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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 14a-12
PRISON REALTY TRUST, INC.
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
shares of common stock, $0.01 par value per share, of Corrections
Corporation of America
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(2) Aggregate number of securities to which transaction applies:
up to 9,349,061
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$0.01 par value per share
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(4) Proposed maximum aggregate value of transaction:
$31,163.54 (one-third of aggregate par value pursuant to Exchange Act
Rule 0-11(a)(4)
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(5) Total fee paid:
$7.00
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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PRELIMINARY COPY
PRISON REALTY TRUST, INC.
10 BURTON HILLS BOULEVARD
NASHVILLE, TENNESSEE 37215
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON, , [SEPTEMBER] , 2000
To our shareholders:
Notice is hereby given that a special meeting of the shareholders of Prison
Realty Trust, Inc., a Maryland corporation ("Prison Realty"), will be held at
10:00 a.m., local time, on , [September] , 2000, at the Loews
Vanderbilt Plaza Hotel, 2100 West End Avenue, Nashville, Tennessee, for the
following purposes:
1. To consider and vote upon a proposal to adopt certain amendments to
Prison Realty's charter to permit a restructuring of Prison Realty,
including, among other things, Prison Realty's election not to be
taxed as a real estate investment trust, or REIT, for federal income
tax purposes commencing with its 2000 taxable year;
2. To consider and vote upon a proposal to approve the merger of
Corrections Corporation of America with and into a wholly-owned
subsidiary of Prison Realty and certain related transactions; and
3. To transact such other business as may properly come before the
special meeting and any adjournments or postponements thereof.
Prison Realty has fixed the close of business on , July , 2000, as
the record date for the determination of shareholders entitled to notice of and
to vote at the special meeting and at any adjournments or postponements thereof.
The board of directors of Prison Realty recommends that you vote "FOR" the
charter amendments and the merger and related transactions.
Your vote is important. Approval of the charter amendments requires the
affirmative vote of two-thirds of the outstanding shares of Prison Realty common
stock. Approval of the merger requires the affirmative vote of a majority of all
votes cast on the proposal, provided that the holders of at least 50% of Prison
Realty common stock cast votes at the special meeting. The approval of the
charter amendments is required in order to complete the merger. If you fail to
return a properly executed proxy or to vote in person at the special meeting, or
if you abstain, the effect will be a vote against the charter amendments and the
merger and related transactions and may prevent Prison Realty from completing
the transactions described in the proxy statement.
Your attention is directed to the proxy statement accompanying this notice
of special meeting for more complete information regarding the matters to be
presented and acted upon at the special meeting.
By Order of the Board of Directors of
Prison Realty Trust, Inc.
Secretary
Nashville, Tennessee
, 2000
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE PRISON REALTY SPECIAL
MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY
IN THE POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED.
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PRISON REALTY TRUST, INC.
PROPOSED RESTRUCTURING
The board of directors of Prison Realty Trust, Inc. ("Prison Realty") has
approved a restructuring plan, pursuant to which:
- Prison Realty will combine with Corrections Corporation of America and
operate under the "Corrections Corporation of America" name as a taxable
subchapter C corporation, rather than as a real estate investment trust,
or REIT, commencing with its 2000 taxable year; and
- Prison Realty's charter will be amended to accommodate these
transactions.
Prison Realty is seeking the vote of the Prison Realty common shareholders
in connection with these important restructuring transactions and related
matters.
The charter amendments that are required in order to complete the
restructuring cannot be implemented unless the common shareholders of Prison
Realty approve them. The board of directors of Prison Realty strongly supports
the restructuring and enthusiastically recommends that you vote in favor of the
charter amendments and the merger and related transactions.
The attached proxy statement provides additional information about the
charter amendments, the merger and the related restructuring. Please read this
entire document carefully. Pages and of the proxy statement explain
how you may obtain information about Prison Realty from documents that
previously have been filed with the U.S. Securities and Exchange Commission.
This proxy statement incorporates and refers to important business and
financial information about Prison Realty that is not included in or delivered
with this document. This information is available without charge to shareholders
upon written or oral request by contacting Prison Realty's investor relations
department at 10 Burton Hills Boulevard, Nashville, Tennessee 37215 (telephone:
(615) 263-0200). In order to obtain timely delivery, shareholders must request
this information no later than , 2000.
The date of this proxy statement is , 2000, and it is first being
mailed or delivered to Prison Realty shareholders on or about , 2000.
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TABLE OF CONTENTS
<TABLE>
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QUESTIONS AND ANSWERS ABOUT THE PRISON REALTY
RESTRUCTURING.............................. 2
WHO CAN HELP ANSWER YOUR QUESTIONS........... 8
NOTE CONCERNING FORWARD-LOOKING STATEMENTS... 8
SUMMARY OF THE PROXY STATEMENT............... 9
The company................................ 9
The restructuring.......................... 11
Selected unaudited pro forma combined
financial information.................... 17
Selected historical consolidated financial
information.............................. 20
Selected historical consolidated financial
information of CCA....................... 22
Selected comparative per share data........ 23
THE PRISON REALTY SPECIAL MEETING............ 24
Date, time and place Matters to be
considered at the meeting................ 24
Record date and outstanding shares......... 24
Quorum..................................... 24
Voting method and proxies.................. 25
Revocability of proxy...................... 25
Required vote.............................. 25
Solicitation of proxies.................... 26
Abstentions; Broker non-votes.............. 26
INFORMATION ABOUT OUR COMPANY................ 27
General.................................... 27
Recent developments........................ 30
Shareholder litigation..................... 43
Business of Prison Realty following the
completion of the restructuring.......... 45
Operations and business strategy........... 45
Qualification of Prison Realty as a REIT
for 1999................................. 54
THE RESTRUCTURING............................ 67
General.................................... 67
Background of the restructuring............ 68
Prison Realty's reasons for the
restructuring; Recommendation of the
Prison Realty board of directors......... 82
</TABLE>
<TABLE>
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Capital and liquidity resources of Prison
Realty following completion of the
restructuring............................ 85
Interests of directors, officers,
affiliates and shareholders in the
restructuring............................ 86
Ownership of Prison Realty common stock.... 88
Regulatory filings and approvals required
for the restructuring.................... 91
PROPOSAL 1
PROPOSAL TO ADOPT THE ARTICLES OF AMENDMENT
AND RESTATEMENT TO THE PRISON REALTY
CHARTER.................................. 93
General.................................. 93
Charter amendments....................... 93
Recommendation of the Prison Realty
board.................................. 106
PROPOSAL 2
PROPOSAL TO APPROVE THE MERGER OF PRISON
REALTY WITH CORRECTIONS CORPORATION OF
AMERICA.................................. 107
General.................................. 107
Reason for approval...................... 107
The merger............................... 108
Recommendation of the Prison Realty
board.................................. 117
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL
MEETING.................................... 118
OTHER MATTERS................................ 118
WHERE YOU CAN FIND MORE INFORMATION.......... 118
Available information...................... 118
Incorporation of certain documents by
reference................................ 119
INDEX TO FINANCIAL STATEMENTS................ F-1
APPENDICES
Form of Articles of Amendment and Restatement....
</TABLE>
<TABLE>
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Agreement and Plan of Merger...........Appendix B
Form of Series B Articles
Supplementary........................Appendix C
</TABLE>
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QUESTIONS AND ANSWERS ABOUT THE
PRISON REALTY RESTRUCTURING
Q: WHAT IS THE RESTRUCTURING?
A: Prison Realty Trust, Inc. ("Prison Realty")
is proposing a comprehensive restructuring designed to address its current
liquidity and capital constraints, simplify its corporate structure, create
a new management team and satisfy certain conditions of its recently
amended bank indebtedness. The restructuring includes:
- combining Prison Realty and Corrections
Corporation of America ("CCA"), Prison Realty's primary tenant and the
operator and manager of the substantial majority of the correctional and
detention facilities owned by Prison Realty, into a simplified corporate
structure that will not be taxed as a real estate investment trust, or
REIT, commencing with its 2000 taxable year;
- amending Prison Realty's charter to
accommodate these transactions by increasing the amount of Prison Realty's
authorized capital stock, removing provisions requiring Prison Realty to
operate and qualify as a REIT and changing the name of the company to
"Corrections Corporation of America;" and
- selecting a new senior management team,
including a new chief executive officer and chief financial officer.
Q: WHAT AMENDMENTS TO PRISON
REALTY'S CHARTER ARE REQUIRED TO COMPLETE THE RESTRUCTURING?
A: The Prison Realty restructuring cannot be
completed unless Prison Realty effects certain amendments to its charter,
including:
- removing ownership limitations and other
provisions relating to Prison Realty's REIT status;
- changing Prison Realty's name to
"Corrections Corporation of America;" and
- increasing the authorized capital stock of
Prison Realty.
Q: WHAT ARE THE TERMS OF PRISON
REALTY'S MERGER WITH CCA?
A: CCA will be merged with and into CCA
Acquisition Sub, Inc., a wholly-owned subsidiary of Prison Realty, with
this subsidiary being the surviving corporation. Shareholders of CCA at the
time of the merger other than Prison Realty will receive shares of Prison
Realty's common stock as consideration in the merger. The shares of Prison
Realty common stock received by CCA shareholders who are wardens of the
facilities operated by CCA will be subject to forfeiture under a restricted
stock plan, and shares received by CCA shareholders who are management of
CCA or Prison Realty will be subject to certain resale prohibitions.
Immediately prior to the merger, Prison Realty will purchase the shares of
CCA common stock held by the Baron Asset Fund, the holder of 16.9% of CCA's
outstanding capital stock, for non-cash consideration consisting of shares
of Prison Realty common stock valued at $8.0 million. In consideration for
Baron's consent to the merger (as necessary in order to effectuate the
merger), Baron required that Prison Realty also issue to Baron warrants to
purchase $3.0 million in shares of Prison Realty common stock. Prison
Realty is currently negotiating with Sodexho Alliance, S.A., the holder of
16.9% of CCA's outstanding capital stock, with respect to the purchase of
the shares of CCA common stock held by it. Prison Realty indicated to
Sodexho that it was willing to satisfy its previous agreement to purchase
the CCA shares in the form of Prison Realty common stock valued at $8.0
million as required by Prison Realty's amended bank credit facility.
Sodexho has informed Prison Realty that Sodexho believes it should receive
the same aggre-
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gate consideration as Prison Realty agreed to pay Baron. The merger
agreement provides that Sodexho would receive fewer shares of Prison Realty
common stock in the merger pursuant to the exchange ratio set forth in the
merger agreement. Prison Realty intends to continue negotiations with
Sodexho regarding its purchase of the CCA common stock held by Sodexho. In
the event Prison Realty does not acquire such shares prior to the merger,
there can be no assurance that Sodexho will vote the CCA common stock held
by it in favor of the merger or the Prison Realty common stock held by it
in favor of the charter amendments and the merger and related transactions.
Prison Realty will also purchase shares of CCA common stock held by former
executive officers of Prison Realty for $800,000 cash pursuant to the terms
of certain severance agreements with such officers.
In the event Prison Realty purchases all of the shares of CCA common stock
held by both Baron and Sodexho prior to the merger, Prison Realty will
issue shares of its common stock valued at approximately $10.6 million as
consideration in the merger. In the event Prison Realty purchases only the
shares of CCA common stock held by Baron prior to the merger, Prison Realty
will issue shares of its common stock valued at approximately $13.8 million
as consideration in the merger.
As a result of the merger, Prison Realty will also assume all of CCA's
outstanding indebtedness at the time of the merger, and certain agreements
between the parties providing for payments from one party to the other will
be canceled or otherwise be of no further force and effect.
Q: WHAT IS THE PROPOSED
STRUCTURE OF PRISON REALTY AFTER THE MERGER?
A: Upon completion of Prison Realty's merger
with CCA and the restructuring of Prison Realty, Prison Realty will hold
100% of the issued and outstanding capital stock of CCA Acquisition Sub,
Inc., the successor by merger to CCA. As a result, Prison Realty, through
itself and this subsidiary, will own and operate correctional and detention
facilities, including operating those facilities currently operated by CCA.
The terms of Prison Realty's recently announced amended bank credit
facility permit Prison Realty to combine with the two service companies
which currently manage certain government-owned prison and jail facilities
for non-cash merger consideration not to exceed $12.6 million. A maximum of
$10.6 million in non-cash consideration may be paid to outside, non-warden
shareholders of the service companies. Prison Realty has initiated
discussions with representatives of the service companies regarding a
merger of the two service companies into wholly-owned subsidiaries of
Prison Realty; however, no assurance can be given that any agreement will
be reached with respect to such combination.
In the event the service companies are not combined with Prison Realty,
Prison Realty will maintain its ownership of 100% of the non-voting common
stock of the two service companies which entitles Prison Realty to receive
95% of each service company's net income, as defined, in the form of
dividends. Prison Realty and its subsidiaries will also provide
administrative services for the service companies for a cash fee and will
license the use of the CCA name to the service companies under the terms of
CCA's existing agreements with the service companies.
Q: AS A PRISON REALTY
SHAREHOLDER, HOW WILL THE RESTRUCTURING AFFECT ME?
A: As a taxable C corporation commencing
with its 2000 taxable year, Prison Realty will no longer be required to pay
95% of its taxable income to its shareholders as dividends but instead will
be able to retain its earnings and reinvest them in its business. Prison
Realty will, however, elect to be
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taxed as a REIT for the 1999 taxable year and, in satisfaction of its
distribution requirements, will distribute to all of its common
shareholders approximately $150.0 million of series B convertible preferred
stock. The record date for determination of common shareholders entitled to
receive the preferred stock distribution in satisfaction of Prison Realty's
remaining 1999 REIT distribution requirements is expected to be during the
third quarter of 2000, but in any event after the date of the special
meeting, with the distribution to be made prior to December 31, 2000.
Prison Realty does not intend to pay any cash dividends on its common stock
in the foreseeable future, including any cash dividends in order to
maintain its status as a REIT for 1999.
Q: DOES PRISON REALTY INTEND TO
ELECT TO BE TAXED AS A REIT FOR ITS 1999 TAXABLE YEAR?
A: Yes. In accordance with the provisions of
Prison Realty's charter, Prison Realty will elect to be taxed and to
qualify as a REIT with respect to its 1999 taxable year. In order to
satisfy its remaining 1999 REIT distribution requirements, Prison Realty
will distribute to its common shareholders shares of its series B
convertible preferred stock having a value of approximately $150.0 million.
The series B convertible preferred stock will provide for dividends payable
in additional shares of series B convertible preferred stock at a rate of
12% per year for the first three years following the shares' issuance and
cash dividends at a rate of 12% per year thereafter, payable quarterly in
arrears. Shares of the series B convertible preferred stock will be
callable by Prison Realty at any time after six months following a date
which is the later of (i) three years from the issuance of the series B
convertible preferred stock or (ii) the 91st day following the redemption
of Prison Realty's 12% senior notes, due 2006, at a price per share equal
to the stated amount per share, plus any accrued dividends. The shares of
series B convertible preferred stock will be convertible into shares of
Prison Realty common stock during two separate conversion periods (the
first consisting of a 10 business day period commencing on the sixth
business day following issuance and the second consisting of a 10 business
day period ending 90 calendar days following issuance), at a conversion
price based on average closing prices of Prison Realty's common stock on
the NYSE during the 10 trading days ending one day prior to conversion.
Prison Realty believes that the distribution of the series B preferred
stock will satisfy its remaining REIT distribution requirements for 1999.
There can be no assurance, however, that such distribution will ultimately
satisfy the REIT requirements, or that additional distributions will not be
required at a later time. In the event Prison Realty does not satisfy its
distribution requirements through the issuance of the series B preferred
stock or another security, Prison Realty will be required to make its
required REIT distribution in cash. Prison Realty does not have the
resources to pay such distribution in cash, and, under the terms of its
existing bank credit facility, such cash dividend payments are explicitly
prohibited. Moreover, if Prison Realty is otherwise unable to qualify as a
REIT with respect to its 1999 taxable year, Prison Realty will be required
to pay federal income tax on its earnings at ordinary corporate rates,
which is currently estimated to be as much as $100.0 million.
Q: WHO WILL MANAGE THE
RESTRUCTURED COMPANY?
A: Prison Realty has begun a search for a new
chief executive officer and will begin a search for a new chief financial
officer. Several candidates have been identified and interviews have begun.
The selection process will be finalized as expeditiously as possible.
Doctor R. Crants, the current chief executive officer of Prison Realty,
will resign or be terminated once a new chief executive officer has been
appointed. The
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search for the new chief financial officer will be undertaken after the
selection of a new chief executive officer. Thomas W. Beasley, the current
chairman of Prison Realty's board of directors and a founder of Prison
Realty's predecessor company, will continue to serve as chairman.
Prison Realty's board of directors currently consists of seven members,
including three independent directors, two of whom serve on the Independent
Committee of Prison Realty's board of directors. Upon completion of the
restructuring, Prison Realty's board of directors will be restructured by
increasing the size of the existing board of directors and appointing one
or more additional directors to the newly created vacancies. In addition,
certain existing directors, including Doctor R. Crants, are expected to
resign, allowing the appointment of one or more new directors to the
vacancies created by the resignations. Under Maryland law, each of these
new directors must stand for election at the next annual meeting of
shareholders following their appointment. It is expected that the Prison
Realty 2000 annual meeting will be held in November 2000.
Q: WHAT HAS HAPPENED WITH THE
PREVIOUSLY ANNOUNCED RESTRUCTURING INVOLVING PACIFIC LIFE?
A: On June 30, 2000, Prison Realty, CCA,
PMSI and JJFMSI executed an agreement with Pacific Life Insurance Company
mutually terminating the securities purchase agreement regarding a series
of restructuring transactions, including a combination of Prison Realty
with CCA and the service companies and an equity investment in Prison
Realty by Prison Realty's common shareholders through a $200.0 million
common stock rights offering, backstopped 100% by Pacific Life. Based on,
among other things, requests from Pacific Life for certain information and
Pacific Life's preliminary analysis of the terms and conditions of Prison
Realty's restructured bank credit facility, the board of directors of each
of the companies concluded that certain conditions to Pacific Life's
obligations to complete the restructuring transactions contained in the
Pacific Life securities purchase agreement were unlikely to be satisfied,
including a condition that Prison Realty refinance or renew its bank credit
facility on terms satisfactory to Pacific Life. Moreover, the boards also
considered the fact that under Prison Realty's amended bank credit
facility, an event of default would occur if Prison Realty did not file
this proxy statement on or before July 1, 2000. As a result, the boards of
directors of the companies and Pacific Life determined to terminate the
securities purchase agreement.
Q: WILL PRISON REALTY COMPLETE A
COMMON STOCK RIGHTS OFFERING IN CONNECTION WITH THE RESTRUCTURING?
A: Under the terms of Prison Realty's recently
amended bank credit facility, Prison Realty is required to use its
commercially reasonable efforts to complete a rights offering of Prison
Realty's common stock on or before December 31, 2000. Prison Realty expects
to meet this requirement. If Prison Realty does not meet this requirement,
an event of default will occur under the terms of the facility.
Q: WHAT ARE THE CONSEQUENCES OF
PRISON REALTY NOT COMPLETING THE RESTRUCTURING?
A: The failure of Prison Realty to complete
the restructuring will constitute an event of default under the terms of
Prison Realty's bank indebtedness, and, as a result, will cause a default
under the terms of its other indebtedness. In the event the restructuring
is not completed, Prison Realty would be required to renegotiate the terms
of its bank and other indebtedness on potentially significantly less
favorable terms. In the alternative, Prison Realty may be required to seek
protection under the federal bankruptcy laws. No assurance, however, can be
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given that any renegotiation of the terms of Prison Realty's bank and other
indebtedness could be accomplished absent the restructuring or that such a
renegotiation would be determined by the Prison Realty board to be more
advantageous to Prison Realty and its shareholders than seeking protection
under the federal bankruptcy laws.
Q: WHAT ARE THE ADVANTAGES OF
COMPLETING THE RESTRUCTURING?
A: Throughout the process of considering all of
the strategic alternatives available to Prison Realty, including the
previously announced equity proposals, Prison Realty's board has maintained
that a combination of Prison Realty and CCA provides a simplified and more
stable corporate and financial structure and creates the most value for
Prison Realty shareholders by allowing Prison Realty to retain earnings and
use capital for growth opportunities and by eliminating potential conflicts
of interest which have harmed Prison Realty's credibility in the capital
markets.
In addition, the restructuring satisfies the requirement contained in
Prison Realty's recently obtained waiver and amendment with respect to its
senior bank indebtedness.
The restructuring allows for combined cash flows from operations to service
the immediate financial and liquidity needs of Prison Realty and CCA, on
which Prison Realty's financial health depends, versus the restrictions on
the use of cash on a separate company basis. The restructuring also
enhances management through the addition of a new chief executive office
and chief financial officer.
Q: WHAT ARE THE DISADVANTAGES
OF COMPLETING THE RESTRUCTURING?
A: Prison Realty will issue up to approximately
7.6 million shares of its common stock to the existing holders of CCA
common stock, including Baron and Sodexho, immediately prior to and as a
result of the merger. In addition, in consideration for Baron's consent to
the merger, Prison Realty will issue warrants to purchase approximately
862,000 shares of its common stock to Baron in consideration for its
consent to the merger. As a result, the existing shareholders of CCA will
hold approximately 5.8% of Prison Realty's common stock upon completion of
the merger, on a fully diluted basis, causing dilution to current
shareholders of Prison Realty.
In addition, the obligation of the combined company to pay corporate income
taxes as a C corporation in cash beginning in 2000 will place significant
demands on the combined company's liquidity.
Q: WHEN DO YOU EXPECT THE
RESTRUCTURING TO BE COMPLETED?
A: As required by Prison Realty's recently
amended credit facility, we expect the restructuring, if approved, will be
completed on or before September 15, 2000.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading this proxy statement
and making a decision about the charter amendments, the merger and the
related restructuring, you should mark on your proxy card how you want to
vote, and sign and mail the proxy card in the enclosed return envelope as
soon as possible so your shares may be represented at the special meeting.
Q: WHAT IF I DO NOT VOTE?
A: If you sign and send in your proxy, but do
not mark how you want to vote, your proxy will be counted as a vote in
favor of each of the proposals. Because the proposal to approve the charter
amendments requires the approval of the holders of two-thirds of Prison
Realty's common stock and the proposal to approve the merger and certain
related transactions requires the approval of
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the merger by a majority of all votes cast at the meeting, provided that
the holders of at least 50% of Prison Realty common stock cast votes at the
special meeting, if you do not vote or if you abstain, the effect will be a
vote against the charter amendments and the merger and related transactions
and may prevent Prison Realty from completing the transactions described in
this proxy statement.
Q: CAN I CHANGE OR REVOKE MY
PROXY?
A: You may attend the special meeting and
vote your shares in person, rather than signing and mailing your proxy
card. In addition, you may revoke your proxy up to and including the day of
such meeting by following the directions on page of this proxy statement,
and you may either change your vote or attend the meeting and vote in
person.
Q: IF MY PRISON REALTY SHARES ARE
HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY SHARES FOR ME?
A: Your broker will vote your shares only if you
provide instructions on how to vote. You should instruct your broker to
vote your shares, according to the procedure directed by your broker. If
your broker does not receive instructions from you, your shares will not be
voted.
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WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the restructuring transactions, you should
contact:
Prison Realty Trust, Inc.
10 Burton Hills Boulevard
Nashville, Tennessee 37215
Attention: Investor Relations Department
Telephone Number: (615) 263-0200
If you would like additional copies of this proxy statement, you should contact:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
(212) 269-5550
NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This proxy statement contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
Securities Exchange Act of 1934, as amended. These statements include statements
with respect to Prison Realty's financial condition, results of operations and
business and the expected impact of the transactions described in this proxy
statement on Prison Realty's financial performance. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions identify forward-looking statements.
These forward-looking statements are not guarantees of future performance
and are subject to risks and uncertainties that could cause actual results to
differ materially from the results contemplated by the forward-looking
statements. These risks and uncertainties include:
- the possibility that all or a part of the restructuring transactions
will not be completed;
- the possibility that the anticipated benefits from the restructuring
transactions will not be fully realized; and
- other risks as may be detailed from time to time in Prison Realty's
public announcements and filings with the U.S. Securities and Exchange
Commission, or the SEC.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof.
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SUMMARY OF THE PROXY STATEMENT
This summary highlights selected information from this proxy statement and may
not contain all of the information that is important to you. To understand the
transactions fully and for a more complete description of the legal terms of the
transactions, you should read carefully this entire document and the documents
to which we have referred you. See "Where You Can Find More Information" on
pages and . We have included page references to direct you to a more
complete description of the topics presented in this summary.
THE COMPANY
PRISON REALTY TRUST, INC.
10 Burton Hills Boulevard
Nashville, Tennessee 37215
615-263-0200
www.prisonreit.com
BUSINESS AND OPERATIONS
Prison Realty's existing business is the ownership of correctional and
detention facilities. The company currently finances, designs, constructs and
renovates new and existing jails and prisons that it leases to both private
prison managers and government agencies.
At June 28, 2000, Prison Realty owned, or was in the process of developing,
50 correctional and detention facilities and of which 45 facilities were
operating, two were under construction or expansion and three were in the
planning stages. At June 28, 2000, Corrections Corporation of America, or CCA,
the company's primary tenant, leased 36 of Prison Realty's facilities,
government agencies leased six of Prison Realty's facilities, and other private
operators leased three of Prison Realty's facilities. In addition, at June 28,
2000, Prison Realty owned two corporate office buildings, one of which is leased
to CCA and one of which is leased to TransCor America LLC, a wholly-owned
subsidiary of CCA.
Prison Realty has entered into lease agreements with CCA with respect to
the correctional and detention facilities owned by Prison Realty and operated by
CCA, as well as a series of additional agreements relating to the payment of
certain fees by Prison Realty to CCA. As described in more detail herein under
the heading "Information About Our Company -- Recent developments," as the
result of the companies' financial condition and in order to address the
liquidity needs of each of the companies prior to the completion of the
restructuring transactions described in this proxy statement, Prison Realty and
CCA have amended the terms of the lease agreements to defer a substantial
portion of the rental payments due to Prison Realty thereunder and amended the
terms of the other agreements to defer payments due to CCA thereunder.
Additionally, pursuant to the terms of a subordination agreement between Prison
Realty, CCA and their respective bank lenders, CCA has deferred the payment of
interest due to Prison Realty under the terms of a $137.0 promissory note
payable to Prison Realty. Prison Realty also owns 9.5% of the capital stock,
consisting of non-voting common stock, of CCA. In addition, Prison Realty owns
100% of the non-voting common stock of Prison Management Services, Inc., or
PMSI, and Juvenile and Jail Facility Management Services, Inc., or JJFMSI, both
of which are privately-held service companies which manage certain
government-owned prison and jail facilities under the "Corrections Corporation
of America" name. As the owner of the non-voting common stock of the service
companies, Prison Realty is entitled to receive 95% of each company's net
income, as defined, as dividends.
If the restructuring of Prison Realty described in this proxy statement is
completed, Prison Realty, by itself and through its subsidiaries, will be in the
business of owning and operating correctional and detention facilities,
including operating those facilities currently operated by CCA. As permitted by
the terms of Prison Realty's recently amended credit facility, Prison Realty has
initiated discussions with
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<PAGE> 13
PMSI and JJFMSI regarding the combination of such companies with and into a
wholly-owned subsidiary of Prison Realty. No assurance can be given that any
agreement will be reached with respect to such combination. In the event PMSI
and JJFMSI are not merged into Prison Realty, PMSI and JJFMSI will continue to
operate those facilities currently operated by them, and Prison Realty will
continue to be entitled to receive 95% of each service company's net income, as
defined, as cash dividends on the shares owned by them, notwithstanding the
completion of the restructuring.
QUALIFICATION OF PRISON REALTY AS A REIT
FOR 1999
Pursuant to the requirements of its charter, Prison Realty will elect and
qualify to be taxed as a REIT for its taxable year ended December 31, 1999. In
satisfaction of its remaining REIT distribution requirements for 1999, Prison
Realty will distribute to all of its common shareholders $150.0 million of
series B convertible preferred stock. The terms of the series B preferred stock
provide for:
- for the first three years after issuance,
quarterly dividends payable in additional shares of series B convertible
preferred stock at a rate of 12% per year;
- following the first three years after issuance,
cash dividends payable quarterly at a rate of 12% per year;
- "callable" by Prison Realty (or allowing
Prison Realty to repurchase such shares) at the stated amount of $25 per
share, plus accrued dividends, at any time commencing six months following
a date which is the later of (i) three years from the issuance of the
series B convertible preferred stock and (ii) the 91st day following the
redemption of Prison Realty's 12% senior notes, due 2006; and
- convertible at the option of the holder into
shares of Prison Realty's common stock during two separate conversion
periods (the first consisting of a 10 business day period commencing on the
sixth business day following issuance and the second consisting of a 10
business day period ending 90 calendar days following issuance), at a
conversion price based on average closing prices of Prison Realty's common
stock on the NYSE during the 10 trading days ending one day prior to
conversion.
Prison Realty's election and qualification to be taxed as a REIT with respect to
its 1999 taxable year and the terms of the series B convertible preferred stock
to be issued in connection therewith are more fully discussed in the section
entitled "Information About Our Company -- Qualification of Prison Realty as a
REIT for 1999" on page .
ADDITIONAL INFORMATION
For additional information concerning Prison Realty, see the section
entitled "Information About Our Company" on page . This includes important
information concerning recent developments, including information on
transactions between Prison Realty and CCA, the provisions of Prison Realty's
and CCA's outstanding indebtedness and certain outstanding shareholder
litigation against the companies.
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<PAGE> 14
THE RESTRUCTURING
GENERAL
Prison Realty is proposing a comprehensive restructuring designed to
address its current liquidity and capital constraints, simplify its corporate
structure, create a new management team and satisfy certain conditions of its
recently amended bank indebtedness. The restructuring transactions include:
- combining Prison Realty and CCA into a
simplified corporate structure that will not be taxed as a real estate
investment trust, or REIT, commencing with its 2000 taxable year;
- amending Prison Realty's charter to
accommodate these transactions by increasing the amount of Prison Realty's
authorized capital stock, removing provisions requiring Prison Realty to
operate and qualify as a REIT and changing the name of the company to
"Corrections Corporation of America;" and
- selecting a new senior management team
through the appointment of a new chief executive officer and chief
financial officer.
THE AMENDMENTS TO PRISON REALTY'S CHARTER
The Prison Realty restructuring cannot be completed unless Prison Realty
effects the amendments to its charter as described below and in the section of
this proxy statement entitled "Proposal to Adopt the Articles of Amendment and
Restatement to the Prison Realty Charter -- Charter amendments." In connection
with the restructuring, Prison Realty will amend its charter to make the
following changes, among others:
- remove ownership limitations and other
provisions relating to Prison Realty's REIT status;
- change Prison Realty's name to "Corrections
Corporation of America;" and
- increase the authorized capital stock of
Prison Realty.
The articles of amendment and restatement to the Prison Realty charter are
attached to this proxy statement as Appendix A. We encourage you to read them
carefully. These amendments are more fully discussed in the section entitled
"Proposal to Adopt the Articles of Amendment and Restatement to the Prison
Realty Charter -- Charter amendments" on page .
THE MERGER
As part of the restructuring, CCA will be merged with and into CCA
Acquisition Sub, Inc., a wholly-owned subsidiary of Prison Realty, with the
Prison Realty subsidiary being the surviving corporation in the merger.
Shareholders of CCA at the time of the merger other than Prison Realty will
receive shares of Prison Realty's common stock as the merger consideration,
pursuant to the exchange ratio described in the merger agreement.
Immediately prior to the merger, Prison Realty will purchase the shares of
CCA common stock held by the Baron Asset Fund, the holder of 16.9% of CCA's
outstanding capital stock, for non-cash consideration consisting of shares of
Prison Realty common stock valued at $8.0 million (or approximately 2.3 million
shares assuming a Prison Realty common stock price of $3.44 per share). As
consideration for Baron's consent to the merger (as necessary in order to
effectuate the merger) Baron required that Prison Realty issue to Baron warrants
to purchase $3.0 million shares of Prison Realty common stock (or approximately
857,000 shares assuming a Prison Realty common stock price of $3.50 per share
with respect to two-two thirds of the warrants and a Prison Realty common stock
price of $3.44 per share with respect to one-third of the warrants). Prison
Realty is currently negotiating with Sodexho Alliance, S.A., the holder of 16.9%
of CCA's outstanding capital stock, with respect to the purchase of the shares
of CCA common stock held by it. Prison Realty indicated to Sodexho that it was
willing to satisfy its previous contractual obligation to purchase the CCA
shares in the form of Prison Realty
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<PAGE> 15
common stock valued at $8.0 million as required by Prison Realty's amended bank
facility. Sodexho has informed Prison Realty that it should receive the same
aggregate consideration as Prison Realty agreed to pay Baron. The merger
agreement provides that Sodexho would receive fewer shares of Prison Realty
common stock in the merger pursuant to the exchange ratio set forth in the
merger agreement. Prison Realty intends to continue negotiations with Sodexho
regarding its purchase of the CCA common stock held by Sodexho. In the event
Prison Realty does not acquire such shares prior to the merger, there can be no
assurance that Sodexho will vote the CCA common stock held by it in favor of the
merger or the Prison Realty common stock held by it in favor of the charter
amendments and the merger and related transactions.
Prison Realty will also purchase shares of CCA common stock held by former
executive officers of Prison Realty for $800,000 cash pursuant to the terms of
certain severance agreements with such officers.
In the event Prison Realty purchases all of the shares of CCA common stock
held by Barron and Sodexho prior to the merger, Prison Realty will issue shares
of its common stock valued at approximately $10.6 million in the merger (or 3.0
million shares, equal to approximately 2.0% of Prison Realty's common stock, on
a fully diluted basis, assuming a Prison Realty common stock price of $3.50 per
share). In the event Prison Realty purchases only the shares of CCA common stock
held by Baron prior to the merger, Prison Realty will issue shares of its common
stock valued at approximately $13.8 million in the merger (or approximately 3.9
million shares, equal to approximately 2.7% of Prison Realty's common stock, on
a fully-diluted basis assuming a Prison Realty common stock price of $3.50 per
share).
The exchange ratio for the merger depends on a formula using the average
closing price of one share of Prison Realty's common stock on the NYSE for the
five trading days ending two days prior to the closing date for the merger
transaction. Therefore, the exchange ratio will not be known at the time of the
special meeting.
As a result of the merger, Prison Realty will also assume all of CCA's
outstanding indebtedness at the time of the merger, and certain agreements
between the parties providing for payments from one party to the other will be
canceled or otherwise be of no further force and effect, including a $137.0
million promissory note from CCA to Prison Realty.
The merger will be tax-free for those CCA shareholders who receive Prison
Realty common stock at the time of the merger. The merger is expected to be
accounted for as a "purchase" for financial accounting purposes, in accordance
with generally accepted accounting principles.
Prison Realty has agreed to use its best efforts to register the shares of
Prison Realty's common stock issued to Baron and/or Sodexho as consideration for
the purchase of CCA common stock prior to the merger under the Securities Act
and these shares will not be subject to any contractual restrictions on
transfer. Shares of Prison Realty's common stock owned by wardens of
correctional facilities and received in the merger will be subject to vesting
and forfeiture provisions under a restricted stock plan. Shares of Prison
Realty's common stock owned by other CCA shareholders and received in the merger
will be subject to restrictions on transfer that prohibit transfers for 180 days
after the merger is completed. Transfers may be made according to the following
percentages:
- Up to 25% after 180 days;
- Up to 50% after December 31, 2001;
- Up to 75% after December 31, 2002; and
- Up to 100% after December 31, 2003.
The completion of the merger is subject to various conditions, including:
- receipt of approval of the merger by the
shareholders of CCA, including the separate consent of Baron;
- receipt of shareholder approval of Prison
Realty's election not to be taxed as a
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<PAGE> 16
REIT commencing with its 2000 taxable year, but instead electing to be
taxed as a subchapter C corporation;
- Prison Realty's having purchased the shares
of CCA common stock held by Baron; and
- obtaining certain required government and
third-party consents.
The merger agreement is attached to this proxy statement as Appendix B. We
encourage you to read it carefully. The merger and related transactions are more
fully discussed in the section entitled "Proposal to Approve the Merger of
Prison Realty with Corrections Corporation of America -- The merger" on page
.
RELATIONSHIP WITH THE SERVICE COMPANIES
The terms of Prison Realty's recently amended bank credit facility permit
Prison Realty to combine with PMSI and JJFMSI for non-cash consideration not to
exceed $12.6 million. A maximum of $10.6 million in non-cash consideration may
be paid to outside, non-warden stockholders of the service companies. Prison
Realty has initiated discussion with representatives of PMSI and JJFMSI
regarding a merger of the two companies with and into wholly-owned subsidiaries
of Prison Realty in accordance with the terms of Prison Realty's bank
indebtedness. Prison Realty expects that if it is able to negotiate the terms of
such mergers that the terms of such mergers would, like the merger with CCA,
provide for the exchange of shares of each service company's common stock for
shares of Prison Realty common stock in the merger at an exchange ratio
determined by a formula using the average closing price of Prison Realty common
stock over a period of time immediately prior to such merger. No assurance,
however, can be made that any agreement may be reached as to the service company
mergers.
In the event PMSI and JJFMSI are not merged with Prison Realty upon
completion of the restructuring, Prison Realty will maintain its existing
ownership of 100% of the non-voting common stock of PMSI and JJFMSI, which will
entitle Prison Realty to continue to receive 95% of each company's net income,
as defined, as cash dividends on such shares. In addition, Prison Realty and its
subsidiaries will provide administrative services for the service companies for
a cash fee under the terms of an existing administrative services agreement
between CCA and the service companies. Prison Realty will also license the use
of the CCA name to the service companies for a cash fee under the terms of an
existing service mark and trade name use agreement between CCA and the service
companies.
DIRECTORS AND EXECUTIVE OFFICERS OF PRISON REALTY FOLLOWING THE RESTRUCTURING
Prison Realty's board of directors currently consists of seven members,
including three independent directors, two of whom serve on the Independent
Committee of the board of directors. Upon completion of the restructuring,
Prison Realty's board of directors will be restructured by increasing the size
of the existing board of directors and appointing one or more additional
directors to the newly created vacancies. In addition, certain existing
directors, including Doctor R. Crants, are expected to resign, allowing the
appointment of one or more directors to the vacancies created by the
resignations. Under Maryland law, each of these new directors must stand for
election at the next annual meeting of shareholders following their appointment.
It is expected that the Prison Realty 2000 annual meeting will be held in
November 2000.
Prison Realty has begun a search for a new chief executive officer and will
begin a search for a new chief financial officer. Several candidates have been
identified and interviews have begun. The selection process will be finalized as
expeditiously as possible. Doctor R. Crants, the current chief executive officer
of Prison Realty, will resign or be terminated once a new Prison Realty chief
executive officer has been appointed. The search for the new chief financial
officer will be undertaken after the selection of a new chief executive officer.
Thomas W. Beasley, the current chairman of Prison Realty's
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<PAGE> 17
board of directors, will continue to serve as chairman.
For a more complete description of the changes in the management of Prison
Realty, see the sections entitled "The Restructuring -- Interests of directors,
officers, affiliates and shareholders in the restructuring" and "Proposal to
Adopt the Articles of Amendment and Restatement to the Prison Realty Charter --
Charter amendments" on page .
PRISON REALTY'S REASONS FOR THE RESTRUCTURING; RECOMMENDATION OF THE PRISON
REALTY BOARD OF DIRECTORS
The Prison Realty board believes that the restructuring:
- provides a simplified and more stable
corporate and financial structure that will create the most value for Prison
Realty shareholders by allowing Prison Realty to retain earnings and use
capital for growth opportunities and by eliminating potential conflicts of
interest which have harmed Prison Realty's credibility in the capital
markets;
- represents the only available alternative to
Prison Realty which satisfies the requirements contained in Prison Realty's
recently obtained waiver and amendment with respect to its senior bank
indebtedness;
- addresses the immediate financial and
liquidity needs of Prison Realty as well as the financial needs of CCA on
which Prison Realty's financial health depends;
- enhances management; and
- provides a more attractive alternative for
Prison Realty than seeking relief under the federal bankruptcy laws.
For a more detailed description of these reasons, see the section entitled
"The Restructuring -- Prison Realty's reasons for the restructuring;
Recommendation of the Prison Realty board of directors" on page .
RISKS OR DISADVANTAGES OF THE RESTRUCTURING
The restructuring may have negative consequences to Prison Realty and its
shareholders, including:
- the issuance of shares of Prison Realty's
common stock or warrants to purchase shares of Prison Realty's common stock
to shareholders of CCA, including Baron and Sodexho, in connection with the
merger will dilute the net income per share of the combined company and
will decrease the ownership and voting power of Prison Realty's existing
shareholders;
- the significant demands on the combined
company's liquidity as the result of the obligation of the company to pay
corporate income taxes as a subchapter C corporation in cash; and
- the requirement of a significant portion of
time and attention of the management of Prison Realty and CCA.
For a more complete description of the risks or disadvantages of completing
the restructuring, see the section entitled "The Restructuring -- Prison
Realty's reasons for the restructuring; Recommendation of the Prison Realty
board of directors" on page .
RISKS OR DISADVANTAGES OF NOT COMPLETING THE RESTRUCTURING
If the restructuring is not completed, Prison Realty and its shareholders
will be subject to negative consequences, including:
- the continuation of the existing structure
would require Prison Realty to rely on CCA as its primary tenant to fund
Prison Realty's operations notwithstanding CCA's existing financial
condition;
- a default under the terms of Prison
Realty's bank indebtedness which would require Prison Realty to attempt to
renegotiate the terms of its existing bank indebtedness on possibly
significantly less favorable terms, and there is no assurance that such a
restructuring could be accomplished or that such a restructuring would be a
better alternative for Prison Realty
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<PAGE> 18
than seeking protection under the federal bankruptcy laws; and
- a debt restructuring on less favorable terms
or a decision to seek protection under the federal bankruptcy laws could
have a material adverse impact on Prison Realty's and CCA's business.
For a more complete description of the risks or disadvantages of not
completing the restructuring, see the section entitled "The
Restructuring -- Prison Realty's reasons for the restructuring; Recommendation
of the Prison Realty board of directors" on page .
OUR RECOMMENDATION
The board of directors of Prison Realty believes that the restructuring is
in the shareholders' best interest and recommends that you vote for approval of
the charter amendments and the merger and related transactions described in this
proxy statement.
INTERESTS OF DIRECTORS, OFFICERS, AFFILIATES AND CERTAIN SHAREHOLDERS IN THE
RESTRUCTURING
When considering the recommendations of the Prison Realty board of
directors, you should be aware that some of the directors, officers, affiliates
and shareholders of Prison Realty have interests in the restructuring that are
different from, or in addition to, your interests. These interests include:
- Prison Realty's proposed issuance of shares
of Prison Realty common stock valued at approximately $8.0 million to
Sodexho immediately prior to the completion of the merger as consideration
for the purchase of shares of CCA stock held by Sodexho. A representative
of Sodexho currently serves as a director of Prison Realty and may continue
to serve as a director of the combined company;
- Prison Realty will issue restricted shares of
its common stock in the merger to certain members of Prison Realty's
management, including J. Michael Quinlan and Vida H. Carroll, who hold
shares of CCA common stock;
- Mr. Beasley will continue to serve as the
chairman of the board of directors of Prison Realty upon completion of the
restructuring;
- Executives including D. Robert Crants, III,
former president of Prison Realty, and Michael W. Devlin, former chief
operating officer of Prison Realty, received severance benefits in
connection with their resignation. D. Robert Crants, III and Michael W.
Devlin received payments of approximately $533,750 each for the purchase of
a portion of their CCA common stock and to satisfy amounts owed to them
under the terms of their respective employment contracts, which payment has
been applied to reduce principal outstanding under $1.0 million loans from
Prison Realty to each of Mr. Crants, III and Mr. Devlin. Under the original
terms of these severance arrangements, CCA was to purchase the initial
portion of the shares of CCA common stock by Messrs. Crants, III and
Devlin. Because of certain restrictions on CCA's ability to repurchase
these shares, these obligations were assigned to and assumed by Doctor R.
Crants, who purchased the shares from Messrs. Crants, III and Devlin for
$600,000 cash with the proceeds of a loan from PMSI. Prison Realty expects
to pay $100,000 each to Mr. Crants, III and Mr. Devlin to purchase the
remaining portion of their CCA common stock prior to the merger, which
payment will be applied to further reduce the outstanding loan balance.
Prison Realty also expects to pay $600,000 to Doctor R. Crants for the CCA
shares acquired by him from Messrs. Crants, III and Devlin. Doctor R.
Crants will use all of such funds to repay the loan to PMSI; and
- Other executives of Prison Realty and CCA,
including Doctor R. Crants, Vida W. Carroll and Darrell K. Massengale are
anticipated to receive certain benefits in connection with their
employment, or the termination thereof.
For a more complete description of the interests of related persons in the
restructuring,
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<PAGE> 19
see the section entitled "The Restructuring -- Interests of directors, officers,
affiliates and shareholders in the restructuring" on page .
THE REQUIRED VOTE
You are entitled to vote at the Prison Realty special meeting if you owned
Prison Realty common stock on , 2000. You will have one vote for each
share of Prison Realty common stock that you owned on , 2000. The
holders of two-thirds of the outstanding shares of Prison Realty common stock
must approve the amendments to Prison Realty's charter. Prison Realty is seeking
the affirmative vote of the holders of a majority of all votes cast on the
proposal, provided that at least the holders of 50% of Prison Realty's common
stock cast votes at the special meeting, to approve the merger and related
transactions.
As of June 19, 2000, directors and executive officers of Prison Realty and
their affiliates including Sodexho, held approximately 12.9% of the voting power
of Prison Realty.
The directors and officers and their affiliates, excluding Sodexho and one
member of the Prison Realty board of directors who is an affiliate of Sodexho,
held approximately 4.1% of the outstanding shares entitled to vote on the
transactions and have indicated that they will vote their shares in favor of the
charter amendments and the merger and related transactions.
This summary may not contain all of the information that is important to
you. You should read this entire proxy statement and the documents to which we
refer carefully for a more complete understanding of the transactions. In
particular, you should read the documents attached to this proxy statement,
including the articles of amendment and restatement, which is attached as
Appendix A, the merger agreement, which is attached as Appendix B, and the
series B articles supplementary, which are attached as Appendix C.
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<PAGE> 20
PRISON REALTY TRUST, INC.
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following table sets forth certain selected unaudited combined pro
forma financial information as of and for the three months ended March 31, 2000
and for the year ended December 31, 1999.
The selected unaudited pro forma combined financial information as of and
for the three months ended March 31, 2000 and for the year ended December 31,
1999 presents the pro forma effects of the merger of Prison Realty and CCA as
well as certain effects of the Waiver and Amendment to Prison Realty's bank
credit facility and other financing transactions (as discussed below) related to
Prison Realty's outstanding $40 million, 9.5% and $30 million, 7.5% convertible
notes.
The merger transactions will be accounted for as the purchase of CCA by
Prison Realty. As such, Prison Realty will be treated as the acquiring company
for financial reporting purposes. The general provisions of the purchase method
of accounting prescribe that: (1) CCA assets and liabilities be recorded at fair
market value, as required by Accounting Principles Board Opinion No. 16; and (2)
Prison Realty's assets and liabilities be carried forward at historical cost.
The purchase method of accounting prescribes that the assets and
liabilities owned by CCA be adjusted to estimated fair market value with any
excess of cost over fair value being recorded as goodwill and other intangible
assets to be amortized over the respective life of the intangibles. The fair
market values of the assets and liabilities of CCA have been determined based
upon preliminary estimates and are subject to change as additional information
is obtained. Management does not anticipate that the preliminary allocation of
purchase costs based upon the estimated fair market value of the assets and
liabilities will materially change; however, the allocation of purchase costs
reflected in the following selected unaudited pro forma combined financial
information is subject to final determination and may differ from the amounts
ultimately determined.
In connection with the proposed merger agreement, Prison Realty has
negotiated a Waiver and Amendment to its bank credit facility that, among other
terms and requirements discussed herein, removes the existing additional 2%
default rate of interest applied to the outstanding balance of Prison Realty's
bank credit facility and applies the original interest rates to the bank credit
facility subsequent to completion of the merger transactions. In addition,
Prison Realty has initiated other financing transactions whereby Prison Realty
has negotiated separate waivers of default with holders of Prison Realty's $40
million, 9.5% and $30 million, 7.5% convertible notes. In connection with the
waivers obtained by Prison Realty associated with the 9.5% and 7.5% convertible
notes, Prison Realty will not be subject to a significant default rate of
interest under the $40 million, 9.5% convertible notes, but Prison Realty will
have to pay an additional 0.5% interest rate to the holders of each of the 9.5%
and 7.5% convertible notes subsequent to the completion of the merger
transactions. Prison Realty incurred approximately $10.4 million in additional
loan costs to obtain the Waiver and Amendment and to complete the other
financing transactions. Due to the expected significant effects of the Waiver
and Amendment and other financing transactions to Prison Realty's financial
statements subsequent to the merger, Prison Realty has elected to present the
pro forma effects of the Waiver and Amendment and other financing transactions
as if the bank credit facility, the $40 million, 9.5% convertible notes and the
$30 million, 7.5% convertible notes had been refinanced.
The selected unaudited pro forma combined operating data is presented as if
the merger transactions and effects of the Waiver and Amendment and other
financing transactions had occurred as of the beginning of the period indicated
and therefore incorporates certain assumptions that are included in the Notes to
Pro Forma Combined Statements of Operations included elsewhere herein. The
selected unaudited pro forma combined balance sheet data is presented as if the
merger
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PRISON REALTY TRUST, INC.
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(CONTINUED)
transactions, the effects of the Waiver and Amendment and other financing
transactions had occurred on March 31, 2000 and therefore incorporates certain
assumptions that are included in the Notes to Pro Forma Combined Balance Sheet
included elsewhere herein. The pro forma information does not purport to
represent what Prison Realty's financial position or results of operations
actually would have been had the merger transactions, Waiver and Amendment or
other financing transactions, in fact, occurred on such date or at the beginning
of the period indicated, or to project Prison Realty's financial position or
results of operations at any future date or for any future period.
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<PAGE> 22
PRISON REALTY TRUST, INC.
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1999 2000
------------ ------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
OPERATING DATA:
Revenues:
Management and other...................................... $ 491,230 $ 137,952
Rental.................................................... 9,580 2,460
--------- ----------
500,810 140,412
--------- ----------
Expenses:
Operating................................................. 382,358 105,485
Lease..................................................... 2,473 977
General and administrative................................ 39,303 8,702
Impairment loss........................................... 76,433 --
Depreciation and amortization............................. 56,550 15,909
--------- ----------
557,117 131,073
--------- ----------
Operating income............................................ (56,307) 9,339
Equity earnings in subsidiaries and amortization of
deferred gain.......................................... (22,886) (6,113)
Interest expense, net..................................... 52,234 26,566
Write-off of loan costs................................... 14,567 --
Loss on disposal of assets................................ 1,995 --
--------- ----------
Loss before income taxes.................................... (102,217) (11,114)
Provision (benefit) for income taxes........................ (36,465) (3,146)
--------- ----------
Net loss.................................................... (65,752) (7,968)
Dividends to preferred shareholders -- A.................... 8,600 2,150
Dividends to preferred shareholders -- B.................... 17,413 4,462
--------- ----------
Net loss available to common shareholders................... $ (91,765) $ (14,780)
========= ==========
Net loss per common share:
Basic..................................................... $ (0.73) $ (0.12)
Diluted................................................... $ (0.73) $ (0.12)
Weighted average common shares outstanding, basic........... 124,853 128,151
Weighted average common shares outstanding, diluted......... 124,853 128,151
BALANCE SHEET DATA (AT PERIOD END):
Total current assets...................................... $ 149,901
Total assets.............................................. 2,765,640
Current portion of long-term debt......................... 12,267
Long-term debt, net of current portion.................... 991,384
Senior notes.............................................. 100,000
Total liabilities......................................... 1,507,816
Stockholders' equity...................................... 1,257,834
</TABLE>
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PRISON REALTY TRUST, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth (i) selected consolidated historical
financial data of Prison Realty (formerly Prison Realty Corporation) as of
December 31, 1995, 1996 and 1997 and for each year in the two-year period ending
December 31, 1996, before giving effect to the merger transaction, the Waiver
and Amendment and other financing transactions, which has been derived from the
audited consolidated financial statements of Prison Realty as of December 31,
1995, 1996 and 1997, and for each year in the two year period ended December 31,
1996, not included or incorporated by reference herein, (ii) selected
consolidated historical financial data as of December 31, 1998 and 1999, and for
each year in the three year period ended December 31, 1999, before giving effect
to the merger transaction, the Waiver and Amendment and other financing
transactions, which has been derived from the audited consolidated financial
statements of Prison Realty as of December 31, 1998 and 1999, and for each year
in the three year period ending December 31, 1999, incorporated by reference
herein, and (iii) selected consolidated historical financial data as of and for
the three months ended March 31, 2000, before giving effect to the merger
transaction, the Waiver and Amendment and other financing transactions, which
has been derived from Prison Realty's unaudited condensed consolidated financial
statements as of and for the three months ended March 31, 2000, incorporated by
reference herein. Due to the requirements of reverse acquisition accounting
applied to the 1999 merger, the historical operating results of Prison Realty
for all periods prior to January 1, 1999 reflect the operating results of old
Corrections Corporation of America.
All information contained in the following table should be read in
conjunction with Prison Realty's consolidated financial statements (including
the notes thereto), Prison Realty's Unaudited Condensed Financial Statements,
Prison Realty's "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and Prison Realty's Unaudited Pro Forma Combined
Financial Statements incorporated by reference herein.
20
<PAGE> 24
PRISON REALTY TRUST, INC.
SELECTED HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------------------------------------- MARCH 31,
1995 1996 1997 1998 1999 2000
-------- -------- -------- ---------- ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Management and Other...................... $207,241 $292,513 $462,249 $ 662,059 $ -- $ --
Rental.................................... -- -- -- -- 270,134 11,460
Licensing fees............................ -- -- -- -- 8,699 2,576
Interest.................................. -- -- -- -- 6,885 3,312
-------- -------- -------- ---------- ---------- ----------
207,241 292,513 462,249 662,059 285,718 17,348
Expenses:
Operating................................. 153,692 211,208 330,470 496,522 -- --
Lease..................................... 5,904 2,786 18,684 58,018 -- --
General and administrative................ 13,506 12,607 16,025 28,628 24,125 2,543
Impairment loss........................... -- -- -- -- 76,433 --
CCA compensation charge................... -- -- -- 22,850 -- --
Depreciation and amortization............. 6,524 11,339 14,093 15,973 44,062 12,924
Write-off of amounts under lease
arrangements............................ -- -- -- -- 65,677 4,000
-------- -------- -------- ---------- ---------- ----------
179,626 237,940 379,272 621,991 210,297 19,467
-------- -------- -------- ---------- ---------- ----------
Operating income............................ 27,615 54,573 82,977 40,068 75,421 (2,119)
Equity earnings in subsidiaries and
amortization of deferred gain........... -- -- -- -- (22,886) (6,113)
Interest (income) expense................. 3,952 4,224 (4,119) (4,380) 51,921 31,794
Write-off of loan costs................... -- -- -- 2,043 14,567 --
Loss on disposal of assets................ -- -- -- -- 1,995 --
-------- -------- -------- ---------- ---------- ----------
Income before income taxes.................. 23,663 50,349 87,096 42,405 29,824 (27,800)
Provision for income taxes.................. 9,330 19,469 33,141 15,424 83,200 --
-------- -------- -------- ---------- ---------- ----------
Net income (loss) before cumulative effect
of accounting change...................... 14,333 30,880 53,955 26,981 (53,376) (27,800)
Cumulative effect of accounting change, net
of tax.................................... -- -- -- 16,145 -- --
-------- -------- -------- ---------- ---------- ----------
Net income (loss)........................... 14,333 30,880 53,955 10,836 (53,376) (27,800)
Dividends available to preferred
shareholders.............................. -- -- -- -- 8,600 2,150
-------- -------- -------- ---------- ---------- ----------
Net income (loss) available to common
shareholders.............................. $ 14,333 $ 30,880 $ 53,955 $ 10,836 $ (61,976) $ (29,950)
======== ======== ======== ========== ========== ==========
Net income (loss) per common share:
Basic net income (loss) per common share:
Before cumulative effect of accounting
change.................................. $ 0.26 $ 0.49 $ 0.80 $ 0.38 $ (0.54) $ (0.25)
Cumulative effect of accounting change.... -- -- -- (0.23) -- --
-------- -------- -------- ---------- ---------- ----------
$ 0.26 $ 0.49 $ 0.80 $ 0.15 $ (0.54) $ (0.25)
======== ======== ======== ========== ========== ==========
Diluted net (loss) income per common share:
Before cumulative effect of accounting
change.................................. $ 0.21 $ 0.42 $ 0.69 $ 0.34 $ (0.54) $ (0.25)
Cumulative effect of accounting change.... -- -- -- (0.20) -- --
-------- -------- -------- ---------- ---------- ----------
$ 0.21 $ 0.42 $ 0.69 $ 0.14 $ (0.54) $ (0.25)
======== ======== ======== ========== ========== ==========
Weighted average number of shares
outstanding, basic........................ 54,475 62,793 67,568 71,380 115,097 118,395
Weighted average number of shares
outstanding, diluted...................... 71,396 76,160 78,959 78,939 115,097 118,395
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------------------------------------------- MARCH 31,
1995 1996 1997 1998 1999 2000
-------- -------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets................................ $213,478 $468,888 $697,940 $1,090,437 $2,735,922 $2,698,611
Current portion of long-term debt........... 11,020 8,281 5,847 9,576 998,991 997,471
Senior notes................................ -- -- -- -- 100,000 100,000
Long-term debt, net of current portion...... 74,865 117,535 127,075 290,257 -- --
Total liabilities, excluding deferred
gains..................................... 116,774 187,136 214,112 395,999 1,209,528 1,204,745
Total shareholders' equity.................. 96,704 281,752 348,076 451,986 1,420,349 1,390,490
</TABLE>
21
<PAGE> 25
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF CCA
The following table sets forth selected consolidated historical financial
data of CCA as of and for the three months ended March 31, 2000, before giving
effect to the merger transaction, the Waiver and Amendment and other financing
transactions, which has been derived from CCA's unaudited financial information
as of and for the three months ended March 31, 2000 included in Prison Realty's
Form 10-Q for the three month period ended March 31, 2000, which is incorporated
by reference herein. The following table also sets forth selected consolidated
historical financial data of CCA as of and for the year ended December 31, 1999,
before giving effect to the merger transaction, the Waiver and Amendment and
other financing transactions, which has been derived from CCA's audited
consolidated financial statements as of and for the year ended December 31, 1999
included in Prison Realty's Form 10-K for the year ended December 31, 1999,
which is incorporated by reference herein.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1999 2000
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING DATA:
Revenues.................................................... $ 499,292 $ 137,952
Expenses:
Operating................................................. 376,724 105,485
Lease..................................................... 261,546 79,314
General and administrative................................ 26,166 6,159
Depreciation and amortization............................. 8,601 2,170
Trade name use............................................ 8,699 2,576
--------- ---------
681,736 195,704
--------- ---------
Operating loss.............................................. (182,444) (57,752)
Interest expense.......................................... 20,474 4,888
--------- ---------
Loss before income taxes.................................... (202,918) (62,640)
Provision for income taxes.................................. -- --
--------- ---------
Net loss available to common shareholders................... $(202,918) $ (62,640)
========= =========
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, MARCH 31,
1999 2000
------------ ------------
<S> <C> <C>
BALANCE SHEET DATA:
Total current assets...................................... $ 88,647 $ 82,208
Total assets.............................................. 184,701 175,918
Current portion of long-term debt......................... 153,214 143,180
Total liabilities......................................... 365,491 419,153
Stockholders' equity...................................... (180,790) (243,235)
</TABLE>
22
<PAGE> 26
SELECTED COMPARATIVE PER SHARE DATA
The following table sets forth the historical per share data and the
unaudited pro forma combined per share data giving effect to the restructuring
transactions. The pro forma combined data are not necessarily indicative of
actual financial positions or future operating results or that which would have
occurred or will occur upon completion of the restructuring transactions.
The information shown below should be read in conjunction with (1) the
consolidated financial statements and accompanying notes of Prison Realty,
incorporated into this proxy statement by reference, and (2) the unaudited pro
forma financial statements of Prison Realty, starting on page F-2 of this proxy
statement.
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, 2000 DECEMBER 31, 1999
------------------------ ------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- ----------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Income (loss) per common share:
Basic..................................... $ (.25) $(.12) $ (.54) $(.73)
Diluted................................... $ (.25) $(.12) $ (.54) $(.73)
Cash dividends declared per common share.... $ -- $ -- $ 1.80 $1.65
Book value per common share, at period
end....................................... $10.84 $8.98 $11.09 $N/A
</TABLE>
23
<PAGE> 27
THE PRISON REALTY SPECIAL MEETING
DATE, TIME AND PLACE
The Prison Realty special meeting will be held on ,
[September] , 2000 at 10:00 a.m., local time, at the Loews Vanderbilt Plaza
Hotel, 2100 West End Avenue, Nashville, Tennessee.
MATTERS TO BE CONSIDERED AT THE MEETING
At the Prison Realty special meeting, Prison Realty common shareholders
will be asked, in accordance with the Maryland General Corporation Law, to
consider and vote on amendments to Prison Realty's charter so as to allow for
the restructuring. Pursuant to, among other things, the listing requirements of
the New York Stock Exchange, or the NYSE, Prison Realty common shareholders will
also be asked to approve the merger of Prison Realty and CCA and certain related
transactions, and to consider and act upon such other business as may properly
come before the Prison Realty special meeting or any adjournments or
postponements thereof. The Prison Realty board is not currently aware of any
business to be acted upon at the Prison Realty special meeting other than as
described in this proxy statement. If, however, other matters are properly
brought before the Prison Realty special meeting, the persons appointed as
proxies will have discretion to vote those matters according to their judgment.
Representatives of Prison Realty's independent auditor, Arthur Andersen
LLP, will be present at the special meeting to respond to appropriate questions
regarding the accounting and related effects of the proposals to be considered.
RECORD DATE AND OUTSTANDING SHARES
The board of directors of Prison Realty has fixed the close of business on
, , 2000 as the record date for determining the common
shareholders entitled to notice of, and to vote at, the Prison Realty special
meeting. As of the record date, there were issued and outstanding
shares of Prison Realty common stock entitled to vote at the Prison Realty
special meeting. Holders of currently outstanding shares of Prison Realty series
A preferred stock do not have any voting rights with respect to the matters to
be voted upon at the Prison Realty special meeting.
QUORUM
The presence, either in person or by proxy, of the holders of shares
representing a majority of the voting power of the outstanding shares of capital
stock entitled to vote at the Prison Realty special meeting will constitute a
quorum for the transaction of business at the meeting. In the absence of a
quorum, the holders of shares representing a majority of the voting power of the
shares represented at the meeting have the power to adjourn the meeting without
further notice, other than by announcement at the meeting of the time of its
adjournment, to a date not more than 120 days after the record date. At any
adjourned meeting at which a quorum exists, the shareholders entitled to vote
may transact any business that might have been transacted at the original
meeting. If and when a quorum exists at the meeting or any adjourned meeting,
the shareholders present and represented at the meeting may continue to transact
business until adjournment, notwithstanding the withdrawal from the meeting of
shareholders counted in determining the existence of a quorum.
24
<PAGE> 28
VOTING METHOD AND PROXIES
You can vote on the matters to come before the meeting in two ways:
- by attending the meeting and casting your vote there; or
- by signing and returning the enclosed proxy card.
All shares represented by properly executed proxies received prior to or at
the Prison Realty special meeting and not revoked will be voted in accordance
with the instructions indicated on those proxies or, if no instructions are
given, in favor of Proposals 1 and 2 and in accordance with this proxy
statement. We urge you to mark the box on the proxy card to indicate how you
want your shares of Prison Realty common stock to be voted. If matters other
than those described in this proxy statement are properly presented at the
Prison Realty special meeting, the persons named as the proxies will vote in
accordance with their own judgment with respect to those matters.
If your shares are held in the name of your broker, bank or other nominee,
the inspectors coordinating the voting at the meetings will require you to
present a power of attorney from such broker, bank or nominee for you to vote
such shares in person at any meeting. Please contact your broker, bank or
nominee for such a form.
REVOCABILITY OF PROXY
Even if you submit a vote by proxy on the applicable enclosed form, you may
still vote in person at the Prison Realty special meeting. A shareholder may
revoke a proxy at any time prior to the time it is voted by either:
- submitting a signed written revocation to the Secretary of Prison Realty
at 10 Burton Hills Boulevard, Nashville, Tennessee 37215;
- submitting a signed proxy bearing a later date; or
- appearing at the meeting and voting in person.
No special form of revocation is required if you intend to vote in person
at the special meeting. However, attendance at the special meeting will not, in
and of itself, constitute revocation of a proxy.
REQUIRED VOTE
Holders of shares of Prison Realty common stock as of the record date are
entitled to one vote per share on each proposal to be considered at the Prison
Realty special meeting.
Approval of Proposal 1 at the Prison Realty special meeting will require
the affirmative vote of the holders of two-thirds of the outstanding shares of
Prison Realty common stock. Approval of Proposal 2 at the Prison Realty special
meeting will require the affirmative vote of a majority of all votes cast on the
proposal, provided that the holders of at least 50% of Prison Realty's common
stock cast votes at the special meeting. The merger and related transactions
described in Proposal 2 cannot be completed if Prison Realty's shareholders do
not approve the charter amendments described under Proposal 1.
As of the record date, directors and executive officers of Prison Realty
and their affiliates beneficially owned and were entitled to vote approximately
shares of Prison Realty common stock, which represented approximately
% of the shares of Prison Realty common stock outstanding on the Prison
Realty record date. Each director and executive officer has indicated his or
25
<PAGE> 29
her present intention to vote, or cause to be voted, the shares of Prison Realty
common stock so owned by him or her for approval of the charter amendments and
the merger and related transactions. The vote of these shares in favor of the
transactions will result in the affirmative vote of approximately % of the
shares of Prison Realty common stock entitled to vote at the Prison Realty
special meeting, or approximately of the votes needed to approve Proposal 1
and approximately of the votes needed to approve Proposal 2.
SOLICITATION OF PROXIES
Prison Realty will pay the costs of soliciting proxies from its
shareholders, including the costs of preparing, filing, printing and
distributing this proxy statement and any other solicitation materials that are
used. In addition to solicitation by mail, the directors, officers and employees
of Prison Realty may solicit proxies from Prison Realty shareholders by
telephone or telegram or by other means of communication. Such directors,
officers and employees will not be additionally compensated but may be
reimbursed for their reasonable out-of-pocket expenses in connection with such
solicitation. Arrangements will also be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation material
to the beneficial owners of stock held of record by such persons, and Prison
Realty will reimburse such custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses in connection therewith.
In addition, Prison Realty has retained D.F. King & Co., Inc. to assist in
the solicitation of proxies by Prison Realty for a fee currently not expected to
exceed more than $15,000, plus reasonable out-of-pocket costs and expenses. Any
questions or requests regarding proxies or related materials may be directed to
Robert M. Fraina, 77 Water Street, New York, New York 10005, Telephone Number:
(212) 269-5550.
ABSTENTIONS; BROKER NON-VOTES
Abstentions and broker non-votes will be included in determining the number
of shares of Prison Realty common stock present at the Prison Realty special
meeting for purposes of establishing a quorum and will have the same effect as
votes against the charter amendments. A broker non-vote occurs when a broker or
other nominee holds the shares of a beneficial owner, does not receive
instructions from the beneficial owner or persons entitled to vote those shares,
and, with respect to one or more but not all issues, the broker or other nominee
does not have discretion to vote the shares. For purposes of the approval
requirements of the NYSE relating to the merger transactions, abstentions or
broker non-votes will have the effect of a vote against the proposal unless
holders of more than 50% of the common stock cast votes, in which event an
abstention will count as a vote against the proposal and a broker non-vote will
have no effect. Under Maryland law, abstentions and broker non-votes will have
no effect on the proposal to approve the merger transactions, so long as a
quorum is obtained.
26
<PAGE> 30
INFORMATION ABOUT OUR COMPANY
GENERAL
INFORMATION ABOUT PRISON REALTY
Prison Realty, formerly Prison Realty Corporation, was formed in September
1998 and commenced operations on January 1, 1999, following the mergers of the
former Corrections Corporation of America, a Tennessee corporation ("Old CCA"),
and CCA Prison Realty Trust, a Maryland real estate investment trust ("Old
Prison Realty") with and into Prison Realty (the "1999 Merger"). Prison Realty
currently finances, designs, constructs and renovates new and existing jails and
prisons and leases them to both private prison managers and government agencies.
At June 28, 2000, Prison Realty owned, or was in the process of developing 50
correctional and detention facilities in 17 states, the District of Columbia and
the United Kingdom, of which 45 facilities were operating, two were under
construction or expansion and three were in the planning stages. At June 26,
2000, Prison Realty leased 36 of its facilities to CCA, its primary tenant, six
facilities to government agencies and three facilities to private operators. In
addition, at June 26, 2000, Prison Realty owned two corporate office buildings,
one of which is leased by CCA and one of which is leased by TransCor America,
LLC, a wholly-owned subsidiary of CCA.
Prison Realty was formed to continue the success of its predecessors in
capitalizing on the opportunities for privatization in the corrections and
detention industry. The principal business strategy of Prison Realty has been to
own, design, build and finance new correctional and detention facilities that
meet Prison Realty's investment criteria, to acquire existing facilities meeting
such criteria from both private prison managers and government entities, to
expand the design capacity of its existing facilities, and to lease all such
facilities under long-term "triple-net" leases to government entities and
qualified third-party private prison managers.
In connection with the 1999 Merger, Prison Realty entered into lease
agreements with CCA with respect to the correctional and detention facilities
owned by Prison Realty and operated by CCA. The terms of the CCA lease
agreements are 12 years, which may be extended at fair market rates for three
additional five-year periods upon the mutual agreement of Prison Realty and CCA.
The total amount of lease payments required to be paid by CCA to Prison Realty
during 1999 was approximately $263.5 million, all of which amount has been paid.
In addition to the leases for correctional and detention facilities, Prison
Realty and CCA have entered into a series of contractual arrangements whereby,
among other things, CCA performs certain services for Prison Realty relating to
the identification of new business and the development and construction of
Prison Realty's new facilities in exchange for cash fees under the terms of a
business development agreement and amended and restated services agreement,
respectively. The total amount of fees required to be paid by Prison Realty to
CCA pursuant to the business development agreement and the amended and restated
services agreement during 1999 were approximately $15.0 million and $41.2
million, respectively, all of which amounts have been paid. Prison Realty also
is required to pay CCA certain tenant incentive fees for opening new beds at
Prison Realty-owned facilities under the terms of an amended and restated tenant
incentive agreement. The total amount of fees required to be paid by Prison
Realty to CCA pursuant to the amended and restated tenant incentive agreement
during 1999 was approximately $68.6 million, all of which amount has been paid.
CCA is required to pay Prison Realty a licensing fee for the use of the name
"Corrections Corporation of America" pursuant to the terms of a service mark and
trade name use agreement. The total amount of payments required to be paid
pursuant to the service mark and trade name use agreement during 1999 was
approximately $8.7 million, all of which has been paid. CCA is also required to
make interest payments to Prison Realty under the terms of a promissory note, in
the aggregate principal amount of $137.0 million, payable to Prison Realty by
CCA. As more fully described in "-- Recent developments," CCA did not make the
first scheduled payment of interest on the CCA promissory note.
27
<PAGE> 31
A significant portion of Prison Realty's income is derived from its leases
with CCA. To address CCA's liquidity needs, Prison Realty and CCA amended the
terms of these leases to, among other things, defer payments due from CCA to
Prison Realty. As a result, pursuant to the terms of the amended lease
agreements, as of June 30, 2000, CCA has paid Prison Realty $6.0 million in
lease payments for the year 2000. In addition, Prison Realty has amended the
terms of the agreements pursuant to which Prison Realty makes payments to CCA to
defer certain of these payments. As a result of these amendments, as of June 30,
2000, Prison Realty has paid no fees to CCA under the business development
agreement, the amended and restated services agreement, and the amended and
restated tenant incentive agreement for the year 2000. A discussion of the terms
of these amendments can be found under the heading "-- Recent developments."
Under the terms of the service mark and trade name use agreement, CCA is
required to pay Prison Realty approximately $2.6 million with respect to the
first quarter of 2000. As of June 30, 2000, CCA has not made this payment. Upon
the completion of the merger, if approved by the shareholders of the respective
companies, these and the other agreements between Prison Realty and CCA will be
terminated.
Prison Realty owns 9.5% of the capital stock of CCA, consisting of
non-voting common stock. In 1999, CCA paid no dividends on the shares of its
capital stock. Prison Realty also owns 100% of the non-voting common stock of
PMSI and JJFMSI, privately-held service companies which manage certain
government-owned prison and jail facilities under the "Corrections Corporation
of America" name. As the owner of the non-voting common stock of the service
companies, Prison Realty is entitled to receive 95% of each company's net
income, as defined, as cash dividends on such shares. During 1999, the amount of
dividends paid to Prison Realty by PMSI and JJFMSI was approximately $11.0
million and $10.6 million, respectively, which does not include dividends of
approximately $580,000 and $120,000, respectively, paid in the first quarter of
2000 with respect to the fourth quarter of 1999. As of June 30, 2000, PMSI and
JJFMSI have paid Prison Realty approximately $3.8 million and approximately $2.2
million in dividends, respectively, with respect to the first quarter of 2000.
Certain information relating to Prison Realty and its business is included
elsewhere in this proxy statement. In addition, certain information concerning
Prison Realty and its business, including information with respect to general
market conditions and competition, employment and labor matters, legal
proceedings, principal shareholders and security ownership of management,
executive compensation, various benefit plans (including share option plans),
certain relationships and related transactions and other matters, is set forth
in Prison Realty's Annual Reports on Form 10-K (File no. 0-25245) for the years
ended December 31, 1998 and December 31, 1999, respectively, and in other
documents filed by Prison Realty with the SEC. Shareholders of Prison Realty
desiring a copy of such documents may contact Prison Realty by mail at 10 Burton
Hills Boulevard, Nashville, Tennessee 37215, Attention: Investor Relations
Department, or by telephone at (615) 263-0200, or through certain other means as
indicated herein under "Where You Can Find More Information."
If the restructuring described in this proxy statement is completed, Prison
Realty, by itself and through its subsidiaries, will be in the business of
owning and operating correctional and detention facilities, including operating
those facilities currently operated by CCA.
INFORMATION ABOUT CCA
CCA, formerly Correctional Management Services Corporation, was formed in
August 1998 and commenced operations on January 1, 1999, in connection with the
1999 Merger. CCA was formed to manage and operate certain facilities operated
and managed by Old CCA and owned by Old Prison Realty prior to the 1999 Merger.
At June 28, 2000, CCA had contracts to manage or plans to develop 43
correctional and detention facilities with a total design capacity of 45,243
beds, of which 41 facilities with a total design capacity of 39,553 beds were in
operation. At June 28, 2000,
28
<PAGE> 32
CCA's system-wide occupancy level was approximately 75.6%. CCA operates and
manages the substantial majority of the facilities owned by Prison Realty and
leases these facilities from Prison Realty under the CCA lease agreements as
described herein. At June 28, 2000, CCA leased 36 of the facilities owned by
Prison Realty. CCA also provides certain business and facility development
services for Prison Realty for fees. See "-- Recent developments."
CCA provides correctional and detention facility management services to
government agencies under management contracts with federal, state and local
government agencies and authorities which generally may be canceled by such
agencies and authorities on short notice and without significant penalty.
Accordingly, the relationship of such agencies and authorities with CCA, and
their confidence in CCA, is crucial to its business. The services provided by
CCA to government agencies include the comprehensive operation and management of
new and existing correctional and detention facilities. In addition to providing
the fundamental residential services relating to inmates, CCA's facilities
offers a large variety of rehabilitation and education programs including basic
education, life skills and employment training and substance abuse treatment.
CCA also provides health care (including medical, dental and psychiatric
services), institutional food services, transportation requirements and work and
recreational programs.
INFORMATION ABOUT PMSI AND JJFMSI
PMSI was formed in August 1998 and commenced operations on January 1, 1999
in connection with the 1999 Merger. PMSI was formed to manage and operate
certain government owned adult prison facilities operated and managed by Old CCA
prior to the 1999 Merger. PMSI provides adult prison facility management
services to government agencies under the "Corrections Corporation of America"
name. At June 28, 2000, PMSI had contracts to manage 11 correctional and
detention facilities with a total design capacity of 13,372 beds, of which all
were in operation. At June 28, 2000, PMSI's system-wide occupancy level was
89.9%.
JJFMSI was formed in August 1998 and commenced operations on January 1,
1999 in connection with the 1999 Merger. JJFMSI was formed to manage and operate
certain government owned juvenile and jail correctional facilities, as well as
certain international facilities, operated and managed by Old CCA prior to the
1999 Merger. JJFMSI provides facility management services to government agencies
under the "Corrections Corporation of America" name pursuant to management
contracts with federal, state and local government agencies and authorities in
the United States and with international authorities in Australia and the UK. At
June 28, 2000, JJFMSI had contracts to manage 24 correctional and detention
facilities with a total design capacity of 12,267 beds of which 23 facilities
with a total design capacity of 11,517 were in operation. At June 28, 2000,
JJFMSI's system-wide occupancy level for domestic operations was 92.7%.
Each of PMSI and JJFMSI provides correctional and detention facility
management services to government agencies under management contracts with
federal, state and local government agencies and authorities which generally may
be canceled by such agencies and authorities on short notice and without
significant penalty. Accordingly, the relationship of such agencies and
authorities with PMSI and/or JJFMSI, and their confidence in each company, is
crucial to their respective businesses. The services provided by each of the
companies to government agencies include the comprehensive operation and
management of new and existing correctional and detention facilities. In
addition to providing the fundamental residential services relating to inmates,
each of the companies' facilities offers a large variety of rehabilitation and
education programs including basic education, life skills and employment
training and substance abuse treatment. The companies also provide health care
(including medical, dental and psychiatric services), institutional food
services, transportation requirements and work and recreational programs.
29
<PAGE> 33
RECENT DEVELOPMENTS
TERMINATION OF RESTRUCTURINGS LED BY AFFILIATES OF FORTRESS AND BLACKSTONE AND
PACIFIC LIFE
Fortress/Blackstone. In order to address the capital and liquidity
constraints facing Prison Realty and CCA, as well as concerns regarding the
corporate structure and management of Prison Realty, Prison Realty, CCA, PMSI
and JJFMSI previously entered into a series of agreements concerning a proposed
restructuring led by a group of institutional investors consisting of an
affiliate of Fortress Investment Group LLC and affiliates of The Blackstone
Group, together with an affiliate of Bank of America Corporation. Under the
terms of the Fortress/Blackstone restructuring, Prison Realty was to:
- complete the combination of the companies and operate as a taxable C
corporation commencing with Prison Realty's 1999 taxable year;
- raise up to $350.0 million by selling shares of convertible preferred
stock and warrants to purchase shares of Prison Realty's common stock to
the Fortress/Blackstone investors in a private placement and to Prison
Realty's existing common shareholders in a $75.0 million rights
offering;
- obtain a new $1.2 billion credit facility;
- restructure existing management through a newly constituted board of
directors and executive management team; and
- amend Prison Realty's existing charter and bylaws to accommodate the
Fortress/Blackstone restructuring.
After publicly announcing the proposed Fortress/Blackstone restructuring,
Prison Realty received an unsolicited proposal from Pacific Life Insurance
Company ("Pacific Life") with respect to a series of restructuring transactions
intended to serve as an alternative to the restructuring proposed by
Fortress/Blackstone. After reviewing the terms of the Pacific Life proposal with
its advisors and reviewing the companies' ability to satisfy certain conditions
contained in the Fortress/Blackstone securities purchase agreement, the boards
of directors of Prison Realty, CCA, PMSI and JJFMSI terminated the companies'
agreement with the Fortress/Blackstone investors and entered into a securities
purchase agreement with Pacific Life. Fortress/Blackstone has commenced
litigation against the companies claiming it is owed a transaction termination
fee of $7.5 million, as well as a $15.7 million commitment fee, under the terms
of the securities purchase agreement. To date, the companies have paid none of
these fees. In addition, the payment of these fees is subject to certain claims
in the shareholder litigation described herein under "-- Shareholder
litigation."
Pacific Life. The companies' agreement with Pacific Life also contemplated
a restructuring of the companies. Under the terms of the Pacific Life
restructuring, Prison Realty proposed to:
- complete the combination of the companies on substantially identical
terms as proposed by Fortress/Blackstone, with Prison Realty electing to
be taxed as a REIT with respect to its 1999 taxable year and operating
as a taxable C corporation commencing with its 2000 taxable year;
- raise up to $200.0 million in a common stock rights offering to existing
shareholders, backstopped 100% by Pacific Life, which would purchase
shares of Prison Realty series B convertible preferred stock in
satisfaction of this commitment;
- issue shares of convertible preferred stock in satisfaction of its
remaining 1999 REIT distribution requirements;
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- refinance or renew $1.0 billion of Prison Realty's senior secured debt;
- restructure existing management through a newly constituted board of
directors and executive management team; and
- amend Prison Realty's existing charter and bylaws to accommodate the
Pacific Life restructuring.
Following the execution of the Pacific Life securities purchase agreement,
Prison Realty began taking the steps necessary to fulfill the conditions to
Pacific Life's obligations under the agreement, including the refinancing or
renewal of Prison Realty's $1.0 billion senior secured bank credit facility. As
part of this process, Prison Realty consulted with Pacific Life as to the terms
for the renewal of the bank credit facility that would be satisfactory to
Pacific Life. During these discussions, Pacific Life advised Prison Realty that,
based on the draft of the waiver and amendment it had reviewed, it would need
more information before it could reach a definitive conclusion, but at least one
material term in such draft was not satisfactory to Pacific Life. After Prison
Realty obtained the waiver and amendment in connection with the bank credit
facility as described below, upon a preliminary review of it, Pacific Life
advised Prison Realty that it required certain information before it could reach
a definitive conclusion, but based on the preliminary review, it had significant
concerns with respect to a number of terms. As a result of Pacific Life's
statements, it was unclear to Prison Realty whether the waiver and amendment to
the bank credit facility would satisfy the condition contained in the securities
purchase agreement that the renewal of the senior credit facility would be in a
form reasonably acceptable to Pacific Life. Also, given the requirements of the
waiver and amendment that a proxy statement be filed with the SEC by July 1,
2000 with respect to a restructuring, the boards of directors of Prison Realty,
CCA, PMSI and JJFMSI approved the execution of an agreement with Pacific Life
mutually terminating the securities purchase agreement with Pacific Life, and
the boards of Prison Realty and CCA approved the restructuring described in this
proxy statement and the execution of the merger agreement by and among Prison
Realty, CCA Acquisition Sub, Inc. and CCA. Under the terms of the Pacific Life
securities purchase agreement and the mutual termination, the companies are not
liable for any fees or material expenses as the result of the termination of the
Pacific Life securities purchase agreement and the completion of the
restructuring proposed herein.
SOLICITATION OF WAIVERS OF EXISTING EVENTS OF DEFAULT UNDER, AND AMENDMENTS TO,
PRISON REALTY'S AND CCA'S OUTSTANDING INDEBTEDNESS
Financial condition of CCA. CCA, which is Prison Realty's primary lessee
and Prison Realty's major source of income, incurred a net loss of $62.6 million
for the three months ended March 31, 2000, and currently has a net working
capital deficiency and a net capital deficiency. As described herein, in
connection with the 1999 Merger, Prison Realty entered into the lease agreements
with CCA with respect to the correctional and detention facilities owned by
Prison Realty and operated by CCA, as well as a series of additional agreements
relating to the payment of certain fees by Prison Realty to CCA. Due to CCA's
liquidity position, CCA has been unable to make timely rental payments to Prison
Realty under the original terms of the lease agreements. As more fully described
herein, the lease agreements have been amended to defer, until September 30,
2000, a substantial portion of rental payments due from CCA to Prison Realty in
2000 under the original terms of the lease agreements.
Also as a result of CCA's current liquidity position, CCA has been required
to defer the first scheduled payment of accrued interest, totaling approximately
$16.4 million, on the $137.0 million promissory note payable by CCA to Prison
Realty. Pursuant to the terms of the CCA promissory note, CCA was required to
make the payment on December 31, 1999; however, pursuant to the terms of a
subordination agreement, dated as of March 1, 1999, by and between Prison Realty
and the
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agent of CCA's bank credit facility, CCA is prohibited from making scheduled
interest payments on the CCA promissory note when CCA is not in compliance with
certain financial covenants set forth in CCA's bank credit facility. As of
December 31, 1999, CCA was not, and, notwithstanding the waiver of certain
events of default under CCA's bank credit facility discussed herein, CCA
currently is not, in compliance with these financial covenants. Consequently,
CCA is prohibited from making the scheduled interest payment to Prison Realty.
Pursuant to the terms of the subordination agreement, Prison Realty is
prohibited from accelerating payment of the principal amount of the CCA
promissory note or taking any other action to enforce its rights under the
provisions of the CCA promissory note for so long as CCA's bank credit facility
remains outstanding.
1999 financial statements and going concern matters. Due to CCA's current
liquidity position and its inability to make required payments to Prison Realty
under the original terms of the CCA lease agreements and the CCA promissory
note, CCA's independent auditor included an explanatory paragraph in its report
as to CCA's consolidated financial statements for the year ended December 31,
1999 that expresses substantial doubt as to CCA's ability to continue as a going
concern. Accordingly, as the result of Prison Realty's financial dependence on
CCA and Prison Realty's resulting liquidity position, as well as concerns with
respect to Prison Realty's noncompliance with, and then-existing defaults under,
certain provisions and covenants contained in its indebtedness and potential
liability arising as the result of shareholder and other litigation commenced
against Prison Realty, Prison Realty's independent auditor included an
explanatory paragraph in its report as to Prison Realty's consolidated financial
statements for the year ended December 31, 1999 that expresses substantial doubt
as to Prison Realty's ability to continue as a going concern. Notwithstanding
the receipt of waivers of events of default relating to these explanatory
paragraphs under the terms of Prison Realty's and CCA's existing indebtedness
described herein, the existence of these explanatory paragraphs may have a
material adverse effect on Prison Realty's and CCA's relationships with its
creditors and could have a material adverse effect on Prison Realty's business,
financial condition, results of operation and liquidity.
Execution of waiver of existing events of default under, and amendments to,
Prison Realty's bank credit facility. As a result of the financial condition of
Prison Realty and CCA, certain existing or potential events of default arose
under the provisions of Prison Realty's bank credit facility. In addition,
certain of the proposed restructuring transactions involving Prison Realty were
not permitted under the terms of the bank credit facility. As a result, in order
to obtain additional borrowings under the bank credit facility and in order to
avoid certain events of default under the terms of Prison Realty's 12% senior
notes and convertible, subordinated debt, Prison Realty, through Lehman
Commercial Paper Inc., the administrative agent of Prison Realty's bank credit
facility ("Lehman"), solicited the consent of the requisite percentage of the
senior lenders under the bank credit facility for a waiver of the existing
events of default under the bank credit facility and amendments to the terms of
the bank credit facility to permit a restructuring of Prison Realty.
Waivers of events of default. Following the approval of the requisite
senior lenders, Prison Realty, certain of its wholly-owned subsidiaries, various
lenders and Lehman, as administrative agent, executed a waiver and amendment,
dated as of June 9, 2000, to the provisions of the bank credit facility (the
"Waiver and Amendment"), which waived all of the events of default under the
provisions of Prison Realty's bank credit facility, specifically including:
- Prison Realty's failure to comply with certain of the financial
covenants contained in the bank credit facility for the fiscal quarters
ended December 31, 1999, March 31, 2000 and June 30, 2000.
- Prison Realty's declaration and payment of its regular quarterly
dividend on shares of its series A preferred stock for the fiscal
quarter ended March 31, 2000.
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- The failure of Prison Realty to deliver annual financial statements of
Prison Realty and CCA unqualified as to the ability of each of Prison
Realty and CCA to continue as a going concern.
- Prison Realty's appointment of a new chairman of the board of directors
and president, the elimination of the position of chief development
officer and the execution and performance of certain conditions
contained in the securities purchase agreement with Pacific Life, each
of which constituted a "change of control" of Prison Realty under the
terms of the bank credit facility upon the expiration of an applicable
period.
Transactions contemplated by the Waiver and Amendment. In its pursuit of
the Waiver and Amendment, Prison Realty agreed to complete certain transactions
which were incorporated as covenants in the Waiver and Amendment. Specifically,
the Waiver and Amendment provides that Prison Realty must:
- Complete the CCA merger on or before the earlier of: (i) September 15,
2000; or (ii) five business days after the date upon which all required
consents and authorizations necessary to complete the CCA merger have
been obtained, upon the terms and conditions specified in the Waiver and
Amendment, including the payment of non-cash consideration to all
holders of equity securities of CCA, including Baron and Sodexho.
- In connection with the CCA merger: (i) pending requisite shareholder
approval, elect not to be taxed as a REIT for federal income tax
purposes, commencing with the fiscal year ending December 31, 2000; and
(ii) terminate all existing agreements between Prison Realty and CCA at
the time of completion of the CCA merger.
- Use commercially reasonable efforts to complete, prior to December 31,
2000, an offering of its common stock, through the distribution of
rights to purchase shares of common stock to Prison Realty's
then-current common shareholders, yielding net cash proceeds to Prison
Realty of at least $50.0 million, with 40% of such proceeds to be
applied to the repayment of Prison Realty's existing indebtedness under
the bank credit facility.
- Select a new chief executive officer and chief financial officer,
reasonably satisfactory to the requisite percentage of senior lenders
under the bank credit facility, on or before November 15, 2000, and,
prior to such time, continue to retain a management consultant reporting
to Prison Realty's board of directors reasonably satisfactory to Lehman.
- Pay a dividend, in the form of Prison Realty's preferred stock,
sufficient to satisfy Prison Realty's remaining REIT distribution
requirements for the fiscal year ending December 31, 1999.
- Effect an offering of securities by a subsidiary of Prison Realty,
backed by lease payments from the U.K. government relating to the HMP
Forrest Bank facility located in Salford, England, yielding net cash
proceeds to Prison Realty of at least L45.0 million (or the equivalent
in U.S. dollars) on or before February 28, 2001.
Prison Realty's failure to meet these requirements will result in an event of
default under the terms of the bank credit facility. Generally, upon the
occurrence of an event of default under the bank credit facility, the lenders
under the bank credit facility, may, upon the expiration of any applicable cure
period, accelerate the maturity of the aggregate principal amount of Prison
Realty's borrowings under the bank credit facility. The Waiver and Amendment
provides, however, that an event of default under the bank credit facility
relating to Prison Realty's failure to complete the securitization of lease
payments relating to the HMP Forrest Bank facility will not give rise to a right
of the lenders to accelerate the maturity of Prison Realty's borrowings under
the bank credit facility.
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The Waiver and Amendment also provides that Prison Realty may, but is not
required to, complete certain transactions and amends the terms of the bank
credit facility to permit such transactions. Specifically, the Waiver and
Amendment provides that Prison Realty is permitted to:
- Enter into an agreement with CCA deferring a substantial portion of
CCA's rental payments to Prison Realty due and payable under the
original terms of CCA's lease agreements with Prison Realty.
- Sell Prison Realty's headquarters for cash proceeds of at least $12.0
million, and subsequently lease such headquarters from the purchaser
thereof, on terms and conditions reasonably satisfactory to the
requisite percentage of senior lenders under the bank credit facility.
- Complete the merger of each of PMSI and JJFMSI with and into
wholly-owned subsidiaries of Prison Realty, upon the terms and
conditions specified in the Waiver and Amendment, including the payment
of aggregate non-cash consideration not to exceed $12.6 million to all
holders of equity securities of PMSI and JJFMSI and the termination of
all agreements between PMSI, JJFMSI and either Prison Realty or CCA.
In addition, the terms of the Waiver and Amendment do not prohibit Prison Realty
from making required interest payments under the terms of its currently
outstanding 12% senior notes.
Events of default related to Prison Realty's convertible, subordinated
notes. As more fully described hereinafter, at the time of the effectiveness of
the waiver of amendment Prison Realty was in default under the provisions of the
agreements relating to Prison Realty's $40.0 million 9.5% convertible,
subordinated notes and its $30.0 million convertible, subordinated notes. Under
the provisions of Prison Realty's bank credit facility, these defaults under the
terms of the convertible, subordinated notes resulted in an event of default
under Prison Realty's bank credit facility. In addition, as more fully described
herein, certain other actions of Prison Realty in connection with the proposed
restructuring of Prison Realty potentially would have resulted in additional
events of default under the provisions of the agreements governing the
convertible, subordinated notes. These potential defaults under the terms of the
notes would also have resulted in an event of default under Prison Realty's bank
credit facility.
The Waiver and Amendment addressed each existing or potential event of
default under Prison Realty's bank credit facility with respect to Prison
Realty's convertible, subordinated notes described above. The Waiver and
Amendment provides that, so long as a holder of any of the convertible,
subordinated notes does not take any action adverse to Prison Realty or to the
senior lenders under the bank credit facility, the existence of any of these
events of default will not (i) prevent Prison Realty from making additional
borrowings otherwise permitted under the bank credit facility, or (ii) permit
Lehman or the senior lenders under the bank credit facility to exercise any
remedies against Prison Realty which normally would be available upon an event
of default under the bank credit facility. The Waiver and Amendment, however,
provides that the senior lenders are not waiving these events of default and
that the senior lenders expressly are not consenting to the repurchase of all or
any portion of the convertible, subordinated notes or the payment or repayment
of all or any portion of any amounts owing under the notes. Moreover, even if
the aggregate principal amount of such convertible subordinated notes were
accelerated, the repayment of such amounts is subordinate to the rights of the
senior bank lenders.
Prior to the effectiveness of the Waiver and Amendment, Prison Realty was
required to pay a default rate of interest equal to 2% above the otherwise
applicable rate of interest under the bank credit facility as a result of
existing events of default under the bank credit facility, including the
occurrence of events of default under Prison Realty's convertible, subordinated
notes. Following the effectiveness of the Waiver and Amendment, Prison Realty
was no longer required to pay such
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default rate of interest despite the continued existence of events of default
under Prison Realty's convertible, subordinated notes. However, as described
below, the Waiver and Amendment provides that the existence of any events of
default relating to the convertible subordinated notes will give rise to the
right of the senior lenders to require Prison Realty to pay any applicable
default rate of interest under the bank credit facility.
As more fully described herein, Prison Realty has obtained waivers of all
existing events of default under its convertible, subordinated notes. These
waivers involve an amendment to the economic terms of such notes, including an
increase in the applicable interest rate with respect to such notes. The Waiver
and Amendment provides that, subject to certain limited exceptions, the interest
rate applicable to all outstanding amounts under the bank credit facility will
be increased by 2.0% above the otherwise applicable interest rate for any period
during which Prison Realty pays an interest rate in excess of the stated coupon
rate of the convertible, subordinated notes, except to the extent that such
interest rate is increased in a manner satisfactory to the requisite percentage
of the senior lenders under the bank credit facility in connection with a
written waiver of existing or potential events of default under the convertible,
subordinated notes. Prison Realty will submit these waivers to the lenders for
their approval, but there can be no assurance that such approval will be
obtained.
Additional amendments to bank credit facility. In addition to the
amendments to the provisions of the bank credit facility required to facilitate
the transactions discussion above, the Waiver and Amendment contains certain
other amendments to the provisions of the bank credit facility. These amendments
allow Prison Realty to borrow up to an additional $55.0 million under the bank
credit facility at various times during the 2000 calendar year.
In addition to the waiver of Prison Realty's compliance with the previously
existing financial covenants contained in the bank credit facility described
above, the Waiver and Amendment provides that, prior to the completion of the
CCA merger, Prison Realty shall be required to maintain certain monthly minimum
liquidity thresholds. The Waiver and Amendment also provides that, following
completion of the CCA merger, the previously existing financial covenants
contained in the bank credit facility will be replaced by the following
financial covenants, each as defined in the Waiver and Amendment, designed to
reflect Prison Realty's status as a subchapter C corporation rather than as a
REIT: (i) total leverage ratio; (ii) interest coverage ratio; (iii) fixed charge
coverage ratio; (iv) ratio of total indebtedness to total capitalization; (v)
minimum EBIDTA; and (vi) minimum occupancy percentage.
The Waiver and Amendment provides that, in addition to quarterly
consolidated financial statements, Prison Realty is required to provide monthly
consolidated financial statements to Lehman. The Waiver and Amendment further
provides that, prior to completion of the CCA merger, Prison Realty is required
to provide weekly statements of cash receipts and disbursements to Lehman. The
Waiver and Amendment also requires that Prison Realty submit a business plan to
Lehman setting forth Prison Realty's financial projections, planned capital
expenditures and business strategy.
The Waiver and Amendment provides that, generally, Prison Realty will be
required to use the net cash proceeds received by Prison Realty from certain
transactions, including the following, to repay outstanding indebtedness under
the bank credit facility: (i) any disposition of real estate assets; (ii) the
securitization of lease payments with respect to Prison Realty's HMP Forrest
Bank facility; and (iii) the sale-leaseback of Prison Realty's headquarters.
Under the terms of the Waiver and Amendment, Prison Realty will also be required
to apply a designated portion of its "excess cash flow," as such term is defined
in the Waiver and Amendment, to the prepayment of outstanding indebtedness under
the bank credit facility. In addition, Prison Realty is, and after the CCA
merger CCA will be, required by the Waiver and Amendment to transfer certain
depository and other non-
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disbursement accounts to an account at a bank that is a senior lender under the
bank credit facility and to grant perfected liens in such accounts in favor of
Lehman for the benefit of the senior lenders under the bank credit facility.
Under the terms of Prison Realty's amended bank credit facility, all of
Prison Realty's subsidiaries, unless otherwise exempt, must guarantee and pledge
substantially all of their assets to secure Prison Realty's bank credit
facility. As such, substantially all of the assets formerly owned by CCA must be
pledged to secure Prison Realty's obligations under the bank credit facility
upon completion of the CCA merger. However, the Waiver and Amendment provides
that the accounts receivable and certain other assets of CCA need not be pledged
to secure outstanding indebtedness under Prison Realty's bank credit facility if
such assets are pledged to secure a new revolving bank credit facility or a
refinancing or renewal of CCA's existing bank credit facility obtained by the
surviving entity in the CCA merger. Any such new bank credit facility or
refinancing or renewal of CCA's existing bank credit facility must be on terms
and conditions reasonably satisfactory to the requisite percentage of senior
lenders under Prison Realty's bank credit facility.
Additional events of default. As previously described, the Waiver and
Amendment provides that Prison Realty's failure to complete the transactions
required by the Waiver and Amendment will result in an event of default under
the bank credit facility. The Waiver and Amendment also provides that, in
addition to the existing events of default under the original terms of the bank
credit facility, it shall be an event of default under the terms of the bank
credit facility if:
- Prison Realty settles its currently outstanding shareholder litigation
for cash amounts not otherwise fully covered by Prison Realty's existing
directors' and officers' liability insurance policies.
- Prison Realty declares and pays dividends with respect to Prison
Realty's currently outstanding series A preferred stock prior to the
receipt of net cash proceeds of at least $100.0 million from the
issuance of additional shares of common or preferred stock.
- CCA shall amend or refinance its bank credit facility on terms and
conditions less favorable than the existing terms of CCA's bank credit
facility.
- Prison Realty fails to distribute this proxy statement to Prison
Realty's shareholders on or before August 1, 2000.
- A "repurchase right event" or a "termination event" shall occur under
the terms of the note purchase agreement governing Prison Realty's 9.5%
convertible, subordinated notes.
Generally, upon the occurrence of an event of default under the bank credit
facility, the senior lenders under the bank credit facility, may, upon the
expiration of any applicable cure period, accelerate the maturity of the
aggregate principal amount of Prison Realty's borrowings under the bank credit
facility.
Conditions to the continued effectiveness of Waiver and Amendment. The
terms of the Waiver and Amendment provide that the continued effectiveness of
the Waiver and Amendment is conditioned upon, among other things:
- The existence of no default or events of default under Prison Realty's
bank credit facility (other than the defaults with respect to Prison
Realty's convertible, subordinated notes described above).
- The effectiveness of a waiver of all events of default under CCA's bank
credit facility.
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- Prison Realty's continued engagement of a management consultant,
reporting to Prison Realty's board of directors, reasonably satisfactory
to Lehman.
- As more fully described hereinafter, in connection with CCA's deferral
of a substantial portion of its rental payments to Prison Realty, the
deferral of certain payments due from Prison Realty payable to CCA until
completion of the CCA merger.
Increased interest rate and additional fees. In connection with the
execution of the Waiver and Amendment, Prison Realty was required to pay an
amendment fee equal to 0.75% of the bank credit facility. Also as a result of
this Waiver and Amendment, the interest rate applicable to all outstanding
amounts under the bank credit facility was increased by 0.5% above the otherwise
applicable rate through and including September 15, 2000, subject to extension
by the requisite percentage of lenders under the credit facility for successive
three-month periods thereafter. Prior to the effectiveness of the Waiver and
Amendment, Prison Realty was required to pay a default rate of interest with
respect to all outstanding amounts under the bank credit facility, which was
equal to 2% above the otherwise applicable rate. In addition, the Waiver and
Amendment provides that if the CCA merger has not been consummated on or before
September 15, 2000, or such later date as may be consented to by the requisite
percentage of lenders under the bank credit facility, Prison Realty will be
required to pay an additional fee equal to 0.375% of the bank credit facility.
Amendments to agreements between Prison Realty and CCA. As previously
described, the terms of the Waiver and Amendment provide that Prison Realty and
CCA may defer a substantial portion of the rental payments due to Prison Realty
under the CCA lease agreements in order to address CCA's liquidity needs.
Accordingly, Prison Realty and CCA entered into the second master amendment to
lease agreements, dated as of June 9, 2000, pursuant to which Prison Realty and
CCA agreed: (i) to defer, with the exception of certain scheduled payments,
rental payments under the original terms of the CCA lease agreements until
September 30, 2000, provided, that if Prison Realty pays to CCA, and CCA
accepts, any payments of certain fees due to CCA from Prison Realty which have
also been deferred, a portion of the rental payments which otherwise would have
been due and payable had the CCA lease agreements not been amended shall become
immediately due and payable; and (ii) that CCA shall pay interest, at an annual
rate equal to the current non-default rate of interest applicable to its
existing bank credit facility, subject to adjustment, on all rental payments
which would have been payable to Prison Realty had the CCA lease agreements not
been amended, from the date each such payment would have been payable until the
date such payment is actually made.
In connection with the amendments to the CCA lease agreements deferring a
substantial portion of the rental payments due to Prison Realty thereunder, the
terms of the Waiver and Amendment condition the effectiveness of the Waiver and
Amendment upon the deferral of Prison Realty's payment of fees to CCA which
would otherwise be payable pursuant to the terms of the amended and restated
tenant incentive agreement, dated as of May 4, 1999, the business development
agreement, dated as of May 4, 1999, and the amended and restated services
agreement, dated as of March 5, 1999. Accordingly, Prison Realty and CCA entered
into: (i) amendment number one to amended and restated tenant incentive
agreement, dated as of June 9, 2000; (ii) amendment number one to business
development agreement, dated as of June 9, 2000; and (iii) amendment number one
to amended and restated services agreement, dated as of June 9, 2000.
The terms of each of these amendments provide: (i) that no payments shall
be made by Prison Realty to CCA, under the original terms of the respective
agreement being amended, until the termination of such agreement at the time of
the CCA merger, provided, with respect to amounts which otherwise would have
been payable under such agreement, interest shall accrue, at the applicable
non-default rate of interest under the terms of Prison Realty's bank credit
facility, as
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amended by the Waiver and Amendment, and shall be payable by Prison Realty to
CCA upon completion of the CCA merger; (ii) during the period from January 1,
2000 to September 30, 2000, in the event that CCA pays to Prison Realty, and
Prison Realty accepts, any rental payments in excess of the scheduled amounts
set forth in the second master amendment to lease agreements, a similar portion
of the amounts which otherwise would have been payable by Prison Realty to CCA
under the original terms of the respective agreement being amended shall become
immediately due and payable; and (iii) in the event that all rental payments
originally due and payable by CCA under the original terms of the CCA lease
agreements become immediately due and payable as a result of an event of default
under the second master amendment to lease agreements, all fees which would have
been payable by Prison Realty under the original terms of the respective
agreement being amended shall become immediately due and payable.
The terms of the indenture governing Prison Realty's 12% senior notes
(described below) restrict amendments to the CCA lease agreements, the amended
and restated tenant incentive agreement, the business development agreement and
the amended and restated services agreement without the delivery of an opinion
as to the fairness, from a financial point of view, to Prison Realty of such
amendments, issued by an accounting, appraisal, consulting or investment banking
firm of national standing, to the trustee under the indenture of the 12% senior
notes. In connection with this requirement, the effectiveness of the second
master amendment to lease agreements, amendment number one to amended and
restated tenant incentive agreement, amendment number one to business
development agreement, and amendment number one to amended and restated services
agreement was expressly conditioned upon the delivery of such fairness opinion.
Prison Realty has, in accordance with the terms of the indenture, delivered to
the trustee under the indenture a fairness opinion meeting the requirements of
the indenture.
12% senior notes. Prison Realty believes that it currently is not in
default under the terms of the indenture governing its $100.0 million 12% senior
notes. The indenture governing the 12% senior notes, however, contains a
provision which allows the holders thereof to accelerate the outstanding
principal amount of the 12% senior notes and to seek additional remedies if
Prison Realty has a payment default under Prison Realty's bank credit facility
or if Prison Realty's obligations under the bank credit facility have been
accelerated. However, the amounts outstanding under the 12% senior notes are
effectively subordinated to Prison Realty's obligations under the bank credit
facility to the extent of the value of the assets securing the bank credit
facility. In the event of acceleration of outstanding principal amounts under
both the 12% senior notes and the bank credit facility, the lenders under the
bank credit facility will be entitled to proceed against the collateral that
secures Prison Realty's obligations under the bank credit facility, and such
collateral will not be available to satisfy any amounts owed under the 12%
senior notes.
$40.0 million 9.5% convertible, subordinated notes. The original
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 (which are subordinated by their terms to the bank
credit facility) provide that the execution of the securities purchase agreement
by and between Prison Realty and Pacific Life constituted a "change of control"
of Prison Realty. This "change of control" gave rise to a right of the holders
of such notes to require Prison Realty to repurchase the notes at a price of
105% of the aggregate principal amount of such notes within 45 days after the
provision of written notice by such holders to Prison Realty, although the
holders of the notes have not so required. In addition, as of February 5, 2000,
Prison Realty was no longer in compliance with a financial covenant contained in
the note purchase agreement. As a result of the violation of this covenant,
Prison Realty was in default under the provisions of the note purchase agreement
governing the notes, and the holders of such notes may, at their option, to
accelerate all or a portion of the outstanding principal amount of this
indebtedness. Moreover, during any period in which Prison
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Realty is in default under the provisions of the note purchase agreement, the
holders of the notes may require Prison Realty to pay an applicable default rate
of interest of 20%. In addition to the default rate of interest, as a result of
the default, Prison Realty was obligated, under the original terms of the note
purchase agreement, to pay the holders of the notes contingent interest
sufficient to permit the holders to receive a 15% rate of return on the $40.0
million principal amount, unless the holders of the notes elect to convert the
notes into Prison Realty's common stock under the terms of the note agreement.
Any such contingent interest is retroactive to the date of issuance of the
notes.
As previously described herein, the Waiver and Amendment provides that the
lenders under Prison Realty's bank credit facility did not consent to the
repurchase of all or any portion of the 9.5% convertible, subordinated notes or
the payment or repayment of all or any portion of any amounts owing under the
notes. In addition, as previously described herein, the Waiver and Amendment
also provides that the existence of any events of default under Prison Realty's
bank credit facility as a result of an event of default under the terms of the
9.5% convertible, subordinated notes will give rise to the right of the lenders
under the bank credit facility to require Prison Realty to pay any applicable
default rate of interest under the bank credit facility. Moreover, the Waiver
and Amendment provides that, subject to certain limited exceptions, the interest
rate applicable to all outstanding amounts under the bank credit facility will
be increased by 2.0% above the otherwise applicable interest rate for any period
during which Prison Realty pays an interest rate in excess of 9.5% with respect
to the 9.5% convertible, subordinated notes, except to the extent that such
interest rate is increased in a manner satisfactory to the requisite percentage
of the lenders under the bank credit facility in connection with a written
waiver of existing defaults under the 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 these convertible, subordinated notes. The effectiveness of the waiver and
amendment was subject to the fulfillment of certain conditions by Prison Realty,
including the payment of a waiver fee of $250,000.
The waiver and amendment provides for a waiver of the following events of
default: (i) Prison Realty's failure to provide a "repurchase right notice" (as
defined in the note purchase agreement) as a result of the occurrence of a
change of control of Prison Realty under the terms of the note purchase
agreement; (ii) Prison Realty's non-compliance with a financial covenant
contained in the note purchase agreement; (iii) any failure of Prison Realty to
fully enforce its rights under its lease agreements with CCA, including with
respect to CCA's deferral of a substantial portion of its rental payments in
2000; (iv) Prison Realty's election, pending shareholder approval, not to be
taxed as a REIT, commencing with its taxable year ending December 31, 2000;(v)
Prison Realty's operation of correctional and detention facilities following
completion of the CCA merger; and (vi) certain defaults arising from Prison
Realty's non-compliance with the provisions of its $30.0 million 7.5%
convertible, subordinated notes. The waiver and amendment further provides that
the completion of, or the failure to complete, certain transactions more fully
described in this proxy statement, including the CCA merger, Prison Realty's
election, pending shareholder approval, not to be taxed as a REIT, commencing
with its taxable year ending December 31, 2000, and the rights offering required
by the bank credit facility Waiver and Amendment, will not constitute an event
of default or a "termination event" (as defined in the note purchase agreement)
under the terms of the note purchase agreement.
The waiver and amendment to the note purchase agreement also amends the
economic terms of the notes to provide, subject to the approval of the requisite
percentage of lenders under Prison Realty's bank credit facility, for an
increase in the applicable interest rate of the notes by 0.5% per annum, which
would require cash interest payments by Prison Realty equal to an interest rate
of 10.0% per annum. The waiver and amendment provides that if such approval is
not obtained, Prison Realty will be required to issue, in lieu of such
additional cash interest payments, additional convertible, subordinated "paid in
kind" notes on a pro rata basis to all holders. In addition, the
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waiver and amendment further requires Prison Realty to issue, following the
execution of this waiver and amendment, additional convertible, subordinated
"paid in kind" notes, in the aggregate principal amount of approximately $1.1
million on a pro rata basis to all holders, representing all interest on the
convertible, subordinated notes which has accrued at an applicable default rate
of interest as a result of the previously existing events of default under the
note purchase agreement. Any "paid in kind" notes will be on substantially
similar terms as the $40.0 million convertible, subordinated notes, although
these notes do not provide for the payment of contingent interest, as such term
is defined in the note purchase agreement.
Also as a result of the waiver and amendment, the conversion price of the
notes will be adjusted to an initial conversion price equal to 125% of the
average closing price of Prison Realty's common stock on the NYSE for a period
of 30 days immediately preceding the earlier of (i) October 31 or (ii) the
closing date of the CCA merger. This conversion price will be subject to
adjustment upon the occurrence of certain events. The waiver and amendment to
the provisions of the note purchase agreement further provides for the deletion
of an existing financial covenant and the addition of certain post-merger
financial covenants relating to Prison Realty's: (i) ratio of total indebtedness
to total capitalization; (ii) interest coverage ratio; and (iii) fixed charge
coverage ratio. The waiver and amendment further adjusts the determination of
when Prison Realty will be required to make payments of contingent interest with
respect to the notes.
There can be no assurance that Prison Realty will be able to maintain the
effectiveness of this waiver and amendment. If Prison Realty is unable to do so,
and if the holders of these notes do not consent to the proposed waiver of
events of default under, and amendments to, the note purchase agreement, Prison
Realty may be required to repurchase or redeem the outstanding principal amount
of the notes. If the aggregate principal amount of such convertible subordinated
notes were accelerated, however, the repayment of such amounts is subordinate to
the rights of the senior lenders under Prison Realty's bank credit facility. Any
requirement to repurchase or redeem the outstanding principal amount of this
indebtedness prior to its stated maturity would also trigger an event of default
under the provisions of Prison Realty's other indebtedness, including the
provisions of Prison Realty's bank credit facility.
$30.0 million 7.5% convertible, subordinated notes. The original
provisions of the note purchase agreement relating to the $30.0 million 7.5%
convertible, subordinated notes issued to PMI Mezzanine Fund, L.P. contain
certain financial covenants. As of March 31, 2000, Prison Realty was not in
compliance with these financial covenants. However, Prison Realty has not been
in default under the provisions of this note purchase agreement because the
holder of the 7.5% convertible, subordinated notes has not provided Prison
Realty with written notice declaring such an event of default.
As previously described herein, the Waiver and Amendment provides that the
lenders under Prison Realty's bank credit facility did not consent to the
repurchase of all or any portion of the 7.5% convertible, subordinated notes or
the payment or repayment of all or any portion of any amounts owing under the
notes. In addition, as previously described herein, the Waiver and Amendment
also provides that the existence of any events of default under Prison Realty's
bank credit facility as a result of an event of default under the terms of the
7.5% convertible, subordinated notes will give rise to the right of the lenders
under the bank credit facility to require Prison Realty to pay any applicable
default rate of interest under the bank credit facility. Moreover, the Waiver
and Amendment provides that, subject to certain limited exceptions, the interest
rate applicable to all outstanding amounts under the bank credit facility will
be increased by 2.0% above the otherwise applicable interest rate for any period
during which Prison Realty pays an interest rate in excess of 7.5% with respect
to the 7.5% convertible, subordinated notes, except to the extent that such
interest
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rate is increased in a manner satisfactory to the requisite percentage of the
lenders under the bank credit facility in connection with a written waiver of
existing defaults under the 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 these convertible, subordinated notes. The effectiveness of the waiver and
amendment was subject to the fulfillment of certain conditions by Prison Realty,
including the payment of a waiver fee of $75,000.
The waiver and amendment provides for a waiver of the following events of
default: (i) Prison Realty's non-compliance with certain financial covenants
contained in the note purchase agreement prior to the execution of the waiver
and amendment, as well as Prison Realty's previous noncompliance with certain
financial covenants prior to completion of the CCA merger; and (ii) certain
defaults arising from Prison Realty's non-compliance with the provisions of its
$40.0 million 9.5% convertible, subordinated notes. The waiver and amendment
further provides that, generally, the completion of, or the failure to complete,
certain transactions more fully described in this proxy statement, including:
(i) the CCA merger; (ii) Prison Realty's election, pending shareholder approval,
not to be taxed as a REIT, commencing with its taxable year ending December 31,
2000; and (iii) the rights offering required by the bank credit facility Waiver
and Amendment, will not constitute an event of default under the terms of the
note purchase agreement. Specifically, the waiver and amendment amends the
provisions of the note purchase agreement to provide that Prison Realty may,
following the merger, engage in the operation and management of correctional and
detention facilities.
The waiver and amendment to the note purchase agreement also amends the
economic terms of the notes, through the issuance of a replacement note in the
aggregate principal amount of $30.0 million, to provide, subject to the approval
of the requisite percentage of lenders under Prison Realty's bank credit
facility, for an increase in the applicable interest rate of the notes by 0.5%
per annum, which would require cash interest payments by Prison Realty equal to
an interest rate of 8.0% per annum. The amended terms of the notes provide that
if such approval is not obtained, Prison Realty will be required to issue, in
lieu of such additional cash interest payments, additional convertible,
subordinated "paid in kind" notes on a pro rata basis to all holders. Any "paid
in kind" notes will be on substantially similar terms as the $30.0 million
convertible, subordinated notes.
Also as a result of the waiver and amendment, the conversion price of the
notes will be adjusted to an initial conversion price equal to 125% of the
average closing price of Prison Realty's common stock on the NYSE for a period
of 30 days immediately preceding the earlier of (i) October 31 or (ii) the
closing date of the CCA merger. This conversion price will be subject to
adjustment upon the occurrence of certain events. The waiver and amendment to
the provisions of the note purchase agreement further provides for the deletion
of the existing financial covenants in the note purchase agreement upon
completion of the CCA merger and the addition of certain post-merger financial
covenants relating to Prison Realty's: (i) maximum total leverage ratio; (ii)
interest coverage ratio; and (iii) fixed charge coverage ratio.
There can be no assurance that Prison Realty will be able to maintain the
effectiveness of this waiver and amendment. If Prison Realty is unable to do so,
and if the holders of these notes do not consent to the proposed waiver of
events of default under, and amendments to, the note purchase agreement, Prison
Realty may be required to repurchase or redeem the outstanding principal amount
of the notes. If the aggregate principal amount of such convertible subordinated
notes were accelerated, however, the repayment of such amounts is subordinate to
the rights of the senior lenders under the bank credit facility. Any requirement
to repurchase or redeem the outstanding principal amount of this indebtedness
prior to its stated maturity would also trigger an event of default under
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the provisions of Prison Realty's other indebtedness, including the provisions
of Prison Realty's bank credit facility.
CCA's bank credit facility. On April 27, 2000, CCA obtained the consent of
the requisite percentage of the senior lenders under its bank credit facility
for a waiver of its bank credit facility's restrictions relating to:
- Prison Realty's and CCA's amendments of the original terms of the CCA
lease agreements, the amended and restated tenant incentive agreement,
the business development agreement and the amended and restated services
agreement.
- CCA's violation of a net worth covenant contained in its bank credit
facility.
- CCA's execution of an agreement and plan of merger with respect to a
merger of each of CCA, PMSI and JJFMSI with and into wholly-owned
subsidiaries of Prison Realty, in connection with the proposed
Fortress/Blackstone restructuring.
As consideration for the initial waiver, the CCA senior lenders required
and were paid a fee equal to $2.0 million in cash. The terms of the initial
waiver provided that the waiver would remain in effect until the earlier of (i)
July 31, 2000; (ii) the date the Pacific Life securities purchase agreement is
terminated; (iii) the date CCA makes any payments to Prison Realty other than as
set forth in the amendments to CCA's agreements with Prison Realty; or (iv) the
date the lenders under Prison Realty's bank credit facility exercise any rights
with respect to any default or event of default under Prison Realty's bank
credit facility.
Because the termination of the Pacific Life securities purchase agreement
resulted in a termination of the initial waiver and because CCA's proposed
execution of the merger agreement was not addressed in the initial waiver, CCA
requested that its senior lenders amend the waiver to provide for its
continuation, notwithstanding the termination of the Pacific Life securities
purchase agreement, and to permit CCA's execution of the amended merger
agreement. CCA's senior lenders refused to agree to such amendments unless CCA
paid an additional waiver fee of $1.0 million to CCA's senior lending group.
Because of the ramifications of the existence of a default under the CCA bank
credit facility, and the fact that such a default would cause an event of
default under Prison Realty's recently amended bank credit facility, on June 30,
2000, CCA committed to pay its lenders the $1.0 million fee and obtained the
consent of the requisite percentage of the senior lenders under its bank credit
facility to extend the term of the initial waiver to September 30, 2000 and to
permit the (i) termination of the merger agreement relating to the proposed
combination of Prison Realty; (ii) the execution by CCA of the merger agreement;
and (iii) the termination of the Pacific Life Securities purchase agreement.
Effect of failure of Prison Realty to obtain and maintain requested
waivers. With the exception of the events of default relating to Prison
Realty's convertible, subordinated notes existing at the time of the Waiver and
Amendment, as previously described, the Waiver and Amendment waived all known
events of default under the credit facility. Prison Realty has subsequently
obtained waivers of the defaults under the convertible, subordinated notes as
also previously described. As a result of the foregoing, Prison Realty is
currently not in default under the terms of any of its indebtedness, including
under its senior secured credit facility, its 12% senior notes, and its
convertible, subordinated notes, or that any potential events of default exists
under the terms of its indebtedness.
The effectiveness of the Waiver and Amendment is subject to conditions
previously described herein. In the event Prison Realty is unable to maintain
the Waiver and Amendment, or if Prison Realty is unable to obtain or maintain
waivers of events of default under the terms of any of its other indebtedness,
and such indebtedness is accelerated, the senior lenders under Prison Realty's
bank
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credit facilities are entitled, at their discretion, to exercise certain
remedies, including acceleration of the outstanding borrowings under the bank
credit facility. In such event, Prison Realty may be forced to seek protection
under the federal bankruptcy code.
Prison Realty's 12% senior notes and convertible, subordinated notes
contain provisions which allow the holders of such indebtedness to accelerate
the outstanding principal amount of such indebtedness and seek remedies if
Prison Realty has a payment default under its bank credit facility or if the
obligations under Prison Realty's bank credit facility have been accelerated. If
the senior lenders under Prison Realty's bank credit facility elect to exercise
their rights to accelerate Prison Realty's obligations under the bank credit
facility, such action could result in the acceleration of all or a portion of
the outstanding principal amount of Prison Realty's 12% senior notes or its
convertible, subordinated notes, which would have a material adverse effect on
Prison Realty's liquidity and financial position. Prison Realty does not have
sufficient working capital to satisfy its debt obligations in the event of an
acceleration of all of Prison Realty's outstanding indebtedness.
Effect of failure of CCA to maintain waivers of events of default under the
provisions of its bank credit facility. As previously discussed, CCA has
obtained waivers of certain events of default under the provisions of its bank
credit facility. However, these waivers expire on July 31, 2000 and are subject
to termination upon the occurrence of certain events, as previously described
herein. There can be no assurance that CCA will be able to comply with and
maintain the waivers. In the event CCA is unable to comply with and maintain the
waivers, the senior lenders under the CCA bank credit facility are entitled, at
their discretion, to exercise certain remedies, including acceleration of the
outstanding borrowings under the bank credit facility. If the senior lenders
elect to exercise their rights to accelerate CCA's obligations under CCA's bank
credit facility, such events would have a material adverse effect on CCA's
liquidity and financial position. CCA does not have sufficient working capital
in the event of an acceleration of indebtedness under CCA's bank credit
facility.
In addition, as described above, the terms of the Waiver and Amendment
provide that a condition to the continued effectiveness of the Waiver and
Amendment is the continued effectiveness of a waiver of all existing events of
default under CCA's bank credit facility. Prison Realty's bank credit facility,
as modified by the Waiver and Amendment, also provides that either of the
following will result in an event of default under Prison Realty's bank credit
facility: (i) the occurrence of an event of default under CCA's bank credit
facility; or (ii) the amendment or refinancing of CCA's bank credit facility on
terms and conditions less favorable than its existing terms. As a result of such
an event of default, the senior lenders under Prison Realty's bank credit
facility would be entitled, at their discretion, to exercise certain remedies,
including acceleration of the outstanding borrowings under the bank credit
facility. In such event, Prison Realty may be forced to seek protection under
the federal bankruptcy code.
CCA MANAGEMENT CONTRACTS WITH GOVERNMENT ENTITIES
Federal Bureau of Prisons. On June 9, 2000, CCA received a notice of award
with respect to two contracts with the Federal Bureau of Prisons ("FBOP") to
house 3,316 federal detainees at Prison Realty's California City Correctional
Facility located in California City, California and Prison Realty's Cibola
County Corrections Center located in Milan, New Mexico. The contracts, which are
expected to be dated as of September 7, 2000, will have an initial term of three
years with seven one-year renewal options. The terms of the contracts provide
for a 95% guaranteed occupancy rate, and revenues for the contracts are expected
to begin in the third quarter of 2000.
State of North Carolina. CCA has commenced negotiations with the North
Carolina Department of Correction with respect to the termination of CCA's
management contracts for the Mountain View Correctional Institution located in
Spruce Pine, North Carolina and the Pamlico
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Correctional Institution located in Bayboro, North Carolina. The 528-bed, medium
security institutions are owned by Prison Realty and leased to the state of
North Carolina pursuant to leases expiring in the fourth quarter of 2008,
subject to extension for an additional 10 years upon the agreement of the
parties. The facilities house adult male inmates for the state pursuant to
contracts obtained by Old CCA as part of its acquisition of certain management
contracts from USCC in 1998. Prison Realty expects to continue leasing the
facilities to the North Carolina Department of Correction.
POTENTIAL LIABILITY WITH REGARD TO BOND ISSUE
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 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.
SHAREHOLDER LITIGATION
On December 29, 1999, a purported class action lawsuit was filed on behalf
of the shareholders of Prison Realty in the Chancery Court for Davidson County,
Tennessee. The lawsuit, captioned Bernstein v. Prison Realty Trust, et al.,
names as defendants Prison Realty and its directors, as well certain affiliates
of Fortress, Blackstone and Bank of America. The lawsuit alleges that the
directors of Prison Realty breached their fiduciary duties to Prison Realty's
shareholders by effectively selling control of Prison Realty for inadequate
consideration and without having adequately considered or explored all other
alternatives to the proposed Fortress/Blackstone restructuring or having taken
steps to maximize stockholder value. The plaintiffs seek an injunction
preventing the completion of the Fortress/Blackstone restructuring, declaratory
relief, and costs and fees. On each of January 4, 2000 and January 12, 2000,
nearly identical purported class action lawsuits were filed in the same court on
behalf of different purported class representatives. The lawsuits, captioned
Hardee v. Prison Realty Trust, et al. and Holle v. Prison Realty Trust, et al.,
name as defendants Prison Realty and its directors, as well as each of Fortress,
Blackstone and Bank of America. These three actions were consolidated on
February 18, 2000.
On December 30, 1999, a purported class action lawsuit was filed in federal
court in the United States District Court for the Middle District of Tennessee,
on behalf of the stockholders of Prison Realty. The lawsuit, captioned Neiger v.
Doctor Crants, et al., names as defendants Prison Realty, Doctor R. Crants and
D. Robert Crants, III. The lawsuit alleges violations of federal securities laws
based on the allegation that the defendants knew or should have known that
Prison Realty would not make any further dividend payments on its common stock,
including a special dividend, prior to the date on which it was disclosed to the
public that Prison Realty had entered into an agreement with respect to the
Fortress/Blackstone restructuring and would not elect to be taxed as a REIT
beginning with its 1999 taxable year, and therefore, certain statements made by
the defendants prior to that time were false and misleading. The plaintiffs seek
an unspecified amount of monetary damages, equitable and/or injunctive relief
and costs and fees. On February 4, 2000, a nearly identical purported class
action lawsuit was filed in the same court on behalf of different purported
class representatives. The lawsuit, captioned Anderson v. Doctor Crants, et al.,
names as defendants Prison Realty, Doctor R. Crants and D. Robert Crants, III.
On February 24, 2000, a nearly identical
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purported class action lawsuit was filed in the same court on behalf of a
different purported class representative. The lawsuit, captioned Brody v. Prison
Realty Trust, Inc. et al., names as defendants Prison Realty, Doctor R. Crants,
and D. Robert Crants, III. These three actions were consolidated on March 13,
2000. The plaintiffs filed a consolidated complaint on May 30, 2000.
Additionally, on March 3, 2000, a similar lawsuit was filed on behalf of two
plaintiffs in the Chancery Court for the State of Tennessee, Twentieth Judicial
District. The lawsuit, captioned Buchanan v. Prison Realty Trust, Inc., et al.,
names as defendants Prison Realty, Doctor R. Crants, D. Robert Crants, III and
Darrell K. Massengale and alleges violations of state common and securities laws
based on claims substantially identical to those enumerated above.
Prison Realty is also currently subject to two separate purported class
actions filed in federal court in the United States District Court for the
Middle District of Tennessee, alleging securities fraud in connection with the
agreements entered into by Prison Realty and CCA in May 1999 to increase
payments made by Prison Realty to CCA under the terms of certain agreements. The
plaintiffs' class in In re Old CCA Securities Litigation consists of former
shareholders of Old CCA who acquired shares of Prison Realty as the result of
the merger of Old CCA with and into Prison Realty. The plaintiffs' class in In
re Prison Realty Securities Litigation consists of former shareholders of Old
Prison Realty who acquired shares of Prison Realty as the result of the merger
of Old Prison Realty with and into Prison Realty and all persons who acquired
shares of Prison Realty in the open market prior to May 17, 1999. Each of these
actions alleges violations of federal securities laws based, among other things,
on the allegations that Prison Realty and the individual defendants in the
actions knew or should have known of the increased payments to CCA prior to the
date that they were disclosed to the public, and therefore certain public
filings and representations made by Prison Realty and certain of the defendants
were false and misleading. These two actions represent the consolidation of
sixteen complaints filed in May and June 1999. On March 24, 2000, a purported
class action nearly identical to In re Prison Realty Securities Litigation was
filed in the United States District Court for the Middle District of Tennessee.
It is anticipated that the lawsuit, captioned Mikovits v. Prison Realty Trust,
et. al., will be coordinated and/or consolidated with In re Prison Realty
Securities Litigation. In addition, a purported stockholders' derivative
complaint has been filed in the Chancery Court for Davidson County, Tennessee in
Nashville, captioned Wanstrath v. Crants, et al., against Prison Realty, CCA and
persons who were directors at the time Prison Realty entered into the agreements
regarding the increased payments to CCA. The derivative action alleges, among
other things, that the directors of Prison Realty violated their fiduciary
duties in approving the increased payments to CCA. The plaintiffs in this action
have also moved for a preliminary injunction to prevent the payment of certain
fees in connection with the Fortress/Blackstone restructuring and the payments
to certain parties in connection with the Pacific Life restructuring.
Prison Realty also is subject to a complaint filed in August 1998 in the
Chancery Court for Davidson County, Tennessee, inherited from Old CCA as a
result of Old CCA's merger with and into Prison Realty. The lawsuit, captioned
Dasburg, S.A. v. Corrections Corporation of America, et al., claims that Old CCA
and the individual named defendants violated state law by making false and
misleading statements in order to keep Old CCA's stock price at an artificially
high level during the period from April 1997 through April 1998, so that the
individual named defendants could sell shares of Old CCA stock at inflated
prices.
Prison Realty is defending vigorously its actions in each of the
shareholder lawsuits described herein. It is possible additional lawsuits will
be filed, or that the existing complaints filed in connection with the
Fortress/Blackstone restructuring and/or the Pacific Life restructuring will be
amended in connection with the proposed restructuring transactions. It is also
possible that Prison Realty's liability in regard to the shareholder lawsuits
will exceed Prison Realty's insurance coverage limits and will have a material
adverse impact on Prison Realty's consolidated financial position,
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results of operations and cash flows. In addition, as previously described, the
terms of the Waiver and Amendment provide that it shall be an event of default
under Prison Realty's bank credit facility if Prison Realty settles its
currently outstanding shareholder litigation for cash amounts not otherwise
fully covered by Prison Realty's existing directors' and officers' liability
insurance policies.
OTHER LITIGATION
Prison Realty. In addition to the shareholder litigation described herein
under "-- Shareholder litigation," and the matters described below, Prison
Realty is, and will be upon completion of the restructuring, also subject to
certain other litigation, including routine litigation arising in the ordinary
course of Prison Realty's business, as more fully described in Prison Realty's
Quarterly Report on Form 10-Q (File no. 0-25245), filed with the SEC on May 15,
2000, and Prison Realty's Annual Report on Form 10-K (File no. 0-25245), filed
with the SEC on March 30, 2000. All or a portion of any liabilities resulting
from this litigation is expected to be covered by liability insurance, and all
of such litigation collectively is not expected to have a material adverse
effect on the financial condition of Prison Realty.
As previously described herein under "-- Recent developments," on June 9,
2000, a complaint was filed in federal court in the United States District Court
for the Southern District of New York by Fortress/Blackstone to recover $23.2
million in fees allegedly owed them as the result of the companies' termination
of the Fortress/Blackstone securities purchase agreement. The payment of these
fees is also subject to certain claims in the shareholder litigation described
herein under "-- Shareholder litigation."
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.
CCA. In addition to the litigation described below, CCA currently is, and
Prison Realty and CCA's successor will be upon completion of the restructuring,
subject to certain litigation, including litigation arising in the ordinary
course of CCA's business, as more fully described in Prison Realty's Quarterly
Report on Form 10-Q (File no. 0-25245), filed with the SEC on May 15, 2000, and
Prison Realty's Annual Report on Form 10-K (File no. 0-25245), filed with the
SEC on March 30, 2000.
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.
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BUSINESS OF PRISON REALTY FOLLOWING THE COMPLETION OF THE RESTRUCTURING
Following the completion of the restructuring, Prison Realty will be a
full-service provider of correctional and detention services and will continue
to provide all of the services previously offered to customers of Prison Realty
and CCA under the "Corrections Corporation of America" name. In addition, Prison
Realty will no longer operate so as to qualify as a REIT and will instead
conduct its business as a taxable subchapter C corporation, effective January 1,
2000.
OPERATIONS AND BUSINESS STRATEGY
After the completion of the restructuring, if approved, Prison Realty
intends to increase revenues and its position as the largest owner, developer
and manager of privatized correctional and detention facilities worldwide
through the following business strategies.
Efficient development and management of facilities. The newly combined
Prison Realty will continue to provide high quality, cost-efficient management
of its facilities. Prison Realty believes that its quality of personnel,
efficient application of financial resources and adherence to proven policies
and procedures will enable it to design, develop and manage correctional and
detention facilities at costs lower than those of government agencies that are
responsible for performing such services. Prison Realty believes that the
reputations of its predecessors as innovative and effective owners and managers
of facilities will enhance its ability to market its services and capitalize on
a larger scope of opportunities with a variety of government agencies.
Prison Realty also recognizes the importance of the facility administrator
and the facility's management team in the successful financial performance of
each facility. Prison Realty believes that CCA's reputation will enable it to
attract highly-qualified facility administrators. Each CCA facility management
team operates each facility in accordance with a company-wide policy and
procedure regimen derived from industry standards and designed to ensure the
delivery of consistent, high quality services in each of its facilities. Prison
Realty will seek to minimize operating expenses by designing its facilities to
optimize correctional officer staffing consistent with facility security
requirements. Prison Realty will further control operating expenses through the
continued use of electronic surveillance systems and other technologies.
Development of domestic business opportunities. As a result of the growth
in the demand for privatized correctional and detention facilities, Prison
Realty will be selective in the projects it pursues. Prison Realty will continue
to pursue projects based on probability of success, geographic location, size,
potential profitability and political and community acceptability. Management
believes this approach will allow Prison Realty to enhance its market share and
optimize resource allocation, profitability and financial return. Prison Realty
intends to continue its focus on institutions with an emphasis on medium to
maximum security that are 500 to 1,000 beds or larger. Management believes that
the experience and reputation of the newly combined Prison Realty in managing
large secure facilities will enable it to maintain its industry position and to
capitalize on the trend of governments to privatize larger facilities.
Expansion into international markets. Prison Realty believes that the
majority of its new business will come from within the United States. While
management will not detract from its domestic business to pursue international
activities, Prison Realty will continue to participate in selected international
projects it finds attractive. Prison Realty also believes that in order to
compete effectively in international markets it must enter into alliances with
strategic local partners in the international marketplace with access to local
opportunities and familiarity with local business practices.
47
<PAGE> 51
Cost reduction programs. An important component of CCA's current strategy
is to position itself as a low cost, high quality provider of prison management
services in all of its markets. The newly combined Prison Realty will continue
this strategy. As cost containment pressures increase, Prison Realty will
continue to focus on improving operating performance and efficiency through the
following key operating initiatives: (i) standardization of supply and service
purchasing practices and usage; (ii) improvement of inmate management, resource
consumption and reporting procedures; and (iii) improvement in salary and wage
expenses by reducing overtime, monitoring staff levels and developing
productivity standards. Prison Realty intends to continue to apply these
operating cost initiatives throughout its existing facilities and in new
facilities.
FACILITIES TO BE OWNED AND/OR OPERATED BY PRISON REALTY UPON COMPLETION OF THE
RESTRUCTURING
Information regarding each facility to be owned and/or operated by Prison
Realty and/or its subsidiaries upon completion of the restructuring, including
those facilities currently under construction or development, is set forth
below, grouped by state:
<TABLE>
<CAPTION>
OWNED,
NO. OF MANAGED
CONTRACTING FACILITY AND/OR
LOCATION CITY FACILITY PARTIES EXPIRATION BEDS LEASED
-------- --------------- ----------------------- --------------------------- ----------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
DOMESTIC
Arizona Eloy Eloy Detention Center U.S. Department of February 28, 2002 1,500 Owned and
Justice/FBOP managed
Florence Central Arizona U.S. Marshals Service November 3, 2000 2,304 Owned and
Detention Center ("USMS") managed
Pinal County, Arizona January 5, 2014
State of Alaska June 30, 2001
State of Hawaii June 30, 2001
Gila River Police Dept. of (1)
Arizona
Pascua Yaqui Tribe of (1)
Arizona
Florence Florence Correctional State of Hawaii June 30, 2001 1,600 Owned and
Facility managed
Pascua Hagui Tribe of (1)
Arizona
California California City California City California City, California October 31, 2024 2,304 Owned and
Correctional Facility managed
USMS November 15, 2000
FBOP November 9, 2003
Live Oak Leo Chesney Cornell Corrections(2) February 28, 2002 240 Owned and
Correctional Facility leased
Mendota Mendota Correctional (3) (3) 1,024 Owned and
Facility managed
San Diego San Diego Correctional Immigration and December 31, 2000 1,200 Owned,
Facility Naturalization Service managed
("INS") and
leased(4)
Colorado Burlington Kit Carson Correctional Colorado Department of June 30, 2001 768 Owned and
Facility Corrections ("DOC") managed
City of Burlington October 31, 2003
USMS (5)
Las Animas Bent County Bent County, Colorado August 17, 2018 700 Owned and
Correctional Facility managed
Colorado DOC
</TABLE>
48
<PAGE> 52
<TABLE>
<CAPTION>
OWNED,
NO. OF MANAGED
CONTRACTING FACILITY AND/OR
LOCATION CITY FACILITY PARTIES EXPIRATION BEDS LEASED
-------- --------------- ----------------------- --------------------------- ----------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Walsenburg Huerfano County Huerfano County October 31, 2122 752 Owned and
Correctional Center Correctional Facilities managed
Authority
Colorado DOC
Georgia Alamo Wheeler Correctional Georgia DOC June 30, 2001 1,524 Owned and
Facility managed
McRae McRae Correctional (3) (3) 1,524 Owned and
Facility managed
Millen Millen Correctional (3) (3) 1,524 Owned and
Facility managed
Nicholls Coffee Correctional Georgia DOC June 30, 2001 1,524 Owned and
Facility managed
Stewart County Stewart County (3) (3) 1,524 Owned and
Correctional Facility managed
Kansas Leavenworth Leavenworth Detention USMS December 31, 2000 483 Owned and
Center managed
Kentucky Beatyville Lee Adjustment Center Commonwealth of Kentucky December 11, 2001 756 Owned and
managed
Louisville River City Correctional Jefferson County, Kentucky June 30, 2000 363 Owned and
Center managed
St. Mary Marion Adjustment Commonwealth of Kentucky December 7, 2001 856 Owned and
Center managed
Wheelwright Otter Creek Commonwealth of Kentucky December 7, 2001 656 Owned and
Correctional Center managed
Minnesota Appleton Prairie Correctional Appleton Prison Corp July 31, 2009 1,338 Owned and
Facility managed
Minnesota DOC June 30, 2001
Nebraska (USMS) (5)
USMS September 20,
2000
State of Hawaii June 30, 2001
North Dakota DOC July 31, 2000
Wisconsin DOC December 22, 2000
Mississippi Tallahatchie Tallahatchie County Tallahatchie County May 23, 2003 1,104 Owned and
Correctional Center Correctional Authority managed
Wisconsin DOC December 22, 2000
Montana Shelby Crossroads Correctional Montana DOC August 31, 2003 512 Owned and
Center managed
Montana DOC June 30, 2002
Nevada Las Vegas Southern Nevada Women's State of Nevada, Nevada June 30, 2015 500 Owned,
Correctional Facility Dept. of Prisons managed
and
leased(6)
New Mexico Estancia Torrance County Torrance County, New Mexico October 31, 2010 910 Owned and
Detention Facility (management services) managed
Torrance County, New Mexico October 31, 2010
Lincoln County, New Mexico (1)
Valencia County, New Mexico (1)
USMS (5)
Grants New Mexico Women's New Mexico DOC June 30, 2001 596 Owned and
Correctional Facility managed
</TABLE>
49
<PAGE> 53
<TABLE>
<CAPTION>
OWNED,
NO. OF MANAGED
CONTRACTING FACILITY AND/OR
LOCATION CITY FACILITY PARTIES EXPIRATION BEDS LEASED
-------- --------------- ----------------------- --------------------------- ----------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Milan Cibola County Cibola County, New Mexico April 16, 2001 1,072 Owned and
Corrections Center managed
State of Idaho July 15, 2000
State of Alaska June 30, 2001
FBOP November 9, 2003
North Bayboro Pamlico Correctional North Carolina DOC September 1, 528 Owned,
Carolina Institution 2003(7) managed
and
leased(6)
Spruce Pine Mountainview State of North Carolina November 30, 528 Owned,
Correctional 2003(7) managed
Institution and
leased(6)
Ohio Cincinnati Queensgate Correctional Hamilton County, Ohio(2) March 1, 2000 850 Owned and
Facility leased(6)
Youngstown Northeast Ohio Government of District of September 8, 2000 2,016 Owned and
Correction Center Columbia managed
Oklahoma Cushing Cimarron Correctional Oklahoma DOC June 30, 2001 960 Owned and
Facility managed
Holdenville Davis Correctional Oklahoma DOC June 30, 2001 960 Owned and
Facility managed
Sayre North Fork Correctional Wisconsin DOC December 22, 2000 1,440 Owned and
Center managed
State of Hawaii June 30, 2001
Sayre Industrial Authority April 30, 2018
Watonga Diamondback Watonga Economic July 31, 2018 1,440 Owned and
Correctional Facility Development Authority managed
State of Hawaii June 30, 2001
Indiana DOC January 31, 2003
Oklahoma DOC June 30, 2001
Tennessee Mason West Tennessee City of Mason July 29, 2010 600 Owned and
Detention Center managed
USMS August 4, 2000
State of Hawaii June 30, 2001
Wisconsin DOC December 22, 2000
Memphis Shelby Training Center Juvenile Court of Memphis April 14, 2015 200 Owned and
and Shelby County, managed
Tennessee
U.S. Department of Justice December 31, 2000
Delaware Dept. of Services June 30, 2001
for Children, Youth and
their Families
Nevada Dept. of Human June 30, 2001
Resources Division of Child
and Family Services
Idaho Dept. of Juvenile November 30, 2000
Corrections
Whiteville Whiteville Correctional Wisconsin DOC December 22, 2000 1,536 Owned and
Facility managed
Texas Bridgeport Bridgeport Pre-Parole Texas Dept. of Criminal August 31, 2000 200 Owned and
Transfer Facility Justice managed
Dallas Community Education Community Education August 14, 2008 -- Owned and
Partners - Dallas Partners(2) leased
</TABLE>
50
<PAGE> 54
<TABLE>
<CAPTION>
OWNED,
NO. OF MANAGED
CONTRACTING FACILITY AND/OR
LOCATION CITY FACILITY PARTIES EXPIRATION BEDS LEASED
-------- --------------- ----------------------- --------------------------- ----------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Eden Eden Detention Center City of Eden April 13, 2011 1,225 Owned and
managed
FBOP (5)
Houston Community Education Community Education June 30, 2008 -- Owned and
Partners - Houston Partners(2) leased
Houston Houston Processing INS September 30, 411 Owned and
Center 2000 managed
Laredo Laredo Processing INS September 30, 258 Owned and
Center 2000 managed
Laredo Webb County Detention Webb County October 1, 2018 480 Owned and
Facility managed
USMS February 8, 2001
Mineral Wells Mineral Wells Pre- Texas Dept. of Criminal August 31, 2000 2,103 Owned and
Parole Transfer Justice managed
Facility
Taylor T. Don Hutto Williamson County, Texas January 21, 2003 480 Owned and
Correctional Center managed
TDCJ October 31, 2000
USMS (5)
District of Washington Correctional Treatment District of Columbia March 15, 2017 866 Owned,
Columbia Facility managed
and
leased(6)
INTERNATIONAL
United Salford HMP Forrest Bank HMP Secretary of State for January 25, 2025 800 Owned,
Kingdom the Home Department and managed
Agecroft Prison Management, and
Ltd. leased(6)
</TABLE>
-------------------------
(1) Contract continues until either party provides the other with 30 days
written notice of termination.
(2) Indicates leasing party.
(3) Facility currently under development or construction.
(4) Prison Realty is lessee under a ground lease with City of San Diego for the
real property.
(5) Contract expires when funding is no longer allocated by U.S. Congress.
(6) Facility is leased to the appropriate state or local government agency (or
the District of Columbia).
(7) CCA is currently in discussions with the NCDOC with respect to the mutual
termination of the contract.
RELATIONSHIP WITH THE SERVICE COMPANIES
Upon completion of the merger, Prison Realty will maintain its existing
ownership of 100% of the non-voting common stock of PMSI and JJFMSI, which will
entitle it to continue to receive 95% of each company's net income, as defined,
in the form of cash dividends on such shares. In addition, Prison Realty and its
subsidiaries will provide administrative services for the service companies for
a cash fee under the terms of an existing administrative services agreement
between CCA and the service companies. Prison Realty will also license the use
of the CCA name to the service companies for a cash fee under the terms of an
existing service mark and trade name use agreement between CCA and the service
companies.
The terms of Prison Realty's recently amended bank credit facility permit
Prison Realty to combine with PMSI and JJFMSI for non-cash consideration not to
exceed $12.6 million. A maximum of $10.6 million in non-cash consideration may
be paid to outside, non-warden stockholders of the service companies. Prison
Realty has initiated discussion with representatives of PMSI and JJFMSI
regarding a merger of the two companies with and into subsidiaries of Prison
Realty in accordance with the terms of Prison Realty's bank indebtedness. Prison
Realty expects that if it is able to negotiate the terms of such mergers that
the terms of such mergers would, like the
51
<PAGE> 55
merger with CCA, provide for the exchange of shares of each service companies'
common stock for shares of Prison Realty common stock in the merger at an
exchange ratio determined by a formula using the average closing price of Prison
Realty common stock over a period of time immediately prior to such merger. No
assurance, however, can be made that any agreement may be reached as to the
service company mergers.
Prison Realty previously entered into agreements to purchase 85% of the
voting common stock of each of PMSI and JJFMSI, which is held by outside, or
non-employee, shareholders of each company in connection with the transactions
contemplated by the Fortress/Blackstone restructuring and the Pacific Life
restructuring. Due to the termination of the restructuring transactions with
Fortress/Blackstone and Pacific Life, Prison Realty believes it has no remaining
obligations under these agreements.
Information regarding each facility to be operated by PMSI and JJFMSI upon
completion of the restructuring, is set forth below, grouped by state:
PMSI.
<TABLE>
<CAPTION>
OWNED,
NO. OF MANAGED
CONTRACTING FACILITY AND/OR
LOCATION CITY FACILITY PARTIES EXPIRATION BEDS LEASED
-------- ------------- -------------------- --------------------------- ------------------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Florida Gadsden Gadsden Correctional State of Florida July 1, 2001 896 Managed
Institution Correctional Privatization
Commission
Panama City Bay Correctional State of Florida August 28, 2000 750 Managed
Facility Correctional Privatization
Commission
Idaho Boise Idaho Correctional State of Idaho, Department June 30, 2003 1,250 Managed
Facility of Administration
Louisiana Winnfield Winn Correctional Department of Public Safety March 18, 2003 1,538 Managed
Center and Corrections
Mississippi Greenwood Delta Correctional Delta Correctional October 25, 2001 1,016 Managed
Facility Authority
Woodville Wilkinson County Wilkinson County Industrial January 5, 2003 900 Managed
Correctional Center Development Authority
Puerto Rico Guayama Guayama Correctional Administration of December 17, 2000 1,000 Managed
Center Corrections of the
Commonwealth of Puerto
Rico, Puerto Rico Public
Buildings Authority
Ponce Ponce Adult Administration of February 6, 2002 1,000 Managed
Correctional Corrections of the
Facility Commonwealth of Puerto
Rico, Puerto Rico Public
Buildings Authority
Tennessee Clifton South Central Tennessee DOC February 28, 2002 1,506 Managed
Correctional
Facility
Whiteville Hardeman County Hardeman County November 14, 2001 2,016 Managed
Correctional Center Correctional Facilities
Corp.
Virginia Lawrenceville Lawrenceville Virginia DOC March 22, 2003 1,500 Managed
Correctional Center
</TABLE>
52
<PAGE> 56
JJFMSI.
<TABLE>
<CAPTION>
OWNED,
NO. OF MANAGED
CONTRACTING FACILITY AND/OR
LOCATION CITY FACILITY PARTIES EXPIRATION BEDS LEASED
-------- ------------- -------------------- --------------------------- ------------------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
DOMESTIC
Florida Brooksville Hernando County Jail Hernando County, Florida October 1, 2000 302 Managed
USMS (1)
Lake City Lake City State of Florida June 30, 2001 350 Managed
Correctional Center Correctional Privatization
Commission
Lecanto Citrus County Citrus County, Florida September 30, 2000 400 Managed
Detention Facility
Polk County, Florida (2)
Panama City Bay County Jail Bay County, Florida January 22, 2000 276 Managed
Panama City Bay County Jail Bay County, Florida September 22, 2000 401 Managed
Annex
Okeechobee Okeechobee Juvenile State of Florida Department December 3, 2002 96 Managed
Offender of Juvenile Justice
Correctional Center
Indiana Vincennes Southwest Indiana Children and Family June 30, 2002 170 Managed
Regional Youth Services Corporation
Village
State of Delaware June 30, 2001
Indianapolis Marion County Jail Marion County, Indiana November 20, 2001 670 Managed
II
Madison County, Indiana (2)
New Jersey Elizabeth Elizabeth Detention INS January 2, 2001 300 Managed
Center
Oklahoma Tulsa David L. Moss Tulsa County Criminal August 22, 2002 1,440 Managed
Criminal Justice Justice Authority
Center
Puerto Rico Ponce Ponce Youthful Administration of February 6, 2002 500 Managed
Offender Corrections of the
Correctional Commonwealth of Puerto
Facility Rico, Puerto Rico Public
Buildings Authority
Tennessee Chattanooga Silverdale Hamilton County, Tennessee September 19, 2000 576 Managed
Facilities
Memphis Tall Trees Tennessee Dept. of June 30, 2001 63 Managed
Children's Services (level
1)
Tennessee Dept. of June 30, 2001
Children's Services (level
2)
Nashville Metro-Davidson Metropolitan Government of May 31, 2002 1,092 Managed
County Detention Nashville and Davidson
Facility County, Tennessee
Texas Bartlett Bartlett State Jail Texas Dept. of Criminal August 31, 2001 962 Managed
Justice
Brownfield Brownfield Texas Dept. of Criminal August 31, 2000 200 Managed
Intermediate Justice
Sanction Facility
Liberty Liberty County Jail Liberty County, Texas November 25, 2001 380 Managed
Delaware Dept. of Services June 30, 2001
for Children, Youth and
their Families
Nevada Dept. of Human June 30, 2001
Resources Division of Child
and Family Services
</TABLE>
53
<PAGE> 57
<TABLE>
<CAPTION>
OWNED,
NO. OF MANAGED
CONTRACTING FACILITY AND/OR
LOCATION CITY FACILITY PARTIES EXPIRATION BEDS LEASED
-------- ------------- -------------------- --------------------------- ------------------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
USMS (1)
Short term contracts: (2)
Orange County
Hardin County
Polk/Trinity/San Jacinto
Counties
Jefferson County
Montgomery County
Nacogdoches County
Tyler County
Chambers County
Baytown
Pascua Yaqui Tribe of
Arizona
First Judicial District
Juvenile Probation
Dept.
Nevada Youth Training
Center
INS
BOP
Venus Venus Pre-Release Texas Dept. of Criminal August 31, 2001 1,000 Managed
Center Justice
INTERNATIONAL
Australia Queensland Borallon Corrections Queensland Correctional September 30, 2000 492 Managed
Center Services and CCAustralia
PTY, Ltd.
Melbourne Metropolitan Women's Department of Justice and August 21, 2001 171 Owned,
Correctional Centre Excor Investments PTY, Ltd. managed
and
leased(3)
Wooroloo Acacia Prison State of Western Australia 5 years from 750 Managed
and CCAustralia PTY, Ltd. opening date
(scheduled to be
November 1, 2000)
United Redditch HMP Blakenhurst HMP Secretary of State for May 25, 2001 850 Managed
Kingdom the Home Department and
UKDS Ltd.
</TABLE>
-------------------------
(1) Contract expires when funding is no longer allocated by U.S. Congress.
(2) Contract continues until either party provides the other with 30 days
written notice of termination.
(3) Facility is leased to appropriate government agency or authority.
RISKS ASSOCIATED WITH THE OPERATION AND MANAGEMENT OF CORRECTIONAL AND DETENTION
FACILITIES
By effecting the restructuring, Prison Realty will become more directly
exposed to the risks inherent in the private corrections and detention industry.
These risks include:
- Cash flow and revenues generated from private prison management are
dependent upon facility management contracts with government entities,
which can be canceled on short notice without significant penalty.
- The failure of one or more government entities to renew these management
contracts or to send inmates to Prison Realty's facilities, or the
failure of one or more government entities to receive sufficient
appropriations to cover its contractual obligations, could have an
adverse effect on Prison Realty's business.
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<PAGE> 58
- Private prison managers are increasingly subject to public scrutiny
regarding proposed facilities, opposition from organized labor and
federal and state regulation and political conditions, which could make
it more difficult for Prison Realty to maintain or expand its business.
- Legislation has been proposed or enacted in several states, and has
previously been proposed in the United States House of Representatives,
restricting the ability of private prison managers to house certain
types of inmates.
- Prison Realty could be subject to potential claims or litigation by
third parties or prisoners relating to personal injury or other damages
resulting from a prisoner's escape from, or a disturbance or riot at, a
facility owned by Prison Realty.
- Nine of the facilities either owned or under development by Prison
Realty will be subject to an option to purchase by certain government
agencies. If one or more of those facilities are repurchased by a
government agency, Prison Realty may not be able to recoup its full
investment from such facility or be able to invest the proceeds from the
sale of the facility in one or more properties that yield as much
revenue as the repurchased property.
QUALIFICATION OF PRISON REALTY AS A REIT FOR 1999
TAX STATUS OF PRISON REALTY
As required by the terms of Prison Realty's charter, Prison Realty will
elect to be taxed as a REIT for federal income tax purposes with respect to its
taxable year ended December 31, 1999. Following consummation of the
restructuring and the merger, Prison Realty will no longer operate as to qualify
as a REIT. Therefore, commencing with its taxable year ending December 31, 2000,
Prison Realty will be taxable as a regular subchapter C corporation. Because the
requirements relating to qualification as a REIT are highly technical and
complex, no assurance can be given that Prison Realty will in fact qualify as a
REIT for 1999.
In satisfaction of its remaining REIT distribution requirements for 1999,
Prison Realty will issue shares of its newly-issued series B convertible
preferred stock to the holders of its common stock. It is currently anticipated
that Prison Realty will distribute approximately $150.0 million in shares of
series B convertible preferred stock. This distribution of the series B
preferred stock is intended to constitute a taxable dividend.
QUALIFICATION OF PRISON REALTY AS A REIT
Set forth below is a general discussion of the material U.S. federal income
tax considerations relating to the qualification of Prison Realty as a REIT with
respect to its 1999 taxable year. The discussion is based on the Code, current
and proposed Treasury Regulations promulgated thereunder, administrative rulings
and applicable judicial decisions, all of which are subject to change, possibly
with retroactive effect. The discussion does not purport to deal with all
aspects of federal income taxation that may be relevant to particular holders of
Prison Realty's capital stock in view of their personal circumstances and,
except as otherwise specifically indicated, is not addressed to certain types of
holders subject to special treatment under federal income tax law, such as
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, persons that hold capital stock that is a hedge or that is
hedged against currency risks or that are part of a "straddle" or "conversion"
transaction, and foreign persons.
EACH SHAREHOLDER IS URGED TO CONSULT ITS TAX ADVISOR REGARDING THE SPECIFIC
TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND SALE OF PRISON REALTY CAPITAL
STOCK AND OF PRISON REALTY'S ELECTION TO
55
<PAGE> 59
BE TAXED AS A REIT FOR 1999, INCLUDING THE STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH ACQUISITION, OWNERSHIP, SALE AND ELECTION, AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
The following discussion sets forth only the material aspects of the
federal income tax requirements applicable to REITs and their shareholders. This
summary is qualified in its entirety by the applicable Code provisions, rules
and Treasury Regulations promulgated thereunder, and administrative and judicial
interpretation thereof.
Opinion of Counsel. In the opinion of Stokes & Bartholomew, P.A., with
respect to its taxable year ended December 31, 1999, Prison Realty was organized
in conformity with the requirements for qualification as a REIT and its method
of operation as described in this section should permit it to meet the
requirements for qualification and taxation as a REIT under the Code. The
opinion of Stokes & Bartholomew, P.A. is based on various assumptions and on
certain factual representations of Prison Realty which are incorporated into
such opinion. Opinions of counsel are not binding on the IRS or any court.
Accordingly, no assurance can be given that the IRS will not challenge the
opinion of Stokes & Bartholomew, P.A. or that any such challenge would not be
successful.
Taxation as a REIT. In general, a REIT is not subject to federal corporate
income taxes on that portion of its ordinary income or capital gain that is
distributed to its shareholders because the REIT provisions of the Code
generally allow a REIT to deduct dividends paid to its shareholders. This
deduction for dividends paid substantially eliminates the federal "double
taxation" on earnings (once at the corporate level and once again at the
shareholder level) that generally results from investment in a corporation.
However, a REIT may be subject to federal income tax in the following
circumstances. First, a REIT will be taxed at regular corporate rates on any
undistributed taxable income, including undistributed net capital gains. Second,
under certain circumstances, a REIT may be subject to the "alternative minimum
tax" on its items of tax preference, if any. Third, to the extent a REIT has (i)
net income from the sale or other disposition of "foreclosure property"
(generally, property acquired by reason of a default on a lease or an
indebtedness held by a REIT) that is held primarily for sale to customers in the
ordinary course of business, or (ii) other non-qualifying net income from
foreclosure property, it will be subject to tax at the highest corporate rate on
such income. Fourth, to the extent a REIT has net income from a "prohibited
transaction" (generally, a sale or other disposition of property held primarily
for sale to customers in the ordinary course of business, other than foreclosure
property), such income will be subject to a 100% tax. Fifth, to the extent a
REIT fails to satisfy the 75% income test or the 95% income test (as discussed
below) for any year, and has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on the net income attributable to the greater of the amount by which it
fails the 75% income test or 95% income test, multiplied by a fraction intended
to reflect the REIT's profitability. Sixth, to the extent a REIT fails to
distribute with respect to any taxable year at least the sum of (i) 85% of its
REIT ordinary income for such year, (ii) 95% of its REIT capital gain net income
for such year, and (iii) any undistributed taxable income from prior periods
("Minimum Distributions"), the REIT will be subject to a 4% excise tax (the
"Excise Tax") on the excess of such Minimum Distributions over the amounts
actually distributed. For purposes of the Excise Tax, any income, including net
capital gains, on which a REIT pays regular corporate income tax is treated as
having been distributed. Seventh, if a REIT has acquired any asset from a
subchapter C corporation (i.e., a corporation which is generally subject to a
full corporate-level tax) in a transaction in which the basis of the asset in
the REIT's hands is determined by reference to the basis of the asset (or any
other asset) in the hands of the subchapter C corporation and the REIT
recognizes gain on the disposition of the asset during the 10-year period
beginning on the date on which such asset was acquired by the REIT, then to the
extent of such asset's "built-in gain" (i.e., the excess of the fair market
value of such asset at the time of acquisition over the adjusted basis in such
asset as of such time), such gain will be subject to tax at the highest regular
corporate rate applicable. This result as to the recognition of "built-in gain"
assumes that the
56
<PAGE> 60
REIT makes an election pursuant to IRS Notice 88-19 or applicable future
administrative rules or Treasury Regulations.
For Prison Realty to qualify as a REIT with respect to its 1999 taxable
year, it must make certain additional distributions to its shareholders in 2000.
Because Prison Realty failed to make the Minimum Distributions with respect to
its 1999 taxable year, it will also be subject to Excise Tax equal to 4% of the
excess of such Minimum Distributions over the amounts actually distributed.
Prison Realty estimates that the amount of this Excise Tax will be approximately
$5 million.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association: (i) that is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest; (iii) which would be taxable
as a domestic corporation but for the REIT provisions of the Code; (iv) that is
neither a financial institution nor an insurance company subject to certain
provisions of the Code; (v) the beneficial ownership of which is held by 100 or
more persons; (vi) during the last half of each taxable year, not more than 50%
in value of the outstanding capital stock of which is owned, directly or
indirectly (through the application of certain attribution rules), by five or
fewer individuals (as defined in the Code to include certain entities); and
(vii) which meets certain other tests, described below, regarding the nature of
its income and assets.
The Code provides that conditions (i) through (iv), inclusive, must be met
during the entire taxable year and that condition (v) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part of
a taxable year of less than 12 months. If a REIT complies with Treasury
Regulations that provide procedures for ascertaining the actual ownership of its
shares for such taxable year and the REIT did not know (and with the exercise of
reasonable diligence could not have known) that it failed to meet the
requirement of condition (vi) above for such taxable year, the REIT will be
treated as having met the requirement of condition (vi) for such year.
Prison Realty has satisfied the requirements set forth in (i) through (iv)
above with respect to its 1999 taxable year and has issued sufficient capital
stock with sufficient diversity of ownership to allow it also to satisfy
conditions (v) and (vi) above. The charter of Prison Realty includes certain
restrictions regarding transfers of its common stock and preferred stock that
are intended to assist Prison Realty in satisfying the stock ownership
requirements described in (v) and (vi) above. However, such restrictions may not
be adequate in all cases to prevent transfers of Prison Realty's capital stock
in violation of the ownership limitations.
In addition to the foregoing organizational requirements, a REIT must also
satisfy certain other tests (described below) regarding the nature of its income
and assets. In applying these tests, a corporation that is a "qualified REIT
subsidiary" (within the meaning of Section 856(i) of the Code) will not be
treated as a separate corporation. Instead, all of its assets, liabilities,
income, deductions and credits will be treated as owned, realized or incurred
(as the case may be) directly by the REIT. In general, a qualified REIT
subsidiary is a corporation all of the stock of which is owned by a REIT. Prison
Realty has a number of "qualified REIT subsidiaries." In applying the income and
asset tests described below to Prison Realty, the separate existence of these
subsidiaries will be ignored, and their assets, liabilities, income, deductions
and credits will be treated as assets, liabilities, income, deductions and
credits of Prison Realty.
Income Tests. For Prison Realty to qualify as a REIT for 1999, it must
satisfy two gross income requirements. First, at least 75% of Prison Realty's
gross income (excluding gross income from prohibited transactions) for 1999 must
be derived directly or indirectly from investments relating to real property
(including rents from real property, lease commitment fees, certain mortgage
interest and dividends from qualified REITs) or from "qualified temporary
investment income" (generally,
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income attributable to the temporary investment of new capital received by
Prison Realty) (the "75% income test"). Second, at least 95% of Prison Realty's
gross income (excluding gross income from prohibited transactions) for 1999 must
be derived from the foregoing sources or from dividends, interest and gain from
the sale or disposition of stock or securities (the "95% income test").
If Prison Realty fails to satisfy one or both of the 75% income test or the
95% income test, it may nevertheless qualify as a REIT if it is entitled to
relief under certain provisions of the Code. These relief provisions generally
will be available if (i) the failure to meet such tests was due to reasonable
cause and not due to willful neglect, (ii) a schedule of the sources of
qualifying income is attached to Prison Realty's federal income tax return for
such taxable year, and (iii) any incorrect information on the schedule was not
due to fraud with intent to evade tax. It is not possible to state whether
Prison Realty would be entitled to the benefit of these relief provisions if the
IRS were to determine that Prison Realty for any reason failed to satisfy either
the 75% income test or the 95% income test for its 1999 taxable year. Moreover,
even if these relief provisions were to apply, Prison Realty would still be
subject to a tax on the amount of the excess net income.
"Rents from real property" generally means the gross amount received for
the use of, or the right to use, a REIT's real property. For the rents received
by Prison Realty to qualify as "rents from real property," the leases under
which the rents were paid must be respected as true leases for federal income
tax purposes and must not treated as service contracts, joint ventures or some
other type of arrangement. The determination of whether a lease is a true lease
depends on surrounding facts and circumstances. In making such a determination,
courts have considered a variety of factors, including the following: (i) the
intent of the parties; (ii) the form of the agreement; (iii) the degree of
control over the property retained by the property owner (e.g., whether the
lessee has substantial control over the operation of the property or whether the
lessee is required to use its best efforts to perform its obligations under the
agreement); (iv) the extent to which the property owner retains the risk of loss
with respect to the operation of the property (e.g., whether the lessee bears
the risk of increases in operating expenses or the risk of damage with respect
to the property); and (v) the extent to which the property owner retains the
burdens and benefits of ownership of the property.
Under Code Section 7701(e), a contract that purports to be a service
contract (or a partnership agreement) will be treated instead as a lease of
property if the contract is properly treated as such, taking into account all
relevant factors, including whether or not: (i) the service recipient is in
physical possession of the property; (ii) the service recipient controls the
property; (iii) the service recipient has a significant economic or possessory
interest in the property (e.g., the property's use is likely to be dedicated to
the service recipient for a substantial portion of the useful life of the
property, the recipient shares the risk that the property will decline in value,
the recipient shares in any appreciation in the value of the property, the
recipient shares in savings in the property's operating costs, or the recipient
bears the risk of damage to or loss of the property); (iv) the service provider
does not bear any risk of substantially diminished receipts or substantially
increased expenditures if there is nonperformance under the contract; (v) the
service provider does not use the property concurrently to provide significant
services to entities unrelated to the service recipient; and (vi) the total
contract price does not substantially exceed the rental value of the property
for the contract period. Since the determination whether a service contract
should be treated as a lease is inherently factual, the presence or absence of
any single factor may not be dispositive in every case.
CCA was Prison Realty's primary lessee during 1999. Stokes & Bartholomew,
P.A. is of the opinion that the leases between Prison Realty and CCA should
qualify as true leases for federal income tax purposes, based in part on the
following facts: (i) the leases are styled as leases (e.g., Prison Realty holds
legal title to the facilities, and the leases give CCA the right to possession
of the facilities), and Prison Realty and CCA have represented that they intend
their relationship to be that of lessor and lessee; (ii) Prison Realty has
represented that the useful life of each of the
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facilities extends for a significant period of time beyond expiration of the
leases; (iii) the facilities should have significant residual value after
expiration of the terms of the leases; (iv) the leases do not provide CCA with
the right to purchase the facilities at a bargain price; (v) Prison Realty is
entitled to receive significant rental income under the leases; and (vi) Prison
Realty and CCA have represented that at the time the leases were entered into,
the rents payable under the leases represented fair market rents.
There are, however, no controlling Treasury Regulations, published rulings
or judicial decisions involving leases with terms substantially the same as the
CCA leases that address whether such leases are true leases for federal income
tax purposes. Therefore, the conclusion as to the status of the leases between
Prison Realty and CCA is based upon all of the facts and circumstances and upon
rulings and judicial decisions involving situations that are considered by
Stokes & Bartholomew, P.A. to be analogous. If these leases are recharacterized
as service contracts or partnership agreements rather than true leases, then
part or all of the payments that Prison Realty received from CCA during 1999
would not be considered rent and would not otherwise satisfy the various
requirements for qualification as "rents from real property." In that event,
Prison Realty likely would not satisfy either the 75% income test or the 95%
income test and, as a result, would not qualify as a REIT with respect to its
1999 taxable year.
Another requirement for the qualification of rents as "rents from real
property" is that Prison Realty, or an owner of 10% or more of Prison Realty,
must not own, directly or constructively (through the application of certain
stock attribution rules), 10% or more of the voting power or total number of
outstanding shares of a corporate tenant or 10% or more of the assets or net
profits of a non-corporate tenant (a "Related Party Tenant") at any time during
a taxable year. To enable Prison Realty to comply with these rules, Prison
Realty's charter provides that no person may own, directly or constructively
(through application of certain stock attribution rules), more than 9.8% of the
outstanding shares of Prison Realty's common stock or 9.8% of the outstanding
shares of Prison Realty's preferred stock. Assuming these ownership limitations
were complied with, no person should have owned (directly or constructively)
during 1999 10% or more of both Prison Realty and any tenant of Prison Realty.
The stock attribution rules, however, are highly complex and difficult to apply,
and Prison Realty may have inadvertently entered into leases with tenants who,
through application of such rules, constituted Related Party Tenants. In such
event, rent paid by the Related Party Tenant will not qualify as "rents from
real property," which may jeopardize Prison Realty's ability to qualify as a
REIT with respect to its 1999 taxable year.
Prison Realty owns directly all of the non-voting common stock of CCA. The
total number of shares of the CCA non-voting common stock equals approximately
9.5% of the shares of CCA capital stock outstanding, and such shares represent
approximately a 9.5% economic interest in CCA. Therefore, Prison Realty's
ownership of these shares was not a violation of the Related Party Tenant rules.
Prison Realty also holds a promissory note from CCA in the original
principal amount of $137.0 million. If this note is treated for federal income
tax purposes as equity rather than debt, Prison Realty could be deemed to own in
excess of 10% of the total outstanding CCA capital stock in violation of the
Related Party Tenant rules. Classification of an instrument as debt or equity is
generally determined based on all facts and circumstances as they existed at the
time the instrument was executed. Among the relevant criteria are the following:
(i) the intent of the parties, (ii) the extent of participation in management by
the holder of the instrument, (iii) the ability of the corporation to obtain
funds from outside sources, (iv) the "thinness" of the capital structure in
relation to debt (based on fair market value of the debtor's assets, including
intangible assets), (v) the risk involved, (vi) the formal indicia of the
arrangement, (vii) the relative position of the creditor in question versus
other creditors regarding payment of interest and principal, (viii) the
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voting power of the holder of the instrument, (ix) the provision of a fixed rate
of interest, (x) the contingency of the obligation to repay, (xi) the source of
repayment, (xii) the presence or absence of a fixed maturity date, and (xiii)
whether the note is guaranteed or otherwise secured.
Stokes & Bartholomew, P.A. is of the opinion that the CCA note should be
treated as debt for federal income tax purposes. Such opinion is based, in part,
on various facts and circumstances. These include that the note (i) is clearly
denominated as debt, (ii) has a fixed maturity of 10 years, (iii) provides for a
fixed rate of interest, (iv) requires that interest be paid annually during the
first four years of the term of the note and that principal be amortized over
years five through 10 of such term, (v) requires that certain excess cash flow
be used to prepay the note and (vi) is partially guaranteed by Doctor R. Crants.
There are, however, no controlling Treasury Regulations, published rulings or
judicial decisions involving indebtedness with terms substantially the same as
the CCA note that address whether such indebtedness is to be treated as debt for
federal income tax purposes. Therefore, the opinion of Stokes & Bartholomew,
P.A. with respect to the status of the CCA note is based upon all of the facts
and circumstances and upon rulings and judicial decisions involving situations
that are considered by Stokes & Bartholomew, P.A. to be analogous. If the CCA
note is recharacterized as equity, part or all of the payments that Prison
Realty received from CCA in 1999 likely would not qualify as "rents from real
property." In that event, based upon the expected amount of rent to be paid to
Prison Realty by CCA under the CCA leases, Prison Realty likely would not
satisfy either the 75% income test or the 95% income test and, as a result,
would lose its REIT status.
In addition to the foregoing requirements, the amount of rent, to qualify
as "rents from real property," must not be based in whole or in part on the
income or profits of any person. However, rents received or accrued generally
will not be disqualified as "rents from real property" solely by reason of being
based on a fixed percentage or percentages of receipts or sales. Also, if rent
attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
"rents from real property." Finally, rents received by Prison Realty for 1999,
subject to certain exceptions, will not qualify as "rents from real property" if
Prison Realty operated or managed the property or furnished or rendered services
to the tenants of such property, other than through an independent contractor
who was adequately compensated and from whom Prison Realty derived no income.
All rents received by Prison Realty during 1999 should satisfy these
requirements.
All interest (other than interest based on the net income of any person) is
qualifying income for purposes of the 95% income test. However, only interest on
obligations secured by mortgages on real property or on interests in real
property is qualifying income for purposes of the 75% income test. If the loan
value of real property (determined as of the time the commitment to make or
purchase the loan becomes binding) equals or exceeds the amount of the loan, all
interest on the loan will be allocated to the real property and will thus
qualify as mortgage interest. If the loan value is less than the amount of the
loan, interest will be allocated to the real property in the same proportion as
the loan value bears to the amount of the loan. Interest received under an
installment contract for the sale of real property should be treated as mortgage
interest to the extent of the value of the underlying real property.
Prison Realty acquired in the 1999 Merger certain leases to government
entities. Under each of these leases, either (i) the government entity, as
lessee, has an option to purchase the leased facility for a specified,
below-market amount, which typically declines over the term of the lease, or
(ii) the facility automatically reverts to the government entity at the
conclusion of the lease. Primarily because of these features, it is likely that
the leases will be treated as financing arrangements for federal income tax
purposes rather than as true leases. Therefore, a portion of each lease payment
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will be treated as interest income, and a portion will be treated as a return of
principal. The interest should be treated as mortgage interest to the extent of
the value of the underlying facility and therefore as qualifying income for
purposes of both the 75% income test and the 95% income test. If, however, the
amount financed exceeds the value of the underlying real property, interest will
be allocated to the underlying property (and thus treated as mortgage interest)
in the same proportion as the loan value of the property bears to the amount of
the loan. In rendering its opinion that Prison Realty should qualify as a REIT,
Stokes & Bartholomew, P.A. has assumed that the value of the underlying real
property under each of the government leases equals or exceeds the amount of the
financing.
In addition to real property rents and mortgage interest, Prison Realty
received in 1999 income from a variety of other sources. These included (i)
interest income under the CCA note, (ii) license fees under the trade name use
agreement relating to the use of the CCA name, and (iii) dividend income on its
non-voting common stock in PMSI and JJFMSI. The interest income under the CCA
note and the dividends from PMSI and JJFMSI should be qualifying income for
purposes of the 95% income test but not for purposes of the 75% income test. The
license fees under the trade name use agreement are nonqualifying for purposes
of both the 95% income test and the 75% income test. Taking into account these
other sources of income, Prison Realty still satisfied the 75% income test and
the 95% income test with respect to its 1999 taxable year.
The IRS has the authority under a number of Code sections to reallocate
income and deductions between Prison Realty and CCA. For example, the IRS may
assert that the rents payable by CCA are excessive and treat the excess as
attributable to the trade name use agreement, the management contracts acquired
with the CCA note or some other source. Such a reallocation could cause Prison
Realty to fail one or both of the 75% income test and the 95% income test, which
in turn could cause Prison Realty to lose its status as a REIT. To ensure that
the amounts charged as rent under the CCA leases are fair market rents, Prison
Realty obtained independent appraisals of the facilities and an independent
analysis of the appropriate lease rates for the facilities. This appraisal and
analysis will not be binding on the IRS, however, and the IRS may attempt to
reallocate the payments from CCA as described above. If the IRS were to be
successful, Prison Realty may not qualify as a REIT for 1999. In rendering its
opinion Prison Realty should qualify as a REIT, Stokes & Bartholomew, P.A. has
assumed that the payments from CCA to Prison Realty were correctly allocated in
the CCA leases and other agreements between CCA and Prison Realty.
Asset Tests. For Prison Realty to qualify as a REIT, at the close of each
quarter of its taxable year it must also satisfy three tests relating to the
nature of its assets. First, at least 75% of the value of Prison Realty's total
assets must be represented by real estate assets (which for this purpose
includes real estate assets held by a "qualified REIT subsidiary" of Prison
Realty) and cash, cash items and government securities. Second, no more than 25%
of Prison Realty's total assets may be represented by securities other than
those in the 75% asset class. Third, of the investments included in the 25%
asset class, the value of any one issuer's securities owned by Prison Realty may
not exceed 5% of the value of Prison Realty's total assets, and Prison Realty
may not own more than 10% of any one issuer's outstanding voting securities
(excluding securities of a "qualified REIT subsidiary" or another REIT).
Total assets for purposes of these tests include only those assets that
appear on Prison Realty's balance sheet prepared in accordance with generally
accepted accounting principles. In applying the 5% and 10% tests, the term
"issuer" has the same meaning as when used in the Investment Company Act of
1940, as amended (the "ICA"). Under the ICA, such term means generally "every
person who issues or proposes to issue any security, or has outstanding any
security which it has issued." Under this definition and various administrative
rulings interpreting this definition, each of CCA, PMSI and JJFMSI should be
treated as a separate issuer.
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Subject to certain exceptions, the asset tests are applied as of the close
of each calendar quarter. Shares in other REITs generally are valued at the
higher of market value or asset value. Securities (other than REIT shares) for
which market quotations are readily available must be valued at market value.
The value of all other REIT assets must be determined in good faith by the
Prison Realty board of directors. After initially meeting the asset tests at the
close of any quarter, a REIT will not lose its status as such for failure to
satisfy the asset tests at the end of a later quarter solely by reason of
changes in asset values. If the failure to satisfy the asset tests results from
an acquisition of securities or other property during a quarter, the failure can
be cured by disposition of sufficient non-qualifying assets within 30 days after
the close of that quarter.
In an effort to ensure compliance with the 75% and 5% asset tests, Prison
Realty obtained appraisals of the facilities. Based in part on these appraisals,
Prison Realty satisfied the 75% and 5% asset tests as of the close of each
calendar quarter during 1999. In addition, Prison Realty did not at any time
during 1999 own 10% or more of the voting securities of any issuer.
Although Prison Realty has maintained adequate records of the value of its
assets to document compliance with the asset tests, there can be no assurance
that Prison Realty has taken all action necessary to satisfy the tests.
Furthermore, the appraisals obtained by Prison Realty are not binding on the
IRS, and the IRS may challenge the values determined by Prison Realty using
these appraisals. The IRS could also attempt to treat one or more of CCA, PMSI
and JJFMSI as a single issuer rather than as separate issuers. If the IRS is
successful with any of these arguments, Prison Realty might lose its ability to
qualify as a REIT. In rendering its opinion as to the qualification of Prison
Realty as a REIT, Stokes & Bartholomew, P.A. has assumed that Prison Realty
satisfied the asset tests as of the close of each calendar quarter during 1999.
Distribution Requirements. To be taxed as a REIT for 1999, Prison Realty
is required to meet certain distribution requirements. First, Prison Realty must
have distributed prior to the end of 1999 dividends to its shareholders in an
amount equal to all of the earnings and profits inherited from Old CCA in the
1999 Merger. Second, Prison Realty must distribute dividends (other than capital
gain dividends) to its shareholders in an amount at least equal to (1) the sum
of (a) 95% of Prison Realty's "REIT taxable income" (computed without regard to
the dividends paid deduction and Prison Realty's net capital gain) and (b) 95%
of the net income, if any, from foreclosure property in excess of the special
tax on income from foreclosure property, minus (2) the sum of certain items of
non-cash income. Prison Realty was required generally to pay these dividends in
1999, but may pay them in 2000 if, among other things, it declares the dividends
before it timely files its 1999 tax return and pays the dividends on or before
the date it pays any dividends for its 2000 taxable year.
To the extent that Prison Realty does not distribute all of its net capital
gain or distributes at least 95% (but less than 100%) of its REIT taxable
income, as adjusted, it is subject to tax on the undistributed portion, at
regular capital gains and ordinary corporate tax rates. Furthermore, to the
extent Prison Realty failed to distribute in 1999 at least the sum of (a) 85% of
its REIT ordinary income for such year, (b) 95% of its REIT capital gain net
income for such year, and (c) any undistributed ordinary income and capital gain
net income from prior periods ("Minimum Distributions"), it is subject to a 4%
excise tax (the "Excise Tax") on the excess of such required distribution over
the amounts actually distributed.
In 1999, Prison Realty paid dividends on its common and preferred stock of
approximately $217.7 million. It succeeded to earnings and profits from Old CCA
of approximately $152 million. Under applicable ordering rules, distributions
made by Prison Realty during 1999 were treated as having been made first from
Old CCA's earnings and profits, and then from Prison Realty's current earnings
and profits. Thus, Prison Realty has satisfied its earnings and profits
distribution requirement. To satisfy its remaining distribution requirements,
Prison Realty will distribute approximately
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$150.0 million of its newly issued series B preferred stock to its common
shareholders. Although the distribution is intended to enable Prison Realty to
satisfy its distribution requirements for 1999, it will be taxable to Prison
Realty's common shareholders in 2000. Because Prison Realty failed to make the
Minimum Distributions with respect to its 1999 taxable year, it will be subject
to Excise Tax equal to 4% of the excess of such Minimum Distributions over the
amounts actually distributed. Prison Realty estimates that the amount of this
Excise Tax will be approximately $5 million.
The IRS may in the future make adjustments increasing the amount of Old
CCA's earnings and profits or the amount of Prison Realty's 1999 taxable income.
These adjustments, if sufficiently large, may cause Prison Realty to fail to
satisfy the foregoing distribution requirements. Under certain circumstances,
however, Prison Realty may be able to rectify such a failure by paying
"deficiency dividends" or by making "qualified designated distributions" to
shareholders within a specified period of time following the date of the
adjustment. Prison Realty thus may be able to avoid disqualification as a REIT.
In such circumstances, however, Prison Realty will be required to pay interest
based on that part of the adjustment that Prison Realty distributes as a
deficiency dividend or as a qualified designated distribution.
Failure to Qualify. If Prison Realty fails to qualify for taxation as a
REIT with respect to its 1999 taxable year, and certain relief provisions do not
apply, Prison Realty would be subject to tax (including any applicable
alternative minimum tax) on its income at regular corporate rates, amounting to
approximately $100.0 million. Additionally, distributions paid by Prison Realty
to its shareholders in 1999 will not be deductible by Prison Realty and will be
taxable to shareholders as ordinary income to the extent of current or
accumulated earnings and profits, although corporate distributees may be
eligible for the dividends received deduction.
Other Tax Consequences. Prison Realty and its shareholders may be subject
to state or local taxation in various state or local jurisdictions, including
those in which it or they transact business or reside. The state and local tax
treatment of Prison Realty and its shareholders may not conform to the federal
income tax consequences discussed above. Consequently, shareholders should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in Prison Realty.
DESCRIPTION OF THE SERIES B CONVERTIBLE PREFERRED STOCK
The following summarizes material terms of the shares of series B
convertible preferred stock to be issued to Prison Realty shareholders in
satisfaction of Prison Realty's remaining 1999 REIT distribution requirements. A
copy of the articles supplementary to the charter of Prison Realty governing the
rights and preferences of the shares of series B convertible preferred stock is
attached as Appendix C. This discussion is not a complete description of the
terms of the shares of series B convertible preferred stock, so you should read
it together with the series B articles supplementary.
Rank and preference. The series B articles supplementary will classify 8.0
million shares of Prison Realty's preferred stock as series B convertible
preferred stock with a fixed stated amount of $25.00 per share. The shares of
series B convertible preferred stock will rank senior as to dividends and
liquidation preference to all classes of Prison Realty's common stock and,
unless the issuance is approved by the holders of the shares of series B
convertible preferred stock, to any future Prison Realty preferred stock ranking
senior to the series B convertible preferred stock. The series B convertible
preferred stock will rank, as to dividends and liquidation preference, on a
parity with all capital stock of Prison Realty the terms of which specifically
provide that such capital stock ranks on a parity with the series B convertible
preferred stock.
Dividends. For the first three years following the date of issuance of the
series B convertible preferred stock, Prison Realty will pay cumulative
preferential dividends payable in additional shares
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of series B preferred stock, payable quarterly, on shares of the series B
convertible preferred stock at a rate of 12% per annum of the stated amount.
Following the third anniversary of the issuance of the shares of series B
convertible preferred stock, Prison Realty will pay cumulative preferential cash
dividends, payable quarterly, on shares of the series B convertible preferred
stock at a rate of 12% per annum of the stated amount. Dividends on the shares
of series B convertible preferred stock will accrue whether or not such
dividends are declared by Prison Realty and whether or not funds are legally
available for payment of such dividends. Any dividend payment made on shares of
series B convertible preferred stock shall first be credited against the current
dividend and then against the earliest accrued but unpaid dividend.
For so long as any shares of series B convertible preferred stock are
outstanding, all dividends declared and paid by Prison Realty upon shares of the
series B convertible preferred stock or upon any shares of capital stock of
Prison Realty ranking on a parity with the shares of series B convertible
preferred stock shall be declared pro rata based upon the amount of unpaid and
accrued dividends outstanding upon the shares of series B convertible preferred
stock and upon such parity stock, if any. In addition, for so long as any shares
of series B convertible preferred stock are outstanding, and until all accrued
dividends on the shares of series B convertible preferred stock are declared and
paid in full (or a sum sufficient for payment is set apart for payment):
- Prison Realty may not declare or pay, or set apart for payment,
dividends on any shares of capital stock of Prison Realty ranking junior
to the shares of series B convertible preferred stock (other than (i)
dividends payable in shares of such junior stock and (ii) distribution
of rights to purchase shares of common stock or preferred stock to
common shareholders); and
- Prison Realty may not make any payment on account of, or set apart for
payment, money for a sinking or similar fund for the purposes of the
purchase, redemption or retirement of any shares of capital stock of
Prison Realty ranking on a parity with, or junior to, the shares of
series B convertible preferred stock, or of warrants, rights, calls or
options exercisable or convertible into such shares of Prison Realty's
capital stock (or cause any entity directly or indirectly controlled by
Prison Realty to effect such repurchase, redemption or retirement).
Conversion into common stock at the option of the holder. Each share of
series B convertible preferred stock may, at the option of its holder, be
converted into shares of Prison Realty common stock during either: (i) the
period of 10 business days commencing on the sixth business day after the date
of issuance of the series B convertible preferred stock; or (ii) the period of
10 business days ending 90 calendar days after the date of issuance of the
series B convertible preferred stock (or the first business day thereafter). For
each share of series B convertible preferred stock converted into shares of
Prison Realty's common stock, the holder will receive that number of shares of
Prison Realty's common stock equal to the stated amount ($25.00) per share,
divided by the conversion price of the shares of series B convertible preferred
stock. The conversion price of the series B convertible preferred stock shall be
fixed at a price equal to the average of the closing prices of Prison Realty's
common stock on the NYSE for the 10 consecutive trading days ending one day
prior to the applicable date of conversion.
During: (i) any period in which shares of series B convertible preferred
stock may be converted into Prison Realty common stock; or (ii) any period
during which the conversion price of shares of series B convertible preferred
stock is being determined, Prison Realty may not declare a dividend or make a
distribution on the outstanding shares of Prison Realty's common stock, in
either case, in shares of Prison Realty's common stock, or effect a subdivision,
combination, consolidation or reclassification of the outstanding shares of
Prison Realty's common stock into a greater or lesser number of shares of common
stock.
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Redemption at the option of Prison Realty. At any time or from time to
time commencing six months following the date which is the later of: (i) the
third anniversary of the issuance of the series B preferred stock; or (ii) the
date which is the 91st day following the repayment in full of Prison Realty's
12% senior notes, due June 2006, Prison Realty shall have the right, at its sole
option and election, to redeem, out of funds legally available therefor, all, or
a portion, of the outstanding shares of series B convertible preferred stock.
Prison Realty may redeem the shares of series B convertible preferred stock at a
cash price per share equal to the stated amount ($25.00) per share, plus any
accrued but unpaid dividends. If less than all shares of series B convertible
preferred stock outstanding at the time are to be repurchased by Prison Realty,
the shares of series B convertible preferred stock to be repurchased shall be
selected pro rata; provided, however, that in the event that less than 10% of
the number of shares of series B convertible preferred stock originally issued
are then outstanding, Prison Realty shall be required to repurchase all of such
outstanding shares if it elects to repurchase any shares.
Voting rights. Holders of the series B convertible preferred stock will
not have any voting rights, except as set forth below or as required by law.
Whenever dividends on any shares of series B convertible preferred stock
shall be in arrears for four quarterly periods, such holders of such shares of
series B convertible preferred stock (voting separately as a class with all
other series of preferred stock ranking on a parity with the series B
convertible preferred stock as to dividends or on liquidation upon which like
voting rights have been conferred and are exercisable) will be entitled to vote
for the election of a total of one additional director of Prison Realty at a
special meeting called by the holders of record of at least 20% of the
outstanding shares of series B convertible preferred stock or the holders of
shares of any other series of preferred stock ranking on a parity with the
series B convertible preferred stock so in arrears or at the next annual meeting
of stockholders, and at each subsequent annual meeting until all dividends
accumulated on such shares of series B convertible preferred stock for the past
dividend periods and the dividend for the then current dividend period shall
have been fully paid or authorized and a sum sufficient for the payment thereof
is set aside for payment in full.
The above voting provisions will not apply if all outstanding shares of
series B convertible preferred stock shall have been redeemed or called for
redemption upon proper notice and sufficient funds shall have been irrevocably
deposited or set aside to effect such redemption.
Effect of consolidation or merger upon conversion of series B convertible
preferred stock. In the event of: (i) any capital reorganization or
reclassification of Prison Realty common stock; (ii) any consolidation, share
exchange or merger of Prison Realty with or into another entity; or (iii) any
sale or conveyance to another entity of all or substantially all of the property
of Prison Realty, each share of series B convertible preferred stock will
thereafter not be convertible into shares of Prison Realty's common stock
issuable immediately prior to the completion of such transaction. Instead, each
share of series B convertible preferred stock will be convertible into the kind
and amount of shares of stock and other securities and property receivable in
the transaction by a holder of that number of shares of Prison Realty's common
stock into which one share of series B convertible preferred stock was
convertible immediately prior to the transaction.
Ability to receive preferential cash payment upon liquidation. Upon the
occurrence of an event of liquidation or dissolution of Prison Realty (which
shall not include a merger, consolidation or other business combination
involving Prison Realty), the holders of the shares of series B convertible
preferred stock will be entitled to receive, on a parity with holders of Prison
Realty's preferred stock ranking on a parity with the series B convertible
preferred stock, a liquidating distribution per share, out of assets legally
available for distribution to shareholders, equal to the stated amount ($25.00)
per share, plus any accrued but unpaid dividends.
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After payment of the full amount of the greater of the amounts above, the
holders of shares of series B convertible preferred stock will not be entitled
to any further participation in any distribution of assets of Prison Realty. If,
upon any liquidation, dissolution or winding up of Prison Realty, the available
assets of Prison Realty are insufficient to pay the amount of the liquidating
distributions on all outstanding shares of series B convertible preferred stock
and upon all outstanding shares of Prison Realty's capital stock ranking on a
parity with the shares of series B convertible preferred stock, then the holders
of shares of the series B convertible preferred stock and such parity stock will
share equally and ratably in any distribution of assets of Prison Realty.
TAX CONSEQUENCES
The following is a general discussion of material federal income tax
consequences to holders of the common stock who receive distribution of the
series B convertible preferred stock. There can be no assurance that the IRS
will not successfully challenge one or more of the tax consequences described
herein, and Prison Realty has not obtained, nor does it intend to obtain, a
ruling from the IRS with respect to the U.S. federal income tax consequences of
acquiring, holding or disposing of the Prison Realty common stock.
This discussion does not deal with all aspects of U.S. federal income
taxation that may be important to holders of the Prison Realty common stock and
does not deal with tax consequences arising under the laws of any foreign, state
or local jurisdiction. This discussion is for general information only, and does
not purport to address all tax consequences that may be important to a
particular holder in light of its personal circumstances (such as holders
subject to the alternative minimum tax provisions of the Code), or to certain
types of holders (such as certain financial institutions, insurance companies,
tax-exempt entities, dealers in securities, persons who hold the common stock in
connection with a straddle or hedge, a conversion transaction or other
integrated transactions or persons whose "functional currency" is not the U.S.
dollar) that may be subject to special rules.
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE DISTRIBUTION OF THE
SERIES B CONVERTIBLE PREFERRED STOCK AND THE EFFECT THAT THEIR PARTICULAR
CIRCUMSTANCES MAY HAVE ON SUCH TAX CONSEQUENCES.
Distribution of series B convertible preferred stock. The distribution of
the series B convertible preferred stock will generally be treated as a dividend
to the extent paid or deemed paid out of Prison Realty's current and accumulated
earnings and profits. Accordingly, each shareholder generally will be required
to include in gross income (as ordinary income) the fair market value of the
series B convertible preferred stock as of the time of distribution. To the
extent the fair market value of the series B convertible preferred stock exceeds
the amount of Prison Realty's current and accumulated earnings and profits, the
distribution will be treated as a return of capital, which will reduce (but not
below zero) each shareholder's basis in its shares of Prison Realty common
stock. Thereafter, the distribution will be treated as gain from the sale or
exchange of Prison Realty common stock. Such gain will be capital gain, assuming
the stock is held as a capital asset at the time of the distribution, and will
be long-term if the shareholder's holding period for the stock exceeds one year.
If the shareholder is an individual, any long term capital gain will generally
be taxed at a maximum federal income tax rate of 20%.
To the extent the dividend is deemed to be paid from earnings and profits
generated by Prison Realty in 1999 or in earlier years, the dividend generally
will not be eligible for the dividends received deduction. To the extent the
dividend is deemed to be paid from earnings and profits generated by Prison
Realty after 1999, the dividend generally will be eligible for the dividends
received deduction.
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Dividends on series B convertible preferred stock. Distributions with
respect to the series B convertible preferred stock will generally be treated as
dividends to the extent paid or deemed paid out of Prison Realty's current or
accumulated earnings and profits. Accordingly, each shareholder generally will
be required to include in gross income (as ordinary income) the amount of cash
and the fair market value of the additional shares of series B convertible
preferred stock as of the time of distribution. To the extent the amount of
dividends exceeds the amount of Prison Realty's current and accumulated earnings
and profits, the distribution will be treated as a return of capital, which will
reduce (but not below zero) each shareholder's basis in its shares of the series
B convertible preferred stock. Thereafter, the distribution will be treated as
gain from the sale or exchange of the series B convertible preferred stock. Such
gain will be capital gain, assuming the stock is held as a capital asset at the
time of the distribution, and will be long-term if the shareholder's holding
period for the stock exceeds one year. If the shareholder is an individual, any
long term capital gain will generally be taxed at a maximum federal income tax
rate of 20%. The amount of any dividend generally will be eligible for the
dividends received deduction.
Sale or exchange of shares of series B convertible preferred stock. If a
shareholder sells or exchanges its series B convertible preferred stock, it will
generally recognize gain or loss equal to the difference between the amount
realized and its basis in the shares. Such gain or loss will be capital gain or
loss, assuming the stock is held as a capital asset at the time of the sale or
exchange, and will be long term if the shareholder's holding period for the
stock exceeds one year. If the shareholder is an individual, any long term
capital gain will generally be taxed at a maximum federal income tax rate of
20%. The deductibility of capital losses is subject to certain limitations.
Redemption of shares. If Prison Realty redeems shares of series B
convertible preferred stock solely for cash, such redemption will be treated as
a sale or exchange of the shares if the redemption (i) results in a "complete
termination" of the holder's stock interest under Code Section 302(b)(3), (ii)
is "substantially disproportionate" with respect to the holder under Code
Section 302(b)(2), (iii) is "not essentially equivalent to a dividend" with
respect to the holder under Code Section 302(b)(1), or (iv) is from a
non-corporate holder in partial liquidation under Code Section 302(b)(4). In
applying these tests, shares actually owned and shares deemed to be owned by a
shareholder by reason of the constructive ownership rules of Code Section 318
(pursuant to which a shareholder will be deemed to own shares owned by certain
related individuals and entities and shares subject to an option) must generally
be taken into account. If a redemption of shares solely for cash satisfies any
of the foregoing tests, the shareholder will recognize gain or loss based on the
difference between the amount of cash received and its tax basis in the redeemed
shares in the same manner as if the shareholder had sold the shares. If a
redemption does not satisfy any of the foregoing tests, the gross proceeds will
be treated as a dividend to the extent of Prison Realty's current and
accumulated earnings and profits, and any excess will be treated first as a
return of capital and then as gain upon a sale or exchange of the shares. In
such event, the shareholder's basis in its shares (reduced for any amounts
treated as a non-taxed portion of extraordinary dividends or a return of
capital) to any stock interest retained in Prison Realty.
Conversion. In general, no gain or loss will be recognized for federal
income tax purposes upon conversion of shares of series B convertible preferred
stock into shares of Prison Realty common stock. A shareholder's basis in the
shares of Prison Realty common stock received upon conversion will be equal to
the shareholder's adjusted basis in the shares so converted, and, provided that
the shares of series B convertible preferred stock were held as a capital asset,
the holding period for the shares of Prison Realty common stock received will
include the holding period for the shares converted. A shareholder will,
however, generally recognize gain or loss on the receipt of cash in lieu of
fractional shares of Prison Realty common stock in an amount equal to the
difference between the
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amount of cash received and the shareholder's adjusted basis in the shares for
which cash was received.
Information reporting and backup withholding. Under the backup withholding
rules of the Code, a shareholder may be subject to 31% backup withholding with
respect to any reportable payments made to the shareholder pursuant to the REIT
distribution or upon any sale of Prison Realty stock or series B convertible
preferred stock. A shareholder will not be subject to backup withholding if it:
- Is a corporation or falls within certain other exempt categories and,
when required, demonstrates that fact; or
- Provides a correct taxpayer identification number and certifies under
penalties of perjury that its taxpayer identification number is correct
and that it is not subject to backup withholding because it previously
failed to report all dividends and interest income.
Any amount withheld under these rules will be credited against the shareholder's
federal income tax liability, provided that the required information is given to
the IRS. Prison Realty may require a shareholder to establish its exemption from
backup withholding or make other arrangements with respect to the payment of
backup withholding.
WITHHOLDING REQUIREMENTS WITH RESPECT TO SODEXHO.
Sodexho owns approximately 8.8% of the total number of outstanding shares
of Prison Realty common stock and thus will receive in the distribution Series B
preferred stock valued at approximately $13.2 million. Because Sodexho is a
foreign corporation, this distribution will be subject to a 30% withholding
requirement. Accordingly, Prison Realty will be required to withhold 30% from
the amount distributed to Sodexho and to remit approximately $3.96 million in
cash to the IRS on Sodexho's behalf.
THE RESTRUCTURING
GENERAL
Prison Realty has entered into a series of agreements providing for a
restructuring of Prison Realty, including the combination of Prison Realty and
CCA and Prison Realty's election to be taxed as a C corporation, rather than as
a REIT, commencing with its 2000 taxable year. As a part of this restructuring,
Prison Realty has entered into a merger agreement with CCA providing for the
merger of CCA with and into a wholly-owned subsidiary of Prison Realty. In
connection with the merger and restructuring, Prison Realty is required to amend
certain provisions of its charter to permit, among other things, Prison Realty's
operation as a taxable subchapter C corporation under the Corrections
Corporation of America name. Under the terms of Prison Realty's agreements with
its lenders, Prison Realty will also complete a series of additional
transactions, including a restructuring of Prison Realty's senior management
through the selection of a new chief executive officer and chief financial
officer and the raising of additional capital through the completion of a common
stock rights offering.
The restructuring described herein was adopted by the board of directors as
an alternative to a previously disclosed restructuring of Prison Realty led by
Fortress/Blackstone and a previously disclosed restructuring led by Pacific
Life. The Fortress/Blackstone-led restructuring contemplated a $350.0 million
equity investment, including a $75.0 million rights offering, and the
combination of Prison Realty, CCA, PMSI and JJFMSI into a single entity
operating as a C corporation for federal
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income tax purposes commencing with Prison Realty's 1999 taxable year. The
Prison Realty board of directors terminated its agreement with
Fortress/Blackstone in favor of the proposed Pacific Life restructuring. The
Pacific Life-led restructuring contemplated a $200.0 million equity investment,
including a $200.0 million common stock rights offering backstopped 100% by
Pacific Life and the combination of Prison Realty, CCA, PMSI and JJFMSI into a
single entity as a C corporation for federal income tax purposes commencing with
Prison Realty's 2000 taxable year. Due to the uncertainty as to whether the
Pacific Life restructuring would be consummated, the respective boards of the
companies terminated the agreement with Pacific Life and proposed the current
restructuring.
BACKGROUND OF THE RESTRUCTURING
Prison Realty, in its current form, is the result of the 1999 Merger. As
part of the 1999 Merger, CCA, PMSI and JJFMSI assumed the business of operating
correctional facilities, with CCA being the lessee of a substantial number of
Prison Realty's facilities. The agreements and contractual obligations entered
into by these parties in connection with these transactions are described in
detail under the headings "Information About Our Company" on page of this
proxy statement. The rates on the leases between CCA and Prison Realty were set
with the intention that the public shareholders of Prison Realty would receive
as much of the benefit as possible from owning and operating the correctional
facilities, while at the same time Prison Realty would be able to maintain its
status as a REIT. This status as a REIT would enable Prison Realty to pay no
corporate income tax, but would require it to pay out large amounts of dividends
to the Prison Realty shareholders. In fact, the lease rates were set so that CCA
was projected to lose money for the first several years of its existence. Both
Prison Realty and CCA believed that CCA would have access to adequate debt
financing to fund this deficit until CCA became profitable. After completion of
the first quarter of 1999, the first quarter in which operations were conducted
in this new structure, the management of Prison Realty and the management of CCA
discovered that CCA had not performed as well as projected for several reasons:
occupancy rates at its facilities were lower than in 1998; operating expenses
were higher as a percentage of revenues than in 1998; and certain aspects of the
lease arrangements with Prison Realty, including the obligation of CCA to begin
making full lease payments even before a facility accepted inmates, adversely
affected CCA. As a result, in May 1999, Prison Realty and CCA amended certain of
the agreements between them to provide CCA with additional cash flow. The
objective of these changes was to allow CCA to be able to continue to make its
full lease payments, to allow Prison Realty to continue to make dividend
payments to its shareholders and to provide time for CCA to improve its
operations so that it might ultimately perform as projected and be able to make
its full lease payments. However, after these changes were announced, a chain of
events occurred which adversely affected both Prison Realty and CCA. Prison
Realty's stock price fell dramatically, resulting in the commencement of
shareholder litigation against Prison Realty and its directors. These events
made it more difficult for Prison Realty to raise capital. A lower stock price
meant that Prison Realty had more restricted access to equity capital, and the
uncertainties caused by the falling stock price, the shareholder litigation and
the results of operations at CCA made it much more difficult for Prison Realty
to obtain debt financing. In addition, the stock prices of REITs generally
suffered in the capital markets during this period as a result of both general
market and REIT-specific factors. During this time, Prison Realty was trying to
raise approximately $300.0 million of debt financing through an offering of
high-yield notes. Because of these events and the conditions of the capital
markets generally, Prison Realty was only able to raise $100.0 million in this
financing, and the notes bore interest at a much higher rate than was expected.
Raising capital was important to Prison Realty because as a REIT, it had to
pay out 95% of its taxable income as dividends. During the first three quarters
of 1999, Prison Realty paid out approximately $217.7 million in cash as
dividends. At the same time, Prison Realty's business strategy was to develop,
finance and own prison facilities. Prison Realty believes that providing this
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construction financing for federal, state and local governments has been an
important factor in its success. Building prison facilities is very expensive;
the cost of the average prison facility built by Prison Realty over the last
three years has been approximately $43.5 million. In addition to the need for
capital to build prisons, it is very important that both Prison Realty and CCA
have adequate capital to fund their operations because the business of owning
and operating correctional facilities involves significant issues with respect
to public safety. It is essential that the government customers of Prison Realty
and CCA believe that Prison Realty and CCA have adequate capital resources to
conduct their business. Accordingly, if Prison Realty was required to pay out
large amounts of cash as dividends and could not raise debt or equity capital,
its business would suffer.
During the summer of 1999, Prison Realty was able to increase its line of
credit from $650.0 million to $1.0 billion. However, for the reasons described
above, this financing had higher interest rates and transaction costs and also
imposed other significant requirements on Prison Realty. One of the financing
requirements was that Prison Realty raise $100.0 million and CCA raise $25.0
million in new equity in order for Prison Realty to make the distributions that
would be necessary to enable Prison Realty to qualify as a REIT in cash;
provided, however, that such requirement did not prohibit Prison Realty from
making such required distributions in certain combinations of its securities. As
a result, management and the board of directors of Prison Realty decided that
Prison Realty needed to retain a financial advisor to assist it in raising this
capital. In addition, the Prison Realty board and the Special Committee
described below decided that it was important to attract not just financing but
also an investor with credibility and expertise in managing companies that were
facing challenges. What follows is a chronological description of the events
that took place over an eleven-month period leading up to the proposed
restructuring.
On Friday, August 27, 1999, the Prison Realty board of directors held a
special meeting for the purpose of considering and selecting a strategic
financial advisor for Prison Realty. At the meeting, presentations were made to
the board of directors and management of Prison Realty by representatives of two
investment banking firms, one of which was Merrill Lynch & Co. ("Merrill
Lynch"). Following the presentations, the members of the Prison Realty board
engaged in a discussion with management regarding the selection of a financial
advisor, including Prison Realty's existing and prospective relationships with
each of the firms. The Prison Realty board also deliberated without the presence
of management. Based on these deliberations, it was agreed that Merrill Lynch
would be engaged as Prison Realty's financial advisor due to, among other
things, its substantial resources, its ability to quickly and efficiently
analyze Prison Realty's current financial situation, and its relationship with
potential investors. Subsequent to this meeting and Prison Realty's engagement
of Merrill Lynch, the CCA board also determined to engage Merrill Lynch to act
as its financial advisor with respect to these transactions. The Prison Realty
board did not view Merrill Lynch's role as financial advisor to both Prison
Realty and CCA as creating a conflict because of the dependence of the two
companies on each other and because both companies needed to raise new equity
capital.
In connection with the foregoing, at the request of the Independent
Committee of the board of directors of Prison Realty, the boards of each of
Prison Realty, CCA, PMSI and JJFMSI approved the formation of a special
coordinating committee to monitor the financial situation of both Prison Realty
and CCA and to coordinate with the companies' advisors regarding the
consideration of strategic alternatives. The Independent Committee of the Prison
Realty board is composed of independent directors and, under the bylaws of
Prison Realty, the Independent Committee is required to review transactions
between Prison Realty and CCA. Certain existing members of the Independent
Committee of the Prison Realty board, together with Jean-Pierre Cuny, the
Sodexho designee to the Prison Realty board and the CCA board, Thomas W.
Beasley, chairman of the PMSI board, Lucius E. Burch, III, chairman of the CCA
board, and Samuel W. Bartholomew, Jr., chairman of the JJFMSI board, were
appointed to serve as members of the Special Committee, and Joseph V.
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Russell, chairman of the Independent Committee of the Prison Realty board, was
appointed to serve as the Special Committee's chairman. Throughout the process,
both the Special Committee and the Independent Committee had numerous
opportunities to meet with Merrill Lynch and their other advisors and to
deliberate without management present.
On Tuesday, August 31, 1999, representatives of Merrill Lynch presented the
Special Committee with a preliminary analysis and overview of various strategic
alternatives to be considered by Prison Realty and CCA in light of the financial
condition of both companies and the current conditions in the capital markets.
In analyzing the strategic alternatives available to Prison Realty, Merrill
Lynch reviewed a number of potential alternatives including, among others: (i)
maintenance of the current operating structure while reducing the lease payments
made by CCA to Prison Realty; (ii) the creation of a "paper-clip" operating
structure whereby the stock of one or both of PMSI and JJFMSI held by Prison
Realty would be distributed to Prison Realty's shareholders, with one or both of
PMSI or JJFMSI then being merged with and into CCA; (iii) an investment by a
third-party investor in equity securities of Prison Realty, coupled with a
merger of CCA with and into an affiliate of the third-party investor; and (iv)
the merger of CCA and each of PMSI and JJFMSI with and into Prison Realty,
either standing alone, together with a rights offering to Prison Realty's
existing shareholders, or in conjunction with an investment by a third-party
investor in equity securities of Prison Realty. The members of the Special
Committee and Merrill Lynch also discussed the range of investment proposals
which Prison Realty might receive, Merrill Lynch's strategy with respect to
certain investors, and the existing role of Prison Realty's management.
Following the meeting and through the first three weeks of September 1999,
the representatives of Merrill Lynch worked with the management of each of
Prison Realty and CCA and the Special Committee to develop financial models and
analyses of the companies on a going-forward basis. Merrill Lynch and members of
the Special Committee engaged in intense review of these models during this
period, including the assumptions being used therein.
The Prison Realty board and the Special Committee and its advisors met on
Friday, September 24, 1999. At the meeting, Merrill Lynch presented its
preliminary conclusions with respect to the various strategic alternatives
available to Prison Realty. The representatives of Merrill Lynch discussed the
financial models of Prison Realty and CCA and analyzed the various strategic
alternatives in light of these models. Based on this analysis, Merrill Lynch
determined that the viable alternatives available to Prison Realty were: (i) a
combination of the companies into a single entity taxable as a C corporation;
(ii) a merger of the companies accompanied with a strategic equity placement of
up to $150.0 million; (iii) a merger of the companies accompanied with a
strategic equity placement of up to $500.0 million; (iv) a sale or merger of
Prison Realty to or with another entity; and (v) a "going private" transaction.
Merrill Lynch and the members of the board and Special Committee then discussed
potential financial partners that could assist Prison Realty in completing one
of these strategic alternatives. The representatives of Merrill Lynch informed
the board and Special Committee that virtually all the potential financial
partners that they had contacted that were interested in making an investment of
greater than $150.0 million in Prison Realty had indicated that any such
investment would need to be made in connection with a merger of the companies
into a C corporation, absent an outright purchase of Prison Realty and/or CCA.
Beginning in the last week of September, Merrill Lynch contacted the
parties who may have had an interest in completing an equity investment and a
related restructuring with Prison Realty and CCA, including several private
equity firms in the business of investing in capital stock of other companies.
During the weeks of October 4 and October 11, Prison Realty entered into
confidentiality and standstill agreements with 12 of the private equity firms
contacted and distributed information to these parties concerning a possible
investment in Prison Realty. Prison Realty received preliminary
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inquiries from an additional 18 parties, but none of these parties entered into
a confidentiality and standstill agreement, and, as a result, did not receive
any due diligence materials from Prison Realty.
During this period, the Prison Realty board and the CCA board instructed
management of the companies and Merrill Lynch to pursue discussions with the
firms or groups, including representatives of the Fortress/Blackstone investment
group, who had indicated an interest in investing in the companies, in an effort
to obtain the best offer available.
Because most of the strategic alternatives involved a transaction with CCA,
approval of the transaction by the Independent Committee was required by Prison
Realty's bylaws. Accordingly, the Independent Committee engaged its own special
counsel and Wasserstein Perella & Co., Inc. ("Wasserstein Perella") to serve as
financial advisor to the Independent Committee in its consideration of strategic
alternatives being considered by the Special Committee and the Prison Realty
board. Prison Realty's law firm continued in its capacity as counsel to Prison
Realty and the Special Committee with respect to the consideration of strategic
alternatives. In November 1999, the board of directors of CCA subsequently
engaged counsel to the CCA board.
During the last two weeks of October, Merrill Lynch engaged in discussions
with the various firms or companies who had received information from the
companies, including the Fortress/ Blackstone investment group. Merrill Lynch
received a total of four written proposals, one from the Fortress/Blackstone
investment group, one from a private equity investment firm and two alternative
proposals from a public company.
During the final week of October and during the first few days of November,
representatives of Merrill Lynch engaged in numerous discussions with the
members of the Special Committee and its advisors, as well as Prison Realty's
legal, tax and accounting advisors regarding the terms of the various proposals.
In addition, Merrill Lynch was specifically instructed by the Special Committee
to explore certain "standalone" alternatives in greater detail in an effort to
determine the capital requirements of Prison Realty and the liquidity needs of
CCA, as well as the viability of the companies and their ability to continue
operating without an equity investment.
The proposals received were based on varying assumptions as to Prison
Realty's dividend requirements. During this period, the Prison Realty board and
the Special Committee continued discussions with Merrill Lynch and Prison
Realty's legal, tax and accounting advisors as to the form of, and the timing
and amount of dividend payments required to be made by Prison Realty, including
the requirement to distribute the accumulated earnings and profits of Old CCA to
which Prison Realty succeeded in the 1999 Merger.
The Special Committee held a meeting on Thursday, November 4, 1999 to
review the proposals which Merrill Lynch had evaluated as offering the best
alternatives for Prison Realty. The representatives of Merrill Lynch distributed
materials to each person at the meeting summarizing Merrill Lynch's analysis of
the strategic alternatives available to Prison Realty and CCA, based on the
following objectives: (i) maximizing Prison Realty shareholder value; (ii)
improving financial stability; (iii) reducing the cost of capital; and (iv)
increasing the availability of capital. Merrill Lynch reviewed the four
proposals which had been received and presented its financial evaluation of each
proposal. Merrill Lynch also informed the Special Committee that it had
performed a financial evaluation of certain standalone alternatives in which
neither Prison Realty nor CCA would complete a transaction with a strategic
investor, and that based on its review, the standalone alternatives were not the
best options due to, among other things, the negative impact they would have on
Prison Realty's ability to restructure its existing debt, and accordingly,
Prison Realty and CCA should consider and choose among one of the four proposals
received from the potential strategic partners.
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At the time Wasserstein Perella delivered its opinion to the Independent
Committee, it concluded, based on information provided to it, that the
standalone alternatives were not feasible.
Following the November 4, 1999 meeting, the Special Committee engaged in
discussions with its legal, tax and accounting advisors and with the
representatives of Merrill Lynch in an effort to determine which of the four
proposals provided the best alternative for Prison Realty. The Special Committee
and the Independent Committee decided that the proposals submitted to Merrill
Lynch by the Fortress/Blackstone investment group and by an additional proposed
private equity investor provided better opportunities to Prison Realty and its
shareholders than the two alternative proposals presented by the public company.
In addition, when invited to make a presentation to the Special Committee
regarding its alternative proposals, the public company indicated that it had
decided to withdraw from the process and not make any definitive offer to Prison
Realty. Representatives of the Fortress/Blackstone investment group and the
other proposed private equity investor were subsequently invited to give
presentations to the Special Committee and the Independent Committee regarding
their respective proposals. The Fortress/Blackstone investment group and the
additional proposed investor accepted the invitation and on November 9 and 11,
the Special Committee and the Independent Committee and their advisors heard
presentations from the two prospective investor groups. During the
presentations, representatives from both investor groups addressed the Special
Committee and the Independent Committee regarding their respective proposals,
investment philosophy and perspective regarding Prison Realty's REIT status and
dividend requirements and each responded to various questions from the directors
regarding the same. At the Fortress/ Blackstone presentation, representatives of
Fortress/Blackstone described their proposal as contemplating an investment of
$250.0 million through the purchase of convertible preferred stock at a
conversion price of $10.00 per share and the purchase of warrants to purchase
shares of Prison Realty's common stock at an exercise price of $12.00 per share.
Fortress/Blackstone's proposal also contemplated that Prison Realty maintain
REIT status through 1999. Having observed and discussed the presentations made
by the representatives of the proposed investor groups, the Special Committee
instructed Merrill Lynch to solicit final proposals from each.
The Special Committee and Independent Committee held a special joint
meeting, and the Prison Realty board held a meeting immediately following this
joint meeting, on Tuesday, November 16, 1999, at which the representatives of
Merrill Lynch reviewed the status of the most recent proposals submitted by the
two proposed investor groups. While the proposals were similar in many respects,
the Prison Realty board and the Special and Independent Committees observed that
the proposal from the investor group other than Fortress/Blackstone contained a
continuous adjustment feature to the conversion rate, based on the trading price
of Prison Realty's common stock during a certain period following the closing of
the proposed transaction. Merrill Lynch then informed the Special Committee and
Independent Committee that the Fortress/Blackstone investment group had
conditioned their most recent proposal on the requirement that the companies
enter into an exclusivity agreement with Fortress/Blackstone. Representatives of
Merrill Lynch further indicated that it was their belief that Fortress
Blackstone was significantly further along in the due diligence process and were
more likely to enter into a definitive agreement within the necessary time
constraints created by Prison Realty's distribution requirements. Based on this
development, and on Merrill Lynch's belief that the other potential investor
would remain interested in an investment in Prison Realty and would be willing
to proceed should the Fortress/Blackstone investment group fail to do so,
Merrill Lynch recommended that the companies enter into an exclusivity agreement
with Fortress/Blackstone. As a result, Prison Realty and CCA subsequently
entered into an exclusivity arrangement with Fortress/Blackstone for a period
ending on December 3, 1999.
During the exclusivity period, representatives of the companies, including
the Special Committee, along with their counsel and Merrill Lynch, negotiated
the draft purchase agreement with
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representatives of Fortress/Blackstone and their counsel and financial advisors.
On December 3, 1999, the exclusivity agreement expired. Despite this expiration,
the parties continued to negotiate the draft purchase agreement. On December 4,
1999, Fortress/Blackstone advised Prison Realty that for a variety of reasons,
including the fact that the third quarter earnings results for the companies on
a combined basis were significantly below the projected financial performance
for the companies and CCA's liquidity concerns were greater than originally
estimated, they were not prepared to proceed with the transaction as proposed.
In order to move quickly to complete a transaction, the Special Committee
advised Merrill Lynch to re-establish communications with the other proposed
investors, including the public company, in addition to continuing to pursue the
proposal with Fortress/ Blackstone. During this period, the Prison Realty board
received a revised proposal from Fortress/ Blackstone which (i) increased the
total amount of the investment from $250.0 million to $350.0 million (as
required by the proposed lending group), (ii) decreased the conversion price of
the convertible preferred stock (from $10.00 to $8.00) and the exercise price of
the warrants (from $12.00 to $10.00), (iii) increased the fees to be paid to
Fortress/Blackstone in connection with the transaction reflecting the increase
in the proposed equity investment, (iv) added an adjustment to the conversion
price of the convertible preferred stock and warrants in the event certain
payments made by Prison Realty in connection with certain shareholder litigation
exceed $50.0 million, (v) limited the cash consideration to be paid for CCA,
PMSI and JJFMSI, and (vi) required that Prison Realty submit for shareholder
vote the election of subchapter C corporation status in lieu of REIT status for
calendar year 1999, which would result in Prison Realty's not paying further
dividends on its common stock and Prison Realty being required to pay federal
income taxes on its earnings for 1999. Moreover, in view of the continuing
liquidity needs of Prison Realty, Fortress/Blackstone's revised proposal
required that no further distributions be made. In response to this proposal,
the Special Committee and management of Prison Realty solicited a revised
proposal from the other potential investor. While the other potential investor
was willing to consider the transaction, and in fact orally proposed a
transaction which was on substantially similar economic terms to
Fortress/Blackstone's proposal, the other potential investor's proposal still
contained the continuous adjustment feature to the conversion rate of the
convertible preferred stock and required a period of additional due diligence
prior to the execution of a definitive agreement. On December 6, 1999, the
Special Committee decided to pursue Fortress/Blackstone's revised proposal
rather than the other group's revised proposal after concluding, (i) that the
companies should raise between $300.0 and $350.0 million in equity to address
their liquidity needs and meet the demands of the proposed lending group, (ii)
that the dividend rate on the convertible preferred stock proposed by
Fortress/Blackstone was lower than the dividend rate on the convertible
preferred stock proposed by the other investor, and (iii) the conversion price
on the convertible preferred stock proposed by Fortress/Blackstone was higher
than the conversion price of the convertible preferred stock proposed by the
other investor. In addition, after consultation with its advisors, the
Independent Committee concurred with this decision. However, as a condition to
their decision to pursue Fortress/Blackstone's prop osal, the Special Committee
and the Independent Committee insisted that the shareholders of Prison Realty be
allowed to participate in the proposed investment through a rights offering in
which Prison Realty shareholders would be able to purchase up to $75.0 million
in convertible securities with the same economic terms as offered to
Fortress/Blackstone.
The Prison Realty board, together with the Special and Independent
Committees, convened on Sunday, December 12, 1999, in order to receive a
presentation from Merrill Lynch regarding its opinion with respect to the
fairness of the proposed Fortress/Blackstone equity investment to Prison Realty
and its shareholders from a financial point of view. The representatives of
Merrill Lynch reviewed the latest terms of Fortress/Blackstone's proposal with
the members of the Special Committee and the Prison Realty board and also
discussed the reasoning and analysis utilized in reaching their conclusion that
maintaining REIT status was not in the best interests of Prison Realty and would
not maximize shareholder value. At this meeting, Prison Realty's counsel
provided the
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members of the committees and the board with a detailed summary of the terms of
the most recent drafts of the purchase agreement and other documents prepared in
connection with the transactions. Following this discussion, representatives of
Merrill Lynch reviewed with the Prison Realty board and the Special Committee an
analysis of the strategic alternatives available to the companies. This
discussion included an overview of the companies' process in reviewing the
strategic alternatives to date, as well as an analysis of the potential
advantages and disadvantages of Fortress/Blackstone's proposal, the earlier
proposal from the other investor group and the standalone strategy. This meeting
was adjourned to provide Merrill Lynch with additional time to finalize the
terms of the new credit facility to be obtained in connection with this
transaction and to analyze the companies' ability to comply with certain
financial covenants contained in the commitment letter. In addition,
representatives of Wasserstein Perella reviewed with the Independent Committee
its analysis of the feasibility of the standalone alternatives and the proposed
equity investment.
In assessing whether the companies would be able to meet certain earnings
requirements contained in the credit facility commitment letter, the companies
and Fortress/Blackstone determined that the fourth quarter earnings results of
the combined companies would also be significantly below the projected financial
performance for the companies. Fortress/Blackstone advised the Special Committee
and the board that based on the revised earnings estimates, they would be
willing to proceed with their proposed investment only if the conversion price
of the convertible preferred stock was reduced to $6.50, the warrant exercise
price was reduced to $7.50 and the companies agreed to attempt to settle certain
existing shareholder litigation matters prior to closing. In addition, Fortress/
Blackstone and the Special Committee and the Prison Realty board discussed
certain changes with respect to Prison Realty's management and the operation of
Prison Realty following the completion of the transaction. Based on these
discussions, Prison Realty's board determined that it should make certain
changes in its management, including changes in management prior to the
completion of any transaction and the restructuring of Prison Realty's board of
directors subsequent to the closing of the transaction.
Because the proposal by Fortress/Blackstone required that Prison Realty not
elect REIT status for 1999, the tax advisors to Prison Realty began at this time
to focus on what additional distributions, if any, Prison Realty would have to
make in 1999 to retain the option of electing REIT status should the equity
investment and the related restructuring for any reason not be completed. To
elect REIT status for 1999, Prison Realty has to meet two distribution
requirements. First, it has to distribute all of the accumulated earnings and
profits of Old CCA, and second, it has to distribute 95% of its 1999 REIT
taxable income. Under certain ordering rules contained in the Code,
distributions by Prison Realty during 1999 were applied first to the earnings
and profits distribution requirement with the excess, if any, being applied to
the 95% distribution requirement.
Under certain relief provisions contained in the Code, Prison Realty's tax
advisors concluded that Prison Realty could meet the 95% distribution
requirement as late as December 31, 2000, so long as certain conditions were
satisfied. They also concluded, however, that these relief provisions were not
available with respect to the earnings and profits distribution requirement and
that Prison Realty would have to satisfy the earnings and profits distribution
requirement not later than January 31, 2000. Therefore, Prison Realty had to
determine whether its distributions in 1999 were sufficient to satisfy the
earnings and profits distribution requirement and, if not, the amount of
additional distributions it would have to make.
At that time, Prison Realty had made 1999 distributions of approximately
$217.7 million. Prison Realty estimated the accumulated earnings and profits of
Old CCA to be approximately $235.0 million. The accumulated earnings and profits
of Old CCA consisted generally of two components, the first being earnings and
profits as they then existed and the second being a "cushion" amount to allow
for possible adjustments to earnings and profits by the IRS. It was necessary to
include
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"cushion" amounts in the calculation of earnings and profits, since it was not
clear under the Code that Prison Realty could make remedial distributions if the
Internal Revenue Service were later to make adjustments increasing Old CCA's
earnings and profits. Given this estimate of the earnings and profits and the
amount of Prison Realty's distributions to date, the Prison Realty board
determined preliminarily to pay a fourth quarter dividend of approximately $20.0
million and began discussing the form and timing of the dividend and the concern
that Prison Realty did not have sufficient liquidity to pay such dividend in
cash.
On December 17, 1999, President Clinton signed into law the Work Incentive
Improvements Act of 1999 (the "WIIA"). The WIIA included provisions relating to
REITs and specifically contained relief provisions for REITs which inherit
subchapter C corporation earnings and profits. Under these relief provisions, if
a REIT inherits subchapter C corporation earnings and profits and the IRS later
makes adjustments to increase those earnings and profits, the REIT may at that
time make additional distributions to eliminate the amount of the increase. In
light of this legislation, and because Prison Realty had already distributed in
1999 amounts in excess of Old CCA's actual accumulated earnings and profits
(excluding the "cushion" amounts), Prison Realty and Fortress/Blackstone
determined that no additional distributions were necessary at that time for
Prison Realty to maintain the option of electing REIT status for 1999. Moreover,
in view of the continuing liquidity needs of Prison Realty, Fortress/Blackstone
required that no further distributions be made.
Given these circumstances, Prison Realty determined that it would request
an automatic extension of time to file its 1999 tax return from March 15, 2000
to September 15, 2000 and thus defer its election to be taxed as a REIT for 1999
until September 2000, while paying no further dividends on its common stock in
the interim. Accordingly, by obtaining an extension, Prison Realty would retain
the ability to elect REIT status while awaiting the outcome of any required
shareholder vote on Prison Realty's determination not to elect REIT status. If
shareholder approval were not obtained, then Prison Realty could still take such
actions prior to or upon filing its 1999 tax return as may be necessary to elect
REIT status for 1999, including declaring sufficient dividends with respect to
its 1999 taxable year and filing an election to be taxed as a REIT for 1999.
Because of liquidity constraints, however, Prison Realty determined
preliminarily that in such event any dividends paid for 1999 would be paid in
whole or in part in the form of securities.
The Prison Realty board and the Special and Independent Committees
reconvened on Wednesday, December 22, 1999, at which time representatives of
Merrill Lynch provided an update on certain revised terms of
Fortress/Blackstone's proposal and the status of the commitment for the new
credit facility and discussed the strategy to be employed by Prison Realty with
respect to certain pending shareholder litigation. The meeting was then
subsequently adjourned again until Sunday, December 26, 1999, to provide the
representatives of Merrill Lynch and the members of the Special Committee and
their counsel with sufficient time to negotiate the final terms of the proposed
transaction.
On Sunday, December 26, 1999, representatives of Merrill Lynch made their
final presentation to the Special Committee and the Prison Realty board and
delivered their oral opinion to the Prison Realty board that, based on the
matters presented to the Prison Realty board and as set forth in its opinion, as
of the date of the opinion, the equity investment contemplated by the
Fortress/Blackstone proposal was fair from a financial point of view to Prison
Realty and its shareholders. They also informed the Prison Realty board that
they were delivering an opinion to the CCA board in connection with the merger
and related transactions. Counsel to the Prison Realty board and the Special
Committee then summarized the terms of the draft securities purchase agreement
relating to the equity investment contemplated by the Fortress/Blackstone
proposal, including the revised conversion price of the preferred shares and the
revised exercise price of the warrants. Merrill Lynch also reconfirmed its
conclusion that Prison Realty's standalone alternatives did not represent the
best
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options available to Prison Realty at that time. After a full discussion, the
members of the Special Committee then approved the equity investment
contemplated by the Fortress/Blackstone proposal, the merger and the
transactions contemplated thereby, and recommended the same for the review of
and approval by the Independent Committee and the full Prison Realty board.
Wasserstein Perella delivered its oral opinion, which opinion was subsequently
confirmed in a written opinion, to the Independent Committee to the effect that,
based on the matters presented to the Independent Committee and as set forth in
its opinion, as of the date of the opinion, the equity investment contemplated
by the Fortress/Blackstone proposal was fair, from a financial point of view, to
Prison Realty and its shareholders. After a full discussion of that presentation
and the terms of the transactions, the members of the Independent Committee then
unanimously approved the equity investment contemplated by the
Fortress/Blackstone proposal and the related restructurings, and recommended the
same for approval by the Prison Realty board. After a full discussion, the
Prison Realty board, with Jean-Pierre Cuny and Michael W. Devlin abstaining,
approved the equity investment contemplated by the Fortress/Blackstone proposal,
the merger and the transactions contemplated thereby and resolved to recommend
the same for approval by the shareholders of Prison Realty.
A securities purchase agreement with Fortress/Blackstone and the merger
agreement were executed on Sunday, December 26, 1999. The equity investment and
the related restructurings contemplated by the Fortress/Blackstone proposal were
publicly announced on Monday, December 27, 1999.
Throughout the month of January 2000 and the first two weeks of February
2000, Prison Realty and Fortress/Blackstone worked together on the preparation
of preliminary proxy materials to be filed with the SEC with respect to a
special meeting of Prison Realty's shareholders to be held in the second quarter
of 2000 to approve the transactions contemplated by the Fortress/Blackstone
proposal. At the same time, Prison Realty was preparing a registration statement
to be filed with the SEC with respect to the registration of shares of Prison
Realty common stock to be issued to employee shareholders of CCA, PMSI and
JJFMSI in the merger transactions. On February 17, 2000, Prison Realty filed the
preliminary proxy materials with the SEC.
Subsequently, on Wednesday, February 23, 2000, the Prison Realty board of
directors received an unsolicited proposal from Pacific Life regarding a
transaction intended to serve as an alternative to the equity investment and
restructuring transactions led by Fortress/Blackstone. Pacific Life, the
beneficial owner of approximately 4.5 million shares of Prison Realty common
stock, an affiliate of a limited partner and an affiliate of the general partner
of the holder of the $30.0 million 7.5% convertible, subordinated notes,
proposed an equity investment in Prison Realty of $200.0 million and a
restructuring of Prison Realty in which CCA, PMSI and JJFMSI would combine with
Prison Realty under terms substantially similar to those proposed by
Fortress/Blackstone. Specifically, pursuant to the terms of the Pacific Life
proposal, Prison Realty would conduct a rights offering in which it would offer
its common shareholders the right to purchase up to $200.0 million in shares of
Prison Realty common stock at a purchase price of the lower of $4.00 per share
or 75% of the average market price for a specified number of trading days prior
to the commencement of the offering, with Pacific Life purchasing an amount of
newly-issued series of convertible preferred stock equal to the amount by which
the rights offering subscriptions were less than $200.0 million. The shares of
the convertible preferred stock would be convertible into shares of Prison
Realty common stock at a conversion price equal to the rights offering
subscription price and would pay a 6% cash dividend and a 4% paid-in-kind
dividend per year for the first three years and a 10% cash dividend per year
thereafter. In consideration of this commitment, Pacific Life would receive
warrants to purchase Prison Realty common stock, with such warrants being
exercisable for a period of 15 years at an exercise price equal to 125% of the
rights offering purchase price, or $5.00 per share. Also
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pursuant to the proposal, Prison Realty would (i) elect to qualify as a REIT
with respect to its 1999 taxable year, and would distribute an undetermined
amount of convertible, preferred securities in satisfaction of the REIT
distribution requirements, and (ii) combine with CCA, PMSI and JJFMSI on the
same terms as proposed by Fortress/Blackstone. On Thursday, February 24, 2000,
pursuant to the terms of the Fortress/Blackstone securities purchase agreement,
Prison Realty notified Fortress/ Blackstone of Prison Realty's receipt of the
unsolicited proposal from Pacific Life and the material terms of the transaction
contemplated thereby.
On Friday, February 25, 2000, the Prison Realty board of directors,
together with the Special Committee and the Independent Committee, held a
special joint meeting for the purpose of reviewing the Pacific Life proposal and
to determine whether such proposal merited further consideration from the Prison
Realty board and its respective financial, legal, and accounting advisors. After
considerable discussion regarding the Pacific Life proposal, the Prison Realty
board and the Special and Independent Committees determined that the Pacific
Life proposal appeared to have sufficient credibility to require that the board
and the committees, in the exercise of their fiduciary duties, request that
their respective financial and legal advisors review the terms of the Pacific
Life proposal and report to the board and the committees on their findings.
Following this meeting, information regarding the Pacific Life proposal was
disseminated to the financial advisors of the board and the Committees, who were
instructed to review the terms of the Pacific Life proposal and compare such
terms with those set forth in the Fortress/Blackstone securities purchase
agreement. On February 25, 2000, Pacific Life also publicly announced its
submission of the proposal to Prison Realty, as well as certain terms of the
proposal.
On Sunday, February 27, 2000, the Prison Realty board held another joint
meeting with the Special and Independent Committees at which representatives of
each of Merrill Lynch and Wasserstein Perella were present. Representatives from
each of Merrill Lynch and Wasserstein Perella made a presentation outlining and
analyzing the economic terms of the Pacific Life proposal. Following the
presentations by Merrill Lynch and Wasserstein Perella, the members of the
Prison Realty board and the Special and Independent Committees engaged in a
discussion with management and their respective advisors regarding the merits of
the Pacific Life proposal compared to the terms of the Fortress/Blackstone
securities purchase agreement and the fiduciary duties of the board with respect
to its consideration of the proposal. Based on these deliberations, the board
and the Special and Independent Committees agreed that Prison Realty should
commence negotiations with Pacific Life in order to reach an agreement on more
favorable terms than those contemplated by the Fortress/Blackstone securities
purchase agreement. At the February 27 meeting, it was also determined that
Wasserstein Perella should be engaged by the full board as its financial advisor
along with Merrill Lynch for the purpose of negotiating with Pacific Life. Due
to the fact that the interests of the full board were aligned with the interests
of the Independent Committee, Wasserstein Perella's dual representation of the
full board and the Independent Committee was deemed acceptable.
Following this meeting, representatives of the Prison Realty board
contacted representatives of Pacific Life regarding the possibility of
completing a restructuring of Prison Realty combined with an equity investment
by Pacific Life. Negotiations regarding the terms of the proposed equity
investment ensued between representatives of Prison Realty and Pacific Life.
Following the board's decision to commence negotiations with Pacific Life,
Prison Realty and Fortress/Blackstone amended the terms of the
Fortress/Blackstone securities purchase agreement to clarify the provisions
governing Fortress/ Blackstone's right to match the terms of any superior
unsolicited proposals for an equity investment in and restructuring of Prison
Realty. At the same time, representatives of Prison Realty continued
negotiations with representatives of Pacific Life in an attempt to reach an
agreement for an equity investment and restructuring which would be more
favorable to Prison Realty and its shareholders than the transactions
contemplated by the Fortress/Blackstone securities purchase agreement. On
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Tuesday, February 29, 2000, Prison Realty publicly announced its receipt of the
Pacific Life proposal and that, after reviewing the Pacific Life proposal with
its financial and legal advisors, its board of directors had determined that it
was appropriate to commence negotiations with Pacific Life regarding a potential
transaction. On Wednesday, March 1, 2000, Prison Realty filed a Current Report
on Form 8-K (File no. 0-25245) with the SEC containing the full text of the
Pacific Life proposal, as well as a copy of the Fortress/Blackstone securities
purchase agreement amendment.
On Wednesday, March 22, 2000, the Prison Realty board held a special joint
meeting with the Special and Independent Committees, at which representatives of
Pacific Life were in attendance. The representatives of Pacific Life made a
presentation to the board and the committees regarding the status of its
proposal, its investment philosophy, its perspective regarding Prison Realty's
REIT status and the distribution requirements relating thereto and the prospects
of refinancing Prison Realty's existing credit facility, and they responded to
various questions from the members of the Prison Realty board and the Committees
regarding the same. Having observed and discussed the presentations made by the
representatives of Pacific Life, the board, together with the Special and
Independent Committees, instructed their respective financial advisors to
solicit a final proposal from Pacific Life so that Prison Realty could make a
determination whether to enter into a definitive agreement with Pacific Life
which encompassed the terms of its proposal.
Also, on Wednesday, March 22, 2000, the Prison Realty board received an
unsolicited proposal from an investment banking firm, on behalf of a competitor
of the companies, outlining a proposed combination of Prison Realty, CCA, PMSI,
JJFMSI with the competitor. Under this proposal, the surviving company would be
managed by the existing management of the competitor.
In late March 2000, Prison Realty management conducted a preliminary review
of the companies' anticipated combined financial results for the first quarter
of 2000, and concluded that there was a substantial likelihood that the
companies would not satisfy certain financial covenants contained in the
Fortress/Blackstone securities purchase agreement and related bank commitment
letter related to the companies' consolidated combined first quarter EBITDA.
During this time, representatives of Fortress/Blackstone reviewed the status of
the companies' financial results for the fourth quarter of 1999, as well as the
status of the audits of the companies' year-end financial statements.
Fortress/Blackstone was informed at this time that forth quarter results were
lower than expected and that it was anticipated that first quarter results would
also be lower than expected, and that as such, it was unlikely that the
companies would be able to satisfy the first quarter EBITDA covenants contained
in the Fortress/Blackstone securities purchase agreement and in the related CSFB
bank financing commitment letter issued in connection therewith. In light of the
actual and anticipated financial results, management of the companies asked
Fortress/Blackstone to confirm (i) whether Fortress/Blackstone intended to waive
any breach of such covenants and consummate the transactions contemplated by the
Fortress/Blackstone securities purchase agreement, and (ii) whether CSFB was
willing to waive any breach of the covenant set forth in its commitment letter.
The companies received no definitive response from Fortress/Blackstone or
representatives of CSFB to these inquiries. Accordingly, on March 31, 2000,
Prison Realty requested in writing that Fortress/Blackstone confirm to the
companies in writing (i) whether Fortress/Blackstone intended to waive the
breach of such covenants and consummate the transactions contemplated by the
Fortress/ Blackstone securities purchase agreement, and (ii) whether CSFB was
willing to waive the breach of the covenant set forth in its commitment letter.
On Monday, April 3, 2000, the Prison Realty board received the final terms
of the proposal from Pacific Life. Following the delivery of the final proposal
to Prison Realty, on Wednesday, April 5, 2000, Pacific Life delivered to the
Prison Realty board a securities purchase agreement, executed by representatives
of Pacific Life, which incorporated the terms of the final Pacific Life proposal
previously delivered. Additionally, on April 5, 2000, Prison Realty received a
written reply to its
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March 31, 2000 letter from Fortress/Blackstone in which Fortress/Blackstone
stated that due to its and CSFB's need to complete additional due diligence on
the companies' financial results and the reasons behind any actual or
anticipated earnings shortfalls, it was currently uncertain as to whether it
would proceed to close the transactions contemplated by the Fortress/Blackstone
securities purchase agreement and whether CSFB would provide financing under the
terms of its commitment letter in light of Prison Realty's anticipated failure
to meet the EBITDA covenants. Upon receiving the executed securities purchase
securities agreement from Pacific Life, Prison Realty and its financial and
legal advisors reviewed the terms of the agreement with Pacific Life and its
counsel and made certain revisions to the terms of the securities purchase
agreement. Pacific Life subsequently provided the companies with an executed
copy of the final revised agreement. Having received the final Pacific Life
proposal and a final executed securities purchase agreement, and following the
reply from Fortress/Blackstone, on Thursday, April 6, 2000, the Prison Realty
board held a special joint meeting with the Special and Independent Committees,
together with their respective financial advisors, for the purpose of discussing
the alternatives available to Prison Realty and deciding which, if any, proposal
to approve. After discussing the proposal submitted by Prison Realty's
competitor on March 22, 2000, the Prison Realty board and the Special and
Independent committees determined that the proposal was not in the best
interests of Prison Realty and its shareholders, as the proposal, among other
things, contained no provision to provide Prison Realty with the capital
required to address its liquidity concerns and to finance its business strategy.
Representatives of both Merrill Lynch and Wasserstein Perella then made
presentations regarding the transaction contemplated by the terms of the Pacific
Life proposal. The members of the board and the Committees then engaged in
lengthy discussions with their financial advisors regarding the merits and
disadvantages of the Pacific Life proposal and the agreement with
Fortress/Blackstone, as well as the negotiating strategies which should be
pursued with respect to each of Pacific Life and Fortress/Blackstone. Following
such discussions, the Prison Realty board, together with the Special and
Independent Committees, determined that the terms of the Pacific Life proposal
were superior to the terms set forth in the Fortress/Blackstone securities
purchase agreement, and the adoption of the Pacific Life proposal, as set forth
by the terms of the Pacific Life securities purchase agreement, was approved by
the Special and Independent Committees, and such proposal was subsequently
submitted for the approval of, and approved and adopted by, the Prison Realty
board. The members of the Prison Realty board then authorized representatives of
Prison Realty (i) to contact Fortress/Blackstone and to notify their
representatives, pursuant to the terms of the Fortress Blackstone securities
purchase agreement, that the Prison Realty board had approved a superior
unsolicited proposal and that Fortress/Blackstone had a period of five business
days to match the terms of the Pacific Life proposal, and (ii) to execute the
securities purchase agreement with Pacific Life if Fortress/Blackstone failed to
match the terms of the Pacific Life proposal.
A copy of the Pacific Life securities purchase agreement was delivered to
representatives of Fortress/Blackstone on Friday, April 7, 2000. Pursuant to the
terms of the Fortress/Blackstone securities purchase agreement,
Fortress/Blackstone had until midnight on Friday, April 14, 2000, to match the
terms of the Pacific Life proposal. On Friday, April 14, 2000, representatives
of Fortress/ Blackstone confirmed to the Prison Realty board that
Fortress/Blackstone would not match the terms of the Pacific Life proposal.
On Sunday, April 16, 2000, the Prison Realty board, together with the
Special and Independent Committees, held a special joint meeting, in which
representatives of Merrill Lynch and Wasserstein Perella participated, at which
the members of the board were informed that Fortress/Blackstone had elected not
to match the terms of the Pacific Life proposal. The representatives of Merrill
Lynch and Wasserstein Perella then delivered their respective final fairness
opinions with respect to the proposed equity investment by Pacific Life. The
Prison Realty board reconfirmed its previous decision to authorize the execution
of the Pacific Life securities purchase agreement based upon the fairness
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opinions delivered by Merrill Lynch and Wasserstein Perella. Upon authorization
by the Prison Realty board, representatives of Prison Realty executed the
Pacific Life securities purchase agreement, and delivered a letter to
Fortress/Blackstone terminating the Fortress/Blackstone securities purchase
agreement.
During the final weeks of April and during the month of May, Prison Realty
worked with representatives of Lehman to secure the necessary waiver of existing
defaults under the bank credit facility so as to allow for additional borrowings
by Prison Realty. At the same time the parties worked together to make certain
amendments to the bank credit facility so as to provide for the comprehensive
restructuring of the companies as provided for by Prison Realty's agreement with
Pacific Life. During the course of these negotiations, Prison Realty contacted
representatives from Pacific Life in order to obtain their input on the terms of
the waivers and amendments. Specifically, in early May, Prison Realty presented
Pacific Life with the terms of the waiver and amendment as proposed by Lehman.
At that time, Pacific Life indicated to Prison Realty and Lehman that, among
other things, the amendments to the credit facility should include a four year
extension of the maturities of the loans outstanding under the facility. Pacific
Life was reminded by Lehman that such an amendment would require the approval of
100% of the lenders under the bank credit facility (as opposed to 66.6% which is
required for the amendments proposed by Prison Realty and Lehman) and that, in
Lehman's opinion, such approval could not likely be obtained. Prison Realty and
Lehman then continued to negotiate the term of the waiver and amendment and, in
late May, submitted those terms, including an extension of the maturities as
requested by Pacific Life, to the lenders under the bank credit facility for
their approval.
The requisite percentage of the lenders under the bank credit facility did
not approve the extension of maturities under the waiver and amendment as
proposed by Prison Realty, but subsequently approved the Waiver and Amendment
previously disclosed by Prison Realty and as described in this proxy statement.
Accordingly, Prison Realty obtained the Waiver and Amendment on June 9, 2000.
Prison Realty publicly disclosed this event on June 12, 2000 and filed a Current
Report on Form 8-K (File no. 0-25245) with the SEC containing the full text of
the Waiver and Amendment, at which time it also submitted the Waiver and
Amendment to Pacific Life in order to determine whether the terms of the Waiver
and Amendment were reasonably acceptable to Pacific Life and therefore satisfied
the condition contained in the securities purchase agreement.
At the same time Prison Realty was negotiating with the lenders with
respect to the Waiver and Amendment, Prison Realty was involved in settlement
negotiations with representatives of the plaintiffs in the shareholder
litigation pending against Prison Realty. In early May, the parties participated
in a settlement conference. During the remainder of May and through the month of
June, Prison Realty continued settlement discussions with representatives of the
plaintiffs.
On Monday, June 12, 2000, Prison Realty forwarded a copy of the executed
Waiver and Amendment to Pacific Life for its review and asked Pacific Life
whether the terms of the Waiver and Amendment were acceptable to it and whether
Pacific Life believed the Waiver and Amendment satisfied the condition contained
in the Pacific Life securities purchase agreement that Prison Realty refinance
or renew its bank credit facility on terms reasonably acceptable to Pacific
Life. At the same time, Prison Realty, CCA, PMSI and JJFMSI contacted the
outside shareholders of CCA, PMSI and JJFMSI and commenced negotiations with
respect to the combination of the companies in accordance with the terms of the
Waiver and Amendment. On Friday, June 16, 2000, Pacific Life informed Prison
Realty in writing that it was unable to determine whether the terms of the
Waiver and Amendment were acceptable to it at that time. During the week of June
19, 2000, Prison Realty provided Pacific Life with additional information, but
was unable to obtain any assurances from Pacific Life that the terms of the
Waiver and Amendment were acceptable to it and that the condition to the
securities purchase agreement was satisfied. Also during the week of June 19,
2000,
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Prison Realty, CCA, PMSI and JJFMSI continued to negotiate with the outside
shareholders of CCA, PMSI and JJFMSI regarding the termination of the existing
merger agreement among the companies with respect to PMSI and JJFMSI in the
event the outside shareholders determined not to sell their shares to Prison
Realty and the combination of Prison Realty and CCA under the terms of the
Waiver and Amendment.
During the week of June 25, 2000, Prison Realty reached an agreement with
Baron regarding Prison Realty's purchase of the shares of CCA common stock held
by Baron for non-cash consideration consisting of shares of Prison Realty common
stock valued at $8.0 million. In consideration for Baron's consent to the merger
(as necessary in order to effectuate the merger), Baron required that Prison
Realty also issue Baron warrants to purchase $3.0 million in shares of Prison
Realty common stock. Also during the week of June 25, 2000, Prison Realty
indicated to Sodexho that it was willing to satisfy its previous contractual
obligation to purchase the CCA shares held by it in the form of Prison Realty
common stock valued at $8.0 million as required by Prison Realty's amended bank
facility. In response to this offer, Sodexho informed Prison Realty that it
should receive the same aggregate consideration as Prison Realty agreed to pay
Baron. Prison Realty informed Sodexho that it was not willing to do so.
On Wednesday, June 28, 2000, the Prison Realty board, together with its
special and independent committees, held a special joint meeting in which
representatives of Merrill Lynch and Wasserstein Perella participated. At that
meeting, the board and the committees engaged in a lengthy discussion of the
likelihood that the transactions contemplated by the Pacific Life securities
purchase agreement would be completed. The board and committee members were
informed that Pacific Life had indicated that the terms of the Waiver and
Amendment were currently not acceptable to it and that Pacific Life had provided
no assurance that it would waive the condition in the securities purchase
agreement. The board and the committee members also were informed that Pacific
Life had indicated to Prison Realty its belief that Prison Realty had
experienced a "material adverse change" under the terms of the Pacific Life
securities purchase agreement and that, as a result, a condition to Pacific
Life's obligation to complete the transactions contemplated by the securities
purchase agreement would not be satisfied. The board and the committee members
then discussed the fact that Pacific Life had provided no assurance that it
would waive such condition. After a review of the status of Prison Realty's
negotiations with representatives of the plaintiffs in certain outstanding
shareholder litigation against Prison Realty, the board and the committee
members discussed the fact that it was unlikely that the litigation would be
settled in a manner satisfactory to Pacific Life prior to completion of the
transactions contemplated by the Pacific Life securities purchase agreement. The
board and committee members were then informed that Pacific Life had given no
indication that it would waive the condition to its obligations under the
securities purchase agreement that such litigation be settled in a manner
satisfactory to it.
The board and the committees then engaged in lengthy conversations
regarding the restructuring transactions required under the Waiver and Amendment
and the requirement that Prison Realty file preliminary proxy materials with the
SEC on or before July 1, 2000. As a result of Pacific Life's unwillingness to
provide the companies with any assurances with respect to its willingness to
waive the conditions to its obligation to complete the transactions contemplated
by the Pacific Life securities purchase agreement described herein, and the
requirements of the Waiver and Amendment, on Wednesday, June 28, 2000, the
Prison Realty board concluded that the completion of the transactions
contemplated by the Pacific Life securities purchase agreement was unlikely and
determined to enter into negotiations with Pacific Life with respect to a mutual
termination of the Pacific Life securities purchase agreement. The Prison Realty
board also approved the execution of the merger agreement with CCA and the
filing of this proxy statement pending termination of the Pacific Life
securities purchase agreement. On Wednesday, June 28, 2000 the CCA board also
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determined to enter into negotiations with Pacific Life with respect to a mutual
termination of the Pacific Life securities purchase agreement and approved the
execution of the merger agreement with Prison Realty pending termination of the
Pacific Life securities purchase agreement. Representatives of Prison Realty and
CCA accordingly entered into negotiations with Pacific Life with respect to a
mutual termination, and, on Friday, June 30, 2000, the companies and Pacific
Life agreed to mutually terminate the Pacific Life securities purchase
agreement.
PRISON REALTY'S REASONS FOR THE RESTRUCTURING; RECOMMENDATION OF THE PRISON
REALTY BOARD OF DIRECTORS
The Prison Realty board, the Special Committee and the Independent
Committee believe that the restructuring is fair to and in the best interests of
the Prison Realty shareholders. The Prison Realty board, the Special Committee
and the Independent Committee believe that the transactions will create
short-term shareholder value by alleviating the current liquidity and capital
constraints of both Prison Realty and CCA and avoiding a filing by the Company
and/or CCA under Chapter 11 of the Federal Bankruptcy Code which could adversely
impact Prison Realty's and CCA's relationships with key government entities.
Additionally, the Prison Realty board, the Special Committee and the Independent
Committee believe that the transactions will create long-term shareholder value
by providing the combined company with a more simplified and stable operating
structure.
The Prison Realty board, the Special Committee and the Independent
Committee have approved the restructuring and recommend that shareholders of
Prison Realty vote for all of the proposals in this proxy statement. In reaching
this decision, the Prison Realty board, the Special Committee and the
Independent Committee consulted with members of management of each of Prison
Realty, CCA, PMSI and JJFMSI, as well as financial advisors, legal counsel and
accountants of the companies, and considered a number of factors.
In making their determination with respect to the restructuring, the Prison
Realty board, the Special Committee and the Independent Committee considered the
following factors:
- The Prison Realty board determined that combining Prison Realty and CCA
and operating as a C corporation is the structure which will create the
most value for Prison Realty shareholders.
- Prison Realty's lenders required the combination with CCA as a
condition to providing the Waiver and Amendment.
- Combining Prison Realty and CCA eliminates the potential conflicts of
interest which have previously existed and adversely affected Prison
Realty's credibility in the capital markets, including those
conflicts arising out of the landlord-tenant and debtor-creditor
relationship between Prison Realty and CCA.
- Since the 1999 Merger, trading prices for shares of REITs have
suffered in the stock market, making it more difficult for REITs to
raise equity or debt capital.
- As a C corporation, the combined company will be able to retain
earnings to help fund future growth.
- As a result of additional borrowings made available to Prison Realty
under its bank credit facility pursuant to the Waiver and Amendment, the
Prison Realty board determined that the proposed restructuring without
the equity investment proposed by Pacific Life was a viable alternative
for the Company and a better alternative than seeking relief under the
federal bankruptcy laws.
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- The restructuring was the result of an exhaustive eleven-month long
process designed to produce a proposal which would provide the most
long-term value for Prison Realty and its shareholders. On behalf of
Prison Realty, Merrill Lynch contacted 47 potential investors and merger
partners. Prison Realty received a proposal from Fortress/Blackstone,
which at that time represented the best offer from the four proposals
received and represented the only offer which could be accomplished
quickly because Fortress/Blackstone had completed their due diligence
and had made arrangements for refinancing Prison Realty's existing
indebtedness. The Prison Realty board and the Special Committee and
Independent Committee believe Merrill Lynch's contact with the large
pool of potential investors and merger partners resulted in the best and
most relevant proposals available to Prison Realty. Prior to
consummating a transaction with Fortress/Blackstone, Prison Realty
received two unsolicited proposals and concluded that the proposal
received from Pacific Life was a superior proposal to the
Fortress/Blackstone proposal and all other proposals received,
especially since Fortress/Blackstone and its proposed bank lender could
not provide assurance to Prison Realty that they would waive certain
conditions to their obligations, which were not expected to be
satisfied. Further, Fortress/Blackstone elected not to exercise their
right to match the terms and conditions of the Pacific Life proposal as
provided in the Fortress/ Blackstone securities purchase agreement and
that agreement was terminated. Subsequent to reaching an agreement with
Pacific Life, but prior to completion of the transactions with Pacific
Life, Prison Realty determined that it was unclear as to whether Pacific
Life would proceed with the completion of the transactions contemplated
under the companies' securities purchase agreement with Pacific Life.
Prison Realty's board and its special and independent committees reached
this determination based upon Pacific Life's failure to provide
assurances that it would waive certain conditions to its obligation to
complete the transactions contemplated by the Pacific Life securities
purchase agreement, including conditions relating to (i) the refinancing
or renewal of Prison Realty's bank credit facility, (ii) Pacific Life's
view that there had occurred a "material adverse change" in Prison
Realty, and (iii) the settlement of certain shareholder litigation on
terms satisfactory to Pacific Life.
Accordingly, based on its determination that the transactions contemplated by
the Pacific Life securities purchase agreement were unlikely to be completed and
in order to satisfy the conditions contained in the Waiver and Amendment
relating to the timing of the restructuring, Prison Realty determined to
terminate the Pacific Life securities purchase agreement and complete the
restructuring.
- No party has expressed a willingness to complete an investment in, or
pursue any other business combination transaction with Prison Realty, on
terms that are feasible.
- The proposed restructuring represents the only alternative available to
Prison Realty which satisfies the conditions of its bank credit facility
as a result of the Waiver and Amendment.
- Action had to be taken to preserve the financial health of Prison Realty
and CCA. Since CCA is Prison Realty's primary tenant, its financial
problems are also borne by Prison Realty.
- CCA did not meet its operating projections. Occupancy rates at its
facilities were adversely affected by the opening of a substantial
number of new facilities; operating expenses were higher as a
percentage of revenues than in 1998, and there were significant
expenses associated with newly-opened facilities.
- During 1999 and the first quarter of 2000, the operating performance
of CCA continued to decline. The Prison Realty board believed that
the restructuring would give the
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company the opportunity and the financial resources to correct its
problems and to bring in a new management team to improve the
company's operating results.
- Prison Realty considered significantly lowering the lease payments owing
to Prison Realty by CCA and maintaining the current structure of the
companies. This alternative was rejected.
- Reducing the lease payments could be a default under the agreements
governing Prison Realty's indebtedness.
- Reducing the lease payments could cause Prison Realty to violate the
rules applicable to REITs, which would subject Prison Realty to
corporate income tax.
- Conflicts of interest would continue to exist.
- The Prison Realty board believes that the consideration being paid to
shareholders of CCA is the minimum amount that could be paid and still
accomplish the transactions without resulting in an event of default
under Prison Realty's bank credit facility as a result of the Waiver and
Amendment.
- Baron, an outside investor in CCA, stated that they would not accept
any amount of consideration less than the payment being made to them.
Baron has the contractual right to approve any merger of CCA.
- CCA possesses all the contracts with government agencies, the
employees and infrastructure necessary to operate Prison Realty's
properties. Any effort to force CCA's shareholders to accept less was
likely to result in significant disruption of relationships with
government agencies and substantial loss of value.
- The Prison Realty board noted that significant restrictions on the
transfer of the shares issued to members of management and key
employees would exist following the merger.
- The Prison Realty board also considered what would happen to the
companies and their shareholders if the transactions were not
approved.
- Because the companies' business involves public safety, the Prison
Realty board believes it would have a serious adverse impact upon its
business if the government entities for which the companies house
inmates viewed the companies as not having the financial resources to
carry out their public safety obligations.
In making its determination with respect to the restructuring, the Prison
Realty board, the Special Committee and the Independent Committee also
considered the following potentially negative factors:
- The securities purchase agreement previously entered into with
Fortress/Blackstone states that Prison Realty is obligated to pay
Fortress/Blackstone a break-up fee of $7.5 million. In addition, the
securities purchase agreement states that Prison Realty is obligated to
pay Fortress/Blackstone an additional commitment fee of $15.7 million in
connection with Fortress/Blackstone's commitment under the securities
purchase agreement. Fortress/ Blackstone has filed suit against the
companies to recover these fees.
- Prison Realty cannot be assured that it will qualify as a REIT with
respect to its 1999 taxable year or that the distribution of series B
preferred stock or other securities will satisfy its 1999 remaining REIT
distribution requirements.
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- The combined company's net income per share will be lower due to the
increase in the number of shares as a result of the issuance of the
shares of convertible preferred stock in satisfaction of Prison Realty's
remaining 1999 REIT distribution requirements and the issuance of shares
of common stock to CCA shareholders in the merger. Additionally, the
dividends to be paid on and the costs associated with the new securities
will serve to reduce Prison Realty's net income available to common
shareholders.
- Completion of the restructuring will require the companies to incur
approximately $60.0 million of transaction costs (a substantial portion
of which has either been incurred or contractually committed), which
includes approximately $26.5 million in fees and expenses incurred in
connection with the previously announced restructuring transactions or
claimed by Fortress/Blackstone as described above, and will require a
substantial amount of management's time. These resources could have
otherwise been used by the companies to further their respective
business objectives.
- Completing the restructuring will place significant demands on the
combined company's liquidity as the result of the above described fees
and expenses as well as from the payment of federal income tax as a
subchapter C corporation commencing with its 2000 taxable year. The
company's ability to meet these liquidity requirements will depend on
its ability to borrow under its credit facility and to generate
sufficient cash from operations.
- Following the completion of the merger, as the result of the beneficial
ownership of approximately 8.5 million shares of Prison Realty common
stock, the existing shareholders of CCA will hold approximately 6.7% of
the voting power of Prison Realty. The voting power held by the existing
CCA shareholders following the merger will reduce the voting power
currently held by Prison Realty's existing shareholders.
In the Prison Realty board's opinion, the factors listed immediately above,
along with the other factors discussed in this proxy statement, represent the
material potential risks and adverse consequences to you that could occur in
connection with the restructuring. The Prison Realty board considered the impact
of these risks and consequences to the existing shareholders in evaluating the
restructuring. In the Prison Realty board's opinion, however, these potential
risks and consequences were outweighed by the potential positive factors and the
risks of not consummating the restructuring discussed above. Accordingly, the
Prison Realty board voted to approve the restructuring.
In view of the wide variety of factors considered by the Prison Realty
board, the Prison Realty board did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weights to the specific factors
considered in making the recommendations.
CAPITAL AND LIQUIDITY RESOURCES OF PRISON REALTY FOLLOWING COMPLETION OF THE
RESTRUCTURING
Upon completion of the proposed restructuring, Prison Realty's existing
$1.0 billion senior secured bank credit facility will remain outstanding. As
previously described in "Information About Our Company -- Recent developments,"
Prison Realty obtained the Waiver and Amendment, which allows Prison Realty to
borrow up to an additional $55.0 million under the bank credit facility at
various times during the 2000 calendar year to meet Prison Realty's capital and
liquidity needs and which allows Prison Realty to complete the restructuring.
Following the restructuring, Prison Realty will continue to be subject to the
restrictions contained in the bank credit facility, as amended by the Waiver and
Amendment, which are more particularly described in "Information About Our
Company -- Recent developments." Any failure to comply with these restrictions
could result in an event of default under the provisions of the bank credit
facility. Generally, upon the occurrence of an event of default under the bank
credit facility, the lenders under the bank credit facility, may, upon
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the expiration of any applicable cure period, accelerate the maturity of the
aggregate principal amount of Prison Realty's borrowings under the bank credit
facility.
The Waiver and Amendment also provided for certain amendments to Prison
Realty's bank credit facility which will allow the surviving entity in the
merger, a wholly-owned subsidiary of Prison Realty, to obtain a new bank credit
facility or to refinance or renew CCA's existing bank credit facility. The
Waiver and Amendment provides that any such bank credit facility shall be on
terms and conditions reasonably satisfactory to the requisite percentage of the
senior lenders under Prison Realty's bank credit facility. It is anticipated
that Prison Realty's subsidiary will attempt to obtain such a new bank credit
facility or obtain a refinancing or renewal of CCA's existing bank credit
facility following the merger. There can be no assurance that Prison Realty's
subsidiary will be able to: (i) obtain such a new bank credit facility or a
refinancing or renewal of CCA's existing bank credit facility; or (ii) to obtain
such revolving bank credit facility on terms reasonably satisfactory to the
requisite percentage of Prison Realty's senior lenders. Any failure to do so
could have a material adverse effect upon Prison Realty's liquidity and
financial position.
In addition to these bank credit facilities, it is anticipated that Prison
Realty's 12% senior notes and an aggregate of $70.0 million in convertible,
subordinated notes will remain outstanding following completion of the
restructuring transactions. Following the restructuring, Prison Realty will
continue to be subject to the provisions governing this indebtedness, including
the provisions of any waivers of events of default relating to, or amendments
to, the provisions governing Prison Realty's convertible, subordinated notes.
Any failure to comply with the provisions of this indebtedness could result in
an event of default under the provisions of such indebtedness, giving rise to
the right of the holders of such indebtedness, upon the expiration of any
applicable cure period, to accelerate the maturity of the aggregate principal
amount of such indebtedness. Such an acceleration would result in an event of
default under Prison Realty's bank credit facility, which would enable the
lenders under the bank credit facility to accelerate the maturity of the
aggregate principal amount of Prison Realty borrowings under the bank credit
facility.
It is also anticipated that Prison Realty may attempt to effect certain
additional transactions designed to address Prison Realty's liquidity needs.
These transactions may include: (i) an offering of Prison Realty common stock
through the distribution of rights to purchase shares of common stock to Prison
Realty's common shareholders as required by the Waiver and Amendment; (ii) the
securitization of government-backed lease payments relating to Prison Realty's
HMP Forrest Bank facility as required by the Waiver and Amendment; and (iii) the
sale/leaseback of Prison Realty's headquarters. There can be no assurance,
however, that Prison Realty will be able to complete any of these transactions.
Moreover, even if Prison Realty is successful in completing one or more of these
transactions, the terms of Prison Realty's bank credit facility, as amended by
the Waiver and Amendment, require that Prison Realty use all or a portion of the
net cash proceeds received from such transactions to repay outstanding
indebtedness under the bank credit facility. See "Information About Our
Company -- Recent developments."
INTERESTS OF DIRECTORS, OFFICERS, AFFILIATES AND SHAREHOLDERS IN THE
RESTRUCTURING
In considering the recommendations of the Prison Realty board to approve
the charter amendments and the merger in connection with the restructuring, you
should be aware that several officers, directors or shareholders of Prison
Realty have interests in, and will receive benefits as a consequence of, the
restructuring, that are separate from the interests of, and benefits to,
shareholders of Prison Realty generally. The Prison Realty board was aware of
these interests when it approved the restructuring.
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PURCHASE OF CCA COMMON STOCK FROM SODEXHO
Prison Realty is in negotiation with Sodexho with respect to Prison
Realty's purchase of all of the voting common stock of CCA owned by Sodexho
(constituting approximately 16.9% of the outstanding capital stock of CCA)
immediately prior to the merger for non-cash consideration comprised of shares
of Prison Realty common stock valued at $8.0 million. It is anticipated that if
Sodexho agrees to sell the shares of CCA common stock to Prison Realty prior to
the merger, Sodexho will agree to vote in favor of the merger at CCA's special
meeting and in favor of the proposals described herein. However, if Prison
Realty does not acquire the shares of CCA common stock held by Sodexho prior to
the merger, Sodexho will receive shares in the merger pursuant to the exchange
ratio set forth in the merger agreement. In such event, Sodexho may not vote the
shares of CCA common stock held by it (16.9%) or the shares of Prison Realty
common stock held by it (representing 8.8%) in favor of the merger. Jean-Pierre
Cuny, a representative of Sodexho, is a director of Prison Realty and of CCA.
Mr. Cuny abstained from the vote of the Prison Realty board approving the
restructuring, as well as from the vote of the CCA board approving the merger.
ISSUANCE OF PRISON REALTY COMMON STOCK TO CERTAIN CCA SHAREHOLDERS
Assuming Prison Realty purchases the shares of CCA common stock held by
Baron and Sodexho prior to the merger, Prison Realty will issue approximately
$10.8 million in shares of its common stock as the aggregate consideration paid
to CCA's shareholders other than Sodexho, Baron, Mr. Crants, III and Mr. Devlin
in connection with the merger. J. Michael Quinlan and Vida H. Carroll, members
of Prison Realty's management who hold shares of CCA common stock, will each
receive approximately $400,000 in shares of Prison Realty's common stock in the
merger, which will be subject to the lock-up provisions described herein. Vida
H. Carroll has resigned as Prison Realty's chief financial officer effective
September 15, 2000.
BOARD OF DIRECTORS AND SENIOR MANAGEMENT
Doctor R. Crants, the current chief executive officer of Prison Realty,
will resign from this position or be terminated upon the appointment of a new
chief executive officer. Following the appointment of the new chief executive
officer, Mr. Crants will also resign from his position of non-executive
vice-chairman of Prison Realty. Mr. Crants also currently serves as a member of
the board of directors and chief executive officer of CCA. He will resign from
these positions as well in connection with his resignation or termination as
Prison Realty's chief executive officer.
Thomas W. Beasley, chairman of the board of directors of Prison Realty, is
chairman of the board of directors of PMSI.
SEVERANCE ARRANGEMENTS WITH FORMER EXECUTIVE OFFICERS OF PRISON REALTY AND CCA
On January 1, 1999, Prison Realty entered into an employment agreement with
Doctor R. Crants which provided for a term of three years with an additional
three year renewal option. The agreement provided for annual compensation and
incentive compensation as determined by Prison Realty's Compensation Committee
of the board of directors and also provided for certain non-cash benefits such
as life and health insurance. Doctor R. Crants has since resigned from his
position as chairman of the Prison Realty board and, following the appointment
of a new chief executive officer, will resign or be terminated as the chief
executive officer of Prison Realty. In connection with Doctor R. Crants'
agreement to resign or be terminated, the board of directors of Prison Realty
has approved modifications to certain agreements and arrangements between Prison
Realty and Doctor R. Crants relating to his employment and compensation.
Specifically, the board approved: (i) an
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amendment to his employment agreement with Prison Realty removing Prison
Realty's right to offset payments owed to Doctor R. Crants upon his termination
under the employment agreement (consisting of three years of salary) against
amounts earned by Mr. Crants through other employment; (ii) a modification to
the $1.0 million loan granted to Mr. Crants under the Prison Realty Executive
Equity Loan Plan whereby the outstanding principal amount of the loan will not
become immediately due and payable upon Mr. Crants' termination, but rather Mr.
Crants will make interest only payments on the loan for the first three years
following the modification at the rate of 250 basis points over the thirty-day
LIBOR rate in effect on such date and 33.3% of the principal amount of the loan,
and all accrued and unpaid interest thereon, shall be paid in on the fourth,
fifth and sixth anniversaries of the modification; and (iii) the immediate
vesting of 140,000 deferred shares of Prison Realty common stock granted to Mr.
Crants in November 1995 by Old CCA pursuant to a stock bonus plan adopted by
Prison Realty in the 1999 Merger which would either be forfeited upon Mr.
Crants' termination or would not vest until November 2005. The provisions of Mr.
Crants' employment agreement prohibit him from competing with Prison Realty for
a period of one year after termination of his employment.
In connection with Ms. Carroll's resignation from her position as chief
financial officer, secretary and treasurer of Prison Realty which was originally
to be effective June 30, 2000, the board of directors of Prison Realty granted
Ms. Carroll cash severance equal to six months salary. In consideration for the
extension of Ms. Carroll's employment through September 15, 2000, Prison Realty
has agreed to pay Ms. Carroll an additional cash severance payment of $78,750 on
or about the time of the completion of the restructuring and the merger. In the
event the restructuring and merger are not completed by September 15, 2000. Ms.
Carroll will remain employed by Prison Realty at her current salary until the
earlier of the completion of the restructuring and merger and the naming of her
successor.
In connection with the resignation of D. Robert Crants, III from his
position as president of Prison Realty and as a member of the Prison Realty
board, and the resignation of Michael W. Devlin from his position as chief
operating officer of Prison Realty and as a member of the Prison Realty board,
the employment agreements previously entered into between Prison Realty and each
of Mr. Crants, III and Mr. Devlin have been terminated. Prison Realty and CCA
have entered into a severance agreement with each executive pursuant to which
payments have and shall be made to each executive totaling approximately
$633,750. Among the payments to be made to each executive pursuant to the terms
of the severance agreements are (i) a payment of $233,750, which represents
amounts that were payable to each executive pursuant to the terms of his
respective employment agreement; and (ii) a payment made to each executive on
December 31, 1999 of $300,000 in exchange for 150,000 shares of CCA common stock
(representing 75% of each executive's ownership interest in CCA). The remaining
$100,000 of the payment will be used to purchase the remainder of each
executive's remaining CCA common stock immediately prior to the closing of the
merger of Prison Realty and CCA, subject to the satisfaction of certain
conditions to the merger. Under the original terms of these severance
agreements, CCA was to purchase the initial portion of the shares of CCA common
stock held by Messrs. Crants, III and Devlin on December 31, 1999, with Prison
Realty purchasing the balance immediately prior to the closing of the merger
transactions. However, as a result of restrictions on CCA's ability to purchase
these shares, the rights and obligations were assigned to and assumed by Doctor
R. Crants. In connection with this assignment, Mr. Crants received a loan in the
aggregate principal amount of $600,000 from PMSI, the proceeds of which were
used to purchase the 300,000 shares of CCA common stock owned by Messrs. Crants
and Devlin. All payments made to Messrs. Crants, III and Devlin have been and
will be applied to reduce the outstanding aggregate principal amount of three
loans granted to each executive in the aggregate principal amount of $1.0
million under the Prison Realty Executive Equity Loan Plan. Additionally, any
stock options or similar rights which have not been exercised by each executive,
and
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any other awards of stock or equity interests in which each executive has not
become vested, have been terminated or forfeited to Prison Realty.
In the event Darrell K. Massengale, the chief financial officer and
secretary of CCA, is not employed after the completion of the restructuring and
merger, pursuant to the terms of an employment agreement between CCA and Mr.
Massengale, CCA is obligated to pay Mr. Massengale his annual salary for three
years following the date of his termination. However, CCA shall be entitled to
receive as an off-set against its payments to Mr. Massengale, any amounts he may
earn in any active employment during the three year period.
In addition, all outstanding options to purchase common stock or other
securities of CCA or Prison Realty granted to Mr. Massengale after the date of
his employment agreement but prior to the date of Mr. Massengale's termination
under the terms of any stock option incentive, stock incentive, or other stock
benefit plans currently adopted and administered by CCA or Prison Realty, shall
become immediately vested and exercisable upon Mr. Massengale's termination, and
all deferred or restricted shares of common stock or other securities of CCA or
Prison Realty granted to Mr. Massengale after the date of the agreement but
prior to his termination shall become immediately vested upon his termination.
CCA has also agreed to pay Mr. Massengale a retention bonus equal to 50% of his
annual salary to be paid on September 15, 2000 for his services to CCA through
that date.
OWNERSHIP OF PRISON REALTY COMMON STOCK
The following table sets forth certain information with respect to the
beneficial ownership of shares of Prison Realty common stock as of June 28,
2000, compared to the beneficial ownership of shares of Prison Realty common
stock outstanding immediately following the completion of the restructuring
(assuming that an aggregate of approximately 7.6 million shares of Prison Realty
common stock are issued immediately prior to and in the merger) by: (i) each
shareholder of Prison Realty that Prison Realty believes currently holds more
than a 5% beneficial interest in Prison Realty common stock, (ii) each existing
director of Prison Realty, (iii) each of Prison Realty's existing executive
officers, and (iv) all directors and executive officers as a group. Except as
otherwise indicated, Prison Realty believes that the beneficial owners of the
shares of Prison Realty common stock listed below, based on information
furnished by such owners and/or from information contained in reports filed by
the beneficial owner with the SEC pursuant to Section 13 of the Exchange Act,
have sole voting and investment power with respect to such shares. Ownership
percentages in the
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following table were computed in compliance with regulations under the Exchange
Act and do not necessarily reflect the "fully diluted" ownership percentages
discussed elsewhere in this document.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PRISON
REALTY COMMON STOCK
NUMBER OF SHARES OF PRISON EXPECTED TO BE BENEFICIALLY
REALTY COMMON STOCK OWNED UPON CONSUMMATION
BENEFICIALLY OWNED AS OF OF RESTRUCTURING
JUNE 19, 2000(1) TRANSACTIONS
--------------------------- ---------------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES CLASS(2) SHARES CLASS(3)
------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Dreman Value Management, L.L.C. ........ 13,324,690(4) 11.3% 13,324,690 10.6%
10 Exchange Place, Suite 2150
Jersey City, New Jersey 07302-3913
Sodexho Alliance, S.A. ................. 10,464,131(5) 8.8 12,791,404(5) 10.1
Port de la Bourdonnais
75007, Paris France
Scudder Kemper Investments, Inc. ....... 8,923,325(6) 7.5 8,923,325(6) 7.0
345 Park Avenue
New York, New York 10154
Gotham Partners, L.P. .................. 8,046,100(7) 6.8 8,046,100(7) 6.4
Gotham Partners III, L.P.
Gotham International Advisors, L.L.C.
Gotham Holdings II, L.L.C.
110 East 42nd Street, 18th Floor
New York, New York 10017
Thomas W. Beasley....................... 2,490,626(8) 2.1 2,490,626(8) 2.0
Doctor R. Crants........................ 1,460,708(9) 1.2 1,460,708(9) 1.1
J. Michael Quinlan...................... 427,745(10) * 537,745(10) *
C. Ray Bell............................. 168,281(11) * 168,281(11) *
Jean-Pierre Cuny........................ 26,250(12) * 26,250(12) *
Ted Feldman............................. 33,614(13) * 33,614(13) *
Joseph V. Russell....................... 154,771(14) * 154,771(14) *
Charles W. Thomas....................... 80,017(13) * 80,017(13) *
All executive officers and directors as
a group............................... 4,906,024(15) 4.1 5,126,024(15) 4.0
</TABLE>
-------------------------
* Represents beneficial ownership of less than 1% of the outstanding shares
of Prison Realty common stock.
(1) Includes shares as to which such person directly or indirectly, through any
contract, arrangement, understanding, relationship, or otherwise has or
shares voting power and/or investment power as these terms are defined in
Rule 13d-3(a) of the Exchange Act. Shares of Prison Realty common stock
underlying options to purchase shares of Prison Realty common stock, which
are exercisable, or become exercisable within 60 days after June 19, 2000,
are deemed to be outstanding for the purpose of computing the outstanding
shares of Prison Realty common stock owned by the particular person and by
the group, but are not deemed outstanding for any other purpose.
(2) Based on 118,409,619 shares of Prison Realty common stock issued and
outstanding on June 19, 2000.
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(3) The ownership percentages reflected in this column were computed in
compliance with the Exchange Act regulations. As a result, the ownership
percentages do not necessarily reflect the "fully diluted" ownership
percentages discussed elsewhere in this document. Based on 126,061,663
shares of Prison Realty common stock issued and outstanding upon completion
of the merger and restructuring transactions, assuming the issuance of an
aggregate of approximately 7.6 million shares of Prison Realty common stock
in the merger transactions. Does not include an aggregate of approximately
860,000 shares of Prison Realty common stock issuable upon the exercise of
warrants to be granted to Baron under the terms of its agreement with
Prison Realty, assuming a price per share of $3.44 in accordance with the
terms of such agreement.
(4) This beneficial ownership information was received by Prison Realty from a
Schedule 13G filed with the SEC and dated January 5, 2000. Dreman Value
Management, L.L.C. beneficially owns, and has the sole power to vote
12,581,140 shares, and has shared voting power for 66,150 shares of Prison
Realty common stock. Dreman Value Management, L.L.C. has sole disposition
power for 13,324,690 shares of Prison Realty common stock.
(5) Includes 80,626 shares of Prison Realty common stock issuable upon the
exercise of certain options issued to Jean-Pierre Cuny and transferred by
Mr. Cuny to Sodexho. Assumes the issuance of a total of approximately $8.0
million in Prison Realty common stock, or 2,327,273 shares of Prison Realty
common stock at a price per share of $3.44, in accordance with the terms
proposed to Sodexho by Prison Realty with respect to the exchange for all
shares of CCA common stock owned by Sodexho immediately prior to the CCA
merger. Sodexho, however, has not accepted the terms of such proposal.
(6) This beneficial ownership information was received by Prison Realty from a
Schedule 13G filed with the SEC on January 28, 2000. Scudder Kemper
Investments, Inc. beneficially owns, and has the sole power to dispose or
to direct the disposition of, 8,923,325 shares of Prison Realty common
stock. Of this amount, Scudder Kemper Investments, Inc. has the sole power
to vote or direct the vote of 8,922,100 shares of Prison Realty common
stock.
(7) This beneficial ownership information was received by Prison Realty from a
Schedule 13D filed with the SEC on March 31, 2000. Gotham Partners, L.P.
has sole voting and investment power with respect to 5,215,451 shares of
Prison Realty common stock. Gotham Partners III, L.P. has sole voting and
investment power with respect to 233,962 shares of Prison Realty common
stock. Gotham International Advisors, L.L.C. has sole voting and investment
power with respect to 2,204,086 shares of Prison Realty common stock.
Gotham Holdings II, L.L.C. has sole voting and investment power with
respect to 392,601 shares of Prison Realty common stock. Section H
Partners, L.P. is the sole general partner of Gotham Partners, L.P. and
Gotham Partners III, L.P. Karenina Corp., which is wholly-owned by William
A. Ackman, and DPB Corp., which is wholly-owned by David P. Berkowitz, are
the sole general partners of Section H Partners, L.P. Messrs. Ackman and
Berkowitz are the senior managing members of Gotham International Advisors,
L.L.C., which, pursuant to an investment management agreement, has the
power to vote and dispose of all of the shares of Prison Realty common
stock owned by Gotham Partners International, Ltd. Gotham Holdings
Management L.L.C. is the manager of Gotham Holdings II, L.L.C. Messrs.
Ackman and Berkowitz are the senior managing members of Gotham Holdings II,
L.L.C.
(8) Includes 5,000 shares of Prison Realty common stock issuable upon the
exercise of vested options, 26,211 shares of Prison Realty common stock
held in a 401(k) plan, 19,750 shares of Prison Realty common stock owned by
Thomas W. Beasley's wife, and an aggregate of 14,567 shares of Prison
Realty common stock owned by Mr. Beasley's three children.
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(9) Includes 375,000 shares of Prison Realty common stock issuable upon the
exercise of vested options and 43,163 shares of Prison Realty common stock
held in a 401(k) plan.
(10) Includes 393,750 shares of Prison Realty common stock issuable upon the
exercise of vested options, 900 shares of Prison Realty common stock owned
by Mr. Quinlan's daughters, 21,000 shares of Prison Realty common stock
owned by Mr. Quinlan's wife and 2,645 shares of common stock held in an
Individual Retirement Account. A total of approximately $400,000 in Prison
Realty common stock, or approximately 110,000 shares assuming a price of
$3.50 per share, will be issued to Mr. Quinlan in the merger of CCA with
and into Prison Realty in exchange for 200,000 shares of CCA voting common
stock owned by Mr. Quinlan.
(11) Includes 20,000 shares of Prison Realty common stock issuable upon the
exercise of vested options and 1,000 shares of Prison Realty common stock
owned jointly by Mr. Bell and his wife.
(12) Mr. Cuny serves as the Senior Vice-President of The Sodexho Group, an
affiliate of Sodexho. Mr. Cuny beneficially owns 26,250 shares of Prison
Realty common stock issuable upon the exercise of vested options. This
number does not include shares of Prison Realty common stock beneficially
owned by Sodexho, of which Mr. Cuny disclaims beneficial ownership.
(13) Includes 20,000 shares of Prison Realty common stock issuable upon the
exercise of vested options.
(14) Includes 20,000 shares of Prison Realty common stock issuable upon the
exercise of vested options and 437 shares of Prison Realty common stock
owned jointly by Mr. Russell and his daughter.
(15) Includes an aggregate of 548,126 shares of Prison Realty common stock
issuable upon the exercise of vested options. A total of approximately
$400,000 in Prison Realty common stock, or approximately 110,000 shares
assuming a price of $3.50 per share, will be issued to each of J. Michael
Quinlan and Vida H. Carroll in the merger of CCA with and into Prison
Realty in exchange for 200,000 shares of CCA voting common stock owned by
each of J. Michael Quinlan and Vida H. Carroll.
REGULATORY FILINGS AND APPROVALS REQUIRED FOR THE RESTRUCTURING
Prison Realty does not believe that any government filings in the United
States are required with respect to the restructuring or the issuance of shares
of series B convertible preferred stock in satisfaction of Prison Realty's
remaining 1999 REIT distribution requirements other than:
- filings with the Federal Trade Commission and the Antitrust Division of
the Department of Justice under the HSR Act;
- articles of amendment and restatement to the charter of Prison Realty to
be filed with the State Department of Assessments and Taxation of the
State of Maryland;
- articles supplementary to the charter of Prison Realty to be filed with
the State Department of Assessments and Taxation of the State of
Maryland classifying the series B convertible preferred stock and
setting forth the rights, terms and preferences of the shares of the
series B convertible preferred stock issued in satisfaction of Prison
Realty's remaining 1999 REIT distribution requirement;
- filings with the SEC to register Prison Realty securities to be issued
in the merger transaction with CCA and this proxy statement;
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- filing of Articles of Merger with the Tennessee Secretary of State with
respect to the merger of CCA with and into the wholly-owned acquisition
subsidiary of Prison Realty.
Completion of the restructuring, and in particular the merger, is
conditioned upon, among other things, the absence of any preliminary or
permanent injunction or other orders issued by any court or other judicial or
administrative body with competent jurisdiction which prohibits or prevents
completion of the merger and related restructuring.
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PROPOSAL 1
PROPOSAL TO ADOPT THE ARTICLES OF AMENDMENT AND
RESTATEMENT TO THE PRISON REALTY CHARTER
GENERAL
Prison Realty has entered into a series of agreements providing for a
restructuring of Prison Realty, including the combination of Prison Realty and
CCA and Prison Realty's election to be taxed as a C corporation, rather than as
a REIT, commencing with its 2000 taxable year. In connection with the
restructuring, Prison Realty is required to amend certain provisions of its
charter described herein to permit, among other things, Prison Realty's
operation as a taxable subchapter C corporation under the Corrections
Corporation of America name.
CHARTER AMENDMENTS
The following summarizes certain relevant provisions of the articles of
amendment and restatement to the charter of Prison Realty. A copy of the
articles of amendment and restatement governing the rights of Prison Realty's
shareholders is attached hereto as Appendix A. This discussion is not a complete
description of the terms of the articles of amendment and restatement, so you
should read it together with the articles of amendment and restatement.
GENERAL
In order to complete the restructuring, Prison Realty will be required to
amend and restate its existing charter to, among other things, permit Prison
Realty's election not to be taxed as a REIT. Specifically, the proposed articles
of amendment and restatement include amendments to:
- change the name of Prison Realty to "Corrections Corporation of
America;"
- increase the authorized number of shares of capital stock from 320.0
million to 450.0 million, including increasing the authorized number of
shares of common stock from 300.0 million to 400.0 million and the
authorized number of shares of preferred stock from 20.0 million to 50.0
million;
- remove certain provisions relating to Prison Realty's qualification as a
REIT;
- change the structure of the board of directors;
- remove the provisions relating to indemnification of directors and
officers; and
- add provisions permitting the Prison Realty board to consider the effect
of non-shareholder constituencies when evaluating a potential
acquisition of control of the corporation.
Except with respect to these matters and the matters set forth below,
Prison Realty's charter, as amended and restated by the articles of amendment
and restatement, will be substantially similar to Prison Realty's existing
charter. The affirmative vote of the holders of two-thirds of the holders of
Prison Realty's common stock is required to adopt the proposed articles of
amendment and restatement. If approved by the required number of shareholders,
the provisions of the articles of amendment and restatement will become
effective when filed with the Department of Assessments and Taxation of the
State of Maryland, which is expected to occur immediately prior to the closing
of the merger.
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NAME
Prison Realty's board of directors has determined that it is in the best
interests of Prison Realty and its shareholders to change the name of Prison
Realty from "Prison Realty Trust, Inc." to "Corrections Corporation of America"
and to use this name following the completion of the merger of Prison Realty
with CCA. While Prison Realty and its predecessors have used the "Prison Realty"
name in the business of acquiring, developing, owning and leasing correctional
and detention facilities since July 1997, the name "Corrections Corporation of
America" has been used since 1983 by CCA and its predecessors in the
development, construction, operation and management of correctional and
detention facilities. The name "Corrections Corporation of America" has achieved
a substantial amount of recognition and market identity in the private
corrections and detention industry.
Therefore, the Prison Realty board believes the name "Corrections
Corporation of America" is a more appropriate name for the combined entity after
the restructuring and the use of the CCA name will enable it to capitalize on
and expand the reputation developed under this name. In addition, under the
terms of the merger agreement, Prison Realty is required to change its name to
"Corrections Corporation of America" upon the completion of the merger.
INCREASE IN AUTHORIZED CAPITAL STOCK
Prison Realty's charter currently authorizes the issuance of 320.0 million
shares of capital stock, consisting of 300.0 million shares of common stock and
20.0 million shares of preferred stock, of which 4.3 million shares have been
designated as 8% series A preferred stock. Prison Realty has an aggregate of
approximately 118.4 million shares of common stock currently issued and
outstanding. Prison Realty also has approximately 6.5 million shares of common
stock reserved for issuance under various employee and director benefit plans
and pursuant to the conversion of an aggregate of $70.0 million of convertible,
subordinated notes. The Prison Realty charter currently provides for "blank
check" stock whereby the Prison Realty board is permitted to classify or
reclassify any unissued stock without shareholder approval. However, the board
may not issue shares of capital stock in excess of the amount authorized under
the charter.
The proposed articles of amendment and restatement to Prison Realty's
charter would increase the authorized capital stock of Prison Realty to 450.0
million shares, consisting of 400.0 million shares of common stock and 50.0
million shares of preferred stock, of which 4.3 million shares have been
designated as 8% series A preferred stock.
The proposed transactions intended to effect a restructuring of Prison
Realty, including those transactions required by the Waiver and Amendment,
require the issuance of additional shares of Prison Realty's common stock and
preferred stock. Moreover, the number of shares of Prison Realty common stock to
be issued in connection with these transactions may exceed the number of shares
of common stock which Prison Realty currently is authorized to issue.
In connection with the merger and the purchase of CCA shares from Baron and
Sodexho prior to the merger, it is expected that Prison Realty will issue
approximately 7.6 million in Prison Realty common stock in exchange for shares
of CCA common stock, as well as warrants to purchase $3.0 million in shares (or
approximately 862,000 shares) of Prison Realty common stock. Accordingly, the
merger transactions will result in approximately 8.5 million shares of Prison
Realty common stock being issued.
Prison Realty also will issue a minimum of $150.0 million of its series B
convertible preferred stock into shares of its common stock in satisfaction of
its remaining REIT distribution requirements for 1999. Assuming a value of
$25.00 per share, Prison Realty will issue up to 6.0 million shares of series B
convertible preferred stock. Since the shares of series B convertible preferred
stock will pay a
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12% annual paid-in-kind dividend prior to conversion and are only convertible
during two separate 10 day periods, Prison Realty will be required to issue an
undetermined number of shares of Prison Realty common stock as a result of the
distribution. In addition, Prison Realty is required by the terms of the Waiver
and Amendment to use commercially reasonable efforts to complete an offering of
its common stock, through the distribution of rights to purchase common stock,
yielding cash proceeds to Prison Realty of $50.0 million. Assuming a value of
$3.00 per share, Prison Realty will issue approximately 16.7 million shares of
common stock in an offering yielding cash proceeds of $50.0 million.
The Prison Realty board believes that the authorization of additional
shares of common and preferred stock will give Prison Realty the ability to meet
its immediate issuance requirements under the terms of the merger pursuant to
the transactions required by the Waiver and Amendment and in satisfaction of its
REIT distribution requirements. The board believes that the availability of
additional shares of common and preferred stock will enable Prison Realty to act
promptly to take advantage of corporate opportunities as they arise without the
delay or cost of calling a special meeting of shareholders, including the
potential completion of the merger of each of PMSI and JJFMSI with and into
Prison Realty at an undetermined later date. The board of directors also
believes that additional authorization of shares of preferred stock, combined
with the board's ability to set the terms of the preferred stock, such as
dividend rates, conversion prices, voting rights, redemption prices and maturity
dates, in accordance with the terms of particular transactions, will benefit
Prison Realty in its efforts to address future capital and financing needs.
Shareholders should be aware that the increase in the number of authorized
shares of capital stock and the board's ability to issue additional shares of
common or preferred stock without shareholder approval may discourage attempts
to acquire Prison Realty by making them more difficult and costly.
REMOVAL OF PROVISIONS RELATING TO PRISON REALTY'S QUALIFICATION AS A REIT
General. Prison Realty's existing charter contains provisions relating to
Prison Realty's operating in a manner so as to qualify as a REIT. These
provisions require the Prison Realty board to: (i) use all reasonable efforts to
ensure that Prison Realty satisfies the requirements for qualification as a
REIT; and (ii) take no action to disqualify Prison Realty as a REIT or to
otherwise revoke Prison Realty's election to be taxed as a REIT without the
affirmative vote of not less than two-thirds of the outstanding shares entitled
to vote on the matter. In addition, Prison Realty's existing charter also
contains certain ownership restrictions that, among other things, generally
prohibit any individual from owning more than 9.8% of the outstanding shares of
Prison Realty common stock or preferred stock.
If the Prison Realty shareholders approve the charter amendments, Prison
Realty will not operate so as to qualify as a REIT beginning with its taxable
year ending December 31, 2000. A vote to approve the charter amendment removing
the provisions relating to Prison Realty's operation as a REIT and removing the
ownership restrictions contained in the charter will be deemed a vote to approve
Prison Realty's election not to be taxed as a REIT, but instead to be taxed as a
subchapter C corporation beginning with its taxable year ending December 31,
2000.
With respect to Prison Realty's ability to elect REIT status for its
taxable year ending December 31, 1999, Prison Realty requested an automatic
extension of time to file its 1999 tax return from March 15, 2000 to September
15, 2000. By obtaining this extension, Prison Realty retained the ability to
elect REIT status for 1999. Prison Realty will continue to take such actions
prior to or upon filing its 1999 tax return as may be necessary to elect REIT
status for 1999, including declaring sufficient dividends with respect to its
1999 taxable year and filing an election to be taxed as a REIT for 1999. As set
forth in this proxy statement, Prison Realty intends to issue shares of its
series B
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convertible preferred stock in satisfaction of its remaining 1999 REIT
distribution requirements. Prison Realty made cash distributions of
approximately $217.7 million during 1999 in satisfaction of a portion of its
1999 REIT distribution requirements.
Structure and operations of Prison Realty as the surviving entity. Because
Prison Realty will operate as an ordinary subchapter C corporation following its
election not to be taxed as a REIT and the completion of the merger, it will no
longer be subject to restrictions regarding the amount and character of the
revenues that it may earn, the types of assets which it may own or the nature of
the business activities which it may conduct. The absence of these restrictions
allows Prison Realty to be the sole owner of the outstanding stock of the
surviving entity in the merger, which will succeed to certain contracts for the
management and operation of correctional and detention facilities as well as
certain assets related to these contracts from CCA. Consequently, Prison Realty
will expand its current business, the ownership and leasing of correctional and
detention facilities, to include the management and operation of correctional
and detention facilities.
Although the acquisition subsidiary will maintain ownership of its assets
for liability purposes, in all practical respects, and for tax and accounting
purposes the companies will operate and will be treated as a single entity under
the name "Corrections Corporation of America." As such, the existing agreements
between Prison Realty and CCA, including the CCA promissory note and the CCA
lease agreements will be canceled and will be of no further force and effect.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES.
Tax status of Prison Realty. As required by the terms of its charter,
Prison Realty will elect to be taxed as a REIT for federal income tax purposes
with respect to its taxable year ending December 31, 1999. Following
consummation of the merger transactions, however, Prison Realty will no longer
operate as to qualify as a REIT. Therefore, commencing with its taxable year
ending December 31, 2000, Prison Realty will be taxable as an ordinary
subchapter C corporation. As a result of its failure to qualify as a REIT,
Prison Realty, commencing with its taxable year ending December 31, 2000, will
no longer be required to make annual distributions to its shareholders of at
least 95% (90% for years beginning after December 31, 2000) of its taxable
income. Furthermore, Prison Realty does not intend to make any distributions to
its common shareholders in the foreseeable future, except for distributions that
may be required for Prison Realty to qualify as a REIT for 1999.
Prison Realty's election not to qualify as a REIT for 2000 and thereafter
will result in the following charges to operations:
- Prison Realty will be required to provide for current tax liabilities
for the most recent federal and state reporting periods during which
Prison Realty did not qualify as a REIT.
- Prison Realty will be required to provide for all existing deferred tax
assets and liabilities in accordance with SFAS No. 109 related to
temporary book versus tax differences as well as certain imbedded
permanent differences in book versus tax balances contained in Prison
Realty's fixed asset balances.
Prison Realty's election not to qualify as a REIT for 2000 and thereafter
will have the following impact on its liquidity and capital resources:
- Prison Realty will no longer be required to distribute at least 95% (90%
for years beginning after December 31, 2000) of its REIT taxable income
to its shareholders. Prison Realty does not currently have the liquidity
or financial resources to make any such payments for 1999 in cash, and
is restricted by the terms of its bank credit facility from doing so.
Prison Realty's distributions per share of common stock equaled $1.80 in
1999. Old Prison Realty, which
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operated as a REIT, made distributions per share of common stock equal
to $1.80 in 1998 and $0.77 in 1997 (July to December 31). Prison Realty
does not intend to make any distributions to holders of its common stock
following the completion of the merger, other than as necessary to
qualify as a REIT for its 1999 taxable year.
- Prison Realty will be required to pay income taxes each year estimated
on a quarterly basis, based upon its taxable income, including
approximately $100.0 million in federal income taxes for the 2000
taxable year.
- Prison Realty will be able to retain after-tax earnings that would
otherwise have been required to be distributed as a REIT.
Tax consequences of not qualifying as a REIT in 2000 and thereafter. As a
consequence of not qualifying as a REIT in 2000 and thereafter, Prison Realty
will instead be taxable as an ordinary subchapter C corporation. As a result,
distributions to the shareholders of Prison Realty will not be deductible for
purposes of computing Prison Realty's taxable income, and Prison Realty will be
subject to income tax, including any applicable alternative minimum tax, on its
taxable income at regular corporate rates, without offset for distributions of
such income to shareholders. As such, Prison Realty will be required to reflect
the appropriate provision for income taxes in its financial statements for 2000
in accordance with SFAS No. 109. Although Prison Realty would have been required
to distribute at least 95% of its taxable income annually in order to maintain
its qualification as a REIT, no such minimum distribution requirements will
apply to Prison Realty beginning January 1, 2000, and it is expected that no
dividends will be paid with respect to shares of Prison Realty common stock in
the foreseeable future, other than as necessary to qualify as a REIT for 1999.
Moreover, Prison Realty will be precluded from electing REIT status again until
the fifth taxable year after termination of REIT status. It is highly unlikely,
however, that Prison Realty will elect, or be eligible, to qualify as a REIT at
a future date.
As a result of Prison Realty's election not to qualify as a REIT,
investments in Prison Realty common stock will be taxed under the general rules
applicable to investments in stock of ordinary subchapter C corporations, and a
holder of Prison Realty common stock will no longer be subject to the special
rules governing REITs. For example, no dividends paid by Prison Realty, if any,
will be eligible for the favorable treatment accorded capital gain dividends
paid by REITs, and all distributions will be taxed as ordinary income to the
extent of Prison Realty's current and accumulated earnings and profits.
Additionally, Prison Realty could pay up to 40% of its taxable income in federal
and state income taxes and would have to pay approximately $100.0 million in
federal income tax, interest and penalties for its 1999 taxable year if REIT
status is not elected. On the other hand, distributions paid by Prison Realty to
a corporate shareholder may be eligible for the dividends received deduction,
subject to certain limitations set forth in the Code, whereas distributions paid
by REITs are not eligible for the dividends received deduction.
STRUCTURE AND COMPOSITION OF BOARD OF DIRECTORS
Prison Realty's existing charter provides that the board of directors will
consist of the number of directors determined from time to time by resolution of
the Prison Realty board in accordance with the Prison Realty bylaws, provided
that the number of directors may be no less than the minimum numbers required by
Maryland law. The Prison Realty charter also divides the directors into three
separate classes with the number of directors in each class being as equal as
possible. The charter also requires that at least three members of the board
must be "independent directors." For purposes of Prison Realty's charter, an
independent director is defined to be an individual who is not an officer or
employee of Prison Realty, CCA, PMSI or JJFMSI, or any of Prison Realty's
tenants. Each director serves for a term ending on the third anniversary date of
the special meeting of shareholders
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at which he or she was elected. By resolution of the Prison Realty board, the
board is currently comprised of seven members, three of whom are independent and
two of which serve on the board's Independent Committee. Currently, Prison
Realty has two Class I Directors whose terms expire at Prison Realty's 2002
annual meeting, two Class II Directors whose terms expire at Prison Realty's
2001 annual meeting, and three Class III Directors whose term expire at Prison
Realty's 2000 annual meeting.
The proposed articles of amendment and restatement to Prison Realty's
charter provide that the board of directors will consist of the number of
directors determined from time to time by resolution of the board in accordance
with the Prison Realty bylaws except as otherwise provided in the charter,
provided that the number of directors may be no less than the minimum number
required by Maryland law. The proposed articles of amendment and restatement do
not divide the directors into classes. Accordingly, under Maryland law, all
directors will be elected annually, at Prison Realty's special meeting of
shareholders, for one-year terms and until the next annual meeting of
shareholders. The proposed articles of amendment and restatement also require
that at least two members of the board must be "independent directors." For
purposes of Prison Realty's amended and restated charter, an "independent
director" is defined to be an individual who: (i) is not an officer or employee
of Prison Realty; (ii) is not the beneficial owner of more than 5% of any class
of equity securities of Prison Realty or an officer, employer or "affiliate" of
such security holder, as defined under federal securities laws; or (iii) does
not have an economic relationship with Prison Realty that requires disclosure
under federal securities laws. According to the articles of amendment and
restatement, the board will be composed of seven directors at the time of the
amendment and restatement.
Prison Realty's board of directors currently consist of seven members,
including three independent directors, two of which serve on the board's
Independent Committee. Upon completion of the restructuring, Prison Realty's
board of directors will be restructured by increasing the size of the existing
board of directors and appointing one or more additional directors to the newly
created vacancies. In addition, certain existing directors, including Doctor R.
Crants, are expected to resign allowing the appointment of one or more directors
to the vacancies created by the resignations. Under Maryland law, each of these
new directors must stand for election at the next annual meeting of shareholders
following their appointment. It is expected that the Prison Realty 2000 annual
meeting will be held in November 2000.
REMOVAL OF PROVISIONS RELATING TO INDEMNIFICATION OF DIRECTORS AND OFFICERS
The proposed articles of amendment and restatement to Prison Realty's
charter remove all provisions relating to the indemnification of directors and
officers contained in Prison Realty's existing charter. As a result, Prison
Realty's obligations to indemnify its current or former directors, officers,
employees or agents are governed by provisions contained in Maryland law and in
Prison Realty's bylaws. The Prison Realty board believes that removing the
indemnification provisions from Prison Realty's charter and including them in
Prison Realty's bylaws will provide increased flexibility and allow discretion
to be used by the board in indemnifying its directors and officers against
certain liabilities.
Under the provisions of Prison Realty's bylaws, as in effect prior to, and
upon completion of, the restructuring, Prison Realty is required to indemnify a
current or former director or officer for reasonable expenses incurred if such
individual has been successful, on the merits or otherwise, in defense of any
proceeding arising out of such individual's official capacity. In addition,
Prison Realty is required to indemnify a current or former director or officer
in any proceeding arising out of such individual's official capacity if a court
of appropriate jurisdiction determines such individual is entitled
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to indemnification. Prison Realty also is required to indemnify any current or
former director, or any current or former officer, in any proceeding arising out
of such individual's official capacity unless it is established that:
- the proceeding involves an act or omission of such individual which was
material to the matter giving rise to the proceeding and was either (i)
committed in bad faith; or (ii) was the result of active and deliberate
dishonesty;
- the individual actually received an improper personal benefit in money,
property or services; or
- in the case of a criminal proceeding, the director had reasonable cause
to believe the act or omission was unlawful.
Under Maryland law, any such indemnification may be against judgments,
penalties, settlements and reasonable expenses actually incurred in connection
with the proceeding. However, if the proceeding is one by or in the right of the
corporation, Prison Realty may not provide indemnification with respect to any
proceeding in which the individual is adjudged liable to the corporation, unless
approved by a court (except where the individual is liable for receipt of an
improper benefit). In addition, if the proceeding is one charging improper
personal benefit to the individual, whether or not involving action in the
director's official capacity, indemnification is not permitted if the director
is adjudged to be liable on the basis that personal benefit was improperly
received.
Under Prison Realty's bylaws, Prison Realty shall pay or reimburse, in
advance of final disposition of a proceeding, reasonable expenses incurred by a
current or former director or officer, if such individual affirms in good faith
that he or she has satisfied the applicable standard of conduct necessary for
indemnification and agrees to repay amounts paid to such individual if it is
determined that such standard is not met.
Under Prison Realty's bylaws, Prison Realty may also provide to directors
or officers additional indemnification or payment or reimbursement of expenses
to the fullest extent permitted by Maryland law for directors of Maryland
corporations. Prison Realty's bylaws also provide that Prison Realty may
indemnify or reimburse the expenses of employees or agents of Prison Realty upon
approval by its board of directors.
ADDITIONAL PROVISIONS PERMITTING THE PRISON REALTY BOARD OF DIRECTORS TO
CONSIDER THE EFFECT OF NON-SHAREHOLDER CONSTITUENCIES IN CONSIDERING A POTENTIAL
ACQUISITION OF CONTROL
Prison Realty's existing charter contains no provision permitting Prison
Realty's board of directors to consider the impact of a proposed acquisition of
control of Prison Realty upon constituencies other than the shareholders of
Prison Realty. The proposed articles of amendment and restatement to Prison
Realty's charter contain a provision permitting, but not requiring, Prison
Realty's board of directors, when considering the effect of a potential
acquisition of control of Prison Realty, to consider the effect of the potential
acquisition of control of Prison Realty on shareholders, employees, suppliers,
customers and creditors of Prison Realty and on communities in which offices or
other establishments of Prison Realty are located. Maryland law provides that
the inclusion of such a provision in Prison Realty's charter will not create an
inference concerning factors that may or may not be considered by Prison
Realty's board of directors regarding a potential acquisition of control.
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COMPARISON OF RIGHTS OF SHAREHOLDERS OF PRISON REALTY AFTER THE ADOPTION OF THE
ARTICLES OF AMENDMENT AND RESTATEMENT TO THE PRISON REALTY CHARTER AND BYLAWS
Prison Realty's charter, as amended, bylaws and Maryland law currently
govern the rights of shareholders of Prison Realty. If the holders of Prison
Realty's common stock approve Prison Realty's adoption of the articles of
amendment and restatement to the Prison Realty charter and the completion of the
restructuring, Prison Realty will not be taxed as a REIT beginning with its
taxable year ending December 31, 2000, and, as a result, the following
provisions of the Prison Realty charter will be eliminated:
- provisions requiring the Prison Realty board to use all reasonable
efforts to ensure that Prison Realty satisfies the requirements for
qualification as a REIT under the Code. Currently, the Prison Realty
board may take no action to disqualify Prison Realty as a REIT without
the affirmative vote of the holders of not less than two-thirds of all
the outstanding shares of Prison Realty capital stock entitled to vote
on such matter at a meeting of the shareholders;
- provisions providing that holders of Prison Realty common stock and
Prison Realty series A preferred stock are subject to an ownership limit
of 9.8% of the outstanding Prison Realty common stock and preferred
stock; and
- provisions governing the amount and timing of distributions to Prison
Realty's shareholders.
In order to complete the restructuring, subject to shareholder approval,
the Prison Realty charter will be amended and restated. As a result, the rights
of the holders of Prison Realty common stock will be governed by the Prison
Realty charter, each as amended and restated, the Prison Realty bylaws and
Maryland law.
The following chart summarizes certain differences among the rights of
holders of the common stock of Prison Realty before and after the amendment and
restatement of Prison Realty's charter.
This summary is not a complete description of the rights of shareholders of
Prison Realty. The articles of amendment and restatement to the Prison Realty
charter are attached to this proxy statement as Appendix A. We encourage you to
read them carefully. In addition, you may obtain the current Prison Realty
charter and bylaws without charge by contacting Prison Realty as described in
this proxy statement under "Where You Can Find More Information."
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<TABLE>
<CAPTION>
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PRISON REALTY PRISON REALTY
BEFORE THE AMENDMENT AND RESTATEMENT AFTER THE AMENDMENT AND RESTATEMENT
OF THE PRISON REALTY CHARTER OF THE PRISON REALTY CHARTER
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<S> <C> <C> <C>
Name of corporation Prison Realty Trust, Inc. Corrections Corporation of America
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Common stock The Prison Realty charter authorizes The Prison Realty charter
for issuance 300.0 million shares of authorizes for issuance 400.0
common stock. One class of common million shares of common stock. One
stock is issued and outstanding. class of common stock is issued and
Holders are entitled to one vote per outstanding. Holders are entitled
share. to one vote per share.
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Preferred stock The Prison Realty charter authorizes The Prison Realty charter
for issuance 20.0 million shares of authorizes for issuance 50.0
preferred stock. Prison Realty million shares of preferred stock.
currently has 4.3 million shares of Prison Realty has 4.3 million
preferred stock designated as series shares of preferred stock
A. designated as series A, and will
designate 8.0 million shares of
preferred stock as series B. The
terms of the series B convertible
preferred stock are described in
the section entitled "Description
of the series B convertible
preferred stock."
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Entity status The Prison Realty charter provides The Prison Realty charter does not
that the board of directors may take contain provisions requiring
no action to disqualify the specific actions based on its
corporation as a REIT under the Code status as a corporation.
or to otherwise revoke the
corporation's election to be taxed
as a REIT without the approval of at
least two-thirds of all of the
outstanding shares of the
corporation entitled to vote on such
a matter at a meeting of
shareholders.
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Restrictions on The Prison Realty charter imposes The Prison Realty charter does not
ownership and certain restrictions on the contain provisions restricting the
transfer of stock ownership and transfer of shares of ownership or transfer of stock.
Prison Realty stock in order for
Prison Realty to qualify as a REIT
under the Code. Specifically,
holders of Prison Realty common
stock are subject to an ownership
limit of 9.8% of the outstanding
shares of Prison Realty common stock
and preferred stock.
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Distributions Under the Prison Realty charter, the The Prison Realty charter does not
board of directors must use all require the board of directors to
reasonable efforts to ensure that make distributions to its
the corporation satisfies the shareholders.
requirements for qualification as a
REIT under the Code, including the
timing and the amount of the
corporation's distributions to its
shareholders. Nevertheless, the
common shareholders have no right to
any distributions unless and until
authorized and declared by the board
of directors.
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</TABLE>
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<TABLE>
<CAPTION>
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PRISON REALTY PRISON REALTY
BEFORE THE AMENDMENT AND RESTATEMENT AFTER THE AMENDMENT AND RESTATEMENT
OF THE PRISON REALTY CHARTER OF THE PRISON REALTY CHARTER
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<S> <C> <C> <C>
Classified board of See the description of Maryland law Maryland law provides that a
directors under the opposite "Prison Realty" corporation's charter may divide
heading. The Prison Realty charter its directors into classes with
provides for a board of directors specified terms of office. The
that is divided into three classes, Prison Realty charter does not
as nearly equal in size as possible, provide for a classified board of
with one class being elected directors.
annually. Prison Realty directors
are elected to a term of three years
or until their successors are
elected and qualified or until their
death, retirement, resignation or
removal. Any newly-created or
eliminated directorships resulting
from any increase or decrease in the
number of directors shall be
apportioned among the three classes
so as to keep the number of
directors in each class as nearly
equal as possible.
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Number of directors The Prison Realty charter provides The Prison Realty charter provides
that the board of directors shall that the board of directors shall
consist of the number of directors consist of the number of directors
determined by resolution of the determined by resolution of the
board of directors in accordance board of directors in accordance
with the Prison Realty bylaws, with the Prison Realty bylaws,
provided that the number of provided that the number of
directors shall never be less than directors shall never be less than
the minimum number required by the minimum number required by
Maryland law. See the description of Maryland law. Maryland law requires
Maryland law under the opposite that there shall be at least three
"Prison Realty' heading. The Prison directors. The Prison Realty bylaws
Realty bylaws provide that the board provide that the board of directors
of directors shall not be less than shall not be less than three nor
three nor more than 16, as more than 16, as determined from
determined from time to time by time to time by resolution adopted
resolution adopted by a majority of by a majority of the board of
the board of directors. directors.
The Prison Realty charter further The Prison Realty charter further
provides that at least three of the provides that at least three of the
members of the board must be members of the board must be
independent directors. independent directors.
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</TABLE>
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<TABLE>
<CAPTION>
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PRISON REALTY PRISON REALTY
BEFORE THE AMENDMENT AND RESTATEMENT AFTER THE AMENDMENT AND RESTATEMENT
OF THE PRISON REALTY CHARTER OF THE PRISON REALTY CHARTER
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<S> <C> <C> <C>
Action by the board See the description of Maryland law Under Maryland law, a majority of
of directors under the opposite "Prison Realty" the board of directors constitutes
heading. The Prison Realty bylaws a quorum and, if a quorum is
require a quorum of and approval of present when a vote is taken, the
two-thirds of the directors then in affirmative vote of a majority of
office to approve: the directors present is the act of
- a change in control of the the board.
corporation,
- any amendment to the charter or The Prison Realty bylaws require a
bylaws, quorum of and approval of
- any waiver or modification of the two-thirds of the directors then in
ownership limits required by the office to approve:
charter, - a change in control of the
- acquisitions, dispositions or corporation,
financings of assets by the - any amendment to the charter or
corporation in excess of 25% of its bylaws,
total market capitalization, or - acquisitions, dispositions or
- certain issuances of equity. financings of assets by the
corporation in excess of 25% of its
total market capitalization, or
- certain issuances of equity.
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Removal of directors Under Maryland law, unless the See the description of Maryland law
charter of the corporation provides under the opposite "Prison Realty"
otherwise, a director of a heading. The Prison Realty charter
corporation that has a classified provides that the shareholders may,
board of directors may not be at any time, remove a director,
removed without cause. The Prison with or without cause, by an
Realty charter provides that the affirmative vote of the majority of
shareholders may, at any time, shareholders entitled to vote in
remove any director, with or without the election of that director.
cause, by an affirmative vote of the
majority of shareholders entitled to
vote in the election of directors.
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Director vacancies See the description of Maryland law Under Maryland law, vacancies which
under the opposite "Prison Realty" result from the removal of a
heading. director may be filled by the
shareholders or by a majority of
the remaining directors, provided
that if the vacancy results from
the removal of a director elected
by a particular class, only the
shareholders of that particular
class or a majority of the
remaining directors elected by that
particular class may fill the
vacancy.
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</TABLE>
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<TABLE>
<CAPTION>
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PRISON REALTY PRISON REALTY
BEFORE THE AMENDMENT AND RESTATEMENT AFTER THE AMENDMENT AND RESTATEMENT
OF THE PRISON REALTY CHARTER OF THE PRISON REALTY CHARTER
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<S> <C> <C> <C>
Indemnification The Prison Realty charter and bylaws The Prison Realty bylaws provide
provide that directors and officers that directors and officers shall
shall be indemnified to the fullest be indemnified to the fullest
extent permitted by Maryland law extent permitted by Maryland law
against any action, suit or against any claim or liability to
proceeding brought against such which they become subject because
person relating to any action of their status. The Prison Realty
alleged to have been taken or bylaws specifically require
omitted in such capacity. The Prison indemnification of directors and
Realty bylaws specifically require officers who have been successful
indemnification of directors and on the merits or otherwise in the
officers who have been successful on defense of a proceeding to which he
the merits or otherwise in the or she is subject because of his or
defense of such a proceeding and of her status, and of directors and
directors and officers against any officers against any claim or
claim or liability unless it is liability unless it is established
established that their act or that his or her act or omission was
omission was material to the matter material to the matter giving rise
giving rise to the proceeding and to the proceeding and was committed
was committed in bad faith or was in bad faith or was the result of
the result of active and deliberate active and deliberate dishonesty,
dishonesty, they actually received he or she actually received an
an improper benefit in money, improper benefit in money, property
property or services or, in the case or services or, in the case of a
of a criminal proceeding, they had criminal proceeding, he or she had
reasonable cause to believe that reasonable cause to believe that
their act or omission was unlawful. his or her act or omission was
unlawful.
The Prison Realty charter provides
that the corporation shall pay or The Prison Realty bylaws provide
reimburse all reasonable expenses that the corporation shall pay or
incurred by such person to the reimburse reasonable expenses
fullest extent permitted by Maryland incurred by such person. The Prison
law. The Prison Realty bylaws, Realty bylaws, however, require
however, require that before any that before any such payment, the
such payment, the corporation shall corporation must have received a
have received a written affirmation written affirmation by the director
by the director or officer of his or or officer of his or her good faith
her good belief that he or she has belief that he or she has met the
met the applicable standard of applicable standard of conduct
conduct necessary for necessary for indemnification by
indemnification by the corporation the corporation as authorized by
as authorized by the bylaws and a the bylaws and a written
written undertaking by or on the undertaking by or on the director's
director's or officer's behalf to or officer's behalf to repay the
repay the amount paid or reimbursed amount paid or reimbursed by the
by the corporation if it is corporation if it is ultimately
ultimately determined that the determined that the applicable
applicable standard of conduct was standard of conduct was not met.
not met.
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</TABLE>
106
<PAGE> 110
<TABLE>
<CAPTION>
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PRISON REALTY PRISON REALTY
BEFORE THE AMENDMENT AND RESTATEMENT AFTER THE AMENDMENT AND RESTATEMENT
OF THE PRISON REALTY CHARTER OF THE PRISON REALTY CHARTER
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amendments to the See the description of Maryland law Under Maryland law, the charter of
charter under the opposite "Prison Realty" the corporation may be amended if
heading. the board of directors adopts a
resolution setting forth the
proposed amendment, declares it
advisable and directs the proposed
amendment be submitted to the
shareholders entitled to vote on
the matter and the shareholders
approve the amendment by the
affirmative vote of two-thirds of
all the votes entitled to be cast
on the matter.
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Consolidation; See description of Maryland law Under Maryland law, the corporation
merger; share under the opposite "Prison Realty" may be consolidated or merged or
exchange or transfer heading. its shares may be exchanged or its
assets may be transferred if the
board of directors adopts a
resolution which declares that the
proposed transaction is advisable
and directs the proposed amendment
be submitted to the shareholders
entitled to vote on the matter and
the shareholders approve the
transaction by the affirmative vote
of two-thirds of all the votes
entitled to be cast on the matter.
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Business See the description of Maryland law Under Maryland law, "business
combinations under the opposite "Prison Realty" combinations" with "interested
heading. These provisions of shareholders" are subject to a
Maryland law do not apply to moratorium of five years unless
business combinations with specified conditions are met. After
interested shareholders that have this five year period, any business
been exempted by resolution of the combination with an interested
board of directors prior to the shareholder must be approved by 80%
determination date. By resolution, of all voting stock and two-thirds
the Prison Realty board of directors of the disinterested voting stock.
has exempted Sodexho, Baron and These provisions of Maryland law do
certain of Baron's affiliates from not apply to business combinations
the business combination provisions. with interested shareholders that
have been exempted by resolution of
the board of directors prior to the
determination date. By resolution,
Prison Realty has exempted Sodexho,
Baron and certain of Baron's
affiliates from the business
combination provisions.
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</TABLE>
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<PAGE> 111
<TABLE>
<CAPTION>
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PRISON REALTY PRISON REALTY
BEFORE THE AMENDMENT AND RESTATEMENT AFTER THE AMENDMENT AND RESTATEMENT
OF THE PRISON REALTY CHARTER OF THE PRISON REALTY CHARTER
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-shareholder See the description of Maryland law Under Maryland law, a corporation's
constituencies under the opposite "Prison Realty" charter may include a provision
heading. The Prison Realty charter that allows the board of directors,
does not include such a provision. in considering a potential
acquisition of control of the
corporation, to consider the effect
of the potential acquisition on
shareholders, employees, suppliers,
customers and creditors of the
corporation and communities in
which offices or other
establishments of the corporation
are located. The Prison Realty
charter includes such a provision.
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</TABLE>
RECOMMENDATION OF THE PRISON REALTY BOARD
THE PRISON REALTY BOARD HAS APPROVED THE CHARTER AMENDMENTS AND BELIEVES
THAT THE CHARTER AMENDMENTS ARE FAIR AND IN THE BEST INTERESTS OF PRISON REALTY
AND ITS SHAREHOLDERS. THE PRISON REALTY BOARD RECOMMENDS THAT THE PRISON REALTY
SHAREHOLDERS VOTE FOR THE ADOPTION OF THE CHARTER AMENDMENTS.
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<PAGE> 112
PROPOSAL 2
PROPOSAL TO APPROVE THE MERGER OF PRISON REALTY
WITH CORRECTIONS CORPORATION OF AMERICA
GENERAL
As previously described in this proxy statement, Prison Realty has entered
into a series of agreements providing for a restructuring of Prison Realty,
including the combination of Prison Realty and CCA. As part of the
restructuring, Prison Realty has entered into a merger agreement with CCA
providing for the merger of CCA with and into a wholly-owned subsidiary of
Prison Realty, as well as agreements with Baron and Sodexho regarding the
purchase of shares of CCA common stock held by them.
REASON FOR APPROVAL
As discussed in more detail herein under "The Restructuring," prior to
their approval of the charter amendments, the merger and the related
restructuring of Prison Realty, the Prison Realty board and its Special and
Independent Committees considered various alternatives, including proposals from
potential third-party investors, in connection with their evaluation of the
various strategic and restructuring alternatives available to Prison Realty.
Based on these considerations and related analysis, on a determination that the
transactions contemplated by a securities purchase agreement with Pacific Life
would not be completed as a result of indications received from Pacific Life and
on the recommendations of the Special and Independent Committees, the Prison
Realty board approved the restructuring described in this proxy statement. The
Prison Realty board believes that it acted in good faith and exercised sound
business judgment by considering the various alternatives available to Prison
Realty and in approving the restructuring and satisfied the fiduciary duties of
its members in doing so.
Under Maryland law, shareholder approval of the merger is not required in
order for Prison Realty to complete the merger and related transactions
discussed under this proposal. However, as of the date of this proxy statement,
approximately six separate lawsuits have been filed (which have generally been
consolidated into three actions) by Prison Realty shareholders against Prison
Realty and all or certain of the members of the Prison Realty board in
connection with the restructuring of Prison Realty and/or the transactions
contemplated thereby, as discussed herein under "Information About Our
Company -- Shareholder litigation," and it is possible that additional
shareholder litigation may be instigated in connection therewith. In order to
assist Prison Realty in its defense of these claims, the Prison Realty board is
seeking the approval of the merger by the shareholders of Prison Realty. While
such approval, if obtained, may not be dispositive in determining that there is
no liability on the part of Prison Realty and its directors, the Prison Realty
board believes such approval may constitute a favorable factor in any court's
decision regarding the same. As such, the Prison Realty board believes that the
approval by the shareholders of Prison Realty may limit the potential liability
of Prison Realty and its board members which may result from such litigation or
otherwise discourage similar additional claims from being brought against Prison
Realty and the members of its board in the future.
Based on the foregoing, the Prison Realty board believes that it is in the
best interest of Prison Realty and its shareholders for shareholders to approve
the merger. In addition, the board is seeking the approval of the issuance of
shares to Sodexho immediately prior to the merger for purposes of listing the
shares to be issued to Sodexho on the NYSE. For purposes of the approval
requirements of the NYSE relating to the merger transactions, abstention or
broker non-vote will have the effect of
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<PAGE> 113
a vote against the proposal unless holders of more than 50% of the common stock
cast votes, in which event an abstention will count as a vote against the
proposal and a broker non-vote will have no effect. Under Maryland law,
abstentions and non-votes will have no effect on the proposal to approve the
merger transactions, so long as a quorum is obtained. In the event the
shareholders do not approve this proposal, but do approve the charter
amendments, Prison Realty anticipates that it will complete the merger as
described below and elsewhere in this proxy statement.
THE MERGER
GENERAL
Pursuant to an agreement and plan of merger by and among Prison Realty, CCA
Acquisition Sub, Inc., a wholly-owned subsidiary of Prison Realty, and CCA, CCA
will be merged with and into Prison Realty's subsidiary. After the completion of
the merger: (i) CCA will cease to exist; and (ii) the assets and liabilities of
CCA will be held by the wholly-owned subsidiary of Prison Realty. Additionally,
immediately prior to completion of the merger, Prison Realty will change its
name to Corrections Corporation of America and will operate as a taxable C
corporation commencing with its 2000 taxable year. See "The Restructuring" and
"Proposal to Adopt the Articles of Amendment and Restatement to the Prison
Realty Charter -- Charter amendments."
Shareholders of CCA at the time of the merger other than Prison Realty will
receive shares of Prison Realty's common stock as the merger consideration,
pursuant to the exchange ratio described in the merger agreement. Immediately
prior to the merger, Prison Realty will purchase the shares of CCA common stock
held by the Baron Asset Fund, the holder of 16.9% of CCA's outstanding capital
stock, for non-cash consideration consisting of shares of Prison Realty common
stock valued at $8.0 million (or approximately 2.3 million shares assuming a
Prison Realty common stock price of $3.44 per share). As consideration for
Baron's consent to the merger (as necessary in order to effectuate the merger)
Baron required that Prison Realty issue to Baron warrants to purchase $3.0
million in shares of Prison Realty common stock (or approximately 857,000 shares
assuming a Prison Realty common stock price of $3.50 per share with respect to
two-thirds of the warrants and a Prison Realty common stock price of $3.44 per
share with respect to one-third of the warrants). Prison Realty is currently
negotiating with Sodexho Alliance, S.A., the holder of 16.9% of CCA's
outstanding capital stock, with respect to the purchase of the shares of CCA
common stock held by it. Prison Realty indicated to Sodexho that it was willing
to satisfy its previous contractual obligation to purchase the CCA shares in the
form of Prison Realty common stock valued at $8.0 million as required by Prison
Realty's amended bank facility. Sodexho has informed Prison Realty that it
should receive the same aggregate consideration as Prison Realty agreed to pay
Baron. The merger agreement provides that Sodexho would receive fewer shares of
Prison Realty common stock in the merger pursuant to the exchange ratio set
forth in the merger agreement. Prison Realty intends to continue negotiations
with Sodexho regarding its purchase of the CCA common stock held by Sodexho. In
the event Prison Realty does not acquire such shares prior to the merger, there
can be no assurance that Sodexho will vote the CCA common stock held by it in
favor of the merger or the Prison Realty common stock held by it in favor of the
charter amendments and the merger and related transactions.
Prison Realty will also purchase shares of CCA common stock held by former
executive officers of Prison Realty for $800,000 cash pursuant to the terms of
certain severance agreements with such officers.
In the event Prison Realty purchases all of the shares of CCA common stock
held by Barron and Sodexho prior to the merger, Prison Realty will issue shares
of its common stock valued at approximately $10.6 million in the merger (or 3.0
million shares, equal to approximately 2.0% of Prison Realty's common stock, on
a fully diluted basis, assuming a Prison Realty stock price of $3.50
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<PAGE> 114
per share). In the event Prison Realty purchases only the shares of CCA common
stock held by Baron prior to the merger, Prison Realty will issue shares of its
common stock valued at approximately $13.8 million in the merger (or 3.9 million
shares, equal to approximately 2.7% of Prison Realty's common stock, on a
fully-diluted basis assuming a Prison Realty common stock price of $3.50 per
share).
The exchange ratio for the merger depends on a formula using the average
closing price of one share of Prison Realty's common stock on the NYSE for the
five trading days ending two days prior to the closing date for the merger
transaction. Therefore, the exchange ratio will not be known at the time of the
special meeting.
As a result of the merger, Prison Realty will also assume all of CCA's
outstanding indebtedness at the time of the merger, and certain agreements
between the parties providing for payments from one party to the other will be
canceled or otherwise be of no further force and effect, including a $137.0
million promissory note from CCA to Prison Realty.
Prison Realty will apply to list the shares of common stock to be issued
prior to and as a result of the merger on the NYSE, subject to official notice
of issuance, prior to the effective time of the mergers. Pursuant to the
provisions of the Tennessee Business Corporation Act, a shareholder of CCA may
dissent from the merger and obtain payment of the fair value of his or her CCA
common stock.
Management and employee shareholders will receive Prison Realty common
stock in the merger transactions, as described above. The shares of Prison
Realty common stock to be issued to the shareholders of CCA who are also wardens
of the facilities operated by such companies will be subject to the terms and
provisions of a newly-adopted Prison Realty restricted stock plan. Under the
terms of the restricted stock plan, the shares of restricted stock held by
warden shareholders will vest only if they remain employed by Prison Realty or
by one of its subsidiaries from the closing date of the mergers through December
31, 2003. If a warden shareholder does not remain employed by Prison Realty or
by one of its subsidiaries for such period, the shares of Prison Realty common
stock issued to such warden will be forfeited but shall remain outstanding, and
such shares will be held in trust for the benefit of the remaining wardens until
December 31, 2003. At this time, such shares will vest and will be distributed
pro-rata to the wardens still employed. Shares of Prison Realty common stock
owned by other CCA shareholders and received in the merger transactions will be
subject to restrictions on transfer under the terms of a lock-up agreement,
which restrictions prohibit transfers of such stock for a period of 180 days
after the merger transactions are completed. After 180 days, and through
December 31, 2003, transfers may be made according to the following percentages:
- Up to 25% after 180 days;
- Up to 50% after December 31, 2001;
- Up to 75% after December 31, 2002; and
- Up to 100% after December 31, 2003.
The merger of CCA with and into a wholly-owned acquisition subsidiary of
Prison Realty will be tax-free for Prison Realty and for the shareholders of CCA
to the extent they receive Prison Realty common stock in the merger. The merger
transaction is expected to be accounted for as a "purchase" for financial
accounting purposes, in accordance with generally accepted accounting
principles.
Although the ownership of CCA's assets will be maintained in a separate,
distinct legal entity for liability purposes (i.e., Prison Realty as a parent
corporation of a wholly-owned subsidiary), the companies will be treated as a
consolidated group under the name "Corrections Corporation of
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America." As such, pursuant to the merger agreement, the existing agreements
between Prison Realty and CCA, including the CCA promissory note and the CCA
lease agreements, will be canceled and will be of no further force and effect.
THE MERGER AGREEMENT
The following describes the material terms of the merger agreement by and
among Prison Realty, its wholly-owned subsidiary and CCA. A copy of the merger
agreement is attached to this proxy statement as Appendix B and is incorporated
herein by reference. The description of the merger agreement set forth below is
qualified in its entirety by reference thereto. Shareholders of Prison Realty
are urged to read the merger agreement carefully and in its entirety for a more
complete understanding of the proposed merger.
General. At the effective time, CCA will be merged with and into CCA
Acquisition Sub, Inc., a newly formed, wholly-owned subsidiary of Prison Realty.
The separate corporate existence of CCA will cease and the subsidiary of Prison
Realty will continue as the surviving corporation. As a result of the merger,
the subsidiary of Prison Realty will succeed to and assume all the rights and
obligations of CCA in accordance with the Tennessee Business Corporation Act
(the "TBCA").
Conversion of securities.
Conversion of CCA common stock. Pursuant to the merger agreement, each
share of CCA common stock issued and outstanding immediately prior to the
effective time will be converted into the right to receive a number of shares of
Prison Realty common stock determined by a formula that uses the average closing
price of Prison Realty common stock over the five trading days ending two
trading days prior to the closing date (the "Prison Realty Closing Price"). The
number of shares of Prison Realty common stock to be issued as merger
consideration for each share of CCA common stock will be determined as follows:
<TABLE>
<S> <C> <C> <C>
number of shares of CCA
common stock outstanding
prior to effective time, number of shares of CCA
excluding shares owned by common stock
parties to the merger outstanding prior to
/ Prison Realty / effective time, excluding
$20.0 million X -----------------------------
Closing Price shares owned by parties
number of shares of CCA to the merger
common stock outstanding parties to the merger
prior to effective time,
including shares owned by
</TABLE>
For example, there are currently 10,330,454 shares of CCA common stock
outstanding, and 981,393 are owned by Prison Realty. It is anticipated that
Prison Realty will purchase 1,749,532 shares of CCA common stock from each of
Sodexho and Baron prior to the merger in exchange for non-cash consideration
consisting of shares of Prison Realty common stock. In addition, Prison Realty
will purchase an aggregate of 300,000 shares previously owned by D. Robert
Crants, III and Michael W. Devlin from Doctor R. Crants and 100,000 shares owned
by Messrs. Crants, III and Devlin for cash consideration of $800,000. Assuming
there were 10,330,454 shares of CCA common stock outstanding, 4,880,457 of which
were owned by Prison Realty, immediately prior to the effective time, and
assuming the Prison Realty Closing Price was $3.50, the formula would be as
follows:
<TABLE>
<S> <C>
$20.0 million X 52.76 / $3.50 / 5,449,997 = .55 shares of
Prison
Realty common stock
</TABLE>
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Therefore, in this example, for each CCA share held immediately prior to the
effective time, a CCA shareholder would receive .55 shares of Prison Realty
common stock.
Warrants to purchase CCA common stock. At the effective time of the CCA
merger, each outstanding warrant to purchase shares of CCA common stock, whether
or not exercisable, shall be deemed to constitute a warrant to acquire, on
substantially the same terms and conditions as were applicable to the original
warrant to which it relates, the same number of shares of Prison Realty common
stock as the holder of such warrant would have been entitled to receive in the
merger if the holder had exercised such warrant in full immediately prior to the
effective time, at a price per share of Prison Realty common stock computed in
compliance with the terms of such warrant.
Representations and warranties. The merger agreement contains various
representations and warranties of CCA and Prison Realty with respect to each
party relating to, among other things, as applicable: (a) its corporate
organization, existence and good standing and similar corporate matters; (b) its
capitalization; (c) the authorization, execution, delivery and enforceability of
the merger agreement; (d) the absence of conflicts, violations and defaults
under its charter or declaration of trust, or bylaws and certain other
agreements and documents; (e) the absence of required consents, approvals,
orders or authorizations of, or registrations, declarations or filings with,
certain government entities relating to the merger; (f) the documents and
reports filed with the SEC and the accuracy and completeness of the information
contained therein (in the case of Prison Realty); (g) this proxy statement and
the accuracy and completeness of the information contained herein; (h) the
absence of a material adverse change on such party or certain other material
changes or events since March 31, 2000; (i) the existence of necessary permits
or approvals from certain government entities, the absence of material pending
or threatened litigation and compliance with applicable laws; (j) filing of tax
returns and payment of taxes; (k) the absence of defaults under material
contracts; (l) owned and leased real property matters; (m) environmental
matters; (n) labor matters; (o) benefit plans and other matters relating to
ERISA; (p) the absence of undisclosed liabilities; (q) qualification as an
investment company; (r) reporting under the Securities Exchange Act of 1934 (in
the case of Prison Realty); (s) insurance; (t) affiliate transactions; (u)
internal accounting controls; (v) the shareholder vote required to approve the
merger; (w) the recommendation of such party's board with respect to the merger
agreement; and (x) the inapplicability of state antitakeover statutes to the
merger; (y) brokers' fees and expenses.
As used in the merger agreement, the term "material adverse effect" means,
when used in connection with a party, any change, effect, event, occurrence or
development that is, or is reasonably likely to be, materially adverse to the
business, results of operations or financial condition of such party and its
subsidiaries, taken as a whole, other than any change, effect, event or
occurrence relating to or arising out of (a) the economy or securities markets
in general, (b) the merger agreement or the transactions contemplated thereby or
the announcement thereof, or (c) the private corrections industry in general,
and not specifically relating to such party or its subsidiaries.
Conduct of business pending the merger; Covenants of CCA. CCA has agreed,
as to itself and its subsidiaries, that, except as set forth in the merger
agreement or the disclosure schedule to the merger agreement, during the period
from the date of the merger agreement until the effective time, such party and
its subsidiaries will conduct business only in the ordinary course of business
consistent with past practice and in compliance in all material respects with
all applicable laws and regulations and use their reasonable efforts to preserve
intact their current business organizations and use reasonable efforts to
preserve their relationships with those persons having business dealings with
them. In addition, CCA has agreed not to engage in certain activities, which is
customary for transactions of this type.
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Conduct of business pending the merger; Covenants of Prison Realty. Prison
Realty has agreed as to itself and its subsidiaries that, except as set forth in
the merger agreement or its disclosure schedule, during the period from the date
of the merger agreement until the effective time of the merger transactions,
Prison Realty and its subsidiaries will carry on their respective businesses
only in the usual, regular and ordinary course consistent with past practice in
all material respects and use their reasonable best efforts to preserve intact
their present business organizations, maintain their rights and franchises and
preserve their relationships with customers, suppliers and others having
business dealings with them to the end that their goodwill and ongoing
businesses shall not be impaired at the effective time of the merger
transactions, and other customary covenants for transactions of this type.
Conditions to the merger.
Conditions to obligations of each company. The respective obligations of
Prison Realty and CCA to effect the merger are subject to the satisfaction or
waiver at or prior to the effective time of the following conditions:
(a) the waiting period applicable to the completion of the merger
under the HSR Act shall have expired or been terminated;
(b) no temporary restraining order, preliminary or permanent
injunction or other order or decree issued by any government entity of
competent jurisdiction enjoining or otherwise preventing the completion of
the merger being in effect; provided, however, that each of such parties
has agreed to use reasonable best efforts to prevent the entry of any such
injunction or other order or decree and to cause any such injunction or
other order or decree that may be entered to be vacated or otherwise
rendered of no effect;
(c) the Prison Realty common stock to be issued in the merger having
been approved for listing on the NYSE, subject to official notice of
issuance, if applicable;
(d) this proxy statement and the Registration Statement on Form S-4
filed with the SEC by Prison Realty with respect to the Prison Realty
common stock to be issued in the merger being satisfactory in all material
respects to Prison Realty and CCA and having been cleared and declared
effective by the SEC, as the case may be, and no stop order suspending the
effectiveness of the registration statement being in effect and no
proceedings for such purpose being pending before or threatened by the SEC;
and
(e) each of Prison Realty and CCA having obtained the opinion of its
tax advisor that the CCA merger qualifies as a "reorganization" within the
meaning of Section 368(a) of the Code.
(f) Prison Realty shall have purchased all shares of CCA common stock
held by Baron pursuant to terms mutually acceptable to Prison Realty and
CCA.
Conditions to obligations of Prison Realty. The obligation of Prison
Realty to effect the merger is also subject to the satisfaction of the following
conditions unless waived by Prison Realty:
(a) the required approvals of shareholders of Prison Realty and CCA
shall have been obtained;
(b) the representations and warranties of CCA set forth in the merger
agreement being true and correct, except that this condition will be deemed
satisfied so long as any failures of such representations and warranties to
be true and correct do not individually or in the aggregate have a material
adverse effect on CCA as of the date of the merger agreement and as of the
effective time except as otherwise contemplated by the merger agreement,
and Prison Realty's
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receipt of a certificate to such effect signed on behalf of each party by
its chief executive officer and secretary;
(c) CCA having performed in all material respects all material
obligations required to be performed by it under the merger agreement at or
prior to the effective time, and Prison Realty's receipt of a certificate
to such effect signed on behalf of CCA by its chief executive officer or
chief financial officer;
(d) Prison Realty's receipt of evidence, in form and substance
reasonably satisfactory to it, that such consents, approvals,
authorizations, qualifications and orders of government entities and other
third parties as are necessary in connection with the transactions
contemplated by the merger agreement have been obtained, other than those
the failure of which to be obtained, individually or in the aggregate,
would not have a material adverse effect on Prison Realty or CCA;
(e) CCA shall have obtained consents of government authorities to the
performance of facility management contracts by Prison Realty or its
subsidiaries after the merger where required by applicable law or such
contracts;
(f) lock-up agreements shall have been executed and delivered by the
holders of CCA common stock whose shares will not be subject to the new
restricted stock plan.
Conditions to obligations of CCA. The obligation of CCA to effect the
merger is also subject to the satisfaction of various conditions unless waived
by CCA:
(a) the representations and warranties of Prison Realty set forth in
the merger agreement being true and correct, except where failures of such
representations and warranties to be true and correct do not individually
or in the aggregate have a material adverse effect on Prison Realty; and
(b) Prison Realty shall have performed in all material respects all
material obligations required to be performed by it under the merger
agreement at or prior to the effective time, and CCA's receipt of a
certificate to such effect signed on behalf of Prison Realty by its chief
executive officer or chief financial officer;
(c) the required approvals of Prison Realty's stockholders and CCA's
shareholders shall have been obtained.
All of the conditions to the merger may be waived by CCA with the exception
of the material condition of the approval of the merger agreement by the
shareholders of CCA and Prison Realty, which may not be waived.
No Solicitation.
No solicitation by Prison Realty. Prison Realty agreed that it will not
(i) solicit, initiate, encourage or knowingly facilitate the submission of any
alternative proposal (as hereinafter defined) or (ii) enter into or participate
in any discussions or negotiations regarding, or furnish to any person any
information with respect to, any alternative proposal; provided, however, that
prior to the approval of the merger agreement by the shareholders of Prison
Realty, Prison Realty may, in response to a bona fide alternative proposal that
constitutes a superior proposal (as hereinafter defined) and that was made after
the date of the merger agreement (and not solicited by Prison Realty after the
date of the merger agreement) by any person (A) furnish information with respect
to Prison Realty and its subsidiaries to such person and its representatives
pursuant to a confidentiality agreement and
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discuss such information with such person and its representatives and (B)
participate in negotiations regarding such alternative proposal.
As used in the merger agreement and this proxy statement, the term
"alternative proposal" means any inquiry, proposal or offer from any person
relating to any direct or indirect acquisition or purchase of 10% or more of the
assets (based on the fair market value thereof) of Prison Realty and its
subsidiaries, taken as a whole, other than the transactions contemplated by the
merger agreement, or of 10% or more of any class of equity securities of Prison
Realty or any of its subsidiaries or any tender offer or exchange offer
(including by Prison Realty or any of its subsidiaries) that if completed would
result in any person beneficially owning 10% or more of any class of equity
securities of Prison Realty or any of its subsidiaries, or any merger,
consolidation, business combination, sale of substantially all assets,
recapitalization, liquidation, dissolution or similar transaction involving
Prison Realty or any of its subsidiaries.
The merger agreement provides that, except as described below, the Prison
Realty board may not (i) withdraw or modify, or publicly propose to withdraw or
modify, in a manner adverse to CCA, the approval or recommendation by the Prison
Realty board of the merger or the merger agreement, (ii) approve or recommend,
or propose publicly to approve or recommend, any alternative proposal, or (iii)
cause or agree to cause Prison Realty to enter into any letter of intent,
agreement in principle, acquisition agreement or similar agreement related to
any alternative proposal. Notwithstanding the foregoing, if the Prison Realty
board receives a superior proposal, the Prison Realty board may, prior to the
receipt of the approval of the merger by the shareholders of Prison Realty,
withdraw or modify its approval or recommendation of the merger and the merger
agreement, approve or recommend a superior proposal or terminate the merger
agreement, but in each case only at a time that is at least five business days
after receipt by CCA of written notice advising them that the Prison Realty
board has resolved to accept a superior proposal if it continues to be a
superior proposal at the end of such five business day period. As used in the
merger agreement and this proxy statement, the term "superior proposal" means
any bona fide alternative proposal (which, for purposes of the provisions
described in the previous paragraph only, may be subject to a due diligence
condition), which proposal was not solicited by Prison Realty after the date of
the merger agreement, made by a third party to acquire, directly or indirectly,
for consideration consisting of cash and/or securities, more than 10% of the
shares of Prison Realty capital stock then outstanding or all or substantially
all the assets of Prison Realty and its subsidiaries and otherwise on terms
which the Prison Realty board determines in good faith (after consultation with
its financial advisor) to be more favorable to Prison Realty's shareholders than
the restructuring and for which financing, to the extent required, is then
committed or which, in the good faith judgment of the Prison Realty board, is
reasonably capable of being financed by such third party.
No solicitation by CCA. CCA has agreed that it will not (i) solicit,
initiate, encourage or knowingly facilitate the submission of any alternative
proposal (as defined herein) or (ii) enter into or participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to, any alternative proposal.
Except as described in this section, the board of directors of CCA may not
(i) withdraw or modify, or publicly propose to withdraw or modify, in a manner
adverse to Prison Realty, the approval or recommendation by CCA's board of the
merger or the merger agreement, (ii) approve or recommend, or propose publicly
to approve or recommend, any alternative proposal, or (iii) cause or agree to
cause such entity to enter into any letter of intent, agreement in principle,
acquisition agreement or similar agreement related to any alternative proposal.
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Termination. The merger agreement may be terminated at any time prior to
the effective time, whether before or after the approval of the merger agreement
by the shareholders of Prison Realty and CCA:
(a) by mutual written consent of all parties;
(b) by Prison Realty or CCA upon written notice to the other party:
- if any government entity of competent jurisdiction has issued a
permanent injunction or other order or decree enjoining or otherwise
preventing the completion of the merger and such injunction or other
order or decree has become final and nonappealable; provided that the
party seeking to terminate the merger agreement has used its
reasonable best efforts to prevent or contest the imposition of, or
seek the lifting or stay of, such injunction, order or decree;
- if the merger has not been completed on or before October 31, 2000
unless the failure to complete the merger is the result of a material
breach of the merger agreement by the party seeking to terminate the
merger agreement; or
- if, upon a vote at a duly held meeting of the shareholders of Prison
Realty or any adjournment thereof, the approval of the merger
agreement by such shareholders is not obtained;
(c) by Prison Realty upon written notice to CCA:
- unless Prison Realty is in material breach of its obligations under
the merger agreement, if CCA breaches or fails to perform any of its
representations, warranties, covenants or other agreements under the
merger agreement, which breach or failure to perform (A) would give
rise to the failure of a condition to the closing relating to its
representations and warranties or a condition to the closing relating
to its covenants or other agreements and (B) is incapable of being
cured by CCA or is not cured within 30 days after Prison Realty gives
written notice of such breach to CCA and such a cure is not effected
during such period;
- if the approval of the CCA shareholders is not obtained upon a vote
at a duly held shareholders' meeting; or
- if the board of directors of CCA or any committee thereof withdraws
or modifies in a manner adverse to Prison Realty its approval or
recommendation of the merger or the merger agreement, or resolves to
do so;
(d) by CCA upon written notice to Prison Realty and its subsidiary:
- if the Prison Realty board or any committee thereof has withdrawn or
modified in a manner adverse to such terminating party its approval
or recommendation of the merger or the merger agreement or resolves
to do so; or
- unless CCA is in material breach of its obligations under the merger
agreement, if Prison Realty breaches or fails to perform any of its
representations, warranties, covenants or other agreements under the
merger agreement, which breach or failure to perform (A) would give
rise to the failure of a condition to the closing relating to its
representations and warranties or a condition to the closing relating
to its covenants or other agreements and (B) is incapable of being
cured by Prison Realty or failing to perform or is not cured within
30 days after such terminating party gives written notice of such
breach to Prison Realty and such a cure is not effected during such
period.
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Fees and expenses. Whether or not the merger is completed, all costs and
expenses incurred in connection with the merger agreement and the transactions
contemplated thereby will be paid by the party incurring such costs or expenses.
Amendment and waiver. The merger agreement may be amended by the parties
thereto at any time before or after approval of the merger by the shareholders
of Prison Realty and of CCA, provided that after such approval, no amendment may
be made which by law requires further approval by such shareholders without such
further approval.
At any time prior to the effective time, the parties may, to the extent
legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of the other party to the merger agreement, (b) waive
any inaccuracies in the representations and warranties contained in the merger
agreement or in any document delivered pursuant thereto and (c) subject to the
provisions described in the preceding paragraph, waive compliance with any of
the agreements or conditions contained in the merger agreement. The failure of
any party to the merger agreement to assert any of its rights under the merger
agreement or otherwise will not constitute a waiver of those rights.
Benefit plans; Stock and equity plans. The merger agreement provides that
following the effective time, except as otherwise provided in the merger
agreement, Prison Realty will honor, or cause to be honored, all obligations
under employment agreements, all Prison Realty benefit plans and all other
employee benefit plans, programs, policies and arrangements of parties to the
merger. Nothing in the merger agreement prohibits Prison Realty from amending or
terminating such agreements, programs, policies and arrangements in accordance
with the terms thereof and with applicable law.
The merger agreement also provides that as of the effective time, each of
the restricted stock plans of CCA shall be merged into a single restricted stock
plan with similar terms and conditions, except that any shares forfeited under
the new restricted stock plan shall be forfeited to all plan participants.
Also, following the completion of the merger transactions, Prison Realty
will adopt a new stock option plan and/or equity-based compensation plan for the
benefit of its employees and the employees of the new subsidiary (formerly CCA).
Under such plan, Prison Realty will be permitted to issue incentive stock
options, non-qualified stock options or other equity-based compensation to
management and other key employees.
STOCK PURCHASE AGREEMENTS WITH BARON AND SODEXHO
Baron. Pursuant to the terms of a stock purchase agreement by and among
Prison Realty, CCA and Baron, immediately prior to the completion of the merger,
Prison Realty will purchase all of the shares of the voting common stock of CCA
which are owned by Baron for non-cash consideration consisting of shares of
Prison Realty common stock valued at $8.0 million (or approximately 2.3 million
shares assuming a Prison Realty common stock price of $3.44 per share).The
number of shares of Prison Realty common stock to be issued and delivered to
Baron as the purchase price under the agreement shall be determined by dividing
$8,000,000 by the lesser of: (i) $3.4375, the closing price of shares of Prison
Realty common stock on the NYSE on Friday, June 23, 2000; (ii) the average
closing price of Prison Realty common stock on the NYSE over the five trading
days ending two trading days prior to the closing of the merger; (iii) the
conversion price of Prison Realty's secured or unsecured indebtedness existing
prior to the merger; and (iv) the exercise price of any equity securities issued
by Prison Realty prior to the merger in satisfaction of its existing contractual
obligations.
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As consideration for Baron's consent to the merger (as necessary in order
to effectuate the merger) Baron required that Prison Realty issue to Baron
warrants to purchase $3.0 million in shares of Prison Realty common stock (or
approximately 857,000 shares assuming a Prison Realty common stock price of
$3.50 per share with respect to two-thirds of the warrants and a Prison Realty
common stock price of $3.44 per share with respect to one-third of the
warrants). Specifically, Prison Realty will issue and deliver to Baron (i)
series A warrants to purchase shares of Prison Realty common stock having an
aggregate value of $2.0 million, as calculated below, with an exercise price
equal to $0.01 per share and (ii) series B warrants to purchase shares of Prison
Realty common stock having an aggregate value of $1.0 million, as calculated
below, at an exercise price equal to the lesser of: (a) $3.4375, the closing
price of shares of Prison Realty common stock on the NYSE on Friday, June 23,
2000; (b) the average closing price of Prison Realty common stock on the NYSE
over the five trading days ending two trading days prior to the closing of the
merger; (i) the conversion price of any of Prison Realty's secured or unsecured
indebtedness existing prior to the merger; and (ii) the exercise price of any
equity securities issued prior to the merger in satisfaction of its existing
contractual obligations. The warrants shall be exercisable for a period of five
years commencing on the date of issuance of the warrants. The number of shares
of Prison Realty common stock Baron shall receive as the result of its exercise
of the series A warrants shall be determined by dividing $2.0 million by the
lesser of: (a) $3.4375, the closing price of the shares of Prison Realty common
stock on the NYSE on Friday, June 23, 2000; (b) average closing price of Prison
Realty common stock on the NYSE over the 5 trading days ending two trading days
prior to the closing of the merger; (c) the conversion price of Prison Realty's
existing secured or unsecured indebtedness existing prior to the merger; and (d)
the exercise price or conversion price of any equity securities issued by Prison
Realty in satisfaction of its existing contractual obligations. The number of
shares of Prison Realty common stock Baron shall receive as the result of its
exercise of the series B warrants shall be determined by dividing $1,000,000 by
the lesser of: (a) $3.4375, the closing price of shares of Prison Realty common
stock on the NYSE on Friday, June 23, 2000, and (b) the average closing price of
Prison Realty common stock on the NYSE over the five trading days ending two
trading days prior to the closing of the merger; (c) the conversion price of any
of Prison Realty's secured or unsecured indebtedness existing prior to the
merger and; (d) the exercise price of any equity securities issued by Prison
Realty prior to the merger in satisfaction of its existing contractual
obligations.
In addition, certain of the agreements entered into by Baron in connection
with its initial purchase of the shares from CCA shall be canceled and shall be
of no further force or effect. The completion of the transactions contemplated
by the Baron stock purchase as set forth in the Baron purchase agreement is
subject to (i) the voting by Baron of their shares of CCA common stock in favor
of the merger, and (ii) obtaining the necessary shareholder approval of the
merger. Baron has designated a representative serving on the CCA board.
Sodexho. Prison Realty is currently negotiating with Sodexho with respect
to the purchase of the shares of CCA common stock held by it. Prison Realty
expects, if it can reach an agreement with Sodexho, to pay Sodexho non-cash
consideration consisting of shares of Prison Realty common stock valued at $8.0
million (or approximately 2.3 million shares assuming a Prison Realty common
stock price of $3.44 per share) for its shares of CCA common stock, under the
same terms as described above with respect to the purchase of shares of CCA
common stock held by Baron. Prison Realty indicated to Sodexho that it was
willing to satisfy its previous agreement to purchase the CCA shares in the form
of Prison Realty common stock valued at $8.0 million as required by Prison
Realty's amended bank facility. Sodexho has informed Prison Realty that it
should receive the same aggregate consideration as Prison Realty agreed to pay
Baron. While the merger agreement provides that Sodexho would receive fewer
shares of Prison Realty common stock in the merger pursuant to the exchange
ratio set forth in the merger agreement. Prison Realty intends to continue
negotiations with Sodexho regarding its purchase of the CCA common stock held by
Sodexho. In the event Prison
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Realty does not acquire such shares prior to the merger, there can be no
assurance that Sodexho will vote the CCA common stock held by it in favor of the
merger or the Prison Realty common stock held by it in favor of the charter
amendments and the merger and related transactions.
RECOMMENDATION OF THE PRISON REALTY BOARD
THE PRISON REALTY BOARD HAS APPROVED THE MERGER AND BELIEVES THAT THE
MERGER AND THE RELATED TRANSACTIONS, INCLUDING THE ISSUANCE OF SHARES OF PRISON
REALTY COMMON STOCK AND WARRANTS TO PURCHASE SHARES OF CCA COMMON STOCK TO BARON
AND SODEXHO, AS THE CASE MAY BE, IS FAIR AND REASONABLE AND IN THE BEST INTEREST
OF PRISON REALTY AND ITS SHAREHOLDERS. THE PRISON REALTY BOARD RECOMMENDS THAT
THE PRISON REALTY SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AND THE RELATED
TRANSACTIONS.
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STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Under the rules of the Commission, if a shareholder wants Prison Realty to
include a proposal in Prison Realty's proxy statement and form of proxy for
presentation at Prison Realty's 2000 annual meeting of shareholders, the
proposal must be received by Prison Realty a reasonable time before Prison
Realty begins to print and mail its proxy materials at the following address:
Prison Realty Trust, Inc., Attention: Secretary, 10 Burton Hills Boulevard,
Nashville, Tennessee 37215. Such proposal will also need to comply with the
regulations of the Commission regarding the inclusion of shareholder proposals
in company-sponsored proxy materials.
Under the bylaws of Prison Realty, and as permitted by the rules of the
Commission, a shareholder may nominate a director or present a shareholder
proposal not included in Prison Realty's proxy statement at Prison Realty's 2000
annual meeting. Written notice of such a nomination or proposal, along with
appropriate supporting information and documentation, must be submitted, via
certified mail, return receipt requested, to: Prison Realty Trust, Inc.,
Attention: Secretary, 10 Burton Hills Boulevard, Nashville, Tennessee 37215. For
a nomination or proposal to be presented at Prison Realty's 2000 annual meeting,
it must be received at Prison Realty's principal executive offices not earlier
than the 90th day prior to the 2000 annual meeting, and not later than the 60th
day prior to the 2000 annual meeting or the 10th day following the day on which
public announcement of the date of the 2000 annual meeting is first made.
If Prison Realty does not receive notice during such period, the nomination
or proposal will not be presented at the 2000 annual meeting. Additionally,
persons named as proxies in Prison Realty's proxy materials relating to the 2000
annual meeting will use their discretion in voting the proxies when any
nominations or proposals from shareholders not received during such period are
raised at the meeting.
OTHER MATTERS
As of the date of this proxy statement, the board of directors of Prison
Realty knows of no matters that will be presented for consideration at the
Prison Realty special meeting other than as described in this proxy statement.
If any other matters shall properly come before the Prison Realty special
meeting and be voted upon, the enclosed proxy will be deemed to confer
discretionary authority on the individuals named as proxies therein to vote the
shares represented by such proxies as to any such matters. The persons named as
proxies intend to vote or not to vote in accordance with the recommendation of
the management of Prison Realty.
WHERE YOU CAN FIND MORE INFORMATION
AVAILABLE INFORMATION
Prison Realty has filed, and will continue to file, reports, proxy
statements and other information with the SEC under the Securities Exchange Act.
You may read and copy this information at the following public reference
facilities maintained by the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
Judiciary Plaza Seven World Trade Center Citicorp Center
450 Fifth Street, N.W. 13th Floor 500 West Madison Street
Room 1024 New York, NY 10048 Suite 1400
Washington, DC 20549 Chicago, IL 60661-2511
</TABLE>
121
<PAGE> 125
You may also obtain copies of this information by mail at prescribed rates
from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024,
Washington, DC 20549, or by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet site on the World Wide Web that contains
reports, proxy statements and other information about issuers, including Prison
Realty, who file electronically with the SEC. The address of the site is
"www.sec.gov."
You can also inspect reports, proxy statements and other information about
Prison Realty at the offices of the NYSE, 20 Broad Street, New York, NY 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows Prison Realty to incorporate information by reference into
this proxy statement. This means that Prison Realty can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is considered to be a part of
this proxy statement, except for any information that is superseded by other
information that is set forth directly in this document.
This proxy statement incorporates by reference sections entitled
"Consolidated Financial Statements," "Management's discussion and analysis of
financial condition and results of operations" and "Qualitative and quantitative
disclosures about market risks" from the Annual Report on Form 10-K for the year
ended December 31, 1999 and the subsequently filed documents set forth below.
Listed below are documents that Prison Realty and its predecessors have
previously filed with the SEC. They contain important information about Prison
Realty and its financial condition, and relevant information concerning its
predecessors, Old CCA and Old Prison Realty.
<TABLE>
<CAPTION>
PRISON REALTY SEC FILINGS (FILE NO. 0-25245) PERIOD
-------------------------------------------- ------
<S> <C>
Annual Report on Form 10-K.................. Year ended December 31, 1998, as filed March 30, 1999
(under the name Prison Realty Corporation)
Year ended December 31, 1999, as filed March 30, 2000
Quarterly Reports on Form 10-Q.............. Quarters ended:
- March 31, 1999, as filed May 14, 1999
- June 30, 1999, as filed August 17, 1999
- September 30, 1999, as filed November 10, 1999, and
as subsequently amended on February 17, 2000
- March 31, 2000, as filed May 15, 2000
</TABLE>
<TABLE>
<CAPTION>
CCA PRISON REALTY TRUST SEC FILINGS (FILE NO. 0-13049) PERIOD
------------------------------------------------------ ------
<S> <C>
Annual Report on Form 10-K...................... Year ended December 31, 1998, as filed
March 30, 1999
</TABLE>
You can obtain any of the documents incorporated by reference in this
document through Prison Realty or from the SEC through the SEC's Internet site
on the World Wide Web at the Internet address set forth above. Documents
incorporated by reference are available from Prison Realty without charge,
excluding any exhibits to those documents, unless the exhibit is specifically
incorporated by reference as an exhibit to this proxy statement. You can obtain
documents
122
<PAGE> 126
incorporated by reference in this proxy statement by requesting them in writing
or by telephone from the company at the following address:
Prison Realty Trust, Inc.
10 Burton Hills Boulevard
Nashville, Tennessee 37215
(615) 263-0200
If you would like to request documents from Prison Realty, please do so by
, 2000 to receive them before the Prison Realty special meeting. If
you request any incorporated documents, they will be mailed to you by first
class mail, or another equally prompt means, within one business day after your
request is received.
You should rely only on the information contained in or incorporated by
reference in this proxy statement in considering how to vote your shares at the
Prison Realty special meeting. Prison Realty has not authorized anyone to
provide you with information that is different from the information contained in
this document. This proxy statement is dated , 2000. You should not
assume that the information contained in this document is accurate as of any
date other than that date.
123
<PAGE> 127
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRISON REALTY TRUST, INC
Pro Forma Combined Balance Sheet as of March 31, 2000....... F-4
Notes to Pro Forma Combined Balance Sheet as of March 31,
2000...................................................... F-6
Pro Forma Combined Statement of Operations for the Three
Months Ended March 31, 2000............................... F-11
Notes to Pro Forma Combined Statement of Operations for the
Three Months Ended March 31, 2000......................... F-12
Pro Forma Combined Statement of Operations for the Year
Ended December 31, 1999................................... F-15
Notes to Pro Forma Combined Statement of Operations for the
Year Ended December 31, 1999.............................. F-16
</TABLE>
F-1
<PAGE> 128
PRISON REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following sets forth the unaudited combined pro forma financial
statements as of and for the three months ended March 31, 2000 and for the year
ended December 31, 1999.
The unaudited pro forma combined financial statements as of and for the
three months ended March 31, 2000 and for the year ended December 31, 1999
presents the pro forma effects of the merger of Prison Realty and CCA as well as
certain effects of the Waiver and Amendment to Prison Realty's bank credit
facility and other financing transactions (as discussed below) related to Prison
Realty's outstanding $40 million, 9.5% and $30 million, 7.5% convertible notes.
The merger transactions will be accounted for as the purchase of CCA by
Prison Realty. As such, Prison Realty will be treated as the acquiring company
for financial reporting purposes. The general provisions of the purchase method
of accounting prescribe that: (1) CCA assets and liabilities be recorded at fair
market value, as required by Accounting Principles Board Opinion No. 16; and (2)
Prison Realty's assets and liabilities be carried forward at historical cost.
The purchase method of accounting prescribes that the assets and
liabilities owned by CCA be adjusted to estimated fair market value with any
excess of cost over fair value being recorded as goodwill and other intangible
assets to be amortized over the respective life of the intangibles. The fair
market values of the assets and liabilities of CCA have been determined based
upon preliminary estimates and are subject to change as additional information
is obtained. Management does not anticipate that the preliminary allocation of
purchase costs based upon the estimated fair market value of the assets and
liabilities will materially change; however, the allocation of purchase costs
reflected in the following unaudited pro forma combined financial statements is
subject to final determination and may differ from the amounts ultimately
determined.
In connection with the proposed merger agreement, Prison Realty has
negotiated a Waiver and Amendment to its bank credit facility that, among other
terms and requirements discussed herein, removes the existing additional 2%
default rate of interest applied to the outstanding balance of Prison Realty's
bank credit facility and applies the original interest rates to the bank credit
facility subsequent to completion of the merger transactions. In addition,
Prison Realty has initiated other financing transactions whereby Prison Realty
has negotiated separate waivers of default with its holders of Prison Realty's
$40 million, 9.5% and $30 million, 7.5% convertible notes. In connection with
the waivers obtained by Prison Realty associated with the 9.5% and 7.5%
convertible notes, Prison Realty will not be subject to a significant default
rate of interest under the $40 million, 9.5% convertible notes, but Prison
Realty will have to pay an additional 0.5% interest rate to the holders of each
of the 9.5% and 7.5% convertible notes subsequent to the completion of the
merger transactions. Prison Realty incurred approximately $10,356 in additional
loan costs to obtain the Waiver and Amendment and to complete the other
financing transactions. Due to the expected significant effects of the Waiver
and Amendment and other financing transactions to Prison Realty's financial
statements subsequent to the merger, Prison Realty has elected to present the
pro forma effects of the Waiver and Amendment and other financing transactions
as if the bank credit facility, the $40 million, 9.5% convertible notes and the
$30 million, 7.5% convertible notes had been refinanced.
The Unaudited Pro Forma Combined Statements of Operations are presented as
if the merger transaction, effects of the Waiver and Amendment and other
financing transactions had occurred as of the beginning of the period indicated
and therefore incorporates certain assumptions that are included in the Notes to
Pro Forma Combined Statements of Operations. The unaudited Pro Forma Combined
Balance Sheet is presented as if the merger transaction, effects of the Waiver
and Amendment and other financing transactions had occurred on March 31, 2000
and therefore incorporates certain assumptions that are included in the Notes to
Pro Forma Combined Balance
F-2
<PAGE> 129
Sheet. The pro forma financial statements do not purport to represent what
Prison Realty's financial position or results of operations actually would have
been had the merger transaction, Waiver and Amendment and other financing
transactions, in fact, occurred on such date or at the beginning of the period
indicated, or to project Prison Realty's financial position or results of
operations at any future date or for any future period.
F-3
<PAGE> 130
PRISON REALTY TRUST, INC.
PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRISON REALTY PRISON REALTY
PRISON REALTY PRO FORMA TRANSACTIONS AND TRUST, INC.
TRUST, INC. ACQUISITION INTERCOMPANY PRO FORMA
(HISTORICAL) CCA ADJUSTMENTS ELIMINATIONS CC
------------- --------- ----------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash, cash equivalents and restricted
cash................................ $ 37,475 $ 2,504 $ (8,867)C $ (2,499)S $ 15,596
(2,661)Z
(10,356)BB
Accounts receivable, net of
allowances.......................... -- 71,710 -- -- 71,710
Prepaid expenses...................... -- 3,196 -- -- 3,196
Deferred tax assets................... -- -- 4,166L 36,851V 41,017
Receivable from CCA................... 25,839 -- -- (25,839)Q --
Other current assets.................. 14,184 4,798 (600)C -- 18,382
---------- --------- --------- ----------- ----------
Total current assets.............. 77,498 82,208 (5,301) (4,504) 149,901
---------- --------- --------- ----------- ----------
Property and equipment, net............... 2,153,953 19,453 -- 2,173,406
Other long term assets:
Note receivable....................... 137,000 -- -- (137,000)P --
Investments in direct financing
leases.............................. 162,254 -- -- -- 162,254
Deferred tax assets................... -- -- 10,589L 668V 11,257
Investments in affiliates and
others.............................. 120,974 -- (4,750)B -- 116,224
Other assets.......................... 46,932 8,097 -- (3,979)R 61,406
10,356BB
Investments in contracts.............. -- 66,160 (66,160)D 22,351U 91,192
600C (6,951)W
26,551A
2,290A
4,750B
8,867C
(10,589)L
112,472K
(4,166)L
(1,646)M
(63,337)N
---------- --------- --------- ----------- ----------
$2,698,611 $ 175,918 $ 10,170 $ (119,059) $2,765,640
========== ========= ========= =========== ==========
</TABLE>
(continued)
F-4
<PAGE> 131
PRISON REALTY TRUST, INC.
PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 2000
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA
PRISON REALTY PRISON REALTY
PRISON REALTY PRO FORMA TRANSACTIONS AND TRUST, INC.
TRUST, INC. ACQUISITION INTERCOMPANY PRO FORMA
(HISTORICAL) CCA ADJUSTMENTS ELIMINATIONS CC
------------- --------- ----------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Current liabilities:
Accounts payable...................... $ 37,225 $ 120,234 $ (71,182)F $ (25,839)Q $ 53,487
(6,951)W
Accrued salaries and wages............ 214 5,658 -- -- 5,872
Accrued property taxes................ -- 7,822 -- -- 7,822
Accrued interest...................... 21,938 20,539 (20,539)G -- 21,938
Distributions payable................. 2,150 -- -- -- 2,150
Income taxes payable.................. 5,917 -- -- -- 5,917
Other accrued expenses................ 7,830 16,518 -- 26,350S 54,658
3,960X
Current portion of long-term debt..... 997,471 143,180 -- (137,000)P 12,267
(991,384)AA
---------- --------- --------- ----------- ----------
Total current liabilities......... 1,072,745 313,951 (91,721) (1,130,864) 164,111
Long-term debt, net of current portion.... -- -- -- 991,384AA 991,384
Senior notes.............................. 100,000 -- -- -- 100,000
Deferred credits.......................... -- 105,202 (105,202)E -- --
Deferred gains on sales of contracts...... 103,376 -- (63,337)N -- 40,039
Deferred tax liabilities.................. -- -- -- 180,282T 180,282
Other liabilities......................... 32,000 -- -- -- 32,000
---------- --------- --------- ----------- ----------
Total liabilities................. 1,308,121 419,153 (260,260) 40,802 1,507,816
---------- --------- --------- ----------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock- Series A........... 107,500 -- -- -- 107,500
Preferred stock- Series B........... -- -- -- 146,040X 136,210
(7,302)Y
(2,528)Z
Common stock- Class A............... 1,184 93 (93)H 21Y 1,281
76A
Common stock- Class B............... -- 10 (10)H -- --
Additional paid-in capital.......... 1,347,318 25,133 26,475A 1,954O 1,235,185
2,290A
(66,160)D (150,000)X
105,202E 7,281Y
93H (133)Z
10H
(2,913)I
(265,558)J
20,539G
71,182F
112,472K
Deferred compensation............... -- (2,913) 2,913I -- (1,646)
(1,646)M
Treasury stock...................... (242) -- -- -- (242)
Retained earnings (deficit)......... (65,270) (265,558) 265,558J (1,954)O (220,464)
22,351U
(28,849)S
37,519V
(180,282)T
(3,979)R
---------- --------- --------- ----------- ----------
Total stockholders' equity........ 1,390,490 (243,235) 270,430 (159,861) 1,257,824
---------- --------- --------- ----------- ----------
$2,698,611 $ 175,918 $ 10,170 $ (119,059) $2,765,640
========== ========= ========= =========== ==========
</TABLE>
F-5
<PAGE> 132
NOTES TO PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 2000
A To record the effects of the Prison Realty common shares and other
consideration to be issued to CCA's shareholders in connection with the
merger transactions. Pursuant to the terms of the Agreement and Plan of
Merger, the value of Prison Realty common shares and other consideration
to be issued is as follows:
<TABLE>
<S> <C> <C>
Issuance of Prison Realty common stock for all
shares of CCA common stock held by CCA and
Prison Realty management and employee
shareholders for an aggregate purchase price of
$10,551. Based on the assumed pro forma common
share stock price of $3.50 as of the closing
date, the number of Prison Realty common shares
to be issued is estimated to be 3,015........... $10,551
Issuance of Prison Realty common stock for all
shares of CCA common stock held by Baron and
Sodexho for an aggregate purchase price of
$16,000, or $8,000 each, valued at the lower of
the June 23, 2000 common share stock price or
the assumed pro forma common share stock price
of $3.50 as of the closing date. Based on the
Prison Realty common stock price of $3.4375 as
of June 23, 2000, the number of Prison Realty
common shares to be issued is estimated to be
4,655........................................... 16,000
-------
Prison Realty common stock issued to CCA
shareholders............................ $26,551
=======
Prison Realty will also issue to Baron, warrants
to purchase $2,000 of Prison Realty common stock
with an exercise price of $0.01. The number of
common shares to be issued is based upon the
trading price of Prison Realty's common stock at
the exercise date. The estimated fair market
value of the warrants is approximately $2,000.
Assuming a pro forma common share stock price of
$3.50, the number of Prison Realty's common
shares to be issued is estimated to be 571...... $ 2,000
Prison Realty will also issue to Baron, warrants
to purchase $1,000 of Prison Realty common
stock. The number of common shares to be issued
and the exercise price is based upon the lower
of the June 23, 2000 Prison Realty stock price
of $3.4375 or the Prison Realty common stock
price as of the date the merger is completed.
The estimated fair market value of the warrants
is approximately $290. Assuming the stock price
at June 23, 2000 of $3.4375, the number of
Prison Realty's common shares to be issued is
estimated to be 291............................. 290
-------
Additional consideration in the form of
warrants................................ $ 2,290
=======
</TABLE>
F-6
<PAGE> 133
NOTES TO PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 2000 -- (CONTINUED)
B To record the application of Prison Realty's historical investment in
CCA in accordance with the purchase method of accounting as prescribed
by APB Opinion No. 16.
C To record the payment of estimated merger costs to be capitalized in
accordance with the purchase method of accounting as prescribed by APB
Opinion No. 16.
D To eliminate CCA's historical intangible assets related to CCA's
investment in contracts against the net equity of CCA. The CCA
intangible assets related to the historical investment in contracts
originated from the December 31, 1998 purchase of management contracts
and related assets from Prison Realty.
E To eliminate CCA's liabilities related to CCA's deferred lease credits
against CCA's net equity. CCA's deferred lease credits originated from
CCA's income deferral of service and incentive fees received from Prison
Realty during 1999.
F To eliminate a portion of CCA's lease payable to Prison Realty against
CCA's net equity. This portion of CCA's lease payable had been fully
reserved by Prison Realty during the first quarter of 2000.
G To eliminate CCA's interest payable to PZN against CCA's net equity.
H To eliminate the historical par value of the CCA common stock.
I To eliminate the unamortized portion of the CCA warden deferred
compensation. As discussed in Note M, Prison Realty will issue common
shares of Prison Realty as part of the merger transactions in exchange
for the CCA common shares currently held by the wardens' restricted
stock plan.
J To eliminate CCA's retained earnings balance.
K Pro forma adjustments D through J reduce the CCA paid in capital balance
to an amount representing the net liabilities to be acquired by Prison
Realty in the merger transactions. This adjustment records the increase
in the investment in contracts related to the combined net liabilities
assumed by Prison Realty in the merger transactions in accordance with
the purchase method of accounting prescribed by APB Opinion No. 16.
L To record the decrease in the investment in contracts related to certain
deferred tax assets acquired from CCA in accordance with the purchase
method of accounting as prescribed by APB Opinion No. 16.
M To record the value of the Prison Realty common shares to be issued to
the CCA wardens' restricted stock plans in exchange for the CCA shares
currently held by those plans. The estimated value is based on a Prison
Realty common share price of $3.50.
N To record the reduction in the investment in contracts related to Prison
Realty's historical deferred gain on sales of contracts to CCA in
accordance with the purchase method of accounting as prescribed by APB
Opinion No. 16. Prison Realty's deferred gains originated from the sale
of management contracts and other assets to CCA in December 1998.
O To record Prison Realty's compensation expense related to the
unamortized portion of deferred stock awards previously granted to
certain key CCA employees. Due to the merger transactions, the deferred
stock awards become fully vested as of the date of Prison Realty's
acquisition of CCA.
F-7
<PAGE> 134
NOTES TO PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 2000 -- (CONTINUED)
P To eliminate the $137,000 note payable from CCA to Prison Realty
subsequent to the merger transactions.
Q To eliminate all remaining intercompany assets and liabilities between
Prison Realty, and CCA subsequent to the merger transactions.
R To record write-off of previously capitalized transaction costs that are
not applicable to the proposed transactions.
S To record the payment of estimated transactional costs related to the
proposed transactions that are not eligible to be capitalized in
accordance with the provisions of APB Opinion No. 16 and related
interpretations. This adjustment includes an estimated $23,850 to be
paid to the Fortress/Blackstone investor group and an estimated $2,500
to be paid to Pacific Life as reimbursement of costs.
T To record the effects of recognizing certain deferred tax liabilities in
accordance with SFAS No. 109 related to Prison Realty's change in tax
status from a REIT to a C-Corporation. As of March 31, 2000, Prison
Realty's fixed asset balances on the balance sheet contained book basis
versus tax basis differences arising from Old Prison Realty's
acquisition of US Corrections Corporation ("USCC") in April 1998 and
Prison Realty's acquisition of Old Prison Realty in January 1999. The
adjustment is determined as follows:
<TABLE>
<S> <C>
USCC related book versus tax differences at March 31,
2000.................................................... $171,488
SFAS No. 121 asset impairment of two USCC facilities
(limited to actual book versus tax differences existing
at December 31, 1999 for each facility)................. (71,503)
Old Prison Realty related book versus tax differences at
March 31, 2000.......................................... 362,278
--------
Total book versus tax differences in Prison
Realty's fixed asset balances at March 31,
2000......................................... 462,263
Statutory tax rate.............................. 39%
--------
Deferred tax liability to be recorded........ $180,282
========
</TABLE>
U To reverse $22,351 of the January 1999 write-off of Prison Realty's
deferred tax assets related to the change in Prison Realty's tax status
from a REIT to a C-Corporation in accordance with the provisions of SFAS
No. 109. This entry also increases the investment in contracts in
accordance with the purchase method of accounting prescribed by APB
Opinion No. 16 in relation to Prison Realty's acquisition of CCA. The
$22,351 deferred tax asset was originally established in connection with
Prison Realty's establishment of the deferred gains on sales of
contracts to CCA (See Note N).
V To record Prison Realty's current and long term deferred tax assets in
accordance with the provisions of SFAS No. 109.
W To apply Prison Realty's unpaid tenant incentive fees, facility
preparation fees and construction development fees against the
investment in contract balance as Prison Realty will not be required to
pay the liabilities to CCA upon consummation of the merger.
F-8
<PAGE> 135
NOTES TO PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 2000 -- (CONTINUED)
X To record the issuance of $150,000 of Preferred Series B shares to
comply with REIT dividend requirements, offset by $3,960 in foreign
taxes applicable to certain foreign shareholders resulting in a net of
$146,040 in Preferred Series B shares outstanding.
Y To record the assumed immediate conversion of 5% of Preferred Series B
shares into common stock of Prison Realty. Based on an assumed
conversion price of $3.50 per common share, the assumed number of common
shares issued equals 2,086.
Z To record the payment of the estimated costs of issuing the Preferred
Series B shares totaling $2,661. Based on the assumed immediate
conversion of 5% of the Preferred Series B shares into common shares, an
amount of $133 or 5% of the costs have been allocated to the common
shares issued upon conversion. The estimated issuance costs of the
Preferred Series B and the common shares have been allocated as a
reduction to the carrying value of the Preferred Series B and as a
reduction to the common stock additional paid-in capital, respectively.
AA To record the appropriate classification of Prison Realty's debt as if
the Waiver and Amendments and other financing transactions had occurred
on March 31, 2000.
BB To record the payment of estimated loan costs associated with Prison
Realty's recently obtained Waiver and Amendment to its existing credit
facility including approximately $9,500 paid to the agent and
participating lenders.
CC Among other terms and conditions contained in the Waiver and Amendment
to Prison Realty's bank credit facility, the Waiver and Amendment
includes the following:
(a) Allows Prison Realty to borrow up to an additional $55 million
under terms consistent with the existing bank credit facility at
various times during the 2000 calendar year;
(b) Requires Prison Realty to use commercially reasonable efforts to
complete a rights offering of at least $50 million of common stock
on or before December 31, 2000 to Prison Realty's then current
shareholders, with 40% of any proceeds to be applied to the
repayment of Prison Realty's indebtedness under the bank credit
facility;
(c) Requires Prison Realty to effect an offering of securities by a
subsidiary of Prison Realty, backed by lease payments from the
U.K. government relating to a prison facility located in Salford,
England, yielding net cash proceeds to Prison Realty of at least
L45,000 on or before February 28, 2001;
(d) Allows Prison Realty to sell its headquarter real estate for cash
proceeds of at least $12,000 and subsequently lease such
headquarters from the purchaser on satisfactory terms to the
senior lenders under the bank credit facility;
(e) Allows Prison Realty to complete mergers of each PMSI and JJFMSI,
upon the terms and conditions specified in the Waiver and
Amendment;
(f) Requires Prison Realty to pay an additional 0.5% interest rate
above the otherwise applicable interest rate through and including
September 15, 2000;
F-9
<PAGE> 136
NOTES TO PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 2000 -- (CONTINUED)
(g) Requires Prison Realty to pay an additional amendment fee equal to
0.375% of the bank credit facility if the merger transactions with
CCA are not completed by September 15, 2000;
(h) If Prison Realty were to default under the terms and conditions of
the Waiver and Amendment, Prison Realty would become subject to a
default rate of interest of an additional 2.0% and the lenders
could accelerate the maturity of the bank credit facility.
Due to the subjective nature and uncertainties surrounding the above
requirements and that certain of the above requirements are not
applicable subsequent to the completion of the merger transactions,
Prison Realty has not reflected the pro forma effects of items (a) - (h)
in these pro forma financial statements.
F-10
<PAGE> 137
PRISON REALTY TRUST, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ACQUISITION,
TRANSACTIONS AND PRISON REALTY
PRISON REALTY ELIMINATION TRUST, INC.
TRUST, INC. ADJUSTMENTS PRO FORMA
(HISTORICAL) CCA QQ NN, OO, PP
-------------- -------- ---------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Management and other................................. $ -- $137,952 $ -- $137,952
Rental............................................... 11,460 -- (9,000)AA 2,460
Licensing fees....................................... 2,576 -- (2,576)CC --
Interest income...................................... 3,312 -- (3,312)EE --
-------- -------- -------- --------
17,348 137,952 (14,888) 140,412
-------- -------- -------- --------
Expenses:
Operating............................................ -- 105,485 -- 105,485
Lease................................................ -- 79,314 (80,204)AA 977
1,435BB
147BB
285BB
General and administrative........................... 2,543 6,159 -- 8,702
Write-off of amounts under lease arrangements........ 4,000 -- (4,000)JJ --
Impairment loss...................................... -- -- -- --
Depreciation and amortization........................ 12,924 2,170 (1,203)GG 15,909
2,073GG
(55)HH
Trade name use....................................... -- 2,576 (2,576)CC --
-------- -------- -------- --------
19,467 195,704 (84,098) 131,073
-------- -------- -------- --------
Operating income (loss).................................. (2,119) (57,752) 69,210 9,339
Equity earnings in subsidiaries and amortization of
deferred gain...................................... (6,113) -- -- (6,113)
Interest (income) expense............................ 31,794 4,888 (4,099)DD 26,566
(3,312)EE
(2,705)FF
Write-off of loan costs.............................. -- -- -- --
Loss on disposal of assets........................... -- -- -- --
-------- -------- -------- --------
Income (loss) before income taxes........................ (27,800) (62,640) 79,326 (11,114)
Benefit for income taxes................................. -- -- (3,146)II (3,146)
-------- -------- -------- --------
Net income (loss)........................................ (27,800) (62,640) 82,472 (7,968)
Dividends to preferred shareholders-A.................... 2,150 -- -- 2,150
Dividends to preferred shareholders-B.................... -- -- 4,662KK 4,662
-------- -------- -------- --------
Net income (loss) available to common shareholders....... $(29,950) $(62,640) $ 77,810 $(14,780)
======== ======== ======== ========
Net loss per common share:
Basic................................................ $ (0.25) n/a $ (0.12)
Diluted.............................................. $ (0.25) n/a $ (0.12)
Weighted average common shares outstanding, basic........ 118,395 7,670LL 128,151
2,086MM
Weighted average common shares outstanding, diluted...... 118,395 7,670LL 128,151
2,086MM
</TABLE>
F-11
<PAGE> 138
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
AA To eliminate the gross rental revenue recognized by Prison Realty and
the gross lease expense recognized by CCA pursuant to the lease
agreements between Prison Realty and CCA.
BB To eliminate the amortization of deferred fees paid by Prison Realty to
CCA pursuant to the Tenant Incentive Agreement, the Business Development
Agreement and the Services Agreement.
CC To eliminate the license fee revenue recognized by Prison Realty and the
license fee expense recognized by CCA related to licensing fees paid by
CCA to Prison Realty.
DD To eliminate the interest expense recognized by CCA related to the
interest accrued on the $137,000 CCA Note.
EE To reclassify Prison Realty's historical interest income to conform with
the adjusted pro forma presentation.
FF To record the aggregate pro forma decrease in Prison Realty's interest
expense related to the following:
<TABLE>
<S> <C>
Reduction in pro forma gross interest expense related to
the pro forma reversal of default rates of interest
accrued by Prison Realty during the first quarter 2000 as
if the Waiver and Amendment and other financing
transactions had occurred on January 1, 2000;............ $(4,577)
Increase in the pro forma gross interest expense resulting
from a pro forma increased interest rate of 0.5% applied
to Prison Realty's outstanding convertible notes as if
the other financing transactions associated with the
convertible notes had occurred on January 1, 2000........ 88
Increase in the pro forma gross interest expense resulting
from the pro forma amortization of $10,356 in loan costs
incurred to obtain the Waiver and Amendment and other
financing transactions;.................................. 1,328
Increase in the pro forma interest expense due to a pro
forma decrease in the capitalized interest based on the
difference between historical and pro forma construction
in progress balances resulting from the pro forma removal
of capitalized fees paid to CCA by Prison Realty during
the first quarter 2000................................... 456
-------
Net pro forma reduction in interest expense.............. $(2,705)
=======
</TABLE>
On a pro forma basis for the three months ended March 31, 2000,
approximately $4,706 of the combined companies' $34,584 gross interest
expense would have been capitalized in construction in progress.
GG To remove the historical amortization of investment in contracts
previously recognized by CCA and to record the pro forma amortization of
investment in contracts based on the pro forma investment in contracts
balance of $91,192 amortized over the pro forma average life (11 years)
of the contracts acquired in the merger transactions.
F-12
<PAGE> 139
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 -- (CONTINUED)
HH To remove the historical depreciation expense recognized by Prison
Realty related to capitalized fees paid by Prison Realty to CCA during
2000.
II To adjust Prison Realty's historical income tax provision to reflect the
pro forma effective tax rate.
JJ To remove the historical non-recurring write-off of deferred tenant
incentive fees recorded by Prison Realty during 2000.
KK To record the effect of the Series B preferred dividends to be accrued
as a result of the issuance of $138,738 (net of the assumed conversion
of $7,302) of Series B convertible preferred stock as if the equity
issuance had occurred on January 1, 1999. The terms of the Series B
convertible preferred stock require a 12% PIK dividend during the first
three years with a 12% cash dividend thereafter. The 12% PIK dividend
results in an increasing dividend payment in each successive quarter.
LL To adjust Prison Realty's outstanding shares for the effects of the new
common shares to be issued to CCA shareholders in the merger
transactions. The estimated number of Prison Realty common shares to be
issued is as follows:
<TABLE>
<S> <C> <C>
Value of Prison Realty common shares to be issued...... $10,551
Estimated share price of Prison Realty common shares at
the time of issuance................................. $ 3.50
-------
Pro forma number of Prison Realty common shares to
be issued in the merger transactions............ 3,015
------
Value of Prison Realty common shares to be issued...... $16,000
Estimated share price of Prison Realty common shares at
the time of issuance................................. $3.4375
-------
Pro forma number of Prison Realty common shares to
be issued in the merger transactions............ 4,655
------
Total pro forma number of Prison Realty
common shares to be issued to CCA
shareholders.............................. 7,670
======
</TABLE>
MM To adjust Prison Realty's outstanding shares for the effects of the
assumed immediate conversion of 5% or 2,086 shares of Series C
convertible preferred shares into common shares during the conversion
periods.
NN Among other terms and conditions contained in the Waiver and Amendment
to Prison Realty's bank credit facility, the Waiver and Amendment
includes the following:
(a) Allows Prison Realty to borrow up to an additional $55 million
under terms consistent with the existing bank credit facility at
various times during the 2000 calendar year;
(b) Requires Prison Realty to use commercially reasonable efforts to
complete a rights offering of at least $50 million of common stock
on or before December 31, 2000 to Prison Realty's then current
shareholders, with 40% of any proceeds to be applied to the
repayment of Prison Realty's indebtedness under the bank credit
facility;
F-13
<PAGE> 140
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 -- (CONTINUED)
(c) Requires Prison Realty to effect an offering of securities by a
subsidiary of Prison Realty, backed by lease payments from the
U.K. government relating to a prison facility located in Salford,
England, yielding net cash proceeds to Prison Realty of at least
L45,000 on or before February 28, 2001;
(d) Allows Prison Realty to sell its headquarter real estate for cash
proceeds of at least $12,000 and subsequently lease such
headquarters from the purchaser on satisfactory terms to the
senior lenders under the bank credit facility;
(e) Allows Prison Realty to complete mergers of each PMSI and JJFMSI,
upon the terms and conditions specified in the Waiver and
Amendment;
(f) Requires Prison Realty to pay an additional 0.5% interest rate
above the otherwise applicable interest rate through and including
September 15, 2000;
(g) Requires Prison Realty to pay an additional amendment fee equal to
0.375% of the bank credit facility if the merger transactions with
CCA are not completed by September 15, 2000;
(h) If Prison Realty were to default under the terms and conditions of
the Waiver and Amendment, Prison Realty would become subject to a
default rate of interest of an additional 2.0% and the lenders
could accelerate the maturity of the bank credit facility.
Due to the subjective nature and uncertainties surrounding the above
requirements and that certain of the above requirements are not
applicable subsequent to the completion of the merger transactions,
Prison Realty has not reflected the pro forma effects of items (a) - (h)
in these pro forma financial statements.
OO CCA expects to incur approximately $1,000 in additional loan costs to
obtain a waiver of non-compliance under its credit facility through
September 15, 2000. Due to the subjective nature and uncertainties
surrounding the expected waiver, Prison Realty has not reflected the pro
forma effects of this fee in these pro forma financial statements.
PP Pursuant to the terms of the Agreement and Plan of Merger by and among
Prison Realty, CCA and Baron, Baron will receive Prison Realty common
stock warrants, resulting in an additional potential dilution in common
shares as follows:
Prison Realty will issue to Baron, warrants to purchase $2,000 of
Prison Realty common stock with an exercise price of $0.01. The
number of common shares to be issued is based upon the trading price
of Prison Realty's common stock at the exercise date. Assuming a pro
forma common share stock price of $3.50, the number of Prison
Realty's common shares to be issued is estimated to be 571.
Prison Realty will also issue to Baron, warrants to purchase $1,000
of Prison Realty common stock. The number of common shares to be
issued and the exercise price is based upon the lower of the June 23,
2000 Prison Realty stock price of $3.4375 or the Prison Realty common
stock price as of the date the merger is completed. Assuming the
stock price at June 23, 2000 of $3.4375, the number of Prison
Realty's common shares to be issued is estimated to be 291.
F-14
<PAGE> 141
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 -- (CONTINUED)
As indicated in Note QQ, the effects of the potential dilution have
not been reflected in the pro forma financial statements.
QQ The provisions of SFAS No. 128 prohibit the inclusion of the effects of
potentially issuable common shares in periods that a company reports
losses from continuing operations. As such, the pro forma statement of
operations for the three months ended March 31, 2000 does not include
the effects of Prison Realty's potentially issuable common shares such
as convertible debt and equity securities, options and warrants.
F-15
<PAGE> 142
PRISON REALTY TRUST, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ACQUISITION,
TRANSACTIONS AND PRISON REALTY
PRISON REALTY ELIMINATION TRUST, INC.
TRUST, INC. ADJUSTMENTS PRO FORMA
(HISTORICAL) CCA UU RR, SS, TT
------------- --------- ---------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Management and other.............................. $ -- $ 499,292 $ (8,062)BB $491,230
Rental............................................ 270,134 -- (263,500)AA 9,580
2,946BB
Licensing fees.................................... 8,699 -- (8,699)CC --
Interest income................................... 6,885 -- (6,885)EE --
-------- --------- --------- --------
285,718 499,292 (284,200) 500,810
-------- --------- --------- --------
Expenses:
Operating......................................... -- 376,724 5,634BB 382,358
Lease............................................. -- 261,546 (263,500)AA 2,473
161BB
4,098BB
168BB
General and administrative........................ 24,125 26,166 (7,100)NN 39,303
(3,888)MM
Write-off of amounts under lease arrangements..... 65,677 -- (65,677)LL --
Impairment loss................................... 76,433 -- -- 76,433
Depreciation and amortization..................... 44,062 8,601 (4,188)HH 56,550
8,290HH
(215)II
Trade name use.................................... -- 8,699 (8,699)CC --
-------- --------- --------- --------
210,297 681,736 (334,916) 557,117
-------- --------- --------- --------
Operating income (loss)............................. 75,421 (182,444) 50,716 (56,307)
Equity earnings in subsidiaries and amortization
of deferred gain................................ (22,886) -- -- (22,886)
Interest (income) expense......................... 51,921 20,474 (16,440)DD 52,234
(6,885)EE
(2,706)FF
5,870GG
Write-off of loan costs........................... 14,567 -- -- 14,567
Loss on disposal of assets........................ 1,995 -- -- 1,995
-------- --------- --------- --------
Income (loss) before income taxes................... 29,824 (202,918) 70,877 (102,217)
Provision (benefit) for income taxes................ 83,200 -- (83,200)JJ (36,465)
(36,465)KK
-------- --------- --------- --------
Net income (loss)................................... (53,376) (202,918) 190,542 (65,752)
Dividends to preferred shareholders -- A............ 8,600 -- -- 8,600
Dividends to preferred shareholders -- B............ -- -- 17,413OO 17,413
-------- --------- --------- --------
Net income (loss) available to common
shareholders...................................... $(61,976) $(202,918) $ 173,129 $(91,765)
======== ========= ========= ========
Net loss per common share:
Basic............................................. $ (0.54) n/a $ (0.73)
Diluted........................................... $ (0.54) n/a $ (0.73)
Weighted average common shares outstanding, basic... 115,097 7,670PP 124,853
2,086QQ
Weighted average common shares outstanding,
diluted........................................... 115,097 7,670PP 124,853
2,086QQ
</TABLE>
F-16
<PAGE> 143
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
AA To eliminate the gross rental revenue recognized by Prison Realty and
the gross lease expense recognized by CCA pursuant to the lease
agreements between Prison Realty and CCA.
BB To eliminate the amortization of deferred fees paid by Prison Realty to
CCA pursuant to the Tenant Incentive Agreement, the Business Development
Agreement and the Services Agreement.
CC To eliminate the license fee revenue recognized by Prison Realty and the
license fee expense recognized by CCA related to licensing fees paid by
CCA to Prison Realty.
DD To eliminate the interest expense recognized by CCA related to the
interest accrued on the $137,000 CCA Note.
EE To reclassify Prison Realty's historical interest income to conform with
the adjusted pro forma presentation.
FF To remove the historical non-recurring write-off of loan costs resulting
from debt refinancing by CCA during 1999 which was charged to interest
expense.
GG To record the aggregate pro forma increase in Prison Realty's interest
expense related to the following:
<TABLE>
<S> <C>
Increase in the pro forma gross interest expense resulting
from a pro forma increased interest rate of 0.5% applied
to Prison Realty's outstanding convertible notes as if the
other financing transactions associated with the
convertible notes had occurred on January 1, 1999;........ 350
Increase in the pro forma gross interest expense resulting
from the pro forma amortization of $10,356 in loan costs
incurred to obtain the Waiver and Amendment and other
financing transactions as if the Waiver and Amendment and
other financing transactions had occurred on January 1,
1999;..................................................... 5,324
Increase in the pro forma interest expense due to a pro
forma decrease in the capitalized interest based on the
difference between historical and pro forma construction
in progress balances resulting from the pro forma removal
of capitalized fees paid to CCA by Prison Realty during
the year ended December 31, 1999 as if the merger
transactions had occurred on January 1, 1999.............. 196
------
Net pro forma increase in interest expense................ $5,870
======
</TABLE>
On a pro forma basis for the year ended December 31, 1999, approximately
$38,080 of the combined companies' $99,905 gross interest expense would
have been capitalized in construction in progress.
HH To remove the historical amortization of investment in contracts
previously recognized by CCA and to record the pro forma amortization of
investment in contracts based on the pro forma investment in contracts
balance of $91,192 amortized over the pro forma average life (11 years)
of the contracts acquired in the merger transactions.
F-17
<PAGE> 144
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999 -- (CONTINUED)
II To remove the historical depreciation expense recognized by Prison
Realty related to capitalized fees paid by Prison Realty to CCA during
1999.
JJ To remove the non-recurring effect of the historical write-off of Prison
Realty deferred tax assets occurring in January 1999.
KK To adjust Prison Realty's historical income tax provision to reflect the
pro forma effective tax rate.
LL To remove the historical non-recurring write-off of deferred tenant
incentive fees recorded by Prison Realty during 1999.
MM To remove the historical non-recurring expenses associated with the
proposed merger and related transactions that Prison Realty had recorded
during 1999.
NN To remove the historical non-recurring effect of the excise tax accrued
by Prison Realty as a result of Prison Realty's deferral of the required
1999 dividend payments.
OO To record the effect of the Series B preferred dividends to be accrued
as a result of the issuance of $138,738 (net of the assumed conversion
of $7,302) of Series B convertible preferred stock as if the equity
issuance had occurred on January 1, 1999. The terms of the Series B
convertible preferred stock require a 12% PIK dividend during the first
three years with a 12% cash dividend thereafter. The 12% PIK dividend
results in an increasing dividend payment in each successive quarter.
PP To adjust Prison Realty's outstanding shares for the effects of the new
common shares to be issued to CCA shareholders in the merger
transactions. The estimated number of Prison Realty common shares to be
issued is as follows:
<TABLE>
<S> <C> <C>
Value of Prison Realty common shares to be
issued........................................... $10,551
Estimated share price of Prison Realty common
shares at the time of issuance................... $ 3.50
-------
Pro forma number of Prison Realty common
shares to be issued in the merger
transactions................................ 3,015
------
Value of Prison Realty common shares to be
issued........................................... $16,000
Estimated share price of Prison Realty common
shares at the time of issuance................... $3.4375
-------
Pro forma number of Prison Realty common
shares to be issued in the merger
transactions................................ 4,655
------
Total pro forma number of Prison Realty common
shares to be issued to CCA shareholders..... 7,670
======
</TABLE>
QQ To adjust Prison Realty's outstanding shares for the effects of the
assumed immediate conversion of 5% or 2,086 shares of Series C
convertible preferred shares into common shares during the conversion
periods.
F-18
<PAGE> 145
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999 -- (CONTINUED)
RR Among other terms and conditions contained in the Waiver and Amendment
to Prison Realty's bank credit facility, the Waiver and Amendment
includes the following:
(a) Allows Prison Realty to borrow up to an additional $55 million
under terms consistent with the existing bank credit facility at
various times during the 2000 calendar year;
(b) Requires Prison Realty to use commercially reasonable efforts to
complete a rights offering of at least $50 million of common stock
on or before December 31, 2000 to Prison Realty's then current
shareholders, with 40% of any proceeds to be applied to the
repayment of Prison Realty's indebtedness under the bank credit
facility;
(c) Requires Prison Realty to effect an offering of securities by a
subsidiary of Prison Realty, backed by lease payments from the
U.K. government relating to a prison facility located in Salford,
England, yielding net cash proceeds to Prison Realty of at least
L45,000 on or before February 28, 2001;
(d) Allows Prison Realty to sell its headquarter real estate for cash
proceeds of at least $12,000 and subsequently lease such
headquarters from the purchaser on satisfactory terms to the
senior lenders under the bank credit facility;
(e) Allows Prison Realty to complete mergers of each PMSI and JJFMSI,
upon the terms and conditions specified in the Waiver and
Amendment;
(f) Requires Prison Realty to pay an additional 0.5% interest rate
above the otherwise applicable interest rate through and including
September 15, 2000;
(g) Requires Prison Realty to pay an additional amendment fee equal to
0.375% of the bank credit facility if the merger transactions with
CCA are not completed by September 15, 2000;
(h) If Prison Realty were to default under the terms and conditions of
the Waiver and Amendment, Prison Realty would become subject to a
default rate of interest of an additional 2.0% and the lenders
could accelerate the maturity of the bank credit facility.
Due to the subjective nature and uncertainties surrounding the above
requirements and that certain of the above requirements are not
applicable subsequent to the completion of the merger transactions,
Prison Realty has not reflected the pro forma effects of items (a)-(h)
in these pro forma financial statements.
SS CCA expects to incur approximately $1,000 in additional loan costs to
obtain a waiver of noncompliance under its credit facility through
September 15, 2000. Due to the subjective nature and uncertainties
surrounding the expected waiver, Prison Realty has not reflected the pro
forma effects of this fee in these pro forma financial statements.
F-19
<PAGE> 146
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999 -- (CONTINUED)
TT Pursuant to the terms of the Agreement and Plan of Merger by and among
Prison Realty, CCA and Baron, Baron will receive Prison Realty common
stock warrants resulting in an additional potential dilution in common
shares as follows:
Prison Realty will issue to Baron, warrants to purchase $2,000 of
Prison Realty common stock with an exercise price of $0.01. The
number of common shares to be issued is based upon the trading price
of Prison Realty's common stock at the exercise date. Assuming a pro
forma common share stock price of $3.50, the number of Prison
Realty's common shares to be issued is estimated to be 571.
Prison Realty will also issue to Baron, warrants to purchase $1,000
of Prison Realty common stock. The number of common shares to be
issued and the exercise price is based upon the lower of the June 23,
2000 Prison Realty stock price of $3.4375 or the Prison Realty common
stock price as of the date the merger is completed. Assuming the
stock price at June 23, 2000 of $3.4375, the number of Prison
Realty's common shares to be issued is estimated to be 291.
As indicated in Note UU, the effect of the potential dilution have
not been reflected the pro forma financial statements.
UU The provisions of SFAS No. 128 prohibit the inclusion of the effects of
potentially issuable common shares in periods that a company reports
losses from continuing operations. As such, the pro forma statement of
operations for the year ended December 31, 1999 does not include the
effects of Prison Realty's potentially issuable common shares such as
convertible debt and equity securities, options and warrants.
F-20
<PAGE> 147
APPENDIX A
PRISON REALTY TRUST, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
This is to certify that:
FIRST: Prison Realty Trust, Inc., a Maryland corporation (the
"Corporation"), desires to amend and restate its Charter as currently in effect
and as hereinafter amended.
SECOND: The following provisions are all the provisions of the Charter of
the Corporation currently in effect and as hereinafter amended:
ARTICLE I
NAME
The name of this corporation shall be Corrections Corporation of America
(the "Corporation").
ARTICLE II
PURPOSE
The purpose for which this Corporation is formed is to engage in any lawful
act or activity for which corporations may be organized under the Maryland
General Corporation Law as now or hereinafter in force. The Corporation also
shall have all the general powers granted by law to Maryland corporations and
all other powers not inconsistent with law that are appropriate to promote and
attain its purpose.
ARTICLE III
PRINCIPAL OFFICE AND RESIDENT AGENT
The address of the principal office of the Corporation is c/o The
Corporation Trust Incorporated, 300 East Lombard Street, Baltimore, Maryland
21202. The name of the resident agent of the Corporation in the State of
Maryland is The Corporation Trust Incorporated, and the address of the resident
agent is 300 East Lombard Street, Baltimore, Maryland 21202.
ARTICLE IV
DIRECTORS
A. General Powers. The business and affairs of the Corporation shall be
managed by its Board of Directors and, except as otherwise expressly provided by
law, the Bylaws of the Corporation or this Charter, all of the powers of the
Corporation shall be vested in the Board of Directors. This Charter shall be
construed with the presumption in favor of the grant of power and authority to
the directors.
A-1
<PAGE> 148
B. Number of Directors. The Board of Directors shall consist of such
number of directors as shall be determined from time to time by resolution of
the Board of Directors in accordance with the Bylaws of the Corporation, except
as otherwise required by the Charter; provided that the number of directors
shall never be less than the minimum number required by the Maryland General
Corporation Law. The Board of Directors shall initially consist of six (6)
directors, at least two (2) of which must be Independent Directors. An
Independent Director is defined to be an individual who qualifies as a director
under the Bylaws of the Corporation but who: (i) is not an officer or employee
of the Corporation; (ii) is not the beneficial owner of five percent (5%) or
more of any class of equity securities of the Corporation, or any officer,
employee or "affiliate" (as defined in Rule 12b-2 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of any such
stockholder of the Corporation; or (iii) does not have any economic relationship
requiring disclosure under the Exchange Act with the Corporation. The names of
the directors of the Corporation are Thomas W. Beasley, C. Ray Bell, Jean-Pierre
Cuny, Ted Feldman, Joseph V. Russell and Charles W. Thomas, PhD. A director need
not be a stockholder of the Corporation.
C. Effect of Increase or Decrease in Directors. In the event of any
increase or decrease in the number of directors pursuant to the first sentence
of Paragraph B above, each director then serving shall nevertheless continue as
a director until the expiration of his term and until his successor is duly
elected and qualified or his prior death, retirement, resignation or removal.
D. Service of Directors. Notwithstanding the provisions of this Article
IV, each director shall serve until his successor is elected and qualified or
until his death, retirement, resignation or removal.
E. Removal of Directors. Subject to the rights, if any, of any class or
series of stock to elect directors and to remove any director whom the holders
of any such stock have the right to elect, any director (including persons
elected by directors to fill vacancies in the Board of Directors) may be removed
from office, with or without cause, only by the affirmative vote of the holders
of at least a majority of the votes represented by the shares then entitled to
vote in the election of such director. At least thirty (30) days prior to any
meeting of stockholders at which it is proposed that any director be removed
from office, written notice of such proposed removal shall be sent to the
director whose removal will be considered at the meeting.
F. Directors Elected by Holders of Preferred Stock. During any period when
the holders of any series of Preferred Stock (as defined in Article V hereof)
have the right to elect additional directors, as provided for or fixed pursuant
to the provisions of Article V hereof, then upon commencement and for the
duration of the period during which such right continues (i) the then otherwise
total and authorized number of directors of the Corporation shall automatically
be increased by the number of such additional directors, and such holders of
Preferred Stock shall be entitled to elect the additional directors so provided
for or fixed pursuant to said provisions, and (ii) each such additional director
shall serve until such director's successor shall have been duly elected and
qualified, or until such director's right to hold such office terminates
pursuant to said provisions, whichever occurs earlier, subject to his earlier
death, disqualification, resignation or removal.
ARTICLE V
CAPITAL STOCK
The total number of shares of stock which the Corporation shall have
authority to issue is four hundred fifty million (450,000,000), of which four
hundred million (400,000,000) shares are of a class denominated common stock,
$0.01 par value per share (the "Common Stock") and fifty million (50,000,000)
shares are of a class denominated preferred stock, $0.01 par value per share
(the
A-2
<PAGE> 149
"Preferred Stock"). The aggregate par value of all shares of all classes is
$4,500,000. Four million three hundred thousand (4,300,000) shares of the
Preferred Stock shall be designated as "8.0% Series A Cumulative Preferred
Stock" (the "Series A Preferred Stock").
The Board of Directors may authorize the issuance by the Corporation from
time to time of shares of any class of stock of the Corporation or securities
convertible or exercisable into shares of stock of any class or classes for such
consideration as the Board of Directors determines, or, if issued as a result of
a stock dividend or stock split, without any consideration, and all stock so
issued will be fully paid and non-assessable by the Corporation. The Board of
Directors may create and issue rights entitling the holders thereof to purchase
from the Corporation shares of stock or other securities or property. The Board
of Directors may classify or reclassify any unissued stock from time to time by
setting or changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption of such stock.
The Corporation reserves the right to make any amendment to the Charter of
the Corporation, now or hereafter authorized by law, including any amendment
which alters the contract rights, as expressly set forth in the Charter of the
Corporation, of any outstanding shares of stock.
Notwithstanding any provision of law permitting or requiring any action to
be taken or approved by the affirmative vote of the holders of shares entitled
to cast a greater number of votes, any such action shall be effective and valid
if taken or approved by the affirmative vote of holders of shares entitled to
cast a majority of all the votes entitled to be cast on the matter.
The following is a description of each of the classes of stock of the
Corporation and a statement of the powers, preferences and rights of such stock,
and the qualifications, limitations and restrictions thereof:
A. Common Stock.
1. Voting Rights. Each holder of Common Stock shall be entitled to
one vote per share of Common Stock on all matters to be voted on by the
stockholders of the Corporation. Notwithstanding the foregoing, (i) holders
of Common Stock shall not be entitled to vote on any proposal to amend
provisions of the Charter of the Corporation setting forth the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualification, or terms or conditions of redemption of a class
or series of Preferred Stock if the proposed amendment would not alter the
contract rights of the Common Stock, and (ii) holders of Common Stock shall
not be entitled to notice of any meeting of stockholders at which the only
matters to be considered are those as to which such holders have no vote by
virtue of this Article V, Section A.1.
2. Dividends and Rights Upon Liquidation. After the provisions with
respect to preferential dividends of any series of Preferred Stock, if any,
shall have been satisfied, and subject to any other conditions that may be
fixed in accordance with the provisions of this Article V, then, and not
otherwise, all Common Stock will participate equally in dividends payable
to holders of shares of Common Stock when and as declared by the Board of
Directors at their discretion out of funds legally available therefor. In
the event of voluntary or involuntary dissolution or liquidation of the
Corporation, after distribution in full of the preferential amounts, if
any, to be distributed to the holders of Preferred Stock, the holders of
Common Stock shall, subject to the additional rights, if any, of the
holders of Preferred Stock fixed in accordance with the provisions of this
Article V, be entitled to receive all of the remaining assets of the
Corporation, tangible and intangible, of whatever kind available for
distribution to stockholders ratably in proportion to the number of shares
of Common Stock held by them respectively.
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B. Preferred Stock.
1. Authorization and Issuance. The Preferred Stock may be issued from
time to time upon authorization by the Board of Directors of the
Corporation, in such series and with such preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications or other provisions as may be fixed by the Board of
Directors, except as otherwise set forth in the Charter.
2. Voting Rights. The holders of Preferred Stock shall have no voting
rights and shall have no rights to receive notice of any meetings, except
as required by law, as expressly provided for in the Charter, or as
expressly provided in the resolution establishing any series thereof.
C. Series A Preferred Stock.
1. Designation and Amount; Fractional Stock; Par Value. There shall
be a class of Preferred Stock of the Corporation designated as "8.0% Series
A Cumulative Preferred Stock," and the number of shares of stock
constituting such series shall be 4,300,000. The Series A Preferred Stock
is issuable solely in whole stock and shall entitle the holder thereof to
exercise the voting rights, to participate in the distributions and
dividends and to have the same benefits as all other holders of Series A
Preferred Stock as set forth in this Charter. The par value of each share
of Series A Preferred Stock shall be $0.01.
2. Maturity. The Series A Preferred Stock has no stated maturity and
will not be subject to any sinking fund or mandatory redemption.
3. Rank. The Series A Preferred Stock will, with respect to dividend
rights and rights upon liquidation, dissolution or winding-up of the
Corporation, rank: (i) senior to all classes or series of Common Stock of
the Corporation and to all equity securities ranking junior to the Series A
Preferred Stock; (ii) on a parity with all equity securities issued by the
Corporation, the terms of which specifically provide that such equity
securities rank on a parity with the Series A Preferred Stock with respect
to dividend rights or rights upon liquidation, dissolution or winding-up of
the Corporation; and (iii) junior to all existing and future indebtedness
of the Corporation. The term "equity securities" does not include
convertible debt and securities which rank senior to the Series A Preferred
Stock prior to conversion.
4. Dividends. Holders of the Series A Preferred Stock shall be
entitled to receive, when and as authorized and declared by the Board of
Directors, out of funds legally available for the payment of dividends,
cumulative preferential cash dividends at the rate of eight percent (8.0%)
per annum of the Liquidation Preference, as hereinafter defined. Such
dividends shall be cumulative from the date of original issuance and shall
be payable quarterly in arrears on the fifteenth day of January, April,
July and October of each year (each, a "Dividend Payment Date"), or, if not
a business day, the next succeeding business day. Dividends will accrue
from the date of original issuance to the first Dividend Payment Date and
thereafter from each Dividend Payment Date to the subsequent Dividend
Payment Date. A dividend payable on the Series A Preferred Stock for any
partial dividend period will be computed on the basis of a 360-day year
consisting of twelve 30-day months. Dividends will be payable to holders of
record as they appear in the stock records of the Corporation at the close
of business on the applicable record date, which shall be the last business
day of March, June, September and December, respectively, or on such other
date designated by the Board of Directors of the Corporation for the
payment of dividends that is not more than 30 nor less than 10 days prior
to the applicable Dividend Payment Date (each, a "Dividend Record Date").
The Series A Preferred Stock will rank senior to the Corporation's Common
Stock with respect to the payment of dividends.
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No dividends on Series A Preferred Stock shall be declared by the Board of
Directors of the Corporation or paid or set apart for payment by the Corporation
at such time as the terms and provisions of any agreement to which the
Corporation is a party, including any agreement relating to its indebtedness,
prohibits such declaration, payment or setting apart for payment or provides
that such declaration, payment or setting apart for payment would constitute a
breach thereof or a default thereunder, or if such declaration or payment shall
be restricted or prohibited by law.
Notwithstanding the foregoing, dividends on the Series A Preferred Stock
will accrue whether or not the Corporation has earnings, whether or not there
are funds legally available for payment of such dividends and whether or not
such dividends are declared. The accrued but unpaid dividends on the Series A
Preferred Stock will not bear interest, and holders of shares of Series A
Preferred Stock will not be entitled to any distributions in excess of full
cumulative distributions described above.
Except as set forth in the next sentence, no dividends will be declared or
paid or set apart for payment on any capital stock of the Corporation or any
other series of Preferred Stock ranking, as to dividends, on a parity with or
junior to the Series A Preferred Stock (other than a distribution in stock of
the Corporation's Common Stock or on stock of any other class of stock ranking
junior to the Series A Preferred Stock as to dividends and upon liquidation) for
any period unless full cumulative dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof is
set apart for such payment on the Series A Preferred Stock for all past dividend
periods and the then current dividend period. When dividends are not paid in
full (or a sum sufficient for such full payment is not so set apart) upon the
Series A Preferred Stock and the shares of any other series of Preferred Stock
ranking on a parity as to dividends with the Series A Preferred Stock, all
dividends declared upon the Series A Preferred Stock and any other series of
Preferred Stock ranking on a parity as to dividends with the Series A Preferred
Stock shall be declared pro rata so that the amount of dividends authorized per
share of Series A Preferred Stock and such other series of Preferred Stock shall
in all cases bear to each other the same ratio that accrued dividends per share
on the Series A Preferred Stock and such other series of Preferred Stock (which
shall not include any accrual in respect of unpaid dividends for prior dividend
periods if such series of Preferred Stock does not have a cumulative dividend)
bear to each other. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Series A Preferred
Stock which may be in arrears.
Except as provided in the immediately preceding paragraph, unless full
cumulative dividends on the Series A Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof is set apart for payment for all past dividend periods and the
then current dividend period, no dividends (other than in Common Stock or other
stock of the Corporation ranking junior to the Series A Preferred Stock as to
dividends and upon liquidation) shall be declared or paid or set aside for
payment nor shall any other distribution be declared or made upon the Common
Stock, or stock of the Corporation ranking junior to or on a parity with the
Series A Preferred Stock as to dividends or upon liquidation, nor shall any
Common Stock, or any other stock of the Corporation ranking junior to or on a
parity with the Series A Preferred Stock as to dividends or upon liquidation, be
redeemed, purchased or otherwise acquired for any consideration (or any monies
be paid to or made available for a sinking fund for the redemption of any such
stock) by the Corporation (except by conversion into or exchange for other stock
of the Corporation ranking junior to the Series A Preferred Stock as to
dividends and upon liquidation). Holders of shares of Series A Preferred Stock
shall not be entitled to any dividend, whether payable in cash, property or
stock, in excess of full cumulative dividends on the Series A Preferred Stock as
provided above. Any dividend payment made on shares of the Series A Preferred
Stock shall first be credited against the earliest accrued but unpaid dividend
due with respect to such stock which remains payable.
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5. Liquidation Preference. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of
Series A Preferred Stock are entitled to be paid out of the assets of the
Corporation legally available for distribution to its stockholders, a
liquidation preference of $25 per share (the "Liquidation Preference"), plus an
amount equal to any accrued and unpaid dividends to the date of payment but
without interest, before any distribution of assets is made to holders of Common
Stock or any other class or series of stock of the Corporation that ranks junior
to the Series A Preferred Stock as to liquidation rights. In the event that,
upon any such voluntary or involuntary liquidation, dissolution or winding up,
the available assets of the Corporation are insufficient to pay the amount of
the liquidating distributions on all outstanding shares of Series A Preferred
Stock and the corresponding amounts payable on all stock of other classes or
series of Preferred Stock of the Corporation ranking on a parity with the Series
A Preferred Stock in the distribution of assets, then the holders of shares of
the Series A Preferred Stock and all other such classes or series of Preferred
Stock shall share ratably in any such distribution of assets in proportion to
the full liquidating distributions to which they would otherwise be respectively
entitled.
Holders of shares of Series A Preferred Stock will be entitled to written
notice of any such liquidation. After payment of the full amount of the
liquidating distributions to which they are entitled, the holders of shares of
Series A Preferred Stock will have no right or claim to any of the remaining
assets of the Corporation. The consolidation or merger of the Corporation with
or into any other trust, corporation or entity or of any other corporation with
or into the Corporation, or the sale, lease or conveyance of all or
substantially all of the property or business of the Corporation, shall not be
deemed to constitute a liquidation, dissolution or winding up of the
Corporation.
6. Redemption. Shares of the Series A Preferred Stock are not redeemable
prior to January 30, 2003. On and after January 30, 2003, the Corporation, at
its option upon not less than thirty (30) nor more than sixty (60) days' written
notice, may redeem the Series A Preferred Stock, in whole or in part, at any
time or from time to time, for cash at a redemption price of $25 per share, plus
all accrued and unpaid dividends thereon to the date fixed for redemption
(except as provided below), without interest. Holders of shares of Series A
Preferred Stock to be redeemed shall surrender any certificates representing
such shares of Series A Preferred Stock at the place designated in such notice
and shall be entitled to the redemption price and any accrued and unpaid
dividends payable upon such redemption following such surrender. If notice of
redemption of any shares of Series A Preferred Stock has been given and if the
funds necessary for such redemption have been set aside by the Corporation in
trust for the benefit of the holders of any shares of Series A Preferred Stock
so called for redemption, then from and after the redemption date dividends will
cease to accrue on such shares of Series A Preferred Stock, such shares of
Series A Preferred Stock shall no longer be deemed outstanding and all rights of
the holders of such stock will terminate, except the right to receive the
redemption price. If less than all of the outstanding shares of Series A
Preferred Stock are to be redeemed, the shares of Series A Preferred Stock to be
redeemed shall be selected pro rata (as nearly as may be practicable without
creating fractional stock) or by any other equitable method determined by the
Corporation.
Unless full cumulative dividends on all shares of Series A Preferred Stock
shall have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for all past dividend
periods and the then current dividend period, no shares of Series A Preferred
Stock shall be redeemed unless all outstanding shares of Series A Preferred
Stock are simultaneously redeemed and the Corporation shall not purchase or
otherwise acquire directly or indirectly any shares of Series A Preferred Stock
(except by exchange for capital stock of the Corporation ranking junior to the
Series A Preferred Stock as to dividends and upon liquidation); provided,
however, that the foregoing shall not prevent the purchase or acquisition of
shares of Series A Preferred Stock pursuant to a purchase or exchange offer made
on the same terms to
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<PAGE> 153
holders of all outstanding shares of Series A Preferred Stock. So long as no
dividends are in arrears, the Corporation shall be entitled at any time and from
time to time to repurchase shares of Series A Preferred Stock in open-market
transactions duly authorized by the Board of Directors and effected in
compliance with applicable laws.
Notice of redemption will be given by publication in a newspaper of general
circulation in the City of New York, such publication to be made once a week for
two (2) successive weeks commencing not less than thirty (30) nor more than
sixty (60) days prior to the redemption date. A similar notice will be mailed by
the Corporation, postage prepaid, not less than thirty (30) nor more than sixty
(60) days prior to the redemption date, addressed to the respective holders of
record of the Series A Preferred Stock to be redeemed at their respective
addresses as they appear on the stock transfer records of the Corporation. No
failure to give such notice or any defect thereto or in the mailing thereof
shall affect the validity of the proceedings for the redemption of any shares of
Series A Preferred Stock except as to the holder to whom notice was defective or
not given. Each notice shall state: (i) the redemption date; (ii) the redemption
price; (iii) the number of shares of Series A Preferred Stock to be redeemed;
(iv) the place or places where the certificates representing the shares of
Series A Preferred Stock are to be surrendered for payment of the redemption
price; and (v) that dividends on the stock to be redeemed will cease to accrue
on such redemption date. If less than all of the shares of Series A Preferred
Stock held by any holder are to be redeemed, the notice mailed to such holder
shall also specify the number of shares of Series A Preferred Stock held by such
holder to be redeemed.
Immediately prior to any redemption of shares of Series A Preferred Stock,
the Corporation shall pay, in cash, any accumulated and unpaid dividends through
the redemption date. Except as provided above, the Corporation will make no
payment or allowance for unpaid dividends, whether or not in arrears, on shares
of Series A Preferred Stock which are redeemed.
7. Voting Rights. Holders of the shares of Series A Preferred Stock will
not have any voting rights, except as set forth below.
Whenever dividends on any shares of Series A Preferred Stock shall be in
arrears for four or more quarterly periods (a "Preferred Dividend Default"), the
holders of such Series A Preferred Stock (voting together as a class with all
other series of Preferred Stock ranking on a parity with the Series A Preferred
Stock as to dividends or upon liquidation ("Parity Preferred") upon which like
voting rights have been conferred and are exercisable) will be entitled to vote
for the election of a total of two additional directors of the Corporation (the
"Preferred Stock Directors") at a special meeting called by the holders of
record of at least twenty percent (20%) of the shares of Series A Preferred
Stock and the holders of record of at least twenty percent (20%) of the shares
of any series of Parity Preferred so in arrears (unless such request is received
less than ninety (90) days before the date fixed for the next annual or special
meeting of the stockholders) or at the next annual meeting of stockholders, and
at such subsequent annual meeting until all dividends accumulated on such shares
of Series A Preferred Stock for the past dividend periods and the dividend for
the then current dividend period shall have been fully paid or declared and a
sum sufficient for the payment thereof set aside for payment. A quorum for any
such meeting shall exist if at least a majority of the outstanding shares of
Series A Preferred Stock and shares of Parity Preferred upon which like voting
rights have been conferred and are exercisable are represented in person or by
proxy at such meeting. Such Preferred Stock Directors shall be elected upon
affirmative vote of a plurality of the shares of Series A Preferred Stock and
such Parity Preferred present and voting in person or by proxy at a duly called
and held meeting at which a quorum is present. If and when all accumulated
dividends and the dividend for the then current dividend period on the shares of
Series A Preferred Stock shall have been paid in full or set aside for payment
in full, the holders thereof shall be divested of the foregoing voting rights
(subject to revesting in the event of each and every Preferred Dividend Default)
and, if
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all accumulated dividends and the dividend for the then current dividend period
have been paid in full or set aside for payment in full on all series of Parity
Preferred upon which like voting rights have been conferred and are exercisable,
the term of office of each Preferred Stock Director so elected shall immediately
terminate. Any Preferred Stock Director may be removed at any time with or
without cause by, and shall not be removed otherwise than by the vote of, the
holders of record of a majority of the outstanding shares of Series A Preferred
Stock and all series of Parity Preferred upon which like voting rights have been
conferred and are exercisable (voting together as a class). So long as a
Preferred Dividend Default shall continue, any vacancy in the office of a
Preferred Stock Director may be filled by written consent of the Preferred Stock
Directors remaining in office, or if none remains in office, by a vote of the
holders of record of a majority of the outstanding shares of Series A Preferred
Stock when they have the voting rights described above (voting together as a
class with all series of Parity Preferred upon which like voting rights have
been conferred and are exercisable). The Preferred Stock Directors shall each be
entitled to one vote per director on any matter.
So long as any shares of Series A Preferred Stock remain outstanding, the
Corporation will not, without the affirmative vote or consent of the holders of
at least two-thirds of the shares of Series A Preferred Stock outstanding at the
time, given in person or by proxy, either in writing or at a meeting (voting
separately as a class), (a) authorize or create, or increase the authorized or
issued amount of, any class or series of shares of stock ranking prior to the
Series A Preferred Stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or reclassify
any authorized shares of stock of the Corporation into such shares, or create,
authorize or issue any obligation or security convertible into or evidencing the
right to purchase any such shares of stock, or (b) amend, alter or repeal the
provisions of the Charter, whether by merger, consolidation or otherwise (an
"Event"), so as to materially and adversely affect any right, preference,
privilege or voting power of the shares of Series A Preferred Stock or the
holders thereof; provided, however, with respect to the occurrence of any Event
set forth in (b) above, so long as the shares of Series A Preferred Stock remain
outstanding with the terms thereof materially unchanged, the occurrence of any
such Event shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting power of holders of the shares of Series A
Preferred Stock and provided further that (i) any increase in the amount of the
authorized Preferred Stock or the creation or issuance of any other series of
Preferred Stock, or (ii) any increase in the amount of authorized shares of such
series, in each case ranking on a parity with or junior to the Series A
Preferred Stock with respect to payment of dividends or the distribution of
assets upon liquidation, dissolution or winding up, shall not be deemed to
materially and adversely affect such rights, preferences, privileges or voting
powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of Series A Preferred Stock shall have been
redeemed or called for redemption upon proper notice and sufficient funds shall
have been deposited in trust to effect such redemption.
8. Conversion. Shares of the Series A Preferred Stock are not convertible
into or exchangeable for any other property or securities of the Corporation.
9. Definitions. Terms defined in this Article V, Paragraph C shall apply
only in respect of the Series A Preferred Stock.
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ARTICLE VI
LIMITATION ON PERSONAL LIABILITY AND INDEMNIFICATION
OF DIRECTORS AND OFFICERS
To the maximum extent that Maryland law in effect from time to time permits
limitation of liability of directors or officers of corporations, no person who
at any time was or is a director or officer of the Corporation shall be
personally liable to the Corporation or its stockholders for money damages.
Neither the amendment nor repeal of this provision, nor the adoption or
amendment of any other provision of the charter or the Bylaws of the Corporation
inconsistent with this provision, shall limit or eliminate in any respect the
applicability of the preceding sentence with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.
ARTICLE VII
OTHER CONSTITUENCIES
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 which offices or other establishments of the Corporation
are located.
THIRD: The amendment to and restatement of the charter of the Corporation
as hereinabove set forth has been duly advised by the Board of Directors of the
Corporation, has been approved by a majority of the entire Board of Directors
and has been approved by the stockholders of the Corporation.
FOURTH: The current address of the principal office of the Corporation is
as set forth in Article III of the foregoing amendment and restatement of the
charter.
FIFTH: The name and address of the Corporation's current resident agent is
as set forth in Article III of the foregoing amendment and restatement of the
charter.
SIXTH: The number of directors of the Corporation and the names of those
currently in office are as set forth in Article IV, Section B of the foregoing
amendment and restatement of the charter.
SEVENTH: Immediately before the amendments to the charter of the
Corporation as hereinabove set forth, the total number of shares of stock of all
classes that the Corporation had authority to issue was three hundred twenty
million (320,000,000), of which three hundred million (300,000,000) were common
stock, $0.01 par value per share, and twenty million (20,000,000) were preferred
stock, $0.01 par value per share. The aggregate par value of all shares of all
classes was $3,200,000. After the amendments to the charter, the total number of
shares of stock of all classes that the Corporation has authority to issue is
four hundred fifty million (450,000,000), of which four hundred million
(400,000,000) shares are common stock, $.01 par value per share, and fifty
million (50,000,000) are preferred stock, $0.01 par value per share. The
aggregate par value of all shares of all classes is $4,500,000. The preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemptions of each class
were not changed by the amendments.
EIGHTH: The undersigned President acknowledges these Articles of Amendment
and Restatement to be the corporate act of the Corporation, and, as to all
matters or facts required to be verified under oath, the undersigned President
acknowledges that to the best of his knowledge,
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information and belief, these matters and facts are true in all material
respects and that this statement is made under the penalties for perjury. yes
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
and Restatement to be signed in its name and on its behalf by its President and
attested to by its Secretary on this day of , 2000.
<TABLE>
<S> <C>
ATTEST: PRISON REALTY TRUST, INC.
By: By:
------------------------------------------ ------------------------------------------ (seal)
Title: Secretary Title: President
</TABLE>
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<PAGE> 157
APPENDIX B
AGREEMENT AND PLAN OF MERGER
DATED AS OF JUNE 30, 2000,
BY AND AMONG
PRISON REALTY TRUST, INC. AND CCA ACQUISITION SUB, INC.,
AND
CORRECTIONS CORPORATION OF AMERICA.
<PAGE> 158
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I -- THE MERGER..................................................... B-2
Section 1.01 The Merger.................................................. B-2
Section 1.02 Closing..................................................... B-2
Section 1.03 Effective Time.............................................. B-2
Section 1.04 Effects of the Merger....................................... B-2
Section 1.05 Constituent Documents....................................... B-2
Section 1.06 Directors................................................... B-2
Section 1.07 Officers.................................................... B-2
ARTICLE II -- EFFECT OF THE MERGER ON THE CAPITAL SHARES, INDEBTEDNESS AND
AGREEMENTS OF THE CONSTITUENT ENTITIES; EXCHANGE OF
CERTIFICATES.................................................. B-3
Section 2.01 Effect on Capital Shares, Indebtedness and Agreements....... B-3
Section 2.02 Exchange of Certificates.................................... B-3
Section 2.03 Qualified Plans............................................. B-4
Section 2.04 Restricted Stock Plans...................................... B-5
Section 2.05 Warrants to Purchase CCA Common Stock....................... B-5
Section 2.06 Fractional Shares........................................... B-5
Section 2.07 Lost Certificates........................................... B-5
ARTICLE III -- REPRESENTATIONS AND WARRANTIES............................... B-6
Section 3.01 Representations and Warranties of Prison Realty............. B-6
Section 3.02 Representations and Warranties of CCA Sub................... B-21
Section 3.03 Representations and Warranties of CCA....................... B-23
ARTICLE IV -- COVENANTS RELATING TO CONDUCT OF BUSINESS..................... B-32
Section 4.01 Covenants of Prison Realty.................................. B-32
Section 4.02 Covenants of CCA Sub........................................ B-32
Section 4.03 Covenants of CCA............................................ B-32
Section 4.04 No Solicitation by Prison Realty............................ B-34
Section 4.05 No Solicitation by CCA...................................... B-35
ARTICLE V -- ADDITIONAL AGREEMENTS.......................................... B-36
Section 5.01 Preparation of the Proxy Statement and Registration
Statement................................................... B-36
Section 5.02 Access to Information....................................... B-37
Section 5.03 Shareholders' Meetings...................................... B-37
Section 5.04 Reasonable Best Efforts..................................... B-38
Section 5.05 Benefits Matters............................................ B-38
Section 5.06 Fees and Expenses........................................... B-38
Section 5.07 Indemnification, Exculpation and Insurance.................. B-38
Section 5.08 Transfer Taxes.............................................. B-39
Section 5.09 Stock Exchange Listing...................................... B-39
Section 5.10 Tax-Free Reorganization..................................... B-39
Section 5.11 Shareholders' Agreement..................................... B-39
Section 5.12 Lock-Up Agreement........................................... B-39
Section 5.13 Equity Incentive Plan....................................... B-39
Section 5.14 Change of Corporate Name.................................... B-39
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE VI -- CONDITIONS PRECEDENT.......................................... B-40
Section 6.01 Conditions to Each Party's Obligation To Effect the
Merger...................................................... B-40
Section 6.02 Conditions to Obligation of Prison Realty and CCA Sub To
Effect the Merger........................................... B-40
Section 6.03 Conditions to Obligation of CCA To Effect the Merger........ B-41
Section 6.04 Frustration of Closing Conditions........................... B-41
ARTICLE VII -- TERMINATION AND AMENDMENT.................................... B-42
Section 7.01 Termination................................................. B-42
Section 7.02 Effect of Termination....................................... B-43
Section 7.03 Amendment................................................... B-43
Section 7.04 Extension; Waiver........................................... B-43
Section 7.05 Procedure for Termination, Amendment, Extension or Waiver... B-43
ARTICLE VIII -- GENERAL PROVISIONS.......................................... B-43
Section 8.01 Nonsurvival of Representations and Warranties............... B-43
Section 8.02 Notices..................................................... B-43
Section 8.03 Definitions; Interpretation................................. B-44
Section 8.04 Counterparts................................................ B-45
Section 8.05 Entire Agreement; No Third-Party Beneficiaries; Rights of
Ownership................................................... B-45
Section 8.06 Governing Law............................................... B-45
Section 8.07 Publicity................................................... B-45
Section 8.08 Assignment.................................................. B-45
Section 8.09 Enforcement................................................. B-46
</TABLE>
EXHIBITS TO MERGER AGREEMENT
<TABLE>
<S> <C> <C>
Exhibit A -- Form of Lock-Up Agreement
</TABLE>
SCHEDULES TO MERGER AGREEMENT
<TABLE>
<S> <C> <C>
Schedule 1.06 -- Directors of Surviving Company
Schedule 1.07 -- Officers of Surviving Company
Schedule 3.01 -- Prison Realty Disclosure Schedule
Schedule 3.03 -- CCA Disclosure Schedule
</TABLE>
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<PAGE> 160
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of June 30, 2000 (the
"Agreement"), is by and among PRISON REALTY TRUST, INC., a Maryland corporation
("Prison Realty"), CCA ACQUISITION SUB, INC., a Tennessee corporation and a
wholly-owned subsidiary of Prison Realty ("CCA Sub"), and CORRECTIONS
CORPORATION OF AMERICA, a Tennessee corporation ("CCA").
WITNESSETH:
WHEREAS, the Boards of Directors of CCA, CCA Sub and Prison Realty have
approved the merger of CCA with and into CCA Sub (the "Merger") upon the terms
and subject to the conditions set forth in this Agreement;
WHEREAS, the Merger requires the approval by the affirmative vote of the
holders of eighty percent (80%) of the Class A common stock, $0.01 par value per
share (the "CCA Class A Common Stock"), and the Class B common stock, $0.01 par
value per share (the "CCA Class B Common Stock" and, together with the CCA Class
A Common Stock, the "CCA Common Stock"), of CCA, voting together as a single
class, as well as the separate consent of Baron Asset Fund ("Baron"), a
Massachusetts business trust and holder of approximately sixteen and nine-tenths
percent (16.9%) of the CCA Class A Common Stock (collectively, the "CCA
Shareholder Approval");
WHEREAS, in connection with the Merger, Prison Realty intends to amend and
restate its charter and intends to alter its operating structure such that
Prison Realty will not qualify as a real estate investment trust (a "REIT") as
defined by the Internal Revenue Code of 1986, as amended (the "Code"),
commencing with its taxable year ending December 31, 2000, which actions require
approval by the affirmative vote of the holders of two-thirds (2/3) of the
outstanding shares of common stock, $0.01 par value per share, of Prison Realty
(the "Prison Realty Common Stock") (the "Prison Realty Stockholder Approval");
WHEREAS, Prison Realty, CCA Sub and CCA desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
qualify as a reorganization within the meaning of Section 368(a) of the Code,
and this Agreement is intended to be and is adopted as a plan of reorganization
with respect to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
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ARTICLE I
THE MERGER
Section 1.01 The Merger. At the Effective Time (as defined in Section 1.03
herein) and subject to and upon the terms and conditions of this Agreement, and
in accordance with the Tennessee Business Corporation Act (the "TBCA"), CCA
shall be merged with and into CCA Sub, whereupon the separate corporate
existence of CCA shall cease and CCA Sub shall continue as the surviving
company. Following the Merger, CCA Sub (the "Surviving Company") shall succeed
to and assume all the rights and obligations of CCA in accordance with the TBCA.
Section 1.02 Closing. Unless this Agreement shall have been terminated and
the transactions contemplated herein abandoned pursuant to Section 7.01, and
subject to the satisfaction or waiver of the conditions set forth in Article VI,
the closing of the Merger (the "Closing") will take place at 10:00 a.m., local
time, on a date to be specified by the parties, which shall be no later than the
fifth business day following the satisfaction or waiver of all the conditions
set forth in Article VI herein which by their terms are capable of being
satisfied prior to the Closing (the "Closing Date"), at the offices of Stokes &
Bartholomew, P.A. in Nashville, Tennessee, unless another time, date or place is
agreed to by the parties hereto.
Section 1.03 Effective Time. Subject to the provisions of this Agreement,
as promptly as practicable on the Closing Date, articles of merger and all other
appropriate documents (in any such case, the "Articles of Merger") shall be duly
prepared, executed, acknowledged and filed by the parties in accordance with the
relevant provisions of the TBCA with the Secretary of State of the State of
Tennessee (the "Tennessee Secretary of State"). The Merger shall become
effective on the Closing Date at the time of day specified in the Articles of
Merger filed with the Tennessee Secretary of State (the "Effective Time").
Section 1.04 Effects of the Merger. At the Effective Time, the Merger
shall have the effects set forth in Section 48-21-108 of the TBCA. Without
limiting the foregoing, and subject thereto, at the Effective Time all the
property, rights, privileges, powers and franchises of CCA and CCA Sub shall
vest in the Surviving Company, and all debts, liabilities and duties of CCA and
CCA Sub shall become the debts, liabilities and duties of the Surviving Company.
Section 1.05 Constituent Documents.
(a) Charter. The charter of CCA Sub as in effect immediately prior to the
Effective Time shall continue to be the charter of the Surviving Company (with
such amendments as may be set forth in the Articles of Merger in accordance with
this Agreement) until thereafter changed or amended as provided therein or by
applicable law.
(b) Bylaws. The bylaws of CCA Sub as in effect immediately prior to the
Effective Time shall continue to be the bylaws of the Surviving Company until
thereafter changed or amended as provided therein or by applicable law.
Section 1.06 Directors. The persons named in Schedule 1.06 attached hereto
shall be the directors of the Surviving Company, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
Section 1.07 Officers. The persons named in Schedule 1.07 attached hereto
shall be the officers of the Surviving Company, serving in such capacity as is
set forth on Schedule 1.07 until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified, as the case
may be.
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ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL SHARES, INDEBTEDNESS AND
AGREEMENTS OF THE CONSTITUENT ENTITIES; EXCHANGE OF CERTIFICATES
Section 2.01 Effect on Capital Shares, Indebtedness and Agreements. By
virtue of the Merger and without any action on the part of Prison Realty, CCA
Sub, CCA or the holders of the Constituent Capital Stock (as defined herein):
(a) Cancellation of Certain Shares, Indebtedness and Agreements. As
of the Effective Time: (i) each share of Constituent Capital Stock that is
owned by any of the parties hereto or their Subsidiaries (as defined in
Section 8.03 herein) (except for any shares of Prison Realty Stock (as
defined in Section 3.01(c) herein) owned by CCA Sub which are to be
delivered as the CCA Merger Consideration) shall automatically be canceled
and retired and shall cease to exist, and no consideration shall be
delivered in exchange therefor; (ii) any indebtedness between any of the
parties hereto shall be canceled and shall cease to exist and no
consideration shall be delivered therefor; and (iii) all agreements between
any of the parties hereto shall be canceled and shall cease to exist. For
purposes hereof, the term "Constituent Capital Stock" means collectively
the Prison Realty Stock and the CCA Common Stock.
(b) Conversion of CCA Common Stock. As of the Effective Time, each
issued and outstanding share of CCA Common Stock (other than shares
canceled pursuant to subparagraph (a) above) shall be converted into the
right to receive that number of shares of Prison Realty Common Stock
(collectively, the "CCA Merger Consideration") determined by: (i)
multiplying $20,000,000 by a fraction, the numerator of which shall be the
total number of shares of CCA Common Stock outstanding immediately prior to
the Effective Time which are not to be canceled pursuant to subparagraph
(a) above, and the denominator of which shall be the total number of shares
of CCA Common Stock outstanding immediately prior to the Effective Time,
inclusive of shares which are to be canceled pursuant to subparagraph (a)
above; (ii) dividing the amount determined under clause (i) by the Prison
Realty Closing Price (as herein defined); and (iii) dividing the amount
determined under clause (ii) by the total number of shares of CCA Common
Stock outstanding immediately prior to the Effective Time which are not to
be canceled pursuant to subparagraph (a) above. All computations made in
accordance with the preceding sentence shall be rounded to two decimal
places. As of the Effective Time, each issued and outstanding share of CCA
Common Stock converted into Prison Realty Common Stock in accordance
herewith shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such shares of CCA Common Stock shall cease to have any
rights with respect thereto except the right to receive the CCA Merger
Consideration, without interest thereon. Shares of Prison Realty Common
Stock that are issued in exchange for shares of CCA Common Stock which are
subject to forfeiture under the CCA Restricted Stock Plan (as defined in
Section 2.04 herein) shall become subject to the terms and restrictions of
the Prison Realty Restricted Stock Plan (as defined in Section 2.04 herein)
in accordance with Section 2.04. All remaining shares of Prison Realty
Common Stock issued in the CCA Merger shall be subject to the terms and
conditions of a Lock-Up Agreement (as defined in Section 5.12 herein). For
purposes hereof, the term "Prison Realty Closing Price" means the average
closing price of Prison Realty Common Stock over the five trading days
ending two trading days prior to the Closing Date.
Section 2.02 Exchange of Certificates.
(a) Exchange. Immediately after the Effective Time, Prison Realty shall
exchange certificates representing CCA Common Stock (each, a "CCA Certificate"
and, collectively, the "CCA
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Certificates") for the CCA Merger Consideration. Promptly after the Effective
Time, Prison Realty shall send to each holder of shares of CCA Common Stock
(other than Prison Realty or any of its Subsidiaries) at the Effective Time a
letter of transmittal for use in such exchange (which shall specify that the
delivery shall be effected, and risk of loss and title shall pass, only upon
proper delivery of the CCA Certificates to Prison Realty) and instructions for
use in effecting the surrender of the CCA Certificates for payment therefor.
(b) Exchange of Certificates. Each holder of shares of CCA Common Stock
that have been converted into the right to receive the CCA Merger Consideration
will be entitled to receive, upon surrender to Prison Realty of a CCA
Certificate, together with a properly completed letter of transmittal, the CCA
Merger Consideration in respect of each share of CCA Common Stock represented by
such CCA Certificate. Until so surrendered, each such CCA Certificate shall,
after the Effective Time, represent for all purposes only the right to receive
such CCA Merger Consideration.
(c) Form of Certain Transfers. If any portion of the CCA Merger
Consideration is to be paid to a person (as defined in Section 8.03 herein)
other than the person in whose name a CCA Certificate is registered, it shall be
a condition to such payment that the CCA Certificate so surrendered shall be
properly endorsed or otherwise be in proper form for transfer and that the
person requesting such payment shall pay to Prison Realty any transfer or other
taxes required as a result of such payment to a person other than the registered
holder of such CCA Certificate or establish to the satisfaction of Prison Realty
that such tax has been paid or is not payable.
(d) Transfers After the Effective Time. After the Effective Time, there
shall be no further registration of transfers of shares of CCA Common Stock. If,
after the Effective Time, CCA Certificates are presented to Prison Realty or the
Surviving Company, they shall be canceled and promptly exchanged for the
consideration provided for, in accordance with the procedures set forth in this
Article.
(e) Unclaimed Shares. Neither Prison Realty nor the Surviving Company
shall be liable to any holder of CCA Common Stock for any amount paid to a
public official pursuant to applicable abandoned property laws.
(f) Dividends. No dividends, interest or other distributions with respect
to securities of Prison Realty constituting part of the CCA Merger Consideration
shall be paid to the holder of any unsurrendered CCA Certificates until such CCA
Certificates are surrendered as provided in this Section. Upon such surrender,
there shall be paid, without interest, to the person in whose name the
securities of Prison Realty have been registered, all dividends, interest and
other distributions payable in respect of such securities on a date subsequent
to, and in respect of a record date after, the Effective Time.
Section 2.03 Qualified Plans. As of the Effective Time, Prison Realty
shall adopt the Corrections Corporation of America 401(k) Savings and Retirement
Plan (the "CCA 401(k) Plan"), and shall cause benefits under the Prison Realty
401(k) Savings and Retirement Plan (the "Prison Realty 401(k) Plan") to cease to
accrue. After the Effective Time, the Prison Realty 401(k) Plan and the CCA
Prison Realty Trust Employee Savings and Stock Ownership Plan (the "Prison
Realty ESOP") (the benefits under which ceased to accrue as of December 31,
1998) may, at the discretion of Prison Realty, be maintained as frozen plans in
compliance with applicable law. Prior to the Effective Time, Prison Realty and
CCA shall take all actions (including, if appropriate, amending the terms of the
CCA 401(k) Plan, the Prison Realty 401(k) Plan and the Prison Realty ESOP) that
are necessary to give effect to the transactions contemplated by this Section.
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Section 2.04 Restricted Stock Plans. As of the Effective Time, the
Correctional Management Services Corporation 1998 Restricted Stock Plan (the
"CCA Restricted Stock Plan") shall be merged into a new restricted stock plan
(the "Prison Realty Restricted Stock Plan") with terms and conditions similar to
those of the CCA Restricted Stock Plans, except that any shares forfeited under
the Prison Realty Restricted Stock Plan shall be forfeited to all plan
participants. Prison Realty, CCA Sub and CCA shall take all actions that are
necessary to give effect to the transactions contemplated by this Section.
Section 2.05 Warrants to Purchase CCA Common Stock. At the Effective Time,
each warrant to purchase shares of CCA Common Stock (the "CCA Warrants"),
whether or not exercisable, shall be deemed to constitute a warrant to acquire,
on substantially the same terms and conditions as were applicable to the
original warrant to which it relates (a "Substitute Warrant"), the same number
of shares of Prison Realty Common Stock as the holder of such warrant would have
been entitled to receive pursuant to the Merger had such holder exercised such
CCA Warrant in full immediately prior to the Effective Time, at a price per
share of Prison Realty Common Stock computed in compliance with the terms of
such CCA Warrant; provided, however, that the number of shares of Prison Realty
Common Stock that may be purchased upon exercise of such Substitute Warrant
shall not include any fractional share. Prior to the Effective Time, CCA will
use its best efforts to obtain such consents, if any, as may be necessary to
give effect to the transactions contemplated by this Section. In addition, prior
to the Effective Time, CCA will use its best efforts to make any amendments to
the terms of the CCA Warrants that are necessary to give effect to the
transactions contemplated by this Section. Except as contemplated by this
Section, CCA will not, after the date hereof, without the written consent of
Prison Realty, amend any outstanding CCA Warrants. Prison Realty, CCA Sub and
CCA shall take all actions that are necessary to give effect to the transactions
contemplated by this Section, including without limitation such actions, if any,
as are described in the CCA Warrants.
Section 2.06 Fractional Shares. No fractional shares of Prison Realty
Common Stock shall be issued to shareholders of CCA in connection with the
Merger, but in lieu thereof each holder of shares of CCA Common Stock otherwise
entitled to receive as a result of the Merger a fractional share of Prison
Realty Common Stock shall be entitled to receive a cash payment (without
interest), rounded to the nearest cent, representing such holder's proportionate
interest in the net proceeds resulting from the sale (after deduction of all
expenses resulting from such sale) on the New York Stock Exchange ("NYSE")
through one or more of its member firms of the fractional shares of Prison
Realty Common Stock all holders of shares of CCA Common Stock would otherwise be
entitled to receive as a result of the Merger.
Section 2.07 Lost Certificates. If any CCA Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such CCA Certificate to be lost, stolen or destroyed and, if
required by the Surviving Company, the posting by such person of a bond, in such
reasonable amount as the Surviving Company may direct, as indemnity against any
claim that may be made against it with respect to such CCA Certificate, Prison
Realty (or its duly appointed transfer agent) will issue in exchange for such
lost, stolen or destroyed CCA Certificate the CCA Merger Consideration to be
paid in respect of the shares represented by such CCA Certificates as
contemplated by this Article.
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Article III
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of Prison Realty. Except as
set forth in Prison Realty SEC Documents (as defined in Section 3.01(e) herein)
filed with the Securities and Exchange Commission (the "SEC") and publicly
available prior to the date hereof (the "Prison Realty Filed SEC Documents") or
on the Disclosure Schedule delivered by Prison Realty to CCA prior to the
execution of this Agreement (the "Prison Realty Disclosure Schedule"), which
Prison Realty Disclosure Schedule constitutes a part hereof and is true and
correct in all material respects, Prison Realty hereby represents and warrants
to CCA as follows:
(a) Organization and Authority. Prison Realty is a corporation duly
incorporated and validly existing and in good standing under the laws of
the State of Maryland with full corporate power and authority to own its
properties and conduct its business as now conducted and is duly qualified
or authorized to do business and is in good standing in all jurisdictions
where the failure to so qualify could have a material adverse effect (as
defined in Section 8.03 herein). Prison Realty has all requisite corporate
power and authority, and has been duly authorized by all necessary
consents, approvals, authorizations, orders, registrations, qualifications,
licenses and permits of and from all public, regulatory or governmental
agencies and bodies, to own, lease and operate its assets and properties
and to conduct its business as it is now being conducted and is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the failure to do so could have a material adverse
effect upon the conduct of its business or the ownership or leasing of
property by it in such jurisdiction.
(b) Subsidiaries.
(i) Except for CCA Sub, the only direct or indirect Subsidiaries of
Prison Realty are those listed in Section 3.01(b) of the Prison Realty
Disclosure Schedule. Except for Prison Realty's ownership of all of the
issued and outstanding common stock of CCA Sub and except for the
ownership interests set forth in Section 3.01(b) of the Prison Realty
Disclosure Schedule, Prison Realty does not own or control, directly or
indirectly, a 50% or greater capital stock interest in a corporation, a
general partnership interest or a 50% or greater limited partnership
interest in a partnership, or a managing membership interest or a 50% or
greater membership interest in a limited liability company, association
or other entity or project.
(ii) Except for CCA Sub or the entities listed in Section 3.01(b)
of the Prison Realty Disclosure Schedule, Prison Realty does not hold,
directly or indirectly, any equity interest or equity investment in any
corporation, partnership, association or other entity.
(iii) Except as set forth in Section 3.01(b) of the Prison Realty
Disclosure Schedule, all of the issued and outstanding shares of capital
stock of, or other equity interests in, each Subsidiary of Prison Realty
have been validly issued, are fully paid and nonassessable and are
owned, directly or indirectly, by Prison Realty free and clear of any
Liens (as hereinafter defined) and there are no outstanding
subscriptions, options, calls, contracts, voting trusts, proxies or
other commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement, obligating any
Subsidiary of Prison Realty to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of its capital stock or
obligating it to grant, extend or enter into any such agreement or
commitment.
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(c) Capital Structure of Prison Realty. The authorized stock of
Prison Realty consists of 300,000,000 shares of Prison Realty Common Stock
and 20,000,000 shares of preferred stock, $0.01 par value per share, of
Prison Realty, of which 4,300,000 shares have been designated Series A
Preferred Stock (the "Prison Realty Series A Preferred Stock" and,
collectively with the Prison Realty Common Stock, the "Prison Realty
Stock"). At the close of business on June 22, 2000, (A) 118,409,619 shares
of Prison Realty Common Stock were outstanding, (B) 4,300,000 shares of
Prison Realty Series A Preferred Stock were outstanding, (C) options
("Prison Realty Options") to acquire 2,396,734 shares of Prison Realty
Common Stock from Prison Realty pursuant to Prison Realty's equity
incentive plans ("Prison Realty Stock Plans") listed on the Prison Realty
Disclosure Schedule were outstanding, (D) 294,897 deferred share awards
("Prison Realty Deferred Share Awards") granted pursuant to Prison Realty
Stock Plans were outstanding, (E) subordinated notes ("Prison Realty
Notes") convertible into 2,962,336 shares of Prison Realty Common Stock
were outstanding, and (F) options to purchase 70,000 shares of Prison
Realty Common Stock not granted under any equity incentive plan to Joseph
F. Johnson, Jr. (the "Johnson Option"), as set forth in Section 3.01(c) of
the Prison Realty Disclosure Schedule, were outstanding. Other than as set
forth above, at the close of business on June 22, 2000, there were
outstanding no shares of Prison Realty Stock or any other class or series
of stock of Prison Realty or options, warrants or other rights to acquire
Prison Realty Stock or any other class or series of stock of Prison Realty
from Prison Realty. No bonds, debentures, notes or other indebtedness
having the right to vote (or convertible into or exchangeable for
securities having the right to vote) on any matters on which stockholders
of Prison Realty may vote are issued or outstanding, except the Prison
Realty Notes.
All outstanding shares of Prison Realty Stock are, and any shares of Prison
Realty Common Stock which may be issued upon the exercise of Prison Realty
Options, the vesting of the Prison Realty Deferred Share Awards, the conversion
of the Prison Realty Notes or the exercise of the Johnson Option when issued
will be, duly authorized, validly issued, fully paid and nonassessable, and will
be delivered free and clear of all claims, mortgages, deeds of trust, charges,
liens, encumbrances, pledges or security interests of any kind or nature
whatsoever (collectively, "Liens") and are not now in violation of or subject to
any preemptive rights or other rights to subscribe for or purchase securities
and conform to the description thereof in the Prison Realty Filed SEC Documents.
Other than as set forth above, and except for this Agreement, the Prison Realty
Stock Plans, the Prison Realty Options, the Prison Realty Deferred Share Awards,
the Prison Realty Notes and the Johnson Option, there are no outstanding
securities, options, warrants, calls, rights, commitments, agreements or
undertakings of any kind to which Prison Realty or any of its Subsidiaries is a
party or by which Prison Realty or any of its Subsidiaries is bound obligating
Prison Realty or any of its Subsidiaries to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock or other equity
or voting securities of Prison Realty or of any Subsidiary of Prison Realty or
obligating Prison Realty or any of its Subsidiaries to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement or undertaking. There are no outstanding obligations of Prison Realty
or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares
of capital stock of Prison Realty or any of its Subsidiaries and, to the
knowledge of the executive officers of Prison Realty, as of the date hereof, no
irrevocable proxies have been granted with respect to shares of Prison Realty
Common Stock or equity of Subsidiaries of Prison Realty.
(d) Authorization. Prison Realty has all requisite corporate power
and authority to enter into this Agreement and, subject to obtaining the
Prison Realty Stockholder Approval, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Prison Realty,
subject to obtaining the Prison Realty Stockholder Approval. This Agreement
has been duly executed and delivered by
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Prison Realty and constitutes a valid and binding obligation of Prison
Realty, enforceable against Prison Realty in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, fraudulent transfer and other similar laws from time
to time in effect. The execution and delivery of this Agreement does not,
and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any breach or violation of, or default (with or
without notice or lapse of time or both) under, or result in the
termination of, or accelerate the performance required by, or give rise to
a right of termination, cancellation or acceleration of any obligation
under, or the creation of a Lien pursuant to, (i) any provision of the
charter (or similar organizational documents) or bylaws of Prison Realty or
any of its Subsidiaries or (ii) subject to obtaining or making the
consents, approvals, orders, authorizations, registrations, declarations
and filings referred to in the following sentence, any loan or credit
agreement, note, mortgage, indenture, lease, Prison Realty Stock Plan or
other agreement, obligation, instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Prison Realty or any of its Subsidiaries or their
respective properties or assets, in any case under this clause (ii) which
would, individually or in the aggregate, have a material adverse effect on
Prison Realty. No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency
or commission or other governmental authority or instrumentality (a
"Governmental Entity") is required by or with respect to Prison Realty or
any of its Subsidiaries in connection with the execution and delivery of
this Agreement by Prison Realty or the consummation by Prison Realty of the
transactions contemplated hereby, the failure of which to be obtained or
made would, individually or in the aggregate, have a material adverse
effect on Prison Realty or would prevent or materially delay the
consummation of the transactions contemplated hereby, except for (A) the
filing with the SEC of: (i) a proxy statement relating to the consideration
of the transaction contemplated by this Agreement at a meeting of the
stockholders of Prison Realty (the "Prison Realty Stockholders' Meeting")
duly called and convened to consider the approval of such transaction, as
amended or supplemented from time to time (the "Proxy Statement"); (ii) a
registration statement relating to the issuance of shares of Prison Realty
Stock in the Merger, which shall also contain a proxy statement-prospectus
relating to the consideration of the transaction contemplated by this
Agreement at a meeting of the shareholders of CCA (the "CCA Shareholders'
Meeting") duly called and convened to consider the approval of such
transaction, as amended and supplemented from time to time (the
"Registration Statement"); and (iii) such reports under the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder (the "Exchange Act"), as may be required in connection with this
Agreement and the transaction contemplated hereby, (B) the filing of the
Articles of Merger with the Tennessee Secretary of State and appropriate
documents with the relevant authorities of other states in which Prison
Realty is qualified to do business, (C) filings required pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations promulgated thereunder (the "HSR Act"), (D) filings
necessary to satisfy the applicable requirements of state securities or
"blue sky" laws, (E) filings required under the rules and regulations of
the New York Stock Exchange (the "NYSE") and (F) filings required pursuant
to Prison Realty's leases and related agreements with Governmental
Entities, which are set forth on the Prison Realty Disclosure Schedule
(collectively, the "Required Filings").
(e) SEC Documents; Financial Statements. Prison Realty has timely
filed all forms, reports, schedules, registration statements, definitive
proxy statements and other documents required to be filed by Prison Realty
with the SEC since January 1, 1999 (the "Prison Realty SEC Documents"). As
of their respective dates, the Prison Realty SEC Documents complied in all
material respects with the requirements of the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the
"Securities Act") and the Exchange Act, as
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the case may be, applicable to such Prison Realty SEC Documents. None of
the Prison Realty SEC Documents when filed contained any untrue statement
of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Prison Realty and its Subsidiaries are not parties to or otherwise subject
to any contracts or other agreements that were or are required to be filed
as exhibits to, or otherwise disclosed in, the Prison Realty Filed SEC
Documents and have not been so filed or disclosed. The financial statements
of Prison Realty included in the Prison Realty SEC Documents (the "Prison
Realty Financial Statements") comply as to form in all material respects
with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis ("GAAP") during the periods involved and fairly present in
all material respects the consolidated financial position of Prison Realty
and its consolidated Subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the periods
then ended. Except as set forth in the Prison Realty Filed SEC Documents
(including any item accounted for in the financial statements contained in
the Prison Realty Filed SEC Documents or set forth in the notes thereto)
and except for the effect of the contemplated transactions under this
Agreement and related agreements, since March 31, 2000, (i) neither Prison
Realty nor any of its Subsidiaries has incurred any claims, liabilities or
obligations of any nature (whether accrued, absolute, contingent or
otherwise) which, individually or in the aggregate, would have a material
adverse effect on Prison Realty (other than claims, liabilities or
obligations contemplated by this Agreement or expressly permitted to be
incurred pursuant to this Agreement), and (ii) Prison Realty and each of
its Subsidiaries have conducted their respective businesses only in the
ordinary course consistent with past practice.
(f) Information Supplied. None of (i) the information supplied or to
be supplied by Prison Realty specifically for inclusion or incorporation by
reference in the Proxy Statement, at the date it is first mailed to
stockholders of Prison Realty or at the time of the Prison Realty
Stockholders' Meeting, and (ii) the information supplied or to be supplied
by Prison Realty specifically for inclusion or incorporation by reference
in the Registration Statement, at the date the proxy statement-prospectus
comprising a portion of the Registration Statement is first mailed to
shareholders of CCA or at the time of the CCA Shareholders' Meeting, will
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, except that in each case no representation or
warranty is made by Prison Realty with respect to statements made or
incorporated by reference therein based on information supplied by CCA,
Prison Management Services, Inc., a Tennessee corporation ("PMSI"), or
Juvenile and Jail Facility Management Services, Inc., a Tennessee
corporation ("JJFMSI"), specifically for inclusion or incorporation by
reference therein. The Proxy Statement and the Registration Statement will
comply as to form in all material respects with the requirements of the
Exchange Act and the Securities Act, except that in each case no
representation or warranty is made by Prison Realty with respect to
statements made or incorporated by reference therein based on information
supplied by CCA, PMSI or JJFMSI for inclusion or incorporation by reference
therein. If at any time prior to the date of the Prison Realty
Stockholders' Meeting or the CCA Shareholders' Meeting, any event with
respect to Prison Realty, or with respect to information supplied by Prison
Realty specifically for inclusion in the Proxy Statement or the
Registration Statement, shall occur which is required to be described in an
amendment of, or supplement to, the Proxy Statement or the Registration
Statement, such event shall be so described by Prison Realty.
(g) Proxy Statement and Registration Statement. The Proxy Statement
and Registration Statement to be filed with the SEC with respect to the
Merger and the offering of Prison Realty
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Stock in connection with the Merger, and any amendments or supplements
thereto, will, when filed, comply as to form in all material respects with
the applicable requirements of the Securities Act and Exchange Act. At the
time the Proxy Statement, or any amendment or supplement thereto, is
cleared by the SEC and at the time the Registration Statement, or any
amendment or supplement thereto, becomes effective, and at the Effective
Time, the Proxy Statement and the Registration Statement, each as amended
or supplemented, if applicable, shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements contained therein not
misleading. The foregoing representations and warranties will not apply to
statements or omissions included in the Proxy Statement or the Registration
Statement or any amendment or supplement thereto based upon information
furnished by CCA for use therein.
(h) Absence of Certain Changes or Events. Except for the effect of
the contemplated transaction under this Agreement and related agreements,
subsequent to March 31, 2000, neither Prison Realty nor any Subsidiary has
sustained any material loss or interference with its business or properties
from fire, flood, hurricane, accident or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, which is not disclosed in the Prison Realty
Disclosure Schedule; and subsequent to the respective dates as of which
information is given in the Prison Realty Filed SEC Documents, (i) neither
Prison Realty nor any Subsidiary has incurred any material liabilities or
obligations, direct or contingent, or entered into any transactions not in
the ordinary course of business consistent with past practice, and (ii)
there has not been any issuance of options, warrants or rights to purchase
Prison Realty Stock or any interests therein, or any adverse change, in the
general affairs, management, business, prospects, financial position, net
worth or results of operations of Prison Realty or any Subsidiary.
(i) Compliance with Laws; Litigation. Except as described in the
Prison Realty Disclosure Schedule or the Prison Realty Filed SEC Documents,
there are no claims, actions, suits, arbitration, grievances, proceedings
or investigations pending or, to Prison Realty's knowledge, threatened,
against Prison Realty or any Subsidiary, or any properties or rights of
Prison Realty or any Subsidiary, or any officers or directors of Prison
Realty or any Subsidiary in their capacity as such, by or before any
Governmental Entity which, individually or in the aggregate, is reasonably
likely to have a material adverse effect on Prison Realty or prevent,
materially delay or intentionally delay the ability of Prison Realty to
consummate the transactions contemplated hereby. Neither Prison Realty nor
its Subsidiaries is subject to any judgment, order or decree which could
reasonably be expected to result in a material adverse effect.
Prison Realty and its Subsidiaries have at all times operated and
currently operate their business in conformity in all material respects
with all applicable statutes, common laws, ordinances, decrees, orders,
rules and regulations of Governmental Entities. Prison Realty and each of
its Subsidiaries has all licenses, approvals or consents to operate its
businesses in all locations in which such businesses are currently being
operated, and to its knowledge is not aware of any existing or imminent
matter which may materially adversely impact its operations or business
prospects other than as specifically disclosed in the Prison Realty Filed
SEC Documents or the Prison Realty Disclosure Schedule. None of Prison
Realty or its Subsidiaries have failed to file with the applicable
regulatory authorities any material statements, reports, information or
forms required by all applicable laws, regulations or orders; all such
filings or submissions were in material compliance with applicable laws
when filed, and no material deficiencies have been asserted by any
regulatory commission, agency or authority with respect to such filings or
submissions. None of Prison Realty or its Subsidiaries have failed to
maintain in full force and effect any material licenses, registrations or
permits necessary or proper for the
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conduct of its business, or received any notification that any revocation
or limitation thereof is threatened or pending, and there is not to the
knowledge of Prison Realty pending any change under any law, regulation,
license or permit which would materially adversely affect the business,
operations, property or business prospects of Prison Realty. None of Prison
Realty or its Subsidiaries have received any notice of violation of or been
threatened with a charge of violating or are under investigation with
respect to a possible violation of any provision of any law, regulation or
order. Neither Prison Realty nor any of its Subsidiaries has at any time
(i) made any unlawful contribution to any candidate for domestic or foreign
office or failed to disclose fully any contribution in violation of law or
(ii) made any payment to any federal or state governmental officer or
official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
(j) Taxes.
(i) Prison Realty has timely filed (or there have been filed on its
behalf) all Tax Returns required to be filed by it under applicable law,
and all such Tax Returns were and are true, complete and correct in all
material respects. Except to the extent adequately reserved for in
accordance with GAAP and reflected on the most recent balance sheets of
Prison Realty contained in the Prison Realty Filed SEC Documents, all
Taxes due and payable by Prison Realty have been timely paid in full.
(ii) There are no Tax liens upon the assets of Prison Realty except
liens for Taxes not yet due.
(iii) Prison Realty has complied with the provisions of the Code
relating to the withholding of Taxes, as well as similar provisions
under any other laws, and has, within the time and in the manner
prescribed by law, withheld, collected and paid over to the proper
governmental authorities all amounts required.
(iv) No audits or other administrative proceedings or court
proceedings are presently pending or, to the knowledge of Prison Realty,
asserted with regard to any Taxes or Tax Returns of Prison Realty.
(v) Prison Realty has not received a written ruling of a taxing
authority relating to Taxes or entered into a written and legally
binding agreement with a taxing authority relating to Taxes with any
taxing authority.
(vi) Except with respect to Prison Realty's election to be taxed as
a REIT with respect to its taxable year ended December 31, 1999, Prison
Realty has not requested any extension of time within which to file any
Tax Return, which Tax Return has not since been filed.
(vii) Prison Realty has not agreed to and is not required to make
any adjustment pursuant to Section 481(a) of the Code (or any
predecessor provision) by reason of any change in any accounting method
of Prison Realty, and there is no application pending with any taxing
authority requesting permission for any changes in any accounting method
of Prison Realty. To the knowledge of Prison Realty, the Internal
Revenue Service (the "IRS") has not proposed any such adjustment or
change in accounting method.
(viii) Prison Realty has not joined in the filing of a consolidated
return for federal income tax purposes. Prison Realty is not and has
never been subject to the provisions of Section 1503(f) of the Code.
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(ix) Prison Realty is not a party to any agreement providing for
the allocation or sharing of Taxes or indemnification by Prison Realty
of any other person in respect of Taxes.
(x) Prison Realty is not a party to any agreement, contract, or
arrangement that would result, individually or in the aggregate, in the
payment of any "excess parachute payments" within the meaning of Section
280G of the Code.
(xi) To the knowledge of Prison Realty, Prison Realty does not
have, nor has it ever had, any income which is includable in computing
the taxable income of a United States person (as determined under
Section 7701 of the Code) under Section 951 of the Code. To the
knowledge of Prison Realty, none of the Subsidiaries of Prison Realty is
or has ever been a "passive foreign investment company" within the
meaning of Section 1297 of the Code. To the knowledge of Prison Realty,
Prison Realty is not and never has been a "personal holding company"
within the meaning of Section 542 of the Code. To the knowledge of
Prison Realty, there are no gain recognition agreements, within the
meaning of Treasury Regulation 1.367(a)-8 or any predecessor provision,
between Prison Realty, on one hand, and a stockholder of Prison Realty,
on the other. There is no pending or, to the knowledge of Prison Realty,
threatened, action, proceeding or investigation by any taxing authority
for assessment or collection of Taxes with respect to Prison Realty in
any jurisdiction where Prison Realty has not filed a Tax Return. All
dealings and arrangements between and among Prison Realty and its
Subsidiaries are at arm's length and consistent with arm's length
dealings and arrangements between or among unrelated, uncontrolled
taxpayers.
(xii) Each Subsidiary which is a partnership, joint venture or
limited liability company has been treated since its formation, and
continues to be treated for federal income tax purposes, as a
partnership or as a disregarded entity, and not as a corporation or as
an association taxable as a corporation.
(xiii) For purposes of this Section 3.01(j), other than Section
3.01(j)(xii), all representations and warranties with respect to Prison
Realty are deemed to include and to apply to each of its Subsidiaries
and predecessors (and the Subsidiaries of such predecessors). For
purposes of this Section 3.01(j), the term "predecessors" shall include,
without limitation, Corrections Corporation of America, a Tennessee
corporation ("Old CCA"), and CCA Prison Realty Trust, a Maryland real
estate investment trust ("Old Prison Realty"), which entities merged
with and into Prison Realty on December 31, 1998 and January 1, 1999,
respectively.
(xiv) For each of its taxable years, Old Prison Realty was
organized, operated and duly qualified as a REIT under Section 856 of
the Code.
(xv) As used in this Agreement, (A) the term "Taxes" means any
federal, state, county, local or foreign taxes, charges, fees, levies or
other assessments, including all net income, gross income, sales and
use, ad valorem, transfer, gains, profits, excise, franchise, real and
personal property, gross receipt, capital stock, production, business
and occupation, disability, employment, payroll, license, estimated,
stamp, custom duties, severance or withholding taxes or charges imposed
by any governmental entity, and includes any interest and penalties
(civil or criminal) on or additions to any such taxes, and (B) the term
"Tax Return" means a report, return or other information required to be
supplied to a governmental entity with respect to Taxes including, where
permitted or required, combined or consolidated returns.
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(k) No Defaults. Except for violations or defaults which,
individually or in the aggregate, would not have a material adverse effect,
or for which valid waivers have been obtained by Prison Realty or its
Subsidiaries, neither Prison Realty nor any of its Subsidiaries is in
violation or default under any provision of its charter, by-laws,
partnership agreements or other governing or organizational documents, or
is in breach of or default with respect to any provision of any note, bond,
agreement, judgment, decree, order, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which it is a
party or by which it or any of its properties are bound; and there does not
exist any state of facts which would constitute an event of default on the
part of any of Prison Realty or its Subsidiaries as defined in such
documents which, with notice or lapse of time or both, would constitute a
default. Neither Prison Realty nor any of its Subsidiaries is a party to
any contract (other than leases) containing any covenant restricting its
ability to conduct its business as currently conducted except for any such
covenants that would not, individually or in the aggregate, have a material
adverse effect on Prison Realty.
(l) Properties.
(i) Prison Realty Real Property. For purposes of this Agreement,
"Prison Realty Permitted Liens" means (a) mechanics', carriers',
workers', repairers', materialmen's, warehousemen's and other similar
Liens arising or incurred in the ordinary course of business for sums
not yet due and payable and such Liens as are being contested by Prison
Realty in good faith, (b) Liens for current Taxes not yet due or
payable, (c) any covenants, conditions, restrictions, reservations,
rights, Liens, easements, encumbrances, encroachments and other matters
affecting title which are shown as exceptions on Prison Realty's title
insurance policies and/or title commitments or reports which have been
made available to CCA and (d) any other covenants, conditions,
restrictions, reservations, rights, non-monetary Liens, easements,
encumbrances, encroachments and other matters affecting title which
would not individually or in the aggregate, be reasonably expected to
have a material adverse effect. "Prison Realty Leases" means the real
property leases, subleases, licenses and use or occupancy agreements
pursuant to which Prison Realty or any of its Subsidiaries is the
lessee, sublessee, licensee, user or occupant of real property other
than the Prison Realty Owned Real Property, or interests therein
necessary for the conduct of, or otherwise material to, the business of
Prison Realty and its Subsidiaries as it is currently conducted. "Prison
Realty Leased Real Property" means all interests in real property
pursuant to the Prison Realty Leases. "Prison Realty Owned Real
Property" means the real property owned in fee by Prison Realty and its
Subsidiaries necessary for the conduct of, or otherwise material to, the
business of Prison Realty and its Subsidiaries as it is currently
conducted. "Prison Realty Real Property" means, collectively, the Prison
Realty Owned Real Property and the Prison Realty Leased Real Property.
The Prison Realty Filed SEC Documents describe all material Prison
Realty Real Property. Except as disclosed therein, or in the title
insurance policies relating to the Prison Realty Real Property or in the
Prison Realty Disclosure Schedule, each of Prison Realty and its
Subsidiaries has good, valid and marketable title to the Prison Realty
Real Property free of all Liens, in each case except Prison Realty
Permitted Liens. Except as set forth in Section 3.01(l)(i) of the Prison
Realty Disclosure Schedule, there are no outstanding contracts for the
sale of any of the Prison Realty Real Property, except those contracts
relating to Prison Realty Real Property the value in respect of which
does not exceed $5,000,000 individually or $15,000,000 in the aggregate.
Except for such exceptions as would not, in the aggregate, have a
material adverse effect, (a) each Prison Realty Lease is valid and
binding upon Prison Realty and its Subsidiaries and in full force and
effect and grants the lessee under the Prison Realty Lease the exclusive
right to use and occupy the premises, and (b) either Prison Realty or
its Subsidiaries has good and valid title to the leasehold estate or
other interest created under
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the Prison Realty Leases. No non-monetary defaults exist under the
Prison Realty Leases which, individually or in the aggregate, would have
a material adverse effect. The use and operation of the Prison Realty
Real Property in the conduct of the business of Prison Realty and its
Subsidiaries does not violate any instrument of record or agreement
affecting the Prison Realty Real Property, except for such violations
that, individually or in the aggregate, would not reasonably be expected
to have a material adverse effect. Valid policies of title insurance
have been issued insuring Prison Realty's or, if applicable, its
Subsidiary's, fee simple title to the Prison Realty Owned Real Property
owned by it, subject only to Prison Realty Permitted Liens, except where
the failure of such policies to be in full force and effect would not
reasonably be expected, in the aggregate, to have a material adverse
effect. To the best knowledge of Prison Realty, such policies are, at
the date hereof, in full force and effect, except where the failure to
have such valid policies of title insurance would not reasonably be
expected, in the aggregate, to have a material adverse effect. To the
best knowledge of Prison Realty, no material claim has been made against
any such policy. Except as provided in Schedule 3.01(l) of the Prison
Realty Disclosure Schedule, Prison Realty and its Subsidiaries have no
knowledge (a) that any certificate, permit or license from any
Governmental Entity having jurisdiction over any of the Prison Realty
Real Property or any agreement, easement or other right which is
necessary to permit the lawful use and operation of the buildings and
improvements on any of the Prison Realty Real Property or which is
necessary to permit the lawful use and operation of all driveways, roads
and other means of egress and ingress to and from any of the Prison
Realty Real Property has not been obtained and is not in full force and
effect, or of any pending threat of modification or cancellation of any
of the same which would have a material adverse effect, (b) of any
written notice of any violation of any federal, state or municipal law,
ordinance, order, regulation or requirement issued by any Governmental
Entity having a material adverse effect, (c) of any structural defects
relating to any Prison Realty Real Property which would have a material
adverse effect, (d) of any Prison Realty Real Property whose building
systems are not in working order so as to have a material adverse
effect, or (e) of any physical damage to any Prison Realty Real Property
which would have a material adverse effect for which there is no
insurance in effect covering the cost of the restoration. "Prison Realty
Space Lease" means each lease or other right of occupancy affecting or
relating to a property in which Prison Realty or its Subsidiaries (or an
entity in which it directly or indirectly has an interest) is the
landlord, either pursuant to the terms of a lease agreement or as
successor to any prior landlord. No default exists under any Prison
Realty Space Lease, except for such defaults as would, individually or
in the aggregate, not reasonably be expected to have a material adverse
effect.
(ii) Improvements Under Construction. With respect to those
Improvements (as defined herein) being constructed or under development
and located on any Prison Realty Real Property as set forth in the
Prison Realty Disclosure Schedule, to the knowledge of Prison Realty:
(a) the budget for the construction of the Improvements fairly and
accurately reflects Prison Realty's good faith estimate of the costs and
expenses shown thereon reasonably necessary to develop and construct the
Improvements in accordance with the plans and specifications therefor,
and Prison Realty has strictly adhered to said budget in all material
respects and has permitted no material deviations from said budget or
the plans and specifications for the Improvements; (b) the plans and
specifications for the Improvements have been approved by all applicable
Governmental Entities having jurisdiction over the Prison Realty Real
Property, the development and construction of the Improvements and the
use and occupancy thereof for its intended purposes, and/or any utility
services to the Prison Realty Real Property; (c) all utility services
necessary for the development and construction of the Improvements and
the use and occupancy thereof for
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its intended purposes are available through public or private easements
or rights-of-way at the boundaries of the Prison Realty Real Property,
including, without limitation, sanitary sewer, electricity, gas, water,
telephone, and storm water drainage; (d) all roads necessary for ingress
and egress to the Prison Realty Real Property, and for the full
utilization of the Prison Realty Real Property for its intended
purposes, have either been completed pursuant to public or private
easements, or the necessary rights-of-way therefor have been dedicated
to public use and accepted by the appropriate Governmental Entity; (e)
all building permits, curb cuts, sewer and water taps, and other
permits, licenses, approvals, authorizations and consents required for
the development and construction of the Improvements have been obtained;
(f) the plans and specifications for the Improvements, the development
and construction of the Improvements pursuant thereto, and the use and
occupancy of the Improvements for their respective intended purposes
comply and will comply with all applicable zoning ordinances, building
regulations, restrictive covenants and governmental laws, rules,
regulations and ordinances, and comply and will comply with all
applicable requirements, standards and regulations of appropriate
supervising boards of fire underwriters and similar agencies,
authorities or boards; (g) Prison Realty has: (A) diligently pursued the
development, construction and installation of the Improvements; and (B)
performed such duties as may be necessary to complete the development,
construction and installation of the Improvements in accordance with the
plans and specifications and without Liens, claims or assessments,
actual or contingent, asserted against Prison Realty Real Property for
any material, labor or other items furnished in connection therewith,
and all in full compliance with all construction, use, building, zoning
and other similar laws, ordinances, rules, regulations, codes and
restrictions of any applicable Governmental Entities or authorities or
otherwise applicable thereto; (h) Prison Realty has complied with all
laws, ordinances, rules, regulations, judgments, orders, injunctions,
writs and decrees of any government or political subdivision or agency
thereof, or any court or similar entity established by any of them,
applicable to the construction of the Improvements, and has paid when
due all taxes and assessments upon the Improvements or Prison Realty
Real Property, and all claims for labor or materials, rents, and other
obligations that, if unpaid, will or might become a Lien against the
Improvements or the Prison Realty Real Property; (i) Prison Realty has
maintained, in sufficient amount, and in satisfactory form and sub
stance, and with satisfactory insurers: (A) builder's risk insurance,
all-risk nonreporting completed value form, insuring the Improvements
against fire, theft, extended coverage, vandalism, and such other
hazards in full force and effect at all times until the completion of
construction of all of the Improvements; and (B) such other insurance,
in such amounts and for such terms, as may from time to time be
reasonably required insuring against such other casualties or losses
which at the time are commonly insured against in the case of premises
similarly situated; and (j) the Improvements have been constructed in
accordance with the plans and specifications therefor, and in compliance
with all laws, ordinances, rules and regulations applicable thereto, and
in a good and workmanlike manner. For the purposes of this Agreement
"Improvements" shall mean all buildings, improvements, structures and
fixtures now or on the Closing Date located on the Prison Realty Real
Property, 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.
(m) Environmental Matters.
(i) To the knowledge of Prison Realty, the Prison Realty Real
Property and the Improvements thereon (the "Prison Realty Facilities")
are presently operated in compliance in all material respects with all
Environmental Laws (as defined below).
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(ii) There are no Environmental Laws requiring any material
remediation, clean up, repairs, constructions or capital expenditures
(other than normal maintenance) with respect to the Prison Realty
Facilities.
(iii) There are no (A) notices of any violation or alleged
violation of any Environmental Laws relating to the Prison Realty
Facilities or their uses that have been received by Prison Realty, or
(B) writs, injunctions, decrees, orders or judgments outstanding, or any
actions, suits, claims, proceedings or investigations pending, or, to
the knowledge of Prison Realty, threatened, relating to the ownership,
use, maintenance or operation of the Prison Realty Facilities.
(iv) To the knowledge of Prison Realty, there are no past, present
or anticipated future events, conditions, circumstances, activities,
practices, incidents, actions, or plans relating to Prison Realty and
its Subsidiaries that may interfere with or prevent compliance or
continued compliance with applicable Environmental Laws or which may
give rise to any liability under the Environmental Laws.
(v) All material permits and licenses required under any
Environmental Laws in respect of the operations of the Prison Realty
Facilities have been obtained, and the Prison Realty Facilities and
Prison Realty are in compliance, in all material respects, with the
terms and conditions of such permits and licenses.
(vi) For purposes of this Agreement, "Environmental Laws" mean all
applicable statutes, regulations, rules, ordinances, codes, licenses,
permits, orders, demands, approvals, authorizations and similar items of
all governmental agencies, departments, commissions, boards, bureaus or
instrumentalities of the United States, states and political
subdivisions thereof and all applicable judicial, administrative and
regulatory decrees, judgments and orders relating to the protection of
human health, the environment, or worker or public health and safety as
in effect as of the date hereof, including but not limited to those
pertaining to reporting, licensing, permitting, investigation and
remediation of emissions, discharges, releases or threatened releases of
Hazardous Materials (as defined herein), substances, pollutants,
contaminants or hazardous or toxic substances, materials or wastes,
whether solid, liquid or gaseous in nature, into the air, surface water,
ground water or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling
of substances, pollutants, contaminants or hazardous or toxic
substances, materials or wastes, whether solid, liquid or gaseous in
nature, including by way of illustration and not by way of limitation,
(A) the Comprehensive Environmental Response, Compensation and Liability
Act (42 U.S.C. sec.sec. 960111 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. sec.sec. 69011 et seq.), the Clean Air Act (42
U.S.C. sec.sec. 7401 et seq.), the Federal Water Pollution Control Act
(33 U.S.C. sec.sec. 1251), the Safe Drinking Water Act (42 U.S.C.
sec.sec. 300f et seq.), the Toxic Substances Control Act (15 U.S.C.
sec.sec. 2601 et seq.), the Endangered Species Act (16 U.S.C. sec.sec.
1531 et seq.), the Emergency Planning and Community Right-to-Know Act of
1986 (42 U.S.C. sec.sec. 11001 et seq.) and (B) analogous state and
local provisions.
(vii) For purposes of this Agreement, "Hazardous Material" means
any chemical substance:
(A) the presence of which requires investigation or remediation
under any federal, state or local statute, regulation, ordinance,
order, action or policy, administrative request or civil complaint
under any of the foregoing or under common law; or
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(B) which is defined as a "hazardous waste" or "hazardous
substance" under any federal, state or local statute, regulation or
ordinance or amendments thereto as in effect as of the date hereof,
or as hereafter amended, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act
(42 U.S.C. sec.sec. 9601 et seq.) and/or the Resource Conservation
and Recovery Act (42 U.S.C. sec.sec. 6901 et seq.); or
(C) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is
regulated by any governmental authority, agency, department,
commission, board, agency or instrumentality of the United States, or
any state or any political subdivision thereof having or asserting
jurisdiction over any of the Prison Realty Facilities; or
(D) the presence of which on any of the Prison Realty Facilities
causes a nuisance upon such facilities or to adjacent properties or
poses a hazard to the health or safety of persons on or about any of
the Prison Realty Facilities; or
(E) the presence of which on adjacent properties constitutes a
trespass by any owner or operator of the Prison Realty Facilities; or
(F) which contains gasoline, diesel fuel or other petroleum
hydrocarbons, polychlorinated biphenyls (PCBs) or asbestos or
asbestos-containing materials or urea formaldehyde foam insulation,
or lead-based paint, solder or other building materials; or
(G) radon gas.
(n) Benefit Plans.
(i) All "employee benefit plans" (as defined in Section 3(3) of
ERISA) and all other compensation, bonus, pension, profit sharing,
deferred compensation, stock ownership, stock purchase, stock option,
phantom stock, retirement, employment, change-in-control, welfare,
collective bargaining, severance, disability, death benefit,
hospitalization and medical plans, agreements, arrangements or
understandings that are maintained or contributed to (or previously
contributed to) for the benefit of any current or former employee,
officer or director of Prison Realty or any of its Subsidiaries and with
respect to which Prison Realty or any of its Subsidiaries would
reasonably be expected to have direct or contingent liability are
defined as the "Prison Realty Benefit Plans." Prison Realty has
heretofore delivered or made available to CCA true and complete copies
of all Prison Realty Benefit Plans and, with respect to each Prison
Realty Benefit Plan, true and complete copies of the following
documents: the most recent actuarial report, if any; the most recent
annual report, if any; any related trust agreement, annuity contract or
other funding instrument, if any; the most recent determination letter,
if any; and the most recent summary plan description, if any.
(ii) Except as disclosed in Section 3.01(n) of the Prison Realty
Disclosure Schedule: (A) none of the Prison Realty Benefit Plans is a
"multiemployer plan" within the meaning of Section 3(37) of ERISA or is
otherwise subject to Title IV of ERISA; (B) none of the Prison Realty
Benefit Plans promises or provides retiree medical or life insurance
benefits to any person; (C) neither Prison Realty nor any of its
Subsidiaries has any obligation to adopt or has taken any corporate
action to adopt, any new Prison Realty Benefit Plan or, except as
required by law, to amend any existing Prison Realty Benefit Plan; (D)
Prison Realty and its Subsidiaries are in compliance in all material
respects with and each Prison Realty Benefit Plan is and has been
administered in all material respects in compliance with its terms and
the applicable provisions of ERISA, the Code and all other applicable
laws, rules
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and regulations except for any failures to so administer any Prison
Realty Benefit Plan as would not have a material adverse effect on
Prison Realty; (E) each Prison Realty Benefit Plan that is intended to
be qualified within the meaning of Section 401(a) of the Code, to Prison
Realty's knowledge, has been determined by the IRS to be so qualified,
and no circumstances exist that could reasonably be expected to result
in the revocation of any such determination; (F) each Prison Realty
Benefit Plan intended to provide for the deferral of income, the
reduction of salary or other compensation, or to afford other income tax
benefits, complies with the requirements of the applicable provisions of
the Code or other laws, rules and regulations required to provide such
income tax benefits; (G) no prohibited transactions (as defined in
Section 406 or 407 of ERISA or Section 4975 of the Code) have occurred
for which a statutory exemption is not available with respect to any
Prison Realty Benefit Plan, and which could give rise to liability on
the part of Prison Realty, any of its Subsidiaries, any Prison Realty
Benefit Plan, or any fiduciary, party in interest or disqualified person
with respect thereto that would be material to Prison Realty or would be
material to Prison Realty if it were its liability; (H) neither Prison
Realty nor any entity required to be treated as a single employer with
Prison Realty under Section 414 of the Code has any unsatisfied
liability under Title IV of ERISA that would have a material adverse
effect on Prison Realty; (I) other than funding obligations and benefits
claims payable in the ordinary course, to Prison Realty's knowledge, no
event has occurred and no circumstance exists with respect to any Prison
Realty Benefit Plan that could give rise to any material liability
arising under the Code, ERISA or any other applicable law, or under any
indemnity agreement to which Prison Realty or any of its Subsidiaries is
a party, excluding liability relating to benefit claims and funding
obligations payable in the ordinary course, whether directly or by
reason of its affiliation with any entity required to be treated as a
single employer with Prison Realty under Section 414 of the Code; (J) as
of the date hereof there are no pending or, to the knowledge of the
executive officers of Prison Realty, threatened investigations, claims
or lawsuits in respect of any Prison Realty Benefit Plan that would have
a material adverse effect on Prison Realty; (K) other than continuation
coverage required to be provided under Section 4980B of the Code or Part
6 of Title I of ERISA or otherwise as provided by state law, none of the
Prison Realty Benefit Plans that are "welfare plans," within the meaning
of Section 3(1) of ERISA, provides for any benefits with respect to
current or former employees for periods extending beyond their
retirement or other termination of service; (L) no amount payable
pursuant to a Prison Realty Benefit Plan or any other plan, contract or
arrangement of Prison Realty would be considered an "excess parachute
payment" under Section 280G of the Code; and (M) no Prison Realty
Benefit Plan exists that could result in the payment to any current or
former employee, officer or director of Prison Realty any money or other
property or accelerate or provide any other rights or benefits as a
result of the transactions contemplated by this Agreement which would
constitute an excess parachute payment within the meaning of Section
280G of the Code.
(o) Material Contracts. There are no contracts or other documents
required by the Securities Act to be described in or to be filed as
exhibits to the Prison Realty Filed SEC Documents which have not been
described or filed as required. All such contracts to which Prison Realty
or any of its Subsidiaries is a party have been duly authorized, executed
and delivered by Prison Realty or such Subsidiary, constitute valid and
binding agreements of Prison Realty or such Subsidiary and are enforceable
against Prison Realty or such Subsidiary in accordance with the terms
thereof. Each of Prison Realty and its Subsidiaries has performed all
material obligations required to be performed by it, and is neither in
default in any material respect nor has it received notice of any default
or dispute under, any such contract or other material instrument to which
it is a party or by which its property is bound or affected. To the
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best knowledge of Prison Realty, no other party under any such contract or
other material instrument to which it or any of its Subsidiaries is a party
is in default in any material respect thereunder.
(p) No Undisclosed Liabilities. Except (a) as set forth in the Prison
Realty Filed SEC Documents, (b) as set forth in Section 3.01(p) of the
Prison Realty Disclosure Schedule, (c) as incurred in the ordinary course
of the business of Prison Realty subsequent to March 31, 2000 which would,
individually or in the aggregate, not have, or be reasonably expected not
to have, a material adverse effect, (d) for any expenses incurred in
connection with transactions contemplated by this Agreement or for
liabilities or obligations relating to contractual obligations,
indebtedness, litigation or other matters which are covered by other
representations and warranties in this Agreement or otherwise identified in
the Prison Realty Disclosure Schedule, neither Prison Realty nor any of its
Subsidiaries has any liabilities or obligations (direct or indirect,
contingent or fixed, known or unknown, matured or unmatured accrued or
unaccrued), whether arising out of contract, tort, statute or otherwise,
and whether or not required by GAAP to be reflected on or in footnotes to
the Prison Realty Financial Statements.
(q) Investment Company Act. Neither Prison Realty nor any of the
Subsidiaries is (i) an "investment company" or a company "controlled" by an
investment company within the meaning of the Investment Company Act of
1940, as amended, (ii) a "holding company" or a "subsidiary company" of a
holding company or an "affiliate" thereof within the meaning of the Public
Utility Holding Company Act of 1935, as amended, or (iii) subject to
regulation under the Federal Power Act or the Interstate Commerce Act.
(r) Reporting. Prison Realty is subject to Section 13 of the Exchange
Act and is in compliance in all material respects with the provisions of
such section.
(s) Labor Matters. Except as set forth in Section 3.01(s) of the
Prison Realty Disclosure Schedule: (i) neither Prison Realty nor its
Subsidiaries is a party to, or bound by, any collective bargaining
agreement, contract or other agreement or understanding with a labor union
or labor organization; (ii) to the knowledge of Prison Realty, no union
claims to represent the employees of Prison Realty and its Subsidiaries
currently exist; (iii) none of the employees of Prison Realty or its
Subsidiaries is represented by any labor organization and Prison Realty has
no knowledge of any current union organizing activities among the employees
of Prison Realty or its Subsidiaries, nor does any question concerning
representation exist concerning such employees; neither Prison Realty nor
its Subsidiaries is the subject of any proceeding asserting that it has
committed an unfair labor practice or seeking to compel it to bargain with
any labor organization as to wages or conditions of employment; (iv) there
is no strike, work stoppage, lockout or other labor dispute involving
Prison Realty or its Subsidiaries pending or threatened; (v) no action,
suit, complaint, charge, arbitration, inquiry, proceeding or investigation
by or before any Governmental Entity brought by or on behalf of any
employee, prospective employee, former employee, retiree, labor
organization or other representative of its employees is pending or, to the
knowledge of Prison Realty, threatened, against Prison Realty or its
Subsidiaries; (vi) to the knowledge of Prison Realty, no grievance is
threatened against Prison Realty or its Subsidiaries; (vii) neither Prison
Realty nor its Subsidiaries is a party to, or otherwise bound by, any
consent decree with, or citation by, any Governmental Entity relating to
employees or employment practices; (viii) there are no written personnel
policies, rules or procedures applicable to employees of Prison Realty or
its Subsidiaries, other than those set forth in Section 3.01(s) of the
Prison Realty Disclosure Schedule, true and correct copies of which have
heretofore been delivered or made available to CCA; (ix) Prison Realty and
its Subsidiaries are, and have at all times been, in material compliance
with all applicable laws respecting employment and employment practices,
terms and conditions of employment, wages, hours of work and
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occupational safety and health, and are not engaged in any unfair labor
practices as defined in the National Labor Relations Act or other
applicable law, ordinance or regulation; (x) since the enactment of the
Worker Adjustment and Retraining Notification Act (the "WARN Act"), neither
Prison Realty nor its Subsidiaries has effectuated (A) a "plant closing"
(as defined in the WARN Act) affecting any site of employment or one or
more facilities or operating units within any site of employment or
facility of any of Prison Realty or its Subsidiaries; or (B) a "mass
layoff" (as defined in the WARN Act) affecting any site of employment or
facility of any of Prison Realty or its Subsidiaries, in either case, other
than in substantial compliance with the WARN Act; nor has Prison Realty or
its Subsidiaries been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger application of any
similar state, local or foreign law or regulation; and (xi) neither Prison
Realty nor any of its Subsidiaries is aware that it has any liability or
potential liability under the Multi-Employer Pension Plan Act.
(t) Insurance. Prison Realty and its Subsidiaries maintain primary,
excess and umbrella insurance of types and amounts customary for their
business against general liability, fire, workers= compensation, products
liability, theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full force
and effect and with respect to property insurance for assets for which it
is customary to have replacement cost coverage or there are coinsurance
provisions, the amount of such insurance is sufficient to provide for such
coverage or to prevent the application of the coinsurance provision.
Section 3.01(t) of the Prison Realty Disclosure Schedule sets forth a
complete list of the insurance policies maintained by Prison Realty and its
Subsidiaries.
(u) Affiliate Transactions. Except as set forth in Section 3.01(u) of
the Prison Realty Disclosure Schedule, there is no transaction and no
transaction is now proposed, to which Prison Realty or its Subsidiaries is
or is to be a party in which any current stockholder (holding in excess of
5% of the Prison Realty Common Stock or any securities convertible into or
exchangeable for Prison Realty Common Stock), general partner, limited
partner (holding in excess of 5% of the limited partnership interests),
director or executive officer of Prison Realty or its Subsidiaries has a
direct or indirect interest.
(v) Internal Accounting Controls. Prison Realty=s system of internal
accounting controls is sufficient to meet the broad objectives of internal
accounting controls insofar as those objectives pertain to the prevention
or detection of errors or irregularities in amounts that would be material
in relation to Prison Realty=s financial statements.
(w) Board Recommendation. Prior to the date hereof with respect to
this Agreement, the Board of Directors of Prison Realty, at a meeting duly
called and held, by the majority vote of the directors present at such
meeting and voting, (i) determined that such Agreement and the Merger and
the other transactions contemplated hereby or thereby are fair to and in
the best interests of the shareholders of Prison Realty, (ii) adopted such
Agreement and approved the Merger and (iii) approved the delivery of the
CCA Merger Consideration to the holders of CCA Certificates pursuant to the
terms and conditions of this Agreement.
(x) Maryland Law on Business Combinations and Control Shares. None of
the parties to the Merger is an interested stockholder (as defined in
Section 3-601 of the Maryland General Corporation Law (the "MGCL")) of
Prison Realty or an affiliate (as defined in Section 3-601 of the MGCL) of
an interested stockholder who was not exempted from the provisions of
Section 3-602 of the MGCL prior to the most recent date on which such
person became an interested stockholder. None of the shares of Prison
Realty Stock issued in the Merger constitute "control shares" as such term
is defined in Section 3-701 of the MGCL. The approval of the
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Merger, and the issuance of the Prison Realty Stock in connection
therewith, by the Board of Directors of Prison Realty referred to in
Section 3.01(w) constitutes approval of the Merger and the issuance of the
Prison Realty Stock and related transactions for purposes of Sections 3-602
and 3-702 of the MGCL.
(y) Brokers. No broker, investment banker, financial advisor or other
person, other than Merrill Lynch & Co. ("Merrill Lynch") and Wasserstein
Perella & Co., Inc. ("Wasserstein Perella"), the fees and expenses of which
will be paid by Prison Realty, is entitled to any brokers, finders,
financial advisors or other similar fee or commission in connection with
the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Prison Realty. Prison Realty's arrangements with
Merrill Lynch and Wasserstein Perella have been disclosed to CCA prior to
the date hereof.
(z) Share Ownership. Prison Realty owns 981,393 shares of the issued
and outstanding Class B Common Stock of CCA. All of such shares shall be
canceled in connection with the Merger as set forth in Section 2.01 (a)
hereof.
Section 3.02 Representations and Warranties of CCA Sub. CCA Sub hereby
represents and warrants, severally and not jointly and with respect to itself
only, to CCA as follows:
(a) Organization and Authority. CCA Sub is a corporation duly
incorporated and validly existing in good standing under the laws of the
State of Tennessee with full corporate power and authority to own its
properties and conduct its business as now conducted and is duly qualified
or authorized to do business and is in good standing in all jurisdictions
where the failure to so qualify could have a material adverse effect. CCA
Sub does not have a direct or indirect ownership interest in any subsidiary
corporation, joint venture, partnership or other entity. CCA Sub has made
available to CCA complete and correct copies of its charter and bylaws, in
each case as amended to the date of this Agreement. CCA Sub is a
newly-formed entity and, except for activities incident to the Merger and
the transactions contemplated hereby, CCA Sub has not engaged in any
business activity of any type or kind whatsoever prior to the date hereof.
(b) Capital Structure. The authorized capital stock of CCA Sub
consists of 10,000 shares of common stock, no par value per share, of which
1,000 shares are issued and outstanding.
(c) Authorization. CCA Sub has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of CCA Sub. This
Agreement has been duly executed and delivered by CCA Sub and constitutes a
valid and binding obligation of CCA Sub, enforceable against CCA Sub in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, fraudulent transfer and
other similar laws from time to time in effect. The execution and delivery
of this Agreement does not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any breach or
violation of, or default (with or without notice or lapse of time or both)
under, or result in the termination of, or accelerate the performance
required by, or give rise to a right of termination, cancellation or
acceleration of any obligation under, or the creation of a Lien pursuant
to, (i) any provision of the charter (or similar organizational documents)
or bylaws of CCA Sub or (ii) subject to obtaining or making the consents,
approvals, orders, authorizations, registrations, declarations and filings
referred to in the following sentence, any loan or credit agreement, note,
mortgage, indenture, lease, or other agreement, obligation, instrument,
permit, concession, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to CCA Sub or its respective
properties or assets, in any
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case under this clause (ii) which would, individually or in the aggregate,
have a material adverse effect on CCA Sub. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to CCA Sub in connection
with the execution and delivery of this Agreement by CCA Sub or the
consummation by CCA Sub of the transactions contemplated hereby, the
failure of which to be obtained or made would, individually or in the
aggregate, have a material adverse effect on CCA Sub or would prevent or
materially delay the consummation of the transactions contemplated hereby,
except for (A) the filing of the Articles of Merger with the Tennessee
Secretary of State and appropriate documents with the relevant authorities
of other states in which CCA Sub is qualified to do business, (B) filings
required pursuant to the HSR Act, and (C) filings necessary to satisfy the
applicable requirements of state securities or "blue sky" laws.
(d) Information Supplied. None of (i) the information supplied or to
be supplied by CCA Sub specifically for inclusion or incorporation by
reference in the Proxy Statement, at the date it is first mailed to
stockholders of Prison Realty or at the time of the Prison Realty
Stockholders' Meeting, and (ii) the information supplied or to be supplied
by CCA Sub specifically for inclusion or incorporation by reference in the
Registration Statement, at the date the proxy statement-prospectus
comprising a portion of the Registration Statement is first mailed to
shareholders of CCA or at the time of the CCA Shareholders' Meeting, will
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, except that in each case no representation or
warranty is made by CCA Sub with respect to statements made or incorporated
by reference therein based on information supplied by CCA, PMSI or JJFMSI
specifically for inclusion or incorporation by reference therein. If at any
time prior to the date of the Prison Realty Stockholders' Meeting or the
CCA Shareholders' Meeting, any event with respect to CCA Sub, or with
respect to information supplied by CCA Sub specifically for inclusion in
the Proxy Statement or the Registration Statement, shall occur which is
required to be described in an amendment of, or supplement to, the Proxy
Statement or the Registration Statement, such event shall be so described
by CCA Sub.
(e) Certain Agreements. CCA Sub is not in default under any material
agreement, commitment, lease or other instrument to which it or any of its
properties is subject, and there has not occurred any event that, with the
giving of notice or the lapse of time or both, would constitute such a
default by CCA Sub or, to the knowledge of the executive officers of CCA
Sub, a default thereunder by any other party thereto, except in all cases
where such defaults, individually or in the aggregate, would not have a
material adverse effect on CCA Sub. CCA Sub is not in breach in any
material respect under its charter, bylaws or other organizational
documents.
(f) Board Recommendation. Prior to the date hereof with respect to
this Agreement, the Board of Directors of CCA Sub, at a meeting duly called
and held, by the majority vote of the directors present at such meeting and
voting, (i) determined that such Agreement and the Merger and the other
transactions contemplated hereby or thereby are fair to and in the best
interests of the shareholders of CCA Sub, (ii) adopted such Agreement and
approved the Merger and (iii) resolved to recommend that its shareholder
approve the Agreement and the Merger.
(g) Tennessee Business Combination Act. The approval of the Merger by
the Board of Directors of CCA Sub referred to in Section 3.02(f)
constitutes approval of the Merger for purposes of the TBCA and represents
all the actions necessary to ensure that Sections 48-103-201, et seq., of
the TBCA do not apply to the Merger.
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Section 3.03 Representations and Warranties of CCA. Except as set forth in
the Prison Realty Filed SEC Documents or on the Disclosure Schedule delivered by
CCA to Prison Realty prior to the execution of this Agreement (the "CCA
Disclosure Schedule"), which CCA Disclosure Schedule constitutes a part hereof
and is true and correct in all material respects, CCA represents and warrants to
Prison Realty and CCA Sub as follows:
(a) Organization and Authority. CCA is duly formed and validly
existing and in good standing under the laws of the State of Tennessee with
full power and authority to own its properties and conduct its business as
now conducted and is duly qualified or authorized to do business and is in
good standing in all jurisdictions where the failure to so qualify could
have a material adverse effect on CCA. CCA has all requisite corporate
power and authority, and has been duly authorized by all necessary
consents, approvals, authorizations, orders, registrations, qualifications,
licenses and permits of and from all public, regulatory or governmental
agencies and bodies, to own, lease and operate its assets and properties
and to conduct its business as it is now being conducted and is duly
qualified or licensed to do business in each jurisdiction in which the
failure to do so could have a material adverse effect upon the conduct of
its business or the ownership or leasing of property by it in such
jurisdiction.
(b) Subsidiaries.
(i) The only direct or indirect Subsidiaries of CCA are those
listed in Section 3.03(b) of the CCA Disclosure Schedule. Except for the
ownership interests set forth in Section 3.03(b) of the CCA Disclosure
Schedule, CCA does not own or control, directly or indirectly, a 50% or
greater capital stock interest in a corporation, a general partnership
interest or a 50% or greater limited partnership interest in a
partnership, or a managing membership interest or a 50% or greater
membership interest in a limited liability company, association or other
entity or project.
(ii) Except for the entities listed in Section 3.03(b) of the CCA
Disclosure Schedule, CCA does not hold, directly or indirectly, any
equity interest or equity investment in any corporation, partnership,
association or other entity.
(iii) Except as set forth in Section 3.03(b) of the CCA Disclosure
Schedule, all of the issued and outstanding shares of capital stock of,
or other equity interests in, each Subsidiary of CCA have been validly
issued, are fully paid and nonassessable and are owned, directly or
indirectly, by CCA free and clear of any Liens and there are no
outstanding subscriptions, options, calls, contracts, voting trusts,
proxies or other commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or
exchange under any outstanding security, instrument or other agreement,
obligating any Subsidiary of CCA to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of its capital stock or
obligating it to grant, extend or enter into any such agreement or
commitment.
(iv) CCA's Subsidiaries do not own or operate or possess any
material assets, licenses, management contracts, or franchises or other
rights nor are such Subsidiaries liable with respect to any material
indebtedness, obligations, liabilities, or claims. For purposes of this
section, "material" means with respect to assets, licenses, management
contracts, franchises or rights of the Subsidiaries that the aggregate
value of such items for the Subsidiaries taken as a whole does not
exceed 5.0% of the aggregate value of such items for CCA and its
Subsidiaries taken as a whole; and with respect to indebtedness,
obligations, liabilities, and claims of the Subsidiaries, that the
aggregate amount of such items for the Subsidiaries
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taken as a whole does not exceed 5.0% of the aggregate amount of such
items for CCA and its Subsidiaries taken as a whole.
(c) Capital Structure. The authorized capital stock of CCA consists
of 100,000,000 shares of CCA Class A Common Stock, 100,000,000 shares of
CCA Class B Common Stock and 50,000,000 shares of preferred stock, $0.01
par value per share. At the close of business on June 22, 2000, (A)
9,349,061 shares of CCA Class A Common Stock were outstanding, (B) 981,393
shares of CCA Class B Common Stock were outstanding, (C) no shares of
preferred stock were outstanding and (D) warrants to acquire 546,729 shares
of CCA Class A Common Stock were outstanding. Other than as set forth
above, at the close of business on June 22, 2000, there were outstanding no
shares of CCA Common Stock or any other class or series of stock of CCA or
options, warrants or other rights to acquire shares of CCA Common Stock or
any other class or series of stock of CCA from CCA. No bonds, debentures,
notes or other indebtedness having the right to vote (or convertible into
or exchangeable for securities having the right to vote) on any matters on
which shareholders of CCA may vote are issued or outstanding.
All outstanding shares of CCA Common Stock are duly authorized,
validly issued, fully paid and nonassessable, and will be delivered free
and clear of Liens and will not be in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities.
Other than as set forth above, and except for this Agreement and for
certain contractual preemptive rights granted to each of Prison Realty,
Sodexho (as defined herein) and Baron, there are no outstanding securities,
options, warrants, calls, rights, commitments, agreements or undertakings
of any kind to which CCA or any Subsidiary of CCA is a party or by which
CCA or any Subsidiary of CCA is bound obligating CCA or any Subsidiary of
CCA to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of CCA Common Stock or other equity or voting securities
of CCA or of any Subsidiary of CCA or obligating CCA or any Subsidiary of
CCA to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement or undertaking. There are no
outstanding obligations of CCA or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of CCA Common Stock or any of its
Subsidiaries and, to the knowledge of the executive officers of CCA, as of
the date hereof, no irrevocable proxies have been granted with respect to
shares of CCA Common Stock or equity of Subsidiaries of CCA.
(d) Authorization. CCA has all requisite power and authority to enter
into this Agreement and, subject to obtaining the CCA Shareholder Approval
with respect to the Merger, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by all
necessary action on the part of CCA, subject to obtaining CCA Shareholder
Approval with respect to the Merger. This Agreement has been duly executed
and delivered by CCA and constitutes a valid and binding obligation of CCA,
enforceable against CCA in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance,
fraudulent transfer and other similar laws from time to time in effect. The
execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated hereby will not, conflict with, or result in
any breach or violation of, or default (with or without notice or lapse of
time or both) under, or result in the termination of, or accelerate the
performance required by, or give rise to a right of termination,
cancellation or acceleration of any obligation under, or the creation of a
Lien pursuant to, (i) any provision of the charter (or similar
organizational documents) or bylaws of CCA or any Subsidiary of CCA or (ii)
subject to obtaining or making the consents, approvals, orders,
authorizations, registrations, declarations and filings referred to in the
following sentence, any loan or credit
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agreement, note, mortgage, indenture, lease, or other agreement,
obligation, instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
CCA or any Subsidiary of CCA or their respective properties or assets, in
any case under this clause (ii) which would, individually or in the
aggregate, have a material adverse effect on CCA. No consent, approval,
order or authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to CCA or any Subsidiary
of CCA in connection with the execution and delivery of this Agreement by
CCA or the consummation by CCA of the transactions contemplated hereby, the
failure of which to be obtained or made would, individually or in the
aggregate, have a material adverse effect on CCA or would prevent or
materially delay the consummation of the transactions contemplated hereby,
except for (A) the filing of the Articles of Merger with the Tennessee
Secretary of State and appropriate documents with the relevant authorities
of other states in which CCA is qualified to do business, (B) filings
required pursuant to the HSR Act, (C) filings necessary to satisfy the
applicable requirements of state securities or "blue sky" laws, and those
required pursuant to CCA's agreements or management contracts with
Governmental Entities.
(e) Information Supplied. None of (i) the information supplied or to
be supplied by CCA specifically for inclusion or incorporation by reference
in the Proxy Statement, at the date it is first mailed to stockholders of
Prison Realty or at the time of the Prison Realty Stockholders' Meeting,
and (ii) the information supplied or to be supplied by CCA specifically for
inclusion or incorporation by reference in the Registration Statement, at
the date the proxy statement-prospectus comprising a portion of the
Registration Statement is first mailed to shareholders of CCA or at the
time of the CCA Shareholders' Meeting, will contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, except that
in each case no representation or warranty is made by CCA with respect to
statements made or incorporated by reference therein based on information
supplied by Prison Realty, CCA Sub, PMSI or JJFMSI specifically for
inclusion or incorporation by reference therein. The Proxy Statement and
the Registration Statement will comply as to form in all material respects
with the requirements of the Exchange Act and the Securities Act, except
that in each case no representation or warranty is made by CCA with respect
to statements made or incorporated by reference therein based on
information supplied by Prison Realty, CCA Sub, PMSI or JJFMSI for
inclusion or incorporation by reference therein. If at any time prior to
the date of the Prison Realty Stockholders' Meeting or the CCA
Shareholders' Meeting, any event with respect to CCA, or with respect to
information supplied by CCA specifically for inclusion in the Proxy
Statement or the Registration Statement, shall occur which is required to
be described in an amendment of, or supplement to, the Proxy Statement or
the Registration Statement, such event shall be so described by CCA.
(f) Absence of Certain Changes or Events. Subsequent to March 31,
2000, neither CCA nor any Subsidiary has sustained any material loss or
interference with its business or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, which
is not disclosed; and subsequent to March 31, 2000 (i) neither CCA nor any
Subsidiary has incurred any material liabilities or obligations, direct or
contingent, or entered into any transactions not in the ordinary course of
business consistent with past practice, and (ii) there has not been any
issuance of options, warrants or rights to purchase CCA Common Stock, or
any interests therein, or any adverse change, or any development involving
a prospective adverse change, in the general affairs, management, business,
prospects, financial position, net worth or results of operations of CCA or
any Subsidiary.
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(g) Compliance with Laws; Litigation. Except as described in the CCA
Disclosure Schedule or in the Prison Realty Filed SEC Documents, there are
no claims, actions, suits, arbitration, grievances, proceedings or
investigations pending or, to CCA's knowledge, threatened, against CCA or
any Subsidiary, or any properties or rights of CCA or any Subsidiary, or
any officers or directors of CCA or any Subsidiary in their capacity as
such, by or before any Governmental Entity which, individually or in the
aggregate, is reasonably likely to have a material adverse effect on CCA or
prevent, materially delay or intentionally delay the ability of CCA to
consummate the transactions contemplated hereby. Neither CCA nor its
Subsidiaries is subject to any judgment, order or decree which could
reasonably be expected to result in a material adverse effect.
Each of CCA and its Subsidiaries has at all times operated and
currently operates its business in conformity in all material respects with
all applicable statutes, common laws, ordinances, decrees, orders, rules
and regulations of Governmental Entities. Each of CCA and its Subsidiaries
has all licenses, approvals or consents to operate its businesses in all
locations in which such businesses are currently being operated, and to its
knowledge is not aware of any existing or imminent matter which may
materially adversely impact its operations or business prospects other than
as specifically disclosed in the CCA Disclosure Schedule. CCA and each
Subsidiary have not failed to file with the applicable regulatory
authorities any material statements, reports, information or forms required
by all applicable laws, regulations or orders, all such filings or
submissions were in material compliance with applicable laws when filed,
and no material deficiencies have been asserted by any regulatory
commission, agency or authority with respect to such filings or
submissions. CCA and each Subsidiary have not failed to maintain in full
force and effect any material licenses, registrations or permits necessary
or proper for the conduct of its or their business, or received any
notification that any revocation or limitation thereof is threatened or
pending, and there is not to the knowledge of CCA pending any change under
any law, regulation, license or permit which would materially adversely
affect the business, operations, property or business prospects of CCA. CCA
and each Subsidiary have not received any notice of violation of or been
threatened with a charge of violating and are not under investigation with
respect to a possible violation of any provision of any law, regulation or
order. Neither CCA nor any of its Subsidiaries has at any time (i) made any
unlawful contribution to any candidate for domestic or foreign office or
failed to disclose fully any contribution in violation of law or (ii) made
any payment to any federal or state governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States or any
jurisdiction thereof.
(h) Taxes.
(i) CCA has timely filed (or there have been filed on its behalf)
all Tax Returns required to be filed by it under applicable law, and all
such Tax Returns were and are true, complete and correct in all material
respects. Except to the extent adequately reserved for in accordance
with GAAP and reflected on the most recent balance sheets of CCA, all
Taxes due and payable by CCA have been timely paid in full.
(ii) There are no Tax liens upon the assets of CCA except liens for
Taxes not yet due.
(iii) CCA has complied with the provisions of the Code relating to
the withholding of Taxes, as well as similar provisions under any other
laws, and has, within the time and in the manner prescribed by law,
withheld, collected and paid over to the proper governmental authorities
all amounts required.
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(iv) No audits or other administrative proceedings or court
proceedings are presently pending or, to the knowledge of CCA, asserted
with regard to any Taxes or Tax Returns of CCA.
(v) CCA has not received a written ruling of a taxing authority
relating to Taxes or entered into a written and legally binding
agreement with a taxing authority relating to Taxes with any taxing
authority.
(vi) Except as described on the CCA Disclosure Schedule, CCA has
not requested any extension of time within which to file any Tax Return,
which Tax Return has not since been filed.
(vii) CCA has not agreed to and is not required to make any
adjustment pursuant to Section 481(a) of the Code (or any predecessor
provision) by reason of any change in any accounting method of CCA, and
there is no application pending with any taxing authority requesting
permission for any changes in any accounting method of CCA. To the
knowledge of CCA, the IRS has not proposed any such adjustment or change
in accounting method.
(viii) CCA has not joined in the filing of a consolidated return
for federal income tax purposes. CCA is not and has never been subject
to the provisions of Section 1503(f) of the Code.
(ix) CCA is not a party to any agreement providing for the
allocation or sharing of Taxes or indemnification by CCA of any other
person in respect of Taxes.
(x) CCA is not a party to any agreement, contract, or arrangement
that would result, individually or in the aggregate, in the payment of
any "excess parachute payments" within the meaning of Section 280G of
the Code.
(xi) To the knowledge of CCA, CCA does not have, nor has it ever
had, any income which is includable in computing the taxable income of a
United States person (as determined under Section 7701 of the Code)
under Section 951 of the Code. To the knowledge of CCA, none of the
Subsidiaries of CCA is or has ever been a "passive foreign investment
company" within the meaning of Section 1297 of the Code. To the
knowledge of CCA, CCA is not and never has been a "personal holding
company" within the meaning of Section 542 of the Code. To the knowledge
of CCA, there are no gain recognition agreements, within the meaning of
Treasury Regulation 1.367(a)-8 or any predecessor provision, between
CCA, on one hand, and a stockholder of the CCA, on the other. There is
no pending or, to the knowledge of CCA, threatened, action, proceeding
or investigation by any taxing authority for assessment or collection of
Taxes with respect to CCA in any jurisdiction where CCA has not filed a
Tax Return. All dealings and arrangements between and among CCA and its
Subsidiaries are at arm=s length and consistent with arm=s length
dealings and arrangements between or among unrelated, uncontrolled
taxpayers.
(xii) For purposes of this Section 3.03(h), all representations and
warranties with respect to CCA are deemed to include and to apply to
each of its Subsidiaries and predecessors.
(i) No Defaults. Except for violations or defaults which,
individually or in the aggregate, would not have a material adverse effect,
or for which valid waivers have been obtained by CCA or its Subsidiaries,
neither CCA nor any of its Subsidiaries is in violation or default under
any provision of its charter, by-laws, partnership agreements or other
organizational documents, or is in breach of or default with respect to any
provision of any note, bond, agreement, judgment, decree, order, mortgage,
deed of trust, lease, franchise, license, indenture, permit or other
instrument to which it is a party or by which it or any of its properties
are bound; and there does
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not exist any state of facts which would constitute an event of default on
the part of any of CCA or its Subsidiaries as defined in such documents
which, with notice of lapse of time or both, would constitute a default.
Neither CCA nor any of its Subsidiaries is a party to any contract (other
than leases) containing any covenant restricting its ability to conduct its
business as currently conducted except for any such covenants that would
not, individually or in the aggregate, have a material adverse effect on
CCA.
(j) Environmental Matters.
(i) To the knowledge of CCA, the correctional and detention
facilities operated or managed by CCA (the "CCA Facilities") are
presently operated in compliance in all material respects with all
Environmental Laws.
(ii) There are no Environmental Laws requiring any material
remediation, clean up, repairs, constructions or capital expenditures
(other than normal maintenance) with respect to the CCA Facilities.
(iii) There are no (A) notices of any violation or alleged
violation of any Environmental Laws relating to the CCA Facilities or
their uses that have been received by CCA, or (B) writs, injunctions,
decrees, orders or judgments outstanding, or any actions, suits, claims,
proceedings or investigations pending, or, to the knowledge of CCA,
threatened, relating to the ownership, use, maintenance or operation of
the CCA Facilities.
(iv) To the knowledge of CCA, there are no past, present or
anticipated future events, conditions, circumstances, activities,
practices, incidents, actions, or plans relating to CCA and its
Subsidiaries that may interfere with or prevent compliance or continued
compliance with applicable Environmental Laws or which may give rise to
any liability under the Environmental Laws.
(v) All material permits and licenses required under any
Environmental Laws in respect of the operations of the CCA Facilities
have been obtained, and the CCA Facilities and CCA are in compliance, in
all material respects, with the terms and conditions of such permits and
licenses.
(k) Benefit Plans.
(i) All "employee benefit plans" (as defined in Section 3(3) of
ERISA) and all other compensation, bonus, pension, profit sharing,
deferred compensation, stock ownership, stock purchase, stock option,
phantom stock, retirement, employment, change-in-control, welfare,
collective bargaining, severance, disability, death benefit,
hospitalization and medical plans, agreements, arrangements or
understandings that are maintained or contributed to (or previously
contributed to) for the benefit of any current or former employee,
officer or director of CCA or any of its Subsidiaries and with respect
to which CCA or any of its Subsidiaries would reasonably be expected to
have direct or contingent liability are defined as the "CCA Benefit
Plans." CCA has heretofore delivered or made available to Prison Realty
true and complete copies of all CCA Benefit Plans and, with respect to
each CCA Benefit Plan, true and complete copies of the following
documents: the most recent actuarial report, if any; the most recent
annual report, if any; any related trust agreement, annuity contract or
other funding instrument, if any; the most recent determination letter,
if any; and the most recent summary plan description, if any.
(ii) Except as disclosed in Section 3.03(k) of the CCA Disclosure
Schedule: (A) none of the CCA Benefit Plans is a "multiemployer plan"
within the meaning of Section 3(37) of ERISA or is otherwise subject to
Title IV of ERISA; (B) none of the
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CCA Benefit Plans promises or provides retiree medical or life insurance
benefits to any person; (C) neither CCA nor any of its Subsidiaries has
any obligation to adopt or has taken any corporate action to adopt, any
new CCA Benefit Plan or, except as required by law, to amend any
existing CCA Benefit Plan; (D) CCA and its Subsidiaries are in
compliance in all material respects with and each CCA Benefit Plan is
and has been administered in all material respects in compliance with
its terms and the applicable provisions of ERISA, the Code and all other
applicable laws, rules and regulations except for any failures to so
administer any CCA Benefit Plan as would not have a material adverse
effect on CCA; (E) each CCA Benefit Plan that is intended to be
qualified within the meaning of Section 401(a) of the Code, to CCA's
knowledge, has been determined by the IRS to be so qualified, and no
circumstances exist that could reasonably be expected to result in the
revocation of any such determination; (F) each CCA Benefit Plan intended
to provide for the deferral of income, the reduction of salary or other
compensation, or to afford other income tax benefits, complies with the
requirements of the applicable provisions of the Code or other laws,
rules and regulations required to provide such income tax benefits; (G)
no prohibited transactions (as defined in Section 406 or 407 of ERISA or
Section 4975 of the Code) have occurred for which a statutory exemption
is not available with respect to any CCA Benefit Plan, and which could
give rise to liability on the part of CCA, any of its Subsidiaries, any
CCA Benefit Plan, or any fiduciary, party in interest or disqualified
person with respect thereto that would be material to CCA or would be
material to CCA if it were its liability; (H) neither CCA nor any entity
required to be treated as a single employer with CCA under Section 414
of the Code has any unsatisfied liability under Title IV of ERISA that
would have a material adverse effect on CCA; (I) other than funding
obligations and benefits claims payable in the ordinary course, to CCA's
knowledge, no event has occurred and no circumstance exists with respect
to any CCA Benefit Plan that could give rise to any liability arising
under the Code, ERISA or any other applicable law, or under any
indemnity agreement to which CCA or any of its Subsidiaries is a party,
excluding liability relating to benefit claims and funding obligations
payable in the ordinary course, whether directly or by reason of its
affiliation with any entity required to be treated as a single employer
with CCA under Section 414 of the Code; (J) as of the date hereof there
are no pending or, to the knowledge of the executive officers of CCA,
threatened investigations, claims or lawsuits in respect of any CCA
Benefit Plan that would have a material adverse effect on CCA; (K) other
than continuation coverage required to be provided under Section 4980B
of the Code or Part 6 of Title I of ERISA or otherwise as provided by
state law, none of the CCA Benefit Plans that are "welfare plans,"
within the meaning of Section 3(1) of ERISA, provides for any benefits
with respect to current or former employees for periods extending beyond
their retirement or other termination of service; (L) no amount payable
pursuant to a CCA Benefit Plan or any other plan, contract or
arrangement of CCA would be considered an "excess parachute payment"
under Section 280G of the Code; and (M) no CCA Benefit Plan exists that
could result in the payment to any current or former employee, officer
or director of CCA any money or other property or accelerate or provide
any other rights or benefits as a result of the transactions
contemplated by this Agreement which would constitute an excess
parachute payment within the meaning of Section 280G of the Code.
(l) Material Contracts. All contracts to which CCA or any Subsidiary
is a party have been duly authorized, executed and delivered by CCA or any
Subsidiary, constitute valid and binding agreements of CCA or any
Subsidiary and are enforceable against CCA or any Subsidiary in accordance
with the terms thereof. Each of CCA and each Subsidiary has performed all
material obligations required to be performed by it, and is neither in
default in any material respect nor has it received notice of any default
or dispute under, any such contract or
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other material instrument to which it is a party or by which its property
is bound or affected. To the best knowledge of CCA, no other party under
any such contract or other material instrument to which it is a party is in
default in any material respect thereunder.
(m) No Undisclosed Liabilities. Except (a) as set forth in the Prison
Realty Filed SEC Documents, (b) as set forth in Section 3.03(m) of the CCA
Disclosure Schedule, (c) as incurred in the ordinary course of the business
of CCA subsequent to March 31, 2000 which would, individually or in the
aggregate, not have, or be reasonably expected not to have, a material
adverse effect, (d) for any expenses incurred in connection with
transactions contemplated by this Agreement or for liabilities or
obligations relating to contractual obligations, indebtedness, litigation
or other matters which are covered by other representations and warranties
in this Agreement or otherwise identified in the CCA Disclosure Schedule,
neither CCA nor any of its Subsidiaries has any liabilities or obligations
(direct or indirect, contingent or fixed, known or unknown, matured or
unmatured accrued or unaccrued), whether arising out of contract, tort,
statute or otherwise, and whether or not required by GAAP to be reflected
on or in footnotes to the financial statements of CCA.
(n) Labor Matters. Except as set forth in Section 3.03(n) of the CCA
Disclosure Schedule: (i) neither CCA nor its Subsidiaries is a party to, or
bound by, any collective bargaining agreement, contract or other agreement
or understanding with a labor union or labor organization; (ii) to the
knowledge of CCA, no union claims to represent the employees of CCA and its
Subsidiaries; (iii) none of the employees of CCA or its Subsidiaries is
represented by any labor organization and CCA has no knowledge of any
current union organizing activities among the employees of CCA or its
Subsidiaries, nor does any question concerning representation exist
concerning such employees; neither CCA nor its Subsidiaries is the subject
of any proceeding asserting that it has committed an unfair labor practice
or seeking to compel it to bargain with any labor organization as to wages
or conditions of employment; (iv) there is no strike, work stoppage,
lockout or other labor dispute involving CCA or its Subsidiaries pending or
threatened; (v) no action, suit, complaint, charge, arbitration, inquiry,
proceeding or investigation by or before any Governmental Entity brought by
or on behalf of any employee, prospective employee, former employee,
retiree, labor organization or other representative of its employees is
pending or, to the knowledge of CCA, threatened against CCA or its
Subsidiaries; (vi) to the knowledge of CCA, no grievance is threatened
against CCA or its Subsidiaries; (vii) neither CCA nor its Subsidiaries is
a party to, or otherwise bound by, any consent decree with, or citation by,
any Governmental Entity relating to employees or employment practices;
(viii) there are no written personnel policies, rules or procedures
applicable to employees of CCA or its Subsidiaries, other than those set
forth in Section 3.03(n) of the CCA Disclosure Schedule, true and correct
copies of which have heretofore been delivered or made available to Prison
Realty, PMSI and JJFMSI; (ix) CCA and its Subsidiaries are, and have at all
times been, in material compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment,
wages, hours of work and occupational safety and health, and are not
engaged in any unfair labor practices as defined in the National Labor
Relations Act or other applicable law, ordinance or regulation; (x) since
the enactment of the WARN Act, neither CCA nor its Subsidiaries has
effectuated (A) a "plant closing" (as defined in the WARN Act) affecting
any site of employment or one or more facilities or operating units within
any site of employment or facility of any of CCA or its Subsidiaries; or
(B) a "mass layoff" (as defined in the WARN Act) affecting any site of
employment or facility of any of CCA or its Subsidiaries, in either case,
other than in substantial compliance with the WARN Act; nor has CCA or its
Subsidiaries been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger application of any
similar state, local or foreign law or regulation; and
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(xi) neither CCA nor any of its Subsidiaries is aware that it has any
liability or potential liability under the Multi-Employer Pension Plan Act.
(o) Insurance. CCA and its Subsidiaries maintain primary, excess and
umbrella insurance of types and amounts customary for their business
against general liability, fire, workers' compensation, products liability,
theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and
effect and with respect to property insurance for assets for which it is
customary to have replacement cost coverage or there are coinsurance
provisions, the amount of such insurance is sufficient to provide for such
coverage or to prevent the application of the coinsurance provision.
Section 3.03(o) of the CCA Disclosure Schedule sets forth a complete list
of the insurance policies maintained by CCA and its Subsidiaries.
(p) Affiliate Transactions. Except as set forth in Section 3.03(p) of
the CCA Disclosure Schedule, there is no transaction and no transaction is
now proposed, to which CCA or its Subsidiaries is or is to be a party in
which any current stockholder (holding in excess of 5% of the CCA's Common
Stock or any securities convertible into or exchangeable for Common Stock),
general partner, limited partner (holding in excess of 5% of the limited
partnership interests), director or executive officer of CCA or its
Subsidiaries has a direct or indirect interest.
(q) Internal Accounting Controls. CCA's system of internal accounting
controls is sufficient to meet the broad objectives of internal accounting
controls insofar as those objectives pertain to the prevention or detection
of errors or irregularities in amounts that would be material in relation
to CCA's financial statements.
(r) Vote Required. The CCA Shareholder Approval is the only vote of
the holders of any class or series of CCA's securities necessary to approve
this Agreement and the transactions contemplated hereby.
(s) Board Recommendation. On the date hereof with respect to this
Agreement, the Board of Directors of CCA, at a meeting duly called and
held, by the majority vote of the directors present at such meeting, (i)
determined that such Agreement and the Merger and the other transactions
contemplated hereby and thereby are fair to and in the best interests of
the shareholders of CCA, (ii) adopted such Agreement and approved the
Merger and (iii) resolved to recommend that the holders of CCA Common Stock
approve such Agreement and the Merger.
(t) Tennessee Business Combination Act. CCA has received the opinion
of Sherrard & Roe, PLC, counsel to CCA, that the approval of the Merger by
the Board of Directors of CCA referred to in Section 3.03(s) constitutes
approval of the Merger for purposes of the TBCA and represents all the
actions necessary to ensure that Sections 48-103-201, et seq., of the TBCA
do not apply to the Merger.
(u) Brokers. No broker, investment banker, financial advisor or other
person, other than Merrill Lynch, the fees and expenses of which will be
paid by Prison Realty, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by
or on behalf of CCA.
(v) Stock Ownership. CCA does not, directly or indirectly, own any
shares of Prison Realty Stock other than shares, if any, held in CCA
Benefit Plans.
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ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.01 Covenants of Prison Realty. Except as set forth in Section
4.01 of the Prison Realty Disclosure Schedule or as otherwise contemplated by
this Agreement and the transactions related thereto, during the period from the
date of this Agreement until the Effective Time, Prison Realty agrees that:
(a) Ordinary Course. Prison Realty and its Subsidiaries shall carry
on their respective businesses only in the usual, regular and ordinary
course consistent with past practice in all material respects and use their
reasonable best efforts to preserve intact their present business
organizations, maintain their rights and franchises and preserve their
relationships with customers, suppliers and others having business dealings
with them to the end that their goodwill and ongoing businesses shall not
be impaired at the Effective Time.
(b) REIT Qualification. Prison Realty shall conduct its operations in
a manner so as to continue to qualify as a REIT under the Code.
(c) Other Actions. Prison Realty shall not take any action that would
result in any of its representations and warranties set forth in this
Agreement that are qualified as to materiality being untrue, any of such
representations and warranties that are not so qualified being untrue in
any material respect or any of the conditions to the Merger set forth in
Article VI not being satisfied.
(d) Structure of Transactions. Prison Realty shall advise CCA from
time to time of the proposed structure of Prison Realty and its
Subsidiaries and affiliated entities at and after the Effective Time for
purposes of CCA's evaluation of the Merger.
(e) Advice of Changes; Filings. Prison Realty shall advise CCA of any
change or event which would cause or constitute a material breach of any of
its representations or warranties contained herein. Prison Realty shall
file all reports required to be filed by it with the SEC or the NYSE
between the date of this Agreement and the Effective Time and shall deliver
to CCA copies of all such reports promptly after the same are filed.
Section 4.02 Covenants of CCA Sub. During the period from the date of this
Agreement until the Effective Time, CCA Sub agrees that it shall not take any
action that would result in any of its representations and warranties set forth
in this Agreement that are qualified as to materiality being untrue, any of such
representations and warranties that are not so qualified being untrue in any
material respect or any of the conditions to the Merger set forth in Article VI
herein not being satisfied.
Section 4.03 Covenants of CCA. Except as set forth in Section 4.03 of the
CCA Disclosure Schedule or as otherwise contemplated by this Agreement and the
transactions related thereto, during the period from the date of this Agreement
through and including the Effective Time, CCA shall, and shall cause its
Subsidiaries to, carry on their respective businesses in the ordinary course
consistent with past practice and in compliance in all material respects with
all applicable laws and regulations and, to the extent consistent therewith,
shall use reasonable efforts to preserve intact their current business
organizations and use reasonable efforts to preserve their relationships with
those persons having business dealings with them. Without limiting the
generality of the foregoing, except as set forth in Section 4.03 of the CCA
Disclosure Schedule or as otherwise contemplated by this
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Agreement, during the period from the date of this Agreement through the
Effective Time, CCA shall not, and shall not permit any of its Subsidiaries to:
(a) Dividends; Changes in Stock. Other than dividends and
distributions by a direct or indirect wholly owned Subsidiary to CCA or one
of their wholly owned Subsidiaries, (i) declare, set aside or pay any
dividends (payable in cash, stock, property or otherwise) on, make any
other distributions in respect of, or enter into any agreement with respect
to the voting of, any of its capital stock, (ii) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for
shares of its capital stock, or (iii) purchase, redeem or otherwise acquire
any capital stock of CCA or any of its Subsidiaries or any other securities
thereof or any rights, warrants or options to acquire any such shares or
other securities;
(b) Issuance of Securities. Issue, deliver, sell, pledge or otherwise
encumber or subject to any Lien any of its shares of capital stock or any
other voting securities or any securities convertible into, exercisable for
or exchangeable with, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities;
(c) Governing Documents. Amend its charter, bylaws or other
comparable organizational documents;
(d) No Acquisitions. Acquire any business (whether by merger,
consolidation, purchase of assets or otherwise) or acquire any equity
interest in any person not an affiliate (whether through a purchase of
stock, establishment of a joint venture or otherwise);
(e) No Dispositions. Other than the obligations for capital
commitments set forth in Section 4.03 of the CCA Disclosure Schedule, (A)
sell, lease, exchange, license, mortgage or otherwise encumber or subject
to any Lien or otherwise dispose of any of its real properties or other
assets, (B) enter into any new joint ventures or similar projects, or (C)
enter into any new development projects;
(f) Accounting Methods. Change its methods of accounting (or
underlying assumptions) in effect at December 31, 1999, except as required
by changes (i) in generally accepted accounting principles ("GAAP"), (ii)
in law or regulation, or (iii) due to events subsequent to March 31, 2000
related or consequential to the execution of this Agreement or consummation
of the Merger and related transactions (including, but not limited to, the
effects of any changes required by the SEC as part of its review of the
Prison Realty Filed SEC Documents, the Proxy Statement or the Registration
Statement); or change any of its methods of reporting income and deductions
for federal income tax purposes from those employed in the preparation of
the federal income tax returns of CCA for the taxable years ended December
31, 1999, except as required by changes in law or regulation;
(g) No Settlements. Effect any settlement or compromise of any
pending or threatened proceeding in respect of which CCA is or could have
been a party, unless such settlement (i) includes an unconditional written
release of CCA, in form and substance reasonably satisfactory to CCA, from
all liability on claims that are the subject matter of such proceeding,
(ii) does not include any statement as to any admission of fault,
culpability or failure to act by or on behalf of CCA and (iii) is less than
$100,000;
(h) No Cancellation. Other than the obligations for capital
commitments set forth in Section 4.03 of the CCA Disclosure Schedule,
create, renew, amend, terminate or cancel, or take any other action that
could reasonably be expected to result in the creation, renewal,
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amendment, termination or cancellation of any agreement or instrument that
is material to CCA and its respective Subsidiaries, taken as a whole;
(i) Indebtedness. Other than the obligations for capital commitments
set forth in Section 4.03 of the CCA Disclosure Schedule and any
indebtedness incurred by CCA in connection with this Agreement and the
transactions related thereto, and except for an increase in amounts
outstanding under its revolving credit agreement and/or the renewal or
refinancing of its existing revolving credit facility, incur any
indebtedness for borrowed money;
(j) No Commitments. Other than the obligations for capital
commitments set forth in Section 4.03 of the CCA Disclosure Schedule, enter
into any new capital or take out commitments or increase any existing
capital or take out commitments;
(k) Compensation. Except pursuant to agreements or arrangements in
effect on the date hereof, (A) grant to any current or former director,
executive officer or other key employee of CCA or any Subsidiary any
increase in compensation, bonus or other benefits (other than increases in
base salary in the ordinary course of business consistent with past
practice or arising due to a promotion or other change in status and
consistent with generally applicable compensation practices), (B) grant to
any such current or former director, executive officer or other employee
any increase in severance or termination pay, (C) amend or adopt any
employment, deferred compensation, consulting, severance, termination or
indemnification agreement with any such current or former director,
executive officer or employee, or (D) amend, adopt or terminate any CCA
Benefit Plan, except as may be required to retain qualification of any such
plan under Section 401(a) of the Code;
(l) Related Party Transactions. Except pursuant to agreements or
arrangements in effect on the date hereof or as otherwise contemplated by
this Agreement which have been disclosed in Section 4.03 of the CCA
Disclosure Schedule, pay, loan or advance any amount to, or sell, transfer
or lease any properties or assets (real, personal or mixed, tangible or
intangible) to, or purchase any properties or assets, or enter into any
agreement or arrangement with, any of its officers or directors or any
affiliate or the immediate family members or associates of any of its
officers or directors, other than payment of compensation at current
salary, incentive compensation and bonuses and other than properly
authorized business expenses in the ordinary course of business, in each
case consistent with past practice;
(m) Insurance. Permit any material insurance policy naming CCA or any
Subsidiary as a beneficiary or a loss payable payee to be canceled or
terminated;
(n) Advise of Changes. Neglect or fail to advise Prison Realty of any
change or event which would cause or constitute a material breach of any of
the representations or warranties of CCA contained herein; or
(o) Other Actions. Authorize, or commit or agree to take, any of the
foregoing actions.
Section 4.04 No Solicitation by Prison Realty.
(a) Prison Realty shall not, nor shall it permit any of its Subsidiaries
to, nor shall it authorize or permit any officer, director or employee of, or
any investment banker, attorney or other advisor or representative of, Prison
Realty or any of its Subsidiaries to, directly or indirectly, (i) solicit,
initiate, encourage or knowingly facilitate the submission of any alternative
proposal or (ii) enter into or participate in any discussions or negotiations
regarding, or furnish to any person any information with respect to, any
alternative proposal; provided, however, that prior to the receipt of the Prison
Realty Stockholder Approval, Prison Realty may, in response to a bona fide
alternative proposal that constitutes a superior proposal (as defined in Section
4.04(b) herein) and that was made after the
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date hereof (and not solicited by Prison Realty after the date hereof) by any
person, and subject to compliance with Section 4.04(c) herein, (A) furnish
information with respect to Prison Realty and its Subsidiaries to such person
and its representatives pursuant to a customary confidentiality agreement and
discuss such information with such person and its representatives and (B)
participate in negotiations regarding such alternative proposal. For purposes of
this Section 4.04, the term "alternative proposal" means any inquiry, proposal
or offer from any person relating to any direct or indirect acquisition or
purchase of 10% or more of the assets (based on the fair market value thereof)
of Prison Realty and its Subsidiaries, taken as a whole, other than the
transactions contemplated by this Agreement, or of 10% or more of any class of
equity securities of Prison Realty or any of its Subsidiaries or any tender
offer or exchange offer (including by Prison Realty or any of its Subsidiaries)
that if consummated would result in any person beneficially owning 10% or more
of any class of equity securities of Prison Realty or any of its Subsidiaries,
or any merger, consolidation, business combination, sale of substantially all
assets, recapitalization, liquidation, dissolution or similar transaction
involving Prison Realty or any of its Subsidiaries other than the transactions
contemplated by this Agreement.
(b) Except as set forth in this Section 4.04, the Board of Directors of
Prison Realty shall not (i) withdraw or modify, or publicly propose to withdraw
or modify, in a manner adverse to CCA, the approval or recommendation by such
Board of Directors of the Merger or this Agreement, (ii) approve or recommend,
or propose publicly to approve or recommend, any alternative proposal or (iii)
cause or agree to cause Prison Realty to enter into any letter of intent,
agreement in principle, acquisition agreement or similar agreement related to
any alternative proposal. Notwithstanding the foregoing, if the Board of
Directors of Prison Realty receives a superior proposal, such Board of Directors
may, prior to the receipt of the Prison Realty Stockholder Approval, withdraw or
modify its approval or recommendation of the Merger and this Agreement, approve
or recommend a superior proposal or terminate this Agreement, but in each case
only at a time that is at least five business days after receipt by CCA of
written notice advising CCA that the Board of Directors of Prison Realty has
resolved to accept a superior proposal if it continues to be a superior proposal
at the end of such five business day period. For purposes of this Section 4.04,
the term "superior proposal" means any bona fide alternative proposal (which,
for purposes of Section 4.04(a) only, may be subject to a due diligence
condition), which proposal was not solicited by Prison Realty after the date of
execution of this Agreement, made by a third party to acquire, directly or
indirectly, for consideration consisting of cash and/or securities, more than
10% of the shares of capital stock of Prison Realty then outstanding or all or
substantially all the assets of Prison Realty and its Subsidiaries and otherwise
on terms which the Board of Directors of Prison Realty determines in good faith
(after consultation with its financial advisor) to be more favorable to Prison
Realty=s stockholders than the Merger and the issuance of securities pursuant to
the Securities Purchase Agreement and for which financing, to the extent
required, is then committed or which, in the good faith judgment of such Board
of Directors, is reasonably capable of being financed by such third party.
(c) In addition to the obligations of Prison Realty set forth in paragraphs
(a) and (b) above, Prison Realty promptly shall advise CCA orally and in writing
of any request for information or of any alternative proposal, the material
terms and conditions of such request or alternative proposal and the identity of
the person making any such request or alternative proposal and any determination
by the Board of Directors of Prison Realty that a alternative proposal is or may
be a superior proposal. Prison Realty will keep CCA informed as to the status
and material details (including amendments or proposed amendments) of any such
request or alternative proposal.
Section 4.05 No Solicitation by CCA. Without the prior written consent of
Prison Realty, (a) CCA shall not, nor shall it permit any of its Subsidiaries
to, nor shall it authorize or permit any
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officer, director or employee of, or any investment banker, attorney or other
advisor or representative of, CCA or any of its Subsidiaries to, directly or
indirectly, (i) solicit, initiate, encourage or knowingly facilitate the
submission of any alternative proposal or (ii) enter into or participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to, any alternative proposal. For purposes of this Section 4.05,
the term "alternative proposal" means any inquiry, proposal or offer from any
person relating to any direct or indirect acquisition or purchase of 10% or more
of the assets (based on the fair market value thereof) of CCA and its
Subsidiaries, taken as a whole, other than the transactions contemplated by this
Agreement, or of 10% or more of any class of equity securities of CCA or any of
its Subsidiaries or any tender offer or exchange offer (including by CCA or any
of its Subsidiaries) that if consummated would result in any person beneficially
owning 10% or more of any class of equity securities of CCA or any of its
Subsidiaries, or any merger, consolidation, business combination, sale of
substantially all assets, recapitalization, liquidation, dissolution or similar
transaction involving CCA or any of its Subsidiaries other than the transactions
contemplated by this Agreement.
(b) Except as set forth in this Section 4.05, the Board of Directors of CCA
shall not (i) withdraw or modify, or publicly propose to withdraw or modify, in
a manner adverse to Prison Realty, the approval or recommendation by such Board
of Directors of the Merger or this Agreement, (ii) approve or recommend, or
propose publicly to approve or recommend, any alternative proposal or (iii)
cause or agree to cause CCA to enter into any letter of intent, agreement in
principle, acquisition agreement or similar agreement related to any alternative
proposal.
(c) In addition to the obligations of CCA set forth in paragraphs (a) and
(b) above, CCA promptly shall advise Prison Realty orally and in writing of any
request for information or of any alternative proposal, the material terms and
conditions of such request or alternative proposal and the identity of the
person making any such request or alternative proposal and any determination by
the Board of Directors of CCA that an alternative proposal is or may be a
superior proposal. CCA will keep Prison Realty informed as to the status and
material details (including amendments or proposed amendments) of any such
request or alternative proposal.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.01 Preparation of the Proxy Statement and Registration
Statement. As promptly as practicable following the date of this Agreement,
Prison Realty, CCA Sub and CCA shall prepare and file with the SEC the Proxy
Statement and the Registration Statement. Each party hereto will cooperate with
the other party in connection with the preparation of the Proxy Statement and
the Registration Statement, including, but not limited to, furnishing all
information as may be required to be disclosed therein. The Proxy Statement
shall contain the recommendation of the Board of Directors of Prison Realty that
the stockholders of Prison Realty approve this Agreement and the transaction
contemplated hereby. The proxy statement-prospectus which constitutes a portion
of the Registration Statement shall contain the recommendation of the Board of
Directors of CCA that the shareholders of CCA approve this Agreement and the
transaction contemplated hereby. Each of Prison Realty, CCA Sub and CCA shall
use its reasonable best efforts to have the Proxy Statement cleared by the SEC
and to have the proxy statement-prospectus which constitutes a portion of the
Registration Statement declared effective by the SEC as promptly as practicable
after such filing. Each party hereto will use its reasonable best efforts to
cause the Proxy Statement and the proxy statement-prospectus which constitutes a
portion of the Registration Statement to be mailed to its shareholders as
promptly as practicable after the clearance of the Proxy Statement by the SEC
and the declaration of the effectiveness of the Registration Statement by the
SEC under the Securities
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Act. No filing of, or amendment or supplement to the Proxy Statement or the
Registration Statement will be made by any party hereto without providing the
other parties and their Boards of Directors the opportunity to review and
comment thereon and to approve the same, provided that such approvals shall not
be unreasonably withheld. Each party hereto will advise the other parties,
promptly after it receives notice thereof, of any request by the SEC for
amendment of the Proxy Statement or the Registration Statement or comments
thereon and responses thereto or requests by the SEC for additional information.
If at any time prior to the Effective Time any information relating to any of
the parties hereto or any of their respective affiliates, officers or directors,
should be discovered by a party hereto which should be set forth in an amendment
or supplement to the Proxy Statement or Registration Statement, so that the
Proxy Statement or the Registration Statement would not include any misstatement
of a material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, the party which discovers such information shall promptly notify
the other parties hereto and an appropriate amendment or supplement describing
such information shall be promptly filed with the SEC and, to the extent
required by law, such amended or supplemented Proxy Statement or the proxy
statement-prospectus which constitutes a portion of such amended or supplemented
Registration Statement, as applicable, disseminated to the shareholders of
Prison Realty and CCA.
Section 5.02 Access to Information. Each party shall, and shall cause each
of its Subsidiaries to, afford to the other party hereto and to its officers,
employees, accountants, counsel and other representatives (including
environmental consultants), reasonable access, during normal business hours
during the period prior to the Effective Time, to their respective properties,
books, records and personnel and, during such period, each party hereto shall,
and shall cause each of its Subsidiaries to, furnish promptly to the other party
hereto (a) a copy of each report, schedule, registration statement and other
document filed or received by it during such period pursuant to the requirements
of Federal or state securities laws and (b) such other information concerning
its business, properties and personnel as the other party may reasonably
request. With respect to matters disclosed in the Prison Realty Disclosure
Schedule or the CCA Disclosure Schedule, respectively, each party agrees to
supplement from time to time the information set forth therein.
Section 5.03 Shareholders' Meetings. Prison Realty shall, as promptly as
practicable after the date hereof, (a) duly call, give notice of, convene and
hold a Stockholders' Meeting for the purpose of obtaining the Prison Realty
Stockholder Approval, and (b) subject in the case of Prison Realty to Section
4.04, through its respective Board of Directors, recommend to its stockholders
that they grant the Prison Realty Stockholder Approval. Prison Realty shall use
all reasonable efforts to solicit from its stockholders proxies in favor of
Prison Realty Stockholder Approval and shall take all other action necessary or,
in the reasonable opinion of such party, advisable to secure Prison Realty
Stockholder Approval. CCA shall vote, or cause to be voted, in favor of the
transactions for which Prison Realty is seeking Prison Realty Stockholder
Approval, all shares of Prison Realty Common Stock directly or indirectly
beneficially owned by it.
CCA shall, as promptly as practicable after the date hereof, (a) duly call,
give notice of, convene and hold a Shareholders' Meeting for the purpose of
obtaining the CCA Shareholder Approval, and (b) through its respective Board of
Directors, recommend to its shareholders that they grant the CCA Shareholder
Approval. CCA shall use all reasonable efforts to solicit from its shareholders
proxies in favor of CCA Shareholder Approval and shall take all other action
necessary or, in the reasonable opinion of such party, advisable to secure CCA
Shareholder Approval. Prison Realty shall vote, or cause to be voted, in favor
of the transactions for which CCA is seeking CCA Shareholder Approval, all
shares of CCA Common Stock directly or indirectly beneficially owned by it.
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Section 5.04 Reasonable Best Efforts. Subject to the terms and conditions
of this Agreement, each party hereto shall, and shall cause its Subsidiaries to,
use all reasonable best efforts to take, or cause to be taken, all actions, and
to do, or cause to be done, and to assist and cooperate with the other parties
in doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Merger and the other
transactions contemplated by this Agreement, including (i) the obtaining of any
necessary consent, authorization, order or approval of, or any exemption by, any
Governmental Entity and/or any other public or private third party which is
required to be obtained by such party or any of its Subsidiaries in connection
with the Merger and the other transactions contemplated by this Agreement
(provided that no party to this Agreement shall pay or agree to pay any material
amount to obtain a consent without the prior approval of the remaining parties,
which approval shall not be unreasonably withheld or delayed), and the making or
obtaining of all necessary filings and registrations with respect thereto, (ii)
the defending of any lawsuits or other legal proceedings challenging this
Agreement, and (iii) the execution and delivery of any additional instruments
necessary to consummate the transactions contemplated by, and to fully carry out
the purposes of, this Agreement.
Section 5.05 Benefits Matters. Except as otherwise provided herein,
following the Effective Time, Prison Realty shall honor, or cause to be honored,
all obligations under employment agreements, Prison Realty Benefit Plans and all
other employee benefit plans, programs, policies and arrangements of any of the
parties hereto in accordance with the terms thereof. Nothing herein shall be
construed to prohibit Prison Realty from amending or terminating such
agreements, programs, policies and arrangements in accordance with the terms
thereof and with applicable law.
Section 5.06 Fees and Expenses. Whether or not the Merger is consummated,
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such costs
or expenses.
Section 5.07 Indemnification, Exculpation and Insurance.
(a) From and after the Effective Time, Prison Realty shall indemnify,
defend and hold harmless to the fullest extent permitted by applicable federal
and state law each person who is on the date hereof, or has been at any time
prior to the date hereof or who becomes prior to the Effective Time, a director
or officer of CCA or was serving at the request of CCA as a director or officer
of any domestic or foreign corporation, joint venture, trust, employee benefit
plan or other enterprise (collectively, the "Indemnities") arising out of CCA's
Charter or Bylaws in effect at the Effective Time against any and all losses in
connection with or arising out of any claim which is based upon, arises out of
or in any way relates to any actual or alleged act or omission occurring at or
prior to the Effective Time in the Indemnitee's capacity as a director or
officer (whether elected or appointed), of CCA.
(b) In the event Prison Realty or any of its successors or assigns: (i)
consolidates with or merges into any other corporation or entity and shall not
be the continuing or surviving corporation or entity of such consolidation or
merger; or (ii) transfers or conveys all or substantially all of its properties
and assets to any person or entity, then, and in each case, to the extent
necessary, proper provisions shall be made so that the successors and assigns of
Prison Realty assume the obligations set forth in this Section 5.07.
(c) Prison Realty shall maintain in effect for not less than two (2) years
from the Effective Time the policies of directors' and officers' liability
insurance most recently maintained by CCA; provided, however, that Prison Realty
may substitute therefor policies with reputable and financially sound carriers
for substantially similar coverage containing terms and conditions which are no
less advantageous for so long as such substitution does not result in gaps or
lapses in coverage with
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respect to claims arising from or relating to matters occurring prior to the
Effective Time. Prison Realty shall pay all expenses, including attorneys' fees,
that may be incurred by any Indemnitee in enforcing the indemnity and other
obligations provided for in this Section 5.07.
(d) The provisions of this Section 5.07 are intended to be for the benefit
of, and shall be enforceable by, each Indemnitee and their respective heirs and
representatives.
Section 5.08 Transfer Taxes. All state, local, foreign or provincial
sales, use, real property transfer, stock transfer or similar taxes (including
any interest or penalties with respect thereto, but not including any
shareholder-level taxes based upon net income) attributable to the Merger shall
be timely paid by Prison Realty.
Section 5.09 Stock Exchange Listing. The Surviving Company and Prison
Realty shall each use their reasonable best efforts to cause the Prison Realty
Stock to be issued in connection with the Merger to be listed on the NYSE,
subject to official notice of issuance, if applicable.
Section 5.10 Tax-Free Reorganization. Prior to the Effective Time, each
party shall use its reasonable best efforts to cause the Merger to qualify as a
reorganization qualifying under the provisions of Section 368(a) of the Code.
Section 5.11 Shareholders' Agreement. As of the Effective Time, the
Shareholders' Agreement, dated September 22, 1998, among certain shareholders of
CCA shall each be terminated and shall no longer have any force or effect.
Section 5.12 Lock-Up Agreement. As of the Effective Time, each of the
holders of shares of CCA Common Stock whose shares are not subject to forfeiture
under the CCA Restricted Stock Plan shall enter into a lock-up agreement with
Prison Realty (the "Lock-Up Agreement"), a form of which is attached hereto as
Exhibit A, pursuant to which each such holder shall agree not to sell, assign or
otherwise transfer (collectively, a "Transfer") any shares of Prison Realty
Common Stock received in connection with the Merger (the "Shares"), nor enter
into any agreement regarding the same, for a period of one hundred eighty (180)
days (the "180-Day Period") following the date of closing of the Merger, and
further agrees not to Transfer such Shares thereafter except as follows: (i)
after expiration of the 180-Day Period, a holder may Transfer up to twenty-five
percent (25%) of the aggregate amount of the Shares; (ii) after December 31,
2001, a holder may Transfer up to fifty percent (50%) of the aggregate amount of
the Shares; (iii) after December 31, 2002, a holder may Transfer up to
seventy-five percent (75%) of the aggregate amount of the Shares; and (iv) after
December 31, 2003, a holder may Transfer up to one hundred percent (100%) of the
aggregate amount of the Shares.
Section 5.13 Equity Incentive Plan. Following the consummation of the
Merger and the related transactions, Prison Realty shall adopt a new equity
incentive plan pursuant to which it will have the authority to grant options to
purchase shares of Prison Realty Common Stock and other types of equity-based
incentive compensation, on such terms and conditions as are approved by the
Board of Directors of Prison Realty following the consummation of the Merger.
Section 5.14 Change of Corporate Name. In connection with the Merger and
the related transactions, Prison Realty shall amend its charter, bylaws and
organizational documents to change the name of the corporation to "Corrections
Corporation of America" and the business and affairs of Prison Realty following
the consummation of the Merger and the related transactions shall be conducted
using the name "Corrections Corporation of America."
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ARTICLE VI
CONDITIONS PRECEDENT
Section 6.01 Conditions to Each Party's Obligation To Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction or waiver at or prior to the Effective Time of the
following conditions:
(a) HSR Act. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
(b) No Injunctions or Restraints; Illegality. No statute, rule,
regulation, judgment, writ, decree, order, temporary restraining order,
preliminary or permanent injunction shall have been promulgated, enacted,
entered or enforced, and no other action shall have been taken, by any
Governmental Entity of competent jurisdiction enjoining or otherwise
preventing the consummation of the Merger shall be in effect; provided,
however, that each of the parties shall use its reasonable best efforts to
prevent the entry of any such injunction or other order or decree and to
cause any such injunction or other order or decree that may be entered to
be vacated or otherwise rendered of no effect.
(c) Listing of Merger Consideration. The Prison Realty Stock to be
issued in the Merger shall have been approved for listing on the NYSE,
subject to official notice of issuance, if applicable.
(d) Proxy Statement and Registration Statement. The Proxy Statement
and Registration Statement shall be satisfactory in all material respects
to Prison Realty and CCA, the Proxy Statement shall have been cleared by
the SEC, and the Registration Statement shall have been declared effective
by the SEC under the Securities Act, and no stop order suspending the use
of the Proxy Statement or the effectiveness of the Registration Statement
shall be in effect and no proceedings for such purpose shall be pending
before or threatened by the SEC.
(e) Tax-Free Reorganization. The receipt by each of Prison Realty and
CCA of an opinion of its respective tax counsel to the effect that the
Merger qualifies as a reorganization within the meaning of Section 368(a)
of the Code.
Section 6.02 Conditions to Obligation of Prison Realty and CCA Sub To
Effect the Merger. The obligation of Prison Realty and CCA Sub to effect the
Merger is subject to the satisfaction of the following conditions unless waived
by Prison Realty and CCA Sub:
(a) Shareholder Approval. The Prison Realty Stockholder Approval and
the CCA Shareholder Approval shall have been obtained.
(b) Representations and Warranties. The representations and
warranties of CCA set forth in this Agreement shall be true and correct,
except that this condition shall be deemed satisfied so long as any
failures of such representations and warranties to be true and correct do
not individually or in the aggregate have a material adverse effect on CCA
as of the date of this Agreement and as of the Closing Date, except as
otherwise contemplated by this Agreement, and Prison Realty and the CCA Sub
shall have received a certificate to such effect signed on the Closing Date
on behalf of CCA by the Chief Executive Officer and Secretary.
(c) Performance of Obligations of Other Parties. CCA shall have
performed in all material respects all material obligations required to be
performed by them under this Agreement at or prior to the Closing Date, and
Prison Realty shall have received a certificate to such effect signed on
behalf of each party by its Chief Executive Officer or Chief Financial
Officer.
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(d) Consents, etc. Prison Realty shall have received evidence, in
form and substance reasonably satisfactory to it, that such consents,
approvals, authorizations, qualifications and orders of Governmental
Entities and other third parties as are necessary in connection with the
transactions contemplated hereby have been obtained, other than those the
failure of which to be obtained, individually or in the aggregate, would
not have a material adverse effect on Prison Realty or CCA.
(e) Consents to Assignment of Management Contracts. To the extent
required by applicable law and the provisions of the contracts, CCA shall
have obtained all necessary written consents of governmental authorities to
the performance of their respective facility management contracts by Prison
Realty and/or CCA Sub after the Merger.
(f) Purchase of CCA Common Stock Held by Baron. Prison Realty shall
have purchased the CCA Common Stock held by Baron pursuant to the terms and
conditions reasonably acceptable to Prison Realty.
(g) Execution of Lock-Up Agreements. The Lock-Up Agreements shall
have been executed and delivered in accordance with Section 5.12.
Section 6.03 Conditions to Obligation of CCA To Effect the Merger. The
obligation of CCA to effect the Merger is subject to the satisfaction of the
following conditions unless waived by CCA:
(a) Representations and Warranties. The representations and
warranties of Prison Realty set forth in this Agreement shall be true and
correct, except that this condition shall be deemed satisfied so long as
any failures of such representations and warranties to be true and correct
do not individually or in the aggregate have a material adverse effect on
Prison Realty as of the date of this Agreement and as of the Closing Date,
except as otherwise contemplated by this Agreement, and CCA shall have
received a certificate to such effect signed on the Closing Date on behalf
of Prison Realty by its Chief Executive Officer and Secretary.
(b) Performance of Obligations of Prison Realty. Prison Realty shall
have performed in all material respects all material obligations required
to be performed by it under this Agreement at or prior to the Closing Date,
and CCA shall have received a certificate to such effect signed on behalf
of Prison Realty by its Chief Executive Officer or Chief Financial Officer.
(c) Shareholder Approval. The Prison Realty Stockholder Approval and
the CCA Shareholder Approval shall have been obtained.
Section 6.04 Frustration of Closing Conditions. No party to this Agreement
may rely on the failure of any condition set forth in Sections 6.01 through
6.03, as the case may be, to be satisfied if such failure was caused by such
party's failure to use all reasonable best efforts to consummate the Merger and
the other transactions contemplated by this Agreement.
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ARTICLE VII
TERMINATION AND AMENDMENT
Section 7.01 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after the Prison Realty
Stockholder Approval and the CCA Shareholder Approval are received:
(a) by mutual written consent of the parties hereto;
(b) by Prison Realty or CCA upon written notice to the other parties:
(i) if any Governmental Entity of competent jurisdiction shall have
issued a permanent injunction or other order or decree enjoining or
otherwise preventing the consummation of the Merger and such injunction
or other order or decree shall have become final and nonappealable;
provided that the party seeking to terminate this Agreement pursuant to
this clause (i) shall have used its reasonable best efforts to prevent
or contest the imposition of, or seek the lifting or stay of, such
injunction, order or decree;
(ii) if the Merger shall not have been consummated on or before
October 31, 2000, unless the failure to consummate the Merger is the
result of a material breach of this Agreement by the party seeking to
terminate this Agreement;
(iii) if, upon a vote at a duly held Prison Realty Stockholders=
Meeting or any adjournment thereof, the Prison Realty Stockholder
Approval shall not have been obtained;
(c) by Prison Realty upon written notice to CCA if, upon a vote at a
duly held CCA Shareholders' Meeting or any adjournment thereof, the CCA
Shareholder Approval shall not have been obtained;
(d) by Prison Realty upon written notice to CCA, if the Board of
Directors of CCA or any committee thereof shall have withdrawn or modified
in a manner adverse to Prison Realty its approval or recommendation of the
Merger or this Agreement or resolved to do so;
(e) by CCA upon written notice to Prison Realty, if the Board of
Directors of Prison Realty or any committee thereof shall have withdrawn or
modified in a manner adverse to such terminating party its approval or
recommendation of the Merger or this Agreement or resolved to do so;
(f) unless CCA is in material breach of its obligations hereunder, by
CCA upon written notice to Prison Realty if Prison Realty breaches or fails
to perform any of its representations, warranties, covenants or other
agreements hereunder, which breach or failure to perform (A) would give
rise to the failure of a condition set forth in Section 6.03 hereof and (B)
is incapable of being cured by Prison Realty or is not cured within thirty
(30) days after CCA gives written notice of such breach to Prison Realty
and such a cure is not effected during such period; or
(g) unless Prison Realty is in material breach of its obligations
hereunder, by Prison Realty upon written notice to CCA if CCA breaches or
fails to perform any of its representations, warranties, covenants or other
agreements hereunder, which breach or failure to perform (A) would give
rise to the failure of a condition set forth in Section 6.02 hereof and (B)
is incapable of being cured by CCA or is not cured within thirty (30) days
after Prison Realty gives written notice of such breach to the breaching
party and such a cure is not effected during such period.
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Section 7.02 Effect of Termination. In the event of termination of this
Agreement by Prison Realty or CCA as provided in Section 7.01 herein, this
Agreement shall forthwith become void and have no effect and, except to the
extent that such termination results from the wilful and material breach by a
party of any of its representations, warranties, covenants or agreements set
forth in this Agreement, there shall be no liability or obligation on the part
of Prison Realty or CCA except with respect to Section 5.06, this Section 7.02
and Article VIII hereof, which provisions shall survive such termination.
Section 7.03 Amendment. This Agreement may be amended by the parties
hereto at any time before or after the Prison Realty Stockholder Approval and
the CCA Shareholder Approval is received, provided that after receipt of the
Prison Realty Stockholder Approval or the CCA Shareholder Approval, no amendment
shall be made which by law requires further approval by such shareholders
without such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
Section 7.04 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto may, to the extent legally allowed, (a) extend the time for
the performance of any of the obligations or other acts of the other party
hereto, (b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (c) subject to
the proviso of Section 7.03, waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.
Section 7.05 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.01, an amendment of this
Agreement pursuant to Section 7.03 or an extension or waiver pursuant to Section
7.04 shall, in order to be effective, require action by the Board of Directors,
or the duly authorized committee of such Board to the extent permitted by law,
of the party authorizing such action.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement shall survive the Effective
Time. This Section 8.01 shall not limit any covenant or agreement of the parties
which by its terms contemplates performance after the Effective Time.
Section 8.02 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(with confirmation) or sent by overnight or same-day courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
if to Prison Realty, to:
Prison Realty Trust, Inc.
10 Burton Hills Boulevard, Suite 100
Nashville, Tennessee 37215
Attention: Thomas W. Beasley, Chairman
of the
Board of Directors
Facsimile: (615) 263-0234
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with a copy to:
Stokes & Bartholomew, P.A.
424 Church Street, Suite 2800
Nashville, Tennessee 37219-2323
Attention: Elizabeth E. Moore, Esq.
Facsimile: (615) 259-1470
if to CCA, to:
Corrections Corporation of America
10 Burton Hills Boulevard
Nashville, Tennessee 37215
Attention: J. Michael Quinlan,
President and
Chief Operating Officer
Facsimile: (615) 263-3010
with a copy to:
Sherrard & Roe, PLC
424 Church Street, Suite 2000
Nashville, Tennessee 37219
Attention: John R. Voigt, Esq.
Facsimile: (615) 742-4239
Section 8.03 Definitions; Interpretation.
(a) As used in this Agreement:
(i) unless otherwise expressly provided herein, an "affiliate" of any
person means another person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, such first person, where "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of voting securities,
by contract or otherwise;
(ii) "business day" means any day on which banks are not required or
authorized to close in the City of New York;
(iii) "material adverse effect" means any change, effect, event,
occurrence or development that is, or is reasonably likely to be,
materially adverse to the business, results of operations or financial
condition of a party hereto or its Subsidiaries, taken as a whole, other
than any change, effect, event or occurrence relating to or arising out of
(A) the economy or securities markets in general, (B) this Agreement or the
transactions contemplated hereby or the announcement thereof, including,
but not limited to, changes in methods of accounting with respect to the
financial statements of a party hereto or its Subsidiaries as precipitated
by this Agreement or the transactions contemplated hereby or by the review
of the SEC of the Prison Realty Filed SEC Documents, the Proxy Statement or
the Registration Statement, or (C) private corrections industry in general,
and not specifically relating to the parties hereto or their Subsidiaries;
(iv) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity; and
(v) "Subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests
of which is sufficient to elect at least a majority of its Board of
Directors or other governing body (or, if there are not such voting
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interests, more than 50% of the equity interests of which) is owned
directly or indirectly by such first person.
(b) When a reference is made in this Agreement to Articles, Sections,
Exhibits or Schedules, such reference shall be to an Article, Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. The term "or" when used in
this Agreement is not exclusive. All terms defined in this Agreement shall have
the defined meanings when used in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein. The definitions
contained in this Agreement are applicable to the singular as well as the plural
forms of such terms. Any agreement, instrument or statute defined or referred to
herein or in any agreement or instrument that is referred to herein means such
agreement, instrument or statute as from time to time amended, modified or
supplemented, including (in the case of agreements or instruments) by waiver or
consent and (in the case of statutes) by succession of comparable successor
statutes and references to all attachments thereto and instruments incorporated
therein. References to a person are also to its permitted successors and
assigns.
Section 8.04 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other party.
Section 8.05 Entire Agreement; No Third-Party Beneficiaries; Rights of
Ownership. This Agreement (a) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof, and (b) other than Section
5.07 of this Agreement, is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
Section 8.06 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Tennessee, without regard
to any principles of conflicts of law of such State.
Section 8.07 Publicity. Except as otherwise permitted by this Agreement or
required by law or the rules of the NYSE, so long as this Agreement is in
effect, no party to this Agreement shall, or shall permit any of its affiliates
to, issue or cause the publication of any press release or other public
announcement or statement with respect to this Agreement or the transactions
contemplated hereby without first obtaining the consent of the other parties
hereto. The parties agree that the initial press release to be issued with
respect to the transactions contemplated by this Agreement shall be in the form
heretofore agreed to by the parties.
Section 8.08 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned, in whole or in part, by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties, and any such assignment that is not
so consented to shall be null and void; provided that, if necessary or advisable
under applicable provisions of corporate or tax law, Prison Realty may assign
its rights hereunder to any of its Subsidiaries or affiliates to cause CCA to
merge with a Subsidiary or affiliate of Prison Realty, but no such assignment
shall relieve Prison Realty of its obligations hereunder including the
obligations to deliver the CCA Merger Consideration. Subject to the preceding
sentence, this Agreement will be
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binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
Section 8.09 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Federal court located in the
State of Tennessee or in any Tennessee state court, this being in addition to
any other remedy to which they are entitled at law or in equity. In addition,
each of the parties hereto (a) consents to submit itself to the personal
jurisdiction of any Federal court located in the State of Tennessee or any
Tennessee state court in the event any dispute arises out of this Agreement or
any of the transactions contemplated by this Agreement and (b) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court.
[SIGNATURE PAGES TO FOLLOW]
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Accepted and agreed to this 30th day of June, 2000.
PRISON REALTY TRUST, INC.
By: /s/ Thomas W. Beasley
Name: Thomas W. Beasley
Title: Chairman of the Board of
Directors
CCA ACQUISITION SUB, INC.
By: /s/ Darrell K. Massengale
Name: Darrell K. Massengale
Title: Chief Executive Officer and
President
CORRECTIONS CORPORATION OF AMERICA
By: /s/ Darrell K. Massengale
Name: Darrell K. Massengale
Title: Chief Financial Officer and
Secretary
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EXHIBIT A
FORM OF LOCK-UP AGREEMENT
, 2000
Prison Realty Trust, Inc.
10 Burton Hills Boulevard, Suite 100
Nashville, Tennessee 37215
Re: Shares of Common Stock to be Issued by Prison Realty Trust, Inc. in
Connection with the Merger of Corrections Corporation of America with and
into Prison Realty Trust, Inc.
Ladies and Gentlemen:
The undersigned understands that as a result of the merger (the "Merger")
of Corrections Corporation of America, a Tennessee corporation formerly known as
Correctional Management Services Corporation ("CCA"), with and into CCA
Acquisition Sub, Inc., a Tennessee corporation and wholly-owned subsidiary of
Prison Realty Trust, Inc. (the "Company"), shares of capital stock held by the
undersigned in CCA will be exchanged or converted into shares of common stock
(the "Common Stock") of the Company. In consideration of the foregoing and in
connection with the Merger, the undersigned hereby agrees that the undersigned
will not, without the prior written approval of the Board of Directors of the
Company, offer for sale, sell, transfer, assign, pledge, hypothecate or
otherwise dispose of, directly or indirectly (collectively, a "Transfer"), any
shares of Common Stock received in connection with the Merger (the "Shares"),
nor enter into any agreement regarding the same, for a period of one hundred
eighty (180) days (the "180-Day Period") following the date of closing of the
Merger, and further agrees not to Transfer such Shares thereafter except as
follows: (i) after expiration of the 180-Day Period, a holder may Transfer up to
twenty-five percent (25%) of the aggregate amount of the Shares; (ii) after
December 31, 2001, a holder may Transfer up to fifty percent (50%) of the
aggregate amount of the Shares; (iii) after December 31, 2002, a holder may
Transfer up to seventy-five percent (75%) of the aggregate amount of the Shares;
and (iv) after December 31, 2003, a holder may Transfer up to one hundred
percent (100%) of the aggregate amount of the Shares.
The foregoing agreements shall be binding on the undersigned and the
undersigned's respective heirs, personal representatives, successors and
assigns.
It is understood that if the Merger is not consummated this agreement shall
terminate.
Sincerely,
Signature:
--------------------------------------
Name:
--------------------------------------
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APPENDIX C
ARTICLES
SUPPLEMENTARY
CORRECTIONS CORPORATION OF AMERICA
SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
(PAR VALUE $0.01 PER SHARE)
Corrections Corporation of America, a Maryland corporation (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of the State of Maryland that:
FIRST: Pursuant to authority granted to the Board of Directors of the
Corporation (the "Board of Directors") by Article V of the charter of the
Corporation (the "Charter"), the Board of Directors has classified
8,000,000 shares (the "Shares") of Preferred Stock, as defined in the
Charter, as a separate series of shares of Preferred Stock, designated as
Series B Cumulative Convertible Preferred Stock, $0.01 par value per share
(the "Series B Preferred Stock").
SECOND: The terms of the Series B Preferred Stock, including the
preferences, voting powers, restrictions, limitations as to dividends and
other distributions, qualifications, and terms and conditions of
redemption, as fixed by the Board of Directors are as follows:
Section 1. Designation and Amount; Rank.
(a) The shares of such series shall be designated as the "Series B
Cumulative Convertible Preferred Stock" (the "Series B Preferred Stock"), and
the number of shares constituting such series shall be 8,000,000 shares. Section
10 sets forth the definitions of certain terms used in these Articles
Supplementary.
(b) The Series B Preferred Stock shall, with respect to dividend
distributions and distributions upon liquidation, winding-up and dissolution of
the Corporation, rank: (i) senior (to the extent set forth herein) to all Junior
Stock; (ii) on a parity with all Parity Stock; and (iii) junior to all Senior
Stock.
Section 2. Dividends and Distributions.
(a) Subject to the preferential rights of all Senior Stock, the holders of
shares of Series B Preferred Stock shall be entitled to receive, when and as
authorized and declared by the Board of Directors, out of funds legally
available for the payment of dividends, (i) commencing on the first Dividend
Payment Date and continuing through the third anniversary of the Issuance Date,
cumulative preferential dividends payable in additional shares of Series B
Preferred Stock at the rate of twelve percent (12%) per annum of the Stated
Amount of each share of the then outstanding Series B Preferred Stock, and (ii)
commencing with the first Dividend Period occurring after the third anniversary
of the Issuance Date, cumulative preferential dividends will be payable entirely
in cash at the rate of twelve percent (12%) per annum of the Stated Amount of
each share of the then outstanding Series B Preferred Stock. Dividends on shares
of Series B Preferred Stock shall accrue and be cumulative from the Issuance
Date. Dividends shall be payable quarterly in arrears when and as declared by
the Board of Directors on each Dividend Payment Date (or, if such Dividend
Payment Date is not a Business Day, the first (1st) Business Day following the
Dividend Payment Date) in respect of the Dividend Period ending on such Dividend
Payment Date (but without including such Dividend Payment Date) commencing on
the first Dividend Payment Date and continuing for so long as the Series B
Preferred Stock is outstanding. Any reference herein to "cumulative dividends"
or
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"Accrued Dividends" or similar phrases means that such dividends are fully
cumulative and accumulate and accrue on a daily basis (computed on the basis of
a 360-day year of twelve 30-day months), whether or not they have been declared
and whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of dividends. The Accrued Dividends will not
bear interest, and holders of shares of the Series B Preferred Stock will not be
entitled to any distributions other than as expressly set forth herein. All
dividends payable in additional shares of Series B Preferred Stock shall be paid
through the issuance of additional shares of Series B Preferred Stock (including
fractional shares) at the Stated Amount.
Notwithstanding anything contained herein to the contrary, no dividends on
shares of Series B Preferred Stock shall be declared by the Board of Directors
or paid or Set Apart for Payment by the Corporation at such time as, and to the
extent that, the terms and provisions of any agreement to which the Corporation
is a party, including any agreement relating to its indebtedness or any
provisions of the Corporation's Charter relating to any Senior Stock, prohibit
such declaration, payment or setting apart for payment or provide that such
declaration, payment or setting apart for payment would constitute a breach
thereof or a default thereunder, or if such declaration or payment shall be
restricted or prohibited by law.
(b) For so long as any shares of Series B Preferred Stock are outstanding,
no full dividends shall be declared by the Board of Directors or paid or Set
Apart for Payment by the Corporation on any Parity Stock for any period unless
the Accrued Dividends have been or contemporaneously are declared and paid in
full, or declared and, if payable in cash, a sum in cash is Set Apart for
Payment. If the Accrued Dividends and any accrued dividends with respect to
Parity Stock are not so paid (or a sum sufficient for such payment is not so Set
Apart for Payment), all dividends declared and paid upon shares of the Series B
Preferred Stock and any other Parity Stock shall be declared pro rata so that
the amount of dividends declared and paid per share on the Series B Preferred
Stock and such Parity Stock shall in all cases bear to each other the same ratio
that the Accrued Dividends per share on the Series B Preferred Stock and the
accrued dividends per share on such Parity Stock bear to each other.
(c) For so long as any shares of Series B Preferred Stock are outstanding,
the Corporation shall not declare, pay or Set Apart for Payment any dividend on
any of the Junior Stock (other than (i) dividends in Junior Stock to the holders
of Junior Stock or (ii) distributions of rights of purchase shares of Common
Stock or Preferred Stock of the Corporation to the holders of Common Stock of
the Corporation), or make any payment on account of, or Set Apart for Payment
money for a sinking or other similar fund for, the purchase, redemption or other
retirement of, any of the Junior Stock or any warrants, rights, calls or options
exercisable for or convertible into any of the Junior Stock whether in cash,
obligations or shares of the Corporation or other property (other than in
exchange for Junior Stock), and shall not permit any corporation or other entity
directly or indirectly controlled by the Corporation to purchase or redeem any
of the Junior Stock or any such warrants, rights, calls or options (other than
in exchange for Junior Stock) unless the Accrued Dividends on the Series B
Preferred Stock for all Dividend Periods ended on or prior to the date of such
payment in respect of Junior Stock have been or contemporaneously are paid in
full or declared and, if payable in cash, a sum in cash has been Set Apart for
Payment.
(d) For so long as any shares of Series B Preferred Stock are outstanding,
the Corporation shall not (except with respect to dividends as permitted by
Section 2(b)) make any payment on account of, or Set Apart for Payment money for
a sinking or other similar fund for, the purchase, redemption or other
retirement of, any shares of the Parity Stock or any warrants, rights, calls or
options exercisable for or convertible into any shares of the Parity Stock, and
shall not permit any corporation or other entity directly or indirectly
controlled by the Corporation to purchase or redeem any shares of the Parity
Stock or any such warrants, rights, calls or options unless the Accrued
Dividends on the
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Series B Preferred Stock for all Dividend Periods ended on or prior to the date
of such payment in respect of Parity Stock have been or contemporaneously are
paid in full.
(e) Notwithstanding anything contained herein to the contrary, dividends on
the Series B Preferred Stock, if not paid on a Series B Dividend Payment Date,
will accrue whether or not dividends are declared for such Series B Dividend
Payment Date, whether or not the Corporation has earnings and whether or not
there are profits, surplus or other funds legally available for the payment of
such dividends. Any dividend payment made on shares of Series B Preferred Stock
shall first be credited against the current dividend and then against the
earliest Accrued Dividend.
Section 3. Voting Rights.
(a) The holders of shares of the Series B Preferred Stock will not have any
voting rights, except as set forth herein or as required by law.
(b) If and as long as (i) dividends on the Series B Preferred Stock shall
be in arrears and unpaid for four (4) Dividend Periods (a "Payment Default"),
the holders of such Series B Preferred Stock (voting together as a class with
all other series of Parity Stock upon which like voting rights have been
conferred and are exercisable) will be entitled to vote for the election of a
total of one (1) additional director of the Corporation (the "Default Director")
at a special meeting called by the President, Chairman of the Board, or a
majority of the Board of Directors upon the written request of the holders of
record of at least twenty percent (20%) of the shares of Series B Preferred
Stock and the holders of record of at least twenty percent (20%) of the shares
of any series of Parity Stock so in arrears (unless such request is received
less than ninety (90) days before the date fixed for the next annual or special
meeting of the stockholders) or at the next annual meeting of stockholders, and
at such subsequent annual meeting until all dividends accumulated on such shares
of Series B Preferred Stock for the past dividend periods and the dividend for
the then current dividend period shall have been fully paid or declared and a
sum sufficient for the payment thereof Set Apart for Payment. A quorum for any
such annual or special meeting shall exist if at least a majority of the
outstanding shares of Series B Preferred Stock and shares of Parity Stock upon
which like voting rights have been conferred and are exercisable are represented
in person or by proxy at such meeting. Such Default Directors shall be elected
upon affirmative vote of a plurality of the shares of Series B Preferred Stock
and such Parity Stock present and voting in person or by proxy at a duly called
and held meeting at which a quorum is present. If and when all accumulated
dividends and the dividend for the then current dividend period on the shares of
Series B Preferred Stock shall have been paid in full or Set Apart for Payment
in full, the holders thereof shall be divested of the foregoing voting rights
(subject to revesting in the event of each and every Payment Default) and, if
all accumulated dividends and the dividend for the then current dividend period
have been paid in full or Set Apart for Payment in full on all series of Parity
Stock upon which like voting rights have been conferred and are exercisable, the
term of office of each Default Director so elected shall immediately terminate.
Any Default Director may be removed at any time with or without cause by, and
shall not be removed otherwise than by the vote of, the holders of record of a
majority of the outstanding shares of Series B Preferred Stock and all series of
Parity Stock upon which like voting rights have been conferred and are
exercisable (voting together as a class). So long as a Payment Default shall
continue, any vacancy in the office of a Default Director may be filled by
written consent of the Default Directors remaining in office, or if none remains
in office, by a vote of the holders of record of a majority of the outstanding
shares of Series B Preferred Stock when they have the voting rights described
above (voting together as a class with all series of Parity Stock upon which
like voting rights have been conferred and are exercisable) or by written
consent of holders of a majority of such shares. The Default Directors shall
each be entitled to one vote per director on any matter.
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(c) The foregoing voting provision will not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be effected, all outstanding shares of Series B Preferred Stock shall have
been redeemed or called for redemption upon proper notice and sufficient funds
shall have been irrevocably deposited or set aside for payment.
Section 4. Liquidation, Dissolution or Winding-Up.
If the Corporation shall commence a voluntary case under the Federal
bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency
or similar law, or consent to the entry of any order for relief in an
involuntary case under such law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation, or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law, or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator
(or other similar official) of the Corporation or of any substantial part of its
property, or ordering the winding-up or liquidation or its affairs, and on
account of any such event the Corporation shall liquidate, dissolve or wind up,
or if the Corporation shall otherwise liquidate, dissolve or wind up, subject to
the prior rights of holders of any Senior Stock, but before any distribution or
payment shall be made to holders of Junior Stock, the holders of shares of
Series B Preferred Stock shall be entitled to receive, on a parity with holders
of Parity Stock, out of the assets of the Corporation legally available for
distribution to stockholders, an amount per share of Series B Preferred Stock
equal to the Stated Amount plus all Accrued Dividends thereon until the date of
such voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation. If upon any liquidation, dissolution or winding-up of the
Corporation, the available assets of the Corporation are insufficient to pay the
amount of the liquidating distributions on all outstanding shares of Series B
Preferred Stock and the corresponding amounts payable on all Parity Stock in the
distribution of assets, then the holders of shares of the Series B Preferred
Stock and the Parity Stock shall share equally and ratably in any distribution
of assets of the Corporation first in proportion to the full liquidating
distributions per share to which they would otherwise be respectively entitled
and then in proportion to their respective amounts of accrued but unpaid
dividends. After payment of the full amount set forth above to which they are
entitled, the holders of shares of Series B Preferred Stock will not be entitled
to any further participation in any distribution of assets of the Corporation
and shall not be entitled to any other distribution. For the purposes of this
Section 4, neither the consolidation, merger or other business combination of
the Corporation with or into any other entity or entities nor the sale of all or
substantially all the assets of the Corporation shall be deemed to be a
liquidation, dissolution or winding-up of the Corporation.
Section 5. Call Right.
(a) Except as provided in this Section 5, the Corporation shall have no
right to repurchase any shares of Series B Preferred Stock. At any time or from
time to time commencing six (6) months following the date which is the later of
the third anniversary of the Issuance Date or the date which is the 91st day
following the repayment in full of the Corporation's 12% Senior Notes due 2006
(the "Call Trigger Date"), the Corporation shall have the right, at its sole
option and election, to repurchase, out of funds legally available therefor,
all, or part, of the outstanding shares of Series B Preferred Stock by providing
written notice (the "Call Notice") of its intention to repurchase all, or part,
of the outstanding shares of Series B Preferred Stock on the 30th Business Day
following the date of such notice (the "Call Date") at a cash price per share of
Series B Preferred Stock (the "Call Price") equal to the Stated Amount plus all
Accrued Dividends thereon to the date of redemption. If less than all shares of
Series B Preferred Stock outstanding at the time are to be
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repurchased by the Corporation pursuant to this Section 5(a), the shares of
Series B Preferred Stock to be repurchased shall be selected pro rata; provided,
however, that in the event that less than ten percent (10%) of the number of
shares of Series B Preferred Stock originally issued are then outstanding, the
Corporation shall be required to repurchase all of such outstanding shares if it
elects to repurchase any shares pursuant to this Section 5(a).
(b) The Call Notice shall state: (i) the Call Date; (ii) the Call Price;
(iii) the number of such holder's outstanding shares of Series B Preferred Stock
to be repurchased by the Corporation; (iv) the place or places where
certificates for such shares are to be surrendered for payment of the Call
Price, including any procedures applicable to redemptions to be accomplished
through book-entry transfers; and (v) that dividends on the shares of Series B
Preferred Stock to be repurchased shall cease to accumulate as of the Call Date,
or, if such shares are not actually repurchased on such date, the date on which
the shares of Series B Preferred Stock are actually repurchased by the
Corporation.
(c) Upon the Call Date (unless the Corporation shall default in making
payment of the appropriate Call Price), whether or not certificates for shares
which are the subject of the Call Notice have been surrendered for cancellation,
the shares of Series B Preferred Stock to be repurchased shall be deemed to be
no longer outstanding, dividends on such shares of Series B Preferred Stock
shall cease to accumulate and the holders thereof shall cease to be stockholders
with respect to such shares and shall have no rights with respect thereto,
except for the rights to receive the Call Price, without interest.
Section 6. Certain Transactions Prohibited.
The Corporation shall not during any Pricing Period or any Conversion
Period, declare a dividend or make a distribution, on the outstanding shares of
Common Stock, in either case, in shares of Common Stock, or effect a
subdivision, combination, consolidation or reclassification of the outstanding
shares of Common Stock into a greater or lesser number of shares of Common
Stock.
Section 7. Conversion Into Common Stock.
(a) Each share of Series B Preferred Stock may, at the option of the holder
thereof, be converted into shares of Common Stock at any time during any
Conversion Period, on the terms and conditions set forth in this Section 7.
Subject to the provisions for adjustment hereinafter set forth, each share of
Series B Preferred Stock shall be convertible in the manner hereinafter set
forth into a number of fully paid and nonassessable shares of Common Stock equal
to the product obtained by multiplying the Applicable Conversion Rate (as
defined below) by the number of shares of Series B Preferred Stock being
converted. The "Applicable Conversion Rate" means the quotient obtained by
dividing the Conversion Value on the date of conversion by the Conversion Price
on the date of conversion.
(b) In case of any capital reorganization or reclassification of
outstanding shares of Common Stock (other than a reclassification covered by
Section 6), or in case of any consolidation, share exchange or merger of the
Corporation with or into another Person, or in case of any sale or conveyance to
another Person of the property of the Corporation as an entirety or
substantially as an entirety (each of the foregoing being referred to as a
"Transaction"), each share of Series B Preferred Stock then outstanding shall
thereafter be convertible into, in lieu of the Common Stock issuable upon such
conversion prior to the consummation of such Transaction, the kind and amount of
shares of stock and other securities and property (including cash) receivable
upon the consummation of such Transaction by a holder of that number of shares
of Common Stock into which one share of Series B Preferred Stock was convertible
immediately prior to such Transaction (including, on a pro rata basis, the cash,
securities or property received by holders of Common Stock
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in any tender or exchange offer that is a step in such Transaction). In any such
case, if necessary, appropriate adjustment (as determined in good faith by the
Board of Directors) shall be made in the application of the provisions set forth
in this Section 7 with respect to rights and interests thereafter of the holders
of shares of Series B Preferred Stock to the end that the provisions set forth
herein for the protection of the conversion rights of the Series B Preferred
Stock shall thereafter be applicable, as nearly as reasonably may be, to any
such other shares of stock and other securities and property deliverable upon
conversion of the shares of Series B Preferred Stock remaining outstanding (with
such adjustments in the conversion price and number of shares issuable upon
conversion and such other adjustments in the provisions hereof as the Board of
Directors shall determine in good faith to be appropriate). In case securities
or property other than Common Stock shall be issuable or deliverable upon
conversion as aforesaid, then all references in this Section 7 shall be deemed
to apply, so far as appropriate and as nearly as may be, to such other
securities or property.
Notwithstanding anything contained herein to the contrary, the Corporation
will not effect any Transaction unless, prior to the consummation thereof, (i)
the Surviving Person (as defined in Section 10 hereof), if other than the
Corporation, shall assume, by written instrument mailed to each record holder of
shares of Series B Preferred Stock, at such holder's address as it appears on
the transfer books of the Corporation, the obligation to deliver to such holder
such cash, property and securities to which, in accordance with the foregoing
provisions, such holder is entitled. Nothing contained in this Section 7(b)
shall limit the rights of holders of the Series B Preferred Stock to convert the
Series B Preferred Stock in connection with the Transaction.
(c) The holder of any shares of Series B Preferred Stock may exercise its
right to convert such shares into shares of Common Stock by surrendering for
such purpose to the Corporation, at its principal office or at such other office
or agency maintained by the Corporation for that purpose, a certificate or
certificates representing the shares of Series B Preferred Stock to be converted
duly endorsed to the Corporation in blank accompanied by a written notice
stating that such holder elects to convert all or a specified whole number of
such shares in accordance with the provisions of this Section 7. The Corporation
will pay any and all documentary, stamp or similar issue or transfer tax and any
other taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of Series B Preferred Stock pursuant hereto. As
promptly as practicable, and in any event within three (3) Business Days after
the surrender of such certificate or certificates and the receipt of such notice
relating thereto and, if applicable, payment of all transfer taxes (or the
demonstration to the satisfaction of the Corporation that such taxes are
inapplicable), the Corporation shall deliver or cause to be delivered (i)
certificates registered in the name of such holder representing the number of
validly issued, fully paid and nonassessable full shares of Common Stock to
which the holder of shares of Series B Preferred Stock so converted shall be
entitled and (ii) if less than the full number of shares of Series B Preferred
Stock evidenced by the surrendered certificate or certificates are being
converted, a new certificate or certificates, of like tenor, for the number of
shares evidenced by such surrendered certificate or certificates less the number
of shares converted. Such conversion shall be deemed to have been made at the
close of business on the date of receipt of such notice and of such surrender of
the certificate or certificates representing the shares of Series B Preferred
Stock to be converted so that the rights of the holder thereof as to the shares
being converted shall cease except for the right to receive shares of Common
Stock, and the person entitled to receive the shares of Common Stock shall be
treated for all purposes as having become the record holder of such shares of
Common Stock at such time.
(d) In connection with the conversion of any shares of Series B Preferred
Stock, no fractions of shares of Common Stock shall be issued, but in lieu
thereof the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to such fractional interest
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multiplied by the Current Market Price per share of Common Stock on the day on
which such shares of Series B Preferred Stock are deemed to have been converted.
Section 8. Reports as to Adjustments.
Whenever the number of shares of Common Stock into which each share of
Series B Preferred Stock is convertible (or the number of votes to which each
share of Series B Preferred Stock is entitled) is adjusted as provided in
Section 7, the Corporation shall promptly issue a press release stating that the
number of shares of Common Stock into which the shares of Series B Preferred
Stock are convertible has been adjusted and setting forth the new number of
shares of Common Stock (or describing the new stock, securities, cash or other
property) into which each share of Series B Preferred Stock is convertible, as a
result of such adjustment, a brief statement of the facts requiring such
adjustment and the computation thereof, and when such adjustment became
effective.
Section 9. Reacquired Shares.
Any shares of Series B Preferred Stock redeemed, repurchased or otherwise
acquired by the Corporation in any manner whatsoever shall be retired and
canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock of
the Corporation and may be reissued as part of another series of Preferred Stock
of the Corporation subject to the conditions or restrictions on authorizing,
creating or issuing any class or series, or any shares of any class or series.
Section 10. Definitions.
For the purposes of these Articles Supplementary, the following terms shall
have the meanings indicated below:
"Accrued Dividends" to a particular date (the "Applicable Date") means
all dividends accrued but not paid on the Series B Preferred Stock pursuant
to Section 2(a), whether or not earned or declared, accrued to the
Applicable Date.
"affiliate" shall have the meaning set forth in Rule 12b-2 promulgated
by the Securities and Exchange Commission under the Exchange Act.
"Business Day" means any day other than a Saturday, Sunday, or a day
on which commercial banks in the City of New York are authorized or
obligated by law or executive order to close.
"Bylaws" means the bylaws of the Corporation, as in effect from time
to time, including any and all amendments thereto and restatements thereof.
"Call Date" shall have the meaning set forth in Section 5(a) hereof.
"Call Notice" shall have the meaning set forth in Section 5(a) hereof.
"Call Price" shall have the meaning set forth in Section 5(a) hereof.
"Call Trigger Date" shall have the meaning set forth in Section 5(a)
hereof.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or
limited liability company, partnership or membership interests (whether
general or limited) and (iv) any other interest or participation that
confers on a person the right to receive a share of the profits and losses
of, or distributions of assets of, the issuing person.
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"Charter" means the charter of the Corporation, as currently in effect
and as the same may be amended from time to time.
"Closing Price" per share of Common Stock (or any other security) on
any date shall be the last sale price, at 4:30 p.m., Eastern Time, or, in
case no such sale takes place on such day, the average of the closing bid
and asked prices, in either case as reported on the NYSE or in the
principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the Nasdaq National Market or
American Stock Exchange, as the case may be, or, if the Common Stock (or
such other security) is not listed or admitted to trading on any national
securities exchange, the last quoted sale price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter
market, as reported by the National Association of Securities Dealers, Inc.
Automated Quotations System ("NASDAQ") or such other system then in use,
or, if on any such date the Common Stock (or such other security) is not
quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the
Common Stock (or such other security) selected by the Board of Directors.
"Common Stock" means the common stock, par value $0.01 per share, of
the Corporation.
"Conversion Period" means (x) the period of ten (10) Business Days
commencing on the sixth Business Day after the Issuance Date and (y) the
period of ten (10) Business Days ending ninety (90) calendar days after the
Issuance Date or the first Business Day thereafter.
"Conversion Price" shall be the Current Market Price for the Pricing
Period, subject to adjustment as provided in Section 7.
"Conversion Value" per share of Series B Preferred Stock shall be an
amount equal to the Stated Amount plus all Accrued Dividends, if any,
thereon to the date of conversion or redemption, as the case may be.
"Current Market Price" per share of Common Stock (or any other
security) on any date shall be the average of the Closing Prices of a share
of Common Stock (or such other security) for the ten consecutive Trading
Days before the date in question. If on any such Trading Day the Common
Stock (or such other security) is not quoted by any organization referred
to in the definition of Closing Price, the Current Market Price of the
Common Stock (or such other security) on such day shall be determined by an
investment banking firm of national reputation familiar with the valuation
of companies substantially similar to the Corporation (the "Investment
Banking Firm") appointed by the Board of Directors.
"Dividend Payment Date" means the following dates: (i) the date that
is three months after the Issuance Date; (ii) the date that is six months
after the Issuance Date; (iii) the date that is nine months after the
Issuance Date; (iv) the date that is the first anniversary of the Issuance
Date; and the anniversaries of the foregoing dates, provided that no
Dividend Payment Date shall occur with respect to shares of Series B
Preferred Stock which have actually been redeemed or repurchased by the
Corporation.
"Dividend Period" means the period from the Issuance Date to the first
Dividend Payment Date (but without including such Dividend Payment Date)
and, thereafter, each Dividend Payment Date to the following Dividend
Payment Date (but without including such later Dividend Payment Date).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Issuance Date" means the original date of issuance of Series B
Preferred Stock to the initial holders thereof.
"Junior Stock" means all classes of Common Stock of the Corporation
and each other class of Capital Stock of the Corporation or series of
Preferred Stock of the Corporation currently existing or hereafter created
the terms of which do not expressly provide that it ranks senior to, or on
a parity with, the Series B Preferred Stock as to dividend distributions
and distributions upon liquidation, winding-up and dissolution of the
Corporation.
"NYSE" means the New York Stock Exchange, Inc.
"Parity Stock" means any class of Capital Stock of the Corporation or
series of Preferred Stock of the Corporation, the terms of which expressly
provide that such class or series will rank on a parity with the Series B
Preferred Stock as to dividend distributions and distributions upon
liquidation, winding-up and dissolution.
"Person" means an individual, partnership, corporation, limited
liability company or partnership, unincorporated organization, trust or
joint venture, or a governmental agency or political subdivision thereof,
or other entity of any kind.
"Preferred Stock" means the preferred stock, $0.01 par value per
share, of the Corporation.
"Pricing Period" means the ten (10) Trading Days ending one day prior
to the date a holder of Series B Preferred Stock converts his or her shares
during a Conversion Period.
"Senior Stock" means each other class of Capital Stock of the
Corporation or series of Preferred Stock of the Corporation, the terms of
which expressly provide that such class or series will rank senior to the
Series B Preferred Stock as to dividend distributions and distributions
upon liquidation, winding-up and dissolution of the Corporation. The
existing Series A Preferred Stock of the Corporation shall constitute
Senior Stock of the Corporation ranking senior to the Series B Preferred
Stock as to dividend distributions and distributions upon liquidation,
winding-up and dissolution.
"Series A Preferred Stock" means the 8% Series A Cumulative Preferred
Stock, $0.01 par value per share, of the Corporation, the terms of which
are set forth in the Charter of the Corporation.
"Series B Preferred Stock" means the Series B Cumulative Convertible
Preferred Stock of the Corporation, $0.01 par value per share, the terms of
which are set forth in these Articles Supplementary.
"Set Apart for Payment" means the Corporation shall have irrevocably
deposited with a bank or trust company doing business in the Borough of
Manhattan, the City of New York, and having a capital and surplus of at
least $1,000,000,000, in trust for the exclusive benefit of the holders of
shares of Series B Preferred Stock, funds sufficient to satisfy the
Corporation's payment obligation.
"Stated Amount" means $25.00 per share of Series B Preferred Stock.
"Surviving Person" means the continuing or surviving Person in a
merger, consolidation, other corporate combination or the transfer of all
or a substantial part of the properties and assets of the Corporation, in
connection with which the Series B Preferred Stock or Common Stock of the
Corporation is exchanged, converted or reinstated into the securities of
any other Person or cash or any other property; provided, however, if such
Surviving Person is a direct or indirect Subsidiary of a Person, the parent
entity also shall be deemed to be a Surviving Person.
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"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock (or any other security) is quoted,
listed or admitted to trading is open for the transaction of business or,
if the Common Stock (or such other security) is not quoted, listed or
admitted to trading on any national securities exchange (including the
NYSE), any day other than a Saturday, Sunday, or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.
Section 11. REIT Status.
Nothing contained in these Articles Supplementary to the Charter shall
limit the authority of the Board of Directors to take such other action as it
deems necessary or advisable to protect the Corporation and the interests of the
stockholders by the preservation of the Corporation's qualification as a real
estate investment trust for Federal income tax purposes for the taxable year
ended December 31, 1999, including without limitation the payment of dividends
in the form of Parity Stock or Junior Stock.
Section 12. References.
References to numbered sections herein refer to sections of these Articles
Supplementary, unless otherwise stated.
THIRD: The Series B Preferred Stock has been classified by the Board of
Directors of the Corporation under the authority contained in the Charter of the
Corporation and these Articles Supplementary have been duly approved by the
Board of Directors of the Corporation.
FOURTH: The undersigned President of the Corporation acknowledges these
Articles Supplementary to be the act of the Corporation and further, as to all
matters or facts required to be verified under oath, the undersigned President
acknowledges, that to the best of his knowledge, information and belief, the
matters and facts set forth herein are true in all material respects and that
this statement is made under the penalties for perjury.
[remainder of page left intentionally blank]
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IN WITNESS WHEREOF, the Corporation has caused these Articles to be
executed under seal in its name and on its behalf by its President and attested
to by its Secretary on this day of , 2000.
<TABLE>
<S> <C> <C> <C>
CORRECTIONS CORPORATION OF AMERICA
ATTEST:
By: By:
---------------------------------------- ----------------------------------------
Secretary President
</TABLE>
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PROXY DRAFT
PRISON REALTY TRUST, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [SEPTEMBER] , 2000
The undersigned hereby appoints Thomas W. Beasley and J. Michael Quinlan, or
either of them, with full power of substitution, as proxies, and hereby
authorizes them to represent and to vote, as designated, all of the voting
common stock of Prison Realty Trust, Inc., a Maryland corporation ("Prison
Realty"), held by the undersigned on , 2000, at the Special Meeting of
Shareholders to be held at the Loews Vanderbilt Plaza, 2100 West End Avenue,
Nashville, Tennessee, on , [September] , 2000, at , local
time, and any adjournment(s) or postponement(s) thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM 1.
1. To approve the adoption of amendments to the Prison Realty charter to
permit a restructuring of Prison Realty, including, among other things,
Prison Realty's election not to be taxed as a real estate investment
trust for federal income tax purposes commencing with its 2000 taxable
year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM 2.
2. To approve the merger of Corrections Corporation of America with and
into a wholly-owned subsidiary of Prison Realty and certain related
transactions. The approval of item 1 is a condition to completion of the
merger transactions.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH BUSINESS
AS MAY PROPERLY COME BEFORE THIS MEETING.
<PAGE> 220
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER, AND IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR ITEM 1 AND FOR ITEM 2.
Dated: 2000
---------------------------,
Signature:
----------------------------
Signature if Held Jointly:
------------
Please sign exactly as name appears on
your share certificates. Each joint
owner must sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give full
title as such. If a corporation,
please sign in full corporate name as
authorized. If a partnership, please
sign in partnership name by authorized
person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY.
