<PAGE> 1
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
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[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 Rule 14a-11(c) or Rule 14a-12
</TABLE>
CORRECTIONS CORPORATION OF AMERICA
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] 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:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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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:
------------------------------------------------------------------------
(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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<PAGE> 2
(CCA LOGO)
CORRECTIONS CORPORATION OF AMERICA
November , 2000
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders of
Corrections Corporation of America (the "Company") to be held at 10:00 a.m.,
local time, on Wednesday, December 13, 2000, at the Loews Vanderbilt Plaza
Hotel, 2100 West End Avenue, Nashville, Tennessee.
The formal Notice of the meeting, as well as the proxy statement and form
of proxy, are included with this letter. Excerpts from the Company's Annual
Report to Stockholders on Form 10-K for the year ended December 31, 1999, as
updated by the Company's Quarterly Reports on Form 10-Q for the quarterly
periods ending March 31, 2000, June 30, 2000 and September 30, 2000, are also
enclosed for your review.
At the meeting, there will be discussion of the specific matters to be
acted upon by the common stockholders of the Company, all of which are described
in detail in the accompanying proxy statement. In addition, there will be a
review of the recent restructuring of the Company, including the successful
merger of the Company with its primary tenant, and the progress of the combined
company since the completion of the restructuring. Stockholders will also be
given an opportunity to ask management questions of general interest concerning
the Company.
Regardless of the number of shares you own, it is important that your views
be represented. Accordingly, whether or not you plan to attend the meeting in
person, I urge you to complete, sign, date and promptly return the enclosed
proxy card in the envelope provided. If you choose to attend the meeting, you
may revoke your proxy and personally cast your votes.
Your Board of Directors and the Company's management look forward to
greeting those stockholders who are able to attend.
Sincerely,
William F. Andrews
Chairman of the Board of Directors
John D. Ferguson
Chief Executive Officer and President
<PAGE> 3
CORRECTIONS CORPORATION OF AMERICA
10 BURTON HILLS BOULEVARD
NASHVILLE, TENNESSEE 37215
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, DECEMBER 13, 2000
Notice is hereby given that the annual meeting of stockholders (the "Annual
Meeting") of Corrections Corporation of America (the "Company") will be held at
10:00 a.m., local time, on Wednesday, December 13, 2000, at the Loews Vanderbilt
Plaza Hotel, 2100 West End Avenue, Nashville, Tennessee, for the following
purposes:
(1) To consider and elect nine directors to serve on the Company's Board of
Directors until the 2001 annual meeting of the Company's stockholders
and until their respective successors are duly elected and qualified;
(2) To consider and approve an amendment to the Company's Charter to effect
a reverse stock split of the Company's common stock at a ratio to be
determined in the discretion of the Company's Board of Directors,
provided that such ratio shall not be less than one-for-ten and shall
not exceed one-for-twenty and to effect a related reduction of the
stated capital of the Company;
(3) To consider and approve (i) an amendment to the Company's 1997 Employee
Share Incentive Plan to, among other things, increase the number of
shares of the Common Stock reserved and authorized for issuance
pursuant to the plan and (ii) the adoption of a new equity incentive
plan for the directors, executive officers and other key employees of
the Company;
(4) To consider and ratify the action of the Company's Board of Directors
in selecting the firm of Arthur Andersen LLP to be the independent
auditors of the Company for the fiscal year ending December 31, 2000,
and to perform such other services as may be requested; and
(5) To transact such other business as may properly come before the Annual
Meeting and any adjournments or postponements thereof.
Pursuant to the Bylaws of the Company, the Board of Directors of the
Company has fixed the close of business on Thursday, November 9, 2000, as the
record date for determination of stockholders entitled to notice of and to vote
at the Annual Meeting and at any adjournments or postponements thereof. Only
stockholders of record of the Company's common stock at the close of business on
that date will be entitled to notice of and to vote at the Annual Meeting and at
any adjournments or postponements thereof.
Your attention is directed to the proxy statement accompanying this Notice
of Annual Meeting for more complete information regarding the matters to be
presented and acted upon at the Annual Meeting.
All stockholders are cordially invited to attend the meeting in person.
By Order of the Board of Directors,
Darrell K. Massengale, Secretary
November , 2000
Nashville, Tennessee
YOUR VOTE IS VERY IMPORTANT.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN
AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE AS PROMPTLY AS POSSIBLE. IF YOU ATTEND THE ANNUAL MEETING IN PERSON,
YOU MAY WITHDRAW YOUR PROXY AND PERSONALLY CAST YOUR VOTE AT THE MEETING.
<PAGE> 4
(CCA LOGO)
CORRECTIONS CORPORATION OF AMERICA
PROXY STATEMENT
FOR
THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, DECEMBER 13, 2000
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Corrections Corporation of America (the
"Company") for use at the 2000 Annual Meeting of Stockholders of the Company to
be held on Wednesday, December 13, 2000, at 10:00 a.m., local time, at the Loews
Vanderbilt Plaza Hotel, 2100 West End Avenue, Nashville, Tennessee and at any
adjournments or postponements thereof (the "Annual Meeting"). At the Annual
Meeting, stockholders will be asked to vote:
- to elect nine directors;
- to approve an amendment to the Company's Charter to effect a reverse
stock split of the Company's common stock at a ratio to be determined in
the discretion of the Company's Board of Directors, provided that such
ratio shall not be less than one-for-ten and shall not exceed
one-for-twenty and to effect a related reduction of the stated capital of
the Company (the "Reverse Stock Split");
- to approve (i) an amendment to the Company's 1997 Employee Share
Incentive Plan to, among other things, increase the number of shares of
common stock reserved and authorized for issuance pursuant to the plan
and (ii) the adoption of a new equity incentive plan for the directors,
executive officers, and other key employees of the Company (collectively,
the "Equity Incentive Plan Amendment and Adoption");
- to ratify the Board of Directors' selection of Arthur Andersen LLP as the
independent auditors of the Company for the fiscal year ending December
31, 2000; and
- upon any other matters properly brought before the Annual Meeting and at
any adjournments or postponements thereof.
------------------------
This Proxy Statement is first being mailed or delivered to the Company's
stockholders on or about November , 2000.
<PAGE> 5
The Board of Directors has fixed the close of business on Thursday,
November 9, 2000 as the record date for the determination of stockholders
entitled to notice of and to vote at the Annual Meeting (the "Record Date").
Only holders of record of shares of the Company's common stock, $0.01 par value
per share (the "Common Stock"), at the close of business on the Record Date will
be entitled to notice of and to vote at the Annual Meeting. As of the Record
Date, there were [159,068,246] shares of Common Stock outstanding and entitled
to vote at the Annual Meeting. This Proxy Statement and the accompanying Notice
of Annual Meeting and proxy card are being sent to stockholders entitled to
notice of and to vote at the Annual Meeting on or about [Wednesday, November 15,
2000]. Holders of the Company's outstanding Common Stock as of the close of
business on the Record Date will be entitled to one vote for each share of
Common Stock held by them on each item presented at the Annual Meeting.
As of the mailing date of this Proxy Statement, the Company has 4,300,000
shares of its 8% Series A Cumulative Preferred Stock, $0.01 par value per share
(the "Series A Preferred Stock"), issued and outstanding and approximately
6,216,181 shares of its Series B Cumulative Convertible Preferred Stock, $0.01
par value per share (the "Series B Preferred Stock"), issued and outstanding.
Pursuant to the terms of the Series A Preferred Stock and the Series B Preferred
Stock, the holders of such shares do not possess any voting rights with respect
to the items presented at the Annual Meeting.
The presence, in person or by proxy, of the Company's stockholders entitled
to cast a majority of all the votes entitled to be cast at the Annual Meeting is
necessary to constitute a quorum for the transaction of business at the Annual
Meeting. Abstentions will be treated as shares present and entitled to vote for
purposes of determining the presence of a quorum, but will not be considered as
votes cast in determining whether a matter has been approved by the
stockholders, and, therefore, abstentions will not have any effect on the result
of a vote. If a broker, other record holder or nominee indicates on a proxy card
that it does not have authority to vote certain shares on a particular matter,
those shares will not be considered present and will not affect the outcome of
the vote. The existence of a quorum, however, will be determined based on (i)
the number of shares held by stockholders present in person plus (ii) the
largest number of shares represented by proxies in which, on any proposal, votes
have been cast or as to which, on that proposal, authority to vote has not been
withheld. Accordingly, if a broker, other record holder or nominee has exercised
discretionary authority or has not withheld authority to vote with respect to a
proposal, the shares represented by that proxy will be counted as votes present
at the Annual Meeting, and the number of shares present at the Annual Meeting
will not be reduced by the withholding of authority to vote shares represented
by that proxy on a different proposal.
Stockholders of the Company are requested to complete, sign, date and
promptly return the accompanying proxy card in the enclosed postage-prepaid
envelope. Shares of Common Stock represented by a properly executed proxy
received prior to the vote at the Annual Meeting which are not revoked will be
voted at the Annual Meeting as directed on the proxy. If a properly executed
proxy is submitted and no instructions are given, the proxy will be voted: (i)
FOR the election of each of the nine nominees for director of the Company as
named in this Proxy Statement; (ii) FOR approval of the Reverse Stock Split;
(iii) FOR approval of the Equity Incentive Plan Amendment and Adoption; and (iv)
FOR ratification of the Board of Directors' selection of Arthur Andersen LLP as
the Company's independent auditors for the fiscal year ending December 31, 2000.
It is not anticipated that any matters other than those set forth in this Proxy
Statement will be presented at the Annual Meeting. If other matters are
presented, proxies will be voted in accordance with the discretion of the duly
appointed proxy holders.
A stockholder of record as of the Record Date may revoke a properly
submitted proxy at any time before it has been voted by filing a written
revocation with the Secretary of the Company at the
2
<PAGE> 6
address of the Company set forth herein, by filing a duly executed proxy bearing
a later date, or by appearing in person and voting by ballot at the Annual
Meeting. Any stockholder of record as of the Record Date attending the Annual
Meeting may vote in person whether or not a properly submitted proxy has been
previously given, but the presence (without further action) of a stockholder at
the Annual Meeting will not constitute revocation of a properly executed proxy
previously received by the Company.
The cost of soliciting proxies from stockholders will be borne by the
Company. Such solicitation will initially be made by mail. The Company has
retained Corporate Communications, Inc. to assist in the solicitation of
proxies. It is estimated that the fees of Corporate Communications, Inc. for
such services will be approximately $15,000, plus all out-of-pocket costs and
expenses, all of which will be paid by the Company. In addition, proxy
solicitation may be made personally or by telephone by directors, officers and
employees of the Company, none of whom will receive additional compensation for
these services. Forms of proxies and proxy materials will also be distributed
through brokers, custodians and other like parties to the beneficial owners of
shares of Common Stock. The Company will reimburse such parties for the
reasonable out-of-pocket expenses incurred in connection with such distribution.
The Company's directors and executive officers, and their affiliates, not
including Sodexho Alliance, S.A., beneficially own approximately [3.3%] of the
outstanding shares of the Company's Common Stock as of the Record Date and have
indicated their intent to vote in favor of each of the proposals set forth
herein.
3
<PAGE> 7
INFORMATION ABOUT THE COMPANY
The Company, together with two affiliated service companies, Prison
Management Services, Inc., a Tennessee corporation ("PMSI"), and Juvenile and
Jail Facility Management Services, Inc., a Tennessee corporation ("JJFMSI"), is
the nation's largest provider of detention and corrections services to
governmental agencies. The Company and its affiliated companies are the industry
leader in private sector corrections with approximately 61,462 beds in 68
facilities under contract for management in the United States and Puerto Rico.
The Company owns 45 correctional and detention facilities with a design capacity
of approximately 41,963 beds in the United States and the United Kingdom, 36 of
which are also operated by the Company and its affiliated companies. The
Company's full range of services includes design, construction, ownership,
renovation and management of new or existing jails and prisons, as well as long
distance inmate transportation services. The Company's principal executive
offices are located at 10 Burton Hills Boulevard, Nashville, Tennessee 37215.
Effective October 1, 2000, the Company completed a series of previously
announced restructuring transactions (collectively, the "Restructuring") which
included, among other things, the merger of Corrections Corporation of America,
a Tennessee corporation ("Operating Company"), the Company's primary tenant and
the operator and manager of the substantial majority of the facilities owned by
the Company, with and into a wholly owned subsidiary of the Company. Following
requisite stockholder approval, the Company also amended its Charter to
accommodate the transactions contemplated by the merger, including: (i) amending
the Company's Charter to allow the Company, commencing with its 2000 taxable
year, to elect not to operate and qualify as a real estate investment trust, or
REIT, for federal income tax purposes; (ii) increasing the amount of the
Company's authorized capital stock; and (iii) changing the name of the Company
from "Prison Realty Trust, Inc." to "Corrections Corporation of America." As
part of the Restructuring, the Company also effected a restructuring of the
Company's senior management and amended its Charter to remove provisions
establishing a classified Board of Directors.
It is currently anticipated that in connection with the Restructuring,
following the attainment of necessary lender and regulatory approval, each of
PMSI and JJFMSI will merge with and into a wholly owned subsidiary of the
Company. In such mergers, the wardens of the facilities operated by each of PMSI
and JJFMSI will receive shares of the Company's Common Stock valued at
approximately $1.2 million in exchange for shares of the common stock of PMSI
and JJFMSI currently held by such wardens. All shares of PMSI and JJFMSI common
stock held by the Company and certain subsidiaries of PMSI and JJFMSI will be
canceled in the mergers. The completion of the mergers with PMSI and JJFMSI does
not require the approval of the Company's stockholders.
PROPOSAL 1
ELECTION OF DIRECTORS
Unless otherwise directed in the proxy, the persons named in the enclosed
proxy, or their substitute, will vote such proxy for the election of the nine
nominees listed herein. If any nominee at the time of election is unavailable to
serve, a contingency not presently anticipated, it is intended that the persons
named in the proxy, or their substitute, will vote for an alternative nominee
who will be designated by the Company's Board of Directors. Proxies may be voted
only for the nominees named or such alternates. Under the Bylaws and Maryland
law, the affirmative vote of a plurality of all the votes cast at the Annual
Meeting, assuming a quorum is present, is sufficient to elect a director.
4
<PAGE> 8
CERTAIN INFORMATION CONCERNING THE BOARD
OF DIRECTORS AND EXECUTIVE OFFICERS
GENERAL
The Company's Charter provides that the Board of Directors shall consist of
the number of directors determined from time to time by resolution of the Board
of Directors in accordance with the Company's 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. By resolution of the Board of
Directors, the Company's Board of Directors currently consists of eight
directors as identified below. The Company's Charter does not divide the
directors into classes. Accordingly, under Maryland law, all directors are to be
elected annually, at the Company's annual meeting of stockholders, for a one-
year term and until the next annual meeting of stockholders. The Company's
Charter also requires that at least two members of the Board of Directors must
be "independent directors." For purposes of the Company's Charter, an
"independent director" is defined to be an individual who: (i) is not an officer
or employee of the Company; (ii) is not the beneficial owner of more than 5% of
any class of equity securities of the Company or an officer, employee or
"affiliate" of such security holder, as defined under federal securities laws;
or (iii) does not have an economic relationship with the Company that requires
disclosure under federal securities laws. Under the terms of the settlement
agreements with the plaintiffs in certain stockholder litigation brought against
the Company in 1999 and 2000, the Company is also required to have a majority of
its Board of Directors comprised of independent directors.
Following the Company's 1999 Annual Meeting of Stockholders, the Company's
Board of Directors consisted of the following 13 directors: Doctor R. Crants,
chairman, C. Ray Bell, Richard W. Cardin, D. Robert Crants, III, Jean-Pierre
Cuny, Michael W. Devlin, John W. Eakin, Ted Feldman, Ned Ray McWherter, Jackson
W. Moore, J. Michael Quinlan, Joseph V. Russell and Charles W. Thomas, Ph.D. At
various times from May 1999 through May 2000, each of Messrs. Cardin, Eakin,
McWherter, Moore and Quinlan resigned from the Company's Board of Directors. In
addition, as discussed elsewhere in this Proxy Statement, in December 1999
Messrs. Crants, III and Devlin resigned from the Company's Board of Directors
and as the Company's President and Chief Operating Officer, respectively. Also
in December 1999, Doctor R. Crants resigned as the Chairman of the Board of
Directors of the Company, and Thomas W. Beasley was appointed to serve as a
member of the Board of Directors and as its Chairman. In July 2000, Doctor R.
Crants also resigned as a member of the Company's Board of Directors and was
terminated as the Chief Executive Officer of the Company. In August 2000,
William F. Andrews was appointed to the Company's Board of Directors and to
serve as its Chairman, and John D. Ferguson was appointed to the Board of
Directors and to serve as its Vice-Chairman, as well as the Company's Chief
Executive Officer and President. As the result of these events, the Company's
Board of Directors currently consists of eight directors, as described below,
only two of which qualify as independent directors.
The Board of Directors has resolved to increase the number of directors by
one, effective as of the date of the Annual Meeting. Pursuant to the Company's
Charter and Maryland law, the Company is therefore seeking to have nine persons
elected to the Board of Directors of the Company for a term expiring at the next
annual meeting of the stockholders of the Company in 2001. Information regarding
the nine nominees, which include four existing members of the Board of
Directors, is set forth below, as well as information concerning those current
members of the Board of Directors not nominated for an additional term.
Additionally, set forth below is information concerning the executive officers
of the Company. Directors' and executive officers' ages are given as of the date
of this Proxy Statement.
5
<PAGE> 9
NOMINEES STANDING FOR ELECTION AS DIRECTORS AT THE 2000 ANNUAL MEETING
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION
---- --- ----------------
<S> <C> <C>
William F. Andrews....................... 68 Director, Chairman of Board of Directors
John D. Ferguson......................... 55 Director, Chief Executive Officer,
President and Interim Chief Financial
Officer
Jean-Pierre Cuny......................... 45 Director
Joseph V. Russell........................ 59 Independent Director
Lucius E. Burch.......................... 59 Nominee for Independent Director
John D. Correnti......................... 53 Nominee for Independent Director
C. Michael Jacobi........................ 58 Nominee for Independent Director
John R. Prann, Jr........................ 50 Nominee for Independent Director
Henri L. Wedell.......................... 59 Nominee for Independent Director
</TABLE>
WILLIAM F. ANDREWS was appointed as a director of the Company and as the
Chairman of the Board of Directors on August 8, 2000. Mr. Andrews has been a
principal of Kohlberg & Company, a private equity firm specializing in middle
market investing, since 1995. Mr. Andrews served as a director of JJFMSI from
its formation in 1998 to July 2000 and served as a member of the board of
directors of Corrections Corporation of America, a Tennessee corporation which
merged with and into the Company on December 31, 1998 ("Old CCA"), from 1986 to
May 1998. Mr. Andrews has served as the chairman of Scovill Fasteners Inc., a
manufacturing company, from 1995 to present and has served as the chairman of
Northwestern Steel and Wire Company, a manufacturing company, from 1998 to
present. From 1995 to 1998, he served as chairman of Schrader-Bridgeport
International, Inc. From January 1992 through December 1994, he was chairman,
president and chief executive officer of Amdura Corporation and chairman of
Utica Corporation, both of which are manufacturing companies. From April 1990
through January 1992, Mr. Andrews served as the president and chief executive
officer of UNR Industries, Inc., a diversified steel processor. From September
1989 to March 1990, Mr. Andrews was president of Massey Investment Company, a
private investment company. Mr. Andrews serves as a director of Johnson Controls
Inc., Katy Industries, Inc., Black Box Corporation and Trex Corporation, and as
a director and member of the compensation committee of the board of directors of
Navistar International Corporation. Mr. Andrews is a graduate of the University
of Maryland and received a Masters of Business Administration from Seton Hall
University.
JOHN D. FERGUSON was appointed as a director of the Company and as its
Chief Executive Officer, President and Vice-Chairman of the Board of Directors
on August 4, 2000. Mr. Ferguson also currently serves as the interim Chief
Financial Officer of the Company. Mr. Ferguson served as the Commissioner of
Finance for the State of Tennessee from June 1996 to July 2000. As Commissioner
of Finance, Mr. Ferguson served as the state's chief corporate officer and was
responsible for directing the preparation and implementation of the state's
$17.2 billion budget. From 1990 to February 1995, Mr. Ferguson served as the
chairman and chief executive officer of Community Bancshares, Inc., the parent
corporation of The Community Bank of Germantown (Tennessee). Mr. Ferguson is a
former member of the State of Tennessee Board of Education and served on the
Governor's Commission on Practical Government for the State of Tennessee. Mr.
Ferguson graduated from Mississippi State University in 1967.
JEAN-PIERRE CUNY currently serves as a director of the Company, a position
he has held since the Company commenced operations on January 1, 1999 as the
result of the merger of CCA Prison Realty Trust, a Maryland real estate
investment trust ("Old Prison Realty"), with and into the Company on January 1,
1999. Mr. Cuny also previously served as a director of Operating Company prior
to the completion of the Restructuring and as a director of Old CCA and Old
Prison Realty
6
<PAGE> 10
prior to the merger of each of Old CCA and Old Prison Realty with and into the
Company (the "1999 Merger"). Mr. Cuny serves as the senior vice president of The
Sodexho Group, a French-based, leading supplier of catering and various other
services to institutions and an affiliate of Sodexho Alliance, S.A. ("Sodexho").
From February 1982 to June 1987, he served as vice president in charge of
development for the Aluminum Semi-Fabricated Productions Division of Pechiney, a
diversified integrated producer of aluminum and other materials. Mr. Cuny
graduated from Ecole Polytechnique in Paris in 1977 and from Stanford University
Engineering School in 1978.
JOSEPH V. RUSSELL currently serves as an independent director of the
Company and is the Chairman of the Compensation Committee of the Board of
Directors of the Company. Mr. Russell also serves as a member of the Audit
Committee of the Board of Directors of the Company. Prior to the 1999 Merger,
Mr. Russell served as an independent trustee for Old Prison Realty. Mr. Russell
is the president and chief financial officer of Elan-Polo, Inc., a
Nashville-based, privately-held, world-wide producer and distributor of
footwear. Mr. Russell is also the vice president of and a principal in RCR
Building Corporation, a Nashville-based, privately-held builder and developer of
commercial and industrial properties. He also serves on the boards of directors
of Community Care Corp., the Footwear Distributors of America Association and US
Auto Insurance Company. Mr. Russell graduated from the University of Tennessee
in 1963 with a B.S. in Finance.
LUCIUS E. BURCH, III currently serves as chairman and chief executive
officer of Burch Investment Group, a private venture capital firm located in
Nashville, Tennessee, formerly known as Massey Burch Investment Group, Inc., a
position he has held since October 1989. Mr. Burch served as a member of the
Board of Directors of Old CCA from May 1998 through the completion of the 1999
Merger, and as the chairman of the board of directors of Operating Company from
January 1999 through the completion of the Restructuring. Mr. Burch currently
serves on the board of directors of Capital Management, Innovative Solutions in
Healthcare, MCTR and United Asset Coverage, Inc. Mr. Burch graduated from the
University of North Carolina where he received a B.A. degree in 1963.
JOHN D. CORRENTI currently serves as the chairman of the board of directors
and as the chief executive officer of Birmingham Steel Corporation, a publicly
traded steel manufacturing company. Mr. Correnti has held these positions since
December 1999. Mr. Correnti served as the president, chief executive officer and
vice chairman of Nucor Corporation, a mini mill manufacturer of steel products,
from 1996 to 1999 and as its president and chief operating officer from 1991 to
1996. Mr. Correnti also serves as a director of Harnishchfeger Industries and
Navistar International Corporation. Mr. Correnti holds a B.S. degree in civil
engineering from Clarkson University.
C. MICHAEL JACOBI currently serves as a member of the board of directors of
Webster Financial Corporation, a publicly held bank with approximately $12.0
billion in assets headquartered in Waterbury, Connecticut. Mr. Jacobi also
currently serves as a member of the board of directors of Hometown Auto
Retailers, a publicly held company located in Watertown, Connecticut engaged in
the consolidation of automobile dealerships, as well as a member of the boards
of directors of several privately held companies. Mr. Jacobi served as the
president and chief executive officer of Timex Corporation from December 1993 to
August 1999 and as a member of its board of directors from 1992 to 2000. Prior
to 1993, Mr. Jacobi held several senior positions in finance, manufacturing,
marketing and sales with Timex. Mr. Jacobi also has served as the chairman of
the board of directors of Timex Watches Limited, a publicly held company based
in Bombay, India, and as the chairman and chief executive officer of Beepware
Paging Products, L.L.C., a company jointly owned by Timex Corporation and
Motorola. Mr. Jacobi is a certified public accountant and has a B.S. degree from
the University of Connecticut.
7
<PAGE> 11
JOHN R. PRANN, JR. currently serves as the president and chief executive
officer of Katy Industries, Inc., a publicly traded manufacturer and distributor
of consumer electric corded products and maintenance cleaning products, among
other product lines. Mr. Prann has held these positions since 1993. From 1991 to
1995, Mr. Prann served as the president and chief executive officer of CRL,
Inc., an equity and real estate investment company which held a 25% interest in
Katy. From 1990 to 1991, Mr. Prann served as the president and chief executive
officer of Profile Gear Corporation, and from 1988 through 1990 served as a
partner with the accounting firm of Deloitte & Touche. Mr. Prann graduated from
the University of California, Riverside in 1974 and obtained his M.B.A. from the
University of Chicago in 1979.
HENRI L. WEDELL currently is a private investor in Memphis, Tennessee.
Prior to Mr. Wedell's retirement in 1999, he served as the senior vice president
of sales of The Robinson Humphrey Co., a wholly owned subsidiary of
Smith-Barney, Inc., an investment banking company he was employed with for over
24 years. From 1990 to 1996, he served as a member of the board of directors of
Community Bancshares, Inc., the parent corporation to The Community Bank of
Germantown (Tennessee). Mr. Wedell graduated from Tulane University in 1963.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR EACH OF THE
NINE NOMINEES LISTED ABOVE.
CURRENT DIRECTORS NOT NOMINATED AND NOT STANDING FOR RE-ELECTION AT THE 2000
ANNUAL MEETING
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION
---- --- ----------------
<S> <C> <C>
Thomas W. Beasley........................ 57 Director
Ted Feldman.............................. 47 Independent Director
C. Ray Bell.............................. 59 Director
Charles W. Thomas, Ph.D.................. 57 Director
</TABLE>
THOMAS W. BEASLEY was appointed to the Company's Board of Directors in
December 1999. Mr. Beasley served as the Chairman of the Board of Directors of
the Company from December 1999 to August 2000, and as the interim Chief
Executive Officer of the Company from July 2000 through August 2000. Mr. Beasley
also currently serves as the chairman of the board of directors of PMSI. Mr.
Beasley co-founded Old CCA and served as its chairman emeritus from June 1994 to
December 31, 1998. From 1974 through 1978, Mr. Beasley served as chairman of the
Tennessee Republican Party, and he continues to be active in Tennessee politics.
Mr. Beasley graduated from the United States Military Academy at West Point in
1966 and received a J.D. degree from Vanderbilt University School of Law in
1973.
TED FELDMAN currently serves as an independent director of the Company and
as the Chairman of the Audit Committee of the Board of Directors. Mr. Feldman
served as an independent trustee of Old Prison Realty prior to the completion of
the 1999 Merger. Mr. Feldman currently serves as the chairman and chief
executive officer of CareerHighway.com, a privately held internet recruiting
service for job-seekers and employers headquartered in Nashville, Tennessee. Mr.
Feldman served as the chief operating officer of StaffMark, Inc., a publicly
traded provider of diversified staffing services to business, medical,
professional and service organizations and government agencies from October 1996
through October 1999. Prior to joining StaffMark, Mr. Feldman founded HRA, Inc.,
a Nashville-based provider of staffing services, in 1991 and served as its
president and chief executive officer from that time until it merged with
StaffMark in October 1996. Mr. Feldman graduated from Washington University in
1975.
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<PAGE> 12
C. RAY BELL currently serves as a director of the Company. Mr. Bell served
as a trustee of Old Prison Realty prior to the completion of the 1999 Merger.
Mr. Bell currently serves on the Compensation Committee of the Board of
Directors of the Company. Mr. Bell is the president and owner of Ray Bell
Construction, Inc., which specializes in the construction of a wide range of
commercial buildings, and has constructed over 40 correctional and detention
facilities, consisting of over 15,000 beds in seven states, on behalf of various
government entities and private companies, including the Company and its
predecessors. Mr. Bell is a founding member of the Middle Tennessee Chapter of
Associated Builders and Contractors and is a graduate of the University of the
South.
CHARLES W. THOMAS, PH.D. currently serves as a director of the Company. Dr.
Thomas served as a trustee of Old Prison Realty prior to the completion of the
1999 Merger. Dr. Thomas is a private consultant who has taught and written on
the criminal justice and private corrections fields for more than 30 years.
Until 1999, he was a Professor of Criminology and the director of the Private
Corrections Project of the Center for Studies in Criminology and Law at the
University of Florida, Gainesville, positions he held from 1980 and 1989,
respectively. While serving as director of the Center, Dr. Thomas authored the
Center's annual Private Adult Correctional Facility Census. Dr. Thomas graduated
from McMurry University in 1966 with a B.S. in Secondary Education and from the
University of Kentucky with a M.A. in Sociology in 1969 and a Ph.D. in Sociology
in 1971.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION
---- --- ----------------
<S> <C> <C>
J. Michael Quinlan....................... 59 Executive Vice President
Darrell K. Massengale.................... 40 Secretary
Todd Mullenger........................... 42 Vice President Finance
Brent Turner............................. 34 Treasurer
</TABLE>
J. MICHAEL QUINLAN currently serves as the Executive Vice President of the
Company, a position he has held since August 2000. Mr. Quinlan served as the
President of the Company from December 1999 to August 2000 and as the president
and chief operating officer of Operating Company and as a member of Operating
Company's board of directors from June 1999 through the completion of the
Restructuring. From January 1999 until May 1999, Mr. Quinlan served as a member
of the Board of Directors of the Company and as Vice-Chairman of the Company's
Board of Directors. Prior to the completion of the 1999 Merger, Mr. Quinlan
served as a member of the board of trustees and as chief executive officer of
Old Prison Realty. From July 1987 to December 1992, Mr. Quinlan served as the
Director of the Federal Bureau of Prisons. In such capacity, Mr. Quinlan was
responsible for the total operations and administration of a federal agency with
an annual budget of more than $2 billion, more than 26,000 employees and 75
facilities. In 1988, Mr. Quinlan received the Presidential Distinguished Rank
Award, which is the highest award given by the United States government to civil
servants for service to the United States. In 1992, he received the National
Public Service Award of the National Academy of Public Administration and the
American Society of Public Administration, awarded annually to the top three
public administrators in the United States. Mr. Quinlan is a 1963 graduate of
Fairfield University with a B.S.S. in History, and he received a J.D. from
Fordham University Law School in 1966. He also received an L.L.M. from the
George Washington University School of Law in 1970.
DARRELL K. MASSENGALE currently serves as the Secretary of the Company, a
position he has held since August 2000. Mr. Massengale also currently serves as
the chief executive officer and president of PMSI and JJFMSI. Mr. Massengale
served as the chief financial officer and secretary of Operating Company from
January 1, 1999 through the completion of the Restructuring. Mr. Massengale also
served as the chief financial officer and secretary of Old CCA from June 1994
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<PAGE> 13
through the completion of the 1999 Merger and as Old CCA's vice president of
finance and treasurer from March 1991 to January 1998. From February 1986 to
March 1991, Mr. Massengale served as controller of Old CCA. Mr. Massengale is a
certified public accountant who was employed by the accounting firm of KPMG Peat
Marwick from 1982 through 1986. Mr. Massengale graduated from Middle Tennessee
State University in 1982 and became a certified public accountant in 1985. Mr.
Massengale has resigned his position with the Company, effective November 17,
2000.
TODD MULLENGER currently serves as the Vice President, Finance of the
Company, a position he has held since August 2000. Mr. Mullenger served as the
vice president of finance of Old CCA from August 1998 until the completion of
the 1999 Merger. Mr. Mullenger also served as vice president, finance of
Operating Company from January 1, 1999 through the completion of the
Restructuring. From September 1996 to July 1998, Mr. Mullenger served as
assistant vice president-finance of Service Merchandise Company, Inc., a
publicly traded retailer headquartered in Nashville, Tennessee. Prior to
September 1996, Mr. Mullenger served as an audit manager with Arthur Andersen
LLP. Mr. Mullenger graduated from the University of Iowa in 1981.
BRENT TURNER currently serves as Treasurer of the Company, a position he
has held since August 2000. Mr. Turner served as treasurer of Old CCA from June
1998 through the completion of the 1999 Merger. Mr. Turner also served as
treasurer of Operating Company from January 1, 1999 through the completion of
the Restructuring. Mr. Turner served as assistant treasurer of Old CCA from May
1996 through May 1998. Prior to May 1996, Mr. Turner served as a vice president
of corporate banking with First Union Bank. Mr. Turner graduated from Vanderbilt
University in 1988 and received his M.B.A. from Vanderbilt University.
COMMITTEES OF THE COMPANY'S BOARD OF DIRECTORS
Pursuant to the authority granted under Company's Bylaws, the Company's
Board of Directors has designated an Audit Committee and Compensation Committee.
In addition, prior to the Restructuring, pursuant to the authority granted under
the Company's Bylaws, the Company's Board of Directors designated an Independent
Committee. The Company's Board of Directors, together with the boards of
directors of Operating Company, PMSI and JJFMSI, also formed a Special Committee
to consider the Restructuring and related transactions. Information regarding
the members of each committee and the authority granted to each committee by the
Company's Board of Directors is set forth below.
AUDIT COMMITTEE
The Company's Audit Committee currently consists of Messrs. Feldman and
Russell, with Mr. Feldman serving as Chairman. The Audit Committee makes
recommendations concerning the engagement of independent public accountants by
the Company, reviews with the independent public accountants the plans and
results of the audit engagement, approves professional services provided by the
independent public accountants, reviews the independence of the independent
public accountants, considers the range of audit and non-audit fees and reviews
the adequacy of the Company's internal accounting controls. The Company's Audit
Committee has held four meetings to date in 2000 and held four meetings in 1999.
It is anticipated that, following the Annual Meeting, Messrs. Burch, Jacobi and
Wedell, if elected, will be appointed to serve on the Audit Committee, with Mr.
Jacobi serving as its Chairman.
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<PAGE> 14
COMPENSATION COMMITTEE
The Company's Compensation Committee consists of Messrs. Bell and Russell,
with Mr. Russell serving as Chairman. The Compensation Committee determines
compensation, including awards under the Company's current equity incentive
plans, for the Company's executive officers and also administers the Company's
non-employee directors' equity and compensation plans. The Company's
Compensation Committee has held two meetings to date in 2000 and held two
meetings in 1999. It is anticipated that, following the Annual Meeting, Messrs.
Correnti and Prann, if elected, will be appointed to serve together with Mr.
Russell on the Compensation Committee, with Mr. Russell continuing to serve as
its Chairman.
INDEPENDENT COMMITTEE
At the time of the Restructuring, the Company's Independent Committee
consisted of Messrs. Feldman and Russell, with Mr. Russell serving as Chairman.
Pursuant to the Company's Bylaws in effect at that time, the Independent
Committee was required to approve the following actions of the Company's Board
of Directors: (i) the election of the operators for the Company's properties;
(ii) the entering into of any agreement with any tenant of the Company's
properties; and (iii) the consummation of any transaction between the Company
and any of its tenants which transactions included, but were not limited to, the
negotiation, enforcement and renegotiation of the terms of any lease of any of
the Company's properties. The Independent Committee held eight meetings in 2000
and held seven formal meetings and numerous informal meetings in 1999. As the
result of the Restructuring, the Independent Committee is no longer required
and, therefore, has been dissolved.
SPECIAL COMMITTEE
In August 1999, the Company's Board of Directors, together with the boards
of Operating Company, PMSI and JJFMSI, formed the Special Committee to monitor
the financial situation of both the Company and Operating Company and to
coordinate with the Company's advisors regarding the consideration of various
strategic alternatives, including the Restructuring. The then-existing members
of the Independent Committee, together with Mr. Cuny, were appointed to serve as
members of the Special Committee, with Joseph V. Russell appointed to serve as
the Chairman of the Special Committee. Thomas W. Beasley, chairman of the PMSI
board, Lucius E. Burch, III, chairman of the Operating Company board, and Samuel
W. Bartholomew, Jr., chairman of the JJFMSI board, were also appointed to the
Special Committee. The Special Committee held seven formal meetings and numerous
informal meetings in 2000 and held 17 formal meetings and numerous informal
meetings in 1999. As the result of the completion of the Restructuring, the
Special Committee has been dissolved.
MEETINGS OF THE COMPANY'S BOARD
The Company's full Board of Directors has held 16 formal meetings and
several informal meetings in 2000, with no directors attending, either in person
or by teleconference, less than 75% of such meetings. The Company's full board
held eight meetings in 1999, and no director, with the exception of former
member Ned Ray McWherter, attended fewer than 75% of the aggregate of all
meetings of the Board of Directors and the committees, if any, upon which such
director served and which were held during the period of time that such person
served on the Company's Board of Directors or such committee(s).
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<PAGE> 15
COMPENSATION OF THE COMPANY'S BOARD OF DIRECTORS
Currently, the Company pays its directors who are not employees of the
Company, or any of its affiliates or subsidiaries, an annual retainer of $12,000
for their services. The Company will, however, increase this amount to $24,000
following the election of directors at the Annual Meeting. In addition, the
chairman of each committee of the Board of Directors will receive an additional
annual retainer of $1,500. Non-employee directors also currently receive a fee
of $1,000 for each meeting of the Company's board which they attend and an
additional fee of $500 for each meeting they attend of committees on which they
serve. These meeting fees will continue to be paid following the election of
directors at the Annual Meeting, provided, however, that the fee for each
committee meeting attended will be increased to $1,000.
During 1999, non-employee members of the Independent Committee and the
Special Committee did not receive the $500 fee for their attendance at committee
meetings relating to the Restructuring. Instead, they, together with Messrs.
Beasley and Bartholomew, each received a retainer fee of $50,000 for their
services in 1999. Mr. Russell, Chairman of the Special Committee, received a
retainer fee of $75,000 for his services to the Company in 1999. Mr. Burch also
received a retainer fee of $25,000 from Operating Company for his services on
the Special Committee in 1999. Mr. Russell also received a cash retainer fee of
$15,000 and a fee payable in shares of the Company's Common Stock valued at
$35,000 or 31,111 shares valued at approximately $1.13 per share for his
services on the Special Committee in 2000.
Non-employee directors may elect, on an annual basis, to receive up to 100%
of their regular compensation in shares of the Company's Common Stock.
Non-employee directors are reimbursed for reasonable expenses incurred to attend
the Company's Board of Directors and committee meetings. Non-employee directors
have also participated in the Non-Employee Directors' Share Option Plan, whereby
they have received options to purchase 5,000 shares of the Company's Common
Stock for each year of service with the Company's board. Following the election
of directors at the Annual Meeting, non-employee directors will receive options
to purchase 2,000 shares of the Company's Common Stock (on a post Reverse Stock
Split basis assuming a ratio of one for twenty) on an annual basis.
Information concerning the compensation of the Company's executive officers
in 1999, the ownership of the Company's capital stock and certain relationships
and transactions are included elsewhere in this Proxy Statement.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL PROVISIONS
EMPLOYMENT AGREEMENTS
In connection with Mr. Ferguson's appointment as the Chief Executive
Officer and President of the Company, the Company entered into an employment
agreement with Mr. Ferguson, dated August 4, 2000. The initial term of the
employment agreement expires on December 31, 2002 and is subject to a series of
one year renewals. Mr. Ferguson is entitled to receive an annual salary and cash
bonus under the terms of the employment agreement, as well as customary
benefits, including life and health insurance. Mr. Ferguson's annual salary and
cash bonus are discussed in more detail in this Proxy Statement in the Report of
the Compensation Committee found herein under the heading "Executive
Compensation." In addition, under the terms of the employment agreement, the
Company has issued Mr. Ferguson the option to purchase an aggregate of 2,000,000
shares of the Company's Common Stock at varying exercise prices, also as more
fully described elsewhere herein.
In the event the Company terminates Mr. Ferguson "without cause", or Mr.
Ferguson resigns from his employment with the Company for "good cause",
including the non-renewal of the contract
12
<PAGE> 16
by the Company or Mr. Ferguson for any addition period after the expiration of
the initial term, the Company is generally required to pay Mr. Ferguson a cash
severance payment equal to two times his annual base salary then in effect,
payable in monthly installments for a period of two years following the
termination of Mr. Ferguson's employment. Mr. Ferguson will also continued to be
covered under existing life, medical, disability and health insurance plans for
a period of two years. In addition, to the extent Mr. Ferguson has vested in any
options to purchase shares of Common Stock or other equity securities of the
Company granted to him prior to the date of such termination, Mr. Ferguson will
remain entitled to exercise such options for the duration of the terms of such
options, provided, however, that any unvested and unexercised options existing
at such time are forfeited by Mr. Ferguson. In the event of a "Change in
Control" of the Company and the termination of Mr. Ferguson's employment,
whether by resignation or otherwise, Mr. Ferguson shall be entitled to receive a
lump sum cash payment equal to three times his base salary then in effect, as
well as certain tax reimbursement payments. Mr. Ferguson will also continued to
be covered under existing life, medical, disability and health insurance plans
for a period of two years. In addition, all options to purchase shares of Common
Stock or other equity securities of the Company granted to him prior to the date
of such termination, whether vested or unvested, shall become immediately
exercisable for the duration of the terms of such options.
Pursuant to the terms of Mr. Ferguson's employment agreement, Mr. Ferguson
is prohibited from competing with the Company during the term of his employment
with the Company and for a period of one year following the termination of such
employment. Mr. Ferguson is also subject to certain confidentiality and
non-disclosure provisions during this period.
In connection with the Restructuring, J. Michael Quinlan assumed the
position of Executive Vice President of the Company. Mr. Quinlan previously
entered into an employment agreement with Operating Company, which was assumed
by the operating subsidiary of the Company as the result of the Restructuring,
with a remaining term of approximately one year. Mr. Quinlan's employment
agreement generally provides for annual compensation and incentive compensation,
as determined by the Compensation Committee of the Board of Directors of the
Company on the terms set forth therein. The employment agreement also generally
provides for non-cash benefits such as life and health insurance to Mr. Quinlan.
Mr. Quinlan's employment agreement, which contains provisions restricting Mr.
Quinlan from competing with the Company during the term of his employment and
for a period of three years thereafter, also provides that the Company may
terminate Mr. Quinlan's employment with prior written notice upon the happening
of certain specified events. Mr. Quinlan may terminate his employment upon prior
written notice to the Company.
Darrell K. Massengale, who was appointed Secretary of the Company in
connection with the Restructuring, resigned from his positions with the Company
and its operating subsidiary, effective as of November 17, 2000. The terms of an
employment agreement between Mr. Massengale and Operating Company, which was
assumed by the operating subsidiary of the Company as the result of the
Restructuring, provide that in the event Mr. Massengale is no longer employed by
the Company or an affiliate of the Company, the Company is obligated to pay Mr.
Massengale his annual salary for three years following the date of his
termination of employment. However, the Company 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, in connection
with Mr. Massengale's resignation, all outstanding options to purchase Common
Stock or other securities of the Company previously granted to Mr. Massengale
have become fully vested and exercisable, and all deferred or restricted shares
of Common Stock or other securities of the Company previously granted to Mr.
Massengale have become fully vested. Operating Company also paid to Mr.
Massengale a retention bonus equal to 50% of his annual salary on September 15,
2000 for his continued services to Operating Company through that date.
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<PAGE> 17
SEVERANCE AGREEMENTS WITH FORMER EXECUTIVE OFFICERS OF THE COMPANY
On January 1, 1999, the Company 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 the Compensation Committee of the Board
of Directors and also provided for certain non-cash benefits such as life and
health insurance. On December 26, 1999, Doctor R. Crants resigned from his
position as Chairman of the Board of Directors of the Company and, on July 5,
2000, resigned from the Board of Directors of the Company. On July 28, 2000, Mr.
Crants was terminated as the Chief Executive Officer of the Company and from all
positions with Operating Company. In connection with Doctor R. Crants'
resignation from the Company's Board of Directors and termination as Chief
Executive Officer of the Company, the Board of Directors of the Company approved
modifications to certain agreements and arrangements between the Company and Mr.
Crants relating to his employment and compensation. Specifically, the Company's
Board of Directors approved: (i) an amendment to Mr. Crants' employment
agreement with the Company removing the Company's right to offset payments owed
to Mr. 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 Company's Executive Equity Loan Plan whereby the outstanding principal
amount of the loan did 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 30-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 the Company's Common
Stock previously granted to Mr. Crants in November 1995 by Old CCA pursuant to a
stock bonus plan and assumed by the Company in the 1999 Merger. As a result of
Mr. Crants' termination as Chief Executive Officer of the Company, any stock
options or similar rights which were not exercised by Mr. Crants, and any other
awards of stock or equity interests in which Mr. Crants was not vested, were
terminated or forfeited to the Company. In connection with Mr. Crants'
termination, Mr. Crants agreed not to compete with the Company for a period of
three years following such agreement. In addition, the Company and Mr. Crants
entered into a mutual release of all potential claims the parties may have had
against each other based on facts known to the parties at such time. As of the
date of this Proxy Statement, the outstanding principal balance of the loan to
Mr. Crants under the Executive Equity Loan Plan was $1,000,000.
In connection with Vida H. Carroll's resignation from her position as Chief
Financial Officer, Secretary and Treasurer of the Company, which was originally
to be effective June 30, 2000, the Company's Board of Directors granted Ms.
Carroll cash severance equal to six months of salary. In consideration for the
extension of Ms. Carroll's employment through the completion of the
Restructuring and related transactions, the Company paid to Ms. Carroll an
additional cash severance payment of $78,750, equal to 50% of her annual salary.
Ms. Carroll officially left her positions with the Company in September 2000.
Upon the effectiveness of Ms. Carroll's resignation from all positions with the
Company, any stock options or similar rights which were not exercised by Ms.
Carroll, and any other awards of stock or equity interests in which each
executive was not vested at the time of Ms. Carroll's resignation, were
terminated or forfeited to the Company.
In connection with the resignation of D. Robert Crants, III from his
position as President of the Company and as a member of the Company's Board of
Directors on December 31, 1999, and the resignation of Michael W. Devlin from
his position as Chief Operating Officer of the Company and as a member of the
Company's Board of Directors on December 31, 1999, the employment agreements
previously entered into between the Company and each of Mr. Crants, III and
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<PAGE> 18
Mr. Devlin were terminated. The Company and Operating Company entered into a
severance agreement with each executive pursuant to which payments were made to
each executive totaling approximately $633,750. Among the payments made to each
executive pursuant to the terms of the severance agreements were: (i) a payment
of $233,750, which represented amounts that were payable to each executive
pursuant to the terms of his respective employment agreement; and (ii) a payment
to each executive of $300,000 in exchange for 150,000 shares of Operating
Company's common stock (representing 75% of each executive's ownership interest
in Operating Company). The remaining $100,000 payment to each executive was used
to purchase the remainder of each executive's Operating Company common stock
immediately prior to the closing of the merger of Operating Company with and
into a wholly owned subsidiary of the Company as part of the Restructuring.
Under the original terms of these severance agreements with each of Messrs.
Crants, III and Devlin, Operating Company was to make the $300,000 payment for
the purchase of the initial portion of the shares of Operating Company's common
stock held by Messrs. Crants, III and Devlin on December 31, 1999, with the
Company purchasing the balance immediately prior to the closing of the merger
transactions. However, as a result of restrictions on Operating Company'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 Operating
Company's common stock owned by Messrs. Crants, III and Devlin. Immediately
prior to completion of the merger of Operating Company with and into a wholly
owned subsidiary of the Company as part of the Restructuring, the Company paid
$600,000 to Mr. Crants for the shares of
Operating Company common stock acquired by him from Messrs. Crants, III and
Devlin. The proceeds were used by Mr. Crants to immediately repay the entire
outstanding principal amount of the loan from PMSI.
All payments made to Messrs. Crants, III and Devlin were applied to reduce
the outstanding balance of three loans granted to each executive in the initial
aggregate principal amount of $1.0 million under the Company's Executive Equity
Loan Plan. As of the date of this Proxy Statement, the remaining outstanding
principal balance of the loans to Mr. Crants, III under the Executive Equity
Loan Program was $447,823. As of the date of this Proxy Statement, the remaining
outstanding principal balance of the loans to Mr. Devlin under the Executive
Equity Loan Program was $446,375. Each of the loans bear interest at a rate
equal to 250 basis points over the 30-day LIBOR rate in effect on such date.
Additionally, all stock options or similar rights which were not exercised by
each of Messrs. Crants, III and Devlin, and any other awards of stock or equity
interests in which each executive was not vested at the time of termination,
were terminated or forfeited to the Company.
CHANGE IN CONTROL PROVISIONS OF STOCK INCENTIVE PLANS
The Company's 1995 Stock Incentive Plan and the Company's 1997 Employee
Share Incentive Plan each provide that upon a "change-of-control" or "potential
change-in-control" of the Company, as those terms are defined in the Company's
1995 Stock Incentive Plan and the Company's 1997 Employee Share Incentive Plan,
the value of all outstanding share options granted under the plans, to the
extent vested, shall be cashed out on the basis of a "change-in-control price,"
which is generally based on the highest price paid per share of Common Stock on
the New York Stock Exchange, Inc. (the "NYSE") at any time during a 60 day
period prior to the occurrence of the "change-in-control" event. Certain
executive officers of the Company have been granted options to purchase shares
of Common Stock under the Company's 1995 Stock Incentive Plan and under the
Company's 1997 Share Incentive Plan. In addition, an employee of the Company's
operating subsidiary has been granted deferred shares of Common Stock under the
Company's 1989 Stock Bonus Plan, as assumed
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<PAGE> 19
by the Company in the 1999 Merger, which shares are subject to accelerated
vesting upon the occurrence of certain "changes of control," as defined pursuant
to the plan. See "Proposal 3: Approve Amendment to 1997 Employee Share Incentive
Plan and Adoption of 2000 Stock Incentive Plan" for additional information
regarding the "change-in-control" provisions of the 1997 Employee Share
Incentive Plan and for a description of the "change-in-control" provisions of
the Company's proposed 2000 Stock Incentive Plan.
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<PAGE> 20
PROPOSAL 2
APPROVE AN AMENDMENT TO THE COMPANY'S CHARTER TO EFFECT A
REVERSE STOCK SPLIT OF THE COMPANY'S COMMON STOCK
PROPOSED REVERSE STOCK SPLIT
The Board of Directors of the Company has determined that it would be
advisable to amend Article V of the Company's Charter to effect a Reverse Stock
Split of the shares of the Company's Common Stock at a ratio to be established
by the Company's Board of Directors in its sole discretion, provided that such
ratio shall not be less than one-for-ten and shall not exceed one-for-twenty,
and to effect a related reduction of the stated capital of the Company (the
'Amendment"), or, in its sole discretion, to abandon the Reverse Stock Split.
The form of the proposed Amendment is attached to this Proxy Statement as
Appendix A. If the Reverse Stock Split is approved by the Company's
stockholders, assuming the maximum ratio of one-for-twenty, each TWENTY shares
of the Company's Common Stock issued and outstanding on the Effective Date, as
defined herein (the "Old Common Stock"), will be converted automatically into
ONE share of the Company's new common stock, $0.01 par value per share (the "New
Common Stock"). To avoid the existence of fractional shares of New Common Stock,
stockholders who would otherwise be entitled to receive fractional shares of New
Common Stock as a result of the Reverse Stock Split will receive a cash
distribution in lieu thereof. In addition, by reducing the stated capital of the
Company, the par value per share of Common Stock will remain at $0.01 per share.
See "Effects of the Reverse Stock Split." As of November 6, 2000, the Company
had 159,068,426 shares of Common Stock issued and outstanding and anticipates
that, upon the completion of certain events as described herein, the Company
could have approximately 333,422,911 shares of Common Stock issued and
outstanding by December 31, 2000. Following the completion of the Reverse Stock
Split at the maximum ratio of one-for-twenty, if approved, the Company would
have approximately 7,953,421 shares of Common Stock issued and outstanding,
based on the number of shares of Common Stock currently issued and outstanding,
and would have approximately 16,671,146 shares of Common Stock issued and
outstanding assuming the completion of the transactions described herein.
The "Effective Date" of the Reverse Stock Split will be the date on which
the Amendment is filed with the State Department of Assessments and Taxation of
the State of Maryland, which is anticipated to be as soon as reasonably
practicable following the date of the Annual Meeting and following the
conclusion of the final conversion period of shares of the Company's Series B
Preferred Stock.
If for any reason the Company deems it advisable to do so, the Reverse
Stock Split may be abandoned at any time before, during or after the Annual
Meeting and prior to its effectiveness, without further action by the Company's
stockholders. Approval of the proposed Amendment effecting the Reverse Stock
Split requires the affirmative vote of the holders of a majority of the
outstanding shares of the Company's Common Stock as of the Record Date.
BACKGROUND OF AND REASONS FOR THE REVERSE STOCK SPLIT
On October 19, 2000, the Board of Directors adopted a resolution approving
the Amendment and directing that the Amendment be placed on the agenda for
consideration by the Company's stockholders at the Annual Meeting. The Board of
Directors also recommended the Amendment to the Company's stockholders for their
approval. The Board of Directors has determined that, based upon the Company's
current capital structure, as described below, and the current trading price of
the
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<PAGE> 21
Company's common stock on the NYSE, the Reverse Stock Split is the best
alternative currently available to the Company to meet each of the following
objectives:
- Avoid being delisted from the NYSE; and
- Encourage greater interest in the Company's common stock by the financial
community and the investing public.
Shares of the Company's Common Stock have been listed on the NYSE since
January 4, 1999, the first day of trading following the Company's commencement
of operations as a real estate investment trust, or REIT, for federal income tax
purposes following the 1999 Merger. Prior to the 1999 Merger, shares of the
common stock of each of Old CCA and Old Prison Realty were traded on the NYSE.
On November 6, 2000, the closing price per share of the Company's Common Stock
on the NYSE was $0.69.
As of November 6, 2000, the Company has approximately 159,068,246 shares of
Common Stock issued and outstanding. The Company currently has outstanding
warrants to purchase approximately 3,000,000 shares of the Company's Common
Stock. The Company also has reserved an additional 4,092,108 shares of Common
Stock for issuance pursuant to the exercise of outstanding stock options. The
Company also has outstanding $70.0 million in convertible, subordinated notes
which are currently convertible into approximately 59,322,034 shares of the
Company's Common Stock, subject to adjustment as the result of certain future
issuances of capital stock by the Company. Additionally, the Company has agreed,
pending approval of the Company's lenders under its bank credit facility, to
effect the merger of each of PMSI and JJFMSI with and into a wholly owned
subsidiary of the Company pursuant to which it will issue (assuming an average
stock price of $1.00) approximately 1,237,500 shares of its Common Stock to
certain facility-level employee shareholders of PMSI and JJFMSI.
On September 22, 2000, the Company issued a taxable dividend of 5,927,805
shares of its convertible Series B Preferred Stock in connection with the
Company's election to be taxed as a REIT for federal income tax purposes with
respect to its 1999 taxable year. A total of 4,625,319 shares of Series B
Preferred Stock which were not previously converted, plus an additional
1,590,682 shares of Series B Preferred Stock issued to the holders of the
Company's Common Stock on [November 13, 2000], will be convertible, at the
election of the holders thereof, into shares of the Company's Common Stock
during the conversion period beginning December 7, 2000 and ending December 20,
2000. Assuming an average closing price of the Company's Common Stock on the
NYSE of $1.00 (which equals the minimum conversion price permissible under the
terms of the Series B Preferred Stock), these shares of Series B Preferred Stock
will be convertible into approximately 155,881,270 additional shares of the
Company's Common Stock.
The Company also has entered into definitive settlement agreements
regarding the "global" settlement of all outstanding stockholder litigation
against the Company and certain of its existing and former directors and
executive officers. As part of the settlement, the Company has agreed to issue
approximately $75.4 million in shares of the Company's Common Stock. The Company
has agreed to initially issue 17,235,715 shares of Common Stock, having an
agreed value of $4.375 per share, pursuant to the global settlement agreements.
It is expected these shares will be issued in late December 2000 or in January
2001, pending final court approval. These shares of Common Stock will be subject
to an aggregate stock price guarantee of $75.4 million. If the trading price of
the Company's Common Stock during a specified number of trading days during the
period from the completion of the settlement through August 31, 2001 does not
reach $4.375, the Company will be required to issue, at its option, cash or
additional shares of Common Stock. Assuming an average trading price of the
Company's Common Stock on the NYSE of $1.00, the Company would be
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<PAGE> 22
required to issue an additional 58,170,538 shares of Common Stock to satisfy
this stock price guarantee.
As the result of the conversion of the Company's Series B Preferred Stock
(assuming conversion of substantially all of the outstanding shares of Series B
Preferred Stock), the issuance of shares of Common Stock in the mergers with
PMSI and JJFMSI, and the initial issuance of Common Stock in connection with the
stockholder litigation, the Company would have approximately 333,422,911 shares
of Common Stock issued and outstanding by the end of 2000. The Company may also
be required to issue up to an additional 62,322,034 shares of Common Stock upon
the exercise or conversion of warrants and its currently outstanding
convertible, subordinated notes. Accordingly, as a result of the exercise of
these warrants and convertible notes, together with the issuance of additional
shares of Common Stock in the stockholder litigation, the Company could have up
to an aggregate of approximately 453,915,483 shares of Common Stock issued and
outstanding, on a fully diluted basis, not including shares of Common Stock
issued upon the exercise of outstanding options.
NYSE rules require that, as a condition of the continued listing of a
company's securities on the NYSE, a company satisfy certain listing requirements
relating to its financial condition, results of operation and the trading market
for its listed securities, including a requirement that the Company maintain an
average closing price for a listed security of at least $1.00 over any
consecutive 30 trading-day period. On November 6, 2000, the closing price of the
Company's Common Stock on the NYSE was $0.69. At such time as the average
closing price of the Company's Common Stock is less than $1.00 over any
consecutive 30 trading-day period, the Company must, following notification by
the NYSE, notify the NYSE of its intent to cure the deficiency. The Company will
have up to six months following notification by the NYSE to cure the deficiency.
The Company has voluntarily initiated discussions with representatives of the
NYSE with respect to the Company's intent to bring the average closing price of
the Company's Common Stock above $1.00 per share through the completion of the
Reverse Stock Split.
If the Reverse Stock Split is not approved by the stockholders at the
Annual Meeting, then it is likely, depending on the volatility of the Company's
Common Stock and the Company's ability to meet the listing criteria described
above, that the Company will not satisfy the requirements for continued listing
on the NYSE or initial registration on either the American Stock Exchange
("AMEX") or the NASDAQ National Market System ("NASDAQ"). In the event that the
Company's Common Stock is delisted from the NYSE and the Company fails to be
listed on either AMEX or NASDAQ, it is likely that the shares could not be
listed on the NASDAQ Small-Cap Market (the "Small-Cap Market") without a waiver
of certain listing requirements. In such event, the Company's Common Stock would
instead be traded on the NASDAQ over-the-counter market. The delisting of the
Company's common stock from the NYSE and the Company's failure to list on either
AMEX or NASDAQ would adversely affect the liquidity of the Company's Common
Stock. If the Company's Common Stock is quoted only on the NASDAQ
over-the-counter market, the spread between the bid and ask price of the shares
of the Common Stock is likely to be greater than the spread on the NYSE.
Consequently, stockholders may experience a greater difficulty in trading shares
of the Company's Common Stock.
In addition, the delisting of the Company's securities from the NYSE would
result in an event of default under the provisions of the Company's currently
outstanding $40.0 million aggregate principal amount convertible, subordinated
notes. If the Company is unable to obtain a waiver of this event of default, the
holders of these notes would be entitled to accelerate the entire outstanding
principal amount of the notes. Moreover, if the holders of these notes elect to
exercise their rights to accelerate this indebtedness, such action would result
in an event of default under the provisions of all of the Company's remaining
indebtedness, including the Company's bank credit facility, which could result,
at the option of the holders thereof, in the acceleration of all of the
Company's
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<PAGE> 23
outstanding indebtedness. In addition, the delisting of the Company's securities
from the NYSE could be deemed to be a "material adverse change" in the Company's
current business, operation or condition, which, under the provisions of all of
the Company's outstanding indebtedness, could also give rise to the acceleration
of the outstanding principal amount of the Company's indebtedness, at the option
of the holders thereof. The acceleration of all or a portion of the Company's
indebtedness would have a material adverse effect on the Company's liquidity and
financial position. The Company does not have sufficient working capital to
satisfy its debt obligations in the event of an acceleration of all or a portion
of the Company's indebtedness.
The Company believes that if the Amendment is approved by the stockholders
at the Annual Meeting and the Reverse Stock Split is effectuated, the shares of
the Company's Common Stock likely will consistently have an average closing
price sufficient to satisfy the NYSE listing criteria. The reduction in the
number of outstanding shares of Common Stock caused by the Reverse Stock Split
is anticipated to increase the per share market price of the Common Stock,
although not necessarily on a proportional basis. However, some investors may
view the Reverse Stock Split negatively since it reduces the number of shares
available in the public market. In addition, other reasons such as the Company's
financial results, market conditions, the market perception of the private
corrections and detention industry and other factors may adversely affect the
market price of the Company's Common Stock. As a result, there can be no
assurance that the market price of the Common Stock will not decline in the
future.
In addition to satisfying the minimum average closing price requirement,
the Company would also need to continue to satisfy all other applicable NYSE
listing criteria. Moreover, even if the Company were to satisfy all of the
substantive listing requirements described above, the NYSE has broad discretion
to delist a company's securities for any reason if, in the opinion of the NYSE,
events or circumstances have made listing of a company's securities on the NYSE
inadvisable or unwarranted. As a result, there can be no assurance that the
Company will be successful in meeting these and other listing criteria of the
NYSE or that, in the event the Company's Common Stock is delisted from the NYSE,
the Company will be successful in obtaining an initial registration on either
AMEX or NASDAQ.
The Board of Directors of the Company also believes that the Reverse Stock
Split will encourage greater interest in the Company's Common Stock by the
investment community. The Board of Directors believes that the current market
price of the Company's Common Stock has impaired its acceptability to
institutional investors, professional investors and other members of the
investing public. Many institutional and other investors look upon stock trading
at low prices as unduly speculative in nature and, as a matter of policy, avoid
investment in such stocks. Further, various brokerage house policies and
practices tend to discourage individual brokers from dealing in low priced
stocks. If effected, the Reverse Stock Split would reduce the number of shares
of the Company's Common Stock issued and outstanding. The Company's Board of
Directors expects that the reduction would result in an increase in the trading
price of the Company's Common Stock. The Board of Directors also believes that
raising the expected market price of the Company's Common Stock would increase
the attractiveness of the Company's Common Stock to the investment community and
possibly promote greater liquidity for the Company's stockholders.
In addition, because broker commissions on low-priced stocks generally
represent a higher percentage of the stock price than commissions on higher
priced stocks, the current share price of the Company's Common Stock, in the
absence of the Reverse Stock Split, may continue to result in individual
stockholders paying transaction costs (commissions, markups or markdowns) which
are a higher percentage of their total share value than would be the case if the
share price was substantially higher. This factor may further limit the
willingness of institutions to purchase the Company's Common Stock at its
current market price. Although any increase in the market price of the
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<PAGE> 24
Company's Common Stock resulting from the Reverse Stock Split may be
proportionately less than the decrease in the number of shares outstanding, the
proposed Reverse Stock Split could result in a market price that would be high
enough for the shares of the Company's Common Stock to overcome the reluctance,
policies and practices of brokerage firms and investors referred to above and to
diminish the adverse impact of correspondingly higher trading commissions for
the shares.
There can be no assurance, however, that the Reverse Stock Split, if
completed, will result in the benefits described above. Specifically, there can
be no assurance that the market price of the Company's Common Stock immediately
after implementation of the proposed Reverse Stock Split would be maintained for
any period of time or that, assuming a maximum Reverse Stock Split ratio of
one-for-twenty, such market price would approximate twenty times the expected
market price of the Company's Common Stock before the proposed Reverse Stock
Split. There can also be no assurance that the Reverse Stock Split will not
further adversely impact the market price of the Company's Common Stock. In
addition, it is possible that the liquidity of the Company's Common Stock could
be adversely affected by the reduced number of shares outstanding after the
Reverse Stock Split.
BOARD DISCRETION TO IMPLEMENT AND DETERMINE RATIO OF REVERSE STOCK SPLIT
If the Reverse Stock Split is approved by the stockholders of the Company
at the Annual Meeting, the Reverse Stock Split will be effected, if at all, only
upon a determination by the Board of Directors of the Company, in its sole
discretion, that the Reverse Stock Split is in the best interests of the Company
and its stockholders. Such determination shall be based upon certain factors,
including but not limited to, existing and expected marketability and liquidity
of the Company's Common Stock, NYSE listing requirements, prevailing market
conditions and the likely effect on the market price of the Company's Common
Stock. If the Company ultimately determines to effect a Reverse Stock Split, the
Company will select a Reverse Stock Split ratio of between a minimum of
one-for-ten and a maximum of one-for-twenty, that it believes will result in the
greatest marketability of the Company's Common Stock based on prevailing market
conditions. No further action on the part of the stockholders would be required
to either effect or abandon the Reverse Stock Split. Notwithstanding approval of
the Reverse Stock Split by the stockholders, the Board may, in its sole
discretion, determine to delay the effectiveness of the Reverse Stock Split for
up to six months following stockholder approval thereof but in no event
following the date of the Company's Annual Meeting of Stockholders in 2001. If
the Board does not implement the Reverse Stock Split prior to such meeting,
stockholder approval again would be required prior to implementing any Reverse
Stock Split.
EFFECTS OF THE REVERSE STOCK SPLIT
GENERAL
If the Amendment is approved by the stockholders of the Company and the
Company determines to effect the Reverse Stock Split, the principal effect will
be to decrease the number of outstanding shares of the Company's Common Stock.
As a result of the Reverse Stock Split, assuming the maximum ratio of
one-for-twenty is employed, each holder of TWENTY shares of the Company's Common
Stock immediately prior to the effectiveness of the Reverse Stock Split would
become the holder of ONE share of the Company's Common Stock after the
effectiveness of the Reverse Stock Split.
The Company's Common Stock is currently registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Company is
subject to the periodic reporting and other requirements of the Exchange Act.
The Reverse Stock Split will not affect the registration of
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<PAGE> 25
the Common Stock under the Exchange Act or the listing of Company's Common Stock
on the NYSE. Because the amount of the annual fee paid by the Company to the
NYSE is based on the total number of shares of the Company's capital stock
authorized for listing on the NYSE, the Reverse Stock Split will have the effect
of reducing the aggregate amount of this annual fee paid by the Company to the
NYSE. Following the Reverse Stock Split, the Company's Common Stock will
continue to be listed on the NYSE under the symbol "CXW".
Proportionate voting rights and other rights of the holders of Common Stock
will not be affected by the Reverse Stock Split, other than as a result of the
elimination of fractional shares as described below. For example, a holder of 2%
of the voting power of the outstanding shares of Old Common Stock immediately
prior to the effective time of the Reverse Stock Split will generally continue
to hold 2% of the voting power of the outstanding shares of New Common Stock
after the Reverse Stock Split.
Although the number of authorized shares of the Company's Common Stock will
be initially reduced as the result of the Reverse Stock Split, the Amendment
will increase the number of shares authorized for issuance by the Board of
Directors (on a post-split basis) without further stockholder action as
described below. The increase in the number of authorized but unissued shares of
Common Stock following the Reverse Stock Split may be construed as having an
anti-takeover effect by permitting the issuance of shares to purchasers who
might oppose a hostile takeover bid or oppose any efforts to amend or repeal
certain provisions of the Company's Charter or Bylaws. The number of
stockholders of record will not be affected by the Reverse Stock Split.
Although the Reverse Stock Split would not, by itself, impact the Company's
assets or prospects, the Reverse Stock Split could result in a decrease in the
aggregate market capitalization of the Company due to a decrease in the market
price of the Company's Common Stock following the Effective Date. Also, if
approved and implemented, the Reverse Stock Split may result in some
stockholders owning "odd lots" of less than 100 shares of New Common Stock. Odd
lot shares may be more difficult to sell, and brokerage commissions and other
costs of transactions in odd lots are generally somewhat higher than the costs
of transactions in "round lots" of even multiples of 100 shares. The Board of
Directors believes, however, that these potential effects are outweighed by the
benefits of the Reverse Stock Split.
EFFECT ON STOCK OPTION PLANS
As of November 6, 2000, there were outstanding options to purchase
4,092,108 shares of the Company's Common Stock issued or committed to be issued
pursuant to stock options granted by the Company and its predecessors. All of
the outstanding options to purchase Common Stock under the Company's stock
option plans include provisions for adjustments on the number of shares covered
thereby, as well as the exercise price thereof. If the Reverse Stock Split is
implemented, each outstanding and unexercised option to purchase shares of the
Company's Old Common Stock would be automatically converted into an economically
equivalent option to purchase shares of the New Common Stock by decreasing the
number of shares underlying the option and increasing the exercise price
appropriately. If the Reverse Stock Split is approved and effected, assuming the
maximum Reverse Stock Split ratio of one-for-twenty, there would be reserved for
future issuance upon exercise of all outstanding options a total of 204,605
shares of New Common Stock. Each of the outstanding options would thereafter
evidence the right to purchase 5% of the shares of New Common Stock previously
covered thereby, and the exercise price per share would be 20 times the previous
exercise price. In addition, the number of shares of Common Stock which remain
available for issuance under the Company's certain option plans will be reduced
by the same ratio as the Reverse Stock Split.
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<PAGE> 26
EFFECT ON WARRANTS AND CONVERTIBLE, SUBORDINATED NOTES
As of November 6, 2000, the Company had outstanding warrants and
convertible, subordinated notes currently convertible into an aggregate of
approximately 62,322,034 shares of the Company's Common Stock. The warrants and
convertible, subordinated notes include provisions for adjustments on the number
of shares issuable following a reverse stock split, as well as the conversion
price thereof. If the Reverse Stock Split is effected, assuming the maximum
Reverse Stock Split ratio of one-for-twenty, there would be reserved for
issuance upon conversion of all outstanding warrants and convertible,
subordinated notes a total of approximately 3,116,102 shares of New Common
Stock. Holders of the outstanding warrants and convertible, subordinated notes
would thereafter be entitled to receive 5% of the shares of New Common Stock
previously issuable upon conversion of such outstanding warrants and
convertible, subordinated notes, and the conversion price of such warrants and
convertible, subordinated notes would be 20 times the previous conversion price.
EFFECT ON STOCKHOLDER LITIGATION PAYMENT
As previously described, the stockholder litigation settlement provides
that the Company is required to distribute to the plaintiffs in the stockholder
litigation shares of the Company's Common Stock with an agreed value of $4.375
per share, resulting in an aggregate value of $75.4 million. As of November 6,
2000, the Company has reserved for issuance 17,235,715 shares as an initial
payment in satisfaction of this requirement, as well as an additional 58,170,538
shares in the event that the aggregate value of the payment guarantee provided
for in the settlement ($75.4 million in value of the Company's Common Stock) is
not satisfied by the initial distribution. It is expected that the initial
distribution of shares of Common Stock will be made prior to the Effective Date
of the Reverse Stock Split. The issuance of additional shares, however, will
take place following the Effective Date. As a result, following the Reverse
Stock Split, assuming the maximum Reverse Stock Split ratio of one-for-twenty
and a post-split Common Stock price of $20.00 per share (or a pre-split price of
$1.00 per share), the number of shares reserved for issuance in satisfaction of
the Company's obligations in the event that the aggregate value of the shares of
New Common Stock issued does not meet the $75.4 million payment guarantee will
be 2,908,526 shares.
EFFECT ON PREFERRED STOCK
Immediately following the Effective Date, the Company will have outstanding
4,300,000 shares of Series A Preferred Stock. In addition, any shares of Series
B Preferred Stock not converted into shares of the Company's Common Stock during
the second and final conversion period of the Series B Preferred Stock will
remain outstanding following the Effective Date. Pursuant to their respective
terms, neither the Series A Preferred Stock nor the Series B Preferred Stock may
be converted into shares of the Company's New Common Stock at any time after the
Effective Date. As a result, the Reverse Stock Split will not affect the
respective terms, rights and preferences of either the Company's Series A
Preferred Stock or the Company's Series B Preferred Stock.
CHANGES IN STOCKHOLDERS' EQUITY
The following table illustrates the principal effects of the Reverse Stock
Split discussed in the preceding paragraphs, assuming the Reverse Stock Split
was effected using the maximum ratio of one-for-twenty. The table assumes
333,422,911 shares of Common Stock are issued and outstanding at the time of the
Reverse Stock Split (including conversion of substantially all of the
outstanding shares of Series B Preferred Stock, the issuance of shares of Common
Stock in the mergers of PMSI and JJFMSI with and into a wholly owned subsidiary
of the Company, and the issuance of initial shares of Common Stock in
satisfaction of the settlement of the stockholder litigation) and a
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<PAGE> 27
20,000,000 increase in the number of shares of Common Stock authorized for
issuance following the Amendment.
<TABLE>
<CAPTION>
PRIOR TO REVERSE AFTER REVERSE
NUMBER OF SHARES OF COMMON STOCK STOCK SPLIT STOCK SPLIT
-------------------------------- ---------------- -------------
<S> <C> <C>
Authorized.................................................. 400,000,000 40,000,000
Outstanding................................................. 333,422,911 16,671,146
Reserved for future issuance upon exercise of currently
outstanding options....................................... 4,092,108 204,605
Reserved for future issuance upon exercise of warrants and
conversion of convertible, subordinated notes............. 62,322,034 3,116,102
Reserved for future issuance in satisfaction of stockholder
litigation................................................ 58,170,538 2,908,527
</TABLE>
INCREASE OF SHARES OF COMMON STOCK AVAILABLE FOR FUTURE ISSUANCE
As a result of the Reverse Stock Split, there would be a reduction in the
number of shares of the Company's Common Stock issued and outstanding and an
associated decrease in the number of authorized shares of the Company's Common
Stock that would be unissued and available for future issuance after the Reverse
Stock Split. However, in order to address the Company's need to issue additional
shares of Common Stock following the Reverse Stock Split, the Amendment reflects
an increase in the Company's authorized Common Stock. The amount of such
increase will equal 100% of the authorized Common Stock of the Company following
the Reverse Stock Split. For example, assuming a maximum Reverse Stock Split
ratio of one-for-twenty, the Company's authorized Common Stock would be
increased from 20,000,000 to 40,000,000 (on a post-split basis) as a result of
the Amendment. These additional shares may be used for any proper corporate
purpose approved by the Company's Board of Directors, including, among others,
future financing transactions; the mergers of PMSI and JJFMSI; the issuance of
Common Stock in satisfaction of the Company's stockholder litigation settlement;
the conversion of the Company's Series B Preferred Stock into shares of Common
Stock during the final conversion period; and the issuance of Common Stock upon
the exercise or conversion of employee stock options, warrants and convertible,
subordinated notes. Except in connection with the foregoing, the Company has no
current plans, proposals, arrangements or understandings to issue any of the
additional shares of the Company's Common Stock that will become available as a
result of the Reverse Stock Split and the corresponding Amendment, except as may
be contemplated under the 1997 Employee Share Incentive Plan and the 2000 Stock
Incentive Plan as described under Proposal 3 herein.
EFFECTIVENESS OF THE REVERSE STOCK SPLIT
The Reverse Stock Split, if approved by the Company's stockholders, would
become effective upon the filing with the State Department of Assessments and
Taxation of the State of Maryland of Articles of Amendment to the Company's
Charter, in substantially the form of the Amendment attached to this Proxy
Statement as Appendix A. It is expected that this filing would take place as
soon as reasonably practicable following approval of the Reverse Stock Split by
the Company's stockholders and following completion of the second and final
conversion period with respect to the Series B Preferred Stock. However, the
exact timing of the filing of the Articles of Amendment would be determined by
the Company based upon its evaluation as to when this action would be most
advantageous to the Company and its stockholders, and the Company reserves the
right to delay the filing of the Articles of Amendment for up to six months
following stockholder approval thereof but in no event following the date of the
Company's 2001 Annual Meeting of Stockholders. In addition, the Company reserves
the right, notwithstanding stockholder approval and without further
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<PAGE> 28
action by the stockholders, to elect not to proceed with the Reverse Stock Split
if, at any time prior to the effective time, the Company, in its sole
discretion, determines that a Reverse Stock Split of the Company's Common Stock
is no longer in the best interests of the Company and its stockholders.
FRACTIONAL SHARES
The Company does not intend to issue fractional shares in connection with
the Reverse Stock Split. No certificates representing fractional shares shall be
issued. Stockholders who otherwise would be entitled to receive fractional
shares because the number of shares of the Common Stock they hold is not evenly
divisible by the Reverse Stock Split ratio will be entitled, upon surrender to
the Company's transfer agent of certificates representing such shares, to cash
payments (without interest) in lieu of the fractional shares to which the
stockholders would otherwise be entitled. The ownership of a fractional interest
will not give the holder any voting, dividend or other rights, except to receive
the cash payment. The payment of cash in lieu of fractional shares is subject to
the consent of the Company's lenders under its senior secured credit facility.
Stockholders should be aware that, under the escheat laws of the various
jurisdictions where stockholders reside, where the Company is domiciled and
where the funds will be deposited, sums due for fractional interests that are
not timely claimed after the Effective Date may be required to be paid to the
designated agent for each such jurisdiction, unless correspondence has been
received by the Company or its transfer agent concerning ownership of such funds
within the time permitted in such jurisdiction. Thereafter, stockholders
otherwise entitled to receive such funds will have to seek to obtain them
directly from the state to which they were paid.
EXCHANGE OF STOCK CERTIFICATES
If the proposal to implement the Reverse Stock Split is adopted,
stockholders will be required to exchange their stock certificates for new
certificates representing the shares of New Common Stock. Stockholders of record
on the Effective Date will be furnished the necessary materials and instructions
for the surrender and exchange of share certificates at the appropriate time by
Fleet Bank/EquiServe, L.P., the Company's transfer agent. Stockholders will not
have to pay a transfer fee or other fee in connection with the exchange of
certificates. As soon as practicable after the Effective Date, the Transfer
Agent will send a letter of transmittal to each stockholder advising such holder
of the procedure for surrendering certificates representing shares of Old Common
Stock in exchange for new certificates representing the ownership of New Common
Stock.
YOU SHOULD NOT SEND YOUR STOCK CERTIFICATES NOW. YOU SHOULD SEND THEM ONLY AFTER
YOU RECEIVE THE LETTER OF TRANSMITTAL FROM OUR TRANSFER AGENT.
As soon as practicable after the surrender to the transfer agent of any
certificate which represents shares of Old Common Stock, together with a duly
executed letter of transmittal and any other documents the transfer agent may
specify, the transfer agent shall deliver to the person in whose name such
certificate had been issued certificates registered in the name of such person
representing the number of full shares of New Common Stock into which shares of
Old Common Stock represented by the surrendered certificate shall have been
reclassified. Each certificate representing shares of the New Common Stock will
continue to bear any legends restricting the transfer of such shares that were
borne by the surrendered certificates representing the shares of Old Common
Stock held prior to the Reverse Stock Split.
Until surrendered as contemplated herein, each certificate which
immediately prior to the Reverse Stock Split represented shares of Old Common
Stock shall be deemed at and after the Reverse Stock Split to represent the
number of full shares of New Common Stock contemplated by
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the preceding paragraph. Until they have surrendered their stock certificates
for exchange, stockholders will not be entitled to receive any dividends or
other distributions that may be declared and payable to holders of record.
Any stockholder whose certificate for Old Common Stock has been lost,
destroyed or stolen will be entitled to issuance of a certificate representing
the shares of New Common Stock into which such shares of Old Common Stock are to
be converted upon compliance with such requirements as the Company and the
transfer agent customarily apply in connection with lost, stolen or destroyed
certificates.
No service charges, brokerage commissions or transfer taxes shall be
payable by any holder of any certificate which represented any shares of the
Company's Old Common Stock, except that if any certificates representing the New
Common Stock are to be issued in a name other than that in which the
certificates for shares of the Company's Old Common Stock surrendered are
registered, it shall be a condition of such issuance that (i) the person
requesting such issuance shall pay to the Company any transfer taxes payable by
reason thereof (or prior to transfer of such certificate, if any) or establish
to the satisfaction of the Company that such taxes have been paid or are not
payable, (ii) such transfer comply with all applicable federal and state
securities laws, and (iii) such surrendered certificate be properly endorsed and
otherwise be in proper form for transfer.
APPRAISAL RIGHTS
No appraisal rights are available under the Maryland General Corporation
Law or under the Company's Charter and Bylaws to any stockholder who dissents
from the proposal to approve the Amendment to the Company's Charter to effect
the Reverse Stock Split.
FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT
A SUMMARY OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE PROPOSED REVERSE
STOCK SPLIT TO THE COMPANY AND TO INDIVIDUAL STOCKHOLDERS IS SET FORTH BELOW.
THE FOLLOWING DISCUSSION IS BASED UPON PRESENT FEDERAL INCOME TAX LAW. THE
DISCUSSION IS NOT INTENDED TO BE, NOR SHOULD IT BE RELIED ON AS, A COMPREHENSIVE
ANALYSIS OF THE TAX ISSUES ARISING FROM OR RELATING TO THE PROPOSED REVERSE
STOCK SPLIT. IN ADDITION, THE COMPANY HAS NOT AND WILL NOT SEEK AN OPINION OF
COUNSEL OR A RULING FROM THE INTERNAL REVENUE SERVICE REGARDING THE FEDERAL
INCOME TAX CONSEQUENCES OF THE PROPOSED REVERSE STOCK SPLIT. THE TAX TREATMENT
OF A STOCKHOLDER MAY VARY DEPENDING UPON THE PARTICULAR FACTS AND CIRCUMSTANCES
OF SUCH STOCKHOLDER. CERTAIN STOCKHOLDERS, INCLUDING INSURANCE COMPANIES,
TAX-EXEMPT ORGANIZATIONS, FINANCIAL INSTITUTIONS, BROKER-DEALERS, NON-RESIDENT
ALIENS, FOREIGN CORPORATIONS, AND PERSONS WHO DO NOT HOLD THE COMPANY'S COMMON
STOCK AS A CAPITAL ASSET, MAY BE SUBJECT TO SPECIAL RULES NOT DISCUSSED BELOW.
ACCORDINGLY, STOCKHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS FOR
MORE DETAILED INFORMATION REGARDING THE EFFECTS OF THE PROPOSED REVERSE STOCK
SPLIT UNDER APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN INCOME TAX LAWS.
It is intended that the Reverse Stock Split will constitute a
reorganization within the meaning of Section 368 (a)(1)(E) of the Internal
Revenue Code of 1986, as amended (the "Code"). Assuming that the Reverse Stock
Split qualifies as a reorganization under the Code, the following federal income
tax consequences should result:
- The receipt of shares of New Common Stock (excluding fractional shares of
New Common Stock) in the Reverse Stock Split will be a nontaxable
transaction under the Code for federal
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<PAGE> 30
income tax purposes. A stockholder receiving shares of New Common Stock
will not recognize either gain or loss, or any other type of income, with
respect to whole shares of New Common Stock received as a result of the
Reverse Stock Split.
- The aggregate tax basis of the shares of the New Common Stock received by
the stockholder pursuant to the Reverse Stock Split will equal the
aggregate tax basis of the shares of the Old Common Stock held by the
stockholder immediately prior to the Effective Date of the Reverse Stock
Split. Each stockholder will be required to allocate such stockholder's
basis in such stockholder's shares of Old Common Stock ratably among the
total number of shares of New Common Stock received by such stockholder
pursuant to the Reverse Stock Split. The stockholder will be able to
"tack" the holding period of the Old Common Stock to the holding period
of the New Common Stock received by the stockholder pursuant to the
Reverse Stock Split, provided that the shares of the Common Stock held by
the stockholder prior to the Reverse Stock Split were capital assets in
the hands of the stockholder.
- The receipt by a stockholder of cash in lieu of a fractional share of New
Common Stock pursuant to the Reverse Stock Split will be a taxable
transaction for federal income tax purposes. The receipt of cash in lieu
of a fractional share of New Common Stock will result in gain or loss
(rather than dividend income) to such stockholders measured by the
difference between the amount of cash received and the adjusted basis of
the fractional share assuming, as the Company believes, that such cash
distribution is undertaken solely for the purpose of saving the Company
the expense and inconvenience of issuing and transferring fractional
shares of New Common Stock. Capital gain or loss will be long term
capital gain or loss if on the Effective Date the shares of Common Stock
have been held by such stockholder for longer than one year.
- The Company will not recognize gain or loss as a result of the Reverse
Stock Split.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO
AMEND THE COMPANY'S CHARTER IN ORDER TO EFFECT THE REVERSE STOCK SPLIT AND A
RELATED REDUCTION IN THE STATED CAPITAL OF THE COMPANY.
The Company reserves the right to abandon the proposed Amendment without
further action by the Company's stockholders at any time prior to the filing of
the Amendment with the State Department of Assessments and Taxation of the State
of Maryland, notwithstanding authorization of the proposed Amendment by the
Company's stockholders.
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<PAGE> 31
PROPOSAL 3
APPROVE AMENDMENT TO 1997 EMPLOYEE SHARE INCENTIVE PLAN AND ADOPTION OF 2000
STOCK INCENTIVE PLAN
EXISTING EQUITY INCENTIVE PLANS
The Company has adopted and currently administers seven equity incentive
plans, as well as a 401(k) plan. Three of these plans were assumed by the
Company from Old Prison Realty in connection with the 1999 Merger. The Company
has utilized these plans to make equity incentive grants to its directors,
executive officers and certain key employees since the completion of the 1999
Merger and has administered the grants made by Old Prison Realty prior to the
1999 Merger. The remaining four plans, together with two additional plans that
have no options currently outstanding, were assumed from Old CCA in connection
with the 1999 Merger. While the Company has administered the grants made under
the plans by Old CCA prior to the 1999 Merger, the Company has made no
additional grants thereunder. As a result of the foregoing, the Company
currently administers the following plans:
- Old Prison Realty 1997 Employee Share Incentive Plan
- Old Prison Realty Non-Employee Trustees' Share Option Plan
- Old Prison Realty Non-Employee Trustees' Compensation Plan
- Old CCA 1986 Non-Qualified Stock Option Plan
- Old CCA 1991 Flexible Stock Option Plan
- Old CCA 1995 Share Incentive Plan
- Old CCA Non-Employee Directors' Plan
In addition, the Company administers an option to purchase 70,000 shares of
the Company's Common Stock granted by Old CCA to Joseph F. Johnson, a former
director of Old CCA, prior to the 1999 Merger. This grant was made outside of
any Company plan and was approved by the stockholders of Old CCA in 1998.
Under the plans outlined above, the Company currently has options to
purchase an aggregate of 4,092,108 shares of the Company's Common Stock
outstanding. These include options granted to Messrs. Ferguson and Andrews under
the Old Prison Realty 1997 Share Incentive Plan assumed and administered by the
Company (the "1997 Employee Share Incentive Plan") as previously described
herein and discussed further below.
ISSUANCE OF EQUITY INCENTIVES TO DIRECTORS, EXECUTIVE OFFICERS AND KEY
EMPLOYEES
The Company desires to attract and retain the best available employees,
directors and consultants for the Company and to encourage the highest level of
performance by such persons, thereby enhancing the value of the Company for the
benefit of its stockholders. The Company and the Compensation Committee of the
Board of Directors believe that in order to accomplish these objectives it is
necessary to: (i) meet the competitive requirements of the workforce marketplace
by including equity incentives as part of the total compensation to be paid to
prospective directors, executive officers and key employees; and (ii) reward the
performance of existing and future directors, executive officers and key
employees and increase the proprietary and vested interest of all
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<PAGE> 32
such persons in the growth and performance of the Company in a manner that
provides them with a means to increase their holdings of Common Stock and aligns
their interests with the interests of the stockholders of the Company.
1997 EMPLOYEE SHARE INCENTIVE PLAN
1997 PLAN AMENDMENT
The 1997 Employee Share Incentive Plan was adopted and assumed by the
Company in the 1999 Merger. Old Prison Realty adopted the 1997 Employee Share
Incentive Plan in connection with its formation in April 1997. Originally,
1,300,000 shares of Common Stock were reserved and made available for issuance
under the terms of the plan. On August 4, 2000, the Board of Directors of the
Company and its Compensation Committee resolved to (i) increase the number of
shares of Common Stock authorized and reserved for issuance under the 1997
Employee Share Incentive Plan to 15,000,000 shares, and (ii) clarify the
provisions of the 1997 Employee Share Incentive Plan to provide for the grant of
options that are immediately exercisable (the "1997 Plan Amendment"). The Board
of Directors and the Compensation Committee approved the 1997 Plan Amendment in
order to provide for the grant of options under the plan to certain prospective
executive officers and key employees of the Company, including options to
purchase 2,000,000 shares of Common Stock to be issued to the Company's new
Chief Executive Officer and President, John D. Ferguson. In addition to
providing for the grant to Mr. Ferguson, the Board of Directors and the
Compensation Committee approved the 1997 Plan Amendment, which was intended to
provide the Company with flexibility with respect to stock-based compensation
and the establishment of appropriate long term incentives to its executive
officers and key employees, particularly in connection with the Company's search
for a new Chairman, Chief Financial Officer and other selected executive
officers. The Board of Directors of the Company and its Compensation Committee
also concluded that the number of shares of Common Stock authorized and reserved
for issuance under the original terms of the 1997 Employee Share Incentive Plan
was insufficient given the increase in the number of shares of Common Stock
issued and outstanding since the adoption of the plan by Old Prison Realty in
April 1997 and the completion of the 1999 Merger.
The 1997 Plan Amendment increases the number of shares of Common Stock
which may be issued upon the exercise of options or issued as restricted stock
awards or other stock-based awards by 13,700,000 shares, or 8.6% of the
159,068,246 shares of Common Stock outstanding as of November 6, 2000 (or 4.1%
of the 333,422,911 shares of Common Stock expected to be outstanding by the end
of 2000 and 3.0% of the 453,915,483 shares of Common Stock that could be
outstanding upon the occurrence of certain events previously described herein).
As amended, the 1997 Employee Share Incentive Plan will continue to provide for
appropriate adjustment in the number of shares subject to issuance in the event
of a stock dividend, recapitalization, merger or similar transactions, including
the Reverse Stock Split. The text of the 1997 Plan Amendment is included in this
Proxy Statement as Appendix B. Following stockholder approval of the 1997 Plan
Amendment, the Company will have options to purchase 2,615,500 shares of Common
Stock outstanding under the 1997 Employee Share Incentive Plan, resulting in
12,385,500 shares of Common Stock available for future issuance. At August 4,
2000 and prior to the 1997 Plan Amendment, the Company had approximately 400,000
shares of Common Stock available for issuance under the plan, although
subsequent to August 4, 2000, additional shares became available under the plan
as the result of the cancellation of options and share awards previously granted
to Doctor R. Crants and Vida H. Carroll in connection with their termination
from the Company.
The Board of Directors of the Company and its Compensation Committee
approved the 1997 Plan Amendment in order to increase the number of shares of
the Company's Common Stock reserved for issuance thereunder from 1,300,000
shares to 15,000,000 shares and to provide for the
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<PAGE> 33
issuance of the options to Mr. Ferguson, all subject to stockholder approval. In
the event that the Company's stockholders do not approve the 1997 Plan Amendment
or otherwise do not approve the options granted to Mr. Ferguson thereunder prior
to December 31, 2000, the Company has agreed to issue to Mr. Ferguson an
equivalent amount of stock appreciation rights with a like exercise price and
vesting provisions. In connection with the appointment of William F. Andrews as
the Chairman of the Board of Directors of the Company on August 7, 2000, the
Company has also issued Mr. Andrews an option to purchase 200,000 shares of the
Company's Common Stock at an exercise price of $2.50 per share under the terms
of the 1997 Share Incentive Plan, as amended. The issuance of the options to Mr.
Ferguson is not contingent on the approval of the stockholders of the Company of
the 1997 Plan Amendment, as there are sufficient shares available for issuance
under the plan notwithstanding the 1997 Plan Amendment.
Pending stockholder approval of the 1997 Plan Amendment, the Company,
through the Compensation Committee of the Board of Directors, intends to grant
options to purchase Common Stock and other equity incentives to its officers,
directors and key employees under the 1997 Employee Share Incentive Plan, as
amended, in furtherance of the objectives and goals described above, although
the exact amount and types of grants have not been established at this time. The
approximate number of officers, directors and key employees currently eligible
for awards pursuant to the plan is 200.
SUMMARY OF MATERIAL PROVISIONS OF 1997 EMPLOYEE SHARE INCENTIVE PLAN
General. The following is a summary of the material provisions of the 1997
Employee Share Incentive Plan, as amended, and is qualified in its entirety by
reference to the 1997 Plan Amendment attached hereto as Appendix B, as well as
the full text of the 1997 Employee Share Incentive Plan, copies of which may be
obtained by contacting the Secretary of the Company at 10 Burton Hills
Boulevard, Nashville, Tennessee 37215. Capitalized terms not otherwise defined
herein have the meanings given them in the 1997 Employee Share Incentive Plan.
Old Prison Realty established, and the Company assumed, the 1997 Employee
Share Incentive Plan to enable officers and other key employees of the Company
and its subsidiaries and affiliates to participate in the ownership of the
Company. The 1997 Employee Share Incentive Plan is designed to attract and
retain executive officers and other key employees of the Company and to provide
incentives to such persons to maximize the Company's financial performance. The
1997 Employee Share Incentive Plan is administered by the Compensation
Committee, which is authorized to select from among the eligible employees of
the Company individuals to whom options, restricted stock, deferred stock and
other stock-based awards are to be granted and to determine the number of shares
to be subject thereto and the terms and conditions thereof. The Compensation
Committee is also authorized to adopt, amend and rescind rules relating to the
administration of the 1997 Employee Share Incentive Plan. No member of the
Compensation Committee is eligible to participate in the 1997 Employee Share
Incentive Plan. No awards shall be granted under the plan after April 21, 2007,
the tenth anniversary of the plan's effectiveness.
As previously set forth, the total number of shares of Common Stock
available for issuance under the 1997 Employee Share Incentive Plan, as amended,
is 15,000,000 shares. Under the terms of the plan, if shares of Common Stock
subject to share options granted under the plan cease to be subject to such
options, or if shares awarded under the plan are forfeited or otherwise
terminate, such shares shall become available again for future issuance under
the plan.
Awards Available for Issuance Under the 1997 Employee Share Incentive
Plan. The 1997 Employee Share Incentive Plan provides for the award to officers
and other key employees of the Company and its subsidiaries and affiliates of a
broad variety of stock-based compensation alternatives
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<PAGE> 34
such as (i) incentive stock options, (ii) nonqualified stock options, (iii)
restricted stock, (iv) deferred stock and (v) other stock-based awards. There is
no limit on the number of awards that may be granted to any one individual under
the 1997 Employee Share Incentive Plan.
Incentive stock options, or ISOs, are designed to comply with the
"incentive stock option" provisions of the Code and are subject to restrictions
contained therein. As such, under the provisions of the 1997 Employee Share
Incentive Plan, the option price for ISOs shall be determined by the
Compensation Committee at the time of the grant, but shall not be less than 100%
of the fair market value of the Company's Common Stock on such date. The term of
each ISO shall be fixed by the Compensation Committee, but in no event shall be
exercisable more than ten years after the date of the grant. ISOs are
transferable by the optionee only by will or by the laws of descent and are
exercisable, during the lifetime of the optionee, only by the optionee. ISOs may
be modified after the grant date to disqualify them from treatment as an
"incentive stock option."
Nonqualified stock options, or NQSOs, provide for the right to purchase
shares of Common Stock at a specific price as determined by the Compensation
Committee which may be less than fair market value on the date of grant, but in
no event less than 50% of the fair market value of the Company's Common Stock on
the date of the grant. Like ISOs, the term of each NQSO shall be fixed by the
Compensation Committee, but shall in no event be exercisable more than ten years
after the date of the grant. NQSOs are transferable by the optionee only by will
or by the laws of descent or to certain immediate family members or trusts for
the benefit of such family members.
All options to purchase shares of Common Stock issued under the 1997
Employee Share Incentive Plan shall generally be exercisable at such times and
subject to such terms and conditions as may be determined by the Compensation
Committee, provided, however, unless otherwise determined by the Compensation
Committee at the time of the grant or thereafter, no option shall be exercisable
prior to the later of (i) the first anniversary date of the option grant or (ii)
the second anniversary of the employment of the option holder. Unless otherwise
determined by the Compensation Committee, if an optionee's employment by the
Company or one of its subsidiaries or affiliates is terminated for any reason
other than death, disability or retirement, any unexercised options, whether
vested or unvested, shall immediately terminate. In the case of the termination
of an optionee's employment by reason of death, any and all options held by the
optionee prior to his or her death may be exercised (unless accelerated in the
discretion of the Compensation Committee), to the extent such options were
vested at the time of the optionee's death, by the legal representative of the
estate of the optionee or by the legatee of the optionee under the optionee's
will for a period of one year from the date of death or for the remaining term
of the option, whichever is shorter (or such other period as the Compensation
Committee may determine). In the case of the termination of an optionee's
employment by reason of disability or retirement, any and all options held by
the optionee prior to his or her termination may be exercised (unless
accelerated in the discretion of the Compensation Committee), to the extent such
options were vested at the time of the optionee's termination, generally for a
period of three years from the date of death or for the remaining term of the
option, whichever is shorter (or such other period as the Compensation Committee
may determine).
Shares of restricted Common Stock may be sold under the 1997 Employee Share
Incentive Plan to participants at various prices (or issued without monetary
consideration) subject to such restrictions, including forfeiture, as may be
determined by the Compensation Committee. Restricted shares typically may be
repurchased by the Company at the original purchase price if the conditions or
restrictions are not met. In general, restricted shares may not be sold, or
otherwise transferred or hypothecated, until restrictions are removed or
expired. Purchasers or recipients of restricted shares, unlike recipients of
options, have voting rights and are entitled to receive dividends or
distributions prior to the time when the restrictions lapse. Subject to the
provisions of any applicable award
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<PAGE> 35
agreement or the action of the Compensation Committee, any shares of restricted
Common Stock still subject to restriction at the time of the termination of a
participant's employment with the Company shall be forfeited.
The 1997 Employee Share Incentive Plan also permits the issuance of shares
of deferred stock, which generally obligates the Company to issue shares of the
Company's Common Stock upon the occurrence or nonoccurrence of conditions
specified in the deferred stock award. Under a typical deferred stock award, the
Company may agree to issue Common Stock to an employee if he or she achieves
certain performance goals or remains employed by the Company for a specified
period of time. Recipients of shares of deferred stock do not have voting rights
or receive dividends or distributions until the shares of deferred Common Stock
are actually issued. Subject to the provisions of any applicable award agreement
or the action of the Compensation Committee, any deferred shares of Common Stock
not vested at the time of the termination of a participant's employment with the
Company shall be forfeited.
Other stock-based awards may be granted by the Compensation Committee on an
individual or group basis. Generally, these awards are based upon specific
agreements and may be paid in cash or in shares of Common Stock or in a
combination of cash and shares of Common Stock. Other stock-based awards may
include share appreciation rights, or SARs, and "phantom" share awards that
provide for payments based upon increases in the price of the shares of the
Company's Common Stock over a predetermined period. They may also include
bonuses which may be granted by the Compensation Committee on an individual or
group basis and which may be payable in cash or in shares of Common Stock or in
a combination of cash and Common Stock.
Change in Control Provision. The 1997 Employee Share Incentive Plan
provides that upon a "change-in-control" or "potential change-in-control" of the
Company, as those terms are defined in the plan, any SARs outstanding for at
least six months and options awarded under the plan not previously exercisable
and vested shall become fully exercisable and vested, and any restrictions and
deferral limitations applicable to any restricted or deferred stock shall lapse,
and such awards shall be deemed fully vested. Additionally, upon a
"change-in-control" or "potential change-in-control" of the Company, the value
of all outstanding options, SARs, restricted stock, deferred stock and other
stock based awards granted under the plan, to the extent vested, shall be cashed
out on the basis of a "change-in-control price," which is generally based on the
highest price paid per share of Common Stock on the NYSE at any time during a 60
day period prior to the occurrence of the "change-in-control" event.
Federal Income Tax Consequences. The following discussion summarizes the
federal income tax consequences of the 1997 Employee Share Incentive Plan based
on current provisions of the Code, which are subject to change. This summary
does not cover any state or local tax consequences of participation in the 1997
Employee Share Incentive Plan.
When an optionee exercises an ISO while employed by the Company or a
subsidiary or within three months (one year for disability) after termination of
employment by reason of retirement or death, no ordinary income will be
recognized by the optionee at that time, but the excess (if any) of the fair
market value of the shares of Common Stock acquired upon such exercise over the
exercise price, or the option price, will be an adjustment to taxable income for
purposes of the federal alternative minimum tax applicable to individuals. If
the shares of Common Stock acquired upon exercise of the ISO are not disposed of
prior to the expiration of one year after the date of acquisition and two years
after the date of grant of the option, the excess (if any) of the sales proceeds
over the aggregate option price of such shares of Common Stock will be long-term
capital gain, but the employer will not be entitled to any tax deduction with
respect to such gain. Generally, if the shares of Common Stock are disposed of
prior to the expiration of such periods (a "Disqualifying
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<PAGE> 36
Disposition"), the excess of the fair market value of such shares at the time of
exercise over the aggregate option price (but not more than the gain on the
disposition if the disposition is a transaction on which a loss, if realized,
would be recognized) will be ordinary income at the time of such Disqualifying
Disposition (and the employer will generally be entitled to a federal income tax
deduction in a like amount). Any gain realized by the optionee as the result of
a Disqualifying Disposition that exceeds the amount treated as ownership income
will be capital in nature, long-term or short-term depending on the holding
period. If an ISO is exercised more than three months (one year for disability)
after termination of employment, the tax consequences are the same as described
above for NQSOs.
Generally, when an optionee exercises a NQSO, the difference between the
option price and any higher fair market value of the shares of Common Stock on
the date of exercise will be ordinary income to the optionee and will be
generally allowed as a deduction for federal income tax purposes to the
employer.
Any gain or loss realized by an optionee on disposition of the Common Stock
acquired upon exercise of a NQSO will generally be capital gain or loss to such
optionee, long-term or short-term depending on the holding period, and will not
result in any additional tax consequences to the employer. The optionee's basis
in the shares of Common Stock is determined generally at the time of exercise.
Certain additional special rules apply if the exercise price for an option
is paid in shares of Common Stock previously owned by the optionee rather than
in cash.
ACCORDINGLY, EACH OPTIONEE SHOULD CONSULT HIS OR HER TAX ADVISOR TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF 1997 EMPLOYEE SHARE
INCENTIVE PLAN AWARDS, AS WELL AS THE USE OF SHARES FOR EXERCISE, INCLUDING THE
APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL, OR FOREIGN INCOME TAX AND OTHER
LAWS.
When a plan participant exercises SARs, the amount of cash and the fair
market value of property received (including shares of Common Stock), unless the
property is subject to transfer restrictions or forfeiture, will be ordinary
income to the participant and will be allowed as a deduction for federal income
tax purposes to the Company or a subsidiary. In the absence of an election by a
participant under Section 83(b) of the Code, the grant of a restricted stock
award will not result in taxable income to the participant or a deduction to the
Company or its subsidiary or affiliate in the year of the grant. The value of
such restricted shares of Common Stock will be taxed to a participant in the
year in which the restrictions lapse. Alternatively, a participant may elect to
treat as income in the year of grant the fair market value of the restricted
stock award on the date of grant, provided the participant makes an election
under Section 83(b) of the Code within 30 days after the date of such grant. If
such an election were made, a participant would not be allowed to deduct at a
later date the amount included as taxable income if he/she should forfeit the
restricted shares to the Company or its subsidiary or affiliate. Generally, the
amount of ordinary income recognized by a participant is deductible by the
Company or its subsidiary or affiliate in the year the income is recognized by
the participant. If the participant does not make an election under Section
83(b) of the Code, dividends paid on the shares prior to the lapse of
restrictions on such shares will be taxable to the participant as additional
compensation in the year received free of restrictions, and the Company or its
subsidiary or affiliate will be allowed a corresponding deduction subject to the
limitations of Section 162(m) of the Code.
In general, the grant of performance awards will not result in taxable
income to the participant or a deduction to the Company or its subsidiary or
affiliate in the year of the grant. The value of the
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<PAGE> 37
award will be taxed to a participant in the year in which the award is settled,
and the Company will receive a deduction in the same amount, subject to the
limitations of Section 162(m) of the Code.
Benefits Granted Under the 1997 Employee Share Incentive Plan. Because
awards under the 1997 Employee Share Incentive Plan are at the discretion of the
Compensation Committee, the benefits that will be awarded in the future under
the 1997 Employee Share Incentive Plan are not currently determinable. The
following table shows the aggregate number of shares of Common Stock subject to
options granted to the Company's executive officers under the plan, excluding
options that have been canceled or forfeited, and the weighted average per share
exercise price. As of November 6, 2000, the market value of a share of Common
Stock based on the closing price for such stock on the NYSE was $0.69.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE
NAME OPTIONS (#) PER SHARE ($)
---- ----------- ----------------
<S> <C> <C>
John D. Ferguson............................................ 2,000,000 $ 4.32
J. Michael Quinlan.......................................... 385,000 $22.13
William F. Andrews.......................................... 200,000 $ 2.50
</TABLE>
THE 2000 STOCK INCENTIVE PLAN
GENERAL.
On November 6, 2000, the Board of Directors of the Company and its
Compensation Committee approved the Corrections Corporation of America 2000
Stock Incentive Plan, a form of which is attached as Appendix C to this Proxy
Statement (the "2000 Stock Incentive Plan"). The 2000 Stock Incentive Plan shall
take effect as of December 14, 2000 (the "Effective Date"), if approved by the
holders of the majority of the shares of Common Stock of the Company represented
at the Annual Meeting. If the Reverse Stock Split previously discussed under
Proposal 1 herein is approved by the holders of the majority of the voting
shares of the Company represented at the Annual Meeting, the number of shares of
Common Stock authorized for issuance and individual grants set forth therein
shall be adjusted accordingly. The summary description herein of the principal
features of the 2000 Stock Incentive Plan is qualified by reference to the 2000
Stock Incentive Plan, a form of which is attached hereto as Appendix C.
The 2000 Stock Incentive Plan will be administered by the Compensation
Committee of the Company's Board of Directors. During the ten-year period ending
on the tenth anniversary of the adoption of the 2000 Stock Incentive Plan, the
Compensation Committee will have authority, subject to the terms of the 2000
Stock Incentive Plan, and except with respect to awards to non-employee
directors, to determine when and to whom to make awards under the plan, the
number of shares to be covered by the awards, the types and terms of awards
granted and the exercise price of the shares of Common Stock covered by options
and SARs, and to prescribe, amend and rescind rules and regulations relating to
the 2000 Stock Incentive Plan. Pending stockholder approval of the 2000 Stock
Incentive Plan, the Company, through the Compensation Committee of the Board of
Directors, intends to grant options to purchase Common Stock and other equity
incentives to its officers, directors and key employees under the 2000 Stock
Incentive Plan (including such persons who may already have awards under the
Company's equity incentive plans), although the exact amount and types of grants
have not been established at this time. The approximate number of officers,
directors, and key employees currently eligible for awards pursuant to this plan
is 200.
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MATERIAL TERMS OF THE 2000 STOCK INCENTIVE PLAN.
General. Under the terms of the 2000 Stock Incentive Plan, ISOs (within
the meaning of Section 422 of the Code), NQSOs, SARs, restricted stock awards
and performance awards may be granted by the Compensation Committee in its
discretion to key employees (including officers and directors who are
employees), independent contractors, consultants, advisors and non-employee
directors of the Company and any of its affiliates, except that ISOs may be
granted only to employees of the Company and any subsidiary corporation. Due to
the provisions of the 2000 Stock Incentive Plan, which permit awards in the
discretion of the Compensation Committee, it is not possible to determine how
many employees of the Company and its affiliates may be eligible for grants of
awards.
Shares Available for Issuance. The aggregate number of shares of Common
Stock as to which awards may be granted under the 2000 Stock Incentive Plan may
not exceed 25,000,000 shares which constitutes approximately 15.7% of the
159,068,246 shares of Common Stock outstanding as of November 6, 2000 (or 7.5%
of the 333,422,911 shares of Common Stock expected to be outstanding by the end
of 2000 and 5.5% of the 453,915,483 shares of Common Stock that could be
outstanding upon the occurrence of certain events previously described herein).
Shares of Common Stock which are subject to an award under the plan that remain
unissued upon expiration or cancellation of the award will be available for new
awards under the 2000 Stock Incentive Plan. If awards are exercised by delivery
of shares of Common Stock or satisfied by the withholding of shares of Common
Stock, the number of shares available for awards under the 2000 Stock Incentive
Plan will be increased by the number of shares so delivered or withheld.
Options. The exercise price, or option price, of an NQSO may not be less
than fifty percent (50%) of the fair market value of the shares of Common Stock
on the date of grant. The exercise price, or option price, of an ISO may not be
less than one hundred percent (100%) of the fair market value of the shares of
Common Stock on the date of grant, except that, in the case of an ISO granted to
an individual who, at the time the ISO is granted, owns shares of the Company's
capital stock possessing more than ten percent of the total combined voting
power of all classes of the Company's capital stock, such option price may not
be less than one hundred ten percent (110%) of such fair market value. The fair
market value of the Company's Common Stock is determined by reference to the
most recent closing sales price of the Common Stock on a national securities
exchange, or if the Company's Common Stock is then traded on an over-the-counter
market, by reference to the average of the closing bid and asked prices for the
shares of Common Stock for the last preceding date on which there was a sale of
Common Stock in such over-the-counter market. If no such prices are available,
the fair market value of the Company's Common Stock is determined by the
Compensation Committee in its sole discretion. The option price of, and the
number of shares of Common Stock covered by, each option will not change during
the life of the option, except for adjustments to reflect stock dividends,
splits, other recapitalizations or reclassifications or changes affecting the
number or kind of outstanding shares of Common Stock. The vesting terms of the
awards will be set forth in award agreements.
The shares of Common Stock purchased upon the exercise of an option are to
be paid for in cash (including cash that may be received from the Company at the
time of exercise as additional compensation) or through the delivery of other
shares of Common Stock held for at least six months with a fair market value
equal to the total option price, or in a combination of cash and such shares of
Common Stock. In the discretion of the Compensation Committee, the option price
may also be paid using the value of unexercised options or other awards made
under the 2000 Stock Incentive Plan.
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<PAGE> 39
Unless stated otherwise in any applicable option grant, if the employment
or service of an optionee terminates for any reason (other than by reason of
death, disability or retirement, each as defined in the 2000 Stock Incentive
Plan), all options granted to the optionee under the 2000 Stock Incentive Plan
held by such optionee may, unless earlier terminated or expired in accordance
with their terms, be exercised within the three-month period following such
termination. Unless stated otherwise in any applicable option grant, if (i) an
optionee dies while employed by the Company or an affiliate of the Company, (ii)
an optionee dies within three months after the termination of such optionee's
employment, (iii) an optionee's employment terminates by reason of disability or
retirement, or (iv) there is a Change in Control (as described further below),
then in any such case all options theretofore granted to such optionee (whether
or not then exercisable) may, unless earlier terminated or expired in accordance
with their terms, be exercised by the optionee or by the optionee's estate or by
a person who acquired the right to exercise such option by bequest or
inheritance or otherwise by reason of the death or disability of the optionee,
at any time within one year after the date of death, disability or retirement of
the optionee or a Change in Control.
SARs. The Compensation Committee may also grant SARs either alone ("Free
Standing Rights") or in conjunction with all or part of an option ("Related
Rights"). Upon the exercise of an SAR, a holder is entitled, without payment to
the Company, to receive cash or unrestricted shares of Common Stock, or any
combination thereof, as determined by the Compensation Committee, in an amount
equal to the excess of the fair market value of one share of Common Stock over
the option price per share specified in the related option (or in the case of a
Free Standing Right, the price per share specified in such right) multiplied by
the number of shares of Common Stock in respect of which the SAR is exercised.
The vesting terms will be set forth in award agreements.
The Company is required to charge earnings at the close of each accounting
period during which the SARs are outstanding. The charge will be equal to the
amount by which the fair market value of the shares of Common Stock subject to
the SARs exceeds the price for which the SARs may be exercised, less the tax
deduction to which the Company may be entitled if the SARs were exercised, and
less any portion of such amount charged to earnings in prior periods. In the
event that the Common Stock subject to the SARs has depreciated in fair market
value since the last accounting period, there will be a credit to earnings of no
more than the cumulative expense previously recognized.
Restricted Stock Awards. The Company may also grant restricted stock
awards under the 2000 Stock Incentive Plan, subject to the terms of the plan and
any applicable award agreement. Such restricted stock awards may be subject to
transfer restrictions and are subject to forfeiture upon certain "termination of
employment" events that occur prior to vesting. The 2000 Stock Incentive Plan
provides that all non-vested restricted stock awards previously granted to a
participant will become immediately vested and non-forfeitable if: (i) a
participant dies while employed by the Company or an affiliate of the Company;
(ii) a participant dies within three months after the termination of such
participant's employment; (iii) a participant's employment terminates by reason
of disability or retirement; or (iv) there is a Change in Control of the
Company. Additional vesting terms (which may include performance-based
conditions) will be set forth in award agreements.
Performance Awards. The Company may also grant performance awards under
the 2000 Stock Incentive Plan, subject to the terms of the plan and any
applicable award agreement. Performance awards may be denominated in cash or in
shares of Common Stock, valued as determined by the Compensation Committee and
based on the achievement of performance goals over performance periods
established by the Compensation Committee. Such performance awards may be
subject to forfeiture upon certain termination of employment events that occur
prior to vesting. The vesting terms will be set forth in award agreements.
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<PAGE> 40
Performance-Based Awards to "Covered Officers". With respect to awards to
"covered officers" designed to comply with Section 162(m) of the Code,
performance goals will be expressed in terms of the achievement of one or more
of the following Company, subsidiary, operating unit or division financial
performance measures:
(i) earnings before interest, taxes, depreciation and/or amortization;
(ii) operating income or profit;
(iii) return on equity, assets, capital, capital employed or investment;
(iv) after tax operating income;
(v) net income;
(vi) earnings or book value per share;
(vii) cash flow(s);
(viii) total sales or revenues, or sales or revenues per employee;
(ix) stock price or total shareholder return; or
(x) strategic business objectives, consisting of one or more objectives
based on meeting specified cost targets, business expansion goals
and goals relating to acquisitions or divestitures, or any
combination thereof.
Each goal may be expressed on an absolute and/or relative basis, may be
based on or otherwise employ comparisons based on internal targets, the past
performance of the Company and/or the past or current performance of other
companies, and, in the case of earnings-based measures, may use or employ
comparisons relating to capital, stockholders' equity and/or shares of Common
Stock outstanding, or to assets or net assets.
Before any awards intended to comply with Section 162(m) of the Code may be
paid to covered officers, the Compensation Committee must certify the extent to
which performance goals and any other material terms were satisfied. Performance
Awards granted pursuant to the 2000 Stock Incentive Plan are also subject to
certain limits upon the number of shares granted and cash payments made during
any three year period.
Non-Employee Director Awards. Following the effective date of the 2000
Stock Incentive Plan, each non-employee director shall be granted an option to
purchase 40,000 shares (or 2,000 shares assuming the completion of the Reverse
Stock Split at the maximum ratio of one-for-twenty) of Common Stock (the "Annual
Grant Amount") as of the date of each annual meeting of the stockholders of the
Company at which such individual is elected or reelected to the office of
director (the "Meeting Grant Date"), with each such grant effective as of each
Meeting Grant Date. In addition, notwithstanding the foregoing, (i) if the 2000
Stock Incentive Plan is approved by the Company's stockholders at this Annual
Meeting, options will be granted to such directors elected at the Annual Meeting
for 40,000 shares (or 2,000 shares assuming the completion of the Reverse Stock
Split at the maximum ratio of one-for-twenty) to be effective as of the
Effective Date and (ii) with respect to any director who is elected or nominated
to become director other than in connection with an annual meeting of the
stockholders of the Company, such director shall be granted an option, to be
effective as of the date of his or her election or appointment, in an amount
equal to a portion of the Annual Grant Amount, prorated by a percentage which
reflects the portion of the year for which such director will have served.
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<PAGE> 41
The exercise price of an option grant to a non-employee director may not be
less than 100% of the fair market value of the shares of Common Stock on the
date of grant. Unless otherwise provided in an award agreement, the options
granted to non-employee directors shall vest one-third on each anniversary of
the grant date over three years.
If the service of a director terminates for any reason (other than by
reason of death or disability) the director may, within the three-month period
following such termination, exercise such options to the extent he was entitled
to exercise such option at the date of termination. If (i) a director dies while
in the service of the Company or an affiliate, (ii) a director dies within three
months after the termination of such director's service, (iii) the director's
service shall terminate by reason of disability, or (iv) there is a Change in
Control of the Company (as described further below), then in any such case all
options theretofore granted to such director (whether or not then exercisable)
may, unless earlier terminated or expired in accordance with their terms, be
exercised by the director or by the director's estate or by a person who
acquired the right to exercise such option by bequest or inheritance or
otherwise by reason of the death or disability of the director, at any time
within one year after the date of death or disability of the director or a
Change in Control.
Change in Control. Under the 2000 Stock Incentive Plan, the vesting of all
or a portion of an option, SAR or restricted stock award will be accelerated
upon a Change in Control (as defined in the 2000 Stock Incentive Plan) of the
Company. If the vesting of an award is so accelerated, payments made may
constitute an "excess parachute payment" that is not deductible by the Company
in whole or in part under Section 280G of the Code. Such acceleration may also
subject the participant to a 20% federal excise tax under Section 4999 of the
Code on all or a portion of the value conferred on such holder by reason of the
Change in Control. Award agreements may provide that the Company will reimburse
such holder for the full amount of any such excise tax imposed.
Transferability. Except as otherwise provided in an award agreement, no
option or SAR award may be transferred by an optionee during his lifetime except
by will or the laws of descent and distribution.
Amendment and Termination. Unless terminated by action of the Board of
Directors or the Compensation Committee, no awards may be granted under the 2000
Stock Incentive Plan following the tenth anniversary of the effective date of
the plan. The 2000 Stock Incentive Plan may be amended or terminated at any time
by the Board of Directors, except that no amendment may be made without
stockholder approval if the Compensation Committee determines that such approval
is necessary to comply with any tax or regulatory requirement, including any
approval requirement which is a prerequisite for exemptive relief from Section
16 of the Securities Exchange Act of 1934, as amended, for which or with which
the Compensation Committee determines that it is desirable to qualify or comply.
The Compensation Committee may amend the terms of any award granted,
retroactively or prospectively, but no amendment may adversely affect any vested
award without the holder's consent.
In the event of a stock split, stock dividend, subdivision or combination
of the shares of Common Stock or other change in corporate structure affecting
the shares of Common Stock, the Compensation Committee may make such adjustments
to the number of shares authorized under the 2000 Stock Incentive Plan and to
outstanding awards thereunder as it deems necessary.
The 2000 Stock Incentive Plan is not subject to any provision of ERISA and
is not qualified under Section 401(a) of the Code.
Federal Tax Consequences. The following discussion summarizes the federal
income tax consequences of the 2000 Stock Incentive Plan based on current
provisions of the Code, which are subject to change. This summary does not cover
any state or local tax consequences of participation
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<PAGE> 42
in the 2000 Stock Incentive Plan. The federal income tax consequences set forth
below with respect to the 2000 Stock Incentive Plan is substantially similar to
the federal income tax consequences previously described herein with respect to
the 1997 Employee Share Incentive Plan.
Generally, when an optionee exercises a NQSO, the difference between the
option price and any higher fair market value of the shares of Common Stock on
the date of exercise will be ordinary income to the optionee and will be
generally allowed as a deduction for federal income tax purposes to the
employer.
Any gain or loss realized by an optionee on disposition of the Common Stock
acquired upon exercise of a NQSO will generally be capital gain or loss to such
optionee, long-term or short-term depending on the holding period, and will not
result in any additional tax consequences to the employer. The optionee's basis
in the shares of Common Stock is determined generally at the time of exercise.
When an optionee exercises an ISO while employed by the Company or a
subsidiary or within three months (one year for disability) after termination of
employment by reason of retirement or death, no ordinary income will be
recognized by the optionee at that time, but the excess (if any) of the fair
market value of the shares of Common Stock acquired upon such exercise over the
option price will be an adjustment to taxable income for purposes of the federal
alternative minimum tax applicable to individuals. If the shares of Common Stock
acquired upon exercise of the ISO are not disposed of prior to the expiration of
one year after the date of acquisition and two years after the date of grant of
the option, the excess (if any) of the sales proceeds over the aggregate option
price of such shares of Common Stock will be long-term capital gain, but the
employer will not be entitled to any tax deduction with respect to such gain.
Generally, if the shares of Common Stock are disposed of prior to the expiration
of such periods (a "Disqualifying Disposition"), the excess of the fair market
value of such shares at the time of exercise over the aggregate option price
(but not more than the gain on the disposition if the disposition is a
transaction on which a loss, if realized, would be recognized) will be ordinary
income at the time of such Disqualifying Disposition (and the employer will
generally be entitled to a federal income tax deduction in a like amount). Any
gain realized by the optionee as the result of a Disqualifying Disposition that
exceeds the amount treated as ownership income will be capital in nature,
long-term or short-term depending on the holding period. If an ISO is exercised
more than three months (one year for disability) after termination of
employment, the tax consequences are the same as described above for NQSOs.
Certain additional special rules apply if the exercise price for an option
is paid in shares of Common Stock previously owned by the optionee rather than
in cash.
ACCORDINGLY, EACH OPTIONEE SHOULD CONSULT HIS OR HER TAX ADVISOR TO DETERMINE
THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF 2000 STOCK INCENTIVE PLAN
AWARDS, AS WELL AS THE USE OF SHARES OF COMMON STOCK FOR EXERCISE, INCLUDING THE
APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL, OR FOREIGN INCOME TAX AND OTHER
LAWS.
When a plan participant exercises SARs, the amount of cash and the fair
market value of property received (including shares of Common Stock), unless the
property is subject to transfer restrictions or forfeiture, will be ordinary
income to the participant and will be allowed as a deduction for federal income
tax purposes to the Company or a subsidiary. In the absence of an election by a
participant under Section 83(b) of the Code, the grant of a restricted stock
award will not result in taxable income to the participant or a deduction to the
Company or its subsidiary or affiliate in the year of the grant. The value of
such restricted shares of Common Stock will be taxed to a participant in the
year in which the restrictions lapse. Alternatively, a participant may elect to
treat as income in
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<PAGE> 43
the year of grant the fair market value of the restricted stock award on the
date of grant, provided the participant makes an election under Section 83(b) of
the Code within 30 days after the date of such grant. If such an election were
made, a participant would not be allowed to deduct at a later date the amount
included as taxable income if he/she should forfeit the restricted shares of
Common Stock to the Company or its subsidiary or affiliate. Generally, the
amount of ordinary income recognized by a participant is deductible by the
Company or its subsidiary or affiliate in the year the income is recognized by
the participant. If the participant does not make an election under Section
83(b) of the Code, dividends paid on the shares of Common Stock prior to the
lapse of restrictions on such shares will be taxable to the participant as
additional compensation in the year received free of restrictions, and the
Company or its subsidiary or affiliate will be allowed a corresponding deduction
subject to Section 162(m).
In general, the grant of performance awards will not result in taxable
income to the participant or a deduction to the Company or its subsidiary or
affiliate in the year of the grant. The value of the award will be taxed to a
participant in the year in which the award is settled, and the Company will
receive a deduction in the same amount, subject to Section 162(m).
The foregoing discussion summarizes the federal income tax consequences of
the 2000 Stock Incentive Plan based on current provisions of the Code, which are
subject to change. This summary does not cover any state or local tax
consequences of participation in the 2000 Stock Incentive Plan.
New Plan Benefits. The amounts of awards that may be granted under the
2000 Stock Incentive Plan in 2000 are not yet determinable, except that, upon
the effectiveness of the 2000 Stock Incentive Plan, each non-employee director
will be automatically granted options to purchase 40,000 shares of Common Stock
(or 2,000 shares on a post Reverse Stock Split basis assuming a maximum Reverse
Stock Split ratio of one-for-twenty) and such amount annually thereafter on the
date of each annual meeting of stockholders of the Company.
In order to comply with certain federal securities laws and the
requirements of the NYSE regarding the listing of the shares of Common Stock to
be issued pursuant to the plans, the 1997 Plan Amendment and the 2000 Stock
Incentive Plan require the approval of the holders of the majority of the voting
shares of Common Stock of the Company represented at the Annual Meeting. In
addition, the settlement agreements with the plaintiffs in the stockholder
litigation prohibit the repricing of options previously granted to certain
executive officers and directors of the Company without stockholder approval. In
the event any of the actions of the Company hereunder are deemed to be a
repricing as contemplated under the settlement agreements, stockholder approval
of this Proposal 3 shall be deemed to constitute stockholder approval for the
purposes of the settlement agreement.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE APPROVAL OF THE AMENDMENT TO THE 1997 EMPLOYEE SHARE INCENTIVE PLAN AND
ADOPTION OF THE 2000 STOCK INCENTIVE PLAN.
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PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors of the Company, upon the recommendation of the Audit
Committee, has selected the accounting firm of Arthur Andersen LLP to serve as
independent auditors of the Company for the fiscal year ending December 31,
2000. Arthur Andersen LLP served as Old CCA's independent auditors from 1991
until completion of the Merger and as Old Prison Realty's independent auditors
from its formation in April 1997 until completion of the Merger. Arthur Andersen
LLP also rendered services in connection with the Restructuring to each of the
Company and Operating Company. Arthur Andersen LLP has served as the Company's
independent auditors since the Company's formation in September 1998 and is
considered by management of the Company to be well qualified. The Company has
been advised by that firm that neither it nor any member thereof has any
financial interest, direct or indirect, in the Company or any of its
subsidiaries in any capacity. A representative of Arthur Andersen LLP will be
present at the Annual Meeting, will be given the opportunity to make a statement
if he or she so desires and will be available to respond to appropriate
questions.
Although the Company is not required to submit the ratification and
approval of the selection of its independent auditors to a vote of stockholders,
the Board of Directors believes that it is sound policy to do so. The
affirmative vote of the holders of a majority of the shares of the outstanding
shares of Common Stock cast at the Annual Meeting is required for ratification
of the selection of Arthur Andersen LLP. In the event that the majority of the
votes cast are against the selection of Arthur Andersen LLP, the directors will
consider the vote and the reasons therefor in future decisions on the selection
of independent auditors.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR RATIFICATION OF
ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
EXECUTIVE COMPENSATION
Under the rules of the Commission, the Company is required to include in
this Proxy Statement information with respect to the compensation of certain of
its officers for the fiscal year ending December 31, 1999 and for certain
periods prior to 1999, all as described herein. With the exception of J. Michael
Quinlan, each of the Company's executive officers in 1999 have resigned from
their positions with the Company or otherwise have been terminated. In
connection with their resignations or terminations, as the case may be, they
received certain severance benefits, as described elsewhere in this Proxy
Statement. In addition, as the result of their resignations or terminations,
they forfeited certain equity incentives previously granted to them, also as
described herein.
In August 2000, the Company's Board of Directors appointed William F.
Andrews to serve as the Chairman of the Company's Board of Directors and John D.
Ferguson to serve as the Company's Chief Executive Officer and President. Mr.
Ferguson also currently serves as the interim Chief Financial Officer of the
Company. It is anticipated that a permanent Chief Financial Officer will be
appointed by December 31, 2000. Information concerning the compensation paid or
to be paid to Mr. Ferguson in 2000 is described herein as part of the Report of
the Compensation Committee. The Company's proxy statement with respect to the
2001 Annual Meeting of Stockholders will contain additional information
concerning the compensation of the Company's executive officers during the 2000
fiscal year in accordance with the rules of the Commission.
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<PAGE> 45
SUMMARY COMPENSATION TABLE
The following table sets forth certain summary information concerning the
compensation paid to Doctor R. Crants and the compensation paid to each of J.
Michael Quinlan, Vida H. Carroll, D. Robert Crants, III and Michael W. Devlin,
the four most highly compensated executive officers of the Company other than
Doctor R. Crants whose annualized compensation exceeded $100,000 (collectively,
the "Named Executive Officers"), for the fiscal years ended December 31, 1997,
1998 and 1999. Each of Mr. Crants, III and Mr. Devlin resigned from his
positions with the Company, effective as of December 31, 1999. In addition, on
July 28, 2000, Doctor R. Crants was terminated as the Company's Chief Executive
Officer. Vida H. Carroll resigned from her positions as the Company's Chief
Financial Officer, Secretary and Treasurer effective September 15, 2000.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS LONG-TERM COMPENSATION
------------------------ PAYOUTS
ANNUAL COMPENSATION RESTRICTED SECURITIES ----------------------------
NAME AND PRINCIPAL ---------------------------- OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARDS($) OPTIONS(#) PAYOUTS($) COMPENSATION($)
------------------ ---- --------- -------- --------------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Doctor R. Crants..... 1999 $175,000(1) $ 34,488(2) -- $103,465(3) 113,750(4) -- --
Chief Executive 1998 385,933(5) -- -- -- 17,500(6) -- $ 7,450(7)
Officer 1997 359,423(8) -- -- -- 113,125(9) -- 7,450(10)
J. Michael Quinlan... 1999 79,583(11) -- -- -- 10,000(12) -- --
President 1998 155,625 -- -- -- -- -- 5,000(13)
1997 150,000(14) -- -- -- 375,000(15) -- --
Vida H. Carroll...... 1999 141,667 83,387(16) -- 19,160(17) 26,250(18) -- 42,500(19)
Chief Financial 1998 88,813 -- -- -- -- -- 3,000(13)
Officer Secretary 1997 75,000(14) -- -- -- 65,000(20) -- --
and Treasurer
D. Robert Crants,
III................ 1999 155,000 113,320(21) -- 114,961(22) 52,500(23) -- 238,750(24)
President 1998 103,750 -- -- -- -- -- 5,000(13)
1997 100,000(14) (25) -- -- 225,000(26) -- --
Michael W. Devlin.... 1999 155,000 113,320(21) -- 114,961(22) 52,500(23) -- 238,750(24)
Chief Operating 1998 103,750 -- -- -- -- -- 5,000(13)
Officer 1997 100,000(14) (25) -- -- 225,000(26) -- --
</TABLE>
-------------------------
(1) Represents Mr. Crants' base salary as Chief Executive Officer and Chairman
of the Board of Directors of the Company during 1999. Mr. Crants resigned
from his position as Chairman and as a member of the Board of Directors of
the Company in December 1999 and July 2000, respectively, and was
terminated as the Chief Executive Officer of the Company on July 28, 2000.
(2) Mr. Crants was awarded 1,687 restricted shares of the Company's Common
Stock on March 4, 1999 pursuant to the Company's 1997 Employee Share
Incentive Plan, which was assumed by the Company in the 1999 Merger.
Pursuant to the terms of a restricted stock agreement between the Company
and Mr. Crants, these shares of the Company's Common Stock were vested
immediately upon the award of such shares to Mr. Crants. The value of these
shares on the date of award was $34,488, based on the average of the high
and low sales prices of the Company's Common Stock on the NYSE on March 3,
1999, $20.44. As of December 31, 1999, the closing market price of the
Company's Common Stock on the NYSE was $5.06 per share, reducing the
aggregate value of the shares awarded to Mr. Crants to $8,536.
(3) Mr. Crants was awarded 5,063 restricted shares of the Company's Common
Stock on March 4, 1999 pursuant to the Company's 1997 Employee Share
Incentive Plan. Pursuant to the terms of a restricted stock agreement
between the Company and Mr. Crants, such restricted shares were to vest
ratably on each of the first three anniversaries of the date of such award.
The value of these shares on the date of award was $103,465, based on the
average of the high and low sales
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<PAGE> 46
prices of the Company's Common Stock on the NYSE on March 3, 1999, $20.44.
In connection with Mr. Crants' termination as the Company's Chief Executive
Officer on July 28, 2000, these shares were forfeited by Mr. Crants to the
extent such shares had not vested.
(4) In connection with Mr. Crants' termination as the Company's Chief Executive
Officer on July 28, 2000, these options were forfeited by Mr. Crants.
(5) Represents the compensation paid by Old CCA, the Company's predecessor, to
such individual for the fiscal year ended December 31, 1999.
(6) These options were granted by Old CCA under Old CCA's 1995 Stock Incentive
Plan. In connection with the 1999 Merger, the Company assumed all of the
options outstanding under the 1995 Stock Incentive Plan, with all of such
options being converted into options exercisable for shares of the
Company's Common Stock, based on the exchange ratio in the 1999 Merger. In
connection with Mr. Crants' termination as the Company's Chief Executive
Officer on July 28, 2000, these options were forfeited by Mr. Crants.
(7) Amount represents the contribution by Old CCA, the Company's predecessor,
to Old CCA's Amended and Restated Employee Stock Ownership Plan (the "Old
CCA ESOP") during the fiscal year ended December 31, 1998.
(8) Represents the compensation paid by Old CCA, the Company's predecessor, to
such individual for the fiscal year ended December 31, 1997.
(9) 13,125 of the options were granted by Old CCA under Old CCA's 1995 Stock
Incentive Plan. The balance of the options, which were to vest in 25%
increments over a three-year period, with the first such increment having
vested on July 15, 1997, were granted by Old Prison Realty under Old Prison
Realty's 1997 Employee Share Incentive Plan. In connection with the 1999
Merger, the Company assumed all of the options outstanding under Old CCA's
1995 Stock Incentive Plan and Old Prison Realty's 1997 Employee Share
Incentive Plan, with all of such options being converted into options
exercisable for shares of the Company's Common Stock, based on the exchange
ratio in the 1999 Merger. In connection with Mr. Crants' termination as the
Company's Chief Executive Officer on July 28, 2000, these options were
forfeited by Mr. Crants.
(10) Amount represents the contribution by Old CCA, the Company's predecessor,
to the Old CCA ESOP during the fiscal year ended December 31, 1997.
(11) From January 1, 1999 until May 11, 1999, Mr. Quinlan served as
Vice-Chairman of the Company's Board of Directors. From May 11, 1999 until
June 28, 1999, Mr. Quinlan served as the Company's Vice-President, Special
Projects. On June 28, 1999, Mr. Quinlan resigned from all positions with
the Company to become president and chief operating officer of Operating
Company. Mr. Quinlan became President of the Company, effective upon the
resignation of D. Robert Crants, III, in December 1999. Mr. Quinlan was
appointed, and currently serves as, the Executive Vice President of the
Company on August 4, 2000.
(12) Pursuant to the Company's 1997 Employee Share Incentive Plan, these options
to purchase shares of the Company's Common Stock initially were to vest in
25% increments over a three-year period, with the first such increment
having vested on March 4, 1999. Upon Mr. Quinlan's resignation from all
positions with the Company on June 28, 1999, all outstanding unvested
options held by Mr. Quinlan became fully vested upon action by the
Company's Board of Directors. These options are exercisable at a price of
$19.94 per share, the closing market price on the NYSE of the Company's
Common Stock on March 4, 1999, the date of grant of these options.
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<PAGE> 47
(13) Amount represents the contribution by Old Prison Realty, the Company's
predecessor, to Old Prison Realty's Amended and Restated Employee Share
Ownership Plan for the fiscal year ended December 31, 1998.
(14) Amounts are annualized salaries for the fiscal year ended December 31,
1997.
(15) All but 25,000 of these options to purchase the Company's Common Stock
initially vested in 25% increments over a three-year period with the first
such increment having vested on July 15, 1997. The remaining 25,000 options
initially vested in 25% increments over a three-year period, with the first
such increment having vested on December 2, 1997. All of these options were
granted under Old Prison Realty's 1997 Employee Share Incentive Plan. In
connection with the 1999 Merger, the Company assumed all of the options
outstanding under Old Prison Realty's 1997 Employee Share Incentive Plan,
with all of such options being converted into options exercisable for
shares of the Company's Common Stock, based on the exchange ratio in the
1999 Merger. Upon Mr. Quinlan's resignation from all positions with the
Company on June 28, 1999, all outstanding unvested options held by Mr.
Quinlan became fully vested upon action by the Company's Board of
Directors.
(16) Ms. Carroll was awarded 312 restricted shares of the Company's Common Stock
on March 4, 1999 pursuant to the Company's 1997 Employee Share Incentive
Plan. Pursuant to the terms of a restricted stock agreement between the
Company and Ms. Carroll, these shares were vested immediately upon the
award of such shares. The value of these shares on the date of award was
$6,387, based on the average of the high and low sales prices of the
Company's Common Stock on the NYSE on March 3, 1999, $20.44. As of December
31, 1999, the closing market price of the Company's Common Stock on the
NYSE was $5.06 per share, reducing the aggregate value of the shares
awarded to $1,579. Ms. Carroll also received a cash bonus of $75,000 in
March 1999.
(17) Ms. Carroll was awarded 938 restricted shares of the Company's Common Stock
on March 4, 1999 pursuant to the Company's 1997 Employee Share Incentive
Plan. Pursuant to the terms of a restricted stock agreement between the
Company and Ms. Carroll, such restricted shares were to vest ratably on
each of the first three anniversaries of the date of such award. The value
of these shares on the date of award was $19,160, based on the average of
the high and low sales prices of the Company's Common Stock on the NYSE on
March 3, 1999, $20.44. As of December 31, 1999, the closing market price of
the Company's Common Stock on the NYSE was $5.06 per share, reducing the
aggregate value of the shares awarded to $4,746. These shares were
forfeited upon the effectiveness of Ms. Carroll's resignation as the
Company's Chief Financial Officer, Secretary and Treasurer to the extent
such shares were not vested.
(18) Pursuant to the Company's 1997 Employee Share Incentive Plan, these options
to purchase shares of the Company's Common Stock were to vest in 25%
increments over a three-year period, with the first such increment having
vested on March 4, 1999, and were exercisable at a price of $19.94 per
share, the closing market price on the NYSE of the Company's Common Stock
on March 4, 1999, the date of grant of these options. All unexercised
options were terminated upon the effectiveness of Ms. Carroll's
resignation.
(19) Represents three-months' severance of $37,500 paid in advance to Ms.
Carroll and a contribution of $5,000 by the Company to the Prison Realty
Trust, Inc. 401(k) Savings and Retirement Plan on Ms. Carroll's behalf
during the fiscal year ended December 31, 1999.
(20) All but 15,000 of these options to purchase the Company's Common Stock were
to vest in 25% increments over a three-year period with the first such
increment having vested on July 15, 1997. The remaining 15,000 options were
to vest in 25% increments over a three-year period
44
<PAGE> 48
with the first such increment having vested on December 2, 1997. All of
these options were granted under Old Prison Realty's 1997 Employee Share
Incentive Plan. In connection with the 1999 Merger, the Company assumed all
of the options outstanding under Old Prison Realty's 1997 Employee Share
Incentive Plan, with all of such options being converted into options
exercisable for shares of the Company's Common Stock, based on the exchange
ratio in the 1999 Merger. All unexercised options were terminated upon the
effectiveness of Ms. Carroll's resignation.
(21) This individual was awarded 1,875 restricted shares of the Company's Common
Stock on March 4, 1999 pursuant to the Company's 1997 Employee Share
Incentive Plan. Pursuant to the terms of a restricted stock agreement
between the Company and such individual, these shares were vested
immediately upon the award of such shares. The value of those shares on the
date of award was $38,320, based on the average of the high and low sales
prices of the Company's Common Stock on the NYSE on March 3, 1999, $20.44.
As of December 31, 1999, the closing market price of the Company's Common
Stock on the NYSE was $5.06 per share, reducing the aggregate value of the
shares awarded to $9,488. This individual also received a cash bonus of
$75,000 in March 1999.
(22) This individual was awarded 5,625 shares of the Company's Common Stock on
March 4, 1999 pursuant to the Company's 1997 Employee Share Incentive Plan.
Pursuant to the terms of a restricted stock agreement between the Company
and this individual, such restricted shares were to vest ratably on each of
the first three anniversaries of the date of such award. The value of these
shares on the date of award was $114,961, based on the average of the high
and low sales prices of the Company's Common Stock on the NYSE on March 3,
1999, $20.44. In connection with the individual's resignation from all
positions with the Company on December 31, 1999, these shares were
forfeited by such individual to the extent such shares were not vested.
(23) In connection with the individual's resignation from all positions with the
Company on December 31, 1999, these options were forfeited by such
individual.
(24) In connection with the individual's resignation from all positions with the
Company on December 31, 1999, the Company made a cash payment of $233,750
to the individual, which represented the outstanding amount of the
Company's obligations under such individual's employment agreement with the
Company. The Company also contributed $5,000 to the Prison Realty Trust,
Inc. 401(k) Savings and Retirement Plan on the individual's behalf during
the fiscal year ended December 31, 1999.
(25) This individual was awarded 150,000 common shares of Old Prison Realty
issued as a development fee and as reimbursement for actual costs incurred
with the promotion and formation of Old Prison Realty, the consummation of
Old Prison Realty's initial public offering of common shares and Old Prison
Realty's purchase of nine correctional and detention facilities from Old
CCA.
(26) All of these options were forfeited upon the individual's resignation from
all positions with the Company on December 31, 1999.
45
<PAGE> 49
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth the options granted with respect to the year
ended December 31, 1999 to the Chief Executive Officer and each of the Company's
Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENTAGE OF TOTAL AT ASSUMED RATES OF STOCK PRICE
SECURITIES OPTIONS GRANTED TO APPRECIATION FOR OPTION TERM(1)
UNDERLYING OPTIONS EMPLOYEES IN EXERCISE EXPIRATION --------------------------------
NAME GRANTED(#) FISCAL YEAR(2) PRICE(3) DATE 5%($) 10%($)
---- ------------------ ------------------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Doctor R. Crants............ 113,750(4) 35.8% $19.94 03/04/09 $1,428,950(5) $3,606,398(5)
J. Michael Quinlan.......... 10,000(6) 3.1 19.94 03/04/09 125,622 317,046
Vida H. Carroll............. 26,250(7) 8.3 19.94 03/04/09 329,758(8) 832,245(8)
D. Robert Crants, III....... 52,500(9) 16.5 19.94 03/04/09 0(10) 0(10)
Michael W. Devlin........... 52,500(9) 16.5 19.94 03/04/09 0(10) 0(10)
</TABLE>
-------------------------
(1) The dollar amounts under these columns are the result of calculations at
the 5% and 10% rates set by the Commission and therefore are not intended
to forecast future appreciation, if any, of the price of the Company's
Common Stock.
(2) The percentage of total stock options granted to the Chief Executive
Officer and each Named Executive Officer was based on the total number of
options to purchase the Company's Common Stock granted during 1999, which
amounted to options to purchase 317,500 shares.
(3) All options to purchase shares of the Company's Common Stock granted to
Named Executive Officers in 1999 had exercise prices equal to the fair
market value (closing price per share of the Company's Common Stock on the
NYSE) on the date of grant, March 4, 1999.
(4) These options, which were terminated in connection with Doctor R. Crants'
termination as the Chief Executive Officer of the Company on July 28, 2000,
initially were subject to the following vesting schedule: 25% of the
options vested on March 4, 1999, the date of grant, and the remainder of
the options were to vest in equal 25% installments on each of the first
three anniversaries of the date of grant.
(5) All options held by Mr. Crants were terminated upon Mr. Crants' termination
as the Company's Chief Executive Officer on July 28, 2000.
(6) In connection with Mr. Quinlan's previous resignation from all positions
with the Company on June 28, 1999, all of these options became fully vested
upon action by the Company's Board of Directors.
(7) 25% of the options were to vest on March 4, 1999, the date of the grant,
and the remainder of the options were scheduled to vest in equal 25%
installments on each of the first three anniversaries of the grant;
provided, however, that these options (to the extent not exercised) were
terminated upon the effectiveness of Ms. Carroll's resignation as the
Company's Chief Financial Officer, Secretary and Treasurer.
(8) All unexercised options held by Ms. Carroll were terminated upon the
effectiveness of her resignation as the Company's Chief Financial Officer,
Secretary and Treasurer.
(9) These options, which were terminated in connection with the resignation of
each of D. Robert Crants, III and Michael W. Devlin from all positions with
the Company on December 31, 1999, initially were subject to the following
vesting schedule: 25% of the options vested on March 4, 1999, the date of
grant, and the remainder of the options were to vest in equal 25%
installments on each of the first three anniversaries of the date of grant.
46
<PAGE> 50
(10) All options held by each of D. Robert Crants, III and Michael W. Devlin
terminated upon the resignation of Messrs. Crants, III and Devlin from all
positions with the Company on December 31, 1999.
AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table sets forth information with respect to the value of
unexercised options to purchase shares of the Company's Common Stock held by the
Named Executive Officers on December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 2000 DECEMBER 31, 2000(2)
SHARES ACQUIRED VALUE ---------------------------- ---------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Doctor R. Crants....... 52,500 $435,908 296,563(3) 135,313(3) 0 0
J. Michael
Quinlan(4)........... -- -- 393,750 0 0 0
Vida H. Carroll........ -- -- 55,312(5) 35,938(5) 0 0
D. Robert Crants,
III(6)............... -- -- 0 0 0 0
Michael W. Devlin(7)... -- -- 0 0 0 0
</TABLE>
-------------------------
(1) Represents the market value of the underlying shares of the Company's Common
Stock on the date of exercise, less the applicable exercise price.
(2) As of December 31, 1999 (the last trading date in 1999) the market price of
shares of the Company's Common Stock (the closing price per share of Common
Stock on the NYSE) was $5.06 per share. As a result, none of the unexercised
options to purchase the Company's Common Stock were in-the-money at December
31, 1999.
(3) As a result of Doctor R. Crants' termination as the Company's Chief
Executive Officer on July 28, 2000, all of his outstanding options to
purchase shares of the Company's Common Stock were terminated.
(4) In connection with Mr. Quinlan's previous resignation from all positions
with the Company on June 28, 1999, the Compensation Committee of the Board
of Directors of the Company accelerated the date of exercise of all of Mr.
Quinlan's outstanding options to purchase shares of the Company's Common
Stock.
(5) Upon the effectiveness of Ms. Carroll's resignation as the Company's Chief
Financial Officer, Secretary and Treasurer, all of her outstanding options
to purchase shares of the Company's Common Stock were terminated.
(6) As a result of the resignation of D. Robert Crants, III, all of his
outstanding options to purchase shares of the Company's Common Stock were
terminated.
(7) As a result of the resignation of Michael W. Devlin, all of his outstanding
options to purchase shares of the Company's Common Stock were terminated.
47
<PAGE> 51
REPORT OF THE COMPENSATION COMMITTEE
COMPOSITION AND POLICIES OF THE COMPENSATION COMMITTEE IN 1999
The Company's Compensation Committee is currently comprised of C. Ray Bell
and Joseph V. Russell, with Mr. Russell serving as Chairman. Prior to his
resignation on April 1, 2000, Mr. Moore served as a member and as the Chairman
of the Compensation Committee. Mr. Russell is, and Mr. Moore was, an Independent
Director. The following portion of this report relates to the policies adopted
and actions taken by the Company's Compensation Committee in 1999.
Objectives of Executive Compensation
The Company's 1999 compensation program was determined by the Compensation
Committee in March 1999, prior to disclosure of the Company's operating results
for the first fiscal quarter of 1999 and prior to the Company's determination to
effect the Restructuring and related transactions. In 1999, the Company's
executive compensation program was intended to compensate the Company's key
executives for services rendered in connection with the 1999 Merger, as well as
to attract, motivate and retain key executives who were capable of leading the
Company effectively and continuing its long-term growth. The compensation
program for its executives was comprised of base salary, annual incentives and
long-term incentive awards. Base salary was targeted to be within a reasonable
range of compensation for comparable companies and for comparable levels of
expertise by executives. Annual incentives were based upon the achievement of
one or more performance goals. The Company used stock options and other equity
based compensation in its long-term incentive programs.
Compensation Committee Procedures
The Compensation Committee established the Company's general compensation
policies for 1999 and was responsible for the implementation and monitoring of
its compensation and incentive plans and policies. Final compensation
determinations for 1999 were made after preliminary financial statements for the
prior fiscal year became available and upon a review of the salaries of the
executive officers of comparable REITs as disclosed in available SNL Executive
Compensation Reviews and publicly filed documents. At that time, annual
incentives, if any, were determined for the past year's performance and for each
executive's performance of services in connection with the 1999 Merger, base
salaries for the following fiscal year were set and long-term incentives, if
any, were granted.
In determining the executive officers' base salaries and the
performance-based incentives granted to the executive officers for the end of
the fiscal year ended December 31, 1999, the Compensation Committee took into
consideration the above-referenced factors and examined comparable executive
compensation paid by a peer group of REITs of similar size, makeup and
performance as reported in the SNL Executive Compensation Review 1999 -- REITS.
While the companies included in the SNL Review might not have been identical to
the companies used to calculate the NAREIT Index to which the Company's share
performance was compared in the performance graph contained herein, the
Compensation Committee believed that the compensation information in the SNL
Review was comparable because it contained data pertaining to REITs of similar
size, makeup and performance to that of the Company. Members of the Compensation
Committee consulted periodically by telephone prior to their meetings at which
compensation decisions were made. The Compensation Committee exercised its
independent discretion in determining the compensation of the Company's
executive officers.
48
<PAGE> 52
Each element of the Company's executive compensation, as well as the
compensation of the Chief Executive Officer for the 1999 fiscal year, is
discussed below.
Base Salary
In 1999, base salaries were a fixed component of total compensation and did
not relate to the performance of the Company. Base salaries were determined by
the Compensation Committee after reviewing salaries paid by companies of similar
size and performance. For the year ended December 31, 1999, the Company's
executive officers, other than its Chief Executive Officer, who is discussed
separately below, received the following base salaries, which were fixed by the
Compensation Committee on March 4, 1999: D. Robert Crants, III
(President) -- $165,000; Michael W. Devlin (Chief Operating
Officer) -- $165,000; Vida H. Carroll (Chief Financial Officer) -- $150,000; and
J. Michael Quinlan (Vice-Chairman of the Board of Directors) -- $160,000.
Annual Incentives
In 1999, annual incentives were provided in the form of cash bonuses.
Annual incentives were designed to reward executives and management for the
annual growth and achievement of the Company and are therefore tied to its
performance. The amount of the award was based upon each executive's base salary
and the level to which such executive's performance met and exceeded the
established goal, as well as services rendered by each executive in connection
with the 1999 Merger. D. Robert Crants, III, Michael W. Devlin and Vida H.
Carroll were each paid annual cash incentives of $75,000 in 1999, primarily for
services provided to the Company in connection with the 1999 Merger.
Long-term Incentives
In 1999, long-term incentives were provided through the grant of stock
options and restricted stock awards under the Company's 1997 Employee Share
Incentive Plan. These grants were designed to align executives' interests with
the long-term goals of the Company and the interests of the Company's
stockholders and to encourage high levels of stock ownership among executives.
The Compensation Committee granted 141,250 options to executive officers other
than Doctor R. Crants in 1999. In addition, the Compensation Committee awarded
16,250 restricted shares of the Company's Common Stock to executive officers
other than Doctor R. Crants in 1999. As a result of the resignation of each of
D. Robert Crants, III, Michael W. Devlin and Vida H. Carroll, all unvested
shares of restricted Common Stock granted in 1999 and all unexercised options
held by each such executive officer were forfeited.
Executive Equity Loan Plan
On May 10, 1999, the Compensation Committee approved, and the Company
adopted, the Company's Executive Equity Loan Plan (the "Loan Plan"), pursuant to
which the Company was authorized to grant loans to its officers and other key
employees for the purpose of purchasing shares of the Company's Common Stock.
The Company adopted the Loan Plan so as to align the interests of the Company's
management and shareholders. Under the Loan Plan, the Company granted an
aggregate of $1.0 million in loans in 1999 to each of D. Robert Crants, III and
Michael W. Devlin in 1999, which were to be used for the purposes of purchasing
shares of the Company's Common Stock. See the discussion under the heading
"Employment Agreements and Change in Control Provisions -- Severance Agreements
With Former Executive Officers of the Company" contained in Proposal 1 herein
for a description of the severance arrangements between the Company and each of
Messrs. Crants, III and Devlin, including a description of the terms of
repayment of such loans.
49
<PAGE> 53
Compensation of Chief Executive Officer in 1999
In March 1999, the Compensation Committee set the 1999 base salary for the
Company's Chief Executive Officer, Doctor R. Crants, in accordance with the
policies and considerations stated above. For the year ended December 31, 1999,
Mr. Crants received a base salary of $175,000. During the fiscal year ended
December 31, 1999, the Compensation Committee awarded options to purchase
113,750 shares of the Company's Common Stock to Mr. Crants. The Company also
awarded a total of 6,750 restricted shares of the Company's Common Stock to Mr.
Crants pursuant to the 1997 Employee Share Incentive Plan, which were to vest in
25% increments over a three-year period, with the first such increment vesting
immediately upon the date of the award. As a result of the resignation and/or
termination of employment of Mr. Crants from all positions with the Company, all
unvested shares of restricted Common Stock and unexercised warrants granted to
Mr. Crants in 1999 were forfeited. In addition, under the terms of the Company's
Loan Plan, Mr. Crants obtained a loan in the principal amount of $1.0 million
for the purpose of purchasing shares of the Company's Common Stock. See the
discussion under the heading "Employment Agreements and Change in Control
Provisions -- Severance Agreements With Former Executive Officers of the
Company" contained in Proposal 1 herein for a description of the severance
agreements between the Company and Mr. Crants, including a description of the
terms of repayment of such loan.
Tax Deductibility of Compensation
Section 162(m) of the Code limits the deductibility on the Company's tax
return of compensation over $1.0 million to either the Chief Executive Officer
or any of the Named Executive Officers of the Company unless, in general, the
compensation is paid pursuant to a plan which is performance-related,
non-discretionary and has been approved by the Company's stockholders. The
Compensation Committee's policy with respect to Section 162(m) in 1999 was to
make every reasonable effort to ensure that compensation was deductible to the
extent permitted while simultaneously providing the Company executives with
appropriate rewards for their performance.
SEVERANCE PAYMENTS TO FORMER EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
In connection with the resignation and/or termination of each of Doctor R.
Crants, D. Robert Crants, III and Michael W. Devlin from their positions with
the Company, the Company and each of these individuals entered into a severance
agreement. In addition, the Company has previously made certain severance
payments to Vida H. Carroll in connection with her resignation from all
positions with the Company. The terms and conditions of these severance
agreements and the Company's severance payments to each of these individuals are
more fully described in the discussion under the heading "Employment Agreements
and Change in Control Provisions -- Severance Agreements With Former Executive
Officers of the Company" contained in Proposal 1 herein. Each of these severance
agreements and the payments pursuant to such agreements, which were approved by
the Compensation Committee and the full Board of Directors of the Company, were
deemed advisable in order to accomplish a comprehensive restructuring of the
Company's management.
COMPENSATION OF CHIEF EXECUTIVE OFFICER AND OF CHAIRMAN OF THE BOARD OF
DIRECTORS IN 2000
Thomas W. Beasley served as the Chairman of the Board of Directors from
December 26, 1999 through August 7, 2000 and as the Company's interim Chief
Executive Officer following the termination of Doctor R. Crants and prior to the
appointment of John D. Ferguson. As compensation for these services, the Company
agreed to pay Mr. Beasley a monthly fee of $50,000 from January through
September 2000.
50
<PAGE> 54
In connection with Mr. Ferguson's appointment as the Chief Executive
Officer and President of the Company, the Company entered into an employment
agreement with Mr. Ferguson, dated August 4, 2000. The Company has also entered
into an agreement with William F. Andrews with respect to Mr. Andrews' service
as Chairman of the Board of Directors of the Company. A description of each of
these agreements is set forth below. These agreements have previously been
approved by the Compensation Committee and the full Board of Directors of the
Company.
The initial term of Mr. Ferguson's employment agreement expires on December
31, 2002, and is subject to a series of one year renewals. Under the terms of
Mr. Ferguson's employment agreement, Mr. Ferguson is entitled to receive an
annual base salary through December 31, 2001 of $350,000 and an annual base
salary of $400,000 in 2002, each subject to increase at the discretion of the
Compensation Committee of the Company's Board of Directors. Mr. Ferguson is also
entitled to receive a cash bonus for 2000 of $75,000 and a cash bonus of
$175,000 and $200,000 for 2001 and 2002, respectively. In addition, if the
Company achieves certain financial performance targets determined by the Board
of Directors of the Company, Mr. Ferguson will be entitled to receive additional
cash bonuses of $175,000 and $200,000 for 2001 and 2002, respectively. In the
event of Mr. Ferguson's termination or resignation from his positions with the
Company, he is entitled to certain severance benefits following such termination
or resignation.
In addition, under the terms of the employment agreement, the Company has
issued Mr. Ferguson the option to purchase an aggregate of 2,000,000 shares of
the Company's Common Stock, consisting of: (i) options to purchase 500,000
shares of Common Stock at an exercise price of $2.38 per share that vested on
the date of the employment agreement; (ii) options to purchase 500,000 shares of
Common Stock at an exercise price of $2.38 per share that will vest on the first
anniversary of the date of the employment agreement; (iii) options to purchase
500,000 shares of Common Stock at an exercise price of $5.00 per share that will
vest on the second anniversary of the date of the employment agreement; and (iv)
options to purchase 500,000 shares of Common Stock at an exercise price of $7.50
per share that will vest on the third anniversary of the date of the employment
agreement. In the event the stockholders of the Company do not either (i) vote
to approve the grant of such options to Mr. Ferguson, or (ii) vote to approve a
plan providing for such grant prior to December 31, 2000, the Company shall
issue Mr. Ferguson an equivalent amount of stock appreciation rights with like
exercise price and vesting provisions. Under the terms of the employment
agreement and related option agreement, certain of these options, and stock
appreciation rights, as the case may be, may be forfeited by Mr. Ferguson upon
the termination of his employment with the Company.
The Company has also agreed to pay an annual retainer of $100,000 to Mr.
Andrews for his continued service as Chairman of the Board of Directors of the
Company. The Company has also agreed to pay Mr. Andrews an annual cash bonus
equal to 50% of his annual retainer if the Company meets certain financial and
operating criteria. The Company also agreed to grant Mr. Andrews an option to
purchase 200,000 shares of the Company's Common Stock at an exercise price of
$2.50 per share, the trading price of the Company's Common Stock on August 8,
2000.
COMPOSITION AND POLICIES OF THE COMPENSATION COMMITTEE FOLLOWING RESTRUCTURING
Due to the Restructuring, including the Company's election not to qualify
and to be taxed as a REIT commencing with its 2000 taxable year, the
compensation policies of the Company in the 2000 fiscal year and thereafter will
differ from the compensation policies followed by the Compensation Committee in
1999. The Company's proxy statement with respect to the Company's 2001 Annual
Meeting of Stockholders will contain information concerning the compensation
policy of the Compensation Committee for the fiscal year ended December 31, 2000
and thereafter. It is
51
<PAGE> 55
anticipated that Compensation Committee, in determining the future compensation
of the Company's executive officers, will primarily take into account the
financial and operating performance of the Company relative to companies with
similar annual revenues, capitalization and business operations (including other
private corrections providers), as well as the performance of each individual
executive officer. It is anticipated that the Compensation Committee also will,
in its discretion, consider such other factors as may be deemed to be relevant
by the Compensation Committee in creating an executive compensation policy
designed to provide compensation which: (i) is competitive in the marketplace;
(ii) rewards successful financial performance; and (iii) aligns executive
officers' interests with those of the Company's stockholders.
In addition, following the 2000 Annual Meeting of Stockholders, the Board
of Directors will restructure the composition of the Compensation Committee, as
more fully described in "Certain Information Concerning the Board of Directors
and Executive Officers -- Committees of the Company's Board of Directors." The
Company's proxy statement with respect to the Company's 2001 Annual Meeting of
Stockholders will contain additional information concerning the revised
membership of the Compensation Committee.
Submitted by the Compensation Committee of the Company's Board of
Directors:
Joseph V. Russell, Chairman
C. Ray Bell
52
<PAGE> 56
OWNERSHIP OF THE COMPANY'S SECURITIES
COMMON STOCK
Except as otherwise indicated, the following table sets forth certain
information with respect to the beneficial ownership of shares of the Company's
Common Stock as of November 6, 2000 by: (i) each stockholder of the Company that
the Company believes currently holds more than a 5% beneficial interest in the
Company's Common Stock, (ii) each existing director of the Company, (iii) each
nominee for director, (iv) each of the Company's existing executive officers,
and (v) all directors, nominees for directors and executive officers as a group.
Except as otherwise indicated, the Company believes that the beneficial owners
of the shares of the Company's 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 Commission pursuant to Section 13 of the Exchange
Act, have sole voting and investment power with respect to such shares. This
beneficial ownership information includes information with respect to the
beneficial ownership of shares of the Company's Common Stock issuable upon
conversion of all shares of the Company's Series B Preferred Stock held by each
person or entity or person listed below, including shares of Series B Preferred
Stock issued on [November 13, 2000].
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK BENEFICIALLY OWNED
AS OF NOVEMBER 6, 2000(1)
---------------------------------------
NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS(2)
------------------------ ---------------- -------------------
<S> <C> <C>
Dreman Value Management, L.L.C....................... 33,400,956(3) 18.6%
10 Exchange Place, Suite 2150
Jersey City, New Jersey 07302-3913
Sodexho Alliance, S.A................................ 25,356,516(4) 15.1%
Port de la Bourdonnais
75007, Paris France
Scudder Kemper Investments, Inc...................... 22,368,085(5) 13.0%
345 Park Avenue
New York, New York 10154
Gotham Partners, L.P................................. 20,319,483(6) 11.9%
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
William F. Andrews................................... 630,070(7) *
John D. Ferguson..................................... 500,000(8) *
Thomas W. Beasley.................................... 6,194,354(9) 3.8%
C. Ray Bell.......................................... 394,004(10) *
Jean-Pierre Cuny..................................... 26,250(11) *
Ted Feldman.......................................... 56,410(12) *
Joseph V. Russell.................................... 401,991(13) *
Charles W. Thomas, Ph.D.............................. 176,602(14) *
Lucius E. Burch, III................................. 2,435,026(15) 1.5%
</TABLE>
53
<PAGE> 57
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK BENEFICIALLY OWNED
AS OF NOVEMBER 6, 2000(1)
---------------------------------------
NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS(2)
------------------------ ---------------- -------------------
<S> <C> <C>
John D. Correnti..................................... 0 *
C. Michael Jacobi.................................... 0 *
John R. Prann, Jr.................................... 0 *
Henri L. Wedell...................................... 676,777(16) *
J. Michael Quinlan................................... 821,499(17) *
Darrell K. Massengale................................ 467,812(18) *
Todd Mullenger....................................... 342,631(19) *
Brent Turner......................................... 354,706(20) *
All executive officers, directors and nominees for
director as a group (17 persons)................... 13,478,132(21) 8.1%
</TABLE>
-------------------------
* Represents beneficial ownership of less than 1% of the outstanding shares of
the Company's 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 the Company's Common Stock (i)
underlying options to purchase shares of the Company's Common Stock, which
are exercisable, or become exercisable, within 60 days after November 9,
2000 and (ii) issuable upon conversion of all shares of the Company's
Series B Preferred Stock, including shares of Series B Preferred Stock
issued on November 13, 2000, are deemed to be outstanding with respect to a
person or entity for the purpose of computing the outstanding shares of the
Company's Common Stock owned by the particular person and by the group, but
are not deemed outstanding for any other purpose.
(2) Based on 159,068,246 shares of the Company's Common Stock issued and
outstanding on November 6, 2000.
(3) This beneficial ownership information is based on information contained in
a Schedule 13G filed with the Commission and dated January 5, 2000. The
beneficial ownership information contained in the Schedule 13G did not,
however, include information with respect to shares of the Company's Series
B Preferred Stock issued as a dividend upon shares of Common Stock listed
as beneficially owned by Dreman Value Management, LLC on the Schedule 13G.
Assuming the conversion of all such shares of Series B Preferred Stock into
shares of Common Stock, Dreman Value Management, LLC: (i) would
beneficially own, and have the sole power to vote, an aggregate of
31,537,133 shares of Common Stock (including 12,581,140 shares of Common
Stock owned prior to the issuance of the Series B Preferred Stock and
18,955,993 shares of Common Stock issuable upon conversion of shares of
Series B Preferred Stock); (ii) would possess shared voting power for an
aggregate of 165,792 shares of Common Stock (including 66,150 shares of
Common Stock owned prior to the issuance of the Series B Preferred Stock
and 99,642 shares of Common Stock issuable upon conversion of shares of
Series B Preferred Stock); and (iii) would possess sole dispositive power
with respect to an aggregate of 33,400,956 shares of Common Stock
(including 13,324,690 shares of Common
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<PAGE> 58
Stock owned prior to the issuance of the Series B Preferred Stock and
20,076,275 shares of Common Stock issuable upon conversion of shares of
Series B Preferred Stock).
(4) This beneficial ownership information is based on information contained in
a Schedule 13D filed with the Commission and dated October 1, 2000,
although such beneficial ownership does not include information with
respect to shares of the Company's Series B Preferred Stock issued on
[November 13, 2000] as a dividend upon shares of Common Stock listed as
beneficially owned by Sodexho on the Schedule 13D. Assuming the conversion
of all shares of Series B Preferred Stock issued to Sodexho into shares of
Common Stock, Sodexho would beneficially own an aggregate of 25,356,516
shares of Common Stock (including (i) 16,057,264 shares of Common Stock
owned prior to the issuance of the Series B Preferred Stock, (ii) 80,626
shares of the Common Stock issuable upon the exercise of certain options
issued to Jean-Pierre Cuny and transferred by Mr. Cuny to Sodexho and (iii)
9,218,626 shares of Common Stock issuable upon conversion of shares of
Series B Preferred Stock). Does not include shares of Common Stock issuable
upon conversion of approximately 288,000 shares of Series B Preferred Stock
withheld by the Company to satisfy U.S. income tax withholding
requirements.
(5) This beneficial ownership information is based on information contained in
a Schedule 13G filed with the Commission and dated January 28, 2000. The
beneficial ownership information contained in the Schedule 13G did not,
however, include information with respect to shares of the Company's Series
B Preferred Stock issued as a dividend upon shares of Common Stock listed
as beneficially owned by Scudder Kemper Investments, Inc. on Schedule 13G.
Assuming the conversion of all such shares of Series B Preferred Stock into
shares of Common Stock, Scudder Kemper Investments, Inc. would beneficially
own, and have the sole power to dispose or to direct the disposition of, an
aggregate of 22,368,085 shares of Common Stock (including (i) 8,923,325
shares of Common Stock owned prior to the issuance of the Series B
Preferred Stock and (ii) 13,444,760 shares of Common Stock issuable upon
conversion of shares of Series B Preferred Stock).
(6) This beneficial ownership information is based on information contained in
a Schedule 13G filed with the Commission and dated September 12, 2000. The
beneficial ownership information contained in the Schedule 13G did not,
however, include information with respect to shares of the Company's Series
B Preferred Stock issued as a dividend upon shares of Common Stock listed
as beneficially owned by Gotham Partners, L.P. and its affiliates on the
Schedule 13G. Assuming the conversion of all such shares of Series B
Preferred Stock into shares of Common Stock: (i) Gotham Partners, L.P.
would have sole voting and investment power with respect to 13,218,932
shares of Common Stock (including 5,273,451 shares of Common Stock owned
prior to the issuance of the Series B Preferred Stock and 7,945,481 shares
of Common Stock issuable upon conversion of shares of Series B Preferred
Stock); (ii) Gotham Partners III, L.P. would have sole voting and
investment power with respect to 586,454 shares of Common Stock (including
233,962 shares of Common Stock owned prior to the issuance of the Series B
Preferred Stock and 352,492 shares of Common Stock issuable upon conversion
of shares of Series B Preferred Stock); (iii) Gotham International
Advisors, L.L.C. would have sole voting and investment power with respect
to 5,529,966 shares of Common Stock (including 2,206,086 shares of Common
Stock owned prior to the issuance of the Series B Preferred Stock and
3,323,880 shares of Common Stock issuable upon conversion of shares of
Series B Preferred Stock); and (iv) Gotham Holdings II, L.L.C. would have
sole voting and investment power with respect to 984,131 shares of Common
Stock (including 392,601 shares of Common Stock owned prior to the issuance
of the Series B Preferred Stock and 591,530 shares of Common Stock issuable
upon conversion of shares of Series B Preferred Stock). Section H Partners,
L.P.
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<PAGE> 59
is the sole general partner of Gotham Partners, L.P. and Gotham Partners
III, L.P. Karenina Corp., which is wholly owned by Mr. William A. Ackman,
and DPB Corp., which is wholly owned by Mr. 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 sole
power to vote and dispose of all of the shares of the Company's 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.
(7) Includes 169,068 shares of Common Stock owned directly by Mr. Andrews and
assumes the conversion of all shares of Series B Preferred Stock owned
directly by Mr. Andrews into an aggregate of 261,002 shares of Common
Stock. Also includes 200,000 shares of Common Stock issuable upon the
exercise of vested options to purchase Common Stock.
(8) Consists of 500,000 shares of Common Stock issuable upon the exercise of
vested options to purchase Common Stock. Does not include options to
purchase an aggregate of 1,500,000 shares of Common Stock which are not
exercisable within 60 days after November 6, 2000.
(9) Includes: (i) 2,408,637 shares of Common Stock owned directly by Mr.
Beasley; (ii) 26,211 shares of Common Stock held in a 410(k) plan; (iii)
19,750 shares of Common Stock owned by Mr. Beasley's wife; (iv) an
aggregate of 14,567 shares of Common Stock owned by Mr. Beasley's three
children; and (v) 5,000 shares of Common Stock issuable upon the exercise
of vested options to purchase Common Stock. Assumes: (i) the conversion of
all shares of Series B Preferred Stock owned directly by Mr. Beasley into
an aggregate of 3,629,062 shares of Common Stock; (ii) the conversion of
all shares of Series B Preferred Stock held by a 401(k) plan into 39,474
shares of Common Stock; (iii) the conversion of all shares of Series B
Preferred Stock owned by Mr. Beasley's wife into 29,731 shares of Common
Stock; and (iv) the conversion of all shares of Series B Preferred Stock
held by Mr. Beasley's three children into 21,922 shares of Common Stock.
(10) Includes 148,206 shares of Common Stock owned directly by Mr. Bell, 1,000
shares of Common Stock owned jointly by Mr. Bell and his wife and 20,000
shares of Common Stock issuable upon the exercise of vested options to
purchase Common Stock. Also assumes (i) the conversion of all shares of
Series B Preferred Stock owned directly by Mr. Bell into an aggregate of
223,292 shares of Common Stock and (ii) the conversion of all shares of
Series B Preferred Stock owned jointly by Mr. Bell and his wife into an
aggregate of 1,506 shares of Common Stock.
(11) Mr. Cuny serves as the Senior Vice-President of The Sodexho Group, an
affiliate of Sodexho. Mr. Cuny beneficially owns 26,250 shares of Common
Stock issuable upon the exercise of vested options to purchase Common
Stock. This number does not include shares of Common Stock beneficially
owned by Sodexho, of which Mr. Cuny disclaims beneficial ownership.
(12) Includes 14,539 shares of Common Stock owned directly by Mr. Feldman and
20,000 shares of Common Stock issuable upon the exercise of vested options
to purchase Common Stock. Assumes the conversion of all shares of Series B
Preferred Stock owned directly by Mr. Feldman into an aggregate of 21,871
shares of Common Stock.
(13) Includes 167,610 shares of Common Stock owned directly by Mr. Russell, 437
shares of Common Stock owned jointly by Mr. Russell and his wife and 20,000
shares of Common Stock issuable upon the exercise of vested options to
purchase Common Stock. Also assumes (i) the conversion of all shares of
Series B Preferred Stock owned directly by Mr. Russell into an
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<PAGE> 60
aggregate of 213,317 shares of Common Stock and (ii) the conversion of all
shares of Series B Preferred Stock owned jointly by Mr. Russell and his
wife into an aggregate of 627 shares of Common Stock.
(14) Includes 62,484 shares of Common Stock owned directly by Dr. Thomas and
20,000 shares of Common Stock issuable upon the exercise of vested options
to purchase Common Stock. Assumes the conversion of all shares of Series B
Preferred Stock owned directly by Dr. Thomas into an aggregate of 94,118
shares of Common Stock.
(15) Includes 971,419 shares of Common Stock owned directly by Mr. Burch and/or
his affiliates. Assumes the conversion of all shares of Series B Preferred
Stock owned directly by Mr. Burch and/or his affiliates into an aggregate
of 1,463,607 shares of Common Stock.
(16) Includes 50,000 shares of Common Stock held in an IRA. Assumes: (i) the
conversion of all shares of Series B Preferred Stock owned directly by Mr.
Wedell into an aggregate of 50,360 shares of Common Stock; (ii) the
conversion of all shares of Series B Preferred Stock owned by Mr. Wedell's
wife into an aggregate of 62,950 shares of Common Stock; (iii) the
conversion of all shares of Series B Preferred Stock held in an IRA
(including, but not limited to, Series B Preferred Stock issued as a
dividend with respect to shares of Common Stock held in such IRA) into an
aggregate of 188,645 shares of Common Stock; and (iv) the conversion of all
shares of Series B Preferred Stock owned by a trust into an aggregate of
324,822 shares of Common Stock. Does not include 105,756 shares of Common
Stock issuable upon the conversion of shares of Series B Preferred Stock
held by Mr. Wedell's daughter, of which Mr. Wedell disclaims beneficial
ownership.
(17) Includes: (i) 284,063 shares of Common Stock owned directly by Mr. Quinlan;
(ii) 2,645 shares of Common Stock held in a 410(k) plan; (iii) 21,000
shares of Common Stock owned by Mr. Quinlan's wife; (iv) 450 shares of
Common Stock owned by each of Mr. Quinlan's two daughters; and (v) 393,750
shares of Common Stock issuable upon the exercise of vested options to
purchase Common Stock. Assumes: (i) the conversion of all shares of Series
B Preferred Stock owned directly by Mr. Quinlan into an aggregate of 82,230
shares of Common Stock; (ii) the conversion of all shares of Series B
Preferred Stock held by a 401(k) plan into 3,967 shares of Common Stock;
(iii) the conversion of all shares of Series B Preferred Stock owned by Mr.
Quinlan's wife into 31,640 shares of Common Stock; and (iv) the conversion
of all shares of Series B Preferred Stock held by Mr. Quinlan's two
daughters into 1,304 shares of Common Stock.
(18) Includes: (i) 294,183 shares of Common Stock owned directly by Mr.
Massengale; (ii) 245 shares of Common Stock owned by Mr. Massengale's wife;
and (iii) 75,559 shares of Common Stock issuable upon the exercise of
vested options to purchase Common Stock and a vested award of deferred
Common Stock. Assumes the conversion of all shares of Series B Preferred
Stock owned directly by Mr. Massengale into an aggregate of 97,474 shares
of Common Stock and the conversion of all shares of Series B Preferred
Stock held by Mr. Massengale's wife into 351 shares of Common Stock.
(19) Includes 274,613 shares of Common Stock owned directly by Mr. Mullenger.
Assumes the conversion of all shares of Series B Preferred Stock owned
directly by Mr. Mullenger into an aggregate of 68,018 shares of Common
Stock.
(20) Includes 274,912 shares of Common Stock owned directly by Mr. Turner and
11,375 shares of Common Stock issuable upon the exercise of vested options
to purchase Common Stock. Assumes the conversion of all shares of Series B
Preferred Stock owned directly by Mr. Turner into an aggregate of 68,419
shares of Common Stock.
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<PAGE> 61
(21) Includes 1,291,934 shares of Common Stock issuable upon the exercise of
vested options to purchase Common Stock or deferred stock awards. Assumes
the conversion of all shares of Series B Preferred Stock owned directly or
indirectly by such persons into an aggregate of 6,979,709 shares of Common
Stock.
SERIES A PREFERRED STOCK
The following table sets forth, as of November 6, 2000, certain information
with respect to the beneficial ownership of shares of the Company's Series A
Preferred Stock by: (i) each director, and each nominee for director, of the
Company; and (ii) the directors and nominees as a group. No executive officers
of the Company owned any shares of Series A Preferred Stock as of November 6,
2000. In addition, the Company is aware of no beneficial holder of more than 5%
of the Series A Preferred Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
SERIES A PREFERRED PERCENTAGE OF SHARES OF
STOCK BENEFICIALLY SERIES A PREFERRED STOCK
NAME OF BENEFICIAL OWNER OWNED(1) BENEFICIALLY OWNED(2)
------------------------ ------------------- ------------------------
<S> <C> <C>
C. Ray Bell.................................... 5,000 *
Lucius E. Burch, III........................... 10,000 *
All directors and nominees for director as a
group (13 persons)........................... 15,000 *
</TABLE>
-------------------------
* Represents beneficial ownership of less than 1% of the outstanding shares of
Series A Preferred 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.
(2) Based on 4,300,000 shares of Series A Preferred Stock issued and
outstanding.
PERFORMANCE GRAPH
The Company's Common Stock is currently traded on the NYSE under the symbol
"CXW". Prior to the completion of the Restructuring, the Company's Common Stock
was traded on the NYSE under the symbol "PZN". On November 6, 2000, the last
reported sales price of the Common Stock was $0.69 per share. On September 22,
2000, the Company issued 5,927,805 shares of its Series B Preferred Stock in
connection with its 1999 REIT distribution requirements. As a result, on
September 25, 2000, the Company's Common Stock began trading ex-dividend
reflecting a distribution of $0.90. Subsequently, on [November 13, 2000], the
Company issued approximately 1,590,682 shares of its Series B Preferred Stock in
connection with its 1999 REIT distribution requirements. The Company's Common
Stock began trading ex-dividend reflecting a distribution of approximately $0.19
on November 2, 2000 with respect to this distribution. The shares of Series B
Preferred Stock are convertible into shares of Common Stock.
The Company's Common Stock did not begin trading on the NYSE until January
4, 1999, the first day of trading following the completion of the 1999 Merger.
As such, the information provided below relating to stockholder returns for the
periods indicated relates to the Company, since the Common Stock began trading
on January 4, 1999, as well as to each of Old Prison Realty and Old
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<PAGE> 62
CCA for periods prior to January 1, 1999. In the 1999 Merger, each Old Prison
Realty common share was converted into one share of Common Stock and each share
of Old CCA common stock was converted into the right to receive 0.875 share of
Common Stock.
THE COMPANY
The following graph provides a comparison of the cumulative total
stockholder return on the Company's Common Stock compared to the cumulative
total return of the Standard & Poor's 500 Index (the "S&P 500 Index") and the
National Association of Real Estate Investment Trusts ("NAREIT") Total Return
Equity Index (the "NAREIT Index") for the year ended December 31, 1999. The
Company has elected to qualify and be taxed as REIT with respect to its 1999
taxable year. The graph assumes an investment of $100 on January 4, 1999, a
reinvestment of distributions and/or dividends and actual increase of the market
value of the Company's Common Stock relative to the initial investment of $100.
The comparisons in this table are required by the Commission and are not
intended to forecast or be indicative of possible future performance of the
Company's Common Stock.
<TABLE>
<CAPTION>
CORRECTIONS CORPORATION OF
AMERICA NAREIT INDEX S&P 500 INDEX
-------------------------- ------------ -------------
<S> <C> <C> <C>
1/4/99* 100 100 100
12/31/99 25.22 92.18 121.15
</TABLE>
-------------------------
* Shares of Company's Common Stock did not begin trading on the NYSE until
January 4, 1999. Accordingly, the table and graph reflect the Company's
performance from that date only.
OLD PRISON REALTY
The following graph provides a comparison of the cumulative total
shareholder return on Old Prison Realty's common shares compared to the
cumulative total return of the S&P 500 Index and the NAREIT Index for the six
months ended December 31, 1997 and the year ended December 31, 1998. The graph
assumes an investment of $100 on June 30, 1997, a reinvestment of distributions
and/or dividends and actual increase of the market value of Old Prison Realty's
common shares relative to the initial investment of $100.
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<PAGE> 63
<TABLE>
<CAPTION>
CCA PRISON REALTY TRUST NAREIT INDEX S&P 500 INDEX
----------------------- ------------ -------------
<S> <C> <C> <C>
6/30/97* $ 100(1) $ 100 $ 100
12/31/97 $ 216.82 $ 112.17 $ 110.58
12/31/98 $ 106.70 $ 91.06 $ 142.18
</TABLE>
-------------------------
* Old Prison Realty's common shares did not begin trading on the NYSE until
July 18, 1997. Accordingly, the table and graph reflect Old Prison Realty's
performance from that date only.
(1) Reflects a purchase price of $21.00 per share, the initial public offering
price of Old Prison Realty's common shares on the NYSE on July 18, 1997. The
Company believes that the use of the initial offering price better reflects
shareholder return rather than the use of the opening purchase price of Old
Prison Realty's common shares on such date. If a purchase price of $28.00
were used as the initial investment price (as was done in determining Old
Prison Realty's cumulative shareholder return in the performance graph
appearing in Old Prison Realty's proxy statement prepared in connection with
its 1998 Annual Meeting of Shareholders), the cumulative total shareholder
return would be $157.69 and $77.60 for the periods ending December 31, 1997
and December 31, 1998, respectively.
OLD CCA
The following graph provides a comparison, for the period of five years
commencing December 31,1993 and ending December 31, 1998, of the yearly
percentage change in the cumulative total shareholder return on Old CCA's common
stock with the cumulative total return of the S&P 500 Index and an index
consisting of companies that were either direct competitors of Old CCA or other
regional service organizations with similar market capitalization to Old CCA
prior to the 1999 Merger (the "Peer Group Index"). Old CCA believed that the
companies included within the Peer Group Index generally possessed assets,
liabilities and operations more similar to those of Old CCA than the companies
comprising other publicly-available indices. The graph assumes an investment of
$100 on December 31, 1993, a reinvestment of dividends and actual increase of
the market value of Old CCA's common stock relative to the initial investment of
$100.
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<PAGE> 64
<TABLE>
<CAPTION>
CORRECTIONS CORP. PEER GROUP* S&P 500 COMPOSITE
----------------- ----------- -----------------
<S> <C> <C> <C>
12/31/93 100.00 100.00 100.00
12/31/94 179.17 108.76 101.36
12/31/95 825.00 179.65 139.48
12/31/96 1355.56 201.31 171.48
13/31/97 1647.22 233.38 228.69
12/31/98 783.33 179.57 294.05
</TABLE>
-------------------------
* The Peer Group includes AMRESCO, Chattem, Inc., Command Security
Corporation, Correctional Services Corp.**, Hospital Staffing Services,
Inc., Insituform Technology, Inc., Medalliance, Inc., Nichols Research
Corporation, Phycor, Inc., Pinkerton, Inc., REN-Corporation-USA, Republic
Automotive Parts, Inc., Saks, Inc.*** and Wackenhut Corrections.
(Medalliance stopped trading stock on November 19, 1995 and Ren Corp stopped
trading stock on November 1, 1995; therefore, they have been deleted from
the Peer Group after December 31, 1994. Hospital Staffing Services, Inc.
stopped trading stock on March 27, 1998 and Republic Automotive Parts, Inc.,
stopped trading stock on June 26, 1998; therefore, they have been deleted
from the Peer Group after December 31, 1997.)
** Correctional Services Corp was formerly known as Esmor Corporation.
*** Proffitts, Inc. merged with Saks, Inc. on September 17, 1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company commenced operations on January 1, 1999 following the 1999
Merger. Operating Company commenced operations on January 1, 1999 as the result
of the contribution and assignment of certain facility management contracts and
related assets by Old CCA to Operating Company in connection with the 1999
Merger. Prior to the completion of the Restructuring, the Company leased the
substantial majority of the correctional and detention facilities owned by it to
Operating Company pursuant to long term triple-net leases. Operating Company
paid the Company $238.6 million pursuant to its leases with the Company during
1999 and $55.9 million in 2000 through September 30, 2000 with respect to such
leases. As a result of the Restructuring, the leases were canceled. Prior to the
completion of the Restructuring, Operating Company also paid the Company a fee
for the right to use the "Corrections Corporation of America" name. Operating
Company paid the Company $6.5 million in 1999 and $2.2 million in 2000 under the
terms of a trade name use agreement The Company and Operating Company also
entered into a series of additional contractual arrangements in connection with
the completion of the 1999 Merger, providing for payments by the
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<PAGE> 65
Company to Operating Company as tenant incentive fees and for the performance of
certain services by Operating Company. The Company paid Operating Company $68.6
million under the terms of these agreements during 1999, and made no such
payments in 2000. As a result of the Restructuring, each of these agreements
were canceled.
Also in connection with the 1999 Merger, Operating Company executed a
promissory note in the aggregate principal amount of $137.0 million, which bears
interest at a rate of 12% per annum, with 10% of the outstanding principal
amount of the note being personally guaranteed by Doctor R. Crants. Pursuant to
the terms of the note, payments of accrued interest were due and payable
annually on December 31 of each year, with the first such payment due and
payable on December 31, 1999. Due to Operating Company's liquidity position
prior to the Restructuring, Operating Company deferred the first scheduled
payment of accrued interest on the note. As a result of the Restructuring, the
note was assumed by the Company's operating subsidiary in its merger with
Operating Company. All amounts remain outstanding under the note. As of August
31, 2000, $27.4 million of interest on the note has been forgiven, which
represented all accrued interest on the note through such date.
Prior to the completion of the Restructuring, the Company owned 100% of
Operating Company's non-voting common stock, which represented approximately
9.5% of Operating Company's issued and outstanding capital stock. The terms of
the non-voting common stock provided for the payment of dividends as and if
declared by Operating Company's board of directors on a parity with shares of
Operating Company's voting common stock. No dividends were ever declared or paid
to the Company by Operating Company.
The Company owns 100% of the outstanding non-voting common stock of each of
PMSI and JJFMSI, which entitles the Company to receive cash dividends equal to
95% of each entity's net income, as defined. PMSI and JJFMSI paid the Company
$11.0 million and $10.6 million in dividends, respectively, in 1999, and $4.4
million and $2.3 million, respectively, in 2000. It is currently anticipated
that, in connection with the Restructuring, following the attainment of
necessary lender and regulatory approval, each of PMSI and JJFMSI will merge
with and into a wholly owned subsidiary of the Company. In the merger, the
wardens of the facilities operated by each of PMSI and JJFMSI will receive
shares of the Company's Common Stock valued at approximately $1.2 million in
exchange for shares of PMSI and JJFMSI common stock currently held by such
wardens. All shares of PMSI and JJFMSI common stock held by the Company and
certain subsidiaries of PMSI and JJFMSI will be canceled in the merger.
In connection with the Restructuring, in September 2000 a wholly owned
subsidiary of PMSI purchased 85% of the outstanding voting common stock of PMSI
held by an outside entity controlled by a director of PMSI and his family for a
cash purchase price of $8.0 million. In addition, PMSI and the subsidiary paid
the chief manager of the entity $150,000 for expenses incurred in connection
with the transaction as well as $125,000 in consideration of the chief managers
agreement not to compete with the business of PMSI for a period of one year
following the purchase. Also in connection with the Restructuring, in September
2000 a wholly owned subsidiary of JJFMSI purchased 85% of the outstanding voting
common stock of JJFMSI held by an outside entity controlled by a former director
of JJFMSI for a cash purchase price of $4.8 million. In addition, JJFMSI and the
subsidiary paid the chief manager of the entity $250,000 for expenses incurred
in connection with the transaction.
Jean-Pierre Cuny, a member of the Company's Board of Directors, is the
senior vice-president of The Sodexho Group, an affiliate of Sodexho. Prior to
the Restructuring, Mr. Cuny also served as a member of the Board of Directors of
Operating Company. Sodexho has a contractual right to have a representative
serve on the Company's Board of Directors, provided such nominee is elected by
the
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<PAGE> 66
Company's stockholders. Immediately prior to the completion of the
Restructuring, the Company purchased all of the shares of common stock of
Operating Company held by Sodexho, which represented approximately 16.9% of the
outstanding common stock of Operating Company, for an aggregate of $8.0 million
in non-cash consideration, consisting of 5,673,759 shares of the Company's
Common Stock.
As a part of the Restructuring and consistent with the requirements of
previously existing contractual arrangements, JJFMSI and its wholly owned
subsidiary, CCA (UK) Limited, a company incorporated in England and Wales ("CCA
UK"), agreed to sell their 50% ownership interest in two international
subsidiaries, Corrections Corporation of Australia Pty. Ltd., an Australian
corporation ("CCA Australia"), and U.K. Detention Services Limited, a company
incorporated in England and Wales ("UKDS"), to Sodexho for a cash purchase price
of $6.4 million. Sodexho currently owns the remaining 50% interest in each of
CCA Australia and UKDS. JJFMSI and CCA UK agreed to sell the shares of CCA
Australia and UKDS to Sodexho, contingent on, among other things, the parties
obtaining the requisite consents of the appropriate authorities in Australia and
the United Kingdom for the transfer of the interests. In connection with the
sale of JJFMSI's and CCA UK's interest in CCA Australia and UKDS to Sodexho,
Sodexho granted JJFMSI an option to repurchase a 25% interest in each entity at
any time prior to September 11, 2002 (i.e., 24 months from the date of the
agreement), assuming the stock purchases are completed. JJFMSI has the right to
repurchase a 25% interest in each entity for aggregate cash consideration of
$4.0 million if such option is exercised on or before February 11, 2002 (i.e.,
18 months from the date of the Option Agreement), and for aggregate cash
consideration of $4.2 million if such option is exercised after February 11,
2001 but prior to September 11, 2001.
In 1999 and 2000, the Company and Operating Company made certain payments
to their respective directors in connection with their service on the Special
Committee of the Company's Board of Directors. These payments are previously
described in detail in Proposal 1 of this Proxy Statement under the heading
"Certain Information Concerning the Board of Directors and Executive Officers."
William F. Andrews, the Chairman of the Board of Directors of the Company,
served as the chairman of the board of directors of JJFMSI following the
completion of the 1999 Merger and through August 2000. The compensation being
paid to Mr. Andrews in connection with his appointment as the Chairman of the
Board of Directors of the Company is set forth in the Report of the Compensation
Committee contained herein under the heading "Executive Compensation."
Thomas W. Beasley, a member of the Board of Directors of the Company served
as the Chairman of the Board of Directors of the Company from December 1999
through August 2000. Mr. Beasley also served as the interim Chief Executive
Officer of the Company during 2000 and as interim Chief Executive Officer of
Operating Company during 2000. Mr. Beasley is the Chairman of the Board of
Directors of PMSI. Payments made to Mr. Beasley in 2000 for his services to the
Company as its Chairman and interim Chief Executive Officer are set forth in the
Report of the Compensation Committee contained herein under the heading
"Executive Compensation."
C. Ray Bell, a member of the Company's Board of Directors, is the principal
of a construction company which, as a part of its business, builds correctional
and detention facilities, including facilities for the Company. In 1999, Mr.
Bell's construction company received fees in the amount of $26.5 million for
construction services provided to the Company, and the Company has paid Mr.
Bell's company $23.8 million in 2000. During 1998, Old CCA and Old Prison Realty
paid $40.8 million and $8.7 million, respectively to Mr. Bell's construction
company for construction services.
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In connection with the 1999 Merger, Charles W. Thomas, a director of the
Company, received a total of $3.0 million from the Company and Old CCA for the
provision of certain consulting services to each of the Company and Old CCA. The
Company also paid Dr. Thomas $20,000 in 1999 and $75,000 in 2000 for certain
consulting and investor relation services.
During 1999, DC Investment Partners, LLC, a private investment manager of
which D. Robert Crants, III and Michael W. Devlin are principals, leased certain
office space from the Company.
In connection with their resignation or terminations from the Company, the
Company entered into various severance arrangements and/or made various
severance payments to each of Doctor R. Crants, the former Chief Executive
Officer of the Company and Operating Company, D. Robert Crants, the former
President of the Company, Michael W. Devlin, the former Chief Operating Officer
of the Company and Vida H. Carroll, the former Chief Financial Officer,
Secretary and Treasurer of the Company, during 1999 and 2000. These arrangements
and payments are previously described in detail in Proposal 1 of this Proxy
Statement under the heading entitled "Employment Agreements and Change in
Control Provisions -- Severance Agreements With Former Executive Officers of the
Company."
Stokes Bartholomew Evans & Petree, P.A. is tax and securities counsel to
the Company, and Stokes Bartholomew Evans & Petree, P.A. also provides certain
legal services to the operating Company, PMSI and JJFMSI. Samuel W. Bartholomew,
Jr., a shareholder of Stokes Bartholomew Evans & Petree, P.A., served as the
chairman of the board of directors of JJFMSI following the completion of the
1999 Merger and through August 2000. Prior to the 1999 Merger, Mr. Bartholomew
was a member of the Board of Directors of Old CCA. During 1999, the Company paid
$5.8 million to Stokes & Bartholomew, P.A.
Joseph F. Johnson, Jr. is currently a member of the Board of Directors of
JJFMSI and served as a member of the board of directors of PMSI following the
completion of the 1999 Merger and through September 2000. Mr. Johnson also
served as a member of the Board of Directors of Old CCA prior to the 1999
Merger. Old CCA paid fees of approximately $1.6 million and $1.3 million in 1998
and 1997, respectively to Mr. Johnson, or an entity controlled by Mr. Johnson,
for consulting services related to various contractual relationships and
services rendered at one of Old CCA's facilities. While the Company paid no fees
to Mr. Johnson in 1999 or 2000, in 1999 the Operating Company paid Mr. Johnson,
or an entity controlled by him, $747,000 for consulting services related to
various contractual relationships. In 2000 Operating Company paid Mr. Johnson,
or an entity controlled by him, $480,000 for these continued services.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than 10% of a registered class of the
Company's equity securities ("10% Holders"), to file reports of ownership and
changes in ownership with the Commission and the NYSE. Executive officers,
directors and 10% Holders are required by Commission regulation to furnish the
Company with copies of all Section 16(a) forms that they file. To the Company's
knowledge, based solely on review of the copies of such reports and amendments
thereto furnished to the Company and on written representations made to the
Company that no other reports were required during or with respect to the fiscal
year ended December 31, 1999, all Section 16(a) filing requirements relating to
the Company were timely made with the exception of the following reports: (1)
Doctor R. Crants inadvertently failed to file a Form 4 with the Commission on a
timely basis to report an exercise of certain options to purchase the Company's
Common Stock; (2) Ned Ray McWherter inadvertently failed to file on a Form 4
with the Commission on a timely basis to report
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one sale of the Company's Common Stock; and (3) Jackson W. Moore inadvertently
failed to file a Form 4 with the Commission on a timely basis with respect to
two purchases of the Company's Common Stock.
STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Under the rules of the Commission, if a stockholder wants the Company to
include a proposal in the Company's proxy statement and form of proxy for
presentation at the Company's 2001 Annual Meeting of Stockholders (the "2001
Annual Meeting"), the proposal must be received by the Company at the following
address: Corrections Corporation of America, 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
stockholder proposals in Company-sponsored proxy materials.
Under the Bylaws of the Company, and as permitted by the rules of the
Commission, a stockholder may nominate a director or present a stockholder
proposal not included in the Company's proxy statement at the Company's 2001
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: Corrections Corporation of America,
Attention: Secretary, 10 Burton Hills Boulevard, Nashville, Tennessee 37215.
The Company's annual meeting of stockholders will generally be held during
the month of May of each year. For a nomination or proposal to be presented at
the Company's 2001 Annual Meeting, it must be received at the Company's
principal executive offices (i) not earlier than the 90th day prior to the 2001
Annual Meeting, and (ii) not later than the 60th day prior to the 2001 Annual
Meeting or the 10th day following the day on which public announcement of the
date of the 2001 Annual Meeting is first made. If the Company does not receive
notice during such period, the nomination or proposal will not be presented at
the 2001 Annual Meeting. Additionally, persons named as proxies in the Company's
proxy materials relating to the 2001 Annual Meeting will use their discretion in
voting the proxies when any nominations or proposals from stockholders not
received during such period are raised at the meeting.
ANNUAL REPORT AND FORM 10-K
The Company previously delivered its 1999 Annual Report to Stockholders in
April 2000. All stockholders of record on the Record Date will receive with this
Proxy Statement selected excerpts of the Company's Annual Report on Form 10-K
for the year ended December 31, 1999, as updated by the Company's Quarterly
Reports on Form 10-Q for the quarterly periods ending March 31, 2000, June 30,
2000 and September 30, 2000. This information, however, is not part of the proxy
solicitation materials. Any stockholder who desires a copy of the Company's 1999
Annual Report to Stockholders or the Company's Annual Report on Form 10-K for
the year ended December 31, 1999, as filed with the Commission, may obtain a
copy without charge by addressing a request to the Secretary of Corrections
Corporation of America at 10 Burton Hills Boulevard, Nashville, Tennessee 37215.
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OTHER MATTERS
The Board of Directors does not know of any matters other than those
described in this Proxy Statement that will be presented for action at the
Annual Meeting. If other matters are presented, proxies will be voted in
accordance with the best judgment of the proxy holders.
By Order of the Board of Directors,
William F. Andrews
Chairman of the Board of Directors
John D. Ferguson
Vice Chairman of the Board of
Directors and
Chief Executive Officer and President
November , 2000
Nashville, Tennessee
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APPENDIX A
CORRECTIONS CORPORATION OF AMERICA
FORM OF ARTICLES OF AMENDMENT
Corrections Corporation of America, a Maryland corporation (the
"Corporation"), certifies as follows:
First: The charter of the Corporation is hereby amended by deleting
the first paragraph of Article V thereof and inserting in its place the
following:
The total number of shares of stock which the Corporation shall
have authority to issue is ( ), of which
( ) shares are of a class denominated
common stock, $0.01 par value per share (the "Common Stock"), and fifty
million (50,000,000) shares of a class denominated preferred stock,
$0.01 par value per share (the "Preferred Stock"). The aggregate par
value of all shares of all classes is $ . 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"). Twelve million (12,000,000) shares of the Preferred
Stock shall be designated as "Series B Cumulative Convertible Preferred
Stock" (the "Series B Preferred Stock"). Effective at 5:00 p.m. (New
York City time) on December , 2000, each shares of
stock of the Corporation of a class formerly denominated common stock,
$0.01 par value per share, issued and outstanding at that time and held
by a stockholder shall be changed, without any action on the part of the
stockholder, into one fully paid and nonassessable share of Common
Stock. The Corporation shall not issue fractional shares of Common
Stock.
Second: The total number of shares of stock of all classes which the
Corporation had authority to issue immediately before the foregoing
amendment was four hundred fifty million (450,000,000), of which four
hundred million (400,000,000) shares were of a class designated common
stock, $0.01 par value per share, and fifty million (50,000,000) shares
were of a class denominated preferred stock, $0.01 par value per share. The
aggregate par value of all shares of all classes was $4,500,000.
Third: The total number of shares of stock of all classes which the
Corporation has authority to issue after the foregoing amendment is
( ), of which ( )
shares are of a class denominated Common Stock, $0.01 par value per share,
and fifty million (50,000,000) shares are of a class denominated preferred
stock, $0.01 par value per share. The aggregate par value of all shares of
all classes is $ .
Fourth: Except as set forth in Article FIRST above, the
description of each class of authorized stock, including the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption, was not changed by the amendment.
Fifth: The foregoing amendment was advised by the Board of
Directors and approved by the stockholders of the Corporation.
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IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
to be signed in its name and on its behalf on this day of December, 2000,
by its President who acknowledges that these Articles of Amendment are the act
of the Corporation and that, to the best of his knowledge, information and
belief and under penalties for perjury, all matters and facts contained in these
Articles of Amendment are true in all material respects.
<TABLE>
<S> <C>
ATTEST: CORRECTIONS CORPORATION OF AMERICA
By:
--------------------------------------------------- ------------------------------------------------
Secretary John D. Ferguson
President
</TABLE>
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APPENDIX B
FIRST AMENDMENT TO CORRECTIONS CORPORATION OF AMERICA
1997 EMPLOYEE SHARE INCENTIVE PLAN
Section 3 of the Corrections Corporation of America 1997 Employee Share
Incentive Plan is hereby amended as follows:
(1) By deleting the first paragraph in its entirety and substituting
therefor the following:
"The total number of Shares reserved and available for distribution
under the Plan shall be 15,000,000 shares. Such Shares may consist, in
whole or in part, of authorized and unissued Shares or treasury Shares."
Section 5(c) of the Corrections Corporation of America 1997 Employee Share
Incentive Plan is hereby amended as follows:
(2) By the addition of a new sentence, as follows:
"Notwithstanding any provision of this Section 5(c), the Board of
Directors of the Company may authorize the grant of a Share Option, all
or a portion of which is immediately exercisable upon the date of grant
of such Share Option."
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APPENDIX C
CORRECTIONS CORPORATION OF AMERICA
2000 STOCK INCENTIVE PLAN
1. Purpose of the Plan. The Corrections Corporation of America 2000 Stock
Incentive Plan (this "Plan") is intended to encourage stock ownership by
employees, consultants and non-employee directors of Corrections Corporation of
America (the "Company"), and employees and consultants of Affiliate
Corporations, so that they may acquire or increase their proprietary interest in
the Company, and to encourage such employees, consultants and non-employee
directors to remain in the employ and/or service of the Company and to put forth
maximum efforts for the success of the business of the Company. It is further
intended that options granted by the Committee pursuant to Section 7 of this
Plan shall constitute "incentive stock options" ("Incentive Stock Options")
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, and the regulations issued thereunder (the "Code"), and all other
options granted by the Committee hereunder shall constitute "nonqualified stock
options" ("Nonqualified Stock Options"). Grants under this Plan may consist of
Incentive Stock Options, Nonqualified Stock Options (collectively, "Options"),
stock appreciation rights ("Rights"), which Rights may be either granted in
conjunction with Options ("Related Rights") or unaccompanied by Options ("Free
Standing Rights"), restricted stock awards ("Restricted Shares"), or performance
awards ("Performance Awards"), as hereinafter set forth.
2. Definitions. As used in this Plan, the following words and phrases
shall have the meanings indicated:
(a) "Affiliate Corporation" or "Affiliate" shall mean any corporation,
directly or indirectly, through one or more intermediaries, controlling,
controlled by, or under common control with the Company.
(b) "Annual Grant Amount" shall have the meaning ascribed to it in
Section 8 hereof.
(c) "Award" shall mean an Option, a Right, Restricted Share, or
Performance Award granted hereunder.
(d) "Award Agreement" shall have the meaning ascribed to it in Section
3 hereof.
(e) "Board" shall have the meaning ascribed to it in Section 3 hereof.
(f) "Change in Control" shall mean the happening of any of the
following:
(i) any person or entity, including a "group" as defined in Section
13(d)(3) of the Exchange Act, other than the Company or a wholly-owned
subsidiary thereof or any employee benefit plan of the Company or any of
its Subsidiary Corporations, becomes the beneficial owner of the
Company's securities having 20% or more of the combined voting power of
the then outstanding securities of the Company that may be cast for the
election of directors of the Company (other than as a result of an
issuance of securities initiated by the Company in the ordinary course
of business); or
(ii) as the result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, sale of assets or
contested election, or any combination of the foregoing transactions,
less than a majority of the combined voting power of the then
outstanding securities of the Company or any successor corporation or
entity entitled to vote generally in the election of the directors of
the Company or such other corporation or entity after such transaction
are held in the aggregate by the holders of the Company's securities
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entitled to vote generally in the election of directors of the Company
immediately prior to such transaction; or
(iii) during any period of two consecutive years, individuals who
at the beginning of any such period constitute the Board cease for any
reason to constitute at least a majority thereof, unless the election,
or the nomination for election by the Company's shareholders, of each
director of the Company first elected during such period was approved by
a vote of at least two-thirds of the directors of the Company then still
in office who were directors of the Company at the beginning of any such
period.
(g) "Code" shall have the meaning ascribed to it in Section 1 hereof.
(h) "Committee" shall have the meaning ascribed to it in Section 3
hereof.
(i) "Common Stock" shall mean shares of the Company's Common Stock.
(j) "Company" shall have the meaning ascribed to it in Section 1
hereof.
(k) "Covered Officer" shall mean, as of a particular date, (i) any
individual who, with respect to the previous taxable year of the Company,
was a "covered employee" of the Company within the meaning of Section
162(m) of the Code, provided that such term shall not include any such
individual who is designated by the Committee, in its discretion, at the
time of any Award or at any subsequent time, as reasonably expected not to
be such a "covered employee" with respect to the current taxable year of
the Company, and (ii) any individual who is designated by the Committee, in
its discretion, at the time of any Award or at any subsequent time, as
reasonably expected to be such a covered employee" with respect to the
current taxable year of the Company or with respect to the taxable year of
the Company in which any applicable Award will be paid.
(l) "Disability" shall mean a Participant's inability to engage in any
substantial gainful activity by reason of medically determinable physical
or mental impairment that can be expected to result in death or that has
lasted or can be expected to last for a continuous period of not less than
twelve (12) months.
(m) "Effective Date" shall mean the effective date of the plan as set
forth in Section 17 hereof.
(n) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(o) "Excise Tax" shall have the meaning ascribed to it in Section 15
hereof.
(p) "Fair Market Value" per share as of a particular date shall mean
(i) the closing sales price per share of Common Stock on a national
securities exchange for the last preceding date on which there was a sale
of such Common Stock on such exchange, or (ii) if the shares of Common
Stock are then traded on an over-the-counter market, the average of the
closing bid and asked prices for the shares of Common Stock in such
over-the-counter market for the last preceding date on which there was a
sale of such Common Stock in such market, or (iii) if the shares of Common
Stock are not then listed on a national securities exchange or traded in an
over-the-counter market, such value as the Committee in its discretion may
determine.
(q) "Free Standing Rights" shall have the meaning ascribed to it in
Section 1 hereof.
(r) "Gross-Up Payment" shall have the meaning ascribed to it in
Section 15 hereof.
(s) "Incentive Stock Options" shall have the meaning ascribed to it in
Section 1 hereof.
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(t) "Meeting Grant Date" shall have the meaning ascribed to it in
Section 8 hereof.
(u) "Nonqualified Stock Options" shall have the meaning ascribed to it
in Section 1 hereof.
(v) "Optionee" shall have the meaning ascribed to it in Section 4
hereof.
(w) "Option Price" shall have the meaning ascribed to it in Section 3
hereof.
(x) "Options" shall have the meaning ascribed to it in Section 1
hereof.
(y) "Participant" shall have the meaning ascribed to it in Section 4
hereof.
(z) "Performance Awards" shall have the meaning ascribed to it in
Section 1 hereof.
(aa) "Related Rights" shall have the meaning ascribed to it in Section
1 hereof.
(bb) "Restricted Shares" shall have the meaning ascribed to it in
Section 1 hereof.
(cc) "Rights" shall have the meaning ascribed to it in Section 1
hereof.
(dd) "Retirement" shall mean a Participant's termination of employment
in accordance with the provisions of the Corrections Corporation of America
401(k) Savings and Retirement Plan on or after such Participant's Normal
Retirement Date, as defined in such plan.
(ee) "Subsidiary Corporation" shall mean any corporation (other than
the Company) in an unbroken chain of corporations beginning with the
Company if, at the time of granting an option, each of such corporations
other than the last corporation in the unbroken chain owns stock possessing
fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
(ff) "Ten Percent Stockholder" shall mean a Participant who, at the
time an Incentive Stock Option is granted, owns stock possessing more than
ten percent (10%) of the total combined voting power of all classes of
stock of the Company.
(gg) "Withholding Tax" shall have the meaning ascribed to it in
Section 14 hereof.
3. Administration. This Plan shall be administered by a committee (the
"Committee") appointed by the Board of Directors of the Company (the "Board"),
which shall be comprised of two or more persons, each of whom shall qualify as a
"Non-Employee Director" as described in Rule 16b-3(b)(3)(i) promulgated under
the Exchange Act.
The Committee shall have the authority in its discretion, subject to and
not inconsistent with the express provisions of this Plan, to administer this
Plan and to exercise all the powers and authorities either specifically granted
to it under this Plan or necessary or advisable in the administration of this
Plan, including, without limitation, the authority: to grant Awards; to
designate Participants, other than as set forth in Section 8 hereof; to
determine the type or types of Awards to be granted to a Participant; to
determine which Options shall constitute Incentive Stock Options and which
Options shall constitute Nonqualified Stock Options; to determine which Rights
(if any) shall be granted in conjunction with Options; to determine the purchase
price of the shares of Common Stock covered by each Option (the "Option Price");
to determine the persons to whom, and the time or times at which, Awards shall
be granted; to determine the number of shares to be covered by each Award; to
interpret this Plan; to prescribe, amend and rescind rules and regulations
relating to this Plan; to determine the terms and provisions of the agreements
(which need not be identical) entered into in connection with Awards granted
under this Plan (each an "Award Agreement"); and to make all other
determinations deemed necessary or advisable for the administration of this
Plan. The
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Committee may delegate to one or more of its members or to one or more agents
such administrative duties as may be deemed advisable, and the Committee or any
person to whom it has delegated duties as aforesaid may employ one or more
persons to render advice with respect to any responsibility the Committee or
such person may have under this Plan.
No member of the Board of Directors or Committee shall be liable for any
action taken or determination made in good faith with respect to this Plan or
any Award granted hereunder.
4. Eligibility. Awards may be granted to key employees (including, without
limitation, officers and directors who are employees) and non-employee directors
of the Company or its present or future Affiliate Corporations. For purposes of
the foregoing, "employee" shall mean any employee, independent contractor,
consultant, advisor, or similar individual who is providing or who has agreed to
provide services to the Company or to any of its present or future Affiliate
Corporations. Notwithstanding any provision of this paragraph, Incentive Stock
Options shall be granted only to individuals who, on the date of such grant, are
employees of the Company or a Subsidiary Corporation. In determining the persons
to whom Awards shall be granted and the number of shares to be covered by each
Award, the Committee shall take into account the duties of the respective
persons, their present and potential contributions to the success of the Company
and such other factors as the Committee shall deem relevant in connection with
accomplishing the purpose of this Plan. A person to whom an Award has been
granted hereunder is sometimes referred to herein as a "Participant" or
"Optionee."
A Participant shall be eligible to receive more than one grant of an Award
during the term of this Plan, but only on the terms and subject to the
restrictions hereinafter set forth.
5. Stock. The stock subject to Awards hereunder shall be shares of Common
Stock. Such shares may, in whole or in part, be authorized but unissued shares
or shares that shall have been or that may be reacquired by the Company. The
aggregate number of shares of Common Stock as to which Awards may be granted
from time to time under this Plan shall not exceed 25,000,000 shares. The
limitation established by the preceding sentence shall be subject to adjustment
as provided in Section 13 hereof.
To the extent that (i) any Award granted under the Plan expires, is
terminated or forfeited without being exercised, settled or, with respect to
Restricted Shares, vested, (ii) any Option granted under the Plan is surrendered
on exercise of a Right for cash or the issuance of fewer shares of Common Stock
than issuable under such surrendered Option, or (iii) any Free Standing Right
granted under the Plan expires or is terminated without being exercised, the
shares of Common Stock issuable thereunder, less such shares issued, shall
become available for grants of Awards.
6. Options. Each Option granted pursuant to this Plan shall be evidenced
by a written Award Agreement between the Company and the Participant, which
agreement shall comply with and be subject to the following terms and
conditions:
(a) Number of Shares. Each Award Agreement shall state the number of
shares of Common Stock to which the Option relates.
(b) Type of Option. Each Award Agreement shall specifically identify
the portion, if any, of the Option which constitutes an Incentive Stock
Option and the portion, if any, which constitutes a Nonqualified Stock
Option.
(c) Option Price. Each Award Agreement shall state the Option Price
per share of Common Stock, which shall be not less than fifty percent (50%)
of the Fair Market Value of a share of Common Stock of the Company on the
date of grant of the Option and which, in the case of an Incentive Stock
Option, shall be further subject to the limitations described in
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Section 7 hereof. The Option Price shall be subject to adjustment as
provided in Section 14 hereof. The date on which the Committee approves the
issuance of an Option shall be considered the day on which such Option is
granted.
(d) Medium And Time of Payment. The Option Price shall be paid or
satisfied in full, at the time of exercise, in cash, in shares of Common
Stock owned by the Participant for at least six months having a Fair Market
Value equal to such Option Price or in a combination of cash and such
shares of Common Stock. In addition, if permitted by the Committee in its
sole discretion, payment may also be made in whole or in part in the form
of an option to acquire Common Stock or in the form of another Award
hereunder (based, in each case, on the Fair Market Value of such option or
Award on the date the Option is exercised, as determined by the Committee).
(e) Term and Exercise of Options. Options shall be exercisable over
the exercise period as and at the times and upon the conditions that the
Committee may determine, as reflected in the Award Agreement; provided,
however, that the Committee shall have the authority to accelerate the
exercisability of any outstanding Option at such time and under such
circumstances as it, in its sole discretion, deems appropriate. The
exercise period shall be determined by the Committee; provided, however,
that in the case of any Incentive Stock Option, such exercise period shall
be subject to the limitations described in Section 7 hereof. The exercise
period shall be subject to earlier termination as provided in subparagraphs
(f) and (g) below. An Option may be exercised as to any or all full shares
of Common Stock as to which the Option has become exercisable by giving
written notice of such exercise to the Committee; provided, however, that
an Option may not be exercised at any one time as to fewer than one hundred
(100) shares (or such number of shares as to which the Option is then
exercisable if such number of shares is less than one hundred (100)).
(f) Termination of Employment. Except as provided in this
subparagraph (f) and in subparagraph (g) below, an Option may not be
exercised unless the Participant is then in the employ or service of (i)
the Company, (ii) an Affiliate Corporation or (iii) a corporation issuing
or assuming the Option in a transaction to which Code Section 424 applies
or a Subsidiary Corporation of the corporation described in this clause
(iii), and unless the Participant has remained continuously so employed
since the date of grant of the Option. In the event that the employment or
service of a Participant shall terminate (other than by reason of death,
Disability or Retirement), all Options of such Participant that are
exercisable at the time of such termination may, unless earlier terminated
in accordance with their terms, be exercised within three (3) months after
such termination. Nothing in this Plan or in any Option or Right granted
pursuant hereto shall confer upon an individual any right to continue in
the employ or service of the Company or any of its Affiliate Corporations
or interfere in any way with the right of the Company or any such Affiliate
Corporation to terminate such employment or service at any time. The
Committee in its discretion may alter the foregoing limitations at or after
the date of grant of an Option.
(g) Acceleration of Benefits upon Death, Disability or Retirement of
Participant or a Change in Control. If (i) a Participant shall die while
in the employ or service of the Company or an Affiliate Corporation or
within a period of three (3) months after the termination of such
employment or service, (ii) a Participant's employment or service with the
Company shall terminate by reason of Disability or Retirement, or (iii)
there occurs a Change in Control, then in any such case all Options
theretofore granted to such Participant (whether or not then exercisable)
may, unless earlier terminated or expired in accordance with their terms,
be exercised by the Participant or by the Participant's estate or by a
person who acquired the right to exercise such Option by bequest or
inheritance or otherwise by reason of the death or
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Disability of the Participant, at any time within one year after the date
of death, Disability or Retirement of the Participant or the Change in
Control. The Committee in its discretion may alter the foregoing
limitations at or after the date of grant of an Option.
(h) Nontransferability of Options. Except as otherwise provided in an
Award Agreement, Options granted under this Plan shall not be transferable
otherwise than by will or by the laws of descent and distribution, and
Options may be exercised, during the lifetime of the Participant, only by
the Participant or by his guardian or legal representative.
(i) Rights as a Stockholder. A Participant who is the holder of an
Option or a transferee of an Option shall have no rights as a stockholder
with respect to any shares covered by the Option until the date of the
issuance of a stock certificate to him or her for such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether
in cash, securities or other property) or distribution of other rights for
which the record date is prior to the date such stock certificate is
issued, except as provided in Section 13 hereof.
(j) Other Provisions. The Award Agreements authorized under this Plan
may contain such other provisions as the Committee deems advisable,
including without limitation (i) the granting of Rights, (ii) the
imposition of restrictions upon the exercise of an Award, and (iii) in the
case of an Incentive Stock Option, the inclusion of any condition not
inconsistent with the qualification of such Option as an Incentive Stock
Option.
7. Incentive Stock Options. Options granted pursuant to this Section 7 are
intended to constitute Incentive Stock Options and shall be subject to the
following special terms and conditions, in addition to the general terms and
conditions specified herein:
(a) Option Price. The Option Price per share of Common Stock shall be
determined by the Committee at the time of grant but shall be not less than
100% of the Fair Market Value of a share on the date of grant.
(b) Option Term. The term of each Incentive Stock Option shall be
determined by the Committee at the time of grant, but no Incentive Stock
Option shall be exercisable more than ten (10) years after the date such
Incentive Stock Option is granted.
(c) Limitations on Exercise. The aggregate Fair Market Value
(determined as of the date the Incentive Stock Option is granted) of the
shares of Common Stock with respect to which Options granted under this
Plan and all other option plans of the Company and any Subsidiary
Corporation become exercisable for the first time by a Participant during
any calendar year shall not exceed $100,000. In the event the foregoing
limitation is violated, the Option shall be treated as an Incentive Stock
Option with respect to shares having a fair market value (determined at the
time of grant) equal to $100,000 and as a Nonqualified Stock Option with
respect to the remaining shares. In making this determination, the rules
specified in Section 422(d) of the Code shall be determinative.
(d) Ten Percent Stockholders. In the case of an Incentive Stock
Option granted to a Ten Percent Stockholder, (i) the Option Price shall not
be less than one hundred ten percent (110%) of the Fair Market Value of a
share of Common Stock on the date of grant of such Incentive Stock Option,
and (ii) such Incentive Stock Option shall not be exercisable more than
five (5) years after the date such Incentive Stock Option is granted
8. Director Nonqualified Stock Options.
(a) Grant Amounts. Each non-employee director shall be granted a
Nonqualified Stock Option to purchase 40,000 shares of Common Stock (the
"Annual Grant Amount") following
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the meeting of the stockholders of the Company at which such individual is
elected or reelected to the office of director (the "Meeting Grant Date")
with each such grant effective as of each Meeting Grant Date. In addition,
notwithstanding the foregoing, (i) options will be granted to directors
elected at the meeting of the stockholders of the Company for 40,000 shares
to be effective as of the Effective Date, (ii) the Option Price per share
shall equal one hundred percent (100%) of the Fair Market Value per share
on the date of grant, and (iii) with respect to any director who is elected
or nominated to become director other than in connection with an annual
meeting of the stockholders of the Company, such director shall be granted
an option, to be effective as of the date of his or her election or
appointment, in an amount equal to the product of the Annual Grant Amount
and a fraction the numerator which is the number of months from the date of
such election or appointment until the expected date of the next annual
meeting and the denominator of which is twelve.
(b) Fractional Shares. No fractional shares shall be issued under
this provision. Any fractional share that would otherwise be granted in
connection with the Annual Grant Amount shall be rounded down to the
nearest whole share, with the remainder being paid in cash.
(c) No Discretion. With respect to the Options granted pursuant to
this Section 8, neither the Board nor the Committee shall have discretion
with respect to the selection of directors to receive Options, the number
of shares subject to such Options, the purchase price thereunder or the
timing of the grant of Options under this Section 8.
9. Stock Appreciation Rights.
(a) Grant and Exercise. Related Rights may be granted either at or
after the time of the grant of an Option. A Related Right or applicable
portion thereof granted with respect to a given Option shall terminate and
no longer be exercisable upon the termination or exercise of the related
Option, except that, unless otherwise provided by the Committee at the time
of grant, a Related Right granted with respect to less than the full number
of shares covered by a related Option shall only be reduced if and to the
extent that the number of shares covered by the exercise or termination of
the related Option exceeds the number of shares not covered by the Right.
A Related Right may be exercised by a Participant, in accordance with
paragraph (b) of this Section 9, by surrendering the applicable portion of
the related Option. Upon such exercise and surrender, the Participant shall
be entitled to receive an amount determined in the manner prescribed in
paragraph (b) of this Section 9. Options which have been so surrendered, in
whole or in part, shall no longer be exercisable to the extent the Related
Rights have been exercised.
(b) Terms and Conditions. Rights shall be subject to such terms and
conditions, not inconsistent with the provisions of this Plan, as shall be
determined from time to time by the Committee and as evidenced by a written
Award Agreement between the Company and the Participant, including the
following:
(i) Related Rights shall be exercisable only at such time or times
and to the extent that the Options to which they relate shall be
exercisable in accordance with the Award Agreement and the provisions of
this Plan.
(ii) Upon the exercise of a Related Right, a Participant shall be
entitled to receive up to, but not more than, an amount in cash or
shares of Common Stock equal in value to the excess of the Fair Market
Value of one (1) share of Common Stock over the Option Price per share
with respect to the related Option, multiplied by the number of shares
in respect
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of which the Related Right shall have been exercised, with the Committee
having the right to determine the form of payment.
(iii) Related Rights shall be transferable only when and to the
extent that the underlying Option would be transferable under paragraph
(h) of Section 6 of this Plan.
(iv) Rights shall be exercisable at such time or times and subject
to such terms and conditions as shall be determined by the Committee at
or after grant.
(v) The term of each Free Standing Right shall be fixed by the
Committee, but no Free Standing Right shall be exercisable more than ten
(10) years after the date such Right is granted.
(vi) Upon the exercise of a Free Standing Right, a Participant
shall be entitled to receive up to, but not more than, an amount in cash
or shares of Common Stock equal in value to the excess of the Fair
Market Value of one share of Common Stock over the price per share
specified in the Award Agreement relating to the Free Standing Right
(which shall not be less than one hundred percent (100%) of the Fair
Market Value of the Common Stock on the date of grant), multiplied by
the number of shares in respect of which the Right is being exercised,
with the Committee having the right to determine the form of payment.
(vii) No Free Standing Right shall be transferable by the
Participant otherwise than by will or by the laws of descent and
distribution, and all such rights shall be exercisable, during the
Participant's lifetime, only by the Participant or his legal guardian or
legal representative.
(viii) In the event of the termination of employment of a recipient
of a Free Standing Right, such right shall be exercisable to the same
extent that an Option would have been exercisable in the event of the
termination of employment of a Participant.
10. Restricted Shares.
(a) Grant. Subject to the provisions of this Plan, the Committee
shall have sole and complete authority to determine the Participants to
whom Restricted Shares shall be granted, the number of Restricted Shares to
be granted to each Participant, the duration of the period during which,
and the conditions under which, the Restricted Shares may be forfeited to
the Company, and the other terms and conditions of such Awards (including
whether or not such Restricted Shares shall qualify as Performance Awards).
(b) Transfer Restrictions. Restricted Shares may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as otherwise
provided in an Award Agreement. Certificates issued in respect of
Restricted Shares shall be registered in the name of the Participant and
deposited by such Participant, together with a stock power endorsed in
blank, with the Company. Upon the lapse of the restrictions applicable to
such Restricted Shares, the Company shall deliver such certificates to the
Participant or the Participant's legal representative.
(c) Dividends and Distributions. Dividends and other distributions
paid on or in respect of Restricted Shares, if any, may be paid directly to
the Participant, or may be reinvested in additional Restricted Shares, as
determined by the Committee in its sole discretion.
(d) Acceleration of Benefits upon Death, Disability or Retirement of
Participant or a Change in Control. If (i) a Participant shall die while
in the employ or service of the Company or an Affiliate Corporation thereof
or within a period of three (3) months thereafter, (ii) a
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Participant's employment or service with the Company shall terminate by
reason of Disability or Retirement, or (iii) there occurs a Change in
Control, then in any such case all Restricted Shares theretofore granted to
such Participant shall become immediately vested and nonforfeitable.
11. Performance Awards.
(a) Grant. Subject to the provisions of this Plan, the Committee
shall have sole and complete authority to determine the Participants to
whom Performance Awards shall be granted, the number of shares of Common
Stock subject to Performance Awards, the duration of the period during
which, and the conditions under which, the Performance Awards may be
forfeited to the Company, and the other terms and conditions of such
Awards. Performance Awards may be (i) denominated in cash or shares of
Common Stock, (ii) valued, as determined by the Committee, in accordance
with the achievement of such performance goals during such performance
periods as the Committee shall establish, and (iii) payable at such time
and in such form as the Committee shall determine.
(b) Terms and Conditions. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall determine the performance
goals to be achieved during any performance period, the length of any
performance period, the amount of any Performance Award and the amount and
kind of any payment or transfer to be made pursuant to any Performance
Award. Unless otherwise provided in an Award Agreement, Performance Awards
may not be sold, assigned, transferred, pledged or otherwise encumbered.
(c) Payment of Performance Awards. Performance Awards may be paid in
a lump sum or in installments following the close of the performance period
or, in accordance with procedures established by the Committee, on a
deferred basis.
12. Provisions Applicable to Covered Officers. The Committee in its
discretion may grant performance-based Options, Rights and/or Restricted Shares
to Covered Officers as Performance Awards which shall be subject to the terms
and provisions of this Section 12.
(a) Nature of Performance Goals. Performance goals shall be limited
to one or more of the following Company, subsidiary, operating unit or
division financial performance measures:
(i) earnings before interest, taxes, depreciation and/or
amortization;
(ii) operating income or profit;
(iii) return on equity, assets, capital, capital employed, or
investment;
(iv) after-tax operating income;
(v) net income;
(vi) earnings or book value per share;
(vii) cash flow(s);
(viii) total sales or revenues or sales or revenues per employee;
(ix) stock price or total shareholder return; or
(x) strategic business objectives, consisting of one or more
objectives based on meeting specified cost targets, business expansion
goals, and goals relating to acquisitions or divestitures or any
combination thereof.
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Each goal may be expressed on an absolute and/or relative basis, may be
based on or otherwise employ comparisons based on internal targets, the
past performance of the Company and/or the past or current performance of
other companies, and in the case of earnings-based measures, may use or
employ comparisons relating to capital, shareholders' equity and/or shares
outstanding, or to assets or net assets.
(b) Maximum Awards. The maximum number of shares in respect of which
Performance Awards may be granted under the Plan to any Covered Officer
shall be 1,500,000 during any three year period, and the maximum amount of
any such Awards which may be settled in cash shall be $750,000 during any
three year period.
(c) Option Price for Options Granted as Performance Awards. The
Option Price per share of Common Stock for any Options granted as
Performance Awards shall not be less than one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the date of grant.
(d) Section 162(m) Compliance. To the extent necessary to comply with
Section 162(m) of the Code, the Committee, not later than 90 days following
the commencement of each performance period (or such other time as may be
required or permitted by Section 162(m) of the Code), shall in writing (i)
select the performance goal or goals applicable to the performance period,
(ii) establish the various targets and bonus amounts which may be earned
for such performance period and (iii) specify the relationship between
performance goals and targets and the amounts to be earned by each Covered
Officer for such performance period. Following the completion of each
performance period, the Committee shall certify in writing whether the
applicable performance targets have been achieved and the amounts, if any,
payable to Covered Officers for such performance period. In determining the
amount earned for a given performance period, subject to any applicable
Award Agreement, the Committee shall have the right to reduce (but not
increase) the amount payable at a given level of performance to take into
account additional factors that the Committee may deem relevant to the
assessment of individual or corporate performance for the performance
period.
13. Effect of Certain Changes.
(a) Certain Changes in Capitalization. If there is any change in the
number of outstanding shares of Common Stock by reason of any stock
dividend, stock split, recapitalization, combination, exchange of shares,
merger, consolidation, liquidation, split-up, spin-off or other similar
change in capitalization, any distribution to shareholders, including a
rights offering, other than cash dividends, or any like change, then the
number of shares of Common Stock available for Awards, the maximum number
of shares of Common Stock that may be subject to Awards, the number of such
shares of Common Stock covered by outstanding Awards, and the price per
share of Options or the applicable market value of Rights, shall be
proportionately adjusted by the Committee to reflect such change or
distribution; provided, however, that any fractional shares resulting from
such adjustment shall be eliminated. This Plan does not give effect to the
proposed amendment of the Company's Charter to effect a reverse stock split
of the Common Stock. If such reverse stock split is approved by the holders
of the majority of the voting shares of the Company, this Plan and any
individual grants of Awards hereunder shall be restated such that the
effect of the reverse stock split is taken into account in accordance with
the preceding.
(b) Change in Par Value. In the event of a change in the Common Stock
as presently constituted, which is limited to a change of all of its
authorized shares with par value into the
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same number of shares with a different par value or without par value, the
shares resulting from any such change shall be deemed to be Common Stock
within the meaning of this Plan.
(c) Determination by Committee. To the extent that the foregoing
adjustments relate to stock or securities of the Company, such adjustments
shall be made by the Committee, whose determination in that respect shall
be final, binding and conclusive, provided that each Incentive Stock Option
granted pursuant to this Plan shall not be adjusted in a manner that causes
such option to fail to continue to qualify as an Incentive Stock Option
within the meaning of Section 422 of Code.
14. Agreement by Participant Regarding Withholding Taxes. If the Committee
shall so require, as a condition of grant, exercise or settlement or otherwise,
each Participant shall agree that:
(a) no later than the date a Participant recognizes taxable income in
connection with an Award granted hereunder in connection with the exercise
or settlement of such Award or otherwise, the Participant will pay to the
Company or make arrangements satisfactory to the Committee regarding
payment of any federal, state or local taxes of any kind required by law to
be withheld upon the exercise or settlement of such Award (any such tax, a
"Withholding Tax"); and
(b) the Company shall, to the extent permitted or required by law,
have the right to deduct any Withholding Tax from any payment of any kind
otherwise due to the Participant.
15. Gross-Up for Excise Tax. An Award Agreement may provide that in the
event that a Participant becomes entitled by reason of a Change in Control to
the accelerated vesting of an Award, if such Participant is subject to excise
tax (the "Excise Tax") under Section 4999 of the Code, the Company shall pay to
such Participant as additional compensation an amount (the "Gross-Up Payment")
which, after payment by such Participant of all taxes (including any federal,
state and local income tax and excise tax upon the payment provided for by this
Section 15) allows Participant to retain an amount of the Gross-Up Payment equal
to the Excise Tax. For purposes of determining whether a Participant will be
subject to the Excise Tax and the amount of such Excise Tax, (i) any other
payments or benefits received or to be received by such Participant in
connection with a Change in Control of the Company or the Participant's
termination of employment (whether pursuant to the terms of the Award Agreement
or any other plan, arrangement or agreement with the Company, any entity whose
actions result in a Change in Control of the Company or any entity affiliated
with the Company or such entity) shall be treated as "parachute payments" within
the meaning of Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) of the Code shall be treated
as subject to the Excise Tax, unless in the opinion of tax counsel selected by
the Company's independent auditors and reasonably acceptable to the Participant
such other payments or benefits (in whole or in part) do not constitute
parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, or
such excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered, within the meaning of Section
280G(b)(4)(B) of the Code, or are otherwise not subject to the Excise Tax, (ii)
the amount of payments or benefits treated as subject to the Excise Tax shall be
equal to the lesser of (A) the total amount of payments or benefits conferred on
such Participant by reason of the Change in Control or (B) the amount of excess
parachute payments within the meaning of Section 280G(b)(1) of the Code (after
applying clause (i), above), and (iii) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the Company's independent
auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the
Code. For purposes of determining the amount of the Gross-Up Payment, the
Participant shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at the highest
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marginal rate of taxation in the state and locality of the Participant's
residence on the date on which the Excise Tax is incurred, net of the maximum
reduction in federal income taxes which could be obtained from deduction of such
state and local taxes. In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder, the
Participant shall repay to the Company, at the time that the amount of such
reduction in Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income tax
deduction) plus interest on the amount of such repayment at the rate provided in
Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is
determined to exceed the amount taken into account hereunder (including by
reason of any payment the existence or amount of which cannot be determined at
the time of the Gross-Up Payment), the Company shall make an additional Gross-Up
Payment in respect of such excess (plus any interest, penalties or additions
payable by the Participant with respect to such excess) at the time that the
amount of such excess finally is determined. The Participant and the Company
each shall reasonably cooperate with the other in connection with any
administrative or judicial proceedings concerning the existence or amount of
liability for Excise Tax.
16. Termination and Amendment. Unless terminated by action of the Board of
Directors or the Committee, no Awards may be granted under this Plan after
December 14, 2010. This Plan may be amended or terminated at any time by the
Committee, except that no amendment may be made without shareholder approval if
the Committee determines that such approval is necessary to comply with any tax
or regulatory requirement, including any approval requirement which is a
prerequisite for exemptive relief from Section 16 of the Exchange Act, for which
or with which the Committee determines that it is desirable to qualify or
comply. The Committee may amend the terms of any Award Agreement and any Award
granted, retroactively or prospectively, but no amendment may adversely affect
any vested Award without the holder's consent.
17. Effectiveness; Approval of Stockholders. This Plan shall take effect
as of December 14, 2000 (the "Effective Date"), subject to the approval of the
holders of the majority of the voting shares of the Company at the Company's
2000 Annual Meeting of Stockholders.
18. Effect of Headings. The section and subsection headings contained
herein are for convenience only and shall not affect the construction hereof.
19. Governing Law. The validity, construction and effect of the Plan shall
be determined in accordance with the laws of the State of Tennessee.
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PROXY CORRECTIONS CORPORATION OF AMERICA ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) William F. Andrews and John D. Ferguson,
and each of them, with full power of substitution and revocation, as proxies of
the undersigned, and hereby authorize(s) them to represent and to vote, as
designated, all of the voting common stock of Corrections Corporation of
America, a Maryland corporation (the "Company"), held by the undersigned on
Thursday, November 9, 2000, at the Annual Meeting of Stockholders of the Company
to be held on Wednesday, December 13, 2000, at 10:00 a.m., local time, at the
Loews Vanderbilt Plaza Hotel, 2100 West End Avenue, Nashville, Tennessee, and
any adjournments or postponements thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE
NOMINEES FOR DIRECTOR LISTED BELOW AND "FOR" EACH OF THE FOLLOWING PROPOSALS:
1. Election of Directors.
[ ] FOR ALL NOMINEES NAMED [ ] WITHHOLD AUTHORITY TO VOTE FOR
ALL NOMINEES
NOMINEES: WILLIAM F. ANDREWS, JOHN D. FERGUSON, JEAN-PIERRE CUNY, JOSEPH V.
RUSSELL, LUCIUS E. BURCH, III, JOHN D. CORRENTI, C. MICHAEL JACOBI, JOHN R.
PRANN, JR. AND HENRI L. WEDELL.
[ ]
------------------------------------------------------------------------------
FOR ALL NOMINEES EXCEPT AS LISTED ABOVE
2. Approval of an amendment to the Company's charter to effect a reverse stock
split of the Company's common stock at a ratio to be determined in the
discretion of the board of directors, provided that such ratio shall not be
less than one-for-ten and shall not exceed one-for-twenty, and to effect a
related reduction of the stated capital of the Company.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of the Amendment to the 1997 Employee Share Incentive Plan and
Adoption of the 2000 Equity Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Ratification of the Action of the Board of Directors in Selecting the Firm of
Arthur Andersen LLP to Be the Independent Auditors of the Company for the
Fiscal Year Ending December 31, 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In Their Discretion on Any Other Business as May Come Before the Meeting or
Any Adjournments and Postponements Thereof.
Mark here if you plan to attend the meeting [ ] Mark here for address change
and note below [ ]
PLEASE FULLY COMPLETE, DATE, PROPERLY SIGN, AND RETURN THIS PROXY
PROMPTLY. This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned stockholder(s). If no direction is made, this
proxy will be voted FOR the election of each nominee and FOR each of the
proposals.
Signature:
------------------------------
Date:
------------------------------
Signature:
------------------------------
Date:
------------------------------
NOTE: PLEASE DATE AND SIGN THE
PROXY EXACTLY AS YOUR NAME
APPEARS ON YOUR STOCK
CERTIFICATE(S) OR ON THIS
PROXY. EACH JOINT OWNER MUST
SIGN. WHEN SIGNING AS
ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE PROVIDE FULL
TITLE AS SUCH. IF A
CORPORATION, PLEASE HAVE THE
PROXY EXECUTED BY AN
AUTHORIZED OFFICER AND USE THE
FULL CORPORATE NAME OF THE
STOCKHOLDER. IF A PARTNERSHIP
OR A LIMITED LIABILITY
COMPANY, PLEASE SIGN IN SUCH
ORGANIZATION'S NAME BY AN
AUTHORIZED PERSON. THE PROXY
SHALL BE DEEMED A GRANT OF
AUTHORITY TO VOTE.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY
<PAGE> 86
CCA PRISON REALTY TRUST
1997 EMPLOYEE SHARE INCENTIVE PLAN
SECTION 1. Purpose; Definitions.
The purpose of the CCA Prison Realty Trust 1997 Employee Share
Incentive Plan (the "Plan") is to enable CCA Prison Realty Trust (the "Company")
to attract, retain and reward key employees of the Company and the Chairman of
the Board of the Company's Board of Trustees (the "Board"), and strengthen the
mutuality of interests between such individuals and the Company's shareholders,
by offering such individuals performance-based share incentives and/or other
equity interests or equity-based incentives in the Company, as well as
performance-based incentives payable in cash.
For purposes of the Plan, the following terms shall be defined as set
forth below:
a. "Affiliate" means any entity other than the Company and its
Subsidiaries that is designated by the Board as a participating employer under
the Plan, provided that the Company directly or indirectly owns at least 20% of
the combined voting power of all classes of stock of such entity or at least
20% of the ownership interests in such entity.
b. "Board" means the Board of Trustees of the Company.
c. "Book Value" means, as of any given date, on a per share basis
(i) the shareholders' equity in the Company as of the end of the immediately
preceding fiscal year as reflected in the Company's consolidated balance sheet,
subject to such adjustments as the Committee shall specify at or after grant,
divided by (ii) the number of then outstanding Shares as of such year-end date
(as adjusted by the Committee for subsequent events).
d. "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.
e. "Committee" means the Committee referred to in Section 2 of
the Plan. If at any time no Committee shall be in office, then the functions
of the Committee specified in the Plan shall be exercised by the Board.
f. "Company" means CCA Prison Realty Trust, a Maryland real
estate investment trust, or any successor trust or corporation.
g. "Deferral Period" means the period described in Section 8(a)
below.
h. "Deferred Shares" means an award made pursuant to Section 8
below of the right to receive Shares at the end of a specified Deferral Period.
<PAGE> 87
i. "Disability" means disability as determined under procedures
established by the Committee for purposes of this Plan.
j. "Early Retirement" means retirement, with the express consent
for purposes of this Plan of the Company at or before the time of such
retirement, from active employment with the Company and any Subsidiary or
Affiliate on or after attainment of age sixty-two (62) but before attainment of
age sixty-five (65).
k. "Fair Market Value" means, as of any given date, unless
otherwise determined by the Committee in good faith, the reported closing price
of the Shares on the New York Stock Exchange or, if no such sale of Shares is
reported on the New York Stock Exchange on such date, the fair market value of
the Shares as determined by the Committee in good faith.
l. "Immediate Family Member" means a person described in Section
5(e) below.
m. "Incentive Option" means any Share Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422 of
the Code.
n. "Non-Qualified Option" means any Share Option that is not an
Incentive Option.
o. "Normal Retirement" means retirement from active employment
with the Company and any Subsidiary or Affiliate on or after age 65.
p. "Other Share-Based Award" means an award under Section 10
below that is valued in whole or in part by reference to, or is otherwise based
on, Shares.
q. "Plan" means this CCA Prison Realty Trust 1997 Employee Share
Incentive Plan, as hereinafter amended from time to time.
r. "Restricted Shares" means an award of Shares that is subject
to restrictions under Section 7 below.
s. "Restriction Period" means the period described in Section
7(c) below.
t. "Retirement" means Normal or Early Retirement.
u. "Shares" means the Common Shares, $.01 par value per share, of
the Company.
v. "Share Appreciation Right" means the right pursuant to an
award granted under Section 6 below to receive upon exercise an amount equal to
the excess of the Fair Market Value of one Share over the price per share
specified in the award agreement multiplied by the number of Shares in respect
of which a Share Appreciation Right has been exercised.
2
<PAGE> 88
w. "Share Option" or "Option" means any option to purchase Shares
(including Restricted Shares and Deferred Shares, if the Committee so
determines) granted pursuant to Section 5 below.
x. "Share Purchase Right" means the right to purchase Shares
pursuant to Section 9.
y. "Subsidiary" means any corporation (or other entity) in an
unbroken chain of corporations and other entities beginning with the Company if
each of the corporations and other entities (other than the last corporation or
other entity in the unbroken chain) owns equity interests possessing more than
50% of the total combined voting power of all classes of equity interests in
one of the other corporations or entities in the chain.
In addition, the terms "Change in Control", "Potential Change in
Control" and "Change in Control Price" shall have meanings set forth,
respectively, in Sections 11(b), (c) and (d) below.
SECTION 2. Administration.
The Plan shall be administered by the Compensation Committee of the
Board. The functions of the Committee specified in the Plan shall be exercised
by the Board, if and to the extent that no Committee exists which has the
authority to so administer the Plan.
The Committee shall have full authority to grant, pursuant to the
terms of the Plan, to officers and other key employees eligible under Section
4: (i) Share Options, (ii) Share Appreciation Rights, (iii) Restricted Shares,
(iv) Deferred Shares, (v) Share Purchase Rights and/or (vi) Other Share-Based
Awards.
In particular, the Committee shall have the authority:
(i) to select the officers and other key employees of
the Company and its Subsidiaries and Affiliates to whom Share Options,
Share Appreciation Rights, Restricted Shares, Deferred Shares, Share
Purchase Rights and/or Other Share-Based Awards may from time to time
be granted hereunder;
(ii) to determine whether and to what extent Incentive
Options, Non-Qualified Options, Share Appreciation Rights, Restricted
Shares, Deferred Shares, Share Purchase Rights and/or Other
Share-Based Awards, or any combination thereof, are to be granted
hereunder to one or more eligible employees;
(iii) to determine the number of shares to be covered by
each such award granted hereunder;
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(iv) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted
hereunder (including, but not limited to, the share price and any
restriction or limitation, or any vesting acceleration or waiver of
forfeiture restrictions regarding any Share Option or other award
and/or the Shares relating thereto, based in each case on such factors
as the Committee shall determine, in its sole discretion);
(v) to determine whether and under what circumstances a
Share Option may be settled in cash, Restricted Shares and/or Deferred
Shares under Section 5(k) or (l), as applicable, instead of Shares
that are neither Restricted Shares nor Deferred Shares;
(vi) to determine whether, to what extent and under what
circumstances Option grants and/or other awards under the Plan and/or
other cash awards made by the Company are to be made, and operate, on
a tandem basis vis-a-vis other awards under the Plan and/or cash
awards made outside of the Plan, or on an additive basis;
(vii) to determine whether, to what extent and under what
circumstances Shares and other amounts payable with respect to an
award under this Plan shall be deferred either automatically or at the
election of the participant (including providing for and determining
the amount (if any) of any deemed earnings on any deferred amount
during any deferral period); and
(viii) to determine the terms and restrictions applicable
to Share Purchase Rights and the Shares purchased by exercising such
rights.
The Committee shall have the authority to adopt, alter and repeal such
rules, guidelines and practices governing the Plan as it shall, from time to
time, deem advisable; to interpret the terms and provisions of the Plan and any
award issued under the Plan (and any agreements relating thereto); and to
otherwise supervise the administration of the Plan.
All decisions made by the Committee pursuant to the provisions of the
Plan shall be made in the Committee's sole discretion and shall be final and
binding on all persons, including the Company and Plan participants.
SECTION 3. Shares Subject to Plan.
The total number of Shares reserved and available for distribution
under the Plan shall be 1,300,000 shares. Such Shares may consist, in whole or
in part, of authorized and unissued Shares or treasury Shares.
Subject to Section 6(b)(iv) below, if any Shares that have been
optioned cease to be subject to a Share Option, or if any such Shares that are
subject to any Restricted Shares or Deferred Shares award, Share Purchase Right
or Other Share-Based Award granted hereunder are forfeited or any such award
otherwise terminates without a payment being made to the participant in the
form of
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Shares, such shares shall again be available for distribution in connection
with future awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, Share dividend, Share split or other change in corporate
structure affecting the Shares, an adjustment shall be made in the aggregate
number of shares reserved for issuance under the Plan, in the number and option
price of Shares subject to outstanding Options granted under the Plan, in the
number and purchase price of Shares subject to outstanding Share Purchase
Rights under the Plan, and in the number of Shares subject to other outstanding
awards granted under the Plan as may be determined to be appropriate by the
Committee, in its sole discretion, provided that the number of shares subject
to any award shall always be a whole number. Such adjusted option price shall
also be used to determine the amount payable by the Company upon the exercise
of any Share Appreciation Right associated with any Share Option.
SECTION 4. Eligibility.
The Chairman of the Board, all Officers and other key employees of the
Company and its Subsidiaries and Affiliates (but excluding members of the
Committee) who are responsible for or contribute to the management, growth
and/or profitability of the business of the Company and/or its Subsidiaries and
Affiliates are eligible to be granted awards under the Plan; provided, however,
that the Chairman of the Board shall not be eligible to receive Incentive
Options hereunder. Except as provided in the preceding sentence, any reference
herein to "Employees" and their employment by the Company shall be deemed to
include the Chairman of the Board and his service as a trustee of the Company,
unless otherwise determined by the Committee. Without limiting the generality of
the foregoing, the Committee shall have the full authority to interpret the
provisions of the Plan as they may apply (or may not apply) to the Chairman of
the Board, and any determination by the Committee in this regard shall be final
and conclusive.
SECTION 5. Share Options.
Share Options may be granted alone, in addition to or in tandem with
other awards granted under the Plan and/or cash awards made outside of the
Plan. Any Share Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
Share Options granted under the Plan may be of two types: (i)
Incentive Options and (ii) Non-Qualified Options.
The Committee shall have the authority to grant to any optionee
Incentive Options, Non-Qualified Options, or both types of Share Options (in
each case with or without Share Appreciation Rights).
Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) Option Price. The option price per Share purchasable under a
Share Option shall be determined by the Committee at the time of grant but
shall be not less than 100% of the Fair Market
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Value of the Shares at grant, in the case of Incentive Options, and not less
than 50% of the Fair Market Value of the Shares at grant, in the case of
Non-Qualified Options.
(b) Option Term. The term of each Share Option shall be fixed by
the Committee, but no Share Option shall be exercisable more than ten years
after the date the Option is granted.
(c) Exercisability. Share Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined
by the Committee at or after grant; provided, however, that, except as provided
in Section 5(f) and (g) and Section 11, unless otherwise determined by the
Committee at or after grant, no Share Option shall be exercisable prior to the
later of (i) the first anniversary date of the granting of the Option or (ii)
the second anniversary date of employment of the employee by the Company. If
the Committee provides, in its sole discretion, that any Share Option is
exercisable only in installments, the Committee may waive such installment
exercise provisions at any time at or after grant in whole or in part, based on
such factors as the Committee shall determine, in its sole discretion.
(d) Method of Exercise. Subject to whatever installment exercise
provisions apply under Section 5(c), Share Options may be exercised in whole or
in part at any time during the option period, by giving written notice of
exercise to the Company specifying the number of shares to be purchased.
Such notice shall be accompanied by payment in full of the purchase
price, either by check, note or such other instrument as the Committee may
accept. As determined by the Committee, in its sole discretion, at or after
grant, payment in full or in part may also be made in the form of a Share
Option or unrestricted Shares already owned by the optionee or, in the case of
the exercise of a Non-Qualified Option, Restricted Shares or Deferred Shares
subject to an award hereunder (based, in each case, on the Fair Market Value of
the Share Option or the Shares on the date the option is exercised, as
determined by the Committee).
If payment of the option exercise price of a Non-Qualified Option is
made in whole or in part in the form of Restricted Shares or Deferred Shares,
such Restricted Shares or Deferred Shares (and any replacement shares relating
thereto) shall remain (or be) restricted or deferred, as the case may be, in
accordance with the original terms of the Restricted Shares award or Deferred
Shares award in question, and any additional Shares received upon the exercise
shall be subject to the same forfeiture restrictions or deferral limitations,
unless otherwise determined by the Committee, in its sole discretion, at or
after grant.
No Shares shall be issued until full payment therefor has been made.
An optionee shall generally have the rights to dividends or other rights of a
shareholder with respect to shares subject to the Option when the optionee has
given written notice of exercise, has paid in full for such shares, and, if
requested, has given the representation described in Section 14(a).
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(e) Transferability of Options. Incentive Options shall be
transferable by the optionee only by will or by the laws of descent and shall
be exercisable, during the optionee's lifetime, only by the optionee.
Non-Qualified Options shall be transferable by the optionee by will or by the
laws of descent or to (i) the spouse, children or grandchildren of the optionee
("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit
of such Immediate Family Members, (iii) a partnership in which such Immediate
Family Members are the only partners, or (iv) one or more entities in which the
optionee has a 10% or greater equity interest, provided that (y) the share
option agreement pursuant to which such Non-Qualified Options are granted must
be approved by the Committee, and (z) subsequent transfers of transferred
Non-Qualified Options shall be prohibited except those in accordance with this
subparagraph (e). Following transfer, any such Non-Qualified Options shall
continue to be subject to the same terms and conditions as were applicable
immediately prior to transfer, provided that for purposes of this Plan or the
option agreement executed pursuant hereto, the term "optionee" shall be deemed
to refer to the transferee.
(f) Termination by Death. Subject to Section 5(j), if an
optionee's employment by the Company and any Subsidiary or Affiliate terminates
by reason of death, any Share Option held by such optionee may thereafter be
exercised, to the extent such option was exercisable at the time of death or on
such accelerated basis as the Committee may determine at or after grant (or as
may be determined in accordance with procedures established by the Committee),
by the legal representative of the estate or by the legatee of the optionee
under the will of the optionee, for a period of one year (or such other period
as the Committee may specify at grant) from the date of such death or until the
expiration of the stated term of such Share Option, whichever period is the
shorter.
(g) Termination by Reason of Disability. Subject to Section 5(j),
if an optionee's employment by the Company and any Subsidiary or Affiliate
terminates by reason of Disability, any Share Option held by such optionee may
thereafter be exercised by the optionee, to the extent it was exercisable at
the time of termination or on such accelerated basis as the Committee may
determine at or after grant (or as may be determined in accordance with
procedures established by the Committee), for a period of three years (or such
other period as the Committee may specify at grant) from the date of such
termination of employment or until the expiration of the stated term of such
Share Option, whichever period is the shorter; provided, however, that, if the
optionee dies within such three-year period (or such other period as the
Committee shall specify at grant), any unexercised Share Option held by such
optionee shall thereafter be exercisable to the extent to which it was
exercisable at the time of death for a period of one year from the date of such
death or until the expiration of the stated term of such Share Option,
whichever period is the shorter. In the event of termination of employment by
reason of Disability, if an Incentive Option is exercised after the expiration
of the exercise periods that apply for purposes of Section 422 of the Code,
such Share Option will thereafter be treated as a Non-Qualified Option.
(h) Termination by Reason of Retirement. Subject to Section 5(j),
if an optionee's employment by the Company and any Subsidiary or Affiliate
terminates by reason of Normal or Early Retirement, any Share Option held by
such optionee may thereafter be exercised by the optionee, to the extent it was
exercisable at the time of such Retirement or on such accelerated basis
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as the Committee may determine at or after grant (or as may be determined in
accordance with procedures established by the Committee), for a period of three
years (or such other period as Committee may specify at grant) from the date of
such termination of employment or the expiration of the stated term of such
Share Option, whichever period is the shorter; provided, however, that, if the
optionee dies within such three-year period (or such other period as the
Committee may specify at grant), any unexercised Share Option held by such
optionee shall thereafter be exercisable, to the extent to which it was
exercisable at the time of death, for a period of one year from the date of
such death or until the expiration of the stated term of such Share Option,
whichever period is the shorter. In the event of termination of employment by
reason of Retirement, if an Incentive Option is exercised after the expiration
of the exercise periods that apply for purposes of Section 422 of the Code, the
option will thereafter be treated as a Non-Qualified Option.
(i) Other Termination. Unless otherwise determined by the
Committee (or pursuant to procedures established by the Committee) at or after
grant, if an optionee's employment by the Company and any Subsidiary or
Affiliate terminates for any reason other than death, Disability or Normal or
Early Retirement, the Share Option shall thereupon terminate.
(j) Incentive Options. Anything in the Plan to the contrary
notwithstanding, no term of this Plan relating to Incentive Options shall be
interpreted, amended or altered, nor shall any discretion or authority granted
under the Plan be so exercised, so as to disqualify the Plan under Section 422
of the Code, or, without the consent of the optionee(s) affected, to disqualify
any Incentive Option under such Section 422.
If an Incentive Option granted under this Plan is first exercisable in
any calendar year to obtain Shares having a fair market value (determined at
the time of grant) in excess of $100,000, the option is treated as an Incentive
Option for Shares having a fair market value (determined at the time of grant)
equal to $100,000 and as a Non-Qualified Option for the remaining Shares. In
making this determination, the rules specified in Section 422(d) of the Code
shall be determinative, including the aggregate of all Incentive Options which
are first exercisable in that calendar year under any plan of the Company.
To the extent permitted under Section 422 of the Code or the
applicable regulations thereunder or any applicable Internal Revenue Service
pronouncement:
(i) if (x) a participant's employment is terminated by
reason of death, Disability or Retirement and (y) the portion of any
Incentive Option that is otherwise exercisable during the
post-termination period specified under Section 5(f), (g) or (h),
applied without regard to the $100,000 limitation contained in Section
422(b)(7) of the Code, is greater than the portion of such option that
is immediately exercisable as an "Incentive Stock Option" during such
post-termination period under Section 422, such excess shall be
treated as a Non-Qualified Option; and
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(ii) if the exercise of an Incentive Option is
accelerated by reason of a Change in Control, any portion of such
option that is not exercisable as an Incentive Option by reason of the
$100,000 limitation contained in Section 422(b)(7) of the Code shall
be treated as a Non-Qualified Option.
An employee who owns Shares representing more than ten percent (10%)
of the total combined voting power of all classes of shares of the Company
shall not be eligible to receive an Incentive Option.
(k) Buyout Provisions. The Committee may at any time offer to buy
out for a payment in cash, Shares, Deferred Shares or Restricted Shares an
option previously granted, based on such terms and conditions as the Committee
shall establish and communicate to the optionee at the time that such offer is
made.
(l) Settlement Provisions. If the option agreement so provides at
grant or is amended after grant and prior to exercise to so provide (with the
optionee's consent), the Committee may require that all or part of the shares
to be issued with respect to the spread value of an exercised Option take the
form of Deferred or Restricted Shares, which shall be valued on the date of
exercise on the basis of the Fair Market Value (as determined by the Committee)
of such Deferred or Restricted Shares determined without regard to the deferral
limitations and/or forfeiture restrictions involved.
SECTION 6. Share Appreciation Rights.
(a) Grant and Exercise. Share Appreciation Rights may be granted
either alone, in addition to or in conjunction with other awards granted under
the Plan.
A Share Appreciation Right may be exercised by a right holder, subject
to Section 6(b), in accordance with the procedures established by the Committee
for such purpose. Upon such exercise, the right holder shall be entitled to
receive an amount determined in the manner prescribed in Section 6(b).
(b) Terms and Conditions. Share Appreciation Rights shall be
subject to such terms and conditions, not inconsistent with the provisions of
the Plan, as shall be determined from time to time by the Committee, including
the following:
(i) Share Appreciation Rights shall be exercisable at
such time or times and subject to such terms and conditions as shall
be determined by the Committee at or after grant; provided, however,
that, except as provided in Section 6(b)(iv) and (v) and Section 11,
unless otherwise determined by the Committee at or after grant, no
Share Appreciation Right shall be exercisable prior to the later of
(i) the first anniversary date of the granting of the Share
Appreciation Right or (ii) the second anniversary date of employment
of the employee by the Company. The exercise of Share Appreciation
Rights held by right holders who are
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subject to Section 16(b) of the Securities Exchange Act of 1934 (the
"Exchange Act") shall comply with Rule 16b-3 thereunder, to the extent
applicable.
(ii) Upon the exercise of a Share Appreciation Right, a
right holder shall be entitled to receive an amount in cash (or, if
expressly provided in the award agreement, an amount in cash and/or
Shares) equal in value to the excess of the Fair Market Value of one
Share over the price per share specified in the award agreement
multiplied by the number of Shares in respect of which the Share
Appreciation Right shall have been exercised. The amount of cash and,
if applicable, the number of Shares to be paid shall be calculated on
the basis of the Fair Market Value of the Shares on the date of
exercise.
(iii) Share Appreciation Rights shall be transferable by
the right holder by will or by the laws of descent or to (A) the
Immediate Family Members of the right holder, (B) a trust or trusts
for the exclusive benefit of such Immediate Family Members, (C) a
partnership in which such Immediate Family Members are the only
partners, or (D) one or more entities in which the right holder has a
10% or greater equity interest, provided that (y) the award agreement
pursuant to which such Share Appreciation Rights are granted must be
approved by the Committee, and (z) subsequent transfers of transferred
Share Appreciation Rights shall be prohibited except those in
accordance with this subparagraph (iii). Following transfer, any such
Share Appreciation Rights shall continue to be subject to the same
terms and conditions as were applicable immediately prior to transfer,
provided that for purposes of this Plan or the award agreement
executed pursuant hereto, the term "right holder" shall be deemed to
refer to the transferee.
(iv) Except as otherwise provided in the award agreement,
if a right holder's employment by the Company and any Subsidiary or
Affiliate terminates by reason of death, any Share Appreciation Right
held by such right holder may thereafter be exercised, to the extent
such right was exercisable at the time of death or on such accelerated
basis as the Committee may determine at or after grant (or as may be
determined in accordance with procedures established by the
Committee), by the legal representative of the estate or by the
legatee of the right holder under the will of the right holder, for a
period of one year (or such other period as the Committee may specify
at grant) from the date of such death or until the expiration of the
stated term of such Share Appreciation Right, whichever period is the
shorter.
(v) Except as otherwise provided in the award agreement,
if a right holder's employment by the Company and any Subsidiary or
Affiliate terminates by reason of Disability, any Share Appreciation
Right held by such right holder may thereafter be exercised by the
right holder, to the extent it was exercisable at the time of
termination or on such accelerated basis as the Committee may
determine at or after grant (or as may be determined in accordance
with procedures established by the Committee), for a period of three
years (or such other period as the Committee may specify at grant)
from the date of such termination of employment or until the
expiration of the stated term of such Share
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Appreciation Right, whichever period is the shorter; provided,
however, that, if the right holder dies within such three-year period
(or such other period as the Committee shall specify at grant), any
unexercised Share Appreciation Right held by such right holder shall
thereafter be exercisable to the extent to which it was exercisable at
the time of death for a period of one year from the date of such death
or until the expiration of the stated term of such Share Appreciation
Right, whichever period is the shorter.
(vi) Except as otherwise provided in the award agreement,
if a right holder's employment by the Company and any Subsidiary or
Affiliate terminates by reason of Normal or Early Retirement, any
Share Appreciation Right held by such right holder may thereafter be
exercised by the right holder, to the extent it was exercisable at the
time of such Retirement or on such accelerated basis as the Committee
may determine at or after grant (or as may be determined in accordance
with procedures established by the Committee), for a period of three
years (or such other period as Committee may specify at grant) from
the date of such termination of employment or the expiration of the
stated term of such Share Appreciation Right, whichever period is the
shorter; provided, however, that, if the right holder dies within such
three-year period (or such other period as the Committee may specify
at grant), any unexercised Share Appreciation Right held by such right
holder shall thereafter be exercisable, to the extent to which it was
exercisable at the time of death, for a period of one year from the
date of such death or until the expiration of the stated term of such
Share Appreciation Right, whichever period is the shorter.
(vii) In its sole discretion, the Committee may grant
"Limited" Share Appreciation Rights under this Section 6, i.e., Share
Appreciation Rights that become exercisable only in the event of a
Change in Control and/or a Potential Change in Control, subject to
such terms and conditions as the Committee may specify at grant. Such
Limited Share Appreciation Rights shall be settled solely in cash.
(viii) The Committee, in its sole discretion, may also
provide that, in the event of a Change in Control and/or a Potential
Change in Control, the amount to be paid upon the exercise of a Share
Appreciation Right or Limited Share Appreciation Right shall be based
on the Change in Control Price, subject to such terms and conditions
as the Committee may specify at grant.
SECTION 7. Restricted Shares.
(a) Administration. Restricted Shares may be issued either alone,
in addition to or in tandem with other awards granted under the Plan and/or cash
awards made outside the Plan. The Committee shall determine the eligible
persons to whom, and the time or times at which, grants of Restricted Shares
will be made, the number of shares to be awarded, the price (if any) to be paid
by the recipient of Restricted Shares (subject to Section 7(b)), the time or
times within which such awards may be subject to forfeiture, and all other terms
and conditions of the awards.
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The Committee may condition the grant of Restricted Shares upon the
attainment of specified performance goals or such other factors as the
Committee may determine, in its sole discretion.
The provisions of Restricted Shares awards need not be the same with
respect to each recipient.
(b) Awards and Certificates. The prospective recipient of a
Restricted Shares award shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the award
and has delivered a fully executed copy thereof to the Company, and has
otherwise complied with the applicable terms and conditions of such award.
(i) The purchase price for Restricted Shares shall be
equal to or less than their par value and may be zero.
(ii) Awards of Restricted Shares must be accepted within
a period of 60 days (or such shorter period as the Committee may
specify at grant) after the award date, by executing a Restricted
Shares Award Agreement and paying whatever price (if any) is required
under Section 7(b)(i).
(iii) Each participant receiving a Restricted Shares award
shall be issued a Share certificate in respect of such shares of
Restricted Shares. Such certificate shall be registered in the name
of such participant, and shall bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such award.
(iv) The Committee shall require that the share
certificates evidencing such shares be held in custody by the Company
until the restrictions thereon shall have lapsed, and that, as a
condition of any Restricted Shares award, the participant shall have
delivered a share power, endorsed in blank, relating to the Shares
covered by such award.
(c) Restrictions and Conditions. The Restricted Shares awarded
pursuant to this Section 7 shall be subject to the following restrictions and
conditions:
(i) Subject to the provisions of this Plan and the award
agreement, during a period set by the Committee commencing with the
date of such award (the "Restriction Period"), the participant shall
not be permitted to sell, transfer, pledge or assign shares of
Restricted Shares awarded under the Plan. Within these limits, the
Committee, in its sole discretion, may provide for the lapse of such
restrictions in installments and may accelerate or waive such
restrictions in whole or in part, based on service, performance and/or
such other factors or criteria as the Committee may determine, in its
sole discretion.
(ii) Except as provided in this paragraph (ii) and
Section 7(c)(i), the participant shall have, with respect to the
shares of Restricted Shares, all of the rights of a shareholder of the
Company, including the right to vote the shares, and the right to
receive any cash
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dividends. The Committee, in its sole discretion, as determined at
the time of award, may permit or require the payment of cash dividends
to be deferred and, if the Committee so determines, reinvested,
subject to Section 14(e), in additional Restricted Shares to the
extent shares are available under Section 3, or otherwise reinvested.
Pursuant to Section 3 above, Share dividends issued with respect to
Restricted Shares shall be treated as additional Restricted Shares that
are subject to the same restrictions and other terms and conditions
that apply to the shares with respect to which such dividends are
issued.
(iii) Subject to the applicable provisions of the award
agreement and this Section 7, upon termination of a participant's
employment with the Company and any Subsidiary or Affiliate for any
reason during the Restriction Period, all shares still subject to
restriction will vest, or be forfeited, in accordance with the terms
and conditions established by the Committee at or after grant.
(iv) If and when the Restriction Period expires without
a prior forfeiture of the Restricted Shares, certificates for an
appropriate number of unrestricted shares shall be delivered to the
participant promptly.
(d) Minimum Value Provisions. In order to better ensure that
award payments actually reflect the performance of the Company and service of
the participant, the Committee may provide, in its sole discretion, for a
tandem performance-based or other award designed to guarantee a minimum value,
payable in cash or Shares to the recipient of a Restricted Shares award,
subject to such performance, future service, deferral and other terms and
conditions as may be specified by the Committee.
SECTION 8. Deferred Shares.
(a) Administration. Deferred Shares may be awarded either alone,
in addition to or in tandem with other awards granted under the Plan and/or
cash awards made outside of the Plan. The Committee shall determine the
eligible persons to whom and the time or times at which Deferred Shares shall
be awarded, the number of Deferred Shares to be awarded to any person, the
duration of the period (the "Deferral Period") during which, and the conditions
under which, receipt of the Shares will be deferred, and the other terms and
conditions of the award in addition to those set forth in Section 8(b).
The Committee may condition the grant of Deferred Shares upon the
attainment of specified performance goals or such other factors or criteria as
the Committee shall determine, in its sole discretion.
The provisions of Deferred Shares awards need not be the same with
respect to each recipient.
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(b) Terms and Conditions. The Deferred Shares awarded pursuant to
this Section 8 shall be subject to the following terms and conditions:
(i) Subject to the provisions of this Plan and the award
agreement referred to in Section 8(b)(vi) below, Deferred Shares
awards may not be sold, assigned, transferred, pledged or otherwise
encumbered during the Deferral Period. At the expiration of the
Deferral Period (or the Elective Deferral Period referred to in
Section 8(b)(v), where applicable), share certificates shall be
delivered to the participant, or his legal representative, in a number
equal to the shares covered by the Deferred Shares award.
(ii) Unless otherwise determined by the Committee at
grant, amounts equal to any dividends declared during the Deferral
Period with respect to the number of shares covered by a Deferred
Shares award will be paid to the participant currently, or deferred
and deemed to be reinvested in additional Deferred Shares, or
otherwise reinvested, all as determined at or after the time of the
award by the Committee, in its sole discretion.
(iii) Subject to the provisions of the award agreement and
this Section 8, upon termination of a participant's employment with
the Company and any Subsidiary or Affiliate for any reason during the
Deferral Period for a given award, the Deferred Shares in question
will vest, or be forfeited, in accordance with the terms and
conditions established by the Committee at or after grant.
(iv) Based on service, performance and/or such other
factors or criteria as the Committee may determine, the Committee may,
at or after grant, accelerate the vesting of all or any part of any
Deferred Shares award and/or waive the deferral limitations for all or
any part of such award.
(v) A participant may elect to further defer receipt of
an award (or an installment of an award) for a specified period or
until a specified event (the "Elective Deferral Period"), subject in
each case to the Committee's approval and to such terms as are
determined by the Committee, all in its sole discretion. Subject to
any exceptions adopted by the Committee, such election must generally
be made at least 12 months prior to completion of the Deferral Period
for such Deferred Shares award (or such installment).
(vi) Each award shall be confirmed by, and subject to the
terms of, a Deferred Shares agreement executed by the Company and the
participant.
(c) Minimum Value Provisions. In order to better ensure that
award payments actually reflect the performance of the Company and the service
of the participant, the Committee may provide, in its sole discretion, for a
tandem performance-based or other award designed to guarantee a minimum value,
payable in cash or Shares to the recipient of a Deferred Shares award, subject
to such performance, future service, deferral and other terms and conditions as
may be specified by the Committee.
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SECTION 9. Share Purchase Rights.
(a) Awards and Administration. Subject to Section 3 above, the
Committee may grant eligible participants Share Purchase Rights which shall
enable such participants to purchase Shares (including Deferred Shares and
Restricted Shares):
(i) at its Fair Market Value on the date of grant;
(ii) at 50% of such Fair Market Value on such date;
(iii) at an amount equal to Book Value on such date; or
(iv) at an amount equal to the par value of such Shares on
such date.
The Committee shall also impose such deferral, forfeiture and/or other
terms and conditions as it shall determine, in its sole discretion, on such
Share Purchase Rights or the exercise thereof.
The terms of Share Purchase Rights awards need not be the same with
respect to each participant.
Each Share Purchase Right award shall be confirmed by, and be subject
to the terms of, a Share Purchase Rights Agreement.
(b) Exercisability. Share Purchase Rights shall generally be
exercisable for such period after grant as is determined by the Committee not
to exceed 30 days. However, the Committee may provide, in its sole discretion,
that the Share Purchase Rights of persons potentially subject to Section 16(b)
of the Securities Exchange Act of 1934 shall not become exercisable until six
months and one day after the grant date, and shall then be exercisable for 10
trading days at the purchase price specified by the Committee in accordance
with Section 9(a).
SECTION 10. Other Share-Based Awards.
(a) Administration. Other awards of Shares and other awards that
are valued in whole or in part by reference to, or are otherwise based on,
Shares ("Other Share-Based Awards"), including, without limitation, performance
shares, convertible preferred stock, convertible debentures, exchangeable
securities and Share awards or options valued by reference to Book Value or
subsidiary performance, may be granted either alone or in addition to or in
tandem with Share Options, Share Appreciation Rights, Restricted Shares,
Deferred Shares or Share Purchase Rights granted under the Plan and/or cash
awards made outside of the Plan.
Subject to the provisions of the Plan, the Committee shall have
authority to determine the persons to whom and the time or times at which such
awards shall be made, the number of Shares
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to be awarded pursuant to such awards, and all other conditions of the awards.
The Committee may also provide for the grant of Shares upon the completion of a
specified performance period.
The provisions of Other Share-Based Awards need not be the same with
respect to each recipient.
(b) Terms and Conditions. Other Share-Based Awards made pursuant
to this Section 10 shall be subject to the following terms and conditions:
(i) Subject to the provisions of this Plan and the award
agreement referred to in Section 10(b)(v) below, shares subject to
awards made under this Section 10 may not be sold, assigned,
transferred, pledged or otherwise encumbered prior to the date on
which the shares are issued, or, if later, the date on which any
applicable restriction, performance or deferral period lapses.
(ii) Subject to the provisions of this Plan and the award
agreement and unless otherwise determined by the Committee at grant,
the recipient of an award under this Section 10 shall be entitled to
receive, currently or on a deferred basis, interest or dividends or
interest or dividend equivalents with respect to the number of shares
covered by the award, as determined at the time of the award by the
Committee, in its sole discretion, and the Committee may provide that
such amounts (if any) shall be deemed to have been reinvested in
additional Shares or otherwise reinvested.
(iii) Any award under Section 10 and any Shares covered by
any such award shall vest or be forfeited to the extent so provided in
the award agreement, as determined by the Committee, in its sole
discretion.
(iv) In the event of the participant's Retirement,
Disability or death, or in cases of special circumstances, the
Committee may, in its sole discretion, waive in whole or in part any
or all of the remaining limitations imposed hereunder (if any) with
respect to any or all of an award under this Section 10.
(v) Each award under this Section 10 shall be confirmed
by, and subject to the terms of, an agreement or other instrument by
the Company and by the participant.
(vi) Shares (including securities convertible into
Shares) issued on a bonus basis under this Section 10 may be issued
for no cash consideration. Shares (including securities convertible
into Shares) purchased pursuant to a purchase right awarded under this
Section 10 shall be priced at least 50% of the Fair Market Value of
the Shares on the date of grant.
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SECTION 11. Change in Control Provisions.
(a) Impact of Event. In the event of:
(1) a "Change in Control" as defined in Section 11(b), or
(2) a "Potential Change in Control" as defined in section 11(c),
but only if and to the extent so determined by the Committee or the Board at or
after grant (subject to any right of approval expressly reserved by the
Committee or the Board at the time of such determination), the following
acceleration and valuation provisions shall apply:
(i) Any Share Appreciation Rights (including, without
limitation, any Limited Share Appreciation Rights) outstanding for at
least six months and any Share Option awarded under the Plan not
previously exercisable and vested shall become fully exercisable and
vested.
(ii) The restrictions and deferral limitations applicable
to any Restricted Shares, Deferred Shares, Share Purchase Rights and
Other Share-Based Awards, in each case to the extent not already
vested under the Plan, shall lapse and such shares and awards shall be
deemed fully vested.
(iii) The value of all outstanding Share Options, Share
Appreciation Rights, Restricted Shares, Deferred Shares, Share
Purchase Rights and Other Share-Based Awards, in each case to the
extent vested, shall, unless otherwise determined by the Committee in
its sole discretion at or after grant but prior to any Change in
Control, be cashed out on the basis of the "Change in Control Price"
as defined in Section 11(d) as of the date such Change in Control or
such Potential Change in Control is determined to have occurred or
such other date as the Committee may determine prior to the Change in
Control.
(b) Definition of "Change in Control". For purposes of Section
11(a), a "Change in Control" means the happening of any of the following:
(i) any person or entity, including a "group" as defined
in Section 13(d)(3) of the Securities Exchange Act of 1934, other than
the Company or a wholly-owned subsidiary thereof or any employee
benefit plan of the Company or any of its Subsidiaries, becomes the
beneficial owner of the Company's securities having 20% or more of the
combined voting power of the then outstanding securities of the
Company that may be cast for the election of trustees of the Company
(other than as a result of an issuance of securities initiated by the
Company in the ordinary course of business); or
(ii) as the result of, or in connection with, any cash
tender or exchange offer, merger or other business combination, sale
of assets or contested election, or any combination of the foregoing
transactions less than a majority of the combined voting power
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of the then outstanding securities of the Company or any successor
corporation or entity entitled to vote generally in the election of
the trustees of the Company or such other corporation or entity after
such transaction are held in the aggregate by the holders of the
Company's securities entitled to vote generally in the election of
trustees of the Company immediately prior to such transaction; or
(iii) during any period of two consecutive years,
individuals who at the beginning of any such period constitute the
Board cease for any reason to constitute at least a majority thereof,
unless the election, or the nomination for election by the Company's
shareholders, of each trustee of the Company first elected during such
period was approved by a vote of at least two-thirds of the trustees
of the Company then still in office who were trustees of the Company
at the beginning of any such period.
(c) Definition of Potential Change in Control. For purposes of
Section 11(a), a "Potential Change in Control" means the happening of any one
of the following:
(i) The approval by shareholders of an agreement by the
Company, the consummation of which would result in a Change in Control
of the Company as defined in Section 11(b); or
(ii) The acquisition of beneficial ownership, directly
or indirectly, by any entity, person or group (other than the Company
or a Subsidiary or any Company employee benefit plan (including any
trustee of such plan acting as such trustee)) of securities of the
Company representing 10% or more of the combined voting power of the
Company's outstanding securities and the adoption by the Board of
Trustees of a resolution to the effect that a Potential Change in
Control of the Company has occurred for purposes of this Plan.
(d) Definition of Change in Control Price. For purposes of this
Section 11, "Change in Control Price" means the highest price per share paid in
any transaction reported on the New York Stock Exchange or paid or offered in
any bona fide transaction related to a potential or actual Change in Control of
the Company at any time during the 60 day period immediately preceding the
occurrence of the Change in Control (or, where applicable, the occurrence of
the Potential Change in Control event), in each case as determined by the
Committee except that, in the case of Incentive Options and Share Appreciation
Rights relating to Incentive Options, such price shall be based only on
transactions reported for the date on which the optionee exercises such Share
Appreciation Rights (or Limited Share Appreciation Rights) or, where
applicable, the date on which a cashout occurs under Section 11(a)(2)(iii).
SECTION 12. Ownership Limitation.
All awards hereunder shall be subject to the ownership limitations set
forth in the Declaration of Trust of the Company. Without limiting the
generality of the foregoing, any award which causes a recipient, or any
constructive or beneficial owner of Shares (as determined under Sections 318
and 544, respectively, of the Code), to own or be deemed to own shares in
excess of such ownership limitations shall be void ab initio.
SECTION 13. Amendments and Termination.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made which would impair the rights of
an optionee or participant under a Share Option, Share Appreciation Right (or
Limited Share Appreciation Right), Restricted or
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Deferred Shares award, Share Purchase Right or Other Share-Based Award
theretofore granted, without the optionee's or participant's consent, or which,
without the approval of the Company's shareholders, would:
(a) except as expressly provided in this Plan, increase the total
number of shares reserved for the purpose of the Plan; or
(b) change the employees or class of employees eligible to
participate in the Plan.
The Committee may amend the terms of any Share Option or other award
theretofore granted, prospectively or retroactively, but, subject to Section 3
above, no such amendment shall impair the rights of any holder without the
holder's consent. The Committee may also substitute new Share Options for
previously granted Share Options (on a one for one or other basis), including
previously granted Share Options having higher option exercise prices.
Subject to the above provisions, the Board shall have broad authority
to amend the Plan to take into account changes in applicable securities and tax
laws and accounting rules, as well as other developments.
SECTION 14. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive
and deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a
general creditor of the Company. In its sole discretion, the Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver Shares or payments in lieu of or with respect
to awards hereunder; provided, however, that, unless the Committee otherwise
determines with the consent of the affected participant, the existence of such
trusts or other arrangements is consistent with the "unfunded" status of the
Plan.
SECTION 15. General Provisions.
(a) The Committee may require each person purchasing shares
pursuant to a Share Option or other award under the Plan to represent to and
agree with the Company in writing that the optionee or participant is acquiring
the shares without a view to distribution thereof. The certificates for such
shares may include any legend which the Committee deems appropriate to reflect
any restrictions on transfer.
All certificates for Shares or other securities delivered under the
Plan shall be subject to such stock-transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Shares are then listed, and any applicable Federal or state
securities law, and the
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Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to shareholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases.
(c) The adoption of the Plan shall not confer upon any employee of
the Company or any Subsidiary or Affiliate any right to continued employment
with the Company or a Subsidiary or Affiliate, as the case may be, nor shall it
interfere in any way with the right of the Company or a Subsidiary or Affiliate
to terminate the employment of any of its employees at any time.
(d) No later than the date as of which an amount first becomes
includable in the gross income of the participant for Federal income tax
purposes with respect to any award under the Plan, the participant shall pay to
the Company, or make arrangements satisfactory to the Committee regarding the
payment of, any Federal, state, or local taxes of any kind required by law to
be withheld with respect to such amount. Unless otherwise determined by the
Committee, withholding obligations may be settled with Shares, including Shares
that are part of the award that gives rise to the withholding requirement. The
obligations of the Company under the Plan shall be conditional on such payment
or arrangements and the Company and its Subsidiaries or Affiliates shall, to
the extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the participant.
(e) The actual or deemed reinvestment of dividends or dividend
equivalents in additional Restricted Shares (or in Deferred Shares or other
types of Plan awards) at the time of any dividend payment shall only be
permissible if sufficient Shares are available under Section 3 for such
reinvestment (taking into account then outstanding Share Options, Share
Purchase Rights and other Plan awards).
(f) The Plan and all awards made and actions taken thereunder
shall be governed by and construed in accordance with the laws of the State of
Maryland.
SECTION 16. Effective Date of Plan.
The Plan shall be effective as of April 21, 1997, subject to the
approval of the Company's shareholders.
SECTION 17. Term of Plan.
No Share Option, Share Appreciation Right, Restricted Shares award,
Deferred Shares award, Share Purchase Right or Other Share-Based Award shall be
granted pursuant to the Plan on or after the tenth anniversary of the date of
shareholder approval, but awards granted prior to such tenth anniversary may
extend beyond that date.
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SECTION 17. Restrictions on Transfer.
Awards of derivative securities (as defined in Rule 16a-1(c) under the
Securities Exchange Act of 1934 or any successor definition adopted by the
Securities and Exchange Commission) granted under the Plan shall not be
transferable except (a) by will or the laws of descent and distribution, or (b)
as provided in Sections 5(e) and 6(b)(iii) of the Plan.
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