-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Dv2S1R2U0VJdq4J/fky/aHS682GgYcm7FfjAtSULUzMXhHt88K1t8eWdAKbZ+XGu 4hMdx5NUoVJit7c0EO5h7A== 0000950144-98-003489.txt : 19980331 0000950144-98-003489.hdr.sgml : 19980331 ACCESSION NUMBER: 0000950144-98-003489 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 30 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORRECTIONS CORPORATION OF AMERICA CENTRAL INDEX KEY: 0000739404 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-FACILITIES SUPPORT MANAGEMENT SERVICES [8744] IRS NUMBER: 621156308 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13560 FILM NUMBER: 98577410 BUSINESS ADDRESS: STREET 1: 102 WOODMONT BLVD STE 800 CITY: NASHVILLE STATE: TN ZIP: 37205 BUSINESS PHONE: 6152923100 10-K 1 CORRECTIONS CORPORATION OF AMERICAN FYE:12/31/97 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-13560 CORRECTIONS CORPORATION OF AMERICA (Exact name of Registrant as specified in its charter) TENNESSEE 62-1156308 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 10 BURTON HILLS BOULEVARD, NASHVILLE, TENNESSEE 37215 (Address and Zip Code of principal executive offices) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (615) 263-3000 102 WOODMONT BLVD., SUITE 800, NASHVILLE, TENNESSEE 37205 (Former name, address and fiscal year if changed since last report) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- COMMON STOCK, $1.00 PAR VALUE NEW YORK STOCK EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE ------------------ Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Company's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting common stock held by non-affiliates of the Registrant was $2,156,105,380 as of March 17, 1998, based upon the closing price of such stock as reported on the New York Stock Exchange ("NYSE") on that day. There were 80,187,742 shares of common stock, $1.00 par value per share, outstanding at March 17, 1998. DOCUMENTS INCORPORATED BY REFERENCE Part III of this report incorporates by reference information from the definitive Proxy Statement for the Annual Meeting of Shareholders, to be held in May 1998 which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934 no later than March 31, 1998. ================================================================================ 2 CORRECTIONS CORPORATION OF AMERICA FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 TABLE OF CONTENTS
Item No. Page - -------- ---- PART I 1. Business.................................................................................................1 2. Properties..............................................................................................22 3. Legal Proceedings.......................................................................................25 4. Submission of Matters to a Vote of Security Holders.....................................................25 PART II 5. Market for Registrant's Common Equity and Related Shareholder Matters...................................26 6. Selected Financial Data.................................................................................29 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...................31 7A. Quantitative and Qualitative Disclosures about Market Risk..............................................39 8. Financial Statements and Supplementary Data.............................................................39 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures...................39 PART III 10. Directors and Executive Officers of the Registrant......................................................40 11. Executive Compensation..................................................................................40 12. Security Ownership of Certain Beneficial Owners and Management..........................................40 13. Certain Relationships and Related Transactions..........................................................40 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.........................................40 SIGNATURES
2 3 CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN THIS ANNUAL REPORT ON FORM 10-K PURSUANT TO THE "SAFE HARBOR" PROVISION OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN "RISK FACTORS" AS SET FORTH HEREIN AND IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES OCCURRING AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. PART I ITEM 1. BUSINESS As used herein, unless the context otherwise requires, the "Company" means Corrections Corporation of America and its subsidiaries. Unless otherwise indicated, the information herein has been adjusted to give effect to (i) a 2-for-1 split on the Company's common stock, $1.00 par value (the "Common Stock"), effected in the form of a stock dividend declared on October 4, 1995 and (ii) a 2-for-1 split on the Common Stock effected in the form of a stock dividend declared on June 5, 1996. GENERAL The Company is the largest developer and manager of privatized correctional and detention facilities worldwide. The Company's facilities are located in 19 states, the District of Columbia, Puerto Rico, Australia and the United Kingdom. As of March 20, 1998, the Company had contracts to manage 68 correctional and detention facilities with an aggregate design capacity of 54,944 beds. Of these 68 facilities, 55 are currently in operation and 13 are under development by the Company, eight of which are subject to an option to purchase by CCA Prison Realty Trust ("Prison Realty"), two of which will be financed and owned by the Company and three of which will be financed and owned by contracting government entities. The Company, through its United Kingdom joint venture, UK Detention Services ("UKDS"), manages one facility in the United Kingdom and, through its Australian joint venture, CC Australia, manages two facilities in Australia. The Company's ownership interest in UKDS and CC Australia is accounted for under the equity method. Of the 13 facilities under development by the Company, eight are scheduled to commence operations during 1998. In addition, at March 9, 1998, the Company had outstanding written responses to RFPs and other solicitations for nine projects with an aggregate design capacity of 11,604 beds. The services provided by the Company to government agencies include the integrated design, construction and management of new correctional and detention facilities and the redesign, renovation and management of older facilities. In addition to providing the fundamental residential services relating to adult and juvenile inmates, the Company's facilities offer a large variety of rehabilitation and education programs including basic education, life skills and employment training and substance abuse treatment. The Company also provides health care (including medical, dental and psychiatric services), institutional food services, transportation requirements, and work and recreational programs. Management of the Company believes that its proven ability to deliver a full range of high quality correctional and detention facility management services on a cost-effective and efficient basis to government agencies 1 4 provides such agencies with sufficient incentives to choose the Company when awarding new contracts or renewing existing contracts. In addition to the opening of new facilities, in recent years, the Company has expanded its service capabilities and broadened its geographic presence in the United States market through a series of strategic acquisitions of prison management companies and individual facilities, as well as the acquisition of an inmate transportation company ("TransCor America, Inc."). The Company intends to continue to pursue strategic acquisitions of prison management companies and facilities when the proposed acquisition enhances shareholder value. In addition to its domestic operations, the Company has obtained and is pursuing construction and management contracts for correctional and detention facilities outside the United States. The Company presently has contracts to operate one facility in the United Kingdom, and two facilities in Australia, and also has contracts to provide inmate transportation services in Australia. In June 1994, the Company entered into an international strategic alliance with Sodexho S.A., a French conglomerate ("Sodexho"), for the purpose of pursuing prison management business outside the United States. In connection with the alliance, Sodexho purchased a significant ownership in the Company and entered into certain agreements with the Company relating to future financings by the Company and corporate governance and control matters. See "Business Strategy - Expansion into International Markets." To further facilitate the Company's growth, on July 18, 1997, the Company and certain of its subsidiaries sold nine correctional and detention facilities to Prison Realty. Simultaneously with the sale of each of the facilities to Prison Realty, the Company entered into agreements with Prison Realty to lease the facilities from Prison Realty pursuant to long-term, non-cancellable triple net leases. In connection with the sale-leaseback transactions, the Company granted Prison Realty options to acquire five additional correctional and detention facilities, as well as an option to acquire any correctional or detention facility acquired or developed and owned by the Company in the future. To date, the Company has sold thirteen facilities to Prison Realty for an aggregate purchase price of approximately $491.2 million in cash. See "Recent Disposition of Assets." The Company is a Tennessee corporation and is the successor to a corporation of the same name incorporated in Delaware in 1986 (which is the successor to a corporation of the same name originally incorporated in Tennessee in 1983). In May 1997, the Company changed its state of incorporation from Delaware to Tennessee pursuant to an "migratory merger" which merged the Company into a newly-formed Tennessee corporation. The Company's principal executive offices are located at 10 Burton Hills Boulevard, Nashville, Tennessee 37215 and its telephone number is (615) 263-3000. BUSINESS STRATEGY The Company intends to increase revenues and enhance its position as the largest developer and manager of privatized correctional and detention facilities worldwide through the following business strategies. Efficient Development and Management of Facilities. The Company will continue to provide low cost, high quality management of its facilities. The Company believes that its quality of personnel, efficient application of financial resources and adherence to proven policies and procedures enable it to design, develop and manage correctional and detention facilities at costs lower than the government agencies that are responsible for performing such services. The Company believes that its reputation as an innovative and effective manager of facilities enhances its ability to market its services and capitalize on a larger scope of opportunities with a variety of government agencies. The Company also recognizes the importance of the facility administrator and the facility's management team in the successful financial performance of its facilities. Management believes that the Company's reputation as the leading developer and manager of privatized correctional and detention facilities enables it to attract highly-qualified facility administrators. Each 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 2 5 quality services in each of its facilities. The Company seeks to minimize operating expenses by designing its facilities to optimize correctional officer staffing consistent with facility security requirements. The Company further controls operating expenses through the use of electronic surveillance systems and other technologies. Development of Domestic Business Opportunities. As a result of the growth in the demand for privatized correctional and detention facilities, the Company is selective in the projects it pursues. The Company pursues projects based on probability of success, geographic location, size, potential profitability, and political and community acceptability. This approach allows the Company to enhance its market share and optimize resource allocation, profitability and financial return. The Company 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 Company's experience and reputation in managing large secure facilities will enable it to maintain its industry position and capitalize on the trend of governments to privatize larger facilities. Strategic Acquisitions. In 1994 and 1995, the Company expanded its service capabilities and broadened its geographic presence in the United States through a series of strategic acquisitions that complement the Company's development activities. In December 1994, the Company acquired TransCor. In April 1995, the Company acquired Concept Incorporated ("Concept"), a prison management company with eight facilities and 4,400 beds under contract at the time of acquisition. In August 1995, the Company acquired Corrections Partners, Inc. ("CPI"), a prison management company with seven facilities and 2,900 beds under contract at the time of acquisition. The Company believes that its acquisitions have significantly enhanced its position as the largest developer and manager of privatized correctional and detention facilities while increasing operating efficiencies. Accordingly, the Company intends to continue to pursue strategic acquisitions of other managers of privatized correctional and detention facilities. Expanded Scope of Services. The Company intends to continue to implement a wide variety of specialized services that address the unique needs of various segments of the inmate population. Because the facilities operated by the Company differ with respect to security levels, ages, genders and cultures of inmates, the Company focuses on the particular needs of an inmate population and tailors its services based on local conditions and the Company's ability to provide such services on a cost-effective basis. In addition to core residential services, the Company offers rehabilitative and educational services such as counseling, basic education, job skill training and life skills/transition planning services, all of which are aimed at reducing recidivism. Further, because management believes alcohol and drug abuse are directly or indirectly responsible for the majority of criminal offenses in the United States, the Company has created, and offers to its inmates, its LifeLine program, a comprehensive long-term substance abuse treatment program. The Company believes that its success in delivering these specialized services will enable it to address the changing needs of its customers. By offering a broad range of specialized services, the Company seeks to provide a solution to the public's and the government's desire to reduce recidivism and, ultimately, the cost of crime. Expansion into International Markets. The Company believes that the majority of its new business will come from within the United States. However, the Company and its international strategic partner, Sodexho, believe that interest in private-sector corrections is developing in other nations. While management will not detract from its domestic business to pursue international activities, the Company will participate in selected international projects it finds attractive. The Company also believes that in order to compete effectively in international markets it must enter into alliances with strategic local partners with access to local opportunities and familiarity with local business practices. In June 1994, the Company entered into an international strategic alliance with Sodexho. Among other business ventures, Sodexho provides contract services to French prisons and has business operations in 66 countries. Pursuant to the terms of the joint venture agreement between the Company and Sodexho, only the Company will develop and manage prison management business in the United States and its territories. In the rest of the world, the Company and Sodexho will pursue the prison management business opportunities through local joint venture entities to be established generally on a 50/50 basis. In connection with the alliance, in October 1995, the Company sold to Sodexho a 50% interest in CC Australia. In December 1996, the Company sold to Sodexho a 20% interest in UKDS and granted Sodexho an 3 6 option to purchase an additional 30% interest in UKDS. Sodexho exercised such option in June 1997. Management believes that, with the formation of the Sodexho alliance, the Company is well positioned to participate in international markets. Cost Reduction Programs. An important component of the Company's strategy is to position itself as a low cost, high quality provider of prison management services in all of its markets. As cost containment pressures increase, the Company 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. The Company intends to continue to apply these operating cost initiatives throughout its existing facilities and in new facilities. RECENT DISPOSITION OF ASSETS On July 18, 1997, the Company and certain of its subsidiaries, sold the following nine correctional and detention facilities (the "Initial Facilities") to Prison Realty for an aggregate purchase price of $308.1 million: Houston Processing Center located in Houston, Texas; Laredo Processing Center located in Laredo, Texas; Bridgeport Pre-Parole Transfer Facility located in Bridgeport, Texas; Mineral Wells Pre-Parole Transfer Facility located in Mineral Wells, Texas; West Tennessee Detention Facility located in Mason, Tennessee; Leavenworth Detention Center located in Leavenworth, Kansas; Eloy Detention Center located in Eloy, Arizona; Central Arizona Detention Center located in Florence, Arizona; and T. Don Hutto Correctional Center located in Taylor, Texas. The Company sold the real property and all tangible property associated with each of the Initial Facilities to Prison Realty. Simultaneously with the sale of each of the facilities to Prison Realty, the Company entered into agreements with Prison Realty to lease the facilities from Prison Realty pursuant to long-term, non-cancellable, triple net leases (the "Leases") which require the Company to pay all operating expenses, taxes, insurance and other costs. All of the Leases provide for base rent with certain annual escalations and have primary terms ranging from 10-12 years which may be extended at the fair market rates for three additional five-year periods upon the mutual agreement of the Company and Prison Realty. In connection with the sale of facilities to Prison Realty, the Company and certain of its subsidiaries entered into Option Agreements pursuant to which the Company and certain of its subsidiaries granted Prison Realty exclusive options to acquire any or all of five correctional facilities until July 18, 2000 for a purchase price equal to the Company's cost of developing, constructing, and equipping such facilities plus 5% of such costs (the "Option Agreements"). To date, Prison Realty has exercised its option to acquire two such facilities, the Northeast Ohio Correction Center located in Youngstown, Ohio and the Torrance County Detention Facility located in Estancia, New Mexico, for an aggregate purchase price of $108.7 million. In addition, in connection with the sale and lease-back arrangements, the Company and Prison Realty entered into a Right to Purchase Agreement pursuant to which Prison Realty has an option to acquire at fair market value and lease-back to the Company any correctional or detention facility acquired or developed and owned by the Company in the future for a period of three years following the date inmates are first received at such facility (the "Right to Purchase Agreement"). To date, Prison Realty has acquired two facilities, the Cimarron Correctional Facility located in Cushing, Oklahoma and the Davis Correctional Facility located in Holdenville, Oklahoma, pursuant to the Right to Purchase Agreement for an aggregate purchase price of $74.4 million (the facilities that are subject to the Option Agreements and the facilities that are subject to the Right to Purchase Agreement are known, collectively, as the "Option Facilities"). All such facilities are leased back to the Company on terms similar to the Leases. 4 7 MARKET The Company believes the United States private corrections industry is in a period of significant growth. In the United States, there is a growing trend toward privatization of government services and functions, including corrections and detention, as governments of all types face continuing pressure to control costs and improve the quality of services. As a result of increased costs, some governments have been forced to limit public services and to seek more cost-effective means of providing the remaining services. Since correctional and detention facilities are viewed as an essential service, fiscal pressures have caused governments to seek to deliver these services more cost effectively. Further, as a result of the number of crimes committed each year and the corresponding number of arrests, incarceration costs generally grow faster than any other part of a government's budget. In an attempt to address these pressures, government agencies responsible for correctional and detention facilities are increasingly privatizing facilities. According to the 1996 Private Adult Correctional Facility Census, prepared by Private Corrections Project Center for Studies in Criminology and Law, University of Florida (the "1996 Census"), the design capacity of privately managed adult correctional and detention facilities worldwide has increased dramatically since the first privatized facility was opened by CCA in 1984. The majority of this growth has occurred since 1989 as the number of privately managed adult correctional and detention facilities in operation or under construction worldwide increased from 26 facilities with a design capacity of 10,973 beds in 1989 to 132 facilities with a design capacity of 85,201 beds in 1996. The majority of all private prison management contracts are in the United States. At December 31, 1996, 118 of the 132 contracts were for United States facilities with the remaining 14 divided between Australia and the United Kingdom. According to the 1996 Census, the aggregate capacity of private facilities in operation or under construction rose from 63,595 beds at December 31, 1995 to 85,201 beds at December 31, 1996, an increase of 34%. Additionally, the 1996 Facility Census Reports that the number of private facilities for which contracts have been awarded increased 27% from 104 in 1995 to 132 in 1996 and that the prisoner population housed in privately managed facilities expanded by 30% in 1996. The 1996 Facility Census reports that at December 31, 1996 there were 25 state jurisdictions, the District of Columbia and Puerto Rico, within which there were private facilities in operation or under construction. Four of these were state jurisdictions within which facilities were located but where the facilities are not intended to house the local or state-level prisoners of those state jurisdictions. An additional six state jurisdictions were contracting for the housing of state-level or local-level prisoners in private facilities located beyond their geographical boundaries. Further, all three federal agencies with prisoner custody responsibilities (i.e., the United States Bureau of Prisons ("BOP"), the U.S. Immigration and Naturalization Service (the "INS") and the U.S. Marshals Service (the "USMS") continued to contract with private management firms. Management believes that the increase in the demand for privatized correctional and detention facilities is also a result, in large part, of the general shortage of beds available in United States correctional and detention facilities. According to reports issued by the United States Department of Justice, Bureau of Justice Statistics ("BJS"), the number of inmates housed in United States federal and state prison facilities increased from 744,208 at December 31, 1985 to 1,630,940 at June 30, 1996, a compound annual growth rate of 7.8%. Industry reports also indicate that inmates convicted of violent crimes generally serve only one-third of their sentence, with the majority of them being repeat offenders. Accordingly, there is a perceived public demand for, among other things, longer prison sentences, as well as prison terms for juvenile offenders, resulting in even more overcrowding in United States correctional and detention facilities. Finally, numerous courts and other government entities in the United States have mandated that additional services offered to inmates be expanded and living conditions be improved. Many governments do not have the readily-available resources to make the changes necessary to meet such mandates. At December 31, 1997, the Company managed 46 of the 97 privatized United States adult facilities and 36,589 of the 59,464 private United States adult beds according to preliminary estimates prepared for the 1997 Private Adult Correction Facility Census (the "1997 Census"). These facilities include (i) correctional and detention facilities privatized by federal agencies (i.e. the BOP, the INS and the USMS), (ii) state prisons, community corrections facilities, 5 8 intermediate sanction facilities, pre-release centers, work program facilities and state jail facilities privatized by state agencies, and (iii) city and county jail facilities and transfer facilities privatized by local agencies. There are also numerous privatized juvenile offender facilities of which the Company currently has contracts to operate facilities with an aggregate design capacity of 691 beds. The demand for privately-managed correctional and detention centers is also increasing internationally. Management believes that many countries are faced with the same fiscal pressures as the United States and, as a result, are seeking more cost-effective means of providing prison management services. At December 31, 1997, there were a total of 21 privatized facilities in the United Kingdom, Scotland and Australia, with an aggregate design capacity of 10,437 beds according to preliminary estimates prepared for the 1997 Census. At December 31, 1997, the Company, through its joint ventures, had contracts to manage three of these facilities with an aggregate design capacity of 1,229 beds. For similar economic reasons, the demand for privatized prisoner transport services is also increasing domestically and internationally. The Company believes that an increasing number of government agencies will look for more cost-effective means of providing these and other ancillary services. 6 9 FACILITIES UNDER MANAGEMENT The following table summarizes certain information with respect to correctional and detention facilities under management by the Company, or a subsidiary or joint venture of the Company, at March 9, 1998.
COMMENCE- FACILITY DESIGN SECURITY MENT OF RENEWAL NAME/LOCATION CUSTOMERS CAPACITY LEVEL CONTRACT TERM OPTION - ------------- --------- -------- ----- -------- ---- ------ DOMESTIC B.M. Moore Pre-Release State of Texas 500 Minimum/ 6/95 8/98 (1) 1 year Center Medium Overton, Texas Bartlett State Jail State of Texas 962 Minimum/ 10/95 8/98 (1) 2 year Bartlett, Texas Medium Bay Correctional Facility State of Florida 750 Medium 8/95 8/98 (1) 2 year Panama City, Florida Bay County Jail Bay County, 276 Multi 10/85 9/99 (1) 3 year Panama City, Florida USMS, INS, BOP Bay County Jail Annex Bay County, 401 Multi 4/86 9/99 (1) 3 year Panama City, Florida USMS, INS Bent County Correctional State of Colorado 700 Medium 10/96 10/99 (1) 2 year Facility Las Animas, Colorado Bridgeport Pre-Parole State of Texas 200 Minimum 11/87 8/98 ---- Transfer Facility Bridgeport, Texas Brownfield Intermediate State of Texas 200 Minimum/ 7/92 8/98 ---- Sanction Facility Medium Brownfield, Texas Central Arizona Detention USMS, INS, States 1,792 Multi 10/94 10/2014 ---- Center of Oregon, Alaska, Florence, Arizona Montana, and New Mexico
7 10
COMMENCE- FACILITY DESIGN SECURITY MENT OF RENEWAL NAME/LOCATION CUSTOMERS CAPACITY LEVEL CONTRACT TERM OPTION - ------------- --------- -------- ----- -------- ---- ------ Cimarron Correctional State of Oklahoma 960 Medium 5/97 6/98 (4) 1 year Facility Cushing, Oklahoma Citrus County Detention Citrus County, Polk 300 Multi 10/95 10/2000 (1) 3 year Center County, USMS Lecanto, Florida Cleveland Pre-Release State of Texas 520 Minimum/ 9/89 8/2000 ---- Center Medium Cleveland, Texas Correctional Treatment District of 866 Medium 3/97 3/2017 ---- Facility Columbia Washington, D.C. Davidson County Juvenile Davidson County, 100 Secure 5/94 4/99 ---- Detention Center State of Tennessee Nashville, Tennessee Davis Correctional Facility State of Oklahoma 960 Medium 4/96 6/99 (1) 2 year Holdenville, Oklahoma Delta Correctional Facility State of Mississippi 1,016 Minimum/ 9/96 9/99 (1) 2 year Greenwood, Mississippi Medium Eden Detention Center BOP, INS 1,225 Minimum 10/95 10/2015 ---- Eden, Texas Elizabeth Detention Center INS 300 Minimum 1/97 8/98 (1) 1 year Elizabeth, New Jersey Eloy Detention Center BOP, INS 1,250(250) Medium 7/94 2/98 Eloy, Arizona Great Plains Correctional State of Oklahoma 768 Medium 10/91 7/98 ---- Facility Hinton, Oklahoma Guayama Correctional Puerto Rico 1,000 Medium 12/95 12/2000 (1) 5 year Center Guayama, Puerto Rico
8 11
COMMENCE- FACILITY DESIGN SECURITY MENT OF RENEWAL NAME/LOCATION CUSTOMERS CAPACITY LEVEL CONTRACT TERM OPTION - ------------- --------- -------- ----- -------- ---- ------ Hardeman County States of Tennessee 2,016 Medium 5/97 6/2000 (6) 3 year Correctional Center Wisconsin, and Whiteville, Tennessee Indiana, Madison County Hernando County Jail Hernando County, 302 Multi 10/88 10/2000 ---- Brooksville, Florida USMS Houston Processing Center INS 411 Medium 4/84 9/98 ---- Houston, Texas Huerfano County State of Colorado 752 Medium 11/97 6/98 ---- Correctional Center Walsenburg, Colorado Jesse R. Dawson State Jail State of Texas 2,000 Minimum/ 8/95 8/98 (1) 2 year Dallas, Texas Medium Lake City Correctional State of Florida 350 Medium 2/97 2/2000 (1) 2 year Facility Lake City, Florida Laredo Processing Center INS, BOP 258 Minimum/ 3/85 4/98 ---- Laredo, Texas Medium Leavenworth Detention USMS 327 Maximum 6/92 9/98 ---- Center Leavenworth, Kansas Liberty County Jail Liberty County, 382 Multi 11/95 11/98 (1) 2 year Liberty, Texas USMS, INS Marion County Jail II Marion County, 670 Multi 11/97 11/2000 (1) 2 year Indianapolis, Indiana State of Indiana Metro-Davidson County Davidson County 1,092 Multi 2/92 6/2000 (1) 2 year Detention Facility Nashville, Tennessee Mineral Wells Pre-Parole State of Texas 1,503(300) Minimum 7/89 8/98 ---- Transfer Facility Mineral Wells, Texas New Mexico Women's State of New 322 Multi 6/89 6/99 (5) 2 year Correctional Facility Mexico Grants, New Mexico
9 12
COMMENCE- FACILITY DESIGN SECURITY MENT OF RENEWAL NAME/LOCATION CUSTOMERS CAPACITY LEVEL CONTRACT TERM OPTION - ------------- --------- -------- ----- -------- ---- ------ Northeast Ohio Correctional District of 2,016 Medium 5/97 7/98 (4) 1 year Center Columbia Youngstown, Ohio Okeechobee Juvenile State of Florida 100 Secure 12/97 6/2000 ---- Offender Correctional Center Okeechobee, Florida Ponce Correctional Center Puerto Rico 1,000 Medium 2/97 2/2002 (1) 5 year Ponce, Puerto Rico Ponce Young Adult Puerto Rico 500 Multi 2/97 2/2002 (1) 5 year Correctional Facility Ponce, Puerto Rico Prairie Correctional Facility States of Minnesota, 1,338 Medium 10/96 10/2007 ---- Appleton, Minnesota Colorado and North Dakota, INS Shelby Training Center Shelby County, 200 Secure 5/86 4/2015 ---- Memphis, Tennessee BOP Silverdale Facilities Hamilton County 414 Multi 10/84 9/2000 (4) 4 year Chattanooga, Tennessee South Central Correctional State of Tennessee 1,506 Medium 3/92 3/2000 (1) 2 year Center Clifton, Tennessee Southern Nevada Women's State of Nevada 500 Medium 9/97 6/2015 ---- Correctional Facility Las Vegas, Nevada Southwest Indiana Regional State of Indiana and 132 Secure 4/95 4/2000 ---- Youth Village surrounding Vincennes, Indiana Counties T. Don Hutto Correctional Williamson County, 480 Medium 1/97 1/2000 ---- Center States of Wyoming Taylor, Texas and Texas Tall Trees Shelby County, 63 Non-secure 1/84 1/2004 ---- Memphis, Tennessee State of Tennessee
10 13
COMMENCE- FACILITY DESIGN SECURITY MENT OF RENEWAL NAME/LOCATION CUSTOMERS CAPACITY LEVEL CONTRACT TERM OPTION - ------------- --------- -------- ----- -------- ---- ------ Torrance County Detention State of New 910 Multi 12/90 12/2010 ---- Facility Mexico, USMS, Estancia, New Mexico INS, Torrance County Venus Pre-Release Center State of Texas 1,000 Minimum/ 8/89 8/98 (1) 1 year Venus, Texas Medium West Tennessee Detention State of Montana, 600 Multi 9/90 9/2010 ---- Facility USMS, INS, BOP, Mason, Tennessee U.S. Virgin Islands Wilkinson County State of Mississippi 500 Medium 1/98 1/2001 (1) 2 year Correctional Center Woodville, Mississippi Winn Correctional Center State of Louisiana 1,474 Medium 3/90 3/2000 ---- Winfield, Louisiana INTERNATIONAL Blakenhurst, HM Prison United Kingdom 850 Medium 5/93 5/98 (3) 3 year Ridditch, England Borallon Correctional Centre Queensland 469 Multi 2/90 4/2000 ---- Queensland, Australia Metropolitan Women's Victoria 125 Multi 8/96 8/2001 (5) 3 year Correctional Centre Victoria, Austria
FACILITY MANAGEMENT CONTRACTS The Company is compensated on the basis of the number of inmates held in each of its facilities. Contracts may vary to provide fixed per diem rates or monthly fixed rates. Of the Company's 52 domestic facilities in operation, 48 of the Company's facility management contracts provide that the Company will be compensated at an inmate per diem rate based upon actual or minimum guaranteed occupancy levels and four of the management contracts are based on monthly fixed rates. In either case, the compensation is invoiced in accordance with applicable law and is paid on a monthly basis. Occupancy rates for a particular facility will be low when first opened or when expansions are first available. However, beyond the start-up period, which typically ranges from 30 to 90 days, the occupancy rate tends to stabilize. For 1997, the average occupancy, based on rated capacity, was 93.2% for all facilities operated by the Company. 11 14 In addition, the Company's contracts generally require the Company to operate each facility in accordance with all applicable laws and regulations. The Company is required by its contracts to maintain certain levels of insurance coverage for general liability, workers' compensation, vehicle liability and property loss or damage. The Company is also required to indemnify the contracting agencies for claims and costs arising out of the Company's operations and, in certain cases, to maintain performance bonds. The Company's facility contracts are short term in nature. Terms of federal contracts generally range from one to five years, and contain multiple renewal options. The terms of local and state contracts may be for longer periods with additional renewal options. Most facility contracts also generally contain clauses which allow the government agency to terminate a contract without cause. The Company's facility contracts are generally subject to annual or bi-annual legislative appropriation of funds. A failure by a government agency to receive appropriations could result in termination of the contract by such agency or a reduction in the management fee payable to the Company. No assurance can be given that other government agencies will not terminate or renew a contract with the Company in the future. OPERATING PROCEDURES Pursuant to the terms of its management contracts, the Company is responsible for the overall operation of its facilities, including staff recruitment, general administration of the facilities, security and supervision of the offenders and facility maintenance. The Company also provides a variety of rehabilitative and educational programs at its facilities. Inmates at most facilities managed by the Company may receive basic education through academic programs designed to improve inmate literacy levels and the opportunity to acquire General Education Development ("GED") certificates. The Company also offers vocational training to inmates who lack marketable job skills. In addition, the Company offers life skills transition planning programs that provide inmates job search training and employment skills, health education, financial responsibility training, parenting and other skills associated with becoming productive citizens. At several of its facilities, the Company also offers counseling, education and/or treatment to inmates with alcohol and drug abuse problems through its LifeLine program. The Company operates each facility in accordance with Company-wide policies and procedures and the standards and guidelines established by the American Correctional Association ("ACA") Commission on Accreditation. The ACA is an independent organization comprised of professionals in the corrections industry that establishes guidelines of standards by which a correctional institution may gain accreditation. The ACA standards, which the ACA believes safeguard the life, health and safety of offenders and personnel, are the basis of the accreditation process and define policies and procedures for operating programs. The ACA standards, which are the industry's most widely accepted correctional standards, describe specific objectives to be accomplished and cover such areas as administration, personnel and staff training, security, medical and health care, food service, inmate supervision and physical plant requirements. The ACA standards are the most widely accepted correctional standards. The Company has sought and received ACA accreditation for 24 of the facilities it currently manages and intends to apply for ACA accreditation for all of its facilities once they are eligible. The accreditation process is usually completed 18 to 24 months after a facility is opened. FACILITY DESIGN, CONSTRUCTION AND FINANCE In addition to its facility management services, the Company also provides consultation to various government agencies with respect to the design and construction of new correctional and detention facilities and the redesign and renovation of older facilities. Since its inception in January 1983, the Company has designed and constructed 31 of its 52 domestic operating corrections facilities for various federal, state, and local government agencies. The Company manages all of the facilities it has designed and constructed or redesigned and renovated. Pursuant to the Company's design, build and manage contracts, the Company is responsible for overall project development and completion. Typically, the Company develops the conceptual design for a project, then hires 12 15 architects, engineers and construction companies to complete the development. When designing a particular facility, the Company utilizes, with appropriate modifications, prototype designs the Company has used in developing other projects. Management of the Company believes that the use of such prototype designs allows it to reduce cost overruns and construction delays. The Company's facilities are designed to maximize staffing efficiencies by increasing the area of vision under surveillance by correctional officers and utilizing additional electronic surveillance systems. Historically, government entities have used various methods of construction financing to develop new correctional facilities, including, but not limited to the following: (i) one-time general revenue appropriation by the government agency for the cost of the new facility; (ii) general obligation bonds that are secured by either a limited or unlimited tax levied by the issuing government entity; or (iii) lease revenue bonds or certificates of participation secured by an annual lease payment that is subject to annual or bi-annual legislative appropriation of funds. In certain circumstances, the Company may provide certain credit enhancements for such financings in the form of a (i) letter of credit, (ii) guaranty or (iii) other similar agreements. Generally, when the project is financed using direct government appropriations or proceeds from the sale of bonds or other obligations issued prior to the award of the project, or by the Company directly, the financing is in place when the construction or renovation contract is executed. If the project is financed using project-specific tax-exempt bonds or other obligations, the construction contract is generally subject to the sale of such bonds or obligations. In most circumstances, substantial expenditures for construction will not be made on such a project until the tax-exempt bonds or other obligations are sold. If such bonds or obligations are not sold, construction and management of the facility may either be delayed until alternate financing is procured or development of the project will be entirely suspended. When the Company is awarded a facility management contract, appropriations for the first annual or bi-annual period of the contract's term have generally already been approved, and the contract is subject to government appropriations for subsequent annual or bi-annual periods. Of the domestic facilities currently managed by the Company, 21 were funded by the government using one of the above-described financing vehicles. FACILITIES UNDER CONSTRUCTION The following table presents information concerning facilities that are currently under construction or are being expanded with respect to which the Company has agreements to provide certain management and operation services: Location Use Bed Capacity -------- --- ------------ Alamo, Georgia Medium Security Correctional Facility 508 Construction has begun on a 508-bed medium security facility in Alamo, Georgia to be known as the Wheeler County Correctional Facility. The facility will be financed and owned by the Company, and construction is scheduled for completion in the fourth quarter of 1998. The facility will house inmates for the State of Georgia. The State of Georgia has the option to increase the facility design capacity to 750 or 1,000 beds. Prison Realty has an option to purchase the facility pursuant to the Right to Purchase Agreement. Boise, Idaho Minimum-Medium Correctional Facility 1,250 Construction has begun on a 1,250-bed multi security facility in Boise, Idaho. The facility will be financed and owned by the State of Idaho, and construction is scheduled for completion in the third quarter of 1999. The facility will house inmates for the State of Idaho. 13 16 Location Use Bed Capacity -------- --- ------------ Burlington, Colorado Medium Security Correctional Facility 768 Construction has begun on a 768-bed medium security facility in Burlington, Colorado, to be known as the Kit Carson Correctional Center. The Company is financing the construction and will own the facility. Construction is scheduled for completion in the fourth quarter of 1998. It is anticipated that the facility will house inmates for the State of Colorado. Prison Realty has an option to purchase the facility from the Company pursuant to the Right to Purchase Agreement. California City, California Medium Security Correctional Facility 2,304 The Company plans to begin construction in the second quarter of 1998 on a 2,304-bed medium security facility in California City, California, to be known as the California City Correctional Facility. Construction is scheduled for completion in the third quarter of 1999. It is anticipated that the facility will house inmates for the State of California. Prison Realty has an option to purchase the facility from the Company pursuant to the Right to Purchase Agreement. Eloy, Arizona Medium Security Correctional Facility 250 (expansion) Construction has been completed on a 250-bed expansion to the 1,250-bed Eloy Detention Center in Eloy, Arizona. The facility is owned by Prison Realty and houses inmates for the BOP and INS. Frostproof, Florida Multi-Security Correctional Facility 1,008 Construction has begun on a 1,008-bed multi security facility in Frostproof, Florida. The Company is financing the construction and will own the facility. Construction is scheduled for completion in the second quarter of 1999, and the facility will house inmates for Polk County, Florida. Lawrenceville, Virginia Medium Security Correctional Facility 1,500 Construction has begun on a 1,500-bed medium security facility in Lawrenceville, Virginia. The facility will be financed and owned by the Brunswick Industrial Development Authority, and construction is scheduled for completion in the first quarter of 1998. The facility will house inmates for the State of Virginia. Mendota, California Medium Security Correctional Facility 1,024 The Company plans to begin construction in the second quarter of 1998 on a 1,024-bed medium security facility in Mendota, California, to be known as the Mendota Correctional Facility. Construction is scheduled for completion in the third quarter of 1999, and it is anticipated that the facility will house Federal inmates. Prison Realty has an option to purchase the facility from the Company pursuant to the Right to Purchase Agreement. Mineral Wells, Texas Medium Security Correctional Facility 300 (expansion) Construction has begun on a 300-bed expansion to the Mineral Wells Pre-Parole Transfer Facility in Mineral Wells, Texas. The facility is owned by Prison Realty and construction is scheduled for completion in the second quarter of 1998. The facility houses inmates for the State of Texas. 14 17 Location Use Bed Capacity -------- --- ------------ Nicholls, Georgia Medium Security Correctional Facility 508 Construction has begun on a 508-bed medium security facility in Nicholls, Georgia, to be known as the Coffee County Correctional Facility. The facility will be financed and owned by the Company, and construction is scheduled for completion in the fourth quarter of 1998. The facility will house inmates for the State of Georgia. The State of Georgia has the option to increase the facility design capacity to 750 or 1,000 beds. Prison Realty has an option to purchase the facility pursuant to the Right to Purchase Agreement. San Diego, California Medium Security Correctional Facility 1,000 The Company plans to begin construction in the second quarter of 1998 on a 1,000-bed medium security facility in San Diego. The facility will be financed and owned by the Company, and construction is scheduled for completion in the second quarter of 1999. The facility is expected to house Federal inmates. Sayre, Oklahoma Medium Security Correctional Facility 1,440 Construction has been completed on a 1,440-bed medium security facility in Sayre, Oklahoma, known as the North Fork Correctional Facility. The Company financed and owns the facility. It is anticipated that the facility will house inmates for the states of Michigan and Oklahoma. Prison Realty has an option to purchase the facility from the Company pursuant to the Option Agreements. Watonga, Oklahoma Medium Security Correctional Facility 1,440 Construction has begun on a 1,440-bed medium security facility in Watonga, Oklahoma, to be known as the Diamondback Correctional Facility. The Company is financing and will own the facility, and construction is scheduled for completion in the fourth quarter of 1998. It is anticipated that the facility will house inmates for various states. Prison Realty has an option to purchase the facility from the Company pursuant to the Right to Purchase Agreement. Whiteville, Tennessee Medium Security Correctional Facility 1,536 Construction has begun on a 1,536-bed medium security facility in Whiteville, Tennessee. The Company is financing and will own the facility and construction is scheduled for completion in the third quarter of 1998. The facility will house inmates for the State of Wisconsin. Prison Realty has an option to purchase the facility from the Company pursuant to the Option Agreements. ORGANIZATIONAL SYSTEM The Company has developed a monitoring and evaluation system which, combined with a centralized organizational structure, positions the Company for expansion without requiring substantial additions of management personnel or reduction in quality. The Company devotes considerable resources to assuring compliance with contractual and other requirements and to maintaining the highest level of quality assurance at each facility through a system of formal reporting, corporate oversight, site reviews and inspection by on-site facility administrators. Under its facilities management contracts, the Company usually provides the contracting government agency with the services, personnel and materials necessary for the operation, maintenance and security of the facility and the custody of inmates. The Company offers full logistical support to the facilities it manages, including security, health care services, transportation, building and ground maintenance, education, treatment and counseling services, and 15 18 institutional food services. Except for certain aspects of health care services, which are generally subcontracted, all of the facilities support services are provided by the Company's personnel. The Company's business development and project departments are responsible for marketing the Company's service to government clients. Marketing responsibilities include identifying new clients, preparing and delivering formal presentations, identifying project construction partners and potential financing sources, developing proposals and interfacing with the Company's customers from contract award through the receipt of inmates. The operations department, in conjunction with the legal department, supervises compliance of each facility to operational standards of applicable management contracts and of professional and government agencies. The operations department also establishes and monitors the policies and procedures of the Company. The department's responsibilities include developing specific policies and procedures manuals, monitoring all management contracts, ensuring compliance with applicable labor and affirmative action standards, training and administering all personnel, purchasing supplies and developing educational, vocational, counseling and life skills inmate programs. The Company provides meals for inmates at the facilities it operates in accordance with regulatory, client and nutritional requirements. These catering responsibilities include hiring and training staff, monitoring food operations, purchasing food and supplies, and maintaining equipment, as well as adhering to all applicable safety and nutritional standards and codes. The Company's finance department oversees the implementation and development of the billing system for each client and for insuring the prompt, systematic payment of all Company obligations under the individual management contracts. This department also monitors and analyzes budgetary and purchasing procedures, tax reporting requirements and fiscal management policies. MARKETING The Company engages in extensive marketing efforts. The Company believes that it is the industry leader in promoting the benefits of privatization of prisons and other correctional and detention facilities. Marketing efforts are conducted and coordinated by the Company's business development department and senior management with the aid, where appropriate, of certain independent consultants. The Company views government agencies responsible for federal, state and local correctional facilities in the United States and government agencies responsible for correctional facilities in Puerto Rico, the United Kingdom and Australia as its primary target markets. The Company generally receives inquiries from or on behalf of government agencies that are considering privatization of certain facilities or that have already decided to contract with private enterprise. When it receives such an inquiry, the Company determines whether there is an existing need for the Company's services and whether the legal and political climate in which the inquiring party operates is conducive to serious consideration of privatization. Then an initial cost analysis is conducted to further determine project feasibility. The Company pursues its domestic business opportunities on two primary courses. In the first course, the Company follows the traditional competitive route where a Request for Proposal ("RFP") or Request for Qualification ("RFQ") is issued by a government agency and a number of companies respond. Management believes that this competitive approach will produce the majority of new contract awards to the Company. The second course involves the development of new facilities in locations where there is a clearly defined, long-term needs for beds, but where a competitive bidding procedure is not required. Generally, government agencies responsible for correctional and detention services procure goods and services through RFPs or RFQs. Most of the Company's activities in the area of securing new business are in the form of responding to RFPs. As part of the Company's process of responding to RFPs, management meets with appropriate personnel from the agency making the request to best determine the agency's distinct needs. If the project fits within the Company's strategy, the Company will then submit a written response to the RFP. A typical RFP requires bidders 16 19 to provide detailed information, including, but not limited to, the service to be provided by the bidder, its experience and qualifications, and the price at which the bidder is willing to provide the services (which services may include the renovation, improvement or expansion of an existing facility or the planning, design and construction of a new facility). The Company has and intends to in the future, engage independent consultants to assist it in responding to RFPs. Based on the proposals received in response to an RFP, the agency will award a contract to the successful bidder. In addition to issuing formal RFPs, local jurisdictions may issue an RFQ. In the RFQ process, the requesting agency selects a firm believed to be most qualified to provide the requested services and then negotiates the terms of the contract with that firm, including the price at which its services are to be provided. The marketing process for facility management consists of several critical events. These include issuance of an RFP or RFQ by a government agency, submission of a response to the RFP or RFQ by the Company, the award of the contract by a government agency and the commencement of construction or management of the facility. The Company's experience has been that a substantial period of time may elapse from the initial inquiry to receipt of a new contract. As the concept of privatization has gained wider acceptance, however, the length of time from inquiry to the award of a contract has shortened. The length of time required to award a contract is also affected, in some cases, by the need to introduce enabling legislation. If the facility for which an award has been made must be constructed, the Company's experience has generally been that management of a newly-constructed facility typically commences between 12 and 24 months after the government agency's award. While the Company focuses primarily on the traditional competitive marketing approach described above, it also pursues the development of new facilities in those areas where a competitive bid process is not required. Management believes this approach, which has proven successful to the Company to date, is effective because of the Company's strong client relationships and reputation for quality corrections management and services. In addition to marketing its services to federal, state and local authorities, the Company markets its services internationally, primarily, through the international alliance formed with Sodexho. The Company is currently marketing its management services in [Australia, Canada, Continental Europe, Panama, South Africa, and the United Kingdom]. The marketing efforts of TransCor for inmate transportation services vary from those of the rest of the Company. TransCor's marketing approach generally consists of mass mailings, phone calls and personal visits to hundreds of state and local government agencies, as well as attendance at local, state and national trade shows. BUSINESS PROPOSALS At March 9, 1998, the Company was pursuing nine prospects with a total of approximately 11,600 beds for which written responses to RFPs and other solicitations have been submitted. The Company is also pursuing nine prospects with a total of approximately 8,700 beds for which it has not submitted proposals. The domestic projects that the Company is pursuing are located in 12 states, including seven states in which the Company is not currently operating. The Company is also pursuing other projects for which it has not yet submitted, and may not submit, a response to an RFP. Additionally, the Company is pursuing business in Australia and the United Kingdom, as well as other foreign facility prospects, through its alliance with Sodexho. No assurance can be given that the Company will receive additional awards with respect to proposals submitted. When a contract requires construction of a new facility, the Company's success depends, in part, upon its ability to acquire real property for its facilities on desirable terms and at satisfactory locations. Management expects that many such locations will be in or near populous areas and therefore anticipates legal action and other forms of opposition from residents in areas surrounding each proposal site. The Company may incur significant expenses in responding to such opposition and there can be no assurance of success. 17 20 MAJOR CUSTOMERS The Company's customers consist of local, state and federal correctional and detention authorities. The following table sets forth, for the periods indicated, the percentage of the Company's revenues from the State of Texas in each of 1996 and 1997. The State of Texas was the only single customer of the Company which accounted for 10% or more of the Company's total revenues in 1997.
Percentage of Revenues ---------------------- Year ended Year ended Customer Location 12/31/97 12/31/96 - -------- -------- -------- -------- State of Texas Venus, Texas 13% 16% Cleveland, Texas, Laredo, Texas Bridgeport, Texas Mineral Wells, Texas Brownfield, Texas Overton, Texas, Bartlett, Texas Liberty, Texas
BACKLOG Most of the Company's contracts provide for the Company to be compensated on a per diem/per capita basis, which fluctuates daily. However, certain contracts guarantee a minimum utilization over the term of such contracts. The Company's backlog, as shown below, reflects only guaranteed revenues pursuant to the Company's guaranteed contracts over the term of such contracts, using current per diem/per capita rates, and disregarding any renewals of such contracts and adjustments to such rates as a result of inflation. As of December 31, 1997, the Company's backlog, determined as described above, was $239.5 million, of which $133.7 million is expected to be filled during the year ending December 31, 1998. As of December 31, 1996, the Company's backlog, computed as described above, was $310.0 million. EMPLOYEES At December 31, 1997, the Company employed 10,873 full-time employees and 192 part-time employees. Of such full-time employees, 147 were employed at the Company's corporate offices and 10,726 were employed at the Company's facilities and its transportation subsidiary. The Company employs personnel in the following areas: clerical and administrative, including facility administrators/wardens, security, food service, medical, transportation and scheduling, maintenance, teachers, counselors and other support services. Each of the Company's facilities is managed as a separate operational unit by the facility administrator or warden. All facilities follow a standardized code of policies and procedures. The Company has never experienced a strike or work stoppage. Beginning in 1992, six facilities were approached by one particular union to organize the work force. The union was defeated or withdrew in five facilities. In March 1993, the Company reached an agreement with a union to represent 73 correctional officers at the Silverdale facility. This contract was decertified in March 1994. In January 1996, the Company reached an agreement with a union to represent 38 non-security personnel at its Shelby Training Center. In March 1997, the Company assumed management of the Correctional Treatment Facility in Washington D.C., and the Company has agreed to recognize organized labor in representing certain employees at this facility. In the opinion of management, overall employee relations are considered good. 18 21 EMPLOYEE TRAINING Under the laws applicable to the Company's operations, and the Company's internal policy, the Company's corrections officers are required to complete a minimum amount of training prior to independent assignment. In most cases, officers must undergo at least 160 hours of training by the Company before being allowed to work alone in a position that will bring them in contact with inmates or detainees. Additional training is required in certain jurisdictions when necessary to comply with applicable law in order to enable such officers to work in positions that will bring them into contact with inmates or detainees. All non-security staff receive 80 hours of initial training. Accordingly, the Company's training programs meet or exceed all applicable requirements. The Company's training is comprised of approximately 40 hours of instruction concerning the Company's policies, operational procedures and management philosophy. An additional 120 hours concerning legal issues, rights of inmates and detainees, techniques of communication and supervision, improvement of interpersonal skills and job training relating to the particular position to be filled are also provided. Employees of facilities taken over by the Company who are offered continued employment undergo at least 40 hours of training by the Company before reporting to work for the Company. Each of the Company's employees who has contact with inmates or detainees receives a minimum of 40 hours of additional training each year, and each facility management employee of the Company receives at least 40 hours of training each year. TransCor also has training requirements for its employees. Each new employee must undergo 40 hours of training, prior to job performance, including driver training and safety, correctional training and policy and procedures guidelines. Each employee then performs four weeks of on-the-job training with an experienced transportation agent. TransCor maintains continuing training for all employees of 16 to 32 hours per year. INSURANCE The Company maintains a $30 million general liability insurance policy for all of its operations. To date, no payments have been made under the Company's general liability insurance policies because of any action brought as a result of the operation of any of its facilities. The Company also maintains insurance in amounts it deems adequate to cover property and casualty risks, workers' compensation and directors and officers liability. There can be no assurance that the aggregate amount and kinds of the Company's insurance are adequate to cover all risks it may incur or that insurance will be available in the future. Each of the Company's facility management contracts and the statutes of certain states require the maintenance of insurance by the Company. The Company's contracts provide that in the event the Company does not maintain such insurance, the contracting agency may terminate its agreement with the Company. The Company believes it is materially in compliance with respect to these requirements. LITIGATION The Company is currently, and from time to time, subject to claims and suits arising in the ordinary course of business, including claims for damages for personal injuries or for wrongful restriction of, or interference with, inmate privileges. As an owner of real property, the Company may be subject to certain proceedings relating to personal injury at such facilities. The leases regarding facilities owned by Prison Realty provide that the Company is responsible for claims based on personal injury and property damage at such facilities and required the Company to maintain insurance for such purposes. See "Risk Factors - Corrections and Detention Industry Risks." 19 22 RISK FACTORS The Company is subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the certain forward looking statements contained herein and elsewhere. The following risk factors identifies, among others, those risks as determined by the Company. Revenue and Profit Growth Dependent on Expansion. The Company's growth is dependent upon its ability to obtain contracts to manage new correctional and detention facilities and to retain existing management contracts. The rate of construction of new facilities and the Company's potential for growth will depend on a number of factors, including crime rates and sentencing patterns in the United States and other countries in which the Company operates, government and public acceptance of the concept of privatization, the number of facilities available for privatization, and the Company's ability to obtain awards for contracts and to integrate new facilities into its management structure on a profitable basis. In addition, certain jurisdictions have recently required the successful bidder to make a significant capital investment in connection with the financing of a particular project. The Company's ability to secure awards under such circumstances will therefore also depend on the Company having significant capital resources. There can be no assurance that the Company will be able to obtain additional contracts to develop or manage new facilities on favorable terms. Risks Associated with Acquisitions. The Company intends to grow internally through the opening of additional facilities, as well as through strategic acquisitions. There can be no assurance that the Company will be able to identify, acquire or profitably manage acquired companies or successfully integrate such operations into the Company without substantial costs, delays or other problems. In addition, there can be no assurance that companies acquired in the future will be profitable at the time of their acquisition or will achieve levels of profitability that justify the investment therein. Acquisitions may involve a number of special risks, including adverse short-term effects on the Company's reported operating results, diversion of management's attention, dependence on retaining, hiring and training key personnel, and risks associated with unanticipated problems or legal liabilities, some or all of which could have a material adverse effect on the Company's financial condition and results of operation. Corrections and Detention Industry Risks Short-Term Nature of Government Contracts. The Company typically enters into facility management contracts with government entities with terms of up to five years, with one or more renewal options that may be exercised only by the contracting government agency. No assurance can be given that any agency will exercise a renewal option in the future. Moreover, the contracting agency typically may terminate a facility contract without cause by giving the Company written notice. Dependence on Government Appropriations. The Company's cash flow is subject to the receipt of sufficient funding of and timely payment by contracting government entities. If the appropriate government agency does not receive sufficient appropriations to cover its contractual obligations, a contract may be terminated, or the management fee may be deferred or reduced. Any delays in payment could have an adverse effect on the Company's cash flow. Further, it is part of the Company's business strategy to acquire facilities from government entities and to lease those facilities to the government entity or to finance the facility for the government entity. The ability of the government entity to make payments under such leases or in connection with such financing may be dependent upon annual appropriations. Dependence on Government Agencies for Inmates. The Company is dependent on government agencies supplying their facilities with a sufficient number of inmates to meet the facility's design capacities. A failure to do so may have a material adverse effect on the Company's financial condition and results of operations. 20 23 Dependence on Ability to Develop New Prisons. The success of the Company in obtaining new awards and contracts may depend, in part, upon its ability to locate land that can be leased or acquired under favorable terms. Otherwise desirable locations may be in or near populated areas and, therefore, may generate legal action or other forms of opposition from residents in areas surrounding a proposed site. Moreover, the private corrections industry is subject to public scrutiny. Negative publicity about an escape, riot or other disturbance at a privately managed facility may result in publicity adverse to the Company and the private corrections industry, thereby making it more difficult for the Company to renew existing contracts, or to obtain new contracts or sites on which to operate new facilities. Options to Purchase. When the Company buys a facility from a government entity, or develops a facility for the same, the government entity may require the Company to grant the government entity an option to purchase the facility back from the Company at a price at or below fair market value. The Company, therefore, may be required to sell such facility to the government entity upon exercise of such an option at less than fair market value. Additionally, if the Company sells such a facility to Prison Realty or to another purchaser, it may be required to adjust the sales price of such facility for a certain period of time for such purchaser with respect to the price paid by such government entity upon exercise of the option and the price paid by the purchaser. Legal Proceedings. The Company's ownership and operation of correctional and detention facilities could expose it to potential third party claims or litigation by prisoners or other persons related to personal injury or other damages resulting from contact with a facility, its managers, personnel, or other prisoners, including damages arising from a prisoner's escape from, or a disturbance or riot at, a Company owned facility. In addition, as an owner of real property, the Company may be subject to certain proceedings relating to personal injury of persons at such facilities. The Company may be held responsible under state laws for claims based on personal injury or property damage. Regulations. The industry in which the Company operates is subject to national, federal, state and local regulations which are administered by various regulatory authorities. Prospective providers of correctional and detention services must comply with a variety of applicable state and local regulations including education, health care and safety regulations. The Company's contracts typically include extensive reporting requirements and require supervision and on-site monitoring by representatives of contracting government agencies. State law also typically requires correctional officers to meet certain training standards. Certain states such as Florida and Texas deem prison guards to be peace officers and require Company personnel to be licensed and may make them subject to background investigation. In addition, many state and local governments are required to enter into a competitive bidding procedure before awarding contracts for products or services. The laws of certain jurisdictions may also require the Company to award subcontracts on a competitive basis or to subcontract with businesses owned by members of minority groups. The failure to comply with any applicable laws, rules or regulations and the loss of any required license could have a material adverse effect on the Company's financial condition and results of operation. Furthermore, the current and future operations of the Company may be subject to additional regulations as a result of, among other factors, new statues and regulations and changes in the manner in which existing statutes and regulations are or may be interpreted or applied. Any such additional regulations could have a material adverse effect on the Company's financial condition and results of operation. Competition. The Company competes primarily on the basis of the quality and range of services offered, its experience in managing facilities, the reputation of its personnel and its ability to design, finance and construct new facilities. The business in which the Company engages is one that other entities may easily enter without substantial capital investment or experience in management of correctional or detention facilities. Private sector competitors of the Company include, among others, Wackenhut Corrections Corporation, Correctional Services Corporation, Inc., United States Corrections Corp., Group 4 International Corrections Service and Securicor Group. Some of the Company's international competitors are larger and have greater resources than the Company. The Company also competes in some markets with smaller local companies that may have a better understanding of the local conditions 21 24 and may be better able to gain political and public acceptance. In addition, the Company competes with government agencies that are responsible for correctional facilities. Dependence on Senior Management. The success of the Company's operations has been and will continue to be highly dependent upon the continued services of its senior management. The loss of one or more of the Company's senior management could have a material adverse effect on the Company's business. Relationship with Sodexho. Sodexho beneficially owns 15.5% of the Common Stock. Accordingly, Sodexho may have a significant influence over the affairs of the Company. Sodexho has agreed to limit its ownership interest in the Company to 25% (or 30% in certain limited circumstances) through June 23, 1999, subject to earlier termination upon the occurrence of certain events, and has agreed to certain restrictions on the voting of its Common Stock. Sodexho has a preemptive right to purchase additional shares of Common Stock or securities convertible or exchangeable for Common Stock in any issuance of securities by the Company in an amount necessary to enable Sodexho to maintain a percentage ownership in the Company equal to 20% of the Common Stock on a fully diluted basis. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." Volatility of Market Price. From time to time, there may be significant volatility in the market price for the Company's Common Stock. The Company believes that the current market price of the Common Stock reflects expectations that the Company will be able to continue to operate its facilities profitably and to develop new facilities at a significant rate and operate them profitably. If the Company is unable to operate its facilities profitably or develop facilities at a pace that reflects the expectations of the market, investors could sell shares of the Common Stock at or after the time that it becomes apparent that such expectations may not be realized, resulting in a decrease in the market price of the Common Stock. In addition to the operating results of the Company, changes in earnings estimated by analysts, changes in general conditions in the economy or the financial markets or other developments affecting the Company or the private corrections industry could cause the market price of the Common Stock to fluctuate substantially. In recent years, the stock market has experienced extreme price and volume fluctuations. This volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to their operations performance. ITEM 2. PROPERTIES The Company currently operates facilities located in 19 states, the District of Columbia, Puerto Rico, Australia and the United Kingdom. As of March 20, 1998, the Company owns five of the 52 domestic facilities it operates, leases 34 domestic facilities from government agencies and non-profit corporations and leases 13 facilities from Prison Realty. On July 18, 1997, the Company and certain of its subsidiaries, sold the Initial Facilities to Prison Realty for an aggregate purchase price of $308.1 million. The Company sold the real property and all tangible property associated with each of the Initial Facilities to Prison Realty. Simultaneously with the sale of each of the facilities to Prison Realty, the Company entered into the Leases which require the Company to pay all operating expenses, taxes, insurance and other costs. All of the Leases provide for base rent with certain annual escalations and have primary terms ranging from 10-12 years which may be extended at the fair market rates for three additional five-year periods upon the mutual agreement of the Company and Prison Realty. In connection with the sale of facilities to Prison Realty, the Company and certain of its subsidiaries entered into Option Agreements pursuant to which the Company and certain of its subsidiaries granted Prison Realty exclusive options to acquire any or all of five correctional facilities until July 18, 2000 for a purchase price equal to the Company's cost of developing, constructing, and equipping such facilities plus 5% of such costs. To date, Prison Realty has exercised its option to acquire two such facilities, the Northeast Ohio Correction Center located in Youngstown, 22 25 Ohio and the Torrance County Detention Facility located in Estancia, New Mexico, for an aggregate purchase price of $108.7 million. In addition, in connection with the sale and lease-back arrangements, the Company and Prison Realty entered into a Right to Purchase Agreement pursuant to which Prison Realty has an option to acquire at fair market value and lease-back to the Company any correctional or detention facility acquired or developed and owned by the Company in the future for a period of three years following the date inmates are first received at such facility. To date, Prison Realty has acquired two facilities, the Cimarron Correctional Facility located in Cushing, Oklahoma and the Davis Correctional Facility located in Holdenville, Oklahoma, pursuant to the Right to Purchase Agreement for an aggregate purchase price of $74.4 million. The location, name and rated capacity of each of the Company's operating facilities at March 20, 1998, grouped by state, are set forth in the following table:
NO. OF OWNED, MANAGED LOCATION CITY NAME BEDS OR LEASED - -------- ---- ---- ---- --------- DOMESTIC Arizona Eloy Eloy Detention Center 1,250 (250) Leased Florence Central Arizona 1,792 Leased Detention Center Colorado Las Animas Bent County Correctional 700 Managed Facility Walsenburg Huerfano County Correctional Center 752 Owned Florida Panama City Bay Correctional Facility 750 Managed Panama City Bay County Jail 276 Managed Panama City Bay County Jail Annex 401 Managed Brooksville Hernando County Jail 302 Managed Lake City Lake City Correctional Facility 350 Managed Lecanto Citrus County Detention 300 Managed Facility Okeechobee Okeechobee Juvenile Offender 100 Managed Correctional Center Indiana Vincennes Southwest Indiana Regional 132 Managed Youth Village Indianapolis Marion County Jail II 670 Managed Kansas Leavenworth Leavenworth Detention Center 327 Leased Louisiana Winnfield Winn Correctional Center 1,474 Managed Minnesota Appleton Prairie Correctional Facility 1,338 Managed Mississippi Greenwood Delta Correctional Facility 1,016 Managed Woodville Wilkinson County Correctional 500 Managed Center Nevada Las Vegas Southern Nevada Women's 500 Owned Correctional Facility New Jersey Elizabeth Elizabeth Detention Center 300 Managed New Mexico Estancia Torrance County Detention 910 Leased Facility Grants New Mexico Women's 322 Owned Correctional Facility
- -------- ( )Indicates number of expansion beds. 23 26
NO. OF OWNED, MANAGED LOCATION CITY NAME BEDS OR LEASED - -------- ---- ---- ---- --------- Ohio Youngstown Northeast Ohio Correction Center 2,016 Leased Oklahoma Cushing Cimarron Correctional Facility 960 Leased Hinton Great Plains Correctional 768 Managed Facility Holdenville Davis Correctional Facility 960 Leased Puerto Rico Guayama Guayama Correctional Center 1,000 Managed Ponce Ponce Correctional Center 1,000 Managed Ponce Ponce Young Adult Facility 500 Managed Tennessee Chattanooga Silverdale Facilities 414 Managed Clifton South Central Correctional 1,506 Managed Center Mason West Tennessee Detention 600 Leased Facility Memphis Shelby Training Center 200 Owned Memphis Tall Trees 63 Managed Nashville Davidson County Juvenile 100 Managed Detention Center Nashville Metro-Davidson County 1,092 Managed Detention Facility Whiteville Hardeman County Correctional 2,016 Managed Center Texas Bartlett Bartlett State Jail 962 Managed Bridgeport Bridgeport Pre-Parole Transfer 200 Leased Facility Brownfield Brownfield Intermediate 200 Managed Sanction Facility Cleveland Cleveland Pre-Release Center 520 Managed Dallas Jesse R. Dawson State Jail 2,000 Managed Eden Eden Detention Center 1,225 Managed Houston Houston Processing Center 411 Leased Laredo Laredo Processing Center 258 Leased Liberty Liberty County Jail 382 Managed Mineral Wells Mineral Wells Pre-Parole 1,503(300) Leased Transfer Facility Overton B.M. Moore Pre-Release 500 Managed Center Taylor T. Don Hutto Correctional 480 Leased Center Venus Venus Pre-Release Center 1,000 Managed District of Washington Correctional Treatment 866 Owned Columbia Facility INTERNATIONAL Australia Queensland Borallon Corrections Centre 455 Managed Victoria Metropolitan Women's 125 Owned Correctional Centre United Kingdom Redditch Blakenhurst HM Prison 649 Managed
- ----------------------------- ( ) Indicates number of expansion beds. 24 27 For the first ten months of 1997, the Company maintained its corporate headquarters in approximately 21,600 square feet of office space at 102 Woodmont Boulevard, Suite 800, Nashville, Tennessee 37205, at a rate comparable for similar space in the area. In addition, during the same period, the Company also leased approximately 13,000 square feet of office space in Brentwood, Tennessee, at a rate comparable for similar space in the area. In March 1996, the Company acquired approximately 3.25 acres in the Burton Hills Office Park, Nashville, Tennessee and began construction on a 75,000 square foot office building. Construction on the office building was completed in November 1997, at which time the Company terminated the office leases referred to above and moved the Company's corporate headquarters to the new building. The Company occupies substantially all of the building with approximately 844 square feet of the office space being leased by the Company to Prison Realty and approximately 2,284 square feet of office space being leased to DC Investment Partners, LLC, a Tennessee limited liability company ("DC Investments"), which serves as the general partner or investment advisor to five private investment limited partnerships. D. Robert Crants, III is a principal in DC Investments and is the son of Doctor R. Crants. The Company's wholly-owned subsidiary, TransCor, leases approximately 15,000 square feet of office space and a maintenance facility comprising approximately 8,000 square feet at 1510 Fort Negley Boulevard, Nashville, Tennessee, at a rate comparable for similar space in the area. ITEM 3. LEGAL PROCEEDINGS The Company is not presently subject to any material litigation nor, to the Company's knowledge, is any litigation threatened against the Company, other than routine litigation arising in the ordinary course of business, some of which is expected to be covered by liability insurance and all of which collectively is not expected to have a material adverse effect on the consolidated financial statements of the Company. See "Risk Factors - Corrections and Detention Industry Risks - Legal Proceedings." ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS No matters were submitted to a vote of shareholders during the fourth quarter of 1997. 25 28 PART II ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS SECURITIES OF THE COMPANY (a) The Company's Common Stock began trading on the New York Stock Exchange (the "NYSE") under the symbol "CXC" in 1994. Effective as of February 2, 1998, the symbol for the Company's Common Stock was changed to "CCA." The following table sets forth the quarterly high and low closing sales prices as reported on the NYSE for the periods indicated. In October 1995, the Company authorized a 2-for-1 stock split on its Common Stock effective October 31, 1995. The stock split was paid in the form of a one-share dividend for every share of Common Stock held by shareholders of record on October 16, 1995. In June 1996, the Company authorized a 2-for-1 stock split on its Common Stock effective July 2, 1996. The stock split was paid in the form of a one-share dividend for every share of Common Stock held by shareholders of record on June 19, 1996. All references herein to the Common Stock are on a post-split basis. The closing stock price for the Company's Common Stock on the New York Stock Exchange was $37.06 on December 31, 1997.
Fiscal Year 1997 High Low ---------------- ---- --- First Quarter $33.50 $24.25 Second Quarter 40.88 23.50 Third Quarter 44.88 37.00 Fourth Quarter 44.56 29.69 Fiscal Year 1996 ---------------- First Quarter $28.50 $17.38 Second Quarter 42.44 26.81 Third Quarter 35.50 27.25 Fourth Quarter 31.75 23.13
(b) As of March 17, 1998, there were approximately 1,288 holders of record of the Company's Common Stock. (c) The Company has not paid any cash dividends to its common shareholders since its inception and does not anticipate paying any cash dividends to its common shareholders in the foreseeable future. The Company intends to retain earnings to provide funds for its operations and growth. Future cash dividend policy will be determined by the Board of Directors based on conditions then existing, including the Company's earnings and financial condition, capital requirements and other relevant factors. In addition, cash dividends may not be paid without the consent of the Company's lenders. In September 1992, the Company issued a warrant dividend to its holders of Common Stock by distributing one warrant for every five outstanding shares of Common Stock held on the record date (the "Warrants"). The Warrants were convertible into four shares of Common Stock at an exercise price of $8.50 and expired on September 14, 1997. SALE OF UNREGISTERED SECURITIES AND USE OF PROCEEDS FROM REGISTERED SECURITIES Sale of Unregistered Securities. The Company has sold the following securities which were not registered under the Securities Act of 1933, as amended (the "Securities Act"), in the last three years. Unless indicated otherwise, all securities were sold in private placements pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act. 26 29 1995 In April 1995, the Company acquired Concept in a share exchange transaction (the "Concept Exchange"). In the Concept Exchange, stockholders of Concept received an aggregate of 5,449,984 (post-split) newly issued restricted shares of the Company's Common Stock for their outstanding shares of Concept common stock. At the request of the parties, Stephens, Inc. issued a fairness opinion in connection with the acquisition (the "Stephens' Fairness Opinion"). In June 1995, as a result of its preemptive right triggered in connection with the issuance of shares of Common Stock to the stockholders of Concept, Sodexho purchased 1,090,000 shares of Common Stock from the Company at a purchase price, as adjusted, of $7.63 per share. Also during 1995, the Company and Sodexho entered into a forward contract whereby Sodexho would purchase up to $20,000,000 of convertible subordinated notes at any time prior to December, 1997. In 1997, the Company and Sodexho extended the expiration date of this contract to December 1999. The notes will bear interest at LIBOR plus 1.35% and will be convertible into common shares at a conversion price, as adjusted, of $6.83 per share. In August 1995, the Company purchased Correction Management Affiliates, Inc., a Delaware corporation ("CMA"), and Correctional Services Group, Inc., a Missouri corporation ("CSG"), in a merger of both companies into wholly-owned subsidiaries of the Company (the "CPI Mergers"). In the CPI Mergers, shareholders of CMA and CSG received an aggregate of 2,800,000 (post-split) newly issued restricted shares of the Company's Common Stock for their outstanding shares of CMA and CSG common stock. Prior to the CPI Mergers, CMA and CSG owned 100% of the issued and outstanding common stock of CPI. 1996 In February 1996, the Company sold an aggregate principal amount of $30,000,000 of Convertible Subordinated Notes to PMI Mezzanine Fund, L.P. Such notes bear interest at a rate of 7.5% per annum, mature on February 29, 2002, and the principal and accrued interest thereon are convertible into shares of Common Stock of the Company at a conversion price, as adjusted, of $25.91 per share. In April 1996, as a result of Sodexho's preemptive right triggered in connection with the issuance of the above-described notes, the Company sold an aggregate principal amount of $20,000,000 Convertible Subordinated Notes to Sodexho. Such notes bear interest at a rate of 7.5% per annum, mature on April 5, 2002 and the principal and accrued interest thereon are convertible into shares of Common Stock of the Company at a conversion price, as adjusted, of $25.91 per share. In August 1996, the Company issued and sold an aggregate principal amount of $24,700,000 Corrections Corporation of America Detention Center Revenue Bonds Series 1996 in a private placement pursuant to Rule 506 of Regulation D promulgated under the Securities Act. Such bonds were issued pursuant a Trust Indenture (the "Indenture") between the Company and Liberty Bank and Trust Company of Tulsa, National Association. The bonds and interest thereon were limited obligations of the Company payable solely from revenues and funds pledged under the Indenture and from moneys drawn under an irrevocable letter of credit. The bonds were scheduled to mature on December 15, 2015, but were paid in full with proceeds from the sale of the Initial Facilities to Prison Realty in July 1997. 1997 In February and August 1997, the Company issued an aggregate of 1,003,542 shares of its common stock to Pacific Mutual Life Insurance Company and PM Group Life Insurance Company pursuant to the conversions of a portion of certain of its 8.5% Convertible Extendable, Subordinated Notes originally issued in 1992. In December 1994, 759,764 shares of the Company's Common Stock were acquired by American Corrections Transport, Inc., a Tennessee corporation ("ACT"), pursuant to the Share Exchange Agreement by and among the 27 30 Company, TransCor America, Inc. ("TransCor"), and the shareholders of TransCor, and relating to the Company's acquisition of TransCor. ACT was a shareholder of TransCor at the time of the 1994 exchange. Subsequently, in October 1997, the Company agreed to exchange those shares of Common Stock held by ACT for 379,882 shares of the Company's newly authorized Series B Convertible Preferred Stock (the "Series B Preferred Stock"). ACT agreed to liquidate and distribute its assets, including the Series B Preferred Stock, to its shareholders immediately following the exchange. Accordingly, on October 2, 1997 the Company, ACT, the majority shareholders of ACT, and one additional individual entered into an Exchange Agreement to effectuate the foregoing transaction. As a condition to the exchange, ACT agreed to place 189,949 shares of the Series B Preferred Stock into escrow with such shares being held to satisfy any claim, loss, liability, costs, and expenses directly or indirectly relating to or resulting from or arising out of the Exchange Agreement and the consummation of the transactions. The exchange was structured as a tax-free organization under the meaning of Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended, and ACT and its shareholder obtained certain tax benefits as a result of the 1997 exchange transaction. The Company assumed no liabilities of ACT as a result of the exchange. The rights and preferences Series B Preferred Stock, generally, are as follows: The shares are convertible into shares of the Company's Common Stock on a 1.94 basis, subject to adjustment, and will automatically convert into the Company's Common Stock upon notification of the Company. The holders of the Series B Preferred Stock may convert the shares into shares of Common Stock in varying increments through September 1, 2000, at which time up to 75% may be converted. The holders of the Series B Preferred Stock may not transfer or assign such shares before September 1, 2000, except upon death. The Series B Preferred Shares shall share in distribution upon an event of sale or liquidation along with the Company's holders of Common Stock based on their respective ownership. The Series B Preferred Stock have the same voting rights as the Common Stock and no dividends shall be declared unpaid on the Common Stock unless dividends are declared and paid on the Series B Preferred Stock at the same time at a rate equal to twice that of the Common Stock. Except for the involvement of Stephens, Inc. in the issuance of the Stephens' Fairness Opinion regarding the Company's acquisition of Concept in 1995, no underwriters were engaged in connection with the foregoing issuance of securities. Use of Proceeds Initial Offering of Prison Realty Common Shares. Pursuant to Prison Realty's Registration Statement on Form S-11 (File No. 333-25725) declared effective by the U.S. Securities and Exchange Commission (the "Commission") on July 10, 1997, on July 18, 1997 Prison Realty completed an initial public offering (the "Initial Public Offering") of 21,275,000 of its common shares, $0.01 par value per share (the "Prison Realty Common Shares"). The gross proceeds to Prison realty from the sale of the Prison Realty Common Shares were approximately $446.8 million, generating net proceeds to Prison Realty of $412.1 million after deduction of the underwriting discount and offering expenses. Pursuant to the requirements of the Commission, the Company was required to act as a co-registrant on Form S-3 (File No. 333-25725-01) with respect to the Initial Offering. The Company did not receive any of the proceeds from the Initial Offering. Prison Realty, however, used $308.1 million of the net proceeds to purchase the nine Initial Facilities from the Company in July 1997, and subsequently used the balance, in part, to purchase three additional Option Facilities from the Company in 1997. The Initial Offering was underwritten by a syndicate of underwriters lead managed by J.C. Bradford & Co., A.G. Edwards & Sons, Inc., Legg Mason Wood Walker-Incorporated, Lehman Brothers, PaineWebber Incorporated, and Stephens, Inc. Offering of Prison Realty 8.0% Series A Cumulative Preferred Shares. Pursuant to Prison Realty's Registration Statement on Form S-11 (File No. 333-43935) declared effective by the Commission on January 26, 1998, on January 30, 1998 and February 27, 1998 Prison Realty completed an offering (the "Preferred Offering") of 4,300,000 shares of its 8.0% Series A Cumulative Preferred Shares, $0.01 par value per share (the "Preferred Shares"). The gross proceeds to Prison Realty from the Preferred Offering was approximately $107.5 million, generating net proceeds to Prison Realty of approximately $103.6 million after deduction of the underwriting discount and estimated offering expenses. Pursuant to the requirements of the Commission, the Company was required to act as a co-registrant on Form S-3 (File No. 333-43935-01) with respect to the Preferred Offering. 28 31 The Company did not receive any of the proceeds from the Preferred Offering. Prison Realty used approximately $72.7 million of the proceeds to repay indebtedness incurred, in part, as the result of purchasing two facilities from the Company in December 1997 and January 1998, respectively. The Preferred Offering was underwritten by a syndicate of underwriters lead managed by J.C. Bradford & Co., NationsBanc Montgomery Securities LLC, PaineWebber Incorporated, Stephens Inc. and Wheat First Butcher Singer. ITEM 6. SELECTED FINANCIAL DATA The selected historical financial data for the five years ended December 31, 1997 are derived from the Company's consolidated financial statements and include financial data reflecting the acquisitions of TransCor in December 1994, Concept in April 1995 and CPI in August 1995, all of which were accounted for as poolings-of-interests. All information contained in the following table should be read in conjunction with the consolidated financial statements and related notes of the Company included herein. 29 32 CORRECTIONS CORPORATION OF AMERICA SELECTED HISTORICAL FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------- 1997 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------- STATEMENT OF OPERATIONS: Revenues $ 462,249 $292,513 $207,241 $152,375 $132,534 --------- -------- -------- -------- -------- Expenses: Operating 330,470 211,208 153,692 123,273 107,837 Lease 18,684 2,786 5,904 741 742 General and administrative 16,025 12,607 13,506 8,939 7,332 Depreciation and amortization 14,093 11,339 6,524 5,753 5,759 --------- -------- -------- -------- -------- 379,272 237,940 179,626 138,706 121,670 --------- -------- -------- -------- -------- Operating income 82,977 54,573 27,615 13,669 10,864 Interest expense (income), net (4,119) 4,224 3,952 3,439 4,424 --------- -------- -------- -------- -------- Income before income taxes 87,096 50,349 23,663 10,230 6,440 Provision for income taxes 33,141 19,469 9,330 2,312 832 --------- -------- -------- -------- -------- Net income 53,955 30,880 14,333 7,918 5,608 Preferred stock dividends -- -- -- 204 425 --------- -------- -------- -------- -------- Net income allocable to common stockholders $ 53,955 $ 30,880 $ 14,333 $ 7,714 $ 5,183 ========= ======== ======== ======== ======== Net income per share: Basic $ .70 $ .43 $ .23 $ .14 $ .10 Diluted $ .61 $ .36 $ .18 $ .12 $ .10 Weighted average shares outstanding: Basic 77,221 71,763 62,257 54,500 50,185 Diluted 90,239 87,040 81,595 62,384 52,155 BALANCE SHEET: Total assets $ 697,940 $468,888 $213,478 $141,792 $109,285 Long-term debt, less current portion 127,075 117,535 74,865 47,984 50,558 Total liabilities excluding deferred gain 214,112 187,136 116,774 80,035 75,103 Stockholders' equity 348,076 281,752 96,704 61,757 34,182
30 33 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following financial analysis should be read in conjunction with the above financial information concerning the Company. General The Company presently has contracts to manage 68 correctional and detention facilities with an aggregate design capacity of 54,944 beds. Of these 68 facilities, 55 are currently in operation and 13 are under development by the Company, eight of which are subject to an option to purchase by CCA Prison Realty Trust ("Prison Realty"), two of which will be financed and owned by the Company and three of which will be financed and owned by contracting government entities. The Company, through its United Kingdom joint venture, UK Detention Services ("UKDS"), manages one facility in the United Kingdom and, through its Australian joint venture, CC Australia, manages two facilities in Australia. The Company's ownership interest in UKDS and CC Australia is accounted for under the equity method. Of the 13 facilities under development by the Company, eight are scheduled to commence operations during 1998. In addition, at March 9, 1998, the Company had outstanding written responses to RFPs and other solicitations for nine projects with an aggregate design capacity of 11,604 beds. The following table sets forth the number of facilities under contract or award at the end of the periods shown:
AS OF DECEMBER 31, ---------------------------------- 1997 1996 1995 ---- ---- ---- Contracts(1) 67 59 47 Facilities in operation 54 42 38 Design capacity of contracts 52,890 41,135 28,607 Design capacity of facilities in operation 38,509 24,310 20,252 Compensated mandays(2) 10,524,537 7,113,794 4,799,562
(1) Consists of facilities in operation and facilities under development for which contracts have been finalized. (2) Compensated mandays for a period ended are calculated, for per diem rate facilities, as the number of beds occupied by residents on a daily basis during the period ended and, for fixed rate facilities, as the design capacity of the facility multiplied by the number of days the facility was in operation during the period. The Company derives substantially all of its revenues from the management of correctional and detention facilities for national, federal, state and local government agencies in the United States and abroad. 31 34 Domestic Geographic Market Concentration. The Company currently manages facilities in 19 states, the District of Columbia and Puerto Rico. Management revenues by state, as a percentage of the Company's total revenues for the years ended December 31, 1997, 1996 and 1995, respectively, are as follows:
1997 1996 1995 --------------------- ------------------------ ------------------------ NUMBER PERCENTAGE NUMBER PERCENTAGE NUMBER PERCENTAGE OF OF TOTAL OF OF TOTAL OF OF TOTAL FACILITIES REVENUES FACILITIES REVENUES FACILITIES REVENUES ---------------------------------------------------------------------------------- Arizona 2 12.1% 2 14.7% 2 16.5% Colorado 2 1.9 1 0.3 -- -- Florida 7 8.9 5 10.3 5 7.8 Indiana 2 .3 1 0.4 1 1.4 Kansas 1 1.9 1 3.0 2 4.6 Louisiana 1 3.1 1 4.7 1 6.1 Minnesota 1 2.6 1 0.7 -- -- Mississippi 1 2.1 1 1.1 -- -- Nevada 1 .4 -- -- -- -- New Jersey 1 2.4 -- -- -- -- New Mexico 2 3.4 3 6.7 3 8.4 Ohio 1 3.5 -- -- -- -- Oklahoma 3 5.6 2 3.0 1 1.9 Puerto Rico 3 6.2 1 4.7 1 0.1 South Carolina -- .8 1 2.1 -- -- Tennessee 9 17.8 8 19.2 8 25.2 Texas 13 21.7 11 23.6 12 22.7 Washington, D.C. 1 3.6 -- -- -- --
To the extent favorable or unfavorable changes in regulations or market conditions occur in these markets, such changes would likely have a corresponding impact on the Company's results of operations. Revenues for operation of correctional and detention facilities are recognized as the services are provided, based on a gross rate per day per inmate or on a fixed monthly rate. Of the Company's 52 domestic facilities in operation, 48 are compensated on a per diem basis and four are compensated at fixed monthly rates. The per diem rates or fixed monthly rates vary according to the type of facility and the extent of services provided at the facility. The Company has certain contracts which provide for the realization of operating bonuses which are contingent upon various criteria. The Company also realizes development fee revenues on the percentage-of-completion method for certain correctional facilities. Transportation revenues are based on a per mile charge or a fixed fee per trip. The Company incurs all facility operating expenses, except for certain debt service and lease payments with respect to certain facilities that the Company does not own or lease. The Company currently owns five of the domestic facilities it manages, manages 34 domestic facilities that are owned or leased by a government agency, construction of which has been financed by the agency through one or more of a variety of methods and manages 13 domestic facilities that are owned and leased to the Company by Prison Realty. Facility payroll and related taxes constitute the majority of facility operating expenses for the Company. Substantially all other operating expenses consist of food, clothing, medical services, utilities, supplies, maintenance, insurance and other general operating expenses. As inmate populations increase following the start-up of a facility, operating expenses generally decrease as a percentage of related revenues. Each facility is fully staffed at the time it is opened or taken over by the Company, although it may be operating at a relatively low occupancy rate at such time. 32 35 The Company's general and administrative costs consist of salaries of officers and other corporate headquarters personnel, legal, accounting and other professional fees (including pooling expenses related to certain acquisitions), travel expenses, executive office rental, and promotional and marketing expenses. The most significant component of these costs relates to the hiring and training of experienced corrections and administrative personnel necessary for the implementation and maintenance of the facility management and transportation contracts. Operating income for each facility depends upon the relationship between operating costs, the rate at which the Company is compensated per manday, and the occupancy rate. The rates of compensation are fixed by contract and approximately two-thirds of all operating costs are fixed costs. Therefore, operating income will vary from period to period as occupancy rates fluctuate. Operating income will be affected adversely as the Company increases the number of newly-constructed or expanded facilities under management and experiences initial low occupancy rates. After a management contract has been awarded, the Company incurs facility start-up costs that consist principally of initial employee training, travel and other direct expenses incurred in connection with the contract. These costs are capitalized and amortized on a straight-line basis over the shorter of the term of the contract plus renewals, or five years. Depending on the contract, start-up costs are either fully recoverable as pass-through costs or are billable to the contracting agency over the initial term of the contract plus renewals. The Company has historically financed start-up costs through available cash, the issuance of various securities, cash from operations and borrowings under the Company's revolving credit facility. Newly opened facilities are staffed according to contract requirements when the Company begins receiving inmates. Inmates are typically assigned to a newly opened facility on a regulated, structured basis over a one-to-three month period. Until expected occupancy levels are reached, operating losses may be incurred. Results of Operations The following table sets forth, for the periods indicated, the percentage of revenues of certain items in the Company's statement of operations and the percentage change from period to period in such items:
PERCENTAGE OF REVENUES YEAR ENDED DECEMBER 31, 1997 1996 ----------------------- COMPARED COMPARED 1997 1996 1995 TO 1996 TO 1995 ----- ----- ----- ------- ------- Revenues 100.0% 100.0% 100.0% 58.0% 41.1% Expenses: Operating 71.5 72.2 74.2 56.5 37.4 Lease 4.0 1.0 2.8 570.6 (52.8) General and administrative 3.5 4.3 6.5 27.1 ( 6.7) Depreciation and amortization 3.0 3.9 3.2 24.3 73.8 ----- ----- ----- Operating income 18.0 18.6 13.3 52.0 97.6 ----- ----- ----- Interest expense, net ( .9) 1.4 1.9 (197.5) 6.9 ----- ----- ----- Income before income taxes 18.9 17.2 11.4 73.0 112.8 Provision for income taxes 7.2 6.6 4.5 70.2 108.7 ----- ----- ----- Net income 11.7% 10.6% 6.9% 74.7 115.4 ===== ===== =====
Year Ended December 31, 1997 Compared with Year Ended December 31, 1996 Revenues. Total revenues increased 58.0% in 1997 as compared to 1996, with increases in both management and transportation services. Management revenues increased 59.5% in 1997, or $167.7 million. This increase was 33 36 primarily due to the opening of new facilities and the expansion of existing facilities by the Company in 1996 and 1997. In 1997, the Company opened 13 new facilities with an aggregate design capacity of 11,644 beds, assumed management of one facility with an aggregate design capacity of 866 beds and expanded six existing facilities to increase their design capacity by an aggregate of 2,290 beds. Accordingly, 14,800 new beds were brought on line in 1997. Due to the growth in beds, compensated mandays increased 47.9% in 1997 from 7,113,794 to 10,524,537. Average occupancy remained stable at 93.2% in 1997 as compared to 94.1% in 1996. Transportation revenues increased $2.0 million or 18.9% in 1997 as compared to 1996. This growth was primarily the result of an expanded customer base and increased compensated mileage realized through the opening of two new transportation hubs in the first quarter of 1997 and more "mass transports," which are generally moves of 40 or more inmates per trip. During the second quarter of 1997, the Company sold 30% of UKDS to Sodexho and recognized an after-tax gain of $777,000. Facility Operating Expenses. Facility operating expenses increased 56.5% to 330.5 million in 1997. This increase was due to the increased compensated mandays and compensated mileage that the Company realized in 1997 as previously mentioned. As a percentage of revenues, facility operating expenses decreased to 71.5% in 1997 as compared with 72.2% in 1996. The Company's management operating cost per compensated manday was $30.51 during 1997 as compared to $28.82 in 1996. This increase was primarily due to the Company bringing the 14,800 new beds on line and having multiple facilities in the start-up phase of operation throughout 1997 which resulted in increased personnel costs including employee training and overtime. The increase is also due to the expanded scope of services that the Company has recently encountered in some of its new contracts. Lease Expense. Lease expense increased 570.6% in 1997 compared to 1996. The significant increase in lease expense was the result of the Leases that the Company entered into with Prison Realty in 1997. Annual first year rent for these 12 facilities is expected to be approximately $50.0 million. Management expects that in the future, lease expense will increase as the Company enters into additional sale-leaseback transactions with Prison Realty. General and Administrative. General and administrative expenses increased 27.1% in 1997 over 1996. However, as a percentage of revenues, general and administrative expenses for 1997 declined to 3.5% as compared to 4.3% for 1996. Management expects that as the Company continues to grow, general and administrative expenses will increase in volume but continue to decrease as a percentage of revenues. Depreciation and Amortization. Depreciation and amortization expenses increased 24.3% in 1997 over 1996. The increase was due to the 58.4% growth in beds in operation at the end of 1997 as compared to 1996. Depreciation and amortization expenses should continue to increase as the Company brings more beds on line. Interest Expense, Net. Interest expense for 1997 was actually net interest income of $4.1 million as compared to $4.2 million of interest expense in 1996. This change in net interest was primarily the result of the sale of the 12 facilities to Prison Realty for an aggregate purchase price of approximately $455.1 million which allowed the Company to pay off approximately $182.6 million in debt and benefit from interest earnings on approximately $128.0 million invested for a portion of 1997. Year Ended December 31, 1996 Compared with Year Ended December 31, 1995 Revenues. The Company's total revenues increased 41% from 1995 to 1996 with increases in both management and transportation services. The Company's management revenues increased 43% in 1996, or $84.2 million. This increase was due to the opening of new facilities and the expansion of existing facilities by the Company 34 37 in 1995 and 1996. In 1996, the Company opened four new facilities with an aggregate design capacity of 2,501 beds, assumed management of two facilities with an aggregate design capacity of 899 beds and expanded five existing facilities to increase their design capacity by an aggregate of 1,058 beds. Accordingly, 4,458 new beds were brought on line in 1996. Due to the growth in beds, compensated mandays increased 48% in 1996 from 4,799,562 to 7,113,794. Average occupancy remained stable at 94.1% for 1996 as compared to 93.9% for 1995. Transportation revenues increased $1.1 million or 12% in 1996 as compared to 1995. The 1996 growth was due to a continued marketing effort that expanded the customer base and resulted in increased compensated mileage. During the second and fourth quarters of 1996, the Company purchased the remaining two-thirds of UKDS from its original joint venture partners. After consideration of several strategic alternatives related to UKDS, the Company sold 20% of the entity to Sodexho, and recognized an after-tax gain of $515,000. In conjunction with this transaction, Sodexho was also provided the option to purchase an additional 30% of UKDS, which option was exercised in the second quarter 1997. Facility Operating Expenses. Facility operating expenses increased 37.4% to $213.2 million in 1996 compared to $158.8 million in 1995. This increase was due to the additional beds on line that increased compensated mandays and the growth in the transportation services. The average management operating cost per manday was $28.82 for 1996 as compared to $31.59 for 1995. The decrease in average cost per manday was due to the Company's ability to realize more economies of scale as additional beds were brought on line. As a percentage of revenues, facility operating expenses decreased to 73% from 77%. This decrease was primarily attributable to the expansion of various facilities that added lower incremental operating expenses and improved economies of scale. Salary and related employee benefits constituted approximately 63% and 58% of facility operating expenses for 1996 and 1995, respectively. General and Administrative. General and administrative costs decreased 6.7% in 1996 to $13.4 million as compared to $14.3 million in 1995. This decrease was due to the non-recurring pooling expenses associated with acquisitions during fiscal 1995 as well as the Company's ability to reduce duplication in the general and administrative areas by integrating the acquired companies into its systems. Depreciation and Amortization. Depreciation and amortization increased 74% to $11.3 million in 1996 as compared to $6.5 million in 1995. The 1996 increase was due to the growth in total beds in owned facilities as well as the one-time, non-recurring reserve of $850,000 established for the termination of the Company's contract with South Carolina. Interest Expenses Net. Interest expense, net, increased 7% in 1996, consisting of a 48%, or $2.7 million, increase in interest expense, and a 151%, or $2.4 million, increase in interest income. Interest expense increased due primarily to the addition of $50.0 million in convertible subordinated notes issued in February and April 1996, bearing interest at 7.5%. Interest income increased as a result of the Company investing the net proceeds from an equity offering, which closed in June 1996. Year Ended December 31, 1995 Compared with Year Ended December 31, 1994 In 1994 and 1995, the Company expanded its service capabilities and broadened its geographic presence in the United States through a series of strategic acquisitions that complemented the Company's development activities (collectively, the "Acquisitions"). In December 1994, the Company acquired TransCor, a nationwide provider of inmate transportation services. In April 1995, the Company acquired Concept, a prison management company with eight facilities and 4,400 beds under contract at the time of acquisition. In August 1995, the Company acquired CPI, a prison management company with seven facilities and 2,900 beds under contract at the time of acquisition. The Company's operating results for 1995 were significantly affected by the Acquisitions. All of these business combinations were 35 38 accounted for as a pooling-of-interests and, accordingly, the operations of TransCor, Concept and CPI have been combined in the accompanying consolidated financial statements. The discussion herein is based upon the combined operations of the Company, TransCor, Concept and CPI for all periods presented in the accompanying consolidated financial statements. Revenues. Total revenues increased 36% from 1994 to 1995 with increases in both management and transportation services. Management revenues increased 37% in 1995, or $53.2 million. This increase was due to the opening of new facilities and the expansions of existing facilities in 1994 and 1995 by the Company and the related Acquisitions. In 1995, the Company opened five new facilities with an aggregate design capacity of 3,390 beds and assumed management of three facilities with an aggregate design capacity of 1,688 beds. The Company also realized the full-year effect of three facilities added in 1994 with an aggregate design capacity of 1,560 beds. The third contributing factor to growth was the expansion of 13 existing facilities to increase their design capacity by 1,887 beds. Due to the growth in the number of beds, compensated mandays increased 27% in 1995 from 3,768,095 to 4,799,562. Average occupancy remained stable at 93.9% for 1995 as compared to 93.5% for 1994. Transportation revenues increased $1.7 million or 21% in 1995 as compared to 1994. The 1995 growth was due to a continued marketing effort that expanded the customer base and resulted in increased compensated mileage. During the first quarter of 1995, the Company purchased the remaining 50% of CC Australia from its original joint venture partner. After consideration of several strategic alternatives related to CC Australia, the Company then sold 50% of the entity to Sodexho during the second quarter of 1995. The Company accounted for the 100% ownership period on the equity basis of accounting and recognized an after-tax gain of $783,000 on the sale. Facility Operating Expenses. Facility operating expenses increased 29% to $158.8 million in 1995 compared to $123.5 million in 1994. This increase was due to the additional beds on line that increased compensated mandays and the growth in the transportation services. The average management operating cost per manday was $31.59 for 1995 as compared to $31.16 for 1994. The increase in average cost per manday was due to the significant number of new beds brought on line in 1995. As the five new facilities were opened, the full complement of fixed costs was being incurred prior to full occupancy. As a percentage of revenues, however, facility operating expenses decreased to 77% from 81%. This decrease was primarily attributable to the expansion of various facilities that added lower incremental operating expenses and improved economies of scale. Salary and related employee benefits constituted approximately 58% and 55% of facility operating expenses for 1995 and 1994, respectively. General and Administrative. General and administrative costs increased 52% in 1995 to $14.3 million as compared to $9.4 million in 1994. Included in 1995 were approximately $950,000 of non-recurring pooling expenses related to the Acquisitions. The Company also expanded its management staff to manage its significant growth. Additional staff was added to bring new business on line, resulting in cost being incurred prior to revenue being realized. As all transition issues are finalized from the acquired operations and the duplicate services are consolidated, general and administrative cost decrease as a percentage of revenues. Depreciation and Amortization. Depreciation and amortization increased $771,000, to $6.5 million in 1995 as compared to $5.8 million in 1994. The 1995 increase was due to the growth in total beds in owned facilities. Interest Expenses, Net. Interest expense, net, increased 15% in 1995 due to the assumption of debt related to the Eloy Detention Center in Eloy, Arizona. In July 1995, the Company acquired the remaining 50% of the investment in a partnership and assumed the assets and debts. Income Taxes. In 1995, the Company's effective income tax rate increased to 39% as compared to 23% in 1994. This increase in taxes was due to the Company's complete utilization of net operating loss carry forwards, therefore becoming subject to full statutory tax rates. 36 39 Liquidity and Capital Resources The Company's business is capital intensive in relation to the development of a correctional facility. The Company's efforts to obtain contracts, construct additional facilities and maintain its day-to-day operations have required the continued acquisition of funds through borrowings and equity offerings. The Company has financed these activities through the sale of capital stock, warrants, subordinated convertible notes and senior secured debt, through the issuance of taxable and tax-exempt bonds, by bank borrowings, by assisting government agencies in the issuance of municipal bonds and most recently through the sale and leaseback of certain correctional facilities to Prison Realty. The Company's current ratio increased to 2.41 in 1997 as compared to 1.79 in 1996. This improvement was primarily the result of increased cash balances derived from the sale of the 12 facilities to Prison Realty in 1997. The ratio of long-term debt to total capitalization decreased to 26.7% at December 31, 1997 compared to 29.4% at December 31, 1996. Cash flow from operations for 1997 was $92.0 million as compared to $24.4 million for 1996. The Company has strengthened its cash flow through its expanded business, additional focus on larger, more profitable facilities, the expansion of existing facilities where economies of scale can be realized, and the continuing effort of cost containment. In February 1996, the Company issued $30.0 million of its convertible subordinated notes to an investor. The proceeds were used to repay the outstanding principal under the Company's working capital credit facility and construction loan. The notes bear interest at 7.5%, payable quarterly, and require the Company to maintain specific ratio requirements relating to net worth, cash flow and debt coverage. The notes are convertible into shares of the Company's common stock at a conversion price, as adjusted, of $25.91 per share. In April 1996, due to the triggering of its preemptive right in connection with the issuance of the convertible subordinated notes, Sodexho purchased $20.0 million of convertible subordinated notes under the same terms and conditions. In June 1996, the Company completed a public offering of 3,700,000 shares of its Common Stock at a price to the public of $37.50 per share. The proceeds of the offering, after deducting all associated costs, were $131.8 million. In October 1996, the Company invested $22.5 million in the 564-bed, medium security Prairie Correctional Facility located in Appleton, Minnesota through the purchase of Correctional Facility Revenue Bonds previously issued in connection with the construction of the facility. In 1997, through the expansion of the facility, the Company increased the capacity to 1,338 beds and increased its investment in the facility by approximately $36.4 million. The Company has a revolving credit facility with a group of banks which matures in September 1999. The credit facility provides for borrowings of up to $170.0 million for general corporate purposes and letters of credit. The credit facility bears interest, at the election of the Company, at either the bank's prime rate or a rate which is .5% above the applicable 30, 60, or 90 day LIBOR rate. Interest is payable quarterly with respect to prime rate loans and at the expiration of the applicable LIBOR period with respect to LIBOR based loans. There are no prepayment penalties associated with the credit facility. The credit facility requires the Company, among other things, to maintain maximum leverage ratios and a minimum debt service coverage ratio. The facility also limits certain payments and distributions. As of December 31, 1997, there was $70.0 million borrowed under this facility. Letters of credit totaling $1.6 million had been issued leaving the total unused commitment at $98.4 million. The Company also has a $2.5 million credit facility with a bank that provides for the issuance of letters of credit and matures in September 1999. As of December 31, 1997 there were $1.6 million in letters of credit issued, leaving the unused commitment at $0.9 million. In July 1997, the Company sold ten of its facilities to Prison Realty for approximately $378.3 million. The proceeds were used to pay off $131.0 million of credit facility debt, $42.2 million of first mortgage debt and $9.4 million of senior secured notes. The remaining proceeds were used to fund existing construction projects and for general 37 40 working capital purposes. In October 1997, the Company sold an additional facility to Prison Realty for approximately $38.5 million. In November and December 1997, the Company purchased two correctional facilities for $74.4 million. Subsequently, the Company sold these facilities to Prison Realty for $74.4 million. Management expects that as a result of this relationship, the Company will have access to additional capital that will help fund future growth. The Company anticipates making cash investments in connection with future acquisitions and expansions. In addition, in accordance with the developing trend of private prison managers toward making strategic financial investments in facilities, the Company plans to use a portion of its cash to finance start-up costs, leasehold improvements and equity investments in the facilities, if appropriate in connection with undertaking new contracts. The Company believes that the cash flow from operations, the availability of future capital from Prison Realty and amounts available under its credit facility will be sufficient to meet its capital requirements for the foreseeable future. Furthermore, management believes that additional resources may be available to the Company through a variety of other financing methods. YEAR 2000 COMPLIANCE In 1997, the Company made significant improvements to its computer systems, software and applications. Although the Company believes that its software applications and programs are "Year 2000" compliant, there can be no assurance that coding errors or other defects will not be discovered in the future. Also, the Company has not initiated formal communications with any of the entities which contract with it to determine the extent to which the Company is vulnerable to those third parties' failure to remediate their own Year 2000 issues. The Company anticipates it will do so in 1998, in advance of any impact from the issue. Any Year 2000 compliance problem of the Company or other third parties could result in a material adverse effect on the Company's business, prospects, results of operations and financial condition. 38 41 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data required by Regulation S-X are included in this Report on Form 10-K commencing on page F-1 as indicated below. INDEX TO FINANCIAL STATEMENTS
Page ---- Report of Independent Public Accountants....................................... F-1 Consolidated Balance Sheets as of December 31, 1997 and 1996....................................................................... F-2 Consolidated Statements of Operations for the years ended December 31, 1997, 1996, and 1995........................................ F-4 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1996, and 1995....................................................................... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996, and 1995........................................ F-6 Notes to Consolidated Financial Statements..................................... F-9
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no disagreements with the Company's accountants on any matter of accounting principles and practices or financial statement disclosures. Arthur Andersen LLP was selected by the Company's Board of Directors to serve as independent auditors of the Company during the fiscal year 1997 and has been selected by the Board to serve in such capacity during the fiscal year 1998. 39 42 PART III Certain information required by this Part III is omitted from this Report in that the Company will file a definitive proxy statement within 120 days after the end of its fiscal year pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, and in connection with its Annual Meeting of Shareholders to be held in May 1998 (the "Proxy Statement") and the information included in the Proxy Statement is incorporated in this Annual Report on Form 10-K by reference to the Proxy Statement. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The information responsive to this Item is contained in the sections entitled "Proposals for Shareholder Action - Proposal 1 - Election of Directors" included in the Company's Proxy Statement, which information is incorporated herein by this reference. ITEM 11. EXECUTIVE COMPENSATION The information responsive to this Item is contained in the sections entitled "Executive Compensation," included in the Company's Proxy Statement, other than the Compensation Committee Report and Performance Graph required by Items 402(k) and (l) of Regulation S-K, which information is incorporated herein by this reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information responsive to this item is contained in the section entitled "Security Ownership by Directors, Officers, and Certain Beneficial Owners" included in the Company's Proxy Statement, which information is incorporated herein by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information responsive to this Item is contained in the sections entitled "Certain Relationships and Related Transactions" included in the Company's Proxy Statement, which information is incorporated herein by this reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report: (1) Financial Statements. The Financial Statements as set forth under Item 8 of this Report on Form 10-K have been filed herewith beginning on Page F-1 of this Report. (2) Financial Statement Schedules. All schedules specified in the accounting regulations of the Securities and Exchange Commission have been omitted because they are either inapplicable or are not required. (3) The Exhibits are listed in the Index of Exhibits Required by Item 601 of Regulation S-K included herewith. (b) No reports on Form 8-K were filed during the last quarter of the period covered by this Report. (c) Certain Exhibits. See Item 14(a)(3) above. (d) Certain Financial Statements. See Item 14(a) (1) and (2) above. 40 43 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CORRECTIONS CORPORATION OF AMERICA Date: March 27, 1998 By: /s/ Doctor R. Crants ---------------------------------- Doctor R. Crants, Chairman of the Board, Chief Executive Officer and President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears below constitutes and appoints DOCTOR R. CRANTS and DARRELL K. MASSENGALE, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to the Annual Report on Form 10-K of Corrections Corporation of America for the fiscal year ended December 31, 1997, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dated indicated. Date: March 27, 1998 /s/ Doctor R. Crants --------------------------------------------- Doctor R. Crants, Chairman of the Board, Chief Executive Officer, President and Director (Principal Executive Officer) Date: March 27, 1998 /s/ Darrell K. Massengale --------------------------------------------- Darrell K. Massengale, Vice President, Finance; Chief Financial Officer; Secretary and Treasurer (Principal Financial and Accounting Officer) Date: March 27, 1998 /s/ Thomas W. Beasley --------------------------------------------- Thomas W. Beasley, Chairman Emeritus and Director Date: March 27, 1998 /s/ William F. Andrews --------------------------------------------- William F. Andrews, Director 41 44 Date: March 27, 1998 /s/ Samuel W. Bartholomew, Jr. --------------------------------------------- Samuel W. Bartholomew, Jr., Director Date: March 27, 1998 /s/ Jean-Pierre Cuny --------------------------------------------- Jean-Pierre Cuny, Director Date: March 27, 1998 /s/ Joseph F. Johnson --------------------------------------------- Joseph F. Johnson, Director Date: March 27, 1998 /s/ R. Clayton McWhorter --------------------------------------------- R. Clayton McWhorter, Director 42 45 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Corrections Corporation of America: We have audited the accompanying consolidated balance sheets of CORRECTIONS CORPORATION OF AMERICA (a Tennessee corporation) AND SUBSIDIARIES as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Corrections Corporation of America and Subsidiaries as of December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Nashville, Tennessee February 16, 1998 F-1 46 CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996 (IN THOUSANDS)
ASSETS 1997 1996 - ----------------------------------------------- -------- -------- CURRENT ASSETS: Cash, cash equivalents and restricted cash $136,147 $ 8,282 Accounts receivable, net of allowances 89,822 100,551 Prepaid expenses 4,868 2,940 Deferred tax assets - 1,026 Other 2,585 1,643 -------- -------- Total current assets 233,422 114,442 PROPERTY AND EQUIPMENT, NET 266,493 288,697 OTHER LONG-TERM ASSETS: Notes receivable 59,264 22,859 Investment in direct financing leases 90,184 12,898 Deferred tax assets 10,195 - Restricted investments - 587 Other 38,382 29,405 -------- -------- Total assets $697,940 $468,888 ======== ========
(continued) F-2 47 CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996 (IN THOUSANDS) (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996 - ---------------------------------------------------------------- --------- --------- CURRENT LIABILITIES: Accounts payable $ 32,094 $ 39,224 Accrued salaries and wages 9,778 5,487 Income taxes payable 14,128 886 Deferred tax liabilities 1,229 - Other accrued expenses 20,361 10,016 Current portion of long-term debt 5,847 8,281 Current portion of deferred gain on real estate transactions 13,223 - --------- --------- Total current liabilities 96,660 63,894 LONG-TERM DEBT, NET OF CURRENT PORTION 127,075 117,535 DEFERRED TAX LIABILITIES - 4,717 DEFERRED GAIN ON REAL ESTATE TRANSACTIONS, NET OF CURRENT PORTION 122,529 - OTHER NONCURRENT LIABILITIES 3,600 990 --------- --------- Total liabilities 349,864 187,136 --------- --------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock - Series B - $1 (one dollar) par value; 400 shares authorized 380 - Common stock - $1 (one dollar) par value; 150,000 shares authorized 80,230 75,029 Additional paid-in capital 215,833 165,317 Retained earnings 92,475 42,132 Treasury stock, at cost (40,842) (726) --------- --------- Total stockholders' equity 348,076 281,752 --------- --------- Total liabilities and stockholders' equity $ 697,940 $ 468,888 ========= =========
The accompanying notes are an integral part of these consolidated statements. F-3 48 CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1997 1996 1995 --------- -------- -------- REVENUES $ 462,249 $292,513 $207,241 --------- -------- -------- EXPENSES: Operating 330,470 211,208 153,692 Lease 18,684 2,786 5,904 General and administrative 16,025 12,607 13,506 Depreciation and amortization 14,093 11,339 6,524 --------- -------- -------- 379,272 237,940 179,626 --------- -------- -------- OPERATING INCOME 82,977 54,573 27,615 INTEREST (INCOME) EXPENSE, NET (4,119) 4,224 3,952 --------- -------- -------- INCOME BEFORE INCOME TAXES 87,096 50,349 23,663 PROVISION FOR INCOME TAXES 33,141 19,469 9,330 --------- -------- -------- NET INCOME $ 53,955 $ 30,880 $ 14,333 ========= ======== ======== NET INCOME PER COMMON SHARE: Basic $ .70 $ .43 $ .23 ========= ======== ======== Diluted $ .61 $ .36 $ .18 ========= ======== ======== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, BASIC 77,221 71,763 62,257 ========= ======== ======== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, DILUTED 90,239 87,040 81,595 ========= ======== ========
The accompanying notes are an integral part of these consolidated statements. F-4 49 CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN THOUSANDS)
PREFERRED STOCK COMMON STOCK --------------- ------------------------------------------ SERIES B ISSUED TREASURY STOCK --------------- ----------------- ------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------ ------ ------ ------ ------ ------- BALANCE, DECEMBER 31, 1994 - $ - 59,380 $ 59,380 (78) $ (307) Issuance of common stock - - 1,158 1,158 - - Stock options exercised and warrants repurchased or converted to stock - - 2,228 2,228 74 270 Income tax benefits of incentive stock option exercises - - - - - - Conversion of long-term debt - - 1,774 1,774 - - Net income - - - - - - ---- ------ ------ -------- ------- -------- BALANCE, DECEMBER 31, 1995 - - 64,540 64,540 (4) (37) Issuance of common stock - - 3,700 3,700 - - Stock options exercised and warrants converted to stock - - 6,789 6,789 (19) (689) Income tax benefits of incentive stock option exercises - - - - - - Compensation expense related to deferred stock awards - - - - - - Net income - - - - - - ---- ------ ------ -------- ------- -------- BALANCE, DECEMBER 31, 1996 - - 75,029 75,029 (23) (726) Exchange of preferred stock for acquisition of American Corrections Transport 380 380 - - (760) (32,812) Stock options and warrants exercised - - 4,197 4,197 (41) (1,975) Stock repurchased - - - - (123) (5,329) Income tax benefits of incentive stock option exercises - - - - - - Conversion of long-term debt - - 1,004 1,004 - - Compensation expense related to deferred stock awards and stock options - - - - - - Net income - - - - - - ---- ------ ------ -------- ------- -------- BALANCE, DECEMBER 31, 1997 380 $ 380 80,230 $ 80,230 (947) $(40,842) ==== ====== ====== ======== ======= ========
ADDITIONAL TOTAL PAID-IN RETAINED STOCKHOLDERS' CAPITAL EARNINGS EQUITY ---------- -------- ---------- BALANCE, DECEMBER 31, 1994 $ (1,182) $ 3,866 $ 61,757 Issuance of common stock 7,184 - 8,342 Stock options exercised and warrants repurchased or 1,699 1,639 converted to stock (2,558) Income tax benefits of incentive stock option exercises 3,987 - 3,987 Conversion of long-term debt 4,872 - 6,646 Net income - 14,333 14,333 --------- -------- --------- BALANCE, DECEMBER 31, 1995 16,560 15,641 96,704 Issuance of common stock 128,112 - 131,812 Stock options exercised and warrants converted to stock 8,177 (4,389) 9,888 Income tax benefits of incentive stock option exercises 11,944 - 11,944 Compensation expense related to deferred stock awards 524 - 524 Net income - 30,880 30,880 --------- -------- --------- BALANCE, DECEMBER 31, 1996 165,317 42,132 281,752 Exchange of preferred stock for acquisition of American Corrections Transport 32,432 - - Stock options and warrants exercised 10,626 (3,612) 9,236 Stock repurchased - - (5,329) Income tax benefits of incentive stock option exercises 6,328 - 6,328 Conversion of long-term debt 673 - 1,677 Compensation expense related to deferred stock awards and stock options 457 - 457 Net income - 53,955 53,955 --------- -------- --------- BALANCE, DECEMBER 31, 1997 $ 215,833 $ 92,475 $ 348,076 ========= ======== =========
The accompanying notes are an integral part of these consolidated statements. F-5 50 CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN THOUSANDS)
1997 1996 1995 --------- --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 53,955 $ 30,880 $ 14,333 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,093 11,339 6,524 Deferred and other noncash income taxes (6,329) 13,117 6,162 Other noncash items 457 524 - Gain on disposal of assets (881) (3,501) (1,284) Equity in earnings of unconsolidated entities (916) (1,098) (619) Recognized gain on real estate transactions (5,906) - - Changes in assets and liabilities, net of acquisitions: Accounts receivable 16,027 (55,993) (12,750) Prepaid expenses (1,928) (1,371) (18) Other current assets (942) (623) (87) Accounts payable (7,130) 28,467 1,991 Income taxes payable 13,242 190 374 Accrued expenses 14,636 2,459 3,140 Other liabilities 3,600 - - --------- --------- -------- Net cash provided by operating activities 91,978 24,390 17,766 --------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions of property and equipment (297,293) (165,703) (25,926) Acquisition of UCLP - - (5,250) (Increase) decrease in restricted cash and investments 4,037 (3,025) (619) Increase in other assets (17,868) (11,163) (8,500) Investments in affiliates, net 1,707 (3,138) (3,717) Proceeds from disposals of assets 457,802 6,747 3,763 Investment in notes receivable (38,156) (22,500) - Increase in direct financing leases (84,295) (3,693) - Payments received on direct financing leases and notes receivable 3,462 553 328 --------- --------- -------- Net cash provided by (used in) investing activities 29,396 (201,922) (39,921) --------- --------- --------
(continued) F-6 51 CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (continued)
1997 1996 1995 --------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt $ - $ 74,700 $ 7,111 Payments on long-term debt (57,194) (24,443) (8,648) (Payments on) proceeds from line of credit, net 66,000 (10,500) 13,715 Payment of debt issuance costs and prepayment penalties (2,772) (433) (260) Proceeds from issuance of common stock - 131,006 7,859 Proceeds from exercise of stock options and warrants 9,236 9,889 868 Purchase of treasury stock and warrants (5,329) - (630) --------- --------- -------- Net cash provided by financing activities 9,941 180,219 20,015 --------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 131,315 2,687 (2,140) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,832 2,145 4,285 --------- --------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 136,147 $ 4,832 $ 2,145 ========= ========= ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest (net of amounts capitalized) $ 6,579 $ 8,979 $ 5,145 ========= ========= ======== Income taxes $ 24,351 $ 6,630 $ 3,060 ========= ========= ========
(continued) F-7 52 CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (continued)
1997 1996 1995 ---------- ---------- --------- SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Long-term debt was converted into common stock through the exercise of stock warrants: Other assets $ - $ - $ 27 Long-term debt - - (1,428) Common stock - - 400 Additional paid-in capital - - 1,001 ---------- ---------- --------- $ - $ - $ - ========== ========== ========= Long-term debt was converted into common stock: Other assets $ 23 $ - $ 53 Long-term debt (1,700) - (6,700) Common stock 1,004 - 887 Additional paid-in capital 673 - 5,760 ---------- ---------- --------- $ - $ - $ - ========== ========== ========= The Company acquired property and equipment by assuming long-term debt: Property and equipment $ - $ - $ (27,392) Long-term debt - - 27,392 ---------- ---------- --------- $ - $ - $ - ========== ========== =========
The accompanying notes are an integral part of these consolidated statements. F-8 53 CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Corrections Corporation of America, a Tennessee corporation, (together with its subsidiaries, collectively referred to as the "Company") operates and manages prisons and other correctional facilities and provides prisoner transportation services for government agencies. The Company provides a full range of related services to government agencies, including managing, financing, designing and constructing new facilities and redesigning and renovating older facilities. All material intercompany transactions and balances have been eliminated in consolidation. At December 31, 1997, the Company has a 50% interest in Corrections Corporation of Australia PTY LTD ("CC Australia"). CC Australia provides services similar to the Company in Australia and surrounding countries. At December 31, 1997, the Company's wholly-owned subsidiary, CCA (UK) Limited, has a 50% interest in UK Detention Services Limited ("UKDS"), a United Kingdom joint venture. UKDS provides services similar to the Company in the United Kingdom. The Company accounts for these investments under the equity method. Assets and liabilities are converted from their functional currency into the U.S. dollar utilizing the conversion rate in effect at the balance sheet date. Revenue and expense items are converted using the weighted average rate during the period. The excess of the Company's investment in these unconsolidated subsidiaries over the underlying equity is being amortized over twenty-five years. Deferred project development costs consist of costs that can be directly associated with a specific anticipated contract and, if recovery from that contract is probable, are deferred until the anticipated contract has been awarded. At the time the contract is awarded to the Company, the deferred project development costs are either capitalized as part of property and equipment or are transferred to project development costs. Costs of unsuccessful or abandoned contracts are charged to depreciation and amortization expense when their recovery is not considered probable. Internal costs incurred in securing new clients including costs of responding to requests for proposals are expensed as incurred. Facility start-up costs, principally costs of initial employee training, travel and other direct expenses incurred in connection with opening of new facilities, to the extent recoverable under each negotiated contract, are deferred and recorded as other assets. Project development costs and start-up costs are amortized on a straight-line basis over the lesser of the initial term of the contract plus renewals or five years. The difference between amortization calculated under the Company's policy and amortization calculated over the initial term of the contract is not material. F-9 54 Debt issuance costs are amortized on a straight-line basis over the life of the related debt. This amortization is charged to depreciation and amortization expense. Property and equipment is carried at cost. Betterments, renewals and extraordinary repairs that extend the life of the asset are capitalized; other repairs and maintenance are expensed. Interest is capitalized to the asset to which it relates in connection with the construction of major facilities. The cost and accumulated depreciation applicable to assets retired are removed from the accounts and the gain or loss on disposition is recognized in income. Depreciation is computed by the straight-line method for financial reporting purposes and accelerated methods for tax reporting purposes based upon the estimated useful lives of the related assets. Investment in direct financing leases represents the portion of the Company's management contract with government agencies that represents payments on building and equipment leases. The leases are accounted for using the financing method and, accordingly, the minimum lease payments to be received over the term of the leases less unearned income are capitalized as the Company's investments in the leases. Unearned income is recognized as income over the term of the leases using the interest method. Income taxes are accounted for under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." This statement generally requires the Company to record deferred income taxes for the differences between book and tax bases of its assets and liabilities. The Company maintains contracts with various government entities to manage their facilities for fixed per diem rates or monthly fixed rates. The Company also maintains contracts with various federal, state and local government entities for the housing of inmates in Company owned facilities at fixed per diem rates. These contracts usually contain expiration dates with renewal options ranging from annual to multi-year renewals. Most of these contracts have current terms that require renewal every two to five years. The Company expects to renew these contracts for periods consistent with the remaining renewal options allowed by the contracts or other reasonable extensions. Fixed monthly rate revenue is recorded in the month earned and fixed per diem revenue is recorded based on the per diem rate multiplied by the number of inmates housed during the respective period. The Company recognizes development revenue on the percentage-of-completion method and recognizes any additional management service revenues when earned or awarded by the respective authorities. To meet the reporting requirements of SFAS 107, "Disclosures About Fair Value of Financial Instruments," the Company calculates the fair value of financial instruments using quoted market prices. At December 31, 1997, there were no material differences in the book values of the Company's financial instruments and their related fair values, except for the Company's convertible subordinated notes (see Note 7) and the forward contract for convertible subordinated notes (see Note 13), which based on the conversion rate on the underlying equity securities, have an estimated fair market value of approximately $378,000. F-10 55 For purposes of the statements of cash flows, the Company excludes restricted cash from cash and cash equivalents. As of December 31, 1997, the Company has no restricted cash. The Company considers all highly liquid debt instruments with a maturity of three months or less to be cash equivalents. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of," the Company continually evaluates the recoverability of the carrying values of its long-lived assets. In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income" effective for fiscal years beginning after December 15, 1997. This statement requires that changes in the amounts of certain items, including gains and losses on certain securities, be shown in the financial statements. The Company does not anticipate the adoption of SFAS 130 to have a material effect on the Company's financial statements. In June 1997, the FASB issued SFAS 131, "Disclosures About Segments of an Enterprise and Related Information" effective for fiscal years beginning after December 15, 1997. This statement establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company will adopt the provisions of SFAS 131 effective January 1, 1998 and, if appropriate, will begin disclosing information about its operating segments accordingly. The Company does not anticipate the adoption of SFAS 131 to have a material effect on the Company's financial statements. Certain reclassifications of 1996 and 1995 amounts have been made to conform with the 1997 presentation. F-11 56 2. MERGERS AND ACQUISITIONS On April 25, 1995, the Company issued 5,450 shares of its common stock for all the outstanding shares of Concept Incorporated ("Concept"). Concept operates and manages prisons and other correctional facilities for government agencies. On August 18, 1995, the Company issued 2,800 shares of its common stock for all the outstanding shares of Corrections Management Affiliates, Inc. ("CMA") and Correctional Services Group, Inc. ("CSG"). CMA and CSG operate and manage prisons and other correctional facilities for government agencies. The transactions above were accounted for under the pooling-of-interests method of accounting, and the Company has previously filed restated financial statements. In the preparation of the consolidated financial statements, the Company made certain immaterial adjustments and reclassifications to the historical financial statements of Concept, CMA and CSG to be consistent with the accounting policies of the Company. The Company exercised its option to acquire the remaining 50% of its investment in United-Concept Limited Partnership ("UCLP") during 1995. The acquisition was accounted for under the purchase method of accounting. The purchase price was allocated to assets acquired and liabilities assumed based on the estimated fair market value at the date of the acquisition. The operations of UCLP on a consolidated basis prior to the acquisition are not material to the Company's results of operations. During the first quarter of 1995, the Company purchased the remaining 50% of CC Australia from its original joint venture partner. After consideration of several strategic alternatives related to CC Australia, the Company sold 50% of the entity to Sodexho S.A. ("Sodexho"), a French conglomerate, during the second quarter of 1995. The Company accounted for the 100% ownership period on the equity basis of accounting and recognized an after-tax gain of $783 on the sale. During the second and fourth quarters of 1996, the Company purchased the remaining two-thirds of UKDS from its original joint venture partners. After consideration of several strategic alternatives related to UKDS, the Company sold 20% of the entity to Sodexho in December 1996 and recognized an after-tax gain of $515. In conjunction with this transaction, Sodexho was also provided the option to purchase an additional 30% of UKDS. In the second quarter of 1997, Sodexho exercised its option to purchase an additional 30% of UKDS, and the Company recognized an after-tax gain of $777 on the sale. On October 2, 1997, the Company exchanged 380 shares of Series B convertible preferred stock for substantially all of the assets of American Corrections Transport (primarily consisting of 760 shares of the Company's common stock) in a tax-free reorganization pursuant to Section 368(a)(l)(C) of the Internal Revenue Code of 1986, as amended. Of the preferred shares issued, 190 are held in escrow for the resolution of specified contingencies. F-12 57 3. PROPERTY AND EQUIPMENT Property and equipment, at cost, consists of the following:
DECEMBER 31, --------------------------- 1997 1996 --------- --------- Land $ 13,632 $ 14,276 Buildings and improvements 95,614 140,470 Equipment 19,863 19,376 Office furniture and fixtures 2,626 2,937 Construction in progress 152,042 137,405 --------- --------- 283,777 314,464 Less accumulated depreciation (17,284) (25,767) --------- --------- $ 266,493 $ 288,697 ========= =========
Depreciation expense was $9,710, $7,147, and $4,428 for 1997, 1996 and 1995, respectively. 4. NOTES RECEIVABLE Notes receivable consists of the following: DECEMBER 31, ------------------------- 1997 1996 -------- -------- Notes receivable, principal and interest payments of $535 monthly through September 2017, interest at 9.25%, secured by a first mortgage on a facility $ 58,154 $ 22,401 Notes receivable, $700 is secured by a third mortgage on a facility and is due in January 1999, remaining balance is due in monthly principal and interest payments through April 1999, weighted average interest rate at 11.14% 876 876 Other 1,310 - -------- -------- 60,340 23,277 Less current portion in accounts receivable (1,076) (418) -------- -------- $ 59,264 $ 22,859 ======== ========
F-13 58 5. INVESTMENT IN DIRECT FINANCING LEASES At December 31, 1997, the Company's investment in direct financing leases represents building and equipment leases between the Company and certain government agencies. Certain of the agreements contain provisions that allow the government agencies to purchase the buildings and equipment for predetermined prices at specific intervals during the contract period. A schedule of minimum future rentals to be received under the direct financing leases at December 31, 1997, is as follows:
YEAR AMOUNT ---- --------- 1998 $ 6,909 1999 6,909 2000 6,909 2001 6,909 2002 6,909 Thereafter 88,087 --------- Total minimum obligation 122,632 Less unearned income (28,226) --------- Present value of direct financing leases 94,406 Less current portion in accounts receivable (4,222) --------- Long-term portion $ 90,184 =========
6. OTHER ASSETS Other assets consist of the following:
DECEMBER 31, 1997 1996 ------- ------- Deferred project development costs $ 786 $ 284 Project development costs, less accumulated amortization of $513 and $499, respectively 5,832 3,989 Facility start-up costs, less accumulated amortization of $5,351 and $4,296, respectively 20,459 11,404 Debt issuance costs, less accumulated amortization of $1,135 and $1,698, respectively 1,191 2,555 Deferred placement fees 2,404 2,404 Investments in affiliates 6,941 7,893 Other assets 769 876 ------- ------- $38,382 $29,405 ======= =======
F-14 59 7. LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, ---------------------------- 1997 1996 --------- --------- Revolving Credit Facility payable to a group of banks, principal due September 1999, interest payable quarterly at the bank's prime rate (8.5% at December 31, 1997) or LIBOR plus .5% (6.22% at December 31, 1997), collateralized by the pledge of stock of the Company's first tier domestic subsidiaries $ 70,000 $ 4,000 Convertible Subordinated Notes, principal due at maturity in 2002 with call provisions beginning in March 2000, interest payable quarterly at 7.5% 50,000 50,000 Convertible Subordinated Notes, principal due at maturity in 1999 with call provisions beginning in June 1999, interest payable semi-annually at 8.5% 7,000 7,000 Convertible Subordinated Notes, principal due at maturity in 1998 with call provisions beginning in June 1997, interest payable quarterly at 8.5% 5,800 7,500 Senior Secured Notes, principal paid in full in July 1997 - 10,328 Secured Notes Payable, principal paid in full in March 1997 - 1,210 Detention Center Revenue Bonds, principal paid in full in July 1997 - 24,700 Notes payable to a bank, principal paid in full in July 1997 - 20,911 Other 122 167 --------- --------- 132,922 125,816 Less current portion (5,847) (8,281) --------- --------- $ 127,075 $ 117,535 ========= =========
F-15 60 At December 31, 1997, the Company's revolving credit facility provides for borrowings up to $170,000. The facility bears interest at the bank's prime rate or LIBOR plus .50%, .75% or 1.0% depending on the Company's leverage ratio. The facility is used for working capital and letters of credit. Letters of credit totaling $1,600 have been issued to secure the Company's worker's compensation insurance policy. The unused commitment at December 31, 1997 was $98,400. The facility is subject to renewal on September 6, 1999. At December 31, 1997, the Company has a $2,500 letter of credit facility. Letters of credit totaling $1,615 have been issued to secure the Company's worker's compensation insurance policy, performance bonds and utility deposits. The unused commitment at December 31, 1997 was $885. The facility is subject to renewal on September 6, 1999. Restricted cash of $3,450 at December 31, 1996, represents cash held in sinking funds established for the funding of current year principal and interest on certain bonds and current construction obligations. The Company does not maintain any significant formal or informal compensating balance arrangements with financial institutions. The Convertible Subordinated Notes are convertible into the Company's common stock at prices ranging from $1.69 to $25.91 per share. The Company may require conversion under certain conditions after the stock has a market value of 150% of the conversion price for a specified period. In 1997, Convertible Subordinated Notes with a face value of $1,700 were converted into 1,004 shares of common stock. The provisions of the credit facilities and notes contain restrictive covenants, the most restrictive of which are limits on the payment of dividends, incurrence of additional indebtedness, investments and mergers. The agreements also require that the Company maintain specific ratio requirements relating to cash flow, tangible net worth, interest coverage and earnings. The Company was in compliance with the covenants at December 31, 1997. The Company capitalized interest of $6,263, $502 and $717 in 1997, 1996 and 1995, respectively. Interest (income) expense, net is comprised of the following for each year:
1997 1996 1995 -------- ------- ------- Interest expense $ 6,633 $ 8,200 $ 5,534 Interest income (10,752) (3,976) (1,582) -------- ------- ------- $ (4,119) $ 4,224 $ 3,952 ======== ======= =======
Maturities of long-term debt for the next five years and thereafter are: 1998 - $5,847; 1999 - $77,047; 2000 - $28; 2001 - $0; and 2002 - $50,000. F-16 61 8. RELATIONSHIP WITH CCA PRISON REALTY TRUST On July 18, 1997, the Company sold nine correctional and detention facilities (the "Initial Facilities") to CCA Prison Realty Trust, a Maryland real estate investment trust, ("Prison Realty") for an aggregate amount of $308,100. The Company entered into agreements with Prison Realty to lease the Initial Facilities back to the Company pursuant to long-term, non-cancelable triple net leases (the "Leases") which require the Company to pay all operating expenses, taxes, insurance and other costs. All of the Leases have initial terms ranging from 10-12 years which may be extended at the fair market rates for three additional five-year periods upon the mutual agreement of the Company and Prison Realty. The Company entered into option agreements with Prison Realty pursuant to which Prison Realty was granted the option to acquire and leaseback any or all of five option facilities to the Company at any time during the three-year period following the acquisition of the Initial Facilities. In addition, the Company granted Prison Realty an option to acquire, at fair market value, and leaseback to the Company any correctional or detention facility acquired or developed and owned by the Company in the future for a period of three years following the date the Company first receives inmates at such facility. Subsequent to the sale of the Initial Facilities through December 31, 1997, the Company individually sold three correctional and detention facilities to Prison Realty and immediately entered into 10-year lease agreements with Prison Realty with terms substantially similar to the Leases with respect to the Initial Facilities. As of December 31, 1997, the net property and equipment has been removed from the balance sheet, and the gains realized on the sale transactions have been deferred and are being recognized as lease expense reductions over the terms of the leases. The Chairman of the Board of Directors, President and Chief Executive Officer of the Company is also the Chairman of the Board of Trustees of Prison Realty. F-17 62 9. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The provision for income taxes is comprised of the following components:
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 1997 1996 1995 -------- ------- ------ CURRENT PROVISION Federal $ 35,930 $ 5,567 $2,853 State 3,540 785 315 -------- ------- ------ 39,470 6,352 3,168 -------- ------- ------ INCOME TAXES CHARGED TO EQUITY Federal 5,679 10,719 3,567 State 649 1,225 420 -------- ------- ------ 6,328 11,944 3,987 -------- ------- ------ DEFERRED PROVISION Federal (11,360) 1,052 1,946 State (1,297) 121 229 -------- ------- ------ (12,657) 1,173 2,175 -------- ------- ------ Provision for income taxes $ 33,141 $19,469 $9,330 ======== ======= ======
F-18 63 Significant components of the Company's deferred tax assets and liabilities are as follows:
DECEMBER 31, ------------------------- 1997 1996 -------- ------- CURRENT DEFERRED TAX ASSETS Asset reserves and liabilities not yet deductible for tax $ 2,546 $ 2,067 Deferred revenue 2,731 - -------- ------- Total current deferred tax assets 5,277 2,067 -------- ------- CURRENT DEFERRED TAX LIABILITIES Tax in excess of book amortization 6,480 - Income item not yet taxable and other 26 1,041 -------- ------- Total current deferred tax liabilities 6,506 1,041 -------- ------- Net current deferred tax assets (liabilities) $ (1,229) $ 1,026 ======== ======= NONCURRENT DEFERRED TAX ASSETS Deferred gain on real estate transactions $ 12,684 $ - Other 2,245 788 -------- ------- Total noncurrent deferred tax assets 14,929 788 -------- ------- NONCURRENT DEFERRED TAX LIABILITIES Tax in excess of book depreciation 2,443 3,876 Income items not yet taxable and other 2,291 1,629 -------- ------- Total noncurrent deferred tax liabilities 4,734 5,505 -------- ------- Net noncurrent deferred tax assets (liabilities) $ 10,195 $(4,717) ======== =======
F-19 64 A reconciliation of the statutory federal income tax rate and the effective tax rate as a percentage of pretax income for the years ended December 31, is as follows:
1997 1996 1995 ---- ---- ---- Statutory federal rate 35.0% 35.0% 34.0% State taxes, net of federal tax benefit 4.0 4.0 4.0 Other items, net (.9) (.3) 1.4 ---- ---- ---- 38.1% 38.7% 39.4% ==== ==== ====
F-20 65 10.EARNINGS PER SHARE In the fourth quarter of 1997, the Company adopted the provisions of SFAS 128, "Earnings Per Share." Under the standards established by SFAS 128, earnings per share is measured at two levels: basic earnings per share and diluted earnings per share. Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the year. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares after considering the additional dilution related to convertible preferred stock, convertible subordinated notes, options and warrants. Earnings per share for 1996 and 1995 have been restated to conform with the provisions of SFAS 128. In computing diluted earnings per common share, the Company's stock warrants and stock options are considered dilutive using the treasury stock method, and the Series B convertible preferred stock and the 8.5% convertible subordinated notes are considered dilutive using the if-converted method. The following table presents information necessary to calculate diluted earnings per share for the years ended December 31:
1997 1996 1995 ------- ------- ------- Net income $53,955 $30,880 $14,333 Interest expense applicable to convertible subordinated notes, net of tax 700 752 740 ------- ------- ------- Adjusted net income $54,655 $31,632 $15,073 ======= ======= ======= Weighted average common shares outstanding 77,221 71,763 62,257 Effect of dilutive options and warrants 7,279 9,028 13,089 Conversion of preferred stock 182 - - Conversion of convertible subordinated notes 5,557 6,249 6,249 ------- ------- ------- Adjusted diluted common shares outstanding 90,239 87,040 81,595 ======= ======= ======= Diluted earnings per share $ .61 $ .36 $ .18 ======= ======= =======
F-21 66 11.STOCKHOLDERS' EQUITY Preferred Stock - The Company has authorized 1,000 shares of $1 (one dollar) par value Series A preferred stock. At December 31, 1997, no Series A preferred stock was issued or outstanding. The Company has authorized 400 shares of $1 (one dollar) par value Series B convertible preferred stock. The preferred stock has the same voting rights as the Company's common stock. Dividends are paid on the preferred stock at a rate equal to two times the dividend being paid on each share of the Company's common stock. Each share of the preferred stock is convertible into 1.94 shares of the Company's common stock. The preferred stock is convertible at the Company's option any time on or after January 1, 1998 and at the holder's option in twenty-five percent increments beginning July 1, 1999 through January 1, 2001. At December 31, 1997, 380 shares of Series B convertible preferred stock were issued and outstanding. Stock Offering - On June 5, 1996, the Company completed a secondary public offering of 3,700 new shares of its common stock. The net proceeds of $131,812 were used to develop, acquire and expand correctional and detention facilities. Stock Split - On June 5, 1996, the Board of Directors declared a two-for-one stock split of the Company's common stock to be effective on July 2, 1996. An amount equal to the par value of the common shares outstanding as of July 2, 1996, was transferred from additional paid-in capital to the common stock account. On October 4, 1995, the Board of Directors declared a two-for-one stock split of the Company's common stock to be effective on October 31, 1995. An amount equal to the par value of the common shares outstanding as of October 31, 1995, was transferred from additional paid-in capital to the common stock account. All references to number of shares and to per share data in the consolidated financial statements have been adjusted for these stock splits. Stock Warrants - The Company has issued stock warrants to certain affiliated and unaffiliated parties for providing certain financing, consulting and brokerage services to the Company and to stockholders as a dividend. At December 31, 1997, 1,100 stock warrants were outstanding. The warrants were issued June 23, 1994 with an exercise price of $15.80 per warrant and an expiration date of December 31, 1999. Each warrant entitles the warrant holder to four common shares upon exercise. The warrants are exercisable from the date of issuance. F-22 67 Stock Option Plans - The Company has incentive and nonqualified stock option plans under which options may be granted to "key employees" as designated by the Board of Directors. The options are granted with exercise prices that equal market value on the date of grant. The options are exercisable after the later of two years from the date of employment or one year after the date of grant until ten years after the date of the grant. The Company's Board of Directors approved a stock repurchase program for up to an aggregate of 400 shares of the Company's stock for the purpose of funding the employee stock options, stock ownership and stock award plans. On September 30, 1997, the Company repurchased 123 shares of the Company's stock from a member of the Board of Directors of the Company at the market price pursuant to this program. Stock option transactions relating to the Company's incentive and nonqualified stock option plans are summarized below:
1997 ---------------------- WEIGHTED AVERAGE NUMBER OF EXERCISE SHARES PRICE -------- ------- Outstanding at beginning of period 3,503 $ 9.96 Granted 454 23.83 Exercised (1,078) 7.60 Canceled (26) 26.21 ------ ------ Outstanding at end of period 2,853 $12.91 ====== ====== Available for future grant 2,802 - ====== ====== Exercisable 2,337 $ 9.98 ====== ======
1996 ---------------------- WEIGHTED AVERAGE NUMBER OF EXERCISE SHARES PRICE -------- ------- Outstanding at beginning of period 3,916 $ 3.73 Granted 903 27.06 Exercised (1,297) 2.92 Canceled (19) 22.97 ------ ------ Outstanding at end of period 3,503 $ 9.96 ====== ====== Available for future grant 2,950 - ====== ====== Exercisable 2,601 $ 4.06 ====== ======
F-23 68
1995 ---------------------- WEIGHTED AVERAGE NUMBER OF EXERCISE SHARES PRICE --------- -------- Outstanding at beginning of period 3,470 $ 2.31 Granted 1,248 7.61 Exercised (754) 3.49 Canceled (48) 5.82 ------ ------ Outstanding at end of period 3,916 $ 3.73 ====== ====== Available for future grant 3,818 - ====== ====== Exercisable 2,680 $ 1.93 ====== ======
The weighted average fair value of options granted during 1997, 1996 and 1995 was $10.14, $12.28 and $3.21 per option, respectively. The options outstanding at December 31, 1997, have exercise prices between $1.04 and $33.13 and a weighted average remaining contractual life of 7 years. In addition to the plans mentioned above, the Company has a nonqualified stock option plan to encourage stock ownership by selected employees of the Company. Pursuant to the plan, stock options may be granted to key employees upon authorization by the Board of Directors. The aggregate number of options that may be granted under the plan is 1,440. As of December 31, 1997, 240 options were outstanding at an option price of $1.35 per share. During 1995, the Company authorized the issuance of 337 shares of common stock to certain key employees as a deferred stock award. The award becomes fully vested ten years from the date of grant based on continuous employment with the Company. The Company is expensing the $3,670 of awards over the vesting period. During 1997, the Company granted 80 stock options to a member of the Board of Directors of the Company to purchase the Company's common stock. The options were granted with an exercise price less than the market value on the date of grant. The options are exercisable immediately. F-24 69 In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based Compensation." SFAS 123 establishes new financial accounting and reporting standards for stock-based compensation plans. The Company has adopted the disclosure-only provisions of SFAS 123 and continues to account for stock-based compensation using the intrinsic value method as prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related Interpretations. As a result, no compensation cost has been recognized for the Company's stock option plans under the criteria established by SFAS 123. Had compensation cost for the stock option plans been determined based on the fair value of the options at the grant date for awards in 1997, 1996 and 1995 consistent with the provisions of SFAS 123, the Company's net income and net income per share would have been reduced to the pro forma amounts indicated below for the years ended December 31:
1997 1996 1995 ---------- ---------- ---------- Net income - as reported $ 53,955 $ 30,880 $ 14,333 Net income - pro forma 48,911 25,995 13,550 Net income per share - Basic - as reported $ .70 $ .43 $ .23 Net income per share - Basic - pro forma .63 .36 .22 Net income per share - Diluted - as reported $ .61 $ .36 $ .18 Net income per share - Diluted - pro forma .55 .31 .18
Because the SFAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, the pro forma compensation cost may not be representative of that to be expected in future years. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
1997 1996 1995 ------ ------- ------- Expected dividend yield 0.0% 0.0% 0.0% Expected stock price volatility 40.4% 49.5% 50.3% Risk-free interest rate 5.3% 5.9% 6.8% Expected life of options 4 years 4 years 4 years
F-25 70 Employee Stock Ownership Plan - The Company has an Employee Stock Ownership Plan whereby each employee of the Company who is at least 18 years of age is eligible for membership in the plan as of January 1 of their first anniversary year in which they have completed at least one thousand hours of service. Benefits, which become 40% vested after four years of service and 100% vested after five years of service, are paid on death, retirement or termination. The Board of Directors has discretion in establishing the amount of the Company contributions. The Company's contributions to the plan may be in the form of common stock, cash or other property. Contributions to the plan amounted to $3,723, $2,086 and $1,366 for the years ended December 31, 1997, 1996 and 1995, respectively. 12.REVENUES AND EXPENSES Approximately 98%, 99% and 99% of the Company's revenues for the years ended December 31, 1997, 1996 and 1995, respectively, relate to amounts earned from federal, state and local government management and transportation contracts. The Company had revenues of 21%, 21% and 23% from the federal government and 59%, 54% and 49% from state governments for the years ended December 31, 1997, 1996 and 1995, respectively. One state government accounted for revenues of 13%, 16% and 18% for the years ended December 31, 1997, 1996 and 1995, respectively. In 1997, the Company recognized $7,900 as additional management service revenues. For the years ended December 31, 1997 and 1996, the Company recognized after tax development fee income of $2,453 and $1,629, respectively, related to a contract to design, construct and equip a managed detention facility. Accounts receivable include $81,387 and $55,924 due from federal, state and local governments at December 31, 1997 and 1996, respectively. Accounts receivable and accounts payable at December 31, 1997, consist of the following:
ACCOUNTS ACCOUNTS RECEIVABLE PAYABLE ---------- ------- Trade $77,506 $21,021 Construction 3,394 11,073 Other 8,922 - ------- ------- $89,822 $32,094 ======= =======
Salaries and related benefits represented 66%, 64% and 60% of operating expenses for the years ended December 31, 1997, 1996 and 1995, respectively. F-26 71 13.INTERNATIONAL ALLIANCE The Company has entered into an International Alliance (the "Alliance") with Sodexho to pursue prison management business outside the United States. In conjunction with the Alliance, Sodexho purchased an equity position in the Company by acquiring several instruments. In 1994, the Company sold Sodexho 2,800 shares of common stock at $3.75 per share and a $7,000 convertible subordinated note bearing interest at 8.5%. Sodexho also received 1,100 warrants at $15.80 per warrant that expire December 1999. Each warrant entitles Sodexho to four common shares upon exercise. In consideration of the placement of the aforementioned securities, the Company agreed to pay Sodexho $3,960 over a four-year period ending in 1998. These fees include debt issuance costs and private placement equity fees. These fees have been allocated to the various instruments and are charged to debt issuance costs or equity as the respective financings are completed. Sodexho is subject to a standstill agreement that limits their ownership to 25% in the Company and has certain preemptive rights to retain its percentage ownership. In 1995, Sodexho purchased 1,090 shares of common stock for $7.63 per share pursuant to their contractual preemptive right. Also during 1995, the Company and Sodexho entered into a forward contract whereby Sodexho would purchase up to $20,000 of convertible subordinated notes at any time prior to December 1997. In 1997, the Company and Sodexho extended the expiration date of this contract to December 1999. The notes will bear interest at LIBOR plus 1.35% and will be convertible into common shares at a conversion price of $6.83 per share. In 1996, the Company sold $20,000 of convertible notes to Sodexho pursuant to their contractual preemptive right. The notes bear interest at 7.5% and are convertible into common shares at a conversion price of $25.91 per share. 14.RELATED PARTY TRANSACTIONS The Company pays legal fees to a law firm of which one of the partners is a stockholder and a member of the Board of Directors of the Company. Legal fees, including fees related to the Company's mergers and acquisitions, paid to the law firm amounted to $1,109, $683 and $675 in 1997, 1996 and 1995, respectively. In 1997, the Company paid $382 to a member of the Board of Directors of the Company for consulting services related to various contractual relationships. Also in 1997, the Company paid $911 to National Corrections and Rehabilitation Corporation, a company that is majority-owned by a member of the Board of Directors, for services rendered at one of its facilities. F-27 72 15.COMMITMENTS AND CONTINGENCIES The Company leases certain facilities, office space and equipment under long-term operating leases expiring through 2009. Gross lease expense (before reductions associated with recognition of deferred gains on real estate transactions) was approximately $22,443, $2,786 and $5,904 for the years ended December 31, 1997, 1996 and 1995, respectively. Minimum lease commitments for noncancelable leases are as follows:
YEAR AMOUNT ---- -------- 1998 $ 52,580 1999 52,628 2000 53,470 2001 55,452 2002 57,670 Thereafter 340,667 -------- Total $612,467 ========
The nature of the Company's business results in claims and litigation alleging that the Company is liable for damages arising from the conduct of its employees or others. In the opinion of management, there are no pending legal proceedings that would have a material effect on the consolidated financial position or results of operations of the Company. Each of the Company's management contracts and the statutes of certain states require the maintenance of insurance. The Company maintains various insurance policies including employee health, worker's compensation, automobile liability and general liability insurance. These policies are fixed premium policies with various deductible amounts that are self-funded by the Company. Reserves are provided for estimated incurred claims within the deductible amounts. The Company guarantees $113 of a bank facility for CC Australia. The Company has provided a $1,000 performance bond in connection with UKDS's management contract with the United Kingdom. The Company provides a limited guarantee related to a bond issue on the Eden Detention Center in Eden, Texas. The maximum obligation as of December 31, 1997 was $22,290. In the event the Company is required to fund amounts pursuant to this limited guarantee, the Company will obtain ownership rights to the facility. F-28 73 16.EVENT SUBSEQUENT TO DECEMBER 31, 1997 On January 5, 1998, the Company sold the Davis Correctional Facility, located in Holdenville, Oklahoma, to Prison Realty for $36,100. The Company will continue to operate the medium-security correctional facility under the terms of a 10-year operating lease, with terms substantially similar to those of the Leases. Annual first year rent for the facility is expected to be approximately $4,000. F-29 74 INDEX OF EXHIBITS Exhibits marked with an * are filed herewith. Exhibits following exhibit number 10(yyyy) are numbered beginning with 10.102. Other exhibits have previously been filed with the Commission and are incorporated herein by reference.
Exhibit Number Description - ------- ----------- 2(a) Agreement of Sale and Purchase between the Company and CCA Prison Realty Trust, dated July 7, 1997.(33) 3(a) Charter of the Company. (29) 3(b) By-Laws of the Company. (30) 3(d)* Articles of Amendment to Charter of the Company Setting Forth the Powers, Preferences, Rights, Qualifications, Limitations and Restrictions of its Series B Convertible Preferred Stock, dated October 2, 1997. 3(e)* Articles of Amendment to Charter of the Company, dated December 30, 1997. 4(f) 8.5% Convertible Extendable Subordinated Notes originally due September 30, 1998, dated as of June 22, 1992 in the aggregate principal amount of $2,500,000, made payable to Pacific Mutual Life Insurance Company and PM Group Life Insurance Company. (9) 4(g) 8.5% Convertible Extendable Subordinated Notes originally due September 30, 1998, dated as of December 2, 1992 in the aggregate principal amount of $1,500,000, made payable to Pacific Mutual Life Insurance Company and PM Group Life Insurance Company. (9) 4(l) 8.5% Convertible Extendable Subordinated Notes originally due September 30, 1998, dated as of April 29, 1993 in the aggregate principal amount of $2,500,000, made payable to Pacific Mutual Life Insurance Company and PM Group Life Insurance Company.(10) 4(o) 8.5% Convertible Subordinated Note due November 7, 1999 made payable to Sodexho S.A. in the aggregate principal amount of $7,000,000.(11) 4(p) Stock Purchase Warrant for the purchase of Common Stock of the Company issued to Sodexho, S.A. on June 23, 1994.(12)
75
Exhibit Number Description - ------- ----------- 4(r) Form of Amended 8.5% Convertible Extendable Subordinated Notes originally due September 30, 1998, dated as of June 22, 1992 in the aggregate principal amount of $2,500,000, made payable to Cudd & Co. and Atwell & Co. (Original Exhibit No. 4(f)).(21) 4(s) Form of Amended 8.5% Convertible Extendable Subordinated Notes originally due September 30, 1998, dated as of December 2, 1992 in the aggregate principal amount of $1,500,000, made payable to Cudd & Co. and Atwell & Co. (Original Exhibit No. 4(g)).(21) 4(t) Form of Amended 8.5% Convertible Extendable Subordinated Notes originally due September 30, 1998, dated as of April 29, 1993 in the aggregate principal amount of $3,500,000, made payable to Cudd & Co. and Atwell & Co. (Original Exhibit No. 4(l).(21) 4(u) Form of 7.5% Convertible, Subordinated Note due February 28, 2002 made payable to PMI Mezzanine Fund, L.P. in the aggregate principal amount of $30,000,000.(21) 4(v) Form of 7.5% Convertible, Subordinated Note due February 28, 2002 made payable to Sodexho S. A., in the aggregate principal amount of $20,000,000.(22) 4(w) Note Purchase Agreement, dated as of April 5, 1996, by and among Sodexho, S.A. and the Company, relating to the issuance of 7.5% Convertible, Subordinated Notes in the aggregate principal amount of $20,000,000.(22) 4(x) Registration Rights Agreement with respect to the Note Purchase Agreement, dated as of April 5, 1996, by and among Sodexho, S.A. and the Company.(22) 4(z)* 8.5% Convertible, Extendable, Subordinated Note originally due September 30, 1998, dated as of June 22, 1992 in the aggregate amount of $104,000, made payable to Atwell & Co. 4(aa)* 8.5% Convertible, Extendable, Subordinated Note originally due September 30, 1998, dated as of June 22, 1992 in the aggregate amount of $696,000, made payable to Atwell & Co. 4(bb)* 1997 Amendment to 1994 Securities Purchase Agreement by and between the Company and Sodexho S.A., dated December 30, 1997.
76
Exhibit Number Description - ------- ----------- 4(cc) Option Agreement dated March 31, 1997 by and between the Company and Joseph F. Johnson relating to the grant of an option to purchase 80,000 shares of the Company's common stock.(34) 4(dd) The Company's Non-Employee Directors' Compensation Plan.(35) 10(c) The Company's Option Plan dated January 23, 1985, as amended by First Amendment to the Company's Stock Option Plan, together with forms of Incentive Stock Option Agreement and Non-Qualified Stock Option Agreement. (1) 10(d) Non-Qualified Stock Option Plan of the Company, dated January 16, 1986, and related form of Non-Qualified Stock Option Agreement. (1) 10(e) The Company's 1988 Flexible Stock Option Plan. (4) 10(v) Memorandum of Understanding regarding privatization of France's penitentiary system. (2) 10(aa) Second Amendment to the Company's Stock Option Plan of Company, dated March 27, 1987, together with form of Incentive Stock Option Agreement. (3) 10(qq) Third Amendment to the Company's Stock Option Plan dated March 18, 1988. (5) 10(xx) U.S. Government Lease for Real Property by and between the United States of America and the Company, dated April 10, 1984, relating to the Houston facility. (6) 10(zz) The Company's 1989 Stock Bonus Plan. (7) 10(eee) Letter of Guaranty, dated October 27, 1989, between the Company and National Australia Bank Limited, relating to the guaranty by the Company of certain advances made by National Australia Bank Limited to Corrections Corporation to Australia, Pty. Ltd. (7) 10(fff) Assignment and Assumption Agreement, dated March 2, 1990, by and between the Company and Esmor, Inc., relating to the assignment of Esmor, Inc.'s leasehold interest in real property located in San Diego County, California and the assignment of Esmor Inc.'s contract with the
77
Exhibit Number Description - ------- ----------- Immigration and Naturalization Service for the construction and operation of an INS Detention Facility. (7) 10(mmm) First Amendment to the Company's 1988 Flexible Stock Option Plan, dated June 8, 1989. (7) 10(nnn) First Amendment to the Company's Non-Qualified Stock Option Plan, dated June 8, 1989. (7) 10(bbbb) Standard Transfer Form, dated September 8, 1991, between the Company and Houghton Holdings Limited (formerly John Holland Holdings Limited) relating to the purchase by the Company of 7,500 shares in Corrections Corporation of Australia Pty. Ltd. and related Amended and Restated Letter of Guaranty. (8) 10(iiii) The Company's Amended and Restated Employee Stock Ownership Plan.(8) 10(yyyy) The Company's Non-Employee Director Stock Option Plan.(10) 10.102 First Amendment to the Company's 1991 Flexible Stock Option Plan dated March 11, 1994.(17) 10.109 Amendments to the Amended and Restated Corrections Corporation of America Employee Savings and Stock Ownership Plan dated June 3, 1994.(17) 10.112 International Joint Venture Agreement, dated June 23, 1994, between the Company and Sodexho, S.A.(13) 10.113 Securities Purchase Agreement, dated June 23, 1994, between the Company and Sodexho, S.A., including form of 8.5% Note, form of Warrant, and form of 8.75% Notes.(14) 10.114 Stockholders Agreement, dated June 23, 1994, between the Company and Sodexho, S.A.(15) 10.132 Share Exchange Agreement by and among the Company, TransCor America, Inc. and the Shareholders of TransCor America, Inc., dated December 30, 1994.(16)
78
Exhibit Number Description - ------- ----------- 10.138 Amended and Restated Corrections Corporation of America 1989 Stock Bonus Plan dated February 20, 1995.(17) 10.139 The Company's 1995 Employee Stock Incentive Plan effective as of March 20, 1995.(19) 10.140 Stock Purchase Agreement, dated March 31, 1995, between the Company and Chubb Security Holdings Australia Limited A.C.N. 003 590 921.(21) 10.141 Share Exchange Agreement, dated as of April 25, 1995, among the Company, Concept Incorporated, and the Stockholders of Concept Incorporated.(18) 10.142 Note Purchase Agreement dated as of June 22, 1992, among Pacific Mutual Life Insurance Company, PM Group Life Insurance Company and the Company as amended by Amendment No. 1 to the Note Purchase Agreement, dated as of August 25, 1992, Amendment No. 2 to the Note Purchase Agreement, dated as of October 29, 1992, Amendment No. 3 to Note Purchase Agreement, dated as of April 29, 1993 and Amendment No. 4 to the Note Purchase Agreement, dated as of April 25, 1995.(21) 10.143 Stock Purchase Agreement, dated as of June 9, 1995, between Sodexho S.A. and the Company concerning sale of shares of Corrections Corporation of Australia Pty. Ltd. A.C.N. 010 921 641.(21) 10.144 Stock Purchase Agreement, dated as of June 29, 1995, between Sodexho S.A. and the Company.(21) 10.145 Amendment No. 1 to Securities Purchase Agreement, dated as of July 11, 1995, between Sodexho S.A. and the Company.(21) 10.148 Purchase Agreement, dated July 17, 1995, between Concept Incorporated and Landmark Organization Southwest, Inc.(21) 10.149 Purchase Agreement, dated July 17, 1995, between Concept Incorporated and U.C. Eloy, Inc.(21) 10.150 Agreement and Plan of Merger, dated as of August 18, 1995, among the Company, CMA Acquisition, Inc., CSG Acquisition, Inc., Correction Management Affiliates, Inc., Correctional Services Group, Inc., the shareholders of Correction Management Affiliates, Inc. and the shareholders of Correctional Services Group, Inc.(20)
79
Exhibit Number Description - ------- ----------- 10.151 Shareholders' Agreement, dated as of October 17, 1995, among Corrections Corporation of Australia Pty. Ltd., the Company, and Sodexho S.A.(21) 10.152 First Amendment to Stock Purchase Agreement, dated October 17, 1995, between Sodexho S.A. and the Company.(21) 10.153 First Amendment to Amended and Restated Corrections Corporation of America 1989 Stock Bonus Plan, dated November 3, 1995.(21) 10.155 Note Purchase Agreement, dated as of February 29, 1996, between the Company and PMI Mezzanine Fund, L.P.(21) 10.156 Guaranty Agreement, dated as of July 10, 1996, among the Company, as Guarantor, Eden Correctional Facilities Corporation, as the Issuer, and Liberty Bank and Trust Company of Tulsa, National Association, as the Trustee, with respect to the Taxable Detention Facility Revenue Bond, Series 1995 in the aggregate principal amount of $22,875,000.(22) 10.157 Credit Agreement, dated as of September 6, 1996, among the Company, as Borrower, various Lenders, and First Union National Bank of Tennessee, as Administrative Agent.(22) 10.158 Letter of Credit Facility Agreement, dated as of September 6, 1996, among the Company and First Union National Bank of Tennessee and First Union National Bank of North Carolina.(22) 10.159 Intercompany Subordination Agreement, dated as of September 6, 1996, among the Company, five of its wholly owned subsidiaries, including CCA International, Inc., TransCor America, Inc., Concept Incorporated, Correction Management Affiliates, Inc., and Correctional Services Group, Inc. and First Union National Bank of Tennessee.(22) 10.160 Unconditional Guaranty Agreement, with Supplement, dated as of September 6, 1996, in favor of First Union National Bank of Tennessee among the Company, five of its wholly owned subsidiaries, including CCA International, Inc., TransCor America, Inc., Concept Incorporated, Correction Management Affiliates, Inc., and Correctional Services Group, Inc. and First Union National Bank of Tennessee.(22) 10.161 Form of Pledge Agreement, with Supplement, dated as of September 6, 1996 by the Company and five of its wholly owned subsidiaries,
80
Exhibit Number Description - ------- ----------- including CCA International, Inc., TransCor America, Inc., Concept Incorporated, Correction Management Affiliates, Inc., and Correctional Services Group, Inc., individually, in favor of First Union National Bank of Tennessee as Administrative Agent for various Lenders.(22) 10.162 Amendment No. 2, dated December 31, 1996, to the Securities Purchase Agreement dated as of June 23, 1994, between Sodexho S.A. and the Company.(22) 10.163 Purchase Agreement, dated as of December 31, 1996, among the Company, Corrections Corporation of America (U.K.) Limited and Sodexho S.A., relating to U.K. Detention Services, Ltd.(22) 10.164 Shareholders' Agreement, dated as of December 31, 1996, among the Company, Corrections Corporation of America (U.K.) Limited and Sodexho S.A., relating to U.K. Detention Services, Ltd.(22) 10.165 Option Agreement, dated as of December 31, 1996, among the Company, Corrections Corporation of America (U.K.) Limited and Sodexho S.A., relating to U.K. Detention Services, Ltd.(22) 10.166* Master Agreement to Lease between CCA Prison Realty Trust and the Company. 10.167 Right to Purchase Agreement between CCA Prison Realty Trust and the Company.(23) 10.168* Trade Name Use Agreement between CCA Prison Realty Trust and the Company. 10.169 Option Agreement between CCA Prison Realty Trust and the Company with respect to the Northeast Ohio Correctional Center.(24) 10.170 Option Agreement between CCA Prison Realty Trust and the Company with respect to the Torrance County Detention Facility.(25) 10.171 Option Agreement between CCA Prison Realty Trust and the Company with respect to the Southern Colorado Correctional Facility.(26) 10.172 Option Agreement between CCA Prison Realty Trust and the Company with respect to the North Fork Correctional Facility.(27)
81
Exhibit Number Description - ------- ----------- 10.173 Option Agreement between CCA Prison Realty Trust and the Company with respect to the Whiteville Correctional Center.(28) 10.174* Purchase and Sale Agreement, dated November 18, 1997, among the Holdenville Industrial Authority and the Company. 10.175* Exercise Agreement, dated January 5, 1998, by and between the Company and CCA Prison Realty Trust with respect to the Holdenville, Oklahoma facility. 10.176* Purchase and Sale Agreement, dated November 26, 1997, among the Cushing Municipal Authority and the Company. 10.177* Exercise Agreement, dated December 11, 1997, by and between the Company and CCA Prison Realty Trust with respect to the Cushing, Oklahoma facility. 10.178* Stock Repurchase Agreement, dated as of September 30, 1997, between the Company and Thomas W. Beasley. 10.179* Lease Agreement between the Company and CCA Prison Realty Trust with respect to the Houston Processing Center. 10.180* Lease Agreement between the Company and CCA Prison Realty Trust with respect to the Laredo Processing Center. 10.181* Lease Agreement between the Company and CCA Prison Realty Trust with respect to the Bridgeport Pre-Parole Transfer Facility. 10.182* Lease Agreement between the Company and CCA Prison Realty Trust with respect to the Mineral Wells Pre-Parole Transfer Facility. 10.183* Lease Agreement between the Company and CCA Prison Realty Trust with respect to the West Tennessee Detention Facility. 10.184* Lease Agreement between the Company and CCA Prison Realty Trust with respect to the Leavenworth Detention Center. 10.185* Lease Agreement between the Company and CCA Prison Realty Trust with respect to the Eloy Detention Center.
82
Exhibit Number Description - ------- ----------- 10.186* Lease Agreement between the Company and CCA Prison Realty Trust with respect to the Central Arizona Detention Center. 10.187* Lease Agreement between the Company and CCA Prison Realty Trust with respect to the T. Don Hutto Correctional Center. 10.188* Lease Agreement between the Company and CCA Prison Realty Trust with respect to the Northeast Ohio Correctional Facility. 10.189* Lease Agreement between the Company and CCA Prison Realty Trust with respect to the Torrance County Detention Facility. 10.190 Lease Agreement between the Company and CCA Prison Realty Trust with respect to the Cimarron Correctional Facility.(31) 10.191 Lease Agreement between the Company and CCA Prison Realty Trust with respect to the Davis Correctional Facility.(32) 10.192* Exchange Agreement, dated October 2, 1997, among the Company, American Corrections Transport, Inc., Michael H. Shmerling, L.M. Company, Tom Loventhal, J. Thomas Martin, Peter Weiss, Kenneth Anchor, and Bernard Goldstein. 10.193* Stock Repurchase Agreement, dated March 2, 1998, between the Company and Doctor R. Crants. 10.194* Form of Employment Agreement between the Company and Doctor R. Crants. 10.195* Amendment and Waiver to Credit Agreement, dated July 18, 1997, by and among the Company, certain Lenders, and First Union National Bank of Tennessee as Administrative Agent for the Lenders. 21 The Company has the following five wholly-owned subsidiaries: CCA International, Inc., Technical and Business Institute of America, Inc., TransCor America, Inc., Concept Incorporated, and Correctional Services Group, Inc. 23* Consent of Arthur Andersen LLP. 24* Power of Attorney (Included on signature page). 27* Financial Data Schedule (for SEC use only).
83 - ------------------------ (1) Incorporated herein by reference to exhibit of same number to Company's Registration Statement on Form S-1, filed August 15, 1986 (Reg. No. 33-8052). (2) Incorporated herein by reference to exhibit of same number to Amendment No. 1 to the Company's Registration Statement on Form S-1, filed September 19, 1986 (Reg. No. 33-8052). (3) Incorporated herein by reference to Exhibit 10(cc) to the Company's Annual Report on Form 10-K with respect to the fiscal year ended December 31, 1986 (File No. 0-15719). (4) Incorporated herein by reference to Exhibit A to the Company's definitive Proxy Statement relating to the 1988 Annual Meeting of Stockholders (File No. 0-15719). (5) Incorporated herein by reference to Exhibit B to the Company's definitive Proxy Statement relating to the 1988 Annual Meeting of Stockholders (File No. 0-15719). (6) Incorporated herein by reference to exhibit of the same number to the Company's Annual Report on Form 10-K with respect to the fiscal year ended December 31, 1988 (File No. 0-15719). (7) Incorporated herein by reference to exhibit of the same number to the Company's Annual Report on Form 10-K with respect to the fiscal year ended December 31, 1989 (File No. 0-15719). (8) Incorporated herein by reference to exhibit of the same number to the Company's Annual Report on Form 10-K with respect to the fiscal year ended December 31, 1991 (File No. 0-15719). (9) Incorporated herein by reference to exhibit of the same number to the Company's Annual Report on Form 10-K with respect to the fiscal year ended December 31, 1992 (File No. 0-15719). (10) Incorporated herein by reference to exhibit of the same number to the Company's Annual Report on Form 10-K with respect to the fiscal year ended December 31, 1993 (File No. 0-15719). (11) Incorporated herein by reference to Exhibit 2 to the Company's Report on Form 8-K filed June 30, 1994 (File No. 0-15719). 84 (12) Incorporated herein by reference to Exhibit 2 to the Company's Report on Form 8-K filed June 30, 1994 (File No. 0-15719). (13) Incorporated herein by reference to Exhibit 1 to the Company's Report on Form 8-K filed June 30, 1994 (File No. 0-15719). (14) Incorporated herein by reference to Exhibit 2 to the Company's Report on Form 8-K filed June 30, 1994 (File No. 0-15719). (15) Incorporated herein by reference to Exhibit 3 to the Company's Report on Form 8-K filed June 30, 1994 (File No. 0-15719). (16) Incorporated herein by reference to Exhibit 3 to the Company's Report on Form 8-K filed January 12, 1995 (File No. 1-13560). (17) Incorporated herein by reference to exhibit of the same number to the Company's Annual Report on Form 10-K with respect to the fiscal year ended December 31, 1994 (File No. 1-13560). (18) Incorporated herein by reference to Exhibit 2 to the Company's Report on Form 8-K filed May 10, 1995 (File No. 1-13560). (19) Incorporated herein by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8 filed July 20, 1995 (Reg. No. 33-61173). (20) Incorporated herein by reference to Exhibit 1 the Company's Report on Form 8-K filed August 31, 1995 (File No. 1-13560). (21) Incorporated herein by reference to exhibit of the same number to the Company's Annual Report in Form 10-K with respect to the fiscal year ended December 31, 1995 (File No. 1-13560). (22) Incorporated herein by reference to exhibit of the same number to the Company's Annual Report in Form 10-K with respect to the fiscal year ended December 31, 1996 (File No. 1-13560). (23) Incorporated herein by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-3 (Commission File No. 333-25727-01) Amendment No. 4 (Filed July 9, 1997). (24) Incorporated herein by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-3 (Commission File No. 333-25727-01) Amendment No. 4 (Filed July 9, 1997). 85 (25) Incorporated herein by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-3 (Commission File No. 333-25727-01) Amendment No. 4 (Filed July 9, 1997). (26) Incorporated herein by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-3 (Commission File No. 333-25727-01) Amendment No. 4 (Filed July 9, 1997). (27) Incorporated herein by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-3 (Commission File No. 333-25727-01) Amendment No. 4 (Filed July 9, 1997). (28) Incorporated herein by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-3 (Commission File No. 333-25727-01) Amendment No. 4 (Filed July 9, 1997). (29) Incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form 8-B filed July 10, 1997 (File No. 1-13560). (30) Incorporated herein by reference to Exhibit 3.2 to the Company's Registration Statement on Form 8-B filed July 10, 1997 (File No. 1-13560). (31) Incorporated herein by reference to Exhibit 10.29 to the Company's Registration Statement on Form S-3 (Commission File Number 333-43935-01) (Filed January 9, 1998). (32) Incorporated herein by reference to Exhibit 10.30 to the Company's Registration Statement on Form S-3 (Commission File Number 333-43935-01) (Filed January 9, 1998). (33) Incorporated herein by reference to Exhibit 2 to the Company's Registration Statement on Form S-3 (Commission File No. 333-25727-01) Amendment No. 4 (Filed July 9, 1997). (34) Incorporated herein by reference to Appendix B to the Company's definitive Proxy Statement relating to the 1998 Annual Meeting of Shareholders which will be filed within 120 days after the end of the Company's fiscal year pursuant to Regulation 14A. (35) Incorporated herein by reference to Appendix A to the Company's definitive Proxy Statement relating to the 1998 Annual Meeting of Shareholders which will be filed within 120 days after the end of the Company's fiscal year pursuant to Regulation 14A. EX-3.D 2 ARTICLES OF AMENDMENT 1 EXHIBIT 3(d) ARTICLES OF AMENDMENT TO THE CHARTER OF CORRECTIONS CORPORATION OF AMERICA SETTING FORTH THE POWERS, PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF SERIES B CONVERTIBLE PREFERRED STOCK The undersigned, acting on behalf of Corrections Corporation of America, a corporation incorporated under the Tennessee Business Corporation Act (the "Corporation"), adopts the following articles of amendment to its Charter: 1. Pursuant to the authority vested in the Board of Directors of the Corporation in accordance with the Tennessee Business Corporation Act and the provisions of the Charter of the Corporation, a series of class of authorized preferred stock, par value $1.00 per share of the Corporation is hereby created and the designations and number of shares thereof and the voting powers, preferences and relative participating optional and other special rights of the shares of such series, and the qualifications, limitations and restrictions thereof are as follows: A. Designation. The shares of such series shall be designated as Series B Convertible Preferred Stock (hereinafter referred to as the "Series B Preferred Stock"). The number of shares initially constituting the Series B Preferred Stock shall be 400,000, which number may be decreased (but not increased) by the Board of Directors, without a vote of shareholders; provided, however, that such number may not decreased below the number of then outstanding shares of Series B Preferred Stock. B. Voting Rights. 1. Class Voting of Series B Preferred Stock and Common Stock. Except as otherwise required by law, or as specifically provided herein, the holders of shares of Series B Preferred Stock and the holders of the Corporation's $1.00 per share par value common stock (the "Common Stock") shall vote together as a single class on all matters submitted to a vote of the shareholders of the Corporation, with each holder of Series B Preferred Stock entitled to one (1) vote per share of Series B Preferred Stock owned by such shareholder at the record date for the determination of shareholders entitled to vote on such matters or, if no such record date is established, at the date such vote is taken or any written consent of shareholders is solicited. 2. Series B Preferred Stock Voting as a Class. Except as otherwise required by applicable law, the holders of the Series B Preferred Stock shall have no right to vote as a class. C. Dividends. No dividend may be declared or paid or set aside for payment to, or other distribution made upon, the Common Stock or on any other stock of the Corporation ranking junior to or on a parity with the Series B Preferred Stock as to dividends unless the same dividends are declared and paid (or declared and a sum sufficient for the payment thereof set apart for such payment) on the Series B Preferred Stock at a rate equal to two (2) times the dividend being paid on each share of Common Stock. 1 2 D. Liquidation. 1. In the event of any liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, holders of each share of Series B Preferred Stock shall be entitled to be paid out of the assets of the Corporation available for distribution to holders of the Corporation's capital stock an amount per share equal to One and No/100 Dollar ($1.00)(the "Preference Amount"). The Preference Amount shall be tendered to the holders of the Series B Preferred Stock with respect to such liquidation, dissolution, or winding up before any sums shall be paid or any assets distributed to the holders of shares of Common Stock or to the holders of any other stock of the Corporation ranking junior to or on a parity with the Series B Preferred Stock as to liquidation preferences, but after the payment of liquidation amounts to the holders of any other stock of the Corporation ranking senior to the Series B Preferred Stock as to liquidation preferences. If the assets of the Corporation shall be insufficient to permit the payment in full to the holders of the Series B Preferred Stock of the Preference Amount, then the entire assets of the Corporation available for such distribution shall be distributed ratably among the holders of the Series B Preferred Stock. After the Preference Amount payment shall have been made in full to the holders of the Series B Preferred Stock or funds necessary for such payment shall have been set aside by the Corporation in trust for the account of holders of the Series B Preferred Stock so as to be available for such payment, holders of the Series B Preferred Stock shall be entitled to participate in further distributions to the holders of the Common Stock of the Corporation as if all of the shares of the Series B Preferred Stock had been converted into shares of Common Stock pursuant to Section E hereof. 2. Whenever the Preference Amount shall be paid in property other than cash, the value of such distribution shall be the fair value thereof determined in good faith by the Board of Directors of the Corporation. 3. In case outstanding shares of Series B Preferred Stock shall be subdivided into a greater number of shares of Series B Preferred Stock, the Preference Amount in effect immediately prior to each such subdivision, simultaneously with the effectiveness of such subdivision, shall be proportionately reduced, and, conversely, in case outstanding shares of Series B Preferred Stock shall be combined into a smaller number of shares of Series B Preferred Stock, the Preference Amount in effect immediately prior to each such combination, simultaneously with the effectiveness of such combination, shall be proportionately increased. E. Conversion Rights. The holders of the Series B Preferred Stock shall have the following conversion rights: 1. Mandatory Conversion. At any time on and after January 1, 1998, at the election of the Corporation, each share of the Series B Preferred Stock will be converted automatically into 1.94 fully paid and nonassessable shares of Common Stock (the "Conversion Ratio"). This mandatory conversion shall occur with respect to all, but not less than all, of the Series B Preferred Stock within thirty (30) days of the Corporation's delivery of written notice thereof to each holder of the Series B Preferred Stock. The Conversion Ratio shall be subject to adjustment as provided in Section E.3. below. 2 3 2. Right to Convert. On and after July 1, 1999, each holder of shares of Series B Preferred Stock may convert up to twenty-five percent (25%) of the total number of Series B Preferred Shares into 1.94 fully paid and nonassessable shares of Common Stock. On and after January 1, 2000, each holder of shares of Series B Preferred Stock may convert up to an additional twenty-five (25%) of the total number of Series B Preferred Shares into 1.94 fully paid and nonassessable shares of Common Stock. On and after July 1, 2000, each holder of shares of Series B Preferred Stock may convert up to an additional twenty-five percent (25%) of the total number of Series B Preferred Shares into 1.94 fully paid and nonassessable shares of Common Stock. On and after January 1, 2001, each holder of shares of Series B Preferred Stock may convert any unconverted shares of Series B Preferred Stock into 1.94 fully paid and nonassessable shares of Common Stock. The Conversion Ratio shall be subject to adjustment as provided in Section E.3. below. In the event of a liquidation of the Company, the conversion rights shall terminate at the close of business on the first full day preceding the date fixed for the payment of any amounts distributable on liquidation to the holders of Series B Preferred Stock. 3. Adjustment to Conversion Ratio Upon Occurrence of Extraordinary Common Stock Event. Upon the happening of an Extraordinary Common Stock Event (as hereinafter defined), the Conversion Ratio, simultaneously with the happening of such Extraordinary Common Stock Event, shall be adjusted by multiplying the then effective Conversion Ratio by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such Extraordinary Common Stock Event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such Extraordinary Common Stock Event, and the product so obtained shall thereafter be the Conversion Ratio. The Conversion Ratio, as so adjusted, shall be readjusted in the same manner upon the happening of any successive Extraordinary Common Stock Event(s). "Extraordinary Common Stock Event" shall mean (x) the issuance of additional shares of Common Stock as a dividend or other distribution on all outstanding shares of Common Stock, (y) a stock split or subdivision of outstanding shares of Common Stock into a greater number of shares of Common Stock, or (z) a reverse stock split or combination of outstanding shares of Common Stock into a smaller number of shares of Common Stock. 4. Statement Specifying Adjusted Conversion Ratio. If the Conversion Ratio is adjusted, the Corporation shall file at its principal executive offices and shall mail within thirty (30) days after the date upon which such adjustment shall be made, by registered or certified mail to each registered holder of shares of Series B Preferred Stock, a statement signed by a responsible financial officer of the Corporation specifying the adjusted Conversion Ratio and setting forth in reasonable detail the method of calculation of such adjustment and the facts requiring the adjustment and upon which the calculation is based. 5. Exercise of Conversion Privilege. To exercise the conversion privilege pursuant to Section E.2., a holder of Series B Preferred Stock shall surrender the certificate(s) representing the shares being converted to the Corporation at its principal office, and shall give written notice to the Corporation at that office that such shareholder elects to convert such shares. Such notice also shall state the name(s) and address(es) in which the certificate(s) for shares of Common Stock issuable upon such conversion shall be issued. The certificate(s) for shares of Series B Preferred Stock surrendered for conversion shall be accompanied by proper assignment thereof to the Corporation or in blank. The date when such written notice is received by the 3 4 Corporation, together with the certificate(s) representing the shares of Series B Preferred Stock being converted, shall be the "Conversion Date." As promptly as practicable after the Conversion Date, the Corporation shall issue and deliver to the holder of the shares of Series B Preferred Stock being converted, or on its written order, such certificate(s) as it may request of the number of whole shares of Common Stock issuable upon the conversion of such shares of Series B Preferred Stock in accordance with the provisions of this Section E.5., and cash, as provided in Section E.6., in respect of any fraction of a share of Common Stock issuable upon such conversion. Such conversion shall be deemed to have been effected immediately prior to the close of business on the Conversion Date, and at such time the rights of the holder as holder of the converted shares of Series B Preferred Stock shall cease and the person(s) in whose name(s) any certificate(s) for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder(s) of record of the shares of Common Stock represented thereby. 6. Cash in Lieu of Fractional Shares. No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon the conversion of shares of Series B Preferred Stock. Instead of any fractional shares of Common Stock that otherwise would be issuable upon conversion of Series B Preferred Stock, the Corporation shall pay to the holder of the shares of Series B Preferred Stock that were converted a cash adjustment in respect of such fractional shares in an amount equal to the same fraction of the fair market value price per share of the Common Stock (as determined in a reasonable manner prescribed by the Board of Directors) at the close of business on the Conversion Date. The determination as to whether any fractional shares are issuable shall be based upon the total number of shares of Series B Preferred Stock being converted at any one time by any holder thereof, not upon each share of Series B Preferred Stock being converted. 7. Partial Conversion. In the event some, but not all, of the shares of Series B Preferred Stock represented by a certificate(s) surrendered by a holder are converted, the Corporation shall execute and deliver to or on the order of the holder, at the expense of the holder of the shares of the Series B Preferred Stock that were converted, a new certificate(s) representing the number of shares of Series B Preferred Stock that were not converted. 8. Reservation of Common Stock. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series B Preferred Stock, such number of its shares of Common Stock as from time to time shall be sufficient to effect the conversion of all outstanding shares of the Series B Preferred Stock, and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series B Preferred Stock, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. 9. No Charge for Conversion. The issuance of certificates for shares of Common Stock upon the conversion of any shares of the Series B Preferred Stock shall be made without charge to the converting holder for such certificates or for any tax in respect of the issuance of such certificates, and such certificates shall be issued in the name of, or in such names as may be directed by, the holder of the Series B Preferred Stock; provided, however, that the Corporation shall not be required to pay any taxes or other government charges which may be payable in 4 5 respect of any transfer involved in the issuance and delivery of any such certificate in a name other than that of the holder of the Series B Preferred Stock, and the Corporation shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or other government charge or shall have established to the reasonable satisfaction of the Corporation that such tax or other government charge has been paid or provided for. The Corporation may also require, as a condition to the issuance and delivery of any such certificate, an opinion of counsel acceptable to the Corporation to the effect that the proposed transfer does not require registration under federal or any state securities law. 10. Notices of Record Date. In the event of any: a. taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase, or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right; b. capital reorganization of the Corporation, any reclassification or recapitalization of the capital stock of the Corporation, a merger, or a sale; or c. voluntary or involuntary dissolution, liquidation, or winding up the Corporation; then and in each such event the Corporation shall mail or cause to be mailed to each holder of Series B Preferred Stock a notice specifying (i) the record date for such dividend, distribution, or right and a description of such dividend, distribution, or right, (ii) the date on which any such reorganization, reclassification, recapitalization, merger, or sale is expected to become effective, and (iii) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, recapitalization, merger, sale, dissolution, liquidation, or winding up. Such notice shall be mailed at least 10 days prior to the date specified in such notice on which such action is to be taken. F. Dividend Payment Upon Conversion. At the date of any conversion, whether pursuant to the holder's option described in Section E.2. or whether such conversion is automatic pursuant to Section E.1., the Corporation shall pay to the holder of record of any Series B Preferred Stock surrendered for or subject to conversion any cumulated but unpaid dividends on the shares so converted. This payment shall be made by the Corporation in cash or in marketable securities of the Corporation or another issuer having a fair market value on the date of payment in an amount equal to the cumulated dividend so paid. For purposes hereof, "marketable securities" shall mean equity securities of an issuer which have been registered under the Securities Exchange Act of 1934, as amended, and which are listed on a national securities exchange or included in an interdealer quotation system which reports last sale information. G. No Reissuance of Series B Preferred Stock. No share(s) of Series B Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion, or otherwise shall be 5 6 reissued, and, upon conversion, all such shares shall be canceled, retired, and eliminated from the shares that the Corporation shall be authorized to issue. The Corporation from time to time may take such appropriate corporate action as may be necessary to reduce the authorized number of shares of the Series B Preferred Stock accordingly. H. No Dilution or Impairment. The Corporation will not, by amendment of its Charter or through any reorganization, transfer of assets, consolidation, merger, share exchange, 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 the Series B Preferred Stock set forth herein, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of the Series B Preferred Stock against dilution or other impairment. I. Transfer Restriction. Prior to January 1, 2001, no holder of Series B Preferred Stock may sell or dispose of (except by bona fide pledge where the pledgee is subject in all respects to the transfer provisions of this Section I) his or her shares of Series B Preferred Stock; provided, however, that, in the event of the death of a holder of shares of Series B Preferred Stock, the shares of Series B Preferred Stock owned by such shareholder may be transferred by will or intestate succession. Dated this 2nd day of October, 1997. CORRECTIONS CORPORATION OF AMERICA By: /s/Darrell K. Massengale ----------------------------------------- Darrell K. Massengale Chief Financial Officer and Secretary 6 EX-3.E 3 ARTICLES OF AMEND. TO CHARTER 1 EXHIBIT 3(e) ARTICLES OF AMENDMENT TO THE CHARTER OF CORRECTIONS CORPORATION OF AMERICA CORPORATE CONTROL NUMBER: 0330360 Pursuant to the provisions of Section 48-20-106 of the Tennessee Business Corporation Act, as amended, the undersigned corporation adopts the following Articles of Amendment to its Charter: 1. The name of the corporation is Corrections Corporation of America (the "Corporation"). 2. Section 2 of the Charter of the Corporation is amended as follows: The address of the principal office of the Corporation is 10 Burton Hills Boulevard, Nashville, Davidson County, Tennessee 37215. 3. Section 4 (b) of the Charter of the Corporation is amended as follows: The address of the Corporation's registered agent, Linda Cooper, is 10 Burton Hills Boulevard, Nashville, Davidson County, Tennessee 37215. 4. The Board of Directors of the Corporation approved these amendments by resolution dated December 30, 1997, without shareholder approval, as such is not required by law. 5. These amendments are to be effective upon filing of these Articles of Amendment with the Secretary of State. Dated: December 30, 1997. CORRECTIONS CORPORATION OF AMERICA By: /s/ Darrell K. Massengale ----------------------------------------- Darrell K. Massengale, Chief Financial Officer and Secretary EX-4.Z 4 8.5% CONVERTIBLE EXTENDABLE SUBORDINATED NOTES 1 EXHIBIT 4(z) CORRECTIONS CORPORATION OF AMERICA 8.5% CONVERTIBLE, EXTENDABLE, SUBORDINATED NOTE ORIGINALLY DUE SEPTEMBER 30, 1998 dated as of No. 016 June 22, 1992 SECTION 1. PAYMENT OBLIGATION. CORRECTIONS CORPORATION OF AMERICA, a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Corporation"), for value received, hereby promises to pay to ATWELL & CO, or registered assigns (hereinafter referred to as the "Holder"), the principal sum of One Hundred Four Thousand Dollars ($104,000) on the Maturity Date, and to pay interest thereon from the date hereof quarterly on September 30, December 31, March 31 and June 30 of each year, commencing September 30, 1992, at (i) the Coupon Rate, or (ii) upon the occurrence of a Triggering Event and until the date on which such Triggering Event is cured or waived or until the date that is ninety (90) days from initial occurrence of the Triggering Event, whichever is later, at the Triggering Event Rate, until the principal hereof is paid to the person in whose name this Note is registered at the close of business on the Business Day immediately preceding the date such payment is due. Payment of the principal of and interest on this Note will be made by cashiers check or by wire transfer of immediately available funds, in currency of the United States of America as at the time of payment is legal tender for payment of public and private debts, at such address or to such account, as applicable, as shall be designated to the Corporation by the Holder. SECTION 2. DEFINITIONS. As used herein, the following terms will be deemed to have the meanings set forth below: "BOARD" means the board of directors of the Corporation. "BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday, or Friday that is not a day on which banking institutions in Los Angeles, California are authorized or obligated by law or executive order to close. "CHANGE EVENT" shall mean: (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) 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) 2 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 were the beneficial owners of voting securities of the Corporation immediately prior to such acquisition in substantially the same proportion as their ownership, immediately prior to such acquisition, of the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors; or (b) the Incumbent Board shall cease for any reason to constitute as least fifty percent (50%) of the members of the Board; or (c) approval by the stockholders of the Corporation of a reorganization, merger, or consolidation, in each case, with respect to which all or substantially all the individuals and entities who were the respective beneficial owners of the voting securities of the Corporation immediately prior to such reorganization, merger, or consolidation do not, following such reorganization, merger, or consolidation 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 corporation resulting from such reorganization, merger, or consolidation; or (d) the sale or other disposition of all or substantially all the assets or property of the Corporation in one transaction or a series of related transactions. "CLOSING DATE" shall have the meaning ascribed thereto in Section 2.2 of the Note Purchase Agreement. "COMMON STOCK" means the common stock of the Corporation, par value $1.00 per share. "CONVERSION PRICE" means $1.694 per share of Common Stock, subject to adjustment from time to time as herein set forth. "CONVERSION RATIO" means the number of Conversion Shares to be delivered upon conversion of One Hundred Dollars ($100) of principal amount of this Note. Subject to the provisions for adjustment set forth herein, the Conversion Ration shall be determined as the quotient of (i) the principal amount of this Note to be converted, divided by (ii) the Conversion Price. Subject to the provisions for adjustment set forth herein, the Conversion Ratio initially shall be 59.03:1.0. "CONVERSION SHARES" means fully paid and nonassessable shares of Common Stock issuable upon conversion of the indebtedness evidenced by this Note. 2 3 "CONVERTIBLE NOTES" means the Corporation's (a) $7,000,000 original aggregate principal amount 8.5% Convertible Subordinated Notes due November 7, 1999, and (b) the Corporation's $2,700,000 aggregate principal amount 8.5% Convertible Subordinated Notes due on various dates, the latest of which is January 16, 2000. "COUPON RATE" means eight and one-half percent (8.5%) per annum. "CURRENT MARKET PRICE" when used with reference to shares of Common Stock, shall mean the closing price per share of Common Stock on such date and, when used with reference to shares of Common Stock for any period shall mean the average of the daily closing prices per share of Common Stock for such period. The closing price for each day shall be 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 Quotation System or such other system then in use, or, if on any such date the Common Stock is not quoted nor so reported, the average of the closing bide and asked prices as furnished by a professional market maker making a market in the Common Stock selected by the Board. If the Common Stock is listed or admitted to trading on a national securities exchange, the closing price shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Common Stock is not listed or admitted to trading on the New York Stock Exchange, as securities listed on the principal national securities exchange on which the Common Stock is listed or admitted to trading. If the Common Stock is not publicly held or so listed or publicly traded, "Current Market Price" shall mean the fair market value per share of Common Stock as determined in good faith by the Board based on an opinion of an independent investment banking firm with an established national reputation as a valuer of securities, which opinion may be based on such assumptions as such firm shall deem to be necessary and appropriate. "EVENT OF DEFAULT" shall have the meaning set forth in Section 7.1 of the Note Purchase Agreement. "EXCHANGE ACT" shall have the meaning set forth in Section 3.1 of the Note Purchase Agreement. "INCUMBENT BOARD" means the individuals who, as of the Closing Date, constitute the Board; provided, however, that any individual becoming a director subsequent to the Closing Date, whose election, or nomination for election by the Corporation's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed to be a member of the Incumbent Board. 3 4 "MAJOR TRANSACTION" shall mean: (a) approval by the stockholders of the Corporation of a reorganization, merger, or consolidation, in each case, with respect to which all or substantially all the individuals and entities who were the respective beneficial owners of the voting securities of the Corporation immediately prior to such reorganization, merger, or consolidation do not, following such reorganization, merger, or consolidation 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 Corporation resulting from such reorganization, merger, or consolidation; or (b) the sale or other disposition of all or substantially all the assets or property of the Corporation in one transaction or a series of related transactions. "MANDATORY CONVERSION DATE" means the Business Day specified by the Corporation, in compliance with the provisions hereof, as the date on which all or a portion of the indebtedness evidenced by this Note will be converted into shares of Common Stock pursuant to the Corporation's right to compel such conversion. "MANDATORY CONVERSION NOTICE" means a written notice substantially in the form of the notice attached hereto as Exhibit A and incorporated herein by this reference. "MANDATORY PREPAYMENT DATE" means the Business Day specified by the Holder, in compliance with the provision hereof, as the date on which all or a portion of the indebtedness evidenced by this Note must be prepaid pursuant to the Holder's right to compel such prepayment. "MANDATORY PREPAYMENT NOTICE" means a written notice substantially in the form of the notice attached hereto as Exhibit B and incorporated herein by this reference. "MATURITY DATE" means (i) September 30, 1998, or (ii) September 30, 1999, if the Holder of this Note elects, by written notice given to the Corporation at least sixty (60) days but not more than one hundred twenty (120) days prior to September 30, 1998, to extend the then extant "Maturity Date" to September 30, 1999, or (iii) September 30, 2000, if the Holder of this Note elects, by written notice given to the Corporation at least sixty (60) days but not more than one hundred twenty (120) days prior to September 30, 1999, to extend the then extant "Maturity Date" to September 30, 2000. "NOTE" means this 8.5% convertible, extendable, subordinated note issued by the Corporation. 4 5 "NOTE PURCHASE AGREEMENT" means that certain Note Purchase Agreement, dated as of June 22, 1992, between the Corporation, Pacific Mutual Life Insurance Company, and PM Group Life Insurance Company, as amended from time to time. "OPTIONAL CONVERSION NOTICE" means a written notice substantially in the form of the notice attached hereto as Exhibit C and incorporated herein by this reference. "OPTIONAL PREPAYMENT NOTICE" means a written notice substantially in the form of the notice attached hereto as Exhibit D and incorporated herein by this reference. "SENIOR INDEBTEDNESS" means the principal of and premium, if any, and unpaid interest on (a) indebtedness (other than indebtedness evidenced by the Convertible Notes, indebtedness that is subordinated in right of payment to one or more item or type of indebtedness of the Corporation, or indebtedness incurred in violation of the terms and conditions of the Note Purchase Agreement) of the Corporation, irrespective of whether secured and whether heretofore or hereafter (i) incurred for borrowed money, or (ii) evidenced by a note or similar instrument given in connection with the acquisition by the Corporation of any business, properties, or assets, including securities (but not including any account payable or other obligation created or assumed by the Corporation in the ordinary course of business in connection with the obtaining of materials or services), (b) any refundings, renewals, extensions, or deferrals of any of the indebtedness included as Senior Indebtedness by virtue of clause (a) hereof, and (c) obligations under capital leases; in each case for the payment of which the Corporation is liable directly or indirectly by guarantee, letter of credit, obligation to purchase or acquire, or otherwise, unless the terms of the instrument evidencing such indebtedness or capital lease or pursuant to which such indebtedness or capital lease is outstanding specifically provide that such indebtedness or capital lease is not superior in right of payment to the indebtedness evidenced by this Note. "TRADING DAY" means, if the Common Stock is listed or admitted to trading on any national securities exchange, a day on which such exchange is open for the transaction of business, otherwise, a Business Day. "TRANCHE C CLOSING DATE" shall have the meaning ascribed thereto in Section 3.1 of the Note Purchase Agreement. "TRIGGERING EVENT" means the occurrence of any Unmatured Event of Default or Event of Default described in clauses (i), (ii), and (iv) through (x), inclusive, of Section 7.1 of the Note Purchase Agreement. For purposes of determining the period during which the Triggering Event Rate shall be in effect, a Triggering Event shall not be deemed to have occurred until the date on which the Holder shall have given notice of the occurrence thereof to the Corporation. "TRIGGERING EVENT RATE" means ten and one-half percent (10.5%) per annum. 5 6 "UNMATURED EVENT OF DEFAULT"shall mean any event or condition, the occurrence of which would, with the lapse of time or the giving of notice, or both, constitute an Event of Default. SECTION 3. OPTIONAL CONVERSION. (a) Subject to and upon compliance with the provisions of this Note, the Holder is entitled, at its option, at any time on or before the close of business on the Business Day prior to the Maturity Date, or in case this Note or a portion hereof is called for conversion by the Corporation in accordance with the terms hereof, or the Corporation elects to prepay in accordance with the terms hereof, then until and including, but not after, the close of business on the third Business Day prior to the Mandatory Conversion Date or the Optional Prepayment Date, to convert all or a portion of the principal amount of the indebtedness evidenced by this Note into Conversion Shares. (b) The principal amount of the indebtedness evidenced by this Note or any portion of the principal amount of the indebtedness evidenced hereby that is One Thousand Dollars ($1,000), an integral multiple of One Thousand Dollars ($1,000), or the remaining balance of the principal amount of the indebtedness evidenced by this Note may be converted into Conversion Shares. Subject to the provisions for adjustment set forth hereinafter, the indebtedness evidenced by the Note shall be convertible into Conversion Shares at a price per share equal to the Conversion Price and the number of Conversion Shares to be deliverable to the Holder upon conversion of One Hundred Dollars ($100) of the principal amount of this Note shall be equal to the Conversion Ratio. (c) Conversion of all or a portion of the indebtedness evidenced by this Note may be effected by the Holder upon the surrender to the Corporation at the principal office of the Corporation in the State of Tennessee or at the office of any agent or agents of the Corporation, as may be designated by the Board, of this Note, duly endorsed or assigned to the Corporation or in blank, accompanied by an Optional Conversion Notice to the Corporation that the Holder elects to convert the principal amount of the indebtedness evidenced by this Note or, if less than the entire principal amount of the indebtedness evidenced by this Note is to be converted, the portion thereof to be converted. Such Optional Conversion Notice shall specify the name or names in which the Holder wishes the certificate or certificates for shares of Common Stock to be issued. In case such notice shall specify a name or names other than that of the Holder, such notice shall be accompanied by payment of all transfer taxes payable upon the issuance of shares of Common Stock in such name or names. Other than such taxes, the Corporation will pay any and all issue and other taxes (other than taxes based on income) that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of the indebtedness evidenced by this Note. No payment or adjustment shall be made upon any conversion of this Note on account of any dividends or other distributions payable on the Conversion Shares; provided, however, that the Holder shall be entitled to receive the full amount of any dividends or other distributions declared with respect to the Conversion Shares with a record date on or after the effective date of such conversion. As promptly as practicable, and in any event within five (5) Business Days after the surrender of this Note 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 have 6 7 been paid), the Corporation shall deliver or cause to be delivered, either by personal delivery or by certified or registered mail or by a recognized overnight courier service, in any such case, properly insured, to the Holder in accordance with the written instructions of the Holder (i) certificates representing the number of Conversion Shares to which the Holder shall be entitled, and (ii) if less than the entire principal amount of indebtedness evidenced by this Note, for the balance of the indebtedness that is not being so converted. Such conversion shall be deemed to have been made at the close of business on the date of giving such notice and of such surrender of this Note so that the rights of the Holder (as a noteholder) with respect to the principal amount being converted shall cease, and the person or persons entitled to receive the Conversion Shares issuable upon conversion shall be treated for all purposes as the record holder or holders of such Common Stock as of such day. All accrued but unpaid interest through the Business Day immediately preceding the date of such conversion with respect to the principal amount of the indebtedness evidenced by this Note being converted shall be payable upon conversion. The Corporation shall not be required to convert, and no surrender of this Note shall be effective for that purpose, while the transfer books of the Corporation for the Common Stock are closed for any purpose (but not for any period in excess of 15 days); but the surrender of this Note for conversion during any period while such books are so closed shall become effective for conversion immediately upon the reopening of such books, as if the conversion had been made on the date this Note is surrendered, and at the Conversion Ratio in effect at the date of such surrender. (d) In case this Note is to be prepaid pursuant to the mandatory prepayment provisions hereof, such right of conversion shall cease and terminate as to the portion of this Note that is to be prepaid at the close of business on the Business Day next preceding the date fixed for mandatory prepayment unless the Corporation shall default in the payment of the Mandatory Prepayment Amount. (e) In connection with the conversion of the indebtedness evidenced by this Note, 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 Trading Day on which such indebtedness evidenced by this Note is deemed to have been converted. If more than one note shall be surrendered for conversion by the Holder at the same time, the number of full shares of Common Stock issuable on conversion thereof shall be computed on the basis of the total amount of indebtedness to be converted. (f) (i) The Corporation shall at all times reserve and keep available for issuance upon the conversion of the indebtedness evidenced by this Note, free from any preemptive rights, such number of its authorized but unissued shares of Common Stock as will from time to time be sufficient to permit the conversion of all of the indebtedness evidenced by this Note, and shall take all action required to increase the authorized number of shares of Common Stock if necessary to permit the conversion of all of the indebtedness evidenced by this Note. 7 8 (ii) If the Corporation shall issue shares of Common Stock upon conversion of indebtedness evidenced by this Note as contemplated by this Section 3, the Corporation shall issue together with each such share of Common Stock any rights issued to holders of Common Stock of the Corporation, irrespective of whether such rights shall be exercisable at such time, but only if such rights are issued and outstanding and held by other holders of Common Stock of the Corporation at such time and have not expired. (g) The Conversion Ratio will 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 Closing Date (A) pay a dividend, or make a distribution, on the outstanding shares of Common Stock in shares of Common Stock, (B) subdivide the outstanding shares of Common Stock, (C) combine the outstanding shares of Common Stock into a smaller number of shares, or (D) issue by reclassification of the shares of Common Stock any shares of capital stock of the Corporation, then, and in each such case, the Conversion Ratio in effect immediately prior to such event or the record date therefor, whichever is earlier, shall be adjusted so that the Holder shall be entitled to receive the number of shares of Common Stock (or other capital stock) of the Corporation that the Holder would have owned or have been entitled to receive after the happening of any of the events described above, had the indebtedness evidenced by this Note been converted immediately prior to the happening of such event or the record date therefor, whichever is earlier. An adjustment made pursuant to this clause (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 such subdivision, reclassification, or combination, at the close of business on the day upon which such corporate action becomes effective. No adjustment shall be made pursuant to this clause (i) in connection with any transaction to which subsection (h) applies. (ii) In case the Corporation shall issue shares of Common Stock (or rights, warrants, or other securities convertible into or exchangeable for shares of Common Stock) after the Closing Date at a price per share (or having a conversion price per share) less than the Current Market Price per share of Common Stock, as of the date of issuance of such shares or of such convertible securities, then, and in each such case, the Conversion Ratio shall be adjusted so that the Holder shall be entitled to receive, upon the conversion hereof, the number of shares of Common Stock determined by multiplying (A) the applicable Conversion Ratio on the day immediately prior to such date by (B) a fraction, the numerator of which shall be the sum of (1) the number of shares of Common Stock outstanding on such date plus (2) the number of additional shares of Common Stock issued (or into which the convertible securities may convert), and the denominator of which shall be the sum of (x) the number of shares of Common Stock purchasable at the then Current Market Price per share with the aggregate consideration received or receivable by the Corporation for the total number of shares of Common Stock so issued (or into which the rights, warrants, or other convertible securities may convert). 8 9 An adjustment made pursuant to this clause (ii) shall be made on the next Business Day following the date on which any such issuance is made and shall be effective retroactively to the close of business on the date of such issuance. For purposes of this clause (ii), the aggregate consideration received or receivable by the Corporation in connection with the issuance of shares of Common Stock shall be deemed to be equal to the sum of the aggregate offering price (before deduction of underwriting discounts or commissions and expenses payable to third parties) of all such Common Stock, rights, warrants, and convertible securities plus the minimum aggregate amount, if any, payable upon exercise of conversion of any such rights, warrants, and convertible securities into shares of Common Stock. The issuance of any shares of Common Stock (whether treasury shares or newly issued shares) pursuant to (a) a dividend or distribution on, or subdivision, combination or reclassification of, the outstanding shares of Common Stock requiring an adjustment in the conversion ratio pursuant to clause (i) of this subsection (g), or (b) any restricted stock or stock option plan or program of the Corporation, or (c) any option, warrant, right, or convertible security outstanding as of the date hereof, or (d) the terms of a firmly committed underwritten public offering, shall not be deemed to constitute an issuance of Common Stock or convertible securities by the Corporation to which this clause (ii) applies. Upon the expiration of any unexercised options, warrants, or rights to convert any convertible securities for which an adjustment has been made pursuant to this clause (ii), the adjustment shall forthwith be reversed to effect such rate of conversion as would have been in effect at the time of such expiration or termination had such options, warrant, rights or convertible securities, to the extent outstanding immediately prior to such expiration or termination, never been issued. If the purchase price provided for in any option, warrant, or rights to convert any convertible securities for which an adjustment has been made pursuant to this clause (ii), the additional consideration, if any, payable upon the conversion or exchange of any convertible securities for which an adjustment has been made, or the rate at which any convertible securities referred to above are convertible into or exchangeable for Common Stock shall, at any time, increase or decrease (other than under or by reason of provisions designed to protect against dilution), then, the Conversion Ratio in effect at the time of such event shall forthwith be readjusted to the Conversion Ratio that would have been in effect at such time and such options, warrants, or rights or convertible securities still outstanding provided for such changed purchase price, additional consideration, or conversion rate, as the case may be, at the time initially granted, issued or sold. No adjustment shall be made pursuant to this clause (ii) in connection with any transaction to which subsection h applies. (iii) In case the Corporation shall at any time or from time to time after the Closing Date 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 spinoff), on its Common Stock, other than (A) dividends payable in cash in an aggregate amount not to exceed 50% of net income from continuing operations before extraordinary items of the Corporation, determined in accordance with generally accepted accounting principles, during the period (treated as one accounting period) commencing on March 31, 1992, and ending on the date such dividend is paid; provided, that, to the extent required by the terms thereof, such dividend shall have been previously 9 10 consented to by the holders of the notes issued pursuant to the Note Purchase Agreement, or (B) dividends or distributions of shares of Common Stock which are referred to in clause (i) of this subsection (g), then, and in each such case, the Conversion Ratio shall be adjusted so that the Holder shall be entitled to receive, upon the conversion hereof, the number of shares of Common Stock determined by multiplying (1) the applicable Conversion Ratio on the day immediately prior to the record date fixed for the determination of stockholders entitled to receive such dividend or distribution by (2) a fraction, the numerator of which shall be the Current Market Price per share of Common Stock for the period of 20 Trading Days preceding such record date, and the denominator of which shall be such Current Market Price per share of Common Stock less the fair market value, as determined in good faith by the Board, a certified resolution with respect to which shall be mailed to the Holder, per share of Common Stock of such dividend or distribution. No adjustment shall be made pursuant to this clause (iii) in connection with any transaction to which subsection (h) applies. (iv) For purposes of this subsection (g), the number of shares of Common Stock at any time outstanding shall not include any shares of Common Stock then owned or held by or for the account of the Corporation. (v) The term "dividend," as used in this subsection (g), shall mean a dividend or other distribution upon stock of the Corporation. (vi) Anything in this subsection (g) to the contrary notwithstanding, the Corporation shall not be required to give effect to any adjustment in the Conversion Ratio unless and until the net effect of one or more adjustments (each of which shall be carried forward), determined as above provided, shall have resulted in a change of the Conversion Ratio by at least one one-hundredth (.01) of one share of Common Stock, and when the cumulative net effect of more than one adjustment so determined shall be to change the Conversion Ratio by at least one one-hundredth (.01) of one share of Common Stock, such change in Conversion Ratio shall thereupon be given effect. (vii) The certificate of any firm of independent public accountants of recognized standing selected by the Board (which may be the firm of independent public accountants regularly employed by the Corporation) shall be presumptively correct for any computation made under this subsection (g). (viii) If the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, and shall thereafter and before the distribution to stockholders thereof legally abandon its plan to pay or deliver such dividend or distribution, then thereafter no adjustment in the number of shares of Common Stock issuable upon exercise of the right of conversion granted by this subsection (g) or in the Conversion Ratio then in effect shall be required by reason of the taking of such record. (h) In the case of any Major Transaction occurring at any time, at the option of the Holder, the indebtedness evidenced by the Note shall thereafter be convertible into, in whole and in 10 11 part and in lieu of the Common Stock issuable upon such conversion prior to consummation of such Major Transaction, the kind and amount of shares of stock and other securities and property receivable (including cash) upon the consummation of such Major Transaction by a holder of that number of shares of Common Stock into which such indebtedness, or portion thereof, was convertible immediately prior to such Major 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 Major Transaction). In case securities or property other than Common Stock shall be issuable or deliverable upon conversion as aforesaid, then all references in this Section 3 shall be deemed to apply, so far as appropriate and nearly as may be, to such other securities or property. (i) In case at any time or from time to time the Corporation shall pay any stock dividend or make any other non-cash distribution of 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, or there shall be any capital reorganization or reclassification of the Common Stock of the Corporation or consolidation or merger of the Corporation with or into another corporation or other entity, or any sale or conveyance to another corporation or other entity of the assets or 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 20 days prior written notice (the time of mailing of such notice shall be deemed to be the time of giving thereof) to the Holder at the address of the Holder as shown on the books of the Corporation as of the date of 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) such reorganization, reclassification, consolidation, merger, sale, conveyance, dissolution, liquidation, or winding up shall take place, as the case may be, provided that in the case of any Major Transaction to which subsection (h) applies the Corporation shall give at least 30 days prior written notice as aforesaid. Such notice shall also specify the date as of which the holders of the Common Stock of record shall participate in said dividend, distribution, or subscription rights or shall be entitled to exchange their Common 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. Failure to give such notice shall not invalidate any action so taken. (j) Anything herein to the contrary notwithstanding, the issuance or sale of the following shares of Common Stock or options, warrants, or other rights to purchase Common Stock shall be excluded from any calculation of, and shall not be deemed issued or sold for purposes of calculating, any reduction, adjustment, or readjustment of the Conversion Ratio hereunder: (i) shares of Common Stock issued upon conversion of the indebtedness evidenced by this Note or any portion thereof; (ii) shares of Common Stock or options, warrants, or other rights to purchase Common Stock issuable, reserved for issuance, or issued pursuant to a stock option plan, employee stock ownership plan, or other compensatory benefit plan of the Corporation, duly adopted by the Board; (iii) shares of Common Stock, issuable, reserved for issuance, or issued pursuant to any currently outstanding warrants or options, or any options, warrants, or other rights issuable, reserved for issuance, or issued to officers of the Corporation in the future for compensatory purposes, if fully 11 12 authorized by the Board; and (iv) shares of Common Stock issued upon conversion of the indebtedness evidenced by the Convertible Notes or the currently issued and outstanding preferred stock. SECTION 4. REPORTS AS TO ADJUSTMENTS. Upon any adjustment of the Conversion Ratio then in effect and any increase or decrease in the number of shares of Common Stock issuable upon the operation of the conversion set forth in Section 3, then, and in each such case, the Corporation shall promptly deliver to the Holder, a certificate signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation setting forth in reasonable detail the event requiring the adjustment and the method by which such adjustment was calculated and specifying the Conversion Ratio then in effect following such adjustment and the increased or decreased number of shares issuable upon the conversion granted by Section 3, and shall set forth in reasonable detail the method of calculation of each and a brief statement of the facts requiring such adjustment. Where appropriate, such notice to the Holder may be given in advance and included as part of the notice required under the provisions of Section 3(i). SECTION 5. MANDATORY CONVERSION. (a) At any time after June 22, 1997, and so long as at such time the Common Stock is listed or admitted to trading on a national securities exchange, the Corporation may require the Holder to convert all or a portion of the principal amount of the indebtedness evidenced by this Note into shares of Common Stock if, at such time, the Current Market Price of the Common Stock has equalled or exceeded one hundred fifty percent (150%) of the Conversion Price (as it may from time to time be adjusted) for forty-five (45) consecutive Trading Days following the forty-fifth monthly anniversary of the Closing Date. To exercise such right, the Corporation must deliver a Mandatory Conversion Notice of the exercise of such right to the Holder within thirty (30) days of the last day of such forty-five (45) day period, such Mandatory Conversion Notice must be given at least ten (10) Business Days, but not more than fifteen (15) Business Days prior to the proposed Mandatory Conversion Date, and such Mandatory Conversion Notice must specify the proposed Mandatory Conversion Date and the portion of the principal amount of the indebtedness evidenced by this Note to be converted into Common Stock. (b) All conversions effected pursuant to the preceding paragraph will be made effective as of the close of business on the Mandatory Conversion Date at the Conversion Ratio in effect on the Mandatory Conversion Date; provided, however, that, in order to be able to convert, the Current Market Price on the Mandatory Conversion Date must equal or exceed one hundred fifty percent (150%) of the Conversion Price in effect on the Mandatory Conversion Date. If the Current Market Price on the Mandatory Conversion Date does not equal or exceed one hundred fifty percent (150%) of the Conversion Price in effect on the Mandatory Conversion Date, the Corporation's election to require conversion will be deemed void and no conversion will be effected pursuant to such notice. Such event will not be deemed, however, to alter or restrict the Corporation's right to again require conversion at such time as the Current Market Price equals or exceeds one hundred fifty percent (150%) of the then current Conversion Price for forty-five (45) consecutive Trading Days prior to such time. Upon conversion required by the Corporation pursuant to this paragraph 12 13 and the immediately preceding paragraph, all accrued but unpaid interest with respect to the principal amount of the indebtedness evidenced by this Note being converted shall be payable in accordance with the provisions of the following paragraph. (c) Conversions of the indebtedness evidenced by this Note effected by the exercise of the Corporation's right to require conversion will be deemed effective as of the close of business on the Mandatory Conversion Date without any action by the Holder and the Holder will, as of such time, be a stockholder of the Corporation with respect to the number of shares of Common Stock into which the principal balance evidenced by this Note (or such portion of the principal balance evidenced by this Note as the Corporation shall have specified) shall have been converted. The Holder agrees promptly to surrender this Note for cancellation following mandatory conversion. Certificates representing the shares of Common Stock issuable by the Corporation as a result of the mandatory conversion of all or a portion of the principal balance of the indebtedness evidenced by this Note and all dividends and other distributions payable with respect to such shares and all accrued but unpaid interest payable pursuant to the immediately preceding paragraph will be retained by the Corporation pending surrender of this Note for cancellation. As promptly as practicable, and in any event within five (5) Business Days after the surrender of this Note, the Corporation shall deliver or cause to be delivered, either by personal delivery or by certified or registered mail or by a recognized overnight courier service, in any such case, properly insured, to the Holder in accordance with the written instructions of the Holder (i) certificates representing the number of Conversion Shares to which the Holder shall be entitled, and (ii) if less than the entire principal amount of indebtedness evidenced by this Note is being converted, a new promissory note, in the form of this Note, for the balance of the indebtedness that is not being so converted. (d) In connection with the conversion of the indebtedness evidenced by this Note, 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 Trading Day on which such indebtedness evidenced by this Note is deemed to have been converted. If more than one note shall be surrendered for conversion by the Holder at the same time, the number of full shares of Common Stock issuable on conversion thereof shall be computed on the basis of the total amount of indebtedness to be converted. SECTION 6. MANDATORY PREPAYMENT. In the case of any Change Event occurring at any time, at the option of the Holder, the Holder may require the Corporation to prepay all or a portion of the then outstanding principal amount of the indebtedness evidenced by this Note. To exercise such right of prepayment, the Holder must provide the Corporation with a Mandatory Prepayment Notice at least thirty (30) days prior to the proposed Mandatory Prepayment Date which Mandatory Prepayment Notice shall specify the portion of the principal amount of the indebtedness evidenced by this Note (which must be in integral multiples of One Thousand Dollars ($1,000)) to be prepaid. On the Mandatory Prepayment Date specified, the Corporation shall prepay the portion of the principal amount of the indebtedness evidenced by this Note that the Holder has specified must be prepaid on such date, plus accrued interest on such principal amount to the date of the 13 14 prepayment. Any prepayment shall be made by cashiers check or by wire transfer of immediately available funds, in currency of the United States of America as at the time of payment is legal tender for payment of public and private debts, at such address or to such account, as applicable, as shall be designated to the Corporation by the Holder. SECTION 7. OPTIONAL PREPAYMENT. The Note shall be subject to prepayment, at the option of the Corporation, at any time and from time to time on and after July 1, 1997. To exercise such right of prepayment, the Corporation must provide the Holder with an Optional Prepayment Notice at least sixty (60) days prior to the proposed Optional Prepayment Date which Optional Prepayment Notice shall specify the portion of the principal amount of the indebtedness evidenced by this Note (which must be in integral multiples of One Thousand Dollars ($1,000)) to be prepaid. The Holder's option to convert the indebtedness evidenced by this Note as set forth in Section 3 hereof shall continue notwithstanding the exercise of the option of the Corporation to prepay under this Section 7, so long as the Holder requests conversion in accordance with the terms hereof up to and including, but not after, the close of business on the third Business Day prior to the Optional Prepayment Date. On the Optional Prepayment Date specified, the Corporation shall prepay the portion of the principal amount of the indebtedness evidenced by this Note that the Corporation has specified is to be prepaid on such date, plus accrued interest on such principal amount to the date of the prepayment. Any prepayment shall be made by cashiers check or by wire transfer of immediately available funds, in currency of the United States of America as at the time of payment is legal tender for payment of public and private debts, at such address or to such account, as applicable, as shall be designated to the Corporation by the Holder. This Note shall not be subject to prepayment, whether in whole or in part, on or before June 30, 1997. SECTION 8. SUBORDINATION. (a) The Corporation covenants and agrees, and the Holder likewise covenants and agrees, that no payment shall be made by the Corporation on account of principal of or interest on this Note, or otherwise, if there shall have occurred and be continuing, and the Corporation and the Holder shall have received notice from the holder or holders of, a default with respect to any Senior Indebtedness (i) permitting the acceleration thereof and such default is the subject of a judicial proceeding, or (ii) in an aggregate principal amount of not less than One Million Dollars ($1,000,000) entitling such holder or holders of, a default with respect to any Senior Indebtedness (i) permitting the acceleration thereof and such default is the subject of a judicial proceeding, or (ii) in an aggregate principal amount of not less than One Million Dollars ($1,000,000) entitling such holder or holders to compel the acceleration thereof (provided, however, that in the case of Senior Indebtedness issued pursuant to an indenture, such notice may be validly given only by the trustee under such indenture), unless and until such default or Event of Default shall have been cured or waived or shall have ceased to exist or such notice is withdrawn or found by a court of competent jurisdiction to be invalid. (b) Upon any payment by the Corporation or distribution of assets of the Corporation of any kind or character, whether in cash, property, or securities, to creditors of the Corporation under any dissolution or winding up or liquidation or reorganization of the Corporation, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership, or other similar 14 15 proceedings, all amounts due or to become due upon all Senior Indebtedness shall first be paid in full in money or money's worth, or payment thereof provided for, before any payment is made on account of the principal of or interest on this Note and upon such dissolution or winding up or liquidation or reorganization, any payment by the Corporation, or distribution of assets of the Corporation of any kind or character, whether in cash, property, or securities, to which the Holder would be entitled except for the provisions hereof, shall be paid by the Corporation or by any receiver, trustee in bankruptcy, liquidating trustee, agent, or other person making such payment or distribution directly to the holders of Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay all Senior Indebtedness in full in money or money's worth, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness, before any payment or distribution is made to the Holder. (c) The foregoing notwithstanding, in the event that any payment of or distribution of assets of the Corporation of any kind or character, whether in cash, property or securities, prohibited by the foregoing, shall be received by the Holder before all Senior Indebtedness is paid in full in money or money's worth, or provision is made for such payment, then and in such event such payment or distribution shall be paid over or delivered to the holders of Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in money or money's worth, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in money or money's worth, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness (but subject to the power of a court of competent jurisdiction to make other equitable provision, which shall have been determined by such court to give effect to the rights conferred herein upon the Senior Indebtedness and the holders thereof with respect to this Note or the Holder hereof by a lawful plan or reorganization or readjustment under applicable bankruptcy law). (d) The holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Holder, without incurring responsibility to the Holder and without impairing or releasing the obligations of the Holder to the holders of Senior Indebtedness: (i) change the manner, place, or terms of payment or change or extend the time of payment of, or renew or alter Senior Indebtedness, or otherwise amend, in any manner, Senior Indebtedness is outstanding; provided, however, that the average weighted maturity of such Senior Indebtedness shall not be decreased without the consent of the Holder; (ii) sell, exchange, release, or otherwise deal with any property pledged, mortgaged, or otherwise securing Senior Indebtedness; (iii) release any person liable in any manner for the collection of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Corporation and any other person. 15 16 (e) Subject to the payment in full of all amounts then due (whether by acceleration of the maturity thereof or otherwise) on account of the principal of, premium, if any, and interest on all Senior Indebtedness at the time outstanding, the Holder shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of cash, property, or securities of the Corporation applicable to the Senior Indebtedness until the principal of and interest on this Note shall be paid in full; and, for the purposes of such subrogation, no payments or distributions by the Corporation to the holders of Senior Indebtedness of any cash, property, or securities to which the Holder would be entitled except for the provisions hereof, and no payments over pursuant to the provisions hereof to the holders of Senior Indebtedness by the Holder, shall, as between the Corporation, its creditors other than holders of Senior Indebtedness, and the Holder, be deemed to be a payment by the Corporation to or on account of the Senior Indebtedness. (f) It is understood that the foregoing provisions of this Note are and are intended solely for the purpose of defining the relative rights of the Holder on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Note is intended to or shall impair, as among the Corporation, its creditors other than the holders of Senior Indebtedness, and the Holder, the obligation of the Corporation, which is absolute and unconditional, to pay to the Holder the principal of and interest on this Note as and when the same shall become due and payable in accordance with its terms, or is intended to or shall affect the relative rights of the Holder and creditors of the Corporation other than the holders of Senior Indebtedness, nor shall anything herein prevent the Holder from exercising all remedies otherwise permitted by applicable law upon default under this Note or the Note Purchase Agreement. (g) Upon any payment or distribution of assets of the Corporation referred to herein, the Holder shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding up, liquidation, or reorganization proceedings are pending, or certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent, or other person making such payment or distribution, delivered to the Holder, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of Senior Indebtedness and other indebtedness of the Corporation, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon, and all other facts pertinent thereto. (h) The Corporation shall give prompt written notice to the Holder of any fact known to the Corporation that would prohibit the making of any payment of moneys to or by the Corporation in respect of this Note. SECTION 9. ACCELERATION. This Note and the indebtedness evidenced hereby is subject to acceleration under the terms and conditions set forth in the Note Purchase Agreement. SECTION 10. MISCELLANEOUS. (a) Any notice required by the provisions of this Note to be given to the Holder or the Corporation shall be given and deemed received or delivered in accordance with the provisions of Section 10.4 of the Note Purchase Agreement. 16 17 (b) In the event of prepayment or conversion of this Note in part only, a new note or notes for the unpaid or unconverted portion hereof will be issued in the name or names requested by the Holder upon the cancellation hereof. (c) The transfer of this Note is registrable on the books of the Corporation upon surrender of this Note for registration of transfer at the offices of the Corporation in Nashville, Tennessee, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Corporation duly executed by, the Holder or its attorney duly authorized in writing, and thereupon one or more new notes of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. New notes are issuable only in registered form without coupons in denominations of One Thousand Dollars ($1,000) and any integral multiple thereof. This Note is exchangeable for a like aggregate principal amount of notes of a different authorized denomination, as requested by the Holder. No service charge shall be made of any such registration of transfer or exchange, but the Corporation may require payment of a sum sufficient to cover any tax or other government charge payable in connection therewith. (d) Prior to the due presentment of this Note for registration of transfer, the Corporation and any agent of the Corporation may treat the person in whose name this Note is registered as the owner hereof for all purposes, irrespective of whether this Note be overdue, and neither the Corporation nor any such agent shall be affected by notice to the contrary. (e) This Note shall be governed by and construed in accordance with the laws of the State of California. (f) The Corporation agrees, to the extent permitted by law, to pay to the Holder all costs and expenses (including attorneys' fees) incurred by it in the collection hereof or the enforcement of any right or remedy provided for herein (including such costs and expenses incurred in connection with a workout or an insolvency or bankruptcy proceeding). (g) The provisions of the Note Purchase Agreement are hereby incorporated into this Note by this reference. 17 18 IN WITNESS WHEREOF, the undersigned has executed this Note effective as of the date first above written. CORRECTIONS CORPORATION OF AMERICA, A Delaware corporation By: /s/ Doctor R. Crants ------------------------------------------- Doctor R. Crants, Chairman of the Board and Chief Executive Officer ATTEST: /s/ Darrell K. Massengale - -------------------------------- Darrell K. Massengale, Secretary 18 19 [FORM OF MANDATORY CONVERSION NOTICE] - ----------------- - ----------------- - ----------------- Notice is hereby given that, in accordance with the terms and conditions of the Note hereinafter described and that certain Note Purchase Agreement, dated June 22, 1992, between Corrections Corporation of America, Pacific Mutual Life Insurance Company, and PM Group Life Insurance Company, as amended from time to time, Corrections Corporation of America hereby elects to require conversion of the 8.5% Convertible, Extendable, Subordinated Note, originally due September 30, 1998, issued by it (the "Note"). The Note to be converted and the principal amount thereof to be converted are as follows:
Principal Number of Outstanding Amount to be Shares to Note Number Principal Amount Converted Be Delivered - ----------- ---------------- --------- ------------
The Mandatory Conversion Date will be _______________________________ . CORRECTIONS CORPORATION OF AMERICA By: -------------------------------- Name: --------------------------- Title: -------------------------- Exhibit A 19 20 [FORM OF MANDATORY PREPAYMENT NOTICE] TO: CORRECTIONS CORPORATION OF AMERICA - ----------------- - ----------------- - ----------------- The undersigned owner of the attached Note hereby gives notice that, in accordance with the terms and conditions of such Note and that certain Note Purchase Agreement, dated June 22, 1992, between Corrections Corporation of America, Pacific Mutual Life Insurance Company, and PM Group Life Insurance Company, as amended from time to time, it hereby exercises its right to require prepayment of such Note or portion thereof (which is $1,000 or an integral multiple thereof), plus all accrued but unpaid interest with respect to such principal amount. The Mandatory Prepayment Date shall be _____________. The principal amount to be prepaid shall be $__________________________. [Name of Holder] Dated: -------------- By: -------------------------------- Name: -------------------------- Title: ------------------------- Exhibit B 20 21 [FORM OF CONVERSION NOTICE] TO: CORRECTIONS CORPORATION OF AMERICA - ----------------- - ----------------- - ----------------- The undersigned owner of the attached Note hereby gives notice that, in accordance with the terms and conditions of such Note and the Note Purchase Agreement, dated June 22, 1992, between Corrections Corporation of America, Pacific Mutual Life Insurance Company, and PM Group Life Insurance Company, as amended from time to time, it hereby exercises its right to convert such Note, or portion thereof (which is $1,000 or an integral multiple thereof), below designated, into shares of Common Stock of Corrections Corporation of America and directs that the shares issuable and deliverable upon the conversion, and any notes representing any unconverted principal amount thereof, be issued and delivered to the registered holder of such Note unless a different name has been indicated below. If shares or a new note representing unconverted principal are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. [Name of Holder] Dated: -------------- By: -------------------------------- Name: -------------------------- Title: ------------------------- Principal Amount to be converted (in an integral multiple of $1,000, if less than all): $ ---------------------- Exhibit C 21 22 Fill in for registration of shares of Common Stock and Note if to be issued otherwise than to the registered Holder. - --------------------------- Name - --------------------------- Address - --------------------------- Please print name and address (including zip code number) SOCIAL SECURITY OR OTHER TAXPAYER IDENTIFYING NUMBER - --------------------------- 22 23 [FORM OF OPTIONAL PREPAYMENT NOTICE] - ---------- - ---------- - ---------- Notice is hereby given that, in accordance with the terms and conditions of the Note hereinafter described and that certain Note Purchase Agreement, dated June 22, 1992, between Corrections Corporation of America, Pacific Mutual Life Insurance Company, and PM Group Life Insurance Company, as amended from time to time, Corrections Corporation of America hereby elects to prepay the 8.5% Convertible, Extendable, Subordinated Note, originally due September 30, 1998, issued by it (the "Note"). Prepayment of such Note or portion thereof (which is $1,000 or an integral multiple thereof), plus all accrued but unpaid interest with respect to such principal amount shall be effective on the Optional Prepayment Date set forth below. The Optional Prepayment Date shall be ___________. The principal amount to be prepaid shall be $_______________________. CORRECTIONS CORPORATION OF AMERICA By: -------------------------------- Name: -------------------------- Title: ------------------------- Exhibit D 23 EX-4.AA 5 8.5% CONVERTIBLE EXTENDABLE SUBORDINATED NOTES 1 EXHIBIT 4(aa) CORRECTIONS CORPORATION OF AMERICA 8.5% CONVERTIBLE, EXTENDABLE, SUBORDINATED NOTE ORIGINALLY DUE SEPTEMBER 30, 1998 dated as of No. 017 June 22, 1992 SECTION 1. PAYMENT OBLIGATION. CORRECTIONS CORPORATION OF AMERICA, a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Corporation"), for value received, hereby promises to pay to ATWELL & CO, or registered assigns (hereinafter referred to as the "Holder"), the principal sum of Six Hundred Ninety-Six Thousand Dollars ($696,000) on the Maturity Date, and to pay interest thereon from the date hereof quarterly on September 30, December 31, March 31 and June 30 of each year, commencing September 30, 1992, at (i) the Coupon Rate, or (ii) upon the occurrence of a Triggering Event and until the date on which such Triggering Event is cured or waived or until the date that is ninety (90) days from initial occurrence of the Triggering Event, whichever is later, at the Triggering Event Rate, until the principal hereof is paid to the person in whose name this Note is registered at the close of business on the Business Day immediately preceding the date such payment is due. Payment of the principal of and interest on this Note will be made by cashiers check or by wire transfer of immediately available funds, in currency of the United States of America as at the time of payment is legal tender for payment of public and private debts, at such address or to such account, as applicable, as shall be designated to the Corporation by the Holder. SECTION 2. DEFINITIONS. As used herein, the following terms will be deemed to have the meanings set forth below: "BOARD" means the board of directors of the Corporation. "BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday, or Friday that is not a day on which banking institutions in Los Angeles, California are authorized or obligated by law or executive order to close. "CHANGE EVENT" shall mean: (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) 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) 2 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 were the beneficial owners of voting securities of the Corporation immediately prior to such acquisition in substantially the same proportion as their ownership, immediately prior to such acquisition, of the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors; or (b) the Incumbent Board shall cease for any reason to constitute as least fifty percent (50%) of the members of the Board; or (c) approval by the stockholders of the Corporation of a reorganization, merger, or consolidation, in each case, with respect to which all or substantially all the individuals and entities who were the respective beneficial owners of the voting securities of the Corporation immediately prior to such reorganization, merger, or consolidation do not, following such reorganization, merger, or consolidation 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 corporation resulting from such reorganization, merger, or consolidation; or (d) the sale or other disposition of all or substantially all the assets or property of the Corporation in one transaction or a series of related transactions. "CLOSING DATE" shall have the meaning ascribed thereto in Section 2.2 of the Note Purchase Agreement. "COMMON STOCK" means the common stock of the Corporation, par value $1.00 per share. "CONVERSION PRICE" means $1.694 per share of Common Stock, subject to adjustment from time to time as herein set forth. "CONVERSION RATIO" means the number of Conversion Shares to be delivered upon conversion of One Hundred Dollars ($100) of principal amount of this Note. Subject to the provisions for adjustment set forth herein, the Conversion Ration shall be determined as the quotient of (i) the principal amount of this Note to be converted, divided by (ii) the Conversion Price. Subject to the provisions for adjustment set forth herein, the Conversion Ratio initially shall be 59.03:1.0. "CONVERSION SHARES" means fully paid and nonassessable shares of Common Stock issuable upon conversion of the indebtedness evidenced by this Note. 2 3 "CONVERTIBLE NOTES" means the Corporation's (a) $7,000,000 original aggregate principal amount 8.5% Convertible Subordinated Notes due November 7, 1999, and (b) the Corporation's $2,700,000 aggregate principal amount 8.5% Convertible Subordinated Notes due on various dates, the latest of which is January 16, 2000. "COUPON RATE" means eight and one-half percent (8.5%) per annum. "CURRENT MARKET PRICE" when used with reference to shares of Common Stock, shall mean the closing price per share of Common Stock on such date and, when used with reference to shares of Common Stock for any period shall mean the average of the daily closing prices per share of Common Stock for such period. The closing price for each day shall be 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 Quotation System or such other system then in use, or, if on any such date the Common Stock is not quoted nor so reported, the average of the closing bide and asked prices as furnished by a professional market maker making a market in the Common Stock selected by the Board. If the Common Stock is listed or admitted to trading on a national securities exchange, the closing price shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Common Stock is not listed or admitted to trading on the New York Stock Exchange, as securities listed on the principal national securities exchange on which the Common Stock is listed or admitted to trading. If the Common Stock is not publicly held or so listed or publicly traded, "Current Market Price" shall mean the fair market value per share of Common Stock as determined in good faith by the Board based on an opinion of an independent investment banking firm with an established national reputation as a valuer of securities, which opinion may be based on such assumptions as such firm shall deem to be necessary and appropriate. "EVENT OF DEFAULT" shall have the meaning set forth in Section 7.1 of the Note Purchase Agreement. "EXCHANGE ACT" shall have the meaning set forth in Section 3.1 of the Note Purchase Agreement. "INCUMBENT BOARD" means the individuals who, as of the Closing Date, constitute the Board; provided, however, that any individual becoming a director subsequent to the Closing Date, whose election, or nomination for election by the Corporation's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed to be a member of the Incumbent Board. 3 4 "MAJOR TRANSACTION" shall mean: (a) approval by the stockholders of the Corporation of a reorganization, merger, or consolidation, in each case, with respect to which all or substantially all the individuals and entities who were the respective beneficial owners of the voting securities of the Corporation immediately prior to such reorganization, merger, or consolidation do not, following such reorganization, merger, or consolidation 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 Corporation resulting from such reorganization, merger, or consolidation; or (b) the sale or other disposition of all or substantially all the assets or property of the Corporation in one transaction or a series of related transactions. "MANDATORY CONVERSION DATE" means the Business Day specified by the Corporation, in compliance with the provisions hereof, as the date on which all or a portion of the indebtedness evidenced by this Note will be converted into shares of Common Stock pursuant to the Corporation's right to compel such conversion. "MANDATORY CONVERSION NOTICE" means a written notice substantially in the form of the notice attached hereto as Exhibit A and incorporated herein by this reference. "MANDATORY PREPAYMENT DATE" means the Business Day specified by the Holder, in compliance with the provision hereof, as the date on which all or a portion of the indebtedness evidenced by this Note must be prepaid pursuant to the Holder's right to compel such prepayment. "MANDATORY PREPAYMENT NOTICE" means a written notice substantially in the form of the notice attached hereto as Exhibit B and incorporated herein by this reference. "MATURITY DATE" means (i) September 30, 1998, or (ii) September 30, 1999, if the Holder of this Note elects, by written notice given to the Corporation at least sixty (60) days but not more than one hundred twenty (120) days prior to September 30, 1998, to extend the then extant "Maturity Date" to September 30, 1999, or (iii) September 30, 2000, if the Holder of this Note elects, by written notice given to the Corporation at least sixty (60) days but not more than one hundred twenty (120) days prior to September 30, 1999, to extend the then extant "Maturity Date" to September 30, 2000. "NOTE" means this 8.5% convertible, extendable, subordinated note issued by the Corporation. 4 5 "NOTE PURCHASE AGREEMENT" means that certain Note Purchase Agreement, dated as of June 22, 1992, between the Corporation, Pacific Mutual Life Insurance Company, and PM Group Life Insurance Company, as amended from time to time. "OPTIONAL CONVERSION NOTICE" means a written notice substantially in the form of the notice attached hereto as Exhibit C and incorporated herein by this reference. "OPTIONAL PREPAYMENT NOTICE" means a written notice substantially in the form of the notice attached hereto as Exhibit D and incorporated herein by this reference. "SENIOR INDEBTEDNESS" means the principal of and premium, if any, and unpaid interest on (a) indebtedness (other than indebtedness evidenced by the Convertible Notes, indebtedness that is subordinated in right of payment to one or more item or type of indebtedness of the Corporation, or indebtedness incurred in violation of the terms and conditions of the Note Purchase Agreement) of the Corporation, irrespective of whether secured and whether heretofore or hereafter (i) incurred for borrowed money, or (ii) evidenced by a note or similar instrument given in connection with the acquisition by the Corporation of any business, properties, or assets, including securities (but not including any account payable or other obligation created or assumed by the Corporation in the ordinary course of business in connection with the obtaining of materials or services), (b) any refundings, renewals, extensions, or deferrals of any of the indebtedness included as Senior Indebtedness by virtue of clause (a) hereof, and (c) obligations under capital leases; in each case for the payment of which the Corporation is liable directly or indirectly by guarantee, letter of credit, obligation to purchase or acquire, or otherwise, unless the terms of the instrument evidencing such indebtedness or capital lease or pursuant to which such indebtedness or capital lease is outstanding specifically provide that such indebtedness or capital lease is not superior in right of payment to the indebtedness evidenced by this Note. "TRADING DAY" means, if the Common Stock is listed or admitted to trading on any national securities exchange, a day on which such exchange is open for the transaction of business, otherwise, a Business Day. "TRANCHE C CLOSING DATE" shall have the meaning ascribed thereto in Section 3.1 of the Note Purchase Agreement. "TRIGGERING EVENT" means the occurrence of any Unmatured Event of Default or Event of Default described in clauses (i), (ii), and (iv) through (x), inclusive, of Section 7.1 of the Note Purchase Agreement. For purposes of determining the period during which the Triggering Event Rate shall be in effect, a Triggering Event shall not be deemed to have occurred until the date on which the Holder shall have given notice of the occurrence thereof to the Corporation. "TRIGGERING EVENT RATE" means ten and one-half percent (10.5%) per annum. 5 6 "UNMATURED EVENT OF DEFAULT"shall mean any event or condition, the occurrence of which would, with the lapse of time or the giving of notice, or both, constitute an Event of Default. SECTION 3. OPTIONAL CONVERSION. (a) Subject to and upon compliance with the provisions of this Note, the Holder is entitled, at its option, at any time on or before the close of business on the Business Day prior to the Maturity Date, or in case this Note or a portion hereof is called for conversion by the Corporation in accordance with the terms hereof, or the Corporation elects to prepay in accordance with the terms hereof, then until and including, but not after, the close of business on the third Business Day prior to the Mandatory Conversion Date or the Optional Prepayment Date, to convert all or a portion of the principal amount of the indebtedness evidenced by this Note into Conversion Shares. (b) The principal amount of the indebtedness evidenced by this Note or any portion of the principal amount of the indebtedness evidenced hereby that is One Thousand Dollars ($1,000), an integral multiple of One Thousand Dollars ($1,000), or the remaining balance of the principal amount of the indebtedness evidenced by this Note may be converted into Conversion Shares. Subject to the provisions for adjustment set forth hereinafter, the indebtedness evidenced by the Note shall be convertible into Conversion Shares at a price per share equal to the Conversion Price and the number of Conversion Shares to be deliverable to the Holder upon conversion of One Hundred Dollars ($100) of the principal amount of this Note shall be equal to the Conversion Ratio. (c) Conversion of all or a portion of the indebtedness evidenced by this Note may be effected by the Holder upon the surrender to the Corporation at the principal office of the Corporation in the State of Tennessee or at the office of any agent or agents of the Corporation, as may be designated by the Board, of this Note, duly endorsed or assigned to the Corporation or in blank, accompanied by an Optional Conversion Notice to the Corporation that the Holder elects to convert the principal amount of the indebtedness evidenced by this Note or, if less than the entire principal amount of the indebtedness evidenced by this Note is to be converted, the portion thereof to be converted. Such Optional Conversion Notice shall specify the name or names in which the Holder wishes the certificate or certificates for shares of Common Stock to be issued. In case such notice shall specify a name or names other than that of the Holder, such notice shall be accompanied by payment of all transfer taxes payable upon the issuance of shares of Common Stock in such name or names. Other than such taxes, the Corporation will pay any and all issue and other taxes (other than taxes based on income) that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of the indebtedness evidenced by this Note. No payment or adjustment shall be made upon any conversion of this Note on account of any dividends or other distributions payable on the Conversion Shares; provided, however, that the Holder shall be entitled to receive the full amount of any dividends or other distributions declared with respect to the Conversion Shares with a record date on or after the effective date of such conversion. As promptly as practicable, and in any event within five (5) Business Days after the surrender of this Note 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 have 6 7 been paid), the Corporation shall deliver or cause to be delivered, either by personal delivery or by certified or registered mail or by a recognized overnight courier service, in any such case, properly insured, to the Holder in accordance with the written instructions of the Holder (i) certificates representing the number of Conversion Shares to which the Holder shall be entitled, and (ii) if less than the entire principal amount of indebtedness evidenced by this Note, for the balance of the indebtedness that is not being so converted. Such conversion shall be deemed to have been made at the close of business on the date of giving such notice and of such surrender of this Note so that the rights of the Holder (as a noteholder) with respect to the principal amount being converted shall cease, and the person or persons entitled to receive the Conversion Shares issuable upon conversion shall be treated for all purposes as the record holder or holders of such Common Stock as of such day. All accrued but unpaid interest through the Business Day immediately preceding the date of such conversion with respect to the principal amount of the indebtedness evidenced by this Note being converted shall be payable upon conversion. The Corporation shall not be required to convert, and no surrender of this Note shall be effective for that purpose, while the transfer books of the Corporation for the Common Stock are closed for any purpose (but not for any period in excess of 15 days); but the surrender of this Note for conversion during any period while such books are so closed shall become effective for conversion immediately upon the reopening of such books, as if the conversion had been made on the date this Note is surrendered, and at the Conversion Ratio in effect at the date of such surrender. (d) In case this Note is to be prepaid pursuant to the mandatory prepayment provisions hereof, such right of conversion shall cease and terminate as to the portion of this Note that is to be prepaid at the close of business on the Business Day next preceding the date fixed for mandatory prepayment unless the Corporation shall default in the payment of the Mandatory Prepayment Amount. (e) In connection with the conversion of the indebtedness evidenced by this Note, 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 Trading Day on which such indebtedness evidenced by this Note is deemed to have been converted. If more than one note shall be surrendered for conversion by the Holder at the same time, the number of full shares of Common Stock issuable on conversion thereof shall be computed on the basis of the total amount of indebtedness to be converted. (f) (i) The Corporation shall at all times reserve and keep available for issuance upon the conversion of the indebtedness evidenced by this Note, free from any preemptive rights, such number of its authorized but unissued shares of Common Stock as will from time to time be sufficient to permit the conversion of all of the indebtedness evidenced by this Note, and shall take all action required to increase the authorized number of shares of Common Stock if necessary to permit the conversion of all of the indebtedness evidenced by this Note. 7 8 (ii) If the Corporation shall issue shares of Common Stock upon conversion of indebtedness evidenced by this Note as contemplated by this Section 3, the Corporation shall issue together with each such share of Common Stock any rights issued to holders of Common Stock of the Corporation, irrespective of whether such rights shall be exercisable at such time, but only if such rights are issued and outstanding and held by other holders of Common Stock of the Corporation at such time and have not expired. (g) The Conversion Ratio will 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 Closing Date (A) pay a dividend, or make a distribution, on the outstanding shares of Common Stock in shares of Common Stock, (B) subdivide the outstanding shares of Common Stock, (C) combine the outstanding shares of Common Stock into a smaller number of shares, or (D) issue by reclassification of the shares of Common Stock any shares of capital stock of the Corporation, then, and in each such case, the Conversion Ratio in effect immediately prior to such event or the record date therefor, whichever is earlier, shall be adjusted so that the Holder shall be entitled to receive the number of shares of Common Stock (or other capital stock) of the Corporation that the Holder would have owned or have been entitled to receive after the happening of any of the events described above, had the indebtedness evidenced by this Note been converted immediately prior to the happening of such event or the record date therefor, whichever is earlier. An adjustment made pursuant to this clause (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 such subdivision, reclassification, or combination, at the close of business on the day upon which such corporate action becomes effective. No adjustment shall be made pursuant to this clause (i) in connection with any transaction to which subsection (h) applies. (ii) In case the Corporation shall issue shares of Common Stock (or rights, warrants, or other securities convertible into or exchangeable for shares of Common Stock) after the Closing Date at a price per share (or having a conversion price per share) less than the Current Market Price per share of Common Stock, as of the date of issuance of such shares or of such convertible securities, then, and in each such case, the Conversion Ratio shall be adjusted so that the Holder shall be entitled to receive, upon the conversion hereof, the number of shares of Common Stock determined by multiplying (A) the applicable Conversion Ratio on the day immediately prior to such date by (B) a fraction, the numerator of which shall be the sum of (1) the number of shares of Common Stock outstanding on such date plus (2) the number of additional shares of Common Stock issued (or into which the convertible securities may convert), and the denominator of which shall be the sum of (x) the number of shares of Common Stock purchasable at the then Current Market Price per share with the aggregate consideration received or receivable by the Corporation for the total number of shares of Common Stock so issued (or into which the rights, warrants, or other convertible securities may convert). 8 9 An adjustment made pursuant to this clause (ii) shall be made on the next Business Day following the date on which any such issuance is made and shall be effective retroactively to the close of business on the date of such issuance. For purposes of this clause (ii), the aggregate consideration received or receivable by the Corporation in connection with the issuance of shares of Common Stock shall be deemed to be equal to the sum of the aggregate offering price (before deduction of underwriting discounts or commissions and expenses payable to third parties) of all such Common Stock, rights, warrants, and convertible securities plus the minimum aggregate amount, if any, payable upon exercise of conversion of any such rights, warrants, and convertible securities into shares of Common Stock. The issuance of any shares of Common Stock (whether treasury shares or newly issued shares) pursuant to (a) a dividend or distribution on, or subdivision, combination or reclassification of, the outstanding shares of Common Stock requiring an adjustment in the conversion ratio pursuant to clause (i) of this subsection (g), or (b) any restricted stock or stock option plan or program of the Corporation, or (c) any option, warrant, right, or convertible security outstanding as of the date hereof, or (d) the terms of a firmly committed underwritten public offering, shall not be deemed to constitute an issuance of Common Stock or convertible securities by the Corporation to which this clause (ii) applies. Upon the expiration of any unexercised options, warrants, or rights to convert any convertible securities for which an adjustment has been made pursuant to this clause (ii), the adjustment shall forthwith be reversed to effect such rate of conversion as would have been in effect at the time of such expiration or termination had such options, warrant, rights or convertible securities, to the extent outstanding immediately prior to such expiration or termination, never been issued. If the purchase price provided for in any option, warrant, or rights to convert any convertible securities for which an adjustment has been made pursuant to this clause (ii), the additional consideration, if any, payable upon the conversion or exchange of any convertible securities for which an adjustment has been made, or the rate at which any convertible securities referred to above are convertible into or exchangeable for Common Stock shall, at any time, increase or decrease (other than under or by reason of provisions designed to protect against dilution), then, the Conversion Ratio in effect at the time of such event shall forthwith be readjusted to the Conversion Ratio that would have been in effect at such time and such options, warrants, or rights or convertible securities still outstanding provided for such changed purchase price, additional consideration, or conversion rate, as the case may be, at the time initially granted, issued or sold. No adjustment shall be made pursuant to this clause (ii) in connection with any transaction to which subsection h applies. (iii) In case the Corporation shall at any time or from time to time after the Closing Date 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 spinoff), on its Common Stock, other than (A) dividends payable in cash in an aggregate amount not to exceed 50% of net income from continuing operations before extraordinary items of the Corporation, determined in accordance with generally accepted accounting principles, during the period (treated as one accounting period) commencing on March 31, 1992, and ending on the date such dividend is paid; provided, that, to the extent required by the terms thereof, such dividend shall have been previously 9 10 consented to by the holders of the notes issued pursuant to the Note Purchase Agreement, or (B) dividends or distributions of shares of Common Stock which are referred to in clause (i) of this subsection (g), then, and in each such case, the Conversion Ratio shall be adjusted so that the Holder shall be entitled to receive, upon the conversion hereof, the number of shares of Common Stock determined by multiplying (1) the applicable Conversion Ratio on the day immediately prior to the record date fixed for the determination of stockholders entitled to receive such dividend or distribution by (2) a fraction, the numerator of which shall be the Current Market Price per share of Common Stock for the period of 20 Trading Days preceding such record date, and the denominator of which shall be such Current Market Price per share of Common Stock less the fair market value, as determined in good faith by the Board, a certified resolution with respect to which shall be mailed to the Holder, per share of Common Stock of such dividend or distribution. No adjustment shall be made pursuant to this clause (iii) in connection with any transaction to which subsection (h) applies. (iv) For purposes of this subsection (g), the number of shares of Common Stock at any time outstanding shall not include any shares of Common Stock then owned or held by or for the account of the Corporation. (v) The term "dividend," as used in this subsection (g), shall mean a dividend or other distribution upon stock of the Corporation. (vi) Anything in this subsection (g) to the contrary notwithstanding, the Corporation shall not be required to give effect to any adjustment in the Conversion Ratio unless and until the net effect of one or more adjustments (each of which shall be carried forward), determined as above provided, shall have resulted in a change of the Conversion Ratio by at least one one-hundredth (.01) of one share of Common Stock, and when the cumulative net effect of more than one adjustment so determined shall be to change the Conversion Ratio by at least one one-hundredth (.01) of one share of Common Stock, such change in Conversion Ratio shall thereupon be given effect. (vii) The certificate of any firm of independent public accountants of recognized standing selected by the Board (which may be the firm of independent public accountants regularly employed by the Corporation) shall be presumptively correct for any computation made under this subsection (g). (viii) If the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, and shall thereafter and before the distribution to stockholders thereof legally abandon its plan to pay or deliver such dividend or distribution, then thereafter no adjustment in the number of shares of Common Stock issuable upon exercise of the right of conversion granted by this subsection (g) or in the Conversion Ratio then in effect shall be required by reason of the taking of such record. (h) In the case of any Major Transaction occurring at any time, at the option of the Holder, the indebtedness evidenced by the Note shall thereafter be convertible into, in whole and in 10 11 part and in lieu of the Common Stock issuable upon such conversion prior to consummation of such Major Transaction, the kind and amount of shares of stock and other securities and property receivable (including cash) upon the consummation of such Major Transaction by a holder of that number of shares of Common Stock into which such indebtedness, or portion thereof, was convertible immediately prior to such Major 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 Major Transaction). In case securities or property other than Common Stock shall be issuable or deliverable upon conversion as aforesaid, then all references in this Section 3 shall be deemed to apply, so far as appropriate and nearly as may be, to such other securities or property. (i) In case at any time or from time to time the Corporation shall pay any stock dividend or make any other non-cash distribution of 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, or there shall be any capital reorganization or reclassification of the Common Stock of the Corporation or consolidation or merger of the Corporation with or into another corporation or other entity, or any sale or conveyance to another corporation or other entity of the assets or 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 20 days prior written notice (the time of mailing of such notice shall be deemed to be the time of giving thereof) to the Holder at the address of the Holder as shown on the books of the Corporation as of the date of 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) such reorganization, reclassification, consolidation, merger, sale, conveyance, dissolution, liquidation, or winding up shall take place, as the case may be, provided that in the case of any Major Transaction to which subsection (h) applies the Corporation shall give at least 30 days prior written notice as aforesaid. Such notice shall also specify the date as of which the holders of the Common Stock of record shall participate in said dividend, distribution, or subscription rights or shall be entitled to exchange their Common 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. Failure to give such notice shall not invalidate any action so taken. (j) Anything herein to the contrary notwithstanding, the issuance or sale of the following shares of Common Stock or options, warrants, or other rights to purchase Common Stock shall be excluded from any calculation of, and shall not be deemed issued or sold for purposes of calculating, any reduction, adjustment, or readjustment of the Conversion Ratio hereunder: (i) shares of Common Stock issued upon conversion of the indebtedness evidenced by this Note or any portion thereof; (ii) shares of Common Stock or options, warrants, or other rights to purchase Common Stock issuable, reserved for issuance, or issued pursuant to a stock option plan, employee stock ownership plan, or other compensatory benefit plan of the Corporation, duly adopted by the Board; (iii) shares of Common Stock, issuable, reserved for issuance, or issued pursuant to any currently outstanding warrants or options, or any options, warrants, or other rights issuable, reserved for issuance, or issued to officers of the Corporation in the future for compensatory purposes, if fully 11 12 authorized by the Board; and (iv) shares of Common Stock issued upon conversion of the indebtedness evidenced by the Convertible Notes or the currently issued and outstanding preferred stock. SECTION 4. REPORTS AS TO ADJUSTMENTS. Upon any adjustment of the Conversion Ratio then in effect and any increase or decrease in the number of shares of Common Stock issuable upon the operation of the conversion set forth in Section 3, then, and in each such case, the Corporation shall promptly deliver to the Holder, a certificate signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation setting forth in reasonable detail the event requiring the adjustment and the method by which such adjustment was calculated and specifying the Conversion Ratio then in effect following such adjustment and the increased or decreased number of shares issuable upon the conversion granted by Section 3, and shall set forth in reasonable detail the method of calculation of each and a brief statement of the facts requiring such adjustment. Where appropriate, such notice to the Holder may be given in advance and included as part of the notice required under the provisions of Section 3(i). SECTION 5. MANDATORY CONVERSION. (a) At any time after June 22, 1997, and so long as at such time the Common Stock is listed or admitted to trading on a national securities exchange, the Corporation may require the Holder to convert all or a portion of the principal amount of the indebtedness evidenced by this Note into shares of Common Stock if, at such time, the Current Market Price of the Common Stock has equalled or exceeded one hundred fifty percent (150%) of the Conversion Price (as it may from time to time be adjusted) for forty-five (45) consecutive Trading Days following the forty-fifth monthly anniversary of the Closing Date. To exercise such right, the Corporation must deliver a Mandatory Conversion Notice of the exercise of such right to the Holder within thirty (30) days of the last day of such forty-five (45) day period, such Mandatory Conversion Notice must be given at least ten (10) Business Days, but not more than fifteen (15) Business Days prior to the proposed Mandatory Conversion Date, and such Mandatory Conversion Notice must specify the proposed Mandatory Conversion Date and the portion of the principal amount of the indebtedness evidenced by this Note to be converted into Common Stock. (b) All conversions effected pursuant to the preceding paragraph will be made effective as of the close of business on the Mandatory Conversion Date at the Conversion Ratio in effect on the Mandatory Conversion Date; provided, however, that, in order to be able to convert, the Current Market Price on the Mandatory Conversion Date must equal or exceed one hundred fifty percent (150%) of the Conversion Price in effect on the Mandatory Conversion Date. If the Current Market Price on the Mandatory Conversion Date does not equal or exceed one hundred fifty percent (150%) of the Conversion Price in effect on the Mandatory Conversion Date, the Corporation's election to require conversion will be deemed void and no conversion will be effected pursuant to such notice. Such event will not be deemed, however, to alter or restrict the Corporation's right to again require conversion at such time as the Current Market Price equals or exceeds one hundred fifty percent (150%) of the then current Conversion Price for forty-five (45) consecutive Trading Days prior to such time. Upon conversion required by the Corporation pursuant to this paragraph 12 13 and the immediately preceding paragraph, all accrued but unpaid interest with respect to the principal amount of the indebtedness evidenced by this Note being converted shall be payable in accordance with the provisions of the following paragraph. (c) Conversions of the indebtedness evidenced by this Note effected by the exercise of the Corporation's right to require conversion will be deemed effective as of the close of business on the Mandatory Conversion Date without any action by the Holder and the Holder will, as of such time, be a stockholder of the Corporation with respect to the number of shares of Common Stock into which the principal balance evidenced by this Note (or such portion of the principal balance evidenced by this Note as the Corporation shall have specified) shall have been converted. The Holder agrees promptly to surrender this Note for cancellation following mandatory conversion. Certificates representing the shares of Common Stock issuable by the Corporation as a result of the mandatory conversion of all or a portion of the principal balance of the indebtedness evidenced by this Note and all dividends and other distributions payable with respect to such shares and all accrued but unpaid interest payable pursuant to the immediately preceding paragraph will be retained by the Corporation pending surrender of this Note for cancellation. As promptly as practicable, and in any event within five (5) Business Days after the surrender of this Note, the Corporation shall deliver or cause to be delivered, either by personal delivery or by certified or registered mail or by a recognized overnight courier service, in any such case, properly insured, to the Holder in accordance with the written instructions of the Holder (i) certificates representing the number of Conversion Shares to which the Holder shall be entitled, and (ii) if less than the entire principal amount of indebtedness evidenced by this Note is being converted, a new promissory note, in the form of this Note, for the balance of the indebtedness that is not being so converted. (d) In connection with the conversion of the indebtedness evidenced by this Note, 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 Trading Day on which such indebtedness evidenced by this Note is deemed to have been converted. If more than one note shall be surrendered for conversion by the Holder at the same time, the number of full shares of Common Stock issuable on conversion thereof shall be computed on the basis of the total amount of indebtedness to be converted. SECTION 6. MANDATORY PREPAYMENT. In the case of any Change Event occurring at any time, at the option of the Holder, the Holder may require the Corporation to prepay all or a portion of the then outstanding principal amount of the indebtedness evidenced by this Note. To exercise such right of prepayment, the Holder must provide the Corporation with a Mandatory Prepayment Notice at least thirty (30) days prior to the proposed Mandatory Prepayment Date which Mandatory Prepayment Notice shall specify the portion of the principal amount of the indebtedness evidenced by this Note (which must be in integral multiples of One Thousand Dollars ($1,000)) to be prepaid. On the Mandatory Prepayment Date specified, the Corporation shall prepay the portion of the principal amount of the indebtedness evidenced by this Note that the Holder has specified must be prepaid on such date, plus accrued interest on such principal amount to the date of the 13 14 prepayment. Any prepayment shall be made by cashiers check or by wire transfer of immediately available funds, in currency of the United States of America as at the time of payment is legal tender for payment of public and private debts, at such address or to such account, as applicable, as shall be designated to the Corporation by the Holder. SECTION 7. OPTIONAL PREPAYMENT. The Note shall be subject to prepayment, at the option of the Corporation, at any time and from time to time on and after July 1, 1997. To exercise such right of prepayment, the Corporation must provide the Holder with an Optional Prepayment Notice at least sixty (60) days prior to the proposed Optional Prepayment Date which Optional Prepayment Notice shall specify the portion of the principal amount of the indebtedness evidenced by this Note (which must be in integral multiples of One Thousand Dollars ($1,000)) to be prepaid. The Holder's option to convert the indebtedness evidenced by this Note as set forth in Section 3 hereof shall continue notwithstanding the exercise of the option of the Corporation to prepay under this Section 7, so long as the Holder requests conversion in accordance with the terms hereof up to and including, but not after, the close of business on the third Business Day prior to the Optional Prepayment Date. On the Optional Prepayment Date specified, the Corporation shall prepay the portion of the principal amount of the indebtedness evidenced by this Note that the Corporation has specified is to be prepaid on such date, plus accrued interest on such principal amount to the date of the prepayment. Any prepayment shall be made by cashiers check or by wire transfer of immediately available funds, in currency of the United States of America as at the time of payment is legal tender for payment of public and private debts, at such address or to such account, as applicable, as shall be designated to the Corporation by the Holder. This Note shall not be subject to prepayment, whether in whole or in part, on or before June 30, 1997. SECTION 8. SUBORDINATION. (a) The Corporation covenants and agrees, and the Holder likewise covenants and agrees, that no payment shall be made by the Corporation on account of principal of or interest on this Note, or otherwise, if there shall have occurred and be continuing, and the Corporation and the Holder shall have received notice from the holder or holders of, a default with respect to any Senior Indebtedness (i) permitting the acceleration thereof and such default is the subject of a judicial proceeding, or (ii) in an aggregate principal amount of not less than One Million Dollars ($1,000,000) entitling such holder or holders of, a default with respect to any Senior Indebtedness (i) permitting the acceleration thereof and such default is the subject of a judicial proceeding, or (ii) in an aggregate principal amount of not less than One Million Dollars ($1,000,000) entitling such holder or holders to compel the acceleration thereof (provided, however, that in the case of Senior Indebtedness issued pursuant to an indenture, such notice may be validly given only by the trustee under such indenture), unless and until such default or Event of Default shall have been cured or waived or shall have ceased to exist or such notice is withdrawn or found by a court of competent jurisdiction to be invalid. (b) Upon any payment by the Corporation or distribution of assets of the Corporation of any kind or character, whether in cash, property, or securities, to creditors of the Corporation under any dissolution or winding up or liquidation or reorganization of the Corporation, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership, or other similar 14 15 proceedings, all amounts due or to become due upon all Senior Indebtedness shall first be paid in full in money or money's worth, or payment thereof provided for, before any payment is made on account of the principal of or interest on this Note and upon such dissolution or winding up or liquidation or reorganization, any payment by the Corporation, or distribution of assets of the Corporation of any kind or character, whether in cash, property, or securities, to which the Holder would be entitled except for the provisions hereof, shall be paid by the Corporation or by any receiver, trustee in bankruptcy, liquidating trustee, agent, or other person making such payment or distribution directly to the holders of Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay all Senior Indebtedness in full in money or money's worth, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness, before any payment or distribution is made to the Holder. (c) The foregoing notwithstanding, in the event that any payment of or distribution of assets of the Corporation of any kind or character, whether in cash, property or securities, prohibited by the foregoing, shall be received by the Holder before all Senior Indebtedness is paid in full in money or money's worth, or provision is made for such payment, then and in such event such payment or distribution shall be paid over or delivered to the holders of Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in money or money's worth, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in money or money's worth, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness (but subject to the power of a court of competent jurisdiction to make other equitable provision, which shall have been determined by such court to give effect to the rights conferred herein upon the Senior Indebtedness and the holders thereof with respect to this Note or the Holder hereof by a lawful plan or reorganization or readjustment under applicable bankruptcy law). (d) The holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Holder, without incurring responsibility to the Holder and without impairing or releasing the obligations of the Holder to the holders of Senior Indebtedness: (i) change the manner, place, or terms of payment or change or extend the time of payment of, or renew or alter Senior Indebtedness, or otherwise amend, in any manner, Senior Indebtedness is outstanding; provided, however, that the average weighted maturity of such Senior Indebtedness shall not be decreased without the consent of the Holder; (ii) sell, exchange, release, or otherwise deal with any property pledged, mortgaged, or otherwise securing Senior Indebtedness; (iii) release any person liable in any manner for the collection of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Corporation and any other person. 15 16 (e) Subject to the payment in full of all amounts then due (whether by acceleration of the maturity thereof or otherwise) on account of the principal of, premium, if any, and interest on all Senior Indebtedness at the time outstanding, the Holder shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of cash, property, or securities of the Corporation applicable to the Senior Indebtedness until the principal of and interest on this Note shall be paid in full; and, for the purposes of such subrogation, no payments or distributions by the Corporation to the holders of Senior Indebtedness of any cash, property, or securities to which the Holder would be entitled except for the provisions hereof, and no payments over pursuant to the provisions hereof to the holders of Senior Indebtedness by the Holder, shall, as between the Corporation, its creditors other than holders of Senior Indebtedness, and the Holder, be deemed to be a payment by the Corporation to or on account of the Senior Indebtedness. (f) It is understood that the foregoing provisions of this Note are and are intended solely for the purpose of defining the relative rights of the Holder on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Note is intended to or shall impair, as among the Corporation, its creditors other than the holders of Senior Indebtedness, and the Holder, the obligation of the Corporation, which is absolute and unconditional, to pay to the Holder the principal of and interest on this Note as and when the same shall become due and payable in accordance with its terms, or is intended to or shall affect the relative rights of the Holder and creditors of the Corporation other than the holders of Senior Indebtedness, nor shall anything herein prevent the Holder from exercising all remedies otherwise permitted by applicable law upon default under this Note or the Note Purchase Agreement. (g) Upon any payment or distribution of assets of the Corporation referred to herein, the Holder shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding up, liquidation, or reorganization proceedings are pending, or certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent, or other person making such payment or distribution, delivered to the Holder, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of Senior Indebtedness and other indebtedness of the Corporation, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon, and all other facts pertinent thereto. (h) The Corporation shall give prompt written notice to the Holder of any fact known to the Corporation that would prohibit the making of any payment of moneys to or by the Corporation in respect of this Note. SECTION 9. ACCELERATION. This Note and the indebtedness evidenced hereby is subject to acceleration under the terms and conditions set forth in the Note Purchase Agreement. SECTION 10. MISCELLANEOUS. (a) Any notice required by the provisions of this Note to be given to the Holder or the Corporation shall be given and deemed received or delivered in accordance with the provisions of Section 10.4 of the Note Purchase Agreement. 16 17 (b) In the event of prepayment or conversion of this Note in part only, a new note or notes for the unpaid or unconverted portion hereof will be issued in the name or names requested by the Holder upon the cancellation hereof. (c) The transfer of this Note is registrable on the books of the Corporation upon surrender of this Note for registration of transfer at the offices of the Corporation in Nashville, Tennessee, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Corporation duly executed by, the Holder or its attorney duly authorized in writing, and thereupon one or more new notes of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. New notes are issuable only in registered form without coupons in denominations of One Thousand Dollars ($1,000) and any integral multiple thereof. This Note is exchangeable for a like aggregate principal amount of notes of a different authorized denomination, as requested by the Holder. No service charge shall be made of any such registration of transfer or exchange, but the Corporation may require payment of a sum sufficient to cover any tax or other government charge payable in connection therewith. (d) Prior to the due presentment of this Note for registration of transfer, the Corporation and any agent of the Corporation may treat the person in whose name this Note is registered as the owner hereof for all purposes, irrespective of whether this Note be overdue, and neither the Corporation nor any such agent shall be affected by notice to the contrary. (e) This Note shall be governed by and construed in accordance with the laws of the State of California. (f) The Corporation agrees, to the extent permitted by law, to pay to the Holder all costs and expenses (including attorneys' fees) incurred by it in the collection hereof or the enforcement of any right or remedy provided for herein (including such costs and expenses incurred in connection with a workout or an insolvency or bankruptcy proceeding). (g) The provisions of the Note Purchase Agreement are hereby incorporated into this Note by this reference. 17 18 IN WITNESS WHEREOF, the undersigned has executed this Note effective as of the date first above written. CORRECTIONS CORPORATION OF AMERICA, A Delaware corporation By: /s/ Doctor R. Crants ------------------------------------------- Doctor R. Crants, Chairman of the Board and Chief Executive Officer ATTEST: /s/ Darrell K. Massengale - -------------------------------- Darrell K. Massengale, Secretary 18 19 [FORM OF MANDATORY CONVERSION NOTICE] - ----------------- - ----------------- - ----------------- Notice is hereby given that, in accordance with the terms and conditions of the Note hereinafter described and that certain Note Purchase Agreement, dated June 22, 1992, between Corrections Corporation of America, Pacific Mutual Life Insurance Company, and PM Group Life Insurance Company, as amended from time to time, Corrections Corporation of America hereby elects to require conversion of the 8.5% Convertible, Extendable, Subordinated Note, originally due September 30, 1998, issued by it (the "Note"). The Note to be converted and the principal amount thereof to be converted are as follows:
Principal Number of Outstanding Amount to be Shares to Note Number Principal Amount Converted Be Delivered - ----------- ---------------- --------- ------------
The Mandatory Conversion Date will be _______________________________ . CORRECTIONS CORPORATION OF AMERICA By: -------------------------------- Name: -------------------------- Title: ------------------------- Exhibit A 19 20 [FORM OF MANDATORY PREPAYMENT NOTICE] TO: CORRECTIONS CORPORATION OF AMERICA - ----------------- - ----------------- - ----------------- The undersigned owner of the attached Note hereby gives notice that, in accordance with the terms and conditions of such Note and that certain Note Purchase Agreement, dated June 22, 1992, between Corrections Corporation of America, Pacific Mutual Life Insurance Company, and PM Group Life Insurance Company, as amended from time to time, it hereby exercises its right to require prepayment of such Note or portion thereof (which is $1,000 or an integral multiple thereof), plus all accrued but unpaid interest with respect to such principal amount. The Mandatory Prepayment Date shall be _____________. The principal amount to be prepaid shall be $__________________________. [Name of Holder] Dated: -------------- By: -------------------------------- Name: -------------------------- Title: ------------------------- Exhibit B 20 21 [FORM OF CONVERSION NOTICE] TO: CORRECTIONS CORPORATION OF AMERICA - ----------------- - ----------------- - ----------------- The undersigned owner of the attached Note hereby gives notice that, in accordance with the terms and conditions of such Note and the Note Purchase Agreement, dated June 22, 1992, between Corrections Corporation of America, Pacific Mutual Life Insurance Company, and PM Group Life Insurance Company, as amended from time to time, it hereby exercises its right to convert such Note, or portion thereof (which is $1,000 or an integral multiple thereof), below designated, into shares of Common Stock of Corrections Corporation of America and directs that the shares issuable and deliverable upon the conversion, and any notes representing any unconverted principal amount thereof, be issued and delivered to the registered holder of such Note unless a different name has been indicated below. If shares or a new note representing unconverted principal are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. [Name of Holder] Dated: -------------- By: -------------------------------- Name: -------------------------- Title: ------------------------- Principal Amount to be converted (in an integral multiple of $1,000, if less than all): $ ---------------------- Exhibit C 21 22 Fill in for registration of shares of Common Stock and Note if to be issued otherwise than to the registered Holder. - --------------------------- Name - --------------------------- Address - --------------------------- Please print name and address (including zip code number) SOCIAL SECURITY OR OTHER TAXPAYER IDENTIFYING NUMBER - --------------------------- 22 23 [FORM OF OPTIONAL PREPAYMENT NOTICE] - ---------- - ---------- - ---------- Notice is hereby given that, in accordance with the terms and conditions of the Note hereinafter described and that certain Note Purchase Agreement, dated June 22, 1992, between Corrections Corporation of America, Pacific Mutual Life Insurance Company, and PM Group Life Insurance Company, as amended from time to time, Corrections Corporation of America hereby elects to prepay the 8.5% Convertible, Extendable, Subordinated Note, originally due September 30, 1998, issued by it (the "Note"). Prepayment of such Note or portion thereof (which is $1,000 or an integral multiple thereof), plus all accrued but unpaid interest with respect to such principal amount shall be effective on the Optional Prepayment Date set forth below. The Optional Prepayment Date shall be ___________. The principal amount to be prepaid shall be $_______________________. CORRECTIONS CORPORATION OF AMERICA By: -------------------------------- Name: -------------------------- Title: ------------------------- Exhibit D 23 EX-4.BB 6 1997 AMENDMENT TO 1994 SECURITIES PURCHASE 1 EXHIBIT 4(bb) 1997 AMENDMENT TO 1994 SECURITIES PURCHASE AGREEMENT BY AND BETWEEN CORRECTIONS CORPORATION OF AMERICA AND SODEXHO S.A. THIS 1997 AMENDMENT TO 1994 SECURITIES PURCHASE AGREEMENT BY AND BETWEEN CORRECTIONS CORPORATION OF AMERICA AND SODEXHO S.A., dated December 30, 1997 (the "1997 Amendment"), is entered into by and between Sodexho S.A., a French corporation (the "Purchaser") and Corrections Corporation of America, a Tennessee corporation and successor in interest to a Delaware corporation of the same name (the "Corporation"). RECITALS: WHEREAS, the Corporation and the Purchaser are parties to that certain Securities Purchase Agreement, dated June 23, 1994, as amended on July 11, 1995 and December 31, 1996 (the Securities Purchase Agreement as amended, known as the "Securities Purchase Agreement"), pursuant to which, among other things, the Purchaser received the right to purchase up to $20,000,000 aggregate principal amount Floating Rate Convertible Note (the "Convertible Note") from the Corporation on or before December 31, 1997 (the "Expiration Date"); and WHEREAS, the Purchaser now desires and the Corporation has agreed to extend the Expiration Date for a period of two (2) years, namely until December 31, 1999 pursuant to the terms and conditions of this Agreement (the "Extension"). NOW, THEREFORE, for and in consideration of the premises and the mutual promises, covenants and conditions set forth in this Amendment and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Corporation and the Purchaser hereby agree as follows: 1. Amendment of Securities Purchase Agreement. 1.1 The first full paragraph of Section 2.1 of the Securities Purchase Agreement is hereby amended by deleting such paragraph in its entirety from the Securities Purchase Agreement and by substituting in lieu thereof the following language: Right to Purchase Floating Rate Notes. Subject to the terms and conditions set forth below, at any time prior December 31, 1999, the Purchaser will have the right to purchase up to $20 million aggregate principal amount Floating Rate Notes convertible at the conversion price of $6.825 (the "Rights"). 1.2 All other provisions contained in the Securities Purchase Agreement, any exhibits or attachments thereto, and any documents or instruments referred to therein, shall be hereby 2 amended, where appropriate and the context permits, to reflect the Extension and amendments contained in Section 1.1 above. 2. Effectiveness of this Amendment. This 1997 Amendment shall become effective immediately upon the execution and delivery of this 1997 Amendment by the Purchaser and the Corporation. 3. Corporate Power and Authorization. The Corporation hereby warrants and represents to Purchaser that (i) it has the requisite corporate power and authority to execute, deliver and perform its obligations under this 1997 Amendment; (ii) the execution and delivery by the Corporation of this Amendment and the consummation of the transactions contemplated hereby (a) have been duly authorized by all necessary corporate action on the part of the Corporation and (b) do not and will not require any authorization, consent, approval or license from or any registration, qualification, designation, declaration or filing with, any court or government department, commission, board, bureau, agency or instrumentality, domestic or foreign; and (iii) this 1997 Amendment has been duly and validly executed and delivered by the Corporation and constitutes the legal, valid and binding obligation of the Corporation, enforceable in accordance with its terms. 4. Miscellaneous. 4.1. Amendment to Securities Purchase Agreement. The Securities Purchase Agreement is hereby, and shall henceforth be deemed to be, amended, modified and supplemented in accordance with the provisions hereof, and the respective rights, duties and obligations under the Securities Purchase Agreement shall hereafter be determined, exercised and enforced under the Securities Purchase Agreement, as amended, subject in all respects to such amendments, modifications, and supplements and all terms and conditions of this 1997 Amendment. Initially capitalized terms used in this 1997 Amendment shall have the meanings ascribed thereto in the Securities Purchase Agreement, as amended hereby, unless otherwise defined herein. 4.2. Ratification of the Agreement. Except as expressly set forth in this 1997 Amendment, all agreements, covenants, undertakings, provisions, stipulations, and promises contained in the Agreement and the Securities are hereby ratified, re-adopted, approved, and confirmed and remain in full force and effect. 4.3. No Implied Waiver. The execution, delivery and performance of this 1997 Amendment shall not, except as expressly provided herein, constitute a waiver or modification of any provision of, or operate as a waiver of any right, power or remedy of the Purchaser under the Securities Purchase Agreement or prejudice any right or remedy that the Purchaser may have or may have in the future under or in connection with the Securities Purchase Agreement or any instrument or agreement referred to therein. The Corporation acknowledges and agrees that the representations and warranties of the Corporation 2 3 contained in the Securities Purchase Agreement and in this 1997 Amendment shall survive the execution and delivery of this 1997 Amendment and the effectiveness hereof. 4.4. Governing Law. The parties hereby expressly agree that this 1997 Amendment shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware. The English language version of all documents relating to the transactions contemplated hereby will govern. 4.5. Counterparts; Facsimile Execution. This 1997 Amendment may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Delivery of an executed counterpart of this 1997 Amendment by facsimile shall be equally as effective as delivery of a manually executed counterpart. Any party delivering an executed counterpart of this 1997 Amendment by facsimile shall also deliver a manually executed counterpart, but the failure to deliver a manually executed counterpart shall not affect the validity, enforceability, and binding effect of this 1997 Amendment. IN WITNESS WHEREOF, the undersigned have caused this 1997 Amendment to be executed by their duly authorized officers as of the date first written above. CORRECTIONS CORPORATION OF AMERICA By: /s/ Doctor R. Crants ------------------------------- Its: Chairman and CEO ------------------------------ SODEXHO S.A. By: /s/ Jean-Pierre Cuny ------------------------------- Its: Senior V.P. ------------------------------ 3 EX-10.166 7 MASTER AGREEMENT TO LEASE 1 EXHIBIT 10.166 MASTER AGREEMENT TO LEASE BETWEEN CCA PRISON REALTY TRUST, LANDLORD AND CORRECTIONS CORPORATION OF AMERICA, TENANT DATED: JULY 18, 1997 2 TABLE OF CONTENTS ARTICLE I SEPARATE LEASE AGREEMENTS; PREMISES AND TERM....................................1 1.01 Separate Lease Agreements.......................................................1 1.02 Leased Property.................................................................2 1.03 Term............................................................................2 1.04 Holding Over....................................................................3 1.05 Surrender.......................................................................3 ARTICLE II RENT............................................................................3 2.01 Base Rent.......................................................................3 2.02 Additional Rent.................................................................3 2.02.01 Other Additional Rent...........................................................4 2.03 Place(s) of Payment of Rent; Direct Payment of Other Additional Rent............4 2.04 Net Lease.......................................................................4 2.05 No Termination, Abatement, Etc..................................................4 ARTICLE III IMPOSITIONS AND UTILITIES.......................................................5 3.01 Payment of Impositions..........................................................5 3.02 Definition of Impositions.......................................................6 3.03 Utilities.......................................................................6 3.04 Escrow of Impositions...........................................................7 3.05 Discontinuance of Utilities.....................................................7 ARTICLE IV INSURANCE.......................................................................8 4.01 Property Insurance..............................................................8 4.02 Liability Insurance.............................................................8 4.03 Insurance Requirements..........................................................9 4.04 Replacement Cost...............................................................10 4.05 Blanket Policy.................................................................10 4.06 No Separate Insurance..........................................................10 4.07 Waiver of Subrogation..........................................................10 4.08 Mortgages......................................................................11 ARTICLE V INDEMNITY; HAZARDOUS SUBSTANCES................................................11 5.01 Tenant's Indemnification.......................................................11 5.02 Hazardous Substances or Materials..............................................11 5.03 Limitation of Landlord's Liability.............................................12 ARTICLE VI USE AND ACCEPTANCE OF PREMISES.................................................13 6.01 Use of Leased Property.........................................................13 6.02 Acceptance of Leased Property..................................................13 6.03 Conditions of Use and Occupancy................................................13 6.04 Financial Statements and Other Information.....................................14
-i- 3 ARTICLE VII REPAIRS, COMPLIANCE WITH LAWS, AND MECHANICS' LIENS............................14 7.01 Maintenance....................................................................14 7.02 Compliance with Laws...........................................................14 7.03 Required Alterations...........................................................15 7.04 Mechanics' Liens...............................................................15 7.05 Replacements of Fixtures.......................................................15 ARTICLE VIII ALTERATIONS AND SIGNS; TENANT'S PROPERTY; CAPITAL ADDITIONS TO THE LEASED PROPERTY...............................................16 8.01 Tenant's Right to Construct....................................................16 8.02 Scope of Right.................................................................16 8.03 Cooperation of Landlord........................................................17 8.04 Commencement of Construction...................................................17 8.05 Rights in Tenant Improvements..................................................18 8.06 Personal Property..............................................................18 8.07 Requirements for Personal Property.............................................18 8.08 Signs..........................................................................20 8.09 Financings of Capital Additions to a Leased Property...........................20 ARTICLE IX DEFAULTS AND REMEDIES..........................................................22 9.01 Events of Default..............................................................22 9.02 Remedies.......................................................................24 9.03 Right of Set-Off...............................................................26 9.04 Performance of Tenant's Covenants..............................................26 9.05 Late Charge....................................................................27 9.06 Litigation; Attorneys' Fees....................................................27 9.07 Remedies Cumulative............................................................27 9.08 Escrows and Application of Payments............................................27 9.09 Power of Attorney..............................................................27 ARTICLE X DAMAGE AND DESTRUCTION.........................................................28 10.01 General........................................................................28 10.02 Landlord's Inspection..........................................................29 10.03 Landlord's Costs...............................................................29 10.04 Rent Abatement.................................................................29 10.05 Substantial Damage During Lease Term...........................................30 10.06 Damage Near End of Term........................................................30 ARTICLE XI CONDEMNATION...................................................................30 11.01 Total Taking...................................................................30 11.02 Partial Taking.................................................................31 11.03 Restoration....................................................................31 11.04 Landlord's Inspection..........................................................31 11.05 Award Distribution.............................................................32 11.06 Temporary Taking...............................................................32 ARTICLE XII TENANT'S RIGHT OF FIRST REFUSAL................................................32
-ii- 4 12.01 Rights of First Refusal........................................................32 12.02 Restriction on Exercise of Purchase Refusal Right..............................33 ARTICLE XIII ASSIGNMENT AND SUBLETTING; ATTORNMENT..........................................34 13.01 Prohibition Against Subletting and Assignment..................................34 13.02 Changes of Control.............................................................34 13.03 Operating/Service Agreements...................................................35 13.03.01 Permitted Agreements...........................................................35 13.03.02 Terms of Agreements............................................................35 13.03.03 Copies.........................................................................35 13.03.04 Assignment of Rights in Agreements.............................................35 13.03.05 Licenses, Etc..................................................................35 13.04 Assignment.....................................................................35 13.05 REIT Limitations...............................................................36 13.06 Attornment.....................................................................36 ARTICLE XIV ARBITRATION....................................................................36 14.01 Controversies..................................................................36 14.02 Appointment of Arbitrators.....................................................37 14.03 Arbitration Procedure..........................................................37 14.04 Expenses.......................................................................37 14.05 Enforcement of the Arbitration Award...........................................37 ARTICLE XV QUIET ENJOYMENT, SUBORDINATION, ATTORNMENT, ESTOPPEL CERTIFICATES..............38 15.01 Quiet Enjoyment................................................................38 15.02 Landlord Mortgages; Subordination..............................................38 15.03 Attornment; Non-Disturbance....................................................38 15.04 Estoppel Certificates..........................................................39 ARTICLE XVI MISCELLANEOUS..................................................................39 16.01 Notices........................................................................39 16.02 Advertisement of Leased Property...............................................40 16.03 Landlord's Access..............................................................40 16.04 Entire Agreement...............................................................40 16.05 Severability...................................................................41 16.06 Captions and Headings..........................................................41 16.07 Governing Law..................................................................41 16.08 Memorandum of Lease............................................................41 16.09 Waiver.........................................................................41 16.10 Binding Effect.................................................................41 16.11 Authority......................................................................41 16.12 Transfer of Permits, Etc.......................................................41
-iii- 5 16.13 Modification...................................................................42 16.14 Incorporation by Reference.....................................................42 16.15 No Merger......................................................................42 16.16 Laches.........................................................................42 16.17 Waiver of Jury Trial...........................................................42 16.18 Permitted Contests.............................................................43 16.19 Construction of Lease..........................................................43 16.20 Counterparts...................................................................43 16.21 Relationship of Landlord and Tenant............................................43 16.22 Landlord's Status as a REIT....................................................44 16.23 Sale of Real Estate Assets.....................................................44 ARTICLE XVII NONDISCLOSURE AND RELATED MATTERS..............................................44 17.01 Covenant Not to Disclose.......................................................44 17.02 Non-Interference Covenant......................................................44 17.03 Business Materials and Property Disclosure.....................................45 17.04 Breach by Landlord.............................................................45
-iv- 6 MASTER AGREEMENT TO LEASE This Master Agreement to Lease ("Agreement") dated as of the 18th day of July, 1997 by and between CCA PRISON REALTY TRUST, a Maryland real estate investment trust ("Landlord") and CORRECTIONS CORPORATION OF AMERICA, a Tennessee corporation ("Tenant"). RECITALS WHEREAS, Tenant (or one or more of Tenant's affiliates) has concurrently conveyed to Landlord various properties upon which Tenant engages in the business of the development and management of correctional and detention facilities, which properties are listed on Schedule A attached hereto (the "Real Estate Conveyance"), and Landlord and Tenant desire to provide for the lease by Landlord back to the Tenant of such properties; and WHEREAS, Landlord may from time to time lease additional properties that Landlord may acquire to Tenant; and WHEREAS, Landlord and Tenant desire that each of the properties listed on Schedule A and each additional property that Landlord may lease to Tenant shall be the subject of a separate and individual lease agreement describing said property, the rent and various other terms of said lease (each such lease agreement referred to individually as a "Lease," and the property that is the subject of an individual Lease being referred to as "Leased Property"); and WHEREAS, Landlord and Tenant desire to set forth in this Agreement certain terms and conditions applicable to all Leases of all Leased Properties, except as any individual Lease with respect to a particular Leased Property may otherwise provide; NOW, THEREFORE, in consideration of the premises and of their respective agreements and undertakings herein and in each Lease, Landlord and Tenant agree as follows: ARTICLE I SEPARATE LEASE AGREEMENTS; PREMISES AND TERM 1.01 Separate Lease Agreements. Landlord and Tenant are concurrently entering into a separate Lease for each of the Leased Properties referred to in Schedule A hereto, and may in the future enter into one or more additional separate Leases for one or more additional Leased Properties. Except as specifically set forth in a separate Lease, or any amendment, supplement, schedule or exhibit thereto, all of the provisions of this Agreement shall be deemed to be incorporated into and made a part of each such separate Lease made between the Landlord as landlord (or Lessor) and the Tenant as tenant (or Lessee) during the term of such separate Lease. 7 1.02 Leased Property. Except as set forth in an individual Lease (including any schedule or exhibit thereto), the property that is the subject of each Lease and that shall be considered as leased by the Landlord to the Tenant thereunder shall consist of: (a) The land described in the Lease, together with all rights, titles, appurtenant interests, covenants, licenses, privileges and benefits thereto belonging, and any easements, rights-of-way, rights of ingress or egress or other interests in, on, or to any land, highway, street, road or avenue, open or proposed, in, on, across, in front of, abutting or adjoining such real property including, without limitation, any strips and gores adjacent to or lying between such real property and any adjacent real property (the "Land"); (b) All buildings, improvements, structures and Fixtures now located or to be located or to be constructed on the Land, 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 (the "Improvements"); (c) All equipment, machinery, fixtures, and other items of real and/or personal property, including all components thereof, located in, on or used in connection with, and permanently affixed to or incorporated into, the Improvements, including, without limitation, all furnaces, boilers, heaters, electrical equipment, heating, plumbing, lighting, ventilating, refrigerating, incineration, air and water pollution control, waste disposal, air-cooling and air-conditioning systems and apparatus, sprinkler systems and fire and theft protection equipment, and similar systems, all of which, to the greatest extent permitted by law, are hereby deemed to constitute real estate, together with all replacements, modifications, alterations and additions thereto (collectively the "Fixtures"); (d) All furniture, equipment, inventory and other personal property identified on Schedule B attached hereto and incorporated herein by reference (the "Personal Property"). For purposes hereof, (i) Personal Property shall include all items of property which Tenant is obligated to install, place, use, maintain, repair and/or replace pursuant to the provisions of Sections 8.06 and 8.07 hereof however, such Personal Property is and shall remain the property of Tenant until the expiration or termination of this Lease, and (ii) Personal Property shall not include certain proprietary property of Tenant as set forth on Schedule C. The Land, Improvements, Fixtures and Personal Property are hereinafter referred to as the "Leased Property." SUBJECT, HOWEVER, to the easements, liens, encumbrances, restrictions, agreements, and other title matters listed or specifically referred to in any individual Lease ("Permitted Exceptions"). 1.03 Term. The term of each Lease shall be as set forth in the individual Lease for a particular Leased Property. -2- 8 1.04 Holding Over. Should Tenant, without the express consent of Landlord, continue to hold and occupy the Leased Property after the expiration of the Term, such holding over beyond the Term and the acceptance or collection of Rent by the Landlord shall operate and be construed as creating a tenancy from month-to-month and not for any other term whatsoever. During any such holdover period Tenant shall pay to Landlord for each month (or portion thereof) Tenant remains in the Leased Property one hundred fifty percent (150%) of the Base Rent in effect on the expiration date. Said month-to-month tenancy may be terminated by Landlord by giving Tenant ten (10) days written notice, and at any time thereafter Landlord may re-enter and take possession of the Leased Property. 1.05 Surrender. Except as a result of (i) Tenant Improvements and Capital Additions (as such terms are defined in Section 8.01 hereof); (ii) normal and reasonable wear and tear (subject to the obligation of Tenant to maintain the Leased Property in good order and repair during the Term); and (iii) casualty, taking or other damage and destruction not required to be repaired by Tenant, Tenant shall surrender and deliver up the Leased Property, including all Personal Property and replacements thereof required to be provided by Tenant pursuant to the terms of Sections 8.06 and 8.07 hereof, at the expiration or termination of the Term broom clean, free of all Tenant's personal property (but not the Personal Property), and in as good order and condition as of the Commencement Date. ARTICLE II RENT 2.01 Base Rent. Unless otherwise provided in an individual Lease, Tenant shall pay Landlord annual base rent for each Leased Property that is the subject of a Lease without notice, demand, set-off or counterclaim in advance, in lawful money of the United States of America in the amount specified therein (the "Base Rent") for the Term in consecutive monthly installments payable in advance on the Commencement Date of each Lease and thereafter on the first day of each month during the Term, in accordance with the Base Rent Schedule set forth in or attached to each individual Lease. 2.02 Additional Rent. Beginning on the first day of the month following the first anniversary date of each Lease, the Tenant shall pay Landlord an amount (the "Additional Rent") each year equal to a percentage of the prior year Total Rent (for the purposes hereof, Total Rent is Base Rent plus Additional Rent) under such Lease, such percentage being the greater of (i) four percent (4%) or (ii) the percentage which is twenty-five percent (25%) of the percentage increase in gross management revenues realized by Tenant from its operations at the applicable Leased Property for such prior year exclusive of any such increase as is attributable to an expansion in the size or number of beds in such Leased Property. The Additional Rent shall be payable monthly, in advance, along with Base Rent, and otherwise in the manner as set forth in Section 2.01 above. Tenant shall provide to Landlord, not later than thirty (30) days following each anniversary date of each Lease, Tenant's statement, certified by Tenant's chief financial officer, setting forth such percentage increase -3- 9 in gross management revenues realized by Tenant for the applicable Leased Facility for the prior year. 2.02.01 Other Additional Rent. In addition to Base Rent and Additional Rent, Tenant shall pay all other amounts, liabilities, obligations and Impositions (as hereinafter defined ) which Tenant assumes or agrees to pay under this Agreement or any Lease and any fine, penalty, interest, charge and cost which may be added for nonpayment or late payment of such items (collectively the "Other Additional Rent"). 2.03 Place(s) of Payment of Rent; Direct Payment of Other Additional Rent. The Base Rent, Additional Rent and Other Additional Rent are hereinafter referred to as "Rent." Landlord shall have all legal, equitable and contractual rights, powers and remedies provided either in this Agreement, in any Lease or by statute or otherwise in the case of nonpayment of the Rent. Tenant shall make all payments of Base Rent and Additional Rent at Landlord's principal place of business or as Landlord may otherwise from time to time direct in writing, and all payments of Other Additional Rent directly to the person or persons to whom such amount is owing at the time and times when such payments are due, and shall give to Landlord such evidence of such direct payments as Landlord shall reasonably request. 2.04 Net Lease. Each Lease shall be deemed and construed to be an "absolute net lease" or "triple net lease," and Tenant shall pay all Rent, Impositions, and other charges and expenses in connection with each Leased Property throughout the Term, without abatement, deduction or set-off. 2.05 No Termination, Abatement, Etc. Except as otherwise specifically provided in this Agreement or a particular Lease, Tenant shall remain bound by this Agreement or such Lease in accordance with its terms. Except as otherwise specifically provided in the Agreement or a particular Lease, Tenant shall not, without the prior written consent of Landlord, modify, surrender or terminate the Agreement or such Lease, nor seek nor be entitled to any abatement, deduction, deferment or reduction of Rent, or set-off against the Rent. Except as specifically provided in this Agreement or a particular Lease, the obligations of Landlord and Tenant shall not be affected by reason of (i) the lawful or unlawful prohibition of, or restriction upon, Tenant's use of the Leased Property, or any part thereof, the interference with such use by any person, corporation, partnership or other entity, or by reason of eviction by paramount title; (ii) any claim which Tenant has or might have against Landlord or by reason of any default or breach of any warranty by Landlord under this Agreement or a particular Lease or any other agreement between Landlord and Tenant, or to which Landlord and Tenant are parties; (iii) any bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding up or other proceeding affecting Landlord or any assignee or transferee of Landlord; or (iv) any other cause, whether similar or dissimilar to any of the foregoing, other than a discharge of Tenant from any such obligations as a matter of law. Except as otherwise specifically provided in this Agreement or a particular Lease, and to the maximum extent permitted by law, Tenant hereby specifically waives all rights, including but not limited to any rights under any statute relating to rights of tenants in any state in which any Leased Property is located, arising from any occurrence whatsoever, which may now or hereafter be conferred upon it -4- 10 by law (a) to modify, surrender or terminate any Lease or quit or surrender the Leased Property or any portion thereof; or (b) entitling Tenant to any abatement, reduction, suspension or deferment of the Rent or other sums payable by Tenant hereunder. The obligations of Landlord and Tenant hereunder shall be separate and agreements and the Rent and all other sums shall continue to be payable in all events unless the obligations to pay the same shall be terminated pursuant to the express provisions of this Agreement or a particular Lease or by termination of this Agreement or a particular Lease other than by reason of an Event of Default. ARTICLE III IMPOSITIONS AND UTILITIES 3.01 Payment of Impositions. Subject to the adjustments set forth herein, Tenant shall pay, as Other Additional Rent, all Impositions (as hereinafter defined) that may be levied or become a lien on the Leased Property or any part thereof at any time (whether prior to or during the Term), without regard to prior ownership of said Leased Property, before the same becomes delinquent. Tenant shall furnish to Landlord on an annual basis copies of official receipts or other satisfactory proof evidencing such payments. Tenant's obligation to pay such Impositions shall be deemed absolutely fixed upon the date such Impositions become a lien upon the Leased Property or any part thereof. Tenant, at its expense, shall prepare and file all tax returns and reports in respect of any Imposition as may be required by governmental authorities, provided, Landlord shall be responsible for the preparation and filing of any such tax returns or reports in respect of any real or personal property owned by Landlord. Tenant shall be entitled to any refund due from any taxing authority if no Event of Default (as hereinafter defined) shall have occurred hereunder and be continuing. Landlord shall be entitled to any refund from any taxing authority if an Event of Default has occurred and is continuing. Any refunds retained by Landlord due to an Event of Default shall be applied as provided in Section 9.08. Landlord and Tenant shall, upon request of the other, provide such data as is maintained by the party to whom the request is made with respect to the Leased Property as may be necessary to prepare any required returns and reports. In the event governmental authorities classify any property covered by this Lease as personal property, Landlord and Tenant shall file all personal property tax returns in such jurisdictions where it may legally so file with respect to their respective owned personal property. Landlord, to the extent it possesses the same, and Tenant, to the extent it possess the same, will provide the other party, upon request, with cost and depreciation records necessary for filing returns for any property so classified as personal property. Where Landlord is legally required to file personal property tax returns, Tenant will be provided with copies of assessment notices indicating a value in excess of the reported value in sufficient time for Tenant to file a protest. Tenant may, upon notice to Landlord, at Tenant's option and at Tenant's sole cost and expense, protest, appeal, or institute such other proceedings as Tenant may deem appropriate to effect a reduction of real estate or personal property assessments and Landlord, at Tenant's expense as aforesaid, shall fully cooperate with Tenant in such protest, appeal, or other action. Tenant shall provide Landlord copies of all materials filed or presented in connection with any such proceeding. Tenant shall promptly reimburse Landlord for all personal property taxes paid by Landlord upon receipt of billings accompanied by copies of a bill therefor and payments thereof which identify the -5- 11 personal property with respect to which such payments are made. Impositions imposed in respect to the tax-fiscal period during which the Term commences and terminates shall be adjusted and prorated between Landlord and Tenant on a per diem basis, with Tenant being obligated to pay its pro rata share from and including the Commencement Date to and including the expiration or termination date of the Term, whether or not such Imposition is imposed before or after such commencement or termination, and Tenant's obligation to pay its prorated share thereof shall survive such termination. Tenant shall also pay to Landlord a sum equal to the amount which Landlord may be caused to pay of any privilege tax, sales tax, gross receipts tax, rent tax, occupancy tax or like tax (excluding any tax based on net income), hereinafter levied, assessed, or imposed by any federal, state, county or municipal governmental authority, or any subdivision thereof, upon or measured by rent or other consideration required to be paid by Tenant under this Agreement. 3.02 Definition of Impositions. "Impositions" means, collectively, (i) taxes (including without limitation, all real estate and personal property ad valorem (whether assessed as part of the real estate or separately assessed as unsecured personal property, sales and use, business or occupation, single business, gross receipts, transaction, privilege, rent or similar taxes, but not including income or franchise or excise taxes payable with respect to Landlord's receipt of Rent); (ii) assessments (including without limitation, all assessments for public improvements or benefits, whether or not commenced or completed prior to the date hereof and whether or not to be completed with in the Term); (iii) ground rents, water, sewer or other rents and charges, excises, tax levies, and fees (including without limitation, license, permit, inspection, authorization and similar fees); (iv) to the extent they may become a lien on the Leased Property all taxes imposed on Tenant's operations of the Leased Property including without limitation, employee withholding taxes, income taxes and intangible taxes; and (v) all other governmental charges, in each case whether general or special, ordinary or extraordinary, or foreseen or unforseen, of every character in respect of the Leased Property or any part thereof and/or the Rent (including all interest and penalties thereon due to any failure in payment by Tenant), which at any time prior to, during or in respect of the Term hereof may be assessed or imposed on or in respect of or be a lien upon (a) Landlord or Landlord's interest in the Leased Property or any part thereof; (b) the Leased Property or any part thereof or any rent therefrom or any estate, right, title or interest therein; or (c) any occupancy, operation, use or possession of, or sales from, or activity conducted on, or in connection with the Leased Property or the leasing or use of the Leased Property or any part thereof. Tenant shall not, however, be required to pay (i) any tax based on net income (whether denominated as a franchise or capital stock or other tax) imposed on Landlord; or (ii) except as provided in Section 13.01, any tax imposed with respect to the sale, exchange or other disposition by Landlord of any Leased Property or the proceeds thereof; provided, however, that if any tax, assessment, tax levy or charge which Tenant is obligated to pay pursuant to the first sentence of this definition and which is in effect at any time during the Term hereof is totally or partially repealed, and a tax, assessment, tax levy or charge set forth in clause (i) or (ii) immediately above is levied, assessed or imposed expressly in lieu thereof Tenant shall then pay such tax, levy, or charge set forth in said clause (i) or (ii). 3.03 Utilities. Tenant shall contract for, in its own name, and will pay, as Other Additional Rent all taxes, assessments, charges/deposits, and bills for utilities, including without limitation -6- 12 charges for water, gas, oil, sanitary and storm sewer, electricity, telephone service, trash collection, and all other utilities which may be charged against the occupant of the Improvements during the Term. Tenant shall at all times maintain that amount of heat necessary to ensure against the freezing of water lines. Tenant hereby agrees to indemnify and hold Landlord harmless from and against any liability or damages to the utility systems and the Leased Property that may result from Tenant's failure to maintain sufficient heat in the Improvements. 3.04 Escrow of Impositions. In the event Tenant persistently fails to timely pay Impositions with respect to any Leased Facility, then, upon thirty (30) days written notice from Landlord to Tenant, Tenant shall thereafter deposit with Landlord on the first day of each month during the remaining Term hereof and any extended Term, a sum equal to one-twelfth (1/12th) of the Impositions assessed against such Leased Property which sums shall be used by Landlord toward payment of such Impositions. If, at the end of any applicable tax year, any such funds held by Landlord are insufficient to make full payment of taxes or other Impositions for which such funds are held, Tenant, on demand, shall pay to Landlord any additional funds necessary to pay and discharge the obligations of Tenant pursuant to the provisions of this section. If, however, at the end of any applicable tax year, such funds held by Landlord are in excess of the total payment required to satisfy taxes or other Impositions for which such funds are held, Landlord shall apply such excess amounts to Tenant's tax and Imposition escrow fund for the next tax year. If any such excess exists following the expiration or earlier termination of any Lease, and subject to Section 9.08 below, Landlord shall promptly refund such excess amounts to Tenant. The receipt by Landlord of the payment of such Impositions by and from Tenant shall only be as an accommodation to Tenant and the taxing authorities, and shall not be construed as rent or income to Landlord, Landlord serving, if at all, only as a conduit for delivery purposes. All such deposits by Tenant shall be held in an interest-bearing account with one or more national banks having total assets of not less than $1,000,000,000, with all interest thereon accruing in favor of Tenant. In lieu of making escrow deposits as aforesaid, Tenant may elect to provide Landlord with a letter of credit, or a payment bond, in the face amount of one year's Impositions on the subject Leased Property, issued by a national bank or reputable bonding or surety company, in all respects reasonably acceptable to Landlord. Said letter of credit or payment bond shall be drawable or callable, as the case may be, upon Tenant's failure to timely pay any such Impositions, for the sole purpose of providing the funds necessary to pay such Impositions, and shall otherwise be in form and substance reasonably satisfactory to Landlord. For purposes hereof, "persistently fails to timely pay Impositions" shall mean failure to timely pay any Imposition with respect to any Leased Premises for any two (2) Lease Years in any five (5) Lease Year Period, notwithstanding Tenant's subsequent payment of such Impositions. 3.05 Discontinuance of Utilities. Landlord will not be liable for damages to person or property or for injury to, or interruption of, business for any discontinuance of utilities nor will such discontinuance in any way be construed as an eviction of Tenant or cause an abatement of Rent or operate to release Tenant from any of Tenant's obligations under this Lease. -7- 13 ARTICLE IV INSURANCE 4.01 Property Insurance. Tenant shall, at Tenant's expense, keep the Improvements, Fixtures, and other components of the Leased Property insured against the following risks: (a) Loss or damage by fire, vandalism and malicious mischief, sprinkler leakage and all other physical loss perils commonly covered by "All Risk" insurance in an amount not less than one hundred percent (100%) of the then full replacement cost thereof (as hereinafter defined). Such policy shall include an agreed amount endorsement if available at a reasonable cost. Such policy shall also include endorsements for contingent liability for operation of building laws, demolition costs, and increased cost of construction. (b) Loss or damage by explosion of steam boilers, pressure vessels, or similar apparatus, now or hereafter installed on the Leased Property, in commercially reasonable amounts acceptable to Landlord. (c) Loss of rent under a rental value or business interruption insurance policy covering risk of loss during the first six (6) months of reconstruction necessitated by the occurrence of any hazards described in Sections 4.01(a) or 4.01(b), above, and which causes an abatement of Rent as provided in Article X hereof, in an amount sufficient to prevent Landlord or Tenant from becoming a co-insurer, containing endorsements for extended period of indemnity and premium adjustment, and written with an agreed amount clause, if the insurance provided for in this clause (c) is available. (d) If the Land is located in whole or in part within a designated flood plain area, loss or damage caused by flood in commercially reasonable amounts acceptable to Landlord. (e) Loss or damage commonly covered by blanket crime insurance including employee dishonesty, loss of money orders or paper currency, depositor's forgery, and loss of property accepted by Tenant for safekeeping, in commercially reasonable amounts acceptable to Landlord. (f) In connection with any repairs or rebuilding by Tenant under Article X hereof, Tenant shall maintain (or cause its contractor to maintain) appropriate builder's risk insurance covering any loss or casualty to the subject Improvements during the course of such repairs or rebuilding. 4.02 Liability Insurance. Tenant shall, at Tenant's expense, maintain liability insurance against the following: -8- 14 (a) Claims for personal injury or property damage commonly covered by comprehensive general liability insurance with endorsements for blanket, contractual, personal injury, owner's protective liability, real property, fire damage, legal liability, broad form property damage, and extended bodily injury, with commercially reasonable amounts for bodily injury and property damage acceptable to Landlord, but with a combined single limit of not less than Five Million Dollars ($5,000,000.00) per occurrence and Ten Million Dollars ($10,000,000.00) in the aggregate. At Landlord's request, such $5,000,000.00 and $10,000,000.00 minimum requirements shall be increased by up to four percent (4%) per year. (b) Claims commonly covered by worker's compensation insurance for all persons employed by Tenant on the Leased Property. Such worker's compensation insurance shall be in accordance with the requirements of all applicable local, state, and federal law. 4.03 Insurance Requirements. The following provisions shall apply to all insurance coverages required hereunder: (a) The carriers of all policies shall have a Best's Rating of "A-" or better and a Best's Financial Category of XII or larger and shall be authorized to do insurance business in the state in which the Leased Property is located. (b) Tenant shall be the "named insured" and Landlord and any mortgagee of Landlord shall be an "additional named insured" on each policy. (c) Tenant shall deliver to Landlord certificates or policies showing the required coverages and endorsements. The policies of insurance shall provide that the policy may not be canceled or not renewed, and no material change or reduction in coverage may be made, without at least thirty (30) days' prior written notice to Landlord. (d) The policies shall contain a severability of interest and/or cross-liability endorsement, provide that the acts or omissions of Tenant will not invalidate the Landlord's coverage, and provide that Landlord shall not be responsible for payment of premiums. (e) All loss adjustment shall require the written consent of Landlord and Tenant, as their interests may appear. (f) At least ten (10) days prior to the expiration of each policy, Tenant shall deliver to Landlord a certificate showing renewal of such policy and payment of the annual premium therefor. Landlord shall have the right to review the insurance coverages required hereunder with Tenant from time to time, to obtain the input of third party professional insurance advisors (at Landlord's expense) with respect to such insurance coverages, and to consult with Tenant in Tenant's -9- 15 annual review and renewal of such insurance coverages. All insurance coverages hereunder shall be in such form, substance and amounts as are customary or standard in Tenant's industry. 4.04 Replacement Cost. The term "full replacement cost" means the actual replacement cost thereof from time to time including increased cost of construction, with no reductions or deductions. Tenant shall, not later than thirty (30) days after the anniversary of each policy of insurance, of the Term, increase the amount of the replacement cost endorsement for the Improvements. If Tenant makes any Permitted Alterations (as hereinafter defined) to the Leased Property, Landlord may have such full replacement cost redetermined at any time after such Permitted Alterations are made, regardless of when the full replacement cost was last determined. 4.05 Blanket Policy. Tenant may carry the insurance required by this Article under a blanket policy of insurance, provided that the coverage afforded Tenant will not be reduced or diminished or otherwise be different from that which would exist under a separate policy meeting all of the requirements of this Agreement. 4.06 No Separate Insurance. Tenant shall not take out separate insurance concurrent in form or contributing in the event of loss with that required in this Article, or increase the amounts of any then existing insurance by securing an additional policy or additional policies, unless all parties having an insurable interest in the subject matter of the insurance, including Landlord and any mortgagees, are included therein as additional named insureds or loss payees, the loss is payable under said insurance in the same manner as losses are payable under this Agreement, and such additional insurance is not prohibited by the existing policies of insurance. Tenant shall immediately notify Landlord of the taking out of such separate insurance or the increasing of any of the amounts of the existing insurance by securing an additional policy or additional policies. The term "mortgages" as used in this Agreement includes Deeds of Trust and the term "mortgagees" includes trustees and beneficiaries under a Deed of Trust. 4.07 Waiver of Subrogation. Each party hereto hereby waives any and every claim which arises or may arise in its favor and against the other party hereto during the Term or any extension or renewal thereof, for any and all loss of, or damage to, any of its property located within or upon, or constituting a part of, the Leased Property, which loss or damage is covered by valid and collectible insurance policies, to the extent that such loss or damage is recoverable under such policies. Said mutual waiver shall be in addition to, and not in limitation or derogation of, any other waiver or release contained in this Lease with respect to any loss or damage to property of the parties hereto. Inasmuch as the said waivers will preclude the assignment of any aforesaid claim by way of subrogation (or otherwise) to an insurance company (or any other person), each party hereto agrees immediately to give each insurance company which has issued to it policies of insurance, written notice of the terms of said mutual waivers, and to have such insurance policies properly endorsed, if necessary, to prevent the invalidation of said insurance coverage by reason of said waivers, so long as such endorsement is available at a reasonable cost. -10- 16 4.08 Mortgages. The following provisions shall apply if Landlord now or hereafter places a mortgage on the Leased Property or any part thereof: (i) Tenant shall obtain a standard form of mortgage clause insuring the interest of the mortgagee; (ii) Tenant shall deliver evidence of insurance to such mortgagee; (iii) loss adjustment shall require the consent of the mortgagee; and (iv) Tenant shall obtain such other coverages and provide such other information and documents as may be reasonably required by the mortgagee. ARTICLE V INDEMNITY; HAZARDOUS SUBSTANCES 5.01 Tenant's Indemnification. Subject to Section 4.07, Tenant hereby agrees to indemnify and hold harmless Landlord, its agents, and employees from and against any and all demands, claims, causes of action, fines, penalties, damages (including consequential damages), losses, liabilities (including strict liability), judgments, and expenses (including, without limitation, attorneys' fees, court costs, and the costs set forth in Section 9.06) incurred in connection with or arising from: (i) the use, condition, operation or occupancy of each Leased Property; (ii) any activity, work, or thing done, or permitted or suffered by Tenant in or about the Leased Property; (iii) any acts, omissions, or negligence of Tenant or any person claiming under Tenant, or the contractors, agents, employees, invitees, or visitors of Tenant or any such person; (iv) any claim of any person incarcerated in the Leased Premises, including claims alleging breach or violation of such person's civil or legal rights; (v) any breach, violation, or nonperformance by Tenant or any person claiming under Tenant or the employees, agents, contractors, invitees, or visitors of Tenant or of any such person, of any term, covenant, or provision of this Agreement or any Lease or any law, ordinance, or governmental requirement of any kind; (vi) any injury or damage to the person, property or business of Tenant, its employees, agents, contractors, invitees, visitors, or any other person entering upon the Leased Property under the express or implied invitation of Tenant; and (vii) and any accident, injury to or death of persons or loss of damage to any item of property occurring at the Leased Property. If any action or proceeding is brought against Landlord, its employees, or agents by reason of any such claim, Tenant, upon notice from Landlord, will defend the claim at Tenant's expense with counsel reasonably satisfactory to Landlord. In the event Landlord reasonably determines that its interests and the interests of Tenant in any such action or proceeding are not substantially the same and that Tenant's counsel cannot adequately represent the interests of Landlord therein, Landlord shall have the right to hire separate counsel in any such action or proceeding and the reasonable costs thereof shall be paid for by Tenant. 5.02 Hazardous Substances or Materials. Tenant shall not, either with or without negligence, injure, overload, deface, damage or otherwise harm any Leased Property or any part or component thereof; commit any nuisance; permit the emission of any hazardous agents or substances; allow the release or other escape of any biologically or chemically active or other hazardous substances or materials so as to impregnate, impair or in any manner affect, even temporarily, any element or part of any Leased Property, or allow the storage or use of such substances or materials in any manner not sanctioned by law or by the highest standards prevailing -11- 17 in the industry for the storage and use of such substances or materials; nor shall Tenant bring onto any Leased Property any such materials or substances; permit the occurrence of objectionable noise or odors; or make, allow or suffer any waste whatsoever to any Leased Property. Landlord may inspect the Leased Property from time to time, and Tenant will cooperate with such inspections. Without limitation, "hazardous substances" for the purpose of this Section 5.02 shall include any substances regulated by any local, state or federal law relating to environmental conditions and industrial hygiene, including, without limitation, the Resource Conservation and Recovery Act of 1976 ("RCRA"), the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), as amended by the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Hazardous Materials Transportation Act, the Federal Water Pollution Control Act, the Clean Air Act, the Clean Water Act, the Toxic Substances Control Act, the Safe Drinking Water Act, and all similar federal, state and local environmental statutes, ordinances and the regulations, orders, or decrees now or hereafter promulgated thereunder. Notwithstanding the foregoing, Tenant anticipates using, storing and disposing of certain hazardous substances in connection with operation of correctional or detention facilities which are not in violation of the foregoing laws. Such substances include, but are not limited to the following: medical wastes, diesel fuel, maintenance and janitorial supplies, and waste from reprographic activities. Upon request by Landlord, Tenant shall submit to Landlord annual reports regarding Tenant's use, storage, and disposal of any of the foregoing materials, said reports to include information regarding continued hazardous materials inspections, personal interviews, and federal, state and local agency listings. In addition, Tenant shall execute affidavits, representations and the like from time to time at Landlord's request concerning Tenant's best knowledge and belief regarding the presence or absence of hazardous materials on the Leased Property. Other than for circumstances involving Landlord's gross negligence or intentional misconduct, Tenant shall indemnify and hold harmless Landlord from and against all liabilities (including punitive damages), costs and expenses (including reasonable attorneys' fees) imposed upon or asserted against the Landlord or the Leased Property on account of, among other things, any applicable federal, state or local law, ordinance, regulation, order, permit, decree or similar items relating to hazardous substances, human health or the environment (collectively, "Environmental Laws") (irrespective of whether there has occurred any violation of any Environmental Law ), in respect of the Leased Property, including (a) liability for response costs and for costs of removal and remedial action incurred by the United States Government, any state or local governmental unit to any other person or entity, or damages from injury to or destruction or loss of natural resources, including the reasonable costs of assessing such injury, destruction or loss, incurred pursuant to any Environmental Law, (b) liability for costs and expenses of abatement, investigation, removal, remediation, correction or clean-up, fines, damages, response costs or penalties which arise from the provisions of any Environmental Law, (c) liability for personal injury or property damage arising under any statutory or common-law tort theory, including damages assessed for the maintenance of a public or private nuisance or for carrying on of a dangerous activity or (d) by reason of a breach of an environmental representation or warranty by Tenant. 5.03 Limitation of Landlord's Liability. Landlord, its agents and employees, will not be liable for any loss, injury, death, or damage (including consequential damages) to persons, property, or Tenant's business occasioned by theft, act of God, public enemy, injunction, riot, strike, -12- 18 insurrection, war, court order, requisition, order of governmental body or authority, fire, explosion, falling objects, steam, water, rain or snow, leak or flow of water (including water from the elevator system), rain or snow from any Leased Property or into any Leased Property or from the roof, street, subsurface or from any other place, or by dampness or from the breakage, leakage, obstruction, or other defects of the pipes, sprinklers, wires, appliances, plumbing, air conditioning, or lighting fixtures of the Leased Property, or from construction, repair, or alteration of the Leased Property or from any acts or omissions of any other occupant or visitor of the Leased Property, or from the presence or release of any hazardous substance or material on or from the Leased Property or from any other cause beyond Landlord's control. ARTICLE VI USE AND ACCEPTANCE OF PREMISES 6.01 Use of Leased Property. Tenant shall use and occupy each Leased Property exclusively as a correctional or detention facility or other purpose for which the Leased Property is being used at the Commencement Date of the Term, and for no other purpose without the prior written consent of the Landlord. Tenant shall obtain and maintain all approvals, licenses, and consents needed to use and operate each Leased Property for such purposes. Tenant shall promptly deliver to Landlord complete copies of surveys, examinations, certification and licensure inspections, compliance certificates, and other similar reports issued to Tenant by any governmental agency. 6.02 Acceptance of Leased Property. Except as otherwise specifically provided in this Agreement or in any individual Lease, Tenant acknowledges that (i) Tenant and its agents have had an opportunity to inspect the Leased Property; (ii) Tenant has found the Leased Property fit for Tenant's use; (iii) delivery of the Leased Property to Tenant is in an "as-is" condition; (iv) Landlord is not obligated to make any improvements or repairs to the Leased Property; and (v) the roof, walls, foundation, heating, ventilating, air conditioning, telephone, sewer, electrical, mechanical, utility, plumbing, and other portions of the Leased Property are in good working order. Tenant waives any claim or action against Landlord with respect to the condition of the Leased Property. LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO QUALITY OR THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY TENANT. 6.03 Conditions of Use and Occupancy. Tenant agrees that during the Term it shall use and keep the Leased Property in a careful, safe and proper manner; not commit or suffer waste thereon; not use or occupy the Leased Property for any unlawful purposes; not use or occupy the Leased Property or permit the same to be used or occupied, for any purpose or business deemed extra hazardous on account of fire or otherwise; keep the Leased Property in such repair and condition as may be required by the local board of health, or other city, state or federal authorities, free of all cost -13- 19 to Landlord; not permit any acts to be done which will cause the cancellation, invalidation, or suspension of any insurance policy; and permit Landlord and its agents to enter upon the Leased Property at all reasonable times after notice to Tenant to examine the condition thereof. 6.04 Financial Statements and Other Information. Within ten (10) days following Tenant's filing of quarterly and annual reports with the Securities and Exchange Commission, Tenant shall deliver to Landlord copies of such reports. Tenant shall provide Landlord at the same time Tenant provides copies of its quarterly and annual reports as aforesaid (or more often as may be reasonably requested by Landlord in writing), the following additional financial information for each calendar quarter hereafter, with respect to each Leased Property: gross revenues, average occupancy rates and total cash flow (i.e., operating income plus depreciation and amortization plus Base Rent plus Additional Rent hereunder). Tenant shall also deliver to Landlord such additional financial information as Landlord may reasonably request, provided the same is of a type normally maintained by Tenant or can be obtained without undue cost or burden on Tenant's personnel and does not constitute information which Tenant reasonably determines to be proprietary or confidential. Additionally, upon Landlord's request, Tenant shall provide Landlord with copies of Tenant's annual capital expenditure budgets for each Leased Property and any reports generated by Tenant regarding maintenance and repairs of the Leased Property. ARTICLE VII REPAIRS, COMPLIANCE WITH LAWS, AND MECHANICS' LIENS 7.01 Maintenance. Tenant shall maintain each Leased Property in good order, repair and appearance, and repair each Leased Property, including without limitation, all interior and exterior, structural and nonstructural repairs and replacements to the roof, foundations, exterior walls, building systems, HVAC systems, parking areas, sidewalks, water, sewer and gas connections, pipes, and mains. Tenant shall pay as Other Additional Rent the full cost of maintenance, repairs, and replacements. Tenant shall maintain all drives, sidewalks, parking areas, and lawns on or about the Leased Property in a clean and orderly condition, free of accumulations of dirt, rubbish, snow and ice. Tenant shall permit Landlord to inspect the Leased Property at all reasonable times, and shall implement all reasonable suggestions of the Landlord as to the maintenance and replacement of the Leased Property. 7.02 Compliance with Laws. Tenant shall comply with all laws, ordinances, orders, rules, regulations, and other governmental requirements relating to the use, condition, or occupancy of each Leased Property, whether now or hereafter enacted and in force including without limitation, (i) licensure requirements for operation as a correctional or detention facility, (ii) requirements of any board of casualty insurance underwriters or insurance service office for any other similar body having jurisdiction over the Leased Property, and (iii) all zoning and building codes and Environmental Laws. At Landlord's request, from time to time, Tenant shall deliver to Landlord copies of certificates or permits evidencing compliance with such laws, including without limitation, copies of the correctional or detention facility licenses, certificates of occupancy and building -14- 20 permits. Tenant shall provide Landlord with copies of any notice from any governmental authority alleging any non-compliance by Tenant or any Leased Facility with any of the foregoing requirements and such evidence as Landlord may reasonably require of Tenant's remediation thereof. Tenant hereby agrees to defend, indemnify and hold Landlord harmless from and against any loss, liability (including strict liability), claim, damage (including consequential damages), cost and expense (including attorneys' fees) resulting from any failure by Tenant to comply with any laws, ordinances, rules, regulations, and other governmental requirements. 7.03 Required Alterations. Tenant shall, at Tenant's sole cost and expense, make any additions, changes, improvements or alterations to each Leased Property, including structural alterations, which may be required by any governmental authorities, including those required to continue licensure requirements as a correctional or detention facility, whether such changes are required by Tenant's use, changes in the law, ordinances, or governmental regulations, defects existing as of the date of this Lease, or any other cause whatsoever. Tenant shall provide prior written notice to Landlord of any changes to each Leased Property pursuant to this Section 7.03 which involve changes to the structural integrity of such Leased Property or materially affect the operational capabilities or rated capacity of the Leased Facility. All such additions, changes, improvements or alterations shall be deemed to be a Tenant Improvement and shall comply with all laws requiring such alterations and with the provisions of Section 8.01. 7.04 Mechanics' Liens. Tenant shall have no authority to permit or create a lien against Landlord's interest in the Leased Property, and Tenant shall post notices or file such documents as may be required to protect Landlord's interest in the Leased property against liens. Tenant hereby agrees to defend, indemnify, and hold Landlord harmless from and against any mechanics' liens against the Leased Property by reason of work, labor services or materials supplied or claimed to have been supplied on or to the Leased Property. Tenant shall immediately remove, bond-off, or otherwise obtain the release of any mechanics' lien filed against the Leased Property. Tenant shall pay all expenses in connection therewith, including without limitation, damages, interest, court costs and reasonable attorneys' fees. 7.05 Replacements of Fixtures. Tenant shall not remove Fixtures from any Leased Property except to replace the Fixtures by other similar items of equal quality and value. Items being replaced by Tenant may be removed and shall become the property of Tenant and items replacing the same shall be and remain the property of the Landlord. Tenant shall execute, upon written request from Landlord, any and all documents necessary to evidence Landlord's ownership of the Fixtures and replacements therefor. Tenant may finance replacements for the Fixtures by equipment lease or by a security agreement and financing statement; provided, however, that for any item of Fixtures or Personal Property having a cost greater than or equal to Twenty Thousand Dollars ($20,000.00), Tenant may not finance replacements by security agreement or equipment lease unless (i) Landlord has consented to the terms and conditions of the equipment lease or security agreement; (ii) the equipment lessor or lender has entered into a nondisturbance agreement with the Landlord upon terms and conditions acceptable to Landlord, including without limitation, the following: (a) Landlord shall have the right (but not the obligation) to assume such security agreement or -15- 21 equipment lease upon the occurrence of an Event of Default by Tenant under any Lease; (b) the equipment lessor or lender shall notify Landlord of any default by Tenant under the equipment lease or security agreement and give Landlord a reasonable opportunity to cure such default; and (c) Landlord shall have the right to assign its rights under the equipment lease, security agreement, or nondisturbance agreement; and (iii) Tenant shall, within thirty (30) days after receipt of an invoice from Landlord, reimburse Landlord for all costs and expenses incurred in reviewing and approving the equipment lease, security agreement, and nondisturbance agreement, including without limitation, reasonable attorneys' fees and costs. ARTICLE VIII ALTERATIONS AND SIGNS; TENANT'S PROPERTY; CAPITAL ADDITIONS TO THE LEASED PROPERTY 8.01 Tenant's Right to Construct. During the Term of this Agreement, so long as no Event of Default shall have occurred and be continuing as to the Leased Property that is the subject of such improvements, Tenant may make Capital Additions (as defined herein), or other alterations, additions, changes and/or improvements to any Leased Property as deemed necessary or useful to operate the Leased Property as a correction or detention facility (the "Primary Intended Use") (individually, a "Tenant Improvement," or collectively, "Tenant Improvements") with the prior written consent of the Landlord, which will not be unreasonably withheld or delayed. "Capital Additions" shall mean the construction of one or more new buildings or one or more additional structures annexed to any portion of any of the Improvements on a particular Leased Property, which are constructed on any parcel of land or portion of the Land of a particular Leased Property during the Term of any individual Lease, including the construction of a new floor, or the repair, replacement, restoration, remodeling or rebuilding of the Improvements or any portion thereof on any Leased Property which are not normal, ordinary or recurring to maintain the Leased Property. Except as otherwise agreed to by Landlord in writing, any such Tenant Improvement shall be made at Tenant's sole expense and shall become the property of Landlord upon termination of this Lease. Unless made on an emergency basis to prevent injury to person or property, Tenant will submit plans to Landlord for Landlord's prior approval, such approval not to be unreasonably withheld or delayed, for any Tenant Improvement which is not a Capital Addition and which has a cost of more than $500,000 or a cost which, when aggregated with the costs of all such Tenant Improvements for any individual Leased Facility in the same Lease Year, would cause the total costs of all such Tenant Improvements to exceed $1,000,000. Such $500,000 and $1,000,000 amounts shall be increased by four percent (4%) per annum, cumulatively for each subsequent Lease Year. Additionally, in connection with any Tenant Improvement, including any Capital Addition, Tenant shall provide Landlord with copies of any plans and specification therefor, Tenant's budget relating thereto, any required government permits or approvals, any construction contracts or agreements relating thereto, and any other information relating to such Tenant Improvement as Landlord shall reasonably request. 8.02 Scope of Right. Subject to Section 8.01 herein and Section 7.03 concerning required alterations, at Tenant's cost and expense, Tenant shall have the right to: -16- 22 (a) seek any governmental approvals, including building permits, licenses, conditional use permits and any certificates of need that Tenant requires to construct any Tenant Improvement; (b) erect upon the Leased Property such Tenant Improvements as Tenant deems desirable; (c) make additions, alterations, changes and improvements in any Tenant Improvement so erected; and (d) engage in any other lawful activities that Tenant determines are necessary or desirable for the development of the Leased Property in accordance with its Primary Intended Use; provided, however, Tenant shall not make any Tenant Improvement which would, in Landlord's reasonable judgment, impair the value or Primary Intended Use of any Leased Property without Landlord's prior written consent and provided, further that Tenant shall not be permitted to create a mortgage, lien or any other encumbrance on any individual Leased Property without Landlord's prior written consent. 8.03 Cooperation of Landlord. Landlord shall cooperate with Tenant and take such actions, including the execution and delivery to Tenant of any applications or other documents, reasonably requested by Tenant in order to obtain any governmental approvals sought by Tenant to construct any Tenant Improvement within ten (10) business days following the later of (a) the date Landlord receives Tenant's request, or (b) the date of delivery of any such application or document to Landlord, so long as the taking of such action, including the execution of said applications or documents, shall be without cost to Landlord (or if there is a cost to Landlord, such cost shall be reimbursed by Tenant), and will not cause Landlord to be in violation of any law, ordinance or regulation. 8.04 Commencement of Construction. Tenant agrees that: (a) Tenant shall diligently seek all governmental approvals relating to the construction of any Tenant Improvement; (b) Once Tenant begins the construction of any Tenant Improvement, Tenant shall diligently prosecute any such construction to completion in accordance with applicable insurance requirements and the laws, rules and regulations of all governmental bodies or agencies having jurisdiction over the Leased Property; (c) Landlord shall have the right at any time and from time to time to post and maintain upon the Leased Property such notices as may be necessary to protect Landlord's interest from mechanics' liens, materialmen's liens or liens of a similar nature; -17- 23 (d) Tenant shall not suffer or permit any mechanics' liens or any other claims or demands arising from the work of construction of any Tenant Improvement to be enforced against the Leased Property or any part thereof, and Tenant agrees to hold Landlord and said Leased Property free and harmless from all liability from any such liens, claims or demands, together with all costs and expenses in connection therewith; (e) All work shall be performed in a good and workmanlike manner consistent with standards in the industry; and (f) Subject to Section 8.09 in the case of Capital Additions, Tenant shall not secure any construction or other financing for the Tenant Improvements which is secured by a portion of the Leased Property without Landlord's prior written consent, and any such financing (i) shall not exceed the cost of the Tenant Improvements, (ii) shall be subordinate to any mortgage or encumbrance now existing or hereinafter created with respect to the Leased Property, and (iii) shall be limited solely to Tenant's interest in the Leased Property that is the subject of the improvements. 8.05 Rights in Tenant Improvements. Notwithstanding anything to the contrary in this Lease, all Tenant Improvements constructed pursuant to Section 8.01, any and all subsequent additions thereto and alterations and replacements thereof, shall be the sole and absolute property of Tenant during the Term of the particular Lease. Upon the expiration or early termination of any Lease, all such Tenant Improvements shall become the property of Landlord. Without limiting the generality of the foregoing, Tenant shall be entitled to all federal and state income tax benefits associated with any Tenant Improvement during the Term of this Agreement. 8.06 Personal Property. Tenant shall install, place, and use on the Leased Property such fixtures, furniture, equipment, inventory and other personal property in addition to the Fixtures as may be required or as Tenant may, from time to time, deem necessary or useful to operate the Leased Property as a correctional or detention facility. 8.07 Requirements for Personal Property. Tenant shall comply with all of the following requirements in connection with Personal Property: (a) With respect to each Leased Property, Tenant shall notify Landlord within one hundred twenty (120) days after each Lease Year of any additions, substitutions, or replacements of an item of Personal Property at such Leased Property which individually has a cost of more than $25,000.00 and shall furnish Landlord with such other information as Landlord may reasonably request from time to time. (b) The Personal Property shall be installed in a good and workmanlike manner, in compliance with all governmental laws, ordinances, rules, and regulations and all insurance requirements, and be installed free and clear of any mechanics' liens. -18- 24 (c) Tenant shall, at Tenant's sole cost and expense, maintain, repair, and replace the Personal Property. (d) Tenant shall, at Tenant's sole cost and expense, keep Personal Property insured against loss or damage by fire, vandalism and malicious mischief, sprinkler leakage, and other physical loss perils commonly covered by fire and extended coverage, boiler and machinery, and difference in conditions insurance in an amount not less than ninety percent (90%) of the then full replacement cost thereof. Tenant shall use the proceeds from any such policy for the repair and replacement of Personal Property. The insurance shall meet the requirements of Section 4.03. (e) Tenant shall pay all taxes applicable to Personal Property. (f) If Personal Property is damaged or destroyed by fire or any other case, Tenant shall promptly repair or replace Personal Property unless Tenant is entitled to and elects to terminate the Lease pursuant to Section 10.05. (g) Unless an Event of Default (or any event which, with the giving of notice of lapse of time, or both, would constitute an Event of Default) has occurred and remains uncured beyond any applicable grace period, Tenant may remove Personal Property from the Leased Property from time to time provided that (i) the items removed are not required to operate the Leased Property as a licensed correctional or detention facility (unless such items are being replaced by Tenant); and (ii) Tenant repairs any damage to the Leased Property resulting from the removal of Personal Property. (h) Tenant shall remove any of Tenant's personal property which does not constitute Personal Property hereunder, upon the termination or expiration of the Lease and shall repair any damage to the Leased Property resulting from the removal of Tenant's personal property. If Tenant fails to remove Tenant's personal property within ninety (90) days after the termination or expiration of the Lease, then Tenant shall be deemed to have abandoned Tenant's personal property, Tenant's personal property shall become the property of Landlord, and Landlord may remove, store and dispose of Tenant's personal property. In such event, Tenant shall have no claim or right against Landlord for such property or the value thereof regardless of the disposition thereof by Landlord. Tenant shall pay Landlord, upon demand, all expenses incurred by Landlord in removing, storing, and disposing of Tenant's personal property and repairing any damage caused by such removal. Tenant's obligations hereunder shall survive the termination or expiration of the Lease. Notwithstanding the foregoing, it is understood and agreed that all property constituting Personal Property hereunder shall be and/or become the sole and exclusive property of Landlord upon the expiration or termination of the Lease. (i) Tenant shall perform its obligations under any equipment lease or security agreement for Personal Property. -19- 25 8.08 Signs. Tenant may, at its own expense, erect and maintain identification signs at the Leased Property, provided such signs comply with all laws, ordinances, and regulations. Upon the occurrence of an Event of Default or the termination or expiration of a Lease, Tenant shall, within thirty (30) days after notice from Landlord, remove the signs and restore the applicable Leased Property to its original condition. 8.09 Financings of Capital Additions to a Leased Property. (a) Landlord may, but shall be under no obligation to, provide or arrange construction, permanent or other financing for a Capital Addition proposed to be made to any Leased Property by Tenant. Within thirty (30) days of receipt of such a request by Tenant, Landlord shall notify Tenant as to whether it will finance the proposed Capital Addition and, if so, the terms and conditions upon which it would do so, including the terms of any amendment to an individual Lease or a new lease agreement for such proposed Capital Addition. (b) If Landlord agrees to finance the proposed Capital Addition of Tenant, Tenant shall provide Landlord with the following: (i) all customary or other required loan documentation which may be required; (ii) any information, certificates, licenses, permits or documents requested by either Landlord or any lender with whom Landlord has agreed or may agree to provide financing which are necessary to confirm that Tenant will be able to use the Capital Addition upon completion thereof in accordance with the Primary Intended Use (as defined in Section 8.01), including all required, federal, state or local government licenses and approvals; (iii) a certificate from Tenant's architect, setting forth in reasonable detail the projected (or actual, if available) cost of the proposed Capital Addition; (iv) an amendment to this Lease, or a new lease agreement, duly executed and acknowledged, in form and substance satisfactory to Landlord and Tenant, and containing such provisions as may be necessary or appropriate, including without limitation, any appropriate changes in the legal description of the Land, the Rent, and other changes with respect to the Capital Addition; (v) a deed conveying title to Landlord to any land acquired for the purpose of constructing the Capital Addition, free and clear of any liens or encumbrances except those approved by Landlord and, both prior to and following completion of the Capital Addition, an as-built survey thereof satisfactory to Landlord; -20- 26 (vi) endorsements to any outstanding policy of title insurance covering the Leased Property or a supplemental policy of title insurance covering the Leased Property satisfactory in form and substance to Landlord (a) updating the same without any additional exceptions, except as may be permitted by Landlord; and (b) increasing the coverage thereof by an amount equal to the fair market value of the Capital Addition; (vii) if required by Landlord, (a) an owner's policy of title insurance insuring fee simple title to any land conveyed to Landlord pursuant to subparagraph (v), free and clear of all liens and encumbrances except those approved by Landlord and (b) a lender's policy of title insurance satisfactory in form and substance to Landlord and any lending institution advancing a portion of the cost of the Capital Addition; (viii) if required by Landlord, upon completion of the Capital Addition, an M.A.I. appraisal of the Leased Property indicating that the value of the Leased Property upon completion of the Capital Addition exceeds the fair market value of the Leased Property prior thereto by an amount not less than ninety-five percent (95%) of the cost of such Capital Addition; and (ix) such other certificates (including, but not limited to, endorsements, increasing the insurance coverage, if any, at the time required), documents, opinions of counsel, appraisals, surveys, certified copies of duly adopted resolutions of the board of directors of Tenant authorizing the execution and delivery of any amendment to an individual Lease or new lease agreement and any other instruments as may be reasonably required by Landlord and any lending institution advancing any portion of the cost of the Capital Addition. (c) Upon making a request to finance a Capital Addition, whether or not such financing is actually consummated, Tenant shall pay or agree to pay, upon demand, all reasonable costs and expenses of Landlord and any lending institution which has committed to finance such Capital Addition which have been paid or incurred by them in connection with the financing of the Capital Addition, including, but not limited to, (i) the fees and expenses of their respective counsel, (ii) all printing expenses, (iii) the amount of any filing, registration and recording taxes and fees, (iv) documentary stamp taxes, if any, (v) title insurance charges, appraisal fees, if any, rating agency fees, if any, (vi) commitment fees, if any, and (vii) costs of obtaining regulatory and governmental approvals for the construction, operation, use or occupancy of the Capital Addition. (d) (i) If Landlord and Tenant are unable to agree on the terms of the financing of a Capital Addition by Landlord, Tenant may undertake the cost of any such Capital Addition and seek construction, permanent or other financing from other sources. -21- 27 (ii) In the event Tenant shall construct any Capital Addition and shall have obtained construction, permanent or other financing in connection therewith from sources other than Landlord, as set forth in the foregoing Section 8.09(d)(i), Landlord shall have the option to acquire such Capital Addition for a period of three (3) years following the date Tenant first receives inmates in such Capital Addition ("Service Commencement Date"). The price at which Landlord may acquire such Capital Addition shall be the fair market value of the Capital Addition, as reasonably and mutually determined by Landlord and Tenant, provided, Landlord and Tenant agree that for the first two (2) years following the Service Commencement Date the fair market value of such Capital Addition shall be deemed to be equal to Tenant's actual costs and expenses to acquire, develop, design, construct and equip such Capital Addition ("Tenant's Cost"), as reflected on the books of Tenant, plus five percent (5%) of Tenant's Cost. Landlord's exercise of such option shall require Landlord to acquire such Capital Addition on such terms and conditions as Landlord and Tenant shall reasonably agree, which shall be generally consistent with the terms and conditions of Landlord's initial acquisition of the related Leased Property from Tenant. Upon such acquisition, Landlord shall lease such Capital Addition to Tenant on the terms and conditions set forth herein, and Landlord and Tenant shall execute a new Lease, or an amendment to the existing Lease, with respect thereto. In such case, for acquisitions of Capital Additions within five (5) years of the date hereof, the annual Base Rent shall be the greater of (i) the fair market rental value of the Capital Addition, as reasonably and mutually determined by Landlord and Tenant and (ii) eleven percent (11%) of the purchase price of such Capital Addition. For Capital Additions thereafter, the Base Rent shall be the fair market rental value of the Capital Addition, as reasonably and mutually determined by Landlord and Tenant. Regardless of whether the foregoing option is exercised, all Capital Additions shall become the property of Landlord upon the expiration or termination of this Lease. ARTICLE IX DEFAULTS AND REMEDIES 9.01 Events of Default. The occurrence of any one or more of the following shall be an event of default ("Event of Default") hereunder: (a) Tenant fails to pay in full any installment of Rent, or any other monetary obligation payable by Tenant to Landlord under a Lease, within fifteen (15) days after notice of nonpayment from Landlord; (b) Tenant fails to observe and perform any other covenant, condition or agreement under this Agreement or a Lease to be performed by Tenant (except those described in Section 9.01(a) of this Agreement) and such failure continues for a period of thirty (30) days after written notice thereof is given to Tenant by Landlord; or if, by reason of the nature of such default, the same cannot with due diligence be remedied within said thirty (30) days, such failure will not be deemed to continue if Tenant proceeds promptly and -22- 28 with due diligence to remedy the failure and diligently completes the remedy thereof; provided, however, said cure period will not extend beyond thirty (30) days if the facts or circumstances giving rise to the default are creating a further harm to Landlord or the Leased Property and Landlord makes a good faith determination that Tenant is not undertaking remedial steps that Landlord would cause to be taken if such Lease were then to terminate; (c) If Tenant: (a) admits in writing its inability to pay its debts generally as they become due, (b) files a petition in bankruptcy or a petition to take advantage of any insolvency act, (c) makes an assignment for the benefit of its creditors, (d) is unable to pay its debts as they mature, (e) consents to the appointment of a receiver of itself or of the whole or any substantial part of its property, or (f) files a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state thereof; (d) If Tenant, on a petition in bankruptcy filed against it, is adjudicated as bankrupt or a court of competent jurisdiction enters an order or decree appointing, without the consent of Tenant, a receiver of Tenant of the whole or substantially all of its property, or approving a petition filed against it seeking reorganization or arrangement of Tenant under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state thereof, and such judgment, order or decree is not vacated or set aside or stayed within ninety (90) days from the date of the entry thereof; (e) If the estate or interest of Tenant in any Leased Property or any part thereof is levied upon or attached in any proceeding and the same is not vacated or discharged within the later of ninety (90) days after commencement thereof or thirty (30) days after receipt by Tenant of notice thereof from Landlord (unless Tenant is contesting such lien or attachment in accordance with this Agreement); (f) Any representation or warranty made by Tenant in the Agreement or any Lease or in any certificate, demand or request made pursuant to any Lease proves to be incorrect, in any material respect and any adverse effect on Landlord of any such misrepresentation or breach of warranty has not been corrected to Landlord's satisfaction within thirty (30) days after Tenant becomes aware of, or is notified by the Landlord of the fact of, such misrepresentation or breach of warranty; (g) A default by Tenant in any payment of principal or interest on any obligations for borrowed money having a principal balance of Twenty-Five Million Dollars ($25,000,000) or more in the aggregate (excluding obligations which are limited in recourse to specific property of Tenant provided that such property is not a substantial portion of the assets of Tenant and excluding any debt which is denominated as "subordinated debt"), or in the performance of any other provision contained in any instrument under which any such obligation is created or secured (including the breach of any covenant thereunder), if an -23- 29 effect of such default is that the holder(s) of such obligation cause such obligation to become due prior to its stated maturity; or (h) A final, non-appealable judgment or judgments for the payment of money in excess of Ten Million Dollars ($10,000,000) in the aggregate not fully covered (excluding deductibles) by insurance is rendered against Tenant and the same remains undischarged, unvacated, unbonded or unstayed for a period of one hundred twenty (120) consecutive days. Notwithstanding the foregoing, an Event of Default under the foregoing subsections (a), (c), (d), (g) and (h) shall constitute an Event of Default under all of the Leases and an Event of Default under the foregoing subsections (b), (e) and (f) shall constitute an Event of Default only with respect to the specific Lease and Leased Property to which such Event of Default applies. Provided, with respect to the Events of Default under the foregoing subsections (b), (e) and (f), if such Events of Default shall at any time be applicable to Leased Properties for which the monthly Base Rent constitutes, in the aggregate, greater than twenty-five percent (25%) of the monthly Base Rent for all of the Leased Properties, then such Events of Default shall constitute Events of Default under all of the Leases. 9.02 Remedies. To the extent any Event of Default is applicable only to a specific Lease or Leases, or a specific Leased Property or Leased Properties (in accordance with Section 9.01 above), the remedies set forth herein shall be exercisable solely with respect to such Lease or Leases, or Leased Property or Leased Properties, and shall not be exercisable with respect to any other Leases or Leased Property. To the extent any Event of Default constitutes an Event of Default under all of the Leases (in accordance with Section 9.01 above), the remedies set forth herein shall be exercisable with respect to all of the Leases and all of the Leased Properties. Subject to the foregoing provisions, Landlord may exercise any one or more of the following remedies upon the occurrence of an Event of Default: (a) Landlord may terminate the applicable Lease, exclude Tenant from possession of the subject Leased Property and use reasonable efforts to lease such Leased Property to others. If any Lease is terminated pursuant to the provisions of this subparagraph (a), Tenant will remain liable to Landlord for damages in an amount equal to the Rent and other sums which would have been owing by Tenant under such Lease for the balance of the Term if the Lease had not been terminated, less the net proceeds, if any, of any re-letting of the subject Leased Property by Landlord subsequent to such termination, after deducting all Landlord's expenses in connection with such re-letting, including without limitation, the expenses set forth in Section 9.02(b)(2) below. Landlord will be entitled to collect such damages from Tenant monthly on the days on which the Rent and other amounts would have been payable under the subject Lease if such Lease had not been terminated and Landlord will be entitled to receive such damages from Tenant on each such day. Alternatively, at the option of Landlord, if such Lease is terminated, Landlord will be entitled to recover from Tenant (a) all unpaid Rent then due and payable, and (b) the worth at the time of the award (as hereafter defined) of the Rent which would have been due and payable from the date of termination -24- 30 through the Expiration Date as if the Lease had not been terminated. The "worth at the time of award" of the amount referred to in clause (b) is computed at "present value" using New York Prime Rate. For purposes of this Agreement, "New York Prime Rate" shall mean that rate of interest identified as prime or national prime by the Wall Street Journal, or if not published or found, then the rate of interest charged by the American bank with the greatest number of assets on ninety (90) day unsecured notes to its preferred customers. For the purpose of determining unpaid Rent under clause (b), the Rent reserved in the Lease will be deemed to be the sum of the following: (i) the Base Rent computed pursuant to Section 2.01; (ii) the Additional Rent computed pursuant to Section 2.02; and (iii) the Other Additional Rent computed pursuant to Section 2.02.01. Such computation of Other Additional Rent shall be based on the Other Additional Rent paid for the Lease Year preceding the date of termination, increased by 4% per year thereafter. Following payments by Tenant of the foregoing amounts, Landlord shall deliver and pay over to Tenant all rent, income, and other proceeds of any nature realized from the sale, lease or other disposition or utilization of the Leased Premises, if any, actually received by Landlord, up to the amounts so paid by Tenant less Landlord's reasonably incurred costs and expenses of maintaining and re-leasing or selling the Leased Premises. (b) (1) Without demand or notice, Landlord may re-enter and take possession of the applicable Leased Property or any part of such Leased Property; and repossess such Leased Property as of the Landlord's former estate; and expel the Tenant and those claiming through or under Tenant from such Leased Property; and, remove the effects of both or either, without being deemed guilty of any manner of trespass and without prejudice to any remedies for arrears of Rent or preceding breach of covenants or conditions. If Landlord elects to re-enter, as provided in this paragraph (b) or if Landlord takes possession of such Leased Property pursuant to legal proceedings or pursuant to any notice provided by law, Landlord may, from time to time, without terminating the subject Lease, re-let such Leased Property or any part of such Leased Property, either alone or in conjunction with other portions of the Improvements of which such Leased Property are a part, in Landlord's name but for the account of Tenant, for such term or terms (which may be greater or less than the period which would otherwise have constituted the balance of the Term of this Lease) and on such terms and conditions (which may include concessions of free rent, and the alteration and repair of such Leased Property) as Landlord, in its uncontrolled discretion, may determine. Landlord may collect and receive the Rents for such Leased Property. Landlord will not be responsible or liable for any failure to re-let such Leased Property, or any part of such Leased Property, or for any failure to collect any Rent due upon such re-letting. No such re-entry or taking possession of such Leased Property by Landlord will be construed as an election on Landlord's part to terminate this Lease unless a written notice of such intention is given to Tenant. No notice from Landlord under this Lease or under a forcible entry and detainer statute or similar law will constitute an election by Landlord to terminate this Lease unless such notice specifically says so. Landlord reserves the right following any such re-entry or re-letting, or both, to exercise its right to terminate this Lease by giving Tenant such written notice, and, in that event such Lease will terminate as specified in such notice. -25- 31 (2) If Landlord elects to take possession of such Leased Property according to this subparagraph (b) without terminating such Lease, Tenant will pay Landlord (i) the Rent, Additional Rent and other sums which would be payable under such Lease if such repossession had not occurred, less (ii) the net proceeds, if any, of any re-letting of such Leased Property after deducting all of Landlord's expenses incurred in connection with such re-letting, including without limitation, all repossession costs, brokerage commissions, legal expense, attorneys' fees, expense of employees, alteration, remodeling, repair costs, and expense of preparation for such re-letting. If, in connection with any re-letting, the new Lease term extends beyond the existing Term or such Leased Property covered by such re-letting includes areas which are not part of such Leased Property, a fair apportionment of the Rent received from such re-letting and the expenses incurred in connection with such re-letting will be made in determining the net proceeds received from such re-letting. In addition, in determining the net proceeds from such re-letting, any rent concessions will be apportioned over the term of the new Lease. Tenant will pay such amounts to Landlord monthly on the days on which the Rent and all other amounts owing under this Agreement or such Lease would have been payable if possession had not been retaken, and Landlord will be entitled to receive the rent and other amounts from Tenant on each such day. (c) Landlord may re-enter the applicable Leased Property and have, repossess and enjoy such Leased Property as if such Lease had not been made, and in such event, Tenant and its successors and assigns shall remain liable for any contingent or unliquidated obligations or sums owing at the time of such repossession. (d) Landlord may take whatever action at law or in equity as may appear necessary or desirable to collect the Rent and other amounts payable under the applicable Lease then due and thereafter to become due, or to enforce performance and observance of any obligations, agreements or covenants of Tenant under such Lease. 9.03 Right of Set-Off. Landlord may, and is hereby authorized by Tenant, at any time and from time to time, after advance notice to Tenant, to set-off and apply any and all sums held by Landlord, including all sums held in any escrow for Impositions, any indebtedness of Landlord to Tenant, and any claims by Tenant against Landlord, against any obligations of Tenant under this Agreement or any Lease and against any claims by Landlord against Tenant, whether or not Landlord has exercised any other remedies hereunder. The rights of Landlord under this Section are in addition to any other rights and remedies Landlord may have against Tenant. 9.04 Performance of Tenant's Covenants. Landlord may perform any obligation of Tenant which Tenant has failed to perform within two (2) days after Landlord has sent a written notice to Tenant informing it of its specific failure (provided no such notice shall be required if Landlord has previously notified Tenant of such failure under the provisions of Section 9.01). Tenant shall reimburse Landlord on demand, as Other Additional Rent, for any expenditures thus incurred by Landlord and shall pay interest thereon at the New York Prime Rate (as herein defined). -26- 32 9.05 Late Charge. Any payment not made by Tenant for more than ten (10) days after the due date shall be subject to a late charge payable by Tenant as Rent of three percent (3%) of the amount of such overdue payment. 9.06 Litigation; Attorneys' Fees. Within ten (10) days after Tenant has knowledge of any litigation or other proceeding that may be instituted against Tenant, against any Leased Property to secure or recover possession thereof, or that may affect the title to or the interest of Landlord in such Leased Property, Tenant shall give written notice thereof to Landlord. Within thirty (30) days of Landlord's presentation of an invoice, Tenant shall pay all reasonable costs and expenses incurred by Landlord in enforcing or preserving Landlord's rights under this Agreement and each Lease, whether or not an Event of Default has actually occurred or has been declared and thereafter cured, including without limitation, (i) the fees, expenses, and costs of any litigation, receivership, administrative, bankruptcy, insolvency or other similar proceeding; (ii) reasonable attorney, paralegal, consulting and witness fees and disbursements; and (iii) the expenses, including without limitation, lodging, meals, and transportation, of Landlord and its employees, agents, attorneys, and witnesses in preparing for litigation, administrative, bankruptcy, insolvency or other similar proceedings and attendance at hearings, depositions, and trials in connection therewith. All such costs, charges and fees as incurred shall be deemed to be Other Additional Rent under this Agreement. 9.07 Remedies Cumulative. The remedies of Landlord herein are cumulative to and not in lieu of any other remedies available to Landlord at law or in equity. The use of any one remedy shall not be taken to exclude or waive the right to use any other remedy. 9.08 Escrows and Application of Payments. As security for the performance of its obligations hereunder, Tenant hereby assigns to Landlord all its right, title and interest in and to all monies escrowed with Landlord under this Agreement or under any Lease and all deposits with utility companies, taxing authorities, and insurance companies; provided, however, that Landlord shall not exercise its rights hereunder until an Event of Default has occurred. Any payments received by Landlord under any provisions of this Agreement or under any Lease during the existence, or continuance of an Event of Default shall be applied to Tenant's obligations in the order which Landlord may determine. 9.09 Power of Attorney. Tenant hereby irrevocably and unconditionally appoints Landlord, or Landlord's authorized officer, agent, employee or designee, as Tenant's true and lawful attorney-in-fact, to act, after an Event of Default, for Tenant in Tenant's name, place, and stead, and for Tenant's and Landlord's use and benefit, to execute, deliver and file all applications and any and all other necessary documents or things, to effect a transfer, reinstatement, renewal and/or extension of any and all licenses and other governmental authorizations issued to Tenant in connection with Tenant's operation of any Leased Property, and to do any and all other acts incidental to any of the foregoing. Tenant irrevocably and unconditionally grants to Landlord as its attorney-in-fact full power and authority to do and perform, after an Event of Default, every act necessary and proper to be done in the exercise of any of the foregoing powers as fully as Tenant might or could do if -27- 33 personally present or acting, with full power of substitution, hereby ratifying and confirming all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is coupled with an interest and is irrevocable prior to the full performance of the Tenant's obligations under this Agreement and each Lease. ARTICLE X DAMAGE AND DESTRUCTION 10.01 General. Tenant shall notify Landlord if any of the Leased Property is damaged or destroyed by reason of fire or any other cause. Tenant shall promptly repair, rebuild, or restore the Leased Property, at Tenant's expense, so as to make the Leased Property at least equal in value to the Leased Property existing immediately prior to such occurrence and as nearly similar to it in character as is practicable and reasonable. Before beginning such repairs or rebuilding, or letting any contracts in connection with such repairs or rebuilding, Tenant will submit for Landlord's approval, which approval Landlord will not unreasonably withhold or delay, complete and detailed plans and specifications for such repairs or rebuilding. Promptly after receiving Landlord's approval of the plans and specifications, Tenant will begin such repairs or rebuilding and will prosecute the repairs and rebuilding to completion with diligence, subject, however, to strikes, lockouts, acts of God, embargoes, governmental restrictions, and other causes beyond Tenant's reasonable control. Landlord will make available to Tenant the net proceeds of any fire or other casualty insurance paid to Landlord for such repair or rebuilding as the same progresses, after deduction of any costs of collection, including attorneys' fees. Payment will be made against properly certified vouchers of a competent architect in charge of the work and approved by Landlord. Prior to commencing the repairing or rebuilding, Tenant shall deliver to Landlord for Landlord's approval a schedule setting forth the estimated monthly draws for such work. Landlord will contribute to such payments out of the insurance proceeds an amount equal to the proportion that the total net amount received by Landlord from insurers bears to the total estimated cost of the rebuilding or repairing, multiplied by the payment by Tenant on account of such work. Landlord may, however, withhold ten percent (10%) from each payment until (i) the work of repairing or rebuilding is completed and proof has been furnished to Landlord that no lien or liability has attached or will attach to the Leased Property or to Landlord in connection with such repairing or rebuilding, (ii) Tenant has obtained a certificate of use and occupancy (or its functional equivalent) for the portion of the Leased Premises repaired or rebuilt and (iii) if Tenant has an agreement with any governmental authority for the detention of inmates at such Leased Property which requires such governmental authority to approve such repairs or rebuilding, such approval shall have been obtained. Upon the completion of rebuilding or repairing and the furnishing of such proof, the balance of the net proceeds of such insurance payable to Tenant on account of such repairing or rebuilding will be paid to Tenant. Tenant will obtain and deliver to Landlord a temporary or final certificate of occupancy before the Leased Property is reoccupied for any purpose. Tenant shall complete such repairs or rebuilding free and clear of mechanic's or other liens, and in accordance with the building codes and all applicable laws, ordinances, regulations, or orders of any state, municipal, or other public authority affecting the repairs or rebuilding, and also in accordance with all requirements of the insurance rating -28- 34 organization, or similar body. Any remaining proceeds of insurance after such restoration will be Tenant's property. 10.02 Landlord's Inspection. During the progress of such repairs or rebuilding, Landlord and its architects and engineers may, from time to time, inspect the Leased Property and will be furnished, if required by them, with copies of all plans, shop drawings, and specifications relating to such repairs or rebuilding. Tenant will keep all plans, shop drawings, and specifications available, and Landlord and its architects and engineers may examine them at all reasonable times. If, during such repairs or rebuilding, Landlord and its architects and engineers determine that the repairs or rebuilding are not being done in accordance with the approved plans and specifications, Landlord will give prompt notice in writing to Tenant, specifying in detail the particular deficiency, omission, or other respect in which Landlord claims such repairs or rebuilding do not accord with the approved plans and specifications. Upon the receipt of any such notice, Tenant will cause corrections to be made to any deficiencies, omissions, or such other respect. Tenant's obligations to supply insurance, according to Article IV, will be applicable to any repairs or rebuilding under this Section. 10.03 Landlord's Costs. Tenant shall, within thirty (30) days after receipt of an invoice from Landlord, pay the reasonable costs, expenses, and fees of any architect or engineer employed by Landlord to review any plans and specifications and to supervise and approve any construction, or for any services rendered by such architect or engineer to Landlord as contemplated by any of the provisions of this Agreement, or for any services performed by Landlord's attorneys in connection therewith; provided, however, that Landlord will consult with Tenant and notify Tenant of the estimated amount of such expenses. 10.04 Rent Abatement. In the event that the provisions of Section 10.01 above shall become applicable, the Rent, real estate taxes and other Impositions shall be abated or reduced proportionately during any period in which, by reason of such damage or destruction, there is substantial interference with the operation of the business of Tenant in the Leased Property, having regard to the extent to which Tenant may be required to discontinue its business in the Leased Property, and such abatement or reduction shall continue for the period commencing with such destruction or damage and ending with the substantial completion (defined below) by Tenant of such work or repair and/or reconstruction. In the event that only a portion of any Leased Property is rendered untenantable or incapable of such use, the Base Rent and all real estate taxes and other Impositions payable hereunder shall be reduced on a pro rata basis for the amount that the correctional or detention facility at a particular Leased Property is rendered incapable of occupancy because of such damage or destruction in proportion to the total size of the Leased Property prior to such damage or destruction. For purposes of this paragraph, substantial completion shall occur upon the earlier of (i) nine (9) months from the date of the first disbursement of insurance proceeds, or (ii) the issuance of a certificate of occupancy for the Leased Property. Notwithstanding any other provision hereof, such rental abatement shall be limited to the amount of any rental or business interruption insurance proceeds actually received by Landlord. -29- 35 10.05 Substantial Damage During Lease Term. Provided Tenant has fully complied with Section 4.01 hereof (including actually maintaining in effect rental value insurance or business interruption insurance provided for in clause (c) thereof) and has satisfied the conditions of the last sentence of this Section 10.05, if, at any time during the Term of the particular Lease, the Leased Property is so damaged by fire or otherwise that more than fifty percent (50%) of the correctional or detention facility at the Leased Property is rendered unusable, Tenant may, within thirty (30) days after such damage, give notice of its election to terminate the Lease subject to the particular Leased Property and, subject to the further provisions of this Section, such Lease will cease on the tenth (10th ) day after the delivery of such notice. If the Lease is so terminated, Tenant will have no obligation to repair, rebuild or replace the Leased Property, and the entire insurance proceeds will belong to Landlord. If the Lease is not so terminated, Tenant shall rebuild the Leased Property in accordance with Section 10.01. If Tenant elects to terminate any Lease pursuant to this Section 10.05, Tenant will pay (or cause to be paid) to Landlord, an amount equal to the difference between the amount of all insurance proceeds received by Landlord, and the net book value of such Leased Property as shown in Landlord's financial statements as of the date of such termination. 10.06 Damage Near End of Term. Notwithstanding any provisions of Section 10.01 to the contrary, if damage to or destruction of the Leased Property occurs during the last twenty-four (24) months of the Term, and if such damage or destruction cannot be fully repaired and restored within six (6) months immediately following the date of loss, either party shall have the right to terminate this Lease by giving notice to the other within thirty (30) days after the date of damage or destruction, in which event Landlord shall be entitled to retain the insurance proceeds and Tenant shall pay to Landlord on demand the amount of any deductible or uninsured loss arising in connection therewith; provided, however, that any such notice given by Landlord shall be void and of no force and effect if Tenant exercises an available option to extend the Term pursuant to provisions of the Lease for such Leased Property within thirty (30) days following receipt of such termination notice. ARTICLE XI CONDEMNATION 11.01 Total Taking. If at any time during the Term any Leased Property is totally and permanently taken by right of eminent domain or by conveyance made in response to the threat of the exercise of such right ("Condemnation"), the applicable Lease shall terminate on the Date of Taking (which shall mean the date the condemning authority has the right to possession of the property being condemned), and Tenant shall promptly pay all outstanding rent and other charges through the date of termination, provided, however the applicable Lease shall not so terminate if the Condemnation occurred due to the failure of Tenant to maintain the Leased Property as required by Article VII of this Agreement or other applicable provision of this Agreement, whether or not such failure on the part of Tenant constituted an Event of Default under an individual Lease at the time of the Condemnation. -30- 36 11.02 Partial Taking. If a portion of any Leased Property is taken by Condemnation, the subject Lease shall remain in effect if such Leased Property is not thereby rendered Unsuitable for its Primary Intended Use (which shall mean that the Leased Property is in such a state or condition such that in the good faith judgment of Tenant, reasonably exercised, the Leased Property cannot be operated on a commercially practicable basis as a correctional or detention facility), but if such Leased Property is thereby rendered Unsuitable for its Primary Intended Use, such Lease shall terminate on the Date of Taking, provided such Condemnation was not as a result of Tenant's failure to maintain the Leased Property as provided for in Section 11.01. 11.03 Restoration. If there is a partial taking of any Leased Property and the subject Lease remains in full force and effect pursuant to Section 11.02, Landlord shall furnish to Tenant the amount of the Award payable to Landlord, as provided herein, in order for Tenant to accomplish all necessary restoration. If Tenant receives an Award under Section 11.05, Tenant shall repair or restore any Tenant Improvements up to but not exceeding the amount of the Award payable to Tenant therefor. Before beginning such restoration, or letting any contracts in connection with such restoration, Tenant will submit for Landlord's approval, which approval Landlord will not unreasonably withhold or delay, complete and detailed plans and specifications for such restoration. Promptly after receiving Landlord's approval of the plans and specifications, Tenant will begin such restoration and will prosecute the repairs and rebuilding to completion with diligence, subject, however, to strikes, lockouts, acts of God, embargoes, governmental restrictions, and other causes beyond Tenant's reasonable control. Landlord will make available to Tenant the net proceeds of any Award paid to Landlord for such restoration, after deduction of any costs of collection, including attorneys' fees. Payment will be made against properly certified vouchers of a competent architect in charge of the work and approved by Landlord. Prior to commencing the restoration, Tenant shall deliver to Landlord for Landlord's approval a schedule setting forth the estimated monthly draws for such work. Landlord may, however, withhold ten percent (10%) from each payment until the work of restoration is completed and proof has been furnished to Landlord that no lien or liability has attached or will attach to the Leased Property or to Landlord in connection with such restoration. Upon the completion of restoration and the furnishing of such proof, the balance of the Award will be paid to Tenant. Tenant will obtain and deliver to Landlord a temporary or final certificate of occupancy before the Leased Property is reoccupied for any purpose. Tenant shall complete such restoration free and clear of mechanic's or other liens, and in accordance with the building codes and all applicable laws, ordinances, regulations, or orders of any state, municipal, or other public authority affecting the restoration, and also in accordance with all requirements of the insurance rating organization, or similar body. Any remaining proceeds of the Award after such restoration will be Tenant's property. 11.04 Landlord's Inspection. During the progress of such restoration, Landlord and its architects and engineers may, from time to time, inspect the Leased Property and will be furnished, if required by them, with copies of all plans, shop drawings, and specifications relating to such restoration. Tenant will keep all plans, shop drawings, and specifications available, and Landlord and its architects and engineers may examine them at all reasonable times. If, during such restoration, Landlord and its architects and engineers determine that the restoration is not being done in -31- 37 accordance with the approved plans and specifications, Landlord will give prompt notice in writing to Tenant, specifying in detail the particular deficiency, omission, or other respect in which Landlord claims such restoration does not accord with the approved plans and specifications. Upon the receipt of any such notice, Tenant will cause corrections to be made to any deficiencies, omissions, or such other respect. Tenant's obligations to supply insurance, according to Article IV, will be applicable to any restoration under this Section. 11.05 Award Distribution. The entire compensation, sums or anything of value awarded, paid or received on a total or partial Condemnation (the "Award") shall belong to and be paid to Landlord, except that, subject to the rights of any mortgagee of Tenant, Tenant shall be entitled to receive from the Award, if and to the extent such Award specifically includes such items, a sum attributable to the value, if any, of: (i) any Tenant Improvements, and (ii) the leasehold interest of Tenant under the subject Lease; provided, however, that if the amount received by Landlord and said mortgagee is less than the Condemnation Threshold (which shall mean, as of any given date, an amount equal to the net book value of such Leased Property as shown on the financial statements of Landlord as of the date of the Condemnation), then the amount of the Award otherwise payable to Tenant for the value of its leasehold interest under this Lease (and not any other funds of Tenant) shall instead be paid over to Landlord up to the amount of the shortfall. 11.06 Temporary Taking. The taking of any Leased Property, or any part thereof, by military or other public authority shall constitute a taking by Condemnation only when the use and occupancy by the taking authority has continued for longer than six (6) months. During any such six (6) month period, which shall be a temporary taking, all the provisions of the subject Lease shall remain in full force and effect with no abatement of rent payable by Tenant hereunder. In the event of any such temporary taking, the entire amount of any such Award made for such temporary taking allocable to the Term of such Lease, whether paid by way of damages, rent or otherwise, shall be paid to Tenant. ARTICLE XII TENANT'S RIGHT OF FIRST REFUSAL 12.01 Rights of First Refusal. Subject to the terms and conditions set forth in this Section 12.01 and provided that no Event of Default with respect to the subject Leased Property has occurred and is continuing at such time or at the expiration of this Agreement or the individual Lease, Tenant shall have a right of first refusal (the "Purchase Refusal Right") to purchase any Leased Property (including any Leased Property owned by an Affiliate [as defined in Section 13.01 hereof] of Landlord). If during the Term or for a period of ninety (90) days following termination of any Lease, Landlord or any Affiliate of Landlord receives a bona fide third party offer to Transfer any Leased Property, then, prior to accepting such third party offer, Landlord shall send written notice and a copy thereof to Tenant ("Landlord's Notice"). Tenant shall have ninety (90) days after receipt of Landlord's Notice to exercise Tenant's Purchase Refusal Right, by giving Landlord written notice thereof. Failure of Tenant to exercise the Purchase Refusal Right within such time period set forth -32- 38 above shall be deemed to extinguish the Purchase Refusal Right for a period of one hundred eighty (180) days. Thereafter, prior to the expiration of such one hundred eighty (180) days, Landlord or its Affiliates may Transfer such Leased Property provided however, that the Transfer of the Leased Property is at a price equal to or greater than the price contained in the Landlord's Notice, and otherwise consistent in all material respects with the terms and conditions set forth in Landlord's Notice. Tenant's Purchase Refusal Right shall revive in the event that Landlord fails to Transfer the Leased Property within said one hundred eighty (180) days. In the event that Tenant elects to exercise the Purchase Refusal Right and to acquire the Leased Property thereby, (a) Tenant shall acquire such Leased Property on the same terms and conditions and subject to all time periods and other limitations as provided in Landlord's Notice (provided, however, Tenant shall in all events have not less than ninety (90) days to close its acquisition of the Leased Property following its written notice exercising its Purchase Refusal Right), and (b) concurrently with such acquisition, the Lease of such Leased Property shall terminate (but Tenant shall remain liable to pay any unpaid Rent with respect to such Leased Property and all indemnifications and other provisions that survive the expiration of the individual Lease or of this Agreement shall continue in effect), and this Agreement shall be appropriately amended to reflect the termination of such Lease. Notwithstanding the foregoing provisions, the Purchase Refusal Right shall not be applicable to any Transfer of a Leased Property to any Affiliate of Landlord, so long as such Affiliate acquires such Leased Property subject to the Purchase Refusal Right. A "Transfer" is any direct or indirect sale, conveyance or other disposition, including any transfer of a controlling ownership interest in any owning partnership, limited liability company or corporation, and including any lease with a term in excess of five (5) years. 12.02 Restriction on Exercise of Purchase Refusal Right. Notwithstanding any other provision of this Article XII, Landlord shall not be required to Transfer any Leased Property, or any portion thereof, which is a real estate asset as defined in Section 856(c) (6) (B), or functionally equivalent successor provision, of the Code, to Tenant if Landlord's counsel advises Landlord that such Transfer may not be a sale of property described in Section 857(b) (6) (C), or functionally equivalent successor provision of the Code. If Landlord determines not to Transfer such property pursuant to the above sentence, Tenant's right, if any, to acquire any or all of such property shall continue and be exercisable, upon and subject to all applicable terms and conditions set forth in this Lease, at such time as the transaction, upon the advise of Landlord's tax counsel, would be a sale of property described in Section 857(b) (6) (C) of the Code, or functionally equivalent successor provision, and until such time Tenant shall lease the Leased Property for the lesser of the rent otherwise called for in the Lease or fair market rental. If the Transfer of the Leased Property is delayed pursuant to this section, Landlord will use its reasonable best efforts to Transfer such Leased Property to Tenant as soon as practicable in the next calendar year. -33- 39 ARTICLE XIII ASSIGNMENT AND SUBLETTING; ATTORNMENT 13.01 Prohibition Against Subletting and Assignment. Subject to Section 13.03, Tenant shall not, without the prior written consent of Landlord (which consent Landlord may grant or withhold in its sole and absolute discretion), assign, mortgage, pledge, hypothecate, encumber or otherwise transfer (except to an Affiliate of Tenant) (as defined) this Agreement or any Lease or any interest herein or therein, or all or any part of the Leased Property, or suffer or permit any Lease or the leasehold estate created thereby or any other rights arising under any Lease to be assigned, transferred, mortgaged, pledged, hypothecated or encumbered, in whole or in part, whether voluntarily, involuntarily or by operation of law (except to an Affiliate of Tenant). For purposes of this Section 13.01, an assignment of any Lease shall be deemed to include any Change of Control of Tenant, as if such Change of Control were an assignment of the Lease. No assignment shall in any way impair the continuing primary liability of Tenant hereunder. An "Affiliate" shall mean any Person directly or indirectly controlling, controlled by, or under common control with that Person. A "Person" shall mean and include natural persons, corporations, limited partnerships, general partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts, Indian tribes or other organizations, whether or not legal entities, and governments and agencies and political subdivisions thereof. 13.02 Changes of Control. A Change of Control requiring the consent of Landlord shall mean: (a) the issuance and/or sale by Tenant or the sale by any stockholder of Tenant of a Controlling (which shall mean, as applied to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise) interest in Tenant to a Person other than an Affiliate of Tenant, other than in either case a distribution to the public pursuant to an effective registration statement under the Securities Act of 1933, as amended (a "Registered Offering"); (b) the sale, conveyance or other transfer of all or substantially all of the assets of Tenant (whether by operation of law or otherwise); or (c) any transaction pursuant to which Tenant is merged with or consolidated into another entity (other than an entity owned and Controlled by an Affiliate of Tenant), and Tenant is not the surviving entity. -34- 40 13.03 Operating/Service Agreements. 13.03.01 Permitted Agreements. Tenant shall, without Landlord's prior approval, be permitted to enter into certain operating/service agreements for portions of any Leased Property to various licensees in connection with Tenant's operation of correctional or detention facilities as is customarily associated with or incidental to the operation of such Leased Property, which agreements may be in the nature of a sublease agreement. 13.03.02 Terms of Agreements. Each operating/service agreement concerning any of the Leased Property shall be subject and subordinate to the provisions of the applicable Lease. No agreement made as permitted by Section 13.03.01 shall affect or reduce any of the obligations of Tenant hereunder, and all such obligations shall continue in full force and effect as if no agreement had been made. No agreement shall impose any additional obligations on Landlord under the applicable Lease. 13.03.03 Copies. Tenant shall, within ten (10) days after the execution and delivery of any operating/service agreement permitted by Section 13.03.01, deliver a duplicate original thereof to Landlord. 13.03.04 Assignment of Rights in Agreements. As security for performance of its obligations under each Lease, Tenant hereby grants, conveys and assigns to Landlord all right, title and interest of Tenant in and to all operating/service agreements now in existence or hereinafter entered into for any or all of the applicable Leased Property, and all extensions, modifications and renewals thereof and all rents, issues and profits therefrom, to the extent the same are assignable by Tenant. Landlord hereby grants to Tenant a license to collect and enjoy all rents and other sums of money payable under any such agreement concerning any of such Leased Property; provided, however, that Landlord shall have the absolute right at any time after the occurrence and continuance of an Event of Default upon notice to Tenant and any vendors or licensees to revoke said license and to collect such rents and sums of money and to retain the same. Tenant shall not (i) after the occurrence and continuance of an Event of Default, consent to, cause or allow any material modification or alteration of any of the terms, conditions or covenants of any of the agreements or the termination thereof, without the prior written approval of Landlord nor (ii) accept any rents (other than customary security deposits) more than ninety (90) days in advance of the accrual thereof nor permit anything to be done, the doing of which, nor omit or refrain from doing anything, the omission of which, will or could be a breach of or default in the terms of any of the agreements. 13.03.05 Licenses, Etc. For purposes of Section 13.03, the operating/service agreements shall mean any licenses, concession arrangements, or other arrangements relating to the possession or use of all or any part of any Leased Property but specifically excluding any management agreement, facility operating agreement or other agreement for the housing or detention of inmates. 13.04 Assignment. No assignment shall in any way impair the continuing primary liability of Tenant hereunder, and no consent to any assignment in a particular instance shall be deemed to -35- 41 be a waiver of the prohibition set forth in Article XIII. Any assignment shall be solely of Tenant's entire interest in the subject Lease. Any assignment or other transfer of all or any portion of Tenant's interest in any Lease in contravention of Article XIII shall be voidable at Landlord's option. 13.05 REIT Limitations. Anything contained in this Agreement to the contrary notwithstanding, Tenant shall not (i) sublet or assign any Leased Property or any Lease on any basis such that the rental or other amounts to be paid by the sublessee or assignee thereunder would be based, in whole or in part, on the income or profits derived by the business activities of the sublessee or assignee; (ii) sublet or assign any Leased Property or any Lease to any person that Landlord owns, directly or indirectly (by applying constructive ownership rules set forth in Section 856(d) (5) of the Code), a ten percent (10%) or greater interest; or (iii) sublet or assign any Leased Property or any Lease in any other manner or otherwise derive any income which could cause any portion of the amounts received by Landlord pursuant to any Lease or any sublease to fail to qualify as "rents from real property" within the meaning of Section 856(d) of the Code, or which could cause any other income received by Landlord to fail to qualify as income described in Section 856(c) (2) of the Code. The requirements of this Section 13.05 shall likewise apply to any further subleasing by any subtenant. 13.06 Attornment. Tenant shall insert in each sublease permitted under Section 13.03.01 provisions to the effect that (a) such sublease is subject and subordinate to all of the terms and provisions of the applicable Lease (including this Agreement) and to the rights of Landlord hereunder, (b) in the event such Lease shall terminate before the expiration of such sublease, the sublessee thereunder will, at Landlords' option, attorn to Landlord and waive any right the sublessee may have to terminate the sublease or to surrender possession thereunder, as a result of the termination of such Lease, and (c) in the event the sublessee receives a written notice from Landlord or Landlord's assignees, if any, stating that Tenant is in default under such Lease, the sublessee shall thereafter be obligated to pay all rentals accruing under said sublease directly to the party giving such notice, or as such party may direct. All rentals received from the sublessee by Landlord or Landlord's assignees, if any, as the case may be, shall be credit against the amounts owing by Tenant under such Lease. 14.01 Controversies. Except with respect to the payment of Rent hereunder, which shall be subject to the provisions of Section 9.02, in the case a controversy arises between the parties as to any of the requirements of this Agreement or of any individual Lease or the performance thereunder which the parties are unable to resolve, the parties agree to waive the remedy of litigation (except for extraordinary relief in an emergency situation) and agree that such controversy or controversies shall be determined by arbitration as hereafter provided in this Article. -36- 42 ARTICLE XIV ARBITRATION 14.02 Appointment of Arbitrators. The party or parties requesting arbitration shall serve upon the other a demand therefor, in writing, specifying in detail the controversy and matter(s) to be submitted to arbitration. The selection of arbitrators shall be conducted pursuant to the rules for resolution of commercial disputes promulgated by the American Arbitration Association. The party or parties giving notice shall request a listing of available arbitrators from the American Arbitration Association, and each party shall respond in the selection process within fifteen (15) days after each receipt of such listings until a panel of three (3) arbitrators has been designated. If either party fails to respond within fifteen (15) days, it is agreed that the American Arbitration Association may make such selections as are necessary to complete the panel of three (3) arbitrators. 14.03 Arbitration Procedure. Within fifteen (15) days after the selection of the arbitration panel, the arbitrators shall give written notice to each party as to the time and the place of each meeting, which shall be held in Nashville, Tennessee, at which the parties may appear and be heard, which shall be no later than sixty (60) days after certification of the arbitration panel. The parties specifically waive discovery, and further waive the applicability of rules of evidence or rules of procedure in the proceedings. The applicable rules shall be those in effect at the time for the resolution of commercial disputes promulgated by the American Arbitration Association. Notwithstanding the foregoing, the substantive law governing the arbitration shall be the laws of the State of Tennessee. The arbitrators shall take such testimony and make such examination and investigations as the arbitrators reasonably deem necessary. The decision of the arbitrators shall be in writing signed by a majority of the panel which decision shall be final and binding upon the parties to the controversy. Provided, however, in rendering their decisions and making awards, the arbitrators shall not add to, subtract from or otherwise modify the provisions of this Agreement. 14.04 Expenses. The expenses of the arbitration shall be assessed by the arbitrators and specified in the written decision. In the absence of a determination or assessment of expenses of the arbitration procedure in the award, all of the expenses of such arbitration shall be divided equally between Landlord and Tenant. Each party in interest shall be responsible for and pay the fees, costs and expenses of its own counsel, unless the arbitration award provides for an assessment of reasonable attorneys' fees and costs. 14.05 Enforcement of the Arbitration Award. There shall be no appeal from the decision of the arbitrators, and upon the rendering of an award, any party thereto may file the arbitrators' decision in the United States District Court for the Middle District of Tennessee for enforcement as provided by applicable law. -37- 43 ARTICLE XV QUIET ENJOYMENT, SUBORDINATION, ATTORNMENT, ESTOPPEL CERTIFICATES 15.01 Quiet Enjoyment. So long as Tenant performs all of its obligations under this Agreement and each Lease, Tenant's possession of the Leased Property will not be disturbed by or through Landlord. 15.02 Landlord Mortgages; Subordination. Subject to Section 15.03, without the consent of Tenant, Landlord may, from time to time, directly or indirectly, create or otherwise cause to exist any lien, encumbrances or title retention agreement on the Leased Properties, or any portion thereof or any interest therein, whether to secure any borrowing or other means of financing or refinancing. This Agreement and each Lease and Tenant's rights under this Agreement and each Lease are subordinate to any ground lease or underlying lease, first mortgage, first deed of trust, or other first lien against any Leased Property, together with any renewal, consolidation, extension, modification or replacement thereof, which now or at any subsequent time affects any Leased Property or any interest of Landlord in any Leased Property, except to the extent that any such instrument expressly provides that this Agreement and each Lease is superior. This provision will be self-operative, and no further instrument or subordination will be required in order to effect it. However, Tenant shall execute, acknowledge and deliver to Landlord, at any time and from time to time upon demand by Landlord, such documents as may be requested by Landlord or any mortgagee or any holder of any mortgage or other instrument described in this Section, to confirm or effect any such subordination. If Tenant fails or refuses to execute, acknowledge, and deliver any such document within twenty (20) days after written demand, Landlord may execute, acknowledge and deliver any such document on behalf of Tenant as Tenant's attorney-in-fact. Tenant hereby constitutes and irrevocably appoints Landlord, its successors and assigns, as Tenant's attorney-in-fact to execute, acknowledge, and deliver on behalf of Tenant any documents described in this Section. This power of attorney is coupled with an interest and is irrevocable. 15.03 Attornment; Non-Disturbance. If any holder of any mortgage, indenture, deed of trust, or other similar instrument described in Section 15.02 succeeds to Landlord's interest in any Leased Property, Tenant will pay to such holder all Rent subsequently payable under the subject Lease. Tenant shall, upon request of anyone succeeding to the interest of Landlord, automatically become the tenant of, and attorn to, such successor in interest without changing such Lease. The successor in interest will not be bound by (i) any payment of Rent for more than one (1) month in advance; (ii) any amendment or modification of such Lease made without its written consent; (iii) any claim against Landlord arising prior to the date on which the successor succeeded to Landlord's interest; or (iv) any claim or offset of Rent against the Landlord. Upon request by Landlord or such successor in interest and without cost to Landlord or such successor in interest, Tenant will execute, acknowledge and deliver an instrument or instruments confirming the attornment. If Tenant fails or refuses to execute, acknowledge and deliver any such instrument within twenty (20) days after written demand, then Landlord or such successor in interest will be entitled to execute, acknowledge, -38- 44 and deliver any document on behalf of Tenant as Tenant's attorney-in-fact. Tenant hereby constitutes and irrevocably appoints Landlord, its successors and assigns, as Tenant's attorney-in-fact to execute, acknowledge, and deliver on behalf of Tenant any such document. This power of attorney is coupled with an interest and is irrevocable. Landlord shall use reasonable efforts to obtain a non-disturbance agreement from any such party referred to above which provides that in the event such party succeeds to Landlord's interest under the Lease and provided that no Event of Default by Tenant exists, such party will not disturb Tenant's possession, use or occupancy of the Leased Property. 15.04 Estoppel Certificates. At the request of Landlord or any mortgagee or purchaser of any Leased Property, Tenant shall execute, acknowledge, and deliver an estoppel certificate, in recordable form, in favor of Landlord or any mortgagee or purchaser of such Leased Property certifying the following: (i) that the subject Lease is unmodified and in full force and effect, or if there have been modifications that the same is in full force and effect as modified and stating the modifications; (ii) the date to which Rent and other charges have been paid; (iii) that neither Tenant nor Landlord is in default nor is there any fact or condition which, with notice or lapse of time, or both, would constitute a default, if that be the case, or specifying any existing default; (iv) that Tenant has accepted and occupies such Leased Property; (v) that Tenant has no defenses, set-offs, deductions, credits, or counterclaims against Landlord, if that be the case, or specifying such that exist; (vi) that the Landlord has no outstanding construction or repair obligations; and (vii) such other information as may reasonably be requested by Landlord or any mortgagee or purchaser. Any purchaser or mortgagee may rely on this estoppel certificate. If Tenant fails to deliver the estoppel certificates to Landlord within ten (10) days after the request of the Landlord, then Tenant shall be deemed to have certified that (a) such Lease is in full force and effect and has not been modified, or that such Lease has been modified as set forth in the certificate delivered to Tenant; (b) Tenant has not prepaid any Rent or other charges except for the current month; (c) Tenant has accepted and occupies such Leased Property; (d) neither Tenant nor Landlord is in default nor is there any fact or condition which, with notice or lapse of time, or both, would constitute a default; (e) Landlord has no outstanding construction or repair obligation; and (f) Tenant has no defenses, set-offs, deductions, credits, or counterclaims against Landlord. Tenant hereby irrevocably appoints Landlord as Tenant's attorney-in-fact to execute, acknowledge and deliver on Tenant's behalf any estoppel certificate which Tenant does not object to within twenty (20) days after Landlord sends the certificate to Tenant. This power of attorney is coupled with an interest and is irrevocable. ARTICLE XVI MISCELLANEOUS 16.01 Notices. Landlord and Tenant hereby agree that all notices, demands, requests, and consents (hereinafter "Notices") required to be given pursuant to the terms of this Lease shall be in writing and shall be addressed as follows: -39- 45 If to Tenant: Corrections Corporation of America 102 Woodmont Boulevard, Suite 800 Nashville, Tennessee 37205 Attention: Darrell K. Massengale With a copy to: Stokes & Bartholomew, P.A. 424 Church Street, Suite 2800 Nashville, Tennessee 37219 Attention: Elizabeth E. Moore If to Landlord: CCA Prison Realty Trust 2200 Abbott Martin Road Nashville, Tennessee 37215 Attention: Michael W. Devlin With a copy to: Sherrard & Roe, PLC 424 Church Street, Suite 2000 Nashville, Tennessee 37219 Attention: Kim A. Brown and shall be served by (i) personal delivery, (ii) certified mail, return receipt requested, postage prepaid, or (iii) nationally recognized overnight courier. All notices shall be deemed to be given upon the earlier of actual receipt or three (3) days after mailing, or one (1) business day after deposit with the overnight courier. Any Notices meeting the requirements of this Section shall be effective, regardless of whether or not actually received. Landlord or Tenant may change its notice address at any time by giving the other party Notice of such change. 16.02 Advertisement of Leased Property. In the event the parties hereto have not executed a renewal lease of any Leased Property within one (1) year prior to the expiration of the Term, then Landlord or its agent shall have the right to enter such Leased Property at all reasonable times for the purpose of exhibiting such Leased Property to others and to place upon such Leased Property for and during the period commencing two hundred ten (210) days prior to the expiration of the Term "for sale" or "for rent" notices or signs. 16.03 Landlord's Access. Landlord shall have the right to enter upon the Leased Property, upon reasonable prior notice to Tenant, for purposes of inspecting the same and assuring Tenant's compliance with this Agreement provided, any such entry by Landlord shall be subject to all rules, guidelines and procedures prescribed by Tenant in connection therewith. Landlord shall not be allowed entry to the Leased Premises unless accompanied by such of Tenant's personnel as Tenant shall require. 16.04 Entire Agreement. This Agreement and the individual Leases contain the entire agreement between Landlord and Tenant with respect to the subject matter hereof and thereof. No -40- 46 representations, warranties, and agreements have been made by Landlord except as set forth in this Agreement and the Leases. 16.05 Severability. If any term or provision of this Agreement or any Lease is held or deemed by Landlord to be invalid or unenforceable, such holding shall not affect the remainder of this Agreement or any Lease and the same shall remain in full force and effect, unless such holding substantially deprives Tenant of the use of the Leased Property or Landlord of the Rents therefor, in which event the Lease for such Leased Property shall forthwith terminate as if by expiration of the Term. 16.06 Captions and Headings. The captions and headings are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope of this Agreement or the intent of any provision hereof. 16.07 Governing Law. This Agreement and each of the Leases shall be construed under the laws of the State of Tennessee. 16.08 Memorandum of Lease. Landlord and Tenant agree that a record of this Agreement or any Lease may be recorded by either party in a memorandum of lease approved by Landlord and Tenant with respect to each Leased Property. 16.09 Waiver. No waiver by Landlord of any condition or covenant herein contained, or of any breach of any such condition or covenant, shall be held or take to be a waiver of any subsequent breach of such covenant or condition, or to permit or excuse its continuance or any future breach thereof or of any condition or covenant, nor shall the acceptance of Rent by Landlord at any time when Tenant is in default in the performance or observance of any condition or covenant herein be construed as a waiver of such default, or of Landlord's right to terminate this Agreement or any Lease or exercise any other remedy granted herein on account of such existing default. 16.10 Binding Effect. This Agreement and each Lease will be binding upon and inure to the benefit of the heirs, successors, personal representatives, and permitted assigns of Landlord and Tenant. 16.11 Authority. The persons executing this Agreement or any Lease on behalf of Tenant warrant that (i) Tenant has the power and authority to enter into this Agreement or such Lease; (ii) Tenant is qualified to do business in the state in which the Leased Property is located; and (iii) they are authorized to execute this Agreement and each Lease on behalf of Tenant. Tenant shall, at the request of Landlord, provide evidence satisfactory to Landlord confirming these representation. 16.12 Transfer of Permits, Etc. Upon the expiration or earlier termination of the Term of any Lease (whether pursuant to the provisions of this Agreement or of such Lease), Tenant shall, at the option of Landlord, transfer to and relinquish to Landlord or Landlord's nominee and to cooperate with Landlord or Landlords' nominee in connection with the processing by Landlord or such nominee -41- 47 of all licenses, operating permits, and other governmental authorization and all contracts, including without limitation, the correctional or detention facility license, and any other contracts with governmental or quasi-governmental entities which may be necessary or appropriate for the operation by Landlord or such nominee of the subject Leased Property for the purposes of operating a correctional or detention facility; provided that the costs and expenses of any such transfer or the processing of any such application shall be paid by Landlord or Landlord's nominee; and provided further that any management agreement, facility operating agreement or other agreement for the housing or detention of inmates shall be expressly excluded. Any such permits, licenses, certificates and contracts which are held in Landlord's name now or at the termination of such Lease shall remain the property of Landlord. To the extent permitted by law, Tenant hereby irrevocably appoints Landlord, its successors and assigns and any nominee or nominees specifically designated by Landlord or any successor or assign as Tenant's attorney-in-fact to execute, acknowledge, deliver and file all documents appropriate to such transfer or processing of any such application on behalf of Tenant; this power of attorney is coupled with an interest and is irrevocable. 16.13 Modification. This Agreement and any Lease may only be modified by a writing signed by both Landlord and Tenant. 16.14 Incorporation by Reference. All schedules and exhibits referred to in this Agreement are incorporated into this Agreement, and all schedules and exhibits referred to in any Lease (as well as the provisions of this Agreement, except to the extent specifically excluded from or inconsistent with the terms of such Lease) are incorporated into such Lease. 16.15 No Merger. The surrender of this Agreement or of any Lease by Tenant or the cancellation of this Agreement or of any Lease by agreement of Tenant and Landlord or the termination of this Agreement or of any Lease on account of Tenant's default will not work a merger, and will, at Landlord's option, terminate any subleases or operate as an assignment to Landlord of any subleases. Landlord's option under this paragraph will be exercised by notice to Tenant and all known subtenants of any applicable Leased Property. 16.16 Laches. No delay or omission by either party hereto to exercise any right or power accruing upon any noncompliance or default by the other party with respect to any of the terms hereof shall impair any such right or power or be construed to be a waiver thereof. 16.17 Waiver of Jury Trial. To the extent that there is any claim by one party against the other that is not to be settled by arbitration as provided in Article XIV hereof, Landlord and Tenant waive trial by jury in any action, proceeding or counterclaim brought by either of them against the other on all matters arising out of this Agreement or the use and occupancy of the Leased Property (except claims for personal injury or property damage). If Landlord commences any summary proceeding for nonpayment of Rent, Tenant will not interpose, and waives the right to interpose, any counterclaim in any such proceeding. -42- 48 16.18 Permitted Contests. Tenant, on its own or on Landlord's behalf (or in Landlord's name), but at Tenant's expense, may contest, by appropriate legal proceedings conducted in good faith and with due diligence, the amount or validity or application, in whole or in part, of any Imposition or any legal requirement or insurance requirement or any lien, attachment, levy, encumbrance, charge or claim provided that (i) in the case of an unpaid Imposition, lien, attachment, levy, encumbrance, charge or claim, the commencement and continuation of such proceedings shall suspend the collection thereof from Landlord and from the Leased Property; (ii) neither the Leased Property nor any Rent therefrom nor any part thereof or interest therein would be in any immediate danger of being sold, forfeited, attached or lost; (iii) in the case of a legal requirement, Landlord would not be in any immediate danger of civil or criminal liability for failure to comply therewith pending the outcome of such proceedings; (iv) in the event that any such contest shall involve a sum of money or potential loss in excess of Fifty Thousand Dollars ($50,000.00), Tenant shall deliver to Landlord and its counsel an opinion of Tenant's counsel to the effect set forth in clauses (i), (ii) and (iii), to the extent applicable; (v) in the case of a legal requirement and/or an Imposition, lien, encumbrance, or charge, Tenant shall give such reasonable security as may be demanded by Landlord to insure ultimate payment of the same and to prevent any sale or forfeiture of the affected Leased Property or the Rent by reason of such nonpayment or noncompliance; provided, however, the provisions of this Section shall not be construed to permit Tenant to contest the payment of Rent (except as to contests concerning the method of computation or the basis of levy of any Imposition or the basis for the assertion of any other claim) or any other sums payable by Tenant to Landlord hereunder; (vi) in the case of an insurance requirement, the coverage required by Article IV shall be maintained; and (vii) if such contest be finally resolved against Landlord or Tenant, Tenant shall, as Other Additional Rent due hereunder, promptly pay the amount required to be paid, together with all interest and penalties accrued thereon, or comply with the applicable legal requirement or insurance requirement. Landlord, at Tenant's expense, shall execute and deliver to Tenant such authorizations and other documents as may be reasonably required in any such contest, and, if reasonably requested by Tenant or if Landlord so desires, Landlord shall join as a party therein. Tenant hereby agrees to indemnify and save Landlord harmless from and against any liability, cost or expense of any kind that may be imposed upon Landlord in connection with any such contest and any loss resulting therefrom. 16.19 Construction of Lease. This Agreement and each of the Leases for Leased Properties have been reviewed by Landlord and Tenant and their respective professional advisors. Landlord, Tenant, and their advisors believe that this Agreement and such Leases are the product of all their efforts, that they express their agreement, and agree that they shall not be interpreted in favor of either Landlord or Tenant or against either Landlord or Tenant merely because of any party's efforts in preparing such documents. 16.20 Counterparts. This Agreement and each Lease may be executed in duplicate counterparts, each of which shall be deemed an original hereof or thereof. 16.21 Relationship of Landlord and Tenant. The relationship of Landlord and Tenant is the relationship of lessor and lessee. Landlord and Tenant are not partners, joint venturers, or associates. -43- 49 16.22 Landlord's Status as a REIT. Tenant acknowledges that Landlord intends to elect to be taxed as a real estate investment trust ("REIT") under the Code. Tenant shall not do anything which would adversely affect Landlord's status as a REIT. Tenant hereby agrees to modifications of this Agreement which do not materially adversely affect Tenant's rights and liabilities if such modifications are required to retain or clarify Landlord's status as a REIT. 16.23 Sale of Real Estate Assets. Notwithstanding any other provision of this Agreement or of any Lease, Landlord shall not be required to sell or transfer Leased Property, or any portion thereof, which is a real estate asset as defined in Section 856(c)(6) of the Code, to Tenant if Landlord's counsel advises Landlord that such sale or transfer may not be a sale of property described in Section 857(b)(6)(C) of the Code. If Landlord determines not to sell such property pursuant to the above sentence, Tenant's right, if any, to purchase the Leased Property shall continue and be exercisable at such time as the transaction, upon the advice of Landlord's counsel, would be a sale of property described in Section 857(b)(6)(C) of the Code. ARTICLE XVII NONDISCLOSURE AND RELATED MATTERS 17.01 Covenant Not to Disclose. Landlord agrees that, by virtue of the relationship of trust and confidence between Landlord and Tenant, it possesses and will possess certain data and knowledge of operations of the Tenant which are proprietary in nature and confidential. Landlord covenants and agrees that it will not knowingly, at any time, directly or indirectly, for whatever reason, without Tenant's prior written consent, which may be given or withheld in Tenant's sole discretion, reveal, divulge or make known to any person or entity, any confidential or proprietary record, data, trade secret, pricing policy, bid amount, pricing strategy, personnel policy, method or practice of obtaining or doing business, or any other confidential or proprietary information whatever (the "Confidential Information"), whether or not obtained with the knowledge and permission of the Tenant and whether or not developed, devised or otherwise created in whole or in part by the efforts of Landlord, nor shall Landlord use such Confidential Information for its own account. Confidential Information shall not include any information generally available to the public other than as a result of a disclosure of such information by Landlord. Notwithstanding anything to the contrary provided herein, a disclosure of Confidential Information by Landlord will not be considered a violation of this Article XVII in the event such disclosure is involuntarily compelled by a final, non-appealable, order from a court of competent jurisdiction. 17.02 Non-Interference Covenant. Landlord covenants and agrees that it will not, at any time, directly or indirectly, for whatever reason, whether for its own account or for the account of any other person, firm, corporation or other organization, without Tenant's prior written consent, which may be given or withheld in Tenant's sole discretion: (i) solicit, employ, deal with or otherwise interfere with any of the Tenant's contracts or relationships with any employee, officer, director or any independent contractor, whether the person is employed by or associated with the Tenant on the date of this Agreement or at any time hereafter; or (ii) solicit, accept, deal with or otherwise interfere with any of the Tenant's contracts or relationships with any independent -44- 50 contractor, customer, client or supplier. Notwithstanding the foregoing, (i) Landlord may offer employment to the current employees of the Tenant who are terminated by the Tenant subsequent to the date hereof, (ii) Landlord shall in no way be liable for any actions by any entity leasing or managing any facility owned by Landlord, and (iii) nothing provided herein shall prevent Landlord from soliciting relationships with an entity or entities to lease, license, manage or otherwise use any facility leased to the Tenant subsequent to the termination of such lease with the Tenant. 17.03 Business Materials and Property Disclosure. All written materials, records and documents made by Landlord or coming into its possession concerning the business or affairs of the Tenant shall be the sole property of the Tenant and, upon request by the Tenant, Landlord shall deliver the same to the Tenant and shall retain no copies. The foregoing restrictions shall not be applicable to any written materials, records and documents generally available to the public other than as a result of a disclosure of such written materials, records and documents by Landlord. 17.04 Breach by Landlord. It is expressly understood, acknowledged and agreed by Landlord that: (i) the restrictions contained in this Article XVII represent a reasonable and necessary protection of the legitimate interests of the Tenant and that its failure to observe and comply with its covenants and agreements in this Article XVII will cause irreparable harm to the Tenant; (ii) it is and will continue to be difficult to ascertain the nature, scope and extent of the harm; and (iii) a remedy at law for such failure by Landlord will be inadequate. Accordingly, it is the intention of the parties that, in addition to any other rights and remedies which the Tenant may have in the event of any breach by Landlord of this Article XVII, the Tenant shall be entitled, and is expressly and irrevocably authorized by Landlord, to demand and obtain specific performance, including, without limitation, temporary and permanent injunctive relief, and all other appropriate equitable relief against Landlord in order to enforce against Landlord any of the covenants and agreements contained in this Article XVII, and/or to prevent any breach or any threatened breach by Landlord of the covenants and agreements of Landlord contained in this Article XVII. Should the Tenant prevail in any action to enforce this Article XVII, the Tenant shall be entitled to recover all of its costs and expenses relating thereto, including reasonable attorney's fees and expenses. -45- 51 IN WITNESS WHEREOF, the parties hereto have executed this Lease or caused the same to be executed by their respective duly authorized officers as of the date first set forth above. CCA PRISON REALTY TRUST By: /s/ Michael W. Devlin --------------------------------------- Title: Chief Development Officer ------------------------------------ CORRECTIONS CORPORATION OF AMERICA By: /s/ Doctor R. Crants --------------------------------------- Title: Chief Executive Officer ------------------------------------ -46- 52 SCHEDULE A THE FACILITIES LOCATION FACILITY NAME (CITY, STATE) Bridgeport Pre-Parole Transfer Facility Bridgeport, Texas Central Arizona Detention Center Florence, Arizona Houston Processing Center Houston, Texas Laredo Processing Center Laredo, Texas Leavenworth Detention Center Leavenworth, Texas Mineral Wells Pre-Parole Transfer Facility Mineral Wells, Texas West Tennessee Detention Facility Mason, Tennessee Eloy Detention Facility Eloy, Arizona T. Don Hutto Correctional Facility Taylor, Texas 53 SCHEDULE B PERSONAL PROPERTY All of those certain items of property described on the CCA - Master Depreciation Schedule dated June 30, 1997, on file at the offices of Seller and Purchaser. 54 SCHEDULE C EXCLUDED PERSONAL PROPERTY Bridgeport
Asset Number Vendor Description - ------------ ------ ----------- 9404 Dury's Camera for Timeclock Avant 9964 Control Systems Timeclock Systems
Central Arizona
Asset Number Vendor Description - ------------ ------ ----------- 12173 Control Systems Timeclock Systems 8463 Control Systems Timeclock Kronos 460F 8466 Control Systems Camera SSI 124E Die Cutter
Eloy
Asset Number Vendor Description - ------------ ------ ----------- 9255 Control Systems Timeclock Kronos 460F Barcode 9403 Control Systems Timeclock Kronos 460F Barcode 12218 Dycam Inc. Camera Digital Model 4STD PC 13103 Control Systems Timeclock Kronos 480F 256K
Houston
Asset Number Vendor Description - ------------ ------ ----------- 2619 Control Systems Timeclocks 12733 Digital Connections Wide Area Network - Wan 1026 Southern Time Timeclocks
55 Laredo
Asset Number Vendor Description - ------------ ------ ----------- 2620 Control Systems Timeclocks 4110 Control Systems Internal Commun. Board 7230 Control Systems Software Close Up Customer 12166 Digital Connections Wide Area Network - Wan 12607 Computer Discount Warehouse Novell Groupwise 5 Mailbox 10 12608 Computer Discount Warehouse Novell Groupwise 5 Mailbox 10 12609 Megabyte Business Printer ID Card Persona 2MB 1620 Simplex Timeclock and Card Racks
Leavenworth
Asset Number Vendor Description - ------------ ------ ----------- 6729 Control Systems Timeclock System SS Barcode 12738 Digital Connections Wide Area Network - Wan
Mineral Wells
Asset Number Vendor Description - ------------ ------ ----------- 9256 Control Systems Timeclock Kronos 460F Barcode
West Tennessee
Asset Number Vendor Description - ------------ ------ ----------- 4184 Control Systems Timeclock - Kronos 10659 Control Systems Barcode Reader Kronos 460F
56 T. Don Hutto
Asset Number Vendor Description - ------------ ------ ----------- 13024 Control Systems Timeclock Kronos 480F 256K 13266 Control Systems Software TKC250 V8B 1-User
EX-10.168 8 TRADE NAME AGREEMENT 1 Exhibit 10.168 TRADE NAME USE AGREEMENT THIS AGREEMENT (the "Agreement") dated this 18 day of July, 1997, by and among Corrections Corporation of America ("Grantor"), a Delaware corporation, and CCA Prison Realty Trust ("Grantee"), a Maryland real estate investment trust. W I T N E S S E T H: WHEREAS, Grantor is the sole and exclusive owner of the corporate name Corrections Corporation of America and its abbreviation "CCA" (the Trade Name). NOW, THEREFORE, in consideration of the premises and the mutual promises and undertakings herein contained, and for other good and valuable consideration, the parties agree as follows: 1. Grant of Trade Name by Grantor. Grantor grants to Grantee the non-exclusive, non-transferrable right to use the Trade Name in its corporate name as follows: CCA Prison Realty Trust, subject to the provisions of this Agreement. 2. Term. This Agreement shall commence on the date above written and terminate on the date which Grantee ceases to own any correctional or detention facility managed by Grantor (the "Term"). 3. Termination. This Agreement may be terminated upon ten (10) days' written notice from Grantor to Grantee upon occurrence of any of the following events: (a) A change in control of Grantee; (b) Grantee goes into liquidation or bankruptcy or has a receiver or trustee appointed to administer either its property or affairs, or makes a general assignment of its property for the benefit of creditors or in any other manner takes advantage of the laws of bankruptcy or insolvency or the like. 4. Reservation of Rights. Except for the limited rights herein expressly granted to Grantee, all rights in the Trade Name are reserved to Grantor throughout the world for the sale and exclusive use or other disposition by Grantor at anytime, and from time to time, without any obligation to Grantee. 5. Maintenance of Quality Standards. Grantee agrees that the nature and quality of: all services rendered by Grantee hereunder; all goods sold by Grantee hereunder; and all related advertising, promotional, and other related uses of the Trade Name by Grantee shall conform to standards reasonably set by Grantor. Grantee agrees to cooperate with Grantor in facilitating Grantor's control of such nature and quality, and to supply Grantor with specimens of all uses of the Trade Name upon request. 2 6. Transfer Prohibited. The Trade Name granted hereunder shall not be assigned, sublicensed, or otherwise transferred without the prior written consent of Grantor. In the event of a prohibited transfer, Grantor shall have the right to terminate this Agreement forthwith by written notice to Grantee. 7. Rights Upon Termination. Upon the termination (by expiration or otherwise) of this Agreement, for any reason, all rights granted to Grantee hereunder shall automatically revert to Grantor for its use or disposition. Upon termination, Grantee shall promptly cease use of the Trade Name, and shall promptly deliver to Grantor all materials previously supplied by Grantor to Grantee and all copies thereof, in whole or in part. At Grantor's option, Grantor may, in lieu of return, require that Grantee destroy said materials and copies and provide to Grantor satisfactory evidence of destruction. Grantor shall not be liable to Grantee for damages of any kind on account of the termination or expiration of this Agreement. Without limiting the foregoing, upon termination or expiration of this Agreement for any reason, Grantor shall have no liability for reimbursement or for damages for loss of goodwill, or on account of any expenditures, investments, leases, or commitments made by Grantee. Grantee acknowledges and agrees that Grantee has no expectation and has received no assurances that its business relationship with Grantor will continue beyond the stated term of this Agreement or its earlier termination, that any investment by Grantee in the will be recovered or recouped, or that Grantee shall obtain any anticipated amount of profits by virtue of this Agreement. 8. No Franchise or Joint Venture. The parties expressly acknowledge that this Agreement shall not be deemed to create an agency, partnership, franchise, employment, or joint venture relationship between Grantor and Grantee. Nothing in this Agreement shall be construed as a grant of authority to Grantee to waive any right, incur any obligation or liability, enter into any agreement, grant any release or otherwise purport to act in the name of Grantor. 9. Indemnification. 9.1 The Grantee shall indemnify and hold harmless Grantor, its affiliates, directors, officers, employees, representatives, agents, successors and assigns from and against any and all losses, damages, costs and expenses, including attorney's fees, resulting from, arising out of Grantee's breach of the promises, covenants, representations and warranties made by it herein. 9.2 The Grantor shall indemnify and hold harmless Grantee, its affiliates, directors, officers, employees, representatives, agents, successors and assigns from and against any and all losses, damages, costs and expenses, including attorney's fees, resulting from, arising out of Grantor's breach of the promises, covenants, representations and warranties made by it herein. 2 3 10. Representations and Warranties. 10.1 Grantee hereby represents and warrants that (a) it is a real estate investment trust duly organized and validly existing under the laws of Maryland; (b) the execution and delivery by the Grantee of this Agreement, the performance by Grantee of all the terms and conditions thereof to be performed by it and the consummation of the transactions contemplated hereby have been duly authorized by all necessary action, and no other act or approval of any person or entity is required to authorize such execution, delivery, and performance; (c) the Agreement constitutes a valid and binding obligation of Grantee, enforceable in accordance with its terms; (d) this Agreement and the execution and delivery thereof by Grantee, does not, and the fulfillment and compliance with the terms and conditions hereof and the consummation of the transactions contemplated hereby will not, (i) conflict with any of, or require the consent of any person or entity under, the terms, conditions or provisions of the organizational documents of Grantee, (ii) violate any provision of, or require any consent, authorization or approval under, any law or administrative regulation or any judicial, administrative or arbitration order, award, judgment, writ, injunction or decree applicable to Grantee, or (iii) conflict with, result in a breach of, or constitute a default under, any material agreement or obligation to which Grantee is a party. 10.2 Grantor hereby represents and warrants that (a) it is a corporation duly organized and validly existing under the laws of Delaware; (b) the execution and delivery by the Grantor of this Agreement, the performance by Grantor of all the terms and conditions thereof to be performed by it and the consummation of the transactions contemplated hereby have been duly authorized by all necessary action, and no other act or approval of any person or entity is required to authorize such execution, delivery, and performance; (c) the Agreement constitutes a valid and binding obligation of Grantor, enforceable in accordance with its terms; (d) this Agreement and the execution and delivery thereof by Grantor, does not, and the fulfillment and compliance with the terms and conditions hereof and the consummation of the transactions contemplated hereby will not, (i) conflict with any of, or require the consent of any person or entity under, the terms, conditions or provisions of the organizational documents of Grantor, (ii) violate any provision of, or require any consent, authorization or approval under, any law or administrative regulation or any judicial, administrative or arbitration order, award, judgment, writ, injunction or decree applicable to Grantor, or (iii) conflict with, result in a breach of, or constitute a default under, any material agreement or obligation to which Grantor is a party; (e) to the best of Grantor's knowledge, it is the owner of the Trade Name and has the right to grant the rights to use the Trade Name to the Grantee under the terms of this Agreement; and (f) has not been subject to any third party claims for infringement due to the use of the Trade Name. 11. Ownership; Form of Use. Grantee acknowledges that Grantor owns all right, title, and interest in and to the Trade Name, agrees that it will do nothing inconsistent with such ownership. Grantee agrees that nothing in this Agreement shall give Grantee any right, title, or interest in the Trade Name other than the right to use it in accordance with this Agreement, and Grantee agrees that it will not attack the title of Grantor to the Trade Name or attack the validity of this Agreement. Grantee agrees to use the Trade Name only in the form and manner as prescribed from time to time by Grantor. 3 4 12. Waiver; Modification. No wavier or modification of any of the terms of this Agreement shall be valid unless in writing. No waiver by either party of a breach hereof or a default hereunder shall be deemed a waiver by such party of a subsequent breach or default of like or similar nature. 13. Separability. If any provision in this Agreement contravenes or is otherwise invalid under the law of any country or subdivision thereof, then such provision insofar as such country or subdivision is concerned shall be deemed eliminated from this Agreement and the Agreement shall, as so modified, remain valid and binding on the parties hereto and in full force and effect. 14. Disclaimer of Warranties. EXCEPT AS MAY BE EXPRESSLY PROVIDED IN THIS AGREEMENT, GRANTOR MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, IN RESPECT OF THE TRADE NAME, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF NON-INFRINGEMENT OR OF RESULTS TO BE OBTAINED FROM USE THEREOF. 15. Negation of Consequential Damages. IN NO EVENT SHALL GRANTOR BE LIABLE FOR ANY CONSEQUENTIAL OR INCIDENTAL DAMAGES WHATSOEVER HEREUNDER, REGARDLESS OF WHETHER GRANTOR HAS BEEN INFORMED OF THE POSSIBILITY OF SUCH DAMAGES. 16. Governmental Licenses, Permits and Approvals. Grantee, at its expense, shall be responsible for obtaining and maintaining all licenses, permits, approvals, authorizations, and clearances which are required by governmental authorities with respect to this Agreement, and for compliance with any requirements of governmental authorities for the registration or recordation of this Agreement and for making any payments required in connection therewith. Grantee shall furnish to Grantor, promptly upon Grantor's request, written evidence from such governmental authorities of the due issuance and continuing validity of any such licenses, permits, clearances, authorizations, approvals, registration or recordation. 17. Notices. 17.1 Notices and other communications required or permitted to the given under this Agreement shall be in writing and delivered by hand or overnight delivery, or placed in certified or registered mail, return receipt requested, at the addresses specified below or such other address as either party may, by notice to the other, designate: If to Grantor: Corrections Corporation of America 102 Woodmont Blvd., Suite 800 Nashville, Tennessee 37205 Attn: Doctor R. Crants 4 5 with a copy to: Elizabeth E. Moore, Esq. Stokes & Bartholomew, P.A. 424 Church Street, Suite 2800 Nashville, Tennessee 37219 If to Grantee: CCA Prison Realty Trust 2200 Abbott Martin Road, Suite 201 Nashville, Tennessee 37215 Attn: D. Robert Crants, III 17.2 Notices and other communications shall be deemed given when delivered by hand or overnight delivery to the proper address or the date of the return receipt, as provided above. 18. Governing Laws. This Agreement shall be construed in accordance with the laws of Tennessee, excluding the choice of law provisions thereof. The parties hereby submit to the jurisdiction of the courts of Tennessee in respect to all disputes arising out of or in connection with this Agreement. 19. Enforcement. It is expressly understood, acknowledged, and agreed by Grantee that (a) the restrictions contained in this Agreement represent a reasonable and necessary protection of the legitimate interests of Grantor and its affiliates, and that Grantee's failure to observe and comply with the covenants and agreements in this Agreement will cause irreparable harm to Grantor and its affiliates; (b) it is and will continue to be difficult to ascertain the nature, scope, and extent of the harm; and (c) a remedy at law for such failure by Grantee will be inadequate. Accordingly, it is the intention of the parties that, in addition to any other rights and remedies which Grantor and its affiliates may have in the event of any breach or threatened breach of the Agreement, Grantor and its affiliates shall be entitled, and are expressly and irrevocably authorized by Grantee, to demand and obtain specific performance, including, without limitation, temporary and permanent injunctive relief and all other appropriate equitable relief against Grantee in order to enforce against Grantee the covenants and agreements contained in this Agreement. Such right to obtain injunctive relief may be exercised concurrently with, prior to, after, or in lieu of, any other rights resulting from any such breach or threatened breach. Grantee shall account for and pay over to Grantor all compensation, profits, and other benefits, after taxes, enuring to Grantee's benefit, which are derived or received by Grantee or any person or business entity controlled by Grantee resulting from any action or transaction constituting breach of the Agreement. 20. Entire Agreement. This Agreement contains the entire understanding of the parties. There are no representations, warranties, promises, covenants, or undertakings other than those hereinabove contained. 5 6 IN WITNESS WHEREOF, the parties hereto have caused these presents to be signed by their duly authorized officers and their respective corporate seals to be hereunto affixed on the date set forth above. GRANTOR: CORRECTIONS CORPORATION OF AMERICA By: /s/ Doctor R. Crants ----------------------------------- Its: Chief Executive Officer ----------------------------------- GRANTEE: CCA PRISON REALTY TRUST By: /s/ D. Robert Crants, III ----------------------------------- Its: President ----------------------------------- 6 EX-10.174 9 PURCHASE & SALE AGREEMENT 1 EXHIBIT 10.174 PURCHASE AND SALE AGREEMENT THIS PURCHASE AND SALE AGREEMENT (the "Agreement") for the convenience of the parties hereto dated as of November 18, 1997, but effective upon the Closing Date, is entered into by and among the HOLDENVILLE INDUSTRIAL AUTHORITY, an Oklahoma Public Trust (the "Authority"), and CORRECTIONS CORPORATION OF AMERICA, a Tennessee corporation ("CCA"). W I T N E S S E T H: WHEREAS, CCA desires to purchase the Facility, and the Authority desires to sell the Facility to CCA and to use the proceeds therefrom in furtherance of its government purposes; and, WHEREAS, the parties desire to set forth in this Agreement the terms and provisions relating to said purchase and sale. NOW, THEREFORE, in consideration of Ten Dollars ($10.00) cash in hand paid by CCA to the Authority, receipt thereof is hereby acknowledged by the Authority, and for other good and valuable consideration, the parties hereto agree as follows: ARTICLE I DEFINITIONS In each and every place in and throughout this Agreement, whenever the following terms, or any of them are used, unless the context shall clearly indicate another or different meaning or intent, they shall have the following meanings: "Bonds" or "1995 Bonds" shall mean the Holdenville Industrial Authority Correctional Facility Revenue Bonds, Series 1995 in the aggregate principal amount of $33,700,000 issued by the Authority pursuant to the terms and provisions of that certain Bond Indenture, dated as of June 1, 1995, between the Authority and Liberty Bank and Trust Company of Oklahoma City, National Association, as Trustee (the "Trustee"), as supplemented and modified by that certain 1996 Supplementary Bond Indenture, dated as of September 1, 1996, between the Authority and the Trustee (collectively, the "Indenture"). "Closing" or "Closing Date" shall mean the date that the consideration under Section 2.3(i) and (ii) is paid by CCA and the Authority conveys the Facility to CCA, but in no event later than December 1, 1997, unless otherwise mutually agreed to by the parties. "Facility" shall mean the real property, easements, fixtures, personal property and incorporeal hereditaments located on the Land, and any additions or improvements thereto, including the Davis Correctional Facility, a 500-cell medium security correctional facility constructed and placed thereon. 2 "Land" shall mean the real property comprising approximately 75 acres and located in the City of Holdenville, Hughes County, Oklahoma, described on Exhibit A, attached hereto and incorporated herein, and upon which the Facility is constructed. "Management Agreement" shall mean the Management Services Agreement dated as of June 1, 1995, by and between CCA and the Authority pertaining to the operation and management of the Facility by CCA, including any amendments or supplements thereto. "Training Services Agreement" means the Training Services Agreement dated as of June 1, 1995, by and between CCA and the Authority pertaining to the pretraining and preparation relating to the Facility, including any amendments or supplements thereto. ARTICLE II CONVEYANCE OF FACILITY 2.1 Conveyance. (a) On the Closing Date, and upon payment by CCA to or on behalf of the Authority of the consideration set out in Section 2.3(i) and (ii) below, the Authority will convey to CCA the Land, buildings and improvements comprising the Facility by Warranty Deed, in the same form attached hereto as Exhibit B, and the machinery, equipment and other items of personal property comprising the Facility by Bill of Sale and Assignment, in the same form attached hereto as Exhibit C. The Bill of Sale and Assignment will include an assignment of all right, title and interest of the Authority under (i) the Monitor Agreement, dated as of June 1, 1995, between the Authority and Norris & Associates, Inc., and (ii) the Marketing Services Agreement, dated as of August 1, 1995, between the Authority and Capitol Consultants relating to the Facility, and an assumption by CCA of all obligations of the Authority under said agreements from and after the Closing. (b) CCA may obtain, at its option and at its expense, (i) an owner's title insurance commitment from a title insurance company of its choice to issue a title insurance policy insuring marketable fee simple title to the Facility to CCA, which will contain only those title exceptions described in the Warranty Deed attached hereto as Exhibit B, (ii) an as-built survey for the Facility prepared by an Oklahoma registered land surveyor of its choice, which will disclose no matters affecting the Facility other than those described in the Warranty Deed attached hereto as Exhibit B, (iii) a Phase I environmental site assessment report for the Facility from an environmental engineer of its choice, which will disclose no adverse or material environmental matters affecting the Facility other than those matters caused or created by CCA, and/or (iv) a going concern appraisal. The Authority agrees to execute and deliver to the title company issuing said title insurance policy on or before the Closing such resolutions, consents, notices and title affidavits and certifications reasonably requested or customarily required by the title company in order to enable the title company to issue its title policy to CCA, upon payment of the premium therefor, without title exceptions or requirements other than those title exceptions contained in the Warranty Deed attached hereto as Exhibit B and with the standard preprinted title exceptions deleted therefrom. -2- 3 2.2 Exclusions from Conveyance. It is specifically acknowledged and agreed by the parties that CCA is not acquiring the rights to the Authority's inmate pay telephone service agreement relating to the Facility, or to any renewals or replacements thereof entered into by the Authority, as part of this transaction. In consideration thereof, the Authority agrees to maintain the grounds surrounding the Facility beyond the main security fence. CCA agrees to allow the Authority and the vendor under the inmate pay telephone service agreement with the Authority access to the inmate pay telephone equipment in the Facility during normal business hours upon reasonable notice to operate, maintain and repair the equipment. 2.3 Consideration. (i) On the Closing Date, CCA will pay to the Authority the amount of One Million Five Hundred Thousand Dollars ($1,500,000) by cashier's or certified check or wire transfer funds, subject to the prorations set forth in Section 2.4. (ii) As additional consideration to the Authority hereunder, on the Closing Date, CCA will deposit in escrow with the Trustee an amount sufficient to defease the 1995 Bonds as provided in the Indenture. The Trustee shall hold, invest and disburse said funds as provided in the Indenture to retire the 1995 Bonds on the earliest practicable date. On the Closing Date, the Authority will provide written instructions to the Trustee directing the Trustee to pay to CCA the amount of all surplus funds held by the Trustee under the Indenture as an additional management fee to CCA under the Management Agreement. (iii) The Authority and CCA each acknowledge and agree that the consideration for the Facility set forth herein was negotiated by the parties at arms length. CCA represents that the consideration for the Facility is a fair price offered by CCA after examination of the cost of other like facilities in the marketplace, and that CCA is under no obligation to purchase. The Authority represents that the consideration for the Facility is a fair price agreed to by the Authority after reasonable investigation and calculation, and that the Authority is under no obligation to sell. 2.4 Prorations. Real estate taxes with respect to the Land shall be prorated to the Closing Date. The Authority will pay any special assessments maturing with respect to the Land to the date of Closing, and special assessments, if any, maturing on or after the date of Closing shall be paid by CCA. 2.5 Closing Costs. CCA will pay (i) the recording costs and transfer taxes to record the Warranty Deed, (ii) the premium for the owner's title insurance policy issued to CCA, (iii) the cost of the as-built survey, the Phase I environmental site assessment report and the going concern appraisal obtained by CCA, (iv) the legal expenses of J. Scott Brown, as counsel to the Authority and as bond counsel, and (v) the expense to calculate as provided in the Indenture the rebate amount of earnings, if any, due to the federal government, and the rebate amount of earnings, if any, determined by such calculation to be owed to the federal government. 2.6 Termination of Agreements. Upon and after the Closing, the Management Agreement and the Training Services Agreement shall each terminate and shall be of no further force or effect; provided, however, that (i) the fees due to CCA under the Management Agreement for services provided by CCA prior to the Closing shall be billed, collected and paid to CCA as provided in the -3- 4 Management Agreement and (ii) the indemnification provisions contained in the Management Agreement shall continue in full force and effect with respect to any act or cause of action occurring or accruing prior to the Closing. Prior to the Closing, the Authority agrees to authorize and direct the Trustee under the Indenture to disburse to CCA the entire sum (approximately $958,000.00) in the Revenue Fund (as defined in the Indenture), representing a portion of the fees due to CCA under the Management Agreement for services provided by CCA during the month of September 1997 that have been paid to the Trustee but have not been disbursed to CCA as provided for in Section 6.08(B)(3) of the Indenture, which shall be paid to CCA prior to the payment of the surplus funds held by the Trustee as provided in Section 2.3(ii) hereof. The Authority further agrees to authorize and direct the Trustee under the Indenture to pay to CCA any amounts received by the Trustee subsequent to the Closing from any Transferring Entities (as defined in the Management Agreement) for services provided by the Authority or CCA prior to the Closing. The Authority agrees to assist and to cooperate in good faith with CCA in connection with the billing, collection and payment of all such fees, and agrees to promptly remit to CCA any payments it receives for such fees. Notwithstanding the foregoing, CCA acknowledges and agrees that the obligation of the Authority to make any payments under the Management Agreement shall be limited and special obligations of the Authority payable solely from the amounts received from the Transferring Entities (as defined in the Management Agreement) and shall never become a debt or obligation of any trustee, employee or officer of the Authority. 2.7 Further Assurances/Cooperation. CCA and the Authority each agree to cooperate in good faith with each other and to execute and deliver in connection with the Closing such other and further agreements, documents and instruments as may be reasonably necessary or required in order to fully consummate the transactions contemplated by this Agreement. ARTICLE III REPRESENTATIONS 3.1 Representations and Covenants by CCA. CCA makes the following representations as the basis for the undertakings on its part herein contained and hereby covenants and agrees: (a) CCA is a corporation duly incorporated under the laws of Tennessee and is qualified to do business in and is in good standing in Oklahoma. (b) Neither the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby, nor the fulfillment of or compliance with the terms and conditions of this Agreement conflict with or result in a breach of any of the terms, conditions or provisions of any corporate restriction or any agreement or instrument to which CCA is now a party or by which it is bound, or constitute a default under any of the foregoing, or result in the creation or imposition of any prohibited lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of CCA under the terms of any instrument or agreement. -4- 5 (c) CCA has full power and authority to execute and deliver this Agreement and upon such execution and delivery, said document shall be valid and legally binding against CCA in accordance with its terms. 3.2 Representations by the Authority. The Authority has been duly created and is existing under the laws of the State of Oklahoma and under the Trust Indenture creating the Authority it has the power to enter into the transactions contemplated by, and to carry out its obligations under, this Agreement and will do or cause to be done all things necessary to keep the Authority in existence and in good standing so long as necessary for the purposes thereof. The Authority is not in default under any of the provisions contained in its Trust Indenture or in the laws of Oklahoma or in any other instrument by which it is bound. By proper action of its Trustees, the Authority has been duly authorized to execute, deliver and perform this Agreement, the Warranty Deed attached hereto as Exhibit B, and the Bill of Sale and Assignment attached hereto as Exhibit C. ARTICLE IV MISCELLANEOUS 4.1 Successors and Assigns. All terms, provisions, conditions, covenants, warranties and agreements contained herein shall be binding upon the successors and assigns of both the Authority and CCA and all such terms, provisions, conditions, covenants, warranties and agreements shall likewise inure to the benefit of everyone who may at any time be a beneficiary hereunder. 4.2 Preservation and Inspection of Documents. All documents received by CCA or the Authority under the provisions of this Agreement shall be retained in its possession and shall be subject at all reasonable times to the inspection of CCA and the Authority and their agents and their representatives, any of whom may make copies thereof under such reasonable terms and regulations as the holder of such documents may set out. 4.3 Parties Interested Herein. Nothing in this Agreement expressed or implied is intended or shall be construed to confer upon, or to give to, any person or corporation, other than the Authority or CCA, any right, remedy or claim under or by reason of this Agreement or any covenant, condition or stipulation thereon. 4.4 Severability of Invalid Provisions. If any one or more of the covenants or agreements provided in this Agreement on the part of the parties hereto to be performed should be contrary to law, then such covenant or covenants or agreement or agreements shall be deemed severable from the remaining covenants and agreements, and shall in no way affect the validity of the other provisions of this Agreement. 4.5 Successors. Whenever in this Agreement the Authority is named or referred to, it shall be deemed to include any public trust or other entity organized and existing for the benefit of and on behalf of the City of Holdenville, which succeeds to the principal functions and powers of the Authority, and all the covenants and agreements contained in the Agreement by or in behalf of the Authority shall bind and inure to the benefit of said successor whether so expressed or not. -5- 6 4.6 Consents and Approvals. Whenever the written consent or approval of any party hereto shall be required under the provisions of this Agreement, such consent or approval shall not be unreasonably withheld or delayed. 4.7 Notices, Demands and Requests. All notices, demands and requests to be given or made hereunder to or by the parties shall be in writing and shall be properly made if delivered personally, or sent by registered or certified mail, or by a nationally recognized express courier service, all charges prepaid, to the other party at the address set forth below, or at such other address as may hereafter be provided in writing. The date of personal delivery, or the date of mailing or of delivery to such nationally recognized express courier service, as the case may be, shall be the date of such notice, demand or request: (a) AUTHORITY Holdenville Industrial Authority City Hall Holdenville, Oklahoma 74848 Attn: Chairman (b) CCA Doctor R. Crants Chairman and Chief Executive Officer Corrections Corporation of America 10 Burton Hills Boulevard Nashville, Tennessee 37215 4.8 Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. 4.9 Applicable Law. This Agreement shall be governed exclusively by the applicable laws of the State of Oklahoma. 4.10 Section Headings Not Controlling. The headings of the several sections of this Agreement have been prepared for convenience of reference only and shall not control, affect the meaning of, or be taken as an interpretation of any provision of this Agreement. 4.11 Amendment. This Agreement may only be amended by mutual agreement in writing signed between the parties. 4.12 Entire Agreement. The foregoing represents the entire agreement between the parties. 4.13 Survival. It is understood and agreed by the parties hereto that whether or not it is specifically so provided herein, any term or provision of this Agreement, which by its nature or effect is required to be kept, observed or performed after the Closing and conveyance of title, shall -6- 7 not be merged therein, but shall be and remain binding upon and for the benefit of the parties hereto until fully kept, observed or performed. 4.14 Broker and Commission. CCA and the Authority each warrant to the other than no broker has been involved in the transactions set forth in this Agreement, and each will indemnify and hold the other party harmless from any claims for broker commissions arising from such party's actions. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by its duly authorized officers all as of the day and year first above written. (SEAL) HOLDENVILLE INDUSTRIAL AUTHORITY ATTEST: /s/ Jack Barrett -------------------------------- Jack Barrett, Chairman /s/ Frenola Caver - ------------------------------ Secretary CORRECTIONS CORPORATION OF AMERICA By: /s/ Darrell K. Massengale ---------------------------- Title: CFO ------------------------- -7- 8 STATE OF OKLAHOMA ) ) SS COUNTY OF OKLAHOMA ) The foregoing instrument was acknowledged before me this 19th day of November, 1997, by Jack Barrett, Chairman of the Holdenville Industrial Authority, a public trust, on behalf of said Authority. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ Dana L. Gilchrist ------------------------------------ Notary Public My Commission Expires: 3-25-98 - ---------------------- STATE OF TENNESSEE ) ) SS COUNTY OF DAVIDSON ) The foregoing instrument was acknowledged before me this 18th day of November, 1997, by Darrell K. Massengale, the CFO of Corrections Corporation of America, on behalf of said corporation. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ Carole M. Maxson ------------------------------------ Notary Public My Commission Expires: 9/23/2000 - ---------------------- -8- 9 EXHIBIT A (Real Estate Description) (Davis Correctional Facility) A tract of land lying in the Southeast Quarter (SE/4) of Section 10, Township 7 North, Range 8 East, Indian Meridian, Hughes County, Oklahoma, further described as a point of beginning at a point along the South line of said SE/4, S 89(degree)20'02" W, 469.25 feet from the Southeast corner of said SE/4; thence along the South line of said SE/4, S 89(degree)20'02" W, 1030.75 feet; thence N 00(degree)57'37" W, 2323.20 feet and parallel to the East line of said SE/4; thence N 89(degree)20'02" E, 1500.00 feet and parallel to the South line of said SE/4; thence along said East line of the SE/4 S 00(degree)57'37" E, 1859.20 feet; thence S 89(degree)20'02" W, 469.25 feet; thence S 00(degree)57'37" E, 464.00 feet to the Point of Beginning, containing 75 acres, more or less. 10 EXHIBIT B WARRANTY DEED THAT HOLDENVILLE INDUSTRIAL AUTHORITY, a duly formed Public Trust of the State of Oklahoma, acting by and through its trustees, party of the first part, in consideration of Ten Dollars ($10.00) and other valuable considerations, in hand paid, the receipt which is hereby acknowledged, does hereby grant, bargain, sell and convey unto CORRECTIONS CORPORATION OF AMERICA, a Tennessee corporation, 10 Burton Hills Boulevard, Nashville, Tennessee 37215, party of the second part, the following described real property and premises situated in Hughes County, State of Oklahoma, to-wit: A tract of land lying in the Southeast Quarter (SE/4) of Section 10, Township 7 North, Range 8 East, Indian Meridian, Hughes County, Oklahoma, further described as a point of beginning at a point along the South line of said SE/4, S 89(degree)20'02" W, 469.25 feet from the Southeast corner of said SE/4; thence along the South line of said SE/4, S 89(degree)20'02" W, 1030.75 feet; thence N 00(degree)57'37" W, 2323.20 feet and parallel to the East line of said SE/4; thence N 89(degree)20'02" E, 1500.00 feet and parallel to the South line of said SE/4; thence along said East line of the SE/4 S 00(degree)57'37" E, 1859.20 feet; thence S 89(degree)20'02" W, 469.25 feet; thence S 00(degree)57'37" E, 464.00 feet to the Point of Beginning, containing 75 acres, more or less. RESTRICTION: Until March 31, 2013, no portion of the real property and premises herein described shall be used for any purpose other than for a private prison, correctional facility or work center. This covenant shall run with the land and be binding upon the Grantee, and Grantee's successors and assigns. RIGHT OF USE: The party of the first part or the Oklahoma Department of Corrections will have the right to use the lagoon located on said real property until the work release center of the party of the first part located adjacent to said real property is connected to the wastewater treatment system of the City of Holdenville, Oklahoma. together with all the improvements thereon and the appurtenances thereunto belonging, and warrant the title to the same. SUBJECT TO: easements, restrictions and rights-of-way of record as described on Exhibit A, attached hereto and incorporated herein by reference. TO HAVE AND TO HOLD said described premises unto the said party of the second part, its successors and assigns forever, free and discharged of and from all former grants, charges, taxes, judgments, mortgages and other liens and encumbrances of whatsoever nature. Exempt Documentary Stamp Tax 0S Title 68 Article 32 Section 3202, Paragraph 11. Send Tax Statements: Corrections Corporation of America 10 Burton Hills Boulevard Nashville, Tennessee 37215 11 Signed and delivered this _____ day of November, 1997. HOLDENVILLE INDUSTRIAL AUTHORITY -------------------------------- (SEAL) Jack Barrett, Chairman ATTEST: - ------------------------------ Secretary STATE OF OKLAHOMA ) ) SS COUNTY OF ___________________ ) The foregoing instrument was acknowledge before me this _____ day of November, 1997, by Jack Barrett, Chairman of the Holdenville Industrial Authority, a public trust, on behalf of the trust. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my notarial seal the day and year first above written. (SEAL) ---------------------------------------- Notary Public My Commission Expires: - ---------------------- 12 EXHIBIT A 1. Taxes for the year 1997 and subsequent years, not yet due and payable. 2. Title to all minerals within and underlying the premises, together with all mining rights, and other rights, privileges and immunities relating thereto. 3. Right of Way in favor of General American Oil Company of Texas referred to in Assignment of Pipe Lines recorded October 30, 1954 in Book 228 Misc., page 126. Assigned to Kerr-McGee Oil Industries, Inc. by Assignment recorded June 4, 1956 in Book 255 Misc., page 160. Subsequently assigned to BigHeart Pipe Line Corporation by Assignment and Bill of Sale recorded January 17, 1973 in Book 462 Misc., page 115. 4. Right of Way in favor of Flow Production Company referred to in Assignment and Bill of Sale recorded June 10, 1996 in Book 880 Misc., page 24. 5. Right of Way in favor of Oklahoma Gas and Electric Company recorded November 19, 1980 in Book 588 Misc., page 533. 6. Right of Way in favor of Adams Petroleum Enterprises Corp. recorded March 18, 1981 in Book 597 Misc., page 559. 7. Easement for Public Highway in favor of County of Hughes recorded April 16, 1990 in Book 792 Misc., page 35. 8. Right of Way in favor of Oklahoma Natural Gas Company recorded September 18, 1995 in Book 870 Misc., page 702. 9. Right of Way in favor of Oklahoma Gas and Electric Company recorded July 1, 1996 in Book 880 Misc., page 568. 10. Lease and Operation Agreement, dated as of July 1, 1996, between Holdenville Industrial Authority and Oklahoma Department of Corrections, not shown of public record. 11. Restrictions and Right of Use contained in Warranty Deed recorded July 13, 1995 in Book 868 Misc., page 457. 12. Wewoka Creek Water and Soil Conservancy District No. 2 created by Judgment recorded June 11, 1954 in Book 221 Misc., page 439. 13. Statutory Right of Way in favor of the State of Oklahoma 33 feet along all section lines as shown on survey of James B. Marshall, dated July 12, 1995. 13 14. Right of Way in favor of Sinclair Oil and Gas Company, recorded February 1, 1965, in Book 373 Misc., page 336. Assigned to Intersearch Gas Corporation by Assignment and Bill of Sale recorded December 28, 1990 in Book 803 Misc., page 714. Subsequently assigned to Enerfin Resources I Limited Partnership by Assignment recorded April 25, 1991 in Book 808 Misc., page 779. 15. Rights for Easement or claims of possession for 5" buried gas line as shown on survey of James B. Marshall, dated July 12, 1995, not shown of public record. 16. Rights for Easement or claims of possession for Arkla Gas Line as shown on survey of James B. Marshall, dated July 12, 1995, not shown of public record. 14 EXHIBIT C BILL OF SALE AND ASSIGNMENT STATE OF OKLAHOMA ss. ss. KNOW ALL MEN BY THESE PRESENTS: COUNTY OF ________________ ss. THAT, HOLDENVILLE INDUSTRIAL AUTHORITY, a duly formed Public Trust of the State of Oklahoma, acting by and through its trustees ("Grantor" or "Seller"), for and in consideration of the sum of Ten and No/100 Dollars ($10.00) and other good and valuable consideration to it in hand paid by CORRECTIONS CORPORATION OF AMERICA, a Tennessee corporation ("Grantee" or "Purchaser"), to the extent legally permissible, has GRANTED, SOLD, ASSIGNED, TRANSFERRED, CONVEYED, and DELIVERED and does by these presents GRANT, SELL, ASSIGN, TRANSFER, CONVEY, and DELIVER unto the said Purchaser, all of Seller's right, title and interest in and to the following described properties, rights, and interests (the "Personal Property"), located on or about that certain land described on Exhibit A, attached hereto and incorporated herein for all purposes, or the buildings, improvements, structures and fixtures thereon (the "Real Property"), or used in connection with the operation thereof: All permits, licenses (but excluding Seller's business and operating licenses), approvals, entitlements and other government, quasi-government and non-government authorizations including, without limitation, certificates of use and occupancy, required in connection with the ownership, planning, development, construction, use, operation or maintenance of the Real Property, to the extent the same are assignable by Seller, any leases, contract rights, loan agreements, mortgages, easements, covenants, restrictions or other agreements or instruments affecting all or a portion of the Real Property or Personal Property, to the extent the same are assignable by Seller, and other intangible property or any interest therein owned or held by Seller in connection with the Real Property, including all water rights and reservations, rights to use the trade name applicable to the Real Property, and zoning rights related to the Real Property, or any part thereof, and Seller's accounts receivable relating to the Real Property, to the extent the same are assignable by Seller; provided, however, such Personal Property shall not include the general corporate trademarks, trade names (except as set forth above), service marks, logos or insignia or the books and records of Seller, and Seller's business and operating licenses for the facilities on the Real Property. All warranties and guaranties with respect to the Real Property or Personal Property, whether express or implied, which Seller now holds or under which Seller is the beneficiary, to the extent the same are assignable by Seller. All site plans, surveys, soil and substrata studies, architectural drawings, plans and specifications, engineering plans and studies, floor plans, landscape plans, Americans with Disabilities Act compliance reports, environmental reports and studies, professional 15 inspection reports, construction and/or architect's reports or certificates, feasibility studies, appraisals, and other similar plans and studies that relate to the Real Property, to the extent the same are assignable by Seller. That certain Monitor Agreement, dated as of June 1, 1995, between the Seller and Norris & Associates, Inc., and that certain Marketing Services Agreement, dated as of August 1, 1995, between the Seller and Capitol Consultants. All furnishings, equipment, tools, machinery, fixtures, appliances, and all other tangible personal property located on or about the Real Property or used in connection with the operation thereof which is owned by Seller including, but not limited to, all those items of tangible personal property described on Exhibit B, attached hereto and incorporated herein for all purposes. THERE IS EXPRESSLY EXCLUDED FROM THE PERSONAL PROPERTY THE FOLLOWING: (i) all those items of tangible and intangible personal property described on Exhibit C, attached hereto and incorporated herein for all purposes, (ii) personal property owned by employees of Seller and personal property owned by inmates housed at the Real Property, and (iii) except as otherwise specifically provided herein, all management, service and operating agreements and contracts entered into by Seller with respect to the Real Property or the Personal Property, including, but not limited to, agreements and contracts to house inmates at the Real Property, and the inmate pay telephone service agreement relating to the Real Property, including any renewals or replacements thereof entered into by the Seller. TO HAVE AND TO HOLD the Personal Property unto the said Purchaser, its successors and assigns, forever, and Seller does hereby bind itself and its successors to warrant and forever defend, all and singular, title to the said Personal Property unto the said Purchaser, its successors and assigns, against every person whomsoever lawfully claiming or to claim the same, or any part thereof by, through or under Seller, but not further or otherwise. Seller and its successors hereby warrants, represents, covenants and agrees with Purchaser as follows: (i) That Seller is the owner of the Personal Property, which Personal Property is free and clear of any and all liens, security interests, or other encumbrances except the exceptions shown on the schedule attached hereto as Schedule A and incorporated herein by reference for all purposes, and this sale and assignment is made and accepted expressly subject to the matters set forth on Schedule A attached hereto; (ii) That Seller shall indemnify and hold harmless Purchaser from and against any and all liability, loss, damage, cost or expense, including reasonable attorneys' fees, which Purchaser may suffer or incur by reason of any act or cause of action occurring or accruing prior to the effective date hereof and arising out of the ownership and/or operation of the Real Property or the Personal Property, except for any liability, loss, damage, cost or expense arising out of the actions or omissions of the Purchaser. 16 Purchaser and its successors and assigns hereby warrant, represent, covenant and agree with Seller that Purchaser shall indemnify and hold harmless Seller from and against any and all liability, loss, damage, cost or expense, including reasonable attorneys' fees, which Seller may suffer or incur by reason of any act or cause of action occurring or accruing subsequent to the effective date hereof and arising out of the ownership and/or operation of the Real Property or the Personal Property, except any liability, loss, damage, cost or expense arising out of the actions or omissions of the Seller and except for any matters which Purchaser has agreed to indemnify and hold the Seller harmless from and against as set forth in that certain Management Services Agreement dated as of June 1, 1995, between the Seller and Purchaser. The agreements, covenants, warranties and representations herein set forth shall be binding upon and shall inure to the benefit of Seller and Purchaser and their respective successors and assigns. IN WITNESS WHEREOF, the parties hereto have caused this Bill of Sale and Assignment to be executed by its duly authorized officers effective as of November ___, 1997. SELLER: HOLDENVILLE INDUSTRIAL AUTHORITY --------------------------------------- (SEAL) Jack Barrett, Chairman ATTEST: - -------------------------------- Secretary PURCHASER: CORRECTIONS CORPORATION OF AMERICA By: ----------------------------------- Title: -------------------------------- 17 STATE OF OKLAHOMA ) ) SS COUNTY OF ______________ ) The foregoing instrument was acknowledged before me this _____ day of November, 1997, by Jack Barrett, Chairman of the Holdenville Industrial Authority, a public trust, on behalf of said Authority. IN WITNESS WHEREOF, I hereunto set my hand and official seal. ------------------------------------- Notary Public My Commission Expires: - ---------------------- STATE OF TENNESSEE ) ) SS COUNTY OF DAVIDSON ) The foregoing instrument was acknowledged before me this _____ day of November, 1997, by ____________________________________, the ______________________________ of Corrections Corporation of America, on behalf of said corporation. IN WITNESS WHEREOF, I hereunto set my hand and official seal. -------------------------------------- Notary Public My Commission Expires: - --------------------- 18 Exhibit A to Bill of Sale and Assignment Property Description A tract of land lying in the Southeast Quarter (SE/4) of Section 10, Township 7 North, Range 8 East, Indian Meridian, Hughes County, Oklahoma, further described as a point of beginning at a point along the South line of said SE/4, S 89(degree)20'02" W, 469.25 feet from the Southeast corner of said SE/4; thence along the South line of said SE/4, S 89(degree)20'02" W, 1030.75 feet; thence N 00(degree)57'37" W, 2323.20 feet and parallel to the East line of said SE/4; thence N 89(degree)20'02" E, 1500.00 feet and parallel to the South line of said SE/4; thence along said East line of the SE/4 S 00(degree)57'37" E, 1859.20 feet; thence S 89(degree)20'02" W, 469.25 feet; thence S 00(degree)57'37" E, 464.00 feet to the Point of Beginning, containing 75 acres, more or less. 19 Exhibit B to Bill of Sale and Assignment Items of Personal Property See Exhibit B-1 to Bill of Sale and Assignment, attached hereto and incorporated herein. Seller and Purchaser agree to attach as Exhibit B to this Bill of Sale and Assignment an updated schedule of the items of tangible personal property as soon as the same is completed, and when so attached such schedule shall be deemed a part of this Bill of Sale and Assignment. 20 Exhibit B-1 to Bill of Sale and Assignment Items of Personal Property 21 Exhibit C to Bill of Sale and Assignment Seller's Excluded Personal Property Asset Number Vendor Description - ------------ ------ ----------- NONE 22 Schedule A to Bill of Sale and Assignment Permitted Exceptions 1. Taxes for the year 1997 and subsequent years, not yet due and payable. 2. Title to all minerals within and underlying the premises, together with all mining rights, and other rights, privileges and immunities relating thereto. 3. Right of Way in favor of General American Oil Company of Texas referred to in Assignment of Pipe Lines recorded October 30, 1954 in Book 228 Misc., page 126. Assigned to Kerr-McGee Oil Industries, Inc. by Assignment recorded June 4, 1956 in Book 255 Misc., page 160. Subsequently assigned to BigHeart Pipe Line Corporation by Assignment and Bill of Sale recorded January 17, 1973 in Book 462 Misc., page 115. 4. Right of Way in favor of Flow Production Company referred to in Assignment and Bill of Sale recorded June 10, 1996 in Book 880 Misc., page 24. 5. Right of Way in favor of Oklahoma Gas and Electric Company recorded November 19, 1980 in Book 588 Misc., page 533. 6. Right of Way in favor of Adams Petroleum Enterprises Corp. recorded March 18, 1981 in Book 597 Misc., page 559. 7. Easement for Public Highway in favor of County of Hughes recorded April 16, 1990 in Book 792 Misc., page 35. 8. Right of Way in favor of Oklahoma Natural Gas Company recorded September 18, 1995 in Book 870 Misc., page 702. 9. Right of Way in favor of Oklahoma Gas and Electric Company recorded July 1, 1996 in Book 880 Misc., page 568. 10. Lease and Operation Agreement, dated as of July 1, 1996, between Holdenville Industrial Authority and Oklahoma Department of Corrections, not shown of public record. 11. Restrictions and Right of Use contained in Warranty Deed recorded July 13, 1995 in Book 868 Misc., page 457. 12. Wewoka Creek Water and Soil Conservancy District No. 2 created by Judgment recorded June 11, 1954 in Book 221 Misc., page 439. 13. Statutory Right of Way in favor of the State of Oklahoma 33 feet along all section lines as shown on survey of James B. Marshall, dated July 12, 1995. 23 14. Right of Way in favor of Sinclair Oil and Gas Company, recorded February 1, 1965, in Book 373 Misc., page 336. Assigned to Intersearch Gas Corporation by Assignment and Bill of Sale recorded December 28, 1990 in Book 803 Misc., page 714. Subsequently assigned to Enerfin Resources I Limited Partnership by Assignment recorded April 25, 1991 in Book 808 Misc., page 779. 15. Rights for Easement or claims of possession for 5" buried gas line as shown on survey of James B. Marshall, dated July 12, 1995, not shown of public record. 16. Rights for Easement or claims of possession for Arkla Gas Line as shown on survey of James B. Marshall, dated July 12, 1995, not shown of public record. EX-10.175 10 EXERCISE AGREEMENT 1 Exhibit 10.175 EXERCISE AGREEMENT (Holdenville) THIS EXERCISE AGREEMENT is entered into effective as of January 5, 1998, by and between CCA PRISON REALTY TRUST, a Maryland real estate investment trust (the "Company") and CORRECTIONS CORPORATION OF AMERICA, a Tennessee corporation ("CCA"). R E C I T A L S: WHEREAS, the Company and CCA entered into a Right to Purchase Agreement dated as of July 7, 1997 whereby, among other things, CCA granted the Company an option to acquire any Future Facility under terms and conditions set forth therein (the "Right to Purchase Agreement"); and WHEREAS, CCA owns a correctional facility in Holdenville, Hughes County, Oklahoma, on real estate described on Exhibit A, attached hereto (the "Facility"); and WHEREAS, the Company desires to exercise its option to acquire the Facility; and WHEREAS, the Right to Purchase Agreement provides that Future Facilities will be acquired on terms and conditions generally consistent with the terms and conditions of the Company's acquisition of certain other facilities from CCA, one of which facilities was a certain facility in Youngstown, Ohio, acquired by the Company pursuant to an Option Agreement dated July 7, 1997 (the "Youngstown Option Agreement") which CCA and the Company have agreed to partially incorporate by reference for the purpose of setting forth certain of the terms and conditions of the Company's acquisition of the Facility; NOW, THEREFORE, for and in consideration of the premises, and other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the Company and CCA hereby agree as follows: 1. Exercise of Option. The Company hereby exercises its option to acquire the Facility, pursuant to the terms of Paragraph 3 of the Right to Purchase Agreement. The Facility will be transferred subject to that certain Lease and Operation Agreement between the Holdenville Industrial Authority (the "Authority") and the Oklahoma Department of Corrections, dated as of July 1, 1996 (the "L & O Agreement"). 2. Terms. The purchase price for the Facility is $36,132,118.00: The Facility will be leased to CCA pursuant to the Master Agreement to Lease between the Company and CCA, dated July 18, 1997 on the following terms: Term - Ten (10) years with three (3) five (5) year renewals Rent - $3,974.533.00 per year, subject to adjustment to fair market value for the first, second and third extended terms. The lease will be subject to the L & O Agreement. 2 3. Additional Terms. (i) The conveyance of the Facility shall not include the rights of CCA under (a) the Monitor Agreement dated August 29, 1995 with Norris & Associates or (b) the Marketing Services Agreement dated August 29, 1995 with Capitol Consultants. Further, it is specifically acknowledged and agreed by the parties that CCA does not own, and is not conveying to the Company, any rights to the inmate pay telephone service agreements relating to the Facility, or to any renewals or replacements thereof. The Company acknowledges that the Authority and the vendor under the inmate pay telephone service agreement with the Authority may have access to the inmate pay telephone equipment in the Facility during normal business hours upon reasonable notice to operate, maintain and repair the equipment. (ii) For convenience of reference, CCA and the Company agree that the Company's acquisition of the Facility shall be undertaken in accordance with the following provisions of the Youngstown Option Agreement: Articles IV, V, VI, VII, VIII, IX, X, XI and to the extent applicable, the definitions set forth in Article I, all of which are incorporated herein by reference and made a part hereof. The Effective Date of this Exercise Agreement shall be the date first written above. 2 3 IN WITNESS WHEREOF, the Company and CCA have executed this Exercise Agreement as of the day and date first set forth above. CCA PRISON REALTY TRUST, a Maryland real estate investment trust By: /S/ Doctor R. Crants --------------------------------- Title: President --------------------------------- CORRECTIONS CORPORATION OF AMERICA, a Tennessee corporation By: /S/ Darrell K. Massengale --------------------------------- Title: Vice President, Finance --------------------------------- 3 4 EXHIBIT A A tract of land lying in the Southeast Quarter (SE/4) of Section 10, Township 7 North, Range 8 East, Indian Meridian, Hughes County, Oklahoma, further described as a point of beginning at a point along the South line of said SE/4, S 89(degree)20'02" W, 469.25 feet from the Southeast corner of said SE/4; thence along the South line of said SE/4, S 89(degree)20'02" W, 1030.75 feet; thence N 00(degree)57'37" W, 2323.20 feet and parallel to the East line of said SE/4; thence N 89(degree)20'02" E, 1500.00 feet and parallel to the South line of said SE/4; thence along said East line of the SE/4 S 00(degree)57'37" E, 1859.20 feet; thence S 89(degree)20'02" W, 469.25 feet; thence S 00(degree)57'37" E, 464.00 feet to the Point of Beginning, containing 75 acres, more or less. 4 EX-10.176 11 PURCHASE & SALE AGREEMENT 1 EXHIBIT 10.176 PURCHASE AND SALE AGREEMENT THIS PURCHASE AND SALE AGREEMENT (the "Agreement") for the convenience of the parties hereto dated as of November 26, 1997, but effective upon the Closing Date, is entered into by and among the CUSHING MUNICIPAL AUTHORITY, an Oklahoma Public Trust (the "Authority"), and CORRECTIONS CORPORATION OF AMERICA, a Tennessee corporation ("CCA"). W I T N E S S E T H: WHEREAS, CCA desires to purchase the Facility, and the Authority desires to sell the Facility to CCA and to use the proceeds therefrom in furtherance of its government purposes; and, WHEREAS, the parties desire to set forth in this Agreement the terms and provisions relating to said purchase and sale. NOW, THEREFORE, in consideration of Ten Dollars ($10.00) cash in hand paid by CCA to the Authority, receipt thereof is hereby acknowledged by the Authority, and for other good and valuable consideration, the parties hereto agree as follows: ARTICLE I DEFINITIONS In each and every place in and throughout this Agreement, whenever the following terms, or any of them are used, unless the context shall clearly indicate another or different meaning or intent, they shall have the following meanings: "Bank" shall mean First Union National Bank of North Carolina, in its capacity as issuer of the Letter of Credit. "Bonds" or "1996 Bonds" shall mean the Cushing Municipal Authority Correctional Facility Revenue Bonds, Series 1996 in the aggregate principal amount of $36,070,000 issued by the Authority pursuant to the terms and provisions of that certain Bond Indenture (the "Indenture"), dated as of October 1, 1996, between the Authority and Liberty Bank and Trust Company of Oklahoma City, National Association, as Trustee (the "Trustee"). "Closing" or "Closing Date" shall mean the date that the consideration under Section 2.3(i) and (ii) is paid by CCA and the Authority conveys the Facility to CCA, but in no event later than December 1, 1997, unless otherwise mutually agreed to by the parties. "Facility" shall mean the real property, easements, fixtures, personal property and incorporeal hereditaments located on the Land, and any additions or improvements thereto, including the Cimarron Correctional Facility, a 500-cell medium security correctional facility constructed and placed thereon. 2 "Land" shall mean the real property comprising approximately 71 acres and located in the City of Cushing, Payne County, Oklahoma, described on Exhibit A, attached hereto and incorporated herein, and upon which the Facility is constructed. "Letter of Credit" shall mean that certain Letter of Credit dated the date of issuance of the Bonds issued by the Bank in the maximum amount of $36,761,753.42. "Management Agreement" shall mean the Management Services Agreement dated as of April 1, 1996, by and between CCA and the Authority pertaining to the operation and management of the Facility by CCA, including any amendments or supplements thereto. "Reimbursement Agreement" shall mean the Reimbursement and Credit Agreement dated as of October 1, 1996, between the Authority and CCA, and any amendments and supplements thereto. "Training Services Agreement" means the Training Services Agreement dated as of October 1, 1996, by and between CCA and the Authority pertaining to the pretraining and preparation relating to the Facility, including any amendments or supplements thereto. ARTICLE II CONVEYANCE OF FACILITY 2.1 Conveyance. (a) On the Closing Date, and upon payment by CCA to or on behalf of the Authority of the consideration set out in Section 2.3(i) and (ii) below, the Authority will convey to CCA the Land, buildings and improvements comprising the Facility by Warranty Deed, in the same form attached hereto as Exhibit B, and the machinery, equipment and other items of personal property comprising the Facility by Bill of Sale and Assignment, in the same form attached hereto as Exhibit C. The Bill of Sale and Assignment will include an assignment of all right, title and interest of the Authority under (i) the Monitor Agreement, dated as of August 29, 1995, between the Authority and Norris & Associates, Inc., and (ii) the Marketing Services Agreement, dated as of August 29, 1995, between the Authority and Capitol Consultants relating to the Facility, and an assumption by CCA of all obligations of the Authority under said agreements from and after the Closing. (b) CCA may obtain, at its option and at its expense, (i) an owner's title insurance commitment from a title insurance company of its choice to issue a title insurance policy insuring marketable fee simple title to the Facility to CCA, which will contain only those title exceptions described in the Warranty Deed attached hereto as Exhibit B, (ii) an as-built survey for the Facility prepared by an Oklahoma registered land surveyor of its choice, which will disclose no matters affecting the Facility other than those described in the Warranty Deed attached hereto as Exhibit B, (iii) a Phase I environmental site assessment report for the Facility from an environmental engineer of its choice, which will disclose no adverse or material environmental matters affecting the Facility other than those matters caused or created by CCA, and/or (iv) a going concern appraisal. The -2- 3 Authority agrees to execute and deliver to the title company issuing said title insurance policy on or before the Closing such resolutions, consents, notices and title affidavits and certifications reasonably requested or customarily required by the title company in order to enable the title company to issue its title policy to CCA, upon payment of the premium therefor, without title exceptions or requirements other than those title exceptions contained in the Warranty Deed attached hereto as Exhibit B and with the standard preprinted title exceptions deleted therefrom. 2.2 Exclusions from Conveyance. (i) It is specifically acknowledged and agreed by the parties that CCA is not acquiring the rights to the Authority's inmate pay telephone service agreement relating to the Facility, or to any renewals or replacements thereof entered into by the Authority, as part of this transaction. CCA agrees to allow the Authority and the vendor under the inmate pay telephone service agreement with the Authority access to the inmate pay telephone equipment in the Facility during normal business hours upon reasonable notice to operate, maintain and repair the equipment. (ii) On the Closing Date, CCA agrees to convey to the Authority a Utility Easement and a Roadway Easement in the same forms attached hereto as Exhibit D. It is specifically acknowledged and agreed by the parties that CCA is not acquiring the electric poles, electric lines and appurtenances, water lines and sewer lines which are physically located within such Utility Easement or Roadway Easement. 2.3 Consideration. (i) On the Closing Date, CCA will pay to the Authority the amount of One Million Five Hundred Thousand Dollars ($1,500,000) by cashier's or certified check or wire transfer funds, subject to the prorations set forth in Section 2.4. (ii) As additional consideration to the Authority hereunder, on the Closing Date, CCA will reimburse the Bank the amount paid by the Bank under the Letter of Credit to the Trustee in order to prepay, in full, the principal amount of the 1996 Bonds, without premium, plus accrued interest through and including the Closing Date. The foregoing payment by CCA shall be without any reimbursement by the Authority to CCA under the Reimbursement Agreement, which reimbursement obligation of the Authority CCA forgives, releases and forever discharges the Authority from and after the Closing. On the Closing Date, the Authority will provide written instructions to the Trustee directing the Trustee to pay to CCA the amount of all surplus funds held by the Trustee under the Indenture as an additional management fee to CCA under the Management Agreement. (iii) As additional consideration to the Authority hereunder, CCA agrees that the Authority shall be the sole provider of the following utility services for the Facility: electric, water, sewer and gas; provided that the amount charged by the Authority for gas shall not exceed the best applicable rate published by Arkansas Louisiana Gas Company for customers of similar size and usage; and provided further the amount charged by the Authority for electric, water and sewer services shall not be greater than the rates charged by the Authority to other commercial customers of similar size and usage. -3- 4 (iv) The Authority and CCA each acknowledge and agree that the consideration for the Facility set forth herein was negotiated by the parties at arms length. CCA represents that the consideration for the Facility is a fair price offered by CCA after examination of the cost of other like facilities in the marketplace, and that CCA is under no obligation to purchase. The Authority represents that the consideration for the Facility is a fair price agreed to by the Authority after reasonable investigation and calculation, and that the Authority is under no obligation to sell. 2.4 Prorations. Real estate taxes with respect to the Land shall be prorated to the Closing Date. The Authority will pay any special assessments maturing with respect to the Land to the date of Closing, and special assessments, if any, maturing on or after the date of Closing shall be paid by CCA. 2.5 Closing Costs. CCA will pay (i) the recording costs and transfer taxes to record the Warranty Deed, (ii) the premium for the owner's title insurance policy issued to CCA, (iii) the cost of the as-built survey, the Phase I environmental site assessment report and the going concern appraisal obtained by CCA, (iv) the legal expenses of J. Stewart Arthurs, as counsel to the Authority, and J. Scott Brown, as bond counsel, and (v) the expense to calculate as provided in the Indenture the rebate amount of earnings, if any, due to the federal government, and the rebate amount of earnings, if any, determined by such calculation to be owed to the federal government. 2.6 Termination of Agreements. Upon and after the Closing, the Management Agreement and the Training Services Agreement shall each terminate and shall be of no further force or effect; provided, however, that (i) the fees due to CCA under the Management Agreement for services provided by CCA prior to the Closing shall be billed, collected and paid to CCA as provided in the Management Agreement and (ii) the indemnification provisions contained in the Management Agreement shall continue in full force and effect with respect to any act or cause of action occurring or accruing prior to the Closing. The Authority agrees to authorize and direct the Trustee under the Indenture to pay to CCA any amounts received by the Trustee subsequent to the Closing from any Transferring Entities (as defined in the Management Agreement) for services provided by the Authority or CCA prior to the Closing. The Authority agrees to assist and to cooperate in good faith with CCA in connection with the billing, collection and payment of all such fees, and agrees to promptly remit to CCA any payments it receives for such fees. Notwithstanding the foregoing, CCA acknowledges and agrees that the obligation of the Authority to make any payments under the Management Agreement shall be limited and special obligations of the Authority payable solely from the amounts received from the Transferring Entities (as defined in the Management Agreement) and shall never become a debt or obligation of any trustee, employee or officer of the Authority. 2.7 Further Assurances/Cooperation. CCA and the Authority each agree to cooperate in good faith with each other and to execute and deliver in connection with the Closing such other and further agreements, documents and instruments as may be reasonably necessary or required in order to fully consummate the transactions contemplated by this Agreement. -4- 5 ARTICLE III REPRESENTATIONS 3.1 Representations and Covenants by CCA. CCA makes the following representations as the basis for the undertakings on its part herein contained and hereby covenants and agrees: (a) CCA is a corporation duly incorporated under the laws of Tennessee and is qualified to do business in and is in good standing in Oklahoma. (b) Neither the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby, nor the fulfillment of or compliance with the terms and conditions of this Agreement conflict with or result in a breach of any of the terms, conditions or provisions of any corporate restriction or any agreement or instrument to which CCA is now a party or by which it is bound, or constitute a default under any of the foregoing, or result in the creation or imposition of any prohibited lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of CCA under the terms of any instrument or agreement. (c) CCA has full power and authority to execute and deliver this Agreement and upon such execution and delivery, said document shall be valid and legally binding against CCA in accordance with its terms. 3.2 Representations by the Authority. The Authority has been duly created and is existing under the laws of the State of Oklahoma and under the Trust Indenture creating the Authority it has the power to enter into the transactions contemplated by, and to carry out its obligations under, this Agreement and will do or cause to be done all things necessary to keep the Authority in existence and in good standing so long as necessary for the purposes thereof. The Authority is not in default under any of the provisions contained in its Trust Indenture or in the laws of Oklahoma or in any other instrument by which it is bound. By proper action of its Trustees, the Authority has been duly authorized to execute, deliver and perform this Agreement, the Warranty Deed attached hereto as Exhibit B, and the Bill of Sale and Assignment attached hereto as Exhibit C. ARTICLE IV MISCELLANEOUS 4.1 Successors and Assigns. All terms, provisions, conditions, covenants, warranties and agreements contained herein shall be binding upon the successors and assigns of both the Authority and CCA and all such terms, provisions, conditions, covenants, warranties and agreements shall likewise inure to the benefit of everyone who may at any time be a beneficiary hereunder. 4.2 Preservation and Inspection of Documents. All documents received by CCA or the Authority under the provisions of this Agreement shall be retained in its possession and shall be subject at all reasonable times to the inspection of CCA and the Authority and their agents and their -5- 6 representatives, any of whom may make copies thereof under such reasonable terms and regulations as the holder of such documents may set out. 4.3 Parties Interested Herein. Nothing in this Agreement expressed or implied is intended or shall be construed to confer upon, or to give to, any person or corporation, other than the Authority or CCA, any right, remedy or claim under or by reason of this Agreement or any covenant, condition or stipulation thereon. 4.4 Severability of Invalid Provisions. If any one or more of the covenants or agreements provided in this Agreement on the part of the parties hereto to be performed should be contrary to law, then such covenant or covenants or agreement or agreements shall be deemed severable from the remaining covenants and agreements, and shall in no way affect the validity of the other provisions of this Agreement. 4.5 Consents and Approvals. Whenever the written consent or approval of any party hereto shall be required under the provisions of this Agreement, such consent or approval shall not be unreasonably withheld or delayed. 4.6 Notices, Demands and Requests. All notices, demands and requests to be given or made hereunder to or by the parties shall be in writing and shall be properly made if delivered personally, or sent by registered or certified mail, or by a nationally recognized express courier service, all charges prepaid, to the other party at the address set forth below, or at such other address as may hereafter be provided in writing. The date of personal delivery, or the date of mailing or of delivery to such nationally recognized express courier service, as the case may be, shall be the date of such notice, demand or request: (a) AUTHORITY Cushing Municipal Authority City Hall P. O. Box 311 Cushing, Oklahoma 74023-0311 Attn: Chairman (b) CCA Doctor R. Crants Chairman and Chief Executive Officer Corrections Corporation of America 10 Burton Hills Boulevard Nashville, Tennessee 37215 4.7 Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. -6- 7 4.8 Applicable Law. This Agreement shall be governed exclusively by the applicable laws of the State of Oklahoma. 4.9 Section Headings Not Controlling. The headings of the several sections of this Agreement have been prepared for convenience of reference only and shall not control, affect the meaning of, or be taken as an interpretation of any provision of this Agreement. 4.10 Amendment. This Agreement may only be amended by mutual agreement in writing signed between the parties. 4.11 Entire Agreement. The foregoing represents the entire agreement between the parties. 4.12 Survival. It is understood and agreed by the parties hereto that whether or not it is specifically so provided herein, any term or provision of this Agreement, which by its nature or effect is required to be kept, observed or performed after the Closing and conveyance of title, shall not be merged therein, but shall be and remain binding upon and for the benefit of the parties hereto until fully kept, observed or performed. 4.13 Broker and Commission. CCA and the Authority each warrant to the other than no broker has been involved in the transactions set forth in this Agreement, and each will indemnify and hold the other party harmless from any claims for broker commissions arising from such party's actions. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by its duly authorized officers all as of the day and year first above written. (SEAL) CUSHING MUNICIPAL AUTHORITY ATTEST: /s/ Joe R. Manning, Jr. ----------------------------------- Joe R. Manning, Jr., Chairman /s/ Albertein Flint - ----------------------------- Secretary CORRECTIONS CORPORATION OF AMERICA By: /s/ Doctor R. Crants ------------------------------- Title: Chairman & CEO ---------------------------- -7- 8 STATE OF OKLAHOMA ) ) SS COUNTY OF PAYNE ) The foregoing instrument was acknowledged before me this 1st day of December, 1997, by Joe R. Manning, Jr., Chairman of Cushing Municipal Authority, a public trust, on behalf of said Authority. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ Brenda D. Butcher --------------------------------- Notary Public My Commission Expires: 9-9-2001 - ---------------------- STATE OF TENNESSEE ) ) SS COUNTY OF DAVIDSON ) The foregoing instrument was acknowledged before me this 26th day of November, 1997, by Doctor R. Crants, the Chairman & CEO of Corrections Corporation of America, on behalf of said corporation. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ Carole M. Maxson ------------------------------------- Notary Public My Commission Expires: 9/23/2000 - ---------------------- -8- 9 EXHIBIT A (Real Estate Description) (Cimarron Correctional Facility) A tract, piece or parcel of land in the Southwest Quarter (SW/4) of Section Sixteen (16), Township Seventeen (17) North, Range Five (5) East of the Indian Meridian, Payne County, State of Oklahoma, more particularly described as follows: Beginning at a 40D nail for the SW corner of said SW/4; thence N 89(degree)17'22" E, along the South line of said SW/4 a distance of 2595.89 feet to a 1/2 inch iron pin at the SE corner of said SW/4; thence N 01(degree)23'02" W a distance of 986.67 feet to a 1/2 inch iron pin at the NE corner of the S1/2 of the NE/4, SE/4, SW/4; thence S 89(degree)25'49" W a distance of 646.01 feet to a 1/2 inch iron pin at the NW corner of S/2, NE/4, SE/4, SW/4; thence N 01(degree)12'40" W a distance of 329.41 feet to a 1/2 inch iron pin at the NE corner of the W/2, SE/4, SW/4; thence S 89(degree)28'39" W a distance of 645.02 feet to a 1/2 inch iron pin at the NE corner of the SW/4, SW/4; thence S 81(degree)44'00" W a distance of 1301.39 feet to a 40D nail on the West line of said SW/4; thence S 00(degree)41'45" E, along the West line of said SW/4 a distance of 1148.57 feet to the point or place of beginning. 10 EXHIBIT B WARRANTY DEED 11 EXHIBIT C BILL OF SALE AND ASSIGNMENT STATE OF OKLAHOMA ss. ss. KNOW ALL MEN BY THESE PRESENTS: COUNTY OF _________________ ss. THAT, CUSHING MUNICIPAL AUTHORITY, a duly formed Public Trust of the State of Oklahoma, acting by and through its trustees ("Grantor" or "Seller"), for and in consideration of the sum of Ten and No/100 Dollars ($10.00) and other good and valuable consideration to it in hand paid by CORRECTIONS CORPORATION OF AMERICA, a Tennessee corporation ("Grantee" or "Purchaser"), to the extent legally permissible, has GRANTED, SOLD, ASSIGNED, TRANSFERRED, CONVEYED, and DELIVERED and does by these presents GRANT, SELL, ASSIGN, TRANSFER, CONVEY, and DELIVER unto the said Purchaser, all of Seller's right, title and interest in and to the following described properties, rights, and interests (the "Personal Property"), located on or about that certain land described on Exhibit A, attached hereto and incorporated herein for all purposes, or the buildings, improvements, structures and fixtures thereon (the "Real Property"), or used in connection with the operation thereof: All permits, licenses (but excluding Seller's business and operating licenses), approvals, entitlements and other government, quasi-government and non-government authorizations including, without limitation, certificates of use and occupancy, required in connection with the ownership, planning, development, construction, use, operation or maintenance of the Real Property, to the extent the same are assignable by Seller, any leases, contract rights, loan agreements, mortgages, easements, covenants, restrictions or other agreements or instruments affecting all or a portion of the Real Property or Personal Property, to the extent the same are assignable by Seller, and other intangible property or any interest therein owned or held by Seller in connection with the Real Property, including all rights to use the trade name applicable to the Real Property, and zoning rights related to the Real Property, or any part thereof, and Seller's accounts receivable relating to the Real Property, to the extent the same are assignable by Seller; provided, however, such Personal Property shall not include the general corporate trademarks, trade names (except as set forth above), service marks, logos or insignia or the books and records of Seller and Seller's business and operating licenses for the facilities on the Real Property. All warranties and guaranties with respect to the Real Property or Personal Property, whether express or implied, which Seller now holds or under which Seller is the beneficiary, to the extent the same are assignable by Seller. All site plans, surveys, soil and substrata studies, architectural drawings, plans and specifications, engineering plans and studies, floor plans, landscape plans, Americans with Disabilities Act compliance reports, environmental reports and studies, professional inspection reports, construction and/or architect's reports or certificates, feasibility studies, 12 appraisals, and other similar plans and studies that relate to the Real Property, to the extent the same are assignable by Seller. That certain Monitor Agreement, dated as of August 29, 1995, between the Seller and Norris & Associates, Inc., and that certain Marketing Services Agreement, dated as of August 29, 1995, between the Seller and Capitol Consultants. All furnishings, equipment, tools, machinery, fixtures, appliances, and all other tangible personal property located on or about the Real Property or used in connection with the operation thereof which is owned by Seller including, but not limited to, all those items of tangible personal property described on Exhibit B, attached hereto and incorporated herein for all purposes. THERE IS EXPRESSLY EXCLUDED FROM THE PERSONAL PROPERTY THE FOLLOWING: (i) all those items of tangible and intangible personal property described on Exhibit C, attached hereto and incorporated herein for all purposes, (ii) personal property owned by employees of Seller and personal property owned by inmates housed at the Real Property, and (iii) except as otherwise specifically provided herein, all management, service and operating agreements and contracts entered into by Seller with respect to the Real Property or the Personal Property, including, but not limited to, agreements and contracts to house inmates at the Real Property and the inmate pay telephone service agreement relating to the Real Property, including any renewals or replacements thereof entered into by the Seller. TO HAVE AND TO HOLD the Personal Property unto the said Purchaser, its successors and assigns, forever, and Seller does hereby bind itself and its successors to warrant and forever defend, all and singular, title to the said Personal Property unto the said Purchaser, its successors and assigns, against every person whomsoever lawfully claiming or to claim the same, or any part thereof by, through or under Seller, but not further or otherwise. Seller and its successors hereby warrants, represents, covenants and agrees with Purchaser as follows: (i) That Seller is the owner of the Personal Property, which Personal Property is free and clear of any and all liens, security interests, or other encumbrances; (ii) That Seller shall indemnify and hold harmless Purchaser from and against any and all liability, loss, damage, cost or expense, including reasonable attorneys' fees, which Purchaser may suffer or incur by reason of any act or cause of action occurring or accruing prior to the effective date hereof and arising out of the ownership and/or operation of the Real Property or the Personal Property, except for any liability, loss, damage, cost or expense arising out of the actions or omissions of the Purchaser and except for any matters which Purchaser has agreed to indemnify and hold the Seller harmless from and against as set forth in that certain Management Services Agreement dated as of April 1, 1996, between the Seller and Purchaser. 13 Purchaser and its successors and assigns hereby warrant, represent, covenant and agree with Seller that Purchaser shall indemnify and hold harmless Seller from and against any and all liability, loss, damage, cost or expense, including reasonable attorneys' fees, which Seller may suffer or incur by reason of any act or cause of action occurring or accruing subsequent to the effective date hereof and arising out of the ownership and/or operation of the Real Property or the Personal Property, except any liability, loss, damage, cost or expense arising out of the actions or omissions of the Seller. The agreements, covenants, warranties and representations herein set forth shall be binding upon and shall inure to the benefit of Seller and Purchaser and their respective successors and assigns. IN WITNESS WHEREOF, the parties hereto have caused this Bill of Sale and Assignment to be executed by its duly authorized officers effective as of December 1, 1997. SELLER: CUSHING MUNICIPAL AUTHORITY ------------------------------------- (SEAL) Joe R. Manning, Jr., Chairman ATTEST: - ------------------------------ Secretary PURCHASER: CORRECTIONS CORPORATION OF AMERICA By: ---------------------------------- Title: ------------------------------ 14 STATE OF OKLAHOMA ) ) SS COUNTY OF______________ ) The foregoing instrument was acknowledged before me this _____ day of _____________, 1997, by Joe R. Manning, Jr., Chairman of Cushing Municipal Authority, a public trust, on behalf of said Authority. IN WITNESS WHEREOF, I hereunto set my hand and official seal. ------------------------------------- Notary Public My Commission Expires: - ---------------------- STATE OF ________________ ) ) SS COUNTY OF _______________ ) The foregoing instrument was acknowledged before me this _____ day of ______________, 1997, by ____________________________, the ________________________________ of Corrections Corporation of America, on behalf of said corporation. IN WITNESS WHEREOF, I hereunto set my hand and official seal. ------------------------------------- Notary Public My Commission Expires: - --------------------- 15 Exhibit A to Bill of Sale and Assignment Property Description A tract, piece or parcel of land in the Southwest Quarter (SW/4) of Section Sixteen (16), Township Seventeen (17) North, Range Five (5) East of the Indian Meridian, Payne County, State of Oklahoma, more particularly described as follows: Beginning at a 40D nail for the SW corner of said SW/4; thence N 89(degree)17'22" E, along the South line of said SW/4 a distance of 2595.89 feet to a 1/2 inch iron pin at the SE corner of said SW/4; thence N 01(degree)23'02" W a distance of 986.67 feet to a 1/2 inch iron pin at the NE corner of the S1/2 of the NE/4, SE/4, SW/4; thence S 89(degree)25'49" W a distance of 646.01 feet to a 1/2 inch iron pin at the NW corner of S/2, NE/4, SE/4, SW/4; thence N 01(degree)12'40" W a distance of 329.41 feet to a 1/2 inch iron pin at the NE corner of the W/2, SE/4, SW/4; thence S 89(degree)28'39" W a distance of 645.02 feet to a 1/2 inch iron pin at the NE corner of the SW/4, SW/4; thence S 81(degree)44'00" W a distance of 1301.39 feet to a 40D nail on the West line of said SW/4; thence S 00(degree)41'45" E, along the West line of said SW/4 a distance of 1148.57 feet to the point or place of beginning, a tract to contain 70.926 acres more or less. 16 Exhibit B to Bill of Sale and Assignment Items of Personal Property See Exhibit B-1 to Bill of Sale and Assignment, attached hereto and incorporated herein. Seller and Purchaser agree to attach as Exhibit B to this Bill of Sale and Assignment an updated schedule of the items of tangible personal property as soon as the same is completed, and when so attached such schedule shall be deemed a part of this Bill of Sale and Assignment. 17 Exhibit B-1 to Bill of Sale and Assignment Items of Personal Property 18 Exhibit C to Bill of Sale and Assignment Seller's Excluded Personal Property Asset Number Vendor Description - ------------ ------ ----------- NONE EX-10.177 12 EXERCISE AGEEMENT 1 EXHIBIT 10.177 EXERCISE AGREEMENT THIS EXERCISE AGREEMENT is entered into effective as of December 11, 1997, by and between CCA PRISON REALTY TRUST, a Maryland real estate investment trust (the "Company") and CORRECTIONS CORPORATION OF AMERICA, a Tennessee corporation ("CCA"). R E C I T A L S: WHEREAS, the Company and CCA entered into a Right to Purchase Agreement dated as of July 7, 1997 whereby, among other things, CCA granted the Company an option to acquire any Future Facility under terms and conditions set forth therein (the "Right to Purchase Agreement"); and WHEREAS, CCA owns a correctional or detention facility in Cushing, Payne County, Oklahoma, as described on Exhibit A (the "Facility"); and WHEREAS, the Company desires to exercise its option to acquire the Facility; and WHEREAS, the Right to Purchase Agreement provides that Future Facilities will be acquired on terms and conditions generally consistent with the terms and conditions of the Company's acquisition of certain other facilities from CCA, one of which facilities was a certain facility in Youngstown, Ohio, acquired by the Company pursuant to an Option Agreement dated July 7, 1997 (the "Youngstown Option Agreement") which CCA and the Company have agreed to partially incorporate by reference for the purpose of setting forth certain of the terms and conditions of the Company's acquisition of the Facility; NOW, THEREFORE, for and in consideration of the premises, and other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the Company and CCA hereby agree as follows: 1. Exercise of Option. The Company hereby exercises its option to acquire the Facility, pursuant to the terms of Paragraph 3 of the Right to Purchase Agreement. 2. Terms. The purchase price for the Facility is $37,678,508.00. Additionally, the Company shall reimburse CCA for certain costs and expenses related to the Facility in the amount of $618,217.00. The Facility will be leased to CCA pursuant to the Master Agreement to Lease between the Company and CCA, dated July 18, 1997 on the following terms: Term - Ten (10) years with three (3) five (5) year renewals. Rent - $4,212,640.00 per year, subject to adjustment to fair market value for the first, second and third extended terms. 2 3. Additional Terms. (i) The conveyance of the Facility shall not include the rights of CCA under (a) the Monitor Agreement dated August 29, 1995 with Norris & Associates or (b) the Marketing Services Agreement dated August 29, 1995 with Capitol Consultants. Additionally, the Company acknowledges that the Cushing Municipal Authority ("Authority") shall be the sole provider of the following utility services for the Facility: electric, water, sewer and gas provided the amount charged by the Authority for gas shall not exceed the best applicable rate published by Arkansas Louisiana Gas Company for customers of similar size and usage; and provided further the amount charged by the Authority for electric, water and sewer services shall not be greater than the rates charged by the Authority to other commercial customers of similar size and usage. Further, it is specifically acknowledged and agreed by the parties that CCA does not own, and is not conveying to the Company, any rights to the inmate pay telephone service agreements relating to the Facility, or to any renewals or replacements thereof. The Company acknowledges that the Authority and the vendor under the inmate pay telephone service agreement with the Authority may have access to the inmate pay telephone equipment in the Facility during normal business hours upon reasonable notice to operate, maintain and repair the equipment. (ii) For convenience of reference, CCA and the Company agree that the Company's acquisition of the Facility shall be undertaken in accordance with the following provisions of the Youngstown Option Agreement: Articles IV, V, VI, VII, VIII, IX, X, XI and to the extent applicable, the definitions set forth in Article I, all of which are incorporated herein by reference and made a part hereof. The Effective Date of this Exercise Agreement shall be the date first written above. 2 3 IN WITNESS WHEREOF, the Company and CCA have executed this Exercise Agreement as of the day and date first set forth above. CCA PRISON REALTY TRUST, a Maryland real estate investment trust By: /s/ D. Robert Crants, III --------------------------------- Title: President --------------------------------- CORRECTIONS CORPORATION OF AMERICA, a Tennessee corporation By: Darrell K. Massengale --------------------------------- Title: Vice President, Finance --------------------------------- 3 4 EXHIBIT A A tract, piece or parcel of land in the Southwest Quarter (SW/4) of Section Sixteen (16), Township Seventeen (17) North, Range Five (5) East of the Indian Meridian, Payne County, State of Oklahoma, more particularly described as follows: Beginning at a 40D nail for the SW corner of said SW/4; thence N 89(degree)17'22" E, along the South line of said SW/4 a distance of 2595.89 feet to a 1/2 inch iron pin at the SE corner of said SW/4; thence N 01(degree)23'02" W a distance of 986.67 feet to a 1/2 inch iron pin at the NE corner of the S1/2 of the NE/4, SE/4, SW/4; thence S 89(degree)25'49" W a distance of 646.01 feet to a 1/2 inch iron pin at the NW corner of S/2, NE/4, SE/4, SW/4; thence N 01(degree)12'40" W a distance of 329.41 feet to a 1/2 inch iron pin at the NE corner of the W/2, SE/4, SW/4; thence S 89(degree)28'39" W a distance of 645.02 feet to a 1/2 inch iron pin at the NE corner of the SW/4, SW/4; thence S 81(degree)44'00" W a distance of 1301.39 feet to a 40D nail on the West line of said SW/4; thence S 00(degree)41'45" E, along the West line of said SW/4 a distance of 1148.57 feet to the point or place of beginning, a tract to contain 70.926 acres more or less. 4 EX-10.178 13 STOCK PURCHASE AGEEMENT 1 EXHIBIT 10.178 STOCK REPURCHASE AGREEMENT This Stock Repurchase Agreement is made and entered into this 30 day of September, 1997, by and between Thomas W. Beasley, a resident of Burns, Tennessee ("Seller") and Corrections Corporation of America, a Tennessee corporation headquartered in Nashville, Tennessee ("Buyer"). FOR AND IN CONSIDERATION of the mutual covenants contained herein and other good and valuable consideration, the parties hereto agree as follows: 1. Recitals. Seller desires to sell to Buyer, and Buyer is willing to purchase from Seller, 122,500 shares of Common Stock (the "Shares") of Buyer owned by Seller and represented by Buyer's certificate number CC 13573, all in accordance with the terms of this Agreement. 2. Redemption of The Shares. Seller hereby agrees to sell and assign all of the Shares to Buyer at the closing and agrees to execute such stock powers and other instruments of conveyance as may be reasonably requested by Buyer in order to effectuate the transfer of the Shares. 3. Payment of Purchase Price. Buyer agrees to pay to Seller the product of 122,500 times the closing price of Buyer's Common Stock as reported on the New York Stock Exchange on September 30, 1997 ($43.50), in complete payment for the Shares sold by Seller to Buyer, such price to be payable in cash at the closing or at such date as agreed to by the parties hereto. 4. Warranties and Representations of Seller. Seller represents and warrants that he is the lawful owner of, and has good and marketable title to, the Shares; the Shares are subject to no liens or encumbrances whatsoever; and Seller has full power and authority to enter into this Agreement and to convey the valid title of the Shares to Buyer free and clear of all liens, pledges and encumbrances whatsoever. Buyer represents and warrants that he knows of no reason why Seller cannot consummate this transaction. Neither the execution and delivery of this Agreement nor the carrying out of the transactions contemplated hereby will result in any violation of any term of any material agreement or instrument to which the Buyer is a party or by which it is bound, or of any law or government order, rule or regulation which is applicable to the Buyer. No consents or approvals of any persons or entities, government or otherwise, are required which have not been, or will not have been prior to the closing, obtained in respect of the execution and delivery by the Buyer of this Agreement and the carrying out of the transactions contemplated hereby on the part of the Buyer. 5. Indemnification by Seller. Seller agrees to defend, indemnify and hold harmless Buyer from, against in respect of any and all loss or damage to Buyer in whole or in part resulting from: (a) Any breach of any of the warranties by Seller contained herein, or any misstatement or omission of fact, or failure to state the facts necessary to make those statements made not misleading, in or under this Agreement; and 2 (b) Any liability or obligation arising out of any actions, suits, proceedings, claims, demands, judgments, costs and expenses (including court costs and reasonable legal and accounting fees) incident to any of the foregoing. 6. Closing. The closing shall take place on September 30, 1997 or on such other date as agreed to by the parties hereto. 7. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Tennessee, applicable to contracts made and to be performed therein. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. BUYER: CORRECTIONS CORPORATION OF AMERICA By: /s/ Darrell K. Massengale ----------------------------------- Title: Chief Financial Officer -------------------------------- SELLER: /s/ Thomas W. Beasley --------------------------------------- THOMAS W. BEASLEY EX-10.179 14 LEASE AGREEMENT 1 EXHIBIT 10.179 LEASE AGREEMENT (HOUSTON) THIS LEASE AGREEMENT ("Lease") dated as of the 18th day of July, 1997, by and between CCA PRISON REALTY TRUST, a Maryland real estate investment trust ("Landlord") and CORRECTIONS CORPORATION OF AMERICA, a Tennessee corporation ("Tenant"). RECITALS WHEREAS, Tenant (or one of Tenant's affiliates) has concurrently conveyed to Landlord the property described in Exhibit A hereto, and Landlord and Tenant desire that Landlord lease such property back to Tenant; and WHEREAS, Landlord and Tenant have entered into a Master Agreement to Lease of even date herewith (the "Master Agreement") which sets forth certain agreements of the parties with respect to the lease of various properties including the property that is the subject of this Lease; NOW, THEREFORE, in consideration of the premises and of their respective agreements and undertakings herein, Landlord and Tenant agree as follows: ARTICLE I PREMISES AND TERM 1.1 Leased Property. Landlord hereby leases to Tenant and Tenant leases from Landlord the Land located in the City of Houston, Harris County, State of Texas, described in Exhibit A hereto, and all Improvements, Fixtures, and Personal Property thereon or thereto (each as defined in the Master Agreement, and, together with said Land, the "Leased Property"); such Leased Property collectively known and described at the date hereof as the Houston Processing Center; SUBJECT, HOWEVER, to the lien of the mortgage debt described in Exhibit B hereto, if any, and to all easements, liens, encumbrances, restrictions, agreements, and other title matters existing as of the date hereof and listed in Exhibit C hereto (collectively the "Permitted Exceptions"). 1.2 Term. The initial term (the "Fixed Term") of the Lease shall be for a fixed term of twelve (12) years commencing on July 18, 1997 (the "Commencement Date") and expiring on July 17, 2009 (the "Expiration Date"). The Term of this Lease may be renewed on the mutual agreement of Landlord and Tenant as follows: (i) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the Expiration Date, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as set forth in the Lease; (ii) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the expiration of the Extended Term, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Second Extended Term") on the same terms and provisions (other than with respect to renewal) as 2 the Fixed Term, as set forth in the Lease; and (iii) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the expiration of the Second Extended Term, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Third Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as set forth in the Lease. Tenant's right to so extend the Term of the Lease is conditioned on Landlord's prior approval of the Extended Term, Second Extended Term, or Third Extended Term, as the case may be. The term "Term" used in this Agreement means the Fixed Term, Extended Term, Second Extended Term and Third Extended Term, as appropriate. The term "Lease Year" means each twelve (12) month period during the Term commencing on January 1 and ending on December 31, except the first Lease Year of each Lease shall be the period from the Commencement Date through the following December 31, and the last Lease Year shall end on the date of termination of the Lease if a day other than December 31. Landlord may terminate this Lease prior to the expiration of the Term hereof, at any time following the date which is five (5) years from the date hereof, upon written notice to Tenant not less than eighteen (18) months prior to the effective date of such termination. ARTICLE II RENT 2.1 Base Rent. Tenant shall pay Landlord Base Rent for the Term in advance in consecutive monthly installments payable on the first day of each month during the Term, the Extended Term, Second Extended Term and the Third Extended Term, commencing on the Commencement Date, in accordance with the Base Rent Schedule attached hereto as Exhibit D. If the Commencement Date or the Expiration Date shall be other than on the first day of a calendar month, the initial (or final, as appropriate) monthly installment of Base Rent payable pursuant to the Lease shall be prorated for the number of days until, in the case of the initial monthly installment, the first day of the calendar month following the Commencement Date and, in the case of the final monthly installment, the Expiration Date. 2.2 Additional Rent. The Base Rent shall be subject to such increases over the Term as determined pursuant to Section 2.02 of the Master Agreement. 2.3 Other Additional Rent. Tenant shall also pay all Other Additional Rent with respect to the Leased Property, as set forth in the Master Agreement. ARTICLE III OTHER TERMS AND CONDITIONS 3.1 Master Agreement Incorporated Herein. All provisions of the Master Agreement (except any provisions expressly therein not to be a part of an individual lease of leased property) are hereby incorporated in and are a part of this Lease of the Leased Property. 2 3 3.2 Recordation. At the request of Landlord or Tenant, a short form memorandum of this Lease may be recorded in the real estate records of any county which Landlord or Tenant deems appropriate in order to provide legal notice of the existence hereof. IN WITNESS WHEREOF, the Landlord and the Tenant have executed this Lease or caused the same to be executed by their respective duly authorized officers as of the date first set forth above. CCA PRISON REALTY TRUST By: /s/ Michael W. Devlin ----------------------------------------- Title: Chief Development Officer -------------------------------------- CORRECTIONS CORPORATION OF AMERICA By: /s/ Doctor R. Crants ----------------------------------------- Title: Chief Executive Officer -------------------------------------- 3 4 EXHIBIT A Legal Description of Leased Property Metes and Bounds Description 5.843 Acres (254,531 Square Feet) Portion of Reserve "C" Block One World/Houston Section One International Business Center William Lloyd Survey, A-1407 Harris County, Texas Being a tract or parcel containing 5.843 acres (254,531 square feet) of land situated in the William Lloyd Survey, Abstract No. 1407, Harris County, Texas, being out of and a part of Reserve "C" Block One of World/Houston Section One International Business Center, recorded in Volume 278, Page 25 of the Harris County Map Records (H.C.M.R.) and being the same called 5.840 acre tract described in deed recorded under Clerk's File Number J194317 of the Harris County Official Public Records of Real Property (H.C.O.P.R.R.P.); said 5.843 acre tract being more particularly described by metes and bounds as follows with all bearings referenced to said subdivision plat: Beginning at a 5/8-inch iron rod found for the northeast corner of said Reserve "C" and the herein described tract, being the southeast corner of that certain called 6.6031 acre tract, described in deed recorded under Clerk's File Number G291174 of said H.C.O.P.R.R.P. and being in the west line of Lot 10 of Block One, Greenlee Addition, a subdivision in Harris County of record in Volume 40, Page 32 of said H.C.M.R.: THENCE, South 02 degrees 51 minutes 21 seconds East, 485.42 feet along the line common to said Reserve "C" and said Greenlee Addition to a 3/4-inch galvanized iron pipe found for the northeast corner of that certain called 5.50 acre tract described in deed recorded under Clerk's File Number H038206 of said H.C.O.P.R.R.P., and being the southeast corner of the herein described tract; THENCE, South 89 degrees 07 minutes 09 seconds West, departing the west line of said Block 1 of Greenlee Addition and along the north line of said 5.50 acre tract, 500.50 feet to a 3/4-inch galvanized iron pipe found for the common west corner of said 5.50 acre tract and the herein described tract, and being in the existing east right-of-way line of Export Plaza Drive (80 feet wide); THENCE, North 02 degrees 51 minutes 27 seconds West, 104.37 feet along the existing east right-of-way line of said Export Plaza Drive to a 3/4-inch galvanized iron pipe found for the beginning of a tangent curve to the left; THENCE, Northwesterly, 172.82 feet along the existing east right-of-way line of said Export Plaza Drive, the existing north right-of-way line of Consulate Plaza Drive (80 feet wide) and along the arc of said curve to the left (Central Angle = 70 degrees 43 minutes 34 seconds, Radius = 140.00 feet, Chord Bearing and Distance = North 38 degrees 13 minutes 14 seconds West, 162.05 feet) to a 5/8- 5 inch iron rod found for a common south corner of Reserves "B" and "C" of said World/Houston Section One International Business Center; THENCE, North 16 degrees 24 minutes 59 seconds East, 246.82 feet departing the existing north right-of-way line of said Consulate Plaza Drive and along the common line between said Reserve "B" and "C" to a 5/8-inch iron rod found for the common corner of Reserves "A", "B" and "C" of said World/Houston Section One International Business Center, being the southwest corner of said 6.6031 acre tract and being the northwest corner of the herein described tract from which a found 8-inch square cross-tie fence corner post bears South 52 degrees 12 minutes 39 seconds East, 0.74 feet; THENCE, North 87 degrees 17 minutes 38 seconds East, 512.53 feet along the common line between the herein described tract, Reserve "C" and said 6.6031 acre tract to the POINT OF BEGINNING containing 5.843 acres (254,531 square feet) of land, more or less. Compiled by: SURVCON INC. Job No. 5980-01 April 14, 1997 D-2 Houston Processing Center Houston, Harris County Texas 6 EXHIBIT B Mortgage Debt Property: Houston Processing Center This property is subject to the following Mortgage Debt: That certain deed of trust of First Union National Bank of Tennessee, as Administrative Agent, dated July 18, 1997. 7 EXHIBIT C Permitted Exceptions Property: Houston Processing Center 1. Standby fees, taxes and assessments by any taxing authority for the year 1997, and subsequent years. 2. The following restrictive covenants of record itemized below: Volume 278, page 25 of the Map Records of Harris County, Texas and those Restrictions filed for record under Clerk's File No. F934983, as corrected and refiled under Clerk's File No. F944735, and as amended by instrument filed under Clerk's File No. G698447, all of the Official Records of Real Property of Harris County, Texas. 3. A water line easement 10 feet wide along the westerly line of subject property, which abuts Consulate Plaza Drive, and/or Export Plaza Drive, as reflected on the map or plat thereof, recorded in Volume 278, page 25 of the Map Records of Harris County, Texas. 4. An unobstructed easement 16 feet wide, together with an unobstructed aerial easement 5 feet, 6 inches wide, beginning at a height of 16 feet 3 inches above the ground, and extending upwards and outwards on an inclined plane, to a height of 18 feet 6 inches above the ground, located south and west of and adjoining the heretofore cited 16 feet wide easement, all located along the north and east lines of subject property, as granted to Houston Lighting and Power Company by instrument filed under Clerk's File No. F941406, and as corrected by instrument filed under Clerk's File No. G120555, and as further ratified by instrument filed under Clerk's File No. G769967, all of the Official Records of Real Property of Harris County, Texas. 5. Blanket easements for ingress and egress, for installation, maintenance, repair and removal of public utilities, as set out in the Declaration filed under Clerk's File No. F934983, and as refiled under Clerk's File No. F944735, and as amended by instrument filed under Clerk's File No. G698447, all of the Official Public Records of Real Property of Harris County, Texas. 6. An easement for drainage purposes extending a distance of 15 feet on each side of the center line of all natural water courses, as reflected by the map or plat thereof, recorded in Volume 278, page 25 of the Map Records of Harris County, Texas. 7. A water line and meter easement, as granted to the City of Houston by instrument filed under Clerk's File No. J546727 of the Official Public Records of Real Property of Harris County, Texas, and being more particularly described by metes and bounds therein. 8. Agreement by and between Warner Cable Communications, Inc. and Corrections Corporation of America for the installation, operation and maintenance of a Cable Television 8 System as reflected by instrument filed under Clerk's File No. N216013 of the Official Public Records of Harris County, Texas. 9. An unobstructed easement 10 feet wide, together with an unobstructed aerial easement 10 feet wide, beginning at a plane of 16 feet above the ground and extending upwards, located on both sides of and adjoining the said 10 feet wide easement, as granted to Houston Lightening and Power Company by instrument filed under Clerk's File No. J445703 of the Official Public Records of Real Property of Harris County, Texas; said easement(s) being further reflected and defined on Sketch No. N84-041 attached to said instrument. 10. A 1/16th non-participating royalty interest in and to all the oil, gas and other minerals in, on, under or that may be produced from subject property is excepted herefrom as the same is set forth in instrument recorded in Volume 5812, page 576 of the Deed Records of Harris County, Texas. 11. All oil, gas and other minerals, the royalties, bonuses, rentals and all other rights in connection with same are excepted herefrom as set forth in instrument filed under Clerk's File No. G296822 of the Official Public Records of Harris County, Texas. Waiver of surface rights contained therein. 12. All oil, gas and other minerals, the royalties, bonuses, rentals and all other rights in connection with same are excepted herefrom as set forth in instrument filed under Clerk's File No. F934983, and as refiled under Clerk's File No. F944735, and as amended by instrument filed under Clerk's File No. G698447, all of the Official Public Records of Harris County, Texas. Waiver of surface rights contained therein. 13. Building set back line of 20 feet along that portion of the west property line abutting Consulate Plaza Drive and/or Export Plaza Drive, as set out on plat recorded in Volume 278, page 25 of the Map Records of Harris County, Texas. 14. The subject property lies within the area designated and zoned by the City of Houston as the "Jetero Airport Hazard Area" (Houston Intercontinental Airport) and is subject to the restrictions and regulations imposed by Ordinance of the City of Houston, a certified copy of which is recorded in Volume 5448, page 421, Deed Records, Harris County, Texas, as amended by Ordinance No. 83-861, filed for record under Clerk's File No. J040968 of the Official Public Records, Harris County, Texas. 15. Annual Maintenance Charge payable to World/Houston International Business Center Improvement Association, as set forth in instrument filed under Clerk's File No. F934983, and as refiled under Clerk's File No. F944735, and as amended by instrument filed under Clerk's File No. G698447, all of the Official Public Records of Real Property of Harris County, Texas and additionally secured by a separate, valid and subsisting lien, as set forth therein. 9 16. The subject property is located within the City of Houston or within its extra territorial jurisdiction (within 5 miles of the city limits but outside another municipality). It is subject to the terms, conditions, and provisions of City of Houston Ordinance No. 85-1878, pertaining to, among other things, the platting and re-platting of real property and to the establishment of building lines (25 feet along major thoroughfares and 10 feet along other streets). A certified copy of said ordinance was filed for record on August 1, 1991, under Harris County Clerk's File No. N 253886. 17. All matters shown on the Plat of Asbuilt Survey, dated April 15, 1997, as revised June 17, 1997, prepared by William H. Smith, Jr., R.P.L.S. No. 3982, Survcon Inc., 5757 Woodway, Houston, Texas 77057, Job Number 5980-01. 10 EXHIBIT D Base Rent Schedule Property: Houston Processing Center Tenant will pay to Landlord annual Base Rent of $1,474,000.00, payable in equal monthly installments of $122,833.33. Base Rent for the Extended Term, Second Extended Term and Third Extended Term shall be equal to the fair market rental value of the Leased Property as of the respective commencement dates thereof. EX-10.180 15 LEASE AGEEMENT 1 EXHIBIT 10.180 LEASE AGREEMENT (LAREDO) THIS LEASE AGREEMENT ("Lease") dated as of the 18th day of July, 1997, by and between CCA PRISON REALTY TRUST, a Maryland real estate investment trust ("Landlord") and CORRECTIONS CORPORATION OF AMERICA, a Tennessee corporation ("Tenant"). RECITALS WHEREAS, Tenant (or one of Tenant's affiliates) has concurrently conveyed to Landlord the property described in Exhibit A hereto, and Landlord and Tenant desire that Landlord lease such property back to Tenant; and WHEREAS, Landlord and Tenant have entered into a Master Agreement to Lease of even date herewith (the "Master Agreement") which sets forth certain agreements of the parties with respect to the lease of various properties including the property that is the subject of this Lease; NOW, THEREFORE, in consideration of the premises and of their respective agreements and undertakings herein, Landlord and Tenant agree as follows: ARTICLE I PREMISES AND TERM 1.1 Leased Property. Landlord hereby leases to Tenant and Tenant leases from Landlord the Land located in the City of Laredo, Webb County, State of Texas, described in Exhibit A hereto, and all Improvements, Fixtures, and Personal Property thereon or thereto (each as defined in the Master Agreement, and, together with said Land, the "Leased Property"); such Leased Property collectively known and described at the date hereof as the Laredo Processing Center; SUBJECT, HOWEVER, to the lien of the mortgage debt described in Exhibit B hereto, if any, and to all easements, liens, encumbrances, restrictions, agreements, and other title matters existing as of the date hereof and listed in Exhibit C hereto (collectively the "Permitted Exceptions"). 1.2 Term. The initial term (the "Fixed Term") of the Lease shall be for a fixed term of twelve (12) years commencing on July 18, 1997 (the "Commencement Date") and expiring on July 17, 2009 (the "Expiration Date"). The Term of this Lease may be renewed on the mutual agreement of Landlord and Tenant as follows: (i) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the Expiration Date, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as set forth in the Lease; (ii) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the expiration of the Extended Term, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Second Extended Term") on the same terms and provisions (other than with respect to renewal) as 2 the Fixed Term, as set forth in the Lease; and (iii) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the expiration of the Second Extended Term, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Third Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as set forth in the Lease. Tenant's right to so extend the Term of the Lease is conditioned on Landlord's prior approval of the Extended Term, Second Extended Term, or Third Extended Term, as the case may be. The term "Term" used in this Agreement means the Fixed Term, Extended Term, Second Extended Term and Third Extended Term, as appropriate. The term "Lease Year" means each twelve (12) month period during the Term commencing on January 1 and ending on December 31, except the first Lease Year of each Lease shall be the period from the Commencement Date through the following December 31, and the last Lease Year shall end on the date of termination of the Lease if a day other than December 31. Landlord may terminate this Lease prior to the expiration of the Term hereof, at any time following the date which is five (5) years from the date hereof, upon written notice to Tenant not less than eighteen (18) months prior to the effective date of such termination. ARTICLE II RENT 2.1 Base Rent. Tenant shall pay Landlord Base Rent for the Term in advance in consecutive monthly installments payable on the first day of each month during the Term, the Extended Term, Second Extended Term and the Third Extended Term, commencing on the Commencement Date, in accordance with the Base Rent Schedule attached hereto as Exhibit D. If the Commencement Date or the Expiration Date shall be other than on the first day of a calendar month, the initial (or final, as appropriate) monthly installment of Base Rent payable pursuant to the Lease shall be prorated for the number of days until, in the case of the initial monthly installment, the first day of the calendar month following the Commencement Date and, in the case of the final monthly installment, the Expiration Date. 2.2 Additional Rent. The Base Rent shall be subject to such increases over the Term as determined pursuant to Section 2.02 of the Master Agreement. 2.3 Other Additional Rent. Tenant shall also pay all Other Additional Rent with respect to the Leased Property, as set forth in the Master Agreement. ARTICLE III OTHER TERMS AND CONDITIONS 3.1 Master Agreement Incorporated Herein. All provisions of the Master Agreement (except any provisions expressly therein not to be a part of an individual lease of leased property) are hereby incorporated in and are a part of this Lease of the Leased Property. 2 3 3.2 Recordation. At the request of Landlord or Tenant, a short form memorandum of this Lease may be recorded in the real estate records of any county which Landlord or Tenant deems appropriate in order to provide legal notice of the existence hereof. IN WITNESS WHEREOF, the Landlord and the Tenant have executed this Lease or caused the same to be executed by their respective duly authorized officers as of the date first set forth above. CCA PRISON REALTY TRUST By: /s/ Michael W. Devlin ------------------------------- Title: Chief Development Officer ---------------------------- CORRECTIONS CORPORATION OF AMERICA By: /s/ Doctor R. Crants ------------------------------- Title: Chief Executive Officer ---------------------------- 3 4 EXHIBIT A Legal Description of Leased Property THE SURFACE ONLY TO: A 4.0 ACRE TRACT OF LAND, MORE OR LESS, BEING PARTLY OUT OF THE ROBERT HAYNES 22.43 ACRE TRACT, BEING OF RECORD IN VOLUME 295, PAGES 238-241, WEBB COUNTY DEED RECORDS AND PARTLY OUT OF THE HAYNES TRACT BEING OF RECORD IN VOLUME 207, PAGE 161, WEBB COUNTY DEED RECORDS; THIS 4.0 ACRE TRACT ALSO KNOWN AS LOT 2A, BLOCK 1, OUT OF THE CASA BLANCA SUBDIVISION, AS RE-PLATTED AND RECORDED IN VOLUME 8, PAGE 50, OF THE WEBB COUNTY PLAT RECORDS, ALL SAID PROPERTY BEING OUT OF PORCION 28, WEBB COUNTY, TEXAS; COMMENCING from the southeast corner of said Haynes tract, same being a point on the northeasterly right-of-way line of U.S. Highway No. 59, and same being at approximately highway station 194 + 86; THENCE, North 87 degrees 21 minutes 00 seconds West, 862 feet, along said right-of-way line, to the southwest corner of Lot No. 1, out of the Casa Blanca Subdivision Plat as Recorded in Volume 3, Page 100, of the Webb County Plat Records, to the southeast corner of this tract and the POINT OF BEGINNING. THENCE, North 02 degrees 39 minutes 00 seconds East, 200 feet, with the common boundary line of this tract and said Lot No. 1, to the northwest corner of said Lot No. 1 and an exterior corner of this tract; THENCE, North 87 degrees 21 minutes 00 seconds West, 25.76 feet, with the common boundary line of the Juan Moreno 1.9261 acre tract, recorded in Volume 1414, Pages 805-811, of the Webb County Deed Records, to the most westerly, southwest corner of the said Juan Moreno tract, and an interior corner of this tract; THENCE, North 02 degrees 39 minutes 00 seconds East, 250 feet, with the common boundary line of this tract and said Juan Moreno tract, to the northwest corner of said Juan Moreno tract and the northeast corner of this tract; THENCE, North 87 degrees 21 minutes 00 seconds West, 375.75 feet, to the northeast corner of Lot No. 3, out of the aforesaid Casa Blanca Subdivision Plat and the northwest corner of this tract; THENCE, South 02 degrees 39 minutes 00 seconds West, 450 feet, with the common boundary line of this tract, and said Lot No. 3, to the southeast corner of said Lot No. 3, a point on the aforesaid northeasterly right-of-way line of U. S. Highway 59, to the southwest corner of this tract; 5 THENCE, South 87 degrees 21 minutes 00 seconds East, 401.51 feet, along the southwesterly boundary line of this tract, being in common with the northeasterly right-of-way line of said U.S. Highway 59, to the POINT OF BEGINNING. Laredo Processing Center Laredo, Webb County, Texas 6 EXHIBIT B Mortgage Debt Property: Laredo Processing Center This property is subject to the following Mortgage Debt: That certain deed of trust of First Union National Bank of Tennessee, as Administrative Agent, dated July 18, 1997. 7 EXHIBIT C Permitted Exceptions Property: Laredo Processing Center 1. Standby fees, taxes and assessments by any taxing authority for the year 1997, and subsequent years. 2. Easement and right of way for electric transmission lines dated November 6, 1984, executed by Richard E. Haynes to Central Power and Light Company, recorded in Volume 1083, pages 817-820, Webb County Real Property Records. 3. All oil, gas and other minerals reserved in Deed dated November 30, 1984, executed by Richard E. Haynes, Trustee to Corrections Corporation of America, recorded in Volume 1087, Pages 781-783, Webb County Real Property Records, and containing the waiver of any right of ingress and egress and surface rights. 4. Easement and right of way for electric transmission lines dated May 11, 1983, executed by Victor M. Solis and Gloria Solis to Central Power and Light Company, recorded in Volume 1025, pages 792-793, Webb County Real Property Records. 5. All oil, gas and other minerals reserved in Deed dated May 28, 1987, executed by Richard E. Haynes to Corrections Corporation of America, recorded in Volume 1236, pages 490-493, Webb County Real Property Records, in which the Surface Rights only were conveyed. 6. All utility easements reflected on Subdivision Replat recorded in Volume 8, page 50, Webb County Plat Records. 7. Subject to Order of Joint Airport Zoning Board of the City of Laredo and Webb County recorded in Volume 655, page 277, Webb County Real Property Records. 8. Rights of Webb County, Texas, to flood spillway along the Eastern boundaries of Chacon Creek, as reflected on Plat prepared by J. Limon on July 15, 1961, as set out in Deed dated January 18, 1962, from Adelaide G. Bunn, individually and as Independent Executrix of the Estate of T. B. Bunn, Deceased to Veterans Land Board of the State of Texas, recorded in Volume 295, pages 238-241, Webb County, Records. 9. All matters shown on the Survey, dated November 15, 1990, last revised _______________, 1997, prepared by Cesareo R. Porras, P.L.S. No. 3481, Porras Engineering Company, 304 E. Calton Road, Laredo, Texas 78044, Drawing Number F.B. #94. 8 EXHIBIT D Base Rent Schedule Property: Laredo Processing Center Tenant will pay to Landlord annual Base Rent of $1,254,000.00, payable in equal monthly installments of $104,500.00. Base Rent for the Extended Term, Second Extended Term and Third Extended Term shall be equal to the fair market rental value of the Leased Property as of the respective commencement dates thereof. EX-10.181 16 LEASE AGEEMENT 1 EXHIBIT 10.181 LEASE AGREEMENT (BRIDGEPORT) THIS LEASE AGREEMENT ("Lease") dated as of the 18th day of July, 1997, by and between CCA PRISON REALTY TRUST, a Maryland real estate investment trust ("Landlord") and CORRECTIONS CORPORATION OF AMERICA, a Tennessee corporation ("Tenant"). RECITALS WHEREAS, Tenant (or one of Tenant's affiliates) has concurrently conveyed to Landlord the property described in Exhibit A hereto, and Landlord and Tenant desire that Landlord lease such property back to Tenant; and WHEREAS, Landlord and Tenant have entered into a Master Agreement to Lease of even date herewith (the "Master Agreement") which sets forth certain agreements of the parties with respect to the lease of various properties including the property that is the subject of this Lease; NOW, THEREFORE, in consideration of the premises and of their respective agreements and undertakings herein, Landlord and Tenant agree as follows: ARTICLE I PREMISES AND TERM 1.1 Leased Property. Landlord hereby leases to Tenant and Tenant leases from Landlord the Land located in the City of Bridgeport, Wise County, State of Texas, described in Exhibit A hereto, and all Improvements, Fixtures, and Personal Property thereon or thereto (each as defined in the Master Agreement, and, together with said Land, the "Leased Property"); such Leased Property collectively known and described at the date hereof as the Bridgeport Pre-Parole Transfer Facility; SUBJECT, HOWEVER, to the lien of the mortgage debt described in Exhibit B hereto, if any, and to all easements, liens, encumbrances, restrictions, agreements, and other title matters existing as of the date hereof and listed in Exhibit C hereto (collectively the "Permitted Exceptions"). 1.2 Term. The initial term (the "Fixed Term") of the Lease shall be for a fixed term of twelve (12) years commencing on July 18, 1997 (the "Commencement Date") and expiring on July 17, 2009 (the "Expiration Date"). The Term of this Lease may be renewed on the mutual agreement of Landlord and Tenant as follows: (i) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the Expiration Date, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as set forth in the Lease; (ii) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the expiration of the Extended Term, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Second Extended Term") on the same terms and provisions (other than with respect to renewal) as 2 the Fixed Term, as set forth in the Lease; and (iii) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the expiration of the Second Extended Term, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Third Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as set forth in the Lease. Tenant's right to so extend the Term of the Lease is conditioned on Landlord's prior approval of the Extended Term, Second Extended Term, or Third Extended Term, as the case may be. The term "Term" used in this Agreement means the Fixed Term, Extended Term, Second Extended Term and Third Extended Term, as appropriate. The term "Lease Year" means each twelve (12) month period during the Term commencing on January 1 and ending on December 31, except the first Lease Year of each Lease shall be the period from the Commencement Date through the following December 31, and the last Lease Year shall end on the date of termination of the Lease if a day other than December 31. Landlord may terminate this Lease prior to the expiration of the Term hereof, at any time following the date which is five (5) years from the date hereof, upon written notice to Tenant not less than eighteen (18) months prior to the effective date of such termination. ARTICLE II RENT 2.1 Base Rent. Tenant shall pay Landlord Base Rent for the Term in advance in consecutive monthly installments payable on the first day of each month during the Term, the Extended Term, Second Extended Term and the Third Extended Term, commencing on the Commencement Date, in accordance with the Base Rent Schedule attached hereto as Exhibit D. If the Commencement Date or the Expiration Date shall be other than on the first day of a calendar month, the initial (or final, as appropriate) monthly installment of Base Rent payable pursuant to the Lease shall be prorated for the number of days until, in the case of the initial monthly installment, the first day of the calendar month following the Commencement Date and, in the case of the final monthly installment, the Expiration Date. 2.2 Additional Rent. The Base Rent shall be subject to such increases over the Term as determined pursuant to Section 2.02 of the Master Agreement. 2.3 Other Additional Rent. Tenant shall also pay all Other Additional Rent with respect to the Leased Property, as set forth in the Master Agreement. ARTICLE III OTHER TERMS AND CONDITIONS 3.1 Master Agreement Incorporated Herein. All provisions of the Master Agreement (except any provisions expressly therein not to be a part of an individual lease of leased property) are hereby incorporated in and are a part of this Lease of the Leased Property. 2 3 3.2 Recordation. At the request of Landlord or Tenant, a short form memorandum of this Lease may be recorded in the real estate records of any county which Landlord or Tenant deems appropriate in order to provide legal notice of the existence hereof. IN WITNESS WHEREOF, the Landlord and the Tenant have executed this Lease or caused the same to be executed by their respective duly authorized officers as of the date first set forth above. CCA PRISON REALTY TRUST By: /s/ Michael W. Devlin ----------------------------------------- Title: Chief Development Officer ------------------------------------- CORRECTIONS CORPORATION OF AMERICA By: /s/ Doctor R. Crants ----------------------------------------- Title: Chief Executive Officer -------------------------------------- 3 4 EXHIBIT A Legal Description of Leased Property THE SURFACE ESTATE ONLY, IN AND TO: Being a 4.26 acre tract in the Edward Stephens Survey, Abstract Number 755, Wise County, Texas and also being the same tract of land deeded to Concept, Inc., described in instruments recorded in Volume 255, page 523, Real Records, Wise County, Texas and Volume 382, page 17, Real Records, Wise County, Texas and being described as one tract by metes and bounds as follows: Beginning at a 5/8" iron rod found in the North Right-of-Way of F.M. #1658 for the Southeast corner of said tract described in Volume 255, page 523; THENCE North 73 degrees 31 minutes 34 seconds West with the North Right-of-Way line of said F.M. #1658 a distance of 335.92 feet to a 3" steel fence post found for the Southwest corner of the tract herein described; THENCE North 01 degrees 32 minutes 30 seconds East a distance of 697.88 feet to a 3" steel fence post found for the Northwest corner of the tract herein described; THENCE North 89 degrees 03 minutes 36 seconds East a distance of 164.69 feet to a 1/2" iron pipe found for a corner; THENCE South 89 degrees 38 minutes 04 seconds East a distance of 57.10 feet to a 5/8" iron rod found for the most North Northeast corner of the tract herein described; THENCE South 01 degrees 30 minutes 36 seconds West a distance of 551.24 feet to a 3" steel fence post found for a ell corner of the tract herein described; THENCE South 88 degrees 01 minutes 24 seconds East a distance of 102.37 feet to a 5/8" iron rod found for the most East Northeast corner of the tract herein described; THENCE South 01 degrees 28 minutes 34 seconds West a distance of 240.72 feet to the point of beginning and containing 4.26 acres of land, more or less. Bridgeport Pre-Parole Transfer Facility Bridgeport, Wise County, Texas 5 EXHIBIT B Mortgage Debt Property: Bridgeport Pre-Parole Transfer Facility This property is subject to the following Mortgage Debt: That certain deed of trust of First Union National Bank of Tennessee, as Administrative Agent, dated July 18, 1997. 6 EXHIBIT C Permitted Exceptions Property: Bridgeport Pre-Parole Transfer Facility 1. Standby fees, taxes and assessments by any taxing authority for the year 1997, and subsequent years. 2. Reservation of all oil, gas and other minerals contained in deed dated January 3, 1975, from A. J. Whelan, et al. to Robert Goode, recorded in Volume 340, page 181, Deed Records of Wise County, Texas. 3. Reservation of all oil, gas and other minerals contained in deed dated March 10, 1977, from A. J. Whelan, et al to Gordon E. Taylor, recorded in Volume 362, page 442, Deed Records of Wise County, Texas. 4. Right-of-Way to West Wise Rural Water Supply Corp., dated July 15, 1993, recorded in Volume 541, page 586, Real Records of Wise County, Texas. 5. Water and sewer lines across subject property as shown on survey dated April 15, 1997, as revised June 18, 1997, prepared by Roger C. Steadham, R.P.L.S. No. 4281. 6. Overhead electric and telephone lines as shown on survey dated April 15, 1997, as revised June 18, 1997, prepared by Roger C. Steadham, R.P.L.S. No. 4281. 7. Fence inset along the North and East property lines as shown on survey dated April 15, 1997, as revised June 18, 1997, prepared by Roger C. Steadham, R.P.L.S. No. 4281. 8. Rights of the Wise County Water Control and Improvement District #1 to issue bonds. 9. All matters shown on the Survey, dated April 15, 1997, as revised June 18, 1997, prepared by Roger C. Steadham, R.P.L.S. No. 4281, Steadham Surveying, 608 13th Street, Bridgeport, Texas 76426. 7 EXHIBIT D Base Rent Schedule Property: Bridgeport Pre-Parole Transfer Facility Tenant will pay to Landlord annual Base Rent of $374,000.00, payable in equal monthly installments of $31,166.67. Base Rent for the Extended Term, Second Extended Term and Third Extended Term shall be equal to the fair market rental value of the Leased Property as of the respective commencement dates thereof. EX-10.182 17 LEASE AGEEMENT 1 EXHIBIT 10.182 LEASE AGREEMENT (MINERAL WELLS) THIS LEASE AGREEMENT ("Lease") dated as of the 18th day of July, 1997, by and between CCA PRISON REALTY TRUST, a Maryland real estate investment trust ("Landlord") and CORRECTIONS CORPORATION OF AMERICA, a Tennessee corporation ("Tenant"). RECITALS WHEREAS, Tenant (or one of Tenant's affiliates) has concurrently conveyed to Landlord the property described in Exhibit A hereto, and Landlord and Tenant desire that Landlord lease such property back to Tenant; and WHEREAS, Landlord and Tenant have entered into a Master Agreement to Lease of even date herewith (the "Master Agreement") which sets forth certain agreements of the parties with respect to the lease of various properties including the property that is the subject of this Lease; NOW, THEREFORE, in consideration of the premises and of their respective agreements and undertakings herein, Landlord and Tenant agree as follows: ARTICLE I PREMISES AND TERM 1.1 Leased Property. Landlord hereby leases to Tenant and Tenant leases from Landlord the Land located in the City of Mineral Wells, Parker County, State of Texas, described in Exhibit A hereto, and all Improvements, Fixtures, and Personal Property thereon or thereto (each as defined in the Master Agreement, and, together with said Land, the "Leased Property"); such Leased Property collectively known and described at the date hereof as the Mineral Wells Pre-Parole Transfer Facility; SUBJECT, HOWEVER, to the lien of the mortgage debt described in Exhibit B hereto, if any, and to all easements, liens, encumbrances, restrictions, agreements, and other title matters existing as of the date hereof and listed in Exhibit C hereto (collectively the "Permitted Exceptions"). 1.2 Term. The initial term (the "Fixed Term") of the Lease shall be for a fixed term of twelve (12) years commencing on July 18, 1997 (the "Commencement Date") and expiring on July 17, 2009 (the "Expiration Date"). The Term of this Lease may be renewed on the mutual agreement of Landlord and Tenant as follows: (i) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the Expiration Date, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as set forth in the Lease; (ii) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the expiration of the Extended Term, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the 2 "Second Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as set forth in the Lease; and (iii) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the expiration of the Second Extended Term, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Third Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as set forth in the Lease. Tenant's right to so extend the Term of the Lease is conditioned on Landlord's prior approval of the Extended Term, Second Extended Term, or Third Extended Term, as the case may be. The term "Term" used in this Agreement means the Fixed Term, Extended Term, Second Extended Term and Third Extended Term, as appropriate. The term "Lease Year" means each twelve (12) month period during the Term commencing on January 1 and ending on December 31, except the first Lease Year of each Lease shall be the period from the Commencement Date through the following December 31, and the last Lease Year shall end on the date of termination of the Lease if a day other than December 31. Landlord may terminate this Lease prior to the expiration of the Term hereof, at any time following the date which is five (5) years from the date hereof, upon written notice to Tenant not less than eighteen (18) months prior to the effective date of such termination. ARTICLE II RENT 2.1 Base Rent. Tenant shall pay Landlord Base Rent for the Term in advance in consecutive monthly installments payable on the first day of each month during the Term, the Extended Term, Second Extended Term and the Third Extended Term, commencing on the Commencement Date, in accordance with the Base Rent Schedule attached hereto as Exhibit D. If the Commencement Date or the Expiration Date shall be other than on the first day of a calendar month, the initial (or final, as appropriate) monthly installment of Base Rent payable pursuant to the Lease shall be prorated for the number of days until, in the case of the initial monthly installment, the first day of the calendar month following the Commencement Date and, in the case of the final monthly installment, the Expiration Date. 2.2 Additional Rent. The Base Rent shall be subject to such increases over the Term as determined pursuant to Section 2.02 of the Master Agreement. 2.3 Other Additional Rent. Tenant shall also pay all Other Additional Rent with respect to the Leased Property, as set forth in the Master Agreement. ARTICLE III OTHER TERMS AND CONDITIONS 3.1 Master Agreement Incorporated Herein. All provisions of the Master Agreement (except any provisions expressly therein not to be a part of an individual lease of leased property) are hereby incorporated in and are a part of this Lease of the Leased Property. 2 3 3.2 Recordation. At the request of Landlord or Tenant, a short form memorandum of this Lease may be recorded in the real estate records of any county which Landlord or Tenant deems appropriate in order to provide legal notice of the existence hereof. IN WITNESS WHEREOF, the Landlord and the Tenant have executed this Lease or caused the same to be executed by their respective duly authorized officers as of the date first set forth above. CCA PRISON REALTY TRUST By: /s/ Michael W. Devlin ------------------------------- Title: Chief Development Officer ---------------------------- CORRECTIONS CORPORATION OF AMERICA By: /s/ Doctor R. Crants ------------------------------- Title: Chief Executive Officer ---------------------------- 3 4 EXHIBIT A Legal Description of Leased Property Being a 25.08 acre tract in the T. & P. Railroad Co. Survey East of the Brazos River, Abstract Number 1549, Parker County, Texas and also being a certain tract conveyed to Mineral Wells R.E. Holding Corp. recorded in instrument recorded in Volume 1581, page 85, Deed Records, Parker County, Texas, being described by metes and bounds as follows: Beginning at a 1/2 inch iron rod with a yellow plastic cap stamped STEADHAM R.P.L.S. 4281 set in the East R.O.W. of Reynolds Road and the North R.O.W. of Shurtz Road for the Southwest corner of said Mineral Wells R.E. Holding Corp. Tract, said point being by previous description 7241.98 feet South 65 degrees 05 minutes 59 seconds East from the Northwest corner of the T. & P. Railroad Co. Survey East of the Brazos River, Abstract Number 869, Palo Pinto County, Deed Records; THENCE North 12 degrees 49 minutes 41 seconds East a distance of 117.14 feet to a 1/2 inch iron rod with a yellow plastic cap stamped STEADHAM R.P.L.S. 4281 set in the East R.O.W of said Reynolds Road for the Southwest corner of a certain 0.31 acre tract described in instrument recorded in Volume 1646, Page 651, Deed Records, Parker County, Texas; THENCE South 77 degrees 10 minutes 26 seconds East a distance of 150.00 feet to a 1/2 inch iron rod with a yellow plastic cap stamped STEADHAM R.P.L.S. 4281 set for the Southeast corner of said 0.31 acre tract; THENCE North 12 degrees 49 minutes 41 seconds East a distance of 90.00 feet to a 1/2 inch iron rod with a yellow plastic cap stamped STEADHAM R.P.L.S. 4281 set for the Northeast corner of said 0.31 acre tract; THENCE North 77 degrees 10 minutes 26 seconds West a distance of 150.00 feet to a 1/2 inch iron rod with a yellow plastic cap stamped STEADHAM R.P.L.S. 4281 set in the East R.O.W. of said Reynolds Road for the Northwest corner of said 0.31 acre tract; THENCE North 12 degrees 49 minutes 41 seconds East a distance of 348.86 feet to a 1/2 inch iron rod with a yellow plastic cap stamped STEADHAM R.P.L.S. 4281 set in the East R.O.W. of said Reynolds Road for the Southwest corner of a certain 0.44 acre tract described in instrument recorded in Volume 1554, page 1635, Deed Records, Parker County, Texas; THENCE South 77 degrees 10 minutes 31 seconds East a distance of 110.00 feet to a 1/2 inch iron rod with a yellow plastic cap stamped STEADHAM R.P.L.S. 4281 set for the Southeast corner of said 0.44 acre tract; THENCE North 12 degrees 49 minutes 41 seconds East a distance of 175.00 feet to a 1/2 inch iron rod with a yellow plastic cap stamped STEADHAM R.P.L.S. 4281 set for the Northeast corner of said 0.44 acre tract; 5 THENCE North 77 degrees 10 minutes 31 seconds West a distance of 110.00 feet to a 1/2 inch iron rod with a yellow plastic cap stamped STEADHAM R.P.L.S. 4281 set in the East R.O.W. of said Reynolds Road for the Northwest corner of said 0.44 acre tract; THENCE North 12 degrees 49 minutes 41 seconds East a distance of 710.91 feet to a 3/4 inch iron rod found in the East R.O.W. of said Reynolds Road for the Northwest corner of said Mineral Wells R.E. Holding Corp. tract; THENCE South 77 degrees 01 minutes 31 seconds East a distance of 780.78 feet to a 3/4 inch iron rod found in the West R.O.W. of Heintzelman Road for the northeast corner of said Mineral Wells R.E. Holding Corp. tract; THENCE South 12 degrees 51 minutes 11 seconds West a distance of 1441.93 feet to a 1/2 inch iron rod with a yellow plastic cap stamped STEADHAM R.P.L.S. 4281 set in the West R.O.W. of said Heintzelman Road and in the North R.O.W. of said Shurtz Road for the southeast corner of said Mineral Wells R.E. Holding Corp. tract; THENCE North 77 degrees 01 minutes 25 seconds West a distance of 780.15 feet to the POINT OF BEGINNING and containing 25.08 acres of land, more or less. Mineral Wells Pre-Parole Transfer Facility Mineral Wells, Parker County, Texas 6 EXHIBIT B Mortgage Debt Property: Mineral Wells Pre-Parole Transfer Facility This property is subject to the following Mortgage Debt: That certain deed of trust of First Union National Bank of Tennessee, as Administrative Agent, dated July 18, 1997. 7 EXHIBIT C Permitted Exceptions Property: Mineral Wells Pre-Parole Transfer Facility 1. Standby fees, taxes and assessments by any taxing authority for the year 1997, and subsequent years. 2. Easements created in instrument executed by United States of America to City of Mineral Wells, Texas for joint usage of existing sewer lines and appurtenances, dated September 30, 1975, filed October 7, 1975, recorded in Volume 620, page 89, Deed Records, Parker County, Texas. 3. Easements created in instrument executed by United States of America to City of Mineral Wells, Texas for joint usage of existing water lines and appurtenances, dated September 30, 1975, filed October 7, 1975, recorded in Volume 622, page 502, Deed Records, Parker County, Texas. 4. Easements created in instrument executed by United States of America to Texas Power & Light Company for all existing electrical transmission lines and systems, dated November 5, 1975, filed December 24, 1975, recorded in Volume 626, page 1, Deed Records, Parker County, Texas. 5. Easements created in instrument by United States of America to Brazos River Gas Company for all existing gas distribution lines and systems, dated March 12, 1976, filed March 25, 1976, recorded in Volume 634, page 1, Deed Records, Parker County, Texas. 6. Oil, Gas and Mineral Lease executed by and between Carl Kessler and Richard F. Williamson, Trustee, dated June 23, 1981, filed August 4, 1981, recorded in Volume 1115, page 1121, Real Records, Parker County, Texas. 7. Terms, provisions, and conditions of Lease Agreement by and between Mineral Wells R.E. Holding Corp., a Delaware corporation, as Lessor, and Concept Incorporated, a Delaware corporation, as Lessee, as evidenced by Memorandum of Lease, dated November 17, 1993, filed November 18, 1993, recorded in Volume 1581, page 91, Real Records, Parker County, Texas. 8. Reservation of subsurface mineral estate, including oil, gas and other minerals in and under subject property, including royalty interests, royalties, bonuses, rentals and all other rights in connection therewith, including all easements or rights-of-way owned or held by any lessee or mineral owner, on, over, or across the said lands for the purpose of producing or transporting any of said minerals together with the rights of ingress and egress, as set forth in deed from Concept Incorporated, a Delaware corporation to Mineral Wells R.E. Holding 8 Corp., a Delaware corporation, dated November 17, 1993, filed November 18,1 993, recorded in Volume 1581, page 85, Real Records, Parker County, Texas. 9. That portion of the premises located within the boundaries of any road or roadway. 10. All matters shown on the Survey, dated April 17, 1997, as revised June 18, 1997, prepared by Roger C. Steadham, R.P.L.S. No. 4281, Steadham Surveying, 608 13th Street, Bridgeport, Texas 76426, including, but not limited to, the following: (a) asphalt roadway (50' r.o.w.) crossing West to East at Northern side of subject property; (b) fences not on property lines; and (c) overhead electric lines which enter property from various points and cross from East to West at North side of subject property. 9 EXHIBIT D Base Rent Schedule Property: Mineral Wells Pre-Parole Transfer Facility Tenant will pay to Landlord annual Base Rent of $2,948,000.00, payable in equal monthly installments of $245,666.00. Base Rent for the Extended Term, Second Extended Term and Third Extended Term shall be equal to the fair market rental value of the Leased Property as of the respective commencement dates thereof. EX-10.183 18 LEASE AGEEMENT 1 EXHIBIT 10.183 LEASE AGREEMENT (MASON) THIS LEASE AGREEMENT ("Lease") dated as of the 18th day of July, 1997, by and between CCA PRISON REALTY TRUST, a Maryland real estate investment trust ("Landlord") and CORRECTIONS CORPORATION OF AMERICA, a Tennessee corporation ("Tenant"). RECITALS WHEREAS, Tenant (or one of Tenant's affiliates) has concurrently conveyed to Landlord the property described in Exhibit A hereto, and Landlord and Tenant desire that Landlord lease such property back to Tenant; and WHEREAS, Landlord and Tenant have entered into a Master Agreement to Lease of even date herewith (the "Master Agreement") which sets forth certain agreements of the parties with respect to the lease of various properties including the property that is the subject of this Lease; NOW, THEREFORE, in consideration of the premises and of their respective agreements and undertakings herein, Landlord and Tenant agree as follows: ARTICLE I PREMISES AND TERM 1.1 Leased Property. Landlord hereby leases to Tenant and Tenant leases from Landlord the Land located in the City of Mason, Tipton County, State of Tennessee, described in Exhibit A hereto, and all Improvements, Fixtures, and Personal Property thereon or thereto (each as defined in the Master Agreement, and, together with said Land, the "Leased Property"); such Leased Property collectively known and described at the date hereof as the West Tennessee Detention Facility; SUBJECT, HOWEVER, to the lien of the mortgage debt described in Exhibit B hereto, if any, and to all easements, liens, encumbrances, restrictions, agreements, and other title matters existing as of the date hereof and listed in Exhibit C hereto (collectively the "Permitted Exceptions"). 1.2 Term. The initial term (the "Fixed Term") of the Lease shall be for a fixed term of ten (10) years commencing on July 18, 1997 (the "Commencement Date") and expiring on July 17, 2007 (the "Expiration Date"). The Term of this Lease may be renewed on the mutual agreement of Landlord and Tenant as follows: (i) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the Expiration Date, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as set forth in the Lease; (ii) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the expiration of the Extended Term, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Second Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as 2 set forth in the Lease; and (iii) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the expiration of the Second Extended Term, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Third Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as set forth in the Lease. Tenant's right to so extend the Term of the Lease is conditioned on Landlord's prior approval of the Extended Term, Second Extended Term, or Third Extended Term, as the case may be. The term "Term" used in this Agreement means the Fixed Term, Extended Term, Second Extended Term and Third Extended Term, as appropriate. The term "Lease Year" means each twelve (12) month period during the Term commencing on January 1 and ending on December 31, except the first Lease Year of each Lease shall be the period from the Commencement Date through the following December 31, and the last Lease Year shall end on the date of termination of the Lease if a day other than December 31. Landlord may terminate this Lease prior to the expiration of the Term hereof, at any time following the date which is five (5) years from the date hereof, upon written notice to Tenant not less than eighteen (18) months prior to the effective date of such termination. ARTICLE II RENT 2.1 Base Rent. Tenant shall pay Landlord Base Rent for the Term in advance in consecutive monthly installments payable on the first day of each month during the Term, the Extended Term, Second Extended Term and the Third Extended Term, commencing on the Commencement Date, in accordance with the Base Rent Schedule attached hereto as Exhibit D. If the Commencement Date or the Expiration Date shall be other than on the first day of a calendar month, the initial (or final, as appropriate) monthly installment of Base Rent payable pursuant to the Lease shall be prorated for the number of days until, in the case of this initial monthly installment, the first day of the calendar month following the Commencement Date and, in the case of the final monthly installment, the Expiration Date. 2.2 Additional Rent. The Base Rent shall be subject to such increases over the Term as determined pursuant to Section 2.02 of the Master Agreement. 2.3 Other Additional Rent. Tenant shall also pay all Other Additional Rent with respect to the Leased Property, as set forth in the Master Agreement. ARTICLE III OTHER TERMS AND CONDITIONS 3.1 Master Agreement Incorporated Herein. All provisions of the Master Agreement (except any provisions expressly therein not to be a part of an individual lease of leased property) are hereby incorporated in and are a part of this Lease of the Leased Property. 2 3 3.2 Recordation. At the request of Landlord or Tenant, a short form memorandum of this Lease may be recorded in the real estate records of any county which Landlord or Tenant deems appropriate in order to provide legal notice of the existence hereof. IN WITNESS WHEREOF, the Landlord and the Tenant have executed this Lease or caused the same to be executed by their respective duly authorized officers as of the date first set forth above. CCA PRISON REALTY TRUST By: /s/ Michael W. Devlin ------------------------------- Title: Chief Development Officer ---------------------------- CORRECTIONS CORPORATION OF AMERICA By: /s/ Doctor R. Crants ------------------------------- Title: Chief Executive Officer ---------------------------- 3 4 EXHIBIT A Legal Description of Leased Property Beginning at a 1/2 inch rebar found the right-of-way line of Finde Naifeh Jr. Drive (Mason Gainsville Road - 60 ft. R.O.W.) a distance of 1612.95 feet (C=1615.56 ft.) Southwestwardly, as measured along said southerly right-of-way line from its intersection with the westerly right-of-way line of U. S. Highway #70, said point being the northwesterly corner of the William Liles Tract (DB.568, PG. 42); thence South 03 degrees 45 minutes 00 seconds East along the westerly line of said Liles Tract and the Cecil Bright Tract (DB. 701, PG. 664) a distance of 1601.22 feet to point; thence South 80 degrees 00 minutes 00 seconds West a distance of 53.65 feet to a point; thence South 81 degrees 00 minutes 00 seconds West a distance of 105.60 feet to a point; thence South 86 degrees 00 minutes 00 seconds West a distance of 110.20 feet to a point; thence South 00 degrees 15 minutes 00 seconds East a distance of 39.60 feet to a point; thence South 68 degrees 00 minutes 00 seconds West a distance of 112.20 feet to a point; thence South 01 degrees 15 minutes 00 seconds East a distance of 138.00 feet to a point; thence South 25 degrees 00 minutes 00 seconds East a distance of 141.90 feet to a point; thence South 50 degrees 15 minutes 00 seconds West a distance of 135.30 feet to a point; thence North 62 degrees 45 minutes 00 seconds West a distance of 110.20 feet to a point; thence South 73 degrees 45 minutes 00 seconds West a distance of 117.50 feet to a point; thence South 86 degrees 45 minutes 00 seconds West, a distance of 67.30 feet to a point; thence South 73 degrees 00 minutes 00 seconds West a distance of 130.70 feet to a point; thence South 10 degrees 45 minutes 00 seconds West a distance of 240.90 feet to a point; thence South 43 degrees 45 minutes 00 seconds West a distance of 104.90 feet to a point; thence North 03 degrees 45 minutes 00 seconds West along the easterly line of the Robert Marshall Tract (DB. 235, PG. 85) a distance of 2369.40 feet to a 1/2 inch rebar set in the southerly right-of-way line of said Finde Naifeh Jr. Drive; thence North 87 degrees 45 minutes 00 seconds East along said southerly right-of-way line a distance of 983.40 feet to the point of beginning, containing 43.186 acres or 1881168.086 square feet, more or less, described according to the ALTA Boundary Survey, dated April 16, 1997, as revised June 19, 1997, prepared by John Wesley Ashworth, III, Tennessee No. 1344, Ashworth-Vaughan, Inc., 195 Center Street, Collierville, Tennessee 38017, Job Number 3989.00 Being the same property conveyed to Corrections Partners, Inc., a Delaware corporation, by deed from Corrections Corporation of America, a Tennessee corporation, of record in Record Book _____, page _____, Register's Office for Tipton County, Tennessee. West Tennessee Detention Facility Mason, Tipton County, Tennessee 5 EXHIBIT B Mortgage Debt Property: West Tennessee Detention Facility This property is subject to the following Mortgage Debt: That certain deed of trust of First Union National Bank of Tennessee, as Administrative Agent, dated July 18, 1997. 6 EXHIBIT C Permitted Exceptions Property: West Tennessee Detention Facility 1. 1997 Taxes, a lien, which are not yet due and payable. 2. Easement(s) in favor of Memphis CATV, Inc. (Cablevision), as set forth in instrument recorded in Record Book 666, page 666, Register's Office for Tipton County, Tennessee. 3. Easement(s) for the flow of Beaver Creek Canal. 4. All matters shown on ALTA Boundary Survey, dated April 16, 1997, as revised June 19, 1997, prepared by John Wesley Ashworth, III, Tennessee No. 1344, Ashworth-Vaughan, Inc., 195 Center Street, Collierville, Tennessee 38017, Job Number 3989.00. 7 EXHIBIT D Base Rent Schedule Property: West Tennessee Detention Facility Tenant will pay to Landlord annual Base Rent of $3,696,000, payable in equal monthly installments of $308,000.00. Base Rent for the Extended Term, Second Extended Term and Third Extended Term shall be equal to the fair market rental value of the Leased Property as of the respective commencement dates thereof. EX-10.184 19 LEASE AGEEMENT 1 EXHIBIT 10.184 LEASE AGREEMENT (LEAVENWORTH) THIS LEASE AGREEMENT ("Lease") dated as of the 18th day of July, 1997, by and between CCA PRISON REALTY TRUST, a Maryland real estate investment trust ("Landlord") and CORRECTIONS CORPORATION OF AMERICA, a Tennessee corporation ("Tenant"). RECITALS WHEREAS, Tenant (or one of Tenant's affiliates) has concurrently conveyed to Landlord the property described in Exhibit A hereto, and Landlord and Tenant desire that Landlord lease such property back to Tenant; and WHEREAS, Landlord and Tenant have entered into a Master Agreement to Lease of even date herewith (the "Master Agreement") which sets forth certain agreements of the parties with respect to the lease of various properties including the property that is the subject of this Lease; NOW, THEREFORE, in consideration of the premises and of their respective agreements and undertakings herein, Landlord and Tenant agree as follows: ARTICLE I PREMISES AND TERM 1.1 Leased Property. Landlord hereby leases to Tenant and Tenant leases from Landlord the Land located in the City of Leavenworth, Leavenworth County, State of Kansas, described in Exhibit A hereto, and all Improvements, Fixtures, and Personal Property thereon or thereto (each as defined in the Master Agreement, and, together with said Land, the "Leased Property"); such Leased Property collectively known and described at the date hereof as the Leavenworth Detention Center; SUBJECT, HOWEVER, to the lien of the mortgage debt described in Exhibit B hereto, if any, and to all easements, liens, encumbrances, restrictions, agreements, and other title matters existing as of the date hereof and listed in Exhibit C hereto (collectively the "Permitted Exceptions"). 1.2 Term. The initial term (the "Fixed Term") of the Lease shall be for a fixed term of ten (10) years commencing on July 18, 1997 (the "Commencement Date") and expiring on July 17, 2007 (the "Expiration Date"). The Term of this Lease may be renewed on the mutual agreement of Landlord and Tenant as follows: (i) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the Expiration Date, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as set forth in the Lease; (ii) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the expiration of the Extended Term, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Second Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as 2 set forth in the Lease; and (iii) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the expiration of the Second Extended Term, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Third Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as set forth in the Lease. Tenant's right to so extend the Term of the Lease is conditioned on Landlord's prior approval of the Extended Term, Second Extended Term, or Third Extended Term, as the case may be. The term "Term" used in this Agreement means the Fixed Term, Extended Term, Second Extended Term and Third Extended Term, as appropriate. The term "Lease Year" means each twelve (12) month period during the Term commencing on January 1 and ending on December 31, except the first Lease Year of each Lease shall be the period from the Commencement Date through the following December 31, and the last Lease Year shall end on the date of termination of the Lease if a day other than December 31. Landlord may terminate this Lease prior to the expiration of the Term hereof, at any time following the date which is five (5) years from the date hereof, upon written notice to Tenant not less than eighteen (18) months prior to the effective date of such termination. ARTICLE II RENT 2.1 Base Rent. Tenant shall pay Landlord Base Rent for the Term in advance in consecutive monthly installments payable on the first day of each month during the Term, the Extended Term, Second Extended Term and the Third Extended Term, commencing on the Commencement Date, in accordance with the Base Rent Schedule attached hereto as Exhibit D. If the Commencement Date or the Expiration Date shall be other than on the first day of a calendar month, the initial (or final, as appropriate) monthly installment of Base Rent payable pursuant to the Lease shall be prorated for the number of days until, in the case of the initial monthly installment, the first day of the calendar month following the Commencement Date and, in the case of the final monthly installment, the Expiration Date. 2.2 Additional Rent. The Base Rent shall be subject to such increases over the Term as determined pursuant to Section 2.02 of the Master Agreement. 2.3 Other Additional Rent. Tenant shall also pay all Other Additional Rent with respect to the Leased Property, as set forth in the Master Agreement. ARTICLE III OTHER TERMS AND CONDITIONS 3.1 Master Agreement Incorporated Herein. All provisions of the Master Agreement (except any provisions expressly therein not to be a part of an individual lease of leased property) are hereby incorporated in and are a part of this Lease of the Leased Property. 2 3 3.2 Recordation. At the request of Landlord or Tenant, a short form memorandum of this Lease may be recorded in the real estate records of any county which Landlord or Tenant deems appropriate in order to provide legal notice of the existence hereof. IN WITNESS WHEREOF, the Landlord and the Tenant have executed this Lease or caused the same to be executed by their respective duly authorized officers as of the date first set forth above. CCA PRISON REALTY TRUST By: /s/ Michael W. Devlin -------------------------------- Title: Chief Development Officer ----------------------------- CORRECTIONS CORPORATION OF AMERICA By: /s/ Doctor R. Crants -------------------------------- Title: Chief Executive Officer ----------------------------- 3 4 EXHIBIT A Legal Description of Leased Property SURFACE ONLY AS TO ALL TRACTS: Tract 1: Lots 2, 3, 4, 5, 6, 7, and 8, Block 5, LEAVENWORTH INDUSTRIAL PARK, City of Leavenworth, Leavenworth County, Kansas. Tract 2: Lots 2, 4, and 6, Block 4, BREWER PLACE, REPLAT OF BLOCKS 3 AND 4, LEAVENWORTH INDUSTRIAL PARK, City of Leavenworth, Leavenworth County, Kansas. Tract 3: Vacated Highway Terrace bounded by the above tracts. All being more particularly described as follows: Beginning at the Southeast corner of Lot 8, Block 5, of said "LEAVENWORTH INDUSTRIAL PARK"; THENCE North 89 degrees 40 minutes 56 seconds West, 410.31 feet along the South line of said Lot 8, also being the North line of Astro Way, to a point on the West line of vacated Highway Terrace, also being on the East line of Lot 6, Block 4, of said "BREWER PLACE REPLAT"; THENCE, South 00 degrees 19 minutes 04 seconds West, 60.00 feet to the Southeast corner of said Lot 6; THENCE North 89 degrees 40 minutes 56 seconds West, 321.00 feet to the Southwest corner of said Lot 6; THENCE, North 00 degrees 19 minutes 04 seconds East, 1,278.78 feet to the Northwest corner of Lot 2, Block 5, of said "LEAVENWORTH INDUSTRIAL PARK"; THENCE, along the North line of said Lot 2, also being the South line of Kansas Highway No. 5, South 89 degrees 50 minutes 26 seconds East, 236.60 feet to a point of curvature; THENCE along a curve to the right, having a delta of 90 degrees 51 minutes 00 seconds a radius of 501.95 feet, an arc length of 795.91 feet; 5 THENCE continuing along the West line of said Kansas Highway No.5, also being the East line of said "LEAVENWORTH INDUSTRIAL PARK", South 01 degrees 00 minutes 34 seconds West, 711.48 feet to the "Point of Beginning", NET AREA: 863,056.076 square feet or 19.813 acres, more or less. Leavenworth Detention Center Leavenworth, Leavenworth County, Kansas 6 EXHIBIT B Mortgage Debt Property: Leavenworth Detention Center This property is subject to the following Mortgage Debt: That certain mortgage of First Union National Bank of Tennessee, as Administrative Agent, dated July 18, 1997. 7 EXHIBIT C Permitted Exceptions Property: Leavenworth Detention Center 1. General taxes and special assessments for 1997 and subsequent years, not yet due or payable. 2. Restrictive covenants appearing in Book 484, page 37, and as amended in Book 484, page 670 and Book 503, page 1867 and Book 505, page 724, and Book 650, page 1847, and Book 651, page 317. 3. Restrictions, reservations and covenants, if any, as shown on the Plat of Leavenworth Industrial Park, recorded in Plat Book 7, page 99. 4. Restrictive covenants appearing in Book 475, page 61. 5. Restrictions, reservations and covenants, if any, as shown on the Plat of Brewer Place, Replat of Blocks 3 and 4, Leavenworth Industrial Park, recorded in Plat Book 10, page 41. 6. Building set-back line(s) 40 feet from the unvacated portion of Highway Terrace, Astrow Way and Kansas Highway #5 on Lots 2 through 8, Block 5, Leavenworth Industrial Park. 7. Building set-back line(s) across the 40 feet from Astrow Way and the unvacated portion of Highway Terrace on Lots 2, 4 and 6, Block 4, Brewer Place Replat. 8. License Agreement, dated November 10, 1947, to Cities Service Gas Company recorded January 6, 1948 in Book 357, page 141. 9. All of the coal underlying the subject property was conveyed to Carr Coal Mining and Manufacturing Company in Deed recorded March 23, 1925 in Book 278, page 47. 10. All matters shown on ALTA/ACSM Land Title Survey, dated April 16, 1997, as revised June 20, 1997, prepared by David L. King, Ks. L.S. No. 782, Schmitz, King & Associates, Inc., 3202-B Parallel Parkway, Kansas City, Kansas 66104, Job No. 97046. 8 EXHIBIT D Base Rent Schedule Property: Leavenworth Detention Center Tenant will pay to Landlord annual Base Rent of $3,322,000.00, payable in equal monthly installments of $276,833.33. Base Rent for the Extended Term, Second Extended Term and Third Extended Term shall be equal to the fair market rental value of the Leased Property as of the respective commencement dates thereof. EX-10.185 20 LEASE AGEEMENT 1 EXHIBIT 10.185 LEASE AGREEMENT (ELOY) THIS LEASE AGREEMENT ("Lease") dated as of the 18th day of July, 1997, by and between CCA PRISON REALTY TRUST, a Maryland real estate investment trust ("Landlord") and CORRECTIONS CORPORATION OF AMERICA, a Tennessee corporation ("Tenant"). RECITALS WHEREAS, Tenant (or one of Tenant's affiliates) has concurrently conveyed to Landlord the property described in Exhibit A hereto, and Landlord and Tenant desire that Landlord lease such property back to Tenant; and WHEREAS, Landlord and Tenant have entered into a Master Agreement to Lease of even date herewith (the "Master Agreement") which sets forth certain agreements of the parties with respect to the lease of various properties including the property that is the subject of this Lease; NOW, THEREFORE, in consideration of the premises and of their respective agreements and undertakings herein, Landlord and Tenant agree as follows: ARTICLE I PREMISES AND TERM 1.1 Leased Property. Landlord hereby leases to Tenant and Tenant leases from Landlord the Land located in the City of Eloy, Pinal County, State of Arizona, described in Exhibit A hereto, and all Improvements, Fixtures, and Personal Property thereon or thereto (each as defined in the Master Agreement, and, together with said Land, the "Leased Property"); such Leased Property collectively known and described at the date hereof as the Eloy Detention Center; SUBJECT, HOWEVER, to the lien of the mortgage debt described in Exhibit B hereto, if any, and to all easements, liens, encumbrances, restrictions, agreements, and other title matters existing as of the date hereof and listed in Exhibit C hereto (collectively the "Permitted Exceptions"). 1.2 Term. The initial term (the "Fixed Term") of the Lease shall be for a fixed term of twelve (12) years commencing on July 18, 1997 (the "Commencement Date") and expiring on July 17, 2009 (the "Expiration Date"). The Term of this Lease may be renewed on the mutual agreement of Landlord and Tenant as follows: (i) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the Expiration Date, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as set forth in the Lease; (ii) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the expiration of the Extended Term, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Second Extended Term") on the same terms and provisions (other than with respect to renewal) as 2 the Fixed Term, as set forth in the Lease; and (iii) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the expiration of the Second Extended Term, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Third Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as set forth in the Lease. Tenant's right to so extend the Term of the Lease is conditioned on Landlord's prior approval of the Extended Term, Second Extended Term, or Third Extended Term, as the case may be. The term "Term" used in this Agreement means the Fixed Term, Extended Term, Second Extended Term and Third Extended Term, as appropriate. The term "Lease Year" means each twelve (12) month period during the Term commencing on January 1 and ending on December 31, except the first Lease Year of each Lease shall be the period from the Commencement Date through the following December 31, and the last Lease Year shall end on the date of termination of the Lease if a day other than December 31. Landlord may terminate this Lease prior to the expiration of the Term hereof, at any time following the date which is five (5) years from the date hereof, upon written notice to Tenant not less than eighteen (18) months prior to the effective date of such termination. ARTICLE II RENT 2.1 Base Rent. Tenant shall pay Landlord Base Rent for the Term in advance in consecutive monthly installments payable on the first day of each month during the Term, the Extended Term, Second Extended Term and the Third Extended Term, commencing on the Commencement Date, in accordance with the Base Rent Schedule attached hereto as Exhibit D. If the Commencement Date or the Expiration Date shall be other than on the first day of a calendar month, the initial (or final, as appropriate) monthly installment of Base Rent payable pursuant to the Lease shall be prorated for the number of days until, in the case of the initial monthly installment, the first day of the calendar month following the Commencement Date and, in the case of the final monthly installment, the Expiration Date. 2.2 Additional Rent. The Base Rent shall be subject to such increases over the Term as determined pursuant to Section 2.02 of the Master Agreement. 2.3 Other Additional Rent. Tenant shall also pay all Other Additional Rent with respect to the Leased Property, as set forth in the Master Agreement. ARTICLE III OTHER TERMS AND CONDITIONS 3.1 Master Agreement Incorporated Herein. All provisions of the Master Agreement (except any provisions expressly therein not to be a part of an individual lease of leased property) are hereby incorporated in and are a part of this Lease of the Leased Property. 2 3 3.2 Recordation. At the request of Landlord or Tenant, a short form memorandum of this Lease may be recorded in the real estate records of any county which Landlord or Tenant deems appropriate in order to provide legal notice of the existence hereof. IN WITNESS WHEREOF, the Landlord and the Tenant have executed this Lease or caused the same to be executed by their respective duly authorized officers as of the date first set forth above. CCA PRISON REALTY TRUST By: /s/ Michael W. Devlin ----------------------------------------- Title: Chief Development Officer -------------------------------------- CORRECTIONS CORPORATION OF AMERICA By: /s/ Doctor R. Crants ----------------------------------------- Title: Chief Executive Officer -------------------------------------- 3 4 EXHIBIT A Legal Description of Leased Property PARCEL "A" - PRISON COMPOUND A portion of the Northeast Quarter of Section 16, Township 7 South, Range 8 East, of the Gila and Salt River Base and Meridian, Pinal County, Arizona; using a basis of bearing the East line of the Northeast corner of said Section 16, using a bearing of North 00 degrees 00 minutes 07 seconds East and being more particularly described as follows: Commencing at the East quarter corner of said Section 16, being a brass cap in handhole; thence South 89 degrees 47 minutes 31 seconds West, along the East/West mid-section line of said Section 16, a distance of 735.00 feet to the point of beginning; thence continuing South 89 degrees 47 minutes 31 seconds West along said mid-section line 1907.59 feet to the center of said Section 16, being a 3 inch aluminum monument; thence North 00 degrees 02 minutes 32 seconds West along the North/South mid-section line of said Section 16, a distance of 2648.25 feet to the North quarter corner of said Section 16, being a G.L.O brass cap; thence North 89 degrees 56 minutes 55 seconds East, along the north line of said northeast quarter 1909.62 feet; thence South 00 degrees 00 minutes 07 seconds West, parallel to the East line of said Northeast quarter 2643.03 feet to the point of beginning. Except all coal, oil, gas and mineral deposits as reserved in instrument recorded September 20, 1944 in Book 71 of Deeds, page 511. Said parcel contains approximately 120 acres, more or less. This legal description is recorded in Docket 1958, page 755, Records of Pinal County, Arizona. PARCEL "B" - WELL SITE AND INGRESS/EGRESS EASEMENT A parcel of land situated in the Northeast Quarter of Section 16, Township 7 South, Range 8 East of the Gila and Salt River Base and Meridian, Pinal County, Arizona; more particularly described as follows: Beginning at the East quarter corner of said Section 16, measure westerly along the mid-section line bearing South 89 degrees 47 minutes 31 seconds West, a distance of 452.00 feet to the true point of beginning; thence continuing westerly along the mid-section line bearing South 89 degrees 47 minutes 31 seconds West, a distance of 208.00 feet; thence northerly bearing North 00 degrees 00 minutes 07 seconds East, a distance of 208.00 feet; thence easterly bearing North 89 degrees 47 minutes 31 seconds East, a distance of 208.00 feet; thence southerly bearing South 00 degrees 00 minutes 07 seconds West, a distance of 208.00 feet to the true point of beginning. Except all coal, oil, gas and mineral deposits as reserved in instrument recorded September 20, 1944 in Book 71 of Deeds, page 511. 5 Said parcel contains approximately 1.0 acres more or less. Together with and subject to an easement for ingress and egress more particularly described as follows: A 30 foot strip of land lying to the North of the following described line; beginning at the East quarter corner of said Section 16, measuring westerly along the mid-section line bearing South 89 degrees 47 minutes 31 seconds West, a distance of 40.00 feet to the true point of beginning; thence continuing westerly along the mid-section line bearing South 89 degrees 47 minutes 31 seconds West, a distance of 412.00 feet. Except all gas, oil, metals and mineral rights as reserved in patent from State of Arizona recorded in Book 32 of Deeds, page 325, Records of Pinal County, Arizona. This legal description is recorded in Docket 1999, page 997, Records of Pinal County, Arizona. PARCEL "C" - SEWAGE DISPOSAL BEDS A parcel of land situated in the northwest corner of Section 16, Township 7 South, Range 8 East, of the Gila and Salt River Base and Meridian, Pinal County, Arizona, more particularly described as follows: Beginning at the North quarter corner of said Section 16, measure southerly along the mid-section line bearing South 00 degrees 02 minutes 32 seconds East, a distance of 600.00 feet to the true point of beginning; thence continuing southerly along the mid-section line bearing South 00 degrees 02 minutes 32 seconds East, a distance of 600.00 feet; thence westerly bearing South 89 degrees 57 minutes 28 seconds West, a distance of 1815.00 feet; thence northerly bearing North 00 degrees 02 minutes 32 seconds West, a distance of 600.00 feet; thence Easterly bearing North 89 degrees 57 minutes 28 seconds East, a distance of 1815.00 feet to the true point of beginning. Except all gas, oil, metals and mineral rights as reserved in patent from State of Arizona Recorded in Book 32 of Deeds, page 325, Records of Pinal County, Arizona. Said parcel contains approximately 25 acres, more or less. This legal description is recorded in Docket 1999, page 997, Records of Pinal County, Arizona. Eloy Detention Center Eloy, Pinal County, Arizona 6 EXHIBIT B Mortgage Debt Property: Eloy Detention Center This property is subject to the following Mortgage Debt: That certain deed of trust of First Union National Bank of Tennessee, as Administrative Agent, dated July 18, 1997. 6 7 EXHIBIT C Permitted Exceptions Property: Eloy Detention Center 1. Taxes and assessments collectible by the County Treasurer not yet due and payable for the year 1997. 2. Assessments, obligations and liabilities by reason of the property described herein being included in any existing or proposed sewer system, street, lighting or other assessment and/or improvement district of the City of Eloy, if any. 3. Liabilities and obligations existing or which may arise against the property by reason of its inclusion within Central Arizona Water Conservation District, Pinal County Flood Control District and Central Arizona Water Irrigation District. 4. Reservations contained in State of Arizona patent recorded in Book 32 of Deeds, page 325, reading as follows: The State of Arizona reserves all rights to any and all minerals, ores, and metals of every kind and character and all coal, asphaltum, oil, gases, fertilizers, fossils and other like substances in or under said land and all the right of ingress and egress for the purpose of mining, together with enough of the surface of the land as may be necessary for the proper and convenient working and extraction of such minerals and substances. 5. Water rights, claims or title to water, whether or not shown by the public records. 6. The right of entry to prospect for, mine and remove the oil, gas and other mineral deposits in said land as reserved in Deed recorded in Book 71 of Deeds, Page 511. 7. Liabilities and obligations imposed upon said land by reason of its inclusion within the Central Arizona Water Irrigation and Drainage District as disclosed by instrument recorded on January 20, 1990, in Docket 1580, page 919. 8. Easement for public highway purposes and rights incident thereto, as set forth in instrument recorded in Book 85 of Deeds, page 243. (Parcel A) 9. Resolution by the Board of Supervisors of Pinal County Arizona purporting to establish a county roadway, 33 feet on each side of all section lines, recorded February 21, 1964, in Docket 375, page 572. (Parcel A) 10. Easement for electric transmission lines and rights incident thereto, as set forth in instrument recorded in Docket 1301, page 452. (Parcel A) 11. Easement for water distribution system canals, laterals and ditches and rights incident thereto, as set forth in instrument recorded in Docket 1515, page 195. (Parcels A and B) 12. Easement for ingress, egress and irrigation purposes and rights incident thereto, as set forth in instrument recorded in Docket 1568, page 482. (Parcels A and C) 13. Easement for electric lines and appurtenant facilities and rights incident thereto, as set forth in instrument recorded in Docket 2026, page 456. (Parcel A) 8 14. Easement for electric lines and appurtenant facilities and rights incident thereto, as set forth in instrument recorded in Docket 2026, page 458. (Parcel B) 15. Agreement for the operation, maintenance, repair and financing of an irrigation distribution system according to the terms and conditions contained therein, dated June 13,1984, between Central Arizona Irrigation and Drainage District, an irrigation district, and B.K.W. Farms, Inc., an Arizona corporation, recorded June 26,1985, in Docket 1295, page 47. 16. Agreement for irrigation and water use according to the terms and conditions contained therein, dated December 1, 1989, between Central Arizona Irrigation and Drainage District, an irrigation district, and Lin & Sons, Enterprises, Inc., a California corporation, recorded March 26, 1990, in Docket 1665, page 684. 17. All matters shown on ALTA/ACSM Land Title Survey, dated June 20, 1997, prepared by Robert B. Atherton, R.L.S. No. 16490, Atherton Engineering Inc., 4620 N. 16th Street, Suite 108, Phoenix, AZ 85016-5148, Job No. 97-26. 9 EXHIBIT D Base Rent Schedule Property: Eloy Detention Center Tenant will pay to Landlord annual Base Rent of $6,006,000.00, payable in equal monthly installments of $500,500.00. Base Rent for the Extended Term, Second Extended Term and Third Extended Term shall be equal to the fair market rental value of the Leased Property as of the respective commencement dates thereof. EX-10.186 21 LEASE AGEEMENT 1 EXHIBIT 10.186 LEASE AGREEMENT (FLORENCE) THIS LEASE AGREEMENT ("Lease") dated as of the 18th day of July, 1997, by and between CCA PRISON REALTY TRUST, a Maryland real estate investment trust ("Landlord") and CORRECTIONS CORPORATION OF AMERICA, a Tennessee corporation ("Tenant"). RECITALS WHEREAS, Tenant (or one of Tenant's affiliates) has concurrently conveyed to Landlord the property described in Exhibit A hereto, and Landlord and Tenant desire that Landlord lease such property back to Tenant; and WHEREAS, Landlord and Tenant have entered into a Master Agreement to Lease of even date herewith (the "Master Agreement") which sets forth certain agreements of the parties with respect to the lease of various properties including the property that is the subject of this Lease; NOW, THEREFORE, in consideration of the premises and of their respective agreements and undertakings herein, Landlord and Tenant agree as follows: ARTICLE I PREMISES AND TERM 1.1 Leased Property. Landlord hereby leases to Tenant and Tenant leases from Landlord the Land located in the City of Florence, Pinal County, State of Arizona, described in Exhibit A hereto, and all Improvements, Fixtures, and Personal Property thereon or thereto (each as defined in the Master Agreement, and, together with said Land, the "Leased Property"); such Leased Property collectively known and described at the date hereof as the Central Arizona Detention Center; SUBJECT, HOWEVER, to the lien of the mortgage debt described in Exhibit B hereto, if any, and to all easements, liens, encumbrances, restrictions, agreements, and other title matters existing as of the date hereof and listed in Exhibit C hereto (collectively the "Permitted Exceptions"). 1.2 Term. The initial term (the "Fixed Term") of the Lease shall be for a fixed term of ten (10) years commencing on July 18, 1997 (the "Commencement Date") and expiring on July 17, 2007 (the "Expiration Date"). The Term of this Lease may be renewed on the mutual agreement of Landlord and Tenant as follows: (i) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the Expiration Date, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as set forth in the Lease; (ii) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the expiration of the Extended Term, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Second Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as 2 set forth in the Lease; and (iii) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the expiration of the Second Extended Term, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Third Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as set forth in the Lease. Tenant's right to so extend the Term of the Lease is conditioned on Landlord's prior approval of the Extended Term, Second Extended Term, or Third Extended Term, as the case may be. The term "Term" used in this Agreement means the Fixed Term, Extended Term, Second Extended Term and Third Extended Term, as appropriate. The term "Lease Year" means each twelve (12) month period during the Term commencing on January 1 and ending on December 31, except the first Lease Year of each Lease shall be the period from the Commencement Date through the following December 31, and the last Lease Year shall end on the date of termination of the Lease if a day other than December 31. Landlord may terminate this Lease prior to the expiration of the Term hereof, at any time following the date which is five (5) years from the date hereof, upon written notice to Tenant not less than eighteen (18) months prior to the effective date of such termination. ARTICLE II RENT 2.1 Base Rent. Tenant shall pay Landlord Base Rent for the Term in advance in consecutive monthly installments payable on the first day of each month during the Term, the Extended Term, Second Extended Term and the Third Extended Term, commencing on the Commencement Date, in accordance with the Base Rent Schedule attached hereto as Exhibit D. If the Commencement Date or the Expiration Date shall be other than on the first day of a calendar month, the initial (or final, as appropriate) monthly installment of Base Rent payable pursuant to the Lease shall be prorated for the number of days until, in the case of the initial monthly installment, the first day of the calendar month following the Commencement Date and, in the case of the final monthly installment, the Expiration Date. 2.2 Additional Rent. The Base Rent shall be subject to such increases over the Term as determined pursuant to Section 2.02 of the Master Agreement. 2.3 Other Additional Rent. Tenant shall also pay all Other Additional Rent with respect to the Leased Property, as set forth in the Master Agreement. ARTICLE III OTHER TERMS AND CONDITIONS 3.1 Master Agreement Incorporated Herein. All provisions of the Master Agreement (except any provisions expressly therein not to be a part of an individual lease of leased property) are hereby incorporated in and are a part of this Lease of the Leased Property. 2 3 3.2 Recordation. At the request of Landlord or Tenant, a short form memorandum of this Lease may be recorded in the real estate records of any county which Landlord or Tenant deems appropriate in order to provide legal notice of the existence hereof. IN WITNESS WHEREOF, the Landlord and the Tenant have executed this Lease or caused the same to be executed by their respective duly authorized officers as of the date first set forth above. CCA PRISON REALTY TRUST By: /s/ Michael W. Devlin ----------------------------------------- Title: Chief Development Officer -------------------------------------- CORRECTIONS CORPORATION OF AMERICA By: /s/ Doctor R. Crants ----------------------------------------- Title: Chief Executive Officer -------------------------------------- 3 4 EXHIBIT A Legal Description of Leased Property A parcel of land located in the Northeast Quarter of Section 36, Township 4 South, Range 9 East of the Gila and Salt River Base and Meridian, Pinal County, Arizona, more particularly described as follows: The North 1100.00 feet of the Northeast Quarter of Section 36, Township 4 South, Range 9 East of the Gila and Salt River Base and Meridian, Pinal County, Arizona. Central Arizona Detention Center Florence, Pinal County, Arizona 5 EXHIBIT B Mortgage Debt Property: Central Arizona Detention Center This property is subject to the following Mortgage Debt: That certain deed of trust of First Union National Bank of Tennessee, as Administrative Agent, dated July 18, 1997. 6 EXHIBIT C Permitted Exceptions Property: Central Arizona Detention Center 1. Taxes and assessments collectible by the County Treasurer not yet due and payable for the year 1997. 2. Taxes, assessments, obligations and liabilities on the subject property by reason of the City of Florence Sewer System, Revenue and General Obligation Bonds. 3. Liabilities and obligations existing or which may arise against the property by reason of its inclusion within COUNTY FIRE CONTRIBUTIONS DISTRICT; ELECTRICAL DISTRICT NUMBER TWO; CENTRAL ARIZONA WATER CONSERVATION DISTRICT; PINAL COUNTY LIBRARY DISTRICT; PINAL COUNTY FLOOD CONTROL DISTRICT; FLORENCE FLOOD CONTROL DISTRICT; and SAN CARLOS IRRIGATION DISTRICT. 4. Reservations contained in the Patent from the United States of America, reading as follows: "Subject to any vested and accrued water rights for mining, agricultural, manufacturing, or other purposes, and rights to ditches and reservoirs used in connection with such water rights, as may be recognized and acknowledged by the local customs, laws, and decisions of courts; and there is reserved from the lands hereby granted, a right-of-way thereon for ditches or canals constructed by the authority of the United States". 5. Water rights, claims or title to water, whether or not shown by the public records. 6. Roadway right-of-way, 33 feet in width, along the section lines of said section, as set forth in Minute Book 7, page 386, of the office of the Board of Supervisors of Pinal County, Arizona, a certificate copy of which was recorded February 21, 1964 in Docket 375, page 572. 7. An easement for highway and rights incident thereto as set forth in instrument recorded January 12, 1931 in Book 49 of Deeds, page 187. 8. An easement for telephone and telegraph lines and rights incident thereto as set forth in instrument recorded March 21, 1952 in Docket 58, page 227. 9. An easement for electrical transmission line and rights incident thereto as set forth in instrument recorded November 12, 1980 in Docket 1035, page 607. 7 10. The effect of a Map, Plat or Survey filed in Book 2 of Surveys, page 90, evidenced by a Notice of Recording Map or Plat recorded December 18, 1989, in Docket 1646, page 605. 11. The effect of a Map, Plat or Survey filed in Book 2 of Surveys, page 102, evidenced by a Notice of Recording Map or Plat recorded April 2, 1990, in Docket 1667, page 223. 12. The effect of a Map, Plat or Survey filed in Book 2 of Surveys, page 131, evidenced by a Notice of Recording Map or Plat recorded November 25, 1991, in Docket 1786, page 144. 13. The effect of a Map, Plat or Survey filed in Book 2 of Surveys, page 103. 14. An easement and rights incident thereto for installation of pipeline and appurtenances over the property, as set forth in instrument recorded September 28, 1994, in Docket 2045, page 192. 15. An easement and rights incident thereto for utility purposes over the property, as set forth in instrument recorded February 22, 1995, in Docket 2082, page 215. 16. An easement and rights incident thereto for utility purposes over the property, as set forth in instrument recorded February 22, 1995, in Document No. 1996-029763. 17. That portion of the premises located within the boundaries of any road or roadway. 18. All matters shown on the ALTA/ACSM Land Title Survey, dated June 20, 1997, prepared by Robert B. Atherton, R.L.S. No. 16490, Atherton Engineering Inc., 4620 N. 16th Street, Suite 108, Phoenix, Arizona 85016-5148, Job No. 97-25. 19. Canal and Irrigation Ditch within San Carlos Irrigation District Right of Way. 8 EXHIBIT D Base Rent Schedule Property: Central Arizona Detention Center Tenant will pay to Landlord annual Base Rent of $12,276,000.00, payable in equal monthly installments of $1,023,000.00. Base Rent for the Extended Term, Second Extended Term and Third Extended Term shall be equal to the fair market rental value of the Leased Property as of the respective commencement dates thereof. EX-10.187 22 LEASE AGEEMENT 1 EXHIBIT 10.187 LEASE AGREEMENT (TAYLOR) THIS LEASE AGREEMENT ("Lease") dated as of the 18th day of July, 1997, by and between CCA PRISON REALTY TRUST, a Maryland real estate investment trust ("Landlord") and CORRECTIONS CORPORATION OF AMERICA, a Tennessee corporation ("Tenant"). RECITALS WHEREAS, Tenant (or one of Tenant's affiliates) has concurrently conveyed to Landlord the property described in Exhibit A hereto, and Landlord and Tenant desire that Landlord lease such property back to Tenant; and WHEREAS, Landlord and Tenant have entered into a Master Agreement to Lease of even date herewith (the "Master Agreement") which sets forth certain agreements of the parties with respect to the lease of various properties including the property that is the subject of this Lease; NOW, THEREFORE, in consideration of the premises and of their respective agreements and undertakings herein, Landlord and Tenant agree as follows: ARTICLE I PREMISES AND TERM 1.1 Leased Property. Landlord hereby leases to Tenant and Tenant leases from Landlord the Land located in the City of Taylor, Williamson County, State of Texas, described in Exhibit A hereto, and all Improvements, Fixtures, and Personal Property thereon or thereto (each as defined in the Master Agreement, and, together with said Land, the "Leased Property"); such Leased Property collectively known and described at the date hereof as the T. Don Hutto Correctional Center; SUBJECT, HOWEVER, to the lien of the mortgage debt described in Exhibit B hereto, if any, and to all easements, liens, encumbrances, restrictions, agreements, and other title matters existing as of the date hereof and listed in Exhibit C hereto (collectively the "Permitted Exceptions"). 1.2 Term. The initial term (the "Fixed Term") of the Lease shall be for a fixed term of twelve (12) years commencing on July 18, 1997 (the "Commencement Date") and expiring on July 17, 2009 (the "Expiration Date"). The Term of this Lease may be renewed on the mutual agreement of Landlord and Tenant as follows: (i) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the Expiration Date, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as set forth in the Lease; (ii) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the expiration of the Extended Term, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Second Extended Term") on the same terms and provisions (other than with respect to renewal) as 2 the Fixed Term, as set forth in the Lease; and (iii) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the expiration of the Second Extended Term, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Third Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as set forth in the Lease. Tenant's right to so extend the Term of the Lease is conditioned on Landlord's prior approval of the Extended Term, Second Extended Term, or Third Extended Term, as the case may be. The term "Term" used in this Agreement means the Fixed Term, Extended Term, Second Extended Term and Third Extended Term, as appropriate. The term "Lease Year" means each twelve (12) month period during the Term commencing on January 1 and ending on December 31, except the first Lease Year of each Lease shall be the period from the Commencement Date through the following December 31, and the last Lease Year shall end on the date of termination of the Lease if a day other than December 31. Landlord may terminate this Lease prior to the expiration of the Term hereof, at any time following the date which is five (5) years from the date hereof, upon written notice to Tenant not less than eighteen (18) months prior to the effective date of such termination. ARTICLE II RENT 2.1 Base Rent. Tenant shall pay Landlord Base Rent for the Term in advance in consecutive monthly installments payable on the first day of each month during the Term, the Extended Term, Second Extended Term and the Third Extended Term, commencing on the Commencement Date, in accordance with the Base Rent Schedule attached hereto as Exhibit D. If the Commencement Date or the Expiration Date shall be other than on the first day of a calendar month, the initial (or final, as appropriate) monthly installment of Base Rent payable pursuant to the Lease shall be prorated for the number of days until, in the case of the initial monthly installment, the first day of the calendar month following the Commencement Date and, in the case of the final monthly installment, the Expiration Date. 2.2 Additional Rent. The Base Rent shall be subject to such increases over the Term as determined pursuant to Section 2.02 of the Master Agreement. 2.3 Other Additional Rent. Tenant shall also pay all Other Additional Rent with respect to the Leased Property, as set forth in the Master Agreement. ARTICLE III OTHER TERMS AND CONDITIONS 3.1 Master Agreement Incorporated Herein. All provisions of the Master Agreement (except any provisions expressly therein not to be a part of an individual lease of leased property) are hereby incorporated in and are a part of this Lease of the Leased Property. 2 3 3.2 Recordation. At the request of Landlord or Tenant, a short form memorandum of this Lease may be recorded in the real estate records of any county which Landlord or Tenant deems appropriate in order to provide legal notice of the existence hereof. IN WITNESS WHEREOF, the Landlord and the Tenant have executed this Lease or caused the same to be executed by their respective duly authorized officers as of the date first set forth above. CCA PRISON REALTY TRUST By: /s/ Michael W. Devlin ------------------------------- Title: Chief Development Officer ---------------------------- CORRECTIONS CORPORATION OF AMERICA By: /s/ Doctor R. Crants ------------------------------- Title: Chief Executive Officer ---------------------------- 3 4 EXHIBIT A Legal Description of Leased Property Metes and Bounds Description 64.513 Acres Wm. R. Williams Survey, A-665 James C. Eaves Survey, A-214 Williamson County, Texas Being a tract containing 64.513 acres of land situated in the Wm. R. Williams Survey, Abstract No. 665 and the James C. Eaves Survey, Abstract No. 214 in the City of Taylor, Williamson County, Texas and being all of a called 64.537 acre parcel described in deed to Corrections Corporation of America recorded in Document Number 9639935 of the Official Records Williamson County, Texas (O.R.W.C.T.). Said 64.513 acre tract being more particularly described by metes and bounds with all bearings referenced to the aforementioned deed of record: BEGINNING at a 1/2-inch iron rod found in a south right-of-way line of Welch Street being the northwest corner of said Tract 1 and the northeast corner of a called 16.16 acre tract described in deed to Our Lady of Gaudalupe Church recorded in Volume 1482, page 866 of said O.R.W.C.T.; THENCE, North 87 degrees 11 minutes 00 seconds East, along said Welch Street right-of-way line, a distance of 1,623.43 feet to a 1/2-iron rod found in the west right-of-way line of Park Street (60.00 feet wide) per the plat of Doak's Addition to the Town of Taylor, a subdivision of record in Volume 56, page 483 of the Williamson County Deed Records (W.C.D.R.) and being the northeast corner of said Tract 1; THENCE, South 05 degrees 17 minutes 10 seconds East, departing said Welch Street and along said Park Street right-of-way line, a distance of 1,708.31 feet to a 1/2-inch iron rod found for the northeast corner of a called 9.0 acre tract described in deed to Mary Rundell and J. Sorenson recorded in Volume 270, page 54 of the Williamson County Probate Records and being the southeast corner of said Tract 1; THENCE, South 85 degrees 12 minutes 10 seconds West (called South 85 degrees 11 minutes 13 seconds West), departing said Park Street and along the north line of said 9.00 acre tract and along the north line of a called 31.60 acre tract described as Sixth Tract in deed to Wilhemie Sorenson recorded in Volume 1967, page 117 of said O.R.W.C.T, a distance of 1,618.76 feet (called 1,618.44 feet) to a 1/2-inch iron rod found for an interior corner of said 31.60 acre tract and being the southwest corner of said Tract 1; THENCE, North 04 degrees 48 minutes 00 seconds West (called North 04 degrees 55 minutes 32 seconds West), along the most northerly easterly line of said 31.60 acre tract, at a distance of 305.77 feet pass a found 3/4-inch iron rod, 0.12 feet left and continuing for a total distance of 355.87 feet 5 (called 306.32 feet) to a 1/2-inch iron rod found for the most northerly corner of said 31.60 acre tract and being the southeast corner of the aforementioned 16.16 acre tract; THENCE, North 05 degrees 32 minutes 24 seconds West (called North 05 degrees 30 minutes 03 seconds West), along the easterly line of said 16.16 acre tract, a distance of 1,408.61 feet (called 1,458.59 feet) to the POINT OF BEGINNING and containing a computed area of 64.513 acres of land, more or less. Prepared by: SURVCON INC. 400 West 15th, Suite 500 Austin, Texas 78701 Job No. 4775-01 April 1997 Revised: June 1997 T. Don Hutto Correctional Center Taylor, Williamson County, Texas 6 EXHIBIT B Mortgage Debt Property: T. Don Hutto Correctional Center This property is subject to the following Mortgage Debt: That certain deed of trust of First Union National Bank of Tennessee, as Administrative Agent, dated July 18, 1997. 6 7 EXHIBIT C Permitted Exceptions Property: T. Don Hutto Correctional Center 1. Standby fees, taxes and assessments by any taxing authority for the year 1997, and subsequent years. 2. An easement dated February 28, 1928, granted to Texas Power & Light Company of Dallas, Texas by Nellie G. Bowers, individually and as executrix of the Estate of A. L. Bowers, Deceased, et al., recorded in Volume 235, page 534, Deed Records, Williamson County, Texas. 3. An undivided 1/8th interest in all oil, gas and other minerals on, in, under or that may be produced from the subject property as set forth in instrument recorded in Volume 238, Page 363, Deed Records, Williamson County, Texas. 4. An undivided 1/8th interest of all oil, gas and other minerals on, in, under or that may be produced from the subject property as set forth in instrument recorded in Volume 299, Page 572, Deed Records, Williamson County, Texas. 5. An undivided 1/2 interest in all oil, gas and other minerals on, in, under or that may be produced from the subject property as set forth in instrument recorded in Volume 544, Page 97, Deed Records, Williamson County, Texas. 6. An undivided 1/6 interest in all oil, gas and other minerals on, in, under or that may be produced from the subject property as set forth in instrument recorded in Volume 544, Page 99, Deed Records, Williamson County, Texas. 7. An undivided 1/2 interest in all oil, gas and other minerals on, in, under or that may be produced from the subject property as set forth in instrument recorded in Volume 1088, Page 309, Official Records, Williamson County, Texas. 8. An undivided 1/2 interest in all oil, gas and other minerals on, in, under or that may be produced from the subject property as set forth in instrument recorded in Volume 1133, Page 880, Official Records, Williamson County, Texas. 9. All matters shown on the ALTA/ACSM Land Title Survey, dated April 17, 1997, as revised June 24, 1997, prepared by Arthur W. Girts, Jr., R.P.L.S. No. 4741, Survcon Inc., 400 W. 15th, Suite 500, Austin, Texas 78701, Job #4775-01. 8 EXHIBIT D Base Rent Schedule Property: T. Don Hutto Correctional Center Tenant will pay to Landlord annual Base Rent of $2,541,000.00, payable in equal monthly installments of $211,750.00. Base Rent for the Extended Term, Second Extended Term and Third Extended Term shall be equal to the fair market rental value of the Leased Property as of the respective commencement dates thereof. EX-10.188 23 LEASE AGEEMENT 1 EXHIBIT 10.188 LEASE AGREEMENT (YOUNGSTOWN) THIS LEASE AGREEMENT ("Lease") dated as of the 28th day of July, 1997, by and between CCA PRISON REALTY TRUST, a Maryland real estate investment trust ("Landlord") and CORRECTIONS CORPORATION OF AMERICA, a Tennessee corporation ("Tenant"). RECITALS WHEREAS, Tenant (or one of Tenant's affiliates) has concurrently conveyed to Landlord the property described in Exhibit A hereto, and Landlord and Tenant desire that Landlord lease such property back to Tenant; and WHEREAS, Landlord and Tenant have entered into a Master Agreement to Lease of even date herewith (the "Master Agreement") which sets forth certain agreements of the parties with respect to the lease of various properties including the property that is the subject of this Lease; NOW, THEREFORE, in consideration of the premises and of their respective agreements and undertakings herein, Landlord and Tenant agree as follows: ARTICLE I PREMISES AND TERM 1.1 Leased Property. Landlord hereby leases to Tenant and Tenant leases from Landlord the Land located in the City of Youngstown, Mahoning County, State of Ohio, described in Exhibit A hereto, and all Improvements, Fixtures, and Personal Property thereon or thereto (each as defined in the Master Agreement, and, together with said Land, the "Leased Property"); such Leased Property collectively known and described at the date hereof as the Northeast Ohio Correctional Center; SUBJECT, HOWEVER, to the lien of the mortgage debt described in Exhibit B hereto, if any, and to all easements, liens, encumbrances, restrictions, agreements, and other title matters existing as of the date hereof and listed in Exhibit C hereto (collectively the "Permitted Exceptions"). 1.2 Term. The initial term (the "Fixed Term") of the Lease shall be for a fixed term of ten (10) years commencing on July 28, 1997 (the "Commencement Date") and expiring on July 27, 2007 (the "Expiration Date"). The Term of this Lease may be renewed on the mutual agreement of Landlord and Tenant as follows: (i) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the Expiration Date, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as set forth in the Lease; (ii) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the expiration of the Extended Term, upon the mutual agreement of Landlord and E-1 2 Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Second Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as set forth in the Lease; and (iii) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the expiration of the Second Extended Term, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Third Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as set forth in the Lease. Tenant's right to so extend the Term of the Lease is conditioned on Landlord's prior approval of the Extended Term, Second Extended Term, or Third Extended Term, as the case may be. The term "Term" used in this Agreement means the Fixed Term, Extended Term, Second Extended Term and Third Extended Term, as appropriate. The term "Lease Year" means each twelve (12) month period during the Term commencing on January 1 and ending on December 31, except the first Lease Year of each Lease shall be the period from the Commencement Date through the following December 31, and the last Lease Year shall end on the date of termination of the Lease if a day other than December 31. Landlord may terminate this Lease prior to the expiration of the Term hereof, at any time following the date which is five (5) years from the date hereof, upon written notice to Tenant not less than eighteen (18) months prior to the effective date of such termination. ARTICLE II RENT 2.1 Base Rent. Tenant shall pay Landlord Base Rent for the Term in advance in consecutive monthly installments payable on the first day of each month during the Term, the Extended Term, Second Extended Term and the Third Extended Term, commencing on the Commencement Date, in accordance with the Base Rent Schedule attached hereto as Exhibit D. If the Commencement Date or the Expiration Date shall be other than on the first day of a calendar month, the initial (or final, as appropriate) monthly installment of Base Rent payable pursuant to the Lease shall be prorated for the number of days until, in the case of this initial monthly installment, the first day of the calendar month following the Commencement Date and, in the case of the final monthly installment, the Expiration Date. 2.2 Additional Rent. The Base Rent shall be subject to such increases over the Term as determined pursuant to Section 2.02 of the Master Agreement. 2.3 Other Additional Rent. Tenant shall also pay all Other Additional Rent with respect to the Leased Property, as set forth in the Master Agreement. ARTICLE III OTHER TERMS AND CONDITIONS 3.1 Master Agreement Incorporated Herein. All provisions of the Master Agreement (except any provisions expressly therein not to be a part of an individual lease of leased property) are hereby incorporated in and are a part of this Lease of the Leased Property. E-2 3 3.2 Recordation. At the request of Landlord or Tenant, a short form memorandum of this Lease may be recorded in the real estate records of any county which Landlord or Tenant deems appropriate in order to provide legal notice of the existence hereof. IN WITNESS WHEREOF, the Landlord and the Tenant have executed this Lease or caused the same to be executed by their respective duly authorized officers as of the date first set forth above. CCA PRISON REALTY TRUST By: /s/ Michael W. Devlin --------------------------------------- Title: Chief Development Officer ------------------------------------ CORRECTIONS CORPORATION OF AMERICA By: /s/ Doctor R. Crants --------------------------------------- Title: Chairman and Chief Executive Officer ------------------------------------ E-3 4 EXHIBIT A PARCEL I Situated in the City of Youngstown, County of Mahoning and State of Ohio: And known as being all of Youngstown City Lot Number 62018 as shown on Consolidation Plat recorded at Plat Book 92, page 194, Mahoning County Records. PARCEL II Situated in Section No. 4 and Section No. 5 Liberty Township, Trumbull County, State of Ohio: And being more fully described as follows: Beginning at the intersection of the centerline of Youngstown-Hubbard Road (U.S. 62 & S.R. 7) with the southerly line of Trumbull County; thence North eighty-nine degrees fifty-five minutes six seconds West (S. 89 degrees 55' 06" W.), along the line between Trumbull and Mahoning County, for a distance of one thousand one hundred seventy-eight and 28/100 (1178.28) feet to an iron pin set at the True Place of Beginning for the tract of land described herein; thence continuing South eighty-nine degrees fifty-five minutes six seconds West (S. 89 degrees 55' 06" W.) along said County line, for a distance of one thousand seven hundred seventy-seven and 93/100 (1777.93) feet to an iron pin set on the easterly line of the Consolidated Rail Corporation; thence along the easterly line of the Consolidated Rail Corporation by the arc of a curve to the right having a radius of one thousand one hundred sixteen and 28/100 (1116.28) feet, a central angle of twenty-two degrees sixteen minutes seventeen seconds (22 degrees 16' 17"), a chord bearing of North seventeen degrees thirty-eight minutes thirty-one seconds East (N. 17 degrees 38' 31" E.), and a chord length of four hundred thirty-one and 18/100 (431.18) feet, for an arc distance of four hundred thirty-three and 91/100 (433.91) feet to a 5/8" rebar found; thence North twenty-eight degrees forty-six minutes thirty-nine seconds East (N 28 degrees 46' 39" E.), and continuing along said easterly Consolidated Rail Corporation line, for a distance of eight hundred ninety-one and 3/100 (891.03) feet to a railroad rail on end found on the southerly line of a tract of land conveyed to Edward C. Margala and Charles E. Margala by instrument of record in Deed Book O.R. 431 at Page 678 of the Deed Records of Trumbull County; thence South sixty-nine degrees four minutes forty-six seconds East (S. 69 degrees 04' 46" E.), along the southerly line of said Margala, for a distance of eight hundred forty-six and 45/100 (846.45) feet to a point which is located North sixty-nine degrees four minutes forty-six seconds West (N. 69 degrees 04' 46" W.), a distance of 12/100 (0.12) feet from a 5/8" iron pin found; thence South one degree four minutes fifty-seven seconds East (S. 01 degrees 04' 57" E.), and continuing along said Margala line, for a distance of five hundred thirty-six and 58/100 (536.58) feet to point which is located North eighty-six degrees sixteen minutes twenty-seven seconds East (N. 86 degrees 16' 27" E.), a distance of three and 22/100 (3.22) feet from a 2" pipe found; thence South seventy-seven degrees thirty-nine minutes fifty-six seconds East (S. 77 degrees 39' 56" E.), and continuing along said Margala southerly line, for a distance of four hundred twenty-three and 24/100 (423.24) feet to an iron pin set; thence South zero degrees fifty-three minutes twenty-three seconds East (S. 00 degrees 53' 23" E.), for a distance of two hundred sixty and 24/100 (260.24) feet to the E-4 5 True Place of Beginning, and containing thirty and 566/1000 (30.566) acres, more or less, and being three and 963/1000 (3.963) acres in Section No. 4 and twenty-six and 603/1000 (26.603) acres in Section 5, in the Township of Liberty, County of Trumbull. "North" for this description is based on the deed from G.F. Corporation and G.F. Furniture Systems, Inc. to the City of Youngstown, as recorded in Deed Book O.R. 753 at Page 113 of the Deed Records of Trumbull County, and is assumed to be correct. All iron pins noted as being set throughout this description are 5/8" x 30" rebar with plastic I.D. cap. Northeast Ohio Correctional Center Youngstown, Mahoning County, Ohio E-5 6 EXHIBIT B Mortgage Debt Property: Northeast Ohio Correctional Center This property is subject to the following Mortgage Debt: That certain deed of trust of First Union National Bank of Tennessee, as Administrative Agent, dated July 28, 1997. E-6 7 EXHIBIT C Permitted Exceptions Property: Northeast Ohio Correctional Center Mahoning County: 1. All legal highways. 2. All taxes and assessments for the year 1997, a lien but not yet due and payable. 3. Easement and/or Right-of-Way granted to Ohio Edison Company, by instrument recorded in OR 3039, page 285, Mahoning County Records. 4. Easement and/or Right-of-Way granted to The East Ohio Gas Company, by instrument recorded in OR 3106, page 95, Mahoning County Records. 5. Easement and/or Right-of-Way granted to Ohio Edison Company, by instrument recorded in OR 3169, page 267, Mahoning County Records. 6. Dedicated Right-of-Way as shown on Consolidation Plat recorded at Plat Book 92, page 194, Mahoning County Records. 7. Restrictions, rights, covenants set forth in Development Agreement (unrecorded), and Rights of Reverter, all as contained in Deed recorded at OR 2842, page 57, Mahoning County Records. 8. All matters shown on the ALTA Survey, dated April 28, 1997, as revised July 24, 1997, by Robert J. Warner, R.P.S. No. 6931, Environmental Design Group, 450 Grant Street, Akron, Ohio 44311-1183, Proj. No. 424001. Trumbull County: 1. All legal highways. 2. All taxes and assessments for the year 1997, a lien but not yet due and payable. 3. Restrictions, rights, covenants set forth in Development Agreement (unrecorded), and Rights of Reverter, all as contained in Deed recorded at OR 1007, page 342, Trumbull County Records. E-7 8 4. All matters shown on the ALTA Survey, dated April 28, 1997, as revised July 24, 1997, by Robert J. Warner, R.P.S. No. 6931, Environmental Design Group, 450 Grant Street, Akron, Ohio 44311-1183, Proj. No. 424001. E-8 9 EXHIBIT D Base Rent Schedule Property: Northeast Ohio Correctional Center Tenant will pay to Landlord annual Base Rent of $7,717,160.00, payable in equal monthly installments of $643,096.66. Base Rent for the Extended Term, Second Extended Term and Third Extended Term shall be equal to the fair market rental value of the Leased Property as of the respective commencement dates thereof. E-9 EX-10.189 24 LEASE AGEEMENT 1 EXHIBIT 10.189 LEASE AGREEMENT (TORRANCE COUNTY) THIS LEASE AGREEMENT ("Lease") dated as of the 1st day of October, 1997, by and between CCA PRISON REALTY TRUST, a Maryland real estate investment trust ("Landlord") and CORRECTIONS CORPORATION OF AMERICA, a Tennessee corporation ("Tenant"). RECITALS WHEREAS, Tenant (or one of Tenant's affiliates) has concurrently conveyed to Landlord the property described in Exhibit A hereto, and Landlord and Tenant desire that Landlord lease such property back to Tenant; and WHEREAS, Landlord and Tenant have entered into a Master Agreement to Lease dated July 18, 1997 (the "Master Agreement") which sets forth certain agreements of the parties with respect to the lease of various properties including the property that is the subject of this Lease; NOW, THEREFORE, in consideration of the premises and of their respective agreements and undertakings herein, Landlord and Tenant agree as follows: ARTICLE I PREMISES AND TERM 1.1 Leased Property. Landlord hereby leases to Tenant and Tenant leases from Landlord the Land located in Torrance County, New Mexico, described in Exhibit A hereto, and all Improvements, Fixtures, and Personal Property thereon or thereto (each as defined in the Master Agreement, and, together with said Land, the "Leased Property"); such Leased Property collectively known and described at the date hereof as the Torrance County Detention Facility; SUBJECT, HOWEVER, to the lien of the mortgage debt described in Exhibit B hereto, if any, and to all easements, liens, encumbrances, restrictions, agreements, and other title matters existing as of the date hereof and listed in Exhibit C hereto (collectively the "Permitted Exceptions"). 1.2 Term. The initial term (the "Fixed Term") of the Lease shall be for a fixed term of ten (10) years commencing on October 1, 1997 (the "Commencement Date") and expiring on September 30, 2007 (the "Expiration Date"). The Term of this Lease may be renewed on the mutual agreement of Landlord and Tenant as follows: (i) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the Expiration Date, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as set forth in the Lease; (ii) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the expiration of the Extended Term, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) additional five (5) year term (the "Second Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as set forth in the Lease; and (iii) provided that Tenant gives Landlord notice on or before the date which is six (6) months prior to the expiration of the Second Extended Term, upon the mutual agreement of Landlord and Tenant, the Lease shall be renewed for one (1) 2 additional five (5) year term (the "Third Extended Term") on the same terms and provisions (other than with respect to renewal) as the Fixed Term, as set forth in the Lease. Tenant's right to so extend the Term of the Lease is conditioned on Landlord's prior approval of the Extended Term, Second Extended Term, or Third Extended Term, as the case may be. The term "Term" used in this Agreement means the Fixed Term, Extended Term, Second Extended Term and Third Extended Term, as appropriate. The term "Lease Year" means each twelve (12) month period during the Term commencing on January 1 and ending on December 31, except the first Lease Year of each Lease shall be the period from the Commencement Date through the following December 31, and the last Lease Year shall end on the date of termination of the Lease if a day other than December 31. Landlord may terminate this Lease prior to the expiration of the Term hereof, at any time following the date which is five (5) years from the date hereof, upon written notice to Tenant not less than eighteen (18) months prior to the effective date of such termination. ARTICLE II RENT 2.1 Base Rent. Tenant shall pay Landlord Base Rent for the Term in advance in consecutive monthly installments payable on the first day of each month during the Term, the Extended Term, Second Extended Term and the Third Extended Term, commencing on the Commencement Date, in accordance with the Base Rent Schedule attached hereto as Exhibit D. If the Commencement Date or the Expiration Date shall be other than on the first day of a calendar month, the initial (or final, as appropriate) monthly installment of Base Rent payable pursuant to the Lease shall be prorated for the number of days until, in the case of this initial monthly installment, the first day of the calendar month following the Commencement Date and, in the case of the final monthly installment, the Expiration Date. 2.2 Additional Rent. The Base Rent shall be subject to such increases over the Term as determined pursuant to Section 2.02 of the Master Agreement. 2.3 Other Additional Rent. Tenant shall also pay all Other Additional Rent with respect to the Leased Property, as set forth in the Master Agreement. ARTICLE III OTHER TERMS AND CONDITIONS 3.1 Master Agreement Incorporated Herein. All provisions of the Master Agreement (except any provisions expressly therein not to be a part of an individual lease of leased property) are hereby incorporated in and are a part of this Lease of the Leased Property. 3.2 Recordation. At the request of Landlord or Tenant, a short form memorandum of this Lease may be recorded in the real estate records of any county which Landlord or Tenant deems appropriate in order to provide legal notice of the existence hereof. 2 3 IN WITNESS WHEREOF, the Landlord and the Tenant have executed this Lease or caused the same to be executed by their respective duly authorized officers as of the date first set forth above. CCA PRISON REALTY TRUST By: /s/ Michael W. Devlin -------------------------------- Title: Chief Development Officer ----------------------------- CORRECTIONS CORPORATION OF AMERICA By: /s/ Doctor R. Crants -------------------------------- Title: Chief Executive Officer ------------------------------ EXHIBIT A [legal description] 4 EXHIBIT B Mortgage Debt Property: Torrance County Detention Facility This property is subject to the following Mortgage Debt: That certain deed of trust of First Union National Bank of Tennessee, as Administrative Agent, dated October 1, 1997. 5 EXHIBIT C Permitted Exceptions Property: Torrance County Detention Facility 6 EXHIBIT D Base Rent Schedule Property: Torrance County Detention Facility Tenant will pay to Landlord annual Base Rent of $4,235,000.00, payable in equal monthly installments of $352,916.67. Base Rent for the Extended Term, Second Extended Term and Third Extended Term shall be equal to the fair market rental value of the Leased Property as of the respective commencement dates thereof. EX-10.192 25 EXCHANGE AGREEMENT 1 EXHIBIT 10.192 EXCHANGE AGREEMENT This Exchange Agreement (the "Agreement") is made as of October 2, 1997, among CORRECTIONS CORPORATION OF AMERICA, a Tennessee corporation ("CCA"), AMERICAN CORRECTIONS TRANSPORT, INC., a Tennessee corporation ("ACT"), MICHAEL D. SHMERLING, L.M. COMPANY, TOM LOVENTHAL, J. THOMAS MARTIN, PETER WEISS, KENNETH ANCHOR, and BERNARD GOLDSTEIN (collectively, the "ACT Majority Shareholders"), and LEON MAY, an individual resident of the State of Tennessee ("Mr. May"). RECITALS ACT currently owns 759,764 shares of CCA common stock, $1.00 par value (the "Exchange Shares"). The Exchange Shares were acquired by ACT pursuant to that certain Share Exchange Agreement dated December 1994 by and among CCA, Transcor America, Inc. and the shareholders of Transcor America, Inc. (the "Transcor Share Exchange Agreement"). CCA has proposed to acquire from ACT 100% of the Exchange Shares in exchange for 379,882 shares of CCA's newly authorized Series B Convertible Preferred Stock (the "Series B Preferred Stock"), the terms and conditions of which are set forth in the Articles of Amendment to the Charter of CCA attached hereto as Exhibit A (the "Series B Preferred Stock Designation"). Immediately following the Exchange, ACT will liquidate and distribute its assets to its shareholders (the "ACT Liquidation"). NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows: SECTION 1. THE EXCHANGE SECTION 1.1. THE EXCHANGE. On the date of Closing (as defined in Section 1.2 below), CCA shall exchange one (1) share of Series B Preferred Stock for every two (2) shares of Exchange Shares held by ACT (the "Exchange"). Accordingly, ACT shall receive 379,882 shares of Series B Preferred Stock in exchange for 759,764 shares of the Exchange Shares. The parties acknowledge and agree that 24,745 shares of the Exchange Shares are being held in escrow (the "Transcor Escrow Shares") by an escrow agent for CCA (the "Transcor Escrow Agent") pursuant to the terms of Section 1.3(b) of the Transcor Share Exchange Agreement, and that each such Transcor Escrow Share shall be exchanged in accordance with the first sentence of this Section 1.1. The Exchange is intended to be a tax-free reorganization within the meaning of Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (the "Code"). The parties agree that CCA shall assume no liabilities of ACT as a result of the Exchange. SECTION 1.2. CLOSING. The consummation of the Exchange and the related transactions described in Section 1.1 of this Agreement shall take place at the corporate offices of CCA or at the offices of Stokes & Bartholomew, P.A., attorneys for CCA, on the date hereof (the "Closing"). SECTION 1.3. FRACTIONAL SHARES. No scrip or fractional shares of Series B Preferred Stock shall be issued in the Exchange. ACT shall be entitled to receive a cash payment with respect to any 1 2 fractional share in an amount equal to the reported closing sales price on the Closing date of one share of CCA common stock, $1.00 par value (as reported in the Wall Street Journal) multiplied by two, the product of which is multiplied by such percentage of whole share. Promptly after the Closing, CCA shall pay ACT a cash payment equal to the value of any such fractional share as so determined. SECTION 1.4. TRANSFER AGENT. The parties hereto agree that The Bank of Nashville shall be appointed as the Transfer Agent for the Series B Preferred Stock. SECTION 1.5. SURRENDER OF CERTIFICATES. At the Closing, (a) ACT shall surrender the certificates representing 735,019 shares of the Exchange Shares, accompanied by duly executed stock powers in favor of CCA; (b) the Transcor Escrow Agent shall surrender the Transcor Escrow Shares, accompanied by duly executed stock powers in favor of CCA; (c) CCA shall deliver certificates representing 12,373 shares of the Series B Preferred Stock to the Transcor Escrow Agent (in such names and denominations as ACT shall have instructed CCA in writing, which writing shall be delivered no fewer than two (2) days prior to Closing) to be held in accordance with the terms of the Transcor Share Exchange Agreement and the documents contemplated therein, and (d) CCA shall deliver to ACT certificates representing the remaining 177,560 shares of the Series B Preferred Stock to be exchanged pursuant to the terms of this Agreement in such names and denominations as ACT shall have instructed CCA in writing, which writing shall be delivered no fewer than two (2) business days prior to Closing. SECTION 1.6. ESCROW OF SHARES. At the Closing, all of the shareholders of ACT (collectively, the "ACT Shareholders") shall deliver certificates representing 189,949 shares of the Series B Preferred Stock (the "Escrowed Shares") to The Bank of Nashville ("Escrow Agent") to hold in escrow pursuant to the terms of Section 5 hereof. The precise number of shares of the Series B Preferred Stock to be delivered to the Escrow Agent by each ACT Shareholder shall be listed on Schedule 2.13 attached hereto. SECTION 2. REPRESENTATIONS AND WARRANTIES OF ACT ACT and each of the ACT Majority Shareholders jointly and severally represent and warrant to CCA as of the date of this Agreement as follows: SECTION 2.1. ORGANIZATION; CORPORATE AUTHORITY; COMPLIANCE WITH LAW. ACT is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Tennessee and in all such other jurisdictions in which it conducts business operations. ACT has all requisite power and authority to own, operate, and lease its properties and assets and to carry on its business as now conducted. ACT is not in violation of any order of any court, government authority, or arbitration board or tribunal, or any law, ordinance, government rule or regulation to which ACT or any of its properties or assets is subject. ACT has obtained all licenses, permits, and other authorizations and has taken all action required by applicable law or government regulations in connection with its business as now conducted. SECTION 2.2. AUTHORIZATION; VALIDITY AND EFFECT OF AGREEMENT. ACT has the full corporate power and authority to execute and deliver this Agreement and all agreements and documents contemplated hereby. The consummation by ACT and the ACT Shareholders of the transactions 2 3 contemplated hereby has been duly authorized by all requisite corporate actions, including, but not limited to, appropriate shareholder approval. This Agreement and all agreements and documents contemplated hereby (i) have been duly and validly executed and delivered by ACT and each of the ACT Majority Shareholders, (ii) constitute, and will constitute, the valid and legally binding obligations of ACT and the ACT Shareholders, and (iii) are enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, moratorium and other similar laws relating to creditors' rights and general principles of equity. SECTION 2.3. NO VIOLATION. Neither the execution and delivery by ACT and the ACT Shareholders of this Agreement, nor the consummation by ACT and the ACT Shareholders of the transactions contemplated hereby in accordance with the terms hereof, will: (i) conflict with or result in a breach of any provisions of the Charter or Bylaws of ACT, or (ii) conflict with, result in a breach of any provision of or the modification or termination of, constitute a default under, or result in the creation or imposition of any lien, security interest, charge, or encumbrance upon any of the assets of ACT pursuant to any material commitment, lease, contract, or other material agreement or instrument to which ACT is a party (including, but not limited to the Transcor Share Exchange Agreement and the documents related thereto); or (iii) violate any order, arbitration award, judgment, writ, injunction, decree statute, rule, or regulation applicable to ACT or the ACT Shareholders. SECTION 2.4. FINANCIAL STATEMENTS OF ACT. Attached hereto as Schedule 2.4 is a copy of the unaudited balance sheet of ACT as of June 30, 1997 (the "Balance Sheet"). The Balance Sheet is accurate, true, and complete in all material respects, is prepared in accordance with the books and records of the Corporation, and fairly reflect the financial condition, assets, and liabilities (whether accrued, absolute, contingent, or otherwise) of ACT on such date. The Balance Sheet does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements contained in this Section or therein not misleading. There have been no changes in the business of ACT between June 30, 1997 and the Closing Date which would have a materially adverse effect on the accuracy of the Balance Sheet. SECTION 2.5. ASSETS. ACT owns the assets reflected on the Balance Sheet, including but not limited to the Exchange Shares. ACT possesses good and marketable title to such assets, free and clear of any and all claims, liens, mortgages, options, charges, conditional sale or title retention agreements, security interests, restrictions, easements, or encumbrances whatsoever and free and clear of any rights or privileges capable of becoming claims, liens, mortgages, options, charges, security interests, restrictions, easements or encumbrances, except as set forth on Schedule 2.5 of this Agreement. Except with respect to the Transcor Escrow Shares which are subject to the terms of the Transcor Share Exchange Agreement, at the Closing, CCA shall receive the Exchange Shares free and clear of any and all claims, liens, mortgages, options, charges, security interests, or encumbrances whatsoever. SECTION 2.6. TAX MATTERS. ACT has timely filed (taking into account extensions) all federal, state, and local tax returns required to be filed by it, and has paid in full or made adequate provision by the establishment of reserves for all taxes which have become due or will become due with respect to any period or partial period ending on or before the Closing. All such tax returns are true, complete, and accurate in all material respects. There is no tax deficiency proposed or, to the knowledge of ACT or the ACT Majority Shareholders, threatened against ACT. 3 4 SECTION 2.7. FAIR MARKET VALUE. The fair market value of the Series B Preferred Stock and other considerations received by each ACT Shareholder will be approximately equal to the fair market value of the Exchange Shares surrendered by each ACT Shareholder in the Exchange. SECTION 2.8. SUBSTANTIALLY ALL ASSETS TO BE EXCHANGED. The Exchange Shares to be exchanged with CCA constitute not less than ninety percent (90%) of the fair market value of the net assets and at least seventy percent (70%) of the fair market value of the gross assets held by ACT immediately prior to the transaction. For purposes of this representation, amounts paid by ACT to dissenters, amounts used by ACT to pay its reorganization expenses, amounts paid by ACT to shareholders who received cash or other property, and all redemptions and distributions (except for regular, normal dividends) made by ACT immediately preceding the Exchange will be included as assets of ACT held immediately prior to the Exchange. SECTION 2.9. INTENTIONS. Except in connection with the proposed ACT Liquidation, to the knowledge of ACT and the ACT Majority Shareholders there is no plan or intention by the shareholders of ACT to sell, exchange, or otherwise dispose of any shares of the Series B Preferred Stock received in the Exchange. SECTION 2.10. INDEBTEDNESS. There is no intercorporate indebtedness existing between CCA and ACT that was issued, acquired or will be settled at a discount in connection with this Agreement. SECTION 2.11. COURT PROCEEDING. ACT is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code. SECTION 2.12. LIQUIDATION AND DISTRIBUTION. ACT shall promptly distribute the securities it receives in the transaction, and its other properties to the ACT Shareholders pursuant to the terms of a Plan of Liquidation and Dissolution attached hereto as Schedule 2.12. SECTION 2.13. ACT SHAREHOLDERS. Schedule 2.13 correctly sets forth all of the name and address of each ACT Shareholder, together with the percentage of Exchange Shares owned by each such shareholder. SECTION 2.14. FULL DISCLOSURE. All the information provided by ACT, the ACT Shareholders, and their respective representatives herein and in the Schedules attached hereto and made a part hereof are true, correct, and complete in all material respects and no representation, warranty, or statement made by ACT or any of the ACT Shareholders in or pursuant to this Agreement contains any untrue statement of a material fact or omits to state any material fact necessary to make such representation, warranty, or statement not misleading. 4 5 SECTION 3. REPRESENTATIONS AND WARRANTIES OF CCA. CCA hereby represents and warrants to ACT and the ACT Shareholders as of the date of this Agreement as follows: SECTION 3.1. ORGANIZATION; CORPORATE AUTHORITY; COMPLIANCE WITH LAW. CCA is a corporation duly incorporated, validly existing, and in good standing under the laws of the State of Tennessee. CCA has all requisite corporate power and authority to own, operate, and lease its respective properties and assets and to carry on its businesses as now conducted. CCA is not in violation of any order of any court, government authority, or arbitration board or tribunal, or any law, ordinance, government rule, or regulation to which CCA or any of its properties or assets are subject, the violation of which could have a materially adverse effect upon CCA. CCA has obtained all licenses, permits, and other authorizations and has taken all actions required by applicable law or government regulations in connection with its business as now conducted. SECTION 3.2. AUTHORIZATION, VALIDITY, AND EFFECT OF AGREEMENT. CCA has the requisite corporate power and authority to execute and deliver this Agreement and all agreements and documents contemplated hereby. The consummation by CCA of the transactions contemplated hereby have been duly authorized by all requisite corporate action. This Agreement constitutes, and all agreements and documents contemplated hereby will constitute, the valid and legally binding obligations of CCA, enforceable and in accordance with its respective terms, subject to applicable bankruptcy, insolvency, moratorium, or other similar laws relating to creditors' rights and general principles of equity. SECTION 3.3. NO VIOLATION. Neither the execution and delivery by CCA of this Agreement, nor the consummation by CCA of the transactions contemplated hereby and in accordance with the terms hereof, will: (i) conflict with or result in a breach of any provisions of the Charter or Bylaws of CCA, (ii) conflict with, result in a breach of, any material provisions of or the modification or termination of, constitute a default under, or result in the creation or imposition of any lien, security interest, charge, or encumbrance upon any of the assets of CCA pursuant to any material commitment, lease, contract, or other material agreement or instrument to which CCA is a party (including, but not limited to the Transcor Share Exchange Agreement and the documents related thereto); or (iii) violate any material order, arbitration award, judgment, writ, injunction, decree, statute, rule, or regulation applicable to CCA. SECTION 3.4. REACQUISITION OF SERIES B PREFERRED STOCK. As of the date of Closing, CCA has no plan or intention to reacquire any shares of the Series B Preferred Stock to be issued in the Exchange. In addition, as of the date of Closing, CCA has no plan or intention to exercise a mandatory conversion of any shares of the Series B Preferred Stock pursuant to Section E.1. of the Series B Preferred Stock Designation. SECTION 3.5. DISPOSITION OF ASSETS ACQUIRED. As of the date of Closing, CCA has no plan or intention to sell or otherwise dispose of the Exchange Shares of CCA acquired from ACT in the Exchange, except for such dispositions made in the ordinary course of business or transfers described in Section 368(a)(2)(C) of the Code. 5 6 SECTION 3.6. INTERCORPORATE INDEBTEDNESS. There is no intercorporate indebtedness existing between CCA and ACT that was issued, acquired, or will be settled at a discount in connection with this Agreement. SECTION 3.7. INVESTMENT COMPANIES. CCA is not an investment company as defined in Section 368(a)(2)(F)(iii) of the Code. SECTION 3.8. OWNERSHIP OF ACT CAPITAL STOCK. CCA does not own, directly or indirectly, nor has it owned during the preceding five years, directly or indirectly, any capital stock of ACT. SECTION 3.9. AUTHORIZATION OF SERIES B PREFERRED STOCK. CCA represents that all shares of Series B Preferred Stock that shall be issuable pursuant to this Agreement and in accordance with the Series B Preferred Stock Designation, have been duly authorized and are reserved for issuance and, when issued, shall be validly issued, fully paid, and nonassessable. SECTION 3.10. ISSUANCE OF COMMON STOCK UPON CONVERSION. CCA represents that all shares of CCA Common Stock, $1.00 par value (the "CCA Common Stock") that shall be issuable upon conversion of the Series B Preferred Stock pursuant to and in accordance with the Series B Preferred Stock Designation, have been duly authorized and are reserved for issuance and, when issued upon such conversion, shall be validly issued, fully paid, and nonassessable. SECTION 4. COVENANTS SECTION 4.1. CERTAIN LEGAL PROCEEDINGS. In the event of any claim, action, suit, investigation, or other proceedings by any government entity or other person is commenced against CCA which questions the validity or legality of the Exchange or any of the other transactions contemplated hereby or seeks damages in connection therewith, the ACT Shareholders agree to cooperate with CCA and use their reasonable efforts to defend against such claim, action, suit, investigation, or other proceeding, and if an injunction or other order is issued in any such action, suit or other proceedings, to use their reasonable efforts to have such injunction or such order lifted, and to cooperate reasonably regarding any other impediment to the consummation of the transactions contemplated by this Agreement. SECTION 4.2. EXPENSES. ACT and the ACT Shareholders covenant that all out-of-pocket costs and expenses (including, but not limited to, attorneys' fees) incurred by ACT in connection with this Agreement and the transactions contemplated hereby shall be paid by ACT, and the ACT Shareholders, jointly and severally, agree to pay all such expenses not paid by ACT prior to the ACT Liquidation. CCA covenants that all out-of-pocket costs and expenses (including, but not limited to, attorneys' fees and financial advisor fees) incurred by CCA in connection with this Agreement and the transactions contemplated hereby shall be paid by CCA. SECTION 4.3. RESERVATION OF CCA COMMON STOCK. CCA shall at all times reserve such number of shares of CCA Common Stock as shall then be issuable upon the conversion of all outstanding shares of Series B Preferred Stock. 6 7 SECTION 4.4. USE OF EXCHANGE SHARES. CCA shall use the Exchange Shares acquired hereunder in a manner consistent with its capitalization needs in the ordinary course of its business. SECTION 4.5. AMENDMENT OF SERIES B PREFERRED STOCK DESIGNATION. For so long as shares of Series B Preferred Stock are issued and outstanding, CCA shall not amend, or cause to be amended, the Series B Preferred Stock Designation and shall not take any other action or fail to take any action, the result of which will, or with the passage of time could reasonably be deemed to, have a materially adverse affect on the holders of the Series B Preferred Stock SECTION 5. INDEMNIFICATION SECTION 5.1. INDEMNIFICATION BY ACT AND THE ACT SHAREHOLDERS. ACT, the ACT Shareholders, and Mr. May, jointly and severally (the "Indemnitors"), hereby agree to defend, indemnify, and hold harmless CCA, its directors, officers, agents, affiliates, representatives, successors, and assigns (the "Indemnified Persons") and, subject to the terms of Sections 5.3 and 5.4 hereof, shall reimburse the Indemnified Persons for, from and against each claim, loss, liability, cost, and expense (including without limitation, interest, penalties, costs of preparation and investigation, and the reasonable fees, disbursements, and expenses of attorneys, accountants, and other professional advisors) collectively ("Losses"), directly or indirectly relating to, resulting from, or arising out of this Agreement and consummation of the transactions contemplated hereby in accordance with the terms hereof, except for Losses directly resulting from the gross negligence or willful misconduct of the Indemnified Persons. SECTION 5.2. PROCEDURE. The Indemnified Persons shall promptly notify the Indemnitors of any claim, demand, action, or proceeding for which indemnification will be sought under 5.1 of this Agreement, and if such claim, demand, action, or proceeding is a third-party claim, demand, action, or proceeding, the Indemnitors will have the right, at their expense, to assume the defense thereof using counsel reasonably acceptable to the Indemnified Persons. The Indemnified Persons shall have the right to participate, at their own expense, with respect to any third-party claim, demand, action, or proceeding. In connection with any such third-party claim, demand, action, or proceeding, ACT, the Indemnitors, and the Indemnified Persons shall cooperate with each other and provide each other with access to relevant books and records in their possession. No such third-party claim, demand, action, or proceeding shall be settled by the Indemnitors or the Indemnified Persons without the prior written consent of the Indemnified Persons, on the one hand, or the Indemnitors, on the other hand. If a written offer is made to settle any such third-party claim, demand, action, or proceeding and the Indemnitors propose to accept such offer of settlement and the Indemnified Persons refuse to consent to such settlement, then (i) the Indemnitors shall be excused from, and the Indemnified Persons shall be solely responsible for all further defense of such third-party claim, demand, action, or proceeding; and (ii) the maximum liability of the Indemnitors relating to such third-party claim, demand, action, or proceeding shall be the amount of the proposed settlement if the amount thereafter recovered from the Indemnified Persons upon such third-party claim, demand, action, or proceeding is greater than the amount of the proposed settlement. SECTION 5.3. RIGHT OF SETOFF OF ESCROWED SHARES. At any time, or from time to time, when CCA is entitled to indemnification from the ACT Shareholders, before seeking payment of Losses directly from one or more ACT Shareholders, CCA first shall offset the amount of Losses incurred by 7 8 it as a result of such breach against the Escrowed Shares. For purposes of determining the number of Escrowed Shares subject to offset pursuant to the preceding sentence, CCA may offset the number of shares resulting from dividing (i) the total Losses incurred by CCA (and for which CCA is entitled to indemnification pursuant to this Section 5), by (ii) the per share, fair market value of one share of Series B Preferred Stock (on an as if converted basis) on the date of Closing. In the event that the Escrowed Shares are insufficient to satisfy the Losses incurred by the Indemnified Persons, then the Indemnified Persons shall be entitled to seek reimbursement for such Losses from the ACT Majority Shareholders. In no event, however, shall the terms of this Section 5.3 be deemed to be a waiver by any ACT Shareholder of the right to seek contribution from any other ACT Shareholder for any Losses paid by an ACT Shareholder in excess of his or her pro rata share of Losses. SECTION 5.4. RELEASE OF ESCROWED SHARES. Fifty percent (50%) of the Escrowed Shares will be released from escrow on the eighteen (18) month anniversary of the date on which ACT files its final federal income tax return (the "Filing Date"). ACT shall provide Escrow Agent with written notice confirming the date on which ACT files its final tax return. The balance of the Escrowed Shares shall be released to the ACT Shareholders on the third anniversary of the Filing Date. All Escrowed Shares released from escrow shall be delivered on a pro rata basis to the ACT Shareholders in accordance with each shareholder's ownership percentage as reflected on Schedule 2.13. At least thirty (30) days prior to the date shares are to be released from escrow pursuant to this Section 5.4, each ACT Shareholder may notify Escrow Agent in writing of the specific denominations of the shares to be delivered to such shareholder pursuant to this Section 5.4. Any ACT Shareholder who fails to so notify Escrow Agent will receive one (1) certificate representing all of his or her shares. SECTION 5.5. CONDITIONS TO INDEMNIFICATION OBLIGATION OF L.M. COMPANY AND MR. MAY. The parties hereto acknowledge and agree that (i) the obligation of L.M. Company to provide indemnification pursuant to this Section 5 shall not exceed the number of Escrowed Shares held at any given time by the Escrow Agent in the name of L.M. Company, and (ii) on behalf of L.M. Company, Mr. May personally shall indemnify the Indemnified Persons for any Losses payable by L.M. Company pursuant to the terms of this Section 5 which Losses exceed the number of Escrowed Shares held at any given time by the Escrow Agent in the name of L.M. Company. In no event, however, shall the terms of this Section 5.5 be deemed to be a waiver by L.M. Company or Mr. May of the right to seek contribution from any other ACT Shareholder for any Losses paid by or on behalf of L.M. Company in excess of its pro rata share of Losses. SECTION 5.6. CONDITION TO INDEMNIFICATION OBLIGATION OF BERNARD GOLDSTEIN. The parties hereto acknowledge and agree that Bernard Goldstein shall be severally, and not jointly (with the remaining ACT Shareholders), liable to provide indemnification pursuant to this Section 5. SECTION 6. SURVIVAL OF REPRESENTATIONS SECTION 6.1. SURVIVAL OF REPRESENTATIONS. All representations, warranties, covenants, and agreements by the parties contained in this Agreement shall survive for a period of one year from the date of Closing; provided, however, that the representation and warranty made pursuant to Section 2.6 hereof shall survive for the maximum time permitted by law. 8 9 SECTION 6.2. STATEMENTS AS REPRESENTATIONS. All statements contained in any certificate, schedule, list, document, or other writing delivered pursuant hereto or in connection with the transactions contemplated hereby shall be deemed representations and warranties for purposes of this Agreement. SECTION 6.3. REMEDIES CUMULATIVE. The remedies provided herein shall be cumulative and shall not preclude the assertion by any party hereof of any other rights or the seeking of any other remedies against the other parties hereto. SECTION 7. MISCELLANEOUS SECTION 7.1. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, including the exhibits, schedules, lists, and other documents and writing referred to herein or delivered pursuant hereto, which form a part hereof, contains the entire understanding of the parties with respect to the subject matter. There are no restrictions, agreements, promises, warranties, covenants, or undertakings other than those expressly set forth herein or therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to the subject matter. This Agreement may be amended only by a written instrument duly executed by all parties or their respective heirs, successors, assigns, or legal personal representatives. Any condition to a party's obligations hereunder may be waived but only by a written instrument signed by the party entitled to the benefits thereof. Failure or delay of any party at any time or times to require performance of any provision or to exercise its rights with respect to any provision hereof, shall in no manner operate as a waiver of or affect such party's right at a later time to enforce the same. SECTION 7.2. HEADINGS. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. SECTION 7.3. SEVERABILITY. The invalidity of any term or terms of this Agreement shall not affect any other term of this Agreement which shall remain in full force and effect. SECTION 7.4. NOTICES. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered or mailed (registered or certified mail, postage prepaid, return receipt requested) as follows: If to CCA: Corrections Corporation of America 102 Woodmont Blvd. Nashville, Tennessee 37205 Attention: Doctor R. Crants, Chief Executive Officer Copy to: Stokes & Bartholomew, P.A. 9 10 424 Church Street, Suite 2800 Nashville, Tennessee 37219 Attention: Elizabeth E. Moore, Esq. If to ACT: American Corrections Transport, Inc. 1900 Church Street, Suite 300 Nashville, Tennessee 37203 Attention: Michael D. Shmerling, President Copy to: Sherrard & Roe, PLC 424 Church Street, Suite 2000 Nashville, Tennessee 37219 Attention: Thomas J. Sherrard, Esq. If to ACT Shareholders: To the addresses set forth on Schedule 2.13 hereof. or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall only be effective upon receipt. SECTION 7.5. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Tennessee, without regard to its conflict of laws rules. SECTION 7.6. COUNTERPARTS. This Agreement may be executed simultaneously in one or more counterparts, with the same effect as if the signatories executing the several counterparts had executed one counterpart, provided, however, that the several executed counterparts shall have been signed by CCA and ACT. Also, its counterparts together shall constitute one and the same instrument. [Remainder of page intentionally blank] 10 11 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of CCA, ACT, and by the ACT Majority Shareholders on the date first above written. CORRECTIONS CORPORATION OF AMERICA By: /s/ Darrell K. Massengale -------------------------------------- Title: Chief Financial Officer ----------------------------------- AMERICAN CORRECTIONS TRANSPORT, INC. By: /s/ Michael D. Shmerling -------------------------------------- Title: President ----------------------------------- THE "MAJORITY SHAREHOLDERS" OF AMERICAN CORRECTIONS TRANSPORT, INC.: /s/ Michael D. Shmerling ------------------------------------------ Michael D. Shmerling /s/ Tom Loventhal ------------------------------------------ Tom Loventhal /s/ J. Thomas Martin ------------------------------------------ J. Thomas Martin /s/ Peter Weiss ------------------------------------------ Peter Weiss /s/ Kenneth Anchor ------------------------------------------ Kenneth Anchor /s/ Bernard Goldstein ------------------------------------------ Bernard Goldstein L.M. Company /s/ Leon May ------------------------------------------ Leon May, President 11 12 CONTINUATION OF SIGNATURE PAGE TO EXCHANGE AGREEMENT IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of CCA, ACT, the ACT Majority Shareholders, and Leon May on the date first above written. CORRECTIONS CORPORATION OF AMERICA By: /s/ Darrell K. Massengale -------------------------------------- Title: /s/ Chief Financial Officer ----------------------------------- /s/ Leon May ------------------------------------------ Leon May, individually 12 EX-10.193 26 STOCK REPURCHASE AGEEMENT 1 EXHIBIT 10.193 STOCK REPURCHASE AGREEMENT This Stock Repurchase Agreement is made and entered into this 2nd day of March, 1998, by and between Doctor R. Crants, a resident of Nashville, Tennessee ("Seller") and Corrections Corporation of America, a Tennessee corporation headquartered in Nashville, Tennessee ("Buyer"). FOR AND IN CONSIDERATION of the mutual covenants contained herein and other good and valuable consideration, the parties hereto agree as follows: 1. Recitals. Seller desires to sell to Buyer, and Buyer is willing to purchase from Seller, 200,000 shares of Common Stock (the "Shares") of Buyer owned by Seller, represented by certificate number(s) cc10244, all in accordance with the terms of this Agreement. 2. Redemption of The Shares. Seller hereby agrees to sell and assign all of the Shares to Buyer at the closing and agrees to execute such stock powers and other instruments of conveyance as may be reasonably requested by Buyer in order to effectuate the transfer of the Shares. 3. Payment of Purchase Price. Buyer agrees to pay to Seller the product of 200,000 times the closing price of Buyer's Common Stock as reported on the New York Stock Exchange on March 2, 1998 ($38.00), in complete payment for the Shares sold by Seller to Buyer, such price to be payable in cash at the closing or at such date as agreed to by the parties hereto. 4. Warranties and Representations of Seller. Seller represents and warrants that he is the lawful owner of, and has good and marketable title to, the Shares; the Shares are subject to no liens or encumbrances whatsoever; and Seller has full power and authority to enter into this Agreement and to convey the valid title of the Shares to Buyer free and clear of all liens, pledges and encumbrances whatsoever. Buyer represents and warrants that he knows of no reason why Seller cannot consummate this transaction. Neither the execution and delivery of this Agreement nor the carrying out of the transactions contemplated hereby will result in any violation of any term of any material agreement or instrument to which the Buyer is a party or by which it is bound, or of any law or government order, rule or regulation which is applicable to the Buyer. No consents or approvals of any persons or entities, government or otherwise, are required which have not been, or will not have been prior to the closing, obtained in respect of the execution and delivery by the Buyer of this Agreement and the carrying out of the transactions contemplated hereby on the part of the Buyer. 5. Indemnification by Seller. Seller agrees to defend, indemnify and hold harmless Buyer from, against in respect of any and all loss or damage to Buyer in whole or in part resulting from: (a) Any breach of any of the warranties by Seller contained herein, or any misstatement or omission of fact, or failure to state the facts necessary to make those statements made not misleading, in or under this Agreement; and 2 (b) Any liability or obligation arising out of any actions, suits, proceedings, claims, demands, judgments, costs and expenses (including court costs and reasonable legal and accounting fees) incident to any of the foregoing. 6. Closing. The closing shall take place on March 6, 1998 or on such other date as agreed to by the parties hereto. 7. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Tennessee, applicable to contracts made and to be performed therein. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. BUYER: CORRECTIONS CORPORATION OF AMERICA By: /s/ Darrell K. Massengale -------------------------------------- Title: Chief Financial Officer ----------------------------------- SELLER: /s/ Doctor R. Crants ------------------------------------------ DOCTOR R. CRANTS 2 EX-10.194 27 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.194 EMPLOYMENT AGREEMENT THIS AGREEMENT, entered into this ____ day of March, 1998, by and between CORRECTIONS CORPORATION OF AMERICA, a Tennessee corporation with its principal place of business at 10 Burton Hills Boulevard, Nashville, Tennessee 37215 ("Company") and DOCTOR R. CRANTS, JR., a resident of Nashville, Tennessee ("Crants"). W I T N E S S E T H: 1. Employment. Company employs Crants and Crants hereby accepts employment under the terms and conditions hereinafter set forth. 2. Duties. Crants is engaged as Chief Executive Officer of the Company. His powers and duties in that capacity shall be those normally associated with the position of Chief Executive Officer. During the term of this Agreement, Crants shall also serve without additional compensation in such other offices of the Company to which he may be elected or appointed by the Board of Directors. 3. Term. Subject to provisions of termination as hereinafter provided, the initial term of Crants' employment under this Agreement shall begin on April 1, 1998 and shall terminate on March 31, 2001 (the "Initial Term"). Unless the Company notifies Crants that his employment under this Agreement will not be extended, the term of his employment under this Agreement shall automatically be extended for an additional three (3) year period on the same terms and conditions as set forth herein (the "Renewal Term"). If Company elects not to extend Crants' employment under this Agreement, it shall do so by notifying Crants in writing not less than ninety (90) days prior to the expiration of the Initial Term. If Company does not elect to extend Crants' employment under this Agreement, Crants shall be considered to have been terminated without just cause upon the expiration of his employment, and Crants will receive the payments and benefits set forth in Section 7 hereof. Crants' date of termination, for the purposes of Section 7 hereof, shall be the date of the Company's last payment to Crants. 4. Compensation. 4.1. Base Salary. For all duties rendered by Crants, the Company shall pay Crants a minimum salary of $350,000 per year, payable according to the customary payroll practices of the Company, but in no event less frequently than once each month. During each year of this Agreement, Crants' compensation will be reviewed by the Board of Directors of the Company, or such subcommittee to which compensation review has been delegated, and after taking into consideration both Company and personal performance, the Committee may increase Crants' compensation to any amount it may deem appropriate. 1 2 4.2. Bonus. The Company will pay Crants annual incentive compensation awards, in cash and/or in equity, as may be granted by the Board of Directors, or such subcommittee to which incentive compensation awards have been delegated, under any executive bonus plan or incentive plan in effect from time to time. 4.3. Benefits. 4.3.1. General. Crants shall be entitled to an annual paid vacation as established by the Board of Directors of the Company. In addition, Crants shall be entitled to participate in all compensation or employee benefit plans or programs and receive all benefits and perquisites for which any salaried employees are eligible under any existing or future plan or program established by the Company for salaried employees. Crants will participate to the extent permissible under the terms and provisions of such plans or programs in accordance with program provisions. These may include group hospitalization, health, dental care, life or other insurance, tax qualified pension, savings, thrift and profit sharing plans, termination pay programs, sick leave plans, travel or accident insurance, disability insurance, and contingent compensation plans including stock purchase programs and stock option plans. Except as may be provided for in Section 4.3.2. herein, nothing in this Agreement shall preclude the Company from amending or terminating any of the plans or programs applicable to salaried or senior executives as long as such amendment or termination is applicable to all salaried employees or senior executives. 4.3.2. Life, Health and DisabilityInsurance. Notwithstanding the benefit provisions of Section 4.3.1. herein, and in addition to the benefit provision contained therein, the Company agrees to the following: (i) To provide and maintain term life insurance on Crants' life in the amount of a minimum of $3,000,000, such policy being payable, upon Crants' death, to Crants' designated beneficiary; (ii) To provide and maintain, during the term of this Agreement and thereafter, if Crants is terminated without just cause or the Agreement naturally expires upon the completion of the Renewal Term and no subsequent extensions are entered into, until Crants and his spouse reach the age of sixty-five (65) or become otherwise eligible to receive coverage by Medicare or another similar government program, health insurance on Crants and his spouse in such amounts as are customary for or available to executives of the Company; and (iii) To provide and maintain, through insurance or on its own account, coverage for Crants, relating to illness or incapacity resulting in Crants being unable to perform his services, that will provide payment of Crants full salary and benefits for twelve (12) months. For the period beyond twelve (12) months, the Company shall provide and maintain, through insurance or on its own account, coverage for Crants that will provide salary at seventy percent (70%) of Crants' current level plus full benefits to age sixty-five (65). To the extent that payments are received from any 2 3 worker's compensation or other Company paid plans, Company's obligations will be reduced by amounts so received. 4.4. Expenses. The Company shall promptly reimburse Crants for all reasonable travel and other business expenses incurred by Crants in the performance of his duties under this Agreement upon evidence of receipt. 4.5. Withholdings. All compensation payable hereunder shall be subject to withholding for federal income taxes, FICA and all other applicable federal, state and local withholding requirements. 5. Termination by Crants. Crants' employment hereunder may be terminated by Crants upon ninety (90) days written notice to the Company. Subject to the Company's continuing obligations under Section 4.3.2. of this Agreement, Crants' death or disability shall constitute termination of Crants' employment hereunder. 6. Termination by Company for Just Cause. The Company may terminate Crants' employment pursuant to the terms hereunder for just cause. For the purposes of this Agreement, Company shall have "cause" upon (i) theft or dishonesty in the conduct of the Company's business, (ii) conviction of a felony or of a misdemeanor involving moral turpitude, or (iii) willful and continued neglect or gross negligence by Crants after a written demand for substantial performance is delivered to Crants by the Board of Directors of Company, which demand specifies and identifies the manner in which Crants was willfully neglectful or grossly negligent, and Crants fails to comply with such demand within a reasonable time as established by the Company's Board of Directors. For purposes of this section, "willful" shall be determined in the exclusive discretion of the Board of Directors of Company. In making such determination, the Board of Directors of Company shall not act unreasonably or arbitrarily. Notwithstanding the foregoing, Crants shall not be deemed to have been terminated for cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors of Company at a meeting of the Board called and held for that purpose (after reasonable notice to Crants, and an opportunity for Crants, together with counsel of his choice, to be heard before the Board), finding that Crants was, in the good faith opinion of the Board, guilty of conduct set forth above in clauses (i) or (ii) of this section, and specifying the particulars thereof in reasonable detail. 7. Termination by Company Without Just Cause. Crants' employment under this Agreement may be terminated by the Company at any time without just cause provided the Company shall pay Crants on a monthly basis for a total period of three (3) years from the date of termination, the amount due to Crants as his compensation, based upon the annual rate payable as of the date of termination, without any cost of living adjustments, subject to the following: 3 4 (i) Crants shall continue to be covered, for the three year period, under health, life and disability insurance plans of Company as may be set forth in Section 4.3.2. herein. Crants' benefits shall be reduced, however, by any such coverage that Crants receives incident to any employment during said three year period; (ii) The Company shall be entitled to receive as off-set and thereby reduce its payments, the amount earned by Crants in any active employment that he may receive during the three year period from any other source whatsoever, except said sums shall not include income from dividends, investments or passive income. As a condition for Crants receiving his compensation from the Company, he agrees to furnish Company annually with full information regarding such other employment and to permit inspection of his records at any such employment and copy of his federal income tax returns; (iii) The Company shall receive credit for unemployment insurance, social security insurance or like amounts received by Crants during the three year period; and (iv) The payments will cease upon death of Crants regardless of term remaining. 8. Restrictive Covenants. 8.1. Confidential Information. Crants agrees not to disclose, either during the time he is employed by Company or following the termination of his employment by him or the Company, any confidential information concerning the Company or its business, including, but not limited to contract terms, financial information, operating data, or business plans or models, whether for existing, new or developing businesses. 8.2. Non-Compete. During the term of Crants' employment with the Company, Crants agrees not to enter into or engage in the business of a competitor of the Company operating or managing private correctional or detention facilities, either as an individual for his own account, as a partner or joint venturer, or as an employee, agent, officer, director, or substantial shareholder of a corporation or otherwise. Upon Crants' voluntary termination of employment, upon termination of Crants' employment by the Company for just cause, or upon termination of Crants' employment without just cause as long as Crants is receiving payments or benefits from Company under Section 7 hereof, Crants agrees not to enter into or engage in the business of operating or managing private correctional or detention facilities, either as an individual for his own account, as a partner or joint venturer, or as an employee, agent, officer, director, or substantial shareholder of a corporation or otherwise for a period of one (1) year following the date of Crants' termination of employment with the Company. Notwithstanding the foregoing, in the event Crants is terminated for just cause, if Crants reasonably shows that his proposed employment is not directly competitive with the Company's business, Crants may enter into such employment. 8.3. Non-Solicitation. Upon termination or expiration of his employment, whether voluntary or involuntary, Crants agrees not to directly or indirectly solicit business from any entity, 4 5 organization or person which has contracted with the Company, which has been doing business with the Company, from which the Company was soliciting business at the time of Crants' termination, or from which Crants knew or had reason to know that Company was going to solicit business at the time of Crants' termination, for a one year period from the date of Crants' termination of his employment with Company. 8.4. Enforcement. Crants and the Company hereby expressly acknowledge and agree that the covenants contained in this Section 9 may be specifically enforced through injunctive relief, but such right to injunctive relief shall not preclude Company from other remedies which may be available to it by law. 8.5. Termination. Notwithstanding any provision to the contrary otherwise contained in this Agreement, the agreements and covenants contained in this Section 9 shall not terminate upon Crants' termination of his employment with the Company or upon the termination of this Agreement under any other provision of this Agreement. 9. Notices. Any notice required or permitted to be given under this Agreement shall be deemed given if in writing, sent by registered or certified mail to his current residence in the case of Crants, or to its principal office in the case of the Company. 10. Waiver of Breach. The waiver by either party of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by the other party. 11. Assignment. The rights and obligations of the Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Company. Crants acknowledges that the services to be rendered by him are unique and personal, and Crants may not assign any of his rights or delegate any of his duties or obligations under this Agreement. 12. Entire Agreement. This instrument contains the entire agreement of the parties. It may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. 13. Controlling Law. This Agreement shall be governed and interpreted under the laws of the State of Tennessee. 14. Headings. The sections, subjects and headings in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. 5 6 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first written. CRANTS: ----------------------------------------- DOCTOR R. CRANTS, JR. COMPANY: CORRECTIONS CORPORATION OF AMERICA By: ------------------------------------ Its: ------------------------------------ 6 EX-10.195 28 AMENDMENT AND WAIVER TO CREDIT AGREEMENT 1 Exhibit 10.195 AMENDMENT AND WAIVER THIS AMENDMENT AND WAIVER TO CREDIT AGREEMENT (this "Amendment") is made and entered into as of this 18th day of July, 1997 by and among CORRECTIONS CORPORATION OF AMERICA, a corporation organized under the laws of Tennessee ("CCA"), the financial institutions who are or may become party to the Credit Agreement referenced below (the "Lenders"), and FIRST UNION NATIONAL BANK OF TENNESSEE, a national banking association ("First Union"), as Administrative Agent for the Lenders (the "Administrative Agent"). Statement of Purpose The Lenders agreed to extend certain credit facilities to CCA pursuant to the Credit Agreement dated as of September 6, 1996 by and among the Borrower, the Lenders and the Administrative Agent (as amended, restated, modified or otherwise supplemented from time to time, the "Credit Agreement"). CCA intends to enter into a series of transactions, as described below (collectively, the "Sale-Leaseback Transactions"), with CCA Prison Realty Trust, a Maryland real estate investment trust ("CCA Prison Realty Trust"), pursuant to which CCA will sell (or grant an option to purchase or a right of first refusal with respect to the purchase of) its interest in certain correctional and detention facilities and related real property (the "Facilities") to CCA Prison Realty Trust and lease such Facilities back from CCA Prison Realty Trust. CCA Prison Realty Trust intends to sell shares of its common stock in a public offering registered with the Securities and Exchange Commission (the "Offering") to finance the initial acquisition of Facilities under the Sale-Leaseback Transactions. In connection with the Sale-Leaseback Transactions, CCA and CCA Prison Realty Trust will enter into the following agreements (collectively, the "Sale-Leaseback Agreements," such definition to include any amendment or modification of any such documents to which, if such amendment or modification could reasonably be expected to be adverse to the interests of the Lenders, the Administrative Agent has consented in writing): (i) the Agreement of Sale and Purchase providing for the sale by CCA of nine Facilities to CCA Prison Realty Trust (the "Agreement of Sale and Purchase"), (ii) the Option Agreement granting CCA Prison Realty Trust the option to acquire five additional Facilities (the "Option Facilities") from CCA on terms substantially similar to the Agreement of Sale and Purchase (the "Option Agreement"), (iii) the Right to Purchase Agreement granting CCA Prison Realty Trust the option and the right of first refusal to acquire certain other Facilities owned by CCA (the "Right to Purchase Agreement"), (iv) a Lease Agreement providing for the lease-back by CCA of each Facility sold to CCA Prison Realty Trust pursuant to the Sale-Leaseback Transactions (each, a "Lease Agreement") and (vi) a Master Agreement of Lease providing certain terms for incorporation into each such Lease Agreement (the "Master Agreement"). 2 On April 18, 1997, the Credit Agreement was modified by execution of a letter agreement which waived certain provisions of the Credit Agreement in order to permit the Sale-Leaseback Transactions, subject to the execution of this Amendment. The Borrower has requested and the Administrative Agent and the Required Lenders have agreed (i) to certain waivers of the Credit Agreement in order to permit the closing of the Sale-Leaseback Transactions evidenced by the Sale-Leaseback Agreements and (ii) to waive and amend the Credit Agreement in certain other respects, in each case on the terms and conditions set forth below. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. Capitalized Terms. All capitalized undefined terms used in this Amendment shall have the meanings assigned thereto in the Credit Agreement. 2. Modification of Credit Agreement. The Credit Agreement is hereby modified as follows: (a) Section 1.1 is hereby modified by adding the following defined terms in the correct alphabetical order: "'Amendment' means the Amendment and Waiver to Credit Agreement dated as of July 18, 1997 by and among the Borrower, the Lenders and the Administrative Agent." "'CCA Prison Realty Trust' shall have the meaning given thereto in the Amendment." "'Operating Lease' means with respect to the Borrower and its Subsidiaries any lease of any property that should, in accordance with GAAP, be classified and accounted for as an operating lease on a Consolidated balance sheet of the Borrower and its Subsidiaries." "'Operating Lease Payments' means, with respect to the Borrower and its Subsidiaries at any date, the amount, calculated on a Consolidated basis, of the rental and other lease payments due or payable under any Operating Lease." "'Sale-Leaseback Agreements' shall have the meaning given thereto in the Amendment." "'Sale-Leaseback Transactions' shall have the meaning given thereto in the Amendment." 2 3 "'Total Available Cash' means, with respect to the Borrower and its Subsidiaries at any date, an amount equal to the Consolidated sum of cash plus cash equivalents, including without limitation money market investments, less $10,000,000; provided, however, in no event shall the amount be less than zero (0)." "'Weighted Operating Lease Payments' means, with respect to the Borrower and its Subsidiaries at any date, the product of (a) the aggregate of all Operating Lease Payments due and payable for the period of four (4) full consecutive fiscal quarters following such date times (b) eight (8)." (b) Article IX of the Credit Agreement is hereby amended by deleting Sections 9.2 and 9.4 in its entirety and substituting the following Sections 9.2 and 9.4 in lieu thereof: "SECTION 9.2. Leverage Ratio. As of the end of any fiscal quarter, permit the ratio of (a) the sum for the Borrower and its Subsidiaries as of such fiscal quarter end of (i) Consolidated Debt plus (ii) Weighted Operating Lease Payments less (iii) Total Available Cash to (b) the sum for the Borrower and its Subsidiaries as of such fiscal quarter end of (i) Consolidated Net Worth plus (ii) Consolidated Debt plus (iii) Weighted Operating Lease Payments less (iv) Total Available Cash, to exceed 0.65 to 1.00. SECTION 9.4. Coverage Ratio. As of the end of any fiscal quarter, permit the ratio of (a) the sum for the period of four (4) consecutive fiscal quarters ending on such fiscal quarter end of (i) Consolidated EBIT of the Borrower and its Subsidiaries, (ii) Consolidated depreciation and amortization (excluding amortization of gain on the sale of assets to CCA Prison Realty Trust) of the Borrower and its Subsidiaries and (iii) Operating Lease Payments to (b) the sum for such period of four (4) consecutive fiscal quarters ending on such fiscal quarter end of (i) Interest Expense and (ii) Operating Lease Payments, to be less than 2.25 to 1.00; provided that, (a) for the fiscal quarter ending on September 30, 1997, Operating Lease Payments shall be calculated by multiplying the amount of the Operating Lease Payments for such fiscal quarter by four (4), (b) for the two consecutive fiscal quarter periods ending on December 31, 1997, Operating Lease Payments shall be calculated by multiplying the amount of the Operating Lease Payments for such periods by two (2); (c) for the three consecutive fiscal quarter periods ending on March 31, 1998, Operating Lease Payments shall be calculated by multiplying Operating Lease Payments for such periods by four-thirds (4/3)." (c) Section 10.1 of the Credit Agreement is hereby amended by deleting the word "and (j)" immediately prior to clause (j) of such Section and inserting in lieu thereof the following: "; (j) unsecured Debt in favor of CCA Prison Realty Trust; provided that, (i) the aggregate principal amount of such Debt does not exceed $40,000,000, (ii) such Debt is used solely for the construction and development of Option Facilities and (iii) such Debt is repaid 3 4 in full on the earlier of the closing of the sale of such Option Facility to CCA Prison Realty Trust or January 31, 1998; (k)" (d) Section 10.3 of the Credit Agreement is hereby amended by deleting the word "and" immediately prior to clause (g) of such Section and deleting the punctuation mark at the end of such Section and inserting in lieu thereof the following: "; and (h) Any option, or right of first refusal, to acquire from the Borrower or its Subsidiary any correctional or detention facility and related real property operated by the Borrower or its Subsidiary granted by the Borrower to CCA Prison Realty Trust or any Subsidiary or Affiliate thereof." 4. Waiver of the Credit Agreement and Loan Documents. The Administrative Agent and the Required Lenders, pursuant to the terms set forth herein, hereby waive the provisions of Sections 10.6 and 10.8 of the Credit Agreement solely to permit the Sale-Leaseback Transactions pursuant to the Sale-Leaseback Agreements. 5. Conditions. The effectiveness of this Amendment shall be conditioned upon delivery to the Agent of the following items: (a) Sale-Leaseback Agreements. CCA shall have delivered to the Administrative Agent complete executed copies of the Sale-Leaseback Agreements, in form and substance reasonably satisfactory to the Administrative Agent. (b) Certificate of Secretary of the Borrower. The Administrative Agent shall have received a certificate of the secretary or assistant secretary of the Borrower (i) certifying that the articles of incorporation, bylaws and resolutions of the Borrower delivered to the Administrative Agent on September 6, 1996 have not been repealed, revoked, rescinded or amended in any respect or (ii) attaching thereto true and correct copies of the articles of incorporation bylaws and resolutions of the Borrower in effect as of the date hereof; and as to the incumbency and genuineness of the signature of each officer of the Borrower executing Loan Documents. (c) Opinions of Counsel. The Administrative Agent shall have received opinions of counsel to CCA with respect to the Sale-Leaseback Agreements reasonably satisfactory to the Administrative Agent and on which the Administrative Agent and the Lenders are expressly authorized to rely. (d) Other Documents. The Administrative Agent shall have received any other documents or instruments reasonably requested by it in connection with the execution of this Amendment. 4 5 6. Representations and Warranties; No Default. By its execution hereof, CCA hereby certifies that each of the representations and warranties set forth in the Credit Agreement and the other Loan Documents is true and correct as of the date hereof as if fully set forth herein (other than representations and warranties which speak as of a specific date pursuant to the Credit Agreement, which representations and warranties shall have been true and correct as of such specific dates) and that as of the date hereof no Default or Event of Default has occurred and is continuing. 7. Expenses. The Borrower shall pay all reasonable out-of-pocket expenses of the Administrative Agent in connection with the preparation, execution and delivery of this Amendment, including without limitation, the reasonable fees and disbursements of counsel for the Administrative Agent. 8. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of North Carolina. 9. Effect of Amendment. Except as expressly amended hereby, the Credit Agreement and Loan Documents shall be and remain in full force and effect. The waivers granted in this letter are specific and limited and shall not (a) constitute an amendment of the Credit Agreement or a modification, acceptance or waiver of any other provision of or default under the Credit Agreement or any other document or instrument entered into in connection therewith or a future modification, acceptance or waiver of the provisions set forth therein or (b) prejudice any other right or rights which the Administrative Agent or Lenders may now have or may have in the future under or in connection with the Credit Agreement or the Loan Documents or any instruments or agreements referred to therein. 10. Counterparts. This Amendment may be executed in separate counterparts, each of which when executed and delivered is an original but all of which taken together constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date and year first above written. [CORPORATE SEAL] CORRECTIONS CORPORATION OF AMERICA By: /s/ Darrell K. Massengale -------------------------------- Name: Darrell K. Massengale -------------------------------- Title: Chief Financial Officer -------------------------------- [SIGNATURES OF AGENTS AND LENDERS FOLLOW] 5 6 FIRST UNION NATIONAL BANK OF TENNESSEE, as Administrative Agent, Issuing Lender, Swingline Lender and Lender By: /s/ J. Gregory Bowers ------------------------------------ Name: J. Gregory Bowers ------------------------------------ Title: Senior Vice President ------------------------------------ FIRST UNION NATIONAL BANK (f/k/a FIRST UNION NATIONAL BANK OF NORTH CAROLINA), as Issuing Lender By: /s/ Gregory D. Jardine ------------------------------------ Name: Gregory D. Jardine ------------------------------------ Title: Senior Vice President ------------------------------------ THE SUMITOMO BANK, LIMITED By: /s/ E.B. Buchanan ------------------------------------ Name: E.B. Buchanan ------------------------------------ Title: Vice President ------------------------------------ By: /s/ Sybil H. Weldon ------------------------------------ Name: Sybil H. Weldon ------------------------------------ Title: Vice President & Manager ------------------------------------ UNION BANK OF CALIFORNIA, N.A. By: /s/ Myra Jhetten ------------------------------------ Name: Myra Jhetten ------------------------------------ Title: Vice President ------------------------------------ 6 7 FIRST TENNESSEE BANK NATIONAL ASSOCIATION By: /s/ Kenneth E. Webb ----------------------------------------- Name: Kenneth E. Webb ----------------------------------------- Title: Senior Vice President ----------------------------------------- CIBC INC. By: /s/ Roger Colden ----------------------------------------- Name: Roger Colden ----------------------------------------- Title: Director, CIBS Wood Gundy Securities Corp. AS AGENT ----------------------------------------- MERCANTILE BANK OF ST. LOUIS, N.A. By: /s/ Donald A. Adams ----------------------------------------- Name: Donald A. Adams ----------------------------------------- Title: Vice President ----------------------------------------- FUJI BANK, LIMITED, ATLANTA AGENCY By: /s/ Toshihiro Mitsui ----------------------------------------- Name: Toshihiro Mitsui ----------------------------------------- Title: Senior Vice President & Senior Manager ----------------------------------------- SOUTHTRUST BANK OF ALABAMA, NATIONAL ASSOCIATION By: /s/ James M. Sloan, Jr. ----------------------------------------- Name: James M. Sloan, Jr. ----------------------------------------- Title: Vice President ----------------------------------------- 7 EX-23 29 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Annual Report on Form 10-K of Corrections Corporation of America and Subsidiaries into the Company's previously filed Registration Statement File Numbers 33-12503, 33-30825, 33-30826, 33-42068, 33-42614, 33-61173, 333-31711, 333-31743 and 333-45193. ARTHUR ANDERSEN LLP Nashville, Tennessee March 25, 1998 EX-27 30 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF CORRECTIONS CORPORATION OF AMERICA FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 136,147 0 89,822 0 0 233,422 266,493 0 697,940 96,660 127,075 0 380 80,230 267,466 697,940 0 462,249 0 379,272 0 0 (4,119) 87,096 33,141 53,955 0 0 0 53,955 .70 .61
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