Document:

Exhibit 4.12

 

CALCULATION AGENCY AGREEMENT

 

CALCULATION AGENCY AGREEMENT, dated as of May 18, 2005 (this “Agreement”),
between Lehman Brothers Holdings Inc. (the “Company”) and Lehman
Brothers Inc., as Calculation Agent.

 

WHEREAS, the Company proposes to issue and sell its Risk Adjusting
Equity Range Securities PlusSM(or
RANGERS PlusSM),
Performance Linked to the Value of a Stock Index (the “Notes”) from time
to time;

 

WHEREAS, the terms of each series of the Notes will be described in a
pricing supplement (in connection with the performance by the Calculation Agent
of its services hereunder with respect to a particular series of the Notes, the
prospectus supplement relating to such particular series of the Notes is
referred to herein as the “relevant Pricing Supplement”) and a
prospectus supplement, dated May 18, 2005, to the prospectus dated May 18,
2005, as supplemented by a prospectus supplement dated May 18, 2005;

 

WHEREAS, the Notes will be issued under an Indenture, dated as of September 1,
1987, between the Company and Citibank, N.A., as Trustee (the “Trustee”),
as supplemented and amended by supplemental indentures dated as of November 25,
1987, November 27, 1990, September 13, 1991, October 4, 1993, October 1,
1995, and June 26, 1997, and incorporating Standard Multiple Series Indenture
Provisions dated July 30, 1987, as amended November 16, 1987
(collectively, the “Indenture”); and

 

WHEREAS, the Company requests the Calculation Agent to perform certain
services described herein in connection with each series of the Notes (in
connection with the performance by the Calculation Agent of its services
hereunder with respect to a particular series of the Notes, such particular
series of the Notes is referred to herein as the “relevant Notes”);

 

NOW THEREFORE, the Company and the Calculation Agent agree as follows:

 

1.                                       Appointment
of Agent.  The Company hereby
appoints Lehman Brothers Inc. as Calculation Agent and Lehman Brothers Inc.
hereby accepts such appointment as the Company’s agent for the purpose of performing
the services hereinafter described upon the terms and subject to the conditions
hereinafter mentioned.

 

2.                                       Calculations
and Information Provided.  In
response to a request made by the Trustee for a determination of the Maturity
Payment Amount, the Redemption Payment Amount or the Optional Repurchase Amount
with respect to any series of the Notes, the Calculation Agent shall determine
the applicable Payment Amount in accordance with the terms of the relevant
Notes and this Agreement and notify the Trustee of its determination.  In addition, the Calculation Agent shall also
be responsible for determining each of the following items for each series of
the Notes, to the extent applicable:

 

(a)                                  the
Final Index Level and any adjustments thereto;

 

(b)                                 whether
and what adjustments to any Relevant Index should be made,

 

 

(c)                                  any
successor or substitute index if publication of a Relevant Index is
discontinued, and

 

(d)                                 the
Final Index Level of the Relevant Index if (i) the publisher of the
Relevant Index discontinues publication of such index and the Calculation Agent
determines that no successor or substitute index is available at such time, (ii) the
publisher of such Relevant Index fails to calculate and publish a closing level
for the Relevant Index on the Valuation Date in accordance with customary
practice or (iii) the circumstances described in the last proviso of the
definition of the term “Valuation Date” in the relevant Notes occur;

 

(e)                                  whether
a Market Disruption Event has occurred;

 

(f)                                    the
Amortized Principal Amount;

 

(g)                                 the
amount payable upon repayment of the Notes on any Optional Reset Date;

 

(h)                                 whether
a particular day is a Scheduled Trading Day;

 

(i)                                     the
applicable Valuation Date; and

 

(j)                                     any
other calculation, determination or adjustment specified as being made by the
Calculation Agent in this Agreement, the relevant Pricing Supplement or the
relevant Notes.

 

The Calculation Agent shall notify the Trustee of all such
calculations, determinations and adjustment or if a Market Disruption Event
with respect to a series of Notes has occurred. 
Annex A hereto sets forth the procedures the Calculation Agent will use
to determine the information described in this Section 2 with respect to a
series of Notes.

 

3.                                       Calculations.  Any calculation or determination by the
Calculation Agent pursuant hereto shall be made at the sole discretion of the
Calculation Agent and shall (in the absence of manifest error) be final and
binding.  Any calculation made by the
Calculation Agent hereunder shall, at the Trustee’s request, be made available
at the Corporate Trust Office.

 

4.                                       Fees
and Expenses.  The Calculation Agent
shall be entitled to reasonable compensation for all services rendered by it as
agreed to between the Calculation Agent and the Company.

 

5.                                       Terms
and Conditions.  The Calculation
Agent accepts its obligations herein set out upon the terms and conditions
hereof, including the following, to all of which the Company agrees:

 

(a)                                  in
acting under this Agreement, the Calculation Agent is acting solely as an
independent expert and not as an agent of the Company and does not assume any
obligation toward, or any relationship of agency or trust for or with, any of
the holders of the Notes;

 

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(b)                                 unless
otherwise specifically provided herein, any order, certificate, notice,
request, direction or other communication from the Company or the Trustee made
or given under any provision of this Agreement shall be sufficient if signed by
any person who the Calculation Agent reasonably believes to be a duly
authorized officer or attorney-in-fact of the Company or the Trustee, as the
case may be;

 

(c)                                  the
Calculation Agent shall be obliged to perform only such duties as are set out
specifically herein and any duties necessarily incidental thereto;

 

(d)                                 the
Calculation Agent, whether acting for itself or in any other capacity, may
become the owner or pledgee of Notes with the same rights as it would have had
if it were not acting hereunder as Calculation Agent; and

 

(e)                                  the
Calculation Agent shall incur no liability hereunder except for loss sustained
by reason of its gross negligence or wilful misconduct.

 

6.                                       Resignation;
Removal; Successor.  (a)  The
Calculation Agent may at any time resign by giving written notice to the
Company of such intention on its part, specifying the date on which its desired
resignation shall become effective, subject to the appointment of a successor
Calculation Agent and acceptance of such appointment by such successor
Calculation Agent, as hereinafter provided. 
The Calculation Agent hereunder may be removed at any time by the filing
with it of an instrument in writing signed by or on behalf of the Company and
specifying such removal and the date when it shall become effective.  Such resignation or removal shall take effect
upon the appointment by the Company, as hereinafter provided, of a successor
Calculation Agent and the acceptance of such appointment by such successor
Calculation Agent.  In the event a
successor Calculation Agent has not been appointed and has not accepted its
duties within 90 days of the Calculation Agent’s notice of resignation, the
Calculation Agent may apply to any court of competent jurisdiction for the
designation of a successor Calculation Agent.

 

(b)                                 In
case at any time the Calculation Agent shall resign, or shall be removed, or
shall become incapable of acting, or shall be adjudged bankrupt or insolvent,
or make an assignment for the benefit of its creditors or consent to the
appointment of a receiver or custodian of all or any substantial part of its
property, or shall admit in writing its inability to pay or meet its debts as
they mature, or if a receiver or custodian of it or all or any substantial part
of its property shall be appointed, or if any public officer shall have taken
charge or control of the Calculation Agent or of its property or affairs, for
the purpose of rehabilitation, conservation or liquidation, a successor
Calculation Agent shall be appointed by the Company by an instrument in
writing, filed with the successor Calculation Agent.  Upon the appointment as aforesaid of a
successor Calculation Agent and acceptance by the latter of such appointment,
the Calculation Agent so superseded shall cease to be Calculation Agent
hereunder.

 

(c)                                  Any
successor Calculation Agent appointed hereunder shall execute, acknowledge and
deliver to its predecessor, to the Company and to the Trustee an instrument
accepting such appointment hereunder and agreeing to be bound by the terms
hereof, and thereupon such successor Calculation Agent, without any further
act, deed or conveyance, shall become vested with all the authority, rights,
powers, trusts, immunities, duties and obligations of such predecessor with
like effect as if originally named as Calculation Agent hereunder, and such
predecessor, upon payment of its charges and disbursements then unpaid, shall
thereupon

 

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become obligated to transfer, deliver and pay over, and such successor
Calculation Agent shall be entitled to receive, all moneys, securities and
other property on deposit with or held by such predecessor, as Calculation
Agent hereunder.

 

(d)                                 Any
corporation into which the Calculation Agent hereunder may be merged or
converted or any corporation with which the Calculation Agent may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Calculation Agent shall be a party, or any
corporation to which the Calculation Agent shall sell or otherwise transfer all
or substantially all of the assets and business of the Calculation Agent shall
be the successor Calculation Agent under this Agreement without the execution
or filing of any paper or any further act on the part of any of the parties
hereto.

 

7.                                       Certain
Definitions.  Capitalized terms not
otherwise defined herein or in Annex A hereto are used herein as defined in the
relevant Notes or, if not defined in the relevant Notes, as defined in the
Indenture.

 

8.                                       Indemnification.  The Company will indemnify the Calculation
Agent against any losses or liability which it may incur or sustain in
connection with its appointment or the exercise of its powers and duties
hereunder except such as may result from the gross negligence or wilful
misconduct of the Calculation Agent or any of its agents or employees.  The Calculation Agent shall incur no
liability and shall be indemnified and held harmless by the Company for or in
respect of any action taken or suffered to be taken in good faith by the
Calculation Agent in reliance upon written instructions from the Company.

 

9.                                       Notices.  Any notice required to be given hereunder
shall be delivered in person, sent (unless otherwise specified in this
Agreement) by letter, telex or facsimile transmission or communicated by
telephone (confirmed in a writing dispatched within two Business Days), (a) in
the case of the Company, to it at 745 Seventh Avenue, New York, New York 10019
(facsimile: (646) 758-3204) (telephone: (212) 526-7000), Attention: Treasurer,
with a copy to 399 Park Avenue, New York, New York 10022 (facsimile: (212) 526-0357)
(telephone: (212) 526-7000), Attention: Corporate Secretary, (b) in the
case of the Calculation Agent, to it at 745 Seventh Avenue, New York, New York
10019 (facsimile: (646) 758-4942) (telephone: (212) 526-7000), Attention:
Equity Derivatives Trading and (c) in the case of the Trustee, to it at
111 Wall Street, 5th Floor, New York, New York 10043 (facsimile: (212) 657-3836)
(telephone:  (212) 657-7805), Attention:
Corporate Trust Department or, in any case, to any other address or number of
which the party receiving notice shall have notified the party giving such
notice in writing.  Any notice hereunder
given by telex, facsimile or letter shall be deemed to be served when in the
ordinary course of transmission or post, as the case may be, it would be
received.

 

10.                                 GOVERNING
LAW.  THIS AGREEMENT SHALL BE
GOVERNED BY AND CONTINUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

 

11.                                 Counterparts.  This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.

 

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12.                                 Benefit
of Agreement.  This Agreement is solely
for the benefit of the parties hereto and their successors and assigns, and no
other person shall acquire or have any rights under or by virtue hereof.

 

5

 

IN WITNESS WHEREOF, this Agreement has been entered into as of the day
and year first above written.

 

 

	
   

  	
  LEHMAN BROTHERS HOLDINGS INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LEHMAN BROTHERS INC.,

  
	
   

  	
  as Calculation
  Agent

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

6

 

ANNEX A

 

1.                                       Capitalized
terms not otherwise defined herein are used herein as defined in the relevant
Notes or, if not defined in the relevant Notes, as defined in the Indenture.

 

2.                                       Determination
of the Payment Amount and Final Index Level.

 

The Calculation Agent shall determine the applicable Payment Amount in
accordance with the terms of the relevant Notes and this Agreement.  In connection therewith, the Calculation
Agent shall also determine the Final Index Level in accordance with the terms
of the relevant Notes and this Agreement.

 

3.                                       Discontinuance
of a Relevant Index

 

If the publisher of a Relevant Index discontinues publication of such
index and such publisher or another entity publishes a successor or substitute
index that the Calculation Agent determines to be comparable to the
discontinued Relevant Index, then that successor or substitute index shall be
deemed to be the Relevant Index and the Calculation Agent shall determine the
Final Index Level to be used for purposes of computing the amount payable by
reference to the Final Index Level of such successor or substitute index on the
date that the Final Index Level of the Relevant Index is to be determined.

 

If the publisher of a Relevant Index discontinues publication of such
index and the Calculation Agent determines that no successor or substitute
index is available at such time, or if the publisher of such Relevant Index
fails to calculate and publish the closing level for the Relevant Index on the
Valuation Date in accordance with customary practice, then, on such date, the
Calculation Agent shall determine the Final Index Level of the Relevant Index
to be used. In such circumstances, the Final Index Level of the Relevant Index
shall be computed by the Calculation Agent in accordance with the formula for
and method of calculating the Relevant Index last in effect prior to such
discontinuance or failure to publish, using the Closing Price (or, if trading
in the relevant securities has been materially suspended or materially limited,
its estimate of the Closing Price that would have prevailed but for such
suspension or limitation) on such date of each security most recently
comprising the Relevant Index on the Relevant Exchange on which such security
trades.

 

4.                                       Alteration
of Method of Calculating a Relevant Index

 

If at any time the Calculation Agent determines that the method of
calculating a Relevant Index, or the Final Index Level thereof on any
particular day, is changed in a material respect, or if the Relevant Index is
in any other way modified so that such Relevant Index does not, in the opinion
of the Calculation Agent, fairly represent the value of the Relevant Index had
such changes or modifications not been made, then, from and after such time,
the Calculation Agent will, at the Close of Trading of the Relevant Exchanges
on which the securities comprising the Relevant Index traded on the date that
the Final Index Level is to be determined, make such calculations and
adjustments as may be necessary in order to arrive at a level of a stock index
comparable to the Relevant Index as if such changes or modifications had not
been made, and calculate the applicable Payment Amount with reference to the
Relevant Index, as adjusted. Accordingly, if the method of calculating the
Relevant Index is modified so that the level of such index is a fraction of
what it would have been if it had not been modified (for example, due to

 

A-1

 

a split in the index), then the Calculation Agent shall adjust such
index in order to arrive at a level of the Relevant Index as if it had not been
modified (for example, if such split had not occurred).

 

5.                                       Market
Disruption Event; Valuation Date

 

The Calculation Agent shall determine whether or not one or more Market
Disruption Events have occurred on a scheduled Valuation Date and whether or
not such date is a Scheduled Trading Day. 
If the Calculation Agent determines that one or more Market Disruption
Events have occurred on the day that would otherwise be the applicable Valuation
Date, or that such date is not a Scheduled Trading Day, the Valuation Date
shall be postponed to the next Scheduled Trading Day on which no Market
Disruption Event occurs; provided, if a Market Disruption Event occurs
on each of the eight Scheduled Trading Days following the originally scheduled
Valuation Date, then that eighth Scheduled Trading Day shall be deemed the
Valuation Date and the Calculation Agent shall determine the Final Index Level
of the Relevant Index based upon its estimate of the level of the Relevant
Index as of the Close of Trading on that eighth Scheduled Trading Day.

 

6.                                       Definitions.

 

Set forth below are the terms used in the Agreement and in this Annex
A.

 

“Agreement” shall have the meaning set forth in the preamble to
this Agreement.

 

“Amortized Principal Amount” shall have the meaning specified in
the relevant Notes.

 

“Average Execution Price” shall mean, for a security or other
property, the average per unit execution price that an affiliate of the Company
receives or pays for such security or property, as the case may be, to hedge
the Company’s obligations under the Notes of this series.

 

“Business Day” shall have the meaning specified in the relevant
Notes.

 

“Calculation Agent” shall mean the person that has entered into
this Agreement with the Company and shall, unless the context otherwise
requires, include its successors and assigns. 
The initial Calculation Agent is Lehman Brothers Inc.

 

“Close of Trading” shall have the meaning specified in the
relevant Notes.

 

“Final Index Level” shall have the
meaning specified in the relevant Notes.

 

“Closing Price” shall mean, for any security underlying a
Relevant Index, as determined by the Calculation Agent on any particular day,
based on information reasonably available to it:

 

(1)                                  if
the security is listed on a Relevant Exchange, the last reported sale price per
share at the Close of Trading on such day on the Relevant Exchange;

 

(2)                                  if
the security is not listed on a national securities exchange or quotation
system or is not a Nasdaq security, and is listed or traded on a bulletin
board, the Average

 

A-2

 

Execution Price per share of the security; or

 

(3)                                  as
otherwise determined by the Calculation Agent pursuant to the Calculation
Agency Agreement in the circumstances described in the definition of “Valuation
Date” herein.

 

In the case of both (1) and (2) above, if the security is
listed or quoted on a non-United States Relevant Exchange or on a non-United
States bulletin board, the Closing Price will then be converted into U.S.
dollars using the Official W.M. Reuters Spot Closing Rate at 11:00 a.m.,
New York City time.  If there are several
quotes for the Official W.M. Reuters Spot Closing Rate at that time, the first
quoted rate starting at 11:00 a.m. shall be the rate used.  If there is no such Official W.M. Reuters
Spot Closing Rate for a country’s currency at 11:00 a.m., New York City
time, the Closing Price shall be converted into U.S. dollars using the last
available U.S. dollar cross-rate quote before 11:00 a.m., New York City
time.

 

“Closing Price” shall have the meaning specified in the relevant
Notes.

 

“common stock” shall have the meaning specified in the relevant
Notes.

 

“Company” shall have the meaning set forth in the preamble to
this Agreement.

 

“Final Index Level” shall have the meaning specified in the
relevant Notes.

 

“Indenture” shall have the meaning set forth in the preamble to
this Agreement.

 

“Market Disruption Event” shall have the meaning specified in
the relevant Notes.

 

“Maturity Payment Amount” shall have the meaning specified in
the relevant Notes.

 

“Official W.M. Reuters Spot Closing Rate” shall mean the closing
spot rate published on Reuters page ”WMRA” relevant for a security
underlying a Relevant Index.

 

“Optional Repurchase Amount” shall have the meaning specified in
the relevant Notes.

 

“Optional Reset Dates” shall have the meaning specified in the
relevant Notes.

 

“Payment Amount” shall have the meaning specified in the
relevant Notes.

 

“Redemption Payment Amount” shall have the meaning specified in
the relevant Notes.

 

“Relevant Exchange” shall have the meaning specified in the
relevant Notes.

 

“Relevant Index” shall have the meaning set forth in the
relevant Notes.

 

“relevant Notes” shall have the meaning set forth in the
preamble to this Agreement.

 

A-3

 

“relevant Pricing Supplement” shall mean the pricing supplement
issued by the Company with respect to the relevant Notes.

 

“Notes” shall have the meaning set forth in the preamble to this
Agreement.

 

“Scheduled Trading Day” shall have the meaning specified in the
relevant Notes.

 

“Stated Maturity Date” shall have the meaning specified in the
relevant Notes.

 

“Trustee” shall have the meaning set forth in the preamble to
this Agreement.

 

“Valuation Date” shall have the meaning specified in the
relevant Notes.

 

A-4Exhibit
10.1

 

[CORNELL
COMPANIES, INC. LETTERHEAD]

 

 

May 17, 2005

 

 

Pirate
Capital LLC

200 Connecticut Avenue, 4th Floor

Norwalk, Connecticut 06854

Attention: Zachary R. George

 

 

Gentlemen:

 

                Reference is made
to the ongoing proxy solicitation (the “Proxy Solicitation”) by Pirate Capital
LLC, Jolly Roger Fund LP, Jolly Roger Fund Ltd and Mint Master Fund Ltd.
(collectively, “Pirate Capital”) to elect seven (7) nominees to the board of
directors of Cornell Companies, Inc. (“Cornell”).  With respect to the Proxy Solicitation and
certain related matters, Pirate Capital and Cornell hereby agree as follows.

 

 

Definitions

 

1.             For purposes of this letter agreement, the terms below
are defined as follows:

 

“Common Stock” shall mean
common stock of Cornell.

 

“Continuing Directors” shall
mean Anthony R. Chase and D. Stephen Slack.

 

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

 

“Nominees” shall mean the
Pirate Capital Nominees, the Continuing Directors and any replacements thereof
appointed pursuant to Section 6.

 

“Pirate Group” shall mean
Pirate Capital, any person or entity that is acting as a group with Pirate
Capital for purpose of acquiring, holding, or disposing of securities of
Cornell (as contemplated by Section 13(d)(3) of the Exchange Act) and any
affiliate (as such term is defined in Rule 13e-3(a)(1) promulgated under the
Exchange Act) of Pirate Capital or such person or entity.

 

“Rule 13e-3 transaction”
shall have the meaning ascribed to such term in Rule 13e-3(a)(3) promulgated
under the Exchange Act.

 

Agreements of Pirate Capital

 

2.             Requirements for a Rule 13e-3 Transaction.  Pirate Capital agrees that it will not, and
it will cause all members of the Pirate Group and Cornell (to the extent Pirate
Capital or any member of the Pirate Group controls such members or Cornell) not
to, consummate, prior to July 31, 2007,

 

 

 

a Rule 13e-3 transaction with respect to which Pirate Capital or any
member of the Pirate Group is a participant, unless at least one of the
following conditions are met: (i) if all the Continuing Directors are then
serving as directors of Cornell, such Rule 13e-3 transaction has been
unanimously approved by Cornell’s Board of Directors or (ii) if such
transaction involves the vote of the stockholders of Cornell, such transaction
is approved by holders of a majority of the Common Stock not beneficially owned
by the Pirate Group or (iii) if such transaction involves a tender offer by
Cornell or a member of the Pirate Group, holders of a majority of the
outstanding Common Stock (excluding for such purpose Common Stock beneficially
owned by the Pirate Group) tender their Common Stock into such tender and do
not withdraw such stock.

 

3.             Cessation of Proxy Solicitation.  Upon execution of this letter agreement,
Pirate Capital agrees to cease any and all efforts with respect to the Proxy
Solicitation.  At Cornell’s 2005 Annual
Meeting of Stockholders (including any adjournment thereof), Pirate Capital
agrees to vote all of the shares of Common Stock, with respect to which it has
voting power, for the election of all nominees identified in Section 5 of this
letter agreement, to the extent permitted by applicable law.

 

Agreements of Cornell

 

4.             2005 Annual Meeting of Stockholders.  Cornell agrees to use reasonable efforts to
hold its 2005 Annual Meeting of Stockholders no later than July 16, 2005.

 

5.             Board Nominees.

 

a.               Cornell agrees to nominate
for election at its 2005 Annual Meeting of Stockholders nine (9) nominees,
seven (7) of whom shall be Leon Clements, Richard Crane, Todd Goodwin, Sally
Walker, Alfred Jay Moran, Jr., Zachary R. George and Thomas R. Hudson Jr. (the
“Pirate Capital Nominees”) and two (2) of whom shall be the Continuing
Directors.

 

b.              Concurrently with the
execution of this letter agreement, Cornell has delivered to Pirate Capital a
secretary’s certificate certifying to the adoption and effectiveness of
resolutions approved by the current Board of Directors of Cornell that nominate
the Nominees to stand for election at Cornell’s 2005 Annual Meeting of Stockholders.

 

c.               The Board of Directors of
Cornell will recommend that the stockholders of Cornell vote to elect the
Nominees as directors of the Company.

 

d.              Cornell will solicit proxies
for the election of the Nominees at the 2005 Annual Meeting of Stockholders.

 

e.               Cornell shall cause proxies
received by Cornell to be voted in the manner specified by such proxies.

 

 

2

 

6.                                       Replacement
Nominees.  If, at any
time prior to the election of directors at the 2005 Annual Meeting of
Stockholders, any of the Nominees is unwilling or unable to stand for election
as a director at the 2005 Annual Meeting of Stockholders, the following
procedures shall apply:

 

a.               If a Continuing Director is
unwilling or unable to be reelected, then the Board of Directors shall
designate a replacement nominee reasonably acceptable to Pirate Capital.

 

b.              If a Pirate Capital Nominee
is unwilling or unable to stand for election, then Pirate Capital shall
designate a replacement nominee reasonably acceptable to the Board of
Directors.

 

7.             Proxy Solicitation Materials.

 

a.               Cornell agrees that its
Proxy Statement and all other solicitation materials to be delivered to
stockholders in connection with the 2005 Annual Meeting of Stockholders shall be
prepared in accordance with, and in furtherance of, this letter agreement.

 

b.              Cornell will provide Pirate
Capital with copies of any proxy materials or other solicitation materials at
least five business days, in the case of proxy statements, and at least two
business days, in the case of other solicitation materials, in advance of
filing such materials with the SEC or disseminating the same in order to permit
Pirate Capital a reasonable opportunity to review and comment on such
materials.

 

c.               Cornell will act reasonably
in considering any comments that may be provided by Pirate Capital and its
counsel with respect to such materials.

 

d.              Pirate Capital will provide,
as promptly as practicable, all information relating to the Pirate Capital
Nominees (and other information, if any) required under applicable law to be
included in Cornell’s Proxy Statement and all other solicitation materials to
be delivered to stockholders in connection with the 2005 Annual Meeting of
Stockholders.  All such information provided
by Pirate Capital shall be true and correct in all material respects.

 

8.             Reimbursement of Expenses.  Cornell agrees to reimburse Pirate Capital
for up to $750,000 in reasonable expenses in connection with the Proxy
Solicitation, the 2005 Annual Meeting of Stockholders and the negotiation and
execution of this letter agreement, upon presentation by Pirate Capital to
Cornell of invoices or other reasonably satisfactory documentation.  Reimbursement payments shall be made by
Cornell to Pirate Capital no later than 10 days following receipt of the
applicable invoices or other documentation.

 

 

3

 

9.             Representations and Warranties.

 

a.               The execution and delivery
by Cornell of this letter agreement and the performance by Cornell of its
obligations hereunder (i) has been duly authorized by all requisite corporate
action; (ii) does not require stockholder approval; and (iii) does not and will
not violate any law, any order of any court or other agency of government, the
Certificate of Incorporation of Cornell, as amended, or the by-laws of Cornell,
as amended, or any provision of any indenture, agreement or other instrument to
which Cornell or any of its properties or assets is bound, or conflict with,
result in a breach of or constitute (with due notice or lapse of time or both)
a default under any such indenture, agreement or other instrument, or result in
the creation or imposition of, or give rise to, any lien, charge, restriction,
claim,  encumbrance or adverse penalty of
any nature whatsoever pursuant to any such indenture, agreement or other
instrument.  Notwithstanding the
preceding sentence, Cornell makes no representation or warranty relating to the
Employment Agreement of James E. Hyman dated as of March 14, 2005,
other than the representation and warranty that the execution, delivery and
performance of Cornell’s obligations under this letter agreement will not
result in a “Change in Control” (as defined in Section 7(g) of the
Employment Agreement).

 

b.              The execution and delivery
by Pirate Capital LLC of this letter agreement and the performance by Pirate
Capital of its obligations hereunder (i) has been duly authorized by all
requisite company or limited partnership action; (ii) does not require approval
by any owners or holders of any equity interest in Pirate Capital; and
(iii) does not and will not violate any law, any order of any court or
other agency of government, the charter or other organizational documents of
Pirate Capital, as amended, or any provision of any agreement or other
instrument to which Pirate Capital or any of its properties or assets is bound,
or conflict with, result in a breach of or constitute (with due notice or lapse
of time or both) a default under any such agreement or other instrument, or
result in the creation or imposition of, or give rise to, any lien, charge,
restriction, claim,  encumbrance or
adverse penalty of any nature whatsoever pursuant to any such agreement or
other instrument.

 

Agreements of Both Parties

 

10.           Press Releases. 
On the date hereof, Cornell and Pirate Capital will issue the press
release attached hereto as Exhibit A. 
Without the prior consent of the other party, which consent shall not be
unreasonably withheld or delayed, Cornell and Pirate Capital shall not, and
shall not permit any of their respective affiliates or agents to issue any
press release or public statement regarding the 2005 Annual Meeting of
Stockholders, the solicitation of proxies therefor or this letter agreement,
except to the extent that the disclosing party is advised by its legal counsel
that

 

 

4

 

such action is required by applicable law.  Schedule 13D filings required to be made by
Pirate Capital with the Securities and Exchange Commission shall not be
considered public statements for purposes of this Section 9.

 

11.           Amendment of Letter Agreement. Prior to Cornell’s
2005 Annual Meeting of Stockholders, this letter agreement may be amended only
by written instrument executed on behalf of Cornell and Pirate Capital
LLC.  After Cornell’s 2005 Annual Meeting
of Stockholders, this letter agreement shall not be amended unless such
amendment is approved by either (i) if all the Continuing Directors are
then serving as directors of Cornell, such amendment is unanimously approved by
the Board of Directors of Cornell or (ii) such amendment is approved by holders
of a majority of the Common Stock not beneficially owned by the Pirate Group.

 

12.           Further Assurances.   Each party agrees to take or cause to be
taken such further actions, and to execute, deliver and file or cause to be
executed, delivered and filed such further documents and instruments, and to
obtain such consents, as may be reasonably required or requested by the other
party in order to effectuate fully the purposes, terms and conditions of this
letter agreement.

 

13.           Governing Law; Consent To Jurisdiction. This letter
agreement will be construed in accordance with and governed by the laws of the
State of New York without regard to principles of conflicts of laws.  Any judicial proceedings with respect to this
letter agreement shall be brought in a federal or state court located in
Wilmington, Delaware, and by execution and delivery of this letter agreement,
each party accepts, generally and unconditionally, the exclusive jurisdiction
of such court and any related appellate court, irrevocably agrees to be bound
by any judgment rendered thereby, and waives any objection to the laying of
venue in any such proceedings in such courts.

 

14.           Counterparts.  This letter agreement may be executed in two
or more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.

 

15.           Entire Agreement.  This letter agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral,
among the parties or any of them with respect to the subject matter hereof.

 

 

5

 

Please confirm your agreement with the terms of this letter agreement
by executing the same in the space provided below.  Such agreement shall be effective as of the
date of your acceptance.

 

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
  CORNELL
  COMPANIES, INC.

  
	
   

  	
  By:

  	
  /s/ James E. Hyman

  	
   

  
	
   

  	
  James
  E. Hyman

  
	
   

  	
  Chief
  Executive Officer and Chairman of the Board

  

 

 

Agreed
and Accepted as of May 17, 2005:

 

PIRATE
CAPITAL LLC

 

 

	
  By:

  	
  /s/
  Thomas R. Hudson, Jr.

  	
   

  
	
  Name:
  

  	
  Thomas
  R. Hudson, Jr.

  	
   

  
	
  Title:

  	
  Managing
  Member

  	
   

  
				

 

 

6

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