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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 30, 2000
Prison Realty Trust, Inc.
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(Exact name of registrant as specified in its charter)
Maryland 0-25245 62-1763875
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(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
10 Burton Hills Boulevard, Suite 100, Nashville, Tennessee 37215
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (615) 263-0200
Not Applicable
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
TERMINATION OF SECURITIES PURCHASE AGREEMENT.
On June 30, 2000, Prison Realty Trust, Inc. ("Prison Realty"), together
with Corrections Corporation of America ("CCA"), Prison Management Services,
Inc. ("PMSI") and Juvenile and Jail Facility Management Services, Inc.
("JJFMSI") (Prison Realty, CCA, PMSI and JJFMSI, known collectively, as the
"Companies"), and Pacific Life Insurance Company ("Pacific Life") entered into a
Mutual Termination and Release Agreement with respect to the rights and
obligations of each of the parties under the terms of a Securities Purchase
Agreement dated as of April 5, 2000, as executed by the parties on April 16,
2000 (the "Securities Purchase Agreement"). The Securities Purchase Agreement
has been previously filed by Prison Realty as Exhibit 10.1 to Prison Realty's
Current Report on Form 8-K filed with the Commission on April 18, 2000. The
Mutual Termination and Release Agreement is included herewith as Exhibit 10.1
and is incorporated herein by this reference.
Under the terms of the Securities Purchase Agreement, the parties had
agreed complete a series of previously announced restructuring transactions
involving Pacific Life, including the combination of Prison Realty with CCA,
PMSI and JJFMSI and a $200.0 million equity investment in Prison Realty by
Prison Realty's common stockholders through a common stock rights offering
backstopped 100% by Pacific Life. On June 28, 2000, Prison Realty's board of
directors concluded that as a result of several factors, including Prison
Realty's ability to satisfy the conditions contained in the Securities Purchase
Agreement, the completion of the transactions under the Securities Purchase
Agreement was unlikely. The Companies subsequently reached agreement with
Pacific Life on the mutual termination of the Securities Purchase Agreement
after considering, among other things, Prison Realty's ability to satisfy these
conditions and the timing requirements under the terms of Prison Realty's
recently amended bank indebtedness.
THE RESTRUCTURING.
In connection with the termination of the Securities Purchase Agreement,
Prison Realty's board of directors also determined to proceed with a
restructuring of Prison Realty and CCA, its primary tenant (the
"Restructuring"), as provided for under the terms of the waiver of existing
events of default under, and amendments to, Prison Realty's $1.0 billion senior
secured credit facility obtained on June 9, 2000 (the "Bank Waiver and
Amendment"). The Bank Waiver and Amendment requires, among other things:
- the merger of Prison Realty with CCA for non-cash consideration on
or before September 15, 2000;
- Prison Realty's election to be taxed as a C corporation, rather than
as a REIT, for federal income tax purposes commencing with its 2000
taxable year; and
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- Prison Realty's selection of new senior management of Prison Realty
through the appointment of a new chief executive officer and a new
chief financial officer.
The Bank Waiver and Amendment has been previously filed by Prison Realty as
Exhibit 10.1 to Prison Realty's Current Report on Form 8-K filed with the
Commission on June 12, 2000.
In connection with the board's determination, Prison Realty entered into
an agreement and plan of merger with CCA providing for the merger of CCA with
and into a wholly-owned subsidiary of Prison Realty (the "Merger Agreement").
Under the terms of the Merger Agreement, Prison Realty will issue approximately
$10.6 million in shares of its common stock in the merger to existing management
and employee shareholders of CCA. The Merger Agreement is filed herewith as
exhibit 2.1 and is incorporated herein by this reference. Prison Realty has also
agreed to purchase the shares of CCA common stock held by the Baron Asset Fund
("Baron") immediately prior to the merger for non-cash consideration comprised
of $8.0 million in shares of Prison Realty's common stock. As consideration for
Baron's consent to the merger, Prison Realty has also agreed to issue Baron
warrants to purchase $3.0 million in shares of Prison Realty's common stock.
Baron holds approximately 16.9% of the outstanding capital stock of CCA and has
the right to approve any merger of CCA. The exercise price of the warrants, as
well as the number of shares of Prison Realty common stock into which the
warrants are exercisable, are set forth in the Stock Purchase Agreement, dated
June 30, 2000, by and between Prison Realty and Baron which is included herewith
as Exhibit 10.3 and is incorporated herein by this reference. Prison Realty is
currently negotiating with Sodexho Alliance, S.A. ("Sodexho") with respect to
the purchase of shares of CCA common stock held by it prior to the merger.
Sodexho also holds approximately 16.9% of CCA's outstanding capital stock.
Prison Realty has determined not to merge with its two private service
companies, PMSI and JJFMSI. As such, Prison Realty's existing relationship with
PMSI and JJFMSI will remain unchanged. Prison Realty owns 100% of the non-voting
common stock of PMSI and JJFMSI, which entitles Prison Realty to receive 95% of
each service company's net income, as defined, as cash dividends on such shares.
Upon completion of the Restructuring, Prison Realty and its subsidiaries will
provide administrative services for the service companies for a cash fee under
the terms of the existing agreements between CCA and PMSI and JJFMSI. Prison
Realty will also license the use of the CCA name to the service companies for a
cash fee under the terms of the existing agreements between CCA and PMSI and
JJFMSI. The Bank Waiver and Amendment permits Prison Realty to merge with PMSI
and/or JJFMSI in the future for aggregate non-cash consideration not to exceed
$12.6 million, including a maximum of $10.6 million in non-cash consideration to
paid to outside, non-warden stockholders of the service companies. Prison Realty
has initiated discussions with PMSI and JJFMSI regarding a proposed combination
with Prison Realty permitted under the terms of the Bank Waiver and Amendment.
As a result of these transactions, the Companies terminated their
existing merger agreement, dated December 26, 1999, executed in connection with
a restructuring of the Companies led by a group of investors comprised of
affiliates of Fortress Investment Group LLC, The Blackstone Group, and Bank of
America Corporation. This merger agreement was previously filed by Prison
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Realty as Exhibit 2.1 to Prison Realty's Current Report on Form 8-K filed with
the Commission on December 28, 1999.
As required by the Bank Waiver and Amendment, Prison Realty anticipates
that it will file preliminary proxy materials with the SEC on or before July 1,
2000 seeking approval of Prison Realty's operation as a subchapter C corporation
beginning with its 2000 taxable year and of the merger of Prison Realty with
CCA. The approval of holders of two-thirds of Prison Realty's outstanding common
stock will be required to complete the restructuring. The approval of the
holders of 80% of CCA's capital stock will be required to complete the merger of
CCA with and into a subsidiary of Prison Realty.
The press release issued by Prison Realty on June 30, 2000 with respect
to the Mutual Termination and the Restructuring is filed herewith as Exhibit
99.1 and is incorporated herein in its entirety by this reference.
WAIVER AND AMENDMENT OF CONVERTIBLE, SUBORDINATED NOTES.
$40.0 MILLION CONVERTIBLE, SUBORDINATED NOTES. On June 30, 2000, Prison
Realty obtained a waiver of events of default under, and amendments to, the
provisions of the note purchase agreement relating to the $40.0 million 9.5%
convertible, subordinated notes issued by Prison Realty to MDP Ventures IV LLC
and affiliated purchasers ("MDP Ventures") (the "MDP Waiver and Amendment").
Under the terms of the MDP Waiver and Amendment, the interest rate on the notes
was increased by 0.5%, to 10.0%, and Prison Realty agreed to issue MDP Ventures
additional convertible notes representing previously accrued interest under the
notes. In addition, the MDP Waiver and Amendment reset the conversion price of
the notes based on 125% of the average closing price of Prison Realty's common
stock on the NYSE for a specified period of time and made certain amendments to
the financial and other covenants contained in the note purchase agreement to
reflect the Restructuring and the combination of Prison Realty and CCA. A form
of the MDP Waiver and Amendment is included herewith as Exhibit 10.4 and is
incorporated herein by this reference.
$30.0 MILLION CONVERTIBLE, SUBORDINATED NOTES. On June 30, 2000, Prison
Realty obtained a waiver of events of default under, and amendments to, the
provisions of the note purchase agreement relating to the $30.0 million 7.5%
convertible, subordinated notes issued to PMI Mezzanine Fund, L.P. ("PMI") (the
"PMI Waiver and Amendment"). Under the terms of the PMI Waiver and Amendment,
the interest rate on the notes was increased by 0.5%, to 8.0%. In addition, the
PMI Waiver and Amendment reset the conversion price of the notes based on 125%
of the average closing price of Prison Realty's common stock on the NYSE for a
specified period of time and made certain amendments to the financial and other
covenants contained in the note purchase agreement and the note to reflect the
Restructuring and the combination of Prison Realty and CCA. The text of the PMI
Waiver and Amendment is included herewith as Exhibit 10.5 and is incorporated
herein by this reference.
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RECENT CONTINGENCIES.
PRISON REALTY. On October 15, 1998, a complaint captioned Fredrick & May
Construction Co. v. U.S. Corrections Corporation was filed in the Circuit Court
for Lee County, Kentucky alleging a breach of contract regarding the
construction of improvements to two correctional facilities acquired when Old
CCA purchased and merged with U.S. Corrections Corporation ("USCC"). Frederick &
May Construction Co. ("Fredrick & May") alleged that it had valid contracts for
the completion of the improvements and that the contracts were wrongfully
terminated. The issue of damages in this matter was tried to a jury in June
2000, subsequent to the Court granting summary judgment in favor of Frederick &
May on the issue of the existence of a contract. The jury returned a verdict
against USCC in an amount of approximately $753,000. The Plaintiff's motion to
assess and determine the amount of prejudgment interest, if any, is presently
pending before the Court. The Company has vigorously defended this action to
date and is in the process of appealing the judgment.
In September 1997, Old CCA received a discretionary bonus of
approximately $4.1 million in connection with its management of a correctional
facility located in Hardeman County, Tennessee. The construction of the facility
was financed with correction facilities revenue bonds in the total principal
amount of approximately $72.7 million. The tax-exempt nature of the bonds is
under review by the Internal Revenue Service (the "IRS"). Because of the
contractual relationship between Old CCA and the correctional facility, in the
event the IRS determines that the bonds are taxable, there exists the risk that
Prison Realty, as the successor to Old CCA, may be required to remit all or a
portion of the bonus received, or, in the alternative, repurchase the principal
amount of the bonds, plus accrued interest. Prison Realty intends to contest
this matter vigorously.
CCA. In February 2000, a complaint was filed in federal court in the
United States District Court for the Western District of Texas against CCA's
inmate transportation subsidiary TransCor America, LLC ("TransCor"). The
lawsuit, captioned Cheryl Schoenfeld v. TransCor America, Inc., et. al., names
as defendants TransCor and its directors. The lawsuit alleges that two drivers
sexually assaulted and raped the Plaintiff during her transportation to a
facility in Texas. While the case is in the very early stages of discovery, the
Plaintiff recently submitted a $21.0 million settlement demand. CCA and TransCor
intend to defend the action vigorously. It is expected that a portion of any
liabilities resulting from this litigation will be covered by liability
insurance.
FORWARD-LOOKING STATEMENTS.
This Form 8-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Prison Realty's actual results
could differ materially from those set forth in the forward-looking statements.
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ITEM 7(C). EXHIBITS.
The following exhibits are filed as part of this Current Report:
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Exhibit
Number Description of Exhibits
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<S> <C>
2.1 Agreement and Plan of Merger, dated as of June 30, 2000, by and
among Prison Realty, CCA Acquisition Sub, Inc. and CCA. (Certain
exhibits and schedules to this document are omitted from this
filing, and Prison Realty agrees to furnish supplementally a copy
of any omitted schedule or exhibit to the Commission upon
request.)
10.1 Mutual Termination and Release Agreement dated June 30, 2000, by
and among Prison Realty, CCA, PMSI, JJFMSI, and Pacific Life.
10.2 Mutual Written Consent to Terminate Agreement and Plan of Merger,
dated as of June 30, 2000, by and among Prison Realty, CCA
Acquisition Sub, Inc., PMSI Acquisition Sub, Inc., JJFMSI
Acquisition Sub, Inc., CCA, PMSI, and JJFMSI.
10.3 Stock Purchase Agreement, dated as of June 30, 2000, by and between
Prison Realty and Baron.
10.4 Form of Waiver and Amendment, dated as of June 30, 2000, by and
between Prison Realty and MDP Ventures, with form of replacement
note and PIK note attached thereto as Exhibit B and C,
respectively. (Certain additional exhibits to this document are
omitted from this filing, and Prison Realty agrees to furnish
supplementally a copy of any omitted schedule or exhibit to the
Commission upon request.)
10.5 Waiver and Amendment, dated as of June 30, 2000, by and between
Prison Realty and PMI, with form of replacement note attached
thereto as Exhibit B.. (Certain additional exhibits to this
document are omitted from this filing, and Prison Realty agrees to
furnish supplementally a copy of any omitted schedule or exhibit
to the Commission upon request.)
99.1 Prison Realty Press Release, dated June 30, 2000, regarding the
Mutual Termination and the Restructuring.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the undersigned Registrant has duly caused this Current Report on Form 8-K to be
signed on its behalf by the undersigned hereunto duly authorized.
Date: June 30, 2000 PRISON REALTY TRUST, INC.
By: /s/ Thomas W. Beasley
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Its: Chairman of the Board of Directors
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EXHIBIT INDEX
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Exhibit
Number Description of Exhibits
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<S> <C>
2.1 Agreement and Plan of Merger, dated as of June 30, 2000, by and
among Prison Realty Trust, Inc. ("Prison Realty"), CCA
Acquisition Sub, Inc. and Corrections Corporation of America
("CCA"). (Certain schedules and exhibits to this document are
omitted from this filing, and Prison Realty agrees to furnish
supplementally a copy of any omitted schedule or exhibit to the
Commission upon request.)
10.1 Mutual Termination and Release Agreement dated June 30, 2000, by
and among Prison Realty, CCA, Prison Management Services Inc.
("PMSI"), and Juvenile and Jail Facility Management Services, Inc.
("JJFMSI"), on the one hand, and Pacific Life Insurance Company
("Pacific Life"), on the other hand.
10.2 Mutual Written Consent to Terminate Agreement and Plan of Merger,
dated as of June 30, 2000, by and among Prison Realty, CCA
Acquisition Sub, Inc., PMSI Acquisition Sub, Inc., JJFMSI
Acquisition Sub, Inc., CCA, PMSI, and JJFMSI.
10.3 Stock Purchase Agreement, dated as of June 30, 2000, by and
between Prison Realty and Baron Asset Fund, and all series
thereof, on behalf of itself and one or more mutual funds managed
by it, or its affiliates.
10.4 Form of Waiver and Amendment, dated as of June 30, 2000, by and
between Prison Realty and MDP Ventures IV LLC, with form of
replacement note and PIK note attached thereto as Exhibit B and D,
respectively. (Certain additional exhibits to this document are
omitted from this filing, and Prison Realty agrees to furnish
supplementally a copy of any omitted schedule or exhibit to the
Commission upon request.)
10.5 Waiver and Amendment, dated as of June 30, 2000, by and between
Prison Realty and PMI Mezzanine Fund, L.P., with form of
replacement note attached thereto as Exhibit B. (Certain
additional exhibits to this document are omitted from this filing,
and Prison Realty agrees to furnish supplementally a copy of any
omitted schedule or exhibit to the Commission upon request.)
99.1 Prison Realty Press Release, dated June 30, 2000, regarding the
mutual termination of the Securities Purchase Agreement and the
newly announced restructuring of Prison Realty.
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