<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1997
REGISTRATION NO. 333-25727
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 4
TO
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(3)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares............................ 21,275,000 shares $21.00 $446,775,000 $135,390
==============================================================================================================================
</TABLE>
(1) Includes 2,275,000 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).
(3) Of which $124,410 was previously paid.
---------------------
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 JULY 9, 1997
PROSPECTUS
18,500,000 COMMON SHARES
[CORRECTIONS CORPORATION OF AMERICA LOGO]
CCA Prison Realty Trust, a Maryland real estate investment trust (the
"Company"), was formed on April 23, 1997 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 will use $308.1 million of the net proceeds from the sale of
its common shares, $0.01 par value per share (the "Common Shares"), offered
hereby (the "Offering"), to purchase nine correctional and detention facilities
(collectively, the "Initial Facilities") currently owned and operated by
Corrections Corporation of America, a Tennessee corporation ("CCA"). 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")
currently owned and operated or under construction or development by CCA. The
Company expects to use the remaining net proceeds, together with borrowings from
its bank credit facility to acquire one of the Option Facilities at, or shortly
after, consummation of the Offering. See "The Formation Transactions." The
Company will lease all of the Initial Facilities and the Option Facilities to
CCA, and CCA will continue to manage the Initial Facilities and the Option
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 offered hereby 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 approximately 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 9.4% of the Common Shares.
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 Common Shares have been approved for listing on the New York
Stock Exchange (the "NYSE") under the symbol "PZN," subject to official notice
of issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 15 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON SHARES OFFERED HEREBY, INCLUDING:
- The dependence on CCA as the lessee of the Facilities;
- Potential conflicts of interest of affiliates of the Company and CCA;
- Ownership of the Company's facilities is subject to operating risks
inherent in the corrections and detention industry;
- The taxation of the Company as a regular corporation if it fails to
qualify as a real estate investment trust;
- The Company's lack of operating history and management's lack of
experience in operating a real estate investment trust;
- Actual Cash Available for Distribution (as hereinafter defined) may be
insufficient to allow the Company to maintain its proposed distribution
rate; and
- Restrictions on ownership of outstanding Common Shares.
---------------------
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 $3,100,000 payable by the Company.
(3) The Company has granted to the Underwriters a 30-day over-allotment option
to purchase up to 2,775,000 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 $ . See "Underwriting."
---------------------
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.
---------------------
JC BRADFORD & CO
A.G. EDWARDS & SONS, INC.
LEGG MASON WOOD WALKER
Incorporated
LEHMAN BROTHERS
PAINEWEBBER INCORPORATED
STEPHENS INC.
, 1997
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
A growing demand for secure beds to house [A collection of photos representing views of
violent criminals has created an opportunity the interior and exterior of various facili-
for capital investment through the purchase ties to be acquired by the Company from CCA:
and leaseback of jails and prisons. [caption] (i) photo of open sleeping area; (ii) photo
of security personnel operating security
panel; (iii) photo of common area; (iv) photo
of security checkpoint; (v) photo of exterior
of Eloy Detention Center; (vi) photo of
multi-inmate cell; and (vii) photo of common
area.]
</TABLE>
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."
[Fold-Out]
CCA Prison Realty Trust
Building on the growth of private sector corrections. [caption]
[Map of the United States showing location of
properties to be acquired or that may be acquired by the Company from CCA]
<TABLE>
<S> <C> <C> <C>
[Picture of Exterior of
Eloy The Initial
Detention Center] Facilities
Eloy Detention Center Eloy, Arizona
Eloy, Arizona [caption] Florence, Arizona
Leavenworth, Kansas
Mason, Tennessee
Bridgeport, Texas
Houston, Texas
Laredo, Texas
[Picture of Exterior of Mineral Wells, Texas
Houston Taylor, Texas
Processing Center] The Option
Houston Processing Center Facilities
Houston, Texas [caption] Walsenburg, Colorado
Estancia, New Mexico
Youngstown, Ohio
Sayre, Oklahoma
Whiteville, Tennessee
[caption]
[Picture of Exterior of [Picture of Exterior of
West Tennessee [Picture of Exterior of Leavenworth Detention
Detention Facility] T. Don Hutto [Picture of Exterior of Center]
West Tennessee Detention Correctional Center] Laredo Leavenworth Detention
Facility T. Don Hutto Correctional Processing Center] Center
Mason, Tennessee Center Laredo Processing Center Leavenworth, Kansas
[caption] Taylor, Texas [caption] Laredo, Texas [caption] [caption]
<S> <C>
[Picture of Exterior of
Eloy
Detention Center]
Eloy Detention Center
Eloy, Arizona [caption]
[Picture of Exterior of
Houston
Processing Center]
Houston Processing Center
Houston, Texas [caption]
[Picture of Exterior of [Picture of Exterior of
West Tennessee Central Arizona
Detention Facility] Detention Center]
West Tennessee Detention Central Arizona
Facility Detention Center
Mason, Tennessee Florence, Arizona
[caption] [caption]
</TABLE>
Not pictured: Bridgeport Pre-Parole Transfer Facility, Bridgeport, Texas, and
Mineral Wells Pre-Parole Transfer Facility, Mineral Wells, Texas [caption]
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................................. 1
The Company........................................ 1
Summary Risk Factors............................... 2
Selected Historical and Pro Forma Financial Data... 3
Business Objectives and Strategies................. 5
Business of the Company and its Properties......... 5
The Private Corrections Industry................... 8
Corrections Corporation of America................. 8
Relationship Between CCA and the Company after the
Formation Transactions........................... 8
Leases............................................. 10
The Formation Transactions......................... 10
Distributions...................................... 13
Tax Considerations and Tax Status of the Company... 13
The Offering....................................... 14
RISK FACTORS........................................ 15
The Dependence on CCA, as the Lessee of the
Facilities, for the Company's Initial Revenues
and Ability to Make Distributions................ 15
Conflicts of Interest.............................. 15
Relationships Which May Give Rise to Conflicts of
Interest....................................... 15
Situations in Which Conflicts of Interest Have
Arisen and May Continue to Arise............... 16
Corrections and Detention Industry Risks........... 16
Short-Term Nature of Government Contracts........ 16
Dependence on Government Appropriations.......... 17
Dependence on Government Agencies for Inmates.... 17
Dependence on Ability to Develop New Prisons..... 17
Legal Proceedings................................ 17
Adverse Impact on Distributions of Failure of
Company to Qualify as a REIT..................... 17
Lack of Operating History.......................... 18
Initial Distribution Policy........................ 18
Real Estate Investment Considerations.............. 18
General.......................................... 18
Environmental Matters............................ 18
Uninsured Loss................................... 19
Dependence on Key Personnel........................ 19
Lack of Control Over Day-to-Day Operations and Man-
agement of the Facilities........................ 19
Dilution........................................... 20
Ownership Limit.................................... 20
Limits on Changes in Control....................... 20
Changes in Investment and Financing Policies
Without Vote of Shareholders..................... 21
No Prior Market for Common Shares; Factors
Affecting Market Price........................... 21
Dependence on Financing For Growth and Adverse
Consequences of Debt Financing on Ability to Make
Distributions.................................... 21
ERISA Risks........................................ 22
THE COMPANY......................................... 23
General............................................ 23
Business Objectives and Strategies................. 24
Future Growth of the Company....................... 24
External Growth.................................. 24
Internal Growth.................................. 26
Lease Negotiation................................ 26
Due Diligence Process............................ 26
USE OF PROCEEDS..................................... 28
CAPITALIZATION...................................... 28
DISTRIBUTIONS....................................... 29
DILUTION............................................ 31
PRO FORMA FINANCIAL STATEMENTS...................... 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................ 35
General............................................ 35
Results of Operations.............................. 35
Pro Forma Results of Operations.................... 35
Liquidity and Capital Resources.................... 35
Funds from Operations.............................. 36
Inflation.......................................... 37
THE PRIVATE CORRECTIONS INDUSTRY.................... 37
CORRECTIONS CORPORATION OF AMERICA.................. 38
Facility Operations................................ 38
Certain Selected Financial Information............. 39
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 41
BUSINESS OF THE COMPANY AND ITS PROPERTIES.......... 48
The Facilities..................................... 48
Description of the Facilities...................... 50
Legal Proceedings.................................. 53
Competition........................................ 53
Government Regulation.............................. 53
RELATIONSHIP BETWEEN CCA AND THE COMPANY AFTER THE
FORMATION TRANSACTIONS............................. 54
LEASES.............................................. 55
MANAGEMENT.......................................... 59
Trustees and Executive Officers.................... 59
Committees of the Board of Trustees................ 62
Compensation of Trustees........................... 62
Indemnification.................................... 62
Executive Compensation............................. 63
The Share Incentive Plan........................... 63
Non-Employee Trustees' Plan........................ 64
Dividend Reinvestment Plan......................... 65
Deferred Compensation Plan......................... 65
Employment Agreements.............................. 65
CERTAIN RELATIONSHIPS AND TRANSACTIONS.............. 66
Share Acquisitions by Management................... 66
Purchase of Initial Facilities..................... 66
Option Facilities.................................. 66
Right to Purchase.................................. 66
Employment Agreements.............................. 67
POLICIES AND OBJECTIVES WITH RESPECT TO CERTAIN
ACTIVITIES......................................... 67
Investment Objectives and Policies................. 67
Dispositions; CCA's Right of First Refusal......... 68
Financing.......................................... 68
Working Capital Reserves........................... 69
Conflict of Interest Policies...................... 69
Other Policies..................................... 69
CONFLICTS OF INTEREST............................... 70
General............................................ 70
Relationships Which May Give Rise to Conflicts of
Interest......................................... 70
Situations in Which Conflicts of Interests Have
Arisen and May Continue to Arise................. 70
Steps Taken by the Company to Address Potential
Conflicts of Interest............................ 71
THE FORMATION TRANSACTIONS.......................... 72
Advantages and Disadvantages to Unaffiliated
Shareholders..................................... 73
Benefits to the Company and its Officers and
Trustees......................................... 73
Benefits to CCA.................................... 73
PRINCIPAL SHAREHOLDERS OF THE COMPANY............... 74
DESCRIPTION OF CAPITAL SHARES....................... 74
General............................................ 74
Restrictions on Ownership.......................... 75
Certain Provisions of Maryland Law and of the Com-
pany's Declaration of Trust and Bylaws........... 76
Limitations on Changes in Control.................. 78
Limitation of Liability and Indemnification of
Trustees......................................... 79
Transfer Agent and Registrar....................... 79
SHARES AVAILABLE FOR FUTURE SALE.................... 80
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS.......... 80
Taxation of the Company............................ 80
Failure to Qualify................................. 86
Taxation of Taxable Domestic Shareholders.......... 86
Backup Withholding................................. 87
Taxation of Tax-Exempt Shareholders................ 87
Taxation of Foreign Shareholders................... 88
Other Tax Consequences............................. 89
ERISA CONSIDERATIONS................................ 90
UNDERWRITING........................................ 91
EXPERTS............................................. 92
LEGAL MATTERS....................................... 92
GLOSSARY............................................ 93
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 Common Shares have been approved for
listing on the New York Stock Exchange (the "NYSE"), subject to official notice
of issuance. Accordingly, upon official notice of issuance, 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 $21.00 (the highpoint of the range of estimated
initial public offering prices set forth on the front cover of this Prospectus);
(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
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
Tennessee corporation ("CCA"). 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 6,118 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"). 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").
As a result of these transactions, the Company and CCA will have several ongoing
relationships after the Formation Transactions, some of which could give rise to
possible conflicts of interest. See "Relationship Between CCA and the Company
after the Formation Transactions." The Company will also pursue opportunities to
acquire and lease back correctional and detention facilities to operators other
than CCA. Likewise, CCA may lease correctional and detention facilities from
owners other than the Company.
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 Company also expects to acquire one of the Option Facilities
at, or shortly after, consummation of the Offering for a purchase price of $66.4
million. The Company will lease all of the Facilities to CCA, and CCA will
continue to manage the Facilities. The Company believes that with respect to the
Initial Facilities and, if acquired, the Option Facilities, it will benefit
significantly from the continuity of management provided by CCA. 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 and the Option Facility expected to be acquired are expected to
generate aggregate initial annual rent of approximately $41.2 million, which
represents an 11% lease rate based on the purchase price. The Company believes
that the lease rate represents a fair market rental rate based on comparable
triple net lease transactions. 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 obligations of CCA under the Leases are
cross-defaulted to each of the other Leases with respect to payment defaults and
certain other defaults. Each Lease (and any future lease with CCA) may be
terminated by the Company, at its option, at any time after the first five years
of the lease, upon 18 months written notice to CCA.
The Company has obtained a commitment for a $150.0 million line of credit
(the "Bank Credit Facility") from a group of banks led by First Union National
Bank of Tennessee ("First Union"), which will
1
<PAGE> 7
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 expects to
close the Bank Credit Facility immediately following the consummation of the
Offering. 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."
The Company intends to initially focus its investments on privately-managed
facilities that are owned and operated by CCA or its subsidiaries. However, the
Company will also pursue other opportunities, including acquisitions and lease
backs of, or financings for, correctional facilities owned and operated by
various government entities and private operators other than CCA. The Company
believes it has significant access to these opportunities through its
relationship with CCA and the experience and industry contacts of its Board of
Trustees and management, particularly its Chief Executive Officer, J. Michael
Quinlan, former Director of the Federal Bureau of Prisons (the "BOP"). The
Company intends to utilize Mr. Quinlan's experience in developing and managing
correctional and detention facilities to opportunistically pursue development
and acquisitions of correctional facilities from both private prison owners and
operators and government entities. See "Management -- Trustees and Executive
Officers."
The Company 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.
SUMMARY 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 dependence on CCA, as the 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, the lack of third party appraisals of the Facilities and the
lack of arm's-length negotiations in connection with certain aspects of
the Formation Transactions;
- Ownership of the Company's facilities is subject to operating risks
inherent in the corrections and detention industry;
- The taxation of the Company as a regular corporation if it fails to
qualify as a REIT;
- The Company's lack of operating history and management's lack of
experience in operating in accordance with the requirements for
maintaining its qualification as a REIT;
- Actual Cash Available for Distribution (defined generally as 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) may be
insufficient to allow the Company to maintain its proposed initial
distribution rate;
- 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;
2
<PAGE> 8
- The dependence on certain key personnel, particularly Messrs. Quinlan,
Crants, III and Devlin;
- The Company's lack of control over the day-to-day operations and
management of the Facilities;
- Immediate dilution in the net tangible book value per share of the Common
Shares purchased in the Offering;
- The restrictions on the ownership of outstanding Common Shares to ensure
compliance with certain requirements related to qualification of the
Company as a REIT;
- Anti-takeover effect of limiting actual or constructive ownership of
Common Shares of the Company by a single person to 9.8% of the
outstanding capital shares, subject to certain specified exceptions, and
certain other provisions contained in the organizational documents of the
Company, any of which may have the effect of delaying or preventing a
transaction or change in control of the Company that might involve a
premium price for the Common Shares or otherwise be in the best interests
of the Company's shareholders;
- 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;
- The lack of a prior market for the Common Shares and the potential impact
of market interest rate increases and other factors on the trading price
of the Common Shares; and
- The possibility that the Company may not be able to obtain long-term
financing on favorable terms and that interest rates might increase on
amounts drawn under the Bank Credit Facility.
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 Statements of Operations. The pro forma balance sheet
information is presented as if the Formation Transactions had occurred on March
31, 1997. 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.
3
<PAGE> 9
CCA PRISON REALTY TRUST
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
----------------------------------
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
<S> <C> <C>
OPERATING DATA:
Revenue:
Rent income(1)......................................... $41,195 $10,299
Costs and expenses:
Operating and administrative(2)........................ 1,950 487
Interest expense(3).................................... 320 126
Provision for depreciation and amortization(4)......... 10,475 2,619
------- -------
Total costs and expenses.......................... 12,745 3,232
------- -------
Net income................................................ $28,450 $ 7,067
======= =======
Net income per share...................................... $ 1.51 $ 0.38
======= =======
Weighted average number of shares outstanding(5).......... 18,801 18,801
OTHER DATA:
Funds from Operations(6).................................. $38,925 9,686
Cash Available for Distribution........................... 38,925 9,686
Distributions............................................. 31,962 7,990
Distributions per share................................... $ 1.70 $ 0.425
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
AS OF AS OF
MARCH 31, 1997 APRIL 23, 1997
----------------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Notes payable, revolving line of credit(3)................ $ 16,798 $ --
Real estate before accumulated depreciation............... 377,503 --
Total assets.............................................. 378,003 1
Shareholders' equity...................................... 361,205 1
</TABLE>
- ---------------------
(1) Rent income from CCA recorded in accordance with the terms of the Leases as
if the Initial Facilities and the Northeast Ohio Correctional Center Option
Facility had been in operation at the leased design capacity for the entire
period. The Company will lease the Facilities to CCA under operating leases.
(2) Recurring administrative expenses of the Company, including franchise and
excise taxes, based upon management's estimates of operating and
administrative costs.
(3) Borrowings under the Bank Credit Facility and interest expense recorded
thereon.
(4) Depreciation expense on fixed assets purchased from CCA based on the
estimated useful lives of the Facilities.
(5) 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.
(6) Management believes Funds from Operations (as hereinafter defined) is
helpful to investors as a measure of the performance of an equity REIT
because, along with cash flows from operating activities, financing
activities and investing activities, it provides investors with an
understanding of the ability of the Company to incur and service debt and
make capital expenditures. Funds from Operations is defined by the Board of
Governors of NAREIT (as hereinafter defined) as net income (loss) (computed
in accordance with GAAP), excluding significant non-recurring items, 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 and, accordingly, may not be
comparable to other REITs' Funds from Operations calculated under a
differing methodology. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Funds from Operations."
Funds from Operations should be examined in conjunction with net income as
presented.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
------------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
Calculations of Funds from Operations:
Pro Forma net income...................................... $28,450 $7,067
Plus: Pro forma real estate depreciation and
amortization............................................ 10,475 2,619
------- ------
Pro forma Funds from Operations........................... $38,925 $9,686
======= ======
</TABLE>
Funds from Operations should not be considered as an alternative to net
income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to cash flows from operating activities
(determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's
cash needs, including its ability to make distributions.
4
<PAGE> 10
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. For a more complete discussion of the methods
through which the Company will seek to achieve these objectives, see "The
Company -- Business Objectives and Strategies."
FUTURE GROWTH OF THE COMPANY
EXTERNAL GROWTH
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 herein. The Company
believes it has a competitive advantage in the acquisition of new correctional
facilities due to its significant capital resources. The Company also believes
that attractive opportunities exist to acquire or develop correctional
facilities from or on behalf of private prison owners and operators and various
government entities. 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 and Doctor R. Crants, Chairman of the Board of Trustees. Mr. Quinlan is
the former director of the BOP and Mr. Crants is the Chairman and Chief
Executive Officer of CCA.
Financing Opportunities. While the Company intends to grow primarily
through 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 owners
and operators in circumstances when ownership by the Company is not otherwise
attractive.
INTERNAL GROWTH
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. Management of the Company intends to actively
participate in its tenants' expansion plans and intends to provide expansion
space as needed.
Rent Escalations. The rent schedule under the Leases provides for a
relatively stable source of cash flow and opportunities to participate in future
growth in revenues. The minimum rent for the first year for each Facility under
the Leases is initially set at a fixed amount. Thereafter, minimum rent 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 such Facility, exclusive of any increase
attributable to expansion in the size of or the number of beds in such facility
(the "Base Rent Escalation"). However, there can be no assurance that such
contractual escalations will be realized due to certain factors, including
changing circumstances and the possible renegotiation of the Leases.
BUSINESS OF THE COMPANY AND ITS PROPERTIES
THE FACILITIES
The Company has negotiated a purchase agreement for the nine Initial
Facilities, and option agreements to purchase any or all of the five additional
Option Facilities that 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 with respect to the Initial Facilities and the
Option Facilities is set forth in the following tables and accompanying
descriptions. In general, the Facilities are all of 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.
5
<PAGE> 11
THE INITIAL FACILITIES
<TABLE>
<CAPTION>
INITIAL
ANNUAL LEASE
DESIGN DATE RENT TERM
FACILITY AND LOCATION CAPACITY(1) OPENED TYPE OF FACILITY(2) CONTRACTING ENTITIES (IN MILLIONS)(3) (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(4), BOP and 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(5) July Medium Security INS and BOP 6.0 12
Eloy, Arizona 1994 Detention Center
Central Arizona
Detention Center.... 1,792 October Multi-Security USMS and 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 and States of Colorado
Facility and Wyoming
</TABLE>
- ---------------
(1) Design capacity measures the number of beds, and accordingly the number of
inmates, each facility is designed to accommodate. Management believes
design capacity is an appropriate measure for evaluating prison operations,
because the revenues generated by each facility are based on a per diem or
monthly rate per inmate housed at the facility paid by the corresponding
contracting governmental entities. The ability of CCA or another private
prison manager to satisfy its financial obligations under its leases with
the Company is based in part on the revenues generated by their facilities,
which in turn depends on the design capacity of each facility.
(2) Each facility is identified according to the level(s) of security maintained
and the types of inmates held. Minimum security facilities are facilities
having open-housing within an appropriate designated and patrolled
institutional perimeter; medium security facilities are facilities having
either cells, rooms or dormitories, a secure perimeter, and some form of
external patrol; maximum security facilities are facilities having single
occupancy cells, a secure perimeter and external patrol or detention
devices; and multi-security facilities are facilities with various areas
encompassing either minimum, medium, or maximum security. Processing centers
are used to house undocumented aliens for the U.S. Immigration and
Naturalization Service (the "INS"); pre-parole transfer facilities are used
to hold inmates that have been arrested for technical violations of their
parole agreements with the State Department of Criminal Justice, Board of
Pardons and Paroles; detention facilities are used to house inmates of all
levels, including pre-trial and pre-sentence prisoners for the U.S. Marshals
Service, inmates sentenced, but not yet housed in correctional facilities,
inmates awaiting trial, sentencing or hearing, and persons detained by the
INS; and correctional facilities are used to house inmates on a permanent
basis for the duration of their sentences.
(3) On an annualized basis.
(4) U.S. Marshals Service (the "USMS").
(5) 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 the Leases with terms ranging from 10 to
12 years with aggregate initial annual rents of approximately $33.9 million.
6
<PAGE> 12
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.
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. See "Risk
Factors -- Conflicts of Interest." The purchase price for the Initial Facilities
was determined primarily based on an evaluation of the current and anticipated
cash flows and operating results of such facilities. To determine the purchase
price for each of the Initial Facilities other than the T. Don Hutto
Correctional Center, the anticipated annual cash flow from the facility less
ongoing capital expenditures was divided by a coverage ratio and lease rate
determined by the Company and CCA to be at fair market rates based on comparable
triple net lease transactions. Because the T. Don Hutto Correctional Center was
not completed until January 1997, the purchase price of that facility was
calculated as CCA's approximate cost of developing, constructing and equipping
the facility, plus 5% of such costs. 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 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>
ANTICIPATED
DESIGN OPENING
FACILITY AND LOCATION CAPACITY 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 USMS, BOP, State of New
Estancia, New Mexico 1997(2) Detention Facility Mexico and Torrance County,
New Mexico
Southern Colorado Correctional Facility..... 752 October Medium Security State of Colorado
Walsenburg, Colorado 1997 Correctional Facility
North Fork Correctional Facility............ 1,440 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 on a permanent basis. CCA is currently housing 900 inmates in this
facility for the District of Columbia under a temporary contract.
(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. See "Business of the Company and its Properties -- The Option
Facilities." The purchase price of each Option Facility will be equal to CCA's
approximate cost of developing, constructing and equipping such Option Facility,
plus 5% of such costs. The initial annual rental rate for each Option Facility
will be the greater of (i) the fair market rental rate of the Option Facility,
or (ii) 11% of the purchase price. Using the 11% lease rate calculation, 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 -- $66.4 million and $7.3 million; (b) Torrance County
Detention Facility -- $38.5 million and $4.2 million; (c) Southern Colorado
Correctional Facility -- $29.5 million and $3.2 million; (d) North Fork
Correctional Facility -- $39.5 million and $4.3 million; and (e) Whiteville
Correctional Center -- $42.0 million and $4.6 million. Total estimated purchase
price and first-
7
<PAGE> 13
year rent for the Option Facilities amount to approximately $215.9 million and
$23.6 million, respectively. The Company expects to acquire the Northeast Ohio
Correctional Center at, or shortly after, consummation of the Offering.
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 approximate
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."
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. 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. According to the
1996 Facility Census, the aggregate capacity of private facilities in operation
or under construction rose from 63,595 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 30% in 1996.
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 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. See
"Relationship Between CCA and the Company after the Formation Transactions."
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 June 10, 1997,
CCA had contracts to manage 60 correctional and detention facilities with an
aggregate design capacity of 43,748 beds, of which 51 facilities representing
32,441 beds were in operation.
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, prior to the completion of the Formation
Transactions, CCA and the Company will have entered 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 (the "Board of
Trustees"). Such agreements include (a) the Purchase Agreement (as hereinafter
defined);
8
<PAGE> 14
(b) the Option Agreements (as hereinafter defined); (c) the Right to Purchase
Agreement (as hereinafter defined); and (d) the Trade Name Use Agreement (as
hereinafter defined).
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 purchase price equal to CCA's
cost of developing, constructing and equipping such facilities plus 5% of such
costs, aggregating approximately $215.9 million. The Company expects to acquire
one of the Option Facilities at, or shortly after, consummation of the Offering.
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 will have an option to acquire, at fair market
value, 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. 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. For facilities acquired during the first five years of the
Right to Purchase Agreement, the initial annual rental rate on facilities leased
back to CCA will be the greater of (i) fair market rental rates, as determined
by CCA and the Company, or (ii) 11% of the purchase price of such facilities.
For facilities acquired thereafter, the initial annual rental rate on such
facilities will be the fair market rental rates, as determined by the Company
and CCA.
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, including CCA's right to terminate the Trade Name
Use Agreement upon 10 days' written notice to 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 Company's Board of Trustees. See "Risk Factors -- Conflicts of
Interest."
The Board of Trustees has established an Independent Committee consisting
of the seven trustees who will not be employees of the Company or affiliated
with CCA (the "Independent Committee"). Pursuant to the Company's Bylaws, the
Independent Committee must approve of the following actions of the Company's
Board of Trustees: (i) the election of the operators for the Company's
properties; and (ii)(a) the entering into of any agreement with CCA and its
affiliates and (b) the consummation of any transaction between the
9
<PAGE> 15
Company and CCA of its affiliates; including, but not limited to, the
negotiation, enforcement and renegotiation of the terms of any lease of any of
the Company's properties. 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, neither of whom have had
nor will have any 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."
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
rental rates for three additional five-year terms (the "Extended Term"), upon
the mutual agreement of the Company and CCA. Each Lease may be terminated by the
Company, at its option, at any time after the first five years of the Lease,
upon 18 months prior written notice to 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 and opportunities to participate in future growth in revenues
experienced by CCA. 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.
Pursuant to the Master Lease, CCA will 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. Neither the Master Lease nor any of the other
agreements entered into by CCA in connection with the Formation Transactions
prohibits or otherwise restricts CCA's ability to lease properties from parties
(domestic or foreign) other than the Company. 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. None of such transactions is expected to occur
unless all such transactions occur. These transactions include the following:
- The Company, which was formed as a Maryland real estate investment trust
on April 23, 1997, will sell 18,500,000 Common Shares in the Offering for
net proceeds of approximately $358.2 million after deduction of the
underwriting discount and estimated offering expenses (assuming an initial
public offering price of $21.00 per share);
- Doctor R. Crants, Chairman of the Company and Chairman and Chief
Executive Officer of CCA, will acquire in the Offering approximately
500,000 Common Shares at a price per share equal to the initial public
offering price;
10
<PAGE> 16
- 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 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 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
generally equal to CCA's costs of developing, constructing and equipping
such facilities plus 5% of such costs, which aggregating approximately
$215.9 million. If acquired, the Option Facilities will be leased to CCA
on terms substantially similar to those contained in the Leases. The
Company expects to exercise its option to purchase the Northeast Ohio
Correctional Center for a purchase price of $66.4 million at, or shortly
after, consummation of the Offering;
- 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 rates, 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 facilities
acquired during the first five years of the Right to Purchase Agreement,
the initial annual rental rate for facilities leased back to CCA will be
the greater of (i) fair market rental rate as determined by the Company
and CCA, or (ii) 11% of the purchase price of such facilities. For
facilities acquired thereafter, the initial annual rental rate on such
facilities will be the fair market rental rate as determined by the
Company and CCA. 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;
- The Company will enter into employment agreements with certain of the
Company's executive officers, including J. Michael Quinlan, Chief
Executive Officer, D. Robert Crants, III, President, and Michael W.
Devlin, Chief Development Officer; and
- 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 promotion and
formation of the Company, the consummation of the Offering and the closing
of the purchase of the Initial Facilities, which would have a value for
each of them, based upon the initial public offering price, of $3.2
million. The reimbursed expenses include certain costs related to property
due diligence, employee compensation, travel and overhead. The development
fee compensates Messrs. Crants and Devlin for their services rendered on
behalf of the Company in connection with, among other things, the
preparation of the Company's initial business plan and capital and
operating budgets. A significant portion of this development work
commenced in the fall of 1995, and continued throughout 1996 and 1997.
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 Initial Facilities, through their ownership in the
Company, and in all future acquisitions by the Company. 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 fact that Doctor R. Crants, Chairman of the Board of both the Company
and CCA, will have substantial influence on the management and operations of the
Company and, as a substantial shareholder of both the Company and CCA, on the
outcome of any matters submitted to a vote of shareholders, and the risk that
such influence might be exercised in a manner inconsistent with the interests of
other shareholders. See the more complete discussion of such matters under "Risk
Factors."
11
<PAGE> 17
BENEFITS TO THE COMPANY AND ITS OFFICERS AND TRUSTEES
The benefits of the foregoing transactions to the Company and its officers
and trustees include:
- The ability to access public capital markets;
- The creation of an entity which, through its distributions to
shareholders, 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 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. Such options will vest in 25% increments over a three year period
with the first increment vesting immediately upon the date of grant;
- 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 promotion and
formation of the Company, the consummation of the Offering and the closing
of the purchase of the Initial Facilities, which would have a value for
each of them, based upon the initial public offering price, of $3.2
million. The reimbursed expenses include certain costs related to property
due diligence, employee compensation, travel and overhead. The development
fee compensates Messrs. Crants and Devlin for their services rendered on
behalf of the Company in connection with, among other things, the
preparation of the Company's initial business plan and capital and
operating budgets. A significant portion of this development work
commenced in the fall of 1995, and continued throughout 1996 and 1997. See
"The Formation Transactions -- Benefits to the Company and its Officers
and Trustees;" and
- Each non-employee trustee will receive options to acquire 5,000 Common
Shares at the initial public offering price. Such options will vest
immediately upon the date of grant.
BENEFITS TO CCA
The benefits of the foregoing transactions to CCA include:
- 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 March 31, 1997 was approximately $175.2
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 $216.0 million in cash. The Company
expects to exercise its option to purchase the Northeast Ohio Correctional
Center for a purchase price of $66.4 million at, or shortly after,
consummation of the Offering;
- 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.
12
<PAGE> 18
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 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 82.1% 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, other than the Northeast Ohio Correctional Center. 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
operations for the 12 months ending June 30, 1998, the Company estimates that
approximately 10% to 15% 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 $27.0 million or
$1.44 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. In the opinion of each Stokes &
Bartholomew, P.A. and Sherrard & Roe, PLC, commencing with such taxable year,
the Company will be organized in conformity with the requirements for
qualification as a REIT, and its proposed method of operation will enable it to
meet the requirements for qualification and taxation as a REIT under the Code.
These opinions are based upon, and subject to, certain assumptions and various
factual representations of the Company, which are incorporated into such opinion
and are addressed herein under the heading "Material Federal Income Tax
Considerations." Qualification and taxation as a REIT also depends upon the
Company's ability to meet, through actual annual operating results, distribution
requirements, diversity of share ownership and the various other qualification
tests imposed under the Code, the results of which will not be reviewed either
by Stokes & Bartholomew, P.A. or by Sherrard & Roe, PLC. 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. 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
13
<PAGE> 19
Company's Amended and Restated Declaration of Trust (the "Declaration of Trust")
imposes restrictions on the transfer of Common Shares. The Company has adopted
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............................. 18,500,000 shares
Common Shares to be outstanding after
the Offering........................ 18,801,000 shares(1)(2)
Use of proceeds....................... To pay the purchase price for the
Initial Facilities and for either
general corporate purposes or for
the possible future acquisition of,
or loans secured by, additional
properties consistent with the
Company's investment policies,
including the Option Facilities.
See "Use of Proceeds,"
"Capitalization" and "The Formation
Transactions."
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
Non-Employee 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 promotion
and formation of the Company and the consummation of the Offering. See
"Dilution" and "The Formation Transactions."
14
<PAGE> 20
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 DEPENDENCE ON CCA, AS THE LESSEE OF THE FACILITIES, FOR THE COMPANY'S
INITIAL REVENUES AND ABILITY TO MAKE DISTRIBUTIONS
CCA will be the 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. While the Company plans to generate revenues through the acquisition
from, and the leasing of correctional and detention facilities directly to,
governmental entities, no such agreements have been reached and there can be no
assurance that the Company will ever be successful in reaching such an agreement
with a government entity.
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 of the Board of Directors 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.
15
<PAGE> 21
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 was not negotiated on an arm's-length basis. The purchase price of
the Initial Facilities was determined based primarily on an evaluation of the
current and anticipated cash flows and operating results of such facilities. To
determine the purchase price for each of the Initial Facilities other than the
T. Don Hutto Correctional Center, the anticipated annual cash flow from the
facility less ongoing capital expenditures was divided by an agreed upon
coverage ratio and lease rate. Because the T. Don Hutto Correctional Center was
not completed until January 1997, the purchase price of that facility and of
each Option Facility was calculated as CCA's approximate cost of developing,
constructing and equipping such facilities, plus 5% of such costs. It is
possible that if such valuations had been determined on an arm's-length basis,
or had been the subject of independent valuations or appraisals, the sum of the
values of the Initial Facilities and, if acquired, the Option Facilities might
have been greater than the sum of the values determined by the management of CCA
and of 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 lease rate of
approximately 11%, which the Company believes reflects the fair market 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 acquired or developed 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.
CORRECTIONS AND DETENTION INDUSTRY RISKS
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 up 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 and if a private prison manager's
contract to operate a facility is terminated, it may adversely affect the
ability of the contracting private prison manager (including CCA) to make its
lease payments.
16
<PAGE> 22
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.
DEPENDENCE ON ABILITY TO DEVELOP NEW PRISONS. 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.
LEGAL PROCEEDINGS. The Company's ownership and operation of correctional
and detention facilities could expose it to potential third party claims or
litigation by prisoners or other persons related to personal injury or other
damages resulting from contact with a facility, its managers, personnel, or
other prisoners, including damages arising from a prisoner's escape from, or a
disturbance or riot at, a Company owned facility. In addition, as an owner of
real property, the Company may be subject to certain proceedings relating to
personal injury of persons at such facilities. The Company may be held
responsible under state laws for claims based on personal injury or property
damage despite contractual provisions in its leases with CCA and other managers
providing for indemnity against such claims.
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.
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 opinions of Stokes & Bartholomew, P.A. and Sherrard & Roe, PLC
tax counsel to the Company, regarding various issues affecting the Company's
ability to qualify, and retain qualification, as a REIT. However, 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
17
<PAGE> 23
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."
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.
INITIAL DISTRIBUTION POLICY
The Company initially plans to make annual distributions, 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 -- Corrections and Detention
Industry Risks." 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.
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
18
<PAGE> 24
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 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. In addition,
environmental conditions on properties owned by the Company may affect the
operation or expansion of facilities located on the properties.
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.
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. In particular, the
Company expects to utilize the industry knowledge, experience and relationships
of Mr. Quinlan, its Chief Executive Officer. From July 1987 through December
1992, Mr. Quinlan served as the Director of the BOP. The loss of the services of
any one of these individuals could have a material adverse effect on the
Company. Specifically, if the Company were to lose the services of Mr. Quinlan,
it would lose the benefit of his extensive knowledge of, and experience in, the
corrections industry. 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.
19
<PAGE> 25
DILUTION
The purchasers of the Common Shares offered hereby will experience an
immediate dilution of $1.79 per share in the net tangible book value of the
Common Shares ($1.75 per share assuming full exercise of the Underwriters'
over-allotment option).
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 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,
including provisions imposing the Ownership Limit (which are described
specifically in the immediately preceding paragraph and which generally prohibit
any shareholder from owning more than 9.8% of the Common Shares), authorizing
the issuance of Preferred Shares and requiring staggered terms for the Board of
Trustees, and certain provisions of Maryland law regarding business combinations
and "control share acquisitions" 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. The Declaration of Trust
authorizes the Board of Trustees to issue 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 series and the
qualifications, limitations or restrictions thereof, all without shareholder
approval. The authorization of Preferred Shares may have an anti-takeover effect
because it gives the Board of Trustees the power to issue Preferred Shares at
its sole discretion on such terms as it, in its sole discretion, deems proper,
which may have a dilutive effect on or otherwise deter any potential acquiror of
the Company. The Declaration of Trust provides for three classes of trustees, as
nearly equal in size as is practicable. Each class of trustees 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 Declaration of Trust further provides
that the Board of Trustees or shareholders may, at any time, remove any trustee,
with or without cause, only by an affirmative vote of a majority of trustees or
a majority of holders of shares entitled to vote in the election of trustees.
These provisions may have an anti-takeover effect because a third party will be
unable to acquire immediate control of the Board of Trustees due to the
existence of the staggered board and will further be unable to remove trustees
without majority shareholder approval. See "Description of Capital
Shares -- Certain Provisions of Maryland Law and of the Company's Declaration of
Trust and Bylaws."
20
<PAGE> 26
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."
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 the Common Shares have been approved for listing on the NYSE,
subject to official notice of issuance, 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.
DEPENDENCE ON FINANCING FOR GROWTH AND ADVERSE CONSEQUENCES OF DEBT FINANCING ON
ABILITY TO MAKE DISTRIBUTIONS
The Company intends 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's organizational documents, however, do not contain any limitation on
the amount or percentage of indebtedness the Company may incur, and the Board of
Trustees could alter or eliminate the Company's current borrowing policy. If the
policy were changed or eliminated, the Company could become more highly
leveraged, resulting in an increase in debt service, which could adversely
affect the Company's Funds from Operations and its ability to make expected
distributions to its shareholders, and result in an increased risk of default on
the Company's obligations. The Company intends to enter into the Bank Credit
Facility immediately following the Offering, 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
21
<PAGE> 27
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."
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 (as
hereinafter defined) 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.
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
initially will acquire the nine Initial Facilities from CCA. 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. As a result of these transactions, the Company and CCA
will have several ongoing relationships after the Formation Transactions, some
of which could give rise to possible conflicts of interest. See "Relationship
Between CCA and the Company after the Formation Transactions." 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 will lease all of the Facilities to CCA, and CCA will continue
to manage the Facilities. The Company believes that with respect to the Initial
Facilities purchased and, if acquired, the Option Facilities, it will benefit
from the continuity of management provided by CCA. CCA is the largest developer
and manager of privatized correctional and detention facilities worldwide and
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. The Company will also pursue opportunities to acquire and
lease back correctional and detention facilities to operators other than CCA.
Likewise, CCA may lease correctional and detention facilities from owners other
than the Company. 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 Company expects to acquire one of the Option Facilities for a
purchase price of $66.4 million at, or shortly after, consummation 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 rental rates for three additional five-year periods upon the
mutual agreement of the Company and CCA. The Facilities and the Option Facility
expected to be acquired are expected to generate aggregate initial annual rent
of approximately $41.2 million, which represents an 11% lease rate based on the
purchase price. The Company will have general recourse to CCA under the Leases,
but such Leases are not secured by any properties of CCA. The obligations of CCA
under the Leases are cross-defaulted to each of the other Leases with respect to
payment defaults and certain other defaults. Each Lease (and any future lease
with CCA) may be terminated by the Company, at its option, at any time after the
first five years of the Lease, upon 18 months written notice to CCA.
The Company has obtained a commitment for the $150.0 million Bank Credit
Facility which will be used for the acquisition of additional correctional
facilities, including the Option Facilities, and for certain other purposes,
including expanding existing facilities and working capital, as necessary. The
Company expects to close the Bank Credit Facility immediately following the
consummation of the Offering. 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."
23
<PAGE> 29
The Company intends to initially focus its investments on privately-managed
facilities which are owned and operated by CCA or its subsidiaries. However, the
Company will also pursue other opportunities, including acquisitions and lease
backs of, or financings for, facilities owned and operated by various government
entities and private operators other than CCA. The Company believes it has
significant access to potential development and acquisition opportunities
through its relationship with CCA and the experience and industry contacts of
its Board of Trustees and management, particularly its Chief Executive Officer,
Mr. Quinlan, former Director of the BOP. The Company intends to utilize Mr.
Quinlan's experience in developing and managing correctional and detention
facilities to opportunistically pursue development and acquisitions of
correctional facilities from both private prison owners and operators and
government entities. See "Management -- Trustees and Executive Officers."
The Company 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, 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 on April
23, 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 the potential acquisition
of 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 lessees pay 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;
- The provision of 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 debt to total capitalization ratio (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
EXTERNAL GROWTH
Acquisition Opportunities. In addition to the possible acquisition of the
Option Facilities, the Company intends to acquire from both private prison
owners and operators and government entities additional
24
<PAGE> 30
correctional and detention facilities that meet its investment criteria, as
described herein. 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 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 -- Corrections and Detention Industry
Risks."
The Company also believes that attractive opportunities exist to acquire or
develop correctional facilities from or on behalf of private prison owners and
operators and 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, and Doctor R.
Crants, Chairman of the Board of Trustees. From July 1987 through December 1992,
Mr. Quinlan served as the Director of the BOP. Mr. Crants currently serves as
Chairman and Chief Executive Officer of CCA.
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;
25
<PAGE> 31
- The facility's status of accreditation by the American Correctional
Association (the "ACA"). The ACA is a multi-disciplinary organization of
professionals representing all levels and facets of the corrections and
criminal justice industry, including federal, state and military
correctional facilities in prisons, county jails and detention centers,
probation and parole agencies, and community corrections/half-way houses.
Comprised of 70 chapters and affiliated organizations, as well as
individual members numbering more than 20,000, the ACA serves as the
umbrella organization for all areas of corrections, and provides a broad
base of expertise in this industry; and
- The relationship between the prison manager and the contracting
correctional authority.
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.
The Company's ability to acquire new facilities, expand its existing
facilities or provide mortgage financing will depend on its access to financing.
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 -- Initial Distribution Policy."
INTERNAL GROWTH
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. Although management of the Company is
presently not aware of any expansion plans of CCA with respect to the
Facilities, it intends to actively participate in any such future expansion
plans and intends to provide expansion space as needed to CCA or any of the
Company's future tenants.
Rent Escalations. The rent schedule under the Leases provides for a
relatively stable source of cash flow and opportunities to participate in future
growth in revenues. The minimum rent for the first year for each Facility under
the Leases is initially set at a fixed amount. Thereafter minimum rent will
escalate by the Base Rent Escalation which is a percentage equal to the greater
of (i) 4%, or (ii) 25% of the percentage increase in the gross management
revenues realized by CCA from such Facility, exclusive of any increase
attributable to expansion in the size of or the number of beds in such facility.
However, there can be no assurance that such contractual escalations will be
realized due to certain factors, including changing circumstances and the
possible renegotiation of the Leases.
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.
26
<PAGE> 32
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. Such procedures include:
Competitive Market Analysis. CCA generally receives inquiries from or
on behalf of government agencies that are considering privatization of
certain facilities. When it receives such an inquiry, CCA thoroughly
examines the need for its services (including the economic and demographic
indicators such as the demand for prison beds and the number of available
beds in the area) and the legal and political climate in which the
inquiring party operates. Generally, government agencies responsible for
correctional and detention services procure goods and services through a
competitive process involving either a Request for Proposal ("RFP") or
Request for Qualification ("RFQ"). A majority of CCA's new business is
secured through responding to RFPs. As part of CCA's process of responding
to RFPs, CCA's management meets with appropriate personnel from the
government agency making the request to best determine the agency's
distinct needs. If the project falls within CCA's strategy, CCA will then
submit a written response to the RFP. A typical RFP requires bidders to
provide detailed information, including, but not limited to, the service to
be provided by the bidder, its experience and qualifications, and the price
at which the bidder is willing to provide the services (which services may
include the renovation, improvement or expansion of an existing facility or
the planning, design and construction of a new facility).
Pro Forma Operating Budget. CCA works closely with the government
agency to develop a comprehensive pro forma budget on the property,
utilizing available financial information in addition to other information
collected from a variety of sources. The expected term of the management
contract is examined as well as the cost of construction of a new facility
or the expansion or renovation of an existing facility. Finally, in the
event of the construction of a new facility, the potential for overall
capital appreciation of the facility is reviewed.
Environmental and Legal Review. In conjunction with each prospective
acquisition, CCA conducts comprehensive real estate and legal due diligence
on the property. This due diligence includes Phase I environmental
assessments to the extent such assessments are not already existing. In
addition, CCA conducts 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.
Accordingly, the Company believes it will be able to acquire or finance
future 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.
27
<PAGE> 33
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Shares offered
hereby are estimated to be approximately $358.2 million ($412.4 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 Company expects to use
approximately $49.6 million of the proceeds as a portion of the purchase price
to exercise its option to purchase the Northeast Ohio Correctional Center for
$66.4 million at, or shortly after, consummation of the Offering. The balance of
the purchase price for the Northeast Ohio Correctional Facility will be paid
with borrowings under the Bank Credit Facility (or with proceeds, if any, from
the exercise by the Underwriters of the over-allotment option). The purchase of
the Initial Facilities will close contemporaneously with the closing of the
Offering, and the Company expects that the purchase of the Northeast Ohio
Correctional Facility will close at, or shortly after, consummation of the
Offering. See "The Formation Transactions." Any net proceeds from the exercise
of the Underwriters' over-allotment option, and funds available from the $150.0
million Bank Credit Facility, will be used by the Company either for general
corporate purposes or for the possible future acquisition of, or loans secured
by, additional properties consistent with the Company's investment policies,
including the Option Facilities. While the Company may engage from time to time
in discussions regarding potential acquisitions, other than with respect to the
Option Facilities and the Right to Purchase Agreement, it has not entered into
any agreement as of the date of this Prospectus to make any such acquisition.
Pending the described uses, the remaining net proceeds will be invested in
short-term investment grade instruments, interest bearing bank account,
certificates of deposit, money market securities, U.S. government securities or
mortgage-backed securities guaranteed by Federal agencies.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
April 23, 1997, the date of its formation, (i) after giving effect to the
Formation Transactions, and (ii) as adjusted to reflect the sale by the Company
of the 18,500,000 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(2)
------ --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Notes payable, revolving line of credit..................... $-- $ 16,798
--- --------
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;
18,801,000 shares, as adjusted, issued and
outstanding(1)......................................... -- 188
Additional paid-in capital................................ 1 361,017
=== ========
Total shareholders' equity........................ 1 361,205
--- --------
Total capitalization............................ $ 1 $378,003
=== ========
</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 promotion
and 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."
28
<PAGE> 34
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, 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 distribution described above is expected to represent approximately
82.1% of the Company's pro forma Cash Available for Distribution for the twelve
months ending December 31, 1996. The Company's estimate of the pro forma Cash
Available for Distribution is based upon pro forma Funds from Operations, with
certain adjustments based on the items described below. The estimate of Cash
Available for Distribution is being made solely for the purpose of setting the
initial distribution and is not intended to be a projection or forecast of the
Company's results of operations or its liquidity, nor is the methodology upon
which such adjustments were made necessarily intended to be a basis for
determining future distributions.
The following table describes the calculation of pro forma Funds from
Operations for the 12 months ended December 31, 1996 and the three months ended
March 31, 1997 and the adjustments made to pro forma Funds from Operations in
order to calculate initial estimated distributions.
<TABLE>
<CAPTION>
PRO FORMA
----------------------------------
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
Pro forma net income........................................ $28,450 $7,067
Plus: Pro forma real estate depreciation and amortization... 10,475 2,619
------- ------
Pro forma Funds from Operations(1)........................ 38,925 9,686
======= ======
Estimated Cash Available for Distribution(2)................ 38,925 9,686
Expected initial distribution(3)............................ 31,962 7,990
Expected initial distribution per common share.............. $ 1.70 $0.425
Expected initial payout ratio based on estimated cash
available for distribution(4)............................. 82.1% 82.5%
</TABLE>
- ---------------
(1) Funds from Operations does not represent cash generated from operating
activities (determined in accordance with GAAP) and should not be considered
as an alternative to net income (determined in accordance with GAAP) as an
indication of the Company's performance or to cash flows from operating
activities (determined in accordance with GAAP) as a measure of liquidity or
ability to make distributions. Management believes Funds from Operations is
helpful to investors as a measure of the performance of an equity REIT
because, along with cash flows from operating activities, financing
activities and investing activities, it provides investors with an
understanding of the ability of the Company to incur and service debt and
make capital expenditures. "Funds from Operations" as defined by NAREIT
means net income (loss) (computed in accordance with GAAP) excluding
significant non-recurring items, 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. The Company's Funds from Operations are not comparable to Funds
from Operations reported by other REITs that do not define the term using
the current NAREIT definition or that interpret the current NAREIT
definition differently than does the Company. The Company believes that in
order to facilitate a clear understanding of the operating results of the
Company, Funds from Operations should be examined in conjunction with net
income as presented in the combined financial statements and information
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE
YEAR ENDED MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Calculation of Funds from Operations:
Pro forma net income...................................... $28,450 $7,067
Plus: Pro forma real estate depreciation and
amortization............................................ 10,475 2,619
-------- -------
Pro forma Funds from Operations........................... $38,925 $9,686
======== =======
</TABLE>
29
<PAGE> 35
(2) To estimate Cash Available for Distribution, pro forma Funds from Operations
were adjusted (a) without giving effect to any changes in working capital
resulting from changes in current assets and current liabilities (which
changes are not anticipated to be material) or the amount of cash estimated
to be used for (i) development, acquisition and other activities and (ii)
financing activities (b) for certain known events and/or contractual
commitments that may have occurred during the period but would not have been
in effect for the full year and (c) for certain non-GAAP adjustments
consisting of an estimate of amounts anticipated for recurring tenant
improvements and capital expenditures. The estimate of Cash Available for
Distribution is being made solely for the purpose of setting the initial
distribution and is not intended to be a projection or forecast of the
Company's results of operations or its liquidity, nor is the methodology
upon which such adjustments were made necessarily intended to be a basis for
determining future distributions.
(3) Represents expected initial distribution per Common Share multiplied by the
18,801,000 Common Shares to be outstanding upon completion of the Formation
Transactions.
(4) Represents the anticipated initial aggregate 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."
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 15% 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 $27.0 million or $1.44 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."
30
<PAGE> 36
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 $21.00 per share, after
deduction of the estimated underwriting discount and Offering expenses) will be
$19.21 per share, an increase of $19.20 from the $0.01 net tangible book value
per share prior to the Offering (or a net tangible book value per share of
$19.25 and a per share increase of $19.24, respectively, assuming full exercise
of the Underwriters' over-allotment option). A $1.79 per share dilution will be
experienced by the purchasers of shares in this Offering (or $1.75 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.............. $21.00
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.......................... 19.20
Pro forma net tangible book value per Common Share after
the Offering(2)........................................ 19.21
------
Dilution per Common Share to new investors.................. $ 1.79
======
</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 $361.2 million divided by
18,801,000 Common Shares outstanding after the Offering and the Formation
Transactions. Does not give effect to the 1,850,000 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
---------- ------- -------------- ------- -------------
<S> <C> <C> <C> <C> <C>
Common Shares issued or to be
issued in the Formation
Transactions.................... 301,000(1) 1.6% $ 6,301,000(2) 1.6% $20.93
Common Shares to be sold in the
Offering........................ 18,500,000 98.4 388,500,000 98.4 21.00
</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 promotion
and 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."
(2) Founder's shares were capitalized by $1,000; no cash proceeds were received
by the Company for the shares issued to D. Robert Crants, III and Michael W.
Devlin. The valuation of the shares is based on the initial public offering
price. See "The 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."
31
<PAGE> 37
PRO FORMA FINANCIAL STATEMENTS
The following financial statements represent the unaudited pro forma
financial results for the Company as of March 31, 1997 and the three months and
year ended March 31, 1997 and December 31, 1996, respectively. The pro forma
Statements of Operations are presented as if the Formation Transactions had
occurred as of the beginning of the period indicated and therefore incorporate
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 March 31, 1997. The Company is accounting for the
Facility acquisitions under the purchase method of accounting. 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.
32
<PAGE> 38
CCA PRISON REALTY TRUST
PRO FORMA STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 THREE MONTHS ENDED MARCH 31, 1997
--------------------------------- ---------------------------------
ACTUAL ADJUSTMENTS PRO FORMA ACTUAL ADJUSTMENTS PRO FORMA
------ ----------- --------- ------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Rent income................... $-- $41,195(1) $41,195 $-- $10,299(1) $10,299
Cost and expenses:
Operating and
administrative.............. -- 1,854(2) 1,950 -- 463(2) 487
96(3) 24(3)
Interest expense.............. 320(4) 320 126(4) 126
Provision for depreciation and
amortization................ -- 10,475(5) 10,475 -- 2,619(5) 2,619
--- ------- ------- --- ------- -------
Total costs and
expenses............... -- 12,745 12,745 -- 3,232 3,232
--- ------- ------- --- ------- -------
Net income....................... $-- $28,450 $28,450 $-- $ 7,067 $ 7,067
=== ======= ======= === ======= =======
Net income per share............. $ 1.51 $ 0.38
======= =======
Weighted average number of shares
outstanding(6)................ 18,801 18,801
OTHER DATA:
Funds from Operations(7)......... $38,925 $ 9,686
Cash Available for
Distribution.................. 38,925 9,686
Distributions.................... 31,962 7,990
Number of facilities............. 10 10
</TABLE>
- ---------------
(1) To record rent income from CCA in accordance with the terms of the Leases as
if the Initial Facilities and the Northeast Ohio Option Facility had been in
operation at the leased design capacity for the entire period. The Company
will lease the Facilities to CCA under operating leases.
(2) To record the following recurring administrative expenses of the Company
based upon management's estimates of operating and administrative costs:
<TABLE>
<CAPTION>
<S> <C>
Salaries, including payroll taxes and benefits.............. $895,690
Legal, accounting, SEC reporting and other shareholder
costs..................................................... 358,100
Administrative.............................................. 425,210
Marketing and business development.......................... 175,000
</TABLE>
(3) To record state franchise taxes based upon the corporate structure of the
Company.
(4) To record interest expense incurred on outstanding borrowings incurred under
the Bank Credit Facility.
(5) To record depreciation expense on fixed assets purchased from CCA based on
the estimated useful lives of the Facilities.
(6) 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.
(7) Funds from Operations does not represent cash generated from operating
activities (determined in accordance with GAAP) and should not be considered
as an alternative to net income (determined in accordance with GAAP) as an
indication of the Company's performance or to cash flows from operating
activities (determined in accordance with GAAP) as a measure of liquidity or
ability to make distributions. Management believes Funds from Operations is
helpful to investors as a measure of the performance of an equity REIT
because, along with cash flows from operating activities, financing
activities and investing activities, it provides investors with an
understanding of the ability of the Company to incur and service debt and
make capital expenditures. "Funds from Operations" as defined by NAREIT
means net income (loss) (computed in accordance with GAAP) excluding
significant non-recurring items, 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. The Company's Funds from Operations are not comparable to Funds
from Operations reported by other REITs that do not define the term using
the current NAREIT definition or that interpret the current NAREIT
definition differently than does the Company. The Company believes that in
order to facilitate a clear understanding of the operating results of the
Company, Funds from Operations should be examined in conjunction with net
income as presented in the combined financial statements and information
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE
YEAR ENDED MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Calculation of Funds from Operations:
Pro forma net income...................................... $28,450 $7,067
Plus: Pro forma real estate depreciation and
amortization............................................ 10,475 2,619
------- ------
Pro forma Funds from Operations........................... $38,925 $9,686
======= ======
</TABLE>
33
<PAGE> 39
CCA PRISON REALTY TRUST
PRO FORMA BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
----------------------------------
ACTUAL ADJUSTMENTS PRO FORMA
------ ----------- ---------
<S> <C> <C> <C>
ASSETS
Land and buildings, net..................................... $ -- $311,103(1) $377,503
66,400(2)
Cash........................................................ -- 358,205(3) 500
(308,103)(1)
(49,602)(2)
---- -------- --------
$ -- $378,003 $378,003
==== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable, revolving line of credit..................... $ -- $ 16,798(2) $ 16,798
---- --------
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, 18,801,000 issued and outstanding, as
adjusted............................................... -- 188(3) 188
Additional paid-in capital................................ -- 358,017(3) 361,017
3,000(1)
---- --------
361,205
---- -------- --------
$ -- $378,003 $378,003
==== ======== ========
</TABLE>
- ---------------
(1) To record the purchase of the nine Initial Facilities from CCA using the
purchase method of accounting. The capitalized cost of the land and
buildings includes a $3.0 million development fee paid to management of the
Company representing a portion of the value of the 300,000 shares (valued at
the assumed initial public offering price) issued to management at the
closing of the Offering. The remaining fair market value of the shares
issued to management is considered to be a non-recurring expense and such
expense has been excluded from the pro forma financial statements.
(2) To record the exercise of the Company's option to purchase the Northeast
Ohio Correctional Center and to reflect borrowings under the Bank Credit
Facility to finance a portion of the purchase price for the acquisition.
(3) Reflects the initial capitalization (1,000 shares) of the Company, 300,000
shares issued to management, and issuance of 18,500,000 Common Shares, $0.01
par value, in connection with the Offering at an assumed initial public
offering price of $21.00 per share. The estimated costs of the Offering,
including the underwriting discount, estimated Offering expenses, totaling
$30.3 million and the development fee, have been reflected as an offset to
additional paid-in capital. The resulting net cash proceeds of the Offering
total $358.2 million.
34
<PAGE> 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was organized as a Maryland real estate investment trust on
April 23, 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 and the Northeast
Ohio Option Facility, 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 make distributions 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 make
distributions 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
The Company estimates that after giving effect to the Offering and the
acquisition of the Initial Facilities and the Northeast Ohio Option Facility,
revenues would have been $41.2 million for the year ended December 31, 1996 and
$10.3 million for the three months ended March 31, 1997. Net income would have
been $28.5 million or $1.51 per share for the year ended December 31, 1996, and
$7.1 million or $0.38 per share for the three months ended March 31, 1997.
Depreciation, amortization and other non-cash expenses would have been $10.5
million for the year ended December 31, 1996 and $2.6 million for the three
months ended March 31, 1997, respectively.
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
35
<PAGE> 41
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.
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 make distributions 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 has obtained a commitment for the $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 $308.1 million purchase of the Initial Facilities using the
offering proceeds, 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 $215.9 million. The Company expects to purchase the Northeast Ohio
Correctional Center for $66.4 million by exercising its option to purchase the
facility at, or shortly after, consummation of the Offering. In addition, the
Company has an option to acquire, at fair market value, 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 may raise additional long-term 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. 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."
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.
36
<PAGE> 42
FUNDS FROM OPERATIONS
Management believes Funds from Operations is helpful to investors as a
measure of the performance of an equity REIT because, along with cash flows from
operating activities, financing activities and investing activities, it provides
investors with an understanding of the ability of the Company to incur and
service debt and make capital expenditures. Funds from Operations is calculated
as net income (loss) (computed in accordance with GAAP), excluding significant
non-recurring items, gains (or losses) from debt restructuring and sales of
property, plus real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. The Company
computes Funds from Operations in accordance with standards established by the
White Paper on Funds from Operations approved by the NAREIT Board of Governors
in March 1995, which may differ from the methodology for calculating Funds from
Operations utilized by other equity REITs, and, accordingly, may not be
comparable to such other REITs. Further, Funds from Operations does not
represent amounts available for management's discretionary use because of needed
capital replacement or expansion, debt service obligations, or other commitments
and uncertainties. The Company believes that in order to facilitate a clear
understanding of the pro forma operating results of the Facilities and the
Company, Funds from Operations should be examined in conjunction with the income
(loss) as presented in the pro forma financial statements and information
included elsewhere in this Prospectus. Funds from Operations should not be
considered as an alternative to net income (determined in accordance with GAAP)
as an indication of the Company's financial performance or to cash flows from
operating activities (determined in accordance with GAAP) as a measure of the
Company's liquidity, nor is it indicative of funds available to fund the
Company's cash needs, including its ability to make distributions.
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.
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. According to the 1996
Facility Census (which was authored by Dr. Charles W. Thomas, an Independent
Trustee of the Company), see "Management -- Trustees and Executive Officers,"
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 63,595 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 that the prisoner
population housed in privately managed facilities expanded by 30% 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
37
<PAGE> 43
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 December 31, 1985 to 1,630,940 at June 30, 1996, a
compound annual growth rate of 7.8%.
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.
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 June 10, 1997, CCA had contracts to manage 60 correctional
and detention facilities with an aggregate design capacity of 43,748 beds of
which 51 facilities representing 32,441 beds were 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
38
<PAGE> 44
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 CCA and corporate governance and control matters.
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."
CCA is a Tennessee corporation and is the successor to a corporation of the
same name originally incorporated in January 1983. CCA's principal executive
offices are located at 102 Woodmont Boulevard, 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 the three months ended March 31, 1997 and 1996
and 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 March
31, 1997. 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 the three months ended March 31,
1997 and 1996 is derived from CCA's unaudited condensed consolidated financial
statements. The selected historical financial information for each of the five
years ended December 31, 1996 is derived from CCA's audited consolidated
financial statements. The selected historical financial information for CCA 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.
39
<PAGE> 45
CORRECTIONS CORPORATION OF AMERICA
SELECTED PRO FORMA AND HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL PRO FORMA ---------------------
--------------------------------------------------------- ------------ QUARTER ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED ---------------------
--------------------------------------------------------- DECEMBER 31, MARCH 31, MARCH 31,
1992 1993 1994 1995 1996 1996(1) 1996 1997
--------- --------- --------- --------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues............... $ 95,518 $ 132,534 $ 152,375 $ 207,241 $ 292,513 $ 292,513 $ 63,277 $ 91,838
Expenses:
Operating............ 74,796 108,026 123,540 158,814 213,173 227,475 47,184 63,919
General and
administrative..... 8,408 7,885 9,413 14,288 13,428 13,342 2,925 3,595
Depreciation and
amortization....... 5,468 5,759 5,753 6,524 11,339 9,008 2,277 3,923
--------- --------- --------- --------- --------- --------- --------- ---------
88,672 121,670 138,706 179,626 237,940 249,825 52,386 71,437
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income....... 6,846 10,864 13,669 27,615 54,573 42,688 10,891 20,401
Interest expense
(income), net...... 4,264 4,424 3,439 3,952 4,224 452 1,350 498
--------- --------- --------- --------- --------- --------- --------- ---------
Income before income
taxes................ 2,582 6,440 10,230 23,663 50,349 42,236 9,541 19,903
Provision for income
taxes.............. 50 832 2,312 9,330 19,469 13,549 3,835 7,908
--------- --------- --------- --------- --------- --------- --------- ---------
Net income............. 2,532 5,608 7,918 14,333 30,880 28,687 5,706 11,995
--------- --------- --------- --------- --------- --------- --------- ---------
Preferred stock
dividends.......... 71 425 204 -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Net income allocable to
common stockholders.. $ 2,461 $ 5,183 $ 7,714 $ 14,333 $ 30,880 $ 28,687 $ 5,706 $ 11,995
========= ========= ========= ========= ========= ========= ========= =========
Net income per share:
Primary.............. $ 0.06 $ 0.10 $ 0.12 $ 0.19 $ 0.38 $ 0.35 $ 0.07 $ 0.14
Fully diluted........ $ 0.05 $ 0.10 $ 0.12 $ 0.18 $ 0.36 $ 0.34 $ 0.07 $ 0.14
Weighted average common
shares
outstanding.......... 41,544 51,762 61,908 75,110 81,664 81,664 80,502 83,942
OTHER DATA:
Beds in operation
(period end)......... 7,844 10,368 13,404 20,252 24,310 24,310 21,098 28,062
Beds under contract
(period end)......... 8,737 12,254 19,735 28,607 41,135 41,135 31,357 43,049
Compensated
mandays(2)........... 2,210,682 3,338,411 3,768,095 4,799,562 7,113,794 7,113,794 1,552,509 2,127,531
Available mandays(3)... 2,463,496 3,628,114 4,012,881 5,133,221 7,557,988 7,557,988 1,739,844 2,260,470
Average occupancy(4)... 89.7% 92.1% 93.5% 93.9% 94.1% 94.1% 89.2% 94.1%
BALANCE SHEET DATA (END
OF PERIOD):
Total assets........... $ 103,295 $ 109,285 $ 141,792 $ 213,478 $ 468,888 $ 231,137 $ 566,917
Total long-term debt... 56,277 50,558 47,984 74,865 117,535 81,848 189,191
Total liabilities
excluding deferred
gain................. 75,367 75,103 80,035 116,774 187,136 119,490 269,971
Stockholders' equity... 27,928 34,182 61,757 96,704 281,752 111,647 296,946
<CAPTION>
PRO FORMA
-------------
QUARTER ENDED
MARCH 31,
1997(1)
-------------
<S> <C>
STATEMENT OF OPERATIONS:
Revenues............... $ 91,838
Expenses:
Operating............ 68,332
General and
administrative..... 3,573
Depreciation and
amortization....... 2,852
---------
74,757
---------
Operating income....... 17,081
Interest expense
(income), net...... (684)
---------
Income before income
taxes................ 17,765
Provision for income
taxes.............. 6,160
---------
Net income............. 11,605
---------
Preferred stock
dividends.......... --
---------
Net income allocable to
common stockholders.. $ 11,605
=========
Net income per share:
Primary.............. $ 0.14
Fully diluted........ $ 0.14
Weighted average common
shares
outstanding.......... 83,942
OTHER DATA:
Beds in operation
(period end)......... 28,062
Beds under contract
(period end)......... 43,049
Compensated
mandays(2)........... 2,127,531
Available mandays(3)... 2,260,470
Average occupancy(4)... 94.1%
BALANCE SHEET DATA (END
OF PERIOD):
Total assets........... $ 579,372
Total long-term debt... 64,500
Total liabilities
excluding deferred
gain................. 141,771
Stockholders' equity... 296,946
</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.
40
<PAGE> 46
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
As of June 10, 1997, CCA had contracts to manage 60 correctional and
detention facilities with an aggregate design capacity of 43,748 beds. Of these
60 facilities, 51 are currently in operation and nine are under development by
CCA, two of which are Option Facilities and seven 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 nine facilities under development by CCA,
four are scheduled to commence operations during the third quarter of 1997 and
five are scheduled to commence operations during 1998. In addition, at June 10,
1997, CCA had outstanding written responses to RFPs and other solicitations for
13 projects with an aggregate design capacity of 7,709 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, AS OF MARCH 31,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Contracts(1)...................... 39 47 59 48 60
Facilities in operation........... 31 38 42 37 49
Design capacity of contracts...... 19,735 28,607 41,135 31,357 43,049
Design capacity of facilities in
operation....................... 13,404 20,252 24,310 21,098 28,062
Compensated mandays(2)............ 3,768,095 4,799,562 7,113,794 1,552,509 2,127,531
</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.
41
<PAGE> 47
Geographic Market Concentration
CCA currently manages facilities in 15 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, and for the
periods ended March 31, 1996 and 1997, respectively, are as follows:
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996 MARCH 31, 1996
--------------------------- --------------------------- ---------------------------
NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF
STATE FACILITIES TOTAL REVENUES FACILITIES TOTAL REVENUES FACILITIES TOTAL REVENUES
- ----- ---------- -------------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Arizona.............. 2 16.5% 2 14.7% 2 14.6%
Colorado............. -- -- 1 0.3 -- --
Florida.............. 5 7.8 4 10.3 4 11.3
Indiana.............. 1 1.4 1 0.4 -- 0.0
Kansas............... 2 4.6 1 3.0 1 3.2
Louisiana............ 1 6.1 1 4.7 1 5.4
Minnesota............ -- -- 1 0.7 -- --
Mississippi.......... -- -- 1 1.1 -- --
New Jersey........... -- -- -- -- -- --
New Mexico........... 3 8.4 3 6.7 3 7.7
Oklahoma............. 1 1.9 2 3.0 1 1.4
Puerto Rico.......... 1 0.1 1 4.7 1 4.5
South Carolina....... -- -- 1 2.1 -- --
Tennessee............ 8 25.2 8 19.2 7 21.0
Texas................ 12 22.7 12 23.6 11 24.6
Washington, D.C...... -- -- -- -- -- --
<CAPTION>
MARCH 31, 1997
---------------------------
NUMBER OF PERCENTAGE OF
STATE FACILITIES TOTAL REVENUES
- ----- ---------- --------------
<S> <C> <C>
Arizona.............. 2 14.4%
Colorado............. 1 1.2
Florida.............. 5 9.3
Indiana.............. 1 0.1
Kansas............... 1 2.4
Louisiana............ 1 3.8
Minnesota............ 1 2.3
Mississippi.......... 1 2.5
New Jersey........... 1 2.7
New Mexico........... 3 4.8
Oklahoma............. 2 3.6
Puerto Rico.......... 3 5.3
South Carolina....... 1 2.9
Tennessee............ 7 15.8
Texas................ 12 21.9
Washington, D.C...... 1 1.0
</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
or on a fixed monthly rate. Of CCA's 48 domestic facilities in operation, 44 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 14 of the domestic facilities it currently manages. CCA
currently manages 34 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 increases the number of
newly-constructed or expanded facilities under management and experiences
initial
42
<PAGE> 48
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, MARCH 31, 1995 1996 MARCH 1997
--------------------- ------------- COMPARED COMPARED COMPARED TO
1994 1995 1996 1996 1997 TO 1994 TO 1995 MARCH 1996
----- ----- ----- ----- ----- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... 100.0% 100.0% 100.0% 100.0% 100.0% 36.0% 41.1% 45.1%
Expenses:
Operating................... 81.1 76.6 72.9 74.6 69.6 28.6 34.2 35.5
General and
administrative............ 6.1 6.9 4.6 4.6 3.9 51.8 (6.0) 22.9
Depreciation and
amortization.............. 3.8 3.2 3.9 3.6 4.3 13.4 73.8 72.3
----- ----- ----- ----- -----
Operating income.............. 9.0 13.3 18.6 17.2 22.2 102.0 97.6 87.3
----- ----- ----- ----- -----
Interest expense, net......... 2.3 1.9 1.4 2.1 .5 14.9 6.9 (63.1)
----- ----- ----- ----- -----
Income before income taxes.... 6.7 11.4 17.2 15.1 21.7 131.3 112.8 108.6
Provision for income taxes.... 1.5 4.5 6.6 6.1 8.6 303.5 108.7 106.2
----- ----- ----- ----- -----
Net income.................... 5.2 6.9 10.6 9.0 13.1 81.0 115.4 110.2
Preferred stock dividends..... 0.1 -- -- -- -- (100.0) -- --
----- ----- ----- ----- -----
Net income allocable to common
stockholders................ 5.1% 6.9% 10.6% 9.0% 13.1% 85.8% 115.4% 110.2%
===== ===== ===== ===== =====
</TABLE>
Three Months Ended March 31, 1997 Compared with Three Months Ended March 31,
1996
Revenues. CCA's total revenues for the first quarter of 1997 increased 45%
over the comparable period of 1996. CCA's management revenues increased $28.3
million or 47%, and transportation revenues increased $259,000 or 10%, in the
first three months of 1997 as compared to the same period in 1996. The increase
in management revenues was due to a 37% increase in compensated mandays. During
the first quarter of 1997, CCA opened six new facilities totaling 3,496 beds and
expanded one existing facility representing 256 beds. CCA also realized the full
period effect in the first quarter of 1997 of 3,835 beds brought on line over
the course of 1996. Transportation revenues increased due to an expanded
customer base and compensated mileage realized through the opening of two new
transportation hubs. In the first quarter of 1997, CCA recognized development
fee income of $1.3 million (after tax) related to a contract to design,
construct and equip a managed facility.
Facility Operating Expenses. CCA's operating expenses for the first
quarter of 1997 increased 35% over the comparable quarter in 1996. This increase
was due to the increased compensated mandays and compensated mileage that CCA
realized in 1997. As a percentage of revenues, however, operating expenses
declined to 70% in 1997 from 75% in 1996 as CCA continues to benefit from
economies of scale and cost containment.
General and Administrative. CCA's general and administrative expenses
increased 23% for the first quarter of 1997 as compared to the comparable
quarter of 1996. The increase was due to the expanded activity
43
<PAGE> 49
and staffing necessary to administer the increased beds under management.
General and administrative expenses decreased as a percentage of revenues to
3.9% in 1997 from 4.6% in 1996 during the comparable period.
Depreciation and Amortization. CCA's depreciation and amortization for the
first quarter of 1997 increased 72% as compared to the comparable quarter of
1996. This increase was due to the growth in total beds in facilities owned by
CCA.
Interest Expenses, Net. CCA's interest expense, net, decreased 63% for the
first quarter of 1997 as compared to the first quarter of 1996, primarily due to
the fact that additional facilities were under construction during 1997 and the
associated interest expense was capitalized.
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
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 $11.3 million in 1996 as compared to $6.5 million in 1995. The
1996 increase is due to the growth in total beds in CCA-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
44
<PAGE> 50
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 of 3,390 beds and assumed management of three
facilities with an aggregate design capacity of 1,688 beds. CCA also realized
the full-year effect of three facilities added in 1994 with an aggregate design
capacity of 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.
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
45
<PAGE> 51
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 CCA-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. Management receivables increased 56%, from
$32.5 million to $50.6 million and construction related receivables increased
from $4.5 million to $44.5 million. The significant increase in management
receivables was due to the 41% increase in revenues. As of June 30, 1997, 97% of
the year end receivables had been collected. Based on the Company's history and
the underlying government contracts the Company anticipates collection of the
remaining 3%. The primary reason for the significant increase in construction
receivables was the sale of a facility to a not-for-profit organization for
which the proceeds were not received until subsequent to year end. CCA's current
ratio decreased to 1.11 as of March 31, 1997, due primarily to the
aforementioned collection of the construction receivables. The ratio of
long-term debt to total capitalization was 39% at March 31, 1997 compared to 29%
at December 31, 1996 and 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.
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's cash flow
from operations in the first quarter of 1997 was $59.3 million, which included
approximately $38.0 million from the reduction of the construction receivables,
as compared to $4.0 million in the comparable period in 1996. 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
46
<PAGE> 52
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 3,700,000 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. As of March 31, 1997, there was $78.0 million borrowed under this
facility. Letters of credit totaling $63.5 million had been issued, leaving the
unused commitment at $28.5 million as of March 31, 1997.
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 March 31, 1997, there were $1.6 million in letters of
credit issued, leaving the unused commitment at $918,000.
47
<PAGE> 53
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 6,118 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)(1) (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, 1989 Pre-Parole Transfer
Texas Facility
West Tennessee
Detention Facility(2)... 600 September Multi-Security INS, USMS, BOP and 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(2)............... 1,500(3) July Medium Security INS and BOP 6.0 12
Eloy, Arizona 1994 Detention Center
Central Arizona Detention
Center(2)............... 1,792 October Multi-Security USMS and 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 Facility and States of Colorado
and Wyoming
</TABLE>
- ---------------
(1) On an annualized basis.
(2) Annual rentals for this facility will exceed 10% of aggregate annual pro
forma rentals of $33.9 million. Upon consummation of the Formation
Transactions the Company will own fee title to this facility, free and clear
of any material liens. Competition experienced by this facility is described
under the heading "Business of the Company and its
Properties -- Competition".
(3) 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 the 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
48
<PAGE> 54
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 paid by the Company for the Initial
Facilities exceeds their historical costs. See "Risk Factors -- Conflicts of
Interest." The purchase price for the Initial Facilities was determined
primarily based on an evaluation of the current and anticipated cash flows and
operating results of such facilities. To determine the purchase price for each
of the Initial Facilities other than the T. Don Hutto Correctional Center, the
anticipated annual cash flow from the facility less capital expenditures was
divided by a coverage ratio and lease rate determined by the Company and CCA to
be at fair market rates based on comparable triple net lease transactions.
Because the T. Don Hutto Correctional Center was not completed until January
1997, the purchase price of that facility was calculated as CCA's approximate
cost of developing, constructing and equipping the facility, plus 5% of such
costs. 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 USMS, BOP, State of New
Estancia, New Mexico 1997(2) Detention Facility Mexico and Torrance County,
New Mexico
Southern Colorado Correctional
Facility........................... 752 October Medium Security State of Colorado
Walsenburg, Colorado 1997 Correctional Facility
North Fork Correctional Facility..... 1,440 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 on a permanent basis. CCA is currently housing 900 inmates in this
facility for the District of Columbia under a temporary contract.
(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 will be equal to
CCA's approximate cost of developing, constructing and equipping such Option
Facility, plus 5% of such costs. The initial annual rental rate for each Option
Facility will be the greater of (i) the fair market rental rate of the Option
Facility or (ii) 11% of the purchase price. Using the 11% lease rate
calculation, 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 -- $66.4 million and $7.3 million; (b)
Torrance County Detention Facility -- $38.5 million and $4.2 million; (c)
Southern Colorado Correctional Facility -- $29.5 million and $3.2 million; (d)
North Fork Correctional Facility -- $39.5 million and $4.3 million and (e)
Whiteville Correctional Center -- $42.0 million and $4.6 million. Estimated
aggregate purchase price and first-year rent amount to approximately $215.9
million and $23.6 million, respectively. The Company expects to acquire the
Northeast Ohio Correctional Center at, or shortly after, consummation of the
Offering.
49
<PAGE> 55
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 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 approximate
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."
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 -- Correctional and Detention Industry
Risks."
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
50
<PAGE> 56
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
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 expires
in September 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
51
<PAGE> 57
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 expire at various times from the end of 1997 through
January 2000.
Historical Occupancy Rates of the Initial Facilities. The following chart
summarizes the historical occupancy rates of the Initial Facilities for each of
the five years ended December 31, 1992-1996.
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, on a permanent basis. CCA is currently
housing 900 inmates in the facility for the District of Columbia under a
temporary contract. 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
October 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
287,000 square foot, medium security facility will have a design capacity of
1,440 beds. The facility will seek ACA accreditation. CCA is currently under
negotiation 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 contract with
Torrance County, New Mexico extends through May 1998. CCA's contracts with USMS
and the State of New Mexico do not have specific expiration dates.
The 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.
52
<PAGE> 58
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 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 nor 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 or limitation on use of properties. 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, as amended (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.
53
<PAGE> 59
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, prior to the completion of the Formation
Transactions, CCA and the Company will have entered 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 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) the Trade Name Use Agreement.
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 a
purchase price equal to CCA's costs of developing, constructing and equipping
such facilities, plus 5% of such costs, aggregating approximately $215.9
million. The Company expects to acquire one of the Option Facilities at, or
shortly after, consummation of the Offering.
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, at fair market value, 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. 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. For
facilities acquired during the first five years of the Right to Purchase
Agreement, the initial annual rental rate on facilities leased back to CCA will
be the greater of (i) fair market rental rates, as determined by CCA and the
Company, or (ii) 11% of the purchase price of such facilities. For facilities
acquired, thereafter, the initial annual rental rate on such facilities will be
the fair market rental rates, as determined by the Company and CCA.
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.
54
<PAGE> 60
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, in conformance with standards reasonably set by CCA for the
period commencing on the date of execution and terminating on the date the
Company ceases to own any correctional or detention facility managed by CCA. The
agreement may also be terminated upon 10 days written notice from CCA to the
Company; the occurrence of a change in control of the Company; the liquidation
or bankruptcy of the Company; or in the event of an unauthorized transfer of the
right to use the trade name by the Company. In addition, the Company
acknowledges that CCA owns all rights, title and interest in and to the trade
name and agrees that it will do nothing inconsistent with such ownership.
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.
The Board of Trustees has established 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, neither of whom have had nor will have any 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 "Management" and "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. Fair market rates for Extended Terms
will be determined mutually by the Company and CCA based on their respective
analyses of the market for the relevant Facility. Such analyses may include a
review of the historical and projected economic performance of the Facility and
will take into account the interest rate environment at the time of the
extension and the creditworthiness of the tenant. The Fixed Term and Extended
Terms under each Lease shall be subject to earlier termination upon the
occurrence of certain
55
<PAGE> 61
contingencies described in the Lease. Additionally, each Lease may be terminated
by the Company, at its option, at any time after the first five years of the
Lease, upon 18 months written notice to CCA. 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 market rate for each Leased Property. The fair
market rates for the Leased Properties are based on the Company's analysis of
the market for the Leased Properties, including the Company's review of the
historical and projected economic performance of the Leased Properties, the
current interest rate environment, and the creditworthiness of CCA.
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.
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 with the prior written 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 with the prior written
consent
56
<PAGE> 62
of the Company. 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 at an annual rental rate equal to (i) for Capital Additions acquired during
the first five years, the greater of (a) fair market rental rate or (b) 11% of
the purchase price and (ii) for Capital Additions acquired thereafter, at fair
market rental rates. 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.
Management of the Company believes that the insurance coverage currently
maintained by CCA on each Initial Facility is adequate in scope and amount and
expects that adequate insurance will be maintained by CCA on each such facility
in the future.
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 holder of a mortgage, deed or trust or other
security agreement on a leased property (a "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 hereinafter defined), 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 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
57
<PAGE> 63
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
person'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; if 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 if
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. In the event the Company evicts CCA from a Leased
Property, the Master Lease will remain in full force and effect for all other
Leased Properties. 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.
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. Neither
the Master Lease nor any of the other agreements entered into by CCA in
connection with the Formation Transactions prohibits or otherwise restricts the
Company's ability to lease properties to parties (domestic or foreign) other
than CCA.
58
<PAGE> 64
MANAGEMENT
TRUSTEES AND EXECUTIVE OFFICERS
The Board of Trustees consists 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 are
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, except for Messrs. Cardin, Carell, Eakin and
Feldman who were elected to the Board of Trustees on June 6, 1997.
<TABLE>
<CAPTION>
YEAR 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
Richard W. Cardin........................ 62 Independent Trustee 2000
Monroe J. Carell, Jr..................... 65 Independent Trustee 1998
John W. Eakin, Jr........................ 43 Independent Trustee 1999
Ted Feldman.............................. 44 Independent Trustee 1999
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.......................... 37 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 $2.0
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.
59
<PAGE> 65
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. DC Investment Partners
LLC is a Tennessee limited liability company which serves as general partner to
three investment limited partnerships and is responsible for managing the
partnerships' investment activities. Notwithstanding Mr. Crants' obligation to
DC Investment Partners LLC, Mr. Crants expects to devote the majority of his
time to the management of the Company. From 1990 through 1996, Mr. Crants was
associated with Goldman, Sachs & Company ("Goldman Sachs"), most recently
serving as an associate in the Goldman Sachs Special Investments Group. During
his tenure with Goldman Sachs, Mr. Crants was involved in structuring over $3
billion in real estate transactions, including over $1.0 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. Notwithstanding Mr. Devlin's
obligation to DC Investment Partners LLC, Mr. Devlin expects to devote the
majority of his time to management of the Company. 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 $1.0 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. Mr. Bell is
a member of the Compensation Committee of the Board of Trustees.
RICHARD W. CARDIN is an Independent Trustee of the Company. Mr. Cardin is
currently a consultant and private investor. Prior to his retirement in 1995,
Mr. Cardin was affiliated with, and a partner in, Arthur Andersen LLP, an
international firm of independent public accountants and consultants, for 37
years. From 1980 through 1994, Mr. Cardin served as the managing partner of
Arthur Andersen's Nashville office. Mr. Cardin is a member of the Board of
Directors of United Cities Gas Company ("United Cities"), a publicly traded
company, and will serve on the Board of Directors of Atmos Energy Corporation, a
publicly traded company into which United Cities expects to merge in July 1997.
Mr. Cardin is a certified public accountant. Mr. Cardin is a member of the Audit
Committee of the Board of Trustees and is the Chairman of the Compensation
Committee of the Board of Trustees.
MONROE J. CARELL, JR. is an Independent Trustee of the Company. For the
past 18 years, Mr. Carell has served as Chief Executive Officer and Chairman of
the Board of Directors of Central Parking Corporation, a NYSE company which
provides parking services ("Central Parking"). Since 1991, Mr. Carell has served
as a trustee of Vanderbilt University in Nashville and he is currently a member
of the Board of Trust of the Urban Land Institute. Mr. Carell is also a member
of the Board of Directors of Vanderbilt University Medical Center.
JOHN W. EAKIN, JR. is an Independent Trustee of the Company. Mr. Eakin
founded Eakin & Smith, Inc., a real estate development and management company
("Eakin & Smith") in 1987, and served as its President from that time until
1996, when Eakin & Smith was merged with Highwoods Properties, Inc.
("Highwoods"), a publicly traded, self-administered and self-managed, office and
industrial REIT, based in Raleigh, North Carolina. Mr. Eakin is a Senior Vice
President and Director of Highwoods. Mr. Eakin is also a member of the Board of
Directors of Central Parking and a member of the advisory board of First
American National Bank of Nashville. Mr. Eakin is a member of the Compensation
Committee of the Board of Trustees.
60
<PAGE> 66
TED FELDMAN is an Independent Trustee of the Company. Mr. Feldman is
currently the Chief Operating Officer of StaffMark, Inc., a provider of
diversified staffing services to business, medical, professional and service
organizations and governmental agencies, a position he has held since October
1996. Prior to joining StaffMark, Mr. Feldman founded HRA, Inc., a Nashville
provider of staffing services, in 1991, and served as its President and Chief
Executive Officer from that time until it merged with StaffMark in March 1996.
Mr. Feldman is a member of the Compensation Committee of the Board of Trustees.
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. Mr. Moore is not related to Rusty Moore. Mr. Moore is the
Chairman of the Independent Committee and is a member of the Audit Committee of
the Board of Trustees.
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 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. Mr. Moore
is a member of the Audit Committee of the Board of Trustees.
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. Mr. Russell is the Chairman of the Audit Committee
of the Board of Trustees.
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, Gainesville, positions he has held since 1980 and 1989, respectively.
While serving as Director of the Center, Dr. Thomas authored the 1996 Facility
Census (as well as prior editions). 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. Mr.
Thomas is a member of the Compensation Committee of the Board of Trustees.
VIDA H. CARROLL is Chief Financial Officer and Secretary/Treasurer. From
1991 to 1996, Ms. Carroll, as a sole proprietor, 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
61
<PAGE> 67
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. Pursuant to
the Company's Bylaws, the Independent Committee must approve of the following
actions of the Company's Board of Trustees: (i) the election of the operators
for the Company's properties; and (ii)(a) the entering into of any agreement
with CCA and its affiliates and (b) the consummation of any transaction between
the Company and CCA of its affiliates; including, but not limited to, the
negotiation, enforcement and renegotiation of the terms of any lease of any of
the Company's properties. Jackson W. Moore is the Chairman of the Independent
Committee.
Audit Committee. The Board of Trustees has established an audit committee
consisting of Messrs. Cardin, Jackson W. Moore, Rusty L. Moore and Russell
(Chairman) (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 has established a
compensation committee consisting of Messrs. Bell, Cardin (Chairman), Eakin,
Feldman and Thomas (the "Compensation Committee"). The Compensation Committee
will 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, as amended (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 have entered into separate indemnification agreements with the Company
pursuant to which the Company has agreed to indemnify such 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 has obtained trustees' and officers' liability insurance.
62
<PAGE> 68
EXECUTIVE COMPENSATION
Prior to the Offering, the Company will not pay any compensation to its
officers. The following table sets forth the annual base salary rates and other
compensation expected to be paid by the Company 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 in 25% increments over a three-year period with the
first increment vesting immediately upon the date of grant, 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 promotion and 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 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 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
63
<PAGE> 69
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 or
distributions 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 or distributions 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 in 25% increments
over a three year period with the first increment vesting immediately upon the
date of grant, and will be exercisable, 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 has established 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.
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
64
<PAGE> 70
appropriate in the event of a share dividend, share split, combination,
reclassification, recapitalization or other similar event.
Transferability. The Non-Employee Trustees' Plan provides 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 "Employment Agreements"). 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. Under applicable Tennessee law, which
governs the interpretation and enforceability of the Employment Agreements,
specific performance is not available as a remedy for violation of the
agreements; however the Company may generally enforce the provisions of the
agreement against the employee if the provisions contained therein are deemed
reasonable. In particular, Tennessee courts will
65
<PAGE> 71
enforce noncompetition provisions such as the ones contained in the Employment
Agreements provided the restrictions contain a reasonable geographic scope and
duration, will impose no undue hardship on the employee, and would cause serious
damage and injury to the Company if violated. Also, the courts will enjoin
violations of the covenants not to compete if the scope of employment is deemed
to require special skills and competence of the employees that could not be
attained by another employee of average competence.
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 approximately 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.
Prior to the formation of the Company on April 23, 1997, D. Robert Crants,
III and Michael W. Devlin served as promoters of the Company. Upon consummation
of the Offering, Mr. Crants and Mr. Devlin, who currently serve as President and
Chief Development Officer, respectively, of the Company, will each receive
150,000 Common Shares as a development fee and as reimbursement of actual costs
incurred in connection with the promotion and formation of the Company, the
consummation of the Offering and the closing of the purchase of Initial
Facilities, which would have a value for each of them, based upon the initial
public offering price, of $3.2 million. 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 $215.9 million. The
Company expects to acquire the Northeast Ohio Correctional Center at, or shortly
after, consummation of the Offering.
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, 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. The fair market value of such
facilities will be
66
<PAGE> 72
determined by the Company and CCA based on their respective analyses of the
market for such facility. Such analyses may include a review of the historical
and projected economic performance of the facility and an estimate of the value
of the facility on a replacement cost or comparative sales basis. For the first
two years of such option period, fair market value is deemed to be equal to
CCA's costs 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. For facilities acquired in the first five
years of the Right to Purchase Agreement, the initial annual rental rate on
facilities leased back to CCA will be the greater of (i) fair market rental
rates, as determined by the Company and CCA or (ii) 11% of the purchase price
for the facilities. For facilities acquired thereafter, the initial annual
rental rates will be the fair market rental rates, as determined by the Company
and CCA. The fair market rental rates for such facilities will be determined by
the Company and CCA based on the fair market value of such facilities, taking
into account the interest rate environment at the time of the purchase and the
creditworthiness of the tenant.
EMPLOYMENT AGREEMENTS
The Company has entered 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, $100,000, and
$100,000, respectively, 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 the acquisition or development of facilities directly
from, or on behalf of, CCA or its affiliates or government entities in the
United States, it may pursue other opportunities as well. 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 in correctional or detention facilities, 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.
67
<PAGE> 73
While the Company emphasizes equity real estate investments, it may, in its
discretion, invest in mortgages, equity or debt securities of other REITs,
partnerships and other real estate interests. Such mortgage investments may
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, venture or type of security. 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 has obtained a commitment for 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. The Company
expects to close the Bank Credit Facility immediately following the consummation
of the Offering. 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.
68
<PAGE> 74
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. 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 members of
the Company's Board of Trustees be comprised of Independent Trustees, defined
therein 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 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 in 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
(including bonds, preferred stocks, and common stocks), although it does not
currently intend to do so. The Company may 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 hereinafter defined). 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 the Company's REIT election if the Board determines that such factors
make it no longer beneficial to qualify as a REIT.
69
<PAGE> 75
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. The purchase price of the
Initial Facilities was determined based primarily on an evaluation of the
current and anticipated cash flows and operating results of such facilities. To
determine the purchase price for each of the Initial Facilities other than the
T. Don Hutto Correctional Center, the anticipated annual cash flow from the
facility less ongoing capital expenditures was divided by an agreed upon
coverage ratio and lease rate. Because the T. Don Hutto Correctional Center was
completed in January 1997, the purchase price of the T. Don Hutto Correctional
Center and of each Option Facility was calculated as CCA's approximate cost of
developing, constructing and equipping such facilities, plus 5% of such costs.
It is possible that if such valuations had been determined on an arm's-length
basis, or had been the subject of independent valuations or appraisals, the sum
of the values of the Initial Facilities and, if acquired, the Option Facilities,
might have been greater than the sum of the values determined by the management
of CCA and of 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 lease 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
70
<PAGE> 76
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 facilities acquired or developed and owned, by CCA or
its subsidiaries 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 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 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
are 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. Pursuant to the
Company's Bylaws, the Independent Committee must approve of the following
actions of the Company's Board of Trustees: (i) the election of the operators
for the Company's properties; and (ii)(a) the entering into of any agreement
with CCA and its affiliates and (b) the consummation of any transaction between
the Company and CCA of its affiliates; including, but not limited to, the
negotiation, enforcement and renegotiation of the terms of any lease of any of
the Company's properties. 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, the Company's Chief Development
Officer, and Vida H. Carroll, the Company's Chief Financial Officer, neither of
whom have had nor will have any 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."
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. 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."
71
<PAGE> 77
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. These transactions include the following:
- The Company, which was formed as a Maryland real estate investment trust
on April 23 1997, will sell 18,500,000 Common Shares in the Offering for
net proceeds of approximately $358.2 million after deduction of the
underwriting discount and estimated offering expenses (assuming an initial
public offering price of $21.00 per share);
- Doctor R. Crants, Chairman of the Company and Chairman and Chief
Executive Officer of CCA will acquire in the Offering approximately
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 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 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
generally equal to CCA's costs of developing, constructing and equipping
such facilities plus 5% of such costs, aggregating approximately $215.9
million. If acquired, the Option Facilities will be leased to CCA on terms
substantially similar to those contained in the Leases; The Company
expects to exercise its option to purchase the Northeast Ohio Correctional
Center for a purchase price of $66.4 million at, or shortly after,
consummation of the Offering.
- 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 rates, 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 initial
annual rental rate for facilities acquired in the first five years of the
Right to Purchase Agreement, will be equal to the greater of (i) fair
market rental rate as determined by the Company and CCA, or (ii) 11% of
the purchase price. For facilities acquired thereafter, the initial annual
rental rate on such facilities will be the fair market rental rate as
determined by the Company and CCA. 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;
- The Company will enter into employment agreements with certain of the
Company's executive officers, including J. Michael Quinlan, Chief
Executive Officer, D. Robert Crants, III, President and Michael W. Devlin,
Chief Development Officer; and
- 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 promotion
and formation of the Company, the consummation of the Offering and the
closing of the purchase of the Initial Facilities which would have a value
for each of them, based on the initial public offering price, of $3.2
million. The reimbursed expenses include certain costs related to property
due diligence, employee compensation, travel and overhead. The development
fee compensates Messrs. Crants and Devlin for their services rendered on
behalf of the Company in connection with, among other things, the
preparation of the Company's initial business plan and capital and
operating budgets. A significant portion of this development work
commenced in the fall of 1995, and continued throughout 1996 and 1997.
72
<PAGE> 78
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 Initial Facilities through their ownership in the
Company, and in all future acquisitions by the Company. 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 fact that Doctor R. Crants, Chairman of the Board of
both the Company and CCA, will have substantial influence on the management and
operations of the Company and, as a substantial shareholder of both the Company
and CCA, on the outcome of any matters submitted to a vote of shareholders, and
that the risk such influence might be exercised in a manner inconsistent with
the interests of other shareholders. See the more complete discussion of such
matters under "Risk Factors."
BENEFITS TO THE COMPANY AND ITS OFFICERS AND TRUSTEES
The benefits of the foregoing transactions to the Company and its officers
and trustees include:
- The ability to access public capital markets;
- The creation of an entity which, through its distribution to
shareholders, 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 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. Such options will vest in 25% increments over a three year period
with the first increment vesting immediately upon the date of grant;
- 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 expenses incurred in connection with the promotion and
formation of the Company, the consummation of the Offering and the closing
of the purchase of the Initial Facilities, which would have a value for
each of them, based on the initial public offering price, of $3.2 million.
The reimbursed expenses include certain costs related to property due
diligence, employee compensation, travel and overhead. The development fee
compensates Messrs. Crants and Devlin for their services rendered on
behalf of the Company in connection with, among other things, the
preparation of the Company's initial business plan and capital and
operating budgets. A significant portion of this development work
commenced in the fall of 1995, and continued throughout 1996 and 1997. See
"The Formation Transactions -- Benefits to the Company and its Officers
and Trustees;" and
- Each non-employee trustee will receive options to acquire 5,000 Common
Shares at the initial public offering price. Such options will vest
immediately upon the date of grant.
BENEFITS TO CCA
The benefits of the foregoing transactions to CCA include:
- 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 March 31, 1997 was approximately $175.2
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 $215.9 million in cash. The Company expects to
exercise its option to purchase the Northeast Ohio Correctional Center for
a purchase price of $66.4 million at, or shortly after, consummation of
the Offering.
- CCA will use certain of the proceeds of the sale of the Initial
Facilities to discharge certain indebtedness incurred in connection with
facility acquisitions; and
- CCA will expand its marketing opportunities through increased access to
capital.
73
<PAGE> 79
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
COMMON SHARES
OUTSTANDING
NUMBER OF FOLLOWING THE
NAME OF BENEFICIAL OWNERS COMMON SHARES OFFERING
- ------------------------- ------------- -------------
<S> <C> <C>
Doctor R. Crants............................................ 550,000(1) 2.9%
J. Michael Quinlan.......................................... 87,500(2) *
D. Robert Crants, III....................................... 200,000(1) 1.1
Michael W. Devlin........................................... 200,000(1) 1.1
C. Ray Bell................................................. 5,000(3) *
Richard W. Cardin........................................... 5,000(3) *
Monroe J. Carell, Jr........................................ 5,000(3) *
John W. Eakin, Jr........................................... 5,000(3) *
Ted Feldman................................................. 5,000(3) *
Jackson W. Moore............................................ 5,000(3) *
Rusty L. Moore.............................................. 5,000(3) *
Joseph V. Russell........................................... 5,000(3) *
Charles W. Thomas, Ph.D..................................... 5,000(3) *
All executive officers and trustees as a group (15
persons).................................................. 1,098,750(4) 5.8%
</TABLE>
- ---------------
* Less than 1%.
(1) Includes 50,000 Common Shares issuable upon the exercise of options within
60 days after completion of the Offering.
(2) Includes 87,500 Common Shares issuable upon the exercise of options within
60 days after completion of the Offering.
(3) Includes 5,000 Common Shares issuable upon the exercise of options within 60
days after completion of the Offering, which were granted pursuant to the
Non-Employee Trustees Plan.
(4) Includes 298,750 Common Shares issuable upon the exercise of options 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 personally 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
74
<PAGE> 80
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.
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. Specifically,
not more than 50% in value of the Company's outstanding shares 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 Provision"). 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
75
<PAGE> 81
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 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 Limit Provision.
The Ownership Limit 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 Limit 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 on April 23, 1997. Pursuant to Maryland law, the
Company's existence is perpetual subject to voluntary dissolution and complete
distribution of its assets.
76
<PAGE> 82
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."
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, an asset transfer or issuance or reclassification of equity
securities) between a Maryland real estate investment trust 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 real estate investment trust 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 real estate investment trust (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
trustees of such real estate investment trust 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 real estate investment trust 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 real estate investment trust'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. The trustees of the real estate investment trust
may, by resolution, exempt business combinations specifically, generally, or
generally by types from the prohibitions of the business combinations law, but
such exemption with respect to a potential acquiror must be in place before the
acquiror becomes an Interested Shareholder.
Control Share Acquisitions. Maryland law provides that "control shares" of
a Maryland real estate investment trust acquired in a "control share
acquisition" have no voting rights except to the extent authorized 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.
77
<PAGE> 83
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 authorized 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 authorized) 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 authorized. If voting rights
for control shares are authorized at a shareholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
shareholders may exercise appraisal rights. The fair value of the shares 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 authorized 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 trustees by a
two-thirds vote may amend the Declaration of Trust to qualify, or continue to
qualify, as a real estate investment trust under the Code or Maryland law.
Maryland law requires amendments to the Declaration of Trust to be authorized by
shareholders, 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.
Restrictions on Investment. Maryland law requires that a Maryland real
estate investment trust hold at least 75% of the value of its assets in real
estate assets, governmental securities, cash and cash items, including
receivables.
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
78
<PAGE> 84
their Common Shares. In addition, Maryland's business combinations law makes 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
authorized in advance 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 real
estate investment trust 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.
Maryland law permits a Maryland real estate investment trust 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 or officer 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 or her service in that capacity.
Maryland law permits a Maryland real estate investment trust 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 BankBoston, N.A. as its transfer agent and
registrar.
79
<PAGE> 85
SHARES AVAILABLE FOR FUTURE SALE
Upon the completion of the Offering, the Company will have outstanding
18,801,000 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 Common Shares have been approved for listing on the NYSE,
subject to official notice of issuance. 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."
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.
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, 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.
In the opinion of each of Stokes & Bartholomew, P.A. and Sherrard & Roe,
PLC, commencing with its taxable year ending December 31, 1997, the Company will
be organized in conformity with the requirements for qualification as a REIT,
and its proposed method of operation will enable it to meet the requirements for
qualification and taxation as a REIT under the Code. These opinions are based
upon, and subject to, certain assumptions and various factual representations of
the Company, which are incorporated into such opinions
80
<PAGE> 86
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 opinions of Stokes & Bartholomew, P.A. and
Sherrard & Roe, PLC, 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 either
by Stokes & Bartholomew, P.A. or by Sherrard & Roe, PLC. 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 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.
81
<PAGE> 87
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 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."
82
<PAGE> 88
Rents under the Leases 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
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
83
<PAGE> 89
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 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 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
84
<PAGE> 90
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.
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
85
<PAGE> 91
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 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 distribution to a
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
86
<PAGE> 92
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) is 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 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
87
<PAGE> 93
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 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
88
<PAGE> 94
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.
Distributions that are attributable to gain from sales or exchanges by the
Company of United States real property interests will cause a Non-U.S.
Shareholder to be treated as if such gain were effectively connected with a
United States trade or business. Non-U.S. Shareholders would thus be entitled to
offset its gross income by allowable deductions and would pay tax on the
resulting income at the same rates applicable to U.S. shareholders (subject to a
special alternative minimum tax in the case of nonresident alien individuals).
Also, such gain 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 to withhold 35% of any such distribution. 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 the Foreign
Investment in Real Property Tax Act of 1980, as amended ("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.
89
<PAGE> 95
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 the
Employee Retirement Income Security Act of 1974, as amended ("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 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.
90
<PAGE> 96
UNDERWRITING
Pursuant to the Underwriting Agreement, and subject to the terms and
conditions thereof, the Underwriters named below, acting through J.C. Bradford &
Co., A.G. Edwards & Sons, Inc., 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..........................................
A.G. Edwards & Sons, Inc....................................
Legg Mason Wood Walker, Incorporated........................
Lehman Brothers Inc.........................................
PaineWebber Incorporated....................................
Stephens Inc................................................
----------
Total............................................. 18,500,000
==========
</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 2,775,000 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.
91
<PAGE> 97
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 Common Shares have been approved for listing on the NYSE, subject to
official notice of issuance. 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 of 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 opinions
of Stokes & Bartholomew, P.A., and Sherrard & Roe, PLC. 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.
92
<PAGE> 98
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 established by the Board of
Trustees to 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.
"Bank Credit Facility" means the $150.0 million line of credit for
which the Company has obtained a commitment which will be utilized
primarily to fund the acquisition or expansion of additional correctional
facilities.
"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.
"BOP" means the Federal Bureau of Prisons.
"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.
"CCA" means Corrections Corporation of America, a Tennessee
corporation.
"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 sale by CCA of a controlling interest in CCA; (ii) the sale of all
or substantially all of the assets of CCA; or (iii) any transaction
pursuant to which CCA is merged with or consolidated into another entity,
and CCA is not the surviving entity.
"Code" means Internal Revenue Code of 1986, as amended.
93
<PAGE> 99
"Compensation Committee" means the committee established by the Board
of Trustees to determine compensation, including awards under the Share
Incentive Plan and the Non-Employee Trustees' Plan, and to administer the
Plans.
"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 Amended and Restated 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 from 10 to 12 years.
"Formation Transactions" means the series of transactions described
under the heading "The Formation Transactions" contained in this
Prospectus.
"Funds from Operations" means, in accordance with the resolution
adopted by the Board of Governors of NAREIT, net income (loss) (computed in
accordance with GAAP), excluding significant non-recurring items, 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.
"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.
94
<PAGE> 100
"Leases" or "Lease" means the leases between the Company as landlord
and CCA as tenant with respect to the Initial Facilities.
"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.
"1996 Facility Census" means the Private Adult Correctional 1996
Facility Census, prepared by the Private Corrections Project Center for
Studies in Criminology and Law, University of Florida, dated March 15,
1997.
"NAREIT" means the National Association of Real Estate Investment
Trusts.
"Non-Employee Trustees' Plan" means the Company's Non-Employee
Trustees' Share Option Plan, as amended.
"Non-U.S. Shareholders" means nonresident alien individuals, foreign
corporations, foreign partnerships and other foreign shareholders.
"NYSE" means the New York Stock Exchange.
"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.
"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.
"Preferred Shares" means preferred shares, par value $0.01 per share,
of the Company.
"Prohibited Owner" means one 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.
95
<PAGE> 101
"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.
"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 Incentive Plan" means the Company's 1997 Employee Share
Incentive Plan.
"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.
"Trade Name Use Agreement" means the agreement between CCA and the
Company whereby the Company will be granted the right to use the trade name
"CCA" as part of its name.
"Treasury Regulations" means existing, temporary and currently
proposed Treasury regulations that have been promulgated under the Code.
"UBTI" means "unrelated business taxable income" as defined in Section
512(a) of the Code.
"White Paper" means the White Paper on Funds from Operations approved
by the Board of Governors of NAREIT in March 1995.
96
<PAGE> 102
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 Statements of Operations for the year ended
December 31, 1996 and the three months ended March 31,
1997.................................................. 33
Pro Forma Balance Sheet as of March 31, 1997........... 34
CORRECTIONS CORPORATION OF AMERICA
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Consolidated Balance Sheet as of March 31,
1997.................................................. F-6
Notes to Pro Forma Consolidated Balance Sheet.......... F-7
Pro Forma Consolidated Statement of Operations for the
year ended December 31, 1996.......................... F-8
Pro Forma Consolidated Statement of Operations for the
three months ended March 31, 1997..................... F-9
CORRECTIONS CORPORATION OF AMERICA
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants............... F-10
Consolidated Balance Sheets as of December 31, 1996 and
1995.................................................. F-11
Consolidated Statements of Operations for the years
ended December 31, 1996, 1995 and 1994................ F-12
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994................ F-13
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1995 and 1994.......... F-15
Notes to the Consolidated Financial Statements......... F-16
CORRECTIONS CORPORATION OF AMERICA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheet as of March 31,
1997 and December 31, 1996............................ F-30
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1997 and 1996............ F-31
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996............ F-32
Notes to Condensed Consolidated Financial Statements... F-34
</TABLE>
F-1
<PAGE> 103
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> 104
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> 105
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 18,500,000 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 $215.9 million with similar leaseback
terms, (c) trade name agreement between the Company and CCA, and (d) an
agreement that provides the Company a right to purchase other facilities from
CCA. The Company expects to exercise its option to purchase the Northeast Ohio
Correctional Center for a purchase price of $66.4 million at, or shortly after,
consummation of the Offering.
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> 106
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 March 31, 1997 and for the
three months ended March 31, 1997 and the year ended December 31, 1996. The Pro
Forma Consolidated Statements of Operations are presented as if the Formation
Transactions had occurred as of the beginning of the period indicated and
incorporate 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 March 31, 1997.
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> 107
CORRECTIONS CORPORATION OF AMERICA
PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
----------------------------------------
ACTUAL ADJUSTMENTS PRO FORMA
-------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash, cash equivalents and restricted cash............. $ 7,101 $ 365,350(a) $241,098
(131,940)(b)
587(c)
Accounts receivable, net of allowances................. 69,743 69,743
Other.................................................. 6,604 6,604
-------- --------
Total current assets......................... 83,448 317,445
-------- --------
Property and equipment................................. 382,492 (236,787)(a) 145,705
Accumulated depreciation............................... (25,767) 12,742(a) (13,025)
-------- --------
Property and equipment, net.................. 356,725 132,680
-------- --------
Restricted investments................................. 587 (587)(c) --
Notes receivable....................................... 22,748 22,748
Other assets........................................... 34,787 3,740(d)(b) 37,877
(650)(a)
Investment in direct financing leases.................. 68,622 68,622
-------- --------- --------
Total assets................................. $566,917 $ 12,455 $579,372
======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt...................... $ 7,249 $ (7,249)(b) $ --
Accounts payable....................................... 42,214 42,214
Other accrued expenses................................. 25,763 8,552(d) 34,315
-------- --------
Total current liabilities.................... 75,226 76,529
-------- --------
Long-term debt:
Revolving line of credit............................. 79,568 (79,568)(b) --
Notes payable, less current portion.................. 45,123 (45,123)(b) --
Convertible subordinated notes....................... 64,500 64,500
-------- --------
Total long-term debt......................... 189,191 64,500
-------- --------
Deferred tax liabilities............................... 4,812 (4,812)(d) --
Deferred gain on sale of Facilities.................... -- 140,655(a) 140,655
Other noncurrent liabilities........................... 742 742
Total stockholders' equity............................. 296,946 296,946
-------- --------- --------
Total liabilities and stockholders' equity... $566,917 $ 12,455 $579,372
======== ========= ========
</TABLE>
F-6
<PAGE> 108
CORRECTIONS CORPORATION OF AMERICA
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
CCA's anticipated transactions, reflected on a pro forma basis, as if the
transactions had occurred on March 31, 1997, are as follows:
(a) To record the sale of the nine Initial Facilities to the Company
for $308.1 million and the sale of one Option Facility for $66.4 million.
The Facilities' net book value of $224.1 million and other costs of the
sale result in a total deferred gain of $140.7 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 the retirement of debt and reduction of unamortized debt
costs as a result of the sale of the nine Initial Facilities.
(c) Cash no longer restricted due to the early repayment of related
debt is reclassified to current assets.
(d) 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.
(e) CCA plans to account for the Leases of the Facilities as operating
leases.
F-7
<PAGE> 109
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 $ -- $292,513
Costs and expenses:
Operating.............................................. 213,173 14,302(a) 227,475
General and administrative............................. 13,428 (86)(b) 13,342
Depreciation and amortization.......................... 11,339 (2,331)(c) 9,008
-------- ------- --------
237,940 11,885 249,825
-------- ------- --------
Operating income......................................... 54,573 11,885 42,688
Interest expense, net.................................. 4,224 (3,772)(d) 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.............................. -- -- --
-------- ------- --------
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>
CCA'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 of $22,891, net of the amortized gain on
the sale of the Initial Facilities and one Option Facility of $8,889.
Actual results of operations as reported do not include a full year of
earnings for certain facilities with increased capacity becoming
operational during 1996 and two facilities opening during 1997;
accordingly, the lease payments and deferred gain amortization have been
reduced by $18.3 million and $4.5 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 record a reduction in state franchise taxes based upon the sale
of the facilities.
(c) To reduce depreciation expense on facilities sold.
(d) To reduce interest expense on debt no longer outstanding as a
result of the sale of 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 $9,158 for the
year ended December 31, 1996.
(g) CCA plans to account for the Leases of the facilities as operating
leases.
F-8
<PAGE> 110
CORRECTIONS CORPORATION OF AMERICA
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1997
-----------------------------------
ACTUAL ADJUSTMENTS PRO FORMA
------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:................................................... $91,838 $ -- $91,838
Costs and expenses:
Operating................................................. 63,919 4,413(a) 68,332
General and administrative................................ 3,595 (22)(b) 3,573
Depreciation and amortization............................. 3,923 (1,071)(c) 2,852
------- ------- -------
71,437 3,320 74,757
------- ------- -------
Operating income............................................ 20,401 (3,320) 17,081
Interest expense (income), net............................ 498 (1,182)(d) (684)
------- ------- -------
Income before income taxes.................................. 19,903 (2,138) 17,765
Income tax provision...................................... 7,908 (1,748)(e) 6,160
------- ------- -------
Net income.................................................. 11,995 (390) 11,605
Preferred stock dividends................................. -- -- --
------- ------- -------
Net income allocable to common stockholders................. $11,995 $ (390) $11,605
======= ======= =======
Net income per common share:
Primary................................................... $ 0.14 $ -- $ 0.14
Fully-diluted............................................. $ 0.14 $ -- $ 0.14
Weighted average common shares outstanding.................. 83,942 83,942 83,942
</TABLE>
CCA'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 and one Option Facility. Actual results of
operations as reported do not include a full quarter of earnings for
certain facilities with increased capacity becoming operational during
first quarter 1997; accordingly, the lease payments and deferred gain
amortization have been reduced by $3.2 million and $0.5 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 record a reduction in state franchise taxes based upon the sale
of the facilities.
(c) To reduce depreciation expense on facilities sold.
(d) To reduce interest expense on debt no longer outstanding as a
result of the sale of 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 $1,755 for the
three months ended March 31, 1997.
(g) CCA plans to account for the Leases of the facilities as operating
leases.
F-9
<PAGE> 111
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-10
<PAGE> 112
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-11
<PAGE> 113
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-12
<PAGE> 114
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-13
<PAGE> 115
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-14
<PAGE> 116
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-15
<PAGE> 117
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. The difference between amortization
calculated under the Company's policy and amortization calculated over the
initial term of the contract is not material.
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-16
<PAGE> 118
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Investment in direct financing leases represents 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. Fixed monthly rate revenue is recorded in the month earned and fixed
per diem revenue is recorded based on the per diem rate multiplied by the number
of inmates housed during the respective 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-17
<PAGE> 119
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-18
<PAGE> 120
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-19
<PAGE> 121
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-20
<PAGE> 122
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-21
<PAGE> 123
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-22
<PAGE> 124
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-23
<PAGE> 125
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-24
<PAGE> 126
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 authorized 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-25
<PAGE> 127
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> <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-26
<PAGE> 128
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-27
<PAGE> 129
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
government accounted for revenues of 16%, 18% and 24% for the years ended
December 31, 1996, 1995 and 1994, respectively. In addition, another state
government accounted for 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 development
fee income of $1,629 (after tax) related to a contract to design, construct and
equip a managed 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-28
<PAGE> 130
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 to lease the
facility to Washington, D.C. over a period of twenty years. At the end of the
lease, the facility reverts to the District of Columbia authorities. The Company
intends to account for the purchase and lease as a financing transaction.
F-29
<PAGE> 131
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and restricted cash................ $ 7,101 $ 8,282
Accounts receivable, net of allowances.................... 69,743 100,551
Prepaid expenses.......................................... 4,144 2,940
Deferred tax assets....................................... 22 1,026
Other..................................................... 2,438 1,643
-------- --------
Total current assets.............................. 83,448 114,442
Restricted investments...................................... 587 587
Other assets................................................ 34,787 29,405
Property and equipment, net................................. 356,725 288,697
Notes receivable............................................ 22,748 22,859
Investment in direct financing leases....................... 68,622 12,898
-------- --------
$566,917 $468,888
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 42,214 $ 39,224
Accrued salaries and wages................................ 6,410 5,487
Accrued property taxes.................................... 605 1,675
Other accrued expenses.................................... 18,748 9,227
Current portion of long-term debt......................... 7,249 8,281
-------- --------
Total current liabilities......................... 75,226 63,894
Long-term debt, net of current portion...................... 189,191 117,535
Deferred tax liabilities.................................... 4,812 4,717
Other noncurrent liabilities................................ 742 990
-------- --------
Total liabilities................................. 269,971 187,136
-------- --------
Stockholders' equity:
Common stock.............................................. 75,945 75,029
Additional paid-in capital................................ 167,082 165,317
Retained earnings......................................... 54,127 42,132
Treasury stock, at cost................................... (208) (726)
-------- --------
Total stockholders' equity........................ 296,946 281,752
-------- --------
$566,917 $468,888
======== ========
</TABLE>
F-30
<PAGE> 132
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
----------------------
1997 1996
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues.................................................... $91,838 $63,277
Expenses:
Operating................................................. 63,919 47,184
General and administrative................................ 3,595 2,925
Depreciation and amortization............................. 3,923 2,277
------- -------
71,437 52,386
------- -------
Operating income............................................ 20,401 10,891
Interest expense, net....................................... 498 1,350
------- -------
Income before income taxes.................................. 19,903 9,541
Provision for income taxes.................................. 7,908 3,835
------- -------
Net income.................................................. $11,995 $ 5,706
======= =======
Net income per common share:
Primary................................................... $ 0.14 $ 0.07
======= =======
Fully diluted............................................. $ 0.14 $ 0.07
======= =======
Weighted average common shares outstanding:
Primary................................................... 83,942 80,502
======= =======
Fully diluted............................................. 89,659 87,168
======= =======
</TABLE>
F-31
<PAGE> 133
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1997 1996
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income................................................ $ 11,995 $ 5,706
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 3,923 2,277
Deferred and other noncash income taxes................ 2,329 6,077
Other noncash items.................................... 92 --
Loss (gain) on disposal of assets...................... (20) 11
Equity in earnings of unconsolidated entities.......... (252) (150)
Changes in assets and liabilities:
Accounts receivable.................................. 30,830 (8,034)
Prepaid expenses..................................... (1,204) 62
Other current assets................................. (795) (309)
Accounts payable..................................... 2,990 2,250
Accrued expenses..................................... 9,374 (3,823)
--------- --------
Net cash provided by operating activities......... 59,262 4,067
--------- --------
Cash Flows from Investing Activities:
Decrease (increase) in restricted and escrow cash......... 1,365 (402)
Increase in other assets.................................. (6,165) (2,771)
Additions of property and equipment....................... (70,919) (9,602)
Proceeds from disposals of assets......................... 8 6
Increase in direct financing leases....................... (55,850) --
Payments received on direct financing leases and notes
receivable............................................. 215 91
--------- --------
Net cash used in investing activities............. (131,346) (12,678)
--------- --------
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt.................. -- 30,000
Payments on long-term debt................................ (2,476) (15,444)
Proceeds from (payments on) line of credit, net........... 74,000 (9,723)
Payment of debt issuance cost............................. (248) (496)
Proceeds from exercise of stock options and warrants...... 992 3,044
--------- --------
Net cash provided by financing activities......... 72,268 7,381
--------- --------
Net increase (decrease) in cash............................. 184 (1,230)
CASH AND CASH EQUIVALENTS, beginning of period............ 4,832 2,145
--------- --------
CASH AND CASH EQUIVALENTS, end of period.................. $ 5,016 $ 915
========= ========
</TABLE>
F-32
<PAGE> 134
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
----------------
1997 1996
----- -------
(IN THOUSANDS)
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest............................................... $ 840 $ 1,986
===== =======
Income taxes........................................... $ 609 $ 1,565
===== =======
Supplemental Schedule of Noncash Investing and Financing
Activities:
The Company acquired treasury stock and issued common
stock through the exercise of stock options:
Common stock........................................... $ 134 $ 911
Additional paid-in capital............................. 411 2,885
Retained earnings...................................... -- (2,847)
Treasury stock, at cost................................ (545) (949)
----- -------
$ -- $ --
===== =======
Long term debt was converted into common stock:
Other assets.............................................. $ 15 $ --
Long-term debt............................................ (900) --
Common Stock.............................................. 531 --
Additional paid-in capital................................ 354 --
----- -------
$ -- $ --
===== =======
</TABLE>
F-33
<PAGE> 135
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of March 31, 1997, and the consolidated
statements of operations and cash flows for the three month periods ended March
31, 1997 and 1996, have been prepared by the Company in accordance with the
accounting policies described in its Annual Report to Stockholders for the year
ended December 31, 1996 and should be read in conjunction with the notes
thereto.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial positions,
results of operations and changes in cash flows at March 31, 1997 and for all
periods presented have been made. The results of operations for the period ended
March 31, 1997, are not necessarily indicative of the operating results for the
full year.
2. INVESTMENT IN DIRECT FINANCING LEASES
In January 1997, the Company purchased the fixed and movable assets of a
correctional treatment facility in Washington, D.C. for $52,000,000, and agreed
to make certain renovations totaling $3,850,000. The Company has entered into
additional agreements to manage this facility and to lease the facility back to
Washington, D.C. over a period of twenty years. At the end of the lease, the
facility reverts to the District of Columbia authorities. The Company is
accounting for the purchase and lease as a financing transaction.
3. EARNINGS PER SHARE
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"), has been issued effective for fiscal periods ending after December
15, 1997. SFAS 128 establishes standards for computing and presenting earnings
per share. The Company is required to adopt the provisions of SFAS 128 in the
fourth quarter of 1997. Under the standards established by SFAS 128, earnings
per share is measured at two levels: basic earnings per share and diluted
earnings per share. Basic earnings per share is computed by dividing net income
by the weighted average number of common shares outstanding during the year.
Diluted earnings per share is computed by dividing net income by the weighted
average number of common shares after considering the additional dilution
related to preferred stock, convertible debt, options and warrants.
The following pro forma amounts represent the basic earnings per share and
diluted earnings per share as if the Company had adopted SFAS 128 for the
quarters presented:
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
MARCH 31,
-----------
1997 1996
---- ----
<S> <C> <C>
Basic earnings per share.................................... $.16 $.09
==== ====
Diluted earnings per share.................................. $.14 $.07
==== ====
</TABLE>
F-34
<PAGE> 136
======================================================
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 AUGUST , 1997 (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............................. 15
The Company.............................. 23
Use of Proceeds.......................... 28
Capitalization........................... 28
Distributions............................ 29
Dilution................................. 31
Pro Forma Financial Statements........... 32
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 35
The Private Corrections Industry......... 37
Corrections Corporation of America....... 38
Business of the Company and its
Properties............................. 48
Relationship Between CCA and the Company
after the Formation Transactions....... 54
Leases................................... 55
Management............................... 59
Certain Relationships and Transactions... 66
Policies and Objectives with Respect to
Certain Activities..................... 67
Conflicts of Interest.................... 70
The Formation Transactions............... 72
Principal Shareholders of the Company.... 74
Description of Capital Shares............ 74
Shares Available for Future Sale......... 80
Material Federal Income Tax
Considerations......................... 80
ERISA Considerations..................... 90
Underwriting............................. 91
Experts.................................. 92
Legal Matters............................ 92
</TABLE>
======================================================
======================================================
18,500,000 SHARES
[CORRECTIONS CORPORATION OF AMERICA LOGO]
COMMON SHARES
-------------------------
PROSPECTUS
-------------------------
JC BRADFORD & CO
A.G. EDWARDS & SONS, INC.
LEGG MASON WOOD WALKER
INCORPORATED
LEHMAN BROTHERS
PAINEWEBBER INCORPORATED
STEPHENS INC.
, 1997
======================================================
<PAGE> 137
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......... $ 135,390
NASD Filing Fee............................................. 30,500
New York Stock Exchange Original Listing Fee................ 161,390
Blue Sky Fees and Expenses (including attorneys' fees)...... 2,500
Accounting Fees and Expenses................................ 335,000
Attorneys' Fees and Expenses................................ 1,270,000
Printing and Engraving Expenses............................. 700,000
Transfer Agent's Fees....................................... 12,000
Trustees' and Officers' Insurance........................... 175,000
Miscellaneous Expenses...................................... 278,250
----------
Total............................................. $3,100,000
==========
</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 one shareholder being issued 1,000 Common Shares in 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 Corporation and Associations Article of the Annotated
Code of Maryland permits a Maryland real estate investment trust to indemnify
trustees, officers, employees and agents of the real estate investment trust to
the same extent as is permitted for directors, officers, employees and agents of
a Maryland corporation under Section 2-418 of the MGCL.
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
II-1
<PAGE> 138
believe that the act or omission was unlawful. The indemnity may include
judgments, penalties, fines, 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 real estate investment trust to indemnify
its officers, employees and agents to the same extent as its trustees. The
Company's Declaration of Trust provides for indemnification of the Company's
officers, employees or agents to the fullest extent permitted by 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> 139
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements Included in this Registration Statement, including
the Prospectus:
<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 Statements of Operations for the year ended
December 31, 1996 and the three months ended March 31,
1997.................................................. 33
Pro Forma Balance Sheet as of March 31, 1997........... 34
CORRECTIONS CORPORATION OF AMERICA
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Consolidated Balance Sheet as of March 31,
1997.................................................. F-6
Notes to Pro Forma Consolidated Balance Sheet.......... F-7
Pro Forma Consolidated Statement of Operations for the
year ended December 31, 1996.......................... F-8
Pro Forma Consolidated Statement of Operations for the
three months ended March 31, 1997..................... F-9
CORRECTIONS CORPORATION OF AMERICA
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants............... F-10
Consolidated Balance Sheets as of December 31, 1996 and
1995.................................................. F-11
Consolidated Statements of Operations for the years
ended December 31, 1996, 1995 and 1994................ F-12
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994................ F-13
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1995 and 1994.......... F-15
Notes to the Consolidated Financial Statements......... F-16
CORRECTIONS CORPORATION OF AMERICA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheet as of March 31,
1997 and December 31, 1996............................ F-30
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1997 and 1996............ F-31
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996............ F-32
Notes to Condensed Consolidated Financial Statements... F-34
</TABLE>
(B) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ----------
<C> <C> <S>
**1 -- Form of Underwriting Agreement
**2 -- Agreement of Sale and Purchase Between CCA Prison Realty
Trust and Corrections Corporation of America
*3.1 -- Amended and Restated Declaration of Trust of CCA Prison
Realty Trust
*3.2 -- Amended and Restated Bylaws of CCA Prison Realty Trust
*3.3 -- Specimen of certificate representing the Common Shares
</TABLE>
II-3
<PAGE> 140
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------------
<C> <C> <S>
*4 -- Provisions defining the rights of shareholders are found in Sections 8-10 and 15 and Article II in
the Amended and Restated Declaration of Trust and Amended and Restated Bylaws, respectively, of CCA
Prison Realty Trust (included as Exhibits 3.1 and 3.2 to the Registration Statement)
**5.1 -- Opinion of Stokes & Bartholomew, P.A., regarding the validity of the Common Shares being offered
hereby
**5.2 -- Opinion of Miles & Stockbridge, A Professional Corporation, regarding the validity of the Common
Shares being offered hereby
**8.1 -- Opinion of Stokes & Bartholomew, P.A., regarding certain federal income tax matters.
**8.2 -- Opinion of Sherrard & Roe, PLC, regarding certain federal income tax matters
**10.1(a) -- Option Agreement Between CCA Prison Realty Trust and Corrections Corporation of America with
respect to the Northeast Ohio Correctional Center
**10.1(b) -- Option Agreement Between CCA Prison Realty Trust and Corrections Corporation of America with
respect to the Torrance County Detention Facility
**10.1(c) -- Option Agreement Between CCA Prison Realty Trust and Corrections Corporation of America with
respect to the Southern Colorado Correctional Facility
**10.1(d) -- Option Agreement Between CCA Prison Realty Trust and Corrections Corporation of America with
respect to the North Fork Correctional Facility
**10.1(e) -- Option Agreement Between CCA Prison Realty Trust and Corrections Corporation of America with
respect to the Whiteville Correctional Center
*10.2 -- Form of Master Agreement to Lease Between CCA Prison Realty Trust and Corrections Corporation of
America
*10.3 -- Form of Lease Between CCA Prison Realty Trust and Corrections Corporation of America with respect
to the Leased Properties
**10.4 -- 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
*10.6 -- Commitment for Arrangement of Bank Credit Facility and Financing with Summary of Terms and
Conditions from First Union National Bank of Tennessee and First Union Capital Market Corp. and
accepted by CCA Prison Realty Trust
*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, as amended
*21 -- List of Subsidiaries of CCA Prison Realty Trust
</TABLE>
II-4
<PAGE> 141
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ----------
<C> <C> <S>
**23.1 -- Consent of Stokes & Bartholomew, P.A. (included in Exhibits
5.1 and 8.1)
**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)
**23.4 -- Consent of Miles & Stockbridge, A Professional Corporation
(included in Exhibit 5.2)
**23.5 -- Consent of Sherrard & Roe, PLC (included in Exhibit 8.2)
*23.6 -- Consent of Private Corrections Project Center for Studies in
Criminology and Law -- University of Florida at Gainesville
*24 -- Power of Attorney (included in the signature pages)
*27 -- Financial Data Schedule
</TABLE>
- ---------------
* Previously filed
** Filed herewith
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 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> 142
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment Number 4 to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly approved, in the City of
Nashville, State of Tennessee, on the 9th day of July, 1997.
CCA PRISON REALTY TRUST
By: /s/ D. ROBERT CRANTS, III
------------------------------------
D. Robert Crants, III
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
Number 4 to the 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>
* Chief Executive Officer (Principal July 9, 1997
- --------------------------------------------------- Executive Officer) and Trustee
J. Michael Quinlan
* President and Trustee July 9, 1997
- ---------------------------------------------------
D. Robert Crants, III
* Chief Development Officer and July 9, 1997
- --------------------------------------------------- Trustee
Michael W. Devlin
* Chief Financial Officer (Principal July 9, 1997
- --------------------------------------------------- Financial and Accounting Officer)
Vida H. Carroll
* Chairman; Trustee July 9, 1997
- ---------------------------------------------------
Doctor R. Crants
* Trustee July 9, 1997
- ---------------------------------------------------
C. Ray Bell
* Trustee July 9, 1997
- ---------------------------------------------------
Richard W. Cardin
* Trustee July 9, 1997
- ---------------------------------------------------
Monroe J. Carell, Jr.
* Trustee July 9, 1997
- ---------------------------------------------------
John W. Eakin, Jr.
* Trustee July 9, 1997
- ---------------------------------------------------
Ted Feldman
* Trustee July 9, 1997
- ---------------------------------------------------
Jackson W. Moore
</TABLE>
II-6
<PAGE> 143
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <C>
* Trustee July 9, 1997
- ---------------------------------------------------
Rusty L. Moore
* Trustee July 9, 1997
- ---------------------------------------------------
Joseph V. Russell
* Trustee July 9, 1997
- ---------------------------------------------------
Charles W. Thomas, Ph.D
*By: /s/ D. ROBERT CRANTS, III
-----------------------------------------------
D. Robert Crants, III
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 144
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <C> <S> <C>
**1 -- Form of Underwriting Agreement..............................
**2 -- Agreement of Sale and Purchase Between CCA Prison Realty
Trust and Corrections Corporation of America................
*3.1 -- Amended and Restated Declaration of Trust of CCA Prison
Realty Trust................................................
*3.2 -- Amended and Restated Bylaws of CCA Prison Realty Trust......
*3.3 -- Specimen of certificate representing the Common Shares......
*4 -- Provisions defining the rights of shareholders are found in
Sections 8-10 and 15 and Article II in the Amended and
Restated Declaration of Trust and Amended and Restated
Bylaws, respectively, of CCA Prison Realty Trust (included
as Exhibits 3.1 and 3.2 to the Registration Statement)......
**5.1 -- Opinion of Stokes & Bartholomew, P.A., regarding the
validity of the Common Shares being offered hereby..........
**5.2 -- Opinion of Miles & Stockbridge, A Professional Corporation,
regarding the validity of the Common Shares being offered
hereby
**8.1 -- Opinion of Stokes & Bartholomew, P.A., regarding certain
federal income tax matters..................................
**8.2 -- Opinion of Sherrard & Roe, PLC, regarding certain federal
income tax matters..........................................
**10.1(a) -- Option Agreement Between CCA Prison Realty Trust and
Corrections Corporation of America with respect to the
Northeast Ohio Correctional Center..........................
**10.1(b) -- Option Agreement Between CCA Prison Realty Trust and
Corrections Corporation of America with respect to the
Torrance County Detention Facility..........................
**10.1(c) -- Option Agreement Between CCA Prison Realty Trust and
Corrections Corporation of America with respect to the
Southern Colorado Correctional Facility.....................
**10.1(d) -- Option Agreement Between CCA Prison Realty Trust and
Corrections Corporation of America with respect to the North
Fork Correctional Facility..................................
**10.1(e) -- Option Agreement Between CCA Prison Realty Trust and
Corrections Corporation of America with respect to the
Whiteville Correctional Center..............................
*10.2 -- Form of Master Agreement to Lease Between CCA Prison Realty
Trust and Corrections Corporation of America................
*10.3 -- Form of Lease Between CCA Prison Realty Trust and
Corrections Corporation of America with respect to the
Leased Properties...........................................
**10.4 -- 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................
*10.6 -- Commitment for Arrangement of Bank Credit Facility and
Financing with Summary of Terms and Conditions from First
Union National Bank of Tennessee and First Union Capital
Market Corp. and accepted by CCA Prison Realty Trust........
*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.....................................
</TABLE>
<PAGE> 145
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <C> <S> <C>
.9 -- Form of Employment Agreement between D. Robert Crants, III
*10 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, as amended.....................................
*21 -- List of Subsidiaries of CCA Prison Realty Trust.............
**23.1 -- Consent of Stokes & Bartholomew, P.A. (included in Exhibits
5.1 and 8.1)................................................
**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)...............................................
**23.4 -- Consent of Miles & Stockbridge, A Professional Corporation
(included in Exhibit 5.2)...................................
**23.5 -- Consent of Sherrard & Roe, PLC (included in Exhibit 8.2)....
*23.6 -- Consent of Private Corrections Project Center for Studies in
Crimonology and Law -- University of Florida at Gainesville
*24 -- Power of Attorney (included in the signature pages).........
*27 -- Financial Data Schedule.....................................
</TABLE>
- ---------------
* Previously filed
** Filed herewith
<PAGE> 1
Exhibit 1
CCA PRISON REALTY TRUST
18,500,000 COMMON SHARES
UNDERWRITING AGREEMENT
July __, 1997
J.C. BRADFORD & CO., L.L.C.
A.G. EDWARDS & SONS, INC.
LEGG MASON WOOD WALKER, INCORPORATED
LEHMAN BROTHERS INC.
PAINEWEBBER INCORPORATED
STEPHENS INC.
As Representatives of the Several Underwriters
c/o J.C. Bradford & Co.
J.C. Bradford Financial Center
330 Commerce Street
Nashville, Tennessee 37201
Ladies and Gentlemen:
CCA Prison Realty Trust, a Maryland real estate investment trust (the
"Company"), proposes to issue and sell to the underwriters named in Schedule I
hereto (the "Underwriters") for whom you are acting as the representatives (the
"Representatives") 18,500,000 shares (collectively, the "Firm Shares"), of the
Common Shares, $.01 par value per share (the "Common Shares"), of the Company.
The Firm Shares are to be sold to the Underwriters, acting severally and not
jointly, in such amounts as are set forth in Schedule I hereto opposite the name
of such Underwriter. The Company proposes to grant to the Underwriters an option
to purchase up to 2,775,000 additional Common Shares as provided for in Section
2 of this Agreement for the purpose of covering over-allotments (the "Option
Shares"). The Firm Shares and the Option Shares purchased pursuant to this
Agreement are herein called the "Shares."
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), a
<PAGE> 2
registration statement on Form S-11 (Registration No. 333-25727),
including the related preliminary prospectus relating to the Shares.
Copies of such registration statement and any amendments, including any
post-effective amendments, and all forms of the related prospectuses
contained therein and any supplements thereto, have been delivered to
you. Such registration statement, including the prospectus, Part II,
all financial schedules and exhibits thereto, all information deemed to
be a part of such registration statement pursuant to Rule 430A under
the Securities Act and any related registration statement filed
pursuant to Rule 462(b) under the Securities Act, at the time when they
shall become effective are herein referred to as the "Registration
Statement," and the prospectus included as part of the Registration
Statement on file with the Commission that discloses all the
information that was omitted from the prospectus on the effective date
pursuant to Rule 430A of the Rules and Regulations (as defined below)
and in the form filed pursuant to Rule 424(b) under the Securities Act
is herein referred to as the "Final Prospectus." The prospectus
included as part of the Registration Statement on the date when the
Registration Statement became effective is referred to herein as the
"Effective Prospectus." Any prospectus included in the Registration
Statement and in any amendment thereto prior to the effective date of
the Registration Statement is referred to herein as a "Preliminary
Prospectus." For purposes of this Agreement, "Rules and Regulations"
mean the rules and regulations promulgated by the Commission under
either the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as applicable.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus, at the time of filing thereof, complied with the
requirements of the Securities Act and the Rules and Regulations, and
did not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; except that the foregoing does
not apply to statements or omissions made in reliance upon and in
conformity with written information relating to any Underwriter
furnished to the Company by any Underwriter specifically for use
therein. When the Registration Statement becomes effective and at all
times subsequent thereto up to and including the First Closing Date (as
hereinafter defined), (i) the Registration Statement, the Effective
Prospectus and Final Prospectus and any amendments or supplements
thereto will contain all statements which are required to be stated
therein in accordance with the Securities Act and the Rules and
Regulations and will comply with the requirements of the Securities Act
and the Rules and Regulations, and (ii) neither the Registration
Statement, the Effective Prospectus nor the Final Prospectus nor any
amendment or supplement thereto will include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they are made, not misleading; except that the
foregoing does not apply to statements or omissions made in reliance
upon and in conformity with written information relating to any
Underwriter furnished to the Company by any Underwriter specifically
for use therein.
2
<PAGE> 3
(c) The Company is duly formed and validly existing and in
good standing under the laws of the State of Maryland with full power
and authority to own its properties and conduct its business as now
conducted and is duly qualified or authorized to do business and is in
good standing in all jurisdictions where the failure to so qualify
could have a material adverse effect upon the conduct of business or
the ownership or leasing of property by the Company in such
jurisdiction. The Company holds all material licenses, consents and
approvals, and has satisfied all material eligibility and other similar
requirements imposed by federal and state regulatory bodies,
administrative agencies or other governmental bodies, agencies or
officials, in each case as required for the conduct of the business in
which it is engaged and is contemplated to be engaged in the Effective
Prospectus and the Final Prospectus. The Company does not have a direct
or indirect ownership interest in any corporation, joint venture,
partnership or other entity.
(d) The capitalization of the Company is as set forth under
the caption "Capitalization" in the Effective Prospectus and the Final
Prospectus, and the Company's capital shares conform to the description
thereof contained under the caption "Description of Capital Shares" in
the Effective Prospectus and the Final Prospectus. All the issued
capital shares of the Company have been duly authorized and validly
issued, are fully paid and nonassessable. None of the issued capital
shares of the Company have been issued in violation of, or are subject
to, any preemptive or similar rights. The Shares to be sold by the
Company hereunder have been duly and validly authorized and, upon
issuance and delivery and payment therefor in the manner herein
described, will be validly issued, fully paid and nonassessable and
will not be subject to preemptive rights or other rights to subscribe
for or to purchase. Except as set forth in the Effective Prospectus and
the Final Prospectus, (i) the Company does not have outstanding any
options to purchase, or any rights or warrants to subscribe for, or any
securities or obligations convertible into, or any contracts or
commitments to issue or sell, any Common Shares and (ii) there are no
preemptive rights or other rights to subscribe for or to purchase, or
any restriction upon the transfer of, any Common Shares pursuant to the
Company's declaration of trust, bylaws or any agreement or other
instrument to which the Company is a party or by which it may be bound.
Neither the filing of the Registration Statement nor the offer or sale
of the Shares as contemplated by this Agreement gives rise to any
rights, other than those which have been waived or satisfied, for or
relating to the registration of any Common Shares or any other
securities of the Company. The Underwriters will receive good and
marketable title to the Shares to be issued and delivered hereunder,
free and clear of all liens, encumbrances, claims, security interests,
restrictions, shareholders' agreements and voting trusts whatsoever.
(e) The form of share certificate to be used to evidence the
Common Shares will be in due and proper form and will comply with all
applicable legal requirements.
(f) All offers and sales by the Company of the Company's
securities prior to the date hereof were at all relevant times duly
registered or the subject of an available
3
<PAGE> 4
exemption from the registration requirements of the Securities Act, and
were duly registered or the subject of an available exemption from the
registration requirements of the applicable state securities or Blue
Sky laws.
(g) The Company has full legal right, power and authority to
enter into this Agreement and to sell and deliver the Shares to be sold
by it to the several Underwriters as provided herein, and this
Agreement has been duly authorized, executed and delivered by the
Company and constitutes a valid and binding agreement of the Company
enforceable against the Company in accordance with its terms. No
consent, approval, authorization or order of any court or governmental
agency or body or third party is required for the performance of this
Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby, except such as have been obtained and
such as may be required by the National Association of Securities
Dealers, Inc. ("NASD") or under the Securities Act or state securities
or Blue Sky laws in connection with the purchase and distribution of
the Shares by the several Underwriters. The issue and sale of the
Shares by the Company, the Company's performance of this Agreement and
the consummation of the transactions contemplated hereby will not
result in a breach or violation of, or conflict with, any of the terms
and provisions of, or constitute a default by the Company under, any
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which the Company is a party or to which the
Company or any of its properties is subject, the declaration of trust,
bylaws or other governing instruments of the Company or any statute or
any judgment, decree, order, rule or regulation of any court or
governmental agency or body applicable to the Company or any of its
properties, except for such breach, violation or conflict which could
not, singly or in the aggregate, have a material adverse effect on the
Company or could not, singly or in the aggregate, materially impair the
performance by the Company of its obligations under this Agreement. The
Company is not in violation of its declaration of trust, bylaws or
other governing instruments or any law, administrative rule or
regulation or arbitrators' or administrative court decree, judgment or
order or in violation or default (there being no existing state of
facts which with notice or lapse of time or both would constitute a
default) in the performance or observance of any material obligation,
agreement, covenant or condition contained in any contract, indenture,
deed of trust, mortgage, loan agreement, note, lease, agreement or
other instrument or permit to which it is a party or by which it or any
of its properties is or may be bound, except for such violation or
conflict which could not, singly or in the aggregate, have a material
adverse effect on the Company or could not, singly or in the aggregate,
materially impair the performance by the Company of its obligations
under this Agreement.
(h) At the Closing Date, each of the Purchase Agreement, the
Option Agreements, the Right to Purchase Agreement, the Trade Name Use
Agreement, the Leases, the Master Lease (each as defined in the
Effective Prospectus), and the employment agreements with each of J.
Michael Quinlan, D. Robert Crants III and Michael W. Devlin
(collectively, the "Employment Agreements") will have been duly and
4
<PAGE> 5
validly authorized, executed and delivered by the Company and will be
valid and binding agreements of the Company enforceable in accordance
with their respective terms. At the Closing Date, the agreements
pursuant to which certain persons have agreed not to sell their Common
Shares for a specified period of time (the "Lockup Agreements") will
have been duly and validly authorized, executed and delivered by the
parties thereto and will be valid and binding agreements, enforceable
in accordance with their terms. The Purchase Agreement, the Option
Agreements, the Right to Purchase Agreement, the Trade Name Use
Agreement, the Leases, the Master Lease, the Employment Agreements and
the Lockup Agreements are sometimes hereinafter called the "Operative
Documents." The execution, delivery and performance of the Operative
Documents and the consummation of the transactions contemplated therein
and compliance by the Company with its obligations thereunder have been
duly authorized by all necessary action and will not contravene any
provision of applicable law or the declaration of trust or by-laws of
the Company or any agreement or other instrument binding upon the
Company, or any judgment, order or decree of any governmental body,
agency or court having jurisdiction over the Company, and no consent,
approval, authorization or order of or qualification with any
governmental body or agency is required for the performance by the
Company of its obligations under the Operative Documents, except (i)
such as may be required by the federal securities laws or the
securities or Blue Sky laws of the various states in connection with
the offer and sale of the Shares and (ii) to the extent that the
failure to obtain such would not, singly or in the aggregate, have a
material adverse effect on the Company.
(i) The historical and pro forma financial statements,
together with the related schedules and notes, of the Company, included
in the Registration Statement, the Effective Prospectus and the Final
Prospectus, conform to the requirements of the Securities Act and the
Rules and Regulations. Such historical financial statements fairly
present the financial position of the Company at the respective dates
indicated in accordance with generally accepted accounting principles
applied on a consistent basis for the periods indicated. Such pro forma
financial statements have been prepared on a basis consistent with such
historical statements, except for the pro forma adjustments specified
therein, and give effect to assumptions made on a reasonable basis and
present fairly the transactions reflected thereby as indicated in the
Prospectus. The financial and statistical data set forth in the
Effective Prospectus and the Final Prospectus fairly presents the
information set forth therein on the basis stated in the Effective
Prospectus and the Final Prospectus. Arthur Andersen LLP, whose report
is included in the Effective Prospectus and the Final Prospectus, are
independent accountants as required by the Securities Act and the Rules
and Regulations.
(j) Subsequent to April 23, 1997, the Company has not
sustained any material loss or interference with its business or
properties from fire, flood, hurricane, accident or other calamity,
whether or not covered by insurance, or from any labor dispute or court
or governmental action, order or decree, which is not disclosed in the
Effective Prospectus
5
<PAGE> 6
and the Final Prospectus; and subsequent to the respective dates as of
which information is given in the Registration Statement, the Effective
Prospectus and the Final Prospectus, (i) the Company has not incurred
any material liabilities or obligations, direct or contingent, or
entered into any transactions not in the ordinary course of business,
and (ii) there has not been any issuance of options, warrants or rights
to purchase interests in, or the capital shares of, the Company, or any
adverse change, or any development involving a prospective adverse
change, in the general affairs, management, business, prospects,
financial position, net worth or results of operations of the Company,
except in each case as described in the Effective Prospectus and the
Final Prospectus.
(k) Except as described in the Effective Prospectus and the
Final Prospectus, there is not pending, or to the knowledge of the
Company threatened, any legal or governmental action, suit, proceeding,
inquiry or investigation, to which the Company or any of its officers
or trustees is a party, or to which the property of the Company is
subject, before or brought by any court or governmental agency or body,
wherein an unfavorable decision, ruling or finding could prevent or
materially hinder the consummation of this Agreement or the Operative
Documents or result in a material adverse change in the business
condition (financial or other), prospects, financial position, net
worth or results of operations of the Company.
(l) (i) Except as has been disclosed in writing to the
Representatives or their counsel prior to the date hereof, to the
knowledge of the Company, the Initial Facilities (as defined in the
Effective Prospectus) are presently operated in compliance in all
material respects with all Environmental Laws (as defined below).
(ii) Except as has been disclosed in the Effective
Prospectus and the Final Prospectus, there are no Environmental Laws
requiring any material remediation, clean up, repairs, constructions or
capital expenditures (other than normal maintenance) with respect to
the Initial Facilities.
(iii) Except as has been disclosed in writing to the
Representatives or their counsel prior to the date hereof, (A) no
notices of any violation or alleged violation of any Environmental Laws
relating to the Initial Facilities or their uses have been received by
the Company, or, to the best knowledge of the Company, by Corrections
Corporation of America ("CCA") or any prior owner, operator or occupant
of the Initial Facilities, and (B) there are no writs, injunctions,
decrees, orders or judgments outstanding, or any actions, suits,
claims, proceedings or investigations pending, or to the knowledge of
the Company threatened, relating to the ownership, use, maintenance or
operation of the Initial Facilities.
(iv) Except as has been disclosed in writing to the
Representatives or their counsel prior to the date hereof, all material
permits and licenses required under any Environmental Laws in respect
of the operations of the Initial Facilities have been
6
<PAGE> 7
obtained, and the Initial Facilities and CCA are in compliance, in all
material respects, with the terms and conditions of such permits and
licenses.
(v) All reports of environmental surveys, audits,
investigations and assessments in the possession or control of the
Company or CCA relating to the Initial Facilities have been disclosed
to the Representatives or their counsel.
(vi) "Environmental Law" means all applicable
statutes, regulations, rules, ordinances, codes, licenses, permits,
orders, demands, approvals, authorizations and similar items of all
governmental agencies, departments, commissions, boards, bureaus or
instrumentalities of the United States, states and political
subdivisions thereof and all applicable judicial, administrative and
regulatory decrees, judgments and orders relating to the protection of
human health or the environment as in effect as of the date hereof,
including but not limited to those pertaining to reporting, licensing,
permitting, investigation and remediation of emissions, discharges,
releases or threatened releases of "Hazardous Materials," substances,
pollutants, contaminants or hazardous or toxic substances, materials or
wastes whether solid, liquid or gaseous in nature, into the air,
surface water, ground water or land, or relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of substances, pollutants, contaminants or hazardous or
toxic substances, materials or wastes, whether solid, liquid or gaseous
in nature, including by way of illustration and not by way of
limitation, (x) the Comprehensive Environmental Response, Compensation
and Liability Act (42 U.S.C. ss.ss. 960111 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. ss.ss.69011 et seq.), the
Clean Air Act (42 U.S.C. ss.ss. 7401 et seq.), the Federal Water
Pollution Control Act (33 U.S.C. ss.ss. 1251), the Safe Drinking Water
Act (42 U.S.C. ss.ss. 300f et seq.), the Toxic Substances Control Act
(15 U.S.C. ss.ss. 2601 et seq.), the Endangered Species Act (16 U.S.C.
ss.ss. 1531 et seq.), the Emergency Planning and Community
Right-to-Know Act of 1986 (42 U.S.C. ss.ss. 11001 et seq.) and (y)
analogous state and local provisions.
(vii) "Hazardous Material" means any chemical substance:
(A) the presence of which requires investigation
or remediation under any federal, state or local
statute, regulation, ordinance, order, action or policy,
administrative request or civil complaint under any of
the foregoing or under common law; or
(B) which is defined as a "hazardous waste" or
"hazardous substance" under any federal, state or local
statute, regulation or ordinance or amendments thereto
as in effect as of the date hereof, or as hereafter
amended, including, without limitation, the
Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. Section 9601 et seq.)
7
<PAGE> 8
and or the Resource Conservation and Recovery Act (42
U.S.C. Section 6901 et seq.); or
(C) which is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic,
mutagenic or otherwise hazardous and is regulated by any
governmental authority, agency, department, commission,
board, agency or instrumentality of the United States,
or any state or any political subdivision thereof having
or asserting jurisdiction over any of the Initial
Facilities; or
(D) the presence of which on any of the Initial
Facilities causes a nuisance upon such facilities or to
adjacent properties or poses a hazard to the health or
safety of persons on or about any of the Initial
Facilities; or
(E) the presence of which on adjacent properties
constitutes a trespass by any owner or operator of the
Initial Facilities; or
(F) which contains gasoline, diesel fuel or other
petroleum hydrocarbons, polychlorinated biphenyls (PCBs)
or asbestos or asbestos-containing materials or urea
formaldehyde foam insulation; or
(G) radon gas.
(m) Except as disclosed in the Operative Documents, (i) on the
Closing Date, the Company will have good and marketable title to the
Initial Facilities and good and marketable title to all personal
property owned or proposed to be owned by it which is material to the
business of the Company, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Effective
Prospectus and Final Prospectus or in the title policies delivered to
the Company on such date or such as do not materially affect the value
of such property and do not interfere materially with the use made and
proposed to be made of such property by the Company; (ii) all permits
which are necessary for the operation of the Initial Facilities at the
Closing Date (A) shall remain in full force and effect and (B) permit
the Initial Facilities to be operated in compliance with all laws,
rules, codes and regulations; (iii) the operation of the buildings,
fixtures and other improvements located on the Initial Facilities as
presently conducted is not in violation of any applicable building
code, zoning ordinance or other law or regulation; (iv) neither the
Company nor, to the knowledge of the Company, CCA has received notice
of any proposed special assessment or any proposed material change in
any property tax, zoning or land use laws; (v) there do not exist any
material violations of any declaration of covenants, conditions and
restrictions with respect to any of the Initial Facilities, nor, to the
best of the Company's knowledge, is there any existing state of facts
or circumstances or condition or event which could, with the giving of
notice or passage of
8
<PAGE> 9
time, or both, constitute such a violation; and (vi) the improvements
comprising any portion of the Initial Facilities (the "Improvements")
are free of undue infestation and are free of any and all material
physical, mechanical, structural, design and construction defects; the
Improvements (including, without limitation, all water, electric,
sewer, plumbing, heating, ventilating, gas and air conditioning
servicing the Improvements) are in good condition and proper working
order and are free of material defects, except as disclosed in the
Operative Documents or except as is not material in the aggregate.
(n) At the Closing Date, the Company will be organized in
conformity with the requirements for qualification as a real estate
investment trust under Sections 856 through 860 of the Internal Revenue
Code of 1986, as amended (the "Code"), and its proposed method of
operation as described in the Registration Statement will enable it to
meet the requirements for taxation as a real estate investment trust
under the Code for the taxable period commencing with the year ending
December 31, 1997.
(o) __________ Common Shares, including the Shares, have been
approved for listing on the New York Stock Exchange (the "NYSE"),
subject to official notice of issuance.
(p) The Company has obtained title insurance on all of the
Initial Facilities and such title insurance is in full force and
effect.
(q) Neither the Company, nor any of its trustees, officers or
controlling persons, has taken or will take, directly or indirectly,
any action resulting in a violation of Regulation M under the Exchange
Act, or designed to cause or result under the Exchange Act or otherwise
in, or which has constituted or which reasonably might be expected to
constitute, the stabilization or manipulation of the price of any
securities of the Company or facilitation of the sale or resale of the
Shares.
(r) None of the entities that prepared environmental
inspection reports with respect to the Initial Facilities was employed
for such purpose on a contingent basis or has any substantial interest
in the Company or, to the knowledge of the Company, CCA, and none of
them nor any of their directors, officers or employees is connected
with the Company or, to the knowledge of the Company, CCA as a
promoter, selling agent, voting trustee, trustee, officer or employee.
(s) There are no contracts or other documents required by the
Securities Act or by the Rules and Regulations to be described in the
Registration Statement, the Effective Prospectus or the Final
Prospectus or to be filed as exhibits to the Registration Statement
which have not been described or filed as required. All such contracts
to which the Company is a party have been duly authorized, executed and
delivered by the Company, constitute valid and binding agreements of
the Company and are enforceable against the Company in accordance with
the terms thereof. The Company has performed all material
9
<PAGE> 10
obligations required to be performed by it, and is neither in default
in any material respect nor has it received notice of any default or
dispute under, any such contract or other material instrument to which
it is a party or by which its property is bound or affected. To the
best knowledge of the Company, no other party under any such contract
or other material instrument to which it is a party is in default in
any material respect thereunder.
(t) The Company's system of internal accounting controls is
sufficient to meet the broad objectives of internal accounting controls
insofar as those objectives pertain to the prevention or detection of
errors or irregularities in amounts that would be material in relation
to the Company's financial statements.
(u) The Company has filed all foreign, federal, state and
local income and franchise tax returns required to be filed through the
date hereof and has paid all taxes shown as due therefrom to the extent
such taxes have become due and are not being contested in good faith;
and there is no tax deficiency that has been, nor does the Company have
knowledge of any tax deficiency which is likely to be, asserted against
the Company, which if determined adversely could materially and
adversely affect the earnings, assets, affairs, business prospects or
condition (financial or other) of the Company.
(v) The Company operates its business in conformity in all
material respects with all applicable statutes, common laws,
ordinances, decrees, orders, rules and regulations of governmental
bodies. The Company has all licenses, approvals or consents to operate
its businesses in all locations in which such businesses are currently
being operated, and the Company is not aware of any existing or
imminent matter which may materially adversely impact its operations or
business prospects other than as specifically disclosed in the
Effective Prospectus and the Final Prospectus.
(w) The Company has not failed to file with the applicable
regulatory authorities any material statements, reports, information or
forms required by all applicable laws, regulations or orders; all such
filings or submissions were in material compliance with applicable laws
when filed, and no material deficiencies have been asserted by any
regulatory commission, agency or authority with respect to such filings
or submissions. The Company has not failed to maintain in full force
and effect any material licenses, registrations or permits necessary or
proper for the conduct of its business, or received any notification
that any revocation or limitation thereof is threatened or pending, and
there is not to the knowledge of the Company pending any change under
any law, regulation, license or permit which would materially adversely
affect the business, operations, property or business prospects of the
Company. The Company has not received any notice of violation of or
been threatened with a charge of violating and is not under
investigation with respect to a possible violation of any provision of
any law, regulation or order.
(x) No labor dispute exists or is imminent with any of the
employees of the Company or otherwise which could materially adversely
affect the Company. The
10
<PAGE> 11
Company is not aware of any existing or imminent labor disturbance by
employees of the Company or CCA which could be expected to materially
adversely affect the condition (financial or otherwise), results of
operations, properties, affairs, management, business affairs or
business prospects of the Company. The Company is in compliance with
all federal, state and local employment and labor laws, including, but
not limited to, laws relating to non-discrimination in hiring,
promotion and pay of employees.
(y) The Company owns or is in the process of obtaining or can
obtain on reasonable terms all material licenses, copyrights,
trademarks, service marks and trade names presently employed by it in
connection with the businesses proposed to be operated by it, and the
Company has not received any notice of infringement of or conflict with
asserted rights of others with respect to any of the foregoing which,
alone or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, could result in any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs
or business prospects of the Company.
(z) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
prudent and customary in the businesses in which it is engaged and in
which it proposes to engage; and the Company has no reason to believe
that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business.
(aa) Neither the Company nor, to the knowledge of the Company,
any trustee, officer, agent, employee or other person acting on behalf
of the Company has (i) used, or authorized the use of, any corporate or
other funds for unlawful payments, contributions, gifts or
entertainment, (ii) made unlawful expenditures relating to political
activity to government officials or others, or (iii) established or
maintained any unlawful or unrecorded funds in violation of any
federal, state, local or foreign law or regulation, including Section
30A of the Exchange Act. Neither the Company nor, to the knowledge of
the Company, any trustee, officer, agent, employee or other person
acting on behalf of the Company has accepted or received any unlawful
contributions, payments, gifts or expenditures.
(bb) The Company is not, will not become as a result of the
transactions contemplated hereby, and does not intend to conduct its
business in a manner that would cause it to become, an "investment
company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940.
2. Purchase, Sale and Delivery of the Shares.
(a) On the basis of the representations, warranties,
agreements and covenants herein contained and subject to the terms and
conditions herein set forth, the Company
11
<PAGE> 12
agrees to sell to the several Underwriters the Firm Shares, and each of
the Underwriters, severally and not jointly, agrees to purchase at a
purchase price of $______ per share, the number of Firm Shares set
forth opposite such Underwriter's name in Schedule I hereto. The
Underwriters agree to offer the Firm Shares to the public on the terms
set forth in the Final Prospectus under the caption "Underwriting."
(b) The Company hereby grants to the Underwriters an option to
purchase, solely for the purpose of covering over-allotments in the
sale of Firm Shares, all or any portion of the Option Shares at the
purchase price per share set forth above. The option granted hereby may
be exercised as to all or any part of the Option Shares at any time
(but only once) within 30 days after the date of the Final Prospectus.
The Underwriters shall not be under any obligation to purchase any
Option Shares prior to the exercise of such option. The option granted
hereby may be exercised by the Underwriters by J.C. Bradford & Co.
("Bradford") giving written notice to the Company setting forth the
number of Option Shares to be purchased and the date and time for
delivery of and payment for such Option Shares and stating that the
Option Shares referred to therein are to be used for the purpose of
covering over-allotments in connection with the distribution and sale
of the Firm Shares. If such notice is given prior to the First Closing
Date (as defined herein), the date set forth therein for such delivery
and payment shall not be earlier than two full business days thereafter
or the First Closing Date, whichever occurs later. If such notice is
given on or after the First Closing Date, the date set forth therein
for such delivery and payment shall not be earlier than three full
business days thereafter. In either event, the date so set forth shall
not be more than four full business days after the date of such notice.
The date and time set forth in such notice is herein called the "Option
Closing Date." Upon exercise of the option, the Company shall become
obligated to sell to the Underwriters, and, subject to the terms and
conditions herein set forth, the Underwriters shall become obligated to
purchase, for the account of each Underwriter, from the Company,
severally and not jointly, the number of Option Shares specified in
such notice. Option Shares shall be purchased for the accounts of the
Underwriters in proportion to the number of Firm Shares set forth
opposite such Underwriter's name in Schedule I hereto, except that the
respective purchase obligations of each Underwriter shall be adjusted
so that no Underwriter shall be obligated to purchase fractional Option
Shares.
(c) The Company shall not be obligated to deliver any of the
Shares to be delivered on the First Closing Date or on the Option
Closing Date, as the case may be, except upon payment for all the
Shares to be purchased on such Closing Date, as provided herein.
(d) Certificates in definitive form for the Firm Shares which
each Underwriter has agreed to purchase hereunder shall be delivered by
or on behalf of the Company to the Representatives for the account of
each Underwriter against payment by each such Underwriter or on its
behalf of the purchase price therefor by wire transfer of federal or
other immediately available funds to the order of the Company at an
account previously
12
<PAGE> 13
designated by the Company, at the offices of Bradford, 330 Commerce
Street, Nashville, Tennessee 37201, or at such other place as may be
agreed upon by Bradford and the Company, at 10:00 A.M., Nashville time,
on the third full business day after this Agreement becomes effective,
or, at the election of the Representatives, on the fourth full business
day after this Agreement becomes effective, if it becomes effective
after 4:30 P.M. Eastern time, or at such other time not later than the
seventh full business day thereafter as the Representatives and the
Company may determine, such time of delivery against payment being
herein referred to as the "First Closing Date." The First Closing Date
and the Option Closing Date are herein individually referred to as the
"Closing Date" and collectively referred to as the "Closing Dates."
Certificates in definitive form for the Option Shares which each
Underwriter shall have agreed to purchase hereunder shall be similarly
delivered by or on behalf of the Company on the Option Closing Date.
The certificates in definitive form for the Shares to be delivered will
be in good delivery form and in such denominations and registered in
such names as Bradford may request not less than 48 hours prior to the
First Closing Date or the Option Closing Date, as the case may be. Such
certificates will be made available for checking and packaging at a
location in New York, New York as may be designated by Bradford, on a
business day at least 24 hours prior to the First Closing Date or the
Option Closing Date, as the case may be. It is understood that Bradford
may (but shall not be obligated to) make payment on behalf of any
Underwriter or Underwriters for the Shares to be purchased by such
Underwriter or Underwriters. No such payment shall relieve such
Underwriter or Underwriters from any of its or their obligations
hereunder.
3. Offering by the Underwriters. After the Registration Statement
becomes effective, the several Underwriters propose to offer for sale to the
public the Firm Shares and any Option Shares which may be sold at the price and
upon the terms set forth in the Final Prospectus.
4. Covenants of the Company. The Company covenants and agrees with
each of the Underwriters that:
(a) The Company shall comply with the provisions of and make
all requisite filings with the Commission pursuant to Rules 424 and
430A of the Rules and Regulations and shall notify the Representatives
promptly (in writing, if requested) of all such filings. The Company
shall notify the Representatives promptly of any request by the
Commission for any amendment of or supplement to the Registration
Statement, the Effective Prospectus or the Final Prospectus or for
additional information; the Company shall prepare and file with the
Commission, promptly upon the Representatives' request, any amendments
of or supplements to the Registration Statement, the Effective
Prospectus or the Final Prospectus which, in the Representatives'
opinion, may be necessary or advisable in connection with the
distribution of the Shares; and the Company shall not file any
amendment of or supplement to the Registration Statement, the Effective
Prospectus or the Final Prospectus which is not approved by the
Representatives after reasonable notice thereof. The Company shall
advise the Representatives promptly of the issuance by the
13
<PAGE> 14
Commission or any jurisdiction or other regulatory body of any stop
order or other order suspending the effectiveness of the Registration
Statement, suspending or preventing the use of any Preliminary
Prospectus, the Effective Prospectus or the Final Prospectus or
suspending the qualification of the Shares for offering or sale in any
jurisdiction, or of the institution of any proceedings for any such
purpose; and the Company shall use its best efforts to prevent the
issuance of any stop order or other such order and, should a stop order
or other such order be issued, to obtain as soon as possible the
lifting thereof.
(b) The Company will take or cause to be taken all necessary
action and furnish to whomever the Representatives direct such
information as may be reasonably required in qualifying the Shares for
offer and sale under the securities or Blue Sky laws of such
jurisdictions as the Underwriters may designate and will continue such
qualifications in effect for as long as may be reasonably necessary to
complete the distribution of the Shares.
(c) Within the time during which a Final Prospectus relating
to the Shares is required to be delivered under the Securities Act, the
Company shall comply with all requirements imposed upon it by the
Securities Act, as now and hereafter amended, and by the Rules and
Regulations, as from time to time in force, so far as is necessary to
permit the continuance of sales of or dealings in the Shares as
contemplated by the provisions hereof and the Final Prospectus. If
during such period any event occurs as a result of which the Final
Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances then
existing, not misleading, or if during such period it is necessary to
amend the Registration Statement or supplement the Final Prospectus to
comply with the Securities Act, the Company shall promptly notify the
Representatives and shall amend the Registration Statement or
supplement the Final Prospectus (at the expense of the Company) so as
to correct such statement or omission or effect such compliance.
(d) The Company will furnish without charge to the
Representatives and make available to the Underwriters copies of the
Registration Statement (four of which shall be signed and shall be
accompanied by all exhibits, each Preliminary Prospectus, the Effective
Prospectus and the Final Prospectus, and all amendments and supplements
thereto, including any prospectus or supplement prepared after the
effective date of the Registration Statement, in each case as soon as
available and in such quantities as the Underwriters may reasonably
request.
(e) The Company will (A) deliver to the Representatives at
such office or offices as the Representatives may designate as many
copies of the Preliminary Prospectus and Final Prospectus as the
Representatives may reasonably request, (B) for a period of not more
than nine months after the Registration Statement becomes effective,
send to the Underwriters as many additional copies of the Final
Prospectus and any supplement thereto
14
<PAGE> 15
as the Representatives may reasonably request, and (C) following nine
months after the Registration Statement becomes effective, send to the
Underwriters at their expense as many additional copies of the Final
Prospectus and any supplement thereto as the Representatives may
reasonably request.
(f) The Company shall make generally available to its security
holders, in the manner contemplated by Rule 158(b) under the Securities
Act as promptly as practicable and in any event no later than 45 days
after the end of its fiscal quarter in which the first anniversary of
the effective date of the Registration Statement occurs, an earnings
statement satisfying the provisions of Section 11(a) of the Securities
Act covering a period of at least 12 consecutive months beginning after
the effective date of the Registration Statement.
(g) The Company will apply the net proceeds from the sale of
the Shares to be sold by it as set forth under the caption "Use of
Proceeds" in the Final Prospectus and will timely file reports on Form
SR with the Commission in accordance with Rule 463 of the Securities
Act or any successor provision.
(h) During a period of five years from the effective date of
the Registration Statement or such longer period as the Representatives
may reasonably request, the Company will furnish to the Representatives
copies of all reports and other communications (financial or other)
furnished by the Company to its shareholders and, as soon as available,
copies of any reports or financial statements furnished or filed by the
Company to or with the Commission or any national securities exchange
on which any class of securities of the Company may be listed.
(i) The Company will, from time to time, after the effective
date of the Registration Statement file with the Commission such
reports as are required by the Securities Act, the Exchange Act and the
Rules and Regulations, and shall also file with foreign, state and
other governmental securities commissions in jurisdictions where the
Shares have been sold by the Underwriters (as the Representatives shall
have advised the Company in writing) such reports as are required to be
filed by the securities acts and the regulations of those states.
(j) Except pursuant to this Agreement or with the
Representatives' written consent, for a period of 180 days from the
effective date of the Registration Statement, the Company will not, and
the Company has provided agreements executed by each of its officers
and trustees providing that for a period of 24 months from the
effective date of the Registration Statement, such person will not,
offer for sale, sell (other than the issuance by the Company of Common
Shares pursuant to the exercise of options granted pursuant to existing
employee benefit plans and agreements), grant any options (other than
pursuant to existing employee benefit plans and agreements), rights or
warrants with respect to any Common Shares, securities convertible into
Common Shares or any other capital shares
15
<PAGE> 16
of the Company, or otherwise dispose of, directly or indirectly, any
Common Shares or such other securities or capital shares.
(k) Neither the Company nor any of its officers, trustees or
affiliates will take, directly or indirectly, any action resulting in a
violation of Regulation M under the Exchange Act, or designed to cause
or result in, or which might constitute or be expected to constitute,
stabilization or manipulation of the price of the Common Shares.
(l) The Company will either conduct its business and
operations as described in the Final Prospectus or, if the Company
makes any material change to its business or operations as so
conducted, promptly disclose such change generally to the Company's
security holders.
(m) If at any time during the 25 day period after the
Registration Statement is declared effective, any rumor, publication or
event relating to or affecting the Company shall occur as a result of
which, in the Representatives' opinion, the market price for the Shares
has been or is likely to be materially affected (regardless of whether
such rumor, publication or event necessitates a supplement to or
amendment of the Final Prospectus), the Company will, after written
notice from the Representatives advising it as to the effect set forth
above, prepare, consult with the Representatives concerning the
substance of and, subject to the Rules and Regulations, disseminate a
press release or other public statement, reasonably satisfactory to the
Representatives, responding to or commenting on such rumor, publication
or event.
(n) The Company will use its best efforts to effect the
listing of the Common Shares, subject to notice of issuance, on the
NYSE on or before the effective date of the Registration Statement.
(o) The Company will use its best efforts to meet the
requirements to qualify, effective for the taxable period commencing
with the year ending December 31, 1997 and in each year thereafter, as
a real estate investment trust under the Code.
(p) Subject to the terms thereof, the Company will do and
perform its obligations under each of the Operative Documents to which
it is a party to the extent required to consummate the transactions set
forth therein and all things required to be done or performed prior to
the Closing Date pursuant to this Agreement.
5. Expenses. The Company agrees with the Underwriters that (a) whether
or not the transactions contemplated by this Agreement are consummated or this
Agreement becomes effective or is terminated, the Company will pay all fees and
expenses incident to the performance of the obligations of the Company
hereunder, including, but not limited to, (i) the Commission's registration fee,
(ii) the expenses of printing (or reproduction) and distributing the
Registration Statement (including the financial statements therein and all
amendments and exhibits thereto),
16
<PAGE> 17
each Preliminary Prospectus, the Effective Prospectus, the Final Prospectus, any
amendments or supplements thereto, any Marketing Materials (as defined herein)
and this Agreement and other underwriting documents, including Underwriter's
Questionnaires, Underwriter's Powers of Attorney, Blue Sky Memoranda, Agreements
Among Underwriters and Selected Dealer Agreements, (iii) fees and expenses of
accountants and counsel for the Company, (iv) expenses of registration or
qualification of the Shares under state Blue Sky and securities laws, including
the fees and disbursements of counsel to the Underwriters in connection
therewith, (v) filing fees paid or incurred by the Underwriters in connection
with filings with the NASD, (vi) expenses of listing the outstanding Common
Shares on the NYSE, (vii) all travel, lodging and reasonable living expenses
incurred by the Company in connection with marketing, dealer and other meetings
attended by the Company and the Underwriters in marketing the Shares, (viii) the
costs and charges of the Company's transfer agent and registrar and the cost of
preparing the certificates for the Shares, and (ix) all other costs and expenses
incident to the performance of its obligations hereunder not otherwise provided
for in this Section; and (b) all out-of-pocket expenses, including counsel fees,
disbursements and expenses, incurred by the Underwriters in connection with
investigating, preparing to market and marketing the Shares and proposing to
purchase and purchasing the Shares under this Agreement, will be borne and paid
by the Company if the sale of the Shares provided for herein is not consummated
(i) by reason of the termination of this Agreement by the Company pursuant to
Section 12(a)(i) or (ii) by reason of the termination of this Agreement by the
Representatives pursuant to Section 12(b)(ii), (iii), (iv) or (v) of this
Agreement.
6. Conditions of the Underwriters' Obligations. The respective
obligations of the Underwriters to purchase and pay for the Firm Shares shall be
subject to the accuracy of the representations and warranties of the Company
herein as of the date hereof and as of the Closing Date as if made on and as of
the Closing Date, to the accuracy of the statements of the Company's officers
made pursuant to the provisions hereof, to the performance by the Company of all
of its covenants and agreements hereunder and to the following additional
conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective not later than 5:30
P.M., Washington, D.C. time, on the day following the date of this
Agreement, or such later time and date as shall have been consented to
by the Representatives and all filings required by Rule 424 and Rule
430A of the Rules and Regulations shall have been made; no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been
instituted or threatened or, to the knowledge of the Company or the
Underwriters, shall be contemplated by the Commission; any request of
the Commission for additional information (to be included in the
Registration Statement or the Final Prospectus or otherwise) shall have
been complied with to the Representatives' satisfaction; and the NASD,
upon review of the terms of the public offering of the Shares, shall
not have objected to such offering, such terms or the Underwriters'
participation in the same.
17
<PAGE> 18
(b) No Representative shall have advised the Company that the
Registration Statement, Preliminary Prospectus, the Effective
Prospectus or Final Prospectus, or any amendment or any supplement
thereto, contains an untrue statement of fact which, in the
Representatives' reasonable judgment, is material, or omits to state a
fact which, in the Representatives' reasonable judgment, is material
and is required to be stated therein or necessary to make the
statements therein not misleading.
(c) The Representatives shall have received opinions, dated
the Closing Date, from either Stokes & Bartholomew, P.A., or Sherrard &
Roe, PLC, counsel for the Company, to the effect that:
(i) The Company has been duly formed and is validly
existing as a real estate investment trust under the laws of
the State of Maryland, with corporate power and authority to
own its properties and conduct its business as now conducted,
and, based solely on certificates from public officials, the
Company is duly qualified to transact business as a foreign
corporation and is in good standing under the laws of the
States of Arizona, Kansas and Texas. The Company holds all
licenses, certificates, permits, franchises and authorizations
from governmental authorities necessary for the conduct of its
business.
(ii) The Company does not have any interest, directly
or indirectly, in any corporation, joint venture, partnership
or other entity.
(iii) As of the dates specified therein, the Company
had authorized and issued capital stock as set forth under the
caption "Capitalization" in the Final Prospectus. All of the
outstanding Common Shares have been duly authorized and are
validly issued, fully paid and nonassessable, and the Shares
to be sold by the Company have been duly authorized, and upon
issuance thereof and payment therefor as provided herein, will
be validly issued, fully paid and nonassessable; none of the
issued shares have been issued in violation of or subject to
any preemptive rights provided for by law, agreement or the
Company's declaration of trust or bylaws. To the knowledge of
such counsel, the Company does not have outstanding any
options to purchase, or any rights or warrants to subscribe
for, or any securities or obligations convertible into, or any
contracts or commitments to issue or sell any capital shares,
and there are no preemptive rights or other rights to
subscribe for or purchase any capital shares of the Company,
or any restriction upon the transfer of, the Shares pursuant
to the Company's declaration of trust or bylaws or any
agreement or other instrument to which the Company is a party
or by which it may be bound, except as described in the
Effective Prospectus and Final Prospectus. Neither the filing
of the Registration Statement nor the offer or sale of the
Shares as contemplated by this Agreement gives rise to any
rights, other than those which have been waived or satisfied,
for or relating to the registration of any Common Shares or
any other securities of the Company. The Underwriters
18
<PAGE> 19
will receive valid title to the Shares to be issued and
delivered by the Company pursuant to this Agreement, free and
clear of all liens, encumbrances, claims, security interests,
restrictions, shareholders agreements and voting trusts
whatsoever. The capital shares of the Company and the Shares
conform in all material respects to the description thereof
contained in the Final Prospectus. All offers and sales of the
Company's interests and securities prior to the date hereof
were at all relevant times duly registered or exempt from the
registration requirements of the Securities Act and were duly
registered or the subject of an exemption from the
registration requirements of applicable state securities or
Blue Sky laws.
(iv) The form of shares certificate to be used to
evidence the Common Shares will be in due and proper form and
will comply with all applicable legal requirements under the
Maryland General Corporation Law.
(v) No consent, approval, authorization or order of
any court or federal, Arizona, Kansas, Maryland, Tennessee or
Texas governmental agency or body or third party is required
for the performance of this Agreement by the Company or the
consummation by the Company of the transactions contemplated
hereby, except such as have been obtained under the Securities
Act and such as may be required by the NASD and under state
securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the several Underwriters, as
to which such counsel need not express an opinion. The
performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated
hereby will not conflict with or result in a breach or
violation by the Company of any of the terms or provisions of,
or constitute a default by the Company under, any material
indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument known to such counsel to which
the Company is a party or to which the Company or its
properties is subject, the declaration of trust or bylaws of
the Company, any statute, or any judgment, decree, order, rule
or regulation of any court or governmental agency or body
known to such counsel to be applicable to the Company or its
properties.
(vi) The Company has full legal right, power and
authority to enter into this Agreement and to issue, sell and
deliver the Shares to be sold by it to the Underwriters as
provided herein, and this Agreement has been duly authorized,
executed and delivered by the Company and constitutes the
valid and legally binding obligation of the Company
enforceable against the Company in accordance with its terms,
subject to the effect of bankruptcy, insolvency,
reorganization, arrangement, moratorium, fraudulent
conveyance, fraudulent transfer and other similar laws
relating to or affecting the rights of creditors.
19
<PAGE> 20
(vii) No consent, approval, authorization or order of
any court or governmental agency or body or third party is
required for the performance of the Operative Documents by the
Company or the consummation by the Company of the transactions
contemplated thereby, except such as have been obtained under
the Securities Act and such as may be required and under state
securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the several Underwriters.
The performance of the Operative Documents by the Company and
the consummation by the Company of the transactions
contemplated thereby will not conflict with or result in a
breach or violation by the Company of any of the terms or
provisions of, or constitute a default by the Company under,
any material indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument known to
such counsel to which the Company is a party or to which the
Company or its properties is subject, the declaration of trust
or bylaws of the Company, any statute, or any judgment,
decree, order, rule or regulation of any court or governmental
agency or body known to such counsel to be applicable to the
Company or its properties.
(viii) The Company has full legal right, power and
authority to enter into each of the Operative Documents to
which it is a party, and each of the Operative Documents to
which it is a party has been duly authorized, executed and
delivered by the Company and constitutes the valid and legally
binding obligation of the Company enforceable against the
Company in accordance with its terms, subject to the effect of
bankruptcy, insolvency, reorganization, arrangement,
moratorium, fraudulent conveyance, fraudulent transfer and
other similar laws relating to or affecting the rights of
creditors.
(ix) Except as described in the Final Prospectus,
there is not pending or, to the knowledge of such counsel,
threatened any action, suit, proceeding, inquiry or
investigation, to which the Company is a party, or to which
the property of the Company is subject, before or brought by
any court or governmental agency or body, which, if determined
adversely to the Company, could result in any material adverse
change in the business, financial position, net worth or
results of operations, or could materially adversely affect
the properties or assets, of the Company.
(x) To the knowledge of such counsel, no default
exists, and no event has occurred which with notice or after
the lapse of time to cure or both, would constitute a default,
in the due performance and observance of any term, covenant or
condition of any material indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument known
to such counsel to which the Company is a party or to which
its properties are subject, or of the declaration of trust or
bylaws of the Company.
20
<PAGE> 21
(xi) To the knowledge of such counsel, the Company is
not in violation of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company or
any decree of any court or governmental agency or body having
jurisdiction over the Company which would have a material
adverse effect on the Company.
(xii) To the knowledge of such counsel, there are no
contracts or documents of the Company which are required to be
filed as exhibits to the Registration Statement by the
Securities Act or by the Rules and Regulations which have not
been so filed.
(xiii) The Company is not an "investment company" or
an entity "controlled" by an "investment company," as such
terms are defined in the Investment Company Act of 1940, as
amended.
(xiv) The Registration Statement and all
post-effective amendments thereto have become effective under
the Securities Act, and, to the knowledge of such counsel, no
stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose
have been instituted or, to the knowledge of such counsel, are
threatened, pending or contemplated by the Commission. All
filings required by Rule 424 and Rule 430A of the Rules and
Regulations have been made; the Registration Statement, the
Effective Prospectus and Final Prospectus, and any amendments
or supplements thereto, as of their respective effective or
issue dates, complied as to form in all material respects with
the applicable requirements of the Securities Act and the
Rules and Regulations; the descriptions in the Registration
Statement, the Effective Prospectus and the Final Prospectus
of statutes, regulations, legal and governmental proceedings,
and contracts and other documents are accurate in all material
respects and present fairly in all material respects the
information required to be stated; and such counsel does not
know of any pending or threatened legal or governmental
proceedings, statutes or regulations required to be described
in the Final Prospectus which are not described as required
nor of any contracts or documents of a character required to
be described in the Registration Statement or the Final
Prospectus or to be filed as exhibits to the Registration
Statement which are not described and filed as required.
In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of such
counsel which leads them to believe that the Registration Statement, the
Effective Prospectus and the Final Prospectus or any amendment or supplement
thereto contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they were made
(except that such counsel need express no view as to financial statements,
schedules and other financial or statistical information included therein).
21
<PAGE> 22
(d) The Representatives shall have received an opinion, dated
the Closing Date, of Stokes & Bartholomew, P.A., tax counsel to the
Company, reasonably acceptable to the Representatives that, upon
completion of the Formation Transactions, the Company will be in
compliance with the requirements for qualification as a real estate
investment trust under the Code, and the proposed method of operation
of the Company as described in the Registration Statement and the Final
Prospectus and a certificate of a responsible officer of the Company
will enable the Company to meet the requirements for taxation as a real
estate investment trust under the Code beginning with the year ended
December 31, 1997.
(e) The Representatives shall be entitled to rely on the
opinions rendered by Sherrard & Roe, PLC, counsel to the Company,
pursuant to the Operative Documents.
The opinions to be rendered pursuant to paragraphs (c), (d) and (e) may
be limited to federal law, and as to foreign and state law matters, to the laws
of the states or jurisdictions in which such counsel is admitted to practice. As
to matters of Maryland law, such counsel may rely upon the opinion of Miles &
Stockbridge, a Professional Corporation, and as to matters of fact, on
certificates of officers of the Company and public officials.
(f) The Underwriters shall have received an opinion or
opinions, dated the Closing Date, of Bass, Berry & Sims PLC, counsel
for the Underwriters, with respect to the Registration Statement and
the Final Prospectus, and such other related matters as the
Underwriters may require, and the Company shall have furnished to such
counsel such documents as they may reasonably request for the purpose
of enabling them to pass upon such matters.
(g) The Representatives shall have received from Arthur
Andersen LLP, a letter dated the date hereof and, at the Closing Date,
a second letter dated the Closing Date, in form and substance
satisfactory to the Representatives, stating that they are independent
public accountants with respect to the Company within the meaning of
the Securities Act and the applicable Rules and Regulations, and
containing statements and information of the type ordinarily included
in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information of the Company
contained in the Registration Statement and the Prospectus.
(h) The Representatives shall have received from Arthur
Andersen LLP, a letter dated the date hereof and, at the Closing Date,
a second letter dated the Closing Date, in form and substance
satisfactory to the Representatives, stating that they are independent
public accountants with respect to CCA within the meaning of the
Securities Act and the applicable Rules and Regulations, and to the
effect that:
(i) In their opinion, the consolidated financial
statements and schedules of CCA examined by them and included
in the Registration Statement comply as to form in all
material respects with the applicable accounting
22
<PAGE> 23
requirements of the Securities Act and the published Rules and
Regulations and are presented in accordance with generally
accepted accounting principles; and they have made a review in
accordance with standards established by the American
Institute of Certified Public Accountants of the interim
consolidated financial statements, selected financial data
and/or condensed financial statements derived from audited
financial statements of CCA;
(ii) The unaudited selected consolidated financial
information of CCA included in the Preliminary Prospectus and
the Final Prospectus under the caption "CORRECTIONS
CORPORATION OF AMERICA -- CERTAIN SELECTED FINANCIAL
INFORMATION" for the five years ended December 31, 1996,
agrees with the corresponding amounts in the audited
consolidated financial statements included in the Final
Prospectus or previously reported on by them;
(iii) On the basis of a reading of the latest
available interim financial statements (unaudited) of CCA and
its subsidiaries, a reading of the minute books of CCA and its
subsidiaries, inquiries of officials of CCA and its
subsidiaries responsible for financial and accounting matters
and other specified procedures, all of which have been agreed
to by the Representatives, nothing came to their attention
that caused them to believe that:
(A) The amounts included in the
Preliminary Prospectus and the Final Prospectus under
the caption "CORRECTIONS CORPORATION OF AMERICA --
CERTAIN SELECTED FINANCIAL INFORMATION" for the five
years ended December 31, 1996 do not agree with the
corresponding amounts in the audited consolidated
financial statements included in the Final Prospectus
or previously reported on by them;
(B) The unaudited pro forma financial
information included in the Registration Statement
does not comply as to form in all material respects
with the applicable accounting requirements of the
Securities Act and the Rules and Regulations or that
the pro forma adjustments have not been properly
applied to the historical amounts in the compilation
of the pro forma information.
(C) The unaudited consolidated financial
statements of CCA included in the Registration
Statement, including the amounts included under the
caption "CORRECTIONS CORPORATION OF AMERICA --
CERTAIN SELECTED FINANCIAL INFORMATION" do not comply
as to form in all material respects with the
accounting requirements of the federal securities
laws and the related published rules and regulations
thereunder or are not in conformity with generally
accepted accounting
23
<PAGE> 24
principles applied on a basis substantially
consistent with the basis for the audited financial
statements contained in the Registration Statement;
(D) Any other unaudited consolidated
financial statement data included in the Final
Prospectus do not agree with the corresponding items
in the audited consolidated financial statements from
which data was derived and any such unaudited data
were not determined on a basis substantially
consistent with the basis for the corresponding
amounts in the audited financial statements contained
in the Final Prospectus;
(E) at a specified date not more than
five days prior to the date of delivery of such
respective letter, there was any change in the
capital stock, decline in total assets or
stockholders' equity or increase in long-term debt of
CCA and its subsidiaries, in each case as compared
with amounts shown in the latest balance sheets
included in the Final Prospectus, except in each case
for changes, decreases or increases which are
described in such letters; and
(F) for the period from the closing date
of the latest statements of earnings included in the
Effective Prospectus and the Final Prospectus to a
specified date not more than five days prior to the
date of delivery of such respective letter, there
were any decreases in revenues, net income and net
income per share of CCA, in each case as compared
with the corresponding period of the preceding year,
except in each case for decreases which are described
in such letter.
(iv) They have carried out certain specified
procedures, not constituting an audit, with respect to certain
amounts, percentages and financial information specified by
you which are derived from the general accounting records of
CCA and its subsidiaries, which appear in the Effective
Prospectus and the Final Prospectus and have compared and
agreed such amounts, percentages and financial information
with the accounting records of CCA and its subsidiaries or to
analyses and schedules prepared by CCA and its subsidiaries
from its detailed accounting records.
In the event that the letters to be delivered referred to above set
forth any such changes, decreases or increases, it shall be a further
condition to the obligations of the Underwriters that the Underwriters
shall have determined, after discussions with officers of CCA
responsible for financial and accounting matters and with Arthur
Andersen LLP, that such changes, decreases or increases as are set
forth in such letters do not reflect a material adverse change in the
total assets, stockholders' equity or long-term debt of CCA as compared
with the amounts shown in the latest balance sheets of CCA included in
the Final
24
<PAGE> 25
Prospectus, or a material adverse change in revenues or net income of
CCA, in each case as compared with the corresponding period of the
prior year.
(i) There shall have been furnished to the Representatives a
certificate, dated the Closing Date and addressed to you, signed by the
Chief Executive Officer and Chief Financial Officer of the Company, to
the effect that:
(i) the representations and warranties of the Company
in Section 1 of this Agreement are true and correct, as if
made at and as of the Closing Date, and the Company has
complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or
prior to the Closing Date;
(ii) no stop order suspending the effectiveness of
the Registration Statement has been issued, and no proceedings
for that purpose have been initiated or are pending, or to
their knowledge, threatened under the Securities Act;
(iii) all filings required by Rule 424 and Rule 430A
of the Rules and Regulations have been made;
(iv) they have carefully examined the Registration
Statement, the Effective Prospectus and the Final Prospectus,
and any amendments or supplements thereto, and such documents
do not include any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances under which they were made; and
(v) since the effective date of the Registration
Statement, there has occurred no event required to be set
forth in an amendment or supplement to the Registration
Statement, the Effective Prospectus or the Final Prospectus
which has not been so set forth.
(j) The Formation Transactions shall have been effected in
accordance with all the terms and conditions set forth in the Operative
Documents, subject only to the transfer of funds related thereto, or
shall occur simultaneously with the purchase and sale of the Firm
Shares hereunder.
(k) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Final Prospectus, and
except as stated therein, the Company has not sustained any material
loss or interference with its business or properties from fire, flood,
hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any court or governmental
action, order or decree, or become a party to or the subject of any
litigation which is material to the Company, nor shall there have been
any material adverse change, or any development involving a prospective
material
25
<PAGE> 26
adverse change, in the business, properties, key personnel,
capitalization, prospects, net worth, results of operations or
condition (financial or other) of the Company, which loss,
interference, litigation or change, in the Representatives' reasonable
judgment shall render it unadvisable to commence or continue the
offering of the Shares at the offering price to the public set forth on
the cover page of the Prospectus or to proceed with the delivery of the
Shares.
(l) The Shares shall be approved for listing on the NYSE,
subject only to official notice of issuance and evidence of
satisfactory distribution.
(m) The Representatives shall have received the Lockup
Agreements.
All such opinions, certificates, letters and documents delivered
pursuant to this Agreement will comply with the provisions hereof only if they
are reasonably satisfactory to the Representatives and their counsel. The
Company shall furnish to the Representatives such conformed copies of such
opinions, certificates, letters and documents in such quantities as the
Representatives shall reasonably request.
The respective obligations of the Underwriters to purchase and pay for
the Option Shares shall be subject, in their discretion, to the conditions of
this Section 6, except that all references to the "Closing Date" shall be deemed
to refer to the Option Closing Date, if it shall be a date other than the
Closing Date.
7. Condition of the Company's Obligations. The obligations hereunder
of the Company are subject to the condition set forth in Section 6(a) hereof.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter, and each person, if any, who controls any Underwriter
within the meaning of the Securities Act, against any losses, claims,
damages or liabilities to which such Underwriter or controlling person
may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based in whole or in part upon: (i) any
inaccuracy in the representations and warranties of the Company
contained herein; (ii) any failure of the Company to perform its
obligations hereunder or under law; (iii) any untrue statement or
alleged untrue statement of any material fact contained in (A) the
Registration Statement, any Preliminary Prospectus, the Effective
Prospectus or Final Prospectus, or any amendment or supplement thereto,
(B) any audio or visual materials supplied by the Company expressly for
use in connection with the marketing of the Shares, including without
limitation, slides, videos, films and tape recordings (the "Marketing
Materials") or (C) in any Blue Sky application or other written
information prepared or executed by the Company filed in any state or
other jurisdiction in order to qualify any or all of the Shares under
the securities laws
26
<PAGE> 27
thereof (a "Blue Sky Application"); or (iv) the omission or alleged
omission to state in the Registration Statement, any Preliminary
Prospectus, the Effective Prospectus or Final Prospectus or any
amendment or supplement thereto, any Marketing Materials or Blue Sky
Application a material fact required to be stated therein or necessary
to make the statements therein not misleading; and will reimburse each
Underwriter and each such controlling person for any legal or other
expenses reasonably incurred by such Underwriter or such controlling
person in connection with investigating or defending any such loss,
claim, damage, liability or action as such expenses are incurred;
provided, however, that the Company will not be liable in any such case
to the extent that any such loss, claim, damage, or liability arises
out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration
Statement, the Preliminary Prospectus, the Effective Prospectus or
Final Prospectus, or any amendment or supplement thereto, or any
Marketing Materials or Blue Sky Application in reliance upon and in
conformity with written information relating to any Underwriter
furnished to the Company by any Underwriter specifically for use
therein; and, provided, further, that the foregoing indemnity with
respect to any Preliminary Prospectus shall not inure to the benefit of
any Underwriter from whom the person asserting any such loss, claim,
damage or liability purchased Shares if a copy of the Final Prospectus
(or any Preliminary Prospectus as supplemented) was not sent or given
by or on behalf of such Underwriter to such person at or prior to the
written confirmation of the sale of such Shares to such person in any
case where such delivery is required by the Securities Act and the
Final Prospectus would have cured the defect giving rise to such loss,
claim, damage or liability.
(b) Each Underwriter will indemnify and hold harmless the
Company, each of its trustees, each of the Company's officers who
signed the Registration Statement and each person, if any, who controls
the Company within the meaning of the Securities Act against any
losses, claims, damages or liabilities to which the Company or any such
trustee, officer or controlling person may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary
Prospectus, the Effective Prospectus or Final Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state in the Registration
Statement, any Preliminary Prospectus, the Effective Prospectus or
Final Prospectus, or any amendment or supplement thereto, a material
fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in
conformity with written information relating to any Underwriter
furnished to the Company by any Underwriter specifically for use
therein; and will reimburse any legal or other expenses reasonably
incurred by the Company and each such controlling person in connection
with investigating or defending any such loss, claim, damage, liability
or action as such expenses are incurred.
27
<PAGE> 28
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, including
governmental proceedings, such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party under this
Section 8 notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party
hereunder except to the extent the indemnifying party hereunder has
been materially prejudiced thereby and in any event shall not relieve
it from liability otherwise than under this Section 8. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party
will be entitled to participate therein, and to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel satisfactory to such
indemnified party; and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under
this Section 8 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other
than reasonable costs of investigation except that the indemnified
party shall have the right to employ separate counsel if, in the
indemnified party's reasonable judgment, it is advisable for the
indemnified party to be represented by separate counsel, and in that
event the fees and expenses of separate counsel shall be paid by the
indemnifying party.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in the
preceding part of this Section 8 is for any reason held to be
unavailable to the Underwriters or the Company or is insufficient to
hold harmless an indemnified party, then the Company shall contribute
to the damages paid by the Underwriters, and the Underwriters shall
contribute to the damages paid by the Company; provided, however, that
no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent
misrepresentation. The amount of such contribution shall (i) be in such
proportion as shall be appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriters on the
other from the offering of the Shares and the consummation of the
Formation Transactions or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, be in such proportion as is
appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the Company on the one
hand and the Underwriters on the other with respect to the statements
or omissions which resulted in such loss, claim, damage or liability,
or action in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other with respect to such
offering shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Shares purchased under this Agreement
(before deducting expenses) received by the Company, in the case of the
Company, and the total underwriting discounts and commissions received
by the Underwriters with respect to the Shares purchased under this
Agreement, in the case
28
<PAGE> 29
of the Underwriters, bear to the total gross proceeds from the offering
of the Shares under this Agreement, in each case as set forth in the
Prospectus. The relative fault shall be determined by reference to
whether the untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to
information supplied by the Company or the Underwriters, the intent of
the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
Company and the Underwriters agree that it would not be equitable if
the amount of such contribution were determined by pro rata or per
capita allocation (even if the Underwriters were treated as one entity
for such purpose). Notwithstanding the foregoing, no Underwriter or
person controlling such Underwriter shall be obligated to make
contribution hereunder which in the aggregate exceeds the underwriting
discount applicable to the Shares purchased by such Underwriter under
this Agreement, less the aggregate amount of any damages which such
Underwriter and its controlling persons have otherwise been required to
pay in respect of the same or any similar claim. The Underwriters'
obligations to contribute hereunder are several in proportion to their
respective obligations and not joint. For purposes of this Section,
each person, if any, who controls an Underwriter within the meaning of
Section 15 of the Securities Act shall have the same rights to
contribution as such Underwriter, and each trustee of the Company, each
officer of the Company who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section
15 of the Securities Act, shall have the same rights to contribution as
the Company.
(e) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending
or threatened action, suit or proceeding in respect of which any
indemnified party is a party or is (or would be, if a claim were to be
made against such indemnified party) entitled to indemnity hereunder,
unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
9. Default of Underwriters. If any Underwriter defaults in its
obligation to purchase Shares hereunder and if the total number of Shares which
such defaulting Underwriter agreed but failed to purchase is ten percent or less
of the total number of Shares to be sold hereunder, the non-defaulting
Underwriters shall be obligated severally to purchase (in the respective
proportions which the number of Shares set forth opposite the name of each
non-defaulting Underwriter in Schedule I hereto bears to the total number of
Shares set forth opposite the names of all the non-defaulting Underwriters), all
the Shares which such defaulting Underwriter or Underwriters agreed but failed
to purchase. If any Underwriter so defaults and the total number of Shares with
respect to which such default or defaults occur is more than ten percent of the
total number of Shares to be sold hereunder, and arrangements satisfactory to
the other Underwriters and the Company for the purchase of such Shares by other
persons (who may include the non-defaulting Underwriters) are not made within 36
hours after such default, this Agreement, insofar as it relates to the sale of
the Shares, will terminate without liability on the part of the non-defaulting
Underwriters or the Company except for (i) the provisions of Section 8 hereof,
and (ii) the expenses to be paid or
29
<PAGE> 30
reimbursed by the Company pursuant to Section 5. As used in this Agreement, the
term "Underwriter" includes any person substituted for an Underwriter under this
Section 9. Nothing herein shall relieve a defaulting Underwriter from liability
for its default.
10. Survival Clause. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company, its
officers and the Underwriters set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement shall remain in full
force and effect, regardless of (a) any investigation made by or on behalf of
the Company, any of its officers, directors or trustees, any Underwriter or any
controlling person, (b) any termination of this Agreement and (c) delivery of
and payment for the Shares.
11. Effective Date. This Agreement shall become effective at whichever
of the following times shall first occur: (i) at 11:30 A.M., Washington, D.C.
time, on the next full business day following the date on which the Registration
Statement becomes effective or (ii) at such time after the Registration
Statement has become effective as the Representatives shall release the Firm
Shares for sale to the public; provided, however, that the provisions of
Sections 5, 8, 10 and 11 hereof shall at all times be effective. For purposes of
this Section 11, the Firm Shares shall be deemed to have been so released upon
the release by the Representatives for publication, at any time after the
Registration Statement has become effective, of any newspaper advertisement
relating to the Firm Shares or upon the release by the Representatives of
telegrams offering the Firm Shares for sale to securities dealers, whichever may
occur first.
12. Termination.
(a) The Company's obligations under this Agreement may be
terminated by the Company by notice to the Representatives (i) at any
time before it becomes effective in accordance with Section 11 hereof,
or (ii) in the event that the condition set forth in Section 7 shall
not have been satisfied at or prior to the First Closing Date.
(b) This Agreement may be terminated by the Representatives by
notice to the Company (i) at any time before it becomes effective in
accordance with Section 11 hereof; (ii) in the event that at or prior
to the First Closing Date the Company shall have failed, refused or
been unable to perform any agreement on the part of the Company to be
performed hereunder or any other condition to the obligations of the
Underwriters hereunder is not fulfilled; (iii) if at or prior to the
Closing Date trading in securities on the NYSE, the American Stock
Exchange or the over-the-counter market shall have been suspended or
materially limited or minimum or maximum prices shall have been
established on either of such exchanges or such market, or a banking
moratorium shall have been declared by Federal or state authorities;
(iv) if at or prior to the Closing Date trading in securities of the
Company shall have been suspended; or (v) if there shall have been such
a material adverse change in general economic, political or financial
conditions or if the effect of international conditions on the
financial markets in the United States shall be such as, in your
reasonable judgment, makes it inadvisable to commence or continue
30
<PAGE> 31
the offering of the Shares at the offering price to the public set
forth on the cover page of the Prospectus or to proceed with the
delivery of the Shares.
(c) Termination of this Agreement pursuant to this Section 12
shall be without liability of any party to any other party other than
as provided in Sections 5 and 8 hereof.
13. Notices. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be mailed or delivered or telegraphed and
confirmed in writing to the Representatives in care of J. C. Bradford & Co., J.
C. Bradford Financial Center, 330 Commerce Street, Nashville, Tennessee 37201,
Attention: Catherine Gemmato-Smith, or if sent to the Company shall be mailed,
delivered or telegraphed and confirmed in writing to the Company at 2200 Abbott
Martin Road, Suite 201, Nashville, Tennessee 37215, Attention: J. Michael
Quinlan.
14. Miscellaneous. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters, the Company and their respective
successors and legal representatives. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this Agreement. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the Company and the several Underwriters and for
the benefit of no other person except that (a) the representations and
warranties and indemnities of the Company contained in this Agreement shall also
be for the benefit of any person or persons who control any Underwriter within
the meaning of Section 15 of the Securities Act, and (b) the indemnities by the
Underwriters shall also be for the benefit of the trustees of the Company,
officers of the Company who have signed the Registration Statement and any
person or persons who control the Company within the meaning of Section 15 of
the Securities Act. No purchaser of Shares from any Underwriter will be deemed a
successor because of such purchase. The validity and interpretation of this
Agreement shall be governed by the laws of the State of Tennessee. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. Bradford hereby represents and warrants to the Company that it has
authority to act hereunder on behalf of the several Representatives and
Underwriters, and any action hereunder taken by the Representatives will be
binding upon all the Underwriters.
If the foregoing is in accordance with your understanding of
our agreement, please indicate your acceptance thereof in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement among the Company and each of the several Underwriters.
Very truly yours,
CCA PRISON REALTY TRUST
By:______________________________
31
<PAGE> 32
Title:_____________________________
Confirmed and accepted as of the date first above written.
J.C. BRADFORD & CO., L.L.C.
A.G. EDWARDS & SONS, INC.
LEGG MASON WOOD WALKER, INCORPORATED
LEHMAN BROTHERS INC.
PAINEWEBBER INCORPORATED
STEPHENS INC.
For themselves and as
Representatives of the Several
Underwriters
By:____________________________
Partner
32
<PAGE> 33
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Firm Shares to
Underwriter be Purchased
- ----------- ------------
<S> <C>
J.C. Bradford & Co........................................
A.G. Edwards & Sons, Inc..................................
Legg Mason Wood Walker, Incorporated......................
Lehman Brothers Inc.......................................
PaineWebber Incorporated..................................
Stephens Inc..............................................
----------
Total..................................................... 18,500,000
==========
</TABLE>
<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")
July 7, 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 (in its own name or through one or more
affiliates controlled by Seller) 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 July 18, 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 $308,100,000.
"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
6
<PAGE> 10
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.
7
<PAGE> 11
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
8
<PAGE> 12
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:
9
<PAGE> 13
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
10
<PAGE> 14
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.
11
<PAGE> 15
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
12
<PAGE> 16
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, (c) the ownership, construction,
occupancy, operation, use and maintenance by Seller or its agents of the
Property prior to the Closing Date or, (d) 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.
13
<PAGE> 17
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
14
<PAGE> 18
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.
15
<PAGE> 19
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 $350,000,000.
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 $350,000,000.
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 Subsidiaries. (a) Purchaser acknowledges that (i) the
Bridgeport Pre-Parole Transfer Facility in Bridgeport, Texas (the "Bridgeport
Facility"), the Houston Processing Center in Houston, Texas (the "Houston
Facility"), the Laredo Processing Center in Laredo, Texas (the "Laredo
Facility"), the Leavenworth Detention Center in Leavenworth, Kansas (the
"Leavenworth Facility"), the Central Arizona Detention Center in Florence,
Arizona (the "Central Arizona Facility"), the T. Don Hutto Correctional Center
in Taylor, Texas (the "Taylor Facility"), and the West Tennessee Detention
Facility in Mason, Tennessee (the "West Tennessee Facility"), each comprising
a portion of the Property are owned by Corrections Partners, Inc., a Delaware
corporation ("CPI"), (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 Limited Partnership, a Delaware limited
partnership ("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) CPI 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 Houston Facility, the
Laredo Facility, the Leavenworth Facility, the Central Arizona Facility, the
Taylor Facility and the West Tennessee Facility. The term "Seller" as used
herein shall refer to both Corrections Corporation of America and CPI
collectively and to each such party individually, jointly and severally, with
respect to the Bridgeport Facility, the Houston Facility, the Laredo Facility,
the Leavenworth Facility, the Central Arizona Facility, the Taylor Facility and
the West Tennessee 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: /s/ Doctor R. Crants III
-----------------------------------
By: /s/ Doctor R. Crants
--------------------------------
Its: President
----------------------------------
Its: Chairman of the Board and
Chief Executive Officer
-------------------------------
Date: July 7, 1997
---------------------------------
Date: July 7, 1997
------------------------------
Purchaser's Tax Identification
Number: 62-1689525
-------------------------------
Seller's Tax Identification Number:
62-1156308
- -----------------------------------
MINERAL WELLS LIMITED PARTNERSHIP
By: Corrections Corporation of America,
--------------------------------
General Partner
By: /s/ Doctor R. Crants
--------------------------------
Its: Chairman of the Board and
Chief Executive Officer
-------------------------------
Date: July 7, 1997
------------------------------
Tax Identification Number:
---------
UNITED-CONCEPT LIMITED
PARTNERSHIP
By: United-Concept, Inc.,
--------------------------------
Managing General Partner
By: /s/ Doctor R. Crants
--------------------------------
Its: Chairman of the Board and
Chief Executive Officer
-------------------------------
Date: July 7, 1997
------------------------------
Tax Identification Number:
74-2688571
- -----------------------------------
CORRECTIONS PARTNERS, INC.
By: /s/ Doctor R. Crants
--------------------------------
Its: Chairman of the Board and
Chief Executive Officer
-------------------------------
Date: July 7, 1997
------------------------------
Tax Identification
Number: 62-1518487
------------------------------
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>
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
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> 32
EXHIBIT A
PROPERTY DESCRIPTION
<PAGE> 33
EXHIBIT A-1
THE SURFACE ESTATE ONLY, IN AND TO:
Being a 4.26 acre tract in the Edward Stephens Survey, Abstract Number 755,
Wise County, Texas and also being the same tract of land deeded to Concept,
Inc., described in instruments recorded in Volume 255, page 523, Real Records,
Wise County, Texas and Volume 382, page 17, Real Records, Wise County, Texas
and being described as one tract by metes and bounds as follows:
Beginning at a 5/8" iron rod found in the North Right-of-Way of F.M. #1658 for
the Southeast corner of said tract described in Volume 255, page 523;
THENCE North 73 degrees 31 minutes 34 seconds West with the North Right-of-Way
line of said F.M. #1658 a distance of 335.92 feet to a 3" steel fence post
found for the Southwest corner of the tract herein described;
THENCE North 01 degrees 32 minutes 30 seconds East a distance of 697.88 feet to
a 3" steel fence post found for the Northwest corner of the tract herein
described;
THENCE North 89 degrees 03 minutes 36 seconds East a distance of 164.69 feet to
a 1/2" iron pipe found for a corner;
THENCE South 89 degrees 38 minutes 04 seconds East a distance of 57.10 feet to
a 5/8" iron rod found for the most North Northeast corner of the tract herein
described;
THENCE South 01 degrees 30 minutes 36 seconds West a distance of 551.24 feet to
a 3" steel fence post found for a ell corner of the tract herein described;
THENCE South 88 degrees 01 minutes 24 seconds East a distance of 102.37 feet to
a 5/8" iron rod found for the most East Northeast corner of the tract herein
described;
THENCE South 01 degrees 28 minutes 34 seconds West a distance of 240.72 feet to
the point of beginning and containing 4.26 acres of land, more or less.
Bridgeport Pre-Parole Transfer Facility
Bridgeport, Wise County, Texas
<PAGE> 34
EXHIBIT A-2
PARCEL "A" - PRISON COMPOUND
A portion of the Northeast Quarter of Section 16, Township 7 South, Range 8
East, of the Gila and Salt River Base and Meridian, Pinal County, Arizona;
using a basis of bearing the East line of the Northeast corner of said Section
16, using a bearing of North 00 degrees 00 minutes 07 seconds East and being
more particularly described as follows:
Commencing at the East quarter corner of said Section 16, being a brass cap in
handhole; thence South 89 degrees 47 minutes 31 seconds West, along the
East/West mid-section line of said Section 16, a distance of 735.00 feet to the
point of beginning; thence continuing South 89 degrees 47 minutes 31 seconds
West along said mid-section line 1907.59 feet to the center of said Section 16,
being a 3 inch aluminum monument; thence North 00 degrees 02 minutes 32 seconds
West along the North/South mid-section line of said Section 16, a distance of
2648.25 feet to the North quarter corner of said Section 16, being a G.L.O
brass cap; thence North 89 degrees 56 minutes 55 seconds East, along the north
line of said northeast quarter 1909.62 feet; thence South 00 degrees 00 minutes
07 seconds West, parallel to the East line of said Northeast quarter 2643.03
feet to the point of beginning. Said parcel contains approximately 120 acres,
more or less. This legal description is recorded in Docket 1958, page 755,
Records of Pinal County, Arizona.
PARCEL "B" - WELL SITE AND INGRESS/EGRESS EASEMENT
A parcel of land situated in the Northeast Quarter of Section 16, Township 7
South, Range 8 East of the Gila and Salt River Base and Meridian, Pinal County,
Arizona; more particularly described as follows:
Beginning at the East quarter corner of said Section 16, measure westerly along
the mid-section line bearing South 89 degrees 47 minutes 31 seconds West, a
distance of 452.00 feet to the true point of beginning; thence continuing
westerly along the mid-section line bearing South 89 degrees 47 minutes 31
seconds West, a distance of 208.00 feet; thence northerly bearing North 00
degrees 00 minutes 07 seconds East, a distance of 208.00 feet; thence easterly
bearing North 89 degrees 47 minutes 31 seconds East, a distance of 208.00 feet;
thence southerly bearing South 00 degrees 00 minutes 07 seconds West, a
distance of 208.00 feet to the true point of beginning.
Said parcel contains approximately 1.0 acres more or less. Together with and
subject to an easement for ingress and egress more particularly described as
follows:
A 30 foot strip of land lying to the North of the following described line;
beginning at the East quarter corner of said Section 16, measuring westerly
along the mid-section line bearing South 89 degrees 47 minutes 31 seconds West,
a distance of 40.00 feet to the true point of beginning; thence continuing
westerly along the mid-section line bearing South 89 degrees 47 minutes 31
seconds West, a distance of 412.00 feet.
Except all gas, oil, metals and mineral rights as reserved in patent from State
of Arizona recorded in Book 32 of Deeds, page 325, Records of Pinal County,
Arizona.
This legal description is recorded in Docket 1999, page 997, Records of Pinal
County, Arizona.
<PAGE> 35
PARCEL "C" - SEWAGE DISPOSAL BEDS
A parcel of land situated in the northwest corner of Section 16, Township 7
South, Range 8 East, of the Gila and Salt River Base and Meridian, Pinal
County, Arizona, more particularly described as follows:
Beginning at the North quarter corner of said Section 16, measure southerly
along the mid-section line bearing South 00 degrees 02 minutes 32 seconds East,
a distance of 600.00 feet to the true point of beginning; thence continuing
southerly along the mid-section line bearing South 00 degrees 02 minutes 32
seconds East, a distance of 600.00 feet; thence westerly bearing South 89
degrees 57 minutes 28 seconds West, a distance of 1815.00 feet; thence
northerly bearing North 00 degrees 02 minutes 32 seconds West, a distance of
600.00 feet; thence Easterly bearing North 89 degrees 57 minutes 28 seconds
East, a distance of 1815.00 feet to the true point of beginning.
Except all gas, oil, metals and mineral rights as reserved in patent from State
of Arizona Recorded in Book 32 of Deeds, page 325, Records of Pinal County,
Arizona.
Said parcel contains approximately 25 acres, more or less. This legal
description is recorded in Docket 1999, page 997, Records of Pinal County,
Arizona.
Eloy Detention Center
Eloy, Pinal County, Arizona
<PAGE> 36
EXHIBIT A-3
A parcel of land located in the Northeast Quarter of Section 36, Township 4
South, Range 9 East of the Gila and Salt River Base and Meridian, Pinal County,
Arizona, more particularly described as follows:
The North 1100.00 feet of the Northeast Quarter of Section 36, Township 4
South, Range 9 East of the Gila and Salt River Base and Meridian, Pinal County,
Arizona.
Central Arizona Detention Center
Florence, Pinal County, Arizona
<PAGE> 37
EXHIBIT A-4
Metes and Bounds Description
5.843 Acres (254,531 Square Feet)
Portion of Reserve "C" Block One
World/Houston Section One International Business Center
William Lloyd Survey, A-1407
Harris County, Texas
Being a tract or parcel containing 5.843 acres (254,531 square feet) of land
situated in the William Lloyd Survey, Abstract No. 1407, Harris County, Texas,
being out of and a part of Reserve "C" Block One of World/Houston Section One
International Business Center, recorded in Volume 278, Page 25 of the Harris
County Map Records (H.C.M.R.) and being the same called 5.840 acre tract
described in deed recorded under Clerk's File Number J194317 of the Harris
County Official Public Records of Real Property (H.C.O.P.R.R.P.); said 5.843
acre tract being more particularly described by metes and bounds as follows
with all bearings referenced to said subdivision plat:
Beginning at a 5/8-inch iron rod found for the northeast corner of said Reserve
"C" and the herein described tract, being the southeast corner of that certain
called 6.6031 acre tract, described in deed recorded under Clerk's File Number
G291174 of said H.C.O.P.R.R.P. and being in the west line of Lot 10 of Block
One, Greenlee Addition, a subdivision in Harris County of record in Volume 40,
Page 32 of said H.C.M.R.:
THENCE, South 02 degrees 51 minutes 21 seconds East, 485.42 feet along the line
common to said Reserve "C" and said Greenlee Addition to a 3/4-inch galvanized
iron pipe found for the northeast corner of that certain called 5.50 acre tract
described in deed recorded under Clerk's File Number H038206 of said
H.C.O.P.R.R.P., and being the southeast corner of the herein described tract;
THENCE, South 89 degrees 07 minutes 09 seconds West, departing the west line of
said Block 1 of Greenlee Addition and along the north line of said 5.50 acre
tract, 500.50 feet to a 3/4-inch galvanized iron pipe found for the common west
corner of said 5.50 acre tract and the herein described tract, and being in the
existing east right-of-way line of Export Plaza Drive (80 feet wide);
THENCE, North 02 degrees 51 minutes 27 seconds West, 104.37 feet along the
existing east right-of-way line of said Export Plaza Drive to a 3/4-inch
galvanized iron pipe found for the beginning of a tangent curve to the left;
THENCE, Northwesterly, 172.82 feet along the existing east right-of-way line of
said Export Plaza Drive, the existing north right-of-way line of Consulate
Plaza Drive (80 feet wide) and along the arc of said curve to the left (Central
Angle = 70 degrees 43 minutes 34 seconds, Radius = 140.00 feet, Chord Bearing
and Distance = North 38 degrees 13 minutes 14 seconds West, 162.05 feet) to a
5/8-inch iron rod found for a common south corner of Reserves "B" and "C" of
said World/Houston Section One International Business Center;
THENCE, North 16 degrees 24 minutes 59 seconds East, 246.82 feet departing the
existing north right-of-way line of said Consulate Plaza Drive and along the
common line between said Reserve
<PAGE> 38
"B" and "C" to a 5/8-inch iron rod found for the common corner of Reserves
"A", "B" and "C" of said World/Houston Section One International Business
Center, being the southwest corner of said 6.6031 acre tract and being the
northwest corner of the herein described tract from which a found 8-inch
square cross-tie fence corner post bears South 52 degrees 12 minutes 39 seconds
East, 0.74 feet;
THENCE, North 87 degrees 17 minutes 38 seconds East, 512.53 feet along the
common line between the herein described tract, Reserve "C" and said 6.6031
acre tract to the POINT OF BEGINNING containing 5.843 acres (254,531 square
feet) of land, more or less.
Compiled by:
SURVCON INC.
Job No. 5980-01
April 14, 1997
D-2
Houston Processing Center
Houston, Harris County Texas
<PAGE> 39
EXHIBIT A-5
THE SURFACE ONLY TO:
A 4.0 ACRE TRACT OF LAND, MORE OR LESS, BEING PARTLY OUT OF THE ROBERT HAYNES
22.43 ACRE TRACT, BEING OF RECORD IN VOLUME 295, PAGES 238-241, WEBB COUNTY
DEED RECORDS AND PARTLY OUT OF THE HAYNES TRACT BEING OF RECORD IN VOLUME 207,
PAGE 161, WEBB COUNTY DEED RECORDS; THIS 4.0 ACRE TRACT ALSO KNOWN AS LOT 2A,
BLOCK 1, OUT OF THE CASA BLANCA SUBDIVISION, AS RE-PLATTED AND RECORDED IN
VOLUME 8, PAGE 50, OF THE WEBB COUNTY PLAT RECORDS, ALL SAID PROPERTY BEING OUT
OF PORCION 28, WEBB COUNTY, TEXAS;
COMMENCING from the southeast corner of said Haynes tract, same being a point
on the northeasterly right-of-way line of U.S. Highway No. 59, and same being
at approximately highway station 194 + 86;
THENCE, North 87 degrees 21 minutes 00 seconds West, 862 feet, along said
right-of-way line, to the southwest corner of Lot No. 1, out of the Casa Blanca
Subdivision Plat as Recorded in Volume 3, Page 100, of the Webb County Plat
Records, to the southeast corner of this tract and the POINT OF BEGINNING.
THENCE, North 02 degrees 39 minutes 00 seconds East, 200 feet, with the common
boundary line of this tract and said Lot No. 1, to the northwest corner of said
Lot No. 1 and an exterior corner of this tract;
THENCE, North 87 degrees 21 minutes 00 seconds West, 25.76 feet, with the
common boundary line of the Juan Moreno 1.9261 acre tract, recorded in Volume
1414, Pages 805-811, of the Webb County Deed Records, to the most westerly,
southwest corner of the said Juan Moreno tract, and an interior corner of this
tract;
THENCE, North 02 degrees 39 minutes 00 seconds East, 250 feet, with the common
boundary line of this tract and said Juan Moreno tract, to the northwest corner
of said Juan Moreno tract and the northeast corner of this tract;
THENCE, North 87 degrees 21 minutes 00 seconds West, 375.75 feet, to the
northeast corner of Lot No. 3, out of the aforesaid Casa Blanca Subdivision
Plat and the northwest corner of this tract;
THENCE, South 02 degrees 39 minutes 00 seconds West, 450 feet, with the common
boundary line of this tract, and said Lot No. 3, to the southeast corner of
said Lot No. 3, a point on the aforesaid northeasterly right-of-way line of U.
S. Highway 59, to the southwest corner of this tract;
THENCE, South 87 degrees 21 minutes 00 seconds East, 401.51 feet, along the
southwesterly boundary line of this tract, being in common with the
northeasterly right-of-way line of said U.S. Highway 59, to the POINT OF
BEGINNING.
Laredo Processing Center
Laredo, Webb County, Texas
<PAGE> 40
EXHIBIT A-6
SURFACE ONLY AS TO ALL TRACTS:
Tract 1:
Lots 2, 3, 4, 5, 6, 7, and 8, Block 5, LEAVENWORTH INDUSTRIAL PARK,
City of Leavenworth, Leavenworth County, Kansas.
Tract 2:
Lots 2, 4, and 6, Block 4, BREWER PLACE, REPLAT OF BLOCKS 3 AND 4,
LEAVENWORTH INDUSTRIAL PARK, City of Leavenworth, Leavenworth County, Kansas.
Tract 3:
Vacated Highway Terrace bounded by the above tracts.
All being more particularly described as follows:
Beginning at the Southeast corner of Lot 8, Block 5, of said "LEAVENWORTH
INDUSTRIAL PARK";
THENCE North 89 degrees 40 minutes 56 seconds West, 410.31 feet along the South
line of said Lot 8, also being the North line of Astro Way, to a point on the
West line of vacated Highway Terrace, also being on the East line of Lot 6,
Block 4, of said "BREWER PLACE REPLAT";
THENCE, South 00 degrees 19 minutes 04 seconds West, 60.00 feet to the
Southeast corner of said Lot 6;
THENCE North 89 degrees 40 minutes 56 seconds West, 321.00 feet to the
Southwest corner of said Lot 6;
THENCE, North 00 degrees 19 minutes 04 seconds East, 1,278.78 feet to the
Northwest corner of Lot 2, Block 5, of said "LEAVENWORTH INDUSTRIAL PARK";
THENCE, along the North line of said Lot 2, also being the South line of Kansas
Highway No. 5, South 89 degrees 50 minutes 26 seconds East, 236.60 feet to a
point of curvature;
THENCE along a curve to the right, having a delta of 90 degrees 51 minutes 00
seconds a radius of 501.95 feet, an arc length of 795.91 feet;
THENCE continuing along the West line of said Kansas Highway No.5, also being
the East line of said "LEAVENWORTH INDUSTRIAL PARK", South 01 degrees 00
minutes 34 seconds West, 711.48 feet to the "Point of Beginning", NET AREA:
863,056.076 square feet or 19.813 acres, more or less.
Leavenworth Detention Center
Leavenworth, Leavenworth County, Kansas
<PAGE> 41
EXHIBIT A-7
Beginning at a 1/2 inch rebar found the right-of-way line of Finde Naifeh Jr.
Drive (Mason Gainsville Road - 60 ft. R.O.W.) a distance of 1612.95 feet
(C=1615.56 ft.) Southwestwardly, as measured along said southerly right-of-way
line from its intersection with the westerly right-of-way line of U. S. Highway
#70, said point being the northwesterly corner of the William Liles Tract
(DB.568, PG. 42); thence South 03 degrees 45 minutes 00 seconds East along the
westerly line of said Liles Tract and the Cecil Bright Tract (DB. 701, PG. 664)
a distance of 1601.22 feet to point; thence South 80 degrees 00 minutes 00
seconds West a distance of 53.65 feet to a point; thence South 81 degrees 00
minutes 00 seconds West a distance of 105.60 feet to a point; thence South 86
degrees 00 minutes 00 seconds West a distance of 110.20 feet to a point; thence
South 00 degrees 15 minutes 00 seconds East a distance of 39.60 feet to a
point; thence South 68 degrees 00 minutes 00 seconds West a distance of 112.20
feet to a point; thence South 01 degrees 15 minutes 00 seconds East a distance
of 138.00 feet to a point; thence South 25 degrees 00 minutes 00 seconds East a
distance of 141.90 feet to a point; thence South 50 degrees 15 minutes 00
seconds West a distance of 135.30 feet to a point; thence North 62 degrees 45
minutes 00 seconds West a distance of 110.20 feet to a point; thence South 73
degrees 45 minutes 00 seconds West a distance of 117.50 feet to a point; thence
South 86 degrees 45 minutes 00 seconds West, a distance of 67.30 feet to a
point; thence South 73 degrees 00 minutes 00 seconds West a distance of 130.70
feet to a point; thence South 10 degrees 45 minutes 00 seconds West a distance
of 240.90 feet to a point; thence South 43 degrees 45 minutes 00 seconds West a
distance of 104.90 feet to a point; thence North 03 degrees 45 minutes 00
seconds West along the easterly line of the Robert Marshall Tract (DB. 235, PG.
85) a distance of 2369.40 feet to a 1/2 inch rebar set in the southerly
right-of-way line of said Finde Naifeh Jr. Drive; thence North 87 degrees 45
minutes 00 seconds East along said southerly right-of-way line a distance of
983.40 feet to the point of beginning, containing 43.186 acres or 1881168.086
square feet, more or less, described according to the ALTA Boundary Survey,
dated April 16, 1997, as revised June 19, 1997, prepared by John Wesley
Ashworth, III, Tennessee No. 1344, Ashworth-Vaughan, Inc., 195 Center Street,
Collierville, Tennessee 38017, Job Number 3989.00
West Tennessee Detention Facility
Mason, Tipton County, Tennessee
<PAGE> 42
EXHIBIT A-8
Being a 25.08 acre tract in the T. & P. Railroad Co. Survey East of the Brazos
River, Abstract Number 1549, Parker County, Texas and also being a certain
tract conveyed to Mineral Wells R.E. Holding Corp. recorded in instrument
recorded in Volume 1581, page 85, Deed Records, Parker County, Texas, being
described by metes and bounds as follows:
Beginning at a 1/2 inch iron rod with a yellow plastic cap stamped STEADHAM
R.P.L.S. 4281 set in the East R.O.W. of Reynolds Road and the North R.O.W. of
Shurtz Road for the Southwest corner of said Mineral Wells R.E. Holding Corp.
Tract, said point being by previous description 7241.98 feet South 65 degrees
05 minutes 59 seconds East from the Northwest corner of the T. & P. Railroad
Co. Survey East of the Brazos River, Abstract Number 869, Palo Pinto County,
Deed Records;
THENCE North 12 degrees 49 minutes 41 seconds East a distance of 117.14 feet to
a 1/2 inch iron rod with a yellow plastic cap stamped STEADHAM R.P.L.S. 4281
set in the East R.O.W of said Reynolds Road for the Southwest corner of a
certain 0.31 acre tract described in instrument recorded in Volume 1646, Page
651, Deed Records, Parker County, Texas;
THENCE South 77 degrees 10 minutes 26 seconds East a distance of 150.00 feet to
a 1/2 inch iron rod with a yellow plastic cap stamped STEADHAM R.P.L.S. 4281
set for the Southeast corner of said 0.31 acre tract;
THENCE North 12 degrees 49 minutes 41 seconds East a distance of 90.00 feet to
a 1/2 inch iron rod with a yellow plastic cap stamped STEADHAM R.P.L.S. 4281
set for the Northeast corner of said 0.31 acre tract;
THENCE North 77 degrees 10 minutes 26 seconds West a distance of 150.00 feet to
a 1/2 inch iron rod with a yellow plastic cap stamped STEADHAM R.P.L.S. 4281
set in the East R.O.W. of said Reynolds Road for the Northwest corner of said
0.31 acre tract;
THENCE North 12 degrees 49 minutes 41 seconds East a distance of 348.86 feet to
a 1/2 inch iron rod with a yellow plastic cap stamped STEADHAM R.P.L.S. 4281
set in the East R.O.W. of said Reynolds Road for the Southwest corner of a
certain 0.44 acre tract described in instrument recorded in Volume 1554, page
1635, Deed Records, Parker County, Texas;
THENCE South 77 degrees 10 minutes 31 seconds East a distance of 110.00 feet to
a 1/2 inch iron rod with a yellow plastic cap stamped STEADHAM R.P.L.S. 4281
set for the Southeast corner of said 0.44 acre tract;
THENCE North 12 degrees 49 minutes 41 seconds East a distance of 175.00 feet to
a 1/2 inch iron rod with a yellow plastic cap stamped STEADHAM R.P.L.S. 4281
set for the Northeast corner of said 0.44 acre tract;
THENCE North 77 degrees 10 minutes 31 seconds West a distance of 110.00 feet to
a 1/2 inch iron rod with a yellow plastic cap stamped STEADHAM R.P.L.S. 4281
set in the East R.O.W. of said Reynolds Road for the Northwest corner of said
0.44 acre tract;
<PAGE> 43
THENCE North 12 degrees 49 minutes 41 seconds East a distance of 710.91 feet to
a 3/4 inch iron rod found in the East R.O.W. of said Reynolds Road for the
Northwest corner of said Mineral Wells R.E. Holding Corp. tract;
THENCE South 77 degrees 01 minutes 31 seconds East a distance of 780.78 feet to
a 3/4 inch iron rod found in the West R.O.W. of Heintzelman Road for the
northeast corner of said Mineral Wells R.E. Holding Corp. tract;
THENCE South 12 degrees 51 minutes 11 seconds West a distance of 1441.93 feet
to a 1/2 inch iron rod with a yellow plastic cap stamped STEADHAM R.P.L.S.
4281 set in the West R.O.W. of said Heintzelman Road and in the North R.O.W. of
said Shurtz Road for the southeast corner of said Mineral Wells R.E. Holding
Corp. tract;
THENCE North 77 degrees 01 minutes 25 seconds West a distance of 780.15 feet to
the POINT OF BEGINNING and containing 25.08 acres of land, more or less.
Mineral Wells Pre-Parole Transfer
Facility Mineral Wells, Parker County, Texas
<PAGE> 44
EXHIBIT A-9
Metes and Bounds Description
64.513 Acres
Wm. R. Williams Survey, A-665
James C. Eaves Survey, A-214
Williamson County, Texas
Being a tract containing 64.513 acres of land situated in the Wm. R. Williams
Survey, Abstract No. 665 and the James C. Eaves Survey, Abstract No. 214 in
the City of Taylor, Williamson County, Texas and being all of a called 64.537
acre parcel described in deed to Corrections Corporation of America recorded in
Document Number 9639935 of the Official Records Williamson County, Texas
(O.R.W.C.T.). Said 64.513 acre tract being more particularly described by
metes and bounds with all bearings referenced to the aforementioned deed of
record:
BEGINNING at a 1/2-inch iron rod found in a south right-of-way line of Welch
Street being the northwest corner of said Tract 1 and the northeast corner of a
called 16.16 acre tract described in deed to Our Land of Gaudalupe Church
recorded in Volume 1482, page 866 of said O.R.W.C.T.;
THENCE, North 87 degrees 11 minutes 00 seconds East, along said Welch Street
right-of-way line, a distance of 1,623.43 feet to a 1/2-iron rod found in the
west right-of-way line of Park Street (60.00 feet wide) per the plat of Doak's
Addition to the Town of Taylor, a subdivision of record in Volume 56, page 483
of the Williamson County Deed Records (W.C.D.R.) and being the northeast corner
of said Tract 1;
THENCE, South 05 degrees 17 minutes 10 seconds East, departing said Welch
Street and along said Park Street right-of-way line, a distance of 1,708.31
feet to a 1/2-inch iron rod found for the northeast corner of a called 9.0
acre tract described in deed to Mary Rundell and J. Sorenson recorded in Volume
270, page 54 of the Williamson County Probate Records and being the southeast
corner of said Tract 1;
THENCE, South 85 degrees 12 minutes 10 seconds West (called South 85 degrees 11
minutes 13 seconds West), departing said Park Street and along the north line
of said 9.00 acre tract and along the north line of a called 31.60 acre tract
described as Sixth Tract in deed to Wilhemie Sorenson recorded in Volume 1967,
page 117 of said O.R.W.C.T, a distance of 1,618.76 feet (called 1,618.44 feet)
to a 1/2-inch iron rod found for an interior corner of said 31.60 acre tract
and being the southwest corner of said Tract 1;
THENCE, North 04 degrees 48 minutes 00 seconds West (called North 04 degrees 55
minutes 32 seconds West), along the most northerly easterly line of said 31.60
acre tract, at a distance of 305.77 feet pass a found 3/4-inch iron rod, 0.12
feet left and continuing for a total distance of 355.87 feet (called 306.32
feet) to a 1/2-inch iron rod found for the most northerly corner of said 31.60
acre tract and being the southeast corner of the aforementioned 16.16 acre
tract;
THENCE, North 05 degrees 32 minutes 24 seconds West (called North 05 degrees 30
minutes 03 seconds West), along the easterly line of said 16.16 acre tract, a
distance of 1,408.61 feet
<PAGE> 45
(called 1,458.59 feet) to the POINT OF BEGINNING and containing a computed area
of 64.513 acres of land, more or less.
Prepared by:
SURVCON INC.
400 West 15th, Suite 500
Austin, Texas 78701
Job No. 4775-01
April 1997
Revised: June 1997
T. Don Hutto Correctional Center
Taylor, Williamson County, Texas
<PAGE> 46
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> 47
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> 48
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> 49
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> 50
Exhibit A to Bill of Sale and Assignment
Property Description
<PAGE> 51
Exhibit B to Bill of Sale and Assignment
Items of Personal Property
<PAGE> 52
Schedule A to Bill of Sale and Assignment
Permitted Exceptions
<PAGE> 53
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> 54
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> 55
Exhibit A to Certificate of Non-Foreign Status
Property Description
<PAGE> 56
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> 57
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> 58
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> 59
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> 60
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> 61
Exhibit A to Special Warranty Deed
Property Description
<PAGE> 62
Exhibit B to Special Warranty Deed
Permitted Exceptions
<PAGE> 63
EXHIBIT F
EXCLUDED PERSONAL PROPERTY
<PAGE> 64
EXHIBIT F
[Excluded Personal Property]
Bridgeport
<TABLE>
<CAPTION>
Asset Number Vendor Description
- ------------ ------ -----------
<S> <C> <C>
9404 Dury's Camera for Timeclock Avant
9964 Control Systems Timeclock Systems
</TABLE>
<PAGE> 65
EXHIBIT F
[Excluded Personal Property]
Central Arizona
<TABLE>
<CAPTION>
Asset Number Vendor Description
- ------------ ------ -----------
<S> <C> <C>
12173 Control Systems Timeclock Systems
8463 Control Systems Timeclock Kronos 460F
8466 Control Systems Camera SSI 124E Die Cutter
</TABLE>
<PAGE> 66
EXHIBIT F
[Excluded Personal Property]
Eloy
<TABLE>
<CAPTION>
Asset Number Vendor Description
- ------------ ------ -----------
<S> <C> <C>
9255 Control Systems Timeclock Kronos 460F Barcode
9403 Control Systems Timeclock Kronos 460F Barcode
12218 Dycam Inc. Camera Digital Model 4STD PC
13103 Control Systems Timeclock Kronos 480F 256K
</TABLE>
<PAGE> 67
EXHIBIT F
[Excluded Personal Property]
Houston
<TABLE>
<CAPTION>
Asset Number Vendor Description
- ------------ ------ -----------
<S> <C> <C>
2619 Control Systems Timeclocks
12733 Digital Connections Wide Area Network - Wan
1026 Southern Time Timeclocks
</TABLE>
<PAGE> 68
EXHIBIT F
[Excluded Personal Property]
Laredo
<TABLE>
<CAPTION>
Asset Number Vendor Description
- ------------ ------ -----------
<S> <C> <C>
2620 Control Systems Timeclocks
4110 Control Systems Internal Commun. Board
7230 Control Systems Software Close Up Customer
12166 Digital Connections Wide Area Network - Wan
12607 Computer Discount
Warehouse Novell Groupwise 5 Mailbox 10
12608 Computer Discount
Warehouse Novell Groupwise 5 Mailbox 10
12609 Megabyte Business Printer ID Card Persona 2MB
1620 Simplex Timeclock and Card Racks
</TABLE>
<PAGE> 69
EXHIBIT F
[Excluded Personal Property]
Leavenworth
<TABLE>
<CAPTION>
Asset Number Vendor Description
- ------------ ------ -----------
<S> <C> <C>
6729 Control Systems Timeclock System SS Barcode
12738 Digital Connections Wide Area Network - Wan
</TABLE>
<PAGE> 70
EXHIBIT F
[Excluded Personal Property]
Mineral Wells
<TABLE>
<CAPTION>
Asset Number Vendor Description
- ------------ ------ -----------
<S> <C> <C>
9256 Control Systems Timeclock Kronos 460F Barcode
</TABLE>
<PAGE> 71
EXHIBIT F
[Excluded Personal Property]
West Tennessee
<TABLE>
<CAPTION>
Asset Number Vendor Description
- ------------ ------ -----------
<S> <C> <C>
4184 Control Systems Timeclock - Kronos
10659 Control Systems Barcode Reader Kronos 460F
</TABLE>
<PAGE> 72
EXHIBIT F
[Excluded Personal Property]
T. Don Hutto
<TABLE>
<CAPTION>
Asset Number Vendor Description
- ------------ ------ -----------
<S> <C> <C>
13024 Control Systems Timeclock Kronos 480F 256K
13266 Control Systems Software TKC250 V8B 1-User
</TABLE>
<PAGE> 73
EXHIBIT G
RIGHT TO PURCHASE AGREEMENT
Filed as Exhibit 10.4 to Form S-11 Registration Statement, which is
incorporated fully herein by this reference.
<PAGE> 74
EXHIBIT H
MASTER AGREEMENT TO LEASE
AND
LEASE AGREEMENT
Filed as Exhibits 10.2 and 10.3 to Form S-11 Registration Statement,
which is incorporated fully herein by this reference.
<PAGE> 75
EXHIBIT I
OPTION AGREEMENTS
Filed as Exhibit 10.1 to Form S-11 Registration Statement, which is
incorporated fully herein by this reference.
<PAGE> 76
EXHIBIT J
PERSONAL PROPERTY
All of those certain items of property described on the CCA-Master Depreciation
Schedule dated June 30, 1997, on file at the office of Seller and Purchaser.
<PAGE> 77
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> 78
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> 79
EXHIBIT L-1
OPINION OF SELLER'S COUNSEL
<PAGE> 80
EXHIBIT L-1
July ___, 1997
CCA Prison Realty Trust
2200 Abbott Martin Road, Suite 201
Nashville, Tennessee 37215
Re: Sale and Leaseback of the Facilities (as defined herein) from
Corrections Corporation of America to CCA Prison Realty Trust
Ladies and Gentlemen:
We have acted as counsel for Corrections Corporation of America, a
Tennessee corporation ("CCA"), in connection with the sale and leaseback of nine
correctional and detention facilities located in Houston, Texas; Bridgeport,
Texas; Mineral Wells, Texas; Laredo, Texas; Taylor, Texas; Leavenworth, Kansas;
Florence, Arizona; Eloy, Arizona; and, Mason, Tennessee, and certain personal
property used in connection therewith (collectively, the "Facilities") to CCA
Prison Realty Trust, a Maryland real estate investment trust (the "Purchaser"),
pursuant to that certain Agreement of Purchase and Sale, dated July ____, 1997,
between Seller (as defined herein) and Purchaser (the "Agreement of Purchase and
Sale"). Our representation of the Seller also has included acting as counsel for
the following subsidiaries of the Seller related to the ownership and sale of
certain of the Facilities, as provided for in the Agreement of Purchase and
Sale: United-Concept Limited Partnership, an Arizona limited partnership
("United-Concept"); Corrections Partners, Inc., a Delaware corporation
("Corrections Partners"); and, Mineral Wells Limited Partnership, a Delaware
limited partnership ("Mineral Wells LP"). The term "Seller" as used herein shall
refer to CCA and all such subsidiaries, collectively, as the context requires.
In connection with these transactions, we have examined, or are familiar with
and relied upon, the following:
a. The Agreement of Purchase and Sale;
b. Those five (5) certain Option Agreements by and between CCA
and Purchaser, each of even date with the Agreement of Purchase and Sale (the
"Option Agreements");
c. That certain Right to Purchase Agreement between CCA and
Purchaser, of even date with the Agreement of Purchase and Sale (the "Right to
Purchase Agreement");
d. A certificate dated __________________, 1997 issued by the
Secretary of State of the State of Tennessee as to the legal existence and good
standing of the Seller, and documents relating
<PAGE> 81
CCA Prison Realty Trust
Page 2
to the corporate organization of the Seller, including the Certificate of
Incorporation and the Bylaws, as amended to the date hereof;
e. Resolutions adopted by the Board of Directors of the Seller
at a meeting held or by consent action, dated ___________, 1997 authorizing the
transaction(s) contemplated by the Agreement of Purchase and Sale, duly
acknowledged by an appropriate officer of the Seller;
f. A certificate dated ____________, 1997 issued by the
Secretary of State of the State of Arizona as to the legal existence and good
standing of United-Concept;
g. A certificate dated _______________________, 1997 issued by
the Secretary of State of the State of Delaware as to the legal existence and
good standing of Corrections Partners; and
h. A certificate dated ___________________ , 1997 issued by the
Secretary of State of the State of Delaware as to the legal existence and good
standing of Mineral Wells, LP. and the following documents dated as of the
closing of the Facilities:
i. Bills of Sale and Assignments from the Seller to the Purchaser
(collectively, the "Bills of Sale");
j. The Certificate of Non-Foreign Status of the Seller;
k. The Closing Certificate of the Seller (the "Closing
Certificate");
l. Deeds from the Seller to the Purchaser for the Facilities
(collectively, the "Deeds");
m. The Master Agreement to Lease and the Lease Agreements for the
Facilities, both dated July , 1997 (collectively the "Leases"), between
Purchaser (as Landlord therein) and Seller (as Tenant therein) for the lease of
the Facilities from Purchaser to Seller.
Items i through m above are collectively referred to herein as the
"Conveyancing Documents."
Based upon the foregoing and upon such other information and documents
to us as we believe necessary to enable us to render this opinion, we are of the
opinion that:
1. CCA is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Tennessee, and duly qualified
to transact business in each state where the Facilities are located;
<PAGE> 82
CCA Prison Realty Trust
Page 3
2. Based solely on the certificate referenced in Item f herein,
United-Concept is a limited partnership duly organized, validly existing, and in
good standing under the laws of the State of Arizona;
3. Based solely on the certificate referenced in Item g herein,
Corrections Partners is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware;
4. Based solely on the certificate referenced in Item h herein,
Mineral Wells LP is a limited partnership duly organized, validly existing, and
in good standing under the laws of the State of Delaware;
5. The sale, transfer and conveyance of the Facilities from the
Seller to the Purchaser pursuant to the Agreement of Purchase and Sale is a
valid transaction by the Seller, binding upon the Seller, and the Seller has all
necessary power and authority to execute and discharge its obligations to
Purchaser pursuant to the Agreement of Sale and Purchase;
6. The execution of the Leases and the lease of the Facilities
from the Purchaser (as Landlord) to CCA (as Tenant) pursuant to the Leases, and
the execution, delivery and performance of CCA under the Option Agreements and
the Right to Purchase Agreement, are valid transactions by CCA, binding upon
CCA, and CCA has all necessary power and authority to execute and discharge its
obligations to Purchaser pursuant to such agreements.
7. The execution, delivery and performance by the Seller of its
obligations pursuant to the Conveyancing Documents, and the other agreements
delivered in connection with the sale of the Facilities to the Purchaser have
been duly authorized by all necessary corporate or partnership action of the
Seller, will not violate any provision of the Seller's Certificate of
Incorporation or By-Laws or partnership documents, as applicable, as amended to
the date hereof, or to the best of our knowledge, after due inquiry, any
applicable law, rule or regulation. Also, to the best of our knowledge, after
due inquiry, such execution, delivery and performance:
(i) will not conflict with or result in any breach or default
under any order, writ, injunction, decree, agreement or instrument to which the
Seller is a party or by which the Seller or the Facilities are bound;
(ii) will not result in a creation or imposition of any lien,
charge, or encumbrance of any nature upon the Facilities;
(iii) will not give to others any interest or rights in, or with
respect to, the Facilities,
<PAGE> 83
CCA Prison Realty Trust
Page 4
(iv) will not give others any right to terminate any agreement to
which the Seller is a party or by which the Facilities or activities conducted
therein are benefitted, except to the extent disclosed by the Agreement of
Purchase and Sale and the exhibits thereto.
8. To the best of our knowledge, there is no action, suit, or
proceeding pending or threatened against Seller wherein an unfavorable decision,
ruling or finding would adversely affect the transactions contemplated by the
Conveyancing Documents or the ability of the Seller to comply with the
provisions thereof;
9. Agreement of Purchase and Sale, the Option Agreements and the
Right to Purchase Agreement have been fully executed, acknowledged and delivered
by the Seller, and, except as otherwise hereinafter stated, constitute the valid
and legally binding obligations of the Seller enforceable under applicable law
in accordance with their terms, except to the extent that the enforceability may
be limited by future proceedings under bankruptcy, reorganization, debt
arrangement, fraudulent conveyance, insolvency, moratorium or other laws of
general application or principles of equity relating to or affecting the
enforcement of creditors rights.
In rendering the foregoing opinions, we have no reason to believe to the
contrary and therefore have assumed (i) the genuineness of all signatures on the
documents reviewed by us, (ii) the authenticity of all such documents submitted
to us as originals, (iii) the conformity to original documents of all such
documents submitted to us as photocopies or certified copies, (iv) the accuracy
and completeness of all such documents, (v) that all signatures on all
instruments and documents submitted to us with respect to this transaction are
genuine, (vi) that all persons executing the Conveyancing Documents on behalf of
the Seller have the legal capacity to do so.
Whenever any opinion rendered herein is predicated as being based on the
best of our knowledge, this is intended to signify that, in the course of our
representation of the Seller no information has come to the attention of the
attorneys' working on this transaction which would give us actual knowledge of
the existence or absence of facts material to such opinion. Except to the extent
expressly stated herein, we have not undertaken any independent investigation to
determine the existence or absence of any such facts, and as to matters of fact
we have relied upon the representations of the Seller contained in the Agreement
of Purchase and Sale and upon certifications contained in the Closing
Certificate.
Our opinions are based upon statutes, codes, ordinances, rules and
regulations, and judicial decisions in effect on the date hereof. We neither
express nor imply any opinion with respect to any law, rule, regulation or
governmental policy which may be enacted or adopted after the date hereof, and
we undertake no duty to advise you of any changes in any laws, rules,
regulations or governmental policies which may be enacted or adopted after the
date hereof.
The opinions expressed herein are limited to the federal laws and the
laws of the State of Tennessee. No opinion is expressed with respect to any laws
of any other jurisdictions or states or
<PAGE> 84
CCA Prison Realty Trust
Page 5
the affect of any such laws on the matters dealt with herein or the transactions
contemplated by the Conveyancing Documents. Additionally, no opinion is
expressed with respect to the title to the property comprising the Facilities,
and we understand that you are relying on Lawyers Title Insurance Corporation as
to such matters.
This opinion is for the benefit of the addressees named herein, and may
not be disseminated or relied upon by others without the prior written consent
of this firm except as may be required under applicable law, administrative
regulation or accounting practices.
Very truly yours,
STOKES & BARTHOLOMEW, P.A.
<PAGE> 85
EXHIBIT L-2
OPINION OF PURCHASER'S COUNSEL
<PAGE> 86
EXHIBIT L-2
July , 1997
Corrections Corporation of America
102 Woodmont Blvd.
Nashville, Tennessee 37205
Re: Purchase of the Facilities (as defined herein) by CCA Prison
Realty Trust from Corrections
Corporation of America
Ladies and Gentlemen:
We have acted as special real estate counsel to CCA Prison
Realty Trust, a Maryland investment real estate trust (the "REIT"), in
connection with the purchase and leaseback of nine correctional and detention
facilities located in: Houston, Texas; Bridgeport, Texas; Mineral Wells, Texas;
Laredo, Texas; Taylor, Texas; Leavenworth, Kansas; Florence, Arizona; Eloy,
Arizona; and Mason, Tennessee, and certain personal property used in connection
therewith (collectively, the "Facilities") from Corrections Corporation of
America, a Tennessee corporation ("CCA"), pursuant to that certain Agreement of
Purchase and Sale, dated July ___, 1997, among the REIT, CCA, United-Concept
Limited Partnership, an Arizona limited partnership, Corrections Partners, Inc.,
a Delaware corporation, and Mineral Wells Limited Partnership, a Delaware
limited partnership (the "Purchase Agreement").
In connection with these transactions, we have examined the
following documents (collectively, the "Transaction Documents"):
(a) The Purchase Agreement;
(b) The Master Agreement to Lease, dated July ___, 1997, between
the REIT and CCA;
(c) A Lease Agreement for each of the Facilities, each dated
July ___, 1997, and between the REIT and CCA;
<PAGE> 87
Corrections Corporation of America
July 3, 1997
Page 2
(d) The Option Agreements, each dated July ___, 1997,
between CCA and the REIT, with one such agreement executed with respect to
facilities located in each of: Youngstown, Ohio; Estancia, New Mexico;
Walsenburg, Colorado; Sayre, Oklahoma; and Whiteville, Tennessee; and
(e) The Right to Purchase Agreement dated July ___, 1997, between
CCA and the REIT.
In rendering this opinion, we have, with your permission, made the
following assumptions:
(1) that the execution of the Transaction Documents by the REIT
has been duly authorized in accordance with Maryland law;
(2) that the REIT has all necessary power and authority to
execute and discharge its obligations under the Transaction Documents;
(3) the truth and accuracy of all certifications of public
officials and the genuineness of signatures on the Transaction Documents and the
documents delivered pursuant to the Transaction Documents;
(4) the authenticity of documents submitted as originals and the
conformity to originals of documents submitted as copies;
(5) that the parties to the Transaction Documents have properly
executed and delivered the Transaction Documents and the documents delivered by
them pursuant to the Transaction Documents;
(6) that all signatories to the Transaction Documents (other
than on behalf of the REIT) and the documents delivered pursuant to the
Transaction Documents have been duly authorized;
(7) that all natural persons executing the Transaction Documents
and the documents delivered pursuant to the Transaction Documents are legally
competent to do so; and
(8) that there are no oral or written modifications or waivers
of or amendments to the Transaction Documents or any of the documents delivered
pursuant to the Transaction Documents, by actions or conduct of the parties or
otherwise.
As to matters of good standing and valid existence, with your
permission, we have relied solely on the certificate issued by the Department of
Assessments and Taxation of the State of Maryland attached hereto as Exhibit A.
As to other factual matters, we have relied solely on the representations of the
REIT in the Transaction Documents and on such other instruments and certificates
of officers of the REIT and of public officials as we have deemed necessary to
render the opinions set forth herein.
<PAGE> 88
Corrections Corporation of America
July 3, 1997
Page 3
Whenever our opinion herein with respect to the existence or absence of
facts is qualified by the phrase "to our knowledge" or a phrase of similar
import, it indicates that in the course of our special representation in
connection with the transactions contemplated by the Transaction Documents, no
information that would give us current actual knowledge of the inaccuracy of
such statement has come to our attention. However, except to the extent
expressly set forth herein, we have not undertaken any independent investigation
to determine the existence or absence of such facts, and no inference as to our
knowledge of the existence of such facts should be drawn from the fact of our
special representation.
Based on the foregoing, and in reliance on and subject to the
assumptions, qualifications, exceptions, and limitations set forth in this
letter, we are of the opinion that:
1. The REIT is a real estate investment trust, validly existing,
and in good standing under the laws of the State of Maryland.
2. The Transaction Documents are the legally binding and
enforceable obligations of the REIT.
3. To the best of our knowledge, after due inquiry, the
execution, delivery and performance of the Transaction Documents by the REIT
will not violate any applicable law, rule or regulation or conflict with or
result in any breach or default under any order, writ, injunction, decree,
agreement of instrument to which the REIT is a party or by which the REIT is
bound;
4. To the best of our knowledge, there is no action, suit, or
proceeding pending or threatened against the REIT wherein an unfavorable
decision, ruling or finding would adversely affect the transactions contemplated
by the Transaction Documents or the ability of the REIT to comply with the
provisions thereof.
The foregoing opinions are subject to the following additional
assumptions, qualifications, limitations and exceptions:
(i) No opinions are expressed herein regarding, and the opinions
expressed herein are subject to, (A) applicable bankruptcy, reorganization,
insolvency, fraudulent conveyance, fraudulent transfer, moratorium and general
assignment for the benefit of creditors laws and other laws relating to or
affecting the rights of creditors generally, (B) general principles of equity,
good faith and fair dealing (whether considered in an action, suit or proceeding
at law or in equity), (C) the availability of the remedies of specific
performance, injunctive relief or other equitable remedies being limited by
statute or subject to the discretion of the court before which such proceeding
therefor may be brought, (D) the right of any person or entity to institute or
maintain any action in any court or upon matters respecting the jurisdiction of
any court, any waiver of right to trial by jury, waiver of service
<PAGE> 89
Corrections Corporation of America
July 3, 1997
Page 4
of process and venue, or powers of attorney, (E) the enforceability of
provisions in the Transaction Documents relating to delay or omission of
enforcement of rights or remedies, if any, (F) title to any of the real or
personal property described in or subject to the Transaction Documents, or (G)
any indemnification provision(s) contained in the Transaction Documents.
(ii) The opinions expressed herein are subject to generally applicable
rules of law which: (A) limit the availability of a remedy under certain
circumstances where another remedy has been elected; (B) may, where less than
all of a contract may be unenforceable, limit the enforceability of the balance
of the contract to circumstances in which the unenforceable portion is not an
essential part of the agreed exchange; (C) may permit a party who has materially
failed to render or offer performance required by the contract to cure that
failure unless permitting a cure would unreasonably hinder the aggrieved party
from making substitute arrangements for performance, or it was important in the
circumstances to the aggrieved party that performance occur by the date stated
in the contract; or (D) limit the enforceability or provisions releasing,
exculpating or exempting a party from, or requiring indemnification of a party
for, liability for its own action or inaction (to the extent the action or
inaction involves negligence, willful misconduct, unlawful conduct, or breach of
its contractual obligations to the other party) or liabilities under federal or
state securities laws.
(iii) We have not conducted a docket search in any jurisdiction to
determine the existence of or non-existence of any litigation, court orders, or
similar matters.
(iv) The opinions expressed herein are limited to matters of the laws
of the United States and the laws of the State of Tennessee. We express no
opinion as to the laws of any other jurisdiction.
(v) The opinions expressed herein are limited to the matters stated
herein and no opinion may be implied or inferred beyond the matters expressly
stated herein. The opinions expressed herein are rendered only as of the date
hereof. We assume no obligation to update or supplement these opinions to
reflect any facts or circumstances which may hereafter come to our attention or
any changes in law which may hereafter occur.
This opinion is rendered only to, and solely for the benefit of, CCA
for the purposes set forth in the first paragraph hereof. This opinion may not
be relied upon for any other purpose, or quoted from, or otherwise referred to,
in any document or report and may not be furnished to or relied upon by any
other persons or entity for any purpose, without our prior written consent.
Sincerely,
SHERRARD & ROE, PLC
<PAGE> 1
EXHIBIT 5.1
[STOKES & BARTHOLOMEW, P.A. LETTERHEAD]
July 9, 1997
CCA Prison Realty Trust
2200 Abbott Martin Road, Suite 201
Nashville, Tennessee 37215
Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933
(the "Act") of 21,275,000 common shares (the "Common Shares") of CCA Prison
Realty Trust, a Maryland real estate investment trust (the "Company"), on its
Registration Statement on Form S-11 (No. 333-25727) (the "Registration
Statement"), we have examined such trust records, certificates and documents as
we deemed necessary for the purpose of this opinion. In addition we have relied
on that certain opinion of Miles & Stockbridge, a Professional Corporation,
special Maryland counsel to the Company. Based on that examination and in such
reliance, we advise you that in our opinion the Common Shares have been duly
and validly authorized and, when issued upon the terms set forth in the
Registration Statement, will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving our consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Act or the rules and regulations of the Securities and Exchange Commission
thereunder. The opinion expressed herein is limited to the matters set forth
in this letter and no other opinion should be inferred beyond the matter
expressly stated.
Very truly yours,
Stokes & Bartholomew, P.A.
/s/ STOKES & BARTHOLOMEW, P.A.
<PAGE> 1
EXHIBIT 5.2
[MILES & STOCKBRIDGE LETTERHEAD]
July 9, 1997
CCA Prison Realty Trust
2200 Abbott Martin Road, Suite 201
Nashville, Tennessee 37215
Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933
(the "Act") of 21,275,000 shares of common stock (the "Common Stock") of CCA
Prison Realty Trust, a Maryland real estate investment trust, on its
Registration Statement on Form S-11 (No. 333-25727) (the "Registration
Statement"), we have examined such trust records, certificates and documents as
we deemed necessary for the purpose of this opinion. Based on that examination,
we advise you that in our opinion the Common Stock has been duly and validly
authorized and, when issued upon the terms set forth in the Registration
Statement, will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving our consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Act or the rules and regulations of the Securities and Exchange Commission
thereunder. Additionally, we understand that Stokes & Bartholomew, P.A. will
rely on our opinion in giving its opinion letter to you on the date hereof and
we consent to that reliance. The opinion expressed herein is limited to the
matters set forth in this letter and no other opinion should be inferred beyond
the matter expressly stated.
Very truly yours,
Miles & Stockbridge,
a Professional Corporation
By: /s/ J. W. Thompson Webb
----------------------
Principal
<PAGE> 1
Exhibit 8.1
[STOKES & BARTHOLOMEW, P.A. LETTERHEAD]
July 9, 1997
CCA Prison Realty Trust
2200 Abbott Martin Road, Suite 201
Nashville, Tennessee 37215
Re: CCA Prison Realty Trust
Form S-11 Registration Statement
Gentlemen:
We have acted as tax counsel to CCA Prison Realty Trust, a Maryland
real estate investment trust (the "Company"), in connection with the offering of
up to 21,275,000 common shares, $.01 par value per share, of the Company (the
"Shares") pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, as amended, filed with the Securities and Exchange Commission on
April 24, 1997 (in the form declared effective, the "Registration Statement")
and the final Prospectus. All capitalized terms in this opinion shall have the
same respective meanings as set forth in the Registration Statement pertaining
to the offering.
You have requested our opinion whether the Company will qualify as a
real estate investment trust ("REIT") under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended (the "Code"), for its taxable year
ended December 31, 1997 and thereafter.
In rendering our opinion, we have examined and relied upon such
records, documents, certificates and other instruments and made such
investigations of fact and law as in our judgment are necessary or appropriate
to enable us to render the opinion expressed below. In addition, we have relied
upon the factual representations of the Company described in the Registration
Statement relating to its properties and operations and have made the following
assumptions:
1. The Company will comply with any and all procedural requirements to
qualify as a REIT under Sections 856 through 860 of the Code and the regulations
thereunder, including the making of a timely election under Section 856(c)(1) of
the Code and the disclosure of such information as may be required to qualify as
a REIT.
<PAGE> 2
CCA Realty Trust
July 9, 1997
Page 2
2. The Shares will be purchased by over 100 shareholders (as determined
under Section 856(a)(5) of the Code); such Shares will thereafter continue to be
owned by over 100 shareholders; and no shareholder will own, directly or
indirectly, over 9.8% in value of the outstanding shares of the Company (as
determined under the Company's Declaration of Trust).
3. The purchase price of the Facilities is equal to the fair market
value thereof, and such purchase price has been properly allocated among the
assets purchased.
4. Upon the closing of the Offering, the Company will promptly purchase
the Facilities and simultaneously therewith will enter into the Leases.
5. Additional properties acquired by the Company will qualify as "real
estate assets" under Section 856(c)(6) of the Code and all other investments by
the Company will be made in a manner to satisfy the asset tests of Section
856(c) of the Code.
6. The income from additional leases entered into or acquired and the
income from other investments will not cause the Company to fail the income
tests of Section 856(c) of the Code.
7. The Company will make distributions satisfying the distribution
requirements of Section 857(a) of the Code.
8. The Company will operate in accordance with its proposed method of
operation as described in the Registration Statement.
On the basis of and in reliance on the foregoing, it is our opinion
that, under current law, including relevant statutes, regulations and judicial
and administrative precedent (which law is subject to change on a retroactive
basis), the Company, commencing with its tax year ending December 31, 1997, will
be organized in conformity with the requirements for qualification as a REIT
under the Code, and its proposed method of operation, as described in the
Registration Statement, will enable it to meet the requirements for
qualification and taxation as a REIT under the Code.
No opinion is expressed as to any matter not discussed herein. Since
actual qualification as a REIT is dependent upon future facts and circumstances,
it is possible that future events, operations, distributions or other actions
will cause the Company not to qualify or continue to qualify as a REIT.
<PAGE> 3
CCA Realty Trust
July 9, 1997
Page 3
We hereby consent to the filing of the form of this opinion as an
exhibit to the Registration Statement and to the use of our name under the
heading "Legal Matters" in the Registration Statement.
Very truly yours,
STOKES & BARTHOLOMEW, P.A.
/S/ STOKES & BARTHOLOMEW, P.A.
<PAGE> 1
Exhibit 8.2
[SHERRARD & ROE, PLC LETTERHEAD]
July 9, 1997
The Board of Trustees
CCA Prison Realty Trust
2200 Abbott Martin Road, Suite 201
Nashville, Tennessee 37215
Re: CCA Prison Realty Trust
Form S-11 Registration Statement
Gentlemen:
CCA Prison Realty Trust was formed on April 23, 1997, under Maryland
law as a real estate investment trust in order to provide investment
opportunities in privatization in the corrections industry. CCA Prison Realty
Trust is in the process of offering Common Shares in the company for sale to
the public and has filed a Form S-11 Registration Statement under the
Securities Act of 1933, as amended, with the Securities and Exchange
Commission on April 24, 1997, which has been subsequently amended (in the form
ultimately declared effective, the "Registration Statement").
CCA Prison Realty Trust (the "Company") intends to make an election to
be taxed and to operate as a real estate investment trust ("REIT") under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, (the
"Code"). Upon completion of the offering and certain initial transactions, CCA
Prison Realty Trust intends be a publicly traded, self-administered, and
self-managed REIT engaged in acquiring and owning correctional and detention
facilities.
You have asked us to provide you with an opinion that CCA Prison Realty
Trust, beginning with its taxable year ending December 31, 1997, will be
organized in conformity with the requirements for qualification and taxation as
a REIT under the Internal Revenue Code of 1986, as amended, 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 letter sets forth in summary form our conclusions in response to
your request. The conclusions set forth in this letter are based upon and
qualified by the detailed analysis that we have undertaken and prepared for the
Company, which includes a comprehensive statement of the facts and assumptions
on which we have relied, an explanation of the applicable and relevant
provisions of the law, and our analysis of the application of the law to the
facts and assumptions.
<PAGE> 2
CCA Prison Realty Trust
July 9, 1997
Page 2
In preparing our response to your request for an opinion, we have
reviewed and relied upon the following documents that have been provided to us:
1. the Declaration of Trust for CCA Prison Realty Trust;
2. certain financial projections and financial statements for
CCA Prison Realty Trust, which are attached to our
detailed analysis as collective Exhibit 1;
3. a list of the current trustees of CCA Prison Realty Trust;
4. CCA Prison Realty Trust's Form S-11 Registration Statement
Under the Securities Act of 1933 filed with the SEC on
April 24,1997, as subsequently amended, and the exhibits
to the Form S-11;
5. the Agreement of Sale and Purchase between Corrections
Corporation of America and CCA Prison Realty Trust;
6. the Option Agreement between Corrections Corporation of
America and CCA Prison Realty Trust;
7. the Master Agreement to Lease between Corrections
Corporation of America and CCA Prison Realty Trust;
8. the form of Lease Agreement between CCA Prison Realty Trust
and Corrections Corporation of America;
9. the Right to Purchase Agreement between Corrections
Corporation of America and CCA Prison Realty Trust; and
10. the Trade Name Use Agreement between Corrections
Corporation of America and CCA Prison Realty Trust.
In addition, we have conducted interviews with and obtained information
from Stokes & Bartholomew, P.A. 28th Floor, SunTrust Center, Nashville,
Tennessee, who have acted as tax counsel to the Company.
Our conclusions are rendered only as to the matters we expressly set
forth, and no opinions should be inferred as to any other matters. We were not
asked to and we did not conduct any inquiry into any matters or activities not
directly related to the formation and proposed operation of CCA Prison Realty
Trust. Since the Company's qualification as a REIT is dependent upon its
actual, not just its proposed future conduct, it is possible that the Company's
future actions or inactions may cause the Company not to qualify or not to
continue to qualify as a REIT. It is expressly understood that our opinion does
not relate to the actual future operation of the Company to the extent that it
may differ from the proposed and intended operation as it has been represented
to us.
<PAGE> 3
CCA Prison Realty Trust
July 9, 1997
Page 3
We have, in arriving at the conclusions set forth in this letter,
assumed, among other things, that CCA Prison Realty Trust will comply with
all applicable filing, reporting, and administrative requirements related to
REIT status, such as, for example, making a timely election under Section
856(c)(1), and maintaining the required records of actual ownership of its
outstanding stock and otherwise complying with Treas. Reg. ss.1.857-8 of the
Code.
We were not asked to nor do we give any opinion regarding Maryland law
as it may or may not affect the tax status of CCA Prison Realty Trust. We
assume that CCA Prison Realty Trust has been duly and properly formed under
applicable state and local law. We were not asked to nor do we give any opinion
regarding any state or local tax issues.
Our conclusions are based on our understanding of the facts as they
have been conveyed to us through the documents, representations, and statements
which have been given to us, and on certain assumptions, all as set forth in
our detailed analysis and in the materials we have reviewed. Any inaccuracy in
or changes to these facts, representations, statements, or documents, and any
material changes in the affairs or status of any of the persons or entities
involved in the transaction may have the effect of changing all or part of our
conclusions.
Our conclusions and opinion are also based upon the existing provisions
of the Internal Revenue Code and regulations promulgated under the Code and
upon current Internal Revenue Service published rulings and existing court
decisions, any of which could be changed at any time. Changes may, moreover, be
retroactive and could significantly modify the statements and conclusions
expressed in our opinion. Similarly, any change in the facts and assumptions
set forth in our detailed analysis, upon which our opinion is based and by
which it is qualified, could significantly modify or alter the application of
the law and the conclusions and/or opinions in this letter.
Our conclusions and opinion represent our best judgment as to the
probable outcome of the tax issues discussed, but they are, of course, not
binding on the Internal Revenue Service. We give no assurance that the Internal
Revenue Service will not challenge our conclusions and prevail before
administrative bodies or in the courts in a way that may cause adverse tax
consequences contrary to our opinion.
Based on and as qualified by the foregoing, it is our opinion that:
1. CCA Prison Realty Trust, beginning with its taxable year ending
December 31, 1997, will be organized in conformity with the
requirements for qualification and taxation as a REIT under the
Code; and
<PAGE> 4
CCA Prison Realty Trust
July 9, 1997
Page 4
2. CCA Prison Realty Trust's proposed method of operation will enable
it to meet the operational requirements for qualification and
taxation as a REIT under the Code.
We hereby consent to the filing of this letter as an exhibit to the
Company's Registration Statement.
Sincerely,
SHERRARD & ROE, PLC
/s/ SHERRARD & ROE, PLC
<PAGE> 1
EXHIBIT 10.1(a)
OPTION AGREEMENT
(Northeast Ohio)
BY AND BETWEEN
CORRECTIONS CORPORATION OF AMERICA,
a Delaware corporation
("SELLER")
AND
CCA PRISON REALTY TRUST
a Maryland real estate investment trust
("PURCHASER")
July 7, 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.
"Agreement of Purchase and Sale" shall mean the Agreement of Purchase
and Sale dated of even date herewith by and between Purchaser and Seller.
"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
1
<PAGE> 5
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.
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
depicted on Exhibit A hereof, and zoning rights related to the Real Property,
3
<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.
4
<PAGE> 8
"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
5
<PAGE> 9
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
6
<PAGE> 10
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 is
effective as of the date Purchaser acquires all of the property pursuant to the
Agreement of Purchase and Sale and shall expire at 5:00 p.m. on, July 18,
2000, 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.
7
<PAGE> 11
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. The annual base rent under the Lease for the
Property shall be the greater of (i) the fair market rental value of the
Property as reasonably and mutually determined by Seller and Purchaser as of
the Effective Date and (ii) eleven percent (11%) of the Purchase Price.
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
8
<PAGE> 12
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.
9
<PAGE> 13
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,
10
<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
11
<PAGE> 15
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
12
<PAGE> 16
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
13
<PAGE> 17
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:
14
<PAGE> 18
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
15
<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.
17
<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
$340 million.
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.
18
<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
$340 million.
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.
19
<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.
20
<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.
21
<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.
22
<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
23
<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,
24
<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.
25
<PAGE> 29
EXECUTED to be effective as of the date shown on the front cover hereof.
PURCHASER:
CCA PRISON REALTY TRUST
By: /s/ Doctor R. Crants III
--------------------------------------
Its: President
-------------------------------------
Date: July 7, 1997
-------------------------------------
Purchaser's Tax Identification
Number: 62-1689525
----------
SELLER:
corrections CORPORATION OF AMERICA
By: /s/ Doctor R. Crants
--------------------------------------
Its: Chairman of the Board and
Chief Executive Officer
-------------------------------------
Date: July 7, 1997
-------------------------------------
Seller's Tax Identification
Number: 62-1156308
----------
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
Northeast Ohio Correctional Center
Youngstown, Ohio
The real property and improvements known as the Northeast Ohio
Correctional Center in Youngstown, Ohio consisting of a 365,000 square foot
medium security facility and related 60,000 square foot expansion.
<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
Such items of personal property and equipment which seller reasonably
determines to be proprietary, which determination shall be made on the same
general basis as was made with respect to the excluded Personal Property
under the Agreement of Purchase and Sale described in the recitals to this
Option Agreement.
<PAGE> 52
EXHIBIT G
MASTER AGREEMENT TO LEASE
AND
LEASE AGREEMENT
Filed as Exhibits 10.2 and 10.3 of Form S-11 Registration Statement and
incorporated fully herein by this reference.
<PAGE> 53
EXHIBIT H
PERSONAL PROPERTY
All items of equipment, furniture or fixtures permanently supplied by Seller to
the Real Property in connection with the development and construction of the
Improvements, including also without limitation all items of personal property
required to be provided by the Seller for operation of the Facility in
accordance with the provisions of the Master Lease Agreement.
<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-1
[Letterhead of Seller's Counsel]
________, 199_
CCA Prison Realty Trust
2200 Abbott Martin Road, Suite 201
Nashville, Tennessee 37215
Re: Sale and Leaseback of the Facility (as defined herein) from
Corrections Corporation of America to CCA Prison Realty Trust
Ladies and Gentlemen:
We have acted as counsel for Corrections Corporation of America, a
Tennessee corporation ("Seller"), in connection with the sale and leaseback of
a [correctional] [detention] facility located in __________, __________ (the
"Facility"); and certain personal property used in connection therewith to CCA
Prison Realty Trust, a Maryland real estate investment trust (the "Purchaser"),
pursuant to that certain Option Agreement, dated July 7, 1997, between Seller
and Purchaser (the "Agreement"). In connection with these transactions, we have
examined, or are familiar with and relied upon, the following:
a. The Option Agreement;
b. A certificate dated __________________, 199_ issued by the
Secretary of State of the State of Tennessee as to the legal existence and good
standing of the Seller, and documents relating
<PAGE> 58
CCA Prison Realty Trust
Page 2
to the corporate organization of the Seller, including the Certificate of
Incorporation and the Bylaws, as amended to the date hereof;
c. Resolutions adopted by the Board of Directors of the Seller
at a meeting held or by consent action, dated ___________, 199_ authorizing the
transaction(s) contemplated by the Option Agreement, duly acknowledged by an
appropriate officer of the Seller;
and the following documents dated as of the closing of the Facility:
d. Bill of Sale and Assignment from the Seller to the Purchaser
(the "Bill of Sale");
e. The Certificate of Non-Foreign Status of the Seller;
f. The Closing Certificate of the Seller (the "Closing
Certificate");
g. Deed from the Seller to the Purchaser for the Facility
(the "Deed");
h. The Master Agreement to Lease dated July __, 1997 and the
Lease Agreement for the Facility, dated _____________, 199_ (collectively the
"Lease"), between Purchaser (as Landlord therein) and Seller (as Tenant
therein) for the lease of the Facility from Purchaser to Seller.
Items d through h above are collectively referred to herein as the
"Conveyancing Documents."
Based upon the foregoing and upon such other information and documents
to us as we believe necessary to enable us to render this opinion, we are of the
opinion that:
1. Seller is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Tennessee, and duly qualified
to transact business in the state where the Facility is located;
<PAGE> 59
CCA Prison Realty Trust
Page 3
2. The sale, transfer and conveyance of the Facility from the
Seller to the Purchaser pursuant to the Option Agreement is a valid transaction
by the Seller, binding upon the Seller, and the Seller has all necessary power
and authority to execute and discharge its obligations to Purchaser pursuant to
the Option Agreement;
3. The execution of the Lease and the lease of the Facility
from the Purchaser (as Landlord) to Seller (as Tenant) pursuant to the Lease,
is a valid transaction by the Seller, binding upon the Seller, and the Seller
has all necessary power and authority to execute and discharge its obligations
to Purchaser pursuant to such agreements.
4. The execution, delivery and performance by the Seller of its
obligations pursuant to the Conveyancing Documents, and the other agreements
delivered in connection with the sale of the Facility to the Purchaser have
been duly authorized by all necessary corporate action of the Seller, will not
violate any provision of the Seller's Certificate of Incorporation or By-Laws,
as amended to the date hereof, or to the best of our knowledge, after due
inquiry, any applicable law, rule or regulation. Also, to the best of our
knowledge, after due inquiry, such execution, delivery and performance:
(i) will not conflict with or result in any breach or default
under any order, writ, injunction, decree, agreement or instrument to which the
Seller is a party or by which the Seller or the Facility is bound;
(ii) will not result in a creation or imposition of any lien,
charge, or encumbrance of any nature upon the Facility;
(iii) will not give to others any interest or rights in, or with
respect to, the Facility,
<PAGE> 60
CCA Prison Realty Trust
Page 4
(iv) will not give others any right to terminate any agreement to
which the Seller is a party or by which the Facility or activities conducted
therein are benefitted, except to the extent disclosed by the Option Agreement
and the exhibits thereto.
5. To the best of our knowledge, there is no action, suit, or
proceeding pending or threatened against Seller wherein an unfavorable decision,
ruling or finding would adversely affect the transactions contemplated by the
Conveyancing Documents or the ability of the Seller to comply with the
provisions thereof;
In rendering the foregoing opinions, we have no reason to believe to the
contrary and therefore have assumed (i) the genuineness of all signatures on the
documents reviewed by us, (ii) the authenticity of all such documents submitted
to us as originals, (iii) the conformity to original documents of all such
documents submitted to us as photocopies or certified copies, (iv) the accuracy
and completeness of all such documents, (v) that all signatures on all
instruments and documents submitted to us with respect to this transaction are
genuine, (vi) that all persons executing the Conveyancing Documents on behalf of
the Seller have the legal capacity to do so.
Whenever any opinion rendered herein is predicated as being based on the
best of our knowledge, this is intended to signify that, in the course of our
representation of the Seller no information has come to the attention of the
attorneys' working on this transaction which would give us actual knowledge of
the existence or absence of facts material to such opinion. Except to the extent
expressly stated herein, we have not undertaken any independent investigation to
determine the existence or absence of any such facts, and as to matters of fact
we have relied upon the representations of the Seller contained in the Option
Agreement and upon certifications contained in the Closing Certificate.
Our opinions are based upon statutes, codes, ordinances, rules and
regulations, and judicial decisions in effect on the date hereof. We neither
express nor imply any opinion with respect to any law, rule, regulation or
governmental policy which may be enacted or adopted after the date hereof, and
we undertake no duty to advise you of any changes in any laws, rules,
regulations or governmental policies which may be enacted or adopted after the
date hereof.
The opinions expressed herein are limited to the federal laws and the
laws of the State of Tennessee. No opinion is expressed with respect to any laws
of any other jurisdictions or states or
<PAGE> 61
CCA Prison Realty Trust
Page 5
the affect of any such laws on the matters dealt with herein or the transactions
contemplated by the Conveyancing Documents. Additionally, no opinion is
expressed with respect to the title to the property comprising the Facility,
and we understand that you are relying on Lawyers Title Insurance Corporation as
to such matters.
This opinion is for the benefit of the addressees named herein, and may
not be disseminated or relied upon by others without the prior written consent
of this firm except as may be required under applicable law, administrative
regulation or accounting practices.
Very truly yours,
[Seller's Counsel]
<PAGE> 62
EXHIBIT J-2
OPINION OF PURCHASER'S COUNSEL
<PAGE> 63
EXHIBIT J-2
[Letterhead of Purchaser's Counsel]
______, 199_
Corrections Corporation of America
102 Woodmont Blvd.
Nashville, Tennessee 37205
Re: Purchase of the Facility (as defined herein) by CCA Prison
Realty Trust from Corrections Corporation of America
Ladies and Gentlemen:
We have acted as special real estate counsel to CCA Prison
Realty Trust, a Maryland investment real estate trust (the "REIT"), in
connection with the purchase and leaseback of a [correctional] [detention]
facility located in: __________, __________, and certain personal property
used in connection therewith (the "Facility") from Corrections Corporation of
America, a Tennessee corporation ("CCA"), pursuant to that certain Option
Agreement, dated July 7, 1997, among the REIT and CCA (the "Option Agreement").
In connection with these transactions, we have examined the
following documents (collectively, the "Transaction Documents"):
(a) The Option Agreement;
(b) The Master Agreement to Lease, dated July ___, 1997, between
the REIT and CCA;
(c) A Lease Agreement for the Facility, dated ___________, 199_,
and between the REIT and CCA;
<PAGE> 64
Corrections Corporation of America
July 3, 1997
Page 2
In rendering this opinion, we have, with your permission, made the
following assumptions:
(1) that the execution of the Transaction Documents by the REIT
has been duly authorized in accordance with Maryland law;
(2) that the REIT has all necessary power and authority to
execute and discharge its obligations under the Transaction Documents;
(3) the truth and accuracy of all certifications of public
officials and the genuineness of signatures on the Transaction Documents and the
documents delivered pursuant to the Transaction Documents;
(4) the authenticity of documents submitted as originals and the
conformity to originals of documents submitted as copies;
(5) that the parties to the Transaction Documents have properly
executed and delivered the Transaction Documents and the documents delivered by
them pursuant to the Transaction Documents;
(6) that all signatories to the Transaction Documents (other
than on behalf of the REIT) and the documents delivered pursuant to the
Transaction Documents have been duly authorized;
(7) that all natural persons executing the Transaction Documents
and the documents delivered pursuant to the Transaction Documents are legally
competent to do so; and
(8) that there are no oral or written modifications or waivers
of or amendments to the Transaction Documents or any of the documents delivered
pursuant to the Transaction Documents, by actions or conduct of the parties or
otherwise.
As to matters of good standing and valid existence, with your
permission, we have relied solely on the certificate issued by the Department of
Assessments and Taxation of the State of Maryland attached hereto as Exhibit A.
As to other factual matters, we have relied solely on the representations of the
REIT in the Transaction Documents and on such other instruments and certificates
of officers of the REIT and of public officials as we have deemed necessary to
render the opinions set forth herein.
<PAGE> 65
Corrections Corporation of America
July 3, 1997
Page 3
Whenever our opinion herein with respect to the existence or absence of
facts is qualified by the phrase "to our knowledge" or a phrase of similar
import, it indicates that in the course of our special representation in
connection with the transactions contemplated by the Transaction Documents, no
information that would give us current actual knowledge of the inaccuracy of
such statement has come to our attention. However, except to the extent
expressly set forth herein, we have not undertaken any independent investigation
to determine the existence or absence of such facts, and no inference as to our
knowledge of the existence of such facts should be drawn from the fact of our
special representation.
Based on the foregoing, and in reliance on and subject to the
assumptions, qualifications, exceptions, and limitations set forth in this
letter, we are of the opinion that:
1. The REIT is a real estate investment trust, validly existing,
and in good standing under the laws of the State of Maryland.
2. The Transaction Documents are the legally binding and
enforceable obligations of the REIT.
3. To the best of our knowledge, after due inquiry, the
execution, delivery and performance of the Transaction Documents by the REIT
will not violate any applicable law, rule or regulation or conflict with or
result in any breach or default under any order, writ, injunction, decree,
agreement of instrument to which the REIT is a party or by which the REIT is
bound;
4. To the best of our knowledge, there is no action, suit, or
proceeding pending or threatened against the REIT wherein an unfavorable
decision, ruling or finding would adversely affect the transactions contemplated
by the Transaction Documents or the ability of the REIT to comply with the
provisions thereof.
The foregoing opinions are subject to the following additional
assumptions, qualifications, limitations and exceptions:
(i) No opinions are expressed herein regarding, and the opinions
expressed herein are subject to, (A) applicable bankruptcy, reorganization,
insolvency, fraudulent conveyance, fraudulent transfer, moratorium and general
assignment for the benefit of creditors laws and other laws relating to or
affecting the rights of creditors generally, (B) general principles of equity,
good faith and fair dealing (whether considered in an action, suit or proceeding
at law or in equity), (C) the availability of the remedies of specific
performance, injunctive relief or other equitable remedies being limited by
statute or subject to the discretion of the court before which such proceeding
therefor may be brought, (D) the right of any person or entity to institute or
maintain any action in any court or upon matters respecting the jurisdiction of
any court, any waiver of right to trial by jury, waiver of service
<PAGE> 66
Corrections Corporation of America
July 3, 1997
Page 4
of process and venue, or powers of attorney, (E) the enforceability of
provisions in the Transaction Documents relating to delay or omission of
enforcement of rights or remedies, if any, (F) title to any of the real or
personal property described in or subject to the Transaction Documents, or (G)
any indemnification provision(s) contained in the Transaction Documents.
(ii) The opinions expressed herein are subject to generally applicable
rules of law which: (A) limit the availability of a remedy under certain
circumstances where another remedy has been elected; (B) may, where less than
all of a contract may be unenforceable, limit the enforceability of the balance
of the contract to circumstances in which the unenforceable portion is not an
essential part of the agreed exchange; (C) may permit a party who has materially
failed to render or offer performance required by the contract to cure that
failure unless permitting a cure would unreasonably hinder the aggrieved party
from making substitute arrangements for performance, or it was important in the
circumstances to the aggrieved party that performance occur by the date stated
in the contract; or (D) limit the enforceability or provisions releasing,
exculpating or exempting a party from, or requiring indemnification of a party
for, liability for its own action or inaction (to the extent the action or
inaction involves negligence, willful misconduct, unlawful conduct, or breach of
its contractual obligations to the other party) or liabilities under federal or
state securities laws.
(iii) We have not conducted a docket search in any jurisdiction to
determine the existence of or non-existence of any litigation, court orders, or
similar matters.
(iv) The opinions expressed herein are limited to matters of the laws
of the United States and the laws of the State of Tennessee. We express no
opinion as to the laws of any other jurisdiction.
(v) The opinions expressed herein are limited to the matters stated
herein and no opinion may be implied or inferred beyond the matters expressly
stated herein. The opinions expressed herein are rendered only as of the date
hereof. We assume no obligation to update or supplement these opinions to
reflect any facts or circumstances which may hereafter come to our attention or
any changes in law which may hereafter occur.
This opinion is rendered only to, and solely for the benefit of, CCA
for the purposes set forth in the first paragraph hereof. This opinion may not
be relied upon for any other purpose, or quoted from, or otherwise referred to,
in any document or report and may not be furnished to or relied upon by any
other persons or entity for any purpose, without our prior written consent.
Sincerely,
[Purchaser's Counsel]
<PAGE> 1
EXHIBIT 10.1(b)
OPTION AGREEMENT
(Torrance County)
BY AND BETWEEN
CORRECTIONS CORPORATION OF AMERICA,
a Delaware corporation
("SELLER")
AND
CCA PRISON REALTY TRUST
a Maryland real estate investment trust
("PURCHASER")
July 7, 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.
"Agreement of Purchase and Sale" shall mean the Agreement of Purchase
and Sale dated of even date herewith by and between Purchaser and Seller.
"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
1
<PAGE> 5
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.
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
depicted on Exhibit A hereof, and zoning rights related to the Real Property,
3
<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.
4
<PAGE> 8
"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
5
<PAGE> 9
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
6
<PAGE> 10
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 is
effective as of the date Purchaser acquires all of the property pursuant to the
Agreement of Purchase and Sale and shall expire at 5:00 p.m. on, July 18,
2000, 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.
7
<PAGE> 11
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. The annual base rent under the Lease for the
Property shall be the greater of (i) the fair market rental value of the
Property as reasonably and mutually determined by Seller and Purchaser as of
the Effective Date and (ii) eleven percent (11%) of the Purchase Price.
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
8
<PAGE> 12
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.
9
<PAGE> 13
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,
10
<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
11
<PAGE> 15
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
12
<PAGE> 16
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
13
<PAGE> 17
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:
14
<PAGE> 18
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
15
<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.
17
<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
$340 million.
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.
18
<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
$340 million.
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.
19
<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.
20
<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.
21
<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.
22
<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
23
<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,
24
<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.
25
<PAGE> 29
EXECUTED to be effective as of the date shown on the front cover hereof.
PURCHASER:
CCA PRISON REALTY TRUST
By: /s/ Doctor R. Crants III
--------------------------------------
Its: President
-------------------------------------
Date: July 7, 1997
-------------------------------------
Purchaser's Tax Identification
Number: 62-1689525
----------
SELLER:
corrections CORPORATION OF AMERICA
By: /s/ Doctor R. Crants
--------------------------------------
Its: Chairman of the Board and
Chief Executive Officer
-------------------------------------
Date: July 7, 1997
-------------------------------------
Seller's Tax Identification
Number: 62-1156308
----------
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
Torrance County Detention Facility
Estancia, New Mexico
The real property and improvements known as the Torrance County
Detention Facility in Estancia, New Mexico consisting of a 60,000 square foot
multi-security level facility.
<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
Such items of personal property and equipment which seller reasonably
determines to be proprietary, which determination shall be made on the same
general basis as was made with respect to the excluded Personal Property
under the Agreement of Purchase and Sale described in the recitals to this
Option Agreement.
<PAGE> 52
EXHIBIT G
MASTER AGREEMENT TO LEASE
AND
LEASE AGREEMENT
Filed as Exhibits 10.2 and 10.3 of Form S-11 Registration Statement and
incorporated fully herein by this reference.
<PAGE> 53
EXHIBIT H
PERSONAL PROPERTY
All items of equipment, furniture or fixtures permanently supplied by Seller to
the Real Property in connection with the development and construction of the
Improvements, including also without limitation all items of personal property
required to be provided by the Seller for operation of the Facility in
accordance with the provisions of the Master Lease Agreement.
<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-1
[Letterhead of Seller's Counsel]
________, 199_
CCA Prison Realty Trust
2200 Abbott Martin Road, Suite 201
Nashville, Tennessee 37215
Re: Sale and Leaseback of the Facility (as defined herein) from
Corrections Corporation of America to CCA Prison Realty Trust
Ladies and Gentlemen:
We have acted as counsel for Corrections Corporation of America, a
Tennessee corporation ("Seller"), in connection with the sale and leaseback of
a [correctional] [detention] facility located in __________, __________ (the
"Facility"); and certain personal property used in connection therewith to CCA
Prison Realty Trust, a Maryland real estate investment trust (the "Purchaser"),
pursuant to that certain Option Agreement, dated July 7, 1997, between Seller
and Purchaser (the "Agreement"). In connection with these transactions, we have
examined, or are familiar with and relied upon, the following:
a. The Option Agreement;
b. A certificate dated __________________, 199_ issued by the
Secretary of State of the State of Tennessee as to the legal existence and good
standing of the Seller, and documents relating
<PAGE> 58
CCA Prison Realty Trust
Page 2
to the corporate organization of the Seller, including the Certificate of
Incorporation and the Bylaws, as amended to the date hereof;
c. Resolutions adopted by the Board of Directors of the Seller
at a meeting held or by consent action, dated ___________, 199_ authorizing the
transaction(s) contemplated by the Option Agreement, duly acknowledged by an
appropriate officer of the Seller;
and the following documents dated as of the closing of the Facility:
d. Bill of Sale and Assignment from the Seller to the Purchaser
(the "Bill of Sale");
e. The Certificate of Non-Foreign Status of the Seller;
f. The Closing Certificate of the Seller (the "Closing
Certificate");
g. Deed from the Seller to the Purchaser for the Facility
(the "Deed");
h. The Master Agreement to Lease dated July __, 1997 and the
Lease Agreement for the Facility, dated _____________, 199_ (collectively the
"Lease"), between Purchaser (as Landlord therein) and Seller (as Tenant
therein) for the lease of the Facility from Purchaser to Seller.
Items d through h above are collectively referred to herein as the
"Conveyancing Documents."
Based upon the foregoing and upon such other information and documents
to us as we believe necessary to enable us to render this opinion, we are of the
opinion that:
1. Seller is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Tennessee, and duly qualified
to transact business in the state where the Facility is located;
<PAGE> 59
CCA Prison Realty Trust
Page 3
2. The sale, transfer and conveyance of the Facility from the
Seller to the Purchaser pursuant to the Option Agreement is a valid transaction
by the Seller, binding upon the Seller, and the Seller has all necessary power
and authority to execute and discharge its obligations to Purchaser pursuant to
the Option Agreement;
3. The execution of the Lease and the lease of the Facility
from the Purchaser (as Landlord) to Seller (as Tenant) pursuant to the Lease,
is a valid transaction by the Seller, binding upon the Seller, and the Seller
has all necessary power and authority to execute and discharge its obligations
to Purchaser pursuant to such agreements.
4. The execution, delivery and performance by the Seller of its
obligations pursuant to the Conveyancing Documents, and the other agreements
delivered in connection with the sale of the Facility to the Purchaser have
been duly authorized by all necessary corporate action of the Seller, will not
violate any provision of the Seller's Certificate of Incorporation or By-Laws,
as amended to the date hereof, or to the best of our knowledge, after due
inquiry, any applicable law, rule or regulation. Also, to the best of our
knowledge, after due inquiry, such execution, delivery and performance:
(i) will not conflict with or result in any breach or default
under any order, writ, injunction, decree, agreement or instrument to which the
Seller is a party or by which the Seller or the Facility is bound;
(ii) will not result in a creation or imposition of any lien,
charge, or encumbrance of any nature upon the Facility;
(iii) will not give to others any interest or rights in, or with
respect to, the Facility,
<PAGE> 60
CCA Prison Realty Trust
Page 4
(iv) will not give others any right to terminate any agreement to
which the Seller is a party or by which the Facility or activities conducted
therein are benefitted, except to the extent disclosed by the Option Agreement
and the exhibits thereto.
5. To the best of our knowledge, there is no action, suit, or
proceeding pending or threatened against Seller wherein an unfavorable decision,
ruling or finding would adversely affect the transactions contemplated by the
Conveyancing Documents or the ability of the Seller to comply with the
provisions thereof;
In rendering the foregoing opinions, we have no reason to believe to the
contrary and therefore have assumed (i) the genuineness of all signatures on the
documents reviewed by us, (ii) the authenticity of all such documents submitted
to us as originals, (iii) the conformity to original documents of all such
documents submitted to us as photocopies or certified copies, (iv) the accuracy
and completeness of all such documents, (v) that all signatures on all
instruments and documents submitted to us with respect to this transaction are
genuine, (vi) that all persons executing the Conveyancing Documents on behalf of
the Seller have the legal capacity to do so.
Whenever any opinion rendered herein is predicated as being based on the
best of our knowledge, this is intended to signify that, in the course of our
representation of the Seller no information has come to the attention of the
attorneys' working on this transaction which would give us actual knowledge of
the existence or absence of facts material to such opinion. Except to the extent
expressly stated herein, we have not undertaken any independent investigation to
determine the existence or absence of any such facts, and as to matters of fact
we have relied upon the representations of the Seller contained in the Option
Agreement and upon certifications contained in the Closing Certificate.
Our opinions are based upon statutes, codes, ordinances, rules and
regulations, and judicial decisions in effect on the date hereof. We neither
express nor imply any opinion with respect to any law, rule, regulation or
governmental policy which may be enacted or adopted after the date hereof, and
we undertake no duty to advise you of any changes in any laws, rules,
regulations or governmental policies which may be enacted or adopted after the
date hereof.
The opinions expressed herein are limited to the federal laws and the
laws of the State of Tennessee. No opinion is expressed with respect to any laws
of any other jurisdictions or states or
<PAGE> 61
CCA Prison Realty Trust
Page 5
the affect of any such laws on the matters dealt with herein or the transactions
contemplated by the Conveyancing Documents. Additionally, no opinion is
expressed with respect to the title to the property comprising the Facility,
and we understand that you are relying on Lawyers Title Insurance Corporation as
to such matters.
This opinion is for the benefit of the addressees named herein, and may
not be disseminated or relied upon by others without the prior written consent
of this firm except as may be required under applicable law, administrative
regulation or accounting practices.
Very truly yours,
[Seller's Counsel]
<PAGE> 62
EXHIBIT J-2
OPINION OF PURCHASER'S COUNSEL
<PAGE> 63
EXHIBIT J-2
[Letterhead of Purchaser's Counsel]
______, 199_
Corrections Corporation of America
102 Woodmont Blvd.
Nashville, Tennessee 37205
Re: Purchase of the Facility (as defined herein) by CCA Prison
Realty Trust from Corrections Corporation of America
Ladies and Gentlemen:
We have acted as special real estate counsel to CCA Prison
Realty Trust, a Maryland investment real estate trust (the "REIT"), in
connection with the purchase and leaseback of a [correctional] [detention]
facility located in: __________, __________, and certain personal property
used in connection therewith (the "Facility") from Corrections Corporation of
America, a Tennessee corporation ("CCA"), pursuant to that certain Option
Agreement, dated July 7, 1997, among the REIT and CCA (the "Option Agreement").
In connection with these transactions, we have examined the
following documents (collectively, the "Transaction Documents"):
(a) The Option Agreement;
(b) The Master Agreement to Lease, dated July ___, 1997, between
the REIT and CCA;
(c) A Lease Agreement for the Facility, dated ___________, 199_,
and between the REIT and CCA;
<PAGE> 64
Corrections Corporation of America
July 3, 1997
Page 2
In rendering this opinion, we have, with your permission, made the
following assumptions:
(1) that the execution of the Transaction Documents by the REIT
has been duly authorized in accordance with Maryland law;
(2) that the REIT has all necessary power and authority to
execute and discharge its obligations under the Transaction Documents;
(3) the truth and accuracy of all certifications of public
officials and the genuineness of signatures on the Transaction Documents and the
documents delivered pursuant to the Transaction Documents;
(4) the authenticity of documents submitted as originals and the
conformity to originals of documents submitted as copies;
(5) that the parties to the Transaction Documents have properly
executed and delivered the Transaction Documents and the documents delivered by
them pursuant to the Transaction Documents;
(6) that all signatories to the Transaction Documents (other
than on behalf of the REIT) and the documents delivered pursuant to the
Transaction Documents have been duly authorized;
(7) that all natural persons executing the Transaction Documents
and the documents delivered pursuant to the Transaction Documents are legally
competent to do so; and
(8) that there are no oral or written modifications or waivers
of or amendments to the Transaction Documents or any of the documents delivered
pursuant to the Transaction Documents, by actions or conduct of the parties or
otherwise.
As to matters of good standing and valid existence, with your
permission, we have relied solely on the certificate issued by the Department of
Assessments and Taxation of the State of Maryland attached hereto as Exhibit A.
As to other factual matters, we have relied solely on the representations of the
REIT in the Transaction Documents and on such other instruments and certificates
of officers of the REIT and of public officials as we have deemed necessary to
render the opinions set forth herein.
<PAGE> 65
Corrections Corporation of America
July 3, 1997
Page 3
Whenever our opinion herein with respect to the existence or absence of
facts is qualified by the phrase "to our knowledge" or a phrase of similar
import, it indicates that in the course of our special representation in
connection with the transactions contemplated by the Transaction Documents, no
information that would give us current actual knowledge of the inaccuracy of
such statement has come to our attention. However, except to the extent
expressly set forth herein, we have not undertaken any independent investigation
to determine the existence or absence of such facts, and no inference as to our
knowledge of the existence of such facts should be drawn from the fact of our
special representation.
Based on the foregoing, and in reliance on and subject to the
assumptions, qualifications, exceptions, and limitations set forth in this
letter, we are of the opinion that:
1. The REIT is a real estate investment trust, validly existing,
and in good standing under the laws of the State of Maryland.
2. The Transaction Documents are the legally binding and
enforceable obligations of the REIT.
3. To the best of our knowledge, after due inquiry, the
execution, delivery and performance of the Transaction Documents by the REIT
will not violate any applicable law, rule or regulation or conflict with or
result in any breach or default under any order, writ, injunction, decree,
agreement of instrument to which the REIT is a party or by which the REIT is
bound;
4. To the best of our knowledge, there is no action, suit, or
proceeding pending or threatened against the REIT wherein an unfavorable
decision, ruling or finding would adversely affect the transactions contemplated
by the Transaction Documents or the ability of the REIT to comply with the
provisions thereof.
The foregoing opinions are subject to the following additional
assumptions, qualifications, limitations and exceptions:
(i) No opinions are expressed herein regarding, and the opinions
expressed herein are subject to, (A) applicable bankruptcy, reorganization,
insolvency, fraudulent conveyance, fraudulent transfer, moratorium and general
assignment for the benefit of creditors laws and other laws relating to or
affecting the rights of creditors generally, (B) general principles of equity,
good faith and fair dealing (whether considered in an action, suit or proceeding
at law or in equity), (C) the availability of the remedies of specific
performance, injunctive relief or other equitable remedies being limited by
statute or subject to the discretion of the court before which such proceeding
therefor may be brought, (D) the right of any person or entity to institute or
maintain any action in any court or upon matters respecting the jurisdiction of
any court, any waiver of right to trial by jury, waiver of service
<PAGE> 66
Corrections Corporation of America
July 3, 1997
Page 4
of process and venue, or powers of attorney, (E) the enforceability of
provisions in the Transaction Documents relating to delay or omission of
enforcement of rights or remedies, if any, (F) title to any of the real or
personal property described in or subject to the Transaction Documents, or (G)
any indemnification provision(s) contained in the Transaction Documents.
(ii) The opinions expressed herein are subject to generally applicable
rules of law which: (A) limit the availability of a remedy under certain
circumstances where another remedy has been elected; (B) may, where less than
all of a contract may be unenforceable, limit the enforceability of the balance
of the contract to circumstances in which the unenforceable portion is not an
essential part of the agreed exchange; (C) may permit a party who has materially
failed to render or offer performance required by the contract to cure that
failure unless permitting a cure would unreasonably hinder the aggrieved party
from making substitute arrangements for performance, or it was important in the
circumstances to the aggrieved party that performance occur by the date stated
in the contract; or (D) limit the enforceability or provisions releasing,
exculpating or exempting a party from, or requiring indemnification of a party
for, liability for its own action or inaction (to the extent the action or
inaction involves negligence, willful misconduct, unlawful conduct, or breach of
its contractual obligations to the other party) or liabilities under federal or
state securities laws.
(iii) We have not conducted a docket search in any jurisdiction to
determine the existence of or non-existence of any litigation, court orders, or
similar matters.
(iv) The opinions expressed herein are limited to matters of the laws
of the United States and the laws of the State of Tennessee. We express no
opinion as to the laws of any other jurisdiction.
(v) The opinions expressed herein are limited to the matters stated
herein and no opinion may be implied or inferred beyond the matters expressly
stated herein. The opinions expressed herein are rendered only as of the date
hereof. We assume no obligation to update or supplement these opinions to
reflect any facts or circumstances which may hereafter come to our attention or
any changes in law which may hereafter occur.
This opinion is rendered only to, and solely for the benefit of, CCA
for the purposes set forth in the first paragraph hereof. This opinion may not
be relied upon for any other purpose, or quoted from, or otherwise referred to,
in any document or report and may not be furnished to or relied upon by any
other persons or entity for any purpose, without our prior written consent.
Sincerely,
[Purchaser's Counsel]
<PAGE> 1
EXHIBIT 10.1(c)
OPTION AGREEMENT
(Southern Colorado)
BY AND BETWEEN
CORRECTIONS CORPORATION OF AMERICA,
a Delaware corporation
("SELLER")
AND
CCA PRISON REALTY TRUST
a Maryland real estate investment trust
("PURCHASER")
July 7, 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.
"Agreement of Purchase and Sale" shall mean the Agreement of Purchase
and Sale dated of even date herewith by and between Purchaser and Seller.
"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
1
<PAGE> 5
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.
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
depicted on Exhibit A hereof, and zoning rights related to the Real Property,
3
<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.
4
<PAGE> 8
"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
5
<PAGE> 9
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
6
<PAGE> 10
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 is
effective as of the date Purchaser acquires all of the property pursuant to the
Agreement of Purchase and Sale and shall expire at 5:00 p.m. on, July 18,
2000, 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.
7
<PAGE> 11
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. The annual base rent under the Lease for the
Property shall be the greater of (i) the fair market rental value of the
Property as reasonably and mutually determined by Seller and Purchaser as of
the Effective Date and (ii) eleven percent (11%) of the Purchase Price.
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
8
<PAGE> 12
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.
9
<PAGE> 13
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,
10
<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
11
<PAGE> 15
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
12
<PAGE> 16
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
13
<PAGE> 17
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:
14
<PAGE> 18
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
15
<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.
17
<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
$340 million.
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.
18
<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
$340 million.
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.
19
<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.
20
<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.
21
<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.
22
<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
23
<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,
24
<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.
25
<PAGE> 29
EXECUTED to be effective as of the date shown on the front cover hereof.
PURCHASER:
CCA PRISON REALTY TRUST
By: /s/ Doctor R. Crants III
--------------------------------------
Its: President
-------------------------------------
Date: July 7, 1997
-------------------------------------
Purchaser's Tax Identification
Number: 62-1689525
----------
SELLER:
corrections CORPORATION OF AMERICA
By: /s/ Doctor R. Crants
--------------------------------------
Its: Chairman of the Board and
Chief Executive Officer
-------------------------------------
Date: July 7, 1997
-------------------------------------
Seller's Tax Identification
Number: 62-1156308
----------
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
Southern Colorado Correctional Facility
Walsenburg, Colorado
The real property and improvements known as the Southern Colorado
Correctional Facility in Walsenburg, Colorado consisting of a 207,000 square
foot medium security facility.
<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
Such items of personal property and equipment which seller reasonably
determines to be proprietary, which determination shall be made on the same
general basis as was made with respect to the excluded Personal Property
under the Agreement of Purchase and Sale described in the recitals to this
Option Agreement.
<PAGE> 52
EXHIBIT G
MASTER AGREEMENT TO LEASE
AND
LEASE AGREEMENT
Filed as Exhibits 10.2 and 10.3 of Form S-11 Registration Statement and
incorporated fully herein by this reference.
<PAGE> 53
EXHIBIT H
PERSONAL PROPERTY
All items of equipment, furniture or fixtures permanently supplied by Seller to
the Real Property in connection with the development and construction of the
Improvements, including also without limitation all items of personal property
required to be provided by the Seller for operation of the Facility in
accordance with the provisions of the Master Lease Agreement.
<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-1
[Letterhead of Seller's Counsel]
________, 199_
CCA Prison Realty Trust
2200 Abbott Martin Road, Suite 201
Nashville, Tennessee 37215
Re: Sale and Leaseback of the Facility (as defined herein) from
Corrections Corporation of America to CCA Prison Realty Trust
Ladies and Gentlemen:
We have acted as counsel for Corrections Corporation of America, a
Tennessee corporation ("Seller"), in connection with the sale and leaseback of
a [correctional] [detention] facility located in __________, __________ (the
"Facility"); and certain personal property used in connection therewith to CCA
Prison Realty Trust, a Maryland real estate investment trust (the "Purchaser"),
pursuant to that certain Option Agreement, dated July 7, 1997, between Seller
and Purchaser (the "Agreement"). In connection with these transactions, we have
examined, or are familiar with and relied upon, the following:
a. The Option Agreement;
b. A certificate dated __________________, 199_ issued by the
Secretary of State of the State of Tennessee as to the legal existence and good
standing of the Seller, and documents relating
<PAGE> 58
CCA Prison Realty Trust
Page 2
to the corporate organization of the Seller, including the Certificate of
Incorporation and the Bylaws, as amended to the date hereof;
c. Resolutions adopted by the Board of Directors of the Seller
at a meeting held or by consent action, dated ___________, 199_ authorizing the
transaction(s) contemplated by the Option Agreement, duly acknowledged by an
appropriate officer of the Seller;
and the following documents dated as of the closing of the Facility:
d. Bill of Sale and Assignment from the Seller to the Purchaser
(the "Bill of Sale");
e. The Certificate of Non-Foreign Status of the Seller;
f. The Closing Certificate of the Seller (the "Closing
Certificate");
g. Deed from the Seller to the Purchaser for the Facility
(the "Deed");
h. The Master Agreement to Lease dated July __, 1997 and the
Lease Agreement for the Facility, dated _____________, 199_ (collectively the
"Lease"), between Purchaser (as Landlord therein) and Seller (as Tenant
therein) for the lease of the Facility from Purchaser to Seller.
Items d through h above are collectively referred to herein as the
"Conveyancing Documents."
Based upon the foregoing and upon such other information and documents
to us as we believe necessary to enable us to render this opinion, we are of the
opinion that:
1. Seller is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Tennessee, and duly qualified
to transact business in the state where the Facility is located;
<PAGE> 59
CCA Prison Realty Trust
Page 3
2. The sale, transfer and conveyance of the Facility from the
Seller to the Purchaser pursuant to the Option Agreement is a valid transaction
by the Seller, binding upon the Seller, and the Seller has all necessary power
and authority to execute and discharge its obligations to Purchaser pursuant to
the Option Agreement;
3. The execution of the Lease and the lease of the Facility
from the Purchaser (as Landlord) to Seller (as Tenant) pursuant to the Lease,
is a valid transaction by the Seller, binding upon the Seller, and the Seller
has all necessary power and authority to execute and discharge its obligations
to Purchaser pursuant to such agreements.
4. The execution, delivery and performance by the Seller of its
obligations pursuant to the Conveyancing Documents, and the other agreements
delivered in connection with the sale of the Facility to the Purchaser have
been duly authorized by all necessary corporate action of the Seller, will not
violate any provision of the Seller's Certificate of Incorporation or By-Laws,
as amended to the date hereof, or to the best of our knowledge, after due
inquiry, any applicable law, rule or regulation. Also, to the best of our
knowledge, after due inquiry, such execution, delivery and performance:
(i) will not conflict with or result in any breach or default
under any order, writ, injunction, decree, agreement or instrument to which the
Seller is a party or by which the Seller or the Facility is bound;
(ii) will not result in a creation or imposition of any lien,
charge, or encumbrance of any nature upon the Facility;
(iii) will not give to others any interest or rights in, or with
respect to, the Facility,
<PAGE> 60
CCA Prison Realty Trust
Page 4
(iv) will not give others any right to terminate any agreement to
which the Seller is a party or by which the Facility or activities conducted
therein are benefitted, except to the extent disclosed by the Option Agreement
and the exhibits thereto.
5. To the best of our knowledge, there is no action, suit, or
proceeding pending or threatened against Seller wherein an unfavorable decision,
ruling or finding would adversely affect the transactions contemplated by the
Conveyancing Documents or the ability of the Seller to comply with the
provisions thereof;
In rendering the foregoing opinions, we have no reason to believe to the
contrary and therefore have assumed (i) the genuineness of all signatures on the
documents reviewed by us, (ii) the authenticity of all such documents submitted
to us as originals, (iii) the conformity to original documents of all such
documents submitted to us as photocopies or certified copies, (iv) the accuracy
and completeness of all such documents, (v) that all signatures on all
instruments and documents submitted to us with respect to this transaction are
genuine, (vi) that all persons executing the Conveyancing Documents on behalf of
the Seller have the legal capacity to do so.
Whenever any opinion rendered herein is predicated as being based on the
best of our knowledge, this is intended to signify that, in the course of our
representation of the Seller no information has come to the attention of the
attorneys' working on this transaction which would give us actual knowledge of
the existence or absence of facts material to such opinion. Except to the extent
expressly stated herein, we have not undertaken any independent investigation to
determine the existence or absence of any such facts, and as to matters of fact
we have relied upon the representations of the Seller contained in the Option
Agreement and upon certifications contained in the Closing Certificate.
Our opinions are based upon statutes, codes, ordinances, rules and
regulations, and judicial decisions in effect on the date hereof. We neither
express nor imply any opinion with respect to any law, rule, regulation or
governmental policy which may be enacted or adopted after the date hereof, and
we undertake no duty to advise you of any changes in any laws, rules,
regulations or governmental policies which may be enacted or adopted after the
date hereof.
The opinions expressed herein are limited to the federal laws and the
laws of the State of Tennessee. No opinion is expressed with respect to any laws
of any other jurisdictions or states or
<PAGE> 61
CCA Prison Realty Trust
Page 5
the affect of any such laws on the matters dealt with herein or the transactions
contemplated by the Conveyancing Documents. Additionally, no opinion is
expressed with respect to the title to the property comprising the Facility,
and we understand that you are relying on Lawyers Title Insurance Corporation as
to such matters.
This opinion is for the benefit of the addressees named herein, and may
not be disseminated or relied upon by others without the prior written consent
of this firm except as may be required under applicable law, administrative
regulation or accounting practices.
Very truly yours,
[Seller's Counsel]
<PAGE> 62
EXHIBIT J-2
OPINION OF PURCHASER'S COUNSEL
<PAGE> 63
EXHIBIT J-2
[Letterhead of Purchaser's Counsel]
______, 199_
Corrections Corporation of America
102 Woodmont Blvd.
Nashville, Tennessee 37205
Re: Purchase of the Facility (as defined herein) by CCA Prison
Realty Trust from Corrections Corporation of America
Ladies and Gentlemen:
We have acted as special real estate counsel to CCA Prison
Realty Trust, a Maryland investment real estate trust (the "REIT"), in
connection with the purchase and leaseback of a [correctional] [detention]
facility located in: __________, __________, and certain personal property
used in connection therewith (the "Facility") from Corrections Corporation of
America, a Tennessee corporation ("CCA"), pursuant to that certain Option
Agreement, dated July 7, 1997, among the REIT and CCA (the "Option Agreement").
In connection with these transactions, we have examined the
following documents (collectively, the "Transaction Documents"):
(a) The Option Agreement;
(b) The Master Agreement to Lease, dated July ___, 1997, between
the REIT and CCA;
(c) A Lease Agreement for the Facility, dated ___________, 199_,
and between the REIT and CCA;
<PAGE> 64
Corrections Corporation of America
July 3, 1997
Page 2
In rendering this opinion, we have, with your permission, made the
following assumptions:
(1) that the execution of the Transaction Documents by the REIT
has been duly authorized in accordance with Maryland law;
(2) that the REIT has all necessary power and authority to
execute and discharge its obligations under the Transaction Documents;
(3) the truth and accuracy of all certifications of public
officials and the genuineness of signatures on the Transaction Documents and the
documents delivered pursuant to the Transaction Documents;
(4) the authenticity of documents submitted as originals and the
conformity to originals of documents submitted as copies;
(5) that the parties to the Transaction Documents have properly
executed and delivered the Transaction Documents and the documents delivered by
them pursuant to the Transaction Documents;
(6) that all signatories to the Transaction Documents (other
than on behalf of the REIT) and the documents delivered pursuant to the
Transaction Documents have been duly authorized;
(7) that all natural persons executing the Transaction Documents
and the documents delivered pursuant to the Transaction Documents are legally
competent to do so; and
(8) that there are no oral or written modifications or waivers
of or amendments to the Transaction Documents or any of the documents delivered
pursuant to the Transaction Documents, by actions or conduct of the parties or
otherwise.
As to matters of good standing and valid existence, with your
permission, we have relied solely on the certificate issued by the Department of
Assessments and Taxation of the State of Maryland attached hereto as Exhibit A.
As to other factual matters, we have relied solely on the representations of the
REIT in the Transaction Documents and on such other instruments and certificates
of officers of the REIT and of public officials as we have deemed necessary to
render the opinions set forth herein.
<PAGE> 65
Corrections Corporation of America
July 3, 1997
Page 3
Whenever our opinion herein with respect to the existence or absence of
facts is qualified by the phrase "to our knowledge" or a phrase of similar
import, it indicates that in the course of our special representation in
connection with the transactions contemplated by the Transaction Documents, no
information that would give us current actual knowledge of the inaccuracy of
such statement has come to our attention. However, except to the extent
expressly set forth herein, we have not undertaken any independent investigation
to determine the existence or absence of such facts, and no inference as to our
knowledge of the existence of such facts should be drawn from the fact of our
special representation.
Based on the foregoing, and in reliance on and subject to the
assumptions, qualifications, exceptions, and limitations set forth in this
letter, we are of the opinion that:
1. The REIT is a real estate investment trust, validly existing,
and in good standing under the laws of the State of Maryland.
2. The Transaction Documents are the legally binding and
enforceable obligations of the REIT.
3. To the best of our knowledge, after due inquiry, the
execution, delivery and performance of the Transaction Documents by the REIT
will not violate any applicable law, rule or regulation or conflict with or
result in any breach or default under any order, writ, injunction, decree,
agreement of instrument to which the REIT is a party or by which the REIT is
bound;
4. To the best of our knowledge, there is no action, suit, or
proceeding pending or threatened against the REIT wherein an unfavorable
decision, ruling or finding would adversely affect the transactions contemplated
by the Transaction Documents or the ability of the REIT to comply with the
provisions thereof.
The foregoing opinions are subject to the following additional
assumptions, qualifications, limitations and exceptions:
(i) No opinions are expressed herein regarding, and the opinions
expressed herein are subject to, (A) applicable bankruptcy, reorganization,
insolvency, fraudulent conveyance, fraudulent transfer, moratorium and general
assignment for the benefit of creditors laws and other laws relating to or
affecting the rights of creditors generally, (B) general principles of equity,
good faith and fair dealing (whether considered in an action, suit or proceeding
at law or in equity), (C) the availability of the remedies of specific
performance, injunctive relief or other equitable remedies being limited by
statute or subject to the discretion of the court before which such proceeding
therefor may be brought, (D) the right of any person or entity to institute or
maintain any action in any court or upon matters respecting the jurisdiction of
any court, any waiver of right to trial by jury, waiver of service
<PAGE> 66
Corrections Corporation of America
July 3, 1997
Page 4
of process and venue, or powers of attorney, (E) the enforceability of
provisions in the Transaction Documents relating to delay or omission of
enforcement of rights or remedies, if any, (F) title to any of the real or
personal property described in or subject to the Transaction Documents, or (G)
any indemnification provision(s) contained in the Transaction Documents.
(ii) The opinions expressed herein are subject to generally applicable
rules of law which: (A) limit the availability of a remedy under certain
circumstances where another remedy has been elected; (B) may, where less than
all of a contract may be unenforceable, limit the enforceability of the balance
of the contract to circumstances in which the unenforceable portion is not an
essential part of the agreed exchange; (C) may permit a party who has materially
failed to render or offer performance required by the contract to cure that
failure unless permitting a cure would unreasonably hinder the aggrieved party
from making substitute arrangements for performance, or it was important in the
circumstances to the aggrieved party that performance occur by the date stated
in the contract; or (D) limit the enforceability or provisions releasing,
exculpating or exempting a party from, or requiring indemnification of a party
for, liability for its own action or inaction (to the extent the action or
inaction involves negligence, willful misconduct, unlawful conduct, or breach of
its contractual obligations to the other party) or liabilities under federal or
state securities laws.
(iii) We have not conducted a docket search in any jurisdiction to
determine the existence of or non-existence of any litigation, court orders, or
similar matters.
(iv) The opinions expressed herein are limited to matters of the laws
of the United States and the laws of the State of Tennessee. We express no
opinion as to the laws of any other jurisdiction.
(v) The opinions expressed herein are limited to the matters stated
herein and no opinion may be implied or inferred beyond the matters expressly
stated herein. The opinions expressed herein are rendered only as of the date
hereof. We assume no obligation to update or supplement these opinions to
reflect any facts or circumstances which may hereafter come to our attention or
any changes in law which may hereafter occur.
This opinion is rendered only to, and solely for the benefit of, CCA
for the purposes set forth in the first paragraph hereof. This opinion may not
be relied upon for any other purpose, or quoted from, or otherwise referred to,
in any document or report and may not be furnished to or relied upon by any
other persons or entity for any purpose, without our prior written consent.
Sincerely,
[Purchaser's Counsel]
<PAGE> 1
EXHIBIT 10.1(d)
OPTION AGREEMENT
(North Fork)
BY AND BETWEEN
CORRECTIONS CORPORATION OF AMERICA,
a Delaware corporation
("SELLER")
AND
CCA PRISON REALTY TRUST
a Maryland real estate investment trust
("PURCHASER")
July 7, 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.
"Agreement of Purchase and Sale" shall mean the Agreement of Purchase
and Sale dated of even date herewith by and between Purchaser and Seller.
"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
1
<PAGE> 5
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.
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
depicted on Exhibit A hereof, and zoning rights related to the Real Property,
3
<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.
4
<PAGE> 8
"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
5
<PAGE> 9
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
6
<PAGE> 10
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 is
effective as of the date Purchaser acquires all of the property pursuant to the
Agreement of Purchase and Sale and shall expire at 5:00 p.m. on, July 18,
2000, 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.
7
<PAGE> 11
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. The annual base rent under the Lease for the
Property shall be the greater of (i) the fair market rental value of the
Property as reasonably and mutually determined by Seller and Purchaser as of
the Effective Date and (ii) eleven percent (11%) of the Purchase Price.
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
8
<PAGE> 12
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.
9
<PAGE> 13
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,
10
<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
11
<PAGE> 15
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
12
<PAGE> 16
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
13
<PAGE> 17
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:
14
<PAGE> 18
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
15
<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.
17
<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
$340 million.
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.
18
<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
$340 million.
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.
19
<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.
20
<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.
21
<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.
22
<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
23
<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,
24
<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.
25
<PAGE> 29
EXECUTED to be effective as of the date shown on the front cover hereof.
PURCHASER:
CCA PRISON REALTY TRUST
By: /s/ Doctor R. Crants III
--------------------------------------
Its: President
-------------------------------------
Date: July 7, 1997
-------------------------------------
Purchaser's Tax Identification
Number: 62-1689525
----------
SELLER:
corrections CORPORATION OF AMERICA
By: /s/ Doctor R. Crants
--------------------------------------
Its: Chairman of the Board and
Chief Executive Officer
-------------------------------------
Date: July 7, 1997
-------------------------------------
Seller's Tax Identification
Number: 62-1156308
----------
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
North Fork Correctional Facility
Sayre, Oklahoma
The real property and improvements known as the North Fork Correctional
Facility in Sayre, Oklahoma consisting of a 207,000 medium security facility.
<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
Such items of personal property and equipment which seller reasonably
determines to be proprietary, which determination shall be made on the same
general basis as was made with respect to the excluded Personal Property
under the Agreement of Purchase and Sale described in the recitals to this
Option Agreement.
<PAGE> 52
EXHIBIT G
MASTER AGREEMENT TO LEASE
AND
LEASE AGREEMENT
Filed as Exhibits 10.2 and 10.3 of Form S-11 Registration Statement and
incorporated fully herein by this reference.
<PAGE> 53
EXHIBIT H
PERSONAL PROPERTY
All items of equipment, furniture or fixtures permanently supplied by Seller to
the Real Property in connection with the development and construction of the
Improvements, including also without limitation all items of personal property
required to be provided by the Seller for operation of the Facility in
accordance with the provisions of the Master Lease Agreement.
<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-1
[Letterhead of Seller's Counsel]
________, 199_
CCA Prison Realty Trust
2200 Abbott Martin Road, Suite 201
Nashville, Tennessee 37215
Re: Sale and Leaseback of the Facility (as defined herein) from
Corrections Corporation of America to CCA Prison Realty Trust
Ladies and Gentlemen:
We have acted as counsel for Corrections Corporation of America, a
Tennessee corporation ("Seller"), in connection with the sale and leaseback of
a [correctional] [detention] facility located in __________, __________ (the
"Facility"); and certain personal property used in connection therewith to CCA
Prison Realty Trust, a Maryland real estate investment trust (the "Purchaser"),
pursuant to that certain Option Agreement, dated July 7, 1997, between Seller
and Purchaser (the "Agreement"). In connection with these transactions, we have
examined, or are familiar with and relied upon, the following:
a. The Option Agreement;
b. A certificate dated __________________, 199_ issued by the
Secretary of State of the State of Tennessee as to the legal existence and good
standing of the Seller, and documents relating
<PAGE> 58
CCA Prison Realty Trust
Page 2
to the corporate organization of the Seller, including the Certificate of
Incorporation and the Bylaws, as amended to the date hereof;
c. Resolutions adopted by the Board of Directors of the Seller
at a meeting held or by consent action, dated ___________, 199_ authorizing the
transaction(s) contemplated by the Option Agreement, duly acknowledged by an
appropriate officer of the Seller;
and the following documents dated as of the closing of the Facility:
d. Bill of Sale and Assignment from the Seller to the Purchaser
(the "Bill of Sale");
e. The Certificate of Non-Foreign Status of the Seller;
f. The Closing Certificate of the Seller (the "Closing
Certificate");
g. Deed from the Seller to the Purchaser for the Facility
(the "Deed");
h. The Master Agreement to Lease dated July __, 1997 and the
Lease Agreement for the Facility, dated _____________, 199_ (collectively the
"Lease"), between Purchaser (as Landlord therein) and Seller (as Tenant
therein) for the lease of the Facility from Purchaser to Seller.
Items d through h above are collectively referred to herein as the
"Conveyancing Documents."
Based upon the foregoing and upon such other information and documents
to us as we believe necessary to enable us to render this opinion, we are of the
opinion that:
1. Seller is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Tennessee, and duly qualified
to transact business in the state where the Facility is located;
<PAGE> 59
CCA Prison Realty Trust
Page 3
2. The sale, transfer and conveyance of the Facility from the
Seller to the Purchaser pursuant to the Option Agreement is a valid transaction
by the Seller, binding upon the Seller, and the Seller has all necessary power
and authority to execute and discharge its obligations to Purchaser pursuant to
the Option Agreement;
3. The execution of the Lease and the lease of the Facility
from the Purchaser (as Landlord) to Seller (as Tenant) pursuant to the Lease,
is a valid transaction by the Seller, binding upon the Seller, and the Seller
has all necessary power and authority to execute and discharge its obligations
to Purchaser pursuant to such agreements.
4. The execution, delivery and performance by the Seller of its
obligations pursuant to the Conveyancing Documents, and the other agreements
delivered in connection with the sale of the Facility to the Purchaser have
been duly authorized by all necessary corporate action of the Seller, will not
violate any provision of the Seller's Certificate of Incorporation or By-Laws,
as amended to the date hereof, or to the best of our knowledge, after due
inquiry, any applicable law, rule or regulation. Also, to the best of our
knowledge, after due inquiry, such execution, delivery and performance:
(i) will not conflict with or result in any breach or default
under any order, writ, injunction, decree, agreement or instrument to which the
Seller is a party or by which the Seller or the Facility is bound;
(ii) will not result in a creation or imposition of any lien,
charge, or encumbrance of any nature upon the Facility;
(iii) will not give to others any interest or rights in, or with
respect to, the Facility,
<PAGE> 60
CCA Prison Realty Trust
Page 4
(iv) will not give others any right to terminate any agreement to
which the Seller is a party or by which the Facility or activities conducted
therein are benefitted, except to the extent disclosed by the Option Agreement
and the exhibits thereto.
5. To the best of our knowledge, there is no action, suit, or
proceeding pending or threatened against Seller wherein an unfavorable decision,
ruling or finding would adversely affect the transactions contemplated by the
Conveyancing Documents or the ability of the Seller to comply with the
provisions thereof;
In rendering the foregoing opinions, we have no reason to believe to the
contrary and therefore have assumed (i) the genuineness of all signatures on the
documents reviewed by us, (ii) the authenticity of all such documents submitted
to us as originals, (iii) the conformity to original documents of all such
documents submitted to us as photocopies or certified copies, (iv) the accuracy
and completeness of all such documents, (v) that all signatures on all
instruments and documents submitted to us with respect to this transaction are
genuine, (vi) that all persons executing the Conveyancing Documents on behalf of
the Seller have the legal capacity to do so.
Whenever any opinion rendered herein is predicated as being based on the
best of our knowledge, this is intended to signify that, in the course of our
representation of the Seller no information has come to the attention of the
attorneys' working on this transaction which would give us actual knowledge of
the existence or absence of facts material to such opinion. Except to the extent
expressly stated herein, we have not undertaken any independent investigation to
determine the existence or absence of any such facts, and as to matters of fact
we have relied upon the representations of the Seller contained in the Option
Agreement and upon certifications contained in the Closing Certificate.
Our opinions are based upon statutes, codes, ordinances, rules and
regulations, and judicial decisions in effect on the date hereof. We neither
express nor imply any opinion with respect to any law, rule, regulation or
governmental policy which may be enacted or adopted after the date hereof, and
we undertake no duty to advise you of any changes in any laws, rules,
regulations or governmental policies which may be enacted or adopted after the
date hereof.
The opinions expressed herein are limited to the federal laws and the
laws of the State of Tennessee. No opinion is expressed with respect to any laws
of any other jurisdictions or states or
<PAGE> 61
CCA Prison Realty Trust
Page 5
the affect of any such laws on the matters dealt with herein or the transactions
contemplated by the Conveyancing Documents. Additionally, no opinion is
expressed with respect to the title to the property comprising the Facility,
and we understand that you are relying on Lawyers Title Insurance Corporation as
to such matters.
This opinion is for the benefit of the addressees named herein, and may
not be disseminated or relied upon by others without the prior written consent
of this firm except as may be required under applicable law, administrative
regulation or accounting practices.
Very truly yours,
[Seller's Counsel]
<PAGE> 62
EXHIBIT J-2
OPINION OF PURCHASER'S COUNSEL
<PAGE> 63
EXHIBIT J-2
[Letterhead of Purchaser's Counsel]
______, 199_
Corrections Corporation of America
102 Woodmont Blvd.
Nashville, Tennessee 37205
Re: Purchase of the Facility (as defined herein) by CCA Prison
Realty Trust from Corrections Corporation of America
Ladies and Gentlemen:
We have acted as special real estate counsel to CCA Prison
Realty Trust, a Maryland investment real estate trust (the "REIT"), in
connection with the purchase and leaseback of a [correctional] [detention]
facility located in: __________, __________, and certain personal property
used in connection therewith (the "Facility") from Corrections Corporation of
America, a Tennessee corporation ("CCA"), pursuant to that certain Option
Agreement, dated July 7, 1997, among the REIT and CCA (the "Option Agreement").
In connection with these transactions, we have examined the
following documents (collectively, the "Transaction Documents"):
(a) The Option Agreement;
(b) The Master Agreement to Lease, dated July ___, 1997, between
the REIT and CCA;
(c) A Lease Agreement for the Facility, dated ___________, 199_,
and between the REIT and CCA;
<PAGE> 64
Corrections Corporation of America
July 3, 1997
Page 2
In rendering this opinion, we have, with your permission, made the
following assumptions:
(1) that the execution of the Transaction Documents by the REIT
has been duly authorized in accordance with Maryland law;
(2) that the REIT has all necessary power and authority to
execute and discharge its obligations under the Transaction Documents;
(3) the truth and accuracy of all certifications of public
officials and the genuineness of signatures on the Transaction Documents and the
documents delivered pursuant to the Transaction Documents;
(4) the authenticity of documents submitted as originals and the
conformity to originals of documents submitted as copies;
(5) that the parties to the Transaction Documents have properly
executed and delivered the Transaction Documents and the documents delivered by
them pursuant to the Transaction Documents;
(6) that all signatories to the Transaction Documents (other
than on behalf of the REIT) and the documents delivered pursuant to the
Transaction Documents have been duly authorized;
(7) that all natural persons executing the Transaction Documents
and the documents delivered pursuant to the Transaction Documents are legally
competent to do so; and
(8) that there are no oral or written modifications or waivers
of or amendments to the Transaction Documents or any of the documents delivered
pursuant to the Transaction Documents, by actions or conduct of the parties or
otherwise.
As to matters of good standing and valid existence, with your
permission, we have relied solely on the certificate issued by the Department of
Assessments and Taxation of the State of Maryland attached hereto as Exhibit A.
As to other factual matters, we have relied solely on the representations of the
REIT in the Transaction Documents and on such other instruments and certificates
of officers of the REIT and of public officials as we have deemed necessary to
render the opinions set forth herein.
<PAGE> 65
Corrections Corporation of America
July 3, 1997
Page 3
Whenever our opinion herein with respect to the existence or absence of
facts is qualified by the phrase "to our knowledge" or a phrase of similar
import, it indicates that in the course of our special representation in
connection with the transactions contemplated by the Transaction Documents, no
information that would give us current actual knowledge of the inaccuracy of
such statement has come to our attention. However, except to the extent
expressly set forth herein, we have not undertaken any independent investigation
to determine the existence or absence of such facts, and no inference as to our
knowledge of the existence of such facts should be drawn from the fact of our
special representation.
Based on the foregoing, and in reliance on and subject to the
assumptions, qualifications, exceptions, and limitations set forth in this
letter, we are of the opinion that:
1. The REIT is a real estate investment trust, validly existing,
and in good standing under the laws of the State of Maryland.
2. The Transaction Documents are the legally binding and
enforceable obligations of the REIT.
3. To the best of our knowledge, after due inquiry, the
execution, delivery and performance of the Transaction Documents by the REIT
will not violate any applicable law, rule or regulation or conflict with or
result in any breach or default under any order, writ, injunction, decree,
agreement of instrument to which the REIT is a party or by which the REIT is
bound;
4. To the best of our knowledge, there is no action, suit, or
proceeding pending or threatened against the REIT wherein an unfavorable
decision, ruling or finding would adversely affect the transactions contemplated
by the Transaction Documents or the ability of the REIT to comply with the
provisions thereof.
The foregoing opinions are subject to the following additional
assumptions, qualifications, limitations and exceptions:
(i) No opinions are expressed herein regarding, and the opinions
expressed herein are subject to, (A) applicable bankruptcy, reorganization,
insolvency, fraudulent conveyance, fraudulent transfer, moratorium and general
assignment for the benefit of creditors laws and other laws relating to or
affecting the rights of creditors generally, (B) general principles of equity,
good faith and fair dealing (whether considered in an action, suit or proceeding
at law or in equity), (C) the availability of the remedies of specific
performance, injunctive relief or other equitable remedies being limited by
statute or subject to the discretion of the court before which such proceeding
therefor may be brought, (D) the right of any person or entity to institute or
maintain any action in any court or upon matters respecting the jurisdiction of
any court, any waiver of right to trial by jury, waiver of service
<PAGE> 66
Corrections Corporation of America
July 3, 1997
Page 4
of process and venue, or powers of attorney, (E) the enforceability of
provisions in the Transaction Documents relating to delay or omission of
enforcement of rights or remedies, if any, (F) title to any of the real or
personal property described in or subject to the Transaction Documents, or (G)
any indemnification provision(s) contained in the Transaction Documents.
(ii) The opinions expressed herein are subject to generally applicable
rules of law which: (A) limit the availability of a remedy under certain
circumstances where another remedy has been elected; (B) may, where less than
all of a contract may be unenforceable, limit the enforceability of the balance
of the contract to circumstances in which the unenforceable portion is not an
essential part of the agreed exchange; (C) may permit a party who has materially
failed to render or offer performance required by the contract to cure that
failure unless permitting a cure would unreasonably hinder the aggrieved party
from making substitute arrangements for performance, or it was important in the
circumstances to the aggrieved party that performance occur by the date stated
in the contract; or (D) limit the enforceability or provisions releasing,
exculpating or exempting a party from, or requiring indemnification of a party
for, liability for its own action or inaction (to the extent the action or
inaction involves negligence, willful misconduct, unlawful conduct, or breach of
its contractual obligations to the other party) or liabilities under federal or
state securities laws.
(iii) We have not conducted a docket search in any jurisdiction to
determine the existence of or non-existence of any litigation, court orders, or
similar matters.
(iv) The opinions expressed herein are limited to matters of the laws
of the United States and the laws of the State of Tennessee. We express no
opinion as to the laws of any other jurisdiction.
(v) The opinions expressed herein are limited to the matters stated
herein and no opinion may be implied or inferred beyond the matters expressly
stated herein. The opinions expressed herein are rendered only as of the date
hereof. We assume no obligation to update or supplement these opinions to
reflect any facts or circumstances which may hereafter come to our attention or
any changes in law which may hereafter occur.
This opinion is rendered only to, and solely for the benefit of, CCA
for the purposes set forth in the first paragraph hereof. This opinion may not
be relied upon for any other purpose, or quoted from, or otherwise referred to,
in any document or report and may not be furnished to or relied upon by any
other persons or entity for any purpose, without our prior written consent.
Sincerely,
[Purchaser's Counsel]
<PAGE> 1
EXHIBIT 10.1(e)
OPTION AGREEMENT
(Whiteville)
BY AND BETWEEN
CORRECTIONS CORPORATION OF AMERICA,
a Delaware corporation
("SELLER")
AND
CCA PRISON REALTY TRUST
a Maryland real estate investment trust
("PURCHASER")
July 7, 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.
"Agreement of Purchase and Sale" shall mean the Agreement of Purchase
and Sale dated of even date herewith by and between Purchaser and Seller.
"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
1
<PAGE> 5
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.
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
depicted on Exhibit A hereof, and zoning rights related to the Real Property,
3
<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.
4
<PAGE> 8
"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
5
<PAGE> 9
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
6
<PAGE> 10
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 is
effective as of the date Purchaser acquires all of the property pursuant to the
Agreement of Purchase and Sale and shall expire at 5:00 p.m. on, July 18,
2000, 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.
7
<PAGE> 11
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. The annual base rent under the Lease for the
Property shall be the greater of (i) the fair market rental value of the
Property as reasonably and mutually determined by Seller and Purchaser as of
the Effective Date and (ii) eleven percent (11%) of the Purchase Price.
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
8
<PAGE> 12
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.
9
<PAGE> 13
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,
10
<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
11
<PAGE> 15
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
12
<PAGE> 16
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
13
<PAGE> 17
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:
14
<PAGE> 18
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
15
<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.
17
<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
$340 million.
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.
18
<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
$340 million.
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.
19
<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.
20
<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.
21
<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.
22
<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
23
<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,
24
<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.
25
<PAGE> 29
EXECUTED to be effective as of the date shown on the front cover hereof.
PURCHASER:
CCA PRISON REALTY TRUST
By: /s/ Doctor R. Crants III
--------------------------------------
Its: President
-------------------------------------
Date: July 7, 1997
-------------------------------------
Purchaser's Tax Identification
Number: 62-1689525
----------
SELLER:
corrections CORPORATION OF AMERICA
By: /s/ Doctor R. Crants
--------------------------------------
Its: Chairman of the Board and
Chief Executive Officer
-------------------------------------
Date: July 7, 1997
-------------------------------------
Seller's Tax Identification
Number: 62-1156308
----------
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
Whiteville Correctional Center
Whiteville, Tennessee
The real property and improvements known as the Whiteville Correctional
Center in Whiteville, Tennessee consisting of a medium security facility with a
design capacity of approximately 1,000 beds.
<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
Such items of personal property and equipment which seller reasonably
determines to be proprietary, which determination shall be made on the same
general basis as was made with respect to the excluded Personal Property
under the Agreement of Purchase and Sale described in the recitals to this
Option Agreement.
<PAGE> 52
EXHIBIT G
MASTER AGREEMENT TO LEASE
AND
LEASE AGREEMENT
Filed as Exhibits 10.2 and 10.3 of Form S-11 Registration Statement and
incorporated fully herein by this reference.
<PAGE> 53
EXHIBIT H
PERSONAL PROPERTY
All items of equipment, furniture or fixtures permanently supplied by Seller to
the Real Property in connection with the development and construction of the
Improvements, including also without limitation all items of personal property
required to be provided by the Seller for operation of the Facility in
accordance with the provisions of the Master Lease Agreement.
<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-1
[Letterhead of Seller's Counsel]
________, 199_
CCA Prison Realty Trust
2200 Abbott Martin Road, Suite 201
Nashville, Tennessee 37215
Re: Sale and Leaseback of the Facility (as defined herein) from
Corrections Corporation of America to CCA Prison Realty Trust
Ladies and Gentlemen:
We have acted as counsel for Corrections Corporation of America, a
Tennessee corporation ("Seller"), in connection with the sale and leaseback of
a [correctional] [detention] facility located in __________, __________ (the
"Facility"); and certain personal property used in connection therewith to CCA
Prison Realty Trust, a Maryland real estate investment trust (the "Purchaser"),
pursuant to that certain Option Agreement, dated July 7, 1997, between Seller
and Purchaser (the "Agreement"). In connection with these transactions, we have
examined, or are familiar with and relied upon, the following:
a. The Option Agreement;
b. A certificate dated __________________, 199_ issued by the
Secretary of State of the State of Tennessee as to the legal existence and good
standing of the Seller, and documents relating
<PAGE> 58
CCA Prison Realty Trust
Page 2
to the corporate organization of the Seller, including the Certificate of
Incorporation and the Bylaws, as amended to the date hereof;
c. Resolutions adopted by the Board of Directors of the Seller
at a meeting held or by consent action, dated ___________, 199_ authorizing the
transaction(s) contemplated by the Option Agreement, duly acknowledged by an
appropriate officer of the Seller;
and the following documents dated as of the closing of the Facility:
d. Bill of Sale and Assignment from the Seller to the Purchaser
(the "Bill of Sale");
e. The Certificate of Non-Foreign Status of the Seller;
f. The Closing Certificate of the Seller (the "Closing
Certificate");
g. Deed from the Seller to the Purchaser for the Facility
(the "Deed");
h. The Master Agreement to Lease dated July __, 1997 and the
Lease Agreement for the Facility, dated _____________, 199_ (collectively the
"Lease"), between Purchaser (as Landlord therein) and Seller (as Tenant
therein) for the lease of the Facility from Purchaser to Seller.
Items d through h above are collectively referred to herein as the
"Conveyancing Documents."
Based upon the foregoing and upon such other information and documents
to us as we believe necessary to enable us to render this opinion, we are of the
opinion that:
1. Seller is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Tennessee, and duly qualified
to transact business in the state where the Facility is located;
<PAGE> 59
CCA Prison Realty Trust
Page 3
2. The sale, transfer and conveyance of the Facility from the
Seller to the Purchaser pursuant to the Option Agreement is a valid transaction
by the Seller, binding upon the Seller, and the Seller has all necessary power
and authority to execute and discharge its obligations to Purchaser pursuant to
the Option Agreement;
3. The execution of the Lease and the lease of the Facility
from the Purchaser (as Landlord) to Seller (as Tenant) pursuant to the Lease,
is a valid transaction by the Seller, binding upon the Seller, and the Seller
has all necessary power and authority to execute and discharge its obligations
to Purchaser pursuant to such agreements.
4. The execution, delivery and performance by the Seller of its
obligations pursuant to the Conveyancing Documents, and the other agreements
delivered in connection with the sale of the Facility to the Purchaser have
been duly authorized by all necessary corporate action of the Seller, will not
violate any provision of the Seller's Certificate of Incorporation or By-Laws,
as amended to the date hereof, or to the best of our knowledge, after due
inquiry, any applicable law, rule or regulation. Also, to the best of our
knowledge, after due inquiry, such execution, delivery and performance:
(i) will not conflict with or result in any breach or default
under any order, writ, injunction, decree, agreement or instrument to which the
Seller is a party or by which the Seller or the Facility is bound;
(ii) will not result in a creation or imposition of any lien,
charge, or encumbrance of any nature upon the Facility;
(iii) will not give to others any interest or rights in, or with
respect to, the Facility,
<PAGE> 60
CCA Prison Realty Trust
Page 4
(iv) will not give others any right to terminate any agreement to
which the Seller is a party or by which the Facility or activities conducted
therein are benefitted, except to the extent disclosed by the Option Agreement
and the exhibits thereto.
5. To the best of our knowledge, there is no action, suit, or
proceeding pending or threatened against Seller wherein an unfavorable decision,
ruling or finding would adversely affect the transactions contemplated by the
Conveyancing Documents or the ability of the Seller to comply with the
provisions thereof;
In rendering the foregoing opinions, we have no reason to believe to the
contrary and therefore have assumed (i) the genuineness of all signatures on the
documents reviewed by us, (ii) the authenticity of all such documents submitted
to us as originals, (iii) the conformity to original documents of all such
documents submitted to us as photocopies or certified copies, (iv) the accuracy
and completeness of all such documents, (v) that all signatures on all
instruments and documents submitted to us with respect to this transaction are
genuine, (vi) that all persons executing the Conveyancing Documents on behalf of
the Seller have the legal capacity to do so.
Whenever any opinion rendered herein is predicated as being based on the
best of our knowledge, this is intended to signify that, in the course of our
representation of the Seller no information has come to the attention of the
attorneys' working on this transaction which would give us actual knowledge of
the existence or absence of facts material to such opinion. Except to the extent
expressly stated herein, we have not undertaken any independent investigation to
determine the existence or absence of any such facts, and as to matters of fact
we have relied upon the representations of the Seller contained in the Option
Agreement and upon certifications contained in the Closing Certificate.
Our opinions are based upon statutes, codes, ordinances, rules and
regulations, and judicial decisions in effect on the date hereof. We neither
express nor imply any opinion with respect to any law, rule, regulation or
governmental policy which may be enacted or adopted after the date hereof, and
we undertake no duty to advise you of any changes in any laws, rules,
regulations or governmental policies which may be enacted or adopted after the
date hereof.
The opinions expressed herein are limited to the federal laws and the
laws of the State of Tennessee. No opinion is expressed with respect to any laws
of any other jurisdictions or states or
<PAGE> 61
CCA Prison Realty Trust
Page 5
the affect of any such laws on the matters dealt with herein or the transactions
contemplated by the Conveyancing Documents. Additionally, no opinion is
expressed with respect to the title to the property comprising the Facility,
and we understand that you are relying on Lawyers Title Insurance Corporation as
to such matters.
This opinion is for the benefit of the addressees named herein, and may
not be disseminated or relied upon by others without the prior written consent
of this firm except as may be required under applicable law, administrative
regulation or accounting practices.
Very truly yours,
[Seller's Counsel]
<PAGE> 62
EXHIBIT J-2
OPINION OF PURCHASER'S COUNSEL
<PAGE> 63
EXHIBIT J-2
[Letterhead of Purchaser's Counsel]
______, 199_
Corrections Corporation of America
102 Woodmont Blvd.
Nashville, Tennessee 37205
Re: Purchase of the Facility (as defined herein) by CCA Prison
Realty Trust from Corrections Corporation of America
Ladies and Gentlemen:
We have acted as special real estate counsel to CCA Prison
Realty Trust, a Maryland investment real estate trust (the "REIT"), in
connection with the purchase and leaseback of a [correctional] [detention]
facility located in: __________, __________, and certain personal property
used in connection therewith (the "Facility") from Corrections Corporation of
America, a Tennessee corporation ("CCA"), pursuant to that certain Option
Agreement, dated July 7, 1997, among the REIT and CCA (the "Option Agreement").
In connection with these transactions, we have examined the
following documents (collectively, the "Transaction Documents"):
(a) The Option Agreement;
(b) The Master Agreement to Lease, dated July ___, 1997, between
the REIT and CCA;
(c) A Lease Agreement for the Facility, dated ___________, 199_,
and between the REIT and CCA;
<PAGE> 64
Corrections Corporation of America
July 3, 1997
Page 2
In rendering this opinion, we have, with your permission, made the
following assumptions:
(1) that the execution of the Transaction Documents by the REIT
has been duly authorized in accordance with Maryland law;
(2) that the REIT has all necessary power and authority to
execute and discharge its obligations under the Transaction Documents;
(3) the truth and accuracy of all certifications of public
officials and the genuineness of signatures on the Transaction Documents and the
documents delivered pursuant to the Transaction Documents;
(4) the authenticity of documents submitted as originals and the
conformity to originals of documents submitted as copies;
(5) that the parties to the Transaction Documents have properly
executed and delivered the Transaction Documents and the documents delivered by
them pursuant to the Transaction Documents;
(6) that all signatories to the Transaction Documents (other
than on behalf of the REIT) and the documents delivered pursuant to the
Transaction Documents have been duly authorized;
(7) that all natural persons executing the Transaction Documents
and the documents delivered pursuant to the Transaction Documents are legally
competent to do so; and
(8) that there are no oral or written modifications or waivers
of or amendments to the Transaction Documents or any of the documents delivered
pursuant to the Transaction Documents, by actions or conduct of the parties or
otherwise.
As to matters of good standing and valid existence, with your
permission, we have relied solely on the certificate issued by the Department of
Assessments and Taxation of the State of Maryland attached hereto as Exhibit A.
As to other factual matters, we have relied solely on the representations of the
REIT in the Transaction Documents and on such other instruments and certificates
of officers of the REIT and of public officials as we have deemed necessary to
render the opinions set forth herein.
<PAGE> 65
Corrections Corporation of America
July 3, 1997
Page 3
Whenever our opinion herein with respect to the existence or absence of
facts is qualified by the phrase "to our knowledge" or a phrase of similar
import, it indicates that in the course of our special representation in
connection with the transactions contemplated by the Transaction Documents, no
information that would give us current actual knowledge of the inaccuracy of
such statement has come to our attention. However, except to the extent
expressly set forth herein, we have not undertaken any independent investigation
to determine the existence or absence of such facts, and no inference as to our
knowledge of the existence of such facts should be drawn from the fact of our
special representation.
Based on the foregoing, and in reliance on and subject to the
assumptions, qualifications, exceptions, and limitations set forth in this
letter, we are of the opinion that:
1. The REIT is a real estate investment trust, validly existing,
and in good standing under the laws of the State of Maryland.
2. The Transaction Documents are the legally binding and
enforceable obligations of the REIT.
3. To the best of our knowledge, after due inquiry, the
execution, delivery and performance of the Transaction Documents by the REIT
will not violate any applicable law, rule or regulation or conflict with or
result in any breach or default under any order, writ, injunction, decree,
agreement of instrument to which the REIT is a party or by which the REIT is
bound;
4. To the best of our knowledge, there is no action, suit, or
proceeding pending or threatened against the REIT wherein an unfavorable
decision, ruling or finding would adversely affect the transactions contemplated
by the Transaction Documents or the ability of the REIT to comply with the
provisions thereof.
The foregoing opinions are subject to the following additional
assumptions, qualifications, limitations and exceptions:
(i) No opinions are expressed herein regarding, and the opinions
expressed herein are subject to, (A) applicable bankruptcy, reorganization,
insolvency, fraudulent conveyance, fraudulent transfer, moratorium and general
assignment for the benefit of creditors laws and other laws relating to or
affecting the rights of creditors generally, (B) general principles of equity,
good faith and fair dealing (whether considered in an action, suit or proceeding
at law or in equity), (C) the availability of the remedies of specific
performance, injunctive relief or other equitable remedies being limited by
statute or subject to the discretion of the court before which such proceeding
therefor may be brought, (D) the right of any person or entity to institute or
maintain any action in any court or upon matters respecting the jurisdiction of
any court, any waiver of right to trial by jury, waiver of service
<PAGE> 66
Corrections Corporation of America
July 3, 1997
Page 4
of process and venue, or powers of attorney, (E) the enforceability of
provisions in the Transaction Documents relating to delay or omission of
enforcement of rights or remedies, if any, (F) title to any of the real or
personal property described in or subject to the Transaction Documents, or (G)
any indemnification provision(s) contained in the Transaction Documents.
(ii) The opinions expressed herein are subject to generally applicable
rules of law which: (A) limit the availability of a remedy under certain
circumstances where another remedy has been elected; (B) may, where less than
all of a contract may be unenforceable, limit the enforceability of the balance
of the contract to circumstances in which the unenforceable portion is not an
essential part of the agreed exchange; (C) may permit a party who has materially
failed to render or offer performance required by the contract to cure that
failure unless permitting a cure would unreasonably hinder the aggrieved party
from making substitute arrangements for performance, or it was important in the
circumstances to the aggrieved party that performance occur by the date stated
in the contract; or (D) limit the enforceability or provisions releasing,
exculpating or exempting a party from, or requiring indemnification of a party
for, liability for its own action or inaction (to the extent the action or
inaction involves negligence, willful misconduct, unlawful conduct, or breach of
its contractual obligations to the other party) or liabilities under federal or
state securities laws.
(iii) We have not conducted a docket search in any jurisdiction to
determine the existence of or non-existence of any litigation, court orders, or
similar matters.
(iv) The opinions expressed herein are limited to matters of the laws
of the United States and the laws of the State of Tennessee. We express no
opinion as to the laws of any other jurisdiction.
(v) The opinions expressed herein are limited to the matters stated
herein and no opinion may be implied or inferred beyond the matters expressly
stated herein. The opinions expressed herein are rendered only as of the date
hereof. We assume no obligation to update or supplement these opinions to
reflect any facts or circumstances which may hereafter come to our attention or
any changes in law which may hereafter occur.
This opinion is rendered only to, and solely for the benefit of, CCA
for the purposes set forth in the first paragraph hereof. This opinion may not
be relied upon for any other purpose, or quoted from, or otherwise referred to,
in any document or report and may not be furnished to or relied upon by any
other persons or entity for any purpose, without our prior written consent.
Sincerely,
[Purchaser's Counsel]
<PAGE> 1
EXHIBIT 10.4
RIGHT TO PURCHASE AGREEMENT
THIS RIGHT TO PURCHASE AGREEMENT (the "Agreement"), dated as of
July 7, 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 agreed to acquire
from CCA or certain of its affiliates 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 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 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). For Future Facilities acquired pursuant to this paragraph 3 within
five(5) years of the date hereof, the Base Rent shall be the greater of (i)
the fair market rental value of such Future Facility, as reasonably and
mutually determined by Company and CCA and (ii) eleven percent (11%) of the
purchase price of such Future Facility. For Future Facilities acquired
pursuant to this paragraph 3 thereafter, the Base Rent shall be the fair market
rental value of such Future Facility, as reasonably and mutually determined by
the 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 be effective upon
the closing of the Company's acquisition of the Leased Facilities and 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 effective 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.
4
<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: /s/ Doctor R. Crants
------------------------------
Title: Chairman of the Board and
Chief Executive Officer
---------------------------
CCA PRISON REALTY TRUST
By: /s/ Doctor R. Crants III
------------------------------
Title: President
---------------------------
5
<PAGE> 6
STATE OF TENNESSEE
COUNTY OF DAVIDSON
Before me, Linda J. Boggess, a Notary Public of the State and County
aforesaid, personally appeared Doctor R. Crants, with whom I am personally
acquainted (or proved to me on the basis of satisfactory evidence), and who,
upon oath, acknowledged himself to be Chairman of the Board and Chief Executive
Officer of CORRECTIONS CORPORATION OF AMERICA, the within named bargainor, a
Tennessee corporation, and that he as such Chairman of the Board and Chief
Executive Officer being authorized so to do, executed the foregoing instrument
for the purposes therein contained, by signing the name of the corporation by
himself as Chairman of the Board and Chief Executive Officer.
WITNESS my hand and official seal at Nashville, Davidson County, this 7th
day of July, 1997.
/s/ Linda J. Boggess
---------------------------------------
Notary Public
My Commission Expires: July 25, 1998
STATE OF TENNESSEE
COUNTY OF DAVIDSON
Before me, Linda J. Boggess, a Notary Public of the State and County
aforesaid, personally appeared Doctor R. Crants, III, with whom I am personally
acquainted (or proved to me on the basis of satisfactory evidence), and who,
upon oath, acknowledged himself to be President of CCA PRISON REALTY TRUST, the
within named bargainor, a Maryland real estate investment trust, and that he as
such President 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 himself as President.
WITNESS my hand and official seal at Nashville, Davidson County, Tennessee,
this 7th day of July, 1997.
/s/ Linda J. Boggess
--------------------------------------
Notary Public
My Commission Expires: July 25, 1998
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 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 as amended.
/s/ ARTHUR ANDERSEN LLP
----------------------
ARTHUR ANDERSEN LLP
Nashville, Tennessee
July 8, 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 as amended.
/s/ ARTHUR ANDERSEN LLP
----------------------
ARTHUR ANDERSEN LLP
Nashville, Tennessee
July 8, 1997
