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As filed with the Securities and Exchange Commission on
June 10, 2010
Registration No. 333-166525
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 1
To
Form S-4
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
The GEO Group, Inc.
(Exact name of registrant as
specified in its charter)
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Florida
(State or other jurisdiction of
incorporation or organization)
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1520
(Primary Standard Industrial
Classification Code Number)
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65-0043078
(I.R.S. Employer
Identification Number)
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One Park Place,
Suite 700
621 Northwest
53rd
Street
Boca Raton, Florida
33487-8242
(561) 893-0101
(Address, including zip code,
and telephone number, including area code, of registrants
principal executive offices)
John J.
Bulfin, Esq.
Senior Vice President, General
Counsel
and Secretary
The GEO Group, Inc.
One Park Place, Suite
700
621 Northwest
53rd
Street
Boca Raton, Florida
33487-8242
(561) 893-0101
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
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Jose Gordo, Esq.
Stephen K. Roddenberry, Esq.
Esther L. Moreno, Esq.
Akerman Senterfitt
One Southeast Third Avenue,
25th
Floor
Miami, Florida 33131
(305) 374-5600
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Cathryn L. Porter, Esq.
General Counsel
Cornell Companies, Inc.
1700 West Loop South, Suite 1500
Houston, Texas 77027
(713) 623-0790
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Daniel Keating, Esq.
Hogan Lovells US LLP
555 Thirteenth Street, NW
Washington, D.C. 20004
(202) 637-5490
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after the
effective time of this registration statement and the effective
time of the merger of GEO Acquisition III, Inc., a Delaware
corporation and a wholly owned subsidiary of The GEO Group, Inc.
with and into Cornell Companies, Inc., a Delaware corporation,
as described in the Agreement and Plan of Merger, dated as of
April 18, 2010, as amended, attached as Annex A to the
joint proxy statement/prospectus forming part of this
registration statement.
If the securities being registered on this Form are being
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, check
the following
box. o
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
If applicable, place an X in the box to designate the
appropriate rule provision relied upon in conducting this
transaction:
Exchange Act
Rule 13e-4(i)
(Cross-Border Issuer Tender
Offer) o
Exchange Act
Rule 14d-1(d)
(Cross-Border Third-Party Tender
Offer) o
CALCULATION
OF REGISTRATION FEE
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Proposed Maximum
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Proposed Maximum
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Amount of
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Title of Each Class of
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Amount to be
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Offering
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Aggregate
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Registration
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Securities to be Registered
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Registered(1)(2)
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Price per Unit
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Offering Price(3)
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Fee(3)
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Common Stock, par value $0.01 per share
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20,800,000 shares and related preferred share purchase
rights
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N/A
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$444,000,000
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$31,657(4)
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(1)
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Represents the estimated maximum
number of shares of common stock, par value $.01 per share, of
The GEO Group, Inc., referred to herein as GEO, issuable in
connection with the merger in exchange for shares of Cornell
Companies, Inc., referred to herein as Cornell, common stock
calculated as 16,000,000 shares of Cornell common stock
(giving effect to all shares actually issued and outstanding,
all shares issuable upon the exercise of any option, warrant,
employee stock purchase right or other right to acquire Cornell
common stock and all shares issuable upon the conversion or
exchange of any security convertible into or exchangeable for
shares of Cornell common stock) multiplied by the exchange ratio
of 1.3 shares.
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(2)
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Each share of GEO common stock
issued by the registrant includes one preferred share purchase
right (the Right), which initially attaches to and
trades with the shares of the registrants common stock
being registered hereby. The terms of the Rights are described
in the Rights Agreement, dated as of October 9, 2003,
included as Exhibit 4.3 to the Current Report on
Form 8-K,
filed with the Securities and Exchange Commission on
October 30, 2003. Prior to the occurrence of certain
events, none of which has occurred as of the date of this
registration statement, the Rights will not be exercisable or
separable from the common stock.
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(3)
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Pursuant to Rules 457(c) and
457(f)(1) under the Securities Act of 1933, as amended, and
solely for the purpose of calculating the registration fee, the
proposed maximum aggregate offering price is equal to:
(i) the market value of the shares of Cornell common stock
to be received by GEO in the merger, calculated as (x) the
estimated maximum number of such shares that will be outstanding
as of the closing date of the merger (16,000,000) multiplied by
(y) $27.75, the average of the high and low sales prices per
share of Cornell common stock as reported on the NYSE on
April 28, 2010.
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(4)
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A registration fee of $41,155 was
previously paid in connection with the Registration Statement
filed on May 5, 2010.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as
the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The
information in this preliminary joint proxy statement/prospectus
is not complete and may be changed. These securities may not be
sold until the registration statement filed with the Securities
and Exchange Commission is effective. This preliminary joint
proxy statement/prospectus is not an offer to sell and it is not
soliciting an offer to buy these securities in any jurisdiction
where the offer or sale is not permitted.
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PRELIMINARY SUBJECT
TO COMPLETION, DATED JUNE 10, 2010
MERGER
PROPOSED YOUR VOTE IS VERY IMPORTANT
The boards of directors of The GEO Group, Inc., or GEO, and
Cornell Companies, Inc., or Cornell, have each approved a merger
agreement which provides for GEO to acquire Cornell. The boards
of directors of GEO and Cornell believe that the combination of
the two companies will create greater long-term stockholder
value than either company could individually achieve on a
stand-alone basis.
If the merger is completed, Cornell stockholders will be
entitled to receive, at their election, either
(i) 1.3 shares of common stock of GEO, par value $.01
per share, for each share of Cornell common stock, which we
refer to as the stock consideration; or (ii) the right to
receive cash consideration equal to the greater of (x) the
fair market value of one share of GEO common stock plus $6.00 or
(y) the fair market value of 1.3 shares of GEO common
stock, which we refer to as the cash consideration. The stock
consideration and cash consideration are collectively referred
to as the merger consideration. Cornell stockholders desiring to
receive a combination of GEO common stock and cash may do so by
making a stock election with respect to a portion of their
shares and a cash election with respect to their remaining
shares. If a Cornell stockholder fails to make an election, the
holder will receive the stock consideration. In order to
preserve the tax-deferred treatment of the transaction, no more
than 20% of the outstanding shares of Cornell common stock may
be exchanged for the cash consideration. If cash elections are
made with respect to more than 20% of Cornells shares, the
excess over 20% shall be treated as a stock election and will be
exchanged for shares of GEO common stock. Additionally, if cash
elections are made such that the aggregate cash consideration
would exceed $100.0 million, then GEO may elect, in its
sole discretion, to pay such excess amount in shares of GEO
common stock or in cash. GEO intends to pay such excess amount
in cash.
The combined company will be named The GEO Group, Inc. and the
shares of the combined company will continue to be traded on the
New York Stock Exchange, or the NYSE, under the symbol
GEO. GEO shareholders will continue to own their
existing shares after the merger. On
[ ],
2010, the closing price per share of GEO common stock as
reported by the NYSE was $[ ]. On
[ ],
2010, the closing price per share of Cornell common stock as
reported by the NYSE was $[ ]. You
are urged to obtain current market quotations for the shares of
GEO and Cornell.
YOUR VOTE IS IMPORTANT. The merger cannot be completed
unless holders of GEO common stock vote to approve the issuance
of GEO common stock, which we refer to as the GEO share
issuance, in connection with the merger, and Cornell
stockholders vote to adopt the merger agreement.
The GEO board of directors recommends that GEO shareholders
vote FOR the GEO share issuance in connection with
the merger, FOR the amendments to The GEO Group,
Inc. 2006 Stock Incentive Plan and FOR the
adjournment of the GEO special meeting, if necessary, to solicit
additional proxies in favor of the foregoing proposals. The
Cornell board of directors recommends that Cornell stockholders
vote FOR the adoption of the merger agreement and
FOR the adjournment of the Cornell special meeting,
if necessary, to solicit additional proxies in favor of the
adoption of the merger agreement.
GEO and Cornell will each hold a special meeting of their
respective shareholders and stockholders to vote on these
proposals. Whether or not you plan to attend your companys
special meeting, please take the time to cause your shares to be
voted by completing and mailing the enclosed proxy card or
submitting your proxy by telephone or through the Internet,
using the procedures in the proxy voting instructions included
with your proxy card. Even if you return the proxy, you may
attend the special meeting and vote your shares in person at the
meeting.
This joint proxy statement/prospectus describes the proposed
merger and related transactions in more detail. GEO and
Cornell encourage you to read this entire joint proxy
statement/prospectus carefully, including the merger agreement,
which is included as Annex A, and the section discussing
Risk Factors relating to the merger and the combined
company beginning on page 22.
GEO and Cornell look forward to the successful combination of
the two companies.
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George C. Zoley
Chairman of the Board of Directors and
Chief Executive Officer,
The GEO Group, Inc.
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James E. Hyman
Chairman of the Board of Directors,
Chief Executive Officer and President
Cornell Companies, Inc.
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Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of the merger
described in this joint proxy statement/prospectus or the GEO
common stock to be issued pursuant to the merger, or determined
if this joint proxy statement/prospectus is accurate or
adequate. Any representation to the contrary is a criminal
offense.
This joint proxy statement/prospectus is dated
[ ],
2010 and, together with the accompanying proxy card, is first
being mailed or otherwise delivered to GEO shareholders and
Cornell stockholders on or about
[ ],
2010.
THIS
JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES
ADDITIONAL INFORMATION
This joint proxy statement/prospectus incorporates by reference
important business and financial information about GEO and
Cornell from other documents filed with the Securities and
Exchange Commission, or the SEC, that are not included in or
delivered with this joint proxy statement/prospectus. These SEC
filings are available to the public at the website maintained by
the SEC at
http://www.sec.gov
and at the SECs public reference room located at 100 F
Street, N.E., Room 1024, Washington, DC 20549. This
information is available to you without charge upon your written
or oral request. For a list of the documents incorporated by
reference into this joint proxy statement/prospectus and more
information on how you can obtain these filings, see Where
You Can Find More Information beginning on page 126.
You can obtain electronic or hardcopy versions of the documents
that are incorporated by reference into this joint proxy
statement/prospectus, without charge, from the Investor
Relations section of the appropriate companys website or
by requesting them in writing or by telephone, in each case as
set forth below:
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if you are a GEO shareholder:
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if you are a Cornell stockholder:
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Electronic:
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www.geogroup.com
Pablo E. Paez
Director, Corporate Relations
The GEO Group, Inc.
Phone: (866) 301-4436
E-mail: ppaez@geogroup.com
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Electronic:
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www.cornellcompanies.com
Charles Seigel
Vice President
Cornell Companies, Inc.
Phone: (888) 624-0816
Email: InvestorRelations@cornellcompanies.com
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By Mail:
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The GEO Group, Inc.
One Park Place, Suite 700
621 Northwest 53rd Street
Boca Raton, Florida 33487
Attention: Director, Corporate Relations
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By Mail:
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Cornell Companies, Inc.
1700 West Loop South,
Suite 1500
Houston, Texas 77027
Attention: Investor
Relations
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E-mail
Address:
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ppaez@geogroup.com
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E-mail Address:
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InvestorRelations@cornellcompanies.com
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By Telephone:
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(866) 301-4436
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By Telephone:
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(888) 624-0816
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IF YOU ARE A CORNELL STOCKHOLDER AND YOU WOULD LIKE TO
REQUEST DOCUMENTS, PLEASE DO SO BY
[ ],
2010 IN ORDER TO RECEIVE THEM NO LATER THAN FIVE DAYS BEFORE THE
ELECTION DEADLINE. YOU WILL NOT BE CHARGED FOR ANY OF THE
DOCUMENTS YOU REQUEST.
IF YOU ARE A GEO SHAREHOLDER AND YOU WOULD LIKE TO REQUEST
DOCUMENTS, PLEASE DO SO BY
[ ],
2010 IN ORDER TO RECEIVE THEM NO LATER THAN FIVE DAYS BEFORE
GEOS SPECIAL MEETING. YOU WILL NOT BE CHARGED FOR ANY OF
THE DOCUMENTS YOU REQUEST.
SUBMITTING
A PROXY ELECTRONICALLY, BY TELEPHONE OR BY MAIL
GEO shareholders of record on
[ ],
2010 may submit their proxies as follows:
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Through the Internet, by visiting the website established for
that purpose at www.
[ ].com
and following the instructions;
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By telephone, by calling the toll-free number
[ ]
in the United States, Canada or Puerto Rico on a touch-tone
phone and following the recorded instructions; or
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By mail, by marking, signing, and dating the enclosed proxy card
and returning it in the postage-paid envelope provided or
returning it pursuant to the instructions set out in the proxy
card.
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Cornell stockholders of record on
[ ],
2010 may submit their proxies as follows:
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Through the Internet, by visiting the website established for
that purpose at
www.[ ].com
and following the instructions;
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By telephone, by calling the toll-free number
[ ]
in the United States, Canada or Puerto Rico on a touch-tone
phone and following the recorded instructions; or
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By mail, by marking, signing, and dating the enclosed proxy card
and returning it in the postage-paid envelope provided or
returning it pursuant to the instructions provided in the proxy
card.
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If you are a beneficial owner, please refer to your proxy card
or the information forwarded by your bank, broker or other
holder of record to see which options are available to you.
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS
To Be Held On
[ ],
2010
Dear GEO Shareholder:
The GEO Group, Inc. is pleased to invite you to attend a special
meeting of the shareholders of GEO, which will be held on
[ ],
2010 at [ ] a.m., Eastern time, at
[ ].
The purpose of the GEO special meeting is to consider and to
vote upon the following proposals:
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a proposal to approve the issuance of shares of GEO common stock
and other securities convertible into or exercisable for shares
of GEO common stock, which we refer to as the GEO share
issuance, in connection with the transactions contemplated by
the Agreement and Plan of Merger, dated as of April 18,
2010, among GEO, GEO Acquisition III, Inc., a wholly owned
subsidiary of GEO formed for the purpose of the merger, and
Cornell Companies, Inc.;
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a proposal to approve amendments to The GEO Group, Inc. 2006
Stock Incentive Plan, which we refer to as the 2006 Plan, to
increase the number of shares of common stock subject to awards
under the 2006 Plan; and
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a proposal to approve an adjournment of the GEO special meeting,
if necessary, to solicit additional proxies in favor of the
foregoing proposals.
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The GEO board of directors has determined that the GEO share
issuance in connection with the merger and the amendments to the
2006 Plan are advisable and in the best interests of GEO and its
shareholders and recommends that GEO shareholders vote
FOR the GEO share issuance in connection with
the merger, FOR the amendments to the 2006
Plan and FOR the adjournment of the GEO
special meeting, if necessary, to solicit additional proxies in
favor of the foregoing proposals.
GEO and Cornell cannot complete the merger unless the GEO share
issuance is approved by the affirmative vote of holders of
shares of GEO common stock representing a majority of votes cast
on the proposal, provided that the total number of votes cast on
the proposal must represent a majority of the total number of
shares of GEO common stock issued and outstanding on the record
date for the GEO special meeting.
Your vote is very important. Your failure to vote will make
it more difficult to approve the GEO share issuance.
The close of business on
[ ],
2010 has been fixed as the record date, which is referred to as
the GEO record date. Only holders of record of GEO common stock
on the GEO record date are entitled to notice of, and to vote
at, the GEO special meeting or any adjournments or postponements
of the GEO special meeting. A list of the holders of GEO common
stock entitled to vote at the GEO special meeting will be
available for examination by any GEO shareholder, for any
purpose germane to the GEO special meeting, at GEOs
principal executive offices at One Park Place, Suite 700,
621 Northwest 53rd Street, Boca Raton, Florida 33487, for
ten days before the GEO special meeting, during normal business
hours, and at the time and place of the GEO special meeting as
required by law.
GEO directs your attention to the joint proxy
statement/prospectus accompanying this notice for a more
complete statement regarding the matters proposed to be acted
upon at the GEO special meeting. You are encouraged to read the
entire joint proxy statement/prospectus carefully, including the
merger agreement, which is included as Annex A to the joint
proxy statement/prospectus, and the section discussing
Risk Factors beginning on page 22.
SO THAT YOUR SHARES WILL BE REPRESENTED WHETHER OR NOT YOU
ATTEND THE GEO SPECIAL MEETING, PLEASE SUBMIT A PROXY AS SOON AS
POSSIBLE BY MAIL, BY TELEPHONE OR THROUGH THE INTERNET.
INSTRUCTIONS ON THESE DIFFERENT WAYS TO SUBMIT YOUR PROXY
ARE FOUND ON THE ENCLOSED PROXY FORM. YOU MAY REVOKE YOUR PROXY
AT ANY TIME BEFORE IT IS VOTED AT THE GEO SPECIAL MEETING. YOUR
VOTE IS IMPORTANT, SO PLEASE VOTE YOUR SHARES AS SOON AS
POSSIBLE.
By Order of the Board of Directors,
George C. Zoley
Chairman of the Board of Directors and
Chief Executive Officer
[ ],
2010
NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS
To Be Held On
[ ],
2010
Dear Cornell Stockholder:
Cornell Companies, Inc. is pleased to invite you to attend a
special meeting of the stockholders of Cornell which will be
held on
[ ],
2010 at [ ] a.m., Central time, at
[ ].
The purpose of the Cornell special meeting is to consider and to
vote upon the following proposals:
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a proposal to adopt the Agreement and Plan of Merger, dated as
of April 18, 2010, among The GEO Group, Inc., GEO
Acquisition III, Inc., a wholly owned subsidiary of GEO formed
for the purpose of the merger, and Cornell Companies, Inc., a
copy of which is attached as Annex A to the joint proxy
statement/prospectus, pursuant to which Cornell will become a
wholly owned subsidiary of GEO; and
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a proposal to approve an adjournment of the Cornell special
meeting, if necessary, to solicit additional proxies in favor of
the foregoing proposal.
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The Cornell board of directors has determined that the merger
agreement and the transactions contemplated by it, including the
merger, are advisable and in the best interests of Cornell and
its stockholders and recommends that Cornell stockholders vote
FOR the adoption of the merger agreement and
FOR the adjournment of the Cornell special
meeting, if necessary, to solicit additional proxies in favor of
the foregoing proposal.
GEO and Cornell cannot complete the merger unless the proposal
to adopt the merger agreement is approved by holders of a
majority of the total number of shares of Cornell common stock
issued and outstanding on the record date for the Cornell
special meeting.
Your vote is very important. Abstentions and broker non-votes
will have the same effect as a vote against approval of the
merger agreement.
The close of business on
[ ],
2010 has been fixed as the record date, which is referred to as
the Cornell record date. Only holders of record of Cornell
common stock on the Cornell record date are entitled to notice
of, and to vote at, the Cornell special meeting or any
adjournments or postponements of the Cornell special meeting. A
list of Cornell stockholders entitled to vote at the Cornell
special meeting will be available for examination by any Cornell
stockholder for any purpose germane to the Cornell special
meeting, at Cornells principal executive offices at
1700 West Loop South, Suite 1500, Houston, Texas
77027, for ten days before the Cornell special meeting, during
normal business hours, and at the time and place of the Cornell
special meeting as required by law.
Cornell directs your attention to the joint proxy
statement/prospectus accompanying this notice for more detailed
information regarding the matters proposed to be acted upon at
the Cornell special meeting. You are encouraged to read the
entire joint proxy statement/prospectus carefully, including the
merger agreement, which is included as Annex A to the joint
proxy statement/prospectus, and the section discussing
Risk Factors beginning on page 22.
SO THAT YOUR SHARES WILL BE REPRESENTED WHETHER OR NOT YOU
ATTEND THE CORNELL SPECIAL MEETING, PLEASE SUBMIT A PROXY AS
SOON AS POSSIBLE BY MAIL, BY TELEPHONE OR THROUGH THE INTERNET.
INSTRUCTIONS ON THESE DIFFERENT WAYS TO SUBMIT YOUR PROXY
ARE FOUND ON THE ENCLOSED PROXY FORM. YOU MAY REVOKE YOUR PROXY
AT ANY TIME BEFORE IT IS VOTED AT THE CORNELL SPECIAL MEETING.
YOUR VOTE IS IMPORTANT, SO PLEASE VOTE YOUR SHARES AS SOON AS
POSSIBLE.
By Order of the Board of Directors,
James E. Hyman
Chairman of the Board, Chief Executive
Officer and President
[ ],
2010
TABLE OF
CONTENTS
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81
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82
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82
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83
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84
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84
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85
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86
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86
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86
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86
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86
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88
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92
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96
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96
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96
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96
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97
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97
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97
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98
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98
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99
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107
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112
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125
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125
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125
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126
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A-1
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B-1
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C-1
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D-1
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E-1
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F-1
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EX-23.1 |
EX-23.2 |
EX-99.6 |
ii
QUESTIONS
AND ANSWERS ABOUT THE MERGER
|
|
|
Q. |
|
Why am I receiving these materials? |
|
A. |
|
GEOs board of directors and the Cornell board of directors
have approved a merger agreement pursuant to which a wholly
owned subsidiary of GEO will merge with and into Cornell, with
Cornell surviving the merger and becoming a wholly owned
subsidiary of GEO. In order to complete the merger, GEO
shareholders must vote to approve the issuance of shares of GEO
common stock to Cornell stockholders in the merger, and Cornell
stockholders must vote to adopt the merger agreement. |
|
|
|
|
|
Additionally, GEO is seeking approval to amend the 2006 Plan to
increase the number of shares of common stock subject to awards
under the 2006 Plan by 2,000,000, from 2,400,000 to 4,400,000,
and make other related changes to numerical thresholds in the
2006 Plan. The 2006 Plan, as amended and restated to reflect
(i) the proposed amendments to the 2006 Plan and
(ii) prior amendments that have been adopted and approved
since the 2006 Plans initial adoption, is attached as
Annex F to this joint proxy statement/prospectus. |
|
|
|
|
|
GEO and Cornell will hold separate special meetings of their
respective shareholders and stockholders to obtain these
approvals. This document is the joint proxy statement for GEO
and Cornell to solicit proxies for their respective special
meetings. It is also the prospectus of GEO regarding the shares
of GEO common stock to be issued as contemplated by the merger
agreement. This document contains important information about
the proposed merger and the special meetings of GEO and Cornell,
and you should read it carefully. |
|
Q: |
|
What will happen in the merger? |
|
A: |
|
In the merger, GEO Acquisition III, Inc., a Delaware corporation
and a wholly owned subsidiary of GEO, will be merged with and
into Cornell, referred to as the merger, with Cornell surviving
the merger and becoming a wholly owned subsidiary of GEO.
Immediately following the merger, GEO will continue to be named
The GEO Group, Inc. and will be the parent company
of Cornell. As a result of the merger Cornell common stock will
no longer be publicly traded. |
|
Q: |
|
What will I receive in the merger? |
|
A: |
|
GEO Shareholders. Each share of GEO common
stock held by GEO shareholders immediately before the merger
will continue to represent one share of common stock of the
combined company after the effective time of the merger. GEO
shareholders will receive no consideration in the merger. |
|
|
|
Cornell Stockholders. At the effective time of
the merger, each share of common stock of Cornell, par value
$.001 per share, issued and outstanding immediately prior to the
effective time of the merger will be cancelled and converted
into, at the option of the holder, the right to receive either:
(i) 1.3 shares of common stock of GEO, par value $.01
per share, or (ii) the right to receive cash consideration
equal to the greater of (x) the fair market value of one
share of GEO common stock plus $6.00 or (y) the fair market
value of 1.3 shares of GEO common stock. Cornell
stockholders desiring to receive a combination of GEO common
stock and cash may do so by making a stock election with respect
to a portion of their shares and a cash election with respect to
their remaining shares. If a Cornell stockholder fails to make
an election, the holder will receive the stock consideration.
Fair market value of GEO common stock for the
purpose of determining the cash consideration means the average
of the daily closing prices per share of GEO common stock for
the ten consecutive trading days on which shares of GEO common
stock are actually traded (as reported on the NYSE) ending on
the last trading day immediately preceding the tenth business
day preceding the closing date. |
|
|
|
In order to preserve the tax-deferred treatment of the
transaction, no more than 20% of the outstanding shares of
Cornell common stock may be exchanged for the cash
consideration. If cash elections are made with respect to more
than 20% of Cornells shares, the excess over 20% shall be
treated as a stock election and will be exchanged for shares of
GEO common stock. In such event, a pro rata portion (rounded up
to the nearest whole share) of each holders shares of
Cornell common stock with respect to which an election was made
to elect cash consideration shall instead be converted to GEO
common stock. If cash elections are made such that the aggregate
cash consideration to be received by Cornell stockholders would
exceed $100 million, such excess amount may be paid at the
election of GEO in shares of GEO common stock or in cash. |
iii
|
|
|
Q: |
|
Can Cornell stockholders elect whether to receive cash or
stock consideration for their Cornell shares? |
|
A: |
|
Yes, we have enclosed with this joint proxy statement/prospectus
election materials which will allow Cornell stockholders to
elect, with respect to each share of Cornell common stock owned,
stock consideration or cash consideration. Cornell stockholders
desiring to receive a combination of GEO common stock and cash
may do so by making a stock election with respect to a portion
of their shares and a cash election with respect to their
remaining shares. |
|
Q: |
|
If a Cornell stockholder elects to receive all of the merger
consideration in cash, will that stockholder be assured of
receiving only cash? |
|
A: |
|
No. GEO will not pay cash consideration for more than 20%
of the shares of Cornell common stock and any such excess of
elections for cash consideration shall be paid in GEO common
stock. Additionally, if the cash elections would result in an
aggregate of more than $100 million of cash consideration,
GEO may in its sole discretion pay such excess consideration in
cash or shares of GEO common stock. |
|
Q: |
|
If a Cornell stockholder elects to receive all of the merger
consideration in GEO common stock, will that stockholder be
assured of receiving only GEO common stock? |
|
A: |
|
Yes. The Cornell stockholders electing to receive stock
consideration and the Cornell stockholders failing to make an
election will receive stock consideration and no portion of such
election shall be pro-rated into cash consideration. |
|
Q: |
|
How do Cornell stockholders elect which form of consideration
they would prefer to receive in the merger? |
|
|
|
A: |
|
To make an election, Cornell stockholders as of the record date
must properly complete and sign the election form and letter of
transmittal sent to them together with this joint proxy
statement/prospectus, and send those documents and the
certificates (or properly completed notice of guaranteed
delivery) for their shares to [ ], the exchange agent, at the
address listed in the election form and letter of transmittal by
the election deadline, which is 5:00 p.m., New York time,
on
[ ],
2010. |
|
|
|
|
|
If you own shares of Cornell common stock in street
name through a broker or other financial institution, you
will receive or should seek instructions from the institution
holding your shares concerning how to make your election. Any
instructions must be given to your broker or other financial
institution sufficiently in advance of the election deadline for
record holders in order to allow your broker or financial
institution sufficient time to cause the record holder of your
shares to make an election as described above. Therefore, you
should carefully read any materials you receive from your
broker. If you instruct a broker to submit an election for your
shares, you must follow your brokers directions for
changing those instructions. Please see The Merger
Agreement Merger Consideration Election
Procedures beginning on page 73 for additional
information. |
|
|
|
|
|
All elections are subject to the proration procedures as further
described herein. If you do not make a valid election your
shares will be considered non-election shares, and when the
merger is completed you will be entitled to receive the stock
consideration. |
|
Q: |
|
May Cornell stockholders change or revoke their election
after they have mailed their completed election form and letter
of transmittal? |
|
A: |
|
If a Cornell stockholder is a holder of Cornell common stock as
of the record date, the holder may change the holders
election or change the number of shares for which the holder has
made an election at any time prior to the election deadline by
sending a signed written notice to the exchange agent
identifying the shares of Cornell common stock for which the
holder is changing the election along with a properly completed
revised election form. For a change of an election to be
effective, it must be received by the exchange agent prior to
the election deadline. Shares of Cornell common stock as to
which an election has been revoked after the election deadline
will be deemed non-election shares, and no new election as to
such shares may be made after the election deadline. If a
Cornell stockholder holds its shares in street name,
the holder must follow the brokers instructions for
changing or revoking an election. |
iv
|
|
|
Q: |
|
When do GEO and Cornell expect to complete the merger? |
|
|
|
A: |
|
GEO and Cornell are working to complete the merger as quickly as
practicable. GEO and Cornell expect to complete the merger after
all conditions to the merger in the merger agreement are
satisfied or waived, including the receipt of GEO shareholder
approval at the special meeting of shareholders of GEO and
receipt of Cornell stockholder approval at the special meeting
of Cornell stockholders and the receipt of all required
regulatory approvals. See The Merger Agreement
Conditions to Completion of the Merger beginning on
page 83. GEO and Cornell currently expect to complete the
merger during the third quarter of 2010. However, because
fulfillment of some of the conditions to completing the merger
are outside of either companys control, we cannot predict
the actual timing or if the merger will be completed at all. |
|
|
|
Q: |
|
When and where are the GEO and Cornell special meetings? |
|
|
|
A: |
|
GEO Special Meeting. A special meeting of GEO
shareholders, which is referred to as the GEO special meeting,
will be held on
[ ],
2010 at [ ] a.m., Eastern time, at
[ ],
to consider and vote on the proposals related to the merger and
amendments to the 2006 Plan. |
|
|
|
|
|
Cornell Special Meeting. A special meeting of
Cornell stockholders, which is referred to as the Cornell
special meeting, will be held on
[ ],
2010 at [ ]a.m., Central time, at
[ ],
to consider and vote on the proposals related to the merger. |
|
|
|
Q: |
|
What are the quorum requirements for the GEO special
meeting? |
|
A: |
|
Under Florida law and GEOs bylaws, a quorum of GEOs
shareholders at the GEO special meeting is necessary to transact
business. A majority of shares of stock issued and outstanding
and entitled to vote, represented in person or by proxy, will
constitute a quorum for the transaction of business at the GEO
special meeting. |
|
Q: |
|
What are the quorum requirements for the Cornell special
meeting? |
|
A: |
|
Under Delaware law and Cornells Bylaws, a quorum of
Cornells stockholders at the Cornell special meeting is
necessary to transact business. The presence of holders
representing a majority of the votes of all outstanding Cornell
common stock on the record date entitled to vote at the Cornell
special meeting will constitute a quorum for the transaction of
business at the Cornell special meeting. |
|
Q: |
|
Why is my vote important? |
|
A: |
|
In order to complete the merger, GEO shareholders must approve
of the GEO share issuance and Cornell stockholders must vote to
adopt the merger agreement. |
|
Q: |
|
What votes of GEO shareholders are required to complete the
merger? |
|
A: |
|
In order to complete the merger, GEO shareholders must approve
the issuance of GEO common stock and other securities
convertible into or exercisable for shares of GEO common stock
in connection with the merger, which is referred to as the GEO
share issuance. |
|
|
|
The GEO share issuance requires the affirmative vote of holders
of shares of GEO common stock representing a majority of votes
cast on the proposal, provided that the total number of votes
cast on the proposal must represent a majority of the total
number of shares of GEO common stock issued and outstanding on
the record date for the GEO special meeting. |
|
|
|
If you are a GEO shareholder, any of your shares as to which you
abstain will have the same effect as a vote
AGAINST the GEO share issuance. |
|
|
|
The approval is referred to as the GEO shareholder approval. |
|
|
|
The approval of the merger agreement and the closing of the
merger are not conditioned upon approval of the amendments to
the 2006 Plan. |
|
|
|
The GEO board of directors recommends that GEO shareholders
vote FOR the GEO share issuance in connection with
the merger. |
v
|
|
|
Q: |
|
What votes of Cornell stockholders are required to complete
the merger? |
|
A: |
|
Cornell stockholders are being asked to adopt the merger
agreement, which requires the approval of holders of a majority
of the total number of shares of Cornell common stock issued and
outstanding on the record date for the Cornell special meeting,
which is referred to as the Cornell stockholder approval. |
|
|
|
If you are a Cornell stockholder, any of your shares as to which
you abstain or which are not voted will have the same effect as
a vote AGAINST the proposal to adopt the
merger agreement. |
|
|
|
The Cornell board of directors recommends that Cornell
stockholders vote FOR the adoption of the merger
agreement. |
|
Q. |
|
What votes of GEO shareholders are required to amend the 2006
Plan? |
|
A. |
|
The approval of the amendments to the 2006 Plan requires the
affirmative vote of holders of shares of GEO common stock
representing a majority of votes cast in the proposal, provided
that the total number of votes cast on the proposal must
represent a majority of the total number of shares of GEO common
stock issued and outstanding on the record date for the GEO
special meeting. |
|
|
|
If you are a GEO shareholder, any of your shares as to which you
abstain or which are not voted will have the same effect as a
vote AGAINST the amendments to the 2006 Plan. |
|
Q. |
|
Why are GEO shareholders being asked to approve the
amendments to the 2006 Plan? |
|
|
|
A. |
|
GEO is seeking approval to amend the 2006 Plan to increase the
number of shares of common stock subject to the awards under the
2006 Plan by 2,000,000 from 2,400,000 to 4,400,000, and
make other related changes to numerical thresholds in the 2006
Plan. GEO is seeking to increase in the number of shares of
common stock subject to the plan in order to provide adequate
availability to issue new awards to Cornell employees who will
become GEO employees upon the closing of the merger as well as
GEO employees who will be involved in the completion of the
merger and the integration of Cornells operations.
GEOs board of directors believes that the equity awards
are a key component of overall employee compensation and will
help maintain GEOs performance-oriented culture and
further align the interests of GEOs employees and
shareholders. |
|
|
|
Q. |
|
Is the closing of the merger between GEO and Cornell
contingent upon GEO shareholders approving the amendments to the
2006 Plan? |
|
A. |
|
No. Although GEOs board of directors believe that the
amendments to the 2006 Plan are important to align the interests
of employees of the combined company with the interests of
GEOs shareholders, the approval of the merger agreement
and the consummation of the merger between GEO and Cornell are
not contingent upon GEO shareholders approving amendments to the
2006 Plan. |
|
Q. |
|
Are any Cornell stockholders already committed to vote in
favor of any of the special meeting proposals? |
|
A. |
|
Under a voting agreement with GEO, which is attached as Annex B
to this joint proxy statement/prospectus, certain significant
stockholders of Cornell have agreed to vote all of their shares
of Cornell common stock in favor of the Cornell merger agreement
proposal and have granted to GEO a proxy to vote their shares in
favor of the proposal. As of April 15, 2010, the Cornell
stockholders who are parties to the voting agreement
collectively beneficially owned (with sole or shared voting
power) 2,747,185 shares, or 18.4%, of the Cornell common
stock outstanding and entitled to vote at the special meeting.
For more information, see The Merger Agreement
Voting Agreement. |
|
Q. |
|
How may the Cornell stockholders vote their shares for the
special meeting proposals presented in this joint proxy
statement/prospectus? |
|
A. |
|
Cornells stockholders have four voting options: |
|
|
|
over the internet, which we encourage if you have
internet access, by accessing the web page at [ ] and
following the on-screen instructions;
|
|
|
|
by telephone, by calling toll-free
[( ) - ]
and following the instructions;
|
|
|
|
by mail, after completing, signing, and dating the
enclosed proxy card and mailing it in the enclosed, prepaid and
addressed envelope; or
|
vi
|
|
|
|
|
by attending the special meeting and voting your
shares in person.
|
|
|
|
Proxies submitted through the Internet or by telephone must be
received by 11:59 p.m., Central Standard Time, on
[ ,
2010]. |
|
Q. |
|
Will Cornells stockholders be able to vote their shares
at the Cornell special meeting? |
|
A. |
|
Yes. Submitting a proxy will not affect the right of any Cornell
stockholder to vote in person at the special meeting. Cornell
will distribute written ballots to any Cornell stockholder who
requests, and is entitled, to vote at the special meeting. If a
Cornell stockholder holds shares in street name, the
stockholder must request a proxy from the stockholders
broker or bank in order to vote those shares in person at the
special meeting. |
|
Q. |
|
What do Cornells stockholders need to do now? |
|
A. |
|
After carefully reading and considering the information
contained in this joint proxy statement/prospectus,
Cornells stockholders are requested to complete and return
their proxies as soon as possible. The proxy card will instruct
the persons named on the proxy card to vote the
stockholders Cornell shares at the special meeting as the
stockholder directs. If a stockholder signs and sends in a proxy
card and does not indicate how the stockholder wishes to vote,
the proxy will be voted FOR both of the
special meeting proposals. |
|
Q. |
|
May a Cornell stockholder change the stockholders vote
after submitting a proxy? |
|
A. |
|
Yes. A Cornell stockholder may change a vote at any time before
the stockholders proxy is voted at the Cornell special
meeting. A proxy submitted through the Internet or by telephone
may be revoked by executing a later-dated proxy card, by
subsequently submitting a proxy through the Internet or by
telephone, or by attending the special meeting and voting in
person. A stockholder executing a proxy card also may revoke the
proxy at any time before it is voted by giving written notice
revoking the proxy to Cornells Corporate Secretary, by
subsequently filing another proxy card bearing a later date or
by attending the special meeting and voting in person. Attending
the special meeting will not automatically revoke a stockholder
holders prior submission of a proxy (by Internet,
telephone or in writing). A revocation of a proxy shall also be
deemed a revocation of an election with respect to the merger
consideration. All written notices of revocation or other
communications with respect to revocation of proxies should be
addressed to: |
Cornell
Companies, Inc.
1700 West Loop South, Suite 1500
Houston, Texas 77027
Attention: Corporate Secretary
|
|
|
|
|
If your shares are held in the name of a broker or nominee, you
may change your vote by submitting new voting instructions to
your broker or nominee. If you need assistance in changing or
revoking your proxy, please contact
[ ],
toll-free at
[ ]. |
|
Q. |
|
If I am a Cornell stockholder, who can help answer my
questions? |
|
A. |
|
If you have any questions about the merger or the special
meeting, or if you need additional copies of this joint proxy
statement/prospectus or the enclosed proxy card, you should
contact Cornells proxy solicitor, at the following address
or phone number: |
[Proxy Solicitor]
[Address]
|
|
|
Q. |
|
Are any of GEOs shareholders already committed to vote
in favor of any of the special meeting proposals? |
|
A. |
|
None of GEOs shareholders are committed to vote in favor
of any of the special meeting proposals. |
|
Q. |
|
How may GEOs shareholders vote their shares for the
special meeting proposals presented in this joint proxy
statement/prospectus? |
|
A. |
|
GEOs shareholders have four voting options: |
|
|
|
over the internet, which we encourage if you have
internet access, by accessing the web page at [ ] and
following the on-screen instructions;
|
vii
|
|
|
|
|
by telephone, by calling toll-free
[( ) - ]
and following the instructions;
|
|
|
|
by mail, after completing, signing, and dating the
enclosed proxy card and mailing it in the enclosed, prepaid and
addressed envelope; or
|
|
|
|
by attending the special meeting and voting your
shares in person.
|
|
|
|
Proxies submitted through the Internet or by telephone must be
received by 11:59 p.m., Eastern Standard Time, on
[ ,
2010]. |
|
Q. |
|
Will GEOs shareholders be able to vote their shares at
the GEO special meeting? |
|
A. |
|
Yes. Submitting a proxy will not affect the right of any GEO
shareholder to vote in person at the special meeting. GEO will
distribute written ballots to any GEO shareholder who requests,
and is entitled, to vote at the special meeting. If a GEO
shareholder holds shares in street name, the
shareholder must request a proxy from the shareholders
broker or bank in order to vote those shares in person at the
special meeting. |
|
Q. |
|
What do GEOs shareholders need to do now? |
|
A. |
|
After carefully reading and considering the information
contained in this joint proxy statement/prospectus, GEOs
shareholders are requested to complete and return their proxies
as soon as possible. The proxy card will instruct the persons
named on the proxy card to vote the GEO shareholders
shares at the special meeting as the shareholder directs. If a
shareholder signs and sends in a signed proxy card and does not
indicate how the shareholder wishes to vote, the proxy will be
voted FOR the proposal to approve the GEO
share issuance, the proposal to amend the 2006 Plan, and the
proposal to approve an adjournment to the special meeting, if
necessary. |
|
Q. |
|
May a GEO shareholder change his/her vote after submitting a
proxy? |
|
A. |
|
Yes. A GEO shareholder may change a vote at any time before the
shareholders proxy is voted at the GEO special meeting. A
proxy submitted through the Internet or by telephone may be
revoked by executing a later-dated proxy card, by subsequently
submitting a proxy through the Internet or by telephone, or by
attending the special meeting and voting in person. A
shareholder executing a proxy card also may revoke the proxy at
any time before it is voted by giving written notice revoking
the proxy to GEOs secretary, by subsequently filing
another proxy card bearing a later date or by attending the
special meeting and voting in person. Attending the special
meeting will not automatically revoke a shareholders prior
submission of a proxy (by Internet, telephone or in writing).
All written notices of revocation or other communications with
respect to revocation of proxies should be addressed to: |
The GEO
Group, Inc.
One Park Place, Suite 700
621 NW 53rd Street
Boca Raton, Florida 33487
Attention: Corporate Secretary
|
|
|
|
|
If your shares are held in the name of a broker or nominee, you
may change your vote by submitting new voting instructions to
your broker or nominee. If you need assistance in changing or
revoking your proxy, please contact
[ ],
toll-free at
[ ]. |
|
Q. |
|
If I am a GEO shareholder, who can help answer my
questions? |
|
A. |
|
If you have any questions about the merger or the special
meeting, or if you need additional copies of this joint proxy
statement/prospectus or the enclosed proxy card, you should
contact GEOs proxy solicitor, at the following address or
phone number: |
[Proxy
Solicitor]
[Name]
|
|
|
Q: |
|
If my shares are held in street name by my
broker, will my broker vote my shares for me? |
|
A: |
|
No. Your broker is not permitted to decide how your shares
should be voted. Your broker will only vote your shares on a
proposal if you provide your broker with voting instructions on
that proposal. You should instruct your broker to vote your
shares by following the directions that your broker provides
you. Please review the |
viii
|
|
|
|
|
voting information form used by your broker to see if you can
submit your voting instructions by telephone or Internet. |
|
|
|
|
|
A broker non-vote occurs when a beneficial owner fails to
provide voting instructions to his or her broker as to how to
vote the shares held by the broker in street name and the broker
does not have discretionary authority to vote without
instructions. See The GEO Special Meeting beginning
on page 88 and The Cornell Special Meeting
beginning on page 92. |
|
|
|
Q: |
|
What if I fail to instruct my broker with respect to those
items that are necessary to consummate the merger? |
|
A: |
|
If you are a GEO shareholder, under the NYSE rules, a broker
non-vote will not be considered a vote cast on the GEO share
issuance. Additionally, a broker non-vote will not be considered
a vote cast on the amendments to the 2006 Plan. Because the
proposals at the GEO special meeting are not considered
routine under NYSE rules, brokers are not entitled
to vote on such proposals without receiving voting instructions
from a beneficial owner. Broker non-votes will not be counted
towards a quorum at the GEO special meeting. |
|
|
|
If you are a Cornell stockholder, a broker non-vote will have
the same effect as a vote AGAINST the
proposal to adopt the merger agreement. Because the proposals at
the Cornell special meeting are not considered
routine under NYSE rules, brokers are not entitled
to vote on such proposals without receiving voting instructions
from a beneficial owner. As a result, broker non-votes will not
be counted towards a quorum at the Cornell special meeting. |
|
Q: |
|
Should Cornell stockholders send in their stock certificates
now? |
|
A: |
|
If a Cornell stockholder is a record holder and the holder
wishes to make an election, the holder must send the stock
certificates representing the shares of Cornell common stock
with respect to which the holder is making an election with the
holders completed election form and letter of transmittal.
Please do not send your election form and stock certificates
with your proxy card for the special meeting. Your election form
and stock certificates are to be submitted separately from your
proxy card. If a Cornell stockholder does not make an election
with respect to all of the holders shares, the holder will
receive a letter of transmittal from the exchange agent promptly
after the completion of the merger with instructions for sending
in the holders stock certificates. If a Cornell
stockholder owns shares of Cornell common stock in street
name through a broker or other financial institution and
the holder wishes to make an election, the holder will receive
or should seek instructions from the institution holding its
shares concerning how to make an election. |
|
Q: |
|
What if I hold Cornell employee stock options or restricted
stock awards? |
|
|
|
A: |
|
In the merger, all outstanding Cornell employee stock options
will vest. All Cornell stock options which are outstanding and
unexercised immediately following the effective time of the
merger and do not, by their terms, terminate on the effective
date will be assumed by GEO, and these options will entitle the
holder to receive GEO common stock as adjusted to account for
the stock consideration exchange ratio of 1.3 shares of GEO
common stock, referred to herein as the exchange ratio. Cornell
will make reasonable best efforts to ensure that, immediately
prior to the effective time, the following occurs: (i) each
outstanding option or right to acquire Cornell common stock
under Cornells employee stock purchase plan will
automatically be exercised or deemed exercised, and (ii) in
lieu of the shares of Cornell common stock otherwise issuable
upon the exercise of each such option or right, the holder of
such option or right will have the right to elect to receive
from GEO, following the effective time, either the stock
consideration or the cash consideration, subject to the same
prorations and adjustments set forth in The
Merger Merger Consideration beginning on
page 72, except to the extent that the holder of such
option or right elects not to exercise the holders options
and to withdraw the entire balance of holders Cornell
employee stock purchase plan account prior to the effective
time. All restricted stock awards will vest and be automatically
converted into shares of GEO common stock, as adjusted to
account for the exchange ratio. See The Merger
Agreement Cornell Options and Other Equity-based
Awards beginning on page 74. |
ix
|
|
|
Q. |
|
Will I be able to sell the shares of GEO common stock that I
receive in the merger? |
|
A. |
|
You may freely trade the shares of GEO common stock issued in
the merger, unless you are deemed an affiliate of GEO. GEO
shares are quoted on the NYSE under the symbol GEO.
Persons who are considered affiliates (generally
directors, officers and 10% or greater shareholders) of GEO may
resell shares of GEO common stock received in the merger only if
the shares are registered for resale under the Securities Act or
an exemption is available. We will notify you if we believe you
are deemed an affiliate of GEO as a result of the merger. |
|
Q: |
|
Do I have appraisal rights? |
|
A: |
|
No. Neither Cornell stockholders nor GEO shareholders have
appraisal rights in connection with the merger. |
|
Q: |
|
What are the material U.S. federal income tax consequences of
the merger? |
|
|
|
A: |
|
GEO and Cornell intend for the merger to qualify as a
reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended, referred to herein as
the Code, for U.S. federal income tax purposes. Accordingly,
holders of Cornell common stock will generally not recognize any
gain or loss for U.S. federal income tax purposes upon the
exchange of their shares of Cornell common stock for GEO common
stock in the merger, except that gain or loss will be recognized
on the receipt of cash in lieu of fractional shares and gain
(but not loss) will be recognized to the extent of other cash
received. Cornell stockholders are urged to review the section
of this joint proxy statement/prospectus entitled
Material Federal Income Tax Consequences of the
Merger beginning on page 64 for more information and
to consult their tax advisors as to the U.S. federal income tax
consequences of the merger, as well as the effect of state,
local, foreign and other tax laws and of any proposed changes to
applicable tax laws. |
|
|
|
Q: |
|
Are there risks involved in undertaking the merger? |
|
|
|
A: |
|
Yes. In evaluating the merger, GEO shareholders and Cornell
stockholders should carefully consider the factors discussed in
Risk Factors beginning on page 22 and other
information about GEO and Cornell included in the documents
incorporated by reference into this joint proxy
statement/prospectus. |
|
|
|
Q. |
|
Where can I find more information about the companies? |
|
|
|
A. |
|
You can find more information about GEO and Cornell from the
various sources described under the section of this document
titled Where You Can Find More Information beginning
on page 126. |
x
SUMMARY
This summary highlights information contained elsewhere in
this joint proxy statement/prospectus. It does not contain all
of the information that may be important to you. You are urged
to read carefully this entire joint proxy statement/prospectus,
including the attached annexes, and the other documents to which
this joint proxy statement/prospectus refers you in order for
you to understand fully the proposed merger. See Where You
Can Find More Information beginning on page 126. Each
item in this summary refers to the page of this joint proxy
statement/prospectus on which that subject is discussed in more
detail.
The
Companies
The GEO Group Inc. (see page 70)
One Park Place, Suite 700
621 NW
53rd
Street
Boca Raton, Florida 33487
(561) 893-0101
www.geogroup.com (The information contained on GEOs
website shall not be deemed part of this joint proxy
statement/prospectus.)
GEO is a leading provider of government-outsourced services
specializing in the management of correctional, detention and
mental health and residential treatment facilities in the United
States, Canada, Australia, South Africa and the United Kingdom.
As of April 4, 2010, GEO managed 56 facilities totaling
approximately 52,700 beds worldwide. GEO has an additional 4,325
beds under development at three facilities, including an
expansion and renovation of one vacant facility which GEO
currently owns, the expansion of one facility GEO currently owns
and operates and a new 2,000-bed facility which GEO will manage
upon completion. GEO owns three idle facilities totaling 954
beds and two facilities totaling 1,560 beds that are leased to
Cornell and other private operators. GEO maintained an average
companywide facility occupancy rate of 94.4% for the thirteen
weeks ended April 4, 2010, excluding facilities that are
either idle or under development.
Cornell Companies, Inc. (see page 70)
1700 West Loop South, Suite 1500
Houston, Texas 77027
(713) 623-0790
www.cornellcompanies.com (The information contained on
Cornells website shall not be deemed part of this joint
proxy statement/prospectus.)
Cornell is a leading provider of correctional, detention,
educational, rehabilitation and treatment services outsourced by
federal, state, county and local government agencies for adults
and juveniles.
As of March 31, 2010, Cornell operated 63 facilities among
Cornells three operating divisions, representing a total
operating service capacity of 20,531 beds. Cornell also had
five facilities that were vacant, representing additional
service capacity of 861 beds. Service capacity is comprised of
the number of beds currently available for service in
residential facilities and on either the contractual terms or an
estimate of the number of clients to be served for
non-residential community-based programs. Cornells
facilities are located in 15 states and the District of
Columbia.
The
Merger
The Agreement and Plan of Merger, dated as of April 18,
2010, among The GEO Group, Inc., GEO Acquisition III, Inc.
and Cornell Companies, Inc., which is referred to as the merger
agreement, is included as Annex A to this joint proxy
statement/prospectus. GEO and Cornell encourage you to carefully
read the merger agreement in its entirety because it is the
principal legal agreement that governs the merger.
1
Structure
of the Merger (see page 72)
Subject to the terms and conditions of the merger agreement and
in accordance with Delaware law, GEO Acquisition III, Inc., a
wholly owned subsidiary of GEO that was formed for the sole
purpose of the merger, will be merged with and into Cornell,
with Cornell surviving the merger and becoming a wholly owned
subsidiary of GEO. Immediately following the merger, GEO will
continue to be named The GEO Group, Inc. and will be
the parent company of Cornell. Accordingly, after the effective
time of the merger, shares of Cornell common stock will no
longer be publicly traded.
Merger
Consideration (see page 72)
Cornell Stockholders. For each share of
Cornell common stock, Cornell stockholders may elect to receive
either (i) 1.3 shares of GEO common stock or
(ii) an amount of cash equal to the greater of (x) the
fair market value (as defined below) of one share of GEO common
stock plus $6.00 or (y) the fair market value of
1.3 shares of GEO common stock. Cornell stockholders
desiring to receive a combination of GEO common stock and cash
may do so by making a stock election with respect to a portion
of their shares and a cash election with respect to their
remaining shares. If a Cornell stockholder fails to make an
election, the holder will receive the stock consideration.
Fair market value of GEO common stock for the
purpose of determining the cash consideration means the average
of the daily closing prices per share of GEO common stock for
the ten consecutive trading days on which shares of GEO common
stock are actually traded (as reported on the New York Stock
Exchange, or NYSE) ending on the last trading day immediately
preceding the tenth business day preceding the closing date.
No more than 20% of the shares of Cornell common stock are
permitted to be exchanged for the cash consideration. If cash
elections are made with respect to more than 20% of the shares
of Cornell common stock outstanding immediately before the
effective time, the excess over 20% shall be exchanged for
shares of GEO common stock, such that only 20% of the shares of
Cornell common stock outstanding immediately before the
effective time are exchanged for the cash consideration. In such
event, a pro rata portion (rounded up to the nearest whole
share) of each holders shares of Cornell common stock with
respect to which an election was made to elect cash
consideration shall instead be converted to GEO common stock.
If the Cornell stockholders election would otherwise
result in more than $100.0 million of cash in the aggregate
being paid to holders electing cash consideration, GEO may
elect, in its sole discretion, to reduce the amount of cash paid
to each holder electing cash consideration pro rata based on the
number of shares held so that the total cash paid with respect
to all Cornell stockholders electing cash consideration is
$100.0 million. If the cash consideration otherwise payable
to any holder is reduced under this mechanism, such holder shall
be entitled to receive GEO common stock equal to the amount of
the reduction. GEO intends to pay such excess amount in cash.
An election form and letter of transmittal have been enclosed
with this joint proxy statement/prospectus pursuant to which
Cornell stockholders may elect whether they would prefer to
receive GEO common stock or cash in exchange for their Cornell
shares. If you were a record holder of Cornell common stock on
[ ],
2010, the record date, you should carefully review and follow
the instructions included in the election form and the letter of
transmittal. To make an election, record holders must properly
complete and sign the election form and letter of transmittal
and send those documents and the certificates for their shares
(or a properly completed notice of guaranteed delivery) to the
exchange agent at the address listed in the election form and
letter of transmittal by the election deadline, which is
5:00 p.m. New York time, on
[ ],
2010. If the merger agreement is terminated, all election forms
delivered to the exchange agent on or prior to the date of such
termination will be automatically revoked and all share
certificates will be returned. If you own shares of Cornell
common stock in street name through a bank, broker
or other financial institution and you wish to make an election,
you will receive or should seek instructions from the financial
institution holding your shares concerning how to make your
election.
Please do not send your election form and stock certificates
with your proxy card for the special meeting. Your election form
and stock certificates are to be submitted separately from your
proxy card.
All elections are subject to the proration procedures described
above. If you do not make a valid election, your shares will be
considered non-election shares, and when the merger is completed
you will be entitled to receive the stock consideration for
non-election shares as described above.
2
GEO Shareholders. GEO shareholders will
continue to own their existing shares of GEO common stock after
the merger. Each share of GEO common stock will represent one
share of common stock in the combined company.
Comparative
Per Share Market Price and Share Information (see
page 18)
GEO common stock is listed on the NYSE under the symbol
GEO. Cornell common stock is listed on the NYSE
under the symbol CRN. The following table sets forth
the closing sale prices of GEO common stock as reported on the
NYSE and the closing sale prices of Cornell common stock as
reported on the NYSE, each on April 16, 2010, the last
trading day before the day on which GEO and Cornell announced
the execution of the merger agreement, and on
[ ],
2010, the last practicable trading day prior to the printing of
this joint proxy statement/prospectus. This table also shows the
implied value of a Cornell common share, which was calculated by
multiplying the closing price of GEO common stock on those dates
by 1.3, which is the total GEO stock consideration in the merger
per share of Cornell common stock (assuming that the merger
consideration received consists exclusively of GEO common stock).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied
|
|
|
|
|
|
|
Value
|
|
|
GEO
|
|
Cornell
|
|
Cornell
|
|
|
Common
|
|
Common
|
|
Common
|
|
|
Stock
|
|
Stock
|
|
Stock
|
|
April 16, 2010
|
|
$
|
19.16
|
|
|
$
|
18.47
|
|
|
$
|
24.91
|
|
[ ],
2010
|
|
$
|
[ ]
|
|
|
$
|
[ ]
|
|
|
$
|
[ ]
|
|
The market prices of both GEO common stock and Cornell common
stock will fluctuate before the special meetings and before the
merger is completed. Therefore, you should obtain current market
quotations for GEO common stock and Cornell common stock.
Comparison
of Stockholder Rights
GEO is a Florida corporation and Cornell is a Delaware
corporation. The GEO Amended and Restated Articles of
Incorporation, as amended, and the Amended and Restated Bylaws
contain provisions that are different from the Cornell Restated
Certificate of Incorporation, as amended, and the Third Amended
and Restated Bylaws. Upon completion of the merger, Cornell
stockholders that receive GEO common stock in the merger will
become shareholders of GEO, and their rights will be governed by
the Florida Business Corporation Act, GEOs Amended and
Restated Articles of Incorporation, as amended, and GEOs
Amended and Restated Bylaws. No change to GEOs articles of
incorporation or bylaws will be made as a result of the
completion of the merger. For a discussion of certain
differences among the rights of GEO shareholders and Cornell
stockholders, see Comparison of Stockholder Rights
beginning on page 99.
Recommendations
to GEO Shareholders and Cornell Stockholders
Recommendations to GEO Shareholders. The GEO
board of directors has determined that the GEO share issuance in
connection with the merger and the amendments to the 2006 Plan
are advisable and in the best interests of GEO and its
shareholders. The GEO board of directors recommends that GEO
shareholders vote:
|
|
|
|
|
FOR the GEO share issuance in connection with
the merger;
|
|
|
|
FOR the amendments to the 2006 Plan; and
|
|
|
|
FOR the adjournment of the special meeting,
if necessary, to solicit additional proxies in favor of the
foregoing proposals.
|
For additional information see The GEO Special
Meeting Board Recommendations beginning on
page 89.
3
Recommendations to Cornell Stockholders. The
Cornell board of directors has determined that the merger
agreement and the merger contemplated thereby are advisable and
in the best interests of Cornell and its stockholders. The
Cornell board of directors recommends that Cornell stockholders
vote:
|
|
|
|
|
FOR the adoption of the merger
agreement; and
|
|
|
|
FOR the adjournment of the special meeting,
if necessary, to solicit additional proxies in favor of the
foregoing proposal.
|
For additional information see The Cornell Special
Meeting Board Recommendations beginning on
page 92.
In making its respective recommendation, each board considered
those matters set forth under the headings The
Merger GEO Reasons for the Merger and the
Recommendation of GEOs Board of Directors Relating to the
Merger and The Merger Cornell Reasons
for the Merger and the Recommendation of the Cornell Board of
Directors beginning on pages 36 and 50, respectively.
Opinions
of Financial Advisors (see pages 38 and 53)
GEO. In connection with the proposed merger,
GEOs board of directors received separate written
opinions, dated April 18, 2010, of GEOs financial
advisors, Barclays Capital Inc., referred to as Barclays
Capital, and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, referred to as BofA Merrill Lynch, as to the
fairness, from a financial point of view and as of the date of
such opinions, to GEO of the consideration to be paid by GEO in
the merger. The full texts of the written opinions are attached
as Annexes C and D, respectively, to this joint proxy
statement/prospectus and are incorporated herein by reference.
The written opinions set forth, among other things, the
assumptions made, procedures followed, factors considered and
limitations on the review undertaken by GEOs financial
advisors in rendering their respective opinions. The opinions
are addressed to GEOs board of directors for its use in
connection with its evaluation of the merger consideration and
relate only to the fairness, from a financial point of view, to
GEO of the consideration to be paid by GEO in the merger. The
opinions do not in any manner address GEOs underlying
business decision to proceed with or effect the merger or any
other matter and are not intended to and do not constitute a
recommendation to any shareholder as to how such shareholder
should vote or act with respect to the merger or any related
matter.
Cornell. In connection with the merger, the
Cornell board of directors received an oral opinion,
subsequently confirmed by delivery of a written opinion dated
April 18, 2010, from Cornells financial advisor,
Moelis & Company LLC, which is referred to as Moelis
& Company, as to the fairness, from a financial point of
view and as of the date of such opinion, to the Cornell
stockholders of the per share consideration to be received by
the Cornell stockholders pursuant to the merger agreement. The
full text of Moelis & Companys written opinion is
attached to this joint proxy statement/prospectus as Annex E.
Cornell stockholders are encouraged to read Moelis &
Companys opinion carefully in its entirety for a
description of the assumptions made, procedures followed,
matters considered, qualifications and limitations on the review
undertaken by Moelis & Company. Moelis &
Companys opinion was provided for the benefit of the
Cornell board of directors in connection with, and for the
purpose of, its evaluation of the per share consideration to be
received by Cornell from a financial point of view and does not
address any other aspect of the merger. The opinion does not
address the relative merits of the merger as compared to other
business strategies or transactions that might be available with
respect to Cornell or Cornells underlying business
decision to effect the merger. The opinion does not constitute a
recommendation to any stockholder as to how to vote or act with
respect to the merger.
Cornell
Options and Other Equity-Based Awards (see
page 74)
At the effective time of the merger, each outstanding option
issued by Cornell to purchase shares of Cornell common stock
granted under any stock option or other equity incentive plan,
which is outstanding and unexercised immediately following the
effective time and which does not, by its terms, terminate on
the effective time, whether vested or unvested, which is
referred to as a Cornell option, will be assumed by GEO, and
these options will entitle the holder to receive GEO common
stock as adjusted to account for the exchange ratio, rounded
down to the nearest whole number of shares of GEO common stock,
on the same terms and conditions as were applicable before the
merger (but taking into account any acceleration of Cornell
options in connection with the merger). In addition, at the
effective time of the merger, each Cornell option that has been
assumed by GEO will have an exercise price per
4
share equal to the quotient determined by dividing the exercise
price per share of Cornell common stock at which such Cornell
Option was exercisable immediately prior to the effective time
by the exchange ratio rounded up to the nearest whole cent.
At the effective time of the merger, each outstanding share of
Cornell restricted stock will vest and be automatically
converted into GEO common stock as adjusted to account for the
exchange ratio. For more information regarding Cornell
equity-based awards, please see The Merger
Agreement Cornell Options and Other Equity-Based
Awards beginning on page 74.
Cornell will use reasonable best efforts to ensure that,
immediately prior to the effective time, the following occurs:
(i) each outstanding option or right to acquire Cornell
common stock under Cornells employee stock purchase plan
will automatically be exercised or deemed exercised, and
(ii) in lieu of the shares of Cornell common stock
otherwise issuable upon the exercise of each such option or
right, the holder of such option or right will have the right to
elect to receive from GEO, following the effective time, either
the stock consideration or the cash consideration, subject to
the same prorations and adjustments set forth in The
Merger Merger Consideration above, except to
the extent that the holder of such option or right elects not to
exercise the holders options and to withdraw the entire
balance of holders Cornell employee stock purchase plan
account prior to the effective time.
Interests
of GEO and Cornell Executive Officers and Directors in the
Merger (see pages 50 and 59)
When you consider the GEO and Cornell board of directors
respective recommendations that GEO shareholders and Cornell
stockholders vote in favor of the proposals described in this
joint proxy statement/prospectus, you should be aware that
(1) some GEO executive officers and directors may have
interests that may be different from, or in addition to, GEO
shareholders interests, and (2) some Cornell
executive officers and directors may have interests that may be
different from, or in addition to, Cornell stockholders
interests, including their receipt of change in control benefits
under existing Cornell employment arrangements, accelerated
vesting of Cornell equity-based awards and participation in
various benefits plans. The following is a brief summary of the
additional interests of executive officers and directors of GEO
and Cornell.
GEO. There are no change in control,
compensatory, severance payments or benefits that the executive
officers, directors, key employees or affiliates of GEO have
received or will receive as a result of this transaction, other
than potential future awards under GEOs 2006 Stock
Incentive Plan, as amended by the proposed amendments, to GEO
directors, employees and consultants who will be involved in the
completion of the merger, the integration of Cornells
operations, as well as the operations of the larger combined
company going forward. The awards, benefits or amounts that will
be received or allocated to eligible participants under the 2006
Plan, as amended by the proposed amendment, have not been
determined.
5
Cornell.
Stock Options. The stock options and restricted stock
held by directors and executive officers of Cornell will be
treated the same as all other stock options and restricted stock
under the terms of the merger agreement. The following table
sets forth, as of August 1, 2010, the number of unvested
options and unvested shares of restricted stock held by
directors and executive officers of Cornell that will become
fully vested in advance of, or upon, the consummation of the
merger:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of Currently
|
|
|
|
Currently Unvested
|
|
|
Unvested Shares of
|
|
|
|
Options to Fully
|
|
|
Restricted Stock to Fully
|
|
|
|
Vest Upon
|
|
|
Vest Upon Completion of
|
|
Name
|
|
Completion of Merger
|
|
|
Merger
|
|
|
Max Batzer
|
|
|
[1,250]
|
|
|
|
[]
|
|
Anthony R. Chase
|
|
|
[1,250]
|
|
|
|
[]
|
|
Richard Crane
|
|
|
[1,250]
|
|
|
|
[]
|
|
Zachary R. George
|
|
|
[1,250]
|
|
|
|
[]
|
|
Todd Goodwin
|
|
|
[1,250]
|
|
|
|
[]
|
|
James E. Hyman
|
|
|
[]
|
|
|
|
[124,167]
|
|
Andrew R. Jones
|
|
|
[1,250]
|
|
|
|
[]
|
|
Alfred J. Moran, Jr.
|
|
|
[1,250]
|
|
|
|
[]
|
|
John R. Nieser
|
|
|
[]
|
|
|
|
[60,167]
|
|
Patrick N. Perrin
|
|
|
[]
|
|
|
|
[31,584]
|
|
Cathryn L. Porter
|
|
|
[]
|
|
|
|
[37,375]
|
|
D. Stephen Slack
|
|
|
[1,250]
|
|
|
|
[]
|
|
Executive Officers and Directors as a Group (12 Persons)
|
|
|
[10,000]
|
|
|
|
[253,293]
|
|
Employee Stock Purchase Plan. Each outstanding option
or right to acquire Cornell common stock under the terms of
Cornells Employee Stock Purchase Plan, which is referred
to as the ESPP, held by executive officers of Cornell will be
treated the same as other options or rights to acquire Cornell
common stock under the ESPP. The following table sets forth the
number of
in-the-money
options to acquire Cornell common stock held by executive
officers under the ESPP as of August 1, 2010, and the
dollar amount payable to each officer, upon the exercise of such
options upon completion of the merger if such holder elects to
receive cash:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Net Merger
|
|
Name
|
|
Options
|
|
|
Consideration(1)(2)
|
|
|
James E. Hyman
|
|
|
771
|
|
|
$
|
5,190
|
|
John R. Nieser
|
|
|
95
|
|
|
|
639
|
|
Patrick N. Perrin
|
|
|
379
|
|
|
|
2,551
|
|
Cathryn L. Porter
|
|
|
356
|
|
|
|
2,396
|
|
|
|
|
|
|
|
|
|
|
Executive Officers as a Group (4 Persons)
|
|
|
1,601
|
|
|
$
|
10,776
|
|
|
|
|
(1) |
|
Based upon each holder electing to receive the equivalent of
1.3 shares of GEO common stock in cash, which, based upon
the closing price per share of GEO common stock on as reported
on the NYSE on June 4, 2010, is equal to $26.351 per share. |
|
|
|
(2) |
|
The net merger consideration is $6.731 per share, which is based
upon the difference between the ESPP option price of $19.62 per
share of Cornell common stock and $26.351. |
Nonqualified Deferred Compensation Plan. Cornell
maintains a nonqualified deferred compensation plan, which is
referred to as the NQDC Plan, into which directors and executive
officers may choose to defer amounts of compensation. All
amounts credited to the NQDC Plan are fully vested at all times
and are fully accrued (i.e., no additional contributions will be
made to the NQDC Plan because of the merger). However, amounts
credited to the NQDC Plan will become payable to the plan
participants earlier than when such payment would ordinarily
have been made absent the merger to NQDC Plan participants and
could be viewed as an interest in addition to that held
6
by stockholders generally. The following table sets forth the
dollar amount of compensation accrued by each participating
director and executive officer under the NQDC Plan as of
June 4, 2010:
|
|
|
|
|
|
|
Amount Accrued
|
|
|
|
Under the
|
|
|
|
Nonqualified
|
|
|
|
Deferred
|
|
Name
|
|
Compensation Plan(1)
|
|
|
Zachary R. George
|
|
$
|
311,189
|
|
Todd Goodwin
|
|
|
311,683
|
|
|
|
|
|
|
Total
|
|
$
|
622,872
|
|
|
|
|
(1) |
|
Based on the June 4, 2010 Cornell stock price of $26.03 per
share. |
Employment and Change in Control Agreements. Upon
consummation of the merger, GEO shall honor the existing amended
and restated employment agreement between Cornell and James E.
Hyman, the employment/separation agreement between Cornell and
John Nieser, the executive management employment agreement
between Cornell and Cathryn L. Porter and the severance
agreement between Cornell and Patrick N. Perrin. The merger
would constitute a change of control for purposes of these
agreements.
Assuming that the merger occurred on August 1, 2010 and
each of the above executive officers were terminated immediately
following the completion of the merger in accordance with their
respective agreement, the following table sets forth the dollar
amount of cash and benefits such executive officer would be
entitled to receive:
|
|
|
|
|
|
|
Amount of Cash and Benefits
|
|
Name
|
|
Payable Upon Termination
|
|
|
James E. Hyman (1)
|
|
$
|
2,445,980
|
|
John R. Nieser (1)
|
|
|
620,979
|
|
Patrick N. Perrin
|
|
|
390,664
|
|
Cathryn L. Porter
|
|
|
428,297
|
|
|
|
|
|
|
Total
|
|
$
|
3,885,920
|
|
|
|
|
(1) |
|
Each of Messrs. Hyman and Nieser would also be entitled to
receive gross up payments if the excise tax under
Section 4999 applies. |
Stock
Ownership of GEO and Cornell Directors and Executive Officers
(see page 89 and 93)
On
[ ],
2010, the GEO record date, directors and executive officers of
GEO and their respective affiliates, as a group, beneficially
owned and were entitled to vote approximately
[ ] shares
of GEO common stock. These shares represent approximately
[ ]% of the shares of GEO common
stock outstanding on the GEO record date.
On ,
2010, the Cornell record date, directors and executive officers
of Cornell and their respective affiliates, as a group,
beneficially owned and were entitled to vote approximately
[ ] shares
of Cornell common stock. These shares represent approximately
[ ]% of the shares of Cornell
common stock outstanding on the Cornell record date.
No
Appraisal Rights (see page 64)
Neither Cornell stockholders nor GEO shareholders have appraisal
rights in connection with the merger.
Material
Federal Income Tax Consequences of the Merger (see
page 64)
GEO and Cornell intend for the merger to qualify as a
reorganization under Section 368(a) of the Code for
U.S. federal income tax purposes. It is a condition to the
closing of the merger that GEO will have received a written
opinion from Akerman Senterfitt and Cornell will have received a
written opinion from Hogan Lovells US LLP, hereafter referred to
as Hogan Lovells, both as of the closing date of the merger and
to the effect that for U.S. federal income tax purposes, the
merger will constitute a reorganization within the meaning of
Section 368(a) of the Code. If such opinions are not delivered,
and if the parties seek to proceed with the transaction
notwithstanding that fact, then we will recirculate this joint
merger proxy/prospectus with appropriate revisions and resolicit
the vote of the GEO and Cornell stockholders.
7
Receipt by a holder of Cornell common stock of GEO common stock
pursuant to the merger will not cause gain or loss to be
recognized for U.S. federal income tax purposes, except
that (i) gain or loss will be recognized on the receipt of
cash in lieu of a fractional share of GEO common stock,
(ii) gain (but not loss) will be recognized to the extent
of other cash received in exchange for shares of Cornell common
stock in the case of a holder of Cornell common stock who
receives a combination of cash and GEO common stock and
(iii) gain or loss will be recognized in the case of a
holder of Cornell common stock who receives solely cash in
exchange for such stock.
The U.S. federal income tax consequences described
above may not apply to some holders of Cornell common stock,
including some types of holders specifically referred to on
page 64. Accordingly, please consult your tax advisor for a
full understanding of the particular tax consequences of the
merger to you.
Accounting
Treatment (see page 64)
The merger will be accounted for as an acquisition by GEO of
Cornell under the acquisition method of accounting according to
accounting principles generally accepted in the United States,
referred to herein as GAAP.
Regulatory
Matters (see page 69)
The merger is subject to review by federal and state antitrust
authorities pursuant to applicable federal and state antitrust
laws. Under the provisions of the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, referred to
herein as the HSR Act, and the rules and regulations thereunder,
the merger cannot be completed until the companies have made the
required notifications and the occurrence of the first of the
following: (1) the early termination of the waiting period;
(2) the expiration of the required waiting period; or
(3) the resolution of any applicable federal or state
litigation. The required notification and report forms were
filed by each of GEO and Cornell on April 30, 2010 with the
United States Department of Justice, Antitrust Division and the
Federal Trade Commission. The waiting period under the HSR Act
expired as of 11:59 pm on June 1, 2010.
Financing
(see page 69)
Completion of the merger is not conditioned on receipt of any
financing. However, in connection with the merger, GEO may
choose to refinance Cornells existing senior secured
credit facility, and Cornells existing 10.75% senior
notes due 2012 and pay the cash component of the merger
consideration, by utilizing a combination of existing cash and
one or more draws upon GEOs existing senior credit
facility with BNP Paribas, as amended. BNP Paribas has committed
$150.0 million to GEO in order to effect such an increase,
which commitment will expire if the merger is not closed on or
prior to April 18, 2011. In the alternative, GEO may choose
to pursue alternate financing sources, including debt financing
or accessing the capital markets. For more information regarding
the financing in connection with the merger, see
Financing.
Voting
Agreement (see page 86)
Certain significant stockholders of Cornell have entered into a
voting agreement with GEO requiring them, among other things, to
vote their shares of Cornell common stock in favor of the
adoption and approval of the terms of the merger agreement, the
merger and the other transactions contemplated by the merger
agreement and any actions required in furtherance thereof and
vote against any alternative proposal, action, transaction or
agreement that would result in a breach of any covenant,
representation, warranty or other obligation or agreement of
Cornell set forth in the merger agreement or of a Cornell
stockholder set forth in the voting agreement. The Cornell
stockholders party to the voting agreement beneficially owned
18.4% of Cornells outstanding common stock as of
April 15, 2010. The voting agreement is attached as Annex B
to this joint proxy statement/prospectus.
Listing
of GEO Stock (see page 75)
GEO has agreed to use its reasonable best efforts to cause the
shares of GEO common stock that are to be issued pursuant to the
merger and the shares of GEO common stock that are required to
be reserved for issuance upon exercise or settlement of Cornell
options and other equity-based awards to be approved for listing
on the NYSE. It is also a condition to the merger that the
shares of GEO common stock issuable in connection with the
merger be approved for listing on the NYSE on or prior to the
effective time of the merger.
8
Conditions
to Completion of the Merger (see page 83)
Each partys obligations to effect the merger is subject to
the satisfaction or waiver of mutual conditions, including the
following:
|
|
|
|
|
receipt of the GEO shareholder approval in accordance with
Florida law and Cornell stockholder approval in accordance with
Delaware law;
|
|
|
|
the absence of any law, injunction, judgment or ruling
prohibiting consummation of the merger or making the
consummation of the merger illegal;
|
|
|
|
the effectiveness of, and the absence of any stop order with
respect to, the registration statement on
Form S-4
of which this joint proxy statement/prospectus forms a part;
|
|
|
|
the approval for listing on the NYSE, subject to official notice
of issuance, of the shares of GEO common stock issuable in
connection with the merger;
|
|
|
|
|
|
the representations and warranties of each party to the merger
agreement being true and correct in all material respects, and
true and correct (without giving effect to any qualifications)
except where such failures to be true and correct would not
reasonably be expected to have a material adverse effect in the
case of certain representations and warranties, and each party
to the merger agreement having performed in all material
respects all of its obligations under the merger
agreement; and
|
|
|
|
|
|
the merger agreement will not have been terminated.
|
The obligations of GEO and GEO Acquisition III, Inc. to effect
the merger are subject to the satisfaction or waiver of the
following additional conditions:
|
|
|
|
|
the Cornell employee stock purchase plan must have been
terminated as of the effective time and each option or right to
purchase Cornell common stock thereunder will have been
exercised or deemed to have been exercised and converted into
the right to receive the stock consideration or the cash
consideration;
|
|
|
|
no events, occurrences or developments have occurred since the
Cornell Balance Sheet Date (as defined in the merger agreement)
and are continuing that have had or would reasonably be
expected, to have individually or in the aggregate, a material
adverse effect on Cornell;
|
|
|
|
certain specified third-party consents must have been obtained;
|
|
|
|
each non-employee director of Cornell and, if requested in
writing by GEO, of each subsidiary of Cornell, in each case must
have resigned or been removed in his or her capacity as a
director, effective as of, or prior to, the closing date;
|
|
|
|
GEO must have received the opinion of its own counsel that the
merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the
Code; and
|
|
|
|
Cornell must not permit its total issued and outstanding shares
of common stock to exceed 16,000,000 shares after giving
effect to all shares of Cornell common stock issued and
outstanding and all shares of Cornell common stock issuable upon
the exercise of any option, warrant, employee stock purchase
right or other right or issuable upon the conversion or exchange
of any security convertible into or exchangeable for shares of
Cornell common stock.
|
Cornells obligation to effect the merger is subject to the
satisfaction or waiver of the following additional conditions:
|
|
|
|
|
no events, occurrences or developments have occurred since the
GEO Balance Sheet Date (as defined in the merger agreement) and
are continuing that have had or would reasonably be expected, to
have individually or in the aggregate, a material adverse effect
on GEO; and
|
|
|
|
Cornell must have received the opinion of its own counsel that
the merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the
Code.
|
9
Termination
of the Merger Agreement (see page 84)
The merger agreement may be terminated at any time before the
effective time of the merger by mutual written consent of GEO,
GEO Acquisition III, Inc. and Cornell.
The merger agreement may also be terminated prior to the
effective time of the merger by either GEO or Cornell if:
|
|
|
|
|
the merger has not been consummated on or before
February 15, 2011;
|
|
|
|
any governmental authority issues an order, decree or ruling,
enacts a law or takes any other action (that is final and
nonappealable) having the effect of making the merger illegal or
otherwise prohibiting the completion of the merger;
|
|
|
|
the GEO shareholders or Cornell stockholders fail to give the
necessary approvals at their special meetings or any
adjournments or postponements thereof; or
|
|
|
|
GEO or Cornell have breached in any material respect any of
their representations or warranties or failed to perform in any
material respect any of their covenants set forth in the merger
agreement, and such breach or failure to perform (i) would
prevent such party from satisfying the closing conditions of the
merger agreement relating to the accuracy of its representations
and warranties or compliance with covenants, and
(ii) cannot be cured or has not been cured within
30 days from the date of notice to such party.
|
The merger agreement may also be terminated prior to the
effective time of the merger by GEO if:
|
|
|
|
|
the Cornell board of directors has changed its recommendation to
the Cornell stockholders that they adopt the merger agreement or
it has approved or entered into any acquisition agreement other
than in compliance with the merger agreement;
|
|
|
|
a burdensome condition has been imposed in connection with the
grant of the antitrust approval relating to the merger which
would prohibit or materially restrict the ownership or operation
of any material business or assets of GEO and its subsidiaries
or Cornell and its subsidiaries or cause GEO and its
subsidiaries or Cornell and its subsidiaries to agree to or to
dispose of or hold separate all or a material portion of the
business and assets of GEO and its subsidiaries or Cornell and
its subsidiaries; or
|
|
|
|
Cornell fails to fulfill the condition regarding the maximum
number of issued and outstanding shares of Cornell common stock,
and such failure either cannot be cured or has not been cured
within 30 days from the date of notice to Cornell.
|
The merger agreement may also be terminated prior to the
effective time of the merger by Cornell if Cornell, in
compliance with the terms of the merger agreement, has entered
into a definitive acquisition agreement to effect a proposal
that the Cornell board of directors determines in good faith to
be more favorable to Cornell stockholders and it pays to GEO a
$12 million termination fee and the GEO-related fees and
expenses (as defined below) within the time frame provided.
Reimbursement
of Fees and Expenses; Termination Fees (see
page 85)
Fees and Expenses Payable by GEO. GEO has
agreed to reimburse Cornell for its reasonable and documented
out-of-pocket
fees and expenses up to $2 million incurred by Cornell and
its affiliates in connection with the merger agreement and the
transactions contemplated thereby, under any of the following
circumstances:
|
|
|
|
|
if the merger agreement is terminated by Cornell or GEO
following the failure by GEO to obtain the GEO shareholder
approval; or
|
|
|
|
if the merger agreement is terminated by Cornell if GEO or GEO
Acquisition III, Inc. have breached in any material respect any
of their representations or warranties or failed to perform in
any material respect any of their covenants set forth in the
merger agreement, and such breach or failure to perform
(i) would prevent GEO or GEO Acquisition III from
satisfying the closing conditions of the merger agreement
relating to the accuracy of the representations and warranties
or performance of its obligations required under the merger
agreement, and (ii) cannot be cured or has not been cured
within 30 days from the date of notice to GEO.
|
10
Fees and Expenses Payable by Cornell. Cornell
has agreed to reimburse GEO up to $2 million of GEOs
and GEO Acquisition IIIs reasonable and documented
out-of-pocket
fees and expenses incurred by GEO, GEO Acquisition III, Inc. and
their respective affiliates in connection with the merger
agreement and the transactions contemplated thereby, referred to
as the GEO-related fees and expenses, under any of the following
circumstances:
|
|
|
|
|
if the merger agreement is terminated by GEO or Cornell
following the failure by Cornell to obtain the Cornell
stockholder approval; or
|
|
|
|
if the merger agreement is terminated by GEO because Cornell has
breached in any material respect any of its representations or
warranties or failed to perform in any material respect any of
its covenants set forth in the merger agreement, and such breach
or failure to perform (i) would prevent Cornell from
satisfying the closing conditions of the merger agreement
relating to the accuracy of the representations and warranties
or performance of its obligations required under the merger
agreement, and (ii) cannot be cured or has not been cured
within 30 days from the date of notice to Cornell.
|
Termination Fee Payable by Cornell. Cornell
has agreed to pay GEO a termination fee of $12 million and
reimburse GEO the GEO-related fees and expenses under any of the
following circumstances:
|
|
|
|
|
if the merger agreement is terminated by GEO pursuant to the
Cornell board of directors having changed its recommendation to
the Cornell stockholders that they adopt the merger agreement or
the Cornell board of directors approving or entering into any
acquisition agreement other than in compliance with the merger
agreement; or
|
|
|
|
if the merger agreement is terminated by Cornell pursuant to
Cornell, in compliance with the terms of the merger agreement,
having entered into a definitive acquisition agreement to effect
a proposal that the Cornell board of directors determines in
good faith to be more favorable to Cornell stockholders and
Cornell simultaneously pays the termination fee and the
GEO-related fees and expenses within the time frame provided.
|
If the merger agreement is terminated pursuant to the reasons
below, and any acquisition proposal that was received by Cornell
or publicly announced prior to such termination of the merger
agreement is consummated no later than the
12-month
anniversary of the date of the termination, then Cornell has
agreed to pay GEO a termination fee of $12 million upon the
consummation of the acquisition proposal:
|
|
|
|
|
if the merger agreement is terminated by GEO or Cornell because
the merger has not been consummated on or before
February 15, 2011;
|
|
|
|
if the merger agreement is terminated by GEO or Cornell because
Cornell stockholders fail to give the necessary approvals at
their special meetings; or
|
|
|
|
if the merger agreement is terminated by GEO because Cornell has
breached in any material respect any of its representations or
warranties or failed to perform in any material respect any of
its covenants or agreements set forth in the merger agreement,
and such breach or failure to perform (i) would prevent
Cornell from satisfying the closing conditions of the merger
agreement relating to the accuracy of the representations and
warranties or performance of its obligations under the merger
agreement, and (ii) cannot be cured or has not been cured
within 30 days from the date of notice to Cornell.
|
Special
Meetings of GEO Shareholders and Cornell Stockholders
The GEO
Special Meeting (see page 88)
Meeting. The GEO special meeting will be held
on
[ ],
2010 at [ ] p.m., Eastern time, at
[ ].
At the GEO special meeting, GEO shareholders will be asked to:
|
|
|
|
|
approve the issuance of shares of GEO common stock in connection
with the merger;
|
|
|
|
approve the amendments to the 2006 Plan; and
|
|
|
|
approve an adjournment of the special meeting, if necessary, to
solicit additional proxies in favor of the foregoing proposals.
|
11
Record Date; Votes. GEO has fixed the close of
business on
[ ],
2010 as the record date, which is referred to as the GEO record
date, for determining the GEO shareholders entitled to receive
notice of and to vote at the GEO special meeting. Only holders
of record of GEO common stock on the GEO record date are
entitled to receive notice of and vote at the GEO special
meeting, and any adjournment or postponement thereof.
Each share of GEO common stock is entitled to one vote on each
matter brought before the meeting. On the GEO record date, there
were
[ ] shares
of GEO common stock issued and outstanding.
Required Vote. The GEO proposals require
different percentages of votes in order to approve them:
|
|
|
|
|
The GEO share issuance requires the affirmative vote of holders
of shares of GEO common stock representing a majority of votes
cast on the proposal, provided that the total number of votes
cast on the proposal must represent a majority of the total
number of shares of GEO common stock issued and outstanding on
the record date for the GEO special meeting;
|
|
|
|
Approval of the amendments to the 2006 Plan requires the
affirmative vote of holders of shares of GEO common stock
representing a majority of votes cast on the proposal, provided
that the total number of votes cast on the proposal must
represent a majority of the total number of shares of GEO common
stock issued and outstanding on the record date for the GEO
special meeting; and
|
|
|
|
Approval of an adjournment of the GEO special meeting, if
necessary, to solicit additional proxies in favor of the GEO
share issuance and the amendments to the 2006 Plan requires the
affirmative vote of holders of shares of GEO common stock
represented and entitled to vote at the special meeting to
exceed the number of votes cast opposing the approval of an
adjournment.
|
Approval of the GEO share issuance by GEO shareholders is a
condition to completion of the merger. Approval of the
amendments to the 2006 Plan by GEO shareholders is not a
condition to approval of the merger agreement and the closing of
the merger.
Failure to Vote; Abstentions. If you are a GEO
shareholder, any of your shares as to which you abstain or which
are not voted will have the same effect as a vote
AGAINST the GEO share issuance, a vote
AGAINST the amendments to the 2006 Plan and a
vote AGAINST approving an adjournment of the
GEO special meeting. For more information regarding the effect
of abstentions, a failure to vote or a broker non-vote, see
The GEO Special Meeting Votes Required to
Approve GEO Proposals on page 89.
The
Cornell Special Meeting (see page 92)
Meeting. The Cornell special meeting will be
held on
[ ],
2010, at [ ] p.m., Central time, at
[ ].
At the Cornell special meeting, Cornell stockholders will be
asked to:
|
|
|
|
|
adopt the merger agreement, pursuant to which Cornell will
become a wholly owned subsidiary of GEO; and
|
|
|
|
approve an adjournment of the Cornell special meeting, if
necessary, to solicit additional proxies in favor of the
foregoing proposal.
|
Record Date; Votes. Cornell has fixed the
close of business on
[ ],
2010 as the record date, which is referred to as the Cornell
record date, for determining the Cornell stockholders entitled
to receive notice of and to vote at the Cornell special meeting.
Only holders of record of Cornell common stock on the Cornell
record date are entitled to receive notice of and vote at the
Cornell special meeting, and any adjournment or postponement
thereof.
Each share of Cornell common stock is entitled to one vote on
each matter brought before the meeting. On the Cornell record
date, there were
[ ] shares
of Cornell common stock issued and outstanding.
Required Vote. The Cornell proposals require
different percentages of votes in order to approve them:
|
|
|
|
|
the adoption of the merger agreement requires the approval of
holders of a majority of the total number of shares of Cornell
common stock issued and outstanding on the record date for the
Cornell special meeting; and
|
12
|
|
|
|
|
the approval of an adjournment of the Cornell special meeting,
if necessary, to solicit additional proxies in favor of the
adoption of the merger agreement, requires the affirmative vote
of holders of shares of Cornell common stock representing a
majority of the total number of shares of Cornell common stock
present, in person or by proxy at the Cornell special meeting,
and entitled to vote on the proposal.
|
Adoption
of the merger agreement by Cornell stockholders is a condition
to the completion of the merger.
Failure to Vote; Abstentions. If you are a
Cornell stockholder, any of your shares as to which you abstain
or which are not voted will have the same effect as a vote
AGAINST the proposal to approve the merger
agreement and a vote AGAINST approving an
adjournment of the Cornell special meeting. For more information
regarding the effect of abstentions, a failure to vote or a
broker non-vote, see The Cornell Special
Meeting Votes Required to Approve Cornell
Proposals beginning on page 93.
13
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA OF GEO
The following tables set forth the selected historical
consolidated financial data for GEO. The selected consolidated
financial data as of and for the thirteen weeks ended
April 4, 2010 and March 29, 2009 and as of and for the
fiscal years ended January 3, 2010, December 28, 2008,
December 30, 2007, December 31, 2006 and
January 1, 2006 have been derived from GEOs
consolidated financial statements. You should not take
historical results as necessarily indicative of the results that
may be expected for any future period.
You should read this selected consolidated financial data in
conjunction with GEOs Quarterly Report on Form 10-Q
for the thirteen weeks ended April 4, 2010 and Annual
Report on
Form 10-K
for the fiscal year ended January 3, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Thirteen Weeks Ended
|
|
|
Fiscal Years Ended
|
|
|
|
April 4, 2010
|
|
|
March 29, 2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006(1)
|
|
|
2005(2)
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
287,542
|
|
|
$
|
259,061
|
|
|
$
|
1,141,090
|
|
|
$
|
1,043,006
|
|
|
$
|
976,299
|
|
|
$
|
818,439
|
|
|
$
|
612,900
|
|
Operating expenses
|
|
|
226,382
|
|
|
|
202,327
|
|
|
|
897,356
|
|
|
|
822,659
|
|
|
|
788,503
|
|
|
|
680,088
|
|
|
|
541,173
|
|
Depreciation and amortization
|
|
|
9,238
|
|
|
|
9,816
|
|
|
|
39,306
|
|
|
|
37,406
|
|
|
|
33,218
|
|
|
|
21,682
|
|
|
|
15,876
|
|
General and administrative expenses
|
|
|
17,448
|
|
|
|
17,236
|
|
|
|
69,240
|
|
|
|
69,151
|
|
|
|
64,492
|
|
|
|
56,268
|
|
|
|
48,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
34,474
|
|
|
|
29,682
|
|
|
|
135,188
|
|
|
|
113,790
|
|
|
|
90,086
|
|
|
|
60,401
|
|
|
|
6,893
|
|
Interest income
|
|
|
1,229
|
|
|
|
1,090
|
|
|
|
4,943
|
|
|
|
7,045
|
|
|
|
8,746
|
|
|
|
10,687
|
|
|
|
9,154
|
|
Interest expense
|
|
|
(7,814
|
)
|
|
|
(7,204
|
)
|
|
|
(28,518
|
)
|
|
|
(30,202
|
)
|
|
|
(36,051
|
)
|
|
|
(28,231
|
)
|
|
|
(23,016
|
)
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
(6,839
|
)
|
|
|
|
|
|
|
(4,794
|
)
|
|
|
(1,295
|
)
|
|
|
(1,360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, equity in earnings of affiliates,
and discontinued operations
|
|
|
27,889
|
|
|
|
23,568
|
|
|
|
104,774
|
|
|
|
90,633
|
|
|
|
57,987
|
|
|
|
41,562
|
|
|
|
(8,329
|
)
|
Provision for income taxes
|
|
|
10,807
|
|
|
|
9,141
|
|
|
|
41,991
|
|
|
|
33,803
|
|
|
|
22,049
|
|
|
|
15,138
|
|
|
|
(12,129
|
)
|
Equity in earnings of affiliates, net of income tax provision
|
|
|
590
|
|
|
|
644
|
|
|
|
3,517
|
|
|
|
4,623
|
|
|
|
2,151
|
|
|
|
1,576
|
|
|
|
2,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
17,672
|
|
|
|
15,071
|
|
|
|
66,300
|
|
|
|
61,453
|
|
|
|
38,089
|
|
|
|
28,000
|
|
|
|
5,879
|
|
Income (loss) from discontinued operations, net of tax provision
(benefit)
|
|
|
|
|
|
|
(366
|
)
|
|
|
(346
|
)
|
|
|
(2,551
|
)
|
|
|
3,756
|
|
|
|
2,031
|
|
|
|
1,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
17,672
|
|
|
$
|
14,705
|
|
|
$
|
65,954
|
|
|
$
|
58,902
|
|
|
$
|
41,845
|
|
|
$
|
30,031
|
|
|
$
|
7,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
50,711
|
|
|
|
50,697
|
|
|
|
50,879
|
|
|
|
50,539
|
|
|
|
47,727
|
|
|
|
34,442
|
|
|
|
28,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
51,640
|
|
|
|
51,723
|
|
|
|
51,922
|
|
|
|
51,830
|
|
|
|
49,192
|
|
|
|
35,744
|
|
|
|
30,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.35
|
|
|
$
|
0.30
|
|
|
$
|
1.30
|
|
|
$
|
1.22
|
|
|
$
|
0.80
|
|
|
$
|
0.81
|
|
|
$
|
0.20
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
(0.05
|
)
|
|
|
0.08
|
|
|
|
0.06
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic
|
|
$
|
0.35
|
|
|
$
|
0.29
|
|
|
$
|
1.30
|
|
|
$
|
1.17
|
|
|
$
|
0.88
|
|
|
$
|
0.87
|
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.34
|
|
|
$
|
0.29
|
|
|
$
|
1.28
|
|
|
$
|
1.19
|
|
|
$
|
0.77
|
|
|
$
|
0.78
|
|
|
$
|
0.19
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.05
|
)
|
|
|
0.08
|
|
|
|
0.06
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted
|
|
$
|
0.34
|
|
|
$
|
0.28
|
|
|
$
|
1.27
|
|
|
$
|
1.14
|
|
|
$
|
0.85
|
|
|
$
|
0.84
|
|
|
$
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
30,276
|
|
|
$
|
60,009
|
|
|
$
|
33,856
|
|
|
$
|
31,655
|
|
|
$
|
44,403
|
|
|
$
|
111,520
|
|
|
$
|
57,094
|
|
Restricted cash
|
|
|
36,606
|
|
|
|
31,707
|
|
|
|
34,068
|
|
|
|
32,697
|
|
|
|
34,107
|
|
|
|
33,651
|
|
|
|
26,366
|
|
Accounts receivable, net
|
|
|
179,848
|
|
|
|
178,273
|
|
|
|
200,756
|
|
|
|
199,665
|
|
|
|
164,773
|
|
|
|
162,867
|
|
|
|
127,612
|
|
Property, plant and equipment, net
|
|
|
1,003,917
|
|
|
|
903,921
|
|
|
|
998,560
|
|
|
|
878,616
|
|
|
|
783,363
|
|
|
|
287,374
|
|
|
|
282,236
|
|
Total assets
|
|
|
1,426,740
|
|
|
|
1,310,037
|
|
|
|
1,447,818
|
|
|
|
1,288,621
|
|
|
|
1,192,634
|
|
|
|
743,453
|
|
|
|
639,511
|
|
Total debt
|
|
|
588,536
|
|
|
|
516,443
|
|
|
|
584,694
|
|
|
|
512,133
|
|
|
|
463,930
|
|
|
|
305,957
|
|
|
|
376,046
|
|
Total shareholders equity
|
|
|
631,588
|
|
|
|
595,759
|
|
|
|
665,098
|
|
|
|
579,597
|
|
|
|
529,347
|
|
|
|
249,907
|
|
|
|
108,594
|
|
|
|
|
(1) |
|
The Selected Historical Consolidated Balance Sheet Data for the
fiscal year ended December 31, 2006 does not include the
impact of certain discontinued operations which occurred in the
fiscal year ended December 28, 2008. The Selected
Historical Consolidated Statement of Operations Data for this
fiscal year includes a |
14
|
|
|
|
|
reclassification for income related to GEOs
non-controlling interest which was reclassified to operating
income for consistent presentation to later years presented. |
(2) |
|
The Selected Historical Consolidated Statement of Operations
Data and Balance Sheet Data for the fiscal year ended
January 1, 2006 does not include the impact of certain
discontinued operations which occurred in the fiscal year ended
December 28, 2008. The Selected Historical Consolidated
Statement of Operations Data for this fiscal year includes a
reclassification for income related to GEOs
non-controlling interest which was reclassified to operating
income for consistent presentation to later years presented. |
15
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA OF CORNELL
The following tables set forth the selected historical
consolidated financial data for Cornell. The selected
consolidated financial data as of and for the three months ended
March 31, 2010 and March 31, 2009 and for the fiscal
years ended December 31, 2009, 2008, 2007, 2006 and 2005
have been derived from Cornells consolidated financial
statements. You should not take historical results as
necessarily indicative of the results that may be expected for
any future period.
You should read this selected consolidated financial data in
conjunction with Cornells Quarterly Report on Form
10-Q for the
three months ended March 31, 2010 and Cornells Annual
Report on
Form 10-K,
as amended, for the fiscal year ended December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
100,006
|
|
|
$
|
99,710
|
|
|
$
|
412,377
|
|
|
$
|
386,724
|
|
|
$
|
360,604
|
|
|
$
|
360,855
|
|
|
$
|
310,775
|
|
Operating expenses, excluding depreciation and amortization
|
|
|
76,683
|
|
|
|
72,891
|
|
|
|
295,645
|
|
|
|
280,630
|
|
|
|
274,110
|
|
|
|
275,395
|
|
|
|
238,305
|
|
Pre-opening and
start-up
expenses
|
|
|
|
|
|
|
|
|
|
|
4,086
|
|
|
|
|
|
|
|
|
|
|
|
2,657
|
|
|
|
9,017
|
|
Depreciation and amortization
|
|
|
4,699
|
|
|
|
4,893
|
|
|
|
18,833
|
|
|
|
17,943
|
|
|
|
15,986
|
|
|
|
16,285
|
|
|
|
15,200
|
|
General and administrative expenses
|
|
|
5,759
|
|
|
|
6,138
|
|
|
|
24,112
|
|
|
|
25,954
|
|
|
|
25,499
|
|
|
|
21,720
|
|
|
|
20,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
12,865
|
|
|
|
15,788
|
|
|
|
69,701
|
|
|
|
62,197
|
|
|
|
45,009
|
|
|
|
44,798
|
|
|
|
27,866
|
|
Interest expense
|
|
|
6,314
|
|
|
|
6,199
|
|
|
|
25,830
|
|
|
|
26,946
|
|
|
|
26,215
|
|
|
|
26,130
|
|
|
|
24,041
|
|
Interest income
|
|
|
(129
|
)
|
|
|
(246
|
)
|
|
|
(657
|
)
|
|
|
(2,988
|
)
|
|
|
(1,951
|
)
|
|
|
(3,060
|
)
|
|
|
(2,318
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before provision for income
taxes
|
|
|
6,680
|
|
|
|
9,835
|
|
|
|
44,528
|
|
|
|
38,239
|
|
|
|
20,745
|
|
|
|
21,728
|
|
|
|
6,143
|
|
Provision for income taxes
|
|
|
2,831
|
|
|
|
4,101
|
|
|
|
17,955
|
|
|
|
15,603
|
|
|
|
8,835
|
|
|
|
9,148
|
|
|
|
2,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
3,849
|
|
|
|
5,734
|
|
|
|
26,573
|
|
|
|
22,636
|
|
|
|
11,910
|
|
|
|
12,580
|
|
|
|
3,928
|
|
Discontinued operations, net of tax benefit of $381 and $1,950
in 2006 and 2005, respectively
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(707
|
)
|
|
|
(3,622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
3,849
|
|
|
|
5,734
|
|
|
|
26,573
|
|
|
|
22,636
|
|
|
|
11,910
|
|
|
|
11,873
|
|
|
|
306
|
|
Non-controlling interest(1)
|
|
|
569
|
|
|
|
477
|
|
|
|
1,947
|
|
|
|
445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to Cornell Companies, Inc.
|
|
$
|
3,280
|
|
|
$
|
5,257
|
|
|
$
|
24,626
|
|
|
$
|
22,191
|
|
|
$
|
11,910
|
|
|
$
|
11,873
|
|
|
$
|
306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to Cornell Companies, Inc.
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
$
|
0.22
|
|
|
$
|
0.36
|
|
|
$
|
1.65
|
|
|
$
|
1.51
|
|
|
$
|
0.82
|
|
|
$
|
0.85
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
$
|
0.22
|
|
|
$
|
0.36
|
|
|
$
|
1.64
|
|
|
$
|
1.49
|
|
|
$
|
0.82
|
|
|
$
|
0.84
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares used in per share computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
14,756
|
|
|
|
14,572
|
|
|
|
14,881
|
|
|
|
14,701
|
|
|
|
14,452
|
|
|
|
14,003
|
|
|
|
13,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
14,882
|
|
|
|
14,629
|
|
|
|
14,986
|
|
|
|
14,847
|
|
|
|
14,611
|
|
|
|
14,072
|
|
|
|
13,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
18,061
|
|
|
$
|
10,271
|
|
|
$
|
27,724
|
|
|
$
|
14,613
|
|
|
$
|
3,028
|
|
|
$
|
18,529
|
|
|
$
|
13,723
|
|
Property and equipment, net
|
|
|
457,274
|
|
|
|
450,620
|
|
|
|
455,523
|
|
|
|
450,354
|
|
|
|
383,952
|
|
|
|
319,064
|
|
|
|
323,861
|
|
Total assets
|
|
|
643,765
|
|
|
|
635,601
|
|
|
|
650,565
|
|
|
|
636,921
|
|
|
|
562,287
|
|
|
|
523,533
|
|
|
|
510,628
|
|
Total debt
|
|
|
300,697
|
|
|
|
321,525
|
|
|
|
303,254
|
|
|
|
320,482
|
|
|
|
286,709
|
|
|
|
265,981
|
|
|
|
276,360
|
|
Stockholders equity
|
|
|
257,665
|
|
|
|
234,593
|
|
|
|
258,738
|
|
|
|
228,167
|
|
|
|
200,449
|
|
|
|
181,564
|
|
|
|
165,461
|
|
|
|
|
(1) |
|
Non-controlling interest in consolidated special purpose
entities represents equity that other investors have contributed
to the special purpose entity Municipal Corrections Finance,
L.P., or MCF. Non-controlling interest is adjusted for income
and losses allocable to the other owners of the special purpose
entity. |
16
SELECTED
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL DATA
The following Selected Unaudited Pro Forma Condensed Combined
Financial Data is based on the historical financial data of GEO
and Cornell, and has been prepared to illustrate the effects of
the merger. The Selected Unaudited Pro Forma Condensed Combined
Financial Data does not give effect to any anticipated
synergies, operating efficiencies or costs savings that may be
associated with the merger. The Selected Unaudited Pro Forma
Condensed Combined Financial Data also does not include any
integration costs the companies may incur related to the merger
as part of combining the operations of the companies. The
Selected Unaudited Pro Forma Condensed Combined Statements of
Income from Continuing Operations Data below is presented as if
the merger were completed on December 29, 2008, the first
day of GEOs fiscal year ended January 3, 2010, and
the Selected Unaudited Pro Forma Condensed Combined Balance
Sheet Data below is presented as if the merger were completed on
April 4, 2010. The unaudited pro forma financial data
included in this joint proxy statement/prospectus is based on
the historical financial statements of GEO and Cornell, and on
publicly available information and certain assumptions that we
believe are reasonable, which are described the notes to the
Unaudited Pro Forma Condensed Combined Financial Statements
included in this joint proxy statement/prospectus. This data
should be read in conjunction with GEOs and Cornells
historical consolidated financial statements and accompanying
notes in GEOs Quarterly Report on Form 10-Q as of and
for the thirteen-weeks ended April 4, 2010 and GEOs
Annual Report on
Form 10-K
as of and for the year ended January 3, 2010 and
Cornells Quarterly Report on Form 10-Q as of and for
the three months ended March 31, 2010 and Cornells
Annual Report on
Form 10-K,
as amended, as of and for the year ended December 31, 2009.
GEO has not performed a detailed valuation analysis necessary to
determine the fair market values of Cornells assets to be
acquired and liabilities to be assumed. Accordingly, the pro
forma financial statements include only a preliminary allocation
of the purchase price, which will be finalized at closing using
a third party financial valuation service. The preliminary
purchase price allocation is primarily based on the carrying
value of Cornells assets, liabilities and noncontrolling
interest. See also the Unaudited Pro Forma Condensed Combined
Financial Statements and notes thereto beginning on
page 107.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Thirteen Weeks
|
|
For the Year Ended
|
|
|
|
|
Ended April 4, 2010
|
|
January 3, 2010
|
|
|
|
|
(In thousands, except per share data)
|
|
|
|
RESULTS OF CONTINUING OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
387,121
|
|
|
$
|
|
|
|
|
1,551,759
|
|
|
|
|
|
Operating income
|
|
|
45,362
|
|
|
|
|
|
|
|
197,545
|
|
|
|
|
|
Income from Continuing Operations Before Estimated Nonrecurring
Charges Related to the Transaction Attributable to the Combined
Company
|
|
|
20,123
|
|
|
|
|
|
|
|
86,528
|
|
|
|
|
|
Income from Continuing Operations Before Estimated Nonrecurring
Charges Related to the Transaction per Common Share Attributable
to the Combined Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
$
|
0.30
|
|
|
$
|
|
|
|
|
1.30
|
|
|
|
|
|
Diluted:
|
|
|
0.30
|
|
|
|
|
|
|
|
1.28
|
|
|
|
|
|
Weighted Average Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
66,431
|
|
|
|
|
|
|
|
66,599
|
|
|
|
|
|
Diluted:
|
|
|
67,360
|
|
|
|
|
|
|
|
67,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
April 4, 2010
|
|
|
(In thousands)
|
|
BALANCE SHEET DATA:
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
|
|
|
|
377,094
|
|
Current liabilities
|
|
|
|
|
|
|
284,060
|
|
Total assets
|
|
|
|
|
|
|
2,258,117
|
|
Total debt
|
|
|
|
|
|
|
972,159
|
|
Total liabilities
|
|
|
|
|
|
|
1,313,275
|
|
Total shareholders equity
|
|
|
|
|
|
|
944,842
|
|
17
COMPARATIVE
HISTORICAL AND PRO FORMA PER SHARE DATA
The following table sets forth selected per share data for GEO
and Cornell separately on a historical basis. It also includes
unaudited pro forma combined per share data for GEO, which
combines the data of GEO and Cornell on a pro forma basis giving
effect to the merger. This data does not give effect to any
anticipated synergies, operating efficiencies or costs savings
that may be associated with the merger. This data also does not
include any integration costs the companies may incur related to
the merger as part of combining the operations of the companies.
This data should be read in conjunction with GEOs and
Cornells historical consolidated financial statements and
accompanying notes in GEOs Annual Report on
Form 10-K
for the year ended January 3, 2010 and Cornells
Annual Report on
Form 10-K,
as amended, for the year ended December 31, 2009. See also
the Unaudited Pro Forma Condensed Combined Financial Statements
and notes thereto beginning on page 107.
|
|
|
|
|
|
|
|
|
|
|
As of and
|
|
|
|
|
for the
|
|
As of and
|
|
|
Thirteen Weeks
|
|
for the Year
|
|
|
Ended April 4,
|
|
Ended January 3,
|
|
|
2010
|
|
2010
|
|
GEO Historical Per Share Data:
|
|
|
|
|
|
|
|
|
Income from continuing operations per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.35
|
|
|
$
|
1.30
|
|
Diluted
|
|
|
0.34
|
|
|
|
1.28
|
|
Cash dividends per share
|
|
|
|
|
|
|
|
|
Book value per diluted share
|
|
|
12.23
|
|
|
|
12.81
|
|
GEO Unaudited Pro Forma Combined Per Share Data:
|
|
|
|
|
|
|
|
|
Income from Continuing Operations Before Estimated Nonrecurring
Charges Related to the Transaction Attributable to the Combined
Company per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.30
|
|
|
$
|
1.30
|
|
Diluted
|
|
|
0.30
|
|
|
|
1.28
|
|
Cash dividends per share
|
|
|
|
|
|
|
|
|
Book value per diluted share
|
|
|
14.03
|
|
|
|
14.49
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and
|
|
|
|
|
for the
|
|
As of and
|
|
|
Three Months
|
|
for the Year
|
|
|
Ended March 31,
|
|
Ended December 31,
|
|
|
2010
|
|
2009
|
|
Cornell Historical Per Share Data:
|
|
|
|
|
|
|
|
|
Income from continuing operations per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.22
|
|
|
$
|
1.65
|
|
Diluted
|
|
|
0.22
|
|
|
|
1.64
|
|
Cash dividends per share
|
|
|
|
|
|
|
|
|
Book value per diluted share
|
|
|
17.31
|
|
|
|
17.27
|
|
18
|
|
|
|
|
|
|
|
|
|
|
As of and
|
|
|
As of and
|
|
|
|
for the
|
|
|
for the
|
|
|
|
Thirteen Weeks
|
|
|
Year Ended
|
|
|
|
Ended April 4,
|
|
|
April 4,
|
|
|
|
2010
|
|
|
2010
|
|
|
Cornell Unaudited Equivalent Pro Forma Combined Per Share
Data:(1)
|
|
|
|
|
|
|
|
|
Income from Continuing Operations Before Estimated Nonrecurring
Charges Related to the Transaction Attributable to the Combined
Company per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.39
|
|
|
$
|
1.69
|
|
Diluted
|
|
|
0.39
|
|
|
|
1.66
|
|
Cash dividends per share
|
|
|
|
|
|
|
|
|
Book value per diluted share
|
|
|
18.24
|
|
|
|
18.84
|
|
|
|
|
(1) |
|
The Cornell equivalent pro forma per share amounts are
calculated by multiplying GEO pro forma per share amounts by the
exchange ratio for the merger of 1.3. |
19
COMPARATIVE
PER SHARE MARKET PRICE AND SHARE INFORMATION
Shares of GEO common stock and Cornell common stock are each
listed and principally traded on the NYSE. GEO common stock is
listed for trading under the symbol GEO and Cornell
common stock is listed for trading under the symbol
CRN. The following table sets forth, for the periods
indicated, the high and low sales prices per share of GEO common
stock and Cornell common stock, in each case as reported on the
consolidated tape of the NYSE. Neither GEO nor Cornell declared
or paid cash dividends on their common stock for the fiscal
years and interim periods shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GEO Common Stock
|
|
Cornell Common Stock
|
|
|
Market Price ($)
|
|
Market Price ($)
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
28.71
|
|
|
|
22.01
|
|
|
|
23.01
|
|
|
|
16.15
|
|
Second Quarter
|
|
|
29.48
|
|
|
|
22.10
|
|
|
|
24.50
|
|
|
|
20.16
|
|
Third Quarter
|
|
|
26.96
|
|
|
|
18.00
|
|
|
|
28.32
|
|
|
|
22.00
|
|
Fourth Quarter
|
|
|
21.62
|
|
|
|
12.65
|
|
|
|
26.00
|
|
|
|
16.50
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
19.54
|
|
|
|
10.98
|
|
|
|
18.45
|
|
|
|
13.73
|
|
Second Quarter
|
|
|
18.66
|
|
|
|
12.83
|
|
|
|
20.40
|
|
|
|
15.86
|
|
Third Quarter
|
|
|
20.78
|
|
|
|
16.82
|
|
|
|
22.64
|
|
|
|
15.74
|
|
Fourth Quarter
|
|
|
22.78
|
|
|
|
19.35
|
|
|
|
23.92
|
|
|
|
20.16
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
23.18
|
|
|
|
17.91
|
|
|
|
25.13
|
|
|
|
18.06
|
|
Second Quarter (through [June 4], 2010)
|
|
|
[22.27]
|
|
|
|
[18.23]
|
|
|
|
[28.55]
|
|
|
|
[17.61]
|
|
The following table shows the closing sale prices of GEO common
stock and Cornell common stock as reported on the NYSE on
April 16, 2010, the last full trading day before the public
announcement of the signing of the merger agreement, and
on ,
2010, the most recent practicable date before the printing of
this joint proxy statement/prospectus. The table also sets forth
the value of the GEO common stock that a Cornell stockholder
would have received for one share of Cornell common stock,
assuming that the transaction had occurred on those dates. The
numbers have been calculated by multiplying the closing sale
price of GEO common stock as of the specified date by the
exchange ratio and assumes that the merger consideration
received consists exclusively of GEO common stock. The actual
value of the GEO common stock that a stockholder will receive on
the date of the transaction may be higher or lower than the
prices set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GEO
|
|
Cornell
|
|
Implied Value
|
|
|
Common
|
|
Common
|
|
of Cornell
|
|
|
Stock
|
|
Stock
|
|
Common Stock
|
|
April 16, 2010
|
|
$
|
19.16
|
|
|
$
|
18.47
|
|
|
$
|
24.91
|
|
[ ],
2010
|
|
|
[ ]
|
|
|
|
[ ]
|
|
|
|
[ ]
|
|
GEO shareholders should obtain current market quotations for
shares of GEO and Cornell common stock in deciding whether to
vote for approval of the issuance of GEO common stock in
accordance with the terms of the merger agreement. Cornell
stockholders should obtain current market quotations for shares
of GEO common stock and Cornell common stock in deciding whether
to vote for adoption of the merger agreement.
20
RECENT
DEVELOPMENTS
Stock
Repurchase Program
On February 22, 2010, GEO announced that its Board of
Directors approved a stock repurchase program of up to
$80.0 million of its common stock effective through
March 31, 2011. The stock repurchase program is intended to
be implemented through purchases made from time to time in the
open market or in privately negotiated transactions, in
accordance with applicable rules and requirements of the
Securities and Exchange Commission. The program also may include
repurchases from time to time from executive officers or
directors of vested restricted stock
and/or
vested stock options. The stock repurchase program does not
obligate GEO to purchase any specific amount of its common stock
and may be suspended or extended at any time at GEOs
discretion. GEO does not intend to enter into any privately
negotiated transactions to repurchase any shares of GEO stock
issued in the merger, nor does it intend to target shares of GEO
stock issued in the merger for repurchase in the open market. As
of [June 4, 2010], GEO has repurchased
3,878,828 shares of its common stock for $77.3 million.
Contract
Terminations
On April 14, 2010, GEO announced the results of the rebids
of two of its managed-only contracts in the State of Florida.
The State of Florida has issued a Notice of Intent to Award
contracts for the 1,884-bed Graceville Correctional Facility
located in Graceville, Florida and the 985-bed Moore Haven
Correctional Facility located in Moore Haven, Florida to another
operator effective August 1, 2010. GEO does not expect that
the termination of these contracts will have a material adverse
impact, individually or in the aggregate, on its financial
condition, results of operations or cash flows.
Litigation
Relating to the Merger
On April 27, 2010, a putative stockholder class action was
filed in the District Court for Harris County, Texas by Todd
Shelby against Cornell, members of the Cornell board of
directors, individually, and GEO. The plaintiff filed an amended
complaint on May 28, 2010. The amended complaint alleges,
among other things, that the Cornell directors, aided and
abetted by Cornell and GEO, breached their fiduciary duties in
connection with the merger. Among other things, the amended
complaint seeks to enjoin Cornell, its directors and GEO from
completing the merger and seeks a constructive trust over any
benefits improperly received by the defendants as a result of
their alleged wrongful conduct.
Asset
Acquisition
On June 7, 2010, GEO announced the acquisition of a 650-bed
Correctional Facility (the Facility) in Adelanto,
California for approximately $28.0 million. The Facility
was bought from the City of Adelanto. GEO expects to retrofit
the Facility and market it to local, state, and federal
correctional and detention agencies. GEO financed the
acquisition of the Facility with free cash flow and borrowings
available under its senior revolving credit facility.
21
RISK
FACTORS
In addition to the other information included and
incorporated by reference into this joint proxy
statement/prospectus, including the matters addressed in
Cautionary Statement Regarding Forward-Looking
Statements below, you should carefully consider the
following risk factors before deciding whether to vote for the
GEO share issuance and the amendments to the 2006 Plan, in the
case of GEO shareholders, or for adoption of the merger
agreement, in the case of Cornell stockholders. In addition to
the risk factors set forth below, you should read and consider
other risk factors specific to each of the GEO and Cornell
businesses that will also affect the combined company after the
merger, which are described in Part I, Item 1A of
GEOs Annual Report on
Form 10-K
for the year ended January 3, 2010 and Cornells
Annual Report on
Form 10-K,
as amended, for the year ended December 31, 2009, each of
which has been filed by GEO or Cornell, as applicable, with the
SEC and any subsequent periodic reports all of which are
incorporated by reference into this joint proxy
statement/prospectus. If any of the risks described below or in
the periodic reports incorporated by reference into this joint
proxy statement/prospectus actually occurs, the businesses,
financial condition, results of operations, prospects or stock
prices of GEO, Cornell or the combined company could be
materially adversely affected. See Where You Can Find More
Information, beginning on page 126.
Risks
Related to Completion of the Merger
Cornells
stockholders will receive, subject to certain conditions, either
cash consideration or a fixed ratio of 1.3 shares of GEO
common stock for each share of Cornell common stock regardless
of any changes in the market value of Cornell common stock or
GEO common stock before the completion of the
merger.
Upon completion of the merger, subject to certain conditions,
Cornell stockholders will receive either cash consideration or a
fixed ratio of 1.3 shares of GEO common stock for each
share of Cornell common stock they hold. There will be no
adjustment to the exchange ratio (except for adjustments to
reflect the effect of any stock split, reverse stock split,
stock dividend, recapitalization, reclassification or other
similar transaction with respect to Cornell common stock), and
the parties do not have a right to terminate the merger
agreement based upon changes in the market price of either GEO
common stock or Cornell common stock. Accordingly, the dollar
value of GEO common stock that Cornells stockholders will
receive upon completion of the merger will depend upon the
market value of GEO common stock at the time of completion of
the merger, which may be different from, and lower than, the
closing price of GEO common stock on the last full trading day
preceding public announcement that GEO and Cornell entered into
the merger agreement, the last full trading day prior to the
date of this joint proxy statement/prospectus or the date of the
Cornell stockholder meetings. The opinions received from
GEOs and Cornells respective financial advisors were
based on market and other conditions as of the dates of such
opinions and neither GEO nor Cornell intends to request updated
opinions from such financial advisors prior to completion of the
merger. Moreover, completion of the merger may occur some time
after the requisite stockholder approvals have been obtained.
The market values of GEO common stock and Cornell common stock
have varied since GEO and Cornell entered into the merger
agreement and will continue to vary in the future due to changes
in the business, operations or prospects of GEO and Cornell,
market assessments of the merger, regulatory considerations,
market and economic considerations, and other factors both
within and beyond the control of GEO and Cornell.
There
can be no assurance that the merger will be consummated. The
announcement and pendency of the merger, or the failure of the
merger to be consummated, could have an adverse effect on
GEOs or Cornells stock price, business, financial
condition, results of operations or prospects.
The merger is subject to a number of conditions to closing,
including (i) the approval of the issuance of shares of GEO
common stock in accordance with the terms of the merger
agreement, (ii) the adoption of the merger agreement by the
Cornell stockholders, (iii) the resolution of any
litigation instituted applicable to the merger under the HSR Act
or any other applicable federal or state statute or regulation,
(iv) no temporary restraining order, preliminary or
permanent injunction or other order shall have been issued (and
remain in effect) by a court or other governmental entity having
the effect of making the merger illegal or otherwise prohibiting
the consummation of the merger, (v) the approval for
listing on the NYSE of the shares of GEO common stock issuable
in connection with
22
the merger and (vi) the receipt of certain third party
contractual approvals that are required as a result of the
merger. See The Merger Agreement Conditions to
Completion of the Merger, beginning on page 83.
If the shareholders of GEO fail to approve the GEO share
issuance or if Cornell stockholders fail to adopt the merger
agreement, GEO and Cornell will not be able to complete the
merger. Additionally, if the other closing conditions are not
met or waived, the companies will not be able to complete the
merger. As a result, there can be no assurance that the merger
will be completed in a timely manner or at all.
Further, the announcement and pendency of the merger could
disrupt GEOs and Cornells businesses, in any of the
following ways, among others:
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GEO and Cornell employees may experience uncertainty about their
future roles with the combined company, which might adversely
affect Cornells and GEOs ability to retain and hire
key managers and other employees;
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the attention of management of each of GEO and Cornell may be
directed toward the completion of the merger and
transaction-related considerations and may be diverted from the
day-to-day
business operations of their respective companies; and
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customers, suppliers or others may seek to modify or terminate
their business relationships with GEO or Cornell.
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GEO and Cornell may face additional challenges in competing for
new business and retaining or renewing business. These
disruptions could be exacerbated by a delay in the completion of
the merger or termination of the merger agreement.
For the foregoing reasons, there can be no assurance that the
announcement and pendency of the merger, or the failure of the
merger to be consummated, will not have an adverse effect on
GEOs or Cornells stock price, business, financial
condition, results of operations or prospects.
There
can be no assurance that GEO will be able to secure the debt
financing required in connection with the merger.
GEOs obligation to complete the merger is not conditioned
on receipt of any financing. However, GEO needs approximately
$300.0 million to fund the cash component of the merger
consideration, the redemption of Cornells
10.75% senior notes, the refinancing of Cornells
credit facility and the payment of transaction fees and
expenses. GEO intends to fund the foregoing utilizing a
combination of existing cash and one or more draws upon
GEOs senior credit facility. BNP Paribas has provided a
commitment to extend $150.0 million of additional financing
under the accordion feature of GEOs existing senior credit
facility. GEO may choose to draw upon its existing senior credit
facility and the $150.0 million of committed financing or
it may choose to pursue alternate financing sources, including
debt financing or accessing the capital markets. GEO is
currently in compliance with its debt covenants; however, GEO
cannot guarantee that it will continue to be in compliance with
all necessary conditions in order to draw upon its existing
senior credit facility or the $150.0 million of committed
financing, or that it will be able to secure alternative
financing on terms as favorable as its current debt financing
arrangements, on commercially acceptable terms, or at all. If
GEO is unable to access its current sources of debt financing or
is unable to use its available cash and secure any alternative
financing in order to fund the payments it is obligated to make
in connection with the merger, GEO will be in breach of the
merger agreement.
The
merger agreement limits Cornells ability to pursue an
alternative acquisition proposal and requires Cornell to pay a
termination fee of $12 million, plus expenses, if it
does.
The merger agreement prohibits Cornell from soliciting,
initiating or encouraging alternative merger or acquisition
proposals with any third party. The merger agreement also
provides for the payment by Cornell to GEO of a termination fee
of $12 million, plus up to $2 million in fees and
expenses, if the merger agreement is terminated in certain
circumstances in connection with a competing acquisition
proposal for Cornell or the withdrawal by the board of directors
of Cornell of its recommendation that the Cornell stockholders
vote in favor of the proposals
23
required to consummate the merger, as the case may be. See
The Merger Agreement Reimbursement of Fees and
Expenses; Termination Fees, beginning on page 85.
There
may be a long delay between GEO and Cornell each receiving the
necessary shareholder and stockholder approvals for the merger
and the closing of the transaction, during which time Cornell
will lose the ability to consider and pursue alternative
acquisition proposals, which might otherwise be superior to the
merger.
Following the GEO shareholder and Cornell stockholder approvals,
the merger agreement prohibits Cornell from taking any actions
to review, consider or recommend any alternative acquisition
proposals, including those that could be superior to
Cornells stockholders, respectively, when compared to the
merger. Given that there could be a delay between stockholder
approval and closing, the time during which Cornell could be
prevented from reviewing, considering or recommending such
proposals could be significant.
Cornell
stockholders electing cash consideration cannot be certain that
they will receive cash consideration.
Under the terms of the merger agreement, no more than 20% of the
shares of Cornell common stock are permitted to be exchanged for
cash. If cash elections are made with respect to more than 20%
of the shares of Cornell common stock outstanding immediately
before the effective time of the merger, the excess over 20%
shall be treated as a stock election. Additionally, if the
Cornell stockholders electing cash consideration in the
aggregate would require GEO to pay cash consideration in excess
of $100.0 million, GEO, in its sole discretion, may pay
such excess amount in either cash consideration or stock
consideration. Accordingly, if a Cornell stockholder elects cash
consideration, the holder may receive a portion of the merger
consideration in stock, which could result in a different result
than that anticipated by such stockholder and may result in tax
consequences that differ from those that would have resulted
from the merger if the Cornell stockholder had only received
cash consideration.
Certain
directors and executive officers of GEO and Cornell may have
interests that may be different from, or in addition to,
interests of GEO and Cornell stockholders
generally.
Some of the directors of GEO and Cornell who recommend that GEO
shareholders vote in favor of the GEO issuance and Cornell
stockholders vote in favor of adopting the merger agreement, and
the executive officers of GEO and Cornell who provided
information to the GEO and Cornell board of directors relating
to the merger, have employment, indemnification and change in
control benefit arrangements, rights to acceleration of
equity-based awards and other benefits on a change in control of
Cornell, and rights to ongoing indemnification and insurance
that may provide them with interests in the merger. The receipt
of compensation or other benefits, including the rights to
acceleration of equity-based awards by Cornells executive
officers in connection with the merger, may make it more
difficult for the combined company to retain their services
after the merger, or require the combined company to expend
additional sums to continue to retain their services.
Stockholders of both companies should be aware of these
interests when considering the Cornell and GEO board of
directors recommendations that they vote in favor of the
adoption of the merger agreement, or the GEO share issuance, as
the case may be. See The Merger Interests of
GEO Executive Officers and Directors in the Merger
beginning on page 50. See The Merger
Interests of Cornell Directors and Executive Officers in the
Merger That are Different Than Yours beginning on
page 59.
Estimates
as to the future value of the combined company are inherently
uncertain. You should not rely on such estimates without
considering all of the information contained in this joint proxy
statement/prospectus.
Any estimates as to the future value of the combined company,
including estimates regarding the price at which the common
stock of the combined company will trade following the merger,
are inherently uncertain. The future value of the combined
company will depend upon, among other factors, the combined
companys ability to achieve projected revenue and earnings
expectations and to realize the anticipated synergies described
in this joint proxy statement/prospectus, all of which are
subject to the risks and uncertainties described in this joint
proxy statement/prospectus, including these risk factors.
Accordingly, you should not rely upon any estimates as to the
future value
24
of the combined company, or the price at which the common stock
of the combined company will trade following the merger, whether
made before or after the date of this joint proxy
statement/prospectus by GEOs or Cornells respective
management or affiliates or others, without considering all of
the information contained in this joint proxy
statement/prospectus.
A
lawsuit has been filed against Cornell, members of the Cornell
board of directors and GEO challenging the merger, and an
unfavorable judgment or ruling in this lawsuit could prevent or
delay the consummation of the merger, result in substantial
costs or both.
Cornell, its directors and GEO have been named in a purported
stockholder class action complaint, as amended, filed in Texas
state court. The complaint alleges, among other things, that
Cornells directors breached their fiduciary duties by
entering into the merger agreement without first taking steps to
obtain adequate, fair and maximum consideration for
Cornells stockholders by shopping the company or
initiating an auction process, by structuring the transaction to
take advantage of Cornells current low stock valuation,
and by structuring the transaction to benefit GEO while making
an alternative transaction either prohibitively expensive or
otherwise impossible, and that the corporate defendants have
aided and abetted such breaches by Cornells directors. The
plaintiffs are seeking, among other things, both an injunction
prohibiting the merger and a constructive trust in an
unspecified amount.
One of the conditions to the closing of the merger is that there
not be any legal prohibition preventing the consummation of the
merger, which would include the injunction sought by the
plaintiffs in this case if it were to be granted. As a result,
if the plaintiffs are successful in obtaining the injunction
they seek, the merger may be blocked or delayed, or there could
be substantial costs to GEO
and/or
Cornell. It is possible that other similar lawsuits may be filed
in the future. Cornell cannot estimate any possible loss from
this or similar future litigation at this time. Cornell has
obligations under certain circumstances to hold harmless and
indemnify each of the defendant directors against judgments,
fines, settlements and expenses related to claims against such
directors and otherwise to the fullest extent permitted under
Delaware law and Cornells certificate of incorporation,
bylaws and contractual agreements with its directors.
The
shares of GEO common stock to be received by Cornell
stockholders as a result of the merger will have different
rights from the shares of Cornell common stock.
The rights associated with Cornell common stock are different
from the rights associated with GEO common stock. See the
section of this joint proxy statement/prospectus entitled
Comparison of Stockholder Rights for a discussion of
the different rights associated with Cornell common stock.
If the
merger is not consummated by February 15, 2011, either
Cornell or GEO may choose not to proceed with the
merger.
Either Cornell or GEO may terminate the merger agreement if the
merger has not been completed by February 15, 2011, unless
the failure of the merger to be completed has resulted from the
failure of the party seeking to terminate the merger agreement
to perform its obligations.
If you
tender shares of Cornell common stock to make an election (or
follow the procedures for guaranteed delivery), you will not be
able to sell those shares, unless you revoke your election prior
to the election deadline.
You will receive an election form and other materials relating
to your right to elect the form of merger consideration under
the merger agreement and will be requested to send to the
exchange agent your Cornell stock certificates (or follow the
procedures for guaranteed delivery) together with the properly
completed election form. If you want to make a cash or stock
election, you must deliver your stock certificates (or follow
the procedures for guaranteed delivery) and a properly completed
and signed form of election to the exchange agent by the
election deadline, which will be specified in the form of
election. If you hold Cornell stock options and you wish to make
an election as to the form of merger consideration, you must
have exercised your options before the election deadline.
25
You will not be able to sell any shares of Cornell common stock
that you have delivered, unless you revoke your election before
the deadline by providing written notice to the exchange agent.
If you do not revoke your election, you will not be able to
liquidate your investment in Cornell common stock for any reason
until you receive cash
and/or GEO
common stock in the merger. In the time between delivery of your
shares and the completion of the merger, the trading price of
Cornell or GEO common stock may decrease, and you might
otherwise want to sell your shares of Cornell to gain access to
cash, make other investments, or reduce the potential for a
decrease in the value of your investment.
The date that you will receive your merger consideration depends
on the completion date of the merger, which is uncertain. The
completion date of the merger might be later than expected due
to unforeseen events, such as delays in obtaining required
third-party approvals.
Risks
Related to the Combined Company if the Merger is
Completed
GEO
and Cornell may experience difficulties integrating their
businesses.
Currently, each company operates as an independent public
company. Achieving the anticipated benefits of the merger will
depend in significant part upon whether the two companies
integrate their businesses in an efficient and effective manner.
Due to legal restrictions, GEO and Cornell have been able to
conduct only limited planning regarding the integration of the
two companies following the merger and have not yet determined
the exact nature of how the businesses and operations of the two
companies will be combined after the merger. The actual
integration may result in additional and unforeseen expenses,
and the anticipated benefits of the integration plan may not be
realized. The companies may not be able to accomplish the
integration process smoothly, successfully or on a timely basis.
The necessity of coordinating geographically separated
organizations, systems of controls, and facilities and
addressing possible differences in business backgrounds,
corporate cultures and management philosophies may increase the
difficulties of integration. The companies operate numerous
systems and controls, including those involving management
information, purchasing, accounting and finance, sales, billing,
employee benefits, payroll and regulatory compliance. The
integration of operations following the merger will require the
dedication of significant management and external resources,
which may temporarily distract managements attention from
the
day-to-day
business of the combined company and be costly. Employee
uncertainty and lack of focus during the integration process may
also disrupt the business of the combined company. Any inability
of management to successfully and timely integrate the
operations of the two companies could have a material adverse
effect on the business and results of operations of the combined
company.
The
combined company may not fully realize the anticipated synergies
and related benefits of the merger or within the timing
anticipated.
GEO and Cornell entered into the merger agreement because each
company believes that the merger will be beneficial to each of
GEO, the GEO shareholders, Cornell and the Cornell stockholders
including, among other things, as a result of the anticipated
synergies resulting from the combined companys operations.
GEOs management anticipates annual synergies of
$12-15 million during the year following the completion of
the merger. The companies may not be able to achieve the
anticipated operating and cost synergies or long-term strategic
benefits of the merger within the timing anticipated or at all.
For example, elimination of duplicative costs may not be fully
achieved or may take longer than anticipated. For at least the
first year after the merger, and possibly longer, the benefits
from the merger will be offset by the costs incurred in
integrating the businesses and operations, or adverse conditions
imposed by regulatory authorities on the combined business in
connection with granting approval for the merger. An inability
to realize the full extent of, or any of, the anticipated
synergies or other benefits of the merger, as well as any delays
that may be encountered in the integration process, which may
delay the timing of such synergies or other benefits, could have
an adverse effect on the business and results of operations of
the combined company, and may affect the value of the shares of
GEO common stock after the completion of the merger.
26
The
merger may not be accretive and may cause dilution to the
combined companys earnings per share, which may harm the
market price of GEO common stock after the merger.
While GEO believes the merger has the potential to be accretive
to future earnings, there can be no assurance with respect to
the timing and scope of the accretive effect or whether it will
be accretive at all. The combined company could encounter
additional transaction and integration-related costs or other
factors such as the failure to realize all of the benefits
anticipated in the merger or a downturn in its business. All of
these factors could cause dilution to the combined
companys earnings per share or decrease the expected
accretive effect of the merger and cause a decrease in the price
of GEO common stock after the merger.
The
price of the common stock of the combined company may be
affected by factors different from those affecting the price of
GEO common stock or Cornell common stock
independently.
After completion of the merger, as the combined company
integrates the businesses of GEO and Cornell, the results of
operations as well as the stock price of the combined company
may be affected by factors different than those factors
affecting GEO and Cornell as independent stand-alone entities.
The combined company may face additional risks and uncertainties
not otherwise facing each independent company prior to the
merger. For a discussion of GEOs and Cornells
businesses and certain factors to consider in connection with
their respective businesses, see the respective sections
entitled Managements Discussion and Analysis of
Financial Condition and Results of Operations in each of
GEOs Annual Report on
Form 10-K
for the year ended January 3, 2010 and Cornells
Annual Report on
Form 10-K,
as amended, for the year ended December 31, 2009 and other
documents incorporated by reference into this joint proxy
statement/prospectus.
Charges
to earnings resulting from the application of the acquisition
method of accounting may adversely affect the market value of
GEO common stock following the merger.
In accordance with GAAP, GEO will be considered the acquiror of
Cornell for accounting purposes. GEO will account for the merger
using the acquisition method of accounting. There may be charges
related to the acquisition that are required to be recorded to
GEOs earnings that could adversely affect the market value
of GEO common stock following the completion of the merger.
Under the acquisition method of accounting, GEO will allocate
the total purchase price to the assets acquired, including
identifiable intangible assets, and liabilities assumed from
Cornell based on their fair values as of the date of the
completion of the merger, and record any excess of the purchase
price over those fair values as goodwill. For certain tangible
and intangible assets, revaluing them to their fair values as of
the completion date of the merger may result in GEOs
incurring additional depreciation and amortization expense that
may exceed the combined amounts recorded by GEO and Cornell
prior to the merger. This increased expense will be recorded by
GEO over the useful lives of the underlying assets. In addition,
to the extent the value of goodwill or intangible assets were to
become impaired after the merger, GEO may be required to incur
charges relating to the impairment of those assets.
The
combined company will incur significant transaction- and
integration-related costs in connection with the
merger.
GEO and Cornell expect to incur non-recurring costs associated
with combining the operations of the two companies, including
charges and payments to be made to some of their employees
pursuant to change in control contractual
obligations. GEO expects that the amount of these costs will be
determined as of the effective time of the merger and may be
material to the financial position and results of operations of
the combined company. The substantial majority of non-recurring
expenses resulting from the merger will be comprised of
transaction costs related to the merger, facilities and systems
consolidation costs, and employee-related costs. GEO and Cornell
will also incur fees and costs related to formulating
integration plans and performing these activities. Additional
unanticipated costs may be incurred in the integration of the
two companies businesses. The elimination of duplicative
costs, as well as the realization of other efficiencies related
to the integration of the businesses, may not offset incremental
transaction- and other integration-related costs in the near
term.
27
The
combined company will have substantial indebtedness following
the merger, which may limit its financial
flexibility.
Following the completion of the merger, the combined company is
expected to have approximately
$[ ] million in pro-forma
total debt outstanding. This amount of indebtedness may limit
the combined companys flexibility as a result of its debt
service requirements, and may limit the combined companys
ability to access additional capital and make capital
expenditures and other investments in its business, to withstand
economic downturns and interest rate increases, to plan for or
react to changes in its business and its industry, and to comply
with financial and other restrictive covenants in its
indebtedness.
Further, the combined companys ability to comply with the
financial and other covenants contained in its debt instruments
may be affected by changes in economic or business conditions or
other events beyond its control. If the combined company does
not comply with these covenants and restrictions, it may be
required to take actions such as reducing or delaying capital
expenditures, selling assets, restructuring or refinancing all
or part of its existing debt, or seeking additional equity
capital.
GEO
may have failed to discover undisclosed liabilities of
Cornell.
GEOs investigations and due diligence review of Cornell
may have failed to discover undisclosed liabilities of Cornell.
If Cornell has undisclosed liabilities, GEO as a successor owner
may be responsible for such undisclosed liabilities. GEO has
tried to minimize its exposure to undisclosed liabilities by
obtaining certain protections under the merger agreement,
including representations and warranties from Cornell regarding
undisclosed liabilities. However, there can be no assurance that
such provisions in the merger agreement will protect GEO against
any undisclosed liabilities being discovered or provide an
adequate remedy for any undisclosed liabilities that are
discovered. Additionally, the representations and warranties
from Cornell do not survive beyond the effective time of the
merger. Therefore, there can be no assurance that GEO will have
a remedy that is enforceable, collectible or sufficient in
amount, scope or duration, or a remedy at all, to offset, fully
or partially, any undisclosed liabilities arising from the
merger. Such undisclosed liabilities could have an adverse
effect on the business and results of operations of GEO and may
adversely affect the value of the shares of GEO common stock
after the consummation of the merger.
Cornell
may have failed to discover undisclosed liabilities of
GEO.
Cornells investigations and due diligence review of GEO
may have failed to discover undisclosed liabilities of GEO.
Cornell has tried to minimize its exposure to undisclosed
liabilities by obtaining certain protections under the merger
agreement, including representations and warranties from GEO
regarding undisclosed liabilities. However, there can be no
assurance that such provisions in the merger agreement will
protect Cornell against any undisclosed liabilities being
discovered or provide an adequate remedy for any undisclosed
liabilities that are discovered. Additionally, the
representations and warranties from GEO do not survive beyond
the effective time of the merger. Therefore, there can be no
assurance that the combined company will have a remedy that is
enforceable, collectible or sufficient in amount, scope or
duration, or any remedy at all, to offset, fully or partially,
any undisclosed liabilities of GEO. Such undisclosed liabilities
could have an adverse effect on the business and results of
operations of the combined company, and may adversely affect the
value of the shares of GEO common stock after the consummation
of the merger.
The
merger will result in GEO reentering the market of operating
juvenile correctional facilities which may pose certain risks
and difficulties compared to other facilities.
As a result of the merger, GEO will reenter the market of
operating juvenile correctional facilities. GEO intentionally
exited this market a number of years ago. Operating juvenile
correctional facilities may pose increased operational risks and
difficulties that may result in increased litigation, higher
personnel costs, higher levels of turnover of personnel and
reduced profitability. Additionally, juvenile services contracts
related to educational services may provide for annual
collection several months after a school year is completed. GEO
cannot assure you that the combined company will be successful
in operating juvenile correctional facilities or that it will
minimize the risks and difficulties involved while yielding an
attractive profit margin.
28
The
combined companys goodwill or other intangible assets may
become impaired, which could result in material non-cash charges
to its results of operations.
The combined company will have a substantial amount of goodwill
and other intangible assets resulting from the merger. At least
annually, or whenever events or changes in circumstances
indicate a potential impairment in the carrying value as defined
by GAAP, the combined company will evaluate this goodwill for
impairment based on the fair value of each reporting unit.
Estimated fair values could change if there are changes in the
combined companys capital structure, cost of debt,
interest rates, capital expenditure levels, operating cash
flows, or market capitalization. Impairments of goodwill or
other intangible assets could require material non-cash charges
to the combined companys results of operations.
Future
results of the combined company may differ materially from the
unaudited pro forma financial statements presented in this joint
proxy statement/prospectus.
The combined companys future results may be materially
different from those shown in the unaudited pro forma financial
statements presented in this joint proxy statement/prospectus
that show only a combination of GEOs and Cornells
historical results. GEO expects to incur significant costs
associated with completing the merger and combining the
operations of the two companies, and the exact magnitude of
these costs is not yet known. Furthermore, these costs may
decrease capital that could be used by GEO for income-earning
investments in the future.
CAUTIONARY
STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus contains certain
forward-looking information about GEO, Cornell and the combined
company that is intended to be covered by the safe harbor for
forward-looking statements provided by the Private
Securities Litigation Reform Act of 1995. These statements may
be made directly in this joint proxy statement/prospectus or may
be incorporated into this joint proxy statement/prospectus by
reference to other documents and may include statements for the
period following the completion of the merger. Representatives
of GEO and Cornell may also make forward-looking statements.
Forward-looking statements are statements that are not
historical facts. Words such as expect,
believe, will, may,
anticipate, plan, estimate,
intend, should, can,
likely, could and similar expressions
are intended to identify forward-looking statements. These
statements include statements about the expected benefits of the
merger, information about the combined company, including
expected synergies, combined operating and financial data and
the combined companys objectives, plans and expectations,
the likelihood of satisfaction of certain conditions to the
completion of the merger and whether and when the merger will be
consummated. Forward-looking statements are not guarantees of
performance. These statements are based upon the current beliefs
and expectations of the management of each of GEO and Cornell
and are subject to risks and uncertainties, including the risks
described in this joint proxy statement/prospectus under the
section Risk Factors and those that are incorporated
by reference into this joint proxy statement/prospectus that
could cause actual results to differ materially from those
expressed in, or implied or projected by, the forward-looking
information and statements.
In light of these risks, uncertainties, assumptions and factors,
the results anticipated by the forward-looking statements
discussed in this joint proxy statement/prospectus, in documents
incorporated by reference into this joint proxy
statement/prospectus or made by representatives of GEO or
Cornell may not occur. Readers are cautioned not to place undue
reliance on these forward-looking statements which speak only as
of the date hereof or, in the case of statements incorporated by
reference, on the date of the document incorporated by
reference, or, in the case of statements made by representatives
of GEO or Cornell, on the date those statements are made. All
subsequent written and oral forward-looking statements
concerning the merger or the combined company or other matters
addressed in this joint proxy statement/prospectus and
attributable to GEO or Cornell or any person acting on their
behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section.
Except to the extent required by applicable law or regulation,
neither GEO nor Cornell undertakes any obligation to update or
publish revised forward-looking statements to reflect events or
circumstances after the date hereof or the date of the
forward-looking statements or to reflect the occurrence of
unanticipated events.
29
THE
MERGER
The following discussion contains important information
relating to the merger. You are urged to read this discussion
together with the merger agreement and related documents
attached as annexes to this joint proxy statement/prospectus
before voting.
Structure
of the Merger
Subject to the terms and conditions of the merger agreement and
in accordance with Delaware law, GEO Acquisition III, Inc., a
wholly owned subsidiary of GEO that was formed for the purpose
of the merger, will be merged with and into Cornell, with
Cornell surviving the merger and becoming a wholly owned
subsidiary of GEO. Immediately following the merger, GEO will
continue to be named The GEO Group, Inc. and will be
the parent company of Cornell. Accordingly, after the effective
time of the merger, shares of Cornell common stock will no
longer be publicly traded.
Merger
Consideration
Cornell Stockholders. At the effective time of
the merger, each outstanding share of Cornell common stock will
be converted into the right to receive either
(i) 1.3 shares of GEO common stock, or (ii) an
amount of cash consideration equal to the greater of
(x) the fair market value of one share of GEO common stock
plus $6.00 or (y) the fair market value of 1.3 shares
of GEO common stock. Cornell stockholders desiring to receive a
combination of GEO common stock and cash may do so by making a
stock election with respect to a portion of their shares and a
cash election with respect to their remaining shares. If a
Cornell stockholder fails to make an election, the holder will
receive the stock consideration. Fair market value
of GEO common stock for the purpose of determining the cash
consideration means the average of the daily closing prices per
share of GEO common stock for the ten consecutive trading days
on which shares of GEO common stock are actually traded (as
reported on the NYSE) ending on the trading day immediately
preceding the tenth business day preceding the closing date.
Cornell stockholders have the opportunity to elect whether to
receive stock consideration or cash consideration as provided
above. However, the merger agreement provides that
notwithstanding such elections, no more than 20% of the shares
of Cornell common stock are permitted to be exchanged for cash
consideration. If cash elections are made with respect to more
than 20% of Cornells shares, the excess over 20% shall be
treated as if a stock election had been made with respect to
such excess shares and they will be exchanged for shares of GEO
common stock. In such event, a pro rata portion (rounded up to
the nearest whole share) of each holders shares of Cornell
common stock with respect to which an election was made to elect
cash consideration shall instead be converted to GEO common
stock. Additionally, if the application of the above procedures
and limitations relating to the merger agreement would result in
more than $100.0 million of cash being paid to Cornell
stockholders electing cash consideration, then GEO may elect, in
its sole discretion, to reduce the amount of cash paid to each
Cornell stockholder electing cash consideration on a pro rata
basis so that the total cash paid with respect to all cash
consideration is $100.0 million. If the cash consideration
otherwise payable to any holder of Cornell common stock is
reduced under this clause, such holder shall be entitled to
receive GEO common stock at a fair market value (as defined
above) equal to the amount of the reduction. GEO intends to pay
such excess amount in cash.
Election Procedure. An election form and
letter of transmittal have been enclosed with this joint proxy
statement/prospectus pursuant to which Cornell stockholders may
elect whether they would prefer to receive GEO common stock or
cash in exchange for their Cornell shares. If you were a record
holder of Cornell common stock on the Cornell record date, you
should carefully review and follow the instructions included in
the election form and the letter of transmittal. To make an
election, record holders must properly complete and sign the
election form and letter of transmittal and send those documents
and the certificates for their shares (or a properly completed
notice of guaranteed delivery) to the exchange agent at the
address listed in the election form and letter of transmittal by
the election deadline, which is 5:00 p.m., New York time,
on
[ ],
2010. If the merger agreement is terminated, all election forms
delivered to the exchange agent on or prior to the date of such
termination will be automatically revoked and all share
certificates will be returned. Please do not send your election
form and stock certificates with your proxy card for the special
meeting. Your election form and stock certificates are to be
submitted separately from your proxy card.
If you own shares of Cornell common stock in street
name through a broker or other financial institution, you
will receive or should seek instructions from the institution
holding your shares concerning how to make your election. Any
instructions must be given to your broker or other financial
institution sufficiently in advance of the
30
election deadline for record holders in order to allow your
broker or financial institution sufficient time to cause the
record holder of your shares to make an election as described
above. Therefore, you should carefully read any materials you
receive from your broker.
If you are a record holder of Cornell shares, you may change
your election or change the number of shares for which you have
made an election at any time prior to the election deadline by
sending a signed written notice to the exchange agent
identifying the shares of Cornell common stock for which you are
changing your election along with a properly completed revised
election form. For a change of an election to be effective, it
must be received by the exchange agent prior to the election
deadline. In addition, a record holder may revoke an election at
any time prior to the election deadline by delivering to the
exchange agent a written notice of revocation. A revocation of a
proxy shall also be deemed a revocation of an election with
respect to the merger consideration. Shares of Cornell common
stock as to which an election has been revoked after the
election deadline will be deemed non-election shares, and no new
election as to such shares may be made after the election
deadline. If you hold your shares in street name,
you must follow your brokers instructions for changing or
revoking an election.
All elections are subject to the proration procedures described
above. If you do not make a valid election, your shares will be
considered non-election shares, and when the merger is completed
you will be entitled to receive the stock consideration for
non-election shares as described above.
GEO Shareholders. GEO shareholders will
continue to own their existing shares of GEO common stock after
the merger. Each share of GEO common stock will represent one
share of common stock in the combined company.
Fractional Shares. GEO will not issue
fractional shares of GEO common stock in the merger. All
fractional shares of GEO common stock to which a holder of
shares of Cornell common stock would otherwise be entitled as a
result of the merger will be aggregated. For any fractional
share that results from such aggregation, the exchange agent
will pay the holder an amount of cash, without interest, equal
to the product of such fraction of a share of GEO common stock
which the Cornell stockholder would otherwise have been entitled
to receive pursuant to the merger multiplied by the closing sale
price of a share of GEO common stock on the NYSE on the trading
day that is one trading day prior to the closing date. GEO shall
deposit with the exchange agent the funds required to make such
cash payments when and as needed.
Ownership
of the Combined Company After the Merger
As of April 4, 2010, approximately 49.2 million shares
of GEO common stock were outstanding and approximately
2.8 million shares of GEO common stock were reserved for
the exercise of outstanding GEO options and settlement of other
outstanding GEO equity-based awards. In accordance with terms of
the merger, at the effective time of the merger, GEO
(1) will issue up to approximately
[ ] million shares of GEO
common stock to Cornell stockholders pursuant to the merger and
(2) will reserve for issuance approximately
[ ] million shares of GEO
common stock in connection with the exercise or settlement of
Cornell equity-based awards. GEO and Cornell expect that the
shares of GEO common stock issued in connection with the merger
in respect of Cornell common stock will represent approximately
[ ]% of the outstanding common
stock of the combined company immediately after the merger on a
diluted basis. Shares of GEO common stock held by GEO
shareholders immediately prior to the merger will represent
approximately [ ]% of the
outstanding common stock of the combined company immediately
after the merger on a diluted basis.
Background
of the Merger
Since 2003, GEO and Cornell, through their respective management
teams and representatives, have discussed a potential strategic
combination on a number of occasions. In 2004 and again in 2007,
the companies undertook extensive due diligence and entered into
negotiations regarding definitive merger agreements. However,
the companies did not consummate a transaction in either year.
Following the failure to consummate a transaction in 2004,
representatives of the companies continued to hold informal
discussions regarding a potential business combination. James E.
Hyman, Cornells Chairman, Chief Executive Officer and
President, and George C. Zoley, GEOs Chairman and Chief
Executive Officer, have known
31
each other professionally since early 2005 and from time to time
have had informal conversations about their respective companies
and the possibility of a strategic combination. In 2006, Cornell
conducted a review of strategic alternatives involving multiple
industry participants and potential private equity partners.
That process eventually resulted in a merger agreement with a
private equity company that Cornells stockholders rejected
in January 2007.
In May 2007, representatives of GEO contacted representatives of
Cornell and proposed that GEO acquire Cornell in an all stock
transaction. Substantive discussions between representatives of
the companies and extensive due diligence continued from May
through October. However, the parties were ultimately unable to
agree on terms for a proposed transaction and, on
October 22, 2007, discussions regarding a combination were
terminated. Thereafter, Mr. Hyman, from time to time,
continued to have informal discussions on strategic combinations
with other industry participants.
Beginning in the spring of 2009, the Cornell board of directors
and Cornell senior management undertook a review of
Cornells strategic alternatives, based on the broader
industry and economic climate, including (i) continuing to
execute its business strategy as a stand-alone entity,
(ii) acquiring or divesting business units,
(iii) undertaking an internal restructuring or
(iv) engaging in a transaction with a potential strategic
acquirer.
On July 2, 2009, GEO, through its representatives,
delivered to Cornell a written proposal whereby GEO proposed to
acquire Cornell in an all stock transaction at an exchange ratio
of 1.05 shares of GEO common stock for each outstanding
share of Cornell common stock. Following the receipt of this
proposal, on July 9, 2009, the Cornell board of directors
met with representatives of Moelis & Company LLC,
hereafter referred to as Moelis & Company, Cornells
financial advisor, to evaluate the terms of the proposal
including, among other things, the proposed price per share, the
transaction structure and the relative advantages of a strategic
combination with GEO at that time. Based on its evaluation, the
Cornell board of directors rejected the proposal.
In August 2009, Messrs. Hyman and Zoley again informally
discussed the possibility of re-initiating conversations
regarding a potential transaction between GEO and Cornell. No
formal terms were proposed at that time. During the ensuing
months, Mr. Zoley periodically kept the members of
GEOs board of directors apprised that Cornell was
potentially interested in engaging in discussions once again.
Following the rejection of the July 2009 GEO proposal and the
informal discussions with GEO in August 2009, Cornell analyzed
its available resources and the challenges it faced as a
stand-alone entity. Throughout the remainder of 2009 and the
beginning of 2010, Cornells management investigated
potential acquisition opportunities related to Cornells
community-corrections segment and targeted companies in both the
secure and juvenile industry segments. Cornells management
also analyzed potential business unit divestitures and
alternative debt or leverage structures as a means of creating
value for Cornells stockholders and better positioning
Cornell in the marketplace. However, Cornell was unable to find
sufficiently attractive external acquisition or internal
restructuring opportunities.
On February 18, 2010, at a meeting of the corporate
planning committee of the GEO board of directors, Mr. Zoley
discussed at length with the GEO board members various growth
opportunities that GEO was in the process of evaluating. During
this meeting, Mr. Zoley once again discussed the potential
acquisition of Cornell. Mr. Zoley also provided to the GEO
board members selected preliminary pro forma information
regarding the potential impact of an acquisition of Cornell on
GEOs business, including certain key financial and
operating metrics.
On March 3, 2010, Messrs. Hyman and Zoley met and
discussed GEOs continued interest in a strategic business
combination. During this meeting, Mr. Hyman and
Mr. Zoley discussed a proposal whereby GEO would acquire
Cornell in an all stock transaction at an exchange ratio of
1.25 shares of GEO common stock for each outstanding share
of Cornell common stock. In the days following, Mr. Hyman,
following separate telephonic communications with each member of
the Cornell board of directors, continued to engage in informal
conversations with a number of potential domestic and
international strategic acquirers in Cornells industry and
related industries. Such discussions continued throughout the
months of March and April, however each potential acquirer
informed Cornell that they were not interested in pursuing
substantive discussions concerning a transaction at that time.
32
At a meeting held on March 26, 2010, the Cornell board of
directors met with representatives of Moelis & Company and
Cornell senior management present, including Mr. Hyman.
Mr. Hyman outlined Mr. Zoleys proposal to
Cornells board of directors. The board discussed the
proposal and other strategic considerations and potential
strategic alternatives available to Cornell. At this meeting,
the Cornell board of directors appointed a special committee of
the board comprised solely of independent directors, referred to
herein as the special committee, to evaluate strategic
alternatives, including GEOs proposal and any proposals
received from other parties, and to negotiate the terms of any
definitive transaction documents. The special committee further
determined to retain Hogan Lovells as legal counsel in
connection with the evaluation of proposals.
On April 1, 2010, the special committee met with
representatives of Moelis & Company and Cornell senior
management regarding the status of discussions with various
potential strategic partners. Representatives of Cornell senior
management informed the special committee that a potential
strategic acquirer expressed limited general interest in a
transaction but it, and each of the other parties contacted, did
not appear interested in specific discussions at that time. The
special committee, following discussion concerning these
parties, and following a review of the fiduciary duties of the
Cornell board of directors with representatives of Hogan
Lovells, determined, among other things, that Mr. Hyman
should inform Mr. Zoley that Cornell, through the special
committee, would be willing to proceed with discussions
concerning a potential strategic transaction and to request that
Mr. Zoley submit a written proposal for the special
committees consideration. Additionally, the special
committee determined that representatives of Cornell senior
management and Moelis & Company should continue
communications with other potential strategic acquirers.
Immediately following the meeting, Mr. Hyman contacted
Mr. Zoley as directed.
On April 2, 2010, GEO submitted a written, non-binding
proposal to the board of directors of Cornell pursuant to which
GEO proposed to acquire all of the outstanding common stock of
Cornell in exchange for either stock consideration at an
exchange ratio of 1.25 shares of GEO common stock for each
outstanding share of Cornell common stock, or a mix of cash and
stock consideration equal to one share of GEO common stock plus
$4.00 in cash for each outstanding share of Cornell common
stock, at the election of each Cornell stockholder. The proposal
further requested that GEO and Cornell adhere to an expedited
transaction timeline and due diligence process.
On April 5, 2010, the special committee of Cornell met with
representatives of Hogan Lovells and Moelis & Company, with
members of Cornell senior management present, to consider
GEOs proposal and to receive an update as to the status of
discussions with various other potential strategic acquirers. A
representative of Moelis & Company and members of Cornell
senior management informed the special committee that the other
potential strategic acquirers were not interested in substantive
discussions at that time and a representative of Moelis &
Company reviewed with the Cornell board of directors the
likelihood of interest by, and ability to procure acquisition
financing of, other potential parties. Mr. Hyman outlined
the terms of GEOs proposal and the proposed timeline.
Representatives of Moelis & Company outlined for the
special committee the substance of discussions concerning the
proposal held with GEOs outside counsel. A representative
of Moelis & Company answered questions from the members of
the special committee regarding the specific terms of the offer
and representatives of Hogan Lovells reviewed the fiduciary
duties of the Cornell board of directors. Following discussion
among its members, the special committee determined that Moelis
& Company should contact representatives of GEO to
communicate that the special committee had rejected GEOs
proposal because the special committee believed that GEOs
proposal constituted an inadequate premium to the trading price
of Cornells common stock. Immediately following the
meeting, representatives of Moelis & Company contacted GEO
as directed. Discussions continued throughout the week of
April 5, 2010 between Moelis & Company and
representatives of GEO concerning the specific financial terms
of a possible revised proposal.
On April 9, 2010, GEO held internal discussions and
conducted a detailed review of, among other things, its
valuation of Cornell. Representatives of GEO subsequently
contacted representatives of Moelis & Company to orally
communicate that (i) GEO would revise its offer such that
all of the outstanding common stock of Cornell would be
exchanged for either stock consideration at an exchange ratio of
1.25 shares of GEO common stock for each outstanding share
of Cornell common stock, or a mix of cash and stock
consideration equal to one share of GEO common stock plus $5.00
in cash for each outstanding share of Cornell common stock, at
the election of each Cornell stockholder, and (ii) no seats
on the board of directors of GEO would be offered to Cornell as
part of the transaction.
33
On April 9, 2010, the special committee met with
representatives of Hogan Lovells, Moelis & Company and
members of Cornell senior management present to discuss
GEOs revised proposal. Following discussion among those
present concerning the revised terms of the proposal, financial
analysis conducted by Moelis & Company concerning Cornell
and GEO and a review of the fiduciary duties of the Cornell
board of directors with representatives of Hogan Lovells, the
special committee determined to reject GEOs revised
proposal and to submit a counter proposal in writing to GEO
which would result in Cornell stockholders receiving, for each
outstanding share of Cornell common stock, either
(i) 1.3 shares of GEO common stock, or (ii) the
cash value of one share of GEO common stock plus $6.00, at such
stockholders election.
On April 10, 2010, representatives of GEO and GEO senior
management held extensive discussions regarding the terms of the
special committees counterproposal. Following those
discussions, on April 11, 2010, GEO submitted a revised
written, non-binding proposal to acquire Cornell pursuant to
which Cornells stockholders could elect to receive in
exchange for each outstanding share of Cornell common stock
either (i) 1.3 shares of GEO common stock, or (ii) the
cash value of one share of GEO common stock plus $6.00, at such
stockholders election. The proposal provided for the
execution of a definitive merger agreement on April 18,
2010 and a public announcement of the transaction on
April 19, 2010.
Hogan Lovells received the first draft of the definitive merger
agreement from GEOs counsel on April 13, 2010.
Thereafter, the parties and their respective advisors continued
mutual due diligence and, from April 13, 2010 through
April 18, 2010, negotiated the terms of a definitive merger
agreement and ancillary documents. The parties largely completed
their due diligence efforts on April 16, 2010.
On April 15, 2010, the GEO board of directors held a
telephonic meeting to discuss the proposed acquisition of
Cornell. Mr. Zoley summarized the status of recent
discussions and negotiations that had taken place regarding the
proposed transaction. He then reviewed in detail the terms of
GEOs proposal letter, dated April 11, 2010, which is
summarized above. A copy of the letter had been provided to the
GEO board of directors in advance of the meeting. Mr. Zoley
next reviewed the extensive history of discussions between the
two companies and the substantial due diligence that GEO had
conducted over the years on Cornells business. Discussions
were then had regarding the boards significant familiarity
with Cornells business and operations. Several GEO board
members expressed optimism that Cornell appeared to once again
have an interest in pursuing a transaction but questioned
whether a transaction could actually be completed on mutually
satisfactory terms given the parties history of terminated
discussions. A number of key factors relating to transaction
execution were then considered, including, among other things,
the extensive amount of due diligence the parties had conducted
on each others respective businesses in the past, the
information that was publicly available on both companies due to
their status as SEC reporting companies, the companies
status as competitors in the corrections industry, and the risk
that a lengthy process could significantly increase the
possibility that news of a potential transaction could leak and
make the transaction highly improbable. After taking these and
other relevant factors into account, the GEO board of directors
supported GEO managements view that an expedited timeline
for negotiations and due diligence would be an advisable
strategy for successfully executing a definitive merger
agreement with respect to a proposed transaction.
Representatives of Akerman Senterfitt then reviewed the proposed
terms of the merger agreement with Cornell in detail. Extensive
discussions were had regarding various key terms and provisions
of the merger agreement. Following these discussions on the
merger agreement, representatives of Akerman Senterfitt
delivered a detailed presentation regarding the GEO board of
directors fiduciary duties in connection with its review
and approval of the proposed transaction with Cornell. After
extensive discussion, the meeting was adjourned.
On April 16, 2010, the board of directors of Cornell,
including the members of the special committee, met with
representatives of Hogan Lovells, Moelis & Company and
members of Cornell senior management present to discuss the
status of due diligence efforts and negotiations concerning the
definitive merger agreement. Representatives of Hogan Lovells,
Moelis & Company and Cornell senior management reviewed for
the board, among other things, the directors fiduciary
duties, the proposed deal structure, preliminary due diligence
results and certain of GEOs corporate governance practices
and policies. The parties continued negotiations following such
meeting.
The special committee met again on April 18, 2010 with
representatives of Hogan Lovells, Moelis & Company and
members of Cornell senior management present to confer and agree
upon a recommendation to the board of
34
directors of Cornell regarding a potential transaction with GEO.
During this meeting, Mr. Hyman outlined a revised proposal
pursuant to which Cornells stockholders could elect to
receive in exchange for each outstanding share of Cornell common
stock either (i) 1.3 shares of GEO common stock or
(ii) the greater of the cash equivalent of
(a) 1.3 shares of GEO common stock or (b) one
share of GEO common stock plus $6.00, at the election of each
Cornell stockholder. GEOs proposal was contingent upon
certain conditions, including, among other things, that no more
than 20% of the shares of Cornell common stock be exchanged for
the cash consideration and that the aggregate cash consideration
payable would not, except in GEOs sole discretion, exceed
$100.0 million. The proposal was discussed at length by the
members of the special committee and the special
committees legal and financial advisors. Representatives
of Hogan Lovells also reviewed the status of the negotiations
concerning the definitive merger agreement and thereafter the
members of the special committee unanimously determined to
recommend, subject to the receipt of definitive documentation
from GEO consistent with the terms of the transaction as
presented by Mr. Hyman, the acceptance of GEOs
proposal to the board of directors of Cornell.
Immediately thereafter, the board of directors of Cornell,
including the members of the special committee, met with
representatives of Hogan Lovells, Moelis & Company and
members of Cornell senior management present to consider the
proposed transaction. Mr. Hyman outlined the terms of
GEOs revised merger proposal. Representatives of Hogan
Lovells advised the board of directors of its fiduciary duties
and its confidentiality obligations, and also reviewed the terms
of the draft merger agreement with the board of directors and
answered questions from the board members about the transaction
documents, including with respect to events which would trigger
the payment of a termination fee by Cornell to GEO and the
fiduciary duties of the Cornell board of directors in connection
with the receipt of superior proposals. A representative of
Moelis & Company presented its updated financial analysis
of the proposed merger and explained to the members of the
Cornell board of directors the mechanics of the proposed
election to be made by Cornell stockholders and other details
regarding the transaction structure. In connection with its
deliberations, the Cornell board of directors considered written
materials distributed in advance of the meeting by Moelis &
Company. Representatives of Hogan Lovells also reviewed with the
board the final results of the due diligence conducted on GEO.
The directors then engaged in a discussion with their advisors
about the transaction. Following such discussion, a
representative of Moelis & Company orally expressed its
opinion (subsequently confirmed in writing) that as of such
date, based upon and subject to the considerations, assumptions,
qualifications and limitations set forth therein, the
consideration to be received in the merger by the holders of
shares of Cornell common stock (viewed solely in their
capacities as holders of shares of Cornell common stock), was
fair from a financial point of view. Mr. Hyman disclosed to
the Cornell board of directors that GEO had requested him to
extend by one year, contingent upon the consummation of the
merger, the term of the non-competition period contained in
Mr. Hymans employment agreement. Such extension would
be made on mutually-agreeable terms to be documented after
execution of the merger agreement. Mr. Hyman reviewed the
proposed terms of such understanding, which had not yet been
finalized, and responded to questions from the Cornell board of
directors relating thereto. As of the date hereof, the parties
are working to agree on definitive documentation agreeable to
both parties regarding the extension of Mr. Hymans
non-competition period. Thereafter, the special committee
expressed its unanimous recommendation of the transaction to the
Cornell board of directors and then the Cornell board of
directors, having taken into consideration the information
presented, including the opinion of Moelis & Company,
approved the merger of GEO and Cornell and the merger agreement,
and voted to recommend the adoption of the merger agreement to
the holders of Cornells common stock. Promptly following
the vote of the members of the board of directors, Moelis &
Company delivered its written opinion, dated April 18,
2010, a copy of which is attached hereto as Annex E.
On April 18, 2010, the GEO board of directors met with
representatives of Akerman Senterfitt and GEOs financial
advisors to discuss the proposed transaction with Cornell.
During the meeting, Mr. Zoley outlined the revised merger
proposal. Barclays Capital and BofA Merrill Lynch reviewed with
the GEO board of directors their financial analysis of the
proposed merger consideration and each rendered to the GEO board
of directors an oral opinion (confirmed by delivery of a written
opinion) to the effect that, as of such date and based upon and
subject to the considerations, assumptions, qualifications and
limitations set forth therein, the consideration to be paid by
GEO in the merger was fair, from a financial point of view, to
GEO. Representatives of Akerman Senterfitt then reviewed with
the GEO board of directors the results of GEOs due
diligence review and the terms of the merger agreement. An
extensive discussion was had regarding various key terms and
provisions of the merger agreement. Representatives of Akerman
Senterfitt also discussed the fiduciary duties of the GEO board
of directors with respect
35
to the potential transaction. Thereafter, the GEO board of
directors, having taken into consideration the information
presented and the factors noted below in the section captioned
GEO Reasons for the Merger and the Recommendation of
GEOs Board of Directors Relating to the Merger,
approved the merger of GEO and Cornell, the merger agreement and
the GEO share issuance. The GEO board of directors voted to
recommend that the GEO shareholders approve the GEO share
issuance in connection with the merger. Following the vote of
the members of the GEO board of directors, Barclays Capital and
BofA Merrill Lynch each delivered their individual written
opinions, dated April 18, 2010, copies of which are
attached hereto as Annex C and Annex D.
Following the approval of Cornells board of directors, the
parties executed the merger agreement and certain related
agreements on April 18, 2010 and a joint press release was
issued on the morning of April 19, 2010.
GEO
Reasons for the Merger and the Recommendation of GEOs
Board of Directors Relating to the Merger
The GEO board of directors believes that the merger will provide
GEO shareholders with an interest in a combined company with an
enhanced platform to deliver high quality, diversified
government services and pursue new growth opportunities. In
evaluating the GEO share issuance in connection with the merger,
the GEO board of directors consulted with GEOs senior
management and legal and financial advisors. The GEO board of
directors has (i) determined that the merger consideration
is fair, from a financial point of view, and
(ii) recommended the approval of the GEO share issuance in
connection with the merger to the GEO shareholders.
In reaching its conclusion to recommend the GEO share issuance
in connection with the merger, the GEO board of directors
considered a number of factors, including those discussed below:
Strategic
Considerations
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Strong Strategic Benefits. The GEO board of
directors considered that two key strategic benefits of the
merger would be the combined companys increased scale and
the further diversification of GEOs service offerings. The
GEO board considered:
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that the combined company is expected to generate annual
revenues of more than $1.5 billion, and to materially
increase GEOs net income and free cash flow on an
annualized basis, giving GEO substantially more size than it has
pre-merger; and
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that the addition of Cornells substantial presence in the
community-based and behavioral health markets will further
diversify GEOs service offerings. Pre-merger, GEO operates
two community-based corrections facilities totaling 287 beds,
while Cornell operates 30 community-based facilities totaling
3,558 beds. Cornell operates 27 youth and family behavioral
health facilities totaling 3,043 beds. GEO does not currently
operate any youth and family behavioral health facilities.
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Expansion of GEO Care Business Unit into New Markets and
Service Offerings. GEO plans to place
Cornells community-based and youth and family behavioral
health operations under GEO Cares management. These two
divisions will incorporate an additional 57 facilities totaling
6,601 beds into GEO Cares operations. As a result of the
merger, GEO Care will have a presence in a total of 11 new
states and the District of Columbia. The GEO board of directors
believe that this expansion and further diversification of GEO
Cares business into new geographic markets and service
offerings will substantially increase the profile of GEO
Cares operational expertise and enhance GEO Cares
ability to pursue business in new states and business segments.
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GEO believes that the increased scale and diversification of the
combined company post-merger will enable the combined company to
better capitalize on attractive business development
opportunities and serve its customers, mitigate business segment
risk and result in a more balanced and diverse revenue base.
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36
Financial
Considerations
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Increased Ability to Compete More
Effectively. The GEO board of directors
considered the financial strength of the combined company
compared to GEOs financial standing pre-merger, including,
but not limited to, the GEO board of directors belief that:
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a post-merger GEO is expected to have increased cash flow which
should, in turn, enhance the combined companys access to
capital markets and lower its cost of capital. GEO strongly
believes that strengthening its access to capital through the
merger will enable it to more effectively compete with its
competitors in the private sector, as well as the public
sector; and
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a post-merger GEO will be increasingly well positioned to build
and finance new correctional facilities to meet customer demands
for larger facilities. GEO believes that being in a better
position to build and finance new correctional facilities is
important due to the increased demand for private sector
financing for the construction of new corrections facilities in
light of budgetary pressures faced by state and federal
governments.
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Consideration Consisting of GEO Common Stock or
Cash. The GEO board of directors considered that
providing for the merger consideration to consist of GEO common
stock or cash at the election of Cornell stockholders, subject
to the limitation that no more than 20% of the shares of Cornell
common stock be exchanged for the cash consideration and that
the aggregate cash consideration payable not exceed
$100.0 million except in GEOs sole discretion, was
favorable, including for the following reasons:
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the consideration is structured in a way that is intended to
qualify as a reorganization within the meaning of
Section 368(a) of the Code. This qualification means that
Cornell stockholders generally would not recognize gain for
federal income tax purposes, upon their exchange of shares
except with respect to cash received;
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the requirement to have a significant portion of the merger
consideration paid in shares of GEO common stock permits Cornell
stockholders to share in the growth and opportunities of the
combined company and participate in the potential future
increase in value of an investment in GEO or dispose of their
shares of GEO common stock received in the merger in the public
market while the remaining cash portion of the merger
consideration permits Cornell stockholders to receive a certain
cash value for their shares and as a result monetize their
investment in Cornell; and
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the significant stock portion of the merger consideration
permits GEO to use its common stock as currency and minimizes
the amount of cash from operations or borrowings that GEO has to
use to consummate the merger.
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Integration
Considerations
Synergies and Cost Savings of the Combined
Company. The management of GEO anticipates annual
synergies of $12-15 million during the year following the
completion of the merger, and believes there may be potential to
achieve additional synergies thereafter. GEO believes the merger
should result in a number of important synergies. These
synergies are expected to result primarily from achieving
greater operating efficiencies, capturing inherent economies of
scale and leveraging corporate resources. Any synergies achieved
will further enhance the free cash flow and return on invested
capital of the combined company.
In the course of its deliberations, the GEO board of directors
also considered a variety of risks and other factors in addition
to the factors listed above, relating to the merger, including
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the risk that Cornell could lose management contracts to operate
some of their facilities;
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the risk regarding the failure of the merger to be consummated
or any delay in consummating the merger;
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the risk that GEO and Cornell may experience difficulties or
delays in integrating their businesses; and
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the risk that the combined company may fail to realize the full
extent of, or any of, the anticipated synergies or other
benefits of the merger.
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37
In reaching its decision to recommend approval of the GEO share
issuance to GEOs shareholders in connection with the
merger, the GEO board of directors did not quantify or assign
any relative weights to different factors. The GEO board of
directors considered all of these factors as a whole, and
overall considered them to be favorable to, and to support, its
determination.
The GEO board of directors has determined that the GEO share
issuance in connection with the merger is advisable and in the
best interests of GEO and its shareholders. The GEO board of
directors recommends that GEO shareholders vote
FOR the GEO share issuance and
FOR the adjournment of the special meeting,
if necessary, to solicit additional proxies in favor of the
foregoing proposals.
Opinions
of GEOs Financial Advisors
GEO engaged Barclays Capital and BofA Merrill Lynch as
GEOs financial advisors in connection with the merger. At
an April 18, 2010 meeting of GEOs board of directors
held to evaluate the merger, Barclays Capital and BofA Merrill
Lynch rendered to GEOs board of directors separate oral
opinions, subsequently confirmed by delivery of separate written
opinions dated April 18, 2010, to the effect that, as of
that date and based on and subject to the qualifications,
limitations and assumptions stated in such opinions, the
consideration to be paid by GEO in the merger was fair, from a
financial point of view, to GEO.
The separate written opinions, each dated April 18,
2010, are attached as Annexes C and D, respectively, to
this joint proxy statement/prospectus. The written opinions set
forth, among other things, the assumptions made, procedures
followed, factors considered and limitations on the review
undertaken by GEOs financial advisors in rendering their
respective opinions. The following summaries are qualified in
their entirety by reference to the full text of each such
opinion. The opinions are addressed to GEOs board of
directors for its use in connection with its evaluation of the
merger consideration and relate only to the fairness, from a
financial point of view, to GEO of the consideration to be paid
by GEO in the merger. The opinions do not in any manner address
GEOs underlying business decision to proceed with or
effect the merger or any other matter and are not intended to
and do not constitute a recommendation to any shareholder as to
how such shareholder should vote or act with respect to the
merger or any related matter.
The terms of the merger (including, without limitation, the
consideration payable in the merger) were determined through
negotiations between GEO and Cornell, rather than by any
financial advisor, and the decision to enter into the merger
agreement was solely that of GEOs board of directors.
Barclays Capital and BofA Merrill Lynch did not recommend any
specific form of consideration to GEOs board of directors
or that any specific form of consideration constituted the only
appropriate consideration for the merger. The opinions were only
one of many factors considered by GEOs board of directors
in its evaluation of the merger and should not be viewed as
determinative of the views of GEOs board of directors,
management or any other party with respect to the merger or the
consideration payable in the merger.
Summary
of Barclays Capitals Opinion
In arriving at its opinion, Barclays Capital, among other things:
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reviewed the merger agreement and the specific financial terms
of the merger;
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reviewed and analyzed publicly available information concerning
Cornell and GEO that Barclays Capital believed to be relevant to
its analysis, including Cornells Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009, GEOs
Annual Report on
Form 10-K
for the fiscal year ended January 3, 2010 and other
relevant filings with the SEC;
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reviewed and analyzed financial and operating information with
respect to GEOs business, operations and prospects
furnished to Barclays Capital by GEO, including financial
projections of GEO prepared by GEOs management, referred
to as the GEO forecasts;
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reviewed and analyzed financial and operating information with
respect to Cornells business, operations and prospects
furnished to Barclays Capital by Cornell and GEO, including
financial projections of Cornell prepared by Cornells
management, referred to as the Cornell forecasts, and certain
adjustments thereto prepared by GEOs management reflecting
more conservative assumptions and estimates as to the future
financial performance of Cornell, referred to as the adjusted
Cornell forecasts;
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reviewed and analyzed public estimates of independent research
analysts with respect to the future financial performance of GEO
and Cornell;
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reviewed and analyzed trading histories of Cornell common stock
and GEO common stock from April 15, 2009 to April 16,
2010 and a comparison of those trading histories with each other;
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reviewed and analyzed a comparison of certain financial data of
Cornell and GEO with each other and with those of other
companies that Barclays Capital deemed relevant;
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reviewed and analyzed a comparison of the financial terms of the
merger with the financial terms of certain other transactions
that Barclays Capital deemed relevant;
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reviewed and analyzed the relative contributions of Cornell and
GEO to the future financial performance of the combined company
on a pro forma basis;
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reviewed and analyzed the potential pro forma financial impact
of the merger on the future financial performance of the
combined company, including the amount and timing of cost
savings expected by GEOs management to result from the
merger, referred to as cost savings;
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had discussions with GEOs and Cornells managements
concerning GEOs and Cornells respective businesses,
operations, assets, liabilities, financial condition and
prospects; and
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undertook such other studies, analyses and investigations as
Barclays Capital deemed appropriate.
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In arriving at its opinion, Barclays Capital assumed and relied
upon the accuracy and completeness of the financial and other
information used by Barclays Capital without any independent
verification of such information and further relied upon the
assurances of GEOs and Cornells managements that
they were not aware of any facts or circumstances that would
make such information inaccurate or misleading. With respect to
the Cornell forecasts, upon Cornells advice, Barclays
Capital assumed that such projections were reasonably prepared
on a basis reflecting the best currently available estimates and
judgments of Cornells management as to the future
financial performance of Cornell. With respect to the adjusted
Cornell forecasts and the GEO forecasts, upon GEOs advice,
Barclays Capital assumed that such projections were reasonably
prepared on a basis reflecting the best currently available
estimates and judgments of GEOs management as to the
future financial performance of Cornell and GEO and that Cornell
and GEO would perform substantially in accordance with such
projections, and Barclays Capital relied on the adjusted Cornell
forecasts and the GEO forecasts in arriving at its opinion. In
addition, upon GEOs advice, Barclays Capital assumed that
the amount and timing of the cost savings were reasonable and
would be realized in accordance with such estimates. Barclays
Capital assumed no responsibility for and expressed no view as
to any projections or estimates reviewed by it or the
assumptions on which they were based. In arriving at its
opinion, Barclays Capital did not conduct a physical inspection
of the properties and facilities of Cornell or GEO and did not
make or obtain any evaluations or appraisals of the assets or
liabilities, contingent or otherwise, of Cornell or GEO.
Barclays Capitals opinion necessarily was based upon
market, economic and other conditions as they existed on, and
could be evaluated as of, the date of its opinion. Barclays
Capital assumed no responsibility for updating or revising its
opinion based on events or circumstances that may occur after
the date of its opinion. Barclays Capital expressed no opinion
as to the prices at which shares of GEO common stock or Cornell
common stock would trade at any time following the announcement
of the merger or the prices at which shares of GEO common stock
would trade at any time following consummation of the merger.
39
Barclays Capital assumed the accuracy of the representations and
warranties contained in the merger agreement and all related
agreements. Barclays Capital also assumed, upon GEOs
advice, that all material governmental, regulatory and third
party approvals, consents and releases for the merger would be
obtained within the constraints contemplated by the merger
agreement and that the merger would be consummated in accordance
with the merger agreement without waiver, modification or
amendment of any material term, condition or agreement. Barclays
Capitals opinion does not in any manner address the form
or structure of the merger, the form or structure of the merger
consideration or any election, limitations or proration
procedures relating to the merger consideration. Barclays
Capital also did not express any opinion as to any tax or other
consequences that might result from the merger, nor did its
opinion address any legal, tax, regulatory or accounting
matters, as to which Barclays Capital understood that GEO had
obtained such advice as it deemed necessary from qualified
professionals.
Barclays Capital was not requested to opine as to, and its
opinion did not in any manner address, GEOs underlying
business decision to proceed with or effect the merger or the
likelihood of consummation of the merger. In addition, Barclays
Capital expressed no opinion on, and its opinion did not in any
manner address, the fairness of the amount or the nature of any
compensation to any officers, directors or employees of any
parties to the merger, or any class of such persons, relative to
the consideration to be paid by GEO in the merger or otherwise.
The issuance of Barclays Capitals opinion was approved by
Barclays Capitals fairness opinion committee. Barclay
Capitals opinion is not intended to be and does not
constitute a recommendation to any shareholder as to how such
shareholder should vote or act with respect to the merger or any
related matter. Except as described above, GEO imposed no other
instructions or limitations on Barclays Capital with respect to
the investigations made or the procedures followed by it in
rendering its opinion.
Barclays Capital is an internationally recognized investment
banking firm and, as part of its investment banking activities,
is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions,
investments for passive and control purposes, negotiated
underwritings, competitive bids, secondary distributions of
listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. In
selecting Barclays Capital as GEOs financial advisor in
connection with the merger, GEO considered Barclays
Capitals qualifications, reputation and experience in the
valuation of businesses and securities in connection with
mergers and acquisitions generally. GEO also considered its
prior relationship with Barclays Capital and its affiliates and
their provision of investment banking and financial services to
GEO described in more detail below.
As compensation for Barclays Capitals financial advisory
services to GEO in connection with the merger, GEO has agreed to
pay Barclays Capital an aggregate fee of $3.75 million, a
portion of which was payable upon execution of the merger
agreement and $3.375 million of which is contingent upon
the consummation of the merger. In addition, GEO has agreed to
reimburse Barclays Capital for expenses, including fees and
disbursements of Barclays Capitals counsel, and indemnify
Barclays Capital and related parties for certain liabilities
that may arise out of Barclays Capitals engagement.
Barclays Capital and its affiliates have performed various
investment banking and financial services for GEO in the past,
and expect to perform such services in the future, and have
received, and expect to receive, customary fees for such
services. Specifically, in the past two years, Barclays Capital
and its affiliates have acted as (i) joint book runner on
certain debt offerings of GEO and (ii) financial advisor to
GEO in connection with GEOs share buy-back program. In
addition, an affiliate of Barclays Capital currently is a lender
under certain of GEOs credit facilities. Barclays Capital
and its affiliates engage in a wide range of businesses from
investment and commercial banking, lending, asset management and
other financial and non-financial services. In the ordinary
course of business, Barclays Capital and its affiliates may
actively trade and effect transactions in the equity, debt
and/or other
securities (and any derivatives thereof) and financial
instruments (including loans and other obligations) of GEO,
Cornell and certain of their respective affiliates for our own
account and for the accounts of our customers and, accordingly,
may at any time hold long or short positions and investments in
such securities and financial instruments.
Summary
of BofA Merrill Lynchs Opinion
In connection with rendering its opinion, BofA Merrill Lynch,
among other things:
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reviewed certain publicly available business and financial
information relating to Cornell and GEO;
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40
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reviewed certain internal financial and operating information
with respect to the business, operations and prospects of
Cornell furnished to or discussed with BofA Merrill Lynch by
Cornells management, including certain financial forecasts
relating to Cornell prepared by Cornells management,
referred to as the Cornell forecasts;
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reviewed an alternative version of the Cornell forecasts
incorporating certain adjustments thereto made by GEOs
management, referred to as the adjusted Cornell forecasts, and
discussed with GEOs management its assessments as to the
relative likelihood of achieving the future financial results
reflected in the Cornell forecasts and the adjusted Cornell
forecasts;
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reviewed certain internal financial and operating information
with respect to the business, operations and prospects of GEO
furnished to or discussed with BofA Merrill Lynch by GEOs
management, including certain financial forecasts relating to
GEO prepared by GEOs management, referred to as the GEO
forecasts;
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reviewed certain estimates as to the amount and timing of cost
savings anticipated by GEOs management to result from the
merger, referred to as the cost savings;
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discussed the past and current business, operations, financial
condition and prospects of Cornell with members of senior
managements of Cornell and GEO, and discussed the past and
current business, operations, financial condition and prospects
of GEO with members of GEOs senior management;
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discussed with GEOs management its assessments as to
(a) Cornells existing and future relationships,
agreements and arrangements with, and GEOs ability to
retain, key management contracts of Cornell and (b) the
ability of GEO to integrate the businesses of GEO and Cornell;
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reviewed the potential pro forma financial impact of the merger
on the future financial performance of GEO, including the
potential effect on GEOs estimated earnings per share,
both before and after taking into account potential cost savings;
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reviewed the trading histories of Cornell common stock and GEO
common stock and a comparison of such trading histories with
each other;
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compared certain financial and stock market information of
Cornell and GEO with similar information of other companies BofA
Merrill Lynch deemed relevant;
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compared certain financial terms of the merger to financial
terms, to the extent publicly available, of other transactions
BofA Merrill Lynch deemed relevant;
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reviewed the relative financial contributions of Cornell and GEO
to the future financial performance of the combined company on a
pro forma basis;
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reviewed the merger agreement; and
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performed such other analyses and studies and considered such
other information and factors as BofA Merrill Lynch deemed
appropriate.
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In arriving at its opinion, BofA Merrill Lynch assumed and
relied upon, without independent verification, the accuracy and
completeness of the financial and other information and data
publicly available or provided to or otherwise reviewed by or
discussed with it and relied upon the assurances of the
managements of GEO and Cornell that they were not aware of any
facts or circumstances that would make such information or data
inaccurate or misleading in any material respect. With respect
to the Cornell forecasts, BofA Merrill Lynch was advised by
Cornell, and assumed, that they were reasonably prepared on
bases reflecting the best currently available estimates and good
faith judgments of Cornells management as to the future
financial performance of Cornell. With respect to the adjusted
Cornell forecasts, GEO forecasts and cost savings, BofA Merrill
Lynch assumed, at GEOs direction, that they were
reasonably prepared on bases reflecting the best currently
available estimates and good faith judgments of GEOs
management as to the future financial performance of Cornell and
GEO and the other matters covered thereby and, based on the
assessments of GEOs management as to the relative
likelihood of achieving the future financial results reflected
in the Cornell forecasts and the adjusted Cornell forecasts,
BofA Merrill Lynch
41
relied, at GEOs direction, on the adjusted Cornell
forecasts for purposes of its opinion. BofA Merrill Lynch also
relied, at GEOs direction, on the assessments of
GEOs management as to GEOs ability to achieve the
cost savings and was advised by GEO, and assumed, that the cost
savings would be realized in the amounts and at the times
projected. BofA Merrill Lynch further relied, at GEOs
direction, upon the assessments of GEOs management as to
Cornells existing and future relationships, agreements and
arrangements with, and GEOs ability to retain, key
management contracts of Cornell and as to the ability of GEO to
integrate the businesses of GEO and Cornell and assumed that
there would be no developments with respect to any such matters
that would have an adverse effect on Cornell, GEO or the
contemplated benefits of the merger.
BofA Merrill Lynch did not make and was not provided with any
independent evaluation or appraisal of the assets or
liabilities, contingent or otherwise, of Cornell or GEO, nor did
it make any physical inspection of the properties or assets of
Cornell or GEO. BofA Merrill Lynch did not evaluate the solvency
or fair value of Cornell or GEO under any state, federal or
other laws relating to bankruptcy, insolvency or similar
matters. BofA Merrill Lynch assumed, at GEOs direction,
that the merger would be consummated in accordance with its
terms, without waiver, modification or amendment of any material
term, condition or agreement and that, in the course of
obtaining the necessary governmental, regulatory and other
approvals, consents, releases and waivers for the merger, no
delay, limitation, restriction or condition, including any
divestiture requirements or amendments or modifications, would
be imposed that would have an adverse effect on Cornell, GEO or
the contemplated benefits of the merger. BofA Merrill Lynch also
assumed, at GEOs direction, that the merger would qualify
for federal income tax purposes as a reorganization under the
provisions of Section 368(a) of the Code.
BofA Merrill Lynch expressed no view or opinion as to any terms
or other aspects of the merger, other than the merger
consideration to the extent expressly specified in its opinion,
including, without limitation, the form or structure of the
merger, the form or structure of the merger consideration or any
election, limitations or proration procedures relating to the
merger consideration. BofA Merrill Lynchs opinion was
limited to the fairness, from a financial point of view, to GEO
of the merger consideration to be paid in the merger and no
opinion or view was expressed with respect to any consideration
received in connection with the merger by the holders of any
class of securities, creditors or other constituencies of any
party. In addition, no opinion or view was expressed with
respect to the fairness, financial or otherwise, of the amount,
nature or any other aspect of any compensation to any of the
officers, directors or employees of any party to the merger, or
class of such persons, relative to the merger consideration.
Furthermore, no opinion or view was expressed as to the relative
merits of the merger in comparison to other strategies or
transactions that might be available to GEO or in which GEO
might engage or as to the underlying business decision of GEO to
proceed with or effect the merger. BofA Merrill Lynch did not
express any opinion as to what the value of GEO common stock
actually would be when issued or the prices at which GEO common
stock or Cornell common stock would trade at any time, including
following announcement or consummation of the merger. BofA
Merrill Lynch also did not express any view or opinion with
respect to, and relied, with GEOs consent, upon the
assessments of GEOs management regarding, legal,
regulatory, accounting, tax or similar matters relating to
Cornell, GEO or the merger as to which BofA Merrill Lynch
understood that GEO had obtained such advice as it deemed
necessary from qualified professionals. In addition, BofA
Merrill Lynch expressed no opinion or recommendation as to how
any shareholder should vote or act in connection with the merger
or any related matter.
BofA Merrill Lynchs opinion was necessarily based on
financial, economic, monetary, market and other conditions and
circumstances as in effect on, and the information made
available to BofA Merrill Lynch as of, the date of its opinion.
It should be understood that subsequent developments may affect
its opinion, and BofA Merrill Lynch does not have any obligation
to update, revise or reaffirm its opinion. The issuance of BofA
Merrill Lynchs opinion was approved by BofA Merrill
Lynchs Americas Fairness Opinion Review Committee. Except
as described above, GEO imposed no other limitations on the
investigations made or procedures followed by BofA Merrill Lynch
in rendering its opinion.
GEO has agreed to pay BofA Merrill Lynch for its services as
financial advisor to GEO in connection with the merger an
aggregate fee of $3.75 million, a portion of which was
payable upon execution of the merger agreement and
$3.375 million of which is contingent upon the completion
of the merger. GEO also has agreed to reimburse BofA Merrill
Lynch for its expenses, including fees and disbursements of BofA
Merrill Lynchs counsel, incurred in connection with BofA
Merrill Lynchs engagement and to indemnify BofA Merrill
Lynch, any controlling person of
42
BofA Merrill Lynch and each of their respective directors,
officers, employees, agents and affiliates against specified
liabilities, including liabilities under the federal securities
laws.
BofA Merrill Lynch and its affiliates comprise a full service
securities firm and commercial bank engaged in securities,
commodities and derivatives trading, foreign exchange and other
brokerage activities and principal investing as well as
providing investment, corporate and private banking, asset and
investment management, financing and financial advisory services
and other commercial services and products to a wide range of
companies, governments and individuals. In the ordinary course
of business, BofA Merrill Lynch and its affiliates may invest on
a principal basis or on behalf of customers or manage funds that
invest, make or hold long or short positions, finance positions
or trade or otherwise effect transactions in equity, debt or
other securities or financial instruments (including
derivatives, bank loans or other obligations) of GEO, Cornell
and certain of their respective affiliates.
BofA Merrill Lynch and its affiliates in the past have provided,
currently are providing, and in the future may provide,
investment banking, commercial banking and other financial
services to GEO and have received or in the future may receive
compensation for the rendering of these services, including
(i) having acted as joint book runner on certain debt
offerings of GEO and as dealer manager for a tender offer
undertaken by GEO for certain of its outstanding notes,
(ii) having acted or acting as lender under various credit
facilities of GEO and (iii) having provided or providing
certain treasury management services to GEO. In addition, BofA
Merrill Lynch and its affiliates in the past have provided,
currently are providing, and in the future may provide,
investment banking, commercial banking and other financial
services to Cornell and have received or in the future may
receive compensation for the rendering of these services,
including having acted or acting as syndication agent for,
and/or as
lender under, various credit and leasing facilities of Cornell.
BofA Merrill Lynch is an internationally recognized investment
banking firm which is regularly engaged in providing financial
advisory services in connection with mergers and acquisitions.
In selecting BofA Merrill Lynch as GEOs financial advisor
in connection with the merger, GEO considered BofA Merrill
Lynchs experience in transactions similar to the merger
and reputation in the investment community. GEO also considered
its prior relationship with BofA Merrill Lynch and its
affiliates and their provision of investment banking, commercial
banking and other financial services to GEO described in more
detail above.
Summary
of Financial Analyses
In connection with rendering their respective opinions,
GEOs financial advisors performed certain financial,
comparative and other analyses as summarized below. This summary
is not a complete description of the financial analyses
performed and factors considered in connection with such
opinions. In arriving at their respective opinions, GEOs
financial advisors did not ascribe a specific range of values to
shares of GEO common stock or Cornell common stock but rather
made their respective determinations as to the fairness, from a
financial point of view, to GEO of the consideration to be paid
by GEO in the merger on the basis of various financial and
comparative analyses taken as a whole. The preparation of a
fairness opinion is a complex process and involves various
determinations as to the most appropriate and relevant methods
of financial and comparative analyses and the application of
those methods to the particular circumstances. Therefore, a
fairness opinion is not readily susceptible to summary
description.
In arriving at their respective opinions, GEOs financial
advisors did not attribute any particular weight to any single
analysis or factor considered but rather made qualitative
judgments as to the significance and relevance of each analysis
and factor relative to all other analyses and factors performed
and considered and in the context of the circumstances of the
particular transaction. Accordingly, the analyses must be
considered as a whole, as considering any portion of such
analyses and factors, without considering all analyses and
factors as a whole, could create a misleading or incomplete view
of the process underlying such opinions. The fact that any
specific analysis has been referred to in the summary below is
not meant to indicate that such analysis was given greater
weight than any other analysis referred to in the summary.
In performing their analyses, GEOs financial advisors
considered industry performance, general business and economic
conditions and other matters existing as of April 18, 2010,
many of which are beyond the control of GEO, Cornell or any
other parties to the merger. None of GEO, Cornell or GEOs
financial advisors or any other person assumes responsibility if
future results are different from those discussed, whether or
not any such difference is
43
material. Any estimates contained in these analyses and the
ranges of valuations resulting from any particular analysis are
not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or
less favorable than as set forth below. In addition, analyses
relating to the value of businesses or securities do not purport
to be appraisals or necessarily reflect the prices at which
businesses or securities may actually be sold or acquired.
Accordingly, the assumptions and estimates used in, and the
results derived from, the following analyses are inherently
subject to substantial uncertainty.
The following is a summary of the material financial analyses
reviewed with GEOs board of directors by GEOs
financial advisors at GEOs board meeting on April 18,
2010. Certain financial analyses summarized below include
information presented in tabular format. In order to fully
understand the financial analyses, the tables must be read
together with the text of each summary, as the tables alone do
not constitute a complete description of the financial analyses.
Considering the data in the tables below without considering the
full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses, could
create a misleading or incomplete view of such financial
analyses. Barclays Capital and BofA Merrill Lynch performed
separate financial analyses with respect to Cornell and GEO on a
standalone basis and jointly performed certain pro forma
financial analyses as more fully described below. For purposes
of the financial analyses summarized below, the term
implied merger consideration refers to the implied
per share value of (i) the all-stock merger consideration
of $24.91 based on 1.3 shares of GEO common stock and
GEOs closing stock price of $19.16 as of April 16,
2010 (the last trading day prior to execution of the merger
agreement) and (ii) the all-cash consideration of $25.16
based on 1.0 share of GEO common stock and GEOs
closing stock price of $19.16 as of April 16, 2010 plus
$6.00. Also for purposes of the financial analyses summarized
below, the term merger exchange ratios refers to the
exchange ratio of 1.3 and the implied all-cash exchange ratio of
1.31 based on the implied value of the all-cash merger
consideration of $25.16 divided by GEOs closing stock
price on April 16, 2010.
Barclays
Capital Financial Analyses
Cornell Selected Company Analysis. Barclays
Capital reviewed and compared specific financial and operating
data relating to Cornell with the following two selected
correctional, detention, educational, rehabilitation and
treatment services providers, which companies were selected
generally because they operate in whole or in part in the same
industry as Cornell:
|
|
|
|
|
GEO
|
|
|
|
Corrections Corporation of America
|
No selected company is identical to Cornell and such analysis
may not necessarily utilize all companies that could be deemed
comparable to Cornell. Accordingly, Barclays Capital believes
that purely quantitative analyses are not, in isolation,
determinative and that qualitative judgments concerning
differences in the business, financial and operating
characteristics and prospects of Cornell and the selected
companies that could affect public trading values also are
relevant.
Barclays Capital calculated, among other things, the ratio of
each companys enterprise value to its calendar year 2010
estimated earnings before interest, taxes, depreciation and
amortization, or EBITDA. Enterprise value generally was obtained
by adding short-term and long-term debt to the sum of the market
value of common equity, calculated using a fully diluted share
count assuming the treasury stock method, and the book value of
any minority interest, and subtracting cash and cash
equivalents. These calculations were performed based on publicly
available financial data and closing stock prices as of
April 16, 2010, the last trading date prior to execution of
the merger agreement. Barclays Capital then applied a range of
selected multiples of calendar year 2010 estimated EBITDA
derived from the selected companies to corresponding data of
Cornell based on the adjusted Cornell forecasts. This analysis
indicated the following implied per share equity value reference
range for Cornell, as compared to the implied merger
consideration:
|
|
|
|
|
Implied per Share Equity Value
|
|
Implied Merger Consideration Based on:
|
Reference Range for Cornell
|
|
All-Stock Consideration
|
|
All-Cash Consideration
|
|
$22.58 - $27.57
|
|
$24.91
|
|
$25.16
|
44
Barclays Capital also calculated an implied exchange ratio
reference range by dividing the high and low ends of the implied
per share equity value reference range for Cornell described
above by GEOs closing stock price of $19.16 as of
April 16, 2010. This indicated the following implied
exchange ratio reference range, as compared to the merger
exchange ratios:
|
|
|
|
|
Implied Exchange Ratio
|
|
Merger Exchange Ratios Based on:
|
Reference Range
|
|
All-Stock Consideration
|
|
All-Cash Consideration
|
|
1.18x - 1.44x
|
|
1.3x
|
|
1.31x
|
Cornell Selected Transactions
Analysis. Barclays Capital reviewed and compared
the purchase prices and financial multiples paid in the
following nine selected transactions involving correctional,
detention, educational, rehabilitation and treatment services
providers, which transactions were selected generally because
they involve companies that operate in whole or in part in the
same industry or provide similar services as Cornell:
|
|
|
Acquiror
|
|
Target
|
|
Psychiatric Solutions, Inc.
|
|
Horizon Health Corporation
|
Psychiatric Solutions, Inc.
|
|
Alternative Behavioral Services, Inc.
|
GEO
|
|
Correctional Services Corp.
|
Cornell
|
|
Correctional Systems, Inc.
|
Electra Partners Europe Limited
|
|
Global Solutions Limited
|
Psychiatric Solutions, Inc.
|
|
Ramsay Youth Services, Inc.
|
National MENTOR Holdings, Inc.
|
|
REM, Inc.
|
Psychiatric Solutions, Inc.
|
|
The Brown Schools, Inc. (six psychiatric
facilities)
|
Group 4 Falck A/S
|
|
The Wackenhut Corp.
|
No selected transaction or company is identical to Cornell or
the merger and such analysis may not necessarily utilize all
transactions or companies that could be deemed comparable to
Cornell or the merger. Accordingly, Barclays Capital believes
that purely quantitative analyses are not, in isolation,
determinative and that qualitative judgments concerning
differences in the characteristics of the selected transactions
and the merger that could affect the acquisition values of the
selected target companies and Cornell also are relevant.
Barclays Capital calculated transaction values in the selected
transactions as the ratio of the target companys
enterprise value, based on the consideration payable in the
selected transaction, to its latest 12 months EBITDA based
on publicly available information at the time of announcement of
the relevant transaction. Barclays Capital then applied a range
of selected multiples of latest 12 months EBITDA derived
from the selected transactions to Cornells calendar year
2009 EBITDA based on Cornells public filings and to
Cornells calendar year 2010 estimated EBITDA based on the
adjusted Cornell forecasts. This analysis indicated the
following implied per share equity value reference ranges for
Cornell, as compared to the implied merger consideration:
|
|
|
|
|
|
|
Implied per Share Equity Value
|
|
|
Reference Ranges for Cornell Based on:
|
|
Implied Merger Consideration Based on:
|
2009A
|
|
2010E
|
|
All-Stock
|
|
All-Cash
|
EBITDA
|
|
EBITDA
|
|
Consideration
|
|
Consideration
|
|
$33.06 - $38.70
|
|
$27.57 - $32.57
|
|
$24.91
|
|
$25.16
|
Barclays Capital also calculated implied exchange ratio
reference ranges by dividing the high and low ends of the
implied per share equity value reference ranges for Cornell
described above by GEOs closing stock price of $19.16 as
of April 16, 2010. This indicated the following implied
exchange ratio reference ranges, as compared to the merger
exchange ratios:
|
|
|
|
|
|
|
Implied Exchange Ratio
|
|
|
Reference Ranges Based on:
|
|
Merger Exchange Ratios Based on:
|
2009A
|
|
2010E
|
|
All-Stock
|
|
All-Cash
|
EBITDA
|
|
EBITDA
|
|
Consideration
|
|
Consideration
|
|
1.73x - 2.02x
|
|
1.44x - 1.70x
|
|
1.3x
|
|
1.31x
|
45
Cornell Discounted Cash Flow
Analysis. Barclays Capital performed a discounted
cash flow analysis of Cornell to calculate the estimated present
value of the standalone future cash flows of Cornell.
Present value refers to the current value of future
cash flows or amounts and is obtained by discounting those
future cash flows or amounts by a discount rate that takes into
account macroeconomic assumptions and estimates of risk, the
opportunity cost of capital, expected returns and other
appropriate factors. To calculate an implied reference range for
Cornell using the discounted cash flow method, Barclays Capital
added (i) Cornells projected after-tax unlevered free
cash flows for fiscal years 2010 through 2014 based on the
adjusted Cornell forecasts to (ii) the residual or terminal
value of Cornell at the end of the forecast period, and
discounted such amounts to present value using a range of
selected discount rates. The after-tax unlevered free cash flows
were calculated by taking the tax-affected earnings before
interest and tax expense, adding back non-cash depreciation and
amortization, subtracting capital expenditures and adjusting for
changes in working capital. The terminal value of Cornell was
estimated by applying to Cornells fiscal year 2014
estimated EBITDA a range of terminal value multiples of 7.5x to
8.5x, which range was selected taking into consideration, among
other things, calendar year 2010 estimated EBITDA multiples
derived from Cornell and the selected companies referred to
above under the Cornell Selected Company Analysis.
The cash flows and terminal values were then discounted to
present value using discount rates ranging from 9.0% to 11.0%,
which range was selected taking into consideration, among other
things, a weighted average cost of capital calculation. This
analysis indicated the following implied per share equity value
reference range for Cornell, as compared to the implied merger
consideration:
|
|
|
|
|
|
|
Implied Merger Consideration Based on:
|
Implied per Share Equity Value
|
|
All-Stock
|
|
All-Cash
|
Reference Range for Cornell
|
|
Consideration
|
|
Consideration
|
|
$21.81 - $28.29
|
|
$24.91
|
|
$25.16
|
Barclays Capital also calculated an implied exchange ratio
reference range by dividing the high and low ends of the implied
per share equity value reference range for Cornell described
above by GEOs closing stock price of $19.16 as of
April 16, 2010. This indicated the following implied
exchange ratio reference range, as compared to the merger
exchange ratios:
|
|
|
|
|
|
|
Merger Exchange Ratios Based on:
|
Implied Exchange Ratio
|
|
All-Stock
|
|
All-Cash
|
Reference Range
|
|
Consideration
|
|
Consideration
|
|
1.14x - 1.48x
|
|
1.3x
|
|
1.31x
|
Other Factors. Barclays Capital also
considered, for informational purposes, certain other factors,
including:
|
|
|
|
|
premiums paid in selected precedent transactions with
transaction values of between $200 million and
$1 billion announced during the five-year period ended
April 13, 2010;
|
|
|
|
implied exchange ratios based on certain market and financial
data for Cornell and GEO;
|
|
|
|
target prices for Cornell common stock estimated by selected
research analysts; and
|
|
|
|
high and low closing prices of Cornell common stock during the
52-week period ended April 16, 2010.
|
BofA
Merrill Lynch Financial Analyses
Cornell Selected Companies Analysis. BofA
Merrill Lynch reviewed publicly available financial and stock
market information for Cornell and the following three selected
correctional, detention, educational, rehabilitation and
treatment services providers, which companies were selected
generally because they operate in whole or in part in the same
industry or provide similar services as Cornell:
|
|
|
|
|
GEO
|
|
|
|
Corrections Corporation of America
|
|
|
|
The Providence Service Corporation
|
BofA Merrill Lynch reviewed, among other things, enterprise
values of the selected companies, calculated as equity values
based on closing stock prices on April 16, 2010, plus debt,
less cash and other adjustments, as a multiple of
46
calendar years 2010 and 2011 estimated EBITDA. BofA Merrill
Lynch also reviewed per share equity values, based on closing
stock prices on April 16, 2010 (the last trading day prior
to execution of the merger agreement), of the selected companies
as a multiple of calendar year 2010 estimated earnings per
share, referred to as EPS. BofA Merrill Lynch then applied a
range of selected multiples of calendar years 2010 and 2011
estimated EBITDA and calendar year 2010 estimated EPS derived
from the selected companies to corresponding data of Cornell.
Estimated financial data of the selected companies were based on
publicly available research analysts estimates, public
filings and other publicly available information. Estimated
financial data of Cornell were based on the adjusted Cornell
forecasts. This analysis indicated the following implied per
share equity value reference ranges for Cornell, as compared to
the implied merger consideration:
|
|
|
|
|
|
|
|
|
Implied per Share Equity Value
|
|
|
Reference Ranges for Cornell Based on:
|
|
Implied Merger Consideration Based on:
|
2010E
|
|
2011E
|
|
2010E
|
|
All-Stock
|
|
All-Cash
|
EBITDA
|
|
EBITDA
|
|
EPS
|
|
Consideration
|
|
Consideration
|
|
$17.60 - $25.10
|
|
$17.50 - $25.60
|
|
$15.50 - $17.80
|
|
$24.91
|
|
$25.16
|
BofA Merrill Lynch also calculated implied exchange ratio
reference ranges derived from the implied per share equity value
reference ranges for Cornell described above and the implied per
share equity value reference ranges for GEO described below
under the caption - GEO selected companies analysis.
This indicated the following implied exchange ratio reference
ranges, as compared to the merger exchange ratios:
|
|
|
|
|
|
|
|
|
Implied Exchange Ratio
|
|
|
Reference Ranges Based on:
|
|
Merger Exchange Ratios Based on:
|
2010E
|
|
2011E
|
|
2010E
|
|
All-Stock
|
|
All-Cash
|
EBITDA
|
|
EBITDA
|
|
EPS
|
|
Consideration
|
|
Consideration
|
|
0.77x - 1.31x
|
|
0.83x - 1.50x
|
|
0.70x - 0.93x
|
|
1.3x
|
|
1.31x
|
No company used in this analysis is identical to Cornell and
such analysis may not necessarily utilize all companies that
could be deemed comparable to Cornell. Accordingly, an
evaluation of the results of this analysis is not entirely
mathematical. Rather, this analysis involves complex
considerations and judgments concerning differences in financial
and operating characteristics and other factors that could
affect the public trading or other values of the companies to
which Cornell was compared.
Cornell Selected Precedent Transactions
Analysis. BofA Merrill Lynch reviewed, to the
extent publicly available, financial information relating to the
following nine selected transactions involving correctional,
detention, educational, rehabilitation and treatment services
providers, which transactions were selected generally because
they involve companies that operate in whole or in part in the
same industry or provide similar services as Cornell:
|
|
|
Acquiror
|
|
Target
|
|
G4S plc
|
|
Global Solutions Limited
|
Psychiatric Solutions, Inc.
|
|
Horizon Health Corporation
|
GEO
|
|
Correctional Services Corp.
|
Cornell
|
|
Correctional Systems, Inc.
|
Electra Partners Europe Limited
|
|
Global Solutions Limited
|
Psychiatric Solutions, Inc.
|
|
Ramsay Youth Services, Inc.
|
National MENTOR Holdings, Inc.
|
|
REM, Inc.
|
Psychiatric Solutions, Inc.
|
|
The Brown Schools, Inc. (six psychiatric
facilities)
|
Group 4 Falck A/S
|
|
The Wackenhut Corp.
|
BofA Merrill Lynch reviewed transaction values, calculated as
the enterprise value implied for the target company, based on
the consideration payable in the selected transaction, as a
multiple of the target companys latest 12 months
EBITDA. BofA Merrill Lynch then applied a range of selected
multiples of latest 12 months EBITDA derived from the
selected transactions to Cornells calendar year 2010
estimated EBITDA which, given the recent decline in
Cornells EBITDA, served as a proxy for Cornells
latest 12 months EBITDA. Estimated financial data of the
47
selected transactions were based on publicly available
information. Estimated financial data of Cornell were based on
the adjusted Cornell forecasts. This analysis indicated the
following implied per share equity value reference range for
Cornell, as compared to the implied merger consideration:
|
|
|
|
|
|
|
Implied Merger Consideration Based on:
|
Implied per Share Equity Value
|
|
All-Stock
|
|
All-Cash
|
Reference Range for Cornell
|
|
Consideration
|
|
Consideration
|
|
$30.10 - $35.10
|
|
$24.91
|
|
$25.16
|
No company, business or transaction used in this analysis is
identical to Cornell or the merger and such analysis may not
necessarily utilize all transactions or companies that could be
deemed comparable to Cornell or the merger. Accordingly, an
evaluation of the results of this analysis is not entirely
mathematical. Rather, this analysis involves complex
considerations and judgments concerning differences in financial
and operating characteristics and other factors that could
affect the acquisition or other values of the companies,
business segments or transactions to which Cornell and the
merger were compared.
Cornell Discounted Cash Flow Analysis. BofA
Merrill Lynch performed a discounted cash flow analysis of
Cornell to calculate the estimated present value of the
standalone unlevered, after-tax free cash flows that Cornell was
forecasted to generate during the second through fourth quarters
of calendar year 2010 through the full calendar year 2014 based
on the Cornell forecasts and the adjusted Cornell forecasts.
BofA Merrill Lynch calculated terminal values for Cornell by
applying to Cornells fiscal year 2014 estimated EBITDA a
range of terminal multiples of 6.5x to 8.0x, which range was
selected taking into consideration, among other things, calendar
year 2010 estimated EBITDA multiples derived from Cornell and
the selected companies referred to above under the Cornell
Selected Companies Analysis. The cash flows and terminal
values were then discounted to present value as of December 31,
2009 using discount rates ranging from 8.0% to 10.0%, which
range was selected taking into consideration, among other
things, a weighted average cost of capital calculation. BofA
Merrill Lynch also calculated the estimated present value of
potential cost savings estimated by GEOs management to
result from the merger assuming a selected perpetuity growth
rate of 0.5% and discount rate of 9.0%. This analysis indicated
the following implied per share equity value reference ranges
for Cornell, both before and after taking into account the
estimated present value of potential cost savings, as compared
to the implied merger consideration:
|
|
|
|
|
|
|
Implied per Share Equity Value
|
|
Implied Merger
|
Reference Ranges for Cornell Based on:
|
|
Consideration Based on:
|
Cornell Forecasts
|
|
Adjusted Cornell Forecasts
|
|
All-Stock
|
|
All-Cash
|
(Without Cost Savings)
|
|
(Without Cost Savings)
|
|
Consideration
|
|
Consideration
|
|
$30.70 - $42.40
|
|
$18.90 - $27.40
|
|
$24.91
|
|
$25.16
|
|
|
|
|
|
|
|
Cornell Forecasts
(With Cost Savings)
|
|
Adjusted Cornell Forecasts
(With
Cost Savings)
|
|
|
|
|
|
|
|
|
|
|
|
$35.50 - $47.20
|
|
$23.70 - $32.20
|
|
|
|
|
GEO Selected Companies Analysis. BofA Merrill
Lynch reviewed publicly available financial and stock market
information for GEO and the following three selected
correctional, detention, educational, rehabilitation and
treatment services providers, which companies were selected
generally because they operate in whole or in part in the same
industry or provide similar services as GEO:
|
|
|
|
|
Cornell
|
|
|
|
Corrections Corporation of America
|
|
|
|
The Providence Service Corporation
|
BofA Merrill Lynch reviewed, among other things, enterprise
values of the selected companies, calculated as equity values
based on closing stock prices on April 16, 2010, plus debt,
less cash and other adjustments, as a multiple of calendar years
2010 and 2011 estimated EBITDA. BofA Merrill Lynch also reviewed
per share equity values, based on closing stock prices on
April 16, 2010, of the selected companies as a multiple of
calendar year 2010 estimated EPS. BofA Merrill Lynch then
applied a range of selected multiples of calendar years 2010 and
2011 estimated EBITDA and calendar year 2010 estimated EPS
derived from the selected companies to corresponding data of
GEO. Estimated financial data of the selected companies were
based on publicly available research analysts
48
estimates, public filings and other publicly available
information. Estimated financial data of GEO were based on the
GEO forecasts. This analysis indicated the following implied per
share equity value reference ranges for GEO, as compared to the
closing price of GEO common stock on April 16, 2010:
|
|
|
|
|
|
|
Implied per Share Equity Value
|
|
|
Reference Ranges for GEO Based on:
|
|
Closing Price of
|
2010E
|
|
2011E
|
|
2010E
|
|
GEO Common Stock
|
EBITDA
|
|
EBITDA
|
|
EPS
|
|
on April 16, 2010
|
|
$19.10 - $22.80
|
|
$17.10 - $21.10
|
|
$19.10 - $22.00
|
|
$19.16
|
No company used in this analysis is identical to GEO and such
analysis may not necessarily utilize all companies that could be
deemed comparable to GEO. Accordingly, an evaluation of the
results of this analysis is not entirely mathematical. Rather,
this analysis involves complex considerations and judgments
concerning differences in financial and operating
characteristics and other factors that could affect the public
trading or other values of the companies to which GEO was
compared.
Other Factors. BofA Merrill Lynch also
considered, for informational purposes, certain other factors,
including:
|
|
|
|
|
high and low closing prices of Cornell common stock and GEO
common stock during the 52-week period ended April 16,
2010; and
|
|
|
|
target stock prices for Cornell common stock and GEO common
stock estimated by selected research analysts.
|
Barclays
Capital and BofA Merrill Lynch Joint Pro Forma Financial
Analyses
Pro Forma Contribution Analysis. Barclays
Capital and BofA Merrill Lynch reviewed the relative financial
contributions of Cornell and GEO to the estimated financial
performance of the combined company on a pro forma basis.
Barclays Capital and BofA Merrill Lynch reviewed the pro forma
combined companys estimated revenue, EBITDA and earnings
before interest and taxes, referred to as EBIT, for fiscal years
2010 and 2011 based on the adjusted Cornell forecasts (in the
case of Cornell financial data) and the GEO forecasts (in the
case of GEO financial data). Barclays Capital and BofA Merrill
Lynch calculated the overall aggregate equity ownership
percentages of Cornell stockholders and GEO shareholders in the
combined company based on such relative contributions, and then
compared such percentages to the aggregate pro forma equity
ownership percentages of Cornell stockholders and GEO
shareholders in the combined company immediately upon
consummation of the merger based on the merger consideration
assuming either all-stock consideration or the maximum
percentage of cash payable in the merger of 20%. This analysis
indicated the following:
|
|
|
|
|
|
|
Aggregate Pro Forma Equity Ownership
|
|
|
of GEO Shareholders Based on:
|
Overall Contribution Percentage
|
|
All-Stock
|
|
80% Stock / 20%
|
Reference Range for GEO
|
|
Consideration
|
|
Cash Consideration
|
|
69.4% - 74.3%
|
|
71%
|
|
75%
|
|
|
|
|
|
|
|
Aggregate Pro Forma Equity Ownership
|
|
|
of Cornell Stockholders Based on:
|
Overall Contribution Percentage
|
|
All-Stock
|
|
80% Stock / 20%
|
Reference Range for Cornell
|
|
Consideration
|
|
Cash Consideration
|
|
25.7% - 30.6%
|
|
29%
|
|
25%
|
Potential Pro Forma EPS Impact. Barclays
Capital and BofA Merrill Lynch reviewed the potential pro forma
financial effects of the merger on GEOs fiscal year 2011
estimated EPS, both before and after taking into account
potential cost savings estimated by GEOs management to
result from the merger, based on (i) the GEO forecasts and
the Cornell forecasts, (ii) the GEO forecasts and the
adjusted Cornell forecasts and (iii) publicly available
research analysts consensus estimates with respect to GEO,
referred to as GEO consensus estimates, and the
49
adjusted Cornell forecasts. Assuming the maximum percentage of
cash payable in the merger of 20%, this analysis indicated that
the merger could be:
|
|
|
|
|
accretive to GEOs fiscal year 2011 estimated EPS based on
the Cornell forecasts and GEO forecasts, both before and after
taking into account potential cost savings;
|
|
|
|
dilutive to GEOs fiscal year 2011 estimated EPS based on
the adjusted Cornell forecasts and both the GEO forecasts and
GEO consensus estimates, before taking into account potential
cost savings; and
|
|
|
|
accretive to GEOs fiscal year 2011 estimated EPS based on
the adjusted Cornell forecasts and both the GEO forecasts and
GEO consensus estimates, after taking into account potential
cost savings.
|
The actual results achieved by the combined company may vary
from forecasted results and the variations may be material.
Interests
of GEO Executive Officers and Directors in the Merger
In considering the recommendation of the GEO board of directors
with respect to the merger, GEO shareholders should be aware
that executive officers of GEO and members of the GEO board of
directors may have interests in the transactions contemplated by
the merger agreement that may be different from, or in addition
to, the interests of the GEO shareholders generally. The GEO
board of directors was aware of these interests and considered
them, among other matters, in approving the merger agreement and
making its recommendation. These interests are summarized below.
Board
of Directors and Board Committees
At the effective time of the merger, all members of the GEO
board of directors will continue as directors of the combined
company. Mr. Zoley, currently the chairman of the board and
chief executive officer of GEO, will continue in those roles
with the combined company.
Executive
Officers
At the effective time of the merger, all executive officers of
the GEO management team will continue in those roles with the
combined company.
Cornell
Reasons for the Merger and the Recommendation of the Cornell
Board of Directors
The Cornell board of directors believes the merger presents an
opportunity to merge with a successful worldwide private
provider of correctional services and create a combined company
that will have revenues of approximately $1.5 billion,
enhanced scale, diversification, and complementary service
offerings. In reaching its decision to approve the Merger
Agreement, the Cornell board of directors consulted with its
legal advisors regarding its fiduciary duties, the terms of the
merger agreement and related issues, and reviewed with its
financial advisor, Moelis & Company, and the senior
management of Cornell, among other things, operational matters,
the financial aspects and the fairness of the transaction to the
Cornell stockholders from a financial point of view. The Cornell
board of directors has (i) determined that the merger is
fair to, and in the best interests of, Cornell and its
stockholders, (ii) approved and adopted the Merger
Agreement and the merger and (iii) resolved to recommend to
Cornells stockholders that they vote to approve the Merger
Agreement and the merger.
In reaching its conclusion to approve the Merger Agreement and
the merger, the Cornell board of directors considered a number
of factors, including the companies failure to come to
terms on a transaction in 2004, 2007 and 2009, the perceived
execution risk of pursuing another transaction with GEO, the
proposed purchase price per share of Cornell common stock
offered by GEO, the complementary nature of the companies
businesses and GEOs ability to integrate Cornells
operations into its own with minimal disruption to customers and
employees. (These and other factors considered by the Cornell
board of directors are discussed in greater detail below).
Despite the long history between the companies, the board of
directors ultimately determined that the accelerated negotiation
timeline proposed by GEO significantly mitigated the execution
risk of the proposed transaction
50
and that the proposed purchase price represented a superior
value proposition for Cornell stockholders relative to other
strategic alternatives, including the companys continued
independence.
Financial
Considerations
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Merger consideration payable to Cornells
stockholders. The Cornell board of directors took
into account the proposed merger consideration. The Cornell
board of directors assessed the merger consideration in light
of, among other things, the following factors:
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the price to be paid per share of Cornell common stock in the
transaction represented a premium of 35% over the closing sale
price of Cornells common stock on April 16, 2010 (the
trading day immediately prior to the public announcement of the
transaction);
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the potential for GEOs stock to appreciate in price;
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the anticipated increased trading liquidity of the combined
company; and
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the belief that the transaction will be tax-deferred to Cornell
stockholders (to the extent such stockholders receive shares of
GEO common stock in exchange for their Cornell shares and not
cash).
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The Cornell board of directors determined that the combination
of cash and shares of GEO common stock as consideration in the
merger transaction was beneficial to Cornells
stockholders. Cornell desired to provide its stockholders with
the option to choose the type of consideration they preferred.
The merger agreement allows all stockholders to elect to
receive, at their choosing, either cash or shares of GEO, or a
combination of both, in exchange for their shares of Cornell
(subject to the restrictions discussed elsewhere in this Joint
Proxy Statement/Prospectus). No Cornell stockholder will be
required to receive cash in the merger transaction.
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Financial strength. The Cornell board of
directors considered the expected financial strength of the
combined company following the merger and the ability of the
combined company to realize cost savings, lower its cost of
capital and improve its overall financial resources.
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Financial analyses and Opinion of Moelis &
Company. The Cornell board of directors evaluated
the financial analyses and financial presentation of
Cornells financial advisor, Moelis & Company, as
well as the written opinion of Moelis & Company dated
April 18, 2010, that, as of such date and based on and
subject to the limitations and qualifications set forth in its
opinion, the merger consideration was fair, from a financial
point of view, to Cornell stockholders. See The
Merger Opinion of Cornells Financial
Advisor beginning on page 53.
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Strategic
Considerations
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Comparison of prospects of the merged entity and a stand
alone strategy. The Cornell board of directors
considered what it believed to be a number of strategic
advantages of the merger in comparison to a stand alone
strategy, including, but not limited to, its belief that:
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a merger with GEO would create a highly competitive platform by
combining Cornells national franchise across three
separate businesses with GEOs global presence, capacity
and complementary product offerings; and
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the combination of Cornell and GEO would likely reduce the
impact of headline risk for the individual
businesses.
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Integration
Considerations
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Ability to integrate. The Cornell board of
directors took note of GEOs integration record. In this
regard, the Cornell board of directors noted that customer and
employee disruption from consolidations in connection with the
transaction should not be significant due to the complementary
nature of the markets and customers served by Cornell and GEO.
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51
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Similarity of business strategy and
philosophy. The Cornell board of directors noted
that Cornell and GEO share a similar commitment to their
respective stockholders and shareholders, customers and
employees and are both focused on growing revenue and
profitability, which the Cornell board of directors believed
would facilitate the process of integration of these two
organizations.
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Other
Strategic Alternatives
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Continued independence. The Cornell board of
directors considered, among other things, the high level of
competition in the provision of correctional and related
services and the increasing importance of scale in the industry,
particularly in the cost of capital required for construction of
new facilities. The Cornell board of directors also considered
and analyzed, in consultation with its financial advisor,
Moelis & Company, information with respect to
Cornells financial condition, results of operations,
businesses and its prospects. In this regard, the Cornell board
of directors considered Cornells past performance and
compared Cornells operating results to publicly available
financial and other information for its competitors.
Additionally, the Cornell board of directors considered
Cornells ability to grow as an independent institution,
its prospects to make future acquisitions, and its ability to
further enhance stockholder value without engaging in a
strategic transaction. In this regard, the Cornell board of
directors considered the long- and short-term interests of
Cornell and its stockholders, including whether those interests
are best served by continued independence.
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Superiority of value. The Cornell board of
directors noted that based on its own experience, the results of
discussions held by Cornell senior management with third
parties, and the advice of Moelis & Company, the
probability of receiving a higher value offer from another party
in the near term was low.
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Alternative strategic transactions. The
Cornell board of directors also noted that, while the Merger
Agreement prohibits Cornell from seeking alternative
transactions, it permits, subject to its terms and conditions,
Cornell to consider and react to alternative combination
proposals made on an unsolicited basis.
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In addition to the foregoing, the Cornell board of directors
also considered, among other things, the following factors:
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the recommendation of the Special Committee that the Merger
Agreement is advisable and in the best interests of Cornell and
its stockholders;
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the Cornell board of directors knowledge of GEOs
business, operations, financial condition, earnings and
prospects;
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the Cornell board of directors review of reports of
Cornell management and outside advisors concerning the
operations, financial condition and prospects of GEO;
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GEOs ability to pay the merger consideration and to
consummate the transaction in an efficient and timely manner;
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the Cornell board of directors review of the potential
impact of the merger on employees and belief that the impact
would generally be positive in that employees would become part
of a more geographically diversified institution with greater
resources and opportunities;
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the Cornell board of directors review with its legal
advisors of the likelihood of the transaction receiving
regulatory approval and the terms and conditions of the Merger
Agreement, including the parties respective
representations, warranties and covenants, the conditions to
closing and:
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the stock and cash elections with respect to the merger
consideration;
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the Cornell board of directors ability to comply with its
fiduciary duties if Cornell receives a superior
proposal; and
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the requirement of Cornell to pay GEO a $12 million
termination fee plus expenses in certain circumstances.
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52
In the course of its deliberations, the Cornell board of
directors also considered a variety of risks and other
countervailing factors related to entering into the Merger
Agreement, including:
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the risk that the merger will not be consummated even were the
Companys stockholders to adopt the Merger Agreement;
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the potential for any adverse effects of the public announcement
of the merger on the Companys business, including its
significant customers, suppliers and other key relationships,
its ability to attract and retain key management personnel and
its overall competitive position if the merger is not
consummated;
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the additional cost to another potential purchaser as a result
of the termination fee and expense reimbursement to be paid by
Cornell to GEO in the event Cornell accepts, in accordance with
the terms and conditions of the Merger Agreement, a superior
proposal;
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the possibility that, although the merger provides
Cornells stockholders with a premium over the price at
which Cornells common stock traded prior to the public
announcement of the merger, the price of Cornells common
stock might have increased in the future to a price higher than
the per share valuation implied by the transaction;
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the possibility that merger integration would occupy more of
managements time and attention than anticipated and
therefore impact other strategic and business priorities;
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the interests of certain of Cornells directors and
executive officers with respect to the merger (see, The
Merger Interests of Cornell Directors and Executive
Officers in the Merger That are Different Than
Yours); and
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that cash paid to Cornell stockholders in connection with the
merger would be taxable to such stockholders for
U.S. federal income tax purposes.
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While the Cornell board of directors realized that there can be
no assurance about future results, including results expected or
considered in the factors listed above, the Cornell board of
directors concluded that the potential positive factors
outweighed the potential risks of consummating the merger.
The foregoing discussion of the factors considered by the Board
in evaluating the merger and the Merger Agreement is not
intended to be exhaustive, but rather, includes all material
factors considered by the Cornell board of directors. In
reaching its decision to approve the merger and the Merger
Agreement, the Cornell board of directors did not quantify or
assign any relative weights to the factors considered, and the
individual directors may have given different weights to
different factors. The Cornell board of directors considered all
these factors as a whole, and overall considered them to be
favorable to, and to support, its determination. ACCORDINGLY,
THE CORNELL BOARD OF DIRECTORS RECOMMENDS THAT ALL CORNELL
STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AND THE
MERGER AGREEMENT.
Opinion
of Cornells Financial Advisor
Pursuant to a letter agreement dated March 30, 2010,
Cornell engaged Moelis & Company to act as its exclusive
financial advisor in connection with the merger. Subsequently,
the Cornell board of directors asked Moelis & Company to
provide it with an opinion as to whether the per share
consideration to be received in the transactions contemplated
pursuant to the merger agreement was fair, from a financial
point of view, to Cornells stockholders.
On April 18, 2010, at a meeting of the Cornell board of
directors held to evaluate the merger agreement and the
transactions contemplated thereby, Moelis & Company
delivered to the Cornell board of directors its oral opinion,
subsequently confirmed by delivery of a written opinion dated
April 18, 2010, that, based upon and subject to the
limitations and qualifications set forth in the opinion, as of
the date of the opinion, the merger consideration to be received
by the Cornell stockholders, pursuant to the terms and subject
to the conditions set forth in the merger agreement, is fair,
from a financial point of view, to such holders.
The full text of Moelis & Companys opinion is
attached as Annex E to this proxy statement/prospectus and
is incorporated herein by reference. This summary is qualified
in its entirety by reference to the full text of the opinion.
53
The full text of the opinion describes the assumptions made,
procedures followed, matters considered and limitations on the
review undertaken by Moelis & Company in connection with
such opinion. Stockholders are encouraged to read the opinion
carefully in its entirety. Moelis & Companys opinion
is directed to the Cornell board of directors and addresses only
the fairness from a financial point of view of the consideration
to be received by Cornell stockholders. The Cornell board has
not asked Moelis & Company to address, and its opinion does
not address, the fairness to, or any other consideration of, the
holders of any class of securities, creditors or other
constituencies of Cornell, other than the stockholders. Moelis
& Companys opinion does not constitute a
recommendation on how any stockholder of Cornell should vote at
any stockholders meetings held in connection with the
merger. In addition, Moelis & Company did not express any
opinion as to the fairness of the amount or nature of any
compensation to be received by any of Cornells officers,
directors or employees, or any class of such persons, relative
to the merger consideration.
Moelis & Companys opinion does not address
Cornells underlying business decision to effect the merger
or the relative merits of the merger as compared to any
alternative business strategies or transactions that might be
available to Cornell and does not constitute a recommendation to
any Cornell stockholder as to how such Cornell stockholder
should vote with respect to the merger. At the direction of the
Cornell board of directors, Moelis & Company was not asked
to, nor did it, offer any opinion as to the material terms of
the merger agreement or the form of the merger. Moelis &
Company expressed no opinion as to what the value of GEOs
common stock will be when it is issued pursuant to the merger
agreement or the prices at which GEOs or Cornells
common stock will trade at any time.
Moelis & Companys opinion is necessarily based on
economic, monetary, market and other conditions as in effect on,
and the information made available to Moelis & Company as
of, the date of Moelis & Companys opinion. Moelis
& Company has also assumed, with the consent of the Cornell
board of directors, that all governmental, regulatory or other
consents and approvals necessary for the consummation of the
merger will be obtained without the imposition of any material
delay, limitation, restriction, divestiture or condition that
would have an adverse effect on Cornell or GEO or on the
expected benefits of the merger. Moelis & Company has also
assumed, with the consent of the Cornell board of directors,
that the final executed form of the merger agreement does not
differ in any material respect from the draft that Moelis &
Company has examined, and that GEO and Cornell will comply with
all the material terms of the merger agreement. The Moelis
& Company opinion was approved by Moelis &
Companys Fairness Opinion and Valuation Review Committee.
In arriving at the conclusions reached in its opinion, Moelis
& Company has, among other things:
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reviewed certain publicly available business and financial
information relating to Cornell and GEO that Moelis &
Company deemed relevant;
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reviewed certain internal information relating to the past and
current business of Cornell, including financial forecasts,
earnings, cash flow, assets, liabilities and prospects of
Cornell and information relating to anticipated cost savings,
synergies and related expenses expected to result from the
merger, all furnished to Moelis & Company by Cornell;
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reviewed certain internal information relating to GEO, including
financial forecasts, earnings, cash flow, assets, liabilities
and prospects of GEO and information relating to anticipated
cost savings, synergies and related expenses expected to result
from the merger, all furnished to Moelis & Company by GEO;
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conducted discussions with members of senior management and
representatives of Cornell and GEO concerning the matters
described above, as well as their respective businesses and
prospects before and after giving effect to the merger;
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reviewed publicly available financial and stock market data,
including valuation multiples, for Cornell and GEO and compared
them with those of certain other companies in lines of business
that Moelis & Company deemed relevant;
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compared the proposed financial terms of the merger with the
financial terms of certain other transactions that Moelis &
Company deemed relevant;
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considered certain potential pro forma effects of the merger;
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54
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reviewed a draft of the merger agreement, dated April 18,
2010;
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participated in certain discussions and negotiations among
representatives of Cornell and GEO and their financial and legal
advisors; and
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conducted such other financial studies and analyses and took
into account such other information as Moelis & Company
deemed appropriate.
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In connection with its review, Moelis & Company did not
assume any responsibility for independent verification of any of
the information supplied to, discussed with, or reviewed by it
for the purpose of its opinion and, with the consent of the
Cornell board of directors, relied on such information being
complete and accurate in all material respects. In addition, at
the direction of the Cornell board of directors, Moelis &
Company has not made any independent evaluation or appraisal of
any of the assets or liabilities (contingent, derivative,
off-balance-sheet, or otherwise) of Cornell or GEO, nor has
Moelis & Company been furnished with any such evaluation or
appraisal. With respect to the forecasted financial information
referred to above, Moelis & Company has assumed, with the
consent of the Cornell board of directors, that such information
has been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the respective
management of Cornell or GEO as to the respective future
performance of Cornell or GEO. Any estimates or forecasts
contained in Moelis & Companys analyses are not
necessarily indicative of future results or actual values, which
may be significantly more or less favorable than those suggested
by such estimates or forecasts. Moelis & Company is a
financial advisor only and relied upon, without independent
verification, certain internal information provided to it by
Cornell and GEO. Moelis & Company is not a legal, tax or
regulatory advisor and its opinion does not address any legal,
tax or regulatory matters.
Financial
Analyses
The following is a summary of the financial analyses presented
by Moelis & Company to the Cornell board of directors at
its meeting held on April 18, 2010 in connection with the
delivery of the oral opinion of Moelis & Company at such
meeting and its subsequent written opinion, dated April 18,
2010.
The summary set forth below does not purport to be a complete
description of the analyses performed and factors considered by
Moelis & Company in arriving at its opinion. The fact that
any specific analysis has been referred to in the summary below
or in this statement is not meant to indicate that such analysis
was given more weight than any other analysis. The preparation
of a fairness opinion is a complex process involving various
determinations and subjective judgments as to the most
appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances.
Therefore, such an opinion is not readily susceptible to partial
analysis or summary description. With respect to the comparable
public companies analysis and the precedent transactions
analysis summarized below, no company, business or transaction
used in such analyses as a comparison is either identical or
directly comparable to Cornell or the merger, nor is an
evaluation of such analyses entirely mathematical. These
analyses necessarily involve complex considerations and
judgments concerning financial and operating characteristics and
other factors. Moelis & Company did not draw, in isolation,
conclusions from or with regard to any one factor or method of
analysis for purposes of its opinion, but rather arrived at its
ultimate opinion based on the results of all analyses undertaken
by it and assessed as a whole, and believes that the totality of
the factors considered and analyses it performed in connection
with its opinion operated collectively to support its
determination as to the fairness from a financial point of view
as of the date of its opinion of the merger consideration to be
received by the Cornell stockholders.
Some of the summaries of the financial analyses below include
information presented in tabular format. In order to fully
understand Moelis & Companys analyses, the tables
must be read together with the text of each summary. The tables
alone do not constitute a complete description of the analyses
performed by Moelis & Company. Considering the data
described below without considering the full narrative
description of the financial analyses, including the
methodologies and assumptions underlying the analyses, could
create a misleading or incomplete view of Moelis &
Companys analyses. Moelis & Company did not in
isolation draw conclusions from or with regard to any one factor
or method of analysis for purposes of its opinion, but rather
Moelis & Company arrived at its opinion based on the
results of all analyses undertaken by it and assessed as a whole.
55
The analyses performed by Moelis & Company include analyses
based upon forecasts of future results, which results might be
significantly more or less favorable than those upon which
Moelis & Companys analyses were based. The analyses
do not purport to be appraisals or to reflect the prices at
which Cornells or GEOs shares of common stock might
trade at any time following the announcement of the merger.
Because the analyses are inherently subject to uncertainty,
being based upon numerous factors and events, including, without
limitation, factors relating to general economic and competitive
conditions beyond the control of the parties or their respective
advisors, neither Moelis & Company nor any other person
assumes responsibility if future results or actual values are
materially different from those contemplated below.
Cornell
Analyses
In its evaluation of the proposed transaction, Moelis &
Company selected three principal valuation methodologies
(specifically, a comparable public companies analysis, a
precedent transactions analysis and a discounted cash flow
analysis), each of which is summarized on the following pages.
Set forth in the table immediately below are the derived per
share valuation ranges resulting from the application, subject
to certain assumptions, of the three valuation methodologies
that Moelis & Company selected (specifically, the publicly
traded comparable companies analysis, the precedent transactions
analysis and the discounted cash flow analysis). The discounted
cash flow analysis was conducted based upon certain materials
prepared by Cornell management. The table below contains certain
additional data presented to the Cornell board of directors by
Moelis & Company that was not incorporated into, and does
not constitute a part of, the three valuation methodologies
utilized by Moelis & Company in support of its opinion.
These data include (i) the 52-week trading range of a share
of Cornell stock, (ii) Cornells volume-weighted
average closing price per share of $18.88 for the thirty
calendar days ended on April 16, 2010, which we refer to as the
30-Day
volume-weighted average price, or VWAP,
(iii) Cornells volume-weighted average closing price
per share of $20.08 for the one-hundred twenty calendar days
ended on April 16, 2010, which we refer to as the
120-Day
VWAP, and (iv) analyst consensus price target of $22.67 for
a share of Cornell stock compiled as of April 16, 2010. The
derived per share valuation ranges are presented next to the
implied per share values for Cornell based on the merger
consideration to be received, calculated using GEOs
closing price per share of $19.16 as of April 16, 2010 (the
last trading day prior to the delivery of the opinion).
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Valuation Methodology
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Implied per Share Value:
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Comparable public companies analysis
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$
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14.68-$20.10
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All Stock Offer(1)
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$
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24.91
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Precedent transactions analysis
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$
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22.80-$28.16
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All Cash Offer(2)
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$
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25.16
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Discounted cash flow analysis
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$
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20.68-$27.89
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Market Data Statistics
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52 Week Low and High
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$
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15.50, $25.13
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4/16/10 Closing Price
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$
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18.47
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30-Day VWAP
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$
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18.88
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120-Day VWAP
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$
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20.08
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Analyst Consensus Price Target
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$
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22.67
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(1) |
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Assumes 100% stock consideration at a 1.30x fixed exchange
ratio. Each issued and outstanding share of Cornell common stock
will be converted into the right to receive 1.30 shares of
common stock of GEO. |
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(2) |
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If cash election is selected, each issued and outstanding share
of Cornell common stock will receive in cash an amount equal to
the greater of either (i) the fair market value of
1.00 share of common stock of GEO plus $6.00 per share or
(ii) the fair market value of 1.30 shares of common
stock of GEO. |
Comparable
Public Companies Analysis
Moelis & Company performed a comparable public companies
analysis, which is intended to provide an implied value of a
company by comparing certain financial information of the
company with corresponding financial information of similar
public companies. Moelis & Company compared selected
financial metrics of
56
Cornell with similar data involving companies with business
operations that generally reflected similar characteristics to
Cornells Adult Secure business
and/or Non
Adult business.
Given the mix of Cornells business operations and the
limited number of publicly traded companies with business
operations directly comparable to those of Cornell, Moelis
& Company analyzed the market values and trading multiples
of Cornell and publicly traded companies with lines of business,
or operating and financial characteristics, generally similar to
those of Cornells Adult Secure business and/or Non Adult
business. Using publicly available information, Moelis &
Company independently selected and analyzed the market values
and trading multiples of Cornell and the corresponding trading
multiples of the Adult Secure Public Companies and the Non Adult
Public Companies listed below:
Adult Secure Companies: Corrections Corporation of America and
The GEO Group, Inc.
Non Adult Companies: Res-Care, Inc. and Providence Service
Corporation
All multiples were based on the closing stock prices of the
selected companies on April 16, 2010. Estimated financial
data for the selected companies were based on publicly available
research analysts estimates. Moelis & Company
reviewed enterprise values of the selected companies as
multiples of, among other things, estimated calendar year 2010
through estimated calendar year 2012 earnings before interest,
taxes, depreciation and amortization and other non- cash and
non- recurring expenses or gains, commonly referred to as
EBITDA. Moelis & Company calculated enterprise values as
equity value, plus total debt and minority interest, less cash.
This analysis indicated the following:
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Enterprise Value/
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CY2010
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CY2011
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CY2012
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Mean of Comparable Companies
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EBITDA
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EBITDA
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EBITDA
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Adult Secure Companies
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8.4x
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8.0x
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7.3x
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Non Adult Companies
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5.7x
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5.5x
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NA
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All Comparable Companies
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7.1x
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6.8x
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7.3x
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Based on the foregoing, Moelis & Company selected multiple
ranges for the metric, applied the selected ranges to the
relevant statistic for Cornell using Cornell managements
background materials and calculated an implied range of Cornell
stock prices. This resulted in a valuation range for Cornell of
$14.68 to $20.10 per share, which compares to the merger
consideration of $24.91 (100% stock) and $25.16 (cash election
offer) per Cornell share based on GEOs closing stock price
as of April 16, 2010 of $19.16.
Precedent
Transactions Analysis
Moelis & Company compared selected financial and
transaction metrics of Cornell and the merger with similar data
involving companies with business operations that generally
reflected similar characteristics to Cornells Adult Secure
business
and/or Non
Adult business. Given the lack of transactions involving
businesses directly comparable to Cornell, Moelis & Company
considered relevant transactions dating back approximately nine
years. Market conditions at the time a given transaction was
announced were also considered when analyzing the precedent
transactions.
For each of the precedent transactions, Moelis & Company
calculated valuation multiples based on information that was
publicly available, focusing on the ratio of enterprise value to
EBITDA for the identified target company for the last reported
last twelve months period as of the announcement date of the
transaction.
57
The precedent transactions considered were:
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Date Announced
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Acquiror
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Target
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01/4/2010
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Group 4 Securicor plc
|
|
Nuclear Security Services Corporation
|
08/31/2009
|
|
The GEO Group
|
|
Just Care
|
10/09/2006
|
|
Veritas Capital
|
|
Cornell Companies
|
03/22/2006
|
|
Vestar Capital Partners
|
|
National Mentor Holdings
|
07/14/2005
|
|
The GEO Group
|
|
Correctional Services Corporation
|
01/24/2005
|
|
Cornell Corporation
|
|
Correctional Systems, Inc.
|
10/08/2005
|
|
Bain Capital
|
|
CRC Health Corporation
|
03/10/2004
|
|
Onex Corporation
|
|
Res-Care, Inc.
|
03/08/2002
|
|
Group 4 Securicor plc
|
|
The Wackenhut Corporation
|
01/17/2001
|
|
Madison Dearborn Partners
|
|
National Mentor Holdings
|
Precedent
Transactions:
|
|
|
|
|
|
|
TEV/LTM
|
|
|
Revenue
|
|
EBITDA
|
|
Mean
|
|
1.3x
|
|
8.3x
|
Based on the foregoing, Moelis & Company selected multiple
ranges for the metric and applied them to the relevant statistic
for Cornell using Cornell managements background materials
and calculated an implied range of Cornell stock prices. This
resulted in a valuation range for Cornell of $22.80 to $28.16
per share, which compares to the merger consideration of $24.91
(100% stock) and $25.16 (cash election offer) per Cornell share
based on GEOs closing stock price as of April 16,
2010 of $19.16.
Discounted
Cash Flow Analysis
Using background materials provided by Cornell management,
Moelis & Company performed a discounted cash flow analysis
utilizing the after-tax unlevered free cash flows for the fiscal
years 2010 to 2015, applying the mid-year convention and
discount rates ranging from 9.5% to 11.5% derived from the
estimated weighted average cost of capital for Cornell and for
the Adult Secure Companies and Non Adult Companies referred to
above under Comparable Public Companies Analysis. In
conducting the terminal valuation, Moelis & Company
utilized Cornells calendar year 2015 estimated EBITDA
normalized assuming depreciation and amortization equals capital
expenditure, and applied a 6.0x to 7.0x multiple derived from
the mean of the trading multiples in the Adult Secure and/or Non
Adult Companies referred to above under Comparable Public
Companies Analysis.
Based on the foregoing, Moelis & Company derived a
valuation range of $20.68 to $27.89, which compares to the
merger consideration of $24.91 (100% stock) and $25.16 (cash
election offer) per Cornell share based on GEOs closing
stock price as of April 16, 2010 of $19.16.
Conclusion
Based on the foregoing analyses, on April 18, 2010, Moelis
& Company delivered to the Cornell board of directors its
oral opinion, subsequently confirmed by delivery of a written
opinion dated April 18, 2010, that, based upon and subject
to the limitations and qualifications set forth in the opinion,
as of the date of the opinion, the merger consideration to be
received by the Cornell stockholders, pursuant to the terms and
subject to the conditions set forth in the merger agreement, is
fair, from a financial point of view, to such holders.
Other
Information
As noted above, the discussion set forth above is a summary of
the material financial analyses presented by Moelis &
Company to the Cornell board of directors in connection with
Moelis & Companys analysis of the fairness of the
consideration to be received by holders of shares of Cornell
common stock pursuant to the merger
58
agreement from a financial point of view to such holders and in
connection with the delivery of its opinion to the Cornell board
of directors, and is not a comprehensive description of all
analyses undertaken by Moelis & Company in connection with
its opinion. Moelis & Company believes that its analyses
must be considered as a whole and that selecting portions of its
analyses or the factors it considered or focusing on information
presented in tabular format, without considering all analyses
and factors or the narrative description of the analyses, could
create a misleading or incomplete view of the processes
underlying Moelis & Companys analyses and opinion.
The fact that any specific analysis has been referred to in the
summary above is not meant to indicate that such analysis was
given greater weight than any other analysis referred to in the
summary.
The consideration to be paid pursuant to the merger agreement
was determined through arms-length negotiations between
Cornell and GEO and was approved by each companys board of
directors. Moelis & Company provided advice to Cornell
during these negotiations, however, Moelis & Company did
not recommend any specific consideration to the Cornell board of
directors or suggest that any specific consideration constituted
the only appropriate consideration for a transaction.
The merger consideration was determined through negotiations
among Cornell and its representatives, on the one hand, and GEO
and its representatives, on the other hand, and the decision by
the Cornell board of directors to approve, adopt and authorize
the merger agreement was solely that of the Cornell board of
directors. The Moelis & Company opinion and financial
analyses, taken together, represented only one of many factors
considered by the Cornell board of directors in its evaluation
of the merger and should not be determinative of the views of
the Cornell board of directors or Cornell management with
respect to the merger or the merger consideration or whether the
Cornell board of directors would have been willing to agree to
different merger consideration.
Moelis & Company was engaged by Cornell primarily due
to a long standing relationship between Cornell and a senior
banker at Moelis & Company. This individual had
previously served as Cornells investment banker and
financial adviser and had participated in prior discussions
between Cornell and GEO during his time with Moelis &
Company and his prior investment banking firm. His familiarity
with the history of the discussions between the parties,
knowledge of the correctional, detention and mental health
industry and the prior positive experiences working with this
individual resulted in Cornell engaging Moelis &
Company as its exclusive financial advisor. Moelis &
Company is an investment banking enterprise with substantial
experience in transactions similar to the merger. Moelis &
Company, as part of its investment banking business, is
continually engaged in the valuation of businesses and
securities in connection with business combinations and
acquisitions and for other purposes. Moelis & Company has
consented to the inclusion in this proxy statement/prospectus of
its written opinion delivered to the Cornell board of directors,
dated April 18, 2010.
Under the terms of the engagement letter between Moelis &
Company and Cornell, Moelis & Company agreed to act as
Cornells financial advisor in connection with the merger.
In accordance with the terms of such engagement letter,
(i) Moelis & Company received a fee of $1,000,000 upon
the delivery of its opinion, which was not contingent upon the
consummation of the merger and (ii) Moelis & Company
will receive a transaction fee contingent upon the consummation
of the merger equal to 1.0% of the transaction value (as defined
in the engagement letter) or approximately $7 million based
on the closing price of Cornell common stock on April 30,
2010. The opinion fee is creditable against the fee payable upon
consummation of the merger. In addition, Cornell has agreed to
reimburse Moelis & Company for certain expenses and
indemnify Moelis & Company for certain liabilities arising
out of its engagement. Other than its engagement in connection
with the merger, Moelis & Company has no agreement,
arrangement or understanding for the provision of investment
banking or other related services to either Cornell or GEO.
Interests
of Cornell Directors and Executive Officers in the Merger That
are Different Than Yours
In considering the recommendation of the Cornell board of
directors to vote for the proposal to approve the merger
agreement, the merger and the other transactions contemplated by
the merger agreement, you should be aware that some of
Cornells directors and executive officers have certain
interests in, and will receive benefits from, the merger that
differ from, or are in addition to (and therefore may conflict
with), the interests of Cornells stockholders generally.
These additional interests are described below. The Cornell
board of directors was aware of these interests during their
deliberations regarding the merits of the merger agreement and
considered them in
59
determining to recommend to Cornells stockholders that
they vote to approve the merger agreement, the merger and the
other transactions contemplated by the merger agreement.
Equity-Based
Awards
Stock Options and Restricted Stock. The stock
options and restricted stock held by the directors and executive
officers of Cornell will be treated the same as all other stock
options and restricted stock under the terms of the merger
agreement. Any option to purchase Cornell common stock that must
be exercised by its terms prior to the effective time which is
not exercised will terminate as of the effective time of the
merger. The merger agreement provides that upon completion of
the merger, each outstanding and unexercised option to acquire
shares of Cornell common stock that is not required to be
exercised prior to the effective time of the merger, whether
vested or unvested, will cease to represent the right to acquire
shares of Cornell common stock and will become a right to
acquire GEO common stock. The number of shares and the exercise
price subject to the converted options will be adjusted in
accordance with the exchange ratio in the transaction. However,
the duration and other terms of the Cornell options which are
converted into options to acquire shares of GEO will remain the
same as the terms of the prior Cornell options. Unless an
assumed option provides for acceleration of vesting prior to the
effective time, such option shall vest upon the effective time
of the merger. All shares of Cornell restricted stock will vest
and be automatically converted into shares of GEO common stock,
as adjusted to account for the exchange ratio. The following
table sets forth, as of August 1, 2010, the number of
unvested options and unvested shares of restricted stock held by
the directors and executive officers of Cornell that will become
fully vested in advance of, or upon, the consummation of the
merger:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Number of Currently
|
|
|
Currently Unvested
|
|
Unvested Shares of
|
|
|
Options to Fully
|
|
Restricted Stock to Fully
|
|
|
Vest Upon
|
|
Vest Upon Completion of
|
Name
|
|
Completion of Merger
|
|
Merger
|
|
Max Batzer
|
|
|
[1,250]
|
|
|
|
[]
|
|
Anthony R. Chase
|
|
|
[1,250]
|
|
|
|
[]
|
|
Richard Crane
|
|
|
[1,250]
|
|
|
|
[]
|
|
Zachary R. George
|
|
|
[1,250]
|
|
|
|
[]
|
|
Todd Goodwin
|
|
|
[1,250]
|
|
|
|
[]
|
|
James E. Hyman
|
|
|
[]
|
|
|
|
[124,167]
|
|
Andrew R. Jones
|
|
|
[1,250]
|
|
|
|
[]
|
|
Alfred J. Moran, Jr.
|
|
|
[1,250]
|
|
|
|
[]
|
|
John R. Nieser
|
|
|
[]
|
|
|
|
[60,167]
|
|
Patrick N. Perrin
|
|
|
[]
|
|
|
|
[31,584]
|
|
Cathryn L. Porter
|
|
|
[]
|
|
|
|
[37,375]
|
|
D. Stephen Slack
|
|
|
[1,250]
|
|
|
|
[]
|
|
Executive Officers and Directors as a Group (12 Persons)
|
|
|
[10,000]
|
|
|
|
[253,293]
|
|
Employee Stock Purchase Plan. Each outstanding
option or right to acquire Cornell common stock under the terms
of Cornells Employee Stock Purchase Plan, which is
referred to as the ESPP, held by the executive officers of
Cornell will be treated the same as all other options or rights
to acquire Cornell common stock under the ESPP. Non-employee
directors are not eligible to participate in the ESPP. Cornell
will make reasonable best efforts to ensure that, immediately
prior to the effective time, the following occurs: (i) each
outstanding option or right to acquire Cornell common stock
under Cornells employee stock purchase plan will
automatically be exercised or deemed exercised, and (ii) in
lieu of the shares of Cornell common stock otherwise issuable
upon the exercise of each such option or right, the holder of
such option or right will have the right to elect to receive
from GEO, following the effective time, either the stock
consideration or the cash consideration, subject to the same
prorations and adjustments set forth in The
Merger Merger Consideration above, except to
the extent that the holder of such option or right elects not to
exercise the holders options and to withdraw the entire
balance of holders Cornell employee stock purchase plan
account prior to the effective time. The following table sets
forth the number of
60
in-the-money
options to acquire Cornell common stock held by executive
officers under the ESPP as of August 1, 2010, and the
dollar amount payable to each executive officer, upon the
exercise of such options upon completion of the merger if such
holder elects to receive cash:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Net Merger
|
|
Name
|
|
Options
|
|
|
Consideration(1)(2)
|
|
|
James E. Hyman
|
|
|
771
|
|
|
$
|
5,190
|
|
John R. Nieser
|
|
|
95
|
|
|
|
639
|
|
Patrick N. Perrin
|
|
|
379
|
|
|
|
2,551
|
|
Cathryn L. Porter
|
|
|
356
|
|
|
|
2,396
|
|
|
|
|
|
|
|
|
|
|
Executive Officers as a Group (4 Persons)
|
|
|
1,601
|
|
|
$
|
10,776
|
|
|
|
|
(1) |
|
Based upon each holder electing to receive the equivalent of
1.3 shares of GEO common stock in cash, which, based upon
the closing price per share of GEO common stock on as reported
on the NYSE on June 4, 2010, is equal to $26.351 per share. |
|
|
|
(2) |
|
The net merger consideration is $6.731 per share, which is based
upon the difference between the ESPP option price of $19.62 per
share of Cornell common stock and $26.351. |
Nonqualified Deferred Compensation
Plan. Cornell maintains a nonqualified deferred
compensation plan, which is referred to as the NQDC Plan, into
which directors and executive officers may choose to defer
amounts of compensation. Cornell also makes contributions to the
accounts of certain executive officers in the NQDC Plan equal to
amounts that would have been credited to the executives
account under the Cornell 401(k) plan if not for the imposition
of certain IRS limits on contributions to tax-qualified plans
such as the Cornell 401(k) plan. All amounts credited to the
NQDC Plan are fully vested at all times and are fully accrued
(i.e., no additional contributions will be made to the NQDC Plan
because of the merger). However, amounts credited to the NQDC
Plan will become payable to the plan participants at, or
immediately prior to, the effective time of the merger. This
time of payment would be earlier than when such payment would
ordinarily have been made absent the merger to NQDC Plan
participants and could be viewed as an interest in addition to
that held by stockholders generally. This plan provides for a
gross-up for
any excise taxes with respect to Section 4999 excise
parachute payments made under the plan.
The following table sets forth the dollar amount of compensation
accrued by each participating director and executive officer
under the NQDC Plan as of June 4, 2010:
|
|
|
|
|
|
|
Amount Accrued
|
|
|
|
Under the
|
|
|
|
Nonqualified
|
|
|
|
Deferred
|
|
Name
|
|
Compensation Plan(1)
|
|
|
Zachary R. George
|
|
$
|
311,189
|
|
Todd Goodwin
|
|
|
311,683
|
|
|
|
|
|
|
Total
|
|
$
|
622,872
|
|
|
|
|
(1) |
|
Based on the June 4, 2010 Cornell stock price of $26.03 per
share. |
Employment
and Change in Control Agreements
Upon the consummation of the merger, GEO shall honor the
existing amended and restated employment agreement between
Cornell and James E. Hyman, the employment/separation agreement
between Cornell and John R. Nieser, the executive management
employment agreement between Cornell and Cathryn L. Porter, and
the severance agreement between Cornell and Patrick N. Perrin.
The merger would constitute a change of control for purposes of
these agreements.
The following describes the material terms of such agreements:
61
James E. Hyman. Mr. Hymans existing
amended and restated employment agreement provides that he will
be entitled to receive the severance and other benefits
described below if, at any time prior to the expiration of
180 days following the completion of the merger, he
voluntarily terminates his employment:
|
|
|
|
|
Mr. Hyman will be paid, to the extent he has not already
been paid, his accrued annual base salary and any annual bonus
for the fiscal year prior to termination, and his pro rata
annual bonus as earned through the date of termination;
|
|
|
|
Mr. Hyman will be entitled to receive an amount equal to
(i) two times his annual base salary and (ii) 100% of
the annual bonus he would have been entitled to receive for the
remainder of the employment period (that is, two years) as if
all performance goals had been met;
|
|
|
|
The surviving company will reimburse Mr. Hyman for all
reasonable expenses incurred by him on behalf of the surviving
company, as well as any relocation expenses;
|
|
|
|
The surviving company will pay for Mr. Hyman to continue
his health care benefits under COBRA for 18 months; and
|
|
|
|
In the event any payment or benefit received by Mr. Hyman
(whether payable under his employment agreement or otherwise)
gives rise to an excise tax under Section 4999 of the Code,
as amended, he will be entitled to a
gross-up
payment in an amount that would place him in the same after-tax
position he would have been in if no excise tax had applied.
|
In addition to the above-mentioned benefits, regardless of
whether Mr. Hyman terminates his employment, upon the
effective time of the merger, all of Mr. Hymans
unvested restricted stock awards will vest.
Assuming that the merger occurred on August 1, 2010 and
Mr. Hyman terminated his employment immediately following
the completion of the merger, he would be entitled to receive
approximately $2,445,980 in cash and benefits under the terms of
his employment agreement, plus a gross up payment if
the excise tax under Section 4999 applies,
In addition, as part of the merger discussions, GEO requested
that Mr. Hyman extend his existing non-competition period
by one year. GEO and Mr. Hyman agreed that subsequent to
entering into the merger agreement, they would seek to come to a
mutually-acceptable understanding relating to such extension.
This matter was part of the Cornell board of directors
discussions when considering the proposed transaction. GEO and
Mr. Hyman are working to agree on definitive documentation
agreeable to both parties in connection with the extension of
Mr. Hymans non-competition period.
John R. Nieser. Mr. Niesers
existing amended employment/separation agreement provides that
he will be entitled to receive the severance and other benefits
described below if, within 180 days following the
completion of the merger, the surviving corporation terminates
the employment of Mr. Nieser:
|
|
|
|
|
Mr. Nieser will be paid, to the extent he has not already
been paid, his accrued annual base salary as earned through the
date of termination;
|
|
|
|
Mr. Nieser will be entitled to receive any incentive
compensation award that has been earned but not paid;
|
|
|
|
Mr. Nieser will be entitled to receive a payment equal to
the pro rata portion of the target award under Cornells
Incentive Compensation Plan;
|
|
|
|
Mr. Nieser will be entitled to receive a continuation of
his base salary for a period of 24 months following the
date of termination;
|
|
|
|
The surviving company will make additional payments equal to its
contribution towards the cost of coverage under the surviving
companys health plan during the severance period for so
long as Mr. Nieser remains covered by such health
plan; and
|
|
|
|
In the event any payment or benefit received by Mr. Nieser
(whether payable under the employment/separation agreement or
otherwise) gives rise to an excise tax under Section 4999
of the Code, he will be
|
62
|
|
|
|
|
entitled to a
gross-up
payment in an amount that would place him in the same after-tax
position that he would have been in if no excise tax had applied.
|
Assuming that the merger occurred on August 1, 2010 and
Mr. Nieser is terminated immediately following the
completion of the merger, he would be entitled to receive
approximately $620,979 in cash and benefits under the terms of
his employment/separation agreement, plus a gross up
payment if the excise tax under Section 4999 applies.
Cathryn L. Porter. Ms. Porters
existing executive management employment agreement provides that
she will be entitled to receive the severance and other benefits
described below, if at any time within 180 days following
completion of the merger, her employment is terminated
involuntarily by the surviving corporation:
|
|
|
|
|
Ms. Porter will be paid, to the extent she has not already
been paid, her accrued annual base salary as earned through the
date of termination;
|
|
|
|
Ms. Porter will be entitled to receive a continuation of
her base salary for a period of 18 months following the
date of termination;
|
|
|
|
Ms. Porter will be entitled to receive in a lump sum
payment the pro rata portion of any discretionary incentive
compensation award that would have been made following the end
of the relevant fiscal year; and
|
|
|
|
Ms. Porter will be entitled to extended COBRA benefits at
the surviving companys expense until the earlier of twelve
months from the date of termination or the date Ms. Porter
commences employment with any person or entity and is thereby
eligible for health insurance benefits, provided that the
surviving company shall deduct from Ms. Porters
monthly payments of her base salary an amount equal to that
which was deducted for such coverage when Ms. Porter was a
regular employee.
|
Assuming that the merger occurred on August 1, 2010 and
Ms. Porter is terminated immediately following the
completion of the merger, she would be entitled to receive
approximately $428,297 in cash and benefits under the terms of
her employment agreement.
Patrick N. Perrin. Mr. Perrins
existing severance agreement provides that he will be entitled
to receive the severance and other benefits described below if,
at any time within 180 days following completion of the
merger, his employment is terminated involuntarily by the
surviving corporation:
|
|
|
|
|
Mr. Perrin will be paid, to the extent he has not already
been paid, his accrued annual base salary as earned through the
date of termination;
|
|
|
|
Mr. Perrin will be entitled to receive any incentive
compensation award that has been earned but not paid;
|
|
|
|
Mr. Perrin will be entitled to receive a payment equal to
the pro rata portion of the target award under Cornells
Incentive Compensation Plan;
|
|
|
|
Mr. Perrin will be entitled to receive a continuation of
his base salary for a period of 18 months following the
date of termination; and
|
|
|
|
Mr. Perrin will be entitled to extended COBRA benefits at
his expense, provided that the surviving company shall pay to
Mr. Perrin an amount equal to the surviving companys
portion of employee health care costs under the surviving
companys group health care plan as if Mr. Perrin were
an active employee.
|
Mr. Perrins existing severance agreement further
provides that if Mr. Perrin is terminated within one year
after the merger for any reason, but is not involuntarily
terminated within 180 days following consummation of the
merger, Mr. Perrin shall be entitled exclusively to receive
the severance and other benefits described below:
|
|
|
|
|
Mr. Perrin will be entitled to receive a lump sum payment
equal to the sum of (i) his highest annual base salary as
of the termination date and the change in control date plus
(ii) the average of the annual bonus paid or payable,
including by reason of any deferral, to Mr. Perrin by
Cornell or its affiliates in respect of the two most recent full
fiscal years ending prior to the termination date; and
|
|
|
|
Mr. Perrin will be entitled to have all stock options,
restricted stock awards and similar awards granted to him by
Cornell immediately vest on the termination date.
|
63
Assuming that the merger occurred on August 1, 2010 and
Mr. Perrin is terminated immediately following the
completion of the merger, he would be entitled to receive
approximately $390,664 in cash and benefits under the terms of
his severance agreement.
Protection
of Directors and Officers Against Claims
GEO has agreed to indemnify and hold harmless the present and
former officers and directors of Cornell and its subsidiaries
against any claims, liabilities, losses, damages, judgments,
fines, penalties, costs and expenses in connection with any
claim, suit, action, proceeding or investigation, whether civil,
criminal, administrative or investigative), arising out of or
pertaining to matters existing or occurring at or before the
consummation of the merger to the fullest extent allowed under
applicable law. GEO has also agreed that it will maintain
Cornells existing directors and officers
liability insurance policy, or provide a policy providing
similar coverage, for the benefit of Cornells directors
and officers who are currently covered by such insurance, for at
least six years from the effective time of the merger, with
respect to acts or omissions occurring prior to the effective
time of the merger, subject to a limit on the cost to maintain
such coverage.
Accounting
Treatment
The merger will be accounted for as an acquisition of Cornell by
GEO under the acquisition method of accounting of GAAP. Under
the acquisition method of accounting, the assets and liabilities
of the acquired company are, as of completion of the merger,
recorded at their respective fair values and added to those of
the reporting public issuer, including an amount for goodwill
representing the difference between the purchase price and the
fair value of the identifiable net assets. The financial
statements of GEO issued after the merger will reflect the
operations of the combined company beginning at the effective
time of the merger. The consolidated financial statements of the
combined company will not be restated retroactively to reflect
the historical financial position or results of operations of
Cornell.
All unaudited pro forma condensed combined financial statements
contained in this proxy statement/prospectus were prepared using
the acquisition method of accounting. The final allocation of
the purchase price will be determined after the merger is
completed and after completion of an analysis to determine the
fair value of Cornells assets and liabilities.
Accordingly, the final purchase accounting adjustments may be
materially different from the unaudited pro forma adjustments.
Any decrease in the fair value of the assets or increase in the
fair value of the liabilities of Cornell as compared to the
unaudited pro forma information included in this proxy
statement/prospectus will have the effect of increasing the
amount of the purchase price allocable to goodwill.
Federal
Securities Laws Consequences; Stock Transfer Restriction
Agreements
All shares of GEO common stock that Cornell stockholders receive
in the merger will be freely transferable, except for shares of
GEO common stock received by persons who become
affiliates of GEO under the Securities Act of 1933,
as amended, and the related SEC rules and regulations.
No
Appraisal Rights
Neither Cornell stockholders nor GEO shareholders have appraisal
rights in connection with the merger.
64
MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the material
U.S. federal income tax consequences of the merger to
holders of Cornell common stock and GEO common stock. Pursuant
to the opinions included as Exhibit 8.1 and 8.2,
respectively, and subject to the conditions set forth in such
opinions, each of Akerman Senterfitt and Hogan Lovells adopts
and confirms the statements in this discussion, to the extent
they constitute legal conclusions and relate to the tax
consequences of the merger, as its opinion of the material
United States federal income tax consequences of the merger.
This discussion addresses only those U.S. holders (defined
below) that hold their Cornell common stock as a capital asset
and does not address all aspects of U.S. federal income
taxation that may be relevant to a holder of Cornell common
stock in light of that stockholders particular
circumstances or to a stockholder subject to special rules, such
as:
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a stockholder that is not a U.S. holder;
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a financial institution or insurance company;
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a mutual fund;
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a tax-exempt organization;
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a dealer or broker in securities or foreign currencies;
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a trader in securities that elects to apply a
mark-to-market
method of accounting;
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a stockholder that holds Cornell common stock as part of a
hedge, appreciated financial position, straddle, conversion, or
other risk reduction transaction;
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a stockholder that acquired Cornell common stock pursuant to the
exercise of options or similar derivative securities or
otherwise as compensation; or
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a U.S. person whose functional currency is not the
U.S. dollar.
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If a partnership or other entity taxed as a partnership for
U.S. federal income tax purposes holds Cornell common
stock, the tax treatment of a partner in such partnership will
depend on the status of the partners and the activities of the
partnership. A partner in a partnership holding Cornell common
stock should consult its tax advisor about the tax consequences
of the merger to them.
The following discussion is not binding on the Internal Revenue
Service, which is referred to as the IRS. It is based on the
Code, applicable Treasury regulations, administrative
interpretations and court decisions, each as in effect as of the
date of this joint proxy statement/prospectus, and all of which
are subject to change, possibly with retroactive effect. The tax
consequences under U.S. state and local and foreign laws
and U.S. federal laws other than U.S. federal income
tax laws are not addressed. No assurance can be given that the
IRS would not assert, or that a court would not sustain, a
position contrary to any of the tax consequences set forth below.
Holders of Cornell common stock are strongly urged to consult
their tax advisors as to the specific tax consequences to them
of the merger, including the applicability and effect of
U.S. federal alternative minimum tax, state and local and
foreign income and other tax laws in light of their particular
circumstances.
For purposes of this section, the term
U.S. holder means a beneficial owner of Cornell
common stock that for U.S. federal income tax purposes is:
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a citizen or resident of the United States;
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a corporation or other entity taxable as a corporation for
U.S. federal income tax purposes, created or organized in
or under the laws of the United States or any State or the
District of Columbia;
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an estate, the income of which is subject to U.S. federal
income tax regardless of its source; or
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a trust, the substantial decisions of which are controlled by
one or more U.S. persons and which is subject to the
primary supervision of a U.S. court, or a trust that
validly has elected under applicable Treasury regulations to be
treated as a U.S. person for U.S. federal income tax
purposes.
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General
GEO and Cornell have structured the merger to qualify as a
reorganization for U.S. federal income tax purposes.
Akerman Senterfitt has included its opinion to GEO as
Exhibit 8.1 hereto, and Hogan Lovells has included its
opinion to Cornell as Exhibit 8.2 hereto, each effective on
the effectiveness date of this joint proxy statement/prospectus
and subject to the conditions set forth in such opinions, that
(a) the merger will constitute a reorganization within the
meaning of Section 368(a) of Code and (b) GEO and
Cornell will be parties to the reorganization within the meaning
of Section 368(b) of the Code. Further, it is a condition
to the closing of the merger that GEO will have received a
written opinion from Akerman Senterfitt, and Cornell will have
received a written opinion from Hogan Lovells US LLP, both as of
the closing date of the merger and to the effect that for
U.S. federal income tax purposes, the merger will
constitute a reorganization within the meaning of
section 368(a) of the Code. Neither GEO nor Cornell intends
to waive this condition. These opinions each rely on
assumptions, including assumptions regarding the absence of
changes in existing facts and law and the completion of the
merger in the manner contemplated by the merger agreement, and
representations and covenants made by GEO and Cornell, including
those contained in certificates of officers of GEO and Cornell.
The accuracy of those representations, covenants or assumptions
may affect the conclusions set forth in these opinions, in which
case the tax consequences of the merger could differ from those
discussed here. Opinions of counsel neither bind the IRS nor
preclude the IRS from adopting a contrary position. No ruling
has been or will be sought from the IRS on the tax consequences
of the merger. Consequently, no assurance can be given that the
IRS will not assert, or a court would not sustain, a position
contrary to those set forth herein.
U.S.
Federal Income Tax Consequences of the Merger to U.S. Holders of
Cornell Common Stock
The United States federal income tax consequences of the merger
to a U.S. holder will vary depending on whether the
U.S. holder receives shares of GEO common stock, cash, or a
combination of GEO common stock and cash, in exchange for
Cornell common stock. If a U.S. holder chooses to make a
cash election pursuant to the merger agreement, at the time of
such election such U.S. holder will not know whether, or to
what extent, the proration rules of the merger agreement will
alter the mix of consideration such U.S. holder will
receive. As a result, the tax consequences to such a
U.S. holder will not be ascertainable with certainty until
the U.S. holder knows the precise number of shares of GEO
common stock and the amount of cash that such U.S. holder
will receive in the merger.
Receipt
Solely of GEO Common Stock
A U.S. holder who receives only shares of GEO common stock
in the merger will not recognize any gain or loss except for any
gain or loss recognized with respect to cash received in lieu of
a fractional share of GEO common stock. U.S. holders will
recognize gain or loss on any cash received in lieu of a
fractional share of GEO common stock equal to the difference
between the amount of cash received in lieu of the fractional
share and the portion of the holders adjusted tax basis of
the shares of Cornell common stock surrendered that is allocable
to the fractional share. Such gain or loss will be long-term
capital gain or loss if the holding period in Cornell common
stock is more than one year as of the closing date of the
merger. The deductibility of capital losses is subject to
limitations. Such U.S. holder will have an adjusted tax
basis in the GEO common stock received in the merger, including
any fractional share for which cash is received, equal to the
adjusted tax basis of the Cornell common stock surrendered by
that holder in the merger. The holding period for GEO common
stock received in the merger will include the holding period for
the Cornell common stock surrendered therefor.
Receipt
of GEO Common Stock and Cash
A U.S. holder who receives both GEO common stock and cash
in the merger will not recognize any loss on the exchange, and
will recognize gain (if any) equal to the lesser of:
(1) the amount of cash received (other than cash received
in lieu of a fractional share) and (2) the excess of the
sum of the amount of cash received and the fair market
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value of the shares of GEO common stock received over the
stockholders adjusted tax basis for the shares of Cornell
common stock surrendered in exchange therefor. For purposes of
this calculation, the fair market value of GEO common stock is
based on the trading price as of the effective time of the
merger, rather than the
ten-day
average price used in calculating the amount of cash
consideration to be paid to Cornell stockholders making a cash
election.
Subject to the discussion below, any gain recognized with
respect to shares of Cornell common stock as a consequence of
participating in the merger will be capital gain, and will be
long-term capital gain if the shares have been held for more
than one year on the closing date of the merger. It is possible,
however, that a U.S. holder would instead be required to
treat all or part of such gain as dividend income, if that
U.S. holders percentage ownership in GEO (including
shares that the U.S. holder is deemed to own under certain
attribution rules) after the transaction is not meaningfully
reduced from what the U.S. holders percentage
ownership would have been if the U.S. holder had received
solely shares of GEO common stock rather than a combination of
cash and GEO common stock in the merger. If a U.S. holder
who has a relatively minimal stock interest in GEO and Cornell
suffers a reduction in its proportionate interest in GEO (as
compared to the interest it would have had if it had received
solely shares of GEO common stock), the U.S. holder should
be regarded as having suffered a meaningful reduction in
interest. A U.S. holder should consult its own tax advisor
as to whether its receipt of cash in the merger will be treated
as capital gain or dividend income under the Code.
A U.S. holder who receives GEO common stock will have an
adjusted tax basis in the GEO common stock received in the
merger equal to the adjusted tax basis of the shares of Cornell
common stock surrendered, increased by the amount of gain, if
any, recognized (including any portion of the gain that is
treated as a dividend, if any, but excluding any gain recognized
with respect to a fractional share), and decreased by the
amount, if any, of cash received (other than cash received in
lieu of a fractional share). The holding period for shares of
GEO common stock received in exchange for shares of Cornell
common stock in the merger will include the holding period for
the shares of Cornell common stock surrendered in the merger.
U.S. holders will recognize gain or loss on any cash
received in lieu of a fractional share of GEO common stock equal
to the difference between the amount of cash received in lieu of
the fractional share and the portion of the holders
adjusted tax basis of the shares of Cornell common stock
surrendered that is allocable to the fractional share. Such gain
or loss will be long-term capital gain or loss if the holding
period in Cornell common stock is more than one year as of the
closing date of the merger.
Receipt
Solely of Cash
A U.S. holder who receives only cash in the merger will
recognize gain or loss equal to the difference between the
amount of cash received and its adjusted tax basis in the shares
of Cornell common stock surrendered in the exchange. It is
anticipated that most U.S. holders will be required to
treat any recognized gain (or loss) as capital gain (or loss),
as described above. However, it is possible that a
U.S. holder would instead be required to treat all or part
of such gain as dividend income as described in the section
Receipt of GEO Common Stock and
Cash. A U.S. holder should consult its own tax
advisor as to whether its receipt of cash in the merger will be
treated as capital gain or dividend income under the Code.
Separate
Blocks of Stock
In the case of a holder of Cornell common stock that holds
shares of Cornell common stock with differing tax bases
and/or
holding periods, the preceding rules must be applied to each
identifiable block of Cornell common stock.
Reporting
Requirements
A holder of Cornell common stock who receives GEO common stock
as a result of the merger will be required to retain records
pertaining to the merger. A holder of Cornell common stock who
is a significant holder will be subject to certain
reporting requirements with respect to the merger. In
particular, such stockholders will be required to attach a
statement to their tax returns for the year of the merger that
contains the information listed in Treasury
Regulation Section 1.368-3(b).
Such statement must include the stockholders adjusted tax
basis in its Cornell
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common stock and other information regarding the
reorganization. A significant holder is a
U.S. holder who receives GEO common stock in the merger and
who, immediately before the merger, owned at least 5% of the
outstanding stock of Cornell (by vote or value) or securities of
Cornell with a tax basis of $1 million or more.
U.S. holders are urged to consult with their tax advisers
with respect to these and other reporting requirements
applicable to the merger.
Information
Reporting and Backup Withholding
A holder of Cornell common stock may be subject to information
reporting and backup withholding in connection with any cash
payments received instead of a fractional share of GEO common
stock, unless such holder provides proof of an applicable
exemption or a correct taxpayer identification number, and
otherwise complies with the applicable requirements of the
backup withholding rules. The amounts withheld under the backup
withholding rules are not an additional tax and may be refunded,
or credited against the holders U.S. federal income
tax liability, provided the required information is furnished.
This discussion is intended to provide only a general summary of
the material U.S. federal income tax consequences of the
merger, and is not a complete analysis or description of all
potential U.S. federal income tax consequences of the
merger. This discussion does not address tax consequences that
may vary with, or are contingent on, individual circumstances.
In addition, it does not address any non-income tax or any
foreign, state or local tax consequences of the merger.
Accordingly, each holder of Cornell common stock is strongly
urged to consult his or her tax advisor to determine the
particular U.S. federal, state or local or foreign income
or other tax consequences to that stockholder of the merger.
U.S.
Federal Income Tax Consequences to GEO Shareholders
There will be no U.S. federal income tax consequences to a
holder of GEO common stock (who does not also own Cornell common
stock) as a result of the merger.
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REGULATORY
MATTERS
Under the merger agreement, each of GEO and Cornell has agreed
to use its reasonable best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable law to
consummate the merger and the other transactions contemplated by
the merger agreement, including (1) preparing and filing
with any governmental authority or other third party as promptly
as practicable all documentation to effect all necessary
filings, notices, petitions, statements, registrations,
submissions of information, applications and other documents and
(2) obtaining and maintaining all approvals, actions,
non-actions, consents, waivers, licenses, orders, registrations,
permits, authorizations, clearances and other confirmations
required to be obtained from any governmental authority or other
third party that are necessary, proper or advisable to
consummate the merger and the other transactions contemplated by
the merger agreement.
A condition to GEOs and Cornells respective
obligations to consummate the merger is that any waiting period
applicable to the merger under the HSR Act will have expired or
been terminated. See The Merger Agreement
Conditions to Completion of the Merger beginning on
page 83.
U.S.
Antitrust Filing
Under the HSR Act and the rules and regulations promulgated
thereunder, certain transactions, including the merger, may not
be consummated unless certain waiting period requirements have
expired or been terminated. Pursuant to the requirements of the
HSR Act, each of GEO and Cornell filed a Notification and Report
Form with respect to the merger with the United States
Department of Justice, Antitrust Division, which is referred to
as the Antitrust Division, and the Federal Trade Commission,
which is referred to as the FTC, on April 30, 2010.
Pursuant to the requirements of the HSR Act, the merger may be
closed following the expiration of a 30-calendar day waiting
period (if the thirtieth day falls on a weekend or holiday, the
waiting period will expire on the next business day) following
the filings by GEO and Cornell with the FTC and the Antitrust
Division, unless the federal government terminates the waiting
period early or issues a request for additional information and
documentary material.
The waiting period under the HSR Act expired as of 11:59 pm on
June 1, 2010. Although the waiting period has expired, at any
time before the effective time of the merger, the Antitrust
Division, the FTC or others could take action under the
antitrust laws with respect to the merger, including seeking to
enjoin the merger or to require the divestiture of certain
assets of GEO or Cornell. Private parties (including individual
states) may also bring legal actions under the antitrust laws.
GEO and Cornell do not believe that the closing of the merger
will result in a violation of any applicable antitrust laws.
However, there can be no assurance that a challenge to the
merger on antitrust grounds will not be made, or if such a
challenge is made, what the result will be. See The Merger
Agreement Conditions to Completion of the
Merger for certain conditions, including conditions with
respect to litigation and other legal restraints.
Other than the filings described above, neither GEO nor Cornell
is aware of any material regulatory approvals required to be
obtained, or waiting periods required to expire, to complete the
merger. If GEO and Cornell discover that other material
approvals or waiting periods are necessary, GEO and Cornell will
seek to obtain or comply with them in accordance with the merger
agreement.
FINANCING
Completion of the merger is not conditioned on receipt of any
financing. However, in connection with the merger, GEO may
choose to refinance Cornells existing senior secured
credit facility and Cornells existing 10.75% senior
notes due 2012, and to pay the cash component of the merger
consideration, by utilizing a combination of GEOs existing
cash and one or more draws upon GEOs senior credit
facility.
Under GEOs existing senior credit facility, GEO currently
has the right to increase the revolving and term loan
commitments thereunder. BNP Paribas has committed
$150.0 million to GEO in order to effect such an increase,
which commitment will expire if the merger is not closed on or
prior to April 18, 2011, which we refer to as commitments
increase.
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Under the BNP Paribas commitment, any commitments increase
taking the form of a term loan will have a maturity date equal
to the maturity date of the term loans in GEOs existing
senior credit facility, January 24, 2014. That portion of
the commitments increase, if any, taking the form of revolving
credit commitments will have a final maturity date concurrent
with GEOs existing senior revolving credit commitments,
September 14, 2012.
At GEOs option, the interest rate on any new term loans
under the commitments increase will be equal to either a base
rate plus an applicable margin or the LIBOR rate plus an
applicable margin. GEO expects the applicable margin on any new
term loans to be 2.25% in the case of base rate loans and 3.25%
in the case of LIBOR rate loans and the rate of interest
applicable to revolving credit loans drawn under the commitments
increase to be the same as currently applicable to revolving
loans under GEOs existing senior credit facility.
The loans under the new commitments will be subject in all
respects to the terms of GEOs existing credit facility, as
amended, and will be subject to the satisfaction of a number of
conditions, including that the closing of the merger will have
occurred on or before April 18, 2011.
In the alternative, GEO may choose to pursue alternate financing.
GEO expects that the total utilization under GEOs senior
credit facility (existing or alternative) at the effective time
of the merger will be approximately
$[ ] million, consisting of
$[ ] in borrowings and
$[ ] in letters of credit.
THE
COMPANIES
The GEO
Group, Inc.
GEOs principal executive offices are located at: One Park
Place, Suite 700, 621 Northwest 53rd Street, Boca
Raton, Florida
33487-8242.
GEO is a leading provider of government-outsourced services
specializing in the management of correctional, detention,
mental health and residential treatment facilities in the United
States, Canada, Australia, South Africa and the United Kingdom.
GEO operates a broad range of correctional and detention
facilities including maximum, medium and minimum security
prisons, immigration detention centers and minimum security
detention centers. GEO also provides secure transportation
services for offender and detainee populations as contracted.
GEOs correctional and detention management services
involve the provision of security, administrative,
rehabilitation, education, health and food services primarily at
adult male correctional and detention facilities. GEOs
mental health and residential treatment services involve the
delivery of quality care, innovative programming and active
patient treatment, primarily at privatized state mental health
facilities. GEO also develops new facilities based on contract
awards, using its project development expertise and experience
to design, construct and finance what it believes are
state-of-the-art
facilities that maximize security and efficiency. As of
April 4, 2010, GEO managed 56 facilities totaling
approximately 52,700 beds worldwide. GEO has an additional 4,325
beds under development at three facilities, including an
expansion and renovation of one vacant facility which GEO
currently owns, the expansion of one facility GEO currently owns
and operates and a new 2,000-bed facility which GEO will manage
upon completion. GEO owns three idle facilities totaling 954
beds and two facilities totaling 1,560 beds that are leased to
Cornell and other private operators. GEO maintained an average
companywide facility occupancy rate of 94.4% for the thirteen
weeks ended April 4, 2010, excluding facilities that are
either idle or under development. For the thirteen weeks ended
April 4, 2010 and for the fiscal year ended January 3,
2010, GEO had consolidated revenues of $0.3 billion and
$1.1 billion, respectively.
This joint proxy statement/prospectus incorporates important
business and financial information about GEO from other
documents that are not included in or delivered with this joint
proxy statement/prospectus. For a list of the documents
incorporated by reference in this joint proxy
statement/prospectus, see Where You Can Find More
Information beginning on page 126.
Cornell
Companies, Inc.
Cornells principal executive offices are located at:
1700 West Loop South, Suite 1500, Houston, Texas 77027.
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Cornell is a leading provider of correctional, detention,
educational, rehabilitation and treatment services outsourced by
federal, state, county and local government agencies for adults
and juveniles. Cornell partners with these agencies to deliver
quality, cost-efficient programs that Cornell believes enable
its customers to achieve their missions while saving
taxpayers money. Cornells customers include the
Federal Bureau of Prisons, U.S. Marshals Service, various
state Departments of Corrections, and city, county and state
departments of human services and similar agencies. Cornell
offers a diverse portfolio of services in structured and secure
environments throughout three operating divisions:
(1) Adult Secure Services; (2) Abraxas Youth and
Family Services; and (3) Adult Community-Based Services. As
of March 31, 2010, Cornell operated 63 facilities among its
three operating divisions, representing a total operating
service capacity of 20,531. Cornell also had five facilities
that were vacant, representing additional service capacity of
861 beds. Service capacity is comprised of the number of beds
currently available for service in residential facilities and on
either the contractual terms or an estimate of the number of
clients to be served for non-residential community-based
programs. Cornells facilities are located in
15 states and the District of Columbia. For the quarter
ended March 31, 2010 and for the year ended
December 31, 2009, Cornell had revenues of
$100.0 million and $412.4 million, respectively.
This joint proxy statement/prospectus incorporates important
business and financial information about Cornell from other
documents that are not included in or delivered with this joint
proxy statement/prospectus. For a list of the documents
incorporated by reference in this joint proxy
statement/prospectus, see Where You Can Find More
Information beginning on page 126.
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THE
MERGER AGREEMENT
The following is a summary of the material terms of the
Agreement and Plan of Merger, dated as of April 18, 2010,
among The GEO Group, Inc., GEO Acquisition III, Inc. and Cornell
Companies, Inc., which is referred to as the merger agreement.
This summary does not purport to describe all the terms of the
merger agreement and is qualified in its entirety by reference
to the complete merger agreement which is attached as
Annex A to this joint proxy statement/prospectus and
incorporated by reference. The rights and obligations of the
parties are governed by the express terms and conditions of the
merger agreement and not this summary or any other information
contained in this joint proxy statement/prospectus. All GEO
shareholders and Cornell stockholders are urged to read the
merger agreement carefully and in its entirety.
Structure
of the Merger
Subject to the terms and conditions of the merger agreement and
in accordance with Delaware law, GEO Acquisition III, Inc., a
wholly owned subsidiary of GEO that was formed for the purpose
of the merger, will be merged with and into Cornell, with
Cornell surviving the merger and becoming a wholly owned
subsidiary of GEO. Immediately following the merger, GEO will
continue to be named The GEO Group, Inc. and will be
the parent company of Cornell. Accordingly, after the effective
time of the merger, shares of Cornell common stock will no
longer be publicly traded.
Closing
and Effective Time of the Merger
The closing will occur as soon as practicable, but in no event
later than two business days after the day on which the last of
the conditions set forth in the merger agreement has been
satisfied or waived, unless GEO and Cornell agree to a different
date. The merger will become effective upon the filing of a
certificate of merger with the Secretary of State of the State
of Delaware or such later time as may be agreed upon by GEO and
Cornell and as specified in the certificate of merger. See
The Merger Agreement Conditions to Completion
of the Merger beginning on page 83 for a more
complete description of the conditions that must be satisfied or
waived before closing.
Merger
Consideration
Cornell Stockholders. At the effective time of
the merger, each outstanding share of Cornell common stock will
be converted into the right to receive either
(i) 1.3 shares of GEO common stock or (ii) an
amount of cash equal to the greater of (x) the fair market
value of one share of GEO common stock plus $6.00 or
(y) the fair market value of 1.3 shares of GEO common
stock. Cornell stockholders desiring to receive a combination of
GEO common stock and cash may do so by making a stock election
with respect to a portion of their shares and a cash election
with respect to their remaining shares. If a Cornell stockholder
fails to make an election, the holder will receive the stock
consideration. Fair market value of GEO common stock
means the average of the daily closing prices per share of GEO
common stock for the ten consecutive trading days on which
shares of GEO common stock are actually traded (as reported on
the NYSE) ending on the last trading day immediately preceding
the tenth business day preceding the closing date. Cornell
stockholders have the opportunity to elect whether they would
prefer to receive stock consideration or cash consideration as
provided above. However, the merger agreement provides that
notwithstanding such elections, no more than 20% of the shares
of Cornell common stock are permitted to be exchanged for cash
consideration. If cash elections are made with respect to more
than 20% of the shares of Cornell common stock outstanding
immediately before the effective time, the excess over 20% shall
be treated as if a stock election had been made with respect to
them and will be exchanged for shares of GEO common stock, such
that only 20% of the shares of Cornell common stock outstanding
immediately before the effective time are exchanged for the cash
consideration. In such event, a pro rata portion (rounded up to
the nearest whole share) of each holders shares of Cornell
common stock with respect to which an election was made to elect
cash consideration shall instead be treated as an election for
stock consideration such that the reduction is borne pro rata by
each holder of Cornell common stock with respect to which such
election was made.
If the Cornell stockholders election would otherwise
result in more than $100.0 million of cash in the aggregate
being paid to holders electing cash consideration, GEO may
elect, in its sole discretion, to reduce the
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amount of cash paid to each holder electing cash consideration
pro rata based on the number of shares held so that the total
cash paid with respect to all Cornell stockholders electing cash
consideration is $100.0 million. If the cash consideration
otherwise payable to any holder is reduced under this clause,
such holder shall be entitled to receive GEO common stock at a
fair market value (defined above) equal to the amount of the
reduction. GEO intends to pay such excess amount in cash.
Election Procedures. An election form and
letter of transmittal have been enclosed with this joint proxy
statement/prospectus pursuant to which Cornell stockholders may
elect whether they would prefer to receive GEO common stock or
cash in exchange for their Cornell shares. If you were a record
holder of Cornell common stock on the Cornell record date, you
should carefully review and follow the instructions included in
the election form and the letter of transmittal. To make an
election, record holders must properly complete and sign the
election form and letter of transmittal and send those documents
and the certificates for their shares (or a properly completed
notice of guaranteed delivery) to the exchange agent at the
address listed in the election form and letter of transmittal by
the election deadline, which is 5:00 p.m. New York time, on
[ ],
2010. If the merger agreement is terminated, all election forms
delivered to the exchange agent on or prior to the date of such
termination will be automatically revoked and all share
certificates will be returned. Please do not send your election
form and stock certificates with your proxy card for the special
meeting. Your election form and stock certificates are to be
submitted separately from your proxy card.
If you own shares of Cornell common stock in street
name through a broker or other financial institution, you
will receive or should seek instructions from the institution
holding your shares concerning how to make your election. Any
instructions must be given to your broker or other financial
institution sufficiently in advance of the election deadline for
record holders in order to allow your broker or financial
institution sufficient time to cause the record holder of your
shares to make an election as described above. Therefore, you
should carefully read any materials you receive from your
broker. If you instruct a broker to submit an election for your
shares, you must follow your brokers directions for
changing those instructions.
If you are a record holder of Cornell shares, you may change
your election or change the number of shares for which you have
made an election at any time prior to the election deadline by
sending a signed written notice to the exchange agent
identifying the shares of Cornell common stock for which you are
changing your election along with a properly completed revised
election form. For a change of an election to be effective, it
must be received by the exchange agent prior to the election
deadline. In addition, a record holder may revoke an election at
any time prior to the election deadline by delivering to the
exchange agent a written notice of revocation. A revocation of a
proxy shall also be deemed a revocation of an election with
respect to the merger consideration. Shares of Cornell common
stock as to which an election has been revoked after the
election deadline will be deemed non-election shares, and no new
election as to such shares may be made after the election
deadline. If you hold your shares in street name,
you must follow your brokers instructions for changing or
revoking an election.
All elections are subject to the proration procedures described
above. If you do not make a valid election your shares will be
considered non-election shares, and when the merger is completed
you will be entitled to receive the stock consideration for
non-election shares as described above.
GEO Shareholders. GEO shareholders will
continue to own their existing shares of GEO common stock after
the merger. Each share of GEO common stock will represent one
share of common stock in the combined company.
Fractional Shares. GEO will not issue
fractional shares of GEO common stock in the merger. All
fractional shares of GEO common stock to which a holder of
shares of Cornell common stock would otherwise be entitled as a
result of the merger will be aggregated. For any fractional
share that results from such aggregation, the exchange agent
will pay the holder an amount of cash, without interest, equal
to the product of such fraction of a share of GEO common stock
to which the Cornell stockholder would otherwise have been
entitled to receive pursuant to the merger multiplied by the
closing sale price of a share of GEO common stock on the NYSE on
the trading day that is one trading day prior to the closing
date. GEO shall deposit with the exchange agent the funds
required to make such cash payments when and as needed.
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Exchange
of Shares
GEO has appointed [BNY Mellon Shareowner Services] as exchange
agent for the purpose of exchanging certificates and
uncertificated shares of Cornell common stock. The exchange
agent will also be responsible for administering the election
procedures described above and determining the merger
consideration to be received by each holder of Cornell common
stock as described above and consistent with the merger
agreement.
The letter of transmittal sent to Cornell stockholders by the
exchange agent contains instructions for exchanging shares of
Cornell common stock for the applicable merger consideration. If
you are a record holder of Cornell shares and you wish to make
an election with respect to any of your shares, you must submit
an election form and, separately, letter of transmittal (along
with the certificates representing the shares with respect to
which you are making an election) to the exchange agent prior to
the election deadline. Record holders of Cornell common stock
should not submit their Cornell stock certificates with their
proxy card. Stock certificates should only be sent to the
exchange agent with a properly completed, signed election form
and letter of transmittal. If you own shares of Cornell common
stock in street name through a broker or other
financial institution, you will receive or should seek
instructions from the institution holding your shares concerning
how to make your election.
Soon after the completion of the merger, but in any event within
ten business days after the effective date of the merger, the
exchange agent will send a letter of transmittal to each person
who was a Cornell stockholder at the effective time of the
merger and who did not submit his or her election form and share
certificates on or before the election deadline or who holds
shares for which a valid election was not made. This mailing
will contain instructions on how to surrender shares of Cornell
common stock in exchange for the merger consideration the holder
is entitled to receive under the merger agreement.
After the effective time, each certificate that previously
represented shares of Cornell common stock will represent only
the right to receive the applicable merger consideration as
described above under Merger
Consideration, including cash for any fractional shares of
Cornell common stock. In addition, neither GEO nor Cornell will
register any transfers of the shares of Cornell common stock
after the effective time of the merger.
If a certificate for Cornell common stock has been lost, stolen
or destroyed, the exchange agent will issue the consideration
properly payable under the merger agreement upon receipt of an
affidavit relating to such loss, theft or destruction and
customary indemnification. The posting of a bond in a reasonable
amount may also be required.
Cornell
Options and Other Equity-Based Awards
At the effective time of the merger, each outstanding option
issued by Cornell to purchase shares of Cornell common stock
granted under any stock option or other equity incentive plan,
which is outstanding and unexercised immediately following the
effective time and which does not, by its terms, terminate on
the effective time, whether vested or unvested will be assumed
by GEO, and these options will entitle the holder to receive GEO
common stock as adjusted to account for the exchange ratio,
rounded down to the nearest whole number of shares of GEO common
stock, on the same terms and conditions as were applicable
before the merger (but taking into account any acceleration of
Cornell options in connection with the merger). In addition, at
the effective time of the merger, each Cornell option that has
been assumed by GEO will have an exercise price per share equal
to the quotient determined by dividing the exercise price per
share of Cornell common stock at which such Cornell option was
exercisable immediately prior to the effective time by the
exchange ratio rounded up to the nearest whole cent.
At the effective time of the merger, each outstanding share of
Cornell restricted stock will vest and be automatically
converted into GEO common stock as adjusted to account for the
exchange ratio.
Cornell will use reasonable best efforts to ensure that,
immediately prior to the effective time, the following occurs:
(i) each outstanding option or right to acquire Cornell
common stock under Cornells employee stock purchase plan
will automatically be exercised or deemed exercised, and
(ii) in lieu of the shares of Cornell common stock
otherwise issuable upon the exercise of each such option or
right, the holder of such option or right will have the right to
elect to receive from GEO, following the effective time, either
the stock consideration or the cash consideration except to the
extent that the holder of such option or right elects not to
exercise the holders options and to withdraw the entire
balance of holders Cornell employee stock purchase plan
account prior to the effective
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time and subject to the same prorations and adjustments as
elections made with respect to shares of Cornell common stock,
discussed above in The Merger Agreement Merger
Consideration.
Listing
of GEO Stock
GEO has agreed to use its reasonable best efforts to cause the
shares of GEO common stock to be issued in connection with the
merger to be approved for listing on the NYSE. The approval for
listing of these shares on the NYSE is a condition to the
obligations of GEO and Cornell to complete the merger, subject
only to official notice of issuance. GEO will continue to use
the trading symbol GEO for the shares of GEO common
stock issuable to the Cornell stockholders in the merger.
Representations
and Warranties
The merger agreement contains a number of substantially
reciprocal representations and warranties made by and to GEO and
GEO Acquisition III, Inc., on the one hand, and Cornell, on the
other hand. The most significant representations and warranties
relate to:
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due incorporation, good standing and qualification;
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ownership of subsidiaries;
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capitalization;
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corporate authority to enter into the merger agreement and
complete the merger;
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approval and adoption of the merger agreement and related
matters by each partys board of directors;
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absence of any breach of organizational documents, laws,
agreements and instruments as a result of the merger;
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the required stockholder vote to (1) adopt the merger
agreement, in the case of Cornell, and (2) approve the
issuance of shares of GEO common stock in connection with the
merger, in the case of GEO;
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required consents and filings with government entities;
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accuracy and sufficiency of documents filed with the SEC;
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conformity of the financial statements with applicable
accounting requirements and that the financial statements fairly
present, in all material respects, the consolidated financial
positions of GEO and Cornell, respectively;
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absence of undisclosed liabilities;
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since January 3, 2010, in the case of GEO, and
December 31, 2009, in the case of Cornell, conduct of
business in ordinary and usual course and absence of any
material adverse event, change, effect or development;
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absence of material pending or threatened legal proceedings;
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compliance with laws, regulations and court orders and permits;
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tax matters;
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employee benefits plans and labor and employment matters;
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material contracts;
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intellectual property matters;
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real estate and personal property matters;
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environmental matters;
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information supplied for use in this joint proxy
statement/prospectus;
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receipt of opinions from financial advisors;
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absence of any obligation to pay brokers or other similar
fees; and
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insurance matters.
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Significant portions of the representations and warranties of
Cornell and GEO are qualified as to materiality or
material adverse effect. For the purpose of the
merger agreement, a material adverse effect means, when used in
connection with GEO or Cornell, any changes, circumstances or
effects that individually or in the aggregate has a material
adverse effect on the business, assets, liabilities, results of
operation or condition (financial or otherwise) of that party
and of its subsidiaries, taken as a whole, or that materially
impairs, prevents or delays the ability of that party to
consummate the merger and the other transactions to be performed
or consummated by that party; provided, however, that none of
the following, or any change, event, occurrence or effect
resulting or arising from the following, shall constitute or
shall be considered in determining whether there has occurred, a
material adverse effect:
(i) changes in conditions in the United States economy or
capital or financial markets generally;
(ii) changes in general legal, regulatory, political,
economic or business conditions or changes in GAAP that, in each
case, generally affect any industry in the United States related
to the correction, detention, education, rehabilitation and
treatment services for adults and juveniles in the case of
Cornell and in which the party or any of its subsidiaries
operates in the case of GEO (other than those changes that have
a materially disproportionate adverse effect on the party and
its subsidiaries, taken as a whole, relative to other
participants in such industry);
(iii) the negotiation, execution, announcement or
performance of this Agreement or the consummation of the merger,
including the impact thereof on relationships, contractual or
otherwise, with customers, suppliers, distributors, partners or
employees in the case of Cornell (other than any such impact
resulting from a material breach of the partys covenant
with respect to the conduct of such partys business in the
ordinary course of business);