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EXHIBIT 10.1
MEMORANDUM OF UNDERSTANDING
WHEREAS Prison Realty Trust, Inc. ("PZN") is a Maryland Corporation
with its principal place of business in Nashville, Tennessee.
WHEREAS William Wanstrath has instituted derivative litigation in the
state courts of Tennessee, Wanstrath v. Crants et al., Civ. Action No.
99-1719-III, naming as defendants PZN, Doctor R. Crants, D. Robert Crants III,
John Eakin, Jr., Ted Feldman, Jackson W. Moore, Jean-Pierre Cuny, Rusty M.
Moore, Richard W. Cardin, J. Michael Quinlan, Joseph V. Russell, Michael W.
Devlin, C. Ray Bell, Charles W. Thomas, Monroe J. Carell, Ned McWherter,
(collectively the "PZN Defendants") and Correctional Management Services
Corporation (referred to as the "Wanstrath Action");
WHEREAS Dasburg, S. A. has instituted purported class action litigation
in the state courts of Tennessee, Dasburg, S.A. v. Corrections Corporation of
America et al., Civ. Action No. 98-2391-III, naming as defendants Corrections
Corporation of America, Doctor R. Crants, Thomas W. Beasley, Charles L.
Blanchette and David L. Myers (referred to as the "Dasburg Action");
WHEREAS certain shareholders of PZN, including but not limited to Hilda
Bernstein, have instituted purported class action litigation in the state courts
of Tennessee, Bernstein v. Prison Realty Trust, Inc. et al., Civ. Action No.
99-3794-II, naming as defendants the PZN Defendants (except for Monroe J.
Carell) as well as Blackstone Group Inc, Fortress Investment Group LLC, and Bank
of America Corporation (referred to as the "Bernstein Action");
WHEREAS Robert Buchanan and Cindy Unger have instituted litigation in
the state courts of Tennessee, Buchanan and Unger v. Prison Realty Trust, Inc.,
Civ. Action No. 00-683-II, naming as defendants PZN, Doctor R. Crants, Robert
Crants III, and Darrell K. Massengale (referred to as the "Buchanan and Unger
Action");
WHEREAS certain shareholders of PZN, including but not limited to
Alfred C. Ivers, Michael Ashner, Douglas K. Byrne, Gunter Sachs, L. Roland and
Marian N. Yates, GIM AVB, Jerome Trupp, Gary Nightengale, Harold Eugene Hames
and Miriam Smith have instituted purported class action litigations in the
federal courts of Tennessee, In re Prison Realty Securities Litigation, Civ.
Action No. 3:99-0452, naming as defendants the PZN Defendants (except Ned
McWherter) as well as Thomas W. Beasley, Samuel W. Bartholomew, Joseph F.
Johnson, R. Clayton McWhorter and Sodexho Alliance S. A. (which has been
dismissed from action) (referred to as the "In re PZN Action");
WHEREAS certain shareholders of PZN, including but not limited to,
Robert Buchanan and Cindy Unger, have instituted purported class action
litigations in the federal courts of Tennessee, In re Old CCA Securities
Litigation, Civ. Action No. 3:99-0458, naming as defendants the PZN Defendants
(except Jean-Pierre Cuny and Ned McWherter) as well as Vida Carroll (referred to
as the "In re Old CCA Action");
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WHEREAS certain shareholders of PZN, including but not limited to John
Neiger, Gregory C. Carr, Robert Sarver, Barbara Carlson, Steve Carlson, Richard
Fleenor and Morris R. Beschloss, have instituted purported class action
litigation in the federal courts of Tennessee, Neiger v. Crants et al., Civ.
Action No. 3:99-1205, naming as defendants Doctor Crants, Robert Crants and PZN
(referred to as the "Neiger Action");
WHEREAS John L. Mikovits instituted litigation in the federal court of
Tennessee, Mikovits v. Crants et al., Civ. Action No. 3:00-0264, naming as
defendants the PZN Defendants (except Ned McWherter) as well as Thomas W.
Beasley, Samuel W. Bartholomew, Joseph F. Johnson, R. Clayton McWhorter and
Sodexho Alliance S. A. (referred to as the "Mikovits Action");
WHEREAS the Defendants in all of these actions (collectively referred
to as the "Actions") deny any wrongdoing whatsoever and wish to settle these
claims solely to eliminate the burden and expense of future litigation;
NOW, THEREFORE, the parties to the Actions and their counsel agree as
follows:
1. For settlement purposes only, Defendants shall not contest the
propriety of the In re PZN and In re Old CCA Actions being prosecuted
as class actions.
2. In settlement and final dismissal of all claims asserted against the
Defendants in the Actions, it is agreed that:
INSURANCE PROCEEDS
a. The following amounts from the following insurance policies
are a necessary condition to settlement:
i. Remaining limits from the .primary CCA policy
(approximately $13.25 million remaining) written by
National Union
ii. $5 million from the CCA excess policy written by
Chubb
iii. $10 million from the CCA excess policy written by
Royal
iv. $15 million from the PZN policy written by National
Union
v. $5.6 million from the reinstated PZN and OpCo
policies written by National Union
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PZN EQUITY COMPONENT
b. PZN will contribute 16,550,000 shares of PZN common stock with
a Stock Price Guarantee of $4.375 per share.
i. The "Stock Price Guarantee Period" shall mean:
1) With respect to distribution of Settlement
Stock to plaintiff's counsel, the period
from the date of the initial distribution of
Settlement Stock to plaintiffs' counsel as
an award of attorneys' fees and expenses
until August 31, 2001.
2) With respect to the distribution of
Settlement Stock to Class Members, the
period from the date of the initial
distribution of Settlement Stock to Class
Members in accordance with the claims
administration process until August 31,
2001.
ii. Stock Price Guarantee Terms. For purposes of any
initial distribution referred to above:
1) If, for any ten (10) trading days (including
five (5) consecutive trading days) out of
any twenty (20) consecutive trading days
subsequent to an initial distribution of
Settlement Stock during the applicable Stock
Price Guarantee Period, the closing prize of
PZN common stock (as reflected on the NYSE
or, if PZN common stock ceases to be traded
on the NYSE, on such other market as PZN
common stock is traded at that time)
averages at least $4.375 per share, PZN's
Stock Price Guarantee will have been
automatically satisfied for that
distribution.
2) If the conditions in (1) are not satisfied
with respect to an initial distribution of
Settlement Stock during the applicable Stock
Price Guarantee Period, then PZN shall pay
to the recipients of that distribution
(i.e., Class Members or plaintiffs' counsel
as appropriate), within 30 days following
the close of the applicable Stock Price
Guarantee Period, the difference between
$4.375 per share and the larger of (a) the
average closing price of PZN common stock
for the twenty (20) consecutive trading days
immediately following the distribution date,
or (b) the average closing price for the
final twenty (20) trading days of the
applicable Stock Price Guarantee Period (the
"Stock Price Guarantee Differential").
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iii. PZN, in its sole discretion, may elect to pay the
applicable Stock Price Guarantee Differential to the
recipients of that distribution in cash, common
stock, or a combination of cash and common stock.
iv. Stock splits, Stock Dividends and Reverse Stock
Splits. The share price and the total number of
shares to be contributed to the Settlement Fund will
be adjusted to reflect any changes due to stock
splits, including those effectuated as stock
dividends and reverse stock splits.
v. Costs. All costs, including those of PZN's transfer
agent, incurred in issuing and distributing any
Settlement Stock to the recipients shall be borne by
PZN.
vi. Rights With Respect to the Settlement Stock. In order
that the Settlement Fund may be distributed to and be
fully and freely traded by the recipients without any
restrictions, ten (10) days before the hearing date
for final approval of the settlement, PZN shall
provide Plaintiffs' Co-Lead counsel with the written
opinion of outside counsel substantially to the
effect: (a) that the Settlement Stock will be issued
in compliance with the registration requirements
of ss.5 of the Securities Act of 1933 (the "Act") or
will be issued in reliance upon an exemption
therefrom; (b) that the Settlement Stock is fully
tradeable without any restriction after distribution
(except that affiliates of PZN may be required to
sell in accordance with Rule 144 promulgated under
the Act); and (c) that such shares are otherwise
fully paid, non-assessable and free from all liens
and encumbrances.
ANTI-DILUTION PROVISIONS
c. The settlement shall provide that, with respect to any capital
infusion or other liquidity event which occurs at any time
following the fulfillment of Defendants' obligations under the
provisions of the price guarantee, but prior to December 31,
2001, the settlement classes shall receive Assessment shares
as detailed below:
i. From the earlier of (i) August 31, 2001 or (ii) the
date on which the Stock Price Guarantee is satisfied
pursuant to P. 2(b)(ii)(1) above until December 31,
2001, the Company may sell equity securities,
securities that are convertible at any time into one
or more equity security or securities, and securities
that provide for the purchase at any time of one or
more equity or securities (collectively "Equity
Securities") with a total purchase price of all such
securities of up to $110 million without dilution
compensation to the Settlement Classes if, and only
if, one or more of the following conditions is
satisfied: (i) the sale of such security is made as a
rights offering to all holders of the Company's
common shares; (ii) the sale of such security is made
at a per-common-share-equivalent price equal to or
greater than the Guaranteed Price Per Share; or (iii)
the Company receives
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at the time of the sale of such security the signed
opinion or report of a nationally-recognized
investment banking firm that is independent of the
Company and independent of all proposed purchasers of
each such security that the price at which such
security is being sold is fair to the Company and
represents an arms-length negotiation.
ii. From the earlier of (i) August 31, 2001 or (ii) the
date on which the Stock Price Guarantee is satisfied
pursuant to P. 2(b)(ii)(1) above until December 31,
2001, any Equity Securities sold in excess of a total
purchase price of all such securities of $110 million
and any Equity Securities that are sold without
meeting one or more of the above conditions shall be
designated as an "Assessment Security."
iii. With respect to the sale of any Assessment Security
up to $90 million, the Settlement Classes shall
receive as dilution compensation without making
payment an amount of the Assessment Security being
sold with an equivalent purchase price equal to the
number of Company common shares provided for pursuant
to P. 2(b) above divided by the total of (I) the
fully-diluted number of Company common shares as of
August 1, 2000 plus (ii) the number of Company common
shares provided for pursuant to P. 2(b) above. The
resulting fraction shall then be multiplied by the
total purchase price of the Assessment Security being
sold, which product shall then be multiplied by the
difference between the Guaranteed Price Per Share and
the per-common-share-equivalent price of the
Assessment Security being sold, which product will be
divided by the Guaranteed Price Per Share.
iv. With respect to the sale of any Assessment Security
above $90 million, the Settlement Classes shall
receive as dilution compensation without making
payment an amount of the Assessment Security being
sold with an equivalent purchase price equal to the
number of Company common shares provided for pursuant
to P. 2(b) above divided by the total of (i) the
fully-diluted number of Company common shares as of
August 1, 2000 plus (ii) the number of Company common
shares provided for pursuant to P. 2(b) above. The
resulting fraction shall then be multiplied by the
total purchase price of the Assessment Security being
sold (in excess of $90 million), which product shall
then be multiplied by the difference between the
Guaranteed Price Per Share and the
per-common-share-equivalent price of the Assessment
Security being sold, which product will be divided by
the per-common-share-equivalent price of the
Assessment Security.
PAYMENTS TO CERTAIN THIRD PARTIES AND INSIDERS
d. PZN will reduce by $7.5 million the proposed termination
fee/expense payments to Blackstone, Fortress, BancAmerica
Group and/or their affiliates or successors
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(collectively "Blackstone"). To the extent any payment is made
to Blackstone beyond $15.7 million, PZN will pay a penalty to
the Settlement Classes equal to 50% of any such amount paid to
Blackstone beyond the $15.7 million.
e. Payments to Sodexho Alliance S.A. and/or its affiliates or
successors (collectively "Sodexho") for its interests in OpCo
shall be limited to the $3.38 million in PZN common stock to
be paid to Sodexho in connection with the proposed merger
between PZN and OpCo. To the extent that PZN makes any payment
to Sodexho in excess of $4.5 million, PZN will pay a penalty
to the Settlement Classes equal to 50% of any amount paid to
Sodexho beyond the $4.5 million;
f. All payments to Sodexho, Baron and holders of JJFMSI, PMSI and
OpCo equity will be paid in PZN common stock rather than cash.
All payments to Blackstone will be made in PZN common stock or
through a transfer of assets, rather than cash. The parties
agree to develop in good faith some mechanism where the value
of any assets transferred to Blackstone shall be agreed to by
the financial advisors of the parties. If any cash
consideration, other than the severance arrangements described
in PZN's Proxy, is paid to any PZN insider and/or affiliate in
connection with and/or as part of the proposed transactions or
other liquidity event, an amount equal to 50% of such payments
shall be immediately paid to the settlement classes.
g. Except for certain severance arrangements described in PZN's
Proxy, no payments of any kind shall be made to any PZN/OpCo
insider or affiliate as part of any merger or liquidity event
other than for their ratable interest in OpCo, JJFMSI or PMSI
as described above.
CORPORATE GOVERNANCE ISSUES
h. There shall be a 24-month prohibition on repricing of PZN
stock options to any former or current (as of the date of the
final approval of the Settlement) (i) officer holding the
title of V.P. or higher or (ii) director, without shareholder
approval.
i. Each committee of the PZN Board shall have as a majority,
board members who were not directors or officers of PZN or its
affiliates as of December 1, 1999.
j. PZN agrees to eliminate the "Other Constituencies" portion of
Article VIII of the Prison Realty Trust, Inc. Articles of
Amendment and Restatement which provides:
In considering the effect of a potential acquisition of
control of the Corporation, the Board of Directors of the
Corporation may, but shall not be required to, consider the
effect of the potential acquisition of control on: (i)
stockholders, employees, suppliers, customers and creditors of
the Corporation; and (ii) communities in
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which offices or other establishments of the Corporation are
located.
ADMINISTRATIVE PROVISIONS
k. The settlement shall include an attorneys' fee quick pay
provision that provides for immediate payment of attorneys'
fees upon the issuance of an order approving the settlement
and the posting of security satisfactory to the insurance
carriers. The settlement shall also provide that Counsel can
receive their proportionate share of PZN securities
immediately upon final approval of the settlement.
l. Defendants agree that the termination of the Blackstone
transaction was in material part due to the prosecution of the
transactional cases (i.e., the Bernstein Action and the
Wanstrath Action).
m. Notice costs are to be advanced from the settlement fund,
without recourse.
n. The insurance proceeds noted above shall be deposited into an
interest bearing escrow account no later than October 6, 2000,
10:00 a.m. (Eastern Standard Time).
3. The parties shall draft and execute an appropriate Stipulations of
Settlement (the "Stipulations") and such other documentation as may be
required to obtain final court approval of the settlement and the final
dismissal of the Actions with prejudice and without costs to any party.
The parties will jointly present the Stipulations to the appropriate
courts as soon as practicable and shall use their best efforts to
obtain final judicial approval of the settlements and the final
dismissal with prejudice and the release of all claims which were or
could have been asserted in the Actions, including such claims that
could have arisen during time periods not covered by the complaints in
the Actions. The Stipulations will expressly provide that the
Defendants have denied and continue to deny, that they have committed
any violations of law, or any breaches of their fiduciary obligations.
4. The Stipulations shall provide for releases of all counsel and shall
confirm that they have complied with Rule 11 of the Federal Rules of
Civil Procedure in the conduct of the Actions.
5. If the settlement is not approved, the existence of the Memorandum of
Understanding or the Stipulation shall not be deemed to prejudice in
any way the positions of the parties with respect to the Actions. As
stated above, the parties intend to enter into a formal settlement
agreement embodying the terms hereof and shall act in good faith
promptly to execute such document. It is expressly understood that this
Memorandum of Understanding is non-binding and is subject to the
execution of such a final Stipulation. The parties shall cooperate in
good faith and use their best efforts to implement the
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settlement and promptly to seek final approval of the settlement
pursuant to the appropriate rules of procedure, including the execution
of such further documents as are reasonably necessary to implement the
provisions hereof.
6. Upon execution of this Memorandum of Understanding, the parties agree
to a standstill of all litigation for thirty (30) days while the
Stipulation and accompanying documents are drafted and shall cooperate
in good faith to obtain whatever orders or extensions are required to
effectuate such standstill from the appropriate courts. If after the
expiration of thirty (30) days, the Stipulation has not been executed,
any party may, by ten (10) days written notice, withdraw from this
Memorandum of Understanding. In such event, the existence of the
Memorandum of Understanding shall not be deemed to prejudice in any way
the positions of the parties with respect to the Actions.
7. This Memorandum of Understanding may be executed in counterpart by any
of the signatories hereto, and as so executed shall constitute one
agreement.
FOR DEFENDANTS:
Dated: August 23, 2000 SIMPSON THACHER & BARTLETT
By: /s/ Bruce D. Angiolillo
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Bruce D. Angiolillo
425 Lexington Avenue
New York, New York 10017
Attorneys for All Defendants Except
Jean-Pierre Cuny, Blackstone Group Inc.,
Fortress Investment Group LLC, and Bank of
America Corporation
Dated: August 23, 2000 ROPES & GRAY
By: /s/ John Montgomery
----------------------------------------
John Montgomery
One International Place
Boston, MA 02110
Attorneys for Defendant Jean-Pierre Cuny
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FOR PLAINTIFFS:
Dated: August 23, 2000 MILBERG WEISS BERSHAD HYNES & LERACH, LLP
By: /s/ Darren Robbins
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Darren Robbins
600 West Broadway, Suite 1800
San Diego, CA 92101
Attorneys for Plaintiffs in the In re PZN
Action
Dated: August 23, 2000 GIRARD & GREEN, LLP
By: /s/ Robert A. Jigarjian
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Robert A. Jigarjian
160 Sansome Street, Suite 300
San Francisco, CA 94104
Attorneys for Plaintiffs in the In re PZN
Action
Dated: August 23, 2000 BERMAN, DEVALERIO & PEASE
By: /s/ Glen DeValerio
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Glen DeValerio
One Liberty Square
Boston, MA 02109
Attorneys for Plaintiffs in the In re Old
CCA Action and the Buchanan and Unger Action
Dated: August 23, 2000 SCHIFFRIN & BARROWAY, LLP
By: /s/ Richard Schiffrin
----------------------------------------
Richard Schiffrin
Three Bala Plaza East, Suite 400
Bala Cynwyd, PA 19004
Attorneys for Plaintiffs in the Wanstrath
Action
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Dated: August 23, 2000 LAW OFFICES OF STEVEN E. CAULEY, P.A.
By: /s/ Steven E. Cauley
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Steven E. Cauley
Suite 218, Cypress Plaza
2200 Rodney Parham Rd.
Little Rock, Arkansas 722212
Attorneys for Plaintiffs in the Neiger
Action and the Dasburg Action
Dated: August 23, 2000 SHEPHERD & GELLER
By: /s/ Paul J. Geller
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Paul J. Geller
7200 W. Camino
Boca Raton, Florida 33433
Attorneys for Plaintiffs in the Bernstein
Action
Dated: August 23, 2000 STANLEY, MANDEL & IOLA, L.L.P.
By: /s/ Marc R. Stanley
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Marc R. Stanley
3100 Monticello Avenue, Suite 750
Dallas, Texas 75205
Attorneys for Plaintiffs in the Mikovits
Action
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