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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
November 20, 1998 (November 19, 1998)
CORRECTIONS CORPORATION OF AMERICA
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(Exact name of registrant as specified in its charter)
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<S> <C> <C>
TENNESSEE 1-13560 62-1156308
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(State or other jurisdiction of incorporation) (Commission File Number) (I.R.S. Employer
Identification No.)
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<TABLE>
<S> <C>
10 BURTON HILLS BOULEVARD, NASHVILLE, TENNESSEE 37215
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (615) 263-3000
NOT APPLICABLE
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
The following information is being furnished in connection with the
proposed merger of Corrections Corporation of America ("CCA") and CCA Prison
Realty Trust ("Prison Realty") into Prison Realty Corporation ("New Prison
Realty").
SETTLEMENT OF PENDING CCA CLASS ACTION LITIGATION
In July 1998, a consolidated complaint was filed with respect to a group of
lawsuits originally filed in April 1998 by certain purported shareholders of CCA
in Chancery Court for Davidson County in Nashville, Tennessee. The complaint
names CCA and its directors as defendants. The plaintiffs in the action
represent a putative class of all public shareholders of CCA common stock.
The complaint alleged, among other things, that the directors of CCA
breached their fiduciary duties to CCA and CCA's public shareholders. The
complaint sought, among other things, preliminary and permanent injunctive
relief prohibiting completion of the merger as then proposed and directing CCA
or its directors to adopt a procedure or process, such as an auction, to obtain
the highest possible price for CCA. The complaint also sought unspecified
damages and other relief. Plaintiffs also moved to amend their complaint to seek
other relief including additional disclosures in the joint proxy
statement-prospectus of CCA and Prison Realty furnished to their shareholders in
connection with the merger and a prohibition on the accelerated vesting of CCA
stock options and deferred stock.
The plaintiffs in this litigation and CCA have reached an agreement to
settle the litigation. The settlement, which is subject to customary conditions,
including approval by the Chancery Court, provides as follows:
- the charter of Prison Management Services, Inc. ("Service Company A") and
Juvenile and Jail Facility Management Services, Inc. ("Service Company
B") will provide that New Prison Realty's interest in 95% of the earnings
of both Service Company A and Service Company B shall not be reduced
through the sale of any equity or convertible debt in either Service
Company A or Service Company B, absent written agreement by New Prison
Realty's Board of Directors (Please see pages 92-93 of the joint proxy
statement-prospectus);
- the percentage fee payable by Correctional Management Services
Corporation ("Operating Company") to New Prison Realty under the trade
name use agreement will be increased as described below. The trade name
use agreement currently provides that Operating Company will pay to New
Prison Realty a percentage of Operating Company's revenues subject to a
limitation that it not exceed a certain percentage of New Prison Realty's
revenues (Please see page 91 of the joint proxy statement-prospectus);
The following table sets forth applicable percentages as described in the
joint proxy statement-prospectus:
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<CAPTION>
LIMITATION ON
PERCENTAGE OF PAYMENT AS A
OPERATING PERCENTAGE OF
COMPANY'S NEW PRISON
REVENUES REALTY'S
PAYABLE REVENUES
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<S> <C> <C>
Years 1-3.................................. 2.5% 2.5%
Years 4-5.................................. 3.0% 3.25%
Years 6-10................................. 3.0% 3.25%
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The following table sets forth the percentages as increased subject to the
settlement:
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<CAPTION>
LIMITATION ON
PERCENTAGE OF PAYMENT AS A
OPERATING PERCENTAGE OF
COMPANY'S NEW PRISON
REVENUES REALTY'S
PAYABLE REVENUES
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<S> <C> <C>
Years 1-3...................................... 2.75% 2.75%
Years 4-5...................................... 3.25% 3.5%
Years 6-10..................................... 3.625% 3.875%
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- in the event of a change in control (as defined) of Operating Company
before January 1, 2004, New Prison Realty will have the right to
terminate its leases with Operating Company;
- New Prison Realty will be granted a preemptive right to ensure that New
Prison Realty has the opportunity to purchase securities in any offering
of Operating Company securities which would otherwise have the effect of
reducing New Prison Realty's 9.5% economic interest in Operating Company;
- as described in the joint proxy statement-prospectus, outstanding CCA
stock options will be converted into options to purchase New Prison
Realty common stock on the same terms and conditions, including vesting
(Please see page 84 of the joint proxy statement-prospectus);
- as described in the joint proxy statement-prospectus, awards of CCA
deferred stock under CCA's Stock Bonus Plan will be converted into awards
of New Prison Realty deferred stock on similar vesting terms (Please see
page 84 of the joint proxy statement-prospectus); and
- under the terms of the settlement, the amount of any fee awarded to
counsel for the plaintiffs will be decided by the Chancery Court and paid
by the defendants.
The settlement also provides for the following additional disclosure to be
disseminated to CCA shareholders.
BACKGROUND OF THE MERGER
Pages 46 through 49 of the joint proxy statement-prospectus describe the
background of the proposed merger. In that section, when references are made to
senior management of CCA, the specific persons being referred to include Doctor
R. Crants and Darrell K. Massengale. References to senior management of Prison
Realty include D. Robert Crants, III and Michael W. Devlin.
ADDITIONAL INFORMATION REGARDING UPDATED STEPHENS FAIRNESS OPINION
As stated on page 62 of the joint proxy statement-prospectus, the Stephens
opinion is based on market, economic and other conditions as they existed as of
the date of such opinion. Due to changes in market and economic conditions,
including the volatility in the debt and equity markets, between the date of its
original opinion in April and the date of the updated opinion in October,
Stephens increased the discount rates used in the Discounted Cash Flow Analysis
for CCA to reflect that increased volatility. The discount rates were also
increased in the Discounted Cash Flow Analysis for Prison Realty. Increasing the
discount rates had the effect of reducing the implied value of CCA and Prison
Realty common stock. In addition, Stephens reduced the funds from operations
("FFO") multiples used to calculate terminal values to reflect the lower
comparable FFO multiples in the market for publicly traded real estate
investment trusts as of the date of the updated opinion. Reducing the FFO
multiple had the effect of reducing the implied value of Prison Realty common
stock. This disclosure explains the reasons for and effects of the changes in
assumptions on this analysis between the date of the original and updated
opinions but there are not any changes to the conclusions stated in the joint
proxy statement-prospectus.
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METHOD OF CALCULATION OF CERTAIN PRO FORMA FINANCIAL INFORMATION
The joint proxy statement-prospectus contains pro forma financial
statements for New Prison Realty. With respect to the pro forma statement of
operations for New Prison Realty, presented on pages 147 and 154 of the joint
proxy statement-prospectus, there is a sum of CCA pro forma adjustments which
are required to compute the New Prison Realty adjusted pro forma results. Pages
149 and 156 of the joint proxy statement-prospectus set forth the computation of
the pro forma statement of operations adjustments for CCA. One of those series
of adjustments relates to the revenues and expenses of Operating Company.
Immediately prior to the merger, CCA will sell to Operating Company certain
management contracts related to Prison Realty-owned prison facilities and
certain other net assets in exchange for an installment note in the principal
amount of $137.0 million and 9.5% of the capital stock of Operating Company. The
adjustments relating to Operating Company remove the historical results of
operations related to the management contracts to be sold to Operating Company
as if the merger and sale had occurred as of the beginning of the pro forma
period. This disclosure specifically sets forth the method of calculating
certain pro forma information. No change has been made to the calculation set
forth in the joint proxy statement-prospectus.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CORRECTIONS CORPORATION OF AMERICA
By: /s/ Darrell K. Massengale
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Name: Darrell K. Massengale
Title: Chief Financial Officer and
Secretary
Date: November 20, 1998
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