| CORRECTIONS CORP OF AMERICA ITEM 1A RISK FACTORS As the owner and operator of correctional and detention facilities, we are subject to certain risks and uncertainties associated with, among other things, the corrections and detention industry and pending or threatened litigation in which we are involved |
| In addition, we are also currently subject to risks associated with our indebtedness |
| These risks and uncertainties set forth below could cause our actual results to differ materially from those indicated in the forward-looking statements contained herein and elsewhere |
| The risks described below are not the only risks we face |
| Additional risks and uncertainties not currently known to us or those we currently deem to be immaterial may also materially and adversely affect our business operations |
| Any of the following risks could materially adversely affect our business, financial condition, or results of operations |
| Risks Related to Our Business and Industry Our results of operations are dependent on revenues generated by our jails, prisons, and detention facilities, which are subject to the following risks associated with the corrections and detention industry |
| We are subject to fluctuations in occupancy levels |
| While a substantial portion of our cost structure is fixed, a substantial portion of our revenues are generated under facility management contracts that specify per diem payments based upon occupancy |
| Under a per diem rate structure, a decrease in our occupancy rates could cause a decrease in revenue and profitability |
| Average compensated occupancy for our facilities in operation for 2005, 2004, and 2003 was 91dtta4prca, 94dtta9prca, and 93dtta1prca, respectively |
| Occupancy rates may, however, decrease below these levels in the future |
| We may incur significant start-up and operating costs on new contracts before receiving related revenues, which may impact our cash flows and not be recouped |
| When we are awarded a contract to manage a facility, we may incur significant start-up and operating expenses, including the cost of constructing the facility, purchasing equipment and staffing the facility, before we receive any payments under the contract |
| These expenditures could result in a significant reduction in our cash reserves and may make it more difficult for us to meet other cash obligations |
| In addition, a contract may be terminated prior to its scheduled expiration and as a result we may not recover these expenditures or realize any return on our investment |
| Escapes, inmate disturbances, and public resistance to privatization of correctional and detention facilities could result in our inability to obtain new contracts or the loss of existing contracts |
| The operation of correctional and detention facilities by private entities has not achieved complete acceptance by either governments or the public |
| The movement toward privatization of correctional and detention facilities has also encountered resistance from certain groups, such as labor unions and others that believe that correctional and detention facilities should only be operated by governmental agencies |
| Moreover, negative publicity about an escape, riot or other disturbance or perceived poor conditions at a privately managed facility may result in publicity adverse to us and the private corrections industry in general |
| Any of these occurrences or continued trends may make it more difficult for us to renew or maintain existing contracts or to obtain new contracts, which could have a material adverse effect on our business |
| We are subject to termination or non-renewal of our government contracts |
| We typically enter into facility management contracts with governmental entities for terms of up to five years, with additional renewal periods at the option of the contracting governmental agency |
| Notwithstanding any contractual renewal option of a contracting governmental agency, 26 of our facility management 21 _________________________________________________________________ [94]Table of Contents contracts with the customers listed under “Business — Facility Portfolio — Facilities and Facility Management Contracts” have expired or are currently scheduled to expire on or before December 31, 2006 |
| ” One or more of these contracts may not be renewed by the corresponding governmental agency |
| In addition, these and any other contracting agencies may determine not to exercise renewal options with respect to any of our contracts in the future |
| Governmental agencies typically may also terminate a facility contract at any time without cause or use the possibility of termination to negotiate a lower fee for per diem rates |
| In the event any of our management contracts are terminated or are not renewed on favorable terms or otherwise, we may not be able to obtain additional replacement contracts |
| The non-renewal or termination of any of our contracts with governmental agencies could materially adversely affect our financial condition, results of operations and liquidity, including our ability to secure new facility management contracts from others |
| Competition for inmates may adversely affect the profitability of our business |
| We compete with government entities and other private operators on the basis of cost, quality, and range of services offered, experience in managing facilities and reputation of management and personnel |
| While there are barriers to entering the market for the management of correctional and detention facilities, these barriers may not be sufficient to limit additional competition |
| In addition, our government customers may assume the management of a facility we currently manage upon the termination of the corresponding management contract or, if such customers have capacity at their facilities, may take inmates currently housed in our facilities and transfer them to government run facilities |
| Since we are paid on a per diem basis with no minimum guaranteed occupancy under most of our contracts, the loss of such inmates and resulting decrease in occupancy would cause a decrease in our revenues and profitability |
| We are dependent on government appropriations |
| Our cash flow is subject to the receipt of sufficient funding of and timely payment by contracting governmental entities |
| If the appropriate governmental agency does not receive sufficient appropriations to cover its contractual obligations, it may terminate our contract or delay or reduce payment to us |
| Any delays in payment, or the termination of a contract, could have an adverse effect on our cash flow and financial condition |
| In addition, as a result of, among other things, recent economic developments, federal, state and local governments have encountered, and may encounter, unusual budgetary constraints |
| As a result, a number of state and local governments are under pressure to control additional spending or reduce current levels of spending |
| Accordingly, we may be requested in the future to reduce our existing per diem contract rates or forego prospective increases to those rates |
| In addition, it may become more difficult to renew our existing contracts on favorable terms or otherwise |
| Our ability to secure new contracts to develop and manage correctional and detention facilities depends on many factors outside our control |
| Our growth is generally dependent upon our ability to obtain new contracts to develop and manage new correctional and detention facilities |
| This possible growth depends on a number of factors we cannot control, including crime rates and sentencing patterns in various jurisdictions and acceptance of privatization |
| The demand for our facilities and services could be adversely affected by the relaxation of enforcement efforts, leniency in conviction and sentencing practices or through the decriminalization of certain activities that are currently proscribed by our criminal laws |
| For instance, any changes with respect to drugs and controlled substances or illegal immigration could affect the number of persons arrested, convicted, and sentenced, thereby potentially reducing demand for correctional facilities to house them |
| Legislation has been proposed in numerous jurisdictions that could lower minimum sentences for some non-violent crimes and make more inmates eligible for early release based on good behavior |
| Also, sentencing alternatives under consideration could put some offenders on probation with electronic monitoring who would otherwise be incarcerated |
| Similarly, reductions in crime rates could lead to reductions in arrests, convictions and sentences requiring incarceration at correctional facilities |
| 22 _________________________________________________________________ [95]Table of Contents During January 2005, the Supreme Court declared the federal sentencing guidelines, previously considered mandatory, as unconstitutional, stating they violate defendants’ rights under the Sixth Amendment to be tried by a jury |
| The Supreme Court advised that federal judges should continue to use the federal sentencing guidelines as suggestions rather than mandatory guidelines |
| Although it is too early to predict the impact, if any, on our business, the ruling could lead to federal sentences becoming more varied which could lead to a reduction in the length of sentences at correctional facilities |
| Moreover, certain jurisdictions recently have required successful bidders to make a significant capital investment in connection with the financing of a particular project, a trend that will require us to have sufficient capital resources to compete effectively |
| Additionally, our success in obtaining new awards and contracts may depend, in part, upon our ability to locate land that can be leased or acquired under favorable terms |
| Otherwise desirable locations may be in or near populated areas and, therefore, may generate legal action or other forms of opposition from residents in areas surrounding a proposed site |
| Failure to comply with unique and increased governmental regulation could result in material penalties or non-renewal or termination of our contracts to manage correctional and detention facilities |
| The industry in which we operate is subject to extensive federal, state, and local regulations, including educational, health care, and safety regulations, which are administered by many regulatory authorities |
| Some of the regulations are unique to the corrections industry and the combination of regulations we face is unique |
| Facility management contracts typically include reporting requirements, supervision, and on-site monitoring by representatives of the contracting governmental agencies |
| Corrections officers and juvenile care workers are customarily required to meet certain training standards and, in some instances, facility personnel are required to be licensed and subject to background investigation |
| Certain jurisdictions also require us to award subcontracts on a competitive basis or to subcontract with businesses owned by members of minority groups |
| Our facilities are also subject to operational and financial audits by the governmental agencies with whom we have contracts |
| We may not always successfully comply with these regulations, and failure to comply can result in material penalties or non-renewal or termination of facility management contracts |
| In addition, private prison managers are increasingly subject to government legislation and regulation attempting to restrict the ability of private prison managers to house certain types of inmates, such as inmates from other jurisdictions or inmates at medium or higher security levels |
| Legislation has been enacted in several states, and has previously been proposed in the United States Congress, containing such restrictions |
| Such legislation may have an adverse effect on us |
| Our inmate transportation subsidiary, TransCor, is subject to regulations stipulated by the Departments of Transportation and Justice |
| TransCor must also comply with the Interstate Transportation of Dangerous Criminals Act of 2000, which covers operational aspects of transporting prisoners, including, but not limited to, background checks and drug testing of employees; employee training; employee hours; staff-to-inmate ratios; prisoner restraints; communication with local law enforcement; and standards to help ensure the safety of prisoners during transport |
| We are subject to changes in such regulations, which could result in an increase in the cost of our transportation operations |
| Moreover, the Federal Communications Commission, or the FCC, has published for comment a petition for rulemaking, filed on behalf of an inmate family, which would prevent private prison managers from collecting commissions from the operations of inmate telephone systems |
| We believe that there are sound reasons for the collection of such commissions by all operators of prisons, whether public or private |
| The FCC has traditionally deferred from rulemaking in this area; however, there is 23 _________________________________________________________________ [96]Table of Contents the risk that the FCC could act to prohibit private prison managers, like us, from collecting such revenues |
| Such an outcome could have a material adverse effect on our results of operations |
| Government agencies may investigate and audit our contracts and, if any improprieties are found, we may be required to refund revenues we have received, to forego anticipated revenues, and we may be subject to penalties and sanctions, including prohibitions on our bidding in response to RFPs |
| Certain of the governmental agencies with which we contract have the authority to audit and investigate our contracts with them |
| As part of that process, government agencies may review our performance of the contract, our pricing practices, our cost structure and our compliance with applicable laws, regulations and standards |
| For contracts that actually or effectively provide for certain reimbursement of expenses, if an agency determines that we have improperly allocated costs to a specific contract, we may not be reimbursed for those costs, and we could be required to refund the amount of any such costs that have been reimbursed |
| If a government audit asserts improper or illegal activities by us, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeitures of profits, suspension of payments, fines and suspension or disqualification from doing business with certain government entities |
| Any adverse determination could adversely impact our ability to bid in response to RFPs in one or more jurisdictions |
| We may face community opposition to facility location, which may adversely affect our ability to obtain new contracts |
| Our success in obtaining new awards and contracts sometimes depends, in part, upon our ability to locate land that can be leased or acquired, on economically favorable terms, by us or other entities working with us in conjunction with our proposal to construct and/or manage a facility |
| Some locations may be in or near populous areas and, therefore, may generate legal action or other forms of opposition from residents in areas surrounding a proposed site |
| When we select the intended project site, we attempt to conduct business in communities where local leaders and residents generally support the establishment of a privatized correctional or detention facility |
| Future efforts to find suitable host communities may not be successful |
| In many cases, the site selection is made by the contracting governmental entity |
| In such cases, site selection may be made for reasons related to political and/or economic development interests and may lead to the selection of sites that have less favorable environments |
| We depend on a limited number of governmental customers for a significant portion of our revenues |
| We currently derive, and expect to continue to derive, a significant portion of our revenues from a limited number of governmental agencies |
| The loss of, or a significant decrease in, business from the BOP, ICE, USMS, or various state agencies could seriously harm our financial condition and results of operations |
| The three primary federal governmental agencies with correctional and detention responsibilities, the BOP, ICE, and USMS, accounted for 39prca of our total revenues for the fiscal year ended December 31, 2005 (dlra466dtta8 million) |
| The BOP accounted for 16prca of our total revenues for the fiscal year ended December 31, 2005 (dlra196dtta0 million), and the USMS accounted for 15prca of our total revenues for the fiscal year ended December 31, 2005 (dlra177dtta9 million) |
| We expect to continue to depend upon the federal agencies and a relatively small group of other governmental customers for a significant percentage of our revenues |
| A decrease in occupancy levels could cause a decrease in revenues and profitability |
| While a substantial portion of our cost structure is generally fixed, a significant portion of our revenues are generated under facility management contracts which provide for per diem payments based upon daily occupancy |
| We are dependent upon the governmental agencies with which we have contracts to provide inmates for our managed facilities |
| We cannot control occupancy levels at our managed facilities |
| Under a per diem rate structure, a decrease in our occupancy rates could cause a decrease in revenues and profitability |
| When combined with relatively fixed costs for operating each facility, regardless of the occupancy level, a decrease in occupancy levels could have a material adverse effect on our profitability |
| 24 _________________________________________________________________ [97]Table of Contents We are dependent upon our senior management and our ability to attract and retain sufficient qualified personnel |
| We are dependent upon the continued service of each member of our senior management team, including John D Ferguson, our President and Chief Executive Officer |
| The unexpected loss of any of these persons could materially adversely affect our business and operations |
| We only have employment agreements with our President and Chief Executive Officer; Executive Vice President and Chief Financial Officer; Executive Vice President and Chief Corrections Officer; Executive Vice President and Chief Development Officer; Executive Vice President and Chief People Officer; and Executive Vice President, General Counsel and Secretary, all of which expire in 2006 subject to annual renewals unless either party gives notice of termination |
| When we are awarded a facility management contract or open a new facility, we must hire operating management, correctional officers, and other personnel |
| Our inability to hire sufficient qualified personnel on a timely basis or the loss of significant numbers of personnel at existing facilities could adversely affect our business and operations |
| We are subject to necessary insurance costs |
| Workers’ compensation, employee health, and general liability insurance represent significant costs to us |
| Because we significantly self-insure for workers’ compensation, employee health, and general liability risks, the amount of our insurance expense is dependent on claims experience, our ability to control our claims experience, and in the case of workers’ compensation and employee health, rising health care costs in general |
| Further, additional terrorist attacks such as those on September 11, 2001, and concerns over corporate governance and corporate accounting scandals, could make it more difficult and costly to obtain liability and other types of insurance |
| Unanticipated additional insurance costs could adversely impact our results of operations and cash flows, and the failure to obtain or maintain any necessary insurance coverage could have a material adverse effect on us |
| We may be adversely affected by inflation |
| Many of our facility management contracts provide for fixed management fees or fees that increase by only small amounts during their terms |
| If, due to inflation or other causes, our operating expenses, such as wages and salaries of our employees, insurance, medical, and food costs, increase at rates faster than increases, if any, in our management fees, then our profitability would be adversely affected |
| See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Inflation |
| ” We are subject to legal proceedings associated with owning and managing correctional and detention facilities |
| Our ownership and management of correctional and detention facilities, and the provision of inmate transportation services by a subsidiary, expose us to potential third-party claims or litigation by prisoners or other persons relating to personal injury or other damages resulting from contact with a facility, its managers, personnel or other prisoners, including damages arising from a prisoner’s escape from, or a disturbance or riot at, a facility we own or manage, or from the misconduct of our employees |
| To the extent the events serving as a basis for any potential claims are alleged or determined to constitute illegal or criminal activity, we could also be subject to criminal liability |
| Such liability could result in significant monetary fines and could affect our ability to bid on future contracts and retain our existing contracts |
| In addition, as an owner of real property, we may be subject to a variety of proceedings relating to personal injuries of persons at such facilities |
| The claims against our 25 _________________________________________________________________ [98]Table of Contents facilities may be significant and may not be covered by insurance |
| Even in cases covered by insurance, our deductible (or self-insured retention) may be significant |
| We are subject to risks associated with ownership of real estate |
| Our ownership of correctional and detention facilities subjects us to risks typically associated with investments in real estate |
| Investments in real estate and, in particular, correctional and detention facilities have limited or no alternative use and thus, are relatively illiquid, and therefore, our ability to divest ourselves of one or more of our facilities promptly in response to changed conditions is limited |
| Investments in correctional and detention facilities, in particular, subject us to risks involving potential exposure to environmental liability and uninsured loss |
| Our operating costs may be affected by the obligation to pay for the cost of complying with existing environmental laws, ordinances and regulations, as well as the cost of complying with future legislation |
| In addition, although we maintain insurance for many types of losses, there are certain types of losses, such as losses from earthquakes and acts of terrorism, which may be either uninsurable or for which it may not be economically feasible to obtain insurance coverage, in light of the substantial costs associated with such insurance |
| As a result, we could lose both our capital invested in, and anticipated profits from, one or more of the facilities we own |
| In addition, our increased focus on facility development and expansions poses an increased risk, including cost overruns caused by various factors, many of which are beyond our control, such as weather, labor conditions, and material shortages, resulting in increased construction costs |
| Further, if we are unable to utilize this new capacity, our financial results could deteriorate |
| Certain of our facilities are subject to options to purchase and reversions |
| Ten of our facilities are or will be subject to an option to purchase by certain governmental agencies |
| Such options are exercisable by the corresponding contracting governmental entity generally at any time during the term of the respective facility management contract |
| ” If any of these options are exercised, there exists the risk that we will be unable to invest the proceeds from the sale of the facility in one or more properties that yield as much cash flow as the property acquired by the government entity |
| In addition, in the event any of these options are exercised, there exists the risk that the contracting governmental agency will terminate the management contract associated with such facility |
| For the year ended December 31, 2005, the facilities subject to these options generated dlra218dtta1 million in revenue (18prca of total revenue) and incurred dlra159dtta1 million in operating expenses |
| Certain of the options to purchase are exercisable at prices below fair market value |
| ” In addition, ownership of three of our facilities (including two that are also subject to options to purchase) will, upon the expiration of certain ground leases with remaining terms generally ranging from 11 to 13 years, revert to the respective governmental agency contracting with us |
| ” At the time of such reversion, there exists the risk that the contracting governmental agency will terminate the management contract associated with such facility |
| For the year ended December 31, 2005, the facilities subject to reversion generated dlra74dtta3 million in revenue (6prca of total revenue) and incurred dlra56dtta2 million in operating expenses |
| 26 _________________________________________________________________ [99]Table of Contents Risks related to facility construction and development activities may increase our costs related to such activities |
| When we are engaged to perform construction and design services for a facility, we typically act as the primary contractor and subcontract with other companies who act as the general contractors |
| As primary contractor, we are subject to the various risks associated with construction (including, without limitation, shortages of labor and materials, work stoppages, labor disputes, and weather interference) which could cause construction delays |
| In addition, we are subject to the risk that the general contractor will be unable to complete construction at the budgeted costs or be unable to fund any excess construction costs, even though we require general contractors to post construction bonds and insurance |
| Under such contracts, we are ultimately liable for all late delivery penalties and cost overruns |
| We may be adversely affected by the rising cost and increasing difficulty of obtaining adequate levels of surety credit on favorable terms |
| We are often required to post bid or performance bonds issued by a surety company as a condition to bidding on or being awarded a contract |
| Availability and pricing of these surety commitments are subject to general market and industry conditions, among other factors |
| Recent events in the economy have caused the surety market to become unsettled, causing many reinsurers and sureties to reevaluate their commitment levels and required returns |
| As a result, surety bond premiums generally are increasing |
| If we are unable to effectively pass along the higher surety costs to our customers, any increase in surety costs could adversely affect our operating results |
| We cannot assure you that we will have continued access to surety credit or that we will be able to secure bonds economically, without additional collateral, or at the levels required for any potential facility development or contract bids |
| If we are unable to obtain adequate levels of surety credit on favorable terms, we would have to rely upon letters of credit under our new revolving credit facility, which would entail higher costs even if such borrowing capacity was available when desired at the time, and our ability to bid for or obtain new contracts could be impaired |
| Our issuance of preferred stock could adversely affect holders of our common stock and discourage a takeover |
| Our board of directors has the power to issue up to 50dtta0 million shares of preferred stock without any action on the part of our stockholders |
| Our board of directors also has the power, without stockholder approval, to set the terms of any new series of preferred stock that may be issued, including voting rights, dividend rights, preferences over our common stock with respect to dividends or in the event of a dissolution, liquidation or winding up and other terms |
| In the event that we issue additional shares of preferred stock in the future that has preference over our common stock, with respect to payment of dividends or upon our liquidation, dissolution or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of the holders of our common stock or the market price of our common stock could be adversely affected |
| In addition, the ability of our board of directors to issue shares of preferred stock without any action on the part of our stockholders may impede a takeover of us and prevent a transaction favorable to our stockholders |
| Our charter and bylaws and Maryland law could make it difficult for a third party to acquire our company |
| The Maryland General Corporation Law and our charter and bylaws contain provisions that could delay, deter, or prevent a change in control of our company or our management |
| These provisions could also discourage proxy contests and make it more difficult for our stockholders to elect directors and take other corporate actions |
| These provisions: 27 _________________________________________________________________ [100]Table of Contents • authorize us to issue “blank check” preferred stock, which is preferred stock that can be created and issued by our board of directors, without stockholder approval, with rights senior to those of common stock; • provide that directors may be removed with or without cause only by the affirmative vote of at least a majority of the votes of shares entitled to vote thereon; and • establish advance notice requirements for submitting nominations for election to the board of directors and for proposing matters that can be acted upon by stockholders at a meeting |
| We are also subject to anti-takeover provisions under Maryland law, which could also delay or prevent a change of control |
| Together, these provisions of our charter and bylaws and Maryland law may discourage transactions that otherwise could provide for the payment of a premium over prevailing market prices for our common stock, and also could limit the price that investors are willing to pay in the future for shares of our common stock |
| Risks Related to Our Leveraged Capital Structure Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under our debt securities |
| We have a significant amount of indebtedness |
| As of December 31, 2005, we had total indebtedness of dlra975dtta6 million |
| Our substantial indebtedness could have important consequences to you |
| For example, it could: • make it more difficult for us to satisfy our obligations with respect to our indebtedness; • increase our vulnerability to general adverse economic and industry conditions; • require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, and other general corporate purposes; • limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; • place us at a competitive disadvantage compared to our competitors that have less debt; and • limit our ability to borrow additional funds or refinance existing indebtedness on favorable terms |
| Our new revolving credit facility and other debt instruments have restrictive covenants that could affect our financial condition |
| The indenture related to our aggregate principal amount of dlra450dtta0 million 7dtta5prca senior notes due 2011, the indenture related to our aggregate principal amount of dlra375dtta0 million 6dtta25prca senior notes due 2013, and the indenture related to our aggregate principal amount of dlra150dtta0 million 6dtta75prca senior notes due 2014 issued subsequent to year-end, collectively referred to herein as our senior notes, and our new revolving credit facility contain financial and other restrictive covenants that limit our ability to engage in activities that may be in our long-term best interests |
| Our ability to borrow under our new revolving 28 _________________________________________________________________ [101]Table of Contents credit facility is subject to compliance with certain financial covenants, including leverage and interest coverage ratios |
| Our new revolving credit facility includes other restrictions that, among other things, limit our ability to incur indebtedness; grant liens; engage in mergers, consolidations and liquidations; make asset dispositions, restricted payments and investments; enter into transactions with affiliates; and amend, modify or prepay certain indebtedness |
| The indentures related to our senior notes contain limitations on our ability to effect mergers and change of control events, as well as other limitations, including: • limitations on incurring additional indebtedness; • limitations on the sale of assets; • limitations on the declaration and payment of dividends or other restricted payments; • limitations on transactions with affiliates; and • limitations on liens |
| Our failure to comply with these covenants could result in an event of default that, if not cured or waived, could result in the acceleration of all of our debts |
| We do not have sufficient working capital to satisfy our debt obligations in the event of an acceleration of all or a significant portion of our outstanding indebtedness |
| Servicing our indebtedness will require a significant amount of cash |
| Our ability to generate cash depends on many factors beyond our control |
| Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures will depend on our ability to generate cash in the future |
| This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control |
| The risk exists that our business will be unable to generate sufficient cash flow from operations or that future borrowings will not be available to us under our new revolving credit facility in an amount sufficient to enable us to pay our indebtedness, including our existing senior notes, or new debt securities, or to fund our other liquidity needs |
| We may need to refinance all or a portion of our indebtedness, including our senior notes, or new debt securities, on or before maturity |
| We may not, however, be able to refinance any of our indebtedness, including our new revolving credit facility and including our senior notes, or new debt securities on commercially reasonable terms or at all |
| Upon certain change of control events, as that term is defined in the indentures for our senior notes, including a change of control caused by an unsolicited third party, we are required to make an offer in cash to repurchase all or any part of each holder’s notes at a repurchase price equal to 101prca of the principal thereof, plus accrued interest |
| The source of funds for any such repurchase would be our available cash or cash generated from operations or other sources, including borrowings, sales of equity or funds provided by a new controlling person or entity |
| Sufficient funds may not be available to us, however, at the time of any change of control event to repurchase all or a portion of the tendered notes pursuant to this requirement |
| Our failure to offer to repurchase notes, or to repurchase notes tendered, following a change of control will result in a default under the respective indentures, which could lead to a cross-default under our new revolving credit facility and under the terms of our other 29 _________________________________________________________________ [102]Table of Contents indebtedness |
| In addition, our new revolving credit facility prohibits us from making any such required repurchases |
| Prior to repurchasing the notes upon a change of control event, we must either repay outstanding indebtedness under our new revolving credit facility or obtain the consent of the lenders under our new revolving credit facility |
| If we do not obtain the required consents or repay our outstanding indebtedness under our new revolving credit facility, we would remain effectively prohibited from offering to purchase the notes |
| Despite current indebtedness levels, we may still incur more debt The terms of the indentures for our senior notes and our new revolving credit facility restrict our ability to incur significant additional indebtedness in the future |
| However, in the future we may refinance all or a portion of our indebtedness, including our new revolving credit facility, and may incur additional indebtedness as a result |
| As of December 31, 2005, we had dlra78dtta5 million of additional borrowing capacity available under our old dlra125dtta0 million revolving credit facility |
| As discussed herein, we replaced the dlra125dtta0 million revolving credit facility with the new revolving credit facility, which currently has dlra113dtta5 million of borrowing capacity (net of approximately dlra36dtta5 million letters of credit) with an accordion feature that allows for up to dlra100dtta0 million in additional availability, at our option, if certain conditions are met |
| In addition, we have an effective “shelf” registration statement under which we may issue an indeterminate amount of securities from time to time when we determine that market conditions and the opportunity to utilize the proceeds from the issuance of such securities are favorable |
| If new debt is added to our and our subsidiaries’ current debt levels, the related risks that we and they now face could intensify |