Document:

Exhibit 10.1

 

AMENDED AND RESTATED CREDIT AGREEMENT

 

dated as of

 

October 10, 2007

 

among

 

CORNELL COMPANIES, INC.,

 

AND

 

JPMORGAN CHASE BANK, N.A.

as Administrative Agent,

 

Bank of America, N.A.,

as Syndication Agent

 

The Lenders Signatory Hereto

 

J.P. MORGAN SECURITIES INC.,

as Sole Bookrunner and Sole Lead Arranger

 

$100,000,000 Senior Secured Credit Facility

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE I

  	
  Definitions

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION
  1.01.

  	
   

  	
  Defined
  Terms

  	
   

  	
  1

  
	
  SECTION
  1.02.

  	
   

  	
  Classification
  of Loans and Borrowings

  	
   

  	
  17

  
	
  SECTION
  1.03.

  	
   

  	
  Terms
  Generally

  	
   

  	
  17

  
	
  SECTION
  1.04.

  	
   

  	
  Accounting
  Terms; GAAP

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
  The Credits

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION
  2.01.

  	
   

  	
  Commitments

  	
   

  	
  18

  
	
  SECTION
  2.02.

  	
   

  	
  Loans and
  Borrowings

  	
   

  	
  18

  
	
  SECTION
  2.03.

  	
   

  	
  Requests for
  Revolving Borrowings

  	
   

  	
  18

  
	
  SECTION
  2.04.

  	
   

  	
  Intentionally
  Omitted

  	
   

  	
  19

  
	
  SECTION
  2.05.

  	
   

  	
  Swingline
  Loans

  	
   

  	
  19

  
	
  SECTION
  2.06.

  	
   

  	
  Letters of
  Credit

  	
   

  	
  20

  
	
  SECTION
  2.07.

  	
   

  	
  Funding of
  Borrowings

  	
   

  	
  24

  
	
  SECTION
  2.08.

  	
   

  	
  Interest
  Elections

  	
   

  	
  25

  
	
  SECTION
  2.09.

  	
   

  	
  Termination
  and Reduction of Commitments

  	
   

  	
  26

  
	
  SECTION
  2.10.

  	
   

  	
  Repayment of
  Loans; Evidence of Debt

  	
   

  	
  26

  
	
  SECTION
  2.11.

  	
   

  	
  Prepayment
  of Loans

  	
   

  	
  27

  
	
  SECTION
  2.12.

  	
   

  	
  Fees

  	
   

  	
  27

  
	
  SECTION
  2.13.

  	
   

  	
  Interest

  	
   

  	
  28

  
	
  SECTION
  2.14.

  	
   

  	
  Alternate
  Rate of Interest

  	
   

  	
  29

  
	
  SECTION
  2.15.

  	
   

  	
  Increased
  Costs

  	
   

  	
  30

  
	
  SECTION
  2.16.

  	
   

  	
  Break
  Funding Payments

  	
   

  	
  31

  
	
  SECTION
  2.17.

  	
   

  	
  Taxes

  	
   

  	
  31

  
	
  SECTION
  2.18.

  	
   

  	
  Payments
  Generally; Pro Rata Treatment; Sharing of Set-offs

  	
   

  	
  32

  
	
  SECTION
  2.19.

  	
   

  	
  Mitigation
  Obligations; Replacement of Lenders

  	
   

  	
  34

  
	
  SECTION
  2.20.

  	
   

  	
  Increase of
  Commitments

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
  Representations and Warranties

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION
  3.01.

  	
   

  	
  Organization;
  Powers

  	
   

  	
  35

  
	
  SECTION
  3.02.

  	
   

  	
  Authorization;
  Enforceability

  	
   

  	
  35

  
	
  SECTION
  3.03.

  	
   

  	
  Governmental
  Approvals; No Conflicts

  	
   

  	
  35

  
	
  SECTION
  3.04.

  	
   

  	
  Financial
  Condition; No Material Adverse Effect

  	
   

  	
  36

  
	
  SECTION
  3.05.

  	
   

  	
  Properties

  	
   

  	
  36

  
	
  SECTION
  3.06.

  	
   

  	
  Litigation
  and Environmental Matters

  	
   

  	
  36

  
	
  SECTION
  3.07.

  	
   

  	
  Compliance
  with Laws and Agreements

  	
   

  	
  37

  
	
  SECTION
  3.08.

  	
   

  	
  Investment
  and Holding Company Status

  	
   

  	
  37

  
	
  SECTION
  3.09.

  	
   

  	
  Taxes

  	
   

  	
  37

  
	
  SECTION
  3.10.

  	
   

  	
  ERISA

  	
   

  	
  37

  
	
  SECTION
  3.11.

  	
   

  	
  Disclosure

  	
   

  	
  37

  
	
  SECTION
  3.12.

  	
   

  	
  Subsidiaries,
  Etc

  	
   

  	
  38

  
	
  SECTION
  3.13.

  	
   

  	
  Real
  Property

  	
   

  	
  38

  
	
  SECTION
  3.14.

  	
   

  	
  Swap
  Agreements

  	
   

  	
  38

  

 

i

 

	
  ARTICLE IV

  	
  Conditions

  	
   

  	
  38

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION
  4.01.

  	
   

  	
  Effective
  Date

  	
   

  	
  38

  
	
  SECTION
  4.02.

  	
   

  	
  Each Credit
  Event

  	
   

  	
  39

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
  Affirmative Covenants

  	
   

  	
  39

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION
  5.01.

  	
   

  	
  Financial
  Statements; Ratings Change and Other Information

  	
   

  	
  39

  
	
  SECTION
  5.02.

  	
   

  	
  Notices of
  Material Events

  	
   

  	
  41

  
	
  SECTION
  5.03.

  	
   

  	
  Existence;
  Conduct of Business

  	
   

  	
  42

  
	
  SECTION
  5.04.

  	
   

  	
  Payment of
  Obligations

  	
   

  	
  42

  
	
  SECTION
  5.05.

  	
   

  	
  Maintenance
  of Properties; Insurance

  	
   

  	
  42

  
	
  SECTION
  5.06.

  	
   

  	
  Books and
  Records; Inspection Rights

  	
   

  	
  44

  
	
  SECTION
  5.07.

  	
   

  	
  Compliance
  with Laws

  	
   

  	
  44

  
	
  SECTION
  5.08.

  	
   

  	
  Use of
  Proceeds and Letters of Credit

  	
   

  	
  44

  
	
  SECTION
  5.09.

  	
   

  	
  Certain Obligations
  Respecting Subsidiaries

  	
   

  	
  44

  
	
  SECTION
  5.10.

  	
   

  	
  Property

  	
   

  	
  45

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
  Negative Covenants

  	
   

  	
  46

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION
  6.01.

  	
   

  	
  Indebtedness

  	
   

  	
  46

  
	
  SECTION
  6.02.

  	
   

  	
  Liens

  	
   

  	
  47

  
	
  SECTION
  6.03.

  	
   

  	
  Fundamental
  Changes

  	
   

  	
  48

  
	
  SECTION
  6.04.

  	
   

  	
  Investments,
  Loans, Advances, Guarantees and Acquisitions

  	
   

  	
  49

  
	
  SECTION
  6.05.

  	
   

  	
  Swap
  Agreements

  	
   

  	
  50

  
	
  SECTION
  6.06.

  	
   

  	
  Intentionally
  Omitted

  	
   

  	
  50

  
	
  SECTION
  6.07.

  	
   

  	
  Transactions
  with Affiliates

  	
   

  	
  50

  
	
  SECTION
  6.08.

  	
   

  	
  Restrictive
  Agreements

  	
   

  	
  50

  
	
  SECTION
  6.09.

  	
   

  	
  Bank
  Leverage Ratio

  	
   

  	
  51

  
	
  SECTION
  6.10.

  	
   

  	
  Total
  Leverage Ratio

  	
   

  	
  51

  
	
  SECTION
  6.11.

  	
   

  	
  Fixed Charge
  Coverage Ratio

  	
   

  	
  51

  
	
  SECTION
  6.12.

  	
   

  	
  Intentionally
  Omitted

  	
   

  	
  51

  
	
  SECTION
  6.13.

  	
   

  	
  Intentionally
  Omitted

  	
   

  	
  51

  
	
  SECTION
  6.14.

  	
   

  	
  Intentionally
  Omitted

  	
   

  	
  51

  
	
  SECTION
  6.15.

  	
   

  	
  Off-Balance
  Sheet Financing

  	
   

  	
  52

  
	
  SECTION
  6.16.

  	
   

  	
  Sale/Leaseback
  Transactions

  	
   

  	
  52

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
  Events of Default; Remedies

  	
   

  	
  52

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION
  7.01.

  	
   

  	
  Events of
  Default

  	
   

  	
  52

  
	
  SECTION
  7.02.

  	
   

  	
  Remedies

  	
   

  	
  54

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
  The Administrative Agent

  	
   

  	
  55

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IX

  	
  Miscellaneous

  	
   

  	
  56

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION
  9.01.

  	
   

  	
  Notices

  	
   

  	
  56

  
	
  SECTION
  9.02.

  	
   

  	
  Waivers;
  Amendments

  	
   

  	
  57

  
	
  SECTION
  9.03.

  	
   

  	
  Expenses;
  Indemnity; Damage Waiver

  	
   

  	
  58

  
	
  SECTION
  9.04.

  	
   

  	
  Successors
  and Assigns

  	
   

  	
  60

  
	
  SECTION
  9.05.

  	
   

  	
  Survival

  	
   

  	
  62

  

 

ii

 

	
  SECTION
  9.06.

  	
   

  	
  Counterparts;
  Integration; Effectiveness

  	
   

  	
  63

  
	
  SECTION
  9.07.

  	
   

  	
  Severability

  	
   

  	
  63

  
	
  SECTION
  9.08.

  	
   

  	
  Right of
  Setoff

  	
   

  	
  63

  
	
  SECTION
  9.09.

  	
   

  	
  Governing
  Law; Jurisdiction; Consent to Service of Process

  	
   

  	
  63

  
	
  SECTION 9.10.

  	
   

  	
  WAIVER OF
  JURY TRIAL

  	
   

  	
  64

  
	
  SECTION
  9.11.

  	
   

  	
  Headings

  	
   

  	
  64

  
	
  SECTION
  9.12.

  	
   

  	
  Confidentiality

  	
   

  	
  64

  
	
  SECTION
  9.13.

  	
   

  	
  Interest
  Rate Limitation

  	
   

  	
  65

  
	
  SECTION
  9.14.

  	
   

  	
  Swap
  Agreements

  	
   

  	
  65

  
	
  SECTION
  9.15.

  	
   

  	
  USA Patriot
  Act Notice

  	
   

  	
  65

  
	
  SECTION
  9.16.

  	
   

  	
  Restatement

  	
   

  	
  66

  

 

iii

 

AMENDED
AND RESTATED CREDIT AGREEMENT (this “Agreement”)
dated as of October 10, 2007, among CORNELL COMPANIES, INC., a
Delaware corporation (“Borrower”),
each of the Subsidiaries of the Borrower identified under the caption “Subsidiaries” on the signature pages hereto,
the LENDERS party hereto as identified under the caption “Lenders”
on the signature pages hereto or that, pursuant to Section 2.20
or Section 9.04 hereof, shall
become a “Lender” hereunder
(individually, a “Lender” and
collectively, the “Lenders”),
JPMORGAN CHASE BANK, N.A., as Administrative Agent, and Bank of America, N.A.,
as Syndication Agent.

 

Recitals

 

A.                                   On
June 24, 2004, the Borrower, certain lenders and the Administrative Agent
entered into that certain Credit Agreement, as amended on April 1, 2005 by
that First Amendment to Credit Agreement (as
amended, modified, restated, or supplemented and in effect from time to time,
the “Existing Credit Agreement”),
providing, subject to the terms and conditions thereof, for the making of loans
by such lenders to Borrower in an initial aggregate principal amount not
exceeding $60,000,000.00.

 

B.                                     The Borrower, the Lenders and the
Administrative Agent mutually desire to replace the Existing Credit Agreement
in its entirety to, among other things, increase the initial aggregate
principal amount of the commitments of such Lenders to make loans and to
arrange for the issuance of letters of credit up to $100,000,000.00.

 

NOW,
THEREFORE, in consideration of the mutual covenants and agreements herein contained
and of the loans, extensions of credit and commitments hereinafter referred to,
the parties hereto agree to replace the Existing Credit Agreement and carry
forward the outstanding indebtedness thereunder as follows:

 

ARTICLE I

 

Definitions

 

SECTION 1.01.
Defined Terms. As used in this Agreement, the following terms
have the meanings specified below:

 

“ABR”, when used in reference to any
Loan or Borrowing, refers to whether such Loan, or the Loans comprising such
Borrowing, are bearing interest at a rate determined by reference to the
Alternate Base Rate.

 

“Accounts Receivable” means all of the
Borrower’s and its Subsidiaries’ accounts, instruments, receivables, accounts
receivable, chattel paper, documents, general intangibles, and book debts
whether they exist now or arise in the future from Borrower’s and its
Subsidiaries’ sale or lease of goods or Borrower’s and its Subsidiaries’
rendition of services, all books and records pertaining to the foregoing, the
cash and non-cash proceeds resulting therefrom, and all security and guaranties
therefor.

 

“Administrative Agent” means JPMorgan
Chase Bank, N.A., in its capacity as administrative agent for the Lenders
hereunder.

 

“Administrative Questionnaire” means an
Administrative Questionnaire in a form supplied by the Administrative
Agent.

 

1

 

“Affiliate” means, with respect to a
specified Person, another Person that directly, or indirectly through one or
more intermediaries, Controls or is Controlled by or is under common Control
with the Person specified.

 

“Agreement” has the meaning given such
term in the preamble hereto.

 

“Alternate Base Rate” means, for any
day, a rate per annum equal to the greatest of (a) the Prime Rate in
effect on such day and (b) the Federal Funds Effective Rate in effect on
such day plus 1⁄2 of 1%. Any change in the Alternate Base Rate due to a
change in the Prime Rate or the Federal Funds Effective Rate shall be effective
from and including the effective date of such change in the Prime Rate or the
Federal Funds Effective Rate, respectively.

 

“Applicable Percentage” means, with
respect to any Lender, the percentage of the total Commitments represented by
such Lender’s Commitment. If the Commitments have terminated or expired, the
Applicable Percentages shall be determined based upon the Commitments most
recently in effect, giving effect to any assignments.

 

“Applicable Rate” means, for any day,
with respect to any ABR Loan or LIBO Rate Loan, or with respect to the
Commitment Fees payable hereunder, as the case may be, the applicable rate
per annum set forth below under the caption “ABR Spread”, “LIBO
Rate Spread” or “Commitment
Fee”, as the case may be, applicable on such date to the
Total Leverage Ratio:

 

	
  Period

  	
   

  	
  ABR Spread

  	
   

  	
  LIBO Rate Spread

  	
   

  	
  Commitment Fee

  	
   

  
	
  Level I -
  When the TLR > 3.75

  	
   

  	
  0.75

  	
  %

  	
  2.25

  	
  %

  	
  .500

  	
   

  
	
  Level II -
  When the TLR < 3.75 and > 3.25

  	
   

  	
  0.50

  	
  %

  	
  2.00

  	
  %

  	
  .375

  	
   

  
	
  Level III -
  When the TLR < 3.25 and > 2.75

  	
   

  	
  0.25

  	
  %

  	
  1.75

  	
  %

  	
  .250

  	
   

  
	
  Level IV -
  When the TLR < 2.75

  	
   

  	
  0.00

  	
  %

  	
  1.50

  	
  %

  	
  .200

  	
   

  

 

*TLR
is the abbreviation for Total Leverage Ratio.

 

The
Total Leverage Ratio is calculated for the most recently-completed Four Quarter
Period. Until the receipt by Administrative Agent of the first quarterly
Compliance Certificate after the Effective Date, the Total Leverage Ratio shall
be deemed to be at Level III. The Applicable Rate, as adjusted to reflect such
calculations, shall become effective on the date of receipt by the
Administrative Agent of written notice from the Borrower of the Total Leverage
Ratio applicable to such Four Quarter Period. If Borrower fails to timely
furnish to the Administrative Agent written notice of the Total Leverage Ratio,
then the Applicable Rate in effect on the last day of the last Four Quarter
Period for which the Total Leverage Ratio was calculated shall remain in effect
until a new Applicable Rate can be calculated, which new Applicable Rate shall
become effective as provided in the immediately preceding sentence.

 

2

 

“Approved Fund” has the meaning assigned
to such term in Section 9.04.

 

“Assignment and Assumption” means an
assignment and assumption entered into by a Lender and an assignee (with the
consent of any party whose consent is required by Section 9.04), and accepted by the Administrative
Agent, in the form of Exhibit A
or any other form approved by the Administrative Agent.

 

“Availability Period” means the period
from and including the Effective Date to but excluding the earlier of the
Maturity Date and the date of termination of the Commitments.

 

“Bank Debt” means the then outstanding
Revolving Credit Exposure.

 

“Board” means the Board of Governors of
the Federal Reserve System of the United States of America.

 

“Borrower” means Cornell Companies, Inc.,
a Delaware corporation.

 

“Borrowing” means (a) Revolving
Loans of the same Type, made, converted or continued on the same date and, in
the case of LIBO Rate Loans, as to which a single Interest Period is in effect
or (b) a Swingline Loan.

 

“Borrowing Request” means a request by
the Borrower for a Revolving Borrowing in accordance with Section 2.03 in the form attached
hereto as Exhibit C attached hereto
and incorporated herein for all purposes.

 

“Business Day” means any day that is not
a Saturday, Sunday or other day on which commercial banks in Houston, Texas are
authorized or required by law to remain closed; provided that, when used in connection with a LIBO Rate
Loan, the term “Business Day”
shall also exclude any day on which banks are not open for dealings in dollar
deposits in the London interbank market.

 

“Capital Lease Obligations” of any
Person means the obligations of such Person to pay rent or other amounts under
any lease of (or other arrangement conveying the right to use) real or personal
property, or a combination thereof, which obligations are required to be
classified and accounted for as capital leases on a balance sheet of such
Person under GAAP, and the amount of such obligations shall be the capitalized
amount thereof determined in accordance with GAAP.

 

“Capital Stock” shall mean, (i) with
respect to any Person that is a corporation, any and all shares, interests,
participations or other equivalents (however designated and whether or not
voting,) of corporate stock and (ii) with respect to any Person that is
not a corporation, any and all partnerships or other Equity Interests of such
Person.

 

“Cash Collateralize” means to deposit
with or deliver to the Administrative Agent, for the benefit of the Issuing
Bank and the Lenders, as collateral for the Borrower’s obligations hereunder in
respect of the LC Exposure, cash or balances in deposit accounts with the
Administrative Agent in accordance with Section 2.06(j).

 

“Change in Control” means (a) the
acquisition of ownership, directly or indirectly, beneficially or of record, by
any Person or group (within the meaning of the Exchange Act and the rules of
the SEC thereunder as in effect on the date hereof) of Equity Interests
representing more than 40% of the aggregate ordinary voting power represented
by the issued and outstanding Equity Interests of the Borrower; (b) occupation
of a majority of the seats (other than vacant seats) on the board of directors
of 

 

3

 

the Borrower by Persons who were neither (i) nominated by the
board of directors of the Borrower nor (ii) appointed or approved by
directors so nominated; or (c) the acquisition of direct or indirect
Control of the Borrower by any Person or group other than the Initial Directors
of the Borrower.

 

“Change in Law” means (a) the
adoption of any law, rule or regulation after the date of this Agreement, (b) any
change in any law, rule or regulation or in the interpretation or
application thereof by any Governmental Authority after the date of this Agreement
or (c) compliance by any Lender or the Issuing Bank (or, for purposes of Section 2.15(b), by any lending
office of such Lender or by such Lender’s or the Issuing Bank’s holding
company, if any) with any request, guideline or directive (whether or not
having the force of law) of any Governmental Authority made or issued after the
date of this Agreement.

 

“Class”, when used in
reference to any Loan or Borrowing, refers to whether such Loan, or the Loans
comprising such Borrowing, are Revolving Loans or Swingline Loans.

 

“Code” means the Internal Revenue Code
of 1986, as amended from time to time.

 

“Commitment” means, with respect to each
Lender, the commitment of such Lender to make Revolving Loans and to acquire
participations in Letters of Credit and Swingline Loans hereunder, expressed as
an amount representing the maximum aggregate amount of such Lender’s Revolving
Credit Exposure hereunder, as such commitment may be (a) reduced from
time to time pursuant to Section 2.09;
and (b) reduced or increased from time to time pursuant to assignments by
or to such Lender pursuant to Section 9.04 and (c) increased from time to time
pursuant to Section 2.20.
The initial amount of each Lender’s Commitment is set forth on Schedule 2.01, or in the
Assignment and Assumption pursuant to which such Lender shall have assumed its
Commitment, as applicable. The initial aggregate amount of the Lenders’
Commitments is $100,000,000.00.

 

“Commitment Fee” has the meaning
assigned to such term in Section 2.12(a).

 

“Compliance Certificate” means the
compliance certificate delivered by Borrower in accordance with Section 5.01(c) in the form attached
hereto as Exhibit D attached hereto
and incorporated herein for all purposes.

 

“Control” means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
or policies of a Person, whether through the ability to exercise voting power,
by contract or otherwise. “Controlling”
and “Controlled” have
meanings correlative thereto.

 

“Correctional and Detention Facility Contract”
shall mean any contract with a municipal, state or federal government, or
agency, instrumentality or political subdivision thereof, relating to the
management by the Borrower or its Subsidiaries of a correctional and/or detention
facility or to other related lines of business, as amended or modified from
time to time.

 

“Credit Parties” means, collectively
the Borrower and the Subsidiary Guarantors.

 

“Debt” shall mean (without
duplication) any and all amounts owing or to be owing by the Borrower to the
Administrative Agent, the Issuing Bank, the Lenders and/or any Affiliate of any
Lender in connection with the Loan Documents and the Letter of Credit
application, any other obligation, liability or indebtedness, and any Swap Agreements
now or hereafter arising between the Borrower and any Lender or any Affiliate
of any Lender and permitted by the terms of this Agreement and all renewals,
extensions and/or rearrangements of any of the foregoing.

 

4

 

“Default” means any event or condition
which constitutes an Event of Default or which upon notice, lapse of time or
both would, unless cured or waived, become an Event of Default.

 

“Disclosed Matters” means the actions,
suits and proceedings and the environmental matters disclosed in Schedules 3.06, 3.07, or 3.11.

 

“Disposition” means any sale,
assignment, transfer or other disposition of any Property (whether now owned or
hereafter acquired) by the Borrower or any of its Subsidiaries to any other
Person (other than the Borrower or its Subsidiaries).

 

“dollars” or “$” refers to lawful money of the United
States of America.

 

“EBITDA” shall mean, for any period, the
sum of the following for the Borrower and its Subsidiaries (determined without duplication
in accordance with GAAP):

 

(a)                                  net
income for such period, less
extraordinary gains for such period to the extent included in net income for
such period (including gains on the sales of assets outside of the ordinary
course of business and $1,500,000 of net settlement proceeds received in
connection with the Southern Peaks litigation), plus Non-Recurring
Expenses, plus

 

(b)                                 Interest
Expense for such period, amortization of or write-off of debt discount and debt
issuance costs and commissions, discounts and other fees and charges associated
with Indebtedness (including Letters of Credit), plus

 

(c)                                  provisions
for federal, state, local and foreign income, franchise and value added taxes,
whether paid or deferred, made during such period, to the extent deducted in
determining net income for such period, plus

 

(d)                                 the
aggregate amount of depreciation and amortization expense for such period, to
the extent deducted in determining net income for such period, plus

 

(e)                                  the
aggregate amount of any write-off of expenses arising in connection with the
Loans, in each case, to the extent deducted in determining net income for such
period; plus

 

(f)                                    the
aggregate amount of non-cash expense for such period associated with the
closure and post-closure reserves of a plant or facility owned or leased by the
Borrower or any of its Subsidiaries; plus

 

(g)                                 pro
forma EBITDA for business acquisitions (such pro forma adjustments having been
approved by the Administrative Agent); plus

 

(h)                                 pro
forma EBITDA for Take or Pay Contracts; plus

 

(i)                                     an
amount equal to the payment of interest and principal related to the MCF Debt,
to the extent deducted in determining net income for such period; plus

 

(j)                                     amortization of intangibles (including, but
not limited to, goodwill) and organization costs, and amortization and/or
impairment charges with respect to goodwill and other intangible assets; plus

 

5

 

(k)                                  start-up
costs for new facilities; provided that
for any Four Quarter Period, the maximum amount that may be added to
EBITDA pursuant to this clause (k)
shall be $5,000,000 of such start-up costs incurred during such Four Quarter
Period; plus

 

(l)                                     the
aggregate amount of all other non-cash expenses for such period, to the extent
not specifically described above in this definition.

 

“EBITDAR” shall mean, for any period,
the sum of the following for the Borrower and its Subsidiaries (determined
without duplication in accordance with GAAP):

 

(a)                                  EBITDA,
plus

 

(b)                                 the
aggregate amount of Rent Expense for such period.

 

“Effective Date” means the date on which
the conditions specified in Section 4.01
are satisfied (or waived in accordance with Section 9.02).

 

“Environmental Laws” means all laws,
rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions,
notices or binding agreements issued, promulgated or entered into by any
Governmental Authority, relating in any way to the environment, preservation or
reclamation of natural resources, the management, release or threatened release
of any Hazardous Material or to health and safety matters.

 

“Environmental Liability” means any
liability, contingent or otherwise (including any liability for damages, costs
of environmental remediation, fines, penalties or indemnities), of the Borrower
or any Subsidiary directly or indirectly resulting from or based upon (a) violation
of any Environmental Law, (b) the generation, use, handling,
transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure
to any Hazardous Materials, (d) the release or threatened release of any
Hazardous Materials into the environment or (e) any contract, agreement or
other consensual arrangement pursuant to which liability is assumed or imposed
with respect to any of the foregoing.

 

“Equity Interests” means shares of
Capital Stock, partnership interests, membership interests in a limited
liability company, beneficial interests in a trust or other equity ownership
interests in a Person, and any warrants, options or other rights entitling the
holder thereof to purchase or acquire any such equity interest.

 

“Equity Issuance” shall mean (a) any
issuance or sale by the Borrower or any of its Subsidiaries after the date of
this Agreement of (i) any Capital Stock, (ii) any warrants or options
exercisable in respect of Capital Stock (other than any warrants or options
issued to directors, officers or employees of the Borrower or any of its
Subsidiaries pursuant to the incentive compensation plan and any Capital Stock
of the Borrower issued upon the exercise of such warrants or options) or (iii) any
other security or instrument representing an equity interest (or the right to
obtain any equity interest) in the Borrower or any of its Subsidiaries or (b) the
receipt by the Borrower of any of its Subsidiaries after the date of this
Agreement of any capital contribution (whether or not evidenced by any equity
security issued by the recipient of such contribution); provided that Equity Issuance shall not
include (A) any such issuance or sale by any Subsidiary of the Borrower to
the Borrower or any Wholly Owned Subsidiary of the Borrower, or (B) any
capital contribution by the Borrower or any Wholly Owned Subsidiary of the
Borrower to any Subsidiary of the Borrower.

 

“Equity Rights” shall mean, with respect
to any Person, any subscriptions, option, warrants, commitments, preemptive
rights or agreements of any kind (including, without limitation, any 

 

6

 

stockholders’ or voting trust agreements) for the issuance, sale,
registration or voting of, or securities convertible into, any additional
shares of Capital Stock of any class, or partnership or other ownership
interests of any type in, such Person.

 

“ERISA” means the Employee Retirement
Income Security Act of 1974, as amended from time to time.

 

“ERISA Affiliate” means any trade or
business (whether or not incorporated) that, together with the Borrower, is
treated as a single employer under Section 414(b) or (c) of the
Code or, solely for purposes of Section 302 of ERISA and Section 412
of the Code, is treated as a single employer under Section 414 of the
Code.

 

“ERISA Event” means (a) any “reportable
event”, as defined in Section 4043 of ERISA or the regulations issued
thereunder with respect to a Plan (other than an event for which the 30-day
notice period is waived); (b) the existence with respect to any Plan of an
“accumulated funding deficiency” (as defined in Section 412 of the Code or
Section 302 of ERISA), whether or not waived; (c) the filing pursuant
to Section 412(d) of the Code or Section 303(d) of ERISA of
an application for a waiver of the minimum funding standard with respect to any
Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of
any liability under Title IV of ERISA with respect to the termination of
any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the
PBGC or a plan administrator of any notice relating to an intention to
terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the
incurrence by the Borrower or any of its ERISA Affiliates of any liability with
respect to the withdrawal or partial withdrawal from any Plan or Multiemployer
Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any
notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA
Affiliate of any notice, concerning the imposition of Withdrawal Liability or a
determination that a Multiemployer Plan is, or is expected to be, insolvent or
in reorganization, within the meaning of Title IV of ERISA.

 

“Event of Default” has the meaning
assigned to such term in Section 7.01.

 

“Exchange Act” means the Securities
Exchange Act of 1934, as amended.

 

“Excluded Taxes” means, with respect to
the Administrative Agent, any Lender, the Issuing Bank or any other recipient
of any payment to be made by or on account of any obligation of the Borrower
hereunder, (a) income or franchise taxes imposed on (or measured by) its
net income by the United States of America, or by the jurisdiction under the laws
of which such recipient is organized or in which its principal office is
located or, in the case of any Lender, in which its applicable lending office
is located, (b) any branch profits taxes imposed by the United States of
America or any similar tax imposed by any other jurisdiction in which the
Borrower is located and (c) in the case of a Foreign Lender (other than an
assignee pursuant to a request by the Borrower under Section 2.19(b)), any withholding
tax that is imposed on amounts payable to such Foreign Lender at the time such
Foreign Lender becomes a party to this Agreement (or designates a new lending
office) or is attributable to such Foreign Lender’s failure to comply with Section 2.17(e), except to the
extent that such Foreign Lender (or its assignor, if any) was entitled, at the
time of designation of a new lending office (or assignment), to receive
additional amounts from the Borrower with respect to such withholding tax
pursuant to Section 2.17(a).

 

“Existing Letters of Credit” shall mean
those letters of credit listed on attached Schedule 2.06(a) and
all reimbursement obligations pertaining to any such letter of credit.

 

“Federal Funds Effective Rate” means,
for any day, the weighted average (rounded upwards, if necessary, to the next
1/100 of 1%) of the rates on overnight Federal funds transactions with members
of 

 

7

 

the Federal Reserve System arranged by Federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank of
New York, or, if such rate is not so published for any day that is a
Business Day, the average (rounded upwards, if necessary, to the next 1/100 of
1%) of the quotations for such day for such transactions received by the
Administrative Agent from three Federal funds brokers of recognized standing
selected by it.

 

“Financial Officer” means the chief
financial officer, principal accounting officer, treasurer or controller of the
Borrower.

 

“Fixed Charge Coverage Ratio” shall
mean, at the end of each Four Quarter Period, the ratio of:

 

(a)                                  the
sum of the following for the Four Quarter Period:

 

(i)                                     EBITDAR,
minus

 

(ii)                                  Taxes
paid in cash during such period, to

 

(b)                                 the
sum of the following for the Four Quarter Period:

 

(i)                                     Interest
Expense, plus

 

(ii)                                  scheduled
principal amortization on Indebtedness, plus

 

(iii)                               Restricted
Payments, plus

 

(iv)                              Rent
Expense.

 

 “Foreign
Lender” means any Lender that is organized under the laws of a
jurisdiction other than that in which the Borrower is located. For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.

 

“Four Quarter Period” means a period of
four full consecutive fiscal quarter-annual periods, taken together as one
accounting period.

 

“GAAP” means generally accepted
accounting principles in the United States of America, applied on a consistent
basis with those applied in the preparation of the financial statements
provided pursuant to Section 5.01.

 

“Governmental Authority” means the
government of the United States of America, any other nation or any political
subdivision thereof, whether state or local, and any agency, authority,
instrumentality, regulatory body, court, central bank or other entity exercising
executive, legislative, judicial, taxing, regulatory or administrative powers
or functions of or pertaining to government.

 

“Guarantee” of or by any Person (the “guarantor”) means any obligation,
contingent or otherwise, of the guarantor guaranteeing or having the economic
effect of guaranteeing any Indebtedness or other obligation of any other Person
(the “primary obligor”) in
any manner, whether directly or indirectly, and including any obligation of the
guarantor, direct or indirect, (a) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Indebtedness or other
obligation or to purchase (or to advance or supply funds for the purchase of)
any security for the payment thereof, (b) to purchase or lease property,
securities or services for the purpose of assuring the owner of such
Indebtedness or other obligation of the payment thereof, (c) to maintain
working capital, equity capital or 

 

8

 

any other financial statement condition or liquidity of the primary
obligor so as to enable the primary obligor to pay such Indebtedness or other
obligation or (d) as an account party in respect of any letter of credit
or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business.

 

“Hazardous Materials” means all
explosive or radioactive substances or wastes and all hazardous or toxic
substances, wastes or other pollutants, including petroleum or petroleum
distillates, asbestos or asbestos containing materials, polychlorinated
biphenyls, radon gas, infectious or medical wastes and all other substances or
wastes of any nature regulated pursuant to any Environmental Law.

 

“Indebtedness” means, with respect to
the Borrower and its Subsidiaries at any date and without duplication, the sum
of the following calculated in accordance with GAAP (a) all liabilities,
obligations and indebtedness, in each case, for borrowed money, including but
not limited to obligations evidenced by bonds, debentures, notes or similar
instruments of any such Person, (b)  all obligations of such Person under
conditional sale or other title retention agreements relating to property acquired
by such Person, (c) all obligations of such Person in respect of the
deferred purchase price of property or services (excluding current accounts
payable incurred in the ordinary course of business, (d) all Indebtedness
of others secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien on property
owned or acquired by such Person, whether or not the Indebtedness secured
thereby has been assumed, (e) all Guarantees by such Person of
Indebtedness of others, (f) all Capital Lease Obligations of such Person, (g) all
obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty, (h) all obligations,
contingent or otherwise, of such Person in respect of bankers’ acceptances, (i) all
the principal indebtedness entered into by any Person in connection with any
Off-Balance Sheet Lease, (j) all net obligations of such Person under Swap
Agreements, calculated at the notional amount, and (k) the MCF Debt. The
Indebtedness of any Person shall include the Indebtedness of any other entity
(including any partnership in which such Person is a general partner) to the
extent such Person is liable therefor as a result of such Person’s ownership
interest in or other relationship with such entity, except to the extent the
terms of such Indebtedness provide that such Person is not liable therefor. Indebtedness
shall be calculated net of any restricted collateral accounts, payment
accounts, sinking funds, or like amounts dedicated to or securing the payment
of such Indebtedness.

 

“Indemnified Taxes” means Taxes other
than Excluded Taxes.

 

“Initial Directors” means (i) a
member of the board of directors of the Borrower as of the Effective Date and (ii) a
member of the board of directors of the Borrower nominated by the vote of at
least sixty percent (60%) of the members of the board of directors of the
Borrower as of the Effective Date.

 

“Interest Election Request” means a
request by the Borrower to convert or continue a Revolving Borrowing in
accordance with Section 2.08.

 

“Interest Expense” shall mean for any
period, the sum, for the Borrower and its Subsidiaries (determined on a
consolidated basis without duplication in accordance with GAAP), of the
following:  (a) all interest in
respect of Indebtedness (including, without limitations, the interest component
of any payments in respect of Capital Lease Obligations) accrued or capitalized
during such period (whether or not actually paid during such period), net of
all interest income plus (b) the
net amount payable (or minus the
net amount receivable) under Swap Agreements during such period (whether or not
actually paid or received during such period), minus
(c) direct reimbursements received by the Borrower or any Subsidiary
during such period by a party to a Correctional and Detention Facility
Contract, to the extent that such reimbursements relate to interest expense of
the Borrower or one of its Subsidiaries.

 

9

 

“Interest Payment Date” means (a) with
respect to any ABR Loan (other than a Swingline Loan), the last day of each
calendar month, (b) with respect to any LIBO Rate Loan, the last day of
the Interest Period applicable to the Borrowing of which such Loan is a part and,
in the case of a LIBO Rate Borrowing with an Interest Period of more than three
months’ duration, each day prior to the last day of such Interest Period that
occurs at intervals of three months’ duration after the first day of such
Interest Period, and (c) with respect to any Swingline Loan, the day that
such Loan is required to be repaid.

 

“Interest Period” means, with respect to
any LIBO Rate Borrowing, the period commencing on the date of such Borrowing
and ending on the numerically corresponding day in the calendar month that is
one, two, three or six months (or, with the consent of each Lender, nine
or twelve months) thereafter, as the Borrower may elect; provided, that (i) if any Interest
Period would end on a day other than a Business Day, such Interest Period shall
be extended to the next succeeding Business Day unless such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day and (ii) any Interest
Period pertaining to a LIBO Rate Borrowing that commences on the last Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the last calendar month of such Interest Period) shall end
on the last Business Day of the last calendar month of such Interest Period. For
purposes hereof, the date of a Borrowing initially shall be the date on which
such Borrowing is made and, in the case of a Revolving Borrowing, thereafter
shall be the effective date of the most recent conversion or continuation of
such Borrowing.

 

“Investment” shall mean, for any
Person:  (a) the acquisition
(whether for cash, Property, services or securities or otherwise) of Capital
Stock, bonds, notes, debentures, partnership or other ownership interests or
other securities of any other Person or any agreement to make any such
acquisition (including, without limitation, any “short sale” or any sale of any
securities at a time when such securities are not owned by the Person entering
into such sale); (b) the making of any deposit with, or advance, loan or
other extension of credit to, any other Person (including the purchase of
property from another Person subject to an understanding or agreement,
contingent or otherwise, to resell such property to such Person, but excluding
any such advance, loan or extension of credit having a term not exceeding 90
days representing the purchase price of inventory or supplies sold by such
Person in the ordinary course of business); or (c) the entering into any
Guarantee of, or other contingent obligation with respect to, Indebtedness of
other liability or any other Person and (without duplication) any amount
committed to be advanced, lent or extended to such Person; or (d) the
entering into of any Swap Agreement.

 

“Issuing Bank” means JPMorgan Chase
Bank, N.A., in its capacity as the issuer of Letters of Credit hereunder, and
its successors in such capacity as provided in Section 2.06(i). The Issuing Bank may, in its
discretion, arrange for one or more Letters of Credit to be issued by
Affiliates of the Issuing Bank, in which case the term “Issuing Bank” shall
include any such Affiliate with respect to Letters of Credit issued by such
Affiliate. As to the Existing Letters of Credit, the Issuing Bank for each
Existing Letter of Credit shall be as set forth on Schedule 2.06(a).

 

“LC Collateral Account” has the
meaning assigned to the term in Section 2.06(j)(i).

 

“LC Disbursement” means a payment made
by the Issuing Bank pursuant to a Letter of Credit.

 

“LC Exposure” means, at any time, the
sum of (a) the aggregate undrawn amount of all outstanding Letters of
Credit at such time plus (b) the aggregate amount of all LC Disbursements
that have not yet been reimbursed by or on behalf of the Borrower at such time.
The LC Exposure of any Lender at any time shall be its Applicable Percentage of
the total LC Exposure at such time.

 

10

 

“Lenders” means the Persons listed on Schedule 2.01 and any other Person
that shall have become a party hereto pursuant to an Assignment and Assumption,
other than any such Person that ceases to be a party hereto pursuant to an
Assignment and Assumption. Unless the context otherwise requires, the term “Lenders”
includes the Swingline Lender.

 

“Letter of Credit” means the Existing
Letters of Credit and any letter of credit issued pursuant to this Agreement.

 

“LIBO Rate” means, with respect to any
LIBO Rate Borrowing for any Interest Period, the rate appearing on Page 3750
of the Dow Jones Market Service (or on any successor or substitute page of
such Service, or any successor to or substitute for such Service, providing
rate quotations comparable to those currently provided on such page of
such Service, as determined by the Administrative Agent from time to time for
purposes of providing quotations of interest rates applicable to dollar
deposits in the London interbank market) at approximately 11:00 a.m.,
London time, two Business Days prior to the commencement of such Interest
Period, as the rate for dollar deposits with a maturity comparable to such
Interest Period. In the event that such rate is not available at such time for
any reason, then the “LIBO Rate” with respect to such LIBO Rate
Borrowing for such Interest Period shall be the rate at which dollar deposits
of $5,000,000 and for a maturity comparable to such Interest Period are offered
by the principal London office of the Administrative Agent in immediately
available funds in the London interbank market at approximately 11:00 a.m.,
London time, two Business Days prior to the commencement of such Interest
Period.

 

“Lien” means, with respect to any asset,
(a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance,
charge or security interest in, on or of such asset, (b) the interest of a
vendor or a lessor under any conditional sale agreement, capital lease or title
retention agreement (or any financing lease having substantially the same
economic effect as any of the foregoing) relating to such asset and (c) in
the case of securities, any purchase option, call or similar right of a third
party with respect to such securities.

 

“Loan Documents” shall mean this
Agreement, the Notes and the Security Documents and any other document or
instrument executed and delivered in connection with this Agreement.

 

“Loans” means the loans made by the
Lenders to the Borrower pursuant to this Agreement.

 

“Material Adverse Effect” means, with
respect to the Borrower or any of its Subsidiaries, an event or circumstance
that constitutes a material adverse effect on (a) the business, assets or
financial condition of the Borrower and the Subsidiaries taken as a whole, (b) the
ability of the Borrower and its Subsidiaries, taken as a whole, to perform their
obligations under the Loan Documents in each case to which it is a party or (c) validity
or enforceability of this Agreement or any of the Security Documents or the
rights of or benefits available to the Administrative Agent or the Lenders
under this Agreement.

 

“Material Indebtedness” means
Indebtedness (other than the Loans and Letters of Credit), or obligations in
respect of one or more Swap Agreements, of any one or more of the Borrower and
its Subsidiaries in an aggregate principal amount exceeding $5,000,000. For
purposes of determining Material Indebtedness, the “principal amount” of the
obligations of the Borrower or any Subsidiary in respect of any Swap Agreement
at any time shall be the maximum aggregate amount (giving effect to any netting
agreements) that the Borrower or such Subsidiary would be required to pay if
such Swap Agreement were terminated at such time.

 

“Maturity Date” means December 31,
2011.

 

11

 

“Maximum Rate” shall have the
meaning assigned to such term in Section 9.13.

 

“MCF Debt” means all obligations of the
Borrower that are incurred in connection with that certain Master Lease
Agreement executed with Municipal Corrections Finance, L.P. in 2001, less amounts in the Debt Service Reserve Fund and the MCF
Bond Payment Account established and as defined in connection therewith, as
such Master Lease Agreement may be amended, modified, extended,
supplemented or replaced.

 

“Moody’s” means Moody’s Investors
Service, Inc.

 

“Mortgage” shall mean, in connection
with any interest in real property (whether a fee or a leasehold estate)
acquired by the Borrower or any Subsidiary, an Instrument of Mortgage, Deed of
Trust, Assignment of Rents, Security Agreement and Fixture Filing executed by
such party in favor of the Administrative Agent and the Lenders (or, if
applicable, in favor of a Trustee, for the benefit of the Administrative Agent
and the Lenders), in each case in form and substance reasonably
satisfactory to the Administrative Agent and covering such interest in real
property, as said instrument shall be modified and supplemented and in effect
from time to time.

 

“Multiemployer Plan” means a
multiemployer plan as defined in Section 4001(a)(3) of ERISA.

 

“Negative Pledge” means the Negative
Pledge Agreement dated as of the Effective Date, as amended, among the
Borrower, each Subsidiary, and the Administrative Agent, and as the same shall
be further modified or supplemented and in effect from time to time.

 

“Non-Consenting Lenders” has the
meaning set forth in Section 9.02(d).

 

“Non-Recurring Expenses” shall mean (a) fees
and expenses associated with the early extinguishment of debt, together with
any premiums paid to extinguish such debt obligation, (b) losses on sales
of assets outside the ordinary course of business, and (c) $3,750,000
related to costs and expenses incurred in connection with the terminated
transaction with The Veritas Capital Fund III, L.P. and its Affiliates.

 

“Notes” shall mean the promissory notes
provided for by Section 2.10
hereof, in the form attached hereto as Exhibit E-1
or E-2 attached hereto and incorporated herein for all purposes,
and all promissory notes delivered in substitution or exchange therefor, in
each case as the same shall be modified and supplemented and in effect from
time to time.

 

“Off-Balance Sheet Lease” means, as to
any Person, any lease (including leases that may be terminated by the
lessee at any time) of any property (whether real, personal or mixed) (a) that
is accounted for as an off-balance sheet lease under GAAP and (b) in respect
of which the lessee retains or obtains ownership of the property for U.S.
federal income tax purposes or any product similar thereto.

 

“Off-Balance Sheet Lease Expense” means
the lease expense incurred in connection with any Off-Balance Sheet Lease.

 

“Other Taxes” means any and all present
or future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies arising from any payment made hereunder or from the
execution, delivery or enforcement of, or otherwise with respect to, this
Agreement.

 

“Participant” has the meaning set forth
in Section 9.04.

 

12

 

“Past Due Rate” shall mean, (a) in
the case of overdue principal of any Loan, 2% plus the rate otherwise
applicable to such Loan as provided in Section 2.13 (a) or
(b) or (b) in the case of any other amount, 2% plus
the rate applicable to ABR Loans as provided in Section 2.13 (a).

 

“PBGC” means the Pension Benefit
Guaranty Corporation referred to and defined in ERISA and any successor entity
performing similar functions.

 

“Permitted Encumbrances” means:

 

(a)                                  Liens
imposed by law for taxes, assessments or other governmental charges that are
not yet due or are being contested in compliance with Section 5.04;

 

(b)                                 carriers’,
warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liens
imposed by law arising in the ordinary course of business or landlord’s liens,
and securing obligations that are not overdue by more than 45 days or are being
contested in compliance with Section 5.04;

 

(c)                                  pledges
and deposits made in the ordinary course of business in compliance with workers’
compensation, unemployment insurance and other social security laws or
regulations (other than any Liens imposed by ERISA);

 

(d)                                 pledges
or deposits to secure the performance of bids, trade contracts, leases,
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature, in each case in the ordinary course of business;

 

(e)                                  judgment
liens in respect of judgments that do not constitute an Event of Default under Section 7.01 (k);

 

(f)                                    easements,
zoning restrictions, rights-of-way and similar encumbrances on real property
imposed by law or arising in the ordinary course of business that do not secure
any monetary obligations and do not materially detract from the value of the
affected property or interfere in any material respect with the ordinary
conduct of business of the Borrower or any Subsidiary;

 

(g)                                 protective
UCC filings for leased personal property; and

 

(h)                                 Liens
arising solely by virtue of any statutory or common law provisions relating to
banker’s liens, rights of set-off or similar rights and remedies as to deposit
accounts or other funds maintained with a credit or depository institution.

 

“Permitted Investments” means:

 

(a)                                  securities
issued or directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality of the United States (provided that the full faith and credit of the United States
is pledged in support thereof), having maturities of not more than one year
from the date of acquisition;

 

(b)                                 marketable
general obligations issued by any state of the United States of America or any
political subdivision of any such state or any public instrumentality thereof
maturing within one year from the date of acquisition thereof (provided that the full faith and 

 

13

 

credit of such state is pledged
in support thereof) and, at the time of acquisition, having a credit rating of “A”
or better from either S&P or Moody’s;

 

(c)                                  certificates
of deposit, time deposits, eurodollar time deposits, overnight bank deposits or
bankers’ acceptances having maturities of not more than one year from the date
of acquisition thereof issued by any commercial bank, the long-term debt of
which is rated at the time of acquisition thereof at least “A” or the
equivalent thereof by S&P, or “A” or the equivalent thereof by Moody’s, and
having combined capital and surplus in excess of $500 million;

 

(d)                                 repurchase
obligations with a term or not more than seven (7) days for underlying
securities of the types described in clauses (a), (b) and (c) entered
into with any bank meeting the qualifications specified in clause (c) above;

 

(e)                                  commercial
paper rated at the time of acquisition thereof at least “A-2” or the equivalent
thereof by S&P or “P-2” or the equivalent thereof by Moody’s, or carrying
an equivalent rating by a nationally recognized rating agency, if both of the
two named rating agencies cease publishing ratings of investments, and in any
case maturing within one year after the date of acquisition thereof;

 

(f)                                    money
market funds that (i) comply with the criteria set forth in SEC Rule 2a-7
under the Investment Company Act of 1940, (ii) are rated AAA by S&P
and Aaa by Moody’s and (iii) have portfolio assets of at least
$5,000,000,000; and

 

(g)                                 investments
of any Subsidiary existing at the time such Person becomes a Subsidiary
pursuant to a permitted acquisition; provided that such Investment was not
incurred in connection with, or in anticipation or contemplation of, such
permitted acquisition.

 

“Person” means any natural person,
corporation, limited liability company, trust, joint venture, association,
company, partnership, Governmental Authority or other entity.

 

“Plan” means any employee pension
benefit plan (other than a Multiemployer Plan) subject to the provisions of
Title IV of ERISA or Section 412 of the Code or Section 302 of
ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if
such plan were terminated, would under Section 4069 of ERISA be deemed to
be) an “employer” as defined in Section 3(5) of ERISA.

 

“Prime Rate” means the rate of interest
per annum publicly announced from time to time by JPMorgan Chase Bank, N.A. as
its prime rate in effect at its principal office in New York City, New York;
each change in the Prime Rate shall be effective from and including the date
such change is publicly announced as being effective.

 

“Property” shall mean any right or interest
in or to property of any kind whatsoever, whether real, personal or mixed and
whether tangible or intangible.

 

“Register” has the meaning set forth in Section 9.04.

 

“Regulations T, U and X” shall mean,
respectively, Regulations T, U and X of the Board of Governors of the Federal
Reserve System (or any successor), as the same may be modified and
supplemented and in effect from time to time.

 

“Related Parties” means, with respect to
any specified Person, such Person’s Affiliates and the respective directors,
officers, employees, agents and advisors of such Person and such Person’s
Affiliates.

 

14

 

“Rent Expense” means, as determined, at
the end of each Four Quarter Period covered by the consolidated financial
statements of Borrower and its Subsidiaries, and delivered pursuant to this
Agreement, the dollar amount of the fixed payments which Borrower or its
Subsidiaries are required to make by the terms of any lease to its landlords
during such period, including, without limitation, any Off-Balance Sheet Lease
Expense.

 

“Required Lenders” means, at any time,
Lenders having Revolving Credit Exposures and unused Commitments representing
at least 51% of the sum of the total Revolving Credit Exposures and unused Commitments
at such time.

 

“Responsible Officer” means the
chief executive officer, the president, the senior vice president, a Financial
Officer or the vice president of such Person.

 

“Restricted Payment” means any dividend
or other distribution (whether in cash, securities or other property) with
respect to any Equity Interests in the Borrower or any Subsidiary, or any
payment (whether in cash, securities or other property), including any sinking
fund or similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancellation or termination of any such Equity Interests in the
Borrower or any option, warrant or other similar right to acquire any such
Equity Interests in the Borrower.

 

“Revolving Credit Exposure” means, with
respect to any Lender at any time, the sum of the outstanding principal amount
of such Lender’s Revolving Loans and its LC Exposure and Swingline Exposure at
such time.

 

“Revolving Loan” means a Loan made
pursuant to Section 2.03.

 

“SEC” means the Securities and Exchange
Commission.

 

“S&P” means Standard & Poor’s
Ratings Services.

 

“Security Agreement” shall mean the
Security Agreement dated as of the Effective Date, as amended, among the
Borrower, each Subsidiary and the Administrative Agent and as the same shall be
further modified and supplemented and in effect from time to time.

 

“Security Documents” shall mean,
collectively, the Negative Pledge, the Security Agreement,  any Mortgage, stock powers, all Uniform Commercial
Code financing statements required by this Agreement, the Security Agreement or
any Mortgage to be filed with respect to the security interests in personal
Property and fixtures created pursuant to the Security Agreement or any
Mortgage and each other agreement or writing pursuant to which any Credit Party
purports to pledge or grant a security interest in any property or assets
securing the Loans.

 

“Senior Notes” shall mean those
certain 103⁄4 % Senior Notes due 2012 in the amount of $112,000,000 issued by
Borrower pursuant to that certain Indenture dated as of June 24, 2004, by
and among Borrower, the subsidiary guarantors parties thereto, and JPMorgan
Chase Bank, N.A., as trustee.

 

“Senior Responsible Officer” means
the chief executive officer, the president or the chief financial officer of
such Person.

 

“subsidiary” means, with respect to any
Person (the “parent”) at any date, any corporation, limited liability
company, partnership, association or other entity the accounts of which would
be consolidated with those of the parent in the parent’s consolidated financial
statements if such financial 

 

15

 

statements were prepared in accordance with GAAP as of such date, as
well as any other corporation, limited liability company, partnership,
association or other entity (a) of which securities or other ownership
interests representing more than 50% of the equity or more than 50% of the
ordinary voting power or, in the case of a partnership, more than 50% of the
general partnership interests are, as of such date, owned, controlled or held,
or (b) that is, as of such date, otherwise Controlled, by the parent or
one or more subsidiaries of the parent or by the parent and one or more
subsidiaries of the parent.

 

“Subsidiary” means any subsidiary of the
Borrower, excluding Municipal Corrections Finance, L.P.

 

“Subsidiary Guarantors” means any
Subsidiary who is required to execute and deliver a Guarantee pursuant to Section 5.09(b) hereof.

 

“Swap Agreement” means any agreement
with respect to any swap, forward, future or derivative transaction or option
or similar agreement involving, or settled by reference to, one or more rates,
currencies, commodities, equity or debt instruments or securities, or economic,
financial or pricing indices or measures of economic, financial or pricing risk
or value or any similar transaction or any combination of these transactions; provided that no phantom stock or similar
plan providing for payments only on account of services provided by current or
former directors, officers, employees or consultants of the Borrower or the
Subsidiaries shall be a Swap Agreement.

 

“Swingline Exposure” means, at any time,
the aggregate principal amount of all Swingline Loans outstanding at such time.
The Swingline Exposure of any Lender at any time shall be its Applicable
Percentage of the total Swingline Exposure at such time.

 

“Swingline Lender” means JPMorgan Chase
Bank, N.A., in its capacity as lender of Swingline Loans hereunder.

 

“Swingline Loan” means a Loan made
pursuant to Section 2.05 .

 

“Take or Pay Contracts” means
Correctional and Detention Facility Contracts pursuant to which the contracting
party agrees to pay the Borrower or its Subsidiary without regard to occupancy.

 

“Taxes” means any and all present or
future taxes, levies, imposts, duties, deductions, charges or withholdings
imposed by any Governmental Authority.

 

“Total Debt” means all Indebtedness, minus letters of credit minus bonds, deposits or other surety obligations required
pursuant to Correctional and Detention Facility Contracts, minus
(x) up to $5,000,000 of cash so long as there are Borrowings outstanding under
this Agreement or (y) all cash so long as there are no Borrowings outstanding
under this Agreement..

 

“Total Leverage Ratio” means the ratio
of Total Debt to EBITDA.

 

“Transactions” means the execution,
delivery and performance by the Borrower of this Agreement, the borrowing of
Loans, the use of the proceeds thereof and the issuance of Letters of Credit
hereunder.

 

“Type”, when used in reference to any
Loan or Borrowing, refers to whether the rate of interest on such Loan, or on
the Loans comprising such Borrowing, is determined by reference to the LIBO
Rate or the Alternate Base Rate.

 

16

 

“Weighted Average Life to Maturity”
shall mean, when applied to any Indebtedness at any date, the number of years
obtained by dividing (a) the sum of the products obtained by multiplying (i) the
amount of each then remaining installment, sinking fund, serial maturity or
other required payments of principal, including payment at final maturity, in
respect thereof, by (ii) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment,
by (b) the then outstanding principal amount of such Debt.

 

“Wholly Owned Subsidiary” shall mean,
with respect to any Person, any corporation, partnership or other entity of
which all of the equity securities or other ownership interests (other than, in
the case of a corporation, directors’ qualifying shares) are directly or
indirectly owned or controlled by such Person or one or more Wholly Owned
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Subsidiaries of such Person.

 

“Withdrawal Liability” means liability
to a Multiemployer Plan as a result of a complete or partial withdrawal from
such Multiemployer Plan, as such terms are defined in Part I of
Subtitle E of Title IV of ERISA.

 

SECTION 1.02.
Classification of Loans and Borrowings. For purposes of this
Agreement, Loans may be classified and referred to by Class (e.g., a “Revolving Loan”)
or by Type (e.g., a “LIBO Rate
Loan”). Borrowings also may be classified and referred to
by Class (e.g., a “Revolving
Borrowing”) or by Type (e.g., a “LIBO Rate Borrowing”).

 

SECTION 1.03.
Terms Generally. The definitions of terms herein shall apply
equally to the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words “include”,
“includes” and “including”
shall be deemed to be followed by the phrase “without
limitation”. The word “will” shall
be construed to have the same meaning and effect as the word “shall”. Unless the context requires
otherwise (a) any definition of or reference to any agreement, instrument
or other document herein shall be construed as referring to such agreement,
instrument or other document as from time to time amended, supplemented or
otherwise modified (subject to any restrictions on such amendments, supplements
or modifications set forth herein), (b) any reference herein to any Person
shall be construed to include such Person’s successors and assigns, (c) the
words “herein”, “hereof”
and “hereunder”, and words of similar
import, shall be construed to refer to this Agreement in its entirety and not
to any particular provision hereof, (d) all references herein to Articles,
Sections, Exhibits and Schedules shall be construed to refer to Articles and
Sections of, and Exhibits and Schedules to, this Agreement and (e) the
words “asset” and “property”
shall be construed to have the same meaning and effect and to refer to any and
all tangible and intangible assets and properties, including cash, securities,
accounts and contract rights.

 

SECTION 1.04.
Accounting Terms; GAAP. Except as otherwise expressly provided
herein, all terms of an accounting or financial nature shall be construed in
accordance with GAAP, as in effect from time to time; provided that, if the Borrower notifies the Administrative
Agent that the Borrower requests an amendment to any provision hereof to
eliminate the effect of any change occurring after the date hereof in GAAP or
in the application thereof on the operation of such provision (or if the
Administrative Agent notifies the Borrower that the Required Lenders request an
amendment to any provision hereof for such purpose), regardless of whether any
such notice is given before or after such change in GAAP or in the application
thereof, then such provision shall be interpreted on the basis of GAAP as in
effect and applied immediately before such change shall have become effective
until such notice shall have been withdrawn or such provision amended in
accordance herewith. All financial terms, covenants, and calculations shall be
made on a consolidated basis for the Borrower and its Subsidiaries.

 

17

 

ARTICLE II

 

The Credits

 

SECTION 2.01. Commitments.
Subject to the terms and conditions set forth herein, each Lender agrees to
make Revolving Loans to the Borrower from time to time during the Availability
Period in an aggregate principal amount that will not result in (a) such Lender’s
Revolving Credit Exposure exceeding such Lender’s Commitment or (b) the
sum of the total Revolving Credit Exposures exceeding the total Commitments. Within
the foregoing limits and subject to the terms and conditions set forth herein,
the Borrower may borrow, prepay and reborrow Revolving Loans.

 

SECTION 2.02. Loans
and Borrowings.

 

(a)           Each Revolving Loan
shall be made as part of a Borrowing consisting of Revolving Loans made by the
Lenders ratably in accordance with their respective Commitments. The failure of
any Lender to make any Loan required to be made by it shall not relieve any
other Lender of its obligations hereunder; provided
that the Commitments of the Lenders are several and no Lender shall be
responsible for any other Lender’s failure to make Loans as required.

 

(b)           Subject to Section 2.14, each Revolving
Borrowing shall be comprised entirely of ABR Loans or LIBO Rate Loans as the
Borrower may request in accordance herewith. Each Swingline Loan shall be an
ABR Loan. Each Lender at its option may make any LIBO Rate Loan by causing any
domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option
shall not affect the obligation of the Borrower to repay such Loan in
accordance with the terms of this Agreement.

 

(c)           At the commencement of
each Interest Period for any LIBO Rate Borrowing, such Borrowing shall be in an
aggregate amount that is an integral multiple of $500,000 and not less than
$3,000,000. At the time that each ABR Borrowing is made, such Borrowing shall
be in an aggregate amount that is an integral multiple of $500,000 and not less
than $500,000; provided that an ABR Borrowing may be in an aggregate
amount that is equal to the entire unused balance of the total Commitments or
that is required to finance the reimbursement of an LC Disbursement as
contemplated by Section 2.06(e).
Each Swingline Loan shall be in an amount that is an integral multiple of
$50,000 and not less than $100,000. Borrowings of more than one Type and Class
may be outstanding at the same time; provided
that there shall not at any time be more than a total of twelve (12) LIBO Rate
Borrowings outstanding.

 

(d)           Notwithstanding any
other provision of this Agreement, the Borrower shall not be entitled to
request, or to elect to convert or continue, any Borrowing if the Interest
Period requested with respect thereto would end after the Maturity Date.

 

SECTION 2.03. Requests
for Revolving Borrowings. To request a Revolving Borrowing, the Borrower
shall notify the Administrative Agent of such request by telephone (a) in the
case of a LIBO Rate Borrowing, not later than 11:00 a.m., Houston, Texas time,
three Business Days before the date of the proposed Borrowing or (b) in
the case of an ABR Borrowing, not later than 11:00 a.m., Houston, Texas time,
on the date of the proposed Borrowing; provided
that any such notice of an ABR Borrowing to finance the reimbursement of an LC
Disbursement as contemplated by Section 2.06(e)
may be given not later than 10:00 a.m., Houston, Texas time, on the date of the
proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable
and shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Borrowing Request in a form reasonably
approved by

 

18

 

the
Administrative Agent and signed by the Borrower. Each such telephonic and
written Borrowing Request shall specify the following information in compliance
with Section 2.02:

 

(i)            the aggregate amount
of the requested Borrowing;

 

(ii)           the date of such
Borrowing, which shall be a Business Day;

 

(iii)          whether such Borrowing
is to be an ABR Borrowing or a LIBO Rate Borrowing;

 

(iv)          in the case of a LIBO
Rate Borrowing, the initial Interest Period to be applicable thereto, which
shall be a period contemplated by the definition of the term “Interest Period”;
and

 

(v)           the location and number
of the Borrower’s account to which funds are to be disbursed, which shall
comply with the requirements of Section 2.07.

 

If no election as to the
Type of Revolving Borrowing is specified, then the requested Revolving
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested LIBO Rate Borrowing, then the Borrower shall be deemed
to have selected an Interest Period of one month’s duration. Promptly following
receipt of a Borrowing Request in accordance with this Section, the
Administrative Agent shall advise each Lender of the details thereof and of the
amount of such Lender’s Loan to be made as part of the requested Borrowing.

 

SECTION 2.04. Intentionally
Omitted.

 

SECTION 2.05. Swingline
Loans.

 

(a)           Subject to the terms
and conditions set forth herein, the Swingline Lender agrees to make Swingline
Loans to the Borrower from time to time during the Availability Period, in an
aggregate principal amount at any time outstanding that will not result in
(i) the aggregate principal amount of outstanding Swingline Loans
exceeding $10,000,000 or (ii) the sum of the total Revolving Credit
Exposures exceeding the total Commitments; provided
that the Swingline Lender shall not be required to make a Swingline Loan to
refinance an outstanding Swingline Loan. Within the foregoing limits and
subject to the terms and conditions set forth herein, the Borrower may borrow,
prepay and reborrow Swingline Loans.

 

(b)           To request a Swingline
Loan, the Borrower shall notify the Administrative Agent of such request by
telephone (confirmed by telecopy), not later than 12:00 noon, Houston, Texas
time, on the day of a proposed Swingline Loan. Each such notice shall be
irrevocable and shall specify the requested date (which shall be a Business
Day) and amount of the requested Swingline Loan. The Administrative Agent will
promptly advise the Swingline Lender of any such notice received from the
Borrower. The Swingline Lender shall make each Swingline Loan available to the
Borrower by means of a credit to the general deposit account of the Borrower
with the Borrower’s designated bank (or, in the case of a Swingline Loan made
to finance the reimbursement of an LC Disbursement as provided in Section 2.06(e), by remittance
to the Issuing Bank) by 3:00 p.m., Houston, Texas time, on the requested
date of such Swingline Loan.

 

(c)           The Swingline Lender
may by written notice given to the Administrative Agent not later than 10:00
a.m., Houston, Texas time, on any Business Day require the Lenders to acquire
participations on such Business Day in all or a portion of the Swingline Loans

 

19

 

outstanding. Such notice shall specify the
aggregate amount of Swingline Loans in which Lenders will participate. Promptly
upon receipt of such notice, the Administrative Agent will give notice thereof
to each Lender, specifying in such notice such Lender’s Applicable Percentage
of such Swingline Loan or Loans. Each Lender hereby absolutely and
unconditionally agrees, upon receipt of notice as provided above, to pay to the
Administrative Agent, for the account of the Swingline Lender, such Lender’s
Applicable Percentage of such Swingline Loan or Loans. Each Lender acknowledges
and agrees that its obligation to acquire participations in Swingline Loans
pursuant to this paragraph is absolute and unconditional and shall not be
affected by any circumstance whatsoever, including the occurrence and
continuance of a Default or reduction or termination of the Commitments, and
that each such payment shall be made without any offset, abatement, withholding
or reduction whatsoever. Each Lender shall comply with its obligation under
this paragraph by wire transfer of immediately available funds, in the same
manner as provided in Section 2.07
with respect to Loans made by such Lender (and Section 2.07
shall apply, mutatis mutandis, to
the payment obligations of the Lenders), and the Administrative Agent shall
promptly pay to the Swingline Lender the amounts so received by it from the
Lenders. The Administrative Agent shall notify the Borrower of any
participations in any Swingline Loan acquired pursuant to this paragraph, and
thereafter payments in respect of such Swingline Loan shall be made to the
Administrative Agent and not to the Swingline Lender. Any amounts received by
the Swingline Lender from the Borrower (or other party on behalf of the
Borrower) in respect of a Swingline Loan after receipt by the Swingline Lender
of the proceeds of a sale of participations therein shall be promptly remitted
to the Administrative Agent; any such amounts received by the Administrative Agent
shall be promptly remitted by the Administrative Agent to the Lenders that
shall have made their payments pursuant to this paragraph and to the Swingline
Lender, as their interests may appear; provided that any such payment so
remitted shall be repaid to the Swingline Lender or to the Administrative
Agent, as applicable, if and to the extent such payment is required to be
refunded to the Borrower for any reason. The purchase of participations in a
Swingline Loan pursuant to this paragraph shall not relieve the Borrower of any
default in the payment thereof.

 

SECTION 2.06. Letters
of Credit.

 

(a)           General. Subject
to the terms and conditions set forth herein, the Borrower may request the
issuance of Letters of Credit for its own account, in a form reasonably
acceptable to the Administrative Agent and the Issuing Bank, at any time and
from time to time during the Availability Period. In the event of any
inconsistency between the terms and conditions of this Agreement and the terms
and conditions of any form of letter of credit application or other agreement
submitted by the Borrower to, or entered into by the Borrower with, the Issuing
Bank relating to any Letter of Credit, the terms and conditions of this
Agreement shall control. From and after the Effective Date, the Existing
Letters of Credit shall be deemed to be Letters of Credit issued pursuant to
this Section 2.06(a). The
Existing Letters of Credit are described on Schedule 2.06(a).

 

(b)           Notice of Issuance,
Amendment, Renewal, Extension; Certain Conditions. To request the issuance
of a Letter of Credit (or the amendment, renewal or extension of an outstanding
Letter of Credit), the Borrower shall hand deliver or telecopy (or transmit by
electronic communication, if arrangements for doing so have been approved by
the Issuing Bank) to the Issuing Bank and the Administrative Agent (reasonably
in advance of the requested date of issuance, amendment, renewal or extension)
a notice requesting the issuance of a Letter of Credit, or identifying the
Letter of Credit to be amended, renewed or extended, and specifying the date of
issuance, amendment, renewal or extension (which shall be a Business Day), the
date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this
Section), the

 

20

 

amount of such Letter of Credit, the name and
address of the beneficiary thereof and such other information as shall be
necessary to prepare, amend, renew or extend such Letter of Credit. If
requested by the Issuing Bank, the Borrower also shall submit a letter of
credit application on the Issuing Bank’s standard form in connection with any
request for a Letter of Credit. A Letter of Credit shall be issued, amended,
renewed or extended only if (and upon issuance, amendment, renewal or extension
of each Letter of Credit the Borrower shall be deemed to represent and warrant
that), after giving effect to such issuance, amendment, renewal or extension
(i) the LC Exposure shall not exceed $25,000,000 and (ii) the sum of
the total Revolving Credit Exposures shall not exceed the total Commitments.

 

(c)           Expiration Date.
Except as set forth on Schedule 2.06(a)
and subject to Section 2.06(j)(ii),
each Letter of Credit shall expire at or prior to the close of business on the
earlier of (i) the date one year after the date of the issuance of such
Letter of Credit (or, in the case of any renewal or extension thereof, one year
after such renewal or extension) and (ii) the date that is five Business
Days prior to the Maturity Date.

 

(d)           Participations. By
the issuance of a Letter of Credit (or an amendment to a Letter of Credit
increasing the amount thereof) and without any further action on the part of
the Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Lender,
and each Lender hereby acquires from the Issuing Bank, a participation in such
Letter of Credit equal to such Lender’s Applicable Percentage of the aggregate
amount available to be drawn under such Letter of Credit. In consideration and
in furtherance of the foregoing, each Lender hereby absolutely and
unconditionally agrees to pay to the Administrative Agent, for the account of
the Issuing Bank, such Lender’s Applicable Percentage of each LC Disbursement
made by the Issuing Bank and not reimbursed by the Borrower on the date due as
provided in paragraph (e)
of this Section, or of any reimbursement payment required to be refunded to the
Borrower for any reason. Each Lender acknowledges and agrees that its
obligation to acquire participations pursuant to this paragraph in respect of
Letters of Credit is absolute and unconditional and shall not be affected by
any circumstance whatsoever, including any amendment, renewal or extension of
any Letter of Credit or the occurrence and continuance of a Default or
reduction or termination of the Commitments, and that each such payment shall
be made without any offset, abatement, withholding or reduction whatsoever.

 

(e)           Reimbursement. If
the Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit,
the Borrower shall reimburse such LC Disbursement by paying to the
Administrative Agent an amount equal to such LC Disbursement not later than
12:00 noon, Houston, Texas time, on the date that such LC Disbursement is made,
if the Borrower shall have received notice of such LC Disbursement prior to
10:00 a.m., Houston, Texas time, on such date, or, if such notice has not been
received by the Borrower prior to such time on such date, then not later than
12:00 noon, Houston, Texas time, on (i) the Business Day that the Borrower
receives such notice, if such notice is received prior to 10:00 a.m., Houston,
Texas time, on the day of receipt, or (ii) the Business Day immediately
following the day that the Borrower receives such notice, if such notice is not
received prior to such time on the day of receipt; provided that the Borrower may, subject to the conditions to
borrowing set forth herein, request in accordance with Section
2.03 or 2.05 that
such payment be financed with an ABR Borrowing or Swingline Loan in an
equivalent amount and, to the extent so financed, the Borrower’s obligation to
make such payment shall be discharged and replaced by the resulting ABR
Borrowing or Swingline Loan. If the Borrower fails to make such payment when
due, the Administrative Agent shall notify each Lender of the applicable LC
Disbursement, the payment then due from the Borrower in respect thereof and
such Lender’s Applicable Percentage thereof. Promptly following receipt of such
notice, each Lender shall pay to the Administrative Agent its Applicable
Percentage of the

 

21

 

payment then due from the Borrower, in the
same manner as provided in Section 2.07
with respect to Loans made by such Lender (and Section 2.07
shall apply, mutatis mutandis, to
the payment obligations of the Lenders), and the Administrative Agent shall
promptly pay to the Issuing Bank the amounts so received by it from the Lenders.
Promptly following receipt by the Administrative Agent of any payment from the
Borrower pursuant to this paragraph, the Administrative Agent shall distribute
such payment to the Issuing Bank or, to the extent that Lenders have made
payments pursuant to this paragraph to reimburse the Issuing Bank, then to such
Lenders and the Issuing Bank as their interests may appear. Any payment made by
a Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC
Disbursement (other than the funding of ABR Loans or a Swingline Loan as
contemplated above) shall not constitute a Loan and shall not relieve the
Borrower of its obligation to reimburse such LC Disbursement.

 

(f)            Obligations
Absolute. The Borrower’s obligation to reimburse LC Disbursements as
provided in paragraph (e) of this
Section shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of this Agreement under any and
all circumstances whatsoever and irrespective of (i) any lack of validity
or enforceability of any Letter of Credit or this Agreement, or any term or
provision therein, (ii) any draft or other document presented under a
Letter of Credit proving to be forged, fraudulent or invalid in any respect or
any statement therein being untrue or inaccurate in any respect,
(iii) payment by the Issuing Bank under a Letter of Credit against
presentation of a draft or other document that does not comply with the terms
of such Letter of Credit, or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section, constitute a legal or equitable discharge of,
or provide a right of setoff against, the Borrower’s obligations hereunder. Neither
the Administrative Agent, the Lenders nor the Issuing Bank, nor any of their
Related Parties, shall have any liability or responsibility by reason of or in
connection with the issuance or transfer of any Letter of Credit or any payment
or failure to make any payment thereunder (irrespective of any of the
circumstances referred to in the preceding sentence), or any error, omission,
interruption, loss or delay in transmission or delivery of any draft, notice or
other communication under or relating to any Letter of Credit (including any
document required to make a drawing thereunder), any error in interpretation of
technical terms or any consequence arising from causes beyond the control of
the Issuing Bank; provided that
the foregoing shall not be construed to excuse the Issuing Bank from liability
to the Borrower to the extent of any direct damages (as opposed to
consequential damages, claims in respect of which are hereby waived by the
Borrower to the extent permitted by applicable law) suffered by the Borrower
that are caused by the Issuing Bank’s failure to exercise care when determining
whether drafts and other documents presented under a Letter of Credit comply
with the terms thereof. The parties hereto expressly agree that, in the absence
of gross negligence or willful misconduct on the part of the Issuing Bank (as
finally determined by a court of competent jurisdiction), the Issuing Bank
shall be deemed to have exercised care in each such determination. In
furtherance of the foregoing and without limiting the generality thereof, the
parties agree that, with respect to documents presented which appear on their
face to be in substantial compliance with the terms of a Letter of Credit, the
Issuing Bank may, in its sole discretion, either accept and make payment upon
such documents without responsibility for further investigation, regardless of
any notice or information to the contrary, or refuse to accept and make payment
upon such documents if such documents are not in strict compliance with the
terms of such Letter of Credit.

 

(g)           Disbursement
Procedures. The Issuing Bank shall, promptly following its receipt thereof,
examine all documents purporting to represent a demand for payment under a
Letter of Credit. The Issuing Bank shall promptly notify the Administrative
Agent and the Borrower by telephone (confirmed by telecopy) of such demand for
payment and whether the Issuing Bank has made or will make an LC Disbursement
thereunder; provided that any
failure to give or delay in

 

22

 

giving such notice shall not relieve the
Borrower of its obligation to reimburse the Issuing Bank and the Lenders with
respect to any such LC Disbursement.

 

(h)           Interim Interest.
If the Issuing Bank shall make any LC Disbursement, then, unless the Borrower
shall reimburse such LC Disbursement in full on the date such LC Disbursement
is made, the unpaid amount thereof shall bear interest, for each day from and
including the date such LC Disbursement is made to but excluding the date that
the Borrower reimburses such LC Disbursement, at the rate per annum then
applicable to ABR Loans; provided
that, if the Borrower fails to reimburse such LC Disbursement when due pursuant
to paragraph (e) of this Section,
then Section 2.13(c) shall apply. Interest
accrued pursuant to this paragraph shall be for the account of the Issuing
Bank, except that interest accrued on and after the date of payment by any
Lender pursuant to paragraph (e)
of this Section to reimburse the Issuing Bank shall be for the account of such
Lender to the extent of such payment.

 

(i)            Replacement of the
Issuing Bank. The Issuing Bank may be replaced at any time by written
agreement among the Borrower, the Administrative Agent, the replaced Issuing
Bank and the successor Issuing Bank. The Administrative Agent shall notify the
Lenders of any such replacement of the Issuing Bank. At the time any such
replacement shall become effective, the Borrower shall pay all unpaid fees
accrued for the account of the replaced Issuing Bank pursuant to Section 2.12(b). From and after the
effective date of any such replacement, (i) the successor Issuing Bank shall
have all the rights and obligations of the Issuing Bank under this Agreement
with respect to Letters of Credit to be issued thereafter and (ii) references
herein to the term “Issuing Bank” shall be deemed to refer to such successor or
to any previous Issuing Bank, or to such successor and all previous Issuing
Banks, as the context shall require. After the replacement of an Issuing Bank
hereunder, the replaced Issuing Bank shall remain a party hereto and shall
continue to have all the rights and obligations of an Issuing Bank under this
Agreement with respect to Letters of Credit issued by it prior to such
replacement, but shall not be required to issue additional Letters of Credit.

 

(j)            Cash
Collateralization.

 

(i)            If any Event of
Default shall occur and be continuing, on the Business Day that the Borrower
receives notice from the Administrative Agent acting at the request of the
Required Lenders, demanding the deposit of cash collateral pursuant to this
paragraph, the Borrower shall deposit in an account with the Administrative
Agent, in the name of the Administrative Agent and for the benefit of the
Lenders (the “LC Collateral Account”),
an amount in cash equal to 103% of the LC Exposure as of such date; provided that the obligation to deposit such
cash collateral shall become effective immediately, and such deposit shall
become immediately due and payable, without demand or other notice of any kind,
upon the occurrence of any Event of Default with respect to the Borrower
described in Section 7.01 (h)
or (i).

 

(ii)           Notwithstanding
paragraph (i) of this Section 2.06(j),
if no Event of Default shall have occurred and be continuing, the expiration
date of one or more Letters of Credit may extend beyond the Maturity Date;
provided, however, it is hereby expressly agreed and understood that:

 

(A)          the aggregate face
amount of all such Letters of Credit shall not at any time exceed $10,000,000;

 

23

 

(B)           the expiration dates
for such Letters of Credit shall not extend more than two (2) years beyond the
Maturity Date; and

 

(C)           the Borrower shall, not
later than five (5) Business Days prior to the Maturity Date, deposit in the LC
Collateral Account an amount equal to 103% of the LC Exposure.

 

(iii)          Any deposits into the LC
Collateral Account shall be held by the Administrative Agent as collateral for
the payment and performance of the obligations of the Borrower under this
Agreement. The Administrative Agent shall have exclusive dominion and control,
including the exclusive right of withdrawal, over the LC Collateral Account. Other
than any interest earned on the investment of such deposits, which investments
shall be made at the option and sole discretion of the Administrative Agent and
at the Borrower’s risk and expense, such deposits shall not bear interest. Interest
or profits, if any, on such investments shall accumulate in the LC Collateral
Account. Moneys in such account shall be applied by the Administrative Agent to
reimburse the Issuing Bank for LC Disbursements for which it has not been
reimbursed and, to the extent not so applied, shall be held for the
satisfaction of the reimbursement obligations of the Borrower for the LC
Exposure at such time or, if the maturity of the Debt has been accelerated, be
applied to satisfy other obligations of the Borrower under this Agreement. If
the Borrower is required to provide an amount of cash collateral hereunder as a
result of the occurrence of an Event of Default, as required by paragraph (i)
of this Section 2.06(j),
such amount (to the extent not applied as aforesaid), including interests and
profits (if any) shall be returned to the Borrower within three Business Days
after all Events of Default have been cured or waived, including written
notification thereof from a Financial Officer.

 

SECTION 2.07. Funding
of Borrowings.

 

(a)           Each Lender shall make
each Loan to be made by it hereunder on the proposed date thereof by wire
transfer of immediately available funds by 12:00 noon, Houston, Texas time, to
the account of the Administrative Agent most recently designated by it for such
purpose by notice to the Lenders; provided
that Swingline Loans shall be made as provided in Section 2.05.
The Administrative Agent will make such Loans available to the Borrower by
promptly crediting the amounts so received, in like funds, to an account of the
Borrower designated by the Borrower in the applicable Borrowing Request; provided that ABR Loans made to finance
the reimbursement of an LC Disbursement as provided in Section
2.06(e) shall be remitted by the Administrative Agent to the
Issuing Bank.

 

(b)           Unless the
Administrative Agent shall have received notice from a Lender prior to the
proposed date of any Borrowing that such Lender will not make available to the
Administrative Agent such Lender’s share of such Borrowing, the Administrative
Agent may assume that such Lender has made such share available on such date in
accordance with paragraph (a)
of this Section and may, in reliance upon such assumption, make available to
the Borrower a corresponding amount. In such event, if a Lender has not in fact
made its share of the applicable Borrowing available to the Administrative
Agent, then the applicable Lender and the Borrower severally agree to pay to
the Administrative Agent forthwith on demand such corresponding amount with
interest thereon, for each day from and including the date such amount is made
available to the Borrower to but excluding the date of payment to the
Administrative Agent, at (i) in the case of such Lender, the greater of the
Federal Funds Effective Rate and a rate determined by the Administrative Agent
in accordance with banking industry

 

24

 

rules on interbank compensation or (ii) in
the case of the Borrower, the interest rate applicable to ABR Loans. If such
Lender pays such amount to the Administrative Agent, then such amount shall
constitute such Lender’s Loan included in such Borrowing.

 

SECTION 2.08. Interest
Elections.

 

(a)           Each Revolving
Borrowing initially shall be of the Type specified in the applicable Borrowing
Request and, in the case of a LIBO Rate Borrowing, shall have an initial
Interest Period as specified in such Borrowing Request. Thereafter, the
Borrower may elect to convert such Borrowing to a different Type or to continue
such Borrowing and, in the case of a LIBO Rate Borrowing, may elect Interest
Periods therefor, all as provided in this Section. The Borrower may elect
different options with respect to different portions of the affected Borrowing,
in which case each such portion shall be allocated ratably among the Lenders
holding the Loans comprising such Borrowing, and the Loans comprising each such
portion shall be considered a separate Borrowing. This Section shall not apply
to Swingline Borrowings, which may not be converted or continued.

 

(b)           To make an election
pursuant to this Section, the Borrower shall notify the Administrative Agent of
such election by telephone by the time that a Borrowing Request would be
required under Section 2.03
if the Borrower were requesting a Revolving Borrowing of the Type resulting
from such election to be made on the effective date of such election. Each such
telephonic Interest Election Request shall be irrevocable and shall be
confirmed promptly by hand delivery or telecopy to the Administrative Agent of
a written Interest Election Request in a form approved by the Administrative
Agent and signed by the Borrower.

 

(c)           Each telephonic and
written Interest Election Request shall specify the following information in
compliance with Section 2.02:

 

(i)            the Borrowing to which
such Interest Election Request applies and, if different options are being
elected with respect to different portions thereof, the portions thereof to be
allocated to each resulting Borrowing (in which case the information to be
specified pursuant to clauses (iii)
and (iv) below shall be specified for
each resulting Borrowing);

 

(ii)           the effective date of
the election made pursuant to such Interest Election Request, which shall be a
Business Day;

 

(iii)          whether the resulting
Borrowing is to be an ABR Borrowing or a LIBO Rate Borrowing; and

 

(iv)          if the resulting
Borrowing is a LIBO Rate Borrowing, the Interest Period to be applicable
thereto after giving effect to such election, which shall be a period
contemplated by the definition of the term “Interest
Period”.

 

If any such Interest
Election Request requests a LIBO Rate Borrowing but does not specify an
Interest Period, then the Borrower shall be deemed to have selected an Interest
Period of one month’s duration.

 

(d)           Promptly following
receipt of an Interest Election Request, the Administrative Agent shall advise
each Lender of the details thereof and of such Lender’s portion of each
resulting Borrowing.

 

25

 

(e)           If the Borrower fails
to deliver a timely Interest Election Request with respect to a LIBO Rate
Borrowing prior to the end of the Interest Period applicable thereto, then,
unless such Borrowing is repaid as provided herein, at the end of such Interest
Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding
any contrary provision hereof, if an Event of Default has occurred and is
continuing and the Administrative Agent, at the request of the Required
Lenders, so notifies the Borrower, then, so long as an Event of Default is
continuing (i) no outstanding Revolving Borrowing may be converted to or
continued as a LIBO Rate Borrowing and (ii) unless repaid, each LIBO Rate
Borrowing shall be converted to an ABR Borrowing at the end of the Interest
Period applicable thereto.

 

SECTION 2.09. Termination
and Reduction of Commitments.

 

(a)           Unless previously
terminated, the Commitments shall terminate on the Maturity Date.

 

(b)           The Borrower may at any
time terminate, or from time to time reduce, the Commitments; provided that (i) each reduction of the
Commitments shall be in an amount that is at least equal to $250,000 and (ii)
the Borrower shall not terminate or reduce the Commitments if, after giving
effect to any concurrent prepayment of the Loans in accordance with Section 2.11, the sum of the
Revolving Credit Exposures would exceed the total Commitments.

 

(c)           The Borrower shall
notify the Administrative Agent of any election to terminate or reduce the
Commitments under paragraph (b)
of this Section at least three Business Days prior to the effective date of
such termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrower pursuant to this Section shall be irrevocable; provided that a notice of termination of
the Commitments delivered by the Borrower may state that such notice is
conditioned upon the effectiveness of other credit facilities, in which case
such notice may be revoked by the Borrower (by notice to the Administrative
Agent on or prior to the specified effective date) if such condition is not
satisfied. Any termination or reduction of the Commitments shall be permanent. Each
reduction of the Commitments shall be made ratably among the Lenders in
accordance with their respective Commitments.

 

SECTION 2.10. Repayment of
Loans; Evidence of Debt.

 

(a)           The Borrower hereby
unconditionally promises to pay (i) to the Administrative Agent for the account
of each Lender the then unpaid principal amount of each Revolving Loan on the
Maturity Date and (ii) to the Swingline Lender the then unpaid principal amount
of each Swingline Loan on the earlier of the Maturity Date and the first date
after such Swingline Loan is made that is the 15th or last day of a calendar
month and is at least two Business Days after such Swingline Loan is made; provided that on each date that a
Revolving Borrowing is made, the Borrower shall repay all Swingline Loans then
outstanding.

 

(b)           Each Lender shall
maintain in accordance with its usual practice an account or accounts
evidencing the indebtedness of the Borrower to such Lender resulting from each
Loan made by such Lender, including the amounts of principal and interest
payable and paid to such Lender from time to time hereunder.

 

(c)           The Administrative
Agent shall maintain accounts in which it shall record (i) the amount of
each Loan made hereunder, the Class and Type thereof and the Interest Period

 

26

 

applicable thereto, (ii) the amount of
any principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) the amount of any sum received
by the Administrative Agent hereunder for the account of the Lenders and each
Lender’s share thereof.

 

(d)           The entries made in the
accounts maintained pursuant to paragraph (b)
or (c) of this Section shall be prima facie evidence of the existence and
amounts of the obligations recorded therein; provided
that the failure of any Lender or the Administrative Agent to maintain such
accounts or any error therein shall not in any manner affect the obligation of
the Borrower to repay the Debt in accordance with the terms of this Agreement.

 

(e)           All Loans will be
evidenced by a Note. In such event, the Borrower shall execute and deliver to
each Lender a Note payable to the order of such Lender (or, if requested by
such Lender, to such Lender and its registered assigns) and in a form approved
by the Administrative Agent. Thereafter, the Loans evidenced by such Note and
interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one
or more Notes in such form payable to the order of the payee named therein.

 

SECTION 2.11. Prepayment
of Loans.

 

(a)           The Borrower shall have
the right at any time and from time to time to prepay any Borrowing in whole or
in part, subject to prior notice in accordance with paragraph
(b) of this Section.

 

(b)           The Borrower shall
notify the Administrative Agent (and, in the case of prepayment of a Swingline
Loan, the Swingline Lender) by telephone (confirmed by telecopy) of any
prepayment hereunder (i) in the case of prepayment of a LIBO Rate Borrowing,
not later than 11:00 a.m., Houston, Texas time, three Business Days before the
date of prepayment, (ii) in the case of prepayment of an ABR Borrowing, not
later than 11:00 a.m., Houston, Texas time, one Business Day before the date of
prepayment or (iii) in the case of prepayment of a Swingline Loan, not
later than 12:00 noon, Houston, Texas time, on the date of prepayment. Each
such notice shall be irrevocable and shall specify the prepayment date and the
principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a notice of prepayment
is given in connection with a conditional notice of termination of the
Commitments as contemplated by Section 2.09,
then such notice of prepayment may be revoked if such notice of termination is
revoked in accordance with Section 2.09.
Promptly following receipt of any such notice relating to a Revolving
Borrowing, the Administrative Agent shall advise the Lenders of the contents
thereof. Each partial prepayment of any Revolving Borrowing shall be in an
amount that would be permitted in the case of an advance of a Revolving
Borrowing of the same Type as provided in Section 2.02.
Each prepayment of a Revolving Borrowing shall be applied ratably to the Loans
included in the prepaid Borrowing. Prepayments shall be accompanied by accrued
interest to the extent required by Section 2.13.

 

SECTION 2.12. Fees.

 

(a)           The Borrower agrees to
pay to the Administrative Agent for the account of each Lender a commitment fee
(a “Commitment Fee”), which
shall accrue at the Applicable Rate on the average daily amount of the unused
Commitment of such Lender during the period from and including the Effective
Date to but excluding the date on which such Commitment terminates. Accrued
Commitment Fees shall be payable in arrears on the last Business Day of
December, March, June and September of each year and on the date on which the
Commitments terminate,

 

27

 

commencing on the first such date to occur
after the date hereof; provided that
any Commitment Fee accruing after the date on which the Commitments terminate
shall be payable on demand. All Commitment Fees shall be computed on the basis
of a year of 360 days and shall Rate on the daily amount of the unused Commitment
of such Lender during the period from and be payable for the actual number of
days elapsed (including the first day but excluding the last day).

 

(b)           The Borrower agrees to
pay (i) to the Administrative Agent for the account of each Lender a participation
fee with respect to its participations in Letters of Credit, which shall accrue
at the same Applicable Rate used to determine the interest rate applicable to
LIBO Rate Loans on the average daily amount of such Lender’s LC Exposure
(excluding any portion thereof attributable to unreimbursed LC Disbursements)
during the period from and including the Effective Date to but excluding the
later of the date on which such Lender’s Commitment terminates and the date on
which such Lender ceases to have any LC Exposure, and (ii) to the Issuing Bank
a fronting fee, which shall accrue at the rate of one-eighth of one percent
(1⁄8%) per annum on the average daily amount of the LC Exposure (excluding
any portion thereof attributable to unreimbursed LC Disbursements) during the
period from and including the Effective Date to but excluding the later of the
date of termination of the Commitments and the date on which there ceases to be
any LC Exposure, as well as the Issuing Bank’s standard fees with respect to
the issuance, amendment, renewal or extension of any Letter of Credit or
processing of drawings thereunder. Participation fees and fronting fees accrued
through and including the last day of March, June, September and December of
each year shall be payable on the third Business Day following such last day,
commencing on the first such date to occur after the Effective Date; provided that all such fees shall be
payable on the date on which the Commitments terminate and any such fees
accruing after the date on which the Commitments terminate shall be payable on
demand. Any other fees payable to the Issuing Bank pursuant to this paragraph
shall be payable within 10 days after demand. All participation fees and
fronting fees shall be computed on the basis of a year of 360 days and shall be
payable for the actual number of days elapsed (including the first day but
excluding the last day).

 

(c)           Intentionally
Omitted.

 

(d)           The Borrower agrees to
pay to the Administrative Agent, for its own account, fees payable in the
amounts and at the times separately agreed upon between the Borrower and the
Administrative Agent.

 

(e)           All fees payable
hereunder shall be paid on the dates due, in immediately available funds, to
the Administrative Agent (or to the Issuing Bank, in the case of fees payable
to it) for distribution, in the case of Commitment Fees and participation fees,
to the Lenders. Fees paid shall not be refundable under any circumstances.

 

SECTION 2.13. Interest.

 

(a)           The Loans comprising
each ABR Borrowing (including each Swingline Loan) shall bear interest at
the Alternate Base Rate plus the Applicable Rate, but in no event to exceed the
Maximum Rate.

 

(b)           The Loans comprising
each LIBO Rate Borrowing shall bear interest, in the case of a LIBO Rate Loan,
at the LIBO Rate for the Interest Period in effect for such Borrowing plus the
Applicable Rate, but in no event to exceed the Maximum Rate.

 

28

 

(c)           Notwithstanding the
foregoing, if any principal of or interest on any Loan or any fee or other
amount payable by the Borrower hereunder is not paid when due, whether at
stated maturity, upon acceleration or otherwise, such overdue amount shall bear
interest, after as well as before judgment, at a rate per annum equal to the
Past Due Rate.

 

(d)           Accrued interest on
each Loan shall be payable in arrears on each Interest Payment Date for such
Loan and, in the case of Revolving Loans, upon termination of the Commitments; provided that (i) interest accrued
pursuant to paragraph (c)
of this Section shall be payable on demand, (ii) in the event of any
repayment or prepayment of any Loan (other than a prepayment of an ABR Loan
prior to the end of the Availability Period), accrued interest on the principal
amount repaid or prepaid shall be payable on the date of such repayment or
prepayment and (iii) in the event of any conversion of any LIBO Rate Loan
prior to the end of the current Interest Period therefor, accrued interest on
such Loan shall be payable on the effective date of such conversion.

 

(e)           All interest hereunder
shall be computed on the basis of a year of 360 days, (i) unless such calculation would exceed the Maximum Rate, in
which case interest shall be calculated on the per annum basis of a year of 365
or 366 days, as the case may be, and (ii) except that interest
computed by reference to the Alternate Base Rate at times when the Alternate
Base Rate is based on the Prime Rate shall be computed on the basis of a year
of 365 days (or 366 days in a leap year), and in each case shall be payable for
the actual number of days elapsed (including the first day but excluding the
last day). The applicable Alternate Base Rate or LIBO Rate shall be determined
by the Administrative Agent, and such determination shall be conclusive absent
manifest error.

 

SECTION 2.14. Alternate
Rate of Interest. If prior to the commencement of any Interest Period for a
LIBO Rate Borrowing:

 

(a)           the Administrative
Agent determines (which determination shall be conclusive absent manifest
error) that adequate and reasonable means do not exist for ascertaining the or
the LIBO Rate for such Interest Period; or

 

(b)           the Administrative
Agent is advised by the Required Lenders that the LIBO Rate for such Interest
Period will not adequately and fairly reflect the cost to such Lenders (or
Lender) of making or maintaining their Loans (or its Loan) included in such
Borrowing for such Interest Period;

 

then the Administrative
Agent shall give notice thereof to the Borrower and the Lenders by telephone or
telecopy as promptly as practicable thereafter and, until the Administrative
Agent notifies the Borrower and the Lenders that the circumstances giving rise
to such notice no longer exist, (i) any Interest Election Request that
requests the conversion of any Revolving Borrowing to, or continuation of any
Revolving Borrowing as, a LIBO Rate Borrowing shall be ineffective, and
(ii) if any Borrowing Request requests a LIBO Rate Borrowing, such
Borrowing shall be made as an ABR Borrowing; provided
that, if the circumstances giving rise to such notice affect only
one Type of Borrowings, then the other Type of Borrowings shall be permitted.

 

29

 

SECTION 2.15. Increased
Costs.

 

(a)           If any Change in Law
shall:

 

(i)            impose, modify or deem
applicable any reserve, special deposit or similar requirement against assets
of, deposits with or for the account of, or credit extended by, any Lender
(except any such reserve requirement reflected in the LIBO Rate) or the Issuing
Bank; or

 

(ii)           impose on any Lender or
the Issuing Bank or the London interbank market any other condition affecting
this Agreement or LIBO Rate Loans made by such Lender or any Letter of Credit
or participation therein;

 

and the result of any of the foregoing shall
be to increase the cost to such Lender of making or maintaining any LIBO Rate
Loan (or of maintaining its obligation to make any such Loan) or to increase
the cost to such Lender or the Issuing Bank of participating in, issuing or
maintaining any Letter of Credit or to reduce the amount of any sum received or
receivable by such Lender or the Issuing Bank hereunder (whether of principal,
interest or otherwise), then the Borrower will pay to such Lender or the
Issuing Bank, as the case may be, such additional amount or amounts as will
compensate such Lender or the Issuing Bank, as the case may be, for such
additional costs incurred or reduction suffered.

 

(b)           If any Lender or the
Issuing Bank determines that any Change in Law regarding capital requirements
has or would have the effect of reducing the rate of return on such Lender’s or
the Issuing Bank’s capital or on the capital of such Lender’s or the Issuing
Bank’s holding company, if any, as a consequence of this Agreement or the Loans
made by, or participations in Letters of Credit held by, such Lender, or the
Letters of Credit issued by the Issuing Bank, to a level below that which such
Lender or the Issuing Bank or such Lender’s or the Issuing Bank’s holding
company could have achieved but for such Change in Law (taking into consideration
such Lender’s or the Issuing Bank’s policies and the policies of such Lender’s
or the Issuing Bank’s holding company with respect to capital adequacy), then
from time to time the Borrower will pay to such Lender or the Issuing Bank, as
the case may be, such additional amount or amounts as will compensate such
Lender or the Issuing Bank or such Lender’s or the Issuing Bank’s holding
company for any such reduction suffered.

 

(c)           A certificate of a
Lender or the Issuing Bank setting forth the amount or amounts necessary to
compensate such Lender or the Issuing Bank or its holding company, as the case
may be, as specified in paragraph (a) or (b)
of this Section shall be delivered to the Borrower and shall be conclusive
absent manifest error. The Borrower shall pay such Lender or the Issuing Bank,
as the case may be, the amount shown as due on any such certificate within
10 days after receipt thereof.

 

(d)           Failure or delay on the
part of any Lender or the Issuing Bank to demand compensation pursuant to this
Section shall not constitute a waiver of such Lender’s or the Issuing Bank’s
right to demand such compensation; provided
that the Borrower shall not be required to compensate a Lender or the Issuing
Bank pursuant to this Section for any increased costs or reductions incurred
more than 270 days prior to the date that such Lender or the Issuing Bank, as
the case may be, notifies the Borrower of the Change in Law giving rise to such
increased costs or reductions and of such Lender’s or the Issuing Bank’s
intention to claim compensation therefor; provided
further that, if the Change in Law giving rise to such increased

 

30

 

costs or reductions is retroactive, then the
270-day period referred to above shall be extended to include the period of
retroactive effect thereof.

 

SECTION 2.16. Break
Funding Payments. In the event of (a) the payment of any principal of
any LIBO Rate Loan other than on the last day of an Interest Period applicable
thereto (including as a result of an Event of Default), (b) the conversion
of any LIBO Rate Loan other than on the last day of the Interest Period
applicable thereto, (c) the failure to borrow, convert, continue or prepay
any LIBO Rate Loan on the date specified in any notice delivered pursuant
hereto (regardless of whether such notice may be revoked under Section 2.11(b) and is revoked in
accordance therewith) or (d) the assignment of any LIBO Rate Loan other
than on the last day of the Interest Period applicable thereto as a result of a
request by the Borrower pursuant to Section 2.19,
then, in any such event, the Borrower shall compensate each Lender for the
loss, cost and expense attributable to such event. In the case of a LIBO Rate
Loan, such loss, cost or expense to any Lender shall be deemed to include an
amount determined by such Lender to be the excess, if any, of (i) the
amount of interest which would have accrued on the principal amount of such
Loan had such event not occurred, at the LIBO Rate that would have been applicable
to such Loan, for the period from the date of such event to the last day of the
then current Interest Period therefor (or, in the case of a failure to borrow,
convert or continue, for the period that would have been the Interest Period
for such Loan), over (ii) the amount of interest which would accrue on
such principal amount for such period at the interest rate which such Lender
would bid were it to bid, at the commencement of such period, for dollar
deposits of a comparable amount and period from other banks in the eurodollar
market. A certificate of any Lender setting forth any amount or amounts that
such Lender is entitled to receive pursuant to this Section shall be delivered
to the Borrower and shall be conclusive absent manifest error. The Borrower
shall pay such Lender the amount shown as due on any such certificate within 10
days after receipt thereof.

 

SECTION 2.17. Taxes.

 

(a)           Any and all payments by
or on account of any obligation of the Borrower hereunder shall be made free
and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be
required to deduct any Indemnified Taxes or Other Taxes from such payments,
then (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section) the Administrative Agent, Lender or Issuing
Bank (as the case may be) receives an amount equal to the sum it would have
received had no such deductions been made, (ii) the Borrower shall make
such deductions and (iii) the Borrower shall pay the full amount deducted
to the relevant Governmental Authority in accordance with applicable law.

 

(b)           In addition, the
Borrower shall pay any Other Taxes to the relevant Governmental Authority in
accordance with applicable law.

 

(c)           The Borrower shall
indemnify the Administrative Agent, each Lender and the Issuing Bank, within 10
days after written demand therefor, for the full amount of any Indemnified
Taxes or Other Taxes paid by the Administrative Agent, such Lender or the
Issuing Bank, as the case may be, on or with respect to any payment by or on
account of any obligation of the Borrower hereunder (including Indemnified
Taxes or Other Taxes imposed or asserted on or attributable to amounts payable
under this Section) and any penalties, interest and reasonable expenses arising
therefrom or with respect thereto, whether or not such Indemnified Taxes or
Other Taxes were correctly or legally imposed or asserted by the relevant
Governmental Authority. A certificate as to the amount of such payment or
liability delivered to the Borrower by a Lender or the Issuing Bank, or by the
Administrative Agent on its own behalf or on behalf of a Lender or the Issuing
Bank, shall be conclusive absent manifest error.

 

31

 

(d)           As soon as practicable
after any payment of Indemnified Taxes or Other Taxes by the Borrower to a
Governmental Authority, the Borrower shall deliver to the Administrative Agent
the original or a certified copy of a receipt issued by such Governmental
Authority evidencing such payment, a copy of the return reporting such payment
or other evidence of such payment reasonably satisfactory to the Administrative
Agent.

 

(e)           Any Foreign Lender that
is entitled to an exemption from or reduction of withholding tax under the law
of the jurisdiction in which the Borrower is located, or any treaty to which
such jurisdiction is a party, with respect to payments under this Agreement
shall deliver to the Borrower (with a copy to the Administrative Agent), at the
time or times prescribed by applicable law, such properly completed and
executed documentation prescribed by applicable law or reasonably requested by
the Borrower as will permit such payments to be made without withholding or at
a reduced rate.

 

(f)            If the Administrative
Agent or a Lender determines, in its sole discretion, that it has received a
refund of any Taxes or Other Taxes as to which it has been indemnified by the
Borrower or with respect to which the Borrower has paid additional amounts
pursuant to this Section 2.17,
it shall pay over such refund to the Borrower (but only to the extent of
indemnity payments made, or additional amounts paid, by the Borrower under this
Section 2.17 with respect to the
Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket
expenses of the Administrative Agent or such Lender and without interest (other
than any interest paid by the relevant Governmental Authority with respect to
such refund); provided, that the Borrower, upon the request of the
Administrative Agent or such Lender, agrees to repay the amount paid over to
the Borrower (plus any penalties, interest or other charges imposed by the
relevant Governmental Authority) to the Administrative Agent or such Lender in
the event the Administrative Agent or such Lender is required to repay such
refund to such Governmental Authority. This Section shall not be construed to
require the Administrative Agent or any Lender to make available its tax
returns (or any other information relating to its taxes which it deems
confidential) to the Borrower or any other Person.

 

(g)           If the Borrower
reasonably believes that the Indemnified Taxes or Other Taxes were not
correctly or legally asserted, the Administrative Agent or the Lender, as the
case may be, will use reasonable efforts to cooperate with the Borrower to
obtain a refund of such Taxes so long as such efforts would not, in the sole
determination of the Administrative Agent or such Lender, as the case may be,
result in any unreimbursed costs, expenses or be otherwise materially
disadvantageous to it.

 

SECTION 2.18. Payments
Generally; Pro Rata Treatment; Sharing of Set-offs.

 

(a)           The Borrower shall make
each payment required to be made by it hereunder (whether of principal,
interest, fees or reimbursement of LC Disbursements, or of amounts payable
under Section 2.15, 2.16
or 2.17, or otherwise) prior to 12:00
noon, Houston, Texas time, on the date when due, in immediately available
funds, without set-off or counterclaim. Any amounts received after such time on
any date may, in the discretion of the Administrative Agent, be deemed to have
been received on the next succeeding Business Day for purposes of calculating
interest thereon. All such payments shall be made to the Administrative Agent
at its offices at 270 Park Avenue, New York, New York, except payments to be
made directly to the Issuing Bank or Swingline Lender as expressly provided
herein and except that payments pursuant to Sections
2.15, 2.16, 2.17 and 9.03
shall be made directly to the Persons entitled thereto. The Administrative
Agent shall distribute any such payments received by it for the account of any
other Person to the appropriate recipient promptly following receipt thereof. If

 

32

 

any payment hereunder shall be due on a day
that is not a Business Day, the date for payment shall be extended to the next
succeeding Business Day, and, in the case of any payment accruing interest,
interest thereon shall be payable for the period of such extension. All
payments hereunder shall be made in dollars.

 

(b)           If at any time
insufficient funds are received by and available to the Administrative Agent to
pay fully all amounts of principal, unreimbursed LC Disbursements, interest and
fees then due hereunder, such funds shall be applied (i) first, towards payment
of interest and fees then due hereunder, ratably among the parties entitled
thereto in accordance with the amounts of interest and fees then due to such
parties, and (ii) second, towards payment of principal and unreimbursed LC
Disbursements then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of principal and unreimbursed LC Disbursements then
due to such parties.

 

(c)           If any Lender shall, by
exercising any right of set-off or counterclaim or otherwise, obtain payment in
respect of any principal of or interest on any of its Revolving Loans or
participations in LC Disbursements or Swingline Loans resulting in such Lender
receiving payment of a greater proportion of the aggregate amount of its
Revolving Loans and participations in LC Disbursements and Swingline Loans and
accrued interest thereon than the proportion received by any other Lender, then
the Lender receiving such greater proportion shall purchase (for cash at face
value) participations in the Revolving Loans and participations in LC
Disbursements and Swingline Loans of other Lenders to the extent necessary so
that the benefit of all such payments shall be shared by the Lenders ratably in
accordance with the aggregate amount of principal of and accrued interest on
their respective Revolving Loans and participations in LC Disbursements and
Swingline Loans; provided that
(i) if any such participations are purchased and all or any portion of the
payment giving rise thereto is recovered, such participations shall be
rescinded and the purchase price restored to the extent of such recovery,
without interest, and (ii) the provisions of this paragraph shall not be
construed to apply to any payment made by the Borrower pursuant to and in
accordance with the express terms of this Agreement or any payment obtained by
a Lender as consideration for the assignment of or sale of a participation in
any of its Loans or participations in LC Disbursements to any assignee or
participant, other than to the Borrower or any Subsidiary or Affiliate thereof
(as to which the provisions of this paragraph shall apply). The Borrower
consents to the foregoing and agrees, to the extent it may effectively do so
under applicable law, that any Lender acquiring a participation pursuant to the
foregoing arrangements may exercise against the Borrower rights of set-off and
counterclaim with respect to such participation as fully as if such Lender were
a direct creditor of the Borrower in the amount of such participation.

 

(d)           Unless the
Administrative Agent shall have received notice from the Borrower prior to the
date on which any payment is due to the Administrative Agent for the account of
the Lenders or the Issuing Bank hereunder that the Borrower will not make such
payment, the Administrative Agent may assume that the Borrower has made such
payment on such date in accordance herewith and may, in reliance upon such assumption,
distribute to the Lenders or the Issuing Bank, as the case may be, the amount
due. In such event, if the Borrower has not in fact made such payment, then
each of the Lenders or the Issuing Bank, as the case may be, severally agrees
to repay to the Administrative Agent forthwith on demand the amount so
distributed to such Lender or Issuing Bank with interest thereon, for each day
from and including the date such amount is distributed to it to but excluding
the date of payment to the Administrative Agent, at the greater of the Federal
Funds Effective Rate and a rate determined by the Administrative Agent in
accordance with banking industry rules on interbank compensation.

 

33

 

(e)           If any Lender shall
fail to make any payment required to be made by it pursuant to Section 2.05(c), 2.06(d) or (e),
2.07(b) or 2.18(d),
then the Administrative Agent may, in its discretion (notwithstanding any
contrary provision hereof), apply any amounts thereafter received by the
Administrative Agent for the account of such Lender to satisfy such Lender’s
obligations under such Sections until all such unsatisfied obligations are
fully paid.

 

SECTION 2.19. Mitigation
Obligations; Replacement of Lenders.

 

(a)           If any Lender requests
compensation under Section 2.15,
or if the Borrower is required to pay any additional amount to any Lender
or any Governmental Authority for the account of any Lender pursuant to Section 2.17, then such Lender
shall use reasonable efforts to designate a different lending office for
funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the
judgment of such Lender, such designation or assignment (i) would eliminate or
reduce amounts payable pursuant to Section 2.15
or 2.17, as the case may be, in the
future and (ii) would not subject such Lender to any unreimbursed cost or
expense and would not otherwise be disadvantageous to such Lender. The Borrower
hereby agrees to pay all reasonable costs and expenses incurred by any Lender
in connection with any such designation or assignment.

 

(b)           If any Lender requests
compensation under Section 2.15,
or if the Borrower is required to pay any additional amount to any Lender or
any Governmental Authority for the account of any Lender pursuant to Section 2.17, or if any Lender
defaults in its obligation to fund Loans hereunder, then the Borrower may, at
its sole expense and effort, upon notice to such Lender and the Administrative
Agent, require such Lender to assign and delegate, without recourse (in
accordance with and subject to the restrictions contained in Section 9.04), all its
interests, rights and obligations under this Agreement to an assignee that
shall assume such obligations (which assignee may be another Lender, if a
Lender accepts such assignment); provided
that (i) the Borrower shall have received the prior written consent of the
Administrative Agent, which consent shall not unreasonably be withheld, (ii)
such Lender shall have received payment of an amount equal to the outstanding
principal of its Loans and participations in LC Disbursements and Swingline
Loans, accrued interest thereon, accrued fees and all other amounts payable to
it hereunder, from the assignee (to the extent of such outstanding principal
and accrued interest and fees) or the Borrower (in the case of all other
amounts) and (iii) in the case of any such assignment resulting from a
claim for compensation under Section 2.15
or payments required to be made pursuant to Section 2.17,
such assignment will result in a reduction in such compensation or payments. A
Lender shall not be required to make any such assignment and delegation if,
prior thereto, as a result of a waiver by such Lender or otherwise, the
circumstances entitling the Borrower to require such assignment and delegation
cease to apply.

 

SECTION 2.20. Increase
of Commitments. By written notice sent to the Administrative Agent (which
the Administrative Agent shall promptly distribute to the Lenders), the
Borrower may request an increase of the aggregate amount of the Commitments
(i) by an aggregate amount equal to any integral multiple of $5,000,000
and not less than $10,000,000 and (ii) to an aggregate amount not to exceed
$150,000,000; provided that
(i) no Default shall have occurred and be continuing, (ii) the
aggregate amount of the Commitments shall not have been reduced, nor shall the
Borrower have given notice of any such reduction under Section
2.09, and (iii) the aggregate amount of the Commitments
shall not previously have been increased pursuant to this Section
2.20 more than three (3) times. No Lender shall have any
obligation to increase its Commitment. A Lender’s decision whether to increase
its Commitment under this Section 2.20
if it is requested to do so shall be made in such Lender’s sole and absolute
discretion and any failure to respond to a request shall be deemed a decision
by such Lender that it will not increase its Commitment. If one or more of the
Lenders is not increasing its Commitment,

 

34

 

then, with notice to the
Administrative Agent and the other Lenders, another one or more financial
institutions, each as approved by the Borrower and the Administrative Agent (a “New Lender”), may commit to provide an
amount equal to the aggregate amount of the requested increase that will not be
provided by the existing Lenders (the “Increase
Amount”); provided,
that the Commitment of each New Lender shall be at least $5,000,000 and the
maximum number of New Lenders after the Effective Date shall be ten (10). Upon
receipt of notice from the Administrative Agent to the Lenders and the Borrower
that the Lenders, or sufficient lenders and New Lenders have agreed to commit
to an aggregate amount equal to the Increase Amount (or such lesser amount as
the Borrower shall agree, which shall be at least $10,000,000 and an integral
multiple of $5,000,000 in excess thereof), then: provided that no Default exists at such time or after giving
effect to the requested increase, the Borrower, the Administrative Agent, and
the Lenders willing to increase their respective Commitments and the New
Lenders (if any) shall execute and deliver an “Increase Commitment Supplement” (herein so called) in the
form attached hereto as Exhibit “B”
hereto. If all existing Lenders shall not have provided their pro rata portion
of the requested increase, on the effective date of the Increase Commitment
Supplement the Borrower shall request a borrowing hereunder which shall be made
only by the Lenders who have increased their Commitment and, if applicable, the
New Lenders. The proceeds of such borrowing shall be utilized by the Borrower
to repay the Lenders who did not agree to increase their Commitments, such
borrowing and repayment to be an amounts sufficient so that after giving effect
thereto, the Loans shall be held by the Lenders pro rata according to their
Commitments.

 

ARTICLE III

 

Representations and Warranties

 

The Borrower represents and
warrants to the Lenders that:

 

SECTION 3.01. Organization;
Powers. Each of the Borrower and its Subsidiaries is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization, has all requisite power and authority to carry on its business as
now conducted and, except where the failure to be qualified or in good
standing, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect, is qualified to do business in, and is in
good standing in, every jurisdiction where such qualification is required.

 

SECTION 3.02. Authorization;
Enforceability. The execution, delivery and performance of the Loan
Documents are within the Borrower’s corporate powers and have been duly
authorized by all necessary corporate and, if required, stockholder action. This
Agreement has been duly executed and delivered by the Borrower and constitutes
a legal, valid and binding obligation of the Borrower, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors’ rights generally
and subject to general principles of equity, regardless of whether considered
in a proceeding in equity or at law.

 

SECTION 3.03. Governmental
Approvals; No Conflicts. The Transactions (a) do not require any
consent or approval of, registration or filing with, or any other action by,
any Governmental Authority, except (i) such as have been obtained or made
and are in full force and effect, (ii) filings necessary to perfect Liens
created under the Loan Documents, (iii) filings with the SEC under the
Exchange Act, including without limitation a report of Form 8-K, and
(iv) consents, approvals, registrations, filings or other actions that, individually
or in the aggregate, could not reasonably be expected to be adverse in
any material respect to the rights or interests of the Lenders, (b) will
not violate any applicable law or regulation or the charter, by-laws or other
organizational documents of the Borrower or any of its Subsidiaries (except for
failures to qualify referred to in Section
3.01 that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect

 

35

 

and except for
other violations that, individually or in the aggregate, could not reasonably
be expected to be adverse in any material respect to the material rights or
material interests of the Lenders), or any order of any Governmental Authority,
(c) will not violate or result in a default under any indenture or other
material agreement or other instrument binding upon the Borrower or any of its
Subsidiaries or its assets, or give rise to a right thereunder to require any
payment to be made by the Borrower or any of its Subsidiaries, in each case
except for violations or defaults that, individually or in the aggregate, could
not reasonably be expected to be adverse in any material respect to the rights
or interests of the Lenders, and (d) will not result in the creation or
imposition of any Lien on any asset of the Borrower or any of its Subsidiaries,
except Liens permitted under Section 6.02.

 

SECTION 3.04. Financial
Condition; No Material Adverse Effect.

 

(a)           The Borrower has
heretofore furnished to the Lenders its consolidated balance sheet and
statements of income, stockholders equity and cash flows (i) as of and for
the fiscal year ended December 31, 2006, reported on by PricewaterhouseCoopers
LLP, independent public accountants, and (ii) as of and for the fiscal
quarter and the portion of the fiscal year ended June 30, 2007 certified
by a Financial Officer. Such financial statements present fairly, in all
material respects, the financial position and results of operations and cash
flows of the Borrower and its consolidated Subsidiaries as of such dates and
for such periods in accordance with GAAP, subject to year-end audit adjustments
and the absence of footnotes in the case of the statements referred to in
clause (ii) above.

 

(b)           Since June 30,
2007, there has been no Material Adverse Effect.

 

SECTION 3.05. Properties.

 

(a)           Each of the Borrower
and its Subsidiaries has good title to, or valid leasehold interests in, all
its real and personal property material to its business, except for minor
defects in title that do not interfere with its ability to conduct its business
as currently conducted or to utilize such properties for their intended
purposes, and subject to Permitted Encumbrances.

 

(b)           Each of the Borrower
and its Subsidiaries owns, or is licensed to use, all trademarks, tradenames,
copyrights, patents and other intellectual property material to its business,
and the use thereof by the Borrower and its Subsidiaries does not infringe upon
the rights of any other Person, except, in each case, for any such
infringements or other matters that, individually or in the aggregate, could
not reasonably be expected to result in a Material Adverse Effect.

 

SECTION 3.06. Litigation
and Environmental Matters.

 

(a)           There are no actions,
suits or proceedings by or before any arbitrator or Governmental Authority
pending against or, to the knowledge of the Borrower, threatened against or
affecting the Borrower or any of its Subsidiaries (i) that could
reasonably be expected, individually or in the aggregate, to result in a
Material Adverse Effect (other than the Disclosed Matters) or (ii) that
involve this Agreement or the Transactions.

 

(b)           Except for the
Disclosed Matters on Schedule 3.06
attached hereto and except with respect to any other matters that, individually
or in the aggregate, could not reasonably be expected to result in a Material
Adverse Effect, neither the Borrower nor any of its Subsidiaries (i) has
failed to comply with any Environmental Law or to obtain, maintain or comply with
any permit, license or other approval required under any Environmental Law,
(ii) has become subject

 

36

 

to any Environmental Liability,
(iii) has received notice of any claim with respect to any Environmental
Liability or (iv) knows of any basis for any Environmental Liability.

 

(c)           Since the date of this
Agreement, there has been no change in the status of the Disclosed Matters
that, individually or in the aggregate, has resulted in, or materially
increased the likelihood of, a Material Adverse Effect.

 

SECTION 3.07. Compliance
with Laws and Agreements. Except for the Disclosed Matters on Schedule 3.07 attached hereto, each
of the Borrower and its Subsidiaries is in compliance with all laws,
regulations and orders of any Governmental Authority applicable to it or its
property and all indentures, agreements and other instruments binding upon it
or its property, except in any case where the failure to be in compliance,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect. No Default has occurred and is continuing.

 

SECTION 3.08. Investment
and Holding Company Status. Neither the Borrower nor any of its
Subsidiaries is an “investment company” as defined in, or subject to regulation
under, the Investment Company Act of 1940.

 

SECTION 3.09. Taxes. Each
of the Borrower and its Subsidiaries has timely filed or caused to be filed all
Tax returns and reports required to have been filed and has paid or caused to
be paid all Taxes required to have been paid by it, except (a) Taxes that
are being contested in good faith by appropriate proceedings and for which the
Borrower or such Subsidiary, as applicable, has set aside on its books adequate
reserves or (b) in any case to the extent that the failure to do so could
not reasonably be expected to result in a Material Adverse Effect.

 

SECTION 3.10. ERISA. No
ERISA Event has occurred or is reasonably expected to occur that, when taken
together with all other such ERISA Events for which liability is reasonably
expected to occur, could reasonably be expected to result in a Material Adverse
Effect. The present value of all accumulated benefit obligations under each
Plan (based on the assumptions used for purposes of Statement of Financial
Accounting Standards No. 87) did not, as of the date of the most recent
financial statements reflecting such amounts, exceed by more than $1,000,000
the fair market value of the assets of such Plan, and the present value of all
accumulated benefit obligations of all underfunded Plans (based on the
assumptions used for purposes of Statement of Financial Accounting Standards
No. 87) did not, as of the date of the most recent financial statements
reflecting such amounts, exceed by more than $1,000,000 the fair market value
of the assets of all such underfunded Plans.

 

SECTION 3.11. Disclosure.
Except for the Disclosed Matters on Schedule 3.11
attached hereto, the Borrower has disclosed to the Lenders all agreements,
instruments and corporate or other restrictions to which it or any of its
Subsidiaries is subject, and all other matters known to it, that, individually
or in the aggregate, could reasonably be expected to result in a Material
Adverse Effect. To the Borrower’s knowledge, none of the reports, financial
statements, certificates or other information (other than information of a
general economic or industry specific nature) furnished by or on behalf of the
Borrower to the Administrative Agent or any Lender in connection with the
negotiation of this Agreement or delivered hereunder (as modified or
supplemented by other information so furnished) as of the date furnished
contained any material misstatement of fact or omits to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading in any material respect; provided
that, with respect to projected financial information or other forward-looking
statements, the Borrower represents only that such information was prepared in
good faith based upon assumptions believed to be reasonable at the time
prepared (it being understood that projections and forward-looking statements
are by their nature inherently uncertain, and actual results may vary
materially from any projections or such statements).

 

37

 

SECTION 3.12. Subsidiaries,
Etc. Set forth in Schedule 3.12
hereto is a complete and correct list, as of the date hereof, of all of the
Subsidiaries of the Borrower, together with, for each such Subsidiary,
(i) the jurisdiction of organization of such Subsidiary, (ii) each
Person holding ownership interests in such Subsidiary and (iii) the nature
of the ownership interests held by each such Person and the percentage of ownership
of such Subsidiary represented by such ownership interests. Except as disclosed
in Schedule 3.12 hereto,
(x) each of the Borrower and its Subsidiaries owns, free and clear of
Liens (other than Liens created pursuant to the Security Documents and other
than Permitted Encumbrances), and has the unencumbered right to vote, all
outstanding ownership interests in each Person shown to be held by it in Schedule 3.12 hereto,
(y) all of the issued and outstanding Capital Stock of each such Person
organized as a corporation is validly issued, fully paid and nonassessable and
(z) there are no outstanding Equity Rights with respect to such Person.

 

SECTION 3.13. Real
Property. Set forth on Schedule 3.13
hereto is a list, as of the Effective Date, of all of the real property owned
or leased by the Borrower and its Subsidiaries, indicating in each case whether
the respective property is owned or leased, the location of the respective
property, and the book value of each property.

 

SECTION 3.14. Swap
Agreements. Set forth on Schedule 3.14 hereto is a list, as of
the Effective Date, of all Swap Agreements of the Borrower and each Subsidiary,
the material terms thereof
(including the type, term, effective date, termination date and notional amounts or volumes), all credit
support agreements relating thereto (including any margin required or
supplied), and the counter party to each such agreement.

 

ARTICLE IV

 

Conditions

 

SECTION 4.01. Effective
Date. This Agreement shall become effective as of the Business Day when
each of the following conditions precedent shall have been satisfied in a
manner reasonably satisfactory to the Agent (or waived in accordance with Section 9.02):

 

(a)           The Administrative
Agent (or its counsel) shall have received from each party hereto a counterpart
of this Agreement, the Notes, Subsidiary Guarantees and the Security Documents,
each signed on behalf of the respective parties.

 

(b)           The Administrative
Agent shall have received a favorable written opinion (addressed to the
Administrative Agent and the Lenders and dated the Effective Date) of [the
general counsel of the] Borrower, and covering such other matters relating to
the Borrower, this Agreement or the Transactions as the Administrative Agent
shall reasonably request. The Borrower hereby requests such counsel to deliver
such opinion.

 

(c)           The Administrative
Agent shall have received such documents and certificates as the Administrative
Agent or its counsel may reasonably request relating to the organization,
existence and good standing of the Borrower and its Subsidiaries, the
authorization of the Transactions and any other legal matters relating to the
Borrower and its Subsidiaries, this Agreement or the Transactions, all in form
and substance reasonably satisfactory to the Administrative Agent and its
counsel.

 

(d)           The Administrative
Agent shall have received a certificate, dated the Effective Date and signed by
the President, a Vice President or a Financial Officer of the Borrower,

 

38

 

confirming compliance with (i) the conditions
set forth in paragraphs (a)
and (b) of Section 4.02
and (ii) the Total Leverage Ratio based on the most recent Four Quarter Period.

 

(e)           The Administrative
Agent shall have received all fees and other amounts due and payable on or
prior to the Effective Date, including, to the extent invoiced, reimbursement
or payment of all out-of-pocket expenses required to be reimbursed or paid by
the Borrower hereunder.

 

The Administrative Agent
shall notify the Borrower and the Lenders of the Effective Date, and such
notice shall be conclusive and binding. Notwithstanding the foregoing, the
obligations of the Lenders to make Loans and of the Issuing Bank to issue
Letters of Credit hereunder shall not become effective unless each of the
foregoing conditions is satisfied (or waived pursuant to Section 9.02) at or prior to 3:00 p.m.,
Houston, Texas time, on the Effective Date (and, in the event such conditions
are not so satisfied or waived, the Commitments shall terminate at such time).

 

SECTION 4.02. Each
Credit Event. The obligation of each Lender to make a Loan on the occasion
of any Borrowing, and of the Issuing Bank to issue, amend, renew or extend any
Letter of Credit, is subject to the satisfaction of the following conditions:

 

(a)           The representations and
warranties of the Borrower set forth in this Agreement shall be true and
correct in all material respects on and as of the date of such Borrowing or the
date of issuance, amendment, renewal or extension of such Letter of Credit, as
applicable, except to the extent that such representations and warranties
specifically refer to an earlier date, in which case they shall be true and
correct in all material respects as of such earlier date.

 

(b)           At the time of and
immediately after giving effect to such Borrowing or the issuance, amendment,
renewal or extension of such Letter of Credit, as applicable, no Default shall
have occurred and be continuing.

 

Each Borrowing and each
issuance, amendment, renewal or extension of a Letter of Credit shall be deemed
to constitute a representation and warranty by the Borrower on the date thereof
as to the matters specified in paragraphs
(a) and (b)
of this Section.

 

ARTICLE V

 

Affirmative Covenants

 

Until the Commitments have
expired or been terminated and the principal of and interest on each Loan and
all fees payable hereunder shall have been paid in full and all Letters of
Credit shall have expired or terminated or shall have been Cash Collateralized
and all LC Disbursements shall have been reimbursed, the Borrower covenants and
agrees with the Lenders that:

 

SECTION 5.01. Financial
Statements; Ratings Change and Other Information. The Borrower will furnish
to the Administrative Agent and each Lender:

 

(a)           within 90 days
after the end of each fiscal year of the Borrower, its audited consolidated
balance sheet and related statements of operations, stockholders’ equity and
cash flows as of the end of and for such year, setting forth in each case in
comparative form the figures for the previous fiscal year, all reported on by
PricewaterhouseCoopers, LLP or other independent registered public accountants
of recognized national standing (without a “going concern” or like
qualification or exception and without any qualification or exception as to the

 

39

 

scope of such audit) to the effect that such
consolidated financial statements present fairly in all material respects the
financial condition and results of operations of the Borrower and its
consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied;

 

(b)           within 45 days
after the end of each of the first three fiscal quarters of each fiscal year of
the Borrower, its consolidated balance sheet and related statements of
operations, stockholders’ equity and cash flows as of the end of and for such
fiscal quarter and the then elapsed portion of the fiscal year, setting forth
in each case in comparative form the figures for the corresponding period or
periods of (or, in the case of the balance sheet, as of the end of) the
previous fiscal year, all certified by one of its Financial Officers as
presenting fairly in all material respects the financial condition and results
of operations of the Borrower and its consolidated Subsidiaries on a consolidated
basis in accordance with GAAP consistently applied, subject to normal year-end
audit adjustments and the absence of footnotes;

 

(c)           concurrently with any
delivery of financial statements under clause (a) or
(b) above, a Compliance
Certificate of a Financial Officer of the Borrower (i) certifying as to
whether a Default has occurred and, if a Default has occurred, specifying the
details thereof and any action taken or proposed to be taken with respect
thereto; (ii) setting forth reasonably detailed calculations demonstrating
compliance with Sections 6.09, 6.10 and 6.11;
(iii) stating whether any change in GAAP or in the application thereof has
occurred since the date of the audited financial statements referred to in Section 3.04 and, if any such
change has occurred, specifying the effect of such change on the financial
statements accompanying such Compliance Certificate; (iv) reporting the
existence of (including all information and representations and warranties
contained in Section 3.12 hereof) any
Subsidiaries of the Borrower that have not been reported to the Administrative
Agent either on Schedule 3.12
attached hereto or in a Compliance Certificate previously delivered in
accordance with this Section 5.01(c); (v) reporting the addition of any
property interest in accordance with Sections 5.01(h)
and 5.09(c) hereof; and
(vi) reporting any capital projects or acquisitions exceeding $2,000,000,
in any single transaction or series of transaction, that have been consummated
within such period and certifying that it complies with Section 6.04(e) hereof; and
(vii) reporting the existence of any intellectual property added within
such period;

 

(d)           concurrently with any
delivery of financial statements under clause (a) above,
a copy of any management letter of the accounting firm that reported on such
financial statements stating whether they obtained knowledge during the course
of their examination of such financial statements of any Default (which
management letter may be limited to the extent required by accounting rules or
guidelines);

 

(e)           promptly after the same
become publicly available, copies of all registration statements, periodic and
other reports, proxy statements and other materials filed by the Borrower or
any Subsidiary with the SEC, or any Governmental Authority succeeding to any or
all of the functions of the SEC, or with any national securities exchange, or
distributed by the Borrower to its shareholders generally, as the case may be;

 

(f)            as soon as available
and in any event within 45 days after the end of each quarterly fiscal period
of each fiscal year of the Borrower, a statement of occupancy rates, revenue,
and operating income at each of the facilities owned or maintained by the
Borrower and its Subsidiaries as at the end of such period, from the beginning
of the respective fiscal year to the end of such fiscal quarter, in each case
setting forth in comparative form the corresponding figures for the
corresponding periods in the budget for such facility;

 

40

 

(g)           as soon as available and in any event within
ten (10) Business Days after each quarterly fiscal period of each fiscal year
of the Borrower, a report, in form and substance reasonably satisfactory to the
Administrative Agent, setting forth as of the last Business Day of such period
a true and complete list of all Swap Agreements of the Borrower and each
Subsidiary, the material terms thereof (including the type, term, effective
date, termination date and notional amounts or volumes), the net mark to market
value therefor, any new credit support agreements relating thereto not listed
on Schedule 3.14, any
margin required or supplied under any credit support document, and the counter
party to each such agreement;

 

(h)           concurrently with any
delivery of financial statements under clause
(a) above, the Borrower shall furnish to the Administrative
Agent and each Lender a certificate, certified as true and correct by one of
its Financial Officers, setting forth a list, as of such date, of all of the real
property interests held by the Borrower and its Subsidiaries, indicating in
each case whether the respective property is owned or leased, the location of
the respective property, and the book value of each property; and

 

(i)            promptly following any
request therefor, such other information regarding the operations, business
affairs and financial condition of the Borrower or any Subsidiary, or
compliance with the terms of this Agreement, as the Administrative Agent or any
Lender may reasonably request.

 

SECTION 5.02. Notices
of Material Events. The Borrower will furnish to the Administrative Agent
and each Lender prompt written notice of the following:

 

(a)           the occurrence of any
Default;

 

(b)           the filing or
commencement of any action, suit or proceeding by or before any arbitrator or
Governmental Authority against or affecting the Borrower or any Affiliate
thereof that could reasonably be expected to result in a Material Adverse
Effect;

 

(c)           the occurrence of any
ERISA Event that, alone or together with any other ERISA Events that have
occurred, could reasonably be expected to result in liability of the Borrower
and its Subsidiaries in an aggregate amount exceeding $3,000,000;

 

(d)           promptly after the
termination or expiration prior to its stated maturity of any Correctional and
Detention Facility Contract with annual revenues in excess of $20,000,000,
either as a single such contract or the aggregate of multiple contracts during
the Borrower’s fiscal year, pro forma financial projections prepared by the
Borrower demonstrating that after giving effect to such termination or
expiration (and any replacement Correctional and Detention Facility Contract
therefor) the Borrower will be in compliance with its obligations under Sections 6.09, 6.10 and 6.11 hereof for the period
commencing on the date of such termination and ending on the last day of the
Availability Period; and

 

(e)           any other development
that results in, or could reasonably be expected to result in, a Material
Adverse Effect.

 

Each notice delivered under
this Section shall be accompanied by a statement of a Financial Officer or
other executive officer of the Borrower setting forth the details of the event
or development requiring such notice and any action taken or proposed to be
taken with respect thereto.

 

41

 

SECTION 5.03. Existence;
Conduct of Business. The Borrower will, and will cause each of its
Subsidiaries to, do or cause to be done all things necessary to preserve, renew
and keep in full force and effect its legal existence and to the extent that
failure to do so could reasonably be expected to result in a Material Adverse
Effect, the rights, licenses, permits, privileges and franchises material to
the conduct of its business; provided that
the foregoing shall not prohibit any merger, consolidation, liquidation or
dissolution permitted under Section 6.03.

 

SECTION 5.04. Payment
of Obligations. The Borrower will, and will cause each of its Subsidiaries
to, pay its obligations, including Tax liabilities, that, if not paid, could
reasonably be expected to result in a Material Adverse Effect before the same
shall become delinquent or in default, except where (a) the validity or
amount thereof is being contested in good faith by appropriate proceedings, and
(b) the Borrower or such Subsidiary has set aside on its books adequate
reserves with respect thereto in accordance with GAAP.

 

SECTION 5.05. Maintenance
of Properties; Insurance. The Borrower will, and will cause each of its
Subsidiaries to, (a) keep and maintain all property material to the
conduct of its business in good working order and condition, ordinary wear and
tear excepted, and (b) maintain, with financially sound and reputable
insurance companies, insurance in such amounts and against such risks as are
customarily maintained by companies engaged in the same or similar businesses
operating in the same or similar locations. The Borrower will in any event
maintain (with respect to itself and each of its Subsidiaries):

 

(a)           Casualty Insurance
— insurance against loss or damage covering all of the tangible real and
personal Property and improvements of the Borrower and each of its Subsidiaries
by reason of any Peril (as defined below) in such amounts (subject to such
reasonable and customary deductibles as shall be satisfactory to the
Administrative Agent) as shall be reasonable and customary and sufficient to
avoid the insured named therein from becoming a co-insurer of any loss under
such policy but in any event in an amount (i) in the case of fixed assets
and equipment (excluding vehicles), at least equal to 100% of the actual
replacement cost of such assets, subject to deductibles as aforesaid and
(ii) in the case of inventory, not less than the fair market value
thereof, subject to deductibles as aforesaid, provided that insurance in
respect of Perils consisting of floods shall not be required to be obtained
except upon 30 days’ prior notice from the Administrative Agent.

 

(b)           Automobile Liability
Insurance for Bodily Injury and Property Damage — insurance against
liability for bodily injury and property damage in respect of all vehicles
(whether owned, hired or rented by the Borrower or any of its Subsidiaries) at
any time located at, or used in connection with, its Properties or operations
in such amounts as are then customary for vehicles used in connection with
similar Properties and businesses, but in any event to the extent required by
applicable law.

 

(c)           Comprehensive
General Liability and Professional Liability Insurance — insurance against
claims for bodily injury, death or Property damage occurring on, in or about
the Properties (and adjoining streets, sidewalks and waterways) of the Borrower
and its Subsidiaries and professional liability insurance, in an amount equal
to at least $10,000,000.

 

(d)           Workers’
Compensation Insurance — workers’ compensation insurance (including,
without limitation, Employers’ Liability Insurance) to the extent required by
applicable law.

 

42

 

(e)           Business Interruption
Insurance — insurance against loss of operating income (up to an aggregate
amount equal to $20,000,000 and subject to a deductible, or self-insured
amount, not in excess of $250,000) by reason of any Peril.

 

Such
insurance shall be written by financially responsible companies selected by the
Borrower and (except for automobile insurance) having an A.M. Best rating of “A”
or better and being in a financial size category of VII or larger (or, with
respect to professional liability insurance only, an equivalent rating by a
European equivalent of A.M. Best), or by other companies acceptable to the
Administrative Agent, and (other than for workers’ compensation) shall name the
Administrative Agent as loss payee (to the extent covering risk of loss or
damage to tangible property) and as an additional insured as its interests may
appear (to the extent covering any other risk). Each policy referred to in this
Section 5.05 shall
provide that it will not be canceled or reduced, or allowed to lapse without
renewal, except after not less than 30 days’ notice to the Administrative Agent
and shall also provide that the interests of the Administrative Agent and the
Lenders shall not be invalidated by any act or negligence of the Borrower or
any Person having an interest in any Property covered by the Mortgage nor by
occupancy or use of any such Property for purposes more hazardous than
permitted by such policy nor by any foreclosure or other proceedings relating
to such Property. The Borrower will advise the Administrative Agent promptly of
any significant policy cancellation (other than any such cancellation in
connection with the replacement thereof), reduction or amendment.

 

On or before the Closing
Date, the Borrower will deliver to the Administrative Agent certificates of
insurance satisfactory to the Administrative Agent evidencing the existence of
all insurance required to be maintained by the Borrower hereunder setting forth
the respective coverages, limits of liability, carrier, policy number and
period of coverage and showing that such insurance will remain in effect
through the December 31 falling at least four months after the date
hereof, subject only to the payment of premiums as they become due. Thereafter,
the Borrower will maintain all insurance required to be maintained by the
Borrower hereunder through the December 31 of each subsequent calendar year as
long as any Debt or Commitments are outstanding under this Agreement, subject
only to the payment of premiums as they become due and the availability of such
coverage. In addition, the Borrower will not modify any of the provisions of
any policy with respect to professional liability insurance without delivering
the original copy of the endorsement reflecting such modification to the
Administrative Agent accompanied by a written report of Summit Global Partners,
or any other firm of independent insurance brokers of nationally recognized
standing, stating that, in their opinion, such policy (as so modified)
adequately protects the interests of the Lenders and the Administrative Agent,
is in compliance with the provisions of this Section 5.05, and is comparable in all respects with
insurance carried by responsible owners and operators of businesses similar to
those of the Borrower and its Subsidiaries. The Borrower will not obtain or
carry separate insurance concurrent in form or contributing in the event of
loss with that required by this Section 5.05
unless the Administrative Agent is an additional insured thereunder, with loss
payable as provided herein. The Borrower will immediately notify the
Administrative Agent whenever any such separate insurance is obtained and shall
deliver to the Administrative Agent the certificates evidencing the same.

 

Without limiting the
obligations of the Borrower under the foregoing provisions of this Section 5.05, in the event the
Borrower shall fail to maintain in full force and effect insurance as required
by the foregoing provisions of this Section 5.05,
then the Administrative Agent may (upon notice to the Borrower), but shall have
no obligation so to do, procure insurance covering the interests of the Lenders
and the Administrative Agent in such amounts and against such risks as the
Administrative Agent shall deem appropriate, and the Borrower shall reimburse
the Administrative Agent in respect of any premiums paid by the Administrative
Agent in respect thereof.

 

43

 

For purposes hereof, the
term “Peril” shall mean,
collectively, fire, lightning, flood, windstorm, hail, explosion, riot and
civil commotion, vandalism and malicious mischief, damage from aircraft,
vehicles and smoke and all other perils covered by the “all-risk” endorsement
then in use in the jurisdictions where the Properties of the Borrower and its
Subsidiaries are located.

 

SECTION 5.06. Books
and Records; Inspection Rights. The Borrower will, and will cause each of
its Subsidiaries to, keep proper books of record and account in which correct
entries are made of all dealings and transactions in relation to its business
and activities in accordance with GAAP. The Borrower will, and will cause each
of its Subsidiaries to, permit any representatives designated by the
Administrative Agent or any Lender, upon reasonable prior notice, to visit and
inspect its properties, to examine and make extracts from its books and
records, and to discuss its affairs, finances and condition with its officers
and independent accountants, all at such reasonable times during normal
business hours and, with respect to the inspection of such properties and the
examination of such books and records and the making of extracts therefrom, so
long as no Event of Default has occurred and is continuing, not more than once
a fiscal quarter.

 

SECTION 5.07. Compliance
with Laws. The Borrower will, and will cause each of its Subsidiaries to,
comply with all laws, rules, regulations and orders of any Governmental
Authority applicable to it or its property, except in any case where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.

 

SECTION 5.08. Use
of Proceeds and Letters of Credit. The proceeds of the Loans will be used
only for general corporate purposes, including, without limitation, refinance
of existing debt, working capital, capital expenditures, and acquisitions. No
part of the proceeds of any Loan will be used, whether directly or indirectly,
for any purpose that entails a violation of any of the Regulations of the
Board, including Regulations T, U and X. Letters of Credit will be issued
only to support general corporate purposes, including, without limitation,
refinance of existing debt, working capital, and capital expenditures.

 

SECTION 5.09. Certain
Obligations Respecting Subsidiaries.

 

(a)           The Borrower will, and
will cause each of its Subsidiaries to, take such action from time to time as
shall be necessary to ensure that each of its Subsidiaries is a Wholly Owned
Subsidiary.

 

(b)           The Borrower will take
such action, and will cause each of its Subsidiaries to take such action, from
time to time as shall be necessary to ensure that all Subsidiaries of the
Borrower are Subsidiary Guarantors and, thereby, parties hereunder. Without
limiting the generality of the foregoing, in the event that the Borrower or any
of its Subsidiaries shall form or acquire any new Subsidiary, the Borrower or
the respective Subsidiary will cause such new Subsidiary to become a “Subsidiary
Guarantor” hereunder pursuant to a written instrument in form and substance
reasonably satisfactory to the Administrative Agent, and to deliver such proof
of corporate action, incumbency of officers, opinions of counsel and other
documents as the Administrative Agent shall have reasonably requested. Upon the creation of any new Subsidiaries,
the stock thereof shall be pledged as collateral for the Loans and such new
Subsidiary shall enter into an amendment of the Security Agreement and Negative
Pledge to ensure that they are a party thereunder.

 

(c)           Upon the creation of
any new Subsidiaries, Borrower shall furnish to the Administrative Agent and
each Lender a certificate, certified as true and correct by a Financial
Officer, setting forth a list, as of such date, of all of the real property
interests held by the new

 

44

 

Subsidiary,
indicating whether the property is owned or leased, the location of the
property, and the book value of each property. In the event such real property
interest has a book value of more than $2,000,000, Borrower and its
Subsidiaries shall comply with the provisions of Section 5.10 hereof.

 

SECTION 5.10. Property.

 

(a)           Borrower and its
Subsidiaries agree with respect to any real estate either owned in fee simple
or leased (except for properties subject to the MCF Debt) by the Borrower or
any of its Subsidiaries with a book value of more than $2,000,000, at Borrower’s
expense, to do the following,:

 

(i)            to furnish to the
Administrative Agent one or more Mortgages covering its interest in such real
property;

 

(ii)           to furnish to the
Administrative Agent evidence to the satisfaction of the Administrative Agent
that the such real property is not subject to any Lien (other than Liens
permitted under Section 6.02
hereof);

 

(iii)          to furnish to the
Administrative Agent a copy of a previously issued title policy and a nothing
further certificate dated within fifteen (15) days prior to the filing of the
Mortgage evidencing, to the satisfaction of the Administrative Agent, that the
such real property is not subject to any Lien (other than Liens permitted under
Section 6.02 hereof);

 

(iv)          to furnish to the
Administrative Agent evidence of insurance of such interest in real property in
accordance with Section 5.05
hereof;

 

(v)           the Administrative
Agent will have received evidence of the flood zone status of each such
interest in real property; and

 

(vi)          if such interest is a
leasehold and the lease requires it, at Administrative Agent’s request, to
provide a landlord’s consent permitting the mortgage of such interest.

 

(b)           After the Effective
Date, if the Borrower or any Subsidiary acquires an interest in real property
either owned in fee simple or leased (except for properties subject to the MCF
Debt) by the Borrower or any of its Subsidiaries with a book value of more than
$2,000,000, such party shall notify the Administrative Agent of such
acquisition or lease of such property and agrees to do the following, at
Borrower’s expense:

 

(i)            to furnish to the
Administrative Agent one or more Mortgages covering such real property;

 

(ii)           to furnish to the
Administrative Agent a copy of a previously issued title policy (or such other
evidence of the status of the title) and a nothing further certificate dated
within fifteen (15) days prior to the filing of the Mortgage evidencing, to the
satisfaction of the Administrative Agent, that the such real property is not
subject to any Lien (other than Liens permitted under Section 6.02 hereof); provided however, that in the event at the
time of acquisition of such real property, the Borrower or its Subsidiary
obtains an owner’s policy, the Borrower agrees at its expense to furnish the
Administrative Agent with a lender’s policy related to such real property;

 

45

 

(iii)          to furnish to the
Administrative Agent evidence of insurance of such interest in real property in
accordance with Section 5.05
hereof;

 

(iv)          the Administrative Agent
will have received evidence of the flood zone status of each such interest in
real property; and

 

(v)           if such interest is a
leasehold and the lease requires it, at Administrative Agent’s request, to
provide a landlord’s consent permitting the mortgage of such interest.

 

(c)           During the continuance
of any Default, upon the request of the Administrative Agent, at the Borrower’s
expense, Borrower agrees to furnish the Administrative Agent an updated
environmental report on all real property secured by a Mortgage pursuant to
this Agreement.

 

Mortgages given for the benefit of Lender in accordance with this Section 5.10 will be released by the
Administrative Agent upon the Disposition of real property in accordance with
this Agreement.

 

ARTICLE VI

 

Negative Covenants

 

Until the Commitments have
expired or terminated and the principal of and interest on each Loan and all
fees payable hereunder have been paid in full and all Letters of Credit have
expired or terminated or shall have been Cash Collateralized and all LC
Disbursements shall have been reimbursed, the Borrower covenants and agrees
with the Lenders that:

 

SECTION 6.01. Indebtedness.
The Borrower will not, and will not permit any Subsidiary to, create, incur,
assume or permit to exist any Indebtedness, except:

 

(a)           Indebtedness created
hereunder;

 

(b)           Indebtedness existing
on the date hereof and set forth in Schedule 6.01
and extensions, renewals, refinancings and replacements of any such
Indebtedness that do not increase the outstanding principal amount thereof plus
accrued interest thereon;

 

(c)           Indebtedness of the
Borrower to any Subsidiary and of any Subsidiary to the Borrower or any other
Subsidiary;

 

(d)           Guarantees by the
Borrower of Indebtedness of any Subsidiary and by any Subsidiary of
Indebtedness of the Borrower or any other Subsidiary;

 

(e)           Indebtedness of the
Borrower or any Subsidiary as an account party in respect of trade letters of
credit and in respect of letters of credit for the account of the Borrower or
any Subsidiary, in respect of workers’ compensation claims, self-insurance
obligations, performance, proposal completion, surety and similar bonds and
completion guarantees provided by the Borrower or its Subsidiaries in the
ordinary course of business; provided that the underlying obligation to perform
is that of the Borrower or of its Subsidiaries and not that of any other Person
and, provided further, that such underlying obligation is not in respect of
borrowed money;

 

46

 

(f)            Indebtedness of the
Borrower and its Subsidiaries secured by Liens permitted under Section 6.02(e) hereof up to but
not exceeding $5,000,000 at any one time outstanding;

 

(g)           Swap Agreements
permitted under Section 6.05
hereof;

 

(h)           other unsecured
Indebtedness in an aggregate principal amount not exceeding $3,000,000 at any
time outstanding;

 

(i)            bonds, deposits or
other surety obligations required pursuant to Correctional and Detention
Facility Contracts not to exceed $25,000,000 at any one time outstanding;

 

(j)            Indebtedness of any
Person that becomes a Subsidiary after the date hereof; provided that (i)
such Indebtedness exists at the time such Person becomes a Subsidiary and is
not created in contemplation of or in connection with such Person becoming a
Subsidiary, and (ii) is in connection with acquisitions or capital
projects permitted by Section 6.04(e);

 

(k)           other unsecured
Indebtedness of the Borrower and its Subsidiaries in an aggregate principal
amount not exceeding $100,000,000 at any time outstanding; provided that
(i) no Default or Event of Default (both before and after giving pro forma
effect to the incurrence of such Indebtedness) exists and is continuing, (ii) the
maturity of such Indebtedness is at least six (6) months after the Maturity
Date, (iii) the Weighted Average Life to Maturity of such Indebtedness is
greater than the number of years (calculated to the nearest one-twelfth) to the
Maturity Date, (iv) such Indebtedness has terms substantially similar to
those customary in the market place for such financial instruments, but in no case to contain covenants more
restrictive than those contained in the Loan Documents; and

 

(l)            Indebtedness of the
Borrower and its Subsidiaries in connection with acquisitions permitted by Section 6.04 and payable to the
corresponding sellers of an acquired business or entity (whether through an
asset purchase, equity purchase or merger or consolidation or otherwise) in the
form of seller notes, earn-outs, indemnities or obligations in respect of
purchase price adjustments in connection with any such acquisition; provided (A) such Indebtedness is subordinated to the Loans
hereunder on terms reasonably satisfactory to the Administrative Agent and (B)
such Indebtedness is unsecured.

 

SECTION 6.02. Liens.
The Borrower will not, and will not permit any Subsidiary to, create, incur,
assume or permit to exist any Lien on any property or asset now owned or
hereafter acquired by it, or assign or sell any income or revenues (including
accounts receivable) or rights in respect of any thereof, except:

 

(a)           Permitted Encumbrances;

 

(b)           any Lien on any
property or asset of the Borrower or any Subsidiary existing on the date hereof
and set forth in Schedule 6.02;
provided that (i) such Lien
shall not apply to any other property or asset of the Borrower or any
Subsidiary and (ii) such Lien shall secure only those obligations which it
secures on the date hereof and extensions, renewals, refinancings and
replacements of any such obligations that do not increase the outstanding
principal amount thereof plus accrued interest thereon;

 

(c)           any Lien existing on
any property or asset prior to the acquisition thereof by the Borrower or any
Subsidiary or existing on any property or asset of any Person that becomes a
Subsidiary after the date hereof prior to the time such Person becomes a
Subsidiary; provided that

 

47

 

(i) such Lien is not created in contemplation
of or in connection with such acquisition or such Person becoming a Subsidiary,
as the case may be, (ii) such Lien shall not apply to any other property
or assets of the Borrower or any Subsidiary and (iii) such Lien shall
secure only those obligations which it secures on the date of such acquisition
or the date such Person becomes a Subsidiary, as the case may be and
extensions, renewals, refinancings and replacements of any such obligations
that do not increase the outstanding principal amount thereof plus accrued
interest thereon;

 

(d)           Liens arising out of Swap Agreements with Lenders or Lender Affiliates;
and

 

(e)           Liens on fixed or
capital assets acquired, constructed or improved by the Borrower or any
Subsidiary; provided that
(i) such security interests secure Indebtedness permitted by clause (f) of Section 6.01, (ii) such
security interests and the Indebtedness secured thereby are incurred prior to
or within 90 days after such acquisition or the completion of such
construction or improvement, (iii) the Indebtedness secured thereby does
not exceed 80% of the cost of acquiring, constructing or improving such fixed
or capital assets, (iv) such security interests shall not apply to any
other property or assets of the Borrower or any Subsidiary; and (v) such
security interests do not secure Indebtedness more than $5,000,000.

 

SECTION 6.03. Fundamental
Changes.

 

(a)           The Borrower will not,
and will not permit any Subsidiary to, merge into or consolidate with any other
Person, or permit any other Person to merge into or consolidate with it, or
sell, transfer, lease or otherwise dispose of (in one transaction or in a
series of transactions) all or substantially all of its assets, or all or
substantially all of the stock of any of its Subsidiaries (in each case,
whether now owned or hereafter acquired), or liquidate or dissolve, except
that, if at the time thereof and immediately after giving effect thereto no
Default shall have occurred and be continuing (i) any Subsidiary may merge
into the Borrower in a transaction in which the Borrower is the surviving
entity, (ii) any Person may merge into the Borrower or any Subsidiary in a
transaction in which the surviving entity is the Borrower or a Subsidiary,
(iii) any Subsidiary may sell, transfer, lease or otherwise dispose of its
assets to the Borrower or to another Subsidiary and (iv) any Subsidiary may
liquidate or dissolve if the Borrower determines in good faith that such
liquidation or dissolution is in the best interests of the Borrower and is not
materially disadvantageous to the Lenders; provided
that any such merger involving a Person that is not a Wholly Owned Subsidiary
immediately prior to such merger shall not be permitted unless also permitted
by Section 6.04.

 

(b)           The Borrower will not,
and will not permit any of its Subsidiaries to, engage to any material extent
in any business other than businesses of the type conducted by the Borrower and
its Subsidiaries on the date of execution of this Agreement and businesses
reasonably related thereto.

 

(c)           The Borrower will not, and will not permit any Subsidiary to make a
Disposition, unless:

 

(i)            the Borrower or such
Subsidiary, as the case may be, receives consideration at least equal to the
fair market value (such fair market value to be determined on the date of
contractually agreeing to such Disposition), as determined in good faith by the
board of directors (and certified in writing to the Administrative Agent by a
Responsible Officer) of the Borrower (including as to the value of all non-cash
consideration), of the shares and assets subject to such Disposition;

 

48

 

(ii)           at least 80% of the
consideration from such Disposition received by the Borrower or such
Subsidiary, as the case may be, is in the form of cash or Permitted
Investments; and

 

(iii)          no Event of Default has
occurred and is continuing.

 

Notwithstanding
the foregoing, the Borrower and the Subsidiaries may make the following
Dispositions:

 

(1)           Dispositions
which, in the reasonable judgment of such Person, are of surplus, obsolete,
unused or worn out property, whether now owned or hereafter acquired, in the
ordinary course of business;

 

(2)           Dispositions of inventory in the
ordinary course of business;

 

(3)           Dispositions
of equipment to the extent that (i) such property is exchanged for credit
against the purchase price of similar replacement property or (ii) the
proceeds of such Disposition are reasonably promptly applied to the purchase
price of such replacement property;

 

(4)           Dispositions
permitted by Sections 6.03(a) or 6.16;

 

(5)           Dispositions
of any Permitted Investment described in clauses (a) through (f) of
the definition thereof; and

 

(6)           Dispositions
of property having a value of up to five percent (5%) of the consolidated net
tangible assets of the Borrower and its Subsidiaries in any fiscal year; provided that (x) fair market value
is received and (y) no Default or Event of Default will occur after giving
effect to such sale on a pro forma basis.

 

SECTION 6.04.
Investments, Loans, Advances, Guarantees and Acquisitions. The
Borrower will not, and will not permit any of its Subsidiaries to, purchase,
hold or acquire (including pursuant to any merger with any Person that was not
a Wholly Owned Subsidiary prior to such merger) any Capital Stock, evidences of
indebtedness or other securities (including any option, warrant or other right
to acquire any of the foregoing) of, make or permit to exist any loans or
advances to, Guarantee any obligations of, or make or permit to exist any
investment or any other interest in, any other Person, or purchase or otherwise
acquire (in one transaction or a series of transactions) any assets of any
other Person constituting a business unit, except:

 

(a)           Permitted Investments;

 

(b)           investments by the
Borrower and the Subsidiaries in the Capital Stock of its Subsidiaries;

 

(c)           loans or advances made
by the Borrower to any Subsidiary and made by any Subsidiary to the Borrower or
any other Subsidiary;

 

(d)           Guarantees constituting
Indebtedness permitted by Section 6.01;

 

49

 

(e)           Additional investments
in capital projects (including, without limitation, investments relating to new
contracts and expansions of existing facilities or construction of new
facilities) and acquisitions (including any Debt incurred to make such
investment or acquisition) provided there shall not exist a Default or Event of
Default (both before and after giving effect to the completion of such
additional investment);

 

(f)            Loans or advances by
the Borrower or any of its Subsidiaries to employees in the ordinary course of
business in an aggregate amount at any one time outstanding not to exceed
$250,000;

 

(g)           Investments of the
Borrower or any Subsidiary otherwise permitted by Sections 6.01, 6.03
or 6.05; and

 

(h)           Additional investments
not to exceed $5,000,000 existing at any one time.

 

SECTION 6.05.
Swap Agreements. The Borrower will not, and will not permit any
of its Subsidiaries to, enter into any Swap Agreement, except (a) Swap
Agreements entered into to hedge or mitigate risks to which the Borrower or any
Subsidiary has actual exposure (other than those in respect of Equity Interests
of the Borrower or any of its Subsidiaries), and (b) Swap Agreements
entered into in order to effectively cap, collar or exchange interest rates
(from fixed to floating rates, from one floating rate to another floating rate
or otherwise) with respect to any interest-bearing liability or investment of
the Borrower or any Subsidiary.

 

SECTION 6.06.
Intentionally Omitted.

 

SECTION 6.07.
Transactions with Affiliates. The Borrower will not, and will not
permit any of its Subsidiaries to, sell, lease or otherwise transfer any
property or assets to, or purchase, lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) in the ordinary course of business at prices and on
terms and conditions not less favorable to the Borrower or such Subsidiary than
could be obtained on an arm’s-length-basis from unrelated third parties, (b) transactions
between or among the Borrower and its Wholly Owned Subsidiaries not involving
any other Affiliate, (c) service by any Affiliate who is an individual as
a director, officer, or employee of the Borrower or any of its Subsidiaries for
which reasonable compensation is received; and (d) transactions permitted
under Section 6.03(a) between
or among any of the Borrower and its Subsidiaries and not involving any other
Affiliates.

 

SECTION 6.08.
Restrictive Agreements. The Borrower will not, and will not
permit any of its Subsidiaries to, directly or indirectly, enter into, incur or
permit to exist any agreement or other arrangement that prohibits, restricts or
imposes any condition upon (a) the ability of the Borrower or any
Subsidiary to create, incur or permit to exist any Lien upon any of its
property or assets, or (b) the ability of any Subsidiary to pay dividends
or other distributions with respect to any shares of its Capital Stock or to
make or repay loans or advances to the Borrower or any other Subsidiary or to
Guarantee Indebtedness of the Borrower or any other Subsidiary; provided that (i) the foregoing shall not apply to
restrictions and conditions imposed by law or by this Agreement, (ii) the
foregoing shall not apply to restrictions and conditions existing on the date
hereof identified on Schedule 6.08
(but shall apply to any extension or renewal of, or any amendment or
modification expanding the scope of, any such restriction or condition), (iii) the
foregoing shall not apply to customary restrictions and conditions contained in
agreements relating to the sale or other disposition of assets or of a
Subsidiary pending such sale or other disposition, provided such restrictions
and conditions apply only to assets or the Subsidiary that is to be sold or
disposed of and such sale or disposition is permitted hereunder, (iv) clause (a) of the foregoing
shall not apply to restrictions or conditions imposed by any agreement relating
to secured Indebtedness permitted 

 

50

 

by this
Agreement if such restrictions or conditions apply only to the property or
assets securing such Indebtedness, (v) clause (a) of the foregoing
shall not apply to customary provisions in leases and other contracts
restricting the assignment thereof, and (vi) clause (a) and (b) of the foregoing shall not
apply to restrictions or conditions imposed by the Senior Notes.

 

SECTION 6.09.
Bank Leverage Ratio. The Borrower and its Subsidiaries will not
permit the ratio of Bank Debt to EBITDA, based on the last day of the most
recent Four Quarter Period, for any fiscal quarter ending during the period set
forth below under the heading “Period” to be greater than the ratio set forth
below under the heading “Ratio.”

 

	
  Period

  	
   

  	
  Ratio

  
	
   

  	
   

  	
   

  
	
  Effective Date through June 30, 2008

  	
   

  	
  1.75 to 1

  
	
   

  	
   

  	
   

  
	
  September 30, 2008 through the Maturity Date

  	
   

  	
  1.50 to 1

  

 

SECTION 6.10.
Total Leverage Ratio. The Borrower and its Subsidiaries will not
permit the Total Leverage Ratio, based on the last day of the most recent Four
Quarter Period, for any fiscal quarter ending during the period set forth below
under the heading “Period” to be greater than the ratio set forth below under
the heading “Ratio.”

 

	
  Period

  	
   

  	
  Ratio

  
	
   

  	
   

  	
   

  
	
  Effective Date through June 30, 2008

  	
   

  	
  5.50 to 1

  
	
   

  	
   

  	
   

  
	
  September 30, 2008 through June 30,
  2009

  	
   

  	
  5.00 to 1

  
	
   

  	
   

  	
   

  
	
  September 30, 2009 through June 30,
  2010

  	
   

  	
  4.50 to 1

  
	
   

  	
   

  	
   

  
	
  September 30, 2010 through June 30,
  2011

  	
   

  	
  4.00 to 1

  
	
   

  	
   

  	
   

  
	
  September 30, 2011 through the Maturity Date

  	
   

  	
  3.50 to 1

  

 

SECTION 6.11.
Fixed Charge Coverage Ratio. The Borrower and its Subsidiaries
will not permit the Fixed Charge Coverage Ratio, based on the most recent Four
Quarter Period, for any fiscal quarter to be less than 1.20 to 1.

 

SECTION 6.12.
Intentionally Omitted.

 

SECTION 6.13.
Intentionally Omitted.

 

SECTION 6.14.
Intentionally Omitted.

 

51

 

SECTION 6.15.
Off-Balance Sheet Financing. The Borrower and its Subsidiaries
will not enter into any Off-Balance Sheet Lease without the approval of the
Required Lenders.

 

SECTION 6.16.
Sale/Leaseback
Transactions. The Borrower
will not, and will not permit any of its Subsidiaries to, enter into any
arrangement with any Person whereby the Borrower or such Subsidiary shall sell
or otherwise transfer more than $25,000,000 of its Property (in a single
transaction or series of transactions) whether
now owned or hereafter acquired, and thereafter rent or lease such Property or
similar Property for substantially the same use or uses as the Property sold or transferred.

 

ARTICLE VII

 

Events of Default; Remedies

 

SECTION 7.01.
Events of Default. If any of the following events (“Events of Default”) shall occur:

 

(a)           the Borrower shall fail
to pay any principal of any Loan or any reimbursement obligation in respect of
any LC Disbursement when and as the same shall become due and payable, whether
at the due date thereof or at a date fixed for prepayment thereof or otherwise;

 

(b)           the Borrower shall fail
to pay any interest on any Loan or any fee or any other amount (other than an
amount referred to in clause (a) of
this Section 7.01)
payable under this Agreement, when and as the same shall become due and
payable, and such failure shall continue unremedied for a period of three (3) Business
Days;

 

(c)           any representation or
warranty made or deemed made by or on behalf of the Borrower or any Subsidiary
in or in connection with this Agreement or any amendment or modification hereof
or waiver hereunder, or in any report, certificate, financial statement or
other document furnished pursuant to or in connection with this Agreement or
any amendment or modification hereof or waiver hereunder, shall prove to have
been incorrect in any material respect when made or deemed made;

 

(d)           the Borrower shall fail
to observe or perform any covenant, condition or agreement contained in Sections 5.02, 5.03 (with respect to the Borrower’s
existence), 5.08, 5.10, 6.09, 6.10 or 6.11;

 

(e)           the Borrower shall fail
to observe or perform any covenant, condition or agreement contained in this
Agreement (other than those specified in clause (a),
(b) or (d) of
this Section 7.01), and
such failure shall continue unremedied for a period of 30 days after
notice thereof from the Administrative Agent to the Borrower (which notice will
be given at the request of any Lender); provided however,
to the extent Borrower is diligently pursuing to cure such default, then
Borrower shall be permitted another 30 days to cure, not to exceed 60 days
after notice thereof;

 

(f)            the Borrower or any
Subsidiary shall fail to make any payment (whether of principal or interest and
regardless of amount) in respect of any Material Indebtedness, when and as the
same shall become due and payable beyond any applicable notice and cure period;
provided that this Section 7.01(f) shall
not apply to secured Material Indebtedness that becomes due as a result of the
sale, transfer, destruction or other disposition of the property or assets
securing such Material Indebtedness if such sale, transfer, destruction or
other disposition is not prohibited hereunder or under the documents governing
such Material Indebtedness;

 

52

 

(g)           any event or condition
occurs that results in any Material Indebtedness becoming due prior to its
scheduled maturity or that enables or permits (with or without the giving of
notice, the lapse of time or both) the holder or holders of any Material
Indebtedness or any trustee or agent on its or their behalf to cause any
Material Indebtedness to become due, or to require the prepayment, repurchase,
redemption or defeasance thereof, prior to its scheduled maturity; provided that this Section 7.01(g) shall
not apply to secured Material Indebtedness that becomes due as a result of the
sale , transfer, destruction or other disposition of the property or assets
securing such Material Indebtedness if such sale, transfer, destruction or
other disposition is not prohibited hereunder or under the documents governing
such Material Indebtedness;

 

(h)           an involuntary
proceeding shall be commenced or an involuntary petition shall be filed seeking
(i) liquidation, reorganization or other relief in respect of the Borrower
or any Subsidiary or its debts, or of a substantial part of its assets, under
any Federal, state or foreign bankruptcy, insolvency, receivership or similar
law now or hereafter in effect or (ii) the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for the
Borrower or any Subsidiary or for a substantial part of its assets, and, in any
such case, such proceeding or petition shall continue undismissed for 60 days
or an order or decree approving or ordering any of the foregoing shall be
entered;

 

(i)            the Borrower or any
Subsidiary shall (i) voluntarily commence any proceeding or file any
petition seeking liquidation, reorganization or other relief under any Federal,
state or foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect, (ii) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or petition
described in Section 7.01(h) of
this Article, (iii) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for the
Borrower or any Subsidiary or for a substantial part of its assets, (iv) file
an answer admitting the material allegations of a petition filed against it in
any such proceeding, (v) make a general assignment for the benefit of
creditors or (vi) take any action for the purpose of effecting any of the
foregoing;

 

(j)            the Borrower or any
Subsidiary shall become unable, admit in writing its inability or fail
generally to pay its debts as they become due;

 

(k)           one or more judgments
for the payment of money in an aggregate amount in excess of $5,000,000 (to the
extent not covered by insurance as to which a solvent and unaffiliated
insurance company has not disputed such coverage in writing, excluding
customary deductibles) shall be rendered against the Borrower, any Subsidiary
or any combination thereof and the same shall remain undischarged, unvacated,
unsatisfied or unbonded for a period of 60 consecutive days during which
execution shall not be effectively stayed, or any action shall be legally taken
by a judgment creditor to attach or levy upon any assets of the Borrower or any
Subsidiary to enforce any such judgment;

 

(l)            an ERISA Event shall
have occurred that when taken together with all other ERISA Events that have
occurred, could reasonably be expected to result in a Material Adverse Effect;

 

(m)          a Change in Control
shall occur; or

 

(n)           any Lien or Liens
created by the Security Documents (i) shall at any time not constitute a
valid and perfected Lien on the collateral stated to be covered thereby (to the
extent perfection by filing, registration, recordation or possession is
required herein or therein), in favor of the Administrative Agent, free and
clear of all other Liens (other than Liens permitted under 

 

53

 

Section 6.02
hereof or under the respective Security Documents), or, (ii) except for
expiration in accordance with its terms, any of the Security Documents shall
for whatever reason be terminated or cease to be in full force and effect, or
the enforceability thereof shall be contested by Borrower or any applicable
Subsidiary.

 

SECTION 7.02.
Remedies.

 

(a)           In the case of an Event
of Default (other than an event with respect to the Borrower described in clause (h) or (i) of Section 7.01), and at any time
thereafter during the continuance of such event, the Administrative Agent may,
and at the request of the Required Lenders shall, by notice to the Borrower,
take either or both of the following actions, at the same or different
times:  (i) terminate the
Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare
the Loans then outstanding to be due and payable in whole (or in part, in which
case any principal not so declared to be due and payable may thereafter be
declared to be due and payable), and thereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and all
fees and other obligations of the Borrower accrued hereunder, shall become due
and payable immediately, without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Borrower; and in case of any
event with respect to the Borrower described in clause (h) or
(i) of Section 7.01, the Commitments
shall automatically terminate and the principal of the Loans then outstanding,
together with accrued interest thereon and all fees and other obligations of
the Borrower accrued hereunder, shall automatically become due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Borrower.

 

(b)           In the case of the occurrence of an Event of Default referred to in clauses (h) or (i) of Section 7.01, the Commitments
shall be automatically canceled and the principal amount then outstanding of,
and the accrued interest on, the Debt and all other amounts payable by the
Borrower hereunder and under the Notes (including without limitation the
payment of cash collateral to secure the LC Exposure as provided in Section 2.06(j)) shall become
automatically immediately due and payable without presentment, demand, protest,
notice of intent to accelerate, notice of acceleration or other formalities of
any kind, all of which are hereby expressly waived by the Borrower.

 

(c)           All proceeds received
after maturity of the Notes, whether by acceleration or otherwise shall be
applied first to reimbursement of expenses and indemnities provided for in this
Agreement and the Security Documents; second to accrued interest on the Notes;
third to fees; fourth pro rata to principal outstanding on the Notes and other
Debt; fifth to serve as cash collateral to be held by the Administrative Agent
to secure the LC Exposure; and any excess shall be paid to the Borrower or as
otherwise required by any Governmental Authority.

 

(d)           Swap Agreements between
the Borrower and any of its Subsidiaries and the Administrative Agent or a
Lender and/or any Lender Affiliate are secured by the Security Documents pari
passu with all other Debt. As such, proceeds from Security Documents shall be
shared pro rata on all Debt. All proceeds received after maturity of the Notes,
whether by acceleration or otherwise, shall be applied first to reimbursement
of expenses provided for in the Security Documents; next, all such proceeds
shall be split pro-rata between the Swap Agreements (which form part of the
Debt) on the one hand and all other Debt pursuant to this Agreement on the
other hand. Thereafter, all such proceeds applicable to the Notes and other
obligations under this Agreement shall be applied, first to reimbursement of
expenses and indemnities provided for in this Agreement; second to accrued
interest on the Notes; third to fees; fourth pro-rata to principal outstanding
on the Notes and other Debt; fifth to serve as cash collateral to be held by 

 

54

 

the Agent to secure the LC
Exposure; and any excess shall be paid to the Borrower or as otherwise required
by any Governmental Authority.

 

(e)           Acceleration and
termination of all Swap Agreements involving the Administrative Agent or
Lenders or the Lender Affiliates shall be governed by the terms of the Swap
Agreements.

 

ARTICLE VIII

 

The Administrative Agent

 

Each
of the Lenders and the Issuing Bank hereby irrevocably appoints the
Administrative Agent as its agent and authorizes the Administrative Agent to
take such actions on its behalf and to exercise such powers as are delegated to
the Administrative Agent by the terms hereof, together with such actions and
powers as are reasonably incidental thereto.

 

The
bank serving as the Administrative Agent hereunder shall have the same rights
and powers in its capacity as a Lender as any other Lender and may exercise the
same as though it were not the Administrative Agent, and such bank and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of business with the Borrower or any Subsidiary or other Affiliate thereof
as if it were not the Administrative Agent hereunder.

 

The
Administrative Agent shall not have any duties or obligations except those
expressly set forth herein. Without limiting the generality of the foregoing, (a) the
Administrative Agent shall not be subject to any fiduciary or other implied
duties, regardless of whether a Default has occurred and is continuing, (b) the
Administrative Agent shall not have any duty to take any discretionary action
or exercise any discretionary powers, except discretionary rights and powers
expressly contemplated hereby that the Administrative Agent is required to
exercise in writing as directed by the Required Lenders (or such other number
or percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 9.02),
and (c) except as expressly set forth herein, the Administrative Agent
shall not have any duty to disclose, and shall not be liable for the failure to
disclose, any information relating to the Borrower or any of its Subsidiaries
that is communicated to or obtained by the bank serving as Administrative Agent
or any of its Affiliates in any capacity. The Administrative Agent shall not be
liable for any action taken or not taken by it with the consent or at the request
of the Required Lenders (or such other number or percentage of the Lenders as
shall be necessary under the circumstances as provided in Section 9.02) or in the absence of
its own gross negligence or willful misconduct. The Administrative Agent shall
be deemed not to have knowledge of any Default unless and until written notice
thereof is given to the Administrative Agent by the Borrower or a Lender, and
the Administrative Agent shall not be responsible for or have any duty to
ascertain or inquire into (i) any statement, warranty or representation
made in or in connection with this Agreement, (ii) the contents of any
certificate, report or other document delivered hereunder or in connection
herewith, (iii) the performance or observance of any of the covenants,
agreements or other terms or conditions set forth herein, (iv) the
validity, enforceability, effectiveness or genuineness of this Agreement or any
other agreement, instrument or document, or (v) the satisfaction of any
condition set forth in Article IV
or elsewhere herein, other than to confirm receipt of items expressly required
to be delivered to the Administrative Agent.

 

The
Administrative Agent shall be entitled to rely upon, and shall not incur any
liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. The Administrative Agent
also may rely upon any statement made to it orally or by telephone and believed
by it to be made by the proper Person, and shall not incur any liability for
relying thereon. The Administrative Agent may 

 

55

 

consult with legal counsel (who may be counsel for the Borrower),
independent accountants and other experts selected by it, and shall not be
liable for any action taken or not taken by it in accordance with the advice of
any such counsel, accountants or experts.

 

The
Administrative Agent may perform any and all its duties and exercise its rights
and powers by or through any one or more sub-agents appointed by the
Administrative Agent. The Administrative Agent and any such sub-agent may
perform any and all its duties and exercise its rights and powers through their
respective Related Parties. The exculpatory provisions of the preceding
paragraphs shall apply to any such sub-agent and to the Related Parties of the
Administrative Agent and any such sub-agent, and shall apply to their
respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.

 

Subject
to the appointment and acceptance of a successor Administrative Agent as
provided in this paragraph, the Administrative Agent may resign at any time by
notifying the Lenders, the Issuing Bank and the Borrower. Upon any such
resignation, the Required Lenders shall have the right to appoint a successor
Administrative Agent; provided that, so long as no Event of Default has
occurred and is continuing, such successor shall have been approved in writing
by the Borrower, which approval shall not be unreasonably withheld. If no
successor shall have been so appointed by the Required Lenders and shall have
accepted such appointment within 30 days after the retiring Administrative
Agent gives notice of its resignation, then the retiring Administrative Agent
may, on behalf of the Lenders and the Issuing Bank, appoint a successor
Administrative Agent which shall be a bank with an office in New York, New
York, or an Affiliate of any such bank. Upon the acceptance of its appointment
as Administrative Agent hereunder by a successor, such successor shall succeed
to and become vested with all the rights, powers, privileges and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder. The fees payable by the
Borrower to a successor Administrative Agent shall be the same as those payable
to its predecessor unless otherwise agreed between the Borrower and such
successor. After the Administrative Agent’s resignation hereunder, the
provisions of this Article and Section 9.03
shall continue in effect for the benefit of such retiring Administrative Agent,
its sub-agents and their respective Related Parties in respect of any actions
taken or omitted to be taken by any of them while it was acting as
Administrative Agent.

 

Each
Lender acknowledges that it has, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Administrative Agent or any
other Lender and based on such documents and information as it shall from time
to time deem appropriate, continue to make its own decisions in taking or not
taking action under or based upon this Agreement, any related agreement or any
document furnished hereunder or thereunder.

 

ARTICLE IX

 

Miscellaneous

 

SECTION 9.01.
Notices.

 

(a)           Except in the case of
notices and other communications expressly permitted to be given by telephone
(and subject to paragraph (b) below),
all notices and other communications provided for herein shall be in writing
and shall be delivered by hand or overnight courier service, mailed by
certified or registered mail or sent by telecopy, as follows:

 

56

 

(i)            if to the Borrower, to
it at Cornell Companies, Inc., 1700 West Loop South,  Suite 1500, Houston, Texas 77027,
Attention of John R. Nieser, Chief Financial Officer and Treasurer,
(Telecopy No. 713-623-2853 and 713-623-0090) (send copy to both), with a
copy to Cornell Companies, Inc., 1700 West Loop South, Suite 1500,
Houston, Texas 77027, Attention of General Counsel, (Telecopy No. 281-657-9748
and 713-623-0090) (send copy to both);

 

(ii)           if to the
Administrative Agent, to JPMorgan Chase Bank, N.A., 707 Travis, Floor 7 North,
Houston, Texas, 77002, Attention of Terrence E. Hill, Vice President
(Telecopy No. 713-216-1290);

 

(iii)          if to the Issuing Bank,
to it at JPMorgan Chase Bank, N.A., 707 Travis, Floor 7 North, Houston, Texas,
77002, Attention of Terrence E. Hill, Vice President (Telecopy No. 713-216-1290);

 

(iv)          if to the Swingline
Lender, to it at JPMorgan Chase Bank, N.A., 707 Travis, Floor 7 North, Houston,
Texas, 77002, Attention of Terrence E. Hill, Vice President (Telecopy No. 713-216-1290);
and

 

(v)           if to any other Lender,
to it at its address (or telecopy number) set forth in Schedule 2.01 or as updated in its
Administrative Questionnaire.

 

All such notices and other communications (i) sent
by hand or overnight courier service, or mailed by certified or registered
mail, shall be deemed to have been given when received, or (ii) sent by
facsimile shall be deemed to have been given when sent; provided that if not
given during normal business hours for the recipient, shall be deemed to have
been given at the opening of business on the next Business Day for the
recipient.

 

(b)           Notices and other
communications to the Lenders hereunder may be delivered or furnished by
electronic communications pursuant to procedures approved by the Administrative
Agent; provided that the foregoing shall not apply to notices pursuant to Article II unless otherwise
agreed by the Administrative Agent and the applicable Lender. The
Administrative Agent or the Borrower may, in its discretion, agree to accept
notices and other communications to it hereunder by electronic communications
pursuant to procedures approved by it; provided that approval of such
procedures may be limited to particular notices or communications.

 

(c)           Any party hereto may
change its address or telecopy number for notices and other communications
hereunder by notice to the other parties hereto. All notices and other
communications given to any party hereto in accordance with the provisions of
this Agreement shall be deemed to have been given on the date of receipt.

 

SECTION 9.02.
Waivers; Amendments.

 

(a)           No failure or delay by
the Administrative Agent, the Issuing Bank or any Lender in exercising any
right or power hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Administrative Agent, the Issuing Bank and the
Lenders hereunder are cumulative and are not exclusive of any rights or
remedies that they would otherwise have. No waiver of any provision of this
Agreement or consent to any departure by the Borrower therefrom shall in any
event be effective unless the same shall be permitted by 

 

57

 

paragraph (b) of
this Section, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. Without limiting the
generality of the foregoing, the making of a Loan or issuance of a Letter of
Credit shall not be construed as a waiver of any Default, regardless of whether
the Administrative Agent, any Lender or the Issuing Bank may have had notice or
knowledge of such Default at the time.

 

(b)           Neither this Agreement
nor any provision hereof may be waived, amended or modified except pursuant to
an agreement or agreements in writing entered into by the Borrower and the
Required Lenders or by the Borrower and the Administrative Agent with the
consent of the Required Lenders; provided
that no such agreement shall (i) increase the Commitment of any Lender
without the written consent of such Lender, except as contemplated by Section 2.20, (ii) reduce the
principal amount of any Loan or LC Disbursement or reduce the rate of interest
thereon, or reduce any fees payable hereunder, without the written consent of
each Lender affected thereby, (iii) postpone the scheduled date of payment
of the principal amount of any Loan or LC Disbursement, or any interest
thereon, or any fees payable hereunder, or reduce the amount of, waive or
excuse any such payment, or postpone the scheduled date of expiration of any
Commitment, without the written consent of each Lender affected thereby, (iv) change
Section 2.18(b) or (c) in a manner that would
alter the pro rata sharing of payments required thereby, without the written
consent of each Lender, (v) change any of the provisions of this Section or
the definition of “Required Lenders” or any other provision hereof specifying
the number or percentage of Lenders required to waive, amend or modify any
rights hereunder or make any determination or grant any consent hereunder,
without the written consent of each Lender, or (vi) except as provided in
this Agreement, release all or substantially all of the Collateral (as defined
in the Security Agreement) without the written consent of each Lender; provided further that no such agreement
shall amend, modify or otherwise affect the rights or duties of the
Administrative Agent, the Issuing Bank or the Swingline Lender hereunder
without the prior written consent of the Administrative Agent, the Issuing Bank
or the Swingline Lender, as the case may be.

 

(c)           Notwithstanding
anything to the contrary contained herein, the Required Lenders shall not be
required to consent to, or enter into, any written instrument documenting
Borrower’s and/or any Subsidiaries’ pledge of additional Property pursuant to Section 5.09, including, without
limitation, any amendments, assumptions and/or supplements to the Loan
Documents; provided that the Administrative Agent
(on behalf of the Required Lenders) is a party thereto.

 

(d)           If, in connection with
any proposed amendment or waiver of any provision of this Agreement as
contemplated by clauses (i) through (iv), inclusive, of the first proviso
to Section 9.02(b),
the consent of the Required Lenders is obtained but the consents of one or more
other Lenders (“Non-Consenting
Lenders”) whose consents are required for
such amendment or waiver to become effective are not obtained, then the
Borrower shall have the right to replace such Non-Consenting Lenders with one
or more assignees pursuant to, and with the effect of an assignment under, Section 9.04 so long as at the
time of such replacement, each such assignee consents to the proposed amendment
or waiver. The Borrower shall not have the right to replace any Lender solely
as a result of the exercise of its rights or the withholding by it of any
consent under the second proviso to Section 9.02(b).

 

SECTION 9.03.
Expenses; Indemnity; Damage Waiver.

 

(a)           The Borrower shall pay (i) all
reasonable out-of-pocket expenses incurred by the Administrative Agent and its
Affiliates, including the reasonable fees, charges and disbursements of counsel
for the Administrative Agent, in connection with the syndication of the credit
facilities 

 

58

 

provided for herein, the
preparation and administration of this Agreement or any amendments,
modifications or waivers of the provisions hereof (whether or not the
transactions contemplated hereby or thereby shall be consummated), (ii) all
reasonable out-of-pocket expenses incurred by the Issuing Bank in connection
with the issuance, amendment, renewal or extension of any Letter of Credit or
any demand for payment thereunder and (iii) all out-of-pocket expenses
incurred by the Administrative Agent, the Issuing Bank or any Lender, including
the fees, charges and disbursements of any counsel for the Administrative
Agent, the Issuing Bank or any Lender, in connection with the enforcement or
protection of its rights in connection with this Agreement, including its
rights under this Section, or in connection with the Loans made or Letters of
Credit issued hereunder, including all such out-of-pocket expenses incurred
during any workout, restructuring or negotiations in respect of such Loans or
Letters of Credit.

 

(b)           The Borrower shall
indemnify the Administrative Agent, the Issuing Bank and each Lender, and each
Related Party of any of the foregoing Persons (each such Person being called an
“Indemnitee”) against, and hold each
Indemnitee harmless from, any and all losses, claims, damages, liabilities and
related expenses, including the fees, charges and disbursements of any counsel
for any Indemnitee, incurred by or asserted against any Indemnitee arising out
of, in connection with, or as a result of (i) the execution or delivery of
this Agreement or any agreement or instrument contemplated hereby, the
performance by the parties hereto of their respective obligations hereunder or
the consummation of the Transactions or any other transactions contemplated
hereby, (ii) any Loan or Letter of Credit or the use of the proceeds
therefrom (including any refusal by the Issuing Bank to honor a demand for payment
under a Letter of Credit if the documents presented in connection with such
demand do not strictly comply with the terms of such Letter of Credit), (iii) any
actual or alleged presence or release of Hazardous Materials on or from any
property owned or operated by the Borrower or any of its Subsidiaries, or any
Environmental Liability related in any way to the Borrower or any of its
Subsidiaries, or (iv) any actual or prospective claim, litigation,
investigation or proceeding relating to any of the foregoing, whether based on
contract, tort or any other theory and regardless of whether any Indemnitee is
a party thereto; provided that
such indemnity shall not, as to any Indemnitee, be available to the extent that
such losses, claims, damages, liabilities or related expenses are determined by
a court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or willful misconduct of such Indemnitee.

 

(c)           To the extent that the
Borrower fails to pay any amount required to be paid by it to the
Administrative Agent, the Issuing Bank or the Swingline Lender under paragraph (a) or (b) of this Section, each
Lender severally agrees to pay to the Administrative Agent, the Issuing Bank or
the Swingline Lender, as the case may be, such Lender’s Applicable Percentage
(determined as of the time that the applicable unreimbursed expense or
indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss,
claim, damage, liability or related expense, as the case may be, was incurred
by or asserted against the Administrative Agent, the Issuing Bank or the
Swingline Lender in its capacity as such.

 

(d)           To the extent permitted
by applicable law, the Borrower shall not assert, and hereby waives, any claim
against any Indemnitee, on any theory of liability, for special, indirect,
consequential or punitive damages (as opposed to direct or actual damages)
arising out of, in connection with, or as a result of, this Agreement or any
agreement or instrument contemplated hereby, the Transactions, any Loan or
Letter of Credit or the use of the proceeds thereof.

 

(e)           All amounts due under
this Section shall be payable promptly after written demand therefor.

 

59

 

SECTION 9.04.
Successors and Assigns.

 

(a)           The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby (including any
Affiliate of the Issuing Bank that issues any Letter of Credit), except that (i) the
Borrower may not assign or otherwise transfer any of its rights or obligations
hereunder without the prior written consent of each Lender (and any attempted
assignment or transfer by the Borrower without such consent shall be null and
void), it being understood that mergers, consolidations and other
organizational changes permitted under Section 6.03
of this Agreement shall not be deemed to be assignments for purposes of this
sentence, and (ii) no Lender may assign or otherwise transfer its rights
or obligations hereunder except in accordance with this Section. Nothing in
this Agreement, expressed or implied, shall be construed to confer upon any
Person (other than the parties hereto, their respective successors and assigns
permitted hereby (including any Affiliate of the Issuing Bank that issues any
Letter of Credit), Participants (to the extent provided in paragraph
(c) of this Section) and, to the extent expressly
contemplated hereby, the Related Parties of each of the Administrative Agent,
the Issuing Bank and the Lenders) any legal or equitable right, remedy or claim
under or by reason of this Agreement.

 

(b)                                                                                 (i)            Subject to the
conditions set forth in paragraph (b)(ii) below,
any Lender may assign to one or more assignees all or a portion of its rights
and obligations under this Agreement (including all or a portion of its
Commitment and the Loans at the time owing to it) with the prior written
consent (such consent not to be unreasonably withheld) of:

 

(A)          the Borrower, provided that no consent of the Borrower shall be required
for an assignment to a Lender, an Affiliate of a Lender, an Approved Fund (as
defined below) or, if an Event of Default has occurred and is continuing, any
other assignee; and

 

(B)           the Administrative
Agent, provided that no consent
of the Administrative Agent shall be required for an assignment to an assignee
that is a Lender immediately prior to giving effect to such assignment.

 

(ii)           Assignments shall be
subject to the following additional conditions:

 

(A)          except in the case of an
assignment to a Lender or an Affiliate of a Lender or an assignment of the
entire remaining amount of the assigning Lender’s Commitment or Loans of any
Class, the amount of the Commitment or Loans of the assigning Lender subject to
each such assignment (determined as of the date the Assignment and Assumption
with respect to such assignment is delivered to the Administrative Agent) shall
not be less than $5,000,000 unless each of the Borrower and the Administrative
Agent otherwise consent, provided
that no such consent of the Borrower shall be required if an Event of Default
has occurred and is continuing;

 

(B)           each partial assignment
shall be made as an assignment of a proportionate part of all the assigning
Lender’s rights and obligations under this Agreement;

 

60

 

 

(C)                                the
parties to each assignment shall execute and deliver to the Administrative
Agent an Assignment and Assumption, together with a processing and recordation
fee of $3,500; and

 

(D)                               the
assignee, if it shall not be a Lender, shall deliver to the Administrative
Agent an Administrative Questionnaire.

 

For
the purposes of this Section 9.04(b),
the term “Approved Fund”
has the following meaning:

 

“Approved Fund” means any Person (other
than a natural person) that is engaged in making, purchasing, holding or
otherwise investing in bank loans and similar extensions of credit in the
ordinary course of its business and that is administered or managed by (a) a
Lender, (b) an Affiliate of such Lender, or (c) an entity or an
Affiliate of an entity that administers or manages a Lender.

 

(iii)                               Subject
to acceptance and recording thereof pursuant to paragraph (b)(iv) of
this Section, from and after the effective date specified in each Assignment
and Assumption the assignee thereunder shall be a party hereto and, to the
extent of the interest assigned by such Assignment and Assumption, have the
rights and obligations of a Lender under this Agreement, and the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Assumption, be released from its obligations under this
Agreement (and, in the case of an Assignment and Assumption covering all of the
assigning Lender’s rights and obligations under this Agreement, such Lender
shall cease to be a party hereto but shall continue to be entitled to the
benefits of Sections 2.15, 2.16, 2.17
and 9.03). Any assignment or transfer
by a Lender of rights or obligations under this Agreement that does not comply
with this Section 9.04 shall be
treated for purposes of this Agreement as a sale by such Lender of a
participation in such rights and obligations in accordance with paragraph (c) of this Section.

 

(iv)                              The
Administrative Agent, acting for this purpose as an agent of the Borrower,
shall maintain at one of its offices a copy of each Assignment and Assumption
delivered to it and a register for the recordation of the names and addresses
of the Lenders, and the Commitment of, and principal amount of the Loans and LC
Disbursements owing to, each Lender pursuant to the terms hereof from time to
time (the “Register”). The entries in the
Register shall be conclusive and the Borrower, the Administrative Agent, the
Issuing Bank and the Lenders may treat each Person whose name is recorded
in the Register pursuant to the terms hereof as a Lender hereunder for all
purposes of this Agreement, notwithstanding notice to the contrary. The
Register shall be available for inspection by the Borrower, the Issuing Bank
and any Lender, at any reasonable time and from time to time upon reasonable
prior notice.

 

(v)                                 Upon
its receipt of a duly completed Assignment and Assumption executed by an
assigning Lender and an assignee, the assignee’s completed Administrative
Questionnaire (unless the assignee shall already be a Lender hereunder), the
processing and recordation fee referred to in paragraph (b) of
this Section and any written consent to such assignment required by paragraph (b) of this Section,
the Administrative Agent shall accept such Assignment and Assumption and record
the information contained therein in the Register; provided that if either the
assigning Lender or the assignee shall have failed to make any payment required
to be made by it pursuant to Section 2.05(c),
2.06(d) or (e),
2.07(b), 2.18(d) or 9.03(c),
the Administrative Agent shall have no obligation to accept such Assignment and
Assumption and record the 

 

61

 

information therein in the
Register unless and until such payment shall have been made in full, together
with all accrued interest thereon. No assignment shall be effective for
purposes of this Agreement unless it has been recorded in the Register as
provided in this paragraph.

 

(c)                                                                                  (i)                                     Any
Lender may, without the consent of the Borrower, the Administrative Agent, the
Issuing Bank or the Swingline Lender, sell participations to one or more banks
or other entities (a “Participant”)
in all or a portion of such Lender’s rights and obligations under this
Agreement (including all or a portion of its Commitment and the Debt owing to
it); provided that (A) such
Lender’s obligations under this Agreement shall remain unchanged, (B) such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations and (C) the Borrower, the Administrative
Agent, the Issuing Bank and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender’s rights and
obligations under this Agreement. Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce this Agreement and to approve any amendment,
modification or waiver of any provision of this Agreement; provided that such agreement or instrument
may provide that such Lender will not, without the consent of the
Participant, agree to any amendment, modification or waiver described in the
first proviso to Section 9.02(b) that
affects such Participant. Subject to paragraph (c)(ii) of
this Section, the Borrower agrees that each Participant shall be entitled to
the benefits of Sections 2.15, 2.16
and 2.17 to the same extent as if it
were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section.
To the extent permitted by law, each Participant also shall be entitled to the
benefits of Section 9.08 as though it
were a Lender, provided such Participant agrees to be subject to Section 2.18(c) as though
it were a Lender.

 

(ii)                                  A
Participant shall not be entitled to receive any greater payment under Section 2.15 or 2.17 than the applicable Lender
would have been entitled to receive with respect to the participation sold to
such Participant, unless the sale of the participation to such Participant is
made with the Borrower’s prior written consent. A Participant that would be a
Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.17 unless the
Borrower is notified of the participation sold to such Participant and such
Participant agrees, for the benefit of the Borrower, to comply with Section 2.17(e) as though
it were a Lender.

 

(d)                                 Any
Lender may at any time pledge or assign a security interest in all or any
portion of its rights under this Agreement to secure obligations of such
Lender, including any pledge or assignment to secure obligations to a Federal
Reserve Bank, and this Section shall not apply to any such pledge or
assignment of a security interest; provided
that no such pledge or assignment of a security interest shall release a Lender
from any of its obligations hereunder or substitute any such pledgee or
assignee for such Lender as a party hereto.

 

SECTION 9.05.
Survival. All covenants, agreements, representations and
warranties made by the Borrower herein and in the certificates or other
instruments delivered in connection with or pursuant to this Agreement shall be
considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of this Agreement and the making of any
Loans and issuance of any Letters of Credit, regardless of any investigation
made by any such other party or on its behalf and 

 

62

 

notwithstanding
that the Administrative Agent, the Issuing Bank or any Lender may have had
notice or knowledge of any Default or incorrect representation or warranty at
the time any credit is extended hereunder, and shall continue in full force and
effect as long as the principal of or any accrued interest on any Loan or any
fee or any other amount payable under this Agreement is outstanding and unpaid or
any Letter of Credit is outstanding and so long as the Commitments have not
expired or terminated. The provisions of Sections 2.15, 2.16, 2.17 and 9.03 and Article VIII
shall survive and remain in full force and effect regardless of the
consummation of the Transactions contemplated hereby, the repayment of the
Loans, the expiration or termination of the Letters of Credit and the
Commitments or the termination of this Agreement or any provision hereof.

 

SECTION 9.06.
Counterparts; Integration; Effectiveness. This Agreement may be
executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which
when taken together shall constitute a single contract. This Agreement and any
separate letter agreements with respect to fees payable to the Administrative
Agent constitute the entire contract among the parties relating to the subject
matter hereof and supersede any and all previous agreements and understandings,
oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement
shall become effective when it shall have been executed by the Administrative
Agent and when the Administrative Agent shall have received counterparts hereof
which, when taken together, bear the signatures of each of the other parties
hereto, and thereafter shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. Delivery of an
executed counterpart of a signature page of this Agreement by
telecopy shall be effective as delivery of a manually executed counterpart of
this Agreement.

 

SECTION 9.07.
Severability. Any provision of this Agreement held to be invalid,
illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability
without affecting the validity, legality and enforceability of the remaining
provisions hereof; and the invalidity of a particular provision in a particular
jurisdiction shall not invalidate such provision in any other jurisdiction.

 

SECTION 9.08.
Right of Setoff. If an Event of Default shall have occurred and
be continuing, each Lender and each of its Affiliates is hereby authorized at
any time and from time to time, to the fullest extent permitted by law, to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other obligations at any time owing
by such Lender or Affiliate to or for the credit or the account of the Borrower
against any of and all the obligations of the Borrower now or hereafter
existing under this Agreement held by such Lender, irrespective of whether or
not such Lender shall have made any demand under this Agreement and although such
obligations may be unmatured. The rights of each Lender under this Section are
in addition to other rights and remedies (including other rights of setoff)
which such Lender may have.

 

SECTION 9.09.
Governing Law; Jurisdiction; Consent to Service of Process.

 

(a)                                  This
Agreement shall be construed in accordance with and governed by the law of the
State of Texas.

 

(b)                                 The
Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of the Supreme Court of the State of
Texas sitting in Travis County and of the United States District Court of the
Southern District of Texas, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to this Agreement, or for recognition
or enforcement of any judgment, and each of the parties hereto hereby
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such Texas State or,
to the extent permitted by law, 

 

63

 

in such Federal court. Each of
the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions
by suit on the judgment or in any other manner provided by law. Nothing in this
Agreement shall affect any right that the Administrative Agent, the Issuing
Bank or any Lender may otherwise have to bring any action or proceeding
relating to this Agreement against the Borrower or its properties in the courts
of any jurisdiction.

 

(c)                                  The
Borrower hereby irrevocably and unconditionally waives, to the fullest extent
it may legally and effectively do so, any objection which it may now
or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section.
Each of the parties hereto hereby irrevocably waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such court.

 

(d)                                 Each
party to this Agreement irrevocably consents to service of process in the
manner provided for notices in Section 9.01.
Nothing in this Agreement will affect the right of any party to this Agreement
to serve process in any other manner permitted by law.

 

SECTION 9.10.
WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT
IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

SECTION 9.11.
Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of
this Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.

 

SECTION 9.12.
Confidentiality. (a) Each of the Administrative Agent, the
Issuing Bank and the Lenders agrees to maintain the confidentiality of the
Information (as defined below), except that Information may be disclosed (i) to
its and its Affiliates’ directors, officers, employees and agents, including
accountants, legal counsel and other advisors (it being understood that the
Persons to whom such disclosure is made will be informed of the confidential
nature of such Information and instructed to keep such Information
confidential), (ii) to the extent requested by any regulatory authority, (iii) to
the extent required by applicable laws or regulations or by any subpoena or
similar legal process, (iv) to any other party to this Agreement, (v) in
connection with the exercise of any remedies hereunder or any suit, action or
proceeding relating to this Agreement or the enforcement of rights hereunder, (vi) subject
to an agreement containing provisions substantially the same as those of this
Section, to (1) any assignee of or Participant in, or any prospective
assignee of or Participant in, any of its rights or obligations under this
Agreement or (2) any actual or prospective counterparty (or its advisors)
to any swap or derivative transaction relating to the Borrower and its
obligations, (vii) with the consent of the Borrower or (viii) to the
extent such Information (1) becomes publicly available other than as a
result of a breach of this Section or (2) becomes available to the
Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis
from a source other than the Borrower. For the purposes of this Section, “Information” means all information
received from the Borrower relating to the Borrower or its 

 

64

 

business,
other than any such information that is available to the Administrative Agent,
the Issuing Bank or any Lender on a nonconfidential basis prior to disclosure
by the Borrower; provided that,
in the case of information received from the Borrower after the date hereof,
such information is clearly identified at the time of delivery as confidential.
Any Person required to maintain the confidentiality of Information as provided
in this Section shall be considered to have complied with its obligation
to do so if such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own
confidential information.

 

(b)                                 EACH LENDER ACKNOWLEDGES
THAT INFORMATION AS DEFINED IN SECTION 9.12(a) FURNISHED TO IT
PURSUANT TO THIS AGREEMENT MAY INCLUDE MATERIAL NON-PUBLIC INFORMATION
CONCERNING THE BORROWER AND ITS RELATED PARTIES OR THEIR RESPECTIVE SECURITIES,
AND CONFIRMS THAT IT HAS DEVELOPED COMPLIANCE PROCEDURES REGARDING THE USE OF
MATERIAL NON-PUBLIC INFORMATION AND THAT IT WILL HANDLE SUCH MATERIAL
NON-PUBLIC INFORMATION IN ACCORDANCE WITH THOSE PROCEDURES AND APPLICABLE LAW,
INCLUDING FEDERAL AND STATE SECURITIES LAWS.

 

(c)                                  ALL INFORMATION, INCLUDING
REQUESTS FOR WAIVERS AND AMENDMENTS, FURNISHED BY THE BORROWER OR THE
ADMINISTRATIVE AGENT PURSUANT TO, OR IN THE COURSE OF ADMINISTERING, THIS
AGREEMENT WILL BE SYNDICATE-LEVEL INFORMATION, WHICH MAY CONTAIN MATERIAL
NON-PUBLIC INFORMATION ABOUT THE BORROWER[, THE LOAN PARTIES] AND [ITS] [THEIR]
RELATED PARTIES OR [ITS] [THEIR RESPECTIVE] SECURITIES. ACCORDINGLY, EACH
LENDER REPRESENTS TO THE BORROWER AND THE ADMINISTRATIVE AGENT THAT IT HAS
IDENTIFIED IN ITS ADMINISTRATIVE QUESTIONNAIRE A CREDIT CONTACT WHO MAY RECEIVE
INFORMATION THAT MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE
WITH ITS COMPLIANCE PROCEDURES AND APPLICABLE LAW.

 

SECTION 9.13.
Interest Rate Limitation. Notwithstanding anything herein to the
contrary, if at any time the interest rate applicable to any Loan, together
with all fees, charges and other amounts which are treated as interest on such
Loan under applicable law (collectively the “Charges”),
shall exceed the maximum lawful rate (the “Maximum Rate”)
which may be contracted for, charged, taken, received or reserved by the
Lender holding such Loan in accordance with applicable law, the rate of
interest payable in respect of such Loan hereunder, together with all Charges
payable in respect thereof, shall be limited to the Maximum Rate and, to the
extent lawful, the interest and Charges that would have been payable in respect
of such Loan but were not payable as a result of the operation of this Section shall
be cumulated and the interest and Charges payable to such Lender in respect of
other Debt or periods shall be increased (but not above the Maximum Rate
therefor) until such cumulated amount, together with interest thereon at the
Federal Funds Effective Rate to the date of repayment, shall have been received
by such Lender.

 

SECTION 9.14.
Swap Agreements. Notwithstanding anything to the contrary
contained herein, the terms and provisions of this Agreement shall not apply to
any Swap Agreements, except to the extent necessary for all Swap Agreements
with Lenders and/or their Affiliates to be secured by the Security Documents on
a pari passu basis with other Debt and for the proceeds from the Security
Documents to be applied as set forth in Section 7.02(d) hereof.

 

SECTION 9.15.
USA Patriot Act Notice. Each Lender is subject to the
requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed
into law October 26, 2001)) (as amended, restated, 

 

65

 

modified,
supplemented or replaced, the “USA Patriot
Act”), and hereby notifies the Borrower that it is required to
obtain, verify and record information that identifies the Borrower and its
Subsidiaries, which information includes the name and address of the Borrower
and such Subsidiaries and other information that will allow such Lender to
identify the Borrower and its Subsidiaries in accordance with the USA Patriot
Act.

 

SECTION 9.16.
Restatement. This Agreement amends, restates and supercedes the
Existing Credit Agreement. It is the intention of the parties that all Liens
and security interests securing the Existing Credit Agreement continue to
exist, remain valid and shall not be impaired or released hereby and shall
remain in full force and effect as provided in the Security Documents.

 

[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK -

SIGNATURE PAGE FOLLOWS]

 

66

 

IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.

 

 

	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  CORNELL COMPANIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JOHN R. NIESER

  
	
   

  	
   

  	
  John R. Nieser, Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ADMINISTRATIVE AGENT:

  
	
   

  	
   

  
	
   

  	
  JPMORGAN CHASE BANK, N.A.,
  individually and as 

  
	
   

  	
  Administrative Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ TERRENCE E. HILL

  
	
   

  	
   

  	
  Terrence E. Hill, Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SYNDICATION AGENT:

  
	
   

  	
   

  
	
   

  	
  BANK OF AMERICA, N.A.,
  individually and as Syndication 

  
	
   

  	
  Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ GARY L. MINGLE

  
	
   

  	
   

  	
  Gary L. Mingle, Senior Vice President

  

 

Signature Page

 

	
   

  	
  SUBSIDIARIES:

  
	
   

  	
   

  
	
   

  	
  CORNELL CORRECTIONS MANAGEMENT, INC.,
  a 

  
	
   

  	
  Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JOHN R. NIESER

  
	
   

  	
   

  	
  John R. Nieser, Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CORNELL CORRECTIONS OF TEXAS, INC.,
  a Delaware

  
	
   

  	
  corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JOHN R. NIESER

  
	
   

  	
   

  	
  John R. Nieser, Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CORNELL CORRECTIONS OF RHODE ISLAND, INC.,
  a

  
	
   

  	
  Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JOHN R. NIESER

  
	
   

  	
   

  	
  John R. Nieser, Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CORNELL CORRECTIONS OF CALIFORNIA, INC.,
  a

  
	
   

  	
  California corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JOHN R. NIESER

  
	
   

  	
   

  	
  John R. Nieser, Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CCG I CORPORATION,
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JOHN R. NIESER

  
	
   

  	
   

  	
  John R. Nieser, Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CORNELL ABRAXAS GROUP, INC.,
  a Delaware 

  
	
   

  	
  corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JOHN R. NIESER

  
	
   

  	
   

  	
  John R. Nieser, Chief Financial Officer

  

 

 

	
   

  	
  CORNELL CORRECTIONS OF ALASKA, INC.,
  an Alaska

  
	
   

  	
  corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JOHN R. NIESER

  
	
   

  	
   

  	
  John R. Nieser, Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CORNELL INTERVENTIONS, INC.,
  an Illinois corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JOHN R. NIESER

  
	
   

  	
   

  	
  John R. Nieser, Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  WBP LEASING, INC.,
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JOHN R. NIESER

  
	
   

  	
   

  	
  John R. Nieser, Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CORNELL INTERNATIONAL, INC.,
  a Delaware 

  
	
   

  	
  corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JOHN R. NIESER

  
	
   

  	
   

  	
  John R. Nieser, Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CORRECTIONAL SYSTEMS, INC.,
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JOHN R. NIESER

  
	
   

  	
   

  	
  John R. Nieser, Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SENTENCING CONCEPTS, INC.,
  a California corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JOHN R. NIESER

  
	
   

  	
   

  	
  John R. Nieser, Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CORNELL ARCHWAY, INC.,
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JOHN R. NIESER

  
	
   

  	
   

  	
  John R. Nieser, Chief Financial Officer

  

 

 

	
   

  	
  CORNELL COMPANIES MANAGEMENT SERVICES 

  
	
   

  	
  LIMITED PARTNERSHIP,
  a Delaware limited partnership

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Cornell Companies Management LP,
  a Delaware

  
	
   

  	
   

  	
  limited partnership, its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Cornell Companies Administration, LLC,
  a

  
	
   

  	
   

  	
   

  	
  Delaware limited liability company, its
  general

  
	
   

  	
   

  	
   

  	
  partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/ JOHN R. NIESER

  
	
   

  	
   

  	
   

  	
   

  	
  John R. Nieser, Manager

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  CORNELL COMPANIES MANAGEMENT LP,
  a Delaware

  
	
   

  	
  limited partnership

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Cornell Companies Administration, LLC,
  a Delaware

  
	
   

  	
   

  	
  limited liability company, its general
  partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ JOHN R. NIESER

  
	
   

  	
   

  	
   

  	
  John R. Nieser, Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CORNELL COMPANIES MANAGEMENT HOLDINGS,

  
	
   

  	
  LLC, a Delaware
  limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JOHN R. NIESER

  
	
   

  	
   

  	
  John R. Nieser, Manager

  
	
   

  	
   

  
	
   

  	
  CORNELL COMPANIES ADMINISTRATION, LLC,
  a

  
	
   

  	
  Delaware limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JOHN R. NIESER

  
	
   

  	
   

  	
  John R. Nieser, Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  WBP LEASING LLC, a
  Delaware limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JOHN R. NIESER

  
	
   

  	
   

  	
  John R. Nieser, Manager

  
	
   

  	
   

  

 

 

	
   

  	
  LENDERS:

  
	
   

  	
   

  
	
   

  	
  JPMORGAN CHASE BANK, N.A.,
  individually

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ TERRENCE E. HILL

  
	
   

  	
   

  	
  Terrence E. Hill, Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BANK OF AMERICA, N.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ GARY L. MINGLE

  
	
   

  	
   

  	
  Gary L. Mingle, Senior Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  COMERICA BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ DE VON J. LANG

  
	
   

  	
   

  	
  De Von J. Lang, Corporate Banking Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  WACHOVIA BANK, NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ MICHAEL QUIRAY

  
	
   

  	
   

  	
  Michael Quiray, Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  GUARANTY BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JEREMY JACKSON

  
	
   

  	
   

  	
  Jeremy Jackson, Vice PresidentExhibit 10.28

October 8, 2007

CONFIDENTIAL

Mr. R. Jeffrey Bailly

12 Boyd Drive

Newburyport, MA 01950

Dear Mr. Bailly:

This
letter agreement constitutes the entire agreement between UFP Technologies,
Inc. (the “Company”) and you regarding the terms of your employment with the
Company.

1.                                       This
Agreement shall be effective as of October 8, 2007.

2.                                       You
shall serve as President and Chief Executive Officer of the Company on a
full-time basis subject to the supervision and direction of the Board of
Directors of the Company.  You shall
receive the following base compensation: (i) annual salary of not less than
$300,000 payable in equal weekly installments; and (ii) a stock grant award to
be made by the Compensation Committee of the Board (the “Committee”) on or about
January 1 of each calendar year (the “Annual Stock Grant Award”) entitling you
to receive on or before December 31 of each year (the “Issue Date”) an
aggregate of 25,000 shares of the $.01 par value Common Stock of the Company
under the Company’s 2003 Equity Incentive Plan (the “Equity Incentive Plan”),
subject to your continued employment with the Company through the Issue Date
and subject to the terms and conditions set forth below in this Agreement.  In addition, you shall be eligible for an
annual incentive bonus based on an annual bonus plan approved by the Committee
and keyed to achievement of such fiscal year financial and strategic objectives
of the Company as the Committee may from time to time determine.  Subject to the provisions hereof, your employment
by the Company may be terminated by the Company at any time.  You shall not be required to relocate from
the Greater Boston, Massachusetts area to discharge your responsibilities in
the event the executive offices of the Company are moved outside of such area.

3.                                       In
the event of (a) a “Change in Control” of the Company (as hereinafter defined),
or (b) the termination of your employment by the Company without “Cause” as
hereinafter defined, or the voluntary termination of your employment for “Good
Reason” as hereinafter defined, subject to the provisions of Paragraph 12
below, any shares in the Annual Stock Grant

 

Award not issued to you to which you would otherwise
be entitled as of the next Issue Date following such change of change of
control or such termination shall be immediately issued to you.  No payment for such shares will be
required.  The number of shares shall be
subject to adjustment for stock splits, stock dividends and the like in the
same manner as provided under Section 8 of the Equity Incentive Plan.  In connection with the issuance of shares
pursuant to the Annual Stock Grant Award, subject to the provisions of
Paragraph 8 of this Agreement, the Company shall reimburse you for the amount
of federal and state income taxes so that you will not be out-of pocket on an
after-tax basis with respect thereto. 
You acknowledge that such shares will be acquired for investment and not
with a view to distribution and that the certificates for such shares shall
bear an appropriate legend.

4.                                       a.
            A “Change in Control” of the
Company shall be deemed to have occurred if, after the date hereof any person
(as defined in Section 13(d) or 14(d)(2) of the Securities Exchange Act of
1934) shall become at any time or in any manner the beneficial owner of capital
stock of the Company representing more than 30% of the voting power of the
Company.  In addition, any of the events
constituting a “Change in Control” under your Stock Unit Award agreement dated
July 1, 2006 (the “2006 Stock Unit Award”) shall also constitute a “Change in
Control” under this Agreement except for the event described in Paragraph
2(c)(iii) of the 2006 Stock Unit Award.

b.             “Good
Reason” shall mean (i) reduction in your base salary below $300,000 or such
higher base salary as is in effect immediately prior to such reduction, (ii)
elimination of, or reduction in the number of shares awarded to you pursuant
to, the Annual Stock Grant Award, (iii) the failure of the Company to make the
tax gross up payments to you in connection with your Annual Stock Grant Award,
(iv) elimination of the annual bonus plan referred to in Paragraph 2 above, (v)
removal from your positions as President or Chief Executive Officer of the
Company, or failure to re-elect or reappoint you to such positions, (vi)
a material decrease in your duties or responsibilities or the assignment to you
of duties and responsibilities, which are materially inconsistent with such
positions, (vii) the Company’s requiring you to relocate your permanent
residence outside the Greater Boston, Massachusetts area, or (viii) the failure
of the Company to obtain the assumption in writing of its obligations to
perform this Agreement by any successor entity pursuant to Paragraph 16 below
(which failure shall be a basis for “Good Reason” but shall not give rise to
any additional liability).

c.             “Cause”
shall mean (i) conviction of, or the entry of a pleading of nolo contendere by
you to, a felony or a misdemeanor involving fraud, embezzlement or similar act
of dishonesty committed by you against the

 2
 

 

Company, with all appeals relating thereto having been
successfully exhausted, (ii) the material breach of your obligations under any
confidentiality agreement with the Company executed by you, or (iii) your
willful and continued failure to perform your employment duties and
obligations, unless any of such acts or omissions were done or omitted to be
done in good faith and with the reasonable belief that such act or omission was
in the best interests of the Company.

5.                                       a.  You shall also be eligible for the grant or
award from time to time of shares of restricted stock, bonus stock, options or
other stock rights (collectively “Stock Rights”) under the 2003 Equity
Incentive Plan, the Company’s 1993 Stock Option Plan, or such other
equity-based incentive plan as may hereafter be adopted by the Company, in each
case, as the Committee may from time to time determine.

b.   Subject to
the provisions of Paragraph 12 below, any unvested Annual Stock Grant Award and
all Stock Rights now owned by you or hereafter awarded to you that are fully
earned but subject to a vesting schedule will be fully exercisable in the event
of (i) a “Change in Control” of the Company or (ii) the termination of your
employment by the Company without “Cause”, or termination of your employment
for “Good Reason”.

6.                                       The
Company shall pay directly or reimburse you for all annual dues, annual
assessments, and the costs of entertaining customers and prospective customers
at the Ipswich Country Club and the Windward Marina Yacht Club, or similar
clubs, and for tax preparation fees incurred by you. The Company shall also
reimburse you for the cost of all executive education programs you may attend,
including, without limitation, all fees and expenses related to the Young
Presidents’ Organization. The Company shall also provide you with an automobile
and shall pay all expenses for gas and other maintenance therefor.  You shall also be entitled to participate in
such fringe benefit plans and employee benefit plans as are maintained by the
Company from time to time for its employees generally, or for its senior
executives in particular, on the same basis and subject to the same
requirements and limitations as may be made applicable to other senior
executive employees of the Company. 
Also, the Company will arrange for, and maintain in effect, while you
are employed by the Company, at its expense, a whole-life insurance policy on
your life payable to your designated beneficiary in the face amount of
$1,500,000.  If you are still employed by
the Company on January 1, 2010, then effective as of such date, the face amount
of such policy shall be increased to $2,000,000.  The face amount of such policy shall be
increased by an additional $500,000 at the conclusion of each five-year period
thereafter during the term of your employment. 
You will be deemed the owner of the policy at all times and the amount
of the premium shall constitute taxable income to you.  In addition, the Company

 3
 

 

will include you under
the director and officer liability insurance coverage maintained by the
Company.

7.                                       If
after the effective date hereof, your employment is terminated without “Cause”,
you voluntarily terminate your employment for “Good Reason”, or you voluntarily
terminate your employment for any reason or for no reason within a period of
six (6) months following a “Change in Control”, then subject to the limitations
set forth in this agreement, you will be paid in a lump sum on the date which
is (6) months plus one day following such termination, an amount equal to 3 times
your average annual compensation for the two full fiscal years preceding the
date of such termination (“Termination Pay”).  
For purposes of this Paragraph 7, average annual compensation for such
fiscal years shall be determined with reference to the aggregate base salary,
Annual Stock Grant Award, tax gross-up related to the Annual Stock Grant Award
and bonus compensation earned by you in such fiscal years (including any bonus
compensation accrued for such fiscal years but not paid as of the date of such
termination).  Your Termination Pay will
be subject to normal deductions for taxes, benefit plan contributions, other
payroll deductions and any amount due the Company as a result of cash advances.  Termination for “Cause” shall not take effect
unless you are given prior written notice of the Company’s intention to
terminate you for “Cause” specifying in reasonable detail the acts or omissions
constituting the alleged “Cause” and a period of thirty (30) days from the date
of such notice to correct the matter described by the Company as constituting
such alleged “Cause”.  You agree to give
the Company at least thirty (30) days prior written notice of the termination
of your employment for any reason and the giving of such notice shall be a
condition precedent to payment to you of Termination Pay hereunder.  You shall not be entitled to Termination Pay
as a result of termination by reason of your death, disability (as defined in
Paragraph 9) or retirement.

8.                                       In the event
that the aggregate of all payments or benefits made or provided to you under
Paragraph 7 above and under all other plans and programs of the Company (the “Aggregate
Payment”) is determined to constitute a Parachute Payment, as such term is
defined in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended
(the “Code”), then notwithstanding any other provision of this Agreement to the
contrary the aggregate amount of payments or benefits paid by the Company to
you pursuant to said Paragraph 7 shall be reduced to the maximum amount (if
any) that can be so provided without any portion of the Aggregate Payment being
subject to any excise tax imposed by Section 4999 of the Code. The
determination of whether the Aggregate Payment constitutes a Parachute Payment
and, if so, the amount to be paid to you shall be made by the Company’s
independent auditor, provided, however, that you shall have the right to elect
which type of

 4
 

 

benefits
hereunder are to be reduced or retained so as to avoid the imposition of said
excise tax, and provided further that such right to elect does not itself
trigger any additional excise tax or a violation of Paragraph 12 below.

9.                                       In
the event of your “disability” as defined herein, your employment shall
automatically terminate.  The term “disability”
shall mean your inability because of physical or mental incapacity to perform
your usual duties as President and Chief Executive Officer of the Company for a
period of one hundred eighty (180) days in any consecutive twelve (12) month
period.  During such 180 day period, you
shall continue to receive your full salary and bonus compensation and all other
benefits as provided herein.

10.                                 In
the event of termination of your employment for any reason, you shall be
entitled to (i) salary through the date of termination and any bonus
compensation accrued but not paid as of the date of termination, (ii)
reimbursement for reimbursable expenses incurred prior to the date of
termination, (iii) payment under any benefit plan maintained for your benefit
prior to the date of such termination, (iv) indemnification and coverage under
director and officer liability insurance maintained by the Company with respect
to your employment prior to the date of such termination, and (v) benefits
under any agreements pertaining to Stock Rights referred to in Paragraph 5 to
the extent therein provided.  In
addition, your health insurance coverage will continue for the period permitted
by such coverage for a period of thirty-six months in the event your employment
is terminated without “Cause”, or you voluntarily terminate your employment for
“Good Reason” subject to the appropriate contribution from you, if
applicable.  Upon the expiration of such
coverage during such thirty-six month period, the Company will reimburse you
for the cost of comparable health insurance coverage, provided  however,
that the amount of such reimbursement shall be subject to gross-up for federal
and state income taxes so that you will not be out-of pocket on an after-tax
basis with respect thereto.  The
foregoing provisions are subject to the provisions of Paragraph 12 below.

11.                                 In
the event of termination of your employment for any reason (whether voluntary
or involuntary or with or without “Cause”), then for a period of eighteen (18)
months from the date of such termination of your employment, you shall not,
directly or indirectly, (a) solicit or pursue, either for yourself or for the
benefit of any entity (including any entity by whom you are employed) or assist
any such entity (including any entity by whom you are employed) to solicit or
pursue, for the purpose of soliciting business for the design and/or
manufacture of products which are competitive with any products designed or
manufactured by the Company for any customers or clients of the Company who
were such at any time within the twelve (12) month period prior to such date of
termination; or (b)

 5
 

 

attempt to or assist any such entity (including any
entity by whom you are employed) in attempting to do any of the following:  (i) hire any person who is or was, at any time
within the six (6) month period prior to such date of termination, a director,
officer, employee, or agent of the Company (unless the Company terminated such
relationship), or encourage any such person to terminate such relationship,
(ii) encourage any customer, client, supplier or other business relationship of
the Company or any former customer, client, supplier or other business
relationship of the Company, to terminate or adversely alter such relationship,
whether contractual or otherwise, to the disadvantage of the Company, or (iii)
encourage any prospective customer or supplier not to enter into a business
relationship with the Company.  You agree
that your obligations under this Paragraph 11 are special, unique, and
extraordinary and that any breach by you of such obligations shall be deemed
material, and shall be deemed to cause irreparable injury not properly
compensable by damages in an action at law, and the rights and remedies of the
Company under this Paragraph 11 may, therefore, be enforced both at law and in
equity, by injunction or otherwise.  For
purposes of this Paragraph 11, the term “Company” shall include its
subsidiaries or divisions.

12.                                 Notwithstanding anything herein to the
contrary, (i) if at the time of your termination of employment with the Company you are a “specified employee” as defined in Section
409A of the Internal Revenue Code of
1986, as amended (the “Code”) and the deferral of the commencement of any
payments or benefits otherwise payable hereunder as a result of such termination
of employment is necessary in order to prevent any accelerated or additional
tax under Section 409A of the
Code, then the Company will defer the commencement of the payment of any such
payments or benefits hereunder, including payments for continued health
benefits, (without any reduction in such payments or benefits ultimately paid
or provided to you, including,
for the avoidance of doubt, reimbursement for expenses paid by you to elect and pay for continuation of health
care coverage in accordance with COBRA during such period) until the date that
is six months and one day following your termination of employment with the Company (or the earliest date as is
permitted under Section 409A of
the Code) and (ii) if any other payments of money or other benefits due to
you hereunder could cause the
application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits
shall be deferred if deferral will make such payment or other benefits
compliant under Section 409A of
the Code, or otherwise such payment or other benefits shall be restructured, to
the extent possible, in a manner, determined by the Board, that does not cause
such an accelerated or additional tax.

13.                                 If
at any time a controversy between you and the Company arises as to the meaning
or operation of this Agreement other than a controversy with

 6
 

 

respect to Paragraph 11 hereof, such controversy shall
be submitted to arbitration by either party in Boston, Massachusetts, before an
arbitrator to be named by the President of the Boston Branch of the American
Arbitration Association.  Such
arbitration proceedings shall be conducted in accordance with the rules and
procedures then in effect of the American Arbitration Association.  The decision of the arbitrator shall be
binding upon the parties and judgment on any award made by the arbitrator may
be entered in any court having jurisdiction thereof.  The costs of the arbitrator shall be borne
equally by you and the Company.  Each
party will bear his or its own legal costs.

14.                                 This
Agreement shall be governed by and interpreted in accordance with the laws of
the Commonwealth of Massachusetts without reference to principles of conflict
of laws.

15.                                 This
Agreement contains the entire agreement of the parties in respect of this
transaction and supersedes any prior agreement or understanding relating to
your employment by the Company, including without limitation, your employment
agreement dated April 4, 1995 and your employment agreement dated April 3,
2000.  This Agreement shall also
constitute an amendment of your Stock Unit Awards granted on July 1, 2006 and
February 26, 2007.  To the extent there
exists any inconsistency in the terms and conditions of said Stock Unit Award Agreements
and this Agreement, the provisions of this Agreement shall control.  No amendment or modification of any provision
hereof will be valid unless in writing signed by both parties.  Any waiver must be in writing and signed by
you or an authorized officer of the Company, as the case may be.

16.                                 This
Agreement shall be binding upon and inure to the benefit of: (a) the
Company, and any successors or assigns of the Company, whether by way of a
merger or consolidation, or liquidation of the Company, or by way of the
Company selling all or substantially all of the assets and business of the
Company to a successor entity; and, subject to the Company’s right to terminate
your employment at any time, the Company agrees to require any successor entity
to expressly assume or unconditionally guarantee the Company’s obligations
under this Agreement (unless such obligations are assumed by operation of law);
and (b) you and your heirs, executors and administrators.

17.                                 Any
notice or other communication required hereunder shall be in writing, shall be
deemed to have been given and received when delivered in person, or, if mailed,
shall be deemed to have been given when deposited in the United States mail,
first class, registered or certified, return receipt requested, with proper
postage prepaid, and shall be deemed to have been received on the third
business day thereafter, and shall be addressed as follows:

 7
 

 

If to the Company, addressed to:

172 E. Main Street

Georgetown, MA 01833

Attn: Vice President - Finance

If to you, addressed to:

12 Boyd Drive

Newburyport, MA 01950

or such other
address as to which any party hereto may have notified the other in writing.

If
this letter correctly sets forth our understanding and agreement, please
indicate your acceptance by signing both copies of this letter and returning
one copy.

	
  

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  /s/ Ronald J. Lataille

  
	
   

  	
  Ronald J.
  Lataille,

  
	
   

  	
  Chief Financial
  Officer

  
	
  Agreed To:
  October 8, 2007

  	
   

  
	
   

  	
   

  
	
  /s/
  R. Jeffrey Bailly

  	
   

  	 

	
  R. Jeffrey Bailly

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Approved by the Compensation Committee as of October
  8, 2007

  
	
   

  	
   

  
	
  /s/ Marc Kozin

  	
   

  	 

	
  Marc Kozin

  Chairman of the Compensation Committee

  	
   

  
	
   

  	
   

  
					

 

 8

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