UNITED
STATES DISTRICT COURT
SOUTHERN
DISTRICT OF NEW YORK
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PRISON
ACQUISITION COMPANY L.L.C.,
Civil
Action No.
Plaintiff,
-against- COMPLAINT
PRISON
REALTY TRUST, INC., CORRECTIONS
CORPORATION
OF AMERICA, PRISON
MANAGEMENT
SERVICES, INC. AND
JUVENILE AND
JAIL FACILITY
MANAGEMENT
SERVICES, INC.,
Defendants.
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Plaintiff
Prison Acquisition Company L.L.C. ("Prison Acquisition"), by its
attorneys Skadden, Arps,
Slate, Meagher & Flom LLP, as and for its
Complaint against defendants Prison Realty Trust, Inc. ("PRT"),
Corrections Corporation of America ("CCA"), Prison Management
Services, Inc. ("PMSI") and Juvenile and ]ail Facility Management
Services, Inc. ("JJFMSI") (collectively, "defendants"),
allege upon knowledge with respect to their own acts and upon information and
belief with respect to all other allegations herein, as follows:
NATURE OF
THE ACTION
1. This is
an action for breach of contract, which arises out of a Securities Purchase
Agreement entered into on December 26, 1999 and amended on February 28, 2000
between plaintiff Prison Acquisition and defendants (the "Agreement’’).
Defendants have failed to pay Prison Acquisition more than $24 million due and
owing pursuant to the Agreement.
2. Under the
Agreement, the parties agreed that Prison Acquisition would purchase from PRT,
at an aggregate purchase price of up to $350 million, (i)
certain shares of series B convertible preferred stock, which would be
convertible into shares of PRT common stock, and (ii) warrants to purchase up
to 14% of PRT’s common stock.
3. The
Agreement, in connection with which all parties were represented by counsel and
which was fully negotiated, provided that Prison Acquisition was entitled to: (i) a transaction fee of $15.7 million whether or not the
Agreement was consummated; and (ii) out-of-pocket costs and expenses incurred
in connection with its investment. The Agreement also provided that defendants
agreed to pay Prison Acquisition a termination fee of $7.5 million as
liquidated damages if, prior to the consummation of Prison Acquisition’s
purchase of Prison Realty convertible preferred stock and warrants, or during a
period of one year following any termination of the Agreement, defendants
entered into a similar agreement with a third party without the consent of
Prison Acquisition, providing for the issuance of equity or convertible
securities with proceeds to defendants at least of $100 million.
4. Prison
Acquisition undertook extensive efforts and incurred considerable expenses in
furtherance of the Agreement.
5. At all times, Prison Acquisition fulfilled its obligations
under the Agreement.
6. Under the
terms of the Agreement, defendants were required to notify Prison Acquisition
of any unsolicited proposals they received, and Prison Acquisition was afforded
the right to match the material terms and conditions of the competing
transaction within five days after receiving notice of such transaction.
7. After
they had entered into the Agreement, defendants received a proposal of $200
million in equity financing from Pacific Life Insurance Company ("Pacific
Life"). Defendants notified Prison Acquisition of the proposal and Prison Acquisition
declined to exercise its right to match the terms of the Pacific Life proposal.
8.
Thereafter, defendants terminated the Agreement with Prison Acquisition and
entered into a Securities Purchase Agreement with Pacific Life.
9.
Defendants have publicly disclosed that under the Agreement, they were
obligated to pay Prison Acquisition a termination fee of $7.5 million and a
transaction fee of $15.7 million, and to reimburse Prison Acquisition for
out-of-pocket costs and expenses incurred in connection with the Agreement.
10.
Notwithstanding defendants’ unquestionable obligation to pay Prison Acquisition
under the terms of the Agreement, when Prison Acquisition requested payment of
the amounts owing under the Agreement from defendants, defendants wrongfully
failed and refused to pay.
11. As a
result of defendants’ actions, Prison Acquisition has been deprived of the
benefit of its bargain and has suffered more than $24 million of monetary
damages, for which it seeks redress in this action.
JURISDICTION
AND VENUE
12. This
Court has jurisdiction over the claims pursuant to 28 U.S.C. § 1332, in that
the action is one between citizens of different states and the matter in
controversy, exclusive of interest and costs, exceeds the sum of Seventy-Five
Thousand Dollars ($75,000).
13. The
parties have expressly consented to jurisdiction of the United States District
Court for the Southern District of New York pursuant to the Agreement that is
the subject of this action.
14. Venue is
proper in this District pursuant to 28 U.S.C. § 1391(a) in that Prison
Acquisition resides in this District and a substantial part of the events
giving rise to the claims asserted herein occurred in this District, In
addition, the parties waived any objection to venue being laid in this District
pursuant to the Agreement that is the subject of this action.
THE PARTIES
15.
Plaintiff Prison Acquisition is a limited liability company organized and
existing under the laws of the State of Delaware, with its principal place of
business in New York, New York. Prison Acquisition was formed by affiliates of
The Blackstone Group, L.P., Fortress Investment Group, LLC and Bank of America
Corporation to conduct the transactions set forth in the Agreement.
16.
Defendant PRT is a public REIT organized and existing under the laws of the
State of Maryland, with its principal offices at 10 Burton Hills Boulevard,
Nashville, Tennessee 37215. PRT is in the business of constructing, financing,
designing and renovating new and existing jails, and is currently the owner of
approximately 50 correctional and detention facilities which it leases to both
private prison managers and government agencies.
17.
Defendant CCA is a public corporation organized and existing under the laws of
Tennessee, with its principal offices at 10 Burton Hills Boulevard, Nashville,
Tennessee 37215. CCA is in the business of leasing and operating correctional
and detention facilities and currently leases and operates approximately 34 of
PRT’s facilities.
18.
Defendant PMSI is a privately held service corporation organized and existing
under the laws of Tennessee, with its principal offices at 10 Burton Hills
Boulevard, Nashville, Tennessee 37215. PMSI is in the business of managing
certain government-owned prison and jail facilities under the CCA name.
19.
Defendant JJFMSI is a privately held service corporation organized and existing
under the laws of Tennessee, with its principal offices at 10 Burton Hills
Boulevard, Nashville. Tennessee 37215. JJFMSI is in the business of managing
certain government-owned prison and jail facilities under the CCA name.
FACTUAL
BACKGROUND
The
Securities Purchase Agreement
20. On
December 26, 1999, Prison Acquisition entered into the Agreement with
defendants.
21. All
parties to the Agreement were adequately represented b the Agreement was fully
negotiated.
22. Pursuant
to the terms of the Agreement, Prison Acquisition committed to purchase up to
$350 million in PRT securities, consisting of shares of preferred convertible
stock of PRT and warrants to purchase PRT common stock.
23. Pursuant
to Section 7.6(d) of the Agreement, defendants agreed to pay Prison Acquisition
a termination fee of $7.5 million as liquidated damages if, prior to the
consummation of Prison Acquisition’s purchase of Prison Realty convertible
preferred stock and warrants, or during a period of one year following any
termination of the Agreement defendants entered into a similar agreement with a
third party without the consent of Prison Acquisition, providing for the
issuance of equity or convertible securities with proceeds to defendants at
least of $100 million.
24. In
addition, pursuant to Section 7.3(b) of the Agreement, whether or not the
transaction was consummated (except in the event of a breach of the Agreement
by Prison Acquisition), defendants agreed to pay Prison Acquisition a
transaction fee of $15.7 million upon the earlier of: (i)
the issuance by PRT of the convertible preferred shares and warrants described
above; (ii) four months from December 26, 1999; or (iii) the completion of an
alternative financing by defendants.
25. Further,
pursuant to Section 7.3(a) of the Agreement, in further consideration for
Prison Acquisition’s commitment to invest up to $350 million, defendants agreed
to promptly pay, upon the request of Prison Acquisition at such times including
upon the termination of the Agreement, all of its out-of-pocket costs and
expenses, including its fees and expenses of advisors, accountants, attorneys,
consultants and other parties whom Prison Acquisition engaged to assist it in
connection with the evaluation, negotiation and consummation of the Agreement
and certain other documents related to transactions contemplated by the
Agreement.
26. Prison
Acquisition has expended substantial funds, time and effort to fulfill its
obligations under the Agreement, and has incurred at least $853,502 in
out-of-pocket expenses in connection with the Agreement for which it has not
been reimbursed.
27. Prison
Acquisition at all times has performed its obligations under the Agreement.
Defendants’
Termination of the Agreement
28. On or
about March, 2000, defendants obtained a competing offer from Pacific Life
Insurance to enter into a transaction similar to the Agreement with Prison
Acquisition.
29.
Defendants entered into discussions with Pacific Life and began negotiating a
Securities Purchase Agreement with Pacific Life.
30. Pursuant
to Section 7.6(b) of the Agreement, defendants notified Prison Acquisition that
they had received a proposal from Pacific Life dated April 5, 2000, and
afforded Prison Acquisition the opportunity to match the material terms of the
transaction proposed by Pacific Life, as required under the Agreement.
31. By
letter dated April 13, 2000, Prison Acquisition advised defendants that it had
determined not to match the April 5, 2000 Pacific Life proposal.
32. In
addition, in the April 13 letter, (i) pursuant to
Section 7.6(d) of the Agreement, Prison Acquisition requested payment of the
$7.5 million fee within five days after defendants executed a definitive
agreement with Pacific Life, (ii) pursuant to Section 7.3(b) of the Agreement.
Prison Acquisition requested payment of the $15.7 million fee by April 26, 2000
(which is four months after the date of the Agreement, as provided in Section
7.3(b) thereof, and (iii) pursuant to Section 7.3(a) of the Agreement, Prison
Acquisition requested reimbursement for its out-of-pocket costs and expenses of
$853,502 incurred in connection with the Agreement and not previously advanced
by defendants.
33. By
letter dated April 16, 2000, defendants notified Prison Acquisition that they
had terminated the Agreement and had executed a definitive agreement with
Pacific Life.
34. On April
17, 2000, defendant PRT issued and filed a press release in which it publicly
disclosed that it had entered into a definitive Securities Purchase Agreement
with Pacific Life and had terminated the Agreement with Prison Acquisition.
35. In the
April 17, 2000 press release, PRT acknowledged that, "[t]he [Prison Acquisition]
Securities Purchase Agreement provides for, as a result of its termination and
the execution of the Pacific Life Securities Purchase Agreement, the payment by
Prison Realty to (Prison Acquisition] of a termination fee of $7.5 million, as
well as a $15.2 [sic] million commitment fee and certain expenses incurred by
[Prison Acquisition] during the process."
Defendants’
Breach of the Agreement
36. Despite
Prison Acquisition’s request for payment and defendants’ acknowledgment of
their obligation to pay pursuant to the terms of die Agreement, defendants have
failed and refused to pay the amounts owed.
37. By
facsimile letter dated June 6, 2000, Prison Acquisition repeated its request
for payment of the amounts to which it was owed by defendants under the
Agreement.
38. As a
result of defendants’ conduct in failing to pay the amounts owed Prison
Acquisition under the Agreement, Prison Acquisition has been deprived of the
benefit of its bargain, and is presently owed a total of at least $24,053,502,
together with interest, as follows: $7.5 million pursuant to Section 7.6(d),
$15.7 million pursuant to Section 7.3(b), and at least $853,502 for
out-of-pocket costs and expenses incurred pursuant to Section 7.3(a) of the
Agreement.
AS AND FOR A
FIRST CLAIM FOR RELIEF
(Breach of
Contract)
39. Prison
Acquisition repeats and realleges each of the
preceding paragraphs of the Complaint as if fully set forth herein.
40. The
Agreement between the parties is a valid and binding contract.
41. Pursuant
to Section 7.6(d) of the Agreement, defendants agreed to pay Prison Acquisition
a termination fee of $7.5 million as liquidated damages if, prior to the
consummation of Prison Acquisition’s purchase of Prison Realty convertible
preferred stock and warrants, or during a period of one year following any
termination of the Agreement, defendants entered into a similar agreement with
a third party without the consent of Prison Acquisition, providing for the
issuance of equity or convertible securities with proceeds to defendants at
least of $ 100 million.
42. On or
about April 17, 2000, defendants terminated the Agreement with Prison
Acquisition and entered into a similar agreement with Pacific Life for an
equity investment in excess of $200 million.
43. In
breach of their contractual obligations, defendants have failed and refused to
pay Prison Acquisition the $7.5 million fee owed under Section 7.6(d) of the
Agreement.
44. Pursuant
to Section 7.3(b) of the Agreement, whether or not the transaction was
consummated, defendants were obligated to pay Prison Acquisition a fee of $15.7
million at the earlier of the issuance of the convertible preferred shares and
warrants by Prison Realty. four months from December
26, 1999 (i.e., April 26, 1999) or the completion of alternative financing by
defendants.
45. In
breach of their contractual obligations, defendants have failed and refused to
pay Prison Acquisition’s fee of $15.7 million owed under Section 7.3(b).
46. Pursuant
to Section 7.3(a) of the Agreement, upon the termination of the Agreement,
whether or not the transaction was consummated (except in the event that Prison
Acquisition breached the Agreement), upon request, defendants were obligated to
reimburse Prison Acquisition for its out-of-pocket costs and expenses incurred
in connection with the transaction.
47. Upon
defendants’ termination of the Agreement, Prison Acquisition duly requested
from defendants reimbursement for $833,502 in out-of-pocket costs and expenses
incurred in connection with the Agreement.
48. In
breach of their contractual obligations, defendants have refused to reimburse
Prison Acquisition pursuant to Section 7.3(a).
49. As a
result of defendants’ breach of the Agreement, Prison suffered, and continues
to suffer, damages in the total amount of $24,053,502.
WHEREFORE,
plaintiff Prison Acquisition demands judgment as follows:
a. Awarding Prison
Acquisition compensatory damages in the
amount of at least
$24,053,502;
b. Awarding
Prison Acquisition interest from the date of defendants’
breach, as well as costs
and disbursements, including reasonable
attorneys’ fees incurred in
this action; and
c. Granting
Prison Acquisition such other and further relief as the
Court may
deem just and proper.
Dated: June
8, 2000
New York,
New York
SKADDEN,
ARPS, SLATE, MEAGHER & FLOM LLP
By: Jerome
S. Hirsch (JH 5650)
Steven J. Kolleeny (SK 0391)
Four Times
Square
New York,
New York 10036
(212)
735-3000
Attorneys
for Plaintiff
Prison
Acquisition Company L.L.C.