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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 20, 1998
(November 19, 1998)
CCA Prison Realty Trust
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(Exact name of registrant as specified in its declaration of trust)
Maryland 1-13049 62-1689525
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(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of organization) Identification No.)
10 Burton Hills Boulevard, Suite 100
Nashville, Tennessee 37215
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (615) 263-0200
Not Applicable
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(Former name or former address, if changed since last report)
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Item 5. Other Events.
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The following information is being furnished in connection with the
proposed merger of Corrections Corporation of America ("CCA") and CCA Prison
Realty Trust ("Prison Realty") into Prison Realty Corporation ("New Prison
Realty").
SETTLEMENT OF PENDING CCA CLASS ACTION LITIGATION
In July 1998, a consolidated complaint was filed with respect to a
group of lawsuits originally filed in April 1998 by certain purported
shareholders of CCA in Chancery Court for Davidson County in Nashville,
Tennessee. The complaint names CCA and its directors as defendants. The
plaintiffs in the action represent a putative class of all public shareholders
of CCA common stock.
The complaint alleged, among other things, that the directors of CCA
breached their fiduciary duties to CCA and CCA's public shareholders. The
complaint sought, among other things, preliminary and permanent injunctive
relief prohibiting completion of the merger as then proposed and directing CCA
or its directors to adopt a procedure or process, such as an auction, to obtain
the highest possible price for CCA. The complaint also sought unspecified
damages and other relief. Plaintiffs also moved to amend their complaint to seek
other relief including additional disclosures in the joint proxy
statement-prospectus of CCA and Prison Realty furnished to their shareholders in
connection with the merger and a prohibition on the accelerated vesting of CCA
stock options and deferred stock.
The plaintiffs in this litigation and CCA have reached an agreement to
settle the litigation. The settlement, which is subject to customary conditions,
including approval by the Chancery Court, provides as follows:
- the charter of Prison Management Services, Inc. ("Service
Company A") and Juvenile and Jail Facility Management
Services, Inc. ("Service Company B") will provide that New
Prison Realty's interest in 95% of the earnings of both
Service Company A and Service Company B shall not be reduced
through the sale of any equity or convertible debt in either
Service Company A or Service Company B, absent written
agreement by New Prison Realty's Board of Directors (Please
see pages 92-93 of the joint proxy statement-prospectus);
- the percentage fee payable by Correctional Management Services
Corporation ("Operating Company") to New Prison Realty under
the trade name use agreement will be increased as described
below. The trade name use agreement currently provides that
Operating Company will pay to New Prison Realty a percentage
of Operating Company's revenues subject to a limitation that
it not
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exceed a certain percentage of New Prison Realty's revenues
(Please see page 91 of the joint proxy statement-prospectus);
The following table sets forth applicable percentages as
described in the joint proxy statement-prospectus:
<TABLE>
<CAPTION>
Percentage of Limitation on Payment
Operating Company's as a Percentage of
Revenues Payable New Prison Realty's Revenues
------------------- -----------------------------
<S> <C> <C>
Years 1-3 2.5% 2.5%
Years 4-5 3.0% 3.25%
Years 6-10 3.0% 3.25%
</TABLE>
The following table sets forth the percentages as increased
subject to the settlement:
<TABLE>
<CAPTION>
Percentage of Limitation on Payment
Operating Company's as a Percentage of
Revenues Payable New Prison Realty's Revenues
-------------------- ----------------------------
<S> <C> <C>
Years 1-3 2.75% 2.75%
Years 4-5 3.25% 3.5%
Years 6-10 3.625% 3.875%
</TABLE>
- in the event of a change in control (as defined) of Operating
Company before January 1, 2004, New Prison Realty will have
the right to terminate its leases with Operating Company;
- New Prison Realty will be granted a preemptive right to ensure
that New Prison Realty has the opportunity to purchase
securities in any offering of Operating Company securities
which would otherwise have the effect of reducing New Prison
Realty's 9.5% economic interest in Operating Company;
- as described in the joint proxy statement-prospectus,
outstanding CCA stock options will be converted into options
to purchase New Prison Realty common stock on the same terms
and conditions, including vesting (Please see page 84 of the
joint proxy statement-prospectus);
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- as described in the joint proxy statement-prospectus, awards
of CCA deferred stock under CCA's Stock Bonus Plan will be
converted into awards of New Prison Realty deferred stock on
similar vesting terms (Please see page 84 of the joint proxy
statement-prospectus); and
- under the terms of the settlement, the amount of any fee
awarded to counsel for the plaintiffs will be decided by the
Chancery Court and paid by the defendants.
The settlement also provides for the following additional disclosure to
be disseminated to CCA shareholders.
BACKGROUND OF THE MERGER
Pages 46 through 49 of the joint proxy statement-prospectus describe
the background of the proposed merger. In that section, when references are made
to senior management of CCA, the specific persons being referred to include
Doctor R. Crants and Darrell K. Massengale. References to senior management of
Prison Realty include D. Robert Crants, III and Michael W. Devlin.
ADDITIONAL INFORMATION REGARDING UPDATED STEPHENS FAIRNESS OPINION
As stated on page 62 of the joint proxy statement-prospectus, the
Stephens opinion is based on market, economic and other conditions as they
existed as of the date of such opinion. Due to changes in market and economic
conditions, including the volatility in the debt and equity markets, between the
date of its original opinion in April and the date of the updated opinion in
October, Stephens increased the discount rates used in the Discounted Cash Flow
Analysis for CCA to reflect that increased volatility. The discount rates were
also increased in the Discounted Cash Flow Analysis for Prison Realty.
Increasing the discount rates had the effect of reducing the implied value of
CCA and Prison Realty common stock. In addition, Stephens reduced the funds from
operations ("FFO") multiples used to calculate terminal values to reflect the
lower comparable FFO multiples in the market for publicly traded real estate
investment trusts as of the date of the updated opinion. Reducing the FFO
multiple had the effect of reducing the implied value of Prison Realty common
stock. This disclosure explains the reasons for and effects of the changes in
assumptions on this analysis between the date of the original and updated
opinions, but there are not any changes in the conclusions stated in the joint
proxy statement-prospectus.
METHOD OF CALCULATION OF CERTAIN PRO FORMA FINANCIAL INFORMATION
The joint proxy statement-prospectus contains pro forma financial
statements for New Prison Realty. With respect to the pro forma statement of
operations for New Prison Realty, presented on pages 147 and 154 of the joint
proxy statement-prospectus, there is a sum of CCA pro forma adjustments which
are required to compute the New Prison Realty adjusted pro forma results. Pages
149 and 156 of the joint proxy statement-prospectus set forth the computation of
the pro forma statement of operations adjustments for CCA. One of those
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series of adjustments relates to the revenues and expenses of Operating Company.
Immediately prior to the merger, CCA will sell to Operating Company certain
management contracts related to Prison Realty-owned prison facilities and
certain other net assets in exchange for an installment note in the principal
amount of $137.0 million and 9.5% of the capital stock of Operating Company. The
adjustments relating to Operating Company remove the historical results of
operations related to the management contracts to be sold to Operating Company
as if the merger and sale had occurred as of the beginning of the pro forma
period. This disclosure specifically sets forth the method of calculating
certain pro forma information. No change has been made to the calculation set
forth in the joint proxy statement-prospectus.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CCA PRISON REALTY TRUST
Date: November 20, 1998 By: /s/ Vida H. Carroll
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Name: Vida H. Carroll
Chief Financial Officer
