<PAGE> 1
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): April 17, 1998
CCA PRISON REALTY TRUST
(Exact name of registrant as specified in its Declaration of Trust)
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Maryland 1-13049 62-1689525
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(State or other jurisdiction of organization) (Commission File Number) (I.R.S. Employer
Identification Number)
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10 Burton Hills Boulevard, Suite 100, Nashville, Tennessee 37215
- ---------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrants' 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.
CCA Prison Realty Trust, a Maryland real estate investment trust (the
"Company"), has entered into an Agreement and Plan of Merger, dated as of April
18, 1998 (the "Merger Agreement"), with Corrections Corporation of America, a
Tennessee corporation ("CCA"). Pursuant to and subject to the terms and
conditions of the Merger Agreement, CCA will be merged with and into the Company
(the "Merger"). Each share of the common stock of CCA, $1.00 par value per
share, will be converted into the right to receive 0.875 of the Company's common
shares, $0.01 par value per share.
The Merger is subject to termination or expiration of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, approval
by the Company's shareholders, approval by CCA's shareholders and certain other
conditions.
In addition, on April 17, 1998, the Company, its wholly-owned
subsidiary USCA Corporation ("USCA") and U.S. Corrections Corporation ("USCC")
entered into an Agreement of Merger (the "USCC Merger Agreement"), whereby the
Company acquired all of the outstanding capital stock and derivative securities
of USCC, a privately-held owner and operator of correctional and detention
facilities (the "USCC Merger"), for a cash payment of approximately $157 million
(including $10 million paid by CCA for the stock of certain subsidiaries of USCC
immediately prior to the USCC Merger). The USCC Merger was accomplished by means
of a reverse-triangular merger, in which USCA merged with and into USCC, with
USCC becoming a wholly-owned subsidiary of the Company. By virtue of the USCC
Merger, the Company acquired four correctional and detention facilities in
Kentucky, one in Ohio and two, which are currently under construction, in North
Carolina. Such facilities currently have an aggregate design capacity of 5,275
beds. The Ohio facility is currently leased to the County of Hamilton, Ohio. The
Company currently leases the Kentucky facilities, and expects to lease the North
Carolina facilities, to CCA pursuant to the terms of that certain Master
Agreement to Lease, dated July 18, 1997, between the Company and CCA.
On April 20, 1998, the Company and CCA issued a press release (the
"Press Release") concerning the Merger and the USCC Merger and the execution of
the Merger Agreement and the USCC Merger Agreement.
The foregoing description of the Merger, the USCC Merger and related
transactions does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, the USCC Merger Agreement and the Press
Release, each of which is either attached hereto and incorporated herein by
reference or incorporated herein by reference to the Current Report on Form 8-K
filed on the date hereof by CCA.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
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EXHIBIT NO. EXHIBIT
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2.1 Agreement and Plan of Merger, dated as of April 18,
1998, between Corrections Corporation of America and
CCA Prison Realty Trust (incorporated by reference to
Exhibit 2.1 of the Current Report on Form 8-K filed by
Corrections Corporation of America with the Securities
and Exchange Commission on April 22, 1998).
2.2 Agreement of Merger, dated April 17, 1998, between
CCA Prison Realty Trust and USCA Corporation on the
one hand, and U.S. Corrections Corporation, on the
other hand (as directed by Item 601(b)(2) of
Regulation S-K, certain schedules and exhibits to
this document are omitted from this filing, and the
Registrant agrees to furnish supplementally a copy of
any omitted schedule or exhibit to the Commission
upon request).
99.1 Press Release, dated April 20, 1998, issued by
CCA Prison Realty Trust and Corrections Corporation
of America.
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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: April 22, 1998 /s/ D. Robert Crants, III
-----------------------------------
Name: D. Robert Crants, III
Title: President
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EXHIBIT INDEX
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EXHIBIT NO. EXHIBIT
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2.2 Agreement of Merger, dated April 17, 1998, between CCA Prison
Realty Trust and USCA Corporation on the one hand, and U.S.
Corrections Corporation, on the other hand (as directed by
Item 601(b)(2) of Regulation S-K, certain schedules and
exhibits to this document are omitted from this filing, and
the Registrant agrees to furnish supplementally a copy of any
omitted schedule or exhibit to the Commission upon request).
99.1 Press Release, dated April 20, 1998, issued by CCA Prison
Realty Trust and Corrections Corporation of America.
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EXHIBIT 2.2
AGREEMENT OF MERGER
BY AND AMONG
PRISON REALTY TRUST
A MARYLAND REAL ESTATE INVESTMENT TRUST
AND
USCA CORPORATION
A WHOLLY-OWNED KENTUCKY SUBSIDIARY OF PRISON REALTY TRUST
ON THE ONE HAND
AND
U.S. CORRECTIONS CORPORATION
A KENTUCKY CORPORATION
ON THE OTHER HAND
APRIL 17, 1998
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TABLE OF CONTENTS
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ARTICLE I THE MERGER....................................................................2
Section 1.01 The Merger....................................................................2
Section 1.02 The Closing...................................................................2
Section 1.03 Effective Time................................................................2
Section 1.04 Effects of the Merger.........................................................3
Section 1.05 Constituent Documents.........................................................3
Section 1.06 Directors.....................................................................3
Section 1.07 Officers......................................................................3
ARTICLE II EFFECT OF THE MERGER ON THE COMPANY CAPITAL
STOCK AND DERIVATIVE SECURITIES; EXCHANGE OF
CERTIFICATES AND DERIVATIVE SECURITIES........................................3
Section 2.01 Effect on the Company Common Stock............................................3
Section 2.02 Company Preferred Stock.......................................................3
Section 2.03 Effect on Derivative Securities...............................................4
Section 2.04 Dissenting Shares.............................................................4
Section 2.05 Escrow of Merger Consideration................................................5
Section 2.06 Exchange of Certificates......................................................5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................8
Section 3.01 Organization and Existence....................................................8
Section 3.02 Authorization.................................................................8
Section 3.03 Subsidiaries .................................................................8
Section 3.04 Capital Structure.............................................................9
Section 3.05 Organization, Existence, Good Standing and Foreign Qualifications of
the Company Subsidiaries.............................................9
Section 3.06 Consents......................................................................9
Section 3.07 Financial Information........................................................10
Section 3.08 Legal Proceedings............................................................10
Section 3.09 Leases and Contracts.........................................................11
Section 3.10 Subsequent Events............................................................12
Section 3.11 Tax Matters..................................................................13
Section 3.12 Owned Real and Personal Property.............................................14
Section 3.13 Environmental Matters........................................................20
Section 3.14 Employees and Fringe Benefit Plans...........................................22
Section 3.15 Compliance with Applicable Laws..............................................23
Section 3.16 Labor Relations..............................................................23
Section 3.17 Regulatory Approvals.........................................................24
Section 3.18 Intellectual Property........................................................24
Section 3.19 Insurance....................................................................24
Section 3.20 SEC Filings..................................................................24
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Section 3.21 Absence of Questionable Payments...............................24
Section 3.22 Conflicts of Interest..........................................25
Section 3.23 Kentucky Business Combination Act..............................25
Section 3.24 Commissions and Fees...........................................25
Section 3.25 Opinion of Financial Advisor...................................25
Section 3.26 Corporate Records..............................................25
Section 3.27 Banking Relationships..........................................26
Section 3.28 Intra-Company Debt.............................................26
Section 3.29 Full Disclosure................................................26
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PRISON REALTY
AND USCA.......................................................26
Section 4.01 Organization and Existence.....................................26
Section 4.02 Authorization..................................................26
Section 4.03 Consents.......................................................27
Section 4.04 Investment Rental Property Assets..............................27
Section 4.05 Litigation ....................................................27
Section 4.06 Commissions and Fees ..........................................27
Section 4.07 Opinion of Financial Advisor ..................................27
Section 4.08 Organization and Existence of USCA.............................28
Section 4.09 Authorization of USCA..........................................28
Section 4.10 Consents of USCA...............................................28
Section 4.11 Investment Rental Property Assets of USCA......................28
ARTICLE V ADDITIONAL AGREEMENTS..........................................29
Section 5.01 Funded Debt....................................................29
Section 5.02 Amendment......................................................29
Section 5.03 Cooperation ...................................................29
Section 5.04 Indemnification of Directors and Officers .....................29
Section 5.05 No Breach .....................................................30
Section 5.06 Required Shareholder Notices ..................................30
ARTICLE VI CLOSING DELIVERIES.............................................30
Section 6.01 Deliveries by the Company......................................30
Section 6.02 Deliveries by Prison Realty and USCA...........................31
ARTICLE VII MISCELLANEOUS .................................................32
Section 7.01 Survival of Representations and Warranties ....................32
Section 7.02 Expenses.......................................................32
Section 7.03 Notices........................................................32
Section 7.04 Definitions....................................................34
Section 7.05 Further Assurances ............................................35
Section 7.06 Governing Law..................................................35
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Section 7.07 Captions.......................................................35
Section 7.08 Integration of Exhibits and Schedules..........................35
Section 7.09 Entire Agreement...............................................35
Section 7.10 Counterparts...................................................35
Section 7.11 No Rule of Construction........................................36
Section 7.12 Specific Performance...........................................36
Section 7.13 Severability...................................................36
Section 7.14 Assignment; Binding Effect.....................................36
Section 7.15 Parties in Interest............................................36
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INDEX OF DEFINITIONS
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Page Defined
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ADA..........................................................15
Affiliate....................................................34
Agent.........................................................5
Agreement.....................................................1
Articles of Amendment.........................................4
Articles of Incorporation.....................................3
Articles of Merger............................................2
Balance Sheets...............................................10
Bylaws........................................................3
CCA...........................................................1
CERCLA.......................................................21
Certificates..................................................6
Chase........................................................29
Closing Date..................................................2
Closing.......................................................2
Code..........................................................1
Company.......................................................1
Company Capital Stock.........................................4
Company Common Stock .........................................3
Company Dissenting Shares.....................................4
Company Option(s).............................................4
Company Preferred Stock.......................................3
Company Returns .............................................13
Company Shareholder Approval..................................2
Company Warrant(s)............................................4
Company Warrant Consideration.................................4
Contracts ...................................................11
Corporate Records............................................25
Dismas Litigation............................................30
Effective Time ...............................................2
Engineering Documents .......................................19
Environmental Permits........................................21
Environmental Claim..........................................21
Environmental Laws...........................................21
ERISA .......................................................22
Escrow Agent..................................................5
Escrow Fund...................................................5
Excluded Personal Property ..................................19
Financial Statements.........................................10
Fixtures.....................................................19
GAAP ........................................................10
Governmental Contracts ......................................11
Governmental Entity..........................................10
Hazardous Materials .........................................21
HSR Act......................................................10
Improvements ................................................19
Indemnification and Escrow Agreement..........................5
Indemnifying Shareholder(s)...................................5
Intangible Property .........................................19
Intellectual Property........................................24
Investment Real Property.....................................27
KBCA .........................................................2
Kentucky Secretary of State...................................2
Knowledge of the Company or
or Knowledge of a Subsidiary...............................34
Land.........................................................19
Laws.........................................................34
Lawsuits.....................................................31
Liens.........................................................8
Liquidating Subsidiary........................................1
Material Adverse Change or
Material Adverse Effect....................................34
Material Contract(s).........................................11
Merger Consideration..........................................2
Merger........................................................1
Option Consideration..........................................4
Payment Fund..................................................5
Permitted Exceptions.........................................20
Permitted Lien...............................................34
Per Share Cash Consideration..................................3
Person.......................................................35
Personal Property ...........................................20
Plan(s)......................................................22
Plan of Liquidation...........................................1
Pre-Closing Transactions......................................1
Prison Realty.................................................1
Property.....................................................20
Purchase Price................................................1
Purchased Subsidiaries........................................1
RCRA.........................................................21
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Real Property................................................20
Reportable Event ............................................22
Sanders Litigation...........................................30
SARA.........................................................21
Section 504..................................................15
Securities Act...............................................24
Stock Purchase Agreement......................................1
Subsidiary(ies)..............................................35
Surviving Corporation.........................................2
Tax .........................................................14
Third Party Provisions.......................................36
Transmittal Letter............................................6
USCA..........................................................1
USCC..........................................................1
Warranties ..................................................20
WSDF.........................................................29
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INDEX OF EXHIBITS
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Exhibit Description
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A Plans of Liquidation
B Form of Lease Agreement
C Escrow Agreement
D(1) and D(2) Transmittal Letters Delivered at Closing
E(1) and E(2) Transmittal Letters for Paying Agent
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INDEX OF SCHEDULES
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Schedule Description
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2.03(a) Warrants
2.03(b) Options
3.03 Subsidiaries
3.04 Exceptions to Capital Structure
3.06 Consents
3.07 Changes to Financial Condition
3.08 Legal Proceedings
3.09(a) Contracts
3.09(b) Modifications, Amendments, Agreements, Transfers of Material Contracts
3.10 Subsequent Events
3.11 Tax Matters
3.12(a) Real Property
3.12(a)(iii) Insurance Company Notice
3.12(a)(v) Improvements
3.12(a)(vii) Violations
3.12(a)viii) Defects of and Damage to Real Property
3.12(a)(ix) Basis of Liens Against Real Property
3.12(a)(xiii)(A) Budgets
3.12(a)(xiii)(B) Approval of Plans and Specifications
3.12(a)(xiii)(E) Permits and Licenses
3.12(a)(xiii)(H) Taxes and Assessments
3.12(c) Items of Tangible and Intangible Personal Property
3.12(d) Permitted Exceptions
3.13 Environmental Matters
3.14(a) Directors, Officers, Wardens, Assistant Wardens, Facility Administrators
and Employment Contracts, Fringe Benefits and Personnel Policies
3.14(b) Plan(s)
3.14(c) ERISA Matters
3.14(d) Compliance with Laws
3.14(e) Contracts or Agreements
3.16 Labor Contracts and Labor Union Organizing Activities
3.17 Regulatory Approvals
3.18 Intellectual Property
3.19 Insurance Matters
3.21 Questionable Payments
3.22 Conflicts of Interest
3.27 Banking Relationships
3.28 Intra-Company Debt
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<PAGE> 9
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (with all Schedules and Exhibits hereto, the
"Agreement"), made and entered into as of the 17th day of April, 1998, by and
among Prison Realty Trust, a Maryland real estate investment trust ("Prison
Realty"), and USCA Corporation, a Kentucky corporation and wholly-owned
subsidiary of Prison Realty ("USCA"), on the one hand, and U.S. Corrections
Corporation, a Kentucky corporation (the "Company"), on the other hand.
W I T N E S S E T H:
WHEREAS, on the date hereof, the Company, USCC, Inc., a wholly-owned
subsidiary of the Company ("USCC"), and Corrections Corporation of America, a
Tennessee corporation ("CCA"), have entered into a Stock Purchase Agreement (the
"Stock Purchase Agreement"), whereby CCA has agreed to purchase all of the
outstanding capital stock of eight wholly-owned subsidiaries of USCC (the
"Purchased Subsidiaries");
WHEREAS, in connection with and immediately prior to the purchase of
the capital stock of the Purchased Subsidiaries by CCA, the Company will effect
a series of transactions which will consist of the following (all of which will
occur immediately prior to the closing with respect to the Stock Purchase
Agreement): (i) certain of the Purchased Subsidiaries (collectively, the
"Liquidating Subsidiaries" and individually, a "Liquidating Subsidiary") will
each adopt a plan of complete liquidation, the form of which is attached hereto
as Exhibit A (each, a "Plan of Liquidation"); (ii) each Liquidating Subsidiary,
pursuant to such plan of complete liquidation, will distribute to USCC all real
property together with all equipment, furniture, inventory and other assets
(excluding certain management contracts for the management and operation of
correctional and detention facilities) held by such Liquidating Subsidiary,
subject to all liabilities of such Liquidating Subsidiary; and (iii) each
Liquidating Subsidiary and USCC will enter into a lease agreement in form
substantially similar to that attached hereto as Exhibit B relating to the real
property distributed by the Liquidating Subsidiary (the foregoing series of
transactions, together with the transactions contemplated by the Stock Purchase
Agreement, are referred to collectively, as the "Pre-Closing Transactions");
WHEREAS, the Company and CCA will cause an election to be made under
Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the
"Code"), with respect to CCA's purchase of the capital stock of the Liquidating
Subsidiaries;
WHEREAS, the Board of Trustees of Prison Realty and the respective
Boards of Directors of USCA and the Company have approved the merger of USCA
with and into the Company (the "Merger"), with the Company being the surviving
entity, upon the terms and conditions set forth in this Agreement, whereby all
issued and outstanding shares of Company Common Stock (as hereinafter defined),
all issued and outstanding Company Warrants (as hereinafter defined) and all
issued and outstanding Company Options (as hereinafter defined) will be
purchased by Prison Realty for an aggregate purchase price of $157,106,000 (the
"Purchase Price"), less the $2,071,111 required
<PAGE> 10
to pay any accrued but unpaid dividends on the Company Preferred Stock (as
hereinafter defined) (the Purchase Price following such deduction being the
"Merger Consideration");
WHEREAS, the Merger requires the written consent and approval of this
Agreement by not less than eighty percent (80%) of the holders of the
outstanding shares of the Company Capital Stock (as hereinafter defined) in
accordance with laws of the Commonwealth of Kentucky (the "Company Shareholder
Approval"); and
WHEREAS, Prison Realty, USCA and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and of the
representations, warranties, conditions, covenants and agreements contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 THE MERGER. Upon the terms and conditions set forth in
this Agreement, and in accordance with Subtitle 11 of the Kentucky Business
Corporation Act, as amended (the "KBCA"), USCA shall be merged with and into the
Company at the Effective Time (as hereinafter defined) (the Company after the
Effective Time is sometimes hereinafter referred to as the "Surviving
Corporation"). Following the Effective Time, the separate existence of USCA
shall cease and the Company shall continue as the surviving entity as a
wholly-owned corporate subsidiary of Prison Realty incorporated under the laws
of the Commonwealth of Kentucky, and shall succeed to and assume all of the
rights and obligations of USCA in accordance with the KBCA.
SECTION 1.02 THE CLOSING. Subject to the satisfaction or waiver of the
conditions set forth in this Agreement, the closing of the Merger (the
"Closing") will take place at 10:00 a.m., local time, on the date hereof (the
"Closing Date"), at the offices of Stokes & Bartholomew, P.A., Nashville,
Tennessee, unless another time, date or place is agreed to in writing by the
parties hereto.
SECTION 1.03 EFFECTIVE TIME. Subject to the provisions of this
Agreement, as soon as practicable on the Closing Date, articles of merger and
all other appropriate documents (in any such case, the "Articles of Merger")
shall be duly prepared, executed, acknowledged and filed by the parties in
accordance with the relevant provisions of the KBCA with the Secretary of State
of the Commonwealth of Kentucky (the "Kentucky Secretary of State"). The Merger
shall become effective at such time as the Articles of Merger are duly filed and
become effective with the Kentucky Secretary of State or at such other date
and/or time as Prison Realty, USCA and the Company shall agree should be
specified in the Articles of Merger (the "Effective Time").
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SECTION 1.04 EFFECTS OF THE MERGER. The Merger shall have the effects
set forth in ss.271B.11-060 of the KBCA.
SECTION 1.05 CONSTITUENT DOCUMENTS. Pursuant to the Merger, (a) the
Articles of Incorporation, as amended, of the Company in effect immediately
prior to the Effective Time, as may be further amended by the filing of the
Articles of Merger with the Kentucky Secretary of State (the "Articles of
Incorporation"), will become, from and after the Effective Time, the Articles of
Incorporation of the Surviving Corporation until duly amended after the Closing;
and
(b) The Bylaws of USCA in effect immediately prior to the Effective
Time (the "Bylaws") will become, from and after the Effective Time, the Bylaws
of the Surviving Corporation until duly amended after the Closing.
SECTION 1.06 DIRECTORS. The members of the board of directors of USCA
immediately prior to the Effective Time shall be the members of the board of
directors of the Surviving Corporation, to hold such office in accordance with
the Articles of Incorporation, Bylaws and other organizational documentation of
the Surviving Corporation.
SECTION 1.07 OFFICERS. The officers of USCA immediately prior to the
Effective Time shall be the officers of the Surviving Corporation, to hold
office in accordance with the Articles of Incorporation and Bylaws and other
organizational documentation of the Surviving Corporation.
ARTICLE II
EFFECT OF THE MERGER ON THE COMPANY
CAPITAL STOCK AND DERIVATIVE SECURITIES;
EXCHANGE OF CERTIFICATES AND DERIVATIVE SECURITIES
SECTION 2.01 EFFECT ON THE COMPANY COMMON STOCK. Subject to Sections
2.04 and 2.05 hereof, by virtue of the Merger and without any action on the part
of the Company or any holder of the common stock of the Company, no par value
per share (the "Company Common Stock"), each share of Company Common Stock that
is issued and outstanding immediately prior to the Effective Time (other than
shares as to which dissenters' rights are exercised and perfected under
ss.271B.13-010 through ss.271B.13-310 of the KBCA), shall be converted as of
the Effective Time into the right to receive from Prison Realty following the
Merger an amount in cash equal to $33.49332 (the "Per Share Cash
Consideration"). The Per Share Cash Consideration will be payable without
interest, upon the surrender of the certificates representing shares of Company
Common Stock and other documentation specified in Section 2.06 hereto.
SECTION 2.02 COMPANY PREFERRED STOCK. Immediately prior to the
Effective Time, first, $2,071,111 of the Purchase Price shall be paid to the
holders of the Company's 8.0% Series A Cumulative Convertible Redeemable
Preferred Stock, no par value per share (the "Company Preferred Stock") to pay
all accrued but unpaid dividends thereon, and second, the Company and the
3
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holders of shares of the Company Preferred Stock shall cause all issued and
outstanding shares of Company Preferred Stock to be converted to shares of
Company Common Stock pursuant to Section 2A.02 of the Articles of Amendment to
the Company's Articles of Incorporation filed with the Kentucky Secretary of
State on December 31, 1996 (the "Articles of Amendment") (the Company Common
Stock and the Company Preferred Stock are referred to herein collectively, as
the "Company Capital Stock").
SECTION 2.03 EFFECT ON DERIVATIVE SECURITIES.
(a) Company Warrants. Schedule 2.03(a) hereto sets forth a list of all
warrants issued by the Company entitling the holder thereof to purchase shares
of Company Common Stock (each a "Company Warrant," and collectively, the
"Company Warrants"). Subject to Section 2.05 hereof, at the Effective Time, by
virtue of the Merger and without any action on the part of any holder of a
Company Warrant, each Company Warrant shall be converted as of the Effective
Time into the right to receive from Prison Realty an amount in cash equal to the
following: the product of (x) the excess of Per Share Cash Consideration over
the exercise price per share of the Company Common Stock subject to the Company
Warrant multiplied by (y) the number of shares of Company Common Stock subject
to such Company Warrant (the "Company Warrant Consideration"). The Company
Warrant Consideration will be payable without interest, upon the surrender of
the instrument representing the Company Warrant and other documentation
specified in Section 2.06 hereto.
(b) Company Options. Schedule 2.03(b) hereto sets forth a list of
options to purchase shares of Company Common Stock granted by the Company,
whether or not granted pursuant to a Plan (as hereinafter defined) of the
Company (each a "Company Option" and collectively, the "Company Options"). Prior
to the Effective Time, the Board of Directors of the Company (or, if
appropriate, the committee(s) administering any applicable Plan) shall adopt
resolutions or take other actions with respect to all Company Options to effect
the cancellation thereof upon the Effective Time in exchange for, subject to
Section 2.05 hereof, a cash payment equal to the product of (x) the excess of
Per Share Cash Consideration over the exercise price per share of the Company
Common Stock subject to the Company Option multiplied by (y) the number of
shares of Company Common Stock subject to such Company Option (the "Option
Consideration"); provided, however, that Prison Realty and USCA acknowledge that
cancellation of a Company Option in exchange for such consideration shall not be
effective until such time as the holder of such Company Option executes a
consent (which shall be contained in a Transmittal Letter (as hereinafter
defined)) to the cash settlement of any Company Option. The Option Consideration
will be payable without interest, upon the surrender of the instrument
representing the Company Option and other documentation specified in Section
2.06 hereto.
SECTION 2.04 DISSENTING SHARES. Any shares of Company Capital Stock
held by a holder entitled to relief as a dissenter under ss.271B.13-010 through
ss.271B.13-310 of the KBCA (the "Company Dissenting Shares") shall not be
converted into the right to receive the Per Share Cash Consideration in
accordance with Section 2.01 hereof but rather shall be canceled and converted
into
4
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such consideration as may be due with respect to such shares pursuant to the
applicable provisions of the KBCA unless and until the right of such holder to
receive fair value for such Company Dissenting Shares terminates in accordance
with ss.271B.13-230 or ss.271B.13-280 of the KBCA. If such right is terminated
otherwise than by the purchase of such shares by Prison Realty, then such shares
shall cease to be Company Dissenting Shares and shall represent the right to
receive the Per Share Cash Consideration in accordance with Section 2.01 hereof.
SECTION 2.05 ESCROW OF MERGER CONSIDERATION. Contemporaneous with the
execution of this Agreement, Prison Realty, USCA, First Union National Bank, as
Escrow Agent (the "Escrow Agent"), and certain of the holders of the Company
Preferred Stock, the Company Common Stock, the Company Warrants and the Company
Options (collectively, the "Indemnifying Shareholders" and individually, an
"Indemnifying Shareholder") have entered into an Indemnification and Escrow
Agreement (the "Indemnification and Escrow Agreement"), a copy of which is
attached hereto as Exhibit C. To secure any claims by Prison Realty for
indemnification pursuant to the Indemnification and Escrow Agreement, an
aggregate amount equal to $8,000,000 (the "Escrow Fund") shall be deducted from
the portion of the Merger Consideration otherwise payable to the Indemnifying
Shareholders and deposited with the Escrow Agent. The Escrow Fund shall be held
in accordance with the terms and conditions of the Indemnification and Escrow
Agreement.
SECTION 2.06 EXCHANGE OF CERTIFICATES.
(a) Paying Agent. First Union National Bank shall act as the paying
agent and dissenters' rights agent (the "Agent") with respect to the Merger
pursuant to an agent agreement on terms reasonably satisfactory to each of
Prison Realty and the Company. At or prior to the Effective Time, Prison Realty
shall deposit with the Agent, for the benefit of the holders of the shares of
Company Common Stock, the Company Warrants and the Company Options, cash in an
amount sufficient to pay the Merger Consideration (less any amounts paid in cash
on the Closing Date pursuant to Section 2.06(b) hereof) required to be paid
pursuant to this Agreement in exchange for all the issued and outstanding shares
of Company Common Stock, Company Warrants and Company Options (other than shares
of Company Common Stock and Company Warrants and Company Options exchanged
pursuant to Section 2.06(b)) (such cash amount being hereinafter referred to as
the "Payment Fund"). The Agent shall, pursuant to irrevocable instructions, make
the payments provided for in Sections 2.01 and 2.03 hereof.
(b) Payment to Certain Persons on the Closing Date. Notwithstanding
anything to the contrary contained herein, on the Closing Date, Prison Realty
shall pay to each Indemnifying Shareholder by wire transfer of immediately
available funds to such account or accounts as the Indemnifying Shareholder
shall designate prior to Closing an amount equal to (x) solely in respect of the
former holders of the Company Preferred Stock, the accrued but unpaid dividends
thereon and (y) the Per Share Cash Consideration, Company Warrant Consideration
and Option Consideration, as the case may be, payable in respect of the shares
of Company Common Stock, the Company Warrants and Company Options held by such
holders, less the product of $8,000,000 multiplied by
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the percentage set forth next to each Indemnifying Shareholder's name on
Schedule 1 to the Indemnification and Escrow Agreement. Each Indemnifying
Shareholder shall surrender to the Company the certificate or certificates
representing the shares of Company Capital Stock, and the instrument or
instruments representing the Company Warrants and Company Options, as the case
may be, held by such holder, together with the appropriate letter of
transmittal, forms of which are attached hereto as Exhibits D(1) and D(2).
(c) Exchange Procedures. Promptly after the Effective Time, Prison
Realty shall cause the Agent to mail to each holder of record of a certificate
or certificates representing shares of Company Common Stock (the
"Certificates"), Company Warrant or Company Option, whose shares, Company
Warrants or Company Options were converted into the right to receive the Per
Share Cash Consideration, the Company Warrant Consideration or the Option
Consideration, respectively, in accordance with Section 2.01 or Section 2.03
hereof, other than those holders who surrendered Certificates, Company Warrants
or Company Options to the Company for payment pursuant to Section 2.06(b)
hereof, (i) the appropriate transmittal letter and dissenters' rights notice,
forms of which are attached hereto as Exhibits E(1) and E(2) (the "Transmittal
Letter"), and (ii) instructions for use in effecting the surrender of the
Certificates, Company Warrants or Company Options in exchange for the
appropriate consideration. Upon surrender of a Certificate, Company Warrant or
Company Option to the Agent, together with a Transmittal Letter, duly executed,
and such other documents as may reasonably be required by the Agent, the holder
of such Certificate, Company Warrant or Company Option shall be entitled to
receive in exchange therefor, as appropriate, either (i) the amount of cash into
which the number of shares of Company Common Stock previously represented by
such Certificate has been converted pursuant to Section 2.01 hereof, (ii) the
Company Warrant Consideration, or (iii) the Option Consideration, as applicable.
In the event of a transfer of ownership of shares of Company Common Stock which
is not registered in the transfer records of the Company, payment may be made to
a Person other than the Person in whose name the Certificate so surrendered is
registered if, and only if, such Certificate shall be properly endorsed or
otherwise be in proper form for transfer and the Person requesting such payment
shall pay any transfer or other taxes required by reason of the payment of the
Merger Consideration to a Person other than the registered holder of such
Certificate or establish to the satisfaction of Prison Realty that such tax has
been paid or is not applicable. Until surrendered as contemplated by this
Section 2.06, each Certificate, Company Warrant and Company Option shall be
deemed at any time after the Effective Time to represent only the right to
receive upon its surrender the appropriate consideration as contemplated by this
Section 2.06.
(d) No Further Ownership Rights in the Company Common Stock, Company
Warrants or Company Options. All cash paid upon the surrender for exchange of
Certificates, Company Warrants or Company Options in accordance with the terms
of this Article II shall be deemed to have been paid in full satisfaction of all
rights pertaining to the Company Warrants, Company Options and the shares of
Company Common Stock theretofore represented by such Certificate (except, with
respect to the Indemnifying Shareholders only, the right to receive their
interest, if any, in any distribution to which they are entitled from the Escrow
Fund in accordance with the terms of the
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Indemnification and Escrow Agreement), and there shall be no further
registration of transfers on the stock transfer books of the Company or the
Surviving Corporation of any of the shares of Company Common Stock which were
outstanding immediately prior to the Effective Time and, if, after the Effective
Time, any Certificates, Company Warrants or Company Options are presented to
Prison Realty or the Agent for any reason, they shall be canceled against
delivery for cash as provided in this Article II, except as otherwise provided
by law.
(e) Termination of Payment Fund. Any portion of the Payment Fund which
remains undistributed to the holders of the Certificates, Company Warrants or
Company Options for six (6) months after the Effective Time shall be delivered
to Prison Realty, upon demand, and any holders of the Certificates, Company
Warrants or Company Options who have not theretofore complied with this Article
II shall thereafter look only to Prison Realty for payment of their claim for
their pro-rata share of the Merger Consideration.
(f) No Liability. None of Prison Realty, USCA, the Company or the Agent
shall be liable to any person in respect of any cash from the Payment Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law. If any Certificate, Company Warrant or Company Option
shall not have been surrendered prior to the end of the applicable period after
the Effective Time under escheat laws (or immediately prior to such earlier date
on which any Merger Consideration would otherwise escheat to or become the
property of any Governmental Entity (as hereinafter defined)), any such cash
previously payable as Merger Consideration shall, to the extent permitted by
applicable law, become the property of Prison Realty, free and clear of all
claims or interest of any person previously entitled thereto.
(g) Investment of Payment Fund. The Agent shall invest any cash held in
the Payment Fund, as directed by Prison Realty, on a daily basis. Any interest
and other income resulting from such investments shall be paid to Prison Realty.
(h) Lost Certificates. If any Certificate, Company Warrant or Company
Option shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person (as hereinafter defined) claiming such
Certificate, Company Warrant or Company Option to be lost, stolen or destroyed
and, if required by Prison Realty, the posting by such Person of a bond in such
reasonable and customary amount as Prison Realty may direct as indemnity against
any claim that may be made against it with respect to such Certificate, Company
Warrant or Company Option, the Agent shall deliver in exchange for such lost,
stolen or destroyed Certificate, Company Warrant or Company Option, the
appropriate consideration with respect thereto.
(i) Withholding Rights. Prison Realty shall be entitled to deduct and
withhold from the consideration otherwise payable to any holder of shares of the
Company Common Stock, Company Warrants or Company Options pursuant to this
Agreement such amounts as may be required to be deducted and withheld with
respect to the making of such payment under the Code or under any provision of
state, local or foreign tax law. After the Effective Time, the Surviving
Corporation shall
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pay all applicable Federal, state and local withholding taxes due in connection
with the settlement and cancellation of all Company Common Stock, Company
Warrants and Company Options.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY
The Company hereby represents and warrants to Prison Realty as follows:
SECTION 3.01 ORGANIZATION AND EXISTENCE. The Company is a corporation
duly incorporated, duly organized and validly existing and in good standing
under the laws of the Commonwealth of Kentucky with full corporate 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 would have a Material Adverse
Effect (as hereinafter defined).
SECTION 3.02 AUTHORIZATION. The Company has all requisite corporate
power and authority to execute, deliver, and perform this Agreement and all
agreements and other documents executed and delivered, or to be executed and
delivered, by it pursuant to this Agreement and has taken all action required to
authorize the execution, delivery, and performance of this Agreement and such
related documents. The execution and delivery of this Agreement and the
consummation of the Merger hereunder has been approved by the Board of Directors
of the Company and the Company Shareholder Approval has been obtained. The
Agreement has been duly executed and delivered by the Company and is a valid and
binding obligation of the Company enforceable against the Company by its terms,
subject to bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar laws of general application affecting the
enforcement of creditors' rights generally.
SECTION 3.03 SUBSIDIARIES. Attached as Schedule 3.03 hereto is a
complete list of each Subsidiary (as hereinafter defined) of the Company, which
schedule shows the jurisdiction of incorporation or other organization and the
percentage of stock or other equity interest of each Subsidiary owned by the
Company. Except as set forth in Schedule 3.03 hereto, the Company does not own,
directly or indirectly, any capital stock or other equity interest in any other
corporation, partnership, joint venture, limited liability company or business
organization. All of the outstanding shares of capital stock of each Subsidiary
owned by the Company or another Subsidiary of the Company have been duly
authorized and are validly issued, fully paid and nonassessable. Except as set
forth in Schedule 3.03 hereto, all shares of capital stock or other equity
interests of each Subsidiary owned by the Company or any Subsidiary are owned by
the Company or such Subsidiary, either directly or indirectly, free and clear of
all claims, liens, charges, restrictions, equities, pledges, security interests
or encumbrances of any kind (collectively, "Liens").
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SECTION 3.04 CAPITAL STRUCTURE. The authorized capital stock of the
Company consists of 28,000,000 shares of Company Common Stock and 2,000,000
shares of preferred stock, no par value per share, all of which has been
designated as Company Preferred Stock. As of the date hereof, (i) 1,688,441
shares of Company Common Stock are issued and outstanding, (ii) 1,428,571 shares
of Company Preferred Stock are issued and outstanding, (iii) 922,500 Company
Options are issued and outstanding and (iv) 1,246,390.857 Company Warrants are
issued and outstanding. Other than as set forth above, as of the date hereof,
there are no outstanding shares of Company Capital Stock or options or warrants
or other rights to acquire shares of Company Capital Stock from the Company. No
bonds, debentures, notes or other indebtedness having the right to vote (or
convertible into or exchangeable for securities having the right to vote) on any
matters on which shareholders of the Company may vote are issued or outstanding.
Except as set forth in Schedule 3.04 hereto, all of the issued and outstanding
shares of Company Capital Stock are duly and validly issued and are fully paid
and nonassessable, and not subject to preemptive rights. Except as set forth in
Schedule 3.04 hereto, all of the shares of Company Common Stock which may be
issued upon conversion of the Company Preferred Stock will be, when issued,
fully paid, nonassessable and not subject to preemptive rights. Other than as
set forth above, there are no outstanding securities, options, warrants, calls,
rights, commitments, agreements or undertakings of any kind to which the Company
or any of its Subsidiaries is a party or by which the Company or any Subsidiary
of the Company is bound obligating the Company or any Subsidiary of the Company
to issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other equity or voting securities of the Company or
any Subsidiary of the Company or obligating the Company or any Subsidiary of the
Company to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement or undertaking. Except as set forth
in Schedule 3.04 hereto, there are no outstanding obligations of the Company or
any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of the Company or any of its Subsidiaries. At the Effective Time,
there will be no liability for dividends declared or accumulated but unpaid with
respect to any of the Company Capital Stock; provided, that immediately prior to
the Effective Time, all accrued and unpaid dividends on the Company Preferred
Stock shall be declared and paid.
SECTION 3.05 ORGANIZATION, EXISTENCE, GOOD STANDING AND FOREIGN
QUALIFICATIONS OF THE COMPANY SUBSIDIARIES. Each Subsidiary of the Company is
duly incorporated, duly organized, validly existing and in good standing under
the laws of its respective jurisdiction of incorporation with full corporate
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 would have a
Material Adverse Effect.
SECTION 3.06 CONSENTS. Except as set forth on Schedule 3.06 hereto,
neither the execution, delivery or performance of this Agreement by the Company
nor the consummation by the Company of the transactions contemplated hereby nor
compliance by the Company with any of the provisions hereof will (a) conflict
with or result in any breach of any provision of the articles of incorporation
or the bylaws of the Company; (b) require any filing with, or permit,
authorization, waiver, consent, declaration or approval of, or notice to or
declaration with any nation or government, any state or
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other political subdivision thereof, any entity, authority or body exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, including, without limitation, any Federal, state or
local governmental or regulatory authority, agency, department, board,
commission or instrumentality, and court, tribunal or arbitrator and any
self-regulatory organization (each a "Governmental Entity") including any filing
under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended,
including the rules and regulations promulgated thereunder (the "HSR Act");
provided, that the representation made in this Section 3.06 as to filings under
the HSR Act is made in reliance upon the representations and warranties of
Prison Realty and USCA contained in Sections 4.04 and 4.11 hereof, respectively;
(c) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation or acceleration) under, any of the terms,
conditions or provisions of any material note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which the
Company or any of its Subsidiaries is a party or by which it, the Company, its
Subsidiaries or any of its properties or assets may be bound or (d) violate any
Law (as hereinafter defined) applicable to the Company or any of its properties
or assets.
SECTION 3.07 FINANCIAL INFORMATION. The Company has previously
furnished to USCA and Prison Realty the audited consolidated balance sheets (the
"Balance Sheets") of the Company and the Subsidiaries as at December 31, 1997,
1996 and 1995, as applicable, and the related audited consolidated statements of
income, cash flows and shareholder's equity for the Company and the Subsidiaries
for the fiscal years then ended. All such financial statements (the "Financial
Statements") have been prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied and were prepared from the books and
records of the Company and the Subsidiaries. The Financial Statements fairly
present, in all material respects, the financial position of the Company and its
Subsidiaries as of the dates thereof and the results of their operations and
cash flows for the periods ended on the dates thereof. Since December 31, 1997,
(i) there has been no change in the assets, liabilities or financial condition
of the Company and its Subsidiaries, taken as a whole, from that reflected in
the Company's Balance Sheet as at December 31,1997 except as set forth on
Schedule 3.07 hereto and for changes in the ordinary course of business
consistent with past practice or which have not had a Material Adverse Effect,
and (ii) none of the business, financial condition, operations, property or
affairs of the Company and its Subsidiaries, taken as a whole, has been affected
by any occurrence or development, individually or in the aggregate, which has
had a Material Adverse Effect.
SECTION 3.08 LEGAL PROCEEDINGS. Except as disclosed in Schedule 3.08
hereto, there are no claims, actions, suits, proceedings or investigations
pending or, to the knowledge of the Company, threatened by or against or
otherwise affecting the Company or its Subsidiaries or the Property (as
hereinafter defined) (or the transactions contemplated by this Agreement) at law
or in equity or before or by any Governmental Entity, which will result in
liability in excess of $100,000.
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SECTION 3.09 LEASES AND CONTRACTS.
(a) Schedule 3.09(a) hereto sets forth a list of all written or oral
leases, agreements or other contracts or legally binding contractual commitments
("Contracts") which the Company or any of its Subsidiaries is a party to or
bound by and that are of a type described below (each a "Material Contract" and,
collectively, the "Material Contracts"):
(i) any Contract for capital expenditures or the
acquisition or construction of fixed assets in excess of $25,000;
(ii) any Contract for the purchase or sale of inventory,
materials, supplies, merchandise, machinery, equipment, parts or other property
or services requiring aggregate future payments in excess of $25,000 (other than
standard inventory, materials and supplies purchase orders executed in the
ordinary course of business) which are not by their terms cancellable by the
Company with 60 days or less notice;
(iii) any Contract relating to the borrowing of money, or the
guaranty of another Person's borrowing of money in excess of $25,000;
(iv) any Contract granting to any Person a first refusal,
first offer or similar preferential right to purchase or acquire any of its
assets;
(v) any Contract limiting, restricting or prohibiting the
Company, or any of its Subsidiaries from conducting business anywhere in the
United States or elsewhere in the world;
(vi) any joint venture or partnership Contract;
(vii) any Contract with any Governmental Entities (the
"Governmental Contracts");
(viii) any consulting, lobbying or compensation Contract;
(ix) any Contract for the lease or sublease of real
property;
(x) any Contract relating to the license of another
Person's property that requires annual payments in excess of $10,000 and is
material to the business of the Company and its Subsidiaries, taken as a whole;
and
(xi) any Contracts that are material to the Company and its
Subsidiaries, taken as a whole, and not entered into in the ordinary course of
business.
The Company has made available to Prison Realty a true and complete
copy of each written Material Contract, including all amendments or other
modifications thereto.
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(b) None of the Material Contracts have been modified or amended in any
material respect, or assigned or transferred, in each case, other than in the
ordinary course of business or except as specified in Schedule 3.09(b) hereto;
and each is a valid and binding obligation of the Company or one of its
Subsidiaries, as the case may be, enforceable against the Company or its
Subsidiaries, as the case may be, in accordance with its respective terms,
except as may be limited by bankruptcy, reorganization, insolvency, moratorium
or other similar laws presently or hereafter in effect affecting the enforcement
of creditors' rights generally.
(c) To the knowledge of the Company and its Subsidiaries, no event or
condition presently exists which constitutes a material default or breach, or,
after notice or lapse of time or both, would constitute a material default or
breach by the Company or any of its Subsidiaries under any of the Material
Contracts.
(d) All oral Material Contracts can be terminated by the Company or its
Subsidiaries at any time before or after the Effective Time, without penalty,
upon no more than thirty (30) days written notice.
SECTION 3.10 SUBSEQUENT EVENTS. Except as set forth in Schedule 3.10
hereto or as contemplated by this Agreement or the Pre-Closing Transactions, the
Company and its Subsidiaries have not, since December 31, 1997:
(a) Operated other than in the ordinary course of business, consistent
with past practice except as necessary to consummate the transactions
contemplated herein.
(b) Discharged or satisfied any material lien or encumbrance, or paid,
in each case, prior to the time it is due and payable, any material obligation
or liability (absolute, accrued, contingent or otherwise) which would have a
Material Adverse Effect on the Company, other than liabilities shown or
reflected on the Balance Sheets or which are required to be discharged,
satisfied or paid by any Law.
(c) Increased or established any reserve for taxes or any other
liability on its books or otherwise provided therefor which would have a
Material Adverse Effect, except as may have been required with respect to income
or operations of the Company or any of its Subsidiaries since December 31, 1997
or as may be required under any mortgages.
(d) Mortgaged, pledged or subjected to any lien, charge or other
encumbrance any of the assets, tangible or intangible, which assets are material
to the consolidated business or financial condition of the Company and its
Subsidiaries, other than Permitted Liens (as hereinafter defined).
(e) Sold or transferred any of the assets material to the consolidated
business of the Company and its Subsidiaries, canceled any material debts or
claims or waived any material rights, other than in the ordinary course of
business consistent with past practice.
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(f) Granted any general or uniform increase in the rates of pay of
employees, other than in the ordinary course of business consistent with past
practice, or any material increase in salary payable or to become payable by the
Company or any of its Subsidiaries to any officer, director, warden, assistant
warden or any similar administrator of a facility or group of employees,
consultant or agent (other than normal increases consistent with past practices
or as required under any existing employment agreement).
(g) Entered into any material transaction other than permitted under
other sections of this Agreement or in the ordinary course of business
consistent with past practice.
(h) Incurred or agreed to incur any indebtedness for borrowed money,
other than in the ordinary course of business consistent with past practice.
SECTION 3.11 TAX MATTERS. (a) Except as set forth in Schedule 3.11
hereto:
(i) The Company has timely filed, or caused to be filed on
its behalf, all tax returns required to be filed by it (collectively, the
"Company Returns") and as of the time of filing, all the Company Returns were
complete and accurate in all material respects. The Company has paid all taxes
(whether or not shown on any tax return) due or claimed to be due from it by
Federal, state or local taxing authorities except for taxes being contested in
good faith as to which adequate reserves have been provided and which are
disclosed in the Financial Statements and taxes currently payable without
penalty or interest, except where the failure to so file or make such payments
would not have a Material Adverse Effect.
(ii) The Company has not requested any extension of time
within which to file or send any Company Return, which Company Return has not
since been filed or sent.
(iii) No deficiency for any taxes has been proposed, asserted
or assessed in writing against the Company.
(iv) No agreement or other document extending, or having the
effect of extending, the period of assessment or collection of any tax, and no
power of attorney with respect to any such tax, has been filed with the Internal
Revenue Service or any other Governmental Entity.
(v) No claim for unpaid taxes has become a Lien of any kind
against the property of the Company or is being asserted against the Company.
(vi) The Company is not a party to or is otherwise bound by
(or has any assets bound by) any tax sharing agreement, tax indemnity obligation
or similar agreement or arrangement.
(vii) The Company has duly and timely withheld from employee
salaries, wages and other compensation and paid over to the appropriate tax
authorities all taxes required to be so
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withheld and paid over for all periods for which the statutory period of
limitations for the assessment of tax has not yet expired.
(b) Notwithstanding anything herein to the contrary, no representation
or warranty is made in regard to any tax liability resulting from the
consummation of the Pre-Closing Transactions.
(c) For purposes of this Agreement, "tax" means any Federal, state,
local or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Section 59A of the Code), customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or additional minimum, estimated or other
tax of any kind whatsoever, including any interest, penalty or addition thereto,
whether disputed or not.
SECTION 3.12 OWNED REAL AND PERSONAL PROPERTY.
(a) OWNED REAL PROPERTY. Schedule 3.12 (a) hereto sets forth a list of
all Real Property (as defined below) owned by the Company or any of its
Subsidiaries. Except as set forth in Schedule 3.12(a) hereto, there are no
outstanding contracts for the sale of any of the Real Property.
(i) The Company or a Subsidiary of the Company owns fee simple title
to the Land (as hereinafter defined), free and clear of any deeds of trust,
mortgages, Liens, 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 Real Property, except the Permitted Exceptions (as
hereinafter defined).
(ii) Except as disclosed by the Permitted Exceptions, there are no
adverse or other parties in possession of the Real Property or of any part
thereof. Except as disclosed by the Permitted Exceptions, neither the Company
nor any Subsidiary of the Company has granted to any party any license, lease or
other right relating to the use or possession of the Real Property.
(iii) Except as set forth on Schedule 3.12(a)(iii), no notice has been
received by the Company or any Subsidiary of the Company from any insurance
company that has issued a policy with respect to any portion of the Real
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, or be in the process of being cured. No notice has been received by the
Company or any Subsidiary of the Company from any issuing insurance company that
any of such policies will not be renewed.
(iv) The Company and its Subsidiaries have received no notice that any
pending condemnation, eminent domain, assessment or similar proceeding or charge
affecting the Real
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Property or any portion thereof exists. The Company and its Subsidiaries have
not heretofore received any notice that any such proceeding or charge is
contemplated. Neither the Company nor any Subsidiary of the Company has received
any notice of a proposed material increase in the assessed valuation of the Real
Property.
(v) Except as set forth on Schedule 3.12(a)(v) hereto, all
Improvements (as hereinafter defined) (including all utilities) have been
substantially completed and installed in accordance with the plans and
specifications approved by the Governmental Entities having jurisdiction to the
extent applicable. Except as set forth on Schedule 3.12(a)(v) hereto, permanent
or temporary certificates of occupancy, all licenses, permits, authorizations
and approvals required by all Governmental Entities having jurisdiction, and the
requisite certificates of the local board of fire underwriters (or other body
exercising similar functions) have been issued for the Improvements and are in
full force and effect. Except as set forth on Schedule 3.12(a)(v) hereto,
neither the Company nor any Subsidiary of the Company has received any notice
nor does the Company or any Subsidiary of the Company have any knowledge that
the Improvements, as constructed and presently utilized, do not comply with all
statutes, restrictions, regulations and ordinances applicable thereto, including
but not limited to the Americans with Disabilities Act of 1990, as amended (the
"ADA") and Section 504 of the Rehabilitation Act of 1973 ("Section 504"), as
applicable.
(vi) 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 Real Property. Neither the Company nor any Subsidiary of
the Company has received any notice and nor does the Company or any Subsidiary
of the Company have any knowledge that any utilities required for the operation
of the Improvements do not enter the Land through adjoining public streets or
through adjoining private land in accordance with valid public or private
easements, or that any approvals, licenses and permits required for said
utilities have not been obtained and are not in full force and effect, or that
any of said utilities are not installed and operating and all installation and
connection charges have not been paid in full.
(vii) Except as disclosed by the Permitted Exceptions or as set forth
in Schedule 3.12(a)(vii) hereto, neither the Company nor any Subsidiary of the
Company has received any notice nor does the Company or any Subsidiary of the
Company have any knowledge that the location, construction, occupancy, operation
and use of the Real Property violates in any material respect any applicable Law
(as hereinafter defined), order or determination of any Governmental Entity or
any board of fire underwriters (or other body exercising similar functions), or
any restrictive covenant or deed restriction (recorded or otherwise) affecting
the Real Property or the location, construction, occupancy, operation or use
thereof, including, without limitation, all applicable zoning ordinances and
building codes, flood disaster laws, health laws and regulations, the ADA and
Section 504, as applicable.
(viii) Except as set forth in Schedule 3.12(a)(viii) hereto, neither
the Company nor any of its Subsidiaries have received any notice nor does the
Company or any Subsidiary of the Company
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have any knowledge that there are any structural defects in any of the buildings
or other Improvements constituting the Real Property, or that the Improvements,
all heating, electrical, plumbing and drainage at, or servicing, the Real
Property and all facilities and equipment relating thereto are not in good
condition and working order and adequate in quantity and quality for the normal
operation of the Real Property as constructed or currently utilized; or that any
part of the Real Property has been destroyed or damaged by fire or other
casualty; or that there are any unsatisfied requests for repairs, restorations
or alterations with regard to the Real Property from any agent, employee or
contractor of the Company or any Subsidiary of the Company, or any lender,
insurance provider or Governmental Entity.
(ix) Except as set forth in Schedule 3.12(a)(ix) hereto and except
for the Improvements being constructed as specified in Section 3.12(a)(xiii), no
work has been performed or is in progress at the Real Property, and no materials
will have been delivered to the Real Property that might provide the basis for a
mechanics', materialmen's or other Lien against the Real Property or any portion
thereof, or amounts due for such work and material have been or will be paid or
discharged as required under applicable Contracts.
(x) Except as disclosed by the Permitted Exceptions, neither the
Company nor any Subsidiary of the Company has received any notice nor does the
Company or any Subsidiary of the Company have any knowledge that it or any of
its Subsidiaries is in default in any manner which would result in a Material
Adverse Effect under any of the covenants, conditions, restrictions,
rights-of-way or easements affecting the Real Property or any portion thereof,
and neither the Company nor any Subsidiary of the Company has given any notice
nor does the Company or any Subsidiary of the Company have any knowledge that
any other party to any of the foregoing is in default thereunder.
(xi) Neither the Company nor any Subsidiary of the Company has
received any notice nor does the Company or any Subsidiary of the Company have
any knowledge that the Real Property does not have free and unimpeded access to
presently existing public highways and/or roads (either directly or by way of
perpetual easements); or that any approvals necessary therefor have not been
obtained; or that any fact or condition exists which would result in the
termination of the current access from the Real Property to any presently
existing public highways and/or roads adjoining or situated on the Real
Property.
(xii) 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 pending or, to the
knowledge of the Company, threatened against the Company, any Subsidiary of the
Company or the Real Property.
(xiii) With respect to those Improvements being constructed as set
forth on Schedule 3.12(a)(v) hereto (subject in any event to matters disclosed
by the Permitted Exceptions):
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(A) The budgets for the development and construction of the
Improvements are attached hereto as Schedule 3.12(a)(xiii)(A). The current
estimate of total costs shown on said budgets for the development and
construction of the Improvements (excluding the Improvements relating to the
Avery/Mitchell Facility) fairly and accurately reflect the Company's and its
Subsidiaries' good faith estimate of the costs and expenses reasonably necessary
to develop and construct the Improvements in accordance with the plans and
specifications therefor. The information shown on said budgets with respect to
the actual project costs for the development and construction of the
Improvements (including the Improvements relating to the Avery/Mitchell
Facility) and the percentage of project completion for such Improvements are
true, correct and complete in all material respects, and the actual project
costs shown on said budgets for said Improvements are for costs of materials in
place and/or for labor expended for the development and construction of such
Improvements. Neither the Company nor any Subsidiary of the Company has received
any notice nor does the Company or any Subsidiary of the Company have knowledge
of any material deviations from the plans and specifications for the
Improvements which would make the information shown on the budgets for such
Improvements to be untrue or misleading in any material respect.
(B) Except as disclosed on Schedule 3.12(a)(xiii)(B), the
plans and specifications for the Improvements have been approved by all
applicable Governmental Entities having jurisdiction over the Real Property, the
development and construction of the Improvements and the use and occupancy
thereof for its intended purposes, and/or any utility services to the Real
Property.
(C) All utility services necessary for the development and
construction of the Improvements and the use and occupancy thereof for the
purposes described on Schedule 3.12 (a)(v) are available through public or
private easements or rights-of-way at the boundaries of the Real Property,
including, without limitation, sanitary sewer, electricity, gas, water,
telephone, and storm water drainage.
(D) All roads necessary for ingress and egress to the Real
Property have either been completed pursuant to public or private easements, or
the necessary rights-of-way therefore have been either (x) dedicated to public
use and accepted by the appropriate Governmental Entity, or (y) obtained by
private agreement, and are to be completed as provided in the plans and
specifications for the Improvements or by the applicable governmental authority.
(E) Except as disclosed on Schedule 3.12(a)(xiii)(E), all
building permits, curb cuts, sewer and water taps, and other permits, licenses,
approvals, authorizations and consents required for the development and
construction of the Improvements have been obtained.
(F) Neither the Company nor any Subsidiary of the Company has
received any notice nor does the Company or any Subsidiary of the Company have
any knowledge that the plans and specifications for the Improvements, the
development and construction of the Improvements pursuant thereto, and the use
and occupancy of the Improvements for their intended purposes do not comply or
will not comply with all applicable zoning ordinances, building regulations,
restrictive
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covenants and Laws, and requirements, standards and regulations of appropriate
supervising boards of fire underwriters and similar agencies, authorities or
boards.
(G) The Company and its Subsidiaries have: (i) diligently
pursued the development, construction and installation of the Improvements to
completion; and (ii) performed such duties as are reasonably necessary to
complete or to cause the completion of the development, construction and
installation of the Improvements in accordance with the plans and specifications
therefor, and in compliance with all construction, use, building, zoning and
other similar laws, ordinances, rules, regulations, codes and restrictions of
any applicable Governmental Entities or authorities or otherwise applicable
thereto, and in a good and workmanlike manner.
(H) Neither the Company nor any Subsidiary of the Company has
received any notice nor does the Company or any Subsidiary of the Company have
any knowledge that it has not complied with all laws, ordinances, rules,
regulations, judgments, orders, injunctions, writs and decrees of any government
or political subdivision or agency thereof, or any court or similar entity
established by any of them, applicable to the construction of the Improvements.
Except as disclosed on Schedule 3.12(a)(xiii)(H), or for supplemental
assessments for portions of the Improvements completed during a tax year (which
have not yet been assessed and which are not yet due and payable), the Company
and its Subsidiaries have paid all taxes and assessments upon the Improvements
or the Real Property as and when due, and all claims for labor or materials,
rents, and other obligations that, if unpaid, will or might become a Lien
against the Improvements or the Real Property.
(I) The Company and its Subsidiaries have maintained: (i)
builder's risk insurance, all-risk nonreporting completed value form, insuring
the Improvements against fire, theft, extended coverage, vandalism, and such
other hazards; and (ii) such other insurance, all in such amounts and for such
terms, as has been from time to time determined by the Company to be reasonably
required to insure against such casualties or losses which at the time were
commonly insured against in the case of premises similarly situated.
(b) OWNED PERSONAL PROPERTY. The Company and its Subsidiaries have good
title to all of their respective Personal Property, including, without
limitation, all Personal Property reflected in the consolidated balance sheet of
the Company and its consolidated Subsidiaries dated as of December 31, 1997 and
referred to in Section 3.7 hereof (except as sold or otherwise disposed of in
the ordinary course of business or as contemplated by the Pre-Closing
Transactions), subject to no Lien other than Permitted Liens. Subsequent to
December 31, 1997, other than as contemplated by the Pre-Closing Transactions,
neither the Company nor any of its Subsidiaries has sold or disposed of any of
their respective Personal Property or obligated itself to do so except in the
ordinary course of business. The Personal Property of the Company and its
Subsidiaries that is used in their respective businesses is in good operating
condition and repair, subject only to ordinary wear and tear.
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For the purposes of this Agreement the following terms shall have the
following meanings:
"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, ADA 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.
"Excluded Personal Property" shall mean all those items of tangible and
intangible personal property described on Schedule 3.12(c) hereto.
"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 owned by the Company or its Subsidiaries and 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.
"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" shall mean all Permits, Contracts and other
intangible property or any interest therein now or on the Closing Date owned or
held by the Company or the Subsidiaries 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.
"Land" shall mean the real property more particularly described on
Schedule 3.12(a) hereto together with all of the Company's and its Subsidiaries'
rights, titles, appurtenant interests, covenants, licenses, privileges and
benefits thereto belonging, and the Company's and the Subsidiaries' 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.
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"Permitted Exceptions" shall mean (i) those title exceptions which have
been approved in writing by Prison Realty, (ii) title exceptions disclosed in
the title policies scheduled on Schedule 3.12(d), and (iii) all matters set
forth on Schedule 3.12(d).
"Personal Property" shall mean all equipment, furniture, inventory and
other assets (excluding certain management contracts with Governmental Entities
for the management and operation of correctional and detention facilities) owned
by the Company and its Subsidiaries.
"Property" shall mean collectively, the Personal Property and the Real
Property.
"Real Property" shall mean collectively, the Land, the Improvements and
the Fixtures.
"Warranties" shall mean all warranties and guaranties with respect to
the Real Property or Personal Property, whether express or implied, which the
Company now holds or under which the Company is the beneficiary, to the extent
the same are assignable by the Company.
SECTION 3.13 ENVIRONMENTAL MATTERS. Except as disclosed in Schedule
3.13 hereto:
(a) The Company and its Subsidiaries have obtained all Environmental
Permits (as hereinafter defined).
(b) Neither the Company nor any of its Subsidiaries has received any
Environmental Claim (as hereinafter defined), and, to the knowledge of the
Company, no Environmental Claim is threatened against the Company or any
Subsidiary.
(c) The Company has not entered into or agreed to any consent decree,
order or agreement under any Environmental Law, and the Company is not subject
to any judgment, decree or order relating to compliance with any Environmental
Law or to investigation, litigation, cleanup, remediation or removal of
regulated substances under any Environmental Law.
(d) Except in compliance in all material respects with all applicable
Environmental Laws, there are no (A) underground storage tanks, (B)
polychlorinated biphenyls, (C) ureaformaldehyde insulation, (D) sumps, (E)
surface impoundments, (F) landfills, (G) Hazardous Materials (as hereinafter
defined), (H) wetlands or (I) endangered species, in each case, present at any
Real Property that would give rise to a current liability of the Company or any
of its Subsidiaries under any Environmental Laws.
(e) Hazardous Materials have not been installed, used, generated,
manufactured, treated, handled, transported, refined, produced, released, or
threatened to be released, processed, stored or disposed of, or otherwise
present in, at, on, from or under, any of the properties or facilities currently
owned, leased or operated by the Company or any of its Subsidiaries in violation
of any
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Environmental Laws; nor have Hazardous Materials been released at or from any
Real Property, except in compliance with and as permitted by Environmental Laws.
(f) No activity has been undertaken on the Real Property which would
cause (i) such properties or facilities to become a hazardous waste treatment,
storage or disposal facility within the meaning of RCRA (as hereinafter defined)
or any analogous state law or regulation, or otherwise cause such property or
facilities to be subject to investigation, remediation or corrective action
under or pursuant to any Environmental Law, (ii) a reportable release of
Hazardous Materials from such property or facilities within the meaning of any
Environmental 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 an
Environmental Permit under any Environmental Law not already obtained by the
Company or any of its Subsidiaries, as applicable.
For the purposes of this Agreement, the following terms shall have the
following meanings:
"Environmental Claim" shall mean any written notice, claim, demand,
action, suit, complaint, proceeding or other communication by any person
alleging liability or potential liability (including without limitation
liability or potential liability or investigatory costs, cleanup costs,
governmental response costs, natural resource damages, property damage, personal
injury, fines or penalties) arising out of, relating to, based on or resulting
from (a) the presence, discharge, emission, release or threatened release of any
Hazardous Materials at any location, whether or not owned, leased or operated by
the Company or any of its subsidiaries or (b) circumstances forming the basis of
any violation or alleged violation of any Environmental Law or Environmental
Permit or (c) otherwise relating to obligations or liabilities under any
Environmental Laws.
"Environmental Laws" shall mean any local, state or federal law
relating to environmental conditions, industrial hygiene or public health and
safety, 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.
"Environmental Permits" shall mean all permits, licenses, registrations
and other governmental authorizations required under Environmental Laws for the
Company and the Company Subsidiaries to conduct their operations and businesses.
"Hazardous Materials" shall mean any substance, including without
limitation, asbestos or any substance containing asbestos, lead based paint,
solder or other building materials, radon or other substances deemed hazardous
under any Environmental Law, the group of organic compounds known as
polychlorinated biphenyls, petroleum products, flammable explosives, radioactive
materials,
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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 Environmental Law.
SECTION 3.14 EMPLOYEES AND FRINGE BENEFIT PLANS. (a) Schedule 3.14(a)
hereto sets forth a complete list of all of the Company's directors, officers,
wardens, assistant wardens, and other facility administrators, together with
true and correct lists of any and all employment contracts, material fringe
benefits and personnel policies. Except as provided in Schedule 3.14(a) hereto,
the Company has no written employment agreements (other than non-compete
agreements) with its employees.
(b) Schedule 3.14(b) hereto contains a list of each material
employment, bonus, deferred compensation, pension, stock option, stock
appreciation right, profit-sharing or retirement plan, arrangement or practice
of the Company or to which the Company contributes or has contributed within
three years prior to the date of this Agreement (collectively, the "Plans" and
individually, a "Plan"). Copies of each such agreement or plan have heretofore
been delivered or made available to Prison Realty. Except as provided on
Schedule 3.14(b) hereto, the Company does not have any commitment (i) to create
any additional such agreement, plan, arrangement or practice; or (ii) to modify
or change any such agreement, plan, arrangement or practices other than as
required by applicable law.
(c) Except as set forth in Schedule 3.14(c) hereto, (i) the Company has
no unfunded past service liability in respect of any of its Plans subject to
Title IV of the Employee Retirement Income Securities Act of 1974, as amended
("ERISA"); (ii) the actuarial value of vested benefits under any Plan of the
Company subject to Title IV of ERISA, computed on a termination basis, does not
exceed the fair market value of the fund assets relating to the Plan; (iii)
neither the Company nor any Plan has engaged in any non-exempt prohibited
transactions as defined in ERISA, or the Code; (iv) all filings and reports as
to the Plans required to have been made on or prior to the Closing Date to the
Internal Revenue Service, the United States Department of Labor or other
Governmental Entities have been made; (v) there is no material litigation,
disputed claim, governmental proceeding or investigation pending or, to the
knowledge of the Company, threatened with respect to any of the Plans, the
related trusts, or any fiduciary, trustee, administrator or sponsor of the
Plans; (vi) the Plans have been established, maintained and administered in all
material respects in accordance with their governing documents and applicable
provisions of ERISA and the Code and Treasury Regulations promulgated
thereunder; (vii) there has been no "Reportable Event" as defined in Section
4043 of ERISA with respect to any Plan subject to Subtitle B of Title IV of
ERISA with respect to which the 30-day notice requirement has not been waived by
the Pension Benefit Guaranty Corporation; and (viii) except as set forth on
Schedule 3.14(c) hereto, all contributions required to be made for all periods
ending prior to the Closing (including the current plan years) will be made
prior to Closing in accordance with past practice and the recommended
contribution in any actuarial report.
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(d) Except as set forth in Schedule 3.14(d) hereto, the Company has
complied in all respects with all applicable Laws, as hereinafter defined,
relating to employee's employment and/or employment relationships, including,
without limitation, wage related Laws, anti-discrimination Laws and employee
safety Laws except to the extent non-compliance would not reasonably be expected
to have a Material Adverse Effect.
(e) Except as set forth in Schedule 3.14(e) hereto, the Company is not
a party to any contract or agreement which would require Prison Realty to hire,
or subject the Surviving Corporation or Prison Realty to liability if it
terminated or did not hire, any employee of the Company or which would require
the Surviving Corporation or Prison Realty to pay or provide, or subject the
Surviving Corporation or Prison Realty to liability if it did not pay or
provide, any employee benefits to any employee of the Company for periods prior
to or after the Closing Date, other than (i) coverage mandated by Section 4980B
of the Code or other applicable continuation-of-coverage laws, (ii) retirement
benefits payable under any Plan qualified under Section 401(a) of the Code, or
(iii) deferred compensation accrued as a liability in the Financial Statements
or incurred after December 31, 1997 in the ordinary course of business
consistent with the prior practice of the Company pursuant to a Plan.
SECTION 3.15 COMPLIANCE WITH APPLICABLE LAWS. To the knowledge of the
Company, the business of the Company and of each of its Subsidiaries is and,
except to the extent as would not have a Material Adverse Effect, has been
operated, and every Affiliate (as hereinafter defined) and other person acting
on the Company's and the Subsidiaries of the Company's behalf, are acting and,
except to the extent as would not have a Material Adverse Effect, have acted, in
compliance with all applicable Laws (other than those laws covered in Sections
3.13 and 3.14 hereof) and other requirements of Governmental Entities. As of the
date of this Agreement, to the knowledge of the Company, no investigations or
review by any Governmental Entity with respect to the Company, any of its
Subsidiaries or any of their officers or directors (present and former) is
pending or threatened, nor has any Governmental Entity indicated an intention to
conduct the same.
SECTION 3.16 LABOR RELATIONS. Except as set forth in Schedule 3.16
hereto, neither the Company nor its Subsidiaries are a party to any labor
contract, collective bargaining agreement, contract, letter of understanding or
any other arrangement, formal or informal, with any labor union or organization
which obligates the Company or its Subsidiaries to compensate its employees at
prevailing rates or union scale, nor are any of its employees represented by any
labor union or organization. To the knowledge of the Company, there is no
pending or threatened labor dispute, work stoppage, unfair labor practice
complaint, strike, administrative or court proceeding or order between the
Company or any of its Subsidiaries and any present or former employee of the
Company or its Subsidiaries. Except as set forth in Schedule 3.16 hereto, to the
knowledge of the Company, there has not been any labor union organizing activity
with respect to the Company's employees within the last five (5) years.
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SECTION 3.17 REGULATORY APPROVALS. Except as disclosed in Schedule 3.17
hereto, the Company and each of its Subsidiaries holds all local, state and
Federal licenses, permits, registrations, certificates, consents, accreditations
and other regulatory approvals required or necessary to be applied for or
obtained in connection with its business as currently conducted, except for
those licenses, permits, registrations, certificates, consents, accreditations,
or approvals, the absence of which would not have a Material Adverse Effect. No
such license or regulatory approval has been revoked, conditioned (except as may
be customary) or restricted.
SECTION 3.18 INTELLECTUAL PROPERTY. Schedule 3.18 hereto sets forth a
list of all patents and registered trademarks, tradenames, service names,
service marks, and copyrights owned by the Company or its Subsidiaries or used
or required by the Company or its Subsidiaries in the operation of its business,
and any applications pending for the registration thereof with any Governmental
Entity (collectively, the "Intellectual Property"), title to each of which is,
except as set forth in such schedule, held by the Company or its Subsidiaries
free and clear of all Liens. Except as set forth on Schedule 3.18 hereto,
neither the Company nor the Subsidiaries have assigned or granted the right to
use any of their material Intellectual Property to any third party. Neither the
Company nor its Subsidiaries is in any way making use of any confidential
information or trade secrets of any person except where the Company or its
Subsidiaries have the right to use such information. Except as set forth in
Schedule 3.18 hereto, to the knowledge of the Company, there presently is no
infringement or misappropriation of any Intellectual Property used or owned by
the Company or the Subsidiaries that is material to the operation of the
business of the Company and its Subsidiaries, taken as a whole.
SECTION 3.19 INSURANCE. Schedule 3.19 hereto sets forth a list and
brief description (including policy numbers, deductibles, carriers and effective
and termination dates) of all policies of fire, workmen's compensation, health,
life, automobile, general liability and other forms of insurance presently in
effect with respect to the Company and its Subsidiaries. All such policies are
in full force and effect on the date hereof and neither the Company nor any of
its Subsidiaries are in default with respect to the payment of any premiums due
and owing under such policies. Except as described in Schedule 3.19 hereto,
neither the Company nor any of its Subsidiaries have been refused any insurance,
nor has its coverage been limited, by any insurance carrier to which it has
applied for insurance or with which it has carried insurance during the last two
years.
SECTION 3.20 SEC FILINGS. Neither the Company nor any of its
Subsidiaries has ever issued any security covered by a registration statement
filed with the Securities and Exchange Commission pursuant to the Securities Act
of 1933, as amended (the "Securities Act") or the Investment Company Act of
1940, as amended, and no security issued by the Company or any of its
Subsidiaries has ever been registered pursuant to the Securities Exchange Act of
1934, as amended. All shares of Company Capital Stock issued by the Company and
all Company Warrants and Company Options were issued pursuant to an exemption
from the registration requirements of the Securities Act.
SECTION 3.21 ABSENCE OF QUESTIONABLE PAYMENTS. Except as set forth on
Schedule 3.21 hereto, neither the Company nor any of its Subsidiaries nor any
director, officer, agent, employee or
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other person acting on behalf of the Company or any of its Subsidiaries (i) used
any corporate funds for any unlawful contribution, gift, entertainment or other
expense relating to political activity or made any unlawful payment to any
foreign or domestic governmental or judicial officials or employees, (ii) made
any unlawful payment (including, but not limited to, any bribe, rebate, payoff,
kickback or influence payment) to any person or entity, private or public,
whether in the form of cash, property, services or otherwise, (iii) violated or
is in violation of any provision of any Laws relating to corruption of
governmental officials or representatives, including the Foreign Corrupt
Practices Act and similar Laws, (iv) established or maintained any funds of
monies or other assets for the purposes specified in clauses (i) or (ii) above,
or (iv) made any false or fictitious entry on the books or records of the
Company relating to any payment referred to in clauses (i) or (ii) above.
SECTION 3.22 CONFLICTS OF INTEREST. Except as set forth on Schedule
3.22 hereto, no director or officer of the Company, or an Affiliate of the same,
is either a supplier of goods or services to the Company, or directly or
indirectly controls or is a director, trustee, officer, employee or agent of any
corporation, firm, association, partnership or other business entity which is a
supplier of goods or services to the Company (excepting less than 5% stock
holdings for investment purposes in securities of publicly held and traded
companies). Schedule 3.22 hereto sets forth an accurate and complete description
of such relationships.
SECTION 3.23 KENTUCKY BUSINESS COMBINATION ACT. The Company Shareholder
Approval constitutes approval of the Merger for purposes of ss.271B.12-210 of
the KBCA.
SECTION 3.24 COMMISSIONS AND FEES. Except with respect to fees due to
Credit Suisse First Boston Corporation, there are no claims for brokerage
commissions, investment bankers' fees or finder's fees from the Company or any
of its Subsidiaries in connection with the transactions contemplated by this
Agreement resulting from any action taken by the Company, any of its
Subsidiaries or any of their respective officers, directors or agents.
SECTION 3.25 OPINION OF FINANCIAL ADVISOR. The Board of Directors of
the Company has received the opinion of Credit Suisse First Boston Corporation
that, as of the date thereof, the Per Share Cash Consideration was fair to
holders of the Company Common Stock from a financial point of view.
SECTION 3.26 CORPORATE RECORDS. The Company and each Subsidiary has
delivered or provided to Prison Realty for its review true, complete and correct
copies of the following items, as amended and presently in effect, for the
Company and each of the Subsidiaries: (a) articles of incorporation (or other
organizational documents), (b) bylaws (or other similar documents), (c) minute
books, and (d) stock registration books (or other books showing the transfer of
equity interests in an entity) (all hereinafter referred to as the "Corporate
Records"). The Corporate Records contain a record of all shareholder, director
and executive committee meetings and actions taken without a meeting from the
date of each entities' incorporation or formation to the date hereof. The stock
registration books are complete and accurate and contain a complete record of
all
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transactions in each entities' equity interests from the date of its
incorporation or formation to the date hereof.
SECTION 3.27 BANKING RELATIONSHIPS. Schedule 3.27 hereto sets forth the
names and locations of all banks, trust companies, savings and loan associations
and other financial institutions at which the Company or any of the Subsidiaries
maintains safe deposit boxes or accounts of any nature and the names of all
persons authorized to have access thereto, draw thereon or make withdrawals
therefrom. The Company and the Subsidiaries shall deliver upon execution of this
Agreement to Prison Realty copies of all records, including all signatures or
authorization cards, pertaining to such safe deposit boxes and bank accounts.
SECTION 3.28 INTRA-COMPANY DEBT. Except as set forth in Schedule 3.28
hereto and except for travel advances and other advances and borrowings from the
Company made in the ordinary course of business, there is no outstanding
indebtedness owing to the Company or any of its Subsidiaries by any of the
Indemnifying Shareholders or any of the directors, officers, wardens, assistant
wardens or other facility administrators of the Company or any Subsidiary of the
Company to the Company.
SECTION 3.29 FULL DISCLOSURE. All of the representations and warranties
made by the Company herein or in the Schedules are true, correct, and complete
in all material respects and no representation or warranty made by the Company
in this Agreement contains any untrue statement of a material fact or omits to
state any material fact necessary to make such representation, warranty or
statement not misleading. Documents delivered or to be delivered to USCA and
Prison Realty pursuant to this Agreement are or will be true and complete copies
of what they purport to be.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PRISON REALTY AND USCA
Prison Realty and USCA hereby represent and warrant, jointly and
severally, to the Company as follows:
SECTION 4.01 ORGANIZATION AND EXISTENCE. Prison Realty is a real estate
investment trust duly organized and validly existing 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. Prison Realty holds all material licenses,
consents and approvals, and has satisfied all eligibility and other similar
requirements imposed by Federal and state regulatory bodies, administrative
agencies or other governmental bodies, agencies or offices, in each case as
required for the conduct of the business in which it is engaged.
SECTION 4.02 AUTHORIZATION. Prison Realty has all requisite power and
authority to execute, deliver and perform this Agreement and all agreements and
other documents executed and delivered,
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or to be executed and delivered,by it pursuant to this Agreement, and has taken
all action required to authorize the execution, delivery and performance of this
Agreement and such related documents. The execution and delivery of this
Agreement and the consummation of the Merger hereunder has been approved by the
Board of Trustees of Prison Realty. This Agreement has been duly executed and
delivered by Prison Realty and is a valid and binding obligation of Prison
Realty enforceable against Prison Realty in accordance with its terms, subject
to bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other similar laws of general application affecting the enforcement of
creditor's rights generally.
SECTION 4.03 CONSENTS. Neither the execution, delivery or performance
of this Agreement by Prison Realty nor the consummation by Prison Realty of the
transactions contemplated hereby nor compliance by Prison Realty with any of the
provisions hereof will (a) conflict with or result in any breach of any
provision of either of Prison Realty's Amended and Restated Declaration of Trust
or Amended and Restated Bylaws; (b) require any filing with, or permit,
authorization, waiver, consent, declaration or approval of a Governmental
Entity, including filings under the HSR Act; (c) result in a violation or breach
of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation or
acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which Prison Realty or any of its Subsidiaries is a
party or by which any of them or any of their properties or assets may be bound;
or (d) violate any Law applicable to Prison Realty, any of its Subsidiaries or
any of their properties or assets.
SECTION 4.04 INVESTMENT RENTAL PROPERTY ASSETS. Prison Realty intends
to use, and cause USCA to use, the real estate assets being acquired through the
Merger as "Investment Real Property", as such term is defined in Section 802.5
of the HSR Act rules.
SECTION 4.05 LITIGATION. There are no actions, suits, proceedings or
investigations, either at law or equity, or before any Governmental Entity, of
any kind now pending or, to the knowledge of Prison Realty, threatened or
proposed, involving Prison Realty, USCA or any of their properties or assets,
that (i) questions the validity of this Agreement or (ii) seeks to delay,
prohibit or restrict in any manner any action taken or to be taken by Prison
Realty or USCA under this Agreement.
SECTION 4.06 COMMISSIONS AND FEES. Except with respect to fees due to
J.C. Bradford & Co., LLC, which fees shall be paid by Prison Realty, there are
no claims for brokerage commissions, investment banker's fees or finder's fees
in connection with the transactions contemplated by this Agreement resulting
from any action taken by Prison Realty or any of its officers, trustees, agents
or Subsidiaries.
SECTION 4.07 OPINION OF FINANCIAL ADVISOR. The Board of Trustees of
Prison Realty has received the opinion of J.C. Bradford & Co., LLC to the effect
that, as of its date and subject to the conditions thereof, the Merger
Consideration is fair from a financial point of view to the holders of Prison
Realty's capital shares.
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SECTION 4.08 ORGANIZATION AND EXISTENCE OF USCA. USCA is a corporation
duly organized and validly existing under the laws of the Commonwealth of
Kentucky with full corporate 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. USCA holds all material licenses,
consents and approvals, and has satisfied all eligibility and other similar
requirements imposed by Federal and state regulatory bodies, administrative
agencies or other governmental bodies, agencies or offices, in each case as
required for the conduct of the business in which it is engaged. USCA is a newly
formed, wholly-owned subsidiary of Prison Realty and, except for activities
incident to the acquisition of the Company, USCA has not engaged in any business
activities of any type or kind whatsoever prior to the date hereof.
SECTION 4.09 AUTHORIZATION OF USCA. USCA has all requisite corporate
power and authority to execute, deliver and perform this Agreement and all
agreements and other documents executed and delivered, or to be executed and
delivered, by it pursuant to this Agreement, and has taken all action required
to authorize the execution, delivery and performance of this Agreement and such
related documents. The execution and delivery of this Agreement and the
consummation of the Merger hereunder has been approved by the Board of Directors
and sole shareholder of USCA. The Agreement has been duly executed and delivered
by USCA and is a valid and binding obligation of USCA enforceable against USCA
in accordance with its terms, subject to bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws of general application
affecting the enforcement of creditor's rights generally.
SECTION 4.10 CONSENTS OF USCA. Neither the execution, delivery or
performance of this Agreement by USCA nor the consummation by USCA of the
transactions contemplated hereby nor compliance by USCA with any of the
provisions hereof will (a) conflict with or result in any breach of any
provision of USCA's articles of incorporation or Bylaws; (b) require any filing
with, or permit, authorization, waiver, consent, declaration or approval of a
Governmental Entity, including filings under the HSR Act; (c) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which USCA is a party or by which it or any of
its properties or assets may be bound; or (d) violate any other Law.
SECTION 4.11 INVESTMENT RENTAL PROPERTY ASSETS OF USCA. USCA intends to
use the real property assets acquired through the Merger as "Investment Real
Property", as such term is defined in Section 802.5 of the HSR Act rules.
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ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01 FUNDED DEBT. (a) At the Closing, Prison Realty shall pay
all indebtedness and satisfy all obligations, including accrued but unpaid
interest, evidenced by the following instruments: (i) that certain $18,750,000
Subordinated Promissory Note dated March 26, 1997, payable by USCC to the
Whitney Subordinated Debt Fund, L.P. ("WSDF"); (ii) that certain $11,250,000
Subordinated Promissory Note dated March 26, 1997, payable by USCC to Chase
Venture Capital Associates, L.P. ("Chase"); (iii) that certain $6,250,000
Amended and Restated Subordinated Promissory Note, dated as of December 31,
1996, payable by USCC to WSDF; and (iv) that certain $3,750,000 Amended and
Restated Subordinated Promissory Note, dated as of December 31, 1996, payable by
USCC to Chase.
(b) As soon as is reasonably practicable after the Effective Time,
Prison Realty shall pay all indebtedness and satisfy all obligations pursuant to
that certain Amended and Restated Credit Agreement among the Company, USCC,
Morgan Guaranty Trust Company of New York, as documentation agent, Credit Suisse
First Boston, as syndication agent, and the Banks signatory thereto dated as of
October 31, 1997.
SECTION 5.02 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
SECTION 5.03 COOPERATION. Subject to the terms and conditions of this
Agreement, each of Prison Realty, USCA and the Company shall use all reasonable
efforts (i) to take, or cause to be taken, all actions necessary to effectuate
and complete the Merger and transactions contemplated herein and (ii) to cause
the obligations of the parties hereto to be satisfied as promptly as
practicable.
SECTION 5.04 INDEMNIFICATION OF DIRECTORS AND OFFICERS. The articles of
incorporation and bylaws (or equivalent governing instruments) of the Surviving
Corporation and each of its Subsidiaries shall contain provisions no less
favorable with respect to indemnification than are set forth in the articles of
incorporation and bylaws of the Company and its Subsidiaries in effect
immediately prior to the Effective Time. Such indemnification provisions shall
not be amended, repealed or otherwise modified for a period of five years after
the Effective Time in any manner that would adversely affect the rights
thereunder of individuals who prior to the Effective Time were directors,
officers, agents or employees of the Company or any of its Subsidiaries or who
were otherwise entitled to indemnification pursuant to the articles of
incorporation and bylaws (or equivalent governing instruments) of the Company or
any of its Subsidiaries. Prison Realty shall provide directors' and officers'
liability insurance with respect to matters occurring prior to the Effective
Time to the same extent it currently maintains directors' and officers'
liability insurance for its own account.
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SECTION 5.05 NO BREACH. Notwithstanding anything to the contrary
contained herein, the parties hereto agree that no representation, warranty or
covenant made by the Company in this Agreement is breached by virtue of the
Company or any of its Subsidiaries executing or delivering the documents
necessary or desirable to effectuate the performance and consummation of the
Pre-Closing Transactions or performing the Pre-Closing Transactions, and no
claim for indemnification pursuant to the Indemnification and Escrow Agreement
shall be made by Prison Realty or the Surviving Corporation in respect of the
breach of any representation, warranty or covenant contained herein as a result
of such execution, delivery and performance.
SECTION 5.06 REQUIRED SHAREHOLDER NOTICES. Immediately after the
Closing, the Company shall mail to each holder of Shares of Company Common Stock
who did not execute the Company Shareholder Approval the notice required by
ss.271B.7-040(7), ss.271B.13-200(2) and ss.271B.13-220 of the KBCA.
ARTICLE VI
CLOSING DELIVERIES
SECTION 6.01 DELIVERIES BY THE COMPANY. At the Closing, the Company
shall deliver to USCA and Prison Realty the following:
(a) An opinion of Goldberg & Simpson, P.S.C., counsel to the Company
dated the Closing Date, addressed to Prison Realty.
(b) The written resignation of each of the officers and directors of
the Company and its Subsidiaries effective as of the Effective Time.
(c) Payoff letters from the holders of the indebtedness referred to in
Section 5.01 setting forth the amounts required to pay such indebtedness in full
on or after the Effective Date and reflecting the agreement of such holders to
terminate all agreements relating to such indebtedness and to release and
discharge any collateral or liens securing same upon receipt of the amounts set
forth in such letters.
(d) A noncompetition agreement from each of Robert B. McQueen,
President of the Company, and Milton D. Thompson, Chairman of the Board of
Directors of the Company, addressed to Prison Realty.
(e) With respect to each of (i) Dismas Charities, Inc. v. J. Clifford
Todd, et al., Civil Action No. 3:94CV-701-C (United States District Court for
the Western District of Kentucky) (the "Dismas Litigation") and (ii) Michael D.
Sanders, et al. v. U.S. Corrections Corporation, d/b/a River City Correctional
Center, No. 96-CI-05936 (Jefferson Circuit Court, Division Sixteen, Jefferson
County, Kentucky) (the "Sanders Litigation") (the "Dismas Litigation" and the
"Sanders Litigation"
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<PAGE> 39
are referred to collectively, as the "Lawsuits"), USCA and Prison Realty shall
have received the following:
(x) a Settlement Agreement and Release;
(y) a certified copy of the order of the presiding court
dismissing each Lawsuit with prejudice; and
(z) written confirmation (i) from Fidelity and Deposit
Company of Maryland and/or Colonial American Casualty
and Surety Company that the Supercedes Bond issued in
connection with the Sanders Litigation has been
released and terminated and (ii) from an affiliate of
Credit Suisse First Boston that its Irrevocable
Letter of Credit No. TS-06000985, dated March 17,
1998 has been returned and terminated and is no
longer outstanding.
(f) The Indemnification and Escrow Agreement executed by the
Indemnifying Shareholders.
(g) Satisfactory evidence that Robert B. McQueen has repaid in full his
indebtedness in the amount of $279,083, plus any accrued but unpaid interest
thereon, to the Company.
(h) The resolutions of the Board of Directors of the Company approving
this Merger Agreement and all transactions contemplated hereby, certified by the
Secretary of the Company.
(i) Evidence of the Company Shareholder Approval, certified by the
Secretary of the Company.
(j) Fully executed copies of the documents relating to the Pre-Closing
Transactions.
SECTION 6.02 DELIVERIES BY PRISON REALTY AND USCA. At the Closing,
Prison Realty and USCA shall deliver to the Company the following:
(a) Opinions of each of Stokes & Bartholomew, P.A., counsel to Prison
Realty, and Stites & Harbison, special Kentucky counsel to USCA, dated the
Closing Date, addressed to the Company.
(b) The resolutions of the Board of Trustees of Prison Realty approving
this Merger Agreement and all transactions contemplated hereby, certified by the
Secretary of Prison Realty.
(c) The resolutions of the Board of Directors of USCA approving this
Merger Agreement and all transactions contemplated hereby, certified by the
Secretary of Prison Realty.
(d) The Indemnification and Escrow Agreement executed by Prison Realty
and USCA.
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ARTICLE VII
MISCELLANEOUS
SECTION 7.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations, warranties, covenants and agreements (other than pursuant to
Section 5.04 hereof, which shall survive in accordance with its terms), made by
the parties to this Agreement or in any certificate, Exhibit, Schedule,
statement, document or instrument furnished hereunder or in connection with the
negotiation, execution and performance of this Agreement shall survive for a
period of one year following the Closing. Notwithstanding any investigation or
audit conducted before or after the Closing Date in the decision of any party to
complete the Closing, each party shall be entitled to rely on the
representations, warranties, covenants and agreements set forth herein and
therein.
SECTION 7.02 EXPENSES. Each of the parties shall pay all of its own
legal, accounting, investment banking and other fees and expenses incurred in
the preparation of this Agreement and the performance of the terms and
provisions of this Agreement (it being understood that the Company will pay at
Closing the fees and expenses of Credit Suisse First Boston, Paul, Weiss,
Rifkind, Wharton & Garrison; Goldberg & Simpson, P.S.C., Morrison, Cohen, Singer
& Weinstein, LLP and Coopers & Lybrand without any deduction from the Purchase
Price).
SECTION 7.03 NOTICES. Any communications required or desired to be
given hereunder shall be deemed to have been properly given if sent by hand
delivery or by facsimile and overnight courier to the parties hereto at the
following addresses, or at such other address as either party may advise the
other in writing from time to time:
If to Prison Realty:
Prison Realty Trust
10 Burton Hills Boulevard, Suite 100
Nashville, Tennessee 37215
Telephone: (615) 263-0225
Facsimile: (615) 263-0212
Attention: D. Robert Crants, III, President
with a copy to:
Stokes & Bartholomew, P.A.
424 Church Street, Suite 2800
Nashville, Tennessee 37219
Telephone: (615) 259-1425
Facsimile: (615) 259-1470
Attention: Elizabeth E. Moore, Esq.
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<PAGE> 41
If to USCA:
USCA Corporation
10 Burton Hills Boulevard, Suite 100
Nashville, Tennessee 37215
Telephone: (615) 263-0225
Facsimile: (615) 263-0212
Attention: D. Robert Crants, III, President
with a copy to:
Stokes & Bartholomew, P.A.
424 Church Street, Suite 2800
Nashville, Tennessee 37219
Telephone: (615) 259-1425
Facsimile: (615) 259-1470
Attention: Elizabeth E. Moore, Esq.
If to the Company:
U.S. Corrections Corporation
10 Burton Hills Boulevard, Suite 100
Nashville, Tennessee 37215
Telephone: (615) 263-0200
Facsimile: (615) 263-0212
Attention: D. Robert Crants, III, President
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<PAGE> 42
with a copy to:
Stokes & Bartholomew, P.A.
424 Church Street, Suite 2800
Nashville, Tennessee 37219
Telephone: (615) 259-1425
Facsimile: (615) 259-1470
Attention: Elizabeth E. Moore, Esq.
All such communications shall be deemed to have been delivered on the date of
hand delivery or on the next business day following the deposit of such
communications with the overnight courier.
SECTION 7.04 DEFINITIONS.
(a) The term "Affiliate" with respect to the Company or any of its
Subsidiaries shall mean any Person that directly, or indirectly, through one or
more intermediaries, controls or is controlled by, or is under common control
with the Company or any of its Subsidiaries.
(b) The terms "knowledge of the Company" and "knowledge of a
Subsidiary" shall mean, with respect to the Company or to any Subsidiary of the
Company, the actual knowledge after due inquiry of any officer or director of
the Company other than Gary W. Freeland and Lyda Merritt.
(c) The term "Laws" shall mean 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 disabled or handicapped persons (but not including, however,
Environmental Laws, which are addressed in Section 3.13 hereof);
(d) The terms "Material Adverse Change" or "Material Adverse Effect"
shall mean, when used in connection with the Company or Prison Realty, any
change, effect, event or occurrence that has, or is reasonably likely to have,
individually or in the aggregate, a material adverse impact on the business,
financial position or results of operations of such party and its Subsidiaries
taken as a whole; provided, however, that "Material Adverse Change" and
"Material Adverse Effect" shall be deemed to exclude the impact of changes
generally affecting the industries in which both the Company and Prison Realty
operate (including accounting, tax and regulatory changes or the economy or
securities markets in general) and the impact of this Agreement and the Stock
Purchase Agreement and the transactions contemplated hereby and thereby and the
Pre-Closing Transactions;
(e) The term "Permitted Lien" shall mean (i) Liens for taxes,
assessments and other governmental charges or levies not yet due or as to which
the period of grace, if any, related thereto has not expired or which are being
contested in good faith and by appropriate proceedings if adequate reserves are
maintained to the extent required by generally accepted accounting principals;
(ii) the claims of materialmen, mechanics, carriers, warehousemen, processors,
or landlords for labor,
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<PAGE> 43
materials, supplies or rentals incurred in the ordinary course of business which
are not overdue for a period of more than 30 days or which are being contested
in good faith and by appropriate proceedings; (iii) Liens reflected on the
Financial Statements; and (iv) Liens disclosed on the Schedules hereto.
(f) The term "Person" shall mean an individual, a corporation, a
partnership, an association, a joint-stock company, a trust, any unincorporated
organization or a government or political subdivision thereof;
(g) The term "Subsidiary" shall mean, with respect to any entity, any
corporation, partnership, joint venture, limited liability company or other
business organization of which fifty percent (50%) or more of the capital stock
or other equity interest is owned, either directly or indirectly, by such
entity, or of which such entity is, whether alone or in combination with others,
in a control position.
SECTION 7.05 FURTHER ASSURANCES. Each party hereby agrees to perform
any further acts and to execute and deliver any documents which may be
reasonably necessary to carry out the provisions of this Agreement.
SECTION 7.06 GOVERNING LAW. This Agreement shall be interpreted,
construed and enforced in accordance with the laws of the Commonwealth of
Kentucky, applied without giving effect to any conflicts-of-law principles,
except that any provisions required to be governed by the laws of the
Commonwealth of Kentucky, shall be governed thereby.
SECTION 7.07 CAPTIONS. The captions or headings in this Agreement are
made for convenience and general reference only and shall not be construed to
describe, define or limit the scope or intent of the provisions of this
Agreement.
SECTION 7.08 INTEGRATION OF EXHIBITS AND SCHEDULES. All Exhibits and
Schedules attached to this Agreement are integral parts of this Agreement as if
fully set forth herein, and all statements appearing therein shall be deemed
disclosed for all purposes and not only in connection with the specific
representation in which they are explicitly referenced.
SECTION 7.09 ENTIRE AGREEMENT. This instrument, including all Exhibits
and Schedules contains the entire agreement of the parties and supersedes any
and all prior or contemporaneous agreements between the parties, written or
oral, with respect to the transactions contemplated hereby.
SECTION 7.10 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which, when so executed, shall be deemed to be an
original, and such counterparts shall, together, constitute and be one and the
same instrument.
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SECTION 7.11 NO RULE OF CONSTRUCTION. The parties acknowledge that all
parties have read and negotiated the language used in this Agreement. The
parties agree that, because all parties in negotiating and drafting this
Agreement, no rule of construction shall apply to this Agreement which construes
ambiguous language in favor of or against any party by reason of that party's
role in drafting this Agreement.
SECTION 7.12 SPECIFIC PERFORMANCE. The parties agree that irreparable
injury would occur by a breach of this Agreement and that money damages would
not be sufficient remedy for any such breach. Accordingly, each party shall be
entitled to equitable relief, including injunctive relief and specific
performance, as a remedy for any such breach (which shall be in addition to all
other remedies available at law and equity to such party).
SECTION 7.13 SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
SECTION 7.14 ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
SECTION 7.15 PARTIES IN INTEREST. Notwithstanding anything contained in
this Agreement to the contrary, except for the provisions of Sections 5.01, 5.04
and 5.05 (the "Third Party Provisions"), nothing in this Agreement, express or
implied, is intended to confer on any person other than the parties hereto or
their permitted assigns any rights, remedies, obligations or liabilities under
or by reason of this Agreement. The Third Party Provisions may be enforced
directly by the beneficiaries thereof.
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IN WITNESS WHEREOF, Prison Realty, USCA and the Company have caused
this Agreement of Merger to be executed by their respective duly authorized
officers, all as of the day and year first above written.
PRISON REALTY: PRISON REALTY TRUST
By: /s/ D. Robert Crants, III
-----------------------------------
Its: President
----------------------------------
USCA: USCA
By: /s/ D. Robert Crants, III
-----------------------------------
Its: President
----------------------------------
THE COMPANY: U.S. CORRECTIONS CORPORATION
By: /s/ Robert B. McQueen
-----------------------------------
Its: President
----------------------------------
37
<PAGE> 1
Peggy Wilson Lawrence (615) 263-3000
CORRECTIONS CORPORATION OF AMERICA AND CCA PRISON REALTY TRUST TO MERGE
IN $4 BILLION TRANSACTION;
COMPANIES ACQUIRE U.S. CORRECTIONS CORPORATION
NASHVILLE, Tenn., April 20, 1998 -- Corrections Corporation of America (NYSE:
CCA), a prison management company, and CCA Prison Realty Trust (NYSE: PZN), a
prison real estate investment trust (REIT), announced today that they have
signed a definitive agreement to merge. Under the terms of the agreement,
holders of CCA common stock will receive .875 share of PZN common stock for each
common share of CCA owned.
When completed, the merged companies will operate as a REIT with
approximately $4 billion in total market capitalization, based on current market
prices. Doctor R. Crants, chairman of both CCA and PZN, will be chairman and
chief executive officer of the combined company. Once closed, the CCA/PZN
transaction is expected to be immediately accretive to the REIT's FFO per share.
The merger has been approved unanimously by the board members of CCA
who participated in the decision and the independent board members of PZN.
Consummation is planned for January 1999, subject to customary conditions,
including approvals by regulatory and governmental agencies and the shareholders
of both companies.
In addition, CCA and PZN also announced that they have acquired the
assets of U.S. Corrections Corporation (USCC), a privately-held prison
management company based in Louisville, Kentucky. CCA acquired USCC's management
contracts to operate correctional and detention facilities for approximately $10
million in cash. Immediately after the CCA purchase, USCC was merged into PZN
for approximately $147 million in cash plus the assumption of approximately $108
million of debt.
-- more --
<PAGE> 2
"Each of these transactions, the merger and the acquisition, is
significant," said Crants. "They represent unprecedented historic and economic
value for our companies. They exemplify our innovation and flexibility while
demonstrating our commitment to enhancing the interest of our respective
shareholders.
"The USCC acquisition reflects the relative strengths of CCA and PZN.
USCC had the largest collection of prison beds owned by a privately-held
company, all of which are a healthy addition to PZN's portfolio. With USCC, PZN
increased its owned beds by 43%, from 12,214 to 17,489. More importantly, with
this $255 million purchase PZN has met its full-year 1998 asset acquisition
objective and did so leaving its considerable CCA facility pipeline intact. The
USCC transaction is expected to be immediately accretive to PZN's FFO per share.
"USCC's contracts and geographic diversity complement CCA's existing
book of management business by adding eight facilities and two new states to its
service area. We welcome their operations into our company," Crants continued.
"The merger of CCA and PZN will allow the respective shareholders of
both companies to benefit from every type of private sector/public sector
partnership: facilities owned and managed by CCA, those owned by government and
managed by CCA, those owned by PZN and managed by CCA, and those owned by PZN
and managed by government. We are enthusiastic about the possibilities for
growth in all of these areas.
"The resulting company structure will combine the tax and dividend
benefits of a REIT with the high growth prospects of a quality growth company to
produce an exceptional investment opportunity."
-- more --
<PAGE> 3
USCC ACQUISITION
The former USCC properties that PZN bought include four in Kentucky,
one in Ohio and two in North Carolina. The North Carolina prisons currently are
under construction, and two of the Kentucky facilities are being expanded and
upgraded to medium security. The Ohio facility is a jail managed by the local
sheriff, making it the first REIT owned, government operated facility in
history. Combined, the facilities PZN acquired house 5,275 beds.
The management contracts purchased by CCA include the four PZN-acquired
operating facilities in Kentucky, as well as one each in Florida and Texas that
are owned by government. CCA also purchased the right to manage the two North
Carolina prisons that currently are under construction. Total beds operating or
being built under the management agreements equal 5,743.
CCA/PZN MERGER BENEFITS
The merger of CCA and PZN combines their growth rates to create a REIT
with the ability to expand funds from operation, or FFO, at a high rate on a
sustained basis.
The proposed structure gives shareholders of both companies the benefit
of dividends associated with PZN's status as a REIT. In addition to PZN's
regular dividend, during the fourth quarter of 1999, PZN will pay out CCA's
accumulated earnings and profits in a special, one-time dividend expected to
exceed $2.00 per share.
The transaction will give the combined company a stronger balance
sheet. It is expected to reduce overall cost of capital, as well as enhance
liquidity and public float.
Significant marketing synergies are expected in the development of new
business. Combining the resources of CCA and PZN will heighten their
effectiveness in presenting comprehensive proposals to government for all facets
of the business: designing, building, owning, leasing and managing secure
facilities.
-- more --
<PAGE> 4
ORGANIZATIONAL STRUCTURE OF MERGED COMPANIES
After the merger, management of the REIT's facilities and contracts
will be undertaken by three newly-formed private companies, all operating under
the name of Corrections Corporation of America.
For existing contracts in facilities not owned by PZN or CCA, two
third-party service subsidiaries will be formed. One subsidiary will manage the
adult prison contracts and the other will manage jail and detention facility
contracts. PZN will have 95% of the economic interest in each subsidiary, and
the remaining 5% will be held by investors and the management and employees of
each subsidiary.
For contracts in facilities currently owned by PZN and CCA, as
well as for all future facilities, a separate management company will be formed.
PZN is expected to have 9.5% economic interest in it, with the balance held by
investors and the management and employees of that company. The
investor/management group will agree to pay PZN in installments for the right to
manage its properties.
"While the REIT rules are complex," Crants said, "in essence PZN will
move forward as the publicly-traded investment vehicle. `New' CCA will continue
to operate as its management company with the same name, same management team,
same reputation and same industry leadership position."
EXCHANGE TERMS
Under the terms of the CCA/PZN merger agreement, CCA will merge with
and into PZN in a tax-free reorganization. The exchange ratio for CCA common
shares will be fixed at .875 PZN share for each CCA share, with no adjustment
mechanism for changes in stock price. It is expected that most outstanding CCA
stock options and all deferred stock awards will be fully vested and converted
into CCA stock just prior to closing, then converted at the exchange ratio into
PZN shares.
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Shares in CCA's ESOP also will be converted into PZN stock at the
exchange ratio. It is anticipated that those shares then will be transferred
into a newly-formed 401-k Plan for employees.
J.C. Bradford & Co. has acted as financial advisor for PZN in its
consideration of the proposed merger, and Stephens Inc. has acted as financial
advisor for CCA.
CCA manages prisons and other correctional institutions for
governmental agencies. The company is the industry leader in private sector
corrections with 62,487 beds in 77 facilities under contract in the U.S., Puerto
Rico, Australia and the United Kingdom. CCA's full range of services includes
finance, design, construction and management of new or existing facilities, as
well as long-distance inmate transportation.
PZN acquires and owns correctional and detention facilities from both
private prison managers and governmental entities. The company has elected to be
treated as a real estate investment trust under the Internal Revenue Code. PZN
currently owns 20 facilities in nine U.S. states.
This press release contains forward-looking statements that involve
various risks and uncertainties. Actual results could differ materially from
those contained in these forward-looking statements due to certain factors,
including business and economic conditions and availability of financing. These
and other risks and uncertainties are detailed in the company's reports filed
with the SEC.
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