<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
------------------------
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 1-14031
CORRECTIONAL PROPERTIES TRUST
-----------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
MARYLAND 65-0823232
- --------------------------------- ------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
3300 PGA BLVD., SUITE 430
PALM BEACH GARDENS, FLORIDA 33410
- ---------------------------------------- -------------------
(Address of Principal Executive Offices) (Zip Code)
(561) 630-6336
-------------------------------------------------
(Registrant telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Shares of Beneficial Interest, par value $.001 per share,
on the New York Stock Exchange.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 24, 2000, the aggregate market value of the voting stock
held by non-affiliates of the registrant was approximately $79,321,250 based on
the closing price on that date of $11.125 per share. As of that date, there were
7,130,000 shares of the registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Items 10, 11, 12 and 13 of Part III of this Form
10-K is incorporated by reference to the definitive Proxy Statement of the
Company relating to the 2000 Annual Meeting of Shareholders.
Certain exhibits listed in Part IV of this Annual Report on Form 10-K are
incorporated by reference from prior filings made by the registrant under the
Securities Act of 1934, as amended.
<PAGE> 2
Correctional Properties Trust
Annual Report on Form 10-K
Index
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
PART I
Item 1. Business................................................................................ 4
Item 2. Properties.............................................................................. 27
Item 3. Legal Proceedings....................................................................... 27
Item 4. Submission of Matters to a Vote of Security Holders..................................... 27
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................... 28
Item 6. Selected Financial Data................................................................. 29
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................................... 30
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.............................. 33
Item 8. Financial Statements and Supplementary Data............................................. 33
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................................... 33
PART III
Item 10. Directors and Executive Officers of the Registrant...................................... 45
Item 11. Executive Compensation.................................................................. 45
Item 12. Security Ownership of Certain Beneficial Owners and Management.......................... 45
Item 13. Certain Relationships and Related Transactions.......................................... 45
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................... 46
</TABLE>
2
<PAGE> 3
PART I
FORWARD-LOOKING STATEMENTS:
This report contains forward-looking statements that are based on
current expectations, estimates and projections about the business marketplace
in which Correctional Properties Trust (the "Company") operates. This report
also includes management's beliefs and assumptions. Words such as "expects",
"anticipates", "intends", "plans", "believes", "seeks", "estimates", and
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions ("Future
Factors") which are difficult to predict. Therefore, actual outcomes and results
may differ materially from what is expressed or forecasted in such
forward-looking statements. The Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.
Future Factors include, without limitation, increasing competition,
including new entrants in the marketplace; the mix of tenants as it relates to
other private operators and governmental entities; governmental and public
policy changes; reliance on a single tenant for revenue; interest rate risk;
continued availability of financing; rental rates sufficient to make
acquisitions feasible; continued ability to pay a dividend; and financial
instruments and financial resources in the amounts, at the times and on the
terms required to support the Company's future business. These are
representative of the Future Factors that could affect the outcome of the
forward-looking statements. In addition, such statements could be affected by
general industry and market conditions and growth rates, general domestic and
international economic conditions including interest rate and currency rate
fluctuations and other future factors. The Company discusses such risks in the
Company's various reports filed with the Securities and Exchange Commission.
3
<PAGE> 4
ITEM 1. BUSINESS.
GENERAL
Correctional Properties Trust (the "Company") was formed in February
1998 as a Maryland real estate investment trust (a "REIT") to capitalize on the
growing trend toward privatization in the corrections industry. The principal
business strategy of the Company is to acquire correctional and detention
facilities from both private prison operators and governmental entities and to
lease such facilities to experienced correctional and detention facility
operators under long-term, non-cancelable, triple-net leases (leases where the
tenant is required to pay all operating expenses, taxes, insurance, structural
and non-structural repairs and other costs). The Company is the only
publicly-traded REIT which focuses exclusively on the acquisition and ownership
of correctional and detention facilities.
On April 28, 1998, the Company completed its initial public offering
(the "IPO") of 6,200,000 common shares of beneficial interest, par value $.001
per share (the "Common Shares"). On May 13, 1998, pursuant to the underwriters'
exercise of their over-allotment option, the Company sold an additional 930,000
Common Shares, resulting in a total of 7,130,000 Common Shares outstanding. The
Company's IPO generated gross proceeds of $142.6 million and aggregate net
proceeds, after deducting the underwriting discounts and commissions and
offering expenses, of approximately $130.7 million.
Management believes that the privatized corrections industry has the
potential for substantial growth in the United States due to increases in the
inmate population, decreases in the availability of public funding for new
correctional and detention facilities and a growing acceptance of the trend
toward privatization in the corrections industry. According to the United States
Bureau of Justice Statistics ("Bureau of Justice Statistics"), the inmate
population in federal, state and local facilities in the United States has grown
from 501,886 in 1980 to 1,825,400 at December 31, 1998, representing an increase
of approximately 273%. In addition, according to the Bureau of Justice
Statistics, as of December 31, 1998, state prison systems reported operating at
approximately 13% to 22% overcapacity and the federal corrections system
reported operating at approximately 27% overcapacity. The privatized corrections
industry has capitalized on these favorable supply/demand fundamentals,
resulting in a substantial increase in the number of privatized beds.
The location and mailing address of the Company's principal executive
offices is Gardens Plaza, Suite 430, 3300 PGA Boulevard, Palm Beach Gardens,
Florida 33410. The Company's telephone number is (561) 630-6336.
THE FORMATION TRANSACTIONS
In connection with the consummation of the IPO, the Company and
Wackenhut Corrections Corporation ("Wackenhut Corrections" or "WCC") engaged in
a series of transactions (the "Formation Transactions") which were designed to
consolidate ownership in the Company of eight correctional and detention
facilities operated by Wackenhut Corrections (the "Initial Facilities"), to
provide a vehicle for possible future acquisitions of other facilities which
Wackenhut Corrections owns or has a right to acquire (in addition to other
facilities the Company may acquire) and to enable the Company to qualify as a
REIT for federal income tax purposes. These transactions include the following:
ISSUANCE OF COMMON SHARES AND REDEMPTION OF FOUNDER'S SHARES. The
Company sold 7,130,000 Common Shares in the IPO, resulting in net proceeds to
the Company of approximately $130.7 million after deduction of the underwriting
discounts and commissions and estimated offering expenses. All of the net
proceeds to the Company from the IPO have been contributed by the Company
4
<PAGE> 5
directly to CPT Operating Partnership L.P., a Delaware limited partnership (the
"Operating Partnership") to fund its investment in the Operating Partnership, in
exchange for a combined 100% interest in the Operating Partnership. The Company
owns a 98% limited partnership interest and a 1% general partnership interest in
the Operating Partnership. CPT Limited Partner, Inc. ("CPT LP") owns a 1%
limited partnership interest in the Operating Partnership. The Company also
redeemed at cost the 1,000 founder's shares which were issued in connection with
the formation of the Company.
PURCHASE AGREEMENT. The Company entered into and closed upon an
Agreement of Sale and Purchase (the "Purchase Agreement") with Wackenhut
Corrections, pursuant to which the Company acquired, directly or as assignee of
Wackenhut Corrections contract rights, the Initial Facilities having an
aggregate design capacity of 3,154 beds for an aggregate cash purchase price of
approximately $113.0 million.
OPTION AGREEMENTS. The Company entered into Option Agreements with
Wackenhut Corrections, pursuant to which Wackenhut Corrections granted the
Company the option to acquire three additional correctional facilities (the
"Option Facilities") having an aggregate design capacity of 2,256 beds at any
time prior to the earlier of (i) four years from receipt of a certificate of
occupancy for the subject facility, or (ii) six months after such facility
achieves an occupancy level of 75% of the number of beds authorized under the
certificate of occupancy for the facility (the "Option Facility Option Period").
The purchase price (the "Option Facility Purchase Price") of an Option Facility
will equal 105% (or such lower percentage as may be agreed to by Wackenhut
Corrections) of the aggregate costs related to the acquisition, development,
design, construction, equipment and start-up of such Option Facility (which in
the case of goods or services provided by Wackenhut Corrections will not exceed
the costs which would be paid therefor if purchased from a third party in an
arm's length transaction) (the "Total Facility Cost").
LEASES. Concurrent with the Company's acquisition of the Initial
Facilities, the Company leased such facilities to Wackenhut Corrections (and
Wackenhut Corrections will continue to operate such facilities) pursuant to the
leases for an initial term of 10 years. Subject to certain limited exceptions,
the term of each of the leases may be extended by Wackenhut Corrections for
three additional five-year terms at a fair market rental rate as mutually agreed
upon by the Company and Wackenhut Corrections or, in the absence of such an
agreement, as determined by binding arbitration. In addition, the term of any of
the leases will be automatically extended upon expiration thereof on the same
terms (including the then applicable base rent and Base Rent Escalation (as
hereinafter defined) as reflected in the applicable lease if there is at such
5
<PAGE> 6
time an unexpired sublease with respect to such facility. If acquired, the
Option Facilities will be leased by the Company to Wackenhut Corrections under
the same terms (although possibly at different rates) as the Initial Facilities.
Under the terms of the leases, Wackenhut Corrections has a 30-day right of first
refusal on the proposed sale by the Company of any of the Initial Facilities
and, if acquired, the Option Facilities.
RIGHT TO PURCHASE AGREEMENT. The Company entered into a Right to
Purchase Agreement with Wackenhut Corrections, pursuant to which the Company has
the right, during the 15 years following the consummation of the IPO (so long as
there are any leases in force between the Company and Wackenhut Corrections), to
acquire and lease back to Wackenhut Corrections any correctional or detention
facilities which Wackenhut Corrections acquires or has the right to acquire (the
"Future Facilities"), subject to certain limited exceptions where the sale or
transfer of ownership of a facility is restricted under a facility operating
agreement or governmentally assisted financing arrangement. Under the terms of
the Right to Purchase Agreement, the Company may purchase a particular Future
Facility at any time until the earlier of (i)(a) in the case of a newly
developed Future Facility, four years from the receipt of a certificate of
occupancy for such Future Facility or (b) in the case of an already operating
Future Facility, four years from the date such Future Facility is acquired by
Wackenhut Corrections or the party from which Wackenhut Corrections has the
right to acquire such Future Facility or (ii) six months after the Future
Facility attains an occupancy level of 75% of the number of beds authorized
under the certificate of occupancy for such Future Facility, subject to certain
limited exceptions. The purchase price for each Future Facility (the "Future
6
<PAGE> 7
Facility Purchase Price") will equal 105% (or such lower percentage as may be
agreed to by Wackenhut Corrections) of the Total Facility Cost of such Future
Facility, which may differ from the fair market value of such facility at such
time. In the case of any Future Facility acquired during the first five years
following the consummation of the IPO, the initial annual rental rate will be
the greater of (i) the fair market rental rate as mutually agreed upon by the
Company and Wackenhut Corrections, and in the absence of such an agreement, as
determined by binding arbitration, or (ii) 9.5% of the applicable Future
Facility Purchase Price. In the case of any Future Facility acquired thereafter,
the initial annual rental rate will be the fair market rental rate as mutually
agreed upon by the Company and Wackenhut Corrections or, in the absence of such
an agreement, as determined by binding arbitration. Under the terms of any lease
between the Company and Wackenhut Corrections relating to a Future Facility,
Wackenhut Corrections has a right of first refusal on the proposed sale by the
Company of any such Future Facility.
BUSINESS AND GROWTH STRATEGIES
The Company's general business objectives are to maximize both current
returns to shareholders through increases in revenue and net income, and
long-term total returns to shareholders through appreciation in the value of the
Common Shares. As a REIT, the Company's specific business objective is to
maximize funds from operations and cash available for distribution to
shareholders. The Company intends to achieve these objectives by (i) pursuing
investment opportunities with private prison operators and governmental entities
for the acquisition of correctional and detention facilities, (ii) working with
tenants to identify opportunities to expand existing and newly acquired
facilities and (iii) structuring facility leases to include rent escalation
provisions which provide for annual increases in rent.
ACQUISITION OPPORTUNITIES. The Company believes that, because of the
increasing demand for additional prison beds and the lack of public funds
available to finance new facilities, opportunities may exist to acquire or
develop correctional and detention facilities from or on behalf of private
prison owners and operators and various government entities.
In addition to the possible acquisition of the Option Facilities, the
Company may acquire from both private prison owners and operators and
governmental entities additional correctional and detention facilities that meet
its investment guidelines, as described herein. The Company has the right to
acquire and lease back to Wackenhut Corrections each of the Future Facilities
during the applicable Future Facility option period. However, notwithstanding
Wackenhut Corrections' significant presence in the correctional and detention
industry, less than 7% of all adult prison beds in the United States are
privately managed. Management believes that as Wackenhut Corrections and the
private prison management industry continue to grow, opportunities may exist to
acquire additional private correctional facilities from Wackenhut Corrections on
attractive terms.
The Company believes that opportunities may exist to acquire or develop
correctional facilities from or on behalf of other private prison owners and
operators and various governmental entities. Historically, government entities
have used various methods of construction financing to develop new correctional
and detention facilities, including but not limited to the following: (i)
one-time general revenue appropriations by the government agency for the cost of
the new facility, (ii) general obligation bonds that are secured by either a
limited or unlimited tax levied by the issuing government entity or (iii) lease
revenue bonds secured by an annual lease payment that is subject to annual or
bi-annual legislative appropriation of funds. Many jurisdictions are operating
their correctional and detention facilities at well above their rated
capacities, and as a result are under a federal court order to alleviate prison
7
<PAGE> 8
overcrowding within a certain time period. These jurisdictions are often not in
a position to appropriate funds or obtain financing to construct a new
correctional or detention facility because of other fiscal demands or
requirements for public approval. Accordingly, the Company believes that, in an
attempt to address fiscal pressures of matching revenue collections with
projected expenses, such government entities may consider private ownership with
respect to the development of new correctional and detention facilities and
sale-leaseback transactions or other financing alternatives with respect to
existing correctional and detention facilities. Management believes that such
situations may enable the Company to acquire and develop correctional or
detention facilities from and on behalf of governmental agencies at all levels,
including those which might not be the subject of a private management contract.
EXPANSION OPPORTUNITIES. The Company also believes that there may be
opportunities for expansion of its existing correctional facilities
which could result in increased cash flows and property values. The Company
intends to provide expansion space as needed by its tenants and expects that
such expansion of its facilities may result in correspondingly higher rental
payments.
RENT ESCALATIONS. All of the Company's leases provide for a source of
cash flow with opportunities for future growth in revenues. The base rent for
the first year for each facility purchased before December 31, 1999 is equal to
9.5% of the facility purchase price. Thereafter, minimum rent escalates by a
fixed three percent at the first two annual anniversaries of the IPO and by an
amount equal to CPI at such successive annual anniversary for the remaining term
of each lease, subject to a maximum of four percent throughout the term of the
leases (the "Base Rent Escalation"). However, there can be no assurance that
such contractual escalations will be realized due to certain factors, including
changing circumstances and the possible renegotiation of the leases.
THE OPERATING PARTNERSHIP
FORMATION OF THE OPERATING PARTNERSHIP. Upon completion of the IPO, the
Company acquired a 100% interest in the Operating Partnership. The Company holds
a 1% general partnership interest and a 98% limited partnership interest in the
Operating Partnership. Through CPT LP, the Company owns a 1% limited partnership
interest in the Operating Partnership. Following the completion of the IPO and
the Formation Transactions, substantially all of the Company's assets are held
by, and its operations conducted through, the Operating Partnership, which
leases them to Wackenhut Corrections. The Company is the sole general partner of
the Operating Partnership and has the exclusive power under the Partnership
Agreement to manage and conduct the business of the Operating Partnership. The
Board of Trustees manages the affairs of the Company by directing the affairs of
the Operating Partnership. The Company's direct and, through CPT LP, indirect
percentage interest in the Operating Partnership, is 100%. The Operating
Partnership will make regular quarterly cash distributions to its partners,
including the Company and CPT LP, in proportion to their percentage interests
(i.e., the number of units) in the Operating Partnership. The Company will, in
turn, pay cash distributions to its shareholders in an amount per Common Share
equal to the amount distributed by the Operating Partnership per unit.
The Operating Partnership was organized to facilitate the
tax-advantaged acquisition of additional correctional and detention facilities
from private owners, although the Company has no present plan to acquire any
particular facility. In the event the Company undertakes such an acquisition, it
is contemplated that the owner of such a facility would become a Limited Partner
in the Operating Partnership and would be issued units of limited partnership
interests under the Operating Partnership, representing an equal undivided
fractional share of each item of the Operating Partnership's income, gain, and
loss and in distribution of the Operating Partnership's assets (the "Units," and
the holder thereof, a "Unitholder") therein as the consideration, in whole or in
part, for the Unitholder's transfer of the facility to the Operating
Partnership. It is also contemplated that the Unitholder would be given the
right after a period of time to exchange Units in the Operating Partnership for
cash based upon their fair market value or, at the Company's option, for Common
8
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Shares on a one-for-one basis. It is also contemplated that substantially all
the Company's assets may be owned indirectly through the Operating Partnership
so that one Unit in the Operating Partnership would generally correspond
economically to one Common Share. In order to accomplish such objective, and
while the Company has no present plan to issue Units to a private prison owner,
the current structure using the Operating Partnership is being utilized, rather
than the Company taking title to the Initial Facilities, in order to avoid in
the future a re-transfer of the Initial Facilities to such a partnership, and
the incurrence at that time of associated transfer and other costs, which would
likely be necessary or advisable in order to offer a private owner a
tax-advantaged acquisition vehicle. Currently, the Company and CPT LP are the
only partners in the Operating Partnership and possess the power unilaterally to
amend and restate the Partnership Agreement (as hereinafter defined). The
Company does not intend to use the Operating Partnership (or any partnership
which is owned by the Operating Partnership) (the "Subsidiary Partnership") as a
vehicle for tax-advantaged acquisitions unless it receives an opinion of tax
counsel to the Company that such use would not result in the disqualification of
the Company as a REIT, including an opinion that the Operating Partnership (or
any Subsidiary Partnership) would not be treated for federal income tax purposes
as an association taxable as a corporation or a publicly-traded partnership.
OPERATING PARTNERSHIP AGREEMENT. The Operating Partnership is organized
as a Delaware limited partnership pursuant to the terms of the partnership
agreement which includes the Company, as general partner, and both the Company
and CPT LP as the initial limited partners (the "Partnership Agreement").
Pursuant to the Partnership Agreement, the Company, as the sole general partner
of the Operating Partnership (the "General Partner"), has full, exclusive and
complete responsibility and discretion in the management and control of the
Operating Partnership, and the Company and CPT LP, in their capacity as the
Limited Partners, have no authority to transact business for, or participate in
the management activities or decisions of, the Operating Partnership. Generally,
any amendment to the Partnership Agreement may be made by the General Partner,
including, without limitation, amendments that (i) add to the obligations of the
General Partner, (ii) reflect the admission, substitution or withdrawal of
partners, (iii) reflect the issuance of additional partnership interests issued
by the Operating Partnership, (iv) reflect a change that does not adversely
affect Limited Partners and (v) are necessary to satisfy legal requirements. The
consent of each adversely affected partner is required for any amendment that
would require any partner to make additional capital contributions or restore
any negative balance in its capital account, or which amendment would convert a
limited partnership interest into a general partnership interest, affect a
Limited Partner's liability or right to receive distributions or that would
dissolve the Operating Partnership prior to December 31, 2048 (other than as a
result of certain mergers or consolidations). The Partnership Agreement requires
that the Operating Partnership be operated in a manner that will enable the
Company to satisfy the requirements for being classified as a REIT.
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STRUCTURE OF THE COMPANY
The following diagram sets forth the structure of the Company:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
------------------------------
CORRECTIONAL PROPERTIES TRUST
(THE "COMPANY")
------------------------------
100%
98% 1% --------------------
LIMITED GENERAL CPT
PARTNER PARTNER LIMITED PARTNER INC. ---------------------------------
AND ("CPT LP") WACKENHUT CORRECTIONS CORPORATION
-------------------- ("WACKENHUT CORRECTIONS")(2)
RENTS ----------------------------------
1%
LIMITED LEASES
PARTNER
SUBLEASES RENTS
-----------------------------
CPT
OPERATING PARTNERSHIP L.P. RENTS -----------------------
(THE "OPERATING PARTNERSHIP") WCC RE HOLDINGS LLC
----------------------------- LEASES (SUCCESSOR BY MERGER TO
WCC RE HOLDINGS, INC.)
("WCCRE LLC")(1),(3),(4)
------------------------
</TABLE>
- -----------------------
(1) Following the consummation of the IPO, WCCRE Inc., a wholly-owned
subsidiary of Wackenhut Corrections, was merged with and into WCC RE
Holdings LLC ("WCCRE LLC"), which was formed as a wholly-owned
subsidiary of Wackenhut Corrections, with WCCRE LLC being the surviving
entity. WCCRE Inc. and WCCRE LLC are sometimes referred to together
herein as "WCCRE."
(2) The Operating Partnership leases the following Initial Facilities to
Wackenhut Corrections: the Queens Facility, the Aurora Facility, the
Hobbs Facility and the Karnes Facility.
(3) The Operating Partnership leases the following Initial Facilities to
WCCRE, each of which were in turn subleased to Wackenhut Corrections:
the Broward Facility, the Central Valley Facility, the Golden State
Facility, the Desert View Facility and the McFarland Facility.
(4) The provisions of certain existing facility operating agreements
between Wackenhut Corrections and the respective contracting
governmental entities afford the governmental entity the right to
assume a lease of such facility (or designate another facility operator
to assume the lease of such facility) at a fixed rental rate in the
event of the early termination of the facility operating agreement upon
the occurrence of certain events. In such instances, Wackenhut
Corrections has entered into a sublease for the subject facility with
WCCRE, a wholly-owned subsidiary of Wackenhut Corrections, with WCCRE
as the lessor and Wackenhut Corrections as the lessee. The contracting
governmental entity has the right to assume the rights of Wackenhut
Corrections under such sublease on early termination of the operating
agreement for the relevant facility. However, even if a government
entity elects to exercise its right to assume a sublease relating to a
facility, Wackenhut Corrections is nevertheless liable to the Company
under the master lease relating to such facility. See "Subleases."
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THE OWNED FACILITIES AND OPTION FACILITIES.
THE OWNED FACILITIES
The ten facilities owned by the Company at December 31, 1999 (the eight
Initial Facilities acquired by the Company in connection with the IPO and both
the Lea County Correctional Facility (the "Hobbs Facility") and the Lawton
Correctional Facility (the "Lawton Facility") purchased in January 1999,
together the ten "Owned Facilities") acquired by the Company were purchased for
an aggregate cash purchase price of approximately $207 million. The Company has
leased the Owned Facilities to Wackenhut Corrections or its subsidiary (and
Wackenhut Corrections will continue to operate such Owned Facilities) pursuant
to the leases, which have initial terms of 10 years. Throughout the terms of
these leases, the base annual rents escalate by the Base Rent Escalation. The
Owned Facilities are located in seven states and have an aggregate design
capacity of 5,854 beds. The following table sets forth certain information with
respect to the Owned Facilities as of December 31, 1999:
<TABLE>
<CAPTION>
DESIGN EXPIRATION
CAPACITY OF
AND FACILITY FACILITY
TYPE OF CONTRACTING SECURITY OCCUPANCY OPENING OPERATING RENEWAL
FACILITY AND LOCATION FACILITY ENTITY LEVEL(1) RATE(2) DATE AGREEMENT OPTIONS
- --------------------- -------- ---------- -------- --------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Aurora INS Processing
Center............ INS INS(3) Minimum/ 300/100% May May Four
(the "Aurora Processing Medium 1997 2000 One-
Facility") Center Year
Aurora, CO
McFarland Community
Correctional Facility Pre-Release CDOC(4) Minimum/ 224/94% February June --
(the "McFarland Center Medium 1988 2001
Facility")
McFarland, CA
Queens Private
Correctional
Facility.......... INS INS(5) Minimum/ 200/92% March June One
(the "Queens Detention Medium 1997 2000 One-
Facility") Facility Year
New York, NY
Central Valley Community
Correctional Facility Adult CDOC Minimum/ 550/96% December December --
(the "Central Valley Correctional Medium 1997 2007
Facility") Facility
McFarland, CA
Golden State Community
Correctional Facility Adult CDOC Minimum/ 550/95% December December --
(the "Golden State Correctional Medium 1997 2007
Facility") Facility
McFarland, CA
Desert View Community
Correctional Facility Adult CDOC Minimum/ 550/99% December December --
(the "Desert View Correctional Medium 1997 2007
Facility" and Facility
together with the
Golden State
Facility and the
Central Valley
Facility, the
"California
Facilities")
Adelanto, CA
Broward County Work
Release Center.... Work Release Broward Non- 300/90%(6) February February Unlimited
(the "Broward County Center County Secured 1998 2003(9) Two-
Facility") and Year
Broward County, FL BSO(6)
Karnes County
Correctional
Center............ Adult Karnes Multi- 480/99% January Varies Varies
(the "Karnes Correctional County Security 1996
Facility") Facility
Karnes County, TX
Lawton Correctional
Facility (the "Lawton
Facility") ......... Prison ODOC(7) Medium 1,500/100% December June Three
1999 2000 One-
Year
Lea County Correctional
Facility (the "Hobbs
Facility")
Hobbs, NM .......... State Lea Multi- 1,200/90% May May Annual
Prison County Security --------- 1998 2001
Total 5,854
==========
</TABLE>
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- --------------------
(1) Each facility is identified according to the level of security maintained
as follows: non-secured facilities are facilities which are access
controlled residential facilities; minimum security facilities are
facilities having open-housing within an appropriate designated and
patrolled institutional perimeter; medium security facilities are
facilities having either cells, rooms or dormitories, a secure perimeter,
and some form of external patrol; maximum security facilities are
facilities having single occupancy cells, a secure perimeter and external
patrol or devices; and multi-security facilities are facilities with
various components of the previously described security levels.
(2) Design capacity measures the number of beds, and accordingly the number of
inmates each facility is designed to accommodate. Occupancy rate measures
the percentage of the number of beds which a facility is designed to
accommodate which are occupied at any given time or for which payment has
been guaranteed by the contracting governmental entity. The facility
operating agreement with respect to any facility may provide for occupancy
less than the facility design capacity. While the design capacity of each
of the Central Valley Community Correctional Facility, the Golden State
Community Correctional Facility and the Desert View Community Correctional
Facility is 550, the facility operating agreement for each such facility
provides for the use and occupancy of only 500 beds per facility. The
occupancy rates presented are as of December 31, 1999. The Company believes
design capacity and occupancy rate are appropriate measures for evaluating
prison operations because the revenues generated by each facility are
generally based on a per diem or monthly rate per inmate housed at the
facility paid by the corresponding contracting governmental entities. The
ability of Wackenhut Corrections or another private prison operator to
satisfy its financial obligations under its leases with the Company is
based in part on the revenues generated by their facilities, which in turn
depends on the design capacity and occupancy rate of each facility.
(3) The United States Immigration and Naturalization Service.
(4) The State of California Department of Corrections.
(5) The facility operating agreement for the Queens Private Correctional
Facility includes a minimum guarantee of 150 beds (75% occupancy)
(6) The Broward County Sheriff's Office. While the actual physical occupancy
rate was 90% as of January 2000, the Broward County Sheriff's office
has guaranteed payment based on a 100% occupancy rate.
(7) State of Oklahoma Department of Corrections.
ADULT CORRECTIONAL FACILITIES. Adult correctional facilities are used
to house adult inmates on a permanent basis for the duration of their sentences.
The adult correctional facilities acquired by the Company include the Karnes
Facility, the Central Valley Facility, the Golden State Facility, the Desert
View Facility, the Hobbs Facility, and the Lawton Facility.
The Karnes Facility is a medium security correctional facility located
in Karnes City, Texas with a design capacity of 480 beds. The facility is
situated on approximately 12 acres and contains approximately 77,000 square
feet. Wackenhut Corrections owns an adjacent parcel of unimproved land
containing approximately 30 acres at a total cost of $60,000. Wackenhut
Corrections began operating this facility in January 1998 under an interim
operating agreement with Karnes County and has subsequently negotiated a
long-term operating agreement with Karnes County which expires in 2008.
The Central Valley Facility and the Golden State Facility are medium
security facilities located on adjacent properties in McFarland, California. The
Central Valley Facility is situated on approximately 19 acres, and the Golden
State Facility is situated on approximately 33 acres. Each facility contains
approximately 95,901 square foot structure with a design capacity of 550 beds.
Construction of each of the Central Valley Facility and Golden State Facility
was completed in December 1997. Wackenhut Corrections has contracted with the
CDOC to operate each such Facility, which contracts expire in December 2007.
The Desert View Facility is located in Adelanto, California and is a
medium security facility. The facility is situated on approximately 16 acres and
contains approximately 95,901 square feet with a design capacity of 550 beds.
Construction of the facility was completed in December 1997. Wackenhut
Corrections has contracted with the CDOC to operate this facility, which
contract expires in December 2007.
The Hobbs Facility is a new high-security facility located on
approximately 80 acres and contains approximately 360,000 square feet with a
design capacity of 1200 beds. Construction was completed in May 1998. Wackenhut
Corrections has contracted with Lea County to operate the facility, which
contract expires in May 2001.
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<PAGE> 13
The 1200-bed Hobbs Facility was purchased by the Company in two parts.
The first 600 beds were acquired in October 1998 while the remaining 600 beds
(the "Hobbs Expansion") were bought by the Company in January 1999.
The Lawton Facility is located in Lawton, Oklahoma and is used as a
medium security prison. The facility is situated on 160 acres. The approximately
406,000 square foot structure contains a design capacity for 1,500 beds.
Oklahoma state law requires that the operating agreement contain a provision
granting the Oklahoma Department of Corrections the option at the beginning of
each fiscal year to purchase the facility at a predetermined price, which must
be negotiated and included in a schedule or formula to be contained in the
operating agreement. Wackenhut Corrections has agreed in the lease for the
Lawton Facility to pay any shortfall to the Company in the event the purchase
option is exercised by the State of Oklahoma and the purchase price paid by the
State of Oklahoma is less than the net book value of the Lawton Facility as
shown on the Company's books and records at the time the purchase option is
exercised.
PRE-RELEASE CENTER. A pre-release center is a minimum to medium
security facility for inmates nearing parole, offering inmates basic education
and pre-employment training as well as alcohol and drug abuse treatment and
counseling. The pre-release center acquired by the Company is the McFarland
Facility.
The McFarland Facility is located in McFarland, California. The
facility is situated on approximately 5 acres, and contains approximately 35,000
square feet. The facility currently has a design capacity of 224 beds. Wackenhut
Corrections has contracted with the CDOC to operate the facility, which contract
expires in June 2001.
DETENTION FACILITIES. Detention facilities are used to house
undocumented aliens for the INS and are classified as minimum to medium security
facilities. The detention facilities acquired by the Company include the Aurora
Facility and the Queens Facility.
The Queens Facility is located on approximately 1.34 acres in New York,
New York. The facility has a design capacity of 200 beds and contains
approximately 61,400 square feet. Wackenhut Corrections began operating the
facility in June 1997, and is presently operating the facility under a
management contract with the INS which expires in January 2002.
The Aurora Facility is located on approximately 46 acres in Aurora,
Colorado. Originally designed to accommodate 150 beds, the facility was expanded
in 1992 to contain a design capacity of 300 beds. The approximately 66,000
square foot medium security facility is operated under a management agreement
entered into between the INS and Wackenhut Corrections which expires in
October 2002.
WORK RELEASE CENTERS. A work release center is an access-controlled
community residential center which houses court-ordered residents who work in
the community and participate in programs and residential services at the
center. The work release center acquired by the Company is the Broward Facility.
The Broward Facility is located in Pompano Beach, Florida and is used
to house residents participating in the Broward County Work Release Program. The
facility is located on approximately ten acres and is designed to accommodate
300 beds. The approximately 86,500 square foot structure is operated under a
management agreement between Broward County, the Sheriff of Broward County and
Wackenhut Corrections, which expires in February 2003, but which provides for
options in favor of the Sheriff of Broward County to extend the management
contract for successive two year terms.
With the exceptions of the Aurora INS Processing Center and McFarland
Community Correctional Facility, all of the Company's facilities are deemed
"significant" because they each account for 10% or more of the Company's total
assets as of December 31, 1999. For federal income tax purposes, the basis will
be equal to their purchase price by the Company. The real property associated
with these properties (other than land) generally will be depreciated for
federal income tax purposes over 40 years using the straight line method, which
equates to a rate of 2.5%. Real estate taxes will be paid by Wackenhut
Corrections pursuant to the terms of the Leases.
THE OPTION FACILITIES. The Option Facilities are located in two
states and have an aggregate design capacity of 756 beds. The following table
sets forth certain information with respect to the Option Facilities as of
December 31, 1999.
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<PAGE> 14
<TABLE>
<CAPTION>
ANTICIPATED ANTICIPATED
DESIGN LEASE
TYPE OF CONTRACTING SECURITY (BED) TERM
FACILITY AND LOCATION FACILITY ENTITY LEVEL CAPACITY (YEARS)
--------------------- -------- ----------- -------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Michigan Youth Correctional
Facility (the "Michigan
Facility").................. Juvenile MDOC(1) Maximum 480 10
Lake County, MI Correctional
Facility
Jena Juvenile Justice Center
(the "Jena Facility")....... Juvenile LDOC(2) Multi- 276 10
Jena, LA Correctional Security
Facility
-----
Total(5)....................... 756
=====
</TABLE>
- ---------------------
(1) State of Michigan Department of Management and Budget for the Department of
Corrections.
(2) State of Louisiana Department of Public Safety and Corrections.
The Michigan Facility is located in Lake County, Michigan and is
situated on approximately 99 acres. This approximately 163,250 square foot
facility contains a design capacity of 480 beds. Construction of the Michigan
Facility is anticipated to be completed during the fourth quarter of 1999. The
State of Michigan has awarded Wackenhut Corrections an operating agreement for a
term of five years from the opening of the facility. Wackenhut Corrections is
currently finalizing the terms of the operating agreement with the State of
Michigan.
The Jena Facility is located in Jena, Louisiana and is used to house
juvenile inmates. The facility is situated on approximately 100 acres, consists
of an approximately 62,400 square foot structure and has a capacity for 276
beds. The Jena Facility is operated by Wackenhut Corrections under an operating
agreement with the State of Louisiana, the term of which is subject to certain
qualifications more fully discussed in "Subleases--The Jena Facility."
On January 7, 2000, the Company exercised its option to purchase the Jena
facility for approximately $15,300,000.
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<PAGE> 15
LEASES AND SUBLEASES
Simultaneous with the Company's acquisition of the Owned Facilities
(and, if acquired, the Option Facilities), the Company leases such facilities
either directly to Wackenhut Corrections or to WCCRE, which in turn subleases
such facilities to Wackenhut Corrections. The sublease structure is used in
those instances where Wackenhut Corrections is required by a contracting
governmental entity in connection with the award of a facility operating
agreement to afford the governmental entity the right to assume a lease of such
facility (or designate another facility operator to assume the lease of such
facility) at a fixed rental rate in the event of the early termination of the
operating agreement upon the occurrence of certain events. Generally, in those
instances where a sublease is created for the contracting governmental entity
(or its designated replacement operator) to assume, the term of the sublease is
commensurate with the term of the operating agreement originally entered into
between Wackenhut Corrections and the governmental entity thereby affording the
governmental entity the ability to plan and effectuate an orderly relocation of
its inmates to another facility in the event of early termination of its
operating agreement with Wackenhut Corrections. However, regardless of whether
the sublease structure is created for an individual facility, Wackenhut
Corrections, at all times, remains primarily liable to the Company under the
leases.
Because the leases are triple-net leases, which impose significant
burdens upon the tenant and provide for an escalating annual base rent, the
leases do not satisfy the requirements of such governmental entities or allow
Wackenhut Corrections the flexibility to tailor the lease provisions to the
terms of a particular Request for Proposals ("RFP"). Therefore, in such
instances Wackenhut Corrections requests that the Company enter into the lease
with WCCRE Inc., which in turn enters into a more basic fixed rental rate
sublease with Wackenhut Corrections, which sublease meets the requirements of
the contracting governmental entity, and permits the contracting governmental
entity to assume such sublease in the event of early termination of the
operating agreement for the relevant facility. The provisions of all subleases
are subject to the Company's review and approval. The Company has leased the
following Owned Facilities to WCCRE Inc., each of which in turn are subleased to
Wackenhut Corrections: the Broward Facility, the Central Valley Facility, the
Golden State Facility, the Desert View Facility and the McFarland Facility. The
Company has leased the following Owned Facilities, directly to Wackenhut
Corrections: the Queens Facility, the Aurora Facility, the Hobbs Facility, the
Lawton Facility and the Karnes Facility.
LEASES
The Company leases each of its facilities (including all Owned
Facilities and, if acquired, Option Facilities) to Wackenhut Corrections or to
WCCRE. Each such facility is the subject of a separate lease that incorporates
the provisions of a master lease (the "Master Lease") between the Company and
Wackenhut Corrections. The lease of each such facility includes the land, the
buildings and structures and other improvements thereon, easements, rights and
similar appurtenances to such land and improvements, and permanently affixed
equipment, machinery, and other specified fixtures relating to the operation of
the facility. The lease of each such facility provides for an initial term of 10
years (the "Fixed Term") and may be extended by Wackenhut Corrections for three
additional five-year terms beyond the Fixed Term (the "Extended Terms") at a
fair market rental rate as mutually agreed upon by the Company and Wackenhut
Corrections or, in the absence of such an agreement, as determined by binding
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<PAGE> 16
arbitration. In addition, an individual lease will be automatically extended on
the same terms (including the then applicable base rent and Base Rent
Escalation) as reflected in the applicable lease if there is at such time an
unexpired sublease with respect to such facility. The Fixed Term and Extended
Terms under each lease shall be subject to earlier termination upon the
occurrence of certain contingencies described in the lease. Any additional
Future Facilities will be leased upon terms and conditions substantially similar
to the above-described leases except that the rental rate in the case of any
Future Facility acquired during the first five years following the IPO will be
the greater of (i) the fair market rental rate as mutually agreed upon by the
Company and Wackenhut Corrections or, in the absence of such agreement, by
binding arbitration or (ii) 9.5% of the applicable Future Facility Purchase
Price. In the case of any Future Facility acquired thereafter, the initial
annual rental rate will be the fair market rental rate as mutually agreed upon
by the Company and Wackenhut Corrections or in the absence of such an agreement,
as determined by binding arbitration.
USE OF THE FACILITIES. Each lease permits Wackenhut Corrections to
operate the leased property solely as a correctional or detention facility,
unless otherwise mutually agreed upon by the Company and Wackenhut Corrections.
Wackenhut Corrections has the responsibility under each lease to obtain and
maintain all licenses, certificates and permits in order to use and operate the
respective facility and to provide the Company with evidence of compliance with
this obligation.
AMOUNTS PAYABLE UNDER THE LEASES; NET PROVISIONS. During the Fixed Term
and the Extended Terms, Wackenhut Corrections is required to pay annual base
rent ("Annual Base Rent") in monthly installments. The initial Annual Base Rent
for each Owned Facility has been determined by calculating a figure which would
yield 9.5% on the purchase price of such Owned Facility. The initial Annual Base
Rent and the 1999 cash rent for the Aurora Facility are $743,734 and $758,608,
for the McFarland Facility are $666,921 and $680,259, for the Queens Facility
are $1,399,547 and $1,427,538, for the Central Valley Facility are $1,671,145
and $1,704,567, for the Golden State are $1,667,776 and $1,701,132, for the
Desert View Facility are $1,602,149 and $1,634,192, for the Broward Facility are
$1,437,229 and $1,465,973, for the Karnes Facility are $1,550,400 and
$1,581,408, for the Hobbs Facility are $4,444,894 and $4,432,553, and for the
Lawton Facility are $4,347,165 and $4,178,108. Annual Base Rent for each leased
property will be increased each year by the Base Rent Escalation.
Each lease of a leased property is what is commonly known as a
triple-net lease or absolute net lease, under which Wackenhut Corrections is
required to pay Annual Base Rent and any additional charges related to the
leased property, including every fine, penalty, interest expense and cost which
may be added for nonpayment or late payment thereof, all taxes, assessments and
levies, excises, fees, and all other government charges with respect to each
leased property, and all charges for utilities and services, including, without
limitation, electricity, telephone, trash disposal, gas, oil, water, sewer,
communication and all other utilities used in each leased property.
MAINTENANCE, MODIFICATION AND CAPITAL ADDITIONS. Under each lease,
Wackenhut Corrections is required, at its sole cost and expense, to maintain
each leased property in good order, repair and appearance and will make
structural and non-structural, interior and exterior, foreseen and unforeseen,
and ordinary and extraordinary repairs which may be necessary and appropriate to
keep such leased property in good order and repair. The Company is not required
to build or rebuild any improvements to any leased property, or to make any
repairs, replacements, alterations, restorations or renewals to any leased
property.
Wackenhut Corrections, at its sole cost and expense, may make
alterations, additions, changes and/or improvements to each leased property,
provided that with respect to an improvement which has a cost of more than
$500,000 or which, when aggregated with the cost of all such improvements for
any individual leased property in the same lease year, would cause the total
cost of all such improvements to exceed $1,000,000 (each such threshold amount
increasing 4% per year, cumulatively) the value and primary intended use of such
leased property (determined in the Company's reasonable judgment) is not
impaired and the prior written consent of the Company is obtained. All
machinery, equipment, furniture, furnishings, and other personal property
(except certain excluded proprietary property) installed at the expense of
Wackenhut Corrections on any leased property, is required to remain the property
of Wackenhut Corrections until the expiration or earlier termination of the
lease, at which time the Company will have an option to purchase such property
at appraised fair market value, as determined pursuant to terms of the master
lease, upon such expiration or termination. However, the Company's option in
certain cases may be subject to a contracting governmental entity's superior
right to acquire all or a portion of such removable personal property under the
terms of its operating contract with Wackenhut Corrections.
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<PAGE> 17
Each lease provides that, at the request of Wackenhut Corrections, the
Company may construct one or more new buildings or other improvements to a
particular leased property which are not normal or recurring to the maintenance
of such leased property (a "Capital Addition"). A Capital Addition to a leased
property may necessitate an amendment to an existing lease or new lease
agreement setting forth any changes in the premises, rent, or other similar
terms of the lease as a result of the Capital Addition. In certain situations, a
Capital Addition to a leased property may be made directly by Wackenhut
Corrections and financed by third parties with the prior written consent of the
Company. In the case of a Capital Addition not undertaken or financed by the
Company, the Company has an option to acquire and lease back to Wackenhut
Corrections such Capital Addition for a period of one year following the date
Wackenhut Corrections first receives inmates or detainees in such Capital
Addition. The purchase price of such Capital Addition is required to be 105% (or
such lower percentage as may be agreed to by Wackenhut Corrections) of the Total
Facility Cost of such Capital Addition. Fair market rental rates for a Capital
Addition acquired or undertaken by the Company is required to be as mutually
agreed upon by the Company and Wackenhut Corrections, and in the absence of such
an agreement, as determined by binding arbitration.
INSURANCE. Each lease provides that Wackenhut Corrections is required
to maintain insurance on each leased property under Wackenhut Corrections'
insurance policies providing for the following coverages: (i) fire, vandalism,
earthquake and malicious mischief, extended coverage perils, and all physical
loss perils, (ii) comprehensive general public liability (including personal
injury and property damage), (iii) loss of rental value or business interruption
and (iv) workers' compensation. Under each lease, the Company has the right to
periodically review Wackenhut Corrections' insurance coverage and provide input
with respect thereto. Management of the Company believes that the insurance
coverage currently maintained by Wackenhut Corrections on each Owned Facility is
adequate in scope and amount and expects that adequate insurance will be
maintained by Wackenhut Corrections on each such facility in the future. The
Company is required to be named on such policies as an additional insured or
loss payee, as the case may be.
ENVIRONMENTAL MATTERS. Each lease provides that Wackenhut Corrections
makes various representations and warranties relating to environmental matters
with respect to each leased property. Each lease also requires Wackenhut
Corrections to indemnify and hold harmless the Company and any holder of a
mortgage, deed of trust or other security agreement on a leased property (a
"Company Mortgagee") from and against all liabilities, costs and expenses
imposed upon or asserted against the Company or the leased property on account
of, among other things, any federal, state or local law, ordinance, regulation,
order or decree relating to the protection of human health or the environment in
respect of the leased property. The leases provide, however, that Wackenhut
Corrections shall not be liable with respect to matters or events that arise
after the commencement date of the applicable lease as a result of the gross
negligence or intentional misconduct of the Company.
ASSIGNMENT AND SUBLETTING. The leases provide that with certain
exceptions for service agreements for portions of the leased property in favor
of various licensees providing incidental services customarily associated with
or incidental to the operations of the leased property, Wackenhut Corrections
may not, without the prior written consent of the Company, assign, sublease,
mortgage, pledge, hypothecate, encumber or otherwise transfer (except to an
affiliate of Wackenhut Corrections) any lease or any interest therein, or all or
any part of the leased property. The leases further state that except as
provided in connection with governmental subleases meeting certain requirements
such consent may be granted or withheld by the Company in its sole discretion.
An assignment of a lease will be deemed to include any change of control (a
"Change of Control") of Wackenhut Corrections, as if such Change of Control were
an assignment of the lease. A "Change of Control" of Wackenhut Corrections
means, for purposes of the leases, the sale by Wackenhut Corrections of a
controlling interest in Wackenhut Corrections, or the sale or other transfer of
all or substantially all of the assets of Wackenhut Corrections. A Change of
Control also means any transaction pursuant to which Wackenhut Corrections is
merged with or consolidated into another entity, and Wackenhut Corrections is
not the surviving entity. The leases further provide that no assignment or
sublease will in any way impair the continuing primary liability of Wackenhut
Corrections under the leases. The Company will not unreasonably withhold its
consent to subleases in favor of governmental entities which are required in
connection with an award of an operating contract to Wackenhut Corrections,
provided that, among other requirements, (i) any such subleases are inferior and
subordinate to the Company's interest in the facility and (ii) the term of the
sublease does not extend beyond the term of the lease between the Company and
Wackenhut Corrections.
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<PAGE> 18
In addition, if requested by Wackenhut Corrections in order to respond
to a RFP for an operating agreement, the Company may agree to provide
nondisturbance agreements in favor of governmental entities pursuant to which
the Company will agree to recognize and leave the rights of any such
governmental sub-tenant undisturbed in the event of a termination of the lease,
but only upon a determination by the Company that the provisions of any such
governmental subleases are acceptable in the Company's sole and absolute
discretion.
DAMAGE TO, OR CONDEMNATION OF, A LEASED PROPERTY. In the event of any
damage or destruction to any facility, Wackenhut Corrections has the obligation
to fully repair or restore the same at Wackenhut Corrections' expense, with the
Annual Base Rent, real estate taxes and other impositions on the particular
facility being proportionately abated during the time of restoration, but only
to the extent of any rental interruption insurance proceeds actually received by
the Company. If any facility is damaged to such an extent that 50% of the inmate
beds at the leased facility are rendered unusable, and if Wackenhut Corrections
has fully complied with the insurance obligations with respect to such facility
(including maintaining insurance against loss of rents), Wackenhut Corrections
may terminate the lease of that facility upon turning over all insurance
proceeds and payment of any deductible or uninsured loss with respect to such
facility to the Company. Additionally, if the facility is damaged within the
last 24 months of the lease term and cannot be restored within six months of the
date of the damage, either the Company or Wackenhut Corrections may terminate
the lease. However, if Wackenhut Corrections exercises an option to extend the
lease term, the Company may not terminate upon such casualty damage or
destruction.
In the event of a condemnation or taking of any leased property neither
party shall be obligated to compensate the other for any damage or loss suffered
as a consequence of such a taking. In the event of a partial taking, Wackenhut
Corrections is obligated to repair the portion not taken, if the same does not
render the leased property unsuitable for Wackenhut Corrections' then use and
occupancy, but only to the extent of the condemnation award. The total
condemnation award shall be payable to the Company, except that Wackenhut
Corrections may recover its business damages, the value of its trade fixtures,
personal property and improvements which are not capital additions purchased or
financed by the Company and the value of its leasehold interest.
INDEMNIFICATION GENERALLY. Under each lease, Wackenhut Corrections
indemnifies, and is obligated to save harmless, the Company from and against any
and all demands, claims, causes of action, fines, penalties, damages (including
consequential damages), losses, liabilities (including strict liability),
judgments, and expenses (including, without limitation, reasonable attorneys'
fees, court costs, and related expenses) incurred in connection with or arising
from: (i) the use, condition, operation or occupancy of each leased property;
(ii) any activity, work, or thing done, or permitted or suffered by Wackenhut
Corrections in or about the leased property; (iii) any acts, omissions, or
negligence of Wackenhut Corrections or any person claiming under Wackenhut
Corrections, or the contractors, agents, employees, invitees, or visitors of
Wackenhut Corrections or any such person; (iv) any claim of any person
incarcerated, held or detained in the leased property, including claims alleging
breach or violation of such person's civil or legal rights; (v) any breach,
violation, or nonperformance by Wackenhut Corrections or the employees, agents,
contractors, invitees, or visitors of Wackenhut Corrections, of any term,
covenant, or provision of any lease or any law, ordinance, or governmental
requirement of any kind; (vi) any injury or damage to the person, property or
business of Wackenhut Corrections, its employees, agents, contractors, invitees,
visitors, or any other person entering upon the leased property under the
express or implied invitation of Wackenhut Corrections; (vii) any accident,
injury to or death of persons or loss of damage to any item of property
occurring at the leased property; and (viii) any improvements to the leased
property in order to comply with the requirements of the Americans with
Disabilities Act of 1990, as amended (the "ADA").
Under each lease, the Company indemnifies, and is obligated to save
harmless, Wackenhut Corrections from and against all liabilities, costs and
expenses (including reasonable attorneys' fees) imposed upon or asserted against
Wackenhut Corrections as a result of the Company's gross negligence or
intentional misconduct.
EVENTS OF DEFAULT. An event of default will be deemed to have occurred
under the Master Lease and any individual Lease if Wackenhut Corrections fails
to perform any covenant and does not diligently undertake to cure the same after
30 days' notice from the Company; if the interest of Wackenhut Corrections in
any leased property is levied upon or attached and is not discharged in a
specified period of time; or if any representation or warranty of Wackenhut
Corrections is incorrect. An event of default will be deemed to have occurred
under the Master Lease and all of the leases, if, among other things, Wackenhut
Corrections fails to pay any rent within 15 days after notice of non-payment
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<PAGE> 19
from Company; if any bankruptcy proceedings are instituted by or against
Wackenhut Corrections and, if against Wackenhut Corrections, such bankruptcy
proceedings are not dismissed within 90 days; if any material part of the
property of Wackenhut Corrections is levied upon or attached in any proceeding
and not discharged within a specified period of time; if Wackenhut Corrections
defaults in any payment of any obligations for borrowed money having a principal
balance in excess of $25.0 million; or if Wackenhut Corrections is the subject
of a non-appealable final judgment in an amount greater than $10.0 million,
which is not covered by insurance or discharged by Wackenhut Corrections within
a specified period of time.
In the event of any event of default referable to a specific leased
property, the Company may evict Wackenhut Corrections from such leased property
and either terminate the lease or re-let the leased property. However, the
Company will have certain duties to mitigate its losses in the exercise of such
remedies. In either event, Wackenhut Corrections shall remain responsible for
the rental value of such leased property for the remainder period of the term in
excess of rents received by the Company from any successor occupant.
Alternatively, at the Company's option, the Company will be entitled to recover
all unpaid Rent then due plus the present value of the Rent for the unexpired
term at the time of the award, subject to the Company's obligation to deliver
and pay-over to Wackenhut Correction any net rentals or proceeds actually
received from the lease, sale or other disposition of the leased property
thereafter, up to the amount paid by Wackenhut Corrections. In addition, the
Company may exercise any other rights that it may have under law. In the event
the Company evicts Wackenhut Corrections from a leased property, the Master
Lease will remain in full force and effect for all other leased properties. With
respect to Wackenhut Correction's failure to timely pay Rent and with respect to
certain nonmonetary events of default under the master lease, the Company shall
have all of the foregoing rights, remedies and obligations with respect to all
of the leased facilities.
The leases will be governed by and construed in accordance with Florida
law (but not including Florida's conflict of laws rules) except for certain
procedural laws which must be governed by the laws of the location of each
leased property. Because the facilities are located in various states, the
leases may be subject to restrictions imposed by applicable local law. Neither
the Master Lease nor any of the other agreements entered into by Wackenhut
Corrections in connection with the Formation Transactions prohibits or otherwise
restricts the Company's ability to lease properties to parties (domestic or
foreign) other than Wackenhut Corrections.
SUBLEASES
The provisions of certain existing operating agreements awarded to
Wackenhut Corrections for the Owned Facilities afford the governmental entity a
right to assume an existing sublease of the subject facility created between
WCCRE and Wackenhut Corrections (or to designate another facility operator to
assume such sublease) at a fixed rental rate in the event of early termination
of the operating agreement upon the occurrence of certain events. The rental
payments and other material terms of these existing subleases differ from
comparable provisions of the leases, and there is no requirement that the
governmental entity or its designee comply with the provisions of the leases. In
such cases, Wackenhut Corrections will, nevertheless, remain primarily liable to
the Company under the leases.
Concurrently with the conveyance of certain of the Owned Facilities,
the Company has opened, and in connection with the conveyance of certain of the
Option Facilities and the execution of the leases with respect thereto, the
Company will agree, to recognize and leave undisturbed such rights of the
governmental entities. Such subleases are presently in effect with respect to
the Broward Facility, the McFarland Facility, the Central Valley Facility, the
Desert View Facility, and the Golden State Facility. In the case of the Michigan
Facility, the Company will recognize and leave undisturbed the rights of the
State of Michigan under an existing sublease with Wackenhut Corrections in the
event the option relating to such facility is exercised by the Company.
Wackenhut Corrections has agreed that the term of the individual leases between
Wackenhut Corrections and the Company for these facilities will be automatically
extended, if necessary, in order to insure that the lease between the Company
and Wackenhut Corrections will be commensurate with the term of any such
subleases. Some of the material differences between the terms and provisions of
the existing subleases and the leases are discussed below.
THE BROWARD FACILITY SUBLEASE. WCCRE has entered into a sublease (the
"Broward Sublease") with Wackenhut Corrections for the use of the Broward
Facility. In connection with the IPO, the Company entered into a lease with
WCCRE pursuant to which it will recognize and agree to leave undisturbed the
Broward Sublease. While the Broward Sublease is a triple-net lease, the annual
rent payable under the Broward Sublease is below the annual rent
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<PAGE> 20
payable under the relevant lease and the provisions of the sublease are
generally not as favorable to the lessor as the comparable provisions of the
relevant lease. If the operating agreement between Wackenhut Corrections and
Broward County is terminated for a reason other than a default by Wackenhut
Corrections during the initial five-year term expiring in February 2003, the
Broward County Sheriff is required under the operating agreement to assume the
obligations of Wackenhut Corrections under the Broward Sublease through
February, 2003, and in the event of such assumption, may exercise the three
consecutive five year renewal options contained in the Broward Sublease.
Wackenhut Corrections will nevertheless remain obligated to the Company for
performance under the lease for the entire term of the Broward Sublease. If
Wackenhut Corrections defaults on its obligations under the lease, the Company
will be required to permit the Broward County Sheriff to occupy the Broward
Facility under the terms of the Broward Sublease at a rental rate and upon terms
which are not as favorable to the Company as those of the lease.
THE CALIFORNIA FACILITIES SUBLEASES. WCCRE has entered into a series of
subleases (collectively the "California Subleases") with Wackenhut Corrections
for the use of the California Facilities. In connection with the IPO, the
Company entered into a series of leases with WCCRE pursuant to which it will
recognize and agree to leave undisturbed the California Subleases. Except for
the base rent, the terms and provisions of each of the California Subleases are
identical. With the exception of the sublease of the McFarland Facility which
expired January 1999, the term of each of the California Subleases is 120 months
expiring December 16, 2007 and is coterminous with a ten year facility operating
agreement entered into between Wackenhut Corrections and the State of California
for each such facility. Each of the California Subleases provides for certain
"termination rights" in favor of the State of California under which the State
of California has the option, in the event of early termination of the operating
agreement between the State of California and Wackenhut Corrections, to cause
Wackenhut Corrections' interest under each of the California Subleases to be
assigned to the State of California or to a replacement operator approved by the
State. The California Subleases may not be modified without the prior written
approval of the State of California. While the California Subleases are
triple-net leases, the provisions of such subleases are generally not as
favorable to the lessor as the comparable provisions of the relevant leases. If
Wackenhut Corrections defaults on its obligations under the leases, the Company
will be required to permit the contracting government entity to occupy the
California Facilities under the provisions of the sublease. The annual base rent
under the sublease is not subject to adjustment for cost of living increases or
any other reason. As a result, the annual rent payable under the California
Subleases may, during some portion of the term of the applicable master leases,
fall below the annual rent payable under such leases. Wackenhut Corrections will
nevertheless remain obligated to the Company for performance under such leases
for the entire term of the California Subleases.
THE MICHIGAN FACILITY SUBLEASE. Wackenhut Corrections entered into a
lease agreement (the "Michigan Sublease") with the State of Michigan in January
1998 for an initial term of twenty years which began in December 1999. The lease
may be extended at the option of the State of Michigan for two consecutive five
year terms. The annual base rent is payable monthly at a fixed rate for the
entire term and is subject to annual adjustments only in the amount of any
increase or decrease in the cost of insurance, taxes, maintenance and repair
(excluding building system replacement costs) after the base year ending August
31, 2000. The Michigan Sublease contains broad indemnification provisions
obligating Wackenhut Corrections to indemnify the State of Michigan for any
actions taken by it on the premises and for any breach in the performance of its
obligations under the Michigan Sublease. The Michigan Sublease grants the State
of Michigan the right to terminate the Michigan Sublease upon the occurrence of
certain events, including nonappropriation. In the event the operating agreement
with Wackenhut Corrections is terminated during the term of the Michigan
Sublease, the State of Michigan has the unilateral right to appoint a
replacement operator of the Facility. If Wackenhut Corrections defaults on its
obligations under the lease for the Michigan Facility, the Company will be
required to permit the State of Michigan to continue to occupy the facility
under the terms of the Michigan Sublease which would result in the Company
receiving reduced rental income from this facility. In addition, the provisions
of the Michigan Sublease are not as favorable to the lessor as comparable
provisions of the lease.
The State of Michigan is also granted an option to purchase the
facility under the Michigan Sublease at any time after the first five years of
the term at a price equal to the replacement cost less depreciation. Wackenhut
Corrections will agree in the lease for this facility that Wackenhut Corrections
will pay the shortfall to the Company in the event the purchase option is
exercised and the purchase price paid by the State of Michigan is less than the
net book value of the Michigan Facility as shown on the Company's books and
records at the time the purchase option is exercised.
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The Michigan Sublease requires the consent of the State of Michigan
prior to a transfer of ownership of the Facility. The Company will not exercise
its option to acquire the Michigan Facility unless and until it has received
such required consent.
THE JENA FACILITY. In March 1997, Wackenhut Corrections acquired, by
assignment, all of the right, title and interest of the LaSalle Parish Hospital
District No. 2 (the "Hospital District") under a Cooperative Endeavor Agreement
dated January 30, 1995 (the "Louisiana Operating Agreement") entered into
between the LDOC and the Hospital District. The Louisiana Operating Agreement
contemplates the construction of at minimum a 276-bed juvenile correctional
facility through the issuance of bonds secured by a mortgage on the Jena
Facility (the "Mortgage Debt"). The contemplated Mortgage Debt for the facility
was not obtained and Wackenhut Corrections, upon its acquisition of the interest
of the Hospital District under the Louisiana Operating Agreement, privately
financed the cost of construction of the facility. The Louisiana Operating
Agreement, however, provides that the LDOC may elect to assume the operation of
the facility if Wackenhut Corrections fails to cure operational defects, upon
the condition that the LDOC assumes payment of principal, interest and other
obligations under the contemplated Mortgage Debt. In addition, the term of the
Louisiana Operating Agreement was intended to be commensurate with the
contemplated 25 year Mortgage Debt.
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<PAGE> 22
RELATIONSHIP WITH WACKENHUT CORRECTIONS CORPORATION
Wackenhut Corrections is a leading developer and manager of privatized
correctional and detention facilities in the United States and abroad. Wackenhut
Corrections was founded in 1984 by Dr. George C. Zoley as a division of The
Wackenhut Corporation, a leading provider of professional security services, to
capitalize on emerging opportunities in the private correctional services
market. According to the industry reports, Wackenhut Corrections is the second
largest provider of privatized correctional and detention services in the United
States and the largest provider of such services abroad, based upon the number
of beds under management. As of December 31, 1999, Wackenhut Corrections had 55
correctional and detention facilities under contract or award, with an aggregate
design capacity of 39,504 beds (with many of such facilities being leased by
Wackenhut Corrections from the contracting government entity).
Wackenhut Corrections offers governmental entities a comprehensive
range of correctional and detention facility management services, ranging from
individual consulting projects to the integrated design, development and
management of such facilities. In addition to providing the fundamental
residential services relating to the security of facilities and the detention
and care of inmates, Wackenhut Corrections has built a reputation as an
effective provider of a wide array of in-facility rehabilitative and educational
programs, such as chemical dependency counseling and treatment, basic education
and job and life skills training. Additionally, Wackenhut Corrections is
continuously seeking to expand into complementary services such as work release
programs, youth detention services and prisoner transport services. Wackenhut
Corrections believes that its experience in delivering a full range of
high-quality correctional and detention facility management services on a
cost-effective basis to government agencies provides such agencies strong
incentives to choose Wackenhut Corrections when awarding new contracts or
renewing existing contracts.
Wackenhut Corrections, or a subsidiary thereof, is the lessee of, and
will continue to operate, each of the Owned Facilities and, if acquired, the
remaining Option Facilities. Wackenhut Corrections may sell additional
correctional and detention facilities to the Company in the future and to enter
into long-term, non-cancelable, triple-net leases with the Company with respect
to those facilities.
THE BANK CREDIT FACILITY
The Company obtained from the NationsBank, N.A. a $100 million bank
credit facility (the "Bank Credit Facility"). The Bank Credit Facility may be
used to finance the acquisition of additional correctional and detention
facilities, the expansion of existing facilities and for working capital
requirements. The Bank Credit Facility has a term of five years secured by the
Company's facilities, and permits aggregate borrowings of up to 50% of the
lesser of the aggregate of the historical cost of the Company's facilities or
the aggregate of the appraised value of such facilities (the "Total Value").
Under the terms of the Bank Credit Facility, the Company is restricted from
paying dividends in excess of the lesser of 95% of net income (subject to
certain adjustments) in any calendar year or 100% of funds available for
distribution in any calendar quarter. Borrowings under the Bank Credit Facility
bear interest at a variable rate equal to: (w) LIBOR plus 125 basis points if
the Company's total outstanding indebtedness is less than 25% of the Total
Value; (x) LIBOR plus 150 basis points if the Company's total outstanding
indebtedness is greater than 25% but less than or equal to 35% of the Total
Value; (y) LIBOR plus 175 basis points if the Company's total outstanding
indebtedness is greater than 35% but less than or equal to 40% of the Total
Value, and (z) LIBOR plus 200 basis points if the Company's total outstanding
indebtedness is greater than 40% of the Total Value but less than or equal to
50% of the Total Value; in each case, calculated based on interest periods of
one, two, three or six months at the option of the Operating Partnership.
Economic conditions could result in higher interest rates, which could increase
debt service requirements on borrowings under the Bank Credit Facility and
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<PAGE> 23
and which could, in turn, reduce the amount of cash available for distribution.
Upon the closing of the Bank Credit Facility, the Company paid fees of
approximately $2.2 million. As of December 31, 1999, the amount of outstanding
indebtedness under the Bank Credit Facility was $69.0 million. As of March 24,
2000, primarily as a result of purchasing the Jena Facility, the amount of
outstanding indebtedness under the Bank Credit Facility was $84.0 million.
COMPETITION
The facilities are, and any additional correctional and detention
facilities acquired by the Company will be, subject to competition for inmates
from private prison managers and possibly governmental entities. The number of
inmates in a particular area could have a material effect on the operating
revenues of the Company's correctional and detention facilities. In addition,
operating revenues of the Company's correctional and detention facilities will
be affected by a number of factors, including the demand for inmate beds and
general economic conditions. The Company is subject to competition for the
acquisition of correctional and detention facilities with other purchasers of
correctional and detention facilities.
GOVERNMENT REGULATION
CORRECTIONS INDUSTRY REGULATIONS. The corrections industry is subject
to federal, state and local regulations in the United States which are
administered by a variety of regulatory authorities. Generally, prospective
providers of corrections services must be able to detail their readiness to, and
must comply with, a variety of applicable state and local regulations, including
education, health care and safety regulations. Correctional and detention
management contracts frequently include extensive reporting requirements and
require supervision and on-site monitoring by representatives of contracting
governmental agencies. State law also typically requires corrections officers to
meet certain training standards. In addition, many state and local governments
are required to enter into a competitive bidding procedure before awarding
contracts for products or services. The laws of certain jurisdictions may also
require the Company to award subcontracts on a competitive basis or to
subcontract with businesses owned by women or members of minority groups.
ENVIRONMENTAL MATTERS. Under various federal, state and local laws,
ordinances and regulations, an owner or operator of real property may become
liable for the costs of removal or remediation of certain hazardous substances
released on or in its property. Such laws often impose such liability without
regard to whether the owner or operator knew of, or was responsible for, the
release of such hazardous substances. The presence of such substances, or the
failure to remediate such substances properly when released, may adversely
affect the owner's ability to sell such real estate or to borrow funds if the
borrower is using such real estate as collateral. Neither the Company, Wackenhut
Corrections nor any of their affiliates has been notified by any government
authority of any material non-compliance, liability or other claim in connection
with any of the Owned Facilities or Option Facilities and neither the Company,
Wackenhut Corrections nor any of their affiliates is aware of any other
environmental condition with respect to any of the Facilities that is likely to
be material to the Company. Phase I environmental assessments have been obtained
for all of the Owned Facilities and Option Facilities. No assurance can be
given that such investigation would reveal all potential environmental
liabilities, that no prior or adjacent owner created any material environmental
condition not known to the Company or that future uses or conditions (including,
without limitation, changes in applicable environmental laws and regulations)
will not result in imposition of environmental liability or limitation on use of
properties. The leases provide that Wackenhut Corrections will indemnify the
Company for certain potential environmental liabilities at the Company's
facilities. See "Item 1. Business-Leases-Environmental Matters."
AMERICANS WITH DISABILITIES ACT. The facilities are subject to the ADA.
The ADA has separate compliance requirements for "public accommodations" and
"commercial facilities" but generally requires that public facilities, such as
correctional facilities, be made accessible to people with disabilities. These
requirements
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became effective in 1992. Compliance with the ADA requirements could require
removal of access barriers and other capital improvements at the facilities.
Noncompliance could result in imposition of fines or an award of damages to
private litigants. Receipt of a satisfactory ADA compliance report is required
prior to the Company's acquisition of each such facility. Nonetheless, under the
Master Lease, Wackenhut Corrections is required to make any necessary
modifications or improvements to comply with the ADA and to indemnify the
Company from any liabilities in connection therewith.
TAX CONSIDERATIONS AND TAX STATUS OF THE COMPANY
The Company has elected to be taxed as a REIT under sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code"),
commencing with its taxable year ending December 31, 1998. If the Company
qualifies for taxation as a REIT, with certain exceptions, the Company will not
be subject to federal income tax at the corporate level on its taxable income
that is distributed to its shareholders. A REIT is subject to a number of
organizational and operational requirements, including a requirement that it
distribute at least 95% of its annual real estate investment trust taxable
income. Although the Company believes it operates in a manner designed to
qualify as a REIT, it is possible that future economic, market, legal or tax
considerations may cause the Company to fail to qualify as a REIT or may cause
the Board of Trustees to revoke the REIT election if the Board of Trustees and
the holders of two-thirds of all outstanding shares of beneficial interest of
the Company determine that such factors make it no longer beneficial to qualify
as a REIT.
POLICIES AND OBJECTIVES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of the Company's investment objectives
and policies, financing policies and policies with respect to certain other
activities. These policies are determined by the Board of Trustees and may be
amended or revised from time to time at the discretion of the Board of Trustees
without a vote of the Company's shareholders.
INVESTMENT POLICIES. The Company focuses its investments on the
acquisition or development of facilities directly from, or on behalf of,
Wackenhut Corrections or its affiliates or other private prison managers or
government entities in the United States. Additionally, the Company may pursue
other opportunities as well, including investment opportunities abroad and in
facilities unrelated to the correctional and detention industry. The Company may
also invest in other facilities or excess land to the extent necessary to
acquire a facility. The Company applies the following general guidelines in
evaluating potential investments in correctional and detention facilities: (i)
completion of the construction of the facility, (ii) execution of a government
contract for the operation of the facility, and (iii) documentation of adequate
inmate occupancy levels. Although these investment guidelines are not compulsory
but merely advisory, management of the Company has no present intent to acquire
any facility until construction is completed.
Subject to the general investment guidelines referenced above, the
Company considers a variety of specific factors in evaluating potential
investments in correctional or detention facilities, including: (i) the
reputation and creditworthiness of the current owner, manager or developer of
the facility, (ii) the proposed terms for purchasing the facility, (iii) the
proposed terms for leasing the facility, including rental payments and lease
term, (iv) the quality of construction of the facility, (v) the quality of
operations at an existing facility or the quality of other operations of a
prison manager for a new facility, (vi) the relationship between the prison
manager and the contracting government entity, and (vii) the status of existing
facilities as facilities accredited by the American Correctional Association
(the "ACA"). The ACA is a multi-disciplinary organization of professionals
representing all levels and facets of the corrections and criminal justice
industry, including federal, state and military correctional facilities in
prisons, county jails and detention centers, probation and parole agencies, and
community corrections/half-way houses. Comprised of 70 chapters and affiliated
organizations, as well as individual members numbering more than 20,000, the ACA
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serves as the umbrella organization for all areas of corrections, and provides a
broad base of expertise in this industry.
The Company may purchase or lease properties for long-term investment,
expand and improve the facilities presently owned or sell such properties, in
whole or in part, when circumstances warrant. The Company may also participate
with other entities in property ownership, through joint ventures or other types
of co-ownership. Equity investments may be subject to existing mortgage
financing and other indebtedness which have priority over the equity interest of
the Company.
While the Company emphasizes equity real estate investments, it may, in
its discretion, invest in mortgages, equity or debt securities of other REITs or
partnerships and other real estate interests. Mortgage investments may include
participating in convertible mortgages.
There are no limitations on the percentage of the Company's assets that
may be invested in any one property, venture or type of security. The Board of
Trustees may establish limitations as it deems appropriate from time to time,
including limitations necessary to maintain the Company's qualification as a
REIT. No limitations have been set on the number of properties in which the
Company will seek to invest or on the concentration of investments in any one
geographic region.
DISPOSITION POLICIES; WACKENHUT CORRECTIONS' RIGHT OF FIRST REFUSAL.
The Company has no current intention to dispose of any of the Facilities,
although it reserves the right to do so if the Board of Trustees determines that
such action would be in the best interests of the Company. Wackenhut Corrections
shall have a right of first refusal with respect to any sale of the Facilities.
See "The Formation Transactions" and "Leases" for a more detailed discussion of
the terms and conditions of Wackenhut Corrections' right of first refusal.
FINANCING POLICIES. The Company presently intends to maintain its Debt
Policy (measured at the time a borrowing occurs), which requires a ratio of
total consolidated indebtedness to the sum of total market capitalization and
total consolidated indebtedness of 50% or less. The Board of Trustees may,
however, from time to time reevaluate this policy and decrease or increase such
ratio accordingly. The Company determines its financing policies in light of
then current economic conditions, relative costs of debt and equity capital,
market values of properties, growth and acquisition opportunities and other
factors. The Company has established the $100 million Bank Credit Facility which
may be used to finance the acquisition of additional correctional and detention
facilities (including the Option Facilities and the Future Facilities), the
expansion of existing facilities and for working capital requirements. If the
Board of Trustees determines that additional funding is desirable, the Company
may raise such funds through additional equity offerings, debt financing or
retention of cash flow (subject to provisions in the Code concerning taxability
of undistributed REIT income and REIT qualification), or a combination of these
methods.
Indebtedness incurred by the Company may be in the form of publicly or
privately placed debt instruments or financings from banks, institutional
investors or other lenders, any of which indebtedness may be unsecured or may be
secured by mortgages or other interests in the facilities owned by the Company.
There are no limits on the number or amounts of mortgages or other interests
which may be placed on any one facilities. In addition, such indebtedness may be
with or without recourse to all or any part of the facilities of the Company or
may be limited to the particular facility to which the indebtedness relates.
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The proceeds from any borrowings may be used for the payment of distributions,
and working capital or to refinance indebtedness or to finance acquisitions,
expansions or developments of new facilities.
In the event that the Board of Trustees determines to raise additional
equity capital, the Board of Trustees has the authority, without shareholder
approval, to issue additional Common Shares or Preferred Shares of the Company.
The Bylaws require the approval of at least two-thirds of the members of the
Board of Trustees for the Company to issue equity securities, other than Common
Shares issued (a) for at least the fair market value thereof at the time of
issuance as determined in good faith by a majority of the Board of Trustees, (b)
pursuant to any share incentive or option plans of the Company, or (c) in a bona
fide underwritten public offering managed by one or more nationally recognized
investment banking firms. Existing shareholders have no preemptive right to
purchase shares issued in any offering, and any such offering could cause a
dilution of a shareholder's investment in the Company.
WORKING CAPITAL RESERVE POLICIES. The Company maintains working capital
reserves (and when not sufficient, access to borrowings) in amounts that the
Board of Trustees determines to be adequate to meet normal contingencies in
connection with the operation of the Company's business and the management of
its investments.
CONFLICTS OF INTEREST POLICIES. The Company has adopted certain
policies designed to minimize potential conflicts of interest. However, there
can be no assurance that these policies always have been or will be successful
in eliminating the influence of such conflicts. The Declaration of Trust
requires that at least a majority of the members of the Board of Trustees be
comprised of "Independent Trustees," defined therein as individuals who qualify
as trustees but who are neither an officer nor an employee of the Company or its
affiliates, nor a director, trustee, officer or employee of, or other person who
has a material financial interest in, any of (i) The Wackenhut Corporation or
Wackenhut Corrections, or (ii) any lessee or tenant of a facility owned by the
Company or by the Company's affiliates, or (iii) any owner, lessee or tenant of
any facility financed by the Company or by the Company's affiliates, other than
any such owner, lessee or tenant which is an affiliate of the Company, or (iv)
any management company operating any facility owned or financed by the Company
or by the Company's affiliates, or (v) an affiliate of any of the foregoing. The
Declaration of Trust provides that such provisions relating to Independent
Trustees may be amended with the approval by the shareholders by the affirmative
vote of two-thirds of all of the votes entitled to be cast on such matters. In
addition, the Bylaws provide that the selection of operators for the Company's
facilities and the entering into and consummation of any agreement or
transactions with Wackenhut Corrections or its affiliates, including, but not
limited to, the negotiation, enforcement and renegotiation of the terms of any
lease of any of the Company's facilities with such parties, be approved by the
Company Independent Committee which must consist solely of Independent Trustees.
OTHER POLICIES. The Company operates in a manner that will not subject
it to regulation under the Investment Company Act of 1940. The Company does not
(i) invest in the securities of other issuers for the purpose of exercising
control over such issuer, (ii) underwrite securities of other issuers or (iii)
trade actively in loans or other investments.
Although it does not currently intend to do so, the Company may make
investments other than as previously described, provided that such investments
do not disqualify the Company from its REIT status. The Company may repurchase
or otherwise reacquire Common Shares or any other securities it may issue and
may engage in such activities in the future. The Board of Trustees has no
present intention of causing the Company to repurchase any of the Common Shares,
and any such action would be taken only in conformity with applicable federal
and state laws and the requirements for qualifying as a REIT under the Code and
the Treasury Regulations. Although it may do so in the future, the Company has
not issued Common Shares or any other securities in exchange for property, nor
has it reacquired (other than the 1,000 founder's shares) any of its Common
Shares or any other securities. The Company may make loans to third parties,
including, without limitation, to its officers and to joint ventures in which it
decides to participate. Such loans generally require the approval of the Board
of Trustees, and loans to Wackenhut Corrections and its affiliates or to a joint
venture in which Wackenhut Corrections participates require the approval of the
Company's Independent Committee.
At all times, the Company intends to make investments in such a manner
as to be consistent with the requirements of the Code to qualify as a REIT and
the Board of Trustees shall endeavor to take no action which disqualifies the
Company as a REIT or otherwise causes the revocation of the Company's election
to be taxed as a REIT without the affirmative vote of the holders of not less
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than two-thirds of the shares of the Company entitled to vote on such matter.
SUBSEQUENT EVENT
On January 7, 2000, the Company acquired the second of the Option
Facilities, the Jena Juvenile Justice Center (the "Jena Facility") in Jena,
Louisiana with a design capacity of approximately 276 beds for approximately
$15 million.
ITEM 2. PROPERTIES.
For a description of the facilities owned and leased by the Company,
see "Item 1. Business." The Company also leases 1,800 square feet of office
space at an annual rent of approximately $40,000. The term of such lease expires
on April 30, 2000.
ITEM 3. LEGAL PROCEEDINGS.
Owners and operators of privatized correctional and detention
facilities are subject to a variety of legal proceedings arising in the ordinary
course of operating such facilities, including proceedings relating to personal
injury and property damage. Such proceedings are generally brought against the
operator of a correctional or detention facility, but may also be brought
against the owner. Although the Company is not currently a party to any legal
proceeding, it is possible that in the future the Company could become a party
to such proceedings. Wackenhut Corrections is a party to certain litigation
relating to the Company's facilities arising in the ordinary course of
operations. The Company does not believe that such litigation, if resolved
against Wackenhut Corrections, would have a material adverse effect upon its
business, financial position or results of operations. All of the leases between
Wackenhut Corrections and the Company provide that Wackenhut Corrections is
responsible for claims based on personal injury and property damage at the
Company's facilities and require Wackenhut Corrections to maintain insurance for
such purposes.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Since April 23, 1998, the Company's Common Shares have been listed on
the New York Stock Exchange ("NYSE") under the symbol "CPV." The following table
sets forth the range of high and low sales prices for the Common Shares for the
period from April 23, 1998 to December 31, 1999, as reported by NYSE.
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
First Quarter $19 3/8 $14 3/4 N/A N/A
Second Quarter 17 11/18 13 3/16 $23 7/16 $19 3/16
Third Quarter 16 3/8 13 7/16 21 5/8 13 5/8
Fourth Quarter 14 11/16 11 1/8 20 15
</TABLE>
As of March 13, 2000, there were 7,130,000 shares of Common Shares
outstanding, held by 92 shareholders of record. The Company believes that
certain holders of record hold a substantial number of shares of Common Shares
as nominees for a significant number of beneficial owners.
RECENT SALES OF UNREGISTERED SECURITIES
None
DISTRIBUTIONS
Subsequent to the IPO, the Company has paid regular quarterly
distributions to its shareholders. The Board of Trustees, in its sole
discretion, has determined the actual distribution rate based on the Company's
actual results of operations, economic conditions, tax considerations (including
those related to REITs) and other factors. In 1999, the Company paid four cash
dividend distributions (two in the amount of $.35 per common share and two in
the amount of $.365 per common share) totalling $1.43 per common share. In 1998,
the Company paid two cash dividends totaling $.60 per common share (one in the
amount of $.25 per common share and the other in the amount of $.35 per common
share).
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The Company believes that in order to facilitate a clear understanding
of the operating results of the Company, funds from operations should be
examined in conjunction with the Company's financial statements and information
included elsewhere in this Report. Funds from operations does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles ("GAAP"), consistently applied and should not be
considered an alternative to net income as an indication of the Company's
performance or to cash flows as a measure of liquidity or ability to make
distributions. The Company's funds from operations are not comparable to funds
from operations reported by other REITs that do not define the term using the
current National Association of Real Estate Investment Trusts ("NAREIT")
definition or that interpret the current NAREIT definition differently than does
the Company.
ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated financial data set forth below are derived
from the Company's consolidated financial statements which appear elsewhere in
this report. The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Result of Operations," and
the Consolidated Financial Statements and Notes thereto, included elsewhere in
this report.
<TABLE>
<CAPTION>
1/1/99 2/18/98
to to
(In thousands, except per share amounts) 12/31/99 12/31/98
- ---------------------------------------------------------------------------
<S> <C> <C>
OPERATING RESULTS
Revenue $ 20,329 $ 8,628
Net income 8,728 5,386
Weighted average shares outstanding, diluted 7,130 5,546
Net income per share, diluted 1.22 0.97
Funds from operations 13,612 7,276
Funds from operations per share, diluted 1.91 1.31
DIVIDENDS
Cash distribution per share $ 1.43 $ .60
BALANCE SHEET DATA (DECEMBER 31, 1999 AND 1998)
Real estate properties, net $200,415 $137,597
Total assets 203,548 142,764
Revolving line of credit 69,200 9,000
Total liabilities 72,788 10,765
Total shareholders' equity 130,760 131,999
- ---------------------------------------------------------------------------
</TABLE>
29
<PAGE> 30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THE FOLLOWING SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO INCLUDED
ELSEWHERE HEREIN.
FORWARD-LOOKING STATEMENTS
The management's discussion and analysis of financial condition and
results of operations contains forward-looking statements that are based on
current expectations, estimates and projections about the business marketplace
in which Correctional Properties Trust (the "Company") operates. This section of
the annual report also includes management's beliefs and assumptions. Words such
as "expects", "anticipates", "intends", "plans", "believes", "seeks",
"estimates", and variations of such words and similar expressions are intended
to identify such forward-looking statements. These statements are not guarantees
of future performance and involve certain risks, uncertainties and assumptions
("Future Factors") which are difficult to predict. Therefore, actual outcomes
and results may differ materially from what is expressed or forecasted in such
forward-looking statements. The Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.
Future Factors include, without limitation, increasing competition,
including new entrants in the marketplace; the mix of tenants as it relates to
other private operators and governmental entities; governmental and public
policy changes; reliance on a single tenant for revenue; interest rate risk;
continued availability of financing; rental rates sufficient to make
acquisitions feasible; continued ability to pay a dividend; and financial
instruments and financial resources in the amounts, at the times and on the
terms required to support the Company's future business. These are
representative of the Future Factors that could affect the outcome of the
forward-looking statements. In addition, such statements could be affected by
general industry and market conditions and growth rates, general domestic and
international economic conditions including interest rate and currency rate
fluctuations and other future factors. The Company discusses such risks in the
Company's various reports filed with the Securities and Exchange Commission.
The following discussion should be read in conjunction with the
Company's consolidated financial statements and notes thereto.
OVERVIEW
The Company was formed in February 1998 as a Maryland real estate
investment trust to capitalize on the growing trend toward privatization in the
corrections industry by acquiring correctional and detention facilities from
both private prison operators and governmental entities and to lease such
facilities to experienced correctional and detention facility operators under
long-term, non-cancelable, triple-net leases (leases where the tenant is
required to pay all operating expenses, taxes, insurance, structural and
non-structural repairs and other costs).
The principal business strategy of the Company is to acquire
correctional and detention facilities that meet the Company's investment
criteria, from both private prison managers and government entities, to expand
its existing facilities, and to lease all such facilities under long-term leases
to qualified third-party operators. The Company's facilities are privately
managed facilities that are operated by Wackenhut Corrections Corporation
("WCC"). However, the Company is pursuing other acquisition opportunities,
including correctional facilities owned and operated by various government
entities and private operators other than WCC.
Substantially all of the Company's revenues are derived from: (i) rents
received under triple-net leases of correctional and detention facilities; and
(ii) interest earned from the temporary investment of funds in short-term
investments.
The Company incurs operating and administrative expenses including
compensation expense for its executive officers and other employees, office
rental and related occupancy costs and various expenses incurred in the process
of acquiring additional properties. The Company is self-administered and managed
by its executive officers and staff, and does not engage a separate advisor or
pay an advisory fee for administrative or investment services, although the
Company does engage legal, accounting, tax and financial advisors from time to
time. The primary non-cash expense of the Company is depreciation of its
correctional and detention facilities.
The Company has leveraged and anticipates having to continue to
leverage its portfolio of real estate equity investments, and expects to
continue to incur short-term indebtedness, and related interest expense.
30
<PAGE> 31
The Company intends to make distributions to its shareholders in
amounts not less than the amounts required to maintain REIT status under the
Internal Revenue Service Code.
The Company was formed on February 18, 1998. Therefore, no prior
full-year comparison is available. However, the period from February 18, 1998
(Inception) to December 31, 1998 is compared with the year ended December 31,
1999.
FINANCIAL CONDITION
RESULTS OF OPERATIONS
For the twelve months ended December 31, 1999, rental revenues
increased to $20,293,000 from $8,132,000 for the period from February 18, 1998
(Inception) to December 31, 1998. This increase resulted primarily from the
Company's incremental revenue associated with completing the purchases of the
Lawton Community Correctional Facility (the "Lawton Facility") for a total cost
of approximately $46,000,000 and the expansion of the Lea County Correctional
Facility (the "Hobbs Expansion") for a total cost of approximately $20,000,000
during January 1999.
WCC has leased both the Hobbs Facility and the Lawton Facility from the
Company for an initial term of ten years, with three additional renewal options
for terms of five years each. The leases provide for a base rent equal to 9.5%
of the total purchase price of each facility and annual rent escalations equal
to the annual increase in the Consumer Price Index--All Urban Consumers, as
published by the Bureau of Statistics of the United States Department of Labor
(the "CPI"), subject to a minimum annual increase of 3% at the end of years one
and two and a maximum annual increase of 4% throughout the term of the leases.
Interest income for the twelve months ended December 31, 1999 decreased
to $36,000 from $496,000 for the period from February 18, 1998 (Inception) to
December 31, 1998. During both periods the Company invested cash in short-term
instruments bearing interest between 5% and 6%. However, cash available to the
Company subsequent to its April 1998 initial public offering generated interest
income throughout 1998. The Company used the cash available in 1998 to fund a
portion of the Lawton Facility and the Hobbs Expansion, each acquired in 1999.
The diminished 1999 cash balance resulted in a smaller amount of interest income
during the twelve months ended December 31, 1999 compared to the prior period.
Depreciation increased to $4,884,000 for the twelve months ended
December 31, 1999 from $1,890,000 for the period from February 18, 1998
(Inception) to December 31, 1998. This increase resulted primarily from the
acquisition of the Lawton Facility and the Hobbs Expansion in January 1999.
General and administrative expenses increased to $1,491,000 for the
twelve months ended December 31, 1999 from $1,052,000 for the period from
February 18, 1998 (Inception) to December 31, 1998. The change resulted from
increases in management salaries and benefits, accounting, legal and other
administrative costs.
The Company has a $100 million secured line of credit (the "Bank Credit
Facility") which may be used to finance the acquisition of additional
correctional and detention facilities from WCC and others, to expand current
facilities and for general working capital requirements. The Company's ability
to borrow under the Bank Credit Facility is subject to the Company's ongoing
compliance with several covenants including a cash flow covenant restricting
collateralized borrowings to four times Adjusted EBITDA. Additionally, the Bank
Credit Facility is secured by the Company's ten facilities at December 31, 1999.
Interest expense increased to $5,226,000 for the twelve months ended
December 31, 1999 from $300,000 for the period from February 18, 1998
(Inception) to December 31, 1998. This increase resulted primarily from
increased borrowings associated with the acquisition of the Lawton Facility and
the Hobbs Expansion in January 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects to meet its short-term liquidity requirements
generally through its working capital and net cash provided by operations. The
Company believes that its net cash provided by operations will be sufficient to
allow the Company to make distributions necessary to enable the Company to
continue to qualify as a REIT. All facilities owned by the Company are leased
under triple-net leases, which require the lessee to pay substantially all
expenses associated with the operation of such facilities. As a result of these
arrangements,
31
<PAGE> 32
the Company does not believe it will be responsible for any major expenses in
connection with the facilities during the terms of the leases.
The Bank Credit Facility enables the Company to borrow generally at
floating rates between a 125 to 200 basis point spread over LIBOR. The Company's
ability to borrow under the Bank Credit Facility is subject to the Company's
compliance with a number of covenants.
During the twelve months ended December 31, 1999, the Company made
additional borrowings of $60,200,000 under the Bank Credit Facility to finance
the acquisition of the 600-bed Hobbs Expansion for approximately $20,000,000,
and the acquisition of the Lawton Facility for approximately $46,000,000. Both
transactions closed on January 15, 1999. Working capital funded the balance of
the purchases. As of December 31, 1999, $69,200,000 had been drawn on the Bank
Credit Facility. As a result of a purchase of the Jena Juvenile Justice Center
on January 7, 2000 (discussed in the Subsequent Events section of the Notes to
Consolidated Financial Statements appearing elsewhere in this Annual Report)
approximately $84,000,000 has been drawn on the Bank Credit Facility as of
February 28, 2000. Without consideration of potential non-recourse borrowings or
increases in borrowings from further acquisitions, the Company had the ability
to borrow approximately an additional $7 million immediately without further
acquisitions under the Bank Credit Facility at December 31, 1999.
The Company has no commitments with respect to other capital
expenditures. The Company has an option to acquire, subject to certain
limitations, at a price of up to 105% of cost, and lease back to WCC, any
correctional or detention facility acquired or developed and owned by WCC.
The Company expects to meet its long-term liquidity requirements for
the funding of real estate property development and acquisitions by borrowing
under the Bank Credit Facility and by issuing equity or debt securities in
public or private transactions. The Company anticipates that as a result of its
intention to maintain a moderate ratio of debt to total capitalization, it may
be able to obtain financing for its long-term capital needs. However, there can
be no assurance that such additional financing or capital will be available on
terms acceptable to the Company. The Company may, under certain circumstances,
borrow additional amounts in connection with the renovation or expansion of
facilities, the acquisition of additional properties, or as necessary, to meet
certain distribution requirements imposed on REITs under the Internal Revenue
Code.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 issue is the result of shortcomings in many electronic
data processing systems and other equipment that may make operations beyond the
year 1999 troublesome. While the Company has completed an assessment of its
computer systems and software applications and believes that both are Year 2000
compliant, there can be no assurance that coding errors or other defects will
not be discovered in the future. WCC has informed the Company that it has
completed several information system initiatives, including the replacement of
certain of WCC's computer systems to be Year 2000 compliant. Any Year 2000
compliance problem of the Company, its lessees or other third parties could
result in a material adverse effect on the Company's business, prospects,
results of operations and financial condition.
The Company's Year 2000 compliance process may be described in three
phases. The awareness phase encompasses developing a budget and project plan.
The assessment phase identifies mission-critical systems to check for
compliance. The validation phase involves testing the systems. The Company
completed all phases before the end of 1999.
The Company incurred expenses related to Year 2000 compliance. These
costs included time and effort of internal staff and consultants for validation.
The total costs, funded from working capital and not considered material, for
achieving Year 2000 compliance are estimated to be less than $5,000.
These total costs incurred exclude payroll costs of internal staff
related to Year 2000 compliance as the Company does not separately track such
costs. Deferral of other projects that would have a material effect on
operations has not been required, nor anticipated, as a result of the Company's
Year 2000 efforts.
Management reviewed the state of Year 2000 readiness for third parties
with which the Company shares a material relation, such as banks and vendors
used by the Company. The Company is unaware of any third-party Year 2000 issues
that would materially effect these relations.
32
<PAGE> 33
As of the date of this Annual Report, the Company has not encountered
issues associated with Year 2000 compliance. While the Company believes itself
to be Year 2000 compliant for all major systems, there can be no assurance that
defects will not be discovered in the future.
FUNDS FROM OPERATIONS
Management believes Funds From Operations ("FFO") is helpful to
investors as a measure of the performance of an equity REIT. Along with cash
flows from operating activities, financing activities and investing activities,
FFO provides investors with an understanding of the ability of the Company to
incur and service debt and make capital expenditures.
The Company computes FFO in accordance with standards established by
the White Paper on Funds from Operations (the "White Paper") approved by the
Board of Governors of the National Association of Real Estate Investment Trusts
("NAREIT") in 1995, which may differ from the methodology for calculating Funds
from Operations utilized by other equity REITs, and accordingly, may not be
comparable to such other REITs. The White Paper defines FFO as net income
(loss), computed in accordance with generally accepted accounting principles
("GAAP"), excluding gains (or losses) from debt restructuring and sales of
property, plus real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. Further, FFO
does not represent amounts available for management's discretionary use because
of needed capital replacement or expansion, debt service obligations, or other
commitments and uncertainties.
FFO should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indication of the Company's financial
performance or to cash flows from operating activities (determined in accordance
with GAAP) as a measure of the Company's liquidity, nor is it indicative of
funds available to fund the Company's cash needs, including its ability to make
distributions.
The Company believes that in order to facilitate a clear understanding
of the consolidated operating results of the Company, FFO should be examined in
conjunction with net income as presented in the consolidated financial
statements.
The following table presents the Company's FFO for the periods from
January 1 to December 31, 1999 and from February 18, 1998 (Inception) to
December 31, 1998:
(All amounts in thousands,
except per share amounts) 1999 1998
- -------------------------------------------------------------------------------
Net Income $ 8,728 $ 5,386
Real estate depreciation 4,884 1,890
- -------------------------------------------------------------------------------
Funds from operations $13,612 $ 7,276
- -------------------------------------------------------------------------------
Common shares outstanding
Basic 7,130 5,541
Diluted 7,130 5,546
- -------------------------------------------------------------------------------
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risks inherent in the Company's
financial instruments. These instruments arise from transactions entered into in
the normal course of business and relate to the Company's acquisitions of
correctional and detention facilities. The Company is subject to interest rate
risk on its existing Bank Credit Facility and any future financing requirements.
As of December 31, 1999, $69,200,000 had been drawn on the Bank Credit
Facility at an average rate of 7.9% through January 29, 2000. No indebtedness
greater than one month in duration existed as of December 31, 1999. Holding the
variable rate debt balance constant, each one percentage point increase in
interest rates occurring on the first day of 2000 would result in an increase in
interest expense for fiscal year 2000 of approximately $692,000.
The Company's primary market risk exposure relates to (i) the interest
rate risk on short-term borrowings, (ii) its ability to refinance its Bank
Credit Facility at maturity at market rates and (iii) the impact of interest
rate movements on its ability to obtain and maintain adequate financing to fund
future acquisitions. While the Company cannot predict or manage its ability to
refinance existing debt or the impact interest rate movements will have on its
existing debt, management continues to evaluate its financial position on an
ongoing basis and may in the future seek to minimize interest rate exposure.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's consolidated financial statements for the year ended
December 31, 1999 and the respective notes thereto, is set forth elsewhere in
this report. An index of these financial statements appears in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
33
<PAGE> 34
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Correctional Properties Trust:
We have audited the accompanying consolidated balance sheets of
Correctional Properties Trust (a Maryland trust) and subsidiaries as of December
31, 1999 and 1998, and the related consolidated statements of income,
shareholders' equity and cash flows for the year ended December 31, 1999 and for
the period from February 18, 1998 (Inception) to December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Correctional
Properties Trust and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the fiscal year ended
December 31, 1999 and for the period from February 18, 1998 (Inception) to
December 31, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
January 20, 2000.
34
<PAGE> 35
CORRECTIONAL PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and December 31, 1998
<TABLE>
<CAPTION>
(Amounts in thousands, except per share amounts) 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Real estate properties, at cost
Correctional and detention facilities $ 207,189 $ 139,487
Less--accumulated depreciation (6,774) (1,890)
- ------------------------------------------------------------------------------------------------------------------
Net real estate properties 200,415 137,597
Cash and cash equivalents 121 2,325
Deferred financing costs 1,654 2,094
Other assets 1,358 748
- ------------------------------------------------------------------------------------------------------------------
Total assets $ 203,548 $ 142,764
- ------------------------------------------------------------------------------------------------------------------
Liabilities and shareholders' equity
Liabilities
Accounts payable and accrued expenses $ 1,899 $ 661
Deferred revenue 1,689 1,104
Revolving line of credit 69,200 9,000
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 72,788 10,765
- ------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (note 6)
Shareholders' equity
Preferred shares, $.001 par value; 50,000,000 shares authorized; none outstanding -- --
Common shares, $.001 par value; 150,000,000 shares
authorized; 7,130,000 shares issued and outstanding 7 7
Capital in excess of par value 131,112 130,884
(Distributions in excess of income) balance of undistributed income (359) 1,108
- ------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 130,760 131,999
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 203,548 $ 142,764
==================================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
35
<PAGE> 36
CORRECTIONAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31, 1999 and period from February 18, 1998 (Inception) to
December 31, 1998
<TABLE>
<CAPTION>
(Amounts in thousands, except share amounts) 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues
Rental $20,293 $ 8,132
Interest 36 496
- ---------------------------------------------------------------------------------------------------------------
20,329 8,628
- ---------------------------------------------------------------------------------------------------------------
Expenses
Depreciation 4,884 1,890
General and administrative 1,491 1,052
Interest 5,226 300
- ---------------------------------------------------------------------------------------------------------------
11,601 3,242
- ---------------------------------------------------------------------------------------------------------------
Net income $ 8,728 $ 5,386
- ---------------------------------------------------------------------------------------------------------------
Net income per common share
Basic $ 1.22 $ 0.97
Diluted $ 1.22 $ 0.97
- ---------------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding,
Basic 7,130 5,541
Diluted 7,130 5,546
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
36
<PAGE> 37
CORRECTIONAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Year ended December 31, 1999 and period from February 18, 1998 (Inception) to
December 31, 1998
<TABLE>
<CAPTION>
(Distributions
in excess
of income)
Common shares Capital in balance of
----------------------- excess of undistributed
(Amounts in thousands) Shares Amount par value income Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial capital contribution -- $ -- $ 3 $ -- $ 3
Initial public offering of shares, net of issuance costs 7,130 7 130,719 -- 130,726
Non-cash compensation charge -- -- 162 -- 162
Net income -- -- -- 5,386 5,386
Distributions to shareholders -- -- -- (4,278) (4,278)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 7,130 7 130,884 1,108 131,999
Non-cash compensation charge -- -- 228 -- 228
Net income -- -- -- 8,728 8,728
Distributions to shareholders -- -- -- (10,195) (10,195)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 7,130 $ 7 $ 131,112 $ (359) $ 130,760
===================================================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
37
<PAGE> 38
CORRECTIONAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31, 1999 and period from February 18, 1998 (Inception) to
December 31, 1998
<TABLE>
<CAPTION>
(Amounts in thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 8,728 $ 5,386
Adjustments to net income:
Depreciation of real estate properties 4,884 1,890
Other amortization 668 271
Changes in assets and liabilities:
Other assets (610) (748)
Accounts payable and accrued expenses 1,238 661
Deferred revenue 585 1,104
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 15,493 8,564
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities
Acquisition of real estate properties (67,702) (139,487)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Initial capitalization -- 3
Proceeds from initial public offering, net of offering costs -- 130,726
Distributions to shareholders (10,195) (4,278)
Proceeds from revolving line of credit 60,200 9,000
Deferred financing costs -- (2,203)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 50,005 133,248
- ----------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (2,204) 2,325
Cash and cash equivalents, beginning of period 2,325 --
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 121 $ 2,325
Cash paid for interest $ 1,279 $ 185
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
38
<PAGE> 39
CORRECTIONAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. ORGANIZATION AND OPERATIONS
Correctional Properties Trust (the "Company") was formed in February
1998 as a Maryland real estate investment trust to capitalize on the growing
trend toward privatization in the corrections industry by acquiring correctional
and detention facilities from both private prison operators and governmental
entities. At December 31, 1999 the Company's facilities were all leased to
Wackenhut Corrections Corporation (together with its subsidiaries, "WCC").
Therefore, these financial statements do not present multi-segment information.
On April 28, 1998, the Company commenced operations after completing
its initial public offering (the "IPO") of 6,200,000 common shares of beneficial
interest. Subsequently, on May 13, 1998 the underwriters involved in the IPO
exercised their over-allotment option for an additional 930,000 shares resulting
in a total of 7,130,000 shares of beneficial interest outstanding. The 7,130,000
common shares were issued at an IPO price of $20.00 generating gross proceeds of
$142,600,000. The aggregate proceeds to the Company, net of underwriters'
discount of $9,982,000 and offering costs of $1,892,000, were approximately
$130,726,000.
Simultaneous with the completion of the IPO, the Company acquired the
following eight correctional and detention facilities (the "Initial
Facilities"), located in five states with an aggregate design capacity of 3,154
beds, from WCC for an aggregate purchase price of $113,000,000 (collectively,
the "Formation Transactions"):
(i) Aurora INS Processing Center (Aurora, Colorado);
(ii) McFarland Community Correctional Facility (McFarland,
California);
(iii) Queens Private Correctional Facility (New York, New York);
(iv) Central Valley Community Correctional Facility (McFarland,
California);
(v) Golden State Community Correctional Facility (McFarland,
California);
(vi) Desert View Community Correctional Facility (Adelanto,
California);
(vii) Broward County Work Release Center (Broward County, Florida);
and
(viii) Karnes County Correctional Center (Karnes County, Texas).
As part of the Formation Transactions, the Company also entered into
agreements with WCC to lease the Initial Facilities back to WCC pursuant to
long-term, non-cancelable triple-net leases (the "Leases") which require WCC to
pay all operating expenses, taxes, insurance and other costs. The Leases provide
for an initial term of 10 years that may generally be extended by WCC for three
five-year terms at fair market rental rates. The Leases provide for a base rent
equal to 9.5% of the total purchase price of each Initial Facility and annual
rent escalations equal to the annual increase in the Consumer Price Index--All
Urban Consumers, as published by the Bureau of Statistics of the United States
Department of Labor (the "CPI"), subject to a minimum annual increase of 3% at
the end of years one and two and a maximum annual increase of 4% throughout the
term of the Leases.
Further, the Company has entered into a Right to Purchase Agreement
with WCC, pursuant to which the Company will have the right, during the 15 years
following the consummation of the IPO (so long as there are any leases in force
between the Company and WCC), to acquire and lease back to WCC any future
facilities, subject to exception where the sale or transfer of ownership of a
facility is previously restricted.
On October 30, 1998, Correctional Properties Trust completed the
acquisition of the 600-bed medium security Lea County Correctional Facility in
Hobbs, New Mexico (the "Hobbs Facility") for approximately $26,500,000.
During January 1999, the Company completed the acquisition of the
600-bed expansion of the Hobbs Facility for approximately $20,000,000. The
Company also purchased from WCC on January 15, 1999 for approximately
$46,000,000 the Lawton Correctional Facility (the "Lawton Facility"). The prices
of both facilities consisted of WCC's project costs. WCC has agreed to leaseback
the Lawton Facility from the Company for an initial term of ten years, with
three additional renewal options for terms of five years each. The renewal terms
are to be determined by fair market rental rates.
39
<PAGE> 40
CORRECTIONAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of the Company include all the
accounts of the Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all short-term, highly liquid investments that
are readily convertible to cash and have an original maturity of three months or
less at the time of purchase to be cash equivalents.
DEFERRED FINANCING COSTS
Deferred financing costs are being amortized on a straight-line basis
over the five-year term of the loan. This method approximates the effective
interest rate method.
REAL ESTATE PROPERTIES
Real estate properties are recorded at cost. Acquisition costs and
transaction fees directly related to each property are capitalized as a cost of
the respective property. The cost of real estate properties acquired is
allocated between land, buildings and improvements, and machinery and equipment
based upon cost at time of acquisition. Depreciation is provided for on a
straight-line basis over an estimated useful life of 40 years for buildings and
improvements.
As of December 31, 1999, the Company had investments in ten leased real
estate properties totaling approximately $207,200,000. Components of these real
estate investments at cost are as follows:
- --------------------------------------------------------------------------------
Land and land improvements $ 8,400,000
Buildings and improvements $198,800,000
- --------------------------------------------------------------------------------
LONG-LIVED ASSETS
Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of" requires that long-lived assets, including certain identifiable
intangibles and the good-will related to those assets, be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset in question may not be recoverable. Management has
reviewed the Company's long-lived assets and has determined that there are no
events requiring impairment loss recognition.
LEASES AND RENTAL INCOME
All leases are accounted for as operating leases. Lease revenue is
earned on a straight-line basis over the lease term including the impact of the
scheduled rent increases for the leases. Deferred revenue represents monthly
rent received in advance from WCC. The annual minimum rent income to be received
for correctional and detention facilities under non-cancelable operating leases
as of December 31, 1999 are as follows:
(In thousands)
Fiscal year Annual rent
- --------------------------------------------------------------------------------
2000 $ 22,241
2001 22,631
2002 22,703
2003 22,703
2004 22,703
Thereafter 86,498
- --------------------------------------------------------------------------------
$199,479
- --------------------------------------------------------------------------------
FEDERAL INCOME TAXES
The Company has sought qualification as a Real Estate Investment Trust
("REIT") under the Internal Revenue Code commencing with its taxable period
ended December 31, 1998. The Company intends to continue to seek to qualify as a
REIT in the future. As a result, management believes the Company will generally
not be subject to federal income tax on its taxable income at corporate rates to
the extent it distributes annually at least 95% of its taxable income to its
shareholders and complies with certain other requirements. Accordingly, no
provision has been made for federal income taxes in the accompanying
consolidated financial statements.
40
<PAGE> 41
CORRECTIONAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts payable and
accrued expenses, and the revolving line of credit approximate fair value.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could vary from those estimates.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or a liability measured at its
fair value. SFAS 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities--Deferral of the effective date of SFAS 133." SFAS 137
deferred the effective date of SFAS 133 to fiscal years beginning after June 15,
2000. Management believes the impact of adopting this statement will not have a
material impact upon the Company's results of operations or financial position.
3. BANK CREDIT FACILITY
The Company has a $100 million secured line of credit (the "Bank Credit
Facility") which may be used to finance the acquisition of additional
correctional and detention facilities from WCC and others, to expand current
facilities and for general working capital requirements. The Company's ability
to borrow under the Bank Credit Facility is subject to the Company's ongoing
compliance with several covenants including a cash flow covenant restricting
collateralized borrowings to four times Adjusted EBITDA. Additionally, the Bank
Credit Facility is secured by all of the Company's facilities at December 31,
1999. The Company has the ability to borrow additional non-recourse funds
subject to various additional limitations discussed in the Bank Credit Facility.
As of December 31, 1999, $69,200,000 had been drawn on the Bank Credit Facility
at an average rate of 7.9% based upon LIBOR plus an applicable margin through
January 29, 2000. No indebtedness greater than 30 days in duration existed as of
December 31, 1999.
4. SHARE OPTION AND INCENTIVE PLANS
The Company has established share option and incentive plans for the
purpose of attracting and retaining qualified executive officers and key
employees, as well as non-employee trustees.
In conjunction with the IPO, the Company granted options with respect
to an aggregate of 590,000 common shares to officers, employees and trustees.
The exercise price for such options is the IPO price of $20.00. The term of such
options is ten years from the date of grant. In general, the options granted to
executive officers and employees vested immediately as to one-fourth of the
aggregate of 565,000 shares subject thereto and vested as to the remaining
shares ratably on the first, second, and third anniversary of the date of grant,
respectively. The options granted to the non-employee trustees as to an
aggregate of 25,000 shares vested in full at the date of grant. The value of
options granted to non-employees as to an aggregate of 240,000 shares is being
charged to compensation expense over the life of the options. The amount of
related compensation expense recognized in 1999 and 1998, respectively, was
approximately $228,000 and $162,000.
On January 21, 1999 the Company granted options with respect to an
aggregate of 51,000 shares to officers and employees and with respect to an
aggregate of 10,000 shares to non-employee trustees. Such options were granted
at an exercise price of $17.31 per share, the fair market value at
41
<PAGE> 42
CORRECTIONAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999
date of grant. The term of these options is ten years from the date of grant.
The options granted to officers vest immediately as to one-fourth of the shares
subject thereto, and vest as to the remaining shares ratably on the first,
second and third anniversary of the grant date. The options granted to the
trustees vested in full at the date of grant.
A summary of the status of the Company's stock option plans, including
their weighted average option exercise price, as of December 31, 1999 and
December 31, 1998, respectively, is presented below:
<TABLE>
<CAPTION>
1999 1998
------------------------ -------------------------
Exercise Exercise
Shares price Shares price
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at
beginning of year 590,000 $ 20.00 -- --
Options granted 61,000 $ 17.31 590,000 $ 20.00
Options exercised -- -- -- --
Options forfeited -- -- -- --
- -----------------------------------------------------------------------------------------
Outstanding at
end of year 651,000 $17.31-$20.00 590,000 $ 20.00
- -----------------------------------------------------------------------------------------
Exercisable at
end of year 334,750 166,250
- -----------------------------------------------------------------------------------------
</TABLE>
Significant option groups outstanding at December 31, 1999, and related
weighted average price and life information, are as follows:
Exercise Remaining life
Grant date Outstanding Exercisable price outstanding
- --------------------------------------------------------------------------------
4/28/98 590,000 307,500 $20.00 8.3 years
1/21/99 61,000 27,250 $17.31 9.1 years
- --------------------------------------------------------------------------------
651,000 334,750
- --------------------------------------------------------------------------------
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its employee stock-based compensation plans. Accordingly, no
compensation cost has been recognized for its employee stock plans. Had
compensation for the Company's stock-based compensation plans been determined
pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company's net income and earnings per share would have decreased accordingly.
Using the Black-Scholes option-pricing model for all options granted after
January 1, 1995, the Company's pro forma net income, pro forma net income per
share and pro forma weighted average fair value of options granted, with related
assumptions, are as follows:
1999 1998
- --------------------------------------------------------------------------------
Pro forma net income $ 8,512 $ 4,999
Pro forma basic earnings per share 1.19 0.90
Pro forma diluted earnings per share 1.19 0.90
Pro forma weighted average fair value
of options granted 0.51 2.42
Discount interest rate 4.69% 5.79%
Expected life (years) 10 10
Expected volatility 13.9% 23.0%
Quarterly dividend rate 8.1% 7.0%
- --------------------------------------------------------------------------------
42
<PAGE> 43
CORRECTIONAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999
5. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding during the year. Diluted
earnings per share are computed by dividing net income by the weighted average
number of common shares after considering the additional dilution. The following
data show the amounts used in computing earnings per share and the effects on
income and the weighted average number of shares of potential dilutive common
stock (in thousands, except share data):
<TABLE>
<CAPTION>
For the period
Year ended February 18, 1998
December 31, to December 31,
1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
EPS
Net income $ 8,728 $ 5,386
- ------------------------------------------------------------------------------
Weighted average shares--basic 7,130 5,541
- ------------------------------------------------------------------------------
Per share--basic $ 1.22 $ 0.97
- ------------------------------------------------------------------------------
Effect of dilutive stock options -- 5
- ------------------------------------------------------------------------------
Weighted average shares--diluted 7,130 5,546
- ------------------------------------------------------------------------------
Per share--diluted $ 1.22 $ 0.97
- ------------------------------------------------------------------------------
</TABLE>
Options to purchase 590,000 shares of the Company's stock at $20.00 per
share have been outstanding since February 20,1998. Options to purchase an
additional 61,000 shares were granted at a fair market value exercise price of
$17.31 per share on January 21, 1999. None of these options were included in the
computation of diluted EPS in 1999 because their effect would be anti-dilutive.
All options expire in either the years 2008 or 2009 and were still outstanding
at December 31, 1999.
6. COMMITMENTS AND CONTINGENCIES
The nature of the Company's business results in claims for damages
arising from the conduct of its employees or others. In the opinion of
management, there are no known pending legal proceedings that would have a
material effect on the consolidated financial statements of the Company.
The Company leases office space and data processing equipment under
non-cancelable operating leases expiring between 2000 and 2001. Rent expense for
fiscal year ended December 31, 1999 was $43,000.
The minimum commitments under these obligations are as follows:
Year Minimum commitment
- --------------------------------------------------------------------------------
2000 $29,000
2001 5,000
- --------------------------------------------------------------------------------
Total $34,000
- --------------------------------------------------------------------------------
43
<PAGE> 44
CORRECTIONAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999
7. SAVINGS PLAN
The Company has a 401(k) retirement plan (the "401(k) Plan") covering
all of the officers and employees of the Company. The 401(k) Plan permits
participants to contribute, until termination of employment with the Company, up
to a maximum of 15% of their compensation to the 401(k) Plan. Contributions of
participants are not matched by the Company. For the years ended December 31,
1999 and December 31, 1998, the Company incurred costs of $1,212 and $6,027 in
connection with the 401(k) Plan.
8. SUBSEQUENT EVENTS
The Company purchased the Jena Juvenile Justice Center from WCC on
January 7, 2000 for approximately $15,300,000, using funds available under the
Bank Credit Facility. WCC will lease the newly constructed 276-bed facility,
located in Jena, Louisiana, at an initial cap rate of 11% with 4% annual
escalators from the Company for an initial term of ten years, with three
additional renewal options of five years each in length. The lease provides for
fixed rental payments to the Company without regard for occupancy. WCC currently
operates the facility under a 25-year contract with the State of Louisiana. As
of January 7, 2000, approximately $84,000,000 had been drawn on the Bank Credit
Facility.
On January 20, 2000, the Board of Trustees declared a distribution of
$0.365 per share for the quarter ended December 31, 1999, to shareholders of
record on February 3, 2000. The distribution will be paid on February 17, 2000
and represents a distribution for the period from September 1, 1999 through
December 31, 1999.
9. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
As of or for the period ended:
--------------------------------------------------
(In thousands, 1st 2nd 3rd 4th
except per share data) Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------
1999
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real estate properties, net $202,531 $202,899 $201,657 $200,415
Total assets 207,407 206,058 204,726 203,548
Revenue 4,872 5,129 5,162 5,166
Net income 2,212 2,207 2,161 2,148
Net income per share, diluted 0.31 0.31 0.30 0.30
Funds from operation 3,380 3,439 3,403 3,390
Cash distribution per share 0.35 0.35 0.365 0.365
</TABLE>
<TABLE>
<CAPTION>
As of or for the period ended:
---------------------------------------
(In thousands, 2nd 3rd 4th
except per share data) Quarter(*) Quarter Quarter
- -------------------------------------------------------------------------------
1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Real estate properties, net $112,581 $111,925 $137,597
Total assets 132,211 132,569 142,764
Revenue 2,139 3,099 3,390
Net income 1,305 2,080 2,001
Net income per share, diluted 0.27 0.29 0.28
Funds from operation 1,765 2,742 2,769
Cash distribution per share -- 0.25 0.35
</TABLE>
* Operations commenced on April 28, 1998
44
<PAGE> 45
PART III
The information required by Items 10, 11, 12 and 13 of Part III of Form
10-K will be set forth in the definitive Proxy Statement of the Company relating
to the 2000 Annual Meeting of Shareholders and is incorporated herein by
reference.
45
<PAGE> 46
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) The following consolidated financial statements are filed as part of this
Form 10-K:
Correctional Properties Trust Consolidated Financial Statements:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets at December 31, 1999 and
December 31, 1998
Consolidated Statement of Income for the year ended
December 31, 1999 and period from February
18, 1998 (inception) to December 31, 1998
Consolidated Statement of Shareholders Equity for year ended
December 31, 1999 and the period from February 18, 1998
(inception) to December 31, 1998
Consolidated Statement of Cash Flows for the year ended
December 31, 1999 and period from February 18, 1998
(inception) to December 31, 1998
Notes to Consolidated Financial Statements.
(2) The following financial statement schedules are filed as part of this
Form 10-K:
None.
(3) See Exhibit Index included elsewhere herein.
(b) Reports on Form 8-K:
None.
46
<PAGE> 47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: March 30, 2000 CORRECTIONAL PROPERTIES TRUST
(Registrant)
By: /s/ Charles R. Jones
--------------------------------
Charles R. Jones
Chief Executive Officer,
President and Trustee
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Charles R. Jones and Patrick T. Hogan,
and each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this Annual
Report on Form 10-K, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf by the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- -----
<S> <C> <C>
/s/ Dr. George C. Zoley Chairman of the Board March 30, 2000
- ----------------------------------------------
Dr. George C. Zoley
/s/ Richard R. Wackenhut Vice-Chairman of the Board March 30, 2000
- ----------------------------------------------
Richard R. Wackenhut
/s/ George R. Wackenhut Trustee March 30, 2000
- ----------------------------------------------
George R. Wackenhut
/s/ Anthony P. Travisono Trustee March 30, 2000
- ----------------------------------------------
Anthony P. Travisono
/s/ Clarence E. Anthony Trustee March 30, 2000
- ----------------------------------------------
Clarence E. Anthony
/s/ Robert R. Veach, Jr. Trustee March 30, 2000
- ----------------------------------------------
Robert R. Veach, Jr.
/s/ James D. Motta Trustee March 30, 2000
- ----------------------------------------------
James D. Motta
/s/ William M. Murphy Trustee March 30, 2000
- ----------------------------------------------
William M. Murphy
/s/ Patrick T. Hogan Vice-President, Chief Financial Officer, March 30, 2000
- ---------------------------------------------- Secretary and Treasurer
Patrick T. Hogan (Principal financial and accounting
officer)
</TABLE>
47
<PAGE> 48
INDEX TO EXHIBITS
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
3.1 Articles of Amendment and Restatement of Declaration of Trust of
Correctional Properties Trust (1)
3.2 Amended and Restated Bylaws of Correctional Properties Trust (2)
3.3 Specimen of certificate representing the Common Shares (3)
4.1 Provisions defining the rights of shareholders are found in the Articles
of Amendment and Restatement of the Declaration of Trust and the Amended
and Restated Bylaws, respectively, of Correctional Properties Trust
(included as Exhibits 3.1 and 3.2 hereof)
10.1 Agreement of Limited Partnership of Correctional Properties Trust
Operating Limited Partnership L.P. (3)
10.2 Form of Master Agreement to Lease between CPT Operating Partnership L.P.
and Wackenhut Corrections Corporation (3)
10.3 Form of Lease Agreement between CPT Operating Partnership L.P. and
Wackenhut Corrections Corporation (3)
10.4 Form of Right to Purchase Agreement between Wackenhut Corrections
Corporation and CPT Operating Partnership L.P. (3)
10.5 Form of Option Agreement between Wackenhut Corrections Corporation and CPT
Operating Partnership L.P. (3)+
10.6 Form of Trustee and Officer Indemnification Agreement between Correctional
Properties Trust and its trustees and officers (3)
10.7 Correctional Properties Trust 1998 Employee Share Incentive Plan (4)+
10.8 Correctional Properties Trust 1998 Non-Employee Trustees' Share Option
Plan (4)+
10.9 Correctional Properties Trust 1999 Employee Share Incentive Plan (6)+
10.10 Agreement of Sale and Purchase dated October 30, 1998 between Wackenhut
Corrections Corporation and CPT Operating Partnership L.P. (3)
10.11 Credit Agreement dated October 2, 1998 by and among CPT Operating
Partnership, L.P., Correctional Properties Trust, NationsBank, N.A.,
NationsBanc Montgomery Securities LLC, the Bank of Nova Scotia and the
Lenders parties thereto from time to time (5)
10.12 Agreement of Sale and Purchase dated January 15, 1999 between
Wackenhut Corrections Corporation and CPT Operating Partnership LP*
10.13 Agreement of Sale and Purchase dated January 7, 2000 between
Wackenhut Corrections Corporation and CPT Operating Partnership LP*
21.1 List of Subsidiaries of Correctional Properties Trust (4)
23.1 Consent of Arthur Andersen LLP*
27.1 Financial Data Schedule
- -------------
* Filed herewith.
+ Management contract or compensatory plan or arrangement.
(1) Incorporated by reference to exhibit 3.2 to Amendment No. 1 to the
Registrant's Form S-11 (File No. 333-46681) filed with the Commission on
March 20, 1998.
(2) Incorporated by reference to exhibit 3.4 to Amendment No. 1 to the
Registrant's Form S-11 (File No. 333-46681) filed with the Commission on
March 20, 1998.
(3) Incorporated by reference to Amendment No. 1 to the Registrant's Form S-11
(File No. 333-46681) filed with the Commission on March 20, 1998.
(4) Incorporated by reference to Amendment No. 2 to the Registrant's Form S-11
(File No. 333-46681) filed with the Commission on April 8, 1998.
(5) Incorporated by reference to exhibit 4.1 of the Registrant's Form 10-Q for
the quarter ended September 30, 1998 filed with the Commission on November
16, 1998.
(6) Incorporated by reference to exhibit 10.9 to Registrant's Form 10-K for
the year ended December 31, 1998 filed with the Commission on March 31,
1999.
<PAGE> 1
AGREEMENT OF SALE AND PURCHASE
BY AND BETWEEN
WACKENHUT CORRECTIONS CORPORATION,
a Florida corporation
("SELLER")
AND
CPT OPERATING PARTNERSHIP L.P.,
a Delaware limited partnership
("PURCHASER")
January 15, 1999
<PAGE> 2
AGREEMENT OF SALE AND PURCHASE
THIS AGREEMENT OF SALE AND PURCHASE (the "Agreement") is made and
entered into by and between WACKENHUT CORRECTIONS CORPORATION, a Florida
corporation (hereinafter referred to as "Seller"), and CPT OPERATING PARTNERSHIP
L.P., a Delaware limited partnership (hereinafter referred to as "Purchaser").
Seller and Purchaser are sometimes collectively referred to herein as the
"Parties" and each of the Parties is sometimes singularly referred to herein as
a "Party".
RECITALS
A. Seller (or an affiliate of Seller) is the owner of the
Property (as hereinafter defined), consisting of certain real properties and
improvements thereon being more particularly described on Exhibit A attached
hereto and made a part hereof or has the right to acquire the Property through a
validly existing and enforceable purchase option between Seller and the current
owner of the Property; and,
B. Seller desires to sell and Purchaser desires to purchase the
Property, and simultaneously therewith, to enter into a lease transaction
pursuant to which Purchaser shall lease to Seller, and Seller shall lease from
Purchaser, the Property.
NOW, THEREFORE, in consideration of the sum of Ten Dollars ($10.00),
the mutual covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties agree as follows:
ARTICLE I.
DEFINITIONS
As used herein (including any Exhibits attached hereto), the following
terms shall have the meanings indicated:
"Accreditations" shall mean any and all accreditations and/or
certifications from any non-governmental entities required in connection with
the current or contemplated operation of the Property.
"Applicable Notices" shall mean any reports, notices of violation, or
notices of compliance issued in connection with any Accreditations or Permits.
"Bill of Sale" shall mean a bill or bills of sale in substantially the
same form as Exhibit B, attached hereto, and sufficient to transfer to Purchaser
all Personal Property.
"Business Agreements" shall mean any leases, contract rights, loan
agreements, mortgages, easements, covenants, restrictions or other agreements or
instruments affecting all or a portion of the
<PAGE> 3
Property, to the extent the same are assignable by Seller, but specifically
excluding all of Seller's Operating and Service Agreements.
"Business Day(s)" shall mean calendar days other than Saturdays,
Sundays and legal holidays.
"Certificate of Non-Foreign Status" shall mean a certificate dated as
of the Closing Date, addressed to Purchaser and duly executed by Seller, in
substantially the same form as Exhibit C, attached hereto.
"Claim" shall mean any obligation, liability, lien, encumbrance, loss,
damage, cost, expense or claim, including, without limitation, any claim for
damage to property or injury to or death of any person or persons.
"Closing" shall mean the consummation of the sale and purchase provided
for herein, to be held at the offices of Akerman, Senterfitt & Eidson, P.A., One
SE Third Avenue, Miami, Florida, or such other place as the Parties may mutually
agree.
"Closing Certificate" shall mean a certificate in substantially the
same form as Exhibit D, attached hereto, wherein Seller and Purchaser,
respectively, shall represent that the representations and warranties of Seller
and Purchaser, respectively, contained in this Agreement are true and correct in
all material respects as of the Closing Date as if made on and as of the Closing
Date.
"Closing Date" shall mean the actual day on which the transaction
contemplated hereby is closed with the transfer of title to the Property. The
Parties agree that the closing date shall be January ____, 1999 or such earlier
or later date as shall be hereafter mutually agreed upon by the Parties.
"Deed" shall mean a deed in substantially the same form as Exhibit E,
attached hereto (as the same may be modified to comply with local law and
custom), executed by Seller, as grantor, in favor of Purchaser, as grantee,
conveying the Land and Improvements to Purchaser, subject only to the Permitted
Exceptions.
"Due Diligence Materials" shall mean the information to be provided by
Seller to Purchaser pursuant to the provisions of Section 4.1 hereof.
"Effective Date" shall mean the later of the two (2) dates on which
this Agreement is signed and all changes initialed by Seller and Purchaser, as
indicated by their signatures below; provided, that in the event only one Party
dates its signature, then the date of its signature shall be the Effective Date.
"Engineering Documents" shall mean all site plans, surveys, soil and
substrata studies, architectural drawings, plans and specifications, engineering
plans and studies, floor plans, landscape plans, Americans with Disabilities Act
compliance reports, environmental reports and studies, professional inspection
reports, construction and/or architect's reports or certificates, feasibility
2
<PAGE> 4
studies, appraisals, and other similar plans and studies that relate to the Real
Property or the Personal Property, to the extent the same are assignable by
Seller.
"Exception Documents" shall mean true, correct and legible copies of
each document listed as an exception to title in the Title Commitment.
"Excluded Personal Property" shall mean all those items of tangible and
intangible personal property described on Exhibit F attached hereto,
specifically excluding those items of intangible personal property set forth on
the Schedule of Excluded Proprietary Property attached hereto as Exhibit F-1.
"Fixtures" shall mean all those items of equipment, machinery,
fixtures, and other items of real and/or personal property, including all
components thereof, now or on the Closing Date located in, on or used in
connection with, and permanently affixed to or incorporated into the
Improvements as described on Exhibit G attached hereto, 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 and those items of excluded
Fixtures set forth on Exhibit G-1.
"Hazardous Materials" shall mean any substance, including without
limitation, asbestos or any substance containing asbestos and deemed hazardous
under any Hazardous Materials Law, the group of organic compounds known as
polychlorinated biphenyls, petroleum products, flammable explosives, radioactive
materials, infectious wastes, biomedical and medical wastes, chemicals known to
cause cancer or reproductive toxicity, pollutants, effluents, contaminants,
emissions or related materials and any items included in the definition of
hazardous or toxic wastes, materials or substances under any Hazardous Materials
Law.
"Hazardous Materials Law" shall mean any local, state or federal law
relating to environmental conditions and industrial hygiene, including, without
limitation, the Resource Conservation and Recovery Act of 1976 ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), as amended by the Superfund Amendments and Reauthorization Act of
1986 ("SARA"), the Hazardous Materials Transportation Act, the Federal Waste
Pollution Control Act, the Clean Air Act, the Clean Water Act, the Toxic
Substances Control Act, the Safe Drinking Water Act, and all similar federal,
state and local environmental statutes, ordinances and the regulations, orders,
or decrees now or hereafter promulgated thereunder.
"Improvements" shall mean all buildings, improvements, structures and
Fixtures now or on the Closing Date located on the Land, including, without
limitation, landscaping, parking lots and structures, roads, drainage and all
above ground and underground utility structures, equipment systems and other
so-called "infrastructure" improvements.
3
<PAGE> 5
"Intangible Property" means all Permits, Business Agreements and other
intangible property or any interest therein now or on the Closing Date owned or
held by Seller in connection with the Real Property, including all water rights
and reservations, rights to use the trade name applicable to the Property (but
excluding the name "Wackenhut Corrections" or any derivative thereof), as set
forth on Exhibit A hereof, and zoning rights related to the Real Property, or
any part thereof, to the extent the same are assignable by Seller; provided,
however, "Intangible Property" shall not include the general corporate
trademarks, trade names (except as set forth above), service marks, logos or
insignia or the books and records of Seller, Seller's accounts receivable and
Seller's business and operating licenses for the facilities on the Real
Property.
"Land" means the real property more particularly described on Exhibit A
attached hereto and made a part hereof, together with all of Seller's rights,
titles, appurtenant interests, covenants, licenses, privileges and benefits
thereto belonging, and Seller's right, title and interest in and to any
easements, rights-of-way, rights of ingress or egress or other interests in, on,
or to any land, highway, street, road or avenue, open or proposed, in, on,
across, in front of, abutting or adjoining such real property including, without
limitation, any strips and gores adjacent to or lying between such real property
and any adjacent real property.
"Laws" means all federal, state and local laws, moratoria, initiatives,
referenda, ordinances, rules, regulations, standards, orders and other
governmental requirements, including, without limitation, those relating to the
environment, health and safety, disabled or handicapped persons.
"Lease" shall mean the Master Agreement to Lease dated as of April 28,
1998 between Seller and Purchaser and the Lease Agreement in substantially the
same form as Exhibit H, attached hereto and made a part hereof, which shall be
executed and delivered by Seller and Purchaser at the Closing, and pursuant to
the terms of which Purchaser shall lease the Property to Seller on the Closing
Date.
"Material" and "materially" shall mean a condition, noncompliance,
defect or other fact which would: (a) cost, with respect to any single defect or
fact, would cost, with respect to the Property, in excess of Fifty Thousand
Dollars ($50,000.00), to correct or repair; or (b) in the aggregate, with
respect to the Property, result in a loss to Purchaser or a reduction in the
value of such Property in excess of One Hundred Thousand Dollars ($100,000.00).
"Permits" shall mean all permits, licenses (but excluding Seller's
business and operating licenses), approvals, entitlements and other
governmental, quasi-governmental and nongovernmental authorizations including,
without limitation, certificates of use and occupancy, required in connection
with the ownership, planning, development, construction, use, operation or
maintenance of the Real Property, to the extent the same are assignable by
Seller. As used herein, "quasi-governmental" shall include the providers of all
utility services to the Real Property.
"Permitted Exceptions" shall mean those title exceptions which have
been approved in writing by Purchaser, or are deemed to have been approved by
Purchaser upon the expiration of the Review Period.
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"Personal Property" shall mean all Intangible Property, Warranties, and
Engineering Documents, and all those items of tangible personal property
described on Exhibit I, attached hereto, other than the Fixtures and the
Excluded Personal Property, now or on the Closing Date owned by Seller and
located on or about the Land or Improvements or used in connection with the
operation thereof (specifically excluding personal property owned by employees
of Seller and personal property owned by inmates housed at the Real Property).
"Property" shall mean, collectively, the Land, the Improvements, the
Fixtures, and the Personal Property.
"Purchase Price" shall mean the cash sum of $45,759,628.00.
"Real Property" shall mean the Land, the Improvements and the Fixtures.
"Review Period" means a period commencing on the Effective Date and
ending thirty (30) days from the date of Purchaser's receipt of the last of the
Due Diligence Materials; provided, should the Effective Date be less than thirty
(30) days prior to the Closing Date, the Review Period shall terminate on the
date which is five (5) days prior to the Closing Date.
"Search Reports" shall mean reports of searches made of the Uniform
Commercial Code Records of the County in which the Property is located, and of
the office of the Secretary of State of the State in which the Property is
located and in the State in which the principal office of Seller is located,
which searches shall reflect that none of the Property is encumbered by liens or
security interests which will remain on the Property after the Closing. The
Search Reports shall be updated, at Seller's expense, at or within five (5) days
prior to Closing.
"Seller's Operating and Service Agreements" shall mean all management,
service and operating agreements and contracts entered into by Seller with
respect to the Property, including, but not limited to, agreements and contracts
to house inmates at the Property, food service and equipment agreements, inmate
pay telephone service agreements, medical and pharmaceutical service and supply
agreements, drug testing service agreements, public performance and licensing
agreements for motion picture video cassettes, inmate educational and
instructional service agreements, refuse service agreements, pest control
service agreements and machinery, equipment and uniform rental and service
agreements.
"Survey" shall mean a current "as-built" ALTA survey, certified to ALTA
requirements, prepared by an engineer or surveyor licensed in the State in which
the Land is located and reasonably acceptable to Purchaser, which shall: (a)
include a narrative legal description of the Land by metes and bounds (which
shall include a reference to the recorded plat, if any), and a computation of
the area comprising the Land in both acres and gross square feet (to the nearest
one-thousandth of said respective measurement); (b) accurately show the location
on the Land of all improvements (dimensions thereof at the ground surface level
and the distance therefrom to the facing exterior property lines of the Land),
building and set-back lines, parking spaces (including number of spaces),
fences, evidence of abandoned fences, ponds, creeks, streams, rivers, officially
designated 100-year flood plains and flood prone areas, canals, ditches,
easements, roads, rights-of-way and
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encroachments; (c) location of encroachments, if any, upon adjoining property,
or from adjoining property, upon the Land; (d) state the zoning classification
of the Land; (e) be certified as of the date of the Survey to the Seller, the
Purchaser, the Title Company, and any third-party lender designated by
Purchaser; (f) legibly identify any and all recorded matters shown on said
Survey by appropriate volume and page recording references; (g) show the
location and names of all adjoining streets and the distance to the nearest
streets intersecting the streets that adjoin the Land; (h) be satisfactory to
(and updated from time to time as may be required by) the Title Company so as to
permit it to delete the standard exception for survey matters and replace it
with an exception for the matters shown on the Survey.
"Title Commitment" shall mean a current commitment or current
commitments issued by the Title Company to the Purchaser pursuant to the terms
of which the Title Company shall commit to issue the Title Policy to Purchaser
in accordance with the provisions of this Agreement, and reflecting all matters
which would be listed as exceptions to coverage on the Title Policy.
"Title Company" shall mean First American Title Insurance Company.
"Title Policy" shall mean an ALTA Extended Coverage Owner's Policy (or
policies) of Title Insurance (10/17/70 Form), or comparable state promulgated
policies, with liability in the aggregate amount of the Purchase Price, dated as
of the Closing Date, issued by the Title Company, insuring title to the fee
interest in the Real Property in Purchaser, subject only to the Permitted
Exceptions and to the standard printed exceptions included in the ALTA standard
form owner's extended coverage policy of title insurance including such other
endorsements requested by Purchaser, with the following modifications: (a) the
exception for survey matters shall be deleted and replaced by an exception for
the matters shown on the Survey; (b) the exception for ad valorem taxes shall
reflect only taxes for the current and subsequent years; (c) any exception as to
parties in possession shall be limited to rights of Seller in possession, as
lessee only, pursuant to the Lease; and (d) there shall be no general exception
for visible and apparent easements or roads and highways or similar items (with
any exception for visible and apparent easements or roads and highways or
similar items to be specifically referenced to and shown on the Survey and also
identified by applicable recording information).
"Warranties" shall mean all warranties and guaranties with respect to
the Real Property or Personal Property, whether express or implied, which Seller
now holds or under which Seller is the beneficiary, to the extent the same are
assignable by Seller.
ARTICLE II.
AGREEMENTS TO SELL, PURCHASE AND LEASE
2.1 AGREEMENT TO SELL AND PURCHASE. On the Closing Date, provided
Purchaser shall not have terminated this Agreement pursuant to the provisions of
Section 4.2 hereof, Seller shall, or shall cause its affiliate or optionor to
sell, convey, assign, transfer and deliver to Purchaser and Purchaser shall
purchase, acquire and accept from Seller, the Property, for the Purchase Price
and subject to the terms and conditions of this Agreement.
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2.2 AGREEMENT TO LEASE. On the Closing Date, and subject to
performance by the Parties of the terms and provisions of this Agreement,
Purchaser shall lease to Seller and Seller shall lease from Purchaser, the
Property at the rental and upon the terms and conditions set forth in the Lease.
ARTICLE III.
PURCHASE PRICE
3.1 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid by
Purchaser delivering to, or at the direction of, the Seller at the Closing
Federal Reserve wire transfer funds or other immediately available collected
funds payable to the order of the Seller in the sum equal to the Purchase Price,
subject to adjustment as herein provided. On or before the Closing, the Parties
shall agree on an allocation of the Purchase Price as between the Real Property
and the Personal Property.
ARTICLE IV.
ITEMS TO BE
FURNISHED TO PURCHASER BY SELLER
4.1 DUE DILIGENCE MATERIALS. Seller previously has delivered to
Purchaser for its review, or, if not, within fifteen (15) days after the
Effective Date, Seller shall deliver to Purchaser for its review, the following
items:
a. True, correct, complete and legible copies of all
Business Agreements, Warranties, Permits, Accreditations, Applicable Notices,
Engineering Documents and Seller's Operating and Service Agreements (solely for
the purposes of this Section 4.1a., the terms Business Agreements, Warranties,
Permits, and Engineering Documents shall include all agreements, documents and
instruments otherwise included within such definitions, whether or not the same
are assignable by Seller);
b. True, correct, complete and legible copies of tax
statements or assessments for all real estate and personal property taxes
assessed against the Property for the current and the two prior calendar years,
if available;
c. True, correct, complete and legible listing of all
Fixtures, Personal Property and Excluded Property, including a current
depreciation schedule.
d. True, correct, complete and legible copies of all
existing fire and extended coverage insurance policies and any other insurance
policies pertaining to the Property, if any;
e. True, correct, complete and legible copies of all
instruments evidencing, governing or securing the payment of any loans secured
by the property or related thereto. Seller may make such instruments available
for inspection and copying by Purchaser at Seller's principal office;
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f. True, correct, complete and legible copies of any and
all environmental studies or impact reports relating to the Property, if any,
and any approvals, conditions, orders or declarations issued by any governmental
authority relating thereto (such studies and reports shall include, but not be
limited to, reports indicating whether the Property is or has been contaminated
by Hazardous Materials and whether the Property is in compliance with the
Americans with Disabilities Act and Section 504 of the Rehabilitation Act of
1973, as applicable);
g. True, correct, complete and legible copies of any and
all litigation files with respect to any pending litigation and claim files for
any claims made or threatened, the outcome of which might materially affect the
Property or the use and operation of the Property, together with summaries and
such other more detailed information as Purchaser may reasonably request with
respect to any other pending litigation or claim the outcome of which might
materially affect Seller or materially affect the Property. Seller may make such
files available for inspection and copying by Purchaser at Seller's principal
office.
h. The Title Commitment, Exception Documents, Survey and
Search Reports.
i. Actual operating statements for the Property or, if
the Property has not been operated by Seller for twelve months prior to the date
of this Agreement, projected operating results for the Property.
j. The Certificate of Occupancy, or its equivalent, for
the Property.
4.2 DUE DILIGENCE REVIEW. During the Review Period, Purchaser
shall be entitled to review the Due Diligence Materials delivered by Seller to
Purchaser pursuant to the provisions of Section 4.1 above. If Purchaser shall,
for any reason in Purchaser's sole discretion, judgment and opinion, disapprove
or be dissatisfied with any aspect of such information, or the Property, then
Purchaser shall be entitled to terminate this Agreement by giving written notice
thereof to Seller on or before the expiration of the Review Period, whereupon
this Agreement shall automatically be rendered null and void, all moneys which
have been delivered by Purchaser to Seller or the Title Company shall be
immediately returned to Purchaser and thereafter neither Party shall have any
further obligations or liabilities to the other hereunder. Alternatively,
Purchaser may give written notice setting forth any defect, deficiency or
encumbrance and specify a time within which Seller may remedy or cure such
matter prior to the expiration of the Review Period, but Seller shall have no
obligation to remedy or cure any such matters objected to by Purchaser. If any
defect, deficiency or encumbrance, so noticed, is not satisfied or resolved to
the satisfaction of Purchaser, in Purchaser's sole discretion, within the time
period specified in the written notice, this Agreement shall, at the option of
Purchaser, terminate as provided in this Section; said option to terminate to be
exercised, if at all, by Purchaser giving written notice thereof to Seller and
simultaneously paying Seller the sum of One Hundred Dollars ($100.00) on the
earlier of: (a) within three (3) Business Days after the expiration of said
specified time period, or (b) the Closing Date. In the event Purchaser fails to
exercise its option to terminate this Agreement within the time and in the
manner set forth in this Section 4.2, then Purchaser shall be deemed to have
accepted and approved the Due Diligence Materials and the Property, and to have
waived any such defect, deficiency or
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encumbrance, and to have accepted all exceptions to title referenced in the
Title Commitment and all matters shown on the Survey. Such accepted title
exceptions and survey matters shall be included in the term "Permitted
Exceptions" as used herein.
4.3 ISSUANCE OF TITLE POLICY. Seller agrees to deliver to
Purchaser the Title Policy as soon as practicable after the Closing.
ARTICLE V.
REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS
5.1 REPRESENTATIONS AND WARRANTIES OF SELLER. To induce Purchaser
to enter into this Agreement and to purchase the Property, Seller represents and
warrants to Purchaser as follows:
a. Seller has the right to acquire and at the Closing,
Seller will have and will convey, transfer and assign to Purchaser, or Seller
will cause the conveyance, transfer and assignment to Purchaser of, good,
indefeasible, marketable and insurable title to the Land, free and clear of any
deeds of trust, mortgages, liens, encumbrances, leases, tenancies, licenses,
chattel mortgages, conditional sales agreements, security interests, covenants,
conditions, restrictions, judgments, rights-of-way, easements, encroachments,
claims and any other matters affecting title or use of the Property, except the
Permitted Exceptions.
b. Seller has duly and validly authorized and executed
this Agreement, and has full right, title, power and authority to enter into
this Agreement and to consummate the transactions provided for herein, and the
joinder of no person or entity will be necessary to convey the Property fully
and completely to Purchaser at Closing and to lease the Property from Purchaser
following Closing. Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Florida and is qualified to do
business in each state in which any of the Property is located. The consummation
of the transactions contemplated herein does not require the approval of
Seller's shareholders or any third party, except such third party approvals as
Seller has obtained or will obtain prior to the Closing Date. The execution by
Seller of this Agreement and the consummation by Seller of the transactions
contemplated hereby do not, and at the Closing will not, result in a breach of
any of the terms or provisions of, or constitute a default or a condition which
upon notice or lapse of time or both would ripen into a default under, Seller's
Bylaws or Certificate of Incorporation, any indenture, agreement, instrument or
obligation to which Seller is a party or by which the Property or any portion
thereof is bound; and does not constitute a violation of any Laws, order, rule
or regulation applicable to Seller or any portion of the Property of any court
or of any federal, state or municipal regulatory body or administrative agency
or other governmental body having jurisdiction over Seller or any portion of the
Property.
c. Except as may be disclosed in the Exception
Documents, there are no adverse or other parties in possession of the Property
or of any part thereof, and Seller has not granted to any party any license,
lease or other right relating to the use or possession of the Property.
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d. No notice has been received from any insurance
company that has issued a policy with respect to any portion of the Property or
from any board of fire underwriters (or other body exercising similar
functions), claiming any defects or deficiencies or requiring the performance of
any repairs, replacements, alterations or other work and as of the Closing no
such notice will have been received which shall not have been cured. No notice
has been received by Seller from any issuing insurance company that any of such
policies will not be renewed, or will be renewed only at a higher premium rate
than is presently payable therefor.
e. No pending condemnation, eminent domain, assessment
or similar proceeding or charge affecting the Property or any portion thereof
exists. Seller has not heretofore received any notice, and has no knowledge,
that any such proceeding or charge is contemplated. Seller has not received any
notice of a proposed increase in the assessed valuation of the Property.
f. All Improvements (including all utilities) have been,
or as of the Closing will be, completed and installed in accordance with the
plans and specifications approved by the governmental authorities having
jurisdiction to the extent applicable and are transferable to Purchaser without
additional cost. Permanent certificates of occupancy, all licenses, permits,
authorizations and approvals required by all governmental authorities having
jurisdiction, and the requisite certificates of the local board of fire
underwriters (or other body exercising similar functions) have been, or as of
the Closing will be, issued for the Improvements, and, as of the Closing, where
required, all of the same will be in full force and effect. Except as may be set
forth in any of the Due Diligence Materials, the Improvements, as designed and
constructed, comply or will comply with all statutes, restrictions, regulations
and ordinances applicable thereto, including but not limited to the Americans
with Disabilities Act and Section 504 of the Rehabilitation Act of 1973, as
applicable.
g. The existing water, sewer, gas and electricity lines,
storm sewer and other utility systems on the Land are adequate to serve the
utility needs of the Property for operation as a correctional facility and
detention facility or other use set forth in the Permits. All utilities required
for the operation of the Improvements enter the Land through adjoining public
streets or through adjoining private land in accordance with valid public or
private easements that will inure to the benefit of Purchaser. All approvals,
licenses and permits required to fully operate said utilities have been obtained
and are in full force and effect. All of said utilities are installed and
operating, or will be, by Closing and all installation and connection charges
have been or will be paid in full.
h. Except as may be set forth in any of the Due
Diligence Materials, the location, construction, occupancy, operation and use of
the Property (including the Improvements) do not violate any applicable law,
statute, ordinance, rule, regulation, order or determination of any governmental
authority or any board of fire underwriters (or other body exercising similar
functions), or any restrictive covenant or deed restriction (recorded or
otherwise) affecting the Property or the location, construction, occupancy,
operation or use thereof, including, without limitation, all applicable zoning
ordinances and building codes, flood disaster laws and health and environmental
laws and regulations, the Americans with Disabilities Act and Section 504 of the
Rehabilitation Act of 1973, as applicable.
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i. There are no structural defects in any of the
buildings or other Improvements constituting the Property. The Improvements, all
heating, electrical, plumbing and drainage at, or servicing, the Property and
all facilities and equipment relating thereto are and, as of the Closing, will
be in good condition and working order and adequate in quantity and quality for
the normal operation of the Property as a correctional or detention facility or
other use set forth in the Permits. No part of the Property has been destroyed
or damaged by fire or other casualty. There are no unsatisfied requests for
repairs, restorations or alterations with regard to the Property from any
person, entity or authority, including but not limited to any lender, insurance
provider or governmental authority.
j. Except as previously disclosed by Seller pursuant to
contracts delivered to Purchaser, no work has been performed or is in progress
at the Property, and no materials will have been delivered to the Property that
might provide the basis for a mechanic's, materialmen's or other lien against
the Property or any portion thereof, or amounts due for such work and material
shall have paid or discharged to Purchaser's and Title Company's satisfaction as
of Closing.
k. There exist no service contracts, management or other
agreements applicable to the Property, or amendments, modifications or
terminations thereof, to which Seller is a party or otherwise known to Seller,
other than Seller's Operating and Service Agreements, the Business Agreements
and those agreements furnished to Purchaser pursuant to Section 4.1.
l. Seller is not in default in any manner which would
result in a material adverse effect on Seller under any of the Business
Agreements, or Seller's Operating and Service Agreements or any of the
covenants, conditions, restrictions, rights-of-way or easements affecting the
Property or any portion thereof, and, to Seller's knowledge, no other party to
any of the foregoing is in default thereunder.
m. There are no actions, suits or proceedings pending
or, to Seller's knowledge, threatened against or affecting the Property or any
portion thereof, or relating to or arising out of the ownership or operation of
the Property, or by any federal, state, county or municipal department,
commission, board, bureau or agency or other governmental instrumentality.
n. The Property has free and unimpeded access to
presently existing public highways and/or roads (either directly or by way of
perpetual easements); and, all approvals necessary therefor have been obtained.
To the best of Seller's knowledge, no fact or condition exists which would
result in the termination of the current access from the Property to any
presently existing public highways and/or roads adjoining or situated on the
Property.
o. There are no attachments, executions, assignments for
the benefit of creditors, or voluntary or involuntary proceedings in bankruptcy
or under any other debtor relief laws contemplated by or, to Seller's knowledge,
pending or threatened against Seller or the Property.
p. Except as may be set forth in any of the Due
Diligence Materials, no Hazardous Materials have been installed, used,
generated, manufactured, treated, handled, refined, produced, processed, stored
or disposed of, or otherwise present in, on or under the Property by
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Seller or to Seller's knowledge. No activity has been undertaken on the Property
by Seller or to Seller's knowledge which would cause (I) the Property to become
a hazardous waste treatment, storage or disposal facility within the meaning of,
or otherwise bring the Property within the ambit of RCRA or any Hazardous
Materials Law, (ii) a release or threatened release of Hazardous Materials from
the Property within the meaning of, or otherwise bring the Property within the
ambit of, CERCLA or SARA or any Hazardous Materials Law or (iii) the discharge
of Hazardous Materials into any watercourse, body of surface or subsurface water
or wetland, or the discharge into the atmosphere of any Hazardous Materials
which would require a permit under any Hazardous Materials Law. No activity has
been undertaken with respect to the Property by Seller or to Seller's knowledge
which would cause a violation or support a claim under RCRA, CERCLA, SARA or any
Hazardous Materials Law. No investigation, administrative order, litigation or
settlement with respect to any Hazardous Materials is in existence with respect
to the Property, nor, to Seller's knowledge, is any of the foregoing threatened.
No notice has been received by Seller from any entity, governmental body or
individual claiming any violation of any Hazardous Materials Law, or requiring
compliance with any Hazardous Materials Law, or demanding payment or
contribution for environmental damage or injury to natural resources. Seller has
not obtained and, to Seller's knowledge, is not required to obtain, and Seller
has no knowledge of any reason Purchaser will be required to obtain, any
permits, licenses, or similar authorizations to occupy, operate or use the
Improvements or any part of the Property by reason of any Hazardous Materials
Law. Notwithstanding the representations made herein, such representations are
and shall be deemed to be limited by the matters detailed in any Phase I
Preliminary Site Assessment or other Due Diligence Materials obtained by or
provided to Purchaser in connection herewith.
q. The Property includes all items of property, tangible
and intangible, currently used by Seller in connection with the operation of the
Property, other than the Excluded Personal Property, Seller's Operating and
Service Agreements, and property expressly excluded from the definition of the
Property.
r. To the best of Seller's knowledge, the Due Diligence
Materials delivered to Purchaser are true, correct and complete in all material
respects.
Seller hereby agrees to indemnify and defend, at its sole cost and
expense, and hold Purchaser, its successors and assigns, harmless from and
against and to reimburse Purchaser with respect to any and all claims, demands,
actions, causes of action, losses, damages, liabilities, costs and expenses
(including, without limitation, reasonable attorney's fees and court costs)
actually incurred of any and every kind or character, known or unknown, fixed or
contingent, asserted against or incurred by Purchaser at any time and from time
to time by reason of or arising out of (a) the material breach of any
representation or warranty of Seller set forth in Section 5.1, (b) the failure
of Seller, in whole or in part, to perform any obligation required to be
performed by Seller pursuant to Section 5.1 or (c) the ownership, construction,
occupancy, operation, use and maintenance by Seller or its agents of the
Property prior to the Closing Date. This indemnity applies, without limitation,
to the violation on or before the Closing Date of any Hazardous Materials Law in
effect on or before the Closing Date and any and all matters arising out of any
act, omission, event or circumstance existing or occurring on or prior to the
Closing Date (including, without limitation, the presence on the Property or
release from the Property of Hazardous Materials disposed of or otherwise
released
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prior to the Closing Date), regardless of whether the act, omission, event or
circumstance constituted a violation of any Hazardous Materials Law at the time
of its existence or occurrence. Subject to the provisions of Section 10.1, the
provisions of this Section 5.1 shall survive the Closing of the transaction
contemplated by this Agreement and shall continue thereafter in full force and
effect for the benefit of Purchaser, its successors and assigns. Notwithstanding
any provision of this Agreement to the contrary, Purchaser may exercise any
right or remedy Purchaser may have at law or in equity should Seller fail to
meet, comply with or perform its indemnity obligations required by this Section
5.1. In the event a defect, claim or deficiency is actually discovered by
Purchaser prior to Closing or is noticed in writing by Seller to Purchaser prior
to Closing, Purchaser shall either terminate the Agreement as provided herein or
waive the defect, claim or deficiency and proceed to Closing.
5.2 COVENANTS AND AGREEMENTS OF SELLER. Seller covenants and
agrees with Purchaser, from the Effective Date until the Closing or earlier
termination of this Agreement:
a. Seller shall: (I) operate the Property in the
ordinary course of Seller's business and in the same manner as currently
operated; and (ii) fully maintain and repair the Improvements, the Fixtures, and
the Personal Property in good condition and repair.
b. Purchaser shall be entitled to make all inspections
or investigations desired by Purchaser with respect to the Property or any
portion thereof, and shall have complete physical access to the Property, which
access shall occur at such times and in such manner so as to not unreasonably
interfere with Seller's business operations or constitute a safety hazard, as
reasonably determined by Seller.
c. Seller shall cause to be maintained in full force and
effect fire and extended coverage insurance upon the Property and public
liability insurance with respect to damage or injury to persons or property
occurring on or relating to operation of the Property in commercially reasonable
amounts, but no less than currently in effect.
d. Seller shall pay when due all bills and expenses of
the Property. Seller shall not enter into or assume any new Business Agreements
or modify, amend or terminate any existing Business Agreements with regard to
the Property which are in addition to or different from those furnished and
disclosed to Purchaser and reviewed and approved pursuant to Section 4.1.
e. Seller shall not create or permit to be created any
liens, easements or other conditions affecting any portion of the Property or
the uses thereof without the prior written consent of Purchaser.
f. Seller will pay, as and when due, all interest and
principal and all other charges payable under any indebtedness of Seller secured
by the Property from the date hereof until Closing, and will not suffer or
permit any default or amend or modify the documents evidencing or securing any
such indebtedness without the prior consent of Purchaser. Seller will, subject
to limitations provided by law with respect to privacy rights of inmates, give
to Purchaser, its attorneys, accountants and other representatives, during
normal business hours and as often as may be
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reasonably requested, full access to all books, records and files relating to
the Property so long as the same does not unreasonably interfere with Seller's
business operations.
g. Seller shall not remove any Personal Property or
Fixtures from the Land or Improvements without replacing same with substantially
similar items of equal or greater value and repairing the damage, if any, to the
Property as a result of such removal.
h. During the pendency of this Agreement, Seller, its
corporate officers, directors, and agents shall not negotiate the sale or other
disposition of the Property with any person or entity other than Purchaser, and
shall not take any steps to initiate, consummate or document the sale or other
disposition of the Property, or any portion thereof, to any person or entity
other than Purchaser.
i. Prior to the Closing Date, Seller agrees to notify
Purchaser in writing within three (3) Business Days of any offer received by,
delivered to or communicated to Seller for the purchase, sale, acquisition or
other disposition of the Property.
j. Seller shall provide representations, warranties and
consents as may be reasonably required in connection with any public offering of
stock or debt obligations by Purchaser, including, but not limited to, inclusion
of financial statements, summary financial information and other required
information concerning Seller, or Seller as lessee under the Lease, in any
Securities and Exchange Commission filings.
5.3 REPRESENTATIONS AND WARRANTIES OF PURCHASER. To induce Seller
to enter into this Agreement and to sell the Property, Purchaser represents and
warrants to Seller as follows:
a. Purchaser has duly and validly authorized and
executed this Agreement, and has full right, title, power and authority to enter
into this Agreement and to consummate the transactions provided for herein, and
the joinder of no person or entity will be necessary to purchase the Property
from Seller at Closing, and to lease the Property to Seller following Closing.
b. The execution by Purchaser of this Agreement and the
consummation by Purchaser of the transactions contemplated hereby do not, and at
the Closing will not, result in a breach of any of the terms or provisions of,
or constitute a default or a condition which upon notice or lapse of time or
both would ripen into a default under, any indenture, agreement, instrument or
obligation to which Purchaser is a party; and does not, and at the Closing will
not, constitute a violation of any Laws, order, rule or regulation applicable to
Purchaser of any court or of any federal, state or municipal regulatory body or
administrative agency or other governmental body having jurisdiction over
Purchaser.
14
<PAGE> 16
ARTICLE VI.
CONDITIONS TO OBLIGATIONS
6.1 CONDITIONS TO THE PURCHASER'S OBLIGATIONS. The obligations of
Purchaser to purchase the Property from Seller and to consummate the
transactions contemplated by this Agreement are subject to the satisfaction, at
all times prior to and as of the Closing (or such other time period specified
below), of each of the following conditions:
a. All of the representations and warranties of Seller
set forth in this Agreement shall be true at all times prior to, at and as of,
the Closing in all material respects and Seller shall deliver a Closing
Certificate in substantially the same form attached hereto as Exhibit D updating
such representations and warranties.
b. Seller shall have delivered, performed, observed and
complied with, all of the items, instruments, documents, covenants, agreements
and conditions required by this Agreement to be delivered, performed, observed
and complied with by it prior to, or as of, the Closing.
c. Seller shall not be in receivership or dissolution or
have made any assignment for the benefit of creditors, or admitted in writing
its inability to pay its debts as they mature, or have been adjudicated a
bankrupt, or have filed a petition in voluntary bankruptcy, a petition or answer
seeking reorganization or an arrangement with creditors under the federal
bankruptcy law or any other similar law or statute of the United States or any
state and no such petition shall have been filed against it.
d. No material or substantial adverse change shall have
occurred with respect to the condition, financial or otherwise, of the Seller or
the Property.
e. Neither the Property nor any part thereof or interest
therein shall have been taken by execution or other process of law in any action
prior to Closing.
f. Seller shall have obtained and delivered to Purchaser
a current report, dated no more than ten (10) days prior to this Agreement, from
a licensed pest control company reasonably acceptable to Purchaser, and which
must show the Property to be free of all termite, or other destructive insect
and pest infestation.
g. During the Review Period, Purchaser shall have
satisfactorily completed an inspection of the Property with respect to the
physical condition thereof by agents or contractors selected by Purchaser.
h. During the Review Period, Purchaser shall have
received, in form acceptable to Purchaser, evidence of compliance by the
Property with all building codes, zoning ordinances and other governmental
entitlements as necessary for the operation of the Property for the current and
intended use, including, without limitation, certificates of occupancy and such
other permits, licenses, approvals, agreements and authorizations as are
required for the operation of the Property
15
<PAGE> 17
for the current and intended use and satisfactory evidence of no violations of
building or other codes or laws.
i. During the Review Period, all necessary approvals,
consents and the like of third parties to the validity and effectiveness of the
transactions contemplated hereby have been obtained.
j. During the Review Period, Purchaser is reasonably
satisfied that the Property is sufficient and adequate for Seller to carry on
the business now being conducted thereon and the Property is in good condition
and repair as reasonably required for the proper operation and use thereof in
compliance with applicable laws.
k. During the Review Period, Purchaser has reviewed and
satisfied itself with respect to the Due Diligence Materials and shall not have
terminated this Agreement pursuant to the provisions of Section 4.2 hereof.
l. No material portion of the Property shall have been
destroyed by fire or casualty.
m. No condemnation, eminent domain or similar
proceedings shall have been commenced or threatened with respect to any material
portion of the Property.
6.2 FAILURE OF CONDITIONS TO PURCHASER'S OBLIGATIONS. In the event
any one or more of the conditions to Purchaser's obligations are not satisfied
or waived in whole or in part at any time prior to or as of the Closing,
Purchaser, at Purchaser's option, shall be entitled to: (a) terminate this
Agreement by giving written notice thereof to Seller, whereupon all moneys, if
any, which have been delivered by Purchaser to Seller or the Title Company shall
be immediately refunded to Purchaser and Purchaser shall have no further
obligations or liabilities hereunder; or (b) proceed to Closing hereunder.
6.3 CONDITIONS TO THE SELLER'S OBLIGATIONS. The obligations of
Seller to sell the Property to Purchaser and to consummate the transactions
contemplated by this Agreement are subject to the satisfaction, at all times
prior to and as of the Closing (or such other time period specified below), of
each of the following conditions:
a. All of the representations and warranties of
Purchaser set forth in this Agreement shall be true at all times prior to, at
and as of, the Closing in all material respects and Purchaser shall deliver a
Closing Certificate in substantially the same form attached hereto as Exhibit D
updating such representations and warranties.
b. Purchaser shall have delivered, performed, observed
and complied with, all of the items, instruments, documents, covenants,
agreements and conditions required by this Agreement to be delivered, performed,
observed and complied with by it prior to, or as of, the Closing.
16
<PAGE> 18
c. Purchaser shall not be in receivership or dissolution
or have made any assignment for the benefit of creditors, or admitted in writing
its inability to pay its debts as they mature, or have been adjudicated a
bankrupt, or have filed a petition in voluntary bankruptcy, a petition or answer
seeking reorganization or an arrangement with creditors under the federal
bankruptcy law or any other similar law or statute of the United States or any
state and no such petition shall have been filed against it.
6.4 FAILURE OF CONDITIONS TO SELLER'S OBLIGATIONS. In the event
any one or more of the conditions to Seller's obligations are not satisfied or
waived in whole or in part at any time prior to or as of the Closing, Seller, at
Seller's option, shall be entitled to: (a) terminate this Agreement by giving
written notice thereof to Purchaser, whereupon all moneys, if any, which have
been delivered by Seller to Purchaser or the Title Company shall be immediately
refunded to Seller and Seller shall have no further obligations or liabilities
hereunder; or (b) proceed to Closing hereunder.
ARTICLE VII.
PROVISIONS WITH RESPECT TO THE CLOSING
7.1 SELLER'S CLOSING OBLIGATIONS. At the Closing, Seller shall
furnish and deliver to the Purchaser, at Seller's expense, the following:
a. The Deed, Title Policy (or the Title Commitment
marked-up and initialed by the Title Company), Bill of Sale, Certificate of
Non-Foreign Status, Closing Certificate, and the Lease, each duly executed and
acknowledged by Seller and, as appropriate, in recordable form acceptable in the
state and county in which the Property is located.
b. Certificates of casualty and fire insurance for the
Property and satisfactory evidence of all other insurance coverages as required
pursuant to the Lease showing Purchaser as additional insured and loss payee
thereunder, where appropriate, with appropriate provisions for prior notice to
Purchaser in the event of cancellation or termination of such policies and
otherwise in form and substance reasonably satisfactory to Purchaser.
c. Search Reports, dated not more than five (5) days
prior to Closing, evidencing no UCC-1 Financing Statements or other filings in
the name of Seller with respect to the Property which will remain on the
Property after the Closing.
d. Such affidavits or letters of indemnity as the Title
Company shall require in order to omit from the Title Insurance Policy all
exceptions for unfiled mechanic's, materialman's or similar liens.
e. Any and all transfer declarations or disclosure
documents, duly executed by the appropriate parties, required in connection with
the Deed by any state, county or municipal agency having jurisdiction over the
Property or the transactions contemplated hereby.
17
<PAGE> 19
f. Such instruments or documents as are necessary, or
reasonably required by Purchaser or the Title Company, to evidence the status
and capacity of Seller and the authority of the person or persons who are
executing the various documents on behalf of Seller in connection with the
purchase and sale transaction contemplated hereby.
g. Such other documents as are reasonably required by
Purchaser to carry out the terms and provisions of this Agreement.
7.2 PURCHASER'S CLOSING OBLIGATIONS. At the Closing, Purchaser
shall furnish and deliver to Seller, at Purchaser's expense, the following:
a. Federal Reserve, wire transfer funds or other
immediately available collected funds payable to the order, or at the direction,
of Seller representing the cash portion of the Purchase Price due in accordance
with Section 3.1 herein.
b. The Closing Certificate and the Lease, duly executed
and acknowledged by Purchaser.
c. Such instruments or documents as are necessary, or
reasonably required by Seller or the Title Company, to evidence the status and
capacity of Purchaser and the authority of the person or persons who are
executing the various documents on behalf of Purchaser in connection with the
purchase and sale transaction contemplated hereby.
d. Such other documents as are reasonably required by
Seller to carry out the terms and provisions of this Agreement.
e. All necessary approvals, consents, certificates and
the like of third parties to the validity and effectiveness of the transaction
contemplated hereby.
ARTICLE VIII.
EXPENSES OF CLOSING
8.1 ADJUSTMENTS. There shall be no adjustment of taxes,
assessments, water or sewer charges, gas, electric, telephone or other
utilities, operating expenses, employment charges, premiums on insurance
policies, rents or other normally proratable items, it being agreed and
understood by the Parties that the Seller shall be obligated to pay such items
under the terms of the Lease.
8.2 CLOSING COSTS. Seller shall pay (a) all title examination fees
and premiums for the Title Policy; (b) the cost of the Search Reports; (c) the
cost of the Survey; (d) Seller's legal, accounting and other professional fees
and expenses and the cost of all opinions, certificates, instruments, documents
and papers required to be delivered, or to cause to be delivered, by Seller
hereunder, including without limitation, the cost of performance by Seller of
its obligations hereunder; (e) all other costs and expenses which are required
to be paid by Seller pursuant to other
18
<PAGE> 20
provisions of this Agreement; (f) any and all state, municipal or other
documentary or transfer taxes payable in connection with the delivery of any
instrument or document provided in or contemplated by this Agreement or any
agreement or commitment described or referred to herein; and (g) the charges for
or in connection with the recording and/or filing of any instrument or document
provided herein or contemplated by this Agreement or any agreement or document
described or referred to herein. Purchaser shall pay (a) Purchaser's legal,
accounting and other professional fees and expenses and the cost of all
opinions, certificates, instruments, documents and papers required to be
delivered, or to cause to be delivered, by Purchaser hereunder, including,
without limitation, the cost of performance by Purchaser of its obligations
hereunder; and (b) all other costs and expenses which are required to be paid by
Purchaser pursuant to other provisions of this Agreement. Purchaser and Seller
shall each be responsible for other costs in the usual and customary manner for
this kind of transaction in the county where the Property is located.
8.3 COMMISSIONS/BROKER'S FEES. Seller hereby represents and
warrants to Purchaser that it has not contacted any real estate broker, finder
or any other party in connection with this transaction, and that it has not
taken any action which would result in any real estate broker's, finder's or
other fees being due or payable to any party with respect to the transaction
contemplated hereby. Purchaser hereby represents and warrants to Seller that
Purchaser has not contacted any real estate broker, finder or any other party in
connection with this transaction, and that it has not taken any action which
would result in any real estate broker's, finder's or other fees being due or
payable to any party with respect to the transaction contemplated hereby. Each
Party hereby indemnifies and agrees to hold the other Party harmless from any
loss, liability, damage, cost or expenses (including reasonable attorneys' fees)
resulting to such other Party by reason of a breach of the representation and
warranty made by such Party herein.
ARTICLE IX.
DEFAULT AND REMEDIES
9.1 SELLER'S DEFAULT; PURCHASER'S REMEDIES.
a. Seller shall be deemed to be in default hereunder
upon the occurrence of one of the following events: (i) any of Seller's
warranties or representations set forth herein shall be untrue in any material
respect when made or at Closing; or (ii) Seller shall fail to meet, comply with,
or perform any covenant, agreement or obligation on its part required within the
time limits and in the manner required in this Agreement, which, in either of
such events, is not cured by Seller within ten (10) days following receipt by
Seller of written notice of default from Purchaser.
b. In the event Seller shall be deemed to be in default
hereunder Purchaser may, at Purchaser's sole option, do any one or more of the
following: (i) terminate this Agreement by written notice delivered to Seller on
or before the Closing; and/or (ii) enforce specific performance of this
Agreement against Seller including Purchaser's reasonable costs and attorneys
fees in connection therewith and/or (iii) exercise any other right or remedy
Purchaser may have at law or in equity by reason of such default including, but
not limited to, the recovery of reasonable attorneys' fees incurred by Purchaser
in connection herewith.
19
<PAGE> 21
9.2 PURCHASER'S DEFAULT; SELLER'S REMEDIES.
a. Purchaser shall be deemed to be in default hereunder
upon the occurrence of one of the following events: (i) any of Purchaser's
warranties or representations set forth herein shall be untrue in any material
respect when made or at Closing; or (ii) Purchaser shall fail to meet, comply
with, or perform any covenant, agreement or obligation on its part required
within the time limits and in the manner required in this Agreement, which, in
either of such events, is not cured by Purchaser within ten (10) days following
receipt by Purchaser of written notice of default from Seller.
b. In the event Purchaser shall be deemed to be in
default hereunder Seller may, at Seller's sole option, do any one or more of the
following: (i) terminate this Agreement by written notice delivered to Purchaser
on or before the Closing; and/or (ii) enforce specific performance of this
Agreement against Purchaser including Seller's reasonable costs and attorneys
fees in connection therewith.
ARTICLE X.
MISCELLANEOUS
10.1 CASUALTY. Prior to the Closing Date, and notwithstanding the
pendency of this Agreement, the entire risk of loss or damage by fire or other
casualty shall be borne and assumed by Seller, except as otherwise provided in
this Section 10.1. Until the Closing has occurred, Seller shall keep all
insurance policies in effect. If, prior to the Closing Date, any part of the
Property is damaged or destroyed by fire or other casualty, Seller shall
immediately notify Purchaser of such fact. If such damage or destruction is
material (as defined below), Purchaser shall have the option to terminate this
Agreement upon written notice to Seller given not later than thirty (30) days
after receipt of Seller's notice. For purposes hereof "material" shall be deemed
to be any uninsured damage or destruction to the Property (except that a
casualty shall not be deemed uninsured solely because all, or a portion of, the
cost of the casualty is subject to a deductible) or any insured damage or
destruction (i) where the cost of repair or replacement is estimated, in
Purchaser's good faith judgment, to be One Hundred Thousand and No/100
($100,000.00) or more, (ii) where the repair or replacement is estimated, in
Purchaser's good faith judgment, to require more than one hundred twenty (120)
days to repair, or (iii) which would result in an abatement of rent that would
not be fully covered by rent loss insurance (or its equivalent) to Seller upon
the Closing. If Purchaser does not exercise this option to terminate this
Agreement, or if the casualty is not material, neither party shall have the
right to terminate this Agreement, and the parties shall proceed to the Closing
pursuant to the terms hereof without modification of the terms of this Agreement
and without any reduction in the Purchase Price, and the repair and restoration
of the Property shall proceed in accordance with the terms and provisions of the
Lease to be entered into between Seller and Purchaser with the same effect as if
such casualty had occurred during the term of the Lease. If Purchaser does not
elect to terminate this Agreement by reason of any casualty, Purchaser shall
have the right to participate in
20
<PAGE> 22
any adjustment of the insurance claim and, in such event, Purchaser and Seller
shall cooperate each with the other in good faith.
10.2 CONDEMNATION. Prior to the Closing Date, if all or any portion
of the Property is taken, or if access thereto is reduced or restricted, by
eminent domain or otherwise (or if such taking, reduction or restriction is
pending, threatened or contemplated) (hereinafter a "Condemnation Proceeding"),
Seller shall immediately notify Purchaser of such fact. In the event that such
notice relates to the taking of a material (as defined below) portion of the
Property, Purchaser shall have the option, in its sole and absolute discretion,
to terminate this Agreement upon written notice to Seller given not later than
thirty (30) days after receipt of Seller's notice, whereupon neither party shall
have any rights, obligations or liabilities hereunder except with respect to
those rights, obligations or liabilities which expressly survive the termination
of this Agreement. For the purposes of this Section, and without limiting the
generality of the foregoing, a taking shall be deemed material if it (i)
restricts access to the Property (ii) reduces the parking available to Property
unless an equal or greater number of spaces may be created through a
reconfiguration of the parking facilities, or (iii) would, in the reasonable
estimation of Purchaser, cost more than $100,000 to restore the Property or make
alterations to the Property in order to maintain the Property as a fully
functioning correctional and detention facility comparable in all respects to
the condition of the Property absent such Condemnation Proceeding. If Purchaser
does not elect to terminate this Agreement as herein provided, the parties shall
proceed to the Closing pursuant to the terms hereof without modification of the
terms of this Agreement and without any reduction in the Purchase Price, and any
condemnation award and repair and restoration of the Property shall be governed
by the terms and provisions of the Lease to be entered into between Seller and
Purchaser at the Closing with the same effect as if such Condemnation Proceeding
had occurred during the term of the Lease. If Purchaser does not elect to
terminate this Agreement by reason of any Condemnation Proceeding, Purchaser
shall have the right to participate in any Condemnation Proceeding with respect
to the Property and, in such event, Purchaser and Seller shall cooperate each
with the other in good faith.
10.3 SURVIVAL. With the exception of Seller's obligations pursuant
to the terms of Section 5.4 of this Agreement, all of the representations,
warranties, covenants, agreements and indemnities of Seller and Purchaser
contained in this Agreement, to the extent not performed at the Closing, shall
survive the Closing for the period of one (1) year after the Closing Date and
shall not be deemed to merge upon the acceptance of the Deed by Purchaser. The
obligations of Seller, pursuant to the terms of Section 5.4, shall continue in
full force and effect until such time as Seller has fully satisfied and
completed such obligations.
10.4 RIGHT OF ASSIGNMENT. Neither this Agreement nor any interest
herein may be assigned or transferred by Purchaser to any person, firm,
corporation or other entity without the prior written consent of Seller, which
consent may be given or withheld in the sole discretion of Seller.
10.5 NOTICES. All notices, requests and other communications under
this Agreement shall be in writing and shall be either (a) delivered in person,
(b) sent by certified mail, return-receipt requested or (c) delivered by a
recognized national delivery service addressed as follows:
21
<PAGE> 23
<TABLE>
<S> <C>
If intended for Seller: Wackenhut Corrections Corporation
4200 Wackenhut Drive, Suite 100
Palm Beach Gardens, FL 33410-4243
Phone: (561) 622-5656
Attention: Dr. George C. Zoley
With a copy to: Akerman, Senterfitt & Eidson, P.A.
One SE Third Avenue
Miami, Florida 33131
Phone: (305) 374-5600
Attention: Janice L. Russell, Esq.
If intended for Purchaser: CPT Operating Partnership L.P.
Gardens Plaza, Suite 430
3300 PGA Boulevard
Palm Beach Gardens, Florida 33410-4243
Phone: (561) 691-6644
Attn: Mr. Charles R. Jones
With a copy to: Josias, Goren, Cherof, Doody and Ezrol, P.A.
3009 East Commercial Boulevard, Suite 200
Ft. Lauderdale, Florida 33308
Phone: (954) 771-4500
Attention: Donald J. Doody, Esq.
</TABLE>
or at such other address, and to the attention of such other person, as the
parties shall give notice as herein provided. A notice, request and other
communication shall be deemed to be duly received if delivered in person or by a
recognized national delivery service, when delivered to the address of the
recipient, if sent by mail, on the date of receipt by the recipient as shown on
the return-receipt card; provided that if a notice, request or other
communication is served by hand on a day which is not a Business Day, or after
5:00 P.M. on any Business Day at the addressee's location, such notice or
communication shall be deemed to be duly received by the recipient at 9:00 A.M.
on the first Business Day thereafter.
10.6 ENTIRE AGREEMENT; MODIFICATIONS. This Agreement embodies and
constitutes the entire understanding between the Parties with respect to the
transactions contemplated herein, and all prior or contemporaneous agreements,
understandings, representations and statements (oral or written) are merged into
this Agreement. Neither this Agreement nor any provision hereof may be waived,
modified, amended, discharged or terminated except by an instrument in writing
signed by the Party against whom the enforcement of such waiver, modification,
amendment, discharge or termination is sought, and then only to the extent set
forth in such instrument.
10.7 APPLICABLE LAW. THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF FLORIDA. The Parties agree that
22
<PAGE> 24
jurisdiction and venue for any litigation arising out of this Agreement shall be
in the Courts of Palm Beach County, Florida or the U.S. District Court for the
Southern District of Florida and, accordingly, consent thereto.
10.8 CAPTIONS. The captions in this Agreement are inserted for
convenience of reference only and in no way define, describe, or limit the scope
or intent of this Agreement or any of the provisions hereof.
10.9 BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, legal representatives, successors, and assigns.
10.10 TIME IS OF THE ESSENCE. With respect to all provisions of this
Agreement, time is of the essence. However, if the first date of any period
which is set out in any provision of this Agreement falls on a day which is not
a Business Day, then, in such event, the time of such period shall be extended
to the next day which is a Business Day.
10.11 WAIVER OF CONDITIONS. Any Party may at any time or times, at
its election, waive any of the conditions to its obligations hereunder, but any
such waiver shall be effective only if contained in a writing signed by such
Party. No waiver by a Party of any breach of this Agreement or of any warranty
or representation hereunder by the other Party shall be deemed to be a waiver of
any other breach by such other Party (whether preceding or succeeding and
whether or not of the same or similar nature), and no acceptance of payment or
performance by a Party after any breach by the other Party shall be deemed to be
a waiver of any breach of this Agreement or of any representation or warranty
hereunder by such other Party, whether or not the first Party knows of such
breach at the time it accepts such payment or performance. No failure or delay
by a Party to exercise any right it may have by reason of the default of the
other Party shall operate as a waiver of default or modification of this
Agreement or shall prevent the exercise of any right by the first Party while
the other Party continues to be so in default.
10.12 LIABILITY OF GENERAL PARTNER OF PURCHASER. Seller acknowledges
that Purchaser has disclosed that the general partner of Purchaser (the "General
Partner") is a Maryland business trust formed pursuant to a Declaration of
Trust, as amended, a copy of which is duly filed with the Department of
Assessments and Taxation of the State of Maryland, which provides that no
trustee, officer, shareholder, employee or agent of the General Partner shall be
held personally liable under any written instrument creating an obligation of,
or claim against, the General Partner and that all persons dealing with the
General Partner, in any way, shall look only to the assets of the General
Partner for the payment of any sum or the performance of any obligation. Seller
agrees that any liability of the General Partner or any trustee, officer,
shareholder, employee or agent acting on behalf of the General Partner arising
out of this Agreement or the performance by Purchaser of its obligations
hereunder is limited to the assets of the General Partner in accordance with the
above Declaration of Trust.
EXECUTED to be effective as of the Effective Date.
23
<PAGE> 25
PURCHASER:
CPT OPERATING PARTNERSHIP L.P.
By:
----------------------------------------------
Correctional Properties Trust, a Maryland real
estate investment trust, its General Partner
By: /s/ Charles R. Jones
-------------------------------------------
Charles R. Jones, President
24
<PAGE> 26
SELLER:
WACKENHUT CORRECTIONS CORPORATION
By: /s/ John G. O'Rourke
-----------------------------------------
John G. O'Rourke, Senior Vice President
25
<PAGE> 27
LIST OF SCHEDULES AND EXHIBITS
<TABLE>
<S> <C>
Exhibit A - Real Property Description
Exhibit B - Bill of Sale
Exhibit C - Certificate of Non-Foreign Status
Exhibit D - Closing Certificate
Exhibit E - Deed
Exhibit F - Excluded Personal Property
Exhibit F-1 - Excluded Proprietary Property
Exhibit G - Fixtures
Exhibit G-1 - Excluded Fixtures
Exhibit H - Lease Agreement
Exhibit I - Personal Property
</TABLE>
26
<PAGE> 1
AGREEMENT OF SALE AND PURCHASE
BY AND BETWEEN
WACKENHUT CORRECTIONS CORPORATION,
a Florida corporation
("SELLER")
AND
CPT OPERATING PARTNERSHIP L.P.,
a Delaware limited partnership
("PURCHASER")
FOR
JENA, LOUISIANA FACILITY
---------------
January 7, 2000
<PAGE> 2
<TABLE>
<S> <C> <C> <C>
6.4 Failure of Conditions to Seller's Obligations.........................................17
---------------------------------------------
ARTICLE VII.
PROVISIONS WITH RESPECT TO THE CLOSING..................................................................17
7.1 Seller's Closing Obligations..........................................................17
7.2 Purchaser's Closing Obligations.......................................................18
ARTICLE VIII.
EXPENSES OF CLOSING.....................................................................................18
8.1 Adjustments...........................................................................18
8.2 Closing Costs.........................................................................18
8.3 Commissions/Broker's Fees.............................................................19
ARTICLE IX.
DEFAULT AND REMEDIES....................................................................................19
9.1 Seller's Default; Purchaser's Remedies................................................19
9.2 Purchaser's Default; Seller's Remedies................................................19
ARTICLE X.
MISCELLANEOUS...........................................................................................20
10.1 Casualty..............................................................................20
10.2 Condemnation..........................................................................20
10.3 Survival..............................................................................21
10.4 Right of Assignment...................................................................21
10.5 Notices...............................................................................21
10.6 Entire Agreement; Modifications.......................................................22
10.7 Applicable Law........................................................................22
10.8 Captions..............................................................................23
10.9 Binding Effect........................................................................23
10.10 Time is of the Essence................................................................23
10.11 Waiver of Conditions..................................................................23
10.12 Liability of General Partner of Purchaser.............................................23
LIST OF SCHEDULES AND EXHIBITS...................................................................................26
</TABLE>
ii
<PAGE> 3
AGREEMENT OF SALE AND PURCHASE
THIS AGREEMENT OF SALE AND PURCHASE (the "Agreement") is made and entered
into as of January 7, 2000 by and between WACKENHUT CORRECTIONS CORPORATION, a
Florida corporation (hereinafter referred to as "Seller"), and CPT OPERATING
PARTNERSHIP L.P., a Delaware limited partnership (hereinafter referred to as
"Purchaser"). Seller and Purchaser are sometimes collectively referred to herein
as the "Parties" and each of the Parties is sometimes singularly referred to
herein as a "Party."
R E C I T A L S
A. Seller (or an affiliate of Seller) is the owner of the Property (as
hereinafter defined), consisting of certain real properties and improvements
thereon being more particularly described on Exhibit A attached hereto and made
a part hereof or has the right to acquire the Property through a validly
existing and enforceable purchase option between Seller and the current owner of
the Property; and,
B. Seller desires to sell and Purchaser desires to purchase the Property,
and simultaneously therewith, to enter into a lease transaction pursuant to
which Purchaser shall lease to Seller, and Seller shall lease from Purchaser,
the Property.
NOW, THEREFORE, in consideration of the sum of Ten Dollars ($10.00), the
mutual covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties agree as follows:
ARTICLE I.
DEFINITIONS
As used herein (including any Exhibits attached hereto), the following
terms shall have the meanings indicated:
"Accreditations" shall mean any and all accreditations and/or
certifications from any non-governmental entities required in connection with
the current or contemplated operation of the Property.
"Applicable Notices" shall mean any reports, notices of violation, or
notices of compliance issued in connection with any Accreditations or Permits.
"Bill of Sale" shall mean a bill or bills of sale in substantially the same
form as Exhibit B, attached hereto, and sufficient to transfer to Purchaser all
Personal Property.
"Business Agreements" shall mean any leases, contract rights, loan
agreements, mortgages, easements, covenants, restrictions or other agreements or
instruments affecting all or a portion of the
<PAGE> 4
Property, to the extent the same are assignable by Seller, but specifically
excluding all of Seller's Operating and Service Agreements.
"Business Day(s)" shall mean calendar days other than Saturdays, Sundays
and legal holidays.
"Certificate of Non-Foreign Status" shall mean a certificate dated as of
the Closing Date, addressed to Purchaser and duly executed by Seller, in
substantially the same form as Exhibit C, attached hereto.
"Claim" shall mean any obligation, liability, lien, encumbrance, loss,
damage, cost, expense or claim, including, without limitation, any claim for
damage to property or injury to or death of any person or persons.
"Closing" shall mean the consummation of the sale and purchase provided for
herein, to be held at the offices of Akerman, Senterfitt & Eidson, P.A., One SE
Third Avenue, Miami, Florida, or such other place as the Parties may mutually
agree.
"Closing Certificate" shall mean a certificate in substantially the same
form as Exhibit D, attached hereto, wherein Seller and Purchaser, respectively,
shall represent that the representations and warranties of Seller and Purchaser,
respectively, contained in this Agreement are true and correct in all material
respects as of the Closing Date as if made on and as of the Closing Date.
"Closing Date" shall mean the actual day on which the transaction
contemplated hereby is closed with the transfer of title to the Property. The
Parties agree that the closing date shall be January 7, 2000 or such earlier or
later date as shall be hereafter mutually agreed upon by the Parties.
"Deed" shall mean a deed in substantially the same form as Exhibit E,
attached hereto (as the same may be modified to comply with local law and
custom), executed by Seller, as grantor, in favor of Purchaser, as grantee,
conveying the Land and Improvements to Purchaser, subject only to the Permitted
Exceptions.
"Due Diligence Materials" shall mean the information to be provided by
Seller to Purchaser pursuant to the provisions of Section 4.1 hereof.
"Effective Date" shall mean the later of the two (2) dates on which this
Agreement is signed and all changes initialed by Seller and Purchaser, as
indicated by their signatures below; provided, that in the event only one Party
dates its signature, then the date of its signature shall be the Effective Date.
"Engineering Documents" shall mean all site plans, surveys, soil and
substrata studies, architectural drawings, plans and specifications, engineering
plans and studies, floor plans, landscape plans, Americans with Disabilities Act
compliance reports, environmental reports and studies, professional inspection
reports, construction and/or architect's reports or certificates, feasibility
studies, appraisals, and other similar plans and studies that relate to the Real
Property or the Personal Property, to the extent the same are assignable by
Seller.
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<PAGE> 5
"Exception Documents" shall mean true, correct and legible copies of each
document listed as an exception to title in the Title Commitment.
"Excluded Personal Property" shall mean all those items of tangible and
intangible personal property described on Exhibit F attached hereto,
specifically excluding those items of intangible personal property set forth on
the Schedule of Excluded Proprietary Property attached hereto as Exhibit F-1.
"Fixtures" shall mean all those items of equipment, machinery, fixtures,
and other items of real and/or personal property, including all components
thereof, now or on the Closing Date located in, on or used in connection with,
and permanently affixed to or incorporated into the Improvements as described on
Exhibit G attached hereto, 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 and those items of excluded Fixtures set forth on Exhibit G-1.
"Hazardous Materials" shall mean any substance, including without
limitation, asbestos or any substance containing asbestos and deemed hazardous
under any Hazardous Materials Law, the group of organic compounds known as
polychlorinated biphenyls, petroleum products, flammable explosives, radioactive
materials, infectious wastes, biomedical and medical wastes, chemicals known to
cause cancer or reproductive toxicity, pollutants, effluents, contaminants,
emissions or related materials and any items included in the definition of
hazardous or toxic wastes, materials or substances under any Hazardous Materials
Law.
"Hazardous Materials Law" shall mean any local, state or federal law
relating to environmental conditions and industrial hygiene, including, without
limitation, the Resource Conservation and Recovery Act of 1976 ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), as amended by the Superfund Amendments and Reauthorization Act of
1986 ("SARA"), the Hazardous Materials Transportation Act, the Federal Waste
Pollution Control Act, the Clean Air Act, the Clean Water Act, the Toxic
Substances Control Act, the Safe Drinking Water Act, and all similar federal,
state and local environmental statutes, ordinances and the regulations, orders,
or decrees now or hereafter promulgated thereunder.
"Improvements" shall mean all buildings, improvements, structures and
Fixtures now or on the Closing Date located on the Land, including, without
limitation, landscaping, parking lots and structures, roads, drainage and all
above ground and underground utility structures, equipment systems and other
so-called "infrastructure" improvements.
"Intangible Property" means all Permits, Business Agreements and other
intangible property or any interest therein now or on the Closing Date owned or
held by Seller in connection with the
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<PAGE> 6
Real Property, including all water rights and reservations, rights to use the
trade name applicable to the Property (but excluding the name "Wackenhut
Corrections" or any derivative thereof), as set forth on Exhibit A hereof, and
zoning rights related to the Real Property, or any part thereof, to the extent
the same are assignable by Seller; provided, however, "Intangible Property"
shall not include the general corporate trademarks, trade names (except as set
forth above), service marks, logos or insignia or the books and records of
Seller, Seller's accounts receivable and Seller's business and operating
licenses for the facilities on the Real Property.
"Land" means the real property more particularly described on Exhibit A
attached hereto and made a part hereof, together with all of Seller's rights,
titles, appurtenant interests, covenants, licenses, privileges and benefits
thereto belonging, and Seller's right, title and interest in and to any
easements, rights-of-way, rights of ingress or egress or other interests in, on,
or to any land, highway, street, road or avenue, open or proposed, in, on,
across, in front of, abutting or adjoining such real property including, without
limitation, any strips and gores adjacent to or lying between such real property
and any adjacent real property.
"Laws" means all federal, state and local laws, moratoria, initiatives,
referenda, ordinances, rules, regulations, standards, orders and other
governmental requirements, including, without limitation, those relating to the
environment, health and safety, disabled or handicapped persons.
"Lease" shall mean the Master Agreement to Lease dated as of April 28, 1998
between Seller and Purchaser and the Lease Agreement in substantially the same
form as Exhibit H, attached hereto and made a part hereof, which shall be
executed and delivered by Seller and Purchaser at the Closing, and pursuant to
the terms of which Purchaser shall lease the Property to Seller on the Closing
Date.
"Material" and "materially" shall mean a condition, noncompliance, defect
or other fact which would: (a) cost, with respect to any single defect or fact,
would cost, with respect to the Property, in excess of Fifty Thousand Dollars
($50,000.00), to correct or repair; or (b) in the aggregate, with respect to the
Property, result in a loss to Purchaser or a reduction in the value of such
Property in excess of One Hundred Thousand Dollars ($100,000.00).
"Permits" shall mean all permits, licenses (but excluding Seller's business
and operating licenses), approvals, entitlements and other governmental,
quasi-governmental and nongovernmental authorizations including, without
limitation, certificates of use and occupancy, required in connection with the
ownership, planning, development, construction, use, operation or maintenance
of the Real Property, to the extent the same are assignable by Seller. As used
herein, "quasi-governmental" shall include the providers of all utility services
to the Real Property.
"Permitted Exceptions" shall mean those title exceptions which have
been approved in writing by Purchaser, or are deemed to have been approved by
Purchaser upon the expiration of the Review Period.
"Personal Property" shall mean all Intangible Property, Warranties, and
Engineering Documents, and all those items of tangible personal property
described on Exhibit I, attached hereto,
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<PAGE> 7
other than the Fixtures and the Excluded Personal Property, now or on the
Closing Date owned by Seller and located on or about the Land or Improvements or
used in connection with the operation thereof (specifically excluding personal
property owned by employees of Seller and personal property owned by inmates
housed at the Real Property).
"Property" shall mean, collectively, the Land, the Improvements, the
Fixtures, and the Personal Property.
"Purchase Price" shall mean the cash sum of $15,312,274.00.
"Real Property" shall mean the Land, the Improvements and the Fixtures.
"Review Period" means a period commencing on the Effective Date and ending
thirty (30) days from the date of Purchaser's receipt of the last of the Due
Diligence Materials; provided, should the Effective Date be less than thirty
(30) days prior to the Closing Date, the Review Period shall terminate on the
date which is five (5) days prior to the Closing Date.
"Search Reports" shall mean reports of searches made of the Uniform
Commercial Code Records of the County in which the Property is located, and of
the office of the Secretary of State of the State in which the Property is
located and in the State in which the principal office of Seller is located,
which searches shall reflect that none of the Property is encumbered by liens or
security interests which will remain on the Property after the Closing. The
Search Reports shall be updated, at Seller's expense, at or within five (5) days
prior to Closing.
"Seller's Operating and Service Agreements" shall mean all management,
service and operating agreements and contracts entered into by Seller with
respect to the Property, including, but not limited to, agreements and contracts
to house inmates at the Property, food service and equipment agreements, inmate
pay telephone service agreements, medical and pharmaceutical service and supply
agreements, drug testing service agreements, public performance and licensing
agreements for motion picture video cassettes, inmate educational and
instructional service agreements, refuse service agreements, pest control
service agreements and machinery, equipment and uniform rental and service
agreements.
"Survey" shall mean a current "as-built" ALTA survey, certified to ALTA
requirements, prepared by an engineer or surveyor licensed in the State in which
the Land is located and reasonably acceptable to Purchaser, which shall: (a)
include a narrative legal description of the Land by metes and bounds (which
shall include a reference to the recorded plat, if any), and a computation of
the area comprising the Land in both acres and gross square feet (to the nearest
one-thousandth of said respective measurement); (b) accurately show the location
on the Land of all improvements (dimensions thereof at the ground surface level
and the distance therefrom to the facing exterior property lines of the Land),
building and set-back lines, parking spaces (including number of spaces),
fences, evidence of abandoned fences, ponds, creeks, streams, rivers, officially
designated 100-year flood plains and flood prone areas, canals, ditches,
easements, roads, rights-of-way and encroachments; (c) location of
encroachments, if any, upon adjoining property, or from adjoining property, upon
the Land; (d) state the zoning classification of the Land; (e) be certified as
of the date
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<PAGE> 8
of the Survey to the Seller, the Purchaser, the Title Company, and any
third-party lender designated by Purchaser; (f) legibly identify any and all
recorded matters shown on said Survey by appropriate volume and page recording
references; (g) show the location and names of all adjoining streets and the
distance to the nearest streets intersecting the streets that adjoin the Land;
(h) be satisfactory to (and updated from time to time as may be required by) the
Title Company so as to permit it to delete the standard exception for survey
matters and replace it with an exception for the matters shown on the Survey.
"Title Commitment" shall mean a current commitment or current commitments
issued by the Title Company to the Purchaser pursuant to the terms of which the
Title Company shall commit to issue the Title Policy to Purchaser in accordance
with the provisions of this Agreement, and reflecting all matters which would be
listed as exceptions to coverage on the Title Policy.
"Title Company" shall mean First American Title Insurance Company.
"Title Policy" shall mean an ALTA Extended Coverage Owner's Policy (or
policies) of Title Insurance (10/17/70 Form), or comparable state promulgated
policies, with liability in the aggregate amount of the Purchase Price, dated as
of the Closing Date, issued by the Title Company, insuring title to the fee
interest in the Real Property in Purchaser, subject only to the Permitted
Exceptions and to the standard printed exceptions included in the ALTA standard
form owner's extended coverage policy of title insurance including such other
endorsements requested by Purchaser, with the following modifications: (a) the
exception for survey matters shall be deleted and replaced by an exception for
the matters shown on the Survey; (b) the exception for ad valorem taxes shall
reflect only taxes for the current and subsequent years; (c) any exception as to
parties in possession shall be limited to rights of Seller in possession, as
lessee only, pursuant to the Lease; and (d) there shall be no general exception
for visible and apparent easements or roads and highways or similar items (with
any exception for visible and apparent easements or roads and highways or
similar items to be specifically referenced to and shown on the Survey and also
identified by applicable recording information).
"Warranties" shall mean all warranties and guaranties with respect to
the Real Property or Personal Property, whether express or implied, which Seller
now holds or under which Seller is the beneficiary, to the extent the same are
assignable by Seller.
ARTICLE II.
AGREEMENTS TO SELL, PURCHASE AND LEASE
2.1 AGREEMENT TO SELL AND PURCHASE. On the Closing Date, provided
Purchaser shall not have terminated this Agreement pursuant to the provisions of
Section 4.2 hereof, Seller shall, or shall cause its affiliate or optionor to
sell, convey, assign, transfer and deliver to Purchaser and Purchaser shall
purchase, acquire and accept from Seller, the Property, for the Purchase Price
and subject to the terms and conditions of this Agreement.
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<PAGE> 9
2.2 AGREEMENT TO LEASE. On the Closing Date, and subject to performance
by the Parties of the terms and provisions of this Agreement, Purchaser shall
lease to Seller and Seller shall lease from Purchaser, the Property at the
rental and upon the terms and conditions set forth in the Lease.
ARTICLE III.
PURCHASE PRICE
3.1 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid by
Purchaser delivering to, or at the direction of, the Seller at the Closing
Federal Reserve wire transfer funds or other immediately available collected
funds payable to the order of the Seller in the sum equal to the Purchase Price,
subject to adjustment as herein provided. On or before the Closing, the Parties
shall agree on an allocation of the Purchase Price as between the Real Property
and the Personal Property.
ARTICLE IV.
ITEMS TO BE
FURNISHED TO PURCHASER BY SELLER
4.1 DUE DILIGENCE MATERIALS. Seller previously has delivered to Purchaser
for its review, or, if not, within fifteen (15) days after the Effective Date,
Seller shall deliver to Purchaser for its review, the following items:
a. True, correct, complete and legible copies of all Business
Agreements, Warranties, Permits, Accreditations, Applicable Notices, Engineering
Documents and Seller's Operating and Service Agreements (solely for the purposes
of this Section 4.1a., the terms Business Agreements, Warranties, Permits, and
Engineering Documents shall include all agreements, documents and instruments
otherwise included within such definitions, whether or not the same are
assignable by Seller);
b. True, correct, complete and legible copies of tax statements or
assessments for all real estate and personal property taxes assessed against the
Property for the current and the two prior calendar years, if available;
c. True, correct, complete and legible listing of all Fixtures,
Personal Property and Excluded Property, including a current depreciation
schedule.
d. True, correct, complete and legible copies of all existing fire and
extended coverage insurance policies and any other insurance policies pertaining
to the Property, if any;
e. True, correct, complete and legible copies of all instruments
evidencing, governing or securing the payment of any loans secured by the
property or related thereto. Seller may make such instruments available for
inspection and copying by Purchaser at Seller's principal office;
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<PAGE> 10
f. True, correct, complete and legible copies of any and all
environmental studies or impact reports relating to the Property, if any, and
any approvals, conditions, orders or declarations issued by any governmental
authority relating thereto (such studies and reports shall include, but not be
limited to, reports indicating whether the Property is or has been contaminated
by Hazardous Materials and whether the Property is in compliance with the
Americans with Disabilities Act and Section 504 of the Rehabilitation Act of
1973, as applicable);
g. True, correct, complete and legible copies of any and all litigation
files with respect to any pending litigation and claim files for any claims made
or threatened, the outcome of which might materially affect the Property or the
use and operation of the Property, together with summaries and such other more
detailed information as Purchaser may reasonably request with respect to any
other pending litigation or claim the outcome of which might materially affect
Seller or materially affect the Property. Seller may make such files available
for inspection and copying by Purchaser at Seller's principal office.
h. The Title Commitment, Exception Documents, Survey and Search
Reports.
i. Actual operating statements for the Property or, if the Property has
not been operated by Seller for twelve months prior to the date of this
Agreement, projected operating results for the Property.
j. The Certificate of Occupancy, or its equivalent, for the Property.
4.2 DUE DILIGENCE REVIEW. During the Review Period, Purchaser shall be
entitled to review the Due Diligence Materials delivered by Seller to Purchaser
pursuant to the provisions of Section 4.1 above. If Purchaser shall, for any
reason in Purchaser's sole discretion, judgment and opinion, disapprove or be
dissatisfied with any aspect of such information, or the Property, then
Purchaser shall be entitled to terminate this Agreement by giving written notice
thereof to Seller on or before the expiration of the Review Period, whereupon
this Agreement shall automatically be rendered null and void, all moneys which
have been delivered by Purchaser to Seller or the Title Company shall be
immediately returned to Purchaser and thereafter neither Party shall have any
further obligations or liabilities to the other hereunder. Alternatively,
Purchaser may give written notice setting forth any defect, deficiency or
encumbrance and specify a time within which Seller may remedy or cure such
matter prior to the expiration of the Review Period, but Seller shall have no
obligation to remedy or cure any such matters objected to by Purchaser. If any
defect, deficiency or encumbrance, so noticed, is not satisfied or resolved to
the satisfaction of Purchaser, in Purchaser's sole discretion, within the time
period specified in the written notice, this Agreement shall, at the option of
Purchaser, terminate as provided in this Section; said option to terminate to be
exercised, if at all, by Purchaser giving written notice thereof to Seller and
simultaneously paying Seller the sum of One Hundred Dollars ($100.00) on the
earlier of: (a) within three (3) Business Days after the expiration of said
specified time period, or (b) the Closing Date. In the event Purchaser fails to
exercise its option to terminate this Agreement within the time and in the
manner set forth in this Section 4.2, then Purchaser shall be deemed to have
accepted and approved the Due Diligence Materials and the Property, and to have
waived any such defect, deficiency or encumbrance, and to have accepted all
exceptions to title referenced in the Title Commitment and
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<PAGE> 11
all matters shown on the Survey. Such accepted title exceptions and survey
matters shall be included in the term "Permitted Exceptions" as used herein.
4.3 ISSUANCE OF TITLE POLICY. Seller agrees to deliver to Purchaser the
Title Policy as soon as practicable after the Closing.
ARTICLE V.
REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS
5.1 REPRESENTATIONS AND WARRANTIES OF SELLER. To induce Purchaser to
enter into this Agreement and to purchase the Property, Seller represents and
warrants to Purchaser as follows:
a. Seller has the right to acquire and at the Closing, Seller will have
and will convey, transfer and assign to Purchaser, or Seller will cause the
conveyance, transfer and assignment to Purchaser of, good, indefeasible,
marketable and insurable title to the Land, free and clear of any deeds of
trust, mortgages, liens, encumbrances, leases, tenancies, licenses, chattel
mortgages, conditional sales agreements, security interests, covenants,
conditions, restrictions, judgments, rights-of-way, easements, encroachments,
claims and any other matters affecting title or use of the Property, except the
Permitted Exceptions.
b. Seller has duly and validly authorized and executed this Agreement,
and has full right, title, power and authority to enter into this Agreement and
to consummate the transactions provided for herein, and the joinder of no person
or entity will be necessary to convey the Property fully and completely to
Purchaser at Closing and to lease the Property from Purchaser following
Closing. Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Florida and is qualified to do business
in each state in which any of the Property is located. The consummation of the
transactions contemplated herein does not require the approval of Seller's
shareholders or any third party, except such third party approvals as Seller has
obtained or will obtain prior to the Closing Date. The execution by Seller of
this Agreement and the consummation by Seller of the transactions contemplated
hereby do not, and at the Closing will not, result in a breach of any of the
terms or provisions of, or constitute a default or a condition which upon notice
or lapse of time or both would ripen into a default under, Seller's Bylaws or
Certificate of Incorporation, any indenture, agreement, instrument or obligation
to which Seller is a party or by which the Property or any portion thereof is
bound; and does not constitute a violation of any Laws, order, rule or
regulation applicable to Seller or any portion of the Property of any court or
of any federal, state or municipal regulatory body or administrative agency or
other governmental body having jurisdiction over Seller or any portion of the
Property.
c. Except as may be disclosed in the Exception Documents, there are no
adverse or other parties in possession of the Property or of any part thereof,
and Seller has not granted to any party any license, lease or other right
relating to the use or possession of the Property.
d. No notice has been received from any insurance company that has
issued a policy with respect to any portion of the Property or from any board of
fire underwriters (or other
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<PAGE> 12
body exercising similar functions), claiming any defects or deficiencies or
requiring the performance of any repairs, replacements, alterations or other
work and as of the Closing no such notice will have been received which shall
not have been cured. No notice has been received by Seller from any issuing
insurance company that any of such policies will not be renewed, or will be
renewed only at a higher premium rate than is presently payable therefor.
e. No pending condemnation, eminent domain, assessment or similar
proceeding or charge affecting the Property or any portion thereof exists.
Seller has not heretofore received any notice, and has no knowledge, that any
such proceeding or charge is contemplated. Seller has not received any notice of
a proposed increase in the assessed valuation of the Property.
f. All Improvements (including all utilities) have been, or as of the
Closing will be, completed and installed in accordance with the plans and
specifications approved by the governmental authorities having jurisdiction to
the extent applicable and are transferable to Purchaser without additional cost.
Permanent certificates of occupancy, all licenses, permits, authorizations and
approvals required by all governmental authorities having jurisdiction, and the
requisite certificates of the local board of fire underwriters (or other body
exercising similar functions) have been, or as of the Closing will be, issued
for the Improvements, and, as of the Closing, where required, all of the same
will be in full force and effect. Except as may be set forth in any of the Due
Diligence Materials, the Improvements, as designed and constructed, comply or
will comply with all statutes, restrictions, regulations and ordinances
applicable thereto, including but not limited to the Americans with Disabilities
Act and Section 504 of the Rehabilitation Act of 1973, as applicable.
g. The existing water, sewer, gas and electricity lines, storm sewer
and other utility systems on the Land are adequate to serve the utility needs of
the Property for operation as a correctional facility and detention facility or
other use set forth in the Permits. All utilities required for the operation of
the Improvements enter the Land through adjoining public streets or through
adjoining private land in accordance with valid public or private easements that
will inure to the benefit of Purchaser. All approvals, licenses and permits
required to fully operate said utilities have been obtained and are in full
force and effect. All of said utilities are installed and operating, or will be,
by Closing and all installation and connection charges have been or will be paid
in full.
h. Except as may be set forth in any of the Due Diligence Materials,
the location, construction, occupancy, operation and use of the Property
(including the Improvements) do not violate any applicable law, statute,
ordinance, rule, regulation, order or determination of any governmental
authority or any board of fire underwriters (or other body exercising similar
functions), or any restrictive covenant or deed restriction (recorded or
otherwise) affecting the Property or the location, construction, occupancy,
operation or use thereof, including, without limitation, all applicable zoning
ordinances and building codes, flood disaster laws and health and environmental
laws and regulations, the Americans with Disabilities Act and Section 504 of the
Rehabilitation Act of 1973, as applicable.
i. There are no structural defects in any of the buildings or other
Improvements constituting the Property. The Improvements, all heating,
electrical, plumbing and drainage at, or
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servicing, the Property and all facilities and equipment relating thereto are
and, as of the Closing, will be in good condition and working order and adequate
in quantity and quality for the normal operation of the Property as a
correctional or detention facility or other use set forth in the Permits. No
part of the Property has been destroyed or damaged by fire or other casualty.
There are no unsatisfied requests for repairs, restorations or alterations with
regard to the Property from any person, entity or authority, including but not
limited to any lender, insurance provider or governmental authority.
j. Except as previously disclosed by Seller pursuant to contracts
delivered to Purchaser, no work has been performed or is in progress at the
Property, and no materials will have been delivered to the Property that might
provide the basis for a mechanic's, materialmen's or other lien against the
Property or any portion thereof, or amounts due for such work and material shall
have paid or discharged to Purchaser's and Title Company's satisfaction as of
Closing.
k. There exist no service contracts, management or other agreements
applicable to the Property, or amendments, modifications or terminations
thereof, to which Seller is a party or otherwise known to Seller, other than
Seller's Operating and Service Agreements, the Business Agreements and those
agreements furnished to Purchaser pursuant to Section 4.1.
l. Seller is not in default in any manner which would result in a
material adverse effect on Seller under any of the Business Agreements, or
Seller's Operating and Service Agreements or any of the covenants, conditions,
restrictions, rights-of-way or easements affecting the Property or any portion
thereof, and, to Seller's knowledge, no other party to any of the foregoing is
in default thereunder.
m. There are no actions, suits or proceedings pending or, to Seller's
knowledge, threatened against or affecting the Property or any portion thereof,
or relating to or arising out of the ownership or operation of the Property, or
by any federal, state, county or municipal department, commission, board, bureau
or agency or other governmental instrumentality.
n. The Property has free and unimpeded access to presently existing
public highways and/or roads (either directly or by way of perpetual easements);
and, all approvals necessary therefor have been obtained. To the best of
Seller's knowledge, no fact or condition exists which would result in the
termination of the current access from the Property to any presently existing
public highways and/or roads adjoining or situated on the Property.
o. There are no attachments, executions, assignments for the benefit of
creditors, or voluntary or involuntary proceedings in bankruptcy or under any
other debtor relief laws contemplated by or, to Seller's knowledge, pending or
threatened against Seller or the Property.
p. Except as may be set forth in any of the Due Diligence Materials, no
Hazardous Materials have been installed, used, generated, manufactured, treated,
handled, refined, produced, processed, stored or disposed of, or otherwise
present in, on or under the Property by Seller or to Seller's knowledge. No
activity has been undertaken on the Property by Seller or to Seller's knowledge
which would cause (I) the Property to become a hazardous waste treatment,
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storage or disposal facility within the meaning of, or otherwise bring the
Property within the ambit of RCRA or any Hazardous Materials Law, (ii) a release
or threatened release of Hazardous Materials from the Property within the
meaning of, or otherwise bring the Property within the ambit of, CERCLA or SARA
or any Hazardous Materials Law or (iii) the discharge of Hazardous Materials
into any watercourse, body of surface or subsurface water or wetland, or the
discharge into the atmosphere of any Hazardous Materials which would require a
permit under any Hazardous Materials Law. No activity has been undertaken with
respect to the Property by Seller or to Seller's knowledge which would cause a
violation or support a claim under RCRA, CERCLA, SARA or any Hazardous Materials
Law. No investigation, administrative order, litigation or settlement with
respect to any Hazardous Materials is in existence with respect to the Property,
nor, to Seller's knowledge, is any of the foregoing threatened. No notice has
been received by Seller from any entity, governmental body or individual
claiming any violation of any Hazardous Materials Law, or requiring compliance
with any Hazardous Materials Law, or demanding payment or contribution for
environmental damage or injury to natural resources. Seller has not obtained
and, to Seller's knowledge, is not required to obtain, and Seller has no
knowledge of any reason Purchaser will be required to obtain, any permits,
licenses, or similar authorizations to occupy, operate or use the Improvements
or any part of the Property by reason of any Hazardous Materials Law.
Notwithstanding the representations made herein, such representations are and
shall be deemed to be limited by the matters detailed in any Phase I Preliminary
Site Assessment or other Due Diligence Materials obtained by or provided to
Purchaser in connection herewith.
q. The Property includes all items of property, tangible and
intangible, currently used by Seller in connection with the operation of the
Property, other than the Excluded Personal Property, Seller's Operating and
Service Agreements, and property expressly excluded from the definition of the
Property.
r. To the best of Seller's knowledge, the Due Diligence Materials
delivered to Purchaser are true, correct and complete in all material respects.
Seller hereby agrees to indemnify and defend, at its sole cost and expense,
and hold Purchaser, its successors and assigns, harmless from and against and to
reimburse Purchaser with respect to any and all claims, demands, actions, causes
of action, losses, damages, liabilities, costs and expenses (including, without
limitation, reasonable attorney's fees and court costs) actually incurred of any
and every kind or character, known or unknown, fixed or contingent, asserted
against or incurred by Purchaser at any time and from time to time by reason of
or arising out of (a) the material breach of any representation or warranty of
Seller set forth in Section 5.1, (b) the failure of Seller, in whole or in part,
to perform any obligation required to be performed by Seller pursuant to Section
5.1 or (C) the ownership, construction, occupancy, operation, use and
maintenance by Seller or its agents of the Property prior to the Closing Date.
This indemnity applies, without limitation, to the violation on or before the
Closing Date of any Hazardous Materials Law in effect on or before the Closing
Date and any and all matters arising out of any act, omission, event or
circumstance existing or occurring on or prior to the Closing Date (including,
without limitation, the presence on the Property or release from the Property of
Hazardous Materials disposed of or otherwise released prior to the Closing
Date), regardless of whether the act, omission, event or circumstance
constituted a violation of any Hazardous Materials Law at the time of its
existence or occurrence. Subject to the
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provisions of Section 10.1, the provisions of this Section 5.1 shall survive the
Closing of the transaction contemplated by this Agreement and shall continue
thereafter in full force and effect for the benefit of Purchaser, its successors
and assigns. Notwithstanding any provision of this Agreement to the contrary,
Purchaser may exercise any right or remedy Purchaser may have at law or in
equity should Seller fail to meet, comply with or perform its indemnity
obligations required by this Section 5.1. In the event a defect, claim or
deficiency is actually discovered by Purchaser prior to Closing or is noticed in
writing by Seller to Purchaser prior to Closing, Purchaser shall either
terminate the Agreement as provided herein or waive the defect, claim or
deficiency and proceed to Closing.
5.2 COVENANTS AND AGREEMENTS OF SELLER. Seller covenants and agrees with
Purchaser, from the Effective Date until the Closing or earlier termination of
this Agreement:
a. Seller shall: (I) operate the Property in the ordinary course of
Seller's business and in the same manner as currently operated; and (ii) fully
maintain and repair the Improvements, the Fixtures, and the Personal Property in
good condition and repair.
b. Purchaser shall be entitled to make all inspections or
investigations desired by Purchaser with respect to the Property or any portion
thereof, and shall have complete physical access to the Property, which access
shall occur at such times and in such manner so as to not unreasonably interfere
with Seller's business operations or constitute a safety hazard, as reasonably
determined by Seller.
c. Seller shall cause to be maintained in full force and effect fire
and extended coverage insurance upon the Property and public liability insurance
with respect to damage or injury to persons or property occurring on or relating
to operation of the Property in commercially reasonable amounts, but no less
than currently in effect.
d. Seller shall pay when due all bills and expenses of the Property.
Seller shall not enter into or assume any new Business Agreements or modify,
amend or terminate any existing Business Agreements with regard to the Property
which are in addition to or different from those furnished and disclosed to
Purchaser and reviewed and approved pursuant to Section 4.1.
e. Seller shall not create or permit to be created any liens, easements
or other conditions affecting any portion of the Property or the uses thereof
without the prior written consent of Purchaser.
f. Seller will pay, as and when due, all interest and principal and all
other charges payable under any indebtedness of Seller secured by the Property
from the date hereof until Closing, and will not suffer or permit any default or
amend or modify the documents evidencing or securing any such indebtedness
without the prior consent of Purchaser. Seller will, subject to limitations
provided by law with respect to privacy rights of inmates, give to Purchaser,
its attorneys, accountants and other representatives, during normal business
hours and as often as may be reasonably requested, full access to all books,
records and files relating to the Property so long as the same does not
unreasonably interfere with Seller's business operations.
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g. Seller shall not remove any Personal Property or Fixtures from the
Land or Improvements without replacing same with substantially similar items of
equal or greater value and repairing the damage, if any, to the Property as a
result of such removal.
h. During the pendency of this Agreement, Seller, its corporate
officers, directors, and agents shall not negotiate the sale or other
disposition of the Property with any person or entity other than Purchaser, and
shall not take any steps to initiate, consummate or document the sale or other
disposition of the Property, or any portion thereof, to any person or entity
other than Purchaser.
i. Prior to the Closing Date, Seller agrees to notify Purchaser in
writing within three (3) Business Days of any offer received by, delivered to or
communicated to Seller for the purchase, sale, acquisition or other disposition
of the Property.
j. Seller shall provide representations, warranties and consents as may
be reasonably required in connection with any public offering of stock or debt
obligations by Purchaser, including, but not limited to, inclusion of financial
statements, summary financial information and other required information
concerning Seller, or Seller as lessee under the Lease, in any Securities and
Exchange Commission filings.
5.3 REPRESENTATIONS AND WARRANTIES OF PURCHASER. To induce Seller to
enter into this Agreement and to sell the Property, Purchaser represents and
warrants to Seller as follows:
a. Purchaser has duly and validly authorized and executed this
Agreement, and has full right, title, power and authority to enter into this
Agreement and to consummate the transactions provided for herein, and the
joinder of no person or entity will be necessary to purchase the Property from
Seller at Closing, and to lease the Property to Seller following Closing.
b. The execution by Purchaser of this Agreement and the consummation by
Purchaser of the transactions contemplated hereby do not, and at the Closing
will not, result in a breach of any of the terms or provisions of, or constitute
a default or a condition which upon notice or lapse of time or both would ripen
into a default under, any indenture, agreement, instrument or obligation to
which Purchaser is a party; and does not, and at the Closing will not,
constitute a violation of any Laws, order, rule or regulation applicable to
Purchaser of any court or of any federal, state or municipal regulatory body or
administrative agency or other governmental body having jurisdiction over
Purchaser.
ARTICLE VI.
CONDITIONS TO OBLIGATIONS
6.1 CONDITIONS TO THE PURCHASER'S OBLIGATIONS. The obligations of
Purchaser to purchase the Property from Seller and to consummate the
transactions contemplated by this
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Agreement are subject to the satisfaction, at all times prior to and as of the
Closing (or such other time period specified below), of each of the following
conditions:
a. All of the representations and warranties of Seller set forth in
this Agreement shall be true at all times prior to, at and as of, the Closing in
all material respects and Seller shall deliver a Closing Certificate in
substantially the same form attached hereto as Exhibit D updating such
representations and warranties.
b. Seller shall have delivered, performed, observed and complied with,
all of the items, instruments, documents, covenants, agreements and conditions
required by this Agreement to be delivered, performed, observed and complied
with by it prior to, or as of, the Closing.
c. Seller shall not be in receivership or dissolution or have made any
assignment for the benefit of creditors, or admitted in writing its inability to
pay its debts as they mature, or have been adjudicated a bankrupt, or have filed
a petition in voluntary bankruptcy, a petition or answer seeking reorganization
or an arrangement with creditors under the federal bankruptcy law or any other
similar law or statute of the United States or any state and no such petition
shall have been filed against it.
d. No material or substantial adverse change shall have occurred with
respect to the condition, financial or otherwise, of the Seller or the Property.
e. Neither the Property nor any part thereof or interest therein shall
have been taken by execution or other process of law in any action prior to
Closing.
f. Seller shall have obtained and delivered to Purchaser a current
report, dated no more than ten (10) days prior to this Agreement, from a
licensed pest control company reasonably acceptable to Purchaser, and which must
show the Property to be free of all termite, or other destructive insect and
pest infestation.
g. During the Review Period, Purchaser shall have satisfactorily
completed an inspection of the Property with respect to the physical condition
thereof by agents or contractors selected by Purchaser.
h. During the Review Period, Purchaser shall have received, in form
acceptable to Purchaser, evidence of compliance by the Property with all
building codes, zoning ordinances and other governmental entitlements as
necessary for the operation of the Property for the current and intended use,
including, without limitation, certificates of occupancy and such other permits,
licenses, approvals, agreements and authorizations as are required for the
operation of the Property for the current and intended use and satisfactory
evidence of no violations of building or other codes or laws.
i. During the Review Period, all necessary approvals, consents and the
like of third parties to the validity and effectiveness of the transactions
contemplated hereby have been obtained.
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j. During the Review Period, Purchaser is reasonably satisfied that the
Property is sufficient and adequate for Seller to carry on the business now
being conducted thereon and the Property is in good condition and repair as
reasonably required for the proper operation and use thereof in compliance with
applicable laws.
k. During the Review Period, Purchaser has reviewed and satisfied
itself with respect to the Due Diligence Materials and shall not have terminated
this Agreement pursuant to the provisions of Section 4.2 hereof.
l. No material portion of the Property shall have been destroyed by
fire or casualty.
m. No condemnation, eminent domain or similar proceedings shall have
been commenced or threatened with respect to any material portion of the
Property.
6.2 FAILURE OF CONDITIONS TO PURCHASER'S OBLIGATIONS. In the event any
one or more of the conditions to Purchaser's obligations are not satisfied or
waived in whole or in part at any time prior to or as of the Closing, Purchaser,
at Purchaser's option, shall be entitled to: (a) terminate this Agreement by
giving written notice thereof to Seller, whereupon all moneys, if any, which
have been delivered by Purchaser to Seller or the Title Company shall be
immediately refunded to Purchaser and Purchaser shall have no further
obligations or liabilities hereunder; or (b) proceed to Closing hereunder.
6.3 CONDITIONS TO THE SELLER'S OBLIGATIONS. The obligations of Seller to
sell the Property to Purchaser and to consummate the transactions contemplated
by this Agreement are subject to the satisfaction, at all times prior to and as
of the Closing (or such other time period specified below), of each of the
following conditions:
a. All of the representations and warranties of Purchaser set forth in
this Agreement shall be true at all times prior to, at and as of, the Closing in
all material respects and Purchaser shall deliver a Closing Certificate in
substantially the same form attached hereto as Exhibit D updating such
representations and warranties.
b. Purchaser shall have delivered, performed, observed and complied
with, all of the items, instruments, documents, covenants, agreements and
conditions required by this Agreement to be delivered, performed, observed and
complied with by it prior to, or as of, the Closing.
c. Purchaser shall not be in receivership or dissolution or have made
any assignment for the benefit of creditors, or admitted in writing its
inability to pay its debts as they mature, or have been adjudicated a bankrupt,
or have filed a petition in voluntary bankruptcy, a petition or answer seeking
reorganization or an arrangement with creditors under the federal bankruptcy law
or any other similar law or statute of the United States or any state and no
such petition shall have been filed against it.
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6.4 FAILURE OF CONDITIONS TO SELLER'S OBLIGATIONS. In the event any one
or more of the conditions to Seller's obligations are not satisfied or waived in
whole or in part at any time prior to or as of the Closing, Seller, at Seller's
option, shall be entitled to: (a) terminate this Agreement by giving written
notice thereof to Purchaser, whereupon all moneys, if any, which have been
delivered by Seller to Purchaser or the Title Company shall be immediately
refunded to Seller and Seller shall have no further obligations or liabilities
hereunder; or (b) proceed to Closing hereunder.
ARTICLE VII.
PROVISIONS WITH RESPECT TO THE CLOSING
7.1 SELLER'S CLOSING OBLIGATIONS. At the Closing, Seller shall furnish
and deliver to the Purchaser, at Seller's expense, the following:
a. The Deed, Title Policy (or the Title Commitment marked-up and
initialed by the Title Company), Bill of Sale, Certificate of Non-Foreign
Status, Closing Certificate, and the Lease, each duly executed and acknowledged
by Seller and, as appropriate, in recordable form acceptable in the state and
county in which the Property is located.
b. Certificates of casualty and fire insurance for the Property and
satisfactory evidence of all other insurance coverages as required pursuant to
the Lease showing Purchaser as additional insured and loss payee thereunder,
where appropriate, with appropriate provisions for prior notice to Purchaser in
the event of cancellation or termination of such policies and otherwise in form
and substance reasonably satisfactory to Purchaser.
c. Search Reports, dated not more than five (5) days prior to Closing,
evidencing no UCC-1 Financing Statements or other filings in the name of Seller
with respect to the Property which will remain on the Property after the
Closing.
d. Such affidavits or letters of indemnity as the Title Company shall
require in order to omit from the Title Insurance Policy all exceptions for
unfiled mechanic's, materialman's or similar liens.
e. Any and all transfer declarations or disclosure documents, duly
executed by the appropriate parties, required in connection with the Deed by any
state, county or municipal agency having jurisdiction over the Property or the
transactions contemplated hereby.
f. Such instruments or documents as are necessary, or reasonably
required by Purchaser or the Title Company, to evidence the status and capacity
of Seller and the authority of the person or persons who are executing the
various documents on behalf of Seller in connection with the purchase and sale
transaction contemplated hereby.
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g. Such other documents as are reasonably required by Purchaser to
carry out the terms and provisions of this Agreement.
7.2 PURCHASER'S CLOSING OBLIGATIONS. At the Closing, Purchaser shall
furnish and deliver to Seller, at Purchaser's expense, the following:
a. Federal Reserve, wire transfer funds or other immediately available
collected funds payable to the order, or at the direction, of Seller
representing the cash portion of the Purchase Price due in accordance with
Section 3.1 herein.
b. The Closing Certificate and the Lease, duly executed and
acknowledged by Purchaser.
c. Such instruments or documents as are necessary, or reasonably
required by Seller or the Title Company, to evidence the status and capacity of
Purchaser and the authority of the person or persons who are executing the
various documents on behalf of Purchaser in connection with the purchase and
sale transaction contemplated hereby.
d. Such other documents as are reasonably required by Seller to carry
out the terms and provisions of this Agreement.
e. All necessary approvals, consents, certificates and the like of
third parties to the validity and effectiveness of the transaction contemplated
hereby.
ARTICLE VIII.
EXPENSES OF CLOSING
8.1 ADJUSTMENTS. There shall be no adjustment of taxes, assessments,
water or sewer charges, gas, electric, telephone or other utilities, operating
expenses, employment charges, premiums on insurance policies, rents or other
normally proratable items, it being agreed and understood by the Parties that
the Seller shall be obligated to pay such items under the terms of the Lease.
8.2 CLOSING COSTS. Seller shall pay (a) all title examination fees and
premiums for the Title Policy; (b) the cost of the Search Reports; (C) the cost
of the Survey; (d) Seller's legal, accounting and other professional fees and
expenses and the cost of all opinions, certificates, instruments, documents and
papers required to be delivered, or to cause to be delivered, by Seller
hereunder, including without limitation, the cost of performance by Seller of
its obligations hereunder; (e) all other costs and expenses which are required
to be paid by Seller pursuant to other provisions of this Agreement; (f) any and
all state, municipal or other documentary or transfer taxes payable in
connection with the delivery of any instrument or document provided in or
contemplated by this Agreement or any agreement or commitment described or
referred to herein; and (g) the charges for or in connection with the recording
and/or filing of any instrument or document provided herein or contemplated by
this Agreement or any agreement or document described or referred to
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herein. Seller shall pay (a) Purchaser's legal, accounting and other
professional fees and expenses and the cost of all opinions, certificates,
instruments, documents and papers required to be delivered, or to cause to be
delivered, by Purchaser hereunder and (b) all other costs and expenses which are
required to be paid by Purchaser pursuant to other provisions of this Agreement.
Purchaser and Seller shall each be responsible for other costs in the usual and
customary manner for this kind of transaction in the county where the Property
is located.
8.3 COMMISSIONS/BROKER'S FEES. Seller hereby represents and warrants to
Purchaser that it has not contacted any real estate broker, finder or any other
party in connection with this transaction, and that it has not taken any action
which would result in any real estate broker's, finder's or other fees being due
or payable to any party with respect to the transaction contemplated hereby.
Purchaser hereby represents and warrants to Seller that Purchaser has not
contacted any real estate broker, finder or any other party in connection with
this transaction, and that it has not taken any action which would result in any
real estate broker's, finder's or other fees being due or payable to any party
with respect to the transaction contemplated hereby. Each Party hereby
indemnifies and agrees to hold the other Party harmless from any loss,
liability, damage, cost or expenses (including reasonable attorneys' fees)
resulting to such other Party by reason of a breach of the representation and
warranty made by such Party herein.
ARTICLE IX.
DEFAULT AND REMEDIES
9.1 SELLER'S DEFAULT; PURCHASER'S REMEDIES.
a. Seller shall be deemed to be in default hereunder upon the
occurrence of one of the following events: (i) any of Seller's warranties or
representations set forth herein shall be untrue in any material respect when
made or at Closing; or (ii) Seller shall fail to meet, comply with, or perform
any covenant, agreement or obligation on its part required within the time
limits and in the manner required in this Agreement, which, in either of such
events, is not cured by Seller within ten (10) days following receipt by Seller
of written notice of default from Purchaser.
b. In the event Seller shall be deemed to be in default hereunder
Purchaser may, at Purchaser's sole option, do any one or more of the following:
(i) terminate this Agreement by written notice delivered to Seller on or before
the Closing; and/or (ii) enforce specific performance of this Agreement against
Seller including Purchaser's reasonable costs and attorneys fees in connection
therewith and/or (iii) exercise any other right or remedy Purchaser may have at
law or in equity by reason of such default including, but not limited to, the
recovery of reasonable attorneys' fees incurred by Purchaser in connection
herewith.
9.2 PURCHASER'S DEFAULT; SELLER'S REMEDIES.
a. Purchaser shall be deemed to be in default hereunder upon the
occurrence of one of the following events: (i) any of Purchaser's warranties or
representations set forth herein shall be untrue in any material respect when
made or at Closing; or (ii) Purchaser shall fail to meet,
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<PAGE> 22
be untrue in any material respect when made or at Closing; or (ii) Purchaser
shall fail to meet, comply with, or perform any covenant, agreement or
obligation on its part required within the time limits and in the manner
required in this Agreement, which, in either of such events, is not cured by
Purchaser within ten (10) days following receipt by Purchaser of written notice
of default from Seller.
b. In the event Purchaser shall be deemed to be in default hereunder
Seller may, at Seller's sole option, do any one or more of the following: (i)
terminate this Agreement by written notice delivered to Purchaser on or before
the Closing; and/or (ii) enforce specific performance of this Agreement against
Purchaser including Seller's reasonable costs and attorneys fees in connection
therewith.
ARTICLE X.
MISCELLANEOUS
10.1 CASUALTY. Prior to the Closing Date, and notwithstanding the
pendency of this Agreement, the entire risk of loss or damage by fire or other
casualty shall be borne and assumed by Seller, except as otherwise provided in
this Section 10.1. Until the Closing has occurred, Seller shall keep all
insurance policies in effect. If, prior to the Closing Date, any part of the
Property is damaged or destroyed by fire or other casualty, Seller shall
immediately notify Purchaser of such fact. If such damage or destruction is
material (as defined below), Purchaser shall have the option to terminate this
Agreement upon written notice to Seller given not later than thirty (30) days
after receipt of Seller's notice. For purposes hereof "material" shall be deemed
to be any uninsured damage or destruction to the Property (except that a
casualty shall not be deemed uninsured solely because all, or a portion of, the
cost of the casualty is subject to a deductible) or any insured damage or
destruction (i) where the cost of repair or replacement is estimated, in
Purchaser's good faith judgment, to be One Hundred Thousand and No/100
($100,000.00) or more, (ii) where the repair or replacement is estimated, in
Purchaser's good faith judgment, to require more than one hundred twenty (120)
days to repair, or (iii) which would result in an abatement of rent that would
not be fully covered by rent loss insurance (or its equivalent) to Seller upon
the Closing. If Purchaser does not exercise this option to terminate this
Agreement, or if the casualty is not material, neither party shall have the
right to terminate this Agreement, and the parties shall proceed to the Closing
pursuant to the terms hereof without modification of the terms of this Agreement
and without any reduction in the Purchase Price, and the repair and restoration
of the Property shall proceed in accordance with the terms and provisions of the
Lease to be entered into between Seller and Purchaser with the same effect as if
such casualty had occurred during the term of the Lease. If Purchaser does not
elect to terminate this Agreement by reason of any casualty, Purchaser shall
have the right to participate in any adjustment of the insurance claim and, in
such event, Purchaser and Seller shall cooperate each with the other in good
faith.
10.2 CONDEMNATION. Prior to the Closing Date, if all or any portion of
the Property is taken, or if access thereto is reduced or restricted, by eminent
domain or otherwise (or if such taking, reduction or restriction is pending,
threatened or contemplated) (hereinafter a "Condemnation
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Proceeding"), Seller shall immediately notify Purchaser of such fact. In the
event that such notice relates to the taking of a material (as defined below)
portion of the Property, Purchaser shall have the option, in its sole and
absolute discretion, to terminate this Agreement upon written notice to Seller
given not later than thirty (30) days after receipt of Seller's notice,
whereupon neither party shall have any rights, obligations or liabilities
hereunder except with respect to those rights, obligations or liabilities which
expressly survive the termination of this Agreement. For the purposes of this
Section, and without limiting the generality of the foregoing, a taking shall be
deemed material if it (i) restricts access to the Property (ii) reduces the
parking available to Property unless an equal or greater number of spaces may be
created through a reconfiguration of the parking facilities, or (iii) would, in
the reasonable estimation of Purchaser, cost more than $100,000 to restore the
Property or make alterations to the Property in order to maintain the Property
as a fully functioning correctional and detention facility comparable in all
respects to the condition of the Property absent such Condemnation Proceeding.
If Purchaser does not elect to terminate this Agreement as herein provided, the
parties shall proceed to the Closing pursuant to the terms hereof without
modification of the terms of this Agreement and without any reduction in the
Purchase Price, and any condemnation award and repair and restoration of the
Property shall be governed by the terms and provisions of the Lease to be
entered into between Seller and Purchaser at the Closing with the same effect as
if such Condemnation Proceeding had occurred during the term of the Lease. If
Purchaser does not elect to terminate this Agreement by reason of any
Condemnation Proceeding, Purchaser shall have the right to participate in any
Condemnation Proceeding with respect to the Property and, in such event,
Purchaser and Seller shall cooperate each with the other in good faith.
10.3 SURVIVAL. With the exception of Seller's obligations pursuant to the
terms of Section 5.4 of this Agreement, all of the representations, warranties,
covenants, agreements and indemnities of Seller and Purchaser contained in this
Agreement, to the extent not performed at the Closing, shall survive the Closing
for the period of one (1) year after the Closing Date and shall not be deemed to
merge upon the acceptance of the Deed by Purchaser. The obligations of Seller,
pursuant to the terms of Section 5.4, shall continue in full force and effect
until such time as Seller has fully satisfied and completed such obligations.
10.4 RIGHT OF ASSIGNMENT. Neither this Agreement nor any interest herein
may be assigned or transferred by Purchaser to any person, firm, corporation or
other entity without the prior written consent of Seller, which consent may be
given or withheld in the sole discretion of Seller.
10.5 NOTICES. All notices, requests and other communications under this
Agreement shall be in writing and shall be either (a) delivered in person, (b)
sent by certified mail, return-receipt requested or (C) delivered by a
recognized national delivery service addressed as follows:
If intended for Seller: Wackenhut Corrections Corporation
4200 Wackenhut Drive, Suite 100
Palm Beach Gardens, FL 33410-4243
Phone: (561) 622-5656
Attention: Dr. George C. Zoley
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With a copy to: Akerman, Senterfitt & Eidson, P.A.
One SE Third Avenue
Miami, Florida 33131
Phone: (305) 374-5600
Attention: Janice L. Russell, Esq.
If intended for Purchaser: CPT Operating Partnership L.P.
Gardens Plaza, Suite 430
3300 PGA Boulevard
Palm Beach Gardens, Florida 33410-4243
Phone: (561) 691-6644
Attn: Mr. Charles R. Jones
With a copy to: Josias, Goren, Cherof, Doody and Ezrol, P.A.
3009 East Commercial Boulevard, Suite 200
Ft. Lauderdale, Florida 33308
Phone: (954) 771-4500
Attention: Donald J. Doody, Esq.
or at such other address, and to the attention of such other person, as the
parties shall give notice as herein provided. A notice, request and other
communication shall be deemed to be duly received if delivered in person or by a
recognized national delivery service, when delivered to the address of the
recipient, if sent by mail, on the date of receipt by the recipient as shown on
the return-receipt card; provided that if a notice, request or other
communication is served by hand on a day which is not a Business Day, or after
5:00 P.M. on any Business Day at the addressee's location, such notice or
communication shall be deemed to be duly received by the recipient at 9:00 A.M.
on the first Business Day thereafter.
10.6 ENTIRE AGREEMENT; MODIFICATIONS. This Agreement embodies and
constitutes the entire understanding between the Parties with respect to the
transactions contemplated herein, and all prior or contemporaneous agreements,
understandings, representations and statements (oral or written) are merged into
this Agreement. Neither this Agreement nor any provision hereof may be waived,
modified, amended, discharged or terminated except by an instrument in writing
signed by the Party against whom the enforcement of such waiver, modification,
amendment, discharge or termination is sought, and then only to the extent set
forth in such instrument.
10.7 APPLICABLE LAW. THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREBY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF FLORIDA. The Parties agree that jurisdiction and venue for any
litigation arising out of this Agreement shall be in the Courts of Palm Beach
County, Florida or the U.S. District Court for the Southern District of Florida
and, accordingly, consent thereto.
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10.8 CAPTIONS. The captions in this Agreement are inserted for
convenience of reference only and in no way define, describe, or limit the scope
or intent of this Agreement or any of the provisions hereof.
10.9 BINDING EFFECT. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors, and assigns.
10.10 TIME IS OF THE ESSENCE. With respect to all provisions of this
Agreement, time is of the essence. However, if the first date of any period
which is set out in any provision of this Agreement falls on a day which is not
a Business Day, then, in such event, the time of such period shall be extended
to the next day which is a Business Day.
10.11 WAIVER OF CONDITIONS. Any Party may at any time or times, at its
election, waive any of the conditions to its obligations hereunder, but any such
waiver shall be effective only if contained in a writing signed by such Party.
No waiver by a Party of any breach of this Agreement or of any warranty or
representation hereunder by the other Party shall be deemed to be a waiver of
any other breach by such other Party (whether preceding or succeeding and
whether or not of the same or similar nature), and no acceptance of payment or
performance by a Party after any breach by the other Party shall be deemed to be
a waiver of any breach of this Agreement or of any representation or warranty
hereunder by such other Party, whether or not the first Party knows of such
breach at the time it accepts such payment or performance. No failure or delay
by a Party to exercise any right it may have by reason of the default of the
other Party shall operate as a waiver of default or modification of this
Agreement or shall prevent the exercise of any right by the first Party while
the other Party continues to be so in default.
10.12 LIABILITY OF GENERAL PARTNER OF PURCHASER. Seller acknowledges that
Purchaser has disclosed that the general partner of Purchaser (the "General
Partner") is a Maryland business trust formed pursuant to a Declaration of
Trust, as amended, a copy of which is duly filed with the Department of
Assessments and Taxation of the State of Maryland, which provides that no
trustee, officer, shareholder, employee or agent of the General Partner shall be
held personally liable under any written instrument creating an obligation of,
or claim against, the General Partner and that all persons dealing with the
General Partner, in any way, shall look only to the assets of the General
Partner for the payment of any sum or the performance of any obligation. Seller
agrees that any liability of the General Partner or any trustee, officer,
shareholder, employee or agent acting on behalf of the General Partner arising
out of this Agreement or the performance by Purchaser of its obligations
hereunder is limited to the assets of the General Partner in accordance with the
above Declaration of Trust.
EXECUTED to be effective as of the Effective Date.
PURCHASER:
CPT OPERATING PARTNERSHIP L.P.
23
<PAGE> 26
By: Correctional Properties Trust, a Maryland real
estate investment trust, its General Partner
By: /s/ Charles R. Jones
---------------------------
Charles R. Jones, President
24
<PAGE> 27
LIST OF SCHEDULES AND EXHIBITS
Exhibit A - Real Property Description
Exhibit B - Bill of Sale
Exhibit C - Certificate of Non-Foreign Status
Exhibit D - Closing Certificate
Exhibit E - Deed
Exhibit F - Excluded Personal Property
Exhibit F-1 - Excluded Proprietary Property
Exhibit G - Fixtures
Exhibit G-1 - Excluded Fixtures
Exhibit H - Lease Agreement
Exhibit I - Personal Property
SELLER:
WACKENHUT CORRECTIONS CORPORATION
By: /s/ John G. O'Rourke
---------------------------------------
John G. O'Rourke, Senior Vice President
25
<PAGE> 28
LIST OF SCHEDULES AND EXHIBITS
Exhibit A - Real Property Description
Exhibit B - Bill of Sale
Exhibit C - Certificate of Non-Foreign Status
Exhibit D - Closing Certificate
Exhibit E - Deed
Exhibit F - Excluded Personal Property
Exhibit F-1 - Excluded Proprietary Property
Exhibit G - Fixtures
Exhibit G-1 - Excluded Fixtures
Exhibit H - Lease Agreement
Exhibit I - Personal Property
26
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Company's
previously filed Registration Statement File No. 333-51137.
Arthur Andersen LLP
West Palm Beach, Florida,
March 30, 2000.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> APR-28-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<CASH> 2,325 121
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 139,487 207,189
<DEPRECIATION> (1,890) (6,774)
<TOTAL-ASSETS> 142,764<F1> 203,548
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
0 0
<COMMON> 7 7
<OTHER-SE> 131,992 130,753
<TOTAL-LIABILITY-AND-EQUITY> 142,764 203,548
<SALES> 8,132 20,293
<TOTAL-REVENUES> 8,628 20,329
<CGS> 0 0
<TOTAL-COSTS> 1,052 1,491
<OTHER-EXPENSES> 1,890 4,884
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 300 5,226
<INCOME-PRETAX> 5,386 8,728
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 5,386 8,728
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,386 8,728
<EPS-BASIC> 0.97 1.22
<EPS-DILUTED> 0.97 1.22
<FN>
<F1>CONSOLIDATED STATEMENT OF INCOME REFLECTS OPERATIONS FROM FEBRUARY 18, 1998
(INCEPTION) TO DECEMBER 31, 1998
</FN>
</TABLE>
