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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 14a-12
PRISON REALTY TRUST, INC.
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(Name of Registrant as Specified in its Charter)
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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:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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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.
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PRELIMINARY COPY
PRISON REALTY TRUST, INC.
10 BURTON HILLS BOULEVARD, SUITE 100
NASHVILLE, TENNESSEE 37215
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , MAY , 2000
To our shareholders:
Notice is hereby given that a special meeting of the shareholders of Prison
Realty Trust, Inc., a Maryland corporation ("Prison Realty"), will be held at
10:00 a.m., local time, on , May , 2000, at the Loews Vanderbilt
Plaza Hotel, 2100 West End Avenue, Nashville, Tennessee, for the following
purposes:
1. To consider and vote upon a proposal to approve an equity investment
in Prison Realty by affiliates of Fortress Investment Group LLC, The
Blackstone Group and Bank of America;
2. To consider and vote upon a proposal to approve amendments to the
Prison Realty charter to, among other things, permit Prison Realty to
elect not to be taxed as a real estate investment trust for federal
income tax purposes and complete the related restructuring;
3. To ratify the actions of the Prison Realty board of directors, its
Special Committee and Independent Committee in approving the equity
investment and related transactions that are conditions to the equity
investment, including the combination of Prison Realty with
Corrections Corporation of America, Prison Management Services, Inc.
and Juvenile and Jail Facility Management Services, Inc.; and
4. To transact such other business as may properly come before the
special meeting and any adjournments or postponements thereof.
Prison Realty has fixed the close of business on , ,
2000, as the record date for the determination of shareholders entitled to
notice of and to vote at the special meeting and at any adjournments or
postponements thereof.
The board of directors of Prison Realty recommends that you vote "FOR" the
equity investment, the charter amendments and related restructuring and the
ratification of the board's actions.
Your vote is important. Approval of the equity investment requires the
affirmative vote of a majority of all votes cast on the proposal, provided that
the holders of at least 50% of Prison Realty's common stock are present in
person or by proxy at the special meeting and voting on the proposal. Approval
of the charter amendments requires the affirmative vote of two-thirds of the
outstanding shares of Prison Realty common stock. Ratification of the board's
actions requires the affirmative vote of a majority of all votes cast on the
proposal, provided that the holders of at least 50% of Prison Realty's common
stock are present in person or by proxy at the special meeting. The approval of
the charter amendments is a specific condition to the equity investment. If you
fail to return a properly executed proxy or to vote in person at the special
meeting, or if you abstain, the effect will be a vote against the charter
amendments and may prevent Prison Realty from obtaining shareholder approval of
the equity investment and the ratification of the board's actions.
Your attention is directed to the proxy statement accompanying this notice
of special meeting for more complete information regarding the matters to be
presented and acted upon at the special meeting.
By Order of the Board of Directors of
Prison Realty Trust, Inc.,
Chairman
Nashville, Tennessee
, 2000
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE PRISON REALTY SPECIAL
MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY
IN THE POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED.
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PRISON REALTY TRUST, INC.
PROPOSED RESTRUCTURING
The board of directors of Prison Realty Trust, Inc. ("Prison Realty") has
approved an equity investment and related restructuring plan, pursuant to which:
- Affiliates of Fortress Investment Group LLC, The Blackstone Group and
Bank of America will purchase up to $350.0 million of a new class of
convertible preferred stock of Prison Realty and warrants to purchase
shares of common stock of Prison Realty;
- Prison Realty will combine with its affiliated companies, Corrections
Corporation of America, Prison Management Services, Inc. and Juvenile
and Jail Facility Management Services, Inc., and operate under the
Corrections Corporation of America name as a taxable subchapter C
corporation, rather than as a real estate investment trust, or REIT; and
- Prison Realty's charter will be amended to accommodate these
transactions.
Prison Realty is seeking the votes of Prison Realty common shareholders in
connection with certain of these important restructuring transactions and
related matters, including ratification of Prison Realty's board of directors'
and its Special Committee's and Independent Committee's actions in approving the
equity investment and the related transactions that are conditions to the equity
investment.
The equity investment, the charter amendments and the related restructuring
cannot be completed unless the common shareholders of Prison Realty approve
them. The board of directors of Prison Realty strongly supports the equity
investment, the charter amendments and the related restructuring and
enthusiastically recommends that you vote in favor of these transactions. The
board also recommends that you ratify the actions of the Prison Realty board and
the Special and Independent Committees in approving the equity investment and
the related transactions that are conditions to the equity investment.
The attached proxy statement provides additional information about the
equity investment, the charter amendments and the related restructuring. Please
read this entire document carefully. Pages 122 and 123 of the proxy statement
explain how you may obtain information about Prison Realty from documents that
previously have been filed with the U.S. Securities and Exchange Commission.
This proxy statement incorporates and refers to important business and
financial information about Prison Realty that is not included in or delivered
with this document. This information is available without charge to shareholders
upon written or oral request by contacting Prison Realty's investor relations
department at 10 Burton Hills Boulevard, Suite 100, Nashville, Tennessee 37215
(telephone: (615) 263-0200). In order to obtain timely delivery, shareholders
must request this information no later than , 2000.
The date of this proxy statement is , 2000, and it is first being
mailed or delivered to Prison Realty shareholders on or about , 2000.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE PRISON
REALTY EQUITY INVESTMENT AND RELATED
RESTRUCTURING TRANSACTIONS................ 2
WHO CAN HELP ANSWER YOUR QUESTIONS.......... 6
NOTE CONCERNING FORWARD-LOOKING
STATEMENTS................................ 6
SUMMARY OF THE PROXY STATEMENT.............. 7
The company............................... 7
Summary of the transactions............... 8
Selected unaudited pro forma combined
financial information................... 17
Selected historical consolidated financial
information............................. 20
Selected historical consolidated financial
information of CCA, PMSI and JJFMSI..... 22
Selected financial information of Old
Prison Realty........................... 23
Selected comparative per share data....... 24
INFORMATION ABOUT OUR COMPANY............... 25
General................................... 25
Recent developments....................... 27
Business of Prison Realty following the
completion of the equity investment and
the related restructuring............... 35
THE PRISON REALTY SPECIAL MEETING........... 43
Date, time and place.................... 43
Matters to be considered at the
meeting............................... 43
Record date and outstanding shares...... 43
Quorum.................................. 43
Voting method and proxies............... 43
Revocability of proxy................... 44
Required vote........................... 44
Solicitation of proxies................. 45
Cross conditionality of proposals....... 45
Abstentions; Broker non-votes........... 45
Recommendation of the Prison Realty
board................................. 45
PROPOSAL 1
PROPOSAL TO APPROVE THE EQUITY
INVESTMENT.............................. 46
General................................. 46
Background of the equity investment and
related restructuring transactions.... 46
Prison Realty's reasons for the equity
investment; Recommendation of the
Prison Realty board of directors...... 54
Opinion of Prison Realty's financial
advisor............................... 58
Opinion of the Independent Committee's
financial advisor..................... 64
Interests of directors, officers and
affiliates in the equity investment
and related restructuring
transactions.......................... 70
Ownership of Prison Realty common
stock................................. 72
Description of the equity investment.... 75
Terms of the securities purchase
agreement and related agreements...... 78
Description of the series B convertible
preferred stock....................... 87
</TABLE>
<TABLE>
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Description of the warrants............. 94
The rights offering..................... 94
The mergers............................. 98
Description of the senior secured credit
facilities............................ 100
Regulatory filings and approvals
required for the equity investment.... 102
Risks or disadvantages of completing the
equity investment..................... 103
Risks or disadvantages of not completing
the equity investment................. 105
PROPOSAL 2
PROPOSAL TO ADOPT THE ARTICLES OF
AMENDMENT AND RESTATEMENT TO THE PRISON
REALTY CHARTER.......................... 106
General................................. 106
Name.................................... 106
Increase in authorized capital stock.... 107
Removal of provisions relating to Prison
Realty's qualification as a REIT...... 108
Structure and composition of board of
directors............................. 110
Removal of provisions relating to
indemnification of directors and
officers.............................. 112
Additional provisions permitting the
Prison Realty board of directors to
consider the effect of non-shareholder
constituencies in considering a
potential acquisition of control...... 113
Comparison of rights of shareholders of
Prison Realty after the adoption of
the articles of amendment and
restatement to the Prison Realty
charter and bylaws.................... 113
PROPOSAL 3
PROPOSAL TO RATIFY THE ACTIONS OF THE
PRISON REALTY BOARD AND ITS SPECIAL AND
INDEPENDENT COMMITTEES.................. 122
OTHER MATTERS............................... 123
WHERE YOU CAN FIND MORE INFORMATION......... 123
Available Information................... 123
Incorporation of certain documents by
reference............................. 123
INDEX TO FINANCIAL STATEMENTS............... F-1
APPENDICES
Securities Purchase Agreement........Appendix A
Series B Articles Supplementary......Appendix B
Warrant Agreement....................Appendix C
Articles of Amendment and
Restatement........................Appendix D
Bank Commitment Letter...............Appendix E
Agreement and Plan of Merger.........Appendix F
Opinion of Merrill Lynch & Co........Appendix G
Opinion of Wasserstein Perella & Co.,
Inc................................Appendix H
</TABLE>
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QUESTIONS AND ANSWERS ABOUT THE
PRISON REALTY EQUITY INVESTMENT AND
RELATED RESTRUCTURING TRANSACTIONS
Q: WHAT ARE THE EQUITY INVESTMENT AND RELATED RESTRUCTURING TRANSACTIONS?
A: Prison Realty Trust, Inc. ("Prison Realty") is proposing a comprehensive
restructuring program designed to address its current liquidity and capital
constraints, simplify its corporate structure and create a new management
team and board of directors. The equity investment and restructuring
transactions include:
- - combining Prison Realty and its affiliated companies that operate and
manage correctional and detention facilities, including Corrections
Corporation of America ("CCA"), into a simplified corporate structure that
will not be taxed as a real estate investment trust, or REIT;
- - raising capital by selling up to $350.0 million in convertible preferred
stock and warrants to purchase shares of common stock to a group of
investors and current shareholders, including offering current Prison
Realty shareholders the opportunity to purchase up to $75.0 million of the
$350.0 million in convertible preferred stock and warrants to purchase
common stock on terms economically equivalent to those offered to the
investors;
- - obtaining a new $1.2 billion credit facility;
- - creating a new board of directors which will be comprised of certain
representatives of Prison Realty's current board and of the investors, as
well as new independent directors;
- - selecting a new chief executive officer and chief financial officer; and
- - amending Prison Realty's charter to accommodate these transactions by
increasing the amount of Prison Realty's authorized capital stock, removing
provisions requiring Prison Realty to operate and qualify as a REIT and
changing the name of the company to "Corrections Corporation of America."
Q: WHAT ARE THE TERMS OF THE EQUITY INVESTMENT?
A: In general, the preferred stock being offered to the investors and current
shareholders will pay quarterly cash dividends, on a cumulative basis, at a
rate of 12% per year, and will be convertible into shares of Prison Realty
common stock at an initial conversion price of $6.50 per share. The
preferred stock permits purchasers to receive an 18% per year cumulative
return on investment (including interest), compounded quarterly, by
requiring Prison Realty to repurchase the shares after approximately five
years or upon a change of control of Prison Realty. The warrants may be
exercised at any time within 15 years from the date of issuance at an
initial exercise price of $7.50 per share.
Q: WHAT ARE THE CONSEQUENCES OF PRISON REALTY NOT COMPLETING THE EQUITY
INVESTMENT?
A: In the event the equity investment is not completed, any waivers of
existing defaults obtained by Prison Realty under its existing credit
facility and other indebtedness will be terminated. Under such
circumstances, Prison Realty would be required to refinance or renegotiate
its existing indebtedness on potentially significantly less favorable
terms. No assurance, however, can be given that any debt restructuring
could be accomplished.
In the judgment of the Prison Realty board, defaults under Prison Realty's
existing indebtedness could adversely affect the businesses of Prison
Realty and its affiliated companies. Prison Realty has requested the
consent of its senior bank lenders for temporary waivers through the
earlier of June 30, 2000, the date on which
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the equity investment is completed, or the date on which the agreement
concerning the proposed equity investment or a commitment letter relating
to a new credit facility is terminated with respect to certain financial
covenants and other requirements under the terms of its existing senior
bank debt. Prison Realty has also initiated, or will initiate, discussions
with the holders of its convertible, subordinated notes regarding the
waiver of certain defaults thereunder and the amendment of certain
provisions of the agreements governing the terms of the notes.
Q: WHAT ARE THE ADVANTAGES OF COMPLETING THE EQUITY INVESTMENT AND RELATED
RESTRUCTURING?
A: The equity investment and related restructuring will permit Prison Realty
to refinance its existing bank indebtedness and provide the combined
company with working and growth capital to fund its development and
capitalize on opportunities in the private corrections industry. In
addition, it is anticipated that the simplified corporate structure
resulting from the restructuring transactions will help restore Prison
Realty's credibility in the capital markets.
Q: WHAT ARE THE DISADVANTAGES OF COMPLETING THE EQUITY INVESTMENT AND RELATED
RESTRUCTURING?
A: The equity investment and related restructuring will result in decreased
income per share and dilution to Prison Realty's existing shareholders. On
a pro forma basis, due to the dividends and expenses associated with the
issuance and sale of the convertible preferred stock to the investors and
Prison Realty's existing shareholders in the rights offering, the combined
company will experience a net loss per common share. The restructuring will
also result in substantial transaction costs (a significant portion of
which has already been incurred), including debt and equity financing fees
and ongoing costs of capital to Prison Realty, and may inhibit a future
change of control of Prison Realty. These costs of capital together with
Prison Realty's obligation to pay federal corporate income taxes will
result in significant demands on Prison Realty's liquidity.
Q: CAN THE COMBINATION OF PRISON REALTY AND ITS AFFILIATED COMPANIES BE
COMPLETED WITHOUT THE COMPLETION OF THE EQUITY INVESTMENT?
A: If the holders of two thirds of Prison Realty's outstanding common stock
approve the charter amendments, Prison Realty may combine with its
affiliated companies and be taxed as a C corporation. The Prison Realty
board believes the combination is an essential step to the continued
viability of the companies and the successful resolution of the companies'
financial situation. However, the combination of the companies without
additional capital would cause waivers of certain existing defaults
obtained by Prison Realty and CCA under the terms of their existing
indebtedness to be terminated and otherwise cause Prison Realty and CCA to
be in default under the terms of its indebtedness. As a result, the newly
combined company would be required to refinance or renegotiate such
indebtedness, and there is no assurance that any such debt restructuring
could be accomplished. The Prison Realty board and its financial advisors
have determined that the equity investment represents the best source of
required capital available to the companies at this time.
Q: AS A PRISON REALTY SHAREHOLDER, HOW WILL THE EQUITY INVESTMENT AND
RESTRUCTURING TRANSACTIONS AFFECT ME?
A: Upon the completion of the restructuring transactions, in addition to the
ownership, acquisition and development of correctional and detention
facilities, Prison Realty's business will also include the operation and
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management of correctional and detention facilities for government
entities. As a taxable C corporation, Prison Realty will no longer have to
pay 95% of its taxable income to its shareholders as dividends but instead
will be able to retain its earnings and reinvest them in its business.
Prison Realty does not intend to pay any cash dividends on its common stock
in the foreseeable future, including dividends which would have been
required to maintain its status as a REIT for 1999.
If Prison Realty's existing shareholders do not participate in the rights
offering and the investors purchase the full $350.0 million in convertible
preferred stock and warrants to purchase shares of Prison Realty common
stock, the investors will own approximately 39.5% of the shares of Prison
Realty common stock on a fully diluted basis. If, however, Prison Realty's
existing shareholders fully participate in the rights offering and the
investors purchase $275.0 million of convertible preferred stock and
warrants, the investors' ownership percentage will be reduced to
approximately 31%. Because the conversion rate of the convertible preferred
stock and the exercise price of the warrants are subject to adjustment, if
Prison Realty breaches any representations made to the investors in
connection with the equity investment or fails to resolve certain
securities-related litigation within prescribed limits, the ultimate
ownership percentage of the investors may be greater than these
percentages.
Q: WHY DOES PRISON REALTY PROPOSE NOT TO ELECT TO BE A REIT FOR 1999?
A: If Prison Realty elected to be a REIT for 1999, it would have to pay
dividends (in kind or in cash) and excise taxes of up to approximately
$260.0 million, a substantial portion of which would be required to be paid
in the year 2000, with the remainder, if any, to be paid in later years.
Due to existing capital constraints, Prison Realty does not have the
resources to pay such dividends in cash, and, under the terms of its
existing credit facility, such cash dividend payments are explicitly
prohibited.
In addition to the capital constraints facing Prison Realty, waivers of
defaults under its existing indebtedness will expire if the equity
investment is not completed. The terms of the equity investment require
Prison Realty to merge with its affiliated companies. As a result of the
mergers, Prison Realty would no longer be eligible to operate as a REIT and
will be required to pay federal income taxes. As such, for the 1999 taxable
year, Prison Realty will be required to pay approximately $100.0 million in
federal income taxes.
Notwithstanding the foregoing, pending the vote of Prison Realty's
shareholders at the Special Meeting, Prison Realty intends to take such
actions as may be necessary to retain its ability to elect to be taxed as a
REIT. These actions will include, without limitation, obtaining an
extension of time to file its 1999 tax return until September 15, 2000,
which will enable Prison Realty to declare sufficient dividends with
respect to its 1999 tax year and to make an election to be taxed as a REIT
for 1999 if shareholder approval is not obtained.
Q: WHY IS THE PRISON REALTY BOARD RECOMMENDING THE EQUITY INVESTMENT AND
RELATED RESTRUCTURING?
A: Prison Realty's board is recommending the equity investment and related
restructuring because, given Prison Realty's existing financial situation,
we believe it represents the best alternative available to the company to
address its financial and liquidity needs and position Prison Realty to
capitalize on business opportunities in the correctional and detention
industry.
Q: WHO WILL MANAGE THE RESTRUCTURED COMPANY?
A: Upon completion of the equity investment, the restructured company's board
of directors will consist of ten members, comprised
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of four members of Prison Realty's existing board, four members designated
by the new investors as the series B directors, and two members jointly
designated by the current Prison Realty board and the new investors. Under
Maryland law, each of these directors must stand for election at the next
annual meeting of shareholders following their appointment. Only the
holders of the series B convertible preferred stock will have the right to
vote in the election of the four nominees for series B directors at such
meeting (as well as at all future meetings). Holders of the series B
convertible preferred stock will have the right to vote together with
Prison Realty's common shareholders in the election of the remaining board
nominees. It is expected that the Prison Realty 2000 annual meeting will be
held in August or September 2000.
Doctor R. Crants, current chief executive officer of Prison Realty, will
resign as chief executive officer once the restructuring transactions are
completed. Thomas W. Beasley, former chairman of the board and a founder of
Prison Realty's predecessor company, will continue to serve as chairman and
will serve as interim chief executive officer following the completion of
the restructuring transactions. Prison Realty has begun a search for a new
permanent chief executive officer, as well as for a new chief financial
officer.
Q: WHEN DO YOU EXPECT THE EQUITY INVESTMENT AND RELATED RESTRUCTURING
TRANSACTIONS TO BE COMPLETED?
A: We expect the equity investment and restructuring transactions, if
approved, will be completed in the second quarter of 2000.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading this proxy statement and making a decision about
the equity investment and related restructuring transactions, you should
mark on your proxy card how you want to vote, and sign and mail the proxy
card in the enclosed return envelope as soon as possible so your shares may
be represented at the special shareholders meeting.
Q: WHAT IF I DO NOT VOTE?
A: If you sign and send in your proxy, but do not mark how you want to vote,
your proxy will be counted as a vote in favor of the proposals. Because the
proposal to amend the charter requires the approval of the holders of
two-thirds of Prison Realty's common stock, if you do not vote or if you
abstain, the effect will be a vote against the charter amendments and may
prevent Prison Realty from completing the transactions described in the
proxy statement.
Q: CAN I CHANGE OR REVOKE MY PROXY?
A: You may attend the special shareholders' meeting and vote your shares in
person, rather than signing and mailing your proxy card. In addition, you
may revoke your proxy up to and including the day of such meeting by
following the directions on page 44 of this proxy statement, and you may
either change your vote or attend the meeting and vote in person.
Q: IF MY PRISON REALTY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY
BROKER VOTE MY SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how
to vote. You should instruct your broker to vote your shares, following the
directions provided by your broker. If your broker does not receive
instructions from you, your shares will not be voted.
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WHO CAN HELP ANSWER YOUR QUESTIONS?
If you have more questions about the restructuring transactions, you should
contact:
Prison Realty Trust, Inc.
10 Burton Hills Boulevard, Suite 100
Nashville, Tennessee 37215
Attention: Investor Relations Department
Telephone Number: (615) 263-0200
If you would like additional copies of this proxy statement, you should contact:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
Telephone Number: (800) 322-2885
NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This proxy statement contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
Securities Exchange Act of 1934, as amended. These statements include statements
with respect to Prison Realty's financial condition, results of operations and
business and the expected impact of the transactions described in this proxy
statement on Prison Realty's financial performance. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions identify forward-looking statements.
These forward-looking statements are not guarantees of future performance
and are subject to risks and uncertainties that could cause actual results to
differ materially from the results contemplated by the forward-looking
statements. These risks and uncertainties include:
- the possibility that all or a part of the restructuring transactions
will not be completed;
- the possibility that the anticipated benefits from the restructuring
transactions will not be fully realized; and
- other risks as may be detailed from time to time in Prison Realty's
public announcements and filings with the SEC.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof.
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SUMMARY OF THE PROXY STATEMENT
This summary highlights selected information from this proxy statement and may
not contain all of the information that is important to you. To understand the
transactions fully and for a more complete description of the legal terms of the
transactions, you should read carefully this entire document and the documents
to which we have referred you. See "Where You Can Find More Information" on
pages 123 and 124. We have included page references to direct you to a more
complete description of the topics presented in this summary.
THE COMPANY
PRISON REALTY TRUST, INC.
10 Burton Hills Boulevard, Suite 100
Nashville, Tennessee 37215
615-263-0200
www.prisonreit.com
Prison Realty's existing business is the ownership of correctional and
detention facilities. The company currently finances, designs, constructs and
renovates new and existing jails and prisons that it leases to both private
prison managers and government agencies.
At February 9, 2000, Prison Realty owned, or was in the process of
developing, 50 correctional and detention facilities, of which 43 facilities
were operating, four were under construction or expansion and three were in the
planning stages. At February 9, 2000, Corrections Corporation of America, or
CCA, the company's primary tenant, leased 34 of Prison Realty's facilities,
government agencies leased six of Prison Realty's facilities, and private
operators leased three of Prison Realty's facilities.
Prison Realty has entered into lease agreements with CCA with respect to
the correctional and detention facilities owned by Prison Realty and operated by
CCA, as well as a series of additional agreements relating to the payment of
certain fees by Prison Realty to CCA. Prison Realty also owns 9.5% of the
capital stock, consisting of non-voting common stock, of CCA. In addition,
Prison Realty owns 100% of the non-voting common stock of Prison Management
Services, Inc., or PMSI, and Juvenile and Jail Facility Management Services,
Inc., or JJFMSI, both of which are privately-held service companies which manage
certain government-owned prison and jail facilities under the "Corrections
Corporation of America" name. As the owner of the non-voting common stock of the
service companies, Prison Realty is entitled to receive 95% of each company's
net income as dividends on such shares. If the restructuring transactions
described in this proxy statement are completed, Prison Realty, by itself and
through its subsidiaries, will be in the business of owning and operating
correctional and detention facilities, including operating those facilities
currently operated by CCA, PMSI and JJFMSI.
For additional information concerning Prison Realty, see the section
entitled "Information About Our Company" on page 25. This includes important
information concerning recent developments, including information on
transactions between Prison Realty and CCA, efforts to secure waivers of and
amendments to the provisions of Prison Realty's and CCA's outstanding
indebtedness and recent litigation.
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SUMMARY OF THE TRANSACTIONS
THE EQUITY INVESTMENT
TERMS OF THE INVESTMENT
Prison Realty has entered into an agreement with a group of investors led
by an affiliate of Fortress Investment Group LLC and affiliates of The
Blackstone Group, together with an affiliate of Bank of America Corporation,
contemplating an equity investment in Prison Realty. The investors will purchase
up to $350.0 million in securities (subject to reduction to $275.0 million
through full participation by Prison Realty's common shareholders in the rights
offering as described herein), consisting of shares preferred stock convertible
into Prison Realty common stock and warrants to purchase Prison Realty common
stock.
The convertible preferred stock to be purchased by the investors will have
the following terms, among others:
- - cash dividends payable quarterly, on a cumulative basis, at a rate of 12%
per year;
- - each share is convertible, at the holder's option, into a number of shares
of Prison Realty common stock equal to $25.00 divided by the conversion
price, which is initially equal to $6.50 per share, but subject to
potential adjustment or reduction upon the occurrence of designated events,
including events relating to Prison Realty's indemnification obligations
under the securities purchase agreement with the investor group and
payments by Prison Realty with respect to its outstanding securities
litigation;
- - after approximately five years from the date of issuance or upon a "change
of control," the holder may require Prison Realty to repurchase the shares
at a cash price equal to a fixed amount per share, plus an amount equal to
a total return on investment of 18% per year, compounded quarterly, taking
into account the cash dividends paid by Prison Realty on the convertible
preferred stock;
- - not redeemable by Prison Realty until approximately five years from the
date of issuance;
- - voting with the Prison Realty common stock on an as-converted basis on
corporate actions and voting as a separate class on specified matters, with
special rules applying to the election of directors;
- - if a liquidation of Prison Realty occurs, holders are entitled to a
liquidating distribution at a cash price equal to a fixed amount per share,
plus an amount equal to a total return on investment of 18% per year,
compounded quarterly, taking into account the cash dividends paid by Prison
Realty on the convertible preferred stock; and
- - upon the failure of Prison Realty to pay required cash dividends for a
period of 60 days or more, cash dividends will accrue at a total rate of
18% per year, compounded quarterly.
The series B articles supplementary describing the terms of the convertible
preferred stock are attached to this proxy statement as Appendix B. The terms of
the convertible preferred stock are more fully discussed in the section entitled
"Proposal to Approve the Equity Investment -- Description of the series B
convertible preferred stock" on page 87.
The warrants to be purchased by the investors will be warrants to purchase,
for a period of 15 years, the number of shares of Prison Realty common stock
equal to 14% of the issued and outstanding Prison Realty common stock, on a
fully diluted basis when the warrants are issued, which is anticipated to equal
approximately 29.6 million shares of Prison Realty common stock, (subject to
reduction to 11%, or to approximately 23.2 million shares, through full
participation by Prison Realty's shareholders in the rights offering), at an
initial exercise price of $7.50 per share, subject to potential adjustment on
the same terms and conditions as the convertible
8
<PAGE> 12
preferred stock to be purchased by the investors. The terms of the warrants are
more fully described in the warrant agreement attached to this proxy as Appendix
C and on page 94 of this proxy statement under the section entitled "Proposal to
Approve the Equity Investment -- Description of the warrants."
The investors will have the right to maintain their percentage ownership
interest in Prison Realty for the first five years following their initial
investment as long as they own any shares of convertible preferred stock or
warrants. The investors will also have customary registration rights with
respect to the shares of convertible preferred stock and shares of common stock
to be issued upon the conversion of the convertible preferred stock and exercise
of the warrants, including "piggy-back" and demand rights.
The investors will also be entitled to designate four members of the Prison
Realty board of directors and, together with the existing members of the board
of directors, jointly designate two members of the board of directors. In
addition, an investment committee will be created, a majority of which will
consist of members designated by the investor group, which will have the
exclusive power to take certain significant corporate actions and whose approval
will be required for other significant corporate actions.
Immediately following the completion of the equity investment, if the
investors purchase $350.0 million of convertible preferred stock and warrants to
purchase shares of Prison Realty common stock the investors will own as much as
approximately 39.5% of the shares of Prison Realty common stock on a fully
diluted basis (or approximately 31% assuming Prison Realty's common shareholders
fully participate in the rights offering and the investors purchase $275.0
million of convertible securities) and will have substantial control over the
operations of Prison Realty as a result of this ownership and their
representation on the Prison Realty board of directors and membership on its
investment committee. The investors will, however, be restricted for a period of
three years following the date of the initial investment from increasing their
ownership to more than 45% of the then outstanding shares of Prison Realty
common stock, or securities convertible into common stock, on a fully diluted
basis.
As compensation for the commitment to make the equity investment of up to
$350.0 million, Prison Realty has agreed to pay the investors a fee of $15.7
million and to reimburse the investors for their expenses in connection with the
proposed transactions, even if the investors do not complete the equity
investment.
The completion of the equity investment is subject to various conditions,
including:
- - shareholder approval of the equity investment and the charter amendments;
- - the completion of the merger transactions among Prison Realty, CCA, PMSI
and JJFMSI;
- - the refinancing of Prison Realty's existing indebtedness on substantially
the same terms set forth in its commitment letter from Credit Suisse First
Boston attached hereto as Appendix E;
- - the satisfaction by Prison Realty of certain financial covenants, including
a covenant requiring the EBITDA of Prison Realty, CCA, PMSI and JJFMSI, on
a combined consolidated basis, for the first fiscal quarter of 2000 to be
equal to or greater than $44.3 million and a covenant limiting the
companies' "consolidated net debt" immediately prior to the equity
investment to $987.0 million;
- - obtaining required consents of third parties, including the consent of
government entities to the performance of correction and detention facility
management contracts by Prison Realty or its subsidiaries after the equity
investment;
- - the absence of any "material adverse change" in the business or operations
of Prison Realty, CCA, PMSI and JJFMSI taken as a whole;
- - the resolution of Prison Realty's securities litigation or obtaining
insurance regarding
9
<PAGE> 13
the securities litigation in a form satisfactory to the investors; and
- - the required waiting period under the antitrust laws expiring or being
terminated.
- - The securities purchase agreement governing the terms of the equity
investment can be terminated under certain circumstances, including if the
conditions to closing are not met. In addition, if Prison Realty, CCA, PMSI
or JJFMSI enter into certain types of transactions with third parties
without the consent of the investors, prior to the completion of the equity
investment or during a period of one year following the termination of the
securities purchase agreement, Prison Realty, CCA, PMSI and JJFMSI will
jointly be required to pay the investors a $7.5 million fee.
For a detailed description of the conditions to closing and the manner in
which the proposed equity investment may be terminated, see the section entitled
"Proposal to Approve the Equity Investment -- Terms of the securities purchase
agreement and related agreements" on page 78.
The securities purchase agreement is attached to this proxy statement as
Appendix A. We encourage you to read it carefully. The securities purchase
agreement is more fully discussed in the section entitled "Proposal to Approve
the Equity Investment -- Terms of the securities purchase agreement and related
agreements" on page 78.
THE RIGHTS OFFERING
In connection with the equity investment, Prison Realty will conduct a
rights offering, by means of a separate prospectus, that will allow holders of
Prison Realty's common stock to receive non-transferable rights to purchase up
to an aggregate of $75.0 million in units of preferred stock convertible into
shares of Prison Realty common stock and warrants entitling the holders to
purchase shares of Prison Realty common stock. The convertible preferred stock
and the warrants will trade as a unit for a period of 18 months following their
issuance.
The terms of the convertible preferred stock to be issued in the rights
offering are identical to the shares of convertible preferred stock to be
purchased by the investors, except that the holders of convertible preferred
stock to be issued in the rights offering will not be entitled to elect a
separate class of directors or to have special class approval rights and the
holders will not be subject to any standstill restrictions. The economic terms
of the warrants to be issued in the rights offering are identical to the
warrants to be purchased by the investors.
The rights offering record date is the same as the record date fixed by the
Prison Realty board with respect to those Prison Realty shareholders entitled to
vote at the Prison Realty special meeting. Each holder of Prison Realty common
stock on the rights offering record date will be entitled to subscribe for
units, at a subscription price of $25.00 per unit, consisting of their pro rata
portion of the convertible preferred shares and warrants being offered.
Shareholders can also request to purchase additional units if other shareholders
do not exercise their rights in full. If the rights offering is fully
subscribed, Prison Realty will issue 3.0 million shares of convertible preferred
stock, convertible into approximately 5.5% of Prison Realty's common stock on a
fully-diluted basis (assuming the investors purchase $275.0 million in
convertible securities pursuant to the terms of the securities purchase
agreement) and warrants to purchase shares of Prison Realty common stock equal
to approximately 3% of Prison Realty's common stock, on a fully diluted basis.
The rights offering is expected to commence approximately 45 days prior to the
completion of the equity investment and is expected to remain open for not less
than 30 days. The rights offering will expire prior to the completion of the
equity investment and is expected to close at or about the same time as the
equity investment.
The rights offering is more fully discussed in the section entitled
"Proposal to Approve the Equity Investment -- The rights offering" on page 94.
10
<PAGE> 14
THE MERGER TRANSACTIONS
As a condition to the equity investment, each of CCA, PMSI and JJFMSI will
be merged into three different wholly owned subsidiaries of Prison Realty, with
each Prison Realty subsidiary being the surviving corporation in each merger.
Shareholders of CCA, PMSI and JJFMSI other than Prison Realty will receive
shares of Prison Realty common stock valued at approximately $12.8 million (or
equal to approximately 1.5% of Prison Realty's common stock on a fully-diluted
basis) as the merger consideration, pursuant to exchange ratios described in the
merger agreement.
The exchange ratio for each of the mergers is different, but each depends
on a formula using the average closing price of one share of Prison Realty
common stock for the five trading days ending two days prior to the closing date
for the merger transactions. Therefore, the exchange ratios will not be known at
the time of the shareholders meetings.
The merger transactions will be tax-free for the shareholders of each party
involved to the extent such shareholders receive Prison Realty common stock. The
merger transactions are expected to be accounted for as "purchases" for
financial accounting purposes, in accordance with generally accepted accounting
principles.
Immediately prior to the merger transactions, Prison Realty will purchase
for approximately $26.6 million in cash all shares of the common stock of CCA,
PMSI and JJFMSI held by outside, or non-management and non-employee,
shareholders. Management and employee shareholders will receive Prison Realty
common stock in the merger transactions as described above. Shares of Prison
Realty common stock owned by wardens of correctional facilities and received in
the merger transactions will be subject to vesting and forfeiture provisions
under a restricted stock plan. Shares of Prison Realty common stock owned by
other CCA shareholders and received in the merger transactions will be subject
to restrictions on transfer that prohibit transfers for 180 days after the
merger transactions are completed. Transfers may be made according to the
following percentages:
- - Up to 25% after 180 days;
- - Up to 50% after December 31, 2001;
- - Up to 75% after December 31, 2002; and
- - Up to 100% after December 31, 2003.
- - The completion of the merger transactions is subject to various conditions,
including:
- - receipt of approval by the shareholders of CCA, PMSI and JJFMSI;
- - receipt of shareholder approval of Prison Realty's election not to be taxed
as a REIT, but instead electing to be taxed as a C corporation;
- - Prison Realty's having obtained financing sufficient to fund the operations
of its business after the merger transactions;
- - Prison Realty's having purchased the CCA, PMSI and JJFMSI common stock held
by outside shareholders for cash payments totaling approximately $26.6
million; and
- - obtaining required government and third-party consents.
The merger agreement is attached to the proxy statement as Appendix F. We
encourage you to read it carefully. The merger transactions are more fully
discussed in the section entitled "Proposal to Approve the Equity Investment --
The mergers" on page 98.
THE CREDIT FACILITY
Also as a condition to the equity investment, Prison Realty must refinance
its existing indebtedness through an aggregate $1.2 billion in senior secured
credit facilities comprised of a new $950.0 million term facility and a new
$250.0 million revolving facility for which it has received a commitment letter
from Credit Suisse First Boston.
The bank commitment letter describing the credit facility is attached to
the proxy statement as Appendix E. The credit facility is more fully discussed
in the section entitled "Proposal to Approve the Equity
Investment -- Description
11
<PAGE> 15
of the senior secured credit facilities" on page 100.
OTHER TRANSACTIONS
The equity investment and the merger transactions cannot be completed
unless Prison Realty effects the amendments to its charter as described below
and in the section of this proxy statement entitled "Proposal to Adopt the
Articles of Amendment and Restatement to the Prison Realty Charter" on page 106.
THE AMENDMENTS TO PRISON REALTY'S CHARTER
Immediately prior to the closing of the merger transactions, Prison Realty
will amend its charter to make the following changes, among others:
- - change Prison Realty's name to "Corrections Corporation of America;"
- - increase the authorized capital stock of Prison Realty;
- - remove ownership limitations and other provisions relating to REIT status;
- - eliminate the classified structure of Prison Realty's board of directors
and provide that all directors will be elected on an annual basis for
one-year terms; and
- - provide that the number of directors at the time of the amendment and
restatement will be four, which number may be increased or decreased by
resolution of the Prison Realty board of directors (upon the closing of the
equity investment the board will be increased to ten members).
In addition, Prison Realty will amend its bylaws to establish an investment
committee of the board of directors and remove "super-majority" voting
requirements for certain board actions that would conflict with the authority of
the investment committee.
The articles of amendment and restatement to the Prison Realty charter are
attached to this proxy statement as Appendix D. We encourage you to read them
carefully. These amendments are more fully discussed in the section entitled
"Proposal to Adopt the Articles of Amendment and Restatement to the Prison
Realty Charter" on page 106.
DIRECTORS AND EXECUTIVE OFFICERS OF PRISON REALTY FOLLOWING THE EQUITY
INVESTMENT AND RELATED RESTRUCTURING
Following the equity investment and related restructuring, the board of
directors of Prison Realty will consist of ten members comprised of four members
of Prison Realty's current board of directors, four designated by the investors
as series B directors, and two jointly designated by the investors and Prison
Realty's current board of directors. Thomas W. Beasley, Jean-Pierre Cuny and
Joseph V. Russell, together with an additional member of Prison Realty's
existing board yet to be determined, will continue to serve as members of Prison
Realty's board of directors, while the investors' designees, as well as the
joint designees, have yet to be determined. Under Maryland law, each of these
directors must stand for election at the next annual meeting of Prison Realty
shareholders following their appointment. Only the holders of the series B
convertible preferred stock will have the right to vote in the election of the
four series B directors at such meeting and at any future annual meetings.
Holders of the series B convertible preferred stock will have the right to vote
together with Prison Realty's common shareholders in the election of the
remaining directors at such meetings.
Following the equity investment and related restructuring, Doctor R. Crants
will resign as Prison Realty's chief executive officer and Mr. Beasley will
serve as the interim chief executive officer and chairman of Prison Realty.
Prison Realty has begun a search for a new permanent chief executive officer, as
well as a new chief financial officer.
For a more complete description of the changes in the management of Prison
Realty, see the section entitled "Proposal to Approve the Equity
Investment -- Terms of the securities purchase agreement and related agreements"
and "Proposal to Adopt the Articles of Amendment and Restatement to the Prison
12
<PAGE> 16
Realty Charter -- Structure and composition of board of directors" on pages 78
and 110.
PRISON REALTY'S REASONS FOR THE EQUITY INVESTMENT AND RELATED RESTRUCTURING
TRANSACTIONS; RECOMMENDATION OF THE PRISON REALTY BOARD OF DIRECTORS
The Prison Realty board believes that the equity investment and related
restructuring transactions:
- - represent the best alternative to Prison Realty under existing
circumstances to eliminate existing defaults and prevent future defaults
under existing indebtedness and provide the combined company with working
and growth capital to fund its development strategy and capitalize on
opportunities in the private corrections industry;
- - provide a simplified corporate and financial structure that will create the
most value for Prison Realty shareholders by allowing Prison Realty to
retain earnings and use capital for growth opportunities and by eliminating
potential conflicts of interest which have harmed Prison Realty's
credibility in the capital markets;
- - address the immediate financial and liquidity needs of Prison Realty as
well as the financial needs of CCA on which Prison Realty's financial
health depends; and
- - enhance management.
For a more detailed description of these reasons, see the section entitled
"Proposal to Approve the Equity Investment -- Prison Realty's reasons for the
equity investment; Recommendation of the Prison Realty board of directors" on
page 54.
THE OPINIONS OF FINANCIAL ADVISORS
In deciding to approve the equity investment and related restructuring,
Prison Realty's board of directors considered the opinion of its financial
advisor, Merrill Lynch & Co., that the equity investment was fair from a
financial point of view to Prison Realty and its shareholders. The Independent
Committee of the Prison Realty board of directors was separately advised by
Wasserstein Perella & Co., Inc. and, in deciding to approve the equity
investment and related restructuring, considered the opinion of Wasserstein
Perella that the equity investment was fair from a financial point of view to
Prison Realty and its shareholders.
The full text of the written opinions of the financial advisors are
attached to this proxy statement as Appendices G and H. You should read the
opinions carefully for a description of the assumptions made, matters considered
and limitations on the review undertaken. The opinion of Merrill Lynch is
directed to the Prison Realty board of directors and the opinion of Wasserstein
Perella is directed to the Independent Committee of the Prison Realty board of
directors. These opinions do not constitute a recommendation to any shareholder
as to how to vote with respect to any matter relating to the proposed
transactions.
For a more detailed description of the opinions of the financial advisors
and a discussion of, among other things, the analysis used by the financial
advisors in reaching their opinions, see the sections entitled "Proposal to
Approve the Equity Investment -- Opinion of Prison Realty's financial advisor"
and "-- Opinion of the Independent Committee's financial advisor" on pages 58
and 64.
RISKS OR DISADVANTAGES OF THE EQUITY INVESTMENT AND RELATED RESTRUCTURING
The equity investment and related restructuring may have negative
consequences to Prison Realty and its shareholders, including:
- - the issuance of the Prison Realty convertible preferred stock and warrants
to purchase shares of Prison Realty common stock to the investors and to
Prison Realty's existing common shareholders in the rights offering will
dilute the net income per share of the combined companies (resulting, on a
pro forma basis, in a net loss per share for the combined company), and
such dilution may be increased if, following the equity invest-
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<PAGE> 17
ment and related restructuring, the conversion price of the convertible
preferred stock and the exercise price of the warrants issued to the
investors and to Prison Realty's existing shareholders in the rights
offering are adjusted pursuant to the terms of the agreement governing the
equity investment and the rights offering;
- - the investors will initially own up to approximately 39.5% (assuming Prison
Realty shareholders do not subscribe for any shares of Prison Realty
convertible preferred stock or warrants to purchase shares of Prison Realty
common stock in the rights offering and the investors purchase $350.0
million in convertible preferred stock and warrants) of the shares of
Prison Realty common stock on a fully diluted basis and, as a result of
this ownership and their representation on the Prison Realty board, will
have substantial control over the management and operations of Prison
Realty;
- - the incurrence of significant transaction costs (a significant portion of
which has already been expended) and a significant portion of time and
attention of the management of Prison Realty;
- - the incurrence of the annual 12% dividend, payable on the convertible
preferred stock purchased by the investors and by Prison Realty's
shareholders in the rights offering and the guaranteed return on investment
of 18% per annum, compounded quarterly, to be paid upon the stock's
redemption or liquidation or change of control of Prison Realty;
- - the change to a C corporation will mean that (i) Prison Realty shareholders
will no longer receive the dividends that Prison Realty was required to
make in order to qualify as a REIT and (ii) Prison Realty will be subject
to federal income tax at regular corporate rates;
- - the significant demands on the combined company's liquidity as the result
of the dividend requirements of the convertible preferred stock and the
obligation of the company to pay corporate income taxes as a C corporation;
and
- - approval of the equity investment and restructuring may delay or prevent a
future change of control of Prison Realty because the investors will have
significant voting power following the investment and the convertible
preferred stock is puttable to Prison Realty by its holders in the event of
a change in control.
For a more complete description of the risks or disadvantages of completing
the equity investment and related restructuring, see the section entitled
"Proposal to Approve the Equity Investment -- Risks or disadvantages of
completing the equity investment" on page 103.
RISKS OR DISADVANTAGES OF NOT COMPLETING THE EQUITY INVESTMENT AND RELATED
RESTRUCTURING TRANSACTIONS
If the equity investment and related restructuring are not completed,
Prison Realty and its shareholders will be subject to negative consequences,
including:
- - Prison Realty would have to pursue certain "standalone" alternatives not
involving a third-party investor, and such alternatives may not be
feasible;
- - the standalone alternatives would cause any waivers of existing defaults
obtained by Prison Realty and CCA under their existing credit facilities
and other indebtedness to terminate and otherwise trigger defaults under
Prison Realty's and CCA's existing indebtedness, thereby requiring the
companies to refinance or renegotiate the terms of its existing debt. There
can be no assurance that Prison Realty's lenders would agree to refinance
or renegotiate the terms of Prison Realty's existing debt; and
- - such a debt restructuring could have an adverse impact on Prison Realty's
and CCA's business.
For a more complete description of the risks or disadvantages of not
completing the equity investment and related restructuring, see the section
entitled "Proposal to Approve the
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<PAGE> 18
Equity Investment -- Risks or disadvantages of not completing the equity
investment" on page 105.
OUR RECOMMENDATIONS
The board of directors of Prison Realty believes that the equity investment
and related restructuring are in your best interest and recommends that you vote
for approval of the equity investment, the charter amendments and the related
restructuring described in this proxy statement.
INTERESTS OF DIRECTORS, OFFICERS AND AFFILIATES IN THE EQUITY INVESTMENT AND
RELATED RESTRUCTURING
When considering the recommendations of the Prison Realty board of
directors, you should be aware that some of the directors, officers and
affiliates of Prison Realty have interests in the equity investment and related
restructuring that are different from, or in addition to, your interests. These
interests include:
- - the purchase of shares of CCA common stock from Sodexho prior to the
completion of the merger transactions for a cash purchase price of $8.0
million. A representative of Sodexho currently serves as a director of
Prison Realty and will continue to serve as a director of the restructured
company;
- - Prison Realty will issue restricted shares of its common stock to certain
members of Prison Realty's management, including J. Michael Quinlan and
Vida H. Carroll, who hold shares of CCA common stock, in the merger
transactions;
- - Mr. Beasley, Mr. Cuny and Mr. Russell, each a member of Prison Realty's
existing board of directors, as well as one additional member of the
existing board yet to be determined, will serve as members of the board of
directors of Prison Realty upon completion of the equity investment and the
related restructuring, with Mr. Beasley serving as its chairman. In
addition, Mr. Beasley will serve as chief executive officer of Prison
Realty upon completion of these transactions. Certain executive officers of
Prison Realty, including J. Michael Quinlan, are expected to receive new
employment contracts with Prison Realty following the completion of the
merger transactions;
- - 294,897 shares of Prison Realty deferred stock held by certain executive
officers of Prison Realty and CCA, including 140,000 shares held by Doctor
R. Crants, the chief executive officer of Prison Realty and CCA, will vest
because the equity investment and the changes in the composition of the
Prison Realty board will constitute a change in control that triggers
immediate vesting under Prison Realty's deferred stock bonus plan; and
- - Executives including D. Robert Crants, III, former president of Prison
Realty, and Michael W. Devlin, former chief operating officer of Prison
Realty, received severance benefits in connection with their resignation.
D. Robert Crants, III and Michael W. Devlin received payments from Prison
Realty and CCA of approximately $533,750 each for the purchase of a portion
of their CCA common stock and to satisfy amounts owed to them under the
terms of their respective employment contracts, applied to reduce principal
outstanding under $1.0 million loans from Prison Realty to each of Mr.
Crants, III and Mr. Devlin. In addition, Prison Realty expects to pay
$100,000 each to Mr. Crants, III and Mr. Devlin to purchase the remaining
portion of their CCA common stock prior to the merger transactions, which
payment will be applied to further reduce the outstanding loan balance.
For a more complete description of the interests of related persons in the
equity investment and related restructuring, see the section entitled "Proposal
to Approve the Equity Investment -- Interests of directors, officers and
affiliates in the equity investment and related restructuring transactions" on
page 70.
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<PAGE> 19
THE REQUIRED VOTE
PRISON REALTY
You are entitled to vote at the Prison Realty special meeting if you owned
Prison Realty common stock on , 2000. You will have one vote for each
share of Prison Realty common stock that you owned on , 2000. The
affirmative vote of the holders of a majority of all votes cast on the proposal,
provided that at least the holders of 50% of Prison Realty's common stock are
present in person or by proxy at the special meeting and voting on the proposal,
is required to approve the equity investment. The holders of two-thirds of the
outstanding shares of Prison Realty common stock must approve the amendments to
Prison Realty's charter. The affirmative vote of the holders of a majority of
all votes cast on the proposal, provided that at least the holders of 50% of
Prison Realty's common stock are present in person or by proxy at the special
meeting, is necessary to ratify the actions of the board and its committees.
As of , 2000, directors and executive officers of Prison Realty and
their affiliates held approximately % of the voting power of Prison Realty.
The directors and officers held approximately % of the outstanding shares
entitled to vote on the transactions and have indicated that they will vote
their shares in favor of the equity investment and the charter amendments and
the related restructuring.
This summary may not contain all of the information that is important to
you. You should read this entire proxy statement and the documents to which we
refer carefully for a more complete understanding of the transactions. In
particular, you should read the documents attached to this proxy statement,
including the securities purchase agreement, which is attached as Appendix A,
the merger agreement, which is attached as Appendix F, the opinion of Merrill
Lynch, which is attached as Appendix G and the opinion of Wasserstein Perella,
which is attached as Appendix H.
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PRISON REALTY TRUST, INC.
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following table sets forth certain selected unaudited combined pro
forma financial information for the year ended December 31, 1998 and as of and
for the nine months ended September 30, 1999.
The selected unaudited pro forma combined financial information for the
year ended December 31, 1998 and the nine months ended September 30, 1999 shows
the pro forma effects of the merger transactions, the equity investment and the
refinancing of Prison Realty's existing indebtedness. Additionally, the selected
unaudited pro forma combined financial information for the year ended December
31, 1998 shows the pro forma effects of CCA Prison Realty Trust's ("Old Prison
Realty") acquisition of all of the issued and outstanding capital stock and
derivative securities of U.S. Corrections Corporation ("USCC") for a cash
payment to USCC's shareholders of $157 million plus the assumption of certain
liabilities (the "USCC Merger").
The merger transactions will be accounted for as the purchase of each of
CCA, PMSI and JJFMSI by Prison Realty. As such, Prison Realty will be treated as
the acquiring company for financial reporting purposes. The general provisions
of the purchase method of accounting prescribe that: (1) CCA, PMSI and JJFMSI
assets and liabilities be recorded at fair market value, as required by
Accounting Principles Board Opinion No. 16; (2) Prison Realty's assets and
liabilities be carried forward at historical cost; and (3) Prison Realty's
historical financial statements be presented as the continuing accounting
entity's.
The purchase method of accounting prescribes that the assets and
liabilities owned by CCA, PMSI and JJFMSI be adjusted to estimated fair market
value with any excess of cost over fair value being recorded as goodwill and
other intangible assets to be amortized over the respective life of the
intangibles. The fair market values of the assets and liabilities of CCA, PMSI
and JJFMSI have been determined based upon preliminary estimates and are subject
to change as additional information is obtained. Management does not anticipate
that the preliminary allocation of purchase costs based upon the estimated fair
market value of the assets and liabilities will materially change; however, the
allocation of purchase costs reflected in the following selected unaudited pro
forma combined financial information is subject to final determination and may
differ from the amounts ultimately determined.
The selected unaudited pro forma combined operating data is presented as if
the merger transactions, the equity investment, the refinancing and the USCC
Merger had occurred as of the beginning of the period indicated and therefore
incorporates certain assumptions that are included in the Notes to Pro Forma
Combined Statements of Operations included elsewhere herein. The selected
unaudited pro forma combined balance sheet data is presented as if the merger
transactions, the equity investment and the refinancing had occurred on
September 30, 1999 and therefore incorporates certain assumptions that are
included in the Notes to Pro Forma Combined Balance Sheet included elsewhere
herein. The pro forma information does not purport to represent what Prison
Realty's financial position or results of operations actually would have been
had the merger transactions, equity investment and refinancing, in fact,
occurred on such date or at the beginning of the period indicated, or to project
Prison Realty's financial position or results of operations at any future date
or for any future period.
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PRISON REALTY TRUST, INC.
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Operating Data:
Revenues:
Management and other...................................... $670,504 $ 568,169
Rental.................................................... 3,747 7,152
-------- ----------
674,251 575,321
-------- ----------
Expenses:
Operating................................................. 505,958 437,998
Lease..................................................... 4,648 3,432
General and administrative................................ 32,776 24,828
Depreciation and amortization............................. 55,963 50,375
-------- ----------
599,345 516,633
-------- ----------
Operating income............................................ 74,906 58,688
Interest (income) expense, net............................ (11,221) 5,410
Loss on sale of property.................................. -- 1,631
-------- ----------
Income before income taxes.................................. 86,127 51,647
Provision for income taxes.................................. 38,294 25,289
-------- ----------
Net income before cumulative effect of accounting change.... 47,833 26,358
Cumulative effect of accounting change, net of tax.......... 16,145 --
-------- ----------
Net income.................................................. 31,688 26,358
Dividends to preferred shareholders-A....................... 7,869 6,450
Dividends to preferred shareholders-B....................... 64,256 48,192
-------- ----------
Net loss available to common shareholders................... $(40,437) $ (28,284)
======== ==========
Net loss per common share:
Basic net loss per common share:
Before cumulative effect of accounting change............. $ (0.25) $ (0.24)
Cumulative effect of accounting change.................... (0.17) --
-------- ----------
$ (0.42) $ (0.24)
======== ==========
Diluted net loss per common share:
Before cumulative effect of accounting change............. $ (0.25) $ (0.24)
Cumulative effect of accounting change.................... (0.17) --
-------- ----------
$ (0.42) $ (0.24)
======== ==========
Weighted average common shares outstanding, basic........... 95,837 116,642
Weighted average common shares outstanding, diluted......... 95,837 116,642
</TABLE>
<TABLE>
<S> <C> <C>
Balance Sheet Data (at period end):
Total current assets.................................................... $ 440,718
Total assets............................................................ 2,934,062
Current portion of long-term debt....................................... 6,082
Long-term debt, net of current portion.................................. 909,946
Senior notes............................................................ 100,000
Total liabilities....................................................... 1,443,168
Preferred stock- Series B............................................... 266,340
Stockholders' equity.................................................... 1,224,554
</TABLE>
<TABLE>
<S> <C> <C>
Other Data (for the period ended):
EBITDA(1)................................................. $ 130,869 $ 109,063
</TABLE>
The selected historical financial information of Prison Realty for all periods
prior to January 1, 1997 reflect the operating results of the old Corrections
Corporation of America ("Old CCA") prior to the formation of Old Prison Realty
in July of 1997. The selected historical operating results of Prison Realty for
the year ended December 31, 1997 reflect Old CCA's sale and leaseback of certain
facilities to Old Prison Realty and are therefore, not comparable to the
historical operating results of Prison Realty prior to January 1, 1997 nor to
the selected pro forma combined financial information
18
<PAGE> 22
PRISON REALTY TRUST, INC.
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(CONTINUED)
set forth above. The following table sets forth selected historical and pro
forma financial operating data for Prison Realty for the each of the five years
in the period ended December 31, 1998 and for the nine months ended September
30, 1999 on a comparable basis. The selected historical operating data for each
of the years ended December 31, 1994, 1995 and 1996 have been derived from the
selected consolidated historical financial data of Prison Realty included
elsewhere herein. The pro forma selected operating data for the year ended
December 31, 1997 has been derived by adjusting the selected historical
financial information of Prison Realty for the year ended December 31, 1997
included elsewhere herein for: (1) the effects of rental expense incurred by
Prison Realty to CCA Prison Realty Trust during 1997 and (2) the effects of
Prison Realty's recognition of deferred gains on sales of facilities to CCA
Prison Realty Trust during 1997.
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL HISTORICAL HISTORICAL PRO FORMA PRO FORMA NINE MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 31,
1994 1995 1996 1997 1998 1999
------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues..................... $152,375 $207,241 $292,513 $462,249 $674,251 $575,321
Expenses:
Operating.................. 123,273 153,692 211,208 330,470 505,958 437,998
Lease...................... 741 5,904 2,786 4,610 4,648 3,432
General and
administrative........... 8,989 13,506 12,607 16,025 32,776 24,828
</TABLE>
Prison Realty believes the above presentation and information is
informative, given that none of the single company's historical financial
statements include operations for all of the periods indicated above. Other
expenses, including depreciation and amortization, interest and income taxes are
not comparable over the periods due to various sale, leaseback and merger
transactions that have occurred.
- ---------------
(1) EBITDA consists of the sum of consolidated net income before cumulative
effect of accounting change, interest expense, income taxes, depreciation
and amortization. Prison Realty considers EBITDA to be an indicative measure
of Prison Realty's operating performance due to the significance of Prison
Realty's long-lived assets (and the related depreciation thereon). EBITDA
can be used to measure Prison Realty's ability to service debt, fund capital
expenditures and expand its business and is used in Prison Realty's
indentures as part of the tests determining Prison Realty's ability to incur
debt and to make certain restricted payments. However, such information
should not be considered as an alternative to net income, operating profit,
cash flows from operations, or any other operating or liquidity performance
measures prescribed by GAAP. Cash expenditures for various long-term assets,
interest expense and income taxes have been, and will be, incurred which are
not reflected in the EBITDA presentation.
19
<PAGE> 23
PRISON REALTY TRUST, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth (i) selected consolidated historical
financial data of Prison Realty (formerly Prison Realty Corporation) as of
December 31, 1994, 1995 and 1996 and for each year in the two-year period ending
December 31, 1995, before giving effect to the merger transactions, the equity
investment and the refinancing, which has been derived from the audited
consolidated financial statements of Prison Realty as of December 31, 1994, 1995
and 1996, and for each year in the two year period ended December 31, 1995, not
included or incorporated by reference herein, (ii) selected consolidated
historical financial data as of December 31, 1997 and 1998, and for each year in
the three year period ended December 31, 1998, before giving effect to the
merger transactions, the equity investment, the refinancing and the USCC Merger,
which has been derived from the audited consolidated financial statements of
Prison Realty as of December 31, 1997 and 1998, and for each year in the three
year period ending December 31, 1998, incorporated by reference herein, and
(iii) selected consolidated historical financial data as of and for the nine
months ended September 30, 1999, before giving effect to the merger
transactions, the equity investment and the refinancing, which has been derived
from Prison Realty's unaudited condensed consolidated financial statements as of
and for the nine months ended September 30, 1999, incorporated by reference
herein. Due to the requirements of reverse acquisition accounting applied to the
1999 Merger, the historical operating results of Prison Realty for all periods
prior to January 1, 1999 reflect the operating results of Old CCA.
All information contained in the following table should be read in
conjunction with Prison Realty's consolidated financial statements (including
the notes thereto), Prison Realty's Unaudited Condensed Financial Statements,
Prison Realty's "Management's Discussion and Analysis of Financial Condition and
Results of Operations", and Prison Realty's Unaudited Pro Forma Combined
Financial Statements.
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------------------------------------ SEPTEMBER 30,
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- ---------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Revenues:
Management and other............................. $152,375 $207,241 $292,513 $462,249 $ 662,059 $ --
Rental........................................... -- -- -- -- -- 196,543
Licensing fees................................... -- -- -- -- 6,510
Interest......................................... -- -- -- -- -- 17,749
-------- -------- -------- -------- ---------- ----------
152,375 207,241 292,513 462,249 662,059 220,802
Expenses:
Operating........................................ 123,273 153,692 211,208 330,470 496,522 --
Lease............................................ 741 5,904 2,786 18,684 58,018 --
General and administrative....................... 8,939 13,506 12,607 16,025 28,628 4,586
Loan costs writeoff.............................. -- -- -- -- 2,043 --
CCA compensation charge.......................... -- -- -- -- 22,850 --
Depreciation and amortization.................... 5,753 6,524 11,339 14,093 15,973 31,643
-------- -------- -------- -------- ---------- ----------
138,706 179,626 237,940 379,272 624,034 36,229
-------- -------- -------- -------- ---------- ----------
Operating Income................................... 13,669 27,615 54,573 82,977 38,025 184,573
Equity earnings in subsidiaries and amortization
of deferred gain............................... -- -- -- -- -- 22,107
Interest (income) expense........................ 3,439 3,952 4,224 (4,119) (4,380) 26,919
Writeoff of loan costs........................... -- -- -- -- -- 8,967
Loss on sale of property......................... -- -- -- -- -- 1,631
-------- -------- -------- -------- ---------- ----------
Income before income taxes......................... $ 10,230 $ 23,663 $ 50,349 $ 87,096 $ 42,405 $ 169,163
-------- -------- -------- -------- ---------- ----------
</TABLE>
(continued)
20
<PAGE> 24
PRISON REALTY TRUST, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------------------------------------ SEPTEMBER 30,
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- ---------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Income before income taxes......................... $ 10,230 $ 23,663 $ 50,349 $ 87,096 $ 42,405 $ 169,163
Provision for income taxes......................... 2,312 9,330 19,469 33,141 15,424 83,200
-------- -------- -------- -------- ---------- ----------
Net income before cumulative effect of accounting
change........................................... 7,918 14,333 30,880 53,955 26,981 85,963
Cumulative effect of accounting change, net of
tax.............................................. -- -- -- -- 16,145 --
-------- -------- -------- -------- ---------- ----------
Net income......................................... 7,918 14,333 30,880 53,955 10,836 85,963
Dividends available to preferred shareholders...... 204 -- -- -- -- 6,450
-------- -------- -------- -------- ---------- ----------
Net income available to common shareholders........ $ 7,714 $ 14,333 $ 30,880 $ 53,955 $ 10,836 $ 79,513
======== ======== ======== ======== ========== ==========
Net income per common share:
Basic net income per common share:
Before cumulative effect of accounting change.... $ 0.16 $ 0.26 $ 0.49 $ 0.80 $ 0.38 $ 0.70
Cumulative effect of accounting change........... -- -- -- -- (0.23) --
-------- -------- -------- -------- ---------- ----------
$ 0.16 $ 0.26 $ 0.49 $ 0.80 $ 0.15 $ 0.70
======== ======== ======== ======== ========== ==========
Diluted net income per common share:
Before cumulative effect of accounting change.... $ 0.14 $ 0.21 $ 0.42 $ 0.69 $ 0.34 $ 0.69
Cumulative effect of accounting change........... -- -- -- -- (0.20) --
-------- -------- -------- -------- ---------- ----------
$ 0.14 $ 0.21 $ 0.42 $ 0.69 $ 0.14 $ 0.69
======== ======== ======== ======== ========== ==========
Weighted average number of shares outstanding,
basic............................................ 47,688 54,475 62,793 67,568 71,380 114,003
Weighted average number of shares outstanding,
diluted.......................................... 54,586 71,396 76,160 78,959 78,939 114,547
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------------------------ SEPTEMBER 30,
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets..................................... $141,792 $213,478 $468,888 $697,940 $1,090,437 $2,783,533
Long-term debt, net of current portion........... 47,984 74,865 117,535 127,075 290,257 909,946
Total liabilities................................ 80,035 116,774 187,136 214,112 395,999 1,431,000
Total shareholders' equity....................... 61,757 96,704 281,752 348,076 451,986 1,352,533
</TABLE>
(continued)
21
<PAGE> 25
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF CCA, PMSI AND JJFMSI
The following table sets forth selected consolidated historical financial
data of each of the individual companies, CCA, PMSI and JJFMSI, as of and for
the nine months ended September 30, 1999, before giving effect to the merger
transactions, the equity investment and the refinancing, which has been derived
from each of CCA's, PMSI's and JJFMSI's respective unaudited condensed
consolidated financial statements as of and for the nine months ended September
30, 1999.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999
------------------------------
CCA PMSI JJFMSI
--------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating Data:
Revenues................................................... $ 365,222 $115,717 $98,267
--------- -------- -------
Expenses:
Operating................................................ 267,559 92,406 73,853
Lease.................................................... 246,604 163 1,697
General and administrative............................... 18,220 2,676 2,721
Depreciation and amortization............................ 6,280 7,147 4,272
Trade name use........................................... 6,511 -- --
--------- -------- -------
545,174 102,392 82,543
--------- -------- -------
Operating income (loss).................................... (179,952) 13,325 15,724
Interest (income) expense................................ 15,422 (78) (61)
--------- -------- -------
Income (loss) before income taxes.......................... (195,374) 13,403 15,785
Provision for income taxes................................. -- 7,219 7,128
--------- -------- -------
Net income (loss) available to common shareholders......... $(195,374) $ 6,184 $ 8,657
========= ======== =======
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
-----------------------------
<S> <C> <C> <C>
Balance Sheet Data:
Total current assets...................................... $ 86,218 $35,320 $26,718
Total assets.............................................. 183,802 83,819 72,189
Long-term debt, net of current portion.................... 137,000 -- --
Total liabilities......................................... 357,242 18,712 15,929
Stockholders' equity (deficit)............................ (173,440) 65,107 56,260
</TABLE>
22
<PAGE> 26
SELECTED FINANCIAL INFORMATION OF OLD PRISON REALTY
The following table sets forth selected financial information relating to
the historical financial condition and results of operations of Old Prison
Realty for the year ended December 31, 1998 and the period from July 18, 1997 to
December 31, 1997. Prison Realty acquired Old Prison Realty on January 1, 1999.
<TABLE>
<CAPTION>
PERIOD FROM
JULY 18, 1997 TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
---------------- ------------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Operating Data:
REVENUES
Rental.................................................... $ 19,980 $ 69,867
Interest.................................................. 600 796
--------- ---------
20,580 70,663
--------- ---------
EXPENSES
Depreciation.............................................. 5,088 17,609
Interest.................................................. 184 9,827
General and Administrative................................ 981 2,648
Write off of Loan Costs................................... -- 2,559
Merger Costs.............................................. -- 8,530
--------- ---------
6,253 41,173
--------- ---------
NET INCOME.................................................. 14,327 29,490
DIVIDENDS TO PREFERRED SHAREHOLDERS......................... -- (7,869)
--------- ---------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS................. $ 14,327 $ 21,621
========= =========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------
1997 1998
---------------- ------------
<S> <C> <C>
Balance Sheet Data:
Total assets.............................................. $ 454,438 $ 893,712
Long-term debt............................................ 32,000 279,600
Total liabilities......................................... 41,689 310,998
Total shareholders' equity................................ 412,749 582,714
</TABLE>
23
<PAGE> 27
SELECTED COMPARATIVE PER SHARE DATA
The following table sets forth the historical per share data and the
unaudited pro forma combined per share data giving effect to the equity
investment and related restructuring. The pro forma combined data are not
necessarily indicative of actual financial positions or future operating results
or that which would have occurred or will occur upon completion of the equity
investment and related restructuring.
The information shown below should be read in conjunction with (1) the
consolidated financial statements and accompanying notes of Prison Realty,
incorporated into this proxy statement by reference, and (2) the unaudited pro
forma financial statements of Prison Realty, starting on page F-2 of this proxy
statement.
<TABLE>
<CAPTION>
NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------------ ------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- ----------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Income (loss) per common share:
Basic............................... $ 0.70 $(0.24) $0.15 $(0.42)
Diluted............................. $ 0.69 $(0.24) $0.14 $(0.42)
Cash dividends declared per common
share............................... $ 1.80 $ 1.76 $ -- $ --
Book value per common share........... $10.53 $ 9.24 $5.65 N/A
</TABLE>
24
<PAGE> 28
INFORMATION ABOUT OUR COMPANY
GENERAL
INFORMATION ABOUT PRISON REALTY
Prison Realty, formerly Prison Realty Corporation, was formed in September
1998 and commenced operations on January 1, 1999, following the mergers of Old
CCA and Old Prison Realty with and into Prison Realty (the "1999 Merger").
Prison Realty currently finances, designs, constructs and renovates new and
existing jails and prisons and leases them to both private prison managers and
government agencies. At February 9, 2000, Prison Realty owned, or was in the
process of developing, 50 correctional and detention facilities in 17 states,
the District of Columbia and the United Kingdom, of which 43 facilities were
operating, four were under construction or expansion and three were in the
planning stages with a total aggregate cost of $2.3 billion. At February 9,
2000, Prison Realty leased 34 facilities to CCA, its primary tenant, six
facilities to government agencies and three facilities to private operators.
Prison Realty was formed to continue the success of its predecessors in
capitalizing on the opportunities for privatization in the corrections and
detention industry. The principal business strategy of Prison Realty has been to
own, design, build and finance new correctional and detention facilities that
meet Prison Realty's investment criteria, to acquire existing facilities meeting
such criteria from both private prison managers and government entities, to
expand the design capacity of its existing facilities, and to lease all such
facilities under long-term "triple-net" leases to government entities and
qualified third-party private prison managers.
In connection with the 1999 Merger, Prison Realty entered into lease
agreements with CCA with respect to the correctional and detention facilities
owned by Prison Realty and operated by CCA. The terms of the CCA leases are
twelve years which may be extended at fair market rates for three additional
five-year periods upon the mutual agreement of Prison Realty and CCA. The total
amount of lease payments required to be paid by CCA to Prison Realty during 1999
was approximately $263.5 million, of which approximately $238.6 million has been
paid. In addition to the leases for correctional and detention facilities,
Prison Realty and CCA have entered into a series of contractual arrangements
whereby, among other things, CCA performs certain services for Prison Realty
relating to the identification of new business and the development and
construction of Prison Realty's new facilities in exchange for cash fees under
the terms of a business development agreement and amended and restated services
agreement, respectively. The total amount of fees required to be paid by Prison
Realty to CCA pursuant to the business development agreement and the amended and
restated services agreement during 1999 were approximately $15.0 million and
$41.2 million, respectively, and of which approximately $15.0 million and $39.1
million have been paid respectively. Prison Realty also is required to pay CCA
certain tenant incentive fees for opening new beds at Prison Realty-owned
facilities under the terms of an amended and restated tenant incentive
agreement. The total amount of fees required to be paid by Prison Realty to CCA
pursuant to the amended and restated tenant incentive agreement during 1999 was
approximately $68.6 million, all of which has been paid. CCA is required to pay
Prison Realty a licensing fee for the use of the name "Corrections Corporation
of America" pursuant to the terms of a service mark and trade name use agreement
and is required to make interest payments to Prison Realty under the terms of a
promissory note, in the aggregate principal amount of $137.0 million and payable
to Prison Realty by CCA. The total amount of payments required to be paid
pursuant to the service mark and trade name use agreement during 1999 was
approximately $8.7 million, of which approximately $6.5 million has been paid.
A significant portion of Prison Realty's income is derived from its leases
with CCA. To address CCA's liquidity needs, Prison Realty and CCA have proposed
to amend the terms of these leases to, among other things, defer payments due
from CCA to Prison Realty. In addition, as required as a
25
<PAGE> 29
condition to the senior bank lenders' consent to defer a portion of the lease
payments, Prison Realty has proposed to amend the terms of the agreements
pursuant to which Prison Realty makes payments to CCA to defer certain of these
payments. These proposed amendments are subject to the approval of each
company's lenders. A discussion of the terms of these amendments can be found
under the heading "-- Recent developments." Upon the completion of the mergers
and related transactions, if approved by the shareholders of the respective
companies, these and the other agreements between Prison Realty and CCA will be
terminated.
Prison Realty owns 9.5% of the capital stock of CCA, consisting of
non-voting common stock. In 1999, CCA paid no dividends on the shares of its
capital stock. Prison Realty also owns 100% of the non-voting common stock of
Prison Management Services, Inc. and Juvenile and Jail Facility Management
Services, Inc., privately-held service companies which manage certain
government-owned prison and jail facilities under the "Corrections Corporation
of America" name. As the owner of the non-voting common stock of the service
companies, Prison Realty is entitled to receive 95% of each company's net income
as dividends on such shares. During 1999, the amount of dividends paid to Prison
Realty by PMSI and JJFMSI was approximately $11.0 million and $10.6 million,
respectively, which does not include dividends of approximately $655,000 and
$861,000, respectively, to be paid in 2000 with respect to the fourth quarter of
1999.
Certain information relating to Prison Realty and its business is included
elsewhere in this proxy statement. In addition, certain information concerning
Prison Realty and its business, including information with respect to general
market conditions and competition, employment and labor matters, legal
proceedings, principal shareholders and security ownership of management,
executive compensation, various benefit plans (including share option plans),
certain relationships and related transactions and other matters, is set forth
in Prison Realty's Annual Reports on Form 10-K (File no. 0-25245) for the years
ended December 31, 1998 and December 31, 1999, respectively, and in other
documents filed by Prison Realty with the SEC. Shareholders of Prison Realty
desiring a copy of such documents may contact Prison Realty by mail at 10 Burton
Hills Boulevard, Suite 100, Nashville, Tennessee 37215, attention: Investor
Relations Department, or by telephone at (615) 263-0200, or through certain
other means as indicated herein under "Where You Can Find More Information."
If the restructuring transactions described in this proxy statement are
completed, Prison Realty, by itself and through its subsidiaries, will be in the
business of owning and operating correctional and detention facilities,
including operating those facilities currently operated by CCA, PMSI and JJFMSI.
INFORMATION ABOUT CCA, PMSI AND JJFMSI
CCA, formerly Correctional Management Services Corporation, was formed in
August 1998 and commenced operations on December 31, 1998, in connection with
the mergers of Old CCA and Old Prison Realty with and into Prison Realty. CCA
was formed to manage and operate certain facilities operated and managed by Old
CCA and owned by Old Prison Realty prior to the 1999 Merger. At February 9,
2000, CCA had contracts to manage 45 correctional and detention facilities with
a total design capacity of 47,669 beds, of which 39 facilities with a total
design capacity of 36,507 beds were in operation. CCA's system-wide occupancy
level was approximately 79.1%, while the occupancy level for facilities that
house inmates for federal government agencies was approximately 88.9%. CCA
operates and manages the substantial majority of the facilities owned by Prison
Realty and leases these facilities from Prison Realty under long-term
"triple-net" leases as described herein. At February 9, 2000, CCA leased 34 of
the facilities owned by Prison Realty. CCA also provides certain business and
facility development services for Prison Realty for fees. See "-- Recent
developments."
26
<PAGE> 30
PMSI was formed in August 1998 and commenced operations on December 31,
1998 in connection with the mergers of Old CCA and Old Prison Realty with and
into Prison Realty. PMSI was formed to manage and operate certain government
owned adult prison facilities operated and managed by Old CCA prior to the 1999
Merger. PMSI provides adult prison facility management services to government
agencies under the "Corrections Corporation of America" name. At February 9,
2000, PMSI had contracts to manage 11 correctional and detention facilities with
a total design capacity of 13,276 beds, of which 10 facilities with a total
design capacity of 12,026 beds were in operation. PMSI's system-wide occupancy
level was 97.9%.
JJFMSI was formed in August 1998 and commenced operations on December 31,
1998 in connection with the mergers of Old CCA and Old Prison Realty with and
into Prison Realty. JJFMSI was formed to manage and operate certain government
owned juvenile and jail prison facilities, as well as certain international
facilities, operated and managed by Old CCA prior to the 1999 Merger. JJFMSI
provides facility management services to government agencies under the
"Corrections Corporation of America" name pursuant to management contracts with
federal, state and local government agencies and authorities in the United
States and with international authorities in Australia and the UK. At February
9, 2000, JJFMSI had contracts to manage 19 correctional and detention facilities
with a total design capacity of 9,156 beds. JJFMSI's system-wide occupancy level
was 96.05%.
Each of CCA, PMSI and JJFMSI provides correctional and detention facility
management services to government agencies under management contracts with
federal, state and local government agencies and authorities which generally may
be canceled by such agencies and authorities on short notice and without
significant penalty. Accordingly, the relationship of such agencies and
authorities with CCA, PMSI and/or JJFMSI and their confidence in each company is
crucial to their respective businesses. The services provided by each of the
companies to government agencies include the comprehensive operation and
management of new and existing correctional and detention facilities. In
addition to providing the fundamental residential services relating to inmates,
each of the companies' facilities offers a large variety of rehabilitation and
education programs including basic education, life skills and employment
training and substance abuse treatment. The companies also provide health care
(including medical, dental and psychiatric services), institutional food
services, transportation requirements, and work and recreational programs. In
addition, CCA also provides business and facility development services for
Prison Realty for fees under the terms of a services agreement and a business
development agreement and receives tenant incentives from Prison Realty for the
opening of new correctional and detention facilities pursuant to the terms of a
tenant incentive agreement. CCA also provides certain administrative services to
each of PMSI and JJFMSI for a fee. Each of these agreements and arrangements is
more fully described herein under the heading "-- Recent Developments." Upon the
completion of the equity investment and related restructuring, if approved by
the shareholders of Prison Realty, these and other agreements between CCA and
Prison Realty will be terminated.
RECENT DEVELOPMENTS
TRANSACTIONS BETWEEN PRISON REALTY AND CCA
As previously reported in Prison Realty's Current Report on Form 10-Q/A for
the quarterly period ended September 30, 1999, CCA had incurred substantial
losses from operations through that period. During the fourth quarter of 1999,
CCA continued to incur losses, utilizing its available cash flow from
operations, borrowings under its line of credit and payments from Prison Realty
for services under their various arrangements. In addition, approximately $25.0
million of rents due to Prison Realty from CCA were unpaid as of December 31,
1999. The terms of CCA's leases with Prison Realty provide that such rental
payments were due and payable on December 25, 1999. The leases provide that it
shall be an event of default if CCA fails to pay any installment of rent within
15 days
27
<PAGE> 31
after notice of nonpayment from Prison Realty. Prison Realty, however, has not
provided a notice of nonpayment to CCA with respect to these payments.
As a result of CCA's current liquidity position, CCA has been required to
defer the first scheduled payment of accrued interest on the promissory note
payable to Prison Realty by CCA. Pursuant to the terms of the promissory note,
which is in the aggregate principal amount of $137.0 million, CCA was required
to make such payment on December 31, 1999. Pursuant to the terms of a
subordination agreement, dated as of March 1, 1999, by and between Prison Realty
and Foothill Capital Corporation, agent of CCA's existing bank credit facility,
CCA is prohibited from making scheduled interest payments on the promissory note
if certain financial conditions relating to CCA's liquidity position are not
met. On December 31, 1999, CCA was not in compliance with these financial
covenants. Accordingly, CCA was prohibited from making the scheduled interest
payment. Pursuant to the terms of the subordination agreement, however, Prison
Realty is prohibited from accelerating the principal amount of the promissory
note or taking any other action to enforce its rights under the provisions of
the promissory note for so long as the CCA bank credit facility remains
outstanding.
In an effort to address CCA's liquidity needs prior to the merger
transactions, Prison Realty and CCA intend to amend the terms of the master
agreement to lease, dated as of January 1, 1999, by and between Prison Realty
and CCA, and the respective lease agreements relating to each property leased by
Prison Realty to CCA. Pursuant to this amendment, rent will be payable on each
June 30 and December 31, instead of monthly. In addition, the amendment provides
that CCA is required to make certain scheduled monthly installment payments to
Prison Realty from January 1, 2000 through June 30, 2000. These payments will be
$12.0 million due February 14, 2000, approximately $12.9 million due March 31,
2000, $4.0 million due April 30, 2000, $6.0 million due May 31, 2000 and $8.0
million due June 30, 2000. At the time these installment payments are made, CCA
will also be required to pay interest to Prison Realty upon such payments at a
rate equal to the then current interest rate under CCA's bank credit facility.
These installment payments represent CCA's December 1999 lease payments and a
portion of the rent accruing from January 1, 2000 to June 30, 2000. All
remaining unpaid rent shall be due and payable upon the earlier to occur of June
30, 2000 or the date on which either the securities purchase agreement or the
commitment letter relating to the new $1.2 billion credit facility is
terminated.
On December 31, 1999, Prison Realty and CCA amended the terms of the leases
to change the annual base rent escalation formula with respect to each facility
leased to CCA. Previously, the annual base rent payable with respect to each
facility was subject to increase each year in an amount equal to a percentage of
the total rental payments with respect to each facility, such percentage being
the greater of: (i) 4%; or (ii) 25% of the percentage increase of gross
management revenue derived from such facility. As a result of this amendment,
the annual base rent with respect to each facility is subject to increase each
year in an amount equal to the lesser of: (i) 4% of the annualized yearly rental
payments with respect to such facility; or (ii) 10% of the excess of CCA's
aggregate gross management revenues for the prior year over a base amount of
$325.0 million.
Prison Realty and CCA also intend to amend the terms of each of the
following agreements between Prison Realty and CCA: (i) the business development
agreement; (ii) the amended and restated services agreement; and (iii) the
amended and restated tenant incentive agreement to provide for the deferral of
the payment of all fees under these agreements by Prison Realty to CCA until
September 30, 2000.
The completion of the proposed amendments described above are subject to
the consent of Prison Realty's senior lenders under its bank credit facility. No
assurance can be given that such consent will be obtained. A failure to obtain
the consent of the requisite senior lenders to waive the provisions of the bank
credit facility restricting the completion of the proposed amendments would
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result in an event of default under the bank credit facility, which would allow
Prison Realty's senior lenders, at their option, to accelerate all or a portion
of the outstanding indebtedness under the bank credit facility.
SOLICITATION OF CONSENTS FOR WAIVERS OF, AND AMENDMENTS TO, PROVISIONS OF PRISON
REALTY'S AND CCA'S OUTSTANDING INDEBTEDNESS
Prison Realty bank credit facility. In addition to the restrictions upon
the ability of Prison Realty to amend the terms of its agreements with CCA
without the consent of its senior lenders, the bank credit facility also
restricts the ability of Prison Realty to enter into any agreement constituting
a "change of control," as defined in the bank credit facility. The execution of
the securities purchase agreement and the appointment of Thomas W. Beasley as
Prison Realty's chairman of the board of directors and J. Michael Quinlan as
president of Prison Realty constitute a "change of control" of Prison Realty
under the terms of the bank credit facility. As of March 31, 2000, Prison Realty
will not be in compliance with the following financial covenants, each as
defined in the bank credit facility: (i) Prison Realty's debt service coverage
ratio; (ii) Prison Realty's interest coverage ratio; (iii) Prison Realty's
leverage ratio; (iv) Prison Realty's ratio of total indebtedness to total value;
(v) Prison Realty's net worth; and (vi) Prison Realty's ratio of total
indebtedness to total capitalization. Given that Prison Realty has not finalized
its financial statements for the year ended December 31, 1999, it is possible
that, upon completion of these financial statements, Prison Realty may not be in
compliance with the financial covenants described above at December 31, 1999. In
addition, as described below, Prison Realty is in default under the provisions
of a note purchase agreement relating to the $40.0 million 9.5% convertible,
subordinated notes issued by Prison Realty to MDP Ventures IV LLC and affiliated
purchasers.
Prison Realty has requested the consent of the requisite percentage of its
senior lenders under the bank credit facility for a temporary waiver of the bank
credit facility's restrictions relating to the proposed amendments of Prison
Realty's agreements with CCA. Prison Realty has also requested the consent of
such lenders with respect to a temporary waiver of the bank credit facility's
financial covenants described above, as well as a temporary amendment to the
bank credit facility changing the definition of Prison Realty's borrowing base
under the bank credit facility to alleviate the adverse effect of the deferred
rental payments on Prison Realty's borrowing base. In connection with the waiver
of the financial covenants Prison Realty has requested that the calculation of
Prison Realty's interest coverage ratio and Prison Realty's leverage ratio as of
December 31, 1999 be temporarily amended. In addition, Prison Realty has
requested the waiver, subject to certain conditions, of events of default under
the provisions of the bank credit facility relating to certain defaults, as
described below, by Prison Realty under the terms of the note purchase agreement
relating to Prison Realty's $40.0 million 9.5% convertible, subordinated notes.
The proposed temporary waivers to, and amendment of, the terms of the bank
credit facility will remain in effect only until the earlier to occur of: (i)
June 30, 2000; (ii) the completion of the equity investment and related
restructuring; (iii) the date of termination of any party's obligations under
the securities purchase agreement; or (iv) the date of termination of any
party's obligations under the commitment letter relating to the new $1.2 billion
bank credit facility.
Prison Realty has also requested the consent of the requisite percentage of
its senior lenders under the bank credit facility to the appointment of Thomas
W. Beasley as Prison Realty's chairman of the board of directors and J. Michael
Quinlan as president of Prison Realty. In addition, Prison Realty has requested
a waiver of the bank credit facility's restrictions upon a "change of control"
arising from the execution of the securities purchase agreement.
The administrative agent of the bank credit facility, Lehman Commercial
Paper Inc., has initiated the process of soliciting the consent of the required
lenders under the bank credit facility.
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The conditions to the effectiveness of all of the proposed waivers of, and
amendment to, the provisions of the bank credit facility, as proposed by Lehman
Commercial Paper Inc., include, among others: (i) CCA having obtained a waiver
of, and an amendment to, certain provisions of its bank credit facility, as more
fully described below; and (ii) Prison Realty having delivered to the trustee
under the indenture relating to Prison Realty's 12% senior notes, due 2006 an
opinion as to the fairness, from a financial point of view, to Prison Realty of
the amendments to the terms of Prison Realty's leases with CCA and the
amendments to the business development agreement, the amended and restated
services agreement and the amended and restated tenant incentive agreement
described above issued by an accounting, appraisal or investment banking firm of
national standing.
Prison Realty has also agreed, in addition to certain other immaterial
agreements, that, during the effectiveness of the proposed temporary waivers of,
and amendment to, the provisions of the bank credit facility: (i) any failure of
CCA to maintain the waiver of, and amendment to, the provisions of its bank
credit facility will constitute an event of default under Prison Realty's bank
credit facility; (ii) Prison Realty will not make capital expenditures
exceeding, in the aggregate, $93.0 million during the period from January 1,
2000 to June 30, 2000 and will not enter into any agreement to make capital
expenditures; (iii) Prison Realty will not pay cash dividends upon its common
stock; (iv) Prison Realty will maintain total liquidity, as defined in the
waiver agreement, in amounts specified in the waiver agreement, and, in
connection therewith, all cash securing a letter of credit relating to the San
Diego Correctional Facility must be released as scheduled to Prison Realty; (v)
Prison Realty shall not cause, or agree to, the termination, amendment,
modification or waiver of any of the material provisions of (A) the $137.0
million promissory note issued by CCA to Prison Realty, (B) the securities
purchase agreement, or (C) the commitment letter relating to the new $1.2
billion bank credit facility; (vi) Prison Realty will not prepay, repay,
repurchase, exchange, refund or redeem either of its $40.0 million 9.5%
convertible, subordinated notes or its $30.0 million 7.5% convertible,
subordinated notes without first repaying in full all amounts outstanding under
its bank credit facility; and (vii) as discussed above, Prison Realty will defer
the payment of all fees to CCA under the business development agreement, the
amended and restated services agreement, and the payment of any other amounts to
CCA, until September 30, 1999. Prison Realty's failure to comply with those
covenants would result in a termination of the temporary waivers to, and
amendment of, its bank credit facility.
Prison Realty's $40.0 million 9.5% convertible, subordinated notes. The
provisions of the note purchase agreement relating to the $40.0 million 9.5%
convertible, subordinated notes issued by Prison Realty to MDP Ventures IV LLC
and affiliated purchasers provide that the execution of the securities purchase
agreement by Prison Realty constitutes a "change of control" of Prison Realty.
This "change of control" gave rise to a right of the holders of such notes to
require Prison Realty to repurchase the notes at a price of 105% of the
aggregate principal amount of such notes within 45 days after the provision of
written notice by such holder to Prison Realty. To date, Prison Realty has not
received any such notice. In addition, as of February 5, 2000, Prison Realty was
no longer in compliance with a financial covenant contained in the note purchase
agreement relating to the ratio of Prison Realty's total indebtedness to total
capitalization. As a result of the violation of this covenant, Prison Realty is
in default under the provisions of the note purchase agreement, and the holders
of such notes may, at their option, accelerate all or a portion of the
outstanding principal amount of this indebtedness. Moreover, during any period
in which Prison Realty is in default under the provisions of the note purchase
agreement, the holders of the notes may require Prison Realty to pay an
applicable default rate of interest.
Prison Realty has initiated discussions with the holders of these notes to
waive the occurrence of a "change of control" arising from Prison Realty's
execution of the securities purchase agreement, thereby extinguishing Prison
Realty's obligation to repurchase the notes at a premium. In addition, Prison
Realty has requested that the provisions of the note purchase agreement be
amended to:
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(i) remove the financial covenant relating to Prison Realty's total indebtedness
to total capitalization; (ii) remove a covenant requiring Prison Realty to use
its best efforts to qualify as a REIT for federal income tax purposes; and (iii)
remove a covenant restricting Prison Realty's ability to conduct business other
than the financing, ownership and development of prisons and other correctional
facilities.
There can be no assurance that the holders of these notes will consent to
the proposed waiver of, and amendments to, the note purchase agreement, or will
not seek to declare an event of default prior to the execution of the proposed
waiver and amendments. Discussions with such holders indicate that in the event
the holders of these notes do consent to the proposed waiver of, and amendment
to, the note purchase agreement, Prison Realty may be required to amend the
economic terms of the notes.
Prison Realty's $30.0 million 7.5% convertible, subordinated notes. The
provisions of the note purchase agreement relating to the $30.0 million 7.5%
convertible, subordinated notes issued to PMI Mezzanine Fund, L.P. contain
financial covenants relating to: (i) Prison Realty's debt service coverage
ratio; (ii) Prison Realty's interest coverage ratio; and (iii) Prison Realty's
ratio of total indebtedness to total capitalization. It is possible that as of
March 31, 2000 Prison Realty will not be in compliance with one or more of these
financial covenants. If one or more of these covenants are violated, such a
violation would result in an event of default under the provisions of the note
purchase agreement, and the holder of such notes may, at its option, accelerate
all or a portion of the outstanding principal amount of this indebtedness.
If an event of default occurs under the provisions of the note purchase
agreement, Prison Realty will initiate discussions with the holder of such notes
and attempt to obtain a waiver of, or amendment to, the financial covenants
contained in the note purchase agreement violated by Prison Realty. In addition,
in order to prevent an event of default under the note purchase agreement, prior
to completion of the equity investment and related restructuring, Prison Realty
will be required to amend the provisions of the note purchase agreement to
remove a covenant requiring Prison Realty to elect to be taxed as a REIT for
federal income tax purposes.
There can be no assurance that the holder of these notes will consent to
any proposed waiver of, and amendments to, the note purchase agreement, or will
not seek to declare an event of default prior to the execution of the proposed
waiver and amendments. Prison Realty anticipates that it may be required to
amend the economic terms of the notes in the event the holder of these notes
does consent to any proposed waiver of, and amendment to, the note purchase
agreement.
CCA bank credit facility. The terms of CCA's bank credit facility provide
that CCA shall not amend or modify the terms of the amended and restated
services agreement, the amended and restated tenant incentive agreement and the
business development agreement in any manner which is on terms and conditions
less favorable to CCA than are in effect immediately prior to such amendment or
modification. If the proposed amendments to these agreements are completed, CCA
will be in violation of its bank credit facility. CCA's bank credit facility
requires that CCA have a net worth in excess of certain specified amounts. On
December 31, 1999, CCA was not, and it currently is not, in compliance with this
financial covenant.
The terms of the CCA bank credit facility also provide that the execution
of the agreement and plan of merger by and between Prison Realty and each of its
acquisition subsidiaries, CCA, PMSI and JJFMSI resulted in an event of default
under the CCA bank credit facility. In addition, CCA's repurchase of 200,000
shares of its voting common stock from each of D. Robert Crants, III and Michael
W. Devlin in connection with their resignation as officers and directors of
Prison Realty constituted an event of default under the terms of the bank credit
facility.
CCA has initiated discussions with the agent of the bank credit facility,
and will request the consent of the requisite percentage of its senior lenders
under the CCA bank credit facility for a
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waiver of the bank credit facility's restrictions relating to: (i) the amendment
of Prison Realty's agreements with CCA; (ii) the execution of the agreement and
plan of merger; and (iii) CCA's repurchase of its voting common stock from D.
Robert Crants, III and Michael W. Devlin. CCA has also requested the consent of
such lenders with respect to a waiver of, or amendment to, the financial
covenants concerning CCA's shareholders' equity described above.
Effect of failure of Prison Realty to obtain requested waivers and
amendments. There can be no assurance that the requisite senior lenders under
Prison Realty's bank credit facility will consent to the proposed waivers of,
and amendment to, Prison Realty's bank credit facility or will not seek to
declare an event of default prior to the effectiveness of the consent or waiver.
Moreover, the effectiveness of the proposed waivers of, and amendment to, the
bank credit facility is subject to the satisfaction of the conditions described
above and the attainment of the waiver of, and amendment to, the applicable
provisions of CCA's bank credit facility. Prison Realty has also agreed that it
is currently obligated to pay interest on amounts outstanding under Prison
Realty's existing bank credit facility at an annual rate which is 2% greater
than the otherwise applicable rate until such time as the holders of the $40.0
million 9.5% convertible, subordinated notes have agreed not to require Prison
Realty to pay any applicable default rate of interest.
If the proposed waivers of, and amendment to, Prison Realty's indebtedness
are not obtained, Prison Realty will continue to negotiate with Lehman
Commercial Paper Inc. and the other lenders in an attempt to obtain necessary
waivers or amendments. In the event Prison Realty is unable to obtain the
necessary waivers or amendments to the bank credit facility, or to comply with
and maintain the proposed waivers and amendment, or if Prison Realty defaults
under the terms of any of its other indebtedness, and such indebtedness is
accelerated, the senior lenders are entitled, at their discretion, to exercise
certain remedies, including acceleration of the outstanding borrowings under the
bank credit facility. In addition, Prison Realty's senior notes, the $40.0
million 9.5% convertible, subordinated notes and the $30.0 million 7.5%
convertible, subordinated notes contain provisions which allow those creditors
to accelerate their debt and seek remedies if Prison Realty has a payment
default under the bank credit facility or if the obligations under the bank
credit facility have been accelerated. If the senior lenders elect to exercise
their rights to accelerate Prison Realty's obligations under the bank credit
facility, and/or if the senior lenders do not consent to the proposed waivers
and amendment (or acceptable alternative waivers and amendments), such events
could result in the acceleration of all or a portion of the outstanding
principal amount of Prison Realty's senior notes or its convertible,
subordinated notes, which would have a material adverse effect on Prison
Realty's liquidity and financial position. Prison Realty does not have
sufficient working capital to satisfy its debt obligations in the event of an
acceleration of all of Prison Realty's outstanding indebtedness.
Effect of failure of CCA to obtain requested waivers and amendments. There
can be no assurance that the requisite senior lenders under CCA's bank credit
facility will consent to the proposed waiver of, and amendment to, CCA's bank
credit facility or will not seek to declare an event of default prior to such
date. If the proposed waiver of, and amendment to, CCA's bank credit facility is
not obtained, CCA will continue to negotiate with Foothill Capital Corporation,
as agent, and its senior lenders in an attempt to obtain necessary waivers of,
or amendments to, the bank credit facility. In the event CCA is unable to obtain
the necessary waivers or amendments, or to comply with and maintain the proposed
waiver and amendment, the senior lenders are entitled, at their discretion, to
exercise certain remedies, including acceleration of the outstanding borrowings
under the bank credit facility. If the senior lenders elect to exercise their
rights to accelerate CCA's obligations under the bank credit facility, and/or if
the senior lenders do not consent to the proposed waiver and amendment, such
events would have a material adverse effect on CCA's liquidity and financial
position. CCA does not have sufficient working capital in the event of an
acceleration of CCA's bank credit facility. In addition, the terms of CCA's
leases with Prison Realty provide that an event of default under CCA's bank
credit facility which results in the acceleration of at least
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$25.0 million of CCA's indebtedness under the CCA bank credit facility prior to
its stated maturity will result in an event of default under the leases, which
would result in an event of default under Prison Realty's bank credit facility,
triggering defaults under Prison Realty's other indebtedness.
1999 FINANCIAL STATEMENTS
Prison Realty and CCA are in the process of finalizing their financial
statements for the year ended December 31, 1999. The year end audits of Prison
Realty's and CCA's financial statements are currently being conducted by Prison
Realty's and CCA's independent auditors but have not been completed. Prison
Realty and CCA are continuing to analyze certain asset carrying values for
realization. In the fourth quarter of 1999, Prison Realty may record certain
write-offs of impaired assets that could be material to its results of
operations for 1999 and its shareholders' equity at December 31, 1999. Also,
Prison Realty has not completed its final analysis of its REIT income tax
reporting and shareholder litigation contingencies.
In addition, Prison Realty's and CCA's independent auditors have indicated
that they are currently evaluating whether their year-end report for each
company will include a statement that there is doubt as to the ability of CCA to
continue as a going concern, and, as a result of Prison Realty's financial
dependence on CCA, the ability of Prison Realty to continue as a going concern.
Prison Realty's and CCA's independent auditors' evaluations will include, among
other things, an analysis of cash flow resources available to each company and
each company's bank credit facility terms and conditions. The existence of any
explanatory paragraph regarding such doubt in their report on Prison Realty's
consolidated financial statements for the year ended December 31, 1999 would
result in an event of default under the provisions of Prison Realty's bank
credit facility. The existence of any explanatory paragraph regarding such doubt
in their report on CCA's consolidated financial statements for the year ended
December 31, 1999 would result in an event of default under the provisions of
CCA's bank credit facility. The existence of either of these explanatory
paragraphs may have a material adverse effect on Prison Realty's and CCA's
relationship with creditors and could have a material adverse effect on Prison
Realty's business, financial condition, results of operation and liquidity. The
potential for the existence of any such explanatory paragraph has been disclosed
to Prison Realty's senior lenders under its bank credit facility. If such an
explanatory paragraph is included, Prison Realty will seek to solicit the
consent of the requisite senior lenders for a waiver of any event of default
arising as a result of the inclusion of such an explanatory paragraph in the
independent auditors' report on Prison Realty's or CCA's consolidated financial
statements for the year ended December 31, 1999.
The proposed temporary waivers of, and amendment to, Prison Realty's and
CCA's bank credit facility will terminate upon the earlier to occur of June 30,
2000 or the termination of the securities purchase agreement prior to completion
of the equity investment. If the equity investment is not completed, Prison
Realty would be faced with significant liquidity concerns as a result of the
termination of such waivers and amendment and any resulting defaults under the
terms of Prison Realty's other indebtedness. Management of Prison Realty
believes that if the equity investment is not completed, Prison Realty and CCA
would be forced to further amend the terms of the master lease and the lease
agreements related to each facility leased to CCA. In an effort to address this
issue, Prison Realty is currently seeking additional waivers of the provisions
of Prison Realty's bank credit facility which are not contingent upon the
completion of the equity investment and which will extend through January 1,
2001.
RECENT LITIGATION
On December 29, 1999, a purported class action lawsuit was filed on behalf
of the shareholders of Prison Realty in the Chancery Court for Davidson County,
Tennessee. The lawsuit, captioned Bernstein v. Prison Realty Trust, et. al.,
names as defendants Prison Realty and its directors, as well
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as the investors. The lawsuit alleges that the directors breached their
fiduciary duties to Prison Realty's shareholders by "effectively selling
control" of Prison Realty for inadequate consideration and without having
adequately considered or explored all other alternatives to this prospective
sale or having taken steps to maximize shareholder value. The plaintiffs seek an
injunction preventing the completion of the equity investment and related
restructuring, declaratory relief, and costs and fees. On each of January 4,
2000 and January 12, 2000, nearly identical purported class action lawsuits were
filed in the same court on behalf of different purported class representatives.
The lawsuits, captioned Hardee v. Prison Realty Trust, et. al. and Holle v.
Prison Realty Trust, et. al., name as defendants Prison Realty and its
directors, as well as the investors. The plaintiffs in these three actions have
moved for consolidation.
On December 30, 1999, a purported class action lawsuit was filed in federal
court in the United States District Court for the Middle District of Tennessee,
on behalf of the shareholders of Prison Realty. The lawsuit, captioned Neiger v.
Doctor Crants, et. al, names as defendants Prison Realty, Doctor R. Crants and
D. Robert Crants, III. The lawsuit alleges violations of federal securities laws
based on the allegation that the defendants knew or should have known that
Prison Realty would not make any further dividend payments on the shares of
Prison Realty common stock, including the "special dividend" prior to the date
on which it was disclosed to the public and therefore certain statements made by
them prior to that time were false and misleading. The plaintiffs seek an
unspecified amount of monetary damages and costs and fees. On February 4, 2000,
a nearly identical purported class action lawsuit was filed in the same court on
behalf of different purported class representatives. The lawsuit, captioned
Anderson v. Doctor Crants, et. al., names as defendants Prison Realty, Doctor R.
Crants and D. Robert Crants, III.
Prison Realty cannot determine the outcome of these actions, and, as a
result, Prison Realty cannot assure you that the determination of the litigation
in a manner adverse to Prison Realty will not have a material adverse effect
upon Prison Realty. In addition, Prison Realty cannot assure you that additional
lawsuits will not be filed in connection with the equity investment.
Ratification by the shareholders of the board of directors' actions relating to
the equity investments may limit potential liabilities of Prison Realty for
claims for breaches of fiduciary duty by Prison Realty's directors or otherwise
discourage the initiation of additional claims. Accordingly, Prison Realty is
seeking shareholder ratification of the board's actions, as more fully described
in "Proposal to Ratify the Actions of the Prison Realty Board."
Prison Realty is also currently subject to two separate class actions filed
in federal court in the United States District Court for the Middle District of
Tennessee, alleging securities fraud in connection with the agreements entered
into by Prison Realty and CCA in May, 1999 to increase payments made by Prison
Realty to CCA under the terms of certain agreements. The plaintiffs' class in In
re Old CCA Securities Litigation consists of former shareholders of Old CCA who
acquired shares of Prison Realty as the result of the 1999 Merger. The
plaintiffs' class in In re Prison Realty Securities Litigation consists of
former shareholders of Old Prison Realty who acquired shares as the result of
the 1999 Merger and all persons who acquired shares of Prison Realty in the open
market prior to May 17, 1999. Each of these actions alleges violations of
federal securities laws based on the allegations that Prison Realty and the
individual defendants in the actions knew or should have known of the increased
payments to CCA prior to the date that they were disclosed to the public, and
therefore certain public filings and representations made by Prison Realty and
certain of the defendants were false and misleading. These two actions represent
the consolidation of sixteen complaints filed in May and June 1999. In addition,
a purported shareholders' derivative complaint has been filed in the Chancery
Court for Davidson County, Tennessee in Nashville, captioned Wanstrath v.
Crants, et. al., against Prison Realty, CCA and persons who were directors at
the time Prison Realty entered into the agreements regarding the increased
payments to CCA. The derivative action alleges, among other things, that the
directors of Prison Realty violated their fiduciary duties in
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approving the increased payments to CCA. The plaintiffs in this action have also
moved for a preliminary injunction to prevent the completion of the equity
investment and related restructuring. Prison Realty is continuing to investigate
the allegations in these complaints, and although their outcome is not
determinable, Prison Realty is defending these actions vigorously.
Prison Realty also is subject to a complaint filed in August, 1998 in the
Chancery Court for Davidson County, Tennessee, inherited from Old CCA in the
1999 Merger. The lawsuit, captioned Dasburg, S.A. v. Corrections Corporation of
America, et. al., claims that Old CCA and the individual named defendants
violated state law by making false and misleading statements in order to keep
Old CCA's stock price at an artificially high level during the period from
April, 1997 through April, 1998, so that the individual named defendants could
sell shares of Old CCA stock at inflated prices. Prison Realty is defending this
action vigorously.
Any liability of Prison Realty and CCA arising from these complaints will
result in a reduction of income and stockholders' equity to the extent not
covered by insurance and may result in an adjustment to the exercise price of
the series B and series C convertible preferred stock and the exercise price of
the warrants as described herein under the heading "Proposal to Approve the
Equity Investment -- Description of the series B convertible preferred stock,"
and "-- The rights offering."
BUSINESS OF PRISON REALTY FOLLOWING THE COMPLETION OF THE EQUITY INVESTMENT AND
THE RELATED RESTRUCTURING
Following the completion of the equity investment and related
restructuring, if approved, Prison Realty will be a full-service provider of
correctional and detention services and will continue to provide all of the
services previously offered to customers of Prison Realty, CCA, PMSI and JJFMSI
under the Corrections Corporation of America name. In addition, Prison Realty
will no longer operate so as to qualify as a REIT and will instead conduct its
business as a taxable C corporation, effective January 1, 1999.
OPERATIONS AND BUSINESS STRATEGY
After the completion of the equity investment and related restructuring, if
approved, Prison Realty intends to increase revenues and its position as the
largest owner, developer and manager of privatized correctional and detention
facilities worldwide through the following business strategies.
Efficient Development and Management of Facilities. The newly combined
Prison Realty will continue to provide high quality, cost-efficient management
of its facilities. Prison Realty believes that its quality of personnel,
efficient application of financial resources and adherence to proven policies
and procedures will enable it to design, develop and manage correctional and
detention facilities at costs lower than those of government agencies that are
responsible for performing such services. Prison Realty believes that the
reputations of its predecessors as innovative and effective owners and managers
of facilities will enhance its ability to market its services and capitalize on
a larger scope of opportunities with a variety of government agencies.
Prison Realty also recognizes the importance of the facility administrator
and the facility's management team in the successful financial performance of
each facility. Prison Realty believes that CCA's reputation will enable it to
attract highly-qualified facility administrators. Each CCA facility management
team operates each facility in accordance with a company-wide policy and
procedure regimen derived from industry standards and designed to ensure the
delivery of consistent, high quality services in each of its facilities. Prison
Realty will seek to minimize operating expenses by designing its facilities to
optimize correctional officer staffing consistent with facility security
requirements. Prison Realty will further control operating expenses through the
continued use of electronic surveillance systems and other technologies.
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Development of Domestic Business Opportunities. As a result of the growth
in the demand for privatized correctional and detention facilities, Prison
Realty will be selective in the projects it pursues. Prison Realty will continue
to pursue projects based on probability of success, geographic location, size,
potential profitability, and political and community acceptability. Management
believes this approach will allow Prison Realty to enhance its market share and
optimize resource allocation, profitability and financial return. Prison Realty
intends to continue its focus on institutions with an emphasis on medium to
maximum security that are 500 to 1,000 beds or larger. Management believes that
the experience and reputation of the newly combined Prison Realty in managing
large secure facilities will enable it to maintain its industry position and to
capitalize on the trend of governments to privatize larger facilities.
Expansion into International Markets. Prison Realty believes that the
majority of its new business will come from within the United States. While
management will not detract from its domestic business to pursue international
activities, Prison Realty will continue to participate in selected international
projects it finds attractive. Prison Realty also believes that in order to
compete effectively in international markets it must enter into alliances with
strategic local partners in the international marketplace with access to local
opportunities and familiarity with local business practices.
Cost Reduction Programs. An important component of CCA's strategy is to
position itself as a low cost, high quality provider of prison management
services in all of its markets. The newly combined Prison Realty will continue
this strategy. As cost containment pressures increase, Prison Realty will
continue to focus on improving operating performance and efficiency through the
following key operating initiatives: (i) standardization of supply and service
purchasing practices and usage; (ii) improvement of inmate management, resource
consumption and reporting procedures; and (iii) improvement in salary and wage
expenses by reducing overtime, monitoring staff levels and developing
productivity standards. Prison Realty intends to continue to apply these
operating cost initiatives throughout its existing facilities and in new
facilities.
FACILITIES TO BE OWNED AND/OR OPERATED BY PRISON REALTY UPON COMPLETION OF THE
EQUITY INVESTMENT AND RELATED RESTRUCTURING
Information regarding each facility to be owned and/or operated by Prison
Realty upon completion of the equity investment and related restructuring,
including those facilities currently under construction or development, is set
forth below, grouped by state:
<TABLE>
<CAPTION>
OWNED,
NO. OF MANAGED
CONTRACTING FACILITY AND/OR
LOCATION CITY FACILITY PARTIES EXPIRATION BEDS LEASED
- -------- --------------- ----------------------- --------------------------- ----------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
DOMESTIC
Arizona Eloy Eloy Detention Center U.S. Department of Justice February 28, 2002 1,500 Owned and
managed
Florence Central Arizona U.S. Marshals Service November 3, 2000 2,304 Owned and
Detention Center ("USMS") managed
Pinal County, Arizona January 5, 2014
State of Alaska June 30, 2000
State of Hawaii June 30, 2001
Gila River Police Dept. of (1)
Arizona
Pascua Yaqui Tribe of (1)
Arizona
Florence Florence Correctional State of Hawaii June 30, 2001 1,600 Owned and
Facility managed
</TABLE>
36
<PAGE> 40
<TABLE>
<CAPTION>
OWNED,
NO. OF MANAGED
CONTRACTING FACILITY AND/OR
LOCATION CITY FACILITY PARTIES EXPIRATION BEDS LEASED
- -------- --------------- ----------------------- --------------------------- ----------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
California California City California City California City, California October 31, 2024 2,304 Owned and
Correctional Facility managed
USMS November 15, 2000
Live Oak Leo Chesney Cornell Corrections(2) February 28, 2002 240 Owned and
Correctional Facility leased
Mendota Mendota Correctional (3) (3) 1,024 Owned and
Facility managed
San Diego San Diego Correctional Immigration and March 31, 2000(3) 1,000 Owned,
Facility Naturalization Service managed
("INS")(3) and
leased(4)
Colorado Burlington Kit Carson Correctional Colorado Department of June 30, 2000 768 Owned and
Facility Corrections ("DOC") managed
City of Burlington October 31, 2003
USMS (5)
Las Animas Bent County Bent County, Colorado August 17, 2018 700 Owned and
Correctional Facility managed
Walsenburg Huerfano County Huerfano County October 31, 2122 752 Owned and
Correctional Center Correctional Facilities managed
Authority
Florida Brooksville Hernando County Jail Hernando County, Florida October 1, 2000 302 Managed
Gadsden Gadsden Correctional State of Florida July 1, 2001 800 Managed
Institution Correctional Privatization
Commission
Lake City Lake City Correctional State of Florida February 15, 2000 350 Managed
Center Correctional Privatization
Commission
Lecanto Citrus County Detention Citrus County, Florida September 30, 300 Managed
Facility 2000
Polk County, Florida (1)
Panama City Bay Correctional State of Florida August 28, 2000 750 Managed
Facility Correctional Privatization
Commission
Panama City Bay County Jail Bay County, Florida January 22, 2000 276 Managed
Panama City Bay County Jail Annex Bay County, Florida January 22, 2000 401 Managed
Okeechobee Okeechobee Juvenile State of Florida Department December 3, 2002 96 Managed
Offender Correctional of Juvenile Justice
Center
Georgia Alamo Wheeler Correctional Georgia DOC June 30, 2000 1,524 Owned and
Facility managed
McRae McRae Correctional (3) (3) 1,524 Owned and
Facility managed
Millen Millen Correctional (3) (3) 1,524 Owned and
Facility managed
Nicholls Coffee Correctional Georgia DOC June 30, 2000 1,524 Owned and
Facility managed
Stewart County Stewart County (3) (3) 1,524 Owned and
Correctional Facility managed
Indiana Vincennes Southwest Indiana Children and Family June 30, 2002 132 Managed
Regional Youth Village Services Corporation
State of Delaware June 30, 2000
Indianapolis Marion County Jail II Marion County, Indiana November 20, 2001 670 Managed
Madison County, Indiana (1)
Kansas Leavenworth Leavenworth Detention USMS December 31, 2000 327 Owned and
Center managed
Kentucky Beatyville Lee Adjustment Center Commonwealth of Kentucky December 11, 2001 756 Owned and
managed
</TABLE>
37
<PAGE> 41
<TABLE>
<CAPTION>
OWNED,
NO. OF MANAGED
CONTRACTING FACILITY AND/OR
LOCATION CITY FACILITY PARTIES EXPIRATION BEDS LEASED
- -------- --------------- ----------------------- --------------------------- ----------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Louisville River City Correctional Jefferson County, Kentucky June 30, 2000 363 Owned and
Center managed
St. Mary Marion Adjustment Commonwealth of Kentucky December 7, 2001 856 Owned and
Center managed
Wheelwright Otter Creek Commonwealth of Kentucky December 7, 2001 656 Owned and
Correctional Center managed
Louisiana Winnfield Winn Correctional Department of Public Safety March 18, 2000 1,538 Managed
Center and Corrections
Minnesota Appleton Prairie Correctional Appleton Prison Corp. July 31, 2009 1,338 Owned and
Facility managed
Minnesota DOC June 30, 2001
Minnesota (USMS) (5)
Nebraska (USMS) (5)
USMS September 20,
2000
State of Hawaii June 30, 2001
Mississippi Greenwood Delta Correctional Delta Correctional October 25, 2001 1,016 Managed
Facility Authority
Tallahatchie Tallahatchie County (3) (3) 1,104 Owned and
Correctional Center managed
Woodville Wilkinson County Wilkinson County Industrial January 5, 2003 850 Managed
Correctional Center Development Authority
Montana Shelby Crossroads Correctional Montana DOC August 31, 2003 512 Owned and
Center managed
Montana DOC June 30, 2002
Nevada Las Vegas Southern Nevada Women's State of Nevada, Nevada June 30, 2015 500 Owned,
Correctional Facility Dept. of Prisons managed
and
leased(6)
New Jersey Elizabeth Elizabeth Detention INS January 2, 2001 300 Managed
Center
New Mexico Estancia Torrance County Torrance County, New Mexico October 31, 2010 910 Owned and
Detention Facility (management services) managed
Torrance County, New Mexico (1)
Lincoln County, New Mexico (1)
Valencia County, New Mexico (1)
Grants New Mexico Women's New Mexico DOC June 30, 2000 322 Owned and
Correctional Facility managed
Milan Cibola County Cibola County, New Mexico April 16, 2001 1,012 Owned and
Corrections Center managed
State of Idaho July 15, 2000
State of Alaska June 30, 2000
North Bayboro Pamlico Correctional North Carolina DOC September 1, 2003 528 Owned,
Carolina Institution managed
and
leased(6)
Spruce Pine Mountainview State of North Carolina November 30, 2003 528 Owned,
Correctional managed
Institution and
leased(6)
Ohio Cincinnati Queensgate Correctional Hamilton County, Ohio(2) March 1, 2000 850 Owned and
Facility leased(6)
Youngstown Northeast Ohio Government of District of September 8, 2000 2,016 Owned and
Correction Center Columbia managed
</TABLE>
38
<PAGE> 42
<TABLE>
<CAPTION>
OWNED,
NO. OF MANAGED
CONTRACTING FACILITY AND/OR
LOCATION CITY FACILITY PARTIES EXPIRATION BEDS LEASED
- -------- --------------- ----------------------- --------------------------- ----------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Oklahoma Cushing Cimarron Correctional Oklahoma DOC June 30, 2000 960 Owned and
Facility managed
Cushing Municipal Authority June 30, 2000
Holdenville Davis Correctional Oklahoma DOC June 30, 2000 960 Owned and
Facility managed
Sayre North Fork Correctional Wisconsin DOC March 6, 2000 1,440 Owned and
Center managed
State of Hawaii June 30, 2001
Sayre Industrial Authority April 30, 2018
Tulsa David L. Moss Criminal Tulsa County Criminal August 22, 2002 1,440 Managed
Justice Center Justice Authority
Watonga Diamondback Watonga Economic July 31, 2018 1,440 Owned and
Correctional Facility Development Authority managed
State of Hawaii June 30, 2001
Indiana DOC January 31, 2003
Oklahoma DOC June 30, 2000
Puerto Rico Guayama Guayama Correctional Administration of December 17, 2000 1,000 Managed
Center Corrections of the
Commonwealth of Puerto
Rico, Puerto Rico Public
Buildings Authority
Ponce Ponce Adult Administration of February 6, 2002 1,000 Managed
Correctional Facility Corrections of the
Commonwealth of Puerto
Rico, Puerto Rico Public
Buildings Authority
Ponce Ponce Youthful Offender Administration of February 6, 2002 500 Managed
Correctional Facility Corrections of the
Commonwealth of Puerto
Rico, Puerto Rico Public
Buildings Authority
Tennessee Chattanooga Silverdale Facilities Hamilton County, Tennessee September 19, 576 Managed
2000
Clifton South Central Tennessee DOC February 28, 2002 1,506 Managed
Correctional Facility
Mason West Tennessee City of Mason July 29, 2010 600 Owned and
Detention Center managed
USMS August 4, 2000
Memphis Shelby Training Center Juvenile Court of Memphis April 14, 2015 200 Owned and
and Shelby County, managed
Tennessee
U.S. Department of Justice December 31, 2000
Delaware Dept. of Services June 30, 2000
for Children, Youth and
their Families
Nevada Dept. of Human June 30, 2000
Resources Division of Child
and Family Services
Idaho Dept. of Juvenile November 30, 2000
Corrections
Memphis Tall Trees Tennessee Dept. of June 30, 2000 63 Managed
Children's Services (level
1)
Tennessee Dept. of June 30, 2000
Children's Services (level
2)
</TABLE>
39
<PAGE> 43
<TABLE>
<CAPTION>
OWNED,
NO. OF MANAGED
CONTRACTING FACILITY AND/OR
LOCATION CITY FACILITY PARTIES EXPIRATION BEDS LEASED
- -------- --------------- ----------------------- --------------------------- ----------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Nashville Metro-Davidson County Metropolitan Government of June 1, 2000 1,092 Managed
Detention Facility Nashville and Davidson
County, Tennessee
Whiteville Hardeman County Hardeman County November 14, 2001 2,016 Managed
Correctional Center Correctional Facilities
Corp.
State of Hawaii June 30, 2001
Wisconsin DOC March 6, 2000
Madison County, Tennessee (1)
Commonwealth of (1)
Massachusetts
Whiteville Whiteville Correctional Wisconsin DOC March 6, 2000 1,536 Owned and
Facility managed
Texas Bartlett Bartlett State Jail Texas Dept. of Criminal August 31, 2001 962 Managed
Justice
Bridgeport Bridgeport Pre-Parole Texas Dept. of Criminal August 31, 2000 200 Owned and
Transfer Facility Justice managed
Brownfield Brownfield Intermediate Texas Dept. of Criminal August 31, 2000 200 Managed
Sanction Facility Justice
Dallas Community Education Community Education August 14, 2008 -- Owned and
Partners -- Dallas Partners(2) leased
Eden Eden Detention Center City of Eden April 13, 2011 1,225 Owned and
managed
Federal Bureau of Prisons (5)
('BOP')
Houston Community Education Community Education June 30, 2008 -- Owned and
Partners -- Houston Partners(2) leased
Houston Houston Processing INS March 31, 2000 411 Owned and
Center managed
Laredo Laredo Processing INS September 30, 258 Owned and
Center 2000 managed
Laredo Webb County Detention Webb County October 1, 2018 480 Owned and
Facility managed
USMS (5)
Liberty Liberty County Jail Liberty County, Texas November 25, 2001 382 Managed
Delaware Dept. of Services June 30, 2000
for Children, Youth and
their Families
Nevada Dept. of Human June 30, 2000
Resources Division of Child
and Family Services
USMS (5)
Short term contracts: (1)
Orange County
Hardin County
Polk/Trinity/San Jacinto
Counties
Jefferson County
Montgomery County
Nacogdoches County
Tyler County
Chambers County
Baytown
Pascua Yaqui Tribe of
Arizona
</TABLE>
40
<PAGE> 44
<TABLE>
<CAPTION>
OWNED,
NO. OF MANAGED
CONTRACTING FACILITY AND/OR
LOCATION CITY FACILITY PARTIES EXPIRATION BEDS LEASED
- -------- --------------- ----------------------- --------------------------- ----------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
First Judicial District
Juvenile Probation Dept.
Nevada Youth Training
Center
INS
BOP
Mineral Wells Mineral Wells Pre- Texas Dept. of Criminal August 31, 2000 2,103 Owned and
Parole Transfer Justice managed
Facility
Taylor T. Don Hutto Williamson County, Texas January 21, 2003 480 Owned and
Correctional Center managed
Venus Venus Pre-Release Texas Dept. of Criminal August 31, 2001 1,000 Managed
Center Justice
Virginia Lawrenceville Lawrenceville Virginia DOC March 22, 2003 1,500 Managed
Correctional Center
District of Washington Correctional Treatment District of Columbia March 15, 2017 866 Owned,
Columbia Facility managed
and
leased(6)
INTERNATIONAL
Australia Queensland Borallon Corrections Queensland Correctional September 30, 469 Managed
Centre Services and CCAustralia 2000
PTY, Ltd.
Melbourne Metropolitan Women's Department of Justice and August 21, 2001 125 Owned,
Correctional Centre Excor Investments PTY, Ltd. managed
and
leased(6)
Wooroloo Acacia Prison State of Western Australia 5 years from 750 Managed
and CCAustralia PTY, Ltd. opening date
(scheduled to be
November 1, 2000)
United Redditch HMP Blakenhurst HMP Secretary of State for May 25, 2001 850 Managed
Kingdom the Home Department and
UKDS Ltd.
Salford HMP Forrest Bank HMP Secretary of State for January 25, 2025 800 Owned,
the Home Department and managed
Agecroft Prison Management, and
Ltd. leased(6)
</TABLE>
- -------------------------
(1) Contract continues until either party provides the other with 30 days
written notice of termination.
(2) Indicates leasing party.
(3) Facility currently under development or construction.
(4) Prison Realty is lessee under a ground lease with City of San Diego for the
real property.
(5) Contract expires when funding is no longer allocated by U.S. Congress.
(6) Facility is leased to the appropriate state or local government agency (or
the District of Columbia).
RISKS ASSOCIATED WITH THE OPERATION AND MANAGEMENT OF CORRECTIONAL AND DETENTION
FACILITIES
By effecting the restructuring, Prison Realty will become more directly
exposed to the risks inherent in the private corrections and detention industry.
These risks include:
- Cash flow and revenues generated from private prison management are
dependent upon facility management contracts with government entities,
which can be canceled on short notice without significant penalty.
- The failure of one or more government entities to renew these management
contracts or to send inmates to Prison Realty's facilities, or the
failure of one or more government entities to receive sufficient
appropriations to cover its contractual obligations, could have an
adverse effect on Prison Realty's business.
41
<PAGE> 45
- Private prison managers are increasingly subject to public scrutiny
regarding proposed facilities, opposition from organized labor and
federal and state regulation and political conditions which could make
it more difficult for Prison Realty to maintain or expand its business.
- Legislation has been proposed or enacted in several states, and has been
introduced in the United States House of Representatives, restricting
the ability of private prison managers to house certain types of
inmates.
- Prison Realty could be subject to potential claims or litigation by
third parties or prisoners relating to personal injury or other damages
resulting from a prisoner's escape from, or a disturbance or riot at, a
facility owned by Prison Realty.
- Nine of the facilities either owned or under development by Prison
Realty will be subject to an option to purchase by certain government
agencies. If one or more of those facilities are repurchased by a
government agency, Prison Realty may not be able to recoup its full
investment from such facility or be able to invest the proceeds from the
sale of the facility in one or more properties that yield as much
revenue as the repurchased property.
42
<PAGE> 46
THE PRISON REALTY SPECIAL MEETING
DATE, TIME AND PLACE
The Prison Realty special meeting will be held on , May ,
2000 at 10:00 a.m., local time, at the Loews Vanderbilt Plaza Hotel, 2100 West
End Avenue, Nashville, Tennessee.
MATTERS TO BE CONSIDERED AT THE MEETING
At the Prison Realty special meeting, Prison Realty shareholders will be
asked, in accordance with the Maryland General Corporation Law and the rules of
the New York Stock Exchange, to consider and vote on the equity investment and
the charter amendments. You will also be asked to ratify the Prison Realty
board's approval of the equity investment and the related transactions,
including the mergers with CCA, PMSI and JJFMSI and the charter amendments, and
to consider and act upon such other business as may properly come before the
Prison Realty special meeting or any adjournments or postponements thereof. The
Prison Realty board is not currently aware of any business to be acted upon at
the Prison Realty special meeting other than as described in this proxy
statement. If, however, other matters are properly brought before the Prison
Realty special meeting, the persons appointed as proxies will have discretion to
vote those matters according to their judgment.
Representatives of Prison Realty's independent auditors, Arthur Andersen
LLP, will be present at the special meeting to respond to appropriate questions
regarding the accounting and related effects of the proposals to be considered.
RECORD DATE AND OUTSTANDING SHARES
The board of directors of Prison Realty has fixed the close of business on
, , 2000 as the record date for determining the shareholders
entitled to notice of, and to vote at, the Prison Realty special meeting. As of
the record date, there were issued and outstanding shares of Prison Realty
common stock entitled to vote at the Prison Realty special meeting. Holders of
currently outstanding shares of Prison Realty series A preferred stock do not
have any voting rights with respect to the matters to be voted upon at the
Prison Realty special meeting.
QUORUM
The presence, either in person or by proxy, of the holders of shares
representing a majority of the voting power of the outstanding shares of capital
stock entitled to vote at the Prison Realty special meeting will constitute a
quorum for the transaction of business at the meeting. In the absence of a
quorum, the holders of shares representing a majority of the voting power of the
shares represented at the meeting have the power to adjourn the meeting without
further notice, other than by announcement at the meeting of the time of its
adjournment. At any adjourned meeting at which a quorum exists, the shareholders
entitled to vote may transact any business that might have been transacted at
the original meeting. If and when a quorum exists at the meeting or any
adjourned meeting, the shareholders present and represented at the meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
from the meeting of shareholders counted in determining the existence of a
quorum.
VOTING METHOD AND PROXIES
You can vote on the matters to come before the meeting in two ways:
- by attending the meeting and casting your vote there; or
- by signing and returning the enclosed proxy card.
43
<PAGE> 47
All shares represented by properly executed proxies received prior to or at
the Prison Realty special meeting and not revoked will be voted in accordance
with the instructions indicated on those proxies or, if no instructions are
given, in favor of Proposals 1, 2 and 3 and in accordance with this proxy
statement. We urge you to mark the box on the proxy card to indicate how you
want your shares of Prison Realty common stock to be voted. If matters other
than those described in this proxy statement are properly presented at the
Prison Realty special meeting, the persons named as the proxies will vote in
accordance with their own judgment with respect to those matters.
If your shares are held in the name of your broker, bank, or other nominee,
the inspectors coordinating the voting at the meetings will require you to
present a power of attorney from such broker, bank or nominee for you to vote
such shares in person at any meeting. Please contact your broker, bank or
nominee for such a form.
REVOCABILITY OF PROXY
Even if you submit a vote by proxy on the applicable enclosed form, you may
still vote in person at the Prison Realty special meeting. A shareholder may
revoke a proxy at any time prior to the time it is voted by either:
- submitting a signed written revocation to the Secretary of Prison Realty
at 10 Burton Hills Boulevard, Suite 100, Nashville, Tennessee 37215;
- submitting a signed proxy bearing a later date; or
- appearing at the meeting and voting in person.
No special form of revocation is required if you intend to vote in person at the
special meeting. However, attendance at the special meeting will not, in and of
itself, constitute revocation of a proxy.
REQUIRED VOTE
Holders of shares of Prison Realty common stock as of the record date are
entitled to one vote per share on each proposal to be considered at the Prison
Realty special meeting.
Approval of Proposal 1 at the Prison Realty special meeting will require
the affirmative vote of a majority of all votes cast on the proposal, provided
that the holders of at least 50% of Prison Realty's common stock are present in
person or by proxy at the special meeting and voting on the proposal. Approval
of Proposal 2 at the Prison Realty special meeting will require the affirmative
vote of the holders of two-thirds of the outstanding shares of Prison Realty
common stock. Approval of Proposal 3 at the Prison Realty special meeting will
require the affirmative vote of a majority of all votes cast on the proposal,
provided that the holders of at least 50% of Prison Realty's common stock are
present in person or by proxy at the special meeting.
As of the record date, directors and executive officers of Prison Realty
and their affiliates beneficially owned and were entitled to vote approximately
shares of Prison Realty common stock, which represented approximately
% of the shares of Prison Realty common stock outstanding on the Prison
Realty record date. Each director and executive officer has indicated his or her
present intention to vote, or cause to be voted, the shares of Prison Realty
common stock so owned by him or her for approval of the equity investment and
the charter amendments. The vote of these shares in favor of the transactions
will result in the affirmative vote of approximately % of the shares of
Prison Realty common stock entitled to vote at the Prison Realty special
meeting, or approximately of the votes needed to approve Proposals 1 and
3, and approximately of the votes needed to approve Proposal 2.
44
<PAGE> 48
SOLICITATION OF PROXIES
Prison Realty will pay the costs of soliciting proxies from its
shareholders, including the costs of preparing, filing, printing and
distributing this proxy statement and any other solicitation materials that are
used. In addition to solicitation by mail, the directors, officers and employees
of Prison Realty may solicit proxies from Prison Realty shareholders by
telephone or telegram or by other means of communication. Such directors,
officers and employees will not be additionally compensated but may be
reimbursed for their reasonable out-of-pocket expenses in connection with such
solicitation. Arrangements will also be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation material
to the beneficial owners of stock held of record by such persons, and Prison
Realty will reimburse such custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses in connection therewith.
In addition, Prison Realty has retained MacKenzie Partners, Inc. to assist
in the solicitation of proxies by Prison Realty for a fee currently not expected
to exceed more than $15,000, plus reasonable out-of-pocket costs and expenses.
Any questions or requests regarding proxies or related materials may be directed
to MacKenzie Partners, Inc., 156 Fifth Avenue, New York, New York 10010,
Telephone Number: (800) 322-2885.
CROSS CONDITIONALITY OF PROPOSALS
In order for the equity investment described in Proposal 1 to be completed,
Proposal 2 regarding the charter amendments and related restructuring must also
receive the required approval from the shareholders of Prison Realty as
described above in "-- Required vote."
ABSTENTIONS; BROKER NON-VOTES
Abstentions and broker non-votes will be included in determining the number
of shares of Prison Realty common stock present at the Prison Realty special
meeting for purposes of establishing a quorum and will have the same effect as
votes against the charter amendments. Pursuant to Maryland law, neither
abstentions nor broker non-votes will have any effect on the ratification of the
board's action. The NYSE requires that the equity investment be approved by a
majority of votes cast on the proposal provided that at least 50% of the shares
entitled to vote are cast. Abstentions and broker non-votes will not be counted
as votes cast and therefore may prevent approval of the proposal to approve the
equity investment. A broker non-vote occurs when a broker or other nominee holds
the shares of a beneficial owner, does not receive instructions from the
beneficial owner of persons entitled to vote those shares, and, with respect to
one or more but not all issues, the broker or other nominee does not have
discretion to vote the shares.
RECOMMENDATION OF THE PRISON REALTY BOARD
THE PRISON REALTY BOARD HAS APPROVED THE EQUITY INVESTMENT, THE CHARTER
AMENDMENTS AND THE RESTRUCTURING TRANSACTIONS RELATED THERETO. THE PRISON REALTY
BOARD BELIEVES THAT THE EQUITY INVESTMENT AND THE CHARTER AMENDMENTS, AND THE
RESTRUCTURING TRANSACTIONS RELATED THERETO, AS WELL AS THE RATIFICATION OF THE
BOARD'S AND ITS COMMITTEES' ACTIONS IN APPROVING THE EQUITY INVESTMENT AND
RELATED TRANSACTIONS WHICH ARE CONDITIONS TO THE EQUITY INVESTMENT, ARE FAIR TO
AND IN THE BEST INTERESTS OF PRISON REALTY AND ITS SHAREHOLDERS AND RECOMMENDS
THAT THE PRISON REALTY SHAREHOLDERS VOTE FOR APPROVAL OF THE EQUITY INVESTMENT,
THE CHARTER AMENDMENTS AND THE RELATED RESTRUCTURING, AS WELL AS THE
RATIFICATION OF THE BOARD'S AND ITS COMMITTEES' ACTION IN APPROVING THE EQUITY
INVESTMENT AND RELATED TRANSACTIONS WHICH ARE CONDITIONS TO THE EQUITY
INVESTMENT.
45
<PAGE> 49
PROPOSAL 1
PROPOSAL TO APPROVE THE EQUITY INVESTMENT
GENERAL
A group of investors led by an affiliate of Fortress Investment Group LLC
and affiliates of The Blackstone Group, together with an affiliate of Bank of
America, has agreed to make an equity investment in Prison Realty through the
purchase of up to $350.0 million in shares of series B convertible preferred
stock and warrants, less the number of shares of series C convertible preferred
stock and warrants to purchase common stock subscribed for in Prison Realty's
rights offering which will be completed at or about the time of the initial
closing of the investors' purchase. The equity investment is conditioned upon,
among other things, the completion of the mergers of each of CCA, PMSI and
JJFMSI with and into separate, newly-formed, wholly owned subsidiaries of Prison
Realty, and Prison Realty electing to be treated as a C corporation for federal
income tax purposes commencing with its 1999 taxable year. In connection with
the equity investment and related restructuring and as conditions to the equity
investment in particular, Prison Realty will refinance its existing indebtedness
with a new senior secured credit facility comprised of a $950.0 million term
facility together with a $250.0 million revolving facility to be provided
pursuant to the terms of a commitment letter from Credit Suisse First Boston
("CSFB") and will conduct the rights offering.
BACKGROUND OF THE EQUITY INVESTMENT AND RELATED RESTRUCTURING TRANSACTIONS
Prison Realty, in its current form, is the result of the merger between Old
Prison Realty and Old CCA which took place on January 1, 1999. As part of that
merger, CCA, PMSI and JJFMSI assumed the business of operating correctional
facilities, with CCA being the lessee of a substantial number of Prison Realty's
facilities. The agreements and contractual obligations entered into by these
parties in connection with these transactions are described in detail under the
headings "Information About Our Company" on page 25 of this proxy statement. The
rates on the leases between CCA and Prison Realty were set with the intention
that the public shareholders of Prison Realty would receive as much of the
benefit as possible from owning and operating the correctional facilities, while
at the same time Prison Realty would be able to maintain its status as a REIT.
This status as a REIT would enable Prison Realty to pay no corporate income tax,
but would require it to pay out large amounts of dividends to the Prison Realty
shareholders. In fact, the lease rates were set so that CCA was projected to
lose money for the first several years of its existence. Both Prison Realty and
CCA believed that CCA would have access to adequate debt financing to fund this
deficit until CCA became profitable. After completion of the first quarter of
1999, the first quarter in which operations were conducted in this new
structure, the management of Prison Realty and the management of CCA discovered
that CCA had not performed as well as projected for several reasons: occupancy
rates at its facilities were lower than in 1998; operating expenses were higher
as a percentage of revenues than in 1998; and certain aspects of the lease
arrangements with Prison Realty, including the obligation of CCA to begin making
full lease payments even before a facility accepted inmates, adversely affected
CCA. As a result, in May 1999, Prison Realty and CCA amended certain of the
agreements between them to provide CCA with additional cash flow. The objective
of these changes was to allow CCA to be able to continue to make its full lease
payments, to allow Prison Realty to continue to make dividend payments to its
shareholders and to provide time for CCA to improve its operations so that it
might ultimately perform as projected and be able to make its full lease
payments. However, after these changes were announced, a chain of events
occurred which adversely affected both Prison Realty and CCA. Prison Realty's
stock price fell dramatically, resulting in the commencement of shareholder
litigation against Prison Realty and its directors. These events made it more
difficult for Prison Realty to raise capital. A lower stock price meant that
Prison Realty had more restricted access to equity capital, and the
uncertainties caused by the falling stock price, the shareholder litigation and
the results of operations at CCA made it much more difficult for Prison
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Realty to obtain debt financing. In addition, the stock prices of REITs
generally suffered in the market during this period as a result of both general
market and REIT specific factors. During this time, Prison Realty was trying to
raise approximately $300.0 million of debt financing through an offering of
high-yield notes. Because of these events and the conditions of the capital
markets generally, Prison Realty was only able to raise $100.0 million in this
financing, and the notes bore interest at a much higher rate than was expected.
Raising capital was important to Prison Realty because as a REIT, it had to
pay out 95% of its taxable income as dividends. During the first three quarters
of 1999, Prison Realty paid out approximately $217.7 million in cash as
dividends. At the same time, Prison Realty's business strategy was to develop,
finance and own prison facilities. Prison Realty believes that providing this
construction financing for federal, state and local governments has been an
important factor in its success. Building prison facilities is very expensive;
the cost of the average prison facility built by Prison Realty over the last
three years has been approximately $43.5 million. In addition to the need for
capital to build prisons, it is very important that both Prison Realty and CCA
have adequate capital to fund their operations because the business of owning
and operating correctional facilities involves significant issues with respect
to public safety. It is essential that the government customers of Prison Realty
and CCA believe that Prison Realty and CCA have adequate capital resources to
conduct their business. Accordingly, if Prison Realty was required to pay out
large amounts of cash as dividends and could not raise debt or equity capital,
its business would suffer.
During the summer of 1999, Prison Realty was able to increase its line of
credit from $650.0 million to $1.0 billion. However, this financing had higher
interest rates and transaction costs and also put other significant requirements
on Prison Realty. One of the financing requirements was that Prison Realty raise
$100.0 million and CCA raise $25.0 million in new equity in order for Prison
Realty to make the distributions that would be necessary to enable Prison Realty
to qualify as a REIT in cash; provided, however, that such requirement did not
prohibit Prison Realty from making such required distributions in certain
combinations of its securities. As a result, management and the board of
directors of Prison Realty decided that Prison Realty needed to retain a
financial advisor to assist it in raising this capital. In addition, the Prison
Realty board and the Special Committee described below decided that it was
important to attract not just financing but also an investor with credibility
and expertise in managing companies that were facing challenges. What follows is
a chronological description of the events that took place over a four-month
period leading up to the agreement with respect to the equity investment.
On Friday, August 27, 1999, the Prison Realty board of directors held a
special meeting for the purpose of considering and selecting a strategic
financial advisor for Prison Realty. At the meeting, presentations were made to
the board of directors and management of Prison Realty by representatives of two
investment banking firms, one of which was Merrill Lynch & Co. ("Merrill
Lynch"). Following the presentations, the members of the Prison Realty board
engaged in a discussion with management regarding the selection of a financial
advisor, including Prison Realty's existing and prospective relationships with
each of the firms. The Prison Realty board also deliberated without the presence
of management. Based on these deliberations, it was agreed that Merrill Lynch
would be engaged as Prison Realty's financial advisor due to, among other
things, its substantial resources, its ability to quickly and efficiently
analyze Prison Realty's current financial situation, and its relationship with
potential investors. Subsequent to this meeting and Prison Realty's engagement
of Merrill Lynch, the CCA board also determined to engage Merrill Lynch to act
as its financial advisor with respect to these transactions. The Prison Realty
board did not view Merrill Lynch's role as financial advisor to both Prison
Realty and CCA as creating a conflict because of the dependence of the two
companies on each other and because both companies needed to raise new equity
capital.
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In connection with the foregoing, at the request of the Independent
Committee of the board of directors of Prison Realty, the boards of each of
Prison Realty, CCA, PMSI and JJFMSI approved the formation of a special
coordinating committee to monitor the financial situation of both Prison Realty
and CCA and to coordinate with the companies' advisors regarding the
consideration of strategic alternatives. The Independent Committee of the Prison
Realty Board is composed of independent directors and, under the bylaws of
Prison Realty, the Independent Committee is required to review transactions
between Prison Realty and CCA. The existing members of the Independent Committee
of the Prison Realty board, together with Jean-Pierre Cuny, the Sodexho designee
to the Prison Realty board and the CCA board, Thomas W. Beasley, chairman of the
PMSI board, Lucius E. Burch, III, chairman of the CCA board, and Samuel W.
Bartholomew, Jr., chairman of the JJFMSI board, were appointed to serve as
members of the Special Committee, and Joseph V. Russell, chairman of the
Independent Committee of the Prison Realty board, was appointed to serve as the
Special Committee's chairman. Throughout the process, both the Special Committee
and the Independent Committee had numerous opportunities to meet with Merrill
Lynch and their other advisors and to deliberate without management present.
On Tuesday, August 31, 1999, representatives of Merrill Lynch presented the
Special Committee with a preliminary analysis and overview of various strategic
alternatives to be considered by Prison Realty and CCA in light of the financial
condition of both companies and the current conditions in the capital markets.
In analyzing the strategic alternatives available to Prison Realty, Merrill
Lynch reviewed a number of potential alternatives including, among others: (i)
maintenance of the current operating structure while reducing the lease payments
made by CCA to Prison Realty; (ii) the creation of a "paper-clip" operating
structure whereby the stock of one or both of PMSI and JJFMSI held by Prison
Realty would be distributed to Prison Realty's shareholders, with one or both of
PMSI or JJFMSI then being merged with and into CCA; (iii) an investment by a
third-party investor in equity securities of Prison Realty, coupled with a
merger of CCA with and into an affiliate of the third-party investor; and (iv)
the merger of CCA and each of PMSI and JJFMSI with and into Prison Realty,
either standing alone, together with a rights offering to Prison Realty's
existing shareholders, or in conjunction with an investment by a third-party
investor in equity securities of Prison Realty. The members of the Special
Committee and Merrill Lynch also discussed the range of investment proposals
which Prison Realty might receive, Merrill Lynch's strategy with respect to
certain investors, and the existing role of Prison Realty's management.
Following the meeting and through the first three weeks of September 1999,
the representatives of Merrill Lynch worked with the management of each of
Prison Realty and CCA and the Special Committee to develop financial models and
analyses of the companies on a going-forward basis. Merrill Lynch and members of
the Special Committee engaged in intense review of these models during this
period, including the assumptions being used therein.
The Special Committee and its advisors met on Friday, September 24, 1999.
At the meeting, Merrill Lynch presented its preliminary conclusions with respect
to the various strategic alternatives available to Prison Realty. The
representatives of Merrill Lynch discussed the financial models of Prison Realty
and CCA and analyzed the various strategic alternatives in light of these
models. Based on this analysis, Merrill Lynch determined that the viable
alternatives available to Prison Realty were: (i) a combination of the companies
into a single entity taxable as a C corporation; (ii) a merger of the companies
accompanied with a strategic equity placement of up to $150.0 million; (iii) a
merger of the companies accompanied with a strategic equity placement of up to
$500.0 million; (iv) a sale or merger of Prison Realty to or with another
entity; and (v) a "going private" transaction. Merrill Lynch and the members of
the Special Committee then discussed potential financial partners that could
assist Prison Realty in completing one of these strategic alternatives. The
representatives of Merrill Lynch informed the Special Committee that virtually
all the potential financial partners that they had contacted that were
interested in making an investment of greater than $150.0 million in
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Prison Realty had indicated that any such investment would need to be made in
connection with a merger of the companies into a C corporation, absent an
outright purchase of Prison Realty and/or CCA.
Beginning in the last week of September, Merrill Lynch contacted the
parties who may have had an interest in completing the equity investment and the
related restructuring with Prison Realty and CCA, including several private
equity firms in the business of investing in capital stock of other companies.
During the weeks of October 4 and October 11, Prison Realty entered into
confidentiality and standstill agreements with 12 of the private equity firms
contacted and distributed information to these parties concerning a possible
investment in Prison Realty. Prison Realty received preliminary inquiries from
an additional 18 parties, but none of these parties entered into a
confidentiality and standstill agreement, and, as a result, did not receive any
due diligence materials from Prison Realty.
During this period, the Prison Realty board and the CCA board instructed
management of the companies and Merrill Lynch to pursue discussions with the
firms or groups, including the investors, who had indicated an interest in
investing in the companies, in an effort to obtain the best offer available.
Because most of the strategic alternatives involved a transaction with CCA,
approval of the transaction by the Independent Committee was required by Prison
Realty's bylaws. Accordingly, the Independent Committee engaged its own special
counsel and Wasserstein Perella & Co., Inc. ("Wasserstein Perella") to serve as
financial advisor to the Independent Committee in its consideration of strategic
alternatives being considered by the Special Committee and the Prison Realty
board. Prison Realty's law firm continued in its capacity as counsel to Prison
Realty and the Special Committee with respect to the consideration of strategic
alternatives. The board of directors of CCA subsequently engaged counsel to the
CCA board.
During the last two weeks of October, Merrill Lynch engaged in discussions
with the various firms or companies who had received information from the
companies, including the investors. Merrill Lynch received a total of four
written proposals, one from the investors, one from a private equity investment
firm and two alternative proposals from a public company.
During the final week of October and during the first few days of November,
representatives of Merrill Lynch engaged in numerous discussions with the
members of the Special Committee and its advisors, as well as Prison Realty's
legal, tax and accounting advisors regarding the terms of the various proposals.
In addition, Merrill Lynch was specifically instructed by the Special Committee
to explore certain "standalone" alternatives in greater detail in an effort to
determine the capital requirements of Prison Realty and the liquidity needs of
CCA, as well as the viability of the companies and their ability to continue
operating without an equity investment.
The proposals received were based on varying assumptions as to Prison
Realty's dividend requirements. During this period, the Prison Realty board and
the Special Committee continued discussions with Merrill Lynch and Prison
Realty's legal, tax and accounting advisors as to the form of, timing and amount
of dividend payments required to be made by Prison Realty, including the
requirement to distribute the accumulated earnings and profits of Old CCA
inherited in the 1999 Merger.
The Special Committee held a meeting on Thursday, November 4, 1999 to
review the proposals which Merrill Lynch had evaluated as offering the best
alternatives for Prison Realty. The representatives of Merrill Lynch distributed
materials to each person at the meeting summarizing Merrill Lynch's analysis of
the strategic alternatives available to Prison Realty and CCA, based on the
following objectives: (i) maximizing Prison Realty shareholder value; (ii)
improving financial stability; (iii) reducing the cost of capital; and (iv)
increasing the availability of capital. Merrill Lynch reviewed the four
proposals which had been received and presented its financial evaluation of
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each proposal. Merrill Lynch also informed the Special Committee that it had
performed a financial evaluation of certain standalone alternatives in which
neither Prison Realty nor CCA would complete a transaction with a strategic
investor, and that based on its review, the standalone alternatives were not the
best options due to, among other things, the negative impact they would have on
Prison Realty's ability to restructure its existing debt, and accordingly,
Prison Realty and CCA should consider and choose among one of the four proposals
received from the potential strategic partners. At the time Wasserstein Perella
delivered its opinion to the Independent Committee, it concluded, based on
information provided to it, that the standalone alternatives were not feasible.
Following the November 4, 1999 meeting, the Special Committee engaged in
discussions with its legal, tax and accounting advisors and with the
representatives of Merrill Lynch in an effort to determine which of the four
proposals provided the best alternative for Prison Realty. The Special Committee
decided that the proposals submitted to Merrill Lynch by the investors and by an
additional proposed private equity investor provided better opportunities to
Prison Realty and its shareholders than the two alternative proposals presented
by the public company. In addition, when invited to make a presentation to the
Special Committee regarding its alternative proposals, the public company
indicated that it had decided to withdraw from the process and not make any
definitive offer to Prison Realty. Representatives of the investors and the
other proposed private equity investor were subsequently invited to give
presentations to the Special Committee regarding their respective proposals. The
investors and the additional proposed investor accepted the invitation and on
November 9 and 11, the Special Committee and its advisors heard presentations
from the two prospective investor groups. During the presentations,
representatives from both investor groups addressed the Special Committee
regarding their respective proposals, investment philosophy and perspective
regarding Prison Realty's REIT status and dividend requirements and each
responded to various questions from the directors regarding the same. At the
investors' presentation, representatives of the investors described their
proposal as contemplating an investment of $250.0 million through the purchase
of convertible preferred stock at a conversion price of $10.00 per share and the
purchase of warrants to purchase shares of Prison Realty's common stock at an
exercise price of $12.00 per share. The investors' proposal also contemplated
that Prison Realty maintain REIT status through 1999. Having observed and
discussed the presentations made by the representatives of the proposed investor
groups, the Special Committee instructed Merrill Lynch to solicit final
proposals from each.
The Prison Realty board and the Special Committee held a special joint
meeting on Tuesday, November 16, 1999, at which the representatives of Merrill
Lynch reviewed the status of the most recent proposals submitted by the two
proposed investor groups. While the proposals were similar in many respects, the
Prison Realty board and the Special Committee observed that the proposal from
the other potential investor group contained a continuous adjustment feature to
the conversion rate, based on the trading price of Prison Realty's common stock
during a certain period following the closing of the proposed transaction.
Merrill Lynch then informed the Special Committee that the investors had
conditioned their most recent proposal on the requirement that the companies
enter into an exclusivity agreement with the investors. Representatives of
Merrill Lynch further indicated that it was their belief that the investors were
significantly further along in the due diligence process and were more likely to
enter into a definitive agreement within the necessary time constraints created
by Prison Realty's distribution requirements. Based on this development, and on
Merrill Lynch's belief that the other potential investor would remain interested
in an investment in Prison Realty and would be willing to proceed should the
investors fail to do so, Merrill Lynch recommended that the companies enter into
an exclusivity agreement with the investors. As a result, Prison Realty and CCA
subsequently entered into an exclusivity arrangement with the investors for a
period ending on December 3, 1999.
During the exclusivity period, representatives of the companies, including
the Special Committee, along with their counsel and Merrill Lynch, negotiated
the draft purchase agreement with
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representatives of the investors and their counsel and financial advisors. On
December 3, 1999, the exclusivity agreement expired. Despite this expiration,
the parties continued to negotiate the draft purchase agreement. On December 4,
1999, the investors advised Prison Realty that for a variety of reasons,
including the fact that the third quarter earnings results for the companies on
a combined basis were significantly below the projected financial performance
for the companies and CCA's liquidity concerns were greater than originally
estimated, the investors were not prepared to proceed with the transaction as
proposed. In order to move quickly to complete a transaction, the Special
Committee advised Merrill Lynch to re-establish communications with the other
proposed investors, including the public company, in addition to continuing to
pursue the proposal with the investors. During this period, the Prison Realty
board received a revised proposal from the investors which (i) increased the
total amount of the investment from $250.0 million to $350.0 million (as
required by the proposed lending group), (ii) decreased the price of the
convertible preferred stock (from $10.00 to $8.00) and the exercise price of the
warrants (from $12.00 to $10.00), (iii) increased the fees to be paid to the
investors in connection with the transaction reflecting the increase in the
proposed equity investment, (iv) added an adjustment to the conversion price of
the convertible preferred stock and warrants in the event certain payments made
by Prison Realty in connection with certain shareholder litigation exceed $50.0
million, (v) limited the cash consideration to be paid for CCA, PMSI and JJFMSI,
and (vi) required that Prison Realty submit for shareholder vote the election of
C corporation status in lieu of REIT status for calendar year 1999, which would
result in Prison Realty's not paying further dividends on its common stock and
Prison Realty being required to pay federal income taxes on its earnings for
1999. Moreover, in view of the continuing liquidity needs of Prison Realty, the
investors required that no further distributions be made. In response to this
proposal, the Special Committee and management of Prison Realty solicited a
revised proposal from the other potential investor. While the other potential
investor was willing to consider the transaction, and in fact orally proposed a
transaction which was on substantially similar economic terms to the investors'
proposal, the other potential investor's proposal still contained the continuous
adjustment feature to the conversion rate of the convertible preferred stock and
required a period of additional due diligence prior to the execution of a
definitive agreement. On December 6, 1999, the Prison Realty board and the
Special Committee decided to pursue the investors' revised proposal rather than
the other group's revised proposal after concluding, (i) that the companies
should raise between $300.0 and $350.0 million in equity to address their
liquidity needs and meet the demands of the proposed lending group, (ii) that
the dividend rate on the convertible preferred stock proposed by the investors
was lower than the dividend rate on the convertible preferred stock proposed by
the other investor, and (iii) the conversion price on the convertible preferred
stock proposed by the investors was higher than the conversion price of the
convertible preferred stock proposed by the other investor. In addition, after
consultation with its advisors, the Independent Committee concurred with this
decision. However, as a condition to their decision to pursue the investors'
proposal, the Special Committee and the Independent Committee insisted that the
shareholders of Prison Realty be allowed to participate in the proposed
investment through a rights offering in which Prison Realty shareholders would
be able to purchase up to $75.0 million in convertible securities with the same
economic terms as offered to the investors.
The Prison Realty board convened on Sunday, December 12, 1999, in order to
receive a presentation from Merrill Lynch regarding its opinion with respect to
the fairness of the proposed equity investment to Prison Realty and its
shareholders from a financial point of view. The representatives of Merrill
Lynch reviewed the latest terms of the investors' proposal with the members of
the Special Committee and the Prison Realty board and also discussed the
reasoning and analysis utilized in reaching their conclusion that maintaining
REIT status was not in the best interests of Prison Realty and would not
maximize shareholder value. At this meeting, Prison Realty's counsel provided
the directors with a detailed summary of the terms of the most recent drafts of
the purchase agreement and other documents prepared in connection with the
transactions. Following this
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discussion, representatives of Merrill Lynch reviewed with the Prison Realty
board and the Special Committee an analysis of the strategic alternatives
available to the companies. This discussion included an overview of the
companies' process in reviewing the strategic alternatives to date, as well as
an analysis of the potential advantages and disadvantages of the investors'
proposal, the earlier proposal from the other investor group and the standalone
strategy. This meeting was adjourned to provide Merrill Lynch with additional
time to finalize the terms of the new credit facility to be obtained in
connection with this transaction and to analyze the companies' ability to comply
with certain financial covenants contained in the commitment letter. In
addition, representatives of Wasserstein Perella reviewed with the Independent
Committee its analysis of the feasibility of the standalone alternatives and the
proposed equity investment.
In assessing whether the companies would be able to meet certain earnings
requirements contained in the credit facility commitment letter, the companies
and the investors determined that the fourth quarter earnings results of the
combined companies would also be significantly below the projected financial
performance for the companies. The investors advised the Special Committee and
management that based on the revised earnings estimates, they would be willing
to proceed with their proposed investment only if the conversion price of the
convertible preferred stock was reduced to $6.50, the warrant exercise price was
reduced to $7.50 and the companies agreed to attempt to settle certain existing
shareholder litigation matters prior to closing. In addition, the investors and
the Prison Realty board discussed certain changes with respect to Prison
Realty's management and the operation of Prison Realty following the completion
of the transaction. Based on these discussions, Prison Realty determined that it
should make certain changes in its management, including changes in management
prior to the completion of any transaction and the restructuring of Prison
Realty's board of directors subsequent to the closing of the transaction.
Because the proposal by the investors required that Prison Realty not elect
REIT status for 1999, the tax advisors to Prison Realty began at this time to
focus on what additional distributions, if any, Prison Realty would have to make
in 1999 to retain the option of electing REIT status should the equity
investment and the related restructuring for any reason not be completed. To
elect REIT status for 1999, Prison Realty has to meet two distribution
requirements. First, it has to distribute all of the accumulated earnings and
profits of Old CCA, and second, it has to distribute 95% of its 1999 REIT
taxable income. Under certain ordering rules contained in the Code,
distributions by Prison Realty during 1999 were applied first to the earnings
and profits distribution requirement with the excess, if any, being applied to
the 95% distribution requirement.
Under certain relief provisions contained in the Code, Prison Realty's tax
advisors concluded that Prison Realty could meet the 95% distribution
requirement as late as December 31, 2000, so long as certain conditions were
satisfied. They also concluded, however, that these relief provisions could not
be applied to the earnings and profits distribution requirement. Therefore,
Prison Realty had to determine whether its distributions in 1999 were sufficient
to satisfy the earnings and profits distribution requirement and, if not, the
amount of additional distributions it would have to make.
At that time, Prison Realty had made in 1999 distributions of approximately
$217.7 million. Prison Realty estimated the accumulated earnings and profits of
Old CCA to be approximately $235.0 million. The accumulated earnings and profits
of Old CCA consisted generally of two components, the first being earnings and
profits as they then existed and the second being a "cushion" amount to allow
for possible adjustments to earnings and profits by the IRS. It was necessary to
include "cushion" amounts in the calculation of earnings and profits, since it
was not clear under the Code that Prison Realty could make remedial
distributions if the Internal Revenue Service were later to make adjustments
increasing Old CCA's earnings and profits. Given this estimate of the earnings
and profits and the amount of Prison Realty's distributions to date, the Prison
Realty board determined preliminarily to pay a fourth quarter dividend of
approximately
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$20.0 million and began discussing the form and timing of the dividend and the
concern that Prison Realty did not have sufficient liquidity to pay such
dividend in cash.
On December 17, 1999, President Clinton signed into law the Work Incentive
Improvements Act of 1999 (the "WIIA"). The WIIA included provisions relating to
REITs and specifically contained relief provisions for REITs which inherit C
corporation earnings and profits. Under these relief provisions, if a REIT
inherits C corporation earnings and profits and the IRS later makes adjustments
to increase those earnings and profits, the REIT may at that time make
additional distributions to eliminate the amount of the increase. In light of
this legislation, and because Prison Realty had already distributed in 1999
amounts in excess of Old CCA's actual accumulated earnings and profits
(excluding the "cushion" amounts), Prison Realty and the investors determined
that no additional distributions were necessary for Prison Realty to maintain
the option of electing REIT status for 1999. Moreover, in view of the continuing
liquidity needs of Prison Realty, the investors required that no further
distributions be made.
Under these circumstances, therefore, Prison Realty could request an
automatic extension of time to file its 1999 tax return from March 15, 2000 to
September 15, 2000 and thus defer its election to be taxed as a REIT for 1999
until September 2000, while paying no further dividends on its common stock in
the interim. Accordingly, by obtaining an extension, Prison Realty would retain
the ability to elect REIT status while awaiting the outcome of any required
shareholder vote on Prison Realty's determination not to elect REIT status. If
shareholder approval is not obtained, then Prison Realty could still take such
actions prior to or upon filing its 1999 tax return as may be necessary to elect
REIT status for 1999, including declaring sufficient dividends with respect to
its 1999 taxable year and filing an election to be taxed as a REIT for 1999.
Because of liquidity constraints, however, any dividends paid for 1999 likely
would have to be paid in whole or in part in the form of securities.
The Prison Realty board reconvened on Wednesday, December 22, 1999, at
which time representatives of Merrill Lynch provided an update on certain
revised terms of the investors' proposal and the status of the commitment for
the new credit facility and discussed the strategy to be employed by Prison
Realty with respect to certain pending shareholder litigation. The meeting was
then subsequently adjourned again until Sunday, December 26, 1999, to provide
the representatives of Merrill Lynch and the members of the Special Committee
and their counsel with sufficient time to negotiate the final terms of the
proposed transaction.
On Sunday, December 26, 1999, representatives of Merrill Lynch made their
final presentation to the Prison Realty board and delivered their oral opinion
to the Prison Realty board that, based on the matters presented to the Prison
Realty board and as set forth in its opinion, as of the date of the opinion, the
equity investment was fair from a financial point of view to Prison Realty and
its shareholders. They also informed the Prison Realty board that they were
delivering an opinion to the CCA board in connection with the merger and related
transactions. Counsel to the Prison Realty board and the Special Committee then
summarized the terms of the draft securities purchase agreement relating to the
equity investment, including the revised conversion price of the preferred
shares and the revised exercise price of the warrants. Merrill Lynch also
reconfirmed its conclusion that Prison Realty's standalone alternatives did not
represent the best options available to Prison Realty. After a full discussion,
the members of the Special Committee then approved the equity investment, the
merger and the transactions contemplated thereby, including the charter
amendments, as more fully described herein, and recommended the same for the
review of and approval by the Independent Committee and the full Prison Realty
board. Wasserstein Perella delivered its oral opinion, which opinion was
subsequently confirmed in a written opinion, to the Independent Committee to the
effect that, based on the matters presented to the Independent Committee and as
set forth in its opinion, as of the date of the opinion, the equity investment
was fair, from a financial
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point of view, to Prison Realty and its shareholders. After a full discussion of
that presentation and the terms of the transactions, the members of the
Independent Committee then unanimously approved the equity investment and the
related restructurings, as more fully described herein, and recommended the same
for approval by the Prison Realty board. After a full discussion, the Prison
Realty board, with Jean-Pierre Cuny and Michael W. Devlin abstaining, approved
the equity investment, the merger and the transactions contemplated thereby and
resolved to recommend the same for approval by the shareholders of Prison
Realty.
The securities purchase agreement and the merger agreement were executed on
Sunday, December 26, 1999. The equity investment and the related restructurings
were publicly announced on Monday, December 27, 1999.
PRISON REALTY'S REASONS FOR THE EQUITY INVESTMENT; RECOMMENDATION OF THE PRISON
REALTY BOARD OF DIRECTORS
The Prison Realty board, the Special Committee and the Independent
Committee believe that the equity investment and the related restructurings are
fair to and in the best interests of the Prison Realty shareholders. The Prison
Realty board, the Special Committee and the Independent Committee believe that
the transactions will create short-term shareholder value by alleviating the
current liquidity and capital constraints of both Prison Realty and CCA and
avoiding a debt restructuring which could include substantially more onerous
terms and adversely impact Prison Realty's and CCA's relationships with key
government entities. Additionally, the Prison Realty board, the Special
Committee and the Independent Committee believe that the transactions will
create long-term shareholder value by providing the combined company with
working and growth capital to fund its development strategy.
The Prison Realty board, the Special Committee and the Independent
Committee have approved the equity investment and the restructuring transactions
and recommend that shareholders of Prison Realty vote for all of the proposals
in this proxy statement. In reaching this decision, the Prison Realty board, the
Special Committee and the Independent Committee consulted with members of
management of each of the combining companies, as well as financial advisors,
legal counsel and accountants of the companies, and considered a number of
factors.
In making their determination with respect to the equity investment and the
related restructuring transactions, the Prison Realty board, the Special
Committee and the Independent Committee considered the following factors:
- - The proposed equity investment represents the best offer made to Prison
Realty.
- The investors' proposal was the result of an exhaustive four-month long
process designed to produce a proposal which would provide the most
long-term value for Prison Realty and its shareholders. On behalf of
Prison Realty, Merrill Lynch contacted 47 potential investors and merger
partners. The proposal by the investors represented the best offer from
the four proposals received and represented the only offer which could
be accomplished quickly because the investors had completed their due
diligence and had made arrangements for refinancing the Company's
existing indebtedness. The Prison Realty board and the Special Committee
believe Merrill Lynch's contact with the large pool of potential
investors and merger partners resulted in the best and most relevant
proposals available to Prison Realty.
- The Prison Realty board of directors negotiated for the right for Prison
Realty shareholders to participate in the rights offering. The rights
offering will allow shareholders to purchase up to $75.0 million of
convertible preferred stock with the same economic terms as the
convertible preferred stock being purchased by the investors.
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- The investors bring credibility and financial resources to Prison
Realty. As evidence of these resources, the investors have arranged for
the proposed bank lenders to issue a commitment for $1.2 billion in debt
financing for the newly-combined company.
- If a more favorable transaction is proposed by a third party without
solicitation by Prison Realty, the Prison Realty board has the right to
consider and accept it.
- Both the financial advisor to the Prison Realty board and the Special
Committee and the financial advisor to the Independent Committee
rendered their opinions that the equity investment is fair, from a
financial point of view, to Prison Realty and its shareholders.
- - The Prison Realty board agreed with the investors that recombining Prison
Realty CCA, PMSI and JJFMSI is the structure which will create the most
value for Prison Realty shareholders.
- Combining the companies eliminates the potential for conflicts of
interest which have previously existed and affected Prison Realty's
credibility in the capital markets, including those conflicts arising
out of the landlord-tenant and debtor-creditor relationship between
Prison Realty and CCA.
- Since the 1999 Merger, the shares of REITs have suffered in the stock
market, making it more difficult for REITs to raise equity or debt
capital.
- As a C corporation, the combined company will be able to retain earnings
to help fund future growth.
- - Action had to be taken to preserve the financial health of Prison Realty and
CCA. Since CCA is Prison Realty's primary tenant, its financial problems are
also borne by Prison Realty.
- CCA did not meet its operating projections. Occupancy rates at its
facilities were adversely affected by the opening of a substantial
number of new facilities; operating expenses were higher as a percentage
of revenues than in 1998, and there were significant expenses associated
with newly-opened facilities.
- During the latter part of the third quarter and the fourth quarter of
1999, the operating performance of CCA continued to decline. The Prison
Realty board believed that this transaction would give the company the
opportunity and the financial resources to correct its problems and to
bring in a new management team to improve the company's operating
results.
- The failure of CCA to make its required payments to Prison Realty would
create a default by Prison Realty under the terms of existing
indebtedness. In addition, a default by CCA under its debt obligations
would create a cross-default by Prison Realty under its existing credit
facility.
- - The Prison Realty board considered alternatives that did not involve any
third-party investment and decided that those alternatives would not work.
- Prison Realty considered significantly lowering the lease payments owing
to Prison Realty by CCA and maintaining the current structure of the
companies. This alternative was rejected.
- Reducing the lease payments could be a default under the company's
borrowing agreements. Absent an outside equity investment, the Prison
Realty board of directors believed that it would be extremely
difficult to restructure Prison Realty's debt.
- Reducing the lease payments could result in a violation of the rules
applicable to REITs for federal income tax purposes, which would cause
Prison Realty to owe a corporate income tax.
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- Conflicts of interest would continue to exist.
- The Prison Realty board considered and rejected combining all of the
companies into a C corporation without an outside equity investment.
- This alternative would also require refinancing or renegotiating the
terms of all of the companies' existing debt, which in the view of the
Prison Realty board, may not be possible or, if possible, obtained on
significantly less favorable terms, given CCA's recent operating
performance and failure to meet its projected results, absent a
significant equity investment.
- A standalone combination would not address Prison Realty's capital
needs with respect to the construction and expansion of correctional
and detention facilities as well as its financial ability to expand
its existing and prospective business opportunities.
- The Prison Realty board believed that a combination of the companies
into a C corporation without an outside investment would not resolve
CCA's liquidity needs or provide the basis for waivers of default
under Prison Realty's and CCA's indebtedness through the time period
required to secure Prison Realty and CCA shareholder approval of a
combination.
- The Prison Realty board also believed that a standalone recombination
would likely result in an adverse market reaction because of the lack
of credibility that Prison Realty would experience absent a new equity
investment and new management team. The Prison Realty board believed
that it would be very difficult to attract a new management team
without a significant equity investment and that the absence of a new
management team would make it unlikely that holders of the Company's
existing debt would agree to restructure that debt.
- Merrill Lynch concluded that the standalone alternatives were not the
best options available to Prison Realty and Wasserstein Perella
concluded, at the time it delivered its opinion, that the standalone
alternatives were not feasible.
- - The Prison Realty board believes that the consideration being paid to
shareholders of the operating companies is the minimum amount that could be
paid and still accomplish the transactions.
- The investors required the combination of the companies as a condition
to making their investment. The shareholders of the operating companies
were aware of this fact.
- The outside investors in PMSI and JJFMSI, and Baron, an outside investor
in CCA, stated that they would not accept any amount of consideration
less than the cash payment being made to them. The outside investors in
PMSI and JJFMSI own 85% of the voting common stock of PMSI and JJFMSI,
respectively, and Baron has the contractual right to approve any merger
of CCA.
- The operating companies possessed all the contracts with government
agencies, the employees and infrastructure necessary to operate Prison
Realty's properties. Any effort to force the operating companies'
shareholders to accept less was likely to result in significant
disruption of relationships with government agencies and substantial
loss of value.
- Both the Prison Realty board and the investors concluded that it was
appropriate to pay the merger consideration for each of the operating
company mergers. Persons receiving the merger consideration would be
management and key employees of the operating companies who would be
critical to the combined companies' success in the future.
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- The Prison Realty board noted that significant restrictions on the
transfer of the shares issued to these members of management and key
employees would exist.
- - The Prison Realty board also considered what would happen to the companies
and their shareholders if the transactions were not approved.
- If the transactions are not approved, the Prison Realty board will have
to pursue one of the standalone alternatives.
- The standalone alternatives would require the refinancing or the
renegotiation of the terms of the companies' debt. There can be no
assurance that the companies' lenders would agree to refinance or
renegotiate the terms of the companies' debt.
- Because the companies' business involves public safety, the Prison
Realty board believes it would have a seriously adverse impact upon its
business if the government entities for which the companies house
inmates viewed the companies as not having the financial resources to
carry out their public safety obligations.
In making its determination with respect to the equity investment and the
related restructuring, the Prison Realty board, the Special Committee and the
Independent Committee also considered the following potentially negative
factors:
- The combined company's net income per share will be lower due to the
increase in the number of shares as a result of the issuance of the
shares of convertible preferred stock and the warrants to the investors
and existing Prison Realty shareholders in the rights offering.
Additionally, the dividends to be paid on and the costs associated with
the new securities will serve to reduce Prison Realty's net income
available to common shareholders to such a degree that on a pro forma
basis, the combined company will experience a net loss per share.
- The initial conversion price of the shares of convertible preferred
stock of $6.50 per share of common stock and the initial exercise price
of the warrants of $7.50 per common share may be adjusted downward if
the combined companies are required to indemnify the holders under the
terms of the securities purchase agreement. Additionally, the conversion
price and the exercise price may be reduced if Prison Realty becomes
obligated to make payments in excess of $50.0 million, net of insurance
proceeds, resulting from the settlement of currently outstanding or
contemplated shareholder litigation. Such conversion price or exercise
price reductions are not subject to a maximum amount and could reduce
the conversion price or exercise price significantly, resulting in the
issuance of additional shares of common stock to the holders on
conversion of the shares of convertible preferred stock or exercise of
the warrants. Since the conversion price or the exercise price may be
reduced, the ownership percentage of current shareholders who do not
subscribe to the rights offering may be significantly diminished.
- The combined company will not qualify as a REIT; no further
distributions will be made to holders of Prison Realty's common stock in
the foreseeable future and Prison Realty will be required to pay federal
income taxes for 1999 of approximately $100.0 million.
- Completion of the equity investment and the related restructuring will
require the companies to incur approximately $ million of
transaction costs (a substantial portion of which has either been spent
or contractually committed) and will require a substantial amount of
management's time. These resources could have otherwise been used by the
companies to further their respective business objectives.
- Holders will receive a 12% annual dividend, paid quarterly, on the
shares of convertible preferred stock and a guaranteed 18% annual return
on investment, compounded quarterly, to be paid upon the stock's
redemption or liquidation or a change of control of Prison Realty.
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Additionally, Prison Realty will be required to pay cash fees of $15.7
million to the investors as part of the investment.
- Completing the equity investment and related restructuring will place
significant demands on the combined company's liquidity as the result of
the dividend requirements of the convertible preferred stock and the
obligation to pay corporate income taxes. The company's ability to meet
these liquidity requirements will depend on its ability to borrow under
its new credit facility and to generate sufficient cash from operations.
- Following the initial closing of the equity investment and the
investors' purchase of $240.0 million of shares of series B convertible
preferred stock and warrants to purchase Prison Realty common stock
thereunder (assuming Prison Realty's shareholders participate fully in
the rights offering), as the result of the investors' ownership of 9.6
million shares of series B convertible preferred stock, the investors
will hold approximately 17.9% of the voting power of Prison Realty,
increasing to approximately 20.0% if the investors purchase an
additional $35.0 million, or 1.4 million shares, of series B convertible
preferred stock in one or more subsequent closings at the request of
Prison Realty pursuant to the terms of the securities purchase
agreement. If Prison Realty's shareholders do not participate in the
rights offering and the investors purchase the full $350.0 million of
shares of series B convertible preferred stock and warrants, the
investors will hold, as the result of the ownership of 14.0 million
shares of series B convertible preferred stock, approximately 25.5% of
the voting power of Prison Realty. The investors' voting power following
the equity investment will reduce the voting power currently held by
Prison Realty's existing shareholders.
- The limitations on Prison Realty's ability to engage in certain
corporate actions without the consent of the investors, the composition
of the Prison Realty board following the shareholder approval of the
equity investment (and thereafter) and the size of the investors'
investment might discourage other persons from offering to acquire a
significant interest in Prison Realty (or all or a significant portion
of the assets of Prison Realty).
In the Prison Realty board's opinion, the factors listed immediately above,
along with the other factors discussed in this proxy statement, represent the
material potential risks and adverse consequences to you, that could occur in
connection with the equity investment. The Prison Realty board considered the
impact of these risks and consequences to the existing shareholders in
evaluating the equity investment and the related transactions. In the Prison
Realty board's opinion, however, these potential risks and consequences were
outweighed by the potential positive factors and the risks of not consummating
the equity investment discussed above. Accordingly, the Prison Realty board
voted to approve the equity investment and the related restructuring.
In view of the wide variety of factors considered by the Prison Realty
board, the Prison Realty board did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weights to the specific factors
considered in making the recommendations.
OPINION OF PRISON REALTY'S FINANCIAL ADVISOR
Merrill Lynch was retained by Prison Realty to act as its financial advisor
regarding the equity investment and related restructurings of Prison Realty,
based upon Merrill Lynch's experience and expertise. On December 26, 1999,
Merrill Lynch rendered an oral opinion to the board of directors of Prison
Realty, which was confirmed in writing as of December 26, 1999. The opinion
delivered by Merrill Lynch to the board of directors of Prison Realty was to the
effect that, as of the respective dates of the oral and written opinions
delivered to the board of directors of Prison Realty, and based on and subject
to the limitations and considerations stated in the written opinion to the board
of
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directors, the equity investment was fair to Prison Realty and its shareholders
from a financial point of view.
The full text of the Merrill Lynch opinion dated as of December 26, 1999 to
the board of directors of Prison Realty, which sets forth the assumptions made,
matters considered and limits on the reviews undertaken, is attached as Appendix
G to this proxy statement. The Merrill Lynch opinion addressed only the fairness
of the equity investment from a financial point of view to Prison Realty and its
shareholders. Except as set forth in the previous sentence, the Merrill Lynch
opinion did not address any other aspect of the equity investment, the merger
transactions, the Baron and Sodexho stock purchase transactions, as hereinafter
discussed, the rights offering, the senior credit facilities, the subordinated
note issuance or the decision of Prison Realty to cease qualifying as a REIT
commencing with its tax year ending December 31, 1999. The transactions and
other matters referred to in the previous sentence are referred to herein
together as the "overall transaction." Specifically, the Merrill Lynch opinion
did not address the following:
- the merits of the underlying decision of Prison Realty to engage in any
aspect of the overall transaction, including the equity investment or
the merger transactions;
- any consideration to be received by any person or entity in any aspect
of the overall transaction;
- the relative merits of any aspect of the overall transaction compared to
any alternative business or financing strategy that might have existed
for Prison Realty;
- the fairness of the consideration to be received by any person or entity
in connection with the merger or the Baron and Sodexho transactions;
- the adequacy of Prison Realty's capital structure or Prison Realty's
financial resources, financial commitments or solvency; and
- the value of Prison Realty common stock or the prices at which Prison
Realty common stock will trade following the issuance of the shares of
convertible preferred stock and the warrants.
The Merrill Lynch opinion did not and does not constitute a recommendation
to any holder of Prison Realty common stock as to how to vote at the Prison
Realty special shareholders meeting. For a more complete description, you should
read the full text of the opinion.
In arriving at its opinions, Merrill Lynch, among other things:
- reviewed certain publicly available business and financial information
relating to Prison Realty and CCA that it deemed relevant, including
Prison Realty's (and its predecessors') Annual Reports on Form 10-K and
related financial information for the three fiscal years ended December
31, 1998 and Prison Realty's Quarterly Reports on Form 10-Q and related
unaudited financial information for the quarterly periods ending March
31, 1999, June 30, 1999 and September 30, 1999;
- reviewed certain additional financial information, including financial
forecasts, relating to the business, earnings, cash flow, assets,
liabilities and prospects of Prison Realty and CCA furnished to it by
Prison Realty and CCA;
- conducted discussions with members of senior management of Prison Realty
concerning the business and prospects of Prison Realty and CCA and the
prison industry in general;
- reviewed the results of operations of Prison Realty and CCA and compared
them with those of certain companies that it deemed to be relevant;
- reviewed historical market prices and trading activity of the Company
common stock and compared them with those of certain publicly traded
companies that it deemed relevant;
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- compared the proposed financial and other terms of the equity investment
with the financial and other terms of certain other transactions that it
deemed to be relevant;
- considered certain pro forma financial effects of the overall
transaction;
- reviewed the securities purchase agreement dated December 26, 1999;
- reviewed the merger agreement dated December 26, 1999; and
- reviewed such other financial studies and analyses and performed such
other investigations, and took into account such other matters, as it
deemed necessary.
In preparing its opinions, Merrill Lynch also relied on the accuracy and
completeness of all information supplied or otherwise made available to it by or
on behalf of Prison Realty and all information made publicly available by Prison
Realty and CCA, and Merrill Lynch did not assume any responsibility for
independently verifying such information or undertaking an independent appraisal
of the assets or liabilities of Prison Realty and CCA. In addition, Merrill
Lynch assumed, among other things, the following:
- The financial forecasts furnished by Prison Realty and CCA were
reasonably prepared and reflected the best currently available estimates
and judgment of Prison Realty's and CCA's management as to the expected
future financial performance of Prison Realty and CCA;
- The Company would cease qualifying as a REIT under the Code commencing
with its tax year ending December 31, 1999 in accordance with the terms
of its charter, bylaws and all material contracts and agreements to
which it is a party or by which it or its assets is bound;
- The merger transactions will close in accordance with the merger
agreement; the Baron and Sodexho stock purchase transactions will close
in accordance with the terms of the stock purchase agreements governing
the Baron and Sodexho stock purchases; the equity investment will close
in accordance with the securities purchase agreement; and Prison Realty
will enter into the senior secured credit facilities;
- No aspect of the overall transaction will have an adverse effect upon
Prison Realty or CCA, it being understood that this assumption did not
address the equity investment;
- In the course of obtaining the necessary regulatory, contractual and
other consents and approvals for all aspects of the overall transaction,
no regulatory, contractual or other requirements imposed on Prison
Realty or CCA will have an adverse effect upon Prison Realty or CCA.
The following is a brief summary of the material analyses contained in the
presentation of Merrill Lynch to the board of directors of Prison Realty on
December 26, 1999 and the opinion of Merrill Lynch to the board of directors of
Prison Realty dated as of December 26, 1999.
ANALYSIS OF STANDALONE ALTERNATIVES
At various meetings of the Prison Realty board of directors held during the
months of September through December 1999, Merrill Lynch discussed two
standalone alternatives under which Prison Realty would not receive any new
equity from a third party. The first standalone alternative involved keeping
Prison Realty, CCA, PMSI and JJFMSI as separate companies, maintaining Prison
Realty's REIT status and restructuring the various lease payments among these
companies. This alternative was considered to have the following drawbacks:
- it would likely have resulted in an event of default under Prison
Realty's credit facility and senior notes;
- it may have resulted in Prison Realty violating certain REIT
requirements; and
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- it may have inhibited Prison Realty's ability to expand because of the
need, under the REIT rules, to distribute substantially all of its
taxable income to its shareholders.
The second standalone alternative involved merging Prison Realty, CCA, PMSI
and JJFMSI into a single corporate entity or consolidated group and terminating
Prison Realty's REIT status. This alternative was considered to have the
following drawbacks:
- it would likely have resulted in an event of default under Prison
Realty's credit facility;
- it may have negatively impacted Prison Realty's share price because
investors were expecting some amount of new equity to be provided to
Prison Realty and some changes or additions to Prison Realty's
management team; and
- Prison Realty's outstanding debt would still need to be restructured,
which would have involved the payment of fees and possibly the granting
of equity to existing or new creditors.
Merrill Lynch concluded that a transaction involving an equity investment
in Prison Realty by a third party would deliver greater long term value to
Prison Realty than either of these standalone alternatives.
COMPARISON OF CONVERSION AND EXERCISE PRICES TO CURRENT STOCK PRICE
Merrill Lynch observed that the closing price of the shares of Prison
Realty's common stock on the New York Stock Exchange was $5.75 on December 23,
1999, the most recent day of trading prior to the day of the execution of the
securities purchase agreement. Merrill Lynch also observed that the conversion
price of the shares of convertible preferred stock of $6.50 and the exercise
price of the warrants of $7.50 both exceeded the December 23, 1999 closing
price.
COMPARISON OF CONVERSION AND EXERCISE PRICES TO RESULTS OF COMPARABLE COMPANY
TRADING ANALYSIS
Merrill Lynch performed a comparable public company trading analysis under
which it compared publicly available financial and operating data, projections
of future financial performance and market statistics based upon the stock
prices for companies in lines of business believed to be generally comparable to
those of Prison Realty in the prison industry, as follows:
Wackenhut Corrections
Cornell Corrections
Correction Properties Trust
Merrill Lynch compared the aggregate value (consisting of market
capitalization and total debt) of Prison Realty and these companies as a
multiple of their respective estimated 2000 earnings before interest, taxes,
depreciation and amortization, or EBITDA. For the selected comparable companies,
such an analysis indicated a range of 2000 EBITDA multiples of 5.6x to 7.0x.
Based on this analysis, Merrill Lynch calculated the implied value per share of
Prison Realty common stock assuming a range of 2000 EBITDA multiples of 5.5x to
7.0x and estimated 2000 EBITDA of $235.0 million. This calculation yielded a
range of implied values per share of Prison Realty's common stock of $0.00 to
$3.00. Merrill Lynch observed that the conversion price of the shares of series
B convertible preferred stock of $6.50 and the exercise price of the warrants of
$7.50 were above this range.
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Merrill Lynch also calculated ranges of implied values per share of Prison
Realty's common stock based on multiples of estimated 2000 EBITDA for selected
REITs in the health care and lodging industries as well as REITs which derive
all or substantially all of their revenue from triple net lease arrangements.
This analysis yielded the following results:
<TABLE>
<CAPTION>
IMPLIED VALUE PER
ESTIMATED 2000 SHARE OF
EBITDA COMPANY
COMPANIES MULTIPLES COMMON STOCK
- --------- -------------- -----------------
<S> <C> <C>
Healthcare REITs.................... 7.5x -- 9.0x $4.00 -- $6.75
Lodging REITs....................... 7.5x -- 9.5x $4.00 -- $7.75
Triple Net Lease REITs.............. 7.0x -- 9.0x $3.00 -- $6.75
</TABLE>
Merrill Lynch observed that the conversion price of the shares of
convertible preferred stock of $6.50 and the exercise price of the warrants of
$7.50 either exceeded or were within the highest portion of these ranges.
No company utilized as a comparison in the comparable company trading
analysis is identical to Prison Realty. In evaluating the comparable companies,
Merrill Lynch made judgments and assumptions with regard to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Prison Realty, such as
the impact of competition on Prison Realty and the industry generally, industry
growth and the absence of any adverse material change in the financial condition
and prospects of Prison Realty or the industry or in the financial markets in
general.
COST OF EQUITY ANALYSIS
Merrill Lynch estimated the total cost, expressed as a compounded annual
rate, of the securities to be issued to the investors, taking into account the
dividend to be paid on the convertible preferred stock, including the lookback
provision, the conversion feature of the shares of series B convertible
preferred stock, the Prison Realty common stock issuable upon exercise of the
warrants, and the fees to be paid to the investors. Merrill Lynch estimated the
cost of the securities under several scenarios whereby the shares of Prison
Realty's common stock would have appreciated at compounded annual growth rates
("equity CAGRs") of 0% to 30% over the following 6.5 years if no investment had
been made. Under the equity investors' proposal, the implied cost of the
securities ranged from 21.3%, assuming a 0% equity CAGR, to 39.1%, assuming a
30% equity CAGR.
REDUCTION IN CURRENT SHAREHOLDERS' RETURN ANALYSIS
Merrill Lynch estimated the reduction in the return, expressed as a
compounded annual rate, to current shareholders as a result of the issuance of
the securities to the investors, taking into account the dividend to be paid on
the shares of series B convertible preferred stock, including the lookback
provision, the conversion feature of the shares of series B convertible
preferred stock, the common stock issuable upon exercise of the warrants, and
the fees to be paid to the investors. Merrill Lynch estimated the reduction in
the return to current shareholders under several scenarios whereby the shares of
Prison Realty's common stock would have appreciated at equity CAGRs of 0% to 30%
over the following 6.5 years if no investment had been made. Under the
investors' proposal, the reduction in the return to current shareholders ranged
from 1.2%, assuming a 5% equity CAGR, to 4.8%, assuming a 30% equity CAGR.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Merrill Lynch considered the
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results of all of its analyses as a whole and did not attribute any particular
weight to any particular analysis or factor considered by it. Furthermore,
selecting any portion of Merrill Lynch's analyses, without considering all
analyses, would create an incomplete view of the process underlying the Merrill
Lynch opinion. In addition, Merrill Lynch may have deemed some assumptions more
or less probable than other assumptions, so that the ranges of valuations
resulting from any particular analysis described above should not be taken to be
Merrill Lynch's view of the actual value of Prison Realty. Of the factors
considered for purposes of its opinion, Merrill Lynch did not find any factor
that did not support the conclusion of its opinion regarding the fairness of the
equity investment from a financial point of view.
In performing its analysis, Merrill Lynch made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Prison Realty. The
analyses performed by Merrill Lynch are not necessarily indicative of actual
values, which may be significantly more or less favorable than suggested by such
analyses. These analyses were prepared solely as a part of Merrill Lynch's
analysis of whether the equity investment was fair from a financial point of
view to Prison Realty and its shareholders. In addition, as described above,
Merrill Lynch's opinion, including Merrill Lynch's presentation to the Special
Committee and to the Prison Realty board, was one of many factors taken into
consideration by the Prison Realty board in making its determination to approve
the equity investment.
FEES
In a letter agreement dated September 14, 1999, Prison Realty agreed to pay
Merrill Lynch the following amounts:
- a $250,000 fee payable upon the signing of the letter agreement;
- a fee of approximately $15.0 million upon the closing of the equity
investment; and
- Merrill Lynch's out-of-pocket fees and expenses up to $100,000.
If the equity investment is not completed, Merrill Lynch may be entitled to a
fee based upon a percentage of the aggregate consideration paid in an
alternative transaction or a fixed dollar amount.
Prison Realty also agreed to indemnify Merrill Lynch for all losses,
claims, damages and liabilities arising out of the engagement and the
transactions in connection therewith, including all reasonable expenses related
to Merrill Lynch's investigation and defense of any claim, to the extent that
such losses, claims, damages and liabilities did not result from Merrill Lynch's
bad faith or gross negligence. Shareholders should take these provisions into
consideration when evaluating the opinion of Merrill Lynch.
Merrill Lynch's engagement may be terminated by either Prison Realty or
Merrill Lynch at any time after September 14, 2000.
Merrill Lynch is an internationally recognized investment banking and
advisory firm. Merrill Lynch, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. In the ordinary course of its
trading, brokerage and financing activities, Merrill Lynch or its affiliates may
at any time hold long or short positions, and may trade or otherwise effect
transactions, for its own account or the accounts of customers, in debt or
equity securities of Prison Realty. In addition, Merrill Lynch may act as an
underwriter or financial advisor with respect to the financing activities of
Prison Realty in the future.
Merrill Lynch also served as financial advisor to CCA and delivered an
opinion to the board of directors of CCA in connection with the CCA merger and
related transactions.
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OPINION OF THE INDEPENDENT COMMITTEE'S FINANCIAL ADVISOR
The Independent Committee retained Wasserstein Perella to provide
investment banking advice and services in connection with a possible third-party
equity investment in Prison Realty. The Independent Committee requested
Wasserstein Perella to provide its opinion as to the fairness, from a financial
point of view, of the proposed equity investment to Prison Realty and its
shareholders. Wasserstein Perella was not requested to evaluate any other aspect
of the equity investment or the securities purchase agreement. Furthermore,
Wasserstein Perella was not requested to evaluate any aspect of the
recombination transaction or any terms of the merger agreement.
At the December 26, 1999 meeting with the Independent Committee,
Wasserstein Perella reviewed the process conducted by Merrill Lynch for
attracting potential investors in Prison Realty. Wasserstein Perella evaluated
certain standalone alternatives to a third-party equity investment in Prison
Realty. Based on the information available to it, Wasserstein Perella agreed
with the conclusion of Merrill Lynch and Prison Realty, and concluded that these
alternatives represented a feasible option for Prison Realty.
Wasserstein Perella then noted that Merrill Lynch had solicited indications
of interest in a merger or investment in Prison Realty and contacted 47
potential investors and merger partners over a period of four months. 20 of the
47 investors indicated that they were not interested in pursuing a potential
transaction. As for the rest, Merrill Lynch had ongoing discussions with 23
investors and eventually received written indications of interest from three
investors. Wasserstein Perella also noted that in the context of their
engagement, the Independent Committee directed them not to, and they did not,
solicit third party indications of interest in making an investment in,
acquiring all or any part of, or otherwise engaging in any extraordinary
transaction with Prison Realty, CCA, PMSI or JJFMSI. Wasserstein Perella did not
investigate any alternative transactions that may be available to Prison Realty
or negotiate with any party regarding any transaction, including the overall
recombination transaction.
On December 26, 1999, Wasserstein Perella orally delivered its opinion to
the Independent Committee, which it later confirmed in a written opinion dated
December 26, 1999, to the effect that as of the date of the opinion and based
upon specified assumptions, the proposed equity investment was fair, from a
financial point of view, to Prison Realty and its shareholders. Wasserstein
Perella's opinion does not address Prison Realty's capital structure, ability to
satisfy its obligations, ability to access the capital markets for future
financing requirements or solvency, in each case at any time, including at
present and following the completion of the overall recombination transaction.
Wasserstein Perella's opinion also does not address Prison Realty's underlying
business decision to effect the transactions contemplated by either the merger
agreement or the securities purchase agreement or the relative merits of the
overall recombination transaction (including the fact that Prison Realty will no
longer qualify for treatment as a REIT) compared to any alternative business or
financing strategy that might exist for Prison Realty. Wasserstein Perella also
presented to the Independent Committee the analyses described below.
A COPY OF WASSERSTEIN PERELLA'S OPINION IS ATTACHED AS APPENDIX H TO THIS
PROXY STATEMENT. SHAREHOLDERS ARE URGED TO READ THE WASSERSTEIN PERELLA OPINION
IN ITS ENTIRETY FOR INFORMATION WITH RESPECT TO THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY WASSERSTEIN
PERELLA IN RENDERING ITS OPINION. REFERENCES TO WASSERSTEIN PERELLA'S OPINION IN
THIS PROXY STATEMENT AND THE SUMMARY OF WASSERSTEIN PERELLA'S OPINION IN THIS
SECTION OF THE PROXY STATEMENT ARE QUALIFIED BY REFERENCE TO THE FULL TEXT OF
WASSERSTEIN PERELLA'S OPINION. WASSERSTEIN PERELLA'S OPINION ONLY ADDRESSES THE
FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE EQUITY INVESTMENT TO PRISON
REALTY AND ITS SHAREHOLDERS, AND IT DOES NOT ADDRESS ANY OTHER INDIVIDUAL OR
COLLECTIVE ASPECT OF THE OVERALL RESTRUCTURING. WASSERSTEIN PERELLA'S OPINION
DOES NOT CONSTITUTE A RECOMMENDA-
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<PAGE> 68
TION TO SHAREHOLDERS TO VOTE IN FAVOR OF THE OVERALL RESTRUCTURING OR TO
PARTICIPATE IN THE PROPOSED RIGHTS OFFERING, AND SHAREHOLDERS SHOULD NOT RELY
UPON THIS OPINION AS A RECOMMENDATION.
In arriving at its opinion, Wasserstein Perella reviewed, among other
things:
- the merger agreement;
- the securities purchase agreement;
- certain publicly available business and financial information relating
to Prison Realty which Wasserstein Perella deemed to be relevant;
- certain internal non-public financial and operating information prepared
by or on behalf of Prison Realty, CCA, PMSI and JJFMSI and provided
orally or in writing by or on behalf of the managements of Prison
Realty, CCA, PMSI and JJFMSI to Wasserstein Perella for purposes of its
analysis;
- certain financial and stock market data relating to Prison Realty, and
compared this data with similar data for certain other companies, the
securities of which are publicly traded, that Wasserstein Perella deemed
to be relevant; and
- the financial terms of the equity investment, and compared these terms
with the financial terms of other recent convertible preferred
securities which Wasserstein Perella deemed to be relevant to its
inquiry.
Wasserstein Perella had discussions with the managements of Prison Realty,
CCA, PMSI and JJFMSI and their representatives about the respective businesses,
operations, assets, financial condition and future prospects of Prison Realty,
CCA, PMSI and JJFMSI, including specific financial and liquidity issues facing
Prison Realty. Wasserstein Perella also performed such studies, analyses and
investigations and reviewed other information as it considered appropriate for
purposes of arriving at and preparing its opinion.
In conducting its analysis and arriving at its opinion, Wasserstein Perella
assumed and relied upon the accuracy and completeness of all financial and other
information that was provided to or discussed with it or was publicly available,
and did not assume any responsibility for independently verifying this
information. Wasserstein Perella also relied upon the reasonableness and
accuracy of the financial information and analyses provided to them and assumed
that all financial information and analyses provided by Prison Realty, CCA, PMSI
and JJFMSI were prepared in good faith and on bases reflecting the best
currently available judgments and estimates of the respective managements of
Prison Realty, CCA, PMSI and JJFMSI. Wasserstein Perella did not express any
opinion with respect to such financial information and analyses or the
assumptions upon which they are based. In addition, Wasserstein Perella did not
review any of the books and records of Prison Realty, CCA, PMSI or JJFMSI,
except as described above, or assume any responsibility for conducting a
physical inspection of the properties or facilities of Prison Realty, CCA, PMSI
or JJFMSI, or for making or obtaining an independent valuation or appraisal of
the assets or liabilities of Prison Realty, CCA, PMSI or JJFMSI, and Wasserstein
Perella was not provided with any such independent valuation or appraisal.
Wasserstein Perella noted that the mergers are intended to qualify as a
tax-free reorganization within the meaning of Section 368(a) of the Code and
Wasserstein Perella assumed that each merger will qualify as such a
reorganization. Based on information provided by Prison Realty, Wasserstein
Perella assumed that Prison Realty will continue to conduct its operations in a
manner so as to maintain its qualification for treatment as a REIT within the
meaning of the Code, but, pending shareholder approval of the equity investment
and related restructuring, will elect to cease to operate so as to qualify as a
REIT, resulting in Prison Realty being classified as a subchapter C corporation
within the meaning of the Code commencing with its tax year ending December 31,
1999.
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Wasserstein Perella further assumed that Prison Realty would effect this change
in its tax treatment in accordance with the terms of its charter and bylaws and
all material contracts and agreements to which it is a party or by which it or
its assets are bound.
Wasserstein Perella assumed that obtaining all regulatory and other
approvals and third party consents required for consummation of the overall
transaction would not have an adverse impact on Prison Realty, CCA, PMSI or
JJFMSI or on the anticipated benefits of the overall transaction. Wasserstein
Perella also assumed that the transactions described in the merger agreement and
the securities purchase agreement would be consummated on the terms set forth in
the merger agreement and the securities purchase agreement, without material
waiver or modification. In addition, Wasserstein Perella assumed that neither
the merger nor any transaction contemplated by the merger agreement would have
an adverse effect on Prison Realty.
Wasserstein Perella's opinion was necessarily based on economic and market
conditions and other circumstances as they existed and could be evaluated by
Wasserstein Perella on the date of its opinion. In addition, Wasserstein Perella
did not express any opinion as to the price or trading range at which any of
Prison Realty's securities will trade at any time.
SUMMARY AND ANALYSIS OF THE INVESTMENT
During the December 26, 1999 meeting with the Independent Committee, and
supported by materials presented to the Independent Committee dated December 26,
1999, Wasserstein Perella reviewed with the members of the Independent Committee
certain financial, industry and market information with respect to Prison
Realty, CCA, PMSI and JJFMSI, and the procedures used in arriving at, and the
analyses underlying, Wasserstein Perella's opinion. The following summary is not
a complete description of Wasserstein Perella's opinion or of Wasserstein
Perella's analyses relating to its opinion. The preparation of a fairness
opinion is a complex process that is not purely mathematical and is not
necessarily susceptible to partial analyses or summary description. You are
encouraged to review Wasserstein Perella's opinion in its entirety.
Wasserstein Perella presented a summary of the material terms of the
proposed equity investment, including:
- the investors' initial $315.0 million investment, less the amount of
gross proceeds received by Prison Realty from the rights offering;
- Prison Realty's $75.0 million rights offering to its shareholders;
- the investors' additional $35.0 million standby commitment; and
- the investors' representation on the ten member Prison Realty board by
four members.
Wasserstein Perella then reviewed the issues facing Prison Realty with the
Independent Committee. Prison Realty informed Wasserstein Perella that Prison
Realty's status as a "REIT" (1) created significant liquidity issues and (2)
placed constraints on Prison Realty's ability to fund growth; these factors
together created a level of uncertainty that negatively impacted the value of
Prison Realty's common stock. Wasserstein Perella noted that CCA had
insufficient cash flows and borrowing capacity to meet its lease payment
obligations to Prison Realty. A reduction in CCA's lease payments to Prison
Realty likely would result in an event of default under Prison Realty's credit
facility and indenture for the 12% senior notes. In addition, Wasserstein
Perella noted that reduced lease payments could cause the associated properties
to be revalued downward and force Prison Realty to violate specific asset-based
REIT requirements, as well as jeopardize Prison Realty's ability to pay cash
dividends. Wasserstein Perella further noted that Prison Realty's REIT status
required it to distribute 95% of its taxable income to its shareholders, making
Prison Realty dependent on outside sources of capital to fund its growth.
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ANALYSIS OF THE STANDALONE ALTERNATIVES
At the December 26, 1999 meeting with the Independent Committee,
Wasserstein Perella discussed the principal alternatives to a third-party equity
investment, as described below. Wasserstein Perella concluded that neither of
these two primary standalone alternatives represented a feasible option for
Prison Realty.
The first standalone alternative involved maintaining Prison Realty's REIT
status and restructuring the various lease payments among Prison Realty, CCA,
PMSI and JJFMSI. This alternative was considered to have the following
drawbacks:
- it would likely constitute an event of default under Prison Realty's
credit facility and senior notes;
- it could result in a REIT test violation; and
- it would not lessen Prison Realty's reliance on outside sources of
capital to fund its growth.
The second standalone alternative involved recombining Prison Realty, CCA,
PMSI and JJFMSI into a single corporation, taxable as a C corporation within the
meaning of the Code. This alternative was considered to have the following
drawbacks:
- it would not have resolved CCA's immediate liquidity needs before
obtaining shareholder approval;
- it would likely have resulted in an event of default under Prison
Realty's credit facility; and
- Prison Realty's lenders likely would not have restructured Prison
Realty's existing debt at no cost. The costs of such debt restructuring
likely would have involved some form of new equity investment, whether
from third-party investors or from the lenders themselves.
DISCOUNTED CASH FLOW ANALYSIS
Wasserstein Perella first performed a discounted cash flow ("DCF") analysis
of the investors' proposal using financial projections for fiscal years 2000
through 2004 provided by the management of Prison Realty. Prison Realty's
management prepared a set of financial projections which were based on
management's assumptions for future performance. Wasserstein Perella then
performed a DCF analysis using a sensitivity case that modified specific
assumptions made by Prison Realty's management in preparing its financial
projections. Finally, Wasserstein Perella performed a third, purely theoretical,
DCF analysis for a standalone recombination proposal that involved no
third-party equity investment. Wasserstein Perella noted that this last DCF
analysis was less relevant because this theoretical analysis assumed, among
other things, that Prison Realty's existing debt could be restructured at no
cost to Prison Realty.
For each of these three DCF analyses, Wasserstein Perella aggregated the
present value of the cash flows from 2000 through 2004 with the present value of
a range of terminal values. All cash flows were discounted at rates of 12.0%,
13.0% and 14.0%. The terminal values were computed using forward terminal value
multiples of 5.0x, 5.5x, 6.0x and 6.5x for fiscal year 2005 EBITDA. Wasserstein
Perella arrived at these discount rates based on its judgment of the weighted
average cost of capital of selected publicly-traded prison companies, and
arrived at these terminal values based on its review of the trading
characteristics of the common stock of selected publicly-traded prison
companies.
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The results of these three DCF analyses were as follows:
- Wasserstein Perella's analysis of the investors' proposal indicated a
range of values for the Prison Realty common stock of $1.79 and $7.51
per share with a midpoint of $4.65 per share based on fiscal year 2005
EBITDA of $677.8 million.
- Wasserstein Perella's analysis of the sensitivity case indicated a range
of values for the Prison Realty common stock of $1.64 and $6.69 per
share with a midpoint of $4.17 per share based on fiscal year 2005
EBITDA of $546.0 million.
- Wasserstein Perella's analysis of the theoretical standalone proposal
indicated a range of values for the Prison Realty common stock of $3.19
and $8.21 per share with a midpoint of $5.70 per share based on fiscal
year 2005 EBITDA of $515.3 million.
Based on this range of implied share values, Wasserstein Perella noted that
each of (1) the conversion price for the shares of series B convertible
preferred stock and (2) the exercise price for the warrants under the investors'
proposal was within or above the foregoing valuation ranges and that this fact
supported a determination that the proposed equity investment was fair to Prison
Realty and its shareholders.
SELECTED COMPARABLE COMPANY TRADING ANALYSIS
To analyze the relative public market valuations of selected comparable
prison companies, Wasserstein Perella analyzed the stock price performance and
operating performance of Prison Realty, Res-Care, Inc., Cornell Corrections,
Inc., Wackenhut Corrections Corporation, Correctional Services Corporation and
Children's Comprehensive Services, Inc. Wasserstein Perella calculated market
trading multiples for each of these companies based on their enterprise values
as a multiple of their last twelve months' ("LTM") earnings before interest,
taxes, depreciation and amortization ("EBITDA"). Wasserstein Perella noted that
the range of enterprise value market multiples was 4.9x to 8.4x for LTM EBITDA.
Wasserstein Perella then calculated the implied enterprise value of Prison
Realty based on the preceding market multiples and derived a range of implied
share prices. Wasserstein Perella noted that each of (1) the conversion price
for the convertible preferred securities and (2) the exercise price for the
warrants was above the foregoing valuation range and that this fact supported a
determination that the proposed equity investment was fair to Prison Realty and
its shareholders.
ANALYSIS OF THE RELATIVE TERMS OF THE PREFERRED SECURITIES
Wasserstein Perella compared the financial terms of the proposed
convertible preferred securities to be sold to the investors to 38 other
convertible securities sold in private placements since May 14, 1997. This
comparison indicated that, while the coupon rate of the proposed convertible
preferred securities was higher than the coupon rate for other privately-placed
convertible preferred securities, the higher rate was not unreasonable on a
relative basis. The reasons for supporting this conclusion included:
- Rural Cellular Corp., URS Corp., Rare Medium Group, CD Radio and Oxford
Health Plans each recently issued convertible securities with conversion
prices that were below their common stock's trading price one day before
the announcement of the transaction;
- under the terms of the proposed equity investment, the conversion price
of the proposed convertible preferred securities was above the December
24, 1999 closing price for Prison Realty's common stock; and
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- Merrill Lynch had conducted an extensive, four-month solicitation of an
indication of interest in a merger or investment in Prison Realty from
over 45 potential investors and merger partners.
Wasserstein Perella noted that these facts supported a determination that
the proposed equity investment was fair to Prison Realty and its shareholders.
SUMMARY
The preceding summary is not a complete description of the analyses
performed by Wasserstein Perella or its presentations to the Independent
Committee of the Prison Realty board. Wasserstein Perella believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and the factors considered by it, without considering all factors and
analyses, could create a misleading view of the process underlying its analyses
set forth in its opinion. In performing its analyses, Wasserstein Perella made
numerous macroeconomic, operating and financial assumptions with respect to
industry performance, general business, regulatory and economic conditions and
other matters, many of which are beyond the control of Prison Realty, CCA, PMSI
and JJFMSI. Any estimates incorporated in the analyses performed by Wasserstein
Perella are not necessarily indicative of actual past or future results or
values, which may be significantly more or less favorable than these estimates.
Estimated values do not purport to be appraisals and do not necessarily reflect
the prices at which prison companies may trade. Since these estimates are
inherently subject to uncertainty, Wasserstein Perella does not assume any
responsibility for their accuracy. No company analyzed for comparative purposes
is identical to Prison Realty, CCA, PMSI and JJFMSI. Accordingly, an analysis of
comparative companies and comparative financings is not simply mathematical, but
rather involves complex considerations and judgments concerning financial and
operating characteristics of the companies involved and other factors that
affect value.
In addition to the analyses outlined above, Wasserstein Perella performed
other valuation analyses which it deemed appropriate in determining the
fairness, from a financial point of view, of the equity investment to Prison
Realty and its shareholders. Wasserstein Perella concluded that, in its
judgment, including the full range of its analyses described above, the equity
investment is fair, from a financial point of view, to Prison Realty and its
shareholders.
Wasserstein Perella is an investment banking firm engaged in, among other
things, the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. The Independent Committee of
the Prison Realty board selected Wasserstein Perella as its financial advisor
because Wasserstein Perella is an internationally recognized investment banking
firm, and professionals employed by Wasserstein Perella have substantial
experience in transactions and in the valuation of companies.
Prison Realty agreed to pay Wasserstein Perella a fee of $2,400,000
comprised of (1) an initial financial advisory fee of $350,000, (2) an
additional financial advisory fee of $850,000 upon Wasserstein Perella's
delivery of its opinion to the Independent Committee of the Prison Realty board,
(3) a fee of $650,000 upon delivery of this proxy statement to Prison Realty's
shareholders and (4) the balance upon consummation of the overall restructuring,
including the equity investment. In addition, Prison Realty agreed to reimburse
Wasserstein Perella for its reasonable out-of-pocket expenses related to its
engagement, including the reasonable fees and expenses of counsel, whether or
not the overall restructuring is consummated. Prison Realty also has agreed to
indemnify Wasserstein Perella and certain related persons against certain
liabilities relating to or arising out of its engagement, including certain
liabilities under the federal securities laws. Shareholders should take these
provisions into consideration when evaluating the opinion of Wasserstein
Perella.
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In the ordinary course of its business, Wasserstein Perella may actively
trade the securities of Prison Realty for the accounts of Wasserstein Perella
and for the accounts of its customers and, accordingly, may at any time hold a
long or short position in such securities.
INTERESTS OF DIRECTORS, OFFICERS AND AFFILIATES IN THE EQUITY INVESTMENT AND
RELATED RESTRUCTURING TRANSACTIONS
In considering the recommendations of the Prison Realty board to approve
the equity investment and related restructuring transactions, you should be
aware that several officers, directors or shareholders of Prison Realty have
interests in, and will receive benefits as a consequence of, the equity
investment and the related restructuring transactions, that are separate from
the interests of, and benefits to, shareholders of Prison Realty generally. The
Prison Realty board was aware of these interests when it approved the equity
investment and the related restructuring transactions.
PURCHASE OF CCA COMMON STOCK FROM SODEXHO
Immediately prior to the merger, Prison Realty will purchase from Sodexho
all of the voting common stock of CCA owned by Sodexho (constituting
approximately 16.9% of the outstanding capital stock of CCA) in exchange for a
payment of $8.0 million in cash. Sodexho has also agreed to vote in favor of the
merger transactions at CCA's special meeting and in favor of the proposals
described herein. Jean-Pierre Cuny, a representative of Sodexho, is a director
of Prison Realty and of CCA. Mr. Cuny abstained from the vote of the Prison
Realty board approving the equity investment and related restructuring, as well
as from the vote of the CCA board approving the merger transactions.
ISSUANCE OF PRISON REALTY COMMON STOCK TO CERTAIN CCA SHAREHOLDERS
Prison Realty will issue approximately $10.8 million in shares of Prison
Realty's common stock as the aggregate consideration paid to CCA's shareholders
other than Sodexho, Baron, Mr. Crants, III and Mr. Devlin in connection with the
merger transactions. J. Michael Quinlan and Vida H. Carroll, members of Prison
Realty's management who hold shares of CCA common stock, will each will receive
approximately $400,000 in shares of Prison Realty's common stock in the merger
transactions which will be subject to the lock-up provisions described herein.
Vida H. Carroll has resigned as Prison Realty's chief financial officer
effective June 30, 2000. Prior to the completion of the merger transactions,
Prison Realty will purchase the shares of CCA common stock held by each of
Sodexho, Baron, Mr. Crants and Mr. Devlin as discussed elsewhere herein.
BOARD OF DIRECTORS AND SENIOR MANAGEMENT
Doctor R. Crants, the current chief executive officer of Prison Realty,
will resign from this position upon the successful completion of the equity
investment. Mr. Crants also serves as a member of the board of directors and
chief executive officer of CCA and serves as a member of each of the PMSI board
and the JJFMSI board. Following the equity investment, Mr. Crants will become
non-executive vice-chairman of Prison Realty.
J. Michael Quinlan, president of Prison Realty, is also president of CCA
and a member of its board of directors. Prison Realty anticipates that it will
enter into an employment agreement with J. Michael Quinlan upon completion of
the equity investment.
Thomas W. Beasley, chairman of the board of directors of Prison Realty, is
chairman of the board of directors of PMSI.
Mr. Beasley, Mr. Cuny and Mr. Russell, each a member of Prison Realty's
existing board of directors, as well as one additional member of Prison Realty's
existing board yet to be determined,
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will continue to serve as directors of the newly combined company after
completion of the equity investment, with Mr. Beasley serving as the newly
combined company's chairman and interim chief executive officer. The investors
will have the right to designate and subsequently elect, as the holders of the
series B preferred stock, four additional directors and the investors, together
with the existing Prison Realty board, will designate two additional members who
will subsequently stand for election by Prison Realty's common stockholders and
the holders of the series B preferred stock. See "Proposal to Adopt the Articles
of Amendment and Restatement to the Prison Realty Charter -- Structure and
composition of board of directors."
SEVERANCE PAYMENTS TO PRISON REALTY EXECUTIVE OFFICERS
On January 1, 1999, Prison Realty entered into an employment agreement with
Doctor R. Crants which provided for a term of three years with an additional
three year renewal option. The agreement provided for annual compensation and
incentive compensation as determined by Prison Realty's Compensation Committee
and also provided for certain non-cash benefits such as life and health
insurance. Doctor R. Crants has since resigned from his position as chairman of
the Prison Realty board and, following the successful completion of the equity
investment, he will resign as the chief executive officer of Prison Realty. In
connection with such resignation, Doctor R. Crants will receive a severance
payment and/or benefits in an amount as yet to be determined by the Prison
Realty board. Mr. Crants will continue to serve as the vice-chairman of Prison
Realty. The provisions of Doctor R. Crants' employment agreement prohibit him
from competing with Prison Realty for a period of one year after termination of
his employment.
In connection with the resignation of D. Robert Crants, III from his
position as president of Prison Realty and as a member of the Prison Realty
board, and the resignation of Michael W. Devlin from his position as chief
operating officer of Prison Realty and as a member of the Prison Realty board,
the employment agreements previously entered into between Prison Realty and each
of Mr. Crants and Mr. Devlin have been terminated. Prison Realty and CCA have
entered into a severance agreement with each executive pursuant to which Prison
Realty and CCA have made, and shall make, payments to each executive totaling
approximately $633,750. Among the payments to be made to each executive pursuant
to the terms of the severance agreements are (i) a payment of $233,750, which
represents amounts that were payable to each executive pursuant to the terms of
his respective employment agreement; and (ii) a payment made to each executive
on December 31, 1999 of $300,000 in exchange for 150,000 shares of CCA common
stock (representing 75% of each executive's ownership interest in CCA). The
remaining $100,000 of the payment will be used to purchase the remainder of each
executive's remaining 25% CCA common stock immediately prior to the closing of
the merger transactions, subject to the satisfaction of certain conditions to
the merger transactions. All payments will be applied to reduce the outstanding
aggregate principal amount of three loans granted to each executive in the
aggregate principal amount of $1.0 million under the Prison Realty Executive
Equity Loan Plan. Additionally, any stock options or similar rights which have
not been exercised by each executive, and any other awards of stock or equity
interests in which each executive has not become vested, have been terminated or
forfeited to Prison Realty.
VESTING OF DEFERRED SHARES
In 1995, certain executive officers of Old CCA were granted an aggregate of
294,897 deferred shares of Prison Realty common stock under a stock bonus plan
now maintained by Prison Realty as the result of the 1999 Merger. Doctor R.
Crants, the chief executive officer of Prison Realty and CCA, was granted
140,000 deferred shares under the plan. Under the terms of the stock bonus plan
and the deferred stock agreements, the deferred shares awarded do not vest until
the earliest of the following events: (i) ten years after the date the deferred
shares were awarded; (ii) the death or disability of the recipient; or (iii) a
change of control of Prison Realty (as defined in the deferred
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stock agreements). The equity investment and the resulting changes in the
structure of Prison Realty will constitute a change in control of Prison Realty
for purposes of these plans and agreements which will result in the deferred
shares of each holder, including Doctor R. Crants, becoming immediately vested.
OWNERSHIP OF PRISON REALTY COMMON STOCK
The following table sets forth certain information with respect to the
beneficial ownership of shares of Prison Realty common stock as of January 31,
2000, compared to the beneficial ownership of shares of Prison Realty common
stock outstanding immediately following the completion of the merger
transactions and the equity investment and related restructuring (assuming that
an aggregate of approximately 3.2 million shares of Prison Realty common stock
are issued in the merger transactions and the persons listed in the table do not
participate in the rights offering) by: (i) each stockholder of Prison Realty
that Prison Realty believes currently holds more than a 5% beneficial interest
in Prison Realty common stock, (ii) each existing director of Prison Realty,
(iii) each of Prison Realty's existing executive officers, and (iv) all
directors and executive officers as a group. Except as otherwise indicated,
Prison Realty believes that the beneficial owners of the shares of Prison Realty
common stock listed below, based on information furnished by such owners and/or
from information contained reports filed by the beneficial owner with the SEC
pursuant to Section 13 of the Exchange Act, have sole voting and investment
power with respect to such shares. Ownership percentages in the following table
were computed in compliance with regulations under the Exchange Act and do not
necessarily reflect the "fully diluted" ownership percentages discussed
elsewhere in this document.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
PRISON REALTY COMMON
STOCK EXPECTED TO BE
NUMBER OF SHARES OF BENEFICIALLY OWNED UPON
PRISON REALTY COMMON CONSUMMATION OF EQUITY
STOCK BENEFICIALLY OWNED INVESTMENT AND RELATED
AS OF JANUARY 31, 2000(1) RESTRUCTURING(1)
------------------------- -----------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES CLASS(2) SHARES CLASS(3)
- ------------------------ ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Investor Group(4)
Assuming $350.0 million investment........ 0 0 83,432,982 40.7(5)
Assuming $275.0 million investment and
shareholder rights offering fully
subscribed............................. 0 0 65,554,486 35(6)
Dreman Value Management, L.L.C.............. 13,324,690 11.3 13,324,690 11
10 Exchange Place, Suite 2150
Jersey City, New Jersey 07302-3913
Sodexho Alliance, S.A....................... 10,459,131(7) 8.8 10,459,131(7) 8.6
Port de la Bourdonnais 75007
Paris, France
Scudder Kemper Investments, Inc............. 8,923,325(8) 7.5 8,923,325(8) 7.3
345 Park Avenue
New York, New York 10154
Gotham Partners, L.P. ...................... 6,802,000(9) 5.7 6,802,000(9) 5.6
Gotham Partners III, L.P.
Gotham International Advisors, L.L.C.
110 East 42nd Street, 18th Floor
New York, New York 10017
Thomas W. Beasley........................... 2,490,626(10) 2.1 2,490,626(10) 2
</TABLE>
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<TABLE>
<CAPTION>
NUMBER OF SHARES OF
PRISON REALTY COMMON
STOCK EXPECTED TO BE
NUMBER OF SHARES OF BENEFICIALLY OWNED UPON
PRISON REALTY COMMON CONSUMMATION OF EQUITY
STOCK BENEFICIALLY OWNED INVESTMENT AND RELATED
AS OF JANUARY 31, 2000(1) RESTRUCTURING(1)
------------------------- -----------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES CLASS(2) SHARES CLASS(3)
- ------------------------ ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Doctor R. Crants............................ 1,792,332(11) 1.5 1,932,332(11) 1.6
J. Michael Quinlan.......................... 427,462(12) * 527,158(12) *
C. Ray Bell................................. 160,161(13) * 160,161(13) *
Richard W. Cardin........................... 20,750(14) * 20,750(14) *
Jean-Pierre Cuny............................ 26,250(15) * 26,250(15) *
Ted Feldman................................. 27,054(14) * 27,054(14) *
Jackson W. Moore............................ 42,259(14) * 42,259(14) *
Joseph V. Russell........................... 146,657(16) * 146,657(16) *
Charles W. Thomas........................... 71,896(14) * 71,896(14) *
All executive officers and directors as a
group....................................... 5,246,640(17) 4.4 5,586,032(17) 4.6
</TABLE>
- -------------------------
* Represents beneficial ownership of less than 1% of the outstanding shares of
Prison Realty common stock.
(1) Includes shares as to which such person directly or indirectly, through any
contract, arrangement, understanding, relationship, or otherwise has or
shares voting power and/or investment power as these terms are defined in
Rule 13d-3(a) of the Exchange Act. Shares of Prison Realty common stock
underlying options to purchase shares of Prison Realty common stock, which
are exercisable, or become exercisable within 60 days after January 31,
2000, are deemed to be outstanding for the purpose of computing the
outstanding shares of Prison Realty common stock owned by the particular
person and by the group, but are not deemed outstanding for any other
purpose.
(2) Based on 118,395,379 shares of Prison Realty common stock issued and
outstanding on January 31, 2000.
(3) The ownership percentages reflected in this column were computed in
compliance with the Exchange Act regulations. As a result, the ownership
percentages do not necessarily reflect the "fully diluted" ownership
percentages discussed elsewhere in this document. Based on 121,579,604
shares of Prison Realty common stock issued and outstanding upon completion
of the equity investment and related restructuring, assuming the issuance
of an aggregate of approximately 3.2 million shares of Prison Realty common
stock in the merger transactions.
(4) The investor group includes the following entities that, through their
affiliates, are anticipated to become 5% or greater beneficial owners:
Fortress Investment Group LLC
1301 Avenue of the Americas, 42nd Floor
New York, New York 10019
Blackstone Management Associates III L.L.C. ("BMA III")
345 Park Avenue
New York, New York 10019
Blackstone Real Estate Associates III L.P. ("BREA III")
345 Park Avenue
New York, New York 10019
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BMA III is controlled by its founding members, Messrs. Peter G. Peterson
and Stephen A. Schwarzman, who may be deemed to beneficially own shares of
Prison Realty beneficially owned by BMA III, although they disclaim this
beneficial ownership. BREA III is indirectly controlled by Messrs. Peter G.
Peterson and Stephen A. Schwarzman, who may be deemed to beneficially own
shares of Prison Realty beneficially owned by BREA III, although they
disclaim this beneficial ownership.
Assuming the full $350.0 million investment by the investor group, the
ownership indicated includes 53,846,154 shares of common stock issuable
upon conversion of shares of series B convertible preferred stock and
29,586,828 shares of common stock issuable upon exercise of the warrants
issued to the investor group. Assuming an investment of $275.0 million by
the investor group and the full subscription of the rights offering, the
ownership indicated includes 42,307,692 shares of common stock issuable
upon conversion of shares of series B convertible preferred stock and
23,246,794 shares of common stock issuable upon exercise of the warrants
issued to the investor group.
(5) This ownership percentage is calculated in accordance with the Exchange Act
regulations as follows. For purposes of calculating this percentage, the
investors are deemed to own 83,432,982 shares of Prison Realty common
stock, consisting of 53,846,154 shares of common stock issuable upon
conversion of shares of the series B convertible preferred stock and
29,586,838 shares of common stock issuable upon exercise of the warrants
issued to the investor group. 205,012,586 shares of common stock are deemed
to be outstanding for purposes of this calculation, consisting of: (i)
83,432,982 shares of common stock issuable upon conversion of shares of the
series B convertible preferred stock and upon exercise of the warrants
issued to the investors; (ii) approximately 3.2 million shares of common
stock to be issued in the merger transactions; and (iii) 118,395,379 shares
of common stock issued and outstanding on January 31, 2000.
(6) This ownership percentage is calculated in accordance with the Exchange Act
regulations as follows. For purposes of calculating this percentage, the
investors are deemed to own 65,554,486 shares of Prison Realty common
stock, consisting of 42,307,692 shares of common stock issuable upon
conversion of shares of the series B convertible preferred stock and
23,246,794 shares of common stock issuable upon exercise of the warrants
issued to the investor group. 187,134,090 shares of Prison Realty common
stock are deemed to be outstanding for purposes of this calculation,
consisting of: (i) 65,554,486 shares of common stock issuable upon
conversion of shares of the series B convertible preferred stock and upon
exercise of the warrants issued to the investors; (ii) approximately 3.2
million shares of common stock to be issued in the merger transactions; and
(iii) 118,395,379 shares of common stock issued and outstanding on January
31, 2000.
(7) Includes 10,383,505 shares of Prison Realty common stock held by Sodexho
and 75,626 shares of Prison Realty common stock issuable upon the exercise
of certain options issued to Jean-Pierre Cuny and transferred by Mr. Cuny
to Sodexho.
(8) This beneficial ownership information was received by Prison Realty from a
Schedule 13G filed with the SEC on January 28, 2000. Scudder Kemper
Investments, Inc. beneficially owns, and has the sole power to dispose or
to direct the disposition of, 8,923,325 shares of Prison Realty common
stock. Of this amount, Scudder Kemper Investments, Inc. has the sole power
to vote or direct the vote of 8,922,100 shares of Prison Realty common
stock.
(9) This beneficial ownership information was received by Prison Realty from a
Schedule 13D filed with the SEC on February 9, 2000. Gotham Partners, L.P.
has sole voting and investment power with respect to 4,507,452 shares of
Prison Realty common stock. Gotham Partners III, L.P. has sole voting and
investment power with respect to 222,962 shares of Prison Realty common
stock. Gotham International Advisors, L.L.C. has sole voting and investment
power
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with respect to 2,071,586 shares of Prison Realty common stock. Section H
Partners, L.P. is the sole general partner of Gotham Partners, L.P. and
Gotham Partners III, L.P. Karenina Corp., which is wholly owned by William
A. Ackman, and DPB Corp., which is wholly owned by David P. Berkowitz, are
the sole general partners of Section H Partners, L.P. Messrs. Ackman and
Berkowitz are the senior managing members of Gotham International Advisors,
L.L.C., which, pursuant to an investment management agreement, has the
power to vote and dispose of 2,071,586 shares of Prison Realty common stock
owned by Gotham Partners International, Ltd.
(10) Includes 5,000 shares of Prison Realty common stock issuable upon the
exercise of vested options, 26,211 shares of Prison Realty common stock
held in a 401(k) plan, 19,750 shares of Prison Realty common stock owned by
Thomas W. Beasley's wife, and an aggregate of 14,567 shares of Prison
Realty common stock owned by Mr. Beasley's three children.
(11) Includes 325,000 shares of Prison Realty common stock issuable upon the
exercise of vested options and 43,163 shares of Prison Realty common stock
held in a 401(k) plan. As a result of the completion of the equity
investment and related restructuring, 140,000 deferred shares held by Mr.
Crants will vest pursuant to the provisions of a deferred stock bonus plan
maintained by Prison Realty. Mr. Crants' ownership of Prison Realty common
stock will increase by 140,000 shares upon completion of the equity
investment and related restructuring.
(12) Includes 393,750 shares of Prison Realty common stock issuable upon the
exercise of vested options, 900 shares of Prison Realty common stock owned
by Mr. Quinlan's daughters, 21,000 shares of Prison Realty common stock
owned by Mr. Quinlan's wife and 2,362 shares of common stock held in an
Individual Retirement Account. A total of approximately $400,000 in Prison
Realty common stock, or approximately 99,696 shares, will be issued to Mr.
Quinlan in the merger of CCA with and into Prison Realty in exchange for
200,000 shares of CCA voting common stock owned by Mr. Quinlan.
(13) Includes 15,000 shares of Prison Realty common stock issuable upon the
exercise of vested options and 1,000 shares of Prison Realty common stock
owned jointly by Mr. Bell and his wife.
(14) Includes 15,000 shares of Prison Realty common stock issuable upon the
exercise of vested options.
(15) Mr. Cuny serves as the Senior Vice-President of The Sodexho Group, an
affiliate of Sodexho. Mr. Cuny beneficially owns 26,250 shares of Prison
Realty common stock issuable upon the exercise of vested options. This
number does not include 10,459,131 shares of Prison Realty common stock
beneficially owned by Sodexho, of which Mr. Cuny disclaims beneficial
ownership.
(16) Includes 15,000 shares of Prison Realty common stock issuable upon the
exercise of vested options and 437 shares of Prison Realty common stock
owned jointly by Mr. Russell and his daughter.
(17) Includes an aggregate of 879,062 shares of Prison Realty common stock
issuable upon the exercise of vested options. A total of approximately
$400,000 in Prison Realty common stock, or approximately 99,696 shares,
will be issued to each of J. Michael Quinlan and Vida H. Carroll in the
merger of CCA with and into Prison Realty in exchange for 200,000 shares of
CCA voting common stock owned by each of J. Michael Quinlan and Vida H.
Carroll.
DESCRIPTION OF THE EQUITY INVESTMENT
This section of the proxy statement describes certain aspects of the
proposed equity investment, including the terms of the securities purchase
agreement and related agreements. While Prison Realty believes the description
covers the material terms of the equity investment and the related transactions,
the following summary description does not purport to be complete and is
qualified in its entirety by reference to the securities purchase agreement,
which is attached hereto as Appendix A
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and incorporated herein by this reference, and related agreements. All
shareholders are urged to read the securities purchase agreement and related
agreements carefully and in their entirety for a more complete understanding of
the proposed equity investment.
CLOSING OF THE EQUITY INVESTMENT AND REASON FOR SHAREHOLDER APPROVAL
The holders of Prison Realty common stock are being asked to approve the
terms of the investment of up to $350.0 million in the newly combined Prison
Realty through the issuance and sale of:
- up to 14.0 million shares of series B and series C convertible preferred
stock; and
- warrants to purchase such number of shares of Prison Realty common stock
as is equal to up to 14% of the shares of Prison Realty common stock
issued and outstanding, on a fully diluted basis, after giving effect to
the sale of the shares of series B and series C convertible preferred
stock to the investors and to existing common shareholders of Prison
Realty in a series of transactions as described herein and the merger
transactions.
It is currently anticipated that the issuance and sale of up to $315.0
million of the shares of series B and series C convertible preferred stock and
the warrants to purchase shares of Prison Realty common stock by the investors
and by Prison Realty's existing shareholders in the rights offering, subject to
Prison Realty shareholder approval and the completion of the merger
transactions, will occur promptly following the completion of the merger
transactions as described in this proxy statement. The issuance and sale of the
remaining $35.0 million in shares of series B convertible preferred stock to the
investors will occur, if it all, within 18 months of the initial closing.
Pursuant to the provisions of the articles supplementary to be filed by Prison
Realty with respect to the shares of series B and series C convertible preferred
stock, the shares of series B and series C convertible preferred stock will have
an initial conversion price of $6.50 per share. Assuming the issuance and sale
of all 14.0 million shares of convertible preferred stock, the shares of
convertible preferred stock will initially be convertible into approximately
53.8 million shares of Prison Realty common stock. Assuming there are
approximately 211.4 million shares of Prison Realty common stock issued and
outstanding on a fully diluted basis, and assuming conversion of the shares of
series B and series C convertible preferred stock and the completion of the
merger transactions, the warrants, which will have an initial exercise price of
$7.50 per share, will represent the right to purchase approximately 29.6 million
shares of Prison Realty common stock. Prison Realty also expects to issue
approximately 3.2 million shares in connection with the merger transactions
(assuming a Prison Realty common stock price of $4.00 per share). As a result of
the merger transactions and the purchase of $350.0 million of convertible
preferred stock and warrants to purchase Prison Realty common stock by the
investors and by Prison Realty's existing shareholders in the rights offering,
Prison Realty will issue shares of its common stock or securities convertible
into shares of its common stock in excess of 20% of the shares of Prison Realty
common stock currently issued and outstanding.
As such, under the rules of the NYSE, the exchange on which the shares of
Prison Realty's capital stock are listed and traded, Prison Realty, prior to the
issuance and sale of the securities, must obtain the approval of the holders of
the majority of its common stock present in person or by proxy and voting on the
proposal at a meeting called to approve the issuance, provided that the holders
of at least 50% of Prison Realty's common stock is present and voting on the
proposal at such meeting. Under the rules of the NYSE, shareholder approval is
required prior to the issuance of common stock, or securities convertible into
common stock, in any transaction or series of transactions if: (i) the common
stock has, or will have upon issuance, voting power in excess of 20% of the
voting power outstanding before the issuance of such stock or securities
convertible into or exercisable for common stock; or (ii) the number of shares
of common stock to be issued is, or will be upon issuance, equal to or in excess
of 20% of the number of shares of common stock outstanding before
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the issuance of the common stock or of the securities convertible into or
exercisable for common stock.
OVERVIEW OF THE EQUITY INVESTMENT
Pursuant to the terms of the securities purchase agreement, the investors
will initially purchase, for an aggregate purchase price of up to $315.0 million
(subject to reduction by the rights offering as described below): (i) 12.6
million shares of the series B convertible preferred stock convertible into
approximately 48.5 million shares of Prison Realty's common stock; and (ii)
warrants to purchase up to 14% of Prison Realty's common stock, on a fully
diluted basis (expected to equal approximately 29.6 million shares), at an
initial exercise price of $7.50 per share. Also under the terms of the
securities purchase agreement, an additional $35.0 million in series B
convertible preferred stock, consisting of up to 1.4 million shares of series B
convertible preferred stock (convertible into approximately 5.4 million shares
of Prison Realty common stock), may be purchased by the investors, at the
request of Prison Realty, in one or more tranches at any time within 18 months
from the date of the initial closing.
In connection with the investors' purchase of the shares of series B
convertible preferred stock and the warrants, Prison Realty will conduct a
rights offering in which existing common shareholders of Prison Realty will
receive non-transferable rights to purchase up to an aggregate of $75.0 million
of units consisting of shares of Prison Realty's newly-issued series C
convertible preferred stock (convertible into approximately 11.5 million shares
of Prison Realty common stock) and warrants to purchase up to 3% of Prison
Realty's common stock, on a fully diluted basis (expected to equal approximately
6.3 million shares of Prison Realty common stock), each with the same economic
terms as the shares of series B convertible preferred stock and warrants to be
issued to the investors. If Prison Realty's shareholders choose to exercise
rights granted to them, the aggregate amount of shares of series B convertible
preferred stock and warrants purchased by the investors will be reduced
accordingly. Under the terms of the securities purchase agreement, Prison Realty
will be required to terminate the rights offering prior to selling any shares of
convertible preferred stock or warrants thereunder if Prison Realty's
shareholders do not exercise rights to purchase a minimum of $10.0 million of
series C convertible preferred stock and warrants.
USE OF PROCEEDS
The proceeds from the investors' purchase of the shares of series B
convertible preferred stock, the warrants and the rights offering, as well as
the proceeds from the new senior secured credit facilities, will be used by
Prison Realty to repay existing bank indebtedness of Prison Realty and certain
existing bank indebtedness of CCA, PMSI and JJFMSI and to effect the merger
transactions and pay certain transaction costs associated with the debt
restructuring, the investors' purchase of the shares of series B convertible
preferred stock and the warrants, the rights offering and the merger
transactions. The balance of the proceeds from the initial borrowings under the
new bank credit facility, the investors' purchase of the shares of series B
convertible preferred stock and the warrants and the rights offering will be
used for construction, expansion and management of correctional and detention
facilities and for general corporate purposes.
BACKGROUND OF THE INVESTORS
The investors are comprised of a group of investors led by an affiliate of
Fortress and affiliates of Blackstone and Bank of America Corporation. The
investors have significant private equity, restructuring, and capital market
expertise and have collective access to more than $6.0 billion in equity
capital.
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Fortress Investment Group LLC is a real estate investment and asset
management company with headquarters in New York City. Fortress was founded in
April 1998, manages approximately $900.0 million of private equity, and invests
primarily in undervalued real estate-related assets and companies on a domestic
and international basis. Fortress was formed to continue the highly successful
private equity track record of its principals. Fortress's principals have over
60 years of collective structured finance, capital markets and real estate
experience, and have worked together for approximately 12 years. Over the past
five years, the principals have directed the acquisition and management of
approximately $11.0 billion of real estate-related assets in 85 transactions in
North America and Europe. The principals have financed and monetized many of
these investments through the issuance of over $9.0 billion (principal amount)
of fixed income securities.
Blackstone, founded in 1985 by Peter G. Peterson and Steven A. Schwarzman,
conducts private equity, liquid, and advisory investment activities. Its private
equity investment activities include $3.2 billion in invested capital in
corporate private equity, $1.8 billion in real estate, and a proposed $750.0
million in corporate mezzanine financings. Of these invested amounts, Blackstone
has committed or invested over $593.0 million. Blackstone's liquid investment
activities include the management of $1.3 billion in eight non-traditional
funds, 30% of such funds being invested by Blackstone. Blackstone's advisory
activities include serving as the corporate advisor on over $200.0 billion of
merger and acquisition transactions and the advisor with respect to several
sophisticated and high-profile restructurings and reorganizations.
Bank of America Corporation, with $633.0 billion in assets, is the largest
bank in the United States. Bank of America Corporation serves more than 30.0
million households and 2.0 million businesses across the country. It also
provides comprehensive international corporate financial services for clients
doing business around the world. Bank of America Corporation also has over $4.2
billion in equity investments in more than 450 separate funds.
TERMS OF THE SECURITIES PURCHASE AGREEMENT AND RELATED AGREEMENTS
The following summarizes material terms of the securities purchase
agreement by and among Prison Realty, CCA, PMSI, and JJFMSI, on the one hand,
and the investors, on the other hand, relating to the proposed equity
investment. The securities purchase agreement is attached hereto as Appendix A.
The discussion below is not a complete description of the terms of the
securities purchase agreement, and all shareholders are urged to read the
securities purchase agreement and related agreements carefully and in their
entirety for a more complete understanding of the terms of the agreements.
INVESTMENT
Pursuant to the terms of the securities purchase agreement, upon the
completion of the merger transactions, Prison Realty will sell to the investors,
at an aggregate purchase price of up to $350.0 million, (i) in a series of
transactions, up to an aggregate of 14.0 million shares of series B convertible
preferred stock, which shall be convertible into shares of Prison Realty common
stock and having the other rights and preferences set forth in the series B
articles supplementary; and (ii) warrants to purchase such number of shares of
Prison Realty common stock as is equal to up to 14% of Prison Realty's common
stock on a fully diluted basis after giving effect to the merger transactions.
The number of shares and warrants to be purchased will be reduced on a one for
one basis by each share of series C preferred stock and warrants to purchase
shares of Prison Realty common stock purchased in the rights offering. The
purchase and sale of up to 12.6 million shares of series B convertible preferred
stock and all of the warrants, at an aggregate purchase price of not more than
$315.0 million and subject to reduction pursuant to the rights offering, will
take place on such date and time as agreed to by the companies and the
investors, but in no event later than 15
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business days following the later of the date of Prison Realty shareholder
approval and the satisfaction or waiver of all of the conditions to the initial
closing of the equity investment. The purchase and sale of up to 1.4 million
shares of series B convertible preferred stock, at an aggregate purchase price
of not more than $35.0 million, if not purchased by the investors at the initial
closing at the request of Prison Realty, may take place in one or more
transactions and on such dates and times as requested by Prison Realty, at any
time within 18 months of the initial closing.
Execution and delivery of a registration rights agreement shall be made at
the initial closing by Prison Realty to the investors. In addition, there will
be approximately $1.2 billion of committed debt capital from CSFB to refinance
Prison Realty's existing indebtedness through a $950.0 million term credit
facility and a $250.0 million revolving credit facility.
REPRESENTATIONS AND WARRANTIES
The securities purchase agreement contains, or incorporates by reference,
various representations and warranties of each of the companies relating to,
among other things: (a) its corporate organization, existence and good standing
and similar corporate matters; (b) its capitalization; (c) the authorization,
execution, delivery and enforceability of the securities purchase agreement, the
merger agreement, and the related documents; (d) the absence of conflicts,
violations and defaults under its charter or bylaws and certain other agreements
and documents; (e) the absence of required consents, approvals, orders, or
authorizations of, or registrations, declaration or filings with, certain
government entities relating to the equity investment and the merger
transactions; (f) the documents and reports filed with the SEC and the accuracy
and completeness of the information contained herein; (g) this proxy statement
and the accuracy and completeness of the information contained herein; (h) the
absence of a material adverse effect, as hereinafter defined, on such party or
certain other material changes or events since September 30, 1999; (i) the
existence of necessary permits or approvals from certain government entities;
(j) the absence of material or threatened litigation and compliance with
applicable laws; (k) filing of tax returns and payment of taxes; (l) the absence
of defaults under material contracts; (m) owned and leased real property
matters; (n) environmental matters; (o) labor matters; (p) benefit plans and
other matters relating to ERISA; (q) the shareholder vote required to approve
the equity investment and the merger transactions; (r) the recommendation of
such party's board with respect to the merger transactions; (s) the
inapplicability of the state antitakeover statutes to the equity investment and
the merger transactions; (t) brokers' fees and expenses; (u) the receipt of an
opinion of such party's financial advisor with respect to the equity investment
and the merger transactions; (v) with respect to Prison Realty only, the
applicability of certain federal and state securities laws with respect to the
securities issued pursuant to the securities purchase agreement; and (w) the
qualification of the mergers as tax-free "reorganizations" under the Code.
As used in the securities purchase agreement, the term "material adverse
effect" or "material adverse change" means, when used in connection with a
party, any change, effect, event, occurrence or development that is, or is
reasonable likely to be, materially adverse to the business, results of
operations or financial condition of such party and its subsidiaries, taken as a
whole, other than any change, effect, event or occurrence relating to or arising
out of (a) the economy or securities markets in general, (b) the securities
purchase agreement or the transactions contemplated thereby or the announcement
thereof.
The securities purchase agreement also contains various representations and
warranties of the investors relating to, among other things: (a) the investment
intent and expertise of the investors with respect to their purchase of the
shares of series B convertible preferred stock and the warrants, and the shares
of Prison Realty common stock issuable upon their conversion or exercise, as the
case may be; (b) their acknowledgment of the restrictions on the resale of the
securities; (c) their organization, existence and good standing and similar
matters; (d) their current ownership of Prison Realty capital
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stock; (e) the existence of any voting agreements among the investors; (f) the
authorization, execution, delivery and enforceability of the securities purchase
agreement; (g) the absence of conflicts, violations and defaults under their
organizational documents and certain other agreements and documents and the
absence of required consents, approvals, orders, or authorization of, or
registrations, declarations or filings, with any court or certain governmental
agencies; and (f) the engagement of agents, brokers, investment bankers or
financial advisors that will be entitled to a fee or commission as a result of
the equity investment.
CONDITIONS TO CLOSING
Each of the conditions described below may be waived by the party that has
the benefit of the condition. At the date of this proxy statement, none of the
conditions to the obligations of the investors or the companies to complete the
equity investment have been waived. If, following the Prison Realty special
meeting, the investors waive one or more conditions to the obligations of the
companies to complete the equity investment, the companies do not intend to
notify shareholders of the waiver or resolicit proxies. If the companies waive
one or more conditions to the obligations of the investors to consummate the
equity investment, the companies may resolicit proxies if management determines
that the waiver of the condition or conditions is material to its shareholders.
Conditions to the initial closing. The obligations of each of the
companies and the investors to complete the initial closing under the terms of
the securities purchase agreement and the related agreements and transactions
are subject to the satisfaction of the following conditions at or prior to the
completion of the initial closing:
- any waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 must have been terminated or expired;
- no temporary restraining order, injunction or other court order
preventing the completion of the equity investment and the related
transactions is in effect;
- obtaining shareholder approval;
- the completion of the merger transactions;
- the entering into definitive agreements with respect to the senior
secured credit facilities and the initial funding under such facilities
shall have occurred, with the proceeds of such funding, along with the
proceeds of the equity investment, applied as specified in the
commitment letter regarding the senior secured credit facilities or as
otherwise agreed to by the companies and the investors;
- the effective registration of Prison Realty common stock issued in the
merger transactions under federal securities laws; and
- the shares of Prison Realty common stock issued in the merger
transactions shall have been approved for listing on the NYSE.
The obligations of the investors to consummate the initial closing and the
related transactions are further subject to the satisfaction or waiver of the
following other conditions on or prior to the completion of the initial closing:
- the representations and warranties of the companies contained in the
securities purchase agreement are true and correct in all material
respects as of the date of the securities purchase agreement and the
date of the completion of the initial closing as though made on and as
of each such date, except to the extent any failure to be true or
correct does not individually, or in the aggregate, have a material
adverse effect on the companies taken as a whole;
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- the companies must have performed in all material respects all
obligations required to be performed by them under the securities
purchase agreement;
- each of the companies shall have obtained the consent of certain
parties, including the consents of its respective lenders and certain
other government agencies;
- since the date of the securities purchase agreement there must have not
occurred any event that could reasonably be expected to result in a
material adverse change on the companies, taken as a whole;
- each of the companies shall have delivered to the investors audited
financial statements, prepared in accordance with GAAP consistently
applied (except as otherwise agreed), for the year ended December 31,
1999 to the investors;
- none of the companies shall be in violation or default under any
provision of its organizational documents or the provisions of certain
other agreements nor shall facts or circumstances exist which would
constitute a default with notice or a lapse of time;
- the investors shall have received opinions of counsel to each of Prison
Realty and CCA;
- the articles of amendment and restatement of Prison Realty's charter and
the Amended and Restated Bylaws of Prison Realty shall be in effect and
the new board of directors shall have been appointed pending the
closing;
- the combined consolidated EBITDA of the companies as determined in
accordance with GAAP for the first calendar quarter of 2000 shall not
have been less than $44.3 million and the Consolidated Net Debt of the
companies, as defined in the securities purchase agreement, shall not
exceed $987.0 million as of the end of the fifth business day prior to
the initial closing; and
- certain securities litigation against Prison Realty shall have been
finally settled or dismissed or Prison Realty shall have obtained
insurance to cover any liabilities, all on terms acceptable to the
investors.
The obligations of each of the companies to complete the initial closing
and the related transactions are further subject to the satisfaction or waiver
of the following other conditions at or prior to the completion of the initial
closing:
- the representations and warranties of the investors contained in the
securities purchase agreement are true and correct in all material
respects as of the date of the securities purchase agreement and the
date of the completion of the initial closing as though made on and as
of each such date, except to the extent any failure to be true or
correct does not individually, or in the aggregate, have a material
adverse effect on the investors taken as a whole;
- the investors must have performed in all material respects all
obligations required to be performed by them under the securities
purchase agreement; and
- the companies shall have received opinions of counsel to the investors.
Conditions to any subsequent closings. The obligations of Prison Realty
and the investors to complete any subsequent closing under the terms of the
securities purchase agreement are conditioned upon the completion of the initial
closing and the investment contemplated thereby and there being no temporary
restraining order, injunction or other court order preventing the completion of
such subsequent closing and the related transactions in effect.
The obligations of the investors to consummate any subsequent closing are
further conditioned upon: (i) the representations and warranties of the
companies contained in the securities purchase
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agreement being true and correct in all material respects as of the date of the
securities purchase agreement and the date of the subsequent closing as though
made on and as of each such date, except to the extent any failure to be true or
correct does not individually, or in the aggregate, have a material adverse
effect on the companies taken as a whole; (ii) the companies having performed in
all material respects all obligations required to be performed by them under the
securities purchase agreement; and (iii) since the date of the securities
purchase agreement there must have not occurred any event that could reasonably
be expected to result in a material adverse change on the companies, taken as a
whole.
The obligations of each of the companies to consummate any subsequent
closing are further conditioned upon: (i) the representations and warranties of
the investors contained in the securities purchase agreement being true and
correct in all material respects as of the date of the securities purchase
agreement and the date of the subsequent closing as though made on and as of
each such date, except to the extent any failure to be true or correct does not
individually, or in the aggregate, have a material adverse effect on the
companies taken as a whole; and (ii) the investors having performed in all
material respects all obligations required to be performed by them under the
securities purchase agreement.
COVENANTS OF THE COMPANIES
Under the terms of the securities purchase agreement, each of the companies
has agreed to take the following actions or adhere to the following
restrictions.
Conduct of business pending the initial closing. The companies have agreed
to carry on their respective businesses in the ordinary course consistent with
past practice from the date of the execution of the securities purchase
agreement through and including the initial closing date. In connection
therewith, the companies will not, without the written consent of the investors
or as otherwise set forth in the securities purchase agreement, undertake
certain activities, including: (i) subject to certain exceptions, the payment of
dividends on, or the redemption of, their capital stock; (ii) the issuance of
any common stock or securities convertible into common stock; (iii) the
amendment of their respective charters or bylaws; (iv) subject to certain
exceptions, effect any settlement or compromise any pending or threatened
proceeding; (iv) incur additional indebtedness other than borrowings under their
respective credit facilities, pursuant to previously disclosed business plans;
(v) certain actions with respect to the companies' directors, officers and
employees, including the termination of executive officers of the companies, the
entering into of any employment agreements with any director, executive officer
or employee of the companies, the granting of additional compensation other than
in the ordinary course of business and consistent with past practice to any
current or former director, executive officer or the companies, or amend, adopt
or terminate any benefit plans; or (vi) permit any material insurance policy to
be diminished, terminated or canceled.
No solicitation of competing transactions. Unless permitted by the
investors or specifically permitted under the securities purchase agreement
relating to the equity investment, none of the companies nor any of their
subsidiaries or representatives are permitted to do any of the following prior
to the completion of the equity investment:
- solicit, initiate, encourage, respond to or take any other action
designed to facilitate, any inquiries or the making of any proposal
regarding any merger, consolidation, transfer of substantial assets,
sale or exchange of shares or similar competing transaction;
- participate in any substantive discussions or negotiations regarding any
competing transaction; or
- enter into any letter of intent, agreement in principle, acquisition
agreement or other similar agreement related to any competing
transaction.
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However, if and to the extent that the board of directors of any of the
companies reasonably determines in good faith after consultation with counsel
that it is required to do so by its fiduciary duties, the companies will not be
precluded from providing information to, or discussing, negotiating and
executing agreements with, any person or entity that makes a written proposal
under which the other person or entity would do one of the following:
- make a significant equity investment in one or more of the companies;
- acquire all or a substantial portion of the assets of one or more of the
companies; or
- acquire one or more of the companies.
Each of the companies has also agreed to advise the investors promptly in
writing, but in any event within 24 hours, of any inquiries, discussions,
negotiations, proposals or requests for information received by them relating to
any competing transaction, the material terms and conditions of the competing
transaction and the identity of the person making the request or competing
transaction. The companies also agreed to promptly advise the investors of any
development relating to any of those inquiries. The investors shall have the
right to match the material terms and conditions of any competing transaction
within five (5) business days after receiving notice in writing from the
companies of such competing transaction.
Despite the ability of one or more of the companies to respond to
unsolicited proposals if the board of directors of the applicable company
determines in good faith that its fiduciary duties so require, the provisions of
the securities purchase agreement could have the effect of preventing the
completion of a transaction which would be more favorable to the shareholders of
Prison Realty than the proposed equity investment.
PAYMENT OF FEES AND EXPENSES
Fees and expenses. Whether or not the equity investment is completed
(except in the instance where such is caused by a breach of the securities
purchase agreement by the investors), the companies will bear all costs and
expenses incident to the performance of the parties' obligations under the
securities purchase agreement, including:
- the costs of the companies with respect to: (i) the issuance of the
shares of series B convertible preferred stock and the warrants, and the
issuance of shares of Prison Realty common stock upon their conversion
or exercise, to the investors; (ii) the qualification of such securities
under state blue sky laws; (iii) the costs associated with the merger
transactions; (iv) the completion of the rights offering; and
- the out of pocket costs and expenses, including the fees and expenses of
advisors, accountants, attorneys, consultants and other parties whom the
investors have engaged to assist them in connection with the equity
investment, incurred by the investors in connection with their
evaluation, negotiation and consummation of the equity investment and
the transactions contemplated by the securities purchase agreement.
The companies made an advance payment of $1.75 million to the investors
upon the execution of the securities purchase agreement to cover the investors'
expenses. The balance of the expenses will be reimbursed to the investors by the
companies upon the initial closing or the termination of the securities purchase
agreement. In the event that the investors' expenses are less than $1.75
million, such excess amount will be credited against the amount of the
transaction fee to be paid to the investors as set forth below.
Transaction fee. The companies are obligated to pay to the investors an
aggregate transaction fee of $15.7 million to be paid upon the earlier of: (i)
the issuance of the shares of series B
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convertible preferred stock and warrants by Prison Realty; (ii) four months from
December 26, 1999; or (iii) the completion of an alternative financing by the
companies.
Annual monitoring fee. The companies are obligated to pay an annual
monitoring fee of $1.5 million to the investors, such monitoring fee to be paid
in quarterly installments on each anniversary date of the execution of the
securities purchase agreement until a permanent management team (comprised of a
chief executive officer and a chief financial officer) has been approved by the
investors and the board of directors and installed by Prison Realty.
Break-up fee. If, prior to the consummation of the investors' purchase of
the shares of series B convertible preferred stock and the warrants, or during a
period of one year following any termination of the securities purchase
agreement (other than termination due solely to the investors' unwillingness to
proceed with the investment), either Prison Realty, CCA, PMSI or JJFMSI enter
into an agreement with a third party without the consent of the investors
providing for the issuance of equity or convertible securities, in one or a
series of transactions, with proceeds in excess of $100.0 million, or providing
for any merger, consolidation, transfer of substantial assets, any tender or
exchange offer or similar transaction involving the companies, then the
companies shall pay the investors a fee of $7.5 million.
MANAGEMENT OF PRISON REALTY; REPRESENTATION ON THE PRISON REALTY BOARD AND
CERTAIN COMMITTEES; LIMITATION ON CORPORATE ACTIONS
Board of directors. Immediately after the closing of the equity investment
and the merger transactions, the Prison Realty board will consist of not more
than 10 directors, of which four shall be designated by the investors, four
shall be designated from Prison Realty's current board of directors, including
one director designated pursuant to a contractual arrangement between Prison
Realty and Sodexho and two shall be designated jointly by the investors and
Prison Realty's existing boards of directors. Two members of Prison Realty's
management, as in place immediately after the closing, and up to two designees
of the investors, shall have the right to attend and participate in all meetings
of the board of directors in a non-voting capacity.
Investment Committee. The terms of the equity investment require that an
Investment Committee of the board of directors will be created consisting of all
four of the series B preferred stock directors and three additional members of
the board. The Investment Committee will have the exclusive power to: (i)
authorize any incurrence, modification, amendment or waiver of indebtedness by
Prison Realty; (ii) approve any capital expenditure by Prison Realty; and (iii)
approve acquisitions and business expansions (not subject to shareholder
approval), including, but not limited to, approving new management agreements or
leases for Prison Realty's facilities. In addition, without the affirmative vote
of the Investment Committee, the board of directors will not: (i) declare a
common dividend or authorize the issuance or sale of securities (including
rights or options related thereto other than employee options or similar rights
approved by the board's Compensation Committee); (ii) recommend any action to
the shareholders which requires shareholder approval; (iii) amend the charter or
bylaws of Prison Realty; (iv) approve the appointment or termination of any
executive officer of Prison Realty; or (v) approve any merger, consolidation or
share exchange which requires shareholder approval.
Preemptive rights. The securities purchase agreement provides that the
investors will have, until the fifth anniversary of the closing of the initial
sale of the shares of series B convertible preferred stock but only for so long
as the investors own any preferred shares or warrants (or any shares of common
stock acquired pursuant to any exercise or conversion thereof), preemptive
rights to acquire a pro-rata amount of additional shares of Prison Realty common
stock (or securities convertible or exchangeable therefor) upon any issuance of
securities by Prison Realty other than (i) an issuance of securities to
directors or employees of Prison Realty pursuant to a benefit plan, (ii) an
issuance of
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securities upon the conversion of any convertible debt issued by Prison Realty
and outstanding as of the date of the closing of the initial sale of shares of
series B convertible preferred stock, (iii) an issuance of securities in
connection with a "business combination," if such securities have a fair market
value of less than $50.0 million, and (iv) the issuance and sale of securities
in connection with the rights offering.
Registration rights. The holders of the shares of series B convertible
preferred stock and the warrants will have customary registration rights
pursuant to the terms of the registration rights agreement to be executed and
delivered at the initial closing. The registration rights agreement will contain
customary registration rights (six demand registrations and unlimited incidental
or piggyback registrations), provisions regarding registration procedures, and
indemnification provisions. With respect to demand registrations, Prison Realty
will not be required to file a registration statement for a period of one year
after closing, or after such time, if the board of directors determines that a
filing is not in the best interests of Prison Realty's shareholders, with
certain limitations. Prison Realty securities that may be registered include any
shares of series B convertible preferred stock, any shares of common stock
issued or issuable upon conversion of the shares of series B convertible
preferred stock, common stock issued upon issuance of any warrants, or any
shares issued in connection with any of the foregoing by virtue of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or otherwise. Prison Realty will pay all
registration expenses under the terms of the registration rights agreement.
Name change. Upon the completion of the merger transactions, Prison Realty
will take all necessary and appropriate steps to change its name to Corrections
Corporation of America, including the filing of the charter amendments described
herein.
COVENANTS OF THE INVESTORS
Under the terms of the securities purchase agreement, each of the investors
has agreed to take the following actions or adhere to the following
restrictions.
Standstill provisions. At any time prior to the third anniversary of the
completion of the initial closing, each of the investors has agreed not to
purchase, acquire, own or hold, either directly or indirectly, any shares of
Prison Realty common stock or securities convertible into or exchangeable for
Prison Realty common stock that would cause the investors, in the aggregate, to
own or have the right to acquire more than 45% of Prison Realty's common stock
on a fully-diluted basis (including shares of Prison Realty common stock to be
acquired pursuant to the conversion of the shares of series B convertible
preferred stock and the exercise of the warrants but excluding any increase in
ownership solely as the result of any stock dividend, stock split, split-up,
recapitalization or merger or other change in the capital structure of Prison
Realty, or any action taken solely by Prison Realty), unless the securities are
acquired:
- directly from Prison Realty in a transaction approved by a majority vote
of its board of directors, or from another member of the investor group;
- as a dividend on the shares of series B convertible preferred stock or
the shares of Prison Realty common stock issued upon the conversion of
such shares or the exercise of the warrants;
- by an affiliate of an investor over whom the investor does not control
voting decisions or investment decisions and the investor does not hold
over 50% of the outstanding voting securities of the affiliate;
- by any investor, or its affiliate, in open market transactions in the
ordinary course of their regular market-making activities, if any, or in
their business as an investor advisor or broker-dealer for the account
of their customers; or
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- by an employee, partner or shareholder of an investor for his or her
individual account if the individual does not acquire beneficial
ownership in excess of 10,000 shares of Prison Realty common stock.
In addition, at no time prior to the third anniversary of the completion of the
equity investment, may any of the investors make any public announcement or
proposal or offer whatsoever, including any "solicitation" of "proxies," as the
terms are defined or used in Regulation 14A under the Exchange Act concerning
any form of business combination or similar or other extraordinary transaction
involving Prison Realty or any affiliate of Prison Realty or any form of
restructuring, recapitalization or similar transaction regarding Prison Realty
or any affiliate of Prison Realty except as required by law.
TERMINATION
The securities purchase agreement may be terminated at any time prior to
the date of the initial closing:
- by the mutual written consent of the investors and the companies;
- by the investors or any of the companies if the initial closing has not
occurred on or before June 30, 2000, except that the right to terminate
the agreement will not be available to any party whose failure to
fulfill any obligation under the securities purchase agreement has been
the cause of the failure of the initial closing to occur on or before
such date or there shall be any law in effect that makes the completion
of the purchase of securities illegal;
- by the investors or the companies if shareholder approval of the equity
investment is not obtained;
- by the investors if the boards of directors of the companies withdraw or
modify their recommendation of the securities purchase agreement in a
manner that is adverse to the investors or enter into or recommend a
proposal involving a third-party agreement;
- by the companies in the event of a material breach of the
representations, warranties or agreements by the investors that remains
uncured, or is not curable, within 30 days of the companies providing
notice of such breach; or
- by the investors in the event of a material breach of the
representations, warranties or agreements by the companies (other than a
breach which does not cause a material adverse effect) that remains
uncured, or is not curable, within 30 days of the investors providing
notice of such breach.
INDEMNIFICATION
The companies are obligated to indemnify, defend and hold harmless each of
the investors from and against any losses arising from a breach of the
covenants, agreements, representations or warranties given or made by them in
the securities purchase agreement. The companies, however, are only required to
indemnify for aggregate losses in excess of $30.0 million, not to exceed $150.0
million (except in the case of fraud by the companies), and any individual loss
of less than $100,000 will be considered de minimis and will not be included in
the calculation of the $30.0 million amount. Subject to the limitation described
in the following paragraph, any indemnification obligations of the companies
will be satisfied through an adjustment in the conversion price of the shares of
series B convertible preferred stock.
With respect to certain securities litigation matters only, to the extent
that Prison Realty shall incur losses arising out of or related to such certain
securities litigation (including certain pending litigation or litigation which
may arise from the transactions contemplated by the securities purchase
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agreement) in excess of $50.0 million, the companies' indemnification
obligations will be satisfied through a reduction in the conversion price of the
shares of series B convertible preferred stock and the exercise price for the
warrants. For every $1.0 million of losses in excess of $50.0 million, the
conversion and exercise prices will be reduced by $0.01. In this regard, if this
litigation is not finally settled, Prison Realty will be required to purchase a
liability insurance policy to cover losses related to such litigation which are
in excess of $75.0 million, in such form and with such carrier as deemed
mutually acceptable by Prison Realty and the investors.
AMENDMENTS
The securities purchase agreement may not be amended, waived, discharged or
terminated other than by a written instrument signed by the companies and by the
investors.
DESCRIPTION OF THE SERIES B CONVERTIBLE PREFERRED STOCK
The following summarizes material terms of the shares of series B
convertible preferred stock. A copy of the articles supplementary to the charter
of Prison Realty governing the rights and preferences of the shares of series B
convertible preferred stock is attached as Appendix B. This discussion is not a
complete description of the terms of the shares of series B convertible
preferred stock, so you should read it together with the series B articles
supplementary.
RANK AND PREFERENCE
The series B articles supplementary will classify 14.0 million shares of
Prison Realty's preferred stock as series B convertible preferred stock, and a
fixed stated amount of $25.00 per share. The shares of series B convertible
preferred stock will rank equal as to dividends and liquidation preference to
Prison Realty's series A cumulative convertible preferred stock, and Prison
Realty's series C cumulative convertible preferred stock that will be issued in
the rights offering, and will rank senior to all classes of Prison Realty common
stock and to any future Prison Realty preferred stock, unless the issuance of
such future Prison Realty preferred stock is approved by holders of the shares
of series B convertible preferred stock.
DIVIDENDS
Prison Realty will pay cash dividends on the shares of series B convertible
preferred stock quarterly, on a cumulative basis at a rate of 12% per annum,
which is equivalent to a fixed annual rate of $3.00 per share. In the event that
Prison Realty fails to timely pay the required cash dividends for a period of 60
days or more, cash dividends on the shares of series B convertible preferred
stock will accrue, in lieu of the 12% annual rate discussed above, at an annual
rate of 18%, compounded quarterly, until the dividends are paid. Dividends on
the shares of series B convertible preferred stock will accrue whether or not
such dividends are declared by Prison Realty and whether or not funds are
legally available for payment of such dividends.
Any accrued dividends not paid in full will be added to the stated amount
($25.00) per share of the shares of series B convertible preferred stock for
purposes of calculating future dividend payments. Amounts of accrued dividends
not paid in full within 12 months of the date when such dividends were first
due, whether or not subsequently paid, will permanently adjust the conversion
rate of the shares of series B convertible preferred stock, which will have the
effect of increasing the number of shares of Prison Realty common stock into
which the shares of series B convertible preferred stock are convertible. Any
dividend payment made on shares of series B convertible preferred stock shall
first be credited against the current dividend and then against the earliest
accrued but unpaid dividend.
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Holders of the shares of series B convertible preferred stock will also be
entitled to receive all dividends or other distributions (with the exception of
dividends payable in shares of Prison Realty common stock) paid on Prison Realty
common stock. Each share of series B convertible preferred stock will entitle
its holder to receive that amount of dividends or other distributions such
holder would have received if such share of series B convertible preferred stock
had been converted into Prison Realty common stock on the record date for
determining the shareholders entitled to such dividend or distribution.
For so long as any shares of series B convertible preferred stock are
outstanding, all dividends declared and paid by Prison Realty upon shares of the
series B convertible preferred stock or upon any shares of capital stock of
Prison Realty ranking on a parity with the shares of series B convertible
preferred stock shall be declared pro rata based upon the amount of unpaid and
accrued dividends outstanding upon the shares of series B convertible preferred
stock and upon such parity stock, if any. In addition, for so long as any shares
of series B convertible preferred stock are outstanding, and until all accrued
dividends on the shares of series B convertible preferred stock are declared and
paid in full (or a sum sufficient for payment is set apart for payment):
- Prison Realty may not declare or pay, or set apart for payment,
dividends on any shares of capital stock of Prison Realty ranking junior
to the shares of series B convertible preferred stock; and
- Prison Realty may not make any payment on account of, or set apart for
payment, money for a sinking or similar fund for the purposes of the
repurchase, redemption or retirement of any shares of capital stock of
Prison Realty ranking on a parity with, or junior to, the shares of
series B convertible preferred stock, or of warrants, rights, calls or
options exercisable or convertible into such shares of Prison Realty's
capital stock (or cause any entity directly or indirectly controlled by
Prison Realty to effect such repurchase, redemption or retirement).
CONVERSION INTO COMMON STOCK AT THE OPTION OF THE HOLDER
Each share of series B convertible preferred stock may, at the option of
its holder, be converted into shares of Prison Realty common stock at any time.
For each share of series B convertible preferred stock converted into Prison
Realty common stock, the holder will receive that number of shares of Prison
Realty common stock equal to the stated amount ($25.00) per share, divided by
the conversion price of the shares of series B convertible preferred stock,
which is initially $6.50 per share. The conversion price of the shares of series
B convertible preferred stock is subject to adjustment or reduction upon the
occurrence of certain events. A reduction in the conversion price would result
in the holders of the shares of series B convertible preferred stock receiving
additional shares of Prison Realty common stock upon conversion.
Adjustment of conversion price. The series B articles supplementary
provide that the conversion price is subject to adjustment in the event of any
of the following:
- the issuance of Prison Realty common stock as a dividend or distribution
on shares of Prison Realty common stock;
- a subdivision, combination, consolidation or reclassification of Prison
Realty common stock;
- the issuance of Prison Realty common stock, or options, rights, warrants
or other securities convertible into or exchangeable for Prison Realty
common stock, at a price per share less than the then current market
price of Prison Realty common stock, except for issuances: (i) in
private placements at not less than 95% of the then current market price
of Prison Realty common stock; (ii) pursuant to the vesting or
conversion of securities under any employee benefit or equity incentive
plan maintained by Prison Realty; and (iii) upon
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conversion of Prison Realty's outstanding convertible securities,
including the shares of series B convertible preferred stock and the
series C convertible preferred stock; or
- Prison Realty deems it advisable to prevent any distribution of stock or
stock rights, or similar transactions, from being taxable to the holders
of Prison Realty common stock, which could occur if such a distribution
increased the interest of Prison Realty's common shareholders relative
to Prison Realty's preferred shareholders as a result of a failure to
adjust the conversion ratio.
Reduction of conversion price in the event of certain payments by Prison
Realty. The conversion price of the shares of series B convertible preferred
stock may be reduced if Prison Realty becomes obligated to make any payment or
series of payments (whether paid in cash, in Prison Realty's capital stock, or
other property) resulting from:
- an adverse judgment relating to, or a settlement or other disposition
of, shareholder lawsuits against Prison Realty outstanding as of the
date of the securities purchase agreement; or
- an adverse judgment relating to, or a settlement or other disposition
of, any suit, action, claim or proceeding commenced by shareholders or
creditors of Prison Realty arising out of the transactions contemplated
by the securities purchase agreement.
Any such payments by Prison Realty in excess of $50.0 million will reduce
the conversion price of the shares of series B convertible preferred stock by
$0.01 for every $1.0 million increment by which such payments exceed $50.0
million in the aggregate.
Reduction of conversion price arising from indemnification obligations of
Prison Realty. The conversion price of the shares of series B convertible
preferred stock is also subject to reduction in the event that Prison Realty,
CCA, PMSI or JJFMSI are required to indemnify the investors under the terms of
the securities purchase agreement, a copy of which is attached hereto as
Appendix A. As a result of the securities purchase agreement's indemnification
provisions, Prison Realty, CCA, PMSI and JJFMSI have agreed to compensate the
investors for specified breaches by the companies of the terms of the securities
purchase agreement. Indemnification obligations are typically satisfied through
a cash payment to the investor. However, in order to conserve Prison Realty's
cash after completion of the equity investment, any indemnification payments
relating to the equity investment were instead structured as a reduction in the
conversion price of the series B preferred stock and the exercise price of the
warrants.
Generally, if either Prison Realty, CCA, PMSI or JJFMSI breaches the
representations and warranties set forth in the securities purchase agreement,
the indemnification obligations of the companies arise after, and only to the
extent that, losses arising as a result of the companies' breach exceed a
threshold amount of $30.0 million. However, individual losses not in excess of
$100,000 shall not apply for purposes of calculating the threshold amount. The
companies must indemnify the investors for any breaches of the covenants set
forth in the securities purchase agreement, and this obligation is not subject
to any threshold amount. The representations and warranties and covenants of
Prison Realty, CCA, PMSI and JJFMSI in the securities purchase agreement survive
the closing of the equity investment as follows:
- most representations and warranties survive until the 90th day following
the filing by Prison Realty of a Form 10-K for the fiscal year ending
December 31, 1999;
- the representations and warranties addressing the organization of Prison
Realty, CCA, PMSI and JJFMSI and the companies' authority to complete
the equity investment survive indefinitely;
- the representations and warranties of Prison Realty, CCA, PMSI and
JJFMSI regarding tax matters survive until 90 days after the expiration
of the applicable statute of limitations; and
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- the covenants and agreements, other than those applicable during the
period between the effectiveness of the securities purchase agreement
and the completion of the equity investment, survive indefinitely.
Once it has been determined that Prison Realty, CCA, PMSI and JJFMSI have
an obligation to compensate the investors under the indemnification provisions
of the securities purchase agreement, the conversion price of the shares of
series B convertible preferred stock will be reduced by an amount equal to the
indemnification obligation, divided by the number of shares of Prison Realty
common stock then issuable upon conversion of the shares of series B convertible
preferred stock and series C convertible preferred stock. The maximum amount of
indemnification obligations of Prison Realty, CCA, PMSI and JJFMSI under the
securities purchase agreement is $150.0 million which would result in a maximum
downward adjustment of $1.50 in the conversion price of the series B preferred
stock and the exercise price of the warrants.
REDEMPTION AT THE OPTION OF THE HOLDER
At any time or from time to time after the later of: (i) the fifth
anniversary of the closing of the equity investment; or (ii) the date which is
the 91st day following the repayment in full of Prison Realty's 12% senior
notes, due June 2006, each holder of shares of series B convertible preferred
stock may, at the option of the holder, require Prison Realty to redeem all of
such holder's shares of series B convertible preferred stock. The Company shall
redeem the shares of series B convertible preferred stock at a cash price equal
to: (i) the stated amount ($25.00) per share; and (ii) an amount per share equal
to a total return on investment of 18% per annum, compounded quarterly from the
closing of the equity investment until the date of redemption, reduced by the
actual return on investment realized by each holder of shares of series B
convertible preferred stock (assuming quarterly compounding and taking into
account cash dividends actually paid, when paid, by Prison Realty).
REDEMPTION AT THE OPTION OF PRISON REALTY
At any time or from time to time beginning six months after the later of:
(i) the fifth anniversary of the closing of the equity investment; or (ii) the
date which is the 91st day following the repayment in full of its 12% senior
notes, Prison Realty may redeem all, or a portion, of the outstanding shares of
series B convertible preferred stock. Prison Realty may effect the redemption at
a cash price equal to: (i) the stated amount ($25.00) per share; and (ii) an
amount per share equal to a total return on investment of 18% per annum,
compounded quarterly from the closing of the equity investment until the date of
redemption, reduced by the actual return on investment realized by each holder
of shares of series B convertible preferred stock (assuming quarterly
compounding and taking into account cash dividends actually paid, when paid, by
Prison Realty).
Prison Realty's right to redeem shares of series B convertible preferred
stock at its option is subject to limitations, however. Prison Realty may redeem
shares of series B convertible preferred stock only by the action of a majority
of the directors of Prison Realty other than directors designated by the holders
of shares of series B convertible preferred stock. If Prison Realty elects to
redeem less than all of the outstanding shares of series B convertible preferred
stock, Prison Realty must redeem shares of series B convertible preferred stock
on a pro rata basis. If less than 10% of the number of shares of series B
convertible preferred stock initially issued are then outstanding, Prison Realty
must redeem all such shares in the event it undertakes a redemption. In
addition, the holders of shares of series B convertible preferred stock will
have the right to convert such shares into shares of Prison Realty common stock
rather than having them redeemed by Prison Realty.
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VOTING RIGHTS
Election of directors. Upon issuance of the shares of series B convertible
preferred stock, four additional directors will be appointed to Prison Realty's
board of directors as the series B convertible preferred stock directors. The
holders of a plurality of the shares of series B convertible preferred stock,
voting as a separate class, shall have the right to elect the series B
convertible preferred stock directors. Holders of shares of Prison Realty common
stock and series C convertible preferred stock shall not be entitled to vote in
the election of series B convertible preferred stock directors. So long as the
total number of shares of series B convertible preferred stock then outstanding
represents at least the percentage of the total number of originally issued
shares of series B convertible preferred stock indicated below, holders of
shares of series B convertible preferred stock will be entitled to elect the
number of series B convertible preferred stock directors indicated below:
<TABLE>
<CAPTION>
NUMBER OF SERIES B CONVERTIBLE
PERCENTAGE PREFERRED STOCK DIRECTORS
---------- ------------------------------
<S> <C>
greater than or equal to 25%................................ 4
less than 25% but greater than or equal to 10%.............. 2
less than 10%............................................... 0
</TABLE>
In addition, if and as long as: (i) dividends on the shares of series B
convertible preferred stock are in arrears and remain unpaid for four quarterly
dividend periods; or (ii) Prison Realty fails to redeem shares of series B
convertible preferred stock as required by the terms of the series B articles
supplementary, the holders of the shares of series B convertible preferred stock
(voting together with holders of all other series of Prison Realty's capital
stock ranking on a parity with the shares of series B convertible preferred
stock with similar voting rights) shall be entitled to elect three additional
directors. Upon either (i) the payment in full (or the setting apart of funds
for payment in full) of all accumulated dividends, and the dividend for the then
current dividend period, relating to shares of series B convertible preferred
stock and to shares of parity stock upon which like voting rights were
conferred, or (ii) Prison Realty's redemption of shares of series B convertible
preferred stock in compliance with the terms of the series B articles
supplementary, as the case may be, the term of office of each additional
director will terminate.
Approval of Corporate Actions. For so long as any shares of series B
convertible preferred stock are outstanding, the holders of the shares of series
B convertible preferred stock will be entitled to vote on all matters presented
to the holders of Prison Realty common stock (including the election of
directors of Prison Realty other than series B convertible preferred stock
directors), voting together as a single class with holders of the series C
convertible preferred stock and Prison Realty common stock. Each share of series
B convertible preferred stock will entitle its holder to cast the same number of
votes such holder would have been able to cast if the share of series B
convertible preferred stock had been converted into Prison Realty common stock
on the record date for determining the shareholders entitled to vote on the
matter presented.
For so long as any shares of series B convertible preferred stock are
outstanding, the vote or consent of a majority of the outstanding shares of
series B convertible preferred stock, voting separately as a class, will also be
required to:
- alter or change the rights, preferences or privileges of the shares of
series B convertible preferred stock in a way that would adversely
affect the holders of the shares of series B convertible preferred
stock; or
- amend, modify or waive any provision of Prison Realty's charter or
bylaws in a way that would adversely affect the holders of the shares of
series B convertible preferred stock.
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In addition, until the date that less than 10% of the number of shares of
series B convertible preferred stock initially outstanding remains outstanding,
the vote or consent of a majority of the outstanding shares of series B
convertible preferred stock, in addition to any consent or approval required by
law, will be required to:
- increase or decrease the authorized or issued number of shares of series
B convertible preferred stock or series C convertible preferred stock;
- create or authorize, or reclassify any authorized capital stock of
Prison Realty into any new class or series, or any shares of any class
or series of capital stock of Prison Realty; or
- enter into or authorize any transaction constituting a change of control
under the terms of the series B articles supplementary.
EFFECT OF CONSOLIDATION OR MERGER UPON CONVERSION OF SERIES B CONVERTIBLE
PREFERRED STOCK
In the event of any capital reorganization or reclassification of Prison
Realty common stock that does not cause an adjustment of the conversion price of
the shares of series B convertible preferred stock, any consolidation, share
exchange or merger of Prison Realty with or into another entity, or any sale or
conveyance to another entity of all or substantially all of the property of
Prison Realty, each share of series B convertible preferred stock will
thereafter not be convertible into shares of Prison Realty common stock issuable
immediately prior to the completion of such transaction. Instead, each share of
series B convertible preferred stock will be convertible into the kind and
amount of shares of stock and other securities and property receivable in the
transaction by a holder of that number of shares of Prison Realty common stock
into which one share of series B convertible preferred stock was convertible
immediately prior to the transaction.
ABILITY TO RECEIVE PREFERENTIAL CASH PAYMENT OR CONVERT UPON CHANGE OF CONTROL
OR LIQUIDATION
Change of control. In the event of a change in control of Prison Realty,
each holder of shares of series B convertible preferred stock may, at the option
of the holder, require Prison Realty to redeem all of such holder's shares of
series B convertible preferred stock. The Company shall redeem the shares of
series B convertible preferred stock at a cash price per share equal to the
greater of:
- the sum of (i) the stated amount ($25.00) per share; and (ii) an amount
per share equal to a total return on investment of 18% per annum,
compounded quarterly from the closing of the equity investment until the
date of the change of control, reduced by the actual return on
investment realized by each holder of shares of series B convertible
preferred stock (assuming quarterly compounding and taking into account
cash dividends actually paid, when paid, by Prison Realty); or
- the sum of (i) the fair market value of the cash, securities and other
property a holder of a share of series B convertible preferred stock
would have received had the holder converted the share of series B
convertible preferred stock into Prison Realty common stock immediately
prior to the change of control; and (ii) an amount per share equal to a
total return on investment of 18% per annum, compounded quarterly from
the closing of the equity investment until the date of the change of
control, reduced by the actual return on investment realized by each
holder of shares of series B convertible preferred stock (assuming
quarterly compounding and taking into account cash dividends actually
paid, when paid, by Prison Realty).
The definition of a Change in Control is quite detailed and complex. You
should read its definition in the series B articles supplementary, which is
attached as Appendix B. Generally a "Change in Control" means any of the
following have occurred:
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- the acquisition by any individual, entity or group of beneficial
ownership of 50% or more of the combined voting power of the then
outstanding voting securities of Prison Realty, other than: (i) Prison
Realty or any of its subsidiaries, or any employee benefit plan or
related trust of such entities; or (ii) any corporation with respect to
which, following such acquisition, more than 50% of the combined voting
power of the then outstanding voting securities of such corporation is
then beneficially owned, directly or indirectly, by individuals or
entities who were beneficial owners of voting securities of Prison
Realty immediately prior to such acquisition;
- the approval by the shareholders of Prison Realty of a reorganization,
merger or consolidation following which the beneficial owners of the
voting securities of Prison Realty immediately prior to the
reorganization, merger or consolidation do not beneficially own,
directly or indirectly, more than 50% of the combined voting power of
the then outstanding voting securities entitled to vote generally in the
election of directors of the entity resulting from the reorganization,
merger or consolidation; or
- the sale or other disposition of assets representing 50% or more of the
assets of Prison Realty in one transaction or series of related
transactions.
Liquidation, dissolution or winding up. Upon the occurrence of an event of
liquidation or dissolution of Prison Realty (which shall not include a merger,
consolidation or other business combination involving Prison Realty), the
holders of the shares of series B convertible preferred stock will be entitled
to receive, on a parity with holders of Prison Realty's parity preferred
(currently consisting of Prison Realty's series A preferred stock and the series
C convertible preferred stock) stock, a liquidating distribution per share, out
of assets legally available for distribution to shareholders, equal to the
greater of:
- the sum of (i) the stated amount ($25.00) per share; and (ii) an amount
per share equal to a total return on investment of 18% per annum,
compounded quarterly from the closing of the equity investment until the
date of full liquidating distributions upon the shares of series B
convertible preferred stock, reduced by the actual return on investment
realized by each holder of shares of series B convertible preferred
stock (assuming quarterly compounding and taking into account cash
dividends actually paid, when paid, by Prison Realty); or
- the sum of (i) the fair market value of the cash, securities and other
property a holder of a share of series B convertible preferred stock
would have received had the holder converted the share of series B
convertible preferred stock into Prison Realty common stock immediately
prior to the liquidation, dissolution or winding up of Prison Realty;
and (ii) an amount per share equal to a total return on investment of
18% per annum, compounded quarterly from the closing of the equity
investment until the date of full liquidating distributions upon the
shares of series B convertible preferred stock, reduced by the actual
return on investment realized by each holder of shares of series B
convertible preferred stock (assuming quarterly compounding and taking
into account cash dividends actually paid, when paid, by Prison Realty).
After payment of the full amount of the greater of the amounts above, the
holders of shares of series B convertible preferred stock will not be entitled
to any further participation in any distribution of assets of Prison Realty. If,
upon any liquidation, dissolution or winding up of Prison Realty, the available
assets of Prison Realty are insufficient to pay the amount of the liquidating
distributions on all outstanding shares of series B convertible preferred stock
and upon all outstanding shares of Prison Realty's capital stock on a parity
with the shares of series B convertible preferred stock, then the holders of
shares of the series B convertible preferred stock and such parity stock will
share equally and ratably in any distribution of assets of Prison Realty.
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DESCRIPTION OF THE WARRANTS
The following summarizes material terms of the warrants. A copy of the warrant
agreement governing the terms of the warrants is attached hereto as Appendix C.
This discussion is not a complete description of the terms of the warrant
agreement, so you should read it together with the warrant agreement.
In connection with the sale and purchase of the shares of series B
convertible preferred stock, Prison Realty will issue and sell to the investors
warrants to purchase up to 14% of the common stock of Prison Realty, on a fully
diluted basis, less the amount of shares of common stock which may be acquired
pursuant to the exercise of warrants purchased in the rights offering. The
initial exercise price of the warrants is $7.50 per share, and the warrants may
be exercised at any time for a period of fifteen (15) years from the date
thereon. Each Warrant provides that the number of shares of Prison Realty common
stock purchasable upon exercise thereof be subject to anti-dilution adjustment
on the same terms as the shares of series B convertible preferred stock.
THE RIGHTS OFFERING
GENERAL
In connection with the equity investment, by means of a separate
prospectus, Prison Realty will conduct the rights offering in which the holders
of Prison Realty common stock will be eligible to participate. Participants in
the rights offering will be offered non-transferable rights to purchase for cash
up to an aggregate of $75.0 million of units consisting of: (i) shares of series
C convertible preferred stock; and (ii) warrants entitling the holder to
purchase shares of Prison Realty common stock. The record date for the rights
offering is the same date as the record date for the special meeting. Each
holder of Prison Realty common stock on the rights offering record date will be
entitled to subscribe for units, at a subscription price of $25.00 per unit,
consisting of their pro rata portion of the convertible preferred shares and
warrants being offered. If the rights offering is fully subscribed, Prison
Realty will issue 3.0 million shares of series C convertible preferred stock
(initially convertible into approximately 11.5 million shares of Prison Realty
common stock) and warrants to purchase up to 3% of Prison Realty common stock,
on a fully diluted basis (anticipated to equal approximately 6.3 million
shares). Shareholder approval of Proposal 1 regarding the equity investment will
also constitute approval of the issuance of the series C convertible preferred
stock and the warrants in the rights offering. The rights offering will commence
approximately 45 days prior to the anticipated completion of the equity
investment, and the rights offering is expected to remain open for not less than
30 days. The rights offering will expire prior to the completion of the equity
investment and will close on or about the date of the initial closing of the
equity investment.
Each shareholder exercising rights in the rights offering will be required
to certify that the shareholder voted in favor of each proposal described in
this proxy statement. If the rights granted to a shareholder in the rights
offering are not exercised prior to the expiration date of the rights offering,
such rights will expire without value. Participants fully exercising all of the
rights initially granted to them will also be entitled to subscribe for up to an
additional five times the number of units the participant was originally
entitled to subscribe for which may be available as a result of rights expiring
without exercise. If there are oversubscriptions for additional units, such
subscriptions will be subject to pro rata allotment based upon the number of
rights exercised by those participants subscribing for additional units. No
holder of rights will be guaranteed the right to purchase additional units. The
warrants issuable in the rights offering will not be separable from the shares
of series C convertible preferred stock for a period of 18 months following
their issuance. Pending approval by the NYSE, the shares of series C convertible
preferred stock and the warrants issued in the rights offering will be listed on
the NYSE as will the shares of Prison Realty common stock issuable upon
conversion of the series C convertible preferred stock and exercise of the
warrants.
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If Prison Realty's shareholders choose to exercise rights granted to them,
the aggregate amount of the shares of series B convertible preferred stock and
warrants purchased by the investors in the equity investment will be reduced
dollar for dollar by the amount of units purchased in the rights offering. Under
the terms of the securities purchase agreement, Prison Realty will be required
to terminate the rights offering prior to selling any shares of series C
convertible preferred stock or warrants thereunder if Prison Realty's
shareholders do not exercise rights to purchase a minimum of $10.0 million of
units. In addition, the rights offering will be terminated prior to the issuance
of any units if the equity investment is not completed.
DESCRIPTION OF CONVERTIBLE PREFERRED STOCK AND WARRANTS
The terms of the shares of series C convertible preferred stock to be
issued in the rights offering are identical to those of the shares of series B
convertible preferred stock, including the right to receive the
indemnification-related conversion price adjustments, except as follows:
- the holders of the shares of series C convertible preferred stock will
not be entitled to elect a separate class of directors, although the
holders of the shares of series C convertible preferred stock will be
entitled to: (i) vote on all matters presented to the holders of Prison
Realty common stock (including the election of directors of Prison
Realty other than the series B convertible preferred stock directors),
voting together as a single class with holders of the shares of series B
convertible preferred stock and Prison Realty common stock; and (ii)
vote together with the holders of other series of Prison Realty
preferred stock similarly situated to elect additional directors upon
failure of Prison Realty to (A) pay dividends upon the series C
convertible preferred stock for four quarterly dividend periods or (B)
redeem the shares of series C convertible preferred stock as required by
the terms of the articles supplementary setting forth the rights and
preferences of the shares of series C convertible preferred stock;
- the holders of the shares of series C convertible preferred stock will
not be entitled to the special class approval rights of the shares of
series B convertible preferred stock with respect to: (i) the increase
or decrease of the authorized or issued number of shares of series B
convertible preferred stock or series C convertible preferred stock;
(ii) the creation or authorization, or reclassification of any
authorized capital stock of Prison Realty into any new class or series,
or any shares of any class of or series, of capital stock of Prison
Realty; or (iii) entering into, or authorizing, a transaction
constituting a change of control; and
- the holders of the shares of series C convertible preferred stock will
not be subject to any standstill restrictions.
The terms of the warrants issued to participants subscribing for units in
the rights offering are identical to those of the warrants issued to the
investors in the equity investment, including those relating to anti-dilution
protection and conversion price adjustments. The holders of series C convertible
preferred stock and warrants issued in the rights offering, however, will not
have any registration rights with respect to the series C convertible preferred
stock, the warrants or Prison Realty common stock issuable upon conversion of
the series C preferred stock or exercise of the warrants. The series C
convertible preferred stock and the warrants issued in the rights offering and
the shares of Prison Realty common stock issuable upon conversion of the series
C convertible preferred stock and upon the exercise of the warrants will be
registered under the Securities Act of 1933 and will be freely transferable,
except in the hand of affiliates of Prison Realty.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE RIGHTS OFFERING
General. This section discusses certain federal income tax consequences of
the rights offering to beneficial owners of Prison Realty common stock. This
discussion does not address all aspects of
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taxation of the rights offering that may be relevant to particular shareholders
in light of their personal investment or income tax circumstances or to
particular types of shareholders subject to special tax treatment under the
federal income tax laws (including, without limitation, tax-exempt
organizations, insurance companies, financial institutions, broker-dealers,
foreign persons and taxpayers subject to the alternative minimum tax). This
discussion is based on the Code, applicable Department of Treasury regulations,
and judicial and administrative rulings, interpretations and practice, all as of
the date of this proxy statement. Each holder of Prison Realty common stock
should consult its own tax advisor regarding its tax situation and any special
tax considerations that may apply, including the impact of foreign, state and
local laws.
Receipt of rights by holders. Shareholders of Prison Realty who receive
rights in the rights offering should not be required to recognize taxable income
solely as a result of receipt of those rights. The Internal Revenue Service,
however, may take the position that the distribution of the rights by Prison
Realty is a taxable dividend to the extent of Prison Realty's current and
accumulated earnings and profits. In such event, the amount of the dividend
would equal the fair market value of the rights on the date of distribution.
Tax basis and holding period of the rights. If the distribution of rights
in the rights offering is treated as non-taxable, shareholders who receive
rights will generally have a tax basis in those rights equal to zero. If,
however, either (i) the fair market value of the rights on the date of
distribution is 15% or more of the fair market value (on the date of
distribution) of the Prison Realty common stock, or (ii) a shareholder makes an
election for the taxable year in which the rights are received to allocate the
basis of its Prison Realty common stock to the rights, then the shareholder's
basis in its Prison Realty common stock will be allocated between its Prison
Realty common stock and the rights in proportion to the fair market values of
each on the date of distribution of such rights. The holding period of the
rights will include the holding period for the Prison Realty common stock with
respect to which the rights were distributed.
If the distribution of rights in the rights offering is treated as a
taxable dividend, shareholders who receive rights will have a tax basis in the
rights equal to their fair market value on the date of distribution. In such
event, the holding period of the rights would begin on the date of distribution
and thus would not include the holding period for the Prison Realty common stock
with respect to which the rights were distributed.
Lapse of the rights prior to exercise. If the distribution of rights in
the rights offering is treated as non-taxable, no gain or loss will be
recognized by the holder of such rights upon expiration thereof, and no
adjustment will be made to the basis of the Prison Realty common stock with
respect to which the rights were received. If the distribution of rights in the
rights offering is treated as a taxable distribution, then a loss will be
recognized by the holder of such rights upon expiration thereof. The amount of
the loss for any shareholder will be equal to the shareholder's tax basis in the
rights and should constitute a capital loss.
Exercise of the rights and basis and holding period of the convertible
preferred stock and warrants. Shareholders should not recognize gain or loss
upon the exercise of the rights. Each shareholder's basis in the shares of
series C convertible preferred stock and warrants acquired through exercise of
the rights will equal the sum of its basis in the rights, if any, and the price
paid for the series C convertible preferred stock and warrants. This aggregate
basis will be allocated between the shares of series C convertible preferred
stock and the warrants in proportion to the fair market values of each on the
date of exercise of the rights. The holding period for the shares of series C
convertible preferred stock and warrants acquired through exercise of the rights
will begin on the date the rights are exercised.
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Conversion of preferred stock. If a shareholder converts its series C
convertible preferred stock into shares of Prison Realty common stock, it will
recognize no gain or loss upon such conversion. The shareholder's basis in the
common stock acquired through conversion will be equal to the shareholder's
basis in the series C convertible preferred stock so converted. The holding
period for such common stock will include the holding period for the converted
series C convertible preferred stock.
Sale of shares of series C preferred stock. Subject to the discussion
below, shareholders who sell shares of the series C convertible preferred stock
should recognize gain or loss equal to the difference between the amount
realized and their basis in the shares sold. The gain or loss recognized should
be a capital gain or loss and will be long-term or short-term, depending on
whether the shares were held for more than one year.
Because the distribution of rights in the rights offering should be
non-taxable, however, the rights (and the series C convertible preferred stock
received upon exercise of the rights) may be treated in part as "section 306
stock." The effects of such a designation are summarized below.
Code section 306 provides generally that if a corporation distributes
preferred stock to its shareholders in a tax-free distribution, the shareholders
must recognize ordinary income at such time as they dispose of the preferred
stock. For purposes of Code section 306, rights to acquire preferred stock are
generally treated the same as preferred stock. Thus, if a corporation
distributes rights to acquire preferred stock in a tax-free distribution, then
shareholders, upon a sale of those rights or upon a sale of the preferred stock
acquired pursuant to the exercise of those rights, will generally recognize
ordinary income to the extent of the fair market value of the rights at the time
of distribution.
Code section 306(c)(2) provides that stock will not be "section 306 stock"
if no part of the distribution would have been treated as a dividend had such
distribution been made in cash instead of preferred stock or rights to acquire
preferred stock. This determination is generally made based on whether the
distributing corporation has current and/or accumulated earnings and profits as
of the end of the taxable year in which such distribution is made. Accordingly,
in the event Prison Realty has any earnings and profits, current or accumulated,
as of the end of the year in which the distribution of rights occurs, and the
rights distribution itself is in fact non-taxable, then the rights, to the
extent they relate to the series C convertible preferred stock, will be treated
as "section 306 stock." Furthermore, upon exercise of the rights, this Code
section 306 "taint" will carry over to the series C convertible preferred stock
acquired. Thus, upon any sale of such preferred stock, the amount realized will
be treated as ordinary income to the extent of the fair market value of such
rights as of the time of distribution. To the extent the amount realized upon a
sale of the preferred stock exceeds such fair market value of the rights, the
excess should be treated as short-term or long-term capital gain, depending on
the holding period in such preferred stock.
The fair market value of the rights at the time of distribution (and the
extent to which such value is attributable to the series C convertible preferred
stock) is a question of fact. In this instance, the purchase price of the series
C convertible preferred stock and warrants will be equal to the purchase price
of the series B convertible preferred stock and warrants. Because the purchase
price of the series B convertible preferred stock and warrants was negotiated by
the investors and Prison Realty on an arm's length basis, it is arguable that
the fair market value of the series C convertible preferred stock and warrants
is equal to the purchase price thereof and that therefore the rights themselves
have no value. However, no appraisal of the rights will be obtained, and no
assurance can be given that the Internal Revenue Service will not attempt to
assert that the rights in fact have value.
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Even if the rights are treated in whole or in part as "section 306 stock,"
Code section 306 still may not apply in certain circumstances. If the series C
convertible preferred stock purchased pursuant to the exercise of the rights is
converted into common stock, then the common stock so acquired will not
constitute "section 306 stock." Additionally, if a shareholder disposes of its
entire stock interest in Prison Realty, then Code section 306 will not apply to
the disposition.
Cash redemption of series C convertible preferred stock. Prison Realty
intends to take the position that any redemption of the series C preferred stock
should be treated as a sale or exchange of such stock. Upon redemption,
therefore, shareholders should recognize gain or loss equal to the difference
between the amount realized and their basis in the shares sold. The gain or loss
recognized should be a capital gain or loss and will be long-term or short-term,
depending on whether the shares were held for more than one year.
Lapse of warrants. Loss will be recognized upon expiration of the
warrants. The amount of the loss for any holder of warrants will equal such
holder's tax basis in the warrants and should be a capital loss.
Exercise of the warrants. Shareholders should not recognize gain or loss
upon the exercise of the warrants. Each shareholder's basis in the shares of
Prison Realty common stock acquired through exercise of the warrants will equal
the sum of the purchase price paid for the common stock and the shareholder's
basis in the warrants, if any. The holding period for the shares of Prison
Realty common stock acquired through exercise of the warrants will begin on the
date the warrants are exercised.
Information reporting and backup withholding. If a shareholder sells the
series C convertible preferred stock or the warrants, it may be subject to
backup withholding at the rate of 31% on the payments it receives unless it (1)
is a corporation or is otherwise exempt and demonstrates the basis for the
exemption if so required, or (2) provides a correct taxpayer identification
number and certifies under penalties of perjury that the taxpayer identification
number is correct and that it is not subject to backup withholding. Any amount
withheld under these rules will be credited against the selling shareholder's
federal income tax liability. Prison Realty may require a shareholder to
establish its exemption from backup withholding or to arrange for payment of
backup withholding.
EACH SHAREHOLDER OF PRISON REALTY IS URGED TO CONSULT ITS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE COMPLETION OF THE RIGHTS
OFFERING, INCLUDING APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES, AND REGARDING POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
THE MERGERS
As a condition to the completion of the equity investment, pursuant to an
agreement and plan of merger by and among Prison Realty, certain subsidiaries of
Prison Realty, CCA, PMSI and JJFMSI, each of CCA, PMSI and JJFMSI will be merged
with and into a separate wholly owned subsidiary of Prison Realty. After the
completion of the merger transactions: (i) CCA, PMSI and JJFMSI will cease to
exist; and (ii) the assets and liabilities of each of CCA, PMSI and JJFMSI will
be held by the wholly owned subsidiaries of Prison Realty. Additionally,
following the completion of the merger transactions, Prison Realty will change
its name to Corrections Corporation of America and will operate as a taxable C
corporation. See "Proposal to Adopt the Articles of Amendment and Restatement to
the Prison Realty Charter -- Removal of provisions relating to Prison Realty's
qualification as a REIT."
As consideration for the mergers, Prison Realty will issue an aggregate of
approximately $12.8 million of its common stock as follows: (i) approximately
$10.8 million of its common stock to the shareholders of CCA; (ii) approximately
$1.023 million of its common stock to the shareholders of PMSI; and (iii)
approximately $847,000 of its common stock to the shareholders of JJFMSI. The
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number of shares of Prison Realty common stock to be issued to the shareholders
of CCA, PMSI and JJFMSI is based on exchange ratios specified in the merger
agreement. The exchange ratio for each of the mergers depends on the average
closing price of one share of Prison Realty common stock for the five trading
days ending two trading days prior to the closing date for the merger
transactions. Therefore, the exchange ratios will not be known at the time of
the shareholders meetings. Prison Realty will apply to list the shares of common
stock to be issued in the merger transactions on the NYSE, subject to official
notice of issuance, prior to the effective time of the mergers. Pursuant to the
provisions of the Tennessee Business Corporation Act, a shareholder of CCA, PMSI
and JJFMSI may dissent from the merger and obtain payment of the fair value of
his or her CCA, PMSI or JJFMSI common stock.
The mergers of CCA, PMSI and JJFMSI with and into the acquisition
subsidiaries will be tax-free for the companies and for the shareholders of each
of CCA, PMSI and JJFMSI to the extent they receive Prison Realty common stock in
the mergers. The merger transactions are expected to be accounted for as
"purchases" for financial accounting purposes, in accordance with generally
accepted accounting principles.
Although the ownership of the companies' assets will be maintained in
separate, distinct legal entities for liability purposes (i.e., Prison Realty as
a parent corporation with three wholly owned subsidiaries), the companies will
be treated as a consolidated group under the name "Corrections Corporation of
America." As such, pursuant to the merger agreement, the existing agreements
between Prison Realty, CCA, PMSI and JJFMSI, including a promissory note issued
by CCA to Prison Realty in the original principal amount of $137.0 million, will
be canceled and will be of no further force and effect.
Immediately prior to the merger transactions, Prison Realty will purchase
all shares of the common stock of each of CCA, PMSI and JJFMSI which are held by
non-management and non-employee, or "outside," shareholders. Pursuant to the
terms of a stock purchase agreement by and among Prison Realty, CCA, Sodexho and
Baron, Prison Realty will purchase all of the shares of voting common stock of
CCA which are owned by each of Sodexho and Baron for an aggregate cash purchase
price of $16.0 million, or $8.0 million each. Pursuant to this agreement, each
of Sodexho and Baron have also agreed to vote all of their shares of CCA common
stock in favor of the CCA merger. Prison Realty will purchase 85,000 shares of
the voting common stock of PMSI, constituting 85% of PMSI's issued and
outstanding voting common stock, from Privatized Management Services Investors,
LLC for an aggregate cash purchase price of $5.8 million. In connection with
this stock purchase, Privatized Management Services Investors has agreed to vote
its PMSI shares in favor of the PMSI merger. Prison Realty will purchase 85,000
shares of the voting common stock of JJFMSI, constituting 85% of JJFMSI's issued
and outstanding voting common stock, from Correctional Services Investors for an
aggregate cash purchase price of $4.8 million. In connection with this stock
purchase, Correctional Services Investors has agreed to vote its JJFMSI shares
in favor of the JJFMSI merger.
Management and employee shareholders will receive Prison Realty common
stock in the merger transactions, as described above. The shares of Prison
Realty common stock to be issued to the shareholders of CCA, PMSI and JJFMSI who
are also wardens of the facilities operated by such companies will be subject to
the terms and provisions of a newly-adopted Prison Realty restricted stock plan.
Under the terms of the restricted stock plan, the shares of restricted stock
held by warden shareholders will vest only if they remain employed by Prison
Realty or by one of its subsidiaries from the closing date of the mergers
through December 31, 2003. If a warden shareholder does not remain employed by
Prison Realty or by one of its subsidiaries for such period, the shares of
Prison Realty common stock issued to such warden will be forfeited but shall
remain outstanding, and such shares will be held in trust for the benefit of the
remaining wardens until December 31, 2003. At this
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time, such shares will vest and will be distributed pro-rata to the wardens
still employed. Shares of Prison Realty common stock owned by other CCA
shareholders and received in the merger transactions will be subject to
restrictions on transfer under the terms of a lock-up agreement, which
restrictions prohibit transfers of such stock for a period of 180 days after the
merger transactions are completed. After 180 days, and through December 31,
2003, transfers may be made according to the following percentages:
- Up to 25% after 180 days;
- Up to 50% after December 31, 2001;
- Up to 75% after December 31, 2002; and
- Up to 100% after December 31, 2003.
The completion of the merger transactions is subject to various conditions,
including but not limited to:
- receipt of approval for each of the mergers and related transactions
from the respective shareholders of CCA, PMSI and JJFMSI;
- receipt of approval by Prison Realty's shareholders of Prison Realty's
election not to be taxed as a REIT;
- Prison Realty's having obtained sufficient financing to fund the
operations of its business after the completion of the merger
transactions;
- receiving legal opinions on the tax-free nature of the merger
transactions;
- obtaining required consents of third parties, including the consent of
government entities to the performance of correctional and detention
facility management contracts by Prison Realty or its subsidiaries after
the merger transactions;
- the purchase by Prison Realty of the CCA, PMSI and JJFMSI common stock
held by non-management and non-employee shareholders for cash payments
totaling approximately $26.6 million;
- receipt of updates of opinions of the financial advisors to Prison
Realty and CCA; and
- the required waiting period under the antitrust laws expiring or being
terminated.
The merger agreement can be terminated under limited circumstances,
including the failure of conditions to be met by the parties thereto. If Prison
Realty terminates the merger agreement, Prison Realty may elect that the merger
agreement will be void, or, alternatively, that the merger agreement will
terminate only as to the merger with the party as to which Prison Realty had
grounds to terminate. Therefore, Prison Realty could elect to terminate with one
party and complete the remaining mergers with the other parties. Prison Realty,
however, does not anticipate that it would close any of the merger transactions
unless the merger with CCA was completed.
DESCRIPTION OF THE SENIOR SECURED CREDIT FACILITIES
In connection with the execution of the securities purchase agreement,
Prison Realty has received a commitment letter from CSFB for new senior credit
facilities for Prison Realty in the amount of $1.2 billion, comprised of a term
loan facility and a revolving loan facility that will replace Prison Realty's
existing $1.0 billion credit facility. The text of the commitment letter is
attached hereto as Appendix E. Definitive agreements relating to the new senior
secured credit facilities are expected to be finalized at the same time that the
equity investment is completed, and, the execution of such agreements and the
subsequent funding thereunder are conditions to the parties' obligations
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under the securities purchase agreement. See "-- Terms of the securities
purchase agreement and related agreements."
Under the terms of the commitment letter, CSFB will act as the
administrative agent and lead arranger for a syndicate of lenders which will
provide Prison Realty with $950.0 million in term loans, comprised of a $250.0
million tranche A term loan and a $700.0 million tranche B term loan, and a
$250.0 million revolving loan facility. The revolving loan facility and the
tranche A term loan will have a six year term and the tranche B term loan will
have an eight year term. Under the terms of the commitment letter, at Prison
Realty's option, the interest rates for the new senior secured credit facilities
will be based upon LIBOR plus 3% per annum for the revolving loan facility and
the tranche A term loan and 3.5% per annum for the tranche B term loan, or at an
alternate base rate plus applicable spreads of 2% per annum for the revolving
loan facility and the tranche A term loan and 2.5% per annum for the tranche B
term loan. The alternative base rate is equal to the greater of CSFB's prime
rate or Federal Funds effective rate plus 0.5%.
The commitment letter provides that the proceeds from the borrowings under
the term loan facilities and the revolving loan facility will be used by Prison
Realty at the closing date together with the proceeds of the equity investment
and the rights offering to repay certain existing indebtedness and to effect the
merger transactions and pay certain transaction costs associated with the equity
investment, the rights offering and the merger transactions. The balance of the
proceeds from the initial borrowings under the senior secured credit facilities,
the equity investment and the rights offering will be used for (i) the
pre-funding of capital expenditures in an amount to be agreed upon to complete
the construction of prisons currently under construction, and (ii) general
corporate purposes. It is expected that the full amount available under the term
loan facilities and a portion of the revolving loan facility will be drawn at
closing.
Similar to Prison Realty's existing bank credit facility, the new senior
secured credit facilities will be secured by mortgages on Prison Realty's real
property and all the equity interests in each existing or subsequently acquired
domestic subsidiary of Prison Realty and 65% of the equity interests in each
existing or subsequently acquired direct foreign subsidiary of Prison Realty, as
well as accounts receivable, notes receivable, inventory, contract rights, trade
rights, trademark, trade names, equipment, cash and proceeds of the foregoing.
The new senior secured credit facilities will also be generally guaranteed by
each existing or subsequently acquired direct or indirect domestic subsidiary of
Prison Realty, including each of the surviving acquisition subsidiaries in the
merger transactions.
Prison Realty's ability to borrow under the senior secured credit
facilities will be subject to Prison Realty's compliance with a number of
customary financial and other covenants, including maximum leverage ratios,
minimum coverage ratios, maximum ratios of development costs, and maximum ratios
of debt to total assets. In addition, the senior secured credit facilities will
restrict Prison Realty's ability to incur certain additional indebtedness.
Prison Realty may issue up to $375.0 million in senior subordinated notes
in lieu of a portion of the new senior secured credit facilities in connection
with the completion of the equity investment and the merger transactions. Prison
Realty expects that the senior subordinated notes, if issued, will bear interest
at a fixed rate of interest.
Prison Realty agreed to pay the agents and the lenders customary fees for a
facility of this nature.
Prison Realty has agreed that, should it proceed within one year from the
date of the commitment letter with a transaction similar to and in lieu of the
transactions contemplated by the securities purchase agreement with a related
entity of the investors, it will appoint CSFB, or cause it to be appointed, as
sole and exclusive agent and manager for any bank financing relating to such
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transaction, and will afford CSFB the opportunity to compete to act as a
placement agent for or underwriter of any debt transactions with respect
thereto.
In addition to the new senior secured facilities, it is anticipated that
Prison Realty's $100.0 million aggregate principal amount 12% senior notes and
$70.0 million in convertible subordinated notes will remain outstanding
following the equity investment and related restructuring. See "Information
About Our Company -- Recent developments."
Prison Realty's level of indebtedness could have important consequences.
You cannot be assured that Prison Realty will be able to satisfy its debt
service obligations. The terms of Prison Realty's debt, including the senior
secured credit facilities, the existing, or any future senior notes, and the
convertible subordinated notes, could restrict Prison Realty's ability to incur
additional debt financing to fund future growth, refinance its existing debt or
satisfy its obligations to pay dividends upon, or to repurchase or redeem its
existing debt or equity securities. In addition, if Prison Realty incurs
additional debt, the risks related to Prison Realty's level of debt could
increase.
On January 13, 2000, Moody's Investors Service ("Moody's") lowered its
rating on Prison Realty's existing bank credit facility from Ba1 to Ba3. Moody's
also lowered its rating on Prison Realty's 12% senior notes to B2 from B1 and
its rating on Prison Realty's series A preferred stock from Ba3 to B3. As a
result of these rating changes, the interest rate applicable to outstanding
amounts under Prison Realty's existing bank credit facility was increased by
.50%. In addition, the debt rating reductions could increase the interest rate
associated with any additional debt securities issued by Prison Realty,
including any additional senior subordinated notes issued in lieu of a portion
of the new $1.2 billion bank credit facility.
REGULATORY FILINGS AND APPROVALS REQUIRED FOR THE EQUITY INVESTMENT
Prison Realty does not believe that any government filings in the United
States are required with respect to the equity investment, the issuance of the
shares of series B convertible preferred stock and the warrants to the
investors, or the issuance of shares of series C convertible preferred stock and
warrants in the rights offering, other than the following:
- filings with the Federal Trade Commission and the Antitrust Division of
the Department of Justice under the HSR Act;
- articles of amendment and restatement to the Charter of Prison Realty to
be filed with the State Department of Assessments and Taxation of the
State of Maryland;
- articles supplementary to the charter of Prison Realty to be filed with
the State Department of Assessments and Taxation of the State of
Maryland classifying the series B and series C convertible preferred
stock and setting forth the rights, terms and preferences of the shares
of series B convertible preferred stock and shares of the series C
convertible preferred stock issued in the rights offering; and
- filings with the SEC to register Prison Realty securities to be issued
in the rights offering and in the merger transactions with CCA, PMSI and
JJFMS.
Completion of the equity investment is conditioned upon, among other
things, the absence of any preliminary or permanent injunction or other orders
issued by any court or other judicial or administrative body with competent
jurisdiction which prohibits or prevents completion of the equity investment.
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RISKS OR DISADVANTAGES OF COMPLETING THE EQUITY INVESTMENT
The completion of the equity investment may potentially have adverse
consequences to Prison Realty and its shareholders. These potential adverse
consequences of the equity investment include the following:
- Net income per share for Prison Realty will be diluted due to the
increase in the number of outstanding shares of Prison Realty's capital
stock as a result of the equity investment and the rights offering.
Additionally, the dividends to be paid on the new securities will serve
to reduce Prison Realty's net income to such a degree that on a pro
forma basis, the combined company will experience a net loss per share.
In addition, Prison Realty's net income per share may be further diluted
if the initial conversion price of $6.50 for the convertible preferred
stock issued to the investors and in the rights offering, and the
initial exercise price of $7.50 for the warrants issued to the investors
and in the rights offering, are adjusted. An adjustment may occur if,
among other things, Prison Realty is required to indemnify the investors
or the shareholders who subscribe to the rights offering under the terms
of the securities purchase agreement or incurs liability for certain
securities litigation. See "-- Description of the series B convertible
preferred stock -- Conversion into common stock at the option of the
holder," "-- Description of the warrants" and "-- The rights offering --
Description of convertible preferred stock and warrants" for a complete
description of events of adjustment to the conversion price of the
convertible preferred stock or the exercise price of the warrants issued
to the investors and in the rights offering.
- The investors, through the ownership of the series B convertible
preferred stock and the warrants, will exert significant influence over
the management and operations of Prison Realty. If the investors
complete the full $350.0 million equity investment, the investors,
through the ownership of 14.0 million shares of series B convertible
preferred stock, will hold approximately 25.5% of the voting power of
Prison Realty. The investors' voting power will decrease to
approximately 20.0% if the rights offering is fully subscribed and the
investors purchase only $275.0 million of series B convertible stock, or
11.0 million shares. The investors will be entitled to elect four of the
ten members of Prison Realty's board of directors following the equity
investment and will have the right to vote with the holders of Prison
Realty common stock and the convertible preferred stock issued in the
rights offering on an "as converted" basis for the election of the
remaining directors of Prison Realty. Holders of series B convertible
preferred stock are entitled to approve certain extraordinary corporate
actions of Prison Realty. In addition, the holders will be entitled to
vote for the election of three additional directors if Prison Realty
does not pay required dividends on the series B convertible preferred
stock for consecutive quarterly dividend periods. See "-- Description of
the series B convertible preferred stock." In addition, the terms of the
securities purchase agreement provide for the creation of an Investment
Committee of Prison Realty's board of directors, with the four members
of Prison Realty's board designated by the holders of shares of series B
convertible preferred stock comprising a majority of the Investment
Committee. The Investment Committee will have the exclusive power to
authorize certain significant corporate actions, including changes to
Prison Realty's indebtedness, capital expenditures or acquisitions and
business expansions. In addition, without the approval of the Investment
Committee, Prison Realty's board of directors may not declare a common
dividend or (subject to limited exceptions) issue or sell securities,
recommend any action to the shareholders which requires shareholder
approval, amend the charter or bylaws of Prison Realty or increase the
number of directors of Prison Realty. See "Terms of the securities
purchase agreement and related agreements." Under the provisions of
Prison Realty's proposed bylaws, the Investment Committee will remain in
place for as
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long as the holders of the series B preferred stock have the right to
elect directors to the Prison Realty board.
- Prison Realty will incur significant transaction costs, including a
$15.7 million fee to the investors, $ million of debt
refinancing fees, substantial fees of financial, accounting and legal
advisors (of which a significant portion has already been expended), and
a significant portion of the time and attention of the management of
Prison Realty. See "-- Opinion of Prison Realty's financial advisor
-Fees," "-- Opinion of the Independent Committee's financial advisor
-Summary," and "-- Terms of the securities purchase agreement and
related agreements."
- Prison Realty will incur future costs associated with the annual 12%
cash dividend payable on the series B convertible preferred stock and
the guaranteed 18% return on investment to be paid to the holders of the
convertible preferred stock issued to the investors and in the rights
offering, upon the redemption or liquidation of such convertible
preferred stock or upon a "change of control" (as defined in the series
B articles supplementary) of Prison Realty. See "-- Description of the
series B convertible preferred stock" and "-- The rights offering."
- Prison Realty will not elect REIT status for the year ended December 31,
1999. Accordingly, the REIT requirements that Prison Realty pay
dividends equal to at least 95% of its taxable income each year and
distribute the accumulated earnings and profits from any predecessor C
corporation will no longer apply. Although Prison Realty has already
distributed the existing earnings and profits of Old CCA, it thus would
have no further obligation to distribute any increase in such earnings
and profits should the Internal Revenue Service make adjustments thereto
in the future. Following completion of the equity investment, Prison
Realty will be subject to federal income tax at regular corporate rates.
Prison Realty currently estimates that it will owe approximately $100.0
million in taxes, interest and penalties for the year ending December
31, 1999 as a result of its decision not to elect REIT status. Following
completion of the equity investment, future distributions will be made
at the discretion of Prison Realty's board of directors. It is not
anticipated that Prison Realty will make any distributions to its common
shareholders in the foreseeable future.
- Completing the equity investment and related restructuring will place
significant demands on the combined company's liquidity as the result of
the dividend requirements of the convertible preferred stock and the
obligation to pay corporate income taxes as a C corporation. The
company's ability to meet these liquidity requirements will depend on
its ability to borrow under its new credit facility and to generate
sufficient cash from operations.
- Approval of the equity investment may delay or prevent a future change
of control of Prison Realty. As a result of the investors' purchase of
all $350.0 million of the shares of convertible preferred stock and
warrants to purchase shares of Prison Realty common stock, the investors
will hold approximately 25.5% (decreased to approximately 20.0% if the
rights offering is fully subscribed) of the voting power of Prison
Realty following completion of the equity investment. Additionally, the
investors, as holders of shares of the series B convertible preferred
stock, will have special voting rights concerning amendments to Prison
Realty's charter affecting board composition, voting rights of
shareholders and indemnification of shareholders and directors. The
investors also have special approval rights over "change of control"
transactions. Upon a change of control, holders of series B and series C
convertible preferred stock may redeem for cash all of the shares of the
series B and series C convertible preferred stock held by them, at an
amount resulting in a guaranteed total return on investment of 18% per
annum, compounded quarterly.
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RISKS OR DISADVANTAGES OF NOT COMPLETING THE EQUITY INVESTMENT
A failure to complete the equity investment potentially may have adverse
consequences to Prison Realty and its shareholders. The potential adverse
consequences of a failure to complete the equity investment include the
following:
- Prison Realty would be required to pursue certain standalone
alternatives not involving a third-party investor, and such alternatives
have significant drawbacks.
- In connection with a combination of the companies without additional
equity capital, any waivers of existing defaults obtained by Prison
Realty and CCA under Prison Realty's and CCA's existing credit
facilities and Prison Realty's convertible, subordinated notes will be
terminated and defaults under this indebtedness, as well as under Prison
Realty's senior notes, will be triggered. Under such circumstances,
Prison Realty would seek to, but may not be able to, restructure or
renegotiate its existing indebtedness in a manner which could include
soliciting alternative sources of capital or allowing such lenders to
make a significant equity investment in Prison Realty on significantly
less favorable terms. No assurance can be given that any such debt
restructuring or renegotiation can be obtained.
- The business of the companies involves public safety. Defaults under
Prison Realty's and CCA's indebtedness could adversely impact the
business of Prison Realty if the government entities for which the
companies house inmates view the companies as not having the financial
resources to carry out their public safety obligations.
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PROPOSAL 2
PROPOSAL TO ADOPT THE ARTICLES OF AMENDMENT
AND RESTATEMENT TO THE PRISON REALTY CHARTER
The following summarizes certain relevant provisions of the articles of
amendment and restatement to the charter of Prison Realty. A copy of the
articles of amendment and restatement governing the rights of Prison Realty's
shareholders is attached hereto as Appendix D. This discussion is not a complete
description of the terms of the articles of amendment and restatement, so you
should read it together with the articles of amendment and restatement.
GENERAL
In order to comply with certain terms and conditions of the equity
investment and the merger transactions, Prison Realty will be required to amend
and restate its existing charter to, among other things, permit the
restructuring of Prison Realty's board of directors and Prison Realty's election
not to be taxed as a REIT. Specifically, the proposed articles of amendment and
restatement include amendments to:
- change the name of Prison Realty to "Corrections Corporation of
America;"
- increase the authorized number of shares of capital stock from 320.0
million to 450.0 million, including increasing the authorized number of
shares of common stock from 300.0 million to 400.0 million and the
authorized number of shares of preferred stock from 20.0 million to 50.0
million and allow the board to increase or decrease the number of
authorized shares without shareholder approval;
- remove certain provisions relating to Prison Realty's qualification as a
REIT;
- change the structure and composition of the board of directors;
- remove the provisions relating to indemnification of directors and
officers; and
- add provisions permitting the Prison Realty board to consider the effect
of non-shareholder constituencies when evaluating a potential
acquisition of control of the corporation.
Except with respect to these matters and the matters set forth below,
Prison Realty's charter, as amended and restated by the articles of amendment
and restatement, will be substantially similar to Prison Realty's existing
charter. The affirmative vote of the holders of two-thirds of the holders of
Prison Realty's common stock is required to adopt the proposed articles of
amendment and restatement. If approved by the required number of shareholders,
the provisions of the articles of amendment and restatement will become
effective when filed with the Department of Assessments and Taxation of the
State of Maryland, which is expected to occur immediately prior to the closing
of the merger transactions.
NAME
Prison Realty's board of directors has determined that it is in the best
interests of Prison Realty and its shareholders to change the name of Prison
Realty from "Prison Realty Trust, Inc." to "Corrections Corporation of America"
and to use this name following the completion of the merger transactions. While
Prison Realty and its predecessors have used the "Prison Realty" name in the
business of acquiring, developing, owning and leasing correctional and detention
facilities since July 1997, the name "Corrections Corporation of America" has
been used since 1983 by CCA and its predecessors in the development,
construction, operation and management of correctional and detention facilities.
The name "Corrections Corporation of America" has achieved a substantial amount
of recognition and market identity in the private corrections and detention
industry.
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Therefore, the Prison Realty board believes the name "Corrections Corporation of
America" is a more appropriate name for the combined entity after the equity
investment and related restructuring and the use of the CCA name will enable it
to capitalize on and expand the reputation developed under this name. In
addition, under the terms of the securities purchase agreement and the merger
agreement, Prison Realty is required to change its name to "Corrections
Corporation of America" upon the completion of the merger transactions. See
"Proposal to Approve the Equity Investment -- Terms of the securities purchase
agreement and related agreements."
INCREASE IN AUTHORIZED CAPITAL STOCK
Prison Realty's charter currently authorizes the issuance of 320.0 million
shares of capital stock, consisting of 300.0 million shares of common stock and
20.0 million shares of preferred stock, of which 4.3 million shares have been
designated as 8% series A preferred stock. Prison Realty has an aggregate of
approximately 118.4 million shares of common stock currently issued and
outstanding. Prison Realty also has approximately 6.5 million shares of common
stock reserved for issuance under various employee and director benefit plans
and pursuant to the conversion of an aggregate of $70.0 million of convertible
debt. The Prison Realty charter currently provides for "blank check" stock
whereby the Prison Realty Board is permitted to classify or reclassify any
unissued stock without shareholder approval. However, the board may not issue
shares of capital stock in excess of the amount authorized under the charter.
The proposed articles of amendment and restatement to Prison Realty's
charter increase the authorized capital stock of Prison Realty to 450.0 million
shares consisting of 400.0 million shares of common stock and 50.0 million
shares of preferred stock, of which 4.3 million shares have been designated as
8% series A preferred stock. As permitted by the MGCL, the proposed articles of
amendment and restatement also authorize the Prison Realty board to amend the
charter to increase or decrease the aggregate number of shares of capital stock
of Prison Realty or the number of shares of stock of any class that Prison
Realty has the authority to issue without any action by its shareholders.
In connection with the equity investment, if the investors and Prison
Realty's existing shareholders purchase $350.0 million in shares of convertible
preferred stock and warrants to purchase shares of Prison Realty common stock,
Prison Realty will issue securities convertible into approximately 83.4 million
shares of Prison Realty common stock. In connection with the merger
transactions, Prison Realty will also issue approximately $12.8 million in
Prison Realty common stock in exchange for shares of CCA common stock, PMSI
common stock and JJFMSI common stock. Assuming a $4.00 per share closing price
for Prison Realty common stock and applying the formulas set out in the merger
agreement, the merger transactions will result in an additional 3.2 million
shares of Prison Realty common stock being issued. See "Proposal to Approve the
Equity Investment -- The mergers."
If the Prison Realty shareholders approve the equity investment, Prison
Realty will issue and sell up to 12.6 million shares of convertible preferred
stock, consisting of series B preferred stock and series C preferred stock,
which will be convertible into approximately 48.5 million shares of Prison
Realty common stock on or about the initial closing date. Prison Realty will
also issue warrants to purchase 14% of Prison Realty's common stock, on a fully
diluted basis, or approximately 29.6 million shares of Prison Realty common
stock. At Prison Realty's election, an additional 1.4 million shares of series B
preferred stock will be issued and sold to the investors subsequent to the
initial closing date, which will be convertible into approximately 5.4 million
shares of Prison Realty common stock. An appropriate amount of Prison Realty
common stock will be reserved for issuance upon conversion of the series B and
series C preferred stock, as required under the securities purchase agreement.
The conversion price of the convertible preferred stock and the exercise price
of the warrants are subject
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to adjustment in the event Prison Realty is required to indemnify the investors.
See "Proposal to Approve the Equity Investment -- Description of the series B
convertible preferred stock;" "Description of the warrants;" and "The rights
offering."
The Prison Realty board believes that the authorization of additional
shares of common and preferred stock will give Prison Realty the ability to meet
its immediate issuance requirements under the terms of the equity investment and
the rights offering. The ability of the Prison Realty board to increase the
number of shares of authorized capital stock will provide added flexibility to
address future capital and financing needs, stock distributions and stock
splits, business acquisitions, management and employee benefit plans and other
general corporate purposes. The board believes that the availability of
additional shares of common and preferred stock will enable Prison Realty to act
promptly to take advantage of corporate opportunities as they arise without the
delay or cost of calling a special meeting of shareholders. The board of
directors also believes that additional authorization of shares of preferred
stock, combined with the board's ability to set the terms of the preferred
stock, such as dividend rates, conversion prices, voting rights, redemption
prices and maturity dates, to meet the needs of particular transactions, will
benefit Prison Realty. Shareholders should be aware that the increase in the
number of authorized shares of capital stock and the board's ability to issue
additional common or preferred stock without shareholder approval may discourage
attempts to acquire Prison Realty by making them more difficult and costly.
REMOVAL OF PROVISIONS RELATING TO PRISON REALTY'S QUALIFICATION AS A REIT
GENERAL
Prison Realty's existing charter contains provisions relating to Prison
Realty's operating in a manner so as to qualify as a REIT. These provisions
require the Prison Realty board to: (i) use all reasonable efforts to ensure
that Prison Realty satisfies the requirements for qualification as a REIT; and
(ii) take no action to disqualify Prison Realty as a REIT or to otherwise revoke
Prison Realty's election to be taxed as a REIT without the affirmative vote of
not less than two-thirds of the outstanding shares entitled to vote on the
matter. In addition, Prison Realty's existing charter also contains certain
ownership restrictions that, among other things, generally prohibit any
individual from owning more than 9.8% of the outstanding shares of Prison Realty
common stock or preferred stock.
If the Prison Realty shareholders approve the equity investment and the
related restructuring, Prison Realty will not operate so as to qualify as a REIT
beginning with its taxable year ending December 31, 1999. Accordingly the
provisions relating to its operation as a REIT, as well as certain other
references contained in Prison Realty's existing charter, are no longer
necessary and are omitted in the articles of amendment and restatement. A vote
to approve the charter amendment will be deemed a vote to approve Prison
Realty's election not to be taxed as a REIT, but instead to be taxed as a C
corporation.
To retain the option of electing REIT status, Prison Realty intends to
request an automatic extension of time to file its 1999 tax return from March
15, 2000 to September 15, 2000. By obtaining this extension, Prison Realty will
retain the ability to elect REIT status while awaiting the outcome of the
shareholder vote on the proposed amendments to its charter. If shareholder
approval is not obtained, then Prison Realty intends to take such actions prior
to or upon filing its 1999 tax return as may be necessary to elect REIT status
for 1999, including declaring sufficient dividends with respect to its 1999
taxable year and filing an election to be taxed as a REIT for 1999. Because of
Prison Realty's liquidity constraints, however, any dividends paid for 1999
likely will be paid in whole or in part in the form of securities.
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STRUCTURE AND OPERATIONS OF PRISON REALTY AS THE SURVIVING ENTITY
Prison Realty would not be able to combine the operations of CCA, PMSI and
JJFMSI in the merger transactions and still qualify as a REIT. Because Prison
Realty will operate as an ordinary C corporation following its election not to
be taxed as a REIT and the merger transactions, it will no longer be subject to
restrictions regarding the amount and character of the revenues that it may
earn, the types of assets which it may own or the nature of the business
activities which it may conduct. The absence of these restrictions allows Prison
Realty to be the sole owner of the outstanding stock of each acquisition
subsidiary after the merger transactions, each of which will succeed to various
contracts for the management and operation of correctional and detention
facilities as well as certain assets related to these contracts from CCA, PMSI
or JJFMSI. Consequently, Prison Realty will expand its current business, the
ownership and leasing of correctional and detention facilities, to include the
management and operation of correctional and detention facilities.
Although each subsidiary will maintain ownership of its assets for
liability purposes, in all practical respects, and for tax and accounting
purposes the companies will operate and will be treated as a single entity under
the name "Corrections Corporation of America." As such, the existing agreements
between Prison Realty, CCA, PMSI and JJFMSI, including a promissory note issued
by CCA to Prison Realty in the original aggregate principal amount of $137.0
million, will be canceled and will be of no further force and effect.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Tax status of Prison Realty. Following the consummation of the merger
transactions, Prison Realty will no longer operate so as to qualify as a REIT
and will instead conduct its business as a taxable C corporation, commencing
with its taxable year ending December 31, 1999. See "-- Tax consequences of
failure to elect REIT status." As a result of its failure to elect REIT status,
Prison Realty will not be required to make annual distributions to its
shareholders of at least 95% of its taxable income. Furthermore, Prison Realty
does not intend to make any distributions to its common shareholders in the
foreseeable future.
Prison Realty's failure to elect REIT status would result in the following
charges to operations:
- Prison Realty would be required to provide for current tax liabilities
for the most recent federal and state reporting periods during which
Prison Realty did not qualify as a REIT.
- Prison Realty would be required to provide for all existing deferred tax
assets and liabilities in accordance with SFAS No. 109 related to
temporary book versus tax differences as well as certain imbedded
permanent differences in book versus tax balances contained in Prison
Realty's fixed asset balances.
Prison Realty's failure to elect REIT status would have the following
impact on its liquidity and capital resources:
- Prison Realty would not be required to distribute the accumulated
earnings and profits from any predecessor C corporations. In particular,
although Prison Realty has distributed the earnings and profits of Old
CCA, it would have no further obligation to distribute any increase in
such earnings and profits should the Internal Revenue Service make
adjustments thereto in the future.
- Prison Realty would not be required to distribute at least 95% or more
of its taxable income to its shareholders. Prison Realty does not
currently have the liquidity or financial resources to make any such
payments for 1999 in cash. Prison Realty's distributions per share of
common stock equaled $1.80 in 1999. Old Prison Realty, which operated as
a REIT, made distributions per share of common stock equal to $1.80 in
1998 and $0.77 in 1997 (July to
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<PAGE> 113
December 31). Prison Realty does not intend to make any distributions to
holders of its common stock following the completion of the merger
transactions.
- Prison Realty would be required to pay income taxes each year estimated
on a quarterly basis, based upon its taxable income, including
approximately $100.0 million in federal income taxes for the 1999
taxable year.
- Prison Realty will be able to retain after-tax earnings that would
otherwise have been required to be distributed as a REIT.
Tax consequences of failure to elect REIT status. As a consequence of not
electing to be taxable as a REIT, Prison Realty will instead be taxable as an
ordinary C corporation, commencing with Prison Realty's taxable year ending
December 31, 1999. As a result, distributions to the shareholders of Prison
Realty will not be deductible for purposes of computing Prison Realty's taxable
income, and Prison Realty will be subject to income tax, including any
applicable alternative minimum tax, on its taxable income at regular corporate
rates, without offset for distributions of such income to shareholders. As such,
Prison Realty will be required to reflect the appropriate provision for income
taxes in its financial statements in accordance with SFAS No. 109. Moreover,
although Prison Realty would have been required to distribute at least 95% of
its taxable income annually in order to maintain its qualification as a REIT, no
such minimum distribution requirements will apply to Prison Realty beginning
January 1, 1999, and it is expected that no dividends will be paid with respect
to shares of Prison Realty common stock in the foreseeable future. It is highly
unlikely that Prison Realty will elect, or be eligible, to qualify as a REIT at
a future date.
As a result of Prison Realty's failure to elect REIT status, investments in
Prison Realty common stock will be taxed under the general rules applicable to
investments in stock of regular C corporations, and a holder of Prison Realty
common stock will no longer be subject to the special rules governing REITs. For
example, none of the dividends paid by Prison Realty will be eligible for the
favorable treatment accorded capital gain dividends paid by REITs, and all
distributions will be taxed as ordinary income to the extent of Prison Realty's
current and accumulated earnings and profits. Additionally, Prison Realty could
pay up to 40% of its taxable income in federal and state income taxes and would
have to pay approximately $100.0 million in federal income tax, interest and
penalties for its 1999 taxable year if REIT status is not elected. On the other
hand, distributions paid by Prison Realty to a corporate shareholder may be
eligible for the dividends received deduction, subject to certain limitations
set forth in the Code, whereas distributions paid by REITs are not eligible for
the dividends received deduction.
Dividends paid by Prison Realty to non-U.S. shareholders will be subject to
the withholding of U.S. federal income tax at a 30% rate, unless certain
exceptions are applicable. Non-U.S. shareholders should be aware that, as a
result of Prison Realty's failure to elect REIT status commencing with its
taxable year ending December 31, 1999, their shares of Prison Realty common
stock will not be eligible for an exemption from the Foreign Investment in Real
Property Tax Act ("FIRPTA") as stock of a domestically-controlled REIT and
Prison Realty will constitute a "United States real property holding
corporation" within the meaning of FIRPTA. Non-U.S. shareholders should consult
their tax advisors regarding the possible imposition of FIRPTA taxes upon any
disposition of their Prison Realty common stock following the merger.
STRUCTURE AND COMPOSITION OF BOARD OF DIRECTORS
Prison Realty's existing charter provides that the board of directors will
consist of the number of directors determined from time to time by resolution of
the Prison Realty board in accordance with the Prison Realty bylaws, provided
that the number of directors may be no less than the minimum numbers required by
Maryland law. The Prison Realty charter also divides the directors into three
separate classes with the number of directors in each class being as equal as
possible. The charter
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<PAGE> 114
also requires that at least three members of the board must be "independent
directors." For purposes of Prison Realty's charter, an independent director is
defined to be an individual who is not an officer or employee of Prison Realty,
CCA, PMSI or JJFMSI, or any of Prison Realty's tenants. Each director serves for
a term ending on the third anniversary date of the special meeting of
shareholders at which he or she was elected. By resolution of the Prison Realty
board, the board is currently comprised of nine members, four of whom are
independent. Currently, Prison Realty has three Class I Directors whose terms
expire at Prison Realty's 2002 special meeting, three Class II Directors whose
terms expire at Prison Realty's 2001 special meeting, and three Class III
Directors whose term expire at Prison Realty's 2000 special meeting.
The proposed articles of amendment and restatement to Prison Realty's
charter provide that the board of directors will consist of the number of
directors determined from time to time by resolution of the board in accordance
with the Prison Realty bylaws except as otherwise provided in the charter,
provided that the number of directors may be no less than the minimum number
required by Maryland law. Under the terms of Prison Realty's proposed bylaws, as
discussed below, the Investment Committee must approve any amendments to Prison
Realty's bylaws, Prison Realty's charter, and thus to increase or decrease the
size of Prison Realty's board. The proposed articles of amendment and
restatement do not divide the directors into classes. Accordingly, under
Maryland law, all directors will be elected annually, at Prison Realty's special
meeting of shareholders, for one-year terms and until the next annual meeting of
shareholders. The proposed articles of amendment and restatement also require
that at least two members of the board must be "independent directors." For
purposes of Prison Realty's Amended and Restated Charter, an "independent
director" is defined to be an individual who: (i) is not an officer or employee
of Prison Realty; (ii) is not the beneficial owner of more than 5% of any class
of equity securities of Prison Realty or an "affiliate" of Prison Realty, as
defined under federal securities laws; or (iii) does not have an economic
relationship with Prison Realty that requires disclosure under federal
securities laws. According to the articles of amendment and restatement, the
board will be composed of four directors at the time of the amendment and
restatement. Mr. Beasley, Mr. Cuny and Mr. Russell, together with one additional
number of Prison Realty's existing board, will constitute these four directors,
and Mr. Beasley will serve as the chairman of the board. If the Prison Realty
shareholders approve the equity investment, under the terms of the securities
purchase agreement the number of directors will be increased to ten. Of the six
additional directors, four will be designated and subsequently elected by the
investors and two will be designated jointly by Prison Realty's current board of
directors and the investors and subsequently elected by Prison Realty's common
shareholders together with the holders of the series B preferred shares. Under
Maryland law, each of these directors must stand for election at the next annual
meeting of shareholders following their appointment. Prison Real expects its
2000 annual meeting will be held in August or September 2000. Under the
provisions of Prison Realty's bylaws, in order for a stockholder proposal to be
considered for inclusion in the proxy statement and form of proxy for such
annual meeting, such proposal must be delivered to the company not earlier than
the 90th day prior to such annual meeting and not later than the close of
business on the later of the 60th day prior to such annual meeting or the tenth
day following the day at which public announcement of the date of such meeting
is first made.
In connection with the restructuring of Prison Realty's board of directors
as required under the terms of the securities purchase agreement, the newly
constituted board will amend Prison Realty's bylaws to: (i) provide for the
establishment of the Investment Committee that must approve certain significant
corporate actions as described in the securities purchase agreement; and (ii)
remove "super-majority" approval requirements that would conflict with the
powers and the authority granted to the Investment Committee. For a more
complete description of the changes to the bylaws, see the section entitled
"-- Comparison of rights of shareholders of Prison Realty after the adoption of
the articles of amendment and restatement to the Prison Realty charter and
bylaws."
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<PAGE> 115
REMOVAL OF PROVISIONS RELATING TO INDEMNIFICATION OF DIRECTORS AND OFFICERS
The proposed articles of amendment and restatement to Prison Realty's
charter remove all provisions relating to the indemnification of directors and
officers contained in Prison Realty's existing charter. As a result, Prison
Realty's obligations to indemnify its current or former directors, officers,
employees or agents are governed by provisions contained in Maryland law and in
Prison Realty's bylaws, which, after the equity investment and related
restructuring, may be amended by the Prison Realty board with the approval of
the Investment Committee. The Prison Realty board believes that removing the
indemnification provisions from Prison Realty's charter and including them in
Prison Realty's bylaws will provide increased flexibility and allow discretion
to be used by the board in indemnifying its directors and officers against
certain liabilities.
Under the provisions of Prison Realty's bylaws, as in effect prior to, and
upon completion of, the equity investment and related restructuring, Prison
Realty is required to indemnify a current or former director or officer for
reasonable expenses incurred if such individual has been successful, on the
merits or otherwise, in defense of any proceeding arising out of such
individual's official capacity. In addition, Prison Realty is required to
indemnify a current or former director or officer in any proceeding arising out
of such individual's official capacity if a court of appropriate jurisdiction
determines such individual is entitled to indemnification. Prison Realty also is
required to indemnify any current or former director, or any current or former
officer in any proceeding arising out of such individual's official capacity
unless it is established that:
- the proceeding involves an act or omission of such individual which was
material to the matter giving rise to the proceeding and was either (i)
committed in bad faith; or (ii) was the result of active and deliberate
dishonesty;
- the individual actually received an improper personal benefit in money,
property or services; or
- in the case of a criminal proceeding, the director had reasonable cause
to believe the act or omission was unlawful.
Under Maryland law, any such indemnification may be against judgments,
penalties, settlements and reasonable expenses actually incurred in connection
with the proceeding. However, if the proceeding is one by or in the right of the
corporation, Prison Realty may not provide indemnification with respect to any
proceeding in which the individual is adjudged liable to the corporation, unless
approved by a court (except where the individual is liable for receipt of an
improper benefit). In addition, if the proceeding is one charging improper
personal benefit to the individual, whether or not involving action in the
director's official capacity, indemnification is not permitted if the director
is adjudged to be liable on the basis that personal benefit was improperly
received.
Under Prison Realty's bylaws, Prison Realty shall pay or reimburse, in
advance of final disposition of a proceeding, reasonable expenses incurred by a
current or former director or officer, if such individual affirms in good faith
that he or she has satisfied the applicable standard of conduct necessary for
indemnification and agrees to repay amounts paid to such individual if it is
determined that such standard is not met.
Under Prison Realty's bylaws, Prison Realty may also provide to directors
or officers additional indemnification or payment or reimbursement of expenses
to the fullest extent permitted by Maryland law for directors of Maryland
corporations. Prison Realty's bylaws also provide that Prison Realty may
indemnify or reimburse the expenses of employees or agents of Prison Realty upon
approval by its board of directors.
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<PAGE> 116
ADDITIONAL PROVISIONS PERMITTING THE PRISON REALTY BOARD OF DIRECTORS TO
CONSIDER THE EFFECT OF NON-SHAREHOLDER CONSTITUENCIES IN CONSIDERING A POTENTIAL
ACQUISITION OF CONTROL
Prison Realty's existing charter contains no provision permitting Prison
Realty's board of directors to consider the impact of a proposed acquisition of
control of Prison Realty upon constituencies other than the shareholders of
Prison Realty. The proposed articles of amendment and restatement to Prison
Realty's charter contain a provision permitting, but not requiring, Prison
Realty's board of directors, when considering the effect of a potential
acquisition of control of Prison Realty, to consider the effect of the potential
acquisition of control of Prison Realty on shareholders, employees, suppliers,
customers and creditors of Prison Realty and on communities in which offices or
other establishments of Prison Realty are located. Maryland law provides that
the inclusion of such a provision in Prison Realty's charter will not create an
inference concerning factors that may or may not be considered by Prison
Realty's board of directors regarding a potential acquisition of control.
COMPARISON OF RIGHTS OF SHAREHOLDERS OF PRISON REALTY AFTER THE ADOPTION OF THE
ARTICLES OF AMENDMENT AND RESTATEMENT TO THE PRISON REALTY CHARTER AND BYLAWS
Prison Realty's charter, as amended, bylaws and Maryland law currently
govern the rights of shareholders of Prison Realty. If the holders of Prison
Realty's common stock approve Prison Realty's adoption of the articles of
amendment and restatement to the Prison Realty charter and the completion of the
equity investment, Prison Realty will not be taxed as a REIT and, as a result,
the following provisions of the Prison Realty charter will be eliminated:
- provisions requiring the Prison Realty board to use all reasonable
efforts to ensure that Prison Realty satisfies the requirements for
qualification as a REIT under the Code. Currently, the Prison Realty
board may take no action to disqualify Prison Realty as a REIT without
the affirmative vote of the holders of not less than two-thirds of all
the outstanding shares of Prison Realty capital stock entitled to vote
on such matter at a meeting of the shareholders;
- provisions providing that holders of Prison Realty common stock and
Prison Realty series A preferred stock are subject to an ownership limit
of 9.8% of the outstanding Prison Realty common stock and preferred
stock; and
- provisions governing the amount and timing of distributions to Prison
Realty's shareholders.
In addition, if the equity investment is completed, the Prison Realty
charter will be amended by the articles supplementary, and the Prison Realty
bylaws will be amended and restated. As a result, the rights of the holders of
Prison Realty common stock will be governed by the Prison Realty charter and
bylaws, each as amended and restated, and Maryland law.
The following chart summarizes certain differences among the rights of
holders of the common stock of Prison Realty before and after the amendment and
restatement of Prison Realty's charter and bylaws.
This summary is not a complete description of the rights of shareholders of
Prison Realty. The articles of amendment and restatement and the articles
supplementary are attached to this proxy statement as Appendices D and B. We
encourage you to read them carefully. In addition, you may obtain the current
Prison Realty charter and bylaws without charge by contacting Prison Realty as
described herein under "Where You Can Find More Information."
<TABLE>
<CAPTION>
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PRISON REALTY PRISON REALTY
BEFORE THE AMENDMENT AND RESTATEMENT OF AFTER THE AMENDMENT AND RESTATEMENT OF
THE PRISON REALTY CHARTER AND BYLAWS THE PRISON REALTY CHARTER AND BYLAWS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Name of corporation Prison Realty Trust, Inc. Corrections Corporation of America
- ----------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PRISON REALTY PRISON REALTY
BEFORE THE AMENDMENT AND RESTATEMENT OF AFTER THE AMENDMENT AND RESTATEMENT OF
THE PRISON REALTY CHARTER AND BYLAWS THE PRISON REALTY CHARTER AND BYLAWS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock The Prison Realty charter authorizes The Prison Realty charter authorizes
for issuance 300.0 million shares of for issuance 400.0 million shares of
common stock. One class of common stock common stock. One class of common
is issued and outstanding. Holders are stock is issued and outstanding.
entitled to one vote per share. Holders are entitled to one vote per
share.
- ----------------------------------------------------------------------------------------------------------
Preferred stock The Prison Realty charter authorizes The Prison Realty charter authorizes
for issuance 20.0 million shares of for issuance 50.0 million shares of
preferred stock. Prison Realty preferred stock. Prison Realty has 4.3
currently has 4.3 million shares of million shares of preferred stock
preferred stock designated as series A. designated as series A, 14.0 million
shares of preferred stock designated
as series B and 3.0 million shares of
preferred stock designated as series
C. The terms of the series B and
series C convertible preferred stock
are described in the sections entitled
"Proposal to Approve the Equity
Investment -- Description of the
series B convertible preferred stock"
and "-- The rights offering."
- ----------------------------------------------------------------------------------------------------------
Adjustment in the See the description of Maryland law Under Maryland law, a corporation's
number of authorized under the opposite "Prison Realty" charter may include a provision that
shares heading. The Prison Realty charter does permits the board of directors,
not include such a provision. without shareholder approval, to amend
the charter to increase or decrease
the aggregate number of authorized
shares of stock or the number of
authorized shares of any class of
stock. The Prison Realty charter
includes a provision allowing the
board to take such actions. Pursuant
to the bylaws, the investment
committee must approve any issuances
of securities.
- ----------------------------------------------------------------------------------------------------------
Entity status The Prison Realty charter provides that The Prison Realty charter does not
the board of directors may take no contain provisions requiring specific
action to disqualify the corporation as actions based on its status as a
a REIT or to otherwise revoke the corporation.
corporation's election to be taxed as a
REIT without the approval of at least
two-thirds of all of the outstanding
shares of the corporation entitled to
vote on such a matter at a meeting of
shareholders.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PRISON REALTY PRISON REALTY
BEFORE THE AMENDMENT AND RESTATEMENT OF AFTER THE AMENDMENT AND RESTATEMENT OF
THE PRISON REALTY CHARTER AND BYLAWS THE PRISON REALTY CHARTER AND BYLAWS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Restrictions on The Prison Realty charter imposes The Prison Realty charter does not
ownership and certain restrictions on the ownership contain provisions restricting the
transfer of stock and transfer of shares of Prison Realty ownership or transfer of stock.
stock in order for Prison Realty to
qualify as a REIT under the Code.
Specifically, holders of Prison Realty
common stock are subject to an
ownership limit of 9.8% of the
outstanding shares of Prison Realty
common stock and preferred stock.
- ----------------------------------------------------------------------------------------------------------
Distributions Under the Prison Realty charter, the The Prison Realty charter does not
board of directors must use all require the board of directors to make
reasonable efforts to ensure that the distributions to its shareholders.
corporation satisfies the requirements According to the Prison Realty bylaws,
for qualification as a REIT under the any declaration of dividends must be
Code, including the timing and the approved by the Investment Committee.
amount of the corporation's
distributions to its shareholders.
Nevertheless, the common shareholders
have no right to any distributions
unless and until authorized and
declared by the board of directors.
- ----------------------------------------------------------------------------------------------------------
Classified board of See the description of Maryland law Maryland law provides that a
directors under the opposite "Prison Realty" corporation's charter may divide its
heading. The Prison Realty charter directors into classes with specified
provides for a board of directors that terms of office. The Prison Realty
is divided into three classes, as charter does not provide for a
nearly equal in size as possible, with classified board of directors.
one class being elected annually.
Prison Realty directors are elected to
a term of three years or until their
successors are elected and qualified or
until their death, retirement,
resignation or removal. Any
newly-created or eliminated
directorships resulting from any
increase or decrease in the number of
directors shall be apportioned among
the three classes so as to keep the
number of directors in each class as
nearly equal as possible.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PRISON REALTY PRISON REALTY
BEFORE THE AMENDMENT AND RESTATEMENT OF AFTER THE AMENDMENT AND RESTATEMENT OF
THE PRISON REALTY CHARTER AND BYLAWS THE PRISON REALTY CHARTER AND BYLAWS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Number of directors The Prison Realty charter provides that The Prison Realty charter provides
the board of directors shall consist of that the board of directors shall
the number of directors determined by consist of the number of directors
resolution of the board of directors in determined by resolution of the board
accordance with the Prison Realty of directors in accordance with the
bylaws, provided that the number of Prison Realty bylaws, except as
directors shall never be less than the otherwise provided by the charter,
minimum number required by Maryland provided that the number of directors
law. See the description of Maryland shall never be less than the minimum
law under the first "Prison Realty" number required by Maryland law.
heading. The Prison Realty bylaws Maryland law requires that there shall
provide that the board of directors be at least three directors. The
shall not be less than three nor more Prison Realty bylaws provide that the
than 16, as determined from time to board of directors shall not be less
time by resolution adopted by a than three nor more than 16, as
majority of the board of directors. determined from time to time by
resolution adopted by a majority of
the board of directors.
The Prison Realty charter further The Prison Realty charter further
provides that at least three of the provides that the Prison Realty board
members of the board must be will consist of not more than ten
independent directors. members, at least two of whom must be
independent directors. Four directors
will be designated by the investors,
four directors will be designated by
the current board prior to completion
of the equity investment and related
restructuring, and two directors will
be jointly designated by the investors
and the current board.
Pursuant to the Prison Realty bylaws,
the Investment Committee must approve
any expansion of the board.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
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PRISON REALTY PRISON REALTY
BEFORE THE AMENDMENT AND RESTATEMENT OF AFTER THE AMENDMENT AND RESTATEMENT OF
THE PRISON REALTY CHARTER AND BYLAWS THE PRISON REALTY CHARTER AND BYLAWS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Required committees The Prison Realty bylaws require that The Prison Realty bylaws require that
there be an independent committee there be an independent committee
composed solely of independent composed solely of independent
directors, an audit committee and a directors, an audit committee and a
compensation committee. compensation committee. The Prison
Realty bylaws also require the
creation of an investment committee
composed of four directors designated
by the investors and three other
members of the board of directors,
which is empowered to approve certain
significant corporate actions. For a
more complete description of the
Investment Committee, see the section
entitled "Proposal to Approve the
Equity Investment -- Terms of the
securities purchase agreement and
related agreements."
- ----------------------------------------------------------------------------------------------------------
Action by the board See the description of Maryland law Under Maryland law, a majority of the
of directors under the opposite "Prison Realty" board of directors constitutes a
heading. The Prison Realty bylaws quorum and, if a quorum is present
require a quorum of and approval of when a vote is taken, the affirmative
two-thirds of the directors then in vote of a majority of the directors
office to approve: present is the act of the board.
- a change in control of the
corporation, The Prison Realty bylaws grant the
- any amendment to the charter or investment committee the exclusive
bylaws, power of the board of directors to
- any waiver or modification of the approve decisions regarding
ownership limits required by the indebtedness of capital expenditures
charter, by, and acquisitions and expansions
- acquisitions, dispositions or (not subject to shareholder approval)
financings of assets by the corporation by, Prison Realty.
in excess of 25% of its total market
capitalization, or
- certain issuances of equity.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
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PRISON REALTY PRISON REALTY
BEFORE THE AMENDMENT AND RESTATEMENT OF AFTER THE AMENDMENT AND RESTATEMENT OF
THE PRISON REALTY CHARTER AND BYLAWS THE PRISON REALTY CHARTER AND BYLAWS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actions by the board The Prison Realty bylaws also require The Prison Realty bylaws also require
of directors the approval of the independent the approval of the Investment
(continued) committee for the election of operators Committee for the declaration of
of the corporation's properties or for dividends upon Prison Realty common
transactions between the corporation stock or the issuance or sale of
and any tenant of the corporation's Prison Realty securities, the
properties, PMSI or JJFMSI. recommendation of matters for
shareholder approval, the amendment of
the Prison Realty charter or bylaws or
expansion of the Prison Realty board,
the appointment or termination of any
executive officer or a merger,
consolidation, share exchange or sale
of substantial assets which requires
shareholder approval.
- ----------------------------------------------------------------------------------------------------------
Removal of directors Under Maryland law, unless the charter Unless the charter provides otherwise,
of the corporation provides otherwise, under Maryland law, if the
a director of a corporation that has a shareholders of any class are entitled
classified board of directors may not to separately elect one or more
be removed without cause. The Prison directors, a director so elected may
Realty charter provides that the not be removed without cause except by
shareholders may, at any time, remove the affirmative vote of a majority of
any director, with or without cause, by the shares of that class. The Prison
an affirmative vote of the majority of Realty charter provides that the
shareholders entitled to vote in the shareholders may, at any time, remove
election of directors. a director, with or without cause, by
an affirmative vote of the majority of
shareholders entitled to vote in the
election of that director.
- ----------------------------------------------------------------------------------------------------------
Director vacancies See the description of Maryland law Under Maryland law, vacancies which
under the opposite "Prison Realty" result from the removal of a director
heading. may be filled by the shareholders or
by a majority of the remaining
The Prison Realty bylaws provide that directors, provided that if the
any vacancies may be filled by a vacancy results from the removal of a
majority of the entire board of director elected by a particular
directors. class, only the shareholders of that
particular class or a majority of the
remaining directors elected by that
particular class may fill the vacancy.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 122
<TABLE>
<CAPTION>
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PRISON REALTY PRISON REALTY
BEFORE THE AMENDMENT AND RESTATEMENT OF AFTER THE AMENDMENT AND RESTATEMENT OF
THE PRISON REALTY CHARTER AND BYLAWS THE PRISON REALTY CHARTER AND BYLAWS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Director vacancies The Prison Realty bylaws provide that
(continued) any vacancies which result from an
increase in the number of directors
may be filled by a majority of the
entire board of directors. In
addition, the Prison Realty charter
requires that vacancies must be filled
by specific nominating committees or
board members based upon the type of
directorship that is vacant.
- ----------------------------------------------------------------------------------------------------------
Indemnification The Prison Realty charter and bylaws The Prison Realty bylaws provide that
provide that directors and officers directors and officers shall be
shall be indemnified to the fullest indemnified to the fullest extent
extent permitted by Maryland law permitted by Maryland law against any
against any action, suit or proceeding claim or liability to which they
brought against such person relating to become subject because of their
any action alleged to have been taken status. The Prison Realty bylaws
or omitted in such capacity. The Prison specifically require indemnification
Realty bylaws specifically require of directors and officers who have
indemnification of directors and been successful on the merits or
officers who have been successful on otherwise in the defense of a
the merits or otherwise in the defense proceeding to which he or she is
of such a proceeding and of directors subject because of his or her status,
and officers against any claim or and of directors and officers against
liability unless it is established that any claim or liability unless it is
their act or omission was material to established that his or her act or
the matter giving rise to the omission was material to the matter
proceeding and was committed in bad giving rise to the proceeding and was
faith or was the result of active and committed in bad faith or was the
deliberate dishonesty, they actually result of active and deliberate
received an improper benefit in money, dishonesty, he or she actually
property or services or, in the case of received an improper benefit in money,
a criminal proceeding, they had property or services or, in the case
reasonable cause to believe that their of a criminal proceeding, he or she
act or omission was unlawful. had reasonable cause to believe that
his or her act or omission was
unlawful.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 123
<TABLE>
<CAPTION>
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PRISON REALTY PRISON REALTY
BEFORE THE AMENDMENT AND RESTATEMENT OF AFTER THE AMENDMENT AND RESTATEMENT OF
THE PRISON REALTY CHARTER AND BYLAWS THE PRISON REALTY CHARTER AND BYLAWS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Indemnification The Prison Realty charter provides that The Prison Realty bylaws provide that
(continued) the corporation shall pay or reimburse the corporation shall pay or reimburse
all reasonable expenses incurred by reasonable expenses incurred by such
such person to the fullest extent person. The Prison Realty bylaws,
permitted by Maryland law. The Prison however, require that before any such
Realty bylaws, however, require that payment, the corporation must have
before any such payment, the received a written affirmation by the
corporation shall have received a director or officer of his or her good
written affirmation by the director or faith belief that he or she has met
officer of his or her good belief that the applicable standard of conduct
he or she has met the applicable necessary for indemnification by the
standard of conduct necessary for corporation as authorized by the
indemnification by the corporation as bylaws and a written undertaking by or
authorized by the bylaws and a written on the director's or officer's behalf
undertaking by or on the director's or to repay the amount paid or reimbursed
officer's behalf to repay the amount by the corporation if it is ultimately
paid or reimbursed by the corporation determined that the applicable
if it is ultimately determined that the standard of conduct was not met.
applicable standard of conduct was not
met.
- ----------------------------------------------------------------------------------------------------------
Amendments to the See the description of Maryland law Under Maryland law, the charter of the
charter under the opposite "Prison Realty" corporation may be amended if the
heading. board of directors adopts a resolution
setting forth the proposed amendment,
declares it advisable and directs the
proposed amendment be submitted to the
shareholders entitled to vote on the
matter and the shareholders approve
the amendment by the affirmative vote
of two-thirds of all the votes
entitled to be cast on the matter.
Pursuant to the Prison Realty bylaws,
the Investment Committee must approve
any amendments to the charter.
- ----------------------------------------------------------------------------------------------------------
Amendments to the The Prison Realty bylaws provide that The Prison Realty bylaws provide that
bylaws the board of directors shall have the the board of directors shall have the
exclusive power to adopt, alter or exclusive power to adopt, alter or
repeal any provision of these bylaws repeal any provision of these bylaws
and to make new bylaws. and to make new bylaws. Pursuant to
the Prison Realty bylaws, the
Investment Committee must approve any
amendments to the bylaws.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
120
<PAGE> 124
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PRISON REALTY PRISON REALTY
BEFORE THE AMENDMENT AND RESTATEMENT OF AFTER THE AMENDMENT AND RESTATEMENT OF
THE PRISON REALTY CHARTER AND BYLAWS THE PRISON REALTY CHARTER AND BYLAWS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consolidation; See description of Maryland law under Under Maryland law, the corporation
merger; share the opposite "Prison Realty" heading. may be consolidated or merged or its
exchange or transfer shares may be exchanged or its assets
may be transferred if the board of
directors adopts a resolution which
declares that the proposed transaction
is advisable and directs the matter be
submitted to the shareholders entitled
to vote on the matter and the
shareholders approve the transaction
by the affirmative vote of two-thirds
of all the votes entitled to be cast
on the matter. Pursuant to the Prison
Realty bylaws, the investment
committee must approve any
consolidation, merger, share exchange
or sale of substantial assets.
- ----------------------------------------------------------------------------------------------------------
Business See the description of Maryland law Under Maryland law, "business
combinations under the opposite "Prison Realty" combinations" with "interested
heading. These provisions of Maryland shareholders" are subject to a
law do not apply to business moratorium of five years unless
combinations with interested specified conditions are met. After
shareholders that have been exempted by this five year period, any business
resolution of the board of directors combination with an interested
prior to the determination date. By shareholder must be approved by 80% of
resolution, the Prison Realty board of all voting stock and two-thirds of the
directors has exempted Sodexho, Baron disinterested voting stock. These
and certain of Baron's affiliates from provisions of Maryland law do not
the business combination provisions. apply to business combinations with
interested shareholders that have been
exempted by resolution of the board of
directors prior to the determination
date. Prison Realty has exempted the
investors from the business
combination provisions.
- ----------------------------------------------------------------------------------------------------------
Non-shareholder See the description of Maryland law Under Maryland law, a corporationIs
constituencies under the opposite "Prison Realty" charter may include a provision that
heading. The Prison Realty charter does allows the board of directors, in
not include such a provision. considering a potential acquisition of
control of the corporation, to
consider the effect of the potential
acquisition on shareholders,
employees, suppliers, customers and
creditors of the corporation and
communities in which offices or other
establishments of the corporation are
located. The Prison Realty charter
includes such a provision.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
121
<PAGE> 125
PROPOSAL 3
PROPOSAL TO RATIFY THE ACTIONS OF THE PRISON REALTY BOARD
AND ITS SPECIAL AND INDEPENDENT COMMITTEES
As discussed in more detail herein under "Proposal 1 -- Proposal to Approve
the Equity Investment" and "Proposal 2 -- Proposal to Adopt the Articles of
Amendment and Restatement to the Prison Realty Charter," prior to their approval
of the equity investment, the charter amendments and the related restructuring
of Prison Realty, the Prison Realty board, and the Special Committee and
Independent Committee of the board, considered various alternatives, including
proposals from other potential investors, in connection with their evaluation of
the various strategic and restructuring alternatives available to Prison Realty.
Based on these considerations and related analysis, on the final presentation of
Merrill Lynch delivered to the Prison Realty board on December 26, 1999 and the
oral opinion of Merrill Lynch delivered in connection therewith that, as of the
date of the opinion, the equity investment was fair, from a financial point of
view, to Prison Realty and its shareholders, and on the recommendations of the
Special and Independent Committees after such committees considered the final
presentations and oral opinions of their respective financial advisors, the
Prison Realty board approved (i) the proposed equity investment in Prison Realty
by the investors and Prison Realty's common shareholders in the rights offering,
(ii) the proposed amendments to the Prison Realty charter to, among other
things, permit Prison Realty not to elect to be taxed as a REIT for federal
income tax purposes, and (iii) the related restructuring of Prison Realty, CCA,
PMSI and JJFMSI to be effected in conjunction with the transactions, including
the mergers of the companies. The Prison Realty board believes it acted in good
faith and exercised sound business judgment by considering the various
alternatives available to Prison Realty and in approving these transactions and
satisfied the fiduciary duties of its members in doing so.
As of the date of this proxy statement, five lawsuits have been filed by
Prison Realty shareholders against Prison Realty and all or certain of the
members of the Prison Realty board in connection with the proposed transactions,
as discussed herein under "Information About Our Company -- Recent
developments," and it is possible that additional shareholder litigation may be
instigated in connection therewith. In order to assist Prison Realty in its
defense of these claims, the Prison Realty board is seeking the ratification of
its actions by the shareholders of Prison Realty. While such ratification, if
obtained, may not be dispositive in determining that there is no liability on
the part of Prison Realty and its directors, the Prison Realty board believes
such ratification may constitute a favorable factor in any court's decision
regarding the same. As such, the Prison Realty board believes that the
ratification of the board's actions by the shareholders of Prison Realty may
limit the potential liability of Prison Realty and its board members which may
result from such litigation or otherwise discourage similar additional claims
from being brought against Prison Realty and the members of its board in the
future.
Based on the foregoing, the Prison Realty board believes that it is in the
best interest of Prison Realty and its shareholders from a financial point of
view for shareholders to ratify the actions of the board of directors, the
Special Committee and the Independent Committee in approving the equity
investment and related transactions which are conditions to the equity
investment, including the combination of Prison Realty with CCA, PMSI and
JJFMSI, the rights offering and the charter amendments. The board is seeking
such ratification by obtaining the approval of the majority of shares of Prison
Realty's common stock voting on the proposal provided that the holders of at
least 50% of Prison Realty's common stock are present in person or by proxy at
the special meeting. In the event the shareholders do not approve this proposal,
but do approve the equity investment, the charter amendments and the related
restructuring, Prison Realty anticipates that it will complete the equity
investment, the charter amendments and the related restructuring as described in
this proxy statement.
122
<PAGE> 126
OTHER MATTERS
As of the date of this proxy statement, the board of directors of Prison
Realty knows of no matters that will be presented for consideration at the
Prison Realty special meeting other than as described in this proxy statement.
If any other matters shall properly come before the Prison Realty special
meeting and be voted upon, the enclosed proxy will be deemed to confer
discretionary authority on the individuals named as proxies therein to vote the
shares represented by such proxies as to any such matters. The persons named as
proxies intend to vote or not to vote in accordance with the recommendation of
the management of Prison Realty.
WHERE YOU CAN FIND MORE INFORMATION
AVAILABLE INFORMATION
Prison Realty has filed, and will continue to file, reports, proxy
statements and other information with the SEC under the Securities Exchange Act.
You may read and copy this information at the following public reference
facilities maintained by the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
Judiciary Plaza Seven World Trade Center Citicorp Center
450 Fifth Street, N.W 13th Floor 500 West Madison Street
Room 1024 New York, NY 10048 Suite 1400
Washington, DC 20549 Chicago, IL 60661-2511
</TABLE>
You may also obtain copies of this information by mail at prescribed rates
from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024,
Washington, DC 20549, or by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet site on the World Wide Web that contains
reports, proxy statements and other information about issuers, including Prison
Realty, who file electronically with the SEC. The address of the site is
"www.sec.gov."
You can also inspect reports, proxy statements and other information about
Prison Realty at the offices of the NYSE, 20 Broad Street, New York, NY 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows Prison Realty to incorporate information by reference into
this proxy statement. This means that Prison Realty can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is considered to be a part of
this proxy statement, except for any information that is superseded by other
information that is set forth directly in this document.
123
<PAGE> 127
This proxy statement incorporates by reference sections entitled
"Consolidated Financial Statements," "Management's discussion and analysis of
financial condition and results of operations" and "Qualitative and quantitative
disclosures about market risks" from the documents set forth below that Prison
Realty and its predecessors have previously filed with the SEC. They contain
important information about Prison Realty and its financial condition, and
relevant information concerning its predecessors, Old CCA and Old Prison Realty.
<TABLE>
<CAPTION>
PRISON REALTY SEC FILINGS (FILE NO. 0-25245) PERIOD
- -------------------------------------------- ------
<S> <C>
Annual Report on Form 10-K................. Year ended December 31, 1998, as filed March 30, 1999
(under the name Prison Realty Corporation)
Year ended December 31, 1999, as filed March , 2000
Quarterly Reports on Form 10-Q............. Quarters ended:
- March 31, 1999, as filed May 14, 1999
- June 30, 1999, as filed August 17, 1999
- September 30, 1999, as filed November 10, 1999, and
as subsequently amended on February 17, 2000.
</TABLE>
<TABLE>
<CAPTION>
CCA PRISON REALTY TRUST SEC FILINGS (FILE NO. 0-13049) PERIOD
- ------------------------------------------------------ ------
<S> <C>
Annual Report on Form 10-K...................... Year ended December 31, 1998, as filed March 30, 1999
</TABLE>
You can obtain any of the documents incorporated by reference in this
document through Prison Realty or from the SEC through the SEC's Internet site
on the World Wide Web at the Internet address set forth above. Documents
incorporated by reference are available from Prison Realty without charge,
excluding any exhibits to those documents, unless the exhibit is specifically
incorporated by reference as an exhibit to this proxy statement. You can obtain
documents incorporated by reference in this proxy statement by requesting them
in writing or by telephone from the company at the following address:
Prison Realty Trust, Inc.
10 Burton Hills Boulevard, Suite 100
Nashville, Tennessee 37215
(615) 263-0200
If you would like to request documents from Prison Realty please do so by
, 2000 to receive them before the Prison Realty special meeting. If
you request any incorporated documents, they will be mailed to you by first
class mail, or another equally prompt means, within one business day after your
request is received.
You should rely only on the information contained in or incorporated by
reference in this proxy statement in considering how to vote your shares at the
Prison Realty special meeting. Prison Realty has not authorized anyone to
provide you with information that is different from the information contained in
this document. This proxy statement is dated , 2000. You should not
assume that the information contained in this document is accurate as of any
date other than that date.
124
<PAGE> 128
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRISON REALTY TRUST, INC.
Pro Forma Combined Balance Sheet as of September 30,
1999.................................................. F-2
Notes to Pro Forma Combined Balance Sheet as of
September 30, 1999.................................... F-5
Schedule of Combined Operating Companies Balance Sheets
as of September 30, 1999.............................. F-9
Pro Forma Combined Statement of Operations for the Nine
Months Ended September 30, 1999....................... F-10
Notes to Pro Forma Combined Statement of Operations for
the Nine Months Ended September 30, 1999.............. F-11
Schedule of Operating Companies Statements of
Operations for the Nine Months Ended September 30,
1999.................................................. F-14
Pro Forma Combined Statement of Operations for the Year
Ended December 31, 1998............................... F-15
Notes to Pro Forma Combined Statement of Operations for
the Year Ended December 31, 1998...................... F-16
</TABLE>
F-1
<PAGE> 129
PRISON REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The Unaudited Pro Forma Combined Financial Statements for the year ended
December 31, 1998 and as of and for the nine months ended September 30, 1999
show the pro forma effects of the merger transactions, the equity investment and
the refinancing of Prison Realty's existing indebtedness. Additionally, the
Unaudited Pro Forma Combined Statement of Operations for the year ended December
31, 1998 shows the pro forma effects of CCA Prison Realty Trust's ("Old Prison
Realty") acquisition of all of the issued and outstanding capital stock and
derivative securities of U.S. Corrections Corporation ("USCC") for a cash
payment to USCC's shareholders of $157 million plus the assumption of certain
liabilities (the "USCC Merger").
The merger transactions will be accounted for as the purchase of each of
CCA, PMSI and JJFMSI by Prison Realty. As such, Prison Realty will be treated as
the acquiring company for financial reporting purposes. The general provisions
of the purchase method of accounting prescribe that: (1) CCA, PMSI and JJFMSI
assets and liabilities be recorded at fair market value, as required by
Accounting Principles Board Opinion No. 16; (2) Prison Realty's assets and
liabilities be carried forward at historical cost; and (3) Prison Realty's
historical financial statements be presented as the continuing accounting
entity's.
The purchase method of accounting prescribes that the assets and
liabilities owned by CCA, PMSI and JJFMSI be adjusted to estimated fair market
value with any excess of cost over fair value being recorded as goodwill and
other intangible assets to be amortized over the respective life of the
intangibles. The fair market values of the assets and liabilities of CCA, PMSI
and JJFMSI have been determined based upon preliminary estimates and are subject
to change as additional information is obtained. Management does not anticipate
that the preliminary allocation of purchase costs based upon the estimated fair
market value of the assets and liabilities will materially change; however, the
allocation of purchase costs reflected in the following selected unaudited pro
forma combined financial information is subject to final determination and may
differ from the amounts ultimately determined.
The Unaudited Pro Forma Combined Statements of Operations are presented as
if the merger transactions, the equity investment, the refinancing and the USCC
Merger had occurred as of the beginning of the period indicated and therefore
incorporate certain assumptions that are included in the Notes to Pro Forma
Combined Statements of Operations. The Unaudited Pro Forma Combined Balance
Sheet is presented as if the merger transactions, the equity investment and the
refinancing had occurred on September 30, 1999 and therefore incorporates
certain assumptions that are included in the Notes to Pro Forma Combined Balance
Sheet. The pro forma information does not purport to represent what Prison
Realty's financial position or results of operations actually would have been
had the merger transactions, equity investment and refinancing, in fact,
occurred on such date or at the beginning of the period indicated, or to project
Prison Realty's financial position or results of operations at any future date
or for any future period.
F-2
<PAGE> 130
PRISON REALTY TRUST, INC.
PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
COMBINED PRISON EQUITY
OPERATING REALTY ISSUANCE
PRISON COMPANIES TRANSACTIONS PRISON REALTY AND
REALTY TO BE PRO FORMA AND TRUST, INC. FINANCING
TRUST, INC. ACQUIRED ACQUISITION INTERCOMPANY PRO FORMA ADJUSTMENTS
(HISTORICAL) A ADJUSTMENTS ELIMINATIONS SUB-TOTAL GG
------------- ----------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash, cash equivalents
and restricted cash.... $ 43,948 $ 8,470 $ (1,500)O $ (8,000)U $ 2,518 $ 315,000AA
(26,600)C (61,200)BB
(13,800)F
Accounts receivable, net
of allowances.......... -- 120,940 -- -- 120,940 --
Other receivables........ -- 2,691 -- -- 2,691 --
Prepaid expenses......... -- 5,913 -- -- 5,913 --
Deferred tax assets...... -- 1,061 1,752N 737FF 22,855 16,740Z
19,305T
Receivable from CCA...... 26,221 -- -- (26,221)Y -- --
Other current assets..... 8,345 9,181 -- (2,264)Y 15,262 --
---------- ---------- ---------- ---------- ---------- ---------
Total current
assets............. 78,514 148,256 (40,148) (16,443) 170,179 270,540
---------- ---------- ---------- ---------- ---------- ---------
Property and equipment,
net........................ 2,267,059 61,306 -- (76,433)CC 2,251,932 --
Other long term assets:
Notes receivable......... 138,549 -- -- (137,000)X 1,549 --
Investments in direct
financing leases 74,042 -- -- -- 74,042 --
Deferred tax assets...... -- 1,400 10,657N 1,940FF 13,997 --
Assets under lease
arrangements, net...... 49,499 -- -- (49,499)T -- --
Investments in affiliates
and others............. 126,875 9,428 (126,875)E -- 9,428 --
Other assets............. 48,995 11,194 -- (586)Y 59,603 35,500BB
(42,922)Z
Investments in
contracts.............. -- 108,226 (108,226)H 22,351EE 90,214 --
26,600C
13,195D
126,875E
13,800F
(6,752)G
16,083M
(1,752)N
(10,657)N
1,500O
565P
(3,515)Q
(108,079)R
---------- ---------- ---------- ---------- ---------- ---------
$2,783,533 $ 339,810 $ (196,729) $ (255,670) $2,670,944 $ 263,118
========== ========== ========== ========== ========== =========
<CAPTION>
PRISON REALTY
TRUST, INC.
PRO FORMA
-------------
<S> <C>
Current assets:
Cash, cash equivalents
and restricted cash.... $ 256,318
Accounts receivable, net
of allowances.......... 120,940
Other receivables........ 2,691
Prepaid expenses......... 5,913
Deferred tax assets...... 39,595
Receivable from CCA...... --
Other current assets..... 15,262
----------
Total current
assets............. 440,719
----------
Property and equipment,
net........................ 2,251,932
Other long term assets:
Notes receivable......... 1,549
Investments in direct
financing leases 74,042
Deferred tax assets...... 13,997
Assets under lease
arrangements, net...... --
Investments in affiliates
and others............. 9,428
Other assets............. 52,181
Investments in
contracts.............. 90,214
----------
$2,934,062
==========
</TABLE>
(continued)
F-3
<PAGE> 131
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
COMBINED PRISON EQUITY
OPERATING REALTY ISSUANCE
PRISON COMPANIES TRANSACTIONS PRISON REALTY AND
REALTY TO BE PRO FORMA AND TRUST, INC. FINANCING
TRUST, INC. ACQUIRED ACQUISITION INTERCOMPANY PRO FORMA ADJUSTMENTS
(HISTORICAL) A ADJUSTMENTS ELIMINATIONS SUB-TOTAL GG
------------- ----------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current liabilities:
Accounts payable......... $ 42,841 $ 42,676 $ -- $ (1,904)Y $ 70,934 $ --
(12,679)Y
Accrued salaries and
wages.................. 194 14,994 -- -- 15,188 --
Accrued property taxes... -- 7,438 -- -- 7,438 --
Accrued interest......... -- 12,296 -- (12,296)Y -- --
Distributions payable.... 209,729 -- -- (207,579)V 2,150 --
Dividends payable........ -- 6,752 (6,752)G -- 565 --
565P
Income taxes payable 6,029 -- -- 70,000W 76,029 --
Other accrued expenses... 16,100 22,514 -- (2,192)Y 36,422
Deferred revenue......... -- 2,381 -- -- 2,381 --
Current portion of
long-term debt......... 6,082 -- -- -- 6,082 --
---------- ---------- ---------- ---------- ---------- ---------
Total current
liabilities........ 280,975 109,051 (6,187) (166,650) 217,189 --
Long-term debt, net of
current portion............ 909,946 137,000 -- (137,000)X 909,946 --
Senior notes................. 100,000 -- -- -- 100,000 --
Deferred credits............. -- 87,268 (87,268)I -- -- --
Other noncurrent
liabilities................ -- 56,948 (56,948)B -- -- --
Deferred gains on sales of
contracts.................. 108,079 -- (108,079)R -- -- --
Deferred tax liabilities..... 32,000 1,616 -- 182,417DD 216,033 --
---------- ---------- ---------- ---------- ---------- ---------
Total liabilities.... 1,431,000 391,883 (258,482) (121,233) 1,443,168 --
---------- ---------- ---------- ---------- ---------- ---------
Commitments and contingencies
Preferred stock-Series B..... -- -- -- -- -- 290,000AA
(23,660)BB
Stockholders' equity:
Preferred stock-Series
A...................... 43 -- -- -- 43 --
Common stock- Class A.... 1,183 95 (95)J -- 1,209 --
26D
Common stock- Class B.... -- 12 (12)J -- -- --
Warrants outstanding..... -- -- -- -- -- 25,000AA
(2,040)BB
Additional paid-in
capital................ 1,380,469 154,540 13,169D 207,579V 1,603,629 --
(108,226)H 2,412S
87,268I
95J
12J
(4,127)K
(145,645)L
16,083M
Deferred compensation.... -- (4,127) 4,127K -- (3,515) --
(3,515)Q
Treasury stock........... (242) -- -- -- (242) --
Retained earnings
(deficit).............. (28,920) (202,593) 56,948B (2,412)S (373,348) (26,182)Z
145,645L (30,194)T
(8,000)U
(70,000)W
(182,417)DD
22,351EE
2,677FF
(76,433)CC
---------- ---------- ---------- ---------- ---------- ---------
Total stockholders'
equity............. 1,352,533 (52,073) 61,753 (134,437) 1,227,776 (3,222)
---------- ---------- ---------- ---------- ---------- ---------
$2,783,533 $ 339,810 $ (196,729) $ (255,670) $2,670,944 $ 263,118
========== ========== ========== ========== ========== =========
<CAPTION>
PRISON REALTY
TRUST, INC.
PRO FORMA
-------------
<S> <C>
Current liabilities:
Accounts payable......... $ 70,934
Accrued salaries and
wages.................. 15,188
Accrued property taxes... 7,438
Accrued interest......... --
Distributions payable.... 2,150
Dividends payable........ 565
Income taxes payable 76,029
Other accrued expenses... 36,422
Deferred revenue......... 2,381
Current portion of
long-term debt......... 6,082
----------
Total current
liabilities........ 217,189
Long-term debt, net of
current portion............ 909,946
Senior notes................. 100,000
Deferred credits............. --
Other noncurrent
liabilities................ --
Deferred gains on sales of
contracts.................. --
Deferred tax liabilities..... 216,033
----------
Total liabilities.... 1,443,168
----------
Commitments and contingencies
Preferred stock-Series B..... 266,340
Stockholders' equity:
Preferred stock-Series
A...................... 43
Common stock- Class A.... 1,209
Common stock- Class B.... --
Warrants outstanding..... 22,960
Additional paid-in
capital................ 1,603,629
Deferred compensation.... (3,515)
Treasury stock........... (242)
Retained earnings
(deficit).............. (399,530)
----------
Total stockholders'
equity............. 1,224,554
----------
$2,934,062
==========
</TABLE>
F-4
<PAGE> 132
NOTES TO PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
A Represents the sum of the combined operating companies (CCA, PMSI and
JJFMSI) balance sheets prior to any eliminations or pro forma
adjustments as presented in the following Schedule of Combined Operating
Companies Balance Sheets as of September 30, 1999.
B As of September 30, 1999, CCA had recognized a total rent expense
accrual of $56,948 related to recognizing the effects of the annual
minimum rent escalators contained in CCA's leases with Prison Realty on
a straight line basis over the life of the leases. This adjustment
reverses the effects of the rent expense accrual based on the fourth
quarter 1999 modifications to the annual rent escalators contained in
the leases between CCA and Prison Realty.
C To record the cash consideration to be paid by Prison Realty to certain
shareholders of CCA, PMSI and JJFMSI in connection with the merger
transactions.
D To record the effects of the Prison Realty common shares to be issued to
certain shareholders of CCA, PMSI and JJFMSI in connection with the
merger transactions. Pursuant to the terms of the Agreement and Plan of
Merger, the value of Prison Realty common shares to be issued totals
$13,195. Based on a common share price of $5.00, the number of Prison
Realty common shares to be issued is estimated to be 2,639.
E To record the application of Prison Realty's historical investment in
CCA, PMSI and JJFMSI in accordance with the purchase method of
accounting as prescribed by APB Opinion No. 16.
F To record the payment of estimated merger costs to be capitalized in
accordance with the purchase method of accounting as prescribed by APB
Opinion No. 16.
G At September 30, 1999, PMSI and JJFMSI had accrued dividend liabilities
due to Prison Realty. This adjustment reduces the investment in
contracts related to the unpaid dividends in accordance with the
purchase method of accounting as prescribed by APB Opinion No. 16.
H To eliminate the combined CCA, PMSI and JJFMSI historical intangible
assets related to those companies' investment in contracts against the
combined net equity of CCA, PMSI and JJFMSI. The CCA, PMSI and JJFMSI
intangible assets related to the historical investment in contracts
originated from the December 31, 1998 purchase of management contracts
and related assets from Prison Realty.
I To eliminate CCA's liabilities related to CCA's deferred lease credits
against CCA's net equity. CCA's deferred lease credits originated from
CCA's income deferral of service and incentive fees received from Prison
Realty during 1999.
J To eliminate the historical par value of the combined CCA, PMSI and
JJFMSI common stock.
K To eliminate the unamortized portion of the combined CCA, PMSI and
JJFMSI warden deferred compensation. As discussed in Note Q, Prison
Realty will issue common shares of Prison Realty as part of the merger
transactions in exchange for the CCA common shares currently held by the
wardens' restricted stock plan.
L To eliminate the combined CCA, PMSI and JJFMSI remaining retained
earnings balance.
M Pro forma adjustments G through K reduce the combined CCA, PMSI and
JJFMSI paid in capital balance to an amount representing the net
liabilities to be acquired by Prison Realty in the merger transactions.
This adjustment records the increase in the investment in contracts
related to the combined net liabilities assumed by Prison Realty in the
merger transactions in accordance with the purchase method of accounting
prescribed by APB Opinion No. 16.
F-5
<PAGE> 133
NOTES TO PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1999 -- (CONTINUED)
N To record the decrease in the investment in contracts related to certain
deferred tax assets acquired from CCA in accordance with the purchase
method of accounting as prescribed by APB Opinion No. 16.
O To record the increase in the investment in contracts related to the
expected consulting fee to be paid to certain PMSI shareholders as
required by the Agreement and Plan of Merger in accordance with the
purchase method of accounting as prescribed by APB Opinion No. 16.
P To record the accrual of all accumulated, but unpaid dividends to be
paid to the PMSI shareholders as required by the Agreement and Plan of
Merger.
Q To record the value of the Prison Realty common shares to be issued to
the CCA, PMSI and JJFMSI wardens' restricted stock plans in exchange for
the CCA shares currently held by those plans. The estimated value is
based on a Prison Realty common share price of $5.00.
R To record the reduction in the investment in contracts related to Prison
Realty's historical deferred gain on sales of contracts to CCA, PMSI and
JJFMSI in accordance with the purchase method of accounting as
prescribed by APB Opinion No. 16. Prison Realty's deferred gains
originated from the sale of management contracts and other assets to
CCA, PMSI and JJFMSI in December 1998.
S To record Prison Realty's compensation expense related to the
unamortized portion of deferred stock awards previously granted to
certain key CCA employees. Due to the merger transactions, the deferred
stock awards become fully vested as of the date of Prison Realty's
acquisition of CCA.
T To record the write-off of the deferred tenant incentive fees paid to
CCA during 1999 due to the anticipated significant modifications of the
leases between CCA and Prison Realty. This entry also records the
deferred tax benefit associated with the write-off, resulting in a net
impact of ($30,194).
U To record the payment of estimated transactional costs that are not
eligible to be capitalized in accordance with the provisions of APB
Opinion No. 16 and related interpretations.
V To record the reduction in the distributions payable resulting from
Prison Realty's change in tax status from a REIT to a C-Corporation. The
distributions payable had been accrued as a reduction to paid in capital
at January 1, 1999.
W To record the estimated current tax liability of Prison Realty for the
nine months ended September 30, 1999 due to Prison Realty's change in
tax status from a REIT to a C-Corporation.
X To eliminate the $137,000 note payable from CCA to Prison Realty
subsequent to the merger transactions.
Y To eliminate all remaining intercompany assets and liabilities between
Prison Realty, CCA, PMSI and JJFMSI subsequent to the merger
transactions.
Z To record the write-off of the combined Prison Realty, CCA, PMSI and
JJFMSI unamortized loan issuance costs related to each of the respective
company's existing credit facilities that are to be replaced in the
refinancing. This entry also records the deferred tax benefit associated
with the write-off, resulting in a net impact of ($26,182).
AA To record the effects of issuing Series B convertible preferred shares
and warrants to purchase Prison Realty's common stock for gross cash
proceeds of $315,000. The Series B convertible preferred shares and the
warrants have been recorded on the balance sheet at September 30, 1999
based on their estimated relative fair market values.
F-6
<PAGE> 134
NOTES TO PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1999 -- (CONTINUED)
The gross proceeds less the estimated transactional costs of $61,200
(See Note BB) have been treated as cash to be held and used by Prison
Realty for payment of outstanding liabilities subsequent to the
completion of the equity issuance and refinancing transactions. No
interest income has been imputed on the excess cash balance in the pro
forma income statements.
BB To record the payment of the estimated transactional costs from the
gross proceeds of the equity issuance. The estimated transaction costs
are as follows:
<TABLE>
<S> <C>
Equity issuance............................................. $25,700
Debt issuance............................................... 35,500
-------
Total............................................. $61,200
=======
</TABLE>
The equity issuance costs totaling $25,700 have been allocated as a
reduction to the carrying balances of the preferred shares and warrants
based on the estimated relative fair market values of each instrument.
CC To record effects of expected asset impairments in accordance with the
provisions of SFAS No. 121. Based on the expected operating cash flows
subsequent to the merger transaction of three individual properties
acquired in the USCC merger, Prison Realty will be required to record
asset impairments to the recorded book values of the respective
facilities.
DD To record the effects of recognizing certain deferred tax liabilities in
accordance with SFAS No. 109 related to Prison Realty's change in tax
status from a REIT to a C-Corporation. As of September 30, 1999, Prison
Realty's fixed asset balances on the balance sheet contained book basis
versus tax basis differences arising from Old Prison Realty's
acquisition of US Corrections Corporation ("USCC") in April 1998 and
Prison Realty's acquisition of Old Prison Realty in January 1999. The
adjustment is determined as follows:
<TABLE>
<S> <C>
USCC related book versus tax differences at September 30,
1999...................................................... $173,247
SFAS No. 121 Asset impairment of two USCC facilities
(limited to actual book versus tax differences existing at
September 30, 1999 for each facility)..................... (71,503)
Old Prison Realty related book versus tax differences at
September 30, 1999........................................ 365,993
--------
Total book versus tax differences in Prison
Realty's fixed asset balances at September 30,
1999........................................... 467,737
Statutory tax rate..................................... 39%
--------
Deferred tax liability to be recorded.................. $182,417
========
</TABLE>
EE To reverse $22,531 of the January 1999 write-off of Prison Realty's
deferred tax assets related to the change in Prison Realty's tax status
from a REIT to a C-Corporation in accordance with the provisions of SFAS
No. 109. This entry also increases the investment in contracts in
accordance with the purchase method of accounting prescribed by APB
Opinion No. 16 in relation to Prison Realty's acquisition of CCA. The
$22,351 deferred tax asset was originally established in connection with
Prison Realty's establishment of the deferred gains on sales of
contracts to CCA (See Note R).
FF To record the current and long term deferred tax assets in accordance
with the provisions of SFAS No. 109.
F-7
<PAGE> 135
NOTES TO PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1999 -- (CONTINUED)
GG Pursuant to the terms of the Securities Purchase Agreement, the
investors have agreed to purchase, at the election of Prison Realty, up
to $35,000 of additional Series B convertible preferred stock under the
same terms and conditions as the initial purchase of Series B
convertible preferred stock for $315,000. Prison Realty may request the
additional purchase to occur in one or more tranches at any time within
eighteen months from the date of the initial closing. Due to the
subjective nature of the additional purchase, Prison Realty has not
reflected the pro forma effects of the additional purchase of $35,000 of
additional Series B convertible preferred stock in these pro forma
financial statements.
F-8
<PAGE> 136
SCHEDULE OF COMBINED OPERATING COMPANIES BALANCE SHEETS
AS OF SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINED
OPERATING
COMPANIES
TO BE
CCA PMSI JJFMSI ACQUIRED
--------- ------- -------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash, cash equivalents and restricted cash................ $ 2,550 $ 4,557 $ 1,363 $ 8,470
Accounts receivable, net of allowances.................... 72,433 26,309 22,198 120,940
Other receivables......................................... -- 2,691 -- 2,691
Prepaid expenses.......................................... 4,564 762 587 5,913
Deferred tax assets....................................... -- 305 756 1,061
Receivable from CCA....................................... -- -- -- --
Other current assets...................................... 6,671 696 1,814 9,181
--------- ------- ------- ---------
Total current assets............................... 86,218 35,320 26,718 148,256
--------- ------- ------- ---------
Property and equipment, net................................. 24,582 15,920 20,804 61,306
Other long term assets:
Notes receivable.......................................... -- -- -- --
Investments in direct financing leases.................... -- -- -- --
Deferred tax assets....................................... -- 1,400 -- 1,400
Assets under lease arrangements, net...................... -- -- -- --
Investments in affiliates and others...................... -- -- 9,428 9,428
Other assets.............................................. 9,175 484 1,535 11,194
Investments in contracts.................................. 63,827 30,695 13,704 108,226
--------- ------- ------- ---------
$ 183,802 $83,819 $72,189 $ 339,810
========= ======= ======= =========
Current liabilities:
Accounts payable.......................................... $ 29,097 $ 8,554 $ 5,025 $ 42,676
Accrued salaries and wages................................ 9,256 3,602 2,136 14,994
Accrued property taxes.................................... 7,438 -- -- 7,438
Accrued interest.......................................... 12,296 -- -- 12,296
Distributions payable..................................... -- -- -- --
Dividends payable......................................... -- 3,617 3,135 6,752
Income taxes payable...................................... -- -- -- --
Other accrued expenses.................................... 15,558 2,939 4,017 22,514
Deferred revenue.......................................... 2,381 -- -- 2,381
Current portion of long-term debt......................... -- -- -- --
--------- ------- ------- ---------
Total current liabilities.......................... 76,026 18,712 14,313 109,051
Long-term debt, net of current portion...................... 137,000 -- -- 137,000
Senior notes................................................ -- -- -- --
Deferred credits............................................ 87,268 -- -- 87,268
Other noncurrent liabilities................................ 56,948 -- -- 56,948
Deferred gains on sales of contracts........................ -- -- -- --
Deferred tax liabilities.................................... -- -- 1,616 1,616
--------- ------- ------- ---------
Total liabilities.................................. 357,242 18,712 15,929 391,883
--------- ------- ------- ---------
Commitments and contingencies
Preferred stock- Series B................................... -- -- -- --
Stockholders' equity:
Preferred stock- Series A................................. -- -- -- --
Common stock- Class A..................................... 93 1 1 95
Common stock- Class B..................................... 10 1 1 12
Warrants outstanding...................................... -- -- -- --
Additional paid-in capital................................ 25,133 70,586 58,821 154,540
Deferred compensation..................................... (3,302) (450) (375) (4,127)
Treasury stock............................................ -- -- -- --
Retained earnings (deficit)............................... (195,374) (5,031) (2,188) (202,593)
--------- ------- ------- ---------
Total stockholders' equity (deficit)............... (173,440) 65,107 56,260 (52,073)
--------- ------- ------- ---------
$ 183,802 $83,819 $72,189 $ 339,810
========= ======= ======= =========
</TABLE>
F-9
<PAGE> 137
PRISON REALTY TRUST, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
COMBINED EQUITY
OPERATING PRO FORMA PRISON ISSUANCE
COMPANIES ACQUISITION REALTY AND
PRISON REALTY TO BE AND TRUST, INC. FINANCING PRISON REALTY
TRUST, INC. ACQUIRED ELIMINATION PRO FORMA ADJUSTMENTS TRUST, INC.
(HISTORICAL) AA ADJUSTMENTS SUB-TOTAL WW PRO FORMA
------------- ---------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Management and other................. $ -- $ 579,206 $ (4,500)GG $568,169 $ -- $568,169
(6,537)DD
Rental............................... 196,543 -- (190,963)CC 7,152 -- 7,152
1,572DD
Licensing fees....................... 6,510 -- (6,510)EE -- -- --
Interest income...................... 17,749 -- (12,300)FF -- -- --
(5,449)JJ
-------- --------- ---------- -------- --------- --------
220,802 579,206 (224,687) 575,321 -- 575,321
-------- --------- ---------- -------- --------- --------
Expenses:
Operating............................ -- 433,818 4,180DD 437,998 -- 437,998
Lease................................ -- 248,464 (190,963)CC 3,432 -- 3,432
(56,948)BB
2,751DD
59DD
69DD
General and administrative........... 4,586 23,617 (4,500)GG 23,703 1,125TT 24,828
Loan costs writeoff.................. -- -- -- -- -- --
Merger costs......................... -- -- -- -- -- --
CCA compensation charge.............. -- -- -- -- -- --
Depreciation and amortization........ 31,643 17,699 (11,214)KK 50,375 -- 50,375
13,532KK
(139)LL
(1,146)MM
Trade name use....................... -- 6,511 (6,511)EE -- -- --
-------- --------- ---------- -------- --------- --------
36,229 730,109 (250,830) 515,508 1,125 516,633
-------- --------- ---------- -------- --------- --------
Operating income (loss)................ 184,573 (150,903) 26,143 59,813 (1,125) 58,688
Equity earnings in subsidiaries and
amortization of deferred gain...... 22,107 -- (8,008)HH -- -- --
(14,099)II
Interest (income) expense............ 26,919 15,283 (12,300)FF 24,453 (19,043)PP 5,410
(5,449)JJ
Writeoff of loan costs............... 8,967 -- -- 8,967 (8,967)QQ --
Loss on sale of property............. 1,631 -- -- 1,631 -- 1,631
-------- --------- ---------- -------- --------- --------
Income (loss) before income taxes...... 169,163 (166,186) 21,785 24,762 26,885 51,647
Provision for income taxes............. 83,200 14,347 (83,200)NN 12,115 13,174OO 25,289OO
(2,232)OO
-------- --------- ---------- -------- --------- --------
Net income (loss) before cumulative
effect of accounting change.......... 85,963 (180,533) 107,217 12,647 13,711 26,358
Cumulative effect of accounting change,
net of tax........................... -- -- -- -- -- --
-------- --------- ---------- -------- --------- --------
Net income (loss)...................... 85,963 (180,533) 107,217 12,647 13,711 26,358
Dividends to preferred
shareholders-A....................... 6,450 -- -- 6,450 -- 6,450
Dividends to preferred
shareholders-B....................... -- -- -- -- 42,525RR 48,192
5,667SS
-------- --------- ---------- -------- --------- --------
Net income (loss) available to common
shareholders......................... $ 79,513 $(180,533) $ 107,217 $ 6,197 $ (34,481) $(28,284)
======== ========= ========== ======== ========= ========
Net income (loss) per common share:
Basic................................ $ 0.70 n/a $ (0.24)
Diluted.............................. $ 0.69 n/a $ (0.24)
Weighted average common shares
outstanding, basic................... 114,003 2,639UU 116,642
Weighted average common shares
outstanding, diluted................. 114,547 2,639UU 116,642
(544)VV
</TABLE>
F-10
<PAGE> 138
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
AA Represents the sum of the combined operating companies' (CCA, PMSI and
JJFMSI) income statements prior to any eliminations or pro forma
adjustments as presented in the following Schedule of Operating
Companies Statements of Operations for the Nine Months Ended September
30, 1999.
BB For the nine months ended September 30, 1999, CCA had recognized a total
rent expense accrual of $56,948 related to recognizing the effects of
the annual minimum rent escalators contained in CCA's leases with Prison
Realty on a straight line basis over the life of the leases. This
adjustment reverses the effects of the rent expense accrual based on the
fourth quarter 1999 modifications to the annual rent escalators
contained in the leases between CCA and Prison Realty.
CC To eliminate the gross rental revenue recognized by Prison Realty and
the gross lease expense recognized by CCA pursuant to the lease
agreements between Prison Realty and CCA.
DD To eliminate the amortization of deferred fees paid by Prison Realty to
CCA pursuant to the Tenant Incentive Agreement, the Business Development
Agreement and the Services Agreement.
EE To eliminate the license fee revenue recognized by Prison Realty and the
license fee expense recognized by CCA related to licensing fees paid by
CCA to Prison Realty.
FF To eliminate the interest income recognized by Prison Realty and the
interest expense recognized by CCA related to the interest accrued on
the $137,000 CCA Note.
GG To eliminate the administrative fee revenue recognized by CCA and the
administrative fee expense recognized by PMSI and JJFMSI related to the
fees paid by PMSI and JJFMSI pursuant to the Administrative Services
Agreement.
HH To eliminate the amortization of deferred gains recognized by Prison
Realty related to gains deferred upon the December 31, 1998 sale of
management contracts and other assets by Prison Realty to CCA, PMSI and
JJFMSI.
II To eliminate the equity in earnings of PMSI and JJFMSI recognized by
Prison Realty.
JJ To reclassify Prison Realty's historical interest income to conform with
the adjusted pro forma presentation.
KK To remove the historical amortization of investment in contracts
previously recognized by CCA, PMSI and JJFMSI and to record the pro
forma amortization of investment in contracts based on the pro forma
investment in contracts balance of $90,214 amortized over the average
life (5 years) of the contracts acquired in the merger transactions.
LL To remove the historical depreciation expense recognized by Prison
Realty related to capitalized fees paid by Prison Realty to CCA during
1999.
MM To record the reduction in depreciation expense related to Prison
Realty's $76,433 write-down of certain USCC facility values as if the
write-down had occurred on January 1, 1999.
NN To remove the non-recurring effect of the historical write-off of Prison
Realty deferred tax assets occurring in January 1999.
OO To adjust Prison Realty's historical income tax provision to reflect the
pro forma effective tax rate.
F-11
<PAGE> 139
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 -- (CONTINUED)
PP To reflect the reduction in interest expense assuming Prison Realty
applied $215,000 of the proceeds from the $315,000 equity issuance
against Prison Realty's pro forma outstanding average debt balances
during the nine months ended September 30, 1999 as if the equity
issuance and payment of transaction costs had occurred on January 1,
1999. No interest income has been imputed on excess cash balances
resulting from the equity issuance. The reduction in interest expense is
composed of the following components:
<TABLE>
<S> <C>
Reduction in pro forma gross interest expense based on lower
outstanding average debt balances during the nine months
ended September 30, 1999 offset by the difference between
the historical and pro forma monthly loan cost
amortization and also offset by the difference between the
historical and pro forma weighted average interest
rates..................................................... $(15,321)
Increase in the capitalized interest based on the difference
between the historical and pro forma weighted average
interest rate applied to historical construction in
progress balances......................................... (2,617)
Decrease in the capitalized interest based on the difference
between the historical and pro forma construction in
progress balances resulting from the removal of
capitalized fees paid to CCA by Prison Realty during
1999...................................................... 2,135
Removal of historical non-recurring write-off of CCA's loan
costs resulting from debt refinancing by CCA during
1999...................................................... (3,240)
--------
Net pro forma reduction in interest expense............... $(19,043)
========
</TABLE>
On a pro forma combined basis for the nine months ended September 30,
1999, approximately $29,650 of the combined companies' $40,237 gross
interest expense would have been capitalized in construction in
progress.
QQ To remove the historical non-recurring write-off of Prison Realty's loan
costs resulting from debt refinancing by Prison Realty during 1999.
RR To record the effect of the Series B preferred dividends to be accrued
as a result of the issuance of $315,000 of Series B convertible
preferred stock as if the equity issuance had occurred on January 1,
1999. The terms of the Series B convertible preferred stock require the
dividend to be accrued at an 18% effective rate.
SS To record the accretion (using the effective interest method) of the
Series B convertible preferred stock to its redemption value of $315,000
over a six year period which represents the period to the earliest
redemption date of the Series B convertible preferred stock.
TT To record nine months of the annual monitoring expense of $1,500 to be
paid to the investors pursuant to the terms of the Securities Purchase
Agreement.
F-12
<PAGE> 140
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 -- (CONTINUED)
UU To adjust Prison Realty's outstanding shares for the effects of the new
common shares to be issued to CCA, PMSI and JJFMSI shareholders in the
merger transactions. The estimated number of Prison Realty common shares
to be issued is as follows:
<TABLE>
<S> <C>
Value of Prison Realty common shares to be issued........... $ 13,195
Estimated share price of Prison Realty common shares at the
time of issuance.......................................... $ 5.00
--------
Pro forma number of Prison Realty common shares to be issued
in the merger transactions................................ 2,639
========
</TABLE>
VV To remove the effects of the dilution resulting from historical
potentially issuable common shares. The provisions of SFAS No. 128
prohibit the inclusion of the effects of potentially issuable common
shares in periods that a company reports losses from continuing
operations. As such, the pro forma statement of operations for the
period ending September 30, 1999 does not include the effects of Prison
Realty's historical potentially issuable common shares nor the effects
of the potential conversion of the Series B convertible preferred stock.
WW Pursuant to the terms of the Securities Purchase Agreement, the
investors have agreed to purchase, at the election of Prison Realty, up
to $35,000 of additional Series B convertible preferred stock under the
same terms and conditions as the initial purchase of Series B
convertible preferred stock for $315,000. Prison Realty may request the
additional purchase to occur in one or more tranches at any time within
eighteen months from the date of the initial closing. Due to the
subjective nature of the additional purchase, Prison Realty has not
reflected the pro forma effects of the additional purchase of $35,000 of
additional Series B convertible preferred stock in these pro forma
financial statements.
Assuming Prison Realty had sold the additional preferred securities on
January 1, 1999, the pro forma effects to the September 30, 1999
Statement of Operations would be an additional Series B preferred
dividend of $4,725 or an additional loss per common share of $(0.04) for
basic and diluted earnings per share.
F-13
<PAGE> 141
SCHEDULE OF OPERATING COMPANIES STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINED
OPERATING
COMPANIES
TO BE
CCA PMSI JJFMSI ACQUIRED
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Revenues:
Management and other revenues.......... $ 365,222 $115,717 $ 98,267 $ 579,206
Rental revenues........................ -- -- -- --
Licensing fees......................... -- -- -- --
Interest income........................ -- -- -- --
--------- -------- -------- ---------
365,222 115,717 98,267 579,206
--------- -------- -------- ---------
Expenses:
Operating.............................. 267,559 92,406 73,853 433,818
Lease.................................. 246,604 163 1,697 248,464
General and administrative............. 18,220 2,676 2,721 23,617
Loan costs writeoff.................... -- -- -- --
Merger costs........................... -- -- -- --
CCA compensation charge................ -- -- -- --
Depreciation and amortization.......... 6,280 7,147 4,272 17,699
Trade name use......................... 6,511 -- -- 6,511
--------- -------- -------- ---------
545,174 102,392 82,543 730,109
--------- -------- -------- ---------
Operating income (loss).................. (179,952) 13,325 15,724 (150,903)
Equity earnings in subsidiaries and
amortization of deferred gain....... -- -- -- --
Interest (income) expense.............. 15,422 (78) (61) 15,283
Writeoff of loan costs................. -- -- -- --
Loss on sale of property............... -- -- -- --
--------- -------- -------- ---------
Income (loss) before income taxes........ (195,374) 13,403 15,785 (166,186)
Provision for income taxes............... -- 7,219 7,128 14,347
--------- -------- -------- ---------
Net income (loss) before cumulative
effect of accounting change............ (195,374) 6,184 8,657 (180,533)
Cumulative effect of accounting change,
net of tax............................. -- -- -- --
--------- -------- -------- ---------
Net income (loss)........................ (195,374) 6,184 8,657 (180,533)
Dividends to preferred shareholders-A.... -- -- -- --
Dividends to preferred shareholders-B.... -- -- -- --
--------- -------- -------- ---------
Net income (loss) available to common
shareholders........................... $(195,374) $ 6,184 $ 8,657 $(180,533)
========= ======== ======== =========
</TABLE>
F-14
<PAGE> 142
PRISON REALTY TRUST, INC.
(THE COMPANY)
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
EQUITY
CCA PRO FORMA PRISON ISSUANCE
PRISON REALTY PRISON REALTY ACQUISITION REALTY AND
CORP. TRUST (OLD AND TRUST, INC. FINANCING
(OLD CCA) PRISON REALTY) USCC ELIMINATION PRO FORMA ADJUSTMENTS
(HISTORICAL) (HISTORICAL) AAA ADJUSTMENTS SUB-TOTAL SSS
------------- -------------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Management and other.............. $662,059 $ -- $11,527 $ (3,082)DDD $670,504 $ --
Rental............................ -- 69,867 596 (66,716)BBB 3,747 --
Licensing fees.................... -- -- -- -- -- --
Interest income................... -- 796 -- (796)EEE -- --
-------- --------- ------- ---------- -------- ---------
662,059... 70,663 12,123 (70,594) 674,251 --
-------- --------- ------- ---------- -------- ---------
Expenses:
Operating 496,522 -- 9,436 -- 505,958 --
Lease............................. 58,018 -- 23 (66,716)BBB 4,648 --
13,323CCC
General and administrative........ 28,628 2,648 -- -- 31,276 1,500PPP
Loan costs writeoff............... 2,043 -- -- -- 2,043 (2,043)KKK
Merger costs...................... -- 8,530 -- (8,530)FFF -- --
CCA compensation charge........... 22,850 -- -- (22,850)GGG -- --
Depreciation and amortization..... 15,973 17,609 1,712 18,043HHH 57,325 (1,362)LLL
3,988III
Trade name use.................... -- -- -- -- -- --
-------- --------- ------- ---------- -------- ---------
624,034 28,787 11,171 (62,742) 601,250 (1,905)
-------- --------- ------- ---------- -------- ---------
Operating income (loss)............. 38,025 41,876 952 (7,852) 73,001 1,905
Equity earnings in subsidiaries... -- -- -- -- -- --
Interest (income) expense......... (4,380) 9,827 -- (796)EEE 4,651 (15,872)MMM
Writeoff of loan costs............ -- 2,559 -- -- 2,559 (2,559)KKK
Loss on sale of property.......... -- -- -- -- -- --
-------- --------- ------- ---------- -------- ---------
Income (loss) before income taxes... 42,405 29,490 952 (7,056) 65,791 20,336
Provision for income taxes.......... 15,424 -- -- 13,922JJJ 29,346 8,948JJJ
-------- --------- ------- ---------- -------- ---------
Net income (loss) before cumulative
effect of accounting change....... 26,981 29,490 952 (20,978) 36,445 11,388
Cumulative effect of accounting
change, net of tax................ 16,145 -- -- -- 16,145 --
-------- --------- ------- ---------- -------- ---------
Net income (loss)................... 10,836 29,490 952 (20,978) 20,300 11,388
Dividends to preferred
shareholders-A.................... -- 7,869 -- -- 7,869 --
Dividends to preferred
shareholders-B.................... -- -- -- -- -- 56,700NNN
7,556OOO
-------- --------- ------- ---------- -------- ---------
Net income (loss) available to
common shareholders............... $ 10,836 $ 21,621 $ 952 $ (20,978) $ 12,431 $ (52,868)
======== ========= ======= ========== ======== =========
Net income (loss) per common share:
Basic net income (loss) per common
share:
Before cumulative effect of
accounting change............. $ 0.38 $ 0.99
Cumulative effect of accounting
change........................ (0.23) --
-------- ---------
$ 0.15 $ 0.99
======== =========
Diluted net income (loss) per common
share:
Before cumulative effect of
accounting change............... $ 0.34 $ 0.98
Cumulative effect of accounting
change.......................... (0.20) --
-------- ---------
$ 0.14 $ 0.98
======== =========
Weighted average common shares
outstanding, basic................ 71,380 21,818 2,639QQQ
Weighted average common shares
outstanding, diluted.............. 78,939 22,103 2,639QQQ
(7,844)RRR
<CAPTION>
PRISON REALTY
TRUST, INC.
PRO FORMA
-------------
<S> <C>
Revenues:
Management and other.............. $670,504
Rental............................ 3,747
Licensing fees.................... --
Interest income................... --
--------
674,251
--------
Expenses:
Operating 505,958
Lease............................. 4,648
General and administrative........ 32,776
Loan costs writeoff............... --
Merger costs...................... --
CCA compensation charge........... --
Depreciation and amortization..... 55,963
Trade name use.................... --
--------
599,345
--------
Operating income (loss)............. 74,906
Equity earnings in subsidiaries... --
Interest (income) expense......... (11,221)
Writeoff of loan costs............ --
Loss on sale of property.......... --
--------
Income (loss) before income taxes... 86,127
Provision for income taxes.......... 38,294JJJ
--------
Net income (loss) before cumulative
effect of accounting change....... 47,833
Cumulative effect of accounting
change, net of tax................ 16,145
--------
Net income (loss)................... 31,688
Dividends to preferred
shareholders-A.................... 7,869
Dividends to preferred
shareholders-B.................... 64,256
--------
Net income (loss) available to
common shareholders............... $(40,437)
========
Net income (loss) per common share:
Basic net income (loss) per common
share:
Before cumulative effect of
accounting change............. $ (0.25)
Cumulative effect of accounting
change........................ (0.17)
--------
$ (0.42)
========
Diluted net income (loss) per common
share:
Before cumulative effect of
accounting change............... $ (0.25)
Cumulative effect of accounting
change.......................... (0.17)
--------
$ (0.42)
========
Weighted average common shares
outstanding, basic................ 95,837
Weighted average common shares
outstanding, diluted.............. 95,837
</TABLE>
F-15
<PAGE> 143
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
AAA Effective April 17, 1998, Old Prison Realty, Old CCA and USCC completed
a merger (the "USCC Merger") whereby Old Prison Realty acquired the
fixed assets of USCC and Old CCA acquired the operating contracts of
USCC. This entry reflects the pro forma effects of the USCC Merger as if
the USCC Merger had occurred on January 1, 1998. This entry includes the
pro forma effects of both the fixed asset acquisitions and the operating
contract acquisitions to Prison Realty's pro forma results of
operations. All non-operating pro forma effects of the USCC Merger
related to interest expense and income taxes have been included in the
Pro Forma Acquisition and Elimination Adjustments column.
BBB To eliminate the gross rental revenue recognized by Old Prison Realty
and the gross lease expense recognized by Old CCA pursuant to the lease
agreements between Old Prison Realty and Old CCA.
CCC To eliminate Old CCA's amortization of deferred gains related to the
September 1997 sale of certain facilities by Old CCA to Old Prison
Realty.
DDD To eliminate Old CCA's historical fee income recognized from service
fees received from Old Prison Realty for construction development
services provided during 1998.
EEE To reclassify Prison Realty's historical interest income to conform with
the adjusted pro forma presentation.
FFF To remove the effect of non-recurring expenses related to the January 1,
1999 merger between Prison Realty and Old Prison Realty recorded in the
statement of operations of Old Prison Realty.
GGG To remove the effect of non-recurring compensation expense recognized by
Old CCA during 1998 related to the issuance of Old CCA common stock
issued by Old CCA prior to the December 31, 1998 merger between Old CCA
and Prison Realty.
HHH To record the pro forma amortization of investment in contracts based on
the pro forma investment in contracts balance of $90,214 amortized over
the average life (5 years) of the contracts acquired in the merger
transactions.
III To record the pro forma increase to depreciation expense by the
following amounts:
<TABLE>
<S> <C>
Increase depreciation expense based on the APB Opinion No.
16 fixed asset increases resulting from Prison Realty's
January 1, 1999 acquisition of Old Prison Realty as if the
acquisition and related fixed asset increases had occurred
on January 1, 1998. Additional depreciation expense has
been included only for the periods during 1998 which the
respective fixed assets were in operation................. $ 7,729
Increase depreciation expense related to changing the
estimated useful lives of Old Prison Realty's machinery
and equipment from seven (7) years to five (5) years based
on Prison Realty's estimated lives for the same type
assets.................................................... 865
Decrease depreciation expense related to changing the
estimated useful lives of Old Prison Realty's buildings
from 40 years to 50 years based on Prison Realty's
estimated lives for the same type assets.................. (3,077)
Decrease depreciation expense related to Prison Realty's
$76,433 write-down of certain USCC facility values as if
the write-down had occurred on January 1, 1998............ (1,529)
-------
Net pro forma increase to depreciation expense.... $ 3,988
=======
</TABLE>
JJJ To adjust Prison Realty's historical income tax provision to reflect the
pro forma effective tax rate.
F-16
<PAGE> 144
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 -- (CONTINUED)
KKK To remove the historical non-recurring write-off of Old CCA and Old
Prison Realty loan costs resulting from debt refinancings by both Old
CCA and Old Prison Realty during 1998.
LLL To remove Old CCA's amortization of historical loan costs related to
CCA's historical credit facilities in place during 1998.
MMM To reflect the reduction in interest expense assuming Prison Realty
applied $215,000 of the proceeds from the $315,000 equity issuance
against Prison Realty's pro forma outstanding average debt balances
during the year ended December 31, 1998 as if the equity issuance and
payment of transaction costs had occurred on January 1, 1998. No
interest income has been imputed on excess cash balances resulting from
the equity issuance. The reduction in interest expense is composed of
the following components:
<TABLE>
<S> <C>
Reduction in pro forma gross interest expense based on lower
outstanding average debt balances during the year ended
December 31, 1998 offset by the difference between the
historical and the pro forma weighted average interest
rates..................................................... $ (8,078)
Increase in the capitalized interest based on the difference
between the historical and pro forma weighted average
interest rate applied to the combined historical
construction in progress balances of both Old CCA and Old
Prison Realty (including minor adjustments for the removal
of capitalized fees paid to Old CCA by Old Prison
Realty)................................................... (12,894)
Amortization of new debt issuance costs..................... 5,100
--------
Net pro forma reduction in interest expense.......... $(15,872)
========
</TABLE>
On a pro forma combined basis for the year ended December 31, 1998,
approximately $24,721 of the combined companies' $25,685 gross interest
expense would have been capitalized in construction in progress.
NNN To record the effect of the Series B preferred dividends to be accrued
as a result of the issuance of $315,000 of Series B convertible
preferred stock as if the equity issuance had occurred on January 1,
1998. The terms of the Series B convertible preferred stock require the
dividend to be accrued at an 18% effective rate.
OOO To record the accretion (using the effective interest method) of the
Series B convertible preferred stock to its redemption value of $315,000
over a six year period which represents the period to the earliest
redemption date of the Series B convertible preferred stock.
PPP To record the annual monitoring expense of $1,500 to be paid to the
investors pursuant to the terms of the Securities Purchase Agreement.
QQQ To adjust Prison Realty's outstanding shares for the effects of the new
common shares to be issued to CCA, PMSI and JJFMSI shareholders in the
merger transactions. The estimated number of Prison Realty common shares
to be issued is as follows:
<TABLE>
<S> <C>
Value of Prison Realty common shares to be issued........... $ 13,195
Estimated share price of Prison Realty common shares at the
time of issuance.......................................... $ 5.00
--------
Pro forma number of Prison Realty common shares to be issued
in the merger transactions................................ 2,639
========
</TABLE>
F-17
<PAGE> 145
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 -- (CONTINUED)
RRR To remove the effects of the dilution resulting from historical
potentially issuable common shares. The provisions of SFAS No. 128
prohibit the inclusion of the effects of potentially issuable common
shares in periods that a company reports losses from continuing
operations. As such, the pro forma statement of operations for the
period ending December 31, 1998 does not include the effects of Prison
Realty's historical potentially issuable common shares nor the effects
of the potential conversion of the Series B convertible preferred stock.
SSS Pursuant to the terms of the Securities Purchase Agreement, the
investors have agreed to purchase, at the election of Prison Realty, up
to $35,000 of additional Series B convertible preferred stock under the
same terms and conditions as the initial purchase of Series B
convertible preferred stock for $315,000. Prison Realty may request the
additional purchase to occur in one or more tranches at any time within
eighteen months from the date of the initial closing. Due to the
subjective nature of the additional purchase, Prison Realty has not
reflected the pro forma effects of the additional purchase of $35,000 of
additional Series B convertible preferred stock in these pro forma
financial statements.
Assuming Prison Realty had sold the additional preferred securities on
January 1, 1998, the pro forma effects to the December 31, 1998
Statement of Operations would be an additional Series B preferred
dividend of $6,300 or an additional loss per common share of $(0.07) for
basic and diluted earnings per share.
F-18
<PAGE> 146
APPENDIX A
SECURITIES PURCHASE AGREEMENT
BY AND AMONG
PRISON REALTY TRUST, INC.,
CORRECTIONS CORPORATION OF AMERICA,
PRISON MANAGEMENT SERVICES, INC.,
AND
JUVENILE AND JAIL FACILITY MANAGEMENT SERVICES, INC.,
ON THE ONE HAND,
AND
THE INVESTORS NAMED HEREIN,
ON THE OTHER HAND
DATED AS OF DECEMBER 26, 1999
-------------------------
SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
-------------------------
<PAGE> 147
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I -- AUTHORIZATION OF THE ISSUANCE AND SALE OF
SHARES AND ISSUANCE OF WARRANTS................
Section 1.1 Authorization................................
Section 1.2 Issuance and Sale............................
ARTICLE II -- CLOSINGS......................................
Section 2.1 Initial Closing Date.........................
Section 2.2 Standby Commitment Closing Date..............
Section 2.3 Further Assurances...........................
ARTICLE III.A -- REPRESENTATIONS AND WARRANTIES OF PRISON
REALTY....................................................
Section 3.A.1 Incorporation of Representations and
Warranties Contained in the Merger
Agreement..................................
Section 3.A.2 Authority..................................
Section 3.A.3 Consents and Approvals;
Non-Contravention......................................
Section 3.A.4 Enforceability of Transaction Documents....
Section 3.A.5 Registration and Qualification.............
Section 3.A.6 Provisions of Maryland Law.................
Section 3.A.7 Tax-Free Reorganization....................
ARTICLE III.B -- REPRESENTATIONS AND WARRANTIES OF CCA......
Section 3.B.1 Incorporation of Representations and
Warranties Contained in the Merger
Agreement..................................
Section 3.B.2 Authority..................................
Section 3.B.3 Consents and Approvals;
Non-Contravention......................................
Section 3.B.4 Enforceability of Transaction Documents....
ARTICLE III.C -- REPRESENTATIONS AND WARRANTIES OF SERVICE
COMPANY A..................................
Section 3.C.1 Incorporation of Representations and
Warranties Contained in the Merger
Agreement..................................
Section 3.C.2 Authority..................................
Section 3.C.3 Consents and Approvals;
Non-Contravention......................................
Section 3.C.4 Enforceability of Transaction Documents....
ARTICLE III.D -- REPRESENTATIONS AND WARRANTIES OF SERVICE
COMPANY B..................................
Section 3.D.1 Incorporation of Representations and
Warranties Contained in the Merger
Agreement..................................
Section 3.D.2 Authority..................................
Section 3.D.3 Consents and Approvals;
Non-Contravention......................................
Section 3.D.4 Enforceability of Transaction Documents....
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF THE
INVESTORS.................................................
Section 4.1 Investment...................................
Section 4.2 Rule 144.....................................
Section 4.3 Organization of the Investors................
Section 4.4 Current Ownership............................
Section 4.5 No Voting Agreements.........................
Section 4.6 Authority of the Investors...................
Section 4.7 Non-Contravention............................
</TABLE>
i
<PAGE> 148
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 4.8 Brokers and Finders..........................
ARTICLE V -- CONDITIONS PRECEDENT TO THE INITIAL CLOSING....
Section 5.1 Conditions to Each Party's Obligation........
Section 5.2 Conditions to the Investors' Obligation......
Section 5.3 Conditions to the Obligations of Each of the
Companies..............................................
ARTICLE VI -- CONDITIONS PRECEDENT TO THE STANDBY COMMITMENT
CLOSINGS......................................
Section 6.1 Conditions to Each Party's Obligation........
Section 6.2 Conditions to the Investors' Obligation......
Section 6.3 Conditions to the Obligations of Each of the
Companies..............................................
ARTICLE VII -- COVENANTS OF THE COMPANIES...................
Section 7.1 Conduct of Business Pending the Initial
Closing................................................
Section 7.2 Disclosure Documents; Stockholder
Approvals..............................................
Section 7.3 Payment of Expenses; Fees....................
Section 7.4 Availability of Prison Realty Common Stock...
Section 7.5 Reporting....................................
Section 7.6 No Solicitation of Competing Transactions....
Section 7.7 No General Solicitation......................
Section 7.8 Access to Information........................
Section 7.9 HSR Approval.................................
Section 7.10 Preemptive Rights...........................
Section 7.11 Registration Rights Agreement...............
Section 7.12 Corporate Governance........................
Section 7.13 Delivery of Documents.......................
Section 7.14 Review of Audit.............................
Section 7.15 Rights Offering.............................
Section 7.16 Investor Compliance With Regulatory
Requirements...........................................
Section 7.17 Notification of Certain Matters.............
Section 7.18 Name Change.................................
ARTICLE VIII -- COVENANTS OF THE INVESTORS..................
Section 8.1 Certain Restrictions.........................
Section 8.2 HSR Approval.................................
Section 8.3 Quorum.......................................
Section 8.4 Transfers....................................
Section 8.5 No Voting Agreements.........................
Section 8.6 Compliance With Organizational and Governing
Documents..............................................
Section 8.7 Confidentiality..............................
ARTICLE IX -- RESTRICTIONS ON TRANSFERABILITY OF
SECURITIES................................................
Section 9.1 Restrictive Legend...........................
Section 9.2 Notice of Proposed Transfers.................
ARTICLE X -- TERMINATION....................................
Section 10.1 Termination.................................
ARTICLE XI -- INDEMNIFICATION...............................
Section 11.1 Survival of Representation and Warranties...
Section 11.2 Indemnification.............................
Section 11.3 Terms of Indemnification....................
</TABLE>
ii
<PAGE> 149
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE XII -- MISCELLANEOUS................................
Section 12.1 Governing Law...............................
Section 12.2 Jurisdiction; Forum; Service of Process;
Waiver of Jury Trial...................................
Section 12.3 Successors and Assigns......................
Section 12.4 Entire Agreement; Amendment.................
Section 12.5 Notices, Etc................................
Section 12.6 Certain Definitions.........................
Section 12.7 Delays or Omissions.........................
Section 12.8 Counterparts................................
Section 12.9 Severability................................
Section 12.10 Titles and Subtitles.......................
Section 12.11 No Public Announcement.....................
Section 12.12 Further Actions; Reasonable Efforts........
Section 12.13 Enforcement of Agreement...................
</TABLE>
EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit A -- Agreement and Plan of Merger
Form of Articles of Amendment and Restatement of Prison
Exhibit B -- Realty
Exhibit C -- Form of Amended and Restated Bylaws of Prison Realty
Form of Articles Supplementary for Series B Cumulative
Exhibit D -- Convertible Preferred Stock
Exhibit E -- Form of Warrant
Form of Articles Supplementary for Series C Cumulative
Exhibit F -- Convertible Preferred Stock
Exhibit G -- Form of Registration Rights Agreement
Exhibit H -- Financing Commitment Letter
</TABLE>
SCHEDULES
<TABLE>
<S> <C> <C>
Schedule A -- Prison Realty's Disclosure Schedule
Schedule B -- CCA's Disclosure Schedule
Schedule C -- Service Company's A's Disclosure Schedule
Schedule D -- Service Company's B's Disclosure Schedule
Schedule E -- Investors' Disclosure Schedule
Schedule 1.1 -- Allocation of Shares
Schedule 4.8 -- Brokers and Finders
Schedule 5.2(i) -- Capital Expenditure Budget
Schedule 7.1 -- Description of Liability Insurance
Schedule 7.3(b) -- Allocation of Fees
Schedule 7.12 -- Directors' Resignation
</TABLE>
iii
<PAGE> 150
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is made as of December
26, 1999 by and among Prison Realty Trust, Inc., a Maryland corporation ("Prison
Realty"), Corrections Corporation of America, a Tennessee corporation ("CCA"),
Prison Management Services, Inc., a Tennessee corporation ("PMSI" or "Service
Company A"), and Juvenile and Jail Facility Management Services, Inc., a
Tennessee corporation ("JJFMSI" or "Service Company B", together with Prison
Realty, CCA, and PMSI are collectively referred to herein as the "Companies"),
on the one hand, and Prison Acquisition Company L.L.C., a Delaware limited
liability company, on the other hand. It is contemplated that between the date
hereof and the Initial Closing (as hereinafter defined), Prison Acquisition
Company L.L.C. will assign its rights and obligations under this Agreement to
the entities identified in Schedule 1.1 hereof or their affiliates, who together
with Prison Acquisition Company L.L.C. are collectively referred to herein as
the "Investors." References to this Agreement herein shall include each of the
Exhibits and Schedules attached hereto.
WHEREAS, as a condition to the completion of the Investment (as hereinafter
defined): (i) CCA will be merged with and into CCA Acquisition Sub, Inc., a
Tennessee corporation ("CCA Sub"); (ii) PMSI will be merged with and into PMSI
Acquisition Sub, Inc., a Tennessee corporation ("PMSI Sub"); and (iii) JJFMSI
will be merged with and into JJFMSI Acquisition Sub, Inc., a Tennessee
corporation ("JJFMSI Sub"), with each of CCA Sub, PMSI Sub and JJFMSI Sub being
a surviving entity and wholly owned subsidiary of Prison Realty (the
"Combination"), all pursuant to the terms and conditions of the Agreement and
Plan of Merger attached hereto as Exhibit A (the "Merger Agreement");
WHEREAS, contemporaneously with the effectiveness of the Combination,
Prison Realty will amend and restate its existing charter and bylaws as
substantially set forth in the forms of the Articles of Amendment and
Restatement of Prison Realty and Amended and Restated Bylaws of Prison Realty
attached hereto as Exhibit B and Exhibit C, respectively (the "New Prison Realty
Charter" and the "New Prison Realty Bylaws");
WHEREAS, in connection with the Combination, the existing indebtedness of
the Companies will be refinanced as described in Section 5.1(h) herein;
WHEREAS, promptly following the completion of the Combination, subject to
the terms and conditions hereof, at the Initial Closing (as hereinafter defined)
Prison Realty will issue and sell, and the Investors will purchase, an aggregate
of 12,600,000 shares of Prison Realty's Series B Cumulative Convertible
Preferred Stock, $0.01 par value per share ("Prison Realty Series B Preferred
Stock"), less the number of shares of Series C Preferred Stock subscribed for
and sold in the Rights Offering (as hereinafter defined), if any. The Prison
Realty Series B Preferred Stock shall be convertible into shares of Prison
Realty common stock, $0.01 par value per share ("Prison Realty Common Stock"),
and shall have the rights and preferences as set forth in the Articles
Supplementary attached hereto as Exhibit D (the "Prison Realty Series B Articles
Supplementary") (the shares of Prison Realty Series B Preferred Stock issued and
sold to, and purchased by, the Investors hereunder at the Initial Closing are
referred to herein as the "Initial Shares");
WHEREAS, in addition to the sale and the purchase of the Initial Shares,
promptly following the completion of the Combination, at the Initial Closing
Prison Realty will issue and sell to the Investors warrants to purchase that
number of shares equal to fourteen percent (14%) of the fully-diluted shares of
Prison Realty Common Stock after giving effect to the Combination, less the
number of shares of Prison Realty Common Stock subject to warrants purchased in
the Rights Offering (as hereinafter defined), if any, with such rights and terms
as set forth in the form of
A-1
<PAGE> 151
warrant attached hereto as Exhibit E (individually, a "Warrant," and,
collectively, the "Warrants") (the issuance and sale of the Initial Shares and
the Warrants to the Investors at the Initial Closing are referred to herein,
collectively, as the "Initial Investment");
WHEREAS, subject to the terms and conditions hereof and as set forth in
Section 7.15 of this Agreement, concurrently with the Prison Realty Stockholder
Approval (as defined in Section 5.1(c) herein), Prison Realty will extend the
Rights Offering (as hereinafter defined) to the holders of Prison Realty Common
Stock on the Rights Offering Record Date (as hereinafter defined) pursuant to
which such stockholders will be given the opportunity to purchase, on
substantially the same terms and conditions as granted to, and at the same
purchase price paid by, the Investors with respect to the Initial Investment,
units consisting of (i) rights to purchase an aggregate of 3,000,000 shares of
its Series C Cumulative Convertible Preferred Stock, $0.01 par value per share
(the "Prison Realty Series C Preferred Stock"), which shall be convertible into
shares of Prison Realty Common Stock and which shall have the other rights and
preferences as set forth in the Articles Supplementary attached hereto as
Exhibit F (the "Prison Realty Series C Articles Supplementary") (the shares of
Prison Realty Series C Preferred Stock issued and sold to the holders of Prison
Realty Common Stock pursuant to the Rights Offering are referred to herein as
the "Rights Offering Shares"), and (ii) warrants to purchase an aggregate of
that number of shares equal to three percent (3%) of the fully-diluted shares of
Prison Realty Common Stock after giving effect to the Combination, with such
rights and terms as are identical to the Warrants (individually, a "Rights
Offering Warrant," and, collectively, the "Rights Offering Warrants") (the units
consisting of rights to purchase the Rights Offering Shares and the Rights
Offering Warrants are referred to herein as the "Rights Offering Units);
WHEREAS, the Investors desire to provide Prison Realty with the right to
issue and sell to the Investors up to an additional 1,400,000 shares of Prison
Realty Series B Preferred Stock (the "Standby Commitment Shares") on the same
terms and conditions as granted to the Investors with respect to the Initial
Investment, and at a purchase price per share equal to the Initial Purchase
Price (as hereinafter defined) divided by the number of Initial Shares from time
to time during the period commencing on the date of the Initial Closing and
ending eighteen (18) months thereafter (the right of Prison Realty to issue and
sell the Standby Commitment Shares to the Investors is referred to herein as the
"Standby Commitment," and the issuance and sale of the Standby Commitment Shares
by Prison Realty to the Investors are referred to herein, collectively, as the
"Standby Commitment Investment") (the Initial Investment, including the Standby
Commitment Investment are referred to herein, collectively, as the "Investment")
(the Initial Shares issued and sold to the Investors together with any Standby
Commitment Shares that may be issued and sold to the Investors, are known
herein, collectively, as the "Shares");
WHEREAS, in connection with the sale and purchase of the Shares and the
Warrants, the Investors will have the benefit of the registration rights
provided for in the Registration Rights Agreement being executed simultaneously
herewith in the form attached hereto as Exhibit G (the "Registration Rights
Agreement");
WHEREAS, the Independent and Special Committees of the Board of Directors
of Prison Realty have (i) received a written opinion from their respective
financial advisor that the terms of the Investment are fair to Prison Realty and
the holders of the capital stock of Prison Realty from a financial point of
view, (ii) approved this Agreement, the Merger Agreement and resulting
Combination and the other transactions contemplated thereby, and (iii)
recommended that the same be approved by the full Board of Directors of Prison
Realty;
WHEREAS, the Board of Directors of Prison Realty has (i) received a written
opinion from its financial advisor that the terms of the Investment are fair to
Prison Realty and the holders of the
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<PAGE> 152
capital stock of Prison Realty from a financial point of view, (ii) approved
this Agreement, the Merger Agreement and resulting Combination and the other
transactions contemplated thereby, and (iii) resolved to recommend that the
stockholders of Prison Realty approve certain transactions related to the
Combination and the Initial Investment; and
WHEREAS, the Boards of Directors of each of CCA, Service Company A and
Service Company B have approved the Merger Agreement and the resulting
Combination and the transactions contemplated thereby and have resolved to
recommend that the same be approved by the shareholders of each respective
company.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE I
AUTHORIZATION OF THE ISSUANCE AND
SALE OF SHARES AND ISSUANCE OF WARRANTS
Section 1.1 Authorization.
(a) Subject to obtaining Prison Realty Stockholder Approval, as defined in
Section 5.1(c) herein, Prison Realty has authorized the issuance and sale to the
Investors at the Initial and Standby Commitment Closings, as defined in Sections
2.1 and 2.2 herein, respectively, of the Shares and the Warrants pursuant to the
terms and conditions of this Agreement.
(b) The number of Initial Shares to be sold and issued to the Investors in
the aggregate at the Initial Closing and the number of shares of Prison Realty
Common Stock to be issued upon the exercise of each Warrant (the "Warrant
Shares") shall be the amount set forth on Schedule 1.1 attached hereto, which
may be amended between the date hereof and the Initial Closing by the Investors
to reflect the allocation of Initial Shares and Warrants among various
affiliates of the Investors identified thereon.
(c) The number of Standby Commitment Shares to be sold and issued to each
Investor at each Standby Commitment Closing (as hereinafter defined) shall be an
amount equal to the amount requested to be sold at each Standby Closing and
shall be based on each Investor's respective percentage of the Initial
Investment as indicated on Schedule 1.1, as may be amended by the Investors from
time to time and prior to each Standby Commitment Closing pursuant to the terms
of this Agreement.
Section 1.2 Issuance and Sale.
(a) Upon the terms and subject to the conditions set forth herein, on the
Initial Closing Date, as defined in Section 2.1 herein, in reliance on the
representations and warranties of the Investors contained herein, Prison Realty
will issue and sell to the Investors and, in reliance on the representations and
warranties of the Companies contained herein, the Investors will purchase from
Prison Realty, the number of Initial Shares and Warrants at the Initial Closing
pursuant to Section 1.1 of this Agreement, for an aggregate purchase price of
$315 million, less the amount of gross proceeds received by Prison Realty from
the Rights Offering as contemplated in Section 7.15 hereof (the "Initial
Purchase Price").
(b) Upon the terms and subject to the conditions set forth herein, on each
Standby Commitment Closing Date, as defined in Section 2.2 herein, in reliance
on the representations and
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warranties of the Investors contained herein, Prison Realty will issue and sell
to each Investor and, in reliance on the representations and warranties of the
Companies contained herein, such Investor will purchase from Prison Realty, the
number of Standby Commitment Shares at each Standby Commitment Closing pursuant
to Section 1.1 of this Agreement, for a per share purchase price equal to the
Initial Purchase Price divided by the number of Initial Shares, which in the
aggregate will not exceed $35 million (the "Standby Commitment Purchase Price").
ARTICLE II
CLOSINGS
Section 2.1 Initial Closing Date. The closing of the purchase and sale of
the Initial Shares and the Warrants contemplated hereby (the "Initial Closing")
shall take place on such date and at such time as agreed to by the Companies and
the Investors, but in no event later than fifteen (15) business days following
the later of (i) the date of the Prison Realty Stockholder Approval, as defined
in Section 5.1(c), and (ii) the satisfaction or waiver of all of the conditions
set forth in Article V (the date of the Initial Closing is referred to herein as
the "Initial Closing Date"). The parties hereto agree that it is their mutual
intent for the Initial Closing Date to occur on or before April 15, 2000,
subject to the satisfaction or waiver of the conditions set forth in Article V.
The Initial Closing shall be held at the offices of Stokes & Bartholomew, P.A.,
424 Church Street, Suite 2800, Nashville, Tennessee on the Initial Closing Date,
or at such other place as mutually agreed to by the Companies and the Investors.
Delivery of the Initial Shares to be purchased by each Investor pursuant to
this Agreement shall be made at the Initial Closing by Prison Realty delivering
to such Investor, against payment of the Initial Purchase Price therefor, one
certificate representing the appropriate number of Initial Shares (registered in
the name of such Investor), unless at least three (3) business days prior to the
Initial Closing Date such Investor shall have requested that Prison Realty
deliver more than one certificate representing the appropriate number of Initial
Shares, in which event Prison Realty will deliver to such Investor the number of
certificates so requested, registered in the Investor's name.
Delivery of the Warrants to be issued to each Investor pursuant to this
Agreement shall be made at the Initial Closing by Prison Realty delivering to
such Investor, against payment of the Initial Purchase Price therefor, a Warrant
representing the right to purchase the appropriate number of shares of Prison
Realty Common Stock.
Payment of the Initial Purchase Price for the Initial Shares and the
Warrants to be purchased by each Investor hereunder shall be made or caused to
be made by such Investor to Prison Realty at the Initial Closing by delivery by
wire transfer of immediately available funds equal to the Initial Purchase Price
therefor.
Execution and delivery of the Registration Rights Agreement shall be made
at Initial Closing by Prison Realty and the Investors.
Section 2.2 Standby Commitment Closing Date. The closing of the purchase
and sale of the Standby Commitment Shares contemplated hereby (the "Standby
Commitment Closing") shall take place upon fifteen (15) business days written
notice given by Prison Realty at any time within eighteen (18) months of the
Initial Closing, subject to satisfaction or waiver of all of the conditions set
forth in Article VI (the date of the Standby Commitment Closing is hereinafter
referred to as the "Standby Commitment Closing Date"). The Standby Commitment
Closing shall be held at the offices of Stokes & Bartholomew, P.A., 424 Church
Street, Suite 2800, Nashville, Tennessee on the
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<PAGE> 154
Standby Commitment Closing Date, or at such other place as mutually agreed to by
the Companies and the Investors.
Section 2.3 Further Assurances.
(a) From time to time following the Initial Closing, upon the request of an
Investor, Prison Realty shall execute and deliver, or cause to be executed and
delivered, to such Investor such other instruments and take such other action as
may be reasonably necessary to more effectively vest in such Investor and put
such Investor in possession of the Initial Shares and Warrants issued by Prison
Realty and purchased by such Investor.
(b) From time to time following the Standby Commitment Closing, upon the
request of the Investor, Prison Realty shall execute and deliver, or cause to be
executed and delivered, to such Investor such other instruments and take such
other action as may be reasonably necessary to more effectively vest in such
Investor and put such Investor in possession of the Standby Commitment Shares
issued by Prison Realty and purchased by such Investor.
ARTICLE III.A
REPRESENTATIONS AND WARRANTIES OF PRISON REALTY
Except as set forth: (i) in the documents filed by Prison Realty with the
Securities and Exchange Commission (the "SEC"), including the exhibits and
schedules thereto and incorporated therein by reference, and publicly available
prior to the date hereof (the "SEC Reports"); and (ii) in the schedule delivered
by Prison Realty to the Investors and attached hereto as Schedule A ("Prison
Realty's Disclosure Schedule") (provided, however, that the description of the
items set forth in Prison Realty's Disclosure Schedule reasonably identifies and
relates to the matter being disclosed), Prison Realty hereby represents and
warrants to the Investors as follows:
Section 3.A.1 Incorporation of Representations and Warranties Contained in
the Merger Agreement. The representations and warranties of Prison Realty
contained in the Merger Agreement are incorporated herein, and made a part of,
this Agreement by this reference, as if fully set forth herein, and Prison
Realty hereby affirms those representations and warranties in Section 3.01 of
the Merger Agreement for the purposes of this Agreement and for the benefit of
the Investors hereunder.
Section 3.A.2 Authority.
(a) Prison Realty has all necessary corporate power and authority to enter
into this Agreement and the other agreements, documents and instruments to be
executed by Prison Realty in furtherance of the transactions contemplated hereby
and the agreements, the forms of which are attached hereto as exhibits (such
attached agreements, collectively with this Agreement, the "Transaction
Documents"), and to consummate the transactions contemplated hereby. The
execution and delivery of the Transaction Documents and the consummation by
Prison Realty of the transactions contemplated thereby have been duly authorized
by all necessary corporate action on the part of Prison Realty.
(b) The Shares and the Warrant Shares have been duly authorized by Prison
Realty, and the Shares and Warrant Shares, when issued, sold and delivered in
accordance with this Agreement and the Warrants, will be validly issued, fully
paid and nonassessable. There are no preemptive rights or other rights to
subscribe for or purchase securities existing with respect to the issuance and
sale of the Shares by Prison Realty pursuant to the Transaction Documents, other
than the preemptive rights granted to the Investors pursuant to Section 7.10
herein.
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(c) The Rights Offering Shares and the Rights Offering Warrant Shares have
been duly authorized by Prison Realty, and the Rights Offering Shares and Rights
Offering Warrant Shares, when issued, sold and delivered in accordance with this
Agreement and the Rights Offering Warrants, will be validly issued, fully paid
and nonassessable. There are no preemptive rights or other rights to subscribe
for or purchase securities existing with respect to the issuance and sale of the
Rights Offering Shares by Prison Realty pursuant to the Transaction Documents.
Section 3.A.3 Consents and Approvals; Non-Contravention. The execution and
delivery by Prison Realty of the Transaction Documents to which it is a party,
the performance of its obligations thereunder and the consummation by it of the
transactions contemplated thereby do not and will not (a) require the consent,
approval, authorization, order, registration, filing, qualification, license or
permit of or with any court or any government agency or body, domestic or
foreign, applicable to Prison Realty or any of its properties or assets, (b)
require the consent or approval of any party other than a regulatory agency or
body, (c) result in a breach of any of the terms and provisions of, or
constitute a default (or an event which with notice or lapse of time, or both,
would constitute a default) under, give rise to an acceleration, cancellation or
requirement for Prison Realty to prepay, redeem or otherwise repurchase any
securities or obligations under, or result in the creation or imposition of any
pledges, liens, claims, encumbrances, security interests, charges and options of
any nature whatsoever ("Liens") upon any property or assets of Prison Realty
pursuant to any agreement, instrument, franchise, license or permit to which
Prison Realty is a party or by which Prison Realty or its properties or assets
may be bound, (d) trigger any "change of control" repurchase obligations under
any of Prison Realty's outstanding indebtedness, or (e) violate any judgment,
decree, order, statute, rule or regulation of any court or any federal, state,
local or foreign government, court, administrative, regulatory or other
governmental agency, commission or authority or any non-governmental
self-regulatory agency, commission or authority (a "Governmental Entity") or
body applicable to Prison Realty or any of its respective properties or assets.
The execution, delivery and performance of the Transaction Documents by Prison
Realty and the consummation of the transactions contemplated thereby do not and
will not violate or conflict with any provision of the charter, bylaws or
similar governing documents of Prison Realty, as currently in effect. Except for
the Transaction Documents, Prison Realty is not restricted by the terms of any
indebtedness or other outstanding agreements from paying dividends on the Shares
in cash.
Section 3.A.4 Enforceability of Transaction Documents. This Agreement has
been, and each of the other Transaction Documents to be executed and delivered
by Prison Realty pursuant to this Agreement has been or will be, duly and
validly authorized, executed and delivered by Prison Realty and this Agreement
is, and such other Transaction Documents when so executed and delivered will be,
valid and binding obligations of Prison Realty, enforceable against it in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws from time to time affecting the enforcement of creditors' rights generally.
Section 3.A.5 Registration and Qualification.
(a) Assuming the accuracy of the representations and warranties made by the
Investors set forth in Article IV hereof, it is not necessary in connection with
the offer, sale and delivery of the Shares and Warrants to the Investors in the
manner contemplated by this Agreement to register the Shares, or the shares of
Prison Realty Common Stock issuable upon conversion of the Shares and the
exercise of the Warrants, under the Securities Act of 1933, as amended,
including the rules and regulations promulgated thereunder (the "Securities
Act"), or the securities laws of any state.
Section 3.A.6 Provisions of Maryland Law. The approval and authorization
of the Transaction Documents, and the purchase of the Initial Shares, the
Warrants, the Warrant Shares, the Standby
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Commitment Shares and the shares of Prison Realty Common Stock issuable upon
conversion of the Shares hereunder, by the Prison Realty Board of Directors
constitutes approval of the transactions for the purposes of Maryland law (or
similar laws of any jurisdiction applicable to the transactions contemplated
hereby) with respect to the acquisition of control shares of, and business
combinations with, Prison Realty.
Section 3.A.7 Tax-Free Reorganization. Each of the three mergers
comprising the Combination will qualify as a "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and none of the Companies or CCA Acquisition Sub, Inc., PMSI Acquisition Sub,
Inc. or JJFMSI Acquisition Sub, Inc., each a Tennessee corporation, has
recognized, or will recognize, any taxable gain, for United States federal
income tax purposes, as a result of the Combination.
ARTICLE III.B
REPRESENTATIONS AND WARRANTIES OF CCA
Except as set forth: (i) in the SEC Reports; and (ii) in the schedule
delivered by CCA to the Investors and attached hereto as Schedule B ("CCA's
Disclosure Schedule") (provided, however, that the description of the items set
forth in CCA's Disclosure Schedule reasonably identifies and relates to the
matter being disclosed), CCA hereby represents and warrants to the Investors as
follows:
Section 3.B.1 Incorporation of Representations and Warranties Contained in
the Merger Agreement. The representations and warranties of CCA contained in
the Merger Agreement are incorporated herein, and made a part of, this Agreement
by this reference, as if fully set forth herein, and CCA hereby affirms those
representations and warranties in Section 3.03 of the Merger Agreement for the
purposes of this Agreement and for the benefit of the Investors hereunder.
Section 3.B.2 Authority. CCA has all necessary corporate power and
authority to enter into this Agreement and the Transaction Documents, and to
consummate the transactions contemplated hereby. The execution and delivery of
the Transaction Documents and the consummation by CCA
of the transactions contemplated thereby have been duly authorized by all
necessary corporate action on the part of CCA.
Section 3.B.3 Consents and Approvals; Non-Contravention. The execution and
delivery by CCA of the Transaction Documents to which it is a party, the
performance of its obligations thereunder and the consummation by it of the
transactions contemplated thereby do not and will not (a) require the consent,
approval, authorization, order, registration, filing, qualification, license or
permit of or with any court or any government agency or body, domestic or
foreign, applicable to CCA or any of its properties or assets, (b) require the
consent or approval of any party other than a regulatory agency or body, (c)
result in a breach of any of the terms and provisions of, or constitute a
default (or an event which with notice or lapse of time, or both, would
constitute a default) under, or result in the creation or imposition of any
Liens upon any property or assets of CCA pursuant to any agreement, instrument,
franchise, license or permit to which CCA is a party or by which CCA or its
properties or assets may be bound or (d) violate any judgment, decree, order,
statute, rule or regulation of any court or Governmental Entity or body
applicable to CCA or any of its respective properties or assets. The execution,
delivery and performance of the Transaction Documents by CCA and the
consummation of the transactions contemplated thereby do not and will not
violate or conflict with any provision of the charter, bylaws or similar
governing documents of CCA, as currently in effect.
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Section 3.B.4 Enforceability of Transaction Documents. This Agreement has
been, and each of the other Transaction Documents to be executed and delivered
by CCA pursuant to this Agreement has been or will be, duly and validly
authorized, executed and delivered by CCA, and this Agreement is, and such other
Transaction Documents when so executed and delivered will be, valid and binding
obligations of CCA, enforceable against it in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws from time to time
affecting the enforcement of creditors' rights generally.
ARTICLE III.C
REPRESENTATIONS AND WARRANTIES OF SERVICE COMPANY A
Except as set forth: (i) in the SEC Reports; and (ii) in the schedule
delivered by Service Company A to the Investors and attached hereto as Schedule
C ("Service Company A's Disclosure Schedule") (provided, however, that the
description of the items set forth in Service Company A's Disclosure Schedule
reasonably identifies and relates to the matter being disclosed), Service
Company A hereby represents and warrants to the Investors as follows:
Section 3.C.1 Incorporation of Representations and Warranties Contained in
the Merger Agreement. The representations and warranties of Service Company A
contained in the Merger Agreement are incorporated herein, and made a part of,
this Agreement by this reference, as if fully set forth herein, and Service
Company A hereby affirms those representations and warranties in Section 3.04 of
the Merger Agreement for the purposes of this Agreement and for the benefit of
the Investors hereunder.
Section 3.C.2 Authority. Service Company A has all necessary corporate
power and authority to enter into this Agreement and the Transaction Documents,
and to consummate the transactions contemplated hereby. The execution and
delivery of the Transaction Documents and the consummation by Service Company A
of the transactions contemplated thereby have been duly authorized by all
necessary corporate action on the part of Service Company A.
Section 3.C.3 Consents and Approvals; Non-Contravention. The execution and
delivery by Service Company A of the Transaction Documents to which it is a
party, the performance of its obligations thereunder and the consummation by it
of the transactions contemplated thereby do not and will not (a) require the
consent, approval, authorization, order, registration, filing, qualification,
license or permit of or with any court or any government agency or body,
domestic or foreign, applicable to Service Company A or any of its properties or
assets, (b) require the consent or approval of any party other than a regulatory
agency or body, (c) result in a breach of any of the terms and provisions of, or
constitute a default (or an event which with notice or lapse of time, or both,
would constitute a default) under, or result in the creation or imposition of
any Liens upon any property or assets of Service Company A pursuant to any
agreement, instrument, franchise, license or permit to which Service Company A
is a party or by which Service Company A or its properties or assets may be
bound or (d) violate any judgment, decree, order, statute, rule or regulation of
any court or Governmental Entity or body applicable to Service Company A or any
of its respective properties or assets. The execution, delivery and performance
of the Transaction Documents by Service Company A and the consummation of the
transactions contemplated thereby do not and will not violate or conflict with
any provision of the Articles of Incorporation, bylaws or similar governing
documents of Service Company A, as currently in effect.
Section 3.C.4 Enforceability of Transaction Documents. This Agreement has
been, and each of the other Transaction Documents to be executed and delivered
by Service Company A pursuant to
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this Agreement has been or will be, duly and validly authorized, executed and
delivered by Service Company A and this Agreement is, and such other Transaction
Documents when so executed and delivered will be, valid and binding obligations
of Service Company A, enforceable against it in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws from time to time
affecting the enforcement of creditors' rights generally.
ARTICLE III.D
REPRESENTATIONS AND WARRANTIES OF SERVICE COMPANY B
Except as set forth: (i) in the SEC Reports; and (ii) in the schedule
delivered by Service Company B to the Investors and attached hereto as Schedule
D ("Service Company B's Disclosure Schedule") (provided, however, that the
description of the items set forth in Service Company B's Disclosure Schedule
reasonably identifies and relates to the matter being disclosed), Service
Company B hereby represents and warrants to the Investors as follows:
Section 3.D.1 Incorporation of Representations and Warranties Contained in
the Merger Agreement. The representations and warranties of Service Company B
contained in the Merger Agreement are incorporated herein, and made a part of,
this Agreement by this reference, as if fully set forth herein, and Service
Company B hereby affirms those representations and warranties in Section 3.05 of
the Merger Agreement for the purposes of this Agreement and for the benefit of
the Investors hereunder.
Section 3.D.2 Authority. Service Company B has all necessary corporate
power and authority to enter into this Agreement and the Transaction Documents,
and to consummate the transactions contemplated hereby. The execution and
delivery of the Transaction Documents and the consummation by Service Company B
of the transactions contemplated thereby have been duly authorized by all
necessary corporate action on the part of Service Company B.
Section 3.D.3 Consents and Approvals; Non-Contravention. The execution and
delivery by Service Company B of the Transaction Documents to which it is a
party, the performance of its obligations thereunder and the consummation by it
of the transactions contemplated thereby do not and will not (a) require the
consent, approval, authorization, order, registration, filing, qualification,
license or permit of or with any court or any government agency or body,
domestic or foreign, applicable to Service Company B or any of its properties or
assets, (b) require the consent or approval of any party other than a regulatory
agency or body, (c) result in a breach of any of the terms and provisions of, or
constitute a default (or an event which with notice or lapse of time, or both,
would constitute a default) under, or result in the creation or imposition of
any Liens upon any property or assets of Service Company B pursuant to any
agreement, instrument, franchise, license or permit to which Service Company B
is a party or by which Service Company B or its properties or assets may be
bound or (d) violate any judgment, decree, order, statute, rule or regulation of
any court or Governmental Entity or body applicable to Service Company B or any
of its respective properties or assets. The execution, delivery and performance
of the Transaction Documents by Service Company B and the consummation of the
transactions contemplated thereby do not and will not violate or conflict with
any provision of the charter, bylaws or similar governing documents of Service
Company B, as currently in effect.
Section 3.D.4 Enforceability of Transaction Documents. This Agreement has
been, and each of the other Transaction Documents to be executed and delivered
by Service Company B pursuant to this Agreement has been or will be, duly and
validly authorized, executed and delivered by Service
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Company B and this Agreement is, and such other Transaction Documents when so
executed and delivered will be, valid and binding obligations of Service Company
B, enforceable against it in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws from time to time affecting the
enforcement of creditors' rights generally.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Except as set forth in the schedule delivered by the Investors to the
Companies and attached hereto as Schedule E ("Investors' Disclosure Schedule")
(provided, however, that description of the items set forth in Investor's
Disclosure Schedule reasonably identifies and relates to the matter being
disclosed), each Investor, severally but not jointly with the other Investors,
hereby represents and warrants with respect to itself to each of the Companies
as follows:
Section 4.1 Investment.
(a) Such Investor is acquiring the Initial Shares, the Warrants and the
shares of Prison Realty Common Stock issuable upon conversion of the Initial
Shares and the exercise of the Warrants, and if purchased or acquired, the
Standby Commitment Shares, and the shares of Prison Realty Common Stock issuable
upon conversion of the Standby Commitment Shares, for investment for its own
account, and not with a view to any resale or distribution thereof in violation
of the securities laws. Subject to the terms of the Registration Rights
Agreement, such Investor understands that the Initial Shares, the Warrants and
the Warrant Shares, and if purchased or acquired, the Standby Commitment Shares
have not and will not be registered under the Securities Act by reason of
specific exemptions therefrom which depend upon, among other things, the bona
fide nature of the investment intent and the accuracy of such Investor's
representations as expressed herein.
(b) Such Investor's financial condition and investments are such that it is
in a position to hold the Initial Shares, the Warrants and the shares of Prison
Realty Common Stock issuable upon conversion of the Initial Shares and the
exercise of the Warrants, and if purchased or acquired, the Standby Commitment
Shares and the shares of Prison Realty Common Stock issuable upon conversion of
the Standby Commitment Shares for an indefinite period, bear the economic risks
of the investment and withstand the complete loss of the investment. Such
Investor has extensive knowledge and experience in financial and business
matters and has the capability to evaluate the merits and risks of such Initial
Shares, the shares of Prison Realty Common Stock issuable upon conversion of the
Initial Shares, and the Warrant Shares; and the merits and risks of such Standby
Commitment Shares, the shares of Prison Realty Common Stock issuable upon
conversion of the Standby Commitment Shares. Such Investor qualifies as (i) an
"accredited investor" as such term is defined in Section 2(15) of the Securities
Act and Regulation D promulgated thereunder or (ii) a "qualified institutional
buyer" as defined in Rule 144A under the Securities Act.
Section 4.2 Rule 144. Such Investor acknowledges that the (i) Initial
Shares, the Warrant Shares and the shares of Prison Realty Common Stock issuable
upon conversion of the Initial Shares, and (ii) the Standby Commitment Shares
and the shares of Prison Realty Common Stock issuable upon conversion of the
Standby Commitment Shares to be purchased by such Investor must be held
indefinitely unless subsequently registered under the Securities Act or any
applicable state securities laws or unless exemptions from such registrations
are available. Such Investor is aware of and familiar with the provisions of
Rule 144 promulgated under the Securities Act which permit limited resale of
securities purchased in a private placement subject to the satisfaction of
certain conditions.
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Section 4.3 Organization of the Investors. Such Investor is duly organized
and validly existing under the laws of the jurisdiction of its organization.
Section 4.4 Current Ownership. Except as set forth in the Investors'
Disclosure Schedule and except for those certain warrants to purchase shares of
common stock of CCA held by Bank of America, N.A. and previously disclosed to
the Companies, as of the date hereof, such Investor represents that it does not
beneficially own any capital stock of the Companies.
Section 4.5 No Voting Agreements. Except as contemplated by the letter
dated of even date herewith among certain Investors (a copy of which has been
provided to the Companies), such Investors have not entered into any voting
agreement relating to the Initial Shares, the Warrant Shares, or the shares of
Prison Realty Common Stock to be issued upon the Initial Shares' conversion or
the Standby Commitment Shares or the shares of Prison Realty Common Stock to be
issued upon the Standby Commitment Shares' conversion prior to the date hereof.
Section 4.6 Authority of the Investors.
(a) Such Investor has the power and authority to execute and deliver this
Agreement, to consummate the transactions contemplated hereby and to comply with
the terms, conditions and provisions hereof applicable to such Investor.
(b) The execution, delivery and performance of this Agreement by such
Investor has been duly authorized and approved by such Investor and does not
require any further authorization or consent of such Investor or its beneficial
owners. This Agreement is the legal, valid and binding agreement of such
Investor, enforceable against such Investor in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws from time to time affecting the
enforcement of creditors' rights generally.
Section 4.7 Non-Contravention. The execution, delivery and performance of
this Agreement by such Investor and the consummation of any of the transactions
contemplated hereby by such Investor will not (a) conflict with or result in a
breach of any of the terms and provisions of, or constitute a default (or an
event which with notice or lapse of time, or both, would constitute a default)
under, or result in the creation or imposition of any Lien, charge or
encumbrance upon any property or assets of such Investor pursuant to any
agreement, instrument, franchise, license or permit to which such Investor is a
party or by which any of its properties or assets may be bound or (b) violate or
conflict with any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body applicable to
such Investor or any of its properties or assets, other than such breaches,
defaults or violations that are not reasonably expected to impair the ability of
such Investor to consummate the transactions contemplated by this Agreement. The
execution, delivery and performance of this Agreement by such Investor and the
consummation of the transactions contemplated hereby by such Investor does not
and will not violate or conflict with any provision of the organizational
documents of the Investor, as currently in effect. Except for filings under the
HSR Act (as defined in Section 5.1(a) herein), no consent, approval,
authorization, order, registration, filing, qualification, license or permit of
or with any court or any government agency or body applicable to such Investor
is required for the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby.
Section 4.8 Brokers and Finders. No agent, broker, investment banker,
financial advisor or other firm or person engaged by or on behalf of such
Investor is or will be entitled to any broker's or finder's fee or any other
commission or similar fee in connection with any of the transactions
contemplated by the Transaction Documents, except for those firms and/or persons
set forth on Schedule 4.8 attached hereto pursuant to the terms described
therein.
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ARTICLE V
CONDITIONS PRECEDENT TO INITIAL CLOSING
Section 5.1 Conditions to Each Party's Obligation. The respective
obligation of each party to consummate the transactions contemplated hereby with
respect to the Initial Investment shall be subject to the satisfaction at or
prior to the Initial Closing of each of the following conditions:
(a) HSR Approval. The applicable waiting period (and any extension
thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), relating to the transactions contemplated by the
Transaction Documents shall have been terminated or shall have expired.
(b) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction (collectively, "Restraints") preventing consummation
of any of the transactions contemplated hereby shall be in effect.
(c) Prison Realty Stockholder Approval. The approval of holders of
the requisite number of the shares of Prison Realty Common Stock
outstanding on the record date (the "Record Date") for Prison Realty's
Stockholders Meeting, as defined in Section 7.2(a)(ii), shall have been
received for: (i) the election by Prison Realty not to qualify as a real
estate investment trust (a "REIT") under the Code, commencing with its
taxable year ending December 31, 1999; (ii) the adoption of amendments to
Prison Realty's charter as set forth in the New Prison Realty Charter; and
(iii) the Transaction Documents (including without limitation to the
issuance of the Shares and the Warrants and the changes to the Board of
Directors of Prison Realty), all in accordance with the requirements of
Prison Realty's charter and bylaws, the provisions of Maryland law and the
rules of the New York Stock Exchange (the "NYSE") (the "Prison Realty
Stockholder Approval").
(d) CCA Stockholder Approval. The approval of holders of the
requisite number of the shares of CCA capital stock outstanding on the
Record Date for CCA's Stockholders' Meeting, as defined in Section
7.2(a)(ii) herein, including the individual approval of the Baron Asset
Fund ("Baron"), shall have been received for the Combination in accordance
with the requirements of CCA's charter and bylaws and the provisions of
Tennessee law and the contractual agreement by and between CCA and Baron
(the "CCA Stockholder Approval").
(e) Service Company A Stockholder Approval. The approval of holders
of the requisite number of the shares of Service Company A's voting common
stock outstanding on the Record Date for Service Company A's Stockholders'
Meeting, as defined in Section 7.2(a)(ii) herein, shall have been received
for the Combination in accordance with the requirements of Service Company
A's charter and bylaws and the provisions of Tennessee law (the "Service
Company A Stockholder Approval").
(f) Service Company B Stockholder Approval. The approval of holders
of the requisite number of the shares of Service Company B's voting common
stock outstanding on the Record Date for Service Company B's Stockholders'
Meeting, as defined in Section 7.2(a)(ii) herein, shall have been received
for the Combination in accordance with the requirements of Service Company
B's charter and bylaws and the provisions of Tennessee law (the "Service
Company B Stockholder Approval", together with the Prison Realty
Stockholder Approval, the CCA Stockholder Approval and the Service Company
A Stockholder Approval, the "Stockholder Approval").
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(g) Combination. Pursuant to the Merger Agreement, the Combination
shall have been completed in accordance with its terms, including the
fulfillment of the condition therein that immediately prior to the
completion of the Combination, Prison Realty shall purchase the shares of
common stock of CCA held by each of Sodexho Alliance, S.A. and Baron and
shares of the common stock of Service Company A and Service Company B held
by third-party investors.
(h) Financing. Prison Realty, on behalf of itself and as the
successor or parent to CCA, Service Company A and Service Company B after
the completion of the Combination, shall have entered into definitive
agreements with respect to a new senior financing in the aggregate amount
of $1.2 billion, including (i) up to $1.2 billion under a Senior Secured
Credit Facility (the "Bank Facility"), and (ii) the issuance and sale of up
to $375 million of Senior Subordinated Notes, all substantially on the
terms set forth in or contemplated by that certain commitment letter as of
the date hereof from Credit Suisse First Boston and attached hereto as
Exhibit H (the "Commitment Letter"), all in such forms as are reasonably
acceptable to the Companies and the Investors. The initial fundings under
such facilities and securities offering shall have occurred and the
proceeds of such fundings, together with the proceeds from the issuance of
the Initial Shares, shall be applied as specified in such Commitment Letter
or otherwise agreed to by Prison Realty and the Investors.
(i) Registration of Prison Realty Capital Stock. The shares of Prison
Realty capital stock to be issued in the Combination and the Rights
Offering shall be subject to a registration statement which shall have been
declared effective by the SEC, and no stop order suspending the
effectiveness of the registration statement shall be in effect and no
proceedings for such purpose shall be pending before or threatened by the
SEC.
(j) NYSE Listing. The shares of Prison Realty Common Stock issued in
the Combination shall have been approved for listing on the NYSE, subject
to official notice of issuance, if applicable.
Section 5.2 Conditions to the Investors' Obligation. The obligation
of each of the Investors to consummate the transactions contemplated hereby
with respect to the Initial Investment shall be subject to the satisfaction
at or prior to the Initial Closing of each of the following conditions:
(a) Representations And Warranties. The representations and
warranties of each of the Companies set forth in this Agreement or
incorporated herein by reference shall be true and correct, except that
this condition shall be deemed satisfied so long as any failures of such
representations and warranties to be true and correct do not individually
or in the aggregate have a Material Adverse Effect on the Companies and
their Subsidiaries, taken as a whole, as of the date of this Agreement and
as of the Initial Closing Date (it being understood that a material
misrepresentation with respect to Section 3.01(c) of the Merger Agreement
("Capital Structure of Prison Realty") would for purposes of this condition
be deemed to constitute a Material Adverse Effect), except as otherwise
contemplated by this Agreement, and the Investors shall have received a
certificate to such effect signed on the Initial Closing Date on behalf of
the Companies by their respective Chief Executive Officer and Chief
Financial Officer or Treasurer, in form and substance reasonably
satisfactory to the Investors, to the foregoing effect.
(b) Performance of Obligations. Each of the Companies shall have
performed in all material respects all obligations required to be performed
by them under this Agreement at or prior to the Initial Closing and the
Companies shall have delivered to the Investors at the Initial Closing a
certificate signed by their respective Chief Executive Officer and Chief
Financial Officer or Treasurer, dated the Initial Closing Date, in form and
substance reasonably satisfactory to the Investors, to the foregoing
effect.
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(c) Receipt of Consents. Each of the Companies shall have obtained
the consents contemplated by Section 5.2(c) of their respective Disclosure
Schedules (or not include therein, but required to be so included) and a
copy of each such consent or evidence thereof reasonably satisfactory to
the Investors shall have been provided to the Investors at or prior to the
Initial Closing.
(d) Material Adverse Change. Since the date of this Agreement, there
shall not have occurred any event that could reasonably be expected to have
a Material Adverse Effect (or development that is reasonably likely to
result in any Material Adverse Effect) on the Companies and their
subsidiaries, taken as a whole, and each of the Companies shall deliver to
the Investors at the Initial Closing a certificate signed by its respective
Chief Executive Officer, dated as of the Initial Closing Date, to the
foregoing effect.
(e) Audit. Each of the Companies shall have delivered consolidated
financial statements for the year ended December 31, 1999 (collectively,
the "1999 Financial Statements") audited by Arthur Andersen LLP, each of
the respective Companies' independent auditors, which shall comply as to
form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, which
have been prepared in accordance with generally accepted accounting
principles ("GAAP") and which fairly present the consolidated financial
position of the Companies and the consolidated results of operations and
cash flows for the period then ended. Except as required by changes in GAAP
or law or regulations or as disclosed in the SEC Reports filed prior to the
date of this Agreement or as otherwise agreed to by the Investors (such
agreement not to be unreasonably withheld to the extent that such changes
in methods of accounting or underlying assumptions are required by the
Combination), the 1999 Financial Statements shall not reflect any change in
any of the methods of accounting or underlying assumptions (including but
not limited to any change in the method of reporting income and deductions
for federal income tax purposes) from those employed in the preparation of
the Companies' financial statements for the year ended December 31, 1998.
(f) No Defaults. Except as disclosed in Section 5.2(f) of their
respective Disclosure Schedules, none of the Companies or the Subsidiaries
shall be in violation or default under any provision of their charter,
by-laws or other organizational documents, or shall be in breach of or
default with respect to any provision of any agreement, judgment, decree,
order, mortgage, deed of trust, lease, franchise, license, indenture,
permit or other instrument to which it is a party or by which it or any of
its properties or assets are bound; and there shall not exist any state of
facts which would constitute an event of default on the part of any of the
Companies or the Subsidiaries as defined in such documents which, with
notice or lapse of time or both, would constitute a default.
(g) Opinions of Counsel. The Investors shall have received at the
Initial Closing opinions, dated the Initial Closing Date, of counsel to the
Companies, in form and substance reasonably satisfactory to the Investors.
(h) The New Prison Realty Charter and the New Prison Realty Bylaws
shall be in effect and Prison Realty shall have obtained the resignations
of the directors listed on Schedule 7.12 hereof effective as of the Initial
Closing and shall have appointed the initial Series B Preferred Stock
Directors to the Board of Directors subject to the occurrence of the
Initial Closing.
(i) Certain Financial Tests. The combined consolidated earnings
before interest, taxes, depreciation and amortization ("EBITDA") of the
Companies determined in accordance with GAAP consistently applied (but
without giving effect to extraordinary income or expense) shall have been
not less than $44.3 million for the fiscal quarter ended immediately
preceding the
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Initial Closing (the "EBITDA tests"). The Consolidated Net Debt of the
Companies (as hereinafter defined) shall not exceed $987 million as of the
end of the fifth business day prior to the Initial Closing. "Consolidated
Net Debt of the Companies" shall mean the sum of (i) the principal amount
of and all obligations for payment then due under any outstanding
indebtedness of the Companies for borrowed money excluding the 12% Senior
Notes due 2006, the 9.5% Convertible Subordinated Notes due 2008, the 7.5%
Convertible Subordinated Notes due 2005, and indebtedness among the
Companies plus (ii) the unexpended portion, if any, of the capital
expenditure budget described on Schedule 5.2(i) as having been budgeted to
be spent prior to the date of this calculation, minus the lesser of cash on
hand and $10 million. Not less than five business days prior to the Initial
Closing, the Companies shall have delivered to the Investors schedules in
form and substance satisfactory to the Investors and their independent
accountants showing the calculation of the EBITDA Tests and the
Consolidated Net Debt of the Companies, together with a certificate signed
by each of the Companies' respective Chief Financial Officers to the effect
that this condition has been satisfied.
(j) Either the litigation described in Section 7(b)(iv) of the Prison
Realty Series B Articles Supplementary existing on the date hereof
(including for such purposes successor lawsuits or new lawsuits arising out
of the same facts and circumstances) shall have been finally settled on
terms and conditions satisfactory to the Investors, or the insurance
described in Schedule 7.1 hereof shall have been obtained and remain in
full force and effect at the Initial Closing. As used in this Section
5.2(j), "finally settled" shall mean that all parties to the litigation
shall have entered into a settlement agreement, that all relevant courts
shall have approved the settlement, and that the terms of the settlement
shall no longer be subject to appeal, or that such litigation shall have
been dismissed with prejudice by a court of competent jurisdiction and such
dismissal shall not be subject to appeal.
Section 5.3 Conditions to the Obligations of Each of the Companies. The
respective obligation of each of the Companies to consummate the transactions
contemplated hereby with respect to the Initial Investment shall be subject to
the satisfaction at or prior to the Initial Closing of each of the following
conditions:
(a) Representations and Warranties. The representations and
warranties of each of the Investors set forth in this Agreement shall be
true and correct, except that this condition shall be deemed satisfied so
long as any failures of such representations and warranties to be true and
correct do not individually or in the aggregate have a Material Adverse
Effect on the Investors, taken as a whole, as of the date of this Agreement
and as of the Initial Closing Date, except as otherwise contemplated by
this Agreement, and the Companies shall have each received a certificate to
such effect signed on the Initial Closing Date on behalf of each Investor
by their respective Chief Executive Officer and Chief Financial Officer or
Treasurer, in form and substance reasonably satisfactory to the Companies,
to the foregoing effect.
(b) Performance of Obligations. The Investors shall have performed in
all material respects all obligations required to be performed by any of
them under this Agreement at or prior to the Initial Closing and each of
the Investors shall have delivered to the Companies at the Initial Closing
a certificate signed by its Chief Executive Officer and Chief Financial
Officer or Treasurer, dated the Initial Closing Date, in form and substance
reasonably satisfactory to Prison Realty, to the foregoing effect.
(c) Opinion of Counsel. The Companies shall have received at the
Initial Closing opinions, dated the Initial Closing Date, of counsel to the
Investors, in form and substance reasonably satisfactory to the Companies.
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ARTICLE VI
CONDITIONS PRECEDENT TO THE STANDBY COMMITMENT CLOSINGS
Section 6.1 Conditions to Each Party's Obligation. The respective
obligation of each party to consummate the transactions contemplated hereby with
respect to the Standby Commitment Investment only shall be subject to the
satisfaction at or prior to each Standby Commitment Closing of each of the
following conditions:
(a) Initial Investment. Pursuant to the terms of this Agreement, the
Initial Investment shall have been completed in accordance with its terms.
(b) No Injunctions or Restraints. No temporary Restraints preventing
consummation of any of the transactions contemplated hereby shall be in
effect.
Section 6.2 Conditions to the Investors' Obligation. The obligation of
each of the Investors to consummate the transactions contemplated hereby with
respect to the Standby Commitment Investment only shall be subject to the
satisfaction at or prior to each Standby Commitment Closing of each of the
following conditions:
(a) Representations And Warranties. The representations and
warranties of each of the Companies set forth in this Agreement or
incorporated herein by reference shall be true and correct, except that
this condition shall be deemed satisfied so long as any failures of such
representations and warranties to be true and correct do not individually
or in the aggregate have a Material Adverse Effect on the Companies and
their Subsidiaries, taken as a whole, as of the date of this Agreement and
as of each respective Standby Commitment Closing Date, except as otherwise
contemplated by this Agreement, and the Investors shall have received a
certificate to such effect signed on such Standby Commitment Closing Date
on behalf of the Companies by their respective Chief Executive Officer and
Chief Financial Officer or Treasurer, in form and substance reasonably
satisfactory to the Investors, to the foregoing effect.
(b) Performance of Obligations. Each of the Companies shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to each respective Standby
Commitment Closing, and the Companies shall have delivered to the Investors
at such Standby Commitment Closing a certificate signed by their respective
Chief Executive Officer and Chief Financial Officer or Treasurer, dated as
of such Standby Commitment Closing Date, in form and substance reasonably
satisfactory to the Investors, to the foregoing effect.
(c) Material Adverse Change. Since the date of this Agreement, there
shall not have occurred any event that could reasonably be expected to have
a Material Adverse Effect (or development that is reasonably likely to
result in any Material Adverse Effect) on the Companies and their
subsidiaries, taken as a whole, and each of the Companies shall deliver to
the Investors at the Standby Commitment Closing a certificate signed by its
respective Chief Executive Officer, dated as of the Standby Commitment
Closing Date, to the foregoing effect.
Section 6.3 Conditions to the Obligations of Each of the Companies. The
respective obligation of each of the Companies to consummate the transactions
contemplated hereby with respect to the Standby Commitment Investment only shall
be subject to the satisfaction at or prior to each Standby Commitment Closing of
each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of each of the Investors set forth in this Agreement shall be
true and correct, except that this condition shall be deemed satisfied so
long as any failures of such representations and warranties to be true and
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correct do not individually or in the aggregate have a Material Adverse
Effect on the Investors, taken as a whole, as of the date of this Agreement
and as of each respective Standby Commitment Closing Date, except as
otherwise contemplated by this Agreement, and the Companies shall have each
received a certificate to such effect signed on such Standby Commitment
Closing Date on behalf of each Investor by their respective Chief Executive
Officer and Chief Financial Officer or Treasurer, in form and substance
reasonably satisfactory to the Companies, to the foregoing effect.
(b) Performance of Obligations. The Investors shall have performed in
all material respects all obligations required to be performed by any of
them under this Agreement at or prior to each Standby Commitment Closing
and each of the Investors shall have delivered to the Companies at each
respective Standby Commitment Closing a certificate signed by its Chief
Executive Officer and Chief Financial Officer or Treasurer, dated as of
such Standby Commitment Closing Date, in form and substance reasonably
satisfactory to Prison Realty, to the foregoing effect.
ARTICLE VII
COVENANTS OF THE COMPANIES
Each of the Companies hereby, severally and not jointly, covenant with the
Investors as follows:
Section 7.1 Conduct of Business Pending the Initial Closing. Except as set
forth in Section 7.1 of the Companies' respective Disclosure Schedules or as
otherwise expressly contemplated by this Agreement or as consented to by the
Investors in writing, during the period from the date of this Agreement through
and including the Initial Closing Date, each of the Companies shall, and shall
cause their Subsidiaries to, carry on their respective businesses in the
ordinary course consistent with past practice and in compliance in all material
respects with all applicable laws and regulations and, to the extent consistent
therewith, shall use reasonable efforts to preserve intact their current
business organizations and use reasonable efforts to preserve their
relationships with those persons having business dealings with them. Without
limiting the generality of the foregoing, except as set forth in Section 7.1 of
the Companies' respective Disclosure Schedules or as otherwise expressly
contemplated by this Agreement, including without limitation the Merger
Agreement, or as consented to by the Investors in writing, during the period
from the date of this Agreement through the Initial Closing Date, none of the
Companies shall, and each shall not permit any of their Subsidiaries to:
(a) other than (w) dividends and distributions by a direct or indirect
wholly owned Subsidiary to the Companies or one of their wholly owned
Subsidiaries, (x) dividends, in the form and amount approved by the
Investors, paid by Prison Realty in order to preserve its ability to elect
status as a REIT for the taxable year ending December 31, 1999, (y)
dividends and distributions paid by Service Company A and Service Company B
to their respective shareholders in accordance with their distribution and
dividend policy and practice to date, and (z) the purchase of securities
from certain shareholders of CCA, Service Company A and Service Company B
as contemplated in the Merger Agreement, (i) declare, set aside or pay any
dividends (payable in cash, stock, property or otherwise) on, make any
other distributions in respect of, or enter into any agreement with respect
to the voting of, any of its capital stock, (ii) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for
shares of its capital stock, or (iii) purchase, redeem or otherwise acquire
any capital stock in the Companies or any of the Subsidiaries or any other
securities thereof or any rights, warrants or options to acquire any such
shares or other securities;
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(b) issue, deliver, sell, pledge or otherwise encumber or subject to
any Lien any of its shares of capital stock or any other voting securities
or any securities convertible into, exercisable for or exchangeable with,
or any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities;
(c) amend its charter, bylaws or other comparable organizational
documents or amend or waive any provisions of the Transaction Documents or
undertake any act or fail to act where such act or failure to act would or
could frustrate the purpose of the Transaction Documents;
(d) acquire any business (whether by merger, consolidation, purchase
of assets or otherwise) or acquire any equity interest in any person not an
affiliate (whether through a purchase of stock, establishment of a joint
venture or otherwise);
(e) other than the obligations for capital commitments set forth in
Section 7.1 of any of the Companies' respective Disclosure Schedules, (A)
sell, lease, exchange, license, mortgage or otherwise encumber or subject
to any Lien or otherwise dispose of any of its real properties or other
assets, (B) enter into any new joint ventures or similar projects, (C)
enter into any new development projects or (D) enter into any new leases or
other material agreements or understandings;
(f) change its methods of accounting (or underlying estimates or
assumptions), except as required by changes (i) in GAAP, (ii) in law or
regulation, or (iii) due to events subsequent to September 30, 1999 related
or consequential to entering into the Merger Agreement or the Transaction
Documents or the consummation of the transactions contemplated thereby
(including, but not limited to, the effects of any changes required by the
SEC as part of its review of the SEC Reports and the disclosure related to
the Combination and the transactions contemplated hereunder); or change any
of its methods of reporting income and deductions for federal income tax
purposes from those employed in the preparation of the federal income tax
returns of the Companies for the taxable years ended December 31, 1998,
except as required by changes in law or regulation;
(g) effect any settlement or compromise of any pending or threatened
proceeding in respect of which the Companies are or could have been a
party, unless such settlement (i) includes an unconditional written release
of the Companies, in form and substance reasonable satisfactory to the
Companies, from all liability on claims that are the subject matter of such
proceeding, (ii) does not include any statement as to any admission of
fault, culpability or failure to act by or on behalf of the Companies and
(iii) is less than $100,000;
(h) other than the obligations for capital commitments set forth in
Section 7.1 of any of the Companies' respective Disclosure Schedules,
create, renew, amend, terminate or cancel, or take any other action (or
fail to take any action) that could reasonably be expected to result in the
creation, renewal, amendment, termination or cancellation of any agreement
or instrument that is material to the Companies and their respective
subsidiaries, taken as a whole;
(i) other than the obligations for capital commitments set forth in
Section 7.1 of any of the Companies' respective Disclosure Schedules, incur
any indebtedness for borrowed money (including, but not limited to,
borrowings under the Companies' respective credit facilities other than
borrowings contemplated by the Companies' respective business plans
previously provided to the Investors);
(j) other than the obligations for capital commitments set forth in
Section 7.1 of any of the Companies' respective Disclosure Schedules, enter
into any new capital or take out commitments or increase any existing
capital or take out commitments;
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(k) except pursuant to agreements or arrangements in effect on the
date hereof, (A) terminate the employment of any executive officer of the
Companies, (B) enter into any new employment agreement with any director,
executive officer or other employee without the consent of the Investors,
(C) grant to any current or former director, executive officer or other key
employee of the Companies or any Subsidiary any increase in compensation,
bonus or other benefits (other than increases in base salary in the
ordinary course of business consistent with past practice or arising due to
a promotion or other change in status and consistent with generally
applicable compensation practices), (C) grant to any such current or former
director, executive officer or other employee any increase in severance or
termination pay, (D) amend, adopt or terminate any employment, deferred
compensation, consulting, severance, termination or indemnification
agreement with any such current or former director, executive officer or
employee, or (E) amend, adopt or terminate any Benefit Plan, except as may
be required to retain qualification of any such plan under Section 401(a)
of the Code;
(l) except pursuant to agreements or arrangements in effect on the
date hereof or as otherwise contemplated by this Agreement which have been
disclosed in Section 7.1 of the Companies' Disclosure Schedules, pay, loan
or advance any amount to, or sell, transfer or lease any properties or
assets (real, personal or mixed, tangible or intangible) to, or purchase
any properties or assets, or enter into any agreement or arrangement with,
any of its officers or directors or any affiliate or the immediate family
members or associates of any of its officers or directors, other than
payment of compensation at current salary, incentive compensation and
bonuses and other than properly authorized business expenses in the
ordinary course of business, in each case consistent with past practice;
(m) permit any material insurance policy naming the Companies or any
Subsidiary as a beneficiary or a loss payable payee to be canceled,
diminished or terminated, or fail to obtain or maintain the insurance
coverage specified on Schedule 7.1 attached hereto;
(n) enter into or amend in a manner adverse to the Investors any new
agreement which has a non-competition, geographical restriction or similar
covenant; or
(o) authorize, or commit or agree to take, any of the foregoing
actions.
Section 7.2 Disclosure Documents; Stockholder Approvals.
(a) Each of the Companies agrees that it will, in accordance with
applicable law and its charter and bylaws:
(i) promptly file with the SEC confidential (to the extent required to
be so filed and permitted by law), preliminary copies of the disclosure
documents to be sent to security holders in connection with the
transactions contemplated by this Agreement (the "Disclosure Documents")
and use its reasonable efforts to obtain the clearance by the SEC of those
Disclosure Documents requiring clearance by the SEC as promptly as
practicable thereafter;
(ii) promptly and duly call, give notice of, convene and hold a
meeting of its stockholders for the purpose of obtaining the Prison Realty
Stockholder Approval, CCA Stockholder Approval, Service Company A
Stockholder Approval or Service Company B Stockholder Approval, as
applicable (each, a "Stockholders' Meeting");
(iii) except to the extent such Board of Directors determines in good
faith, after consultation with outside counsel and after taking into
account any modifications as contemplated by Section 7.2(c) hereof, that
contrary action is required by such Board of Directors' fiduciary duties
under applicable law, recommend the Prison Realty Stockholder Approval in
the case of Prison Realty, the CCA Stockholder Approval in the case of CCA,
the
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Service Company A Stockholder Approval in the case of Service Company A,
and the Service Company B Stockholder Approval in the case of Service
Company B and include in the Disclosure Documents such recommendations and
the written opinion of the financial advisors that the terms of the
Investment and the transactions consummated in connection therewith are
fair, from a financial point of view, to Prison Realty and the stockholders
of Prison Realty, cause the Combination (including the New Prison Realty
Charter and the New Prison Realty Bylaws) to become effective and take all
lawful action to solicit such approvals and acceptances; and
(iv) as promptly as practicable following the clearance by the SEC of
the Disclosure Documents requiring such clearance cause the definitive
Disclosure Documents to be mailed to its stockholders.
(b) Each of the Companies agrees that it shall use its reasonable best
efforts to ensure that the Disclosure Documents (including without limitation
any SEC Reports incorporated by reference therein) shall comply with all
applicable federal or other securities laws, except that the Companies shall
have no obligation as to information provided by the Investors.
(c) The filing with the SEC, or the transmission to any of the Companies'
security holders, of any Disclosure Document, or any amendment thereof, relating
to the transactions contemplated by this Agreement shall be subject to the prior
approval of the Investors and their counsel, which approval shall not be
unreasonably withheld or delayed.
Section 7.3 Payment of Expenses; Fees.
(a) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, except in the instance where such
is caused by the breach of this Agreement by the Investors, each of the
Companies hereby agrees, jointly and severally, (i) to pay all costs and
expenses incident to the performance of the obligations of the Companies
hereunder, including those in connection with (A) the issuance, transfer and
delivery of the Shares, the Warrants or the shares of Prison Realty Common Stock
issuable upon conversion or exercise thereof to the Investors, including any
transfer or similar taxes payable with respect thereto, (B) the qualification of
the Shares, the Warrants or the shares of Prison Realty Common Stock issuable
upon conversion or exercise thereof under state or foreign securities or Blue
Sky laws, (C) the cost of printing the certificates for the Shares, the Warrants
or the shares of Prison Realty Common Stock issuable upon conversion or exercise
thereof, (D) the costs and charges of any transfer agent, registrar, trustee or
fiscal paying agent, (E) the costs associated with the Combination, and (F) the
costs associated with the Rights Offering and (ii) to promptly pay, upon the
request of the Investors at the earlier of the Initial Closing or the
termination of this Agreement, all out-of-pocket costs and expenses (giving
credit for such payments made to the Investors prior to the date hereof or
through the Initial Closing Date), including fees and expenses of advisors,
accountants, attorneys, consultants and other parties whom the Investors have
engaged to assist them in connection with a possible investment in the
Companies, incurred by the Investors in connection with the evaluation,
negotiation and consummation of this Agreement, the other Transaction Documents
and the transactions contemplated hereby and thereby.
(b) Without limiting the foregoing and whether the Initial Closing is
consummated or not, the Companies shall pay to the persons and in the respective
proportions set forth on Schedule 7.3(b) hereof an aggregate transaction fee of
$15.7 million (the "Transaction Fee") payable on the earlier to occur of: (i)
the date of issuance of the Initial Shares and the Warrants; (ii) four (4)
months following the date hereof; or (iii) the completion by the Companies of
any financing intended as an alternative to the Investors' purchase of the
Initial Shares (an "Alternative Financing"); provided, however, that the
Investors shall have the right at their sole discretion to approve the terms and
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conditions of any Alternative Financing unless the Alternative Financing shall
be in lieu of the Investors' purchase of the Initial Shares and the Warrants. On
the date hereof, Prison Realty shall pay to the persons and in the respective
proportions set forth on Schedule 7.3(b) hereof the sum of $1.75 million as an
advance against reimbursable expenses. To the extent that actual documented
reimbursable expenses are less than $1.75 million, such excess amount shall be
credited against the amount of the Transaction Fee.
(c) Without limiting the foregoing and only if the Initial Closing is
consummated, Prison Realty shall pay to the persons and in the respective
proportions set forth on Schedule 7.3(b) hereof an annual monitoring fee of $1.5
million (individually, a "Monitoring Fee," and collectively, "Monitoring Fees")
to be paid in quarterly installments until such time as a permanent management
team, to be comprised of a Chief Executive Officer and Chief Financial Officer,
has been approved by the Board of Directors of the Company and has been
installed by Prison Realty, at which time no further Monitoring Fees will be due
and owing; provided, however, that if such a management team is installed prior
to the first anniversary date of this Agreement, Prison Realty shall pay to the
persons and in the respective proportions set forth on Schedule 7.3(b) hereof
Monitoring Fees through the first anniversary date of this Agreement pursuant to
the terms and conditions hereof.
(d) Each of the following obligations is independent of and not limited in
any way by the Companies' obligations in respect of any of the other following
obligations: (i) the payment obligations under Section 7.3(a), 7.3(b) and 7.3(c)
herein; (ii) the separate fee that may become payable pursuant to Section 7.6(d)
herein; and the Companies' indemnification obligations under Section 11.2 and
any adjustment to the conversion price of the Shares pursuant to the Prison
Realty Articles Supplementary.
Section 7.4 Availability of Prison Realty Common Stock. Prison Realty
shall at all times reserve and keep available out of its authorized but unissued
common stock, for the purpose of effecting the conversion of the Shares and the
exercise of the Warrants, the full number of shares of Prison Realty Common
Stock then issuable upon the conversion of the Shares and the exercise of the
Warrants. Prison Realty will, from time to time, in accordance with the laws of
the State of Maryland and the provisions of its charter then in effect increase
the authorized amount of Prison Realty Common Stock if at any time the number of
shares of Prison Realty Common Stock remaining unissued and available for
issuance shall be insufficient to permit conversion of the Initial Shares and
the exercise of the Warrants.
Section 7.5 Reporting. Prison Realty shall, so long as the Shares, shares
of Prison Realty Common Stock issuable upon conversion thereof, or Warrant
Shares, are outstanding and are "restricted securities" within the meaning of
Rule 144(a)(3) under the Securities Act, file reports and other information with
the SEC under Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (including the rules and regulations promulgated thereunder, the
"Exchange Act").
Section 7.6 No Solicitation of Competing Transactions.
(a) Except as expressly permitted in writing by the Investors, none of the
Companies shall authorize or permit any of their Subsidiaries or any of the
Companies' or the Subsidiaries' directors, officers, employees, representatives,
agents and advisors (including any investment banker, financial advisor,
attorney, accountant or other representative retained by any of them), directly
or indirectly to, (i) solicit, initiate, encourage (including by way of
furnishing nonpublic information), respond to (other than by bare statement,
without any further detail or explanation, that they are not permitted to
respond), or take any other action designed to facilitate, any inquiries or the
making of any proposal with respect to any merger, consolidation, transfer of
substantial assets, sale or exchange of
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shares or similar transaction (collectively, a "Competing Transaction"), (ii)
participate in any substantive discussions or negotiations regarding any
Competing Transaction or (iii) enter into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement related to any
Competing Transaction. Upon execution of this Agreement, each of the Companies
and the Subsidiaries shall immediately cease any existing activities,
discussions or negotiations with any parties heretofore conducted with respect
to any of the foregoing. Notwithstanding the foregoing, none of the Companies
will be precluded from providing information to, or discussing, negotiating and
executing agreements with, any person or entity that makes a written proposal
pursuant to which such other person or entity would (i) make a significant
equity investment in one or more of the Companies, (ii) acquire all or a
substantial portion of the assets of one or more the Companies or (iii) acquire
one or more of the Companies, if and to the extent that its Board of Directors
reasonably determines in good faith (after consultation with outside counsel)
that they are required to authorize such actions by their fiduciary duties.
(b) Each of the Companies shall promptly (but in any event within 24 hours)
advise the Investors in writing of any inquiries, discussions, negotiations,
proposals or requests for information received on or after the date of this
Agreement relating to any Competing Transaction, the material terms and
conditions thereof and the identity of the person making such request or
Competing Transaction. Each of the Companies shall promptly advise the Investors
of any development relating to any inquiries, discussions, negotiations,
proposals or requests for information relating to a Competing Transaction,
whether the original inquiries, discussions, negotiations, proposals or requests
for information occurred before, on or after the date of this Agreement.
(c) The Investors shall have the right to match the material terms and
conditions of any Competing Transaction within five (5) business days after
receiving notice in writing from the Companies of such Competing Transaction. If
the Investors give notice of their intention to match such Competing
Transaction, the Companies shall promptly amend this Agreement to reflect the
revised terms and shall cease discussions with the other third party in
accordance with the provisions of Section 7.6(a) herein.
(d) If, prior to the Initial Closing or during the one-year period
following any termination of this Agreement, either of the Companies or any
Subsidiary enters into any other agreement or agreements with a third party (a
"Third Party"), without the prior written consent of the Investors, providing
for the issuance of equity or other securities convertible into or exchangeable
or exercisable for equity, in one or a series of transactions, with aggregate
net proceeds of at least $100 million or providing for or contemplating any
merger, consolidation, transfer or substantial assets, any tender or exchange
offer to acquire securities of the Companies or similar transaction involving
the Companies (a "Third Party Agreement"), and the Companies shall not have
consummated the transactions contemplated hereby other than solely by reason of
the Investors being unwilling to proceed with the Initial Closing
notwithstanding that the conditions to their obligations set forth in Article V
have been satisfied, the Companies jointly and severally agree to pay to the
persons and in the respective proportions set forth on Schedule 7.3(b), in
addition to any amounts otherwise provided hereunder, an aggregate amount (the
"Breakup Fee") in cash equal to $7.5 million if the Companies or any Subsidiary
enter into any Third Party Agreement within five (5) business days after the
entry into the Third Party Agreement. The Breakup Fee shall be paid as
liquidated damages to the various Investors in accordance with their respective
Investor percentages. The Companies agree that (i) actual damages relating to
the foregoing are impossible to determine with certainty and (ii) such sum is a
reasonable estimate of the Investors' damages (and shall be deemed when paid,
together with the payment of the fees contemplated by the Commitment Letter and
the reimbursement of expenses pursuant to Section 7.3 herein, to have fully
reimbursed the Investors for all such damages) arising from lost opportunities,
executive time and other causes.
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Section 7.7 No General Solicitation. None of the Companies, their
affiliates (as defined in Rule 501(b) under the Securities Act) or any person
acting on their behalf will offer to sell, sell or solicit any offer to buy the
Initial Shares by means of any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Securities Act)
or in any manner involving a public offering within the meaning of Section 4(2)
of the Securities Act that would require the registration of the Initial Shares
under the Securities Act unless the Initial Shares are so registered.
Section 7.8 Access to Information. Each of the Companies shall, and shall
cause their Subsidiaries to, afford to each Investor and to the officers,
employees, accountants, counsel, financial advisors and other representatives of
such Investor, reasonable access during normal business hours from the date
hereof until and after the Initial Closing to all the properties, books,
contracts, commitments, personnel, reports and records of or relating to the
Companies or the Subsidiaries, and each of the Companies shall, and shall cause
their Subsidiaries to, furnish promptly to the Investors, any financing source
identified by the Investors in connection with the transactions contemplated
hereby and to any other person that the Investor may reasonably request (i) a
copy of each report, schedule, registration statement and other document filed
by it during such period pursuant to the requirements of federal or state
securities laws, (ii) such operating reports, financial reporting packages and
other operational and/or financial information sent to management or the Board
of Directors of the Companies or to the banks with whom the Companies and the
Subsidiaries maintain credit facilities or lines of credit and (iii) all other
information concerning its business, properties and personnel as the Investors
may reasonably request.
Section 7.9 HSR Approval. Each of the Companies shall cooperate with each
Investor in obtaining as soon as practicable all necessary governmental consents
and approvals, including without limitation, termination or expiration of the
waiting period under the HSR Act.
Section 7.10 Preemptive Rights.
(a) The Investors shall, until the fifth (5th) anniversary of the Initial
Closing Date, for so long as the Investors own any Shares, Warrants or Warrant
Shares, have the right to purchase additional shares of Prison Realty's Common
Stock, or securities convertible into or exchangeable for such common stock
(including without limitation, warrants, options or convertible stock or debt)
in any issuance of securities by Prison Realty other than issuances of
securities described in Section 7.10 (c) hereof in a pro-rata amount and on the
same terms and conditions as are called for by each future issuance (or as
nearly as may be practicable in the event the Investors cannot comply with such
terms and conditions). For the purposes of this Section 7.10, the term "pro-rata
amount" shall mean such amount as will allow each Investor to maintain its then
existing percentage ownership of Prison Realty's Common Stock on a fully
converted basis (including its fully diluted ownership resulting from ownership
of the Shares and the Warrants).
(b) In connection with this preemptive right, Prison Realty shall provide
written notice to each Investor within fifteen (15) business days following the
end of each fiscal quarter of Prison Realty of all issuances by Prison Realty
giving rise to preemptive rights during such fiscal quarter. The Investors shall
then provide written notice to Prison Realty of the extent to which they are
exercising their preemptive rights and close any transaction relating to the
exercise of preemptive rights hereunder on or before the twentieth (20th)
business day following receipt of such notice by Prison Realty. Any preemptive
right not exercised by the end of such period will expire, lapse and be of no
effect.
(c) This Section 7.10 shall not apply to (w) securities issued to persons
who are directors or employees of Prison Realty pursuant to any benefit plan,
(x) securities issued by Prison Realty upon
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the conversion of convertible debt issued by Prison Realty as of the Initial
Closing Date, (y) securities issued as consideration for a "business
combination" by Prison Realty, so long as such consideration has a fair market
value of less than $50 million and such shares are issued at fair market value,
or (z) the issuance and sale of securities in the Rights Offering or issued upon
the conversion or exercise of such securities. For the purposes of this Section
7.10, the term "business combination" shall mean any cash, tender or exchange
offer, merger, consolidation or other business combination, sale of assets or
any combination of the foregoing transactions.
Section 7.11 Registration Rights Agreement. At or prior to the Initial
Closing, Prison Realty shall enter into a Registration Rights Agreement for the
benefit of the Investors in the form of Exhibit G attached hereto.
Section 7.12 Corporate Governance. Immediately prior to the Initial
Closing, Prison Realty shall use its best efforts to obtain the resignations of
the directors listed on Schedule 7.12 hereto. Immediately after the Initial
Closing, the Board of Directors of Prison Realty shall consist of not more than
ten (10) persons which shall include Thomas W. Beasley, Jean Pierre Cuny, Joseph
V. Russell and one additional director designated from Prison Realty's existing
Board of Directors, four (4) persons designated by the Investors, who shall be
Series B Preferred Stock Directors as defined in the Prison Realty Series B
Articles Supplementary, and two (2) Independent Directors (as such term is
defined in the New Prison Realty Charter) designated by the mutual agreement of
the Investors and Prison Realty's existing Board of Directors. In connection
with the foregoing, immediately after the Initial Closing, (i) two (2) members
of Prison Realty's then existing senior management shall have the right to
attend and be heard at all meetings of the Prison Realty Board of Directors and
to receive all information provided to the Prison Realty Board of Directors,
with such members being selected by the Chief Executive Officer of Prison Realty
and subject to the reasonable approval of the Investors, and (ii) up to two (2)
representatives of the Investors shall have the right to attend and be heard at
all meetings of the Prison Realty Board of Directors and to receive all
information provided to the Prison Realty Board of Directors, with such
representatives being selected by the Investors and agreed to by Prison Realty's
existing Board of Directors.
Section 7.13 Delivery of Documents. The Companies shall promptly deliver
to the Investors copies of all filings by the Companies with the SEC or with any
other State or Federal authorities.
Section 7.14 Review of Audit. The Companies shall permit the accounting
representative of the Investors to review the audit (including the appropriate
review of company and auditor work papers) of the Companies' financial
statements for the year ending December 31, 1999.
Section 7.15 Rights Offering. Concurrently with the Prison Realty
Stockholder Approval, Prison Realty shall conduct a single rights offering (the
"Rights Offering") in which the holders of Prison Realty Common Stock (the
"Eligible Holders") on the record date for the Rights Offering (the "Rights
Offering Record Date") will be eligible to participate; provided, however, that
the Rights Offering Record Date shall be established and announced in accordance
with the applicable provisions of Rule 10b-17 promulgated under the Exchange Act
and the applicable rules of the NYSE. The Rights Offering shall be consummated
on the Initial Closing Date. In the Rights Offering, the Eligible Holders will
be offered non-transferable rights to purchase for cash up to $75.0 million in
Rights Offering Units, with each unit consisting of a pro-rata portion of the
Rights Offering Shares and Rights Offering Warrants, with an issuance date on
the date of the consummation of the closing of the Rights Offering. The rights
to purchase Rights Offering Units shall be allocated among the Eligible Holders
pro-rata based on the respective number of shares of Prison Realty Common Stock
held by such Eligible Holders on the Rights Offering Record Date (rounded down
in the case of fractional shares to the nearest whole number of shares) and, in
the event that not all Eligible Holders exercise their right to purchase in
full, Eligible Holders who exercise their right to purchase
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in full shall be entitled to subscribe for up to an additional five times (5x)
the number of Rights Offering Units that the Eligible Holder was initially
entitled to subscribe for, provided that all Rights Offering Units not
originally subscribed for shall be pro-rated in accordance with all such
additional requests. The Rights Offering will provide that any exercise thereof
is irrevocable. In the event that Eligible Holders subscribe for less than $10.0
million in Rights Offering Units, Prison Realty shall terminate the Rights
Offering without issuing any Rights Offering Shares or Rights Offering Warrants
and the Investors shall purchase the full number of Initial Shares and Initial
Warrants. In such event, all rights will expire without value and all
subscription payments received by Prison Realty or its agent will be returned
promptly, without interest.
Prison Realty will use its reasonable best efforts to ensure that (i) the
Rights Offering will be conducted in compliance with all applicable securities
laws, (ii) that the Rights Offering Shares and the shares of Prison Realty
Common Stock to be issued upon the exercise of the Rights Offering Warrants will
be subject to a registration statement which shall have been declared effective
by the SEC, and no stop order suspending the effectiveness of the registration
shall be in effect and no proceedings for such purpose shall be pending before
or threatened by the SEC, and (iii) the Rights Offering Shares and the shares of
Prison Realty Common Stock to be issued upon the exercise of the Rights Offering
Warrants, shall be listed on the NYSE, the NASDAQ National Market System or
other national securities exchange, subject to satisfying the eligibility
requirements thereof.
Section 7.16. Investor Compliance With Regulatory Requirements. To the
extent that an Investor or its assignee or transferee is required under
applicable law or regulation (including, but not limited to, the Bank Holding
Company Act of 1956, as amended, and as it may be further amended (the "BHCA"))
to modify the terms of the Shares or Warrants (including, any Articles
Supplementary with respect thereto), or to defer until such Investor qualifies
as a "financial holding company" under the BHCA, the receipt of certain rights
and privileges associated with the Shares or Warrants including the right to
influence the management or policies of the Company in order to conform to the
requirements of such law or regulation, Prison Realty will cooperate with the
Investor to take such steps as may be reasonably necessary to conform the
investment represented by the Shares and Warrants (including any Articles
Supplementary with respect thereto) held by that Investor to the Requirements of
such law or regulation; provided, however, that Prison Realty shall not be
required to make any material changes to the economic terms of the Shares or the
Warrants and/or to enable such Investor, after it qualifies as a "financial
holding company" under the BHCA, to exercise to the maximum extent then
permissible under the BHCA, the rights and privileges associated with the Shares
and Warrants.
Section 7.17. Notification of Certain Matters. The Companies shall, from
time to time prior to the Initial Closing, promptly supplement or amend the
Schedules hereto both to correct any inaccuracy in such Schedules when delivered
and to reflect any development which, if existing at the date of this Agreement,
would have been required to be set forth in the Schedules or which has rendered
inaccurate the information contained in such Schedules (each notice furnishing
such information being called a "Company Disclosure Supplement"), and at least
five (5) business days prior to the Initial Closing the Companies will deliver
to the Investors a final Company Disclosure Supplement consisting of a complete
update of the Schedules hereto (the "Closing Disclosure Supplement").
Section 7.18. Name Change. The Companies shall take all necessary and
appropriate steps in order to change the name of Prison Realty to Corrections
Corporation of America upon the completion of the Combination.
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ARTICLE VIII
COVENANTS OF THE INVESTORS
Section 8.1 Certain Restrictions.
(a) Each of the Investors, severally but not jointly, covenants with the
Companies that, for a period commencing on the Initial Closing Date and
continuing through the third (3rd) anniversary of the Initial Closing, such
Investors will not, directly or indirectly, through one or more intermediaries
or otherwise, purchase, acquire, own or hold shares of Prison Realty Common
Stock or any securities which are convertible into or exchangeable or
exercisable for Prison Realty Common Stock that would cause the Investors, in
the aggregate, to own or have the right to acquire more than forty-five percent
(45%) of Prison Realty's Common Stock on a fully-diluted basis (including the
Initial Shares, the Standby Commitment Shares and Warrant Shares issued or to be
issued pursuant to the terms of this Agreement), unless such shares or
securities were purchased or acquired in a purchase or acquisition which (i) is
made directly from Prison Realty in a transaction which is approved in advance
by vote of a majority of its Board of Directors, or from another Investor,
including purchases made pursuant to each Investor's obligation with respect to
the Standby Commitment Shares, (ii) is a dividend on the Shares, the Warrant
Shares or the shares of Prison Realty Common Stock obtained upon conversion of
the Shares, or (iii) is made by one or more affiliates of any Investor over whom
such Investor does not control investment or voting decisions and such Investor
does not hold over fifty percent (50%) of the outstanding voting power of such
affiliate; provided, however, that notwithstanding anything to the contrary
contained herein, the foregoing restriction shall not be deemed to be violated
or applicable if the numbers of shares of Prison Realty Common Stock or
securities which are convertible into or exchangeable or exercisable for Prison
Realty Common Stock beneficially owned directly or indirectly through one or
more intermediaries or otherwise, in the aggregate, by the Investors is
increased solely as a result of any stock dividend, stock split, split-up,
recapitalization, merger or other change in the corporate or capital structure
of Prison Realty, or any other action taken solely by Prison Realty.
Notwithstanding the foregoing, (x) any Investor, or its affiliate, may, to the
extent not prohibited by law, acquire shares of publicly-traded Prison Realty
Common Stock or other securities in the ordinary course of their regular
market-making activities, if any, or engage in business as an investor advisor
or broker-dealer, for the account of their customers, and (y) any individual who
is an employee, partner or stockholder of any of the Investors may purchase
shares of Prison Realty Common Stock for his or her individual account (held for
investment purposes), provided that at no time shall any such individual acquire
beneficial ownership in excess of 10,000 shares of Prison Realty Common Stock,
including shares of Prison Realty Common Stock issuable upon conversion,
exchange or exercise of securities which are convertible into or exchangeable or
exercisable for shares of Prison Realty Common Stock (subject to equitable
adjustment in the event of a stock split or reclassification of the Prison
Realty Common Stock), exclusive of shares which may otherwise be acquired
consistent with this Section 8.1.
(b) Each of the Investors, severally but not jointly, covenants with the
Companies that such Investor will not make any public announcement (except as
required by law in respect of actions permitted hereby) or proposal or offer
whatsoever (including, but not limited to, any "solicitation" of "proxies" as
such terms are defined or used in Regulation 14A of the Exchange Act) with
respect to, (x) any form of business combination or similar or other
extraordinary transaction involving the Companies or any affiliate thereof,
including, without limitation, a merger, tender or exchange offer or liquidation
of the Companies' assets, or (y) any form of restructuring, recapitalization or
similar transaction with respect to the Companies or any affiliate thereof.
(c) Within five (5) business days following a written request therefor by
Prison Realty, each Investor shall notify Prison Realty in writing of the number
of shares of each class or series of capital
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stock of Prison Realty beneficially owned by such Investor, as well as in each
case the nature of such beneficial ownership.
Section 8.2 HSR Approval. The Investors shall cooperate with each of the
Companies in obtaining as soon as practicable all necessary governmental
consents and approvals, including without limitation, termination or expiration
of the waiting period under the HSR Act.
Section 8.3 Quorum. Each of the Investors covenants that, for so long as
the Investors beneficially own a sufficient number of shares of Prison Realty
Series B Preferred Stock, or shares of Prison Realty Common Stock upon their
conversion, to have the right to designate any directors to the Board of
Directors of Prison Realty, such Investor will be present in person or
represented by proxy with respect to all securities of Prison Realty
beneficially owned by such Investor at any duly called meeting of the
stockholders of Prison Realty for the purpose of constituting a quorum for the
transaction of business.
Section 8.4 Transfers. The Investors covenant with Prison Realty that for
a period of eighteen (18) months following the Initial Closing Date, the
Investors will not, individually or in the aggregate, transfer more than
forty-nine percent (49%) of the Shares or the right to receive more than
forty-nine percent (49%) of the Shares, or more than forty-nine percent (49%) of
the Shares to any third-party, provided that any transfer is made pursuant to
the provisions of Section 9.2 herein; provided however, that this provision
shall not restrict transfers between or among the Investors set forth on
Schedule 1.1 hereof, or their respective affiliates.
Section 8.5 No Voting Agreements. The Investors covenant with the
Companies that, for so long as the Investors beneficially own a sufficient
number of shares of Prison Realty Series B Preferred Stock, or shares of Prison
Realty Common Stock upon their conversion, to have the right to designate any
directors to the Board of Directors of Prison Realty, the Investors will not
enter into any voting agreement relating to the Shares, except as disclosed in
the Investor's Disclosure Schedule.
Section 8.6 Compliance with Organizational and Governing Documents Each
Investor agrees, severally but not jointly, to comply with the provisions of,
and to perform their obligations set forth in the New Prison Realty Charter and
the Prison Realty Series B Articles Supplementary, and any amendments thereto,
setting forth the terms of the Shares and the Warrant Shares.
Section 8.7 Confidentiality. During the period from the date of this
Agreement through and including the Closing Dates, each of the Investors
covenants with the Companies that any of the information furnished or otherwise
obtained, directly or indirectly, by such Investor, its directors, officers,
partners, employees, agents or representatives including, without limitation,
attorneys, accountants, partners, experts and consultants (collectively, the
"Representatives") and all reports, analysis, compilations, data, studies or
other documents prepared by such Investor or its Representatives containing or
based, in whole or in part, on any such furnished information (collectively, the
"Information") will be kept strictly confidential and will not, without the
prior written consent of the Companies, be disclosed to any other individual,
corporation, partnership, joint venture, trust or association in any manner
whatsoever, in whole or in part, and will only be used for or in connection with
the Combination and the purchase and sale of Initial Shares and Warrants
described herein; provided that if any Investor determines, based on the advice
of counsel, that it is legally obligated to release the Information, such
Investor may release only such portion of the Information as it is legally
required to disclose after notice to and consultation with the Companies.
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ARTICLE IX
RESTRICTIONS ON TRANSFERABILITY OF SECURITIES
Section 9.1 Restrictive Legend. Each certificate representing (a) the
Shares, (b) the shares of Prison Realty Common Stock issuable upon conversion of
any Shares, (c) the Warrant Shares, and (d) any other securities issued in
respect of the Shares, the shares of Prison Realty Common Stock issued upon
conversion of any Shares or the Warrant Shares upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event (each of the
foregoing securities in clauses (a) through (d) being referred to herein as
"Restricted Securities"), shall (unless otherwise permitted by the provisions of
Section 9.2) contain a legend substantially in the following form (in addition
to any legend required under any applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
APPLICABLE STATE SECURITIES LAWS. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED UNTIL THE SAME HAVE BEEN REGISTERED UNDER SAID ACT OR LAWS OR UNTIL
THE COMPANY HAS RECEIVED AN OPINION OF LEGAL COUNSEL SATISFACTORY TO IT THAT
SUCH SHARES MAY LEGALLY BE SOLD OR OTHERWISE TRANSFERRED WITHOUT SUCH
REGISTRATION. COPIES OF THE AGREEMENTS COVERING THE PURCHASE, TRANSFER AND
REGISTRATION OF THESE SHARES MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE
BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY.
Prison Realty will promptly, upon request, remove any such legend when no
longer required by the terms of this Agreement or by applicable law.
Section 9.2 Notice of Proposed Transfers. Subject to the restrictions
contained in Sections 8.4 and 9.1 herein, prior to any proposed transfer of any
Restricted Securities, unless there is in effect a registration statement under
the Securities Act covering the proposed transfer, each Investor shall give
written notice to Prison Realty of its intention to effect such transfer. Each
such notice shall describe the manner and circumstances of the proposed transfer
in sufficient detail, and shall be accompanied by either (a) a written opinion
of legal counsel (who shall be reasonably satisfactory to Prison Realty)
addressed to Prison Realty and reasonably satisfactory to Prison Realty to the
effect that the proposed transfer of the Restricted Securities may be effected
without registration under the Securities Act or (b) a "no action" letter from
the SEC to the effect that the transfer of such securities without registration
will not result in a recommendation by the staff of the SEC that action be taken
with respect thereto, whereupon, in each case, such Investor shall be entitled
to transfer such Restricted Securities in accordance with the terms of the
notice delivered by such Investor to Prison Realty. Unless there is in effect a
registration statement under the Securities Act covering the proposed transfer,
each certificate to be issued to evidence the Restricted Securities transferred
as herein provided shall bear the appropriate restrictive legend set forth in
Section 9.1 except that such certificate shall not bear such restrictive legend
if, (i) in the opinion of counsel for such Investor, such legend is not required
in order to establish compliance with any provisions of the Securities Act, (ii)
a period of at least one year has elapsed since the later of the date the
Restricted Securities were acquired from Prison Realty or from an affiliate of
Prison Realty, and such Investor represents to Prison Realty that it is not an
affiliate of Prison Realty and has not been an affiliate during the preceding
three months and shall not become an affiliate of Prison Realty without
resubmitting the Restricted Securities for reimposition of the legend, or (iii)
the Restricted Securities have been sold pursuant to Rule 144(k) under the
Securities Act and the certificate is accompanied by a representation by the
Investor that it is not an affiliate of Prison Realty, has not been an affiliate
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during the three-month period prior to the sale and has held the Restricted
Securities for more than two years.
ARTICLE X
TERMINATION
Section 10.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Initial Closing Date or any subsequent Standby Commitment Closing Date
notwithstanding the fact that: (i) shareholder votes may have been received with
respect to the Combination or the issuance of the Initial Shares hereunder; or
(ii) any other requisite authorization and approval of the transactions
contemplated hereby shall have been received (provided that any such termination
shall not relieve any party from liability for a breach of any provision hereof
prior to such termination):
(a) by the mutual written consent of the Investors and the Companies;
(b) by the Investors or any of the Companies if either: (i) the
Initial Closing has not occurred on or before June 30, 2000 and this
Agreement has not previously been terminated; provided, that the right to
terminate the Agreement under this Section 10.1(b) shall not be available
to any party whose failure to fulfill any obligation under this Agreement
has been the cause of, or resulted in, the failure of the Initial Closing
to occur on or before such date; or (ii) there shall be any law that makes
consummation of the purchase of the Shares and Warrants hereunder illegal
or otherwise prohibited or if any court of competent jurisdiction or
governmental authority shall have issued an order, decree, ruling or taken
any other action restraining, enjoining or otherwise prohibiting the
purchase of the Shares and Warrants hereunder and such order, decree,
ruling or other action shall have become final and non-appealable;
(c) by the Investors or any of the Companies if, (i) at Prison
Realty's Stockholders' Meeting, Prison Realty Stockholder Approval is not
obtained, (ii) at CCA's Stockholders' Meeting, CCA Stockholder Approval is
not obtained, (iii) at Service Company A's Stockholders' Meeting, Service
Company A Stockholder Approval is not obtained, or (iv) at Service Company
B's Stockholders' Meeting, Service Company B Stockholder Approval is not
obtained;
(d) by the Investors, if the Board of Directors of the Companies (i)
withdraws, modifies or changes its recommendation of this Agreement in a
manner adverse to the Investors or shall have formally resolved to do so or
(ii) enters into, recommends or shall have formally resolved to recommend a
proposal involving a Third Party Agreement;
(e) by the Companies or the Investors if the Board of Directors of any
of the Companies determine to recommend or enter into a Third-Party
Agreement;
(f) by the Companies, in the event of a material breach by the
Investors of any representation, warranty or agreement contained herein
which has not been cured or is not curable within thirty (30) days of the
Companies providing notice of such breach to the Investors; or
(g) by the Investors, in the event of a material breach by the
Companies or any Subsidiary of any representation, warranty or agreement
contained herein (other than a breach which does not cause a Material
Adverse Effect) which has not been cured or is not curable within thirty
(30) days of the Investors providing notice thereof.
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In the event that this Agreement shall be terminated pursuant to this
Article X, all further obligations of the parties under this Agreement, other
than the obligations set forth in Section 7.3, Section 7.6(c) and Article XII,
shall be terminated without further liability of any party to any other party,
provided that nothing herein shall relieve any party from liability for its
willful breach of this Agreement.
ARTICLE XI
INDEMNIFICATION
Section 11.1 Survival of Representations and Warranties. All
representations and warranties of the Companies and the Investors contained
herein, including the Companies Disclosure Schedule, or any certificate or
instrument delivered in connection herewith at or prior to the Initial Closing
shall survive the Initial Closing until, through and including the 90th day
following the filing by Prison Realty of a Form 10-K containing the audited
consolidated financial statements of Prison Realty, as itself and as the
survivor or parent of CCA, Service Company A and Service Company B, for the
fiscal year ending December 31, 2000 (the "Cut-off Date"); provided, however,
that (a) the representations and warranties set forth in Sections 3.A.2, 3.B.2,
3.C.2 and 3.D.2 and Sections 3.01(a), 3.03(a), 3.04(a) and 3.05(a) of the Merger
Agreement shall survive indefinitely, and (b) the representations and warranties
set forth in Section 3.A.7 and in Sections 3.01(j), 3.03(h), 3.04(h) and 3.05(h)
in the Merger Agreement (as made applicable hereto by Section 3.A.1) shall
survive until 90 days following the expiration of the applicable statute of
limitations (giving effect to any extensions thereof). The parties' respective
covenants and agreements set forth herein shall survive indefinitely unless
otherwise set forth therein or herein (except for those set forth in Sections
7.1, 7.2, 7.3, 7.6, 7.8, 7.9, 7.11, 7.12, 7.14, 7.15 and 7.18, each of which
will survive until the Cut-off Date). The Initial Closing shall not be deemed in
any way to constitute a waiver by any party of any powers, rights or remedies it
may have with respect to any obligations of the other parties hereunder,
including without limitation with respect to any misrepresentation or breach of
warranty known to such party at the time of the Initial Closing. No claim shall
be made with respect to any representation, warranty, covenant or agreement
after it ceases to survive except that in the event that any member of the
Investor Indemnified Group (as defined below) (i) receives notice of or
identifies any matter which provides a reasonable basis for a claim to
indemnification hereunder within the applicable period provided in this Section
11.1, and (ii) provides notice to the Companies of the receipt of such notice or
of the matter so identified, and such claim shall not have been finally resolved
before the expiration of the applicable period referred to in this Section 11.1,
any representation, warranty, covenant or agreement that is the basis for such
claim shall continue to survive with respect to such claim and shall remain a
basis for indemnity as to such claim until such claim is finally resolved.
Section 11.2 Indemnification.
(a) For purposes of this Agreement, "Losses" shall mean all demands,
claims, actions or causes of action, assessments, losses, damages, liabilities,
diminution in value, costs (including costs of settlement) and expenses (net of
insurance reimbursement actually received by the Companies after taking into
account any related deductibles and premium increases and net of any tax benefit
(such as additional deductions due to increased liability for interest) from the
payment or from the related underlying liability with respect to which the
payment is made), including without limitation interest, penalties and
attorneys' fees and expenses, asserted against, resulting to, or imposed upon or
incurred by the Companies or the Investor Indemnified Group, or any member
thereof, directly or indirectly, by reason of, relative to, or resulting from
any inaccuracy or any representation or warranty or any breach or violation of
any covenant or agreement of the Companies or any Subsidiary contained in
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the Transaction Documents or any certificate or other document delivered by the
Companies in connection with the Initial Closing, including, without limitation,
any claims relating to the Companies, the Subsidiaries or any properties (former
or current) owned, leased or managed by any of the foregoing. Notwithstanding
the foregoing, Losses relating to one or more inaccuracies of any representation
or warranty (but not with respect to any breach of any covenant or agreement)
which would give rise individually to a Loss of less than $100,000 shall be
deemed not to be a Loss for which indemnification is required under this Section
11.2 (each such Loss a "De Minimis Exclusion").
Without limiting the foregoing, Losses shall include, without limitation,
payments made in connection with the defense, settlement or disposition of any
suit, action, claim or proceeding commenced by a current or former stockholder
of any of the Companies arising out of or related to any action or failure to
act by the Companies or the Subsidiaries at or prior to the Initial Closing
(including without limitation in connection with any registration rights,
redemption rights or similar agreement), whether asserted before or after the
Initial Closing.
(b) Prior to the Initial Closing, the Companies severally but not jointly
hereby agree, and subsequent to the Initial Closing, Prison Realty hereby agrees
to indemnify, defend and hold harmless each Investor and its respective
managers, members, officers, employees, affiliates and associates (the "Investor
Indemnified Group") from and against any and all Losses (other than Losses
covered in Section 11.2(c)) arising from its respective breach (but not a breach
by the other); provided, however, that any indemnification in respect of
breaches of representations and warranties shall be operative and effective only
to the extent the amount of all Losses, in the aggregate, relating thereto,
exceed $30 million (the "Trigger Amount"); provided, further, that
indemnification in respect of Losses relating to breaches of covenants and
agreements will not be subject to the Trigger Amount. Required indemnification
payments by the Companies to the Investors under this Section 11.2(b) shall not
exceed $150 million; provided, however, that this limitation on indemnification
shall not apply to Losses arising out of fraud by or on behalf of the Companies.
(c) To the extent that Prison Realty shall at any time or from time to time
incur Losses arising out of or related to the litigation described in Section
8(b)(iv) of the Prison Realty Series B Articles Supplementary (the "Litigation")
in excess of an aggregated amount of $50.0 million (the "Litigation Amount"),
then the conversion price of the Shares and the exercise price of the Warrants
then in effect shall each be reduced by $0.01 for every $1.0 million increment
in excess of the Litigation Amount.
(d) The Companies' obligations, prior to the Initial Closing, and Prison
Realty's obligations subsequent to the Initial Closing, to make payments
pursuant to this Section 11.2 shall be satisfied as an adjustment to the
conversion price of the Initial Shares as provided in Section 8(b)(iii) of the
Prison Realty Series B Articles Supplementary and the exercise price of the
Warrants as provided in Section 7.1(g) of the Warrant.
(e) The rights and remedies of the Investors with respect to the
representations and warranties of the Companies, including without limitation
the matters referred to in this Section 11.2, are limited to their rights under
this Article XI, and the Investors shall have no independent or other right or
remedies with respect thereto, including without limitation, the right of
recision.
Section 11.3 Terms of Indemnification. The obligations and liabilities of
the Companies with respect to Claims by third parties will be subject to the
following terms and conditions:
(a) the Investors will give the Companies prompt notice of any Claims
asserted against, resulting to, imposed upon or incurred by the Investors,
directly or indirectly, and the Investors will have the right to employ one
counsel of its choice in each applicable jurisdiction (if more than one
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jurisdiction is involved) to represent the Investor and the fees and expenses of
such separate counsel, with respect to such Claim, shall be paid by the Company;
(b) with respect to any Claim to which the Companies and the Investor are
specifically named, the Companies on one hand and the Investors on the other
will not without the prior written consent of the other (which shall not be
unreasonably withheld) settle or compromise any Claim or consent to entry of any
judgment relating to any such Claim; and
(c) the Companies will provide the Investors reasonable access to all
records and documents of the Companies relating to any Claim.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF MARYLAND WITHOUT GIVING
EFFECT TO CONFLICTS OF LAW PRINCIPLES THEREOF.
Section 12.2 Jurisdiction; Forum; Service of Process; Waiver of Jury
Trial. With respect to any suit, action or proceeding ("Proceeding") arising
out of or relating to this agreement each of the Companies and the Investors
hereby irrevocably:
(a) submits to the exclusive jurisdiction of the United States
District Court for the Southern District of New York, the United States
District Court for the District of Maryland, or any state court located in
the State of Maryland, County of Baltimore (the "Selected Courts") and
waives any objection to venue being laid in the Selected Courts whether
based on the grounds of forum non conveniens or otherwise;
(b) consents to service of process in any Proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, or by
recognized international express carrier or delivery service, to the
Companies or the Investors at their respective addresses referred to in
Schedule 1.1 hereof; provided, however, that nothing herein shall affect
the right of any party hereto to serve process in any other manner
permitted by law; and
(c) waives, to the fullest extent permitted by law, any right it may
have to a trial by jury in any Proceeding.
Section 12.3 Successors and Assigns. Except as otherwise provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors by operation of law and permitted assigns of the parties hereto. No
assignment of this Agreement may be made by any party at any time, whether or
not by operation of law, without the other parties' prior written consent;
provided, that any (i) transfer of Shares and Warrant Shares permitted hereunder
(other than transfers between and among the Investors set forth in Schedule 1.1
hereof, or their respective affiliates) shall not entitle the transferee to the
rights of the transferring Investor under this Agreement other than the
registration rights pursuant to the Registration Rights Agreement and (ii) any
Investor shall be permitted to assign its rights and obligations under this
Agreement to another Investor or any of their respective affiliates, in each
case without the consent of any other party hereto.
Section 12.4 Entire Agreement; Amendment. This Agreement and the other
Transaction Documents constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and supersedes all prior
agreements relating to the subject matter hereof including without limitation
the Confidentiality Agreement executed among the Companies and
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certain affiliates of the Investors. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the Companies and by the
Investors.
Section 12.5 Notices, Etc. All notices and other communications provided
for or permitted hereunder shall be made in writing and delivered by hand
delivery, facsimile, or any courier guaranteeing overnight delivery (i) if to
the Investors, at the most current address given by the Investor to the
Companies by means of a notice given in accordance with the provisions of this
Section 12.5, which address initially is, with respect to the Investors as of
the date hereof, the address set forth next to each Investor's name in Schedule
1.1 hereof, with copies to J. Gregory Milmoe, Esq., facsimile number (212)
735-2000; Wilson S. Neely, Esq., facsimile number (212) 455-2502; and Peter T.
Healy, Esq., facsimile number (415) 984-8701, and (ii) if to the Companies, at
10 Burton Hills Boulevard, Nashville, Tennessee 37215, facsimile number (615)
263-3010, Attention: Chairman of the Board of Directors, with a copy to Joseph
V. Russell, Chairman of the Independent Committee of Prison Realty, facsimile
number (615) 872-2322, and Stokes & Bartholomew, P.A., facsimile number (615)
259-1470, Attention: Elizabeth E. Moore, Esq. All such notices and
communications shall be deemed to have been duly given: at the time delivered by
hand, if personally delivered; five (5) business days after being deposited in
the mail, postage prepaid, if mailed; when receipt is confirmed, if delivered by
facsimile; and on the next business day, if timely delivered to a courier
guaranteeing overnight delivery.
Section 12.6 Certain Definitions. As used herein, the following terms
shall have the meanings set forth below:
(a) "affiliate" and "associate" shall have the meanings ascribed to them in
Rule 12b-2 promulgated under the Exchange Act;
(b) "beneficial ownership" shall have the meaning as such term is used in
Rule 13d-3 promulgated under the Exchange Act;
(c) "knowledge" of a party hereto shall mean the knowledge of any director
or executive officer after due inquiry;
(d) "Material Adverse Effect" or "Material Adverse Change" shall mean, when
used in connection with any of the Companies, any change, effect, event,
occurrence or development that is, or is reasonably likely to be, materially
adverse to the business, results or operations or financial condition of the
Companies and their subsidiaries, taken as a whole, other than any change,
effect, event or occurrence relating to or arising out of (a) the economy or
securities markets in general, or (b) this Agreement or the transactions
contemplated hereby or the announcement thereof , including, but not limited to,
changes in methods of accounting with respect to the financial statements of the
Companies permitted by Section 5.2(e) of this Agreement; and
(e) "Subsidiary" of any of the parties means those entities listed on
Section 13.7(e) of its respective Disclosure Schedule.
Section 12.7 Delays or Omissions. Except as expressly provided herein, no
delay or omission to exercise any right, power or remedy accruing to the
Companies or the Investors upon any breach or default of any party under this
Agreement, shall impair any such right, power or remedy of the Companies or the
Investors nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of the Companies or the Investors of any breach or default under this
Agreement, or any waiver on
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the part of any such party of any provisions or conditions of this Agreement,
must be in writing and shall be effective only to the extent specifically set
forth in such writing. All remedies, either under this Agreement or by law or
otherwise afforded to the Companies or the Investors shall be cumulative and not
alternative.
Section 12.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by only one of the parties hereto,
each of which shall be enforceable against the party actually executing such
counterpart, and all of which together shall constitute one instrument.
Section 12.9 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provisions; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
Section 12.10 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 12.11 No Public Announcement. None of the Companies, the
Subsidiaries or the Investors shall make any press release, public announcement
or filing with any Governmental Entity concerning the transactions contemplated
by the Transaction Documents, except as and to the extent that any such party
shall be obligated to make any such disclosure by this Agreement, by law or by
the rules of the NYSE, and then only after consultation with the other regarding
the basis of such obligation and the content of such press release, public
announcement or filing or as the parties shall mutually agree. The parties agree
that the initial press release to be issued with respect to the transactions
contemplated by the Transaction Documents shall be in the form heretofore agreed
to by the parties.
Section 12.12 Further Actions; Reasonable Efforts.
(a) Upon the terms and subject to the conditions hereof, each of the
parties agrees to use its reasonable best efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, and to assist and cooperate with
the other parties in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner practicable, the
transactions contemplated by the Transaction Documents, including without
limitation (i) the obtaining of all necessary actions or nonactions, waivers,
consents and approvals from governmental or regulatory entities and the making
of all necessary registrations and filings and the taking of all steps as may be
necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity, (ii) the obtaining of all necessary
consents, approvals or waivers from third parties, (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging any of the Transaction Documents or the consummation of the
transactions contemplated thereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity or
any Restraint vacated or reversed, and (iv) the execution and delivery of any
additional instruments necessary to consummate the transactions contemplated by,
and to fully carry out the purposes of, the Transaction Documents; provided
that, in connection with the foregoing, the Companies and the Subsidiaries shall
reimburse the Investors for any costs and expenses incurred by them in
connection with the foregoing, other than costs and expenses incurred by them
with respect to any filings required to be made by them under the HSR Act as the
result of their purchase of the Shares.
(b) In connection with and without limiting the foregoing, the parties
shall use reasonable efforts (i) to take all action necessary to ensure that no
state takeover statute or similar statute or regulation is or becomes applicable
to the Transaction Documents or any of the other transactions
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contemplated hereby or thereby and (ii) if any state takeover statute or similar
statute or regulation becomes applicable to the Transaction Documents or any
other transaction contemplated thereby, to take all action necessary to ensure
that the transactions contemplated by the Transaction Documents may be
consummated as promptly as practicable on the terms contemplated thereby and
otherwise to minimize the effect of such statute or regulation on the
transactions contemplated by the Transaction Documents.
Section 12.13 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions and other equitable remedies to prevent breaches
of this Agreement and to enforce specifically the terms and provisions hereof in
any of the Selected Courts, this being in addition to any other remedy to which
they are entitled at law or in equity. Any requirements for the securing or
posting of any bond with respect to such remedy are hereby waived by each of the
parties hereto.
[SIGNATURE PAGES TO FOLLOW]
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IN WITNESS WHEREOF, each of the undersigned has caused the foregoing
Agreement to be executed as of the date first above written.
COMPANIES:
PRISON REALTY TRUST, INC.
By: /s/ DOCTOR R. CRANTS
------------------------------------
Name: Doctor R. Crants
Title: Chief Executive Officer
CORRECTIONS CORPORATION OF AMERICA
By: /s/ DARRELL K. MASSENGALE
------------------------------------
Name: Darrell K. Massengale
Title: CFO and Secretary
PRISON MANAGEMENT SERVICES, INC.
By: /s/ DARRELL K. MASSENGALE
------------------------------------
Name: Darrell K. Massengale
Title: President and CEO
JUVENILE AND JAIL FACILITY
MANAGEMENT SERVICES, INC.
By: /s/ DARRELL K. MASSENGALE
------------------------------------
Name: Darrell K. Massengale
Title: President and CEO
PRISON ACQUISITION COMPANY L.L.C.:
By: /s/ CHAD R. PIKE
------------------------------------
Name: Chad R. Pike
By: /s/ WILLIAM B. DONIGER
------------------------------------
Name: William B. Doniger
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APPENDIX B
ARTICLES SUPPLEMENTARY
CORRECTIONS CORPORATION OF AMERICA
SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
(PAR VALUE $0.01 PER SHARE)
Corrections Corporation of America, a Maryland corporation (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of the State of Maryland that:
FIRST: Pursuant to authority granted to the Board of Directors of the
Corporation (the "Board of Directors") by Article V of the charter of the
Corporation (the "Charter"), the Board of Directors has classified 14,000,000
shares (the "Shares") of Preferred Stock, as defined in the Charter, as a
separate series of shares of Preferred Stock, designated as Series B Cumulative
Convertible Preferred Stock, $0.01 par value per share (the "Series B Preferred
Stock").
SECOND: The terms of the Series B Preferred Stock, including the
preferences, conversions and other rights, voting powers, restrictions,
limitations as to dividends and other distributions, qualifications, and terms
and conditions of redemption, as fixed by the Board of Directors are as follows:
Section 1. Designation and Amount; Rank.
(a) The shares of such series shall be designated as the "Series B
Cumulative Convertible Preferred Stock" (the "Series B Preferred Stock"),
and the number of shares constituting such series shall be 14,000,000
shares. Section 14 sets forth the definitions of certain terms used in
these Articles Supplementary.
(b) The Series B Preferred Stock shall, with respect to dividend
distributions and distributions upon liquidation, winding-up and
dissolution of the Corporation, rank: (i) senior (to the extent set forth
herein) to all Junior Stock; (ii) on a parity with all Parity Stock,
provided that any such Parity Stock (other than the Series A Preferred
Stock and the Series C Preferred Stock) that is not approved by the holders
of the Series B Preferred Stock in accordance with Section 3(b) hereof
shall be deemed to be Junior Stock and not Parity Stock; and (iii) junior
to all Senior Stock, provided, however, that any such Senior Stock that is
not approved by the holders of the Series B Preferred Stock in accordance
with Section 3(b) hereof shall be deemed to be Junior Stock and not Senior
Stock.
Section 2. Dividends and Distributions.
(a) Subject to the preferential rights of all Senior Stock, the
holders of shares of Series B Preferred Stock shall be entitled to receive,
when and as authorized and declared by the Board of Directors, out of funds
legally available for the payment of dividends, cumulative preferential
cash dividends at the rate of twelve percent (12%) per annum of the Stated
Amount (initially equivalent to a fixed annual rate of $3.00 per share of
Series B Preferred Stock). Dividends on shares of Series B Preferred Stock
shall accrue and be cumulative from the Issuance Date. Dividends shall be
payable quarterly in arrears when and as declared by the Board of Directors
on each Dividend Payment Date (or, if such Dividend Payment Date is not a
Business Day, the first (1st) Business Day following the Dividend Payment
Date) in respect of the Dividend Period ending on such Dividend Payment
Date (but without including such Dividend Payment Date) commencing on the
first Dividend Payment Date and continuing for so long as the Series B
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Preferred Stock is outstanding. If cash dividends on the Series B Preferred
Stock are in arrears and unpaid for a period of 60 days or more (a
"Dividend Default"), then dividends shall accrue at the rate of eighteen
percent (18%) per annum of the Stated Amount, compounded quarterly (the
"Default Rate") from the last Dividend Payment Date on which cash dividends
were to be paid until such time as cash dividends are once again paid in
full with respect to the current quarterly dividend. Until unpaid Accrued
Dividends have been paid in full, they shall be added to the Stated Amount
for purposes of calculating future dividend payments. Any reference herein
to "cumulative dividends" or "Accrued Dividends" or similar phrases means
that such dividends are fully cumulative and accumulate and accrue on a
daily basis (computed on the basis of a 360-day year of twelve 30-day
months), whether or not they have been declared and whether or not there
are profits, surplus or other funds of the Corporation legally available
for the payment of dividends. If an Accrued Dividend is not paid in cash
within twelve (12) months of the Dividend Payment Date on which such
dividend was first due, such Accrued Dividend shall represent a permanent
adjustment to the Conversion Value whether or not subsequently paid.
Notwithstanding anything contained herein to the contrary, no
dividends on shares of Series B Preferred Stock shall be declared by the
Board of Directors or paid or Set Apart for Payment by the Corporation at
such time as, and to the extent that, the terms and provisions of any
agreement to which the Corporation is a party, including any agreement
relating to its indebtedness or any provisions of the Corporation's Charter
relating to any Senior Stock, prohibit such declaration, payment or setting
apart for payment or provide that such declaration, payment or setting
apart for payment would constitute a breach thereof or a default
thereunder, or if such declaration or payment shall be restricted or
prohibited by law.
(b) In case the Corporation shall at any time or from time to time
declare, order, pay or make a dividend or other distribution (including,
without limitation, any distribution of stock or other securities or
property or rights or warrants to subscribe for securities of the
Corporation or any of its Subsidiaries by way of dividend or spin-off) on
the Common Stock (other than: (i) any dividend or distribution of shares of
Common Stock covered by Section 8(b)(i); (ii) the Rights Offering or any
issuance of rights pursuant to any stockholder rights agreement of the
Corporation; or (iii) any dividend or distribution on the Common Stock for
which the record date fixed by the Corporation is a date which is prior to
the Issuance Date), then, and in each such case (a "Triggering
Distribution"), the holders of shares of Series B Preferred Stock shall be
entitled to receive from the Corporation, with respect to each share of
Series B Preferred Stock held, in addition to the dividends payable under
Section 2(a), the same dividend or distribution received by a holder of the
number of shares of Common Stock into which such share of Series B
Preferred Stock is convertible on the record date for such dividend or
distribution. Any such dividend or distribution shall be declared, ordered,
paid or made on the Series B Preferred Stock at the same time such dividend
or distribution is declared, ordered, paid or made on the Common Stock and
shall be in addition to any dividends payable to the holders of Series B
Preferred Stock under Section 2(a) hereof.
(c) For so long as any shares of Series B Preferred Stock are
outstanding, no dividends shall be declared by the Board of Directors or
paid or Set Apart for Payment by the Corporation on any Parity Stock for
any period unless the Accrued Dividends for all Dividend Periods ending on
or prior to the date of payment of such dividends on Parity Stock have been
or contemporaneously are declared and paid in full, or declared and a sum
in cash is Set Apart for Payment on the Series B Preferred Stock. If the
full Accrued Dividends are not so paid (or a sum sufficient for such full
payment is not so Set Apart for Payment) upon the shares of the Series B
Preferred Stock or any Parity Stock, all dividends declared and paid upon
shares of the Series B Preferred Stock and any other Parity Stock shall be
declared pro rata so that the
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amount of dividends declared and paid per share on the Series B Preferred
Stock and such Parity Stock shall in all cases bear to each other the same
ratio that the Accrued Dividends per share on the Series B Preferred Stock
and the accrued dividends per share on such Parity Stock bear to each
other.
(d) For so long as any shares of Series B Preferred Stock are
outstanding, the Corporation shall not declare, pay or Set Apart for
Payment any dividend on any of the Junior Stock (other than dividends in
Junior Stock to the holders of Junior Stock), or make any payment on
account of, or Set Apart for Payment money for a sinking or other similar
fund for, the purchase, redemption or other retirement of, any of the
Junior Stock or any warrants, rights, calls or options exercisable for or
convertible into any of the Junior Stock whether in cash, obligations or
shares of the Corporation or other property (other than in exchange for
Junior Stock), and shall not permit any corporation or other entity
directly or indirectly controlled by the Corporation to purchase or redeem
any of the Junior Stock or any such warrants, rights, calls or options
(other than in exchange for Junior Stock) unless the Accrued Dividends on
the Series B Preferred Stock for all Dividend Periods ended on or prior to
the date of such payment in respect of Junior Stock have been or
contemporaneously are paid in full or declared and a sum in cash has been
Set Apart for Payment.
(e) For so long as any shares of Series B Preferred Stock are
outstanding, the Corporation shall not (except with respect to dividends as
permitted by Section 2(c)) make any payment on account of, or Set Apart for
Payment money for a sinking or other similar fund for, the purchase,
redemption or other retirement of, any shares of the Parity Stock or any
warrants, rights, calls or options exercisable for or convertible into any
shares of the Parity Stock, and shall not permit any corporation or other
entity directly or indirectly controlled by the Corporation to purchase or
redeem any shares of the Parity Stock or any such warrants, rights, calls
or options unless the Accrued Dividends on the Series B Preferred Stock for
all Dividend Periods ended on or prior to the date of such payment in
respect of Parity Stock have been or contemporaneously are paid in full.
(f) Notwithstanding anything contained herein to the contrary,
dividends on the Series B Preferred Stock, if not paid on a Series B
Dividend Payment Date, will accrue whether or not dividends are declared
for such Series B Dividend Payment Date, whether or not the Corporation has
earnings and whether or not there are profits, surplus or other funds
legally available for the payment of such dividends. Any dividend payment
made on shares of Series B Preferred Stock shall first be credited against
the current dividend and then against the earliest Accrued Dividend.
Section 3. Voting Rights.
In addition to any voting rights provided elsewhere herein, and any voting
rights provided by law, and subject to the provisions of the Charter of the
Corporation, the holders of shares of Series B Preferred Stock shall have the
following voting rights:
(a) For so long as any shares of Series B Preferred Stock are
outstanding, each share of Series B Preferred Stock shall entitle the
holder thereof to vote on all matters voted on by holders of the Capital
Stock of the Corporation of the class into which such share of Series B
Preferred Stock is convertible, voting together as a single class with the
other shares entitled to vote, at all meetings of the stockholders of the
Corporation. With respect to any such vote, each share of Series B
Preferred Stock shall entitle the holder thereof to cast the number of
votes equal to the number of votes which could be cast in such vote by a
holder of the shares of
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Capital Stock of the Corporation of the class into which such share of
Series B Preferred Stock is convertible on the record date for such vote.
(b) Notwithstanding any provision of Maryland law requiring that any
action of the holders of shares of the Series B Preferred Stock be taken or
authorized by the affirmative vote of the holders of a designated
proportion greater than a majority of such shares or votes entitled to be
cast by such holders, the action shall be effective and valid if taken or
authorized by the affirmative vote of the holders of a majority of the
total number of shares of Series B Preferred Stock outstanding and entitled
to vote thereon (the "Requisite Holders"). For so long as any shares of
Series B Preferred Stock are outstanding, without first obtaining the
approval of the Requisite Holders, voting as a single class, given in
person or by proxy at a meeting at which the holders of such shares shall
be entitled to vote separately as a class, the Corporation shall not: (i)
alter or change the rights, preferences or privileges of the Series B
Preferred Stock as set forth in these Articles Supplementary or the Series
C Preferred Stock as set forth in the Articles Supplementary designating
the rights, preferences or privileges of the Series C Preferred Stock so as
to affect such shares of Series B Preferred Stock adversely; or (ii) amend,
modify or waive any provision of the Charter or the Amended and Restated
Bylaws of the Corporation so as to affect such shares of Series B Preferred
Stock adversely.
(c) Until the Termination Date, without first obtaining the approval
of the Requisite Holders, voting as a single class, given in person or by
proxy at a meeting at which the holders of such shares shall be entitled to
vote separately as a class, or, if approval of holders of shares of the
Series B Preferred Stock is not required by the MGCL, by written consent of
the Requisite Holders, the Corporation shall not: (i) increase or decrease
the authorized or issued number of shares of Series B Preferred Stock or
Series C Preferred Stock of the Corporation (other than shares issued to
holders of Series B Preferred Stock or Series C Preferred Stock, shares
issued pursuant to the terms of the Series B Preferred Stock or Series C
Preferred Stock, or pursuant to the Rights Offering); (ii) create or
authorize, or reclassify any authorized Capital Stock of the Corporation
into any new class or series, or any shares of any class or series, of
Capital Stock of the Corporation; or (iii) enter into or authorize any
transaction constituting a Change of Control.
Section 4. Liquidation, Dissolution or Winding Up.
If the Corporation shall commence a voluntary case under the Federal
bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency
or similar law, or consent to the entry of any order for relief in an
involuntary case under such law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation, or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law, or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator
(or other similar official) of the Corporation or of any substantial part of its
property, or ordering the winding up or liquidation or its affairs, and on
account of any such event the Corporation shall liquidate, dissolve or wind up,
or if the Corporation shall otherwise liquidate, dissolve or wind up, subject to
the prior rights of holders of any Senior Stock, but before any distribution or
payment shall be made to holders of Junior Stock, the holders of shares of
Series B Preferred Stock shall be entitled to receive, on a parity with holders
of Parity Stock, out of the assets of the Corporation legally available for
distribution to stockholders, an amount per share of Series B Preferred Stock
equal to the greater of: (i) the sum of (1) the Series B Liquidation Preference,
and (2) an amount per share of the Series B Preferred Stock (the "Liquidation
Lookback Return") equal to an eighteen
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percent (18%) per annum return on investment on the Stated Amount, compounded
quarterly from the Issuance Date until the date of payment of full liquidating
distributions upon shares of Series B Preferred Stock pursuant to this Section 4
reduced by the actual return (assuming quarterly compounding) on the Stated
Amount over the same period calculated using the dividends actually paid, when
paid; or (ii) the sum of (1) the Stated Amount, and (2) the Liquidation Lookback
Return. If upon any liquidation, dissolution or winding up of the Corporation,
the available assets of the Corporation are insufficient to pay the amount of
the liquidating distributions on all outstanding shares of Series B Preferred
Stock and the corresponding amounts payable on all Parity Stock in the
distribution of assets, then the holders of shares of the Series B Preferred
Stock and the Parity Stock shall share equally and ratably in any distribution
of assets of the Corporation first in proportion to the full liquidating
distributions per share to which they would otherwise be respectively entitled
and then in proportion to their respective amounts of accrued but unpaid
dividends. After payment of the full amount of the greater of the amounts set
forth in clause (i) or (ii) above to which they are entitled, the holders of
shares of Series B Preferred Stock will not be entitled to any further
participation in any distribution of assets of the Corporation and shall not be
entitled to any other distribution. For the purposes of this Section 4, neither
the consolidation, merger or other business combination of the Corporation with
or into any other entity or entities nor the sale of all or substantially all
the assets of the Corporation shall be deemed to be a liquidation, dissolution
or winding up of the Corporation.
Section 5. Put Right. At any time following the date which is the later of
the fifth anniversary of the Issuance Date or the date which is the 91st day
following the repayment in full of the Corporation's 12% Senior Notes due 2006
(the "Put Trigger Date"), a holder may give written notice (the "Put Notice") to
the Corporation of its intention to sell all, but not less than all, of its
Series B Preferred Stock to the Corporation on the 30th Business Day following
the date of such notice (the "Put Date") at a cash price per share of Series B
Preferred Stock (the "Put Price") equal to the sum of: (1) the Stated Amount;
and (2) an amount per share of the Series B Preferred Stock (the "Put Lookback
Return") equal to an eighteen percent (18%) per annum return on investment on
the Stated Amount, compounded quarterly from the Issuance Date until the Put
Date reduced by the actual return (assuming quarterly compounding) on the Stated
Amount over the same period calculated using the dividends actually paid, when
paid. The holders of shares of Series B Preferred Stock shall be permitted to
convert their Series B Preferred Stock into Common Stock at any time prior to
the close of business on the last Business Day immediately preceding the later
of the Put Date or, if not actually repurchased by the Corporation on the Put
Date, the date on which the Series B Preferred Stock is actually repurchased by
the Corporation.
The Put Notice shall state (i) the Put Date and (ii) the number of
outstanding shares of Series B Preferred Stock to be redeemed. Promptly
following receipt of the Put Notice, the Corporation shall provide written
notice to the holder setting forth (i) the Put Price, (ii) the place or places
where certificates for such shares of Series B Preferred Stock are to be
surrendered for payment of the Put Price, including any procedures applicable to
repurchases to be accomplished through book-entry transfers and (iii) that
dividends on the shares of Series B Preferred Stock to be repurchased shall
cease to accumulate as of the Put Date.
Upon the Put Date (unless the Corporation shall default in making payment
of the appropriate Put Price), whether or not certificates for shares which are
the subject of the Put Notice have been surrendered for cancellation, the shares
of Series B Preferred Stock to be redeemed shall be deemed to be no longer
outstanding, dividends on the shares of Series B Preferred Stock shall cease to
accumulate and the holders thereof shall cease to be stockholders with respect
to such shares and shall have no rights with respect thereto, except for the
rights to receive the Put Price but without interest, and, up to the later of
(i) the close of business on the first (1st) Business Day preceding the
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Put Date or (ii) the date on which the shares of Series B Preferred Stock are
actually repurchased, the right to convert such shares pursuant to Section 8
hereof.
Section 6. Call Right.
(a) Except as provided in this Section 6(a), the Corporation shall
have no right to repurchase any shares of Series B Preferred Stock. At any
time or from time to time commencing six (6) months following the date
which is the later of the fifth anniversary of the Issuance Date or the
date which is the 91st day following the repayment in full of the
Corporation's 12% Senior Notes due 2006 (the "Call Trigger Date"), the
Corporation shall have the right, at its sole option and election, to
repurchase, out of funds legally available therefor, all, or part, of the
outstanding shares of Series B Preferred Stock by providing written notice
(the "Call Notice") of its intention to repurchase all, or part, of the
outstanding shares of Series B Preferred Stock on the 30th Business Day
following the date of such notice (the "Call Date") at a cash price per
share of Series B Preferred Stock (the "Call Price") equal to the sum of:
(1) the Stated Amount; and (2) an amount per share of the Series B
Preferred Stock (the "Call Lookback Return") equal to an eighteen percent
(18%) per annum return on investment on the Stated Amount, compounded
quarterly from the Issuance Date until the Call Date reduced by the actual
return (assuming quarterly compounding) on the Stated Amount over the same
period calculated using the dividends actually paid, when paid. If less
than all shares of Series B Preferred Stock outstanding at the time are to
be repurchased by the Corporation pursuant to this Section 6(a), the shares
of Series B Preferred Stock to be repurchased shall be selected pro rata;
provided, however, that in the event that less than ten percent (10%) of
the number of shares of Series B Preferred Stock originally issued are then
outstanding, the Corporation shall be required to repurchase all of such
outstanding shares if it elects to repurchase any shares pursuant to this
Section 6(a). Each holder of shares of Series B Preferred Stock shall be
permitted to convert their shares of Series B Preferred Stock into Common
Stock at any time prior to the close of business on the last Business Day
immediately preceding the later of the Call Date or, if not actually
repurchased by the Corporation on the Call Date, the date on which the
Series B Preferred Stock is actually repurchased by the Corporation.
(b) Notwithstanding the provisions of Section 6(a) hereof: (i) the
repurchase of shares of Series B Preferred Stock by the Corporation
pursuant to this Section 6 shall only be effected by the action of a
majority of the directors of the Corporation other than Series B Preferred
Stock Directors (as such term is defined in Section 11(c) hereof) of the
Corporation; and (ii) the Corporation shall have reserved from its
authorized and unissued Common Stock such number of shares of Common Stock
as shall be sufficient to effect the conversion of all then outstanding
shares of Series B Preferred Stock into Common Stock.
(c) The Call Notice shall state: (i) the Call Date; (ii) the Call
Price; (iii) the number of such holder's outstanding shares of Series B
Preferred Stock to be repurchased by the Corporation; (iv) the place or
places where certificates for such shares are to be surrendered for payment
of the Call Price, including any procedures applicable to redemptions to be
accomplished through book-entry transfers; and (v) that dividends on the
shares of Series B Preferred Stock to be repurchased shall cease to
accumulate as of the Call Date, or, if such shares are not actually
repurchased on such date, the date on which the shares of Series B
Preferred Stock are actually repurchased by the Corporation.
(d) Upon the Call Date (unless the Corporation shall default in making
payment of the appropriate Call Price), whether or not certificates for
shares which are the subject of the Call Notice have been surrendered for
cancellation, the shares of Series B Preferred Stock to be repurchased
shall be deemed to be no longer outstanding, dividends on such shares of
Series B
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Preferred Stock shall cease to accumulate and the holders thereof shall
cease to be stockholders with respect to such shares and shall have no
rights with respect thereto, except for the rights to receive the Call
Price, without interest, and, up to the later of (i) the close of business
on the first (1st) Business Day preceding the Call Date or (ii) the date on
which the shares of Series B Preferred Stock are actually repurchased, the
right to convert such shares pursuant to Section 8 hereof.
Section 7. Redemption Upon a Change of Control.
(a) In the event there occurs a Change of Control, the Corporation
shall, subject to legal availability of funds therefor, offer to redeem all
of the outstanding shares of the Series B Preferred Stock held by a holder
for an amount per share of Series B Preferred Stock (the "Change of Control
Redemption Price") equal to the greater of: (i) the sum of (1) the Series B
Liquidation Preference, and (2) an amount per share of the Series B
Preferred Stock (the "Change of Control Lookback Return") equal to an
eighteen percent (18%) per annum return on investment on the Stated Amount,
compounded quarterly from the Issuance Date until the date of the Change of
Control reduced by the actual return (assuming quarterly compounding) on
the Stated Amount over the same period; or (ii) the sum of (1) the Stated
Amount, and (2) the Change of Control Lookback Return. In the event of a
Change of Control, each holder of Series B Preferred Stock shall have the
right (but not the obligation) to require the Corporation to redeem any or
all of the Series B Preferred Stock held by such holder for an amount equal
to the Change of Control Redemption Price. Any payments to holders of
Series B Preferred Stock exercising the right to redeem shares of Series B
Preferred Stock pursuant to this Section 6(a) shall be in preference to
holders of Junior Stock.
(b) Each holder of Series B Preferred Stock shall also be permitted,
until the fifth (5th) Business Day following a Change of Control, to
convert the shares of Series B Preferred Stock held by such holder into
shares of Common Stock in accordance with Section 8 below; provided that
any shares of Common Stock issuable upon conversion of any Series B
Preferred Stock converted pursuant to this sentence after a Change of
Control has occurred shall be entitled to receive the same amount of cash,
securities and other property in connection with such Change of Control as
the Common Stock outstanding prior to the Change of Control. In the event
that any holder does not elect to convert or redeem such holder's shares of
Series B Preferred Stock pursuant to the foregoing sentence, such holder
shall retain any rights it has to convert or redeem its shares of Series B
Preferred Stock in connection with any subsequent Change of Control.
(c) Within five (5) Business Days following a Change of Control event
requiring the Corporation to offer to redeem shares of Series B Preferred
Stock pursuant to Section 7(a) herein, the Corporation shall send notice of
such offer of redemption by first class mail, postage prepaid, to each
holder of record of shares of Series B Preferred Stock, at such holder's
address as it appears on the transfer books of the Corporation; provided,
however, the failure to give such notice or any defect therein or in the
mailing thereof shall not affect the validity of the offer except as to the
holder to whom the Corporation has failed to give notice or except as to
the holder to whom notice was defective. Such notice shall state: (i) the
Change of Control Redemption Price; (ii) the place or places where
certificates for such shares are to be surrendered for payment of the
Change of Control Redemption Price, including any procedures applicable to
redemptions to be accomplished through book-entry transfers; and (iii) that
dividends on the shares to be redeemed shall cease to accumulate upon the
date fixed for redemption by the Corporation (the "Change of Control
Redemption Date") unless such shares are not actually redeemed on such
date. The Corporation shall publish the fact that it is offering to redeem
shares of Series B Preferred Stock through a nationally prominent newswire
service on
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or before the date of mailing any notice of right of redemption. In the
event a record holder of shares of Series B Preferred Stock shall elect to
require the Corporation to redeem shares of Series B Preferred Stock
pursuant to this Section 7, such holder shall deliver within twenty (20)
Business Days of the mailing to it of the Corporation's notice described in
this Section 7(c), a written notice to the Corporation so stating,
specifying the number of shares to be redeemed pursuant to this Section 7.
The Corporation shall, in accordance with the terms hereof, redeem the
number of shares so specified on the Change of Control Redemption Date.
Failure of the Corporation to give any notice required by this Section
7(c), or the formal insufficiency of any such notice, shall not prejudice
the rights of any holders of shares of Series B Preferred Stock to cause
the Corporation to redeem shares held by them. Notwithstanding the
foregoing, the Board of Directors of the Corporation may modify any offer
pursuant to this Section 7(c) to the extent necessary to comply with the
Exchange Act and the rules and regulations thereunder.
Section 8. Conversion Into Common Stock.
(a) Each share of Series B Preferred Stock may, at the option of the
holder thereof, be converted into shares of Common Stock at any time,
whether or not the Corporation has given a Call Notice under Section 6 or a
notice of an offer to redeem under Section 7, on the terms and conditions
set forth in this Section 8. Subject to the provisions for adjustment
hereinafter set forth, each share of Series B Preferred Stock shall be
convertible in the manner hereinafter set forth into a number of fully paid
and nonassessable shares of Common Stock equal to the product obtained by
multiplying the Applicable Conversion Rate (as defined below) by the number
of shares of Series B Preferred Stock being converted. The "Applicable
Conversion Rate" means the quotient obtained by dividing the Conversion
Value on the date of conversion by the Conversion Price, as adjusted
pursuant to Section 8(b), on the date of conversion.
(b) The Conversion Price shall be subject to adjustment from time to
time as follows:
(i) In case the Corporation shall at any time or from time to time
after the Issuance Date declare a dividend, or make a distribution, on
the outstanding shares of Common Stock, in either case, in shares of
Common Stock, or effect a subdivision, combination, consolidation or
reclassification of the outstanding shares of Common Stock into a
greater or lesser number of shares of Common Stock, then, and in each
such case, the Conversion Price in effect immediately prior to such
event or the record date therefor, whichever is earlier, shall be
adjusted by multiplying such Conversion Price by a fraction, the
numerator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event and the denominator of which
is the number of shares of Common Stock outstanding immediately after
such event. An adjustment made pursuant to this Section 8(b)(i) shall
become effective: (x) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the
determination of holders of shares of Common Stock entitled to receive
such dividend or distribution; or (y) in the case of any such
subdivision, reclassification, consolidation or combination, at the
close of business on the day upon which such corporate action becomes
effective.
(ii) In case the Corporation shall issue (other than upon the
exercise of options, rights or convertible securities) shares of Common
Stock (or options, rights, warrants or other securities convertible into
or exchangeable for shares of Common Stock) at a price per share (or
having an exercise or conversion price per share) less than the Current
Market Price as of the Business Day immediately preceding the
Measurement Date, other than (A) issuances in a private placement of
securities, other than to an affiliate of the Corporation, at a cash
price for the securities sold in such private placement (and the
underlying
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Common Stock, as applicable) of not less than 95% of the Current Market
Price thereof, (B) in a transaction to which Section 2(a), 2(b) or
8(b)(i) applies, (C) pursuant to options, deferred shares or other
securities under any Existing Benefit Plan or any employee or director
benefit plan or program of the Corporation approved by the Board of
Directors of the Corporation or shares of Common Stock issued upon the
exercise thereof, (D) pursuant to the conversion of the Series B
Preferred Stock or the Series C Preferred or as dividends on the Series
A Preferred Stock, the Series B Preferred Stock or the Series C
Preferred Stock, (E) pursuant to the conversion of all convertible
securities previously issued by the Corporation and outstanding on the
Issuance Date, or (F) pursuant to the issuance of the Series C Preferred
Stock in connection with the Rights Offering (the issuances under
clauses (A), (B), (C), (D), (E) and (F) being referred to as "Excluded
Issuances"), then, and in each such case, the Conversion Price in effect
immediately prior to the Measurement Date shall be reduced so as to be
equal to an amount determined by multiplying such Conversion Price by a
fraction of which the numerator shall be the number of shares of Common
Stock outstanding at the close of business on the Measurement Date plus
the number of shares of Common Stock (or the number of shares of Common
Stock issuable upon the conversion, exchange or exercise of such
options, rights, warrants or other securities convertible into or
exchangeable for shares of Common Stock) which the aggregate
consideration receivable by the Corporation in connection with such
issuance would purchase at such Current Market Price and the denominator
shall be the number of shares of Common Stock outstanding at the close
of business on the Measurement Date plus the number of shares of Common
Stock (or the number of shares of Common Stock issuable upon the
conversion, exchange or exercise of such options, rights, warrants or
other securities convertible into or exchangeable for shares of Common
Stock) so issued. For purposes of this Section 8(b)(ii), the aggregate
consideration receivable by the Corporation in connection with the
issuance of shares of Common Stock or of options, rights, warrants or
other convertible securities shall be deemed to be equal to the sum of
the gross offering price (before deduction of customary underwriting
discounts or commissions and expenses payable to third parties) of all
such securities plus the minimum aggregate amount, if any, payable upon
conversion or exercise of any such options, rights, warrants or other
convertible securities into shares of Common Stock, less any original
issue discount, premiums and other similar incentives which have the
effect of reducing the effective price per share. For purposes of this
Section 8(b)(ii), such adjustment shall become effective immediately
prior to the opening of business on the Business Day immediately
following the Measurement Date.
(iii) To the extent that the Companies' (as such term is defined in
the Purchase Agreement) indemnification obligations pursuant to Section
11.2(c) of the Purchase Agreement are to be satisfied in the form of a
Conversion Price adjustment and not in cash, then the Conversion Price
(after giving effect to all previous adjustments) shall be reduced by
the amount of any such Loss (as such term is defined in the Purchase
Agreement), other than a Loss covered by Section 8(b)(iv) hereof,
divided by the number of shares of Common Stock then issuable upon
conversion of the Series B Preferred Stock and Series C Preferred Stock.
(iv) To the extent that the Corporation shall, after the Issuance
Date, become obligated to make any Stockholder Litigation Payment (as
defined in this Section 8(b)(iv)) with the effect that the aggregate of
all Stockholder Litigation Payments shall be in excess of $50.0 million,
the Conversion Price then in effect shall be reduced by $0.01 (without
regard to any limitation in Section 8(b)(vi) hereof) for every $1.0
million increment by which the Stockholder Litigation Payment shall
exceed $50.0 million in the aggregate. For
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purposes of this Section 8(b)(iv), a "Stockholder Litigation Payment"
means (i) any payment or series of payments (whether paid in cash, in
capital stock, in other rights or property or any combination thereof)
resulting from an adverse judgment relating to, or a settlement or other
disposition of, the following litigation (including for such purposes,
successor lawsuits or new lawsuits arising out of the same facts and
circumstances): (A) In re Prison Realty Securities Litigation, Civ. No.
3-99-0452 (United States District Court for the Middle District of
Tennessee); (B) In re Old CCA Securities Litigation, Civ. No. 3-99-0458
(United States District Court for the Middle District of Tennessee); and
(C) Dasburg, S.A. v. Corrections Corporation of America, et al., No.
98-2391-III (Chancery Court for Davidson County, Tennessee), or (ii) any
payment or series of payments (whether paid in cash, in capital stock,
in other rights or property or any combination thereof) resulting from
an adverse judgment relating to, or a settlement or other disposition
of, any suit, action, claim or proceeding commenced by a current or
former stockholder or creditor of the Corporation arising out of or
relating to the transactions contemplated by the Purchase Agreement,
including but not limited to the purchase of the shares of Series B
Preferred Stock by the Investors, the Combination and the Rights
Offering.
(v) In addition to the adjustments in Sections 8(b)(i)-(iv) above,
the Corporation will be permitted to make such reductions in the
Conversion Price as it considers to be advisable in order that any event
treated for Federal income tax purposes as a dividend of stock or stock
rights will not be taxable to the holders of the shares of Common Stock.
(vi) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least $0.01;
provided, that any adjustments which by reason of this Section 8(b)(vi)
are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this
Section 8 shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be.
(c) In case of any capital reorganization or reclassification of
outstanding shares of Common Stock (other than a reclassification covered
by Section 8(b)(i)), or in case of any consolidation, share exchange or
merger of the Corporation with or into another Person, or in case of any
sale or conveyance to another Person of the property of the Corporation as
an entirety or substantially as an entirety (each of the foregoing being
referred to as a "Transaction"), each share of Series B Preferred Stock
then outstanding shall thereafter be convertible into, in lieu of the
Common Stock issuable upon such conversion prior to the consummation of
such Transaction, the kind and amount of shares of stock and other
securities and property (including cash) receivable upon the consummation
of such Transaction by a holder of that number of shares of Common Stock
into which one share of Series B Preferred Stock was convertible
immediately prior to such Transaction (including, on a pro rata basis, the
cash, securities or property received by holders of Common Stock in any
tender or exchange offer that is a step in such Transaction). In any such
case, if necessary, appropriate adjustment (as determined in good faith by
the Board of Directors) shall be made in the application of the provisions
set forth in this Section 8 with respect to rights and interests thereafter
of the holders of shares of Series B Preferred Stock to the end that the
provisions set forth herein for the protection of the conversion rights of
the Series B Preferred Stock shall thereafter be applicable, as nearly as
reasonably may be, to any such other shares of stock and other securities
and property deliverable upon conversion of the shares of Series B
Preferred Stock remaining outstanding (with such adjustments in the
conversion price and number of shares issuable upon conversion and such
other adjustments in the provisions hereof as the Board of Directors shall
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determine in good faith to be appropriate). In case securities or property
other than Common Stock shall be issuable or deliverable upon conversion as
aforesaid, then all references in this Section 8 shall be deemed to apply,
so far as appropriate and as nearly as may be, to such other securities or
property.
Notwithstanding anything contained herein to the contrary, the
Corporation will not effect any Transaction unless, prior to the
consummation thereof, (i) the Surviving Person (as defined in Section 14
hereof), if other than the Corporation, shall assume, by written instrument
mailed to each record holder of shares of Series B Preferred Stock, at such
holder's address as it appears on the transfer books of the Corporation,
the obligation to deliver to such holder such cash, property and securities
to which, in accordance with the foregoing provisions, such holder is
entitled. Nothing contained in this Section 8(c) shall limit the rights of
holders of the Series B Preferred Stock to convert the Series B Preferred
Stock in connection with the Transaction or to exercise their rights to
require the redemption of the Series B Preferred Stock under Section 7.
(d) The holder of any shares of Series B Preferred Stock may exercise
its right to convert such shares into shares of Common Stock by
surrendering for such purpose to the Corporation, at its principal office
or at such other office or agency maintained by the Corporation for that
purpose, a certificate or certificates representing the shares of Series B
Preferred Stock to be converted duly endorsed to the Corporation in blank
accompanied by a written notice stating that such holder elects to convert
all or a specified whole number of such shares in accordance with the
provisions of this Section 8. The Corporation will pay any and all
documentary, stamp or similar issue or transfer tax and any other taxes
that may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of Series B Preferred Stock pursuant hereto. As
promptly as practicable, and in any event within three (3) Business Days
after the surrender of such certificate or certificates and the receipt of
such notice relating thereto and, if applicable, payment of all transfer
taxes (or the demonstration to the satisfaction of the Corporation that
such taxes are inapplicable), the Corporation shall deliver or cause to be
delivered (i) certificates registered in the name of such holder
representing the number of validly issued, fully paid and nonassessable
full shares of Common Stock to which the holder of shares of Series B
Preferred Stock so converted shall be entitled and (ii) if less than the
full number of shares of Series B Preferred Stock evidenced by the
surrendered certificate or certificates are being converted, a new
certificate or certificates, of like tenor, for the number of shares
evidenced by such surrendered certificate or certificates less the number
of shares converted. Such conversion shall be deemed to have been made at
the close of business on the date of receipt of such notice and of such
surrender of the certificate or certificates representing the shares of
Series B Preferred Stock to be converted so that the rights of the holder
thereof as to the shares being converted shall cease except for the right
to receive shares of Common Stock, and the person entitled to receive the
shares of Common Stock shall be treated for all purposes as having become
the record holder of such shares of Common Stock at such time.
(e) Shares of Series B Preferred Stock may be converted at any time;
provided, however, that: (i) if the shares of Series B Preferred Stock are
the subject of a Put Notice pursuant to Section 5 hereof, such shares may
be converted up to the close of business on the later of (A) the last
Business Day immediately preceding the Put Date or (B) if not actually
repurchased on the Put Date, the date on which the Series B Preferred Stock
is actually repurchased; (ii) if the shares of Series B Preferred Stock are
the subject of a Call Notice pursuant to Section 6 hereof, such shares may
be converted up to the close of business on the later of (A) the last
Business Day immediately preceding the Call Date or (B) if not actually
repurchased on the Call Date, the date on which the Series B Preferred
Stock is actually repurchased; and (iii) if the shares of Series B
Preferred Stock are subject to an offer to redeem
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upon a Change of Control pursuant to Section 7 hereof, may be converted up
to the fifth (5th) Business Day following a Change of Control pursuant to
the provisions of Section 7(b) hereof.
(f) In connection with the conversion of any shares of Series B
Preferred Stock, no fractions of shares of Common Stock shall be issued,
but in lieu thereof the Corporation shall pay a cash adjustment in respect
of such fractional interest in an amount equal to such fractional interest
multiplied by the Current Market Price per share of Common Stock on the day
on which such shares of Series B Preferred Stock are deemed to have been
converted.
(g) In case at any time or from time to time the Corporation shall pay
any dividend or make any other distribution to the holders of its Common
Stock or shall offer for subscription pro rata to the holders of its Common
Stock any additional shares of stock of any class or any other right (other
than the Rights Offering or any issuance of rights pursuant to any
stockholder rights agreement of the Corporation) or there shall be any
capital reorganization or reclassification of the Common Stock of the
Corporation or consolidation, share exchange or merger of the Corporation
with or into another corporation, or any sale or conveyance to another
corporation of the property of the Corporation as an entirety or
substantially as an entirety, or there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, then, in any one
or more of said cases the Corporation shall give at least twenty (20) days
prior written notice (the time of mailing of such notice shall be deemed to
be the time of giving thereof) to the registered holders of the Series B
Preferred Stock at the addresses of each as shown on the books of the
Corporation as of the date on which (i) the books of the corporation shall
close or a record shall be taken for such stock dividend, distribution or
subscription rights or (ii) notice of such reorganization,
reclassification, consolidation, share exchange, merger, sale or
conveyance, dissolution, liquidation or winding up is given, provided that
in the case of any Transaction to which Section 8(c) applies, the
Corporation shall give at least thirty (30) days prior written notice as
aforesaid. Such notice shall also specify the date, if known, as of which
the holders of the Common Stock and of the Series B Preferred Stock of
record shall participate in said dividend, distribution or subscription
rights or shall be entitled to exchange their Common Stock or Series B
Preferred Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale or
conveyance, or participate in such dissolution, liquidation or winding up,
as the case may be.
Section 9. Reports as to Adjustments.
Whenever the number of shares of Common Stock into which each share of
Series B Preferred Stock is convertible (or the number of votes to which each
share of Series B Preferred Stock is entitled) is adjusted as provided in
Section 8, the Corporation shall promptly mail to the holders of record of the
outstanding shares of Series B Preferred Stock at their respective addresses as
the same shall appear in the Corporation's stock records a notice stating that
the number of shares of Common Stock into which the shares of Series B Preferred
Stock are convertible has been adjusted and setting forth the new number of
shares of Common Stock (or describing the new stock, securities, cash or other
property) into which each share of Series B Preferred Stock is convertible, as a
result of such adjustment, a brief statement of the facts requiring such
adjustment and the computation thereof, and when such adjustment became
effective.
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Section 10. Reacquired Shares.
Any shares of Series B Preferred Stock converted, redeemed, repurchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock of
the Corporation and may be reissued as part of another series of Preferred Stock
of the Corporation subject to the conditions or restrictions on authorizing,
creating or issuing any class or series, or any shares of any class or series,
set forth in Section 3(b).
Section 11. Board of Directors.
(a) Increase in Size of Board of Directors. Upon the Issuance Date and
until the Termination Date, the number of directors of the Corporation
shall automatically be increased, as contemplated by Article IV, Paragraph
F of the Charter of the Corporation, by the number of directors required by
Section 11(b). Upon the Termination Date, the provisions of this Section 11
shall terminate and shall be of no further effect, and Article IV of the
Charter of the Corporation, Articles II and III of the Bylaws of the
Corporation and the applicable provisions of the MGCL shall govern the
composition and election of the Board of Directors of the Corporation.
(b) Additional Directors. Upon the Issuance Date, the number of
directors of the Corporation shall automatically be increased by an
additional six (6) directors (the "Additional Directors"). Four (4) of the
Additional Directors shall be designated as "Series B Preferred Stock
Directors." The initial Series B Preferred Stock Directors shall be elected
by a majority of the entire Board of Directors of the Corporation in office
on the Issuance Date, and thereafter, the Series B Preferred Stock
Directors shall be elected in accordance with Section 11(c) hereof. Two (2)
of the Additional Directors shall be designated as "Outside Directors." The
initial Outside Directors shall be elected by a majority of the entire
Board of Directors of the Corporation in office on the Issuance Date, and
thereafter, the Outside Directors shall be elected in accordance with
Section 11(d) hereof. At least two Outside Directors must satisfy the
qualifications for an Independent Director, as such term is defined in
Article IV, Paragraph B of the Charter of the Corporation.
(c) Election of Series B Preferred Stock Directors. Until the
Termination Date, the applicable number of Series B Preferred Stock
Directors (as determined by Section 11(f) hereof) shall be elected as
provided for in this Section 11(c). Pursuant to clause (a)(1)(ii) of
Article II, Section 12 of the Bylaws of the Corporation, the Corporation
shall cause to exist a nominating committee composed solely of the Series B
Preferred Stock Directors then in office for the purpose of nominating the
Corporation's nominees as Series B Preferred Stock Directors (the "Series B
Preferred Stock Director Nominating Committee"). Prior to each annual
meeting of stockholders, the Corporation's nominees for Series B Preferred
Stock Directors shall be nominated by the Series B Preferred Stock Director
Nominating Committee. The Series B Preferred Stock Directors shall be
elected by a plurality of the votes cast by holders of shares of Series B
Preferred Stock, voting as a separate class, present in person or
represented by proxy at such meeting or by consent, and entitled to vote on
the election of Series B Preferred Stock Directors. Each Series B Preferred
Stock Director so elected shall hold office for a term expiring at the next
annual meeting following the annual meeting of stockholders at which such
director was elected and until his successor is duly elected and qualified,
subject to his earlier death, disqualification, resignation or removal.
Each Series B Preferred Stock Director may be removed from office, with or
without cause, by majority vote of the outstanding shares of Series B
Preferred Stock voting at a meeting or acting by written consent.
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(d) Election of Outside Directors. Until the Termination Date, the
Outside Directors shall be elected as provided for in this Section 11(d).
Pursuant to clause (a)(1)(ii) of Article II, Section 12 of the Bylaws of
the Corporation, the Corporation shall cause to exist a nominating
committee composed of each of the Series B Preferred Stock Directors then
in office and the same number (but not less than one (1)) of the Remaining
Directors (as defined in Section 11(e) below) then in office (who shall be
elected by a majority vote of the Remaining Directors) for the purpose of
nominating the Corporation's nominees as Outside Directors (the "Outside
Director Nominating Committee"). Prior to each annual meeting of
stockholders, the Corporation's nominees for Outside Directors shall be
nominated by the Outside Director Nominating Committee. The Outside
Directors shall be elected by a plurality of the votes cast by holders of
shares of Series B Preferred Stock and Common Stock, voting as a single
class, present in person or represented by proxy at such meeting, and
entitled to vote on such election of Outside Directors. Each Outside
Director so elected shall hold office for a term expiring at the next
annual meeting following the annual meeting of stockholders at which such
director was elected and until his successor is duly elected and qualified,
subject to his earlier death, disqualification, resignation or removal.
(e) Election of Remaining Directors. Until the Termination Date, the
directors of the Corporation other than the Additional Directors (the
"Remaining Directors") shall be elected as provided for in this Section
11(e). Pursuant to clause (a)(1)(ii) of Article II, Section 12 of the
Bylaws of the Corporation, the Corporation shall cause to exist a
nominating committee composed of the Remaining Directors then in office for
the purpose of nominating the Corporation's nominees as Remaining Directors
(the "Remaining Director Nominating Committee"). Prior to each annual
meeting of stockholders, the Corporation's nominees for Remaining Directors
shall be nominated by the Remaining Director Nominating Committee. The
Remaining Directors shall be elected by a plurality of the votes cast by
holders of shares of Series B Preferred Stock, Common Stock, and any other
class of Capital Stock entitled to vote thereon voting as a single class,
present in person or represented by proxy at such meeting, and entitled to
vote on such election of Remaining Directors. Each Remaining Director so
elected shall hold office for a term expiring at the next annual meeting
following the annual meeting of stockholders at which such director was
elected and until his successor is duly elected and qualified, subject to
his earlier death, disqualification, resignation or removal.
(f) Reduction in Number of Series B Preferred Stock Directors.
(i) Reduction Upon Decrease in Ownership Percentage. Until the
Termination Date, and if and for so long as the number of shares of
Series B Preferred Stock outstanding constitutes at least fifty percent
(50%) of the number of shares of Series B Preferred Stock initially
outstanding, the number of Series B Preferred Stock Directors will be
four (4). At the next annual meeting following such time as the number
of shares of Series B Preferred Stock outstanding constitutes less than
twenty-five percent (25%) but more than ten percent (10%) of the shares
of Series B Preferred Stock initially outstanding, the number of Series
B Preferred Stock Directors will be reduced to two (2). At the next
annual meeting following such time as the number of shares of Series B
Preferred Stock outstanding constitutes less than ten percent (10%) of
the shares of Series B Preferred Stock initially outstanding, the number
of Series B Preferred Stock Directors will be reduced to zero (0). Any
reduction in the number of Series B Preferred Stock Directors shall
increase the number of Outside Directors by the same amount. Series B
Preferred Stock Directors whose terms are expiring as a result of this
provision may be nominated for election as Outside Directors.
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(ii) Notice of Transfer. In determining the number of Series B
Preferred Stock Directors, the Corporation shall at all times be
entitled to rely conclusively on the stockholders register. Upon any
such reduction, the Series B Preferred Stock Directors then in office
shall be entitled to give prompt notice to the Board of Directors
identifying which Series B Preferred Stock Director(s) shall have his or
her term concluded. Absent such notice, a majority of the other
Directors shall designate the Series B Preferred Stock Director(s) whose
term shall be concluded at the next annual meeting.
(g) Vacancies. Until the Termination Date, subject to the rights, if
any, of the holders of any class or series of stock to elect directors and
to fill vacancies in the Board of Directors relating thereto and except as
set forth in Section 11(b), any and all vacancies in the Board of
Directors, however occurring, including, without limitation, by reason of
an increase in the size of the Board of Directors, or the death,
resignation, disqualification or removal of a director, shall be filled:
(i) in the case of the Series B Preferred Stock Directors, either (A) by
the nomination of the Series B Preferred Stock Director Nominating
Committee and election by the same stockholder vote as is required for the
election of Series B Preferred Stock Directors at any regular meeting or at
any special meeting called for that purpose or (B) by the vote of a
majority of all of the remaining Series B Preferred Stock Directors then in
office at any regular meeting or at any special meeting called for that
purpose; (ii) in the case of the Outside Directors, either (A) by the
nomination of the Outside Director Nominating Committee and election by the
same stockholder vote as is required for the election of the Outside
Directors at any regular meeting or at any special meeting called for that
purpose or (B) by the vote of a majority of all of the Directors then in
office at any regular meeting or at any special meeting called for that
purpose; or (iii) in the case of the Remaining Directors, either (A) by the
nomination of the Remaining Director Nominating Committee and election by
the same stockholder vote as is required for the election of Remaining
Directors at any regular meeting or at any special meeting called for that
purpose or (B) by the majority vote of all the continuing Remaining
Directors then in office at any regular meeting or at any special meeting
called for that purpose. Any director elected in accordance with the
preceding sentence shall hold office until the next annual meeting of
stockholders and until such director's successor shall have been duly
elected and qualified or until such director's earlier resignation or
removal.
Section 12. Appointment of Directors Upon Dividend Payment Failure or
Failure to Honor Put Rights.
If and as long as (i) dividends on the Series B Preferred Stock shall be in
arrears and unpaid for four (4) Dividend Periods (a "Dividend Payment Failure")
or (ii) the Corporation fails to honor the put provisions of Section 5 hereof or
the Change in Control Redemption provisions of Section 7 hereof (collectively, a
"Put Default"), the holders of such Series B Preferred Stock (voting together as
a class with all other series of Parity Stock upon which like voting rights have
been conferred and are exercisable) will be entitled to vote for the election of
a total of three (3) additional directors of the Corporation (the "Default
Directors") at a special meeting called by the holders of record of at least
twenty percent (20%) of the shares of Series B Preferred Stock and the holders
of record of at least twenty percent (20%) of the shares of any series of Parity
Stock so in arrears (unless such request is received less than ninety (90) days
before the date fixed for the next annual or special meeting of the
stockholders) or at the next annual meeting of stockholders, and at such
subsequent annual meeting until all dividends accumulated on such shares of
Series B Preferred Stock for the past dividend periods and the dividend for the
then current dividend period shall have been fully paid or declared and a sum
sufficient for the payment thereof Set Apart for Payment. A quorum for any such
meeting shall exist if at least a majority of the outstanding shares of Series B
Preferred Stock and shares of Parity Stock upon which like voting rights have
been conferred and are exercisable are
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represented in person or by proxy at such meeting. Such Default Directors shall
be elected upon affirmative vote of a plurality of the shares of Series B
Preferred Stock and such Parity Stock present and voting in person or by proxy
at a duly called and held meeting at which a quorum is present. If and when (i)
all accumulated dividends and the dividend for the then current dividend period
on the shares of Series B Preferred Stock shall have been paid in full or Set
Apart for Payment in full, the holders thereof shall be divested of the
foregoing voting rights (subject to revesting in the event of each and every
Dividend Payment Failure) and, if all accumulated dividends and the dividend for
the then current dividend period have been paid in full or Set Apart for Payment
in full on all series of Parity Stock upon which like voting rights have been
conferred and are exercisable, or (ii) the Corporation shall have fully complied
with the provisions of Section 5 or 6 the failure of which to comply with gave
rise to the right to elect Default Directors, the term of office of each Default
Director so elected shall immediately terminate. Any Default Director may be
removed at any time with or without cause by, and shall not be removed otherwise
than by the vote of, the holders of record of a majority of the outstanding
shares of Series B Preferred Stock and all series of Parity Stock upon which
like voting rights have been conferred and are exercisable (voting together as a
class). So long as a Dividend Payment Failure or Put Default shall continue, any
vacancy in the office of a Default Director may be filled by written consent of
the Default Directors remaining in office, or if none remains in office, by a
vote of the holders of record of a majority of the outstanding shares of Series
B Preferred Stock when they have the voting rights described above (voting
together as a class with all series of Parity Stock upon which like voting
rights have been conferred and are exercisable). The Default Directors shall
each be entitled to one vote per director on any matter.
Section 13. Compliance With Regulatory Requirements.
To the extent that any holder of shares of the Series B Preferred Stock or
any assignee or transferee of such holder (each, a "Holder") is required under
applicable law or regulation (including, but not limited to, the Bank Holding
Company Act of 1956, as amended, and as it may be further amended (the "BHCA"))
to modify the terms of the shares of the Series B Preferred Stock (including
these Articles Supplementary), or to defer until such Holder qualifies as a
"financial holding company" under the BHCA receipt of certain rights and
privileges associated with the shares of the Series B Preferred Stock, including
the right to influence the management or policies of the Corporation in order to
conform to the requirements of such law or regulation, the Corporation will
cooperate with such Holder to take such steps as may be reasonably necessary to
conform the investment represented by the shares of the Series B Preferred Stock
(including these Articles Supplementary) held by that Holder to the requirements
of such law or regulation; provided, however, that the Corporation shall not be
required to make any material changes to the economic terms of the shares of the
Series B Preferred Stock and/or to enable such Holder, after such Holder
qualifies as a "financial holding company" under the BHCA, to exercise to the
maximum extent then permissible under the BHCA, the rights and privileges
associated with the shares of Series B Preferred Stock.
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Section 14. Definitions.
For the purposes of these Articles Supplementary, the following terms shall
have the meanings indicated below:
"Accrued Dividends" to a particular date (the "Applicable Date") means
all dividends accrued but not paid on the Series B Preferred Stock pursuant
to Section 2(a), whether or not earned or declared, accrued to the
Applicable Date.
"Additional Director" shall have the meaning set forth in Section
10(b) hereof.
"affiliate" shall have the meaning set forth in Rule 12b-2 promulgated
by the Securities and Exchange Commission under the Exchange Act.
"Business Day" means any day other than a Saturday, Sunday, or a day
on which commercial banks in the City of New York are authorized or
obligated by law or executive order to close.
"Bylaws" means the bylaws of the Corporation, as in effect from time
to time.
"Call Date" shall have the meaning set forth in Section 6(a) hereof.
"Call Lookback Return" shall have the meaning set forth in Section
6(a) hereof.
"Call Notice" shall have the meaning set forth in Section 6(a) hereof.
"Call Price" shall have the meaning set forth in Section 6(a) hereof.
"Call Trigger Date" shall have the meaning set forth in Section 6(a)
hereof.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or
limited liability company, partnership or membership interests (whether
general or limited) and (iv) any other interest or participation that
confers on a person the right to receive a share of the profits and losses
of, or distributions of assets of, the issuing person.
"Change of Control" means any of the following:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (the
"Acquiring Person"), of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 50% or more of the combined
voting power of the then-outstanding voting securities of the
Corporation entitled to vote generally in the election of directors, but
excluding, for this purpose, any such acquisition by (i) the Corporation
or any of its subsidiaries, (ii) any employee benefit plan (or related
trust) of the Corporation or its subsidiaries or (iii) any corporation
with respect to which, following such acquisition, more than 50% of the
combined voting power of the then-outstanding voting securities of such
corporation entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by individuals and
entities who, immediately prior to such acquisition, were the beneficial
owners of then outstanding voting securities of the Corporation entitled
to vote generally in the election of directors; or
(b) the approval by the stockholders of the Corporation of a
reorganization, merger, share exchange or consolidation, in each case,
with respect to which of the individuals and entities who were the
record owners of the voting securities of the Corporation immediately
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prior to such reorganization, merger, share exchange or consolidation do
not, following such reorganization, merger, share exchange or
consolidation, own, directly or indirectly, more than 50% of the voting
power of the then outstanding voting securities entitled to vote
generally in the election of directors (or persons fulfilling a
comparable role) of the entity resulting from such reorganization,
merger or consolidation; or
(c) the sale or other disposition of assets representing 50% or
more of the assets of the Corporation in one transaction or series of
related transactions.
"Change of Control Lookback Return" shall have the meaning set forth
in Section 7(a) hereof.
"Change of Control Redemption Price" shall have the meaning set forth
in Section 7(a) hereof.
"Charter" means the Amended and Restated Charter of the Corporation as
amended by the Articles of Amendment and Restatement set forth as Exhibit B
to the Purchase Agreement.
"Closing Price" per share of Common Stock on any date shall be the
last sale price, at 4:30 p.m., Eastern Time, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, in
either case as reported on the NYSE or in the principal consolidated
transaction reporting system with respect to securities listed or admitted
to trading on the Nasdaq National Market or American Stock Exchange, as the
case may be, or, if the Common Stock is not listed or admitted to trading
on any national securities exchange, the last quoted sale price or, if not
so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such
other system then in use, or, if on any such date the Common Stock is not
quoted by any such organization, the average of the Closing bid and asked
prices as furnished by a professional market maker making a market in the
Common Stock selected by the Board of Directors and reasonably acceptable
to the Requisite Holders.
"Common Stock" means the common stock, par value $0.01 per share, of
the Corporation.
"Conversion Price" shall initially be equal to $6.50, subject to
adjustment as provided in Section 7(b).
"Conversion Value" per share of Series B Preferred Stock shall be an
amount equal to the Stated Amount plus all Accrued Dividends thereon to the
date of conversion or redemption, as the case may be.
"Current Market Price" per share of Common Stock on any date shall be
the average of the Closing Prices of a share of Common Stock for the five
consecutive Trading Days selected by the Corporation commencing not less
than ten (10) Trading Days nor more than twenty (20) Trading Days before
the date in question. If on any such Trading Day the Common Stock is not
quoted by any organization referred to in the definition of Closing Price,
the Current Market Price of the Common Stock on such day shall be
determined by agreement between the Corporation and the Requisite Holders,
provided that if such agreement is not reached within ten (10) Business
Days, such dispute shall be submitted for final determination to a mutually
acceptable investment banking firm of national reputation familiar with the
valuation of companies substantially similar to the Corporation (the
"Investment Banking Firm"). In the event that the Corporation and the
Requisite Holders cannot agree on a mutually acceptable Investment Banking
Firm within ten (10) Business Days, the Corporation, on the one hand, and
the Requisite Holders, on the other hand, shall each select one Investment
Banking Firm, and
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shall cause such firms to promptly select a third firm within five (5)
Business Days. The three Investment Banking Firms so selected shall, by
majority vote, render their final determination as promptly as practicable
and in any event within twenty (20) Business Days, which determination
shall be final and binding on the Corporation and the holder of Series B
Preferred Stock.
"Default Director" shall have the meaning set forth in Section 12
hereof.
"Dividend Payment Date" means the following dates: (i) the date that
is three months after the Issuance Date; (ii) the date that is six months
after the Issuance Date; (iii) the date that is nine months after the
Issuance Date; (iv) the date that is the first anniversary of the Issuance
Date; and the anniversaries of the foregoing dates, provided that no
Dividend Payment Date shall occur with respect to shares of Series B
Preferred Stock which have actually been redeemed or repurchased by the
Corporation.
"Dividend Payment Failure" shall have the meaning set forth in Section
11 hereof.
"Dividend Period" means the period from the Issuance Date to the first
Dividend Payment Date (but without including such Dividend Payment Date)
and, thereafter, each Dividend Payment Date to the following Dividend
Payment Date (but without including such later Dividend Payment Date).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Benefit Plans" means the employee or director benefit plans
adopted and administered by the Corporation as of the Issuance Date,
including, but not limited to, the employee and director benefit plans
assumed by the Corporation in the merger of each of the old Corrections
Corporation of America, a Tennessee corporation, and CCA Prison Realty
Trust, a Maryland real estate investment trust, with and into the
Corporation.
"Holder" shall have the meaning set forth in Section 14 hereof.
"Investors" means each of the parties identified in the Purchase
Agreement as the "Investors."
"Issuance Date" means the original date of issuance of Series B
Preferred Stock to the Investors.
"Junior Stock" means all classes of Common Stock of the Corporation
and each other class of Capital Stock of the Corporation or series of
Preferred Stock of the Corporation currently existing or hereafter created
the terms of which do not expressly provide that it ranks senior to, or on
a parity with, the Series B Preferred Stock as to dividend distributions
and distributions upon liquidation, winding-up and dissolution of the
Corporation.
"Liquidation Lookback Return" shall have the meaning set forth in
Section 4 hereof.
"Measurement Date" means, for purposes of Section 8(b)(ii), (i) in the
case of an offering of rights, warrants or options to all or substantially
all of the holders of the Common Stock or any other issuance contemplated
by such Section where a record date is fixed for the determination of
stockholders entitled to participate in such issuance, such record date and
(ii) in all other cases, the Business Day immediately preceding the date of
issuance of shares of Common Stock (or options, rights, warrants or other
securities convertible into or exchangeable for shares of Common Stock)
contemplated by such Section.
"MGCL" means the Maryland General Corporation Law, as now or
hereinafter in force.
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"NYSE" means the New York Stock Exchange, Inc.
"Outside Director" shall have the meaning set forth in Section 10(b)
hereof.
"Outside Director Nominating Committee" shall have the meaning set
forth in Section 10(d) hereof.
"Parity Stock" means any class of Capital Stock of the Corporation or
series of Preferred Stock of the Corporation hereafter created that has
been approved by holders of Series B Preferred Stock in accordance with
Section 3(b) hereof, the terms of which expressly provide that such class
or series will rank on a parity with the Series B Preferred Stock as to
dividend distributions and distributions upon liquidation, winding-up and
dissolution. The existing Series A Preferred Stock of the Corporation shall
constitute Parity Stock of the Corporation ranking on a parity with the
Series B Preferred Stock as to dividend distributions and distributions
upon liquidation, winding up and dissolution. The Series C Preferred Stock
of the Corporation shall also constitute Parity Stock of the Corporation
ranking on a parity with the Series B Preferred Stock as to dividend
distributions and distributions upon liquidation, winding up and
dissolution.
"Person" means an individual, partnership, corporation, limited
liability company or partnership, unincorporated organization, trust or
joint venture, or a governmental agency or political subdivision thereof,
or other entity of any kind.
"Preferred Stock" means the preferred stock, $0.01 par value per
share, of the Corporation.
"Purchase Agreement" means the Securities Purchase Agreement, dated as
of December 26, 1999, by and among the Corporation, Corrections Corporation
of America, a Tennessee corporation, Prison Management Services, Inc., a
Tennessee corporation, and Juvenile and Jail Facility Management Services,
Inc., a Tennessee corporation, on the one hand, and the Investors, on the
other hand.
"Put Date" shall have the meaning set forth in Section 5 hereof.
"Put Default" shall have the meaning set forth in Section 12 hereof.
"Put Lookback Return" shall have the meaning set forth in Section 5
hereof.
"Put Notice" shall have the meaning set forth in Section 5 hereof.
"Put Price" shall have the meaning set forth in Section 5 hereof.
"Put Trigger Date" shall have the meaning set forth in Section 5
hereof.
"Remaining Director" shall have the meaning set forth in Section 11(e)
hereof.
"Remaining Director Nominating Committee" shall have the meaning set
forth in Section 10(e) hereof.
"Requisite Holders" shall have the meaning set forth in Section 3(b)
hereof.
"Rights Offering" shall have the meaning set forth in Section 7.15 of
the Purchase Agreement.
"Senior Stock" means each other class of Capital Stock of the
Corporation or series of Preferred Stock of the Corporation hereafter
created that has been approved by the holders of Series B Preferred Stock
in accordance with Section 3(b) hereof and the terms of which expressly
provide that such class or series will rank senior to the Series B
Preferred Stock as to
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dividend distributions and distributions upon liquidation, winding-up and
dissolution of the Corporation.
"Series A Preferred Stock" means the 8% Series A Cumulative Preferred
Stock, $0.01 par value per share, of the Corporation, the terms of which
are set forth in the Charter of the Corporation.
"Series B Liquidation Preference" means, in the event of a voluntary
or involuntary liquidation, dissolution or winding up of the Corporation or
in the event of a Change of Control, an amount per share of Series B
Preferred Stock equal to the amount the holders of the Series B Preferred
Stock would have received had they converted their Series B Preferred Stock
into Common Stock immediately prior to such voluntary or involuntary
liquidation, dissolution or winding up or immediately prior to such Change
of Control.
"Series B Preferred Stock" the Series B Cumulative Convertible
Preferred Stock of the Corporation, $0.01 par value per share, the terms of
which are set forth in these Articles Supplementary.
"Series B Preferred Stock Director" shall have the meaning set forth
in Section 10(b) hereof.
"Series B Preferred Stock Director Nominating Committee" shall have
the meaning set forth in Section 10(c) hereof.
"Series C Preferred Stock" means the Series C Cumulative Convertible
Preferred Stock of the Corporation, $0.01 par value per share, the terms of
which are set forth in Articles Supplementary to the Charter of the
Corporation.
"Set Apart for Payment" means the Corporation shall have irrevocably
deposited with a bank or trust company doing business in the Borough of
Manhattan, the City of New York, and having a capital and surplus of at
least $1,000,000,000, in trust for the exclusive benefit of the holders of
shares of Series B Preferred Stock, funds sufficient to satisfy the
Corporation's payment obligation.
"Stated Amount" means $25.00 per share of Series B Preferred Stock.
"Subsidiary" of any Person means any corporation or other entity of
which a majority of the voting power of the voting equity securities or
equity interest is owned, directly or indirectly, by such Person.
"Surviving Person" means the continuing or surviving Person in a
merger, consolidation, other corporate combination or the transfer of all
or a substantial part of the properties and assets of the Corporation, in
connection with which the Series B Preferred Stock or Common Stock of the
Corporation is exchanged, converted or reinstated into the securities of
any other Person or cash or any other property; provided, however, if such
Surviving Person is a direct or indirect Subsidiary of a Person, the parent
entity also shall be deemed to be a Surviving Person.
"Termination Date" shall mean the date that less than ten percent
(10%) of the number of shares of Series B Preferred Stock initially
outstanding remain outstanding.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is quoted, listed or admitted to trading
is open for the transaction of business or, if the Common Stock is not
quoted, listed or admitted to trading on any national securities exchange
(including the NYSE), any day other than a Saturday, Sunday, or a day on
which
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banking institutions in the State of New York are authorized or obligated
by law or executive order to close.
"Trading Price" per share of Common Stock on any date shall be the
last sales price, at 4:30 p.m., Eastern Time, for the Common Stock reported
on the NYSE (or if the Common Stock is not then quoted thereon, then for
the principal national securities exchange on which the Common Stock is
listed or admitted to trading) or, if the Common Stock is not quoted on the
NYSE and is not listed or admitted to trading on any national securities
exchange, in the over-the-counter market, as reported by NASDAQ or such
other system then in use, or, if on any such date the Common Stock is not
quoted by any such organization, as furnished by a professional market
maker making a market in the Common Stock selected by the Board of
Directors of the Corporation and reasonably acceptable to the Requisite
Holders.
"Triggering Distribution" shall have the meaning set forth in Section
2(b) hereof.
Section 15. References.
References to numbered sections herein refer to sections of these Articles
Supplementary, unless otherwise stated.
The Series B Preferred Stock has been classified by the Board of Directors
of the Corporation under the authority contained in the Charter of the
Corporation.
The undersigned President of the Corporation acknowledges these Articles
Supplementary to be the act of the Corporation and further, as to all matters or
facts required to be verified under oath, the undersigned President
acknowledges, that to the best of his knowledge, information and belief, the
matters and facts set forth herein are true in all material respects and that
this statement is made under the penalties for perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles to be
executed under seal in its name and on its behalf by its President and attested
to by its Secretary on this day of , 2000.
CORRECTIONS CORPORATION OF AMERICA
By: (SEAL)
------------------------------------
President
ATTEST:
By:
------------------------------------
Secretary
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APPENDIX C
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE PROVISIONS OF A
SECURITIES PURCHASE AGREEMENT DATED AS OF DECEMBER 26, 1999 BY AND AMONG PRISON
REALTY TRUST, INC., CORRECTIONS CORPORATION OF AMERICA, PRISON MANAGEMENT
SERVICES, INC., AND JUVENILE AND JAIL FACILITY MANAGEMENT SERVICES, INC., ON THE
ONE HAND, AND PRISON ACQUISITION COMPANY L.L.C., ON THE OTHER HAND (THE
"SECURITIES PURCHASE AGREEMENT"), AND A REGISTRATION RIGHTS AGREEMENT DATED AS
OF , 2000 BETWEEN PRISON REALTY TRUST, INC., AND (THE
"REGISTRATION RIGHTS AGREEMENT"), COPIES OF WHICH ARE ON FILE AT THE OFFICES OF
THE CORPORATION.
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THIS WARRANT NOR
SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED,
PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER
SUCH ACT AND SUCH LAWS.
-------------------------
CORRECTIONS CORPORATION OF AMERICA
FORM OF COMMON STOCK PURCHASE WARRANT
-------------------------
This Warrant Certificate certifies that, , or registered
assigns (collectively, the "Warrantholder"), is the registered holder of this
Common Stock Purchase Warrant expiring on or before the Expiration Date (the
"Warrants") to purchase shares of Common Stock, par value $0.01 per share (the
"Common Stock"), of Corrections Corporation of America, formerly Prison Realty
Trust, Inc., a Maryland corporation (the "Company"). Each Warrant entitles the
Warrantholder, upon exercise at any time and from time to time during the period
from the date of this Warrant through , 2015 (the "Expiration Date"), to
purchase shares of Common Stock (each such share, a "Warrant
Share," and collectively, the "Warrant Shares") at the initial exercise price
(the "Exercise Price") of $7.50 payable in lawful money of the United States of
America upon surrender of this Warrant Certificate and payment of the Exercise
Price, all subject to the terms, conditions and adjustments herein set forth.
Certain capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to them in Section 11 hereto or otherwise those meanings
ascribed to them in the Securities Purchase Agreement.
1. Duration and Exercise of Warrant; Limitations on Exercise; Payment of
Taxes.
1.1 Duration and Exercise of Warrant. Subject to the terms and conditions
set forth herein, the Warrant may be exercised, either in whole or from time to
time in part, at the election of the Warrantholder by:
(a) the surrender of this Warrant to the Company, with a duly executed
Exercise Form (in the form annexed hereto as Exhibit A) specifying the
number of Warrant Shares to be
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purchased, during normal business hours on any Business Day prior to the
Expiration Date (as used in this Agreement, "Business Day" shall mean a day
other than a Saturday, Sunday or a day on which banking institutions in the
State of Maryland are required or authorized to close by applicable law,
regulation or executive order; and
(b) the delivery of payment to the Company, for the account of the
Company, by cash, by certified or bank cashier's check or by wire transfer
of immediately available funds in accordance with wire instructions that
shall be provided by the Company upon request, of the Exercise Price for
the number of Warrant Shares specified in the Exercise Form in lawful money
of the United States of America.
Upon such surrender of the Warrants and payment of the Exercise Price, the
Company shall issue and cause to be delivered with all reasonable dispatch to or
upon the written order of the Warrantholder, a certificate or certificates for
the number of full Warrant Shares issuable upon the exercise of such Warrants.
The Company agrees that such Warrant Shares shall be deemed to be issued to the
Warrantholder as the record holder of such Warrant Shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for the Warrant Shares as aforesaid. All Warrant Certificates
surrendered upon exercise of Warrants shall be canceled and disposed of by the
Company.
1.2 Limitations on Exercise. Notwithstanding anything to the contrary
herein, this Warrant may be exercised only upon (i) the delivery to the Company
of any certificates, legal opinions, and other documents reasonably requested by
the Company to satisfy the Company that the proposed exercise of this Warrant
may be effected without registration under the Securities Act, and (ii) receipt
by the Company of approval of any applicable Governmental Authority of the
proposed exercise. The Warrantholder shall not be entitled to exercise this
Warrant, or any part thereof, unless and until such approvals, certificates,
legal opinions or other documents are reasonably acceptable to the Company. The
cost of such approvals, certificates, legal opinions and other documents, if
required, shall be borne by the Warrantholder.
1.3 Warrant Shares Certificate. A stock certificate or certificates for
the Warrant Shares specified in the Exercise Form shall be delivered to the
Warrantholder within five Business Days after receipt of the Exercise Form and
receipt of payment of the Exercise Price for the Warrant Shares. If this Warrant
shall have been exercised only in part, the Company shall, at the time of
delivery of the stock certificate or certificates, deliver to the Warrantholder
a new Warrant evidencing the rights to purchase the remaining Warrant Shares,
which new Warrant shall in all other respects be identical with this Warrant.
1.4 Payment of Taxes. The issuance of certificates for Warrant Shares upon
the exercise of Warrants shall be made without charge to the Warrantholder for
any documentary stamp or similar stock transfer or other issuance tax in respect
thereto; provided, however, that the Warrantholder shall be required to pay any
and all taxes which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the
registered Warrantholder as reflected upon the books of the Company.
1.5 Divisibility of Warrant; Transfer of Warrant.
(a) This Warrant may only be transferred by the Warrantholder pursuant
to the terms and provisions of Section 8.4 of the Securities Purchase
Agreement.
(b) Subject to the provisions of this Section, this Warrant may be
divided into warrants of ten thousand shares or multiples thereof, upon
surrender at the office of the Company located at 10 Burton Hills
Boulevard, Nashville, Tennessee 37215, without charge to the Warrantholder.
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Subject to the provisions of this Section, upon such division, the Warrants
may be transferred of record as the then Warrantholder may specify without
charge to such Warrantholder (other than any applicable transfer taxes).
(c) Subject to the provisions of this Section, upon surrender of this
Warrant to the Company with a duly executed Assignment Form (in the form
annexed hereto as Exhibit B) and funds sufficient to pay any transfer tax,
the Company shall, without charge, execute and deliver a new Warrant or
Warrants which shall in all material respects be identical with this
Warrant, in the name of the assignee named in such Assignment Form, and
this Warrant shall promptly be canceled. Prior to any proposed transfer
(whether as the result of a division or otherwise) of this Warrant, such
Warrantholder shall give written notice to the Company of such
Warrantholder's intention to effect such transfer. Each such notice shall
describe the manner and circumstances of the proposed transfer in
sufficient detail. The term "Warrant" as used in this Agreement shall be
deemed to include any Warrants issued in substitution or exchange for this
Warrant.
2. Restrictions on Transfer; Restrictive Legends.
Except as otherwise permitted by this Section 2, each stock certificate for
Warrant Shares issued upon the exercise of any Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND
NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT AND SUCH LAWS.
Notwithstanding the foregoing, the Warrantholder may require the Company to
issue a Warrant or a stock certificate for Warrant Shares, in each case without
a legend, if either (i) such Warrant or such Warrant Shares, as the case may be,
have been registered for resale under the Securities Act or (ii) the
Warrantholder has delivered to the Company an opinion of legal counsel, which
opinion shall be addressed to the Company and be reasonably satisfactory in form
and substance to the Company, to the effect that such registration is not
required with respect to such Warrant or such Warrant Shares, as the case may
be.
By acceptance of this Warrant, the Warrantholder expressly agrees that it
will at all times comply with the restrictions contained in Rule 144(e) under
the Securities Act (as in effect on the date hereof) when selling, transferring
or otherwise disposing Warrant Shares, even if such restrictions would not then
be applicable to the Warrantholder.
3. Reservation and Registration of Shares, etc. The Company covenants and
agrees as follows:
(a) all Warrant Shares which are issued upon the exercise of this
Warrant will, upon issuance, be validly issued, fully paid, and
nonassessable, not subject to any preemptive rights, and free from all
taxes, liens, security interests, charges, and other encumbrances with
respect to the issue thereof, other than taxes with respect to any transfer
occurring contemporaneously with such issue;
(b) during the period within which this Warrant may be exercised, the
Company will at all times have authorized and reserved, and keep available,
free from preemptive rights, out of the
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aggregate of its authorized but unissued Common Stock, for the purpose of
enabling it to satisfy any obligation to issue Warrant Shares upon exercise
of Warrants, the maximum number of shares of Common Stock which may then be
deliverable upon the exercise of all outstanding Warrants; and
(c) the Company will use its reasonable best efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company to
perform its obligations under this Warrant.
4. Obtaining Stock Exchange Listings. The Company will from time to time
take all action which may be necessary so that the Warrant Shares, immediately
upon their issuance upon the exercise of Warrants, will be listed on the
principal securities exchanges and markets within the United States of America,
if any, on which other shares of Common Stock are listed.
5. Loss or Destruction of Warrant. Subject to the terms and conditions
hereof, upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant and, in the case of
loss, theft or destruction, of such bond or indemnification as the Company may
reasonably require, and, in the case of such mutilation, upon surrender and
cancellation of this Warrant, the Company will execute and deliver a new Warrant
of like tenor.
6. Ownership of Warrant. The Company may deem and treat the Warrantholder
as the holder and owner hereof (notwithstanding any notations of ownership or
writing hereon made by anyone other than the Company) for all purposes and shall
not be affected by any notice to the contrary, until presentation of this
Warrant for registration of transfer.
7. Certain Adjustments.
7.1 The number of Warrant Shares purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment as follows:
(a) Stock Dividends. If at any time after the date of the issuance of
this Warrant (i) the Company shall fix a record date for the issuance of
any stock dividend payable in shares of Common Stock, or (ii) the number of
shares of Common Stock shall have been increased by a subdivision or
split-up of shares of Common Stock, then, on the record date fixed for the
determination of holders of Common Stock entitled to receive such dividend
or immediately after the effective date of such subdivision or split-up, as
the case may be, the number of shares to be delivered upon exercise of this
Warrant will be increased so that the Warrantholder will be entitled to
receive the number of shares of Common Stock that such Warrantholder would
have owned immediately following such action had this Warrant been
exercised immediately prior thereto, and the Exercise Price will be
adjusted as provided below in paragraph (g).
(b) Combination of Stock. If the number of shares of Common Stock
outstanding at any time after the date of the issuance of this Warrant
shall have been decreased by a combination of the outstanding shares of
Common Stock, then, immediately after the effective date of such
combination, the number of shares of Common Stock to be delivered upon
exercise of this Warrant will be decreased so that the Warrantholder
thereafter will be entitled to receive the number of shares of Common Stock
that such Warrantholder would have owned immediately following such action
had this Warrant been exercised immediately prior thereto, and the Exercise
Price will be adjusted as provided below in paragraph (g).
(c) Reorganization, etc. If any capital reorganization of the
Company, any reclassification of the Common Stock, any consolidation of the
Company with or merger of the Company with or into any other Person, or any
sale or lease or other transfer of all or substantially all of the assets
of the Company to any other Person, shall be effected in such a way that
the holders of
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Common Stock shall be entitled to receive stock, other securities or assets
(whether such stock, other securities or assets are issued or distributed
by the Company or another Person) with respect to or in exchange for Common
Stock, then, upon exercise of this Warrant, the Warrantholder shall have
the right to receive the kind and amount of stock, other securities or
assets receivable upon such reorganization, reclassification, share
exchange or consolidation, merger or sale, lease or other transfer by a
holder of the number of shares of Common Stock that such Warrantholder
would have been entitled to receive upon exercise of this Warrant had this
Warrant been exercised immediately before such reorganization,
reclassification, share exchange or consolidation, merger or sale, lease or
other transfer, subject to adjustments that shall be as nearly equivalent
as may be practicable to the adjustments provided for in this Section 7.
The Company shall not effect any such share exchange or consolidation,
merger or sale, lease or other transfer, unless prior to, or simultaneously
with, the consummation thereof, the successor Person (if other than the
Company) resulting from such share exchange or consolidation or merger, or
such Person purchasing, leasing or otherwise acquiring such assets, shall
assume, by written instrument, the obligation to deliver to the
Warrantholder the shares of stock, securities or assets to which, in
accordance with the foregoing provisions, the Warrantholder may be entitled
and all other obligations of the Company under this Warrant. The provisions
of this paragraph (c) shall apply to successive reorganizations,
reclassifications, consolidations, mergers, sales, leasing transactions and
other transfers.
(d) Distributions to all Holders of Common Stock. If the Company
shall, at any time after the date of issuance of this Warrant, fix a record
date to distribute to all holders of its Common Stock any shares of capital
stock of the Company (other than Common Stock) or evidences of its
indebtedness or assets (not including regular quarterly cash dividends and
distributions paid from retained earnings of the Company) or rights or
warrants to subscribe for or purchase any of its securities, then the
Warrantholder shall be entitled to receive, upon exercise of this Warrant,
that portion of such distribution to which it would have been entitled had
the Warrantholder exercised its Warrant immediately prior to the date of
such distribution. At the time it fixes the record date for such
distribution, the Company shall allocate sufficient reserves to ensure the
timely and full performance of the provisions of this subsection. The
Company shall promptly (but in any case no later than five Business Days
prior to the record date of such distribution) give notice to the
Warrantholder that such distribution will take place.
(e) Fractional Shares. No fractional shares of Common Stock shall be
issued to any Warrantholder in connection with the exercise of this
Warrant. Instead of any fractional shares of Common Stock that would
otherwise be issuable to such Warrantholder, the Company will pay to such
Warrantholder a cash adjustment in respect of such fractional interest in
an amount equal to that fractional interest of the then current Fair Market
Value per share of Common Stock.
(f) Carryover. Notwithstanding any other provision of this Section 7,
no adjustment shall be made to the number of shares of Common Stock to be
delivered to the Warrantholder if such adjustment represents less than
0.01% of the number of shares to be so delivered, but any lesser adjustment
shall be carried forward and shall be made at the time and together with
the next subsequent adjustment which together with any adjustments so
carried forward shall amount to 0.01% or more of the number of shares to be
so delivered.
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(g) Exercise Price Adjustments.
(i) Whenever the number of Warrant Shares purchasable upon the
exercise of this Warrant is adjusted, as herein provided, the Exercise
Price payable upon the exercise of this Warrant shall be adjusted by
multiplying such Exercise Price immediately prior to such adjustment by
a fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of the Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant
Shares purchasable immediately thereafter.
(ii) To the extent that the Company shall, after the date of
issuance of this Warrant, become obligated to make any Stockholder
Litigation Payment (as defined in this Section 7.1(g)(ii)) with the
effect that the aggregate of all Stockholder Litigation Payments shall
be in excess of $50.0 million, the Exercise Price then in effect shall
be reduced by $0.01 for every $1.0 million increment by which the
Stockholder Litigation Payment shall exceed $50.0 million in the
aggregate. For purposes of this Section 7.1(g)(ii), a "Stockholder
Litigation Payment" means (A) any payment or series of payments (whether
paid in cash, in capital stock, in other rights or property or any
combination thereof) resulting from an adverse judgment relating to, or
a settlement or other disposition of, the following litigation
(including for such purposes, successor lawsuits or new lawsuits arising
out of the same facts and circumstances): (1) In re Prison Realty
Securities Litigation, Civ. No. 3-99-0452 (United States District Court
for the Middle District of Tennessee); (2) In re Old CCA Securities
Litigation, Civ. No. 3-99-0458 (United States District Court for the
Middle District of Tennessee), and (3) Dasburg, S.A. v. Corrections
Corporation of America, et al., No. 98-2391-III (Chancery Court for
Davidson County, Tennessee); or (B) any payment or series of payments
(whether paid in cash, in capital stock, in other rights or property or
any combination thereof) resulting from an adverse judgment relating to,
or a settlement or other disposition of, any suit, action, claim or
proceeding commenced by a current or former stockholder or creditor of
the Company arising out of or relating to the transactions contemplated
by the Securities Purchase Agreement, including but not limited to the
purchase of the shares of Series B Preferred Stock by the Investors and
the Combination, both as defined therein.
(iii) The Exercise Price shall be subject to adjustment from time
to time as follows:
(A) In case the Company shall at any time or from time to time
after the date of the issuance of this Warrant declare a dividend, or
make a distribution, on the outstanding shares of Common Stock, in
either case, in shares of Common Stock, or effect a subdivision,
combination, share exchange or consolidation or reclassification of
the outstanding shares of Common Stock into a greater or lesser
number of shares of Common Stock, then, and in each such case, the
Exercise Price in effect immediately prior to such event or the
record date therefor, whichever is earlier, shall be adjusted by
multiplying such Exercise Price by a fraction, the numerator of which
is the number of shares of Common Stock that were outstanding
immediately prior to such event and the denominator of which is the
number of shares of Common Stock outstanding immediately after such
event. An adjustment made pursuant to this Section 7.1(g)(iii)(A)
shall become effective: (x) in the case of any such dividend or
distribution, immediately after the close of business on the record
date for the determination of holders of shares of Common Stock
entitled to receive such dividend or distribution; or (y) in the case
of any such subdivision, reclassification, consolidation
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or combination, at the close of business on the day upon which such
corporate action becomes effective.
(B) In case the Company shall issue (other than upon the
exercise of options, rights or convertible securities) shares of
Common Stock (or options, rights, warrants or other securities
convertible into or exchangeable for shares of Common Stock) at a
price per share (or having an Exercise Price per share) less than the
Fair Market Value as of the business day immediately preceding the
Measurement Date, as defined herein, other than (1) issuances in a
private placement of securities, other than to an affiliate of the
Company, at a price for the securities sold in such private placement
(and the underlying Common Stock, as applicable) of not less than 95%
of the Fair Market Value thereof, (2) in a transaction of the type
described in any of Sections 2(a), 2(b) or 7(b)(i) of the Prison
Realty Articles Supplementary relating to the Company's Series B
Preferred Stock and setting forth the rights and preferences thereto,
(3) pursuant to options, deferred shares or other securities under
any employee or director benefit plan or program of the Company
approved by the Board of Directors of the Company or shares of Common
Stock issued upon the exercise thereof, (4) pursuant to the
conversion of the Company's Series B Preferred Stock or the Company's
Series C Preferred Stock or as dividends on the Company's Series A
Preferred Stock, Series B Preferred Stock, or Series C Preferred
Stock, (5) pursuant to the conversion of all convertible securities
previously issued by the Company and outstanding on the date of the
issuance of this Warrant, or (6) pursuant to the issuance of the
Series C Preferred Stock in connection with the Rights Offering as
such term is defined in Section 7.15 of the Securities Purchase
Agreement (the issuances under clauses (1), (2), (3), (4), (5) and
(6) being referred to as "Excluded Issuances"), then, and in each
such case, the Exercise Price in effect immediately prior to the
Measurement Date shall be reduced so as to be equal to an amount
determined by multiplying such Exercise Price by a fraction of which
the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the Measurement Date plus the
number of shares of Common Stock (or the number of shares of Common
Stock issuable upon the conversion, exchange or exercise of such
options, rights, warrants or other securities convertible into or
exchangeable for shares of Common Stock) which the aggregate
consideration receivable by the Company in connection with such
issuance would purchase at such Fair Market Value and the denominator
shall be the number of shares of Common Stock outstanding at the
close of business on the Measurement Date plus the number of shares
of Common Stock (or the number of shares of Common Stock issuable
upon the conversion, exchange or exercise of such options, rights,
warrants or other securities convertible into or exchangeable for
shares of Common Stock) so issued. For purposes of this Section
7.1(g)(iii)(B), the aggregate consideration receivable by the Company
in connection with the issuance of shares of Common Stock or of
options, rights, warrants or other convertible securities shall be
deemed to be equal to the sum of the gross offering price (before
deduction of customary underwriting discounts or commissions and
expenses payable to third parties) of all such securities plus the
minimum aggregate amount, if any, payable upon conversion or exercise
of any such options, rights, warrants or other convertible securities
into shares of Common Stock, less any original issue discount,
premiums and other similar incentives which have the effect of
reducing the effective price per share. For purposes of this Section
7.1(b)(iii)(B), such adjustment shall become effective immediately
prior to the opening of business on the business day immediately
following the Measurement Date.
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(C) To the extent that the Companies' (as such term is defined
in the Securities Purchase Agreement) indemnification obligations
pursuant to Section 11.2(c) of the Securities Purchase Agreement are
to be satisfied in the form of an Exercise Price adjustment and not
in cash, then the Exercise Price (after giving effect to all previous
adjustments) shall be reduced by the amount of any such Loss (as such
term is defined in the Securities Purchase Agreement), other than a
Loss covered by Section 7.1(g)(ii) hereof, divided by the number of
shares of Common Stock then issuable upon exercise of the Warrant.
(D) In addition to the adjustments in Sections 7.1(g)(iii)
(A)-(C) above, the Company will be permitted to make such reductions
in the Exercise Price as it considers to be advisable in order that
any event treated for Federal income tax purposes as a dividend of
stock or stock rights will not be taxable to the holders of the
shares of Common Stock.
(E) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least
$0.01 of the Exercise Price; provided, that any adjustments which by
reason of this Section 7.1(g)(iii)(E) are not required to be made
shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 7.1 shall be made to
the nearest cent or to the nearest one-hundredth of a share, as the
case may be.
7.2 Notice of Adjustments. Whenever the number of Warrant Shares or the
Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly give to the Warrantholder notice of such adjustment or
adjustments and a certificate of a firm of independent public accountants of
recognized national standing selected by the Board of Directors of the Company
(which shall be appointed at the Company's expense and may be the independent
public accountants regularly employed by the Company) setting forth the number
of Warrant Shares and the Exercise Price of such Warrant Shares after such
adjustment, a brief statement of the facts requiring such adjustment, and the
computation by which such adjustment was made.
7.3 Effect of Failure to Notify. Failure to file any certificate or notice
or to give any notice, or any defect in any certificate or notice, pursuant to
Section 7.2 shall not affect the legality or validity of the adjustment to the
Exercise Price, the number of shares purchasable upon exercise of this Warrant,
or any transaction giving rise thereto.
8. Reports Under Securities Exchange Act of 1934 (the "Exchange
Act"). With a view to making available to the Warrantholder the benefits of
Rule 144 promulgated under the Securities Act or any other similar rule or
regulation of the Securities and Exchange Commission ("SEC") that may at any
time permit the Warrantholder to sell securities of the Company to the public
without registration ("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act; and
(c) furnish to the Warrantholder, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting
requirements of Rule 144 (at any time after 90 days after the effective
date of the first registration statement filed by the Company), the
Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements), (ii) a copy of the most recent
annual or quarterly report of the Company and
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such other reports and documents so filed by the Company, and (iii) such
other information as may be reasonably requested to permit the sale of such
securities without registration.
9. Amendments. Any provision of this Warrant may be amended and the
observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent or
approval of the Company and the Warrantholder. Any amendment or waiver effected
in accordance with this Section 9 shall be binding upon the Warrantholder and
the Company.
10. Expiration of the Warrant. The obligations of the Company pursuant to
this Warrant shall terminate on the Expiration Date.
11. Definitions.
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings:
"Fair Market Value" shall mean, with respect to a share of Common
Stock as of a particular date (the "Determination Date"), the average,
rounded to the nearest cent ($0.01), of the closing price per share of the
Common Stock on the New York Stock Exchange, for the 20 consecutive trading
days ending on the trading day immediately preceding the date in question.
If at any time the Common Stock is not listed on any exchange or quoted in
the domestic over-the-counter market, the "Fair Market Value" shall be
deemed to be the fair value thereof, as agreed by the Majority of Holders
within 20 days of the date on which the determination is to be made.
"Governmental Authority" shall mean the government of any nation,
state, city, locality or other political subdivision of any thereof, and
any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government having or asserting
jurisdiction over a Person, its business or its properties.
"Person" shall mean any individual, firm, Company, partnership,
limited liability company, trust, incorporated or unincorporated
association, joint venture, joint stock company, Governmental Authority or
other entity of any kind.
"Measurement Date" shall mean, in the case of an offering of rights,
warrants or options to all or substantially all of the holders of the
Common Stock or any other issuance contemplated herein, where a record date
is fixed for the determination of stockholders entitled to participate in
such issuance, such record date and in all other cases, the business day
immediately preceding the date of issuance of shares of Common Stock (or
options, rights, warrants or other securities convertible into or
exchangeable for shares of Common Stock).
12. No Impairment. The Company shall not by any action, including, without
limitation, amending the Articles of Incorporation of the Company or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such reasonable actions as may be necessary or appropriate to
protect the rights of the Warrantholder against impairment. Without limiting the
generality of the foregoing, the Company shall (a) take all such actions as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the exercise of
this Warrant, and (b) provide reasonable assistance to the Warrantholder in
obtaining all authorizations, exemptions or consents from any Governmental
Authority which may be necessary in connection with the exercise of this
Warrant.
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13. Miscellaneous.
13.1 Entire Agreement. This Warrant constitutes the entire agreement
between the Company and the Warrantholder with respect to the Warrants.
13.2 Binding Effects; Benefits. This Warrant shall inure to the benefit of
and shall be binding upon the Company and the Warrantholder and its respective
heirs, legal representatives, successors and assigns. Nothing in this Warrant,
expressed or implied, is intended to or shall confer on any Person other than
the Company and the Warrantholder, or its respective heirs, legal
representatives, successors or assigns, any rights, remedies, obligations or
liabilities under or by reason of this Warrant.
13.3 Section and Other Headings. The section and other headings contained
in this Warrant are for reference purposes only and shall not be deemed to be a
part of this Warrant or to affect the meaning or interpretation of this Warrant.
13.4 Pronouns. All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
13.5 Further Assurances. Each of the Company and the Warrantholder shall
do and perform all such further acts and things and execute and deliver all such
other certificates, instruments and documents as the Company or the
Warrantholder may, at any time and from time to time, reasonably request in
connection with the performance of any of the provisions of this Warrant.
13.6 Notices. All notices and other communications required or permitted
to be given under this Warrant shall be in writing and shall be deemed to have
been duly given if (i) delivered personally or (ii) sent by facsimile or
recognized overnight courier or by United States first class certified mail,
postage prepaid, to the parties hereto at the following addresses or to such
other address as any party hereto shall hereafter specify by notice to the other
party hereto:
if to the Company, addressed to:
Corrections Corporation of America
10 Burton Hills Boulevard
Nashville, Tennessee 37215
Attention: Chief Financial Officer or
Secretary
Fax Number: (615) 263-0234
with a copy to:
Stokes & Bartholomew, P.A.
424 Church Street, Suite 2800
Nashville, Tennessee 37219
Attention: Elizabeth E. Moore, Esq.
Fax Number: (615) 259-1470
if to the Warrantholder, addressed to:
--------------------------------------
--------------------------------------
Attention: Chief Financial Officer
Fax Number:
--------------------------------------
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with a copy to:
--------------------------------------
--------------------------------------
Attention:
--------------------------------------
Fax Number:
--------------------------------------
Except as otherwise provided herein, all such notices and communications
shall be deemed to have been received (a) on the date of delivery thereof, if
delivered personally or sent by facsimile, (b) on the second Business Day
following delivery into the custody of an overnight courier service, if sent by
overnight courier, provided that such delivery is made before such courier's
deadline for next-day delivery, or (c) on the third Business Day after the
mailing thereof.
13.7 Separability. Any term or provision of this Warrant which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
13.8 Governing Law. THIS WARRANT SHALL BE DEEMED TO BE A CONTRACT MADE
UNDER THE LAWS OF THE STATE OF MARYLAND AND FOR ALL PURPOSES SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF SUCH STATE APPLICABLE TO SUCH
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
13.9 No Rights or Liabilities as Stockholder. Nothing contained in this
Warrant shall be deemed to confer upon the Warrantholder any rights as a
stockholder of the Company or as imposing any liabilities on the Warrantholder
to purchase any securities whether such liabilities are asserted by the Company
or by creditors or stockholders of the Company or otherwise.
[SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
CORRECTIONS CORPORATION OF AMERICA
By:
--------------------------------------
Dated:
--------------------------------------
ATTEST:
--------------------------------------
By:
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EXHIBIT A
EXERCISE FORM
(TO BE EXECUTED UPON EXERCISE OF THIS WARRANT)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase shares of Common Stock and
herewith tenders payment for such Common Stock to the order of Corrections
Corporation of America in the amount of $ , which amount includes payment
of the par value for of the Common Stock, in accordance with the terms of
this Warrant. The undersigned requests that a certificate for such shares of
Common Stock be registered in the name of and that such
certificates be delivered to whose address is
.
Signature:
----------------------------
--------------------------------
(Print Name)
--------------------------------
(Street Address)
--------------------------------
(City) (State) (Zip Code)
Dated:
--------------------------------
Signed in the Presence of:
--------------------------------------
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EXHIBIT B
FORM OF ASSIGNMENT
(TO BE EXECUTED ONLY UPON TRANSFER OF THIS WARRANT)
For value received, the undersigned registered holder of the within Warrant
hereby sells, assigns and transfers unto the right represented by
such Warrant to purchase shares of Common Stock of Corrections
Corporation of America to which such Warrant relates and all other rights of the
Warrantholder under the within Warrant, and appoints Attorney to
make such transfer on the books of Corrections Corporation of America maintained
for such purpose, with full power of substitution in the premises. This sale,
assignment and transfer has been previously approved in writing by Corrections
Corporation of America.
Signature:
----------------------------
--------------------------------
(Print Name)
--------------------------------
(Street Address)
--------------------------------
(City) (State) (Zip Code)
Dated:
--------------------------------
Signed in the Presence of:
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APPENDIX D
PRISON REALTY TRUST, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
This is to certify that:
FIRST: Prison Realty Trust, Inc., a Maryland corporation (the
"Corporation"), desires to amend and restate its Charter as currently in effect
and as hereinafter amended.
SECOND: The following provisions are all the provisions of the Charter of
the Corporation currently in effect and as hereinafter amended:
ARTICLE I
NAME
The name of this corporation shall be Corrections Corporation of America
(the "Corporation").
ARTICLE II
PURPOSE
The purpose for which this Corporation is formed is to engage in any lawful
act or activity for which corporations may be organized under the Maryland
General Corporation Law as now or hereinafter in force. The Corporation also
shall have all the general powers granted by law to Maryland corporations and
all other powers not inconsistent with law that are appropriate to promote and
attain its purpose.
ARTICLE III
PRINCIPAL OFFICE AND RESIDENT AGENT
The address of the principal office of the Corporation is c/o The
Corporation Trust Incorporated, 300 East Lombard Street, Baltimore, Maryland
21202. The name of the resident agent of the Corporation in the State of
Maryland is The Corporation Trust Incorporated, and the address of the resident
agent is 300 East Lombard Street, Baltimore, Maryland 21202.
ARTICLE IV
DIRECTORS
A. General Powers. The business and affairs of the Corporation shall be
managed by its Board of Directors and, except as otherwise expressly provided by
law, the Bylaws of the Corporation or this Charter, all of the powers of the
Corporation shall be vested in the Board of Directors. This Charter shall be
construed with the presumption in favor of the grant of power and authority to
the directors.
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B. Number of Directors. The Board of Directors shall consist of such
number of directors as shall be determined from time to time by resolution of
the Board of Directors in accordance with the Bylaws of the Corporation, except
as otherwise required by the Charter; provided that the number of directors
shall never be less than the minimum number required by the Maryland General
Corporation Law. The Board of Directors shall initially consist of
[ ] directors, at least [ ] of which must be
Independent Directors. An Independent Director is defined to be an individual
who qualifies as a director under the Bylaws of the Corporation but who: (i) is
not an officer or employee of the Corporation; (ii) is not the beneficial owner
of five percent (5%) or more of any class of equity securities of the
Corporation, or any officer, employee or "affiliate" (as defined in Rule 12b-2
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of any such stockholder of the Corporation; or (iii) does not have any
economic relationship requiring disclosure under the Exchange Act with the
Corporation. The names of the directors of the Corporation are .
A director need not be a stockholder of the Corporation.
C. Effect of Increase or Decrease in Directors. In the event of any
increase or decrease in the number of directors pursuant to the first sentence
of Paragraph B above, each director then serving shall nevertheless continue as
a director until the expiration of his term and until his successor is duly
elected and qualified or his prior death, retirement, resignation or removal.
D. Service of Directors. Notwithstanding the provisions of this Article
IV, each director shall serve until his successor is elected and qualified or
until his death, retirement, resignation or removal.
E. Removal of Directors. Subject to the rights, if any, of any class or
series of stock to elect directors and to remove any director whom the holders
of any such stock have the right to elect, any director (including persons
elected by directors to fill vacancies in the Board of Directors) may be removed
from office, with or without cause, only by the affirmative vote of the holders
of at least a majority of the votes represented by the shares then entitled to
vote in the election of such director. At least thirty (30) days prior to any
meeting of stockholders at which it is proposed that any director be removed
from office, written notice of such proposed removal shall be sent to the
director whose removal will be considered at the meeting.
F. Directors Elected by Holders of Preferred Stock. During any period when
the holders of any series of Preferred Stock (as defined in Article V hereof)
have the right to elect additional directors, as provided for or fixed pursuant
to the provisions of Article V hereof, then upon commencement and for the
duration of the period during which such right continues (i) the then otherwise
total and authorized number of directors of the Corporation shall automatically
be increased by the number of such additional directors, and such holders of
Preferred Stock shall be entitled to elect the additional directors so provided
for or fixed pursuant to said provisions, and (ii) each such additional director
shall serve until such director's successor shall have been duly elected and
qualified, or until such director's right to hold such office terminates
pursuant to said provisions, whichever occurs earlier, subject to his earlier
death, disqualification, resignation or removal.
ARTICLE V
CAPITAL STOCK
The total number of shares of stock which the Corporation shall have
authority to issue is four hundred fifty million (450,000,000), of which four
hundred million (400,000,000) shares are of a class denominated common stock,
$0.01 par value per share (the "Common Stock") and fifty million (50,000,000)
shares are of a class denominated preferred stock, $0.01 par value per share
(the "Preferred Stock"). The aggregate par value of all shares of all classes is
$4,500,000. Four million
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three hundred thousand (4,300,000) shares of the Preferred Stock shall be
designated as "8.0% Series A Cumulative Preferred Stock" (the "Series A
Preferred Stock").
The Board of Directors may authorize the issuance by the Corporation from
time to time of shares of any class of stock of the Corporation or securities
convertible or exercisable into shares of stock of any class or classes for such
consideration as the Board of Directors determines, or, if issued as a result of
a stock dividend or stock split, without any consideration, and all stock so
issued will be fully paid and non-assessable by the Corporation. The Board of
Directors may create and issue rights entitling the holders thereof to purchase
from the Corporation shares of stock or other securities or property. The Board
of Directors may classify or reclassify any unissued stock from time to time by
setting or changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption of such stock.
The Board of Directors, with the approval of a majority of the entire Board
of Directors, and without action by the stockholders (other than as may be
specified in the Articles Supplementary setting forth the terms of any Preferred
Stock), may amend the Charter of the Corporation to increase or decrease the
aggregate number of shares of stock of the Corporation (but any such decrease
may not decrease the aggregate number of shares of stock then currently
outstanding) or the number of shares of stock of any class that the Corporation
has authority to issue.
The Corporation reserves the right to make any amendment to the Charter of
the Corporation, now or hereafter authorized by law, including any amendment
which alters the contract rights, as expressly set forth in the Charter of the
Corporation, of any outstanding shares of stock.
Notwithstanding any provision of law permitting or requiring any action to
be taken or approved by the affirmative vote of the holders of shares entitled
to cast a greater number of votes, any such action shall be effective and valid
if taken or approved by the affirmative vote of holders of shares entitled to
cast a majority of all the votes entitled to be cast on the matter.
The following is a description of each of the classes of stock of the
Corporation and a statement of the powers, preferences and rights of such stock,
and the qualifications, limitations and restrictions thereof:
A. Common Stock.
1. Voting Rights. Each holder of Common Stock shall be entitled to one
vote per share of Common Stock on all matters to be voted on by the stockholders
of the Corporation. Notwithstanding the foregoing, (i) holders of Common Stock
shall not be entitled to vote on any proposal to amend provisions of the Charter
of the Corporation setting forth the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualification, or
terms or conditions of redemption of a class or series of Preferred Stock if the
proposed amendment would not alter the contract rights of the Common Stock, and
(ii) holders of Common Stock shall not be entitled to notice of any meeting of
stockholders at which the only matters to be considered are those as to which
such holders have no vote by virtue of this Article V, Section A.1.
2. Dividends and Rights Upon Liquidation. After the provisions with
respect to preferential dividends of any series of Preferred Stock, if any,
shall have been satisfied, and subject to any other conditions that may be fixed
in accordance with the provisions of this Article V, then, and not otherwise,
all Common Stock will participate equally in dividends payable to holders of
shares of Common Stock when and as declared by the Board of Directors at their
discretion out of funds legally available therefor. In the event of voluntary or
involuntary dissolution or liquidation of the Corporation, after distribution in
full of the preferential amounts, if any, to be distributed to the holders of
Preferred Stock, the holders of Common Stock shall, subject to the additional
rights, if
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any, of the holders of Preferred Stock fixed in accordance with the provisions
of this Article V, be entitled to receive all of the remaining assets of the
Corporation, tangible and intangible, of whatever kind available for
distribution to stockholders ratably in proportion to the number of shares of
Common Stock held by them respectively.
B. Preferred Stock.
1. Authorization and Issuance. The Preferred Stock may be issued from time
to time upon authorization by the Board of Directors of the Corporation, in such
series and with such preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or other provisions as
may be fixed by the Board of Directors, except as otherwise set forth in the
Charter.
2. Voting Rights. The holders of Preferred Stock shall have no voting
rights and shall have no rights to receive notice of any meetings, except as
required by law, as expressly provided for in the Charter, or as expressly
provided in the resolution establishing any series thereof.
C. Series A Preferred Stock.
1. Designation and Amount; Fractional Stock; Par Value. There shall be a
class of Preferred Stock of the Corporation designated as "8.0% Series A
Cumulative Preferred Stock," and the number of shares of stock constituting such
series shall be 4,300,000. The Series A Preferred Stock is issuable solely in
whole stock and shall entitle the holder thereof to exercise the voting rights,
to participate in the distributions and dividends and to have the same benefits
as all other holders of Series A Preferred Stock as set forth in this Charter.
The par value of each share of Series A Preferred Stock shall be $0.01.
2. Maturity. The Series A Preferred Stock has no stated maturity and will
not be subject to any sinking fund or mandatory redemption.
3. Rank. The Series A Preferred Stock will, with respect to dividend
rights and rights upon liquidation, dissolution or winding-up of the
Corporation, rank: (i) senior to all classes or series of Common Stock of the
Corporation and to all equity securities ranking junior to the Series A
Preferred Stock; (ii) on a parity with all equity securities issued by the
Corporation, the terms of which specifically provide that such equity securities
rank on a parity with the Series A Preferred Stock with respect to dividend
rights or rights upon liquidation, dissolution or winding-up of the Corporation;
and (iii) junior to all existing and future indebtedness of the Corporation. The
term "equity securities" does not include convertible debt and securities which
rank senior to the Series A Preferred Stock prior to conversion.
4. Dividends. Holders of the Series A Preferred Stock shall be entitled to
receive, when and as authorized and declared by the Board of Directors, out of
funds legally available for the payment of dividends, cumulative preferential
cash dividends at the rate of eight percent (8.0%) per annum of the Liquidation
Preference, as hereinafter defined (which is equivalent to a fixed annual rate
of $2.00 per share). Such dividends shall be cumulative from the date of
original issuance and shall be payable quarterly in arrears on the fifteenth day
of January, April, July and October of each year (each, a "Dividend Payment
Date"), or, if not a business day, the next succeeding business day. Dividends
will accrue from the date of original issuance to the first Dividend Payment
Date and thereafter from each Dividend Payment Date to the subsequent Dividend
Payment Date. A dividend payable on the Series A Preferred Stock for any partial
dividend period will be computed on the basis of a 360-day year consisting of
twelve 30-day months. Dividends will be payable to holders of record as they
appear in the stock records of the Corporation at the close of business on the
applicable record date, which shall be the last business day of March, June,
September and December,
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respectively, or on such other date designated by the Board of Directors of the
Corporation for the payment of dividends that is not more than 30 nor less than
10 days prior to the applicable Dividend Payment Date (each, a "Dividend Record
Date"). The Series A Preferred Stock will rank senior to the Corporation's
Common Stock with respect to the payment of dividends.
No dividends on Series A Preferred Stock shall be declared by the Board of
Directors of the Corporation or paid or set apart for payment by the Corporation
at such time as the terms and provisions of any agreement to which the
Corporation is a party, including any agreement relating to its indebtedness,
prohibits such declaration, payment or setting apart for payment or provides
that such declaration, payment or setting apart for payment would constitute a
breach thereof or a default thereunder, or if such declaration or payment shall
be restricted or prohibited by law.
Notwithstanding the foregoing, dividends on the Series A Preferred Stock
will accrue whether or not the Corporation has earnings, whether or not there
are funds legally available for payment of such dividends and whether or not
such dividends are declared. The accrued but unpaid dividends on the Series A
Preferred Stock will not bear interest, and holders of shares of Series A
Preferred Stock will not be entitled to any distributions in excess of full
cumulative distributions described above.
Except as set forth in the next sentence, no dividends will be declared or
paid or set apart for payment on any capital stock of the Corporation or any
other series of Preferred Stock ranking, as to dividends, on a parity with or
junior to the Series A Preferred Stock (other than a distribution in stock of
the Corporation's Common Stock or on stock of any other class of stock ranking
junior to the Series A Preferred Stock as to dividends and upon liquidation) for
any period unless full cumulative dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof is
set apart for such payment on the Series A Preferred Stock for all past dividend
periods and the then current dividend period. When dividends are not paid in
full (or a sum sufficient for such full payment is not so set apart) upon the
Series A Preferred Stock and the shares of any other series of Preferred Stock
ranking on a parity as to dividends with the Series A Preferred Stock, all
dividends declared upon the Series A Preferred Stock and any other series of
Preferred Stock ranking on a parity as to dividends with the Series A Preferred
Stock shall be declared pro rata so that the amount of dividends authorized per
share of Series A Preferred Stock and such other series of Preferred Stock shall
in all cases bear to each other the same ratio that accrued dividends per share
on the Series A Preferred Stock and such other series of Preferred Stock (which
shall not include any accrual in respect of unpaid dividends for prior dividend
periods if such series of Preferred Stock does not have a cumulative dividend)
bear to each other. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Series A Preferred
Stock which may be in arrears.
Except as provided in the immediately preceding paragraph, unless full
cumulative dividends on the Series A Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof is set apart for payment for all past dividend periods and the
then current dividend period, no dividends (other than in Common Stock or other
stock of the Corporation ranking junior to the Series A Preferred Stock as to
dividends and upon liquidation) shall be declared or paid or set aside for
payment nor shall any other distribution be declared or made upon the Common
Stock, or stock of the Corporation ranking junior to or on a parity with the
Series A Preferred Stock as to dividends or upon liquidation, nor shall any
Common Stock, or any other stock of the Corporation ranking junior to or on a
parity with the Series A Preferred Stock as to dividends or upon liquidation, be
redeemed, purchased or otherwise acquired for any consideration (or any monies
be paid to or made available for a sinking fund for the redemption of any such
stock) by the Corporation (except by conversion into or exchange for other stock
of the Corporation ranking junior to the Series A Preferred Stock as to
dividends and upon liquidation). Holders of shares of Series A Preferred Stock
shall not be entitled to any dividend, whether payable in cash, property or
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stock, in excess of full cumulative dividends on the Series A Preferred Stock as
provided above. Any dividend payment made on shares of the Series A Preferred
Stock shall first be credited against the earliest accrued but unpaid dividend
due with respect to such stock which remains payable.
5. Liquidation Preference. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of
Series A Preferred Stock are entitled to be paid out of the assets of the
Corporation legally available for distribution to its stockholders, a
liquidation preference of $25 per share (the "Liquidation Preference"), plus an
amount equal to any accrued and unpaid dividends to the date of payment but
without interest, before any distribution of assets is made to holders of Common
Stock or any other class or series of stock of the Corporation that ranks junior
to the Series A Preferred Stock as to liquidation rights. In the event that,
upon any such voluntary or involuntary liquidation, dissolution or winding up,
the available assets of the Corporation are insufficient to pay the amount of
the liquidating distributions on all outstanding shares of Series A Preferred
Stock and the corresponding amounts payable on all stock of other classes or
series of Preferred Stock of the Corporation ranking on a parity with the Series
A Preferred Stock in the distribution of assets, then the holders of shares of
the Series A Preferred Stock and all other such classes or series of Preferred
Stock shall share ratably in any such distribution of assets in proportion to
the full liquidating distributions to which they would otherwise be respectively
entitled.
Holders of shares of Series A Preferred Stock will be entitled to written
notice of any such liquidation. After payment of the full amount of the
liquidating distributions to which they are entitled, the holders of shares of
Series A Preferred Stock will have no right or claim to any of the remaining
assets of the Corporation. The consolidation or merger of the Corporation with
or into any other trust, corporation or entity or of any other corporation with
or into the Corporation, or the sale, lease or conveyance of all or
substantially all of the property or business of the Corporation, shall not be
deemed to constitute a liquidation, dissolution or winding up of the
Corporation.
6. Redemption. Shares of the Series A Preferred Stock are not redeemable
prior to January 30, 2003. On and after January 30, 2003, the Corporation, at
its option upon not less than thirty (30) nor more than sixty (60) days' written
notice, may redeem the Series A Preferred Stock, in whole or in part, at any
time or from time to time, for cash at a redemption price of $25 per share, plus
all accrued and unpaid dividends thereon to the date fixed for redemption
(except as provided below), without interest. Holders of shares of Series A
Preferred Stock to be redeemed shall surrender any certificates representing
such shares of Series A Preferred Stock at the place designated in such notice
and shall be entitled to the redemption price and any accrued and unpaid
dividends payable upon such redemption following such surrender. If notice of
redemption of any shares of Series A Preferred Stock has been given and if the
funds necessary for such redemption have been set aside by the Corporation in
trust for the benefit of the holders of any shares of Series A Preferred Stock
so called for redemption, then from and after the redemption date dividends will
cease to accrue on such shares of Series A Preferred Stock, such shares of
Series A Preferred Stock shall no longer be deemed outstanding and all rights of
the holders of such stock will terminate, except the right to receive the
redemption price. If less than all of the outstanding shares of Series A
Preferred Stock are to be redeemed, the shares of Series A Preferred Stock to be
redeemed shall be selected pro rata (as nearly as may be practicable without
creating fractional stock) or by any other equitable method determined by the
Corporation.
Unless full cumulative dividends on all shares of Series A Preferred Stock
shall have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for all past dividend
periods and the then current dividend period, no shares of Series A Preferred
Stock shall be redeemed unless all outstanding shares of Series A Preferred
Stock are simultaneously redeemed and the Corporation shall not purchase or
otherwise acquire directly or indirectly any shares of Series A Preferred Stock
(except by exchange for capital stock of the
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Corporation ranking junior to the Series A Preferred Stock as to dividends and
upon liquidation); provided, however, that the foregoing shall not prevent the
purchase or acquisition of shares of Series A Preferred Stock pursuant to a
purchase or exchange offer made on the same terms to holders of all outstanding
shares of Series A Preferred Stock. So long as no dividends are in arrears, the
Corporation shall be entitled at any time and from time to time to repurchase
shares of Series A Preferred Stock in open-market transactions duly authorized
by the Board of Directors and effected in compliance with applicable laws.
Notice of redemption will be given by publication in a newspaper of general
circulation in the City of New York, such publication to be made once a week for
two (2) successive weeks commencing not less than thirty (30) nor more than
sixty (60) days prior to the redemption date. A similar notice will be mailed by
the Corporation, postage prepaid, not less than thirty (30) nor more than sixty
(60) days prior to the redemption date, addressed to the respective holders of
record of the Series A Preferred Stock to be redeemed at their respective
addresses as they appear on the stock transfer records of the Corporation. No
failure to give such notice or any defect thereto or in the mailing thereof
shall affect the validity of the proceedings for the redemption of any shares of
Series A Preferred Stock except as to the holder to whom notice was defective or
not given. Each notice shall state: (i) the redemption date; (ii) the redemption
price; (iii) the number of shares of Series A Preferred Stock to be redeemed;
(iv) the place or places where the certificates representing the shares of
Series A Preferred Stock are to be surrendered for payment of the redemption
price; and (v) that dividends on the stock to be redeemed will cease to accrue
on such redemption date. If less than all of the shares of Series A Preferred
Stock held by any holder are to be redeemed, the notice mailed to such holder
shall also specify the number of shares of Series A Preferred Stock held by such
holder to be redeemed.
Immediately prior to any redemption of shares of Series A Preferred Stock,
the Corporation shall pay, in cash, any accumulated and unpaid dividends through
the redemption date. Except as provided above, the Corporation will make no
payment or allowance for unpaid dividends, whether or not in arrears, on shares
of Series A Preferred Stock which are redeemed.
7. Voting Rights. Holders of the shares of Series A Preferred Stock will
not have any voting rights, except as set forth below.
Whenever dividends on any shares of Series A Preferred Stock shall be in
arrears for four or more quarterly periods (a "Preferred Dividend Default"), the
holders of such Series A Preferred Stock (voting together as a class with all
other series of Preferred Stock ranking on a parity with the Series A Preferred
Stock as to dividends or upon liquidation ("Parity Preferred") upon which like
voting rights have been conferred and are exercisable) will be entitled to vote
for the election of a total of two additional directors of the Corporation (the
"Preferred Stock Directors") at a special meeting called by the holders of
record of at least twenty percent (20%) of the shares of Series A Preferred
Stock and the holders of record of at least twenty percent (20%) of the shares
of any series of Parity Preferred so in arrears (unless such request is received
less than ninety (90) days before the date fixed for the next annual or special
meeting of the stockholders) or at the next annual meeting of stockholders, and
at such subsequent annual meeting until all dividends accumulated on such shares
of Series A Preferred Stock for the past dividend periods and the dividend for
the then current dividend period shall have been fully paid or declared and a
sum sufficient for the payment thereof set aside for payment. A quorum for any
such meeting shall exist if at least a majority of the outstanding shares of
Series A Preferred Stock and shares of Parity Preferred upon which like voting
rights have been conferred and are exercisable are represented in person or by
proxy at such meeting. Such Preferred Stock Directors shall be elected upon
affirmative vote of a plurality of the shares of Series A Preferred Stock and
such Parity Preferred present and voting in person or by proxy at a duly called
and held meeting at which a quorum is present. If and when all accumulated
dividends and
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the dividend for the then current dividend period on the shares of Series A
Preferred Stock shall have been paid in full or set aside for payment in full,
the holders thereof shall be divested of the foregoing voting rights (subject to
revesting in the event of each and every Preferred Dividend Default) and, if all
accumulated dividends and the dividend for the then current dividend period have
been paid in full or set aside for payment in full on all series of Parity
Preferred upon which like voting rights have been conferred and are exercisable,
the term of office of each Preferred Stock Director so elected shall immediately
terminate. Any Preferred Stock Director may be removed at any time with or
without cause by, and shall not be removed otherwise than by the vote of, the
holders of record of a majority of the outstanding shares of Series A Preferred
Stock and all series of Parity Preferred upon which like voting rights have been
conferred and are exercisable (voting together as a class). So long as a
Preferred Dividend Default shall continue, any vacancy in the office of a
Preferred Stock Director may be filled by written consent of the Preferred Stock
Directors remaining in office, or if none remains in office, by a vote of the
holders of record of a majority of the outstanding shares of Series A Preferred
Stock when they have the voting rights described above (voting together as a
class with all series of Parity Preferred upon which like voting rights have
been conferred and are exercisable). The Preferred Stock Directors shall each be
entitled to one vote per director on any matter.
So long as any shares of Series A Preferred Stock remain outstanding, the
Corporation will not, without the affirmative vote or consent of the holders of
at least two-thirds of the shares of Series A Preferred Stock outstanding at the
time, given in person or by proxy, either in writing or at a meeting (voting
separately as a class), (a) authorize or create, or increase the authorized or
issued amount of, any class or series of shares of stock ranking prior to the
Series A Preferred Stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or reclassify
any authorized shares of stock of the Corporation into such shares, or create,
authorize or issue any obligation or security convertible into or evidencing the
right to purchase any such shares of stock, or (b) amend, alter or repeal the
provisions of the Charter, whether by merger, consolidation or otherwise (an
"Event"), so as to materially and adversely affect any right, preference,
privilege or voting power of the shares of Series A Preferred Stock or the
holders thereof; provided, however, with respect to the occurrence of any Event
set forth in (b) above, so long as the shares of Series A Preferred Stock remain
outstanding with the terms thereof materially unchanged, the occurrence of any
such Event shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting power of holders of the shares of Series A
Preferred Stock and provided further that (i) any increase in the amount of the
authorized Preferred Stock or the creation or issuance of any other series of
Preferred Stock, or (ii) any increase in the amount of authorized shares of such
series, in each case ranking on a parity with or junior to the Series A
Preferred Stock with respect to payment of dividends or the distribution of
assets upon liquidation, dissolution or winding up, shall not be deemed to
materially and adversely affect such rights, preferences, privileges or voting
powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of Series A Preferred Stock shall have been
redeemed or called for redemption upon proper notice and sufficient funds shall
have been deposited in trust to effect such redemption.
8. Conversion. Shares of the Series A Preferred Stock are not convertible
into or exchangeable for any other property or securities of the Corporation.
9. Definitions. Terms defined in this Article V, Paragraph C shall apply
only in respect of the Series A Preferred Stock.
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ARTICLE VI
LIMITATION ON PERSONAL LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
To the maximum extent that Maryland law in effect from time to time permits
limitation of liability of directors or officers of corporations, no person who
at any time was or is a director or officer of the Corporation shall be
personally liable to the Corporation or its stockholders for money damages.
Neither the amendment nor repeal of this provision, nor the adoption or
amendment of any other provision of the Charter or the Bylaws of the Corporation
inconsistent with this provision, shall limit or eliminate in any respect the
applicability of the preceding sentence with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.
ARTICLE VII
OTHER CONSTITUENCIES
In considering the effect of a potential acquisition of control of the
Corporation, the Board of Directors of the Corporation may, but shall not be
required to, consider the effect of the potential acquisition of control on: (i)
stockholders, employees, suppliers, customers and creditors of the Corporation;
and (ii) communities in which offices or other establishments of the Corporation
are located.
THIRD: The amendment to and restatement of the Charter of the Corporation
as hereinabove set forth has been duly advised by the Board of Directors of the
Corporation and approved by the stockholders of the Corporation as required by
law.
FOURTH: The current address of the principal office of the Corporation is
as set forth in Article III of the foregoing amendment and restatement of the
Charter.
FIFTH: The name and address of the Corporation's current resident agent is
as set forth in Article III of the foregoing amendment and restatement of the
Charter.
SIXTH: The number of directors of the Corporation and the names of those
currently in office are as set forth in Article IV, Section B of the foregoing
amendment and restatement of the charter.
SEVENTH: The total number of shares of stock which the Corporation has
authority to issue is four hundred fifty million (450,000,000) shares,
consisting of four hundred million (400,000,000) shares of Common Stock, $0.01
par value per share, and fifty million (50,000,000) shares of Preferred Stock,
$0.01 par value per share. The aggregate par value of all shares is $4,500,000.
EIGHTH: The undersigned President acknowledges these Articles of Amendment
and Restatement to be the corporate act of the Corporation, and, as to all
matters or facts required to be verified under oath, the undersigned President
acknowledges that to the best of his knowledge, information and belief, these
matters and facts are true in all material respects and that this statement is
made under the penalties for perjury.
D-9
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IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
and Restatement to be signed in its name and on its behalf by its President and
attested to by its Secretary on this day of , 2000.
<TABLE>
<S> <C>
PRISON REALTY TRUST, INC.
By: ---------------------------------------(seal)
Title: President
ATTEST:
By: ----------------------------------------------
Title: Secretary
</TABLE>
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<PAGE> 232
APPENDIX E
December 26, 1999
Prison Realty Trust, Inc.
10 Burton Hills Boulevard
Suite 100
Nashville, Tennessee 37215
Attention of Doctor R. Crants
$1,200,000,000 SENIOR SECURED CREDIT FACILITIES
COMMITMENT LETTER
Ladies and Gentlemen:
You have advised Credit Suisse First Boston ("CSFB") that you and the Funds
(such term and each other capitalized term used but not defined herein having
the meaning assigned to it in the Term Sheet (as defined below)) intend to
effect the Transactions. You have further advised CSFB that, in connection with
the Transactions, the Borrower will obtain the Senior Secured Facilities
contemplated by the Summary of Principal Terms and Conditions attached hereto as
Exhibit A (the "Term Sheet").
In connection with the Transactions, CSFB is pleased to advise you of its
commitment (the "Commitment") to provide the entire principal amount of the
Senior Secured Facilities, upon the terms and subject to the conditions set
forth or referred to in this Commitment Letter (this "Commitment Letter"). You
hereby appoint CSFB to act, and CSFB hereby agrees to act, as sole and exclusive
advisor, lead arranger and sole book manager for the Senior Secured Facilities
on the terms and subject to the conditions set forth or referred to in this
Commitment Letter and in the Term Sheet.
CSFB will act as the sole and exclusive Administrative Agent and as the
sole and exclusive Collateral Agent for the Senior Secured Facilities, and CSFB
will act as the sole and exclusive advisor, lead arranger and sole book manager
for the Senior Secured Facilities, and CSFB will, in such capacities, perform
the duties customarily associated with such roles. It is understood by the
parties hereto that CSFB may assign a portion of its Commitment hereunder to
another financial institution (the "Syndication Agent") to be selected by CSFB
in consultation with you (together with CSFB, the "Agents"). Following any such
assignment, (a) the term "Commitment" shall include the portion of the
Commitment assigned to the Syndication Agent and (b) the rights and duties of
CSFB and such Syndication Agent hereunder shall be several and not joint. No
other agents or co-agents, book managers or arrangers will be appointed, and no
other titles will be awarded to any Lender (as defined below), unless approved
by CSFB and you (it being expected that additional agents will be appointed and
additional titles will be awarded).
Each of the Agents reserves the right, prior to or after the execution of
definitive documentation for the Senior Secured Facilities, to syndicate all or
a portion of its Commitment to one or more financial institutions, reasonably
acceptable to the Agents and you, that will become parties to such definitive
documentation pursuant to syndications to be managed by CSFB in consultation
with you and the Syndication Agent (the financial institutions becoming parties
to such definitive documentation being collectively called the "Lenders"). You
understand that the Agents intend to
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commence such syndication efforts promptly after execution of the Restructuring
Agreement by the parties thereto and you agree actively to assist the Agents in
achieving timely and orderly syndications (at times mutually agreed upon) of the
Senior Secured Facilities that are satisfactory to the Agents and you. This will
be accomplished by a variety of means, including direct contact during the
syndications (at times mutually agreed upon) among the senior officers,
representatives and advisors of the Borrower and the Funds, on the one hand, and
the proposed Lenders, on the other hand. Such assistance shall also include your
using reasonable efforts to have the syndication and arrangement efforts benefit
from existing lending relationships of the Funds and the Borrower.
It is understood and agreed that CSFB will, in consultation with you and
the Syndication Agent, manage all aspects of the syndications, including
selection of Lenders reasonably acceptable to you, determination of when CSFB
will approach potential Lenders and of the time of acceptance of the Lenders'
commitments, any naming rights and the final allocations of the commitments
among the Lenders. It is also understood and agreed that the amount and
distribution of fees among the Lenders will be at CSFB's sole discretion, after
consultation with you and the Syndication Agent. To assist CSFB in its
syndication efforts, you agree, upon CSFB's reasonable request, (a) promptly to
provide, and to cause your affiliates and advisors to provide, to the Agents
financial and other information in your or their possession with respect to the
Borrower and its subsidiaries, the Acquired Entities, the Transactions and any
other transactions contemplated hereby, including but not limited to information
and projections prepared by you, the Funds (to the extent available to you) or
by your or their advisors on your or their behalf relating to the Borrower and
its subsidiaries, the Acquired Entities, the Transactions or the other
transactions contemplated hereby, (b) to make the Borrower's senior officers
(including its chief executive officer) to be made, available to prospective
Lenders, (c) to assist, and to use reasonable efforts to cause the Funds' and
the Borrower's affiliates and advisors to assist, CSFB in the preparation of a
Confidential Information Memorandum and other marketing materials to be used in
connection with the syndication of the Senior Secured Facilities and (d) to
host, with CSFB, a meeting or series of meetings of prospective Lenders (either
individually or in groups).
As consideration for the Commitment and CSFB's agreement to structure,
arrange and syndicate the Senior Secured Facilities and to provide advisory
services in connection therewith, you agree to pay the fees as set forth in the
Term Sheet and in the Fee Letter dated the date hereof and delivered herewith
with respect to the Senior Secured Facilities (the "Fee Letter"). Once paid,
such fees shall not be refundable.
You hereby represent and covenant that (a) all information (excluding
information of a general economic nature and financial projections) concerning
the Borrower and its subsidiaries, the Acquired Entities, the Transactions and
the other transactions contemplated hereby (the "Information") that has been or
will be prepared by or on behalf of the Borrower, the Funds or any of their
authorized representatives and that has been made or will be made available to
the Agents by the Borrower, the Funds or any of your or their authorized
representatives in connection with the Transactions and the other transactions
contemplated hereby, when taken as a whole, will be true and correct in all
material respects (after giving effect to all written updates thereto delivered
to the Agents prior to the Closing Date) and will not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein not materially misleading in light of
the circumstances under which such statements are made and (b) all financial
projections concerning the Borrower and its subsidiaries, the Acquired Entities,
the Transactions and the other transactions contemplated hereby (the
"Projections") that have been prepared by or on behalf of the Borrower, the
Funds or any of their authorized representatives and that have been or will be
made available to the Agents by the Borrower, the Funds or any of their
authorized representatives in connection with the Transactions and the other
transactions contemplated hereby have been and will be prepared in
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<PAGE> 234
good faith based upon assumptions believed by you to be reasonable. You agree to
supplement the Information and the Projections from time to time until the
Closing Date so that the representations and covenants in the preceding sentence
remain correct. In arranging the Senior Secured Facilities, including the
syndication of the Senior Secured Facilities, the Agents will be using and
relying primarily on the Information and the Projections without independent
verification thereof.
The Commitment is subject to (a) there not having occurred any material
adverse effect on the business, financial condition, results of operations or
prospects of the Borrower and the Acquired Entities, taken as a whole, since
December 31, 1998, other than (i) the issues giving rise to the restructuring in
May 1999 of certain intercompany lease payments, which issues will be resolved
following the consummation of the Transactions, (ii) the existence of two class
action lawsuits, In re Old CCA Sec. Litig. and In re Prison Realty Sec. Litig.,
pending in the United States District Court, Middle District of Tennessee,
Nashville Division, and one state court derivative action, Wanstrath v. Crants,
et al., pending in the Court Chancery for the State of Tennessee, 20th Judicial
District, Davidson County, relating to the restructuring described in clause
(i), which have been previously disclosed to CSFB, and (iii) any litigation not
described in clause (ii) which has been dismissed or settled in a manner
satisfactory to CSFB, (b) the Borrower's having obtained an insurance policy
from AIG or another insurer reasonably satisfactory to CSFB, with respect to,
among other things, the items described in clauses (a)(i) and (ii) of this
paragraph, and on terms previously described to CSFB, (c) there not having
occurred and being continuing any material disruption of, or material adverse
change in, the financial, banking or capital markets conditions since the date
hereof that, in CSFB's reasonable judgment, would reasonably be expected to
materially impair the syndication of any of the Senior Secured Facilities, (d)
CSFB's satisfaction that prior to and during the syndication of the Senior
Secured Facilities, there shall be no competing issues of debt securities or
commercial bank or other credit facilities of the Borrower, the Acquired
Entities or any of their respective subsidiaries (other than the New Preferred
Stock) and (e) the other conditions set forth herein and in the Term Sheet.
In addition, this Commitment is subject to the negotiation, execution and
delivery of definitive documentation with respect to the Senior Secured
Facilities reasonably satisfactory to the Agents and you. Such documentation
shall contain such indemnities, covenants, representations and warranties,
events of default (including but not limited to Change in Control (to be
defined)), conditions precedent, security arrangements and other terms and
conditions that are customary for facilities and transactions of this type and
reasonably satisfactory to the Agents and you. Those matters that are not
covered by or made clear under the provisions hereof or of the Term Sheet are
subject to the approval and agreement of the Agents and you (it being understood
that the terms and conditions of the definitive documentation with respect to
the Senior Secured Facilities shall not be inconsistent with the terms and
conditions set forth herein or in the Term Sheet).
By executing this Commitment Letter, you agree (a) to indemnify and hold
harmless each Agent and the other Lenders and their respective officers,
directors, employees, affiliates, agents and controlling persons from and
against any and all losses, claims, damages, liabilities and expenses, joint or
several, to which any such persons may become subject arising out of or in
connection with this Commitment Letter, the Fee Letter, the Term Sheet, the
Transactions, the Senior Secured Facilities or any related transaction or any
claim, litigation, investigation or proceeding relating to any of the foregoing,
regardless of whether any of such indemnified parties is a party thereto, and to
reimburse each of such indemnified parties upon demand for any legal or other
expenses reasonably incurred in connection with investigating or defending any
of the foregoing, provided that the foregoing indemnity will not, as to any
indemnified party, apply to losses, claims, damages, liabilities or related
expenses to the extent they result primarily from the wilful misconduct or gross
negligence of any indemnified party, and (b) to reimburse each Agent from time
to time, upon presentation of a summary
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<PAGE> 235
statement in reasonable detail, for all reasonable out-of-pocket expenses
(including but not limited to expenses of due diligence investigation, local
counsel and other consultants' fees (if such consultants are engaged with your
prior written consent), syndication expenses, travel expenses and reasonable
fees, disbursements and other charges of counsel) incurred in connection with
the Senior Secured Facilities and the preparation of this Commitment Letter, the
Term Sheet, the Fee Letter, the definitive documentation for the Senior Secured
Facilities and the security arrangements in connection with the Senior Secured
Facilities. Subject to the provisions of the thirteenth paragraph of this
Commitment Letter, the provisions contained in this paragraph shall remain in
full force and effect notwithstanding the termination of this Commitment Letter
or this Commitment.
You agree that you will not disclose this Commitment Letter, the Term
Sheet, the Fee Letter, the contents of any of the foregoing or the activities of
the Agents pursuant hereto or thereto to any person without the prior approval
of the Agents, except that (a) you may disclose this Commitment Letter, the Term
Sheet, the Fee Letter and the contents hereof and thereof (i) to your officers,
employees, attorneys and advisors and to the respective officers, employees,
attorneys, advisors and members of the Funds, the Borrower and their affiliates,
in each case on a confidential and need-to-know basis, and (ii) as required by
applicable law or compulsory legal process or in the prosecution of any
proceeding initiated by the Funds or the Borrower (provided that you shall give
prior notice to the Agents of any such disclosure); and (b) after your
acceptance of the terms of this Commitment Letter and of the Fee Letter, you may
disclose the existence of this Commitment Letter and a summary of the principal
terms and conditions of this Commitment (or the full Commitment Letter if
advisable in the reasonable opinion of the Borrower and its counsel) in any
requisite public filings to be made in connection with the Transactions
(including in connection with the solicitation of proxies), provided that any
such disclosure that is in writing shall be subject to the Agents' prior review
and approval (such approval not to be unreasonably withheld), it being expressly
understood and agreed that neither the Fee Letter nor the contents thereof may
be so disclosed pursuant to clause (b) above without the consent of the Agents.
The provisions contained in this paragraph shall remain in full force and effect
notwithstanding the termination of this Commitment Letter or this Commitment.
Neither this Commitment Letter nor this Commitment shall be assignable by
you without the prior written consent of each Agent, and any attempted
assignment shall be void. This Commitment Letter may not be amended or any
provision hereof waived or modified except by an instrument in writing signed by
each of the Agents and you. This Commitment Letter may be executed in any number
of counterparts, each of which shall be an original and all of which, when taken
together, shall constitute one agreement. Delivery of an executed counterpart of
a signature page of this Commitment Letter by facsimile transmission shall be
effective as delivery of a manually executed counterpart of this Commitment
Letter. This Commitment Letter is intended to be solely for the benefit of the
parties hereto and is not intended to confer any benefits upon, or create any
rights in favor of, any person other than the parties hereto. This Commitment
Letter shall be governed by, and construed in accordance with, the laws of the
State of New York. The Agents may perform certain of the duties and activities
described hereunder through any of their respective affiliates. The provisions
of the second preceding paragraph shall apply with equal force and effect to any
of such affiliates so performing any of such duties or activities.
Your obligations and representations under this Commitment Letter, other
than those arising under the fourth, fifth and eleventh paragraphs of this
Commitment Letter, shall automatically terminate and be superseded by the
provisions of the definitive documentation for the Senior Secured Facilities
upon the closing of the Senior Secured Facilities and the consummation of the
Transactions.
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<PAGE> 236
Please indicate your acceptance of the terms hereof and of the Fee Letter
by signing in the appropriate space below and in the Fee Letter and returning to
CSFB the enclosed duplicate originals of this Commitment Letter and the Fee
Letter not later than 5:00 p.m., New York City time, on December 27, 1999. This
Commitment will expire at such time in the event that CSFB has not received such
executed duplicate originals in accordance with the immediately preceding
sentence. In the event that the initial borrowing in respect of the Senior
Secured Facilities does not occur on or before May 31, 2000 (or such later date
as may be agreed to among the Agents and you), then this Commitment Letter and
this Commitment shall automatically terminate unless the Agents shall agree to
an extension. You understand that the Agents intend to commence syndication
efforts with respect to the Senior Secured Facilities promptly after execution
of the Restructuring Agreement by the parties thereto.
CSFB is pleased to have been given the opportunity to assist you in
connection with the financing for the Transactions.
Very truly yours,
CREDIT SUISSE FIRST BOSTON,
By: /s/ CHRISTOPHER CUNNINGHAM
--------------------------------------
Name: Christopher Cunningham
Title: Director
By: /s/ ROBERT HETU
-------------------------------------
Name: Robert Hetu
Title: Vice President
Accepted and agreed to as of the date
first written above:
PRISON REALTY TRUST, INC.,
By: /s/ DOCTOR R. CRANTS
-------------------------------------
Name: Doctor R. Crants
Title: Chief Executive Officer
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EXHIBIT A
December 26, 1999
$1,200,000,000 SENIOR SECURED CREDIT FACILITIES
SUMMARY OF PRINCIPAL TERMS AND CONDITIONS
Borrower: Prison Realty Trust, Inc., a Maryland corporation
(the "Borrower").
Transactions: Pursuant to an agreement to be entered into among
the Borrower, its associated management companies
and the other parties thereto (the "Restructuring
Agreement"), the Borrower will elect to be treated
as a subchapter C operating company and will become
the 100% parent corporation of corporations that
will own the businesses of Corrections Corporation
of America, Prison Management Services, Inc. and
Juvenile and Jail Facility Management Services,
Inc., each an associated company of the Borrower
(collectively, the "Acquired Entities"), by stock
purchase, merger, reverse merger or otherwise, for
$38,300,000 in the form of stock of the Borrower
and cash (the "Restructuring"). Simultaneously with
the completion of the Restructuring, pursuant to a
securities purchase agreement, Blackstone Capital
Partners III Merchant Banking Fund L.P., Blackstone
Real Estate Partners III L.P. and/or their
affiliates (collectively, the "Blackstone Funds"),
an investment fund managed by Fortress Investment
Group (the "Fortress Fund" and together with the
Blackstone Funds, the "Funds") and one or more
co-investors that may be selected by the Blackstone
Funds or the Fortress Fund (together with the
Funds, the "Fund Investors") will purchase from the
Borrower (the "Funds Purchase") convertible
preferred stock having the terms set forth on Annex
III hereto (the "New Preferred Stock") for up to
$350,000,000, at least $315,000,000 of which will
be purchased by the Closing Date (as defined
below), subject to the Rights Offering (as defined
below). The Fund Investors will also receive as
part of the Funds Purchase warrants to purchase
common stock of the Borrower having the terms set
forth on Annex III hereto (the "New Warrants").
Following completion of the Funds Purchase, the
Fund Investors will own on a fully diluted basis
approximately 25.0% of the outstanding equity of
the Borrower before the exercise of any New
Warrants, subject to the Rights Offering.
Concurrent with the consummation of the
Restructuring and prior to the consummation of the
Funds Purchase, the Borrower will consummate a
rights offering to its existing stockholders (the
"Rights Offering") pursuant to which such
stockholders will be entitled to purchase, at the
same price per share to be paid by the Fund
Investors in the Funds Purchase, up to $75 million
of a separate series of preferred stock of the
Borrower having substantially the same economic
rights as the New Preferred Stock (the
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"Rights Offering Preferred") (and will receive a
pro rata portion of the New Warrants in connection
therewith), provided that the Fund Investors will
purchase sufficient New Preferred Stock so that,
when combined with the gross proceeds of the Rights
Offering, the total gross proceeds to the Borrower
on the Closing Date is at least $315 million (the
Fund Investors, together with any existing
stockholders purchasing in such Rights Offering,
are referred to collectively herein as the
"Investors").
Concurrent with the consummation of the
Restructuring, the Funds Purchase and the Rights
Offering, (a) the Borrower will obtain, and make
the initial borrowing in the amount of $975,000,000
under, the senior secured credit facilities
described below under the caption "Senior Secured
Facilities" (the "Senior Secured Facilities"), (b)
the Borrower will use the proceeds from this
borrowing, together with the Funds Purchase and the
Rights Offering, to fund the cash component of the
Transactions (as defined below) as set forth below
under the caption "Purpose" and Annex II hereto and
(c) costs and expenses (the "Transaction Costs")
incurred in connection with the Transactions will
be paid.
Prior to or concurrent with the initial borrowing
under the Senior Secured Facilities, the Borrower
and each of its subsidiaries and the Acquired
Entities will prepay or repurchase in full all of
their existing indebtedness (other than (a)
$100,000,000 aggregate principal amount of 12%
Senior Notes Due 2006 (the "Existing High Yield
Bonds") issued under an indenture, as supplemented
by an indenture supplement, dated as of June 11,
1999 between the Borrower and State Street Bank and
Trust Company, as trustee (the "High Yield Bonds
Indenture"), (b) $70,000,000 aggregate principal
amount outstanding under two series of convertible
notes (the "Existing Convertible Notes") (subject
to obtaining consents to amendments to such series
of convertible notes permitting them to remain
outstanding following consummation of the
Restructuring) and (c) certain other indebtedness
to be agreed upon (collectively, the "Existing
Indebtedness")), including all amounts outstanding
(the "Repaid Debt") under existing bank debt of
approximately $960,800,000 pursuant to (i) the
Amended and Restated Credit Agreement dated as of
August 4, 1999, among the Borrower, the guarantors
party thereto, the lenders party thereto and the
other parties thereto (the "Existing Prison Realty
Bank Agreement"), (ii) the Revolving Line of Credit
dated as of August 17, 1999, between Prison
Management Services, Inc. and AmSouth Bank and the
Revolving Line of Credit dated as of August 17,
1999, between Juvenile and Jail Facility Management
Services, Inc. and AmSouth Bank (the "Existing
Service Company Bank Agreements"), and (iii) the
Loan and Security Agreement dated as of March 1,
1999, by and among Corrections Corporation of
America, the lenders party thereto and Foothill
Capital Corporation, as agent for such lenders
(together with the Existing Prison Realty Bank
Agreement and the Existing Service Company
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<PAGE> 239
Bank Agreements, the "Existing Bank Agreements").
The Existing Bank Agreements and all agreements and
documentation evidencing the Repaid Debt, and any
related guarantee and collateral documents, shall
be terminated.
The transactions described in the foregoing
paragraphs, including the Restructuring, the Funds
Purchase and the Rights Offering, are collectively
referred to herein as the "Transactions".
Senior Secured Facilities: (A) A Senior Secured Term Loan Facility (the
"Tranche A Facility") providing for term loans
to the Borrower in an aggregate principal
amount not to exceed $250,000,000.
(B) A Senior Secured Term Loan Facility (the
"Tranche B Facility", and together with the
Tranche A Facility, the "Term Loan Facilities")
providing for term loans to the Borrower in an
aggregate principal amount not to exceed
$700,000,000.
(C) A Senior Secured Revolving Credit Facility (the
"Revolving Facility") providing for revolving
loans to the Borrower and letters of credit for
the account of the Borrower in an aggregate
principal amount not to exceed $250,000,000 at
any time during the period commencing on the
date that the Transactions are consummated (the
"Closing Date") and ending on the date that the
Revolving Facility matures as set forth under
the caption "Final Maturity and Amortization"
(the "Availability Period"); provided that the
amount of such revolving loans made on the
Closing Date shall not exceed $25,000,000.
In connection with the Revolving Facility, Credit
Suisse First Boston ("CSFB") will make available to
the Borrower a swingline facility under which the
Borrower may make short-term borrowings of up to an
amount to be agreed upon. Any such swingline loans
will reduce availability under the Revolving
Facility on a dollar-for-dollar basis. Each Lender
(as defined below) under the Revolving Facility
will, promptly upon request by CSFB, fund to CSFB
its pro rata share of any swingline borrowings.
Arranger: CSFB will act as lead arranger and book manager for
the Senior Secured Facilities, and will perform the
duties customarily associated with such roles.
Administrative Agent: CSFB will act as administrative agent and
collateral agent (collectively, the "Agent") for a
syndicate of financial institutions reasonably
satisfactory to CSFB and the Borrower (the
"Lenders"), and will perform the duties customarily
associated with such roles.
Syndication Agent: A financial institution to be selected by the Agent
will, in consultation with the Borrower, act as
Syndication Agent (the "Syndication Agent")
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Purpose: (A) The proceeds of the borrowings under the Term
Loan Facilities and the Revolving Facility will
be used by the Borrower on the Closing Date,
together with the proceeds from the Funds
Purchase and the Rights Offering, (i) to repay
the Repaid Debt, (ii) to effect the
Restructuring and (iii) to pay the Transaction
Costs. The balance of the proceeds from the
initial borrowing under the Term Loan
Facilities and the Funds Purchase will be used
for (i) the pre-funding of capital expenditures
in an amount to be agreed upon to complete the
construction of prisons currently under
construction and (ii) general corporate
purposes.
The estimated sources and uses of the funds
necessary to consummate the Transactions and the
other transactions contemplated hereby are set
forth on Annex II hereto.
(B) The proceeds of the borrowings and letters of
credit under the Revolving Facility will be
used during the Availability Period for (i) the
construction of prison facilities and (ii)
general corporate purposes (including stock
repurchases, to be extent permitted by the
definitive credit documentation).
Fees and Interest Rates: As set forth on Annex I hereto.
Availability: (A) The full amount of the Term Loan Facilities
must be drawn in a single drawing on the
Closing Date. Amounts repaid or prepaid under
the Term Loan Facilities may not be reborrowed.
The Closing Date shall in no event occur later
than May 31, 2000.
(B) Loans and letters of credit under the Revolving
Facility will be available during the
Availability Period in an aggregate amount
outstanding at any time not greater than the
commitments outstanding under the Revolving
Facility at such time.
Letters of Credit: Letters of credit under the Revolving Facility will
be issued by CSFB or one of its affiliates (in such
capacity, the "Fronting Bank") for the account of
the Borrower up to an amount to be agreed upon.
Each letter of credit shall expire no later than
the earlier of (a) the date that is 12 months after
its date of issuance, subject to customary
evergreen renewal provisions, and (b) the fifth
business day prior to the final maturity of the
Revolving Facility.
Drawings under any letter of credit shall be
reimbursed by the Borrower within one business day.
To the extent that the Borrower does not reimburse
the Fronting Bank within one business day, the
Lenders under the Revolving Facility shall be
irrevocably obligated to reimburse the Fronting
Bank pro rata based upon their respective Revolving
Facility commitments, with the amount of such
reimbursement payment being deemed to be payment in
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respect of the participation of such Lender in the
applicable letter of credit.
The issuance of all letters of credit shall be
subject to the customary procedures of the Fronting
Bank.
Final Maturity and
Amortization: (A) Loans made under the Tranche A Facility will
mature on the date that is six years after the
Closing Date and will amortize in quarterly
installments under a schedule and in amounts to
be agreed upon.
(B) Loans made under the Tranche B Facility will
mature on the date that is eight years after
the Closing Date and will amortize under a
schedule to be agreed upon providing for
nominal quarterly installments during the
initial seven year term of the Tranche B
Facility and quarterly installments in amounts
to be agreed upon during the remaining term of
the Tranche B Facility.
(C) The Revolving Facility will mature on the date
that is six years after the Closing Date.
Guarantors: The obligations of the Borrower under the Senior
Secured Facilities and under any interest rate or
other hedging agreements entered into with any
Lender (or an affiliate thereof) will be
unconditionally and irrevocably guaranteed (the
"Guarantees") by each of the Borrower's existing or
subsequently acquired or organized direct or
indirect domestic subsidiaries (subject to
exceptions to be agreed upon with respect to any
less than wholly owned domestic subsidiaries) in a
manner reasonably satisfactory to the Borrower and
its counsel and the Agent and its counsel.
Security: The obligations of the Borrower under the Senior
Secured Facilities and under any interest rate or
other hedging agreements entered into with any
Lender (or an affiliate thereof) and the Guarantees
will be secured by valid, perfected and, subject to
certain exceptions to be agreed upon,
first-priority security interests in the following
(collectively, the "Collateral"): (a) all the
capital stock of or other equity interests in each
existing or subsequently acquired or organized
direct or indirect domestic subsidiary of the
Borrower and 65% of the capital stock of or other
equity interests in each existing or subsequently
acquired or organized direct foreign subsidiary of
the Borrower or of any domestic subsidiary of the
Borrower or, in any case in which the Borrower or
any such domestic subsidiary directly holds less
than 65% of such stock or equity interests, all
such stock or equity interests (in each case, to
the extent permitted by applicable legal provisions
and subject to exceptions to be agreed upon with
respect to any less than wholly owned domestic
subsidiaries) held by the Borrower or such domestic
subsidiary and (b) all the tangible and intangible
assets (including but not limited to real property,
accounts receivable,
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notes receivable, inventory, contract rights,
trademarks, trade names, patents, equipment, cash
and proceeds of the foregoing) of the Borrower and
its existing or subsequently acquired or organized
domestic subsidiaries (subject to exceptions to be
agreed upon with respect to any less than wholly
owned domestic subsidiaries), in each case to the
extent permitted by applicable legal restrictions
and in a manner reasonably satisfactory to the
Borrower and its counsel and the Agent and its
counsel. Furthermore, (a) at the request of the
Agent made prior to the Closing Date, the Borrower
and its subsidiaries will enter into additional
guarantee and other security arrangements unless
the Agent and the Borrower determine that the
economic detriment to the Borrower of entering into
such guarantee or security arrangements or taking
security interests in such assets would be
excessive in view of the related benefits to be
received by the Lenders under the Senior Secured
Facilities and (b) at the request of the Borrower
made prior to the Closing Date, assets will be
excluded from the Collateral in circumstances where
the Agent and the Borrower make the determination
referred to in clause (a) above with respect to the
inclusion of such assets in the Collateral. All
such security interests will be created pursuant to
documentation (including real property mortgages)
reasonably satisfactory in all respects to the
Agent, and on the Closing Date, except as approved
by the Agent, such security interests shall have
become perfected and the Agent shall have received
reasonably satisfactory evidence as to the
enforceability and priority thereof.
None of the Collateral will be subject to any other
liens, except (i) as agreed to by CSFB and
permitted by the definitive credit documentation
and (ii) for liens in respect of Permitted Non-
Recourse Debt (as defined below). To the extent any
Collateral becomes subject to any Permitted
Non-Recourse Debt or is sold or disposed of in
accordance with the definitive credit
documentation, the security interests with respect
to such Collateral will be released.
Mandatory Prepayment: The Borrower will be required to make mandatory
prepayments of term loans in amounts and at times
to be agreed upon (subject to exceptions to be
agreed upon), (a) in respect of 75% (subject to
reduction based on the achievement of financial
performance standards to be agreed upon) of
Consolidated Excess Cash Flow (as defined below) of
the Borrower and its subsidiaries commencing with
respect to the fiscal year ending on December 31,
2001, and (b) in respect of 100% of the net cash
proceeds of (i) certain dispositions by the
Borrower or any of its subsidiaries of assets or
the stock of subsidiaries that are not reinvested
in the business of the Borrower and its
subsidiaries within one year of such disposition or
(ii) the incurrence by the Borrower or any of its
subsidiaries of certain types of indebtedness.
Exceptions. The following transactions, among
others to be agreed upon, will not be subject to
the mandatory prepayments described
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above: (i) dispositions of the note relating to the
Agecroft Prison Facility (such exception to be
consistent with the similar exception set forth in
the Existing Bank Agreements); (ii) issuances of
debt to fund the repurchase of the New Preferred
Stock following the exercise by the [Fund]
Investors of the Funds Put (as defined in Annex III
hereto), so long as such repurchase is permitted as
described below under the caption "Negative
Covenants -- New Preferred Stock Redemption"; (iii)
dispositions of assets, including by way of
sale-leaseback transactions, and the incurrence of
Permitted Non-Recourse Debt, in each case completed
after December 31, 2000, so long as the fair market
value of the assets so disposed plus, without
duplication, the principal amount of such Permitted
Non-Recourse Debt incurred pursuant to this
exception does not, in the aggregate, exceed
$75,000,000 per annum; and (iv) other asset
dispositions to be agreed upon.
"Consolidated Excess Cash Flow" will be defined as
(i) the consolidated EBITDA (to be defined) of the
Borrower and its subsidiaries for a fiscal year
plus any decrease in working capital, minus (ii)
(A) Interest Expense (to be defined) paid in cash,
(B) taxes paid in cash, (C) debt amortization
payments paid in cash, (D) permitted capital
expenditures (including capital expenditures
certified by the Borrower as necessary to complete
facilities under construction in the following
fiscal year, provided that such amounts will not be
deducted in the fiscal year in which they are
actually spent), (E) permitted dividends, equity
purchases and redemptions, (F) permitted
investments, (G) any increase in working capital
and (H) other items to be agreed upon, in each case
made during such year.
Optional Prepayment or
Reduction: Loans under the Senior Secured Facilities may be
prepaid, and Revolving Facility commitments may be
permanently reduced, in whole or in part at any
time in minimum amounts to be agreed upon at the
Borrower's option. Any optional prepayment of loans
bearing interest based on Adjusted LIBOR other than
at the end of an interest period will be subject to
reimbursement of the Lenders' redeployment costs.
All optional prepayments of the Term Loan
Facilities will be allocated between the Term Loan
Facilities as directed by the Borrower and applied
first to the scheduled amortization payments under
the applicable Term Loan Facility occurring within
12 months of the repayment date, and second pro
rata to the remaining amortization payments under
the applicable Term Loan Facility.
Special Application
Provisions: Any holders of loans under the Tranche B Facility
may, so long as loans are outstanding under the
Tranche A Facility, decline to accept any mandatory
prepayment described above under the caption
"Mandatory Prepayment" and, under such
circumstances, all amounts that would otherwise be
applied to prepay loans under
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the Tranche B Facility shall be applied to prepay
loans under the Tranche A Facility in accordance
with the provisions described above under the
caption "Mandatory Prepayment".
Facilities Documentation: Usual for facilities and transactions of this type
and reasonably acceptable to the Borrower and its
counsel and the Agent and its counsel. The
documentation will include, among other documents,
a single credit agreement (the "Credit Agreement"),
a subsidiary guarantee agreement, a security
agreement and other appropriate guarantee and
collateral documents.
Representations and
Warranties: Usual for facilities and transactions of this type
(including materiality concepts to be agreed upon)
and reasonably acceptable to the Borrower and its
counsel and the Agent and its counsel, including
but not limited to accuracy of financial
statements; no material adverse change; absence of
material litigation (other than litigation
identified in the schedules to the Credit Agreement
on the Closing Date); no violation of agreements or
instruments; compliance with laws (including but
not limited to ERISA, margin regulations, bank
regulatory limitations and environmental laws and
regulations); existence and validity of licenses;
payment of taxes; ownership of properties;
insurance; inapplicability of the Investment
Company Act; solvency; environmental matters;
accuracy of information; and validity, priority and
perfection of security interests in the Collateral.
Conditions Precedent: Usual for facilities and transactions of this type
and reasonably acceptable to the Borrower and its
counsel and the Agent and its counsel, including
but not limited to delivery of reasonably
satisfactory legal opinions; accuracy of
representations and warranties in all material
respects; evidence of authority; material consents
of all persons; compliance with applicable material
laws and regulations; payment of fees and expenses;
fully perfected security interests as described
above under the caption "Security"; and obtaining
of reasonably satisfactory insurance.
The Transactions shall be consummated
simultaneously with the closing under the Senior
Secured Facilities in accordance with applicable
law, the Restructuring Agreement and all related
documentation in all material respects, in each
case substantially in the form approved by CSFB
(such approval not to be unreasonably with held)
and otherwise on terms reasonably satisfactory to
CSFB, and all other material documentation to be
entered into pursuant thereto or in connection
therewith shall be reasonably satisfactory to CSFB.
The conditions to the Borrower's or any of its
subsidiaries' obligations set forth in the
Restructuring Agreement shall have been satisfied
without giving effect to waivers or amendments not
approved by CSFB that are materially adverse to the
Lenders.
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The terms and conditions of (i) the New Preferred
Stock and (ii) the New Warrants shall be reasonably
satisfactory in all material respects to CSFB.
After giving effect to the Transactions, the
Borrower and its subsidiaries shall have
outstanding no preferred stock and no indebtedness
other than (i) the loans under the Senior Secured
Facilities, (ii) the New Preferred Stock, (iii) the
Existing Preferred Stock, (iv) the Existing High
Yield Bonds, (v) the Existing Convertible Notes and
(vi) other indebtedness reasonably satisfactory to
the Agent.
CSFB shall have received a pro forma consolidated
balance sheet and income statement as of the end of
and for fiscal year 1998 and 1999 and for the
quarter ended March 31, 2000 (together with, for
comparative purposes, the quarter ended March 31,
1999) of the Borrower, in each case giving effect
to the Transactions, together with an examination
or review report by a nationally recognized
accounting firm, substantially to the effect that
such pro forma balance sheet and income statement
fairly presents in all material respects the pro
forma financial position and the results of
operation of the Borrower, the Acquired Entities
and their respective subsidiaries as of such date
and for such periods after giving effect to the
Transactions as of the date of such balance sheet
and as of the beginning of such fiscal year, in
each case in accordance with generally accepted
accounting principles to the extent applicable
thereto, and CSFB shall be reasonably satisfied
that such balance sheet and income statement and
the transactions in connection with the
Transactions and the financing arrangements
contemplated hereby are consistent with the sources
and uses shown on Annex II hereto and are not
materially inconsistent with the information or
projections and the financial model delivered to
CSFB prior to the date hereof.
EBITDA (as defined in the Series B Cumulative
Convertible Preferred Stock Securities Purchase
Agreement by and among Prison Realty Trust, the
Acquired Entities and Prison Acquisition Company,
L.L.C. dated as of December 17, 1999) in respect of
the first quarter of 2000 shall not be less than
$43,000,000.
CSFB shall have received audited financial
statements of (i) the predecessors of the Borrower
and the Acquired Entities as of the end of and for
fiscal years 1997, 1998 and 1999 and (ii) unaudited
financial statements of the Borrower and the
Acquired Entities as of and for the quarter ended
March 31, 2000 (together with, for comparative
purposes, the quarter ended March 31, 1999),
together with a certificate of the Borrower (signed
on behalf of the Borrower by a senior officer) to
the effect that such financial statements fairly
present in all material respects the financial
position and results of operations of such
entities, including its subsidiaries, as of such
dates and for such periods in accordance with
generally accepted accounting principles to the
extent appli-
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<PAGE> 246
cable thereto, and, and CSFB shall be reasonably
satisfied that such financial statements are not
materially inconsistent with the information or
projections and the financial model delivered to
CSFB prior to the date hereof.
CSFB shall have received a solvency letter, in form
and substance and from an independent evaluation
firm reasonably satisfactory to CSFB.
To the extent required, the holders of the High
Yield Bonds and the Existing Convertible Notes
shall have consented to the Transactions, in
accordance with applicable law and the terms of the
High Yield Bonds Indenture or the Existing
Convertible Notes, as the case may be.
All requisite material governmental authorities
shall have approved or consented to the
Transactions and the other transactions
contemplated hereby to the extent required, all
applicable appeal periods shall have expired and
there shall be no governmental or judicial action,
actual or threatened, that has or could have a
reasonable likelihood of restraining, preventing or
imposing materially burdensome conditions on the
Transactions or the consummation of the other
transactions contemplated hereby.
Affirmative Covenants: Usual for facilities and transactions of this type
(including materiality concepts and other
exceptions to be agreed upon) and reasonably
acceptable to the Borrower and its counsel and the
Agent and its counsel. Covenants will address, with
respect to the Borrower and its subsidiaries,
without limitation, maintenance of corporate
existence and rights; performance of obligations;
delivery of financial information prepared in
accordance with United States generally accepted
accounting principles, including annual and
quarterly consolidated financial statements, and
compliance certificates; delivery of notices of
default, litigation and other adverse matters;
maintenance of properties in good working order;
maintenance of reasonably satisfactory insurance;
compliance with applicable laws and regulations;
inspection of books and properties; payment of
taxes and other liabilities; and further assurances
in respect of guarantees and security interests
(including security interests in respect of prison
facilities that are in the process of being
constructed).
The Borrower will provide the Lenders annually, at
the times it is required to deliver audited
financial statements, an operating and capital
expenditure budget for the next succeeding fiscal
year.
The Borrower will agree to enter into, and maintain
for a period of time to be agreed upon, interest
rate hedging arrangements reasonably satisfactory
to the Agent with respect to a percentage to be
agreed upon of all floating rate debt that is
funded on the Closing Date (including the Term Loan
Facilities).
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Negative Covenants: Usual for facilities and transactions of this type
(including materiality concepts and basket and
other exceptions to be agreed upon) and reasonably
acceptable to the Borrower and its counsel and the
Agent and its counsel. Covenants will address, with
respect to the Borrower and its subsidiaries,
without limitation, limitations on dividends and
distributions on capital stock; limitations on
redemptions and repurchases of capital stock and
debt (including an exception permitting the
Borrower to purchase or redeem from the Closing
Date to December 31, 2000, up to $15,000,000 of
capital stock of the Borrower and in each fiscal
year thereafter up to $5,000,000 of capital stock
of the Borrower, provided that such amounts may be
increased by the amount of New Preferred Stock
purchased by the Investors in excess of
$350,000,000); limitations on prepayment of debt;
limitations on liens and sale/leaseback
transactions; limitations on loans and investments
other than Permitted Investments (to be defined);
limitations on debt; limitations on the creation of
any domestic subsidiary without causing such
subsidiary to become a guarantor in respect of the
Senior Secured Facilities and to create liens on
its assets for the benefit of the Lenders under the
Senior Secured Facilities (subject to exceptions to
be agreed upon with respect to any less than wholly
owned domestic subsidiaries); limitations on
mergers, acquisitions and asset sales; limitations
on transactions with affiliates; limitations on
fees payable to the Funds and their affiliates;
limitations on changes in business conducted; and
limitations on amendment of material debt and other
material agreements.
Non-Recourse Debt Exception. The negative
covenants limiting the incurrence of debt and liens
will permit the incurrence of debt on a
non-recourse basis (other than customary limited
recourse typical for transactions of such type) and
related liens; provided that (i) the aggregate
principal amount of such debt does not at any time
exceed 10% of the Consolidated Tangible Assets (to
be defined) of the Borrower and its subsidiaries,
(ii) the liens securing such debt do not extend to
any property of the Borrower and its subsidiaries
other than the property being constructed, acquired
or financed by such debt, and (iii) the proceeds
from the incurrence of such debt will, unless an
exception otherwise applies, be applied as provided
above under Mandatory Prepayment ("Permitted
Non-Recourse Debt").
Other Exceptions. Subject to applicable
subordination provisions, the Borrower and its
subsidiaries will be permitted to pay (i) interest
in respect of the Existing Convertible Notes, (ii)
dividends in respect of the New Preferred Stock and
(iii) dividends in respect of the Existing
Preferred Stock, except that no such payment shall
be permitted under clause (ii) or (iii) if a
default or an event of default has occurred and is
continuing or would occur after giving effect to
such payment. In addition, the negative covenants
will permit sale-leaseback transac-
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tions that do not trigger the requirement to
mandatorily prepay loans under the Term Loan
Facilities because of the exceptions described
above under the caption "Mandatory Prepayment".
New Preferred Stock Redemption. The Borrower will
be permitted to repurchase the New Preferred Stock
pursuant to the exercise by the Fund Investors of
the Funds Put as follows but not earlier than the
fifth anniversary of the Closing Date:
If such repurchase is funded from sources, other
than a Permitted Replacement Security (as defined
below), such repurchase shall be permitted so long
as: (i) no default or event of default has occurred
and is continuing or would occur after giving
effect to such repurchase, (ii) the Senior Leverage
Ratio (to be defined) is, at the time of such
repurchase, not greater than 2.75 to 1.00, (iii)
the Total Leverage Ratio (as described in Annex IV
hereto) is, at the time of such repurchase, at
least .25x below the maximum level permitted at
such time, and (iv) after giving effect to such
repurchase, the Borrower has available cash
(including availability under the Revolving
Facility) of at least $50,000,000.
If such repurchase is funded from the issuance of a
Permitted Replacement Security, such repurchase
shall be permitted so long as: (i) no default or
event of default has occurred and is continuing or
would occur after giving effect to such repurchase
and (ii) the Total Leverage Ratio is, at the time
of such repurchase, at least .25x below the maximum
level permitted at such time; provided, however,
that if the Permitted Replacement Security is an
equity security of the Borrower, the restriction in
this clause (ii) will not be applicable if the
annual cash payments required under such Permitted
Replacement Security are no greater than the annual
cash payments required under the New Preferred
Stock it replaces.
"Permitted Replacement Security" will be defined to
mean (i) any equity security of the Borrower or
(ii) any debt security of the Borrower that (x) is
not mandatorily redeemable or does not mature
earlier than the date that is 91 days after the
final maturity of the Tranche B Facility, (y) does
not provide any holder thereof with rights of
mandatory redemption prior to such final maturity
and (z) contains other terms (including, but not
limited to, interest or dividend rate,
subordination, payment blockage, default and
amortization) that are no more adverse to the
Lenders than the New Preferred Stock.
The Borrower will be required to deliver a
certificate (signed on behalf of the Borrower by a
senior officer) at least three business days prior
to any such repurchase certifying compliance with
the foregoing.
Selected Financial
Covenants: The Credit Agreement will contain the financial
covenant ratios set forth in Annex IV hereto, each
of which will be determined based
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upon the financial information and projections
heretofore provided to the Agent and calculated on
a consolidated basis with respect to the Borrower
and its subsidiaries.
Events of Default: Usual for facilities and transactions of this type
(including grace periods and materiality concepts
to be agreed upon) and reasonably acceptable to the
Borrower and its counsel and the Agent and its
counsel, including but not limited to nonpayment of
principal, interest, fees or other amounts when
due; violation of covenants; inaccuracy of
representations and warranties; cross default and
cross acceleration to indebtedness of the Borrower
or any of its subsidiaries; bankruptcy events
relating to the Borrower and its subsidiaries;
judgments; ERISA; actual or asserted invalidity of
loan documents or security interests or of material
agreements; and Change in Control (to be defined).
Cost and Yield Protection: Usual for facilities and transactions of this type,
including but not limited to compensation in
respect of prepayments (which will include
reimbursement of the Lenders' redeployment costs in
the case of prepayments of loans bearing interest
based on Adjusted LIBOR other than at the end of an
interest period), taxes (including withholding
taxes), changes in capital requirements, guidelines
or policies or their interpretation or application,
illegality, change in circumstances, reserves and
other provisions deemed necessary by the Agent or
the other Lenders to provide customary protection
for U.S. and non-U.S. banks.
Assignments and
Participations: Lenders will be permitted to assign their loans,
notes and commitments to other financial
institutions, in aggregate amounts not less than
$5,000,000, or in lesser amounts if approved by the
Agent and the Borrower, and in increments of
$1,000,000, with the consent of the Borrower, which
shall not be unreasonably withheld, the Agent and,
in the case of participations in letters of credit
and Revolving Facility commitments, the Fronting
Bank. The Agent will hold commitments as of the
Closing Date in an aggregate amount greater than
the aggregate commitments of any other Lender. The
Agent will receive a processing and recordation fee
of $3,500, payable by the assignor and/or the
assignee, with each assignment. Assignments will be
by novation and will not be required to be pro rata
among the Senior Secured Facilities.
In the event any Lender's long-term credit rating
is downgraded to BBB+ or lower by Standard & Poor's
Ratings Services or Baa1 or lower by Moody's
Investors Service, Inc., the Fronting Bank will be
permitted to replace such Lender with an assignee,
subject to the restrictions set forth above.
Lenders will be permitted to participate their
loans, notes and commitments to other financial
institutions without restriction. Participants will
have the same benefits as the selling Lenders would
have (and will be limited to the amount of such
benefits) with regard to yield protection and
increased costs. Voting rights of
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<PAGE> 250
participants will be limited to proposed (a)
increases in commitments, (b) reductions of
principal, interest rates or fees, (c) extensions
of scheduled amortization or final maturity and (d)
releases of all or substantially all Collateral
securing the applicable Senior Secured Facilities,
in each case limited to the applicable Senior
Secured Facility in which any participant
participates.
Voting: Amendments and waivers of the Credit Agreement and
the other definitive credit documentation will
require the approval of Lenders holding more than
50% of the loans and commitments, except that (a)
the consent of all the Lenders directly affected
thereby shall be required with respect to (i)
increases in commitments, (ii) reductions of
principal, interest rates or fees, (iii) extensions
of final maturity and (iv) releases of all or
substantially all Collateral securing the
applicable Senior Secured Facilities, (b) the
consent of Lenders holding (i) more than 50% of the
loans and commitments of each adversely affected
tranche of the Senior Secured Facilities will be
required with respect to extensions of scheduled
amortization (other than final maturity) and (ii)
more than 50% of the loans and commitments of each
tranche of the Senior Secured Facilities will be
required with respect to accelerations of
amortization (including final maturity), (c) the
consent of Lenders holding more than 50% of the
loans and commitments of each adversely affected
tranche of the Senior Secured Facilities shall be
required with respect to any amendment that
adversely affects the rights in respect of payments
or Collateral of such tranche of the Senior Secured
Facilities in a manner different from any other
tranche and (d) the consent of Lenders holding more
than 50% of the loans and commitments of each
adversely affected tranche of the Senior Secured
Facilities shall be required with respect to any
amendment that changes the relative rights in
respect of payments of Lenders participating in
different tranches.
Expenses and
Indemnification: All reasonable out-of-pocket expenses (including
but not limited to expenses incurred in connection
with due diligence and the reasonable fees,
disbursements and other charges for no more than a
single local counsel for the Agent in each
applicable jurisdiction) of the Agent, the Arranger
and the Syndication Agent associated with the
syndication of the Senior Secured Facilities or
with the preparation, execution and delivery,
administration, waiver or modification and
enforcement of the Credit Agreement and the other
documentation contemplated hereby and thereby are
to be paid by the Borrower. In addition, all
reasonable out-of-pocket expenses of the Lenders
for enforcement costs (including but not limited to
the reasonable fees, disbursements and other
charges for one counsel for each Lender) and
documentary taxes associated with the Senior
Secured Facilities are to be paid by the Borrower.
The Borrower will indemnify the Agent, the
Arranger, the Syndication Agent and the Lenders and
hold them harmless from
E-19
<PAGE> 251
and against all reasonable out-of-pocket costs,
expenses (including but not limited to reasonable
fees and disbursements of counsel) and liabilities
arising out of or relating to the Transactions and
the other transactions contemplated hereby,
provided that no such person will be indemnified
for costs, expenses or liabilities arising from
such person's gross negligence or wilful
misconduct.
Governing Law and Forum: New York.
Counsel for Agent and
Arranger: Cravath, Swaine & Moore.
E-20
<PAGE> 252
ANNEX I
TO EXHIBIT A
Interest Rates: At the Borrower's option, the interest rates per
annum applicable to the Revolving Facility and the
Tranche A Facility initially shall be Adjusted
LIBOR plus 3.00% or ABR plus 2.00%.
At the Borrower's option, the interest rates per
annum applicable to the Tranche B Facility shall be
Adjusted LIBOR plus 3.50% or ABR plus 2.50%.
The Borrower may elect interest periods of 1, 2, 3
or 6 months, or 9 or 12 months, if available from
all the Lenders, for Adjusted LIBOR borrowings.
Calculation of interest shall be on the basis of
actual days elapsed in a year of 360 days (or 365
or 366 days, as the case may be, in the case of ABR
loans based on the Prime Rate) and interest shall
be payable at the end of each interest period and,
in any event, at least every 3 months or 90 days,
as the case may be.
ABR is the Alternate Base Rate, which is the higher
of CSFB's Prime Rate and the Federal Funds
Effective Rate plus 1/2 of 1%.
Adjusted LIBOR will at all times include statutory
reserves.
Letter of Credit Fee: A per annum fee equal to the spread over Adjusted
LIBOR then in effect under the Revolving Facility
on the aggregate face amount of outstanding letters
of credit under the Revolving Facility, payable in
arrears at the end of each quarter and upon the
termination of the Revolving Facility, in each case
for the actual number of days elapsed over a
360-day year. Such fee shall be distributed to the
Lenders participating in the Revolving Facility pro
rata in accordance with the amount of each such
Lender's Revolving Facility commitment. In
addition, the Borrower shall pay to the Fronting
Bank, for its own account, (a) a per annum
percentage to be agreed upon on the aggregate face
amount of outstanding letters of credit, payable in
arrears at the end of each quarter and upon the
termination of the Revolving Facility, in each case
for the actual number of days elapsed over a
360-day year, and (b) customary issuance and
administration fees.
Commitment Fees: 0.50% per annum on the undrawn portion of the
commitments in respect of the Revolving Facility,
commencing to accrue on the Closing Date and
payable quarterly in arrears after the Closing
Date.
Other: The letter of credit fees, the interest rates and
the commitment fees in respect of the Revolving
Facility and the interest rates in respect of the
Tranche A Facility will be subject to reduction
based upon the Borrower's Total Leverage Ratio.
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<PAGE> 253
ANNEX II
TO EXHIBIT A
SOURCES AND USES OF FUNDS ON THE CLOSING DATE
(IN MILLIONS OF DOLLARS)
FOR CONSOLIDATED ENTITY
<TABLE>
<CAPTION>
USES OF FUNDS
- -------------
<S> <C>
Opco Purchase...................... $ 26.6
Repayment of Existing
Indebtedness..................... 960.8
Rollover of Existing Preferred
Stock............................ 107.5
Rollover of Existing High Yield
Bonds............................ 100.0
Rollover of Existing Convertible
Notes............................ 70.0
Pre-Funded Capital Expenditures.... 25.7
Excess Cash........................ 34.5
Tax Reserves and Payments.......... 141.0
Insurance Policy................... 9.0
Fees and Expenses.................. 92.5
--------
Total Uses(2).................... $1,579.2
========
</TABLE>
<TABLE>
<CAPTION>
SOURCES OF FUNDS
- ----------------
<S> <C>
Revolving Facility................. $ 25.0(1)
Tranche A Facility................. 250.0
Tranche B Facility................. 700.0
New Preferred Stock................ 315.0
Existing Preferred Stock........... 107.5
Existing High Yield Bonds.......... 100.0
Existing Convertible Notes......... 70.0
Common Stock to CCA for Opco....... 11.7
Common Stock to CCA for Opco....... 11.7
--------
Total Sources.................... $1,579.2
========
</TABLE>
- -------------------------
(1) Represents portion of the $250,000,000 Revolving Facility that will be
funded on the Closing Date.
(2) Columns may not add as a result of rounding.
E-22
<PAGE> 254
ANNEX III
TO EXHIBIT A
TERMS OF SECURITIES
I. NEW PREFERRED STOCK AND RIGHTS OFFERING PREFERRED
Issuer: The Borrower.
Purchase Price: Up to $350,000,000, at least $315,000,000 of which
will be purchased by the Closing Date.
Dividend Rate: 12%, payable in cash, together with any dividend
paid with respect to the common stock into which it
is convertible.
Conversion Price: $6.50 per share.
Antidilution: Customary terms.
Payment Blockage: Dividends and redemptions will be paid out of funds
legally available therefor and will be blocked upon
the occurrence and during the continuance of a
default or an event of default under the Credit
Agreement.
Put Right: At any time after 91 days after the final maturity
or redemption of the Existing High Yield Bonds, but
not earlier than the fifth anniversary of the
Closing Date, the Investors will have the right to
require the Borrower to repurchase their New
Preferred Stock and Rights Offering Preferred at a
price that would yield the Investors, after
accounting for prior dividend payments, a rate of
return on their investment equal to 18%.
Default Limitation: No default shall exist under the New Preferred
Stock if the Borrower has failed to pay cash
dividends in respect thereof or has failed to
repurchase the New Preferred Stock or Rights
Offering Preferred following the exercise of the
Funds Put if such payment or repurchase was
prohibited by the Credit Agreement, provided that,
in such event, dividends will accrue at 18% and the
holders of the New Preferred Stock shall receive
additional director designation rights during any
such period.
II. NEW WARRANTS
Issuer: The Borrower.
Amount: Exercisable for approximately 14% of the Borrower's
common equity, all to be received at closing.
Exercise Price: $7.50 per share.
Antidilution: Customary terms.
Last date to Exercise: Fifteen years after the Closing Date.
E-23
<PAGE> 255
ANNEX IV
TO EXHIBIT A
SELECTED FINANCIAL COVENANTS
I. MAXIMUM LEVERAGE RATIOS
Total Leverage Ratio. Ratio of (a) Total Debt (as defined below) as of the
date of determination to (b) EBITDA (to be defined) for the fiscal quarter most
recently ended as of such date of determination multiplied by four ("LQA
EBITDA") not to exceed levels to be agreed upon.
"Total Debt" will be defined as all Indebtedness (to be defined) of the
Borrower and its subsidiaries, other than the Funds Convertible Security, less
the amount by which available cash (excluding the cash identified on the Closing
Date as dedicated for pre-funded capital expenditures as contemplated in Annex
II) exceeds $20 million.
"EBITDA" will be defined to include (a) payments representing principal and
interest under management agreements, where such principal and interest
represent reimbursement for construction of a facility the title to which is
required to be transferred to a governmental authority, provided that such
adjustments will represent no more than 10% of EBITDA, and (b) synergies and
cost savings from acquisitions on a pro forma basis calculated in accordance
with Regulation S-X under the Securities Exchange Act of 1934.
II. MINIMUM COVERAGE RATIOS
1. Interest Coverage Ratio. Ratio of (a) LQA EBITDA to (b) Interest Expense
(to be defined) for the period of four consecutive fiscal quarters most recently
ended as of such date of determination, not to be less than the levels to be
agreed upon.
2. Fixed Charge Coverage Ratio. Ratio of (a) LQA EBITDA to (b) Fixed
Charges (as defined below) for the period of four consecutive fiscal quarters
most recently ended as of such date of determination, not to be less than the
levels to be agreed upon.
"Fixed Charges" will be defined as the sum of cash Interest Expense
(including capitalized interest), cash dividends in respect of preferred stock,
cash repurchases of capital stock (except to the extent such repurchases are
financed using Permitted Replacement Securities), scheduled amortization
payments and maintenance capital expenditures.
III. MAXIMUM RATIO OF DEVELOPMENT COSTS
Ratio of (a)(i) costs of construction as of the determination with respect
to all uncompleted prison facilities plus (ii) costs required to complete all
such facilities ("Completion Costs") as of such date of determination,
determined based upon the capital expenditure budget delivered to the Lenders
pursuant to the Credit Agreement to (b)(i) the book value of all of the
Borrower's prison facilities, including those under construction, as of such
date of determination, plus (ii) Completion Costs as of such date of
determination, not to exceed to levels to be agreed upon.
IV. MAXIMUM RATIO TOTAL DEBT TO CONSOLIDATED TANGIBLE ASSETS
Ratio of (a) Total Debt as of the date of determination to (b) the
Consolidated Tangible Assets as of such date, not to exceed levels to be agreed
upon.
E-24
<PAGE> 256
APPENDIX F
AGREEMENT AND PLAN OF MERGER
DATED AS OF DECEMBER 26, 1999,
BY AND AMONG
PRISON REALTY TRUST, INC., CCA ACQUISITION SUB, INC.,
PMSI ACQUISITION SUB, INC. AND JJFMSI ACQUISITION SUB, INC.;
AND
CORRECTIONS CORPORATION OF AMERICA;
AND
PRISON MANAGEMENT SERVICES, INC.;
AND
JUVENILE AND JAIL FACILITY MANAGEMENT
SERVICES, INC.
<PAGE> 257
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I -- THE MERGER.....................................
Section 1.01 The Merger..................................
Section 1.02 Closing.....................................
Section 1.03 Effective Time..............................
Section 1.04 Effects of the Merger.......................
Section 1.05 Constituent Documents.......................
Section 1.06 Directors...................................
Section 1.07 Officers....................................
ARTICLE II -- EFFECT OF THE MERGER ON THE CAPITAL SHARES,
INDEBTEDNESS AND AGREEMENTS OF THE CONSTITUENT
ENTITIES; EXCHANGE OF CERTIFICATES............
Section 2.01 Effect on Capital Shares, Indebtedness and
Agreements.............................................
Section 2.02 Exchange of Certificates....................
Section 2.03 Qualified Plans.............................
Section 2.04 Restricted Stock Plans......................
Section 2.05 Warrants to Purchase CCA Common Stock.......
Section 2.06 Fractional Shares...........................
Section 2.07 Lost Certificates...........................
ARTICLE III -- REPRESENTATIONS AND WARRANTIES...............
Section 3.01 Representations and Warranties of Prison
Realty.................................................
Section 3.02 Representations and Warranties of the
Acquisition Companies..................................
Section 3.03 Representations and Warranties of CCA.......
Section 3.04 Representations and Warranties of PMSI......
Section 3.05 Representations and Warranties of JJFMSI....
ARTICLE IV -- COVENANTS RELATING TO CONDUCT OF BUSINESS.....
Section 4.01 Covenants of Prison Realty..................
Section 4.02 Covenants of the Acquisition Companies......
Section 4.03 Covenants of CCA............................
Section 4.04 Covenants of PMSI...........................
Section 4.05 Covenants of JJFMSI.........................
Section 4.06 No Solicitation by Prison Realty............
Section 4.07 No Solicitation by Target Companies.........
ARTICLE V -- ADDITIONAL AGREEMENTS..........................
Section 5.01 Preparation of the Proxy
Statement-Prospectus...................................
Section 5.02 Access to Information.......................
Section 5.03 Shareholders Meeting........................
Section 5.04 Reasonable Best Efforts.....................
Section 5.05 Benefits Matters............................
Section 5.06 Fees and Expenses...........................
Section 5.07 Indemnification, Exculpation and
Insurance..............................................
Section 5.08 Transfer Taxes..............................
Section 5.09 Resignation of Directors and Officers.......
Section 5.10 Stock Exchange Listing......................
Section 5.11 Tax-Free Reorganization.....................
Section 5.12 Shareholders' Agreements....................
</TABLE>
i
<PAGE> 258
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 5.13 Lock-Up Agreement...........................
Section 5.14 Equity Incentive Plan.......................
Section 5.15 Change of Corporate Name....................
ARTICLE VI -- CONDITIONS PRECEDENT..........................
Section 6.01 Conditions to Each Party's Obligation To
Effect the Merger......................................
Section 6.02 Conditions to Obligation of Prison Realty
and Acquisition Companies To Effect the
Merger......................................
Section 6.03 Conditions to Obligation of PMSI To Effect
the Merger.............................................
Section 6.04 Conditions to Obligation of JJFMSI To Effect
the Merger.............................................
Section 6.05 Conditions to Obligation of CCA To Effect
the Merger.............................................
Section 6.06 Frustration of Closing Conditions...........
ARTICLE VII -- TERMINATION AND AMENDMENT....................
Section 7.01 Termination.................................
Section 7.02 Effect of Termination.......................
Section 7.03 Amendment...................................
Section 7.04 Extension; Waiver...........................
Section 7.05 Procedure for Termination, Amendment,
Extension or Waiver....................................
ARTICLE VIII -- GENERAL PROVISIONS..........................
Section 8.01 Nonsurvival of Representations and
Warranties.............................................
Section 8.02 Notices.....................................
Section 8.03 Definitions; Interpretation.................
Section 8.04 Counterparts................................
Section 8.05 Entire Agreement; No Third-Party
Beneficiaries; Rights of Ownership.....................
Section 8.06 Governing Law...............................
Section 8.07 Publicity...................................
Section 8.08 Assignment..................................
Section 8.09 Enforcement.................................
</TABLE>
EXHIBITS TO MERGER AGREEMENT
Exhibit A -- Form of Lock-Up Agreement
SCHEDULES TO MERGER AGREEMENT
<TABLE>
<S> <C>
Schedule 1.06 -- Directors of Surviving Companies
Schedule 1.07 -- Officers of Surviving Companies
Schedule 3.01 -- Prison Realty Disclosure Schedule
Schedule 3.03 -- CCA Disclosure Schedule
Schedule 3.04 -- PMSI Disclosure Schedule
Schedule 3.05 -- JJFMSI Disclosure Schedule
</TABLE>
ii
<PAGE> 259
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of December 26, 1999 (the
"Agreement"), is by and among PRISON REALTY TRUST, INC., a Maryland corporation
("Prison Realty"); CCA ACQUISITION SUB, INC. ("CCA Sub"), PMSI ACQUISITION SUB,
INC. ("PMSI Sub") and JJFMSI ACQUISITION SUB, INC. ("JJFMSI Sub"), each a
Tennessee corporation and a wholly-owned subsidiary of Prison Realty;
CORRECTIONS CORPORATION OF AMERICA, a Tennessee corporation ("CCA"); PRISON
MANAGEMENT SERVICES, INC., a Tennessee corporation ("PMSI"); and JUVENILE AND
JAIL FACILITY MANAGEMENT SERVICES, INC., a Tennessee corporation ("JJFMSI").
(Each of CCA Sub, PMSI Sub and JJFMSI Sub is sometimes referred to herein as an
"Acquisition Company," and collectively as the "Acquisition Companies." Each of
CCA, PMSI and JJFMSI is sometimes referred to herein as a "Target Company," and
collectively as the "Target Companies.")
WITNESSETH:
WHEREAS, (i) the Boards of Directors of CCA, CCA Sub and Prison Realty have
approved the merger of CCA with and into CCA Sub (the "CCA Merger"); (ii) the
Boards of Directors of PMSI, PMSI Sub and Prison Realty have approved the merger
of PMSI with and into PMSI Sub (the "PMSI Merger"); and (iii) the Boards of
Directors of JJFMSI, JJFMSI Sub and Prison Realty have approved the merger of
JJFMSI with and into JJFMSI Sub (the "JJFMSI Merger," and collectively with the
CCA Merger and the PMSI Merger, the "Merger"), upon the terms and subject to the
conditions set forth in this Agreement;
WHEREAS, the Merger requires the approval by: (i) the affirmative vote of
the holders of eighty percent (80%) of the Class A common stock, $0.01 par value
per share (the "CCA Class A Common Stock") and the Class B common stock, $0.01
par value per share (the "CCA Class B Common Stock," and, together with the CCA
Class A Common Stock, the "CCA Common Stock") of CCA, voting together as a
single class, as well as the separate consent of Baron Asset Fund ("Baron"), a
Massachusetts business trust and holder of approximately sixteen and nine-tenths
percent (16.9%) of the CCA Class A Common Stock (collectively, the "CCA
Shareholder Approval"); (ii) the affirmative vote of the holders of a majority
of the outstanding shares of Class A common stock, $0.01 par value per share, of
PMSI (the "PMSI Class A Common Stock")(the "PMSI Shareholder Approval"); and
(iii) the affirmative vote of the holders of a majority of the outstanding
shares of the Class A common stock, $0.01 par value per share, of JJFMSI (the
"JJFMSI Class A Common Stock")(the "JJFMSI Shareholder Approval");
WHEREAS, in connection with the Merger, Prison Realty intends to amend and
restate its charter and intends to alter its operating structure such that
Prison Realty will not qualify as a real estate investment trust (a "REIT") as
defined by the Internal Revenue Code of 1986, as amended (the "Code"),
commencing with its taxable year ending December 31, 1999, which actions require
approval by the affirmative vote of the holders of two-thirds ( 2/3) of the
outstanding shares of common stock, $0.01 par value per share, of Prison Realty
(the "Prison Realty Common Stock") (the "Prison Realty Stockholder Approval");
WHEREAS, Prison Realty, the Acquisition Companies, CCA, PMSI and JJFMSI
desire to make certain representations, warranties, covenants and agreements in
connection with the Merger and also to prescribe various conditions to the
Merger; and
F-1
<PAGE> 260
WHEREAS, for federal income tax purposes, it is intended that the Merger
qualify as a reorganization within the meaning of Section 368(a) of the Code,
and this Agreement is intended to be and is adopted as a plan of reorganization
with respect to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.01 The Merger. At the Effective Time (as defined in Section 1.03
herein) and subject to and upon the terms and conditions of this Agreement, and
in accordance with the Tennessee Business Corporation Act (the "TBCA"):
(a) CCA shall be merged with and into CCA Sub, whereupon the separate
corporate existence of CCA shall cease and CCA Sub shall continue as the
surviving company;
(b) PMSI shall be merged with and into PMSI Sub, whereupon the
separate corporate existence of PMSI shall cease and PMSI Sub shall
continue as the surviving company; and
(c) JJFMSI shall be merged with and into JJFMSI Sub, whereupon the
separate corporate existence of JJFMSI shall cease and JJFMSI Sub shall
continue as the surviving company.
Following the Merger, CCA Sub, PMSI Sub and JJFMSI Sub (each a "Surviving
Company" and collectively, the "Surviving Companies") shall succeed to and
assume all the rights and obligations of CCA, PMSI and JJFMSI, respectively, in
accordance with the TBCA.
Section 1.02 Closing. Unless this Agreement shall have been terminated and
the transactions contemplated herein abandoned pursuant to Section 7.01, and
subject to the satisfaction or waiver of the conditions set forth in Article VI,
the closing of the Merger (the "Closing") will take place at 10:00 a.m., local
time, on a date to be specified by the parties, which shall be no later than the
fifth business day following the satisfaction or waiver of all the conditions
set forth in Article VI herein which by their terms are capable of being
satisfied prior to the Closing (the "Closing Date"), at the offices of Stokes &
Bartholomew, P.A. in Nashville, Tennessee, unless another time, date or place is
agreed to by the parties hereto.
Section 1.03 Effective Time. Subject to the provisions of this Agreement,
as promptly as practicable on the Closing Date, articles of merger and all other
appropriate documents (in any such case, the "Articles of Merger") shall be duly
prepared, executed, acknowledged and filed by the parties in accordance with the
relevant provisions of the TBCA with the Secretary of State of the State of
Tennessee (the "Tennessee Secretary of State"). The Merger shall become
effective on the Closing Date at the time of day specified in the Articles of
Merger filed with the Tennessee Secretary of State (the "Effective Time").
Section 1.04 Effects of the Merger. At the Effective Time, the Merger
shall have the effects set forth in Section 48-21-108 of the TBCA. Without
limiting the foregoing, and subject thereto, at the Effective Time all the
property, rights, privileges, powers and franchises of the Target Companies and
the Acquisition Companies shall vest in the Surviving Companies, and all debts,
liabilities and duties of the Target Companies and the Acquisition Companies
shall become the debts, liabilities and duties of the Surviving Companies.
F-2
<PAGE> 261
Section 1.05 Constituent Documents.
(a) Charter. The charter of each Acquisition Company as in effect
immediately prior to the Effective Time shall continue to be the charter of each
respective Surviving Company (with such amendments as may be set forth in the
Articles of Merger in accordance with this Agreement) until thereafter changed
or amended as provided therein or by applicable law.
(b) Bylaws. The bylaws of each Acquisition Company as in effect
immediately prior to the Effective Time shall continue to be the bylaws of each
respective Surviving Company until thereafter changed or amended as provided
therein or by applicable law.
Section 1.06 Directors. The persons named in Schedule 1.06 attached hereto
shall be the directors of each respective Surviving Company, until the earlier
of their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
Section 1.07 Officers. The persons named in Schedule 1.07 attached hereto
shall be the officers of each respective Surviving Company, serving in such
capacity as is set forth on Schedule 1.07 until the earlier of their resignation
or removal or until their respective successors are duly elected and qualified,
as the case may be.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL SHARES, INDEBTEDNESS AND
AGREEMENTS OF THE CONSTITUENT ENTITIES; EXCHANGE OF CERTIFICATES
Section 2.01 Effect on Capital Shares, Indebtedness and Agreements. By
virtue of the Merger and without any action on the part of Prison Realty, the
Acquisition Companies, the Target Companies or the holders of the Constituent
Capital Stock (as defined herein):
(a) Cancellation of Certain Shares, Indebtedness and Agreements. As
of the Effective Time: (i) each share of Constituent Capital Stock that is
owned by any of the parties hereto or their Subsidiaries (as defined in
Section 8.03) (except for any shares of Prison Realty Stock (as defined in
Section 3.01(c) herein) owned by the Acquisition Companies which are to be
delivered as the CCA Merger Consideration, the PMSI Merger Consideration or
the JJFMSI Merger Consideration) shall automatically be canceled and
retired and shall cease to exist and no consideration shall be delivered in
exchange therefor; (ii) any indebtedness between any of the parties hereto
shall be canceled and shall cease to exist and no consideration shall be
delivered therefor; and (iii) all agreements between any of the parties
hereto shall be canceled and shall cease to exist. For purposes hereof, the
term "Constituent Capital Stock" means collectively the Prison Realty
Stock, the CCA Common Stock, the PMSI Common Stock and the JJFMSI Common
Stock.
(b) Conversion of CCA Common Stock. As of the Effective Time, each
issued and outstanding share of CCA Common Stock (other than shares
canceled pursuant to subparagraph (a) above) shall be converted into the
right to receive that number of shares of Prison Realty Common Stock
(collectively, the "CCA Merger Consideration") determined by: (i)
multiplying $20 million by a fraction, the numerator of which shall be the
total number of shares of CCA Common Stock outstanding immediately prior to
the Effective Time which are not to be canceled pursuant to subparagraph
(a) above, and the denominator of which shall be the total number of shares
of CCA Common Stock outstanding immediately prior to the Effective Time,
inclusive of shares which are to be canceled pursuant to subparagraph (a)
above; (ii) dividing the amount determined under clause (i) by the Prison
Realty Closing Price (as herein defined);
F-3
<PAGE> 262
and (iii) dividing the amount determined under clause (ii) by the total
number of shares of CCA Common Stock outstanding immediately prior to the
Effective Time which are not to be canceled pursuant to subparagraph (a)
above. All computations made in accordance with the preceding sentence
shall be rounded to two decimal places. As of the Effective Time, each
issued and outstanding share of CCA Common Stock converted into Prison
Realty Common Stock in accordance herewith shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to exist,
and each holder of a certificate representing any such shares of CCA Common
Stock shall cease to have any rights with respect thereto except the right
to receive the CCA Merger Consideration, without interest thereon. Shares
of Prison Realty Common Stock that are issued in exchange for shares of CCA
Common Stock which are subject to forfeiture under the CCA Restricted Stock
Plan (as defined in Section 2.04 herein) shall become subject to the terms
and restrictions of the Prison Realty Restricted Stock Plan (as defined in
Section 2.04 herein) in accordance with Section 2.04. All remaining shares
of Prison Realty Common Stock issued in the CCA Merger shall be subject to
the terms and conditions of the Lock-Up Agreement (as defined in Section
5.13 herein). For purposes hereof, the term "Prison Realty Closing Price"
means the average closing price of Prison Realty Common Stock over the five
trading days ending two trading days prior to the Closing Date.
(c) Conversion of PMSI Common Stock. As of the Effective Time, each
issued and outstanding share of Class B common stock, $0.01 par value per
share, of PMSI (the "PMSI Class B Common Stock" and together with the PMSI
Class A Common Stock, the "PMSI Common Stock") shall be canceled in
accordance with subparagraph (a) above, and each issued and outstanding
share of PMSI Class A Common Stock (other than shares canceled pursuant to
subparagraph (a) above) shall be converted into the right to receive that
number of shares of Prison Realty Common Stock (collectively, the "PMSI
Merger Consideration") determined by: (i) dividing $1,023,000 by the Prison
Realty Closing Price; and (ii) dividing the amount determined under clause
(i) by the total number of shares of PMSI Class A Common Stock outstanding
immediately prior to the Effective Time which are not to be canceled
pursuant to subparagraph (a) above. All computations made in accordance
with the preceding sentence shall be rounded to two decimal places. As of
the Effective Time, each issued and outstanding share of PMSI Class A
Common Stock converted into Prison Realty Common Stock in accordance
herewith shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such shares of PMSI Class A Common Stock shall cease to
have any rights with respect thereto except the right to receive the PMSI
Merger Consideration, without interest thereon. Shares of Prison Realty
Common Stock that are issued in exchange for shares of PMSI Class A Common
Stock which are subject to forfeiture under the PMSI Restricted Stock Plan
(as defined in Section 2.04 herein) shall become subject to the terms and
restrictions of the Prison Realty Restricted Stock Plan in accordance with
Section 2.04 herein.
(d) Conversion of JJFMSI Common Stock. As of the Effective Time, each
issued and outstanding share of Class B common stock, $0.01 par value per
share, of JJFMSI (the "JJFMSI Class B Common Stock," and, together with the
JJFMSI Class A Common Stock, the "JJFMSI Common Stock") shall be canceled
in accordance with subparagraph (a) above, and each issued and outstanding
share of JJFMSI Class A Common Stock (other than shares canceled pursuant
to subparagraph (a) above) shall be converted into the right to receive
that number of shares of Prison Realty Common Stock (collectively, the
"JJFMSI Merger Consideration") determined by: (i) dividing $847,000 by the
Prison Realty Closing Price; and (ii) dividing the amount determined under
clause (i) by the total number of shares of JJFMSI Class A Common Stock
outstanding immediately prior to the Effective Time which are not to be
canceled pursuant to subparagraph (a) above. All computations made in
accordance with the
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preceding sentence shall be rounded to two decimal places. As of the
Effective Time, each issued and outstanding share of JJFMSI Class A Common
Stock converted into Prison Realty Common Stock in accordance herewith
shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each holder of a certificate
representing any such shares of JJFMSI Class A Common Stock shall cease to
have any rights with respect thereto except the right to receive the JJFMSI
Merger Consideration, without interest thereon. Shares of Prison Realty
Common Stock that are issued in exchange for shares of JJFMSI Class A
Common Stock which are subject to forfeiture under the JJFMSI Restricted
Stock Plan (as defined in Section 2.04 herein) shall become subject to the
terms and restrictions of the Prison Realty Restricted Stock Plan in
accordance with Section 2.04 herein.
Section 2.02 Exchange of Certificates.
(a) Exchange. Immediately after the Effective Time, Prison Realty shall
exchange (i) certificates representing CCA Common Stock (the "CCA Certificates"
and each a "CCA Certificate") for the CCA Merger Consideration; (ii)
certificates representing PMSI Common Stock (the "PMSI Certificates" and each a
"PMSI Certificate") for the PMSI Merger Consideration; and (iii) certificates
representing JJFMSI Common Stock (the "JJFMSI Certificates" and each a "JJFMSI
Certificate") for the JJFMSI Merger Consideration. Promptly after the Effective
Time, Prison Realty shall send to each holder of shares of CCA Common Stock,
PMSI Common Stock or JJFMSI Common Stock (other than Prison Realty or any of its
Subsidiaries) at the Effective Time a letter of transmittal for use in such
exchange (which shall specify that the delivery shall be effected, and risk of
loss and title shall pass, only upon proper delivery of the CCA Certificates,
PMSI Certificates and JJFMSI Certificates to Prison Realty) and instructions for
use in effecting the surrender of the CCA Certificates, PMSI Certificates and
JJFMSI Certificates for payment therefor.
(b) Exchange of CCA Certificates. Each holder of shares of CCA Common
Stock that have been converted into the right to receive the CCA Merger
Consideration will be entitled to receive, upon surrender to Prison Realty of a
CCA Certificate, together with a properly completed letter of transmittal, the
CCA Merger Consideration in respect of each share of CCA Common Stock
represented by such CCA Certificate. Until so surrendered, each such CCA
Certificate shall, after the Effective Time, represent for all purposes only the
right to receive such CCA Merger Consideration.
(c) Exchange of PMSI Certificates. Each holder of shares of PMSI Common
Stock that have been converted into the right to receive the PMSI Merger
Consideration will be entitled to receive, upon surrender to Prison Realty of a
PMSI Certificate, together with a properly completed letter of transmittal, the
PMSI Merger Consideration in respect of each share of PMSI Common Stock
represented by such PMSI Certificate. Until so surrendered, each such PMSI
Certificate shall, after the Effective Time, represent for all purposes only the
right to receive such PMSI Merger Consideration.
(d) Exchange of JJFMSI Certificates. Each holder of shares of JJFMSI
Common Stock that have been converted into the right to receive the JJFMSI
Merger Consideration will be entitled to receive, upon surrender to Prison
Realty of a JJFMSI Certificate, together with a properly completed letter of
transmittal, the JJFMSI Merger Consideration in respect of each share of JJFMSI
Common Stock represented by such JJFMSI Certificate. Until so surrendered, each
such JJFMSI Certificate shall, after the Effective Time, represent for all
purposes only the right to receive such JJFMSI Merger Consideration.
(e) Form of Certain Transfers. If any portion of the CCA Merger
Consideration, PMSI Merger Consideration or JJFMSI Merger Consideration is to be
paid to a person (as defined in
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Section 8.03 herein) other than the person in whose name a CCA Certificate, PMSI
Certificate or JJFMSI Certificate is registered, it shall be a condition to such
payment that the CCA Certificate, PMSI Certificate or JJFMSI Certificate so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the person requesting such payment shall pay to Prison Realty
any transfer or other taxes required as a result of such payment to a person
other than the registered holder of such CCA Certificate, PMSI Certificate or
JJFMSI Certificate or establish to the satisfaction of Prison Realty that such
tax has been paid or is not payable.
(f) Transfers After the Effective Time. After the Effective Time, there
shall be no further registration of transfers of shares of CCA Common Stock,
PMSI Common Stock or JJFMSI Common Stock. If, after the Effective Time, CCA
Certificates, PMSI Certificates or JJFMSI Certificates are presented to Prison
Realty or the Surviving Companies, they shall be canceled and promptly exchanged
for the consideration provided for, in accordance with the procedures set forth
in this Article.
(g) Unclaimed Shares. Neither Prison Realty nor any of the Surviving
Companies shall be liable to any holder of CCA Common Stock, PMSI Common Stock
or JJFMSI Common Stock for any amount paid to a public official pursuant to
applicable abandoned property laws.
(h) Dividends. No dividends, interest or other distributions with respect
to securities of Prison Realty constituting part of the CCA Merger
Consideration, PMSI Merger Consideration or JJFMSI Merger Consideration shall be
paid to the holder of any unsurrendered CCA Certificates, PMSI Certificates or
JJFMSI Certificates until such CCA Certificates, PMSI Certificates or JJFMSI
Certificates are surrendered as provided in this Section. Upon such surrender,
there shall be paid, without interest, to the person in whose name the
securities of Prison Realty have been registered, all dividends, interest and
other distributions payable in respect of such securities on a date subsequent
to, and in respect of a record date after, the Effective Time.
Section 2.03 Qualified Plans. As of the Effective Time, Prison Realty
shall adopt the Corrections Corporation of America 401(k) Savings and Retirement
Plan (the "CCA 401(k) Plan"), and shall cause benefits under the Prison Realty
401(k) Savings and Retirement Plan (the "Prison Realty 401(k) Plan") to cease to
accrue, but shall not cause the Prison Realty 401(k) Plan to be terminated. As
soon as practicable after the Effective Time, the Prison Realty 401(k) Plan and
the CCA Prison Realty Trust Employee Savings and Stock Ownership Plan (the
"Prison Realty ESOP")(the benefits under which ceased to accrue as of December
31, 1998) shall be merged into the CCA 401(k) Plan. Prior to the Effective Time,
Prison Realty and the Target Companies shall take all actions (including, if
appropriate, amending the terms of the CCA 401(k) Plan, the Prison Realty 401(k)
Plan and the Prison Realty ESOP) that are necessary to give effect to the
transactions contemplated by this Section.
Section 2.04 Restricted Stock Plans. As of the Effective Time, each of the
Correctional Management Services Corporation 1998 Restricted Stock Plan (the
"CCA Restricted Stock Plan"), the Prison Management Services, Inc. 1998
Restricted Stock Plan (the "PMSI Restricted Stock Plan"), and the Juvenile and
Jail Facility Management Services, Inc. 1998 Restricted Stock Plan (the "JJFMSI
Restricted Stock Plan" and collectively with the CCA Restricted Stock Plan and
the PMSI Restricted Stock Plan, the "Target Companies' Restricted Stock Plans")
shall be merged into a single restricted stock plan (the "Prison Realty
Restricted Stock Plan") with terms and conditions similar to those of the Target
Companies' Restricted Stock Plans, except that any shares forfeited under the
new restricted stock plan shall be forfeited to all plan participants. Prison
Realty, the Acquisition Companies and the Target Companies shall take all
actions that are necessary to give effect to the transactions contemplated by
this Section.
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Section 2.05 Warrants to Purchase CCA Common Stock. At the Effective Time,
each warrant to purchase shares of CCA Common Stock (the "CCA Warrants"),
whether or not exercisable, shall be deemed to constitute a warrant to acquire,
on substantially the same terms and conditions as were applicable to the
original warrant to which it relates (a "Substitute Warrant"), the same number
of shares of Prison Realty Common Stock as the holder of such warrant would have
been entitled to receive pursuant to the Merger had such holder exercised such
CCA Warrant in full immediately prior to the Effective Time, at a price per
share of Prison Realty Common Stock computed in compliance with the terms of
such CCA Warrant; provided, however, that the number of shares of Prison Realty
Common Stock that may be purchased upon exercise of such Substitute Warrant
shall not include any fractional share. Prior to the Effective Time, CCA will
use its best efforts to obtain such consents, if any, as may be necessary to
give effect to the transactions contemplated by this Section. In addition, prior
to the Effective Time, CCA will use its best efforts to make any amendments to
the terms of the CCA Warrants that are necessary to give effect to the
transactions contemplated by this Section. Except as contemplated by this
Section, CCA will not, after the date hereof, without the written consent of
Prison Realty, amend any outstanding CCA Warrants. Prison Realty, the
Acquisition Companies and the Target Companies shall take all actions that are
necessary to give effect to the transactions contemplated by this Section,
including without limitation such actions, if any, as are described in the CCA
Warrants.
Section 2.06 Fractional Shares. No fractional shares of Prison Realty
Common Stock shall be issued to shareholders of CCA, PMSI or JJFMSI in
connection with the Merger, but in lieu thereof each holder of shares of CCA
Common Stock, PMSI Common Stock or JJFMSI Common Stock otherwise entitled to
receive as a result of the Merger a fractional share of Prison Realty Common
Stock shall be entitled to receive a cash payment (without interest), rounded to
the nearest cent, representing such holder's proportionate interest in the net
proceeds resulting from the sale (after deduction of all expenses resulting from
such sale) on the New York Stock Exchange ("NYSE") through one or more of its
member firms of the fractional shares of Prison Realty Common Stock all holders
of shares of CCA Common Stock, PMSI Common Stock or JJFMSI Common Stock would
otherwise be entitled to receive as a result of the Merger.
Section 2.07 Lost Certificates. If any CCA Certificate, PMSI Certificate
or JJFMSI Certificate shall have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming such CCA Certificate, PMSI
Certificate or JJFMSI Certificate to be lost, stolen or destroyed and, if
required by the respective Surviving Company, the posting by such person of a
bond, in such reasonable amount as the respective Surviving Company may direct,
as indemnity against any claim that may be made against it with respect to such
CCA Certificate, PMSI Certificate or JJFMSI Certificate, Prison Realty (or its
duly appointed transfer agent) will issue in exchange for such lost, stolen or
destroyed CCA Certificate, PMSI Certificate or JJFMSI Certificate the CCA Merger
Consideration, PMSI Merger Consideration or JJFMSI Merger Consideration to be
paid in respect of the shares represented by such CCA Certificates, PMSI
Certificates or JJFMSI Certificates as contemplated by this Article.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of Prison Realty. Except as
set forth in Prison Realty SEC Documents (as defined in Section 3.01(e) herein)
filed with the Securities and Exchange Commission (the "SEC") and publicly
available prior to the date hereof (the "Prison Realty Filed SEC Documents") or
on the Disclosure Schedule delivered by Prison Realty to CCA, PMSI and JJFMSI
prior to the execution of this Agreement (the "Prison Realty Disclosure
Schedule"), which Prison Realty Disclosure Schedule constitutes a part hereof
and is true and correct in all material respects, Prison Realty hereby
represents and warrants to each of CCA, PMSI and JJFMSI as follows:
(a) Organization and Authority. Prison Realty is a corporation duly
incorporated and validly existing and in good standing under the laws of
the State of Maryland with full corporate power and authority to own its
properties and conduct its business as now conducted and is duly qualified
or authorized to do business and is in good standing in all jurisdictions
where the failure to so qualify could have a material adverse effect (as
defined in Section 8.03(a) herein). Prison Realty has all requisite
corporate power and authority, and has been duly authorized by all
necessary consents, approvals, authorizations, orders, registrations,
qualifications, licenses and permits of and from all public, regulatory or
governmental agencies and bodies, to own, lease and operate its assets and
properties and to conduct its business as it is now being conducted and is
duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the failure to do so could have a material adverse
effect upon the conduct of its business or the ownership or leasing of
property by it in such jurisdiction.
(b) Subsidiaries.
(i) Except for the Acquisition Companies, the only direct or
indirect Subsidiaries of Prison Realty are those listed in Section
3.01(b) of the Prison Realty Disclosure Schedule. Except for Prison
Realty's ownership of all of the issued and outstanding common stock of
the Acquisition Companies and except for the ownership interests set
forth in Section 3.01(b) of the Prison Realty Disclosure Schedule,
Prison Realty does not own or control, directly or indirectly, a 50% or
greater capital stock interest in a corporation, a general partnership
interest or a 50% or greater limited partnership interest in a
partnership, or a managing membership interest or a 50% or greater
membership interest in a limited liability company, association or other
entity or project.
(ii) Except for the Acquisition Companies or the entities listed in
Section 3.01(b) of the Prison Realty Disclosure Schedule, Prison Realty
does not hold, directly or indirectly, any equity interest or equity
investment in any corporation, partnership, association or other entity.
(iii) Except as set forth in Section 3.01(b) of the Prison Realty
Disclosure Schedule, all of the issued and outstanding shares of capital
stock of, or other equity interests in, each Subsidiary of Prison Realty
have been validly issued, are fully paid and nonassessable and are
owned, directly or indirectly, by Prison Realty free and clear of any
Liens (as hereinafter defined) and there are no outstanding
subscriptions, options, calls, contracts, voting trusts, proxies or
other commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement, obligating any
Subsidiary of Prison Realty to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of its capital stock or
obligating it to grant, extend or enter into any such agreement or
commitment.
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(c) Capital Structure of Prison Realty. The authorized stock of
Prison Realty consists of 300,000,000 shares of Prison Realty Common Stock
and 20,000,000 shares of preferred stock, $0.01 par value per share, of
Prison Realty, of which 4,300,000 shares have been designated Series A
Preferred Stock (the "Prison Realty Series A Preferred Stock" and
collectively with the Prison Realty Common Stock, the "Prison Realty
Stock"). At the close of business on September 30, 1999, (A) 118,251,082
shares of Prison Realty Common Stock were outstanding, (B) 4,300,000 shares
of Prison Realty Series A Preferred Stock were outstanding, (C) options
("Prison Realty Options") to acquire 3,208,966 shares of Prison Realty
Common Stock from Prison Realty pursuant to Prison Realty's equity
incentive plans ("Prison Realty Stock Plans") listed on the Prison Realty
Disclosure Schedule were outstanding, (D) 294,897 deferred share awards
("Prison Realty Deferred Share Awards") granted pursuant to Prison Realty
Stock Plans were outstanding, and (E) subordinated notes ("Prison Realty
Notes") convertible into 2,962,336 shares of Prison Realty Common Stock
were outstanding. Other than as set forth above, at the close of business
on September 30, 1999, there were outstanding no shares of Prison Realty
Stock or any other class or series of stock of Prison Realty or options,
warrants or other rights to acquire Prison Realty Stock or any other class
or series of stock of Prison Realty from Prison Realty. No bonds,
debentures, notes or other indebtedness having the right to vote (or
convertible into or exchangeable for securities having the right to vote)
on any matters on which stockholders of Prison Realty may vote are issued
or outstanding, except the Prison Realty Notes.
All outstanding shares of Prison Realty Stock are, and any shares of
Prison Realty Common Stock which may be issued upon the exercise of Prison
Realty Options or conversion of the Prison Realty Notes when issued will
be, duly authorized, validly issued, fully paid and nonassessable, and will
be delivered free and clear of all claims, mortgages, deeds of trust,
charges, liens, encumbrances, pledges or security interests of any kind or
nature whatsoever (collectively, "Liens") and not now in violation of or
subject to any preemptive rights or other rights to subscribe for or
purchase securities and conform to the description thereof in the Prison
Realty Filed SEC Documents. Other than as set forth above, and except for
this Agreement, the Securities Purchase Agreement (as defined herein), the
Prison Realty Stock Plans, the Prison Realty Options, the Prison Realty
Deferred Share Awards and the Prison Realty Notes, there are no outstanding
securities, options, warrants, calls, rights, commitments, agreements or
undertakings of any kind to which Prison Realty or any of its Subsidiaries
is a party or by which Prison Realty or any of its Subsidiaries is bound
obligating Prison Realty or any of its Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other equity or voting securities of Prison Realty or of
any Subsidiary of Prison Realty or obligating Prison Realty or any of its
Subsidiaries to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement or undertaking. There
are no outstanding obligations of Prison Realty or any of its Subsidiaries
to repurchase, redeem or otherwise acquire any shares of capital stock of
Prison Realty or any of its Subsidiaries and, to the knowledge of the
executive officers of Prison Realty, as of the date hereof, no irrevocable
proxies have been granted with respect to shares of Prison Realty Common
Stock or equity of Subsidiaries of Prison Realty.
(d) Authorization. Prison Realty has all requisite corporate power
and authority to enter into this Agreement and, subject to obtaining the
Prison Realty Stockholder Approval, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Prison Realty,
subject to obtaining the Prison Realty Stockholder Approval. This Agreement
has been duly executed and delivered by Prison Realty and constitutes a
valid and binding obligation of Prison Realty, enforceable against
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Prison Realty in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance,
fraudulent transfer and other similar laws from time to time in effect. The
execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated hereby will not, conflict with, or result in
any breach or violation of, or default (with or without notice or lapse of
time or both) under, or result in the termination of, or accelerate the
performance required by, or give rise to a right of termination,
cancellation or acceleration of any obligation under, or the creation of a
Lien pursuant to, (i) any provision of the charter (or similar
organizational documents) or bylaws of Prison Realty or any of its
Subsidiaries or (ii) subject to obtaining or making the consents,
approvals, orders, authorizations, registrations, declarations and filings
referred to in the following sentence, any loan or credit agreement, note,
mortgage, indenture, lease, Prison Realty Stock Plan or other agreement,
obligation, instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Prison Realty or any of its Subsidiaries or their respective properties or
assets, in any case under this clause (ii) which would, individually or in
the aggregate, have a material adverse effect on Prison Realty. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other governmental
authority or instrumentality (a "Governmental Entity") is required by or
with respect to Prison Realty or any of its Subsidiaries in connection with
the execution and delivery of this Agreement by Prison Realty or the
consummation by Prison Realty of the transactions contemplated hereby, the
failure of which to be obtained or made would, individually or in the
aggregate, have a material adverse effect on Prison Realty or would prevent
or materially delay the consummation of the transactions contemplated
hereby, except for (A) the filing with the SEC of (i) a proxy statement
relating to the consideration of the Prison Realty Stockholder Approval at
a meeting of the stockholders of Prison Realty (the "Prison Realty
Stockholders' Meeting") duly called and convened to consider the approval
of this Agreement (such proxy statement, which shall also relate to the
consideration of the CCA Shareholder Approval, PMSI Shareholder Approval
and the JJFMSI Shareholder Approval at meetings of the shareholders of CCA,
PMSI and JJFMSI (the "CCA Shareholders' Meeting," the "PMSI Shareholders'
Meeting" and the "JJFMSI Shareholders' Meeting", respectively) duly called
and convened to consider the approval of this Agreement and a prospectus
with regard to the issuance of Prison Realty Stock in the Merger, as
amended or supplemented from time to time, the "Proxy
Statement-Prospectus") and (ii) such reports under the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated
thereunder (the "Exchange Act"), as may be required in connection with this
Agreement and the Merger and the other transactions contemplated hereby,
(B) the filing of the Articles of Merger with the Tennessee Secretary of
State and appropriate documents with the relevant authorities of other
states in which Prison Realty is qualified to do business, (C) filings
required pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder (the
"HSR Act"), (D) filings necessary to satisfy the applicable requirements of
state securities or "blue sky" laws, (E) filings required under the rules
and regulations of the New York Stock Exchange (the "NYSE") and (F) filings
required pursuant to Prison Realty's leases and related agreements with
Governmental Entities, which are set forth on the Prison Realty Disclosure
Schedule (collectively, the "Required Filings").
(e) SEC Documents; Financial Statements. Prison Realty has timely
filed all forms, reports, schedules, registration statements, definitive
proxy statements and other documents required to be filed by Prison Realty
with the SEC since January 1, 1999 (the "Prison Realty SEC Documents"). As
of their respective dates, the Prison Realty SEC Documents complied in all
material respects with the requirements of the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the
"Securities Act") and the Exchange Act, as the case may be, applicable to
such Prison Realty SEC Documents. None of the Prison Realty
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SEC Documents when filed contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Prison Realty and
its Subsidiaries are not parties to or otherwise subject to any contracts
or other agreements that were or are required to be filed as exhibits to,
or otherwise disclosed in, the Prison Realty Filed SEC Documents and have
not been so filed or disclosed. The financial statements of Prison Realty
included in the Prison Realty SEC Documents (the "Prison Realty Financial
Statements") comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis ("GAAP")
during the periods involved (except as may be indicated in the notes
thereto or, in the case of the unaudited statements, as permitted by Form
10-Q of the SEC, or for normal year-end adjustments) and fairly present in
all material respects the consolidated financial position of Prison Realty
and its consolidated Subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the periods
then ended. Except as set forth in the Prison Realty Filed SEC Documents
(including any item accounted for in the financial statements contained in
the Prison Realty Filed SEC Documents or set forth in the notes thereto)
and except for the effect of the contemplated transactions under this
Agreement and related agreements, since September 30, 1999, (i) neither
Prison Realty nor any of its Subsidiaries has incurred any claims,
liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) which, individually or in the aggregate, would
have a material adverse effect on Prison Realty (other than claims,
liabilities or obligations contemplated by this Agreement or expressly
permitted to be incurred pursuant to this Agreement), and (ii) Prison
Realty and each of its Subsidiaries have conducted their respective
businesses only in the ordinary course consistent with past practice.
(f) Information Supplied. None of the information supplied or to be
supplied by Prison Realty specifically for inclusion or incorporation by
reference in the Proxy Statement-Prospectus will, at the date it is first
mailed to stockholders of Prison Realty or at the time of the Prison Realty
Stockholders' Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that in each case no
representation or warranty is made by Prison Realty with respect to
statements made or incorporated by reference therein based on information
supplied by CCA, PMSI or JJFMSI specifically for inclusion or incorporation
by reference therein. The Proxy Statement-Prospectus will comply as to form
in all material respects with the requirements of the Exchange Act and the
Securities Act, except that in each case no representation or warranty is
made by Prison Realty with respect to statements made or incorporated by
reference therein based on information supplied by CCA, PMSI or JJFMSI for
inclusion or incorporation by reference therein. If at any time prior to
the date of the Prison Realty Stockholders' Meeting, any event with respect
to Prison Realty, or with respect to information supplied by Prison Realty
specifically for inclusion in the Proxy Statement-Prospectus, shall occur
which is required to be described in an amendment of, or supplement to, the
Proxy Statement-Prospectus, such event shall be so described by Prison
Realty.
(g) Registration Statement. The registration statement of Prison
Realty to be filed with the SEC with respect to the offering of Prison
Realty Stock in connection with the Merger (the "Registration Statement")
and any amendments or supplements thereto will, when filed, comply as to
form in all material respects with the applicable requirements of the
Securities Act. At the time the Registration Statement or any amendment or
supplement thereto becomes effective and at the Effective Time, the
Registration Statement, as amended or supplemented, if applicable,
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shall not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make
the statements contained therein not misleading. The foregoing
representations and warranties will not apply to statements or omissions
included in the Registration Statement or any amendment or supplement
thereto based upon information furnished by CCA, PMSI or JJFMSI for use
therein.
(h) Absence of Certain Changes or Events. Except for the effect of
the contemplated transactions under this Agreement and related agreements,
subsequent to September 30, 1999, neither Prison Realty nor any Subsidiary
has sustained any material loss or interference with its business or
properties from fire, flood, hurricane, accident or other calamity, whether
or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, which is not disclosed in the Prison
Realty Disclosure Schedule; and subsequent to the respective dates as of
which information is given in the Prison Realty Filed SEC Documents, (i)
neither Prison Realty nor any Subsidiary has incurred any material
liabilities or obligations, direct or contingent, or entered into any
transactions not in the ordinary course of business consistent with past
practice, and (ii) there has not been any issuance of options, warrants or
rights to purchase Prison Realty Stock or any interests therein, or any
adverse change, in the general affairs, management, business, prospects,
financial position, net worth or results of operations of Prison Realty or
any Subsidiary.
(i) Compliance with Laws; Litigation. Except as described in the
Prison Realty Disclosure Schedule or the Prison Realty Filed SEC Documents,
there are no claims, actions, suits, arbitration, grievances, proceedings
or investigations pending or, to Prison Realty's knowledge, threatened,
against Prison Realty or any Subsidiary, or any properties or rights of
Prison Realty or any Subsidiary, or any officers or directors of Prison
Realty or any Subsidiary in their capacity as such, by or before any
Governmental Entity which, individually or in the aggregate, is reasonably
likely to have a material adverse effect on Prison Realty or prevent,
materially delay or intentionally delay the ability of Prison Realty to
consummate the transactions contemplated hereby. Neither Prison Realty nor
its Subsidiaries is subject to any judgment, order or decree which could
reasonably be expected to result in a material adverse effect.
Prison Realty and its Subsidiaries have at all times operated and
currently operate their business in conformity in all material respects
with all applicable statutes, common laws, ordinances, decrees, orders,
rules and regulations of Governmental Entities. Prison Realty and each of
its Subsidiaries has all licenses, approvals or consents to operate its
businesses in all locations in which such businesses are currently being
operated, and to its knowledge is not aware of any existing or imminent
matter which may materially adversely impact its operations or business
prospects other than as specifically disclosed in the Prison Realty Filed
SEC Documents or the Prison Realty Disclosure Schedule. None of Prison
Realty or its Subsidiaries have failed to file with the applicable
regulatory authorities any material statements, reports, information or
forms required by all applicable laws, regulations or orders; all such
filings or submissions were in material compliance with applicable laws
when filed, and no material deficiencies have been asserted by any
regulatory commission, agency or authority with respect to such filings or
submissions. None of Prison Realty or its Subsidiaries have failed to
maintain in full force and effect any material licenses, registrations or
permits necessary or proper for the conduct of its business, or received
any notification that any revocation or limitation thereof is threatened or
pending, and there is not to the knowledge of Prison Realty pending any
change under any law, regulation, license or permit which would materially
adversely affect the business, operations, property or business prospects
of Prison Realty. None of Prison Realty or its Subsidiaries have received
any notice of violation of or been threatened with a charge of violating or
are under investigation with respect to a possible violation of any
provision of any law,
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regulation or order. Neither Prison Realty nor any of its Subsidiaries has
at any time (i) made any unlawful contribution to any candidate for
domestic or foreign office or failed to disclose fully any contribution in
violation of law or (ii) made any payment to any federal or state
governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or permitted by
the laws of the United States or any jurisdiction thereof.
(j) Taxes.
(i) Prison Realty has timely filed (or there have been filed on its
behalf) all Tax Returns required to be filed by it under applicable law,
and all such Tax Returns were and are true, complete and correct in all
material respects. Except to the extent adequately reserved for in
accordance with GAAP and reflected on the most recent balance sheets of
Prison Realty contained in the Prison Realty Filed SEC Documents, all
Taxes due and payable by Prison Realty have been timely paid in full.
(ii) There are no Tax liens upon the assets of Prison Realty except
liens for Taxes not yet due.
(iii) Prison Realty has complied with the provisions of the Code
relating to the withholding of Taxes, as well as similar provisions
under any other laws, and has, within the time and in the manner
prescribed by law, withheld, collected and paid over to the proper
governmental authorities all amounts required.
(iv) No audits or other administrative proceedings or court
proceedings are presently pending or, to the knowledge of Prison Realty,
asserted with regard to any Taxes or Tax Returns of Prison Realty.
(v) Prison Realty has not received a written ruling of a taxing
authority relating to Taxes or entered into a written and legally
binding agreement with a taxing authority relating to Taxes with any
taxing authority.
(vi) Prison Realty has not requested any extension of time within
which to file any Tax Return, which Tax Return has not since been filed.
(vii) Prison Realty has not agreed to and is not required to make
any adjustment pursuant to Section 481(a) of the Code (or any
predecessor provision) by reason of any change in any accounting method
of Prison Realty, and there is no application pending with any taxing
authority requesting permission for any changes in any accounting method
of Prison Realty. To the knowledge of Prison Realty, the Internal
Revenue Service (the "IRS") has not proposed any such adjustment or
change in accounting method.
(viii) Prison Realty has not joined in the filing of a consolidated
return for federal income tax purposes. Prison Realty is not and has
never been subject to the provisions of Section 1503(f) of the Code.
(ix) Prison Realty is not a party to any agreement providing for
the allocation or sharing of Taxes or indemnification by Prison Realty
of any other person in respect of Taxes.
(x) Prison Realty is not a party to any agreement, contract, or
arrangement that would result, individually or in the aggregate, in the
payment of any "excess parachute payments" within the meaning of Section
280G of the Code.
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(xi) To the knowledge of Prison Realty, Prison Realty does not
have, nor has it ever had, any income which is includable in computing
the taxable income of a United States person (as determined under
Section 7701 of the Code) under Section 951 of the Code. To the
knowledge of Prison Realty, none of the Subsidiaries of Prison Realty is
or has ever been a "passive foreign investment company" within the
meaning of Section 1297 of the Code. To the knowledge of Prison Realty,
Prison Realty is not and never has been a "personal holding company"
within the meaning of Section 542 of the Code. To the knowledge of
Prison Realty, there are no gain recognition agreements, within the
meaning of Treasury Regulation 1.367(a)-8 or any predecessor provision,
between Prison Realty, on one hand, and a stockholder of Prison Realty,
on the other. There is no pending or, to the knowledge of Prison Realty,
threatened, action, proceeding or investigation by any taxing authority
for assessment or collection of Taxes with respect to Prison Realty in
any jurisdiction where Prison Realty has not filed a Tax Return. All
dealings and arrangements between and among Prison Realty and its
Subsidiaries are at arm's length and consistent with arm's length
dealings and arrangements between or among unrelated, uncontrolled
taxpayers.
(xii) Each Subsidiary which is a partnership, joint venture or
limited liability company has been treated since its formation, and
continues to be treated for federal income tax purposes, as a
partnership or as a disregarded entity, and not as a corporation or as
an association taxable as a corporation.
(xiii) For purposes of this Section 3.01(j), other than Section
3.01(j)(xii), all representations and warranties with respect to Prison
Realty are deemed to include and to apply to each of its Subsidiaries
and predecessors (and the Subsidiaries of such predecessors). For
purposes of this Section 3.01(j), the term "predecessors" shall include,
without limitation, Corrections Corporation of America, a Tennessee
corporation, and CCA Prison Realty Trust, a Maryland real estate
investment trust ("Old Prison Realty"), which entities merged with and
into Prison Realty on December 31, 1998 and January 1, 1999,
respectively.
(xiv) For each of its taxable years, Old Prison Realty was
organized, operated and duly qualified as a REIT under Section 856 of
the Code.
(xv) As used in this Agreement, (A) the term "Taxes" means any
federal, state, county, local or foreign taxes, charges, fees, levies or
other assessments, including all net income, gross income, sales and
use, ad valorem, transfer, gains, profits, excise, franchise, real and
personal property, gross receipt, capital stock, production, business
and occupation, disability, employment, payroll, license, estimated,
stamp, custom duties, severance or withholding taxes or charges imposed
by any governmental entity, and includes any interest and penalties
(civil or criminal) on or additions to any such taxes, and (B) the term
"Tax Return" means a report, return or other information required to be
supplied to a governmental entity with respect to Taxes including, where
permitted or required, combined or consolidated returns.
(k) No Defaults. Except for violations or defaults which,
individually or in the aggregate, would not have a material adverse effect,
neither Prison Realty nor any of its Subsidiaries is in violation or
default under any provision of its charter, by-laws, partnership agreements
or other governing or organizational documents, or is in breach of or
default with respect to any provision of any note, bond, agreement,
judgment, decree, order, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument to which it is a party or by
which it or any of its properties are bound; and there does not exist any
state of facts which would constitute an event
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of default on the part of any of Prison Realty or its Subsidiaries as
defined in such documents which, with notice or lapse of time or both,
would constitute a default. Neither Prison Realty nor any of its
Subsidiaries is a party to any contract (other than leases) containing any
covenant restricting its ability to conduct its business as currently
conducted except for any such covenants that would not, individually or in
the aggregate, have a material adverse effect on Prison Realty.
(l) Properties.
(i) Prison Realty Real Property. For purposes of this Agreement,
"Prison Realty Permitted Liens" means (a) mechanics', carriers',
workers', repairers', materialmen's, warehousemen's and other similar
Liens arising or incurred in the ordinary course of business for sums
not yet due and payable and such Liens as are being contested by Prison
Realty in good faith, (b) Liens for current Taxes not yet due or
payable, (c) any covenants, conditions, restrictions, reservations,
rights, Liens, easements, encumbrances, encroachments and other matters
affecting title which are shown as exceptions on Prison Realty's title
insurance policies and/or title commitments or reports which have been
made available to the Target Companies, and (d) any other covenants,
conditions, restrictions, reservations, rights, non-monetary Liens,
easements, encumbrances, encroachments and other matters affecting title
which would not individually or in the aggregate, be reasonably expected
to have a material adverse effect. "Prison Realty Leases" means the real
property leases, subleases, licenses and use or occupancy agreements
pursuant to which Prison Realty or any of its Subsidiaries is the
lessee, sublessee, licensee, user or occupant of real property other
than the Prison Realty Owned Real Property, or interests therein
necessary for the conduct of, or otherwise material to, the business of
Prison Realty and its Subsidiaries as it is currently conducted. "Prison
Realty Leased Real Property" means all interests in real property
pursuant to the Prison Realty Leases. "Prison Realty Owned Real
Property" means the real property owned in fee by Prison Realty and its
Subsidiaries necessary for the conduct of, or otherwise material to, the
business of Prison Realty and its Subsidiaries as it is currently
conducted. "Prison Realty Real Property" means, collectively, the Prison
Realty Owned Real Property and the Prison Realty Leased Real Property.
The Prison Realty Filed SEC Documents describe all material Prison
Realty Real Property. Except as disclosed therein, or in the title
insurance policies relating to the Prison Realty Real Property or in the
Prison Realty Disclosure Schedule, each of Prison Realty and its
Subsidiaries has good, valid and marketable title to the Prison Realty
Real Property free of all Liens, in each case except Prison Realty
Permitted Liens. Except as set forth in Section 3.01(l)(i) of the Prison
Realty Disclosure Schedule, there are no outstanding contracts for the
sale of any of the Prison Realty Real Property, except those contracts
relating to Prison Realty Real Property the value in respect of which
does not exceed $5,000,000 individually or $15,000,000 in the aggregate.
Except for such exceptions as would not, in the aggregate, have a
material adverse effect, (a) each Prison Realty Lease is valid and
binding upon Prison Realty and its Subsidiaries and in full force and
effect and grants the lessee under the Prison Realty Lease the exclusive
right to use and occupy the premises, and (b) either Prison Realty or
its Subsidiaries has good and valid title to the leasehold estate or
other interest created under the Prison Realty Leases. No non-monetary
defaults exist under the Prison Realty Leases which, individually or in
the aggregate, would have a material adverse effect. The use and
operation of the Prison Realty Real Property in the conduct of the
business of Prison Realty and its Subsidiaries does not violate any
instrument of record or agreement affecting the Prison Realty Real
Property, except for such violations that, individually or in the
aggregate, would not reasonably be expected to have a material adverse
effect. Valid policies of title insurance have been issued insuring
Prison Realty's or, if applicable, its Subsidiary's, fee simple title to
the Prison Realty Owned Real Property
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owned by it, subject only to Prison Realty Permitted Liens, except where
the failure of such policies to be in full force and effect would not
reasonably be expected, in the aggregate, to have a material adverse
effect. To the best knowledge of Prison Realty, such policies are, at
the date hereof, in full force and effect, except where the failure to
have such valid policies of title insurance would not reasonably be
expected, in the aggregate, to have a material adverse effect. To the
best knowledge of Prison Realty, no material claim has been made against
any such policy. Except as provided in Schedule 3.01(l) of the Prison
Realty Disclosure Schedule, Prison Realty and its Subsidiaries have no
knowledge (a) that any certificate, permit or license from any
Governmental Entity having jurisdiction over any of the Prison Realty
Real Property or any agreement, easement or other right which is
necessary to permit the lawful use and operation of the buildings and
improvements on any of the Prison Realty Real Property or which is
necessary to permit the lawful use and operation of all driveways, roads
and other means of egress and ingress to and from any of the Prison
Realty Real Property has not been obtained and is not in full force and
effect, or of any pending threat of modification or cancellation of any
of the same which would have a material adverse effect, (b) of any
written notice of any violation of any federal, state or municipal law,
ordinance, order, regulation or requirement having a material adverse
effect issued by any Governmental Entity, (c) of any structural defects
relating to any Prison Realty Real Property which would have a material
adverse effect, (d) of any Prison Realty Real Property whose building
systems are not in working order so as to have a material adverse
effect, or (e) of any physical damage to any Prison Realty Real Property
which would have a material adverse effect for which there is no
insurance in effect covering the cost of the restoration. "Prison Realty
Space Lease" means each lease or other right of occupancy affecting or
relating to a property in which Prison Realty or its Subsidiaries (or an
entity in which it directly or indirectly has an interest) is the
landlord, either pursuant to the terms of a lease agreement or as
successor to any prior landlord. No default exists under any Prison
Realty Space Lease, except for such defaults as would, individually or
in the aggregate, not reasonably be expected to have a material adverse
effect.
(ii) Improvements Under Construction. With respect to those
Improvements (as defined herein) being constructed or under development
and located on any Prison Realty Real Property as set forth in the
Prison Realty Disclosure Schedule, to the knowledge of Prison Realty:
(a) the budget for the construction of the Improvements fairly and
accurately reflects Prison Realty's good faith estimate of the costs and
expenses shown thereon reasonably necessary to develop and construct the
Improvements in accordance with the plans and specifications therefor,
and Prison Realty has strictly adhered to said budget in all material
respects and has permitted no material deviations from said budget or
the plans and specifications for the Improvements; (b) the plans and
specifications for the Improvements have been approved by all applicable
Governmental Entities having jurisdiction over the Prison Realty Real
Property, the development and construction of the Improvements and the
use and occupancy thereof for its intended purposes, and/or any utility
services to the Prison Realty Real Property; (c) all utility services
necessary for the development and construction of the Improvements and
the use and occupancy thereof for its intended purposes are available
through public or private easements or rights-of-way at the boundaries
of the Prison Realty Real Property, including, without limitation,
sanitary sewer, electricity, gas, water, telephone, and storm water
drainage; (d) all roads necessary for ingress and egress to the Prison
Realty Real Property, and for the full utilization of the Prison Realty
Real Property for its intended purposes, have either been completed
pursuant to public or private easements, or the necessary rights-of-way
therefor have been dedicated to public use and accepted by the
appropriate Governmental Entity; (e) all building permits, curb cuts,
sewer and water taps, and other permits, licenses, approvals,
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authorizations and consents required for the development and
construction of the Improvements have been obtained; (f) the plans and
specifications for the Improvements, the development and construction of
the Improvements pursuant thereto, and the use and occupancy of the
Improvements for their respective intended purposes comply and will
comply with all applicable zoning ordinances, building regulations,
restrictive covenants and governmental laws, rules, regulations and
ordinances, and comply and will comply with all applicable requirements,
standards and regulations of appropriate supervising boards of fire
underwriters and similar agencies, authorities or boards; (g) Prison
Realty has: (A) diligently pursued the development, construction and
installation of the Improvements; and (B) performed such duties as may
be necessary to complete the development, construction and installation
of the Improvements in accordance with the plans and specifications and
without Liens, claims or assessments, actual or contingent, asserted
against Prison Realty Real Property for any material, labor or other
items furnished in connection therewith, and all in full compliance with
all construction, use, building, zoning and other similar laws,
ordinances, rules, regulations, codes and restrictions of any applicable
Governmental Entities or authorities or otherwise applicable thereto;
(h) Prison Realty has complied with all laws, ordinances, rules,
regulations, judgments, orders, injunctions, writs and decrees of any
government or political subdivision or agency thereof, or any court or
similar entity established by any of them, applicable to the
construction of the Improvements, and has paid when due all taxes and
assessments upon the Improvements or Prison Realty Real Property, and
all claims for labor or materials, rents, and other obligations that, if
unpaid, will or might become a Lien against the Improvements or the
Prison Realty Real Property; (i) Prison Realty has maintained, in
sufficient amount, and in satisfactory form a nd substance, and with
satisfactory insurers: (A) builder's risk insurance, all-risk
nonreporting completed value form, insuring the Improvements against
fire, theft, extended coverage, vandalism, and such other hazards in
full force and effect at all times until the completion of construction
of all of the Improvements; and (B) such other insurance, in such
amounts and for such terms, as may from time to time be reasonably
required insuring against such other casualties or losses which at the
time are commonly insured against in the case of premises similarly
situated; and (j) the Improvements have been constructed in accordance
with the plans and specifications therefor, and in compliance with all
laws, ordinances, rules and regulations applicable thereto, and in a
good and workmanlike manner. For the purposes of this Agreement
"Improvements" shall mean all buildings, improvements, structures and
fixtures now or on the Closing Date located on the Prison Realty Real
Property, including, without limitation, landscaping, parking lots and
structures, roads, drainage and all above ground and underground utility
structures, equipment systems and other so-called "infrastructure"
improvements.
(m) Environmental Matters.
(i) To the knowledge of Prison Realty, the Prison Realty Real
Property and the Improvements thereon (the "Prison Realty Facilities")
are presently operated in compliance in all material respects with all
Environmental Laws (as defined below).
(ii) There are no Environmental Laws requiring any material
remediation, clean up, repairs, constructions or capital expenditures
(other than normal maintenance) with respect to the Prison Realty
Facilities.
(iii) There are no (A) notices of any violation or alleged
violation of any Environmental Laws relating to the Prison Realty
Facilities or their uses that have been received by Prison Realty, or
(B) writs, injunctions, decrees, orders or judgments outstanding, or any
actions, suits, claims, proceedings or investigations pending, or, to
the
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knowledge of Prison Realty, threatened, relating to the ownership, use,
maintenance or operation of the Prison Realty Facilities.
(iv) To the knowledge of Prison Realty, there are no past, present
or anticipated future events, conditions, circumstances, activities,
practices, incidents, actions, or plans relating to Prison Realty and
its Subsidiaries that may interfere with or prevent compliance or
continued compliance with applicable Environmental Laws or which may
give rise to any liability under the Environmental Laws.
(v) All material permits and licenses required under any
Environmental Laws in respect of the operations of the Prison Realty
Facilities have been obtained, and the Prison Realty Facilities and
Prison Realty are in compliance, in all material respects, with the
terms and conditions of such permits and licenses.
(vi) For purposes of this Agreement, "Environmental Laws" mean all
applicable statutes, regulations, rules, ordinances, codes, licenses,
permits, orders, demands, approvals, authorizations and similar items of
all governmental agencies, departments, commissions, boards, bureaus or
instrumentalities of the United States, states and political
subdivisions thereof and all applicable judicial, administrative and
regulatory decrees, judgments and orders relating to the protection of
human health, the environment, or worker or public health and safety as
in effect as of the date hereof, including but not limited to those
pertaining to reporting, licensing, permitting, investigation and
remediation of emissions, discharges, releases or threatened releases of
Hazardous Materials (as defined herein), substances, pollutants,
contaminants or hazardous or toxic substances, materials or wastes,
whether solid, liquid or gaseous in nature, into the air, surface water,
ground water or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling
of substances, pollutants, contaminants or hazardous or toxic
substances, materials or wastes, whether solid, liquid or gaseous in
nature, including by way of illustration and not by way of limitation,
(A) the Comprehensive Environmental Response, Compensation and Liability
Act (42 U.S.C. Sections 960111 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. Sections 69011 et seq.), the Clean Air Act (42
U.S.C. Sections 7401 et seq.), the Federal Water Pollution Control Act
(33 U.S.C. Sections 1251), the Safe Drinking Water Act (42 U.S.C.
Sections 300f et seq.), the Toxic Substances Control Act (15 U.S.C.
Sections 2601 et seq.), the Endangered Species Act (16 U.S.C. Sections
1531 et seq.), the Emergency Planning and Community Right-to-Know Act of
1986 (42 U.S.C. Sections 11001 et seq.) and (B) analogous state and
local provisions.
(vii) For purposes of this Agreement, "Hazardous Material" means
any chemical substance:
(A) the presence of which requires investigation or remediation
under any federal, state or local statute, regulation, ordinance,
order, action or policy, administrative request or civil complaint
under any of the foregoing or under common law; or
(B) which is defined as a "hazardous waste" or "hazardous
substance" under any federal, state or local statute, regulation or
ordinance or amendments thereto as in effect as of the date hereof,
or as hereafter amended, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act
(42 U.S.C. Sections 9601 et seq.) and/or the Resource Conservation
and Recovery Act (42 U.S.C. Sections 6901 et seq.); or
(C) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is
regulated by any governmental
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authority, agency, department, commission, board, agency or
instrumentality of the United States, or any state or any political
subdivision thereof having or asserting jurisdiction over any of the
Prison Realty Facilities; or
(D) the presence of which on any of the Prison Realty Facilities
causes a nuisance upon such facilities or to adjacent properties or
poses a hazard to the health or safety of persons on or about any of
the Prison Realty Facilities; or
(E) the presence of which on adjacent properties constitutes a
trespass by any owner or operator of the Prison Realty Facilities; or
(F) which contains gasoline, diesel fuel or other petroleum
hydrocarbons, polychlorinated biphenyls (PCBs) or asbestos or
asbestos-containing materials or urea formaldehyde foam insulation,
or lead-based paint, solder or other building materials; or
(G) radon gas.
(n) Benefit Plans.
(i) All "employee benefit plans" (as defined in Section 3(3) of
ERISA) and all other compensation, bonus, pension, profit sharing,
deferred compensation, stock ownership, stock purchase, stock option,
phantom stock, retirement, employment, change-in-control, welfare,
collective bargaining, severance, disability, death benefit,
hospitalization and medical plans, agreements, arrangements or
understandings that are maintained or contributed to (or previously
contributed to) for the benefit of any current or former employee,
officer or director of Prison Realty or any of its Subsidiaries and with
respect to which Prison Realty or any of its Subsidiaries would
reasonably be expected to have direct or contingent liability are
defined as the "Prison Realty Benefit Plans." Prison Realty has
heretofore delivered or made available to CCA, PMSI and JJFMSI true and
complete copies of all Prison Realty Benefit Plans and, with respect to
each Prison Realty Benefit Plan, true and complete copies of the
following documents: the most recent actuarial report, if any; the most
recent annual report, if any; any related trust agreement, annuity
contract or other funding instrument, if any; the most recent
determination letter, if any; and the most recent summary plan
description, if any.
(ii) Except as disclosed in Section 3.01(n) of the Prison Realty
Disclosure Schedule: (A) none of the Prison Realty Benefit Plans is a
"multiemployer plan" within the meaning of Section 3(37) of ERISA or is
otherwise subject to Title IV of ERISA; (B) none of the Prison Realty
Benefit Plans promises or provides retiree medical or life insurance
benefits to any person; (C) neither Prison Realty nor any of its
Subsidiaries has any obligation to adopt or has taken any corporate
action to adopt, any new Prison Realty Benefit Plan or, except as
required by law, to amend any existing Prison Realty Benefit Plan; (D)
Prison Realty and its Subsidiaries are in compliance in all material
respects with and each Prison Realty Benefit Plan is and has been
administered in all material respects in compliance with its terms and
the applicable provisions of ERISA, the Code and all other applicable
laws, rules and regulations except for any failures to so administer any
Prison Realty Benefit Plan as would not have a material adverse effect
on Prison Realty; (E) each Prison Realty Benefit Plan that is intended
to be qualified within the meaning of Section 401(a) of the Code, to
Prison Realty's knowledge, has been determined by the IRS to be so
qualified, and no circumstances exist that could reasonably be expected
to result in the revocation of any such determination; (F) each Prison
Realty Benefit Plan intended to provide for the deferral of income, the
reduction of salary or other compensation, or to afford other income tax
benefits, complies with the requirements of the applicable provisions of
the Code or other
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laws, rules and regulations required to provide such income tax
benefits; (G) no prohibited transactions (as defined in Section 406 or
407 of ERISA or Section 4975 of the Code) have occurred for which a
statutory exemption is not available with respect to any Prison Realty
Benefit Plan, and which could give rise to liability on the part of
Prison Realty, any of its Subsidiaries, any Prison Realty Benefit Plan,
or any fiduciary, party in interest or disqualified person with respect
thereto that would be material to Prison Realty or would be material to
Prison Realty if it were its liability; (H) neither Prison Realty nor
any entity required to be treated as a single employer with Prison
Realty under Section 414 of the Code has any unsatisfied liability under
Title IV of ERISA that would have a material adverse effect on Prison
Realty; (I) other than funding obligations and benefits claims payable
in the ordinary course, to Prison Realty's knowledge, no event has
occurred and no circumstance exists with respect to any Prison Realty
Benefit Plan that could give rise to any material liability arising
under the Code, ERISA or any other applicable law, or under any
indemnity agreement to which Prison Realty or any of its Subsidiaries is
a party, excluding liability relating to benefit claims and funding
obligations payable in the ordinary course, whether directly or by
reason of its affiliation with any entity required to be treated as a
single employer with Prison Realty under Section 414 of the Code; (J) as
of the date hereof there are no pending or, to the knowledge of the
executive officers of Prison Realty, threatened investigations, claims
or lawsuits in respect of any Prison Realty Benefit Plan that would have
a material adverse effect on Prison Realty; (K) other than continuation
coverage required to be provided under Section 4980B of the Code or Part
6 of Title I of ERISA or otherwise as provided by state law, none of the
Prison Realty Benefit Plans that are "welfare plans," within the meaning
of Section 3(1) of ERISA, provides for any benefits with respect to
current or former employees for periods extending beyond their
retirement or other termination of service; (L) no amount payable
pursuant to a Prison Realty Benefit Plan or any other plan, contract or
arrangement of Prison Realty would be considered an "excess parachute
payment" under Section 280G of the Code; and (M) no Prison Realty
Benefit Plan exists that could result in the payment to any current or
former employee, officer or director of Prison Realty any money or other
property or accelerate or provide any other rights or benefits as a
result of the transactions contemplated by this Agreement which would
constitute an excess parachute payment within the meaning of Section
280G of the Code.
(o) Material Contracts. There are no contracts or other documents
required by the Securities Act to be described in or to be filed as
exhibits to the Prison Realty Filed SEC Documents which have not been
described or filed as required. All such contracts to which Prison Realty
or any of its Subsidiaries is a party have been duly authorized, executed
and delivered by Prison Realty or such Subsidiary, constitute valid and
binding agreements of Prison Realty or such Subsidiary and are enforceable
against Prison Realty or such Subsidiary in accordance with the terms
thereof. Each of Prison Realty and its Subsidiaries has performed all
material obligations required to be performed by it, and is neither in
default in any material respect nor has it received notice of any default
or dispute under, any such contract or other material instrument to which
it is a party or by which its property is bound or affected. To the best
knowledge of Prison Realty, no other party under any such contract or other
material instrument to which it or any of its Subsidiaries is a party is in
default in any material respect thereunder.
(p) No Undisclosed Liabilities. Except (a) as set forth in the Prison
Realty Filed SEC Documents, (b) as set forth in Section 3.01(p) of the
Prison Realty Disclosure Schedule, (c) as incurred in the ordinary course
of the business of Prison Realty subsequent to September 30, 1999 which
would, individually or in the aggregate, not have, or be reasonably
expected not to
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have, a material adverse effect, (d) for any expenses incurred in
connection with transactions contemplated by this Agreement or for
liabilities or obligations relating to contractual obligations,
indebtedness, litigation or other matters which are covered by other
representations and warranties in this Agreement or otherwise identified in
the Prison Realty Disclosure Schedule, neither Prison Realty nor any of its
Subsidiaries has any liabilities or obligations (direct or indirect,
contingent or fixed, known or unknown, matured or unmatured accrued or
unaccrued), whether arising out of contract, tort, statute or otherwise,
and whether or not required by GAAP to be reflected on or in footnotes to
the Prison Realty Financial Statements.
(q) Investment Company Act. Neither Prison Realty nor any of the
Subsidiaries is (i) an "investment company" or a company "controlled" by an
investment company within the meaning of the Investment Company Act of
1940, as amended, (ii) a "holding company" or a "subsidiary company" of a
holding company or an "affiliate" thereof within the meaning of the Public
Utility Holding Company Act of 1935, as amended, or (iii) subject to
regulation under the Federal Power Act or the Interstate Commerce Act.
(r) Reporting. Prison Realty is subject to Section 13 of the Exchange
Act and is in compliance in all material respects with the provisions of
such section.
(s) Labor Matters. Except as set forth in Section 3.01(s) of the
Prison Realty Disclosure Schedule: (i) neither Prison Realty nor its
Subsidiaries is a party to, or bound by, any collective bargaining
agreement, contract or other agreement or understanding with a labor union
or labor organization; (ii) to the knowledge of Prison Realty, no union
claims to represent the employees of Prison Realty and its Subsidiaries
currently exist; (iii) none of the employees of Prison Realty or its
Subsidiaries is represented by any labor organization and Prison Realty has
no knowledge of any current union organizing activities among the employees
of Prison Realty or its Subsidiaries, nor does any question concerning
representation exist concerning such employees; neither Prison Realty nor
its Subsidiaries is the subject of any proceeding asserting that it has
committed an unfair labor practice or seeking to compel it to bargain with
any labor organization as to wages or conditions of employment; (iv) there
is no strike, work stoppage, lockout or other labor dispute involving
Prison Realty or its Subsidiaries pending or threatened; (v) no action,
suit, complaint, charge, arbitration, inquiry, proceeding or investigation
by or before any Governmental Entity brought by or on behalf of any
employee, prospective employee, former employee, retiree, labor
organization or other representative of its employees is pending or, to the
knowledge of Prison Realty, threatened, against Prison Realty or its
Subsidiaries; (vi) to the knowledge of Prison Realty, no grievance is
threatened against Prison Realty or its Subsidiaries; (vii) neither Prison
Realty nor its Subsidiaries is a party to, or otherwise bound by, any
consent decree with, or citation by, any Governmental Entity relating to
employees or employment practices; (viii) there are no written personnel
policies, rules or procedures applicable to employees of Prison Realty or
its Subsidiaries, other than those set forth in Section 3.01(s) of the
Prison Realty Disclosure Schedule, true and correct copies of which have
heretofore been delivered or made available to CCA, PMS and JJFMSI; (ix)
Prison Realty and its Subsidiaries are, and have at all times been, in
material compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages, hours of
work and occupational safety and health, and are not engaged in any unfair
labor practices as defined in the National Labor Relations Act or other
applicable law, ordinance or regulation; (x) since the enactment of the
Worker Adjustment and Retraining Notification Act (the "WARN Act"), neither
Prison Realty nor its Subsidiaries has effectuated (A) a "plant closing"
(as defined in the WARN Act) affecting any site of employment or one or
more facilities or operating units within any site of employment or
facility of any of Prison Realty or its Subsidiaries; or (B) a "mass
layoff" (as defined in the WARN Act) affecting any site of
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employment or facility of any of Prison Realty or its Subsidiaries, in
either case, other than in substantial compliance with the WARN Act; nor
has Prison Realty or its Subsidiaries been affected by any transaction or
engaged in layoffs or employment terminations sufficient in number to
trigger application of any similar state, local or foreign law or
regulation; and (xi) neither Prison Realty nor any of its Subsidiaries is
aware that it has any liability or potential liability under the
Multi-Employer Pension Plan Act.
(t) Insurance. Prison Realty and its Subsidiaries maintain primary,
excess and umbrella insurance of types and amounts customary for their
business against general liability, fire, workers' compensation, products
liability, theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full force
and effect and with respect to property insurance for assets for which it
is customary to have replacement cost coverage or there are coinsurance
provisions, the amount of such insurance is sufficient to provide for such
coverage or to prevent the application of the coinsurance provision.
Section 3.01(t) of the Prison Realty Disclosure Schedule sets forth a
complete list of the insurance policies maintained by Prison Realty and its
Subsidiaries.
(u) Affiliate Transactions. Except as set forth in Section 3.01(u) of
the Prison Realty Disclosure Schedule, there is no transaction and no
transaction is now proposed, to which Prison Realty or its Subsidiaries is
or is to be a party in which any current stockholder (holding in excess of
5% of the Prison Realty Common Stock or any securities convertible into or
exchangeable for Prison Realty Common Stock), general partner, limited
partner (holding in excess of 5% of the limited partnership interests),
director or executive officer of Prison Realty or its Subsidiaries has a
direct or indirect interest.
(v) Internal Accounting Controls. Prison Realty's system of internal
accounting controls is sufficient to meet the broad objectives of internal
accounting controls insofar as those objectives pertain to the prevention
or detection of errors or irregularities in amounts that would be material
in relation to Prison Realty's financial statements.
(w) Board Recommendation. Prior to the date hereof with respect to
this Agreement, the Board of Directors of Prison Realty, at a meeting duly
called and held, by the majority vote of the directors present at such
meeting and voting, (i) determined that such Agreement and the Merger and
the other transactions contemplated hereby or thereby are fair to and in
the best interests of the shareholders of Prison Realty, (ii) adopted such
Agreement and approved the Merger and (iii) approved the delivery of the
CCA Merger Consideration, PMSI Merger Consideration and the JJFMSI Merger
Consideration to the holders of CCA Certificates, PMSI Certificates and
JJFMSI Certificates, respectively, pursuant to the terms and conditions of
this Agreement.
(x) Maryland Law on Business Combinations and Control Shares. None of
the parties to the Merger is an interested stockholder (as defined in
Section 3-601 of the Maryland General Corporation Law (the "MGCL")) of
Prison Realty or an affiliate (as defined in Section 3-601 of the MGCL) of
an interested stockholder who was not exempted from the provisions of
Section 3-602 of the MGCL prior to the most recent date on which such
person became an interested stockholder. None of the shares of Prison
Realty Stock issued in the Merger constitute "control shares" as such term
is defined in Section 3-701 of the MGCL. The approval of the Merger, and
the issuance of the Prison Realty Stock in connection therewith, by the
Board of Directors of Prison Realty referred to in Section 3.01(w)
constitutes approval of the Merger and the issuance of the Prison Realty
Stock and related transactions for purposes of Sections 3-602 and 3-702 of
the MGCL.
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(y) Brokers. No broker, investment banker, financial advisor or other
person, other than Merrill Lynch & Co. ("Merrill Lynch") and Wasserstein
Perella & Co., Inc. ("Wasserstein Perella"), the fees and expenses of which
will be paid by Prison Realty, are entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with
the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Prison Realty. Prison Realty's arrangements with
Merrill Lynch and Wasserstein Perella have been disclosed to CCA, PMSI and
JJFMSI prior to the date hereof.
(z) Opinion of Financial Advisor. Prison Realty has received the
opinion of Merrill Lynch, dated as of the date hereof, to the effect that
the sale by Prison Realty of its securities to a third-party investor, is
fair to Prison Realty and the stockholders of Prison Realty from a
financial point of view (the "Merrill Lynch Prison Realty Opinion").
(aa) Share Ownership. Prison Realty owns 981,393 shares of the issued
and outstanding Class B Common Stock of CCA, 100,000 shares of the issued
and outstanding PMSI Class B Common Stock and 100,000 shares of the issued
and outstanding JJFMSI Class B Common Stock. All of such shares shall be
canceled in connection with the Merger as set forth in Section 2.01 (a)
hereof.
Section 3.02 Representations and Warranties of the Acquisition
Companies. Each of the Acquisition Companies hereby represents and warrants,
severally and not jointly and with respect to itself only, to each of CCA, PMSI
and JJFMSI as follows:
(a) Organization and Authority. The Acquisition Company is a
corporation duly incorporated and validly existing in good standing under
the laws of the State of Tennessee with full corporate power and authority
to own its properties and conduct its business as now conducted and is duly
qualified or authorized to do business and is in good standing in all
jurisdictions where the failure to so qualify could have a material adverse
effect. The Acquisition Company does not have a direct or indirect
ownership interest in any subsidiary corporation, joint venture,
partnership or other entity. The Acquisition Company has made available to
CCA, PMSI and JJFMSI complete and correct copies of its charter and bylaws,
in each case as amended to the date of this Agreement. The Acquisition
Company is a newly-formed entity and, except for activities incident to the
Merger and the transactions contemplated hereby, the Acquisition Company
has not engaged in any business activity of any type or kind whatsoever
prior to the date hereof.
(b) Capital Structure. The authorized capital stock of the
Acquisition Company consists of 10,000 shares of common stock, no par value
per share, of which 1,000 shares are issued and outstanding.
(c) Authorization. The Acquisition Company has all requisite
corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the
part of the Acquisition Company. This Agreement has been duly executed and
delivered by the Acquisition Company and constitutes a valid and binding
obligation of the Acquisition Company, enforceable against the Acquisition
Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, fraudulent
transfer and other similar laws from time to time in effect. The execution
and delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
breach or violation of, or default (with or without notice or lapse of time
or both) under, or result in the termination of, or accelerate the
performance required by, or give
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rise to a right of termination, cancellation or acceleration of any
obligation under, or the creation of a Lien pursuant to, (i) any provision
of the charter (or similar organizational documents) or bylaws of the
Acquisition Company or (ii) subject to obtaining or making the consents,
approvals, orders, authorizations, registrations, declarations and filings
referred to in the following sentence, any loan or credit agreement, note,
mortgage, indenture, lease, or other agreement, obligation, instrument,
permit, concession, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to the Acquisition Company or
its respective properties or assets, in any case under this clause (ii)
which would, individually or in the aggregate, have a material adverse
effect on the Acquisition Company. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to the Acquisition
Company in connection with the execution and delivery of this Agreement by
the Acquisition Company or the consummation by the Acquisition Company of
the transactions contemplated hereby, the failure of which to be obtained
or made would, individually or in the aggregate, have a material adverse
effect on the Acquisition Company or would prevent or materially delay the
consummation of the transactions contemplated hereby, except for (A) the
filing of the Articles of Merger with the Tennessee Secretary of State and
appropriate documents with the relevant authorities of other states in
which the Acquisition Company is qualified to do business, (B) filings
required pursuant to the HSR Act, and (C) filings necessary to satisfy the
applicable requirements of state securities or "blue sky" laws.
(d) Information Supplied. None of the information supplied or to be
supplied by the Acquisition Company for inclusion or incorporation by
reference in the Proxy-Statement Prospectus will, at the date it is first
mailed to stockholders of Prison Realty or at the time of the Prison Realty
Stockholders' Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that in each case no
representation or warranty is made by the Acquisition Company with respect
to statements made or incorporated by reference therein based on
information supplied by CCA, PMSI or JJFMSI specifically for inclusion or
incorporation by reference therein.
(e) Certain Agreements. The Acquisition Company is not in default
under any material agreement, commitment, lease or other instrument to
which it or any of its properties is subject, and there has not occurred
any event that, with the giving of notice or the lapse of time or both,
would constitute such a default by the Acquisition Company or, to the
knowledge of the executive officers of the Acquisition Company, a default
thereunder by any other party thereto, except in all cases where such
defaults, individually or in the aggregate, would not have a material
adverse effect on the Acquisition Company. The Acquisition Company is not
in breach in any material respect under its charter, bylaws or other
organizational documents.
(f) Board Recommendation. Prior to the date hereof with respect to
this Agreement, the Board of Directors of the Acquisition Company, at a
meeting duly called and held, by the majority vote of the directors present
at such meeting and voting, (i) determined that such Agreement and the
Merger and the other transactions contemplated hereby or thereby are fair
to and in the best interests of the shareholders of the Acquisition
Company, (ii) adopted such Agreement and approved the Merger and (iii)
resolved to recommend that its shareholders approve the Agreement and the
Merger.
(g) Tennessee Business Combination Act. The approval of the Merger by
the Board of Directors of the Acquisition Company referred to in Section
3.02(f) constitutes approval of the Merger for purposes of the TBCA and
represents all the actions necessary to ensure that Sections 48-103-201, et
seq., of the TBCA do not apply to the Merger.
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Section 3.03 Representations and Warranties of CCA. Except as set forth in
the Prison Realty Filed SEC Documents or on the Disclosure Schedule delivered by
CCA to Prison Realty, PMSI and JJFMSI prior to the execution of this Agreement
(the "CCA Disclosure Schedule"), which CCA Disclosure Schedule constitutes a
part hereof and is true and correct in all material respects, CCA represents and
warrants to Prison Realty, the Acquisition Companies, PMSI and JJFMSI as
follows:
(a) Organization and Authority. CCA is duly formed and validly
existing and in good standing under the laws of the State of Tennessee with
full power and authority to own its properties and conduct its business as
now conducted and is duly qualified or authorized to do business and is in
good standing in all jurisdictions where the failure to so qualify could
have a material adverse effect on CCA. CCA has all requisite corporate
power and authority, and has been duly authorized by all necessary
consents, approvals, authorizations, orders, registrations, qualifications,
licenses and permits of and from all public, regulatory or governmental
agencies and bodies, to own, lease and operate its assets and properties
and to conduct its business as it is now being conducted and is duly
qualified or licensed to do business in each jurisdiction in which the
failure to do so could have a material adverse effect upon the conduct of
its business or the ownership or leasing of property by it in such
jurisdiction.
(b) Subsidiaries.
(i) The only direct or indirect Subsidiaries of CCA are those
listed in Section 3.03(b) of the CCA Disclosure Schedule. Except for the
ownership interests set forth in Section 3.03(b) of the CCA Disclosure
Schedule, CCA does not own or control, directly or indirectly, a 50% or
greater capital stock interest in a corporation, a general partnership
interest or a 50% or greater limited partnership interest in a
partnership, or a managing membership interest or a 50% or greater
membership interest in a limited liability company, association or other
entity or project.
(ii) Except for the entities listed in Section 3.03(b) of the CCA
Disclosure Schedule, CCA does not hold, directly or indirectly, any
equity interest or equity investment in any corporation, partnership,
association or other entity.
(iii) Except as set forth in Section 3.03(b) of the CCA Disclosure
Schedule, all of the issued and outstanding shares of capital stock of,
or other equity interests in, each Subsidiary of CCA have been validly
issued, are fully paid and nonassessable and are owned, directly or
indirectly, by CCA free and clear of any Liens and there are no
outstanding subscriptions, options, calls, contracts, voting trusts,
proxies or other commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or
exchange under any outstanding security, instrument or other agreement,
obligating any Subsidiary of CCA to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of its capital stock or
obligating it to grant, extend or enter into any such agreement or
commitment.
(iv) CCA's Subsidiaries do not own or operate or possess any
material assets, licenses, management contracts, or franchises or other
rights nor are such Subsidiaries liable with respect to any material
indebtedness, obligations, liabilities, or claims. For purposes of this
section, "material" means with respect to assets, licenses, management
contracts, franchises or rights of the Subsidiaries that the aggregate
value of such items for the Subsidiaries taken as a whole does not
exceed 5.0% of the aggregate value of such items for CCA and its
Subsidiaries taken as a whole; and with respect to indebtedness,
obligations, liabilities, and claims of the Subsidiaries, that the
aggregate amount of such items for the Subsidiaries
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taken as a whole does not exceed 5.0% of the aggregate amount of such
items for CCA and its Subsidiaries taken as a whole.
(c) Capital Structure. The authorized capital stock of CCA consists
of 100,000,000 shares of CCA Class A Common Stock, 100,000,000 shares of
CCA Class B Common Stock and 50,000,000 shares of preferred stock, $0.01
par value per share. At the close of business on November 30, 1999, (A)
9,349,061 shares of CCA Class A Common Stock were outstanding, (B) 981,393
shares of CCA Class B Common Stock were outstanding, (C) no shares of
preferred stock were outstanding and (D) warrants to acquire 546,729 shares
of CCA Class A Common Stock were outstanding. Other than as set forth
above, at the close of business on November 30, 1999, there were
outstanding no shares of CCA Common Stock or any other class or series of
stock of CCA or options, warrants or other rights to acquire shares of CCA
Common Stock or any other class or series of stock of CCA from CCA. No
bonds, debentures, notes or other indebtedness having the right to vote (or
convertible into or exchangeable for securities having the right to vote)
on any matters on which shareholders of CCA may vote are issued or
outstanding.
All outstanding shares of CCA Common Stock are duly authorized,
validly issued, fully paid and nonassessable, and will be delivered free
and clear of Liens and will not be in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities.
Other than as set forth above, and except for this Agreement and for
certain contractual preemptive rights granted to each of Prison Realty,
Sodexho (as defined herein) and Baron, there are no outstanding securities,
options, warrants, calls, rights, commitments, agreements or undertakings
of any kind to which CCA or any Subsidiary of CCA is a party or by which
CCA or any Subsidiary of CCA is bound obligating CCA or any Subsidiary of
CCA to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of CCA Common Stock or other equity or voting securities
of CCA or of any Subsidiary of CCA or obligating CCA or any Subsidiary of
CCA to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement or undertaking. There are no
outstanding obligations of CCA or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of CCA Common Stock or any of its
Subsidiaries and, to the knowledge of the executive officers of CCA, as of
the date hereof, no irrevocable proxies have been granted with respect to
shares of CCA Common Stock or equity of Subsidiaries of CCA.
(d) Authorization. CCA has all requisite power and authority to enter
into this Agreement and, subject to obtaining the CCA Shareholder Approval
with respect to the Merger, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by all
necessary action on the part of CCA, subject to obtaining CCA Shareholder
Approval with respect to the Merger. This Agreement has been duly executed
and delivered by CCA and constitutes a valid and binding obligation of CCA,
enforceable against CCA in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance,
fraudulent transfer and other similar laws from time to time in effect. The
execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated hereby will not, conflict with, or result in
any breach or violation of, or default (with or without notice or lapse of
time or both) under, or result in the termination of, or accelerate the
performance required by, or give rise to a right of termination,
cancellation or acceleration of any obligation under, or the creation of a
Lien pursuant to, (i) any provision of the charter (or similar
organizational documents) or bylaws of CCA or any Subsidiary of CCA or (ii)
subject to obtaining or making the consents, approvals, orders,
authorizations, registrations, declarations and filings referred to in the
following sentence, any loan or credit
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agreement, note, mortgage, indenture, lease, or other agreement,
obligation, instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
CCA or any Subsidiary of CCA or their respective properties or assets, in
any case under this clause (ii) which would, individually or in the
aggregate, have a material adverse effect on CCA. No consent, approval,
order or authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to CCA or any Subsidiary
of CCA in connection with the execution and delivery of this Agreement by
CCA or the consummation by CCA of the transactions contemplated hereby, the
failure of which to be obtained or made would, individually or in the
aggregate, have a material adverse effect on CCA or would prevent or
materially delay the consummation of the transactions contemplated hereby,
except for (A) the filing of the Articles of Merger with the Tennessee
Secretary of State and appropriate documents with the relevant authorities
of other states in which CCA is qualified to do business, (B) filings
required pursuant to the HSR Act, (C) filings necessary to satisfy the
applicable requirements of state securities or "blue sky" laws, and those
required pursuant to CCA's agreements or management contracts with
Governmental Entities.
(e) Information Supplied. None of the information supplied or to be
supplied by CCA specifically for inclusion or incorporation by reference in
the Proxy Statement-Prospectus will, at the date it is first mailed to
shareholders of CCA or at the time of the CCA Shareholders' Meeting,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, except that in each case no representation or
warranty is made by CCA with respect to statements made or incorporated by
reference therein based on information supplied by Prison Realty, PMSI or
JJFMSI specifically for inclusion or incorporation by reference therein.
The Proxy Statement-Prospectus will comply as to form in all material
respects with the requirements of the Exchange Act and the Securities Act,
except that in each case no representation or warranty is made by CCA with
respect to statements made or incorporated by reference therein based on
information supplied by Prison Realty, PMSI or JJFMSI specifically for
inclusion or incorporation by reference therein. If at any time prior to
the date of the CCA Shareholders' Meeting, any event with respect to CCA,
or with respect to information supplied by CCA specifically for inclusion
in the Proxy Statement-Prospectus, shall occur which is required to be
described in an amendment of, or supplement to, the Proxy
Statement-Prospectus, such event shall be so described by CCA.
(f) Absence of Certain Changes or Events. Subsequent to September 30,
1999, neither CCA nor any Subsidiary has sustained any material loss or
interference with its business or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, which
is not disclosed; and subsequent to September 30, 1999 (i) neither CCA nor
any Subsidiary has incurred any material liabilities or obligations, direct
or contingent, or entered into any transactions not in the ordinary course
of business consistent with past practice, and (ii) there has not been any
issuance of options, warrants or rights to purchase CCA Common Stock, or
any interests therein, or any adverse change, or any development involving
a prospective adverse change, in the general affairs, management, business,
prospects, financial position, net worth or results of operations of CCA or
any Subsidiary.
(g) Compliance with Laws; Litigation. Except as described in the CCA
Disclosure Schedule or in the Prison Realty Filed SEC Documents, there are
no claims, actions, suits, arbitration, grievances, proceedings or
investigations pending or, to CCA's knowledge, threatened, against CCA or
any Subsidiary, or any properties or rights of CCA or any Subsidiary, or
any officers or directors of CCA or any Subsidiary in their capacity as
such, by or before any
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Governmental Entity which, individually or in the aggregate, is reasonably
likely to have a material adverse effect on CCA or prevent, materially
delay or intentionally delay the ability of CCA to consummate the
transactions contemplated hereby. Neither CCA nor its Subsidiaries is
subject to any judgment, order or decree which could reasonably be expected
to result in a material adverse effect.
Each of CCA and its Subsidiaries has at all times operated and
currently operates its business in conformity in all material respects with
all applicable statutes, common laws, ordinances, decrees, orders, rules
and regulations of Governmental Entities. Each of CCA and its Subsidiaries
has all licenses, approvals or consents to operate its businesses in all
locations in which such businesses are currently being operated, and to its
knowledge is not aware of any existing or imminent matter which may
materially adversely impact its operations or business prospects other than
as specifically disclosed in the CCA Disclosure Schedule. CCA and each
Subsidiary have not failed to file with the applicable regulatory
authorities any material statements, reports, information or forms required
by all applicable laws, regulations or orders, all such filings or
submissions were in material compliance with applicable laws when filed,
and no material deficiencies have been asserted by any regulatory
commission, agency or authority with respect to such filings or
submissions. CCA and each Subsidiary have not failed to maintain in full
force and effect any material licenses, registrations or permits necessary
or proper for the conduct of its or their business, or received any
notification that any revocation or limitation thereof is threatened or
pending, and there is not to the knowledge of CCA pending any change under
any law, regulation, license or permit which would materially adversely
affect the business, operations, property or business prospects of CCA. CCA
and each Subsidiary have not received any notice of violation of or been
threatened with a charge of violating and are not under investigation with
respect to a possible violation of any provision of any law, regulation or
order. Neither CCA nor any of its Subsidiaries has at any time (i) made any
unlawful contribution to any candidate for domestic or foreign office or
failed to disclose fully any contribution in violation of law or (ii) made
any payment to any federal or state governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States or any
jurisdiction thereof.
(h) Taxes.
(i) CCA has timely filed (or there have been filed on its behalf)
all Tax Returns required to be filed by it under applicable law, and all
such Tax Returns were and are true, complete and correct in all material
respects. Except to the extent adequately reserved for in accordance
with GAAP and reflected on the most recent balance sheets of CCA, all
Taxes due and payable by CCA have been timely paid in full.
(ii) There are no Tax liens upon the assets of CCA except liens for
Taxes not yet due.
(iii) CCA has complied with the provisions of the Code relating to
the withholding of Taxes, as well as similar provisions under any other
laws, and has, within the time and in the manner prescribed by law,
withheld, collected and paid over to the proper governmental authorities
all amounts required.
(iv) No audits or other administrative proceedings or court
proceedings are presently pending or, to the knowledge of CCA, asserted
with regard to any Taxes or Tax Returns of CCA.
(v) CCA has not received a written ruling of a taxing authority
relating to Taxes or entered into a written and legally binding
agreement with a taxing authority relating to Taxes with any taxing
authority.
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(vi) CCA has not requested any extension of time within which to
file any Tax Return, which Tax Return has not since been filed.
(vii) CCA has not agreed to and is not required to make any
adjustment pursuant to Section 481(a) of the Code (or any predecessor
provision) by reason of any change in any accounting method of CCA, and
there is no application pending with any taxing authority requesting
permission for any changes in any accounting method of CCA. To the
knowledge of CCA, the IRS has not proposed any such adjustment or change
in accounting method.
(viii) CCA has not joined in the filing of a consolidated return
for federal income tax purposes. CCA is not and has never been subject
to the provisions of Section 1503(f) of the Code.
(ix) CCA is not a party to any agreement providing for the
allocation or sharing of Taxes or indemnification by CCA of any other
person in respect of Taxes.
(x) CCA is not a party to any agreement, contract, or arrangement
that would result, individually or in the aggregate, in the payment of
any "excess parachute payments" within the meaning of Section 280G of
the Code.
(xi) To the knowledge of CCA, CCA does not have, nor has it ever
had, any income which is includable in computing the taxable income of a
United States person (as determined under Section 7701 of the Code)
under Section 951 of the Code. To the knowledge of CCA, none of the
Subsidiaries of CCA is or has ever been a "passive foreign investment
company" within the meaning of Section 1297 of the Code. To the
knowledge of CCA, CCA is not and never has been a "personal holding
company" within the meaning of Section 542 of the Code. To the knowledge
of CCA, there are no gain recognition agreements, within the meaning of
Treasury Regulation 1.367(a)-8 or any predecessor provision, between
CCA, on one hand, and a stockholder of the CCA, on the other. There is
no pending or, to the knowledge of CCA, threatened, action, proceeding
or investigation by any taxing authority for assessment or collection of
Taxes with respect to CCA in any jurisdiction where CCA has not filed a
Tax Return. All dealings and arrangements between and among CCA and its
Subsidiaries are at arm's length and consistent with arm's length
dealings and arrangements between or among unrelated, uncontrolled
taxpayers.
(xii) For purposes of this Section 3.03(h), all representations and
warranties with respect to CCA are deemed to include and to apply to
each of its Subsidiaries and predecessors.
(i) No Defaults. Except for violations or defaults which,
individually or in the aggregate, would not have a material adverse effect,
neither CCA nor any of its Subsidiaries is in violation or default under
any provision of its charter, by-laws, partnership agreements or other
organizational documents, or is in breach of or default with respect to any
provision of any note, bond, agreement, judgment, decree, order, mortgage,
deed of trust, lease, franchise, license, indenture, permit or other
instrument to which it is a party or by which it or any of its properties
are bound; and there does not exist any state of facts which would
constitute an event of default on the part of any of CCA or its
Subsidiaries as defined in such documents which, with notice of lapse of
time or both, would constitute a default. Neither CCA nor any of its
Subsidiaries is a party to any contract (other than leases) containing any
covenant restricting its ability to conduct its business as currently
conducted except for any such covenants that would not, individually or in
the aggregate, have a material adverse effect on CCA.
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(j) Environmental Matters.
(i) To the knowledge of CCA, the correctional and detention
facilities operated or managed by CCA (the "CCA Facilities") are
presently operated in compliance in all material respects with all
Environmental Laws.
(ii) There are no Environmental Laws requiring any material
remediation, clean up, repairs, constructions or capital expenditures
(other than normal maintenance) with respect to the CCA Facilities.
(iii) There are no (A) notices of any violation or alleged
violation of any Environmental Laws relating to the CCA Facilities or
their uses that have been received by CCA, or (B) writs, injunctions,
decrees, orders or judgments outstanding, or any actions, suits, claims,
proceedings or investigations pending, or, to the knowledge of CCA,
threatened, relating to the ownership, use, maintenance or operation of
the CCA Facilities.
(iv) To the knowledge of CCA, there are no past, present or
anticipated future events, conditions, circumstances, activities,
practices, incidents, actions, or plans relating to CCA and its
Subsidiaries that may interfere with or prevent compliance or continued
compliance with applicable Environmental Laws or which may give rise to
any liability under the Environmental Laws.
(v) All material permits and licenses required under any
Environmental Laws in respect of the operations of the CCA Facilities
have been obtained, and the CCA Facilities and CCA are in compliance, in
all material respects, with the terms and conditions of such permits and
licenses.
(k) Benefit Plans.
(i) All "employee benefit plans" (as defined in Section 3(3) of
ERISA) and all other compensation, bonus, pension, profit sharing,
deferred compensation, stock ownership, stock purchase, stock option,
phantom stock, retirement, employment, change-in-control, welfare,
collective bargaining, severance, disability, death benefit,
hospitalization and medical plans, agreements, arrangements or
understandings that are maintained or contributed to (or previously
contributed to) for the benefit of any current or former employee,
officer or director of CCA or any of its Subsidiaries and with respect
to which CCA or any of its Subsidiaries would reasonably be expected to
have direct or contingent liability are defined as the "CCA Benefit
Plans." CCA has heretofore delivered or made available to Prison Realty,
PMSI and JJFMSI true and complete copies of all CCA Benefit Plans and,
with respect to each CCA Benefit Plan, true and complete copies of the
following documents: the most recent actuarial report, if any; the most
recent annual report, if any; any related trust agreement, annuity
contract or other funding instrument, if any; the most recent
determination letter, if any; and the most recent summary plan
description, if any.
(ii) Except as disclosed in Section 3.03(k) of the CCA Disclosure
Schedule: (A) none of the CCA Benefit Plans is a "multiemployer plan"
within the meaning of Section 3(37) of ERISA or is otherwise subject to
Title IV of ERISA; (B) none of the CCA Benefit Plans promises or
provides retiree medical or life insurance benefits to any person; (C)
neither CCA nor any of its Subsidiaries has any obligation to adopt or
has taken any corporate action to adopt, any new CCA Benefit Plan or,
except as required by law, to amend any existing CCA Benefit Plan; (D)
CCA and its Subsidiaries are in compliance in all material respects with
and each CCA Benefit Plan is and has been administered in all material
respects in compliance with its terms and the applicable
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provisions of ERISA, the Code and all other applicable laws, rules and
regulations except for any failures to so administer any CCA Benefit
Plan as would not have a material adverse effect on CCA; (E) each CCA
Benefit Plan that is intended to be qualified within the meaning of
Section 401(a) of the Code, to CCA's knowledge, has been determined by
the IRS to be so qualified, and no circumstances exist that could
reasonably be expected to result in the revocation of any such
determination; (F) each CCA Benefit Plan intended to provide for the
deferral of income, the reduction of salary or other compensation, or to
afford other income tax benefits, complies with the requirements of the
applicable provisions of the Code or other laws, rules and regulations
required to provide such income tax benefits; (G) no prohibited
transactions (as defined in Section 406 or 407 of ERISA or Section 4975
of the Code) have occurred for which a statutory exemption is not
available with respect to any CCA Benefit Plan, and which could give
rise to liability on the part of CCA, any of its Subsidiaries, any CCA
Benefit Plan, or any fiduciary, party in interest or disqualified person
with respect thereto that would be material to CCA or would be material
to CCA if it were its liability; (H) neither CCA nor any entity required
to be treated as a single employer with CCA under Section 414 of the
Code has any unsatisfied liability under Title IV of ERISA that would
have a material adverse effect on CCA; (I) other than funding
obligations and benefits claims payable in the ordinary course, to CCA's
knowledge, no event has occurred and no circumstance exists with respect
to any CCA Benefit Plan that could give rise to any liability arising
under the Code, ERISA or any other applicable law, or under any
indemnity agreement to which CCA or any of its Subsidiaries is a party,
excluding liability relating to benefit claims and funding obligations
payable in the ordinary course, whether directly or by reason of its
affiliation with any entity required to be treated as a single employer
with CCA under Section 414 of the Code; (J) as of the date hereof there
are no pending or, to the knowledge of the executive officers of CCA,
threatened investigations, claims or lawsuits in respect of any CCA
Benefit Plan that would have a material adverse effect on CCA; (K) other
than continuation coverage required to be provided under Section 4980B
of the Code or Part 6 of Title I of ERISA or otherwise as provided by
state law, none of the CCA Benefit Plans that are "welfare plans,"
within the meaning of Section 3(1) of ERISA, provides for any benefits
with respect to current or former employees for periods extending beyond
their retirement or other termination of service; (L) no amount payable
pursuant to a CCA Benefit Plan or any other plan, contract or
arrangement of CCA would be considered an "excess parachute payment"
under Section 280G of the Code; and (M) no CCA Benefit Plan exists that
could result in the payment to any current or former employee, officer
or director of CCA any money or other property or accelerate or provide
any other rights or benefits as a result of the transactions
contemplated by this Agreement which would constitute an excess
parachute payment within the meaning of Section 280G of the Code.
(l) Material Contracts. All contracts to which CCA or any Subsidiary
is a party have been duly authorized, executed and delivered by CCA or any
Subsidiary, constitute valid and binding agreements of CCA or any
Subsidiary and are enforceable against CCA or any Subsidiary in accordance
with the terms thereof. Each of CCA and each Subsidiary has performed all
material obligations required to be performed by it, and is neither in
default in any material respect nor has it received notice of any default
or dispute under, any such contract or other material instrument to which
it is a party or by which its property is bound or affected. To the best
knowledge of CCA, no other party under any such contract or other material
instrument to which it is a party is in default in any material respect
thereunder.
(m) No Undisclosed Liabilities. Except (a) as set forth in the Prison
Realty Filed SEC Documents, (b) as set forth in Section 3.03(m) of the CCA
Disclosure Schedule, (c) as
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incurred in the ordinary course of the business of CCA subsequent to
September 30, 1999 which would, individually or in the aggregate, not have,
or be reasonably expected not to have, a material adverse effect, (d) for
any expenses incurred in connection with transactions contemplated by this
Agreement or for liabilities or obligations relating to contractual
obligations, indebtedness, litigation or other matters which are covered by
other representations and warranties in this Agreement or otherwise
identified in the CCA Disclosure Schedule, neither CCA nor any of its
Subsidiaries has any liabilities or obligations (direct or indirect,
contingent or fixed, known or unknown, matured or unmatured accrued or
unaccrued), whether arising out of contract, tort, statute or otherwise,
and whether or not required by GAAP to be reflected on or in footnotes to
the financial statements of CCA.
(n) Labor Matters. Except as set forth in Section 3.03(n) of the CCA
Disclosure Schedule: (i) neither CCA nor its Subsidiaries is a party to, or
bound by, any collective bargaining agreement, contract or other agreement
or understanding with a labor union or labor organization; (ii) to the
knowledge of CCA, no union claims to represent the employees of CCA and its
Subsidiaries; (iii) none of the employees of CCA or its Subsidiaries is
represented by any labor organization and CCA has no knowledge of any
current union organizing activities among the employees of CCA or its
Subsidiaries, nor does any question concerning representation exist
concerning such employees; neither CCA nor its Subsidiaries is the subject
of any proceeding asserting that it has committed an unfair labor practice
or seeking to compel it to bargain with any labor organization as to wages
or conditions of employment; (iv) there is no strike, work stoppage,
lockout or other labor dispute involving CCA or its Subsidiaries pending or
threatened; (v) no action, suit, complaint, charge, arbitration, inquiry,
proceeding or investigation by or before any Governmental Entity brought by
or on behalf of any employee, prospective employee, former employee,
retiree, labor organization or other representative of its employees is
pending or, to the knowledge of CCA, threatened against CCA or its
Subsidiaries; (vi) to the knowledge of CCA, no grievance is threatened
against CCA or its Subsidiaries; (vii) neither CCA nor its Subsidiaries is
a party to, or otherwise bound by, any consent decree with, or citation by,
any Governmental Entity relating to employees or employment practices;
(viii) there are no written personnel policies, rules or procedures
applicable to employees of CCA or its Subsidiaries, other than those set
forth in Section 3.03(n) of the CCA Disclosure Schedule, true and correct
copies of which have heretofore been delivered or made available to Prison
Realty, PMSI and JJFMSI; (ix) CCA and its Subsidiaries are, and have at all
times been, in material compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment,
wages, hours of work and occupational safety and health, and are not
engaged in any unfair labor practices as defined in the National Labor
Relations Act or other applicable law, ordinance or regulation; (x) since
the enactment of the WARN Act, neither CCA nor its Subsidiaries has
effectuated (A) a "plant closing" (as defined in the WARN Act) affecting
any site of employment or one or more facilities or operating units within
any site of employment or facility of any of CCA or its Subsidiaries; or
(B) a "mass layoff" (as defined in the WARN Act) affecting any site of
employment or facility of any of CCA or its Subsidiaries, in either case,
other than in substantial compliance with the WARN Act; nor has CCA or its
Subsidiaries been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger application of any
similar state, local or foreign law or regulation; and (xi) neither CCA nor
any of its Subsidiaries is aware that it has any liability or potential
liability under the Multi-Employer Pension Plan Act.
(o) Insurance. CCA and its Subsidiaries maintain primary, excess and
umbrella insurance of types and amounts customary for their business
against general liability, fire, workers' compensation, products liability,
theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and
effect and with respect to
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property insurance for assets for which it is customary to have replacement
cost coverage or there are coinsurance provisions, the amount of such
insurance is sufficient to provide for such coverage or to prevent the
application of the coinsurance provision. Section 3.03(o) of the CCA
Disclosure Schedule sets forth a complete list of the insurance policies
maintained by CCA and its Subsidiaries.
(p) Affiliate Transactions. Except as set forth in Section 3.03(p) of
the CCA Disclosure Schedule, there is no transaction and no transaction is
now proposed, to which CCA or its Subsidiaries is or is to be a party in
which any current stockholder (holding in excess of 5% of the CCA's Common
Stock or any securities convertible into or exchangeable for Common Stock),
general partner, limited partner (holding in excess of 5% of the limited
partnership interests), director or executive officer of CCA or its
Subsidiaries has a direct or indirect interest.
(q) Internal Accounting Controls. CCA's system of internal accounting
controls is sufficient to meet the broad objectives of internal accounting
controls insofar as those objectives pertain to the prevention or detection
of errors or irregularities in amounts that would be material in relation
to CCA's financial statements.
(r) Vote Required. The CCA Shareholder Approval is the only vote of
the holders of any class or series of CCA's securities necessary to approve
this Agreement and the transactions contemplated hereby.
(s) Board Recommendation. On the date hereof with respect to this
Agreement, the Board of Directors of CCA, at a meeting duly called and
held, by the majority vote of the directors present at such meeting, (i)
determined that such Agreement and the Merger and the other transactions
contemplated hereby and thereby are fair to and in the best interests of
the shareholders of CCA, (ii) adopted such Agreement and approved the
Merger and (iii) resolved to recommend that the holders of CCA Common Stock
approve such Agreement and the Merger.
(t) Tennessee Business Combination Act. CCA has received the opinion
of Sherrard & Roe, PLC, counsel to CCA, that the approval of the Merger by
the Board of Directors of CCA referred to in Section 3.03(s) constitutes
approval of the Merger for purposes of the TBCA and represents all the
actions necessary to ensure that Sections 48-103-201, et seq., of the TBCA
do not apply to the Merger.
(u) Brokers. No broker, investment banker, financial advisor or other
person, other than Merrill Lynch, the fees and expenses of which will be
paid by Prison Realty, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Merrill Lynch.
(v) Opinion of Financial Advisor. CCA has received the opinion of
Merrill Lynch, dated as of the date hereof, to the effect that the CCA
Merger Consideration to be paid by Prison Realty is fair to CCA and the
holders of the CCA Common Stock from a financial point of view (the
"Merrill Lynch CCA Opinion").
(w) Stock Ownership. CCA does not, directly or indirectly, own any
shares of Prison Realty Stock other than shares, if any, held in CCA
Benefit Plans.
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Section 3.04 Representations and Warranties of PMSI. Except as set forth
in the Prison Realty Filed SEC Documents on the Disclosure Schedule delivered by
PMSI to Prison Realty, CCA and JJFMSI prior to the execution of this Agreement
(the "PMSI Disclosure Schedule"), which PMSI Disclosure Schedule constitutes a
part hereof and is true and correct in all material respects, PMSI represents
and warrants to Prison Realty, the Acquisition Companies, CCA and JJFMSI as
follows:
(a) Organization and Authority. PMSI is duly formed and validly
existing and in good standing under the laws of the State of Tennessee with
full power and authority to own its properties and conduct its business as
now conducted and is duly qualified or authorized to do business and is in
good standing in all jurisdictions where the failure to so qualify could
have a material adverse effect on PMSI. PMSI has all requisite corporate
power and authority, and has been duly authorized by all necessary
consents, approvals, authorizations, orders, registrations, qualifications,
licenses and permits of and from all public, regulatory or governmental
agencies and bodies, to own, lease and operate its assets and properties
and to conduct its business as it is now being conducted and is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the failure to do so could have a material adverse
effect upon the conduct of its business or the ownership or leasing of
property by it in such jurisdiction.
(b) Subsidiaries.
(i) The only direct or indirect Subsidiaries of PMSI are those
listed in Section 3.04(b) of the PMSI Disclosure Schedule. Except for
the ownership interests set forth in Section 3.04(b) of the PMSI
Disclosure Schedule, PMSI does not own or control, directly or
indirectly, a 50% or greater capital stock interest in a corporation, a
general partnership interest or a 50% or greater limited partnership
interest in a partnership, or a managing membership interest or a 50% or
greater membership interest in a limited liability company, association
or other entity or project.
(ii) Except for the entities listed in Section 3.04(b) of the PMSI
Disclosure Schedule, PMSI does not hold, directly or indirectly, any
equity interest or equity investment in any corporation, partnership,
association or other entity.
(iii) Except as set forth in Section 3.04(b) of the PMSI Disclosure
Schedule, all of the issued and outstanding shares of capital stock of,
or other equity interests in, each Subsidiary of PMSI have been validly
issued, are fully paid and nonassessable and are owned, directly or
indirectly, by PMSI free and clear of any Liens and there are no
outstanding subscriptions, options, calls, contracts, voting trusts,
proxies or other commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or
exchange under any outstanding security, instrument or other agreement,
obligating any Subsidiary of PMSI to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of its capital stock or
obligating it to grant, extend or enter into any such agreement or
commitment.
(c) Capital Structure. The authorized capital stock of PMSI consists
of 100,000,000 shares of PMSI Class A Common Stock, 100,000,000 shares of
PMSI Class B Common Stock and 50,000,000 shares of preferred stock, $0.01
par value per share. At the close of business on November 30, 1999, (A)
100,004 shares of PMSI Class A Common Stock were outstanding, (B) 100,000
shares of PMSI Class B Common Stock were outstanding and (C) no shares of
preferred stock were outstanding. Other than as set forth above, at the
close of business on November 30, 1999, there were outstanding no shares of
PMSI Common Stock or any other class or series of stock of PMSI or options,
warrants or other rights to acquire shares of PMSI Common Stock or any
other class or series of stock of PMSI from PMSI. No bonds,
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debentures, notes or other indebtedness having the right to vote (or
convertible into or exchangeable for securities having the right to vote)
on any matters on which shareholders of PMSI may vote are issued or
outstanding.
All outstanding shares of PMSI Common Stock are duly authorized,
validly issued, fully paid and nonassessable, and will be delivered free
and clear of Liens and will not be in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities.
Other than as set forth above, and except for this Agreement and for
certain preemptive rights granted to Prison Realty and set forth in the
charter of PMSI, there are no outstanding securities, options, warrants,
calls, rights, commitments, agreements or undertakings of any kind to which
PMSI or any Subsidiary of PMSI is a party or by which PMSI or any
Subsidiary of PMSI is bound obligating PMSI or any Subsidiary of PMSI to
issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of PMSI Common Stock, preferred stock or other equity or
voting securities of PMSI or of any Subsidiary of PMSI or obligating PMSI
or any Subsidiary of PMSI to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement or
undertaking. There are no outstanding obligations of PMSI or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of PMSI
Common Stock or any of its Subsidiaries and, to the knowledge of the
executive officers of PMSI, as of the date hereof, no irrevocable proxies
have been granted with respect to shares of PMSI Common Stock or equity of
Subsidiaries of PMSI.
(d) Authorization. PMSI has all requisite power and authority to
enter into this Agreement and, subject to obtaining the PMSI Shareholder
Approval with respect to the Merger, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary action on the part of PMSI, subject to
obtaining PMSI Shareholder Approval with respect to the Merger. This
Agreement has been duly executed and delivered by PMSI and constitutes a
valid and binding obligation of PMSI, enforceable against PMSI in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, fraudulent transfer and
other similar laws from time to time in effect. The execution and delivery
of this Agreement does not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any breach or
violation of, or default (with or without notice or lapse of time or both)
under, or result in the termination of, or accelerate the performance
required by, or give rise to a right of termination, cancellation or
acceleration of any obligation under, or the creation of a Lien pursuant
to, (i) any provision of the charter (or similar organizational documents)
or bylaws of PMSI or any Subsidiary of PMSI or (ii) subject to obtaining or
making the consents, approvals, orders, authorizations, registrations,
declarations and filings referred to in the following sentence, any loan or
credit agreement, note, mortgage, indenture, lease, or other agreement,
obligation, instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
PMSI or any Subsidiary of PMSI or their respective properties or assets, in
any case under this clause (ii) which would, individually or in the
aggregate, have a material adverse effect on PMSI. No consent, approval,
order or authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to PMSI or any
Subsidiary of PMSI in connection with the execution and delivery of this
Agreement by PMSI or the consummation by PMSI of the transactions
contemplated hereby, the failure of which to be obtained or made would,
individually or in the aggregate, have a material adverse effect on PMSI or
would prevent or materially delay the consummation of the transactions
contemplated hereby, except for (A) the filing of the Articles of Merger
with the Tennessee Secretary of State and appropriate documents with the
relevant authorities of other states in which PMSI is qualified to do
business, (B) filings required pursuant to the HSR Act, (C) filings
necessary to
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satisfy the applicable requirements of state securities or "blue sky" laws,
and those required pursuant to PMSI's agreements or management contracts
with Governmental Entities.
(e) Information Supplied. None of the information supplied or to be
supplied by PMSI specifically for inclusion or incorporation by reference
in the Proxy Statement-Prospectus will, at the date it is first mailed to
shareholders of PMSI or at the time of the PMSI Shareholders' Meeting,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, except that in each case no representation or
warranty is made by PMSI with respect to statements made or incorporated by
reference therein based on information supplied by Prison Realty, the
Acquisition Companies, CCA or JJFMSI specifically for inclusion or
incorporation by reference therein. The Proxy Statement-Prospectus will
comply as to form in all material respects with the requirements of the
Exchange Act and the Securities Act, except that in each case no
representation or warranty is made by PMSI with respect to statements made
or incorporated by reference therein based on information supplied by
Prison Realty, the Acquisition Companies, CCA or JJFMSI specifically for
inclusion or incorporation by reference therein. If at any time prior to
the date of the PMSI Shareholders' Meeting, any event with respect to PMSI,
or with respect to information supplied by PMSI specifically for inclusion
in the Proxy Statement-Prospectus, shall occur which is required to be
described in an amendment of, or supplement to, the Proxy
Statement-Prospectus, such event shall be so described by PMSI.
(f) Absence of Certain Changes or Events. Subsequent to September 30,
1999, neither PMSI nor any Subsidiary has sustained any material loss or
interference with its business or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, which
is not disclosed; and subsequent to September 30, 1999 (i) neither PMSI nor
any Subsidiary has incurred any material liabilities or obligations, direct
or contingent, or entered into any transactions not in the ordinary course
of business consistent with past practice, and (ii) there has not been any
issuance of options, warrants or rights to purchase PMSI Common Stock or
preferred stock, or interests therein, or any adverse change, or any
development involving a prospective adverse change, in the general affairs,
management, business, prospects, financial position, net worth or results
of operations of PMSI or any Subsidiary.
(g) Compliance with Laws; Litigation. Except as described in the PMSI
Disclosure Schedule or in the Prison Realty Filed SEC Documents, there are
no claims, actions, suits, arbitration, grievances, proceedings or
investigations pending or, to PMSI's knowledge, threatened against PMSI or
any Subsidiary, or any properties or rights of PMSI or any Subsidiary, or
any officers or directors of PMSI or any Subsidiary in their capacity as
such, by or before any Governmental Entity which, individually or in the
aggregate, is reasonably likely to have a material adverse effect on PMSI
or prevent, materially delay or intentionally delay the ability of PMSI to
consummate the transactions contemplated hereby. Neither PMSI nor its
Subsidiaries is subject to any judgment, order or decree which could
reasonably be expected to result in a material adverse effect.
Each of PMSI and its Subsidiaries has at all times operated and
currently operates its business in conformity in all material respects with
all applicable statutes, common laws, ordinances, decrees, orders, rules
and regulations of Governmental Entities. Each of PMSI and its Subsidiaries
has all licenses, approvals or consents to operate its businesses in all
locations in which such businesses are currently being operated, and to its
knowledge is not aware of any existing or imminent matter which may
materially adversely impact its operations or business prospects other than
as specifically disclosed in the PMSI Disclosure Schedule. PMSI and each
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Subsidiary have not failed to file with the applicable regulatory
authorities any material statements, reports, information or forms required
by all applicable laws, regulations or orders, all such filings or
submissions were in material compliance with applicable laws when filed,
and no material deficiencies have been asserted by any regulatory
commission, agency or authority with respect to such filings or
submissions. PMSI and each Subsidiary have not failed to maintain in full
force and effect any material licenses, registrations or permits necessary
or proper for the conduct of its business, or received any notification
that any revocation or limitation thereof is threatened or pending, and
there is not to the knowledge of PMSI pending any change under any law,
regulation, license or permit which would materially adversely affect the
business, operations, property or business prospects of PMSI. PMSI and each
Subsidiary have not received any notice of violation of or been threatened
with a charge of violating and are not under investigation with respect to
a possible violation of any provision of any law, regulation or order.
Neither PMSI nor any of its Subsidiaries has at any time (i) made any
unlawful contribution to any candidate for domestic or foreign office or
failed to disclose fully any contribution in violation of law or (ii) made
any payment to any federal or state governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States or any
jurisdiction thereof.
(h) Taxes.
(i) PMSI has timely filed (or there have been filed on its behalf)
all Tax Returns required to be filed by it under applicable law, and all
such Tax Returns were and are true, complete and correct in all material
respects. Except to the extent adequately reserved for in accordance
with GAAP and reflected on the most recent balance sheets of PMSI, all
Taxes due and payable by PMSI have been timely paid in full.
(ii) There are no Tax liens upon the assets of PMSI except liens
for Taxes not yet due.
(iii) PMSI has complied with the provisions of the Code, relating
to the withholding of Taxes, as well as similar provisions under any
other laws, and has, within the time and in the manner prescribed by
law, withheld, collected and paid over to the proper governmental
authorities all amounts required.
(iv) No audits or other administrative proceedings or court
proceedings are presently pending or, to the knowledge of PMSI, asserted
with regard to any Taxes or Tax Returns of PMSI.
(v) PMSI has not received a written ruling of a taxing authority
relating to Taxes or entered into a written and legally binding
agreement with a taxing authority relating to Taxes with any taxing
authority.
(vi) PMSI has not requested any extension of time within which to
file any Tax Return, which Tax Return has not since been filed.
(vii) PMSI has not agreed to and is not required to make any
adjustment pursuant to Section 481(a) of the Code (or any predecessor
provision) by reason of any change in any accounting method of PMSI, and
there is no application pending with any taxing authority requesting
permission for any changes in any accounting method of PMSI. To the
knowledge of PMSI, the IRS has not proposed any such adjustment or
change in accounting method.
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(viii) PMSI has not joined in the filing of a consolidated return
for federal income tax purposes. PMSI is not and has never been subject
to the provisions of Section 1503(f) of the Code.
(ix) PMSI is not a party to any agreement providing for the
allocation or sharing of Taxes or indemnification by PMSI of any other
person in respect of Taxes.
(x) PMSI is not a party to any agreement, contract, or arrangement
that would result, individually or in the aggregate, in the payment of
any "excess parachute payments" within the meaning of Section 280G of
the Code.
(xi) To the knowledge of PMSI, PMSI does not have, nor has it ever
had, any income which is includable in computing the taxable income of a
United States person (as determined under Section 7701 of the Code)
under Section 951 of the Code. To the knowledge of PMSI, none of the
Subsidiaries of PMSI is or has ever been a "passive foreign investment
company" within the meaning of Section 1297 of the Code. To the
knowledge of PMSI, PMSI is not and never has been a "personal holding
company" within the meaning of Section 542 of the Code. To the knowledge
of PMSI, there are no gain recognition agreements, within the meaning of
Treasury Regulation 1.367(a)-8 or any predecessor provision, between
PMSI, on one hand, and a stockholder of the PMSI, on the other. There is
no pending or, to the knowledge of PMSI, threatened, action, proceeding
or investigation by any taxing authority for assessment or collection of
Taxes with respect to PMSI in any jurisdiction where PMSI has not filed
a Tax Return. All dealings and arrangements between and among PMSI and
its Subsidiaries are at arm's length and consistent with arm's length
dealings and arrangements between or among unrelated, uncontrolled
taxpayers.
(xii) For purposes of this Section 3.04(h), all representations and
warranties with respect to PMSI are deemed to include and to apply to
each of its Subsidiaries and predecessors.
(i) No Defaults. Except for violations or defaults which,
individually or in the aggregate, would not have a material adverse effect,
neither PMSI nor any of its Subsidiaries is in violation or default under
any provision of its charter, by-laws, partnership agreements or other
organizational documents, or is in breach of or default with respect to any
provision of any note, bond, agreement, judgment, decree, order, mortgage,
deed of trust, lease, franchise, license, indenture, permit or other
instrument to which it is a party or by which it or any of its properties
are bound; and there does not exist any state of facts which would
constitute an event of default on the part of any of PMSI or its
Subsidiaries as defined in such documents which, with notice of lapse of
time or both, would constitute a default. Neither PMSI nor any of its
Subsidiaries is a party to any contract (other than leases) containing any
covenant restricting its ability to conduct its business as currently
conducted except for any such covenants that would not, individually or in
the aggregate, have a material adverse effect on PMSI.
(j) Environmental Matters.
(i) To the knowledge of PMSI, the correctional and detention
facilities operated or managed by PMSI (the "PMSI Facilities") are
presently operated in compliance in all material respects with all
Environmental Laws.
(ii) There are no Environmental Laws requiring any material
remediation, clean up, repairs, constructions or capital expenditures
(other than normal maintenance) with respect to the PMSI Facilities.
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(iii) There are no (A) notices of any violation or alleged
violation of any Environmental Laws relating to the PMSI Facilities or
their uses that have been received by PMSI, or (B) writs, injunctions,
decrees, orders or judgments outstanding, or any actions, suits, claims,
proceedings or investigations pending, or, to the knowledge of PMSI,
threatened, relating to the ownership, use, maintenance or operation of
the PMSI Facilities.
(iv) To the knowledge of PMSI, there are no past, present or
anticipated future events, conditions, circumstances, activities,
practices, incidents, actions, or plans relating to PMSI and its
Subsidiaries that may interfere with or prevent compliance or continued
compliance with applicable Environmental Laws or which may give rise to
any liability under the Environmental Laws.
(v) All material permits and licenses required under any
Environmental Laws in respect of the operations of the PMSI Facilities
have been obtained, and the PMSI Facilities and PMSI are in compliance,
in all material respects, with the terms and conditions of such permits
and licenses.
(k) Benefit Plans.
(i) All "employee benefit plans" (as defined in Section 3(3) of
ERISA) and all other compensation, bonus, pension, profit sharing,
deferred compensation, stock ownership, stock purchase, stock option,
phantom stock, retirement, employment, change-in-control, welfare,
collective bargaining, severance, disability, death benefit,
hospitalization and medical plans, agreements, arrangements or
understandings that are maintained or contributed to (or previously
contributed to) for the benefit of any current or former employee,
officer or director of PMSI or any of its Subsidiaries and with respect
to which PMSI or any of its Subsidiaries would reasonably be expected to
have direct or contingent liability are defined as the "PMSI Benefit
Plans." PMSI has heretofore delivered or made available to Prison
Realty, CCA and JJFMSI true and complete copies of all PMSI Benefit
Plans and, with respect to each PMSI Benefit Plan, true and complete
copies of the following documents: the most recent actuarial report, if
any; the most recent annual report, if any; any related trust agreement,
annuity contract or other funding instrument, if any; the most recent
determination letter, if any; and the most recent summary plan
description, if any.
(ii) Except as disclosed in Section 3.04(k) of the PMSI Disclosure
Schedule: (A) none of the PMSI Benefit Plans is a "multiemployer plan"
within the meaning of Section 3(37) of ERISA or is otherwise subject to
Title IV of ERISA; (B) none of the PMSI Benefit Plans promises or
provides retiree medical or life insurance benefits to any person; (C)
neither PMSI nor any of its Subsidiaries has any obligation to adopt or
has taken any corporate action to adopt, any new PMSI Benefit Plan or,
except as required by law, to amend any existing PMSI Benefit Plan; (D)
PMSI and its Subsidiaries are in compliance in all material respects
with and each PMSI Benefit Plan is and has been administered in all
material respects in compliance with its terms and the applicable
provisions of ERISA, the Code and all other applicable laws, rules and
regulations except for any failures to so administer any PMSI Benefit
Plan as would not have a material adverse effect on PMSI; (E) each PMSI
Benefit Plan that is intended to be qualified within the meaning of
Section 401(a) of the Code, to PMSI's knowledge, has been determined by
the IRS to be so qualified, and no circumstances exist that could
reasonably be expected to result in the revocation of any such
determination; (F) each PMSI Benefit Plan intended to provide for the
deferral of income, the reduction of salary or other compensation, or to
afford other income tax benefits, complies with the requirements of the
applicable provisions of the Code or other laws, rules and regulations
required to provide such income tax
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benefits; (G) no prohibited transactions (as defined in Section 406 or
407 of ERISA or Section 4975 of the Code) have occurred for which a
statutory exemption is not available with respect to any PMSI Benefit
Plan, and which could give rise to liability on the part of PMSI, any of
its Subsidiaries, any PMSI Benefit Plan, or any fiduciary, party in
interest or disqualified person with respect thereto that would be
material to PMSI or would be material to PMSI if it were its liability;
(H) neither PMSI nor any entity required to be treated as a single
employer with PMSI under Section 414 of the Code has any unsatisfied
liability under Title IV of ERISA that would have a material adverse
effect on PMSI; (I) other than funding obligations and benefits claims
payable in the ordinary course, to PMSI's knowledge, no event has
occurred and no circumstance exists with respect to any PMSI Benefit
Plan that could give rise to any liability arising under the Code, ERISA
or any other applicable law, or under any indemnity agreement to which
PMSI or any of its Subsidiaries is a party, excluding liability relating
to benefit claims and funding obligations payable in the ordinary
course, whether directly or by reason of its affiliation with any entity
required to be treated as a single employer with PMSI under Section 414
of the Code; (J) as of the date hereof there are no pending or, to the
knowledge of the executive officers of PMSI, threatened investigations,
claims or lawsuits in respect of any PMSI Benefit Plan that would have a
material adverse effect on PMSI; (K) other than continuation coverage
required to be provided under Section 4980B of the Code or Part 6 of
Title I of ERISA or otherwise as provided by state law, none of the PMSI
Benefit Plans that are "welfare plans," within the meaning of Section
3(1) of ERISA, provides for any benefits with respect to current or
former employees for periods extending beyond their retirement or other
termination of service; (L) no amount payable pursuant to a PMSI Benefit
Plan or any other plan, contract or arrangement of PMSI would be
considered an "excess parachute payment" under Section 280G of the Code;
and (M) no PMSI Benefit Plan exists that could result in the payment to
any current or former employee, officer or director of PMSI any money or
other property or accelerate or provide any other rights or benefits as
a result of the transactions contemplated by this Agreement which would
constitute an excess parachute payment within the meaning of Section
280G of the Code.
(l) Material Contracts. All contracts to which PMSI or any Subsidiary
is a party have been duly authorized, executed and delivered by PMSI or any
Subsidiary, constitute valid and binding agreements of PMSI or any
Subsidiary and are enforceable against PMSI or any Subsidiary in accordance
with the terms thereof. Each of PMSI and each Subsidiary has performed all
material obligations required to be performed by it, and is neither in
default in any material respect nor has it received notice of any default
or dispute under, any such contract or other material instrument to which
it is a party or by which its property is bound or affected. To the best
knowledge of PMSI, no other party under any such contract or other material
instrument to which it is a party is in default in any material respect
thereunder.
(m) No Undisclosed Liabilities. Except (a) as set forth in the Prison
Realty Filed SEC Documents, (b) as set forth in Section 3.04(m) of the PMSI
Disclosure Schedule, (c) as incurred in the ordinary course of the business
of PMSI subsequent to September 30, 1999 which would, individually or in
the aggregate, not have, or be reasonably expected not to have, a material
adverse effect, (d) for any expenses incurred in connection with
transactions contemplated by this Agreement or for liabilities or
obligations relating to contractual obligations, indebtedness, litigation
or other matters which are covered by other representations and warranties
in this Agreement or otherwise identified in the PMSI Disclosure Schedule,
neither PMSI nor any of its Subsidiaries has any liabilities or obligations
(direct or indirect, contingent or fixed, known or unknown, matured or
unmatured accrued or unaccrued), whether arising out
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of contract, tort, statute or otherwise, and whether or not required by
GAAP to be reflected on or in footnotes to the financial statements of
PMSI.
(n) Labor Matters. Except as set forth in Section 3.04(n) of the PMSI
Disclosure Schedule: (i) neither PMSI nor its Subsidiaries is a party to,
or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization; (ii)
to the knowledge of PMSI, no union claims to represent the employees of
PMSI and its Subsidiaries; (iii) none of the employees of PMSI or its
Subsidiaries is represented by any labor organization and PMSI has no
knowledge of any current union organizing activities among the employees of
PMSI or its Subsidiaries, nor does any question concerning representation
exist concerning such employees; neither PMSI nor its Subsidiaries is the
subject of any proceeding asserting that it has committed an unfair labor
practice or seeking to compel it to bargain with any labor organization as
to wages or conditions of employment; (iv) there is no strike, work
stoppage, lockout or other labor dispute involving PMSI or its Subsidiaries
pending or threatened; (v) no action, suit, complaint, charge, arbitration,
inquiry, proceeding or investigation by or before any Governmental Entity
brought by or on behalf of any employee, prospective employee, former
employee, retiree, labor organization or other representative of its
employees is pending or, to the knowledge of PMSI, threatened against PMSI
or its Subsidiaries; (vi) to the knowledge of PMSI, no grievance is
threatened against PMSI or its Subsidiaries; (vii) neither PMSI nor its
Subsidiaries is a party to, or otherwise bound by, any consent decree with,
or citation by, any Governmental Entity relating to employees or employment
practices; (viii) there are no written personnel policies, rules or
procedures applicable to employees of PMSI or its Subsidiaries, other than
those set forth in Section 3.04(n) of the PMSI Disclosure Schedule, true
and correct copies of which have heretofore been delivered to Prison
Realty, CCA and JJFMSI; (ix) PMSI and its Subsidiaries are, and have at all
times been, in material compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment,
wages, hours of work and occupational safety and health, and are not
engaged in any unfair labor practices as defined in the National Labor
Relations Act or other applicable law, ordinance or regulation; (x) since
the enactment of the WARN Act, neither PMSI nor its Subsidiaries has
effectuated (A) a "plant closing" (as defined in the WARN Act) affecting
any site of employment or one or more facilities or operating units within
any site of employment or facility of any of PMSI or its Subsidiaries; or
(B) a "mass layoff" (as defined in the WARN Act) affecting any site of
employment or facility of any of PMSI or its Subsidiaries, in either case,
other than in substantial compliance with the WARN Act; nor has PMSI or its
Subsidiaries been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger application of any
similar state, local or foreign law or regulation; and (xi) neither PMSI
nor its Subsidiaries is aware that it has any liability or potential
liability under the Multi-Employer Pension Plan Act.
(o) Insurance. PMSI and its Subsidiaries maintain primary, excess and
umbrella insurance of types and amounts customary for their business
against general liability, fire, workers' compensation, products liability,
theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and
effect and with respect to property insurance for assets for which it is
customary to have replacement cost coverage or there are coinsurance
provisions, the amount of such insurance is sufficient to provide for such
coverage or to prevent the application of the coinsurance provision.
Section 3.04(o) of the PMSI Disclosure Schedule sets forth a complete list
of the insurance policies maintained by PMSI and its Subsidiaries.
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(p) Affiliate Transactions. Except as set forth in Section 3.04(p) of
the PMSI Disclosure Schedule, there is no transaction and no transaction is
now proposed, to which PMSI or its Subsidiaries is or is to be a party in
which any current stockholder (holding in excess of 5% of the PMSI's Common
Stock or any securities convertible into or exchangeable for Common Stock),
general partner, limited partner (holding in excess of 5% of the limited
partnership interests), director or executive officer of PMSI or its
Subsidiaries has a direct or indirect interest.
(q) Internal Accounting Controls. PMSI's system of internal
accounting controls is sufficient to meet the broad objectives of internal
accounting controls insofar as those objectives pertain to the prevention
or detection of errors or irregularities in amounts that would be material
in relation to PMSI's financial statements.
(r) Vote Required. The PMSI Shareholder Approval is the only vote of
the holders of any class or series of PMSI's securities necessary to
approve this Agreement and the transactions contemplated hereby.
(s) Board Recommendation. On the date hereof with respect to this
Agreement, the Board of Directors of PMSI, at a meeting duly called and
held, by the majority vote of the directors present at such meeting, (i)
determined that such Agreement and the Merger and the other transactions
contemplated hereby and thereby are fair to and in the best interests of
the shareholders of PMSI, (ii) adopted such Agreement and approved the
Merger and (iii) resolved to recommend that the holders of PMSI Common
Stock approve such Agreement and the Merger.
(t) Tennessee Business Combination Act. The approval of the Merger by
the Board of Directors of PMSI referred to in Section 3.04(s) constitutes
approval of the Merger for purposes of the TBCA and represents all the
actions necessary to ensure that Sections 48-103-201 et seq. of the TBCA do
not apply to the Merger.
(u) Brokers. No broker, investment banker, financial advisor or other
person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with PMSI's participation in the
transactions contemplated by this Agreement.
(v) Stock Ownership. PMSI does not, directly or indirectly, own any
shares of Prison Realty Stock other than shares, if any, held in PMSI
Benefit Plans.
Section 3.05 Representations and Warranties of JJFMSI. Except as set forth
in the Prison Realty Filed SEC Documents on the Disclosure Schedule delivered by
JJFMSI to Prison Realty, CCA and PMSI prior to the execution of this Agreement
(the "JJFMSI Disclosure Schedule"), which JJFMSI Disclosure Schedule constitutes
a part hereof and is true and correct in all material respects, JJFMSI
represents and warrants to Prison Realty, the Acquisition Companies, CCA and
PMSI as follows:
(a) Organization and Authority. JJFMSI is duly formed and validly
existing and in good standing under the laws of the State of Tennessee with
full power and authority to own its properties and conduct its business as
now conducted and is duly qualified or authorized to do business and is in
good standing in all jurisdictions where the failure to so qualify could
have a material adverse effect on JJFMSI. JJFMSI has all requisite
corporate power and authority, and has been duly authorized by all
necessary consents, approvals, authorizations, orders, registrations,
qualifications, licenses and permits of and from all public, regulatory or
governmental agencies and bodies, to own, lease and operate its assets and
properties and to conduct its business as it is now being conducted and is
duly qualified or licensed to do business and is in
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good standing in each jurisdiction in which the failure to do so could have
a material adverse effect upon the conduct of its business or the ownership
or leasing of property by it in such jurisdiction.
(b) Subsidiaries.
(i) The only direct or indirect Subsidiaries of JJFMSI are those
listed in Section 3.05(b) of the JJFMSI Disclosure Schedule. Except for
the ownership interests set forth in Section 3.05(b) of the JJFMSI
Disclosure Schedule, JJFMSI does not own or control, directly or
indirectly, a 50% or greater capital stock interest in a corporation, a
general partnership interest or a 50% or greater limited partnership
interest in a partnership, or a managing membership interest or a 50% or
greater membership interest in a limited liability company, association
or other entity or project.
(ii) Except for the entities listed in Section 3.05(b) of the
JJFMSI Disclosure Schedule, JJFMSI does not hold, directly or
indirectly, any equity interest or equity investment in any corporation,
partnership, association or other entity.
(iii) Except as set forth in Section 3.05(b) of the JJFMSI
Disclosure Schedule, all of the issued and outstanding shares of capital
stock of, or other equity interests in, each Subsidiary of JJFMSI have
been validly issued, are fully paid and nonassessable and are owned,
directly or indirectly, by JJFMSI free and clear of any Liens and there
are no outstanding subscriptions, options, calls, contracts, voting
trusts, proxies or other commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or
exchange under any outstanding security, instrument or other agreement,
obligating any Subsidiary of JJFMSI to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of its capital stock
or obligating it to grant, extend or enter into any such agreement or
commitment.
(c) Capital Structure. The authorized capital stock of JJFMSI
consists of 100,000,000 shares of JJFMSI Class A Common Stock, 100,000,000
shares of JJFMSI Class B Common Stock and 50,000,000 shares of preferred
stock, $0.01 par value per share. At the close of business on November 30,
1999, (A) 99,994 shares of JJFMSI Class A Common Stock were outstanding,
(B) 100,000 shares of JJFMSI Class B Common Stock were outstanding and (C)
no shares of preferred stock were outstanding. Other than as set forth
above, at the close of business on November 30, 1999, there were
outstanding no shares of JJFMSI Common Stock or any other class or series
of stock of JJFMSI or options, warrants or other rights to acquire shares
of JJFMSI Common Stock or any other class or series of stock of JJFMSI from
JJFMSI. No bonds, debentures, notes or other indebtedness having the right
to vote (or convertible into or exchangeable for securities having the
right to vote) on any matters on which shareholders of JJFMSI may vote are
issued or outstanding.
All outstanding shares of JJFMSI Common Stock are duly authorized,
validly issued, fully paid and nonassessable, and will be delivered free
and clear of Liens and will not be in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities.
Other than as set forth above, and except for this Agreement and for
certain preemptive rights granted to Prison Realty and set forth in the
charter of JJFMSI, there are no outstanding securities, options, warrants,
calls, rights, commitments, agreements or undertakings of any kind to which
JJFMSI or any Subsidiary of JJFMSI is a party or by which JJFMSI or any
Subsidiary of JJFMSI is bound obligating JJFMSI or any Subsidiary of JJFMSI
to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of JJFMSI Common Stock, preferred stock or other equity
or voting securities of JJFMSI or of any Subsidiary of JJFMSI or
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obligating JJFMSI or any Subsidiary of JJFMSI to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement or undertaking. There are no outstanding obligations of JJFMSI or
any of its Subsidiaries to repurchase, redeem or otherwise acquire any
shares of JJFMSI Common Stock or any of its Subsidiaries and, to the
knowledge of the executive officers of JJFMSI, as of the date hereof, no
irrevocable proxies have been granted with respect to shares of JJFMSI
Common Stock or equity of Subsidiaries of JJFMSI.
(d) Authorization. JJFMSI has all requisite power and authority to
enter into this Agreement and, subject to obtaining the JJFMSI Shareholder
Approval with respect to the Merger, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary action on the part of JJFMSI, subject to
obtaining JJFMSI Shareholder Approval with respect to the Merger. This
Agreement has been duly executed and delivered by JJFMSI and constitutes a
valid and binding obligation of JJFMSI, enforceable against JJFMSI in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, fraudulent transfer and
other similar laws from time to time in effect. The execution and delivery
of this Agreement does not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any breach or
violation of, or default (with or without notice or lapse of time or both)
under, or result in the termination of, or accelerate the performance
required by, or give rise to a right of termination, cancellation or
acceleration of any obligation under, or the creation of a Lien pursuant
to, (i) any provision of the charter (or similar organizational documents)
or bylaws of JJFMSI or any Subsidiary of JJFMSI or (ii) subject to
obtaining or making the consents, approvals, orders, authorizations,
registrations, declarations and filings referred to in the following
sentence, any loan or credit agreement, note, mortgage, indenture, lease,
or other agreement, obligation, instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to JJFMSI or any Subsidiary of JJFMSI or their
respective properties or assets, in any case under this clause (ii) which
would, individually or in the aggregate, have a material adverse effect on
JJFMSI. No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to JJFMSI or any Subsidiary of JJFMSI in connection with the
execution and delivery of this Agreement by JJFMSI or the consummation by
JJFMSI of the transactions contemplated hereby, the failure of which to be
obtained or made would, individually or in the aggregate, have a material
adverse effect on JJFMSI or would prevent or materially delay the
consummation of the transactions contemplated hereby, except for (A) the
filing of the Articles of Merger with the Tennessee Secretary of State and
appropriate documents with the relevant authorities of other states in
which JJFMSI is qualified to do business, (B) filings required pursuant to
the HSR Act, (C) filings necessary to satisfy the applicable requirements
of state securities or "blue sky" laws, and those required pursuant to
JJFMSI's agreements or management contracts with Governmental Entities.
(e) Information Supplied. None of the information supplied or to be
supplied by JJFMSI specifically for inclusion or incorporation by reference
in the Proxy Statement-Prospectus will, at the date it is first mailed to
shareholders of JJFMSI or at the time of the JJFMSI Shareholders' Meeting,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, except that in each case no representation or
warranty is made by JJFMSI with respect to statements made or incorporated
by reference therein based on information supplied by Prison Realty, the
Acquisition Companies, CCA or PMSI specifically for inclusion or
incorporation by reference therein. The Proxy Statement-Prospectus will
comply as to form in all material respects with the requirements of
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the Exchange Act and the Securities Act, except that in each case no
representation or warranty is made by JJFMSI with respect to statements
made or incorporated by reference therein based on information supplied by
Prison Realty, the Acquisition Companies, CCA or PMSI specifically for
inclusion or incorporation by reference therein. If at any time prior to
the date of the JJFMSI Shareholders' Meeting, any event with respect to
JJFMSI, or with respect to information supplied by JJFMSI specifically for
inclusion in the Proxy Statement-Prospectus, shall occur which is required
to be described in an amendment of, or supplement to, the Proxy
Statement-Prospectus, such event shall be so described by JJFMSI.
(f) Absence of Certain Changes or Events. Subsequent to September 30,
1999, neither JJFMSI nor any Subsidiary has sustained any material loss or
interference with its business or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, which
is not disclosed; and subsequent to September 30, 1999 (i) neither JJFMSI
nor any Subsidiary has incurred any material liabilities or obligations,
direct or contingent, or entered into any transactions not in the ordinary
course of business consistent with past practice, and (ii) there has not
been any issuance of options, warrants or rights to purchase JJFMSI Common
Stock or preferred stock, or interests therein, or any adverse change, or
any development involving a prospective adverse change, in the general
affairs, management, business, prospects, financial position, net worth or
results of operations of JJFMSI or any Subsidiary.
(g) Compliance with Laws; Litigation. Except as described in the
JJFMSI Disclosure Schedule or in the Prison Realty Filed SEC Documents,
there are no claims, actions, suits, arbitration, grievances, proceedings
or investigations pending or, to JJFMSI's knowledge, threatened against
JJFMSI or any Subsidiary, or any properties or rights of JJFMSI or any
Subsidiary, or any officers or directors of JJFMSI or any Subsidiary in
their capacity as such, by or before any Governmental Entity which,
individually or in the aggregate, is reasonably likely to have a material
adverse effect on JJFMSI or prevent, materially delay or intentionally
delay the ability of JJFMSI to consummate the transactions contemplated
hereby. Neither JJFMSI nor its Subsidiaries is subject to any judgment,
order or decree which could reasonably be expected to result in a material
adverse effect.
Each of JJFMSI and its Subsidiaries has at all times operated and
currently operates its business in conformity in all material respects with
all applicable statutes, common laws, ordinances, decrees, orders, rules
and regulations of Governmental Entities. Each of JJFMSI and its
Subsidiaries has all licenses, approvals or consents to operate its
businesses in all locations in which such businesses are currently being
operated, and to its knowledge is not aware of any existing or imminent
matter which may materially adversely impact its operations or business
prospects other than as specifically disclosed in the JJFMSI Disclosure
Schedule. JJFMSI and each Subsidiary have not failed to file with the
applicable regulatory authorities any material statements, reports,
information or forms required by all applicable laws, regulations or
orders, all such filings or submissions were in material compliance with
applicable laws when filed, and no material deficiencies have been asserted
by any regulatory commission, agency or authority with respect to such
filings or submissions. JJFMSI and each Subsidiary have not failed to
maintain in full force and effect any material licenses, registrations or
permits necessary or proper for the conduct of its business, or received
any notification that any revocation or limitation thereof is threatened or
pending, and there is not to the knowledge of JJFMSI pending any change
under any law, regulation, license or permit which would materially
adversely affect the business, operations, property or business prospects
of JJFMSI. JJFMSI and each Subsidiary have not received any notice of
violation of or been threatened with a charge of violating and are not
under investigation with respect to a possible violation of any provision
of any law, regulation or
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order. Neither JJFMSI nor any of its Subsidiaries has at any time (i) made
any unlawful contribution to any candidate for domestic or foreign office
or failed to disclose fully any contribution in violation of law or (ii)
made any payment to any federal or state governmental officer or official,
or other person charged with similar public or quasi-public duties, other
than payments required or permitted by the laws of the United States or any
jurisdiction thereof.
(h) Taxes.
(i) JJFMSI has timely filed (or there have been filed on its
behalf) all Tax Returns required to be filed by it under applicable law,
and all such Tax Returns were and are true, complete and correct in all
material respects. Except to the extent adequately reserved for in
accordance with GAAP and reflected on the most recent balance sheets of
JJFMSI, all Taxes due and payable by JJFMSI have been timely paid in
full.
(ii) There are no Tax liens upon the assets of JJFMSI except liens
for Taxes not yet due.
(iii) JJFMSI has complied with the provisions of the Code, relating
to the withholding of Taxes, as well as similar provisions under any
other laws, and has, within the time and in the manner prescribed by
law, withheld, collected and paid over to the proper governmental
authorities all amounts required.
(iv) No audits or other administrative proceedings or court
proceedings are presently pending or, to the knowledge of JJFMSI,
asserted with regard to any Taxes or Tax Returns of JJFMSI.
(v) JJFMSI has not received a written ruling of a taxing authority
relating to Taxes or entered into a written and legally binding
agreement with a taxing authority relating to Taxes with any taxing
authority.
(vi) JJFMSI has not requested any extension of time within which to
file any Tax Return, which Tax Return has not since been filed.
(vii) JJFMSI has not agreed to and is not required to make any
adjustment pursuant to Section 481(a) of the Code (or any predecessor
provision) by reason of any change in any accounting method of JJFMSI,
and there is no application pending with any taxing authority requesting
permission for any changes in any accounting method of JJFMSI. To the
knowledge of JJFMSI, the IRS has not proposed any such adjustment or
change in accounting method.
(viii) JJFMSI has not joined in the filing of a consolidated return
for federal income tax purposes. JJFMSI is not and has never been
subject to the provisions of Section 1503(f) of the Code.
(ix) JJFMSI is not a party to any agreement providing for the
allocation or sharing of Taxes or indemnification by JJFMSI of any other
person in respect of Taxes.
(x) JJFMSI is not a party to any agreement, contract, or
arrangement that would result, individually or in the aggregate, in the
payment of any "excess parachute payments" within the meaning of Section
280G of the Code.
(xi) To the knowledge of JJFMSI, JJFMSI does not have, nor has it
ever had, any income which is includable in computing the taxable income
of a United States person (as determined under Section 7701 of the Code)
under Section 951 of the Code. To the knowledge of JJFMSI, none of the
Subsidiaries of JJFMSI is or has ever been a "passive
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foreign investment company" within the meaning of Section 1297 of the
Code. To the knowledge of JJFMSI, JJFMSI is not and never has been a
"personal holding company" within the meaning of Section 542 of the
Code. To the knowledge of JJFMSI, there are no gain recognition
agreements, within the meaning of Treasury Regulation 1.367(a)-8 or any
predecessor provision, between JJFMSI, on one hand, and a stockholder of
the JJFMSI, on the other. There is no pending or, to the knowledge of
JJFMSI, threatened, action, proceeding or investigation by any taxing
authority for assessment or collection of Taxes with respect to JJFMSI
in any jurisdiction where JJFMSI has not filed a Tax Return. All
dealings and arrangements between and among JJFMSI and its Subsidiaries
are at arm's length and consistent with arm's length dealings and
arrangements between or among unrelated, uncontrolled taxpayers.
(xii) For purposes of this Section 3.05(h), all representations and
warranties with respect to JJFMSI are deemed to include and to apply to
each of its Subsidiaries and predecessors.
(i) No Defaults. Except for violations or defaults which,
individually or in the aggregate, would not have a material adverse effect,
neither JJFMSI nor any of its Subsidiaries is in violation or default under
any provision of its charter, by-laws, partnership agreements or other
organizational documents, or is in breach of or default with respect to any
provision of any note, bond, agreement, judgment, decree, order, mortgage,
deed of trust, lease, franchise, license, indenture, permit or other
instrument to which it is a party or by which it or any of its properties
are bound; and there does not exist any state of facts which would
constitute an event of default on the part of any of JJFMSI or its
Subsidiaries as defined in such documents which, with notice of lapse of
time or both, would constitute a default. Neither JJFMSI nor any of its
Subsidiaries is a party to any contract (other than leases) containing any
covenant restricting its ability to conduct its business as currently
conducted except for any such covenants that would not, individually or in
the aggregate, have a material adverse effect on JJFMSI.
(j) Environmental Matters.
(i) To the knowledge of JJFMSI, the correctional and detention
facilities operated or managed by JJFMSI (the "JJFMSI Facilities") are
presently operated in compliance in all material respects with all
Environmental Laws.
(ii) There are no Environmental Laws requiring any material
remediation, clean up, repairs, constructions or capital expenditures
(other than normal maintenance) with respect to the JJFMSI Facilities.
(iii) There are no (A) notices of any violation or alleged
violation of any Environmental Laws relating to the JJFMSI Facilities or
their uses that have been received by JJFMSI, or (B) writs, injunctions,
decrees, orders or judgments outstanding, or any actions, suits, claims,
proceedings or investigations pending, or, to the knowledge of JJFMSI,
threatened, relating to the ownership, use, maintenance or operation of
the JJFMSI Facilities.
(iv) To the knowledge of JJFMSI, there are no past, present or
anticipated future events, conditions, circumstances, activities,
practices, incidents, actions, or plans relating to JJFMSI and its
Subsidiaries that may interfere with or prevent compliance or continued
compliance with applicable Environmental Laws or which may give rise to
any liability under the Environmental Laws.
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(v) All material permits and licenses required under any
Environmental Laws in respect of the operations of the JJFMSI Facilities
have been obtained, and the JJFMSI Facilities and JJFMSI are in
compliance, in all material respects, with the terms and conditions of
such permits and licenses.
(k) Benefit Plans.
(i) All "employee benefit plans" (as defined in Section 3(3) of
ERISA) and all other compensation, bonus, pension, profit sharing,
deferred compensation, stock ownership, stock purchase, stock option,
phantom stock, retirement, employment, change-in-control, welfare,
collective bargaining, severance, disability, death benefit,
hospitalization and medical plans, agreements, arrangements or
understandings that are maintained or contributed to (or previously
contributed to) for the benefit of any current or former employee,
officer or director of JJFMSI or any of its Subsidiaries and with
respect to which JJFMSI or any of its Subsidiaries would reasonably be
expected to have direct or contingent liability are defined as the
"JJFMSI Benefit Plans." JJFMSI has heretofore delivered or made
available to Prison Realty, CCA and PMSI true and complete copies of all
JJFMSI Benefit Plans and, with respect to each JJFMSI Benefit Plan, true
and complete copies of the following documents: the most recent
actuarial report, if any; the most recent annual report, if any; any
related trust agreement, annuity contract or other funding instrument,
if any; the most recent determination letter, if any; and the most
recent summary plan description, if any.
(ii) Except as disclosed in Section 3.05(k) of the JJFMSI
Disclosure Schedule: (A) none of the JJFMSI Benefit Plans is a
"multiemployer plan" within the meaning of Section 3(37) of ERISA or is
otherwise subject to Title IV of ERISA; (B) none of the JJFMSI Benefit
Plans promises or provides retiree medical or life insurance benefits to
any person; (C) neither JJFMSI nor any of its Subsidiaries has any
obligation to adopt or has taken any corporate action to adopt, any new
JJFMSI Benefit Plan or, except as required by law, to amend any existing
JJFMSI Benefit Plan; (D) JJFMSI and its Subsidiaries are in compliance
in all material respects with and each JJFMSI Benefit Plan is and has
been administered in all material respects in compliance with its terms
and the applicable provisions of ERISA, the Code and all other
applicable laws, rules and regulations except for any failures to so
administer any JJFMSI Benefit Plan as would not have a material adverse
effect on JJFMSI; (E) each JJFMSI Benefit Plan that is intended to be
qualified within the meaning of Section 401(a) of the Code, to JJFMSI's
knowledge, has been determined by the IRS to be so qualified, and no
circumstances exist that could reasonably be expected to result in the
revocation of any such determination; (F) each JJFMSI Benefit Plan
intended to provide for the deferral of income, the reduction of salary
or other compensation, or to afford other income tax benefits, complies
with the requirements of the applicable provisions of the Code or other
laws, rules and regulations required to provide such income tax
benefits; (G) no prohibited transactions (as defined in Section 406 or
407 of ERISA or Section 4975 of the Code) have occurred for which a
statutory exemption is not available with respect to any JJFMSI Benefit
Plan, and which could give rise to liability on the part of JJFMSI, any
of its Subsidiaries, any JJFMSI Benefit Plan, or any fiduciary, party in
interest or disqualified person with respect thereto that would be
material to JJFMSI or would be material to JJFMSI if it were its
liability; (H) neither JJFMSI nor any entity required to be treated as a
single employer with JJFMSI under Section 414 of the Code has any
unsatisfied liability under Title IV of ERISA that would have a material
adverse effect on JJFMSI; (I) other than funding obligations and
benefits claims payable in the ordinary course, to JJFMSI's knowledge,
no event has occurred and no circumstance exists with respect to any
JJFMSI Benefit Plan that could give rise to any liability arising
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under the Code, ERISA or any other applicable law, or under any
indemnity agreement to which JJFMSI or any of its Subsidiaries is a
party, excluding liability relating to benefit claims and funding
obligations payable in the ordinary course, whether directly or by
reason of its affiliation with any entity required to be treated as a
single employer with JJFMSI under Section 414 of the Code; (J) as of the
date hereof there are no pending or, to the knowledge of the executive
officers of JJFMSI, threatened investigations, claims or lawsuits in
respect of any JJFMSI Benefit Plan that would have a material adverse
effect on JJFMSI; (K) other than continuation coverage required to be
provided under Section 4980B of the Code or Part 6 of Title I of ERISA
or otherwise as provided by state law, none of the JJFMSI Benefit Plans
that are "welfare plans," within the meaning of Section 3(1) of ERISA,
provides for any benefits with respect to current or former employees
for periods extending beyond their retirement or other termination of
service; (L) no amount payable pursuant to a JJFMSI Benefit Plan or any
other plan, contract or arrangement of JJFMSI would be considered an
"excess parachute payment" under Section 280G of the Code; and (M) no
JJFMSI Benefit Plan exists that could result in the payment to any
current or former employee, officer or director of JJFMSI any money or
other property or accelerate or provide any other rights or benefits as
a result of the transactions contemplated by this Agreement which would
constitute an excess parachute payment within the meaning of Section
280G of the Code.
(l) Material Contracts. All contracts to which JJFMSI or any
Subsidiary is a party have been duly authorized, executed and delivered by
JJFMSI or any Subsidiary, constitute valid and binding agreements of JJFMSI
or any Subsidiary and are enforceable against JJFMSI or any Subsidiary in
accordance with the terms thereof. Each of JJFMSI and each Subsidiary has
performed all material obligations required to be performed by it, and is
neither in default in any material respect nor has it received notice of
any default or dispute under, any such contract or other material
instrument to which it is a party or by which its property is bound or
affected. To the best knowledge of JJFMSI, no other party under any such
contract or other material instrument to which it is a party is in default
in any material respect thereunder.
(m) No Undisclosed Liabilities. Except (a) as set forth in the Prison
Realty Filed SEC Documents, (b) as set forth in Section 3.05(m) of the
JJFMSI Disclosure Schedule, (c) as incurred in the ordinary course of the
business of JJFMSI subsequent to September 30, 1999 which would,
individually or in the aggregate, not have, or be reasonably expected not
to have, a material adverse effect, (d) for any expenses incurred in
connection with transactions contemplated by this Agreement or for
liabilities or obligations relating to contractual obligations,
indebtedness, litigation or other matters which are covered by other
representations and warranties in this Agreement or otherwise identified in
the JJFMSI Disclosure Schedule, neither JJFMSI nor any of its Subsidiaries
has any liabilities or obligations (direct or indirect, contingent or
fixed, known or unknown, matured or unmatured accrued or unaccrued),
whether arising out of contract, tort, statute or otherwise, and whether or
not required by GAAP to be reflected on or in footnotes to the financial
statements of JJFMSI.
(n) Labor Matters. Except as set forth in Section 3.5(n) of the
JJFMSI Disclosure Schedule: (i) neither JJFMSI nor its Subsidiaries is a
party to, or bound by, any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization;
(ii) to the knowledge of JJFMSI, no union claims to represent the employees
of JJFMSI and its Subsidiaries; (iii) none of the employees of JJFMSI or
its Subsidiaries is represented by any labor organization and JJFMSI has no
knowledge of any current union organizing activities among the employees of
JJFMSI or its Subsidiaries, nor does any question concerning representation
exist concerning such employees; neither JJFMSI nor its Subsidiaries
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is the subject of any proceeding asserting that it has committed an unfair
labor practice or seeking to compel it to bargain with any labor
organization as to wages or conditions of employment; (iv) there is no
strike, work stoppage, lockout or other labor dispute involving JJFMSI or
its Subsidiaries pending or threatened; (v) no action, suit, complaint,
charge, arbitration, inquiry, proceeding or investigation by or before any
Governmental Entity brought by or on behalf of any employee, prospective
employee, former employee, retiree, labor organization or other
representative of its employees is pending or, to the knowledge of JJFMSI,
threatened against JJFMSI or its Subsidiaries; (vi) to the knowledge of
JJFMSI, no grievance is threatened against JJFMSI or its Subsidiaries;
(vii) neither JJFMSI nor its Subsidiaries is a party to, or otherwise bound
by, any consent decree with, or citation by, any Governmental Entity
relating to employees or employment practices; (viii) there are no written
personnel policies, rules or procedures applicable to employees of JJFMSI
or its Subsidiaries, other than those set forth in Section 3.05(n) of the
JJFMSI Disclosure Schedule, true and correct copies of which have
heretofore been delivered to Prison Realty, CCA and PMSI; (ix) JJFMSI and
its Subsidiaries are, and have at all times been, in material compliance
with all applicable laws respecting employment and employment practices,
terms and conditions of employment, wages, hours of work and occupational
safety and health, and are not engaged in any unfair labor practices as
defined in the National Labor Relations Act or other applicable law,
ordinance or regulation; (x) since the enactment of the WARN Act, neither
JJFMSI nor its Subsidiaries has effectuated (A) a "plant closing" (as
defined in the WARN Act) affecting any site of employment or one or more
facilities or operating units within any site of employment or facility of
any of JJFMSI or its Subsidiaries; or (B) a "mass layoff" (as defined in
the WARN Act) affecting any site of employment or facility of any of JJFMSI
or its Subsidiaries, in either case, other than in substantial compliance
with the WARN Act; nor has JJFMSI or its Subsidiaries been affected by any
transaction or engaged in layoffs or employment terminations sufficient in
number to trigger application of any similar state, local or foreign law or
regulation; and (xi) neither JJFMSI nor any of its Subsidiaries is aware
that it has any liability or potential liability under the Multi-Employer
Pension Plan Act.
(o) Insurance. JJFMSI and its Subsidiaries maintain primary, excess
and umbrella insurance of types and amounts customary for their business
against general liability, fire, workers' compensation, products liability,
theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and
effect and with respect to property insurance for assets for which it is
customary to have replacement cost coverage or there are coinsurance
provisions, the amount of such insurance is sufficient to provide for such
coverage or to prevent the application of the coinsurance provision.
Section 3.05(o) of the JJFMSI Disclosure Schedule sets forth a complete
list of the insurance policies maintained by JJFMSI and its Subsidiaries.
(p) Affiliate Transactions. Except as set forth in Section 3.05(p) of
the JJFMSI Disclosure Schedule, there is no transaction and no transaction
is now proposed, to which JJFMSI or its Subsidiaries is or is to be a party
in which any current stockholder (holding in excess of 5% of the JJFMSI's
Common Stock or any securities convertible into or exchangeable for Common
Stock), general partner, limited partner (holding in excess of 5% of the
limited partnership interests), director or executive officer of JJFMSI or
its Subsidiaries has a direct or indirect interest.
(q) Internal Accounting Controls. JJFMSI's system of internal
accounting controls is sufficient to meet the broad objectives of internal
accounting controls insofar as those objectives pertain to the prevention
or detection of errors or irregularities in amounts that would be material
in relation to JJFMSI's financial statements.
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(r) Vote Required. The JJFMSI Shareholder Approval is the only vote
of the holders of any class or series of JJFMSI's securities necessary to
approve this Agreement and the transactions contemplated hereby.
(s) Board Recommendation. On the date hereof with respect to this
Agreement, the Board of Directors of JJFMSI, at a meeting duly called and
held, by the majority vote of the directors present at such meeting, (i)
determined that such Agreement and the Merger and the other transactions
contemplated hereby and thereby are fair to and in the best interests of
the shareholders of JJFMSI, (ii) adopted such Agreement and approved the
Merger and (iii) resolved to recommend that the holders of JJFMSI Common
Stock approve such Agreement and the Merger.
(t) Tennessee Business Combination Act. The approval of the Merger by
the Board of Directors of JJFMSI referred to in Section 3.05(s) constitutes
approval of the Merger for purposes of the TBCA and represents all the
actions necessary to ensure that Sections 48-103-201 et seq. of the TBCA do
not apply to the Merger.
(u) Brokers. No broker, investment banker, financial advisor or other
person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with JJFMSI's participation in the
transactions contemplated by this Agreement.
(v) Stock Ownership. JJFMSI does not, directly or indirectly, own any
shares of Prison Realty Stock other than shares, if any, held in JJFMSI
Benefit Plans.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.01 Covenants of Prison Realty. Except as set forth in
Section 4.01 of the Prison Realty Disclosure Schedule or as otherwise
contemplated by this Agreement and the transactions related thereto, during
the period from the date of this Agreement until the Effective Time, Prison
Realty agrees that:
(a) Ordinary Course. Prison Realty and its Subsidiaries shall carry
on their respective businesses only in the usual, regular and ordinary
course consistent with past practice in all material respects and use their
reasonable best efforts to preserve intact their present business
organizations, maintain their rights and franchises, keep available the
services of their current officers and employees and preserve their
relationships with customers, suppliers and others having business dealings
with them to the end that their goodwill and ongoing businesses shall not
be impaired at the Effective Time.
(b) REIT Qualification. Prison Realty shall conduct its operations in
a manner so as to continue to qualify as a REIT under the Code.
(c) Other Actions. Prison Realty shall not take any action that would
result in any of its representations and warranties set forth in this
Agreement that are qualified as to materiality being untrue, any of such
representations and warranties that are not so qualified being untrue in
any material respect or any of the conditions to the Merger set forth in
Article VI not being satisfied.
(d) Structure of Transactions. Prison Realty shall advise CCA, PMSI
and JJFMSI from time to time of the proposed structure of Prison Realty and
its subsidiaries and affiliated entities at and after the Effective Time
for purposes of their evaluation of the Merger.
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(e) Advice of Changes; Filings. Prison Realty shall advise CCA, PMSI
and JJFMSI of any change or event which would cause or constitute a
material breach of any of its representations or warranties contained
herein. Prison Realty shall file all reports required to be filed by it
with the SEC or the NYSE between the date of this Agreement and the
Effective Time and shall deliver to the Target Companies copies of all such
reports promptly after the same are filed.
Section 4.02 Covenants of the Acquisition Companies. During the period
from the date of this Agreement until the Effective Time, each Acquisition
Company agrees that it shall not take any action that would result in any of its
representations and warranties set forth in this Agreement that are qualified as
to materiality being untrue, any of such representations and warranties that are
not so qualified being untrue in any material respect or any of the conditions
to the Merger set forth in Article VI herein not being satisfied.
Section 4.03 Covenants of CCA. Except as set forth in Section 4.03 of the
CCA Disclosure Schedule or as otherwise contemplated by this Agreement and the
transactions related thereto, during the period from the date of this Agreement
through and including the Effective Time, CCA shall, and shall cause its
Subsidiaries to, carry on their respective businesses in the ordinary course
consistent with past practice and in compliance in all material respects with
all applicable laws and regulations and, to the extent consistent therewith,
shall use reasonable efforts to preserve intact their current business
organizations and use reasonable efforts to preserve their relationships with
those persons having business dealings with them. Without limiting the
generality of the foregoing, except as set forth in Section 4.03 of the CCA
Disclosure Schedule or as otherwise contemplated by this Agreement, during the
period from the date of this Agreement through the Effective Time, CCA shall
not, and shall not permit any of its Subsidiaries to:
(a) Dividends; Changes in Stock. Other than dividends and
distributions by a direct or indirect wholly owned Subsidiary to CCA or one
of their wholly owned Subsidiaries, (i) declare, set aside or pay any
dividends (payable in cash, stock, property or otherwise) on, make any
other distributions in respect of, or enter into any agreement with respect
to the voting of, any of its capital stock, (ii) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for
shares of its capital stock, or (iii) purchase, redeem or otherwise acquire
any capital stock of CCA or any of its Subsidiaries or any other securities
thereof or any rights, warrants or options to acquire any such shares or
other securities;
(b) Issuance of Securities. Issue, deliver, sell, pledge or otherwise
encumber or subject to any Lien any of its shares of capital stock or any
other voting securities or any securities convertible into, exercisable for
or exchangeable with, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities;
(c) Governing Documents. Amend its charter, bylaws or other
comparable organizational documents;
(d) No Acquisitions. Acquire any business (whether by merger,
consolidation, purchase of assets or otherwise) or acquire any equity
interest in any person not an affiliate (whether through a purchase of
stock, establishment of a joint venture or otherwise);
(e) No Dispositions. Other than the obligations for capital
commitments set forth in Section 4.03 of the CCA Disclosure Schedule, (A)
sell, lease, exchange, license, mortgage or otherwise encumber or subject
to any Lien or otherwise dispose of any of its real properties or other
assets, (B) enter into any new joint ventures or similar projects, or (C)
enter into any new development projects;
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(f) Accounting Methods. Change its methods of accounting (or
underlying assumptions) in effect at December 31, 1998, except as required
by changes (i) in generally accepted accounting principles ("GAAP"), (ii)
in law or regulation, or (iii) due to events subsequent to September 30,
1999 related or consequential to the execution of this Agreement or
consummation of the Merger and related transactions (including, but not
limited to, the effects of any changes required by the SEC as part of its
review of the Prison Realty Filed SEC Documents or the Proxy
Statement-Prospectus); or change any of its methods of reporting income and
deductions for federal income tax purposes from those employed in the
preparation of the federal income tax returns of CCA for the taxable years
ended December 31, 1998, except as required by changes in law or
regulation;
(g) No Settlements. Effect any settlement or compromise of any
pending or threatened proceeding in respect of which CCA is or could have
been a party, unless such settlement (i) includes an unconditional written
release of CCA, in form and substance reasonably satisfactory to CCA, from
all liability on claims that are the subject matter of such proceeding,
(ii) does not include any statement as to any admission of fault,
culpability or failure to act by or on behalf of CCA and (iii) is less than
$100,000;
(h) No Cancellation. Other than the obligations for capital
commitments set forth in Section 4.03 of the CCA Disclosure Schedule,
create, renew, amend, terminate or cancel, or take any other action that
could reasonably be expected to result in the creation, renewal, amendment,
termination or cancellation of any agreement or instrument that is material
to CCA and its respective Subsidiaries, taken as a whole;
(i) Indebtedness. Other than the obligations for capital commitments
set forth in Section 4.03 of the CCA Disclosure Schedule and any
indebtedness incurred by CCA in connection with this Agreement and the
transactions related thereto, and except for an increase in amounts
outstanding under its revolving credit agreement, incur any indebtedness
for borrowed money;
(j) No Commitments. Other than the obligations for capital
commitments set forth in Section 4.03 of the CCA Disclosure Schedule, enter
into any new capital or take out commitments or increase any existing
capital or take out commitments;
(k) Compensation. Except pursuant to agreements or arrangements in
effect on the date hereof, (A) grant to any current or former director,
executive officer or other key employee of CCA or any Subsidiary any
increase in compensation, bonus or other benefits (other than increases in
base salary in the ordinary course of business consistent with past
practice or arising due to a promotion or other change in status and
consistent with generally applicable compensation practices), (B) grant to
any such current or former director, executive officer or other employee
any increase in severance or termination pay, (C) amend or adopt any
employment, deferred compensation, consulting, severance, termination or
indemnification agreement with any such current or former director,
executive officer or employee, or (D) amend, adopt or terminate any CCA
Benefit Plan, except as may be required to retain qualification of any such
plan under Section 401(a) of the Code;
(l) Related Party Transactions. Except pursuant to agreements or
arrangements in effect on the date hereof or as otherwise contemplated by
this Agreement which have been disclosed in Section 4.03 of the CCA
Disclosure Schedule, pay, loan or advance any amount to, or sell, transfer
or lease any properties or assets (real, personal or mixed, tangible or
intangible) to, or purchase any properties or assets, or enter into any
agreement or arrangement with, any of its officers or directors or any
affiliate or the immediate family members or associates of any of its
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officers or directors, other than payment of compensation at current
salary, incentive compensation and bonuses and other than properly
authorized business expenses in the ordinary course of business, in each
case consistent with past practice;
(m) Insurance. Permit any material insurance policy naming CCA or any
Subsidiary as a beneficiary or a loss payable payee to be canceled or
terminated;
(n) Advise of Changes. Neglect or fail to advise Prison Realty, PMSI
or JJFMSI of any change or event which would cause or constitute a material
breach of any of the representations or warranties of CCA contained herein;
or
(o) Other Actions. Authorize, or commit or agree to take, any of the
foregoing actions.
Section 4.04 Covenants of PMSI. Except as set forth in Section 4.04 of the
PMSI Disclosure Schedule or as otherwise contemplated by this Agreement, during
the period from the date of this Agreement through and including the Effective
Time, PMSI shall, and shall cause its Subsidiaries to, carry on their respective
businesses in the ordinary course consistent with past practice and in
compliance in all material respects with all applicable laws and regulations
and, to the extent consistent therewith, shall use reasonable efforts to
preserve intact their current business organizations and use reasonable efforts
to preserve their relationships with those persons having business dealings with
them. Without limiting the generality of the foregoing, except as set forth in
Section 4.04 of the PMSI Disclosure Schedule or as otherwise contemplated by
this Agreement, during the period from the date of this Agreement through the
Effective Time, PMSI shall not, and shall not permit any of its Subsidiaries to:
(a) Dividends; Changes in Stock. Other than (x) dividends and
distributions by a direct or indirect wholly owned Subsidiary to PMSI or
one of their wholly owned Subsidiaries and (y) dividends and distributions
paid by PMSI to its respective shareholders in accordance with its
distribution and dividend policy and practice to date, (i) declare, set
aside or pay any dividends (payable in cash, stock, property or otherwise)
on, make any other distributions in respect of, or enter into any agreement
with respect to the voting of, any of its capital stock, (ii) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, or (iii) purchase, redeem or
otherwise acquire any capital stock of PMSI or any of its Subsidiaries or
any other securities thereof or any rights, warrants or options to acquire
any such shares or other securities;
(b) Issuance of Securities. Issue, deliver, sell, pledge or otherwise
encumber or subject to any Lien any of its shares of capital stock or any
other voting securities or any securities convertible into, exercisable for
or exchangeable with, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities;
(c) Governing Documents. Amend its charter, bylaws or other
comparable organizational documents;
(d) No Acquisitions. Acquire any business (whether by merger,
consolidation, purchase of assets or otherwise) or acquire any equity
interest in any person not an affiliate (whether through a purchase of
stock, establishment of a joint venture or otherwise);
(e) No Dispositions. Other than the obligations for capital
commitments set forth in Section 4.04 of the PMSI Disclosure Schedule, (A)
sell, lease, exchange, license, mortgage or otherwise encumber or subject
to any Lien or otherwise dispose of any of its real properties or other
assets, (B) enter into any new joint ventures or similar projects, or (C)
enter into any new development projects;
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(f) Accounting Methods. Change its methods of accounting (or
underlying assumptions) in effect at December 31, 1998, except as required
by changes (i) in generally accepted accounting principles ("GAAP"), (ii)
in law or regulation, or (iii) due to events subsequent to September 30,
1999 related or consequential to the execution of this Agreement or
consummation of the Merger and related transactions (including, but not
limited to, the effects of any changes required by the SEC as part of its
review of the Prison Realty Filed SEC Documents or the Proxy
Statement-Prospectus); or change any of its methods of reporting income and
deductions for federal income tax purposes, except as required by changes
in law or regulation;
(g) No Settlements. Effect any settlement or compromise of any
pending or threatened proceeding in respect of which PMSI is or could have
been a party, unless such settlement (i) includes an unconditional written
release of PMSI, in form and substance reasonably satisfactory to PMSI,
from all liability on claims that are the subject matter of such
proceeding, (ii) does not include any statement as to any admission of
fault, culpability or failure to act by or on behalf of PMSI and (iii) is
less than $100,000;
(h) No Cancellation. Other than the obligations for capital
commitments set forth in Section 4.04 of the PMSI Disclosure Schedule,
create, renew, amend, terminate or cancel, or take any other action that
could reasonably be expected to result in the creation, renewal, amendment,
termination or cancellation of any agreement or instrument that is material
to PMSI and its respective Subsidiaries, taken as a whole;
(i) Indebtedness. Other than the obligations for capital commitments
set forth in Section 4.04 of the PMSI Disclosure Schedule and except for an
increase in amounts outstanding under its revolving credit agreement, incur
any indebtedness for borrowed money;
(j) No Commitments. Other than the obligations for capital
commitments set forth in Section 4.04 of the PMSI Disclosure Schedule,
enter into any new capital or take out commitments or increase any existing
capital or take out commitments;
(k) Compensation. Except pursuant to agreements or arrangements in
effect on the date hereof, (A) grant to any current or former director,
executive officer or other key employee of PMSI or any Subsidiary any
increase in compensation, bonus or other benefits (other than increases in
base salary in the ordinary course of business consistent with past
practice or arising due to a promotion or other change in status and
consistent with generally applicable compensation practices), (B) grant to
any such current or former director, executive officer or other employee
any increase in severance or termination pay, (C) amend or adopt any
employment, deferred compensation, consulting, severance, termination or
indemnification agreement with any such current or former director,
executive officer or employee, or (D) amend, adopt or terminate any PMSI
Benefit Plan, except as may be required to retain qualification of any such
plan under Section 401(a) of the Code;
(l) Related Party Transactions. Except pursuant to agreements or
arrangements in effect on the date hereof or as otherwise contemplated by
this Agreement which have been disclosed in Section 4.04 of the PMSI
Disclosure Schedule, pay, loan or advance any amount to, or sell, transfer
or lease any properties or assets (real, personal or mixed, tangible or
intangible) to, or purchase any properties or assets, or enter into any
agreement or arrangement with, any of its officers or directors or any
affiliate or the immediate family members or associates of any of its
officers or directors, other than payment of compensation at current
salary, incentive compensation and bonuses and other than properly
authorized business expenses in the ordinary course of business, in each
case consistent with past practice;
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(m) Insurance. Permit any material insurance policy naming PMSI or
any Subsidiary as a beneficiary or a loss payable payee to be canceled or
terminated;
(n) Advise of Changes. Neglect or fail to advise Prison Realty, CCA
or JJFMSI of any change or event which would cause or constitute a material
breach of any of the representations or warranties of PMSI contained
herein; or
(o) Other Actions. Authorize, or commit or agree to take, any of the
foregoing actions.
Section 4.05 Covenants of JJFMSI. Except as set forth in Section 4.05 of
the JJFMSI Disclosure Schedule or as otherwise contemplated by this Agreement,
during the period from the date of this Agreement through and including the
Effective Time, JJFMSI shall, and shall cause its Subsidiaries to, carry on
their respective businesses in the ordinary course consistent with past practice
and in compliance in all material respects with all applicable laws and
regulations and, to the extent consistent therewith, shall use reasonable
efforts to preserve intact their current business organizations and use
reasonable efforts to preserve their relationships with those persons having
business dealings with them. Without limiting the generality of the foregoing,
except as set forth in Section 4.05 of the JJFMSI Disclosure Schedule or as
otherwise contemplated by this Agreement, during the period from the date of
this Agreement through the Effective Time, JJFMSI shall not, and shall not
permit any of its Subsidiaries to:
(a) Dividends; Changes in Stock. Other than (x) dividends and
distributions by a direct or indirect wholly owned Subsidiary to JJFMSI or
one of their wholly owned Subsidiaries and (y) dividends and distributions
paid by JJFMSI to its respective shareholders in accordance with its
distribution and dividend policy and practice to date, (i) declare, set
aside or pay any dividends (payable in cash, stock, property or otherwise)
on, make any other distributions in respect of, or enter into any agreement
with respect to the voting of, any of its capital stock, (ii) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, or (iii) purchase, redeem or
otherwise acquire any capital stock of JJFMSI or any of its Subsidiaries or
any other securities thereof or any rights, warrants or options to acquire
any such shares or other securities;
(b) Issuance of Securities. Issue, deliver, sell, pledge or otherwise
encumber or subject to any Lien any of its shares of capital stock or any
other voting securities or any securities convertible into, exercisable for
or exchangeable with, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities;
(c) Governing Documents. Amend its charter, bylaws or other
comparable organizational documents;
(d) No Acquisitions. Acquire any business (whether by merger,
consolidation, purchase of assets or otherwise) or acquire any equity
interest in any person not an affiliate (whether through a purchase of
stock, establishment of a joint venture or otherwise);
(e) No Dispositions. Other than the obligations for capital
commitments set forth in Section 4.05 of the JJFMSI Disclosure Schedule,
(A) sell, lease, exchange, license, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any of its real properties or
other assets, (B) enter into any new joint ventures or similar projects, or
(C) enter into any new development projects;
(f) Accounting Methods. Change its methods of accounting (or
underlying assumptions) in effect at December 31, 1998, except as required
by changes (i) in generally accepted accounting principles ("GAAP"), (ii)
in law or regulation, or (iii) due to events subsequent to
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September 30, 1999 related or consequential to the execution of this
Agreement or consummation of the Merger and related transactions (including
the effects of any changes required by the SEC as part of its review of the
Prison Realty Filed SEC Documents or the Proxy Statement-Prospectus); or
change any of its methods of reporting income and deductions for federal
income tax purposes, except as required by changes in law or regulation;
(g) No Settlements. Effect any settlement or compromise of any
pending or threatened proceeding in respect of which JJFMSI is or could
have been a party, unless such settlement (i) includes an unconditional
written release of JJFMSI, in form and substance reasonably satisfactory to
JJFMSI, from all liability on claims that are the subject matter of such
proceeding, (ii) does not include any statement as to any admission of
fault, culpability or failure to act by or on behalf of JJFMSI and (iii) is
less than $100,000;
(h) No Cancellation. Other than the obligations for capital
commitments set forth in Section 4.05 of the JJFMSI Disclosure Schedule,
create, renew, amend, terminate or cancel, or take any other action that
could reasonably be expected to result in the creation, renewal, amendment,
termination or cancellation of any agreement or instrument that is material
to JJFMSI and its respective Subsidiaries, taken as a whole;
(i) Indebtedness. Other than the obligations for capital commitments
set forth in Section 4.05 of the JJFMSI Disclosure Schedule and except for
an increase in amounts outstanding under its revolving credit agreement,
incur any indebtedness for borrowed money;
(j) No Commitments. Other than the obligations for capital
commitments set forth in Section 4.05 of the JJFMSI Disclosure Schedule,
enter into any new capital or take out commitments or increase any existing
capital or take out commitments;
(k) Compensation. Except pursuant to agreements or arrangements in
effect on the date hereof, (A) grant to any current or former director,
executive officer or other key employee of JJFMSI or any Subsidiary any
increase in compensation, bonus or other benefits (other than increases in
base salary in the ordinary course of business consistent with past
practice or arising due to a promotion or other change in status and
consistent with generally applicable compensation practices), (B) grant to
any such current or former director, executive officer or other employee
any increase in severance or termination pay, (C) amend or adopt any
employment, deferred compensation, consulting, severance, termination or
indemnification agreement with any such current or former director,
executive officer or employee, or (D) amend, adopt or terminate any JJFMSI
Benefit Plan, except as may be required to retain qualification of any such
plan under Section 401(a) of the Code;
(l) Related Party Transactions. Except pursuant to agreements or
arrangements in effect on the date hereof or as otherwise contemplated by
this Agreement which have been disclosed in Section 4.05 of the JJFMSI
Disclosure Schedule, pay, loan or advance any amount to, or sell, transfer
or lease any properties or assets (real, personal or mixed, tangible or
intangible) to, or purchase any properties or assets, or enter into any
agreement or arrangement with, any of its officers or directors or any
affiliate or the immediate family members or associates of any of its
officers or directors, other than payment of compensation at current
salary, incentive compensation and bonuses and other than properly
authorized business expenses in the ordinary course of business, in each
case consistent with past practice;
(m) Insurance. Permit any material insurance policy naming JJFMSI or
any Subsidiary as a beneficiary or a loss payable payee to be canceled or
terminated;
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(n) Advise of Changes. Neglect or fail to advise Prison Realty, CCA
or PMSI of any change or event which would cause or constitute a material
breach of any of the representations or warranties of JJFMSI contained
herein; or
(o) Other Actions. Authorize, or commit or agree to take, any of the
foregoing actions.
Section 4.06 No Solicitation by Prison Realty. (a) Prison Realty shall
not, nor shall it permit any of its Subsidiaries to, nor shall it authorize or
permit any officer, director or employee of, or any investment banker, attorney
or other advisor or representative of, Prison Realty or any of its Subsidiaries
to, directly or indirectly, (i) solicit, initiate, encourage or knowingly
facilitate the submission of any alternative proposal or (ii) enter into or
participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, any alternative proposal; provided,
however, that prior to the receipt of the Prison Realty Stockholder Approval,
Prison Realty may, in response to a bona fide alternative proposal that
constitutes a superior proposal (as defined in Section 4.06(b) herein) and that
was made after the date hereof (and not solicited by Prison Realty after the
date hereof) by any person, and subject to compliance with Section 4.06(c)
herein, (A) furnish information with respect to Prison Realty and its
Subsidiaries to such person and its representatives pursuant to a customary
confidentiality agreement and discuss such information with such person and its
representatives and (B) participate in negotiations regarding such alternative
proposal. For purposes of this Section 4.06, the term "alternative proposal"
means any inquiry, proposal or offer from any person relating to any direct or
indirect acquisition or purchase of 10% or more of the assets (based on the fair
market value thereof) of Prison Realty and its Subsidiaries, taken as a whole,
other than the transactions contemplated by this Agreement, or of 10% or more of
any class of equity securities of Prison Realty or any of its Subsidiaries or
any tender offer or exchange offer (including by Prison Realty or any of its
Subsidiaries) that if consummated would result in any person beneficially owning
10% or more of any class of equity securities of Prison Realty or any of its
Subsidiaries, or any merger, consolidation, business combination, sale of
substantially all assets, recapitalization, liquidation, dissolution or similar
transaction involving Prison Realty or any of its Subsidiaries other than the
transactions contemplated by this Agreement and transactions involving the
original issuance of any debt or equity securities by Prison Realty pursuant to
the terms of that certain Securities Purchase Agreement dated the date hereof,
by and among Prison Realty, CCA, PMSI, and JJFMSI, on the one hand, and certain
investors therein named, on the other hand (the "Securities Purchase
Agreement").
(b) Except as set forth in this Section 4.06, the Board of Directors of
Prison Realty shall not (i) withdraw or modify, or publicly propose to withdraw
or modify, in a manner adverse to the Target Companies, the approval or
recommendation by such Board of Directors of the Merger or this Agreement, (ii)
approve or recommend, or propose publicly to approve or recommend, any
alternative proposal or (iii) cause or agree to cause Prison Realty to enter
into any letter of intent, agreement in principle, acquisition agreement or
similar agreement related to any alternative proposal. Notwithstanding the
foregoing, if the Board of Directors of Prison Realty receives a superior
proposal, such Board of Directors may, prior to the receipt of the Prison Realty
Stockholder Approval, withdraw or modify its approval or recommendation of the
Merger and this Agreement, approve or recommend a superior proposal or terminate
this Agreement, but in each case only at a time that is at least five business
days after receipt by each of the Target Companies of written notice advising
each of them that the Board of Directors of Prison Realty has resolved to accept
a superior proposal if it continues to be a superior proposal at the end of such
five business day period. For purposes of this Section 4.06, the term "superior
proposal" means any bona fide alternative proposal (which, for purposes of
Section 4.06(a) only, may be subject to a due diligence condition), which
proposal was not solicited by Prison Realty after the date of execution of this
Agreement, made by a third party to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, more than 10% of
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the shares of capital stock of Prison Realty then outstanding or all or
substantially all the assets of Prison Realty and its Subsidiaries and otherwise
on terms which the Board of Directors of Prison Realty determines in good faith
(after consultation with its financial advisor) to be more favorable to Prison
Realty's stockholders than the Merger and the issuance of securities pursuant to
the Securities Purchase Agreement and for which financing, to the extent
required, is then committed or which, in the good faith judgment of such Board
of Directors, is reasonably capable of being financed by such third party.
(c) In addition to the obligations of Prison Realty set forth in paragraphs
(a) and (b) above, Prison Realty promptly shall advise each Target Company
orally and in writing of any request for information or of any alternative
proposal, the material terms and conditions of such request or alternative
proposal and the identity of the person making any such request or alternative
proposal and any determination by the Board of Directors of Prison Realty that a
alternative proposal is or may be a superior proposal. Prison Realty will keep
each Target Company informed as to the status and material details (including
amendments or proposed amendments) of any such request or alternative proposal.
Section 4.07 No Solicitation by Target Companies. Without the prior
written consent of Prison Realty, (a) each Target Company shall not, nor shall
it permit any of its Subsidiaries to, nor shall it authorize or permit any
officer, director or employee of, or any investment banker, attorney or other
advisor or representative of, the Target Company or any of its Subsidiaries to,
directly or indirectly, (i) solicit, initiate, encourage or knowingly facilitate
the submission of any alternative proposal or (ii) enter into or participate in
any discussions or negotiations regarding, or furnish to any person any
information with respect to, any alternative proposal. For purposes of this
Section 4.07, the term "alternative proposal" means any inquiry, proposal or
offer from any person relating to any direct or indirect acquisition or purchase
of 10% or more of the assets (based on the fair market value thereof) of any
Target Company and its Subsidiaries, taken as a whole, other than the
transactions contemplated by this Agreement, or of 10% or more of any class of
equity securities of any Target Company or any of its Subsidiaries or any tender
offer or exchange offer (including by any Target Company or any of its
Subsidiaries) that if consummated would result in any person beneficially owning
10% or more of any class of equity securities of any Target Company or any of
its Subsidiaries, or any merger, consolidation, business combination, sale of
substantially all assets, recapitalization, liquidation, dissolution or similar
transaction involving any Target Company or any of its Subsidiaries other than
the transactions contemplated by this Agreement.
(b) Except as set forth in this Section 4.07, the Board of Directors of the
Target Company shall not (i) withdraw or modify, or publicly propose to withdraw
or modify, in a manner adverse to Prison Realty, the approval or recommendation
by such Board of Directors of the Merger or this Agreement, (ii) approve or
recommend, or propose publicly to approve or recommend, any alternative proposal
or (iii) cause or agree to cause the Target Company to enter into any letter of
intent, agreement in principle, acquisition agreement or similar agreement
related to any alternative proposal.
(c) In addition to the obligations of a Target Company set forth in
paragraphs (a) and (b) above, a Target Company promptly shall advise Prison
Realty orally and in writing of any request for information or of any
alternative proposal, the material terms and conditions of such request or
alternative proposal and the identity of the person making any such request or
alternative proposal and any determination by the Board of Directors of the
Target Company that a alternative proposal is or may be a superior proposal. The
Target Company will keep Prison Realty informed as to the status and material
details (including amendments or proposed amendments) of any such request or
alternative proposal.
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ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.01 Preparation of the Proxy Statement-Prospectus. As promptly as
practicable following the date of this Agreement, Prison Realty, the Acquisition
Companies, CCA, PMSI and JJFMSI shall prepare and file with the SEC a
Registration Statement on Form S-4, of which the Proxy Statement-Prospectus will
be a part. Each party hereto will cooperate with the other party in connection
with the preparation of the Proxy Statement-Prospectus, including, but not
limited to, furnishing all information as may be required to be disclosed
therein. The Proxy Statement-Prospectus shall contain the recommendation of the
Board of Directors that the stockholders approve this Agreement and the
transaction contemplated hereby. Each of Prison Realty, the Acquisition
Companies and the Target Companies shall use its reasonable best effort to have
the Registration Statement on Form S-4 declared effective under the Securities
Act as promptly as practicable after such filing. Each party hereto will use its
reasonable best efforts to cause the Proxy Statement-Prospectus to be mailed to
its shareholders as promptly as practicable after the Registration Statement on
Form S-4 is declared effective under the Securities Act. No filing of, or
amendment or supplement to the Proxy Statement-Prospectus will be made by any
party hereto without providing the other parties and their Boards of Directors
the opportunity to review and comment thereon and to approve the same, provided
that such approvals shall not be unreasonably withheld. Each party hereto will
advise the other parties, promptly after it receives notice thereof, of any
request by the SEC for amendment of the Proxy Statement-Prospectus or comments
thereon and responses thereto or requests by the SEC for additional information.
If at any time prior to the Effective Time any information relating to any of
the parties hereto or any of their respective affiliates, officers, or
directors, should be discovered by a party hereto which should be set forth in
an amendment or supplement to the Proxy Statement-Prospectus, so that the Proxy
Statement-Prospectus would not include any misstatement of a material fact or
omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, the party
which discovers such information shall promptly notify the other parties hereto
and an appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by law, disseminated to
the shareholders of Prison Realty, CCA, PMSI and JJFMSI.
Section 5.02 Access to Information. Each party shall, and shall cause each
of its Subsidiaries to, afford to the other party hereto and to its officers,
employees, accountants, counsel and other representatives (including
environmental consultants), reasonable access, during normal business hours
during the period prior to the Effective Time, to their respective properties,
books, records and personnel and, during such period, each party hereto shall,
and shall cause each of its Subsidiaries to, furnish promptly to the other party
hereto (a) a copy of each report, schedule, registration statement and other
document filed or received by it during such period pursuant to the requirements
of Federal or state securities laws and (b) such other information concerning
its business, properties and personnel as the other party may reasonably
request. With respect to matters disclosed in the Prison Realty Disclosure
Schedule, the CCA Disclosure Schedule, the PMSI Disclosure Schedule or the
JJFMSI Disclosure Schedule, respectively, each party agrees to supplement from
time to time the information set forth therein.
Section 5.03 Shareholders Meeting. Each of Prison Realty, CCA, PMSI, and
JJFMSI shall, as promptly as practicable after the date hereof, (a) duly call,
give notice of, convene and hold a Shareholders' Meeting for the purpose of
obtaining the Prison Realty Stockholder Approval, the CCA Shareholder Approval,
the PMSI Shareholder Approval or the JJFMSI Shareholder Approval, as the case
may be, and (b) subject in the case of Prison Realty to Section 4.06, through
its respective Board of Directors, recommend to its shareholders that they grant
the Prison Realty Stockholder
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Approval, the CCA Shareholder Approval, the PMSI Shareholder Approval or the
JJFMSI Shareholder Approval, as the case may be. Each party shall use all
reasonable efforts to solicit from its stockholders proxies in favor of the
Merger and shall take all other action necessary or, in the reasonable opinion
of such party, advisable to secure any vote or consent of stockholders required
by the TBCA to effect the Merger. Each party shall vote, or cause to be voted,
in favor of the Merger and/or the related transactions, as applicable, all
shares of its Common Stock directly or indirectly beneficially owned by it.
Section 5.04 Reasonable Best Efforts. Subject to the terms and conditions
of this Agreement, each party hereto shall, and shall cause its Subsidiaries to,
use all reasonable best efforts to take, or cause to be taken, all actions, and
to do, or cause to be done, and to assist and cooperate with the other parties
in doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Merger and the other
transactions contemplated by this Agreement, including (i) the obtaining of any
necessary consent, authorization, order or approval of, or any exemption by, any
Governmental Entity and/or any other public or private third party which is
required to be obtained by such party or any of its Subsidiaries in connection
with the Merger and the other transactions contemplated by this Agreement
(provided that no party to this Agreement shall pay or agree to pay any material
amount to obtain a consent without the prior approval of the remaining parties,
which approval shall not be unreasonably withheld or delayed), and the making or
obtaining of all necessary filings and registrations with respect thereto, (ii)
the defending of any lawsuits or other legal proceedings challenging this
Agreement, and (iii) the execution and delivery of any additional instruments
necessary to consummate the transactions contemplated by, and to fully carry out
the purposes of, this Agreement.
Section 5.05 Benefits Matters. Except as otherwise provided herein,
following the Effective Time, Prison Realty shall honor, or cause to be honored,
all obligations under employment agreements, Prison Realty Benefit Plans and all
other employee benefit plans, programs, policies and arrangements of any of the
parties hereto in accordance with the terms thereof. Nothing herein shall be
construed to prohibit Prison Realty from amending or terminating such
agreements, programs, policies and arrangements in accordance with the terms
thereof and with applicable law.
Section 5.06 Fees and Expenses. Whether or not the Merger is consummated,
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such costs
or expenses.
Section 5.07 Indemnification, Exculpation and Insurance.
(a) Prison Realty, the Acquisition Companies, CCA, PMSI and JJFMSI agree
that all rights to indemnification and exculpation from liability for acts or
omissions occurring at or prior to the Effective Time and rights to advancement
of expenses relating thereto now existing in favor of the current or former
directors or officers of the parties hereto, or their Subsidiaries (such
persons, "Indemnified Persons") as provided in their respective charter (or
similar constitutive documents) or bylaws and any existing indemnification
agreements or arrangements of Prison Realty, the Acquisition Companies, CCA,
PMSI or JJFMSI shall survive the Merger and shall not be amended, repealed or
otherwise modified in any manner that would in any manner adversely affect the
rights thereunder of any such Indemnified Persons. The parties hereto agree that
Prison Realty shall maintain, for a period of six years from the Effective Time,
each parties' current directors' and officers' insurance and indemnification
policy to the extent that it provides coverage for events occurring at or prior
to the Effective Time (the "D&O Insurance") for all Indemnified Persons;
provided, however, that the Surviving Companies or Prison Realty, as
appropriate, may, in lieu of maintaining such existing D&O Insurance as provided
above, cause comparable coverage to be provided under any policy issued by an
insurer substantially comparable to the insurer with respect to the existing D&O
Insurance, so long as
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the terms thereof are no less advantageous to the Indemnified Parties than the
existing D&O Insurance. If the existing D&O Insurance expires, is terminated or
canceled during such six-year period, Prison Realty will use its reasonable best
efforts to cause to be obtained as much D&O Insurance as can be obtained for the
remainder of such period on terms and conditions no less advantageous in any
material respect than the existing D&O Insurance.
(b) The parties hereto agree that the provisions of this Section 5.07 are
(i) intended to be for the benefit of, and shall be enforceable by, each
Indemnified Person and each Indemnified Person's heirs and representatives, and
(ii) in addition to, and not in substitution for, any other rights to
indemnification or contribution that any such person may have by contract or
otherwise.
(c) The parties hereto agree that in the event that Prison Realty or any of
its successors or assigns (i) consolidates with or merges into any other person
and is not the continuing or surviving company or entity of such consolidation
or merger or (ii) transfers or conveys all or substantially all of its
properties and assets to any person, then, and in each such case, proper
provision will be made by such person so that the successors and assigns of such
Surviving Company assume the obligations of the parties hereto and such
Surviving Company set forth in this Section 5.07.
Section 5.08 Transfer Taxes. All state, local, foreign or provincial
sales, use, real property transfer, stock transfer or similar taxes (including
any interest or penalties with respect thereto, but not including any
shareholder-level taxes based upon net income) attributable to the Merger shall
be timely paid by Prison Realty.
Section 5.09 Resignation of Directors and Officers. Prior to the Effective
Time, CCA, PMSI and JJFMSI shall deliver to Prison Realty evidence satisfactory
to Prison Realty of the resignation of the directors and officers of CCA, PMSI
and JJFMSI, respectively, effective at the Effective Time.
Section 5.10 Stock Exchange Listing. The Surviving Companies and Prison
Realty shall each use their reasonable best efforts to cause the Prison Realty
Stock to be issued in connection with the Merger to be listed on the NYSE,
subject to official notice of issuance, if applicable.
Section 5.11 Tax-Free Reorganization. Prior to the Effective Time, each
party shall use its reasonable best efforts to cause the Merger to qualify as a
reorganization qualifying under the provisions of Section 368(a) of the Code.
Section 5.12 Shareholders' Agreements. As of the Effective Time, the
Shareholders' Agreement, dated September 22, 1998, among certain shareholders of
CCA, the Shareholders' Agreement, dated September 22, 1998, among certain
shareholders of PMSI, and the Shareholders' Agreement, dated September 22, 1998,
among certain shareholders of JJFMSI shall each be terminated and shall no
longer have any force or effect.
Section 5.13 Lock-Up Agreement. As of the Effective Time, each of the
holders of shares of CCA Common Stock whose shares are not subject to forfeiture
under the CCA Restricted Stock Plan shall enter into a lock-up agreement with
Prison Realty (the "Lock-Up Agreement"), a form of which is attached hereto as
Exhibit A, pursuant to which each such holder shall agree not to sell, assign or
otherwise transfer (collectively, a "Transfer") any shares of Prison Realty
Common Stock received in connection with the Merger (the "Shares"), nor enter
into any agreement regarding the same, for a period of one hundred eighty (180)
days (the "180-Day Period") following the date of closing of the Merger, and
further agrees not to Transfer such Shares thereafter except as follows: (i)
after expiration of the 180-Day Period, a holder may Transfer up to twenty-five
percent (25%) of the aggregate amount of the Shares; (ii) after December 31,
2001, a holder may Transfer up to fifty percent (50%) of the aggregate amount of
the Shares; (iii) after December 31, 2002, a holder may Transfer up to
seventy-five percent (75%) of the aggregate amount of the Shares; and (iv) after
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December 31, 2003, a holder may Transfer up to one hundred percent (100%) of the
aggregate amount of the Shares.
Section 5.14 Equity Incentive Plan. Following the consummation of the
Merger and the related transactions, Prison Realty shall adopt a new equity
incentive plan pursuant to which it will have the authority to grant options to
purchase shares of Prison Realty Common Stock and other types of equity-based
incentive compensation, on such terms and conditions as are approved by the
Board of Directors of Prison Realty following the consummation of the Merger.
Section 5.15 Change of Corporate Name. Following the consummation of the
Merger and the related transactions, Prison Realty shall amend its charter,
bylaws and organizational documents to change the name of the corporation to
"Corrections Corporation of America" and the business and affairs of Prison
Realty following the consummation of the Merger and the related transactions
shall be conducted using the name "Corrections Corporation of America."
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.01 Conditions to Each Party's Obligation To Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction or waiver at or prior to the Effective Time of the
following conditions:
(a) HSR Act. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
(b) No Injunctions or Restraints; Illegality. No statute, rule,
regulation, judgment, writ, decree, order, temporary restraining order,
preliminary or permanent injunction shall have been promulgated, enacted,
entered or enforced, and no other action shall have been taken, by any
Governmental Entity of competent jurisdiction enjoining or otherwise
preventing the consummation of the Merger shall be in effect; provided,
however, that each of the parties shall use its reasonable best efforts to
prevent the entry of any such injunction or other order or decree and to
cause any such injunction or other order or decree that may be entered to
be vacated or otherwise rendered of no effect.
(c) Listing of Merger Consideration. The Prison Realty Stock to be
issued in the Merger shall have been approved for listing on the NYSE,
subject to official notice of issuance, if applicable.
(d) Registration Statement. The Registration Statement shall be
satisfactory in all material respects to Prison Realty, CCA, PMSI and
JJFMSI and shall have been declared effective, and no stop order suspending
the effectiveness of the Registration Statement shall be in effect and no
proceedings for such purpose shall be pending before or threatened by the
SEC.
(e) Financing. Prison Realty shall have obtained financing sufficient
to fund the operations of the business of Prison Realty and the Surviving
Companies after the Effective Time of the Merger and the consummation of
the transactions contemplated hereby, as such financing is substantially
described in and contemplated by the Commitment Letter delivered in
connection with the Securities Purchase Agreement (as defined therein).
(f) Tax-Free Reorganization. The receipt by each of Prison Realty,
CCA, PMSI and JJFMSI of an opinion of its respective tax counsel to the
effect that each of the CCA Merger,
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the PMSI Merger and the JJFMSI Merger qualifies as a reorganization within
the meaning of Section 368(a) of the Code.
Section 6.02 Conditions to Obligation of Prison Realty and Acquisition
Companies To Effect the Merger. The obligation of Prison Realty and each
Acquisition Company to effect the Merger is subject to the satisfaction of the
following conditions unless waived by Prison Realty and each Acquisition
Company:
(a) Shareholder Approval. The Prison Realty Stockholder Approval, the
CCA Shareholder Approval, the PMSI Shareholder Approval and the JJFMSI
Shareholder Approval shall have been obtained.
(b) Representations and Warranties. The representations and
warranties of CCA, PMSI and JJFMSI set forth in this Agreement shall be
true and correct, except that this condition shall be deemed satisfied so
long as any failures of such representations and warranties to be true and
correct do not individually or in the aggregate have a material adverse
effect on CCA, PMSI or JJFMSI, respectively, as of the date of this
Agreement and as of the Closing Date, except as otherwise contemplated by
this Agreement, and Prison Realty and the respective Acquisition Company
shall have received a certificate to such effect signed on the Closing Date
on behalf of each such entity by the Chief Executive Officer and Secretary.
(c) Performance of Obligations of Other Parties. CCA, PMSI and JJFMSI
shall have performed in all material respects all material obligations
required to be performed by them under this Agreement at or prior to the
Closing Date, and Prison Realty shall have received a certificate to such
effect signed on behalf of each party by its Chief Executive Officer or
Chief Financial Officer.
(d) Consents, etc. Prison Realty shall have received evidence, in
form and substance reasonably satisfactory to it, that such consents,
approvals, authorizations, qualifications and orders of Governmental
Entities and other third parties as are necessary in connection with the
transactions contemplated hereby have been obtained, other than those the
failure of which to be obtained, individually or in the aggregate, would
not have a material adverse effect on Prison Realty, CCA, PMSI or JJFMSI.
(e) Bring-Down Opinion. Prison Realty shall have received a
bring-down of the Merrill Lynch Prison Realty Opinion on each of the date
of mailing of the Proxy Statement-Prospectus to the stockholders of Prison
Realty and on the date of Closing.
(f) Consents to Assignment of Management Contracts. To the extent
required by applicable law and the provisions of the contracts, CCA, PMSI
and JJFMSI shall have obtained all necessary written consents of
governmental authorities to the performance of their respective facility
management contracts by Prison Realty and/or the Acquisition Companies
after the Merger.
(g) Prison Realty Senior Notes. To the extent required under the
terms of the Senior Notes (as hereinafter defined), Prison Realty shall
have obtained the separate consent to the consummation of the Merger and
related transactions from the holders of its 12% Senior Notes (the "Senior
Notes") in accordance with the terms of (i) an Indenture, dated as of June
10, 1999, between Prison Realty and State Street Bank and Trust Company
("State Street"), as Trustee (the "Master Indenture"), and (ii) a First
Supplemental Indenture, dated as of June 11, 1999, between Prison Realty
and State Street, as Trustee (the "Supplemental Indenture"), or, in the
alternative, Prison Realty shall have redeemed such Senior Notes pursuant
to the terms of the Supplemental Indenture.
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(h) Execution of Lock-Up Agreement. The Lock-Up Agreement shall have
been executed and delivered in accordance with Section 5.13.
(i) Purchase of CCA Common Stock Held by Baron and Sodexho. Prison
Realty shall have purchased the CCA Common Stock held by each of Baron and
Sodexho Alliance, S.A. ("Sodexho") pursuant to the terms and conditions set
forth in that certain Stock Purchase Agreement, dated the date hereof,
among Prison Realty, Baron and Sodexho (the "Baron/Sodexho Stock Purchase
Agreement").
(j) Purchase of PMSI Common Stock Held by Privatized Management
LLC. Prison Realty shall have purchased the PMSI Common Stock held by
Privatized Management Services, LLC ("Privatized Management LLC") pursuant
to the terms and conditions set forth in that certain Stock Purchase
Agreement, dated the date hereof, between Prison Realty, PMSI and
Privatized Management LLC.
(k) Purchase of JJFMSI Common Stock Held by Correctional Services
LLC. Prison Realty shall have purchased the JJFMSI Common Stock held by
Correctional Services Investors, LLC ("Correctional Services LLC") pursuant
to the terms and conditions set forth in that certain Stock Purchase
Agreement, dated the date hereof, between Prison Realty, JJFMSI and
Correctional Services LLC.
Section 6.03 Conditions to Obligation of PMSI To Effect the Merger. The
obligation of PMSI to effect the Merger is subject to the satisfaction of the
following conditions unless waived by PMSI:
(a) Representations and Warranties. The representations and
warranties of Prison Realty set forth in this Agreement shall be true and
correct, except that this condition shall be deemed satisfied so long as
any failures of such representations and warranties to be true and correct
do not individually or in the aggregate have a material adverse effect on
Prison Realty as of the date of this Agreement and as of the Closing Date,
except as otherwise contemplated by this Agreement, and PMSI shall have
received a certificate to such effect signed on the Closing Date on behalf
of Prison Realty by its Chief Executive Officer and Secretary.
(b) Shareholder Approval. The Prison Realty Stockholder Approval and
the PMSI Shareholder Approval shall have been obtained.
(c) Purchase of PMSI Common Stock Held by Privatized Management
LLC. Prison Realty shall have purchased the PMSI Common Stock held by
Privatized Management LLC pursuant to the terms and conditions set forth in
that certain Stock Purchase Agreement, dated the date hereof, between
Prison Realty, PMSI and Privatized Management LLC.
Section 6.04 Conditions to Obligation of JJFMSI To Effect the Merger. The
obligation of the JJFMSI to effect the Merger is subject to the satisfaction of
the following conditions unless waived by JJFMSI:
(a) Representations and Warranties. The representations and
warranties of Prison Realty set forth in this Agreement shall be true and
correct, except that this condition shall be deemed satisfied so long as
any failures of such representations and warranties to be true and correct
do not individually or in the aggregate have a material adverse effect on
Prison Realty as of the date of this Agreement and as of the Closing Date,
except as otherwise contemplated by this Agreement, and JJFMSI shall have
received a certificate to such effect signed on the Closing Date on behalf
of Prison Realty by its Chief Executive Officer and Secretary.
(b) Shareholder Approval. The Prison Realty Stockholder Approval and
the JJFMSI Shareholder Approval shall have been obtained.
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(c) Purchase of JJFMSI Common Stock Held by Correctional Services
LLC. Prison Realty shall have purchased the JJFMSI Common Stock held by
Correctional Services LLC pursuant to the terms and conditions set forth in
that certain Stock Purchase Agreement, dated the date hereof, between
Prison Realty, JJFMSI and Correctional Services LLC.
Section 6.05 Conditions to Obligation of CCA To Effect the Merger. The
obligation of CCA to effect the Merger is subject to the satisfaction of the
following conditions unless waived by CCA:
(a) Representations and Warranties. The representations and
warranties of Prison Realty set forth in this Agreement shall be true and
correct, except that this condition shall be deemed satisfied so long as
any failures of such representations and warranties to be true and correct
do not individually or in the aggregate have a material adverse effect on
Prison Realty as of the date of this Agreement and as of the Closing Date,
except as otherwise contemplated by this Agreement, and CCA shall have
received a certificate to such effect signed on the Closing Date on behalf
of Prison Realty by its Chief Executive Officer and Secretary.
(b) Bring-Down Opinion. CCA shall have received a bring-down of the
Merrill Lynch CCA Opinion on each of the date of mailing of the Proxy
Statement-Prospectus to the shareholders of CCA and on the date of Closing.
(c) Performance of Obligations of Prison Realty. Prison Realty shall
have performed in all material respects all material obligations required
to be performed by it under this Agreement at or prior to the Closing Date,
and CCA shall have received a certificate to such effect signed on behalf
of Prison Realty by its Chief Executive Officer or Chief Financial Officer.
(d) Shareholder Approval. The Prison Realty Stockholder Approval and
the CCA Shareholder Approval shall have been obtained.
(e) Purchase of CCA Common Stock Held by Baron and Sodexho. Prison
Realty shall have purchased the CCA Common Stock held by Baron and Sodexho
pursuant to the terms and conditions set forth in the Baron/Sodexho Stock
Purchase Agreement.
Section 6.06 Frustration of Closing Conditions. No party to this Agreement
may rely on the failure of any condition set forth in Sections 6.01 through
6.05, as the case may be, to be satisfied if such failure was caused by such
party's failure to use all reasonable best efforts to consummate the Merger and
the other transactions contemplated by this Agreement.
ARTICLE VII
TERMINATION AND AMENDMENT
Section 7.01 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after the Prison Realty
Stockholder Approval, the CCA Shareholder Approval, the PMSI Shareholder
Approval and the JJFMSI Shareholder Approval are received:
(a) by mutual written consent of the parties hereto;
(b) by Prison Realty, CCA, PMSI or JJFMSI upon written notice to the
other parties:
(i) if any Governmental Entity of competent jurisdiction shall have
issued a permanent injunction or other order or decree enjoining or
otherwise preventing the consummation of the Merger and such injunction
or other order or decree shall have become final and nonappealable;
provided that the party seeking to terminate this Agreement pursuant to
this
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clause (i) shall have used its reasonable best efforts to prevent or
contest the imposition of, or seek the lifting or stay of, such
injunction, order or decree;
(ii) if the Merger shall not have been consummated on or before
July 31, 2000, unless the failure to consummate the Merger is the result
of a material breach of this Agreement by the party seeking to terminate
this Agreement;
(iii) if, upon a vote at a duly held Prison Realty Stockholders'
Meeting or any adjournment thereof, the Prison Realty Stockholder
Approval shall not have been obtained;
(c) by Prison Realty upon written notice to the other parties if, upon
a vote at a duly held CCA Shareholders' Meeting or any adjournment thereof,
the CCA Shareholder Approval shall not have been obtained;
(d) by Prison Realty upon written notice to the other parties if, upon
a vote at a duly held PMSI Shareholders' Meeting or any adjournment
thereof, the PMSI Shareholder Approval shall not have been obtained; or
(e) by Prison Realty upon written notice to the other parties if, upon
a vote at a duly held JJFMSI Shareholders' Meeting or any adjournment
thereof, the JJFMSI Shareholder Approval shall not have been obtained;
(f) by Prison Realty upon written notice to the remaining parties, if
the Board of Directors of CCA, PMSI or JJFMSI or any committee thereof
shall have withdrawn or modified in a manner adverse to Prison Realty its
approval or recommendation of the Merger or this Agreement or resolved to
do so;
(g) by CCA, PMSI or JJFMSI upon written notice to the remaining
parties, if the Board of Directors of Prison Realty or any committee
thereof shall have withdrawn or modified in a manner adverse to such
terminating party its approval or recommendation of the Merger or this
Agreement or resolved to do so;
(h) unless the party seeking to terminate this Agreement is in
material breach of its obligations hereunder, by CCA, PMSI or JJFMSI upon
written notice to the other parties if Prison Realty breaches or fails to
perform any of its representations, warranties, covenants or other
agreements hereunder, which breach or failure to perform (A) would give
rise to the failure of a condition set forth in Section 6.03, 6.04 or 6.05
hereof and (B) is incapable of being cured by Prison Realty or is not cured
within thirty (30) days after the terminating party gives written notice of
such breach to Prison Realty and such a cure is not effected during such
period; or
(i) unless Prison Realty is in material breach of its obligations
hereunder, by Prison Realty upon written notice to the other parties if
either CCA, PMSI or JJFMSI breaches or fails to perform any of their
representations, warranties, covenants or other agreements hereunder, which
breach or failure to perform (A) would give rise to the failure of a
condition set forth in Section 6.02 hereof and (B) is incapable of being
cured by the party so breaching or failing to perform or is not cured
within thirty (30) days after Prison Realty gives written notice of such
breach to the breaching party and such a cure is not effected during such
period.
Section 7.02 Effect of Termination. In the event of termination of this
Agreement by Prison Realty as provided in Section 7.01 herein, this Agreement
shall, at the election of Prison Realty, either: (i) forthwith become void and
have no effect; or (ii) terminate only as to the merger with the party with
respect to which the grounds for termination have arisen and otherwise the
Agreement shall continue in full force and effect with respect to the mutual
obligations of, and merger of, Prison
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Realty and the other parties, and, except to the extent that such termination
results from the wilful and material breach by a party of any of its
representations, warranties, covenants or agreements set forth in this
Agreement, there shall be no liability or obligation on the part of CCA, PMSI
and JJFMSI except with respect to Section 5.06, this Section 7.02 and Article
VIII hereof, which provisions shall survive such termination. In the event of
termination of this Agreement by CCA, PMSI or JJFMSI, this Agreement shall, at
the election of Prison Realty, terminate only in respect of the merger with such
terminating party, and the Agreement shall continue in full force and effect
with respect to the mutual obligations of, and merger among, Prison Realty and
the other parties not so terminating.
Section 7.03 Amendment. This Agreement may be amended by the parties
hereto at any time before or after the Prison Realty Stockholder Approval, the
CCA Shareholder Approval, the PMSI Shareholder Approval and the JJFMSI
Shareholder Approval is received, provided that after receipt of the Prison
Realty Stockholder Approval, the CCA Shareholder Approval, the PMSI Shareholder
Approval or the JJFMSI Shareholder Approval, no amendment shall be made which by
law requires further approval by such shareholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
Section 7.04 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto may, to the extent legally allowed, (a) extend the time for
the performance of any of the obligations or other acts of the other party
hereto, (b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (c) subject to
the proviso of Section 7.03, waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.
Section 7.05 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.01, an amendment of this
Agreement pursuant to Section 7.03 or an extension or waiver pursuant to Section
7.04 shall, in order to be effective, require action by the Board of Directors,
or the duly authorized committee of such Board to the extent permitted by law,
of the party authorizing such action.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement shall survive the Effective
Time. This Section 8.01 shall not limit any covenant or agreement of the parties
which by its terms contemplates performance after the Effective Time.
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Section 8.02 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(with confirmation) or sent by overnight or same-day courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
if to Prison Realty, to:
Prison Realty Trust, Inc.
10 Burton Hills Boulevard, Suite 100
Nashville, Tennessee 37215
Attention: Doctor R. Crants, Jr., Chairman of the Board of
Directors and Chief Executive Officer
Facsimile: (615) 263-0234
with a copy to:
Stokes & Bartholomew, P.A.
424 Church Street, Suite 2800
Nashville, Tennessee 37219-2323
Attention: Elizabeth E. Moore, Esq.
Facsimile: (615) 259-1470
if to CCA, to:
Corrections Corporation of America
10 Burton Hills Boulevard
Nashville, Tennessee 37215
Attention: J. Michael Quinlan, President and Chief Operating
Officer
Facsimile: (615) 263-3010
with a copy to:
Sherrard & Roe, PLC
424 Church Street, Suite 2000
Nashville, Tennessee 37219
Attention: John R. Voigt, Esq.
Facsimile: (615) 742-4239
if to PMSI, to:
Prison Management Services, Inc.
10 Burton Hills Boulevard
Nashville, Tennessee 37215
Attention: Darrell K. Massengale, Chief Executive Officer and
President
Facsimile: (615) 263-3170
if to JJFMSI, to:
Juvenile and Jail Facility Management Services, Inc.
10 Burton Hills Boulevard
Nashville, Tennessee 37215
Attention: Darrell K. Massengale, Chief Executive Officer and
President
Facsimile: (615) 263-3170
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Section 8.03 Definitions; Interpretation.
(a) As used in this Agreement:
(i) unless otherwise expressly provided herein, an "affiliate" of
any person means another person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common
control with, such first person, where "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of
the management policies of a person, whether through the ownership of
voting securities, by contract or otherwise;
(ii) "business day" means any day on which banks are not required
or authorized to close in the City of New York;
(iii) "material adverse effect" means any change, effect, event,
occurrence or development that is, or is reasonably likely to be,
materially adverse to the business, results of operations or financial
condition of a party hereto or its Subsidiaries, taken as a whole, other
than any change, effect, event or occurrence relating to or arising out
of (A) the economy or securities markets in general, (B) this Agreement
or the transactions contemplated hereby or the announcement thereof,
including, but not limited to, changes in methods of accounting with
respect to the financial statements of a party hereto or its
Subsidiaries as precipitated by this Agreement or the transactions
contemplated hereby or by the review of the SEC of the Prison Realty
Filed SEC Documents or the Proxy Statement-Prospectus, or (C) private
corrections industry in general, and not specifically relating to the
parties hereto or their Subsidiaries;
(iv) "person" means an individual, corporation, partnership,
limited liability company, joint venture, association, trust,
unincorporated organization or other entity; and
(v) "Subsidiary" of any person means another person, an amount of
the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its
Board of Directors or other governing body (or, if there are not such
voting interests, more than 50% of the equity interests of which) is
owned directly or indirectly by such first person.
(b) When a reference is made in this Agreement to Articles, Sections,
Exhibits or Schedules, such reference shall be to an Article, Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation
of this Agreement. Whenever the words "include", "includes" or "including"
are used in this Agreement, they shall be deemed to be followed by the
words "without limitation". The words "hereof", "herein" and "hereunder"
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
The term "or" when used in this Agreement is not exclusive. All terms
defined in this Agreement shall have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto unless
otherwise defined therein. The definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such terms. Any
agreement, instrument or statute defined or referred to herein or in any
agreement or instrument that is referred to herein means such agreement,
instrument or statute as from time to time amended, modified or
supplemented, including (in the case of agreements or instruments) by
waiver or consent and (in the case of statutes) by succession of comparable
successor statutes and references to all attachments thereto and
instruments incorporated therein. References to a person are also to its
permitted successors and assigns.
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Section 8.04 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other party.
Section 8.05 Entire Agreement; No Third-Party Beneficiaries; Rights of
Ownership. This Agreement (a) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof, and (b) other than Section
5.07 of this Agreement, is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
Section 8.06 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Maryland, without regard
to any principles of conflicts of law of such State.
Section 8.07 Publicity. Except as otherwise permitted by this Agreement or
required by law or the rules of the NYSE, so long as this Agreement is in
effect, no party to this Agreement shall, or shall permit any of its affiliates
to, issue or cause the publication of any press release or other public
announcement or statement with respect to this Agreement or the transactions
contemplated hereby without first obtaining the consent of the other parties
hereto. The parties agree that the initial press release to be issued with
respect to the transactions contemplated by this Agreement shall be in the form
heretofore agreed to by the parties.
Section 8.08 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned, in whole or in part, by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties, and any such assignment that is not
so consented to shall be null and void; provided that, if necessary or advisable
under applicable provisions of corporate or tax law, Prison Realty may assign
its rights hereunder to any of its Subsidiaries or affiliates to cause CCA, PMSI
and/or JJFMSI to merge with a Subsidiary or affiliate of Prison Realty, but no
such assignment shall relieve Prison Realty of its obligations hereunder
including the obligations to deliver the CCA Merger Consideration, the PMSI
Merger Consideration or the JJFMSI Merger Consideration. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and assigns.
Section 8.09 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Federal court located in the
State of Tennessee or in any Tennessee state court, this being in addition to
any other remedy to which they are entitled at law or in equity. In addition,
each of the parties hereto (a) consents to submit itself to the personal
jurisdiction of any Federal court located in the State of Tennessee or any
Tennessee state court in the event any dispute arises out of this Agreement or
any of the transactions contemplated by this Agreement and (b) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court.
[SIGNATURE PAGES TO FOLLOW]
F-71
<PAGE> 330
Accepted and agreed to this 26th day of December, 1999.
PRISON REALTY TRUST, INC.
By: /s/ DOCTOR R. CRANTS
-----------------------------------------
Name: Doctor R. Crants
Title: Chief Executive Officer
CCA ACQUISITION SUB, INC.
By: /s/ DARRELL K. MASSENGALE
-----------------------------------------
Name: Darrell K. Massengale
Title: President and CEO
PMSI ACQUISITION SUB, INC.
By: /s/ DARRELL K. MASSENGALE
-----------------------------------------
Name: Darrell K. Massengale
Title: President and CEO
JJFMSI ACQUISITION SUB, INC.
By: /s/ DARRELL K. MASSENGALE
-----------------------------------------
Name: Darrell K. Massengale
Title: President and CEO
[ADDITIONAL SIGNATURE PAGE TO FOLLOW]
F-72
<PAGE> 331
CORRECTIONS CORPORATION OF AMERICA
By: /s/ DARRELL K. MASSENGALE
---------------------------------------
Name: Darrell K. Massengale
Title: CFO and Secretary
PRISON MANAGEMENT SERVICES, INC.
By: /s/ DARRELL K. MASSENGALE
-----------------------------------------
Name: Darrell K. Massengale
Title: President and CEO
JUVENILE AND JAIL FACILITY
MANAGEMENT SERVICES, INC.
By: /s/ DARRELL K. MASSENGALE
-----------------------------------------
Name: Darrell K. Massengale
Title: President and CEO
F-73
<PAGE> 332
EXHIBIT A
FORM OF LOCK-UP AGREEMENT
DECEMBER , 1999
Prison Realty Trust, Inc.
10 Burton Hills Boulevard, Suite 100
Nashville, Tennessee 37215
Re: Shares of Common Stock to be Issued by Prison Realty Trust, Inc. in
Connection with the Merger of Corrections Corporation of America with and
into Prison Realty Trust, Inc.
Ladies and Gentlemen:
The undersigned understands that as a result of the merger (the "Merger")
of Corrections Corporation of America, a Tennessee corporation formerly known as
Correctional Management Services Corporation ("CCA"), with and into CCA
Acquisition Sub, Inc., a Tennessee corporation and wholly-owned subsidiary of
Prison Realty Trust, Inc. (the "Company"), shares of capital stock held by the
undersigned in CCA will be exchanged or converted into shares of common stock
(the "Common Stock") of the Company. In consideration of the foregoing and in
connection with the Merger, the undersigned hereby agrees that the undersigned
will not, without the prior written approval of the Board of Directors of the
Company, offer for sale, sell, transfer, assign, pledge, hypothecate or
otherwise dispose of, directly or indirectly (collectively, a "Transfer"), any
shares of Common Stock received in connection with the Merger (the "Shares"),
nor enter into any agreement regarding the same, for a period of one hundred
eighty (180) days (the "180-Day Period") following the date of closing of the
Merger, and further agrees not to Transfer such Shares thereafter except as
follows: (i) after expiration of the 180-Day Period, a holder may Transfer up to
twenty-five percent (25%) of the aggregate amount of the Shares; (ii) after
December 31, 2001, a holder may Transfer up to fifty percent (50%) of the
aggregate amount of the Shares; (iii) after December 31, 2002, a holder may
Transfer up to seventy-five percent (75%) of the aggregate amount of the Shares;
and (iv) after December 31, 2003, a holder may Transfer up to one hundred
percent (100%) of the aggregate amount of the Shares.
The foregoing agreements shall be binding on the undersigned and the
undersigned's respective heirs, personal representatives, successors and
assigns.
It is understood that if the Merger is not consummated this agreement shall
terminate.
Sincerely,
Signature:
--------------------------------------
Name:
--------------------------------------
F-74
<PAGE> 333
APPENDIX G
[LOGO] Merrill Lynch Pierce, Fenner
& Smith Incorporated
World Financial Center
North Tower
New York, New York 10281-1330
Telephone 212-449-1000
December 26, 1999
Board of Directors
Prison Realty Trust, Inc.
10 Burton Hills Boulevard
Nashville, Tennessee 37215
Members of the Board of Directors:
Prison Realty Trust, Inc., a Maryland corporation (the "Company"), proposes
to issue (i) 12,600,000 shares of its Series B Cumulative Convertible Preferred
Stock, $0.01 par value per share (the "Series B Preferred Stock"), less the
number shares of Series C Preferred Stock (as hereinafter defined) sold in the
Rights Offering (as hereinafter defined), if any, and (ii) warrants (the
"Investor Warrants") to purchase a number of shares of its Common Stock, $0.01
par value per share ("Common Stock"), equal to fourteen percent (14%) of the
Common Stock on a fully diluted basis after giving effect to the Merger (as
hereinafter defined), less the number of shares of Common Stock subject to the
Rights Offering Warrants (as hereinafter defined), if any, in exchange for a
total aggregate purchase price of $315,000,000, less fees and commissions and
the amount of gross proceeds received by the Company from the Rights Offering,
pursuant to the Securities Purchase Agreement, dated as of December 26, 1999
(the "Securities Purchase Agreement"), among the Company, Corrections
Corporation of America, a Tennessee corporation ("CCA"), Prison Management
Services, Inc., a Tennessee corporation ("PMSI"), and Juvenile and Jail Facility
Management Services, Inc., a Tennessee corporation ("JJFMSI"), and the investors
(the "Investors") named on the signature pages thereto (the "Initial
Financing").
The Securities Purchase Agreement further provides that the Company has the
right, upon the terms and subject to the conditions set forth therein, to sell
to the Investors up to 1,400,000 additional shares of Series B Preferred Stock
for eighteen (18) months following the closing of the Initial Financing, on the
same terms and conditions granted to, and at the same price per share paid by,
the Investors in the Initial Financing (together with the Initial Financing, the
"Financing"), for a total aggregate purchase price not to exceed $35,000,000.
The Securities Purchase Agreement further provides that, concurrently with
seeking the approval of the stockholders of the Company in respect of various
aspects of the Transaction (as hereinafter defined), the Company will undertake
a rights offering (the "Rights Offering") to the holders of Common Stock of
units ("Units") consisting of (i) rights to purchase an aggregate of 3,000,000
shares of Series C Cumulative Convertible Preferred Stock, $0.01 par value per
share ("Series C Preferred Stock" and collectively with Series B Preferred
Stock, "Preferred Stock"), on substantially the same terms and conditions
granted to, and at the same price per share paid by, the Investors for the
Series B Preferred Stock, and (ii) warrants (the "Rights Offering Warrants" and
together with the Investor Warrants, the "Warrants") to purchase an aggregate
number of shares of Common Stock equal to three percent (3%) of Common Stock on
a fully diluted basis after giving effect to the Merger, with the same rights
and terms as the Investor Warrants.
G-1
<PAGE> 334
It is a condition precedent to the closing of the Initial Financing that
there shall have occurred the mergers of (i) CCA with and into CCA Acquisition
Sub, Inc., a Tennessee corporation ("CCA Acq. Sub."), (ii) PMSI with and into
PMSI Acquisition Sub, Inc., a Tennessee corporation ("PMSI Acq. Sub."), and
(iii) JJFMSI with and into JJFMSI Acquisition Sub, Inc., a Tennessee corporation
("JJFMSI Acq. Sub."), pursuant to the Agreement and Plan of Merger, dated as of
December 26, 1999 (the "Merger Agreement"), among the Company, CCA Acq. Sub.,
CCA, PMSI Acq. Sub., PMSI, JJFMSI Acq. Sub. and JJFMSI (the transactions
referred to in this sentence, collectively the "Merger"). Pursuant to the Merger
Agreement, upon the effective time of the Merger each issued and outstanding
share of common stock of CCA ("CCA Common Stock"), PMSI and JJFMSI, except for
certain shares of capital stock of these companies cancelled and retired
pursuant to the Merger Agreement, will be converted into the right to receive a
certain number of shares of Common Stock determined in accordance with the
Merger Agreement. Upon the closing of the merger, we understand that the Common
Stock and the Series A Preferred Stock, $0.01 par value per share, will continue
to be listed on the New York Stock Exchange.
Assuming conversion of the Series B Preferred Stock and Series C Preferred
Stock into Common Stock and exercise of the Warrants, we understand that upon
the closing of the Financing the Investors would own approximately 39.6% of the
Common Stock on a fully diluted basis if none of the Units are subscribed for in
the Rights Offering and approximately 31.1% of the Common Stock on a fully
diluted basis if all of the Units are subscribed for in the Rights Offering.
In connection with the closing of the Merger, the Company shall purchase
(the "CCA Institutional Holders Purchase") from a mutual fund sponsored by Baron
Capital Group, Inc. ("Baron") and from Sodexho Alliance S.A. ("Sodexho"),
3,499,064 shares of CCA Common Stock, which constitutes approximately 32% of the
total outstanding CCA Common Stock and represents all of the capital stock of
CCA held by these entities, in exchange for a total aggregate purchase price of
$16,000,000, pursuant to a Stock Purchase Agreement, dated as of December 26,
1999 (the "CCA Institutional Holders Stock Purchase Agreement"), among the
Company, Baron and Sodexho.
In addition to the Financing, the Rights Offering, the Merger and the CCA
Institutional Holders Purchase, we understand that the Company intends to take
the following actions (collectively with the Financing, the Rights Offering, the
Merger and the CCA Institutional Holders Purchase, the "Transaction"):
(a) Cease qualifying as a real estate investment trust (a "REIT") under the
Internal Revenue Code of 1986, as amended (the "Code"), commencing with
its tax year ending December 31, 1999; and
(b) Enter into a new Senior Secured Credit Facility providing for up to
$1,200,000,000 in financing (the "Senior Credit Facility").
We further understand that the Company may issue and sell up to
$375,000,000 of senior subordinated debt securities in lieu of a portion of the
Senior Credit Facility.
You have asked us whether, in our opinion, the proposed Financing is fair
to the Company and its stockholders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
1. Reviewed certain publicly available business and financial information
relating to the Company and CCA that we deemed to be relevant,
including the Company's (and its predecessors') Annual Reports on Form
10-K and related financial information for the three fiscal years ended
December 31, 1998 and the Company's Quarterly Reports on Form 10-Q
G-2
<PAGE> 335
and related unaudited financial information for the quarterly periods
ending March 31, 1999, June 30 1999 and September 30, 1999;
2. Reviewed certain additional financial information, including financial
forecasts, relating to the business, earnings, cash flow, assets,
liabilities and prospects of the Company and CCA furnished to us by the
Company and CCA;
3. Conducted discussions with members of senior management of the Company
concerning the business and prospects of the Company and CCA and the
prison industry in general;
4. Reviewed the results of operations of the Company and CCA and compared
them with those of certain companies that we deemed to be relevant;
5. Reviewed historical market prices and trading activity of the common
stock and compared them with those of certain publicly traded companies
that we deemed to be relevant;
6. Compared the proposed financial and other terms of the Financing with
the financial and other terms of certain other transactions that we
deemed to be relevant;
7. Considered certain pro forma financial effects of the Transaction;
8. Reviewed the Securities Purchase Agreement;
9. Reviewed the Merger Agreement; and
10. Reviewed such other financial studies and analyses and performed such
other investigations, and took into account such other matters, as we
deemed necessary.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by or on behalf of
the Company and CCA and all information made publicly available by the Company
and CCA, and we have not assumed any responsibility for independently verifying
such information or undertaking an independent appraisal of the assets or
liabilities of the Company or CCA. In addition, we have assumed the following:
1. The financial forecasts furnished by the Company and CCA have been
reasonably prepared and reflect the best currently available estimates
and judgment of the Company's and CCA's management as to the expected
future financial performance of the Company and CCA;
2. The Company will cease qualifying as a REIT under the Code commencing
with its tax year ending December 31, 1999 in accordance with the terms
of its Charter, Bylaws and all material contracts and agreements to
which it is a party or by which it or its assets is bound;
3. (i) The Financing will close in accordance with the Securities Purchase
Agreement, (ii) the Merger will close on or before the Financing in
accordance with the Merger Agreement, (iii) the CCA Institutional
Holders Purchase will close on or before the Merger in accordance with
the CCA Institutional Holders Stock Purchase Agreement and (iv) the
Company will enter into the Senior Credit Facility;
4. No aspect of the Transaction will have an adverse effect upon the
Company or CCA, it being understood that this assumption does not
address the Financing; and
5. In the course of obtaining the necessary regulatory, contractual and
other consents and approvals for the Transaction, no regulatory,
contractual or other requirements imposed on the Company or CCA will
have an adverse effect upon the Company.
G-3
<PAGE> 336
In the ordinary course of our trading, brokerage and financing activities,
Merrill Lynch, Pierce, Fenner & Smith Incorporated or its affiliates may at any
time hold long or short positions, and may trade or otherwise effect
transactions, for our own account or the accounts of customers, in equity
securities of the Company.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and the information made available to us
as of, the date hereof. This opinion does not in any manner address (i) any
aspect of the Transaction (other than the Financing) or the merits of the
underlying decision of the Company to engage in any aspect of the Transaction
(including the Financing), (ii) the value of the Common Stock or the prices at
which the Common Stock will trade following the issuance of the Preferred Stock,
the Warrants and the Units (to the extent issued), (iii) the fairness of the
consideration to be received by any person or entity in connection with the
Merger or the CCA Institutional Holders Purchase, (iv) the relative merits of
any aspect of the Transaction compared to any alternative business or financing
strategy that might exist for the Company or (v) the adequacy of the Company's
capital structure or the Company's financial resources, financial commitments or
solvency.
We are acting as financial advisor to the Board of Directors of the Company
in connection with the Financing and will receive a fee for our services upon
the closing of the Financing. In addition, the Company has agreed to indemnify
us for certain liabilities arising out of our engagement. Furthermore, Merrill
Lynch has provided and expects to continue to provide advice to CCA in
connection with the Merger and transactions ancillary thereto and to deliver an
opinion to the Board of Directors of CCA in connection with the Merger and such
ancillary transactions.
It is understood that this letter has been prepared solely for the
confidential use of the Board of Directors of the Company in connection with its
consideration of the Financing and will not be reproduced, summarized, described
or referred to or given to any other person without Merrill Lynch's prior
consent.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed Financing is fair to the Company and its stockholders from a
financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
G-4
<PAGE> 337
APPENDIX H
[LOGO]
Wasserstein Perella & Co., Inc.
31 West 52nd Street
New York, New York 10019-6118
Telephone 212-969-2700
Fax 212-969-7836
December 26, 1999
The Independent Committee
of the Board of Directors
Prison Realty Trust, Inc.
10 Burton Hills Boulevard
Suite 100
Nashville, Tennessee 37215
Members of the Independent Committee of the Board of Directors:
We understand that Prison Realty Trust, Inc., a Maryland corporation (the
"Company"), Corrections Corporation of America, a Tennessee corporation ("CCA"),
Prison Management Services, Inc., a Tennessee corporation ("PMSI") and Juvenile
and Jail Facility Management Services, Inc., a Tennessee corporation ("JJFMSI"),
will enter into a Securities Purchase Agreement, dated as of December 26, 1999
(the "Purchase Agreement"), with the investors named therein (collectively, the
"Investors") pursuant to which, among other things,
(1) the Investors will purchase from the Company for an aggregate purchase
price of $315 million in cash, less the amount of gross proceeds
received by the Company from the Rights Offering (as defined below)
(the "Initial Investment"), an aggregate of
(A) 12,600,000 shares of the Company's Series B Cumulative Convertible
Preferred Stock, $0.01 par value per share (the "Series B Preferred
Stock"), which shall be convertible into shares of the Company's
common stock, $0.01 par value per share (the "Common Stock"), less
the number, if any, of shares of Series C Preferred Stock (as
defined below) subscribed for and sold in the Rights Offering, and
(B) warrants to purchase that number of shares of Common Stock equal to
fourteen percent (14%) of the fully-diluted shares of Common Stock
after giving effect to the Combination (as defined in the Purchase
Agreement), less the number, if any, of shares of Common Stock
subject to Rights Offering Warrants (as defined below) purchased in
the Rights Offering (the "Initial Warrants" and, together with the
Series B Preferred Stock, the "Securities"),
(2) the Company will extend a Rights Offering to the holders of Common
Stock pursuant to which the Company will give such holders an
opportunity to purchase from the Company, on substantially the same
terms and conditions granted to, and at the same purchase price paid
by, the Investors with respect to the Initial Investment, up to $75
million of units consisting of
(A) rights to purchase an aggregate of 3,000,000 shares of the Company's
Series C Cumulative Convertible Preferred Stock, $0.01 par value per
share (the "Series C Preferred Stock"), which shall be convertible
into shares of Common Stock, and
H-1
<PAGE> 338
The Independent Committee
of the Board of Directors
Prison Realty Trust, Inc.
December 26, 1999
Page 2
(B) warrants to purchase an aggregate of that number of shares of Common
Stock equal to three percent (3%) of the fully-diluted shares of
Common Stock after giving effect to the Combination, with rights and
terms identical to those of the Initial Warrants (the "Rights
Offering Warrants" and, together with the Initial Warrants, the
"Warrants"), and
(3) the Company has the right, from time to time during the period
commencing on the date of the Initial Closing (as defined in the
Purchase Agreement) and ending 18 months thereafter, to issue and sell
to the Investors for an aggregate purchase price not to exceed $35
million (the "Standby Commitment"), up to an additional 1,400,000
shares of Series B Preferred Stock (the "Additional Series B Preferred
Stock" and, together with the Series B Preferred Stock and the Series C
Preferred Stock, the "Preferred Stock") on the same terms and
conditions granted to the Investors with respect to the Initial
Investment and at a purchase price per share equal to the Initial
Purchase Price (as defined in the Purchase Agreement) divided by the
number of shares of Series B Preferred Stock purchased by the Investors
at the Initial Closing.
The Initial Investment, the Rights Offering and the Standby Commitment,
taken as a whole, are referred to herein as the proposed "Investment."
Upon conversion of the outstanding Preferred Stock assuming the issuance
and sale of all 14,000,000 shares and exercise of the outstanding Warrants, we
understand that the Investors will own in the aggregate approximately 83,350,555
shares of Common Stock, or 39.6% of the Common Stock expected to be outstanding
upon consummation of the Merger on a fully-diluted basis.
We also understand that, as a condition to closing the Investment, the
Company, CCA Acquisition Sub, Inc., a Tennessee corporation and a wholly-owned
subsidiary of the Company ("CCA Sub"), PMSI Acquisition Sub, Inc., a Tennessee
corporation and a wholly-owned subsidiary of the Company ("PMSI Sub"), JJFMSI
Acquisition Sub, Inc., a Tennessee corporation and a wholly-owned subsidiary of
the Company ("JJFMSI Sub"), CCA, PMSI and JJFMSI will enter into an Agreement
and Plan of Merger, dated as of December 26, 1999 (the "Merger Agreement"),
pursuant to which, among other things,
(1) CCA will merge into CCA Sub (the "CCA Merger"),
(2) PMSI will merge into PMSI Sub (the "PMSI Merger"), and
(3) JJFMSI will merge into JJFMSI Sub (the "JJFMSI Merger," and, together
with the CCA Merger and the PMSI Merger, the "Merger").
Upon consummation of the Merger, we understand that (A) each of the Common
Stock (as defined below) and the Series A Preferred Stock, $0.01 par value per
share, of the Company will continue its listing on the New York Stock Exchange,
(B) the Company will continue to conduct its operations in a manner so as to
maintain its qualification as a "real estate investment trust" within the
meaning of the Internal Revenue Code of 1986, as amended (the "Tax Code"), but,
pending shareholder approval of the Transaction, will elect to cease such
qualification, resulting in the Company being classified as a Subchapter C
corporation within the meaning of the Tax Code
H-2
<PAGE> 339
The Independent Committee
of the Board of Directors
Prison Realty Trust, Inc.
December 26, 1999
Page 3
commencing with its tax year ending December 31, 1999, in accordance with the
terms of its charter and bylaws and all material contracts and agreements to
which it is a party or by which it or its assets are bound, (C) each of CCA Sub,
PMSI Sub and JJFMSI Sub will remain wholly-owned subsidiaries of the Company and
(D) each issued and outstanding share of common stock of CCA, PMSI and JJFMSI,
except for certain shares of common stock of these companies cancelled and
retired pursuant to the Merger Agreement, will be converted into the right to
receive a certain number of shares of Common Stock (as defined below) determined
in accordance with the Merger Agreement.
The terms and conditions of the Investment and the Merger are set forth in
more detail in the Purchase Agreement and the Merger Agreement, respectively.
The transactions contemplated in the Merger Agreement and the Purchase Agreement
are collectively referred to herein as the "Transaction."
You have asked us for our opinion as to whether the proposed Investment is
fair to the Company and its shareholders from a financial point of view.
In connection with rendering our opinion, we have reviewed a draft of each
of the Purchase Agreement, dated December 23, and the Merger Agreement, dated
December 23, 1999, and, for purposes hereof, we have assumed that the final form
of each of these documents will not differ in any material respect from the
drafts provided to us. We have also reviewed and analyzed certain publicly
available business and financial information relating to the Company and certain
non-public business and financial information relating to CCA, PMSI and JJFMSI
for recent years and interim periods to date, as well as certain internal
financial and operating information, including financial forecasts, analyses and
projections prepared by or on behalf of each of the Company, CCA, PMSI and
JJFMSI and provided to us for purposes of our analysis, and we have met with
management of each of the Company, CCA, PMSI and JJFMSI to review and discuss
such information and, among other matters, the business, operations, assets,
financial condition and future prospects for each of the Company, CCA, PMSI and
JJFMSI.
We have reviewed and considered certain financial and stock market data
relating to the Company, and we have compared that data with similar data for
certain other companies, the securities of which are publicly traded, that we
believe may be relevant or comparable in certain respects to the Company or one
or more of its businesses or assets. We have also reviewed and considered the
financial terms of certain recent convertible preferred securities that we
believe to be relevant to our inquiry. In delivering our opinion, we have taken
into account the financial and liquidity issues facing the Company and CCA,
including the Company's financial results. We have also performed such other
financial studies, analyses, and investigations and reviewed such other
information as we considered appropriate for purposes of this opinion.
In our review and analysis and in formulating our opinion, we have assumed
and relied upon the accuracy and completeness of all of the historical financial
and other information provided to or discussed with us or publicly available,
and we have not assumed any responsibility for independent verification of any
of such information. We have also assumed and relied upon the reasonableness and
accuracy of the financial projections, forecasts and analyses provided to us,
and we have assumed that such projections, forecasts and analyses were
reasonably prepared in good faith and on bases reflecting
H-3
<PAGE> 340
The Independent Committee
of the Board of Directors
Prison Realty Trust, Inc.
December 26, 1999
Page 4
the best currently available judgments and estimates of the Company's
management. We express no opinion with respect to such projections, forecasts
and analyses or the assumptions upon which they are based. In addition, we have
not reviewed any of the books and records of the Company, CCA, PMSI or JJFMSI,
or assumed any responsibility for conducting a physical inspection of the
properties or facilities of the Company, CCA, PMSI or JJFMSI, or for making or
obtaining an independent valuation or appraisal of the assets or liabilities of
the Company, CCA, PMSI or JJFMSI, and no such independent valuation or appraisal
was provided to us.
We note that the Merger is intended to qualify as a tax-free reorganization
for United States Federal tax purposes, and we have assumed the Merger will so
qualify. You have informed us, and we have assumed, that the Company will
continue to conduct its operations in a manner so as to maintain its
qualification for treatment as a "real estate investment trust" within the
meaning of the Tax Code, but, pending shareholder approval of the Transaction,
will elect to cease such qualification, resulting in the Company being
classified as a Subchapter C corporation within the meaning of the Tax Code
commencing with its tax year ending December 31, 1999, in accordance with the
terms of its charter and bylaws and all material contracts and agreements to
which it is a party or by which it or its assets are bound.
We also have assumed that obtaining all regulatory and other approvals and
third party consents required for consummation of the Transaction will not have
an adverse impact on the Company, CCA, PMSI or JJFMSI or on the anticipated
benefits of the Transaction, and we have assumed that the transactions described
in each of the Merger Agreement and the Purchase Agreement will be consummated
without waiver or modification of any of the material terms or conditions
contained therein by any party thereto. In addition, we have assumed that
neither the Merger nor any transaction contemplated by the Merger Agreement will
have an adverse effect on the Company.
Our opinion is necessarily based on economic and market conditions and
other circumstances as they exist and can be evaluated by us as of the date
hereof. We do not express any opinion herein as to the prices at which any
securities of the Company will actually trade at any time.
It should be noted that in the context of our engagement, you directed us
not to, and we did not, solicit third party indications of interest in making an
investment in, acquiring all or any part of, or otherwise engaging in any
extraordinary transaction with the Company, CCA, PMSI or JJFMSI, nor did we
investigate any alternative transactions that may be available to the Company or
negotiate with any party regarding any transaction, including the Transaction.
You have advised us, and we have relied on your advice, that Merrill Lynch,
Pierce, Fenner & Smith Incorporated, advisor to the Special Committee of the
Board of Directors of the Company in connection with the Investment, solicited
indications of interest over four months in a merger or investment in the
Company from over 45 potential investors and merger partners for the Company,
including those potential investors and merger partners that the Company
believed were the logical parties interested in such transactions.
In the ordinary course of our business, we may actively trade the debt and
equity securities of the Company for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
H-4
<PAGE> 341
The Independent Committee
of the Board of Directors
Prison Realty Trust, Inc.
December 26, 1999
Page 5
We are delivering this opinion to the Independent Committee of the Board of
Directors of the Company in connection with the proposed Investment and will
receive a fee for our services, a significant portion of which is contingent
upon the consummation of the Investment.
Our opinion addresses only the fairness, from a financial point of view, to
the Company and its shareholders of the proposed Investment, and we do not
express any views on any individual aspect of the Transaction or on any other
terms of the Purchase Agreement or any terms of the Merger Agreement. Our
opinion does not address the Company's capital structure, ability to satisfy its
obligations, ability to access the capital markets for future financing
requirements or solvency, in each case at any time, including presently and
following the completion of the Transaction. Our opinion also does not address
the Company's underlying business decision to effect the transactions
contemplated by either the Merger Agreement or the Purchase Agreement or the
relative merits of the Transaction (including the fact that the Company will no
longer qualify for treatment as a "real estate investment trust" under the Tax
Code) compared to any alternative business or financing strategy that might
exist for the Company.
It is understood that this letter is for the benefit and use of the
Independent Committee of the Board of Directors of the Company in its
consideration of the Transaction and, except for inclusion in its entirety in
any registration statement or proxy statement required to be circulated to
stockholders of the Company relating to the Investment, may not be quoted,
referred to or reproduced at any time or in any manner without our prior written
consent. This opinion does not constitute a recommendation to any holder of
Common Stock as to how such holder should vote with respect to the Transaction,
and should not be relied upon by any stockholder as such. In addition, this
opinion does not address the merits of the Rights Offering or constitute a
recommendation to any holder of Common Stock, as to whether such stockholder
should purchase any Rights Offering Securities from the Company.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that, as of the date hereof,
the proposed Investment is fair to the Company and its shareholders from a
financial point of view.
Very truly yours,
/s/ Wasserstein Perella & Co.
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<PAGE> 342
PROXY DRAFT
PRISON REALTY TRUST, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY , 2000
The undersigned hereby appoints Thomas W. Beasley and J. Michael Quinlan, or
either of them, with full power of substitution, as proxies, and hereby
authorizes them to represent and to vote, as designated, all of the voting
common stock of Prison Realty Trust, Inc., a Maryland corporation ("Prison
Realty"), held by the undersigned on , 2000, at the Special Meeting of
Shareholders to be held at the Loews Vanderbilt Plaza, 2100 West End Avenue,
Nashville, Tennessee, on , May , 2000, at , local time, and
any adjournment(s) or postponement(s) thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM 1.
1. To approve an equity investment in Prison Realty by affiliates of
Fortress Investment Group LLC, The Blackstone Group and Bank of America.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM 2.
2. To approve amendments to the Prison Realty charter to, among other
things, permit Prison Realty to elect not to be taxed as a real estate
investment trust for federal income tax purposes.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM 3.
3. To ratify the actions of the Prison Realty board of directors, its
Special Committee and Independent Committee in approving the equity
investment and related transactions, including the combination of Prison
Realty with Corrections Corporation of America, Prison Management
Services, Inc. and Juvenile and Jail Facility Management Services, Inc.,
which are conditions to the equity investment.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies are authorized to vote upon such business
as may properly come before this meeting.
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THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER, AND IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR ITEM 1, FOR ITEM 2 AND FOR ITEM 3.
Dated: ____________, 2000
Signature:
Signature if Held Jointly:
Please sign exactly as name appears on
your share certificates. Each joint
owner must sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give full
title as such. If a corporation,
please sign in full corporate name as
authorized. If a partnership, please
sign in partnership name by authorized
person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY.
