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                                   CORNELL LETTERHEAD



September 5, 2001



Mr. David J. Lavelle
Lehman Brothers Inc.
800 Connecticut Avenue, N.W.
Suite 1200
Washington, D.C. 20006

Dear David:

The letter agreement (the "Agreement") will confirm the understanding and
agreement between Lehman Brothers Inc. ("Lehman Brothers") and Cornell
Companies, Inc. (the "Company") as follows:

   1.  The Company hereby engages Lehman Brothers on a non-exclusive basis to
       provide financial advisory services to the Company concerning future
       financing vehicles and the strategic development of the Company's
       business, including advice with respect to acquisitions, divestitures,
       joint ventures or other corporate transactions which the Company is
       currently contemplating entering into or which it may consider at a
       future date.  In particular, the Company may pursue the following
       transactions: (i) raising approximately $90 million for a potential
       Alaska adult prison, (ii) refinancing approximately $100 million of the
       Company's New Morgan and pending Moshannan Valley projects, and
       (iii) pursuing several juvenile projects that the Company is pursuing in
       various states.  In addition, the Company expects several proposals from
       the Federal Bureau of Prisons during the next 5 to 7 years that will
       likely need $45 million to $60 million for each project, which Federal
       Bureau of Prisons projects could, in the aggregate, comprise financing
       needs of over $500 million (collectively referred to as "Future
       Projects").

       Lehman Brothers will, if requested by the Company, advise the Company
       with respect to any financing as well as the structuring of any of the
       transactions described above.

   2.  Lehman agrees to use its best efforts to devote sufficient time and
       resources to pursue the above noted items, as well as other mutually
       acceptable opportunities as they arise.  It is understood that this
       letter does not commit Cornell to exclusively using Lehman to provide
       financing on Future Projects, nor does it commit Lehman to provide or
       underwrite financing for the Future Projects.  In addition, any Lehman
       financing would be subject to Lehman's Investment Banking Credit
       Committee.  As compensation for the services rendered by Lehman Brothers
       hereunder, the Company shall pay Lehman Brothers as follows:

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Mr. David J. Lavelle
September 5, 2001
Page 2


       (a)  A non-refundable retainer fee for $3.65 million (the "Retainer"),
            payable on or before November 5, 2001.  The Retainer will be applied
            on a mutually agreed upon basis toward future contingent fees
            associated with investment banking services that may be provided by
            Lehman Brothers to the Company.

       (b)  In the event that Lehman Brothers is engaged to assist the Company
            in arranging for any financing or to provide any specific investment
            banking or financial advisory services to the Company in connection
            with any particular transaction, Lehman Brothers shall be paid fees
            to be mutually agreed upon based on Lehman Brothers' customary fees
            for the services rendered.  Notwithstanding the above or any oral
            representations or assurances previously or subsequently made by the
            parties, this Agreement does not constitute a commitment by or
            obligation of Lehman Brothers to act as undewriter or placement
            agent in connection with any offering of securities or to provide
            any financing.  Such a commitment on the part of Lehman Brothers
            will exist only upon the execution of a final, written underwriting
            or placement agent agreement or commitment letter or loan agreement,
            as the case may be, and then only in accordance with the terms and
            conditions thereof.

   3.  The Company shall:

       (a)  indemnify Lehman Brothers and hold it harmless against any and all
            losses, claims, damages or liabilities to which Lehman Brothers may
            become subject arising in any manner out of or in connection with
            the rendering of services by Lehman Brothers hereunder or the
            rendering of additional services by Lehman Brothers as requested by
            the Company that are related to the services rendered hereunder,
            unless it is finally judicially determined that such losses, claims,
            damages or liabilities resulted directly from the gross negligence
            of willful misconduct of Lehman Brothers; and

       (b)  reimburse Lehman Brothers promptly for any legal or other expenses
            reasonably incurred by it in connection with investigating,
            preparing to defend or defending, or providing evidence in or
            preparing to serve or serving as a witness with respect to, or
            otherwise relating to, any lawsuits, investigations, claims or
            other proceedings arising in any manner out of or in connection
            with the rendering of services by Lehman Brothers hereunder or the
            rendering of additional services by Lehman Brothers as requested by
            the Company that are related to the services rendered hereunder
            (including, without limitation, in connection with the enforcement
            of this Agreement and the indemnification obligations set forth
            herein); provided, however, that in the event a final judicial
            determination is made to the effect specified in subparagraph 3(a)
            above, Lehman Brothers will remit to the Company any amounts
            reimbursed under this subparagraph 3(b).

The Company agrees that the indemnification and reimbursement commitments set
forth in this paragraph 3 shall apply if either the Company or Lehman Brothers
is a formal party to any such

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Mr. David J. Lavelle
September 5, 2001
Page 3


lawsuits, investigations, claims or other proceedings and that such commitments
shall extend upon the terms set forth in this paragraph to any controlling
person, affiliate, director, officer, employee or consultant of Lehman Brothers
(each, with Lehman Brothers, an "Indemnified Person").  The Company further
agrees that, without Lehman Brothers' prior written consent, it will not enter
into any settlement of a lawsuit, claim or other proceeding arising out of the
transactions contemplated by this Agreement (whether or not Lehman Brothers or
any other Indemnified Person is an actual or potential party to such lawsuit,
claim or proceeding) unless such settlement includes an explicit and
unconditional release from the party bringing such lawsuit, claim or other
proceeding of all Indemnified Persons.

The Company further agrees that the Indemnified Persons are entitled to retain
separate counsel of their choice in connection with any of the matters in
respect of which indemnification, reimbursement or contribution may be sought
under this Agreement, but such separate counsel shall be at the expense of the
Indemnified Persons; provided that the Company shall reimburse reasonable
expenses for one counsel for all Indemnified Persons if it is determined under
applicable standards of legal ethics that a conflict of interest exists making
representation by counsel for the Company inappropriate.

   4.  The Company and Lehman Brothers agree that if any indemnification or
       reimbursement sought pursuant to the preceding paragraph 3 is judicially
       determined to be unavailable for a reason other than the gross negligence
       or willful misconduct of Lehman Brothers, then, whether or not Lehman
       Brothers is the Indemnified Person, the Company and Lehman Brothers shall
       contribute to the losses, claims, damages, liabilities and expenses for
       which such indemnification or reimbursement is held unavailable (i) in
       such proportion as is appropriate to reflect the relative benefits to the
       Company on the one hand, and Lehman Brothers on the other hand, in
       connection with the transactions to which such indemnification or
       reimbursement relates, or (ii) if the allocation provided by clause
       (i) above is judicially determined not to be permitted, in such
       proportion as is appropriate to reflect not only the relative benefits
       referred to in clause (i) but also the relative faults of the Company on
       the one hand, and Lehman Brothers on the other hand, as well as any
       other equitable considerations; provided, however, that in no event
       shall the amount to be contributed by Lehman Brothers pursuant to this
       paragraph exceed the amount of fees actually received by Lehman Brothers
       hereunder.

   5.  Except as required by applicable law or pursuant to an order entered or
       subpoena issued by a court of competent jurisdiction, Lehman Brothers
       shall keep confidential all material non-public information provided to
       it by the Company, and shall not disclose such information to any third
       party, other than such of its employees and advisors as Lehman Brothers
       determines to have a need to know.  Lehman Brothers shall be responsible
       for any breach of this confidentiality obligation by its employees and
       advisors.

   6.  Except as required by applicable law, any advice to be provided by Lehman
       Brothers under this Agreement shall not be disclosed publicly or made
       available to third parties

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Mr. David J. Lavelle
September 5, 2001
Page 4


       without the prior approval of Lehman Brothers, and accordingly such
       advice shall not be relied upon by any person or entity other than the
       Company.

   7.  The term of Lehman Brothers' engagement hereunder shall extend from the
       date hereof until terminated as set forth below.  Subject to the
       provisions of paragraphs 2 through 6 and paragraphs 9 through 11, which
       shall survive any termination of this Agreement after payment of the
       non-refundable retainer fee, the Company may terminate Lehman Brothers'
       engagement hereunder at any time by giving at least 10 days' prior
       written notice.

   8.  The Company agrees that Lehman Brothers has the right to place
       advertisements in financial and other newspapers and journals at its own
       expense describing its services to the Company hereunder, provided that
       Lehman Brothers will submit a copy of any such advertisements to the
       Company for its approval, which approval shall not be unreasonably
       withheld.

   9.  Nothing in this Agreement, expressed or implied, is intended to confer or
       does confer on any person or entity other than the parties hereto or
       their respective successors and assigns, and to the extent expressly set
       forth herein, the Indemnified Persons, any rights or remedies under or
       by reason of this Agreement or as a result of the services to be
       rendered by Lehman Brothers hereunder.  The parties acknowledge that
       Lehman Brothers is not acting as an agent of the Company or in a
       fiduciary capacity with respect to the Company and that Lehman Brothers
       is not assuming any duties or obligations other than those expressly set
       forth in this Agreement.  The Company further agrees that neither Lehman
       Brothers nor any of its controlling persons, affiliates, directors,
       officers, employees or consultants shall have any liability to the
       Company or any person asserting claims on behalf of or in right of the
       Company for any losses, claims, damages, liabilities or expenses arising
       out of or relating to this Agreement or the services to be rendered by
       Lehman Brothers hereunder, unless it is finally judicially determined
       that such losses, claims, damages, liabilities or expenses resulted
       directly from the gross negligence or willful misconduct of Lehman
       Brothers.

   10. The invalidity or unenforceability of any provision of this Agreement
       shall not affect the validity or enforceability of any other provisions
       of this Agreement, which shall remain in full force and effect.

   11. This Agreement may not be amended or modified except in writing signed by
       each of the parties and shall be governed by and construed and enforced
       in accordance with the laws of the State of New York.

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Mr. David J. Lavelle
September 5, 2001
Page 5


If the foregoing correctly sets forth the understanding and agreement between
Lehman Brothers and the Company, please so indicate in the space provided for
that purpose below, whereupon this letter shall constitute a binding agreement
as of the date hereof.

                                        CORNELL COMPANIES, INC.


                                        By: /s/ Steven W. Logan
                                           -------------------------------------
                                           Steven W. Logan
                                           Chairman and Chief Executive Officer


AGREED:

LEHMAN BROTHERS INC.


By: /s/ David Lavelle
   ------------------------------------
   David Lavelle
   Senior Vice President