. ROBERT CRANTS, III is a trustee and the President of the Company. Mr.
Crants also serves as a principal of DC Investment Partners LLC and will
continue to serve in such capacity after the Offering. From 1990
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through 1996, Mr. Crants was associated with Goldman, Sachs & Company ("Goldman
Sachs"). During his tenure with Goldman Sachs, Mr. Crants was involved in
structuring over $3 billion in real estate transactions, including over $1
billion in REIT public offerings. During this time, he also negotiated triple
net leases for shopping centers, free standing stores and other properties on
behalf of several clients. Mr. Crants was graduated from Princeton University in
1990 with an A.B., summa cum laude, in Economics. Mr. Crants is the son of
Doctor R. Crants.
MICHAEL W. DEVLIN is a trustee and the Chief Development Officer of the
Company. Mr. Devlin also serves as a principal of DC Investment Partners LLC and
will continue in such capacity after the Offering. From 1993 through 1995, Mr.
Devlin was a Vice President in the Business Development Group of Goldman Sachs.
Immediately prior to joining Goldman Sachs, Mr. Devlin practiced law for four
years at the law firm of Davis Polk & Wardwell in New York working on various
corporate transactions, including leveraged leasing. During that time, he
negotiated approximately $1 billion in leases, including triple net leases. Mr.
Devlin is a graduate of Yale University and the Duke University School of Law.
C. RAY BELL is a trustee of the Company. Mr. Bell is the President and
owner of Ray Bell Construction Company, Inc. ("Ray Bell Construction"). Ray Bell
Construction specializes in the construction of a wide range of commercial
buildings, including the construction on behalf of various government entities
and private companies, including CCA, of approximately 40 correctional and
detention facilities, consisting of over 15,000 beds in seven states. Mr. Bell
is a founding member of the Middle Tennessee Chapter of Associated Builders and
Contractors. Mr. Bell is a graduate of the University of the South.
JACKSON W. MOORE is an Independent Trustee of the Company. Mr. Moore is
presently a Director and the President and Chief Operating Officer of Union
Planters Corporation, a multi-state bank and savings and loan holding company
headquartered in Memphis, Tennessee, positions he has held since 1986, 1989 and
1994, respectively. He is also Chairman of PSB Bancshares, Inc. and a Vice
President and Director of its subsidiary, The Peoples Savings Bank in Clanton,
Alabama. Prior to joining Union Planters, Mr. Moore practiced law for 16 years.
Mr. Moore is a graduate of the University of Alabama and Vanderbilt University
School of Law.
RUSTY L. MOORE is a trustee of the Company. Since 1996, Mr. Moore has been
a principal of the Nashville law firm of Moore & Waechter, PLC and the President
of its affiliate, Bankers Title & Escrow Corporation. He is also a principal and
an executive officer of a privately-held real estate investment and property
management company that owns several multi-family residential properties
throughout the Southeast. Mr. Moore has over 12 years of experience in
negotiating and structuring real estate transactions including the development,
acquisition, leasing and financing of various types of property. Prior to
forming Moore & Waechter, Mr. Moore was a partner at Stokes & Bartholomew, P.A.,
where his practice focused on all aspects of real estate law. Mr. Moore was
graduated from the University of Tennessee, where he received a B.S. in Public
Administration in 1981 and a J.D. in 1985. Mr. Moore is not related to Jackson
Moore.
JOSEPH V. RUSSELL is an Independent Trustee of the Company. Mr. Russell is
the President and Chief Financial Officer of Elan-Polo, Inc., a Nashville based,
privately-held, worldwide producer and distributor of footwear. Mr. Russell is
also the Vice President of and a Partner in RCR Building Corporation, a
Nashville based, privately-held builder and developer of commercial and
industrial properties. He also serves on the Board of Directors of Capital Bank
and Trust Company, the Footwear Distributors of America Association and US Auto
Insurance Company. Mr. Russell was graduated from the University of Tennessee in
1963 with a B.S. in Finance.
CHARLES W. THOMAS, PH.D. is an Independent Trustee of the Company. Dr.
Thomas is a university professor who has taught and written on the criminal
justice and private corrections fields for over 27 years. Currently, he is a
Professor of Criminology and the Director of the Private Corrections Project
Center for Studies in Criminology and Law (the "Center") at the University of
Florida, Gainsville, positions he has held since 1980 and 1989, respectively.
While serving as Director of the Center, Dr. Thomas authored the 1996 Facility
Census. Dr. Thomas was graduated from McMurry University in 1966 with a B.S. in
Secondary Education and from the University of Kentucky with a M.A. in Sociology
in 1969 and a Ph.D. in Sociology in 1971.
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VIDA H. CARROLL is the Company's Chief Financial Officer and
Secretary/Treasurer. From 1991 to 1996, Ms. Carroll worked as a financial
consultant, specializing in accounting conversions and systems design. Prior to
this time, she worked in public accounting, including working as an audit
manager with KPMG Peat Marwick. Ms. Carroll holds a Bachelor of Science degree
from Tennessee Technological University and is a certified public accountant.
M. SUSAN SMITH is Vice President, Finance of the Company. Ms. Smith also
serves as Controller of DC Investment Partners LLC and will continue in such
capacity after the Offering. Ms. Smith was an audit manager with Arthur Andersen
LLP in Nashville from 1992 to 1996. While at Arthur Andersen LLP, Ms. Smith
worked primarily with a private investment company and a large financial
institution. Prior to this time, she worked in the banking industry. Ms. Smith
holds a Bachelor of Science degree from the University of Tennessee and is a
certified public accountant.
COMMITTEES OF THE BOARD OF TRUSTEES
Independent Committee. The Board of Trustees has established the
Independent Committee consisting of the seven Independent Trustees to oversee
the acquisition of the Initial Facilities and, if acquired, the Option
Facilities, the selection of facilities acquired in the future and to evaluate
transactions between the Company and CCA, including the acquisition of
correctional and detention facilities and lease negotiation and enforcement.
Audit Committee. The Board of Trustees will establish an audit committee
consisting of three non-employee trustees (the "Audit Committee"). The Audit
Committee will make recommendations concerning the engagement of independent
public accountants, review with the independent public accountants the plans and
results of the audit engagement, approve professional services provided by the
independent public accountants, review the independence of the independent
public accountants, consider the range of audit and non-audit fees and review
the adequacy of the Company's internal accounting controls.
Compensation Committee. The Board of Trustees will establish a
compensation committee consisting of three non-employee trustees (the
"Compensation Committee") to determine compensation, including awards under the
Company's 1997 Employee Share Incentive Plan for the Company's executive
officers (the "Share Incentive Plan") and the Non-Employee Trustees' Share
Option Plan (the "Non-Employee Trustees' Plan") (the Share Incentive Plan and
the Non-Employee Trustees' Plan are herein collectively referred to as the
"Plans"). The Compensation Committee will also administer the Plans.
The Company may from time to time form other committees as circumstances
warrant. Such committees will have authority and responsibility as delegated by
the Board of Trustees.
COMPENSATION OF TRUSTEES
The Company intends to pay its non-employee trustees annual compensation of
$12,000 for their services. In addition, non-employee trustees will receive a
fee of $1,000 for each Board of Trustees meeting attended. Non-employee trustees
attending any committee meetings will receive an additional fee of $500 for each
committee meeting attended, unless the committee meeting is held on the day of a
meeting of the Board of Trustees. Non-employee trustees will also be reimbursed
for reasonable expenses incurred to attend trustee and committee meetings.
Officers of the Company who are trustees will not be paid any trustees' fees.
Non-employee trustees, other than Doctor R. Crants, will also participate in the
Non-Employee Trustees' Share Option Plan. See "Management -- Non-Employee
Trustees' Plan."
INDEMNIFICATION
The Declaration of Trust provides for the indemnification of the Company's
officers and trustees against certain liabilities to the fullest extent
permitted under Maryland law. The Declaration of Trust also provides that the
trustees and officers of the Company be exculpated from monetary damages to the
fullest extent permitted under Maryland law. The trustees and officers of the
Company will also enter into separate indemnification agreements with the
Company pursuant to which the Company will agree to indemnify such
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trustees and officers against certain liabilities. In addition, the officers,
trustees and controlling persons of the Company will be indemnified against
certain liabilities by the Underwriters.
The Company intends to obtain trustees' and officers' liability insurance.
EXECUTIVE COMPENSATION
Prior to the Offering, the Company did not pay any compensation to its
officers. The following table sets forth the annual base salary rates and other
compensation expected to be paid in 1997 to the most highly compensated
executive officers of the Company (i.e., those whose cash compensation from the
Company in 1997 on an annualized basis is expected to exceed $100,000) (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL -------------
COMPENSATION SECURITIES
------------------------- UNDERLYING
BASE OPTIONS(#)(2) SHARE BONUS
NAME AND PRINCIPAL POSITION YEAR SALARY ($)(1) BONUS OPTION AWARD(#)(3)
- --------------------------- ---- ------------- -------- ------------- -----------
<S> <C> <C> <C> <C> <C>
J. Michael Quinlan............... 1997 150,000 -- 350,000 --
Chief Executive Officer
D. Robert Crants, III............ 1997 100,000 -- 200,000 150,000
President and Chief Operating
Officer
Michael W. Devlin................ 1997 100,000 -- 200,000 150,000
Chief Development Officer
</TABLE>
- ---------------
(1) Amounts given are annualized salaries effective for the year ended December
31, 1997.
(2) All options will vest ratably over a three-year period and will be
exercisable at a price per share equal to the initial public offering price
per Common Share offered hereby.
(3) Represents Common Shares issued as a development fee and as reimbursement
for actual costs incurred in connection with the formation of the Company,
the consummation of the Offering, and the closing of the purchase of the
Initial Facilities.
THE SHARE INCENTIVE PLAN
The Company has established the Share Incentive Plan to enable executive
officers and other key employees of the Company to participate in the ownership
of the Company. The Share Incentive Plan is designed to attract and retain
executive officers and other key employees of the Company and to provide
incentives to such persons to maximize the Company's cash flow available for
distribution. The Share Incentive Plan provides for the award to executive
officers and other key employees of the Company (subject to the Ownership Limit)
of a broad variety of share-based compensation alternatives such as nonqualified
share options, incentive share options, restricted shares, deferred shares and
other share-based awards.
The Share Incentive Plan will be administered by the Compensation
Committee, which is authorized to select from among the eligible employees of
the Company the individuals to whom options, restricted shares, deferred shares
and other share-based awards are to be granted and to determine the number of
shares to be subject thereto and the terms and conditions thereof. The
Compensation Committee is also authorized to adopt, amend and rescind rules
relating to the administration of the Share Incentive Plan. No member of the
Compensation Committee will be eligible to participate in the Share Incentive
Plan.
Awards Available for Issuance under the Share Incentive Plan
Nonqualified options, if granted, will provide for the right to purchase
Common Shares at a specific price which may be less than fair market value on
the date of grant and usually will become exercisable in
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installments after the grant date. Nonqualified options may be granted for any
reasonable term and may be transferable in certain limited circumstances.
Incentive options, if granted, will be designed to comply with the
"incentive stock option" provisions of the Code and will be subject to
restrictions contained therein, including that the exercise price must generally
equal at least 100% of fair market value of Common Shares on the grant date and
that the term generally must not exceed ten years. Incentive options may be
modified after the grant date to disqualify them from treatment as an "incentive
stock option."
Restricted shares, if issued, may be sold to participants at various prices
(or issued without monetary consideration) and may be made subject to such
restrictions as may be determined by the Compensation Committee. Restricted
shares typically may be repurchased by the Company at the original purchase
price if the conditions or restrictions are not met. In general, restricted
shares may not be sold, or otherwise transferred or hypothecated, until
restrictions are removed or expired. Purchasers of restricted shares, unlike
recipients of options, will have voting rights and will receive dividends prior
to the time when the restrictions lapse.
Deferred shares, if issued, will obligate the Company to issue Common
Shares upon the occurrence or nonoccurrence of conditions specified in the
deferred share award. Under a typical deferred share award, the Company may
agree to issue Common Shares to an employee if he or she achieves certain
performance goals or remains employed by the Company for a specified period of
time. Recipients of deferred shares will not have voting rights or receive
dividends until the shares are actually issued.
Other share-based awards, if granted, may be granted by the Compensation
Committee on an individual or group basis. Generally, these awards will be based
upon specific agreements and may be paid in cash or in Common Shares or in a
combination of cash and Common Shares. Other share-based awards may include
share appreciation rights and "phantom" share awards that provide for payments
based upon increases in the price of the Company's Common Shares over a
predetermined period. They may also include bonuses which may be granted by the
Compensation Committee on an individual or group basis and which may be payable
in cash or in Common Shares or in a combination of cash and Common Shares.
Shares subject to the Share Incentive Plan. A maximum of 1,700,000 shares
(including shares subject to the options listed below) will be reserved for
issuance under the Share Incentive Plan. There is no limit on the number of
awards that may be granted to any one individual so long as the grant does not
violate the Ownership Limit or cause the Company to fail to qualify as a REIT
for federal income tax purposes. See "Description of Capital
Shares -- Restrictions on Ownership."
The Compensation Committee will approve, prior to the completion of the
Offering, the grant of options to executive officers and certain key employees
of the Company, to purchase, in each case subject to the Ownership Limit, an
aggregate of 1,030,000 Common Shares. The term of each of such options will be
ten years from the date of grant. Each such option will vest ratably over a
three-year period and will be exercisable, at the consummation of the Offering,
at a price per share equal to the initial public offering price. The table below
sets forth the expected allocation of the options to such persons:
<TABLE>
<CAPTION>
NAME OPTIONS
- ---- -------
<S> <C>
J. Michael Quinlan.......................................... 350,000
Doctor R. Crants............................................ 200,000
D. Robert Crants, III....................................... 200,000
Michael W. Devlin........................................... 200,000
Vida H. Carroll............................................. 50,000
Other key employees......................................... 30,000
</TABLE>
NON-EMPLOYEE TRUSTEES' PLAN
The Company intends to establish the Non-Employee Trustees' Plan to
maintain the Company's ability to attract and retain the services of experienced
and highly qualified non-employee trustees and to increase their proprietary
interest in the Company's continued success.
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Shares Subject to Non-Employee Trustees' Plan. A maximum of 150,000 Common
Shares have been authorized and reserved for issuance under the Non-Employee
Trustees' Plan. The shares so reserved for issuance and the terms of outstanding
awards shall be adjusted as the Compensation Committee deems appropriate in the
event of a share dividend, share split, combination, reclassification,
recapitalization or other similar event.
Transferability. The Non-Employee Trustees' Plan will provide that the
options may be transferred by a non-employee trustee in certain limited
circumstances to certain family members and affiliates. The options under the
Non-Employee Trustees' Plan are nonqualified options intended not to qualify as
incentive stock options under Section 422 of the Code.
Eligibility. The Non-Employee Trustees' Plan provides for the grant of
options to purchase Common Shares to each eligible trustee of the Company. No
director who is an employee of the Company or CCA is eligible to participate in
the Non-Employee Trustees' Plan.
Options. The Non-Employee Trustees' Plan provides that each non-employee
trustee who is a member of the Board of Trustees as of the date of this
Prospectus, other than Doctor R. Crants, will be awarded nonqualified options to
purchase 5,000 Common Shares on that date (each such trustee, a "Founding
Trustee"). Each non-employee trustee who is not a Founding Trustee (a
"Non-Founding Trustee") will receive nonqualified options to purchase 5,000
Common Shares on the date the Non-Founding Trustee is first elected or appointed
to the Board of Trustees. In addition, on each of the first nine anniversary
dates of the adoption of the Non-Employee Trustees' Plan, each non-employee
trustee, other than Doctor R. Crants, will receive an option to purchase 5,000
Common Shares. The options granted to Founding Trustees will have an exercise
price equal to the initial public offering price and will vest on the date of
grant. The exercise price of options under future grants will be 100% of the
fair market value of the Common Shares on the date of grant and will vest one
year from the date of grant. The exercise price may be paid in cash, cash
equivalents, Common Shares or a combination thereof, as acceptable to the
Compensation Committee. The term of options granted under the Non-Employee
Trustees' Plan generally will be ten years from the date of grant.
DIVIDEND REINVESTMENT PLAN
The Company may implement a dividend reinvestment plan in the future under
which holders of Common Shares may elect to reinvest automatically their
dividends in additional Common Shares. In the event the Company does implement
such a plan, the Company may, from time to time, repurchase Common Shares in the
open market or issue additional Common Shares for the purpose of fulfilling its
obligations under this reinvestment plan.
DEFERRED COMPENSATION PLAN
The Company may establish a deferred compensation plan under which
executive officers of the Company may elect to defer receiving a portion of
their cash compensation otherwise payable in one tax year until a later tax year
and thereby postpone payment of tax on the deferred amount. If the plan is
established prior to the beginning of any taxable year, such executive officer
may elect to defer such amount of cash compensation until a future date or until
an event selected by such persons pursuant to the terms of the plan. Deferred
compensation may be invested in a separate trust account.
EMPLOYMENT AGREEMENTS
The Company will have seven employees. J. Michael Quinlan, D. Robert
Crants, III and Michael W. Devlin have entered into employment agreements with
the Company for terms of four years. The agreements provide for annual
compensation in the amounts set forth under "Executive Compensation" and
incentive compensation determined by the Compensation Committee on the terms set
forth therein. Each agreement includes provisions restricting the officers from
competing, directly or indirectly, with the Company during employment and,
except in certain circumstances, for three years after termination of
employment.
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The Company generally may terminate each employee's employment with 30
days' prior written notice upon the happening of any one of the following
events: (a) any act of the employee which constitutes fraud, gross misconduct,
gross negligence or a material breach of the employment agreement, (b) frequent
and repeated failure to perform services which have been reasonably requested by
the Board of Trustees and which are consistent with the terms of the employment
agreement, (c) the death of the employee, (d) the disability of the employee or
(e) a decision by the Company to terminate its business and liquidate; provided
that the Company generally may not terminate an employee's employment under
clause (a) or (b) unless it provides the employee with 15 days' notice of the
conduct giving rise to the Company's right of termination and gives the employee
a reasonable period of time to cure. Each employee may terminate his employment
upon 30 days' written notice to the Company.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
SHARE ACQUISITIONS BY MANAGEMENT
Doctor R. Crants, Chairman of the Board of the Company, has agreed to
purchase in the Offering 500,000 of the Company's Common Shares for a purchase
price per share equal to the initial public offering price per share sold to the
public in the Offering.
Upon consummation of the Offering, D. Robert Crants, III and Michael W.
Devlin will each receive 150,000 Common Shares as a development fee and as
reimbursement of actual costs incurred in connection with the formation of the
Company, the consummation of the Offering and the closing of the purchase of
Initial Facilities. The reimbursed costs include certain costs related to
property due diligence, employee compensation, travel and overhead.
PURCHASE OF INITIAL FACILITIES
CCA and the Company will enter into the Purchase Agreement pursuant to
which the Company will acquire the nine Initial Facilities, for an aggregate
cash consideration of approximately $308.1 million. The Purchase Agreement will
contain representations and warranties by CCA customarily found in agreements of
such types.
OPTION FACILITIES
CCA and the Company will enter into the Option Agreements pursuant to which
CCA will grant the Company options, each for a period of three years from the
closing of the purchase of the Initial Facilities, to acquire any of the five
Option Facilities for CCA's costs of developing, constructing and equipping such
facilities, plus 5% of such costs, aggregating approximately $193.0 million.
RIGHT TO PURCHASE
The Company and CCA will enter into the Right to Purchase Agreement whereby
the Company will have an option to acquire, at fair market value, and lease back
to CCA, at fair market rental rates, any correctional or detention facility
acquired or developed and owned by CCA in the future, for a period of three
years following such facility's Service Commencement Date. Additionally, the
Company will have a right of first refusal in the event CCA obtains an
acceptable third party offer to acquire or provide mortgage-secured financing to
finance more than 90% of the cost of any correctional or detention facility now
owned or which is acquired or developed by it or its subsidiaries in the future.
Pursuant to such right, prior to selling any such facility, or mortgaging more
than 90% of the cost of such facility, CCA must first offer to sell such
facility to the Company or have the Company finance such facility, as
applicable, on the same terms and conditions contained in such third party
offer. With respect to a sale of such Facility, if the Company declines to
purchase such Facility at the price and on the terms set forth in the third
party offer, CCA will be free to sell such Facility for a specified period of
time at a price at least equal to the price offered to the Company, and on terms
and conditions substantially consistent with those offered to the Company. With
respect to a first mortgage financing of 90% of the cost of any such facility,
if the Company declines to provide such financing
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on the terms set forth in the third party offer, CCA will be free to obtain
first mortgage financing from a third party on terms and conditions no less
favorable to CCA than those contained in the third party offer.
NONCOMPETITION AGREEMENT
CCA and the Company will enter into the Noncompetition Agreement pursuant
to which the Company and its subsidiaries will be prohibited from acquiring or
financing Competitive Facilities without the prior written consent of CCA, until
the expiration or termination of all of the Leases and any future leases between
CCA and the Company.
EMPLOYMENT AGREEMENTS
The Company will enter into employment agreements with J. Michael Quinlan,
D. Robert Crants, III and Michael W. Devlin, pursuant to which Mr. Quinlan will
serve as Chief Executive Officer, Mr. Crants will serve as President, and Mr.
Devlin will serve as Chief Development Officer of the Company for a period of
four years at an initial annual compensation of $150,000 for Mr. Quinlan and
$100,000 for each of Messrs. Crants and Devlin, subject to any increases in base
compensation approved by the Compensation Committee. See
"Management -- Employment Agreements."
POLICIES AND OBJECTIVES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of the Company's investment objectives and
policies, financing policies and policies with respect to certain other
activities. These policies are determined by the Board of Trustees and may be
amended or revised from time to time at the discretion of the Board of Trustees
without a vote of the Company's shareholders.
INVESTMENT OBJECTIVES AND POLICIES
The Company's investment objectives are to maximize current returns to
shareholders through increases in cash flow available for distribution and to
increase long-term total returns to shareholders through appreciation in the
value of the Common Shares. The Company will seek to accomplish its objectives
through (i) its ownership interests in the Initial Facilities and, if acquired,
the Option Facilities; (ii) selective acquisitions of additional correctional
and detention facilities from both private prison managers and government
entities; (iii) expansion of its existing facilities; and (iv) construction or
development of new correctional facilities. Although the Company intends to
focus its investments on facilities owned by CCA or its affiliates in the United
States, it may pursue other opportunities as well, including the acquisition or
development of facilities directly from or on behalf of government entities. In
addition, the Company may invest in other facilities or excess land to the
extent necessary to acquire a facility.
The Company will consider a variety of factors in evaluating potential
investments including (i) the reputation and creditworthiness of the current
owner, manager or developer of the facility; (ii) the proposed terms for
purchasing the facility; (iii) the proposed terms for leasing the facility,
including rental payments and lease term; (iv) the quality of construction of
the facility; (v) the quality of operations at an existing facility or the
quality of other operations of a prison manager for a new facility; (vi) the
status of existing facilities as facilities accredited by the ACA; and (vii) the
relationship between the prison manager and the contracting correctional
authority.
The Company may purchase or lease properties for long-term investment,
expand and improve the facilities presently owned or sell such properties, in
whole or in part, when circumstances warrant. The Company may also participate
with other entities in property ownership, through joint ventures or other types
of co-ownership. Equity investments may be subject to existing mortgage
financing and other indebtedness which have priority over the equity interest of
the Company.
While the Company emphasizes equity real estate investments, it may, in its
discretion, invest in mortgages, stock of other REITs, partnerships and other
real estate interests. Such mortgage investments may
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include participating in convertible mortgages. The Company does not currently
intend to purchase securities of, or interests in, other entities engaged in
real estate activities.
There are no limitations on the percentage of the Company's assets that may
be invested in any one property or venture. The Board of Trustees may establish
limitations as it deems appropriate from time to time. No limitations have been
set on the number of properties in which the Company will seek to invest or on
the concentration of investments in any one geographic region.
DISPOSITIONS; CCA'S RIGHT OF FIRST REFUSAL
The Company has no current intention to cause the disposition of any of the
Facilities, although it reserves the right to do so if the Board of Trustees
determines that such action would be in the best interests of the Company.
Pursuant to the Leases, CCA shall have a right of first refusal with respect to
any sale of the Facilities or any interest in a correctional or detention
facility acquired or developed and owned by the Company in the future and
operated by CCA. See "Leases" for a more detailed discussion of the terms and
conditions of the Leases.
FINANCING
The Company presently intends to maintain a ratio of debt to total
capitalization of 50% or less. Following the completion of the Offering and the
use of net proceeds therefrom, the Company will have no indebtedness. The Board
of Trustees may, however, from time to time reevaluate this policy and decrease
or increase such ratio accordingly. The Company will determine its financing
policies in light of then current economic conditions, relative costs of debt
and equity capital, market values of properties, growth and acquisition
opportunities and other factors. The Company anticipates that it will obtain the
$150.0 million Bank Credit Facility which will be used in acquiring additional
correctional and detention facilities, and for certain other purposes, including
expanding existing facilities and working capital, as necessary. There is no
assurance that the Bank Credit Facility will be obtained. If the Board of
Trustees determines that additional funding is desirable, the Company may raise
such funds through additional equity offerings, debt financing or retention of
cash flow (subject to provisions in the Code concerning taxability of
undistributed REIT income and REIT qualification), or a combination of these
methods.
Indebtedness incurred by the Company may be in the form of publicly or
privately placed debt instruments or financings from banks, institutional
investors or other lenders, any of which indebtedness may be unsecured or may be
secured by mortgages or other interests in the property owned by the Company.
There are no limits on the number or amounts of mortgages or other interests
which may be placed on any one property. In addition, such indebtedness may be
with or without recourse to all or any part of the property of the Company or
may be limited to the particular property to which the indebtedness relates. The
proceeds from any borrowings may be used for the payment of distributions, and
working capital or to refinance indebtedness or to finance acquisitions,
expansions or developments of new properties.
In the event that the Board of Trustees determines to raise additional
equity capital, the Board of Trustees has the authority, without shareholder
approval, to issue additional Common Shares or other equity interests (including
Preferred Shares and other securities senior to the Common Shares) of the
Company in any manner (and on such terms and for such consideration) it deems
appropriate, including in exchange for property. The Company's Bylaws require
the approval of at least two-thirds of the members of the Board of Trustees for
the Company to issue equity securities other than Common Shares issued (a) for
at least the fair market value thereof at the time of issuance as determined in
good faith by a majority of the Board of Trustees, (b) pursuant to any share
incentive or option plans of the Company, or (c) in a bona fide underwritten
public offering managed by one or more nationally recognized investment banking
firms. Existing shareholders would have no preemptive right to purchase shares
issued in any offering, and any such offering might cause a dilution of a
shareholder's investment in the Company.
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WORKING CAPITAL RESERVES
The Company will maintain working capital reserves (and when not
sufficient, access to borrowings) in amounts that the Board of Trustees
determines to be adequate to meet normal contingencies in connection with the
operation of the Company's business and investments.
CONFLICT OF INTEREST POLICIES
The Company will adopt certain policies and enter into certain agreements
designed to minimize potential conflicts of interest. The Company's Board of
Trustees is subject to certain provisions of Maryland law, which are designed to
eliminate or minimize certain potential conflicts of interest. However, there
can be no assurance that these policies always will be successful in eliminating
the influence of such conflicts, and if they are not successful, decisions could
be made that might fail to reflect fully the interests of all shareholders. See
"Conflicts of Interest."
Declaration of Trust and Bylaw Provisions
The Company's Declaration of Trust requires that at least three (3) members
of the Company's Board of Trustees be comprised of Independent Trustees, defined
herein as persons who are not officers or employees of the Company and are not
affiliated with CCA, any lessee or management company operating any property of
the Company, any subsidiary of the Company or any partnership that is an
Affiliate (as hereinafter defined) of the Company. The Declaration of Trust
provides that such provisions relating to Independent Trustees may not be
amended, altered or repealed without the affirmative vote of holders of
two-thirds of the shares of the Company entitled to vote on the election of
trustees. In addition, the Company's Bylaws provide that the selection of
operators for the Company's properties and all transactions between the Company
and CCA and its affiliates, including, but not limited to, the negotiation and
enforcement of the terms of any lease of any of the Company's properties be
approved by the Independent Trustees.
Pursuant to the Declaration of Trust, each trustee is required to discharge
his or her duties in good faith, with the care an ordinarily prudent person in a
like position would exercise under similar circumstances and in a manner he
reasonably believes to be in the best interest of the Company.
OTHER POLICIES
The Company intends to operate in a manner that will not subject it to
regulation under the Investment Company Act of 1940. The Company does not intend
(i) to invest in the securities of other issuers for the purpose of exercising
control over such issuer; (ii) to underwrite securities of other issuers; or
(iii) to trade actively in loans or other investments.
The Company may make investments other than as previously described,
although it does not currently intend to do so. The Company has authority to
repurchase or otherwise reacquire Common Shares or any other securities it may
issue and may engage in such activities in the future. The Board of Trustees has
no present intention of causing the Company to repurchase any of the Common
Shares, and any such action would be taken only in conformity with applicable
federal and state laws and the requirements for qualifying as a REIT under the
Code and the Treasury Regulations (as defined herein). Although it may do so in
the future, except in connection with the Formation Transactions, the Company
has not issued Common Shares or any other securities in exchange for property,
nor has it reacquired any of its Common Shares or any other securities. See "The
Formation Transactions." The Company may make loans to third parties, including,
without limitation, to its officers and to joint ventures in which it decides to
participate. Such loans will generally require the approval of the Board of
Trustees, and loans to CCA and its affiliates or to a joint venture in which CCA
participates will require the approval of the Independent Committee.
At all times, the Company intends to make investments in such a manner as
to be consistent with the requirements of the Code to qualify as a REIT unless,
because of changes in future economic, market or legal conditions, or changes in
the Code or in the Treasury Regulations, the Board of Trustees determines to
revoke
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the Company's REIT election if the Board determines that such factors make it no
longer beneficial to qualify as a REIT.
CONFLICTS OF INTEREST
GENERAL
Several conflicts of interest exist on the part of the Company, its
trustees and officers and CCA, and its directors and officers. The following
description sets forth the principal conflicts of interest, including the
relationships through which they arise, and the policies and procedures
implemented by the Company to address those conflicts.
RELATIONSHIPS WHICH MAY GIVE RISE TO CONFLICTS OF INTEREST
Doctor R. Crants is the Chairman and Chief Executive Officer of CCA and the
Chairman of the Board of Trustees of the Company. D. Robert Crants, III,
President of the Company, is the son of Doctor R. Crants. Doctor R. Crants and
D. Robert Crants, III, as well as certain other trustees or officers of the
Company or directors or officers of CCA, may also own, directly or indirectly,
shares in both companies following the Offering. D. Robert Crants, III and
Michael W. Devlin, Chief Development Officer of the Company, are principals of
DC Investment Partners LLC, a limited liability company which serves as the
general partner of three private investment partnerships. DC Investment Partners
LLC is owned by D. Robert Crants, III, Michael W. Devlin, and Stephens Group,
Inc., an affiliate of Stephens Inc., a managing underwriter of this Offering,
and one other individual. Doctor R. Crants and three other directors of CCA are
investors in one or more of the private investment partnerships managed by DC
Investment Partners LLC. Rusty L. Moore, a trustee, is the spouse of a
shareholder of Stokes & Bartholomew, P.A., tax and securities counsel to the
Company. Stokes & Bartholomew, P.A. also provides legal services to CCA,
including representing CCA in certain of the Formation Transactions. J. Michael
Quinlan is a former employee of CCA. C. Ray Bell, a trustee, is the principal of
a construction company which, as a part of its business, builds correctional and
detention facilities, including facilities for CCA. Because of Mr. Bell's
experience in building correctional and detention facilities, it is anticipated
that his company may build correctional or detention facilities for or on behalf
of the Company.
SITUATIONS IN WHICH CONFLICTS OF INTERESTS HAVE ARISEN AND MAY CONTINUE TO ARISE
Valuation of the Facilities. The valuation of the Initial Facilities and
the Option Facilities was determined by management of both CCA and the Company
and was not negotiated on an arm's-length basis. Had such valuations been
determined on an arm's-length basis, or been the subject of independent
valuations or appraisals, the price paid for the Initial Facilities and, if
acquired, the Option Facilities, might have been more or less favorable to the
Company. The terms of the purchase of the Facilities were approved by the
Independent Committee.
Terms of Leases. The Lease payment obligations with respect to the Initial
Facilities were determined by management of CCA and management of the Company
and were not negotiated on an arm's-length basis. However, the lease payments
that CCA is obligated to make are based on an initial capitalization rate of
approximately 11%, which the Company believes reflects the fair rental value of
the Initial Facilities to the Company. Moreover, the terms and conditions of the
Leases were the subject of independent negotiations between the Company and CCA,
and the amount of the Lease payment obligations and the terms and conditions of
the Leases were approved by the Independent Committee.
Potential for Future Conflicts. After the Offering, CCA and the Company
may be in situations where they have differing interests resulting from the
ongoing relationship between the companies. Such situations include the fact
that after the Offering (i) CCA will lease the Initial Facilities which will be
owned by the Company; (ii) the Company will have an exclusive option to acquire
the Option Facilities and any correctional or detention facilities acquired or
developed, and owned, by CCA's in the future, and a right of first refusal to
purchase any and all correctional facilities owned by CCA or its subsidiaries in
the future and to
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provide mortgage financing for any correctional facilities financed in excess of
90% of their cost by CCA or its subsidiaries in the future; and (iii) CCA will
have a right of first refusal to acquire the Facilities. Accordingly, the
potential exists for disagreements as to the compliance with the Leases or the
values of the facilities acquired in the future pursuant to the Company's
option. Additionally, the possible need by the Company, from time to time, to
finance, refinance or effect a sale of any of the properties managed by CCA may
result in a need to modify the Lease with CCA with respect to such property. Any
such modification will require the consent of CCA, and the lack of consent from
CCA could adversely affect the Company's ability to consummate such financings
or sale. Because of the relationships described above, there exists the risk
that the Company will not achieve the same results in its dealings with CCA that
it might achieve if such relationships did not exist.
STEPS TAKEN BY THE COMPANY TO ADDRESS POTENTIAL CONFLICTS OF INTEREST
Use of Independent Committee. Upon completion of the Offering, the
Company's Board of Trustees will consist of 13 trustees. Four of the trustees
include Doctor R. Crants, the Chairman of the Board of Trustees and Chairman and
Chief Executive Officer of CCA, J. Michael Quinlan, Chief Executive Officer of
the Company, D. Robert Crants, III, President of the Company, and Michael W.
Devlin, Chief Development Officer of the Company. Of the remaining nine
trustees, seven will be Independent Trustees who are not employees of the
Company or otherwise affiliated with CCA. The Independent Trustees will
constitute the Independent Committee of the Board of Trustees. Transactions
involving the Company and CCA such as the acquisition of additional facilities
from CCA and lease negotiation, enforcement and renegotiation, will require the
approval of the Independent Committee. Certain other significant actions of the
Board of Trustees will require the approval of a minimum of two-thirds of the
Board of Trustees. In addition, Michael W. Devlin and Vida H. Carroll, the
Company's Chief Financial Officer, both of whom have no prior affiliation with
CCA, will assist the Independent Committee with respect to potential conflicts
of interest between the Company and CCA, including the negotiation and
enforcement of all Leases. See "Management," and "Conflicts of Interest."
Agreements Between CCA and the Company. Prior to the Offering, the Company
and CCA will enter into certain agreements, the terms of which are more
completely described herein, designed to address in advance certain situations
in which conflicts might arise. For example, CCA will grant the Company an
option to acquire and lease back to CCA certain future facilities and a right of
first refusal pursuant to which, prior to selling any facility, or mortgaging
more than 90% of the cost of a facility, the Company will have the right to
purchase such facility, or provide first mortgage financing for 90% of the
acquisition costs of any such facility, as applicable, on terms equal to those
offered to a third party. The Company and CCA will also enter into the
Noncompetition Agreement pursuant to which the Company will agree not to
purchase or finance Competitive Facilities without the prior written consent of
CCA. Pursuant to the Leases, CCA will also have a right of first refusal with
respect to any sale of the Facilities or any interest in a correctional or
detention facility acquired or developed and owned by the Company in the future.
See "Certain Relationships and Transactions" and "Conflicts of Interest."
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THE FORMATION TRANSACTIONS
Prior to or simultaneously with the consummation of the Offering, the
Company and CCA will engage in the Formation Transactions which are designed to
consolidate the ownership interests in the Facilities in the Company, to
facilitate the Offering and to enable the Company to qualify as a REIT for
federal income tax purposes commencing with its taxable year ending December 31,
1997. None of such transactions is expected to occur unless all such
transactions occur.
- The Company, which was formed in April 1997, will sell 17,000,000 Common
Shares in the Offering for net proceeds of approximately $340 million
(assuming an initial public offering price of $20.00 per share).
- Doctor R. Crants, Chairman of the Company and Chairman and Chief
Executive Officer of CCA will acquire in the Offering, 500,000 Common
Shares at a price per share equal to the initial public offering price.
- The Company will use the net proceeds of the Offering to acquire the nine
Initial Facilities directly from CCA for an aggregate purchase price of
approximately $308.1 million payable in cash.
- The Company will lease the Initial Facilities to CCA, pursuant to the
Leases, for initial terms ranging from 10 to 12 years. Each Lease may be
extended for three additional five-year renewal terms at fair market rates
upon the mutual agreement of CCA and the Company. Pursuant to the Leases,
the Company will grant to CCA the right of first refusal to acquire the
Initial Facilities, the Option Facilities or any other correctional or
detention facilities subsequently acquired by the Company and operated by
CCA.
- The Company will enter into the Option Agreements with CCA pursuant to
which the Company will be granted options to acquire any of the five
Option Facilities directly from CCA (for a period of three years following
their respective Service Commencement Dates) for a purchase price equal to
CCA's cost of developing, constructing and equipping such facility, plus
5% of such costs, which aggregates approximately $193.0 million. If
acquired, the Option Facilities will be leased to CCA on terms
substantially similar to those contained in the Leases.
- CCA will grant the Company a right of first refusal to acquire at fair
market value and lease back to CCA, at fair market rental value, any
correctional or detention facility acquired or developed and owned by CCA
in the future for a period of three years following the Service
Commencement Date with respect to such facilities. Additionally, CCA will
grant the Company a right of first refusal to acquire any CCA-owned
correctional or detention facility should CCA receive an acceptable third
party offer to acquire any such facility. CCA will also grant the Company
a right of first refusal to provide mortgage financing to finance 90% of
the cost of any correctional or detention facility should CCA receive an
acceptable third-party offer to provide such financing.
- The Company and CCA will enter into the Noncompetition Agreement pursuant
to which the Company will agree not to purchase or finance Competitive
Facilities without the prior written consent of CCA for a term expiring on
the expiration or termination of the Leases and all future leases between
CCA and the Company.
- Upon consummation of the Offering, D. Robert Crants, III and Michael W.
Devlin will each receive 150,000 Common Shares as a development fee and as
reimbursement of actual costs incurred in connection with the formation of
the Company, the consummation of the Offering and the closing of the
purchase of the Initial Facilities which would have a valuation for each
of them, based on the initial public offering price, of $3.0 million. The
reimbursed expenses include certain costs related to property due
diligence, employee compensation, travel and overhead.
ADVANTAGES AND DISADVANTAGES TO UNAFFILIATED SHAREHOLDERS
The potential advantages of the Formation Transactions to unaffiliated
shareholders of the Company include their ability to participate in the
substantial cash flow of the Facilities through their ownership in the
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Company, and in all future acquisitions by the Company, primarily from CCA. See
"The Company -- Business Objectives and Operating Strategies." The potential
disadvantages of such transactions to unaffiliated shareholders of the Company
include the lack of arm's-length valuations in determining the consideration in
such transactions and the influence of certain trustees and significant
shareholders. For a more complete discussion of such matters see "Risk Factors."
BENEFITS TO THE COMPANY AND ITS OFFICERS AND TRUSTEES
The advantages of the foregoing structure to the Company and its officers
and trustees include:
- The ability to access public capital markets.
- The creation of an entity which, through its payment of dividends, is
able to reduce or avoid the incurrence of federal income tax, allowing its
shareholders to participate in real estate investments without the "double
taxation" of income that generally results from an investment in a regular
corporation.
- The ability to expand the Company's acquisition and development
opportunities through its strong capital base.
- The Company will enter into employment agreements with J. Michael
Quinlan, D. Robert Crants, III, and Michael W. Devlin providing for annual
salaries of $150,000 in the case of Mr. Quinlan, and $100,000 in the case
of each of Messrs. Crants, III and Devlin.
- J. Michael Quinlan, Chief Executive Officer, will be granted options to
acquire 350,000 Common Shares at the initial public offering price and
each of D. Robert Crants, III, President and Michael W. Devlin, Chief
Development Officer will be granted options to acquire 200,000 Common
Shares at the initial public offering price. Vida H. Carroll, Chief
Financial Officer, will be granted options to acquire 50,000 Common Shares
at the initial public offering price. All such options will vest ratably
over a three-year period.
- Upon consummation of the Offering, D. Robert Crants, III and Michael W.
Devlin will each receive 150,000 Common Shares as a development fee and as
reimbursement of actual costs incurred in connection with the formation of
the Company, the consummation of the Offering and the closing of the
purchase of the Initial Facilities which would have a valuation for each
of them, based on the initial public offering price, of $3.0 million. The
reimbursed expenses include certain costs related to property due
diligence, employee compensation, travel and overhead.
- Each non-employee trustee will receive options to acquire 5,000 Common
Shares at the initial public offering price.
BENEFITS TO CCA
CCA will receive the following benefits as a result of the Formation
Transactions:
- CCA will receive approximately $308.1 million in cash in exchange for the
nine Initial Facilities it will sell to the Company. The historical cost
of such Initial Facilities at December 31, 1996 is approximately $170.0
million.
- In the event the Independent Committee determines to exercise the
Company's option to purchase all of the five Option Facilities, CCA could
receive approximately $193.0 million in cash.
- CCA will use certain of the proceeds of the sale of the Initial
Facilities to discharge certain indebtedness incurred in connection with
facility acquisitions.
- CCA will expand its marketing opportunities through increased access to
capital.
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PRINCIPAL SHAREHOLDERS OF THE COMPANY
The following table sets forth certain information regarding the beneficial
ownership of Common Shares by each trustee of the Company, by each Named
Executive Officer, by all trustees and officers of the Company as a group and by
each person who is expected to be the beneficial owner of 5% or more of the
outstanding Common Shares immediately following completion of the Offering. The
table assumes (i) the consummation of the Formation Transactions and (ii) that
the Underwriters' over-allotment option will not be exercised. Each person named
in the table has sole voting and investment power with respect to all the Common
Shares shown as beneficially owned by such person except as otherwise set forth
in the notes to the table.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OF COMMON
SHARES OUTSTANDING
NUMBER OF FOLLOWING THE
NAME AND ADDRESS OF BENEFICIAL OWNERS COMMON SHARES(1) OFFERING
- ------------------------------------- ---------------- ------------------
<S> <C> <C>
Doctor R. Crants............................................ 550,000 3.2%
J. Michael Quinlan.......................................... 87,500 *
D. Robert Crants, III....................................... 200,000 1.2
Michael W. Devlin........................................... 200,000 1.2
C. Ray Bell................................................. 5,000 *
Jackson W. Moore............................................ 5,000 *
Rusty L. Moore.............................................. 5,000 *
Joseph V. Russell........................................... 5,000 *
Charles W. Thomas, Ph.D..................................... 5,000 *
All executive officers and trustees as a group (11
persons).................................................. 1,078,750 6.1%
</TABLE>
- ---------------
* Less than 1%.
(1) Includes 262,500 shares subject to options that are exercisable within 60
days after completion of the Offering.
DESCRIPTION OF CAPITAL SHARES
GENERAL
Under the Declaration of Trust, the total number of shares of all classes
that the Company has authority to issue is 100,000,000 consisting of 90,000,000
Common Shares and 10,000,000 Preferred Shares. As of the date of this
Prospectus, 1,000 Common Shares were outstanding, held by one record holder. No
Preferred Shares are currently outstanding or will be outstanding immediately
after consummation of the Offering. Under Maryland law, shareholders generally
are not liable for the Company's obligations solely as a result of their status
as shareholders.
The holders of Common Shares are entitled to one vote per share on all
matters voted on by holders, including elections of trustees, and, except as
otherwise required by law or provided in any resolution adopted by the Board of
Trustees with respect to any series of Preferred Shares establishing the powers,
designations, preferences and relative, participating, option or other special
rights of such series, the holders of such Common Shares exclusively possess all
voting power. The Declaration of Trust does not provide for cumulative voting in
the election of trustees. Subject to any preferential rights of any outstanding
series of Preferred Shares, the holders of Common Shares are entitled to such
distributions as may be declared from time to time by the Board of Trustees from
funds available therefor, and upon liquidation are entitled to receive pro rata
all assets of the Company available for distribution to such holders. All Common
Shares issued in the Offering will be fully paid and nonassessable and the
holders thereof will not have preemptive rights.
The Board of Trustees is authorized to provide for the issuance of shares
of Preferred Shares in one or more series, to establish the number of shares in
each series and to fix the designations, powers, preferences and rights of each
such series and the qualifications, limitations or restrictions thereof.
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RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, it must meet certain
requirements concerning the ownership of its outstanding shares of stock.
Specifically, not more than 50% in value of the Company's outstanding shares of
stock may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities) during the last half of a
taxable year, and the Company must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year. See "Material Federal Income Tax
Considerations -- Taxation of the Company -- Requirements for Qualification." In
addition, the Company must meet certain requirements regarding the nature of its
gross income in order to qualify as a REIT. One such requirement is that at
least 75% of the Company's gross income for each year must consist of rents from
real property and income from certain other real property investments. The rents
received by the Company from the lessee will not qualify as rents from real
property, which likely would result in loss of REIT status for the Company, if
the Company owns, directly or constructively, 10% or more of the ownership
interests in the lessee within the meaning of Section 856(d)(2)(B) of the Code.
See "Material Federal Income Tax Considerations -- Taxation of the
Company -- Income Tests."
Because the Board of Trustees believes it is essential for the Company to
continue to qualify as a REIT, the Declaration of Trust, subject to certain
exceptions described below, provides that no person may own, or be deemed to own
by virtue of the attribution provisions of the Code, more than 9.8% of (i) the
number of outstanding Common Shares or (ii) the number of outstanding shares of
any series of Preferred Shares (the "Ownership Limit"). Any transfer of Common
Shares or Preferred Shares that would (i) result in any person owning, directly
or indirectly, Common Shares or Preferred Shares in excess of the Ownership
Limit, (ii) result in the Common Shares and Preferred Shares being owned by
fewer than 100 persons (determined without reference to any rules of
attribution), (iii) result in the Company being "closely held" within the
meaning of Section 856(h) of the Code, or (iv) cause the Company to own,
directly or constructively, 10% or more of the ownership interests in a tenant
of the Company's real property, within the meaning of Section 856(d)(2)(B) of
the Code, shall be null and void, and the intended transferee will acquire no
rights in such Common Shares or Preferred Shares.
Subject to certain exceptions described below, any purported transfer of
Common Shares or Preferred Shares that would (i) result in any person owning,
directly or indirectly, Common Shares or Preferred Shares in excess of the
Ownership Limit, (ii) result in the Common Shares and Preferred Shares being
owned by fewer than 100 persons (determined without reference to any rules of
attribution), (iii) result in the Company being "closely held" within the
meaning of Section 856(h) of the Code, or (iv) cause the Company to own,
directly or constructively, 10% or more of the ownership interests in a tenant
of the Company's real property, within the meaning of Section 856(d)(2)(B) of
the Code, will be designated as "Shares-in-Trust" and transferred automatically
to a trust (the "Share Trust") effective on the day before the purported
transfer of such Common Shares or Preferred Shares. The record holder of the
Common Shares or Preferred Shares that are designated as Shares-in-Trust (the
"Prohibited Owner") will be required to submit such number of Common Shares or
Preferred Shares to the Company for registration in the name of the trustee of
the Share Trust (the "Share Trustee"). The Share Trustee will be designated by
the Company, but will not be affiliated with the Company. The beneficiary of the
Share Trust (the "Beneficiary") will be one or more charitable organizations
that are named by the Company.
Shares-in-Trust will remain issued and outstanding Common Shares or
Preferred Shares and will be entitled to the same rights and privileges as all
other shares of the same class or series. The Share Trustee will receive all
dividends and distributions on the Shares-in-Trust and will hold such dividends
and distributions in trust for the benefit of the Beneficiary. The Share Trustee
will vote all Shares-in-Trust and will designate a permitted transferee of the
Shares-in-Trust, provided that the permitted transferee (i) purchases such
Shares-in-Trust for valuable consideration and (ii) acquires such
Shares-in-Trust without such acquisition resulting in a transfer to another
Share Trust.
The Prohibited Owner with respect to Shares-in-Trust will be required to
repay the Share Trustee the amount of any dividends or distributions received by
the Prohibited Owner (i) that are attributable to any
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Shares-in-Trust and (ii) the record date of which was on or after the date that
such shares became Shares-in-Trust. The Prohibited Owner generally will receive
from the Share Trustee the lesser of (i) the price per share such Prohibited
Owner paid for the Common Shares or Preferred Shares that were designated as
Shares-in-Trust (or, in the case of a gift or bequest, the Market Price (as
hereinafter defined) per share on the date of such transfer) or (ii) the price
per share received by the Share Trustee from the sale of such Shares-in-Trust.
Any amounts received by the Share Trustee in excess of the amounts to be paid to
the Prohibited Owner will be distributed to the Beneficiary.
The Shares-in-Trust will be deemed to have been offered for sale to the
Company, or its designee, at a price per share equal to the lesser of (i) the
price per share in the transaction that created such Shares-in-Trust (or, in the
case of a gift or bequest, the Market Price per share on the date of such
transfer) or (ii) the Market Price per share on the date that the Company, or
its designee, accepts such offer. The Company will have the right to accept such
offer for a period of 90 days after the later of (i) the date of the purported
transfer which resulted in such Shares-in-Trust or (ii) the date the Company
determines in good faith that a transfer resulting in such Shares-in-Trust
occurred.
"Market Price" means the last reported sales price of the Common Shares or
Preferred Shares reported on the NYSE on the trading day immediately preceding
the relevant date, or if such shares are not then traded on the NYSE, the last
reported sales price of such shares on the trading day immediately preceding the
relevant date as reported on any exchange or quotation system over which such
shares may be traded, or if such shares are not then traded over any exchange or
quotation system, then the market price of such shares on the relevant date as
determined in good faith by the Board of Trustees.
Any person who acquires or attempts to acquire Common Shares or Preferred
Shares in violation of the foregoing restrictions, or any person who owned
Common Shares or Preferred Shares that were transferred to a Share Trust, will
be required (i) to give immediately written notice to the Company of such event
and (ii) to provide to the Company such other information as the Company may
request in order to determine the effect, if any, of such transfer on the
Company's status as a REIT.
All persons who own, directly or indirectly, more than 5% (or such lower
percentages as required pursuant to regulations under the Code) of the
outstanding Common Shares and Preferred Shares must, within 30 days after
January 1 of each year, provide to the Company a written statement or affidavit
stating the name and address of such direct or indirect owner, the number of
Common Shares and Preferred Shares owned directly or indirectly by such owner,
and a description of how such shares are held. In addition, each direct or
indirect shareholder shall provide to the Company such additional information as
the Company may request in order to determine the effect, if any, of such
ownership on the Company's status as a REIT and to ensure compliance with the
Ownership Limitation.
The Ownership Limitation generally will not apply to the acquisition of
Common Shares or Preferred Shares by an underwriter that participates in a
public offering of such shares. In addition, the Board of Trustees, upon such
conditions as the Board of Trustees may direct, may exempt a person from the
Ownership Limitation under certain circumstances.
All certificates representing Common Shares or Preferred Shares will bear a
legend referring to the restrictions described above.
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMPANY'S DECLARATION OF TRUST AND
BYLAWS
The Company was formed, and its Declaration of Trust and Bylaws became
effective on April 23, 1997. Pursuant to Maryland law, the Company's existence
is perpetual subject to voluntary dissolution and complete distribution of its
assets.
The summary of certain provisions of Maryland law and of the Declaration of
Trust and Bylaws of the Company set forth below and elsewhere in this Prospectus
does not purport to be complete and is subject to and qualified in its entirety
by reference to Maryland law and the Declaration of Trust and Bylaws of the
Company. Copies of the Declaration of Trust and Bylaws may be obtained as
described under "Available Information."
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Staggered Board of Trustees. The Declaration of Trust provides for a
staggered Board of Trustees consisting of three classes as nearly equal in size
as practicable. Each class holds office until the third annual meeting for
selection of trustees following the election of such class, except that the
initial terms of the three classes expire in 1998, 1999 and 2000, respectively.
The provision relating to the staggered Board may be amended only upon the vote
of the holders of at least two-thirds of the outstanding Common Shares of the
Company entitled to vote for the election of trustees. Such a vote could be
undertaken at an annual or special meeting of shareholders called in accordance
with the provisions of the Company's Bylaws. The Bylaws prohibit shareholders
from calling special meetings.
Meetings of Shareholders. Pursuant to the Company's Bylaws, an annual
meeting of the Company's shareholders for the election of Trustees and the
transaction of other business shall be held during the month of May of each
year. A special meeting of the shareholders of the Company may be called by (i)
the Chairman of the Board of Trustees, (ii) a majority of the members of the
Board of Trustees; or (iii) a committee of the Board of Trustees which has been
duly designated by the Board of Trustees and whose powers and authority include
the power to call such meetings.
Business Combinations Law. Under Maryland law, certain "business
combinations" (including a merger, consolidation, share exchange, or, in certain
circumstances, and asset transfer of issuance or reclassification of equity
securities) between a Maryland REIT and any person who beneficially owns 10% or
more of the voting power of the real estate investment trust's shares or an
affiliate of the REIT who at any time within the two-year period prior to the
date in question, was the beneficial owner of 10% or more of the voting power of
the then-outstanding voting shares of the REIT (an "Interested Shareholder") or
an affiliate thereof are prohibited for five years after the most recent date on
which the Interested Shareholder became an Interested Shareholder. Thereafter,
any such business combination must be recommended by the board of Investors of
such REIT and approved by the affirmative vote of at least (a) 80% of the votes
entitled to be cast by holders of outstanding voting shares of the REIT and (b)
two-thirds of the votes entitled to be cast by holders of outstanding voting
shares of the real estate investment trust other than shares held by the
Interested Shareholder with whom the business combination is to be effected,
unless among other things, the REIT's shareholders receive a minimum price (as
defined in the MGCL) for their shares and the consideration is received in cash
or in the same form as previously paid by the Interested Shareholder for its
shares.
Control Share Acquisitions. Maryland law provides that "control shares" of
a Maryland REIT acquired in a "control share acquisition" have no voting rights
except to the extent approved by a vote of two-thirds of the votes entitled to
be cast on the matter, excluding shares owned by the acquiror or by officers or
directors who are employees of the corporation. "Control Shares" are voting
shares which, if aggregated with all other such shares previously acquired by
the acquiror, or in respect of which the acquiror is able to exercise or direct
the exercise of voting power, would entitle the acquiror to exercise voting
power in electing directors within one of the following ranges of voting power
(i) one-fifth or more but less than one-third, (ii) one-third or more but less
than a majority, or (iii) a majority of all voting power. Control shares do not
include shares the acquiring person is then entitled to vote as a result of
having previously obtained shareholder approval. A "control share acquisition"
means the acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of trustees to call a special meeting of shareholders to be
held within 50 days of demand to consider the voting rights of the shares. If no
request for a meeting is made, the real estate investment trust may itself
present the question as any shareholders meeting.
If voting rights are approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the real estate investment trust
may redeem any or all of the control shares (except those for which voting
rights have previously been approved) for fair value determined without regard
to the absence of voting rights for the control shares, as of the date of the
last control share acquisition or of any meeting of shareholders at which the
voting rights of such shares are considered and not approved. If voting rights
for control shares are approved at a shareholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled
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to vote, all other shareholders may exercise appraisal rights. The fair value of
the share as determined for purposes of such approval rights may not be less
than the highest price per share paid by the acquiror in the control share
acquisition.
The control share acquisition statue does not apply to shares acquired in a
merger, consolidation or share exchange if the real estate investment trust is a
party to the transaction, or to an acquisition approved or exempted by the
declaration of trust or bylaws of the real estate investment trust.
The Company's Bylaws contain a provision exempting from the control share
acquisition statute any and all acquisitions by any person of the Company's
Common Shares. There can be no assurance that such provision will not be amended
or eliminated at any point in the future. If the foregoing exemption in the
Bylaws is rescinded, the control share acquisition statute could have the effect
of discouraging offers to acquire the Company and of increasing the difficulty
of consummating any such offer.
Interested Trustee Transactions. The Company's Bylaws contain a provision
requiring approval by the Independent Trustees of the Company of actions by the
Board of Trustees concerning the selection of operators of the Company's
Facilities and all transactions between the Company and CCA and its affiliates.
Removal of Trustees. The Declaration of Trust provides the Board of
Trustees or shareholders may, at any time, remove any trustee, with or without
cause, by an affirmative vote of a majority of trustees or a majority of holders
of shares entitled to vote in the election of trustees.
Amendments to the Declaration of Trust and Bylaws. The Declaration of
Trust provides generally that its provisions may be amended in accordance with
Maryland law, except that (a) the trustees by a majority vote may amend the
Declaration of Trust to increase or decrease the aggregate number of shares of
any class that the Company has authority to issue, and (b) the trustee by a
two-thirds vote may amend the Declaration of Trust to qualify, or continued to
qualify, as a real estate investment trust under the Code or Maryland law.
Maryland law generally requires amendments to the Declaration of Trust to be
approved by the affirmative vote of two-thirds of all the votes entitled to be
cast on the matter.
The Bylaws provide that the Board of Trustees has the exclusive power to
adopt, alter or repeal any provision of the Bylaws and to make new Bylaws, in
accordance with the provisions as set forth in the Bylaws.
LIMITATIONS ON CHANGES IN CONTROL
The provisions of the Declaration of Trust and the Bylaws providing for
ownership limitations, a staggered Board of Trustees, eliminating the ability of
the shareholders to call special meetings of shareholders, and authorizing the
Board of Trustees to issue Preferred Shares without shareholder approval could
have the effect of delaying, deferring or preventing a change in control of the
Company or the removal of existing management, and as a result could prevent the
shareholders of the Company from being paid a premium for their Common Shares.
In addition, the Company has chosen not to opt out of Maryland's business
combinations law in its Declaration of Trust, thereby making it difficult to
acquire control of the Company by means of a tender offer, open market purchase,
a proxy fight or otherwise, if the acquisition is not approved by the Board of
Trustees. The Company has, however, elected not to be governed by the provisions
of Maryland law concerning control share acquisitions.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF TRUSTEES
Maryland law provides that shareholders and trustees of a Maryland REIT are
not personally liable for the obligations of the real estate investment trust;
provided, however, that a trustee is not relieved from any liability to a trust
or its security holders for any act that constitutes (a) bad faith, (b) willful
misfeasance, (c) gross negligence, or (d) reckless disregard of the trustee's
duties. According to the Declaration of Trust, a trustee of the Company shall
perform his duties (i) in good faith, (ii) in a manner he reasonably believes to
be in the best interest of the Company, and (iii) with the care that an
ordinarily prudent person in a like position would use under similar
circumstances.
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Maryland law permits a Maryland REIT to include in its Declaration of Trust
provisions limiting the liability of its trustees and officers to the trust and
its shareholders for money damages except for, in general, liability resulting
from (a) actual receipt of an improper benefit or profit in money, property or
services or (b) active and deliberate dishonesty established by a final judgment
as being material to the matter giving rise to the cause of action. The
Declaration of Trust of the Company contains a provision which eliminates a
trustee's liability to the Company and its shareholders for money damages to the
maximum extent permitted by Maryland law.
The Declaration of Trust and the Bylaws of the Company require the Company,
to the maximum extent permitted by Maryland law, to indemnify and advance
expenses to a trustee of the Company in connection with a proceeding and to
indemnify a trustee or officer who has been successful, on the merits or
otherwise, in the defense of any proceeding to which he is made a party by
reason of his service in that capacity.
The Maryland law permits a Maryland REIT to indemnify and advance expenses
to its trustees, officers, employees and agents to the same extent as permitted
by the Maryland General Corporation Law (the "MGCL") for directors, officers,
employees and agents of Maryland corporations. The MGCL permits a Maryland
corporation to indemnify its present and former directors and officers, among
others, against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may be
made a party by reason of their service in those or other capacities unless it
is established that (a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (i) was committed in
bad faith or (ii) was the result of active and deliberate dishonesty, (b) the
director or officer actually received an improper personal benefit in money,
property or services or (c) in the case of any criminal proceeding, the director
or officer had reasonable cause to believe that the act or omission was
unlawful. However, a Maryland corporation may not indemnify for an adverse
judgment in a suit by or in the right of the corporation. Maryland law requires
a Maryland corporation to indemnify a director or officer who has been
successful on the merits or otherwise, in the defense of any proceeding to which
he is made a party by reason of his service in that capacity. In accordance with
the MGCL, the Bylaws of the Company require it, as a condition to advancing
expenses, to obtain (a) a written affirmation by the director or officer of his
good faith belief that he has met the standard of conduct necessary for
indemnification by the Company as authorized by the Bylaws and (b) a written
undertaking by or on his behalf to repay the amount paid or reimbursed by the
Company if it shall ultimately be determined that the standard of conduct was
not met. The Bylaws permit the Company to indemnify and advance expenses to any
person who served a predecessor of the Company as a trustee, director, officer,
or partner and to any employee or agent of the Company or a predecessor of the
Company.
TRANSFER AGENT AND REGISTRAR
The Company has appointed First Union Bank of North Carolina as its
transfer agent and registrar.
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SHARES AVAILABLE FOR FUTURE SALE
Upon the completion of the Offering, the Company will have outstanding
17,301,000 Common Shares. The Common Shares issued in the Offering will be
freely tradeable by persons other than "affiliates" of the Company without
restriction under the Securities Act, subject to the limitations on ownership
set forth in the Declaration of Trust. See "Description of Capital
Shares -- Restrictions on Ownership." The Common Shares owned by the officers
and trustees of the Company, other than those Common Shares purchased in the
Offering, or shares acquired upon the exercise of options registered on a
registration statement on Form S-8 will be "restricted" securities within the
meaning of Rule 144 promulgated under the Securities Act ("Rule 144") and may
not be sold in the absence of registration under the Securities Act unless an
exemption from registration is available, including exemptions contained in Rule
144.
Prior to the date of this Prospectus, there has been no public market for
the Common Shares. The Company will apply for listing of its Common Shares on
the NYSE. No prediction can be made as to the effect, if any, that future sales
of shares, or the availability of shares for future sale, will have on the
market price prevailing from time to time. Sales of substantial amounts of
Common Shares or the perception that such sales could occur, could adversely
affect prevailing market prices of the Common Shares. See "Risk Factors -- No
Prior Market for Common Shares" and "-- Shares Available for Future Sale."
For a description of certain restrictions on transfers of Common Shares
held by certain shareholders of the Company, see "Underwriting" and "Description
of Capital Shares -- Restrictions on Ownership."
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations
regarding the Offering is based on current law, is for general information only
and is not tax advice. The discussion does not purport to deal with all aspects
of taxation that may be relevant to particular shareholders in light of their
personal investment or tax circumstances, or to certain types of shareholders
(including insurance companies, tax-exempt organizations, financial institutions
or broker-dealers, foreign corporations, and persons who are not citizens or
residents of the United States) subject to special treatment under the federal
income tax laws.
The statements in this discussion are based on current provisions of the
Code, existing, temporary, and currently proposed Treasury regulations
promulgated under the Code ("Treasury Regulations"), the legislative history of
the Code, existing administrative rulings and practices of the Service, and
judicial decisions. No assurance can be given that future legislative, judicial,
or administrative actions or decisions, which may be retroactive in effect, will
not affect the accuracy of any statements in this Prospectus with respect to the
transactions entered into or contemplated prior to the effective date of such
changes.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF THE COMMON
SHARES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES
THEREOF AND THE POSSIBILITY THAT APPLICABLE TAX LAWS MAY CHANGE.
TAXATION OF THE COMPANY
General. The Company plans to make an election to be taxed as a REIT under
Sections 856 through 860 of the Code, commencing with its taxable year ending
December 31, 1997. The Company believes that, commencing with such taxable year,
it will be organized and will operate in such a manner as to qualify for
taxation as a REIT under the Code. Because these sections of the Code are highly
technical and complex, however, no assurance can be given that the Company will
qualify or remain qualified as a REIT.
The following sets forth the material aspects of the sections that govern
the federal income tax treatment of a REIT and its shareholders. This summary is
qualified in its entirety by the applicable Code provisions, rules and Treasury
Regulations promulgated thereunder, and administrative and judicial
interpretations thereof.
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Stokes & Bartholomew, P.A. has acted as tax counsel to the Company in
connection with the Offering and the Company's election to be taxed as a REIT.
It will deliver its opinion that the Company, commencing with its taxable year
ending December 31, 1997, will be organized in conformity with the requirements
for qualification as a REIT, and that its proposed method of operation will
enable it to meet the requirements for qualification and taxation as a REIT
under the Code. This opinion will be based upon, and subject to, certain
assumptions and various factual representations of the Company, which are
incorporated into the opinion and are addressed in this discussion of "Material
Federal Income Tax Considerations." Opinions of counsel are not binding on the
Service or a court. Accordingly, there can be no assurance that the Service will
not successfully assert a position contrary to the opinion of Stokes &
Bartholomew, P.A. and therefore prevent the Company from qualifying as a REIT.
Qualification and taxation as a REIT also depends upon the Company's ability to
meet, through actual annual operating results, distribution requirements,
diversity of stock ownership and the various other qualification tests imposed
under the Code, the results of which will not be reviewed by Stokes &
Bartholomew, P.A. Thus, there can be no assurance that the actual results of the
Company's operation for any particular taxable year will satisfy such
requirements. For a discussion of the tax consequences of failure to qualify as
a REIT, see "Material Federal Income Tax Considerations -- Failure to Qualify."
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to shareholders. This treatment substantially eliminates the "double
taxation" (at the corporate and shareholder levels) of income that generally
results from investment in a regular corporation. However, the Company will be
subject to federal income tax as follows: First, the Company will be taxed at
regular corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains. Second, under certain circumstances, the
Company may be subject to the "alternative minimum tax" on its items of tax
preference. Third, if the Company has (i) net income from the sale or other
disposition of "foreclosure property" which is held primarily for sale to
customers in the ordinary course of business; or (ii) other nonqualifying income
from foreclosure property, it will be subject to tax at the highest corporate
rate on such income. Fourth, if the Company has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property held primarily for sale to customers in the ordinary course of business
other than foreclosure property), such income will be subject to a 100% tax.
Fifth, if the Company fails to satisfy the 75% gross income test or the 95%
gross income test (as discussed below), but has nonetheless maintained its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on an amount equal to (a) the gross income
attributable to the greater of the amount by which the Company fails the 75% or
95% test, multiplied by (b) a fraction intended to reflect the Company's
profitability. Sixth, if the Company fails to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year; (ii)
95% of its REIT capital gain net income for such year; and (iii) any
undistributed taxable income from prior periods, it will be subject to a 4%
excise tax on the excess of such required distribution over the amounts actually
distributed. Seventh, with respect to any asset (a "Built-in Gain Asset")
acquired by the Company from a corporation which is or has been a C corporation
(i.e., generally a corporation subject to full corporate-level tax) in certain
transactions in which the basis of the Built-in Gain Asset in the hands of the
Company is determined by reference to the basis of the asset in the hands of the
C corporation, if the Company recognizes gain on the disposition of such asset
during the 10-year period (the "Recognition Period") beginning on the date on
which such asset was acquired by the Company, then, to the extent of the
Built-in Gain (i.e., the excess of (a) the fair market value of such asset over
(b) the Company's adjusted basis in such asset, determined as of the beginning
of the Recognition Period), such gain will be subject to tax at the highest
regular corporate rate. The results described above with respect to the
recognition of Built-in Gain assume that the Company will make an election
pursuant to IRS Notice 88-19.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (i) which is managed by one or more trustees; (ii) the
beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (iii) which would be taxable
as a domestic corporation, but for Sections 856 through 859 of the Code; (iv)
which is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (v) the beneficial ownership of which is held by
100 or more persons; (vi) during the last half of each taxable year not more
than 50% in value of the outstanding stock of which is owned, directly or
constructively, by five or fewer individuals (as defined
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in the Code to include certain entities); and (vii) which meets certain other
tests, described below, regarding the nature of its income and assets. The Code
provides that conditions (i) to (iv), inclusive, must be met during the entire
taxable year and that condition (v) must be met during at least 335 days of a
taxable year of 12 months, or during a proportionate part of a taxable year of
less than 12 months. Conditions (v) and (vi) will not apply until after the
first taxable year for which an election is made to be taxed as a REIT.
The Company believes that it will have issued sufficient shares pursuant to
the Offering to allow it to satisfy conditions (v) and (vi). In addition, the
Company's Declaration of Trust provides for restrictions regarding the transfer
and ownership of shares, which restrictions are intended to assist the Company
in continuing to satisfy the share ownership requirements described in (v) and
(vi) above. Such transfer and ownership restrictions are described in
"Description of Capital Shares -- Restrictions on Ownership."
Income Tests. To maintain qualification as a REIT, the Company annually
must satisfy three gross income requirements. First, at least 75% of the
Company's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property," gain from the sale of real property and, in certain
circumstances, interest) or from certain types of temporary investments. Second,
at least 95% of the Company's gross income (excluding gross income from
prohibited transactions) for each taxable year must be derived from such real
property investments, dividends, interest and gain from the sale or disposition
of stock or securities (or from any combination of the foregoing). Third,
short-term gain from the sale or other disposition of stock or securities, gain
from prohibited transactions and gain on the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must represent less than 30% of the Company's
gross income including gross income from prohibited transactions for each
taxable year.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, rents received from a tenant will not qualify as
"rents from real property" in satisfying the gross income tests if the REIT, or
an owner of 10% or more of the REIT, directly or constructively owns 10% or more
of such tenant (a "Related Party Tenant"). Third, if rent attributable to
personal property, leased in connection with a lease of real property, is
greater than 15% of the total rent received under the lease, then the portion of
rent attributable to such personal property will not qualify as "rents from real
property." Finally, for rents received to qualify as "rents from real property,"
the REIT generally must not operate or manage the property or furnish or render
services to the tenants of such property, other than through an independent
contractor from whom the REIT derives no revenue, except that the REIT may
directly perform certain services that are "usually or customarily rendered" in
connection with the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant" of the property.
Pursuant to the Leases, CCA will lease from the Company the land, buildings
and improvements comprising the Facilities and certain personal property located
at the Facilities for initial terms ranging from 10 to 12 years. Upon mutual
agreement of the parties, each Lease may be extended for up to three additional
five-year terms. The Leases will be "triple net" leases which will require CCA
to pay substantially all expenses associated with the operation of the
Facilities, such as real estate taxes, insurance, utilities and services,
maintenance and other operating expenses. The minimum rent for the first year of
each Lease will be a fixed amount. Thereafter, minimum rent will be increased
each year by the Base Rent Escalation.
On an ongoing basis, the Company will use its best efforts; (i) not to
charge rent for any property that is based in whole or in part on the income or
profits of any person (except by reason of being based on a percentage of
receipts or sales, as described above); (ii) not to rent any property to a
Related Party Tenant (taking into account the constructive ownership rules),
unless the Company determines in its discretion that the rent received from such
Related Party Tenant is not material and will not jeopardize the Company's
status as a REIT; (iii) not to derive rental income attributable to personal
property (other than personal property
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leased in connection with the lease of real property, the amount of which is
less than 15% of the total rent received under the lease); or (iv) not to
perform services considered to be rendered to the occupant of the property,
other than through an independent contractor from whom the Company derives no
revenue. Because the Code provisions applicable to REITs are complex, however,
the Company may fail to meet one or more of the foregoing objectives, which
failure may jeopardize the Company's status as a REIT. For a discussion of the
consequences of any failure by the Company to qualify as a REIT, see "Failure to
Qualify."
Rents under the Leases ("Rent") will constitute "rents from real property"
only if the Leases are treated as true leases for federal income tax purposes
and are not treated as service contracts, joint ventures, financing arrangements
or some other type of arrangement. The determination of whether the Leases are
true leases depends on an analysis of all surrounding facts and circumstances.
In making such a determination, courts have considered a variety of factors,
including the following: (i) the intent of the parties; (ii) the form of the
agreement; (iii) the degree of control over the property that is retained by the
property owner (e.g., whether the lessee has substantial control over the
operation of the property or whether the lessee was required simply to use its
best efforts to perform its obligations under the agreement); (iv) the extent to
which the property owner retains the risk of loss with respect to the operation
of the property (e.g., whether the lessee bears the risk of increases in
operating expenses or the risk of damage to the property); and (v) the extent to
which the property owner retains the burdens and benefits of ownership of the
property.
Code Section 7701(e) provides that a contract that purports to be a service
contract (or a partnership agreement) will be treated instead as a lease of
property if the contract is properly treated as such, taking into account all
relevant factors, including whether or not: (i) the service recipient is in
physical possession of the property; (ii) the service recipient controls the
property; (iii) the service recipient has a significant economic or possessory
interest in the property (e.g., the property's use is likely to be dedicated to
the service recipient for a substantial portion of the useful life of the
property, the recipient shares the risk that the property will decline in value,
the recipient shares in any appreciation in the value of the property, the
recipient shares in savings in the property's operating costs, or the recipient
bears the risk of damage to or loss of the property); (iv) the service provider
does not bear any risk of substantially diminished receipts or substantially
increased expenditures if there is nonperformance under the contract; (v) the
service provider does not use the property concurrently to provide significant
services to entities unrelated to the service recipient; and (vi) the total
contract price does not substantially exceed the rental value of the property
for the contract period. Since the determination whether a service contract
should be treated as a lease is inherently factual, the presence or absence of
any single factor may not be dispositive in every case.
The Leases should be treated as true leases for federal income tax
purposes, based, in part, on the following facts: (i) the Company and CCA intend
for their relationship to be that of a lessor and lessee and such relationship
will be documented by lease agreements; (ii) CCA will have the right to
exclusive possession and use and quiet enjoyment of the Initial Facilities
during the term of the Leases; (iii) CCA will bear the cost of, and be
responsible for, day-to-day maintenance and repair of the Facilities, and will
dictate how the Facilities are operated, maintained, and improved; (iv) CCA will
bear all of the costs and expenses of operating the Facilities during the terms
of the Leases; (v) CCA will benefit from any savings in the costs of operating
the Facilities during the terms of the Leases; (vi) CCA will indemnify the
Company against all liabilities imposed on the Company during the term of the
Leases by reason of (a) injury to persons or damage to property occurring at the
Facilities, or (b) CCA's use, management, maintenance or repair of the
Facilities; (vii) CCA is obligated to pay substantial fixed rent for the period
of use of the Facilities; (viii) CCA stands to incur substantial losses (or reap
substantial gains) depending on how successfully it operates the Facilities;
(ix) the useful lives of the Facilities are significantly longer than the terms
of the Leases; and (x) the Company will receive the benefit of any increase in
value, and will bear the risk of any decrease in value, of the Facilities during
the terms of the Leases.
Investors should be aware that there are no controlling Treasury
Regulations, published rulings, or judicial decisions involving leases with
terms substantially similar to those contained in the Leases that address
whether such leases constitute true leases for federal income tax purposes. If
the Leases are recharacterized as service contracts or partnership agreements,
rather than true leases, part or all of the payments that the Company receives
from CCA may not be considered rent or may not otherwise satisfy the various
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requirements for qualification as "rents from real property." In that case, the
Company likely would not be able to satisfy either the 75% or 95% gross income
tests and, as a result, would lose its REIT status.
For the rents to constitute "rents from real property," the other
requirements enumerated above also must be satisfied. One requirement is that
the Rent attributable to personal property leased in connection with the lease
of a Facility must not be greater than 15% of the total Rent received under the
Leases. The Rent attributable to the personal property in a Facility is the
amount that bears the same ratio to total rent for the taxable year as the
average of the adjusted bases of the personal property in the Facility at the
beginning and at the end of the taxable year bears to the average of the
aggregate adjusted bases of both the real and personal property comprising the
Facility at the beginning and at the end of such taxable year (the "Adjusted
Basis Ratio"). The Company will lease certain personal property to CCA pursuant
to the Leases. The Adjusted Basis Ratio with respect to each Lease is
anticipated to be less than 15%. Accordingly, Rent received by the Company
should satisfy this requirement.
A second requirement for qualification of the rents as "rents from real
property" is that the Rent must not be based in whole or in part on the income
or profits of any person. The Rent paid by CCA for the Facilities will be a
fixed amount (as adjusted based in part on the gross revenues of each Facility)
and will not be based in whole or in part on the net income of the Facilities.
Thus, the Rent should also satisfy this requirement.
A third requirement for qualification of the rents as "rents from real
property" is that the Company must not own, directly or constructively, 10% or
more of CCA or any other tenant of the Facilities. The constructive ownership
rules generally provide that if 10% or more in value of the shares of the
Company are owned, directly or indirectly, by or for any person, the Company is
considered as owning the shares owned, directly or indirectly, by or for such
person. The Declaration of Trust provides that no person may own, directly or
constructively, more than 9.8% of the Company. See "Description of Capital
Shares -- Restrictions on Ownership." Assuming the Declaration of Trust is
complied with, neither CCA nor any other person should ever own, directly or
constructively, 10% or more of the Company, and thus the constructive ownership
rules should not be triggered. Furthermore, the Company has represented that it
will not rent any property to a Related Party Tenant. The constructive ownership
rules, however, are highly complex and difficult to apply, and the Company may
inadvertently enter into leases with tenants who, through application of such
rules, will constitute Related Party Tenants. In such event, Rent paid by the
Related Party Tenant will not qualify as "rents from real property," which may
jeopardize the Company's status as a REIT.
A fourth requirement for qualification of the rents as "rents from real
property" is that the Company cannot furnish or render noncustomary services to
the tenants of the Facilities, or manage or operate the Facilities, other than
through an independent contractor who is adequately compensated and from whom
the Company itself does not derive or receive any income. Provided that the
Leases are respected as true leases, the Company should satisfy this requirement
because it is not performing for CCA any services other than customary services.
Furthermore, the Company has represented that, with respect to other properties
that it acquires in the future, it will not perform noncustomary services with
respect to the tenant of the property. As described above, however, if the
Leases are recharacterized as service contracts or partnership agreements, the
rents likely would be disqualified as "rents from real property" because the
Company would be considered to furnish or render services to the occupants of
the Facilities and to manage or operate the Facilities other than through an
independent contractor who is adequately compensated and from whom the Company
derives or receives no income.
Based on the foregoing, the Rent should qualify as "rents from real
property" for purposes of the 75% and 95% gross income tests. As described
above, however, there can be no complete assurance that the Service will not
assert successfully a contrary position and, therefore, prevent the Company from
qualifying as a REIT.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its return, and any
incorrect information on the schedules was not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances the
Company would be entitled to the benefit of
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these relief provisions. As discussed above in "-- General," even if these
relief provisions apply, a tax would be imposed with respect to the excess net
income.
Other Issues. Because the Facilities will be acquired from and leased back
to CCA, the Service could assert that the Company realized a prepaid rental
income in the year of purchase to the extent that the value of the facilities
exceeds the purchase price paid by the Company. In litigated cases involving
sale-leasebacks which have considered this issue, courts generally have
concluded that buyers have realized prepaid rent where both parties acknowledged
that the purported purchase price for the property was substantially less than
fair market value, and the proposed rents were substantially less than the fair
market rentals. Because of the lack of clear precedent and the inherently
factual nature of the inquiry, no assurance can be given that the Service could
not successfully assert the existence of prepaid rental income in such
circumstances. The value of property and the fair market rent for properties
involved in sale-leasebacks are inherently factual matters and always subject to
challenge.
Additionally, Section 467 of the Code (concerning leases with increasing
rents) may apply to these Leases because they provide for rents that increase
from one period to the next. Section 467 provides that in the case of a
so-called "disqualified leaseback agreement," rental income must be accrued at a
constant rate. If such constant rate accrual is required, the Company would
recognize rental income in excess of cash rents and, as a result, may fail to
meet the 95% dividend distribution requirement. "Disqualified leaseback
agreements" include leaseback transactions where a principal purpose of
providing increasing rent under the agreement is the avoidance of federal income
tax. The Company and CCA have represented that the principal purpose of rent
increases under the Leases is not the avoidance of federal income taxes.
Furthermore, under proposed Treasury Regulations, tax avoidance is not
considered a principal purpose where the lessee is required to pay third party
costs, such as insurance, maintenance and taxes, or where rent is adjusted based
on reasonable price indices. Accordingly, the Company believes that the Leases
will not be subject to rent leveling under Code Section 467. It should be noted,
however, that leases involved in sale-leaseback transactions are subject to
special scrutiny under this Section.
Asset Tests. The Company, at the close of each quarter of its taxable
year, must also satisfy three tests relating to the nature of its assets. First,
at least 75% of the value of the Company's total assets must be represented by
real estate assets (including (i) its allocable share of real estate assets held
by partnerships in which the Company owns an interest; and (ii) stock or debt
instruments held for not more than one year purchased with the proceeds of a
stock offering or long-term (at least five years) debt offering of the Company),
cash, cash items and government securities. Second, not more than 25% of the
Company's total assets may be represented by securities other than those in the
75% asset class. Third, of the investments included in the 25% asset class, the
value of any one issuer's securities owned by the Company may not exceed 5% of
the value of the Company's total assets, and the Company may not own more than
10% of any one issuer's outstanding voting securities.
The Company has represented that, as of the date of the offering, (i) at
least 75% of the value of its total assets will be represented by real estate
assets, cash and cash items (including receivables), and government securities;
and (ii) it will not own any securities that do not satisfy the 75% asset
requirement (except for the stock of subsidiaries with respect to which it has
held 100% of the stock at all times during the subsidiary's existence). In
addition, the Company has represented that it will not acquire or dispose of
assets in the future in a way that would cause it to violate either asset
requirement. Based on the foregoing, the Company should satisfy both asset
requirements for REIT status.
If the Company should fail inadvertently to satisfy the asset requirements
at the end of a calendar quarter, such a failure would not cause it to lose its
REIT status if (i) it satisfied all of the asset tests at the close of the
preceding calendar quarter; and (ii) the discrepancy between the value of the
Company's assets and the standards imposed by the asset requirements either did
not exist immediately after the acquisition of any particular asset or was not
wholly or partly caused by such an acquisition (i.e., the discrepancy arose from
changes in the market values of its assets). If the condition described in
clause (ii) of the preceding sentence were not satisfied, the Company still
could avoid disqualification by eliminating any discrepancy within 30 days after
the close of the calendar quarter in which it arose.
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Annual Distribution Requirements. The Company, to qualify as a REIT, is
required to distribute dividends (other than capital gain dividends) to its
shareholders in an amount at least equal to (i) the sum of (a) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (b) 95% of the net income
(after tax), if any, from foreclosure property, minus (ii) the sum of certain
items of noncash income. In addition, if the Company disposes of any Built-in
Gain Asset during its Recognition Period, the Company will be required to
distribute at least 95% of the Built-in Gain (after tax), if any, recognized on
the disposition of such asset. Such distributions must be paid in the taxable
year to which they relate, or in the following taxable year if declared before
the Company timely files its tax return for such year and if paid on or before
the first regular dividend payment after such declaration. To the extent that
the Company does not distribute all of its net capital gain or distributes at
least 95%, but less than 100% of its "REIT taxable income", as adjusted, it will
be subject to tax thereon at regular ordinary and capital gain corporate tax
rates. Furthermore, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year; (ii) 95% of its REIT capital gain income for such year; and (iii) any
undistributed taxable income from prior periods, the Company will be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. The Company intends to make timely distributions
sufficient to satisfy this annual distribution requirement.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses; and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company. In the event that
such timing differences occur, in order to meet the 95% distribution
requirement, the Company may find it necessary to arrange for short-term, or
possibly long-term, borrowings to pay dividends in the form of taxable stock
dividends.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to shareholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be able
to avoid being taxed on amounts distributed as deficiency dividends; however,
the Company will be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distribution to shareholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. In such event, to the extent of current and accumulated
earnings and profits, all distributions to shareholders will be taxable as
ordinary income, and, subject to certain limitations of the Code, corporate
distributees may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, the Company will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. It is not possible to state whether in
all circumstances the Company would be entitled to such statutory relief.
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable domestic shareholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income and will not be eligible for the dividends
received deduction for corporations. Distributions that are designated as
capital gain dividends generally will be taxed as long-term capital gain (to the
extent they do not exceed the Company's actual net capital gain for the taxable
year) without regard to the period for which the shareholder has held its stock.
Distributions in excess of current and accumulated earnings and profits will not
be taxable to a shareholder to the extent that they do not exceed the adjusted
basis of the shareholder's shares, but rather will reduce the adjusted basis of
such shares. To the extent that such distributions exceed the adjusted basis of
a shareholder's shares, they will be
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included in income as long-term capital gain (or short-term capital gain if the
shares have been held for one year or less) assuming the shares are a capital
asset in the hands of the shareholder. For a discussion of how the Company
anticipates that initial distributions will be characterized, see
"Distributions." In addition, any shareholder of record on a specified date in
any such month shall be treated as both paid by the Company and received by the
shareholder on December 31 of such year provided that the dividend is actually
paid by the Company during January of the following calendar year. Shareholders
may not include in their individual income tax returns any net operating losses
or capital losses of the Company.
In general, any loss upon a sale or exchange of shares by a shareholder who
has held such shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such shareholder as
long-term capital gain.
BACKUP WITHHOLDING
The Company will report to its domestic shareholders and the Service the
amount of dividends paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to dividends paid
unless such holder (a) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or (b) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A shareholder that does not provide the Company with his
correct taxpayer identification number may also be subject to penalties imposed
by the Service. Any amount paid as backup withholding will be creditable against
the shareholder's income tax liability. In addition, the Company may be required
to withhold a portion of capital gain distributions made to any shareholders who
fail to certify their non-foreign status to the Company. See "-- Taxation of
Foreign Shareholders."
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from federal income taxation. However, they are subject to
taxation on their unrelated business taxable income ("UBTI"). While many
investments in real estate generate UBTI, the Service has issued a published
ruling that dividend distributions by a REIT to an exempt employee pension trust
do not constitute UBTI, provided that the shares of the REIT are not otherwise
used in an unrelated trade or business of the exempt employee pension trust.
Based on that ruling, amounts distributed by the Company to Exempt Organizations
generally should not constitute UBTI. However, if an Exempt Organization
finances its acquisition of the Common Shares with debt, a portion of its income
from the Company will constitute UBTI pursuant to the "debt-financed property"
rules. Furthermore, social clubs, voluntary employee benefit associations,
supplemental unemployment benefit trusts, and qualified group legal services
plans that are exempt from taxation under paragraphs (7), (9), (17), and (20),
respectively, of Code Section 501(c) are subject to different UBTI rules, which
generally will require them to characterize distributions from the Company as
UBTI.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" shall be treated as UBTI as to any trust which (i) is
described at Section 401(a) of the Code, (ii) tax exempt under Section 501(a) of
the Code and (iii) holds more than 10% (by value) of the interests in the REIT.
Tax exempt pension funds that are described in Section 401(a) of the Code are
referred to below as "qualified trusts."
A REIT is a "pension held REIT" if (i) it would not have qualified as a
REIT but for the fact that Section 856(h)(3) of the Code provides that stock
owned by qualified trusts shall be treated, for purposes of the "not closely
held" requirement, as owned by the beneficiaries of the trust rather than by the
trust itself and (ii) either (a) at least one such qualified trust holds more
than 25% (by value) of the interest in the REIT, or (b) one or more of such
qualified trusts, each of which owns more than 10% (by value) of the interests
in the REIT, hold in the aggregate more than 50% (by value) of the interests in
the REIT. The percentage of any REIT dividend treated as UBTI is equal to the
ratio of (i) the UBTI earned by the REIT (treating the REIT
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as if it were a qualified trust and therefore subject to tax on UBTI) to (ii)
the total gross income of the REIT. A de minimis exception applies where the
percentage is less than 5% for any year. The provisions requiring qualified
trusts to treat a portion of REIT distributions as UBTI will not apply if the
REIT is able to satisfy the "not closely held" requirement without relying upon
the look through exception with respect to qualified trusts. As a result of
certain limitations on transfer and ownership of Common Shares contained in the
Declaration of Trust, the Company does not expect to be classified as a "pension
held REIT."
While an investment in the Company by an Exempt Organization generally is
not expected to result in UBTI except in the circumstances described herein, any
gross UBTI that does arise from such an investment will be combined with all
other gross UBTI of the Exempt Organization for a taxable year and reduced by
all deductions attributable to the UBTI plus $1,000. Any amount then remaining
will constitute UBTI on which the Exempt Organization will be subject to tax. If
the gross income taken into account in computing UBTI exceeds $1,000, the Exempt
Organization is obligated to file a tax return for such year on IRS Form 990-T.
Neither the Company, the Board of Trustees, nor any of their Affiliates expects
to undertake the preparation for filing of IRS Form 990-T for any Exempt
Organization in connection with an investment by such Exempt Organization in the
Common Shares. Generally, IRS Form 990-T must be filed with the Service by April
15 of the year following the year to which it relates.
TAXATION OF FOREIGN SHAREHOLDERS
The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex and no attempt
will be made herein to provide more than a summary of such rules. Prospective
Non-U.S. Shareholders should consult with their own tax advisors to determine
the impact of federal, state and local income tax laws with regard to an
investment in shares, including any reporting requirements.
Distributions by the Company that are neither attributable to gain from
sales or exchanges by the Company of United States real property interests nor
designated by the Company as capital gains dividends will be treated as
dividends of ordinary income to the extent that they are made out of current or
accumulated earnings and profits of the Company. Such distributions, ordinarily,
will be subject to a withholding tax equal to 30% of the gross amount of the
distribution unless an applicable tax treaty reduces or eliminates that tax.
However, if income from the investment in the shares is treated as effectively
connected with the conduct by the Non-U.S. Shareholder of a United States trade
or business, the Non-U.S. Shareholder generally will be subject to a tax at
graduated rates, in the same manner as U.S. Shareholders are taxed with respect
to such dividends (and may also be subject to the 30% branch profits tax in the
case of a shareholder that is a foreign corporation). The Company expects to
withhold United States income tax at the rate of 30% on the gross amount of any
such dividends made to a Non-U.S. Shareholder unless (i) a lower treaty rate
applies; or (ii) the Non-U.S. Shareholder files the Service's Form 4224 with the
Company certifying that the investment to which the distribution relates is
effectively connected to a United States trade or business of such Non-U.S.
Shareholder. Lower treaty rates applicable to dividend income may not
necessarily apply to dividends from a REIT such as the Company, however.
Distributions in excess of current and accumulated earnings and profits of the
Company will not be taxable to a shareholder to the extent that they do not
exceed the adjusted basis of the shareholder's shares, but rather will reduce
the adjusted basis of such shares. To the extent that such distributions exceed
the adjusted basis of a Non-U.S. Shareholder's shares, they will give rise to
gain from the sale or exchange of his shares, the tax treatment of which is
described below. If it cannot be determined at the time a distribution is made
whether or not such distribution will be in excess of current and accumulated
earnings and profits, the distributions will be subject to withholding at the
same rate applicable to dividends. However, amounts thus withheld are refundable
if it is subsequently determined that such distribution was, in fact, in excess
of current and generally accumulated earnings and profits of the Company. For a
discussion of how the Company anticipates that initial distributions will be
characterized, see "Distributions."
Distributions that are designated by the Company at the time of
distribution as capital gains dividends (other than those arising from the
disposition of a United States real property interest) generally will not be
subject to taxation, unless (i) investment in the shares is effectively
connected with the Non-U.S. Shareholder's United States trade or business, in
which case the Non-U.S. Shareholder will be subject to the
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same treatment as U.S. shareholders with respect to such gain (except that a
shareholder that is a foreign corporation may also be subject to the 30% branch
profits tax); or (ii) the Non-U.S. Shareholder is a nonresident alien individual
who was present in the United States for 183 days or more during the taxable
year and has a "tax home" in the United States, in which case the nonresident
alien individual will be subject to a 30% tax on the individual's capital gains.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of United States
real property interests will be taxed to a Non-U.S. Shareholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980, as
amended ("FIRPTA"). Under FIRPTA, these distributions are taxed to a Non-U.S.
Shareholder as if such gain were effectively connected with a United States
trade or business. Non-U.S. Shareholders would thus be taxed at the same capital
gain rates applicable to U.S. shareholders (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals). Also, distributions subject to FIRPTA may be subject to a
30% branch profits tax in the hands of a foreign corporate shareholder not
entitled to treaty exemption. The Company is required by applicable Treasury
Regulations to withhold 34% of any distribution attributable to the disposition
of a United States real property interest. This amount is creditable against the
Non-U.S. Shareholder's United States federal income tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale or other disposition
of shares generally will not be subject to United States federal income tax if
the Company is a "domestically controlled REIT", defined generally as a REIT in
which at all times during a specified testing period less than 50% in value of
the stock was held directly or indirectly by foreign persons. It is currently
anticipated that the Company will be a "domestically controlled REIT", and
therefore the sale of shares will not be subject to taxation under FIRPTA.
However, gain not subject to FIRPTA will be taxable to a Non-U.S. Shareholder if
(i) investment in the shares is effectively connected with the Non-U.S.
Shareholder's United States trade or business, in which case the Non-U.S.
Shareholder will be subject to the same treatment as U.S. shareholders with
respect to such gain (except that a shareholder that is a foreign corporation
may also be subject to the 30% branch profits tax); or (ii) the Non-U.S.
Shareholder is a nonresident alien individual who was present in the United
States for 183 days or more during the taxable year and has a "tax home" in the
United States, in which case the nonresident alien individual will be subject to
a 30% tax on the individual's capital gains. If the Company is not a
"domestically controlled REIT," the Non-U.S. Shareholder will be subject to the
same treatment as U.S. shareholders with respect to such gain (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals and, in the case of foreign corporations,
subject to the possible applications of the 30% branch profits tax).
The United States Treasury has recently issued proposed Treasury
Regulations regarding withholding and information reporting rules discussed
above. In general, the proposed Treasury Regulations do not alter the
substantive withholding and information reporting requirements but unify current
certification procedures and forms and clarify and modify reliance standards. If
finalized in their current form, the proposed Treasury Regulations would
generally be effective for payments made after December 31, 1997, subject to
certain transition rules.
OTHER TAX CONSEQUENCES
The Company and its shareholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its shareholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective shareholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Company.
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ERISA CONSIDERATIONS
The following is intended to be a summary only and is not a substitute for
careful planning with a professional. Employee benefit plans subject to ERISA
and other sections of the Code considering purchasing the Common Shares should
consult with their own tax or other appropriate counsel regarding the
application of ERISA and the Code to their purchase of the Common Shares. Plans
should also consider the entire discussion under the heading of "Material
Federal Income Tax Considerations", as material contained therein is relevant to
any decision by a Plan to purchase the Common Shares.
Certain employee benefit plans and IRAs (collectively, "Plans"), are
subject to various provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and the Code. Before investing in the Common Shares
of the Company, a Plan fiduciary should ensure that such investment is in
accordance with ERISA's general fiduciary standards. In making such a
determination, a Plan fiduciary should ensure that the investment is in
accordance with the governing instruments and the overall policy of the Plan,
and that the investment will comply with the diversification and composition
requirements of ERISA. In addition, provisions of ERISA and the Code prohibit
certain transactions in Plan assets that involve persons who have specified
relationships with a Plan ("disqualified persons"). The consequences of such
prohibited transactions include the imposition of excise taxes,
disqualifications of IRAs and other liabilities. A Plan fiduciary should ensure
that any investment in the Common Shares will not constitute such a prohibited
transaction.
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UNDERWRITING
Pursuant to the Underwriting Agreement, and subject to the terms and
conditions thereof, the Underwriters named below, acting through J.C. Bradford &
Co., Legg Mason Wood Walker, Incorporated, Lehman Brothers Inc., PaineWebber
Incorporated and Stephens Inc., as representatives of the several Underwriters
(the "Representatives"), have agreed, severally, to purchase from the Company
the number of Common Shares set forth below opposite their respective names:
<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER SHARES
- ------------------- ----------
<S> <C>
J.C. Bradford & Co..........................................
Legg Mason Wood Walker, Incorporated........................
Lehman Brothers Inc.........................................
PaineWebber Incorporated....................................
Stephens Inc................................................
----------
Total............................................. 17,000,000
==========
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions therein set forth, to purchase all Common Shares offered
hereby if any of such shares are purchased.
The Company has been advised by the Representatives that the Underwriters
propose initially to offer the Common Shares to the public at the public
offering price set forth on the cover page of this Prospectus, and to certain
dealers, who may include the Underwriters, at such public offering price less a
selling concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $
per share to certain other brokers or dealers. After the Offering, the public
offering price and the concession to certain dealers and the reallowances may be
changed by the Representatives. The Representatives have informed the Company
that the Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
The offering of the Common Shares is made for delivery when, as, and if
accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation, or modification of the offer without notice. The Underwriters
reserve the right to reject any order for the purchase of the shares.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of the effectiveness of the Offering, to
purchase up to 2,550,000 Common Shares to cover over-allotments, if any. To the
extent the Underwriters exercise this option, each of the Underwriters will have
a firm commitment to purchase approximately the same percentage thereof that the
number of Common Shares to be purchased by it shown in the table above bears to
the total number of shares in such table, and the Company will be obligated,
pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the Common Shares offered hereby. If purchased, the
Underwriters will sell these additional shares on the same terms as those on
which the shares are being offered.
The Company will pay an advisory fee equal to 0.50% of the gross proceeds
of the Offering (including any exercise of the Underwriters' over-allotment
option) to J.C. Bradford & Co. for advisory services in connection with the
evaluation, analysis and structuring of the Company's formation and the
Offering.
Subject to applicable limitations, the Underwriters, in connection with the
Offering, may place bids for or make purchases of the Common Shares in the open
market or otherwise, for long or short account, or cover short positions
incurred, to stabilize, maintain, or otherwise affect the price of the Common
Shares, which might be higher than the price that otherwise might prevail in the
open market. There can be no assurance that the price of the Common Shares will
be stabilized, or that stabilizing, if commenced, will not be discontinued at
any time. Subject to applicable limitations, the Underwriters may also place
bids or make purchases on behalf of the underwriting syndicate to reduce a short
position created in connection with the Offering.
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The Underwriting Agreement provides that the Company will indemnify the
Underwriters and their controlling persons, if any, against certain liabilities,
including liabilities under the Securities Act, or will contribute to payments
that the Underwriters or any such controlling persons may be required to make in
respect thereto.
The Company has agreed with the Representatives for a period of 180 days
after the consummation of the Offering, subject to certain exceptions, not to
offer to sell, contract to sell, or otherwise sell, dispose of, or grant any
rights with respect to any Common Shares, any options or warrants to purchase
any Common Shares, or any securities convertible into or exchangeable for Common
Shares other than the Company's sales of shares in the Offering and the
Company's issuance of options and shares under the Share Incentive Plan, without
the prior written consent of J.C. Bradford & Co. In addition, certain affiliates
of the Company have agreed that, for a period of 24 months following the
completion of the Offering, they and their affiliates will not, without prior
written consent of J.C. Bradford & Co., subject to certain exceptions, issue,
sell, contract to sell, or otherwise dispose of, any Common Shares, any options
or warrants to purchase any Common Shares or any securities convertible into,
exercisable for or exchangeable for Common Shares. J.C. Bradford & Co. may, in
its sole discretion and at any time without notice, release all or any portion
of the securities subject to lock-up agreements.
The Company intends to apply for listing of the Common Shares on the NYSE.
Prior to the Offering, however, there has been no public market for the Common
Shares. The initial public offering price will be determined through
negotiations among the Company and the Representatives. Among the factors to be
considered in such negotiations will be the prevailing market conditions, the
expected results of operations of the Company, evaluation of the Initial
Facilities and the Option Facilities, estimates of the business potential and
earnings prospects of the Company, the current state of the Company's industry
and the economy as a whole. The evaluation of the Initial Facilities and the
Option Facilities will be based on an evaluation of CCA's operation of the
Facilities as a whole rather than the valuation of individual properties. The
initial public offering price to be set forth on the cover page of this
Prospectus should not, however, be considered an indication of the actual value
of the Common Shares. Such price is subject to change as a result of market
conditions and other factors.
EXPERTS
The audited financial statements of CCA for each of the three years in the
period ended December 31, 1996 and the audited balance sheet of the Company as
of April 23, 1997, which are included in this Prospectus, have been included in
reliance on the reports of Arthur Andersen LLP, independent public accountants,
given on the authority of that firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Common Shares offered hereby will be passed upon for
the Company by Stokes & Bartholomew, P.A., Nashville, Tennessee, and certain
legal matters will be passed upon for the Underwriters by Bass, Berry & Sims
PLC, Nashville, Tennessee. Stokes & Bartholomew, P.A. and Bass, Berry & Sims PLC
will rely as to all matters of Maryland law on the opinion Miles & Stockbridge,
a Professional Corporation, Baltimore, Maryland. Certain matters relating to the
purchase and leasing of the Facilities will be passed upon for the Company by
Sherrard & Roe, PLC, Nashville, Tennessee. In addition, the description of
federal income tax consequences contained in this Prospectus entitled "Material
Federal Income Tax Considerations" is based upon the opinion of Stokes &
Bartholomew, P.A., tax counsel to the Company. In addition to providing services
to the Company, Stokes & Bartholomew, P.A. also provides legal services to CCA,
including in connection with certain of the Formation Transactions. Samuel W.
Bartholomew, Jr., a shareholder of Stokes & Bartholomew, P.A., is a director of
CCA.
89
<PAGE> 95
GLOSSARY
Unless the context otherwise requires, the following capitalized terms
shall have the meanings set forth below for the purposes of this Prospectus:
"ADA" means the Americans with Disabilities Act of 1990, as amended.
"Audit Committee" means the committee to be established by the Board
of Trustees to make recommendations concerning the Company's accounting
practices, including the engagement and review of independent public
accountants.
"Bank Credit Facility" means the line of credit for which the Company
anticipates that it will obtain, which will be utilized primarily to fund
the acquisition or expansion of additional correctional facilities.
"CCA" means Corrections Corporation of America, a Delaware
corporation.
"Base Rent" means the fixed base rent payable under the Leases.
"Base Rent Escalation" means, for any year, the increase in minimum
rent equal to a percentage of the rent applicable to a particular property
for the preceding year which percentage is the greater of (i) 4% or (ii)
the percentage which is 25% of the percentage increase in the gross
management revenues realized by CCA from such leased property exclusive of
any increase attributable to expansion in the size of or number of beds in
such property.
"Beneficiary" means one or more charitable organizations that are
designated by the Company as the beneficiary of a Share Trust.
"Board of Trustees" means the Board of Trustees of the Company.
"Built-in Gain" means the difference between the fair market value and
the adjusted basis of a Built-In Gain Asset.
"Built-in Gain Asset" means an asset acquired by the Company in
certain transactions from a corporation which is or has been a C
Corporation.
"Business Combinations" means any business combination as defined in
the Declaration of Trust.
"Bylaws" means the bylaws of the Company, as amended.
"Cash Available for Distribution" means net income (loss) computed in
accordance with generally accepted accounting principles of the Company
plus depreciation and amortization minus capital expenditures and principal
payments on indebtedness.
"Capital Addition" means construction or other capital improvements to
a particular property which is leased between the Company as landlord and
CCA as tenant.
"Change of Control" with respect to the Company means the acquisition
of 20% or more of the combined voting power of the Company by a person or
group.
"Change of Control" with respect to CCA means, for purposes of the
Leases, any of the following transactions (individually, a "Transaction"):
(i) the issuance and/or sale by CCA or the sale by any shareholder of CCA
of a controlling interest in CCA to a person or entity other than an
affiliate of CCA, other than in either case a distribution to the public
pursuant to an effective registration statement under the Securities Act of
1933, as amended (a "Registered Offering"); (ii) the sale, conveyance or
other transfer of all or substantially all of the assets of CCA (whether by
operation of law or otherwise); (iii) any other transaction, or series of
transactions, which results in the affiliates of CCA no longer having
control of CCA (other than through a Registered Offering); or (iv) any
transaction pursuant to which CCA is merged with or consolidated into
another entity (other than an entity owned and controlled by an affiliate
of CCA), and CCA is not the surviving entity.
"Code" means Internal Revenue Code of 1986, as amended.
90
<PAGE> 96
"Compensation Committee" means the committee to be established by the
Board of Trustees to determine compensation for the Company's executive
officers.
"Commission" means the Securities and Exchange Commission.
"Common Shares" means the Common Shares, par value $0.01 per share, of
the Company.
"Company" means CCA Prison Realty Trust, a Maryland real estate
investment trust.
"Company Mortgagee" means any holder of a mortgage, deed of trust or
other security agreement on a Leased Property.
"Coverage Ratio" means the ratio of CCA's net operating income to
CCA's lease payment.
"Declaration of Trust" means the Declaration of Trust of the Company.
"Disqualified Persons" means those persons who have specified
relationships with Plans.
"Environmental Law" means any federal, state or local law, ordinance,
regulation, order or decree relating to the protection of human health or
the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" means an event which constitutes a default under
the Leases between the Company as landlord and CCA as tenant.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Extended Terms" means the options to extend the term of each Lease at
fair market rates for three five-year periods upon the mutual agreement of
the parties.
"Facility" or "Facilities" means the Initial Facilities and the Option
Facilities, including the land, buildings and other improvements, that are
the subject of leases between the Company as landlord and CCA as tenant.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of
1980, as amended.
"Fixed Term" means the primary term of each Lease which shall be for a
term ranging form 10 to 12 years.
"Formation Transaction" means the series of transactions described in
"The Formation Transactions" in this Prospectus.
"Funds from Operations" means income before minority interest
(computed in accordance with generally accepted accounting principles),
excluding gains (losses) from debt restructuring and sales of property and
real estate related depreciation and amortization (excluding amortization
of financing costs).
"Future Facility" means any correctional or detention facility
acquired or developed by the Company in the future.
"Independent Committee" means the independent committee of the Board
of Trustees, consisting of the seven Independent Trustees.
"Independent Trustees" means the trustees who are not employed by the
Company and who are unaffiliated with CCA.
"Initial Facilities" means the nine correctional and detention
facilities which the Company will purchase from CCA pursuant to the
Purchase Agreement.
"IRAs" means individual retirement accounts and individual retirement
annuities.
"Leases" or "Lease" means the leases between the Company as landlord
and CCA as tenant with respect to the Initial Facilities.
91
<PAGE> 97
"Leased Property" means the Company's rights and interest in and to
each Facility, including land, buildings and improvements, related
easements and rights, and fixtures and certain personal property located at
each Facility.
"Look through rule" means the ERISA rule providing that in certain
circumstances where a Plan holds an interest in an entity, the assets of
the entity are deemed to be the Plan's assets.
"Market Price" means the last reported sales price of the Common
Shares or Preferred Shares reported on the New York Stock Exchange on the
trading day immediately preceding the relevant date, or if such stock is
not then traded on the New York Stock Exchange, the last reported sales
price of such stock on the trading day immediately preceding the relevant
date as reported on any exchange or quotation system over which such stock
may be traded, or if such stock is not then traded over any exchange or
quotation system, then the market price of such stock on the relevant date
as determined in good faith by the Board of Trustees.
"Master Lease" means the lease agreement between the Company as
landlord and CCA as tenant.
"MGCL" means the Maryland General Corporation Law.
"Noncompetition Agreement" means the noncompetition agreement between
CCA and the Company.
"Non-U.S. Shareholders" means nonresident alien individuals, foreign
corporations, foreign partnerships and other foreign shareholders.
"Offering" means the offering of Common Shares of the Company,
pursuant to this Prospectus.
"Offering Price" means the initial public offering price of the Common
Shares, estimated to be $20.00 per share.
"Option Agreements" means the agreements between CCA and the Company
pursuant to which the Company will have an option (for a period of three
years from the closing of the purchase of the Initial Facilities) to
purchase any or all of the five Option Facilities.
"Option Facilities" means the five correctional and detention
facilities which the Company has the option to purchase pursuant to the
Option Agreements.
"Ownership Limit" means the direct or constructive ownership by any
shareholder or group of affiliated shareholders of more than 9.8% of the
outstanding Common Shares or more than 9.8% of the outstanding Preferred
Shares.
"Ownership Limit Provision" means the provision of the Declaration of
Trust that prohibits the direct or constructive ownership by any
shareholder or group of affiliated shareholders of more than 9.8% of the
outstanding Common Shares or more than 9.8% of the Preferred Shares.
"Plan" means the Company's share incentive plan.
"Preferred Shares" means preferred shares, par value $0.01 per share,
of the Company.
"Prohibited Owner" means who would be record owner of Common Shares or
Preferred Shares but for the ownership limitations set forth in the
Declaration of Trust.
"Purchase Agreement" means the agreement between CCA and the Company
pursuant to which CCA will sell the nine Initial Facilities to the Company.
"Recognition Period" means the recognition period pertaining to
Built-in Gain as defined pursuant to Treasury Regulations to be issued
under Section 337(d) of the Code.
"REIT" means real estate investment trust as defined in Section 856 of
the Code.
"Related Party Tenant" means a tenant of a REIT in which the REIT, or
an owner of 10% or more of the REIT, directly or constructively owns a 10%
or greater ownership interest.
92
<PAGE> 98
"Rent" means rents paid by CCA pursuant to the Leases.
"Right to Purchase Agreement" means the agreement between CCA and the
Company whereby the Company has an option to acquire certain future
facilities of CCA and whereby the Company will have a right of first
refusal in the event CCA obtains an acceptable offer to acquire or provide
first mortgage financing for any correctional or detention facility.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Service" means the Internal Revenue Service.
"Service Commencement Date" means the date CCA first receives inmates
at a facility.
"Share Trust" means any separate trust created pursuant to the
Declaration of Trust to hold Shares-in-Trust for the benefit of the
Beneficiary.
"Share Trustee" means any person or entity unaffiliated with both the
Company and any Prohibited Owner which is designated by the Company to
serve as trustee of the Share Trust.
"Shares-in-Trust" means Common Shares or Preferred Shares designated
as Shares-in-Trust pursuant to the Declaration of Trust, which is held in
trust by the Share Trustee for the benefit of the Beneficiary.
"Treasury Regulations" means existing, temporary and currently
proposed Treasury regulations that have been promulgated under the Code.
"Trustees' Plan" means the Company's non-employee trustee share option
plan.
"UBTI" means "unrelated business taxable income" as defined in Section
512(a) of the Code.
93
<PAGE> 99
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CCA PRISON REALTY TRUST
FINANCIAL STATEMENTS
Report of Independent Public Accountants............... F-2
Balance Sheet as of April 23, 1997..................... F-3
Notes to Balance Sheet................................. F-4
CCA PRISON REALTY TRUST
PRO FORMA FINANCIAL STATEMENTS
Pro Forma Statement of Operations for the year ended
December 31, 1996..................................... 32
Pro Forma Balance Sheet at December 31, 1996........... 33
CORRECTIONS CORPORATION OF AMERICA
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet as of December 31, 1996..... F-6
Consolidated Statement of Operations for the year ended
December 31, 1996..................................... F-8
CORRECTIONS CORPORATION OF AMERICA CONSOLIDATED FINANCIAL
STATEMENTS
Report of Independent Public Accountants............... F-9
Consolidated Balance Sheets as of December 31, 1996 and
1995.................................................. F-10
Consolidated Statements of Operations for the years
ended December 31, 1996, 1995 and 1994................ F-11
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994................ F-12
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1995 and 1994.......... F-14
Notes to the Consolidated Financial Statements......... F-15
</TABLE>
F-1
<PAGE> 100
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CCA Prison Realty Trust:
We have audited the accompanying balance sheet of CCA Prison Realty Trust
(a Maryland real estate investment trust) as of April 23, 1997. This financial
statement is the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. 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 audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of CCA Prison Realty Trust as of April
23, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
April 23, 1997
F-2
<PAGE> 101
CCA PRISON REALTY TRUST
(A MARYLAND REAL ESTATE INVESTMENT TRUST)
BALANCE SHEET
APRIL 23, 1997
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents................................... $1,000
======
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders' equity:
Preferred shares, $.01 par value; 10,000,000 shares
authorized;
none outstanding....................................... $ --
Common shares, $.01 par value; 90,000,000 shares
authorized;
1,000 shares issued and outstanding.................... 1,000
------
$1,000
======
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-3
<PAGE> 102
CCA PRISON REALTY TRUST
(A MARYLAND REAL ESTATE INVESTMENT TRUST)
NOTES TO BALANCE SHEET
APRIL 23, 1997
1. ORGANIZATION
CCA Prison Realty Trust (the "Company") was formed April 23, 1997 as a
Maryland real estate investment trust. The Company has had no operations to date
but has issued 1,000 Common Shares to a founding shareholder.
2. FEDERAL INCOME TAXES
At the earliest possible date, the Company plans to qualify as a real
estate investment trust ("REIT") under the Internal Revenue Code and,
accordingly, will not be subject to federal income taxes on amounts distributed
to shareholders provided that it distributes at least 95% of its real estate
investment trust taxable income and meets certain other requirements.
3. PREFERRED SHARES
No preferred shares are outstanding. Preferred shares may be issued from
time to time without shareholder approval with terms and conditions established
by the Board of Trustees of the Company.
4. INTENTIONS OF THE COMPANY (UNAUDITED)
The Company has announced its intention to sell 17,000,000 Common Shares in
an initial public offering. Immediately after the closing of the Offering, the
Company intends to consummate the following transactions with Corrections
Corporation of America ("CCA"): (a) purchase of nine correctional and detention
facilities for $308.1 million and enter into triple net leases with CCA for
original fixed terms of 10 to 12 years with renewal terms upon the mutual
agreement of both parties for three additional five-year terms, (b) option
agreements to purchase an additional five correctional and detention facilities
at a total estimated purchase price of $193.0 million with similar leaseback
terms, (c) trade name and noncompetition agreements between the Company and CCA,
and (d) an agreement that provides the Company a right to purchase other
facilities from CCA.
The Company will be dependent on CCA for its initial revenues. Also, due to
the nature of the business and the contractual relationships with CCA, including
the operating leases, the Company's ability to be successful is dependent on a
number of factors, including key personnel, continuing qualification as a REIT
and continued availability of financial resources.
F-4
<PAGE> 103
CORRECTIONS CORPORATION OF AMERICA
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following pro forma consolidated financial statements represent the
unaudited pro forma financial results for CCA as of December 31, 1996 and the
year ended December 31, 1996. The Pro Forma Consolidated Statements of
Operations is presented as if the Formation Transactions had occurred as of the
beginning of the period indicated and incorporates certain assumptions that are
included in the Notes to Pro Forma Consolidated Statements of Operations. The
Pro Forma Consolidated Balance Sheet is presented as if the Formation
Transactions had occurred on December 31, 1996. The pro forma information does
not purport to represent what CCA's financial position or results of operations
actually would have been had the Formation Transactions, in fact, occurred on
such date or at the beginning of the period indicated, or to project CCA's
financial position or results of operations at any future date or any future
period.
F-5
<PAGE> 104
CORRECTIONS CORPORATION OF AMERICA
PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash, cash equivalents and restricted cash............. $ 8,282 $ 299,603(a) $247,156
(61,316)(c)
587(d)
Accounts receivable, net of allowances................. 100,551 100,551
Other.................................................. 5,609 5,609
-------- --------
Total current assets......................... 114,442 353,316
-------- --------
Property and equipment................................. 314,464 (170,549)(a) 143,915
Accumulated depreciation............................... (25,767) 11,821(a) (13,946)
-------- --------
Property and equipment, net.................. 288,697 129,969
-------- --------
Restricted investments................................. 587 (587)(d) 0
Notes receivable....................................... 22,859 22,859
Other assets........................................... 29,405 3,156(b)(c) 32,561
Investment in direct financing leases.................. 12,898 12,898
-------- --------- --------
Total assets................................. $468,888 $ 82,715 $551,603
======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt...................... $ 8,281 $ (8,281)(c) $ 0
Accounts payable....................................... 39,224 39,224
Other accrued expenses................................. 16,389 8,523(b) 24,912
-------- --------
Total current liabilities.................... 63,894 64,136
-------- --------
Long-term debt:
Revolving line of credit............................. 4,000 (4,000)(c) 0
Notes payable, less current portion.................. 49,035 (49,035)(c) 0
Convertible subordinated notes....................... 64,500 64,500
-------- --------
Total long-term debt......................... 117,535 64,500
-------- --------
Deferred tax liabilities............................... 4,717 (4,717)(b) 0
Deferred gain on sale of Facilities.................... 0 140,225(a) 140,225
Other noncurrent liabilities........................... 990 990
Total stockholders' equity............................. 281,752 281,752
-------- --------- --------
Total liabilities and stockholders' equity... $468,888 $ 82,715 $551,603
======== ========= ========
</TABLE>
F-6
<PAGE> 105
CORRECTIONS CORPORATION OF AMERICA
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
The Company's anticipated transactions, reflected on a pro form basis, as
if the transactions had occurred on December 31, 1996, are as follows:
(a) To record the sale of the nine Initial Facilities to CCA Prison
Realty Trust for $308.1 million. The Facilities' net book value of $158.7
million and other costs of the sale result in a total deferred gain of
$140.2 million which will be amortized over the lives of the leases entered
into coincident with the sale. Prepayment obligations, the reduction in
unamortized loan costs incurred as a result of the retirement of certain
debt obligations and certain other costs of the sale reduced the deferred
gain on the sale.
(b) To record current liabilities and deferred tax assets for the
future recognition of the gain and related taxes over the lives of the
Initial Facility leases. An effective tax rate of 39% is assumed on the
deferred gain.
(c) To record the retirement of debt and reduction of unamortized debt
costs as a result of the sale of the nine Initial Facilities.
(d) Cash no longer restricted due to the early repayment of related
debt is reclassified to current assets.
(e) CCA plans to account for the Leases of the nine Initial Facilities
as operating leases.
F-7
<PAGE> 106
CORRECTIONS CORPORATION OF AMERICA
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
------------------------------------
ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:.................................................. $292,513 $ 0 $292,513
Costs and expenses:
Operating................................................ 213,173 14,302(a) 227,475
General and administrative............................... 13,428 (86)(d) 13,342
Depreciation and amortization............................ 11,339 (2,331)(b) 9,008
-------- ------- --------
Operating income........................................... 54,573 (11,885) 42,688
Interest expense, net.................................... 4,224 (3,772)(c) 452
-------- ------- --------
Income before income taxes................................. 50,349 (8,113) 42,236
Provision for income taxes............................... 19,469 (5,920)(e) 13,549
-------- ------- --------
Net income................................................. 30,880 (2,193) 28,687
Preferred stock dividends................................ 0 0 0
-------- ------- --------
Net income allocable to common stockholders................ $ 30,880 $(2,193) $ 28,687
======== ======= ========
Net income per common share:
Primary.................................................. $ 0.38 $ (0.03) $ 0.35
Fully-diluted............................................ $ 0.36 $ (0.02) $ 0.34
Weighted average common shares outstanding................. 81,664 81,664 81,664
</TABLE>
The Company's anticipated transactions, reflected on a pro forma basis, as
if the transactions had occurred on January 1, 1996, are as follows:
(a) To record rent expense, net of the amortized gain on the sale of
the Initial Facilities. Actual results of operations as reported do not
include a full year of earnings for certain Initial Facilities with
increased capacity becoming operational during 1996 and one facility
opening during 1996; accordingly, the lease payments and deferred gain
amortization have been reduced by $11.0 million and $4.3 million,
respectively. The additional expenses also reflect an amount expected to be
expended by CCA each year to maintain the facilities according to the lease
requirements.
(b) To reduce depreciation expense on facilities sold.
(c) To reduce interest expense on debt no longer outstanding as a
result of the sale of facilities.
(d) To record a reduction in state franchise taxes based upon the sale
of the facilities.
(e) To adjust income tax expense to the expected effective tax rate.
(f) The pro forma income statement has not provided for interest
income on the cash balances expected as a result of the sale of the
facilities. Assuming a return on investment of 5%, average cash balances on
hand after the sale, payment of related taxes, payment of monthly lease
payments, and debt retirement would yield interest income of $7,166 for the
year ended December 31, 1996.
(g) CCA plans to account for the Leases of the nine Initial Facilities
as operating leases.
F-8
<PAGE> 107
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Corrections Corporation of America and Subsidiaries:
We have audited the accompanying consolidated balance sheets of CORRECTIONS
CORPORATION OF AMERICA AND SUBSIDIARIES as of December 31, 1996 and 1995, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Corrections Corporation of
America and Subsidiaries as of December 31, 1996 and 1995, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
February 18, 1997
F-9
<PAGE> 108
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, cash equivalents and restricted cash................ $ 8,282 $ 2,714
Accounts receivable, net of allowances.................... 100,551 39,661
Prepaid expenses.......................................... 2,940 1,569
Deferred tax assets....................................... 1,026 1,646
Other..................................................... 1,643 1,020
-------- --------
Total current assets.............................. 114,442 46,610
-------- --------
RESTRICTED INVESTMENTS...................................... 587 443
OTHER ASSETS................................................ 29,405 18,752
PROPERTY AND EQUIPMENT, NET................................. 288,697 137,019
NOTES RECEIVABLE............................................ 22,859 890
INVESTMENT IN DIRECT FINANCING LEASES....................... 12,898 9,764
-------- --------
$468,888 $213,478
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 39,224 $ 10,757
Accrued salaries and wages................................ 5,487 3,480
Accrued property taxes.................................... 1,675 1,623
Other accrued expenses.................................... 9,227 8,637
Current portion of long-term debt......................... 8,281 11,020
-------- --------
Total current liabilities......................... 63,894 35,517
-------- --------
LONG-TERM DEBT, NET OF CURRENT PORTION...................... 117,535 74,865
DEFERRED TAX LIABILITIES.................................... 4,717 4,164
OTHER NONCURRENT LIABILITIES................................ 990 2,228
-------- --------
Total liabilities................................. 187,136 116,774
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock -- $1 (one dollar) par value; 150,000 shares
authorized............................................. 75,029 64,540
Additional paid-in capital................................ 165,317 16,560
Retained earnings......................................... 42,132 15,641
Treasury stock, at cost................................... (726) (37)
-------- --------
Total stockholders' equity........................ 281,752 96,704
-------- --------
$468,888 $213,478
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-10
<PAGE> 109
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES................................................... $292,513 $207,241 $152,375
EXPENSES:
Operating................................................ 213,173 158,814 123,540
General and administrative............................... 13,428 14,288 9,413
Depreciation and amortization............................ 11,339 6,524 5,753
-------- -------- --------
OPERATING INCOME........................................... 54,573 27,615 13,669
INTEREST EXPENSE, NET...................................... 4,224 3,952 3,439
-------- -------- --------
INCOME BEFORE INCOME TAXES................................. 50,349 23,663 10,230
PROVISION FOR INCOME TAXES................................. 19,469 9,330 2,312
-------- -------- --------
NET INCOME................................................. 30,880 14,333 7,918
PREFERRED STOCK DIVIDENDS.................................. -- -- 204
-------- -------- --------
NET INCOME ALLOCABLE TO COMMON STOCKHOLDERS................ $ 30,880 $ 14,333 $ 7,714
======== ======== ========
NET INCOME PER COMMON SHARE:
Primary.................................................. $ .38 $ .19 $ .12
======== ======== ========
Fully diluted............................................ $ .36 $ .18 $ .12
======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING................. 81,664 75,110 61,908
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-11
<PAGE> 110
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 30,880 $ 14,333 $ 7,918
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................ 11,339 6,524 5,753
Deferred and other noncash income taxes.............. 13,117 6,162 878
Other noncash items....................................... 524 -- --
(Gain) loss on disposal of assets......................... (3,501) (1,284) 11
Equity in earnings of unconsolidated entities........ (1,098) (619) (422)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable.................................. (55,993) (12,750) (7,901)
Prepaid expenses..................................... (1,371) (18) (70)
Other current assets................................. (623) (87) (259)
Accounts payable..................................... 28,467 1,991 4,537
Accrued expenses..................................... 2,649 3,514 1,192
--------- -------- --------
Net cash provided by operating activities......... 24,390 17,766 11,637
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment....................... (165,703) (25,926) (24,891)
Acquisition of UCLP....................................... -- (5,250) --
Increase in restricted cash and investments............ (3,025) (619) (7)
Increase in other assets............................... (11,163) (8,500) (1,836)
Investment in affiliates, net.......................... (3,138) (3,717) (426)
Proceeds from disposals of assets......................... 6,747 3,763 25
Purchase of notes receivable.............................. (22,500) -- (900)
Increase in direct financing leases.................... (3,693) -- --
Payments received on direct financing leases and notes
receivable........................................... 553 328 286
--------- -------- --------
Net cash used in investing activities............. (201,922) (39,921) (27,749)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.................. 74,700 7,111 15,974
Payments on long-term debt................................ (24,443) (8,648) (14,159)
Payments on notes payable to stockholders.............. -- -- (403)
(Payments on) proceeds from line of credit, net........ (10,500) 13,715 270
Payment of debt issuance costs............................ (433) (260) --
Payments of dividends.................................. -- -- (291)
Proceeds from issuance of common stock.................... 131,006 7,859 10,571
Proceeds from exercise of stock options and warrants...... 9,889 868 1,137
Purchase of treasury stock and warrants................ -- (630) --
--------- -------- --------
Net cash provided by financing activities.............. 180,219 20,015 13,099
--------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 2,687 (2,140) (3,013)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 2,145 4,285 7,298
--------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 4,832 $ 2,145 $ 4,285
========= ======== ========
</TABLE>
F-12
<PAGE> 111
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amounts capitalized)................ $ 8,979 $ 5,145 $ 4,854
========= ======== ========
Income taxes......................................... $ 6,630 $ 3,060 $ 1,572
========= ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
The company entered into an international alliance and
equity participation which included the deferral of the
payment of certain issuance costs:
Other assets........................................... $ -- $ -- $ (3,488)
Other accrued expenses................................. -- -- 990
--------- -------- --------
Other noncurrent liabilities........................... -- -- 2,970
--------- -------- --------
Additional paid-in capital............................. -- -- (472)
--------- -------- --------
$ -- $ -- $ --
========= ======== ========
Long-term debt was converted into common stock through the
exercise of stock warrants:
Other assets........................................... $ -- $ 27 $ 9
Long-term debt......................................... -- (1,428) (357)
Common stock........................................... -- 400 100
Additional paid-in capital............................. -- 1,001 248
--------- -------- --------
$ -- $ -- $ --
========= ======== ========
Redeemable convertible preferred stock was converted into
common stock:
Other assets........................................... $ -- $ -- $ 290
Preferred stock........................................ -- -- (5,000)
Common stock........................................... -- -- 1,400
Additional paid-in capital............................. -- -- 3,310
--------- -------- --------
$ -- $ -- $ --
========= ======== ========
Long-term debt was converted into common stock:
Other assets........................................... $ -- $ 53 $ 26
Long-term debt......................................... -- (6,700) (3,000)
Common stock........................................... -- 887 419
Additional paid-in capital............................. -- 5,760 2,555
--------- -------- --------
$ -- $ -- $ --
========= ======== ========
The company acquired property and equipment by assuming
long-term debt:
Property and equipment................................. $ -- $(27,392) $ --
Long-term debt......................................... -- 27,392 --
--------- -------- --------
$ -- $ -- $ --
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-13
<PAGE> 112
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------
ISSUED TREASURY
---------------- ----------------
SHARES AMOUNT SHARES AMOUNT
------ ------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993.................................. 48,600 $48,600 (148) $ (340)
------ ------- ------ -------
Issuance of common stock.................................... 3,712 3,712 -- --
Stock options exercised and warrants converted to stock..... 3,432 3,432 70 33
Income tax benefits of incentive stock option exercises..... -- -- -- --
Conversion of long-term debt and preferred stock............ 3,636 3,636 -- --
Preferred stock dividends................................... -- -- -- --
Net income.................................................. -- -- -- --
------ ------- ------ -------
BALANCE, DECEMBER 31, 1994.................................. 59,380 59,380 (78) (307)
------ ------- ------ -------
Issuance of common stock.................................... 1,158 1,158 -- --
Stock options exercised and warrants repurchased or
converted to stock........................................ 2,228 2,228 74 270
Income tax benefits of incentive stock option exercises..... -- -- -- --
Conversion of long-term debt................................ 1,774 1,774 -- --
Net income.................................................. -- -- -- --
------ ------- ------ -------
BALANCE, DECEMBER 31, 1995.................................. 64,540 64,540 (4) (37)
------ ------- ------ -------
Issuance of common stock.................................... 3,700 3,700 -- --
Stock options exercised and warrants converted to stock..... 6,789 6,789 (19) (689)
Income tax benefits of incentive stock option exercises..... -- -- -- --
Compensation expense related to deferred stock awards....... -- -- -- --
Net income.................................................. -- -- -- --
------ ------- ------ -------
BALANCE, DECEMBER 31, 1996.................................. 75,029 $75,029 (23) $ (726)
====== ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL RETAINED TOTAL
PAID-IN EARNINGS STOCKHOLDERS'
CAPITAL (DEFICIT) EQUITY
---------- --------- -------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1993.................................. $(10,780) $(3,298) $ 34,182
-------- ------- --------
Issuance of common stock.................................... 6,387 -- 10,099
Stock options exercised and warrants converted to stock..... (1,430) (550) 1,485
Income tax benefits of incentive stock option exercises..... 593 -- 593
Conversion of long-term debt and preferred stock............ 4,048 -- 7,684
Preferred stock dividends................................... -- (204) (204)
Net income.................................................. -- 7,918 7,918
-------- ------- --------
BALANCE, DECEMBER 31, 1994.................................. (1,182) 3,866 61,757
-------- ------- --------
Issuance of common stock.................................... 7,184 -- 8,342
Stock options exercised and warrants repurchased or
converted to stock........................................ 1,699 (2,558) 1,639
Income tax benefits of incentive stock option exercises..... 3,987 -- 3,987
Conversion of long-term debt................................ 4,872 -- 6,646
Net income.................................................. -- 14,333 14,333
-------- ------- --------
BALANCE, DECEMBER 31, 1995.................................. 16,560 15,641 96,704
-------- ------- --------
Issuance of common stock.................................... 128,112 -- 131,812
Stock options exercised and warrants converted to stock..... 8,177 (4,389) 9,888
Income tax benefits of incentive stock option exercises..... 11,944 -- 11,944
Compensation expense related to deferred stock awards....... 524 -- 524
Net income.................................................. -- 30,880 30,880
-------- ------- --------
BALANCE, DECEMBER 31, 1996.................................. $165,317 $42,132 $281,752
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-14
<PAGE> 113
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Corrections Corporation of America (together with its subsidiaries,
referred to as the "company"), a Delaware corporation, operates and manages
prisons and other correctional facilities and provides prisoner transportation
services for governmental agencies. The company provides a full range of related
services to governmental agencies, including managing, financing, designing and
constructing new facilities and redesigning and renovating older facilities. The
consolidated financial statements include the accounts of the company and its
wholly-owned subsidiaries, TransCor America, Inc. ("TransCor"), Concept
Incorporated ("Concept"), Corrections Management Affiliates, Inc. ("CMA"),
Correctional Services Group, Inc. ("CSG") and CCA International, Inc. CCA
International, Inc. has two wholly-owned subsidiaries, CCA France, Inc. and CCA
(UK) Limited. CCA (UK) Limited has a majority owned subsidiary, UK Detention
Services Limited ("UKDS"). Concept has two wholly-owned subsidiaries, Mineral
Wells R.E. Holding Corp. ("Mineral Wells") and United-Concept Inc.
("United-Concept"). Concept, together with Mineral Wells, wholly owns
United-Concept Limited Partnership ("UCLP"). CMA, together with CSG, wholly owns
Corrections Partners, Inc. ("CPI"). The accompanying consolidated financial
statements and note information reflect the accounting for the acquisitions in
1994 and 1995 of TransCor, Concept, CMA and CSG in transactions accounted for
under the pooling-of-interests method of accounting and the acquisitions in 1995
and 1996 of United-Concept, UCLP and UKDS accounted for under the purchase
method of accounting. All material intercompany transactions and balances have
been eliminated.
At December 31, 1996, the company has a 50% interest in Corrections
Corporation of Australia PTY LTD ("CC Australia"). CC Australia provides
services similar to the company in Australia and surrounding countries. The
company accounts for this investment under the equity method. Assets and
liabilities are converted from their functional currency into the U.S. dollar
utilizing the conversion rate in effect at the balance sheet date. Revenue and
expense items are converted using the weighted average rate during the period.
The excess of the company's investment in this unconsolidated subsidiary over
the underlying equity is being amortized over twenty-five years.
Deferred project development costs consist of costs that can be directly
associated with a specific anticipated contract and, if recovery from that
contract is probable, are deferred until the anticipated contract has been
awarded. At the time the contract is awarded to the company, the deferred
project development costs are either capitalized as part of property and
equipment or are transferred to project development costs. Costs of unsuccessful
or abandoned contracts are charged to depreciation and amortization expense when
their recovery is not considered probable. Internal costs incurred in securing
new clients including costs of responding to requests for proposals are expensed
as incurred. Facility start-up costs, principally costs of initial employee
training, travel and other direct expenses incurred in connection with opening
of new facilities, to the extent recoverable under each negotiated contract, are
deferred and recorded as other assets. Project development costs and start-up
costs are amortized on a straight-line basis over the lesser of the initial term
of the contract plus renewals or five years.
Debt issuance costs are amortized on a straight-line basis over the life of
the related debt. This amortization is charged to depreciation and amortization
expense.
Property and equipment is carried at cost. Betterments, renewals and
extraordinary repairs that extend the life of the asset are capitalized; other
repairs and maintenance are expensed. Interest is capitalized to the asset to
which it relates in connection with the construction of major facilities. The
cost and accumulated depreciation applicable to assets retired are removed from
the accounts and the gain or loss on disposition is recognized in income.
Depreciation is computed by the straight-line method for financial reporting
purposes and accelerated methods for tax reporting purposes based upon the
estimated useful lives of the related assets.
F-15
<PAGE> 114
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Investment in direct financing leases represent the portion of the
company's management contract with a governmental agency that represents
payments on building and equipment leases. The leases are accounted for using
the financing method and, accordingly, the minimum lease payments to be received
over the term of the leases less unearned income are capitalized as the
company's investment in the leases. Unearned income is recognized as income over
the term of the leases using the interest method.
Income taxes are accounted for under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
This statement generally requires the company to record deferred income taxes
for the differences between book and tax bases of its assets and liabilities.
The company maintains contracts with various governmental entities to
manage their facilities for fixed per diem rates or monthly fixed rates. The
company also maintains contracts with various federal, state and local
governmental entities for the housing of inmates in company owned facilities at
fixed per diem rates. These contracts usually contain expiration dates with
renewal options ranging from annual to multi-year renewals. Most of these
contracts have current terms that require renewal every two to five years. The
company expects to renew these contracts for periods consistent with the
remaining renewal options allowed by the contracts or other reasonable
extensions. The company records revenues based on these per diem rates and the
number of inmates housed during the revenue period. The company recognizes
development revenue on the percentage-of-completion method.
To meet the reporting requirements of SFAS 107, "Disclosures About Fair
Value of Financial Instruments," the company calculates the fair value of
financial instruments using quoted market prices. At December 31, 1996, there
were no material differences in the book values of the company's financial
instruments and their related fair values, except for the company's convertible
subordinated notes (see Note 8) and the forward contract for convertible
subordinated notes (see Note 13), which based on the conversion rate on the
underlying equity securities, have an estimated fair market value of
approximately $339,000.
For purposes of the statements of cash flows, the company excludes
restricted cash from cash and cash equivalents. The company considers all highly
liquid debt instruments with a maturity of three months or less to be cash
equivalents.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make 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 and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In March, 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of." This statement imposes stricter criteria for
long-term assets by requiring that such assets be probable of future recovery at
each balance sheet date. The company adopted SFAS 121 effective January 1, 1996.
The company did not experience a material impact on its results of operations,
financial condition or cash flows as a result of adoption.
SFAS No. 128, "Earnings per Share" has been issued effective for fiscal
years ending after December 15, 1997. SFAS No. 128 establishes standards for
computing and presenting earnings per share. The company is required to adopt
the provisions of SFAS No. 128 in the fourth quarter of 1997 and does not expect
adoption thereof to have a material effect on the company's results of
operations.
F-16
<PAGE> 115
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Certain reclassifications of 1995 and 1994 amounts have been made to
conform with the 1996 presentation.
2. MERGERS AND ACQUISITIONS
On August 18, 1995, the company issued 2,800 shares of its common stock for
all the outstanding shares of CMA and CSG. CMA and CSG operate and manage
prisons and other correctional facilities for governmental agencies.
On April 25, 1995, the company issued 5,450 shares of its common stock for
all the outstanding shares of Concept. Concept operates and manages prisons and
other correctional facilities for governmental agencies. Of the shares issued,
273 are held in escrow for the resolution of precombination contingencies.
On December 30, 1994, the company issued 5,200 shares of its common stock
for all the outstanding shares of TransCor, a prisoner transportation company.
Of the shares issued, 520 are held in escrow for the resolution of certain
precombination contingencies.
The transactions above were accounted for under the pooling-of-interests
method of accounting and the company has previously filed restated financial
statements. In the preparation of the consolidated financial statements, the
company made certain immaterial adjustments and reclassifications to the
historical financial statements of TransCor, Concept, CMA and CSG to be
consistent with the accounting policies of the company.
During the second and fourth quarters of 1996, the company purchased the
remaining two-thirds of UKDS from its original joint venture partners. After
consideration of several strategic alternatives related to UKDS, the company
sold 20% of the entity to Sodexho, S.A. ("Sodexho"), a French conglomerate, and
recognized an after-tax gain of $515. In conjunction with this transaction,
Sodexho was also provided the option to purchase an additional 30% of UKDS. This
option expires June 30, 1997.
As discussed in Note 7, the company exercised its option to acquire the
remaining 50% of its investment in UCLP during 1995. The acquisition was
accounted for under the purchase method of accounting. The purchase price was
allocated to assets acquired and liabilities assumed based on the estimated fair
market value at the date of the acquisition. The operations of UCLP on a
consolidated basis prior to the acquisition are not material to the company's
results of operations.
During the first quarter of 1995, the company purchased the remaining 50%
of CC Australia from its original joint venture partner. After consideration of
several strategic alternatives related to CC Australia, the company sold 50% of
the entity to Sodexho during the second quarter of 1995. The company accounted
for the 100% ownership period on the equity basis of accounting and recognized
an after-tax gain of $783 on the sale.
F-17
<PAGE> 116
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
3. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------- -------
<S> <C> <C>
Deferred project development costs.......................... $ 284 $ 1,230
Project development costs, less accumulated amortization of
$499 and $487, respectively............................... 3,989 2,275
Facility start-up costs, less accumulated amortization of
$4,296 and $2,728, respectively........................... 11,404 6,705
Debt issuance costs, less accumulated amortization of $1,698
and $1,289, respectively.................................. 2,555 1,669
Deferred placement fees..................................... 2,404 2,404
Investments in affiliates................................... 7,893 3,756
Other assets................................................ 876 713
------- -------
$29,405 $18,752
======= =======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
-------- --------
<S> <C> <C>
Land........................................................ $ 14,276 $ 3,953
Buildings and improvements.................................. 140,470 114,863
Equipment................................................... 19,376 13,486
Office furniture and fixtures............................... 2,937 2,262
Construction in progress.................................... 137,405 23,083
-------- --------
314,464 157,647
Less accumulated depreciation............................... (25,767) (20,628)
-------- --------
$288,697 $137,019
======== ========
</TABLE>
Depreciation expense was $7,147, $4,428 and $3,469 for 1996, 1995 and 1994,
respectively.
5. NOTES RECEIVABLE
Notes receivable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995
------- ------
<S> <C> <C>
Note receivable, principal and interest payments of $206
monthly through September 2016, interest at 9.25%, secured
by a first mortgage on a facility......................... $22,401 $ --
Notes receivable, $700 is secured by a third mortgage on a
facility and is due in January 1999, remaining balance is
due in monthly principal and interest payments through
April 1999, weighted average interest rate at 11.14%...... 876 890
------- ------
23,277 890
Less current portion in accounts receivable................. (418) --
------- ------
$22,859 $ 890
======= ======
</TABLE>
F-18
<PAGE> 117
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. INVESTMENT IN DIRECT FINANCING LEASES
At December 31, 1996, the company's investment in direct financing leases
represents building and equipment leases between the company and the State of
New Mexico for the New Mexico Women's Correctional Facility. The agreements
contain provisions that allow the state to purchase the buildings and equipment
for predetermined prices at specific intervals during the contract period.
A schedule of minimum future rentals to be received under the direct
financing leases at December 31, 1996, is as follows:
<TABLE>
<CAPTION>
DIRECT
FINANCING
LEASES RENTAL
RECEIVABLE
-------------
<S> <C>
1997...................................................... $ 1,807
1998...................................................... 1,807
1999...................................................... 1,807
2000...................................................... 1,807
2001...................................................... 1,807
Thereafter................................................ 17,465
--------
Total minimum obligation.................................... 26,500
Less unearned income........................................ (13,129)
--------
Present value of direct financing leases.................... 13,371
Less current portion in accounts receivable................. (473)
--------
Long-term portion at December 31, 1996...................... $ 12,898
========
</TABLE>
7. INVESTMENT IN UCLP
At December 31, 1994, Concept and its affiliates owned 49.9% of UCLP and
Concept owned 50% of the common stock of United-Concept, which owned .2% of UCLP
and was the managing general partner of UCLP. In addition, Concept had an option
to purchase from its partner in UCLP the other 50% partnership interests in UCLP
and the other 50% of the common stock of United-Concept. On July 17, 1995,
Concept exercised its option and acquired the remaining interests of UCLP for
$5,250.
United-Concept has issued and outstanding one thousand shares of common
stock (which Concept owns) and one share of voting preferred stock, which is
owned by The First National Bank of Chicago under an indenture agreement related
to the financing of the Eloy Facility. Each share of stock, common and
preferred, has one vote. The preferred stock does not participate in income
distribution by United-Concept and has a ten dollar liquidation value. The
by-laws of United-Concept require 100% shareholder approval of significant
corporate actions, and also require an independent director. Concept is entitled
to 100% of the income of UCLP, but the independent director effectively has veto
power over certain actions of United-Concept.
The company's investment in UCLP was accounted for under the equity method
from inception through July 17, 1995. Since July 17, 1995, the company is
entitled to 100% of the income and has responsibility for all the debt and for
satisfying the contractual obligation of UCLP. As a result, the company has
included UCLP in the consolidated financial statements.
F-19
<PAGE> 118
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
8. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
-------- --------
<S> <C> <C>
Senior Secured Notes, principal payments of $1,773 annually
through 1997, increasing to $2,660 in 1998 with the unpaid
balance due in 2000, interest payable semi-annually at
11.08%, collateralized by property and equipment with a
carrying value of $8,424 at December 31, 1996, and by
revenues from certain contracts........................... $ 10,328 $ 12,215
Secured Notes Payable, principal payments due annually in
various amounts through 1997, interest payable monthly at
9.6%, collateralized by property and equipment with a
carrying value of $10,935 at December 31, 1996, and by
revenues from a contract.................................. 1,210 2,981
Detention Center Revenue Bonds, interest payable monthly at
variable rates (5.85% at December 31, 1996), principal due
at maturity in 2015, collateralized by a letter of credit
issued by a group of banks................................ 24,700 --
Industrial Development Revenue Bonds, principal paid in full
in November 1996.......................................... -- 2,385
Notes payable to a bank, principal and interest at 10%,
payable monthly until maturity in March 2000,
collateralized by property and equipment with a carrying
value of $30,709 at December 31, 1996, and by revenues
from a contract........................................... 20,911 25,608
Revolving Credit Facility payable to a group of banks,
principal due September 1999, interest payable quarterly
at the bank's prime rate (8.25% at December 31, 1996) or
LIBOR plus .5% (6.0% at December 31, 1996), collateralized
by the pledge of stock of the company's first tier
domestic subsidiaries..................................... 4,000 --
Bank Loan, principal paid in full in February 1996.......... -- 12,580
Line of credit payable to a bank, principal paid in full in
February 1996............................................. -- 14,500
Convertible Subordinated Notes, principal due at maturity in
2002 with call provisions beginning in March 2000,
interest payable quarterly at 7.5%........................ 50,000 --
Convertible Subordinated Notes, principal due at maturity in
1999 with call provisions beginning in June 1999, interest
payable semi-annually at 8.5%............................. 7,000 7,000
Convertible Subordinated Notes, principal due at maturity in
1998 with call provisions beginning in June 1997, interest
payable quarterly at 8.5%................................. 7,500 7,500
Other....................................................... 167 1,116
-------- --------
125,816 85,885
Less current portion........................................ (8,281) (11,020)
-------- --------
$117,535 $ 74,865
======== ========
</TABLE>
At December 31, 1996, the company's revolving credit facility provides for
borrowings up to $170,000. The facility bears interest at the bank's prime rate
or LIBOR plus .50%, .75% or 1.0%, depending on the company's leverage ratio. The
facility consists of a working capital line, which includes letters of credit.
F-20
<PAGE> 119
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Letters of credit totaling $65,011 have been issued to support an industrial
development bond, a taxable bond and to secure performance bonds. The unused
commitment at December 31, 1996, was $100,989. The facility is subject to
renewal on September 6, 1999.
At December 31, 1996, the company has a $2,500 letter of credit facility.
Letters of credit totaling $1,393 have been issued to secure the company's
worker's compensation insurance policy, performance bonds and utility deposits.
The unused commitment at December 31, 1996, was $1,107. The facility is subject
to renewal on September 6, 1999.
Restricted cash of $3,450 and $569 at December 31, 1996 and 1995,
respectively, represents cash held in sinking funds established for the funding
of current year principal and interest on certain bonds and current construction
obligations.
The company does not maintain any significant formal or informal
compensating balance arrangements with financial institutions.
The Convertible Subordinated Notes are convertible into the company's
common stock at prices ranging from $1.69 to $25.91 per share. The company may
require conversion under certain conditions after the stock has a market value
of 150% of the conversion price for a specified period. In 1995, Convertible
Subordinated Notes with a face value of $6,700 were converted into 1,774 shares
of common stock.
The provisions of the credit facilities, bonds, and notes contain
restrictive covenants, the most restrictive of which are limits on the payment
of dividends, incurrence of additional indebtedness, investments and mergers.
The agreements also require that the company maintain specific ratio
requirements relating to cash flow, tangible net worth, interest coverage and
earnings. The company was in compliance with the covenants at December 31, 1996.
The company capitalized interest of $502, $717 and $377 in 1996, 1995 and
1994, respectively. Interest expense, net is comprised of the following for each
year:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Interest expense.......................................... $ 8,200 $ 5,534 $ 4,954
Interest income........................................... (3,976) (1,582) (1,515)
------- ------- -------
$ 4,224 $ 3,952 $ 3,439
======= ======= =======
</TABLE>
Maturities of long-term debt for the next five years and thereafter are:
1997 -- $8,281; 1998 -- $16,357; 1999 -- $21,007; 2000 -- $5,471; 2001 -- $0 and
thereafter -- $74,700.
F-21
<PAGE> 120
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
9. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The provision for income
taxes is comprised of the following components:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
CURRENT PROVISION
Federal................................................... $ 5,567 $2,853 $1,319
State..................................................... 785 315 115
------- ------ ------
6,352 3,168 1,434
------- ------ ------
INCOME TAXES CHARGED TO EQUITY
Federal................................................... 10,719 3,567 531
State..................................................... 1,225 420 62
------- ------ ------
11,944 3,987 593
------- ------ ------
DEFERRED PROVISION
Federal................................................... 1,052 1,946 99
State..................................................... 121 229 186
------- ------ ------
1,173 2,175 285
------- ------ ------
Provision for income taxes........................ $19,469 $9,330 $2,312
======= ====== ======
</TABLE>
Significant components of the company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
------ ------
<S> <C> <C>
CURRENT DEFERRED TAX ASSETS
Asset reserves and liabilities not yet deductible for tax... $2,067 $1,473
Alternative minimum tax carryforward........................ -- 173
------ ------
Total current deferred tax assets................. 2,067 1,646
------ ------
CURRENT DEFERRED TAX LIABILITY
Income item not yet taxable................................. 1,041 --
------ ------
Total current deferred tax liability.............. 1,041 --
------ ------
Net current deferred tax assets................... $1,026 $1,646
====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
------ ------
<S> <C> <C>
NONCURRENT DEFERRED TAX ASSETS
Other..................................................... $ 788 $ 35
------ ------
Total noncurrent deferred tax assets.............. 788 35
------ ------
NONCURRENT DEFERRED TAX LIABILITIES
Tax in excess of book depreciation and amortization....... 3,876 3,565
Income items not yet taxable and other.................... 1,629 634
------ ------
Total noncurrent deferred tax liabilities......... 5,505 4,199
------ ------
Net noncurrent deferred tax liabilities........... $4,717 $4,164
====== ======
</TABLE>
F-22
<PAGE> 121
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
A reconciliation of the statutory federal income tax rate and the effective
tax rate as a percentage of pretax income for the years ended December 31, is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory federal rate...................................... 35.0% 34.0% 34.0%
State taxes, net of federal tax benefit..................... 4.0 4.0 4.0
Utilization of net operating loss carryforward.............. -- -- (15.4)
Other items, net............................................ (.3) 1.4 --
---- ---- ----
38.7% 39.4% 22.6%
==== ==== ====
</TABLE>
10. EARNINGS PER SHARE
Primary net income per common share is computed using the weighted average
number of shares of common stock and common stock equivalents outstanding. Stock
warrants and stock options are considered common stock equivalents. The
convertible subordinated notes are not common stock equivalents. In computing
fully diluted net income per common share, the 8.5% convertible subordinated
notes are considered dilutive using the if-converted method. In 1994, the 8.5%
convertible subordinated notes were antidilutive. The following table presents
information necessary to calculate fully diluted earnings per share for the
years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Net income allocable to common stockholders............... $30,880 $14,333 $ 7,714
Interest expense applicable to convertible subordinated
notes, net of tax....................................... 752 740 --
------- ------- -------
Adjusted net income....................................... $31,632 $15,073 $ 7,714
======= ======= =======
Fully diluted weighted average common shares
outstanding............................................. 81,740 77,355 62,440
Conversion of convertible subordinated notes.............. 6,249 6,249 --
------- ------- -------
Adjusted fully diluted common shares outstanding.......... 87,989 83,604 62,440
======= ======= =======
Fully diluted earnings per share.......................... $ .36 $ .18 $ .12
======= ======= =======
</TABLE>
11. STOCKHOLDERS' EQUITY
Preferred Stock
The company has authorized 1,000 shares of $1 par value preferred stock.
In December 1991, the company sold 50 shares of Series A preferred stock
for $5,000. The preferred stock earned dividends at 8.5% and were paid quarterly
from January 31, 1993 through June 23, 1994. Each share of the Series A
preferred stock was convertible into 56 shares of common stock. In June 1994,
the Series A preferred stock was converted at par value into 2,800 shares of
common stock. At December 31, 1996, no preferred stock was issued or
outstanding.
Stock Offering
On June 5, 1996, the company completed a secondary public offering of 3,700
new shares of its common stock. The net proceeds of $131,812 were used to
develop, acquire and expand correctional and detention facilities.
F-23
<PAGE> 122
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Stock Split
On June 5, 1996, the Board of Directors declared a two-for-one stock split
of the company's common stock to be effective on July 2, 1996. An amount equal
to the par value of the common shares outstanding as of July 2, 1996, was
transferred from additional paid-in capital to the common stock account. On
October 4, 1995, the Board of Directors declared a two-for-one stock split of
the company's common stock to be effective on October 31, 1995. An amount equal
to the par value of the common shares outstanding as of October 31, 1995, was
transferred from additional paid-in capital to the common stock account. All
references to number of shares and to per share data in the consolidated
financial statements have been adjusted for these stock splits.
Stock Warrants
The company has issued stock warrants to certain affiliated and
unaffiliated parties for providing certain financing, consulting and brokerage
services to the company and to stockholders as a dividend. Stock warrants
outstanding at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE EXPIRATION
DATE OF ISSUANCE WARRANTS PRICE DATE
---------------- --------- ------------ ------------------
<S> <C> <C> <C>
September 4, 1992................... 839 $ 8.50/share September 14, 1997
June 23, 1994....................... 1,100 $15.80/share December 31, 1999
</TABLE>
Each warrant entitles the warrant holder to four common shares upon
exercise. The warrants are exercisable from the date of issuance except for the
warrants issued September 4, 1992, which were exercisable beginning April 30,
1993. In 1996, the company extended the expiration date of the warrants issued
June 23, 1994, from December 31, 1998, to December 31, 1999.
In 1996, 1,313 warrants were exercised at $8.50 per share. In 1995, 268
warrants were exercised at prices ranging from $7.14 to $8.50 per share. In
1995, the company purchased 60 warrants at the market price of $18 per share
from a warrant holder.
Stock Option Plans
The company has incentive and nonqualified stock option plans under which
options may be granted to "key employees" as designated by the Board of
Directors. The options are granted with exercise prices that equal market value
on the date of grant. The options are exercisable after the later of two years
from the date of employment or one year after the date of grant until ten years
after the date of the grant.
The company's Board of Directors approved a stock repurchase program for up
to an aggregate of 400 shares of the company's stock for the purpose of funding
the employee stock options, stock ownership and stock award plans.
F-24
<PAGE> 123
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Stock option transactions relating to the company's incentive and
nonqualified stock option plans are summarized below:
<TABLE>
<CAPTION>
1996
-----------------------------
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at beginning of period........................ 3,916 $ 3.73
Granted................................................. 903 27.06
Exercised............................................... (1,297) 2.92
Canceled................................................ (19) 22.97
------ -------
Outstanding at end of period............................ 3,503 $ 9.96
====== =======
Available for future grant.............................. 2,950 --
====== =======
Exercisable............................................. 2,601 $ 4.06
====== =======
</TABLE>
<TABLE>
<CAPTION>
1995
-----------------------------
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at beginning of period........................ 3,470 $ 2.31
Granted................................................... 1,248 7.61
Exercised................................................. (754) 3.49
Canceled.................................................. (48) 5.82
------ -------
Outstanding at end of period.............................. 3,916 $ 3.73
====== =======
Available for future grant................................ 3,818 --
====== =======
Exercisable............................................... 2,680 $ 1.93
====== =======
</TABLE>
<TABLE>
<CAPTION>
1994
---------
NUMBER OF
SHARES
---------
<S> <C>
Outstanding at beginning of period........................ 6,382
Granted................................................... 178
Exercised................................................. (3,060)
Canceled.................................................. (30)
------
Outstanding at end of period.............................. 3,470
======
Available for future grant................................ 1,020
======
Exercisable............................................... 3,386
======
</TABLE>
The weighted average fair value of options granted during 1996 and 1995 was
$12.28 and $3.21 per option, respectively. The options outstanding at December
31, 1996, have exercise prices between $.96 and $33.13 and a weighted average
remaining contractual life of 7 years.
In addition to the plans mentioned above, the company has a nonqualified
stock option plan to encourage stock ownership by selected employees of the
company. Pursuant to the plan, stock options may be granted to key employees
upon authorization by the Board of Directors. The aggregate number of options
that may be granted under the plan is 1,440. As of December 31, 1996, 240
options were outstanding at an option price of $1.35 per share.
F-25
<PAGE> 124
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
During 1995, the company authorized the issuance of 337 shares of common
stock to certain key employees as a deferred stock award. The award becomes
fully vested ten years from the date of grant based on continuous employment
with the company. The company is expensing the $3,670 of awards over the vesting
period.
In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based
Compensation." SFAS 123 establishes new financial accounting and reporting
standards for stock-based compensation plans. The company has adopted the
disclosure-only provisions of SFAS 123. As a result, no compensation cost has
been recognized for the company's stock option plans. Had compensation cost for
the stock option plans been determined based on the fair value at the grant date
for awards in 1996 and 1995 consistent with the provisions of SFAS 123, the
company's net income and net income per share would have been reduced to the pro
forma amounts indicated below for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Net income -- as reported................................... $30,880 $14,333
Net income -- pro forma..................................... 25,995 13,550
Net income per share -- Primary -- as reported.............. $ .38 $ .19
Net income per share -- Primary -- pro forma................ .32 .17
Net income per share -- Fully Diluted -- as reported........ $ .36 $ .18
Net income per share -- Fully Diluted -- pro forma.......... .30 .16
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the pro forma compensation cost may not be
representative of that to be expected in future years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Expected dividend yield..................................... 0.0% 0.0%
Expected stock price volatility............................. 49.5% 50.3%
Risk-free interest rate..................................... 5.9% 6.8%
Expected life of options.................................... 4 years 4 years
</TABLE>
Employee Stock Ownership Plan
The company has an Employee Stock Ownership Plan whereby each employee of
the company who is at least 18 years of age is eligible for membership in the
plan as of January 1 of their first anniversary year in which they have
completed at least one thousand hours of service.
Benefits, which become 40% vested after four years of service and 100%
vested after five years of service, are paid on death, retirement or
termination. The Board of Directors has discretion in establishing the amount of
the company contributions. The company's contributions to the plan may be in the
form of common stock, cash or other property. Contributions to the plan amounted
to $2,086, $1,366 and $1,059 for the years ended December 31, 1996, 1995 and
1994, respectively.
12. REVENUES AND EXPENSES
Approximately 99% of the company's revenues for the years ended December
31, 1996, 1995 and 1994, relate to amounts earned from federal, state and local
governmental management and transportation contracts.
The company had revenues of 21%, 23% and 17% from the federal government
and 54%, 49% and 54% from state governments for the years ended December 31,
1996, 1995 and 1994, respectively. One state
F-26
<PAGE> 125
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
government had revenues of 16%, 18% and 24% for the years ended December 31,
1996, 1995 and 1994, respectively. In addition, another state government had
revenues of 11% for the year ended December 31, 1994.
Accounts receivable include $55,924 and $37,057 due from federal, state and
local governments at December 31, 1996 and 1995, respectively. Accounts
receivable and accounts payable at December 31, 1996, consist of the following:
<TABLE>
<CAPTION>
ACCOUNTS ACCOUNTS
RECEIVABLE PAYABLE
---------- --------
<S> <C> <C>
Trade....................................................... $ 50,618 $10,766
Construction................................................ 44,469 28,458
Other....................................................... 5,464 --
-------- -------
$100,551 $39,224
======== =======
</TABLE>
Salaries and related benefits represented 63%, 58% and 54% of operating
expenses for the years ended December 31, 1996, 1995 and 1994, respectively.
For the year ended December 31, 1996, the company recognized after-tax,
development fee income of $1,629 related to a contract to design, construct and
equip a detention facility.
13. INTERNATIONAL ALLIANCE
The company has entered into an International Alliance (the "Alliance")
with Sodexho to pursue prison management business outside the United States. In
conjunction with the Alliance, Sodexho purchased an equity position in the
company by acquiring several instruments. In 1994, the company sold Sodexho
2,800 shares of common stock at $3.75 per share and a $7,000 convertible
subordinated note bearing interest at 8.5%. Sodexho also received 1,100 warrants
at $15.80 per warrant that expire December 1999. Each warrant entitles Sodexho
to four common shares upon exercise. In consideration of the placement of the
aforementioned securities, the company agreed to pay Sodexho $3,960 over a
four-year period ending in 1998. These fees include debt issuance costs and
private placement equity fees. These fees have been allocated to the various
instruments and are charged to debt issuance costs or equity as the respective
financings are completed. Sodexho is subject to a standstill agreement that
limits their ownership to 25% in the company and has certain preemptive rights
to retain its percentage ownership.
In 1995, Sodexho purchased 1,090 shares of common stock for $7.63 per share
pursuant to their contractual preemptive right. Also during 1995, the company
and Sodexho entered into a forward contract whereby Sodexho would purchase up to
$20,000 of convertible subordinated notes at any time prior to December 1997.
The notes will bear interest at LIBOR plus 1.35% and will be convertible into
common shares at a conversion price of $6.83 per share.
In 1996, the company sold $20,000 of convertible notes to Sodexho pursuant
to their contractual preemptive right. The notes bear interest at 7.5% and are
convertible into common shares at a conversion price of $25.91 per share.
14. RELATED PARTY TRANSACTIONS
The company pays legal fees to a law firm of which one of the partners is a
stockholder and a member of the Board of Directors of the company. Legal fees,
including fees related to the company's mergers and acquisitions, paid to the
law firm amounted to $683, $675 and $140 in 1996, 1995 and 1994, respectively.
F-27
<PAGE> 126
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
15. COMMITMENTS AND CONTINGENCIES
The company leases certain facilities, office space and equipment under
long-term operating leases expiring through 2001. Rental expense was
approximately $2,786, $5,904 and $3,490 for the years ended December 31, 1996,
1995 and 1994, respectively. Minimum rental commitments for noncancelable leases
are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- ------
<S> <C>
1997........................................................ $4,147
1998........................................................ 3,520
1999........................................................ 1,741
2000........................................................ 322
2001........................................................ 37
</TABLE>
The nature of the company's business results in claims and litigation
alleging that the company is liable for damages arising from the conduct of its
employees or others. In the opinion of management, there are no pending legal
proceedings that would have a material effect on the consolidated financial
position or results of operations of the company.
The company has an employment agreement with its chief executive officer
through September 30, 1997. The agreement includes a non-compete agreement
covering the same period and requires payments during the period if employment
is terminated.
Each of the company's management contracts and the statutes of certain
states require the maintenance of insurance. The company maintains various
insurance policies including employee health, workers compensation, automobile
liability and general liability insurance. These policies are fixed premium
policies with various deductible amounts that are self-funded by the company.
Reserves are provided for estimated incurred claims within the deductible
amounts.
The company guarantees $113 of a bank facility for CC Australia. The
company has provided a $1,000 performance bond in connection with UKDS's
management contract with the United Kingdom.
The company provides a limited guarantee related to a bond issue on the
Eden Detention Center in Eden, Texas. The maximum obligation as of December 31,
1996 was $22,875. In the event the company is required to fund amounts pursuant
to this limited guarantee, the company will obtain ownership rights to the
facility.
16. EVENT SUBSEQUENT TO DECEMBER 31, 1996 (UNAUDITED)
On January 30, 1997, the company purchased the fixed and movable assets of
a correctional treatment facility in Washington, D.C. for $52,000. The company
has entered into additional agreements to manage this facility and lease it back
to Washington, D.C. over a period of twenty years.
F-28
<PAGE> 127
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE COMMON SHARES OFFERED HEREBY BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
SOLICITATION OR OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
UNTIL (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING
TRANSACTIONS IN THE SECURITIES OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................... ii
Prospectus Summary....................... 1
Risk Factors............................. 16
The Company.............................. 23
Use of Proceeds.......................... 27
Capitalization........................... 27
Distributions............................ 27
Dilution................................. 30
Pro Forma Financial Statements........... 31
Management's Discussions and Analysis of
Financial Conditions and Results of
Operations............................. 34
The Private Corrections Industry......... 36
Corrections Corporation of America....... 37
Business of the Company and its
Properties............................. 46
Relationship Between CCA and the Company
After the Formation Transactions....... 51
Leases................................... 53
Management............................... 57
Certain Relationships and Transactions... 63
Policies and Objectives with Respect to
Certain Activities..................... 64
Conflicts of Interest.................... 67
The Formation Transactions............... 69
Principal Shareholders of the Company.... 71
Description of Capital Shares............ 71
Shares Available for Future Sale......... 77
Material Federal Income Tax
Considerations......................... 77
ERISA Considerations..................... 87
Underwriting............................. 88
Experts.................................. 89
Legal Matters............................ 89
</TABLE>
======================================================
======================================================
17,000,000 SHARES
CCA PRISON REALTY TRUST
COMMON SHARES
J.C. BRADFORD & CO.
LEGG MASON WOOD WALKER
INCORPORATED
LEHMAN BROTHERS
PAINEWEBBER INCORPORATED
STEPHENS INC.
, 1997
======================================================
<PAGE> 128
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below are certain registration, filing and listing fees and an
estimate of the other fees and expenses to be incurred in connection with the
issuance and distribution of the Common Shares offered hereby.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 124,410
NASD Filing Fee............................................. 30,500
New York Stock Exchange Original Listing Fee................ 142,305
Blue Sky Fees and Expenses (including attorneys' fees)...... 2,500
Accounting Fees and Expenses................................ 400,000
Attorneys' Fees and Expenses................................ *
Printing and Engraving Expenses............................. 500,000
Transfer Agent's Fees....................................... 12,000
Trustees' and Officers' Insurance........................... 175,000
Miscellaneous Expenses...................................... *
----------
Total............................................. $ *
==========
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 31. SALES TO SPECIAL PARTIES.
The Company was formed as a Maryland real estate investment trust in April
1997, with Jim Phillips being issued 1,000 Common Shares for consideration of
$1,000.
Upon consummation of the Offering, D. Robert Crants, III and Michael W.
Devlin will each receive 150,000 Common Shares as a development fee and for
services rendered and as reimbursement of actual costs incurred in connection
with the formation of the Company, the consummation of the Offering and the
closing of the Initial Facilities. The reimbursed costs include certain costs
related to property due diligence, employee compensation, travel and overhead.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES.
All of the Common Shares issued by the Company discussed in Item 31 above
were issued pursuant to an exemption from the registration requirements of the
Securities Act contained in Section 4(2) of the Securities Act.
ITEM 33. INDEMNIFICATION OF TRUSTEES AND OFFICERS.
The Declaration of Trust of the Company provides for indemnification of
trustees and officers to the full extent permitted by the laws of the State of
Maryland.
Section 8-301 of the MGCL permits a REIT to indemnify trustees, officers,
employees and agents of the REIT to the same extent as is permitted for
directors, officers, employees and agents of a Maryland corporation under
Section 2-418.
Section 2-418 of the MGCL generally permits indemnification of any trustee
made a party to any proceedings by reason of service as a trustee unless it is
established that (i) the act or omission of such person was material to the
matter giving rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty; or (ii) such person actually
received an improper personal benefit in money, property or services; or (iii)
in the case of any criminal proceeding, such person had reasonable cause to
believe that the act or omission was unlawful. The indemnity may include
judgments, penalties, fines,
II-1
<PAGE> 129
settlements and reasonable expenses actually incurred by the trustee in
connection with the proceeding; but, if the proceeding is one by, or in the
right of, the corporation, indemnification is not permitted with respect to any
proceeding in which the trustee has been adjudged to be liable to the
corporation, or if the proceeding is one charging improper personal benefit to
the trustee, whether or not involving action in the trustee's official capacity,
indemnification of the trustee is not permitted if the trustee was adjudged to
be liable on the basis that personal benefit was improperly received. The
termination of any proceeding by conviction or upon a plea of nolo contendere or
its equivalent, or an entry of an order of probation prior to judgment, creates
a rebuttable presumption that the trustee did not meet the requisite standard of
conduct required for permitted indemnification. The termination of any
proceeding by judgment, order or settlement, however, does not create a
presumption that the trustee failed to meet the requisite standard of conduct
for permitted indemnification.
Indemnification under the provisions of the MGCL is not deemed exclusive of
any other rights, by indemnification or otherwise, to which a trustee may be
entitled under the Declaration of Trust, Bylaws, any resolution of shareholders
or trustees, any agreement or otherwise.
The statute permits a Maryland REIT to indemnify its officers, employees
and agents to the same extent as its trustees and to such further extent as is
consistent with law. The Company's Declaration of Trust authorizes the Company
to indemnify its officers, employees or agents to the same extent as its
trustees and to such further extent as is consistent with law.
The Company will enter into indemnification agreements (the
"Indemnification Agreements") with its trustees and certain of its executive
officers. The Indemnification Agreements are intended to provide indemnification
to the maximum extent allowable by or not in violation of any law of the State
of Maryland. Each Indemnification Agreement provides that the Company shall
indemnify a trustee or officer who is a party to the agreement (the
"Indemnitee") if he or she was or is a party to or otherwise involved in any
proceeding (other than a derivative proceeding) by reason of the fact that he or
she was or is a trustee or officer of the Company, against losses incurred in
connection with the defense or settlement of such proceeding. The
indemnification provided under each Indemnification Agreement is limited to
instances where the act or omission giving rise to the claim for which
indemnification is sought was not otherwise indemnified by the Company or
insurance maintained by the Company, was not established to have been committed
in bad faith or the result of active and deliberate dishonesty, did not involve
receipt of improper personal benefit, did not result in a judgment of liability
to the Company in a proceeding by or in the right of the Company, did not
involve an accounting of profits pursuant to Section 16(b) of the Securities
Exchange Act of 1934, as amended, and, with respect to any criminal proceeding,
the Indemnitee had no reasonable cause to believe his or her conduct was
unlawful.
The Company will obtain trustees and officers liability insurance.
ITEM 34. TREATMENT OF PROCEEDS FROM SECURITIES BEING REGISTERED.
Not applicable.
II-2
<PAGE> 130
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements Included in this Registration Statement, including
the Prospectus:
<TABLE>
<S> <C>
CCA Prison Realty Trust
Pro Forma Balance Sheet as of December 31, 1996...........
Pro Forma Statement of Operations for the year ended
December 31, 1996......................................
Report of Independent Public Accountants.................. F-2
Balance Sheet as of April 23, 1997........................ F-3
Notes to Balance Sheet.................................... F-4
CCA
Pro Forma Condensed Consolidated Balance Sheet as of
December 31, 1996...................................... F-6
Pro Forma Condensed Consolidated Statement of Operations
for the year ended December 31, 1996................... F-8
Report of Independent Public Accountants.................. F-9
Consolidated Balance Sheets as of December 31, 1996 and
1995................................................... F-10
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994....................... F-11
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994....................... F-12
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1995 and 1994........... F-14
Notes to Consolidated Financial Statements................ F-15
</TABLE>
(B) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <C> <S>
**1 -- Form of Underwriting Agreement
*2 -- Form of Agreement of Sale and Purchase Between CCA Prison
Realty Trust and Corrections Corporation of America
*3.1 -- Declaration of Trust of CCA Prison Realty Trust
*3.2 -- Bylaws of CCA Prison Realty Trust
**3.3 -- Specimen of certificate representing Common Shares
*4 -- Provisions defining the rights of shareholders are found
Sections 8-10 and 15 and Article II in the Declaration of
Trust and Bylaws, respectively, of CCA Prison Realty Trust
(included as Exhibits 3.1 and 3.2 to this Registration
Statement)
**5 -- Opinion of Stokes & Bartholomew, P.A. regarding the validity
of the Common Shares being offered hereby
**8 -- Opinion of Stokes & Bartholomew, P.A. regarding certain
federal income tax matters.
*10.1 -- Form of Option Agreement Between CCA Prison Realty Trust and
Corrections Corporation of America with respect to the
Option Facilities
*10.2 -- Form of Master Agreement to Lease Between CCA Prison Realty
Trust and Corrections Corporation of America
*10.3 -- Form of Supplemental Lease Between CCA Prison Realty Trust
and Corrections Corporation of America with respect to the
Leased Properties
*10.4 -- Form of Right to Purchase Agreement Between CCA Prison
Realty Trust and Corrections Corporation of America
*10.5 -- Form of Trade Name Use Agreement Between CCA Prison Realty
Trust and Corrections Corporation of America
</TABLE>
II-3
<PAGE> 131
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <C> <S>
*10.6 -- Form of Noncompetition Agreement Between CCA Prison Realty
Trust and Corrections Corporation of America
*10.7 -- Form of Officer and Trustee Indemnification Agreement
between CCA Prison Realty Trust and its trustees and
officers
*10.8 -- Form of Employment Agreement between J. Michael Quinlan and
CCA Prison Realty Trust
*10.9 -- Form of Employment Agreement between D. Robert Crants, III
and CCA Prison Realty Trust
*10.10 -- Form of Employment Agreement between Michael W. Devlin and
CCA Prison Realty Trust
*10.11 -- Form of CCA Prison Realty Trust 1997 Employee Share
Incentive Option Plan
*10.12 -- Form of CCA Prison Realty Trust Non-Employee Trustees' Share
Option Plan
*21 -- List of Subsidiaries of CCA Prison Realty Trust
**23.1 -- Consent of Stokes & Bartholomew, P.A. (included in Exhibits
5 and 8)
*23.2 -- Consent of Arthur Andersen LLP (with respect to Corrections
Corporation of America)
*23.3 -- Consent of Arthur Andersen LLP (with respect to CCA Prison
Realty Trust)
24 -- Power of Attorney (included in the signature pages)
27 -- Financial Data Schedules
</TABLE>
- ---------------
* Filed herewith
** To be Filed by Amendment
ITEM 36. UNDERTAKINGS.
(1) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required
by the Underwriters to permit prompt delivery to each purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is
II-4
<PAGE> 132
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such trustee, officer or controlling person in connection with the Common
Shares, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(3) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A under the Securities
Act and contained in a form of prospectus filed by the Registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
(4) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 133
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Nashville, State of Tennessee, on the 23rd day of
April, 1997.
CCA PRISON REALTY TRUST
By: /s/ J. MICHAEL QUINLAN
------------------------------------
J. Michael Quinlan
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
J. Michael Quinlan, D. Robert Crants, III and Michael W. Devlin and each of
them, the true and lawful attorneys-in-fact and agents of the undersigned, with
full power of substitution and resubstitution, for and in the name, place and
stead of the undersigned, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, and hereby
grants to such attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <C>
/s/ J. MICHAEL QUINLAN Chief Executive Officer (Principal April 23, 1997
- --------------------------------------------------- Executive Officer)
J. Michael Quinlan
/s/ D. ROBERT CRANTS, III President and Trustee April 23, 1997
- ---------------------------------------------------
D. Robert Crants, III
/s/ MICHAEL W. DEVLIN Chief Development Officer and April 23, 1997
- --------------------------------------------------- Trustee
Michael W. Devlin
/s/ VIDA H. CARROLL Chief Financial Officer (Principal April 23, 1997
- --------------------------------------------------- Financial and Accounting Officer)
Vida H. Carroll
/s/ DOCTOR R. CRANTS Chairman; Trustee April 23, 1997
- ---------------------------------------------------
Doctor R. Crants
/s/ C. RAY BELL Trustee April 23, 1997
- ---------------------------------------------------
C. Ray Bell
/s/ JACKSON W. MOORE Trustee April 23, 1997
- ---------------------------------------------------
Jackson W. Moore
</TABLE>
II-6
<PAGE> 134
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <C>
/s/ RUSTY L. MOORE Trustee April 23, 1997
- ---------------------------------------------------
Rusty L. Moore
/s/ JOSEPH V. RUSSELL Trustee April 23, 1997
- ---------------------------------------------------
Joseph V. Russell
/s/ CHARLES W. THOMAS, PH.D Trustee April 23, 1997
- ---------------------------------------------------
Charles W. Thomas, Ph.D
</TABLE>
II-7
<PAGE> 1
EXHIBIT 2
AGREEMENT OF SALE AND PURCHASE
BY AND BETWEEN
CORRECTIONS CORPORATION OF AMERICA,
a Delaware corporation
("SELLER")
AND
CCA PRISON REALTY TRUST
a Maryland real estate investment trust
("PURCHASER")
For the Sale and Purchase
of
______________________________
______________________________
_______________________, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II Agreements to Sell, Purchase and Lease . . . . . . . . . . . . . . . . . . . . .
2.1 Agreement to Sell and Purchase . . . . . . . . . . . . . . . . . . . . .
2.2 Agreement to Lease . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.3 Agreement to Grant Option . . . . . . . . . . . . . . . . . . . . . . .
2.4 Right to Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE III Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.1 Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE IV Items to be Furnished to Purchaser by Seller . . . . . . . . . . . . . . . . . .
4.1 Due Diligence Materials . . . . . . . . . . . . . . . . . . . . . . . .
4.2 Due Diligence Review . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE V Representations, Warranties, Covenants and Agreements . . . . . . . . . . . . .
5.1 Representations and Warranties of Seller . . . . . . . . . . . . . . . .
5.2 Covenants and Agreements of Seller . . . . . . . . . . . . . . . . . . .
5.3 Representations and Warranties of Purchaser . . . . . . . . . . . . . .
ARTICLE VI Conditions to Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.1 Conditions to the Purchaser's Obligations . . . . . . . . . . . . . . .
6.2 Failure of Conditions to Purchaser's Obligations . . . . . . . . . . . .
6.3 Conditions to the Seller's Obligations . . . . . . . . . . . . . . . . .
6.4 Failure of Conditions to Seller's Obligations . . . . . . . . . . . . .
ARTICLE VII Provisions with Respect to the Closing . . . . . . . . . . . . . . . . . . . . .
7.1 Seller's Closing Obligations . . . . . . . . . . . . . . . . . . . . . .
7.2 Purchaser's Closing Obligations . . . . . . . . . . . . . . . . . . . .
ARTICLE VIII Expenses of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.1 Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.2 Closing Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.3 Commissions/Broker's Fees . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE IX Default and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
9.1 Seller's Default; Purchaser's Remedies . . . . . . . . . . . . . . . . .
9.2 Purchaser's Default; Seller's Remedies . . . . . . . . . . . . . . . . .
ARTICLE X Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.2 Right of Assignment . . . . . . . . . . . . . . . . . . . . . . . . . .
10.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.4 Entire Agreement; Modifications . . . . . . . . . . . . . . . . . . . .
10.5 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.6 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.7 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.8 Time is of the Essence . . . . . . . . . . . . . . . . . . . . . . . . .
10.9 Waiver of Conditions . . . . . . . . . . . . . . . . . . . . . . . . . .
10.10 Joinder by Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . .
LIST OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
<PAGE> 4
AGREEMENT OF SALE AND PURCHASE
THIS AGREEMENT OF SALE AND PURCHASE (the "Agreement") is made and
entered into by and between CORRECTIONS CORPORATION OF AMERICA, a Delaware
corporation (hereinafter referred to as "Seller"), and CCA PRISON REALTY TRUST,
a Maryland real estate investment trust (hereinafter referred to as
"Purchaser"). Seller and Purchaser are sometimes collectively referred to
herein as the "Parties" and each of the Parties is sometimes singularly
referred to herein as a "Party".
WHEREAS, Seller is the owner of the Property (as hereinafter defined),
consisting of certain real properties and improvements thereon being more
particularly described on Exhibits A-1 through A-9, attached hereto and made a
part hereof; and,
WHEREAS, Seller desires to sell and Purchaser desires to purchase the
Property, and simultaneously therewith, to enter into a lease transaction
pursuant to which Purchaser shall lease to Seller, and Seller shall lease from
Purchaser, the Property.
NOW, THEREFORE, in consideration of the sum of Ten Dollars ($10.00), the
mutual covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Parties agree as follows:
ARTICLE I
DEFINITIONS
As used herein (including any Exhibits attached hereto), the following
terms shall have the meanings indicated:
"Accreditations" shall mean any and all accreditations and/or
certifications from any non-governmental entities required in connection with
the current or contemplated operation of the Property.
"Applicable Notices" shall mean any reports, notices of violation, or
notices of compliance issued in connection with any Accreditations or Permits.
"Bill of Sale" shall mean a bill or bills of sale in substantially the
same form as Exhibit B, attached hereto, and sufficient to transfer to
Purchaser all Personal Property.
"Business Agreements" shall mean any leases, contract rights, loan
agreements, mortgages, easements, covenants, restrictions or other agreements
or instruments affecting all or a portion of the Property, to the extent the
same are assignable by Seller, but specifically excluding all of Seller's
Operating and Service Agreements.
1
<PAGE> 5
"Business Day(s)" shall mean calendar days other than Saturdays, Sundays
and legal holidays.
"Certificate of Non-Foreign Status" shall mean a certificate dated as of
the Closing Date, addressed to Purchaser and duly executed by Seller, in
substantially the same form as Exhibit C, attached hereto.
"Claim" shall mean any obligation, liability, lien, encumbrance, loss,
damage, cost, expense or claim, including, without limitation, any claim for
damage to property or injury to or death of any person or persons.
"Closing" shall mean the consummation of the sale and purchase provided
for herein, to be held at the offices of Stokes & Bartholomew, P.A., 424 Church
Street, Suite 2800, Nashville, Tennessee, or such other place as the Parties
may mutually agree.
"Closing Certificate" shall mean a certificate in substantially the same
form as Exhibit D, attached hereto, wherein Seller and Purchaser, respectively,
shall represent that the representations and warranties of Seller and
Purchaser, respectively, contained in this Agreement are true and correct in
all material respects as of the Closing Date as if made on and as of the
Closing Date.
"Closing Date" shall mean the actual day on which the transaction
contemplated hereby is closed with the transfer of title to the Property. The
Parties agree that the closing date shall be __________________, 1997, or such
earlier or later date as shall be hereafter mutually agreed upon by the
Parties.
"Deed" shall mean a deed in substantially the same form as Exhibit E,
attached hereto (as the same may be modified to comply with local law and
custom), executed by Seller, as grantor, in favor of Purchaser, as grantee,
conveying the Land and Improvements to Purchaser, subject only to the Permitted
Exceptions.
"Due Diligence Materials" shall mean the information to be provided by
Seller to Purchaser pursuant to the provisions of Section 4.1 hereof.
"Effective Date" shall mean the later of the two (2) dates on which this
Agreement is signed and all changes initialed by Seller and Purchaser, as
indicated by their signatures below; provided, that in the event only one Party
dates its signature, then the date of its signature shall be the Effective
Date.
"Engineering Documents" shall mean all site plans, surveys, soil and
substrata studies, architectural drawings, plans and specifications,
engineering plans and studies, floor plans, landscape plans, Americans with
Disabilities Act compliance reports, environmental reports and studies,
professional inspection reports, construction and/or architect's reports or
certificates, feasibility studies, appraisals, and other similar plans and
studies that relate to the Real Property or the Personal Property, to the
extent the same are assignable by Seller.
2
<PAGE> 6
"Exception Documents" shall mean true, correct and legible copies of
each document listed as an exception to title in the Title Commitment.
"Excluded Personal Property" shall mean all those items of tangible and
intangible personal property described on Exhibit F.
"Fixtures" shall mean all equipment, machinery, fixtures, and other
items of real and/or personal property, including all components thereof, now
or on the Closing Date located in, on or used in connection with, and
permanently affixed to or incorporated into, the Improvements, including,
without limitation, all furnaces, boilers, heaters, electrical equipment,
electronic security equipment, heating, plumbing, lighting, ventilating,
refrigerating, incineration, air and water pollution control, waste disposal,
air-cooling and air-conditioning systems and apparatus, sprinkler systems and
fire and theft protection equipment, and similar systems, all of which, to the
greatest extent permitted by law, are hereby deemed by the Parties to
constitute real estate, together with all replacements, modifications,
alterations and additions thereto, but specifically excluding all items
included within the definition of Personal Property and Excluded Personal
Property.
"Hazardous Materials" shall mean any substance, including without
limitation, asbestos or any substance containing asbestos and deemed hazardous
under any Hazardous Materials Law, the group of organic compounds known as
polychlorinated biphenyls, petroleum products, flammable explosives, radioactive
materials, infectious wastes, biomedical and medical wastes, chemicals known to
cause cancer or reproductive toxicity, pollutants, effluents, contaminants,
emissions or related materials and any items included in the definition of
hazardous or toxic wastes, materials or substances under any Hazardous
Materials Law.
"Hazardous Materials Law" shall mean any local, state or federal law
relating to environmental conditions and industrial hygiene, including, without
limitation, the Resource Conservation and Recovery Act of 1976 ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), as amended by the Superfund Amendments and Reauthorization Act of
1986 ("SARA"), the Hazardous Materials Transportation Act, the Federal Waste
Pollution Control Act, the Clean Air Act, the Clean Water Act, the Toxic
Substances Control Act, the Safe Drinking Water Act, and all similar federal,
state and local environmental statutes, ordinances and the regulations, orders,
or decrees now or hereafter promulgated thereunder.
"Improvements" shall mean all buildings, improvements, structures and
Fixtures now or on the Closing Date located on the Land, including, without
limitation, landscaping, parking lots and structures, roads, drainage and all
above ground and underground utility structures, equipment systems and other
so-called "infrastructure" improvements.
"Intangible Property" means all Permits, Business Agreements and other
intangible property or any interest therein now or on the Closing Date owned or
held by Seller in connection with the Real Property, including all water rights
and reservations, rights to use the trade name applicable to the Property, as
set forth on Exhibits A-1 through A-9 hereof, and zoning rights related to the
3
<PAGE> 7
Real Property, or any part thereof, to the extent the same are assignable by
Seller; provided, however, "Intangible Property" shall not include the general
corporate trademarks, trade names (except as set forth above), service marks,
logos or insignia or the books and records of Seller, Seller's accounts
receivable and Seller's business and operating licenses for the facilities on
the Real Property.
"Land" means the real property more particularly described on Exhibits
A-1 through A-9, attached hereto and made a part hereof, together with all of
Seller's rights, titles, appurtenant interests, covenants, licenses, privileges
and benefits thereto belonging, and Seller's right, title and interest in and
to any easements, rights-of-way, rights of ingress or egress or other interests
in, on, or to any land, highway, street, road or avenue, open or proposed, in,
on, across, in front of, abutting or adjoining such real property including,
without limitation, any strips and gores adjacent to or lying between such real
property and any adjacent real property.
"Laws" means all federal, state and local laws, moratoria, initiatives,
referenda, ordinances, rules, regulations, standards, orders and other
governmental requirements, including, without limitation, those relating to the
environment, health and safety, disabled or handicapped persons.
"Lease" shall mean the Master Agreement to Lease and the Lease Agreement
in substantially the same form as Exhibit H, attached hereto and made a part
hereof, which shall be executed and delivered by Seller (or an affiliate of
Seller) and Purchaser at the Closing, and pursuant to the terms of which
Purchaser shall lease the Property to Seller (or an affiliate of Seller)
following the Closing.
"Material" and "materially" shall mean a condition, noncompliance,
defect or other fact which would: (a) cost, with respect to any individual
Property, in the aggregate, in excess of Five Hundred Thousand Dollars
($500,000.00) and, with respect to any single defect or fact, would cost, with
respect to any individual Property, in excess of Two Hundred Fifty Thousand
Dollars ($250,000.00), to correct or repair; or (b) in the aggregate, with
respect to any individual Property, result in a loss to Purchaser or a
reduction in the value of such Property in excess of Five Hundred Thousand
Dollars ($500,000.00) and, with respect to any single defect or fact, would,
with respect to any individual Property, result in a loss to Purchaser or a
reduction in the value of such Property in excess of Two Hundred Fifty Thousand
Dollars ($250,000.00).
"Option Agreements" shall mean the Option Agreement or Agreements, in
substantially the same form as Exhibit I, attached hereto and made a part
hereof, which shall be executed and delivered by Seller and Purchaser at the
Closing, and pursuant to which Seller shall grant Purchaser the exclusive
option to acquire the Option Properties.
"Option Properties" shall mean the real property described on Exhibits
A-10 through A-14, attached hereto and made a part hereof, and all other
property of Seller as more particularly set forth in the Option Agreements.
"Permits" shall mean all permits, licenses (but excluding Seller's
business and operating licenses), approvals, entitlements and other
governmental, quasi-governmental and
4
<PAGE> 8
nongovernmental authorizations including, without limitation, certificates of
use and occupancy, required in connection with the ownership, planning,
development, construction, use, operation or maintenance of the Real Property,
to the extent the same are assignable by Seller. As used herein,
"quasi-governmental" shall include the providers of all utility services to the
Real Property.
"Permitted Exceptions" shall mean those title exceptions which have been
approved in writing by Purchaser, or are deemed to have been approved by
Purchaser upon the expiration of the Review Period.
"Personal Property" shall mean all Intangible Property, Warranties, and
Engineering Documents, and all those items of tangible personal property
described on Exhibit J, attached hereto, other than the Fixtures and the
Excluded Personal Property, now or on the Closing Date owned by Seller and
located on or about the Land or Improvements or used in connection with the
operation thereof (specifically excluding personal property owned by employees
of Seller and personal property owned by inmates housed at the Real Property).
"Property" shall mean, collectively, the Land, the Improvements, the
Fixtures, and the Personal Property.
"Purchase Price" shall mean the sum of $_____________________________,
which is allocated to each individual Property, as set forth on Schedule I
attached to this Agreement.
"Real Property" shall mean the Land, the Improvements and the Fixtures.
"Review Period" means a period commencing on the Effective Date and
ending thirty (30) days from the date of Purchaser's receipt of the last of the
Due Diligence Materials; provided, should the Effective Date be less than
thirty (30) days prior to the Closing Date, the Review Period shall terminate
on the date which is five (5) days prior to the Closing Date.
"Right to Purchase Agreement" shall mean the Right to Purchase Agreement
in substantially the same form as Exhibit G attached hereto and made a part
hereof, which shall be executed and delivered by the Parties at the Closing,
and pursuant to the terms of which Seller shall grant Purchaser a right of
first refusal for Purchaser to acquire certain property of Seller and to
provide certain financing to Seller, and an option to purchase certain property
of Seller.
"Search Reports" shall mean reports of searches made of the Uniform
Commercial Code Records of the County in which the Property is located, and of
the office of the Secretary of State of the State in which the Property is
located and in the State in which the principal office of Seller is located,
which searches shall reflect that none of the Property is encumbered by liens
or security interests which will remain on the Property after the Closing. The
Search Reports shall be updated, at Seller's expense, at or within fifteen (15)
days prior to Closing.
"Seller's Operating and Service Agreements" shall mean all management,
service and operating agreements and contracts entered into by Seller with
respect to the Property, including,
5
<PAGE> 9
but not limited to, agreements and contracts to house inmates at the Property,
food service and equipment agreements, inmate pay telephone service agreements,
medical and pharmaceutical service and supply agreements, drug testing service
agreements, public performance and licensing agreements for motion picture
video cassettes, inmate educational and instructional service agreements,
refuse service agreements, pest control service agreements and machinery,
equipment and uniform rental and service agreements.
"Survey" shall mean a current "as-built" ALTA survey, certified to ALTA
requirements, prepared by an engineer or surveyor licensed in the State in
which the Land is located and reasonably acceptable to Purchaser, which shall:
(a) include a narrative legal description of the Land by metes and bounds
(which shall include a reference to the recorded plat, if any), and a
computation of the area comprising the Land in both acres and gross square feet
(to the nearest one-thousandth of said respective measurement); (b) accurately
show the location on the Land of all improvements (dimensions thereof at the
ground surface level and the distance therefrom to the facing exterior property
lines of the Land), building and set-back lines, parking spaces (including
number of spaces), fences, evidence of abandoned fences, ponds, creeks,
streams, rivers, officially designated 100-year flood plains and flood prone
areas, canals, ditches, easements, roads, rights-of-way and encroachments; (c)
location of encroachments, if any, upon adjoining property, or from adjoining
property, upon the Land; (d) state the zoning classification of the Land; (e)
be certified as of the date of the Survey to the Seller, the Purchaser, the
Title Company, and any third-party lender designated by Purchaser; (f) legibly
identify any and all recorded matters shown on said Survey by appropriate
volume and page recording references; (g) show the location and names of all
adjoining streets and the distance to the nearest streets intersecting the
streets that adjoin the Land; (h) be satisfactory to (and updated from time to
time as may be required by) the Title Company so as to permit it to delete the
standard exception for survey matters and replace it with an exception for the
matters shown on the Survey; and (i) include a written Surveyor's Certification
in substantially the same form as set forth on Exhibit K, attached hereto.
"Title Commitment" shall mean a current commitment or current
commitments issued by the Title Company to the Purchaser pursuant to the terms
of which the Title Company shall commit to issue the Title Policy to Purchaser
in accordance with the provisions of this Agreement, and reflecting all matters
which would be listed as exceptions to coverage on the Title Policy.
"Title Company" shall mean Lawyers Title Insurance Corporation or the
national service office of another title insurance company licensed in each
state in which the Property is located selected by Seller and reasonably
satisfactory to Purchaser.
"Title Policy" shall mean an ALTA Extended Coverage Owner's Policy (or
policies) of Title Insurance (10/17/92 Form), or comparable state promulgated
policies, with liability in the aggregate amount of the Purchase Price, dated
as of the Closing Date, issued by the Title Company, insuring title to the fee
interest in the Real Property in Purchaser, subject only to the Permitted
Exceptions and to the standard printed exceptions included in the ALTA standard
form owner's extended coverage policy of title insurance, with the following
modifications: (a) the exception for survey matters shall be deleted and
replaced by an exception for the matters shown
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on the Survey; (b) the exception for ad valorem taxes shall reflect only taxes
for the current and subsequent years; (c) any exception as to parties in
possession shall be limited to rights of Seller in possession, as lessee only,
pursuant to the Lease; and (d) there shall be no general exception for visible
and apparent easements or roads and highways or similar items (with any
exception for visible and apparent easements or roads and highways or similar
items to be specifically referenced to and shown on the Survey and also
identified by applicable recording information).
"Warranties" shall mean all warranties and guaranties with respect to
the Real Property or Personal Property, whether express or implied, which
Seller now holds or under which Seller is the beneficiary, to the extent the
same are assignable by Seller.
ARTICLE II
AGREEMENTS TO SELL, PURCHASE, LEASE AND OPTION AND
AGREEMENT REGARDING RIGHT TO PURCHASE
2.1 Agreement to Sell and Purchase. On the Closing Date, provided
Purchaser shall not have terminated this Agreement pursuant to the provisions
of Section 4.2 hereof, Seller shall sell, convey, assign, transfer and deliver
to Purchaser and Purchaser shall purchase, acquire and accept from Seller, the
Property, for the Purchase Price and subject to the terms and conditions of
this Agreement. Purchaser acknowledges that Seller may elect to transfer some
or all of the Property to one or more affiliates of Seller prior to the Closing
Date subject to the terms and conditions of this Agreement. In such event,
Seller shall cause such affiliates to sell, convey, assign, transfer and
deliver to Purchaser such portion(s) of the Property as may be transferred to
such affiliate(s). In the event of any such transfers of some or all of the
Property to any affiliate of Seller, Seller shall not be relieved of any of its
obligations or liability hereunder. From and after the date of any such
transfer, the term "Seller" as used herein shall refer to both Corrections
Corporation of America and the recipient of such transfer collectively, and to
each such party individually.
2.2 Agreement to Lease. On the Closing Date, and subject to
performance by the Parties of the terms and provisions of this Agreement,
Purchaser shall lease to Seller and Seller shall lease from Purchaser, the
Property at the rental and upon the terms and conditions set forth in the
Lease.
2.3 Agreement to Grant Option. On the Closing Date, and subject to
performance by the Parties of the terms and provisions of this Agreement,
Seller shall grant to Purchaser options to acquire the Option Properties at the
purchase price and upon the terms and conditions set forth in the Option
Agreements.
2.4 Right to Purchase. On the Closing Date, and subject to the
performance by the Parties of the terms and provisions of this Agreement,
Seller shall grant to Purchaser a right of first refusal to acquire certain
property of Seller and a right of first refusal to provide certain financing
for activities of Seller and an option to purchase certain property of Seller,
upon the terms and conditions set forth in the Right to Purchase Agreement.
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ARTICLE III
PURCHASE PRICE
3.1 Payment of Purchase Price. The Purchase Price shall be paid by
Purchaser delivering to the Seller at the Closing Federal Reserve wire transfer
funds or other immediately available collected funds payable to the order of
the Seller in the sum equal to the Purchase Price, subject to adjustment as
herein provided. On or before the Closing, the Parties shall agree on an
allocation of the Purchase Price as between the Real Property and the Personal
Property.
ARTICLE IV
ITEMS TO BE
FURNISHED TO PURCHASER BY SELLER
4.1 Due Diligence Materials. Seller previously has delivered to
Purchaser for its review, or, if not, within fifteen (15) days after the
Effective Date, Seller shall deliver to Purchaser for its review, the following
items:
a. True, correct, complete and legible copies of all
Business Agreements, Warranties, Permits, Accreditations, Applicable Notices,
Engineering Documents and Seller's Operating and Service Agreements (solely for
the purposes of this Section 4.1a., the terms Business Agreements, Warranties,
Permits, and Engineering Documents shall include all agreements, documents and
instruments otherwise included within such definitions, whether or not the same
are assignable by Seller);
b. True, correct, complete and legible copies of tax
statements or assessments for all real estate and personal property taxes
assessed against the Property for the current and the two prior calendar years,
if available;
c. True, correct, complete and legible listing of all
Fixtures, Personal Property and Excluded Property, including a current
depreciation schedule.
d. True, correct, complete and legible copies of all
existing fire and extended coverage insurance policies and any other insurance
policies pertaining to the Property, if any;
e. True, correct, complete and legible copies of all
instruments evidencing, governing or securing the payment of any loans secured
by the property or related thereto. Seller may make such instruments available
for inspection and copying by Purchaser at Seller's principal office;
f. True, correct, complete and legible copies of any and all
environmental studies or impact reports relating to the Property, if any, and
any approvals, conditions, orders or declarations issued by any governmental
authority relating thereto (such studies and reports shall include, but not be
limited to, reports indicating whether the Property is or has been contaminated
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by Hazardous Materials and whether the Property is in compliance with the
Americans with Disabilities Act and Section 504 of the Rehabilitation Act of
1973, as applicable);
g. True, correct, complete and legible copies of any and all
litigation files with respect to any pending litigation and claim files for any
claims made or threatened, the outcome of which might materially affect the
Property or the use and operation of the Property, together with summaries and
such other more detailed information as Purchaser may reasonably request with
respect to any other pending litigation or claim the outcome of which might
materially affect Seller or materially affect the Property. Seller may make
such files available for inspection and copying by Purchaser at Seller's
principal office.
h. The Title Commitment, Exception Documents, Survey and
Search Reports.
4.2 Due Diligence Review. During the Review Period, Purchaser shall
be entitled to review the Due Diligence Materials delivered by Seller to
Purchaser pursuant to the provisions of Section 4.1 above. If Purchaser shall,
for any reason in Purchaser's sole discretion, judgment and opinion, disapprove
or be dissatisfied with any aspect of such information, or the Property, then
Purchaser shall be entitled to terminate this Agreement by giving written
notice thereof to Seller on or before the expiration of the Review Period,
whereupon this Agreement shall automatically be rendered null and void, all
moneys which have been delivered by Purchaser to Seller or the Title Company
shall be immediately returned to Purchaser and thereafter neither Party shall
have any further obligations or liabilities to the other hereunder.
Alternatively, Purchaser may give written notice setting forth any defect,
deficiency or encumbrance and specify a time within which Seller may remedy or
cure such matter prior to the expiration of the Review Period, but Seller shall
have no obligation to remedy or cure any such matters objected to by Purchaser.
If any defect, deficiency or encumbrance, so noticed, is not satisfied or
resolved to the satisfaction of Purchaser, in Purchaser's sole discretion,
within the time period specified in the written notice, this Agreement shall,
at the option of Purchaser, terminate as provided in this Section; said option
to terminate to be exercised, if at all, by Purchaser giving written notice
thereof to Seller and simultaneously paying Seller the sum of One Hundred
Dollars ($100.00) on the earlier of: (a) within three (3) Business Days after
the expiration of said specified time period, or (b) the Closing Date. In the
event Purchaser fails to exercise its option to terminate this Agreement within
the time and in the manner set forth in this Section 4.2, then Purchaser shall
be deemed to have accepted and approved the Due Diligence Materials and the
Property, and to have waived any such defect, deficiency or encumbrance, and to
have accepted all exceptions to title referenced in the Title Commitment and
all matters shown on the Survey. Such accepted title exceptions and survey
matters shall be included in the term "Permitted Exceptions" as used herein.
ARTICLE V
REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS
5.1 Representations and Warranties of Seller. To induce Purchaser
to enter into this Agreement and to purchase the Property, Seller represents
and warrants to Purchaser as follows:
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a. Seller has and at the Closing will have, and will convey,
transfer and assign to Purchaser, good, indefeasible and insurable title to the
Land, free and clear of any deeds of trust, mortgages, liens, encumbrances,
leases, tenancies, licenses, chattel mortgages, conditional sales agreements,
security interests, covenants, conditions, restrictions, judgments,
rights-of-way, easements, encroachments, claims and any other matters affecting
title or use of the Property, except the Permitted Exceptions.
b. Seller has duly and validly authorized and executed this
Agreement, and has full right, title, power and authority to enter into this
Agreement and to consummate the transactions provided for herein, and the
joinder of no person or entity will be necessary to convey the Property fully
and completely to Purchaser at Closing and to lease the Property from Purchaser
following Closing. Seller is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and is qualified
to do business in each state in which any of the Property is located. The
consummation of the transactions contemplated herein does not require the
approval of Seller's shareholders or any third party, except such third party
approvals as Seller has obtained or will obtain prior to the Closing Date. The
execution by Seller of this Agreement and the consummation by Seller of the
transactions contemplated hereby do not, and at the Closing will not, result in
a breach of any of the terms or provisions of, or constitute a default or a
condition which upon notice or lapse of time or both would ripen into a default
under, Seller's Bylaws or Certificate of Incorporation, any indenture,
agreement, instrument or obligation to which Seller is a party or by which the
Property or any portion thereof is bound; and does not constitute a violation
of any Laws, order, rule or regulation applicable to Seller or any portion of
the Property of any court or of any federal, state or municipal regulatory body
or administrative agency or other governmental body having jurisdiction over
Seller or any portion of the Property.
c. There are no adverse or other parties in possession of
the Property or of any part thereof. Seller has not granted to any party any
license, lease or other right relating to the use or possession of the
Property.
d. No notice has been received from any insurance company
that has issued a policy with respect to any portion of the Property or from
any board of fire underwriters (or other body exercising similar functions),
claiming any defects or deficiencies or requiring the performance of any
repairs, replacements, alterations or other work and as of the Closing no such
notice will have been received which shall not have been cured. No notice has
been received by Seller from any issuing insurance company that any of such
policies will not be renewed, or will be renewed only at a higher premium rate
than is presently payable therefor.
e. No pending condemnation, eminent domain, assessment or
similar proceeding or charge affecting the Property or any portion thereof
exists. Seller has not heretofore received any notice, and has no knowledge,
that any such proceeding or charge is contemplated. Seller has not received
any notice of a proposed increase in the assessed valuation of the Property.
f. All Improvements (including all utilities) have been, or
as of the Closing will be, substantially completed and installed in accordance
with the plans and specifications approved
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by the governmental authorities having jurisdiction to the extent applicable
and are transferable to Purchaser without additional cost. Permanent
certificates of occupancy, all licenses, permits, authorizations and approvals
required by all governmental authorities having jurisdiction, and the requisite
certificates of the local board of fire underwriters (or other body exercising
similar functions) have been, or as of the Closing will be, issued for the
Improvements, and, as of the Closing, where required, all of the same will be
in full force and effect. Except as may be set forth in any of the Due
Diligence Materials, the Improvements, as designed and constructed, comply or
will comply with all statutes, restrictions, regulations and ordinances
applicable thereto, including but not limited to the Americans with
Disabilities Act and Section 504 of the Rehabilitation Act of 1973, as
applicable.
g. The existing water, sewer, gas and electricity lines,
storm sewer and other utility systems on the Land are adequate to serve the
current utility needs of the Property. All utilities required for the
operation of the Improvements enter the Land through adjoining public streets
or through adjoining private land in accordance with valid public or private
easements that will inure to the benefit of Purchaser. All approvals, licenses
and permits required for said utilities have been obtained and are in full
force and effect. All of said utilities are installed and operating, or will
be, and all installation and connection charges have been or will be paid in
full.
h. Except as may be set forth in any of the Due Diligence
Materials, the location, construction, occupancy, operation and use of the
Property (including the Improvements) do not violate any applicable law,
statute, ordinance, rule, regulation, order or determination of any
governmental authority or any board of fire underwriters (or other body
exercising similar functions), or any restrictive covenant or deed restriction
(recorded or otherwise) affecting the Property or the location, construction,
occupancy, operation or use thereof, including, without limitation, all
applicable zoning ordinances and building codes, flood disaster laws and health
and environmental laws and regulations, the Americans with Disabilities Act and
Section 504 of the Rehabilitation Act of 1973, as applicable.
i. Except as may be set forth in any of the Due Diligence
Materials, there are not any structural defects in any of the buildings or
other Improvements constituting the Property. The Improvements, all heating,
electrical, plumbing and drainage at, or servicing, the Property and all
facilities and equipment relating thereto are and, as of the Closing, will be
in good condition and working order and adequate in quantity and quality for
the normal operation of the Property. No part of the Property has been
destroyed or damaged by fire or other casualty. To Seller's knowledge, there
are no unsatisfied requests for repairs, restorations or alterations with
regard to the Property from any person, entity or authority, including but not
limited to any lender, insurance provider or governmental authority.
j. Except as previously disclosed by Seller, no work has
been performed or is in progress at the Property, and no materials will have
been delivered to the Property that might provide the basis for a mechanic's,
materialmen's or other lien against the Property or any portion thereof, or
amounts due for such work and material shall have paid or discharged to
Purchaser's satisfaction as of Closing.
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k. There exist no service contracts, management or other
agreements applicable to the Property, to which Seller is a party or otherwise
known to Seller, other than Seller's Operating and Service Agreements and those
agreements furnished to Purchaser pursuant to Section 4.1.
l. Seller is not in default in any manner which would
result in a material adverse effect on Seller under any of the Business
Agreements, or Seller's Operating and Service Agreements or any of the
covenants, conditions, restrictions, rights-of-way or easements affecting the
Property or any portion thereof, and, to Seller's knowledge, no other party to
any of the foregoing is in default thereunder.
m. There are no actions, suits or proceedings pending or, to
Seller's knowledge, threatened against or affecting the Property or any portion
thereof, or relating to or arising out of the ownership or operation of the
Property, or by any federal, state, county or municipal department, commission,
board, bureau or agency or other governmental instrumentality, other than those
disclosed to Purchaser pursuant to Section 4.l. All judicial proceedings
concerning the Property will be finally dismissed and terminated prior to
Closing, excluding inmate lawsuits and other lawsuits in which Seller is
involved in its ordinary course of business.
n. The Property has free and unimpeded access to presently
existing public highways and/or roads (either directly or by way of perpetual
easements); and, to Seller's knowledge, all approvals necessary therefor have
been obtained. To Seller's knowledge, no fact or condition exists which would
result in the termination of the current access from the Property to any
presently existing public highways and/or roads adjoining or situated on the
Property.
o. There are no attachments, executions, assignments for the
benefit of creditors, or voluntary or involuntary proceedings in bankruptcy or
under any other debtor relief laws contemplated by or, to Seller's knowledge,
pending or threatened against Seller or the Property.
p. Except as may be set forth in any of the Due Diligence
Materials, no Hazardous Materials have been installed, used, generated,
manufactured, treated, handled, refined, produced, processed, stored or
disposed of, or otherwise present in, on or under the Property by Seller or to
Seller's knowledge. No activity has been undertaken on the Property by Seller
or to Seller's knowledge which would cause (i) the Property to become a
hazardous waste treatment, storage or disposal facility within the meaning of,
or otherwise bring the Property within the ambit of RCRA or any Hazardous
Materials Law, (ii) a release or threatened release of Hazardous Materials from
the Property within the meaning of, or otherwise bring the Property within the
ambit of, CERCLA or SARA or any Hazardous Materials Law or (iii) the discharge
of Hazardous Materials into any watercourse, body of surface or subsurface
water or wetland, or the discharge into the atmosphere of any Hazardous
Materials which would require a permit under any Hazardous Materials Law. No
activity has been undertaken with respect to the Property by Seller or to
Seller's knowledge which would cause a violation or support a claim under RCRA,
CERCLA, SARA or any Hazardous Materials Law. No investigation, administrative
order, litigation or settlement with respect to any Hazardous Materials is in
existence with respect to the Property, nor, to Seller's knowledge, is any of
the foregoing threatened. No notice has been
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received by Seller from any entity, governmental body or individual claiming
any violation of any Hazardous Materials Law, or requiring compliance with any
Hazardous Materials Law, or demanding payment or contribution for environmental
damage or injury to natural resources. Seller has not obtained and, to
Seller's knowledge, is not required to obtain, and Seller has no knowledge of
any reason Purchaser will be required to obtain, any permits, licenses, or
similar authorizations to occupy, operate or use the Improvements or any part
of the Property by reason of any Hazardous Materials Law. Notwithstanding the
representations made herein, such representations are and shall be deemed to be
limited by the matters detailed in any Phase I Preliminary Site Assessment or
other Due Diligence Materials obtained by or provided to Purchaser in
connection herewith.
q. The Property includes all items of property, tangible and
intangible, currently used by Seller in connection with the operation of the
Property, other than the Excluded Personal Property, Seller's Operating and
Service Agreements, and property expressly excluded from the definition of the
Property.
r. To Seller's knowledge, the Due Diligence Materials
delivered to Purchaser are true, correct and complete in all material respects.
Seller hereby agrees to indemnify and defend, at its sole cost and
expense, and hold Purchaser, its successors and assigns, harmless from and
against and to reimburse Purchaser with respect to any and all claims, demands,
actions, causes of action, losses, damages, liabilities, costs and expenses
(including, without limitation, reasonable attorney's fees and court costs)
actually incurred of any and every kind or character, known or unknown, fixed
or contingent, asserted against or incurred by Purchaser at any time and from
time to time by reason of or arising out of (a) the material breach of any
representation or warranty of Seller set forth in Section 5.1, (b) the failure
of Seller, in whole or in part, to perform any obligation required to be
performed by Seller pursuant to Section 5.1 or (c) the ownership, construction,
occupancy, operation, use and maintenance by Seller or its agents of the
Property prior to the Closing Date. This indemnity applies, without
limitation, to the violation on or before the Closing Date of any Hazardous
Materials Law in effect on or before the Closing Date and any and all matters
arising out of any act, omission, event or circumstance existing or occurring
on or prior to the Closing Date (including, without limitation, the presence on
the Property or release from the Property of Hazardous Materials disposed of or
otherwise released prior to the Closing Date), regardless of whether the act,
omission, event or circumstance constituted a violation of any Hazardous
Materials Law at the time of its existence or occurrence. Subject to the
provisions of Section 10.1, the provisions of this Section 5.1 shall survive
the Closing of the transaction contemplated by this Agreement and shall
continue thereafter in full force and effect for the benefit of Purchaser, its
successors and assigns. Notwithstanding any provision of this Agreement to the
contrary, Purchaser may exercise any right or remedy Purchaser may have at law
or in equity should Seller fail to meet, comply with or perform its indemnity
obligations required by this Section 5.1. In the event a defect, claim or
deficiency is discovered by Purchaser prior to Closing or is noticed in writing
by Seller to Purchaser prior to Closing, Purchaser shall either terminate the
Agreement as provided herein or waive the defect, claim or deficiency and
proceed to Closing.
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5.2 Covenants and Agreements of Seller. Seller covenants and agrees
with Purchaser, from the Effective Date until the Closing or earlier
termination of this Agreement:
a. Seller shall: (i) operate the Property in the ordinary
course of Seller's business and in the same manner as currently operated; and
(ii) fully maintain and repair the Improvements, the Fixtures, and the Personal
Property in good condition and repair.
b. Purchaser shall be entitled to make all inspections or
investigations desired by Purchaser with respect to the Property or any portion
thereof, and shall have complete physical access to the Property, which access
shall occur at such times and in such manner so as to not unreasonably
interfere with Seller's business operations or constitute a safety hazard, as
reasonably determined by Seller.
c. Seller shall cause to be maintained in full force and
effect fire and extended coverage insurance upon the Property and public
liability insurance with respect to damage or injury to persons or property
occurring on or relating to operation of the Property in commercially
reasonable amounts.
d. Seller shall pay when due all bills and expenses of the
Property. Seller shall not enter into or assume any new Business Agreements
with regard to the Property which are in addition to or different from those
furnished and disclosed to Purchaser and reviewed and approved pursuant to
Section 4.1.
e. Seller shall not create or permit to be created any
liens, easements or other conditions affecting any portion of the Property or
the uses thereof without the prior written consent of Purchaser.
f. Seller will pay, as and when due, all interest and
principal and all other charges payable under any indebtedness of Seller
secured by the Property from the date hereof until Closing, and will not suffer
or permit any default or amend or modify the documents evidencing or securing
any such indebtedness without the prior consent of Purchaser.
g. Seller will, subject to limitations provided by law with
respect to privacy rights of inmates, give to Purchaser, its attorneys,
accountants and other representatives, during normal business hours and as
often as may be reasonably requested, full access to all books, records and
files relating to the Property so long as the same does not unreasonably
interfere with Seller's business operations.
h. Seller shall not remove any Personal Property or Fixtures
from the Land or Improvements without replacing same with substantially similar
items of equal or greater value and repairing the damage, if any, to the
Property as a result of such removal.
i. During the pendency of this Agreement, Seller, its
corporate officers, directors, and agents shall not negotiate the sale or other
disposition of the Property with any person or entity other than Purchaser, and
shall not take any steps to initiate, consummate or document the
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sale or other disposition of the Property, or any portion thereof, to any
person or entity other than Purchaser.
j. Prior to the Closing Date, Seller agrees to notify
Purchaser in writing within three (3) Business Days of any offer received by,
delivered to or communicated to Seller for the purchase, sale, acquisition or
other disposition of the Property.
k. Seller shall provide representations, warranties and
consents as may be reasonably required in connection with any public offering
of stock or debt obligations by Purchaser, including, but not limited to,
inclusion of financial statements, summary financial information and other
required information concerning Seller, or Seller as lessee under the Lease, in
any Securities and Exchange Commission filings.
5.3 Representations and Warranties of Purchaser. To induce Seller
to enter into this Agreement and to sell the Property, Purchaser represents and
warrants to Seller as follows:
a. Purchaser has duly and validly authorized and executed
this Agreement, and has full right, title, power and authority to enter into
this Agreement and to consummate the transactions provided for herein, and the
joinder of no person or entity will be necessary to purchase the Property from
Seller at Closing, and to lease the Property to Seller following Closing.
b. The execution by Purchaser of this Agreement and the
consummation by Purchaser of the transactions contemplated hereby do not, and
at the Closing will not, result in a breach of any of the terms or provisions
of, or constitute a default or a condition which upon notice or lapse of time
or both would ripen into a default under, any indenture, agreement, instrument
or obligation to which Purchaser is a party; and does not, and at the Closing
will not, constitute a violation of any Laws, order, rule or regulation
applicable to Purchaser of any court or of any federal, state or municipal
regulatory body or administrative agency or other governmental body having
jurisdiction over Purchaser.
ARTICLE VI
CONDITIONS TO OBLIGATIONS
6.1 Conditions to the Purchaser's Obligations. The obligations of
Purchaser to purchase the Property from Seller and to consummate the
transactions contemplated by this Agreement are subject to the satisfaction, at
all times prior to and as of the Closing (or such other time period specified
below), of each of the following conditions:
a. All of the representations and warranties of Seller set
forth in this Agreement shall be true at all times prior to, at and as of, the
Closing in all material respects and Seller shall deliver a Closing Certificate
in substantially the same form attached hereto as Exhibit D updating such
representations and warranties.
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b. Seller shall have delivered, performed, observed and
complied with, all of the items, instruments, documents, covenants, agreements
and conditions required by this Agreement to be delivered, performed, observed
and complied with by it prior to, or as of, the Closing.
c. Seller shall not be in receivership or dissolution or
have made any assignment for the benefit of creditors, or admitted in writing
its inability to pay its debts as they mature, or have been adjudicated a
bankrupt, or have filed a petition in voluntary bankruptcy, a petition or
answer seeking reorganization or an arrangement with creditors under the
federal bankruptcy law or any other similar law or statute of the United States
or any state and no such petition shall have been filed against it.
d. No material or substantial adverse change shall have
occurred with respect to the condition, financial or otherwise, of the Seller
or the Property.
e. Neither the Property nor any part thereof or interest
therein shall have been taken by execution or other process of law in any
action prior to Closing.
f. Seller shall have obtained and delivered to Purchaser a
current report, dated no more than ten (10) days prior to this Agreement, from
a licensed pest control company reasonably acceptable to Purchaser, and which
must show the Property to be free of all termite, or other destructive insect
and pest infestation.
g. During the Review Period, Purchaser shall have
satisfactorily completed an inspection of the Property with respect to the
physical condition thereof by agents or contractors selected by Purchaser.
h. During the Review Period, Purchaser shall have received,
in form acceptable to Purchaser, evidence of compliance by the Property with
all building codes, zoning ordinances and other governmental entitlements as
necessary for the operation of the Property for the current and intended use,
including, without limitation, certificates of occupancy and such other
permits, licenses, approvals, agreements and authorizations as are required for
the operation of the Property for the current and intended use.
i. During the Review Period, all necessary approvals,
consents and the like of third parties to the validity and effectiveness of the
transactions contemplated hereby have been obtained.
j. During the Review Period, Purchaser is reasonably
satisfied that the Property is sufficient and adequate for Seller to carry on
the business now being conducted thereon and the Property is in good condition
and repair as reasonably required for the proper operation and use thereof in
compliance with applicable laws.
k. During the Review Period, Purchaser has reviewed and
satisfied itself with respect to the Due Diligence Materials and shall not have
terminated this Agreement pursuant to the provisions of Section 4.2 hereof.
16
<PAGE> 20
l. No material portion of the Property shall have been
destroyed by fire or casualty.
m. No condemnation, eminent domain or similar proceedings
shall have been commenced or threatened with respect to any material portion of
the Property.
n. Purchaser shall have been successful in causing the
formation of a real estate investment trust whose interests have been sold to
the public and in connection therewith shall have raised capital in an amount
not less than $_______________________________________.
6.2 Failure of Conditions to Purchaser's Obligations. In the event
any one or more of the conditions to Purchaser's obligations are not satisfied
or waived in whole or in part at any time prior to or as of the Closing,
Purchaser, at Purchaser's option, shall be entitled to: (a) terminate this
Agreement by giving written notice thereof to Seller, whereupon all moneys, if
any, which have been delivered by Purchaser to Seller or the Title Company
shall be immediately refunded to Purchaser and Purchaser shall have no further
obligations or liabilities hereunder; or (b) proceed to Closing hereunder.
6.3 Conditions to the Seller's Obligations. The obligations of
Seller to sell the Property to Purchaser and to consummate the transactions
contemplated by this Agreement are subject to the satisfaction, at all times
prior to and as of the Closing (or such other time period specified below), of
each of the following conditions:
a. All of the representations and warranties of Purchaser
set forth in this Agreement shall be true at all times prior to, at and as of,
the Closing in all material respects and Purchaser shall deliver a Closing
Certificate in substantially the same form attached hereto as Exhibit D
updating such representations and warranties.
b. Purchaser shall have delivered, performed, observed and
complied with, all of the items, instruments, documents, covenants, agreements
and conditions required by this Agreement to be delivered, performed, observed
and complied with by it prior to, or as of, the Closing.
c. Purchaser shall not be in receivership or dissolution or
have made any assignment for the benefit of creditors, or admitted in writing
its inability to pay its debts as they mature, or have been adjudicated a
bankrupt, or have filed a petition in voluntary bankruptcy, a petition or
answer seeking reorganization or an arrangement with creditors under the
federal bankruptcy law or any other similar law or statute of the United States
or any state and no such petition shall have been filed against it.
d. Purchaser shall have been successful in causing the
formation of a real estate investment trust whose interests have been sold to
the public and in connection therewith shall have raised capital in an amount
not less than $_______________________________________.
17
<PAGE> 21
6.4 Failure of Conditions to Seller's Obligations. In the event any
one or more of the conditions to Seller's obligations are not satisfied or
waived in whole or in part at any time prior to or as of the Closing, Seller,
at Seller's option, shall be entitled to: (a) terminate this Agreement by
giving written notice thereof to Purchaser, whereupon all moneys, if any, which
have been delivered by Seller to Purchaser or the Title Company shall be
immediately refunded to Seller and Seller shall have no further obligations or
liabilities hereunder; or (b) proceed to Closing hereunder.
ARTICLE VII
PROVISIONS WITH RESPECT TO THE CLOSING
7.1 Seller's Closing Obligations. At the Closing, Seller shall
furnish and deliver to the Purchaser, at Seller's expense, the following:
a. The Deed, Title Policy (or the Title Commitment marked-up
and initialed by the Title Company), Bill of Sale, Certificate of Non-Foreign
Status, Closing Certificate, Right to Purchase Agreement, Lease and Option
Agreements, each duly executed and acknowledged by Seller and, as appropriate,
in recordable form acceptable in the state and county in which the Property is
located.
b. Certificates of casualty and fire insurance for the
Property and satisfactory evidence of all other insurance coverages as required
pursuant to the Lease showing Purchaser as additional insured and loss payee
thereunder, where appropriate, with appropriate provisions for prior notice to
Purchaser in the event of cancellation or termination of such policies and
otherwise in form and substance reasonably satisfactory to Purchaser.
c. Search Reports, dated not more than fifteen (15) days
prior to Closing, evidencing no UCC-1 Financing Statements or other filings in
the name of Seller with respect to the Property which will remain on the
Property after the Closing.
d. Such affidavits or letters of indemnity as the Title
Company shall require in order to omit from the Title Insurance Policy all
exceptions for unfiled mechanic's, materialman's or similar liens.
e. Any and all transfer declarations or disclosure
documents, duly executed by the appropriate parties, required in connection
with the Deed by any state, county or municipal agency having jurisdiction over
the Property or the transactions contemplated hereby.
f. An opinion of Seller's counsel, dated as of the Closing
Date, in the form of Exhibit L-1, attached hereto.
g. Such instruments or documents as are necessary, or
reasonably required by Purchaser or the Title Company, to evidence the status
and capacity of Seller and the authority
18
<PAGE> 22
of the person or persons who are executing the various documents on behalf of
Seller in connection with the purchase and sale transaction contemplated
hereby.
h. Such other documents as are reasonably required by
Purchaser to carry out the terms and provisions of this Agreement.
7.2 Purchaser's Closing Obligations. At the Closing, Purchaser
shall furnish and deliver to Seller, at Purchaser's expense, the following:
a. Federal Reserve, wire transfer funds or other immediately
available collected funds payable to the order of Seller representing the cash
portion of the Purchase Price due in accordance with Section 3.1 herein.
b. The Closing Certificate, Right to Purchase Agreement,
Lease and Option Agreements, duly executed and acknowledged by Purchaser.
c. Such instruments or documents as are necessary, or
reasonably required by Seller or the Title Company, to evidence the status and
capacity of Purchaser and the authority of the person or persons who are
executing the various documents on behalf of Purchaser in connection with the
purchase and sale transaction contemplated hereby.
d. An opinion of Purchaser's counsel, dated as of the
Closing Date, in the form of Exhibit L-2, attached hereto.
e. Such other documents as are reasonably required by Seller
to carry out the terms and provisions of this Agreement.
f. All necessary approvals, consents, certificates and the
like of third parties to the validity and effectiveness of the transaction
contemplated hereby.
ARTICLE VIII
EXPENSES OF CLOSING
8.1 Adjustments. There shall be no adjustment of taxes,
assessments, water or sewer charges, gas, electric, telephone or other
utilities, operating expenses, employment charges, premiums on insurance
policies, rents or other normally proratable items, it being agreed and
understood by the Parties that the Seller shall be obligated to pay such items
under the terms of the Lease.
8.2 Closing Costs. Seller shall pay (a) all title examination fees
and premiums for the Title Policy; (b) the cost of the Search Reports; (c) the
cost of the Survey; (d) Seller's legal, accounting and other professional fees
and expenses and the cost of all opinions, certificates, instruments, documents
and papers required to be delivered, or to cause to be delivered, by Seller
hereunder, including without limitation, the cost of performance by Seller of
its obligations
19
<PAGE> 23
hereunder; (e) all other costs and expenses which are required to be paid by
Seller pursuant to other provisions of this Agreement; (f) any and all state,
municipal or other documentary or transfer taxes payable in connection with the
delivery of any instrument or document provided in or contemplated by this
Agreement or any agreement or commitment described or referred to herein; and
(g) the charges for or in connection with the recording and/or filing of any
instrument or document provided herein or contemplated by this Agreement or any
agreement or document described or referred to herein. Purchaser shall pay (a)
Purchaser's legal, accounting and other professional fees and expenses and the
cost of all opinions, certificates, instruments, documents and papers required
to be delivered, or to cause to be delivered, by Purchaser hereunder,
including, without limitation, the cost of performance by Purchaser of its
obligations hereunder; and (b) all other costs and expenses which are required
to be paid by Purchaser pursuant to other provisions of this Agreement.
Purchaser and Seller shall each be responsible for other costs in the usual and
customary manner for this kind of transaction in the county where the Property
is located.
8.3 Commissions/Broker's Fees. Seller hereby represents and
warrants to Purchaser that it has not contacted any real estate broker, finder
or any other party in connection with this transaction, and that it has not
taken any action which would result in any real estate broker's, finder's or
other fees being due or payable to any party with respect to the transaction
contemplated hereby. Purchaser hereby represents and warrants to Seller that
Purchaser has not contacted any real estate broker, finder or any other party
in connection with this transaction, and that it has not taken any action which
would result in any real estate broker's, finder's or other fees being due or
payable to any party with respect to the transaction contemplated hereby. Each
Party hereby indemnifies and agrees to hold the other Party harmless from any
loss, liability, damage, cost or expenses (including reasonable attorneys'
fees) resulting to such other Party by reason of a breach of the
representation and warranty made by such Party herein.
ARTICLE IX
DEFAULT AND REMEDIES
9.1 Seller's Default; Purchaser's Remedies.
a. Seller's Default. Seller shall be deemed to be in
default hereunder upon the occurrence of one of the following events: (i) any
of Seller's warranties or representations set forth herein shall be untrue in
any material respect when made or at Closing; or (ii) Seller shall fail to
meet, comply with, or perform any covenant, agreement or obligation on its part
required within the time limits and in the manner required in this Agreement,
which, in either of such events, is not cured by Seller within ten (10) days
following receipt by Seller of written notice of default from Purchaser.
b. Purchaser's Remedies. In the event Seller shall be
deemed to be in default hereunder Purchaser may, at Purchaser's sole option, do
any one or more of the following: (i) terminate this Agreement by written
notice delivered to Seller on or before the Closing; and/or (ii) enforce
specific performance of this Agreement against Seller including Purchaser's
reasonable
20
<PAGE> 24
costs and attorneys fees in connection therewith; and/or (iii) exercise any
other right or remedy Purchaser may have at law or in equity by reason of such
default including, but not limited to, the recovery of reasonable attorneys'
fees incurred by Purchaser in connection herewith.
9.2 Purchaser's Default; Seller's Remedies.
a. Purchaser's Default. Purchaser shall be deemed to be in
default hereunder upon the occurrence of one of the following events: (i) any
of Purchaser's warranties or representations set forth herein shall be untrue
in any material respect when made or at Closing; or (ii) Purchaser shall fail
to meet, comply with, or perform any covenant, agreement or obligation on its
part required within the time limits and in the manner required in this
Agreement, which, in either of such events, is not cured by Purchaser within
ten (10) days following receipt by Purchaser of written notice of default from
Seller.
b. Seller's Remedies. In the event Purchaser shall be
deemed to be in default hereunder Seller may, at Seller's sole option, do any
one or more of the following: (i) terminate this Agreement by written notice
delivered to Purchaser on or before the Closing; and/or (ii) enforce specific
performance of this Agreement against Purchaser including Seller's reasonable
costs and attorneys fees in connection therewith; and/or (iii) exercise any
other right or remedy Seller may have at law or in equity by reason of such
default including, but not limited to, the recovery of reasonable attorneys'
fees incurred by Seller in connection herewith.
ARTICLE X
MISCELLANEOUS
10.1 Survival. All of the representations, warranties, covenants,
agreements and indemnities of Seller and Purchaser contained in this Agreement,
to the extent not performed at the Closing, shall survive the Closing for the
period of one (1) year after the Closing Date and shall not be deemed to merge
upon the acceptance of the Deed by Purchaser.
10.2 Right of Assignment. Neither this Agreement nor any interest
herein may be assigned or transferred by Purchaser to any person, firm,
corporation or other entity without the prior written consent of Seller, which
consent may be given or withheld in the sole discretion of Seller.
10.3 Notices. All notices, requests and other communications under
this Agreement shall be in writing and shall be either (a) delivered in person,
(b) sent by certified mail, return-receipt requested, (c) delivered by a
recognized delivery service or (d) sent by facsimile transmission and addressed
as follows:
21
<PAGE> 25
If intended for Purchaser: CCA Prison Realty Trust
2200 Abbott Martin Road, Suite 201
Nashville, Tennessee 37215
Phone: (615) 460-1220
Fax: (615) 460-1206
Attention: Michael W. Devlin
With a copy to: Sherrard & Roe, PLC
424 Church Street, Suite 2000
Nashville, Tennessee 37219
Phone: (615) 742-4200
Fax: (615) 742-4539
Attention: Kim A. Brown
If intended for Seller: Corrections Corporation of America
102 Woodmont Boulevard, Suite 800
Nashville, Tennessee 37205
Phone: (615) 292-3100
Fax: (615) 269-8635
Attention: Darrell K. Massengale
With a copy to: Stokes & Bartholomew, P.A.
424 Church Street, Suite 2800
Nashville, Tennessee 37219
Phone: (615) 259-1450
Fax: (615) 259-1470
Attention: Elizabeth E. Moore
or at such other address, and to the attention of such other person, as the
parties shall give notice as herein provided. A notice, request and other
communication shall be deemed to be duly received if delivered in person or by
a recognized delivery service, when delivered to the address of the recipient,
if sent by mail, on the date of receipt by the recipient as shown on the
return-receipt card, or if sent by facsimile, upon receipt by the sender of an
acknowledgment or transmission report generated by the machine from which the
facsimile was sent indicating that the facsimile was sent in its entirety to
the recipient's facsimile number; provided that if a notice, request or other
communication is served by hand or is received by facsimile on a day which is
not a Business Day, or after 5:00 P.M. on any Business Day at the addressee's
location, such notice or communication shall be deemed to be duly received by
the recipient at 9:00 a.m. on the first Business Day thereafter.
10.4 Entire Agreement; Modifications. This Agreement embodies and
constitutes the entire understanding between the Parties with respect to the
transactions contemplated herein, and all prior or contemporaneous agreements,
understandings, representations and statements (oral or written) are merged
into this Agreement. Neither this Agreement nor any provision hereof may be
waived, modified, amended, discharged or terminated except by an instrument in
writing
22
<PAGE> 26
signed by the Party against whom the enforcement of such waiver, modification,
amendment, discharge or termination is sought, and then only to the extent set
forth in such instrument.
10.5 Applicable Law. THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TENNESSEE. The Parties agree that jurisdiction and venue
for any litigation arising out of this Agreement shall be in the Courts of
Davidson County, Tennessee or the U.S. District Court for the Middle District
of Tennessee and, accordingly, consent thereto.
10.6 Captions. The captions in this Agreement are inserted for
convenience of reference only and in no way define, describe, or limit the
scope or intent of this Agreement or any of the provisions hereof.
10.7 Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, legal representatives, successors, and assigns.
10.8 Time is of the Essence. With respect to all provisions of this
Agreement, time is of the essence. However, if the first date of any period
which is set out in any provision of this Agreement falls on a day which is not
a Business Day, then, in such event, the time of such period shall be extended
to the next day which is a Business Day.
10.9 Waiver of Conditions. Any Party may at any time or times, at
its election, waive any of the conditions to its obligations hereunder, but any
such waiver shall be effective only if contained in a writing signed by such
Party. No waiver by a Party of any breach of this Agreement or of any warranty
or representation hereunder by the other Party shall be deemed to be a waiver
of any other breach by such other Party (whether preceding or succeeding and
whether or not of the same or similar nature), and no acceptance of payment or
performance by a Party after any breach by the other Party shall be deemed to
be a waiver of any breach of this Agreement or of any representation or
warranty hereunder by such other Party, whether or not the first Party knows of
such breach at the time it accepts such payment or performance. No failure or
delay by a Party to exercise any right it may have by reason of the default of
the other Party shall operate as a waiver of default or modification of this
Agreement or shall prevent the exercise of any right by the first Party while
the other Party continues to be so in default.
10.10 Joinder by Subsidiary. (a) Purchaser acknowledges that (i) the
Bridgeport Pre-Parole Transfer Facility in Bridgeport, Texas (the "Bridgeport
Facility") comprising a portion of the Property is owned by Concept
Incorporated, a Delaware corporation ("Concept"), (ii) the Mineral Wells
Pre-Parole Transfer Facility in Mineral Wells, Texas (the "Mineral Wells
Facility") comprising a portion of the Property is owned by Mineral Wells R.E.
Holding Corp., a Delaware corporation ("Mineral Wells"), and (iii) the Eloy
Detention Center in Eloy, Arizona (the "Eloy Facility") comprising a portion of
the Property is owned by United-Concept Limited Partnership, an Arizona limited
partnership ("United-Concept").
23
<PAGE> 27
(b) Concept joins in the execution of this Agreement for the
purposes of agreeing to all of the terms and provisions of this Agreement, and
making all of the covenants, representations and warranties under this
Agreement, with respect to the Bridgeport Facility. The term "Seller" as used
herein shall refer to both Corrections Corporation of America and Concept
collectively and to each such party individually, jointly and severally, with
respect to the Bridgeport Facility.
(c) Mineral Wells joins in the execution of this Agreement of
the purposes of agreeing to all of the terms and provisions of this Agreement,
and making all of the covenants, representations and warranties under this
Agreement, with respect to the Mineral Wells Facility. The term "Seller" as
used herein shall refer to both Corrections Corporation of America and Mineral
Wells collectively and to each such party individually, jointly and severally,
with respect to the Mineral Wells Facility.
(d) United-Concept joins in the execution of this Agreement
of the purposes of agreeing to all of the terms and provisions of this
Agreement, and making all of the covenants, representations and warranties
under this Agreement, with respect to the Eloy Facility. The term "Seller" as
used herein shall refer to both Corrections Corporation of America and
United-Concept collectively and to each such party individually, jointly and
severally, with respect to the Eloy Facility.
24
<PAGE> 28
EXECUTED to be effective as of the Effective Date.
SELLER: PURCHASER:
CORRECTIONS CORPORATION CCA PRISON REALTY TRUST
OF AMERICA
By:
-----------------------------------
By:
--------------------------------
Its:
----------------------------------
Its:
-------------------------------
Date:
---------------------------------
Date:
------------------------------
Purchaser's Tax Identification
Number:
-------------------------------
Seller's Tax Identification Number:
- -----------------------------------
CONCEPT, INCORPORATED
By:
--------------------------------
Its:
-------------------------------
Date:
------------------------------
Tax Identification Number:
---------
MINERAL WELLS R.E. HOLDING CORP.
By:
--------------------------------
Its:
-------------------------------
Date:
------------------------------
Tax Identification Number:
---------
UNITED-CONCEPT LIMITED
PARTNERSHIP
By: ,
--------------------------------
General Partner
By:
-----------------------------
Its:
---------------------------
Date:
---------------------------
Tax Identification Number:
--------------------------------
25
<PAGE> 29
AGREEMENT OF TITLE COMPANY
By its execution of this Agreement, the Title Company agrees to: (a)
timely file a return with the Internal Revenue Service on Form 1099-B, Form
1099-S and/or such other form or forms as the Internal Revenue Service may by
form or regulation require, and (b) furnish Purchaser with a written statement
showing the name and address of the Title Company and the information shown on
such form or forms with respect to Purchaser, and (c) comply with the
provisions of the Agreement which are applicable to the Title Company. Such
form or forms shall be filed in order that the parties to this transaction will
be in compliance with Section 6045 of the Internal Revenue Code of 1986, as
amended. Purchaser and Seller shall each provide their taxpayer identification
numbers to the Title Company so that such information may be included in the
form or forms filed by the Title Company.
LAWYERS TITLE INSURANCE CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
26
<PAGE> 30
LIST OF SCHEDULES AND EXHIBITS
<TABLE>
<S> <C> <C>
Schedule I - Purchase Price
Exhibit A - Real Property Descriptions
Exhibit B - Bill of Sale and Assignment
Exhibit C - Certificate of Non-Foreign Status
Exhibit D - Closing Certificate
Exhibit E - Deed
Exhibit F - Excluded Personal Property
Exhibit G - Right to Purchase Agreement
Exhibit H - Master Agreement to Lease and Lease Agreement
Exhibit I - Option Agreements
Exhibit J - Personal Property
Exhibit K - Surveyor's Certificate
Exhibit L-1 - Opinion of Seller's Counsel
Exhibit L-2 - Opinion of Purchaser's Counsel
</TABLE>
<PAGE> 31
SCHEDULE I
PURCHASE PRICE
<TABLE>
<S> <C>
Houston Processing Center $
----------------
Laredo Processing Center $
----------------
Bridgeport Pre-Parole Transfer Facility $
----------------
Mineral Wells Pre-Parole Transfer Facility $
----------------
West Tennessee Detention Facility $
----------------
Leavenworth Detention Facility $
----------------
Central Arizona Detention Facility $
----------------
T. Don Hutto Conventional Center $
----------------
Eloy Detention Center $
----------------
</TABLE>
<PAGE> 32
EXHIBITS
TO
AGREEMENT OF SALE AND PURCHASE
BY AND BETWEEN
CORRECTIONS CORPORATION OF AMERICA,
a Delaware corporation
("SELLER")
AND
CCA PRISON REALTY TRUST,
a Maryland real estate investment trust
("PURCHASER")
<PAGE> 33
EXHIBIT A
PROPERTY DESCRIPTION
<PAGE> 34
EXHIBIT A-1
Bridgeport Pre-Parole Transfer Facility
Bridgeport, Texas
<PAGE> 35
EXHIBIT A-2
Central Arizona Detention Center
Florence, Arizona
<PAGE> 36
EXHIBIT A-3
Mineral Wells Pre-Parole Transfer Facility
Mineral Wells, Texas
<PAGE> 37
EXHIBIT A-4
Leavenworth Detention Center
Leavenworth, Kansas
<PAGE> 38
EXHIBIT A-5
West Tennessee Detention Facility
Mason, Tennessee
<PAGE> 39
EXHIBIT A-6
Houston Processing Center
Houston, Texas
<PAGE> 40
EXHIBIT A-7
T. Don Hutto Correctional Facility
Taylor, Texas
<PAGE> 41
EXHIBIT A-8
Laredo Processing Center
Laredo, Texas
<PAGE> 42
EXHIBIT A-9
Eloy Detention Center
Eloy, Arizona
<PAGE> 43
EXHIBIT A-10
Northeast Ohio Correctional Center
Youngstown, Ohio
<PAGE> 44
EXHIBIT A-11
Torrance County Detention Facility
Estancia, New Mexico
<PAGE> 45
EXHIBIT A-12
Southern Colorado Correctional Facility
Walsenburg, Colorado
<PAGE> 46
EXHIBIT A-13
North Fork Correctional Facility
Sayre, Oklahoma
<PAGE> 47
EXHIBIT A-14
Whiteville Correctional Center
Whiteville, Tennessee
<PAGE> 48
EXHIBIT B
BILL OF SALE AND ASSIGNMENT
STATE OF
-------------------------- Section
Section KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF Section
-------------------------
THAT, CORRECTIONS CORPORATION OF AMERICA, a Delaware corporation ("Grantor" or
"Seller"), for and in consideration of the sum of Ten and No/100 Dollars
($10.00) and other good and valuable consideration to it in hand paid by CCA
PRISON REALTY TRUST, a Maryland real estate investment trust ("Grantee" or
"Purchaser"), to the extent legally permissible, has GRANTED, SOLD, ASSIGNED,
TRANSFERRED, CONVEYED, and DELIVERED and does by these presents GRANT, SELL,
ASSIGN, TRANSFER, CONVEY, and DELIVER unto the said Purchaser, all of Seller's
right, title and interest in and to the following described properties, rights,
and interests (such properties, rights and interests being hereinafter
collectively referred to as the "Personal Property", as defined in that certain
Agreement of Sale and Purchase, dated as of ______________, 199___, by and
between Seller and Purchaser and being hereinafter referred to as the
"Agreement"), located on or about that certain land described on Exhibit A,
attached hereto and incorporated herein for all purposes, or the buildings,
improvements, structures and Fixtures (as defined in the Agreement) thereon
(such land, buildings, improvements, structures and Fixtures being hereinafter
collectively referred to as the "Real Property" as defined in the Agreement),
or used in connection with the operation thereof:
All permits, licenses (but excluding Seller's business and
operating licenses), approvals, entitlements and other governmental,
quasi-governmental and nongovernmental authorizations including, without
limitation, certificates of use and occupancy, required in connection
with the ownership, planning, development, construction, use, operation
or maintenance of the Real Property, to the extent the same are
assignable by Seller (the "Permits" as defined in the Agreement), any
leases, contract rights, loan agreements, mortgages, easements,
covenants, restrictions or other agreements or instruments affecting all
or a portion of the Real Property or Personal Property, to the extent
the same are assignable by Seller, but specifically excluding all of
Seller's Operating and Service Agreements (as defined in the Agreement)
(the "Business Agreements" as defined in the Agreement), and other
intangible property or any interest therein owned or held by Seller in
connection with the Real Property, including all water rights and
reservations, rights to use the trade name applicable to the Real
Property, and zoning rights related to the Real Property, or any part
thereof, to the extent the same are assignable by Seller; provided,
however, such Personal Property shall not include the general corporate
trademarks, trade names (except as set forth above), service marks,
logos or insignia or the books and records of Seller, Seller's accounts
receivable and Seller's business and operating licenses for the
facilities on the Real Property (the "Intangible Property" as defined in
the Agreement).
<PAGE> 49
All warranties and guaranties with respect to the Real
Property or Personal Property, whether express or implied, which Seller
now holds or under which Seller is the beneficiary, to the extent the
same are assignable by Seller (the "Warranties" as defined in the
Agreement).
All site plans, surveys, soil and substrata studies,
architectural drawings, plans and specifications, engineering plans and
studies, floor plans, landscape plans, Americans with Disabilities Act
compliance reports, environmental reports and studies, professional
inspection reports, construction and/or architect's reports or
certificates, feasibility studies, appraisals, and other similar plans
and studies that relate to the Real Property, to the extent the same are
assignable by Seller or the Personal Property (the "Engineering
Documents" as defined in the Agreement).
All those items of tangible personal property described on
Exhibit B, attached hereto and incorporated herein for all purposes, now
or on the Closing Date owned by Seller.
THERE IS EXPRESSLY EXCLUDED FROM THE PERSONAL PROPERTY THE FOLLOWING:
(i) Excluded Personal Property as defined in the Agreement, (ii) Fixtures as
defined in the Agreement, (iii) personal property owned by employees of Seller
and personal property owned by inmates housed at the Real Property, and (iv)
Seller's Operating and Service Agreements as defined in the Agreement.
TO HAVE AND TO HOLD the Personal Property unto the said Purchaser, its
successors and assigns, forever, and Seller does hereby bind itself and its
successors to warrant and forever defend, all and singular, title to the said
Personal Property unto the said Purchaser, its successors and assigns, against
every person whomsoever lawfully claiming or to claim the same, or any part
thereof by, through or under Seller, but not further or otherwise.
Seller and its successors hereby warrants, represents, covenants and
agrees with Purchaser as follows:
(i) That Seller is the owner of the Personal Property, which
Personal Property is free and clear of any and all liens, security interests,
or other encumbrances except the Permitted Exceptions (as defined in the
Agreement) and attached hereto as Schedule A and incorporated herein by
reference for all purposes, and this sale and assignment is made and accepted
expressly subject to the matters set forth on Schedule A attached hereto;
(ii) That Seller shall indemnify and hold harmless Purchaser from
and against any and all liability, loss, damage, cost or expense, including
reasonable attorneys' fees, which Purchaser may suffer or incur by reason of
any act or cause of action occurring or accruing prior to the effective date
hereof and arising out of the ownership and/or operation of the Real Property
or the Personal Property, except for (a) any obligations expressly assumed
under the Agreement by the Purchaser; and (b) any liability, loss, damage, cost
or expense arising out of the actions or omissions of the Purchaser.
<PAGE> 50
Purchaser and its successors and assigns hereby warrant, represent,
covenant and agree with Seller that Purchaser shall indemnify and hold harmless
Seller from and against any and all liability, loss, damage, cost or expense,
including reasonable attorneys' fees, which Seller may suffer or incur by
reason of any act or cause of action occurring or accruing subsequent to the
effective date hereof and arising out of the ownership and/or operation of the
Real Property or the Personal Property,except (i) any obligations which are
expressly retained by the Seller pursuant to the terms and provisions of a
written agreement with the Purchaser, and (ii) any liability, loss, damage,
cost or expense arising out of the actions or omissions of the Seller.
The agreements, covenants, warranties and representations herein set
forth shall be binding upon and shall inure to the benefit of Seller and
Purchaser and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Bill of Sale and
Assignment to be executed by its duly authorized officers effective as of the
day of _____________, 19___.
SELLER:
CORRECTIONS CORPORATION OF AMERICA
By:
----------------------------------------
Its:
---------------------------------------
PURCHASER:
CCA PRISON REALTY TRUST
By:
----------------------------------------
Its:
---------------------------------------
<PAGE> 51
STATE OF
--------------------------- )
COUNTY OF
------------------------- )
Before me, the undersigned, a Notary Public of the State and County
aforesaid, personally appeared ________________________________, with whom I am
personally acquainted (or proved to me on the basis of satisfactory evidence),
and who, upon oath, acknowledged _____ self to be ___________________________
________________________________ of CORRECTIONS CORPORATION OF AMERICA, the
within named bargainor, a Delaware corporation, and that ____ he, as such
________________________________, being authorized so to do, executed the
foregoing instrument for the purposes therein contained, by signing the name of
the corporation by ___ self as ________________________________.
WITNESS my hand, at office, this _______ day of ____________________,
1997.
--------------------------------------------
Notary Public
My Commission Expires:
- ------------------------------
STATE OF
--------------------------- )
COUNTY OF
------------------------- )
Before me, the undersigned, a Notary Public of the State and County
aforesaid, personally appeared ________________________________, with whom I am
personally acquainted (or proved to me on the basis of satisfactory evidence),
and who, upon oath, acknowledged _____ self to be ____________________________
________________________________ of CCA PRISON REALTY TRUST, the within named
bargainor, a Maryland real estate investment trust, and that ___ _he, as such
________________________________, being authorized so to do, executed the
foregoing instrument for the purposes therein contained, by signing the name of
the real estate investment trust by ___ self as ______________________________
________________________________.
Witness my hand, at office, this _________ day of _______________________,
1997.
---------------------------------------------
Notary Public
My Commission Expires:
- ------------------------------
<PAGE> 52
Exhibit A to Bill of Sale and Assignment
Property Description
<PAGE> 53
Exhibit B to Bill of Sale and Assignment
Items of Personal Property
<PAGE> 54
Schedule A to Bill of Sale and Assignment
Permitted Exceptions
<PAGE> 55
EXHIBIT C
CERTIFICATE OF NON-FOREIGN STATUS
STATE OF
-------------------------- Section
Section KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF Section
-------------------------
BEFORE ME, the undersigned authority, on this day personally appeared
_______________________ ("Affiant"), of CORRECTIONS CORPORATION OF AMERICA
("Seller"), who after being duly sworn, upon Seller's oath did depose and state
under penalty of perjury that for purposes of Section 1445 of the Internal
Revenue Code of 1986, as amended, in connection with the sale, transfer and
conveyance of that certain property located and particularly described on
Exhibit A attached hereto and incorporated herein for all purposes (the
"Property"), and in order to inform CCA PRISON REALTY TRUST, a Maryland real
estate investment trust ("Purchaser"), that withholding of tax is not required
upon the disposition of the Property by Seller:
(i) that Seller is not a foreign corporation, foreign partnership,
foreign trust, or foreign estate (as these terms are defined
in the Internal Revenue Code and Income Tax Regulations);
(ii) that Seller's United States taxpayer identification number is
_________________________________________;
(iii) that Seller's mailing address is 102 Woodmont Boulevard, Suite
800, Nashville, Tennessee 37205; and
(iv) that Seller understands that this Affidavit may be disclosed
to the Internal Revenue Service by Purchaser and that any
false statement contained herein could be punishable by fine,
imprisonment or both.
Under penalties of perjury Affiant declares that he has examined this
Affidavit, that to the best of his knowledge and belief it is true, correct and
complete, and that Affiant has the authority to sign this Affidavit on behalf
of Seller.
CORRECTIONS CORPORATION OF AMERICA
By:
------------------------------------------
Its:
-----------------------------------------
<PAGE> 56
STATE OF
-------------------------- )
COUNTY OF
------------------------- )
Before me, the undersigned, a Notary Public of the State and County
aforesaid, personally appeared ________________________________, with whom I am
personally acquainted (or proved to me on the basis of satisfactory evidence),
and who, upon oath, acknowledged _____ self to be _____________________________
________________________________ of CORRECTIONS CORPORATION OF AMERICA, the
within named bargainor, a Delaware corporation, and that ____ he, as such
________________________________, being authorized so to do, executed the
foregoing instrument for the purposes therein contained, by signing the name of
the corporation by ___ self as ________________________________.
WITNESS my hand, at office, this _______ day of ____________________,
1997.
---------------------------------------------
Notary Public
My Commission Expires:
- ------------------------------
<PAGE> 57
Exhibit A to Certificate of Non-Foreign Status
Property Description
<PAGE> 58
EXHIBIT D
CLOSING CERTIFICATE
The undersigned hereby certifies that the representations and warranties
contained in Section [5.1/5.3] of that certain Agreement of Sale and Purchase
(the "Agreement") dated _______________________________, by and between
CORRECTIONS CORPORATION OF AMERICA, a Delaware corporation ("Seller"), and CCA
PRISON REALTY TRUST, a Maryland real estate investment trust ("Purchaser"),
which representations and warranties are incorporated herein as though set out
in full herein, are true and correct in all material respects as of the Closing
Date defined in the Agreement as if made on and as of the Closing Date, shall
survive the consummation of the purchase and sale transaction as contemplated
by and for the time period provided in the Agreement and shall not be deemed to
merge upon the acceptance of the deed by Purchaser delivered in connection with
the consummation of such purchase and sale transaction.
This certificate is given to [Seller/Purchaser] with the realization and
understanding that all matters referenced above are material to the decision of
[Seller/Purchaser] to close said sale and purchase on the Closing Date and
[Seller/Purchaser] is acting in reliance thereon.
Dated this ________ day of _______________________, 199___.
---------------------------------------------
By:
------------------------------------------
Its:
-----------------------------------------
<PAGE> 59
STATE OF )
--------------------------
COUNTY OF )
-------------------------
Before me, the undersigned, a Notary Public of the State and County
aforesaid, personally appeared ________________________________, with whom I am
personally acquainted (or proved to me on the basis of satisfactory evidence),
and who, upon oath, acknowledged _____ self to be ___________________________
________________________________ of __________________________________, the
within named bargainor, a Delaware corporation, and that ____ he, as such
________________________________, being authorized so to do, executed the
foregoing instrument for the purposes therein contained, by signing the name of
the corporation by ___ self as ________________________________.
WITNESS my hand, at office, this _______ day of ____________________,
1997.
---------------------------------------------
Notary Public
My Commission Expires:
- ------------------------------
<PAGE> 60
EXHIBIT E
DEED
This Instrument prepared by:
Stokes & Bartholomew, P.A.
424 Church Street
Suite 2800
Nashville, Tennessee 37219
ADDRESS NEW OWNER: SEND TAX BILL TO: MAP-PARCEL
CCA Prison Realty Trust Parcel _______
- ------------------------------------
- ------------------------------------
SPECIAL WARRANTY DEED
FOR AND IN CONSIDERATION of the sum of Ten Dollars ($10.00), cash in
hand paid by the hereinafter named GRANTEE, and other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged,
CORRECTIONS CORPORATION OF AMERICA, a Delaware corporation (hereinafter the
"GRANTOR"), has bargained and sold, and by these presents does hereby transfer,
assign and convey unto CCA PRISON REALTY TRUST, a Maryland real estate
investment trust (hereinafter the "GRANTEE"), its successors and assigns, that
certain tract or parcel of land in ________________, _______________ County,
____________________________, described on Exhibit A, attached hereto and
incorporated herein by reference.
This is improved property known as _________________________________
_____________________________________________________________________________.
<PAGE> 61
The conveyance of the property herein, and all covenants and
warranties of GRANTOR contained herein, are made expressly subject to those
matters set forth on Exhibit B, attached hereto and incorporated herein by
reference.
TO HAVE AND TO HOLD said property, with the appurtenances, estate,
title and interest thereto belonging to the said GRANTEE, and GRANTEE'S
successors and assigns, forever. GRANTOR covenants that the title to said
property is free from all encumbrances made or suffered by GRANTOR, except as
otherwise set forth herein; and GRANTOR further covenants and binds itself, and
its successors and assigns, to warrant specially and forever defend the title
to said property to the said GRANTEE, its successors and assigns, against the
lawful claims of all persons claiming by, through or under GRANTOR, but not
further or otherwise.
IN WITNESS WHEREOF, the GRANTOR has caused this Special Warranty Deed
to be executed as of this _____ day of ___________, 19__.
CORRECTIONS CORPORATION OF AMERICA
By:
------------------------------------------
Its:
-----------------------------------------
<PAGE> 62
STATE OF
------------------------- )
COUNTY OF
------------------------- )
Before me, the undersigned, a Notary Public of the State and County
aforesaid, personally appeared ________________________________, with whom I am
personally acquainted (or proved to me on the basis of satisfactory evidence),
and who, upon oath, acknowledged _____ self to be ___________________________
________________________________ of CORRECTIONS CORPORATION OF AMERICA, the
within named bargainor, a Delaware corporation, and that ____ he, as such
________________________________, being authorized so to do, executed the
foregoing instrument for the purposes therein contained, by signing the name of
the corporation by ___ self as ________________________________.
WITNESS my hand, at office, this _______ day of ____________________, 1997.
----------------------------------------
Notary Public
My Commission Expires:
- ------------------------------
STATE OF
----------------------- )
COUNTY OF
---------------------- )
The actual consideration or value, whichever is greater, for this transfer
is $________________.
---------------------------------------
Affiant
Subscribed and sworn to before me this
________ day of ________________, 1997.
- -------------------------------------
Notary Public
My Commission Expires:
- ----------------------------
<PAGE> 63
Exhibit A to Special Warranty Deed
Property Description
<PAGE> 64
Exhibit B to Special Warranty Deed
Permitted Exceptions
<PAGE> 65
EXHIBIT F
EXCLUDED PERSONAL PROPERTY
<PAGE> 66
EXHIBIT G
RIGHT TO PURCHASE AGREEMENT
<PAGE> 67
EXHIBIT H
MASTER AGREEMENT TO LEASE
AND
LEASE AGREEMENT
<PAGE> 68
EXHIBIT I
OPTION AGREEMENTS
<PAGE> 69
EXHIBIT J
PERSONAL PROPERTY
<PAGE> 70
EXHIBIT K
SURVEYOR'S CERTIFICATE
This is to certify to Corrections Corporation of America and CCA Prison
Realty Trust, and their respective successors and assigns, and ____________
__________________________________________ Title Insurance Company that this
map or plat of survey is based on a field survey of the property depicted
hereon (the "Property") made on __________________________, 199___, by me or
directly under my supervision in accordance with the current "Minimum Standard
Detail Requirements for ALTA/ACSM Land Title Surveys", jointly established and
adopted by American Land Title Association and American Congress on Surveying
and Mapping, and to the best of my professional knowledge, information and
belief,
1. correctly represents the facts found at the time of survey;
2. except as shown on the survey map, there are no discrepancies between the
boundary lines of the Property as shown on the survey map and as
described in the legal description of record;
3. the boundary line dimensions as shown on the survey map form a
mathematically closed figure within + 0.01 foot;
4. except as shown on the survey map, the boundary lines of the Property are
contiguous with the boundary lines of all adjoining parcels, roads,
highways, streets or alleys as described in their most recent respective
legal descriptions of record;
5. the field survey meets the Accuracy Standards (as adopted by ALTA and
ACSM and in effect on the date of this certification) of an Urban survey
as defined therein;
6. all monuments shown hereon actually exist, and the location, size and
type of material thereof are correctly shown;
7. except as shown hereon, there are no visible encroachments onto the
Property, there are no visible easements or rights-of-way on the Property
and there are no visible discrepancies, conflicts, shortages in area or
boundary line conflicts;
8. the size, location and type of improvements are as shown hereon, and all
are located within the boundaries of the Property and with applicable
minimum building setback lines, as shown herein;
9. the distance from the nearest intersecting street or road is as shown;
10. all roadways shown on the survey map are dedicated public roads unless
otherwise indicated;
11. the boundaries, dimensions and other details shown hereon are accurate,
true and correct;
<PAGE> 71
12. the Property is not located in a 100-Year Flood Plain or in an identified
"flood prone area", as defined by the U.S. Department of Housing and
Urban Development, pursuant to the Flood Disaster Protection Act of 1973,
as amended, as reflected by Flood Insurance Rate Map Panel #___________,
dated ____________________, which map panel covers the area in which the
Property is situated. Said map indicates that the Property is located in
Flood Zone __________ which means ______________________________________
______________________________; and,
13. this survey map shows all items described in Items 1, 2, 3, 4, 6, 7(a),
7(b)(1), 8, 9, 10, 11 and 13 of Table A of such ALTA/ACSM Standards.
---------------------------------------------
Surveyor or Engineer
Registered Land Surveyor No.
-----------------
<PAGE> 72
EXHIBIT L-1
OPINION OF SELLER'S COUNSEL
<PAGE> 73
EXHIBIT L-2
OPINION OF PURCHASER'S COUNSEL
<PAGE> 1
EXHIBIT 3.1
DECLARATION OF TRUST
OF
CCA PRISON REALTY TRUST
The undersigned natural persons, having the capacity to contract and
intending to create a real estate investment trust, and acting on behalf of a
real estate investment trust under Title 8 of the Annotated Code of Maryland,
Corporations and Associations Article (the "Maryland REIT Law"), adopt the
following Declaration of Trust for such trust:
1. Name. The name of the trust is CCA Prison Realty Trust (the
"Trust").
2. Purposes and Powers. The Trust is a for-profit real estate
investment trust organized for the purpose of engaging in any activity
permitted to real estate investment trusts under the laws of the State of
Maryland. The Trust shall have all the powers granted to real estate
investment trusts generally by the Maryland REIT Law or any successor statute
and shall have further powers as are not inconsistent with and are appropriate
to promote and attain its purposes.
3. Registered and Principal Office. The address of the Trust's
initial registered office is 32 South Street, Baltimore, Maryland 21202. The
address of the Trust's initial principal office is 2200 Abbott Martin Road,
Suite 201, Nashville, Tennessee 37215.
4. Registered Agent. The name of the Trust's initial registered
agent at that office is Corporation Trust Incorporated.
5. Authorized Capital Shares. The total number of shares which
the Trust has authority to issue is ninety million (90,000,000) shares of a
class denominated Common Shares, $.01 par value per share, and ten million
(10,000,000) shares of a class denominated Preferred Shares, $.01 par value per
share.
Common Shares maybe issued from time to time upon authorization by the
Board of Trustees of the Trust. The Preferred Shares may be issued from time
to time upon authorization by the Board of Trustees of the Trust, in such
series and with such preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or other provisions
as may be fixed by the Board of Trustees, except as otherwise set forth in this
Declaration of Trust. Shares may be issued for such consideration as the Board
of Trustees determines, or, if issued as a result of a share dividend or share
split, without any consideration, and all shares so issued will be fully paid
and non-assessable by the Trust.
6. Annual Meeting. A meeting of shareholders shall be held
annually after the delivery of the annual report at a convenient location upon
proper notice as set forth in the Bylaws of the Trust.
7. Trustees. (a) The Trust shall have a Board of Trustees
consisting of not less than three (3) nor more than fifteen (15) members, as
determined from time to time by the Board of Trustees by resolution of the
Board of Trustees in accordance with the Bylaws of the Trust, provided that the
number of trustees shall never be less than the minimum number required by the
Maryland REIT Law. The Board of Trustees shall initially consist of nine (9)
trustees. At lease three (3) members of the Board of Trustees must be
Independent Trustees. An "Independent Trustee" is defined to be an individual
who qualifies as a trustee under the Bylaws of the Company but who is neither
an officer or an employee of the Trust nor an officer or an employee of
Corrections
<PAGE> 2
Corporation of America, a Delaware corporation ("CCA"), or any lessee or tenant
of Trust property. A trustee need not be a shareholder. The business and affairs
of the Trust shall be managed under the direction of the trustees and the
trustees shall have full, exlusive and absolute power, control, and authority
over the assets of the Trust and over the business of the Trust as if they, in
their own right, are the sole owners of the Trust. This Declaration of Trust
shall be construed with the presumption in favor of the grant of power and
authority to the trustees.
(b) The trustees of the Trust (other than any trustees who may be
elected by holders of Preferred Shares as provided for pursuant to Section 5
hereof) shall be and are divided into three classes: Class I, Class II and
Class III. The number of trustees in each class shall be as nearly equal as
the then-authorized number of trustees constituting the Board of Trustees
permits. Each trustee shall serve for a term ending on the date of the third
Annual Meeting following the Annual Meeting at which such trustee was elected;
provided, however, that each initial director in Class I shall serve for a term
ending on the date of the Annual Meeting held in 1998, each initial trustee in
Class II shall serve for a term ending on the date of the Annual Meeting held
in 1999, and each trustee in Class III shall serve for a term ending on the
date of the Annual Meeting held in 2000. Any trustee who may be elected by
holders of Preferred Shares as provided for pursuant to Section 5 hereof shall
serve for a term ending on the date of the Annual Meeting next following the
Annual Meeting at which such trustee was elected. The names of the initial
Class I trustees are: Charles Ray Bell, Michael W. Devlin, and Charles W.
Thomas. The names of the initial Class II trustees are: D. Robert Crants, III,
Jackson W. Moore, and Rusty L. Moore. The names of the initial Class III
trustees are: Doctor R. Crants, Jr., J. Michael Quinlan, and Joseph V.
Russell.
(c) In the event of any increase or decrease in the authorized
number of trustees:
1. Each trustee then serving shall nevertheless continue
as a trustee of the class of which he is a member until the expiration
of his term or his prior death, retirement, resignation or removal;
and
2. Except to the extent that an increase or decrease in
the authorized number of trustees occurs in connection with the rights
of holders of Preferred Shares to elect additional trustees, the
newly-created or eliminated trusteeships resulting from any increase
or decrease shall be apportioned by the Board of Trustees among the
three classes so as to keep the number of trustees in each class as
nearly equal as possible.
(d) Notwithstanding the provisions of subsections (b) and (c) of
this Section 7, each trustee shall serve until his successor is elected and
qualified or until his death, retirement, resignation or removal.
(e) The Board of Trustees or shareholders may, at any time, remove
any trustee, with or without cause, by an affirmative vote of a majority of
trustees or a majority of holders of shares entitled to vote in the election of
trustees, as the case may be.
(f) Except as may otherwise be provided pursuant to Section 5
hereof with respect to any rights of holders of Preferred Shares to elect
additional trustees or any agreement relating to the right to designate
nominees for election to the Board of Trustees, should a vacancy in the Board
of Trustees occur or be created (whether arising through death, retirement,
resignation or removal or
2
<PAGE> 3
through an increase but not a decrease in the number of authorized trustees),
such vacancy shall be filled by the affirmative vote of a majority of the
remaining trustees, even though less than a quorum of the Board of Trustees
may exist. A trustee so elected to fill a vacancy shall serve for the
remainder of the term of the class to which he was elected.
(g) During any period when the holders of any series of Preferred
Shares have the right to elect additional trustees as provided for or fixed
pursuant to the provisions of Section 5 hereof, then upon commencement and for
the duration of the period during which such right continues (i) the then
otherwise total and authorized number of trustees of the Trust shall
automatically be increased by the number of such additional trustees, and such
holders of Preferred Shares shall be entitled to elect the additional trustees
so provided for or fixed pursuant to said provisions, and (ii) each such
additional trustee shall serve until such trustee's successor shall have been
duly elected and qualified, or until such trustee's right to hold such office
terminates pursuant to said provisions, whichever occurs earlier, subject to
his earlier death, disqualification, resignation or removal.
(h) The provisions set forth in this Section 7 may not be repealed
or amended in any respect, and no provision imposing cumulative voting in the
election of trustees may be added, unless such action is approved by the
affirmative vote of the holders of not less than two-thirds (2/3) of all of the
outstanding shares of the Trust entitled to vote generally in the election of
trustees.
(i) (a) A trustee shall perform his or her duties as a trustee,
including his or her duties as a member of a committee of the
board of Trustees on which he or she serves:
(i) in good faith;
(ii) in a manner he or she reasonably believes to
be in the best interest of the Trust; and
(iii) with the care that an ordinarily prudent
person in a like position would use under
similar circumstances.
(b) In performing his or her duties, a trustee is entitled to
rely on any information, opinion, report or statement,
including any financial statement or other financial data,
prepared or presented by:
(i) an officer or employee of the Trust whom the
trustee reasonably believes to be reliable
and competent in the manners presented;
(ii) a lawyer, certified public accountant or
other person, as to the matter which the
trustee reasonably believes to be within the
person's professional or expert competence;
or
3
<PAGE> 4
(iii) a committee of the Board of Trustees
on which the trustee does not serve,
as to a matter within its designated
authority, if the trustee reasonable
believes the committee to merit
confidence.
8. Dividends and Rights Upon Liquidation. After the provisions
with respect to preferential dividends of any series of Preferred Shares, if
any, shall have been satisfied, and subject to any other conditions that may be
fixed in accordance with the provisions of Section 5, then, and not otherwise,
all Common Shares will participate equally in dividends payable to holders of
shares of Common Shares when and as declared by the Board of Trustees at their
discretion. In the event of voluntary or involuntary dissolution or
liquidating of the Trust, after distribution in full of the preferential
amounts, if any, to be distributed to the holders of Preferred Shares, the
holders of Common Shares shall, subject to the additional rights if any of the
holders of Preferred Shares fixed in accordance with Section 5, be entitled to
receive all of the remaining assets of the Trust, tangible and intangible, of
whatever kind available for distribution to shareholders ratably in proportion
to the number of Common Shares held by them respectively.
9. Voting. Each holder of Common Shares shall be entitled to one
vote per share on all matters to be voted on by the shareholders of the Trust.
The holders of Preferred Shares shall have no voting rights and shall have no
rights to receive notice of any meetings, except as required by law or as
expressly provided in the resolution establishing any series thereof.
10. Preemptive Rights. No holder of Common Shares or Preferred
Shares of the Trust shall have any preemptive or preferential rights to
subscribe to or purchase (i) any shares of any class of the Trust, whether now
or hereafter authorized; (ii) any warrants, rights, or options to purchase any
such shares; or (iii) any securities or obligations convertible into any such
shares or into warrants, rights, or options to purchase any such shares.
11. Limitation on Liability. To the maximum extent that Maryland
law in effect from time to time permits limitation of liability of trustees or
officers of real estate investment trusts, no trustee or officer of the Trust
shall be liable to the Trust or its shareholders for money damages. Neither
the amendment nor repeal of this provision, nor the adoption or amendment of
any other provision of this Declaration of Trust or Bylaws inconsistent with
this provision, shall apply to or affect in any respect the applicability of
the preceding sentence with respect to any act or failure to act which occurred
prior to such amendment, repeal or adoption.
12. Indemnification. The Trust shall indemnify and advance
expenses to a trustee, officer, employee or agent of the Trust in connection
with a proceeding to the fullest extent permitted by and in accordance with the
laws of the State of Maryland in effect from time to time.
13. Insurance. The Trust may purchase and maintain insurance on
behalf of any person who is or was a trustee, officer, employee or agent of the
Trust or who, while a trustee, officer, employee or agent of the Trust is or
was serving at the request of the Trust as a director, officer, partner,
trustee, employee or agent of another foreign or domestic corporation,
partnership, joint
4
<PAGE> 5
venture, trust, employee benefit plan or other enterprise, against liability
asserted against or incurred by such person in that capacity or arising from
such person's status as a trustee, officer, employee or agent, whether or not
the Trust would have power to indemnify such person against the same liability
under Section 12 hereof.
14. REIT Status. The Trust is intended to qualify as a real
estate investment trust under the Maryland REIT Law, or any successor statutes.
The Trust shall seek to elect and maintain status as a real estate investment
trust ("REIT") under Sections 856-860 of the Internal Revenue Code of 1986, as
amended from time to time (the "Code"). It shall be the duty of the Board of
Trustees to ensure that the Trust satisfies the requirements for qualification
as a REIT under the Code, including, but not limited to, the ownership of its
outstanding shares, the nature of its assets, the sources of its income, and
the amount and timing of its distributions to its shareholders. The Board of
Trustees shall take no action to disqualify the Trust as a REIT or to otherwise
revoke the Trust's election to be taxed as a REIT without the affirmative vote
of the holders of not less than two-thirds (2/3) of all of the outstanding
shares of the Trust entitled to vote on such matter at a meeting of the
Shareholders.
15. Restrictions.
(a) Restrictions on Transfer.
(1) Definitions. The following terms shall have the
following meanings:
(A) "Beneficial Ownership" shall mean ownership
of Equity Shares by a Person who would be treated as an owner of such Equity
Shares either directly or indirectly through the application of Section 544 of
the Code, as modified by Section 856(b)(1)(B) of the Code. The terms
"Beneficial Owner", "Beneficially Owns", and "Beneficially Owned" shall have
correlative meanings.
(B) "Beneficiary" shall mean, with respect to any
Share Trust, one or more organizations described in each of Section
170(b)(1)(A) and Section 170(c) of the Code that are named by the Trust as the
beneficiary or beneficiaries of such Share Trust, in accordance with the
provisions of Section 15(a) hereof.
(C) "Board of Trustees shall mean the Board of
Trustees of the Trust.
(D) "Code" shall mean the Internal Revenue Code
of 1986, as amended from time to time.
(E) "Constructive Ownership" shall mean ownership
of equity interests by a Person who would be treated as an owner of such
interests either directly or indirectly through the application of Section 318
of the Code, as modified by Section 856(d)(5) of the Code. The terms
5
<PAGE> 6
"Constructive Owner", "Constructively Owns", and "Constructively Owned" shall
have correlative meanings.
(F) "Equity Shares" shall mean Preferred Shares
and Common Shares. The term "Equity Shares" shall include all Preferred Shares
and Common Shares that are held as Shares-in-Trust in accordance with the
provisions of Section 15 hereof.
(G) "Initial Public Offering" means the sale of
Common Shares pursuant to the Trusts's first effective registration statement
for such Common Shares filed under the Securities Act of 1933, as amended.
(H) "Market Price" shall mean, with respect to
Common Shares or Preferred Shares, the last reported sales price of such shares
reported on the New York Stock Exchange on the trading day immediately
preceding the relevant date, or if such shares are not then traded on the New
York Stock Exchange, the last reported sales price of such shares on the
trading day immediately preceding the relevant date as reported on any exchange
or quotation system over which such shares may be traded, or if such shares are
not then traded over any exchange or quotation system, then the market price of
such shares on the relevant date as determined in good faith by the Board of
Trustees of the Trust.
(I) "Non-Transfer Event" shall mean an event
other than a purported Transfer that would cause any Person to Beneficially Own
or Constructively Own Equity Shares in excess of the Ownership Limit,
including, but not limited to, the granting of any option or entering into any
agreement for the sale, transfer or other disposition of Equity Shares or the
sale, transfer, assignment or other disposition of any securities or rights
convertible into or exchangeable for Equity Shares.
(J) "Ownership Limit" shall mean, with respect to
the Common Shares, 9.8% of the number of outstanding Common Shares and, with
respect to the Preferred Shares, 9.8% of the number of outstanding Preferred
Shares.
(K) "Permitted Transferee" shall mean any Person
designated as a Permitted Transferee in accordance with the provisions of
subparagraph 15(b)(5) hereof.
(L) "Person" shall mean an individual,
corporation, partnership, estate, trust (other than a trust qualified under
Section 401(a) or 501(c)(17) of the Code), a portion of a trust permanently set
aside for or to be used exclusively for the purposes described in Section
642(c) of the Code, association, private foundation within the meaning of
Section 509(a) of the Code, joint stock company or other entity and also
includes a group as that term is used for purposes of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended.
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(M) "Prohibited Owner" shall mean, with respect
to any purported Transfer or Non-Transfer Event, any Person who, but for the
provisions of Section 15(b) hereof, would own record title to Equity Shares.
(N) "REIT" shall mean a real estate investment
trust under Section 856 of the Code.
(O) "Restriction Termination Date" shall mean the
first day after the date of the Initial Public Offering on which the Board of
Trustees and the shareholders of the Trust determine that it is no longer in
the best interests of the Trust to attempt to, or continue to, qualify as a
REIT.
(P) "Shares-in-Trust" shall mean any Equity
Shares designated Shares-in-Trust pursuant to Section 15(a)(3) hereof.
(Q) "Share Trust" shall mean any separate trust
created pursuant to Section 15(a)(3) hereof and administered in accordance with
the terms of Section 15(b) hereof, for the exclusive benefit of any
Beneficiary.
(R) "Share Trustee" shall mean any person or
entity unaffiliated with both the Trust and any Prohibited Owner, such Share
Trustee to be designated by the Trust to act as trustee of any Share Trust, or
any successor trustee thereof.
(S) "Transfer" shall mean any sale, transfer,
gift, assignment, devise or other disposition of Equity Shares, whether
voluntary or involuntary, whether of record, constructively or beneficially and
whether by operation of law or otherwise.
(2) Restriction on Transfers.
(A) Except as provided in subparagraph 15(a)(7)
hereof, from the date of the Initial Public Offering and prior to the
Restriction Termination Date, (i) no person shall Beneficially Own or
Constructively Own outstanding Equity Shares in excess of the Ownership Limit
and (ii) any Transfer or Non-Transfer Event that, if effective, would result in
any Person Beneficially Owning or Constructively Owning Equity Shares in excess
of the Ownership Limit shall be void ab initio as to that number of Equity
Shares which would be otherwise Beneficially Owned or Constructively Owned by
such Person in excess of the Ownership Limit, and the intended transferee shall
acquire no rights with respect to such excess Equity Shares.
(B) Except as provided in subparagraph 15(a)(7)
hereof, from the date of the Initial Public Offering and prior to the
Restriction Termination Date, any Transfer or Non-Transfer Event that, if
effective, would result in the Equity Shares being beneficially owned by fewer
than 100 Persons (determined without reference to any rules of attribution)
shall be void ab initio as to the Transfer of that number of shares which would
result in the Equity Shares being beneficially
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<PAGE> 8
owned by fewer than 100 persons, and the intended transferee shall acquire no
rights with respect to such excess Equity Shares.
(C) From the date of the Public Offering and
prior to the Restriction Termination Date, any Transfer or Non-Transfer Event
that, if effective, would result in the Trust being "closely held" within the
meaning of Section 856(b) of the Code shall be void ab initio as to that number
of Equity Shares which would cause the Trust to be "closely held" within the
meaning of Section 856(b) of the Code, and the intended transferee shall
acquire no rights with respect to such excess Equity Shares.
(D) From the date of the Initial Public Offering
and prior to the Restriction Termination Date, any Transfer or Non-Transfer
Event that, if effective, would cause the Trust to Constructively Own 10% or
more of the ownership interests in a tenant of the Trust's real property,
within the meaning of Sections 856(d)(2) of the Code, shall be void ab initio
as to that number of Equity Shares which would cause the Trust to
Constructively Own 10% or more of the ownership interests in a tenant of the
Trust's real property, within the meaning of Section 856(d)(2) of the Code, and
the intended transferee shall acquire no rights with respect to such excess
Equity Shares.
(3) Transfer to Share Trust.
(A) If, notwithstanding the other provisions
contained in this Section 15, at any time after the date of the Initial Public
Offering and prior to the Restriction Termination Date, there is a purported
Transfer or Non-Transfer Event such that any Person would either Beneficially
Own or Constructively Own Equity Shares in excess of the Ownership Limit, then,
(i) except as otherwise provided in Section 15(a)(7) hereof, the purported
transferee shall acquire no right or interest (and, in the case of a
Non-Transfer Event, the person holding record title to the Equity Shares
Beneficially Owned or Constructively Owned by such Beneficial Owner or
Constructive Owner, shall cease to own any right or interest) in such number of
Equity Shares which would cause such Beneficial Owner or Constructive Owner to
Beneficially Own or Constructively Own Equity Shares in excess of the Ownership
Limit, and (ii) such number of Equity Shares in excess of the Ownership Limit
(rounded up to the nearest whole share) shall be designated Shares-in-Trust
and, in accordance with the provisions of Section 15(b) hereof, transferred
automatically and by operation of law to a Share Trust to be held in accordance
with that Section 15(b). Such transfer to a Share Trust and the designation of
shares as Shares-in-Trust shall be effective as of the close of business on the
business day prior to the date of the Transfer or Non-Transfer Event, as the
case may be.
(B) If, notwithstanding the provisions contained
in this Section 15, at any time after the date of the Initial Public Offering
and prior to the Restriction Termination Date, there is a purported Transfer or
Non-Transfer Event that, if effective, would cause the Trust to become
"closely held" within the meaning of Section 856(b) of the Code or would cause
the Trust to Constructively Own 10% or more of the ownership interests in a
tenant of the Trust's real property, within the meaning of Section 856(b)(2)(B)
of the Code, then (i) the purported transferee shall not acquire any right or
interest (and, in the case of a Non-Transfer Event, the person holding record
title
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<PAGE> 9
to the Equity Shares with respect to which such Non-Transfer Event, occurred,
shall cease to own any right or interest) in such number of Equity Shares the
ownership of which by such purported transferee or record holder would cause
the Trust to be "closely held" within the meaning of Section 856(b) of the Code
or would cause the Trust to Constructively Own 10% or more of the ownership
interests in a tenant of the Trust's real property, within the meaning of
Sections 856(b)(2)(B) of the Code, and (ii) such number of Equity Shares
(rounded up to the nearest whole share) shall be designated Shares-in-Trust
and, in accordance with the provisions of Section 15(b) hereof, transferred
automatically and by operation of law to a Share Trust to be held in accordance
with that Section 15(b). Such transfer to a Share Trust and the designation of
shares as Shares-In-Trust shall be effective as of the close of business on the
business day prior to the date of the Transfer or Non-Transfer Event, as the
case may be.
(4) Remedies For Breach. If the Trust or its designees
shall at any time determine in good faith that a Transfer has taken place in
violation of Section 15(a)(2) hereof or that a Person intends to acquire or has
attempted to acquire Beneficial Ownership or Constructive Ownership of any
Equity Shares in violation of Section 15(a)(2) hereof, the Trust shall take
such action as it deems advisable to refuse to give effect to or to prevent
such Transfer or acquisition, including, but not limited to, refusing to give
effect to such Transfer on the books of the Trust or instituting proceedings to
enjoin such Transfer or acquisition.
(5) Notice of Restricted Transfer. Any Person who
acquires or attempts to acquire Equity Shares in violation of Section 15(a)(2)
hereof, or any Person who owned Equity Shares that were transferred to a Share
Trust pursuant to the provisions of Section 15(a)(3) hereof, shall immediately
give written notice to the Trust of such event and shall provide to the Trust
such other information as the Trust may request in order to determine the
effect, if any, of such Transfer or the Non-Transfer Event, as the case may be,
on the Trust's status as a REIT.
(6) Owners Required to Provide Information. From the
date of the Initial Public Offering and prior to the Restriction Termination
Date:
(a) Every Beneficial Owner or Constructive Owner
of more than 5%, or such lower percentages as required pursuant to regulations
under the Code, of the outstanding Equity Shares of the Trust shall, within 30
days after January 1 of each year, give written notice to the Trust stating the
name and address of such Beneficial Owner or Constructive Owner, the number of
shares of Equity Shares Beneficially Owned or Constructively Owned, and a
description of how such shares are held. Each such Beneficial Owner or
Constructive Owner shall provide to the Trust such additional information as
the Trust may request in order to determine the effect, if any, of such
Beneficial Ownership or Constructive Ownership on the Trust's status as a REIT
and to ensure compliance with the Ownership Limit.
(b) Each person who is a Beneficial Owner or
Constructive Owner of Equity Shares and each Person (including the shareholder
of record) who is holding Equity Shares for a Beneficial Owner or Constructive
Owner shall provide to the Trust such information as the
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<PAGE> 10
Trust may request in order to determine the Trust's status as a REIT and to
ensure compliance with the Ownership Limit.
(7) Exception. The Board of Trustees, in its discretion,
may exempt a Person from the Ownership Limit, if such Person is (i) not an
individual for purposes of Section 542(a)(2) of the Code or (ii) is an
underwriter which participates in a public offering of the Equity Shares for a
period of 90 days following the purchase by such underwriter of the Equity
Shares, provided that the Board of Trustees obtains such representations and
undertakings from such Person as are reasonably necessary to ascertain that the
Trust's status as a REIT will not be adversely affected.
(b) Shares-in-Trust.
(1) Share Trust. Any Equity Shares transferred to a
Share Trust and designated Shares-in-Trust pursuant to Section 15(a)(3) hereof
shall be held for the exclusive benefit of the Beneficiary. The Trust shall
name a Beneficiary of each Share Trust within five days after discovery of the
existence thereof. Any transfer to a Share Trust, and subsequent designation
of Equity Shares as Shares-in-Trust pursuant to Section 15(a)(3) hereof, shall
be effective as of the close of business on the business day prior to the date
of the Transfer or Non-Transfer Event that results in the transfer to the Share
Trust. Shares-in-Trust shall remain issued and outstanding Equity Shares of
the Trust and shall be entitled to the same rights and privileges on identical
terms and conditions as are all other issued and outstanding Equity Shares of
the same class and series. When transferred to the Permitted Transferee in
accordance with the provisions of Section 15(b)(5) hereof, such Shares-in-Trust
shall cease to be designated as Shares-in-Trust.
(2) Dividend Rights. The Share Trustee, as record holder
of Shares-in-Trust, shall be entitled to receive all dividends are
distributions as may be declared by the Board of Trustees on such Equity Shares
and shall hold such dividends or distributions in trust for the benefit of the
Beneficiary. The Prohibited Owner with respect to Shares-in-Trust shall repay
to the Share Trustee the amount of any dividends or distributions received by
it that (i) are attributable to any Equity Shares designated Shares-in-Trust
and (ii) the record date of which was on or after the date that such shares
became Shares-in-Trust. The Trust shall take all measures that it determines
are reasonably necessary to recover the amount of any such dividend or
distribution paid to a Prohibited Owner, including, if necessary, withholding
any portion of future dividends or distributions payable on Equity Shares
Beneficially Owned or Constructively Owned by the Person who, but for the
provisions of Section 15(a)(3) hereof, would Constructively Own or Beneficially
Own the Shares-in-Trust; and, as soon as reasonably practicable following the
Trust's receipt or withholding thereof, received or withheld, as the case may
be.
(3) Rights Upon Liquidation. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of, or in a
distribution of the assets of, the Trust. The Share Trustee of Shares-in-Trust
shall be entitled to receive on behalf of each Share Trust, ratably with each
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other holder of Equity Shares of the same class or series, that portion of the
assets of the Trust which is available for distribution to the holders of such
class and series of Equity Shares. The Share Trustee shall distribute to the
Prohibited Owner the amounts received upon such liquidation, dissolution, or
winding up, or distribution; provided, however, that the Prohibited Owner shall
not be entitled to receive amounts pursuant to this Section 15(b)(3) in excess
of, in the case of a purported Transfer in which the Prohibited Owner gave
value for Equity Shares and which Transfer resulted in the transfer of the
shares to the Share Trust, the price per share, if any, such Prohibited Owner
paid for the Equity Shares and, in the case of a Non-Transfer Event or Transfer
in which the Prohibited Owner did not give value for such shares (e.g., if the
shares were received through a gift or devise) and which Non-Transfer Event or
Transfer, as the case may be, resulted in the transfer of shares to the Share
Trust, the price per share equal to the Market Price on the date of such
Non-Transfer Event or Transfer. Any remaining amount in such Share Trust shall
be distributed to the Beneficiary.
(4) Voting Rights. The Share Trustee shall be entitled
to vote all Shares-in-Trust. Any vote by a Prohibited Owner as a holder of
Equity Shares prior to the discovery by the Trust that the Equity Shares are
Shares-in-Trust shall, subject to applicable law, be rescinded and shall be
void ab initio with respect to such Shares-in-Trust and the Prohibited Owner
shall be deemed to have given, as of the close of business on the business day
prior to the date of the purported Transfer or Non-Transfer Event that results
in the transfer to the Share Trust of Equity Shares under Section 15(a)(3)
hereof, an irrevocable proxy to the Share Trustee to vote the Shares-in-Trust
in the manner in which the Share Trustee, in its sole and absolute discretion,
desires.
(5) Designation of Permitted Transferee. The Share
Trustee shall have the exclusive and absolute right to designate a Permitted
Transferee of any and all Shares-in-Trust. As soon as reasonably practicable,
in an orderly fashion so as not to materially adversely affect the Market Price
of the Shares-in-Trust, the Share Trustee shall designate any Person as
Permitted Transferee, provided, however, that (i) the Permitted Transferee so
designated purchases for valuable consideration (whether in a public or private
sale) the Shares-in-Trust, and (ii) the Permitted Transferee so designated may
acquire such Shares-in-Trust without such acquisition resulting in a transfer
to a Share Trust and the redesignation of such Equity Shares so acquired as
Shares-in-Trust under Section 15(a)(3) hereof. Upon the designation by the
Share Trustee of a Permitted Transferee in accordance with the provisions of
this Section 15(b)(5), the Share Trustee of a Share Trust shall (i) cause to be
transferred to the Permitted Transferee that number of Shares-in-Trust acquired
by the Permitted Transferee, (ii) cause to be recorded on the books of the
Trust that the Permitted Transferee is the holder of record of such number of
Equity Shares, and (iii) distribute to the Beneficiary any and all amounts held
with respect to the Shares-in-Trust after making that payment to the Prohibited
Owner pursuant to Section 15(b)(6) hereof.
(6) Compensation to Record Holder of Equity Shares that
Become Shares-in-Trust. Any Prohibited Owner shall be entitled (following
discovery of the Shares-in-Trust and subsequent designation of the Permitted
Transferee in accordance with Section 15(b)(5) hereof) to receive from the
Share Trustee the lesser of (i) in the case of (a) a purported Transfer in
which the
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Prohibited Owner gave value for Equity Shares and which purported Transfer
resulted in the transfer of the shares to the Share Trust, the price per share,
if any, such Prohibited Owner paid for the Equity Shares, or (b) a Non-Transfer
Event or Transfer in which the Prohibited Owner did not give value for such
shares (e.g., if the shares were received through a gift or devise) and which
Non-Transfer Event or Transfer, as the case may be, resulted in the transfer of
shares to the Share Trust, the price per share equal to the Market Price on the
date of such Non-Transfer Event or Transfer, and (ii) the price per share
received by the Share Trustee of the Share Trust from the sale or other
disposition of such Shares-in-Trust in accordance with Section 15(b)(5) hereof.
Any amounts received by the Share Trustee in respect of such Shares-in-Trust
and in excess of such amounts to be paid the Prohibited Owner pursuant to this
Section 15(b)(6) shall be distributed to the Beneficiary in accordance with the
provisions of Section 15(b)(5) hereof. Each Beneficiary and Prohibited Owner
waive any and all claims that they may have against the Share Trustee and the
Share Trust arising out of the disposition of Shares-in-Trust, except for
claims arising out of the gross negligence or willful misconduct of, or any
failure to make payments in accordance with this Section 15 by such Share
Trustee or the Trust.
(7) Purchase Right in Shares-in-Trust. Shares-in-Trust
shall be deemed to have been offered for sale to the Trust, or its designee, at
a price per share equal to the lesser of (i) the price per share in the
transaction that created such Shares-in-Trust (or, in the case of devise, gift
or Non-Transfer Event, the Market Price at the time of such devise, gift, or
Non-Transfer Event) and (ii) the Market Price on the date the Trust, or its
designee, accepts such offer. The Trust shall have the right to accept such
offer for a period of ninety (90) days after the later of (i) the date of the
Non-Transfer Event or purported Transfer which resulted in such Shares-in-Trust
and (ii) the date the Trust determines in good faith that a Transfer or
Non-Transfer Event resulting in Shares-in-Trust has occurred, if the Trust does
not receive a notice of such Transfer or Non-Transfer Event pursuant to Section
15(a)(3) hereof.
(c) Remedies not Limited. Nothing contained in this Article 15
shall limit the authority of the Trust to take such other action as it deems
necessary or advisable to protect the Trust and the interests of its
shareholders by preservation of the Trust's status as a REIT and to ensure
compliance with the Ownership Limit.
(d) Ambiguity. In the case of an ambiguity in the application of
any of the provisions of Articled 15, including any definition contained in
Section 15(a) hereof, the Board of Trustees shall have the power to determine
the application of the provisions of this Article 15 with respect to any
situation based on the facts known to it.
(e) Legend. Each certificate for Equity Shares shall bear the
following legend:
"The [Common or Preferred] Shares represented by this certificate are
subject to restrictions on transfer as set forth in the Declaration of Trust of
the Trust. No Person may (i) Beneficially Own or Constructively Own Common
Shares in excess of 9.8% of the number of outstanding Common Shares, (ii)
Beneficially Own or Constructively Own Preferred Shares in excess of 9.8% of
the
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number of outstanding Preferred Shares, (iii) Beneficially Own Equity Shares
that would result in the Trust being "closely held" under Section 856(b) of the
Internal Revenue Code of 1986, as amended (the "Code"), or (iv) Constructively
Own Equity Shares that would cause the Trust to Constructively Own 10% or more
of the ownership interests in a tenant of the Trust's real property, within the
meaning of Sections 856(d)(2)(B) of the Code. Any Person who attempts to
Beneficially Own or Constructively Own shares of Equity Shares in excess of the
above limitations must immediately notify the Trust in writing. If the
restrictions above are violated, the Equity Shares represented hereby will be
transferred automatically and by operation of law to a Share Trust and shall be
designated Shares-in-Trust. All capitalized terms in this legend have the
meanings defined in the Trust's Declaration of Trust, as the same may be
further amended from time to time, a copy of which, including the restrictions
on transfer, will be sent without charge to each shareholder who so requests."
(f) Severability. If any provision of this Section 15 or any
application of any such provision is determined to be invalid by any federal or
state court having jurisdiction over the issues, the validity of the remaining
provisions shall not be affected and other applications of such provision shall
be affected only to the extent necessary to comply with the determination of
such court.
16. Amendment. This Declaration of Trust may be amended only in
accordance with the applicable laws of the State of Maryland, except that (a)
Section 7 of this Declaration of Trust may be amended only as provided therein,
(b) the trustees by a majority vote may amend this Declaration of Trust to
increase or decrease the aggregate number of shares or the number of shares of
any class that the Trust has authority to issue, and (c) the trustees by a
two-thirds (2/3) vote may amend this Declaration of Trust to qualify, or
continue to qualify, as a real estate investment trust under the Code or under
Maryland law.
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IN WITNESS WHEREOF, this Declaration of Trust has been executed on
April 23, 1997, by the undersigned trustees, and each of them acknowledges that
this document is his or her act, that, to the best of his or her knowledge,
information and belief, the matters and facts set forth herein are true in all
material respects and that this statement is made under the penalties for
perjury. This Declaration of Trust may be executed in two or more counterparts
and each such counterpart shall, for all purposes, be deemed an original, but
all such counterparts shall together constitute but one and the same
instrument.
/s/ DOCTOR R. CRANTS
------------------------------
DOCTOR R. CRANTS
/S/ J. MICHAEL QUINLAN
------------------------------
J. MICHAEL QUINLAN
/S/ D. ROBERT CRANTS, III
------------------------------
D. ROBERT CRANTS, III
/S/ MICHAEL W. DEVLIN
------------------------------
MICHAEL W. DEVLIN
/S/ CHARLES RAY BELL
------------------------------
CHARLES RAY BELL
/S/ JACKSON W. MOORE
------------------------------
JACKSON W. MOORE
/S/ RUSTY L. MOORE
------------------------------
RUSTY L. MOORE
/S/ JOSEPH V. RUSSELL
------------------------------
JOSEPH V. RUSSELL
/S/ CHARLES W. THOMAS
------------------------------
CHARLES W. THOMAS
14
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EXHIBIT 3.2
CCA PRISON REALTY TRUST
BYLAWS
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the Trust shall be
located at such place or places as the Trustees may designate.
Section 2. ADDITIONAL OFFICES. The Trust may have additional offices
at such places as the Trustees may from time to time determine or the business
of the Trust may require.
Section 3. FISCAL AND TAXABLE YEARS. The fiscal and taxable years of
the Trust shall begin on January 1 and end on December 31.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE. All meetings of shareholders shall be held at the
principal office of the Trust or at such other place within the United States
as shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting of the shareholders for
the election of Trustees and the transaction of any business within the powers
of the Trust shall be held during the month of May of each year, after the
delivery of the annual report, referred to in Section 12 of this Article II, at
a convenient location and on proper notice, on a date and at the time set by
the Trustees, beginning with the year 1998. Failure to hold an annual meeting
does not invalidate the Trust's existence or affect any otherwise valid acts of
the Trust.
Section 3. SPECIAL MEETINGS. The Chairman of the Board, a majority of
the Trustees or a committee of the Board of Trustees which has been duly
designated by the Board of Trustees and whose powers and authority, as provided
in a resolution of the Board of Trustees or these Bylaws, include the power to
call such meetings may call special meetings of the shareholders. Special
meetings may not be called by any other person or persons or entity.
Section 4. NOTICE. Not less than 10 nor more than 90 days before each
meeting of shareholders, the secretary shall give to each shareholder entitled
to vote at such meeting and to each shareholder not entitled to vote who is
entitled to notice of the meeting written or printed notice stating the time
and place of the meeting and, in the case of a special meeting or as otherwise
may be required by any statute, the purpose for which the meeting is called,
either by mail or by presenting it to such shareholder personally or by leaving
it at his residence or usual place of business. If mailed,
<PAGE> 2
such notice shall be deemed to be given when deposited in the United States
mail addressed to the shareholder at his post office address as it appears on
the records of the Trust, with postage thereon prepaid.
Section 5. SCOPE OF NOTICE. Any business of the Trust may be
transacted at an annual meeting of shareholders without being specifically
designated in the notice, except such business as is required by any statute to
be stated in such notice. No business shall be transacted at a special meeting
of shareholders except as specifically designated in the notice.
Section 6. ORGANIZATION. At every meeting of the shareholders, the
Chairman of the Board, if there be one, shall conduct the meeting or, in the
case of vacancy in office or absence of the Chairman of the Board, one of the
following officers present shall conduct the meeting in the order stated: the
Vice Chairman of the Board, if there be one, the President, the Vice Presidents
in their order of rank and seniority and the Secretary, or, in his absence, an
assistant secretary, or in the absence of both the Secretary and assistant
secretaries, a person appointed by the Chairman shall act as Secretary.
Section 7. QUORUM. At any meeting of shareholders, the presence in
person or by proxy of shareholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a quorum; but this Section
shall not affect any requirement under any statute or the Declaration of Trust
for the vote necessary for the adoption of any measure. If, however, such
quorum shall not be present at any meeting of the shareholders, the
shareholders entitled to vote at such meeting, present in person or by proxy,
shall have the power to adjourn the meeting from time to time to a date not
more than 120 days after the original record date without notice other than
announcement at the meeting. At such adjourned meeting at which a quorum shall
be present, any business may be transacted which might have been transacted at
the meeting as originally notified.
Section 8. VOTING. A plurality of all the votes cast at a meeting of
shareholders duly called and at which a quorum is present shall be sufficient
to elect a Trustee. Each share may be voted for as many individuals as there
are Trustees to be elected and for whose election the share is entitled to be
voted. A majority of the votes cast at a meeting of shareholders duly called
and at which a quorum is present shall be sufficient to approve any other
matter which may properly come before the meeting, unless more than a majority
of the votes cast is required herein or by statute or by the Declaration of
Trust. Unless otherwise provided in the Declaration, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to
a vote at a meeting of shareholders.
Section 9. PROXIES. A shareholder may vote the shares owned of record
by him, either in person or by proxy executed in writing by the shareholder or
by his duly authorized attorney in fact. Such proxy shall be filed with the
secretary of the Trust before or at the time of the meeting. No proxy shall be
valid after eleven months from the date of its execution, unless otherwise
provided in the proxy.
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Section 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares of the Trust
registered in the name of a corporation, partnership, trust or other entity, if
entitled to be voted, may be voted by the president or a vice president, a
general partner or trustee thereof, as the case may be, or a proxy appointed by
any of the foregoing individuals, unless some other person who has been
appointed to vote such shares pursuant to a bylaw or a resolution of the
governing board of such corporation or other entity or agreement of the
partners of the partnership presents a certified copy of such bylaw, resolution
or agreement, in which case such person may vote such shares. Any trustee or
other fiduciary may vote shares registered in his name as such fiduciary,
either in person or by proxy.
The Trustees may adopt by resolution a procedure by which a
shareholder may certify in writing to the Trust that any shares registered in
the name of the shareholder are held for the account of a specified person
other than the shareholder. The resolution shall set forth the class of
shareholders who may make the certification, the purpose for which the
certification may be made, the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the share transfer books, the time after the record date or closing
of the share transfer books within which the certification must be received by
the Trust; and any other provisions with respect to the procedure which the
Trustees consider necessary or desirable. On receipt of such certification, the
person specified in the certification shall be regarded as, for the purposes
set forth in the certification, the shareholder of record of the specified
shares in place of the shareholder who makes the certification.
Title 3, Subtitles 7 of the Corporations and Associations Article of
the Annotated Code of Maryland (or any successor statute) shall not apply to
any acquisition by any person of shares of beneficial interest of the Trust.
Section 11. INSPECTORS. At any meeting of shareholders, the chairman
of the meeting may, or upon the request of any shareholder shall, appoint one
or more persons as inspectors for such meeting. Such inspectors shall
ascertain and report the number of shares represented at the meeting based upon
their determination of the validity and effect of proxies, count all votes,
report the results and perform such other acts as are proper to conduct the
election and voting with impartiality and fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by him or
by a majority of them if there is more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall
be the report of the inspectors. The report of the inspector or inspectors on
the number of shares represented at the meeting and the results of the voting
shall be prima facie evidence thereof.
Section 12. REPORTS TO SHAREHOLDERS.
(a) Not later than 90 days after the close of each fiscal
year of the Trust, the Trustees shall deliver or cause to be delivered a report
of the business and operations of the Trust
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during such fiscal year to the shareholders, containing a balance sheet and a
statement of income and surplus of the Trust, accompanied by the certification
of an independent certified public accountant based on the accountant's full
examination of the books and records of the real estate investment trust in
accordance with generally accepted auditing procedure, and such further
information as the Trustees may determine is required pursuant to any law or
regulation to which the Trust is subject. A signed copy of the annual report
and the accountant's certificate shall be placed on file at the principal
office of the Trust and filed by the Trustees with such governmental agencies,
if any, as may be required by law and as the Trustees may deem appropriate.
(b) Not later than 45 days after the end of each of the
first three quarterly periods of each fiscal year, the Trustees shall deliver
or cause to be delivered an interim report to the shareholders containing
unaudited financial statements for such quarter and for the period from the
beginning of the fiscal year to the end of such quarter, and such further
information as the Trustees may determine is required pursuant to any law or
regulation to which the Trust is subject.
Section 13. NOMINATIONS AND SHAREHOLDER BUSINESS.
(a) Annual Meetings of Shareholders.
(1) Nominations of persons for election to the
Board of Trustees and the proposal of business to be considered by the
shareholders may be made at an annual meeting of shareholders (i) pursuant to
the Trust's notice of meeting, (ii) by or at the direction of the Trustees or
(iii) by any shareholder of the Trust who was a shareholder of record at the
time of giving of notice provided for in this Section 13 (a), who is entitled
to vote at the meeting and who complied with the notice procedures set forth in
this Section 13(a).
(2) For nominations or other business to be
properly brought before an annual meeting by a shareholder pursuant to clause
(iii) of paragraph (a)(1) of this Section 13, the shareholder must have given
timely notice thereof in writing to the secretary of the Trust. To be timely,
a shareholder's notice shall be delivered to the secretary at the principal
executive offices of the Trust not less than 60 days nor more than 90 days
prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is
advanced by more than 30 days or delayed by more than 60 days from such
anniversary date, notice by the shareholder to be timely must be so delivered
not earlier than the 90th day prior to such annual meeting and not later than
the close of business on the later of the 60th day prior to such annual meeting
or the tenth day following the day on which public announcement of the date of
such meeting is first made. Such shareholder's notice shall set forth (i) as
to each person whom the shareholder proposes to nominate for election or
reelection as a Trustee all information relating to such person that is
required to be disclosed in solicitations of proxies for election of Trustees,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (including
such person's written consent to being named in the proxy statement as a
nominee and to serving as a Trustee if elected); (ii) as to any other business
that the shareholder proposes to bring before the meeting, a brief description
of the business desired to be
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brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such shareholder and of
the beneficial owner, if any, on whose behalf the proposal is made; and (iii)
as to the shareholder giving the notice and the beneficial owner, if any, on
whose behalf the nomination or proposal is made, (y) the name and address of
such shareholder, as they appear on the Trust's books, and of such beneficial
owner and (z) the number of each class of shares of the Trust which are owned
beneficially and of record by such shareholder and such beneficial owner.
(3) Notwithstanding anything in the second
sentence of paragraph (a)(2) of this Section 13 to the contrary, in the event
that the number of Trustees to be elected to the Board of Trustees is increased
and there is no public announcement naming all of the nominees for Trustee or
specifying the size of the increased Board of Trustees made by the Trust at
least 70 days prior to the first anniversary of the preceding year's annual
meeting, a shareholder's notice required by this Section 13 (a) shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the secretary at the
principal executive offices of the Trust not later than the close of business
on the tenth day following the day on which such public announcement is first
made by the Trust.
(b) Special Meetings of Shareholders. Only such business
shall be conducted at a special meeting of shareholders as shall have been
brought before the meeting pursuant to the Trust's notice of meeting.
Nominations of persons for election to the Board of Trustees may be made at a
special meeting of shareholders at which Trustees are to be elected (i)
pursuant to the Trust's notice of meeting (ii) by or at the direction of the
Board of Trustees or (iii) provided that the Board of Trustees has determined
that Trustees shall be elected at such special meeting, by any shareholder of
the Trust who was a shareholder of record at the time of giving of notice
provided for in this Section 13(b), who is entitled to vote at the meeting and
who complied with the notice procedures set forth in this Section 13(b). In the
event the Trust calls a special meeting of shareholders for the purpose of
electing one or more Trustees to the Board of Trustees, any such shareholder
may nominate a person or persons (as the case may be) for election to such
position as specified in the Trust's notice of meeting, if the shareholder's
notice containing the information required by paragraph (a)(2) of this Section
13 shall be delivered to the secretary at the principal executive offices of
the Trust not earlier than the 90th day prior to such special meeting and not
later than the close of business on the later of the 60th day prior to such
special meeting or the tenth day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed
by the Trustees to be elected at such meeting.
(c) General.
(1) Only such persons who are nominated in
accordance with the procedures set forth in this Section 13 shall be eligible
to serve as Trustees and only such business shall be conducted at a meeting of
shareholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 13. The presiding officer of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought
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before the meeting was made in accordance with the procedures set forth in this
Section 13 and, if any proposed nomination or business is not in compliance
with this Section 13, to declare that such defective nomination or proposal be
disregarded.
(2) For purposes of this Section 13, "public
announcement" shall mean disclosure in a press release reported by the Dow
Jones News Service, Associated Press or comparable news service or in a
document publicly filed by the Trust with the Securities and Exchange
Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of
this Section 13, a shareholder shall also comply with all. applicable
requirements of state law and of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this Section 13. Nothing
in this Section 13 shall be deemed to affect any rights of shareholders to
request inclusion of proposals in the Trust's proxy statement pursuant to Rule
14a-8 under the Exchange Act.
Section 14. INFORMAL ACTION BY SHAREHOLDERS. Any action required or
permitted to be taken at a meeting of shareholders may be taken without a
meeting if a consent in writing, setting forth such action, is signed by each
shareholder entitled to vote on the matter and any other shareholder entitled
to notice of a meeting of shareholders (but not to vote thereat) has waived in
writing any right to dissent from such action, and such consent and waiver are
filed with the minutes of proceedings of the shareholders.
Section 15. VOTING BY BALLOT. Voting on any question or in any
election may be viva voce unless the presiding officer shall order or any
shareholder shall demand that voting be by ballot.
ARTICLE III
TRUSTEES
Section 1. GENERAL POWERS; QUALIFICATIONS; TRUSTEES HOLDING OVER. The
business and affairs of the Trust shall be managed under the direction of its
Board of Trustees. A Trustee shall be an individual at least 21 years of age
who is not under legal disability. Unless otherwise agreed between the Trust
and the Trustee, each individual Trustee, including each Independent Trustee
(as defined in the Trust's Declaration of Trust) , may engage in other business
activities of the type conducted by the Trust and is not required to present to
the Trust any investment opportunities presented to them even though the
investment opportunities may be within the scope of the Trust's investment
policies. In case of failure to elect Trustees at an annual meeting of the
shareholders, the Trustees holding over shall continue to direct the management
of the business and affairs of the Trust until their successors are elected and
qualify.
Section 2. ANNUAL AND REGULAR MEETINGS. An annual meeting of the
Trustees shall be held immediately after and at the same place as the annual
meeting of shareholders, no notice
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other than this Bylaw being necessary. The Trustees may provide, by
resolution, the time and place, either within or without the State of Maryland,
for the holding of regular meetings of the Trustees without other notice than
such resolution.
Section 3. SPECIAL MEETINGS. Special meetings of the Trustees may be
called by or at the request of the Chairman of the Board, the Chief Executive
Officer or the President or by a majority of the Trustees then in office. The
person or persons authorized to call special meetings of the Trustees may fix
any place, either within or without the State of Maryland, as the place for
holding any special meeting of the Trustees called by them.
Section 4. NOTICE. Notice of any special meeting shall be given by
written notice delivered personally, telegraphed or mailed to each Trustee at
his business or residence address. Personally delivered or telegraphed notices
shall be given at least two days prior to the meeting. Notice by mail shall be
given at least five days prior to the meeting. Telephone notice shall be given
at least 24 hours prior to the meeting. If mailed, such notice shall be deemed
to be given when deposited in the United States mail properly addressed, with
postage thereon prepaid. If given by telegram, such notice shall be deemed to
be given when the telegram is delivered to the telegraph company. Telephone
notice shall be deemed given when the Trustee is personally given such notice
in a telephone call to which he is a party. Neither the business to be
transacted at, nor the purpose of, any annual, regular or special meeting of
the Trustees need be stated in the notice, unless specifically required by
statute or these Bylaws.
Section 5. QUORUM. Except as provided in subsection (b) of Section 6,
a majority of the entire Board of Trustees shall constitute a quorum for
transaction of business at any meeting of the Trustees, provided that, if less
than a majority of such Trustees are present at said meeting, a majority of the
Trustees present may adjourn the meeting from time to time without further
notice, and provided further that if, pursuant to the Declaration of Trust or
these Bylaws, the vote of a majority of a particular group of Trustees is
required for action, a quorum must also include a majority of such group.
The Trustees present at a meeting which has been duly called and
convened may continue to transact business until adjournment, notwithstanding
the withdrawal of enough Trustees to leave less than a quorum.
Section 6. VOTING.
(a) Except as provided in subsection (b) of this Section 6,
the action of the majority of the Trustees present at a meeting at which a
quorum is present shall be the action of the Trustees, unless the concurrence
of a greater proportion is required for such action by the Declaration of
Trust, these Bylaws or applicable statute.
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(b) Notwithstanding the foregoing, two-thirds of the
Trustees shall be necessary to constitute a quorum to approve the actions set
forth below in clauses (1) through (5), and such action shall not be effective
unless approved by two-thirds of the Trustees. Such action includes:
(1) A Change in Control (as hereinafter defined)
of the Trust;
(2) Any amendment to the Declaration of Trust or
these Bylaws (except for such amendments as may be required in the reasonable
discretion of two-thirds (2/3) of the Board of Trustees to maintain the Trust's
status as a real estate investment trust under the Internal Revenue Code of
1986, as amended);
(3) Any waiver or modification of the Ownership
Limit (as defined in the Declaration of Trust);
(4) The issuance of any equity securities (other
than Common Shares issued (a) for at least the fair market value thereof at the
time of issuance as determined in good faith by a majority of the Board of
Trustees, (b) pursuant to any share incentive or option plans of the Company,
or (c) in a bona fide underwritten public offering managed by one or more
nationally recognized investment banking firms) or rights to acquire any such
securities; and
(5) Acquisitions, dispositions or financings of
asset by the Trust in excess of 25% of Total Market Capitalization (as
hereinafter defined) whether by merger, purchase, sale or otherwise. The value
of the assets of the Trust for the purpose of determining whether such assets
constitute in excess of 25% of Total Market Capitalization shall be the book
value of such assets as reflected in the Trust's most recent fiscal year-end
consolidation balance sheet at the time the determination is being made or, if
materially different and the transaction involves (A) an acquisition or
disposition, the amount of the consideration involved in such acquisition or
disposition or (B) a financing, the value of assets being financed as reflected
in the financing transaction.
For purposes of this Section 6(b):
(A) The term "Change in Control" of the Trust shall mean any
transaction or series of transactions (whether by purchase of existing Common
Shares, issuance of Common Shares, merger, consolidation or otherwise) the
result of which is that either (i) any Person or Group becomes the Beneficial
Owner, directly or indirectly, 20% or more of the total voting power in the
aggregate of all classes of beneficial interests of the Trust then outstanding
normally entitled to vote in the election of Trustees of the Trust (or any
surviving entity) or (ii) the Beneficial Owners of the beneficial interests of
the Trust normally entitled to vote in the election of Trustees immediately
prior to the transaction beneficially own less than 80% of the total voting
power in the aggregate of all classes of beneficial interests of the Trust then
outstanding normally entitled to vote in the election of Trustees of the Trust
(or any surviving entity) immediately after such transaction.
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(B) The term "Person" as used herein shall have the same meaning
as such term has for purposes of Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended.
(C) The term "Group" has used herein shall have the same meaning
as such term has for purposes of Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended.
(D) The term "Beneficial Owner" as used herein shall have the same
meaning as such term has for purposes of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended, except that a Person shall be
deemed to have beneficial ownership of all shares that a Person has the right
to acquire, whether or not such right is immediately exercisable.
(E) The term "Ownership Limit" as used herein shall have the same
meaning as such term has in the Declaration of Trust.
(F) The term "Total Market Capitalization" shall mean the sum of
(i) the Market Value (as hereinafter defined) of the then outstanding Common
Shares and Preferred Shares, and (ii) the total principal amount of
indebtedness of the Trust as reflected in the Trust's most recent fiscal
year-end consolidation balance sheet existing at the time the Trustees would be
required to approve a transaction set forth in subparagraph (iv) of this
Section 6(b).
(G) The term "Market Value" with respect to Common Shares shall
mean the average of the daily market price for the ten (10) consecutive trading
days immediately prior to the date beginning fifteen (15) days before the
directors would be required to approve a transaction set forth in subparagraph
(v) of this Section 6(b). The market price for each such trading date shall be
the last reported sales price of such stock reported on the New York Stock
Exchange on the trading day immediately preceding the relevant date, or if such
stock is not then traded on the New York Stock Exchange, the last reported
sales price of such stock on the trading day immediately preceding the relevant
date as reported on any exchange or quotation system over which such stock may
be traded, or if such stock is not then traded over any exchange or quotation
system, then the market price of such stock on the relevant date as determined
in good faith by the Board of Trustees of the Trust.
Section 7. TELEPHONE MEETINGS. Trustees may participate in a meeting
by means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in person
at the meeting.
Section 8. INFORMAL ACTION BY TRUSTEES. Any action required or
permitted to be taken at any meeting of the Trustees may be taken without a
meeting, if a consent in writing to such action is signed by each Trustee and
such written consent is filed with the minutes of proceedings of the Trustees.
Section 9. VACANCIES. If for any reason any or all the Trustees cease
to be Trustees, such event shall not terminate the Trust or affect these Bylaws
or the powers of the remaining Trustees
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hereunder (even if fewer than two Trustees remain). Any vacancy (including a
vacancy created by an increase in the number of Trustees) shall be filled, at
any regular meeting or at any special meeting called for that purpose, by a
majority of the Trustees. Any individual so elected as Trustee shall hold
office for the unexpired term of the Trustee he is replacing.
Section 10. COMPENSATION. Trustees shall not receive any stated salary
for their services as Trustees but, by resolution of the Trustees, may receive
cash compensation or a fixed sum of common shares of the Trust for any service
or activity they performed or engaged in as Trustees. By resolution of the
Trustees, Trustees may receive a fee for and may be reimbursed for expenses in
connection with attendance, if any, at each annual, regular or special meeting
of the Trustees or of any committee thereof; and for their expenses, if any, in
connection with each property visit and any other service or activity performed
or engaged in as Trustees; but nothing herein contained shall be construed to
preclude any Trustees from serving the Trust in any other capacity and
receiving compensation therefor.
Section 11. REMOVAL OF TRUSTEES. The shareholders may, at any time,
remove any Trustee in the manner provided in the Declaration of Trust.
Section 12. LOSS OF DEPOSITS. No Trustee shall be liable for any
loss which may occur by reason of the failure of the bank, trust company,
savings and loan association, or other institution with whom moneys or shares
have been deposited.
Section 13. SURETY BONDS. Unless required by law, no Trustee shall
be obligated to give any bond or surety or other security for the performance
of any of his duties.
Section 14. NUMBER, TENURE AND QUALIFICATIONS. The number of
Trustees of the Trust shall not be less than three (3) nor more than nine (9),
as determined from time to time by the Board of Trustees. Trustees need not be
shareholders of the Trust.
Section 15. INTERESTED TRUSTEE TRANSACTIONS. Notwithstanding any
other provision of these Bylaws, the following actions of the Board of Trustees
shall require the approval of the Independent Committee, as defined in Article
IV of these Bylaws: (i) the election of operators for the Trust's properties;
and (ii) all transactions between the Trust and Corrections Corporation of
America and its affiliates, including, but not limited to, the negotiation,
enforcement and renegotiation of the terms of any lease of any of the Trust's
properties.
ARTICLE IV
COMMITTEES
Section 1. GENERAL. The Board of Trustees may, by resolution passed
by a majority of the whole board, designate one or more committees, each such
committee to consist of one or more
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of the Trustees of the Trust. The board may designate one or more Trustees as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. Any such committee, to the extent
provided in the resolution of the Board of Trustees shall have and may exercise
all the powers and authority of the Board of Trustees in the management of the
business and affairs of the Trust, and may authorize the seal of the Trust to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the Declaration of Trust
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares adopted by the Board of
Trustees, fix the designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution or
assets of the Trust or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of any series of
shares or authorize the increase or decrease of the shares of any series),
adopting an agreement of merger or consolidation, recommending to the
shareholders the sale, lease or exchange of all or substantially all of the
Trust's property and assets, recommending to the shareholders a dissolution of
the Trust or a revocation of a dissolution, or amending the Bylaws of the
Trust; and, unless the resolution or the Declaration of Trust expressly so
provides, no such committee shall have the power or authority to declare a
dividend, to authorize the issuance of shares or to adopt a certificate of
ownership and merger.
Section 2. COMMITTEES. The Trust shall initially have the following
committees, the specific authority and members of which shall be as designated
herein or by resolution of the Board of Trustees.
(a) An Independent Committee, which shall consist solely
of Independent Trustees and which shall have the authority to approve the
actions of the Board of Trustees as specified in Section 15 of Article III.
(b) An Audit Committee, which will consist solely of
Independent Trustees and which shall make recommendations concerning the
engagement of independent public accounts, review with the independent public
accountants the plans and results of the audit engagement, approve professional
services provided by the independent public accounts, review the independence
of the independent public accounts, consider the range of audit and non-audit
fees and review the adequacy of the Trust's initial accounting controls.
(c) A Compensation Committee, which shall determine
compensation for the Trust's executive officers and administer any share
incentive plans adopted by the Trust.
Section 3. RECORDS OF COMMITTEE MEETINGS. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Trustees
when required. The presence of a majority of the total membership of any
committee shall constitute a quorum for the transaction of business at any
meeting of such committee and the act of a majority of those present shall be
necessary and sufficient for the taking of any action at such meeting.
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ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Trust may consist
of a Chairman of the Board, a Vice Chairman of the Board, a Chief Executive
Officer, a President, one or more Vice Presidents, a Treasurer, one or more
Assistant Treasurers, a Secretary, and one or more Assistant Secretaries. In
addition, the Trustees may from time to time appoint such other officers with
such powers and duties as they shall deem necessary or desirable. The officers
of the Trust shall be elected annually by the Trustees at the first meeting of
the Trustees held after each annual meeting of shareholders. If the election
of officers shall not be held at such meeting, such election shall be held as
soon thereafter as may be convenient. Each officer shall hold office until his
successor is elected and qualifies or until his death, resignation or removal
in the manner hereinafter provided. Any two or more off ices except President
and Vice President may be held by the same person. In their discretion, the
Trustees may leave unfilled any office except that of President and Secretary.
Election of an officer or agent shall not of itself create contract rights
between the Trust and such officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the Trust
may be removed by the Trustees if in their judgment the best interests of the
Trust would be served thereby, but such removal shall be without prejudice to
the contract rights, if any, of the person so removed. Any officer of the
Trust may resign at any time by giving written notice of his resignation to the
Trustees, the Chairman of the Board, the President or the Secretary. Any
resignation shall take effect at any time subsequent to the time specified
therein or, if the time when it shall become effective is not specified
therein, immediately upon its receipt. The acceptance of a resignation shall
not be necessary to make it effective unless otherwise stated in the
resignation. Such resignation shall be without prejudice to the contract
rights, if any, of the Trust.
Section 3. VACANCIES. A vacancy in any office may be filled by the
Trustees for the balance of the term.
Section 4. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The Chairman of
the Board shall preside over the meetings of the Trustees and of the
shareholders at which he shall be present and shall in general oversee all of
the business and affairs of the Trust. In the absence of the Chairman of the
Board, the Vice Chairman of the Board shall preside at such meetings at which
he shall be present. The Chairman and the Vice Chairman of the Board may
execute any deed, mortgage, bond, contract or other instrument, except in cases
where the execution thereof shall be expressly delegated by the Trustees or by
these Bylaws to some other officer or agent of the Trust or shall be required
by law to be otherwise executed. The Chairman of the Board and the Vice
Chairman of the Board shall perform such other duties as may be assigned to him
or them by the Trustees.
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Section 5. CHIEF EXECUTIVE OFFICER. The Trustees may designate a
Chief Executive Officer from among the elected officers. The Chief Executive
Officer shall have responsibility for implementation of the policies of the
Trust, as determined by the Trustees, and for the administration of the
business affairs of the Trust. In the absence of both the Chairman and Vice
Chairman of the Board, the Chief Executive Officer shall preside over the
meetings of the Trustees and of the shareholders at which he shall be present.
Section 6. CHIEF OPERATING OFFICER. The Trustees may designate a Chief
Operating Officer from among the elected officers. Said officer will have the
responsibilities and duties as set forth by the Trustees or the Chief Executive
Officer.
Section 7. CHIEF DEVELOPMENT OFFICER. The Trustees may designate a
Chief Development Officer from among the elected officers. Said officer will
have the responsibilities and duties as set forth by the Trustees or the Chief
Executive Officer.
Section 8. CHIEF FINANCIAL OFFICER. The Trustees may designate a Chief
Financial Officer from among the elected officers. Said officer will have the
responsibilities and duties as set forth by the Trustees or the Chief Executive
Officer.
Section 9. PRESIDENT. In the absence of the Chairman, the Vice
Chairman of the Board and the Chief Executive Officer, the President shall
preside over the meetings of the Trustees and of the shareholders at which he
shall be present. In the absence of a designation of a Chief Executive Officer
by the Trustees, the President shall be the Chief Executive Officer and shall
be ex officio a member of all committees that may, from time to time, be
constituted by the Trustees. The President may execute any deed, mortgage,
bond, contract or other instrument, except in cases where the execution thereof
shall be expressly delegated by the Trustees or by these Bylaws to some other
officer or agent of the Trust or shall be required by law to be otherwise
executed; and in general shall perform all duties incident to the office of
President and such other duties as may be prescribed by the Trustees from time
to time.
Section 10. VICE PRESIDENTS. In the absence of the president or in the
event of a vacancy in such office, the Vice President (or in the event there be
more than one Vice President, the Vice Presidents in the order designated at
the time of their election or, in the absence of any designation, then in the
order of their election) shall perform the duties of the President and when so
acting shall have all the powers of and be subject to all the restrictions upon
the President; and shall perform such other duties as from time to time may be
assigned to him by the President or by the Trustees. The Trustees may
designate one or more Vice Presidents as Executive Vice President or as Vice
President for particular areas of responsibility.
Section 11. SECRETARY. The Secretary shall (a) keep the minutes of the
proceedings of the shareholders, the Trustees and committees of the Trustees in
one or more books provided for that purpose; (b) see that all notices are duly
given in accordance with the provisions of these Bylaws or as required by law;
(c) be custodian of the trust records and of the seal of the Trust; (d) keep a
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register of the post office address of each shareholder which shall be
furnished to the Secretary by such shareholder; (e) have general charge of the
share transfer books of the Trust; and (f) in general perform such other duties
as from time to time may be assigned to him by the Chief Executive Officer, the
President or by the Trustees.
Section 12. TREASURER. The Treasurer shall have the custody of the
funds and securities of the Trust and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Trust and shall deposit
all moneys and other valuable effects in the name and to the credit of the
Trust in such depositories as may be designated by the Trustees.
The Treasurer shall disburse the funds of the Trust as may be ordered
by the Trustees, taking proper vouchers for such disbursements, and shall
render to the President and Trustees, at the regular meetings of the Trustees
or whenever they may require it, an account of all his transactions as
Treasurer and of the financial condition of the Trust.
If required by the Trustees, the Treasurer shall give the Trust a bond
in such sum and with such surety or sureties as shall be satisfactory to the
Trustees for the faithful performance of the duties of his office and for the
restoration to the Trust, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, moneys and other property
of whatever kind in his possession or under his control belonging to the Trust.
Section 13. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
Assistant Secretaries and Assistant Treasurers, in general, shall perform such
duties as shall be assigned to them by the Secretary or Treasurer,
respectively, or by the President or the Trustees. The Assistant Treasurers
shall, if required by the Trustees, give bonds for the faithful performance of
their duties in such sums and with such surety or sureties as shall be
satisfactory to the Trustees.
Section 14. SALARIES. The salaries of the officers shall be fixed
from time to time by the Trustees and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a Trustee.
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ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Trustees may authorize any officer or agent
to enter into any contract or to execute and deliver any instrument in the name
of and on behalf of the Trust and such authority may be general or confined to
specific instances. Any agreement, deed, mortgage, lease or other document
executed by one or more of the Trustees or by an authorized person shall be
valid and binding upon the Trustees and upon the Trust when authorized or
ratified by action of the Trustees.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Trust shall be signed by such officer or officers, agent or agents
of the Trust in such manner as shall from time to time be determined by the
Trustees.
Section 3. DEPOSITS. All funds of the Trust not otherwise employed
shall be deposited from time to time to the credit of the Trust in such banks,
trust companies or other depositories as the Trustees may designate.
ARTICLE VII
SHARES
Section 1. CERTIFICATES. Each shareholder shall be entitled to a
certificate or certificates which shall represent and certify the number of
shares of each class of beneficial interests held by him in the Trust. Each
certificate shall be signed by the Chief Executive Officer, the President or a
Vice President and countersigned by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer and may be sealed with the seal, if
any, of the Trust. The signatures may be either manual or facsimile.
Certificates shall be consecutively numbered; and if the Trust shall, from time
to time, issue several classes of shares, each class may have its own number
series. A certificate is valid and may be issued whether or not an officer who
signed it is still an officer when it is issued. Each certificate representing
shares which are restricted as to their transferability or voting powers, which
are preferred or limited as to their dividends or as to their allocable portion
of the assets upon liquidation or which are redeemable at the option of the
Trust, shall have a statement of such restriction, limitation, preference or
redemption provision, or a summary thereof, plainly stated on the certificate.
In lieu of such statement or summary, the Trust may set forth upon the face or
back of the certificate a statement that the Trust will furnish to any
shareholder, upon request and without charge, a full statement of such
information.
Section 2. TRANSFERS. Certificates shall be treated as negotiable, and
title thereto and to the shares they represent shall be transferred by delivery
thereof to the same extent as those of a
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Maryland stock corporation. No transfers of shares of the Trust shall be made
if (i) void ab initio pursuant to any provision of the Declaration of Trust or
(ii) the Board of Trustees, pursuant to any provision of the Declaration of
Trust, shall have refused to permit the transfer of such shares. Permitted
transfers of shares of the Trust shall be made on the share records of the
Trust only upon the instruction of the registered holder thereof, or by his
attorney thereunto authorized by power of attorney duly executed and filed with
the Secretary or with a transfer agent or transfer clerk, and upon surrender of
the certificate or certificates, if issued, for such shares properly endorsed
or accompanied by a duly executed share transfer power and the payment of all
taxes thereon. Upon surrender to the Trust or the transfer agent of the Trust
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, as to any transfers not
prohibited by any provision of the Declaration of Trust or by action of the
Board of Trustees thereunder, it shall be the duty of the Trust to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 3. REPLACEMENT CERTIFICATE. Any officer designated by the
Trustees may direct a new certificate to be issued in place of any certificate
previously issued by the Trust alleged to have been lost, stolen or destroyed
upon the making of an affidavit of that fact by the person claiming the
certificate to be lost, stolen or destroyed. When authorizing the issuance of
a new certificate, the officer designated by the Trustees may, in his
discretion and as a condition precedent to the issuance thereof , require the
owner of such lost, stolen or destroyed certificate or the owner's legal
representative to advertise the same in such manner as he shall require and/or
to give bond, with sufficient surety, to the Trust to indemnify it against any
loss or claim which may arise as a result of the issuance of a new certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The
Trustees may set, in advance, a record date for the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders
or determining shareholders entitled to receive payment of any dividend or
the allotment of any other rights, or in order to make a determination of
shareholders for any other purpose. Such date, in any case, shall not be
prior to the close of business on the day the record date is fixed and shall
be not more than 90 days and in the case of a meeting of shareholders not
less than ten days, before the date on which the meeting or particular action
requiring such determination of shareholders of record is to be held or taken.
In lieu of fixing a record date, the Trustees may provide that the
share transfer books shall be closed for a stated period but not longer than 20
days. If the share transfer books are closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders,
such books shall be closed for at least ten days before the date of such
meeting.
If no record date is fixed and the share transfer books are not closed
for the determination of shareholders, (a) the record date for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day on which the notice
of meeting is mailed or the 30th day before the meeting, whichever is the
closer date to the meeting; and (b) the record date for the determination of
shareholders entitled to receive payment of a dividend
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or an allotment of any other rights shall be the close of business on the day
on which the resolution of the Trustees, declaring the dividend or allotment of
rights, is adopted.
When a determination of shareholders entitled to vote at any meeting
of shareholders has been made as provided in this section, such determination
shall apply to any adjournment thereof, except when (i) the determination has
been made through the closing of the transfer books and the stated period of
closing has expired or (ii) the meeting is adjourned to a date more than 120
days after the record date fixed for the original meeting, in either of which
case a new record date shall be determined as set forth herein.
Section 5. SHARE LEDGER. The Trust shall maintain at its principal
office or at the office of its counsel, accountants or transfer agent, an
original or duplicate share ledger containing the name and address of each
shareholder and the number of shares of each class held by such shareholder.
Section 6. FRACTIONAL SHARES; ISSUANCE OF UNITS. The Trustees may
issue fractional shares or provide for the issuance of scrip, all on such terms
and under such conditions as they may determine. Notwithstanding any other
provision of the Declaration of Trust or these Bylaws, the Trustees may issue
units consisting of different securities of the Trust. Any security issued in
a unit shall have the same characteristics as any identical securities issued
by the Trust, except that the Trustees may provide that for a specified period
securities of the Trust issued in such unit may be transferred on the books of
the Trust only in such unit.
ARTICLE VIII
DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions upon the
shares of the Trust may be authorized and declared by the Board Trustees in
their discretion, subject to the provisions of law and the Declaration of
Trust. Dividends may be paid in cash, property or shares of the Trust, subject
to the provisions of law and the Declaration of Trust.
Section 2. CONTINGENCIES. Before payment of any dividends, there may
be set aside out of any funds of the Trust available for dividends such sum or
sums as the Trustees may from time to time, in their absolute discretion, think
proper as a reserve fund for contingencies, for equalizing dividends, for
repairing or maintaining any property of the Trust or for such other purpose as
the Trustees shall determine to be in the best interest of the Trust, and the
Trustees may modify or abolish any such reserve in the manner in which it was
created.
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ARTICLE IX
SEAL
Section 1. SEAL. The Trustees may authorize the adoption of a seal by
the Trust. The seal shall have inscribed thereon the name of the Trust and the
year of its formation. The Trustees may authorize one or more duplicate seals
and provide for the custody thereof.
Section 2. AFFIXING SEAL. Whenever the Trust is required to place its
seal to a document, it shall be sufficient to meet the requirements of any law,
rule or regulation relating to a seal to place the word "(SEAL)" adjacent to
the signature of the person authorized to execute the document on behalf of the
Trust.
ARTICLE X
INDEMNIFICATION AND ADVANCES FOR EXPENSES
To the maximum extent permitted by Maryland law in effect from time to
time, the Trust, without requiring a preliminary determination of the ultimate
entitlement to indemnification, shall indemnify (a) any Trustee or officer or
any former Trustee or officer (including among the foregoing, for all purposes
of this Article X and without limitation, any individual who, while a Trustee
or officer and at the express request of the Trust, serves or has served
another corporation, partnership, joint venture, trust, employee benefit plan
or any other enterprise as a director, officer, shareholder, partner or trustee
of such corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise) who has been successful, on the merits or otherwise, in
the defense of a proceeding to which he was made a party by reason of service
in such capacity, against reasonable expenses incurred by him in connection
with the proceeding, and (b) any Trustee or officer or any former Trustee or
officer against any claim or liability to which he may become subject by reason
of such status unless it is established that (i) his act or omission was
material to the matter giving rise to the proceeding and was committed in bad
faith or was the result of active and deliberate dishonesty, (ii) he actually
received an improper personal benefit in money, property or services or (iii)
in the case of a criminal proceeding, he had reasonable cause to believe that
his act or omission was unlawful. In addition, the Trust shall pay or
reimburse, in advance of final disposition of a proceeding, reasonable expenses
incurred by a Trustee or officer or former Trustee or officer made a party to
a proceeding by reason such status, provided that, the Trust shall have
received (i) a written affirmation by the Trustee or officer of his good faith
belief that he has met the applicable standard of conduct necessary for
indemnification by the Trust as authorized by these Bylaws and (ii) a written
undertaking by or on its behalf to repay the amount paid or reimbursed by the
Trust if it shall ultimately be determined that the applicable standard of
conduct was not met. The Trust may, with the approval of its Trustees, provide
such indemnification or payment or reimbursement of
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expenses to any Trustee or officer or any former Trustee or officer who served
a predecessor of the Trust and to any employee or agent of the Trust or a
predecessor of the Trust. Neither the amendment nor repeal of this Article,
nor the adoption or amendment of any other provision of the Declaration of
Trust or these Bylaws inconsistent with this Article, shall apply to or affect
in any respect the applicability of this Article with respect to any act or
failure to act which occurred prior to such amendment, repeal or adoption.
Any indemnification or payment or reimbursement of the expenses
permitted by these Bylaws shall be furnished in accordance with the procedures
provided for indemnification or payment or reimbursement of expenses, as the
case may be, under Section 2-418 of the Maryland General Corporation Law (the
"MGCL") for directors of Maryland corporations. The Trust may provide to
Trustees, officers and shareholders such other and further indemnification or
payment or reimbursement of expenses, as the case may be, to the fullest extent
permitted by the MGCL, as in effect from time to time, for directors of
Maryland corporations.
ARTICLE XI
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the
Declaration of Trust or Bylaws or pursuant to applicable law, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at nor the
purpose of any meeting need be set forth in the waiver of notice, unless
specifically required by statute. The attendance of any person at any meeting
shall constitute a waiver of notice of such meeting, except where such person
attends a meeting for the express purpose of objecting to the transaction of
any business on the ground that the meeting is not lawfully called or convened.
ARTICLE XII
AMENDMENT OF BYLAWS
The Trustees shall have the exclusive power to adopt, alter or repeal
any provision of these Bylaws and to make new Bylaws in accordance with Article
III hereof.
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ARTICLE XIII
MISCELLANEOUS
All references to the Declaration of Trust shall include any amendments
thereto.
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EXHIBIT 10.1
OPTION AGREEMENT
BY AND BETWEEN
CORRECTIONS CORPORATION OF AMERICA,
a Delaware corporation
("SELLER")
AND
CCA PRISON REALTY TRUST
a Maryland real estate investment trust
("PURCHASER")
, 1997
-----------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II Option to Sell and Purchase and Agreement to Lease
2.1 Option to Sell and Purchase . . . . . . . . . . . . . . . . . . . . .
2.2 Exercise of Option . . . . . . . . . . . . . . . . . . . . . . . . . .
2.3 Agreement to Lease . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE III Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.1 Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . . .
ARTICLE IV Items to be Furnished to Purchaser by Seller . . . . . . . . . . . . . . . . .
4.1 Due Diligence Materials . . . . . . . . . . . . . . . . . . . . . . .
4.2 Due Diligence Review . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE V Title and Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.1 Title Commitment, Exception Documents and Survey . . . . . . . . . . .
5.2 Review Period . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.3 Additional Exceptions . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE VI Representations, Warranties, Covenants and Agreements . . . . . . . . . . . .
6.1 Representations and Warranties of Seller . . . . . . . . . . . . . . .
6.2 Covenants and Agreements of Seller . . . . . . . . . . . . . . . . . .
6.3 Representations and Warranties of Purchaser . . . . . . . . . . . . .
ARTICLE VII Conditions to Obligations . . . . . . . . . . . . . . . . . . . . . . . . . .
7.1 Conditions to the Purchaser's Obligations . . . . . . . . . . . . . .
7.2 Failure of Conditions to Purchaser's Obligations . . . . . . . . . . .
7.3 Conditions to the Seller's Obligations . . . . . . . . . . . . . . . .
7.4 Failure of Conditions to Seller's Obligations . . . . . . . . . . . .
ARTICLE VIII Provisions with Respect to the Closing . . . . . . . . . . . . . . . . . . . .
8.1 Seller's Closing Obligations . . . . . . . . . . . . . . . . . . . . .
8.2 Purchaser's Closing Obligations . . . . . . . . . . . . . . . . . . .
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE IX Expenses of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.1 Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.2 Closing Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.3 Commissions/Broker's Fees . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE X Default and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.1 Seller's Default; Purchaser's Remedies . . . . . . . . . . . . . . . . .
10.2 Purchaser's Default; Seller's Remedies . . . . . . . . . . . . . . . . .
ARTICLE XI Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.2 Right of Assignment . . . . . . . . . . . . . . . . . . . . . . . . . .
11.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.4 Entire Agreement; Modifications . . . . . . . . . . . . . . . . . . . . .
11.5 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.6 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.7 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.8 Extension of Dates . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.9 Time is of the Essence . . . . . . . . . . . . . . . . . . . . . . . . .
11.10 Waiver of Conditions . . . . . . . . . . . . . . . . . . . . . . . . . .
11.11 Memorandum of Option . . . . . . . . . . . . . . . . . . . . . . . . . .
LIST OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
<PAGE> 4
OPTION AGREEMENT
THIS OPTION AGREEMENT (the "Agreement") is made and entered into by and
between CORRECTIONS CORPORATION OF AMERICA, a Delaware corporation (hereinafter
referred to as "'Seller"), and CCA PRISON REALTY TRUST, a Maryland real estate
investment trust (hereinafter referred to as "Purchaser"). Seller and
Purchaser are sometimes collectively referred to herein as the "Parties" and
each of the Parties is sometimes singularly referred to herein as a "Party".
WHEREAS, Seller is the owner of the Property (as hereinafter defined),
consisting of certain real property and improvements thereon being more
particularly described on Exhibit A, attached hereto and made a part hereof;
and,
WHEREAS, in connection with Purchaser's acquisition of certain
properties from Seller pursuant to an Agreement of Sale and Purchase dated of
even date herewith, Purchaser desires to obtain, and Seller desires to grant to
Purchaser, an option to acquire the Property, and, simultaneous with any such
acquisition, to enter into a lease transaction pursuant to which Purchaser
shall lease to Seller, and Seller shall lease from Purchaser, the Property;
NOW, THEREFORE, in consideration of the sum of One Hundred Dollars
($100.00) paid to Seller by Purchaser, the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE I
DEFINITIONS
As used herein (including any Exhibits attached hereto), the following
terms shall have the meanings indicated:
"Accreditations" shall mean any and all accreditations and/or
certifications from any non-governmental entities required in connection with
the current or contemplated operation of the Property.
"Applicable Notices" shall mean any reports, notices of violation, or
notices of compliance issued in connection with any Accreditations or Permits.
"Bill of Sale" shall mean a bill or bills of sale in substantially the
same form as Exhibit B, attached hereto, and sufficient to transfer to
Purchaser all Personal Property.
"Business Agreements" shall mean any leases, contract rights, loan
agreements, mortgages, easements, covenants, restrictions or other agreements
or instruments affecting all or a portion
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of the Property, to the extent the same are assignable by Seller, but
specifically excluding all of Seller's Operating and Service Agreements.
"Business Day(s)" shall mean calendar days other than Saturdays, Sundays
and legal holidays.
"Certificate of Non-Foreign Status" shall mean a certificate dated as of
the Closing Date, addressed to Purchaser and duly executed by Seller, in
substantially the same form as Exhibit C, attached hereto.
"Claim" shall mean any obligation, liability, lien, encumbrance, loss,
damage, cost, expense or claim, including, without limitation, any claim for
damage to property or injury to or death of any person or persons.
"Closing" shall mean the consummation of the sale and purchase provided
for herein, to be held at the offices of Stokes & Bartholomew, P.A., 424 Church
Street, Suite 2800, Nashville, Tennessee, or such other place as the Parties
may mutually agree.
"Closing Certificate" shall mean a certificate in substantially the same
form as Exhibit D, attached hereto, wherein Seller and Purchaser, respectively,
shall represent that the representations and warranties of Seller and
Purchaser, respectively, contained in this Agreement are true and correct in
all material respects as of the Closing Date as if made on and as of the
Closing Date.
"Closing Date" shall mean the actual day on which a transaction
contemplated hereby is closed with the transfer of title to the Property. The
Parties agree that the closing date shall sixty (60) days following Purchaser's
exercise of the Option, or such earlier or later date as shall be hereafter
mutually agreed upon by the Parties.
"Deed" shall mean a deed in substantially the same form as Exhibit E,
attached hereto (as the same may be modified to comply with local law and
custom), executed by Seller, as grantor, in favor of Purchaser, as grantee,
conveying the Land and Improvements to Purchaser, subject only to the Permitted
Exceptions.
"Due Diligence Materials" shall mean the information to be provided by
Seller to Purchaser pursuant to the provisions of Section 4.1 hereof.
"Effective Date" shall mean the date the Option is validly exercised.
"Engineering Documents" shall mean all site plans, surveys, soil and
substrata studies, architectural drawings, plans and specifications,
engineering plans and studies, floor plans, landscape plans, Americans with
Disabilities Act compliance reports, environmental reports and studies,
professional inspection reports, construction and/or architect's reports or
certificates, feasibility studies, appraisals, and other similar plans and
studies that relate to the Real Property or the Personal Property, to the
extent the same are assignable by Seller.
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<PAGE> 6
"Exception Documents" shall mean true, correct and legible copies of
each document listed as an exception to title in the Title Commitment.
"Excluded Personal Property" shall mean all those items of tangible and
intangible personal property described on Exhibit F.
"Fixtures" shall mean all equipment, machinery, fixtures, and other
items of real and/or personal property, including all components thereof, now
or on the Closing Date located in, on or used in connection with, and
permanently affixed to or incorporated into, the Improvements, including,
without limitation, all furnaces, boilers, heaters, electrical equipment,
electronic security equipment, heating, plumbing, lighting, ventilating,
refrigerating, incineration, air and water pollution control, waste disposal,
air-cooling and air-conditioning systems and apparatus, sprinkler systems and
fire and theft protection equipment, and similar systems, all of which, to the
greatest extent permitted by law, are hereby deemed by the Parties to
constitute real estate, together with all replacements, modifications,
alterations and additions thereto, but specifically excluding all items
included within the definition of Personal Property and Excluded Personal
Property.
"Hazardous Materials" shall mean any substance, including without
limitation, asbestos or any substance containing asbestos and deemed hazardous
under any Hazardous Materials Law, the group of organic compounds known as
polychlorinated biphenyls, petroleum products, flammable explosives, radioactive
materials, infectious wastes, biomedical and medical wastes, chemicals known to
cause cancer or reproductive toxicity, pollutants, effluents, contaminants,
emissions or related materials and any items included in the definition of
hazardous or toxic wastes, materials or substances under any Hazardous
Materials Law.
"Hazardous Materials Law" shall mean any local, state or federal law
relating to environmental conditions and industrial hygiene, including, without
limitation, the Resource Conservation and Recovery Act of 1976 ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), as amended by the Superfund Amendments and Reauthorization Act of
1986 ("SARA"), the Hazardous Materials Transportation Act, the Federal Waste
Pollution Control Act, the Clean Air Act, the Clean Water Act, the Toxic
Substances Control Act, the Safe Drinking Water Act, and all similar federal,
state and local environmental statutes, ordinances and the regulations, orders,
or decrees now or hereafter promulgated thereunder.
"Improvements" shall mean all buildings, improvements, structures and
Fixtures now or on the Closing Date located on the Land, including, without
limitation, landscaping, parking lots and structures, roads, drainage and all
above ground and underground utility structures, equipment systems and other
so-called "infrastructure" improvements.
"Intangible Property" means all Permits, Business Agreements and other
intangible property or any interest therein now or on the Closing Date owned or
held by Seller in connection with the Real Property, including all water rights
and reservations, rights to use the trade name applicable to the Property, as
depicted on Exhibit A hereof, and zoning rights related to the Real Property,
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<PAGE> 7
or any part thereof, to the extent the same are assignable by Seller; provided,
however, "Intangible Property" shall not include the general corporate
trademarks, trade names (except as set forth in the preceding sentence),
service marks, logos or insignia or the books and records of Seller, Seller's
accounts receivable and Seller's business and operating licenses for the
facilities on the Real Property.
"Land" means the real property more particularly described on Exhibit A,
attached hereto and made a part hereof, together with all of Seller's rights,
titles, appurtenant interests, covenants, licenses, privileges and benefits
thereto belonging, and Seller's right, title and interest in and to any
easements, rights-of-way, rights of ingress or egress or other interests in,
on, or to any land, highway, street, road or avenue, open or proposed, in, on,
across, in front of, abutting or adjoining such real property including,
without limitation, any strips and gores adjacent to or lying between such real
property and any adjacent real property.
"Laws" means all federal, state and local laws, moratoria, initiatives,
referenda, ordinances, rules, regulations, standards, orders and other
governmental requirements, including, without limitation, those relating to the
environment, health and safety, disabled or handicapped persons.
"Lease" shall mean the Master Agreement to Lease and the Lease Agreement
in substantially the same form as Exhibit G, attached hereto and made a part
hereof, which shall be executed and delivered by Seller (or an affiliate of
Seller) and Purchaser at the Closing, and pursuant to the terms of which
Purchaser shall lease the Property to Seller (or an affiliate of Seller)
following the Closing.
"Material" and "Materially" shall mean a condition, noncompliance,
defect or other fact which would: (a) cost, in the aggregate, in excess of Five
Hundred Thousand Dollars ($500,000.00) and, with respect to any single defect
or fact, would cost in excess of Two Hundred Fifty Thousand Dollars
($250,000.00), to correct or repair; or (b) in the aggregate, result in a loss
to Purchaser or a reduction in the value of the Property in excess of Five
Hundred Thousand Dollars ($500,000.00) and, with respect to any single defect
or fact, would result in a loss to Purchaser or a reduction in the value of the
Property in excess of Two Hundred Fifty Thousand Dollars ($250,000.00).
"Option" shall mean the option to purchase the Property granted by
Seller to Purchaser pursuant to Section 2.1 hereof.
"Permits" shall mean all permits, licenses (but excluding Seller's
business and operating licenses,) approvals, entitlements and other
governmental, quasi-governmental and nongovernmental authorizations including,
without limitation, certificates of use and occupancy, required in connection
with the ownership, planning, development, construction, use, operation or
maintenance of the Real Property, to the extent the same are assignable by
Seller. As used herein, "quasi-governmental" shall include the providers of
all utility services to the Real Property.
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"Permitted Exceptions" shall mean those title exceptions which have
been approved in writing by Purchaser, or are deemed to have been approved by
Purchaser as set forth in Sections 5.2 and 5.3 hereof.
"Personal Property" shall mean all Intangible Property, Warranties, and
Engineering Documents, and all those items of tangible personal property
described on Exhibit H, attached hereto, other than the Fixtures and the
Excluded Personal Property, now or on the Closing Date owned by Seller and
located on or about the Land or Improvements or used in connection with the
operation thereof (specifically excluding personal property owned by employees
of Seller and personal property owned by inmates housed at the Real Property).
"Property" shall mean, collectively, the Land, the Improvements, the
Fixtures, and the Personal Property.
"Purchase Price" shall mean Seller's actual costs and expenses to
acquire, develop, design, construct and equip the property ("Seller's Cost"), as
reflected on the books of Seller, plus five percent (5%) of Seller's Cost.
Seller shall provide to Purchaser a statement of Seller's Cost as soon as same
can reasonably be determined by Seller.
"Real Property" shall mean the Land, the Improvements and the Fixtures.
"Review Period" means a period commencing on the Effective Date and
ending thirty (30) days from the date of Purchaser's receipt of the last of the
following documents: Title Commitment, Exception Documents, Search Reports,
Survey or Due Diligence Materials.
"Search Reports" shall mean reports of searches made of the Uniform
Commercial Code Records of the County in which the Property is located, and of
the office of the Secretary of State of the State in which the Property is
located and in the State in which the principal office of Seller is located,
which searches shall reflect that none of the Property is encumbered by liens
or security interests, which will remain on the Property after the Closing. The
Search Reports shall be updated, at Seller's expense, at or within fifteen (15)
days prior to Closing.
"Seller's Operating and Service Agreements" shall mean all management,
service and operating agreements and contracts entered into by Seller with
respect to the Property, including, but not limited to, agreements and
contracts to house inmates at the Property, food service and equipment
agreements, inmate pay telephone service agreements, medical and pharmaceutical
service and supply agreements, drug testing service agreements, public
performance and licensing agreements for motion picture video cassettes, inmate
educational and instructional service agreement, refuse service agreements,
pest control service agreements and machinery, equipment and uniform rental and
service agreements.
"Seller's Personal Property" shall mean all machinery, equipment,
tools, furniture, furnishings, movable walls or partitions, computers, signage,
trade fixtures or other tangible and intangible personal property, including
Seller's accounts receivable and business and operating
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licenses, and consumable inventory and supplies, used or useful in Seller's
business on the Property, other than those items included within the definition
of Personal Property.
"Survey" shall mean a current "as-built" ALTA survey, certified to ALTA
requirements, prepared by an engineer or surveyor licensed in the State in
which the Land is located and reasonably acceptable to Purchaser, which shall:
(a) include a narrative legal description of the Land by metes and bounds
(which shall include a reference to the recorded plat, if any), and a
computation of the area comprising the Land in both acres and gross square
feet (to the nearest one thousandth of said respective measurement; (b)
accurately show the location on the Land of all improvements (dimensions
thereof at the ground surface level and the distance therefrom to the facing
exterior property lines of the Land), building and set-back lines, parking
spaces (including number of spaces), fences, evidence of abandoned fences,
ponds, creeks, streams, rivers, officially designated 100-year flood plains and
flood prone areas, canals, ditches, easements, roads, rights-of-way and
encroachments; (c) location of encroachments, if any, upon adjoining property,
or from adjoining property, upon the Land; (d) state the zoning classification
of the Land; (e) be certified as of the date of the Survey to the Seller, the
Purchaser, the Title Company, and any third-party lender designated by
Purchaser; (f) legibly identify any and all recorded matters shown on said
survey by appropriate volume and page recording references; (g) show the
location and names of all adjoining streets and the distance to the nearest
streets intersecting the streets that adjoin the Land; (h) be satisfactory to
(and updated from time to time as may be required by) the Title Company so as
to permit it to delete the standard exception for survey matters and replace it
with an exception for the matters shown on the Survey; and (i) include a
written Surveyor's Certification in substantially the same form as set forth on
Exhibit I, attached hereto.
"Title Commitment" shall mean a current commitment issued by the Title
Company to the Purchaser pursuant to the terms of which the Title Company shall
commit to issue the Title Policy to Purchaser in accordance with the provisions
of this Agreement, and reflecting all matters which would be listed as
exceptions to coverage on the Title Policy.
"Title Company" shall mean Lawyer's Title Insurance Corporation or the
national service office of another title insurance company licensed in the state
in which the Property is located and selected by Seller and reasonably
satisfactory to Purchaser.
"Title Policy" shall mean an ALTA Extended Coverage Owner's Policy of
Title Insurance (10/17/92 Form), or comparable state promulgated policy, with
liability in the amount of the Purchase Price, dated as of the Closing Date,
issued by the Title Company, insuring title to the fee interest in the Real
Property in Purchaser, subject only to the Permitted Exceptions and to the
standard printed exceptions included in the ALTA standard form owner's extended
coverage policy of title insurance, with the following modifications: (a) the
exception for survey matters shall be deleted and replaced by an exception for
the matters shown on the Survey; (b) the exception for ad valorem taxes shall
reflect only taxes for the current and subsequent years; (c) any exception as to
parties in possession shall be limited to rights of Seller in possession, as
lessee only, pursuant to the Lease; and (d) there shall be no general exception
for visible and apparent easements or roads and highways or similar items (with
any exception for visible and apparent
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easements or roads and highways or similar items to be specifically referenced
to and shown on the Survey and also identified by applicable recording
information).
"Warranties" shall mean all warranties and guaranties with respect to
the Real Property or Personal Property, whether express or implied, which Seller
now holds or under winch Seller is the beneficiary, to the extent the same are
assignable by Seller.
ARTICLE II
OPTION TO SELL AND PURCHASE AND AGREEMENT TO LEASE
2.1 Option to Sell and Purchase. Seller hereby grants Purchaser the
exclusive Option to purchase the Property for the Purchase Price. The Option
shall expire at 5:00 p.m. on, 2,000, if not validly exercised by Purchaser
prior to such time. Upon Purchaser's valid exercise of the Option, this
Agreement shall be deemed a contract between Seller and Purchaser whereby, on
the Closing Date, Seller shall sell, convey, assign, transfer and deliver to
Purchaser and Purchaser shall purchase, acquire and accept from Seller, the
Property, for the Purchase Price and subject to the terms and conditions of
this Agreement. Purchaser acknowledges that Seller may elect to transfer some or
all of the Property to one or more affiliates of Seller prior to the Closing
Date subject to the terms and conditions of this Agreement. In such event,
Seller shall, upon the exercise of the Option by Purchase and in accordance
with the terms and conditions of this Agreement, cause such affiliates to sell,
convey, assign, transfer and deliver to Purchaser such portion(s) of the
Property as may be transferred to such affiliate(s), In the event of any such
transfers of some or all of the Property to any affiliate of Seller, Seller
shall not be relieved of any of its obligations or liability hereunder. In the
event of any such transfers of some or all of the Property to any affiliate of
Seller, Seller shall not be relieved of any obligations or liability hereunder.
From and after the date of any such transfer, the term "Seller" as used herein
shall refer to both Corrections Corporation of America and the recipient of such
transfer collectively, and to each such party individually.
2.2 Exercise of Option. Purchaser may exercise the Option only by
providing to Seller Purchaser's written, unqualified notice of its exercise of
the Option, in accordance with the provisions of Section 11.3 hereof. The
effective time and date of such exercise shall be the date such notice is
deemed received by Seller pursuant to the provisions of Section 11.3 hereof. In
the event the Option is not duly exercised by Purchaser within the time set
forth in Section 2.1 above, the Option and this Agreement shall expire and the
Parties shall have no further obligation hereunder. Notwithstanding any other
term or provision hereof, the Option shall not be exercisable unless and until
(i) Seller has completed its development and construction of the Improvements
on the Property (other than minor punch list items, which shall be diligently
and promptly completed should Purchaser exercise the Option) and Seller has
received final certificates of use and occupancy, and such other permits,
licenses, approvals, agreements and authorizations as are required for the
operation of the Property for its intended use and (ii) Seller and Purchaser
shall have consummated the transactions contemplated by that certain Agreement
of Sale and Purchase, of even date herewith.
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2.3 Agreement to Lease. If Purchaser exercises the Option, then, on the
Closing Date, and subject to performance by the Parties of the terms and
provisions of this Agreement, Purchaser shall lease to Seller and Seller shall
lease from Purchaser, the Property at the rental and upon the terms and
conditions set forth in the Lease.
ARTICLE III
PURCHASE PRICE
3.1 Payment of Purchase Price. The Purchase Price shall be paid by
Purchaser delivering to the Seller, at the Closing, Federal Reserve wire
transfer funds or other immediately available collected funds payable to the
order of the Seller in the sum equal to the Purchase Price, subject to
adjustment as herein provided. On or before the Closing, the Parties shall agree
on an allocation of the Purchase Price as between the Real Property and the
Personal Property.
ARTICLE IV
ITEMS TO BE
FURNISHED TO PURCHASER BY SELLER
4.1 Due Diligence Materials. Within fifteen (15) days after the
Effective Date, Seller shall deliver to Purchaser for its review the following
items:
a. True, correct, complete and legible copies of all Business
Agreements, Warranties, Permits, Accreditations, Applicable Notices, Engineering
Documents and Seller's Operating and Service Agreements (solely for the purposes
of this Section 4.la., the terms Business Agreements, Warranties, Permits, and
Engineering Documents shall include all agreements, documents, and instruments
otherwise included within such definitions, whether or not the same are
assignable by Seller);
b. True, correct, complete and legible copies of tax statements or
assessments for all real estate and personal property taxes assessed against the
Property for the current and the two prior calendar years, if available;
c. True, correct and legible listing of all Fixtures, Personal Property
and Excluded Property, including a current depreciation schedule;
d. True, correct, complete and legible copies of all existing fire and
extended coverage insurance policies and any other insurance policies pertaining
to the Property, if any;
e. True, correct, complete and legible copies of all instruments
evidencing, governing or securing the payment of any loans secured by the
property or related thereto. Seller
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may make such instruments available for inspection and copying by Purchaser at
Seller's principal office;
f. True, correct, complete and legible copies of any and all
environmental studies or impact reports relating to the Property, if any, and
any approvals, conditions, orders or declarations issued by any governmental
authority relating thereto (such studies and reports shall include, but not be
limited to, reports indicating whether the Property is or has been contaminated
by Hazardous Materials and whether the Property is in compliance with the
Americans with Disabilities Act and Section 504 of the Rehabilitation Act of
1973, as applicable);
g. True, correct, complete and legible copies of any and all litigation
files with respect to any pending litigation and claim files for any claims made
or threatened, the outcome of which might materially affect the Property or the
use and operation of the Property. Seller may make such files available for
inspection and copying by Purchaser at Seller's principal office.
4.2 Due Diligence Review, During the Review Period, Purchaser shall be
entitled to review the Due Diligence Materials delivered by Seller to Purchaser
pursuant to the provisions of Section 4.1 above. If Purchaser shall, for any
reason in Purchaser's sole discretion, judgment and opinion, disapprove or be
dissatisfied with any aspect of such information, or the Property, then
Purchaser shall be entitled to terminate this Agreement by giving written notice
thereof to Seller on or before the expiration of the Review Period, whereupon
this Agreement shall automatically be rendered null and void, all moneys which
have been delivered by Purchaser to Seller or the Title Company shall be
immediately returned to Purchaser and thereafter neither Party shall have any
further obligations or liabilities to the other hereunder. Alternatively,
Purchaser may give written notice setting forth any defect, deficiency or
encumbrance and specify a time within which Seller way remedy or cure such
matter (before or after the expiration of the Review Period), but Seller shall
have no obligation to remedy or cure any such matters objected to by Purchaser.
If any defect, deficiency or encumbrance, so noticed, is not satisfied or
resolved to the satisfaction of Purchaser, in Purchaser's sole discretion,
within the time period specified in the written notice, this Agreement shall, at
the option of Purchaser, terminate as provided in this Section; said option to
terminate to be exercised, if at all, by Purchaser giving written notice thereof
to Seller and simultaneously paying Seller the sum of One Hundred Dollars
($100.00) within three (3) Business Days after the expiration of said specified
time period. In the event Purchaser fails to exercise its option to terminate
this Agreement within the time and in the manner set forth in this Section 4.2,
then Purchaser shall be deemed to have accepted and approved the Due Diligence
Materials and the Property, and to have waived any such defect, deficiency or
encumbrance.
ARTICLE V
TITLE AND SURVEY
5.1 Title Commitment, Exception Documents and Survey. Within thirty (30)
days after the Effective Date, Seller shall deliver or cause to be delivered to
Purchaser, the Title Commitment, Exception Documents, Survey, and Search
Reports.
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5.2 Review Period. Purchaser shall have the right to review the Title
Commitment, Exception Documents, Survey and Search Reports for a period of
thirty (30) days from the date of Purchaser's receipt of the last of such
items. In the event any matters appear therein that are unacceptable to
Purchaser, other than the Permitted Exceptions, Purchaser shall, within said
thirty (30) day period, notify Seller in writing of such fact. Upon the
expiration of said thirty (30) day period, Purchaser shall be deemed to have
accepted all exceptions to title referenced in the Title Commitment and all
matters shown on the Survey except for matters which are the subject of a
notification made under the preceding sentence, and such accepted exceptions
shall be included in the term "Permitted Exceptions" as used herein; provided,
however, in no event shall any of the items listed on Schedule B-1 or C of the
Title Commitment constitute Permitted Exceptions for purposes hereof. In the
event that Purchaser objects to any such matters within the thirty (30) day
Review Period, Seller shall have thirty (30) days from receipt of such notice
within which to eliminate or modify any such unacceptable exceptions or items,
however, Seller shall have no obligation to eliminate or modify any such
unacceptable exceptions or items. In the event that Seller is unable or
unwilling to eliminate or modify such unacceptable items to the satisfaction of
Purchaser on or before the expiration of said thirty (30) day period, Purchaser
may either (a) waive such objections and accept title to the Property subject
to such unacceptable items (which items shall then be deemed to constitute part
of the "Permitted Exceptions"), or (b) terminate this Agreement by written
notice to Seller, whereupon this Agreement shall automatically be rendered null
and void, all moneys which have been delivered by Purchaser to Seller or the
Title Company shall be immediately returned to Purchaser, and thereafter
neither Party shall have any further obligations or liabilities to the other
hereunder.
5.3 Additional Exceptions. In the event that at any time the Title
Commitment, Exception Documents, Survey or Search Reports are modified (other
than the deletion or elimination of any item as to which Purchaser has made an
objection), Purchaser shall have the right to review and approve or disapprove
any such modification and to terminate this Agreement in the event that Seller
is unwilling or unable to eliminate any such matters to the satisfaction of
Purchaser in accordance with the provisions of Section 5.2 above, except that
Purchaser's Review Period as to such additional items shall be for a period
expiring on the date that is the earlier to occur of (a) fifteen (15) days
following the date of Purchaser's receipt of such modification, and (b) the date
of Closing, and all other time periods referred to in Section 5.2 shall expire
on the date that is the earlier of (i) the final day of the specified time
period as set forth therein, and (ii) the Closing Date.
ARTICLE VI
REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS
6.1 Representations and Warranties of Seller. To induce Purchaser to
enter into this Agreement and to purchase the Property, Seller represents and
warrants to Purchaser as follows;
a. Seller has and at the Closing will have, and, upon Purchaser's valid
exercise of the Option, will convey, transfer and assign to Purchaser, good,
indefeasible and insurable title to the Land, free and clear of any deeds of
trust, mortgages, liens, encumbrances, leases,
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<PAGE> 14
tenancies, licenses, chattel mortgages, conditional sales agreements, security
interests, covenants, conditions, restrictions, judgments, rights-of-way,
easements, encroachments, claims and any other matters affecting title or use of
the Property, except the Permitted Exceptions.
b. Seller has duly and validly authorized and executed this Agreement,
and has full right, title, power and authority to enter into this Agreement and
to consummate the transactions provided for herein, and the joinder of no
person or entity will be necessary to convey the Property fully and completely
to Purchaser at Closing and to lease the Property from Purchaser following
Closing. The consummation of the transactions contemplated herein does not
require the approval of Seller's shareholders or any third party, except such
third party approvals as Seller has obtained or will obtain prior to the
Closing Date. The execution by Seller of this Agreement and the consummation by
Seller of the transactions contemplated hereby do not, and at the Closing will
not, result in a breach of any of the terms or provisions of, or constitute a
default or a condition which upon notice or lapse of time or both would ripen
into a default under, any indenture, agreement, instrument or obligation to
which Seller is a party or by which the Property or any portion thereof is
bound; and does not, and at the Closing will not, to Seller's knowledge,
constitute a violation of any Laws, order, rule or regulation applicable to
Seller or any portion of the Property of any court or of any federal, state or
municipal regulatory body or administrative agency or other governmental body
having jurisdiction over Seller or any portion of the Property.
C. There are no adverse or other parties in possession of the Property
or of any part thereof. Seller has not granted to any party any license, lease
or other right relating to the use or possession of the Property.
d. As of the date of this Agreement, no notice has been received from
any insurance company that has issued a policy with respect to any portion of
the Property or from any board of fire underwriters (or other body exercising
similar functions), claiming any defects or deficiencies or requiring the
performance of any repairs, replacements, alterations or other work and as of
the Closing no such notice will have been received which shall not have been
cured. As of the date of this Agreement, no notice has been received by Seller
from any issuing insurance company that any of such policies will not be
renewed, or will be renewed only at a higher premium rate than is presently
payable therefor.
e. No pending condemnation, eminent domain, assessment or similar
proceeding or charge affecting the Property or any portion thereof exists as of
the date of this Agreement. Seller has not heretofore received any notice, and
has no knowledge, that any such proceeding or charge is contemplated. Seller, as
of the date of this Agreement, has not received any notice of a proposed
increase in the assessed valuation of the Property.
f. All Improvements (including all utilities) have been, or as of the
Closing will be, substantially completed and installed in accordance with the
plans and specifications approved by the governmental authorities having
jurisdiction to the extent applicable and are transferable to Purchaser without
additional cost. Permanent certificates of occupancy, all licenses, permits,
authorizations and approvals required by all governmental authorities having
jurisdiction, and the
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requisite certificates of the local board of fire underwriters (or other body
exercising similar functions) have been, or as of the Closing will be, issued
for the Improvements, and, as of the Closing, where required, all of the same
will be in full force and effect. Except as may be set forth in any of the Due
Diligence Materials, the Improvements, as designed and constructed, comply or
will comply with all statutes, restrictions, regulations and ordinances
applicable thereto, including but not limited to the Americans with Disabilities
Act and Section 504 of the Rehabilitation Act of 1973, as applicable.
g. As of the Closing, the water, sewer, gas and electricity lines,
storm sewer and other utility systems on the Land will be adequate to serve the
utility needs of the Property. All utilities required for the operation of the
Improvements will enter the Land through adjoining public streets or through
adjoining private land in accordance with valid public or private easements that
will inure to the benefit of Purchaser. As of the Closing, all approvals,
licenses and permits required for said utilities will have been obtained and
will be, in force and effect. All of said utilities are installed and operating,
or will be, and all installation and connection charges have been or will be
paid in full.
h. Except as my be set forth in any of the Due Diligence Materials, the
location, construction, occupancy, operation and use of the Property (including
the Improvements) do not violate any applicable law, statute, ordinance, rule,
regulation, order or determination of any governmental authority or any board of
fire underwriters (or other body exercising similar functions), or any
restrictive covenant or deed restriction (recorded or otherwise) affecting the
Property or the location, construction, occupancy, operation or use thereof,
including, without limitation, all applicable zoning ordinances and building
codes, flood disaster laws and health and environmental laws and regulations,
the Americans with Disabilities Act and Section 504 of the Rehabilitation Act of
1973, as applicable.
i. Except as may be set forth in any of the Due Diligence Materials,
there are not any structural defects in any of the buildings or other
Improvements constituting the Property. The Improvements, all heating,
electrical, plumbing and drainage at, or servicing, the Property and all
facilities and equipment relating thereto, will be, as of the Closing, in good
condition and working order and adequate in quantity and quality for the normal
operation of the Property. No part of the Property has been destroyed or damaged
by fire or other casualty. To Seller's knowledge, there are no unsatisfied
requests for repairs, restorations or alterations with regard to the Property
from any person, entity or authority, including but not limited to any lender,
insurance provider or governmental authority.
j. There exist no service contracts, management or other agreements
applicable to the Property, to which Seller is a party or otherwise known to
Seller, other than Seller's Operating and Service Agreements and those
agreements furnished to Purchaser pursuant to Section 4.1.
k. Seller is not in default in any manner which would result in a
material adverse effect on Seller under any of the Business Agreements, or
Seller's Operating and Service Agreements or any of the covenants, conditions,
restrictions, rights-of-way or easements affecting
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the Property or any portion thereof and, to Seller's knowledge, no other party
to any of the foregoing is in default thereunder.
1. There are no actions, suits or proceedings pending or, to Seller's
knowledge, threatened against or affecting the Property or any portion thereof,
or relating to or arising out of the ownership or operation of the Property, or
by any federal, state, county or municipal department, commission, board, bureau
or agency or other governmental instrumentality, other than those disclosed to
Purchaser pursuant to Section 4.1. All judicial proceedings concerning the
Property" will be finally dismissed and terminated prior to Closing, excluding
inmate lawsuits and other lawsuits in which Seller is involved in its
ordinary course of business.
m. The Property has free and unimpeded access to presently existing
public highways and/or roads (either directly or by way of perpetual casements);
and, to Seller's knowledge, all approvals necessary therefor will be in full
force and effect as of the Closing. To Seller's knowledge, no fact or condition
exists which would result in the termination of the current access from the
Property to any presently existing public highways and/or roads adjoining or
situated on the Property.
n. There are no attachments, executions, assignments for the benefit of
creditors, or voluntary or involuntary proceedings in bankruptcy or under any
other debtor relief laws contemplated by or, to Seller's knowledge, pending or
threatened against Seller or the Property.
o. Except as may be set forth in any of the Due Diligence Materials, no
Hazardous Materials have been installed, used, generated, manufactured, treated,
handled, refined, produced, processed, stored or disposed of, or otherwise
present in, on or under the Property by Seller or to Seller's knowledge. No
activity has been undertaken on the Property by Seller or to Seller's knowledge
which would cause (i) the Property to become a hazardous waste treatment,
storage or disposal facility within the meaning of, or otherwise bring the
Property within the ambit of RCRA or any Hazardous Materials Law, (ii) a release
or threatened release of Hazardous Materials from the Property within the
meaning of, or otherwise bring the Property within the ambit of, CERCLA or SARA
or any Hazardous Materials Law or (iii) the discharge of Hazardous Materials
into any watercourse, body of surface or subsurface water or wetland, or the
discharge into the atmosphere of any Hazardous Materials which would require a
permit under any Hazardous Materials Law. No activity has been undertaken with
respect to the Property by Seller or to Seller's knowledge which would cause a
violation or support a claim under RCRA, CERCLA, SARA or any Hazardous Materials
Law. No investigation, administrative order, litigation or settlement with
respect to any Hazardous Materials is in existence with respect to the Property,
nor, to Seller's knowledge, is any of the foregoing threatened. No notice has
been received by Seller from any entity, governmental body or individual
claiming any violation of any Hazardous Materials Law, or requiring compliance
with any Hazardous Materials Law, or demanding payment or contribution for
environmental damage or injury to natural resources. Seller has not obtained
and, to Seller's knowledge, is not required to obtain, and Seller has no
knowledge of any reason Purchaser will be required to obtain, any permits,
licenses, or similar authorizations to occupy, operate or use the Improvements
or any part of the Property by reason of any Hazardous Materials Law.
Notwithstanding the representations made herein, such
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representations are and shall be deemed to be limited by the matters detailed in
any Phase I Preliminary Site Assessment or other Due Diligence Materials
obtained by or provided to Purchaser in connection herewith.
p. The Property includes all items of property, tangible and
intangible, currently used by Seller in connection with the operation of the
Property, other than the Excluded Personal Property, Seller's Operating and
Service Agreements, and property expressly excluded from the definition of the
Property
q. To Seller's knowledge, the Due Diligence Materials delivered to
Purchaser are true, correct and complete in all material respects,
Provided Purchaser shall have first validly exercised the Option, Seller
hereby agrees to indemnify and defend, at its sole cost and expense, and hold
Purchaser, its successors and assigns, harmless from and against and to
reimburse Purchaser with respect to any and all claims, demands, actions, causes
of action, losses, damages, liabilities, costs and expenses (including, without
limitation, reasonable attorney's fees and court costs) actually incurred of any
and every kind or character, known or unknown, fixed or contingent, asserted
against or incurred by Purchaser at any time and from time to time by reason of
or arising out of (a) the material breach of any representation or warranty of
Seller set forth in Section 6.1, (b) the failure of Seller, in whole or in
part, to perform any obligation required to be performed by Seller pursuant to
Section 6.1 or (c) the ownership, construction, occupancy, operation, use and
maintenance by Seller or its agents of the Property prior to the Closing Date.
This indemnity applies, without limitation, to the violation on or before the
Closing Date of any Hazardous Materials Law in effect on or before the Closing
Date and any and all matters arising out of any act, omission, event or
circumstance existing or occurring on or prior to the Closing Date (including,
without limitation, the presence on the Property or release from the Property of
Hazardous Materials disposed of or otherwise released prior to the Closing
Date), regardless of whether the act, omission, event or circumstance
constituted a violation of any Hazardous Materials Law at the time of its
existence or occurrence. Subject to the provisions of Section 11.1, the
provisions of this Section 6. 1 shall survive the Closing of the transaction
contemplated by this Agreement and shall continue thereafter in full force and
effect for the benefit of Purchaser, its successors and assigns, Notwithstanding
any provision of this Agreement to the contrary, Purchaser may exercise any
right or remedy Purchaser may have at law or in equity should Seller fail to
meet, comply with or perform its indemnity obligations required by this Section
6.1. In the event a defect, claim or deficiency is discovered by Purchaser prior
to Closing or is noticed in writing by Seller to Purchaser prior to Closing,
Purchaser shall either terminate the Agreement as provided herein or waive the
defect, claim or deficiency and proceed to Closing.
The representations and warranties of Seller given herein are, and shall be
deemed to be, effective only in the event Purchaser validly exercises the Option
and only following the Effective Date.
6.2 Covenants and Agreements of-Seller. Seller covenants and agrees with
Purchaser, from the Effective Date until the Closing or earlier termination of
this Agreement:
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a. Upon Completion of construction of the Improvements, Seller shall
(i) operate the Property in the ordinary course of Seller's business and in the
same manner as currently operated; and (ii) fully maintain and repair the
Improvements, the Fixtures, and the Personal Property in good condition and
repair.
b. Purchaser shall be entitled to make all inspections or
investigations desired by Purchaser with respect to the Property or any portion
thereof, and shall have complete physical access to the Property, which access
shall occur at such times and in such manner so as to not unreasonably interfere
with Seller's business operations or constitute a safety hazard, as reasonably
determined by Seller.
c. Seller shall cause to be maintained in full force and effect fire
and extended coverage insurance upon the Property and public liability insurance
with respect to damage or injury to persons or property occurring on or relating
to operation of the Property in commercially reasonable amounts.
d. Seller shall pay when due all bills and expenses of the Property.
Seller shall not voluntarily enter into or assume any new Business Agreements
with regard to the Property which are in addition to or different from those
furnished and disclosed to Purchaser and reviewed and approved pursuant to
Section 4. 1.
e. Seller shall not create or voluntarily permit to be created any
liens, easements or other conditions affecting any portion of the Property or
the uses thereof without the prior written consent of Purchaser.
f. Seller will pay, as and when due, all interest and principal and all
other charges payable under any indebtedness of Seller secured by the Property
from the date hereof until Closing, and will not suffer or permit any default or
amend or modify the documents evidencing or securing any such indebtedness
without the prior consent of Purchaser.
g. Seller will, subject to limitations provided by law with respect to
privacy rights of inmates, give to Purchaser, its attorneys, accountants and
other representatives, during normal business hours and as often as may be
reasonably requested, full access to all books, records and files relating to
the Property, so long as the same does not unreasonably interfere with Seller's
business operations.
h. Seller shall not remove any Personal Property or Fixtures from the
Land or Improvements without replacing same with substantially similar items of
equal or greater value and repairing the damage, if any, to the Property as a
result of such removal.
i. During the pendency of this Agreement, Seller, its corporate
officers, directors, and agents shall not negotiate the sale or other
disposition of the Property with any person or entity other than Purchaser, and
shall not take any steps to initiate, consummate or document the
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<PAGE> 19
sale or other disposition of the Property, or any portion thereof, to any person
or entity other than Purchaser.
j. Prior to the Closing Date, Seller agrees to notify Purchaser in
writing within three (3) Business Days of any offer received by, delivered to or
communicated to Seller for the purchase, sale, acquisition or other disposition
of the Property.
k. Seller shall provide representations, warranties and consents as may
be reasonably required in connection with any public offering of stock or debt
obligations by Purchaser, including but not limited to, inclusion of financial
statements, summary financial information and other required information
concerning Seller, or Seller as lessee under the Lease, in any Securities and
Exchange Commission filings.
6.3 Representations and Warranties of Purchaser. To induce Seller to enter
into this Agreement and to sell the Property, Purchaser represents and warrants
to Seller as follows:
a. Purchaser has duly and validly authorized and executed this
Agreement, and has full right, title, power and authority to enter into this
Agreement and to consummate the transactions provided for herein, and the
joinder of no person or entity will be necessary to purchase the Property from
Seller at Closing, and to lease the Property to Seller following Closing,
b. The execution by Purchaser of this Agreement and the consummation by
Purchaser of the transactions contemplated hereby do not, and at the Closing
will not, result in a breach of any of the terms or provisions of, or constitute
a default or a condition which upon notice or lapse of time or both would ripen
into a default under, any indenture, agreement, instrument or obligation to
which Purchaser is a party; and does not, and at the Closing will not,
constitute a violation of any Laws, order, rule or regulation applicable to
Purchaser of any court or of any federal, state or municipal regulatory body or
administrative agency or other governmental body having jurisdiction over
Purchaser.
ARTICLE VII
CONDITIONS TO OBLIGATIONS
7.1 Conditions to the Purchaser's Obligations. The obligations of Purchaser
to purchase the Property from Seller and to consummate the transactions
contemplated by this Agreement are subject to the satisfaction, at all times
following the Effective Date and as of the Closing (or such other time period
specified below), of each of the following conditions:
a. All of the representations and warranties of Seller set forth in
this Agreement shall be true in all material respects and Seller shall deliver a
Closing Certificate in substantially the same form attached hereto as Exhibit D
updating such representations and warranties.
16
<PAGE> 20
b. Seller shall have delivered, performed, observed and complied with,
all of the items, instruments, documents, covenants, agreements and conditions
required by this Agreement to be delivered, performed, observed and complied
with by it prior to, or as of, the Closing.
c. Seller shall not be in receivership or dissolution or have made any
assignment for the benefit of creditors, or admitted in writing its inability to
pay its debts as they mature, or have been adjudicated a bankrupt, or have filed
a petition in voluntary bankruptcy, a petition or answer seeking reorganization
or an arrangement with creditors under the federal bankruptcy law or any other
similar law or statute of the United States or any state and no such petition
shall have been filed against it.
d. No material or substantial adverse change shall have occurred with
respect to the condition, financial or otherwise, of the Seller or the Property.
e. Neither the Property nor any part thereof or interest therein shall
have been taken by execution or other process of law in any action prior to
Closing.
f. Seller shall have obtained and delivered to Purchaser a current
report, dated no more than ten (10) days prior to this Agreement, from a
licensed pest control company reasonably acceptable to Purchaser, and which must
show the Property to be free of all termite, or other destructive insect and
pest infestation.
g. During the Review Period, Seller shall have obtained at Seller's
expense and delivered to Purchaser a Phase I environmental site assessment
report, dated no more than 60 days prior to this Agreement, and performed by a
licensed firm.
h. During the Review Period, Purchaser shall have satisfactorily
completed an inspection of the Property with respect to the physical condition
thereof by agents or contractors selected by Purchaser.
i. During the Review Period, Purchaser shall have received, in form
acceptable to Purchaser, evidence of compliance by the Property with all
building codes, zoning ordinances and other governmental entitlements as
necessary for the operation of the Property for the current and intended use,
including, without limitation, certificates of occupancy and such other permits,
licenses, approvals, agreements and authorizations as are required for the
operation of the Property for the current and intended use.
j. During the Review Period, all necessary approvals, consents and the
like of third parties to the validity and effectiveness of the transactions
contemplated hereby have been obtained.
k. During the Review Period, Purchaser is reasonably satisfied that the
Property is sufficient adequate for Seller to carry on the business now being
conducted thereon and the Property is in good condition and repair as reasonably
required for the proper operation and use thereof in compliance with applicable
laws.
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<PAGE> 21
1. During the Review Period, Purchaser has reviewed and satisfied
itself with respect to the Due Diligence Materials and shall not have terminated
this Agreement pursuant to the provisions of Section 4.2 hereof.
m. No material portion of the Property shall have been destroyed by
fire or casualty.
n. No condemnation, eminent domain or similar proceedings shall have
been commenced or threatened with respect to any material portion of the
Property.
o. Purchaser shall have been successful in causing the formation of a
real estate investment trust whose interests have been sold to the public and in
connection therewith shall have raised capital in an amount not less than $___.
7.2 Failure of Conditions to Purchaser's Obligations. In the event any one
or more of the conditions to Purchaser's obligations are not satisfied or waived
in whole or in part at any time prior to or as of the Closing, Purchaser, at
Purchaser's option, shall be entitled to: (a) terminate this Agreement by
giving written notice thereof to Seller, whereupon all moneys, if any, which
have been delivered by Purchaser to Seller or the Title Company shall be
immediately refunded to Purchaser and Purchaser shall have no further
obligations or liabilities hereunder; or (b) proceed to Closing hereunder.
7.3 Conditions to the Seller's Obligations. The obligations of Seller to
sell the Property to Purchaser and to consummate the transactions contemplated
by this Agreement are subject to the satisfaction, at all times prior to and as
of the Closing (or such other time period specified below), of each of the
following conditions:
a. All of the representations and warranties of Purchaser set forth in
this Agreement shall be true at all times prior to, at and as of, the Closing in
all material respects and Purchaser shall deliver a Closing Certificate in
substantially the same form attached hereto as Exhibit D updating such
representations and warranties.
b. Purchaser shall have delivered, performed, observed and complied
with, all of the items, instruments, documents, covenants, agreements and
conditions required by this Agreement to be delivered, performed, observed and
complied with by it prior to, or as of, the Closing.
c. Purchaser shall not be in receivership or dissolution or have made
any assignment for the benefit of creditors, or admitted in writing its
inability to pay its debts as they mature, or have been adjudicated a bankrupt,
or have filed a petition in voluntary bankruptcy, a petition or answer seeking
reorganization or an arrangement with creditors under the federal bankruptcy law
or any other similar law or statute of the United States or any state and no
such petition shall have been filed against it.
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<PAGE> 22
d. Purchaser shall have been successful in causing the formation of a
real estate investment trust whose interests have been sold to the public and in
connection therewith shall have raised capital in an amount not less than $___.
7.4 Failure of Conditions to Seller's Obligations. In the event any one or
more of the conditions to Seller's obligations are not satisfied or waived in
whole or in part at any time prior to or as of the Closing, Seller, at Seller's
option, shall be entitled to: (a) terminate this Agreement by giving written
notice thereof to Purchaser, whereupon all moneys, if any, which have been
delivered by Seller to Purchaser or the Title Company shall be immediately
refunded to Seller and Seller shall have no further obligations or liabilities
hereunder; or (b) proceed to Closing hereunder.
ARTICLE VIII
PROVISIONS WITH RESPECT TO THE CLOSING
8.1 Seller's Closing Obligations. At the Closing, Seller shall furnish and
deliver to the Title Company for delivery to Purchaser, at Seller's expense, the
following:
a. The Deed, Title Policy (or the Title Commitment marked-up and
initialed by the Title Company), Bill of Sale, Certificate of Non-Foreign
Status, Closing Certificate and Lease, each duly executed and acknowledged by
Seller and, as appropriate, in recordable form acceptable in the state and
county in which the Property is located.
b. Certificates of casualty and fire insurance for the Property and
satisfactory evidence of all other insurance coverages as required pursuant to
the Lease showing Purchaser as additional insured and loss payee thereunder,
where appropriate, with appropriate provisions for prior notice to Purchaser in
the event of cancellation or termination of such policies and otherwise in form
and substance reasonably satisfactory to Purchaser.
c. Search Reports, dated not more than fifteen (15) days prior to
Closing, evidencing no UCC-1 Financing Statements or other filings in the name
of Seller with respect to the Property which will remain on the Property after
the Closing.
d. Such affidavits or letters of indemnity as the Title Company shall
require in order to omit from the Title Insurance Policy all exceptions for
unfiled mechanic's, materialman's or similar liens.
e. Any and all transfer declarations or disclosure documents, duly
executed by the appropriate parties, required in connection with the Deed by any
state, county or municipal agency having jurisdiction over the Property or the
transactions contemplated hereby.
f. An opinion of Seller's counsel, dated as of the Closing Date, in the
form of Exhibit J-1, attached hereto.
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<PAGE> 23
g. Such instruments or documents as are necessary, or reasonably
required by Purchaser or the Tide Company, to evidence the status and capacity
of Seller and the authority of the person or persons who are executing the
various documents on behalf of Seller in connection with the purchase and sale
transaction contemplated hereby.
h. Such other documents as are reasonably required by Purchaser to
carry out the terms and provisions of this Agreement.
i. Duplicates of keys, combinations, codes and security information to
all locks on the Property in the possession of Seller, but not to include access
to [describe restricted areas, if any) or areas with controlled substances.
8.2 Purchaser's Closing Obligations. At the Closing, Purchaser shall
furnish and deliver to Seller, at Purchaser's expense, the following:
a. Federal Reserve, wire transfer funds or other immediately available
collected funds, payable to the order of Seller representing the cash portion of
the Purchase Price due in accordance with Section 3.1 herein.
b.The Closing Certificate and Lease, duly executed and acknowledged by
Purchaser.
c. Such instruments or documents as are necessary, or reasonably
required by Seller or the Title Company, to evidence the status and capacity of
Purchaser and the authority of the person or persons who are executing the
various documents on behalf of Purchaser in connection with the purchase and
sale transaction contemplated hereby.
d. An Opinion of Purchaser's counsel, dated as of the Closing Date, in
the form of Exhibit J-2, attached hereto.
e. Such other documents as are reasonably required by Seller to carry
out the terms and provisions of this Agreement.
f. All necessary approvals, consents, certificates and the like of
third parties to the validity and effectiveness of the transaction contemplated
hereby.
ARTICLE IX
EXPENSES OF CLOSING
9.1 Adjustments. There shall be no adjustment of taxes, assessments, water
or sewer charges, gas, electric, telephone or other utilities, operating
expenses, employment charges, premiums on insurance policies, rents or other
normally proratable items, it being agreed and understood by the Parties that
the Seller shall be obligated to pay such items under the terms of the Lease.
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<PAGE> 24
9.2 Closing Costs. Seller shall pay (a) all title examination fees
and premiums for the Title Policy; (b) the cost of the Search Reports; (c) the
cost of the Survey; (d) Seller's legal, accounting and other professional fees
and expenses and the cost of all opinions, certificates, instruments, documents
and papers required to be delivered, or to cause to be delivered, by Seller
hereunder, including without limitation, the cost of performance by Seller of
its obligations hereunder; and (e) all other costs and expenses which are
required to be paid by Seller pursuant to other provisions of this Agreement.
Purchaser shall pay (a) any and all state, municipal or other documentary or
transfer taxes payable in connection with the delivery of any instrument or
document provided in or contemplated by this Agreement or any agreement or
commitment described or referred to herein;(b) the charges for or in connection
with the recording and/or filing of any instrument or document provided herein
or contemplated by this Agreement or any agreement or document described or
referred to herein; (c) Purchaser's legal, accounting and other professional
fees and expenses and the cost of all opinions, certificates, instruments,
documents and papers required to be delivered, or to cause to be delivered, by
Purchaser hereunder, including, without limitation, the cost of performance by
Purchaser of its obligations hereunder; and (d) all other costs and expenses
which are required to be paid by Purchaser pursuant to other provisions of this
Agreement. Purchaser and Seller shall each be responsible for other costs in
the usual and customary manner for this kind of transaction in the county where
the Property is located.
9.3 Commissions/Broker's Fees. Seller hereby represents and
warrants to Purchaser that it has not contacted any real estate broker, finder
or any other party in connection with this transaction, and that it has not
taken any action which would result in any real estate broker's, finder's or
other fees being due or payable to any party with respect to the transaction
contemplated hereby. Purchaser hereby represents and warrants to Seller that
Purchaser has not contacted any real estate broker, finder or any other party
in connection with this transaction, and that it has not taken any action which
would result in any real estate broker's, finder's or other fees being due or
payable to any party with respect to the transaction contemplated hereby. Each
Party hereby indemnifies and agrees to hold the other Party harmless from any
loss, liability, damage, cost or expenses (including reasonable attorneys'
fees) resulting to such other Party by reason of a breach of the
representation and warranty made by such Party herein.
ARTICLE X
DEFAULT AND REMEDIES
10.1 Seller's Default; Purchaser's Remedies.
a. Seller's Default. Seller shall be deemed to be in
default hereunder upon the occurrence of one of the following events: (i) any
of Seller's warranties or representations set forth herein shall be untrue in
any material respect when made or at Closing; or (ii) Seller shall fail to
meet, comply with, or perform any covenant, agreement or obligation on its part
required within the time limits and in the manner required in this Agreement,
which, in either of such events, is not cured by Seller within ten (10) days
following receipt by Seller of written notice of default from Purchaser.
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<PAGE> 25
b. Purchaser's Remedies. In the event Seller shall be
deemed to be in default hereunder Purchaser may, at Purchaser's sole option, do
any one or more of the following: (i) terminate this Agreement by written
notice delivered to Seller on or before the Closing; and/or (ii) enforce
specific performance of this Agreement against Seller including Purchaser's
reasonable costs and attorneys fees in connection therewith; and/or (iii)
exercise any other right or remedy Purchaser may have at law or in equity by
reason of such default including, but not limited to, the recovery of
reasonable attorneys' fees incurred by Purchaser in connection herewith.
c. Return of Payments. Upon the occurrence of any event
deemed to be a default by Seller hereunder, all payments previously made by
Purchaser to Seller or the Title Company hereunder shall be forthwith returned
to Purchaser by the Title Company on receipt of written notice from Purchaser
that Seller has defaulted under this Agreement, which written notice need not
be accompanied by any other document or consent of any other party hereto. If
such sums are to be returned to Purchaser in accordance with this Section
10.1(c), Seller shall promptly, on written request from Purchaser, execute and
deliver such documents as may be required to cause the Title Company to return
such sums to Purchaser.
10.2 Purchaser's Default; Seller's Remedies.
a. Purchaser's Default. Purchaser shall be deemed to be in
default hereunder upon the occurrence of one of the following events: (i) any
of Purchaser's warranties or representations set forth herein shall be untrue
in any material respect when made or at Closing; or (ii) Purchaser shall fail
to meet, comply with, or perform any covenant, agreement or obligation on its
part required within the time limits and in the manner required in this
Agreement, which, in either of such events, is not cured by Purchaser within
ten (10) days following receipt by Purchaser of written notice of default from
Seller.
b. Seller's Remedies. In the event Purchaser shall be
deemed to be in default hereunder Seller may, at Seller's sole option, do any
one or more of the following: (i) terminate this Agreement by written notice
delivered to Purchaser on or before the Closing; and/or (ii) enforce specific
performance of this Agreement against Purchaser including Seller's reasonable
costs and attorneys fees in connection therewith; and/or (iii) exercise any
other right or remedy Seller may have at law or in equity by reason of such
default including, but not limited to, the recovery of reasonable attorneys'
fees incurred by Seller in connection herewith.
c. Return of Payments. Upon the occurrence of any event
deemed to be a default by Purchaser hereunder, all payments previously made by
Purchaser to Seller or the Title Company hereunder shall be forthwith paid to
Seller by the Title Company on receipt of written notice from Seller that
Purchaser has defaulted under this Agreement, which written notice need not be
accompanied by any other document or consent of any other party hereto. If such
sums are to be paid to Seller in accordance with this Section 10.1(c),
Purchaser shall promptly, on written request from Seller, execute and deliver
such documents as may be required to cause the Title Company to pay such sums
to Seller.
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<PAGE> 26
ARTICLE XI
MISCELLANEOUS
11.1 Survival. All of the representations, warranties, covenants,
agreements and indemnities of Seller and Purchaser contained in this Agreement,
to the extent not performed at the Closing, shall survive the Closing for the
period of one (1) year after the Closing Date and shall not be deemed to merge
upon the acceptance of the Deed by Purchaser.
11.2 Right of Assignment. Neither this Agreement nor any interest
herein may be assigned or transferred by Purchaser to any person, firm,
corporation or other entity without the prior written consent of Seller, which
consent may be given or withheld in the sole discretion of Seller.
11.3 Notices. All notices, requests and other communications under
this Agreement shall be in writing and shall be either (a) delivered in person,
(b) sent by certified mail, return-receipt requested, (c) delivered by a
recognized delivery service or (d) sent by facsimile transmission and addressed
as follows:
If intended for Purchaser: CCA Prison Realty Trust
2200 Abbott Martin Road, Suite 201
Nashville, Tennessee 37215
Phone: (615) 460-1220
Fax: (615) 460-1206
Attention: Michael W. Devlin
With a copy to: Sherrard & Roe, PLC
424 Church Street, Suite 2000
Nashville, Tennessee 37219
Phone: (615) 742-4200
Fax: (615) 742-4539
Attention: Kim A. Brown
If intended for Seller: Corrections Corporation of America
102 Woodmont Boulevard, Suite 800
Nashville, Tennessee 37205
Phone: (615) 292-3100
Fax: (615) 269-8635
Attention: Darrell K. Massengale
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<PAGE> 27
With a copy to: Stokes & Bartholomew, P.A.
424 Church Street, Suite 2800
Nashville, Tennessee 37219
Phone: (615) 259-1450
Fax: (615) 259-1470
Attention: Elizabeth E. Moore
or at such other address, and to the attention of such other person, as the
parties shall give notice as herein provided. A notice, request and other
communication shall be deemed to be duly received if delivered in person or by
a recognized delivery service, when delivered to the address of the recipient,
if sent by mail, on the date of receipt by the recipient as shown on the
return-receipt card, or if sent by facsimile, upon receipt by the sender of an
acknowledgment or transmission report generated by the machine from which the
facsimile was sent indicating that the facsimile was sent in its entirety to
the recipient's facsimile number; provided that if a notice, request or other
communication is served by hand or is received by facsimile on a day which is
not a Business Day, or after 5:00 P.M. on any Business Day at the addressee's
location, such notice or communication shall be deemed to be duly received by
the recipient at 9:00 a.m. on the first Business Day thereafter.
11.4 Entire Agreement; Modifications. This Agreement embodies and
constitutes the entire understanding between the Parties with respect to the
transactions contemplated herein, and all prior or contemporaneous agreements,
understandings, representations and statements (oral or written) are merged
into this Agreement. Neither this Agreement nor any provision hereof may be
waived, modified, amended, discharged or terminated except by an instrument in
writing signed by the Party against whom the enforcement of such waiver,
modification, amendment, discharge or termination is sought, and then only to
the extent set forth in such instrument.
11.5 Applicable Law. THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TENNESSEE. The Parties agree that jurisdiction and venue
for any litigation arising out of this Agreement shall be in the Courts of
Davidson County, Tennessee or the U.S. District Court for the Middle District
of Tennessee and, accordingly, consent thereto.
11.6 Captions. The captions in this Agreement are inserted for
convenience of reference only and in no way define, describe, or limit the
scope or intent of this Agreement or any of the provisions hereof.
11.7 Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, legal representatives, successors, and assigns.
11.8 Extension of Dates. Notwithstanding anything to the contrary
contained in this Agreement, if Seller shall fail to deliver any document or
item required pursuant to any of the terms and provisions of Article IV and/or
Article V within the applicable time period required,
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<PAGE> 28
Purchaser, at its option, shall have the right to extend the date of expiration
of the Review Period and correspondingly the date of Closing by the number of
days elapsing from the date such items were required to be delivered and the
date such items were actually delivered to Purchaser. Nothing herein shall
diminish Seller's obligation to timely furnish such items.
11.9 Time is of the Essence. With respect to all provisions of this
Agreement, time is of the essence. However, if the first date of any period
which is set out in any provision of this Agreement falls on a day which is not
a Business Day, then, in such event, the time of such period shall be extended
to the next day which is a Business Day.
11.10 Waiver of Conditions. Any Party may at any time or times, at
its election, waive any of the conditions to its obligations hereunder, but any
such waiver shall be effective only if contained in a writing signed by such
Party. No waiver by a Party of any breach of this Agreement or of any warranty
or representation hereunder by the other Party shall be deemed to be a waiver
of any other breach by such other Party (whether preceding or succeeding and
whether or not of the same or similar nature), and no acceptance of payment or
performance by a Party after any breach by the other Party shall be deemed to
be a waiver of any breach of this Agreement or of any representation or
warranty hereunder by such other Party, whether or not the first Party knows of
such breach at the time it accepts such payment or performance. No failure or
delay by a Party to exercise any right it may have by reason of the default of
the other Party shall operate as a waiver of default or modification of this
Agreement or shall prevent the exercise of any right by the first Party while
the other Party continues to be so in default.
11.11 Memorandum of Option. Upon request of Purchaser, Seller agrees
to execute a memorandum of option, in form and substance reasonably
satisfactory to the Parties, suitable for recording, evidencing the granting of
the Option herein contained.
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<PAGE> 29
EXECUTED to be effective as of the date shown on the front cover hereof.
PURCHASER:
CCA PRISON REALTY TRUST
By:
--------------------------------------
Its:
-------------------------------------
Date:
-------------------------------------
Purchaser's Tax Identification Number:
---
SELLER:
CORRECTIONS CORPORATION OF AMERICA
By:
--------------------------------------
Its:
-------------------------------------
Date:
-------------------------------------
Seller's Tax Identification Number:
------
26
<PAGE> 30
AGREEMENT OF TITLE COMPANY
By its execution of this Agreement, the Title Company agrees to: (a)
timely file a return with the Internal Revenue Service on Form 1099-B, Form
1099-S and/or such other form or forms as the Internal Revenue Service may by
form or regulation require, and (b) furnish Purchaser with a written statement
showing the name and address of the Title Company and the information shown on
such form or forms with respect to Purchaser, and (c) comply with the
provisions of the Agreement which are applicable to the Title Company. Such
form or forms shall be filed in order that the parties to this transaction will
be in compliance with Section 6045 of the Internal Revenue Code of 1986, as
amended. Purchaser and Seller shall each provide their taxpayer identification
numbers to the Title Company so that such information may be included in the
form or forms filed by the Title Company.
LAWYERS TITLE INSURANCE CORPORATION
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
marquis
27
<PAGE> 31
LIST OF EXHIBITS
Exhibit A - Real Property Description
Exhibit B - Bill of Sale and Assignment
Exhibit C - Certificate of Non-Foreign Status
Exhibit D - Closing Certificate
Exhibit E - Deed
Exhibit F - Excluded Personal Property
Exhibit G - Master Agreement to Lease and Lease Agreement
Exhibit H - Personal Property
Exhibit I - Surveyor's Certificate
Exhibit J-1 - Opinion of Seller's Counsel
Exhibit J-2 - Opinion of Purchaser's Counsel
<PAGE> 32
EXHIBITS
TO
OPTION AGREEMENT
BY AND BETWEEN
CORRECTIONS CORPORATION OF AMERICA,
a Delaware corporation
("SELLER")
AND
CCA PRISON REALTY TRUST
a Maryland real estate investment trust
("PURCHASER")
<PAGE> 33
EXHIBIT A
PROPERTY DESCRIPTION
<PAGE> 34
EXHIBIT B
BILL OF SALE AND ASSIGNMENT
STATE OF ______________________ Section
Section KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF _____________________ Section
THAT, CORRECTIONS CORPORATION OF AMERICA, a Delaware corporation ("Grantor" or
"Seller"), for and in consideration of the sum of Ten and No/100 Dollars
($10.00) and other good and valuable consideration to it in hand paid by CCA
PRISON REALTY TRUST, a Maryland real estate investment trust ("Grantee" or
"Purchaser"), to the extent legally permissible, has GRANTED, SOLD, ASSIGNED,
TRANSFERRED, CONVEYED, and DELIVERED and does by these presents GRANT, SELL,
ASSIGN, TRANSFER, CONVEY, and DELIVER unto the said Purchaser, all of Seller's
right, title and interest in and to the following described properties, rights,
and interests (such properties, rights and interests being hereinafter
collectively referred to as the "Personal Property", as defined in that certain
Agreement of Sale and Purchase, dated as of ______________, 199___, by and
between Seller and Purchaser and being hereinafter referred to as the
"Agreement"), located on or about that certain land described on Exhibit A,
attached hereto and incorporated herein for all purposes, or the buildings,
improvements, structures and Fixtures (as defined in the Agreement) thereon
(such land, buildings, improvements, structures and Fixtures being hereinafter
collectively referred to as the "Real Property" as defined in the Agreement),
or used in connection with the operation thereof:
All permits, licenses (but excluding Seller's business and
operating licenses), approvals, entitlements and other governmental,
quasi-governmental and nongovernmental authorizations including, without
limitation, certificates of use and occupancy, required in connection
with the ownership, planning, development, construction, use, operation
or maintenance of the Real Property, to the extent the same are
assignable by Seller (the "Permits" as defined in the Agreement), any
leases, contract rights, loan agreements, mortgages, easements,
covenants, restrictions or other agreements or instruments affecting all
or a portion of the Real Property or Personal Property, to the extent
the same are assignable by Seller, but specifically excluding all of
Seller's Operating and Service Agreements (as defined in the Agreement)
(the "Business Agreements" as defined in the Agreement), and other
intangible property or any interest therein owned or held by Seller in
connection with the Real Property, including all water rights and
reservations, rights to use the trade name applicable to the Real
Property, and zoning rights related to the Real Property, or any part
thereof, to the extent the same are assignable by Seller; provided,
however, such Personal Property shall not include the general corporate
trademarks, trade names (except as set forth above), service marks,
logos or insignia or the books and records of Seller, Seller's accounts
receivable and Seller's business and operating licenses for the
facilities on the Real Property (the "Intangible Property" as defined in
the Agreement).
<PAGE> 35
All warranties and guaranties with respect to the Real
Property or Personal Property, whether express or implied, which Seller
now holds or under which Seller is the beneficiary, to the extent the
same are assignable by Seller (the "Warranties" as defined in the
Agreement).
All site plans, surveys, soil and substrata studies,
architectural drawings, plans and specifications, engineering plans and
studies, floor plans, landscape plans, Americans with Disabilities Act
compliance reports, environmental reports and studies, professional
inspection reports, construction and/or architect's reports or
certificates, feasibility studies, appraisals, and other similar plans
and studies that relate to the Real Property, to the extent the same are
assignable by Seller or the Personal Property (the "Engineering
Documents" as defined in the Agreement).
All those items of tangible personal property described on
Exhibit B, attached hereto and incorporated herein for all purposes, now
or on the Closing Date owned by Seller.
THERE IS EXPRESSLY EXCLUDED FROM THE PERSONAL PROPERTY THE FOLLOWING:
(i) Excluded Personal Property as defined in the Agreement, (ii) Fixtures as
defined in the Agreement, (iii) personal property owned by employees of Seller
and personal property owned by inmates housed at the Real Property, and (iv)
Seller's Operating and Service Agreements as defined in the Agreement.
TO HAVE AND TO HOLD the Personal Property unto the said Purchaser, its
successors and assigns, forever, and Seller does hereby bind itself and its
successors to warrant and forever defend, all and singular, title to the said
Personal Property unto the said Purchaser, its successors and assigns, against
every person whomsoever lawfully claiming or to claim the same, or any part
thereof by, through or under Seller, but not further or otherwise.
Seller and its successors hereby warrants, represents, covenants and
agrees with Purchaser as follows:
(i) That Seller is the owner of the Personal Property, which
Personal Property is free and clear of any and all liens, security interests,
or other encumbrances except the Permitted Exceptions (as defined in the
Agreement) and attached hereto as Schedule A and incorporated herein by
reference for all purposes, and this sale and assignment is made and accepted
expressly subject to the matters set forth on Schedule A attached hereto;
(ii) That Seller shall indemnify and hold harmless Purchaser from
and against any and all liability, loss, damage, cost or expense, including
reasonable attorneys' fees, which Purchaser may suffer or incur by reason of
any act or cause of action occurring or accruing prior to the effective date
hereof and arising out of the ownership and/or operation of the Real Property
or the Personal Property, except for (a) any obligations expressly assumed
under the Agreement by the Purchaser; and (b) any liability, loss, damage, cost
or expense arising out of the actions or omissions of the Purchaser.
<PAGE> 36
Purchaser and its successors and assigns hereby warrant, represent,
covenant and agree with Seller that Purchaser shall indemnify and hold harmless
Seller from and against any and all liability, loss, damage, cost or expense,
including reasonable attorneys' fees, which Seller may suffer or incur by
reason of any act or cause of action occurring or accruing subsequent to the
effective date hereof and arising out of the ownership and/or operation of the
Real Property or the Personal Property, except (i) any obligations which are
expressly retained by the Seller pursuant to the terms and provisions of a
written agreement with the Purchaser, and (ii) any liability, loss, damage,
cost or expense arising out of the actions or omissions of the Seller.
The agreements, covenants, warranties and representations herein set
forth shall be binding upon and shall inure to the benefit of Seller and
Purchaser and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Bill of Sale and
Assignment to be executed by its duly authorized officers effective as of the
day of _____________, 19___.
SELLER:
CORRECTIONS CORPORATION OF AMERICA
By:___________________________________
Its:__________________________________
PURCHASER:
CCA PRISON REALTY TRUST
By:____________________________________
Its:___________________________________
<PAGE> 37
STATE OF ____________________________________ )
COUNTY OF ___________________________________ )
Before me, the undersigned, a Notary Public of the State and County
aforesaid, personally appeared ________________________________, with whom I am
personally acquainted (or proved to me on the basis of satisfactory evidence),
and who, upon oath, acknowledged _____self to be _________________ of
CORRECTIONS CORPORATION OF AMERICA, the within named bargainor, a Delaware
corporation, and that ____he, as such ________________________________, being
authorized so to do, executed the foregoing instrument for the purposes
therein contained, by signing the name of the corporation by ___self as
________________________________.
WITNESS my hand, at office, this _______ day of ____________________,
1997.
________________________________
Notary Public
My Commission Expires:
______________________________
STATE OF __________________________ )
COUNTY OF _________________________ )
Before me, the undersigned, a Notary Public of the State and County
aforesaid, personally appeared ________________________________, with whom I am
personally acquainted (or proved to me on the basis of satisfactory evidence),
and who, upon oath, acknowledged _____self to be _____________________ of CCA
PRISON REALTY TRUST, the within named bargainor, a Maryland real estate
investment trust, and that ____he, as such _________________, being authorized
so to do, executed the foregoing instrument for the purposes therein
contained, by signing the name of the real estate investment trust by ___self
as ________________________________.
Witness my hand, at office, this _________ day of _____________________,
1997.
________________________________
Notary Public
My Commission Expires:
______________________________
<PAGE> 38
Exhibit A to Bill of Sale and Assignment
Property Description
<PAGE> 39
Exhibit B to Bill of Sale and Assignment
Items of Personal Property
<PAGE> 40
Schedule A to Bill of Sale and Assignment
Permitted Exceptions
<PAGE> 41
EXHIBIT C
CERTIFICATE OF NON-FOREIGN STATUS
STATE OF __________________________ Section
Section KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF _________________________ Section
BEFORE ME, the undersigned authority, on this day personally appeared
_______________________ ("Affiant"), of CORRECTIONS CORPORATION OF AMERICA
("Seller"), who after being duly sworn, upon Seller's oath did depose and state
under penalty of perjury that for purposes of Section 1445 of the Internal
Revenue Code of 1986, as amended, in connection with the sale, transfer and
conveyance of that certain property located and particularly described on
Exhibit A attached hereto and incorporated herein for all purposes (the
"Property"), and in order to inform CCA PRISON REALTY TRUST, a Maryland real
estate investment trust ("Purchaser"), that withholding of tax is not required
upon the disposition of the Property by Seller:
(i) that Seller is not a foreign corporation, foreign partnership,
foreign trust, or foreign estate (as these terms are defined
in the Internal Revenue Code and Income Tax Regulations);
(ii) that Seller's United States taxpayer identification number is
_________________________________________;
(iii) that Seller's mailing address is 102 Woodmont Boulevard, Suite
800, Nashville, Tennessee 37205; and
(iv) that Seller understands that this Affidavit may be disclosed
to the Internal Revenue Service by Purchaser and that any
false statement contained herein could be punishable by fine,
imprisonment or both.
Under penalties of perjury Affiant declares that he has examined this
Affidavit, that to the best of his knowledge and belief it is true, correct and
complete, and that Affiant has the authority to sign this Affidavit on behalf
of Seller.
CORRECTIONS CORPORATION OF AMERICA
By:____________________________________
Its:____________________________________
<PAGE> 42
STATE OF ____________________________________ )
COUNTY OF ___________________________________ )
Before me, the undersigned, a Notary Public of the State and County
aforesaid, personally appeared ________________________________, with whom I am
personally acquainted (or proved to me on the basis of satisfactory evidence),
and who, upon oath, acknowledged _____self to be _________________ of
CORRECTIONS CORPORATION OF AMERICA, the within named bargainor, a Delaware
corporation, and that ____he, as such ________________________________, being
authorized so to do, executed the foregoing instrument for the purposes
therein contained, by signing the name of the corporation by ___self as
________________________________.
WITNESS my hand, at office, this _______ day of ____________________,
1997.
________________________________________
Notary Public
My Commission Expires:
______________________________
<PAGE> 43
Exhibit A to Certificate of Non-Foreign Status
Property Description
<PAGE> 44
EXHIBIT D
CLOSING CERTIFICATE
The undersigned hereby certifies that the representations and warranties
contained in Section [5.1/5.3] of that certain Agreement of Sale and Purchase
(the "Agreement") dated _______________________________, by and between
CORRECTIONS CORPORATION OF AMERICA, a Delaware corporation ("Seller"), and CCA
PRISON REALTY TRUST, a Maryland real estate investment trust ("Purchaser"),
which representations and warranties are incorporated herein as though set out
in full herein, are true and correct in all material respects as of the Closing
Date defined in the Agreement as if made on and as of the Closing Date, shall
survive the consummation of the purchase and sale transaction as contemplated
by and for the time period provided in the Agreement and shall not be deemed to
merge upon the acceptance of the deed by Purchaser delivered in connection with
the consummation of such purchase and sale transaction.
This certificate is given to [Seller/Purchaser] with the realization and
understanding that all matters referenced above are material to the decision of
[Seller/Purchaser] to close said sale and purchase on the Closing Date and
[Seller/Purchaser] is acting in reliance thereon.
Dated this ________ day of _______________________, 199___.
____________________________________
By:_________________________________
Its:________________________________
<PAGE> 45
STATE OF ____________________________________ )
COUNTY OF ___________________________________ )
Before me, the undersigned, a Notary Public of the State and County
aforesaid, personally appeared ________________________________, with whom I am
personally acquainted (or proved to me on the basis of satisfactory evidence),
and who, upon oath, acknowledged _____self to be ____________________ of
______________________, the within named bargainor, a Delaware corporation,
and that ____he, as such _______________________, being authorized so to do,
executed the foregoing instrument for the purposes therein contained, by
signing the name of the corporation by ___self as ____________________________.
WITNESS my hand, at office, this _______ day of ____________________,
1997.
________________________________
Notary Public
My Commission Expires:
______________________________
<PAGE> 46
EXHIBIT E
DEED
This Instrument prepared by:
Stokes & Bartholomew, P.A.
424 Church Street
Suite 2800
Nashville, Tennessee 37219
ADDRESS NEW OWNER: SEND TAX BILL TO: MAP-PARCEL
- ---------------------------------------------------------------------
CCA Prison Realty Trust PARCEL____
_______________________
_______________________
SPECIAL WARRANTY DEED
FOR AND IN CONSIDERATION of the sum of Ten Dollars ($10.00), cash in
hand paid by the hereinafter named GRANTEE, and other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged,
CORRECTIONS CORPORATION OF AMERICA, a Delaware corporation (hereinafter the
"GRANTOR"), has bargained and sold, and by these presents does hereby transfer,
assign and convey unto CCA PRISON REALTY TRUST, a Maryland real estate
investment trust (hereinafter the "GRANTEE"), its successors and assigns, that
certain tract or parcel of land in ________________, _______________ County,
____________________________, described on Exhibit A, attached hereto and
incorporated herein by reference.
This is improved property known as ___________________________________
_______________________________________________________________________________.
<PAGE> 47
The conveyance of the property herein, and all covenants and
warranties of GRANTOR contained herein, are made expressly subject to those
matters set forth on Exhibit B, attached hereto and incorporated herein by
reference.
TO HAVE AND TO HOLD said property, with the appurtenances, estate,
title and interest thereto belonging to the said GRANTEE, and GRANTEE'S
successors and assigns, forever. GRANTOR covenants that the title to said
property is free from all encumbrances made or suffered by GRANTOR, except as
otherwise set forth herein; and GRANTOR further covenants and binds itself, and
its successors and assigns, to warrant specially and forever defend the title
to said property to the said GRANTEE, its successors and assigns, against the
lawful claims of all persons claiming by, through or under GRANTOR, but not
further or otherwise.
IN WITNESS WHEREOF, the GRANTOR has caused this Special Warranty Deed
to be executed as of this _____ day of ___________, 19__.
CORRECTIONS CORPORATION OF AMERICA
By:
----------------------------------
Its:
---------------------------------
<PAGE> 48
STATE OF ______________________ )
COUNTY OF _____________________ )
Before me, the undersigned, a Notary Public of the State and County
aforesaid, personally appeared ________________________________, with whom I am
personally acquainted (or proved to me on the basis of satisfactory evidence),
and who, upon oath, acknowledged _____self to be ______________________________
of CORRECTIONS CORPORATION OF AMERICA, the within named bargainor, a Delaware
corporation, and that ____he, as such ________________________________, being
authorized so to do, executed the foregoing instrument for the purposes therein
contained, by signing the name of the corporation by ___self as ______________.
WITNESS my hand, at office, this _______ day of ____________________,
1997.
--------------------------------------
Notary Public
My Commission Expires:
__________________
STATE OF_______________________ )
COUNTY OF______________________ )
The actual consideration or value, whichever is greater, for this transfer
is $________________.
------------------------------------
Affiant
Subscribed and sworn to before me this
________ day of _______________, 1997.
______________________________________
Notary Public
My Commission Expires:
_____________________
<PAGE> 49
Exhibit A to Special Warranty Deed
Property Description
<PAGE> 50
Exhibit B to Special Warranty Deed
Permitted Exceptions
<PAGE> 51
EXHIBIT F
EXCLUDED PERSONAL PROPERTY
<PAGE> 52
EXHIBIT G
MASTER AGREEMENT TO LEASE
AND
LEASE AGREEMENT
<PAGE> 53
EXHIBIT H
PERSONAL PROPERTY
<PAGE> 54
EXHIBIT I
SURVEYOR'S CERTIFICATE
This is to certify to Corrections Corporation of America and CCA Prison
Realty Trust, and their respective successors and assigns, and _______________
___________________________ Title Insurance Company that this map or plat of
survey is based on a field survey of the property depicted hereon (the
"Property") made on __________________________, 199___, by me or directly under
my supervision in accordance with the current "Minimum Standard Detail
Requirements for ALTA/ACSM Land Title Surveys", jointly established and
adopted by American Land Title Association and American Congress on Surveying
and Mapping, and to the best of my professional knowledge, information and
belief,
1. correctly represents the facts found at the time of survey;
2. except as shown on the survey map, there are no discrepancies between the
boundary lines of the Property as shown on the survey map and as
described in the legal description of record;
3. the boundary line dimensions as shown on the survey map form a
mathematically closed figure within + 0.01 foot;
4. except as shown on the survey map, the boundary lines of the Property are
contiguous with the boundary lines of all adjoining parcels, roads,
highways, streets or alleys as described in their most recent respective
legal descriptions of record;
5. the field survey meets the Accuracy Standards (as adopted by ALTA and
ACSM and in effect on the date of this certification) of an Urban survey
as defined therein;
6. all monuments shown hereon actually exist, and the location, size and
type of material thereof are correctly shown;
7. except as shown hereon, there are no visible encroachments onto the
Property, there are no visible easements or rights-of-way on the Property
and there are no visible discrepancies, conflicts, shortages in area or
boundary line conflicts;
8. the size, location and type of improvements are as shown hereon, and all
are located within the boundaries of the Property and with applicable
minimum building setback lines, as shown herein;
9. the distance from the nearest intersecting street or road is as shown;
10. all roadways shown on the survey map are dedicated public roads unless
otherwise indicated;
11. the boundaries, dimensions and other details shown hereon are accurate,
true and correct;
<PAGE> 55
12. the Property is not located in a 100-Year Flood Plain or in an identified
"flood prone area", as defined by the U.S. Department of Housing and
Urban Development, pursuant to the Flood Disaster Protection Act of 1973,
as amended, as reflected by Flood Insurance Rate Map Panel
#_______________, dated ____________________, which map panel covers the
area in which the Property is situated. Said map indicates that the
Property is located in Flood Zone __________ which means
__________________________________________________________________________
____________________________________________________________; and,
13. this survey map shows all items described in Items 1, 2, 3, 4, 6, 7(a),
7(b)(1), 8, 9, 10, 11 and 13 of Table A of such ALTA/ACSM Standards.
______________________________________
Surveyor or Engineer
Registered Land Surveyor No.
<PAGE> 56
EXHIBIT J-1
OPINION OF SELLER'S COUNSEL
<PAGE> 57
EXHIBIT J-2
OPINION OF PURCHASER'S COUNSEL
<PAGE> 1
EXHIBIT 10.2
MASTER AGREEMENT TO LEASE
BETWEEN
CCA PRISON REALTY TRUST, LANDLORD
AND
CORRECTIONS CORPORATION OF AMERICA, TENANT
DATED: ____________, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I SEPARATE LEASE AGREEMENTS; PREMISES AND TERM . . . . . . . . . . . . . . . . . . . . . . . . . .
1.01 Separate Lease Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.02 Leased Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.03 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.04 Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.05 Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE II RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.01 Bast Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.02 Additional Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.02.01 Other Additional Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.03 Place(s) of Payment of Rent; Direct Payment of Other Additional Rent . . . . . . . . . . . . . .
2.04 Net Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.05 No Termination, Abatement, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE III IMPOSITIONS AND UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.01 Payment of Impositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.02 Definition of Impositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.03 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.04 Escrow of Impositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.05 Discontinuance of Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE IV INSURANCE . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.01 Property Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.02 Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.03 Insurance Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.04 Replacement Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.05 Blanket Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.06 No Separate Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.07 Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.08 Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE V INDEMNITY; HAZARDOUS SUBSTANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.01 Tenant's Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.02 Hazardous Substances or Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.03 Limitation of Landlord's Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE VI USE AND ACCEPTANCE OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.01 Use of Leased Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.02 Acceptance of Leased Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.03 Conditions of Use and Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
6.04 Financial Statements and Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE VII REPAIRS, COMPLIANCE WITH LAWS, AND MECHANICS' LIENS . . . . . . . . . . . . . . . . . . . . . . .
7.01 Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.02 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.03 Required Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.04 Mechanics' Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.05 Replacements of Fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE VIII ALTERATIONS AND SIGNS; TENANT'S PROPERTY; CAPITAL
ADDITIONS TO THE LEASED PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.01 Tenant's Right to Construct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.02 Scope of Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.03 Cooperation of Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.04 Commencement of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.05 Rights in Tenant Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.06 Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.07 Requirements for Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.08 Signs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.09 Financings of Capital Additions to a Leased Property . . . . . . . . . . . . . . . . . . . . . .
ARTICLE IX DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.01 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.02 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.03 Right of Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.04 Performance of Tenant's Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.05 Late Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.06 Litigation; Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.07 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.08 Escrows and Application of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.09 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE X DAMAGE AND DESTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.01 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.02 Landlord's Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.03 Landlord's Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.04 Rent Abatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.05 Substantial Damage During Lease Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.06 Damage Near End of Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE XI CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.01 Total Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.02 Partial Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
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11.03 Restoration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.04 Landlord's Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.05 Award Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.06 Temporary Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE XII TENANT'S RIGHT OF FIRST REFUSAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.01 Rights of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.02 Restriction on Exercise of Purchase Refusal Right . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE XIII ASSIGNMENT AND SUBLETTING; ATTORNMENT . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .
13.01 Prohibition Against Subletting and Assignment . . . . . . . . . . . . . . . . . . . . . . . . . .
13.02 Changes of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.03 Operating/Service Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.03.01 Permitted Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.03.02 Terms of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.03.03 Copies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.03.04 Assignment of Rights in Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.03.05 Licenses, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.04 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.05 REIT Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.06 Attornment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE XIV ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14.01 Controversies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14.02 Appointment of Arbitrators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14.03 Arbitration Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14.04 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14.05 Enforcement of the Arbitration Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE XV QUIET ENJOYMENT, SUBORDINATION, ATTORNMENT, ESTOPPEL
CERTIFICATES . . . . . . . . . . . . . . . . . . . . .
15.01 Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15.02 Landlord Mortgages; Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15.03 Attornment; Non-Disturbance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15.04 Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE XVI MISCELLANEOUS . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.01 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.02 Advertisement of Leased Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.03 Landlord's Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.04 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.05 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.06 Captions and Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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16.07 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.08 Memorandum of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.09 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.10 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.11 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.12 Transfer of Permits, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.13 Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.14 Incorporation by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.15 No Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.16 Laches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.17 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.18 Permitted Contests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.19 Construction of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.20 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.21 Relationship of Landlord and Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.22 Landlord's Status as a REIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.23 Sale of Real Estate Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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<PAGE> 6
MASTER AGREEMENT TO LEASE
This Master Agreement to Lease ("Agreement") dated as of the ______
day of _______________________, 1997 by and between CCA PRISON REALTY TRUST, a
Maryland real estate investment trust ("Landlord") and CORRECTIONS CORPORATION
OF AMERICA, a Delaware corporation ("Tenant").
RECITALS
WHEREAS, Tenant has concurrently conveyed to Landlord various
properties upon which Tenant engages in the business of the development and
management of correctional and detention facilities, which properties are
listed on Schedule A attached hereto (the "Real Estate Conveyance"), and
Landlord and Tenant desire to provide for the lease by Landlord back to the
Tenant of such properties; and
WHEREAS, Landlord may from time to time lease additional properties
that Landlord may acquire to Tenant; and
WHEREAS, Landlord and Tenant desire that each of the properties listed
on Schedule A and each additional property that Landlord may lease to Tenant
shall be the subject of a separate and individual lease agreement describing
said property, the rent and various other terms of said lease (each such lease
agreement referred to individually as a "Lease," and the property that is the
subject of an individual Lease being referred to as "Leased Property"); and
WHEREAS, Landlord and Tenant desire to set forth in this Agreement
certain terms and conditions applicable to all Leases of all Leased Properties,
except as any individual Lease with respect to a particular Leased Property may
otherwise provide;
NOW, THEREFORE, in consideration of the premises and of their
respective agreements and undertakings herein and in each Lease, Landlord and
Tenant agree as follows:
ARTICLE I
SEPARATE LEASE AGREEMENTS; PREMISES AND TERM
1.01 Separate Lease Agreements. Landlord and Tenant are
concurrently entering into a separate Lease for each of the Leased Properties
referred to in Schedule A hereto, and may in the future enter into one or more
additional separate Leases for one or more additional Leased Properties.
Except as specifically set forth in a separate Lease, or any amendment,
supplement, schedule or exhibit thereto, all of the provisions of this
Agreement shall be deemed to be incorporated into and made a part of each such
separate Lease made between the Landlord as landlord (or Lessor) and the Tenant
as tenant (or Lessee) during the term of such separate Lease.
<PAGE> 7
1.02 Leased Property. Except as set forth in an individual Lease
(including any schedule or exhibit thereto), the property that is the subject
of each Lease and that shall be considered as leased by the Landlord to the
Tenant thereunder shall consist of:
(a) The land described in the Lease, together with all
rights, titles, appurtenant interests, covenants, licenses, privileges
and benefits thereto belonging, and any easements, rights-of-way,
rights of ingress or egress or other interests in, on, or to any land,
highway, street, road or avenue, open or proposed, in, on, across, in
front of, abutting or adjoining such real property including, without
limitation, any strips and gores adjacent to or lying between such
real property and any adjacent real property (the "Land");
(b) All buildings, improvements, structures and Fixtures
now located or to be located or to be constructed on the Land,
including, without limitation, landscaping, parking lots and
structures, roads, drainage and all above ground and underground
utility structures, equipment systems and other so-called
"infrastructure" improvements (the "Improvements");
(c) All equipment, machinery, fixtures, and other items
of real and/or personal property, including all components thereof,
located in, on or used in connection with, and permanently affixed to
or incorporated into, the Improvements, including, without limitation,
all furnaces, boilers, heaters, electrical equipment, heating,
plumbing, lighting, ventilating, refrigerating, incineration, air and
water pollution control, waste disposal, air-cooling and
air-conditioning systems and apparatus, sprinkler systems and fire and
theft protection equipment, and similar systems, all of which, to the
greatest extent permitted by law, are hereby deemed to constitute real
estate, together with all replacements, modifications, alterations and
additions thereto (collectively the "Fixtures");
(d) All furniture, equipment, inventory and other
personal property identified on Schedule B attached hereto and
incorporated herein by reference (the "Personal Property"). For
purposes hereof, Personal Property shall not include certain
proprietary property of Tenant as set forth on Schedule C..
The Land, Improvements, Fixtures and Personal Property are hereinafter referred
to as the "Leased Property."
SUBJECT, HOWEVER, to the easements, liens, encumbrances, restrictions,
agreements, and other title matters listed or specifically referred to in any
individual Lease ("Permitted Exceptions").
1.03 Term. The term of each Lease shall be as set forth in the
individual Lease for a particular Leased Property.
1.04 Holding Over. Should Tenant, without the express consent of
Landlord, continue to hold and occupy the Leased Property after the expiration
of the Term, such holding over beyond the
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<PAGE> 8
Term and the acceptance or collection of Rent by the Landlord shall operate and
be construed as creating a tenancy from month-to-month and not for any other
term whatsoever. During any such holdover period Tenant shall pay to Landlord
for each month (or portion thereof) Tenant remains in the Leased Property one
hundred fifty percent (150%) of the Base Rent in effect on the expiration date.
Said month-to-month tenancy may be terminated by Landlord by giving Tenant ten
(10) days written notice, and at any time thereafter Landlord may re-enter and
take possession of the Leased Property.
1.05 Surrender. Except as a result of (i) Tenant Improvements and
Capital Additions (as such terms are defined in Section 8.01 hereof); (ii)
normal and reasonable wear and tear (subject to the obligation of Tenant to
maintain the Leased Property in good order and repair during the Term); and
(iii) casualty, taking or other damage and destruction not required to be
repaired by Tenant, Tenant shall surrender and deliver up the Leased Property,
including all Personal Property and replacements thereof required to be
provided by Tenant pursuant to the terms of Sections 8.06 and 8.07 hereof, at
the expiration or termination of the Term broom clean, free of all Tenant's
personal property (but not the Personal Property), and in as good order and
condition as of the Commencement Date.
ARTICLE II
RENT
2.01 Base Rent. Unless otherwise provided in an individual Lease,
Tenant shall pay Landlord annual base rent for each Leased Property that is the
subject of a Lease without notice, demand, set-off or counterclaim in advance,
in lawful money of the United States of America in the amount specified therein
(the "Base Rent") for the Term in consecutive monthly installments payable in
advance on the Commencement Date of each Lease and thereafter on the first day
of each month during the Term, in accordance with the Base Rent Schedule set
forth in or attached to each individual Lease.
2.02 Additional Rent. Beginning on the first day of the month
following the first anniversary date of each Lease, the Tenant shall pay
Landlord an amount (the "Additional Rent") each year equal to a percentage of
the prior year Total Rent (for the purposes hereof, Total Rent is Base Rent
plus Additional Rent) under such Lease, such percentage being the greater of
(i) four percent (4%) or (ii) the percentage which is twenty-five percent (25%)
of the percentage increase in gross management revenues realized by Tenant from
its operations at the applicable Leased Property for such prior year exclusive
of any such increase as is attributable to an expansion in the size or number
of beds in such Leased Property. The Additional Rent shall be payable monthly,
in advance, along with Base Rent, and otherwise in the manner as set forth in
Section 2.01 above. Tenant shall provide to Landlord, not later than thirty
(30) days following each anniversary date of each Lease, Tenant's statement,
certified by Tenant's chief financial officer, setting forth such percentage
increase in gross management revenues realized by Tenant for the applicable
Leased Facility for the prior year.
3
<PAGE> 9
2.02.01 Other Additional Rent. In addition to Base Rent and
Additional Rent, Tenant shall pay all other amounts, liabilities, obligations
and Impositions (as hereinafter defined ) which Tenant assumes or agrees to pay
under this Agreement or any Lease and any fine, penalty, interest, charge and
cost which may be added for nonpayment or late payment of such items
(collectively the "Other Additional Rent").
2.03 Place(s) of Payment of Rent; Direct Payment of Other
Additional Rent. The Base Rent, Additional Rent and Other Additional Rent are
hereinafter referred to as "Rent." Landlord shall have all legal, equitable
and contractual rights, powers and remedies provided either in this Agreement,
in any Lease or by statute or otherwise in the case of nonpayment of the Rent.
Tenant shall make all payments of Base Rent and Additional Rent at Landlord's
principal place of business or as Landlord may otherwise from time to time
direct in writing, and all payments of Other Additional Rent directly to the
person or persons to whom such amount is owing at the time and times when such
payments are due, and shall give to Landlord such evidence of such direct
payments as Landlord shall reasonably request.
2.04 Net Lease. Each Lease shall be deemed and construed to be an
"absolute net lease" or "triple net lease," and Tenant shall pay all Rent,
Impositions, and other charges and expenses in connection with each Leased
Property throughout the Term, without abatement, deduction or set-off.
2.05 No Termination, Abatement, Etc. Except as otherwise
specifically provided in this Agreement or a particular Lease, Tenant shall
remain bound by this Agreement or such Lease in accordance with its terms.
Except as otherwise specifically provided in the Agreement or a particular
Lease, Tenant shall not, without the prior written consent of Landlord, modify,
surrender or terminate the Agreement or such Lease, nor seek nor be entitled to
any abatement, deduction, deferment or reduction of Rent, or set-off against
the Rent. Except as specifically provided in this Agreement or a particular
Lease, the obligations of Landlord and Tenant shall not be affected by reason
of (i) the lawful or unlawful prohibition of, or restriction upon, Tenant's use
of the Leased Property, or any part thereof, the interference with such use by
any person, corporation, partnership or other entity, or by reason of eviction
by paramount title; (ii) any claim which Tenant has or might have against
Landlord or by reason of any default or breach of any warranty by Landlord
under this Agreement or a particular Lease or any other agreement between
Landlord and Tenant, or to which Landlord and Tenant are parties; (iii) any
bankruptcy, insolvency, reorganization, composition, readjustment, liquidation,
dissolution, winding up or other proceeding affecting Landlord or any assignee
or transferee of Landlord; or (iv) any other cause, whether similar or
dissimilar to any of the foregoing, other than a discharge of Tenant from any
such obligations as a matter of law. Except as otherwise specifically provided
in this Agreement or a particular Lease, and to the maximum extent permitted by
law, Tenant hereby specifically waives all rights, including but not limited to
any rights under any statute relating to rights of tenants in any state in
which any Leased Property is located, arising from any occurrence whatsoever,
which may now or hereafter be conferred upon it by law (a) to modify, surrender
or terminate any Lease or quit or surrender the Leased Property or any portion
thereof; or (b) entitling Tenant to any abatement, reduction, suspension or
deferment of the Rent or other sums payable by Tenant hereunder. The
obligations of Landlord and Tenant
4
<PAGE> 10
hereunder shall be separate and agreements and the Rent and all other sums
shall continue to be payable in all events unless the obligations to pay the
same shall be terminated pursuant to the express provisions of this Agreement
or a particular Lease or by termination of this Agreement or a particular Lease
other than by reason of an Event of Default.
ARTICLE III
IMPOSITIONS AND UTILITIES
3.01 Payment of Impositions. Subject to the adjustments set forth
herein, Tenant shall pay, as Other Additional Rent, all Impositions (as
hereinafter defined) that may be levied or become a lien on the Leased Property
or any part thereof at any time (whether prior to or during the Term), without
regard to prior ownership of said Leased Property, before the same becomes
delinquent. Tenant shall furnish to Landlord on an annual basis copies of
official receipts or other satisfactory proof evidencing such payments.
Tenant's obligation to pay such Impositions shall be deemed absolutely fixed
upon the date such Impositions become a lien upon the Leased Property or any
part thereof. Tenant, at its expense, shall prepare and file all tax returns
and reports in respect of any Imposition as may be required by governmental
authorities, provided, Landlord shall be responsible for the preparation and
filing of any such tax returns or reports in respect of any real or personal
property owned by Landlord. Tenant shall be entitled to any refund due from
any taxing authority if no Event of Default (as hereinafter defined) shall have
occurred hereunder and be continuing. Landlord shall be entitled to any refund
from any taxing authority if an Event of Default has occurred and is
continuing. Any refunds retained by Landlord due to an Event of Default shall
be applied as provided in Section 9.08. Landlord and Tenant shall, upon
request of the other, provide such data as is maintained by the party to whom
the request is made with respect to the Leased Property as may be necessary to
prepare any required returns and reports. In the event governmental
authorities classify any property covered by this Lease as personal property,
Landlord and Tenant shall file all personal property tax returns in such
jurisdictions where it may legally so file with respect to their respective
owned personal property. Landlord, to the extent it possesses the same, and
Tenant, to the extent it possess the same, will provide the other party, upon
request, with cost and depreciation records necessary for filing returns for
any property so classified as personal property. Where Landlord is legally
required to file personal property tax returns, Tenant will be provided with
copies of assessment notices indicating a value in excess of the reported value
in sufficient time for Tenant to file a protest. Tenant may, upon notice to
Landlord, at Tenant's option and at Tenant's sole cost and expense, protest,
appeal, or institute such other proceedings as Tenant may deem appropriate to
effect a reduction of real estate or personal property assessments and
Landlord, at Tenant's expense as aforesaid, shall fully cooperate with Tenant
in such protest, appeal, or other action. Tenant shall provide Landlord copies
of all materials filed or presented in connection with any such proceeding.
Tenant shall promptly reimburse Landlord for all personal property taxes paid
by Landlord upon receipt of billings accompanied by copies of a bill therefor
and payments thereof which identify the personal property with respect to which
such payments are made. Impositions imposed in respect to the tax-fiscal
period during which the Term commences
5
<PAGE> 11
and terminates shall be adjusted and prorated between Landlord and Tenant on a
per diem basis, with Tenant being obligated to pay its pro rata share from
and including the Commencement Date to and including the expiration or
termination date of the Term, whether or not such Imposition is imposed before
or after such commencement or termination, and Tenant's obligation to pay its
prorated share thereof shall survive such termination. Tenant shall also pay
to Landlord a sum equal to the amount which Landlord may be caused to pay of
any privilege tax, sales tax, gross receipts tax, rent tax, occupancy tax or
like tax (excluding any tax based on net income), hereinafter levied, assessed,
or imposed by any federal, state, county or municipal governmental authority,
or any subdivision thereof, upon or measured by rent or other consideration
required to be paid by Tenant under this Agreement.
3.02 Definition of Impositions. "Impositions" means, collectively,
(i) taxes (including without limitation, all real estate and personal property
ad valorem (whether assessed as part of the real estate or separately assessed
as unsecured personal property, sales and use, business or occupation, single
business, gross receipts, transaction, privilege, rent or similar taxes, but not
including income or franchise or excise taxes payable with respect to
Landlord's receipt of Rent); (ii) assessments (including without limitation,
all assessments for public improvements or benefits, whether or not commenced
or completed prior to the date hereof and whether or not to be completed with
in the Term); (iii) ground rents, water, sewer or other rents and charges,
excises, tax levies, and fees (including without limitation, license, permit,
inspection, authorization and similar fees); (iv) to the extent they may become
a lien on the Leased Property all taxes imposed on Tenant's operations of the
Leased Property including without limitation, employee withholding taxes,
income taxes and intangible taxes; and (v) all other governmental charges, in
each case whether general or special, ordinary or extraordinary, or foreseen or
unforseen, of every character in respect of the Leased Property or any part
thereof and/or the Rent (including all interest and penalties thereon due to
any failure in payment by Tenant), which at any time prior to, during or in
respect of the Term hereof may be assessed or imposed on or in respect of or be
a lien upon (a) Landlord or Landlord's interest in the Leased Property or any
part thereof; (b) the Leased Property or any part thereof or any rent therefrom
or any estate, right, title or interest therein; or (c) any occupancy,
operation, use or possession of, or sales from, or activity conducted on, or in
connection with the Leased Property or the leasing or use of the Leased
Property or any part thereof. Tenant shall not, however, be required to pay
(i) any tax based on net income (whether denominated as a franchise or capital
stock or other tax) imposed on Landlord; or (ii) except as provided in Section
13.01, any tax imposed with respect to the sale, exchange or other disposition
by Landlord of any Leased Property or the proceeds thereof; provided, however,
that if any tax, assessment, tax levy or charge which Tenant is obligated to
pay pursuant to the first sentence of this definition and which is in effect at
any time during the Term hereof is totally or partially repealed, and a tax,
assessment, tax levy or charge set forth in clause (i) or (ii) immediately
above is levied, assessed or imposed expressly in lieu thereof Tenant shall
then pay such tax, levy, or charge set forth in said clause (i) or (ii).
3.03 Utilities. Tenant shall contract for, in its own name, and
will pay, as Other Additional Rent all taxes, assessments, charges/deposits,
and bills for utilities, including without limitation charges for water, gas,
oil, sanitary and storm sewer, electricity, telephone service, trash
collection,
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<PAGE> 12
and all other utilities which may be charged against the occupant of the
Improvements during the Term. Tenant shall at all times maintain that amount
of heat necessary to ensure against the freezing of water lines. Tenant hereby
agrees to indemnify and hold Landlord harmless from and against any liability
or damages to the utility systems and the Leased Property that may result from
Tenant's failure to maintain sufficient heat in the Improvements.
3.04 Escrow of Impositions. In the event Tenant persistently fails
to timely pay Impositions with respect to any Leased Facility, then, upon
thirty (30) days written notice from Landlord to Tenant, Tenant shall
thereafter deposit with Landlord on the first day of each month during the
remaining Term hereof and any extended Term, a sum equal to one-twelfth
(1/12th) of the Impositions assessed against such Leased Property which sums
shall be used by Landlord toward payment of such Impositions. If, at the end
of any applicable tax year, any such funds held by Landlord are insufficient to
make full payment of taxes or other Impositions for which such funds are held,
Tenant, on demand, shall pay to Landlord any additional funds necessary to pay
and discharge the obligations of Tenant pursuant to the provisions of this
section. If, however, at the end of any applicable tax year, such funds held
by Landlord are in excess of the total payment required to satisfy taxes or
other Impositions for which such funds are held, Landlord shall apply such
excess amounts to Tenant's tax and Imposition escrow fund for the next tax
year. If any such excess exists following the expiration or earlier
termination of any Lease, and subject to Section 9.08 below, Landlord shall
promptly refund such excess amounts to Tenant. The receipt by Landlord of the
payment of such Impositions by and from Tenant shall only be as an
accommodation to Tenant and the taxing authorities, and shall not be construed
as rent or income to Landlord, Landlord serving, if at all, only as a conduit
for delivery purposes. All such deposits by Tenant shall be held in an
interest-bearing account with one or more national banks having total assets of
not less than $1,000,000,000, with all interest thereon accruing in favor of
Tenant. In lieu of making escrow deposits as aforesaid, Tenant may elect to
provide Landlord with a letter of credit, or a payment bond, in the face amount
of one year's Impositions on the subject Leased Property, issued by a national
bank or reputable bonding or surety company, in all respects reasonably
acceptable to Landlord. Said letter of credit or payment bond shall be
drawable or callable, as the case may be, upon Tenant's failure to timely pay
any such Impositions, for the sole purpose of providing the funds necessary to
pay such Impositions, and shall otherwise be in form and substance reasonably
satisfactory to Landlord.
For purposes hereof, "persistently fails to timely pay Impositions"
shall mean failure to timely pay any Imposition with respect to any Leased
Premises for any two (2) Lease Years in any five (5) Lease Year Period,
notwithstanding Tenant's subsequent payment of such Impositions.
3.05 Discontinuance of Utilities. Landlord will not be liable for
damages to person or property or for injury to, or interruption of, business
for any discontinuance of utilities nor will such discontinuance in any way be
construed as an eviction of Tenant or cause an abatement of Rent or operate to
release Tenant from any of Tenant's obligations under this Lease.
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ARTICLE IV
INSURANCE
4.01 Property Insurance. Tenant shall, at Tenant's expense, keep
the Improvements, Fixtures, and other components of the Leased Property insured
against the following risks:
(a) Loss or damage by fire, vandalism and malicious
mischief, sprinkler leakage and all other physical loss perils
commonly covered by "All Risk" insurance in an amount not less than
one hundred percent (100%) of the then full replacement cost thereof
(as hereinafter defined). Such policy shall include an agreed amount
endorsement if available at a reasonable cost. Such policy shall also
include endorsements for contingent liability for operation of
building laws, demolition costs, and increased cost of construction.
(b) Loss or damage by explosion of steam boilers,
pressure vessels, or similar apparatus, now or hereafter installed on
the Leased Property, in commercially reasonable amounts acceptable to
Landlord.
(c) Loss of rent under a rental value or business
interruption insurance policy covering risk of loss during the first
six (6) months of reconstruction necessitated by the occurrence of any
hazards described in Sections 4.01(a) or 4.01(b), above, and which
causes an abatement of Rent as provided in Article X hereof, in an
amount sufficient to prevent Landlord or Tenant from becoming a
co-insurer, containing endorsements for extended period of indemnity
and premium adjustment, and written with an agreed amount clause, if
the insurance provided for in this clause (c) is available.
(d) If the Land is located in whole or in part within a
designated flood plain area, loss or damage caused by flood in
commercially reasonable amounts acceptable to Landlord.
(e) Loss or damage commonly covered by blanket crime
insurance including employee dishonesty, loss of money orders or paper
currency, depositor's forgery, and loss of property accepted by Tenant
for safekeeping, in commercially reasonable amounts acceptable to
Landlord.
(f) In connection with any repairs or rebuilding by
Tenant under Article X hereof, Tenant shall maintain (or cause its
contractor to maintain) appropriate builder's risk insurance covering
any loss or casualty to the subject Improvements during the course of
such repairs or rebuilding.
4.02 Liability Insurance. Tenant shall, at Tenant's expense,
maintain liability insurance against the following:
(a) Claims for personal injury or property damage
commonly covered by comprehensive general liability insurance with
endorsements for blanket, contractual,
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personal injury, owner's protective liability, real property,fire
damage, legal liability, broad form property damage, and extended
bodily injury, with commercially reasonable amounts for bodily injury
and property damage acceptable to Landlord, but with a combined single
limit of not less than Five Million Dollars ($5,000,000.00) per
occurrence and Ten Million Dollars ($10,000,000.00) in the aggregate.
At Landlord's request, such $5,000,000.00 and $10,000,000.00 minimum
requirements shall be increased by up to four percent (4%) per year.
(b) Claims commonly covered by worker's compensation
insurance for all persons employed by Tenant on the Leased Property.
Such worker's compensation insurance shall be in accordance with the
requirements of all applicable local, state, and federal law.
4.03 Insurance Requirements. The following provisions shall apply
to all insurance coverages required hereunder:
(a) The carriers of all policies shall have a Best's
Rating of "A-" or better and a Best's Financial Category of XII or
larger and shall be authorized to do insurance business in the state
in which the Leased Property is located.
(b) Tenant shall be the "named insured" and Landlord and
any mortgagee of Landlord shall be an "additional named insured" on
each policy.
(c) Tenant shall deliver to Landlord certificates or
policies showing the required coverages and endorsements. The
policies of insurance shall provide that the policy may not be
canceled or not renewed, and no material change or reduction in
coverage may be made, without at least thirty (30) days' prior written
notice to Landlord.
(d) The policies shall contain a severability of interest
and/or cross-liability endorsement, provide that the acts or omissions
of Tenant will not invalidate the Landlord's coverage, and provide
that Landlord shall not be responsible for payment of premiums.
(e) All loss adjustment shall require the written consent
of Landlord and Tenant, as their interests may appear.
(f) At least ten (10) days prior to the expiration of
each policy, Tenant shall deliver to Landlord a certificate showing
renewal of such policy and payment of the annual premium therefor.
Landlord shall have the right to review the insurance coverages
required hereunder with Tenant from time to time, to obtain the input of third
party professional insurance advisors (at Landlord's expense) with respect to
such insurance coverages, and to consult with Tenant in Tenant's annual review
and renewal of such insurance coverages. All insurance coverages hereunder
shall be in such form, substance and amounts as are customary or standard in
Tenant's industry.
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4.04 Replacement Cost. The term "full replacement cost" means the
actual replacement cost thereof from time to time including increased cost of
construction, with no reductions or deductions. Tenant shall, not later than
thirty (30) days after the anniversary of each policy of insurance, of the Term,
increase the amount of the replacement cost endorsement for the Improvements.
If Tenant makes any Permitted Alterations (as hereinafter defined) to the Leased
Property, Landlord may have such full replacement cost redetermined at any time
after such Permitted Alterations are made, regardless of when the full
replacement cost was last determined.
4.05 Blanket Policy. Tenant may carry the insurance required by
this Article under a blanket policy of insurance, provided that the coverage
afforded Tenant will not be reduced or diminished or otherwise be different
from that which would exist under a separate policy meeting all of the
requirements of this Agreement.
4.06 No Separate Insurance. Tenant shall not take out separate
insurance concurrent in form or contributing in the event of loss with that
required in this Article, or increase the amounts of any then existing
insurance by securing an additional policy or additional policies, unless all
parties having an insurable interest in the subject matter of the insurance,
including Landlord and any mortgagees, are included therein as additional named
insureds or loss payees, the loss is payable under said insurance in the same
manner as losses are payable under this Agreement, and such additional
insurance is not prohibited by the existing policies of insurance. Tenant
shall immediately notify Landlord of the taking out of such separate insurance
or the increasing of any of the amounts of the existing insurance by securing
an additional policy or additional policies. The term "mortgages" as used in
this Agreement includes Deeds of Trust and the term "mortgagees" includes
trustees and beneficiaries under a Deed of Trust.
4.07 Waiver of Subrogation. Each party hereto hereby waives any
and every claim which arises or may arise in its favor and against the other
party hereto during the Term or any extension or renewal thereof, for any and
all loss of, or damage to, any of its property located within or upon, or
constituting a part of, the Leased Property, which loss or damage is covered by
valid and collectible insurance policies, to the extent that such loss or
damage is recoverable under such policies. Said mutual waiver shall be in
addition to, and not in limitation or derogation of, any other waiver or
release contained in this Lease with respect to any loss or damage to property
of the parties hereto. Inasmuch as the said waivers will preclude the
assignment of any aforesaid claim by way of subrogation (or otherwise) to an
insurance company (or any other person), each party hereto agrees immediately
to give each insurance company which has issued to it policies of insurance,
written notice of the terms of said mutual waivers, and to have such insurance
policies properly endorsed, if necessary, to prevent the invalidation of said
insurance coverage by reason of said waivers, so long as such endorsement is
available at a reasonable cost.
4.08 Mortgages. The following provisions shall apply if Landlord
now or hereafter places a mortgage on the Leased Property or any part thereof:
(i) Tenant shall obtain a standard form of mortgage clause insuring the
interest of the mortgagee; (ii) Tenant shall deliver evidence of insurance to
such mortgagee; (iii) loss adjustment shall require the consent of the
mortgagee; and
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(iv) Tenant shall obtain such other coverages and provide such other
information and documents as may be reasonably required by the mortgagee.
ARTICLE V
INDEMNITY; HAZARDOUS SUBSTANCES
5.01 Tenant's Indemnification. Subject to Section 4.07, Tenant
hereby agrees to indemnify and hold harmless Landlord, its agents, and
employees from and against any and all demands, claims, causes of action,
fines, penalties, damages (including consequential damages), losses,
liabilities (including strict liability), judgments, and expenses (including,
without limitation, attorneys' fees, court costs, and the costs set forth in
Section 9.06) incurred in connection with or arising from: (i) the use,
condition, operation or occupancy of each Leased Property; (ii) any activity,
work, or thing done, or permitted or suffered by Tenant in or about the Leased
Property; (iii) any acts, omissions, or negligence of Tenant or any person
claiming under Tenant, or the contractors, agents, employees, invitees, or
visitors of Tenant or any such person; (iv) any claim of any person
incarcerated in the Leased Premises, including claims alleging breach or
violation of such person's civil or legal rights; (v) any breach, violation,
or nonperformance by Tenant or any person claiming under Tenant or the
employees, agents, contractors, invitees, or visitors of Tenant or of any such
person, of any term, covenant, or provision of this Agreement or any Lease or
any law, ordinance, or governmental requirement of any kind; (vi) any injury or
damage to the person, property or business of Tenant, its employees, agents,
contractors, invitees, visitors, or any other person entering upon the Leased
Property under the express or implied invitation of Tenant; and (vii) and any
accident, injury to or death of persons or loss of damage to any item of
property occurring at the Leased Property. If any action or proceeding is
brought against Landlord, its employees, or agents by reason of any such claim,
Tenant, upon notice from Landlord, will defend the claim at Tenant's expense
with counsel reasonably satisfactory to Landlord. In the event Landlord
reasonably determines that its interests and the interests of Tenant in any
such action or proceeding are not substantially the same and that Tenant's
counsel cannot adequately represent the interests of Landlord therein, Landlord
shall have the right to hire separate counsel in any such action or proceeding
and the reasonable costs thereof shall be paid for by Tenant.
5.02 Hazardous Substances or Materials. Tenant shall not, either
with or without negligence, injure, overload, deface, damage or otherwise harm
any Leased Property or any part or component thereof; commit any nuisance;
permit the emission of any hazardous agents or substances; allow the release or
other escape of any biologically or chemically active or other hazardous
substances or materials so as to impregnate, impair or in any manner affect,
even temporarily, any element or part of any Leased Property, or allow the
storage or use of such substances or materials in any manner not sanctioned by
law or by the highest standards prevailing in the industry for the storage and
use of such substances or materials; nor shall Tenant bring onto any Leased
Property any such materials or substances; permit the occurrence of
objectionable noise or odors; or make, allow or suffer any waste whatsoever to
any Leased Property. Landlord may inspect the Leased Property from time to
time, and Tenant will cooperate with such inspections.
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Without limitation, "hazardous substances" for the purpose of this Section 5.02
shall include any substances regulated by any local, state or federal law
relating to environmental conditions and industrial hygiene, including,
without limitation, the Resource Conservation and Recovery Act of 1976
("RCRA"), the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA"), as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), the Hazardous Materials Transportation
Act, the Federal Water Pollution Control Act, the Clean Air Act, the Clean
Water Act, the Toxic Substances Control Act, the Safe Drinking Water Act, and
all similar federal, state and local environmental statutes, ordinances and
the regulations, orders, or decrees now or hereafter promulgated thereunder.
Notwithstanding the foregoing, Tenant anticipates using, storing and disposing
of certain hazardous substances in connection with operation of correctional
or detention facilities which are not in violation of the foregoing laws.
Such substances include, but are not limited to the following: medical wastes,
diesel fuel, maintenance and janitorial supplies, and waste from reprographic
activities. Upon request by Landlord, Tenant shall submit to Landlord annual
reports regarding Tenant's use, storage, and disposal of any of the foregoing
materials, said reports to include information regarding continued hazardous
materials inspections, personal interviews, and federal, state and local agency
listings. In addition, Tenant shall execute affidavits, representations and
the like from time to time at Landlord's request concerning Tenant's best
knowledge and belief regarding the presence or absence of hazardous materials
on the Leased Property. Other than for circumstances involving Landlord's
gross negligence or intentional misconduct, Tenant shall indemnify and hold
harmless Landlord from and against all liabilities (including punitive
damages), costs and expenses (including reasonable attorneys' fees) imposed
upon or asserted against the Landlord or the Leased Property on account of,
among other things, any applicable federal, state or local law, ordinance,
regulation, order, permit, decree or similar items relating to hazardous
substances, human health or the environment (collectively, "Environmental
Laws") (irrespective of whether there has occurred any violation of any
Environmental Law ), in respect of the Leased Property, including (a) liability
for response costs and for costs of removal and remedial action incurred by the
United States Government, any state or local governmental unit to any other
person or entity, or damages from injury to or destruction or loss of natural
resources, including the reasonable costs of assessing such injury, destruction
or loss, incurred pursuant to any Environmental Law, (b) liability for costs
and expenses of abatement, investigation, removal, remediation, correction or
clean-up, fines, damages, response costs or penalties which arise from the
provisions of any Environmental Law, (c) liability for personal injury or
property damage arising under any statutory or common-law tort theory,
including damages assessed for the maintenance of a public or private nuisance
or for carrying on of a dangerous activity or (d) by reason of a breach of an
environmental representation or warranty by Tenant.
5.03 Limitation of Landlord's Liability. Landlord, its agents and
employees, will not be liable for any loss, injury, death, or damage (including
consequential damages) to persons, property, or Tenant's business occasioned by
theft, act of God, public enemy, injunction, riot, strike, insurrection, war,
court order, requisition, order of governmental body or authority, fire,
explosion, falling objects, steam, water, rain or snow, leak or flow of water
(including water from the elevator system), rain or snow from any Leased
Property or into any Leased Property or from the roof, street, subsurface or
from any other place, or by dampness or from the breakage, leakage,
obstruction, or
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other defects of the pipes, sprinklers, wires, appliances, plumbing, air
conditioning, or lighting fixtures of the Leased Property, or from
construction, repair, or alteration of the Leased Property or from any acts or
omissions of any other occupant or visitor of the Leased Property, or from the
presence or release of any hazardous substance or material on or from the
Leased Property or from any other cause beyond Landlord's control.
ARTICLE VI
USE AND ACCEPTANCE OF PREMISES
6.01 Use of Leased Property. Tenant shall use and occupy each
Leased Property exclusively as a correctional or detention facility or other
purpose for which the Leased Property is being used at the Commencement Date of
the Term, and for no other purpose without the prior written consent of the
Landlord. Tenant shall obtain and maintain all approvals, licenses, and
consents needed to use and operate each Leased Property for such purposes.
Tenant shall promptly deliver to Landlord complete copies of surveys,
examinations, certification and licensure inspections, compliance certificates,
and other similar reports issued to Tenant by any governmental agency.
6.02 Acceptance of Leased Property. Except as otherwise
specifically provided in this Agreement or in any individual Lease, Tenant
acknowledges that (i) Tenant and its agents have had an opportunity to inspect
the Leased Property; (ii) Tenant has found the Leased Property fit for Tenant's
use; (iii) delivery of the Leased Property to Tenant is in an "as-is"
condition; (iv) Landlord is not obligated to make any improvements or repairs
to the Leased Property; and (v) the roof, walls, foundation, heating,
ventilating, air conditioning, telephone, sewer, electrical, mechanical,
utility, plumbing, and other portions of the Leased Property are in good
working order. Tenant waives any claim or action against Landlord with respect
to the condition of the Leased Property. LANDLORD MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY
PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY
PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO QUALITY OR THE MATERIAL OR
WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE
TO BE BORNE BY TENANT.
6.03 Conditions of Use and Occupancy. Tenant agrees that during
the Term it shall use and keep the Leased Property in a careful, safe and
proper manner; not commit or suffer waste thereon; not use or occupy the Leased
Property for any unlawful purposes; not use or occupy the Leased Property or
permit the same to be used or occupied, for any purpose or business deemed
extra hazardous on account of fire or otherwise; keep the Leased Property in
such repair and condition as may be required by the local board of health, or
other city, state or federal authorities, free of all cost to Landlord; not
permit any acts to be done which will cause the cancellation, invalidation, or
suspension of any insurance policy; and permit Landlord and its agents to enter
upon the Leased Property at all reasonable times after notice to Tenant to
examine the condition thereof.
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6.04 Financial Statements and Other Information. Within ten (10)
days following Tenant's filing of quarterly and annual reports with the
Securities and Exchange Commission, Tenant shall deliver to Landlord copies of
such reports. Tenant shall provide Landlord at the same time Tenant provides
copies of its quarterly and annual reports as aforesaid (or more often as may
be reasonably requested by Landlord in writing), the following additional
financial information for each calendar quarter hereafter, with respect to each
Leased Property: gross revenues, average occupancy rates and total cash flow
(i.e., operating income plus depreciation and amortization plus Base Rent plus
Additional Rent hereunder). Tenant shall also deliver to Landlord such
additional financial information as Landlord may reasonably request, provided
the same is of a type normally maintained by Tenant or can be obtained without
undue cost or burden on Tenant's personnel and does not constitute information
which Tenant reasonably determines to be proprietary or confidential.
Additionally, upon Landlord's request, Tenant shall provide Landlord with
copies of Tenant's annual capital expenditure budgets for each Leased Property
and any reports generated by Tenant regarding maintenance and repairs of the
Leased Property.
ARTICLE VII
REPAIRS, COMPLIANCE WITH LAWS, AND MECHANICS' LIENS
7.01 Maintenance. Tenant shall maintain each Leased Property in
good order, repair and appearance, and repair each Leased Property, including
without limitation, all interior and exterior, structural and nonstructural
repairs and replacements to the roof, foundations, exterior walls, building
systems, HVAC systems, parking areas, sidewalks, water, sewer and gas
connections, pipes, and mains. Tenant shall pay as Other Additional Rent the
full cost of maintenance, repairs, and replacements. Tenant shall maintain all
drives, sidewalks, parking areas, and lawns on or about the Leased Property in
a clean and orderly condition, free of accumulations of dirt, rubbish, snow and
ice. Tenant shall permit Landlord to inspect the Leased Property at all
reasonable times, and shall implement all reasonable suggestions of the
Landlord as to the maintenance and replacement of the Leased Property.
7.02 Compliance with Laws. Tenant shall comply with all laws,
ordinances, orders, rules, regulations, and other governmental requirements
relating to the use, condition, or occupancy of each Leased Property, whether
now or hereafter enacted and in force including without limitation, (i)
licensure requirements for operation as a correctional or detention facility,
(ii) requirements of any board of casualty insurance underwriters or insurance
service office for any other similar body having jurisdiction over the Leased
Property, and (iii) all zoning and building codes and Environmental Laws. At
Landlord's request, from time to time, Tenant shall deliver to Landlord copies
of certificates or permits evidencing compliance with such laws, including
without limitation, copies of the correctional or detention facility licenses,
certificates of occupancy and building permits. Tenant shall provide Landlord
with copies of any notice from any governmental authority alleging any
non-compliance by Tenant or any Leased Facility with any of the foregoing
requirements and such evidence as Landlord may reasonably require of Tenant's
remediation thereof. Tenant hereby agrees to defend, indemnify and hold
Landlord harmless from and against
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any loss, liability (including strict liability), claim, damage (including
consequential damages), cost and expense (including attorneys' fees) resulting
from any failure by Tenant to comply with any laws, ordinances, rules,
regulations, and other governmental requirements.
7.03 Required Alterations. Tenant shall, at Tenant's sole cost and
expense, make any additions, changes, improvements or alterations to each
Leased Property, including structural alterations, which may be required by any
governmental authorities, including those required to continue licensure
requirements as a correctional or detention facility, whether such changes are
required by Tenant's use, changes in the law, ordinances, or governmental
regulations, defects existing as of the date of this Lease, or any other cause
whatsoever. Tenant shall provide prior written notice to Landlord of any
changes to each Leased Property pursuant to this Section 7.03 which involve
changes to the structural integrity of such Leased Property or materially
affect the operational capabilities or rated capacity of the Leased Facility.
All such additions, changes, improvements or alterations shall be deemed to be
a Tenant Improvement and shall comply with all laws requiring such alterations
and with the provisions of Section 8.01.
7.04 Mechanics' Liens. Tenant shall have no authority to permit or
create a lien against Landlord's interest in the Leased Property, and Tenant
shall post notices or file such documents as may be required to protect
Landlord's interest in the Leased property against liens. Tenant hereby agrees
to defend, indemnify, and hold Landlord harmless from and against any
mechanics' liens against the Leased Property by reason of work, labor services
or materials supplied or claimed to have been supplied on or to the Leased
Property. Tenant shall immediately remove, bond-off, or otherwise obtain the
release of any mechanics' lien filed against the Leased Property. Tenant shall
pay all expenses in connection therewith, including without limitation,
damages, interest, court costs and reasonable attorneys' fees.
7.05 Replacements of Fixtures. Tenant shall not remove Fixtures
from any Leased Property except to replace the Fixtures by other similar items
of equal quality and value. Items being replaced by Tenant may be removed and
shall become the property of Tenant and items replacing the same shall be and
remain the property of the Landlord. Tenant shall execute, upon written
request from Landlord, any and all documents necessary to evidence Landlord's
ownership of the Fixtures and replacements therefor. Tenant may finance
replacements for the Fixtures by equipment lease or by a security agreement and
financing statement; provided, however, that for any item of Fixtures or
Personal Property having a cost greater than or equal to Twenty Thousand
Dollars ($20,000.00), Tenant may not finance replacements by security agreement
or equipment lease unless (i) Landlord has consented to the terms and
conditions of the equipment lease or security agreement; (ii) the equipment
lessor or lender has entered into a nondisturbance agreement with the Landlord
upon terms and conditions acceptable to Landlord, including without limitation,
the following: (a) Landlord shall have the right (but not the obligation) to
assume such security agreement or equipment lease upon the occurrence of an
Event of Default by Tenant under any Lease; (b) the equipment lessor or lender
shall notify Landlord of any default by Tenant under the equipment lease or
security agreement and give Landlord a reasonable opportunity to cure such
default; and (c) Landlord shall have the right to assign its rights under the
equipment lease, security agreement, or
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nondisturbance agreement; and (iii) Tenant shall, within thirty (30) days after
receipt of an invoice from Landlord, reimburse Landlord for all costs and
expenses incurred in reviewing and approving the equipment lease, security
agreement, and nondisturbance agreement, including without limitation,
reasonable attorneys' fees and costs.
ARTICLE VIII
ALTERATIONS AND SIGNS; TENANT'S PROPERTY;
CAPITAL ADDITIONS TO THE LEASED PROPERTY
8.01 Tenant's Right to Construct. During the Term of this
Agreement, so long as no Event of Default shall have occurred and be continuing
as to the Leased Property that is the subject of such improvements, Tenant may
make Capital Additions (as defined herein), or other alterations, additions,
changes and/or improvements to any Leased Property as deemed necessary or
useful to operate the Leased Property as a correction or detention facility
(the "Primary Intended Use") (individually, a "Tenant Improvement," or
collectively, "Tenant Improvements"). "Capital Additions" shall mean the
construction of one or more new buildings or one or more additional structures
annexed to any portion of any of the Improvements on a particular Leased
Property, which are constructed on any parcel of land or portion of the Land of
a particular Leased Property during the Term of any individual Lease, including
the construction of a new floor, or the repair, replacement, restoration,
remodeling or rebuilding of the Improvements or any portion thereof on any
Leased Property which are not normal, ordinary or recurring to maintain the
Leased Property. Except as otherwise agreed to by Landlord in writing, any
such Tenant Improvement shall be made at Tenant's sole expense and shall become
the property of Landlord upon termination of this Lease. Unless made on an
emergency basis to prevent injury to person or property, Tenant will submit
plans to Landlord for Landlord's prior approval, such approval not to be
unreasonably withheld or delayed, for any Tenant Improvement which is not a
Capital Addition and which has a cost of more than $500,000 or a cost which,
when aggregated with the costs of all such Tenant Improvements for any
individual Leased Facility in the same Lease Year, would cause the total costs
of all such Tenant Improvements to exceed $1,000,000. Such $500,000 and
$1,000,000 amounts shall be increased by four percent (4%) per annum,
cumulatively for each subsequent Lease Year. Additionally, in connection with
any Tenant Improvement, including any Capital Addition, Tenant shall provide
Landlord with copies of any plans and specification therefor, Tenant's budget
relating thereto, any required government permits or approvals, any
construction contracts or agreements relating thereto, and any other
information relating to such Tenant Improvement as Landlord shall reasonably
request.
8.02 Scope of Right. Subject to Section 8.01 herein and Section
7.03 concerning required alterations, at Tenant's cost and expense, Tenant
shall have the right to:
(a) seek any governmental approvals, including building
permits, licenses, conditional use permits and any certificates of need
that Tenant requires to construct any Tenant Improvement;
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(b) erect upon the Leased Property such Tenant
Improvements as Tenant deems desirable;
(c) make additions, alterations, changes and improvements
in any Tenant Improvement so erected; and
(d) engage in any other lawful activities that Tenant
determines are necessary or desirable for the development of the Leased
Property in accordance with its Primary Intended Use;
provided, however, Tenant shall not make any Tenant Improvement which would, in
Landlord's reasonable judgment, impair the value or Primary Intended Use of any
Leased Property without Landlord's prior written consent and provided, further
that Tenant shall not be permitted to create a mortgage, lien or any other
encumbrance on any individual Leased Property without Landlord's prior written
consent.
8.03 Cooperation of Landlord. Landlord shall cooperate with Tenant
and take such actions, including the execution and delivery to Tenant of any
applications or other documents, reasonably requested by Tenant in order to
obtain any governmental approvals sought by Tenant to construct any Tenant
Improvement within ten (10) business days following the later of (a) the date
Landlord receives Tenant's request, or (b) the date of delivery of any such
application or document to Landlord, so long as the taking of such action,
including the execution of said applications or documents, shall be without
cost to Landlord (or if there is a cost to Landlord, such cost shall be
reimbursed by Tenant), and will not cause Landlord to be in violation of any
law, ordinance or regulation.
8.04 Commencement of Construction. Tenant agrees that:
(a) Tenant shall diligently seek all governmental
approvals relating to the construction of any Tenant Improvement;
(b) Once Tenant begins the construction of any Tenant
Improvement, Tenant shall diligently prosecute any such construction
to completion in accordance with applicable insurance requirements and
the laws, rules and regulations of all governmental bodies or agencies
having jurisdiction over the Leased Property;
(c) Landlord shall have the right at any time and from
time to time to post and maintain upon the Leased Property such
notices as may be necessary to protect Landlord's interest from
mechanics' liens, materialmen's liens or liens of a similar nature;
(d) Tenant shall not suffer or permit any mechanics'
liens or any other claims or demands arising from the work of
construction of any Tenant Improvement to be enforced against the
Leased Property or any part thereof, and Tenant agrees to hold
Landlord and said
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Leased Property free and harmless from all liability from any
such liens, claims or demands, together with all costs and
expenses in connection therewith;
(e) All work shall be performed in a good and
workmanlike manner consistent with standards in the industry;
and
(f) Subject to Section 8.09 in the case of
Capital Additions, Tenant shall not secure any construction or
other financing for the Tenant Improvements which is secured
by a portion of the Leased Property without Landlord's prior
written consent, and any such financing (i) shall not exceed
the cost of the Tenant Improvements, (ii) shall be subordinate
to any mortgage or encumbrance now existing or hereinafter
created with respect to the Leased Property, and (iii) shall
be limited solely to Tenant's interest in the Leased Property
that is the subject of the improvements.
8.05 Rights in Tenant Improvements. Notwithstanding
anything to the contrary in this Lease, all Tenant Improvements constructed
pursuant to Section 8.01, any and all subsequent additions thereto and
alterations and replacements thereof, shall be the sole and absolute property
of Tenant during the Term of the particular Lease. Upon the expiration or
early termination of any Lease, all such Tenant Improvements shall become the
property of Landlord. Without limiting the generality of the foregoing, Tenant
shall be entitled to all federal and state income tax benefits associated with
any Tenant Improvement during the Term of this Agreement.
8.06 Personal Property. Tenant shall install, place, and
use on the Leased Property such fixtures, furniture, equipment, inventory and
other personal property in addition to the Fixtures as may be required or as
Tenant may, from time to time, deem necessary or useful to operate the Leased
Property as a correctional or detention facility.
8.07 Requirements for Personal Property. Tenant shall
comply with all of the following requirements in connection with Personal
Property:
(a) With respect to each Leased Property, Tenant
shall notify Landlord within one hundred twenty (120) days
after each Lease Year of any additions, substitutions, or
replacements of an item of Personal Property at such Leased
Property which individually has a cost of more than
$25,000.00 and shall furnish Landlord with such other
information as Landlord may reasonably request from time to
time.
(b) The Personal Property shall be installed in
a good and workmanlike manner, in compliance with all
governmental laws, ordinances, rules, and regulations and all
insurance requirements, and be installed free and clear of any
mechanics' liens.
(c) Tenant shall, at Tenant's sole cost and
expense, maintain, repair, and replace the Personal Property.
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(d) Tenant shall, at Tenant's sole cost and
expense, keep Personal Property insured against loss or damage
by fire, vandalism and malicious mischief, sprinkler leakage,
and other physical loss perils commonly covered by fire and
extended coverage, boiler and machinery, and difference in
conditions insurance in an amount not less than ninety percent
(90%) of the then full replacement cost thereof. Tenant shall
use the proceeds from any such policy for the repair and
replacement of Personal Property. The insurance shall meet
the requirements of Section 4.03.
(e) Tenant shall pay all taxes applicable to
Personal Property.
(f) If Personal Property is damaged or destroyed
by fire or any other case, Tenant shall promptly repair or
replace Personal Property unless Tenant is entitled to and
elects to terminate the Lease pursuant to Section 10.05.
(g) Unless an Event of Default (or any event
which, with the giving of notice of lapse of time, or both,
would constitute an Event of Default) has occurred and
remains uncured beyond any applicable grace period, Tenant may
remove Personal Property from the Leased Property from time to
time provided that (i) the items removed are not required to
operate the Leased Property as a licensed correctional or
detention facility (unless such items are being replaced by
Tenant); and (ii) Tenant repairs any damage to the Leased
Property resulting from the removal of Personal Property.
(h) Tenant shall remove any of Tenant's personal
property, but not any Personal Property, upon the termination
or expiration of the Lease and shall repair any damage to the
Leased Property resulting from the removal of Tenant's
personal property. If Tenant fails to remove Tenant's
personal property within ninety (90) days after the
termination or expiration of the Lease, then Tenant shall be
deemed to have abandoned Tenant's personal property,
Tenant's personal property shall become the property of
Landlord, and Landlord may remove, store and dispose of
Tenant's personal property. In such event, Tenant shall have
no claim or right against Landlord for such property or the
value thereof regardless of the disposition thereof by
Landlord. Tenant shall pay Landlord, upon demand, all
expenses incurred by Landlord in removing, storing, and
disposing of Tenant's personal property and repairing any
damage caused by such removal. Tenant's obligations hereunder
shall survive the termination or expiration of the Lease.
(i) Tenant shall perform its obligations under any
equipment lease or security agreement for Personal Property.
8.08 Signs. Tenant may, at its own expense, erect and
maintain identification signs at the Leased Property, provided such signs
comply with all laws, ordinances, and regulations. Upon the occurrence of an
Event of Default or the termination or expiration of a Lease, Tenant shall,
within thirty (30) days after notice from Landlord, remove the signs and
restore the applicable Leased Property to its original condition.
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8.09 Financings of Capital Additions to a Leased Property.
(a) Landlord may, but shall be under no obligation to,
provide or arrange construction, permanent or other financing for a
Capital Addition proposed to be made to any Leased Property by Tenant.
Within thirty (30) days of receipt of such a request by Tenant,
Landlord shall notify Tenant as to whether it will finance the
proposed Capital Addition and, if so, the terms and conditions upon
which it would do so, including the terms of any amendment to an
individual Lease or a new lease agreement for such proposed Capital
Addition.
(b) If Landlord agrees to finance the proposed Capital
Addition of Tenant, Tenant shall provide Landlord with the following:
(i) all customary or other required loan
documentation which may be required;
(ii) any information, certificates, licenses,
permits or documents requested by either Landlord or any
lender with whom Landlord has agreed or may agree to provide
financing which are necessary to confirm that Tenant will be
able to use the Capital Addition upon completion thereof in
accordance with the Primary Intended Use (as defined in
Section 8.01), including all required, federal, state or local
government licenses and approvals;
(iii) a certificate from Tenant's architect,
setting forth in reasonable detail the projected (or actual,
if available) cost of the proposed Capital Addition;
(iv) an amendment to this Lease, or a new lease
agreement, duly executed and acknowledged, in form and
substance satisfactory to Landlord and Tenant, and containing
such provisions as may be necessary or appropriate, including
without limitation, any appropriate changes in the legal
description of the Land, the Rent, and other changes with
respect to the Capital Addition;
(v) a deed conveying title to Landlord to any
land acquired for the purpose of constructing the Capital
Addition, free and clear of any liens or encumbrances except
those approved by Landlord and, both prior to and following
completion of the Capital Addition, an as-built survey thereof
satisfactory to Landlord;
(vi) endorsements to any outstanding policy of
title insurance covering the Leased Property or a supplemental
policy of title insurance covering the Leased Property
satisfactory in form and substance to Landlord (a) updating
the same without any additional exceptions, except as may be
permitted by Landlord; and (b)
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increasing the coverage thereof by an amount equal to the fair
market value of the Capital Addition;
(vii) if required by Landlord, (a) an owner's
policy of title insurance insuring fee simple title to
any land conveyed to Landlord pursuant to subparagraph (v),
free and clear of all liens and encumbrances except those
approved by Landlord and (b) a lender's policy of title
insurance satisfactory in form and substance to Landlord and
any lending institution advancing a portion of the cost of the
Capital Addition;
(viii) if required by Landlord, upon completion of
the Capital Addition, an M.A.I. appraisal of the Leased
Property indicating that the value of the Leased Property upon
completion of the Capital Addition exceeds the fair market
value of the Leased Property prior thereto by an amount not
less than ninety-five percent (95%) of the cost of such
Capital Addition; and
(ix) such other certificates (including, but not
limited to, endorsements, increasing the insurance coverage,
if any, at the time required), documents, opinions of counsel,
appraisals, surveys, certified copies of duly adopted
resolutions of the board of directors of Tenant authorizing
the execution and delivery of any amendment to an individual
Lease or new lease agreement and any other instruments as may
be reasonably required by Landlord and any lending institution
advancing any portion of the cost of the Capital Addition.
(c) Upon making a request to finance a Capital Addition,
whether or not such financing is actually consummated, Tenant shall
pay or agree to pay, upon demand, all reasonable costs and expenses of
Landlord and any lending institution which has committed to finance
such Capital Addition which have been paid or incurred by them in
connection with the financing of the Capital Addition, including, but
not limited to, (i) the fees and expenses of their respective counsel,
(ii) all printing expenses, (iii) the amount of any filing,
registration and recording taxes and fees, (iv) documentary stamp
taxes, if any, (v) title insurance charges, appraisal fees, if any,
rating agency fees, if any, (vi) commitment fees, if any, and (vii)
costs of obtaining regulatory and governmental approvals for the
construction, operation, use or occupancy of the Capital Addition.
(d) (i) If Landlord and Tenant are unable to agree on
the terms of the financing of a Capital Addition by Landlord, Tenant
may undertake the cost of any such Capital Addition and seek
construction, permanent or other financing from other sources.
(ii) In the event Tenant shall construct any
Capital Addition and shall have obtained construction, permanent or
other financing in connection therewith from sources other than
Landlord, as set forth in the foregoing Section 8.09(d)(i), Landlord
shall have the
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option to acquire such Capital Addition for a period of three
(3) years following the date Tenant first receives inmates in such
Capital Addition ("Service Commencement Date"). The price at which
Landlord may acquire such Capital Addition shall be the fair market
value of the Capital Addition, as reasonably and mutually determined
by Landlord and Tenant, provided, Landlord and Tenant agree that for
the first two (2) years following the Service Commencement Date the
fair market value of such Capital Addition shall be deemed to be equal
to Tenant's actual costs and expenses to acquire, develop, design,
construct and equip such Capital Addition ("Tenant's Cost"), as
reflected on the books of Tenant, plus five percent (5%) of Tenant's
Cost. Landlord's exercise of such option shall require Landlord to
acquire such Capital Addition on such terms and conditions as Landlord
and Tenant shall reasonably agree, which shall be generally consistent
with the terms and conditions of Landlord's initial acquisition of the
related Leased Property from Tenant. Upon such acquisition, Landlord
shall lease such Capital Addition to Tenant on the terms and
conditions set forth herein, and Landlord and Tenant shall execute a
new Lease, or an amendment to the existing Lease, with respect
thereto. In such case, the Base Rent shall be the fair market rental
value of the Capital Addition, as reasonably and mutually determined
by Landlord and Tenant. Regardless of whether the foregoing option is
exercised, all Capital Additions shall become the property of Landlord
upon the expiration or termination of this Lease.
ARTICLE IX
DEFAULTS AND REMEDIES
9.01 Events of Default. The occurrence of any one or more of the
following shall be an event of default ("Event of Default") hereunder:
(a) Tenant fails to pay in full any installment of Rent,
or any other monetary obligation payable by Tenant to Landlord under a
Lease, within fifteen (15) days after notice of nonpayment from
Landlord;
(b) Tenant fails to observe and perform any other
covenant, condition or agreement under this Agreement or a Lease to be
performed by Tenant (except those described in Section 9.01(a) of this
Agreement) and such failure continues for a period of thirty (30) days
after written notice thereof is given to Tenant by Landlord; or if, by
reason of the nature of such default, the same cannot with due
diligence be remedied within said thirty (30) days, such failure will
not be deemed to continue if Tenant proceeds promptly and with due
diligence to remedy the failure and diligently completes the remedy
thereof; provided, however, said cure period will not extend beyond
thirty (30) days if the facts or circumstances giving rise to the
default are creating a further harm to Landlord or the Leased Property
and Landlord makes a good faith determination that Tenant is not
undertaking remedial steps that Landlord would cause to be taken if
such Lease were then to terminate;
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(c) If Tenant: (a) admits in writing its inability to pay
its debts generally as they become due, (b) files a petition in
bankruptcy or a petition to take advantage of any insolvency act, (c)
makes an assignment for the benefit of its creditors, (d) is unable to
pay its debts as they mature, (e) consents to the appointment of a
receiver of itself or of the whole or any substantial part of its
property, or (f) files a petition or answer seeking reorganization or
arrangement under the federal bankruptcy laws or any other applicable
law or statute of the United States of America or any state thereof;
(d) If Tenant, on a petition in bankruptcy filed against
it, is adjudicated as bankrupt or a court of competent jurisdiction
enters an order or decree appointing, without the consent of Tenant, a
receiver of Tenant of the whole or substantially all of its property,
or approving a petition filed against it seeking reorganization or
arrangement of Tenant under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or any state
thereof, and such judgment, order or decree is not vacated or set
aside or stayed within ninety (90) days from the date of the entry
thereof;
(e) If the estate or interest of Tenant in any Leased
Property or any part thereof is levied upon or attached in any
proceeding and the same is not vacated or discharged within the later
of ninety (90) days after commencement thereof or thirty (30) days
after receipt by Tenant of notice thereof from Landlord (unless Tenant
is contesting such lien or attachment in accordance with this
Agreement);
(f) Any representation or warranty made by Tenant in the
Agreement or any Lease or in any certificate, demand or request made
pursuant to any Lease proves to be incorrect, in any material respect
and any adverse effect on Landlord of any such misrepresentation or
breach of warranty has not been corrected to Landlord's satisfaction
within thirty (30) days after Tenant becomes aware of, or is notified
by the Landlord of the fact of, such misrepresentation or breach of
warranty;
(g) A default by Tenant in any payment of principal or
interest on any obligations for borrowed money having a principal
balance of Twenty-Five Million Dollars ($25,000,000) or more in the
aggregate (excluding obligations which are limited in recourse to
specific property of Tenant provided that such property is not a
substantial portion of the assets of Tenant and excluding any debt
which is denominated as "subordinated debt"), or in the performance of
any other provision contained in any instrument under which any such
obligation is created or secured (including the breach of any covenant
thereunder), if an effect of such default is that the holder(s) of
such obligation cause such obligation to become due prior to its
stated maturity; or
(h) A final, non-appealable judgment or judgments for the
payment of money in excess of Ten Million Dollars ($10,000,000) in the
aggregate not fully covered (excluding deductibles) by insurance is
rendered against Tenant and the same remains undischarged, unvacated,
unbonded or unstayed for a period of one hundred twenty (120)
consecutive days.
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Notwithstanding the foregoing, an Event of Default under the foregoing
subsections (a), (c), (d), (g) and (h) shall constitute an Event of Default
under all of the Leases and an Event of Default under the foregoing subsections
(b), (e) and (f) shall constitute an Event of Default only with respect to the
specific Lease and Leased Property to which such Event of Default applies.
Provided, with respect to the Events of Default under the foregoing subsections
(b), (e) and (f), if such Events of Default shall at any time be applicable to
Leased Properties for which the monthly Base Rent constitutes, in the
aggregate, greater than twenty-five percent (25%) of the monthly Base Rent for
all of the Leased Properties, then such Events of Default shall constitute
Events of Default under all of the Leases.
9.02 Remedies. To the extent any Event of Default is applicable
only to a specific Lease or Leases, or a specific Leased Property or Leased
Properties (in accordance with Section 9.01 above), the remedies set forth
herein shall be exercisable solely with respect to such Lease or Leases, or
Leased Property or Leased Properties, and shall not be exercisable with respect
to any other Leases or Leased Property. To the extent any Event of Default
constitutes an Event of Default under all of the Leases (in accordance with
Section 9.01 above), the remedies set forth herein shall be exercisable with
respect to all of the Leases and all of the Leased Properties. Subject to the
foregoing provisions, Landlord may exercise any one or more of the following
remedies upon the occurrence of an Event of Default:
(a) Landlord may terminate the applicable Lease, exclude
Tenant from possession of the subject Leased Property and use
reasonable efforts to lease such Leased Property to others. If any
Lease is terminated pursuant to the provisions of this subparagraph
(a), Tenant will remain liable to Landlord for damages in an amount
equal to the Rent and other sums which would have been owing by Tenant
under such Lease for the balance of the Term if the Lease had not been
terminated, less the net proceeds, if any, of any re-letting of the
subject Leased Property by Landlord subsequent to such termination,
after deducting all Landlord's expenses in connection with such
re-letting, including without limitation, the expenses set forth in
Section 9.02(b)(2) below. Landlord will be entitled to collect such
damages from Tenant monthly on the days on which the Rent and other
amounts would have been payable under the subject Lease if such Lease
had not been terminated and Landlord will be entitled to receive such
damages from Tenant on each such day. Alternatively, at the option of
Landlord, if such Lease is terminated, Landlord will be entitled to
recover from Tenant (a) all unpaid Rent then due and payable, and (b)
the worth at the time of the award (as hereafter defined) of the Rent
which would have been due and payable from the date of termination
through the Expiration Date as if the Lease had not been terminated.
The "worth at the time of award" of the amount referred to in clause
(b) is computed at "present value" using New York Prime Rate. For
purposes of this Agreement, "New York Prime Rate" shall mean that rate
of interest identified as prime or national prime by the Wall Street
Journal, or if not published or found, then the rate of interest
charged by the American bank with the greatest number of assets on
ninety (90) day unsecured notes to its preferred customers. For the
purpose of determining unpaid Rent under clause (b), the Rent reserved
in the Lease will be deemed to be the sum of the following: (i) the
Base Rent computed pursuant to Section 2.01;
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(ii) the Additional Rent computed pursuant to Section 2.02; and
(iii) the Other Additional Rent computed pursuant to Section 2.02.01.
Such computation of Other Additional Rent shall be based on the Other
Additional Rent paid for the Lease Year preceding the date of
termination, increased by 4% per year thereafter. Following payments
by Tenant of the foregoing amounts, Landlord shall deliver and pay
over to Tenant all rent, income, and other proceeds of any nature
realized from the sale, lease or other disposition or utilization of
the Leased Premises, if any, actually received by Landlord, up to the
amounts so paid by Tenant less Landlord's reasonably incurred costs
and expenses of maintaining and re-leasing or selling the Leased
Premises.
(b) (1) Without demand or notice, Landlord may re-enter
and take possession of the applicable Leased Property or any part of
such Leased Property; and repossess such Leased Property as of the
Landlord's former estate; and expel the Tenant and those claiming
through or under Tenant from such Leased Property; and, remove the
effects of both or either, without being deemed guilty of any manner
of trespass and without prejudice to any remedies for arrears of Rent
or preceding breach of covenants or conditions. If Landlord elects to
re-enter, as provided in this paragraph (b) or if Landlord takes
possession of such Leased Property pursuant to legal proceedings or
pursuant to any notice provided by law, Landlord may, from time to
time, without terminating the subject Lease, re-let such Leased
Property or any part of such Leased Property, either alone or in
conjunction with other portions of the Improvements of which such
Leased Property are a part, in Landlord's name but for the account of
Tenant, for such term or terms (which may be greater or less than the
period which would otherwise have constituted the balance of the Term
of this Lease) and on such terms and conditions (which may include
concessions of free rent, and the alteration and repair of such Leased
Property) as Landlord, in its uncontrolled discretion, may determine.
Landlord may collect and receive the Rents for such Leased Property.
Landlord will not be responsible or liable for any failure to re-let
such Leased Property, or any part of such Leased Property, or for any
failure to collect any Rent due upon such re-letting. No such
re-entry or taking possession of such Leased Property by Landlord will
be construed as an election on Landlord's part to terminate this Lease
unless a written notice of such intention is given to Tenant. No
notice from Landlord under this Lease or under a forcible entry and
detainer statute or similar law will constitute an election by
Landlord to terminate this Lease unless such notice specifically says
so. Landlord reserves the right following any such re-entry or
re-letting, or both, to exercise its right to terminate this Lease by
giving Tenant such written notice, and, in that event such Lease will
terminate as specified in such notice.
(2) If Landlord elects to take possession of such
Leased Property according to this subparagraph (b) without terminating
such Lease, Tenant will pay Landlord (i) the Rent, Additional Rent and
other sums which would be payable under such Lease if such
repossession had not occurred, less (ii) the net proceeds, if any, of
any re-letting of such Leased Property after deducting all of
Landlord's expenses incurred in connection with such re-letting,
including without limitation, all repossession costs, brokerage
commissions, legal
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expense, attorneys' fees, expense of employees, alteration,
remodeling, repair costs, and expense of preparation for such
re-letting. If, in connection with any re-letting, the new Lease term
extends beyond the existing Term or such Leased Property covered by
such re-letting includes areas which are not part of such Leased
Property, a fair apportionment of the Rent received from such
re-letting and the expenses incurred in connection with such
re-letting will be made in determining the net proceeds received from
such re-letting. In addition, in determining the net proceeds from
such re-letting, any rent concessions will be apportioned over the
term of the new Lease. Tenant will pay such amounts to Landlord
monthly on the days on which the Rent and all other amounts owing
under this Agreement or such Lease would have been payable if
possession had not been retaken, and Landlord will be entitled to
receive the rent and other amounts from Tenant on each such day.
(c) Landlord may re-enter the applicable Leased Property
and have, repossess and enjoy such Leased Property as if such Lease
had not been made, and in such event, Tenant and its successors and
assigns shall remain liable for any contingent or unliquidated
obligations or sums owing at the time of such repossession.
(d) Landlord may take whatever action at law or in equity
as may appear necessary or desirable to collect the Rent and other
amounts payable under the applicable Lease then due and thereafter to
become due, or to enforce performance and observance of any
obligations, agreements or covenants of Tenant under such Lease.
9.03 Right of Set-Off. Landlord may, and is hereby authorized by
Tenant, at any time and from time to time, after advance notice to Tenant, to
set-off and apply any and all sums held by Landlord, including all sums held in
any escrow for Impositions, any indebtedness of Landlord to Tenant, and any
claims by Tenant against Landlord, against any obligations of Tenant under this
Agreement or any Lease and against any claims by Landlord against Tenant,
whether or not Landlord has exercised any other remedies hereunder. The rights
of Landlord under this Section are in addition to any other rights and remedies
Landlord may have against Tenant.
9.04 Performance of Tenant's Covenants. Landlord may perform any
obligation of Tenant which Tenant has failed to perform within two (2) days
after Landlord has sent a written notice to Tenant informing it of its specific
failure (provided no such notice shall be required if Landlord has previously
notified Tenant of such failure under the provisions of Section 9.01). Tenant
shall reimburse Landlord on demand, as Other Additional Rent, for any
expenditures thus incurred by Landlord and shall pay interest thereon at the
New York Prime Rate (as herein defined).
9.05 Late Charge. Any payment not made by Tenant for more than ten
(10) days after the due date shall be subject to a late charge payable by
Tenant as Rent of three percent (3%) of the amount of such overdue payment.
9.06 Litigation; Attorneys' Fees. Within ten (10) days after
Tenant has knowledge of any litigation or other proceeding that may be
instituted against Tenant, against any Leased Property to
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secure or recover possession thereof, or that may affect the title to
or the interest of Landlord in such Leased Property, Tenant shall give written
notice thereof to Landlord. Within thirty (30) days of Landlord's presentation
of an invoice, Tenant shall pay all reasonable costs and expenses incurred by
Landlord in enforcing or preserving Landlord's rights under this Agreement and
each Lease, whether or not an Event of Default has actually occurred or has
been declared and thereafter cured, including without limitation, (i) the fees,
expenses, and costs of any litigation, receivership, administrative,
bankruptcy, insolvency or other similar proceeding; (ii) reasonable attorney,
paralegal, consulting and witness fees and disbursements; and (iii) the
expenses, including without limitation, lodging, meals, and transportation,
of Landlord and its employees, agents, attorneys, and witnesses in preparing
for litigation, administrative, bankruptcy, insolvency or other similar
proceedings and attendance at hearings, depositions, and trials in connection
therewith. All such costs, charges and fees as incurred shall be deemed to be
Other Additional Rent under this Agreement.
9.07 Remedies Cumulative. The remedies of Landlord herein are
cumulative to and not in lieu of any other remedies available to Landlord at
law or in equity. The use of any one remedy shall not be taken to exclude or
waive the right to use any other remedy.
9.08 Escrows and Application of Payments. As security for the
performance of its obligations hereunder, Tenant hereby assigns to Landlord all
its right, title and interest in and to all monies escrowed with Landlord under
this Agreement or under any Lease and all deposits with utility companies,
taxing authorities, and insurance companies; provided, however, that Landlord
shall not exercise its rights hereunder until an Event of Default has occurred.
Any payments received by Landlord under any provisions of this Agreement or
under any Lease during the existence, or continuance of an Event of Default
shall be applied to Tenant's obligations in the order which Landlord may
determine.
9.09 Power of Attorney. Tenant hereby irrevocably and
unconditionally appoints Landlord, or Landlord's authorized officer, agent,
employee or designee, as Tenant's true and lawful attorney-in-fact, to act,
after an Event of Default, for Tenant in Tenant's name, place, and stead, and
for Tenant's and Landlord's use and benefit, to execute, deliver and file all
applications and any and all other necessary documents or things, to effect a
transfer, reinstatement, renewal and/or extension of any and all licenses and
other governmental authorizations issued to Tenant in connection with Tenant's
operation of any Leased Property, and to do any and all other acts incidental
to any of the foregoing. Tenant irrevocably and unconditionally grants to
Landlord as its attorney-in-fact full power and authority to do and perform,
after an Event of Default, every act necessary and proper to be done in the
exercise of any of the foregoing powers as fully as Tenant might or could do if
personally present or acting, with full power of substitution, hereby ratifying
and confirming all that said attorney shall lawfully do or cause to be done by
virtue hereof. This power of attorney is coupled with an interest and is
irrevocable prior to the full performance of the Tenant's obligations under
this Agreement and each Lease.
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ARTICLE X
DAMAGE AND DESTRUCTION
10.01 General. Tenant shall notify Landlord if any of the Leased
Property is damaged or destroyed by reason of fire or any other cause. Tenant
shall promptly repair, rebuild, or restore the Leased Property, at Tenant's
expense, so as to make the Leased Property at least equal in value to the
Leased Property existing immediately prior to such occurrence and as nearly
similar to it in character as is practicable and reasonable. Before beginning
such repairs or rebuilding, or letting any contracts in connection with such
repairs or rebuilding, Tenant will submit for Landlord's approval, which
approval Landlord will not unreasonably withhold or delay, complete and
detailed plans and specifications for such repairs or rebuilding. Promptly
after receiving Landlord's approval of the plans and specifications, Tenant
will begin such repairs or rebuilding and will prosecute the repairs and
rebuilding to completion with diligence, subject, however, to strikes,
lockouts, acts of God, embargoes, governmental restrictions, and other causes
beyond Tenant's reasonable control. Landlord will make available to Tenant the
net proceeds of any fire or other casualty insurance paid to Landlord for such
repair or rebuilding as the same progresses, after deduction of any costs of
collection, including attorneys' fees. Payment will be made against properly
certified vouchers of a competent architect in charge of the work and approved
by Landlord. Prior to commencing the repairing or rebuilding, Tenant shall
deliver to Landlord for Landlord's approval a schedule setting forth the
estimated monthly draws for such work. Landlord will contribute to such
payments out of the insurance proceeds an amount equal to the proportion that
the total net amount received by Landlord from insurers bears to the total
estimated cost of the rebuilding or repairing, multiplied by the payment by
Tenant on account of such work. Landlord may, however, withhold ten percent
(10%) from each payment until (i) the work of repairing or rebuilding is
completed and proof has been furnished to Landlord that no lien or liability
has attached or will attach to the Leased Property or to Landlord in connection
with such repairing or rebuilding, (ii) Tenant has obtained a certificate of
use and occupancy (or its functional equivalent) for the portion of the Leased
Premises repaired or rebuilt and (iii) if Tenant has an agreement with any
governmental authority for the detention of inmates at such Leased Property
which requires such governmental authority to approve such repairs or
rebuilding, such approval shall have been obtained. Upon the completion of
rebuilding or repairing and the furnishing of such proof, the balance of the
net proceeds of such insurance payable to Tenant on account of such repairing
or rebuilding will be paid to Tenant. Tenant will obtain and deliver to
Landlord a temporary or final certificate of occupancy before the Leased
Property is reoccupied for any purpose. Tenant shall complete such repairs or
rebuilding free and clear of mechanic's or other liens, and in accordance with
the building codes and all applicable laws, ordinances, regulations, or orders
of any state, municipal, or other public authority affecting the repairs or
rebuilding, and also in accordance with all requirements of the insurance
rating organization, or similar body. Any remaining proceeds of insurance
after such restoration will be Tenant's property.
10.02 Landlord's Inspection. During the progress of such repairs or
rebuilding, Landlord and its architects and engineers may, from time to time,
inspect the Leased Property and will be furnished, if required by them, with
copies of all plans, shop drawings, and specifications relating
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to such repairs or rebuilding. Tenant will keep all plans, shop drawings,
and specifications available, and Landlord and its architects and engineers
may examine them at all reasonable times. If, during such repairs or
rebuilding, Landlord and its architects and engineers determine that the
repairs or rebuilding are not being done in accordance with the approved plans
and specifications, Landlord will give prompt notice in writing to Tenant,
specifying in detail the particular deficiency, omission, or other respect in
which Landlord claims such repairs or rebuilding do not accord with the
approved plans and specifications. Upon the receipt of any such notice, Tenant
will cause corrections to be made to any deficiencies, omissions, or such other
respect. Tenant's obligations to supply insurance, according to Article IV,
will be applicable to any repairs or rebuilding under this Section.
10.03 Landlord's Costs. Tenant shall, within thirty (30) days after
receipt of an invoice from Landlord, pay the reasonable costs, expenses, and
fees of any architect or engineer employed by Landlord to review any plans and
specifications and to supervise and approve any construction, or for any
services rendered by such architect or engineer to Landlord as contemplated by
any of the provisions of this Agreement, or for any services performed by
Landlord's attorneys in connection therewith; provided, however, that Landlord
will consult with Tenant and notify Tenant of the estimated amount of such
expenses.
10.04 Rent Abatement. In the event that the provisions of Section
10.01 above shall become applicable, the Rent, real estate taxes and other
Impositions shall be abated or reduced proportionately during any period in
which, by reason of such damage or destruction, there is substantial
interference with the operation of the business of Tenant in the Leased
Property, having regard to the extent to which Tenant may be required to
discontinue its business in the Leased Property, and such abatement or
reduction shall continue for the period commencing with such destruction or
damage and ending with the substantial completion (defined below) by Tenant of
such work or repair and/or reconstruction. In the event that only a portion
of any Leased Property is rendered untenantable or incapable of such use, the
Base Rent and all real estate taxes and other Impositions payable hereunder
shall be reduced on a pro rata basis for the amount that the correctional or
detention facility at a particular Leased Property is rendered incapable of
occupancy because of such damage or destruction in proportion to the total size
of the Leased Property prior to such damage or destruction. For purposes of
this paragraph, substantial completion shall occur upon the earlier of (i) nine
(9) months from the date of the first disbursement of insurance proceeds, or
(ii) the issuance of a certificate of occupancy for the Leased Property.
Notwithstanding any other provision hereof, such rental abatement shall be
limited to the amount of any rental or business interruption insurance proceeds
actually received by Landlord.
10.05 Substantial Damage During Lease Term. Provided Tenant has
fully complied with Section 4.01 hereof (including actually maintaining in
effect rental value insurance or business interruption insurance provided for
in clause (c) thereof) and has satisfied the conditions of the last sentence of
this Section 10.05, if, at any time during the Term of the particular Lease,
the Leased Property is so damaged by fire or otherwise that more than fifty
percent (50%) of the correctional or detention facility at the Leased Property
is rendered unusable, Tenant may, within thirty (30) days after such damage,
give notice of its election to terminate the Lease subject to the particular
Leased
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Property and, subject to the further provisions of this Section, such
Lease will cease on the tenth (10th ) day after the delivery of such notice.
If the Lease is so terminated, Tenant will have no obligation to repair,
rebuild or replace the Leased Property, and the entire insurance proceeds will
belong to Landlord. If the Lease is not so terminated, Tenant shall rebuild
the Leased Property in accordance with Section 10.01. If Tenant elects to
terminate any Lease pursuant to this Section 10.05, Tenant will pay (or cause
to be paid) to Landlord, an amount equal to the difference between the amount
of all insurance proceeds received by Landlord, and the net book value of such
Leased Property as shown in Landlord's financial statements as of the date of
such termination.
10.06 Damage Near End of Term. Notwithstanding any provisions of
Section 10.01 to the contrary, if damage to or destruction of the Leased
Property occurs during the last twenty-four (24) months of the Term, and if
such damage or destruction cannot be fully repaired and restored within six (6)
months immediately following the date of loss, either party shall have the
right to terminate this Lease by giving notice to the other within thirty (30)
days after the date of damage or destruction, in which event Landlord shall be
entitled to retain the insurance proceeds and Tenant shall pay to Landlord on
demand the amount of any deductible or uninsured loss arising in connection
therewith; provided, however, that any such notice given by Landlord shall be
void and of no force and effect if Tenant exercises an available option to
extend the Term pursuant to provisions of the Lease for such Leased Property
within thirty (30) days following receipt of such termination notice.
ARTICLE XI
CONDEMNATION
11.01 Total Taking. If at any time during the Term any Leased
Property is totally and permanently taken by right of eminent domain or by
conveyance made in response to the threat of the exercise of such right
("Condemnation"), the applicable Lease shall terminate on the Date of Taking
(which shall mean the date the condemning authority has the right to possession
of the property being condemned), and Tenant shall promptly pay all outstanding
rent and other charges through the date of termination, provided, however the
applicable Lease shall not so terminate if the Condemnation occurred due to the
failure of Tenant to maintain the Leased Property as required by Article VII of
this Agreement or other applicable provision of this Agreement, whether or not
such failure on the part of Tenant constituted an Event of Default under an
individual Lease at the time of the Condemnation.
11.02 Partial Taking. If a portion of any Leased Property is taken
by Condemnation, the subject Lease shall remain in effect if such Leased
Property is not thereby rendered Unsuitable for its Primary Intended Use (which
shall mean that the Leased Property is in such a state or condition such that
in the good faith judgment of Tenant, reasonably exercised, the Leased Property
cannot be operated on a commercially practicable basis as a correctional or
detention facility), but if such Leased Property is thereby rendered Unsuitable
for its Primary Intended Use, such Lease shall
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terminate on the Date of Taking, provided such Condemnation was not as a
result of Tenant's failure to maintain the Leased Property as provided for in
Section 11.01.
11.03 Restoration. If there is a partial taking of any Leased
Property and the subject Lease remains in full force and effect pursuant to
Section 11.02, Landlord shall furnish to Tenant the amount of the Award payable
to Landlord, as provided herein, in order for Tenant to accomplish all
necessary restoration. If Tenant receives an Award under Section 11.05, Tenant
shall repair or restore any Tenant Improvements up to but not exceeding the
amount of the Award payable to Tenant therefor. Before beginning such
restoration, or letting any contracts in connection with such restoration,
Tenant will submit for Landlord's approval, which approval Landlord will not
unreasonably withhold or delay, complete and detailed plans and specifications
for such restoration. Promptly after receiving Landlord's approval of the
plans and specifications,Tenant will begin such restoration and will prosecute
the repairs and rebuilding to completion with diligence, subject, however, to
strikes, lockouts, acts of God, embargoes, governmental restrictions, and other
causes beyond Tenant's reasonable control. Landlord will make available to
Tenant the net proceeds of any Award paid to Landlord for such restoration,
after deduction of any costs of collection, including attorneys' fees. Payment
will be made against properly certified vouchers of a competent architect in
charge of the work and approved by Landlord. Prior to commencing the
restoration, Tenant shall deliver to Landlord for Landlord's approval a
schedule setting forth the estimated monthly draws for such work. Landlord
may, however, withhold ten percent (10%) from each payment until the work of
restoration is completed and proof has been furnished to Landlord that no lien
or liability has attached or will attach to the Leased Property or to Landlord
in connection with such restoration. Upon the completion of restoration and
the furnishing of such proof, the balance of the Award will be paid to Tenant.
Tenant will obtain and deliver to Landlord a temporary or final certificate of
occupancy before the Leased Property is reoccupied for any purpose. Tenant
shall complete such restoration free and clear of mechanic's or other liens,
and in accordance with the building codes and all applicable laws, ordinances,
regulations, or orders of any state, municipal, or other public authority
affecting the restoration, and also in accordance with all requirements of the
insurance rating organization, or similar body. Any remaining proceeds of the
Award after such restoration will be Tenant's property.
11.04 Landlord's Inspection. During the progress of such
restoration, Landlord and its architects and engineers may, from time to time,
inspect the Leased Property and will be furnished, if required by them, with
copies of all plans, shop drawings, and specifications relating to such
restoration. Tenant will keep all plans, shop drawings, and specifications
available, and Landlord and its architects and engineers may examine them at
all reasonable times. If, during such restoration, Landlord and its architects
and engineers determine that the restoration is not being done in accordance
with the approved plans and specifications, Landlord will give prompt notice in
writing to Tenant, specifying in detail the particular deficiency, omission, or
other respect in which Landlord claims such restoration does not accord with the
approved plans and specifications. Upon the receipt of any such notice, Tenant
will cause corrections to be made to any deficiencies, omissions, or such other
respect. Tenant's obligations to supply insurance, according to Article IV,
will be applicable to any restoration under this Section.
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11.05 Award Distribution. The entire compensation, sums or anything
of value awarded, paid or received on a total or partial Condemnation (the
"Award") shall belong to and be paid to Landlord, except that, subject to the
rights of any mortgagee of Tenant, Tenant shall be entitled to receive from the
Award, if and to the extent such Award specifically includes such items, a sum
attributable to the value, if any, of: (i) any Tenant Improvements, and (ii)
the leasehold interest of Tenant under the subject Lease; provided, however,
that if the amount received by Landlord and said mortgagee is less than the
Condemnation Threshold (which shall mean, as of any given date, an amount equal
to the net book value of such Leased Property as shown on the financial
statements of Landlord as of the date of the Condemnation), then the amount of
the Award otherwise payable to Tenant for the value of its leasehold interest
under this Lease (and not any other funds of Tenant) shall instead be paid over
to Landlord up to the amount of the shortfall.
11.06 Temporary Taking. The taking of any Leased Property, or any
part thereof, by military or other public authority shall constitute a taking
by Condemnation only when the use and occupancy by the taking authority has
continued for longer than six (6) months. During any such six (6) month
period, which shall be a temporary taking, all the provisions of the subject
Lease shall remain in full force and effect with no abatement of rent payable
by Tenant hereunder. In the event of any such temporary taking, the entire
amount of any such Award made for such temporary taking allocable to the Term
of such Lease, whether paid by way of damages, rent or otherwise, shall be paid
to Tenant.
ARTICLE XII
TENANT'S RIGHT OF FIRST REFUSAL
12.01 Rights of First Refusal. Subject to the terms and conditions
set forth in this Section 12.01 and provided that no Event of Default with
respect to the subject Leased Property has occurred and is continuing at such
time or at the expiration of this Agreement or the individual Lease, Tenant
shall have a right of first refusal (the "Purchase Refusal Right") to purchase
any Leased Property (including any Leased Property owned by an Affiliate [as
defined in Section 13.01 hereof] of Landlord). If during the Term or for a
period of ninety (90) days following termination of any Lease, Landlord or any
Affiliate of Landlord receives a bona fide third party offer to Transfer any
Leased Property, then, prior to accepting such third party offer, Landlord
shall send written notice and a copy thereof to Tenant ("Landlord's Notice").
Tenant shall have ninety (90) days after receipt of Landlord's Notice to
exercise Tenant's Purchase Refusal Right, by giving Landlord written notice
thereof. Failure of Tenant to exercise the Purchase Refusal Right within such
time period set forth above shall be deemed to extinguish the Purchase Refusal
Right for a period of one hundred eighty (180) days. Thereafter, prior to the
expiration of such one hundred eighty (180) days, Landlord or its Affiliates
may Transfer such Leased Property provided however, that the Transfer of the
Leased Property is at a price equal to or greater than the price contained in
the Landlord's Notice, and otherwise consistent in all material respects with
the terms and conditions set forth in Landlord's Notice. Tenant's Purchase
Refusal Right shall revive in the event that Landlord fails to Transfer the
Leased Property within said one hundred eighty (180) days. In the event that
Tenant elects to
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exercise the Purchase Refusal Right and to acquire the Leased Property
thereby, (a) Tenant shall acquire such Leased Property on the same terms and
conditions and subject to all time periods and other limitations as provided in
Landlord's Notice (provided, however, Tenant shall in all events have not less
than ninety (90) days to close its acquisition of the Leased Property following
its written notice exercising its Purchase Refusal Right), and (b) concurrently
with such acquisition, the Lease of such Leased Property shall terminate (but
Tenant shall remain liable to pay any unpaid Rent with respect to such Leased
Property and all indemnifications and other provisions that survive the
expiration of the individual Lease or of this Agreement shall continue in
effect), and this Agreement shall be appropriately amended to reflect the
termination of such Lease.
Notwithstanding the foregoing provisions, the Purchase Refusal Right
shall not be applicable to any Transfer of a Leased Property to any Affiliate
of Landlord, so long as such Affiliate acquires such Leased Property subject to
the Purchase Refusal Right.
A "Transfer" is any direct or indirect sale, conveyance or other
disposition, including any transfer of a controlling ownership interest in any
owning partnership, limited liability company or corporation, and including any
lease with a term in excess of five (5) years.
12.02 Restriction on Exercise of Purchase Refusal Right.
Notwithstanding any other provision of this Article XII, Landlord shall not be
required to Transfer any Leased Property, or any portion thereof, which is a
real estate asset as defined in Section 856(c) (6) (B), or functionally
equivalent successor provision, of the Code, to Tenant if Landlord's counsel
advises Landlord that such Transfer may not be a sale of property described in
Section 857(b) (6) (C), or functionally equivalent successor provision of the
Code. If Landlord determines not to Transfer such property pursuant to the
above sentence, Tenant's right, if any, to acquire any or all of such property
shall continue and be exercisable, upon and subject to all applicable terms and
conditions set forth in this Lease, at such time as the transaction, upon the
advise of Landlord's tax counsel, would be a sale of property described in
Section 857(b) (6) (C) of the Code, or functionally equivalent successor
provision, and until such time Tenant shall lease the Leased Property for the
lesser of the rent otherwise called for in the Lease or fair market rental. If
the Transfer of the Leased Property is delayed pursuant to this section,
Landlord will use its reasonable best efforts to Transfer such Leased Property
to Tenant as soon as practicable in the next calendar year.
ARTICLE XIII
ASSIGNMENT AND SUBLETTING; ATTORNMENT
13.01 Prohibition Against Subletting and Assignment. Subject to
Section 13.03, Tenant shall not, without the prior written consent of Landlord
(which consent Landlord may grant or withhold in its sole and absolute
discretion), assign, mortgage, pledge, hypothecate, encumber or otherwise
transfer (except to an Affiliate of Tenant) (as defined) this Agreement or any
Lease or any interest herein or therein, or all or any part of the Leased
Property, or suffer or permit any Lease or the leasehold estate created thereby
or any other rights arising under any Lease to be assigned,
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transferred, mortgaged, pledged, hypothecated or encumbered, in whole or
in part, whether voluntarily, involuntarily or by operation of law. For
purposes of this Section 13.01, an assignment of any Lease shall be deemed to
include any Change of Control of Tenant, as if such Change of Control were an
assignment of the Lease. No assignment shall in any way impair the continuing
primary liability of Tenant hereunder.
An "Affiliate" shall mean any Person directly or indirectly
controlling, controlled by, or under common control with that Person.
A "Person" shall mean and include natural persons, corporations,
limited partnerships, general partnerships, joint stock companies, joint
ventures, associations, companies, trusts, banks, trust companies, land trusts,
business trusts, Indian tribes or other organizations, whether or not legal
entities, and governments and agencies and political subdivisions thereof.
13.02 Changes of Control. A Change of Control requiring the consent
of Landlord shall mean:
(a) the issuance and/or sale by Tenant or the sale by any
stockholder of Tenant of a Controlling (which shall mean, as applied
to any Person, the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by
contract or otherwise) interest in Tenant to a Person other than an
Affiliate of Tenant, other than in either case a distribution to the
public pursuant to an effective registration statement under the
Securities Act of 1933, as amended (a "Registered Offering");
(b) the sale, conveyance or other transfer of all or
substantially all of the assets of Tenant (whether by operation of law
or otherwise); or
(c) any transaction pursuant to which Tenant is merged
with or consolidated into another entity (other than an entity owned
and Controlled by an Affiliate of Tenant), and Tenant is not the
surviving entity.
13.03 Operating/Service Agreements.
13.03.01 Permitted Agreements. Tenant shall, without Landlord's prior
approval, be permitted to enter into certain operating/service agreements for
portions of any Leased Property to various licensees in connection with
Tenant's operation of correctional or detention facilities as is customarily
associated with or incidental to the operation of such Leased Property, which
agreements may be in the nature of a sublease agreement.
13.03.02 Terms of Agreements. Each operating/service agreement
concerning any of the Leased Property shall be subject and subordinate to the
provisions of the applicable Lease. No agreement made as permitted by Section
13.03.01 shall affect or reduce any of the obligations of
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Tenant hereunder, and all such obligations shall continue in full force and
effect as if no agreement had been made. No agreement shall impose any
additional obligations on Landlord under the applicable Lease.
13.03.03 Copies. Tenant shall, within ten (10) days after the
execution and delivery of any operating/service agreement permitted by Section
13.03.01, deliver a duplicate original thereof to Landlord.
13.03.04 Assignment of Rights in Agreements. As security for
performance of its obligations under each Lease, Tenant hereby grants, conveys
and assigns to Landlord all right, title and interest of Tenant in and to all
operating/service agreements now in existence or hereinafter entered into for
any or all of the applicable Leased Property, and all extensions, modifications
and renewals thereof and all rents, issues and profits therefrom, to the extent
the same are assignable by Tenant. Landlord hereby grants to Tenant a license
to collect and enjoy all rents and other sums of money payable under any such
agreement concerning any of such Leased Property; provided, however, that
Landlord shall have the absolute right at any time after the occurrence and
continuance of an Event of Default upon notice to Tenant and any vendors or
licensees to revoke said license and to collect such rents and sums of money
and to retain the same. Tenant shall not (i) after the occurrence and
continuance of an Event of Default, consent to, cause or allow any material
modification or alteration of any of the terms, conditions or covenants of any
of the agreements or the termination thereof, without the prior written
approval of Landlord nor (ii) accept any rents (other than customary security
deposits) more than ninety (90) days in advance of the accrual thereof nor
permit anything to be done, the doing of which, nor omit or refrain from doing
anything, the omission of which, will or could be a breach of or default in the
terms of any of the agreements.
13.03.05 Licenses, Etc. For purposes of Section 13.03, the
operating/service agreements shall mean any licenses, concession arrangements,
or other arrangements relating to the possession or use of all or any part of
any Leased Property but specifically excluding any management agreement,
facility operating agreement or other agreement for the housing or detention of
inmates.
13.04 Assignment. No assignment shall in any way impair the
continuing primary liability of Tenant hereunder, and no consent to any
assignment in a particular instance shall be deemed to be a waiver of the
prohibition set forth in Article XIII. Any assignment shall be solely of
Tenant's entire interest in the subject Lease. Any assignment or other
transfer of all or any portion of Tenant's interest in any Lease in
contravention of Article XIII shall be voidable at Landlord's option.
13.05 REIT Limitations. Anything contained in this Agreement to the
contrary notwithstanding, Tenant shall not (i) sublet or assign any Leased
Property or any Lease on any basis such that the rental or other amounts to be
paid by the sublessee or assignee thereunder would be based, in whole or in
part, on the income or profits derived by the business activities of the
sublessee or assignee; (ii) sublet or assign any Leased Property or any Lease
to any person that Landlord owns, directly or indirectly (by applying
constructive ownership rules set forth in Section 856(d) (5) of the Code), a
ten percent (10%) or greater interest; or (iii) sublet or assign any Leased
Property or any
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Lease in any other manner or otherwise derive any income which could cause any
portion of the amounts received by Landlord pursuant to any Lease or any
sublease to fail to qualify as "rents from real property" within the meaning
of Section 856(d) of the Code, or which could cause any other income received
by Landlord to fail to qualify as income described in Section 856(c) (2) of
the Code. The requirements of this Section 13.05 shall likewise apply to any
further subleasing by any subtenant.
13.06 Attornment. Tenant shall insert in each sublease permitted
under Section 13.03.01 provisions to the effect that (a) such sublease is
subject and subordinate to all of the terms and provisions of the applicable
Lease (including this Agreement) and to the rights of Landlord hereunder, (b)
in the event such Lease shall terminate before the expiration of such sublease,
the sublessee thereunder will, at Landlords' option, attorn to Landlord and
waive any right the sublessee may have to terminate the sublease or to
surrender possession thereunder, as a result of the termination of such Lease,
and (c) in the event the sublessee receives a written notice from Landlord or
Landlord's assignees, if any, stating that Tenant is in default under such
Lease, the sublessee shall thereafter be obligated to pay all rentals accruing
under said sublease directly to the party giving such notice, or as such party
may direct. All rentals received from the sublessee by Landlord or Landlord's
assignees, if any, as the case may be, shall be credit against the amounts
owing by Tenant under such Lease.
ARTICLE XIV
ARBITRATION
14.01 Controversies. Except with respect to the payment of Rent
hereunder, which shall be subject to the provisions of Section 9.02, in the
case a controversy arises between the parties as to any of the requirements of
this Agreement or of any individual Lease or the performance thereunder which
the parties are unable to resolve, the parties agree to waive the remedy of
litigation (except for extraordinary relief in an emergency situation) and
agree that such controversy or controversies shall be determined by arbitration
as hereafter provided in this Article.
14.02 Appointment of Arbitrators. The party or parties requesting
arbitration shall serve upon the other a demand therefor, in writing,
specifying in detail the controversy and matter(s) to be submitted to
arbitration. The selection of arbitrators shall be conducted pursuant to the
rules for resolution of commercial disputes promulgated by the American
Arbitration Association. The party or parties giving notice shall request a
listing of available arbitrators from the American Arbitration Association, and
each party shall respond in the selection process within fifteen (15) days
after each receipt of such listings until a panel of three (3) arbitrators has
been designated. If either party fails to respond within fifteen (15) days, it
is agreed that the American Arbitration Association may make such selections as
are necessary to complete the panel of three (3) arbitrators.
14.03 Arbitration Procedure. Within fifteen (15) days after the
selection of the arbitration panel, the arbitrators shall give written notice
to each party as to the time and the place of each
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meeting, which shall be held in Nashville, Tennessee, at which the parties
may appear and be heard, which shall be no later than sixty (60) days
after certification of the arbitration panel. The parties specifically waive
discovery, and further waive the applicability of rules of evidence or rules of
procedure in the proceedings. The applicable rules shall be those in effect at
the time for the resolution of commercial disputes promulgated by the American
Arbitration Association. Notwithstanding the foregoing, the substantive law
governing the arbitration shall be the laws of the State of Tennessee. The
arbitrators shall take such testimony and make such examination and
investigations as the arbitrators reasonably deem necessary. The decision of
the arbitrators shall be in writing signed by a majority of the panel which
decision shall be final and binding upon the parties to the controversy.
Provided, however, in rendering their decisions and making awards, the
arbitrators shall not add to, subtract from or otherwise modify the provisions
of this Agreement.
14.04 Expenses. The expenses of the arbitration shall be assessed
by the arbitrators and specified in the written decision. In the absence of a
determination or assessment of expenses of the arbitration procedure in the
award, all of the expenses of such arbitration shall be divided equally between
Landlord and Tenant. Each party in interest shall be responsible for and pay
the fees, costs and expenses of its own counsel, unless the arbitration award
provides for an assessment of reasonable attorneys' fees and costs.
14.05 Enforcement of the Arbitration Award. There shall be no
appeal from the decision of the arbitrators, and upon the rendering of an
award, any party thereto may file the arbitrators' decision in the United
States District Court for the Middle District of Tennessee for enforcement as
provided by applicable law.
ARTICLE XV
QUIET ENJOYMENT, SUBORDINATION,
ATTORNMENT, ESTOPPEL CERTIFICATES
15.01 Quiet Enjoyment. So long as Tenant performs all of its
obligations under this Agreement and each Lease, Tenant's possession of the
Leased Property will not be disturbed by or through Landlord.
15.02 Landlord Mortgages; Subordination. Subject to Section 15.03,
without the consent of Tenant, Landlord may, from time to time, directly or
indirectly, create or otherwise cause to exist any lien, encumbrances or title
retention agreement on the Leased Properties, or any portion thereof or any
interest therein, whether to secure any borrowing or other means of financing
or refinancing. This Agreement and each Lease and Tenant's rights under this
Agreement and each Lease are subordinate to any ground lease or underlying
lease, first mortgage, first deed of trust, or other first lien against any
Leased Property, together with any renewal, consolidation, extension,
modification or replacement thereof, which now or at any subsequent time
affects any Leased Property or any interest of Landlord in any Leased Property,
except to the extent that any such instrument expressly provides that this
Agreement and each Lease is superior. This provision will be self-operative,
and
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no further instrument or subordination will be required in order to effect
it. However, Tenant shall execute, acknowledge and deliver to Landlord, at any
time and from time to time upon demand by Landlord, such documents as may be
requested by Landlord or any mortgagee or any holder of any mortgage or other
instrument described in this Section, to confirm or effect any such
subordination. If Tenant fails or refuses to execute, acknowledge, and deliver
any such document within twenty (20) days after written demand, Landlord may
execute, acknowledge and deliver any such document on behalf of Tenant as
Tenant's attorney-in-fact. Tenant hereby constitutes and irrevocably appoints
Landlord, its successors and assigns, as Tenant's attorney-in-fact to execute,
acknowledge, and deliver on behalf of Tenant any documents described in this
Section. This power of attorney is coupled with an interest and is irrevocable.
15.03 Attornment; Non-Disturbance. If any holder of any mortgage,
indenture, deed of trust, or other similar instrument described in Section
15.02 succeeds to Landlord's interest in any Leased Property, Tenant will pay
to such holder all Rent subsequently payable under the subject Lease. Tenant
shall, upon request of anyone succeeding to the interest of Landlord,
automatically become the tenant of, and attorn to, such successor in interest
without changing such Lease. The successor in interest will not be bound by
(i) any payment of Rent for more than one (1) month in advance; (ii) any
amendment or modification of such Lease made without its written consent; (iii)
any claim against Landlord arising prior to the date on which the successor
succeeded to Landlord's interest; or (iv) any claim or offset of Rent against
the Landlord. Upon request by Landlord or such successor in interest and
without cost to Landlord or such successor in interest, Tenant will execute,
acknowledge and deliver an instrument or instruments confirming the attornment.
If Tenant fails or refuses to execute, acknowledge and deliver any such
instrument within twenty (20) days after written demand, then Landlord or such
successor in interest will be entitled to execute, acknowledge, and deliver any
document on behalf of Tenant as Tenant's attorney-in-fact. Tenant hereby
constitutes and irrevocably appoints Landlord, its successors and assigns, as
Tenant's attorney-in-fact to execute, acknowledge, and deliver on behalf of
Tenant any such document. This power of attorney is coupled with an interest
and is irrevocable.
Landlord shall use reasonable efforts to obtain a non-disturbance
agreement from any such party referred to above which provides that in the
event such party succeeds to Landlord's interest under the Lease and provided
that no Event of Default by Tenant exists, such party will not disturb Tenant's
possession, use or occupancy of the Leased Property.
15.04 Estoppel Certificates. At the request of Landlord or any
mortgagee or purchaser of any Leased Property, Tenant shall execute,
acknowledge, and deliver an estoppel certificate, in recordable form, in favor
of Landlord or any mortgagee or purchaser of such Leased Property certifying
the following: (i) that the subject Lease is unmodified and in full force and
effect, or if there have been modifications that the same is in full force and
effect as modified and stating the modifications; (ii) the date to which Rent
and other charges have been paid; (iii) that neither Tenant nor Landlord is in
default nor is there any fact or condition which, with notice or lapse of time,
or both, would constitute a default, if that be the case, or specifying any
existing default; (iv) that Tenant has accepted and occupies such Leased
Property; (v) that Tenant has no defenses, set-offs,
38
<PAGE> 44
deductions, credits, or counterclaims against Landlord, if that be the case,
or specifying such that exist; (vi) that the Landlord has no outstanding
construction or repair obligations; and (vii) such other information as may
reasonably be requested by Landlord or any mortgagee or purchaser. Any
purchaser or mortgagee may rely on this estoppel certificate. If Tenant fails
to deliver the estoppel certificates to Landlord within ten (10) days after the
request of the Landlord, then Tenant shall be deemed to have certified that (a)
such Lease is in full force and effect and has not been modified, or that such
Lease has been modified as set forth in the certificate delivered to Tenant;
(b) Tenant has not prepaid any Rent or other charges except for the current
month; (c) Tenant has accepted and occupies such Leased Property; (d) neither
Tenant nor Landlord is in default nor is there any fact or condition which,
with notice or lapse of time, or both, would constitute a default; (e) Landlord
has no outstanding construction or repair obligation; and (f) Tenant has no
defenses, set-offs, deductions, credits, or counterclaims against Landlord.
Tenant hereby irrevocably appoints Landlord as Tenant's attorney-in-fact to
execute, acknowledge and deliver on Tenant's behalf any estoppel certificate
which Tenant does not object to within twenty (20) days after Landlord sends
the certificate to Tenant. This power of attorney is coupled with an interest
and is irrevocable.
ARTICLE XVI
MISCELLANEOUS
16.01 Notices. Landlord and Tenant hereby agree that all notices,
demands, requests, and consents (hereinafter "Notices") required to be given
pursuant to the terms of this Lease shall be in writing and shall be addressed
as follows:
<TABLE>
<S> <C>
If to Tenant: Corrections Corporation of America
102 Woodmont Boulevard, Suite 800
Nashville, Tennessee 37205
Attention: Darrell K. Massengale
With a copy to: Stokes & Bartholomew, P.A.
424 Church Street, Suite 2800
Nashville, Tennessee 37219
Attention: Elizabeth E. Moore
If to Landlord: CCA Prison Realty Trust
2200 Abbott Martin Road
Nashville, Tennessee 37215
Attention: Michael W. Devlin
With a copy to: Sherrard & Roe, PLC
424 Church Street, Suite 2000
Nashville, Tennessee 37219
Attention: Kim A. Brown
</TABLE>
39
<PAGE> 45
and shall be served by (i) personal delivery, (ii) certified mail, return
receipt requested, postage prepaid, or (iii) nationally recognized overnight
courier. All notices shall be deemed to be given upon the earlier of actual
receipt or three (3) days after mailing, or one (1) business day after deposit
with the overnight courier. Any Notices meeting the requirements of this
Section shall be effective, regardless of whether or not actually received.
Landlord or Tenant may change its notice address at any time by giving the
other party Notice of such change.
16.02 Advertisement of Leased Property. In the event the parties
hereto have not executed a renewal lease of any Leased Property within one (1)
year prior to the expiration of the Term, then Landlord or its agent shall have
the right to enter such Leased Property at all reasonable times for the purpose
of exhibiting such Leased Property to others and to place upon such Leased
Property for and during the period commencing two hundred ten (210) days prior
to the expiration of the Term "for sale" or "for rent" notices or signs.
16.03 Landlord's Access. Landlord shall have the right to enter
upon the Leased Property, upon reasonable prior notice to Tenant, for purposes
of inspecting the same and assuring Tenant's compliance with this Agreement
provided, any such entry by Landlord shall be subject to all rules, guidelines
and procedures prescribed by Tenant in connection therewith. Landlord shall
not be allowed entry to the Leased Premises unless accompanied by such of
Tenant's personnel as Tenant shall require.
16.04 Entire Agreement. This Agreement and the individual Leases
contain the entire agreement between Landlord and Tenant with respect to the
subject matter hereof and thereof. No representations, warranties, and
agreements have been made by Landlord except as set forth in this Agreement and
the Leases.
16.05 Severability. If any term or provision of this Agreement or
any Lease is held or deemed by Landlord to be invalid or unenforceable, such
holding shall not affect the remainder of this Agreement or any Lease and the
same shall remain in full force and effect, unless such holding substantially
deprives Tenant of the use of the Leased Property or Landlord of the Rents
therefor, in which event the Lease for such Leased Property shall forthwith
terminate as if by expiration of the Term.
16.06 Captions and Headings. The captions and headings are inserted
only as a matter of convenience and for reference and in no way define, limit
or describe the scope of this Agreement or the intent of any provision hereof.
16.07 Governing Law. This Agreement and each of the Leases shall be
construed under the laws of the State of Tennessee.
16.08 Memorandum of Lease. Landlord and Tenant agree that a record
of this Agreement or any Lease may be recorded by either party in a memorandum
of lease approved by Landlord and Tenant with respect to each Leased Property.
40
<PAGE> 46
16.09 Waiver. No waiver by Landlord of any condition or covenant
herein contained, or of any breach of any such condition or covenant, shall be
held or take to be a waiver of any subsequent breach of such covenant or
condition, or to permit or excuse its continuance or any future breach thereof
or of any condition or covenant, nor shall the acceptance of Rent by Landlord
at any time when Tenant is in default in the performance or observance of any
condition or covenant herein be construed as a waiver of such default, or of
Landlord's right to terminate this Agreement or any Lease or exercise any other
remedy granted herein on account of such existing default.
16.10 Binding Effect. This Agreement and each Lease will be binding
upon and inure to the benefit of the heirs, successors, personal
representatives, and permitted assigns of Landlord and Tenant.
16.11 Authority. The persons executing this Agreement or any Lease
on behalf of Tenant warrant that (i) Tenant has the power and authority to
enter into this Agreement or such Lease; (ii) Tenant is qualified to do
business in the state in which the Leased Property is located; and (iii) they
are authorized to execute this Agreement and each Lease on behalf of Tenant.
Tenant shall, at the request of Landlord, provide evidence satisfactory to
Landlord confirming these representation.
16.12 Transfer of Permits, Etc. Upon the expiration or earlier
termination of the Term of any Lease (whether pursuant to the provisions of
this Agreement or of such Lease), Tenant shall, at the option of Landlord,
transfer to and relinquish to Landlord or Landlord's nominee and to cooperate
with Landlord or Landlords' nominee in connection with the processing by
Landlord or such nominee of all licenses, operating permits, and other
governmental authorization and all contracts, including without limitation, the
correctional or detention facility license, and any other contracts with
governmental or quasi-governmental entities which may be necessary or
appropriate for the operation by Landlord or such nominee of the subject Leased
Property for the purposes of operating a correctional or detention facility;
provided that the costs and expenses of any such transfer or the processing of
any such application shall be paid by Landlord or Landlord's nominee; and
provided further that any management agreement, facility operating agreement or
other agreement for the housing or detention of inmates shall be expressly
excluded. Any such permits, licenses, certificates and contracts which are
held in Landlord's name now or at the termination of such Lease shall remain
the property of Landlord. To the extent permitted by law, Tenant hereby
irrevocably appoints Landlord, its successors and assigns and any nominee or
nominees specifically designated by Landlord or any successor or assign as
Tenant's attorney-in-fact to execute, acknowledge, deliver and file all
documents appropriate to such transfer or processing of any such application on
behalf of Tenant; this power of attorney is coupled with an interest and is
irrevocable.
16.13 Modification. This Agreement and any Lease may only be
modified by a writing signed by both Landlord and Tenant.
16.14 Incorporation by Reference. All schedules and exhibits
referred to in this Agreement are incorporated into this Agreement, and all
schedules and exhibits referred to in any Lease (as well as the provisions of
this Agreement, except to the extent specifically excluded from or inconsistent
with the terms of such Lease) are incorporated into such Lease.
41
<PAGE> 47
16.15 No Merger. The surrender of this Agreement or of any Lease by
Tenant or the cancellation of this Agreement or of any Lease by agreement of
Tenant and Landlord or the termination of this Agreement or of any Lease on
account of Tenant's default will not work a merger, and will, at Landlord's
option, terminate any subleases or operate as an assignment to Landlord of any
subleases. Landlord's option under this paragraph will be exercised by notice
to Tenant and all known subtenants of any applicable Leased Property.
16.16 Laches. No delay or omission by either party hereto to
exercise any right or power accruing upon any noncompliance or default by the
other party with respect to any of the terms hereof shall impair any such right
or power or be construed to be a waiver thereof.
16.17 Waiver of Jury Trial. To the extent that there is any claim
by one party against the other that is not to be settled by arbitration as
provided in Article XIV hereof, Landlord and Tenant waive trial by jury in any
action, proceeding or counterclaim brought by either of them against the other
on all matters arising out of this Agreement or the use and occupancy of the
Leased Property (except claims for personal injury or property damage). If
Landlord commences any summary proceeding for nonpayment of Rent, Tenant will
not interpose, and waives the right to interpose, any counterclaim in any such
proceeding.
16.18 Permitted Contests. Tenant, on its own or on Landlord's
behalf (or in Landlord's name), but at Tenant's expense, may contest, by
appropriate legal proceedings conducted in good faith and with due diligence,
the amount or validity or application, in whole or in part, of any Imposition
or any legal requirement or insurance requirement or any lien, attachment,
levy, encumbrance, charge or claim provided that (i) in the case of an unpaid
Imposition, lien, attachment, levy, encumbrance, charge or claim, the
commencement and continuation of such proceedings shall suspend the collection
thereof from Landlord and from the Leased Property; (ii) neither the Leased
Property nor any Rent therefrom nor any part thereof or interest therein would
be in any immediate danger of being sold, forfeited, attached or lost; (iii) in
the case of a legal requirement, Landlord would not be in any immediate danger
of civil or criminal liability for failure to comply therewith pending the
outcome of such proceedings; (iv) in the event that any such contest shall
involve a sum of money or potential loss in excess of Fifty Thousand Dollars
($50,000.00), Tenant shall deliver to Landlord and its counsel an opinion of
Tenant's counsel to the effect set forth in clauses (i), (ii) and (iii), to the
extent applicable; (v) in the case of a legal requirement and/or an Imposition,
lien, encumbrance, or charge, Tenant shall give such reasonable security as may
be demanded by Landlord to insure ultimate payment of the same and to prevent
any sale or forfeiture of the affected Leased Property or the Rent by reason of
such nonpayment or noncompliance; provided, however, the provisions of this
Section shall not be construed to permit Tenant to contest the payment of Rent
(except as to contests concerning the method of computation or the basis of
levy of any Imposition or the basis for the assertion of any other claim) or
any other sums payable by Tenant to Landlord hereunder; (vi) in the case of an
insurance requirement, the coverage required by Article IV shall be maintained;
and (vii) if such contest be finally resolved against Landlord or Tenant,
Tenant shall, as Other Additional Rent due hereunder, promptly pay the amount
required to be paid, together with all interest and penalties accrued thereon,
or comply with the applicable legal requirement
42
<PAGE> 48
or insurance requirement. Landlord, at Tenant's expense, shall execute
and deliver to Tenant such authorizations and other documents as may be
reasonably required in any such contest, and, if reasonably requested by Tenant
or if Landlord so desires, Landlord shall join as a party therein. Tenant
hereby agrees to indemnify and save Landlord harmless from and against any
liability, cost or expense of any kind that may be imposed upon Landlord in
connection with any such contest and any loss resulting therefrom.
16.19 Construction of Lease. This Agreement and each of the Leases
for Leased Properties have been reviewed by Landlord and Tenant and their
respective professional advisors. Landlord, Tenant, and their advisors believe
that this Agreement and such Leases are the product of all their efforts, that
they express their agreement, and agree that they shall not be interpreted in
favor of either Landlord or Tenant or against either Landlord or Tenant merely
because of any party's efforts in preparing such documents.
16.20 Counterparts. This Agreement and each Lease may be executed in
duplicate counterparts, each of which shall be deemed an original hereof or
thereof.
16.21 Relationship of Landlord and Tenant. The relationship of
Landlord and Tenant is the relationship of lessor and lessee. Landlord and
Tenant are not partners, joint venturers, or associates.
16.22 Landlord's Status as a REIT. Tenant acknowledges that
Landlord intends to elect to be taxed as a real estate investment trust
("REIT") under the Code. Tenant shall not do anything which would adversely
affect Landlord's status as a REIT. Tenant hereby agrees to modifications of
this Agreement which do not materially adversely affect Tenant's rights and
liabilities if such modifications are required to retain or clarify Landlord's
status as a REIT.
16.23 Sale of Real Estate Assets. Notwithstanding any other
provision of this Agreement or of any Lease, Landlord shall not be required to
sell or transfer Leased Property, or any portion thereof, which is a real
estate asset as defined in Section 856(c)(6) of the Code, to Tenant if
Landlord's counsel advises Landlord that such sale or transfer may not be a
sale of property described in Section 857(b)(6)(C) of the Code. If Landlord
determines not to sell such property pursuant to the above sentence, Tenant's
right, if any, to purchase the Leased Property shall continue and be
exercisable at such time as the transaction, upon the advice of Landlord's
counsel, would be a sale of property described in Section 857(b)(6)(C) of the
Code.
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<PAGE> 49
IN WITNESS WHEREOF, the parties hereto have executed this Lease or
caused the same to be executed by their respective duly authorized officers as
of the date first set forth above.
CCA PRISON REALTY TRUST
By:
------------------------------
Title:
---------------------------
CORRECTIONS CORPORATION OF AMERICA
By:
------------------------------
Title:
---------------------------
44
<PAGE> 50
SCHEDULE A
The Facilities
<TABLE>
<CAPTION>
Location
Facility Name (City, State)
------------- -------------
<S> <C>
Bridgeport Pre-Parole Transfer Facility Bridgeport, Texas
Central Arizona Detention Center Florence, Arizona
Houston Processing Center Houston, Texas
Laredo Processing Center Laredo, Texas
Leavenworth Detention Center Leavenworth, Texas
Mineral Wells Pre-Parole Transfer Facility Mineral Wells, Texas
West Tennessee Detention Facility Mason, Tennessee
Eloy Detention Facility Eloy, Arizona
T. Don Hutto Correctional Facility Taylor, Texas
</TABLE>
<PAGE> 51
SCHEDULE B
Personal Property
<PAGE> 52
SCHEDULE C
[Tenant's Proprietary Property]
<PAGE> 1
EXHIBIT 10.3
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") dated as of the ______ day of
____________________________________, 1997, by and between CCA PRISON REALTY
TRUST, a Maryland real estate investment trust ("Landlord") and CORRECTIONS
CORPORATION OF AMERICA, a Delaware corporation ("Tenant").
RECITALS
WHEREAS, Tenant has concurrently conveyed to Landlord the property
described in Exhibit A hereto, and Landlord and Tenant desire that Landlord
lease such property back to Tenant; and
WHEREAS, Landlord and Tenant have entered into a Master Agreement to
Lease of even date herewith (the "Master Agreement") which sets forth certain
agreements of the parties with respect to the lease of various properties
including the property that is the subject of this Lease;
NOW, THEREFORE, in consideration of the premises and of their
respective agreements and undertakings herein, Landlord and Tenant agree as
follows:
ARTICLE I
PREMISES AND TERM
1.1 Leased Property. Landlord hereby leases to Tenant and Tenant
leases from Landlord the Land located in _______________, described in Exhibit
A hereto, and all Improvements, Fixtures, and Personal Property thereon or
thereto (each as defined in the Master Agreement, and, together with said
Land, the "Leased Property"); such Leased Property collectively known and
described at the date hereof as [Name of Correctional or Detention Facility];
SUBJECT, HOWEVER, to the lien of the mortgage debt described in
Exhibit B hereto, if any, and to all easements, liens, encumbrances,
restrictions, agreements, and other title matters existing as of the date
hereof and listed in Exhibit C hereto (collectively "Permitted Exceptions").
1.2 Term. The initial term (the "Fixed Term") of the Lease shall
be for a fixed term of _______________________ (______) years commencing on
__________________________, 1997 (the "Commencement Date") and expiring on
_______________________, 20____ (the "Expiration Date"). The Term of this
Lease may be renewed on the mutual agreement of Landlord and Tenant as follows:
(i) provided that Tenant gives Landlord notice on or before the date which is
six (6) months prior to the Expiration Date, upon the mutual agreement of
Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5)
year term (the "Extended Term") on the same terms and provisions (other than
with respect to renewal) as the Fixed Term, as set forth in the Lease; (ii)
provided that Tenant gives Landlord notice on or before the date which is six
(6) months prior to the expiration of the Extended Term, upon the mutual
agreement of Landlord and Tenant, the Lease
<PAGE> 2
shall be renewed for one (1) additional five (5) year term (the "Second
Extended Term") on the same terms and provisions (other than with respect to
renewal) as the Fixed Term, as set forth in the Lease; and (iii) provided that
Tenant gives Landlord notice on or before the date which is six (6) months
prior to the expiration of the Second Extended Term, upon the mutual agreement
of Landlord and Tenant, the Lease shall be renewed for one (1) additional five
(5) year term (the "Third Extended Term") on the same terms and provisions
(other than with respect to renewal) as the Fixed Term, as set forth in the
Lease. Tenant's right to so extend the Term of the Lease is conditioned on
Landlord's prior approval of the Extended Term, or Second Extended Term, and
Third Extended Term, as the case may be. The term "Term" used in this
Agreement means the Fixed Term, Extended Term, Second Extended Term and Third
Extended Term, as appropriate. The term "Lease Year" means each twelve (12)
month period during the Term commencing on January 1 and ending on December 31,
except the first Lease Year of each Lease shall be the period from the
Commencement Date through the following December 31, and the last Lease Year
shall end on the date of termination of the Lease if a day other than December
31.
ARTICLE II
RENT
2.1 Base Rent. Tenant shall pay Landlord Base Rent for the Term
in advance in consecutive monthly installments payable on the first day of each
month during the Term, the Extended Term, Second Extended Term and the Third
Extended Term, commencing on the Commencement Date provided for in Section 1.03
of the Master Agreement, in accordance with the Base Rent Schedule attached
hereto as Exhibit B.
2.2 Additional Rent. The Base Rent shall be subject to such
increases over the Term as determined pursuant to Section 2.02 of the Master
Agreement.
2.3 Other Additional Rent. Tenant shall also pay all Other
Additional Rent with respect to the Leased Property, as set forth in the Master
Agreement.
ARTICLE III
OTHER TERMS AND CONDITIONS
3.1 Master Agreement Incorporated Herein. All provisions of the
Master Agreement (except any provisions expressly therein not to be a part of
an individual lease of leased property) are hereby incorporated in and are a
part of this Lease of the Leased Property.
3.2 Recordation. At the request of Landlord or Tenant, a short
form memorandum of this Lease may be recorded in the real estate records of any
county which Landlord or Tenant deems appropriate in order to provide legal
notice of the existence hereof.
2
<PAGE> 3
IN WITNESS WHEREOF, the Landlord and the Tenant have executed this
Lease or caused the same to be executed by their respective duly authorized
officers as of the date first set forth above.
CCA PRISON REALTY TRUST
By:
--------------------------------
Title:
-----------------------------
CORRECTIONS CORPORATION OF AMERICA
By:
--------------------------------
Title:
-----------------------------
3
<PAGE> 4
EXHIBIT A
[Legal Description of Leased Property]
<PAGE> 5
EXHIBIT B
Base Rent Schedule
(Property:____________________________________________________________________)
Tenant will pay to Landlord annual Base Rent of______________________
payable in equal monthly instalments beginning on the Commencement Date of:
_________________________
_________________________
_________________________
Base Rent for the Extended Term, Second Extended Term and Third
Extended Term shall be equal to the fair market rental value of the Leased
Property as of the respective commencement dates thereof.
<PAGE> 6
EXHIBIT C
Mortgage Debt
(Property:__________________________________________________________________)
This property is subject to the following Mortgage Debt: (or
subsequent Mortgage Debt)
<PAGE> 7
EXHIBIT D
Permitted Exceptions
(Property:__________________________________________________________________)
<PAGE> 1
EXHIBIT 10.4
RIGHT TO PURCHASE AGREEMENT
THIS RIGHT TO PURCHASE AGREEMENT (the "Agreement"), dated as of
__________, 1997,is made and entered into by and between CORRECTIONS
CORPORATION OF AMERICA, a Delaware corporation (hereinafter referred to as
"CCA"), and CCA PRISON REALTY TRUST, a Maryland real estate investment trust
(hereinafter referred to as the "Company").
RECITALS
WHEREAS, the Company has as of the date herewith acquired from CCA the
property described in Exhibit A attached hereto, consisting of certain land,
improvements, appurtenances and fixtures thereon or thereto, which are operated
by CCA as correctional or detention facilities (hereinafter referred to as the
"Leased Facilities") and the Company has an option to acquire and lease back to
CCA certain other correctional or detention facilities (the "Option
Facilities") pursuant to certain Option Agreements of even date herewith (the
"Option Agreements"); and
WHEREAS, in addition to the Leased Facilities, CCA has or will have an
ownership interest in certain other existing correctional or detention
facilities and is developing or intending to develop or acquire additional
correctional and detention facilities in the future; and
WHEREAS, CCA and the Company have entered into that certain
Noncompetition Agreement, of even date herewith (the "Noncompetition
Agreement") pursuant to which the Company is prohibited from undertaking
certain competition activities within a prescribed geographic area as more
particularly set forth in the Noncompetition Agreement (the "Noncompetition
Area"); and
WHEREAS, CCA desires to grant to the Company herewith a right of first
refusal under certain circumstances to purchase all Existing Facilities and
Future Facilities pursuant to the terms of this Agreement; and
WHEREAS, CCA further desires to grant the Company herewith a right of
first refusal to finance CCA's future acquisition of certain facilities,
pursuant to the terms of this Agreement; and
WHEREAS, CCA desires to grant to the Company herewith an option under
certain circumstances to purchase Future Facilities;
NOW, THEREFORE, in consideration of the sum of Ten Dollars ($10.00),
the mutual covenants and agreements contained herein, in the Noncompetition
Agreement and in the Option Agreements, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
CCA and the Company agree as follows:
1. Right of First Refusal (Purchase). The Company shall have a
right of first refusal to purchase (hereinafter referred to as the "Purchase
Refusal Right") any correctional or detention facility owned by CCA or any of
its Affiliates (as defined herein), including the Option Facilities
<PAGE> 2
(hereinafter referred to as the "Existing Facilities") and any correctional or
detention facility which is acquired or developed in the future, and owned, by
CCA or any of its Affiliates (hereinafter referred to as the "Future
Facilities"), subject to the terms and conditions hereof. If, following the
date hereof, CCA shall receive a bona fide third party offer to Transfer any
Existing Facilities or Future Facilities, then, prior to accepting such third
party offer, CCA shall send written notice and a copy thereof to the Company
("CCA's Sale Notice"). The Company shall have ninety (90) days after receipt
of CCA's Sale Notice to exercise the Company's Purchase Refusal Right, by
giving CCA written notice thereof. Failure of the Company to exercise the
Purchase Refusal Right within such time period set forth above shall be deemed
to extinguish the Purchase Refusal Right for a period of one hundred eighty
(180) days. Thereafter, prior to the expiration of such one hundred eighty
(180) days, CCA may Transfer such Existing Facility or Future Facility provided
however, that the Transfer of the Existing Facility or Future Facility is at a
price equal to or greater than the price contained in CCA's Sale Notice, and
otherwise consistent in all material respects with the terms and conditions set
forth in CCA's Sale Notice. The Company's Purchase Refusal Right shall revive
in the event that CCA fails to Transfer the Existing Facility or Future
Facility within said one hundred eighty (180) days. In the event that the
Company elects to exercise the Purchase Refusal Right and to acquire the
Existing Facility or Future Facility thereby, the Company shall acquire such
Existing Facility or Future Facility on the same terms and conditions and
subject to all time periods and other limitations as provided in CCA's Sale
Notice (provided, however, the Company shall in all events have not less than
ninety (90) days to close its acquisition of the Existing Facility or Future
Facility following its written notice exercising its Purchase Refusal Right).
Notwithstanding the foregoing provisions, the Purchase Refusal Right
shall not be applicable to any Transfer of an Existing Facility or a Future
Facility to any Affiliate of CCA.
2. Right of First Refusal (Financing). The Company shall have a
right of first refusal to provide CCA with first mortgage financing for CCA's
costs of acquiring, developing or financing any correctional or detention
facility (the " Financed Facilities"), subject to the terms and conditions
hereof. If, following the date hereof, CCA determines to acquire, develop or
finance any Financed Facility and receives a proposal or commitment from a
third party lender to provide financing for at least ninety percent (90%) of
the costs of such acquisition or development (or 90% of the value of the
Financed Facility in the case of a financing of a facility not being acquired
or developed) secured by a first mortgage on such Financed Facility, CCA shall
send written notice and a copy thereof to the Company ("Financing Notice") and
further setting forth in reasonable detail the anticipated terms and conditions
of such acquisition, development or financing and such other information
regarding the Financed Facility as is reasonably available to CCA. If the
Company, within thirty (30) days after receipt of such Financing Notice,
provides a financing commitment on terms substantially similar or more
favorable to CCA than that set forth in such Financing Notice (the "Financing
Commitment"), CCA shall accept the Financing Commitment and acquire, develop or
finance the subject Financed Facility, and the financing shall proceed to close
in accordance with terms of the Financing Commitment. If the Company does not
provide a Financing Commitment, CCA may proceed to acquire, develop or finance
the Financed Facility and may obtain such alternative first mortgage financing
for such acquisition, development or financing as it shall desire provided, the
terms,
2
<PAGE> 3
conditions and costs of any such alternative first mortgage financing shall be
no less favorable to CCA than those contained in such Financing Notice, unless
CCA shall have again presented the Company with a Financing Notice and complied
with the provisions of this Section 2 with respect thereto.
3. Option. The Company shall have an option to acquire any
Future Facility for a period of three (3) years following the date CCA first
receives inmates in such Future Facility ("Service Commencement Date"). The
price at which Company may acquire such Future Facility shall be the fair
market value of the Future Facility, as reasonably and mutually determined by
Company and CCA, provided, Company and CCA agree that for the first two (2)
years following the Service Commencement Date the fair market value of any such
Future Facility shall be deemed to be equal to CCA's actual costs and expenses
to acquire, develop, design, construct and equip such Future Facility ("CCA's
Cost"), as reflected on the books of CCA, plus five percent (5%) of CCA's Cost.
Company's exercise of such option shall require Company to acquire such Future
Facility on such terms and conditions as Company and CCA shall reasonably
agree, which shall be generally consistent with the terms and conditions of
Company's initial acquisition of the Leased Facilities on the date hereof.
Upon such acquisition, Company shall lease such Future Facility to CCA on the
same terms and conditions as the Leased Facilities are leased to CCA, and
Company and CCA shall execute a new lease, or an amendment to the existing
lease, with respect thereto (any such new lease or amendment to an existing
lease shall constitute an "operating lease" for all tax and accounting
purposes). In such case, the Base Rent shall be the fair market rental value
of the Future Facility, as reasonably and mutually determined by Company and
CCA.
4. Definitions. An "Affiliate" as used herein shall mean any
Person directly or indirectly controlling, controlled by, or under common
control with that Person.
A "Person" as used herein shall mean and include natural persons,
corporations, limited partnerships, general partnerships, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, Indian tribes or other organizations,
whether or not legal entities, and governments and agencies and political
subdivisions thereof.
A "Transfer" is any direct or indirect sale, conveyance or other
disposition, including any transfer of a controlling ownership interest in any
owning Person, and including any lease with a term in excess of five (5) years.
5. Term of the Agreement. This Agreement shall expire on the
earlier to occur of (i) the expiration or termination of all of the Leases
relating to any Existing Facilities or Future Facilities or (ii) fifteen (15)
years from the date hereof.
6. Remedies. In the event CCA breaches this Agreement, the
Company shall have all rights and remedies available at law or in equity and
the Company shall be entitled, and is expressly and irrevocably authorized by
CCA, to demand and obtain specific performance, including, without limitation,
temporary and permanent injunctive relief, and all other appropriate and
equitable relief
3
<PAGE> 4
against CCA in order to enforce against CCA any of the covenants and agreements
contained in this Agreement and/or to prevent any breach or threat of breach by
CCA of the covenants and agreements of CCA contained in this Agreement. Should
the Company prevail in any action to enforce this Agreement, the Company shall
be entitled to recover all of its costs and expenses relating thereto,
including reasonable attorney's fees and expenses.
7. Notices. CCA and the Company hereby agree that all notices,
demands, requests and consents (hereinafter "Notices") required to be given
pursuant to the terms of this Agreement shall be in writing and shall be
addressed as follows:
If to CCA: Corrections Corporation of America 102
Woodmont Boulevard, Suite 800
Nashville, Tennessee 37205
Attention: Darrell K. Massengale
With a copy to: Stokes & Bartholomew, P.A.
424 Church Street, Suite 2800
Nashville, Tennessee 37219
Attention: Elizabeth E. Moore
If to the Company: CCA Prison Realty Trust
2200 Abbott Martin Road
Nashville, Tennessee 37215
Attention: Michael W. Devlin
With a copy to: Sherrard & Roe, PLC
424 Church Street, Suite 2000
Nashville, Tennessee 37219
Attn: Kim A. Brown
and shall be served by (i) personal delivery, (ii) certified mail, return
receipt requested, postage prepaid, or (iii) nationally recognized overnight
courier. All Notices shall be deemed to be given upon the earlier of actual
receipt or three (3) days after mailing, or one (1) business day after deposit
with the overnight courier. Any Notices meeting the requirements of this
Section shall be effective, regardless of whether or not actually received.
CCA or the Company may change its notice address at any time by giving the
other party Notice of such change.
8 . Captions and Headings. The captions and headings are inserted
only as a matter of convenience and for reference and in no way define, limit
or describe the scope of this Agreement or the intent of any provision hereof.
9. Governing Law. This Agreement shall be construed under the
laws of the State of Tennessee.
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<PAGE> 5
10. Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, legal representatives, successors, and assigns.
11. Time is of the Essence. With respect to all provisions of
this Agreement, time is of the essence.
12. Recordation. At the option of CCA or the Company, this
Agreement, or a memorandum hereof, may be recorded in the real estate records
of any county which Landlord or Tenant deems appropriate in order to provide
legal notice of the existence hereof.
CORRECTIONS CORPORATION OF AMERICA
By:
------------------------------
Title:
---------------------------
CCA PRISON REALTY TRUST
By:
------------------------------
Title:
---------------------------
5
<PAGE> 6
STATE OF
-------------------------
COUNTY OF
------------------------
Before me, ____________________________________________, a Notary
Public of the State and County aforesaid, personally appeared ______________
_____________________________________, with whom I am personally acquainted (or
proved to me on the basis of satisfactory evidence), and who, upon oath,
acknowledged ______self to be _________________________________ of CORRECTIONS
CORPORATION OF AMERICA, the within named bargainor, a Delaware corporation, and
that ______ as such ______________________________________ being authorized so
to do, executed the foregoing instrument for the purposes therein contained, by
signing the name of the corporation by _______self as ________________________
________________________________________________.
WITNESS my hand and official seal at ________________________________
__________________________________, __________________________________________
County, _______________________________, this _________ day of _______________
_____________________________, 1997.
---------------------------------------
Notary Public
My Commission Expires:
-----------------
STATE OF
--------------------------
COUNTY OF
------------------------
Before me,____________________________________________, a Notary
Public of the State and County aforesaid, personally appeared ________________
_____________________________________, with whom I am personally acquainted (or
proved to me on the basis of satisfactory evidence), and who, upon oath,
acknowledged ______self to be _________________________________ of CCA PRISON
REALTY TRUST, the within named bargainor, a Maryland real estate investment
trust, and that ______ as such _____________________________________ being
authorized so to do, executed the foregoing instrument for the purposes therein
contained, by signing the name of the real estate investment trust by _________
_______self as _______________________________________________.
WITNESS my hand and official seal at _________________________________
__________________________________, ___________________________________________
County, _______________________________, this _________ day of ________________
_____________________________, 1997.
--------------------------------------
Notary Public
My Commission Expires:
----------------
6
<PAGE> 7
EXHIBIT A
The Leased Facilities
Location
Facility Name (City, State)
- ------------- -------------
Bridgeport Pre-Parole Transfer Facility Bridgeport, Texas
Central Arizona Detention Center Florence, Arizona
Houston Processing Center Houston, Texas
Laredo Processing Center Laredo, Texas
Leavenworth Detention Center Leavenworth, Texas
Mineral Wells Pre-Parole Transfer Facility Mineral Wells, Texas
West Tennessee Detention Facility Mason, Tennessee
T. Don Hutto Correctional Facility Taylor, Texas
Eloy Detention Facility Eloy, Arizona
<PAGE> 1
EXHIBIT 10.5
TRADE NAME USE AGREEMENT
THIS AGREEMENT (the "Agreement") dated this ______ day of _________,
1997, by and among Corrections Corporation of America ("Grantor"), a Delaware
corporation, and CCA Prison Realty Trust ("Grantee"), a Maryland real estate
investment trust.
W I T N E S S E T H:
WHEREAS, Grantor is the sole and exclusive owner of the corporate name
Corrections Corporation of America and its abbreviation "CCA" (the Trade Name).
NOW, THEREFORE, in consideration of the premises and the mutual
promises and undertakings herein contained, and for other good and valuable
consideration, the parties agree as follows:
1. Grant of Trade Name by Grantor. Grantor grants to Grantee the
non-exclusive, non-transferrable right to use the Trade Name in its corporate
name as follows: CCA Prison Realty Trust, subject to the provisions of this
Agreement.
2. Term. This Agreement shall commence on the date above written
and terminate on the date which Grantee ceases to own any correctional or
detention facility managed by Grantor (the "Term").
3. Termination. This Agreement may be terminated upon ten (10)
days' written notice from Grantor to Grantee upon occurrence of any of the
following events:
(a) A change in control of Grantee;
(b) Grantee goes into liquidation or bankruptcy or has a receiver
or trustee appointed to administer either its property or affairs, or makes a
general assignment of its property for the benefit of creditors or in any other
manner takes advantage of the laws of bankruptcy or insolvency or the like.
4. Reservation of Rights. Except for the limited rights herein
expressly granted to Grantee, all rights in the Trade Name are reserved to
Grantor throughout the world for the sale and exclusive use or other
disposition by Grantor at anytime, and from time to time, without any
obligation to Grantee.
<PAGE> 2
5. Maintenance of Quality Standards. Grantee agrees that the
nature and quality of: all services rendered by Grantee hereunder; all goods
sold by Grantee hereunder; and all related advertising, promotional, and other
related uses of the Trade Name by Grantee shall conform to standards reasonably
set by Grantor. Grantee agrees to cooperate with Grantor in facilitating
Grantor's control of such nature and quality, and to supply Grantor with
specimens of all uses of the Trade Name upon request.
6. Transfer Prohibited. The Trade Name granted hereunder shall
not be assigned, sublicensed, or otherwise transferred without the prior
written consent of Grantor. In the event of a prohibited transfer, Grantor
shall have the right to terminate this Agreement forthwith by written notice to
Grantee.
7. Rights Upon Termination. Upon the termination (by expiration
or otherwise) of this Agreement, for any reason, all rights granted to Grantee
hereunder shall automatically revert to Grantor for its use or disposition.
Upon termination, Grantee shall promptly cease use of the Trade Name, and shall
promptly deliver to Grantor all materials previously supplied by Grantor to
Grantee and all copies thereof, in whole or in part. At Grantor's option,
Grantor may, in lieu of return, require that Grantee destroy said materials and
copies and provide to Grantor satisfactory evidence of destruction. Grantor
shall not be liable to Grantee for damages of any kind on account of the
termination or expiration of this Agreement. Without limiting the foregoing,
upon termination or expiration of this Agreement for any reason, Grantor shall
have no liability for reimbursement or for damages for loss of goodwill, or on
account of any expenditures, investments, leases, or commitments made by
Grantee. Grantee acknowledges and agrees that Grantee has no expectation and
has received no assurances that its business relationship with Grantor will
continue beyond the stated term of this Agreement or its earlier termination,
that any investment by Grantee in the will be recovered or recouped, or that
Grantee shall obtain any anticipated amount of profits by virtue of this
Agreement.
8. No Franchise or Joint Venture. The parties expressly
acknowledge that this Agreement shall not be deemed to create an agency,
partnership, franchise, employment, or joint venture relationship between
Grantor and Grantee. Nothing in this Agreement shall be construed as a grant
of authority to Grantee to waive any right, incur any obligation or liability,
enter into any agreement, grant any release or otherwise purport to act in the
name of Grantor.
9. Indemnification.
9.1 The Grantee shall indemnify and hold harmless
Grantor, its affiliates, directors, officers, employees, representatives,
agents, successors and assigns from and against any and all losses, damages,
costs and expenses, including attorney's fees, resulting from, arising out of
Grantee's breach of the promises, covenants, representations and warranties
made by it herein.
9.2 The Grantor shall indemnify and hold harmless
Grantee, its affiliates, directors, officers, employees, representatives,
agents, successors, and assigns from and against any and all losses, damages,
costs and expenses, including attorney's fees, resulting from, arising out of
Grantor's breach of the promises, covenants, representations and warranties
made by it herein.
2
<PAGE> 3
10. Representations and Warranties.
10.1 Grantee hereby represents and warrants that (a) it is a
real estate investment trust duly organized and validly existing under the laws
of Maryland; (b) the execution and delivery by the Grantee of this Agreement,
the performance by Grantee of all the terms and conditions thereof to be
performed by it and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary action, and no other act or approval
of any person or entity is required to authorize such execution, delivery, and
performance; (c) the Agreement constitutes a valid and binding obligation of
Grantee, enforceable in accordance with its terms; (d) this Agreement and the
execution and delivery thereof by Grantee, does not, and the fulfillment and
compliance with the terms and conditions hereof and the consummation of the
transactions contemplated hereby will not, (i) conflict with any of, or require
the consent of any person or entity under, the terms, conditions or provisions
of the organizational documents of Grantee, (ii) violate any provision of, or
require any consent, authorization or approval under, any law or administrative
regulation or any judicial, administrative or arbitration order, award,
judgment, writ, injunction or decree applicable to Grantee, or (iii) conflict
with, result in a breach of, or constitute a default under, any material
agreement or obligation to which Grantee is a party.
10.2 Grantor hereby represents and warrants that (a) it is a
corporation duly organized and validly existing under the laws of Delaware; (b)
the execution and delivery by the Grantor of this Agreement, the performance by
Grantor of all the terms and conditions thereof to be performed by it and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary action, and no other act or approval of any person or entity
is required to authorize such execution, delivery, and performance; (c) the
Agreement constitutes a valid and binding obligation of Grantor, enforceable in
accordance with its terms; (d) this Agreement and the execution and delivery
thereof by Grantor, does not, and the fulfillment and compliance with the terms
and conditions hereof and the consummation of the transactions contemplated
hereby will not, (i) conflict with any of, or require the consent of any person
or entity under, the terms, conditions or provisions of the organizational
documents of Grantor, (ii) violate any provision of, or require any consent,
authorization or approval under, any law or administrative regulation or any
judicial, administrative or arbitration order, award, judgment, writ,
injunction or decree applicable to Grantor, or (iii) conflict with, result in a
breach of, or constitute a default under, any material agreement or obligation
to which Grantor is a party; (e) to the best of Grantor's knowledge, it is the
owner of the Trade Name and has the right to grant the rights to use the Trade
Name to Grantee under the terms of this Agreement; and (f) it has not been
subject to any third party claims for infringment due to the use of the Trade
Name.
3
<PAGE> 4
for infringement due to the use of the Trade Name.
11. Ownership; Form of Use. Grantee acknowledges that Grantor
owns all right, title, and interest in and to the Trade Name, agrees that it
will do nothing inconsistent with such ownership. Grantee agrees that nothing
in this Agreement shall give Grantee any right, title, or interest in the Trade
Name other than the right to use it in accordance with this Agreement, and
Grantee agrees that it will not attack the title of Grantor to the Trade Name
or attack the validity of this Agreement. Grantee agrees to use the Trade Name
only in the form and manner as prescribed from time to time by Grantor.
12. Waiver; Modification. No wavier or modification of any of the
terms of this Agreement shall be valid unless in writing. No waiver by either
party of a breach hereof or a default hereunder shall be deemed a waiver by
such party of a subsequent breach or default of like or similar nature.
13. Separability. If any provision in this Agreement contravenes
or is otherwise invalid under the law of any country or subdivision thereof,
then such provision insofar as such country or subdivision is concerned shall
be deemed eliminated from this Agreement and the Agreement shall, as so
modified, remain valid and binding on the parties hereto and in full force and
effect.
14. Disclaimer of Warranties. EXCEPT AS MAY BE EXPRESSLY PROVIDED
IN THIS AGREEMENT, GRANTOR MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, IN RESPECT OF THE TRADE NAME, INCLUDING, WITHOUT LIMITATION,
WARRANTIES OF NONINFRINGEMENT OR OF RESULTS TO BE OBTAINED FROM USE THEREOF.
15. Negation of Consequential Damages. IN NO EVENT SHALL GRANTOR
BE LIABLE FOR ANY CONSEQUENTIAL OR INCIDENTAL DAMAGES WHATSOEVER HEREUNDER,
REGARDLESS OF WHETHER GRANTOR HAS BEEN INFORMED OF THE POSSIBILITY OF SUCH
DAMAGES.
16. Governmental Licenses, Permits and Approvals. Grantee, at its
expense, shall be responsible for obtaining and maintaining all licenses,
permits, approvals, authorizations, and clearances which are required by
governmental authorities with respect to this Agreement, and for compliance
with any requirements of governmental authorities for the registration or
recordation of this Agreement and for making any payments required in
connection therewith. Grantee shall furnish to Grantor, promptly upon
Grantor's request, written evidence from such governmental authorities of the
due issuance and continuing validity of any such licenses, permits, clearances,
authorizations, approvals, registration or recordation.
4
<PAGE> 5
17. Notices.
17.1 Notices and other communications required or
permitted to the given under this Agreement shall be in writing and delivered
by hand or overnight delivery, or placed in certified or registered mail,
return receipt requested, at the addresses specified below or such other
address as either party may, by notice to the other, designate:
If to Grantor: Corrections Corporation of America
102 Woodmont Blvd., Suite 800
Nashville, Tennessee 37205
Attn: Doctor R. Crants
with a copy to: Elizabeth E. Moore, Esq.
Stokes & Bartholomew, P.A.
424 Church Street, Suite 2800
Nashville, Tennessee 37219
If to Grantee: CCA Prison Realty Trust
2200 Abbott Martin Road, Suite 201
Nashville, Tennessee 37215
Attn: D.Robert Crants, III
17.2 Notices and other communications shall be deemed
given when delivered by hand or overnight delivery to the proper address or the
date of the return receipt, as provided above.
18. Governing Laws. This Agreement shall be construed in
accordance with the laws of Tennessee, excluding the choice of law provisions
thereof. The parties hereby submit to the jurisdiction of the courts of
Tennessee in respect to all disputes arising out of or in connection with this
Agreement.
19. Enforcement. It is expressly understood, acknowledged, and
agreed by Grantee that (a) the restrictions contained in this Agreement
represent a reasonable and necessary protection of the legitimate interests of
Grantor and its affiliates, and that Grantee's failure to observe and comply
with the covenants and agreements in this Agreement will cause irreparable harm
to Grantor and its affiliates; (b) it is and will continue to be difficult to
ascertain the nature, scope, and extent of the harm; and (c) a remedy at law
for such failure by Grantee will be inadequate. Accordingly, it is the
intention of the parties that, in addition to any other rights and remedies
which Grantor and its affiliates may have in the event of any breach or
threatened breach of the Agreement, Grantor and its affiliates shall be
entitled, and are expressly and irrevocably authorized by Grantee, to demand
and obtain specific performance, including, without limitation, temporary and
permanent injunctive relief and all other appropriate equitable relief against
Grantee in order to enforce against Grantee the covenants and agreements
contained in this Agreement. Such right to obtain injunctive relief may be
exercised concurrently with, prior to, after, or in lieu of, any other rights
resulting from any such breach or threatened breach. Grantee shall account for
and pay over to Grantor all compensation, profits, and other benefits, after
taxes, enuring to Grantee's benefit, which are derived or received by Grantee
or any person or business entity controlled by Grantee resulting from any
action or transaction constituting breach of the Agreement.
5
<PAGE> 6
20. Entire Agreement. This Agreement contains the entire
understanding of the parties. There are no representations, warranties,
promises, covenants, or undertakings other than those hereinabove contained.
IN WITNESS WHEREOF, the parties hereto have caused these presents to
be signed by their duly authorized officers and their respective corporate
seals to be hereunto affixed on the date set forth above.
GRANTOR:
CORRECTIONS CORPORATION OF AMERICA
By:
----------------------------------
Its:
---------------------------------
GRANTEE:
CCA PRISON REALTY TRUST
By:
----------------------------------
Its:
---------------------------------
6
<PAGE> 1
EXHIBIT 10.6
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (the "Agreement"), dated as of
___________________, 1997, is by and between CORRECTIONS CORPORATION OF AMERICA
(the "Corporation"), a Delaware corporation, and CCA PRISON REALTY TRUST ("CCA
Prison Realty Trust"), a Maryland real estate investment trust.
W I T N E S S E T H:
WHEREAS, the Corporation has agreed (i) to sell certain of its
correctional and detention facilities (the "Facilities"), on the terms and
conditions set forth in that certain Agreement of Sale and Purchase, of even
date herewith, by and between the Corporation and CCA Prison Realty Trust (the
"Facility Purchase Agreement"), and (ii) to grant options to purchase certain
of its other correctional and detention facilities (the "Option Facilities")
pursuant to the terms and conditions contained in those certain Option
Agreements, of even date herewith, by and between the Corporation and CCA
Prison Realty Trust (collectively, the "Option Agreements") (the Facility
Purchase Agreement and the Option Agreements are sometimes collectively
referred to herein as the "Agreements"); and
WHEREAS, concurrent with the acquisition of the Facilities by CCA
Prison Realty Trust, CCA Prison Realty Trust has agreed to lease the Facilities
to the Corporation pursuant to the terms of that certain Master Agreement to
Lease, of even date herewith, by and between CCA Prison Realty Trust, as
landlord, and the Corporation, as tenant (the "Master Lease"), and those
certain Lease Agreements, of even date herewith, by and between CCA Prison
Realty Trust and the Corporation and, as provided in the Option Agreements, CCA
Prison Realty Trust has agreed to lease the Option Facilities to the
Corporation pursuant to the terms of the Master Lease and Lease Agreements to
be entered into by and between CCA Prison Realty Trust and the Corporation (the
Master Lease and such Lease Agreements for the Facilities and the Option
Facilities are sometimes collectively referred to herein as the "Leases". The
term "Leases", as used herein, shall also be deemed to refer to and include any
future leases of correctional or detention facilities between CCA Prison Realty
Trust and the Corporation.); and
WHEREAS, as a result of said Agreements and Leases, CCA Prison Realty
Trust has (i) become the owner of certain assets of the Corporation and the
landlord to Corporation, and (ii) gained knowledge of the Corporation
concerning its business affairs and its unique business methods. The parties
hereto acknowledge that the use by CCA Prison Realty Trust of this information
in competing with or aiding others in competing with the Corporation could have
a detrimental effect on future operations of the Corporation;
NOW, THEREFORE, in consideration of the agreement by the Corporation
to enter into the Agreements and Leases, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, CCA
Prison Realty Trust has agreed to restrict its ability to compete with the
Corporation as herein provided.
<PAGE> 2
1. Noncompetition Agreement. CCA Prison Realty Trust absolutely
and unconditionally covenants and agrees with the Corporation that, from the
period commencing on the date of this Agreement and continuing thereafter until
the date on which all of the Leases shall have either expired or terminated,
CCA Prison Realty Trust will not, either directly or indirectly, solely or
jointly with any other person, persons or entity, as a consultant or advisor
(whether or not engaged in business for profit), or as a partner, shareholder,
joint venturer, investor, lender, financier, or in any other capacity, acquire
or finance a Competing Prison Facility (as defined below), without CCA's prior
written consent, which may be given or withheld in CCA's sole discretion.
"Competing Prison Facility" shall mean any correctional or detention facility
located within a 300-mile radius of a CCA Facility (as defined below) if such
Competing Prison Facility houses inmates from one or more of the same
contracting entities as the CCA Facility. "CCA Facility" shall mean all
facilities now or hereafter owned, managed or leased by the Corporation,
including, but not limited to, those facilities identified on Exhibit A hereto,
as such exhibit may be amended from time to time. The parties hereto
acknowledge that Exhibit A shall be automatically amended to include any
correctional or detention facility now or hereafter owned, managed or leased by
the Corporation, including, but not limited to, any correctional or detention
facility now or hereafter leased to the Corporation by CCA Prison Realty Trust
or financed for the Corporation by CCA Prison Realty Trust. Notwithstanding
the foregoing, nothing herein shall prevent CCA Prison Realty Trust from
engaging in the real estate investment trust business in any location for other
types of facilities other than a Competing Prison Facility.
2. Covenant Not to Disclose. CCA Prison Realty Trust agrees
that, by virtue of the relationship of trust and confidence between CCA Prison
Realty Trust and the Corporation, it possesses and will possess certain data
and knowledge of operations of the Corporation which are proprietary in nature
and confidential. CCA Prison Realty Trust covenants and agrees that it will
not knowingly, at any time, directly or indirectly, for whatever reason,
without CCA's prior written consent, which may be given or withheld in CCA's
sole discretion, reveal, divulge or make known to any person or entity, any
confidential or proprietary record, data, trade secret, pricing policy, bid
amount, pricing strategy, personnel policy, method or practice of obtaining or
doing business, or any other confidential or proprietary information whatever
(the "Confidential Information"), whether or not obtained with the knowledge
and permission of the Corporation and whether or not developed, devised or
otherwise created in whole or in part by the efforts of CCA Prison Realty
Trust, nor shall CCA Prison Realty Trust use such Confidential Information for
its own account in violation of the noncompetition covenants set forth in
Paragraph 1 hereof. Confidential Information shall not include any information
generally available to the public other than as a result of a disclosure of
such information by CCA Prison Realty Trust. Notwithstanding anything to the
contrary provided herein, a disclosure of Confidential Information by CCA
Prison Realty Trust will not be considered a violation of this Agreement in the
event such disclosure is involuntarily compelled by a final, non-appealable,
order from a court of competent jurisdiction.
3. Non-Interference Covenant. CCA Prison Realty Trust covenants
and agrees that it will not, at any time, directly or indirectly, for whatever
reason, whether for its own account or for the account of any other person,
firm, corporation or other organization, without CCA's prior written consent,
which may be given or withheld in CCA's sole discretion: (i) solicit, employ,
deal with or
2
<PAGE> 3
otherwise interfere with any of the Corporation's contracts or relationships
with any employee, officer, director or any independent contractor, whether the
person is employed by or associated with the Corporation on the date of this
Agreement or at any time hereafter; or (ii) solicit, accept, deal with or
otherwise interfere with any of the Corporation's contracts or relationships
with any independent contractor, customer, client or supplier. Notwithstanding
the foregoing, (i) CCA Prison Realty Trust may offer employment to the current
employees of the Corporation who are terminated by the Corporation subsequent
to the date hereof, provided that the terms of such employment offered by the
CCA Prison Realty Trust do not violate the noncompetition covenants set forth
in Paragraph 1 hereof, (ii) CCA Prison Realty Trust shall in no way be liable
for any actions by any entity leasing or managing any facility owned by CCA
Prison Realty Trust, and (iii) nothing provided herein shall prevent CCA Prison
Realty Trust from soliciting relationships with an entity or entities to lease,
license, manage or otherwise use any facility leased to the Corporation
subsequent to the termination of such lease with the Corporation.
4. Business Materials and Property Disclosure. All written
materials, records and documents made by CCA Prison Realty Trust or coming into
its possession concerning the business or affairs of the Corporation shall be
the sole property of the Corporation and, upon request by the Corporation, CCA
Prison Realty Trust shall deliver the same to the Corporation and shall retain
no copies. The foregoing restrictions shall not be applicable to any written
materials, records and documents generally available to the public other than
as a result of a disclosure of such written materials, records and documents by
CCA Prison Realty Trust.
5. Breach by CCA Prison Realty Trust. It is expressly
understood, acknowledged and agreed by CCA Prison Realty Trust that: (i) the
restrictions contained in this Agreement represent a reasonable and necessary
protection of the legitimate interests of the Corporation and that its failure
to observe and comply with its covenants and agreements in this Agreement will
cause irreparable harm to the Corporation; (ii) it is and will continue to be
difficult to ascertain the nature, scope and extent of the harm; and (iii) a
remedy at law for such failure by CCA Prison Realty Trust will be inadequate.
Accordingly, it is the intention of the parties that, in addition to any other
rights and remedies which the Corporation may have in the event of any breach
by CCA Prison Realty Trust of this Agreement, the Corporation shall be
entitled, and is expressly and irrevocably authorized by CCA Prison Realty
Trust, to demand and obtain specific performance, including, without
limitation, temporary and permanent injunctive relief, and all other
appropriate equitable relief against CCA Prison Realty Trust in order to
enforce against CCA Prison Realty Trust any of the covenants and agreements
contained in this Agreement, and/or to prevent any breach or any threatened
breach by CCA Prison Realty Trust of the covenants and agreements of CCA Prison
Realty Trust contained in this Agreement. Should the Corporation prevail in
any action to enforce this Agreement, the Corporation shall be entitled to
recover all of its costs and expenses relating thereto, including reasonable
attorney's fees and expenses.
6. General Provisions. (a) All notices required by this
Agreement shall be in writing and shall be sufficiently given if delivered or
mailed by registered or certified mail, return receipt requested, to the
parties at their respective addresses set forth below. Any party may specify a
different address by written notice to the other, in accordance with this
Paragraph. All notices shall be deemed to have been given as of the dates they
were delivered or mailed.
3
<PAGE> 4
To the Corporation:
Corrections Corporation of America
102 Woodmont Boulevard, Suite 800
Nashville, Tennessee 37205
Attention: Darrell K. Massengale
With a copy to:
Stokes & Bartholomew, P.A.
424 Church Street, Suite 2800
Nashville, Tennessee 37219
Attention: Elizabeth E. Moore, Esq.
To CCA Prison Realty Trust:
CCA Prison Realty Trust
2200 Abbott Martin Road, Suite 201
Nashville, Tennessee 37215
Attn: Michael W. Devlin
With a copy to:
Sherrard & Roe, PLC
424 Church Street, Suite 2000
Nashville, Tennessee 37219
Attention: Kim A. Brown, Esq.
(b) This Agreement contains the entire agreement between the
parties with respect to the subject matter hereof, and there are no other
representations, warranties, conditions or agreements relating to the subject
matter of this Agreement.
(c) This Agreement shall be binding upon and inure to the
benefit of the Corporation and CCA Prison Realty Trust and its respective
successors, assigns, heirs and legal representatives. Insofar as CCA Prison
Realty Trust is concerned, this Agreement may not be assigned by CCA Prison
Realty Trust.
(d) This Agreement shall be governed by and construed
pursuant to and in accordance with the substantive laws of the State of
Tennessee.
(e) If a term or a provision of this Agreement is held or
deemed to be invalid or unenforceable, in whole or in part, by a court of
competent jurisdiction, such term or provision shall be ineffective to the
extent of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this Agreement.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
CORRECTIONS CORPORATION OF AMERICA
By:
-----------------------------------
Its:
-----------------------------------
CCA PRISON REALTY TRUST
By:
-----------------------------------
Its:
-----------------------------------
5
<PAGE> 6
EXHIBIT A
CCA FACILITIES
[to be provided]
<PAGE> 1
Exhibit 10.7
OFFICER AND TRUSTEE INDEMNIFICATION AGREEMENT
This Agreement is made as of the _____ day of __________, 1997, by and
between CCA Prison Realty Trust, a Maryland real estate investment trust (the
"Company"), and the undersigned Officer or Trustee of the Company (the
"Indemnitee").
WHEREAS, Indemnitee is currently serving as an Officer or Trustee of the
Company and the Company wishes the Indemnitee to continue in such capacity. The
Indemnitee is willing, under certain circumstances, to continue serving as an
Officer Trustee of the Company;
WHEREAS, Maryland Code Annotated, Courts of Judicial Proceeding, Article
5-350, provides that a real estate investment trust's Declaration of Trust may
include any provision limiting the liability of its officers or trustees to the
trust or its shareholders for money damages except for liability resulting from
(a) actual receipt of an improper benefit or profit in money, property or
services or (b) active and deliberate dishonesty established by a final judgment
as being material to the cause of action;
WHEREAS, the Company's Declaration of Trust provides that to the fullest
extent allowed by Maryland law, no officer trustee of the Company shall be
liable to the Company or its shareholders for money damages;
WHEREAS, in addition, the Bylaws of the Company provide that the officer
trustees of the Company shall be entitled to indemnification on the terms and
conditions set forth therein; and
WHEREAS, Indemnitee has indicated that he does not regard the foregoing
provisions of the Company's Declaration of Trust and Bylaws as adequate to
protect him against the risks associated with his service to the Company and has
noted that the Company's directors' and officers' liability insurance policy has
numerous exclusions and a deductible and thus does not adequately protect
Indemnitee. In this connection the Company and the Indemnitee now agree they
should enter into this Indemnification Agreement in order to provide greater
protection to Indemnitee against such risks of service to the Company.
NOW, THEREFORE, in order to induce the Indemnitee to continue to serve as a
Trustee of the Company and in consideration of his continued service, the
Company hereby agrees to indemnify the Indemnitee as follows:
1. Indemnity. The Company will indemnify the Indemnitee, his
executors, administrators or assigns, for any Expenses (as
defined below) which the Indemnitee is or becomes legally
obligated to pay in connection with any Proceeding. As used in
this Agreement the term "Proceeding" shall include any
threatened, pending or completed claim, action, suit or
proceeding, whether brought by or in the right of the Company or
otherwise and whether of a civil, criminal, administrative or
investigative nature, in which the Indemnitee may be or may have
been involved as a party or otherwise, by
<PAGE> 2
reason of the fact that Indemnitee is or was a director or
officer of the Company, by reason of any actual or alleged error
or misstatement or misleading statement made or suffered by the
Indemnitee, by reason of any action taken by him or of any
inaction on his part while acting as such director or officer, or
by reason of the fact that he was serving at the request of the
Company as a director, trustee, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise; provided, that in each such case Indemnitee acted in
good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the Company, and, in the
case of a criminal proceeding, in addition had no reasonable
cause to believe that his conduct was unlawful. As used in this
Agreement, the term "other enterprise" shall include (without
limitation) employee benefit plans and administrative committees
thereof, and the term "fines" shall include (without limitations)
any excise tax assessed with respect to any employee benefit
plan.
2. Expenses. As used in this Agreement, the term "Expenses" shall
include, without limitation, damages, judgments, fines,
penalties, settlements and costs, attorneys' fees and
disbursements and costs of attachment or similar bonds,
investigations, and any expenses of establishing a right to
indemnification under this Agreement.
3. Enforcement. If a claim or request under this Agreement is not
paid by the Company, or on its behalf, within thirty days after a
written claim or request has been received by the Company, the
Indemnitee may at any time thereafter bring suit against the
Company to recover the unpaid amount of the claim or request and
if successful in whole or in part, the Indemnitee shall be
entitled to be paid also the Expenses of prosecuting such suit.
The Company shall have the right to recoup from the Indemnitee
the amount of any item or items of Expenses theretofore paid by
the Company pursuant to this Agreement, to the extent such
Expenses are not reasonable in nature or amounts; provided,
however, that the Company shall have the burden of proving such
Expenses to be unreasonable. The burden of proving that the
Indemnitee is not entitled to indemnification for any other
reason shall be upon the Company.
4. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all
of the rights of recovery of the Indemnitee, who shall execute
all papers required and shall do everything that may be necessary
to secure such rights, including the execution of such documents
necessary to enable the Company effectively to bring suit to
enforce such rights.
5. Exclusions. The Company shall not be liable under this Agreement
to pay any Expenses in connection with any claim made against the
Indemnitee:
<PAGE> 3
(a) to the extent that payment is actually made to the
Indemnitee under a valid, enforceable and collectible
insurance policy;
(b) to the extent that the Indemnitee is indemnified and
actually paid otherwise than pursuant to this Agreement;
(c) in connection with a judicial action by or in the right of
the Company, in respect of any claim, issue or matter as to
which the Indemnitee shall have been adjudged to be liable
for gross negligence or intentional misconduct in the
performance of his duty to the Company unless and only to
the extent that any court in which such action was brought
shall determine upon application that, despite the
adjudication of liability but in view of all the
circumstances of the case, the Indemnitee is fairly and
reasonably entitled to indemnity for such expenses as such
court shall deem proper;
(d) if it is proved by final judgment in a court of law or other
final adjudication to have been based upon or attributable
to the Indemnitee's in fact having gained any personal
profit or advantage to which he was not legally entitled;
(e) for a disgorgement of profits made from the purchase and
sale by the Indemnitee of securities pursuant to Section
16(b) of the Securities Exchange Act of 1934 and amendments
thereto or similar provisions of any state statutory law or
common law;
(f) brought about or contributed to by the dishonesty of the
Indemnitee seeking payment hereunder; however,
notwithstanding the foregoing, the Indemnitee shall be
protected under this Agreement as to any claims upon which
suit may be brought against him by reason of any alleged
dishonesty on his part, unless a judgment or other final
adjudication thereof adverse to the Indemnitee shall
establish that he committed (i) acts of active and
deliberate dishonesty, (ii) with actual dishonest purpose
and intent, (iii) which acts were material to the cause of
action so adjudicated; or
(g) for any judgment, fine or penalty which the Company is
prohibited by applicable law from paying as indemnity or for
any other reason.
6. Indemnification of Expenses or Successful Party. Notwithstanding
any other provision of this Agreement, to the extent that the
Indemnitee has been
<PAGE> 4
successful on the merits or otherwise in defense of any
Proceeding or in defense of any claim, issue or matter therein,
including dismissal without prejudice, Indemnitee shall be
indemnified against any and all Expenses incurred in connection
therewith.
7. Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for
some or a portion of Expenses, but not for the total amount
thereof, the Company shall nevertheless indemnify the Indemnitee
for the portion of such Expenses to which the Indemnitee is
entitled.
8. Advance of Expenses. Expenses incurred by the Indemnitee in
connection with any Proceeding, except the amount of any
settlement, shall be paid by the Company in advance upon request
of the Indemnitee that the Company pay such Expenses. The
Indemnitee hereby undertakes to repay to the Company the amount
of any Expenses theretofore paid by the Company to the extent
that it is ultimately determined that such Expenses were not
reasonable or that the Indemnitee is not entitled to
indemnification.
9. Approval of Expenses. No Expenses for which indemnity shall be
sought under this Agreement, other than those in respect of
judgments and verdicts actually rendered, shall be incurred
without the prior consent of the Company, which consent shall not
be unreasonably withheld.
10. Notice of Claim. The Indemnitee, as a condition precedent to his
right to be indemnified under this Agreement, shall give to the
Company notice in writing as soon as practicable of any claim
made against him for which indemnity will or could be sought
under this Agreement. Notice to the Company shall be given at its
principal office and shall be directed to the Secretary (or such
other address as the Company shall designate in writing to the
Indemnitee); notice shall be deemed received if sent by prepaid
mail properly addressed, the date of such notice being the date
postmarked. In addition, the Indemnitee shall give the Company
such information and cooperation as it may reasonable require and
as shall be within the Indemnitee's power.
11. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one
instrument.
12. Indemnification Hereunder Not Exclusive. Nothing herein shall be
deemed to diminish or otherwise restrict the Indemnitee's right
to indemnification under any provision of the Declaration of
Trust or Bylaws of the Company and amendments thereto or under
law.
13. Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Maryland.
<PAGE> 5
14. Saving Clause. Wherever there is conflict between any provision
of this Agreement and any applicable present or future statute,
law or regulations contrary to which the Company and the
Indemnitee have no legal right to contract, the latter shall
prevail, but in such event the affected provisions of this
Agreement shall be curtailed and restricted only to the extent
necessary to bring them within applicable legal requirements.
15. Coverage. The provisions of this Agreement shall apply with
respect to the Indemnitee's service as an Officer or Trustee of
the Company prior to the date of this Agreement and with respect
to all periods of such service after the date of this Agreement,
even though the Indemnitee may have ceased to be an Officer or
Trustee of the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
CCA PRISON REALTY TRUST
By:____________________________________
Its:___________________________________
OFFICER OR TRUSTEE
_______________________________________
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made on this ______ day of _____________________,
1997, by and between CCA PRISON REALTY TRUST, a Maryland real estate investment
trust (the "Company"), and J. MICHAEL QUINLAN (the "Employee").
WITNESSETH:
WHEREAS, the Company desires to retain the services of the Employee,
and the Employee desires to be employed by the Company, on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and conditions set forth below, the parties hereto agree
as follows:
1. Employment. The Company hereby employs the Employee as its
Chief Executive Officer, and the Employee hereby accepts such employment upon
the terms and conditions of this Agreement. In such capacity, the Employee
shall have such duties, functions, responsibilities and authority as are
consistent with the Employee's position, subject to the general direction,
approval and control of the Board of Trustees of the Company (the "Board").
The duties of the Employee may be expanded, restricted or otherwise altered
from time to time by the Board, consistent with the general duties, authority,
and responsibilities set forth herein.
2. Compensation.
(a) Base Salary. In consideration of the services rendered by the
Employee pursuant to Section 1 hereof, the Company shall pay the Employee a
base salary (the "Base Salary") of $150,000 per annum payable in accordance
with the Company's normal payment practices but in no event less frequently
than monthly. At the end of each year during the term hereof, the Base Salary
shall be reviewed by the Compensation Committee of the Board (the "Compensation
Committee") and may be increased (but not decreased) in the Compensation
Committee's absolute discretion.
(b) Bonus. In the absolute discretion of the Compensation
Committee, the Employee may receive a bonus in an amount to be determined by
the Compensation Committee.
(c) Benefits. The Employee shall also be entitled:
(i) to receive upon closing of the initial public
offering of the Common Shares (as herein defined) an "incentive stock
option" (as defined in Section 422 of the Internal Revenue Code of
1986, as amended) to purchase up to 350,000 common shares, $.01 par
value, of the Company (the "Common Shares") under the CCA Realty Trust
1997 Employee Share Incentive Plan (the "Share Incentive Plan"), such
option to vest in annual increments of 87,500 shares beginning on the
date hereof and to be exercisable during the ten-year period beginning
on the date of grant;
<PAGE> 2
(ii) to receive, in the absolute discretion of the
Compensation Committee, additional share options (incentive or
non-qualified), restricted shares, deferred shares and other awards
under the Share Incentive Plan;
(iii) to participate in any executive deferred compensation
plan or qualified retirement plan adopted by the Company, subject to
and on a basis consistent with the terms, conditions and overall
administration of such plans; and
(iv) to participate in or receive benefits under any
employee benefit plan or other arrangement including, but not limited
to, any medical, dental, retirement, disability, life insurance, sick
leave and vacation plans or arrangements made available by the Company
to any of its employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans or
arrangements.
(d) Expenses. The Company shall promptly reimburse the Employee
for all reasonable travel and other business expenses incurred by the Employee
in the performance of his duties under this Agreement upon evidence of receipt.
3. Covenants of Employee.
(a) Non-Competition. The Company and the Employee recognize and
acknowledge that the Company's business has a national scope and the Company is
contemplating doing business in every state in the United States and that it is
reasonably anticipated that the Employee will perform his duties under this
Agreement in every state in the United States. During the term of this
Agreement (and thereafter for a period of three (3) years), the Employee will
not, within the United States, directly or indirectly, own, manage, operate,
control, be employed by, participate in, or be connected in any manner with the
ownership, management, operation, or control of a prison real estate investment
trust or compete, directly or indirectly, with the Company. The Employee
acknowledges that the provisions of this paragraph are essential to the
continued goodwill and profitability of the Company. Should any court
determine that the provisions of this paragraph shall be unenforceable in
respect to scope, duration, or geographic area, such court may substitute to
the extent enforceable, provisions similar hereto or other provisions so as to
provide the Company, to the fullest extent permitted by applicable law, the
benefits intended by this paragraph.
(b) Non-Disclosure. The Employee acknowledges that the Company's
knowledge of its business, its development plans, its method of operation and
managing the business, its cost control methods, its financial or other
performance data, its trade secrets, it methods for bidding on projects,
confidential information of the Company, its subsidiaries, affiliates, and
franchises and the Company's list of customers and prospective customers (as it
may exist from time to time) are valuable, special, and unique assets of the
Company and are proprietary to the Company. The Employee will not, during or
after the term of his employment, disclose any part thereof to any person,
firm, corporation, association, or other entity for any reason or purpose
whatsoever.
2
<PAGE> 3
(c) Remedies. In addition to any other rights and remedies
available under this Agreement, at law or otherwise, the Company shall be
entitled to an injunction to be issued by any court of competent jurisdiction
enjoining and restraining the Employee from committing any violation of
subsections (a) and (b) above. Any provisions of subsections (a) and (b) above
which are deemed invalid, illegal or unenforceable in any jurisdiction shall,
as to that jurisdiction and subject to this paragraph be ineffective to the
extent of such invalidity, illegality or unenforceability, without affecting in
any way the remaining provisions hereof in such jurisdiction or rendering that
or any other provisions of this Agreement invalid, illegal, or unenforceable in
any other jurisdiction. If any covenant should be deemed invalid, illegal or
unenforceable because its scope is considered excessive, such covenant shall be
modified so that the scope of the covenant is reduced only to the minimum
extent necessary to render the modified covenant valid, legal and enforceable.
4. Working Facilities. The Employee shall have such facilities
and services as are suitable to his position and appropriate for the
performance of his duties, as the Company may determine.
5. Term and Termination.
(a) Term. The term of this Agreement shall begin on the date first
written above, and shall terminate on the fourth anniversary date thereof. The
term of this Agreement may be extended for an additional period of time by
mutual written agreement of the Company and the Employee.
(b) Termination. The Company may terminate the Employee's
employment upon thirty (30) days prior written notice to the Employee upon the
happening of any of the following events: (i) any act of the Employee which
constitutes fraud, gross misconduct, gross negligence or a material breach of
this Agreement, (ii) frequent and repeated failure to perform services which
have been reasonably requested of the Employee by the Board and which are
consistent with the terms of this Agreement, (iii) the death of the Employee,
(iv) disability of the Employee (as determined under the Share Incentive Plan),
or (v) a decision by the Company to terminate its business and liquidate;
provided, however, that the Company shall not terminate the employment of the
Employee pursuant to clause (i) or (ii) hereof unless the Company (A) provides
the Employee with at least 15 days' prior written notice of its intention to
terminate the Employee's employment hereunder, which notice shall describe the
reasons for such termination, and (B) allows the Employee a reasonable
opportunity and a reasonable period of time to cure any curable acts or
omissions on which its decision to terminate is based.
6. Notices. Any notice required or desired to be given under
this Agreement shall be deemed given if in writing sent by certified mail to
his residence in the case of the Employee, or to its principal office in the
case of the Company.
7. Waiver of Breach. The waiver by the Company of a breach of
any provision of this Agreement by the Employee shall not operate or be
construed as a waiver of any subsequent breach
3
<PAGE> 4
by the Employee. No waiver shall be valid unless in writing and signed by an
authorized officer of the Company.
8. Assignment. The Employee acknowledges that the services to be
rendered by him are unique and personal. Accordingly, the Employee may not
assign any of his rights or delegate any of his duties or obligations under
this Agreement. The rights and obligations of the Company under this Agreement
shall inure to the benefit of and shall be binding upon the successors and
assigns of the Company.
9. Entire Agreement. This Agreement contains the entire
understanding of the parties. It may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any
waiver, change, modification, extension, or discharge is sought.
10. Counterparts. This Agreement may be executed in two
counterparts, each of which may be considered an original but which taken
together shall constitute the same instrument.
11. Controlling Law. This Agreement shall be governed and
interpreted under the laws of the State of Tennessee.
IN WITNESS WHEREOF, the parties have executed this Agreement this the
same day and date first written above.
COMPANY:
CCA PRISON REALTY TRUST
By:
-------------------------------------
Its:
------------------------------------
EMPLOYEE:
----------------------------------------
J. Michael Quinlan
4
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made on this ______ day of _____________________,
1997, by and between CCA PRISON REALTY TRUST, a Maryland real estate investment
trust (the "Company"), and D. ROBERT CRANTS III (the "Employee").
WITNESSETH:
WHEREAS, the Company desires to retain the services of the Employee,
and the Employee desires to be employed by the Company, on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and conditions set forth below, the parties hereto agree
as follows:
1. Employment. The Company hereby employs the Employee as its
President, and the Employee hereby accepts such employment upon the terms and
conditions of this Agreement. In such capacity, the Employee shall have such
duties, functions, responsibilities and authority as are consistent with the
Employee's position, subject to the general direction, approval and control of
the Board of Trustees of the Company (the "Board"), but he shall not be
required to devote his full time and attention to his employment by the
Company. The duties of the Employee may be expanded, restricted or otherwise
altered from time to time by the Board, consistent with the general duties,
authority, and responsibilities set forth herein.
2. Compensation.
(a) Base Salary. In consideration of the services rendered by the
Employee pursuant to Section 1 hereof, the Company shall pay the Employee a
base salary (the "Base Salary") of $100,000 per annum payable in accordance
with the Company's normal payment practices but in no event less frequently
than monthly. At the end of each year during the term hereof, the Base Salary
shall be reviewed by the Compensation Committee of the Board (the "Compensation
Committee") and may be increased (but not decreased) in the Compensation
Committee's absolute discretion.
(b) Bonus. In the absolute discretion of the Compensation
Committee, the Employee may receive a bonus in an amount to be determined by
the Compensation Committee.
(c) Benefits. The Employee shall also be entitled:
(i) to receive upon closing of the initial public
offering of the Common Shares (as herein defined) an "incentive stock
option" (as defined in Section 422 of the Internal Revenue Code of
1986, as amended) to purchase up to 200,000 common shares, $.01 par
value, of the Company (the "Common Shares") under the CCA Realty Trust
1997 Employee Share Incentive Plan (the "Share Incentive Plan"), such
option to vest in annual increments
<PAGE> 2
of 50,000 Common Shares beginning on the date hereof and to be
exercisable during the ten-year period beginning on the date of grant;
(ii) to receive, in the absolute discretion of the
Compensation Committee, additional share options (incentive or
non-qualified), restricted shares, deferred shares and other awards
under the Share Incentive Plan;
(iii) to participate in any executive deferred compensation
plan or qualified retirement plan adopted by the Company, subject to
and on a basis consistent with the terms, conditions and overall
administration of such plans; and
(iv) to participate in or receive benefits under any
employee benefit plan or other arrangement including, but not limited
to, any medical, dental, retirement, disability, life insurance, sick
leave and vacation plans or arrangements made available by the Company
to any of its employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans or
arrangements.
(d) Expenses. The Company shall promptly reimburse the Employee
for all reasonable travel and other business expenses incurred by the Employee
in the performance of his duties under this Agreement upon evidence of receipt.
3. Covenants of Employee.
(a) Non-Competition. The Company and the Employee recognize and
acknowledge that the Company's business has a national scope and the Company is
contemplating doing business in every state in the United States and that it is
reasonably anticipated that the Employee will perform his duties under this
Agreement in every state in the United States. During the term of this
Agreement (and thereafter for a period of three (3) years), the Employee will
not, within the United States, directly or indirectly, own, manage, operate,
control, be employed by, participate in, or be connected in any manner with the
ownership, management, operation, or control of a prison real estate investment
trust or compete, directly or indirectly, with the Company. The Employee
acknowledges that the provisions of this paragraph are essential to the
continued goodwill and profitability of the Company. Should any court
determine that the provisions of this paragraph shall be unenforceable in
respect to scope, duration, or geographic area, such court may substitute to
the extent enforceable, provisions similar hereto or other provisions so as to
provide the Company, to the fullest extent permitted by applicable law, the
benefits intended by this paragraph.
(b) Non-Disclosure. The Employee acknowledges that the Company's
knowledge of its business, its development plans, its method of operation and
managing the business, its cost control methods, its financial or other
performance data, its trade secrets, it methods for bidding on projects,
confidential information of the Company, its subsidiaries, affiliates, and
franchises and the Company's list of customers and prospective customers (as it
may exist from time to time) are valuable, special, and unique assets of the
Company and are proprietary to the Company. The
2
<PAGE> 3
Employee will not, during or after the term of his employment, disclose any
part thereof to any person, firm, corporation, association, or other entity for
any reason or purpose whatsoever.
(c) Remedies. In addition to any other rights and remedies
available under this Agreement, at law or otherwise, the Company shall be
entitled to an injunction to be issued by any court of competent jurisdiction
enjoining and restraining the Employee from committing any violation of
subsections (a) and (b) above. Any provisions of subsections (a) and (b) above
which are deemed invalid, illegal or unenforceable in any jurisdiction shall,
as to that jurisdiction and subject to this paragraph be ineffective to the
extent of such invalidity, illegality or unenforceability, without affecting in
any way the remaining provisions hereof in such jurisdiction or rendering that
or any other provisions of this Agreement invalid, illegal, or unenforceable in
any other jurisdiction. If any covenant should be deemed invalid, illegal or
unenforceable because its scope is considered excessive, such covenant shall be
modified so that the scope of the covenant is reduced only to the minimum
extent necessary to render the modified covenant valid, legal and enforceable.
4. Working Facilities. The Employee shall have such facilities
and services as are suitable to his position and appropriate for the
performance of his duties, as the Company may determine.
5. Term and Termination.
(a) Term. The term of this Agreement shall begin on the date first
written above, and shall terminate on the fourth anniversary date thereof. The
term of this Agreement may be extended for an additional period of time by
mutual written agreement of the Company and the Employee.
(b) Termination. The Company may terminate the Employee's
employment upon thirty (30) days prior written notice to the Employee upon the
happening of any of the following events: (i) any act of the Employee which
constitutes fraud, gross misconduct, gross negligence or a material breach of
this Agreement, (ii) frequent and repeated failure to perform services which
have been reasonably requested of the Employee by the Board and which are
consistent with the terms of this Agreement, (iii) the death of the Employee,
(iv) disability by the Employee (as determined under the Share Incentive Plan),
or (v) a decision by the Company to terminate its business and liquidate;
provided, however, that the Company shall not terminate the employment of the
Employee pursuant to clause (i) or (ii) hereof unless the Company (A) provides
the Employee with at least 15 days' prior written notice of its intention to
terminate the Employee's employment hereunder, which notice shall describe the
reasons for such termination, and (B) allows the Employee a reasonable
opportunity and a reasonable period of time to cure any curable acts or
omissions on which its decision to terminate is based.
6. Notices. Any notice required or desired to be given under
this Agreement shall be deemed given if in writing sent by certified mail to
his residence in the case of the Employee, or to its principal office in the
case of the Company.
3
<PAGE> 4
7. Waiver of Breach. The waiver by the Company of a breach of
any provision of this Agreement by the Employee shall not operate or be
construed as a waiver of any subsequent breach by the Employee. No waiver
shall be valid unless in writing and signed by an authorized officer of the
Company.
8. Assignment. The Employee acknowledges that the services to be
rendered by him are unique and personal. Accordingly, the Employee may not
assign any of his rights or delegate any of his duties or obligations under
this Agreement. The rights and obligations of the Company under this Agreement
shall inure to the benefit of and shall be binding upon the successors and
assigns of the Company.
9. Entire Agreement. This Agreement contains the entire
understanding of the parties. It may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any
waiver, change, modification, extension, or discharge is sought.
10. Counterparts. This Agreement may be executed in two
counterparts, each of which may be considered an original but which taken
together shall constitute the same instrument.
11. Controlling Law. This Agreement shall be governed and
interpreted under the laws of the State of Tennessee.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Agreement this the
same day and date first written above.
COMPANY:
CCA PRISON REALTY TRUST
By:
-------------------------------------
Its:
------------------------------------
EMPLOYEE:
----------------------------------------
D. Robert Crants III
5
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made on this ______ day of _____________________,
1997, by and between CCA PRISON REALTY TRUST, a Maryland real estate investment
trust (the "Company"), and MICHAEL W. DEVLIN (the "Employee").
WITNESSETH:
WHEREAS, the Company desires to retain the services of the Employee,
and the Employee desires to be employed by the Company, on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and conditions set forth below, the parties hereto agree
as follows:
1. Employment. The Company hereby employs the Employee as its
Chief Development Officer, and the Employee hereby accepts such employment upon
the terms and conditions of this Agreement. In such capacity, the Employee
shall have such duties, functions, responsibilities and authority as are
consistent with the Employee's position, subject to the general direction,
approval and control of the Board of Trustees of the Company (the "Board"), but
he shall not be required to devote his full time and attention to his
employment by the Company. The duties of the Employee may be expanded,
restricted or otherwise altered from time to time by the Board, consistent with
the general duties, authority, and responsibilities set forth herein.
2. Compensation.
(a) Base Salary. In consideration of the services rendered by the
Employee pursuant to Section 1 hereof, the Company shall pay the Employee a
base salary (the "Base Salary") of $100,000 per annum payable in accordance
with the Company's normal payment practices but in no event less frequently
than monthly. At the end of each year during the term hereof, the Base Salary
shall be reviewed by the Compensation Committee of the Board (the "Compensation
Committee") and may be increased (but not decreased) in the Compensation
Committee's absolute discretion.
(b) Bonus. In the absolute discretion of the Compensation
Committee, the Employee may receive a bonus in an amount to be determined by
the Compensation Committee.
(c) Benefits. The Employee shall also be entitled:
(i) to receive upon closing of the initial public
offering of the Common Shares (as herein defined) an "incentive stock
option" (as defined in Section 422 of the Internal Revenue Code of
1986, as amended) to purchase up to 200,000 common shares, $.01 par
value, of the Company (the "Common Shares") under the CCA Realty Trust
1997 Employee Share Incentive Plan (the "Share Incentive Plan"), such
option to vest in annual increments
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of 50,000 Common Shares beginning on the date hereof and to be
exercisable during the ten-year period beginning on the date of grant;
(ii) to receive, in the absolute discretion of the
Compensation Committee, additional share options (incentive or
non-qualified), restricted shares, deferred shares and other awards
under the Share Incentive Plan;
(iii) to participate in any executive deferred compensation
plan or qualified retirement plan adopted by the Company, subject to
and on a basis consistent with the terms, conditions and overall
administration of such plans; and
(iv) to participate in or receive benefits under any
employee benefit plan or other arrangement including, but not limited
to, any medical, dental, retirement, disability, life insurance, sick
leave and vacation plans or arrangements made available by the Company
to any of its employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans or
arrangements.
(d) Expenses. The Company shall promptly reimburse the Employee
for all reasonable travel and other business expenses incurred by the Employee
in the performance of his duties under this Agreement upon evidence of receipt.
3. Covenants of Employee.
(a) Non-Competition. The Company and the Employee recognize and
acknowledge that the Company's business has a national scope and the Company is
contemplating doing business in every state in the United States and that it is
reasonably anticipated that the Employee will perform his duties under this
Agreement in every state in the United States. During the term of this
Agreement (and thereafter for a period of three (3) years), the Employee will
not, within the United States, directly or indirectly, own, manage, operate,
control, be employed by, participate in, or be connected in any manner with the
ownership, management, operation, or control of a prison real estate investment
trust or compete, directly or indirectly, with the Company. The Employee
acknowledges that the provisions of this paragraph are essential to the
continued goodwill and profitability of the Company. Should any court
determine that the provisions of this paragraph shall be unenforceable in
respect to scope, duration, or geographic area, such court may substitute to
the extent enforceable, provisions similar hereto or other provisions so as to
provide the Company, to the fullest extent permitted by applicable law, the
benefits intended by this paragraph.
(b) Non-Disclosure. The Employee acknowledges that the Company's
knowledge of its business, its development plans, its method of operation and
managing the business, its cost control methods, its financial or other
performance data, its trade secrets, it methods for bidding on projects,
confidential information of the Company, its subsidiaries, affiliates, and
franchises and the Company's list of customers and prospective customers (as it
may exist from time to time) are valuable, special, and unique assets of the
Company and are proprietary to the Company. The
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Employee will not, during or after the term of his employment, disclose any
part thereof to any person, firm, corporation, association, or other entity
for any reason or purpose whatsoever.
(c) Remedies. In addition to any other rights and remedies
available under this Agreement, at law or otherwise, the Company shall be
entitled to an injunction to be issued by any court of competent jurisdiction
enjoining and restraining the Employee from committing any violation of
subsections (a) and (b) above. Any provisions of subsections (a) and (b) above
which are deemed invalid, illegal or unenforceable in any jurisdiction shall,
as to that jurisdiction and subject to this paragraph be ineffective to the
extent of such invalidity, illegality or unenforceability, without affecting in
any way the remaining provisions hereof in such jurisdiction or rendering that
or any other provisions of this Agreement invalid, illegal, or unenforceable in
any other jurisdiction. If any covenant should be deemed invalid, illegal or
unenforceable because its scope is considered excessive, such covenant shall be
modified so that the scope of the covenant is reduced only to the minimum
extent necessary to render the modified covenant valid, legal and enforceable.
4. Working Facilities. The Employee shall have such facilities
and services as are suitable to his position and appropriate for the
performance of his duties, as the Company may determine.
5. Term and Termination.
(a) Term. The term of this Agreement shall begin on the date first
written above, and shall terminate on the fourth anniversary date thereof. The
term of this Agreement may be extended for an additional period of time by
mutual written agreement of the Company and the Employee.
(b) Termination. The Company may terminate the Employee's
employment upon thirty (30) days prior written notice to the Employee upon the
happening of any of the following events: (i) any act of the Employee which
constitutes fraud, gross misconduct, gross negligence or a material breach of
this Agreement, (ii) frequent and repeated failure to perform services which
have been reasonably requested of the Employee by the Board and which are
consistent with the terms of this Agreement, (iii) the death of the Employee,
(iv) disability by the Employee (as determined under the Share Incentive Plan),
or (v) a decision by the Company to terminate its business and liquidate;
provided, however, that the Company shall not terminate the employment of the
Employee pursuant to clause (i) or (ii) hereof unless the Company (A) provides
the Employee with at least 15 days' prior written notice of its intention to
terminate the Employee's employment hereunder, which notice shall describe the
reasons for such termination, and (B) allows the Employee a reasonable
opportunity and a reasonable period of time to cure any curable acts or
omissions on which its decision to terminate is based. On any termination
pursuant to this paragraph, the Employee shall be entitled to full compensation
through the date of his termination.
6. Notices. Any notice required or desired to be given under
this Agreement shall be deemed given if in writing sent by certified mail to
his residence in the case of the Employee, or to its principal office in the
case of the Company.
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7. Waiver of Breach. The waiver by the Company of a breach of
any provision of this Agreement by the Employee shall not operate or be
construed as a waiver of any subsequent breach by the Employee. No waiver
shall be valid unless in writing and signed by an authorized officer of the
Company.
8. Assignment. The Employee acknowledges that the services to be
rendered by him are unique and personal. Accordingly, the Employee may not
assign any of his rights or delegate any of his duties or obligations under
this Agreement. The rights and obligations of the Company under this Agreement
shall inure to the benefit of and shall be binding upon the successors and
assigns of the Company.
9. Entire Agreement. This Agreement contains the entire
understanding of the parties. It may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any
waiver, change, modification, extension, or discharge is sought.
10. Counterparts. This Agreement may be executed in two
counterparts, each of which may be considered an original but which taken
together shall constitute the same instrument.
11. Controlling Law. This Agreement shall be governed and
interpreted under the laws of the State of Tennessee.
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IN WITNESS WHEREOF, the parties have executed this Agreement this the
same day and date first written above.
COMPANY:
CCA PRISON REALTY TRUST
By:
-------------------------------------
Its:
------------------------------------
EMPLOYEE:
----------------------------------------
Michael W. Devlin
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EXHIBIT 10.11
CCA PRISON REALTY TRUST
1997 EMPLOYEE SHARE INCENTIVE PLAN
SECTION 1. Purpose; Definitions.
The purpose of the CCA Prison Realty Trust 1997 Employee Share
Incentive Plan (the "Plan") is to enable CCA Prison Realty Trust (the
"Company") to attract, retain and reward key employees of the Company, and
strengthen the mutuality of interests between such key employees and the
Company's shareholders, by offering such key employees performance-based share
incentives and/or other equity interests or equity-based incentives in the
Company, as well as performance-based incentives payable in cash.
For purposes of the Plan, the following terms shall be defined as set
forth below:
a. "Affiliate" means any entity other than the Company and its
Subsidiaries that is designated by the Board as a participating employer under
the Plan, provided that the Company directly or indirectly owns at least 20% of
the combined voting power of all classes of stock of such entity or at least
20% of the ownership interests in such entity.
b. "Board" means the Board of Trustees of the Company.
c. "Book Value" means, as of any given date, on a per share basis
(i) the shareholders' equity in the Company as of the end of the immediately
preceding fiscal year as reflected in the Company's consolidated balance sheet,
subject to such adjustments as the Committee shall specify at or after grant,
divided by (ii) the number of then outstanding Shares as of such year-end date
(as adjusted by the Committee for subsequent events).
d. "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.
e. "Committee" means the Committee referred to in Section 2 of
the Plan. If at any time no Committee shall be in office, then the functions
of the Committee specified in the Plan shall be exercised by the Board.
f. "Company" means CCA Prison Realty Trust, a Maryland real
estate investment trust, or any successor trust or corporation.
g. "Deferral Period" means the period described in Section 8(a)
below.
h. "Deferred Shares" means an award made pursuant to Section 8
below of the right to receive Shares at the end of a specified Deferral Period.
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i. "Disability" means disability as determined under procedures
established by the Committee for purposes of this Plan.
j. "Early Retirement" means retirement, with the express consent
for purposes of this Plan of the Company at or before the time of such
retirement, from active employment with the Company and any Subsidiary or
Affiliate on or after attainment of age sixty-two (62) but before attainment of
age sixty-five (65).
k. "Fair Market Value" means, as of any given date, unless
otherwise determined by the Committee in good faith, the reported closing price
of the Shares on the New York Stock Exchange or, if no such sale of Shares is
reported on the New York Stock Exchange on such date, the fair market value of
the Shares as determined by the Committee in good faith.
l. "Immediate Family Member" means a person described in Section
5(e) below.
m. "Incentive Option" means any Share Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422 of
the Code.
n. "Non-Qualified Option" means any Share Option that is not an
Incentive Option.
o. "Normal Retirement" means retirement from active employment
with the Company and any Subsidiary or Affiliate on or after age 65.
p. "Other Share-Based Award" means an award under Section 10
below that is valued in whole or in part by reference to, or is otherwise based
on, Shares.
q. "Plan" means this CCA Prison Realty Trust 1997 Employee Share
Incentive Plan, as hereinafter amended from time to time.
r. "Restricted Shares" means an award of Shares that is subject
to restrictions under Section 7 below.
s. "Restriction Period" means the period described in Section
7(c) below.
t. "Retirement" means Normal or Early Retirement.
u. "Shares" means the Common Shares, $.01 par value per share, of
the Company.
v. "Share Appreciation Right" means the right pursuant to an
award granted under Section 6 below to receive upon exercise an amount equal to
the excess of the Fair Market Value of one Share over the price per share
specified in the award agreement multiplied by the number of Shares in respect
of which a Share Appreciation Right has been exercised.
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w. "Share Option" or "Option" means any option to purchase Shares
(including Restricted Shares and Deferred Shares, if the Committee so
determines) granted pursuant to Section 5 below.
x. "Share Purchase Right" means the right to purchase Shares
pursuant to Section 9.
y. "Subsidiary" means any corporation (or other entity) in an
unbroken chain of corporations and other entities beginning with the Company if
each of the corporations and other entities (other than the last corporation or
other entity in the unbroken chain) owns equity interests possessing more than
50% of the total combined voting power of all classes of equity interests in
one of the other corporations or entities in the chain.
In addition, the terms "Change in Control", "Potential Change in
Control" and "Change in Control Price" shall have meanings set forth,
respectively, in Sections 11(b), (c) and (d) below.
SECTION 2. Administration.
The Plan shall be administered by the Compensation Committee of the
Board of Trustees of the Company (the "Board"). The functions of the
Committee specified in the Plan shall be exercised by the Board, if and to the
extent that no Committee exists which has the authority to so administer the
Plan.
The Committee shall have full authority to grant, pursuant to the
terms of the Plan, to officers and other key employees eligible under Section
4: (i) Share Options, (ii) Share Appreciation Rights, (iii) Restricted Shares,
(iv) Deferred Shares, (v) Share Purchase Rights and/or (vi) Other Share-Based
Awards.
In particular, the Committee shall have the authority:
(i) to select the officers and other key employees of
the Company and its Subsidiaries and Affiliates to whom Share Options,
Share Appreciation Rights, Restricted Shares, Deferred Shares, Share
Purchase Rights and/or Other Share-Based Awards may from time to time
be granted hereunder;
(ii) to determine whether and to what extent Incentive
Options, Non-Qualified Options, Share Appreciation Rights, Restricted
Shares, Deferred Shares, Share Purchase Rights and/or Other
Share-Based Awards, or any combination thereof, are to be granted
hereunder to one or more eligible employees;
(iii) to determine the number of shares to be covered by
each such award granted hereunder;
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(iv) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted
hereunder (including, but not limited to, the share price and any
restriction or limitation, or any vesting acceleration or waiver of
forfeiture restrictions regarding any Share Option or other award
and/or the Shares relating thereto, based in each case on such factors
as the Committee shall determine, in its sole discretion);
(v) to determine whether and under what circumstances a
Share Option may be settled in cash, Restricted Shares and/or Deferred
Shares under Section 5(k) or (l), as applicable, instead of Shares
that are neither Restricted Shares nor Deferred Shares;
(vi) to determine whether, to what extent and under what
circumstances Option grants and/or other awards under the Plan and/or
other cash awards made by the Company are to be made, and operate, on
a tandem basis vis-a-vis other awards under the Plan and/or cash
awards made outside of the Plan, or on an additive basis;
(vii) to determine whether, to what extent and under what
circumstances Shares and other amounts payable with respect to an
award under this Plan shall be deferred either automatically or at the
election of the participant (including providing for and determining
the amount (if any) of any deemed earnings on any deferred amount
during any deferral period); and
(viii) to determine the terms and restrictions applicable
to Share Purchase Rights and the Shares purchased by exercising such
rights.
The Committee shall have the authority to adopt, alter and repeal such
rules, guidelines and practices governing the Plan as it shall, from time to
time, deem advisable; to interpret the terms and provisions of the Plan and any
award issued under the Plan (and any agreements relating thereto); and to
otherwise supervise the administration of the Plan.
All decisions made by the Committee pursuant to the provisions of the
Plan shall be made in the Committee's sole discretion and shall be final and
binding on all persons, including the Company and Plan participants.
SECTION 3. Shares Subject to Plan.
The total number of Shares reserved and available for distribution
under the Plan shall be 1,700,000 shares. Such Shares may consist, in whole or
in part, of authorized and unissued Shares or treasury Shares.
Subject to Section 6(b)(iv) below, if any Shares that have been
optioned cease to be subject to a Share Option, or if any such Shares that are
subject to any Restricted Shares or Deferred Shares award, Share Purchase Right
or Other Share-Based Award granted hereunder are forfeited or any such award
otherwise terminates without a payment being made to the participant in the
form of
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Shares, such shares shall again be available for distribution in connection
with future awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, Share dividend, Share split or other change in corporate
structure affecting the Shares, an adjustment shall be made in the aggregate
number of shares reserved for issuance under the Plan, in the number and option
price of Shares subject to outstanding Options granted under the Plan, in the
number and purchase price of Shares subject to outstanding Share Purchase
Rights under the Plan, and in the number of Shares subject to other outstanding
awards granted under the Plan as may be determined to be appropriate by the
Committee, in its sole discretion, provided that the number of shares subject
to any award shall always be a whole number. Such adjusted option price shall
also be used to determine the amount payable by the Company upon the exercise
of any Share Appreciation Right associated with any Share Option.
SECTION 4. Eligibility.
The Chairman of the Board, all Officers and other key employees of the
Company and its Subsidiaries and Affiliates (but excluding members of the
Committee and any person who serves only as a trustee) who are responsible for
or contribute to the management, growth and/or profitability of the business of
the Company and/or its Subsidiaries and Affiliates are eligible to be granted
awards under the Plan; provided, however, that the Chairman of the Board shall
not be eligible to receive Incentive Options hereunder.
SECTION 5. Share Options.
Share Options may be granted alone, in addition to or in tandem with
other awards granted under the Plan and/or cash awards made outside of the
Plan. Any Share Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
Share Options granted under the Plan may be of two types: (i)
Incentive Options and (ii) Non-Qualified Options.
The Committee shall have the authority to grant to any optionee
Incentive Options, Non-Qualified Options, or both types of Share Options (in
each case with or without Share Appreciation Rights).
Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) Option Price. The option price per Share purchasable under a
Share Option shall be determined by the Committee at the time of grant but
shall be not less than 100% of the Fair Market
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Value of the Shares at grant, in the case of Incentive Options, and not less
than 50% of the Fair Market Value of the Shares at grant, in the case of
Non-Qualified Options.
(b) Option Term. The term of each Share Option shall be fixed by
the Committee, but no Share Option shall be exercisable more than ten years
after the date the Option is granted.
(c) Exercisability. Share Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined
by the Committee at or after grant; provided, however, that, except as provided
in Section 5(f) and (g) and Section 11, unless otherwise determined by the
Committee at or after grant, no Share Option shall be exercisable prior to the
later of (i) the first anniversary date of the granting of the Option or (ii)
the second anniversary date of employment of the employee by the Company. If
the Committee provides, in its sole discretion, that any Share Option is
exercisable only in installments, the Committee may waive such installment
exercise provisions at any time at or after grant in whole or in part, based on
such factors as the Committee shall determine, in its sole discretion.
(d) Method of Exercise. Subject to whatever installment exercise
provisions apply under Section 5(c), Share Options may be exercised in whole or
in part at any time during the option period, by giving written notice of
exercise to the Company specifying the number of shares to be purchased.
Such notice shall be accompanied by payment in full of the purchase
price, either by check, note or such other instrument as the Committee may
accept. As determined by the Committee, in its sole discretion, at or after
grant, payment in full or in part may also be made in the form of a Share
Option or unrestricted Shares already owned by the optionee or, in the case of
the exercise of a Non-Qualified Option, Restricted Shares or Deferred Shares
subject to an award hereunder (based, in each case, on the Fair Market Value of
the Share Option or the Shares on the date the option is exercised, as
determined by the Committee).
If payment of the option exercise price of a Non-Qualified Option is
made in whole or in part in the form of Restricted Shares or Deferred Shares,
such Restricted Shares or Deferred Shares (and any replacement shares relating
thereto) shall remain (or be) restricted or deferred, as the case may be, in
accordance with the original terms of the Restricted Shares award or Deferred
Shares award in question, and any additional Shares received upon the exercise
shall be subject to the same forfeiture restrictions or deferral limitations,
unless otherwise determined by the Committee, in its sole discretion, at or
after grant.
No Shares shall be issued until full payment therefor has been made.
An optionee shall generally have the rights to dividends or other rights of a
shareholder with respect to shares subject to the Option when the optionee has
given written notice of exercise, has paid in full for such shares, and, if
requested, has given the representation described in Section 14(a).
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(e) Transferability of Options. Incentive Options shall be
transferable by the optionee only by will or by the laws of descent and shall
be exercisable, during the optionee's lifetime, only by the optionee.
Non-Qualified Options shall be transferable by the optionee by will or by the
laws of descent or to (i) the spouse, children or grandchildren of the optionee
("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit
of such Immediate Family Members, (iii) a partnership in which such Immediate
Family Members are the only partners, or (iv) one or more entities in which the
optionee has a 10% or greater equity interest, provided that (y) the share
option agreement pursuant to which such Non-Qualified Options are granted must
be approved by the Committee, and (z) subsequent transfers of transferred
Non-Qualified Options shall be prohibited except those in accordance with this
subparagraph (e). Following transfer, any such Non-Qualified Options shall
continue to be subject to the same terms and conditions as were applicable
immediately prior to transfer, provided that for purposes of this Plan or the
option agreement executed pursuant hereto, the term "optionee" shall be deemed
to refer to the transferee.
(f) Termination by Death. Subject to Section 5(j), if an
optionee's employment by the Company and any Subsidiary or Affiliate terminates
by reason of death, any Share Option held by such optionee may thereafter be
exercised, to the extent such option was exercisable at the time of death or on
such accelerated basis as the Committee may determine at or after grant (or as
may be determined in accordance with procedures established by the Committee),
by the legal representative of the estate or by the legatee of the optionee
under the will of the optionee, for a period of one year (or such other period
as the Committee may specify at grant) from the date of such death or until the
expiration of the stated term of such Share Option, whichever period is the
shorter.
(g) Termination by Reason of Disability. Subject to Section 5(j),
if an optionee's employment by the Company and any Subsidiary or Affiliate
terminates by reason of Disability, any Share Option held by such optionee may
thereafter be exercised by the optionee, to the extent it was exercisable at
the time of termination or on such accelerated basis as the Committee may
determine at or after grant (or as may be determined in accordance with
procedures established by the Committee), for a period of three years (or such
other period as the Committee may specify at grant) from the date of such
termination of employment or until the expiration of the stated term of such
Share Option, whichever period is the shorter; provided, however, that, if the
optionee dies within such three-year period (or such other period as the
Committee shall specify at grant), any unexercised Share Option held by such
optionee shall thereafter be exercisable to the extent to which it was
exercisable at the time of death for a period of one year from the date of such
death or until the expiration of the stated term of such Share Option,
whichever period is the shorter. In the event of termination of employment by
reason of Disability, if an Incentive Option is exercised after the expiration
of the exercise periods that apply for purposes of Section 422 of the Code,
such Share Option will thereafter be treated as a Non-Qualified Option.
(h) Termination by Reason of Retirement. Subject to Section 5(j),
if an optionee's employment by the Company and any Subsidiary or Affiliate
terminates by reason of Normal or Early Retirement, any Share Option held by
such optionee may thereafter be exercised by the optionee, to the extent it was
exercisable at the time of such Retirement or on such accelerated basis
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as the Committee may determine at or after grant (or as may be determined in
accordance with procedures established by the Committee), for a period of three
years (or such other period as Committee may specify at grant) from the date of
such termination of employment or the expiration of the stated term of such
Share Option, whichever period is the shorter; provided, however, that, if the
optionee dies within such three-year period (or such other period as the
Committee may specify at grant), any unexercised Share Option held by such
optionee shall thereafter be exercisable, to the extent to which it was
exercisable at the time of death, for a period of one year from the date of
such death or until the expiration of the stated term of such Share Option,
whichever period is the shorter. In the event of termination of employment by
reason of Retirement, if an Incentive Option is exercised after the expiration
of the exercise periods that apply for purposes of Section 422 of the Code, the
option will thereafter be treated as a Non-Qualified Option.
(i) Other Termination. Unless otherwise determined by the
Committee (or pursuant to procedures established by the Committee) at or after
grant, if an optionee's employment by the Company and any Subsidiary or
Affiliate terminates for any reason other than death, Disability or Normal or
Early Retirement, the Share Option shall thereupon terminate.
(j) Incentive Options. Anything in the Plan to the contrary
notwithstanding, no term of this Plan relating to Incentive Options shall be
interpreted, amended or altered, nor shall any discretion or authority granted
under the Plan be so exercised, so as to disqualify the Plan under Section 422
of the Code, or, without the consent of the optionee(s) affected, to disqualify
any Incentive Option under such Section 422.
If an Incentive Option granted under this Plan is first exercisable in
any calendar year to obtain Shares having a fair market value (determined at
the time of grant) in excess of $100,000, the option is treated as an Incentive
Option for Shares having a fair market value (determined at the time of grant)
equal to $100,000 and as a Non- Qualified Option for the remaining Shares. In
making this determination, the rules specified in Section 422(d) of the Code
shall be determinative, including the aggregate of all Incentive Options which
are first exercisable in that calendar year under any plan of the Company.
To the extent permitted under Section 422 of the Code or the
applicable regulations thereunder or any applicable Internal Revenue Service
pronouncement:
(i) if (x) a participant's employment is terminated by
reason of death, Disability or Retirement and (y) the portion of any
Incentive Option that is otherwise exercisable during the
post-termination period specified under Section 5(f), (g) or (h),
applied without regard to the $100,000 limitation contained in Section
422(b)(7) of the Code, is greater than the portion of such option that
is immediately exercisable as an "Incentive Stock Option" during such
post-termination period under Section 422, such excess shall be
treated as a Non-Qualified Option; and
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(ii) if the exercise of an Incentive Option is
accelerated by reason of a Change in Control, any portion of such
option that is not exercisable as an Incentive Option by reason of the
$100,000 limitation contained in Section 422(b)(7) of the Code shall
be treated as a Non-Qualified Option.
An employee who owns Shares representing more than ten percent (10%)
of the total combined voting power of all classes of shares of the Company
shall not be eligible to receive an Incentive Option.
(k) Buyout Provisions. The Committee may at any time offer to buy
out for a payment in cash, Shares, Deferred Shares or Restricted Shares an
option previously granted, based on such terms and conditions as the Committee
shall establish and communicate to the optionee at the time that such offer is
made.
(l) Settlement Provisions. If the option agreement so provides at
grant or is amended after grant and prior to exercise to so provide (with the
optionee's consent), the Committee may require that all or part of the shares
to be issued with respect to the spread value of an exercised Option take the
form of Deferred or Restricted Shares, which shall be valued on the date of
exercise on the basis of the Fair Market Value (as determined by the Committee)
of such Deferred or Restricted Shares determined without regard to the deferral
limitations and/or forfeiture restrictions involved.
SECTION 6. Share Appreciation Rights.
(a) Grant and Exercise. Share Appreciation Rights may be granted
either alone, in addition to or in conjunction with other awards granted under
the Plan.
A Share Appreciation Right may be exercised by a right holder, subject
to Section 6(b), in accordance with the procedures established by the Committee
for such purpose. Upon such exercise, the right holder shall be entitled to
receive an amount determined in the manner prescribed in Section 6(b).
(b) Terms and Conditions. Share Appreciation Rights shall be
subject to such terms and conditions, not inconsistent with the provisions of
the Plan, as shall be determined from time to time by the Committee, including
the following:
(i) Share Appreciation Rights shall be exercisable at
such time or times and subject to such terms and conditions as shall
be determined by the Committee at or after grant; provided, however,
that, except as provided in Section 6(b)(iv) and (v) and Section 11,
unless otherwise determined by the Committee at or after grant, no
Share Appreciation Right shall be exercisable prior to the later of
(i) the first anniversary date of the granting of the Share
Appreciation Right or (ii) the second anniversary date of employment
of the employee by the Company. The exercise of Share Appreciation
Rights held by right holders who are
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subject to Section 16(b) of the Securities Exchange Act of 1934 (the
"Exchange Act") shall comply with Rule 16b-3 thereunder, to the extent
applicable.
(ii) Upon the exercise of a Share Appreciation Right, a
right holder shall be entitled to receive an amount in cash (or, if
expressly provided in the award agreement, an amount in cash and/or
Shares) equal in value to the excess of the Fair Market Value of one
Share over the price per share specified in the award agreement
multiplied by the number of Shares in respect of which the Share
Appreciation Right shall have been exercised. The amount of cash and,
if applicable, the number of Shares to be paid shall be calculated on
the basis of the Fair Market Value of the Shares on the date of
exercise.
(iii) Share Appreciation Rights shall be transferable by
the right holder by will or by the laws of descent or to (A) the
Immediate Family Members of the right holder, (B) a trust or trusts
for the exclusive benefit of such Immediate Family Members, (C) a
partnership in which such Immediate Family Members are the only
partners, or (D) one or more entities in which the right holder has a
10% or greater equity interest, provided that (y) the award agreement
pursuant to which such Share Appreciation Rights are granted must be
approved by the Committee, and (z) subsequent transfers of transferred
Share Appreciation Rights shall be prohibited except those in
accordance with this subparagraph (iii). Following transfer, any such
Share Appreciation Rights shall continue to be subject to the same
terms and conditions as were applicable immediately prior to transfer,
provided that for purposes of this Plan or the award agreement
executed pursuant hereto, the term "right holder" shall be deemed to
refer to the transferee.
(iv) Except as otherwise provided in the award agreement,
if a right holder's employment by the Company and any Subsidiary or
Affiliate terminates by reason of death, any Share Appreciation Right
held by such right holder may thereafter be exercised, to the extent
such right was exercisable at the time of death or on such accelerated
basis as the Committee may determine at or after grant (or as may be
determined in accordance with procedures established by the
Committee), by the legal representative of the estate or by the
legatee of the right holder under the will of the right holder, for a
period of one year (or such other period as the Committee may specify
at grant) from the date of such death or until the expiration of the
stated term of such Share Appreciation Right, whichever period is the
shorter.
(v) Except as otherwise provided in the award agreement,
if a right holder's employment by the Company and any Subsidiary or
Affiliate terminates by reason of Disability, any Share Appreciation
Right held by such right holder may thereafter be exercised by the
right holder, to the extent it was exercisable at the time of
termination or on such accelerated basis as the Committee may
determine at or after grant (or as may be determined in accordance
with procedures established by the Committee), for a period of three
years (or such other period as the Committee may specify at grant)
from the date of such termination of employment or until the
expiration of the stated term of such Share
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Appreciation Right, whichever period is the shorter; provided,
however, that, if the right holder dies within such three-year period
(or such other period as the Committee shall specify at grant), any
unexercised Share Appreciation Right held by such right holder shall
thereafter be exercisable to the extent to which it was exercisable at
the time of death for a period of one year from the date of such death
or until the expiration of the stated term of such Share Appreciation
Right, whichever period is the shorter.
(vi) Except as otherwise provided in the award agreement,
if a right holder's employment by the Company and any Subsidiary or
Affiliate terminates by reason of Normal or Early Retirement, any
Share Appreciation Right held by such right holder may thereafter be
exercised by the right holder, to the extent it was exercisable at the
time of such Retirement or on such accelerated basis as the Committee
may determine at or after grant (or as may be determined in accordance
with procedures established by the Committee), for a period of three
years (or such other period as Committee may specify at grant) from
the date of such termination of employment or the expiration of the
stated term of such Share Appreciation Right, whichever period is the
shorter; provided, however, that, if the right holder dies within such
three-year period (or such other period as the Committee may specify
at grant), any unexercised Share Appreciation Right held by such right
holder shall thereafter be exercisable, to the extent to which it was
exercisable at the time of death, for a period of one year from the
date of such death or until the expiration of the stated term of such
Share Appreciation Right, whichever period is the shorter.
(vii) In its sole discretion, the Committee may grant
"Limited" Share Appreciation Rights under this Section 6, i.e., Share
Appreciation Rights that become exercisable only in the event of a
Change in Control and/or a Potential Change in Control, subject to
such terms and conditions as the Committee may specify at grant. Such
Limited Share Appreciation Rights shall be settled solely in cash.
(viii) The Committee, in its sole discretion, may also
provide that, in the event of a Change in Control and/or a Potential
Change in Control, the amount to be paid upon the exercise of a Share
Appreciation Right or Limited Share Appreciation Right shall be based
on the Change in Control Price, subject to such terms and conditions
as the Committee may specify at grant.
SECTION 7. Restricted Shares.
(a) Administration. Shares of Restricted Shares may be issued
either alone, in addition to or in tandem with other awards granted under the
Plan and/or cash awards made outside the Plan. The Committee shall determine
the eligible persons to whom, and the time or times at which, grants of
Restricted Shares will be made, the number of shares to be awarded, the price
(if any) to be paid by the recipient of Restricted Shares (subject to Section
7(b)), the time or times within which such awards may be subject to forfeiture,
and all other terms and conditions of the awards.
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The Committee may condition the grant of Restricted Shares upon the
attainment of specified performance goals or such other factors as the
Committee may determine, in its sole discretion.
The provisions of Restricted Shares awards need not be the same with
respect to each recipient.
(b) Awards and Certificates. The prospective recipient of a
Restricted Shares award shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the award
and has delivered a fully executed copy thereof to the Company, and has
otherwise complied with the applicable terms and conditions of such award.
(i) The purchase price for Restricted Shares shall be
equal to or less than their par value and may be zero.
(ii) Awards of Restricted Shares must be accepted within
a period of 60 days (or such shorter period as the Committee may
specify at grant) after the award date, by executing a Restricted
Shares Award Agreement and paying whatever price (if any) is required
under Section 7(b)(i).
(iii) Each participant receiving a Restricted Shares award
shall be issued a Share certificate in respect of such shares of
Restricted Shares. Such certificate shall be registered in the name
of such participant, and shall bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such award.
(iv) The Committee shall require that the share
certificates evidencing such shares be held in custody by the Company
until the restrictions thereon shall have lapsed, and that, as a
condition of any Restricted Shares award, the participant shall have
delivered a share power, endorsed in blank, relating to the Shares
covered by such award.
(c) Restrictions and Conditions. The Restricted Shares awarded
pursuant to this Section 7 shall be subject to the following restrictions and
conditions:
(i) Subject to the provisions of this Plan and the award
agreement, during a period set by the Committee commencing with the
date of such award (the "Restriction Period"), the participant shall
not be permitted to sell, transfer, pledge or assign shares of
Restricted Shares awarded under the Plan. Within these limits, the
Committee, in its sole discretion, may provide for the lapse of such
restrictions in installments and may accelerate or waive such
restrictions in whole or in part, based on service, performance and/or
such other factors or criteria as the Committee may determine, in its
sole discretion.
(ii) Except as provided in this paragraph (ii) and
Section 7(c)(i), the participant shall have, with respect to the
shares of Restricted Shares, all of the rights of a shareholder of the
Company, including the right to vote the shares, and the right to
receive any cash
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dividends. The Committee, in its sole discretion, as determined at
the time of award, may permit or require the payment of cash dividends
to be deferred and, if the Committee so determines, reinvested,
subject to Section 14(e), in additional Restricted Shares to the
extent shares are available under Section 3, or otherwise reinvested.
Pursuant to Section 3 above, Share dividends issued with respect to
Restricted Shares shall be treated as additional shares of Restricted
Shares that are subject to the same restrictions and other terms and
conditions that apply to the shares with respect to which such
dividends are issued.
(iii) Subject to the applicable provisions of the award
agreement and this Section 7, upon termination of a participant's
employment with the Company and any Subsidiary or Affiliate for any
reason during the Restriction Period, all shares still subject to
restriction will vest, or be forfeited, in accordance with the terms
and conditions established by the Committee at or after grant.
(iv) If and when the Restriction Period expires without
a prior forfeiture of the Restricted Shares, certificates for an
appropriate number of unrestricted shares shall be delivered to the
participant promptly.
(d) Minimum Value Provisions. In order to better ensure that
award payments actually reflect the performance of the Company and service of
the participant, the Committee may provide, in its sole discretion, for a
tandem performance-based or other award designed to guarantee a minimum value,
payable in cash or Shares to the recipient of a Restricted Shares award,
subject to such performance, future service, deferral and other terms and
conditions as may be specified by the Committee.
SECTION 8. Deferred Shares.
(a) Administration. Deferred Shares may be awarded either alone,
in addition to or in tandem with other awards granted under the Plan and/or
cash awards made outside of the Plan. The Committee shall determine the
eligible persons to whom and the time or times at which Deferred Shares shall
be awarded, the number of Deferred Shares to be awarded to any person, the
duration of the period (the "Deferral Period") during which, and the conditions
under which, receipt of the Shares will be deferred, and the other terms and
conditions of the award in addition to those set forth in Section 8(b).
The Committee may condition the grant of Deferred Shares upon the
attainment of specified performance goals or such other factors or criteria as
the Committee shall determine, in its sole discretion.
The provisions of Deferred Shares awards need not be the same with
respect to each recipient.
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(b) Terms and Conditions. The shares of Deferred Shares awarded
pursuant to this Section 8 shall be subject to the following terms and
conditions:
(i) Subject to the provisions of this Plan and the award
agreement referred to in Section 8(b)(vi) below, Deferred Shares
awards may not be sold, assigned, transferred, pledged or otherwise
encumbered during the Deferral Period. At the expiration of the
Deferral Period (or the Elective Deferral Period referred to in
Section 8(b)(v), where applicable), share certificates shall be
delivered to the participant, or his legal representative, in a number
equal to the shares covered by the Deferred Shares award.
(ii) Unless otherwise determined by the Committee at
grant, amounts equal to any dividends declared during the Deferral
Period with respect to the number of shares covered by a Deferred
Shares award will be paid to the participant currently, or deferred
and deemed to be reinvested in additional Deferred Shares, or
otherwise reinvested, all as determined at or after the time of the
award by the Committee, in its sole discretion.
(iii) Subject to the provisions of the award agreement and
this Section 8, upon termination of a participant's employment with
the Company and any Subsidiary or Affiliate for any reason during the
Deferral Period for a given award, the Deferred Shares in question
will vest, or be forfeited, in accordance with the terms and
conditions established by the Committee at or after grant.
(iv) Based on service, performance and/or such other
factors or criteria as the Committee may determine, the Committee may,
at or after grant, accelerate the vesting of all or any part of any
Deferred Shares award and/or waive the deferral limitations for all or
any part of such award.
(v) A participant may elect to further defer receipt of
an award (or an installment of an award) for a specified period or
until a specified event (the "Elective Deferral Period"), subject in
each case to the Committee's approval and to such terms as are
determined by the Committee, all in its sole discretion. Subject to
any exceptions adopted by the Committee, such election must generally
be made at least 12 months prior to completion of the Deferral Period
for such Deferred Shares award (or such installment).
(vi) Each award shall be confirmed by, and subject to the
terms of, a Deferred Shares agreement executed by the Company and the
participant.
(c) Minimum Value Provisions. In order to better ensure that
award payments actually reflect the performance of the Company and the service
of the participant, the Committee may provide, in its sole discretion, for a
tandem performance-based or other award designed to guarantee a minimum value,
payable in cash or Shares to the recipient of a Deferred Shares award, subject
to such performance, future service, deferral and other terms and conditions as
may be specified by the Committee.
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SECTION 9. Share Purchase Rights.
(a) Awards and Administration. Subject to Section 3 above, the
Committee may grant eligible participants Share Purchase Rights which shall
enable such participants to purchase Shares (including Deferred Shares and
Restricted Shares):
(i) at its Fair Market Value on the date of grant;
(ii) at 50% of such Fair Market Value on such date;
(iii) at an amount equal to Book Value on such date; or
(iv) at an amount equal to the par value of such Shares on
such date.
The Committee shall also impose such deferral, forfeiture and/or other
terms and conditions as it shall determine, in its sole discretion, on such
Share Purchase Rights or the exercise thereof.
The terms of Share Purchase Rights awards need not be the same with
respect to each participant.
Each Share Purchase Right award shall be confirmed by, and be subject
to the terms of, a Share Purchase Rights Agreement.
(b) Exercisability. Share Purchase Rights shall generally be
exercisable for such period after grant as is determined by the Committee not
to exceed 30 days. However, the Committee may provide, in its sole discretion,
that the Share Purchase Rights of persons potentially subject to Section 16(b)
of the Securities Exchange Act of 1934 shall not become exercisable until six
months and one day after the grant date, and shall then be exercisable for 10
trading days at the purchase price specified by the Committee in accordance
with Section 9(a).
SECTION 10. Other Share-Based Awards.
(a) Administration. Other awards of Shares and other awards that
are valued in whole or in part by reference to, or are otherwise based on,
Shares ("Other Share-Based Awards"), including, without limitation, performance
shares, convertible preferred stock, convertible debentures, exchangeable
securities and Share awards or options valued by reference to Book Value or
subsidiary performance, may be granted either alone or in addition to or in
tandem with Share Options, Share Appreciation Rights, Restricted Shares,
Deferred Shares or Share Purchase Rights granted under the Plan and/or cash
awards made outside of the Plan.
Subject to the provisions of the Plan, the Committee shall have
authority to determine the persons to whom and the time or times at which such
awards shall be made, the number of Shares
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to be awarded pursuant to such awards, and all other conditions of the awards.
The Committee may also provide for the grant of Shares upon the completion of a
specified performance period.
The provisions of Other Share-Based Awards need not be the same with
respect to each recipient.
(b) Terms and Conditions. Other Share-Based Awards made pursuant
to this Section 10 shall be subject to the following terms and conditions:
(i) Subject to the provisions of this Plan and the award
agreement referred to in Section 10(b)(v) below, shares subject to
awards made under this Section 10 may not be sold, assigned,
transferred, pledged or otherwise encumbered prior to the date on
which the shares are issued, or, if later, the date on which any
applicable restriction, performance or deferral period lapses.
(ii) Subject to the provisions of this Plan and the award
agreement and unless otherwise determined by the Committee at grant,
the recipient of an award under this Section 10 shall be entitled to
receive, currently or on a deferred basis, interest or dividends or
interest or dividend equivalents with respect to the number of shares
covered by the award, as determined at the time of the award by the
Committee, in its sole discretion, and the Committee may provide that
such amounts (if any) shall be deemed to have been reinvested in
additional Shares or otherwise reinvested.
(iii) Any award under Section 10 and any Shares covered by
any such award shall vest or be forfeited to the extent so provided in
the award agreement, as determined by the Committee, in its sole
discretion.
(iv) In the event of the participant's Retirement,
Disability or death, or in cases of special circumstances, the
Committee may, in its sole discretion, waive in whole or in part any
or all of the remaining limitations imposed hereunder (if any) with
respect to any or all of an award under this Section 10.
(v) Each award under this Section 10 shall be confirmed
by, and subject to the terms of, an agreement or other instrument by
the Company and by the participant.
(vi) Shares (including securities convertible into
Shares) issued on a bonus basis under this Section 10 may be issued
for no cash consideration. Shares (including securities convertible
into Shares) purchased pursuant to a purchase right awarded under this
Section 10 shall be priced at least 50% of the Fair Market Value of
the Shares on the date of grant.
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SECTION 11. Change in Control Provisions.
(a) Impact of Event. In the event of:
(1) a "Change in Control" as defined in Section 11(b), or
(2) a "Potential Change in Control" as defined in section 11(c),
but only if and to the extent so determined by the Committee or the Board at or
after grant (subject to any right of approval expressly reserved by the
Committee or the Board at the time of such determination), the following
acceleration and valuation provisions shall apply:
(i) Any Share Appreciation Rights (including, without
limitation, any Limited Share Appreciation Rights) outstanding for at
least six months and any Share Option awarded under the Plan not
previously exercisable and vested shall become fully exercisable and
vested.
(ii) The restrictions and deferral limitations applicable
to any Restricted Shares, Deferred Shares, Share Purchase Rights and
Other Share-Based Awards, in each case to the extent not already
vested under the Plan, shall lapse and such shares and awards shall be
deemed fully vested.
(iii) The value of all outstanding Share Options, Share
Appreciation Rights, Restricted Shares, Deferred Shares, Share
Purchase Rights and Other Share-Based Awards, in each case to the
extent vested, shall, unless otherwise determined by the Committee in
its sole discretion at or after grant but prior to any Change in
Control, be cashed out on the basis of the "Change in Control Price"
as defined in Section 11(d) as of the date such Change in Control or
such Potential Change in Control is determined to have occurred or
such other date as the Committee may determine prior to the Change in
Control.
(b) Definition of "Change in Control". For purposes of Section
11(a), a "Change in Control" means the happening of any of the following:
(i) any person or entity, including a "group" as defined
in Section 13(d)(3) of the Securities Exchange Act of 1934, other than
the Company or a wholly-owned subsidiary thereof or any employee
benefit plan of the Company or any of its Subsidiaries, becomes the
beneficial owner of the Company's securities having 20% or more of the
combined voting power of the then outstanding securities of the
Company that may be cast for the election of trustees of the Company
(other than as a result of an issuance of securities initiated by the
Company in the ordinary course of business); or
(ii) as the result of, or in connection with, any cash
tender or exchange offer, merger or other business combination, sale
of assets or contested election, or any combination of the foregoing
transactions less than a majority of the combined voting power
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of the then outstanding securities of the Company or any successor
corporation or entity entitled to vote generally in the election of
the trustees of the Company or such other corporation or entity after
such transaction are held in the aggregate by the holders of the
Company's securities entitled to vote generally in the election of
trustees of the Company immediately prior to such transaction; or
(iii) during any period of two consecutive years,
individuals who at the beginning of any such period constitute the
Board cease for any reason to constitute at least a majority thereof,
unless the election, or the nomination for election by the Company's
shareholders, of each trustee of the Company first elected during such
period was approved by a vote of at least two-thirds of the trustees
of the Company then still in office who were trustees of the Company
at the beginning of any such period.
(c) Definition of Potential Change in Control. For purposes of
Section 11(a), a "Potential Change in Control" means the happening of any one
of the following:
(i) The approval by shareholders of an agreement by the
Company, the consummation of which would result in a Change in Control
of the Company as defined in Section 11(b); or
(ii) The acquisition of beneficial ownership, directly
or indirectly, by any entity, person or group (other than the Company
or a Subsidiary or any Company employee benefit plan (including any
trustee of such plan acting as such trustee)) of securities of the
Company representing 10% or more of the combined voting power of the
Company's outstanding securities and the adoption by the Board of
Trustees of a resolution to the effect that a Potential Change in
Control of the Company has occurred for purposes of this Plan.
(d) Definition of Change in Control Price. For purposes of this
Section 11, "Change in Control Price" means the highest price per share paid in
any transaction reported on the New York Stock Exchange or paid or offered in
any bona fide transaction related to a potential or actual Change in Control of
the Company at any time during the 60 day period immediately preceding the
occurrence of the Change in Control (or, where applicable, the occurrence of
the Potential Change in Control event), in each case as determined by the
Committee except that, in the case of Incentive Options and Share Appreciation
Rights relating to Incentive Options, such price shall be based only on
transactions reported for the date on which the optionee exercises such Share
Appreciation Rights (or Limited Share Appreciation Rights) or, where
applicable, the date on which a cashout occurs under Section 11(a)(2)(iii).
SECTION 12. Ownership Limitation.
All awards hereunder shall be subject to the ownership limitations set
forth in the Declaration of Trust of the Company. Without limiting the
generality of the foregoing, any award which causes a recipient, or any
constructive or beneficial owner of Shares (as determined under Sections 318
and 544, respectively, of the Code), to own or be deemed to own shares in
excess of such ownership limitations shall be void ab initio.
SECTION 13. Amendments and Termination.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made which would impair the rights of
an optionee or participant under a Share Option, Share Appreciation Right (or
Limited Share Appreciation Right), Restricted or
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Deferred Shares award, Share Purchase Right or Other Share-Based Award
theretofore granted, without the optionee's or participant's consent, or which,
without the approval of the Company's shareholders, would:
(a) except as expressly provided in this Plan, increase the total
number of shares reserved for the purpose of the Plan; or
(b) change the employees or class of employees eligible to
participate in the Plan.
The Committee may amend the terms of any Share Option or other award
theretofore granted, prospectively or retroactively, but, subject to Section 3
above, no such amendment shall impair the rights of any holder without the
holder's consent. The Committee may also substitute new Share Options for
previously granted Share Options (on a one for one or other basis), including
previously granted Share Options having higher option exercise prices.
Subject to the above provisions, the Board shall have broad authority
to amend the Plan to take into account changes in applicable securities and tax
laws and accounting rules, as well as other developments.
SECTION 14. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive
and deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a
general creditor of the Company. In its sole discretion, the Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver Shares or payments in lieu of or with respect
to awards hereunder; provided, however, that, unless the Committee otherwise
determines with the consent of the affected participant, the existence of such
trusts or other arrangements is consistent with the "unfunded" status of the
Plan.
SECTION 15. General Provisions.
(a) The Committee may require each person purchasing shares
pursuant to a Share Option or other award under the Plan to represent to and
agree with the Company in writing that the optionee or participant is acquiring
the shares without a view to distribution thereof. The certificates for such
shares may include any legend which the Committee deems appropriate to reflect
any restrictions on transfer.
All certificates for Shares or other securities delivered under the
Plan shall be subject to such stock-transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Shares are then listed, and any applicable Federal or state
securities law, and the
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Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to shareholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases.
(c) The adoption of the Plan shall not confer upon any employee of
the Company or any Subsidiary or Affiliate any right to continued employment
with the Company or a Subsidiary or Affiliate, as the case may be, nor shall it
interfere in any way with the right of the Company or a Subsidiary or Affiliate
to terminate the employment of any of its employees at any time.
(d) No later than the date as of which an amount first becomes
includable in the gross income of the participant for Federal income tax
purposes with respect to any award under the Plan, the participant shall pay to
the Company, or make arrangements satisfactory to the Committee regarding the
payment of, any Federal, state, or local taxes of any kind required by law to
be withheld with respect to such amount. Unless otherwise determined by the
Committee, withholding obligations may be settled with Shares, including Shares
that are part of the award that gives rise to the withholding requirement. The
obligations of the Company under the Plan shall be conditional on such payment
or arrangements and the Company and its Subsidiaries or Affiliates shall, to
the extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the participant.
(e) The actual or deemed reinvestment of dividends or dividend
equivalents in additional Restricted Shares (or in Deferred Shares or other
types of Plan awards) at the time of any dividend payment shall only be
permissible if sufficient Shares are available under Section 3 for such
reinvestment (taking into account then outstanding Share Options, Share
Purchase Rights and other Plan awards).
(f) The Plan and all awards made and actions taken thereunder
shall be governed by and construed in accordance with the laws of the State of
Maryland.
SECTION 16. Effective Date of Plan.
The Plan shall be effective as of _________, 1997, subject to the
approval of the Company's shareholders.
SECTION 17. Term of Plan.
No Share Option, Share Appreciation Right, Restricted Shares award,
Deferred Shares award, Share Purchase Right or Other Share-Based Award shall be
granted pursuant to the Plan on or after the tenth anniversary of the date of
shareholder approval, but awards granted prior to such tenth anniversary may
extend beyond that date.
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SECTION 17. Restrictions on Transfer.
Awards of derivative securities (as defined in Rule 16a-1(c) under the
Securities Exchange Act of 1934 or any successor definition adopted by the
Securities and Exchange Commission) granted under the Plan shall not be
transferable except (a) by will or the laws of descent and distribution, or (b)
as provided in Sections 5(e) and 6(b)(iii) of the Plan.
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EXHIBIT 10.12
CCA PRISON REALTY TRUST
NON-EMPLOYEE TRUSTEES' SHARE OPTION PLAN
1. Purpose. The purpose of the CCA Prison Realty Trust
Non-Employee Trustees' Share Option Plan (the "Plan") is to advance the
interests of CCA Prison Realty Trust (the "Company") and its shareholders by
encouraging increased share ownership by members of the Board of Trustees (the
"Board") of the Company who are not employees of the Company, any subsidiary of
the Company, Corrections Corporation of America ("CCA"), or any subsidiary of
CCA to enhance long-term shareholder value through continuing ownership of the
Company's common shares.
2. Administration.
(a) The Plan shall be administered by the Compensation
Committee of the Board. The Compensation Committee shall have all the
powers vested in it by the terms of the Plan, which shall include the
authority (within the limitations described herein) to prescribe the
form of the agreements embodying awards of non- qualified options (the
"Options"). The Compensation Committee, subject to the provisions of
the Plan, shall grant Options under the Plan and shall have the power
to construe the Plan, to determine all questions arising hereunder,
and to adopt and amend such rules and regulations for the
administration of the Plan as it may deem desirable. Any decision of
the Compensation Committee in the administration of the Plan shall be
final and conclusive. The Compensation Committee may act only by a
majority of its members in office, except that the members of the
Compensation Committee may authorize any one or more of their members
or the Secretary or any other officer of the Company to execute and
deliver documents on behalf of the Compensation Committee.
(b) Each person who is or shall have been a member of the
Compensation Committee shall be indemnified and held harmless by the
Company against and from any and all loss, cost, liability, or expense
that may be imposed upon or reasonably incurred by him in connection
with or resulting from any claim, action, suit, or proceeding to which
he may be or become involved by reason of any action taken or failure
to act under the Plan and against and from any and all amounts paid by
him in settlement thereof (with the Company's written approval) or
paid by him in satisfaction of a judgment in any such action, suit, or
proceeding, except a judgment in favor of the Company based upon a
finding of his lack of good faith; subject, however, to the conditions
that upon the institution of any claim, action, suit, or proceeding
against him, he shall in writing give the Company an opportunity, at
its expense, to handle and defend the same before he undertakes to
handle and defend it on such person's own behalf. The foregoing right
of indemnification shall not be exclusive of any other right to which
such person may be entitled as a matter of law or otherwise, or any
power that the Company may have to indemnify him or hold him harmless.
Each member of the Compensation Committee and each officer and
employee of the Company shall be fully justified in relying or acting
in good faith upon any information furnished in connection with the
administration of the Plan by an appropriate person or persons other
than himself. In no event shall any person who is or shall have been
a member of the Compensation
<PAGE> 2
Committee or an officer or employee of the Company be held liable for
any determination made or other action taken or any omission to act in
reliance upon any such information as referred to in the preceding
sentence, or for any action (including the furnishing of information)
taken or any omission to act, when such determination, action, or
omission is made in good faith.
3. Participation. Each member of the Board of the Company who is
not an employee of the Company or any subsidiary of the Company, but excluding
Doctor R. Crants, Jr. (a "Non-Employee Trustee") shall receive Options in
accordance with Section 5 below. As used herein, the term "subsidiary" means
any corporation at least 40% of the outstanding voting stock of which is owned,
directly or indirectly, by the Company or CCA, as the case may be.
4. Awards Under the Plan.
(a) Type of Awards. Awards under the Plan shall include
only Options, which are rights to purchase common shares of the
Company having a par value of $.01 per share (the "Shares"). All
Options are subject to the terms, conditions, and restrictions
specified in Paragraph 5 below.
(b) Maximum Number of Shares That May Be Issued. No more
than 150,000 Shares, subject to adjustment as provided in Paragraph 6
below, may be issued under the Plan pursuant to the exercise of
Options.
(c) Rights with Respect to Shares. A Non-Employee
Trustee to whom an Option is granted (and any person succeeding to
such a Non-Employee Trustee rights pursuant to the Plan) shall have no
rights as a shareholder with respect to any Shares issuable pursuant
to any such Option until the date of the issuance of a share
certificate to him for such Shares. Except as provided in Paragraph 6
below, no adjustment shall be made for dividends, distributions, or
other rights (whether ordinary or extraordinary, and whether in cash,
securities, or other property) for which the record date is prior to
the date such share certificate is issued.
5. Non-Qualified Options. All Options shall be options which are
not "incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). Each Option shall be evidenced
by an agreement in such form as the Board shall prescribe from time to time in
accordance with the Plan and shall be subject to the following terms and
conditions:
(a) The option price per Share shall be 100% of the fair
market value per Share at grant. The fair market value per Share on
any given date, unless otherwise determined by the Compensation
Committee in good faith, shall be the reported closing price of a
Share on the New York Stock Exchange or, if no such sale of Shares is
reported on the New York Stock Exchange on such date, the fair market
value of the Share as determined by the Board
2
<PAGE> 3
in good faith. The options granted to Founding Trustees (as defined
below) upon effectiveness of the Registration Statement (as defined
below) will have an exercise price equal to the initial public
offering price.
(b) Each Non-Employee Trustee as of the date the initial
Registration Statement on Form S-11(the "Registration Statement") is
declared effective by the Securities and Exchange Commission relating
to the offering of 17,000,000 Shares will receive an Option to purchase
5,000 Shares on the date of the Registration Statement (each such
trustee, a "Founding Trustee"). Each Non-Employee Trustee who is not
a Founding Trustee (a "Non-Founding Trustee") will receive an Option
to purchase 5,000 Shares on the date the Non-Founding Trustee is first
elected or appointed to the Board of Trustees. In addition to the
foregoing, each Non-Employee Trustee will receive an Option to
purchase 5,000 Shares on each of the nine anniversary dates of the
adoption of the Plan.
(c) The term of each Option shall be fixed by the
Compensation Committee, but no Option shall be exercisable more than
ten years after the date the Option is granted.
(d) Options shall be exercisable at such time or times
and subject to such terms and conditions as shall be determined by the
Board at or after grant. If the Compensation Committee provides, in
its sole discretion, that any Option is exercisable only in
installments, the Compensation Committee may waive such installment
exercise provisions at any time at or after grant in whole or in part,
based on such factors as the Compensation Committee shall determine,
in its sole discretion.
(e) Subject to whatever installment exercise provisions
apply under subparagraph (d), Options may be exercised in whole or in
part at any time during the option period, by giving written notice of
exercise to the Company specifying the number of Shares to be
purchased. Such notice shall be accompanied by payment in full of the
purchase price either by check, note or such other instrument
as the Compensation Committee may accept. As determined by the
Compensation Committee in its sole discretion, at or after grant,
payment in full or in part may also be made in the form of a share
option or Shares already owned by the Non-Employee Trustee (based, in
each case, on the fair market value of the share option or the Shares
on the date the Option is exercised, as determined by the Compensation
Committee in accordance with subparagraph (a)). No Shares shall be
issued until full payment therefor has been made. Upon purchase of
Shares, an optionee shall make such representations, warranties and
covenants as the Compensation Committee may request.
(f) The Compensation Committee may, in its discretion,
authorize all or a portion of the Options to be granted to a
Non-Employee Trustee to be on terms which permit transfer by such
optionee to (i) the spouse, children or grandchildren of the
Non-Employee Trustee ("Immediate Family Members"), (ii) a trust or
trusts for the exclusive benefit of such Immediate Family Members,
(iii) a partnership in which such Immediate Family Members are the
only partners, or (iv) certain affiliates of the Non-Employee Trustee,
as determined
3
<PAGE> 4
by the Compensation Committee, provided that (x) there may be no
consideration for any such transfer, (y) the share option agreement
pursuant to which such Options are granted must be approved by the
Compensation Committee, and must expressly provide for transferability
in a manner consistent with this Section, and (z) subsequent transfers
of transferred Options shall be prohibited except those in accordance
with this subparagraph (f). Following transfer, any such Options
shall continue to be subject to the same terms and conditions as were
applicable immediately prior to transfer, provided that for purposes
of this Plan or the option agreement executed pursuant hereto, the
term "optionee" or "Non-Employee Trustee" shall be deemed to refer to
the transferee.
(g) If an optionee ceases to be a member of the Board for
any reason other than death or total disability, any unexercised
Options held by such optionee shall immediately and automatically
terminate.
(h) If an optionee ceases to be a member of the Board by
reason of the optionee's death, any unexercised Options held by such
optionee may thereafter be exercised in full (notwithstanding any
vesting provisions to the contrary) by the legal representative of the
optionee's estate or by the legatee of the optionee under the will of
the optionee, for a period of one year from the date of death or until
the expiration of the stated term of such Option, whichever period is
shorter.
(i) If an optionee ceases to be a member of the Board by
reason of the optionee's total disability, any unexercised Options
held by such optionee may thereafter be exercised in full
(notwithstanding any vesting provisions to the contrary) by the
optionee or his or her legal representative for a period of one year
from the date of determination of total disability by the Compensation
Committee or until the expiration of the stated term of such Option,
whichever period is shorter. For purposes hereof, total disability
shall be determined under procedures established by the Compensation
Committee for purposes of this Plan.
6. Capital Adjustments. In the event of any merger,
reorganization, consolidation, recapitalization, share dividend, share split or
other change in corporate structure affecting the Shares, an adjustment shall
be made in the aggregate number of Shares reserved for issuance under the Plan
and in the number and price of Shares subject to outstanding Options granted
under the Plan, as may be determined to be appropriate by the Compensation
Committee, in its sole discretion, provided that the number of Shares subject
to an Option shall always be a whole number.
7. Authority to Issue Shares. The Company, during the term of
the Options granted hereunder, will at all times reserve and keep available,
and will seek to obtain from any regulatory body having jurisdiction, any
requisite authority in order to issue and sell such number of Shares as shall
be sufficient to satisfy the requirements of the Options granted under the
Plan. If in the opinion of its counsel the issuance or sale of any Shares
hereunder shall not be lawful for any reason, including the inability of the
Company to obtain from any regulatory body having jurisdiction,
4
<PAGE> 5
authority deemed by such counsel to be necessary to such issuance or sale, the
Company shall not be obligated to issue or sell any such Shares.
8. Ownership Limitation. All Options shall be subject to the
ownership limitations set forth in the Declaration of Trust of the Company.
Without limiting the generality of the foregoing, any Option which causes a
Non-Employee Trustee, or any constructive or beneficial owner of Shares
subject to such Option (as determined under Sections 318 and 544, respectively,
of the Code), to own or be deemed to own Shares in excess of such ownership
limitations shall be void ab initio.
9. Miscellaneous Provisions.
(a) No Non-Employee Trustee or other person shall have
any claim or right to be granted an Option under the Plan. Neither
the Plan nor any action taken hereunder shall be construed as giving a
Non-Employee Trustee any right to be retained in the service of the
Company.
(b) Except as provided in Section 5 (f), an optionee's
rights and interests under the Plan may not be assigned or transferred
in whole or in part either directly or by operation of law or
otherwise (except in the event of a optionee's death, by will or the
laws of descent and distribution), including, but not by way of
limitation, execution, levy, garnishment, attachment, pledge,
bankruptcy, or in any manner, and no such right or interest of any
participant in the Plan shall be subject to any obligation or
liability of such participant.
(c) No Shares shall be issued hereunder unless counsel
for the Company shall be satisfied that such issuance will be in
compliance with applicable federal, state, and other securities laws.
(d) The expenses of administration of the Plan shall be
borne by the Company.
(e) The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any
other segregation of assets to ensure the issuance of Shares upon
exercise of any Option under the Plan and issuance of Shares upon
exercise of Options shall be subordinate to the claims of the
Company's general creditors.
(f) By accepting any Option or other benefit under the
Plan, each optionee and each person claiming under or through an
optionee shall be conclusively deemed to have indicated his or her
acceptance and ratification of, and consent to, any action taken under
the Plan by the Company or the Compensation Committee.
(g) The appropriate officers of the Company shall cause
to be filed any reports, returns, or other information regarding
Options hereunder or any Shares issued pursuant hereto as may be
required by the Securities Exchange Act of 1934, as amended, the
Securities Act of 1933, as amended, or any other applicable statute,
rule, or regulation
5
<PAGE> 6
(excluding reports pursuant to Section 16 of the Securities Exchange
Act of 1934, which shall be the sole responsibility of a Non-Employee
Trustee who exercises an Option).
10. Amendment. The Plan may be amended at any time and from time
to time by the Board as the Board shall deem advisable. No amendment of the
Plan shall materially and adversely affect any right of any optionee with
respect to any Option theretofore granted without such optionee's written
consent.
11. Effective Date. This Plan shall be effective on Monday,
April 21, 1997.
12. Termination. This Plan shall terminate upon the earlier of
the following dates or events to occur:
(a) the adoption of a resolution of the Board terminating
the Plan; or
(b) December 31, 2007.
No termination of the Plan shall materially and adversely affect any
of the rights or obligations of any person, without his consent, under any
Option theretofore granted under the Plan.
6
<PAGE> 1
EXHIBIT 21
Subsidiaries of CCA Prison Realty Trust
--------------------------------------
None
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated February 18, 1997, relating to the consolidated financial statements of
Corrections Corporation of America and Subsidiaries as of December 31, 1996 and
1995 and for each of the three years ending December 31, 1996 and to all
references to our firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
----------------------
ARTHUR ANDERSEN LLP
Nashville, Tennessee
April 21, 1997
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated April 23, 1997, relating to the balance sheet of CCA Prison Realty Trust
as of April 23, 1997 and to all references to our firm included in this
registration statement.
/s/ ARTHUR ANDERSEN LLP
----------------------
ARTHUR ANDERSEN LLP
Nashville, Tennessee
April 23, 1997
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<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> APR-23-1997
<EXCHANGE-RATE> 1
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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</TABLE>
