-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IDabAizLGMmft+bi1LDdeQAivr0WjQbOyjZ1rdx7adcbOOR/7BCWljVPSdU03w2j dEzcvSHY7lsNCljCQ210hw== 0000950144-02-002003.txt : 20020415 0000950144-02-002003.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950144-02-002003 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20011230 FILED AS OF DATE: 20020304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WACKENHUT CORP CENTRAL INDEX KEY: 0000104030 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-DETECTIVE, GUARD & ARMORED CAR SERVICES [7381] IRS NUMBER: 590857245 STATE OF INCORPORATION: FL FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-05450 FILM NUMBER: 02565862 BUSINESS ADDRESS: STREET 1: 4200 WACKENHUT DRIVE STREET 2: #100 CITY: PALM BEACH GARDEN STATE: FL ZIP: 33410 BUSINESS PHONE: 5616225656 MAIL ADDRESS: STREET 1: 4200 WACKENHUT DR STREET 2: #100 CITY: PALM BEACH GARDEN STATE: FL ZIP: 33410 10-K405 1 g74165e10-k405.txt WACKENHUT CORPORATION FORM 10-K405 12/30/01 =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________________ TO _____________________ COMMISSION FILE NUMBER 1-5450 THE WACKENHUT CORPORATION (Exact name of registrant as specified in its charter) FLORIDA 59-0857245 (State of incorporation or organization) (I.R.S. Employer Identification No.) 4200 WACKENHUT DR. #100, PALM BEACH GARDENS, FL 33410-4243 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (561) 622-5656 Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Stock, Series A, $.10 par value New York Stock Exchange Common Stock, Series B, $.10 par value New York Stock Exchange
Securities registered to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] At February 08, 2002, the aggregate value of 1,922,111 shares of Series A Common Stock and 8,217,490 shares of Series B Common Stock held by non-affiliates of the Registrant was $236,165,743. DOCUMENTS INCORPORATED BY REFERENCE Parts of the registrant's Annual Report to Shareholders for the fiscal year ended December 30, 2001 are incorporated by reference into Parts II and IV of this Report. Parts of the registrant's Proxy Statement for its 2002 Annual Meeting of Shareholders are incorporated by reference into Part III of this Report. =============================================================================== PART I ITEM 1. BUSINESS GENERAL The Wackenhut Corporation (the "Company") is a leading provider of diversified services to business and government. The Company focuses strategically on three major businesses worldwide - security related and other operational support services, development and management of privatized correctional and detention facilities, and personnel employee leasing and temporary services. The security services business ("Global Security Services") operates in North American (domestic) and international markets. Domestically, Global Security Services has expanded into a range of other support services to include base operations, facility management, fire and emergency medical services. Internationally, Global Security Services provides a greater variety of services than the Company offers domestically. These services include, among other things, electronic security systems, central station monitoring, cash-in-transit, satellite tracking of vehicles and cargo, building maintenance, secure storage of documents, postal services and distribution logistics. The Company, through its approximately 57% owned publicly-held subsidiary, Wackenhut Corrections Corporation (NYSE: WHC), designs, constructs, finances and manages correctional, detention and public sector healthcare facilities and performs separate correctional-related services, including prisoner transportation, home detention monitoring and correctional health care. The Company has established a strong presence in the southeast and midwest United States in the flexible staffing industry that includes personnel employee leasing, temporary services, recruiting, risk management, payroll processing and human resource services. The Company has approximately 68,000 full and part-time employees, worldwide, serving approximately 11,000 commercial and governmental customers through an extensive network of offices and operations in 48 states and approximately 45 countries. The Company was incorporated in 1958 to continue the businesses that were originally established in 1954 by its Chairman, George R. Wackenhut, to provide security-related services to commercial and governmental customers. Since its founding, the Company has grown by: (i) enhancing its position in its security-related services business through the development of specialized and upgraded services; (ii) targeting specific segments of the security services industry; and (iii) expanding into a range of other support services in response to a growing trend toward privatization of governmental services and outsourcing by commercial customers. The Company is the largest U.S.-based global security services provider, with 142 customer support centers across the United States and additional centers in approximately 40 other countries around the world. In addition to its physical security and uniformed officer services, the Company is a leader in the development of specialized niche services. For example, in response to a growing demand in the marketplace for security professionals with greater skill and responsibility levels, the Company has developed its Custom Protection Officer(R) ("CPO") program to provide highly specialized and trained security professionals to a broad range of customers such as national retailers, financial institutions and gated communities. CPO security professionals also are used as supplemental law enforcement forces by public transportation authorities and other governmental entities. Custom Protection Officer(R) is a Registered Service Mark of the Company. Another market initiative is the Company's National Accounts program, developed to provide focused and consistent service quality across its larger clients' national, regional and global organizations. These clients asked for, and received, a dedicated executive within the Company to integrate and coordinate client security programs. These quality-centered programs partner the Company and its clients in performance excellence initiatives across the client's organization. The Company believes that the National Accounts program may also enable it to expand the scope of services offered worldwide to its National Account customers. Management believes that the high quality and consistent service of its CPO and National Accounts programs provide the Company with an opportunity to maintain and enhance long-term relationships with its clients. As part of its strategy to respond to the growing trend toward privatization of governmental services, in 1984 the Company entered into the development and management of privatized correctional and detention facilities, a business ("Correctional Services") which is now operated exclusively through its approximately 57% owned subsidiary Wackenhut Corrections Corporation ("WHC"). As of December 2001, WHC had contracts or awards to 2 manage 59 privatized correctional, detention and healthcare facilities, with a rated capacity of nearly 42,500 beds. It also had contracts for prisoner transportation, correctional health care services, mental health services and electronic monitoring. Building upon four decades of expertise in providing services to businesses and government, in the fourth quarter of 1996 the Company entered into the professional employer organization ("PEO") employee leasing business by establishing Oasis Outsourcing, Inc. During 1997, the Company continued to expand its market presence in these areas when Wackenhut Resources, Inc. ("WRI"), a subsidiary of the Company, acquired the King Companies in May 1997 and Professional Employee Management, Inc. ("PEM") in December 1997. Both companies were professional employer organizations, and in addition, the King Companies was in the temporary employment and recruiting service business. These two companies were combined with Oasis Outsourcing, Inc., under WRI, to form flexible staffing services business ("Staffing Services"). In November 1998, WRI acquired the Sharp Services and Advantage Temporary Services companies. During Fiscal 2000, the regional structure of Staffing Services was reorganized under a single name of "Oasis" to achieve a single identity for the marketing of its services. By the end of Fiscal 2001, Staffing Services had 39 offices in 11 states. In addition to the services that the Company has specifically targeted for expansion, the Company continues to explore and selectively invest in other service businesses, including commercial and governmental support services, supplemental police services, crash-fire-rescue services and fire protection services. See Note 19 of Notes to Consolidated Financial Statements included in Exhibit 13.0 to this Annual Report on Form 10-K for a summary of the contribution to consolidated revenues and operating income by each of the Company's business segments and by domestic and international operations for each of Fiscal 2001, 2000 and 1999. BUSINESS STRATEGY The Company focuses strategically on three major businesses worldwide - - Security services, Correctional services, and Staffing services. Key elements of the Company's business strategy are described below: GLOBAL SECURITY SERVICES - ENHANCE LEADERSHIP POSITION OF SECURITY-RELATED SERVICES. The Company strives to enhance its market position by attempting to provide the most reliable and consistent service in the industry. The Company believes its security professionals provide quality service because of: (i) strictly enforced screening and hiring procedures; (ii) intensive training; (iii) well organized supervisory and feedback procedures and (iv) management dedicated to total quality programs. - DEVELOP SPECIALIZED SECURITY SERVICES. The Company has identified and targeted the National Accounts and CPO programs, as well as the traditional small commercial client market, as ongoing growth avenues toward continued market expansion. Management believes that the high quality and consistent service of its National Accounts and CPO programs provide the Company with an opportunity to establish and enhance long-term relationships with all of its clients. - DEVELOP COMPLEMENTARY SUPPORT SERVICES. The Company will seek to expand the scope of complementary support services it offers. The Company's successful identification and development of Correctional services and Staffing services has provided it with the experience it believes will allow it to develop other specialized programs and support services. - FOCUSED GEOGRAPHIC PRESENCE. In order to enhance quality revenue and earnings growth, the Company seeks to focus its international presence in countries where it can achieve a proper critical mass. To achieve this strategic initiative, during Fiscal 2000 management initiated an ongoing review of the Company's international security-related businesses, with a view towards concentrating the Company's resources to achieve a proper critical mass. 3 CORRECTIONAL SERVICES Correctional Service's objective is to enhance its position as one of the leading providers of privatized correctional, detention and public sector healthcare facility services. Key elements of Correctional Service's business strategy include: (i) effective management of projects; (ii) selective development of new business opportunities such as psychiatric health services provided through its subsidiary Atlantic Shores Healthcare, Inc.; (iii) selective pursuit of acquisitions; (iv) expansion of its scope of services; (v) expansion into international markets by establishing alliances with strategic local partners; and (vi) limiting capital risk. STAFFING SERVICES Staffing Services has expanded to become one of the leading outsourcing companies in the southeast, with a principal concentration in Florida, and the midwest. Its growth is resulting from the increasing trend of small and medium size businesses to lease employees from professional employer organizations ("PEOs") or use temporary workers in order to cut costs and provide more and better employee benefits. Staffing Service's strategy for growth is to expand PEO services while maintaining a viable temporary services network. The Company believes that this broader blend of human resources services will better meet the needs of its clients as outsourcing trends continue. Staffing Services derives a competitive advantage in the PEO market by providing an "a la carte" menu of staffing alternatives and attractive benefit options. In addition to internal growth, the Company has increased its presence in staffing services through selective acquisitions such as the acquisitions of the King Companies in May 1997, PEM in December 1997, and Sharp Services and Advantage Temporary Services Companies in November 1998. During 2000 the regional structure of Staffing Services was reorganized under a single brand name of "Oasis" to achieve a single identity for the marketing of its services. SELECTED ACQUISITIONS In addition to internal growth, the Company's growth strategy includes selected acquisitions. MARKETS GLOBAL SECURITY SERVICES. The private security-related services industry includes guard services, alarm-monitoring services, security consulting services, armored car transport and other security services. The largest and most visible component of the industry is the guard service component, which also accounts for the largest portion of Security Service's revenues. Guard service is often characterized within the industry as either "proprietary" or "contract," depending on the service provider. Under proprietary arrangements, end users of the services employ, schedule and manage their own security officers. In contrast, contract services are provided to end users pursuant to contracts with independent security-related service firms such as the Company. Management believes that the advantages to clients of using contract security service providers rather than providing services internally on a proprietary basis are threefold: (i) the client may realize cost and administrative savings; (ii) the client is freed to concentrate on its core competencies; and (iii) the client may be able to reduce labor management concerns with security-related employees, who are employed by the Company. CORRECTIONAL SERVICES. Correctional Service's views governmental agencies responsible for federal correctional facilities in the United States and governmental agencies responsible for correctional facilities in the United Kingdom and Australia as its primary potential customers. Correctional Service's secondary customers include state and local agencies in the United States and other foreign governmental agencies. STAFFING SERVICES. Staffing Services provides temporary staffing, permanent placement, and PEO services. The PEO provides integrated human resource administration, such as personnel employee leasing, risk management, 4 payroll processing and human resource services. Client companies outsource a large part of the human resource function to the PEO. While the PEO becomes the employer of record for payroll and tax purposes, the client maintains control of the activities of the worksite employees. Due to the increasing complexity of the regulatory environment, employment costs per employee are rising dramatically, and constitute one of the market determinants. Outsourcing is expected to have a very compelling appeal to companies in the process of downsizing and reengineering. COMPANY ORGANIZATION The Company's business can be divided into the Global Security Services, Correctional Services and Staffing Services. Global Security Services provides security-related and other support services. Correctional Services, which consists exclusively of the business conducted through WHC, provides privatized correctional, detention, and public sector mental health, facility design, development and management services. Staffing Services provides personnel employee leasing, temporary services, recruiting, risk management, payroll processing and human resource services. GLOBAL SECURITY SERVICES Global Security Services is conducted in North American and international markets. North American Operations. Security Services provides security-related and other support services throughout the United States and Canada. The North American Operations ("NAO") is divided into commercial, government and regulated industry accounts. In providing its security services, the Company has adopted a quality management approach to its services. General management responsibilities for each operation are vested in managers of geographic regions supported by a small group of managers located at Company headquarters. Day-to-day management responsibility for each group is vested in regional and site field managers who have primary responsibility for client contact and satisfaction. Field managers are selected through an intensive screening process and receive what the Company believes is state-of-the-art training. Supervisory personnel from Company headquarters periodically visit region headquarters and sites and carefully monitor operating results. Commercial accounts. The Company furnishes security officers (armed and unarmed) to protect its clients' property against fire, theft, intrusion, vandalism and other physical harm. Specialized security services offered by the Company include crash-fire-rescue services, fire protection services and airport services. The Company also provides security-consulting services including security assessment and program development, specialized training programs for security guards, crash-fire-rescue personnel, and background investigative services. The Company will further enhance its market position in the security-related services industry through internal growth by continuing to: (i) pursue domestic and international National Accounts; (ii) differentiate its security-related services within the industry by emphasizing its CPO program; and (iii) market the Company's services to specialized market niches such as gated residential communities and hospitals. The Company intends to emphasize attracting and retaining national accounts that benefit from security-related services on a national or regional level at multiple locations. Such clients include retail chains, banks, specialized manufacturers and high tech companies. Management believes that such clients value the flexibility and service provided by a dedicated single point of contact with the Company through these nationally managed programs. For its CPO program, the Company recruits law enforcement academy graduates, former military police, and members of elite military units and college graduates with criminology-related degrees. These recruits are prepared for critical security assignments after completing a Company training program that surpasses any state or local requirements for security officer licensing. CPO security personnel are often entrusted to perform supplemental law-enforcement-related services, such as transit security in Florida, Utah and Oregon, prisoner transportation in Maryland, and court house security in numerous states. Management believes that services provided by CPO security personnel distinguish the Company's services from those of the competition by providing highly specialized and trained security personnel capable of undertaking and accepting responsibilities that are beyond the capabilities of traditional security guards. 5 Contracts with private industry generally are for a minimum of a one-year term. Most of these contracts are subject to termination by either party on 30 days prior notice. For most small accounts, billing rates are typically based on a specified rate per hour and generally are subject to renegotiation or escalation if related costs increase because of changes in minimum wage laws, payroll tax changes or certain other events beyond the control of the Company. For many larger accounts, cost plus, performance and management fee contracts are becoming the norm. The Company designs and engineers integrated security programs using both security officers and electronic equipment. These services include planning master security programs for particular facilities, custom designing security systems, procuring requisite electronic equipment, managing contracts and construction, training security personnel, and reviewing and evaluating security programs. Contracts for these integrated security-related services generally provide for a fixed fee and are awarded by competitive bidding. The Company complements security services provided to its clients with investigative services, such as employee background screening and insurance fraud investigations. The Company maintains a national research center with the latest information-gathering technology for public records and a "fraud-waste-criminal" hotline for employees of clients to report workplace abuses. Clients ordinarily are charged an hourly rate for investigative services and a flat rate for background record searches. Government and regulated industry accounts. The Company provides specialized security-related and support services for United States federal government entities and nuclear power generating facilities. Wackenhut Services, Inc. ("WSI") provides security services primarily to United States federal government entities. Services provided by WSI range from security/law enforcement, fire protection, facility maintenance, aviation to emergency medical services. In the United States, WSI provides security-related services at 12 sensitive government installations. For example, the Company has held the operations and maintenance contract for the Savannah River Site in South Carolina, the single largest government contract for security-related services, since 1983. The Company has managed the Rocky Flats Environmental Technology Site near Denver since 1990, the Nevada Test Site near Las Vegas since 1964, and began providing security services during 2000 at the Oak Ridge Site near Oak Ridge, Tennessee. WSI has overseen training and resource development for the United States Department of Energy at the Nonproliferation and National Security Institute in Albuquerque, New Mexico Since 1984. The Company's service contracts with governmental agencies are typically cost-reimbursable contracts providing the Company the ability to earn award fees based upon the achievement of performance goals. The Company's service contracts with governmental agencies are subject to annual governmental appropriations. With contracts at 28 commercial nuclear power plants in 14 states, the Company is the market share leader in the nuclear services niche market. The Company provides nuclear utility customers with highly trained and qualified security personnel, emergency planning, electronic detection equipment and integrated security systems to these utility companies. The terms of contracts entered into by the nuclear division generally are multi-year and include a variety of fee arrangements. The Company's experience with requirements and standards of the Nuclear Regulatory Commission ("NRC") enable it to assist customers in ensuring NRC compliance. International markets. International security services are provided primarily through Wackenhut International, Inc. ("WII"), and its subsidiaries, affiliates and strategic partners. WII includes a network of subsidiaries, partnerships and affiliates in approximately 38 countries. The majority of WII's international operations are structured through local joint ventures with parties who operate in the given market. These parties often provide valuable insight into local markets, in addition to sharing financial responsibility for the venture. WII also provides a greater variety of services than the Company offers domestically. These services include, among other things, electronic security systems, central station monitoring, cash-in-transit, satellite tracking of vehicles and cargo, building maintenance, secure storage of documents, postal services, and distribution logistics. In addition to providing traditional security services to commercial customers at overseas locations, WII provides security for the U.S. Department of State at embassies and missions in 18 locations. WII also provides protective services at NASA space shuttle support sites in Africa. Major competitors of WII include sizable foreign concerns such as Group 4 Falck, Securitas, Securicor, Chubb and local and regional companies. 6 In order to enhance quality revenue and earnings growth, the Company seeks to focus its international presence in countries where it can achieve a proper critical mass. To achieve this strategic initiative, during fiscal 2000, management initiated an ongoing review of the Company's international security-related businesses, with a view towards concentrating the Company's resources. CORRECTIONAL SERVICES Correctional Services is conducted through the operations of WHC. WHC is a leading developer and manager of privatized correctional, detention and public sector health facilities in the United States, the United Kingdom, Australia and South Africa. Correctional Services was founded in 1984 as a division of the Company to capitalize on emerging opportunities in the private correctional services market. As of December 30, 2001, Correctional Services had contracts or contract awards to manage 59 correctional, detention and public sector healthcare facilities with an aggregate rated capacity of nearly 42,500 beds. It also had contracts for prisoner transportation, correctional health care services, mental health services and electronic monitoring. Correctional Services offers a comprehensive range of correctional, detention and public sector healthcare facility management services from individual consulting projects to the integrated design, construction and management of correctional, detention and public sector healthcare facilities. In addition to providing the fundamental services relating to the security of facilities and the detention and care of inmates, Correctional Services has built a reputation as an effective provider of a wide array of in-facility rehabilitative and educational programs, such as chemical dependency counseling and treatment, basic education, and job and life skills training. Management believes that Correctional Service's experience in delivering a full range of quality privatization services on a cost-effective basis to governmental agencies provides such agencies strong incentives to choose WHC when awarding new contracts or renewing existing contracts. WHC's facility management contracts typically have original terms ranging from one to ten years and give the customer at least one renewal option. STAFFING SERVICES Building upon four decades of expertise in providing services to businesses and government the Company entered into the PEO employee leasing business by establishing Oasis Outsourcing, Inc., a majority owned subsidiary, in the fourth quarter 1996. During 1997, the Company continued to expand its market presence when WRI, a subsidiary of the Company, acquired the King Companies, in May 1997, and PEM in December 1997. Both companies were professional employer organizations, and in addition, the King Companies was in the temporary employment and recruiting service business. These two companies were combined with Oasis Outsourcing, Inc., under WRI to form Staffing Services. In November 1998 Staffing Services acquired Sharp Services Inc. and Advantage Temporary Services companies. During 2000, the regional structure of Staffing Services was reorganized under a single name of "Oasis" to achieve a single identity for the marketing of its services. By the end of 2001, Staffing Services had 39 offices in 11 states. CUSTOMERS During 2001, Security Services provided services to approximately 8,200 customers worldwide. The United States Department of Energy accounted for 8% of the Company's revenue during Fiscal 2001 and Fiscal 2000. Correctional Services contracts with the various Federal Government agencies accounted for 4% and 3% of the Company's revenues in Fiscal 2001 and Fiscal 2000, respectively and contracts with the State of Florida accounted for 3% and 4% of the Company's revenues in Fiscal 2001 and Fiscal 2000, respectively, and contracts with governmental agencies of the State of Texas accounted for 3% of the Company's revenue in Fiscal 2001 and Fiscal 2000. Staffing Services provides services to nearly 1,400 clients in both the employee leasing and temporary staffing businesses. 7 COMPETITION The Company is the largest United States-based security and protective services organization and a leading provider of such services worldwide. The Company competes domestically and internationally with Securitas, which acquired the Company's largest U.S.-based competitors, Burns International Security Company and Pinkerton, in Fiscal 2000 and Fiscal 1999, respectively. The Company also competes with numerous local and regional security services companies. Although, the market is fragmented, with over 15,000 security service providers in the United States, recent industry consolidations have resulted in the top four providers of services similar to those provided by Global Security Services accounting for approximately 30% of the contracted out security-services market in the United States. Competition in the security-related and other support services business is intense and is based primarily on price in relation to quality of service, the scope of services performed, and the extent of employee training and supervision. However, potential competitors can enter the security-related and other support services business without substantial capital investment or expense. WHC, through which Correctional Services operates, competes primarily on the basis of the quality and range of services offered, and its experience and reputation, both domestically and internationally, in the design and management of facilities. WHC competes with a number of companies, including, but not limited to, Corrections Corporation of America, Correctional Services Corporation, Group 4 International Corrections Service, U.K. Detention Services, Ltd., Cornell Corrections Corporation, Securicor Group, Sodexho, and Management and Training Corporation. Some of WHC's competitors are larger and have greater resources than WHC. WHC also competes on a localized basis in some markets with small companies that may have better knowledge of the local conditions and may be better able to gain political and public acceptance. Potential competitors can enter the correctional business without substantial capital investment or experience in management of correctional or detention facilities. In addition, in some markets WHC may compete with governmental agencies that are responsible for correctional facilities. Staffing Services competes primarily on the basis of the quality and range of services offered. Staffing Services competes domestically with a number of companies, including but not limited to Spherion, Staff Leasing, Administaff, ADP Total Source and many regional based firms. Some of the competitors are larger and have greater resources than Staffing Services. EMPLOYEES Global Security Services' principal business is labor intensive, and is affected substantially by the availability of qualified personnel and the cost of labor. As of December 30, 2001, Global Security Services had approximately 57,000 full and part-time employees worldwide, most of whom are security officers and other personnel providing physical security services. The Company has not experienced any material difficulty in employing sufficient numbers of suitable security officers. Security officers and other personnel supplied by the Company to its clients are employees of the Company, even though stationed regularly at a client's premises. A small percentage of the employees of Global Security Services are covered by collective bargaining agreements. Relations with employees have been generally satisfactory. As of December 30, 2001, Correctional Services had 10,763 full-time employees. Correctional Services employs management, administrative and clerical, security, educational services, health services and general maintenance personnel. WHC's correctional officer employees at George W. Hill Correctional Facility (Pennsylvania), Queens Private Correctional Facility (New York), Junee Correctional Centre (Australia), Arthur Gorrie Correctional Centre (Australia), Fulham Correctional Centre (Australia), Melbourne Correctional Center (Australia), Auckland Central Remand Prison (New Zealand) and Immigration Detention Services (Australia) are members of unions. WHC has entered into a contract with the union at each of these facilities. In addition, the employees of Premier Custodial Group, Ltd. (PCG), in the United Kingdom are covered by a national collective bargaining agreement with the Prison Service Union. Other than the contracts described above, WHC has no union contracts or collective bargaining agreements. WHC believes its relations with its employees are good. Staffing Services had approximately 350 administrative employees as of December 2001. In addition, the PEO division of Staffing Services served over 42,200 work-site employees as of December 30, 2001. 8 BUSINESS REGULATIONS AND LEGAL CONSIDERATIONS Global Security Services is subject to numerous city, county, and state firearm and occupational licensing laws that apply to security officers and private investigators. Many states have laws requiring training and registration of security officers, regulating the use of badges and uniforms, and imposing minimum bond, surety, or insurance standards. Many foreign countries have laws that restrict the Company's ability to render certain services, including laws prohibiting security-related services or limiting foreign investment. In addition, many state and local governments are required to enter into a competitive bidding procedure before awarding contracts for products or services. The laws of certain jurisdictions may also require the Company to award subcontracts on a competitive basis or to subcontract with businesses owned by women or members of minority groups. The industry in which Correctional Services operates is subject to national, federal, state and local regulations in the United States, Europe, South Africa and Australia, which are administered by a variety of regulatory authorities. Generally, prospective providers of correctional services must be able to detail their readiness to, and must comply with, a variety of applicable state and local regulations, including education, health care and safety regulations. WHC's contracts frequently include extensive reporting requirements and require supervision and on-site monitoring by representatives of contracting governmental agencies. WHC's Kyle New Vision Chemical Dependency Treatment Center is licensed by the Texas Department of Criminal Justice to provide substance abuse treatment. Certain states, such as Florida and Texas, deem prison guards to be peace officers and require WHC personnel to be licensed and may make them subject to background investigation. State law also typically requires corrections officers to meet certain training standards. Staffing Services is subject to federal and state laws regarding the employer-employee relationship, including numerous federal and state laws relating to labor, tax and discrimination matters. While many states do not explicitly regulate PEO activities, a number of states have passed laws that have licensing or registration requirements for PEO companies and other states are considering such regulation. Such laws vary from state to state but generally provide for monitoring the fiscal responsibility of PEO companies. Management believes it conducts its business in compliance with the licensing and registration requirements of the states in which it operates and monitors such compliance annually. The failure to comply with applicable laws, rules or regulations or the loss of any required license could have a material adverse effect on the Company's business, financial condition and results of operations. Furthermore, the current and future operations of the Company may be subject to additional regulations as a result of, among other factors, new statutes and regulations and changes in the manner in which existing statutes and regulations are or may be interpreted or applied. Any such additional regulations could have a material adverse effect on the Company's business, financial condition and results of operations. The Company may, under certain circumstances, be responsible for the actions of its employees and agents. Under the common law of negligence in many states, the Company can be held vicariously liable for wrongful acts or omissions of its agents or employees performed in the course and within the scope of their agency or employment. In addition, some states have statutes that expressly impose on the Company legal responsibility for the conduct of its agents or employees. The nature of the security-related services provided by the Company (such as armed security officers and fire rescue) may expose it to greater risks of liability for employee acts or omissions than are posed to other businesses. The Company maintains public liability insurance to mitigate against this exposure, although the laws of many states limit or prohibit insurance coverage of liability for punitive damages arising from willful, wanton or grossly negligent conduct. COMMITMENTS AND CONTINGENCIES The Company and WHC lease correctional facilities, office space, computers and vehicles under non-cancelable operating leases expiring through 2009. Rent expense for the fiscal years ended December 30, 2001, 9 December 31, 2000 and January 2, 2000 was $35.6 million, $26.9 million and $22.2 million, respectively. The minimum commitments under these leases and the 15 year lease for the corporate headquarters, are as follows:
Minimum Year Commitments - -------------------------------------- 2002 $ 31.5 2003 18.4 2004 15.1 2005 10.6 2006 7.0 Thereafter 36.1 ------- $118.7 - --------------------------------------
In fiscal year 2001, the Company recorded after-tax charges of $17.9 million ($29.2 million pre-tax) representing its share of the losses of its affiliated operations in Chile. In the third quarter 2001, the Company completed the cash funding of its $32 million of bank letters of credit issued to secure a portion of its Chilean affiliate's debt. With the payment of the bank standby letters of credit, the Company's Chilean affiliate has substituted short-term debt obligations with local Chilean lenders with a one-year term maturity funding directly with the Company. The Company's Chilean affiliate defaulted on certain of its bank loan obligations earlier in the year because it had been unable to generate sufficient cash, either from ongoing operations or the sale of assets, to repay its obligations. In conjunction with the Company's payment of the $32 million of letters of credit, the affiliate obtained a 180-day term bank creditor standstill agreement on October 18, 2001. During this standstill period, the affiliate is restructuring its operations and attempting to sell non-core security businesses to repay or reduce the local Chilean debt, as well as debt due the Company, and to provide sufficient working capital for the core security business. The Chilean affiliate also has engaged a local investment bank to assist in the sale of the non-core businesses. This restructuring will likely include the Company attaining majority ownership of the Chilean affiliate. At present there can be no assurance that the Chilean affiliate will be able to sell assets to enable it to repay its outstanding debt. Inability to sell non-core assets during this standstill period could have a material adverse impact on the Chilean affiliate's financial position, results of operations and/or cash flows. The timing of such activities cannot be certain as the completion of any such transaction depends upon the needs of potential acquirers, buyers or investors, as well as financing, regulatory/legal requirements and other factors. The Chilean affiliate's total outstanding debt is approximately $52.9 million as of December 30, 2001, including the $37.9 million owed to the Company, and there can be no assurance that the Chilean affiliate will be able to generate enough cash from operations or the sale of non-strategic businesses to satisfy these debts. The Company has also provided comfort letters for approximately $1.0 million. At this time management is unable to estimate the amount of loss, if any, that would be recorded should the sale of assets, or ongoing operating results, be unable to generate sufficient cash to repay the Chilean affiliate's obligations including amounts owed to the Company, and there can be no assurance that the ultimate outcome of this uncertainty would not have a material adverse impact on the Company's financial position, results of operations or cash flows. At December 30, 2001 the Company's net investment balance related to its Chilean affiliate approximates $10.2 million, including amounts owed to the Company. The Company continues to review its international security operations in order to enhance the quality of revenue and earnings growth. Management determined that it needed to focus the Company's resources in international markets where it could best achieve a proper critical mass. In aligning its international resources with this strategy, management believes that there may be conditions where the Company may consider exiting a country, or refocusing an operation. As a result, there could be an impairment of assets, or a need to provide for losses, particularly in certain subsidiaries and affiliates that were or are experiencing liquidity issues or were thinly capitalized. During fiscal year 2001, the Company focused on realigning its international security management and consolidating its global security operations. As it focused on this repositioning and change in its management structure, the Company's management provided for asset impairments and provisions for losses after tax of approximately $8.7 million ($14.3 million pre-tax) associated with various international operations, principally in Latin America excluding Chile. The Company has operations in most Latin American countries, and therefore, has exposure to the ongoing economic difficulties in the region. Although significant progress has been made in achieving management's restructuring objectives, these efforts will continue in 2002. During this review process, conditions may arise that will cause the Company to record 10 additional impairments to investments in particular locations. Also, in some locations, local economic conditions may result in reporting losses. At this time, management is unable to estimate the amount of these write-downs or losses, if any, that would be reported, and there can be no assurance that the ultimate outcome of this process would not have a material adverse impact on the Company's financial position, results of operations and cash flows. In December 2001, WHC was issued a notice of contract non-renewal by the Administration of Corrections from the Commonwealth of Puerto Rico for the management of the Bayamon Correctional Facility. The current contract is set to expire March 23, 2002. WHC has met with various government officials in an effort to reverse the initial decision. There can be no assurances that these efforts will be successful. WHC does not expect the discontinuation of the management contract to have a significant impact on WHC's future results of operations and cash flows. The Bayamon Correctional Facility is owned by the government and there is no lease commitment on the part of WHC. On June 30, 2002, WHC's contract with the California Department of Corrections (the "Department") for the management of the McFarland Community Corrections Center is set to expire. WHC believes that the Department may not renew this contract due to budgetary constraints. Although WHC is continuing its efforts to extend the current contract through discussions with the legislature and department officials, as well as offering the facility to other interested government agencies, there can be no assurances that these efforts will be successful. The facility is currently in the fourth year of a ten-year non-cancelable operating lease with CPV. In the event WHC is unable to extend the contract or find an alternative use for the facility, WHC will be required to record an operating charge in 2002 related to future minimum lease commitments with CPV. The remaining lease obligation is approximately $6.0 million through April 28, 2008. WHC's casualty insurance premiums related to workers' compensation, comprehensive general liability and automobile insurance coverage are provided by an independent insurer. A portion of this insurance is reinsured by the Company's wholly owned captive reinsurance subsidiary. WHC pays the Company a fee for the transfer of the deductible exposure. WHC continues to incur higher insurance costs due to a hardened seller's insurance market, which was exacerbated by the events of September 11, 2001 and historical adverse claims experience, and although WHC has implemented a strategy to improve the management of future claims, WHC can not provide assurances that this strategy will result in a lower insurance rate. WHC's insurance costs increased significantly during the third and fourth quarter of 2001. WHC's management believes these costs have stabilized; however, the increases may continue through 2002. In December 1997, WHC entered into a $220 million operating lease facility that has been established to acquire and develop new correctional institutions used in its business. As a condition of this facility, WHC unconditionally agreed to guarantee certain debt obligations of First Security Bank, National Association, a party to the aforementioned operating lease facility. As of December 30, 2001, approximately $154.3 million of this operating lease facility was utilized for four properties in operation. The term of the operating lease facility expires December 18, 2002. WHC is exploring a number of alternatives to refinance the outstanding balance, and believes it will be successful in these efforts. However, there can be no assurance that WHC will be able to complete the refinancing prior to December 18, 2002. Upon expiration of the operating lease facility, WHC may purchase the properties in the facility for their original acquisition cost. If WHC were to purchase the properties, WHC may use a number of forms of debt financing which would require the properties and any related debt incurred to purchase the properties, to be reported on WHC's and the Company's balance sheet. Alternatively, WHC may cause the properties to be sold to third parties. If the sales proceeds yield less than the original acquisition cost, WHC will make up the difference up to a maximum of 88% of the original acquisition costs. In connection with the financing and management of one Australian facility, WHC's wholly owned Australian subsidiary was required to make an investment of approximately $5 million. The balance of the facility was financed with long-term debt obligations that are nonrecourse to WHC. WHC's Australian subsidiary has a leasehold interest in the facility and does not have the ultimate rights of ownership. In the event the management contract is terminated for default, WHC's investment of approximately $5 million is at risk. WHC believes that the risk of termination for default is remote and notes that the project has operated successfully for 5 years. The management contract is up for renewal in September 2002. WHC's management believes the management contract will be renewed. If the management contract is not renewed (other than due to a default), WHC's subsidiary's investment must be repaid by the state government. The Company has employment agreements with its Chairman of the Board of Directors and its Vice-Chairman of the Board of Directors and Chief Executive Officer. These agreements are for terms of three and ten years, respectively. The agreements also contain termination provisions. During fiscal 2001 and 2000 aggregate base salary and bonus under these two agreements were approximately $4.5 million and $3.7 million, respectively. Also, the Company has severance agreements with certain executives that provide for specified benefits in the event of termination of employment due to a change of control. 11 The Company is presently, and is from time to time, subject to other claims arising in the ordinary course of its business. In certain of such actions, plaintiffs request punitive or other damages that may not be covered by insurance. In the opinion of management, there are no other pending legal proceedings except those disclosures above, for which the potential impact if decided unfavorable to the Company could have a material adverse effect on the consolidated financial statements of the Company. CERTAIN FACTORS THAT MAY EFFECT FUTURE RESULTS Prospective investors should carefully consider the following factors that may effect future results, together with the other information contained in this Annual Report on Form 10-K, in evaluating the Company and its business before purchasing its securities. In particular, prospective investors should note that this Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and that actual results could differ materially from those contemplated by such statements. See "Safe Harbor Statements under the Private Securities Litigation Reform Act of 1995" below. The factors listed below represent certain important factors the Company believes could cause such results to differ. These factors are not intended to represent a complete list of the general or specific risks that may affect the Company. It should be recognized that other risks may be significant, presently or in the future, and the risks set forth below may affect the Company to a greater extent than indicated. UNCERTAINTY IN THE AFTERMATH OF SEPTEMBER 11. The effects of the terrorist attacks of September 11, 2001 and of potential future terrorist attacks on general economic conditions and on the Company's businesses, in particular, are uncertain. For example, in the event that any facilities at which the Company provides security related services are attacked by terrorists in the future, liabilities resulting from such attacks could, to the extent not covered by insurance, have a material adverse effect on the Company's business. In addition, terrorist attacks, including the attacks of September 11th that do not directly involve facilities serviced by the Company or that are fully insured against, could have a material impact on the Company by, among other things, sharply increasing the Company's insurance coverage costs including workers' compensation insurance, making insurance coverage unavailable altogether or prompting expanded security rules and regulations for airports, commercial buildings or other facilities. Other effects of terrorist acts that could materially impact the Company include but are not limited to: (i) an overall decline in the economy; (ii) a decline in air travel; and/or (iii) a decrease in the efficiency of the Company's security services as a result of compliance with expanded security rules and regulations. REVENUE AND PROFIT GROWTH DEPENDENT ON EXPANSION. The Company's growth depends to a significant degree upon its ability to obtain additional service contracts and correctional and detention facility development and management contracts and to retain existing contracts. The Company faces significant competition among: (i) providers of security-related and other support services for service contracts and for the renewal of such contracts upon expiration and (ii) operators of correctional and detention facilities for development and management contracts for new facilities and for the renewal of those contracts upon expiration. Accordingly, there can be no assurance that the Company will be able to obtain additional contracts or to retain contracts upon expiration thereof. Growth of the Correctional Services is generally dependent on the development and management of new correctional and detention facilities, since contracts to manage existing public facilities are not typically offered to private operators. The rate of development of new facilities and, therefore, the Correctional Services' potential for growth, will depend on a number of factors, including crime rates and sentencing patterns in countries in which WHC operates, governmental and public acceptance of the concept of privatization, the number of facilities available for privatization and WHC's ability to obtain awards for contracts and to integrate new facilities into its management structure on a profitable basis. In addition, certain jurisdictions in the past have required the successful bidder to make a significant capital investment in connection with the financing of a particular project. WHC's ability to secure awards under such circumstances will, therefore, also depend on WHC having sufficient capital resources. 12 ABILITY OF WHC TO REFINANCE CREDIT FACILITIES. Two of WHC's sources of liquidity are a $30 million multi-currency revolving credit facility, which includes $5.0 million for the issuance of letters of credit and a $220 million operating lease facility established to acquire and develop new correctional and detention facilities used in its business. As of December 30, 2001 there was no balance outstanding on the revolving credit facility and there was $154.3 million of the operating lease facility utilized for properties in operation. Both of these facilities expire December 18, 2002. WHC is exploring a number of alternatives to refinance both facilities. However, there can be no assurance that WHC will be able to complete a refinancing prior to December 18, 2002. Upon expiration of the operating lease facility, WHC may purchase the properties in the facility for their original acquisition cost. If WHC were to purchase the properties, WHC may use a number of forms of debt financing which would require the properties, and any related debt incurred to purchase the properties, to be reported on the Company's and WHC's balance sheet. Alternatively, WHC may cause the properties to be sold to a third party. If the sales proceeds yield less than the original acquisition cost, WHC will make up the difference up to a maximum of 88% of the original acquisition cost. GROWTH/ACQUISITION STRATEGY. The Company has grown its Security Services, Correctional Services and Staffing Services through internal expansion and through selective acquisitions of additional companies or assets that would expand its existing business. There can be no assurance that the Company will be able to identify, acquire or profitably manage additional companies or assets or successfully integrate such additional companies or assets into the Company without substantial costs, delays or other problems. In addition, there can be no assurance that companies acquired in the future will be profitable at the time of their acquisition or will achieve levels of profitability that justify the investment therein. Acquisitions may involve a number of special risks, including, but not limited to, adverse short-term effects on the Company's reported operating results, diversion of management's attention, dependence on retaining, hiring and training key personnel, risks associated with unanticipated problems or legal liabilities and amortization of acquired intangible assets, some or all of which could have a material adverse effect on the Company's operations and financial performance. CAPITAL REQUIREMENTS TO FUND GROWTH. The Company's acquisition strategy may require substantial capital. While the Company believes that its present capital position will be sufficient to meet its capital requirements, future acquisitions may require additional capital. Such capital may be obtained by borrowings under the Company's existing credit facilities, through the issuance of long-term or short-term indebtedness or through the issuance of equity securities in private or public transactions. This could result in dilution of existing equity positions and/or increased interest expense. There can be no assurance that acceptable capital financing for future acquisitions can be obtained on suitable terms, if at all. INTERNATIONAL OPERATIONS. In Fiscal 1999, Fiscal 2000, Fiscal 2001, revenues derived from the provision of services to customers outside the United States accounted for approximately 11.1%, 11.8% and 10.8%, respectively, of the Company's consolidated revenues. The Company anticipates that international revenues will continue to account for a significant portion of consolidated revenues in the foreseeable future. The Company's operating results, therefore, are subject to the risks inherent in international operations, including various regulatory requirements, fluctuations in currency exchange rates, political and economic changes and disruptions, tariffs or other barriers, and difficulties in staffing and managing foreign operations. One or more of these factors may have a material adverse effect on the Company's future international operations and, consequently, on the Company's operating results. BUSINESS CONCENTRATION. Contracts with the United States Department of Energy accounted for approximately 8% of the Company's consolidated revenues in both Fiscal 2001 and Fiscal 2000. Moreover, correctional contracts with governmental agencies of the State of Texas accounted for 3% of the Company's consolidated revenues in both Fiscal 2001 and Fiscal 2000. Correctional Services contracts with the State of Florida accounted for 3% and 4% of the Company's consolidated revenues in Fiscal 2001 and Fiscal 2000, respectively. Correctional Services contracts with various Federal Government agencies accounted for 4% and 3% of the Company's consolidated revenues in Fiscal 2001 and Fiscal 2000, respectively. The loss of, or a significant decrease in, the Company's business with the Department of Energy or WHC's business with the foregoing agencies could have a material adverse effect on the Company's results of operations. 13 CORRECTIONAL CONTRACTS. WHC's facility management contracts typically have terms ranging from one to five years. WHC has 21 contracts that will expire in 2002. WHC's management contracts generally contain one or more renewal options for terms ranging from one to five years. Only the contracting governmental agency may exercise a renewal option. No assurance can be given that any agency will exercise a renewal option in the future. Additionally, the contracting governmental agency typically may terminate a facility contract without cause by giving WHC adequate written notice. Furthermore, in certain cases the development of facilities to be managed by WHC is subject to the facility obtaining construction financing. Such financing may be obtained through a variety of means, including without limitation, sale of tax-exempt bonds or other obligations or direct governmental appropriation. The sale of tax-exempt bonds may be adversely affected by changes in applicable tax laws or adverse changes in the market for tax-exempt bonds or other obligations. POTENTIAL LEGAL LIABILITY. The Company's Security Services and Correctional Services exposes the Company to potential third-party claims or litigation by persons for personal injury or other damages resulting from contact with personnel of the Company or WHC. In the case of WHC, such damages may arise from a prisoner's escape or from a disturbance or riot at a WHC-managed facility. WHC's management contracts generally require WHC to indemnify the governmental agency against any damages to which the governmental agency may be subject in connection with such claims or litigation. Under principles of common law, the Company can generally be held liable for wrongful acts or omissions of its agents or employees performed in the course and within the scope of their agency or employment. In addition, some states have adopted statutes that expressly impose on the Company legal responsibility for the conduct of its agents and employees. While the Company maintains an insurance program that provides coverage for certain liability risks, including personal injury, death and property damage where the Company or WHC is found negligent, the laws of many states limit or prohibit insurance coverage for liability for punitive damages arising from willful, wanton or grossly negligent conduct. There can be no assurance that the Company's insurance will be adequate to cover all potential claims or damages. INFLATION. The Company's largest expense is personnel costs. A number of the Company's security-related and correctional and detention facility management contracts, including contracts with governmental agencies and national accounts, provide for payments of either fixed fees or fees that increase by only small amounts during their terms. If, due to inflation or other causes, the Company must increase the wages and salaries of its employees at rates faster than it can increase the fees charged under such contracts, the Company's profitability would be adversely affected. COMPETITION. The security-related and other support service industries are highly competitive and fragmented. The Company competes with a number of major companies, as well as local or regional security service companies. Through WHC, the Company competes with a number of companies in the correctional business, including Corrections Corporation of America, U.K. Detention Services, Ltd. and Correctional Services Corporation. Some of the companies with which the Company and WHC compete are larger and have greater resources than the Company or WHC. The smaller local and regional companies with which the Company and WHC compete may have better knowledge of the local conditions and be better able to gain political and substantial capital investment or previous experience. In addition, the Company and WHC may compete in some markets with governmental agencies that provide security-related or other support services and manage correctional facilities. ACCEPTANCE OF PRIVATIZATION OF TRADITIONAL PUBLIC FUNCTIONS. Privatization of traditional governmental functions such as food service at prisons and the management of correctional and detention facilities by private entities has not achieved complete acceptance by either governments or the public. Some sectors of the federal government and some state governments are legally unable to delegate traditional management responsibilities, including management of correctional and detention facilities, to private companies. The performance of traditional government functions by private companies is not widely understood by the public and has encountered resistance from certain groups, such as labor unions, sheriff's departments and groups that believe certain functions, including correctional and detention facility management should only be conducted by governmental agencies. Such resistance may cause a change in public and governmental acceptance of privatization in general. In addition, changes in dominant political parties in any of the markets in which the Company or WHC operates could result in significant changes to previously established views of privatization in such markets. 14 GOVERNMENTAL REGULATION; OVERSIGHT, AUDITS AND INVESTIGATIONS. The Company's Correctional Services and certain portions of its Security Services are highly regulated by a variety of governmental authorities which oversee the Company's businesses and operations. For example, with respect to the Correctional Services, the contracting agency typically assigns full-time, on-site personnel to a facility to monitor WHC's compliance with contract terms and applicable laws and regulations. Failure by WHC to comply with contract terms or regulations could expose it to substantial penalties, including the loss of a facility management contract. In addition, changes in existing regulations could require the Company to modify substantially the manner in which it conducts business and, therefore, could have a material adverse effect on the Company's results of operations. Additionally, the Company's security-related and correctional contracts give the contracting agency the right to conduct audits of the Company's services provided or the facilities and operations managed by the Company for the agency, and such audits occur routinely. An audit involves a governmental agency's review of the Company's compliance with the prescribed policies and procedures established with respect to services provided or the facility managed. The Company also may be subject to investigations as a result of an audit or other causes. DEPENDENCE UPON EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES. The continued success of the Company is dependent to a significant degree upon the continuing services of its executive officers. The loss or unavailability of any of the Company's executive officers could have an adverse effect on the Company. The Company does not have long-term employment contracts with most of its executive officers. In addition, the Company is dependent upon its ability to hire and retain senior operational employees. CONTROL OF COMPANY. George R. Wackenhut and his wife, Ruth J. Wackenhut, individually and through trusts over which they have sole dispositive and voting power, control approximately 50.05% of the issued and outstanding voting common stock of the Company. As a result, George R. Wackenhut and Ruth J. Wackenhut have significant voting power on all matters requiring approval of the shareholders of the Company, including the election of all of the directors. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This report and the documents incorporated by referenced herein contain "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. "Forward-looking" statements are any statements that are not based on historical information. Such statements involve risks and uncertainties, including but not limited to: general economic conditions; competitive factors and pricing pressures; shifts in market demand; the performance and needs of clients served by the Company; actual future costs of operating expenses; self-insurance claims and employee wages and benefits; possible changes in ownership positions of the Company's subsidiaries; and other factors discussed elsewhere in this report and the documents filed by the Company with the Securities and Exchange Commission. These risks and uncertainties may cause the Company's results to differ materially from the statements made in this report or otherwise made by or on behalf of the Company. ITEM 2. PROPERTIES The Company's executive offices are in The Wackenhut Center, located at 4200 Wackenhut Drive #100, Palm Beach Gardens, Florida. The Wackenhut Center contains approximately 95,000 square feet and is leased from Lepercq Corporate Income Fund, L.P., for an initial term of 15 years, commencing in March 1996, with consecutive options to extend the term of the lease for three additional five-year periods. This lease requires annual rental payments of approximately $1.8 million with no escalation during the initial 15-year term. The Company owns a 15,000 square foot warehouse building in Miami, Florida. In addition, the Company owns three buildings in Ecuador and Peru, two buildings in the Dominican Republic, and one each in Costa Rica, and Uruguay that are used for the operations of its foreign subsidiaries in those countries. The Company has a 50% interest in a partnership that owns a building in Puerto Rico. All other offices of the Company are leased. 15 WHC also leases the space for the following facilities it manages under operating leases: (i) Aurora INS Processing Center; (ii) Broward County Work Release Center; (iii) Central Texas Parole Violator Facility; (iv) Central Valley Community Correctional Facility; (v) Coke County Juvenile Justice Facility; (vi) Desert View Community Correctional Facility; (vii) Golden State Community Correctional Facility; (viii) Guadalupe County Correctional Facility; (ix) Jena Juvenile Justice Center; (x) Karnes County Correctional Center; (xi) Lawton Correctional Facility; (xii) Lea County Correctional Facility; (xiii) McFarland Community Correctional Facility; (xiv) Michigan Youth Correctional Facility; (xv) North Texas Intermediate Sanction Facility; (xvi) Queens Private Correctional Facility; (xvii) Rivers Correctional Institution; (xviii) Western Region Detention Facility at San Diego and (xix) Val Verde Correctional Facility. In December 1997, WHC entered into a $220 million operating lease facility that was established to acquire and develop new correctional institutions used in its business. As a condition of this facility, WHC unconditionally agreed to guarantee certain debt obligations of First Security Bank, N.A., a party to the aforementioned operating lease facility. As of December 30, 2001, approximately $154.3 million of this operating lease facility was utilized for properties in operation or under development. The term of the operating lease facility expires December 18, 2002. WHC is exploring a number of alternatives to refinance the outstanding balance, and believes it will be successful in these efforts. However, there can be no assurance that WHC will be able to complete the refinancing prior to December 18, 2002. Upon expiration, WHC may either purchase the property for its original acquisition cost or cause the properties in the operating lease facility to be sold to third parties. Should the sales proceeds yield less than the original acquisition cost, WHC is required to make up the difference up to a maximum of 88% of the original acquisition cost. WHC owns a 72-bed psychiatric hospital in Fort Lauderdale, Florida that it purchased and renovated in 1997. The aggregate Fiscal 2001 rent expense for all non-cancelable operating leases of office space, automobiles, data processing and other equipment was $35.6 million. The Company owns substantially all uniforms, firearms, and accessories used by its security officers. ITEM 3. LEGAL PROCEEDINGS The Company is presently, and is from time to time, subject to claims arising in the ordinary course of its business. In certain of such actions, plaintiffs request punitive or other damages that may not be covered by insurance. In the opinion of management, there are no pending legal proceedings for which the potential impact if decided unfavorable to the Company could have a material adverse effect on the consolidated financial statements of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. EXECUTIVE OFFICERS OF THE REGISTRANT GEORGE R. WACKENHUT is Chairman of the Board of the Company and has been since its inception. He was Chief Executive Officer of the Company from the time it was founded until February 17, 2000. He was President of the Company from the time it was founded until April 26, 1986. He formerly was a Special Agent of the Federal Bureau of Investigation. Mr. Wackenhut is Chairman of the Board of Directors for WHC, a member of the Board of Trustees of Correctional Properties Trust and is on the Dean's Advisory Board of the University of Miami School of Business. He is on the National Council of Trustees, Freedoms Foundation at Valley Forge, and the President's Advisory Council for the Small Business Administration, Region IV. He is a past participant in the Florida Governor's War on Crime and a past member of the Law Enforcement Council, National Council on Crime 16 and Delinquency, and the Board of Visitors of the U.S. Army Military Police School. He is also a former member of the Board of Directors of SSJ Medical Development, Inc., Miami, Florida. Mr. Wackenhut is also a member of the American Society for Industrial Security. He was a recipient in 1990 of the Labor Order of Merit, First Class, from the government of Venezuela and in 1999 was awarded the distinguished Ellis Island Medal of Honor by the National Ethnic Coalition of Organizations. Also in 1999, he was inducted into the West Chester University Hall of Fame; the Athlete's Hall of Fame in his home county, Delaware County, Pennsylvania; and the "Wall of Fame," consisting of prominent graduates of Upper Delray (PA) High School. Mr. Wackenhut received his B.S. degree from the University of Hawaii and his M.Ed. degree from Johns Hopkins University. He has been named a Distinguished Alumnus by West Chester University (1979), the University of Hawaii (1987), and Johns Hopkins University (2000). Mr. Wackenhut is married to Ruth J. Wackenhut, Secretary of the Company. His son, Richard R. Wackenhut, is Vice Chairman of the Board, President and Chief Executive Officer of the Company. RICHARD R. WACKENHUT is Vice Chairman of the Board of Directors, President and Chief Executive Officer of the Company. He has been Vice Chairman of the Board since August 1999, and Chief Executive Officer since February 2000. Mr. Wackenhut was appointed President and Chief Operating Officer of the Company and a member of the Board of Directors in 1986. He was Senior Vice President of Operations from 1983 to 1986. He was Manager of Physical Security from 1973 to 1974 and also served as Manager, Development at the Company's Headquarters from 1974 to 1976; Area Manager, Columbia, South Carolina, from 1976 to 1977; District Manager, Columbia, South Carolina from 1977 to 1979; Director, Physical Security Division at Corporate Headquarters from 1979 to 1980; Vice President, Operations from 1981 to 1982; and Senior Vice President, Domestic Operations from 1982 to 1983. Mr. Wackenhut is a Director of Wackenhut del Ecuador, S.A.; Wackenhut UK Limited; Wackenhut Dominicana, S.A.; and several domestic subsidiaries of the Company, including WHC. He is also Vice Chairman of the Board of Trustees of Correctional Properties Trust. He is a former Vice Chairman of Associated Industries of Florida and is presently a member of the American Society for Industrial Security, the International Association of Chiefs of Police and the International Security Management Association. He received his B.A. degree from The Citadel in 1969 and is a former member of The Citadel Advisory Council. He also completed the Advanced Management Program of the Harvard University School of Business Administration in 1987. Mr. Wackenhut is the son of George R. Wackenhut, Chairman of the Board of the Company, and Ruth J. Wackenhut, Secretary of the Company. ALAN B. BERNSTEIN was elected to the Company's Board of Directors May 5, 1998, and was appointed Chief Operating Officer of the Company in March 2000. He has been Executive Vice President of the Company since 1991, and was named President, Global Security in 2000. Mr. Bernstein was President, North American Operations from 1991 through 1999. Prior to that, Mr. Bernstein was Senior Vice President, Domestic Operations from 1986 to 1991. He has been employed by the Company since 1976, except for a brief absence during 1982 when he was a partner in a family-owned security alarm business in New York State. Mr. Bernstein has served in the following positions with the Company or its subsidiaries: Vice President of Domestic Operations, 1985; Vice President, Corporate Business Development, 1984; President, Wackenhut Systems Corporation, 1983; Director of Integrated Guard Security, 1981; and Manager of Wackenhut Electronic Systems Corporation from 1976 to 1981. He also serves on the Board of Directors of several subsidiaries of the Corporation. He received his B.S.E.E. degree from the University of Rochester, and a M.B.A. degree from Cornell University. ROBERT C. KNEIP is Senior Vice President of the Company, and President and Chief Executive Officer of WRI. Since he joined the Company in 1982, Dr. Kneip has held various positions in the Company including Director, Power Generating Services; Director, Contracts Management; Vice President, Contracts Management; Vice President, Planning and Development and Senior Vice President, Corporate Planning and Development. Dr. Kneip started Staffing Services by establishing OASIS Outsourcing, Inc., a majority owned subsidiary of the Company in 1996 and continues to be a major force in the Company's development of the Staffing Services Business. Prior to joining the Company, Dr. Kneip was employed by the Atomic Energy Commission, the Nuclear Regulatory Commission and Dravo Utility Constructors, Inc. He received a B.A. (Honors) from the University of Iowa, and an M.A. and Ph.D. from Tulane University. Dr. Kneip also serves on the Board of Directors of Ecometry Corporation, as well as numerous civic organizations. 17 PHILIP L. MASLOWE is Executive Vice President and Chief Financial Officer of the Company and has been since March 30, 2000. He joined the Company in August 1997 as Senior Vice President and Chief Financial Officer and was given the title of Treasurer effective March 9, 2000; he relinquished Treasurers title August 3, 2001. Prior to joining the Company, Mr. Maslowe was employed by KinderCare Learning Centers, Inc., as Executive Vice President and Chief Financial Officer since 1993. Before joining KinderCare, he was Executive Vice President and Chief Financial Officer of Thrifty Corporation where he also served on the Board of Directors. From 1980 to 1991, Mr. Maslowe was with The Vons Companies, Inc., where his last position was as Group Vice President, Finance. Mr. Maslowe is a graduate of Loyola University of Chicago (magna cum laude) and holds a M.B.A. from the J.L. Kellogg Graduate School of Management at Northwestern University. Mr. Maslowe also serves on the Board of Directors of WHC and AMF Bowling, Inc. SANDRA L. NUSBAUM is Senior Vice President, Human Resources of the Company. Since she joined the Company in 1981, Ms. Nusbaum has held various positions in the Company including Manager, Equal Employment Opportunity and Affirmative Action Programs, Director of Compensation and Benefits, and Vice President, Human Resources. Prior to joining the Company, Ms. Nusbaum was employed by DAK Industries. Ms. Nusbaum received a B.B.A. degree in Personnel Management and Marketing from Florida International University. RUTH J. WACKENHUT is Secretary of the Company and has been since 1958. She is married to George R. Wackenhut, Chairman of the Board of the Company and her son, Richard R. Wackenhut, is Vice Chairman, President and Chief Executive Officer of the Company and is also a director. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this Item is incorporated by reference to page F1 of the Registrant's 2001 Annual Report to Shareholders, which are filed as Exhibit 13.0 hereto. ITEM 6. SELECTED FINANCIAL DATA The information required by this Item is incorporated by reference to pages F3 through F4 of the Registrant's 2001 Annual Report to Shareholders, which are filed as Exhibit 13.0 hereto. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this Item is incorporated by reference to pages F5 through F12 of the Registrant's 2001 Annual Report to Shareholders, which are filed as Exhibit 13.0 hereto. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is incorporated by reference to pages F13 through F30 of the Registrant's 2001 Annual Report to Shareholders, which are filed as Exhibit 13.0 hereto, except for the Financial Statement Schedule listed in Item 14 (a) (2) of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 18 PART III The information required by Items 10, 11, 12 and 13 of Form 10-K (except such information as is furnished in a separate caption "Executive Officers of the Registrant" and is included in Part I, hereto) is contained in, and is incorporated by reference from, the proxy statement (with the exception of the Board Compensation Committee Report and the Performance Graph) for the Company's 2002 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements The following consolidated financial statements of the Company, included in the Registrant's Annual Report to Shareholders for the fiscal year ended December 30, 2001 are incorporated by reference in Part II, Item 8: Consolidated Balance Sheets - December 30, 2001 and December 31, 2000 Consolidated Statements of Income - Fiscal years ended December 30, 2001, December 31, 2000 and January 2, 2000 Consolidated Statements of Cash Flows - Fiscal years ended December 30, 2001, December 31, 2000 and January 2, 2000 Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss) - Fiscal years ended December 30, 2001, December 31, 2000 and January 2, 2000 Notes to Consolidated Financial Statements - Fiscal years ended December 30, 2001, December 31, 2000 and January 2, 2000 With the exception of the information incorporated by reference from the 2001 Annual Report to Shareholders in Part II, Items 5,6,7,8, and Parts IV of the Form 10-K, the Registrant's 2001 Annual Report to Shareholders is not to be deemed filed as part of this Report. 2. Financial Statement Schedule Schedule II - Valuation and Qualifying Accounts - Page 25 All other schedules specified in the accounting regulations of the Securities and Exchange Commission have been omitted because they are either inapplicable or not required. Individual financial statements of the Company have been omitted because it is primarily an operating Company and all significant subsidiaries included in the consolidated financial statements filed with this Annual Report are majority-owned. 3. Exhibits The following exhibits are filed as part of this Annual Report: 19
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.1 Articles of Incorporation as amended and restated (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended December 31, 2000). 3.2 Bylaws currently in effect (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended January 2, 2000). 4.1 Credit Agreement dated as of November 13, 2000 by and among The Wackenhut Corporation, as Borrower, Bank of America, N.A., as Administrative Agent and as Lender and Scotiabanc Inc., as Syndication Agent and as Lender and First Union National Bank, As Documentation Agent and a Lender and the Lenders party hereto from time to time (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended December 31, 2000). 4.2 Receivables Purchase Agreement dated as of December 30, 1997 among Wackenhut Funding Corporation, as Transferor, The Wackenhut Corporation, as Servicer, Enterprise Funding Corporation, as a Purchaser, and Nations Bank, N.A., as Agent (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended January 3, 1999). 4.3 Amendment Agreement No. 1, dated December 12, 2000 to the Credit Agreement dated as of November 12, 2000 by and among The Wackenhut Corporation, as Borrower, Bank of America, N.A., as Administrative Agent and as Lender and Scotiabanc Inc., as Syndication Agent and as Lender and First Union National Bank, As Documentation Agent and a Lender and the Lenders party hereto from time to time (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended December 31, 2000). 4.4 The Second Amended and Restated Transfer and Administration Agreement dated as of January 25, 2002, among Wackenhut Funding Corporation as Transferor, The Wackenhut Corporation as Servicer, Enterprise Funding Corporation as Purchaser, and Bank of America, N.A. as Agent and as a Bank Investor. 4.5 Amendment Number 1 to Receivable Purchase Agreement, dated as of January 26, 2001, between Wackenhut Funding Corporation, a Delaware corporation and its successors and assigns and The Wackenhut Corporation, a Florida corporation, and its successors assigns, amending that certain Receivables Purchase Agreement dated as of December 30, 1997. (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended December 31, 2000). 4.6 LC Account Agreement dated November 13, 2000 among The Wackenhut Corporation, a Florida corporation, and Bank of America, N.A., as the agent for the Lenders party to the Credit Agreement dated as of November 13, 2000 by and among The Wackenhut Corporation, as Borrower, Bank of America, N.A., as Administrative Agent and as Lender and Scotiabanc Inc., as Syndication Agent and as Lender and First Union National Bank, As Documentation Agent and a Lender and the Lenders party hereto from time to time. (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended December 31, 2000). 4.7 Amended and Restated Credit Agreement, dated December 18, 1997, by and among Wackenhut Corrections Corporation, Nations Bank, National Association, Scotia Banc Inc. and the Lenders Party thereto from time to time (incorporated by reference to Wackenhut Corrections Corporation's Form 10-K Annual Report for the fiscal year ended December 28, 1997). 4.8 Amended and Restated Participation Agreement, dated June 19, 1997 among Wackenhut Corrections Corporation, First Security Bank, National Association, the Various Bank and other Lending Institutions which are partners thereto from time to time, Scotia Banc Inc., and Nations Bank, National Association (incorporated by reference to Wackenhut Corrections Corporation's Form 10-K Annual Report for the fiscal year ended December 28, 1997). 4.9 Amended and Restated Lease Agreement, dated as of June 19, 1997, between First Security Bank, National Association and Wackenhut Corrections Corporation (incorporated by reference to Wackenhut Corrections Corporation's Form 10-K Annual Report for the fiscal year ended December 28, 1997).
20 4.10 Guaranty and Suretyship Agreement, dated December 18, 1997, among the Guarantors parties thereto and Nations Bank, National Association (incorporated by reference to Wackenhut Corrections Corporation's Form 10-K Annual Report for the fiscal year ended December 28, 1997). 4.11 Third Amended and Restated Trust Agreement, dated as of June 19, 1997, among Nations Bank, National Association and other financial institutions parties thereto and First Security Bank, National Association. (incorporated by reference to Wackenhut Corrections Corporation's Form 10-K Annual Report for the fiscal year ended December 28, 1997). 4.12 Amendment Agreement No. 2, dated June 22, 2001 to the Credit Agreement dated as of November 13, 2000 by and among The Wackenhut Corporation, as Borrower, Bank of America, N.A., as Administrative Agent and as Lender and Scotiabank Inc., as Syndication Agent and as Lender and First Union National Bank, As Documentation Agent and a Lender and the Lenders party hereto from time to time (incorporated by reference to the Registrant's Form 10-Q Quarterly Report for the quarterly period ended July 1, 2001). 4.13 Amendment Agreement No. 3, dated September 24, 2001 to the Credit Agreement dated November 13, 2000, among The Wackenhut Corporation as Borrower and Bank of America, N.A. as Agent for the Lenders, as amended by Amendment Agreement No. 1 dated December 12, 2000 and Amendment Agreement No. 2 dated June 22, 2001 (incorporated by reference to the Registrant's Form 10-Q Quarterly Report for the quarterly period ended September 20, 2001). 10.1 Amended and restated Senior Officer Retirement/Deferred Compensation Agreements for Executive Officers (the "Senior Plan"): Alan B. Bernstein, Fernando Carrizosa, Robert C. Kneip, Sandra Nusbaum, Philip L. Maslowe, and Richard R. Wackenhut (incorporated by reference to the Registrants Form 10-Q Quarterly Report for the quarterly period ended April 2, 2000). 10.2 Amended and restated Executive Severance Agreements for Alan B. Bernstein,, Robert C. Kneip, Sandra L. Nusbaum, and Philip L. Maslowe. 10.3 Executive Officer Retirement Plan (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended December 31, 2000). 10.4 Amended and Restated Split Dollar arrangement with George R. and Ruth J. Wackenhut (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended December 31, 2000). 10.5 Employment Agreement with G.R. Wackenhut (incorporated by reference to the Registrants Form 10-Q Quarterly Report for the quarterly period ended April 2, 2000). 10.6 Employment Agreement with R.W. Wackenhut (incorporated by reference to the Registrants Form 10-Q Quarterly Report for the quarterly period ended April 2, 2000). 10.7 Office Lease dated April 18, 1995 by and between The Wackenhut Corporation and Daniel S. Catalfumo, as Trustee under F.S. 689.071 (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended December 31, 2000). 10.8 First Amendment dated November 3, 1995 to Office Lease dated April 18, 1995 by and between The Wackenhut Corporation and Daniel S. Catalfumo, as Trustee under F.S. 689.071 (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended December 31, 2000). 10.9 The Wackenhut Corporation Key Employee Long-Term Incentive Stock Plan as Amended July 23, 2001.
21 10.10 Second Amendment dated August 1, 1996 to Office Lease dated April 18, 1995 by and between The Wackenhut Corporation and Daniel S. Catalfumo, as Trustee under F.S. 689.071 (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 28, 1997). 10.11 The Wackenhut Corporation Non-employee Director Stock Option Plan as Amended through February 9, 2001. 10.12 Third Amendment dated December 10, 1997 to Office Lease dated April 18, 1995 by and between The Wackenhut Corporation and Daniel S. Catalfumo, as Trustee under F.S. 689.071 (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended January 3, 1999). 10.13 Summary description of the amendment to the Key Employee Long-Term Incentive Stock Plan effective as of January 28, 1997 (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended January 3, 1999). 10.14 Senior Officer Retirement Agreement for James P. Rowan (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended January 2, 2000). 10.15 Fourth Amendment dated April 1, 1999 to Office Lease dated April 18, 1995 by and between The Wackenhut Corporation and Lepercq Corporate Income Fund L.P., as successor-in-interest to PGA Professional Center, LTD (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended December 31, 2000). 10.16 Designated Executive Officer Bonus Plan for Fiscal 2001. 10.17 Senior Management Bonus Plan for Fiscal 2001. 10.18 First Amendment to Employment Agreement with R.W. Wackenhut dated February 19, 2002. 13.0 Annual Report to Shareholders for the year ended December 30, 2001, beginning with page F1 (to be deemed filed only to the extent required by the instructions to exhibits for reports on this Form 10-K). 21.1 Subsidiaries of The Wackenhut Corporation. 23.1 Consent of Arthur Andersen LLP. 24.1 Powers of Attorney.
(b). Reports on Form 8-K. None SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE WACKENHUT CORPORATION By: /s/ Philip L. Maslowe Date: February 26, 2002 ------------------------ Philip L. Maslowe Executive Vice President and Chief Financial Officer KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip L. Maslowe and Juan D. Miyar, and each of them, as true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, 22 granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the foregoing, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Richard R. Wackenhut Vice Chairman of the Board, President and Chief February 13, 2002 - ----------------------------------- Executive Officer (principal executive officer) Richard R. Wackenhut /s/ Philip L. Maslowe Executive Vice President and Chief Financial Officer February 26, 2002 - ----------------------------------- Philip L. Maslowe /s/ Juan D. Miyar Vice President and Corporate Controller February 26, 2002 - ----------------------------------- (principal accounting officer) Juan D. Miyar /s/ Alan B. Bernstein Director February 13, 2002 - ----------------------------------- Alan B. Bernstein /s/ Julius W. Becton, Jr. Director February 13, 2002 - ----------------------------------- Julius W. Becton, Jr. /s/ Carroll A. Campbell Director February 12, 2002 - ----------------------------------- Carroll A. Campbell /s/ Benjamin R. Civiletti Director February 12, 2002 - ----------------------------------- Benjamin R. Civiletti
SIGNATURE TITLE DATE --------- ----- ---- /s/ Anne N. Foreman Director February 13, 2002 - ----------------------------------- Anne N. Foreman /s/ Edward L. Hennessy, Jr. Director February 13, 2002 - ----------------------------------- Edward L. Hennessy, Jr. /s/ Paul X. Kelley Director February 13, 2002 - ----------------------------------- Paul X. Kelley /s/ Nancy Clark Reynolds Director February 20, 2002 - ----------------------------------- Nancy Clark Reynolds /s/ John F. Ruffle Director February 13, 2002 - ----------------------------------- John F. Ruffle /s/ Thomas P. Stafford Director February 13, 2002 - ----------------------------------- Thomas P. Stafford /s/ George R. Wackenhut Director February 13, 2002 - ----------------------------------- George R. Wackenhut
23 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To The Wackenhut Corporation: We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in The Wackenhut Corporation's 2001 Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 7, 2002. Our audits were made for the purpose of forming an opinion on those consolidated financial statements taken as a whole. The schedule listed in Item 14(a) 2 of the Wackenhut Corporation's Annual Report on Form 10-K for the fiscal year ended December 30, 2001 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP West Palm Beach, Florida, February 7, 2002. 24 SCHEDULE II THE WACKENHUT CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE FISCAL YEARS ENDED DECEMBER 30, 2001, DECEMBER 31, 2000 AND JANUARY 2, 2000 (IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED DEDUCTIONS, BALANCE AT BEGINNING COST AND TO OTHER ACTUAL END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS CHARGE-OFFS PERIOD - ----------- ---------- ---------- --------- ----------- ---------- YEAR ENDED DECEMBER 30, 2001: Allowance for doubtful accounts .... $4,843 6,541 -- (4,573) $6,811 YEAR ENDED DECEMBER 31, 2000: Allowance for doubtful accounts .... $5,202 3,238 200 (3,797) $4,843 YEAR ENDED JANUARY 2, 2000: Allowance for doubtful accounts .... $4,699 257 1,631 (1,385) $5,202
25 [FINANCIAL REVIEW LOGO] The Wackenhut Corporation and Subsidiaries Market for the Company's Common Equity and Related Stockholder Matters The ensuing table shows the high and low prices for the Company's series A [NYSE: WAK] and B [NYSE: WAKB] common stock, as reported on the New York Stock Exchange, for each quarterly period during fiscal 2001 and 2000. Holders of series A, the voting stock, have control over all aspects of the operations of the Company. Holders of series B only have voting rights in connection with a transaction affecting the essence of their shareholder rights. In all other respects, series B shareholders have the same rights as series A shareholders. The approximate number of record holders of series A and B common stock as of February 7, 2002, was 528 and 535, respectively. During the 2001 fiscal year, the Company's publicly owned, separately traded subsidiary, Wackenhut Corrections Corporation [NYSE: WHC], purchased 122,000 shares of its common stock at an average price of $12.68.
- ----------------------------------------------------------------------------------------------------------------------------- Fiscal 2001 Fiscal 2000 - ----------------------------------------------------------------------------------------------------------------------------- Series A Series B Series A Series B - ----------------------------------------------------------------------------------------------------------------------------- High Low High Low High Low High Low First $ 16.7500 $ 13.3750 $ 11.1000 $ 8.5000 $ 15.5625 $ 12.8750 $ 11.2500 $ 8.6250 Second 17.3300 14.1000 13.7600 9.8600 14.5000 12.5000 10.0000 7.7500 Third 24.0000 16.3500 18.5000 13.3500 15.2500 12.7500 10.3750 7.9375 Fourth 28.1000 21.2600 21.1000 15.0700 14.6250 11.4375 8.7500 6.6250 - -----------------------------------------------------------------------------------------------------------------------------
Forward-Looking Statements Statements made in the management's discussion and analysis of financial condition and results of operations, the corporate profile, the letter to shareholders, corporate diversity, and the February 8, 2002 press release are based on current expectations, estimates and projections, are forward-looking in nature, and these statements also include beliefs and assumptions made by management. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("Future Factors") which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Future Factors include, but are not limited to, increasing price and product/service competition by domestic and foreign competitors, including new entrants; rapid technological developments and changes; the ability to continue to introduce competitive new products and services on a timely, cost effective basis; the mix of products/services; the achievement of lower costs and expenses; domestic and foreign governmental and public policy changes including environmental regulations; protection and validity of patent and other intellectual property rights; reliance on large customers; technological, implementation and cost/financial risks in increasing use of large, multi-year contracts; the outcome of pending and future litigation and governmental proceedings and continued availability of financing, financial instruments and financial resources in the amounts, at the times and on the terms required to support the Company's future business; and other factors discussed in the Company's filings with the Securities and Exchange Commission. These are representative of the future factors that could affect the outcome of the forward-looking statements. In addition, such statements could be affected by general industry and market conditions and growth rates, general domestic and international economic conditions including interest rate and currency exchange rate fluctuations and other future factors. The Company does not assume any obligation to update any such forward-looking statements. Uncertainty in the Aftermath of September 11 The effects of the terrorist attacks of September 11, 2001, and of potential future terrorist attacks on general economic conditions and on the Company's businesses, in particular, are uncertain. For example, in the event that any facilities at which the Company provides security related services are attacked by terrorists in the future, liabilities resulting from such attacks could, to the extent not covered by insurance, have a material adverse effect on the Company's business. In addition, terrorist attacks, including the attacks of September 11th that do not directly involve facilities serviced by the Company or that are fully insured against, could have a material impact on the Company by, among other things, sharply increasing the Company's insurance coverage costs including workers' compensation insurance, making insurance coverage unavailable altogether or prompting expanded security rules and regulations for airports, commercial buildings or other facilities. Other effects of terrorist acts that could materially impact the F 1 Company include but are not limited to: (i) an overall decline in the economy; (ii) a decline in air travel; and/or (iii) a decrease in the efficiency of the Company's security services as a result of compliance with expanded security rules and regulations. F 2 The Wackenhut Corporation and Subsidiaries Selected Financial Data (in millions except per share data) The selected consolidated financial data should be read in conjunction with the Company's consolidated financial statements and the notes thereto.
FISCAL YEAR ENDED: 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------------- RESULTS OF OPERATIONS: Revenues $ 2,809.0 $ 2,505.1 Operating income [a] 44.3 34.9 Income before income taxes [a] 44.3 33.3 Income before extraordinary charge and cumulative effect of accounting change [a] 3.7 17.6 Extraordinary charge - early extinguishment of debt, net of income taxes Cumulative effect of accounting change [b] (0.8) ------------------------ Net income [a] $ 3.7 $ 16.8 - ----------------------------------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE - BASIC: [c] Income before extraordinary charge and cumulative effect of accounting change [a] $ 0.25 $ 1.17 Extraordinary charge - early extinguishment of debt, net of income taxes Cumulative effect of accounting change [b] (0.05) ------------------------ Earnings per share - Basic $ 0.25 $ 1.12 - ----------------------------------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE - ASSUMING DILUTION: [c] Income before extraordinary charge and cumulative effect of accounting change [a] $ 0.23 $ 1.15 Extraordinary charge - early extinguishment of debt, net of income taxes Cumulative effect of accounting change [b] (0.05) ------------------------ Earnings per share - Assuming Dilution $ 0.23 $ 1.10 - ----------------------------------------------------------------------------------------------------------------------------------- CASH DIVIDENDS PER SHARE OF COMMON STOCK: [c] Total Dividends $ none $ none - ----------------------------------------------------------------------------------------------------------------------------------- FINANCIAL CONDITION: Working capital $ 158.8 $ 130.6 Total assets 619.9 570.3 Total debt [d] 16.3 16.5 Shareholders' equity 174.1 177.8 - -----------------------------------------------------------------------------------------------------------------------------------
(a) Fiscal year 2001 includes a pre-tax operating charge of $10.0 million ($6.1 million after tax) and equity in loss of affiliates had a pre-tax charge of $33.5 million ($20.5 million after tax) connected with the Company's efforts to reposition and stabilize its international operations or a total year-to-date impact of a $1.73 per share after tax. Fiscal year 2001 and 2000, respectively, include an operating charge of $3.0 million and $3.8 million before income taxes ($1.0 million and $1.3 million after income taxes and minority interest expense) or $0.07 per share and $0.09 per share related to the deactivation of the Jena Juvenile Justice Center, see Note 9 to the consolidated financial statements. Fiscal year 1997 includes a one-time pre-tax charge of $18.3 million before income taxes ($11.3 million after income taxes) or $0.76 per share. (b) See Note 2 to the consolidated financial statements. (c) Restated to reflect a 25% stock dividend declared during fiscal 1995 and 1994 and to reflect a 100% stock dividend, effected in the form of a stock split, declared during fiscal 1992. After the first quarter of fiscal 1999, dividends were discontinued to optimize growth opportunities. (d) Includes current portion of long-term debt, notes payable and long-term debt. * 53 weeks. F 3
1999 1998* 1997 1996 1995 1994 1993* 1992 - ---------------------------------------------------------------------------------------------------------------------------- $ 2,152.3 $ 1,755.1 $ 1,126.8 $ 906.0 $ 797.0 $ 727.0 $ 659.0 $ 615.0 37.9 32.4 3.3 16.3 15.8 6.6 4.5 3.4 39.9 34.6 6.0 17.9 13.7 3.0 3.4 1.6 19.6 15.9 0.1 9.1 7.3 2.3 3.6 1.1 (0.9) (1.4) (6.6) 7.4 - ---------------------------------------------------------------------------------------------------------------------------- $ 19.6 $ 9.3 $ 0.1 $ 9.1 $ 7.3 $ 1.4 $ 2.2 $ 8.5 - ---------------------------------------------------------------------------------------------------------------------------- $ 1.31 $ 1.07 $ .01 $ .66 $ .60 $ .19 $ .30 $ .09 (.08) (.12) (.44) .61 - ---------------------------------------------------------------------------------------------------------------------------- $ 1.31 $ .63 $ .01 $ .66 $ .60 $ .11 $ .18 $ .70 - ---------------------------------------------------------------------------------------------------------------------------- $ 1.28 $ 1.03 $ (.01) $ .65 $ .60 $ .19 $ .30 $ .09 (.08) (.12) (.44) .61 - ---------------------------------------------------------------------------------------------------------------------------- $ 1.28 $ .59 $ (.01) $ .65 $ .60 $ .11 $ .18 $ .70 - ---------------------------------------------------------------------------------------------------------------------------- $ .08 $ .30 $ .26 $ .26 $ .24 $ .23 $ .23 $ .20 - ---------------------------------------------------------------------------------------------------------------------------- $ 124.0 $ 98.2 $ 116.8 $ 148.1 $ 51.9 $ 75.6 $ 56.2 $ 56.9 521.0 445.0 404.4 323.9 197.9 212.8 211.3 192.2 21.2 7.8 15.8 5.9 6.5 42.8 67.9 64.0 163.9 149.2 146.8 148.2 62.9 57.5 47.4 47.6 - ----------------------------------------------------------------------------------------------------------------------------
F 4 The Wackenhut Corporation and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (Tabular information in millions) Overview The Wackenhut Corporation, a Florida corporation, and subsidiaries (the "Company" or "TWC") is a major provider of global business services including providing security-related and other support services to business and government, developing and managing privatized correctional, detention and public sector mental health services facilities through Correctional Services or WHC, a 57% owned public subsidiary, and providing employee leasing and temporary staffing. Global Security Services includes security operations, facility management and fire and emergency medical services. WHC designs, constructs, finances and manages correctional, detention and mental health psychiatric facilities and performs separate correctional-related services, including prisoner transportation, home detention monitoring and correctional health care. The Company's Staffing Services' business includes worksite employee leasing, temporary services, recruiting, risk management, payroll processing and human resource services. The Company's continued goal is to build on its reputation as a global provider of integrated business services to government and commercial clients and to be distinguished by the quality of those services. Fiscal year 2001 revenues of $2.8 billion when compared to fiscal year 2000 revenues of $2.5 billion grew 12 percent. Growth occurred in all three of the Company's service businesses - Global Security Services, Correctional Services and Staffing Services. Comparing this year's Global Security Services' revenues with the prior year's revenues results in a 6 percent growth rate. This growth can be attributable to several new government and commercial contracts as well as increased demand from new and existing customers after September 11, 2001. In 2001, Correctional Services' revenues increased by 5 percent principally through the addition of revenue producing beds. At present, the backlog of additional beds expected to be contracted by government agencies worldwide over approximately the next 18 months is 18,000. The Company's Staffing Services business had a 25 percent growth rate during the 2001 fiscal year. Staffing Services continues to grow by expanding and developing existing offices. Improved profitability and margins in Global Security and Correctional Services was offset by equity in losses incurred from international affiliates' operations. The Company's management continued to review its international operations in order to enhance the quality of revenue and earnings growth. In 2001, the Company recorded after-tax charges of $17.9 million ($29.2 million pre-tax) representing its share of losses associated with its affiliated operations in Chile, and funded $32 million of bank letters of credit issued to secure a portion of this affiliate's debt. Also during the year, the Company's management provided for asset impairments and provisions for losses after tax of approximately $8.7 million ($14.3 million pre-tax) associated with various international operations, principally in Latin America excluding Chile. Management has developed and implemented strategies to restructure its international security operations in order to enhance the quality of revenue and earnings growth. Management continually monitors the operations of its subsidiaries and affiliates. If conditions were to arise that indicate an impairment of one of these investments, this could have an adverse impact on the Company's results of operations. In 2001, WHC's earnings were adversely affected by the recognition of an additional operating charge related to the deactivation of the Jena facility and an increase in insurance expense. During the fourth quarter of 2000, the Company adopted SEC Staff Accounting Bulletin No. 101 (SAB No. 101) - Revenue Recognition. Government contract award fees, previously accrued for based on the Company's performance and long-term historical experience of being awarded such fees, are now only recognized when formally awarded. SAB No. 101 applied retroactively for recognition of such award fees to the first quarter 2000, resulted in a decrease in 2000 of net income of $0.8 million. On a diluted basis, the cumulative effect of the change was $0.05 per share. On a basic and diluted basis for 1999 and 1998, the pro forma effect of the adoption of SAB No. 101 was $0.02 per share less than that reported for each of these years. Liquidity and Capital Resources The Company's principal sources of liquidity are from operations and borrowings under its credit facilities. Another principal source of liquidity for WHC is the sale of its rights to acquire prison facilities. Cash and cash equivalents totaled $86.9 million at December 30, 2001, compared to $60.8 million at December 31, 2000. Of this $86.9 million, $27.5 million collateralizes certain obligations of the Company's captive insurance subsidiary. In addition, cash and cash equivalents of WHC, which totaled $46.1 million at December 30, 2001, is generally not available to the Company in any form, including dividends or loans. The Company's sources of liquidity are in the form of $112.5 million in lines of credit, available for revolving loans or letters of credit, and a $75 million accounts receivable securitization facility. This securitization facility is subject to renewal on an annual basis and was renewed for another year on January 25, 2002. At December 30, 2001, the Company had borrowings of $9.6 million and $26.3 million of outstanding letters of credit against its revolving bank facility. The unused portion of the revolving line of credit was $76.6 million. There were $68.0 million accounts receivable sold under the securitization facility at December 30, 2001. Accordingly, such receivables are not reflected in the consolidated balance sheet. Therefore, as of December 30, 2001, the total amount available for additional borrowings to the Company from its F 5 revolving credit and accounts receivable securitization facility was $83.6 million. In fiscal year 2001, the Company recorded after-tax charges of $17.9 million ($29.2 million pre-tax) representing its share of the losses of its affiliated operations in Chile. In the third quarter 2001, the Company completed the cash funding of its $32 million of bank letters of credit issued to secure a portion of its Chilean affiliate's debt. With the payment of the bank standby letters of credit, the Company's affiliate, Wackenhut Chile S.A., has substituted short-term debt obligations with local Chilean lenders with a one-year term maturity funding directly with the Company. The Company's Chilean affiliate defaulted on certain of its bank loan obligations earlier in the year because it had been unable to generate sufficient cash, either from ongoing operations or the sale of assets, to repay its obligations. In conjunction with the Company's payment of the $32.0 million of letters of credit, the affiliate obtained a 180-day term bank creditor standstill agreement on October 18, 2001. During this standstill period, the affiliate is restructuring its operations and attempting to sell non-core security businesses to repay or reduce the local Chilean secured debt, as well as debt due the Company, and to provide sufficient working capital for the core security business. Wackenhut Chile S.A. also has engaged a local investment bank to assist in the sale of the non-core businesses. This restructuring will likely include the Company attaining majority ownership of the Chilean affiliate. At present there can be no assurance that the Chilean affiliate will be able to sell assets to enable it to repay its outstanding debt. Inability to sell non-core assets during this standstill period could have a material adverse impact on the Chilean affiliate's financial position, results of operations and/or cash flows. The timing of such activities cannot be certain as the completion of any such transaction depends upon the needs of potential acquirers, buyers or investors, as well as financing, regulatory/legal requirements and other factors. The Chilean affiliate's total outstanding debt is approximately $52.9 million as of December 30, 2001, including the $37.9 million owed to the Company, and there can be no assurance that the Chilean affiliate will be able to generate enough cash from operations or the sale of non-strategic businesses to satisfy these debts. The Company has also provided comfort letters for approximately $1.0 million. At this time management is unable to estimate the amount of loss, if any, that would be recorded should the sale of assets, or ongoing operating results, be unable to generate sufficient cash to repay the Chilean affiliate's obligations including amounts owed to the Company, and there can be no assurance that the ultimate outcome of this uncertainty would not have a material adverse impact on the Company's financial position, results of operations or cash flows. At December 30, 2001, the Company's investment balance related to its Chilean affiliate approximates $10.2 million, including amounts owed to the Company. The Company continues to review its international security operations in order to enhance the quality of revenue and earnings growth. Management determined that it needed to focus the Company's resources in international markets where it could best achieve a proper critical mass. In aligning its international resources with this strategy, management believes that there may be conditions where the Company may consider exiting a country, or refocusing an operation. As a result, there could be an impairment of assets, or a need to provide for losses, particularly in certain subsidiaries and affiliates that are experiencing liquidity issues or are thinly capitalized. During fiscal year 2001, the Company focused on realigning its international security management and integrating its global security operations. As it focused on this repositioning and change in its management structure, the Company's management provided for asset impairments and provisions for losses after tax of approximately $8.7 million ($14.3 million pre-tax) associated with various international operations, principally in Latin America excluding Chile. The Company has operations in most Latin American countries, and therefore, has exposure to the ongoing economic difficulties in the region. Although significant progress has been made in achieving management's restructuring objectives, these efforts will continue in 2002. During this review process, conditions may arise that will cause the Company to record additional impairments to investments in particular locations. Also, in some locations, local economic conditions may result in reporting losses. At this time, management is unable to estimate the amount of these write-downs or losses, if any, that would be reported, and there can be no assurance that the ultimate outcome of this process would not have a material adverse impact on the Company's financial position, results of operations and cash flows. As of December 30, 2001, the Company's investment balance related to its international affiliates' security operations totals approximately $6.7 million, excluding Chile. At December 30, 2001, WHC had a $30 million multi-currency revolving credit facility, which includes $5 million for the issuance of letters of credit and thirteen letters of guarantee totaling $10.2 million under separate international facilities. WHC also has a $220 million operating lease facility established to acquire and develop new correctional facilities used in its business. At December 30, 2001, WHC had no amounts outstanding under its revolving credit facility and $154.3 million was outstanding for four properties in operation under its operating lease facility. These amounts are not reflected on the consolidated balance sheet. The term of WHC's operating facility expires December 18, 2002. WHC is exploring a number of alternatives to refinance the outstanding balance, and believes it will be successful in these efforts. However, there can be no assurance that WHC will be able to complete the refinancing prior to December 18, 2002. Upon expiration of WHC's operating facility, WHC may purchase the properties in the facility for their original acquisition cost. If WHC were to F 6 purchase the properties, WHC may use a number of forms of debt financing which would require the properties, and any related debt incurred to purchase the properties, to be reported on WHC's and the Company's balance sheet. Alternatively, WHC may cause the properties to be sold to a third party. If the sales proceeds yield less than the original acquisition cost, WHC will make up the difference up to a maximum of 88% of the original acquisition cost. In connection with the financing and management of one Australian facility, WHC's wholly owned Australian subsidiary was required to make an investment of approximately $5 million. The balance of the facility was financed with long-term debt obligations that are nonrecourse to WHC. WHC's Australian subsidiary has a leasehold interest in the facility and does not have the ultimate rights of ownership. In the event the management contract is terminated for default, WHC's investment of approximately $5 million is at risk. WHC believes that the risk of termination for default is remote and notes that the project has operated successfully for 5 years. The management contract is up for renewal in September 2002. WHC's management believes the management contract will be renewed. If the management contract is not renewed (other than due to a default), WHC's subsidiary's investment must be repaid by the state government. Current cash requirements consist of amounts needed for capital expenditures, increased working capital needs resulting from corporate growth and business expansion, payment of liabilities incurred in the operation of the Company's business, the renovation or construction of correctional facilities by WHC, and possible acquisitions. The Company continues to expand its domestic and international businesses and to pursue major contracts, some of which may require substantial initial cash outlays, which are partially or fully recoverable over the original term of the contract. Management believes that cash on hand, cash provided by operating activities and available lines of credit will be adequate to support currently planned business expansion and various obligations incurred in the operation of the Company's business through 2002. Management will continue to review its capital/financial planning alternatives to ensure long-term financial capital access and availability. Inflation Management believes that inflation has not had a material effect on the Company's results of operations during the past three fiscal years. Some of the Company's contracts include provisions for inflationary indexing. During a period of low unemployment, some business units may experience difficulty in finding qualified personnel. Since personnel costs represent the Company's largest expense, this could have a substantial adverse effect on the Company's results of operations in the future to the extent that wages and salaries increase at a faster rate than the per diem or fixed rate received by the Company for its services. Market Risk The Company is exposed to market risks, including changes in interest rates and currency exchange rates. These exposures primarily relate to outstanding balances under the revolving line of credit, securitization facilities and international investments. In addition, WHC is exposed to market risks arising from changes in interest rates with respect to its $220.0 million operating lease facility and the $30.0 million revolving credit facility which both expire in December 2002. Based on the Company's interest rate and foreign exchange rate position at December 30, 2001, a hypothetical 100 basis point change in market interest rate or a 10% change in the historical currency rates would not have a material effect on the Company's financial position or results of operations over the next fiscal year. Results of Operations The following discussion should be read in conjunction with the Company's consolidated financial statements and notes thereto. The table on page F8 summarizes results of operations for the Company's three business segments by organizational group. Critical Accounting Policies The Company's critical accounting policies are discussed in detail in footnote 2 to the consolidated financial statements on pages F17 through F20. Fiscal 2001 compared with Fiscal 2000 Revenues Fiscal 2001 consolidated revenues increased $304.0 million, or 12.1%, over fiscal 2000 due to increases in all business groups. The Company's growth in security services and in the staff leasing/temporary services were the largest contributors to the increase over fiscal 2000. Correctional Services also showed solid growth. Global Security Services Fiscal 2001 Global Security Services' revenues increased $74.3 million, or 6.4%, to $1,242.5 million from $1,168.2 million in fiscal 2000. North American market revenues increased $68.8 million, or 6.9%, to $1,070.1 million in fiscal 2001 from $1,001.3 million in fiscal 2000. Within the North American market, revenues from commercial accounts represented approximately 62.5% of total revenues of the group in fiscal 2001 versus 60% in fiscal 2000, and revenues from government/regulated industries represented the other portion. Commercial account revenues increased approximately 12.1% in fiscal 2001 over fiscal 2000, primarily due to a combination of higher billing rates and increases in billable hours as the Company continued to expand its base of national accounts and Custom Protection Officer(R) ("CPO") clients. Revenues of government and regulated industries increased 15.9% in fiscal 2001 over fiscal 2000, principally due to the U.S. Department of Energy's Oak Ridge facility running at full capacity in fiscal year 2001, a contract begun in January 2000, and scope increases at several security contracts in the nuclear industry. These North American market revenue increases for commercial and regulated accounts were partially offset due to the sale of the food services division in the first half of fiscal year 2001. International market revenues increased $5.5 million, or 3.3%, to $172.4 million in fiscal 2001 from $166.9 F 7 million in fiscal 2000, primarily due to growth in the United Kingdom. Correctional Services Business Fiscal 2001 Correctional Services' revenues increased $26.5 million, or 5.0%, to $562.1 million in fiscal 2001 from $535.6 million in fiscal 2000. This increase is the result of new facility openings offset by lower construction revenues, closure of two facilities and lower compensated resident days at the Department of Immigration and Multicultural Affairs ("DIMA") facilities in Australia. Approximately $52.5 million of this increase in revenues is attributable to an increase in compensated resident days resulting from the opening of two facilities in fiscal 2001 and a full year of operations in fiscal 2001 for two facilities opened in fiscal 2000. The number of compensated resident days in all facilities increased to approximately 11.1 million in fiscal 2001 from 10.6 million in fiscal 2000. Revenues decreased approximately $27.3 million due to a decrease in construction activity. Revenues also decreased by approximately $10.4 million due to the cessation of operations at the Jena facility, the expiration of two contracts for two facilities and a decline in compensated resident days at the DIMA facilities. The balance of the increase is attributable to facilities opened during both periods and an increase in per diem rates. Average facility occupancy in domestic facilities remained constant at 97.0% of capacity for 2001 and 2000. Average facility occupancy in Australian facilities decreased to 94.3% of capacity in 2001 compared to 99.1% in 2000. Staffing Services Business Staffing Services' revenues increased $203.1 million, or 25.3%, to $1,004.4 million in fiscal 2001 from $801.3 million in fiscal 2000 and is attributable to internal growth. Worksite employees grew to 42,200 at the end of 2001 from 35,900 at the end of 2000. Temporary staffing hours were approximately 3.5 million in 2001 compared to 3.6 million in 2000. Operating Income Fiscal 2001 consolidated operating income was $44.3 million versus $34.9 million in fiscal 2000. The operating margin for fiscal 2001 increased to 1.6% from 1.4% in 2000. The operating margin increases for Global Security Services and Correctional Services, along with a slight decrease in unallocated corporate expense as a percentage of total consolidated revenues, more than offset lower operating margins in Staffing Services. Global Security Services Fiscal 2001 Global Security Services' business operating income of $36.6 million increased $3.2 million, or 9.6%, from $33.4 million in fiscal 2000. Margins were 2.9% in 2001 and 2000. Fiscal 2001 operating income of $42.0 million in the North American market increased $11.9 million, or 39.5%, from $30.1 million in fiscal 2000. This increase can be attributed mainly to increased revenue growth from commercial and government-regulated security services net of decreased profits in the food services division that was sold in the first half of fiscal year 2001. Excluding the food service division, North American security operations' operating income, as a percentage of revenues, increased 80 basis points in fiscal 2001 compared to fiscal 2000, due to an increase in billing rates and improved operations.
2001 2000 1999 ------------------------------------------------------------------------------------- $ % $ % $ % ------------------------------------------------------------------------------------- REVENUES (a) NORTH AMERICAN SERVICES $ 1,070.1 38.1 $ 1,001.3 40.0 $ 892.3 41.4 INTERNATIONAL SERVICES 172.4 6.1 166.9 6.6 148.7 6.9 ------------------------------------------------------------------------------------- GLOBAL SECURITY SERVICES 1,242.5 44.2 1,168.2 46.6 1,041.0 48.3 CORRECTIONAL SERVICES 562.1 20.0 535.6 21.4 438.5 20.4 STAFFING SERVICES 1,004.4 35.8 801.3 32.0 672.8 31.3 ------------------------------------------------------------------------------------- CONSOLIDATED REVENUES $ 2,809.0 100.0 $ 2,505.1 100.0 $ 2,152.3 100.0 ------------------------------------------------------------------------------------- OPERATING INCOME (b) NORTH AMERICAN SERVICES $ 42.0 3.9 $ 30.1 3.0 $ 24.7 2.8 INTERNATIONAL SERVICES (5.4) (3.1) 3.3 2.0 3.0 2.0 --------- --------- --------- GLOBAL SECURITY SERVICES 36.6 2.9 33.4 2.9 27.7 2.7 CORRECTIONAL SERVICES 24.2 4.3 18.9 3.5 26.0 5.9 STAFFING SERVICES 3.9 0.4 3.7 0.5 3.5 0.5 UNALLOCATED CORPORATE EXPENSE (20.4) (0.7) (21.1) (0.8) (19.3) (0.9) --------- --------- --------- CONSOLIDATED OPERATING INCOME $ 44.3 1.6 $ 34.9 1.4 $ 37.9 1.8 --------- --------- ---------
- -------------------------------------------------------------------------------- (a) Represents percent of total revenues. (b) Represents percent of respective business related revenues. F 8 During fiscal 2000, management decided to focus the Company's resources in international markets where it could best achieve a proper critical mass and improve revenue and earnings growth. During fiscal year 2001, as the Company focused on this repositioning and change in its management structure, asset impairments and provisions for losses impacting operating income of approximately $10.0 million pre-tax ($6.1 million after tax) were provided for in connection with various international operations, excluding Chile, in Latin America, Asia and Africa. As a result of these provisions, fiscal 2001 operating income in the international security market decreased $8.7 million to a loss of $5.4 million from income of $3.3 million in fiscal 2000, with operating margins declining to a negative 3.1% versus a positive 2.0% in fiscal 2000. Although significant progress has been made in achieving management's restructuring objectives, these efforts will continue in 2002. During this review process, conditions may arise that will cause the Company to record additional impairments to investments in particular locations. Also, in some locations, local economic conditions may result in reporting losses. At this time, management is unable to estimate the amount of these write-downs or losses, if any, that would be reported, and there can be no assurance that the ultimate outcome of this process would not have a material adverse impact on the Company's financial position, results of operations and cash flows. Correctional Services Business Fiscal 2001 operating income from Correctional Services increased $5.3 million, or 28.0%, to $24.2 million from $18.9 million in fiscal 2000. This increase is principally the result of new facility openings offset by lower compensated resident days at DIMA facilities in Australia. Additionally, this increase is due to improved operations at a number of facilities. WHC implemented strategies to improve the operational performance of these facilities and believes their performance has stabilized. However, there can be no assurances that these strategies will continue to be successful. On January 7, 2000, WHC exercised its right to acquire the 276-bed Jena Juvenile Justice Center (the "Facility") in Jena, Louisiana from the trust of WHC's operating lease facility and, simultaneously sold it to Correctional Properties Trust ("CPV"), a Maryland real estate investment trust. This Facility is being leased back to WHC under a 10 year noncancelable operating lease. On May 17, 2000, the Louisiana Department of Public Safety and Corrections removed all inmates from the Facility and WHC terminated the employment of the Facility staff. The cooperative agreement for such Facility was terminated June 30, 2000. WHC recorded in fiscal year 2001 and 2000, respectively, operating charges of $3.0 million and $3.8 million ($1.8 million and $2.3 million after tax), representing the losses expected at the time to be incurred on the lease. After taxes and minority interest expense, these charges reduced the Company's fiscal year 2001 and 2000 diluted earnings per share by $0.07 and $0.09, respectively. WHC is continuing its efforts to sublease or find an alternative use for the Facility. If WHC is unable to sublease or find an alternative use for the Facility, there will be additional adverse impacts on WHC's and the Company's financial positions and future results of operations. Remaining payments under this lease are approximately $14.0 million. WHC continues to incur higher insurance costs due to a hardened seller's insurance market, which was exacerbated by the events of September 11, 2001 and historical adverse claims experience, and although WHC has implemented a strategy to improve the management of future claims, WHC can not provide assurances that this strategy will result in lower insurance costs. WHC insurance costs increased significantly during the third and fourth quarters of 2001. WHC's management believes these costs have stabilized; however, the increases may continue through fiscal 2002. WHC has 21 existing contracts up for renewal in 2002 and WHC's management expects to renew these contracts with the possible exceptions of the Bayamon Correctional Facility and McFarland Community Corrections Center. However, there can be no assurances that WHC will be successful in these efforts. Operating margin as a percentage of revenues was 4.3% in fiscal 2001, compared to 3.5% in fiscal 2000. Staffing Services Business Staffing Services' operating income of $3.9 million increased $0.2 million, or 5.4%, from $3.7 million in fiscal 2000. The operating income of the Staffing Services as a percentage of total Staffing Services' revenues decreased to 0.4% for fiscal 2001 compared to 0.5% for fiscal 2000, due principally to higher fixed insurance costs. Corporate Expenses Unallocated corporate general and administrative expenses decreased $0.7 million to $20.4 million from $21.1 million in 2000. As a percentage of consolidated revenues, unallocated corporate general and administrative expenses decreased slightly. EBITDA Fiscal 2001 EBITDA, defined as earnings before interest expense, income taxes, depreciation and amortization was $73.0 million. Fiscal 2000 EBITDA was $60.8 million. Other Income (Expense) Interest and investment income decreased $0.2 million to $6.2 million in fiscal 2001 from $6.4 million in fiscal 2000. Interest expense decreased $1.8 million to $6.2 million in fiscal 2001 from $8.0 million in 2000. The decrease in interest expense is primarily due to a decrease in average debt outstanding as well as a decrease in average borrowing rates. Minority Interest Minority interest (net of income taxes) increased to $9.1 million in fiscal 2001 from $8.2 million in fiscal 2000, principally reflecting the increase of $1.0 million in minority interest pertaining to increased earnings of WHC. F 9 Equity in (Loss) Income of Affiliates Equity in loss of affiliates (net of income tax benefit) was $14.2 million in fiscal 2001 compared to income of $5.8 million in fiscal 2000. Equity loss related to the Chilean affiliate increased by $17.2 million after tax ($28.0 pre-tax) from a loss of $0.7 million after tax ($1.2 million pre-tax) in fiscal year 2000 to a loss of $17.9 million after tax ($29.2 pre-tax) in fiscal year 2001, due to an increase in losses plus the write-down of the Company's advances. At December 30, 2001 the Company's investment balance related to its Chilean affiliate approximated $10.2 million. The Company launched a full scale analysis of all aspects of the uncertain situation of its affiliated operations and is currently working with the affiliate's management team and its bankers in assessing its alternatives with respect to the affiliate's operations in Chile, including the sale of non-strategic businesses. At this time management is unable to estimate the amount of loss, if any, that would be recorded should the sale of assets, or ongoing operating results, be unable to generate sufficient cash to repay the Chilean affiliate's obligations including the $37.9 million owed to the Company, and there can be no assurance that the ultimate outcome of this uncertainty would not have a material adverse impact on the Company's financial position, results of operations or cash flows. The Company's management continued to review its international security operations in order to enhance the quality of revenue and earnings growth and determined that it needed to focus the Company's resources in international markets where it could best achieve a proper critical mass. Therefore, of the $20.0 million decrease in equity income for this year compared to last year, a $2.6 million after tax charge ($4.3 million pre-tax) was incurred primarily related to the complete write-down of the Company's investments in certain countries, principally Latin America. As of December 30, 2001, the Company's investment balance related to its international affiliates' security operations totals approximately $6.7 million, excluding Chile. Although significant progress has been made in achieving management's restructuring and repositioning objectives, these efforts will continue in 2002. During this review process, conditions may arise that will cause the Company to record additional impairments to investments in particular locations. Also, in some locations, local economic conditions may result in reporting losses. At this time, management is unable to estimate the amount of these write-downs or losses, if any, that would be reported, and there can be no assurance that the ultimate outcome of this process would not have a material adverse impact on the Company's financial position, results of operations and cash flows. Income Before Cumulative Effect of Change in Accounting Principle Income before cumulative effect of change in accounting principle decreased $13.9 million to $3.7 million in fiscal 2001, compared to $17.6 million in fiscal 2000. Diluted earnings per share before the cumulative effect of change in accounting principle was $0.23 in fiscal 2001, compared to $1.15 in fiscal 2000. Cumulative Effect of Change in Accounting Principle In fiscal 2000, the Company adopted SAB No. 101. The adoption of SAB No. 101 resulted in a one-time charge in 2000 of $0.8 million, net of income taxes. Net Income Net income was $3.7 million for fiscal 2001, or $0.25 basic earnings per share, as compared to $16.8 million, or $1.12 per share for fiscal 2000. Earnings per share on a diluted basis was $0.23 in fiscal 2001 compared to $1.10 for fiscal 2000. Goodwill amortization, after tax, amounted to $1.4 million for fiscal 2001. Excluding goodwill amortization, after tax, basic and diluted earnings per share would have been $0.08 and $0.09 more, respectively. In future years, goodwill will no longer be amortized but will be reviewed for potential impairment under SFAS No. 142. Fiscal 2000 compared with Fiscal 1999 Revenues Fiscal 2000 consolidated revenues increased $352.8 million, or 16.4%, over fiscal 1999 due to increases in all business groups. The Company's growth in security services and in the staff leasing/temporary services were the largest contributors to the increase over fiscal 1999. Correctional Services also showed solid growth. Global Security Services Fiscal 2000 Global Security Services' revenues increased $127.2 million, or 12.2%, to $1,168.2 million from $1,041.0 million in fiscal 1999. North American market revenues increased $109.0 million, or 12.2%, to $1,001.3 million in fiscal 2000 from $892.3 million in fiscal 1999. Within the North American market, revenues from commercial accounts represented approximately 60% of total revenues of the group in fiscal 2000 versus 62% in fiscal 1999, and revenues from government/regulated industries represented the other portion. Commercial account revenues increased approximately 8% in fiscal 2000 over fiscal 1999, primarily due to a combination of higher billing rates and increases in billable hours as the Company continued to expand its base of national accounts and Custom Protection Officer(R) ("CPO") clients. Revenues of government and regulated industries increased 28% in fiscal 2000 over fiscal 1999, principally due to a new contract at the U.S. Department of Energy's Oak Ridge facility with revenues of approximately $50 million and several new security contracts in the nuclear industry. International market revenues increased $18.2 million, or 12.2%, to $166.9 million in fiscal 2000 from $148.7 million in fiscal 1999, primarily due to growth in the United Kingdom. Revenues in Latin America, principally in Peru, Guatemala, Costa Rica and Paraguay continued to increase mainly through expansion of the security-related business, diversification of services, and expansion of the client base of multi-national companies. F10 Correctional Services Business Fiscal 2000 Correctional Services' revenues increased $97.1 million, or 22.1%, to $535.6 million in fiscal 2000 from $438.5 million in fiscal 1999. Of the increase in revenues in 2000 compared with 1999, $68.7 million is attributable to increased compensated resident days resulting from the opening of two new facilities in 2000 and increased compensated resident days at six facilities, $27.8 million is due to project revenues for the development of a hospital and a prison, and the balance represents facilities open during all of both periods. Average facility occupancy in domestic facilities remained constant at 97.4% of capacity for 2000 and 1999. Average facility occupancy in Australian facilities increased to 99.1% of capacity in 2000 compared to 96.6% in 1999. Total compensated resident days increased to 10.6 million in fiscal 2000 from 9.6 million in fiscal 1999. Staffing Services Business Staffing Services' revenues increased $128.5 million, or 19.1%, to $801.3 million in fiscal 2000 from $672.8 million in fiscal 1999 and is attributable to internal growth. Worksite employees grew to 35,900 at the end of 2000 from 29,500 at the end of 1999. Temporary staffing hours were approximately 3.6 million in 2000 compared to 3.3 million in 1999. Operating Income Fiscal 2000 consolidated operating income was $34.9 million versus $37.9 million in fiscal 1999. The operating margin for fiscal 2000 decreased to 1.4% from 1.8% in 1999. This decrease is primarily related to WHC due to: [1] a $3.8 million operating charge related to the deactivation of the Jena, Louisiana facility, [2] additional expenses related to operations at six facilities, and [3] an increase in insurance expense. This decrease in operating margin was partially offset by improved profitability and margins in Security Services. Global Security Services Fiscal 2000 Global Security Services' business operating income of $33.4 million increased $5.7 million, or 20.6%, from $27.7 million in fiscal 1999. Margins increased to 2.9% in 2000 from 2.7% in 1999. Fiscal 2000 operating income of $30.1 million in the North American market increased $5.4 million, or 21.9%, from $24.7 million in fiscal 1999. This increase can be attributed mainly to increased revenue growth from commercial and government-regulated security services net of decreased profits in food services. North American market operating income as a percentage of revenues increased 20 basis points in fiscal 2000 compared to fiscal 1999 due to an increase in billing rates. Global Security Services fiscal 2000 operating income in the international market increased $0.3 million, or 10.0%, to $3.3 million from $3.0 million in 1999 with operating margins remaining the same at 2.0%. Improved operations of subsidiaries in the United Kingdom and Africa contributed to this improvement. Correctional Services Business Fiscal 2000 operating income from Correctional Services decreased $7.1 million, or 27.4%, to $18.9 million from $26.0 million in fiscal 1999. This decrease is due to WHC reporting a third quarter operating charge of $3.8 million related to the deactivation of the Jena, Louisiana facility. WHC estimates this facility will remain inactive through the end of 2002. There were also additional expenses related to the operations at six facilities in the United States. In addition, there has been an increase in insurance expense. Additional payroll costs were incurred related to unanticipated wage increases due to tight labor markets in 2000. WHC also experienced increased medical costs for offsite hospitalizations and treatment of serious illnesses of certain residents, which were beyond the treatment capabilities of WHC's facilities. Operating margin as a percentage of revenues was 3.5% in fiscal 2000, compared to 5.9% in fiscal 1999. Staffing Services Business Staffing Services' operating income of $3.7 million increased $0.2 million, or 5.7%, from $3.5 million in fiscal 1999. The operating income of the Staffing Services as a percentage of total Staffing Services' revenues was 0.5% for fiscal 2000 and fiscal 1999. Corporate Expenses Unallocated corporate general and administrative expenses increased to $21.1 million from $19.3 million in 1999. As a percentage of consolidated revenues, unallocated corporate general and administrative expenses did not significantly change. EBITDA Fiscal 2000 EBITDA, defined as earnings before interest expense, income taxes, depreciation and amortization was $60.8 million. Fiscal 1999 EBIDTA was also $60.8 million. Other Income (Expense) Interest and investment income decreased $2.1 million (29.2%) in fiscal 2000 over fiscal 1999 primarily due to WHC recognizing $2.0 million more in gains from the sale of its loans to overseas affiliates in 1999. Interest expense increased $1.5 million to $6.7 million in fiscal 2000 from $5.2 million in 1999. The increase in interest expense is primarily attributable to increases in the average outstanding balances for securitized accounts receivable and the revolving credit facility. Minority Interest Minority interest (net of income taxes) decreased to $8.2 million in fiscal 2000 from $10.9 million in fiscal 1999, reflecting principally the decrease of $2.5 million in minority interest pertaining to decreased earnings of WHC. Equity in Income of Affiliates Equity in income of affiliates (net of income taxes) decreased $0.7 million, or 9.9%, to $5.8 million in fiscal 2000 from $6.5 million in fiscal 1999. Equity income of the Chilean affiliate decreased by $1.8 million after tax F11 due to a decrease in operating income and an increase in interest expense. This decrease is partially offset by improved performance of WHC's U.K. affiliate due to the expansion of services and a full year of operations at H.M. Prison Kilmarnock which opened in March 1999, the Hassockfield Secure Training Centre in Medomsley England, which opened in September 1999, and H.M. Prison & Youth Offender Institution Ashfield in Pucklechurch, England, which opened in November 1999. Income Before Cumulative Effect of Change in Accounting Principle Income before cumulative effect of change in accounting principle decreased $2.0 million to $17.6 million in fiscal 2000, compared to $19.6 million in fiscal 1999. Diluted earnings per share before the cumulative effect of change in accounting principle was $1.15 in fiscal 2000, compared to $1.28 in fiscal 1999. Cumulative Effect of Change in Accounting Principle In fiscal 2000, the Company adopted SAB No. 101. The adoption of SAB No. 101 resulted in a one-time charge in 2000 of $0.8 million, net of income taxes. Net Income Net income was $16.8 million for fiscal 2000, or $1.12 basic earnings per share, as compared to $19.6 million, or $1.31 per share for fiscal 1999. Earnings per share on a diluted basis was $1.10 in fiscal 2000 compared to $1.28 for fiscal 1999. Goodwill amortization, after tax, amounted to $1.5 million for fiscal 2000. Excluding goodwill amortization, after tax, basic and diluted earnings per share would have been $0.09 and $0.10 more, respectively. F12 The Wackenhut Corporation and Subsidiaries Consolidated Statements of Income (in millions except share data) FISCAL YEARS ENDED DECEMBER 30, 2001, DECEMBER 31, 2000, and JANUARY 2, 2000
2001 2000 1999 - --------------------------------------------------------------------------------------------------------------------------------- REVENUES $2,809.0 $2,505.1 $2,152.3 OPERATING EXPENSES Payroll and related taxes 2,264.1 1,950.4 1,688.5 Other operating expenses 471.9 493.9 403.0 Depreciation and amortization 28.7 25.9 22.9 -------- -------- -------- OPERATING INCOME 44.3 34.9 37.9 -------- -------- -------- OTHER INCOME (EXPENSE) Interest and investment income 6.2 6.4 7.2 Interest expense (6.2) (8.0) (5.2) -------- -------- -------- INCOME BEFORE INCOME TAXES 44.3 33.3 39.9 INCOME TAXES (17.3) (13.3) (15.9) MINORITY INTEREST, NET OF INCOME TAXES OF $5.8, $5.5 AND $7.2 (9.1) (8.2) (10.9) EQUITY IN INCOME (LOSS) OF AFFILIATES, NET OF INCOME TAX (BENEFIT) OF $(9.1), $3.9 AND $4.3 (14.2) 5.8 6.5 -------- -------- -------- INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 3.7 17.6 19.6 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET (Note 2) -- (0.8) -- -------- -------- -------- NET INCOME $ 3.7 $ 16.8 $ 19.6 -------- -------- -------- EARNINGS (LOSS) PER SHARE: Basic Income before cumulative effect of change in accounting principle $ 0.25 $ 1.17 $ 1.31 Cumulative effect of change in accounting principle -- (0.05) -- -------- -------- -------- Net income $ 0.25 $ 1.12 $ 1.31 -------- -------- -------- Diluted Income before cumulative effect of change in accounting principle $ 0.23 $ 1.15 $ 1.28 Cumulative effect of change in accounting principle -- (0.05) -- -------- -------- -------- Net income $ 0.23 $ 1.10 $ 1.28 -------- -------- -------- BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 15.0 15.0 14.9 -------- -------- -------- DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 15.4 15.1 15.1 - ---------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F13 The Wackenhut Corporation and Subsidiaries Consolidated Balance Sheets (in millions except share data) DECEMBER 30, 2001 and DECEMBER 31, 2000
2001 2000 - ---------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 86.9 $ 60.8 Accounts receivable, net 248.0 218.4 Inventories 9.6 11.5 Deferred taxes 23.2 12.1 Prepaid expenses 7.5 10.6 Other 10.9 15.1 ------ ------ 386.1 328.5 MARKETABLE SECURITIES 37.6 37.3 PROPERTY AND EQUIPMENT 125.5 118.2 Less: accumulated depreciation and amortization (49.4) (38.8) ------ ------ 76.1 79.4 DEFERRED TAXES 18.6 7.5 OTHER ASSETS Goodwill, net 47.6 50.1 Other intangibles, net 6.5 14.1 Investment in and advances to affiliates 38.0 44.9 Other 9.4 8.5 ------ ------ 101.5 117.6 ------ ------ $619.9 $570.3 - ---------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable and current portion of long-term debt $ 4.8 $ 5.1 Accounts payable 31.5 36.9 Accrued payroll and related taxes 106.8 90.3 Accrued expenses 84.2 65.6 ------ ------ 227.3 197.9 RESERVES FOR INSURANCE LOSSES 104.9 92.7 LONG-TERM DEBT 11.5 11.4 DEFERRED REVENUE 9.8 12.8 OTHER 33.6 19.6 COMMITMENTS AND CONTINGENCIES (Notes 9, 10, and 18) MINORITY INTEREST 58.7 58.1 SHAREHOLDERS' EQUITY Preferred stock, 10 million shares authorized, none outstanding -- -- Common stock, $.10 par value, 50 million shares authorized Series A, 3.9 million issued and outstanding 0.4 0.4 Series B, 11.2 and 11.1 million issued and outstanding, respectively 1.1 1.1 Additional paid-in capital 123.5 121.9 Retained earnings 71.5 67.8 Accumulated other comprehensive loss (22.4) (13.4) ------ ------ 174.1 177.8 ------ ------ $619.9 $570.3 - ----------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F14 The Wackenhut Corporation and Subsidiaries Consolidated Statements of Cash Flows (in millions) FISCAL YEARS ENDED DECEMBER 30, 2001, DECEMBER 31, 2000, and JANUARY 2, 2000
2001 2000 1999 - -------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3.7 $ 16.8 $ 19.6 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of accounting changes -- 0.8 -- Depreciation and amortization 28.7 25.9 22.9 Deferred taxes (22.2) 0.8 1.1 Provision for bad debts 6.5 3.2 0.3 Equity in loss (income), net of dividends received of $5.8, $2.5 and $2.7 29.1 (7.2) (8.1) Minority interest, net of taxes 9.1 8.2 10.9 Tax benefit from exercise of stock options 0.3 -- 0.4 Non-cash compensation charge 1.4 -- -- Foreign currency adjustment 0.5 0.5 (0.2) Other (1.1) (1.5) 0.5 Changes in operating assets and liabilities, net of acquisitions and divestitures - (Increase) Decrease in operating assets: Accounts receivable (38.3) (38.4) (31.2) Inventories (7.7) (4.7) (8.2) Prepaid expenses 2.9 1.9 (5.4) Other current assets 1.3 (3.1) 0.1 Other (1.2) (0.5) (4.8) Increase (Decrease) in operating liabilities: Accounts payable and accrued expenses 13.3 19.8 12.5 Accrued payroll and related taxes 17.1 13.2 7.2 Reserve for insurance losses 12.2 15.2 20.4 Other 11.1 (0.2) (0.7) ------ ------ ------ Net Cash Provided By Operating Activities 66.7 50.7 37.3 ------ ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of food service division 14.6 -- -- Net proceeds from sale of prison facilities to CPV -- -- 22.3 Payments for acquisitions (2.2) (10.3) (4.7) Net investment in and advances (to) from affiliates and joint ventures (35.6) -- 7.4 Capital expenditures (14.5) (24.3) (44.0) Sales of marketable securities 78.7 14.3 6.2 Purchases of marketable securities (79.1) (20.1) (19.5) Non-current assets -- -- (1.5) ------ ------ ------ Net Cash Used In Investing Activities (38.1) (40.4) (33.8) ------ ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from exercise of stock options of subsidiary 0.4 -- 0.2 Net proceeds from exercise of stock options -- -- 1.1 Proceeds from issuance of debt 401.9 369.3 315.0 Payments on debt (402.2) (374.0) (301.6) Dividends paid -- -- (2.2) Net cash settlements from sales of accounts receivable 0.5 (2.0) 16.5 Shares repurchased and retired, including subsidiary's (1.5) (4.9) (8.0) ------ ------ ------ Net Cash (Used In) Provided by Financing Activities (0.9) (11.6) 21.0 ------ ------ ------ EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (1.6) (4.9) (1.0) ------ ------ ------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 26.1 (6.2) 23.5 CASH AND CASH EQUIVALENTS, beginning of year 60.8 67.0 43.5 ------ ------ ------ CASH AND CASH EQUIVALENTS, end of year $ 86.9 $ 60.8 $ 67.0 ------ ------ ------ SUPPLEMENTAL DISCLOSURES: Cash paid during the year for - interest $ 5.8 $ 8.0 $ 6.3 - income taxes $ 22.9 $ 8.6 $ 12.6 - --------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F15 The Wackenhut Corporation and Subsidiaries Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss) (in millions except share data in thousands) FISCAL YEARS ENDED DECEMBER 30, 2001, DECEMBER 31, 2000, and JANUARY 2, 2000
Common Stock Par Value $.10 --------------------------------------------- Series A Series B -------------------- --------------------- Additional Number Number Paid-in of Shares Amount of Shares Amount Capital - --------------------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 3, 1999 3,855 $0.4 10,968 $1.1 $122.5 Proceeds from the exercise of stock options 110 1.1 Tax benefit related to employee stock options 0.4 Issuance of Performance Shares 38 0.6 Subsidiary's exercise of stock options 1.7 Subsidiary's shares repurchased (4.5) Shares repurchased and retired (5) (0.1) Dividends Comprehensive income (loss): Net Income Foreign currency translation adjustments, net of income tax benefits of $0.7 Unrealized loss on marketable securities, net of income tax benefits of $1.0 Total comprehensive income --------------------------------------------------------- BALANCE, JANUARY 2, 2000 3,855 0.4 11,111 1.1 121.7 Equity increase from affiliate stock offering 0.9 Issuance of Performance Shares 33 0.5 Subsidiary's shares repurchased (1.2) Comprehensive income (loss): Net Income Foreign currency translation adjustments, net of income tax benefits of $3.3 Unrealized gain on marketable securities, net of income taxes of $0.9 Total comprehensive income --------------------------------------------------------- BALANCE, DECEMBER 31, 2000 3,855 0.4 11,144 1.1 121.9 Proceeds from issuance of stock options 8 0.1 Issuance of Performance Shares 30 0.5 Non-cash compensation charge 1.4 Subsidiary's exercise of stock options 0.2 Subsidiary's shares repurchased (0.6) Comprehensive income (loss): Net Income Foreign currency translation adjustments, net of income tax benefits of $1.2 Unrealized loss on marketable securities, net of income tax benefit of $0.1 Unrealized loss on WHC's affiliate's derivative instruments, net of income tax benefit of $0.2 Cumulative effect of change in accounting principle related to WHC's affliiate's derivative instruments, net of income tax benefit of $4.6 million Total comprehensive income (loss) --------------------------------------------------------- BALANCE, DECEMBER 30, 2001 3,855 $0.4 11,182 $1.1 $123.5 - --------------------------------------------------------------------------------------------------------------------- Unrealized Foreign Gain (Loss) Total Retained Currency on Shareholders' Earnings Translation Securities Equity - ----------------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 3, 1999 $ 32.5 $ (7.3) $ -- $149.2 Proceeds from the exercise of stock options 1.1 Tax benefit related to employee stock options 0.4 Issuance of Performance Shares 0.6 Subsidiary's exercise of stock options 1.7 Subsidiary's shares repurchased (4.5) Shares repurchased and retired (0.1) Dividends (1.1) (1.1) Comprehensive income (loss): Net Income 19.6 Foreign currency translation adjustments, net of income tax benefits of $0.7 (1.1) Unrealized loss on marketable securities, net of income tax benefits of $1.0 (1.9) Total comprehensive income 16.6 -------------------------------------------------------- BALANCE, JANUARY 2, 2000 51.0 (8.4) (1.9) 163.9 Equity increase from affiliate stock offering 0.9 Issuance of Performance Shares 0.5 Subsidiary's shares repurchased (1.2) Comprehensive income (loss): Net Income 16.8 Foreign currency translation adjustments, net of income tax benefits of $3.3 (4.9) Unrealized gain on marketable securities, net of income taxes of $0.9 1.8 Total comprehensive income 13.7 -------------------------------------------------------- BALANCE, DECEMBER 31, 2000 67.8 (13.3) (0.1) 177.8 Proceeds from issuance of stock options 0.1 Issuance of Performance Shares 0.5 Non-cash compensation charge 1.4 Subsidiary's exercise of stock options 0.2 Subsidiary's shares repurchased (0.6) Comprehensive income (loss): Net Income 3.7 Foreign currency translation adjustments, net of income tax benefits of $1.2 (1.8) Unrealized loss on marketable securities, net of income tax benefit of $0.1 (0.1) Unrealized loss on WHC's affiliate's derivative instruments, net of income tax benefit of $0.2 (0.3) Cumulative effect of change in accounting principle related to WHC's affliiate's derivative instruments, net of income tax benefit of $4.6 million (6.8) Total comprehensive income (loss) (5.3) -------------------------------------------------------- BALANCE, DECEMBER 30, 2001 $ 71.5 $ (15.1) $ (7.3) $174.1 - -----------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F16 The Wackenhut Corporation and Subsidiaries Notes to Consolidated Financial Statements (Tabular dollar information in millions except share and per share data) For the Fiscal Years Ended December 30, 2001, December 31, 2000, and January 2, 2000 (1) General The Wackenhut Corporation (the "Company") is a major provider of global business services including providing security-related and other support services to business and government, developing and managing privatized correctional, detention and public sector mental health services facilities through Wackenhut Corrections Corporation ("WHC"), a 57% owned public subsidiary, and providing employee leasing and temporary staffing. (2) Summary of Significant Accounting Policies Fiscal Year The Company's fiscal year ends on the Sunday closest to the calendar year end. Fiscal years 2001, 2000 and 1999 each included 52 weeks. Basis of Financial Statement Presentation The consolidated financial statements include the accounts of all wholly owned and majority owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Partially owned equity affiliates are accounted for under the equity method. Certain prior year amounts have been reclassified to conform to the current year's presentation. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company's significant estimates include the allowance for doubtful accounts, depreciation of fixed assets, amortization of intangibles, construction cost estimates, employee deferred compensation accruals, the reserve related to the Jena facility, reserves for insurance losses, reserves related to the Company's international affiliates, certain reserves under its operating contracts and contingencies. Actual results could differ from those estimates. Fair Value of Financial Instruments The carrying value of cash and cash equivalents, accounts receivable, other receivables, notes payable, accounts payable and long-term debt approximates fair value. Accounts receivable are reported net of allowances of $6.8 million and $4.8 million at December 30, 2001 and December 31, 2000, respectively. Cash and Cash Equivalents The Company classifies as cash equivalents all interest-bearing deposits or investments with original maturities of three months or less. Cash of the Company's wholly owned casualty insurance subsidiary collateralizes certain obligations. Cash and cash equivalents of WHC is generally not available to the Company in any form, including dividends or loans. Inventories Food, alarm systems and electronics inventories are carried at the lower of cost or market, on a first-in first-out basis. Uniform inventories are carried at amortized cost and are amortized over a period of eighteen months. A provision has been made to reduce obsolete or excess inventories to market. Marketable Securities Marketable securities are classified as available-for-sale. Realized gains and losses from the sale of securities are based on specific identification of the security. Unrealized gains and losses on marketable securities are included in shareholders' equity as a component of accumulated other comprehensive income (loss). Property and Equipment Property and equipment are stated at cost, less accumulated depreciation. Maintenance and repairs are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of related assets. Accelerated methods of depreciation are generally used for income tax purposes. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease. Impairment of Long-lived Assets Long-lived assets including certain identifiable intangibles, and the goodwill related to those assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset in question may not be recoverable including, but not limited to, a deterioration of profits for a business segment that has long-lived assets, and when other changes occur which might impair recovery of long-lived assets. Management has reviewed the Company's long-lived assets and recognized in Fiscal 2001 impairment losses primarily related to its international F17 operations. The method used to determine the existence of an impairment would be undiscounted operating cash flows estimated over the remaining amortization period for the related long-lived assets. Impairment is measured as the difference between fair value and unamortized cost at the date impairment is determined. Goodwill and Other Intangibles Goodwill represents the cost of an acquired enterprise in excess of the fair value of the net tangible and identifiable intangible assets acquired. Other intangibles include the fair market value of contracts purchased in acquisitions. Goodwill and contract values are amortized on a straight-line basis over 10 to 30 years. Reserves for Insurance Losses The Company's wholly owned casualty insurance subsidiary reinsures a portion of the Company's workers' compensation, general and automobile liability insurance. Incurred losses are recorded as reported. Provision is made to cover losses incurred but not reported. Loss reserves are undiscounted and are computed based on actuarial studies and, in the opinion of management, are adequate. Deferred Revenue Deferred revenue primarily represents the unamortized net profit on the sale of properties by WHC to Correctional Properties Trust ("CPV"), a Maryland real estate investment trust. WHC leases these properties back from CPV. Deferred revenue is being amortized over the lives of the leases and is recognized in income as a reduction of rental expense. Foreign Currency Translation The Company's foreign operations use the local currency as their functional currency. Assets and liabilities of the operations (except for countries with highly inflationary economies) are translated at the exchange rates in effect on the balance sheet date. Equity is translated using historical exchange rates. Income statement items (except for countries with highly inflationary economies) are translated at the average exchange rates for the reporting period. The impact of currency fluctuations on these transactions is included in shareholders' equity as a component of accumulated other comprehensive income (loss) except for intercompany accounts that are included in gains (losses). The financial statements of subsidiaries located in highly inflationary economies are remeasured as if the functional currency were the U.S. dollar. The remeasurement of these local currencies into U.S. dollars creates translation adjustments which are included in the consolidated statements of income. Foreign exchange gains or (losses) were $(0.5) million, ($0.5) million, and $0.2 million for 2001, 2000 and 1999, respectively. Revenues Revenues earned from services are recognized when services are provided. During the fourth quarter 2000, the Company adopted SEC Staff Accounting Bulletin: No. 101 which resulted in government contract award fees, previously accrued for based on the Company's performance and long-term historical experience of being awarded such fees, being recognized only when awarded. Project development and design revenues are recognized as earned on a percentage of completion basis measured by the percentage of costs incurred to date as compared to estimated total cost for each contract. This method is used because management considers costs incurred to date to be the best available measure of progress on these contracts. Provisions for estimated losses on uncompleted contracts are made in the period in which the Company determines that such losses are probable. Contract costs include all direct material and labor costs and those indirect costs related to contract performance. Changes in job performance, job conditions, estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. Income Taxes Deferred income taxes are determined on the estimated future tax effects of differences between the financial reporting and tax bases of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the asset or liability from year to year. Valuation allowances are recorded related to deferred tax assets if their realization does not meet the "not more likely than" criteria detailed in Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." The Company and WHC file separate tax returns. Minority Interest The minority interest expense represents principally the separate public ownership in WHC, as listed on the New York Stock Exchange, and, to a lesser extent, the ownership by foreign investors in several international subsidiaries. SEC Staff Accounting Bulletin: No. 51 (SAB No. 51) In fiscal year 2000 in connection with the sale of stock by our Greek affiliate, the Company adopted SEC Staff Accounting Bulletin: No. 51 (SAB No. 51) - Accounting for Sale of Stock by a Subsidiary, which provides guidance related to gain recognition upon public sale of shares of a subsidiary. SAB No. 51 allows for the recording of gains from the sale of newly issued shares of a subsidiary directly to shareholders' equity and is reflected in additional paid-in capital. F18 SEC Staff Accounting Bulletin: No. 101 (SAB No. 101) During the fourth quarter of 2000, the Company adopted SAB No. 101 - Revenue Recognition. SAB No. 101 states that revenue generally is realized and earned when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price to the buyer is fixed or determinable and collectibility is reasonably assured. Government contract award fees, previously accrued for based on the Company's performance and long-term experience of being awarded such fees, are now only recognized when formally awarded. SAB No. 101 applied retroactively to the first quarter of 2000, resulted in a one-time charge in 2000 of $0.8 million, net of income taxes. On a diluted basis, the cumulative effect of change in accounting principle was $0.05 per share during 2000. On a basic and diluted basis for 2000 and 1999, the pro forma effect was $0.02 per share less than that reported for each of these years. Earnings Per Share Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding. In the computation of diluted earnings per share, net income is reduced by the dilutive effect of subsidiaries' stock options and dividing the result by the weighted-average number of common shares outstanding of all potential dilutive common stock equivalents except in cases where the effect would be anti-dilutive. Comprehensive Income SFAS No. 130, "Reporting Comprehensive Income" requires companies to report all changes in equity in a financial statement for the period in which they are recognized, except those resulting from investment by owners and distributions to owners. The Company has chosen to disclose comprehensive income (loss), which encompasses net income and foreign currency translation adjustments, net of tax, in the Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss). Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, trade accounts receivable and financial instruments used in hedging activities. The Company's cash management and investment policies restrict investments by type, credit and issuer, and the Company performs periodic evaluations of the credit standing of the financial institutions with which it deals. The Company performs ongoing credit evaluations of its customers' financial condition and generally does not require collateral. The Company maintains reserves for potential credit losses, and such losses traditionally have been within management's expectations and have not been material in any year. As of December 30, 2001 and December 30, 2000, management believes the Company had no significant concentrations of credit risk. Recent Accounting Pronouncements The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and 138, on January 1, 2001. The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. WHC's 50% owned equity foreign affiliate has entered into interest rate swaps to fix the interest rate it receives on its variable rate credit facility. WHC's management has determined the swaps to be effective cash flow hedges. Accordingly, WHC recorded its share of the affiliate's change in other comprehensive income (loss) as a result of applying SFAS No. 133. In the Company's and WHC's financial statements, the adoption of SFAS No. 133 resulted in a $6.8 million and a $12.1 million reduction in shareholders' equity, respectively. As of December 30, 2001, the swaps approximated $7.1 million and $12.6 million in the Company's and WHC's financial statements, respectively, as a component of other comprehensive loss. In September 2000, SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" was issued and was effective for servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. This statement replaces SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," and revises the accounting and disclosure of such transactions; however, most of SFAS No. 125's provisions continue to apply. See footnote 8 for additional disclosures regarding SFAS No. 140. In June 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS 141 addresses financial accounting and reporting for business combinations and supercedes APB No. 16, "Business Combinations" and SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." All business combinations in the scope of SFAS 141 are to be accounted for under the purchase method. SFAS 141 was effective June 30, 2001. The adoption of SFAS 141 did not have an impact on the Company's financial position, results of operations or cash flows. In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets" effective for fiscal years beginning after December 15, 2001. SFAS No. 142 addresses financial accounting and reporting for intangible assets acquired individually or with a group of other assets (but not those acquired in a business combination) at acquisition. SFAS No. 142 also addresses financial accounting and reporting for goodwill and other intangible F19 assets subsequent to their acquisition. With the adoption of SFAS No. 142, goodwill is no longer subject to amortization. Rather, goodwill will be subject to at least an annual assessment for impairment by applying a fair value test. The Company is currently assessing the impact of adopting this statement. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" effective for fiscal years beginning after June 15, 2002. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The Company does not expect there will be an impact to its financial statements upon adoption of SFAS No. 143. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" effective for fiscal year beginning after December 15, 2001. For long-lived assets to be held and used, SFAS No. 144 retains the existing requirements to (a) recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and (b) measure an impairment loss as the difference between the carrying amount and the fair value of the asset. SFAS No. 144 establishes one accounting model to be used for the long-lived assets to be disposed of by sale. The Company does not expect there will be an impact to its financial statements upon adoption of SFAS No. 144. (3) Acquisitions In November 1998, the Company purchased certain assets and assumed certain liabilities of Sharp Services, Inc. and Advantage Temporary Services, Inc., for an initial payment of $8.1 million in cash and contingent cash payments subject to adjustments based on actual workers' compensation claims. The final contingent cash payment was paid in Fiscal 2001 and amounted to $2.2 million. The acquisitions were accounted for under the purchase method, and the Company recorded approximately $8.7 million of goodwill which is being amortized on a straight-line basis over 30 years. (4) Property and Equipment Property and equipment consist of the following at fiscal year end:
Useful Life 2001 2000 - -------------------------------------------------------------------- Land $ 2.7 $ 2.8 Buildings and improvements 7 to 30 58.6 53.2 Equipment 1 1/2 to 20 47.0 44.7 Furniture and fixtures 3 to 10 6.6 7.4 Automobiles 3 9.3 9.3 Construction in progress 1.3 0.8 ------ ------ $125.5 $118.2 - --------------------------------------------------------------------
(5) Marketable Securities Marketable securities related to the Company's wholly owned casualty insurance subsidiary, carried at fair value, consist of the following at fiscal year end:
2001 2000 - ---------------------------------------------------------------------------------------- Fair Fair Value Cost Value Cost - ---------------------------------------------------------------------------------------- Municipal Bonds $24.2 $24.2 $20.7 $20.6 Taxable Bonds 12.6 12.6 9.1 8.9 Preferred Stock 0.8 1.0 7.5 8.0 ----- ----- ----- ----- $37.6 $37.8 $37.3 $37.5 - ----------------------------------------------------------------------------------------
The Company has placed in trust related to its wholly owned casualty insurance subsidiary, in favor of certain insurance companies, its marketable securities and $27.5 million in cash and cash equivalents, and has issued irrevocable standby letters of credit for $24.5 million related to its insurance subsidiary. Municipal bonds mature from 21 months to 32 years and taxable bonds, which includes corporate and government bonds, mature in periods ranging from 16 months to 29.6 years. At December 30, 2001, the Company's wholly owned casualty insurance subsidiary has specific restrictions on future purchases of marketable securities, and on withdrawals from the trust. Realized gains for fiscal 2001 were $0.6 million for municipal bonds and $0.4 million for taxable bonds and preferred stock. Realized gains for fiscal 2000 and 1999 were not significant. (6) Investment in Affiliates Equity in undistributed earnings (loss) of affiliates approximated $(6.1) million and $27.6 million at December 30, 2001, and December 31, 2000, respectively, and is included in "Investments in and advances to affiliates" in the consolidated balance sheets. The decrease in undistributed earnings is primarily attributable to losses the Company recorded on its Chilean affiliate. The following is a summary of condensed unaudited information pertaining to affiliates:
2001 2000 - -------------------------------------------------------------------------------- Balance sheet items at fiscal year end: Current assets $ 196.3 $ 196.5 Noncurrent assets 379.3 379.4 Current liabilities 126.4 147.4 Noncurrent liabilities 391.5 334.7 Minority interest liability 1.0 0.4 Income statement items for the fiscal year: Revenues $ 617.9 $ 596.9 Operating income 4.2 32.6 Net income (loss) before taxes (5.7) 29.2 - --------------------------------------------------------------------------------
(7) Goodwill and Other Intangibles Goodwill and other intangibles consist of the following at fiscal year end: F20
2001 2000 - -------------------------------------------------------------------- Goodwill $58.6 $58.0 Contract values -- 15.6 Other 12.6 8.7 ----- ----- 71.2 82.3 Accumulated amortization Goodwill 11.0 7.9 Contract values -- 5.7 Other 6.1 4.5 ----- ----- 17.1 18.1 ----- ----- Net $54.1 $64.2 - --------------------------------------------------------------------
Amortization expense of intangibles was $6.0 million, $5.4 million, and $4.9 million for fiscal years 2001, 2000 and 1999, respectively. The reduction of contract values is related to the sale of the Company's food services division. (8) Notes Payable and Long-Term Debt Long-term debt consists of the following at fiscal year end:
2001 2000 - ----------------------------------------------------------------------------- Revolving loans - The Wackenhut Corporation, parent $ 9.6 $ 0.5 WHC -- 10.0 Lease obligation payable through 2001 at a weighted average rate of 4.5% 0.7 1.3 Other debt principally related to security services 6.0 4.7 ----- ----- Total 16.3 16.5 Less: current portion 4.8 5.1 ----- ----- Total $11.5 $11.4 - -----------------------------------------------------------------------------
On November 13, 2000, the Company entered into a new three year Credit Facility increasing the Company's borrowing capacity from $95 million to $112.5 million. As of December 30, 2001, the unused portion of the revolving line of credit was $76.6 million, after deducting $26.3 million in outstanding letters of credit and $9.6 million loan balance outstanding which bears interest at a rate defined as either prime rate less 25 to 125 basis points or LIBOR plus 90 to 175 basis points, depending upon leverage ratios, maturing November 2003. The agreement requires, among other things, that the Company maintain a minimum consolidated net worth and limits certain payments and distributions. As of December 30, 2001, the Company and its subsidiaries were in compliance with applicable covenants. On January 26, 2001, the Company amended and restated its agreement (the "Securitization Agreement") with a financial institution to sell on a continuous basis undivided interests in certain eligible trade accounts receivable. On January 25, 2002, the Company amended, restated and extended the Securitization Agreement to expire in January 2003, where it may be extended upon the financial institution's acceptance. Pursuant to the Securitization Agreement, the Company formed Wackenhut Funding Corporation ("WFC"), a wholly owned, non-qualifying special purpose, bankruptcy-remote subsidiary. WFC was formed for the sole purpose of buying and selling receivables generated by the Company, where the Company sells all of their eligible accounts receivable to WFC irrevocably and without recourse. From time to time and in accordance with the Securitization Agreement, WFC will sell undivided interests in these receivables to the financial institution, up to a maximum purchase limit of $75 million. This two-step transaction is accounted for as a sale of receivables under the provisions of SFAS No. 140. There were $68.0 million and $67.5 million accounts receivable sold under the Securitization Agreement at December 30, 2001 and December 31, 2000, respectively. Accordingly, such receivables are not reflected in the consolidated balance sheet. In fiscal 2001, proceeds from new securitizations were $157.6 million and payments on securitizations were $157.1 million. The costs associated with this sale of receivables are based on the volume of receivables sold and existing markets for A1+/P-1 asset backed commercial paper rates, primarily relate to the discount and loss on sale, and ranged between 2.3% and 7.2% during fiscal 2001. Such costs are included in "Interest Expense" in the consolidated statements of income and were approximately $2.8 million and $4.7 million for the twelve months ended December 30, 2001 and December 31, 2000. Therefore, as of December 30, 2001, the total amount available for additional borrowings to the Company from its revolving credit and accounts receivable securitization facility is $83.6 million. The Company has a demand operating line of credit with a Canadian bank with a maximum borrowing amount of $2.8 million. At December 30, 2001, the Company had short-term borrowings under this line of credit of $2.0 million for working capital purposes, bearing interest at a rate based on the bank's prime lending rate, or 5.3% at year end. The Company had outstanding notes payable, capital leases and operating lines of credit of $4.1 million at December 30, 2001 to meet working capital needs of its international subsidiaries with $2.3 million due within one year. At December 30, 2001, WHC had a $30 million multi-currency revolving credit facility, which includes $5 million for the issuance of letters of credit and thirteen letters of guarantee totaling $10.2 million under separate international facilities. WHC also has a $220 million operating lease facility established to acquire and develop new correctional facilities used in its business. At December 30, 2001, WHC had no amounts outstanding under its revolving credit facility and $154.3 million was outstanding for four properties in operation under its operating lease facility. These amounts are not reflected on the consolidated balance sheet. (9) Jena Charge During the third quarter of 2000, WHC recorded an operating charge of $3.8 million ($2.3 million after tax) related to the lease of the 276-bed Jena Juvenile Justice Center in Jena, Louisiana which had been vacated. The charge represented the expected losses to be incurred under the lease F21 agreement with CPV through 2001. At that time, WHC's management estimated the Jena Facility would remain inactive through the end of 2001. In June 2001, the Louisiana State Senate passed a resolution requesting the Louisiana Department of Public Safety and Corrections to enter into discussions regarding the potential purchase of a facility in LaSalle Parish. Subsequently, the State and WHC, in coordination with CPV, began discussions regarding the sale of the Jena facility located in LaSalle Parish. WHC's management believes a sale of the Jena facility will be finalized by December 29, 2002. Accordingly, in December 2001, WHC recorded an additional operating charge of $3.0 million ($1.8 million after tax) related to the Jena Facility which represents the expected losses to be incurred on the lease through December 2002. There can be no assurance that WHC and CPV will be able to successfully complete a sale. If a sale is not completed prior to December 29, 2002, or if WHC is unable to sublease or find an alternative use for the Jena Facility prior to December 29, 2002, an additional charge related to the Jena Facility would be required. Remaining payments under this lease are approximately $14.0 million. (10) Related Party Transactions with Correctional Properties Trust On April 28, 1998, CPV acquired eight correctional and detention facilities operated by WHC. WHC and CPV have three common members on their respective Board of Directors. CPV also was granted the fifteen-year right to acquire and lease back future correctional and detention facilities developed or acquired by WHC. During fiscal 1998 and 1999, CPV acquired two additional facilities for $94.1 million. In fiscal 2000, CPV purchased an eleventh facility that WHC had the right to acquire for $15.3 million. WHC recognized no net proceeds from the sale. There were no purchase and sale transactions between WHC and CPV in 2001. Simultaneous with the purchases, WHC entered into ten-year operating leases of these facilities from CPV. As the lease agreements are subject to contractual lease increases, WHC records operating lease expense for these leases on a straight-line basis over the term of the leases. The deferred unamortized net gain related to the sale of the facilities to CPV at December 30, 2001, which is included in "Deferred revenue" in the accompanying consolidated balance sheets, is $11.7 million with $1.9 million short-term and $9.8 million long-term, excluding the long-term portion of deferred development fee revenue. The gain is being amortized over the ten year lease terms. WHC recorded net rental expense related to CPV of $19.1 million and $19.7 million in 2001 and 2000, respectively, excluding the Jena rental expense, and $18.9 million in 1999. The future minimum lease commitments under the leases for these eleven facilities are as follows:
Annual Year Rental - ---- -------- 2002 $ 23.1 2003 23.2 2004 23.3 2005 23.4 2006 23.4 Thereafter 41.7 ------- $ 158.1 - -------------------- -----------
(11) Preferred and Common Stock and Shares Repurchased and Retired The Board of Directors has authorized 10 million shares of preferred stock. As of December 30, 2001, no preferred stock has been issued. The Board of Directors has authorized 50 million shares of the Company's common stock, with 3.9 million shares to be designated as series A common stock and 46.1 million shares to be designated as series B common stock. Holders of series A, the voting stock, have control over all aspects of the operations of the Company. Holders of series B only have voting rights in connection with a transaction affecting the essence of their shareholder rights. In all other respects, series B shareholders have the same rights as series A shareholders. The Board of Directors of the Company and of WHC authorized the repurchase, at the discretion of each company's senior management, of up to 0.5 million shares of series B common stock and 1.0 million shares of WHC's common stock, respectively. In February 2000, the Board of Directors of WHC authorized, in addition to that previously authorized, the repurchase of up to 0.5 million shares of its common stock. All of the Company's repurchases of shares of common stock have been retired and result in a reduction of shareholders' equity. WHC's common stock repurchases are recorded as a reduction to additional paid-in capital and minority interest. As of December 30, 2001, the Company had bought back 201,492 shares of the Company's Series B common stock at an average price of $15.52, and WHC had repurchased all 1.5 million shares authorized of its common stock also at an average price of $15.52 per share. All shares repurchased by the Company and WHC were retired. (12) Stock Incentive and Stock Option Plans Key employees of the Company and its subsidiaries are eligible to participate in the Key Employee Long-Term Incentive Stock Plan ("incentive stock plan"). Under the incentive stock plan, options for the Company's series B common stock are granted to participants as approved by the Nominating and Compensation Committee of the Company's Board of Directors (the "Committee"). Under terms of the incentive stock plan, options are granted at prices not less than the fair market value at date of grant (or as otherwise determined by the Committee), become exercisable after a minimum of six months, and expire no later than ten years after the date of grant. The Committee may grant incentive stock F22 options or non-qualified stock options. Options are subject to adjustment upon the occurrence of certain events, including stock splits and stock dividends. The incentive stock plan authorizes the Company to award or grant restricted stock and performance shares to key employees. Performance shares are earned only if certain three year earnings per share performance goals established by the Compensation Committee are met. Non-employee directors of the Company are eligible to participate in The Wackenhut Corporation non-employee Directors' Stock Option Plan (the "directors' plan"). Under the directors' plan, non-employee directors are granted 5,000 stock options for series B common stock upon their election or re-election to the Board of Directors. Under terms of the directors' plan, options are granted at the fair market value at date of grant, become exercisable at date of grant, and expire ten years after the date of grant. At December 30, 2001 2,468,234 shares of series B common stock were reserved for issuance. Under the directors' plan, 60,000 shares were available for future grants and awards. The employee plan expired in July 2001. During 2001, the Company modified stock options for three employees and recorded non-cash compensation expense of approximately $1.4 million. A summary of the status of the Company's employee stock option plans, as of December 30, 2001, December 31, 2000 and January 2, 2000 is presented in the following chart:
2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------- Shares Price* Shares Price* Shares Price* - ------------------------------------------------------------------------------------------------------------------------------- Outstanding at beginning of Year 1,533,654 $ 13.01 978,904 $ 15.06 847,630 $ 14.06 Options: Granted 600,000 11.42 587,000 9.71 230,000 16.69 Exercised (8,126) 8.35 -- -- (101,851) 10.15 Forfeited -- -- (32,250) 15.66 3,125 6.16 ------------------------------------------------------------------------------------------------------ Outstanding & exercisable End of year 2,125,528 $ 12.58 1,533,654 $ 13.01 978,904 $ 15.06 - -------------------------------------------------------------------------------------------------------------------------------
*Weighted average exercise price. Option groups outstanding at December 30, 2001 and related exercise price and remaining life information are as follows:
Remaining Outstanding Exercise Life Grant Date & Exercisable Price (Years) - ------------------------------------------------------------- 04/30/94 126,978 $ 6.16 2 01/28/95 96,750 10.80 3 01/31/96 110,000 14.00 4 01/28/97 127,800 15.25 5 08/09/97 30,000 18.94 5 01/27/98 243,000 19.75 6 02/18/99 218,000 16.69 7 02/17/00 515,700 9.75 8 05/05/00 57,300 9.38 8 02/09/01 360,000 9.80 9 07/10/01 240,000 13.85 9 - ------------------------------------------------------------- Total 2,125,528 $ 12.58* 7* - -------------------------------------------------------------
*Weighted average exercise price and life The Company applies Accounting Principles Board Opinion No. 25 ("APB No. 25") and related interpretations in accounting for its stock-based compensation plans. Had compensation for the Company's stock-based compensation plans been determined pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have decreased accordingly. Using the Black-Scholes option pricing model for all options granted after January 1, 1995, the Company's pro forma net income, pro forma net income per share and pro forma weighted average fair value of options granted, with related assumptions, are as follows:
2001 2000 1999 - --------------------------------------------------------------------------- Pro forma basic net income $ 1.9 $ 15.0 $ 18.6 Pro forma basic earnings per share $ 0.13 $ 1.00 $ 1.25 Pro forma diluted net income $ 1.7 $ 14.9 $ 18.5 Pro forma diluted earnings per share $ 0.11 $ 0.99 $ 1.22 Pro forma weighted average fair value of options granted $ 4.69 $ 4.42 $ 6.69 Risk-free interest rate 4.8%-4.9% 6.7% 4.9%-5.4% Expected life (years) 5 5 5 Expected volatility 38.0% 38.0% 38.0% Quarterly dividend - - - - ---------------------------------------------------------------------------
The Company discontinued its quarterly dividend after the first quarter of 1999 (13) WHC Stock Option Plans In January 1996, WHC sold 4.6 million shares of common stock at an offering price of $12.00 per share. After the offering, the Company's ownership in WHC was reduced to approximately 55%. During 2001, the exercise of 86,200 non-qualified stock options of WHC, net of 122,000 WHC shares repurchased and retired, resulted in the Company's ownership of WHC equaling approximately 57.2% at December 30, 2001. The Board of Directors of WHC has granted non-qualified stock options to purchase common stock which, if fully exercised, would reduce the Company's ownership in WHC to approximately 53.6%. F23 (14) Retirement and Deferred Compensation Plans The Company has a noncontributory defined benefit pension plan covering certain of its executives. Retirement benefits are based on years of service, employees' average compensation for the last five years prior to retirement and social security benefits. Currently, the plan is not funded. The Company purchases and is the beneficiary of life insurance policies for each participant enrolled in the plan. The assumptions for the discount rate and the average increase in compensation used in determining the pension expense and funded status information are 6.75% and 4.0%, respectively, as of and for the year ended December 30, 2001. Total pension expense for fiscal 2001, 2000 and 1999 was $0.4 million, $0.6 million, and $0.5 million, respectively. The present value of accumulated pension benefits was $3.4 million and $2.8 million at the end of 2001 and 2000, respectively, and is included in "Other liabilities" in the accompanying consolidated balance sheets. The Company has established non-qualified deferred compensation agreements with certain senior executives providing for fixed annual benefits ranging from $175,000 to $250,000 payable upon retirement at age 60 for a period of 25 years. In the event of death before retirement, annual benefits are paid to beneficiaries for a period of 12 1/2 years. Currently, the plan is not funded. The Company purchases and is the beneficiary of life insurance policies for each participant enrolled in the plan. The cost of these agreements is being charged to expense and accrued using a present value method over the expected terms of employment. The charge to expense for fiscal 2001, 2000 and 1999 was $5.6 million, $1.5 million, and $0.8 million, respectively. The increase in pension expense in fiscal 2001 is primarily attributable to the Company recognizing past service costs on those employees who terminated and a decrease in the discount rate. The liability for deferred compensation was $12.6 million and $7.3 million at fiscal year end 2001 and 2000, respectively, and is included in "Other liabilities" in the accompanying consolidated balance sheets. (15) Income Taxes The provision for income taxes in the consolidated statements of income, consists of the following:
2001 2000 1999 - ----------------------------------------------------------------------- Federal income taxes: Current $ 31.3 $ 5.6 $ 7.7 Deferred (20.1) 1.0 3.6 -------------------------------------- 11.2 6.6 11.3 State income taxes: Current $ 5.8 $ 1.7 $ 2.2 Deferred (2.5) 0.1 0.4 -------------------------------------- 3.3 1.8 2.6 Foreign: Current $ 2.4 $ 5.2 $ 4.9 Deferred 0.4 (0.3) (2.9) -------------------------------------- 2.8 4.9 2.0 -------------------------------------- Total $ 17.3 $ 13.3 $ 15.9 - ----------------------------------------------------------------------
A reconciliation of the statutory U.S. federal tax rate (35%) and the effective income tax rate is as follows:
2001 2000 1999 - ------------------------------------------------------------------------------- Provision using statutory federal income tax rate $ 15.5 $ 11.7 $ 14.0 State income taxes, net of federal benefit 1.2 1.4 1.7 Other, net 0.6 0.2 0.2 --------------------------------------- $ 17.3 $ 13.3 $ 15.9 - -------------------------------------------------------------------------------
The components of the current deferred income tax asset are as follows at fiscal year end:
2001 2000 - -------------------------------------------------------------------------------- Amortization of uniforms and accessories $(2.2) $(2.2) Accrued vacation pay 4.3 3.9 Bad debt reserves 6.4 1.3 Other reserves 14.7 9.1 ----------------------- Current deferred tax asset $23.2 $12.1 - -------------------------------------------------------------------------------
The components of the non-current deferred income tax asset at fiscal year end are shown below:
2001 2000 - --------------------------------------------------------------------------------- Income of foreign subsidiaries and $(19.8) $(21.3) affiliates Gain on sale of properties to CPV 7.5 8.7 Deferred compensation 12.9 8.5 Reserve for insurance losses 13.9 6.5 Reserve for claims of employee health trust 1.4 1.9 Other, net 2.7 3.2 ------------------------ Non-current deferred tax asset $ 18.6 $ 7.5 - -------------------------------------------- ------------------------
The Company provides United States taxes on unremitted foreign earnings. The exercise of non-qualified stock options which have been granted under the Company's stock option plans gives rise to compensation which is includable in the taxable income of the applicable employees and deducted by the Company for federal and state income tax purposes. Such compensation results from increases F24 in the fair market value of the Company's common stock subsequent to the date of grant. In accordance with APB No. 25, such compensation is not recognized as an expense for financial accounting purposes and related tax benefits are credited directly to additional paid-in capital. (16) Earnings Per Share The table below shows the amounts used in computing earnings per share. Common stock equivalents related to stock options are excluded from diluted earnings (loss) per share calculations if their effect would be anti-dilutive. In fiscal 2001, 2000 and 1999 the total number of stock options excluded because their effect would have been anti-dilutive were 1,026,800, 1,569,410, and 329,100, respectively (share data in millions).
2001 2000 1999 - ------------------------------------------------------------------------------- Basic Net income $ 3.7 $ 16.8 $ 19.6 -------------------------------------- Weighted average common shares outstanding 15.0 15.0 14.9 -------------------------------------- Basic earnings per share $ 0.25 $ 1.12 $ 1.31 -------------------------------------- Diluted Net income $ 3.7 $ 16.8 $ 19.6 Effect of subsidiaries stock options (0.2) (0.2) (0.2) -------------------------------------- Net income $ 3.5 $ 16.6 $ 19.4 -------------------------------------- Weighted average common shares outstanding 15.0 15.0 14.9 Assumed exercise of stock options, net of common shares assumed repurchased with the proceeds 0.4 0.1 0.2 -------------------------------------- Adjusted weighted average common shares outstanding 15.4 15.1 15.1 -------------------------------------- Diluted earnings per share $ 0.23 $ 1.10 $ 1.28 - -------------------------------------------------------------------------------
(17) Related Party Transactions Related party transactions occur in the normal course of business between the Company and WHC. Such transactions include the purchase of goods and services and corporate costs for management support, office space, insurance and interest expense. The Company charged the following expenses related to transactions with WHC during the fiscal years ended:
Fiscal Year 2001 2000 1999 - ------------------------------------------------------------------------------- General and administrative expenses $ 2.8 $ 3.5 $ 2.9 Casualty insurance premiums 22.0 13.6 9.4 Rent 0.3 0.3 0.3 Net interest income -- -- (0.4) -------------------------------------- $ 25.1 $ 17.4 $ 12.2 - -------------------------------------------------------------------------------
General and administrative expenses represent charges for management and support services. The Company provides various general and administrative services to WHC under a Services Agreement. The initial agreement expired December 31, 1997 and provided for one-year renewal periods at WHC's option. Annual rates are negotiated by the Company and WHC based upon the level of service provided. Management believes that the difference between these charges and those that would have been incurred by WHC on a stand-alone basis is not material. (18) Commitments and Contingencies The Company and WHC lease correctional facilities, office space, computers and vehicles under non-cancelable operating leases expiring through 2009. Rent expense for the fiscal years ended December 30, 2001, December 31, 2000 and January 2, 2000 was $35.6 million, $26.9 million and $22.2 million, respectively. The minimum commitments under these leases and the 15 year lease for the corporate headquarters, are as follows:
Minimum Year Commitments - ------------------------------------------------------------- 2002 $ 31.5 2003 18.4 2004 15.1 2005 10.6 2006 7.0 Thereafter 36.1 ------------- $ 118.7 - -------------------------------------------------------------
In fiscal year 2001, the Company recorded after-tax charges of $17.9 million ($29.2 million pre-tax) representing its share of the losses of its affiliated operations in Chile. In the third quarter 2001, the Company completed the cash funding of its $32 million of bank letters of credit issued to secure a portion of its Chilean affiliate's debt. With the payment of the bank standby letters of credit, the Company's Chilean affiliate has substituted short-term debt obligations with local Chilean lenders with a one-year term maturity funding directly with the Company. The Company's Chilean affiliate defaulted on certain of its bank loan obligations earlier in the year because it had been unable to generate sufficient cash, either from ongoing operations or the sale of assets, to repay its obligations. In conjunction with the Company's payment of the $32 million of letters of credit, the affiliate obtained a 180-day term bank creditor standstill agreement on October 18, 2001. During this standstill period, the affiliate is restructuring its operations and attempting to sell non-core security businesses to repay or reduce the local Chilean debt, as well F25 as debt due the Company, and to provide sufficient working capital for the core security business. The Chilean affiliate also has engaged a local investment bank to assist in the sale of the non-core businesses. This restructuring will likely include the Company attaining majority ownership of the Chilean affiliate. At present there can be no assurance that the Chilean affiliate will be able to sell assets to enable it to repay its outstanding debt. Inability to sell non-core assets during this standstill period could have a material adverse impact on the Chilean affiliate's financial position, results of operations and/or cash flows. The timing of such activities cannot be certain as the completion of any such transaction depends upon the needs of potential acquirers, buyers or investors, as well as financing, regulatory/legal requirements and other factors. The Chilean affiliate's total outstanding debt is approximately $52.9 million as of December 30, 2001, including the $37.9 million owed to the Company, and there can be no assurance that the Chilean affiliate will be able to generate enough cash from operations or the sale of non-strategic businesses to satisfy these debts. The Company has also provided comfort letters for approximately $1.0 million. At this time management is unable to estimate the amount of loss, if any, that would be recorded should the sale of assets, or ongoing operating results, be unable to generate sufficient cash to repay the Chilean affiliate's obligations including amounts owed to the Company, and there can be no assurance that the ultimate outcome of this uncertainty would not have a material adverse impact on the Company's financial position, results of operations or cash flows. At December 30, 2001 the Company's net investment balance related to its Chilean affiliate approximates $10.2 million, including amounts owed to the Company. The Company continues to review its international security operations in order to enhance the quality of revenue and earnings growth. Management determined that it needed to focus the Company's resources in international markets where it could best achieve a proper critical mass. In aligning its international resources with this strategy, management believes that there may be conditions where the Company may consider exiting a country, or refocusing an operation. As a result, there could be an impairment of assets, or a need to provide for losses, particularly in certain subsidiaries and affiliates that are experiencing liquidity issues or are thinly capitalized. During fiscal year 2001, the Company focused on realigning its international security management and consolidating its global security operations. As it focused on this repositioning and change in its management structure, the Company's management provided for asset impairments and provisions for losses after tax of approximately $8.7 million ($14.3 million pre-tax) associated with various international operations, principally in Latin America excluding Chile. The Company has operations in most Latin American countries, and therefore, has exposure to the ongoing economic difficulties in the region. Although significant progress has been made in achieving management's restructuring objectives, these efforts will continue in 2002. During this review process, conditions may arise that will cause the Company to record additional impairments to investments in particular locations. Also, in some locations, local economic conditions may result in reporting losses. At this time, management is unable to estimate the amount of these write-downs or losses, if any, that would be reported, and there can be no assurance that the ultimate outcome of this process would not have a material adverse impact on the Company's financial position, results of operations and cash flows. In December 2001, WHC was issued a notice of contract non-renewal by the Administration of Corrections from the Commonwealth of Puerto Rico for the management of the Bayamon Correctional Facility. The current contract is set to expire March 23, 2002. WHC has met with various government officials in an effort to reverse the initial decision. There can be no assurances that these efforts will be successful. WHC does not expect the discontinuation of the management contract to have a significant impact on WHC's future results of operations and cash flows. The Bayamon Correctional Facility is owned by the government and there is no lease commitment on the part of WHC. On June 30, 2002, WHC's contract with the California Department of Corrections (the "Department") for the management of the McFarland Community Corrections Center is set to expire. WHC believes that the Department may not renew this contract due to budgetary constraints. Although WHC is continuing its efforts to extend the current contract through discussions with the legislature and department officials, as well as offering the facility to other interested government agencies, there can be no assurances that these efforts will be successful. The facility is currently in the fourth year of a ten-year noncancelable operating lease with CPV. In the event WHC is unable to extend the contract or find an alternative use for the facility, WHC will be required to record an operating charge in 2002 related to future minimum lease commitments with CPV. The remaining lease obligation is approximately $6.0 million through April 28, 2008. WHC's casualty insurance premiums related to workers' compensation, comprehensive general liability and automobile insurance coverage are provided by an independent insurer. A portion of this insurance is reinsured by the Company's wholly owned captive reinsurance subsidiary. WHC pays the Company a fee for the transfer of the deductible exposure. WHC continues to incur higher insurance costs due to a hardened seller's insurance market, which was exacerbated by the events of September 11, 2001 and historical adverse claims experience, and although WHC has implemented a strategy to improve the management of future claims, WHC can not provide assurances that this strategy will result in a lower insurance rate. WHC's F26 insurance costs increased significantly during the third and fourth quarter of 2001. WHC's management believes these costs have stabilized; however, the increases may continue through 2002. In December 1997, WHC entered into a $220 million operating lease facility that has been established to acquire and develop new correctional institutions used in its business. As a condition of this facility, WHC unconditionally agreed to guarantee certain debt obligations of First Security Bank, National Association, a party to the aforementioned operating lease facility. As of December 30, 2001, approximately $154.3 million of this operating lease facility was utilized for four properties in operation. The term of the operating lease facility expires December 18, 2002. WHC is exploring a number of alternatives to refinance the outstanding balance, and believes it will be successful in these efforts. However, there can be no assurance that WHC will be able to complete the refinancing prior to December 18, 2002. Upon expiration of the operating lease facility, WHC may purchase the properties in the facility for their original acquisition cost. If WHC were to purchase the properties, WHC may use a number of forms of debt financing which would require the properties and any related debt incurred to purchase the properties, to be reported on WHC's and the Company's balance sheet. Alternatively, WHC may cause the properties to be sold to third parties. If the sales proceeds yield less than the original acquisition cost, WHC will make up the difference up to a maximum of 88% of the original acquisition costs. In connection with the financing and management of one Australian facility, WHC's wholly owned Australian subsidiary was required to make an investment of approximately $5 million. The balance of the facility was financed with long-term debt obligations that are nonrecourse to WHC. WHC's Australian subsidiary has a leasehold interest in the facility and does not have the ultimate rights of ownership. In the event the management contract is terminated for default, WHC's investment of approximately $5 million is at risk. WHC believes that the risk of termination for default is remote and notes that the project has operated successfully for 5 years. The management contract is up for renewal in September 2002. WHC's management believes the management contract will be renewed. If the management contract is not renewed (other than due to a default), WHC's subsidiary's investment must be repaid by the state government. The Company has employment agreements with its Chairman of the Board of Directors and its Vice-Chairman of the Board of Directors and Chief Executive Officer. These agreements are for terms of three and ten years, respectively. The agreements also contain termination provisions. During fiscal 2001 and 2000 aggregate base salary and bonus under these two agreements were approximately $4.5 million and $3.7 million, respectively. Also, the Company has severance agreements with certain executives that provide for specified benefits in the event of termination of employment due to a change of control. The Company is presently, and is from time to time, subject to other claims arising in the ordinary course of its business. In certain of such actions, plaintiffs request punitive or other damages that may not be covered by insurance. In the opinion of management, there are no other pending legal proceedings except those disclosures above, for which the potential impact if decided unfavorable to the Company could have a material adverse effect on the consolidated financial statements of the Company. (19) Business Segments The Company's principal segments are grouped based on similarity of business services provided and the type of customer for which these services are offered. These services consist of Global Security Services, Correctional Services and Staffing Services. The Company is a major provider of global business services including providing security-related and other support services to business and government, developing and managing privatized correctional, detention and public sector mental health services facilities through WHC and providing employee leasing and temporary staffing. For segment reporting, the accounts of the Company's captive insurance company have been included in unallocated corporate expenses. Intersegment transactions are accounted for on an arms-length basis and are eliminated in consolidation. Direct general and administrative expenses are allocated based on usage.
2001 2000 1999 - ------------------------------------------------------------------------------- REVENUES: Global security services North America $1,070.1 $1,001.3 $ 892.3 International 172.4 166.9 148.7 ---------------------------------- 1,242.5 1,168.2 1,041.0 Correctional services 562.1 535.6 438.5 Staffing services 1,004.4 801.3 672.8 ---------------------------------- Total revenues $2,809.0 $2,505.1 $2,152.3 - ------------------------------------------------------------------------------- OPERATING INCOME: Global security services North America $ 42.0 $ 30.1 $ 24.7 International (5.4) 3.3 3.0 ---------------------------------- 36.6 33.4 27.7 Correctional services 24.2 18.9 26.0 Staffing services 3.9 3.7 3.5 Unallocated corporate expenses (20.4) (21.1) (19.3) ---------------------------------- Total operating income $ 44.3 $ 34.9 $ 37.9 - ------------------------------------------------------------------------------- EQUITY IN INCOME OF AFFILIATES, NET OF TAXES: Global security services North America $ 1.5 $ 1.4 $ 1.4 International (19.9) (0.1) 1.8 ---------------------------------- (18.4) 1.3 3.2 Correctional services 4.2 4.5 3.3 ---------------------------------- Total equity income (loss) $ (14.2) $ 5.8 $ 6.5 - -------------------------------------------------------------------------------
F27 CAPITAL EXPENDITURES: Global security services North America $ 1.6 $ 2.0 $ 2.8 International 3.5 2.7 1.3 ---------------------------------- 5.1 4.7 4.1 Correctional services 7.0 18.1 37.9 Staffing services 1.7 0.8 0.8 Unallocated corporate expenses 0.7 0.7 1.2 ---------------------------------- Total capital expenditures $ 14.5 $ 24.3 $ 44.0 - --------------------------------------------------------------------- DEPRECIATION AND AMORTIZATION EXPENSE: Global security services North America $ 8.8 $ 9.2 $ 9.2 International 5.2 3.5 3.5 ---------------------------------- $ 14.0 $ 12.7 $ 12.7 Correctional services 9.9 8.6 5.4 Staffing services 2.7 2.5 2.0 Unallocated corporate expenses 2.1 2.1 2.8 ---------------------------------- Total expenses $ 28.7 $ 25.9 $ 22.9 - --------------------------------------------------------------------- IDENTIFIABLE ASSETS at fiscal year end: Global security services North America $122.1 $107.5 $ 93.2 International 64.7 74.0 70.1 ---------------------------------- $186.8 $181.5 $163.3 Correctional services 221.1 223.6 208.2 Staffing services 88.3 85.0 76.1 Unallocated corporate assets 123.7 80.2 73.4 ---------------------------------- Total identifiable assets $619.9 $570.3 $521.0 - ---------------------------------------------------------------------
Domestic and International Operations Non-U.S. operations of the Company and its subsidiaries are conducted primarily in South America, the United Kingdom and Australia. No individual foreign subsidiary of the Company represented over 10% of combined revenues in 2001, 2000 or 1999. Minority interest in consolidated foreign subsidiaries has been reflected, net of applicable income taxes, in the accompanying consolidated financial statements. The Company carries its investment in affiliates under the equity method. U.S. income taxes which would be payable upon remittance of affiliates' earnings to the Company are provided currently. Long-lived assets consist of property and equipment. A summary of domestic and international operations is shown below:
2001 2000 1999 - -------------------------------------------------------------------------------------------- REVENUES: Domestic operations $ 2,506.3 $ 2,206.9 $ 1,914.4 International operations 302.7 298.2 237.9 ----------------------------------------------- Total revenues $ 2,809.0 $ 2,505.1 $ 2,152.3 - -------------------------------------------------------------------------------------------- OPERATING INCOME: Domestic operations $ 45.1 $ 22.0 $ 27.5 International operations (0.8) 12.9 10.4 ----------------------------------------------- Total operating income $ 44.3 $ 34.9 $ 37.9 - -------------------------------------------------------------------------------------------- EQUITY IN INCOME (LOSS) OF AFFILIATES, NET OF TAXES: Domestic operations $ 1.5 $ 1.3 $ 1.4 International operations (15.7) 4.5 5.1 ----------------------------------------------- Total equity income $ (14.2) $ 5.8 $ 6.5 - -------------------------------------------------------------------------------------------- CAPITAL EXPENDITURES: Domestic operations $ 9.1 $ 16.8 $ 40.0 International operations 5.4 7.5 4.0 ----------------------------------------------- Total capital expenditures $ 14.5 $ 24.3 $ 44.0 - -------------------------------------------------------------------------------------------- DEPRECIATION AND AMORTIZATION EXPENSE: Domestic operations $ 20.8 $ 20.6 $ 18.1 International operations 7.9 5.3 4.8 ----------------------------------------------- Total expenses $ 28.7 $ 25.9 $ 22.9 - -------------------------------------------------------------------------------------------- LONG-LIVED ASSETS at fiscal year end: Domestic operations $ 59.3 $ 61.1 $ 52.7 International operations 16.8 18.3 15.5 ----------------------------------------------- Total long-lived assets $ 76.1 $ 79.4 $ 68.2 - --------------------------------------------------------------------------------------------
F28 (20) Selected Quarterly Financial Data (Unaudited) Selected quarterly financial data for the Company and its subsidiaries for the fiscal years ended December 30, 2001 and December 31, 2000, is as follows:
First Second Third Fourth - -------------------------------------------------------------------------------------------------------------------------------- 2001 Quarter Quarter Quarter Quarter - -------------------------------------------------------------------------------------------------------------------------------- Revenues $ 663.5 $ 686.0 $ 706.2 $ 753.3 Operating income 7.9 7.9 14.6 13.9 Net income (1.5) 1.0 0.9 3.3 Earnings (loss) per share - basic (0.10) 0.07 0.06 0.22 Earnings (loss) per share - diluted $ (0.10) $ 0.06 $ 0.06 $ 0.21 - -------------------------------------------------------------------------------------------------------------------------------- 2000 - -------------------------------------------------------------------------------------------------------------------------------- Revenues $ 594.0 $ 617.6 $ 639.9 $ 654.6 Operating income 8.7 8.9 6.6 11.7 Net income 4.3 5.1 4.1 4.7 Impact of adopting SAB No. 101: Revenues (0.6) (0.3) (1.1) 1.0 Operating income (0.6) (0.3) (1.1) 1.0 Cumulative effect of change in accounting principle (1) (0.8) -- -- -- Net income (1.4) 0.1 (1.0) 0.9 Restated for SAB No. 101: Revenues 593.4 617.3 638.8 655.6 Operating income 8.1 8.6 5.5 12.7 Cumulative effect of change in accounting principle (1) (0.8) -- -- -- Net income 2.9 5.2 3.1 5.6 Earnings per share - basic Income before cumulative change in accounting principle 0.25 0.34 0.21 0.37 Cumulative effect of change in accounting principle (0.05) -- -- -- Net income 0.20 0.34 0.21 0.37 Earnings per share - diluted Income before cumulative change in accounting principle 0.24 0.34 0.21 0.37 Cumulative effect of change in accounting principle (0.05) -- -- -- Net income $ 0.19 $ 0.34 $ 0.21 $ 0.37 - --------------------------------------------------------------------------------------------------------------------------------
Note: Each quarter has 13 weeks. The sum of quarterly earnings per share amounts can differ from those reflected in the Company's Consolidated Statements of Income due to the weighting of common and common equivalent shares outstanding during each of the respective periods. (1) In the fourth quarter of 2000 the Company adopted SAB No. 101 resulting in a charge of $0.8 million after-tax (described in Note 2, hereto) and has been recognized retroactively to the first quarter of 2000. F29 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TO THE WACKENHUT CORPORATION: We have audited the accompanying consolidated balance sheets of The Wackenhut Corporation (a Florida corporation) and subsidiaries as of December 30, 2001 and December 31, 2000 and the related consolidated statements of income, cash flows and shareholders' equity and comprehensive income (loss) for each of the three fiscal years in the period ended December 30, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Wackenhut Corporation and subsidiaries as of December 30, 2001 and December 31, 2000, and the results of their operations and their cash flows for each of the three fiscal years in the period ended December 30, 2001, in conformity with accounting principles generally accepted in the United States. As discussed in Note 2 to the consolidated financial statements, effective January 3, 2000, the Company changed its method of accounting for certain revenue transactions and effective January 1, 2001, the Company changed its method of accounting for derivative instruments. ARTHUR ANDERSEN LLP West Palm Beach, Florida, February 7, 2002. MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS To the Shareholders of The Wackenhut Corporation: The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles. They include amounts based on judgments and estimates. Representation in the consolidated financial statements and the fairness and integrity of such statements are the responsibility of management. In order to meet management's responsibility, the Company maintains a system of internal controls and procedures and a program of internal audits designed to provide reasonable assurance that the Company's assets are controlled and safeguarded, that transactions are executed in accordance with management's authorization and properly recorded, and that accounting records may be relied upon in the preparation of consolidated financial statements. The consolidated financial statements have been audited by Arthur Andersen LLP, independent certified public accountants, whose appointment was ratified by shareholders. Their report expresses a professional opinion as to whether management's financial statements considered in their entirety present fairly, in conformity with generally accepted accounting principles, the Company's financial position and results of operations. Their audit was conducted in accordance with generally accepted auditing standards. As part of this audit, Arthur Andersen LLP considered the Company's system of internal controls to the degree they deemed necessary to determine the nature, timing and extent of their audit tests which support their opinion on the consolidated financial statements. The audit committee of the board of directors meets periodically with representatives of management, the independent certified public accountants and the Company's internal auditors to review matters relating to financial reporting, internal accounting controls and auditing. Both the internal auditors and the independent certified public accountants have unrestricted access to the audit committee to discuss the results of their reviews. George R. Wackenhut Philip L. Maslowe Chairman of the Board Executive Vice President, Chief Financial Officer Palm Beach Gardens, Florida, February 7, 2002. F30 EX-4.4 3 g74165ex4-4.txt 2ND AMENDED & RESTATED TRANSFER & ADMIN. AGREEMENT Exhibit 4.4 SECOND AMENDED AND RESTATED TRANSFER AND ADMINISTRATION AGREEMENT Dated as of January 25, 2002 Among WACKENHUT FUNDING CORPORATION, as Transferor, and THE WACKENHUT CORPORATION, Individually and as Servicer, and ENTERPRISE FUNDING CORPORATION, as Purchaser, and the Bank Investors from time to time party hereto, and BANK OF AMERICA, NATIONAL ASSOCIATION, as Agent TABLE OF CONTENTS
Page ---- ARTICLE I THE COMMITMENT.........................................................................................2 Section 1.1. Commitment........................................................................2 Section 1.2. Purchase and Reinvestment Limits..................................................2 Section 1.3. Making Purchases from the Transferor..............................................3 Section 1.4. [Reserved]........................................................................4 Section 1.5. Commitment Termination Date.......................................................4 Section 1.6. Purchase Termination Date.........................................................4 Section 1.7. Voluntary Termination of Commitment or Reduction of Maximum Purchase Limit........4 Section 1.8. Limitation of Ownership Interest..................................................5 Section 1.9. Special Undivided Interests.......................................................5 Section 1.10. Benefits of Agreement.............................................................5 ARTICLE II UNDIVIDED INTEREST AND PURCHASER'S SHARE..............................................................5 Section 2.1. Undivided Interest................................................................5 Section 2.2. Purchaser's Investment............................................................7 Section 2.3. Net Pool-Balance..................................................................8 Section 2.4. Shares............................................................................9 ARTICLE III SETTLEMENTS.........................................................................................10 Section 3.1. Non-Run Off Settlement Procedures for Collections................................10 Section 3.2. Run Off-Settlement Procedures for Collections....................................11 Section 3.3. Special Settlement Procedures: Reduction of Purchaser's Investment, Etc..........12 Section 3.4. Reporting........................................................................14 Section 3.5. Payments and Computations, Etc...................................................14 Section 3.6. Dividing or Combining Undivided Interests........................................15 Section 3.7. Treatment of Collections and Deemed Collections..................................16 ARTICLE IV FEES AND YIELD PROTECTION............................................................................16 Section 4.1. Fees.............................................................................16 Section 4.2. Yield Protection.................................................................16 ARTICLE V CONDITIONS OF PURCHASES...............................................................................18 Section 5.1. Conditions Precedent to Effectiveness of this Agreement..........................18 Section 5.2. Conditions Precedent to All Purchases and Reinvestments..........................18 Section 5.3. Additional Condition Precedent to Purchases......................................19
TABLE OF CONTENTS (Continued)
Page ---- Section 5.4. Condition Subsequent.............................................................19 ARTICLE VI REPRESENTATIONS AND WARRANTIES.......................................................................20 Section 6.1. Representations and Warranties of the Transferor.................................20 Section 6.2. Representations and Warranties of the Servicer...................................24 ARTICLE VII GENERAL COVENANTS OF THE TRANSFEROR AND SERVICER....................................................27 Section 7.1. Affirmative Covenants of the Transferor..........................................27 Section 7.2. Reporting Requirements of the Transferor.........................................30 Section 7.3. Negative Covenants of the Transferor.............................................32 Section 7.4. Affirmative Covenants of Servicer................................................32 Section 7.5. Reporting Requirements of Servicer...............................................34 Section 7.6. Negative Covenants of the Servicer...............................................35 Section 7.7. Financial Covenants of the Servicer..............................................38 ARTICLE VIII ADMINISTRATION AND COLLECTION......................................................................39 Section 8.1. Designation of Servicer..........................................................39 Section 8.2. Successor Notice: Servicer Transfer Event........................................39 Section 8.3. Subcontracts.....................................................................40 Section 8.4. Duties of Servicer...............................................................40 Section 8.5. Allocation of Collections; Segregation...........................................40 Section 8.6. Modification of Receivables......................................................41 Section 8.7. Documents and Records............................................................41 Section 8.8. Certain Duties to the Transferor.................................................41 Section 8.9. Lock-Box Accounts................................................................41 Section 8.10. Rights of the Agent..............................................................41 Section 8.11. Rights on Servicer Transfer Event................................................42 Section 8.12. Responsibilities of the Transferor...............................................42 Section 8.13. Further Action Evidencing Purchases..............................................43 Section 8.14. Application of Collections.......................................................44 ARTICLE IX SECURITY INTEREST....................................................................................44 Section 9.1. Grant of Security Interest.......................................................44 Section 9.2. Further Assurances...............................................................44 Section 9.3. Remedies.........................................................................44
TABLE OF CONTENTS (Continued)
Page ---- ARTICLE X [RESERVED]............................................................................................44 ARTICLE XI TERMINATION..........................................................................................44 Section 11.1. Termination Events...............................................................44 Section 11.2. Remedies.........................................................................46 ARTICLE XII THE AGENT...........................................................................................47 Section 12.1. Authorization and Action.........................................................47 Section 12.2. Agents' Reliance, Etc............................................................48 Section 12.3. Agents and Affiliates............................................................48 Section 12.4. Resignation of Agent.............................................................48 ARTICLE XIII BANK COMMITMENT; ASSIGNMENT OF PURCHASER'S INTEREST................................................49 Section 13.1. Rights as Bank Investor..........................................................49 Section 13.2. Indemnification of the Agent.....................................................49 Section 13.3. Non-Reliance.....................................................................50 Section 13.4. Payments by the Agent............................................................50 Section 13.5. Bank Commitment; Assignment to Bank Investors....................................50 Section 13.6. Restrictions on Assignments......................................................54 Section 13.7. Rights of Assignee...............................................................55 Section 13.8. Authorization of Agent...........................................................55 Section 13.9. Notice of Assignment.............................................................55 Section 13.10. Evidence of Assignment; Endorsement of Certificate...............................56 Section 13.11. Rights of Support Providers......................................................56 ARTICLE XIV INDEMNIFICATION.....................................................................................56 Section 14.1. Indemnities by the Transferor and Servicer.......................................56 Section 14.2. Contest of Tax Claim; After-Tax Basis............................................58 Section 14.3. Contribution.....................................................................59 ARTICLE XV MISCELLANEOUS........................................................................................59 Section 15.1. Amendments, Etc..................................................................59 Section 15.2. Notices, Etc.....................................................................59 Section 15.3. No Waiver; Remedies..............................................................60 Section 15.4. Binding Effect; Survival.........................................................60 Section 15.5. Costs, Expenses and Taxes........................................................60
TABLE OF CONTENTS (Continued)
Page ---- Section 15.6. No Proceedings...................................................................61 Section 15.7. Bank of America Program Confidentiality..........................................61 Section 15.8. Confidentiality of the Transferor Information....................................63 Section 15.9. Captions and Cross References....................................................65 Section 15.10. Integration......................................................................65 Section 15.11. Governing Law....................................................................66 Section 15.12. Waiver Of Jury Trial.............................................................66 Section 15.13. Consent To Jurisdictions; Waiver Of Immunities...................................66 Section 15.14. Execution in Counterparts........................................................66 Section 15.15. Purchaser's Liabilities..........................................................67 Section 15.16. Agent's Liabilities..............................................................67 Section 15.17. Delegation of Servicer's Duties..................................................67 Section 15.18. Characterization of the Transactions Contemplated by this Agreement..............67 Section 15.19. Effect on Predecessor Agreement..................................................67 Section 15.20. Assignments by Exiting Bank Investor.............................................68
APPENDIX A Definitions APPENDIX B Calculation of Discount and Reserve Schedule 2.3(c) Form of Concentration Limit Certificate Schedule 3.4(a) Form of Periodic Report Schedule 6.1(j) Litigation (Transferor) Schedule 6.1(n) Location of Transferor's Books, Records and Documents Schedule 6.1(v) List of Transferor's Tradenames Schedule 6.2(l) Litigation (Servicer) Schedule 6.2(n) Location of Servicer's, Books, Records and Documents Schedule 6.2(o) List of Lock Box Banks and Accounts Schedule 13.5(b) Form of Assignment and Assumption Agreement SECOND AMENDED AND RESTATED TRANSFER AND ADMINISTRATION AGREEMENT Dated as of January 25, 2002 THIS IS THE SECOND AMENDED AND RESTATED TRANSFER AND ADMINISTRATION AGREEMENT, among WACKENHUT FUNDING CORPORATION, a Delaware corporation (the "TRANSFEROR") and its successors and assigns, THE WACKENHUT CORPORATION, a Florida corporation, individually and as Servicer ("WACKENHUT" or the "SERVICER"), ENTERPRISE FUNDING CORPORATION, a Delaware corporation ("ENTERPRISE" or the "PURCHASER") and its successors and assigns, and BANK OF AMERICA, NATIONAL ASSOCIATION (as successor to NationsBank, N.A.), a national banking association ("BANK OF AMERICA"), as agent for Enterprise and the Bank Investors (in such capacity, the "AGENT") and as a Bank Investor amending and restating that certain Amended and Restated Transfer and Administration Agreement dated as of January 26, 2001 among the Transferor, the Servicer, Enterprise, Bank of America as agent for Enterprise and the Bank Investors and as a Bank Investor (collectively, the "PARTIES"), as amended by the Amendment Number 1 to Amended and Restated Transfer and Administration Agreement dated as of October 12, 2001, among the Parties, (collectively, the "PREDECESSOR AGREEMENT," and said agreement as amended and restated hereby, the "AGREEMENT"). Unless otherwise indicated, capitalized terms used in this Agreement are defined in APPENDIX A. BACKGROUND 1. The Originator has originated, and in the future will originate, Receivables in the ordinary course of its business, and the Originator has sold, and from time to time in the future will sell such Receivables to the Seller pursuant to the Purchase and Sale Agreement. 2. The Seller will from time to time sell such Receivables (together with Receivables originated by the Seller from time to time in the ordinary course of its business) to the Transferor pursuant to the terms of the Receivables Purchase Agreement. 3. Transferor has requested the Purchaser and the Bank Investors to purchase, and the Purchaser may agree, and the Bank Investors have agreed, to purchase, subject to the terms and conditions contained in this Agreement, undivided interests in such Receivables, referred to herein as Undivided Interests, from Transferor from time to time during the term of this Agreement. 4. Transferor, the Purchaser and the Bank Investors also desire that, subject to the terms and conditions of this Agreement, certain of the daily Collections in respect of the Undivided Interests in the Receivables be reinvested in Receivables through the sale by the Transferor to the Purchaser or the Bank Investors, as the case may be, of additional Undivided Interests in the Receivables, such daily reinvestment of Collections to be effected by an automatic daily adjustment to the Purchaser's Undivided Interest or Bank Investor's as the case may be, and to be intended to permit the Purchaser or the Bank Investors, as the case may be, to maintain its Purchaser's Investment fully invested in uncollected Pool Receivables. 5. The Bank of Nova Scotia, in its capacity as a Bank Investor under the Predecessor Agreement, has determined not to renew its Commitment under the Predecessor Agreement and its Commitment will be assumed by Bank of America in its capacity as Bank Investor. 6. Bank of America has been requested, and is willing, to act as the Agent for the Purchaser and the Bank Investors. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto agree to amend and restate the Predecessor Agreement as follows: ARTICLE I THE COMMITMENT Section 1.1. COMMITMENT. On the terms and subject to the conditions set forth in this Agreement (including ARTICLE V): (a) PURCHASES. Upon the terms and subject to the conditions herein set forth the Transferor may, at its option, convey, transfer and assign to the Agent, on behalf of the Purchaser or the Agent, on behalf of the Bank Investors, as applicable, and the Agent, on behalf of the Purchaser may, provided the Purchase Termination Date shall not have occurred, at the Purchaser's option, or the Agent, on behalf of the Bank Investors, provided that the Purchase Termination Date shall not have occurred and that the Bank Investors shall have previously accepted the assignment by the Purchaser of all of its interest in the Undivided Interests, shall, if so requested by the Transferor, accept such conveyance, transfer and assignment from the Transferor, without recourse except as provided herein, undivided percentage ownership interests in the Receivables, together with Related Security, Collections and Proceeds with respect thereto (each such conveyance, transfer and assignment, a "PURCHASE"). Each Purchase shall be in accordance with SECTION 1.3. Under no circumstances shall Reinvestments be deemed to be Purchases. (b) REINVESTMENTS. Pursuant to SECTION 3.1, during the period from the date hereof to the Purchase Termination Date, Servicer shall cause certain of the Collections in respect of the Undivided Interests to be applied to the purchase of additional undivided interests in Pool Receivables, thereby resulting in an appropriate readjustment of such Undivided Interests. Each such purchase of an additional undivided interest pursuant to SECTION 3.1 is herein called a "REINVESTMENT". The Bank Investors' obligation to make such Purchases and Reinvestments is herein called the "COMMITMENT" and the amount thereof shall be equal to the Maximum Purchase Limit. Section 1.2. PURCHASE AND REINVESTMENT LIMITS. Under no circumstances shall the Agent, on behalf of the Purchaser or the Bank Investors, as applicable, make any 2 Purchase or Reinvestment to the extent that, after giving effect to such Purchase or Reinvestment, as the case may be: (a) PURCHASE LIMIT. The Aggregate Purchaser Investments would exceed an amount (the "PURCHASE LIMIT") equal to the lesser of (x) $75,000,000 as such amount may be reduced pursuant to SECTION 1.7 (the "MAXIMUM PURCHASE LIMIT"), and (y) the then Net Pool Balance; or (b) REQUIRED ALLOCATIONS LIMIT. The Aggregate Required Allocations would exceed an amount (the "REQUIRED ALLOCATIONS LIMIT") equal to 100% of the Net Pool Balance (as defined in SECTION 2.3); or (c) The sum of the Aggregate Purchaser Investments plus the Interest Component of all outstanding Related Commercial Paper would exceed the Facility Limit. Section 1.3. MAKING PURCHASES FROM THE TRANSFEROR. (a) NOTICE OF PURCHASE. Each Purchase from the Transferor shall be made by the Agent on behalf of the Purchaser or the Agent on behalf of the Bank Investors, as applicable, and shall be made on notice from the Transferor to the Agent received by the Agent not later than 1:00 p.m. (New York time) on the Business Day next preceding the date of such proposed Purchase; it being understood and agreed that once any proposed Purchase hereunder is acquired on behalf of the Bank Investors, the Agent, on behalf of such Bank Investors, shall be required to purchase, and the Purchaser shall be required to sell, all Undivided Interests held by the Agent on behalf of the Purchaser in accordance with SECTION 13.5 and thereafter no additional Purchases shall be acquired on behalf of the Purchaser hereunder. If such notice is received after 1:00 p.m. (New York time) by the Agent, such notice shall be deemed provided on the next following Business Day. Each such notice of a proposed Purchase shall specify the desired amount and date of such Purchase and the desired duration of the initial Yield Periods for the resulting Undivided Interests. The Agent shall select the duration of such initial, and each subsequent, Yield Period with regard to the Purchaser's Investment Percentage of such Purchase in its discretion; PROVIDED that the Agent shall use reasonable efforts, taking into account market conditions, to accommodate the Transferor's preferences. (b) AMOUNT OF PURCHASE. The amount of each Purchase shall be equal to the lesser of (x) the amount proposed by the Transferor pursuant to SECTION 1.3(A) and (y) the maximum amount permitted for the Purchaser or the Bank Investors, as the case may be, under SECTION 1.2. (c) FUNDING OF PURCHASE. On the date of each Purchase, upon satisfaction of the applicable conditions set forth in ARTICLE V, the Purchaser or each Bank Investor, as the case may be, shall make available to the Agent at the address of its office set forth on the signature pages hereto, the dollar amount of the Purchase Price, in the case of the Purchaser, or in the case of the Bank Investors, the amount of each Bank Investor's Percentage of such Purchase Price (determined pursuant to SECTION 13.5(A)) in same day funds, and the Agent will make such funds immediately available to the Transferor at such office. 3 Section 1.4. [Reserved]. Section 1.5. COMMITMENT TERMINATION DATE. (a) The "COMMITMENT TERMINATION DATE" shall be January 24, 2003 (herein, as the same may be extended, called the "SCHEDULED COMMITMENT TERMINATION DATE"). (b) The then Scheduled Commitment Termination Date may be extended from time to time beginning with January 24, 2003, by written notice of request given by the Transferor to the Agent at least 75 days before the then Scheduled Commitment Termination Date, and written notice of acceptance given by the Agent and the Bank Investors to the Transferor not later than 15 days prior to such Scheduled Commitment Termination Date. No such extension shall be effective unless the Agent shall provide such notice of acceptance to the Transferor. Section 1.6. PURCHASE TERMINATION DATE. (a) As to the Purchaser or any Bank Investor, the "PURCHASE TERMINATION DATE" with respect to such entity shall be the earlier to occur of (i) the Commitment Termination Date, (ii) the day the Purchase Termination Date is declared or occurs pursuant to Section 11.2, (iii) the date of termination of the Commitment with respect to Purchases by the Purchaser pursuant to subsection (b) hereof, and (iv) the date the Purchase Limit is reduced to zero. (b) The Commitment shall terminate with respect to Purchases by the Purchaser and the Purchaser shall have no obligation to make any further Purchases or Reinvestments hereunder, on the date of termination of the commitment of any (i) Enterprise Liquidity Provider under an Enterprise Liquidity Agreement or (ii) Enterprise Credit Support Provider under an Enterprise Credit Support Agreement. The Purchaser agrees to give the Transferor (with a copy to the Agent) at least 30 days' prior written notice, unless circumstances shall not permit such 30 days' notice, of the termination of the Commitment with respect to Purchases by the Purchaser pursuant to the foregoing sentence, but failure to give or delay in giving such notice shall not prevent or delay such termination. (c) The provisions of SECTION 3.1 or SECTION 3.2, as applicable, shall apply with respect to the Purchaser's Investment until such time as the Purchaser has or the Bank Investors, as applicable, have received the return of the Aggregate Purchaser's Investment, Earned Discount thereon and all other amounts due to the Purchaser or the Bank Investors, as the case may be, at which time the Purchaser's or the Bank Investors', as the case may be, rights and obligations under this Agreement shall terminate. Section 1.7. VOLUNTARY TERMINATION OF COMMITMENT OR REDUCTION OF MAXIMUM PURCHASE LIMIT. The Transferor may, upon at least five Business Days' notice to the Agent, terminate the Commitment in whole or reduce in part the unused portion of the Maximum Purchase Limit; PROVIDED, however that (a) each partial reduction shall be in an amount equal to $5,000,000 or an integral multiple thereof and (b) after giving effect to such reduction, the remaining Maximum Purchase Limit will not be less than $20,000,000 PROVIDED HOWEVER, that no reduction of the Maximum Purchase Limit shall occur without a corresponding reduction of the Facility Limit, that in an amount equal to the product of (i) the amount of the proposed 4 reduction in the Maximum Purchase Limit and (ii) 1.02, PROVIDED FURTHER HOWEVER, that in no event shall the Facility Limit be reduced below an amount equal to the greater of (A) the product of (i) the Maximum Purchase Limit and (ii) 1.02 and (B) the Aggregate Purchaser's Investments. Section 1.8. LIMITATION OF OWNERSHIP INTEREST. Nothing in this Agreement shall be interpreted as providing the Purchaser or any Bank Investor with an ownership interest in Receivables that are not Pool Receivables. Section 1.9. SPECIAL UNDIVIDED INTERESTS. The Transferor shall maintain with the Purchaser or with the Bank Investors, as the case may be, at least one Undivided Interest, the Purchaser's Investment in which shall be no less than $4,000,000 (unless otherwise agreed by the Agent) and which shall have a related Yield Period of no more than 35 days ending on the twenty-fourth day of each calendar month (or if such day is not a Business Day, the next succeeding Business Day) and beginning on the day immediately succeeding the last day of the previous Yield Period (provided that the first Yield Period shall begin on the date of the first Purchase hereunder). If on any day the Undivided Interest required to be maintained with the Purchaser or with the Bank Investors pursuant to this SECTION 1.9 shall for any reason have a Purchaser's Investment of less than $4,000,000, the Agent shall manage the Yield Periods related to the Purchaser's Investment other Undivided Interests in a manner such that within 60 days of such day the Purchaser's Investment of such Undivided Interest required to be maintained pursuant to this SECTION 1.9 shall again equal $4,000,000. Section 1.10. BENEFITS OF AGREEMENT. In the event the Bank Investors acquire Undivided Interests hereunder, each Bank Investor shall be equally and ratably entitled to the benefits of this Agreement, the other Agreement Documents and the Receivables Pool, the Related Security and the Collections without preference, priority or distinction on account of the actual timing of the filing of any financing statements under the UCC, all in accordance with the terms and provisions of this Agreement and the other Agreement Documents. ARTICLE II UNDIVIDED INTEREST AND PURCHASER'S SHARE Section 2.1. UNDIVIDED INTEREST. (a) DEFINITION AND COMPUTATION OF UNDIVIDED INTEREST. For purposes of this Agreement, "UNDIVIDED INTEREST" for the Purchaser and/or Bank Investors, as applicable, means, as the context may require (i) an undivided ownership interest, in a percentage determined from time to time as provided in CLAUSE (II) below, in (A) all then outstanding Pool Receivables, (B) all Related Security with respect to such Pool Receivables, and (C) all Collections with respect to, and other proceeds of, such Pool Receivables and Related Security; and (ii) at any time, the quotient, expressed as a percentage, obtained by dividing the Required Allocation for such Undivided Interest by the Net Pool Balance. Each Undivided Interest shall be computed as follows: UI = RA = PI + DF + LR + DR + SFR --- ---------------------------------------------------- NPB NPB 5 where: UI = the Undivided Interest at any time; RA = the "REQUIRED ALLOCATIONS" of such undivided Interest at such time, which shall be an amount at any time equal to the amount of the numerator of the fraction set forth above; PI = the Purchaser's Investment of such Undivided Interest at such time as determined pursuant to SECTION 2.1; DF = the Discount Factor of such Undivided Interest at such time, as determined pursuant to PART I of APPENDIX B; LR = the Loss Reserve of such Undivided Interest at such time, as determined pursuant to Part II of APPENDIX B; DR = the Dilution Reserve of such Undivided Interest at such time, as determined pursuant to Part II of APPENDIX B; SFR = the Servicer's Fee Reserve of such Undivided Interest at such time, as determined pursuant to Part III of APPENDIX B; and NPB = the Net Pool Balance at such time, as determined pursuant to SECTION 2.3. The "RELATED" Undivided Interest with respect to any of the foregoing items shall mean the Undivided Interest as to which such item is calculated. (b) FREQUENCY OF COMPUTATION OF PURCHASER'S INTEREST. Each Undivided Interest shall initially be computed as of the opening of business of Servicer on the date of Purchase of such Undivided Interest from the Transferor, and such Undivided Interest shall be recomputed upon receipt of each Periodic Report. The Agent on behalf of the Purchaser or the Bank Investors, as the case may be, may at any time request Servicer to recompute its Undivided Interests. In addition, until such Undivided Interest shall be reduced to zero, such Undivided Interest shall be deemed to be automatically recomputed as of the close of business of Servicer on each day (other than a day on which an actual recomputation is done), and, as so recomputed, shall constitute the percentage ownership interest in Pool Receivables held by the Purchaser or the Bank Investors, as the case may be, on such day. Such Undivided Interest shall become zero at such time as the Purchaser, or the Bank Investors, as the case may be, shall have received the accrued Earned Discount for such Undivided Interest, shall have recovered the Purchaser's Investment of such Undivided Interest and shall have received all other amounts payable to the Purchaser or the Bank Investors, as applicable, pursuant to this Agreement in respect of such Undivided Interest and Servicer shall have received the accrued Servicer's Fee for such Undivided Interest. Such Undivided Interest shall remain constant from the time as of which any such computation or recomputation is made until the time as of which the next such recomputations if any, shall be made. 6 Section 2.2. PURCHASER'S INVESTMENT. (a) Subject to SUBSECTIONS (B) and (C), the "Purchaser's Investment" of an Undivided Interest owned by the Purchaser or any Bank Investor at any time means an amount equal to: (i) the aggregate of the amounts theretofore paid by the Purchaser or the Bank Investors, to the Transferor (and, in the case of the Bank Investors, to the Purchaser) for the acquisition of such Undivided Interest (A) by Purchase pursuant to SECTIONS 1.1(A) and 1.3 and (B) by Reinvestments pursuant to SECTIONS 1.1(B) and 3.1, and (C) in the case of the Bank Investors, pursuant to SECTION 13.5, less (ii) the aggregate amount of Collections theretofore received and distributed on account of the Purchaser's Investment pursuant to SECTIONS 3.1 and 3.2 (other than any portion allocable to Earned Discount pursuant to SECTIONS 3.1 and 3.2 hereof). (b) Solely for purposes of calculating the Earned Discount (and each component thereof) with respect to a portion of an Undivided Interest purchased or funded by an Enterprise Liquidity Provider or Enterprise Credit Support Provider pursuant to the PROVISO to the definition of "EARNED DISCOUNT" in APPENDIX B: (i) "PURCHASER'S INVESTMENT" of any portion of an Undivided Interest owned by an Enterprise Liquidity Provider or otherwise funded pursuant to an Enterprise Liquidity Agreement shall be deemed to be the amount paid to Enterprise by such Enterprise Liquidity Provider as the purchase price of, or the original principal amount loaned with respect to, such portion (less any portion of such purchase price or principal amount allocable to Earned Discount accrued and unpaid at the time of purchase or funding by such Enterprise Liquidity Provider), as reduced from time to time by Collections indefeasibly received and distributed to such Enterprise Liquidity Provider on account of such purchase price or principal amount (other than any portion allocable to Earned Discount pursuant to SECTIONS 3.1 and 3.2 hereof); (ii) "PURCHASER'S INVESTMENT" of any portion of an Undivided Interest funded under an Enterprise Credit Support Agreement shall be deemed to be the principal amount of the advance or drawing under such Enterprise Credit Support Agreement with respect to such portion (less the amount, if any, of such advance or drawing used to fund Earned Discount accrued and unpaid at the time of the making of such advance or drawing), as reduced by any payments indefeasibly made by Enterprise or the Enterprise Liquidity Provider to the Enterprise Credit Support Provider in reimbursement of such drawing or repayment of such advance, as the case may be (less any amount allocable to such accrued and unpaid Earned Discount); and (iii) "PURCHASER'S INVESTMENT" of any other portion of an Undivided Interest shall mean such Purchaser's Investment of such Undivided Interest LESS the sum of such Purchaser's Investments of all portions of such Undivided 7 Interest described in CLAUSES (I) and (II) above, calculated in accordance with such CLAUSES (I) and (II), as applicable. (c) The Purchaser's Investment shall not be considered reduced by any distribution of any portion of Collections if at any time such distribution is rescinded or must otherwise be returned for any reason. (d) The "RELATED" Purchaser's Investment with regard to a Yield Period or Undivided Interest (or portion thereof) means the Purchaser's Investment calculated with regard to such Yield Period or Undivided Interest (or such portion), as the case may be. Section 2.3. NET POOL-BALANCE. (a) The "NET POOL BALANCE" at any time means an amount equal to: (i) the aggregate Unpaid Balance of the Eligible Receivables in the Receivables Pool at such time, MINUS (ii) the aggregate (for all Obligors) of the amounts by which (x) the Unpaid Balance of all Pool Receivables of each Obligor exceeds (y) the Concentration Limit for such Obligor at such time. (b) "CONCENTRATION LIMITS": (i) the aggregate Concentration Limit for any Obligor or Government Obligor at any time means the greater of (x) the Special Concentration Limit, if any, for such Obligor and (y) 2.0% of the Aggregate Unpaid Balance of the Eligible Receivables in the Receivables Pool at such time; (ii) the aggregate Concentration Limit for all Obligors with respect to Receivables originated by Wackenhut Airline Services, Inc. shall be 10% of the Aggregate Unpaid Balance of the Eligible Receivables in the Receivables Pool at any time; (iii) the aggregate Concentration Limit for all Obligors with respect to Receivables for which the related service has not yet been rendered by the Seller or an Originator shall be 2% of the Aggregate Unpaid Balance of the Eligible Receivables in the Receivables Pool at any time; (iv) the aggregate Concentration Limit for all Government Obligors shall be 10% of the Aggregate Unpaid Balance of the Eligible Receivables in the Receivables Pool at any time; (v) the aggregate Concentration Limit for all Obligors with respect to Receivables which are required to be paid in full not less than 31 days nor more than 60 days after the billing thereof, shall be 10% of the Aggregate Unpaid Balance of the Eligible Receivables in the Receivables Pool at any time, PROVIDED, HOWEVER, that the Agent may, in its sole discretion, determine to reduce this percentage to 0% at any time upon three (3) days prior written notice to the Transferor and Servicer; and 8 (vi) the aggregate Concentration Limit for all Obligors with respect to Receivables for which the related invoice has not yet been sent to the applicable Obligor shall be 15% of the Aggregate Unpaid Balance of the Eligible Receivables in the Receivables Pool at any time. (c) "SPECIAL CONCENTRATION LIMIT" for any Obligor means the amount designated from time to time as such by the Agent with regard to any Obligor in a writing delivered to the Transferor (it being understood that the most recent writing at any time delivered to the Transferor shall supersede each previous writing); PROVIDED HOWEVER, that the Special Concentration Limits in effect as of the date hereof shall be as set forth on Schedule 2.3 (c) hereto. (d) In the case of any Obligor which is an Affiliate of any other Obligor, the Concentration Limit, the Special Concentration Limit, if any, and the aggregate Unpaid Balance of Pool Receivables of such Obligors shall be calculated as if such Obligors were one Obligor. Section 2.4. SHARES. (a) AGGREGATE PURCHASER'S SHARE. The Purchaser's, or the Bank Investors', as the case may be, "AGGREGATE PURCHASER'S SHARE" of Collections of Pool Receivables received (or deemed received) by the Transferor or Servicer on any day means an amount calculated by the Servicer (subject to recalculation by any Agent) equal to the product of: (i) the amount of all Collections of Pool Receivables received (or deemed received) by the Transferor or Servicer on such day, TIMES (ii) the Aggregate Required Allocations divided by the Net Pool Balance. (b) PURCHASER'S SHARE. With respect to each Undivided Interest, the related "PURCHASER'S SHARE" of Collections of Pool Receivables received (or deemed received) by the Transferor or Servicer on any day means an amount equal to the product of: (i) the Aggregate Purchaser's Share of Collections for such day, TIMES ----- (ii) (A) if such day is not a Run Off Day, the quotient of (1) such Undivided Interest on such day, expressed as a decimal DIVIDED BY (2) all of the Undivided Interests on such day, expressed as a decimal, (B) if such day is a Run Off Day, the quotient of (1) such Undivided Interest on the first Run Off Day to have occurred during the then current Run Off Period, expressed as a decimal, DIVIDED BY (2) all of the Undivided Interests on such day, expressed as a decimal; PROVIDED that after such time as an Undivided Interest shall equal zero, the Purchaser's Share of Collections therefor shall also equal zero, and 9 (C) each Bank Investor shall share PRO RATA in the Aggregate Purchaser's Share. ARTICLE III SETTLEMENTS Section 3.1. NON-RUN OFF SETTLEMENT PROCEDURES FOR COLLECTIONS. DAILY PROCEDURE. On each day (other than a Run Off Day) in any Yield Period for any Undivided Interest, Servicer shall deem an amount equal to the Purchaser's Share but not in excess of the Aggregate Purchaser's Share (as determined in SECTION 2.4) of Collections of Pool Receivables received or deemed received on such day to be received in respect of such Undivided Interest; and (i) out of the Purchaser's Share of such Collections, hold in trust for the benefit of the Purchaser or the Bank Investors, as the case may be, of such Undivided Interest an amount equal to the related Earned Discount and related Servicer's Fee accrued through such day and not previously so held for the benefit of the Purchaser or the Bank Investors, as the case may be, (ii) apply an amount equal to the remainder of the Purchaser's Share of such Collections (the "REMAINING Collections") to reduce the Purchaser's Investment of such Undivided Interest (it being understood that such amount need not be physically paid to the Purchaser or the Bank Investors under this CLAUSE (II)), (iii) subject to SECTION 3.3, after such reduction, (A) apply such Remaining Collections to the Reinvestment, for the benefit of the Purchaser or the Bank Investor, as the case may be, of additional undivided interests in Pool Receivables by recomputation of such Undivided Interest pursuant to SECTION 2.1 as of the end of such day, thereby increasing the Purchaser's Investment, and (B) pay to the Transferor such Remaining Collections. The recomputed Undivided Interest shall constitute the percentage ownership interest in Pool Receivables on such day held by the Purchaser or the Bank Investors, as the case may be, with regard to such Undivided Interest. (b) SETTLEMENT DATE PROCEDURE. On the Settlement Date for each Undivided Interest, for each day in the related Yield Period of such Settlement Period that is not a Run Off Day for such Undivided Interest, out of the related Purchaser's Share of Collections for each such Undivided Interest, Servicer shall deposit to the Agent's account for the Purchaser, or the Bank Investors, whichever then holds such Undivided Interest, as described in SECTION 3.5, the amounts set aside as described in SECTION 3.1(A)(I) and the amounts, if any, set aside pursuant to SECTION 3.3(B) or (C) for payment to the Agent on such Settlement Date; PROVIDED, HOWEVER, that if the Agent gives its consent (which consent may be revoked at any time), Servicer may retain amounts which 10 would otherwise be deposited in respect of Servicer's Fee, in which case no distribution shall be made in respect of Servicer's Fee under CLAUSE (C) below. (c) ORDER OF APPLICATION. Upon receipt by the Agent of funds distributed pursuant to SUBSECTION (B) in respect of an Undivided Interest owned by the Purchaser or the Bank Investors, as the case may be, the Agent shall distribute such funds first, (i) to the Purchaser or the Bank Investors, as applicable, in payment of the accrued and unpaid Earned Discount and Program Fee for such Undivided Interest until paid in full, then (ii) to Servicer in payment of the accrued and unpaid Servicer's Fee payable with respect to such Undivided Interest until paid in full, and (iii) in the case of any amounts set aside pursuant to SECTION 3.3(B) or (C), to the Purchaser or the Bank Investors, as applicable, in reduction of the Purchaser's Investment therein. Section 3.2. RUN OFF-SETTLEMENT PROCEDURES FOR COLLECTIONS. (a) DAILY PROCEDURE. On each Run Off Day occurring in any Yield Period for an Undivided Interest, Servicer shall set aside and hold in trust for the Purchaser or the Bank Investors, as appropriate, the Purchaser's Share of the Collections of Pool Receivables in respect of such Undivided Interest for such Run Off Day but not in excess of the Aggregate Purchaser's Share and, if requested in writing by the Agent (in its sole discretion), by depositing such Collections within one Business Day of the Servicer's receipt thereof into a bank account at the Agent on behalf of the Purchaser or the Bank Investors in which no other funds shall be deposited. (b) SETTLEMENT DATE PROCEDURE. On each Settlement Date for each Undivided Interest, if one or more Run Off Days for such Undivided Interest occurred during the related Yield Period for the Settlement Period ending on such Settlement Date for such Undivided Interest, Servicer shall deposit to the account of the Agent for the benefit of the Purchaser or the Bank Investors then owning such Undivided Interest, as described in SECTION 3.5, the amounts set aside pursuant to SECTION 3.2(A) out of the Purchaser's Share of Collections during such Settlement Period, but not to exceed the sum of (i) the accrued and unpaid Earned Discount, (ii) the Purchaser's Investment of such Undivided Interest, (iii) the aggregate of other amounts owed hereunder by the Transferor to the Purchaser, any Bank Investor or the Agent in respect of such Undivided Interest, and (iv) the accrued Servicer's Fee payable with respect to such Undivided Interest. If no Termination Event or Unmatured Termination Event shall have occurred and be continuing, any amounts set aside pursuant to the first sentence of this SECTION 3.2 and not required to be deposited to the Agent's account pursuant to the next preceding sentence shall be paid to the Transferor by Servicer. (c) ORDER OF APPLICATION. Upon receipt by the Agent of funds deposited to its account pursuant to SECTION 3.2(B), the Agent shall distribute such funds (i) to the Purchaser or the Bank Investors, as the case may be, or to the Agent (as the case may be) (A) in payment of the accrued and unpaid Earned Discount and Program Fee for such Undivided Interest, (B) in reduction of the Purchaser's Investment of such Undivided Interest and (C) in payment of any other amounts owed by the Transferor hereunder to the Purchaser or the Agent, in each case until reduced to zero, and (ii) to Servicer in payment of the accrued and unpaid Servicer's Fee payable with respect to such Undivided Interest, also until reduced to zero. If there shall be insufficient funds on 11 deposit for the Agent to distribute funds in payment in full of the aforementioned amounts, the Agent shall distribute funds on deposit, FIRST, in payment of the Earned Discount and Program Fee for such Undivided Interest, SECOND, in payment of the Servicer's Fee payable with respect to such Undivided Interest, if any, (if Servicer is not the Transferor or an Affiliate of the Transferor), THIRD, in reduction of Purchaser's Investment of such Undivided Interest, FOURTH, in payment of any other amounts payable to the Purchaser, any Bank Investor, or to the Agent hereunder, and FIFTH, in payment of the Servicer's Fee payable with respect to such Undivided Interest (if Servicer is the Transferor or an Affiliate of the Transferor). Section 3.3. SPECIAL SETTLEMENT PROCEDURES: REDUCTION OF PURCHASER'S INVESTMENT, ETC. (a) DEEMED COLLECTIONS. If on any day: (i) the Unpaid Balance of any Pool Receivable is: (A) reduced as a result of any defective, rejected or returned merchandise or services, any cash discount, or any adjustment by the Transferor, any Originator or Seller or any Affiliate of the Transferor or any Originator or Seller; or (B) reduced or cancelled as a result of a setoff in respect of any claim by the Obligor thereof against the Transferor, any Originator or Seller or any Affiliate of the Transferor or any Originator or Seller (whether such claim arises out of the same or a related or an unrelated transaction); or (C) reduced on account of the obligation of the Transferor to pay to the related Obligor any rebate or refund; or (ii) any of the representations or warranties of the Transferor set forth in SECTION 6.1(L) or (P) is no longer true with respect to a Pool Receivable, then, on such day, Servicer shall be deemed to have received a Collection of such Pool Receivable: (I) in the case of CLAUSE (I) above, in the amount of such reduction or cancellation; and (II) in the case of CLAUSE (II) above, in the amount of the Unpaid Balance of such Pool Receivable. (b) UNREINVESTED COLLECTIONS. Collections that may not be reinvested by means of Reinvestments in an Undivided Interest on account of the application of the Required Allocations Limit or the Purchase Limit pursuant to SECTION 1.2 shall be so reinvested as soon as it is possible to do so without violating such Required Allocations Limit or Purchase Limit, as the case may be. To the extent and so long as such Collections may not be so reinvested, Servicer shall hold such Collections ratably in trust for the benefit of the Purchaser or the Bank Investors, as the case may be, and, if requested by the Agent, in a separate deposit account with the Agent containing only the Purchaser's Share of 12 such Collections and no other funds, for payment to the Agent on the next following Settlement Date for application to the next maturing Undivided Interests. (c) THE TRANSFEROR'S REDUCTION OF AGGREGATE PURCHASER'S INVESTMENT. If at any time the Transferor shall wish to cause the reduction of the Aggregate Purchaser's Investment (but not to commence the liquidation, or reduction to zero, of all Undivided Interests), the Transferor may do so as follows: (i) the Transferor shall give the Agent at least three Business Days' prior written notice thereof (including the amount of such proposed reduction and the proposed date on which such reduction will commence) and, if applicable, shall cause the reduction to be allocated ratably among the Bank Investors such that each Bank Investor shall receive its pro rata share of the aggregate amount of such proposed reductions; (ii) on the proposed date of commencement of such reduction and on each day thereafter, Servicer shall refrain from reinvesting Remaining Collections in Undivided Interests, until the amount thereof not so reinvested shall equal the desired amount of reduction for the Purchaser or the Bank Investors, as the case may be; and (iii) Servicer shall hold such Collections for the benefit of the Purchaser or the Bank Investors, as the case may be, for the payment to the Agent for each Undivided Interest proposed to be reduced in connection herewith, in which such Collections are accumulated, and such amounts shall be applied to reduce the Purchaser's Investment in such Undivided Interests in accordance with the PROVISOS hereto and with regard to any Undivided Interest, the related Purchaser's Investment of such Undivided Interest shall be deemed reduced in the amount to be paid to the Agent only when in fact finally so paid; provided that, (A) any such reduction may only be effected on the last day of the related Yield Period for any Undivided Interest the related Purchaser's Investment in which has been requested to be reduced and only to the extent that after giving effect to any such reduction the remaining Purchaser's Investment in such Undivided Interest shall not be less than $1,000,000 (unless the Purchaser's Investment of such Undivided Interest shall thereby be reduced to zero) and shall be in an integral multiple of $100,000, (B) if the Transferor shall commence any voluntary reduction in a Yield Period containing all or a portion of any Run Off Period, Collections not so reinvested shall be treated as if collected on the next following Run Off Day, (C) the Transferor shall use reasonable efforts to attempt to choose a reduction amount, and the date of commencement thereof, so that such reduction shall commence and conclude in the same Yield Period, and 13 (D) if two or more Undivided Interests of the Purchaser or any Bank Investor shall be outstanding at the time of any proposed reduction, such proposed reduction shall be applied, unless the Agent shall consent otherwise, to the Undivided Interest with the shortest remaining Yield Period. (d) ALLOCATIONS OF OBLIGOR'S PAYMENTS. Except as provided in SECTION 3.3(A) or as otherwise required by law or the underlying Contract, all Collections received from an Obligor of any Receivable shall be applied to Receivables then outstanding of such Obligor in the order of the age of such Receivables, starting with the oldest such Receivable; PROVIDED, HOWEVER, that, if payment is designated by such Obligor for application to specific Receivables, it shall be applied to such specified Receivables. (e) DEPOSIT TO COLLECTION ACCOUNT. Notwithstanding anything herein to the contrary, the Agent may require the Transferor and Servicer (or their designees or successors) at any time (such instruction shall be deemed given upon the occurrence and continuance of a Termination Event), to deposit all Collections of Pool Receivables received (including, without limitation, received by any Lock-Box Bank) to an account established at the Agent (the "COLLECTION ACCOUNT") within one Business Day of receipt thereof. Such Collections shall be applied by the Agent in accordance with the provisions of this Agreement, including SECTIONS 3.1, 3.2 or 3.3 hereof. Servicer (or its designee or successor) shall notify the Agent of the amount of funds deposited in the Collection Account not received from Pool Receivables and the Agent shall remit such funds as soon as practicable after such notification to such account as Servicer (or its designee or successor) shall designate. Section 3.4. REPORTING. (a) On or prior to the twentieth day of each month (or if such day is not a Business Day, the next succeeding Business Day), Servicer shall prepare and forward to the Agent a Periodic Report (including a certification that no Termination Event or Unmatured Termination Event shall have occurred) relating to all Undivided Interests owned by the Purchaser or the Bank Investors, as applicable, as of the close of business of Servicer on the next preceding Month End Date. (b) On or prior to each Settlement Date, the Transferor will advise the Agent and, if Wackenhut is not the Servicer, the Servicer of each Run Off Day occurring during the Settlement Period ending on such Settlement Date. (c) On or prior to each Purchase or Reinvestment hereunder, the Transferor shall permanently mark in the computer records for each Receivable subject to such Purchase or Reinvestment that such Receivable is subject to the interest of the Agent, on behalf of the Purchaser or the Bank Investors hereunder, as the case may be. Section 3.5. PAYMENTS AND COMPUTATIONS, ETC. (a) Unless otherwise required pursuant to this Agreement, all amounts to be paid or deposited by the Transferor hereunder shall be paid or deposited in accordance with the terms hereof no later than noon (New York time) on the day when due in lawful money of the United States of America in same day funds to accounts indicated in writing by the Agent. If the Agent shall have received such funds by noon (New York time), it shall forward the portion of the funds deposited that are due to the 14 Purchaser or the Bank Investors by 3:00 p.m. (New York time) on such day and if received after noon (New York time), on the next following Business Day. (b) The Transferor or Servicer, as applicable, shall, to the extent permitted by law, pay to the Agent interest on all amounts not paid or deposited when due hereunder at 2% PER ANNUM above the Alternate Reference Rate, payable on demand; PROVIDED, HOWEVER, that such interest rate shall not at any time exceed the maximum rate permitted by applicable law. Such interest shall be retained by the Agent except to the extent that such failure to make a timely payment or deposit has continued beyond the date for distribution by the Agent of such overdue amount to the Purchaser or the Bank Investors, if any, or any other Person having an interest in such overdue amount, in which case such interest accruing after such date shall be for the account of, and distributed by the Agent, to such Persons ratably in accordance with their respective interests in such overdue amount. (c) All computations of interest, Earned Discount, Negative Spread Fee and any other fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) elapsed. Section 3.6. DIVIDING OR COMBINING UNDIVIDED INTERESTS. (a) DIVISION OF UNDIVIDED INTERESTS. The Agent may at any time, as of the last day of any Yield Period for any then existing Undivided Interest owned by the Purchaser or any Bank Investor, as the case may be, divide such existing Undivided Interest on such last day into two or more new Undivided Interests, each such new Undivided Interest having a Purchaser's Investment as designated by the Agent and all such new Undivided Interests collectively having aggregate Purchaser's Investments equal to the Purchaser's Investment of such existing Undivided Interest. (b) COMBINATION OF UNDIVIDED INTERESTS. The Agent may at any time, as of the last day of any Yield Period for two or more existing Undivided Interests owned by the Purchaser or the Bank Investors, as the case may be, on or before the date of any proposed Purchase of an Undivided Interest pursuant to SECTION 1.1 by the Purchaser or the Bank Investors, as the case may be, on such last day or such date of Purchase, as the case may be, combine into one new Undivided Interest such existing and/or proposed Undivided Interests or any combination thereof, such new Undivided Interest having a Purchaser's Investment equal to the aggregate Purchaser's Investments of such Undivided Interests so combined. (c) EFFECT OF DIVISION OR COMBINATION. On and after any division or combination of Undivided Interests as described above, each of the new Undivided Interests resulting from such division, or the new Undivided Interest resulting from such combination, as the case may be, shall be a separate Undivided Interest having a Purchaser's Investment as set forth above, and shall take the place of such existing Undivided Interest or Undivided Interests or proposed Undivided Interest, as the case may be, in each case under and for all purposes of this Agreement. 15 Section 3.7. TREATMENT OF COLLECTIONS AND DEEMED COLLECTIONS. The Transferor shall forthwith deliver to Servicer all Collections deemed received by the Transferor pursuant to SECTION 3.3(A), and Servicer shall hold or distribute such Collections as Earned Discount, accrued Servicer's Fee, repayment of Purchaser's Investment, etc., to the same extent as if such Collections had actually been received on the date of such delivery to Servicer. If Collections are then being paid to the Agent, or lock boxes or accounts directly or indirectly owned or controlled by the Agent, Servicer shall forthwith cause such deemed Collections to be ratably paid to the Agent or to such lock boxes or accounts, as applicable. So long as the Transferor shall hold any Collections or deemed Collections required to be paid to Servicer or to the Agent, it shall hold such Collections in trust and separate and apart from its own funds and shall clearly mark its records to reflect such trust. ARTICLE IV FEES AND YIELD PROTECTION Section 4.1. FEES. (a) AGENT'S FEES. Fees payable to the Purchaser or the Agent for services performed in its capacity as Agent or as Agent for the benefit of the Purchaser or the Bank Investors, as the case may be, shall be due and payable on such dates and in such amounts as set forth in the letter dated January 25, 2002 from the Transferor and The Wackenhut Corporation to the Agent and the Purchaser (the "FEE LETTER"). (b) NOTE FEE. From the date hereof until the date, on or after the Commitment Termination Date, on which the Aggregate Total Investments shall be reduced to zero, the Transferor shall pay to the Agent for the account of the Purchaser, a note issuance fee ("NOTE FEE") in an amount equal to the product of (x) the greater of $15, or the note fee actually paid or payable by the Purchaser to the issuing agent and depositary for the Commercial Paper Notes for the authentication and delivery of each Commercial Paper Note, as notified by the Agent on behalf of the Purchaser to the Transferor and Servicer from time to time, TIMES (y) the number of Commercial Paper Notes issued by the Purchaser to fund its Undivided Interests hereunder during the period for which such Note Fee is payable, as notified by the Agent on behalf of the Purchaser to the Transferor and Servicer; PROVIDED THAT, if such Commercial Paper Notes shall at any time become "book-entry" Notes, the "Note Fee" therefor shall equal $30 per trade. Such Note Fee shall be paid in arrears on the first Business Day of each month for the preceding calendar month for the number of Commercial Paper Notes issued to fund the Undivided Interests owned by the Purchaser during the preceding calendar month for which no Note Fee shall have theretofore been paid. The Agent, on behalf of the Purchaser, shall notify the Transferor and Servicer at least one Business Day prior to the end of each calendar month of the number of Commercial Paper Notes issued by the Purchaser to fund its Undivided Interests hereunder during such calendar month. (c) DEALER FEE. The dealer fee is set forth in the Fee Letter. Section 4.2. YIELD PROTECTION. (a) If (i) Regulation D or (ii) any Regulatory Change occurring after the date hereof: 16 (A) shall subject an Affected Party to any tax, duty or other charge with respect to any Undivided Interest owned by or funded by it or any obligations or right to make Purchases or Reinvestments or to provide funding therefor, or shall change the basis of taxation of payments to the Affected Party of any Purchaser's Investments or Earned Discount owned by, owed to or funded by it or any other amounts due under this Agreement in respect of any Undivided Interest owned by or funded by it or its obligations or rights, if any, to make Purchases or Reinvestments or to provide funding therefor (except for changes in the rate of tax on the overall net income of such Affected Party imposed by the United States of America, by the jurisdiction in which such Affected Party's principal executive office is located and, if such Affected Party's principal executive office is not in the United States of America, by the jurisdiction where such Affected Party's principal office in the United States is located); or (B) shall impose, modify or deem applicable any reserve (including, without limitation, any reserve imposed by the Federal Reserve Board, but excluding any reserve included in the determination of Earned Discount), special deposit or similar requirement against assets of any Affected Party, deposits or obligations with or for the account of any Affected Party or with or for the account of any affiliate (or entity deemed by the Federal Reserve Board to be an affiliate) of any Affected Party, or credit extended by any Affected Party; or (C) shall change the amount of capital maintained or required or requested or directed to be maintained by any Affected Party; or (D) shall impose any other condition affecting any Undivided Interest owned or funded by any Affected Party, or its obligations or rights, if any, to make Purchases or Reinvestments or to provide funding therefor; or (E) shall impose on any Affected Party any other expense (including attorneys' fees and litigation costs); and the result of any of the foregoing is or would be: (x) to increase the cost to (or in the case of Regulation D referred to above, to impose a cost on) (I) an Affected Party funding or making or maintaining any Purchases or Reinvestments, any purchases, reinvestments, or loans or other extensions of credit under this Agreement, the Enterprise Liquidity Agreement or Enterprise Credit Support Agreement, as applicable, or any commitment of such Affected Party with respect to any of the foregoing, or (II) any Agent for continuing its, or the Transferor's, or any Originator's relationship with the Purchaser or any Bank Investor, as the case may be; or (y) to reduce the amount of any sum received or receivable by an Affected Party under this Agreement or the Certificate of Assignments, or under the Enterprise Liquidity Agreement or the Enterprise Credit Support Agreement with respect thereto; or 17 (z) in the sole determination of such Affected Party, to reduce the rate of return on the capital of an Affected Party as a consequence of its obligations hereunder or arising in connection herewith to a level below that which such Affected Party could otherwise have achieved, then within thirty days after demand by such Affected Party (which demand shall be accompanied by a statement setting forth the basis of such demand), the Transferor shall pay directly to such Affected Party such additional amount or amounts as will compensate such Affected Party for such additional or increased cost or such reduction; PROVIDED THAT, such demand shall be made only with regard to amounts accruing not more than six months prior to the earlier of (x) such demand being made upon the Transferor and (y) notification of the Transferor pursuant to PARAGRAPH (B) below. (b) Each Affected Party will promptly notify the Transferor and the Agent of any event of which it has knowledge which will entitle such Affected Party to compensation pursuant to this SECTION 4.2; PROVIDED, HOWEVER, no failure to give or delay in giving such notification shall adversely affect the rights of any Affected Party to such compensation. (c) In determining any amount provided for or referred to in this SECTION 4.2, an Affected Party may use any reasonable averaging and attribution methods that it (in its sole discretion) shall deem applicable. Any Affected Party when making a claim under this SECTION 4.2 shall submit to the Transferor a statement as to such increased cost or reduced return (including calculation thereof in reasonable detail), which statement shall, in the absence of manifest error, be conclusive and binding upon the Transferor. ARTICLE V CONDITIONS OF PURCHASES Section 5.1. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AGREEMENT. The effectiveness of this Agreement is subject to the condition precedent that the Agent shall have received, the following, each (unless otherwise indicated) dated the date of such proposed effectiveness and in form and substance satisfactory to the Agent: (a) Counterparts of this Agreement duly executed by the parties hereto; (b) Counterparts of the amended Fee Letter duly executed by the parties thereto; (c) Evidence of the payment of all fees required to be paid prior to the date of this Agreement; and (d) A current Good Standing Certificate for the Transferor and Wackenhut issued by the Secretary of State or a similar official of the Transferor's and Wackenhut's jurisdictions of incorporation; Section 5.2. CONDITIONS PRECEDENT TO ALL PURCHASES AND REINVESTMENTS. Each Purchase (including the initial Purchase) and each Reinvestment hereunder shall be subject to the further conditions precedent ("CONDITIONS PRECEDENT") that on the date of such Purchase or 18 Reinvestment the following statements shall be true (and the Transferor by accepting the amount of such Purchase or by receiving the proceeds of such Reinvestment shall be deemed to have certified that): (a) the representations and warranties contained in SECTION 6.1 and SECTION 6.2 and in the Purchase and Sale Agreement and in the Receivables Purchase Agreement are correct in all material respects on and as of such day as though made on and as of such day and shall be deemed to have been made on such day except for those representations and warranties made solely with respect to an earlier date which shall be correct in all material respects as of such date; (b) no event has occurred and is continuing, or would result from such Purchase or Reinvestment, that constitutes a Termination Event or Unmatured Termination Event; (c) after giving effect to each proposed Purchase or Reinvestment, (i) Aggregate Purchaser's Investments will not exceed the Purchase Limit, and (ii) Aggregate Required Allocations will not exceed the Required Allocations Limit and (iii) the sum of the Aggregate Purchaser's Investment plus the Interest Component of all outstanding Related Commercial Paper would not exceed the Facility Limit; and (d) the Commitment Termination Date shall not have occurred; PROVIDED, HOWEVER, the absence of the occurrence and continuance of an Unmatured Termination Event shall not be a Condition Precedent to any reinvestment being made with the proceeds of Collections that were, on the same day, applied in reduction of the Aggregate Total Investments. Section 5.3. ADDITIONAL CONDITION PRECEDENT TO PURCHASES. Each Purchase (including the initial Purchase) shall be subject to the further condition precedent that the Purchase Termination Date shall not have occurred. Section 5.4. CONDITIONS SUBSEQUENT. Within sixty (60) days of the date hereof, the Transferor and the Servicer shall deliver the following items to the Agent (in each case, in form and substance reasonably satisfactory to the Agent), and the failure to provide any such item shall result in the occurrence of a Termination Event: (a) A certificate of the Secretary or Assistant Secretary of each of the Transferor and Wackenhut certifying the names and true signatures of the officers authorized on its behalf to sign this Agreement and the other documents to be delivered by them hereunder (on which certificate the Agent, the Purchaser and each Bank Investor may conclusively rely until such time as the Agent shall receive from the Transferor or Wackenhut, as applicable, a revised certificate meeting the requirements of this SUBSECTION (A)); (b) The Articles of Incorporation of each of the Transferor and Wackenhut, duly certified by the Secretary of State or similar official of the jurisdiction of its organization, as of a recent date acceptable to each Agent, together with a copy of the By-laws of each of the Transferor and Wackenhut, duly certified by the Secretary or an Assistant Secretary of the Transferor and Wackenhut; 19 (c) Certified copies of: the resolutions of the Board of Directors of each of the Transferor and Wackenhut authorizing the execution, delivery and performance of this Agreement by the Transferor or Wackenhut, as the case may be; and (d) A favorable opinion of associate General Counsel for the Transferor and Wackenhut, in form and substance satisfactory to the Agent, based on the corporate and enforceability opinion delivered by such counsel in connection with the Predecessor Agreement. (e) A favorable opinion of Akerman, Senterfitt & Eidson, P.A., covering enforceability and perfection matters in form and substance satisfactory to Purchaser's counsel; (f) UCC-1 financing statement in lieu of a continuation statement naming the Transferor as debtor/seller and the Agent as secured party/purchaser, filed with the Secretary of State of Delaware, and such other financing statements (including amendments to existing financing statements) as the Agent may reasonably request in order to perfect, protect or more fully evidence the Purchases hereunder and the resulting Undivided Interests; and (g) A search report provided in writing to the Agent listing all effective financing statements that name the Transferor, the Seller or any Originator as debtor and that are filed in the jurisdictions in which UCC filings were made pursuant to the Predecessor Agreement and in such other jurisdictions that the Agent shall reasonably request, together with copies of such financing statements (none of which shall cover any Receivables or Contracts or interests therein or Collections or proceeds of any thereof); ARTICLE VI REPRESENTATIONS AND WARRANTIES Section 6.1. REPRESENTATIONS AND WARRANTIES OF THE TRANSFEROR. The Transferor represents and warrants as follows: (a) ORGANIZATION AND GOOD STANDING. The Transferor has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware and has not been organized under the laws of any other jurisdiction. It has the power and authority to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted, and had at all relevant times, and now has, all necessary power, authority, and legal right to acquire and own the Pool Receivables. (b) DUE QUALIFICATION. The Transferor is duly qualified to do business as a foreign corporation in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business requires such qualification, licenses or approvals. 20 (c) POWER AND AUTHORITY; DUE AUTHORIZATION. The Transferor (i) has all necessary power, authority and legal right to (A) execute and deliver this Agreement, the Certificate of Assignments and other Agreement Documents to which it is a party, (B) carry out the terms of the Agreement Documents, and (C) sell and assign undivided Interest on the terms and conditions herein provided and (ii) has duly authorized by all necessary corporate action the execution, delivery and performance of this Agreement and the other Agreement Documents to which it is a party and the sale and assignment of the Undivided Interests on the terms and conditions herein provided. (d) VALID SALE; BINDING OBLIGATIONS. This Agreement constitutes a valid sale, transfer, and assignment of Undivided Interests to the Agent, on behalf of the Purchaser or the Bank Investors, as the case may be, enforceable against creditors of, and purchasers from, the Transferor; and this Agreement constitutes, and each other Agreement Document to be signed by the Transferor when duly executed and delivered will constitute, a legal, valid and binding obligation of the Transferor enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditors, rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (e) NO VIOLATION. The consummation of the transactions contemplated by this Agreement and the other Agreement Documents and the fulfillment of the terms hereof will not (i) conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, the articles of incorporation or by-laws of the Transferor, or any indenture, loan agreement, receivables purchase agreement, mortgage, deed of trust, or other agreement or instrument to which the Transferor is a party or by which it or any of its properties is bound, (ii) result in the creation or imposition of any Adverse Claim upon any of the Transferor's properties pursuant to the terms of any such indenture, loan agreement, receivables purchase agreement, mortgage, deed of trust, or other agreement or instrument, other than this Agreement and the Certificate of Assignments, or (iii) violate any law or order, rule, or regulation applicable to the Transferor of any court or of any federal or state regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over the Transferor or any of its properties. (f) NO PROCEEDINGS. There are no proceedings or investigations pending, or to its knowledge threatened, before any court, regulatory body, administrative agency, or other tribunal or governmental instrumentality (i) asserting the invalidity of this Agreement, the Certificate of Assignments or any other Agreement Documents, (ii) seeking to prevent the sale and assignment of any Undivided Interest, the issuance of the Certificate of Assignments or the consummation of any of the other transactions contemplated by this Agreement or any other Agreement Document, (iii) seeking any determination or ruling that might materially and adversely affect (A) the performance by the Transferor or Servicer of its obligations under this Agreement, or (B) the validity or enforceability of this Agreement, the Certificate of Assignments, any other Agreement Document, the Receivables or the Contracts or (iv) seeking to adversely affect the federal income tax attributes of the Purchases hereunder or the Certificate of Assignments. 21 (g) NOT AN INVESTMENT COMPANY. The Transferor is not, and is not controlled by, an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or is exempt from all provisions of such Act. (h) BULK SALES ACT. No transaction contemplated hereby requires compliance with any bulk sales act or similar law. (i) GOVERNMENT APPROVALS. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Transferor of this Agreement, the Certificate of Assignments or any other Agreement Document, EXCEPT for the filing of the UCC Financing Statements referred to in ARTICLE V, all of which, at the time required in ARTICLE V, shall have been duly made and shall be in full force and effect. (j) LITIGATION. No injunction, decree or other decision has been issued or made by any court, governmental agency or instrumentality thereof that prevents, and to its knowledge no threat by any person has been made to attempt to obtain any such decision that would prevent, the Transferor from conducting a significant part of its business operations, except as described in SCHEDULE 6.1(J). (k) MARGIN REGULATIONS. The use of all funds obtained by the Transferor under this Agreement will not conflict with or contravene any of Regulations T, U and X promulgated by the Board of Governors of the Federal Reserve System from time to time. (l) QUALITY OF TITLE. Each Pool Receivable, together with the related Contract and all purchase orders and other agreements related to such Pool Receivable, is owned by the Transferor free and clear of any Adverse Claim (other than any Adverse Claim arising solely as the result of any action taken by the Purchaser or any Bank Investor, as the case may be (or any assignee thereof) or by the Agent) and restriction on assignment, except as provided herein; when the Purchaser or any Bank Investor, as the case may be, makes a Purchase, it or they or the Agent shall have acquired and shall continue to have maintained a valid and perfected first priority undivided percentage ownership interest to the extent of its Undivided Interest in each Pool Receivable and in the Related Security and Collections with respect thereto, free and clear of any Adverse Claim (other than any Adverse Claim arising solely as the result of any action taken by the Purchaser or any Bank Investor (or any assignee thereof) or by the Agent) except as provided hereunder; and no effective financing statement or other instrument similar in effect covering any Pool Receivable, any interest therein, the Related Security or Collections with respect thereto is on file in any recording office except such as may be filed (i) in favor of the Transferor in accordance with the Contracts, or (ii) in favor of the Purchaser or any Bank Investor or the Agent (or their respective successors and assigns) in accordance with this Agreement or in connection with any Adverse Claim arising solely as the result of any action taken by the Purchaser or any Bank Investor (or any assignee thereof) or by the Agent. 22 (m) ACCURATE REPORTS. No Periodic Report (if prepared by the Transferor, or to the extent that information contained therein was supplied by the Transferor), information, Exhibit, financial statement, document, book, record or report furnished or to be furnished by the Transferor to the Agent or the Purchaser or any Bank Investor in connection with this Agreement was or will be inaccurate in any material respect as of the date it was or will be dated or (except as otherwise disclosed to the Agent, the Purchaser or any Bank Investor, as the case may be, at such time) as of the date so furnished, or contained or will contain any material misstatement of fact or omitted or will omit to state a material fact or any fact necessary to make the statements contained therein not materially misleading. (n) OFFICES. The principal place of business and chief executive office of the Transferor are and at all times since its incorporation have been located at the address of the Transferor referred to on the signature page hereof, and the offices where the Transferor keeps all of its books, records, and documents evidencing Pool Receivables, the related Contracts and all purchase orders and other agreements related to such Pool Receivables are located at the addresses specified in SCHEDULE 6.1(N) (or at such other locations, notified to the Agents in accordance with SECTION 7.1(F), in jurisdictions where all action required by SECTION 8.13 has been taken and completed). (o) LOCK-BOX ACCOUNTS. The names and addresses of all the Lock-Box Banks, together with the account numbers of the lock-box accounts of the Transferor or Servicer at such Lock-Box Banks, are specified in SCHEDULE 6.2(O) (or have been notified to the Agents in accordance with SECTION 7.3(D)). (p) ELIGIBLE RECEIVABLES. Each Receivable included in the Net Pool Balance as an Eligible Receivable on the date of any Purchase or Reinvestment shall be an Eligible Receivable on such date. (q) TRANSFERS. No purchase of an interest in Receivables by the Purchaser or a Bank Investor from the Transferor or by the Transferor from Wackenhut constitutes a fraudulent transfer or fraudulent conveyance or is otherwise void or voidable under similar laws or principles, the doctrine of equitable subordination or for any other reason. (r) PURCHASE AND SALE AGREEMENT. Each of the representations and warranties made by each Originator in the Purchase and Sale Agreement and by The Wackenhut Corporation in the Receivables Purchase Agreement are true and correct in all material respects as of the date or dates made. (s) SOLVENCY. Immediately after giving effect to the Transferor's, the Seller's and the Originator's obligations now or hereafter arising pursuant to any Agreement Document and to each transaction contemplated thereby, the Transferor, the Seller and each Originator will each be Solvent. (t) USE OF PROCEEDS. Neither the Transferor nor any Originator will use the proceeds of the Purchases hereunder to acquire a security in a transaction subject to Section 13 or 14 of the Securities Exchange Act of 1934, as amended. 23 (u) TAX. The Transferor has filed each and every tax return required to be filed by it in each jurisdiction in which it is required to do so and has paid in each such jurisdiction all taxes required to be paid by it on a consolidated basis. (v) TRADENAMES, ETC. As of the date hereof: (A) the Transferor's chief executive office is located at the address set forth under its signature to this Agreement; and (B) the Transferor has, within the last five (5) years, used only the tradenames identified in SCHEDULE 6.1(V) hereto, and, within the last five (5) years, has not changed its name, merged with or into or consolidated with any other corporation or been the subject of any proceeding under Title 11, United States Code (Bankruptcy) . (w) NO TERMINATION EVENT. No event has occurred and is continuing and no condition exists which constitutes a Termination Event or an Unmatured Termination Event. (x) ERISA. The Transferor is in compliance in all material respects with ERISA and there exists no lien in favor of the Pension Benefit Guaranty Corporation on any of the Receivables. Section 6.2. REPRESENTATIONS AND WARRANTIES OF THE SERVICER. The Servicer represents and warrants to the Purchaser and to the Bank Investors that: (a) ORGANIZATION AND GOOD STANDING. Servicer has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Florida and has not been organized under the laws of any other jurisdiction. It has the power and authority to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted, and had at all relevant times, and now has, all necessary power, authority, and legal right to acquire, own and sell the Pool Receivables. (b) DUE QUALIFICATION. Servicer is duly qualified to do business as a foreign corporation in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business requires such qualification, licenses or approvals. (c) POWER AND AUTHORITY; DUE AUTHORIZATION. Servicer (i) has all necessary power, authority and legal right to (A) execute and deliver this Agreement, the Receivables Purchase Agreement and the Purchase and Sale Agreement and other Agreement Documents, (B) carry out the terms of the Agreement Documents to which it is a party, and (C) sell and assign the Receivables to the Transferor pursuant to the Receivables Purchase Agreement on the terms and conditions therein provided and (ii) has duly authorized by all necessary corporate action the execution, delivery and performance of this Agreement, the Receivables Purchase Agreement, the Purchase and Sale Agreement and the other Agreement Documents to which it is a party and the sale and assignment of the Receivables to the Transferor pursuant to the Receivables Purchase Agreement on the terms and conditions therein provided. 24 (d) VALID SALE; BINDING OBLIGATIONS. The Receivables Purchase Agreement constitutes a valid sale, transfer, and assignment of the Receivables to the Transferor, enforceable against creditors of, and purchasers from, Wackenhut; and this Agreement constitutes, and each other Agreement Document to be signed by Wackenhut (in whatever capacity) when duly executed and delivered will constitute, a legal, valid and binding obligation of Wackenhut enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditors, rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (e) NO VIOLATION. The consummation of the transactions contemplated by this Agreement and the other Agreement Documents and the fulfillment of the terms hereof will not (i) conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, its articles of incorporation or by-laws, or any indenture, loan agreement, receivables purchase agreement, mortgage, deed of trust, or other agreement or instrument to which it is a party or by which it or any of its properties is bound, (ii) result in the creation or imposition of any Adverse Claim upon any of its properties pursuant to the terms of any such indenture, loan agreement, receivables purchase agreement, mortgage, deed of trust, or other agreement or instrument, other than the Receivables Purchase Agreement and this Agreement, or (iii) violate any law or order, rule, or regulation applicable to it of any court or of any federal or state regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over Wackenhut or any of its properties. (f) NO PROCEEDINGS. There are no proceedings or investigations pending, or to its knowledge threatened, before any court, regulatory body, administrative agency, or other tribunal or governmental instrumentality (i) asserting the invalidity of this Agreement, the Receivables Purchase Agreement, the Purchase and Sale Agreement or any other Agreement Documents, (ii) seeking to prevent the sale and assignment of the Receivables to the Transferor pursuant to the Receivables Purchase Agreement or the consummation of any of the other transactions contemplated by this Agreement or any other Agreement Document, (iii) seeking any determination or ruling that might materially and adversely affect (A) the performance by it (in whatever capacity) of its obligations under this Agreement, the Receivables Purchase Agreement or any other Agreement Document to which it is a party, or (B) the validity or enforceability of this Agreement, the Receivables Purchase Agreement, any other Agreement Document, the Receivables or the Contracts or (iv) seeking to adversely affect the federal income tax attributes of the Purchases hereunder or the Certificate of Assignments. (g) GOVERNMENT APPROVALS. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by Wackenhut of this Agreement, the Receivables Purchase Agreement or any other Agreement Document, EXCEPT for the filing of the UCC Financing Statements referred to in ARTICLE V, all of which, at the time required in ARTICLE V, shall have been duly made and shall be in full force and effect. 25 (h) FINANCIAL CONDITION. (i) The Servicer has heretofore furnished to the Agent an audited consolidated balance sheet of the Servicer and its consolidated subsidiaries as at December 31, 2000 and the notes thereto and the related consolidated statements of income, retained earnings and cash flows for the fiscal year then ended as examined and certified by Arthur Andersen, LLP, and unaudited consolidated interim financial statements of the Servicer and its consolidated subsidiaries consisting of a consolidated balance sheet and related consolidated statements of income, retained earnings and cash flows, in each case without notes, for and as of the end of the nine month period ending September 30, 2001. Except as set forth therein, such financial statements (including the notes thereto) present fairly the financial condition of the Servicer and its consolidated subsidiaries as of the end of such fiscal year and nine month period and results of their operations and the changes in its stockholder's equity for the fiscal year and interim period then ended, all in conformity with generally accepted accounting principles consistently applied, subject however, in the case of unaudited interim statements to year end audit adjustments. (ii) since the later of (A) the date of the audited financial statements delivered pursuant to subsection (i) above hereof or (B) the date of the audited financial statements most recently delivered pursuant to Section 7.5(a) and (b) hereof, there has not occurred any event, condition or circumstance which has had or could reasonably be expected to have a material adverse effect, nor have the businesses or properties of the Servicer or any subsidiary been materially adversely affected as a result of any fire, explosion, earthquake, accident, strike, lockout, combination of workers, flood, embargo or act of God; and (iii) except as set forth in the financial statements referred to in subsection (i) above, neither the Servicer nor any subsidiary has incurred, other than in the ordinary course of business, any material Indebtedness or other commitment or liability which remains outstanding or unsatisfied. (i) CREDIT AND COLLECTION POLICY. Since January 5, 1995, there have been no material changes in the Credit and Collection Policy other than as permitted hereunder. Since such date, no material adverse change has occurred in the overall rate of collection of the Receivables. (j) COLLECTIONS AND SERVICING. Since January 5, 1995, there has been no material adverse change in the ability of the Servicer to service and collect the Receivables. (k) NOT AN INVESTMENT COMPANY. The Servicer is not, and is not controlled by, an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or is exempt from all provisions of such Act. (l) LITIGATION. No injunction, decree or other decision has been issued or made by any court, governmental agency or instrumentality thereof that prevents, and to its 26 knowledge no threat by any person has been made to attempt to obtain any such decision that would prevent, it from conducting a significant part of its business operations, except as described in SCHEDULE 6.2(L). (m) ACCURATE REPORTS. No Periodic Report (if prepared by it, or to the extent that information contained therein was supplied by it), information, Exhibit, financial statement, document, book, record or report furnished or to be furnished by it to the Agent or the Purchaser or any Bank Investor in connection with this Agreement was or will be inaccurate in any material respect as of the date it was or will be dated or (except as otherwise disclosed to the Agent, the Purchaser or any Bank Investor, as the case may be, at such time) as of the date so furnished, or contained or will contain any material misstatement of fact or omitted or will omit to state a material fact or any fact necessary to make the statements contained therein not materially misleading. (n) OFFICES. The chief place of business and chief executive office of the Servicer are, and for the last five years have been, located at its address referred to on the signature page hereof, and the offices where the Servicer keeps all of its books, records, and documents evidencing Pool Receivables, the related Contracts and all purchase orders and other agreements related to such Pool Receivables are located at the addresses specified in SCHEDULE 6.2(N) (or at such other locations, notified to the Agent in accordance with SECTION 7.1(F), in jurisdictions where all action required by SECTION 8.13 has been taken and completed). (o) LOCK-BOX ACCOUNTS. The names and addresses of all the Lock-Box Banks, together with the account numbers of the lock-box accounts of the Servicer at such Lock-Box Banks, are specified in SCHEDULE 6.2(O) (or have been notified to the Agent in accordance with SECTION 7.3(D)) . (p) NO TERMINATION EVENT. No event has occurred and is continuing and no condition exists which constitutes a Termination Event or an Unmatured Termination Event. ARTICLE VII GENERAL COVENANTS OF THE TRANSFEROR AND SERVICER Section 7.1. AFFIRMATIVE COVENANTS OF THE TRANSFEROR. From the date hereof until the date, following the Commitment Termination Date, on which all Undivided Interests shall be reduced to zero, the Transferor will, unless the Agent shall otherwise consent in writing: (a) COMPLIANCE WITH LAWS, ETC. Comply in all material respects with all applicable laws, rules, regulations and orders with respect to the Pool Receivables and related Contracts. (b) PRESERVATION OF CORPORATE EXISTENCE. Preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges 27 and qualification would materially adversely affect (i) the interests of the Agent, the Purchaser or any Bank Investor hereunder or (ii) the ability of the Transferor or Servicer to perform their respective obligations hereunder. (c) FIELD REVIEWS. (i) At any time and from time to time during regular business hours, permit the Agent, or its agents or representatives, (A) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in the possession or under the control of the Transferor relating to Pool Receivables, including, without limitation, the related Contracts and purchase orders and other agreements, and (B) to visit the offices and properties of the Transferor for the purpose of examining such materials described in CLAUSE (I)(A) next above, and to discuss matters relating to Pool Receivables or the Transferor's performance hereunder with any of the officers or employees of the Transferor having knowledge of such matters; and (ii) without limiting the provisions of CLAUSE (I)(A) next above, from time to time on request of the Agent, permit certified public accountants or other auditors reasonably acceptable to the Agent to conduct, at the Transferor's expense, a review of the Transferor's books and records with respect to the Pool Receivables. (d) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Pool Receivables in the event of the destruction of the originals thereof), and keep and maintain, all documents, books, records and other information reasonably necessary or advisable for the collection of all Pool Receivables (including, without limitation, records adequate to permit the daily identification of each new Pool Receivable and all Collections of and adjustments to each existing Pool Receivable); such records to be retained by Servicer for such periods as are usual and customary and in accordance with the Credit and Collection Policy. (e) PERFORMANCE AND COMPLIANCE WITH RECEIVABLES AND CONTRACTS. At its expense timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Pool Receivables and all purchase orders and other agreements related to such Pool Receivables. (f) LOCATION OF RECORDS; JURISDICTION. Keep its chief place of business and principal executive office, and the offices where it keeps its records concerning the Pool Receivables, all related Contracts and all purchase orders and other agreements related to such Pool Receivables (and all original documents relating thereto), at the addresses of the Transferor referred to in SECTION 6.1(N) or, upon 30 days' prior written notice to each Agent, at such other locations in jurisdictions where all action required by SECTION 8.13 shall have been taken and completed. In addition, the Transferor shall provide not less than thirty (30) days written notice to the Agent and the Bank Investors prior to effecting any change in its form of organization or jurisdiction of organization. (g) CREDIT AND COLLECTION POLICIES. Comply in all material respects with the Credit and Collection Policy in regard to each Pool Receivable and the related Contract. 28 (h) MINIMUM NET WORTH. The Transferor shall at all times maintain a minimum Net Worth of not less than an amount equal to the sum of (i) the Aggregate Unpaid Balance of all Defaulted Receivables and (ii) the sum of the Aggregate Unpaid Balance of the three largest Receivables of the Obligors; PROVIDED, HOWEVER, that in any case, the minimum Net Worth shall never be less than 15% of the Aggregate Unpaid Balance of the Receivables. (i) COLLECTIONS. Instruct all Obligors to cause all Collections of Pool Receivables to be deposited directly with a Lock-Box Bank. (j) SALE TREATMENT. The Transferor will not account for (including for accounting and tax purposes), or otherwise treat, the transactions contemplated by the Receivables Purchase Agreement in any manner other than as a sale of Receivables by the Seller to the Transferor. In addition, the Transferor shall disclose (in a footnote or otherwise) in all of its financial statements (including any such financial statements consolidated with any other Persons' financial statements) the existence and nature of the Transaction contemplated hereby and by the Receivables Purchase Agreement and the interest of the Agent, on behalf of the Company and the Bank Investors, in the Receivables. (k) SEPARATE BUSINESS. The Transferor shall at all times (a) to the extent the Transferor's office is located in the offices of Wackenhut or any Affiliate of Wackenhut, pay fair market rent for its executive office space located in the offices of Wackenhut or any Affiliate of Wackenhut, (b) have at all times at least two members of its board of directors which are not and have never been employees, officers or directors of Wackenhut or any Affiliate of Wackenhut or of any major creditor of Wackenhut or any Affiliate of Wackenhut and are persons who are familiar and have experience with asset securitization, (c) maintain the Transferor's books, financial statements, accounting records and other corporate documents and records separate from those of Wackenhut or any other entity, (d) not commingle the Transferor's assets with those of Wackenhut or any other entity, (e) not sell, exchange or otherwise convey any of its assets in any inter-company transactions except for fair market value in an arms length transaction approved by a majority of its board of directors (including Independent Directors, as defined in the Transferor's "Certificate of Incorporation"), (f) act solely in its corporate name and through its own authorized officers and agents, (g) make investments directly or by brokers engaged and paid by the Transferor or its agents (provided that if any such agent is an Affiliate of the Transferor it shall be compensated at a fair market rate for its services), (h) separately manage the Transferor's liabilities from those of Wackenhut or any Affiliates of Wackenhut and pay its own liabilities, including all administrative expenses, from its own separate assets, except that Wackenhut may pay the organizational expenses of the Transferor, and (i) pay from the Transferor's assets all obligations and indebtedness of any kind incurred by the Transferor. The Transferor shall abide by all corporate formalities, including the maintenance of current minute books, and the Transferor shall cause its financial statements to be prepared in accordance with generally accepted accounting principles in a manner that indicates the separate existence of the Transferor and its assets and liabilities. The Transferor shall (i) pay all its liabilities, (ii) not assume the liabilities of Wackenhut or any Affiliate of Wackenhut, (iii) not lend funds or extend credit to Wackenhut or any affiliate of 29 Wackenhut except pursuant to the Receivables Purchase Agreement in connection with the purchase of Receivables thereunder and (iv) not guarantee the liabilities of Wackenhut or any Affiliates of Wackenhut. The officers and directors of the Transferor (as appropriate) shall make decisions with respect to the business and daily operations of the Transferor independent of and not dictated by any controlling entity. The Transferor shall not engage in any business not permitted by its Certificate of Incorporation as in effect on the Closing Date. (l) CORPORATE DOCUMENTS. The Transferor shall only amend, alter, change or repeal Articles of its Certificate of Incorporation with the prior written consent of the Agent. (m) RIGHTS UNDER RECEIVABLES PURCHASE AGREEMENT. Exercise all of its rights under or in connection with the Receivables Purchase Agreement to the fullest extent thereof except to the extent otherwise consented to in writing by the Agent. Section 7.2. REPORTING REQUIREMENTS OF THE TRANSFEROR. From the date hereof until the date, following the Commitment Termination Date, on which all Undivided Interests shall be reduced to zero and all other amounts owing hereunder shall have been paid, the Transferor will, unless the Agent shall otherwise consent in writing, furnish to the Agent: (a) FINANCIAL REPORTING. The Transferor will maintain, or cause to be maintained, a system of accounting established and administered in accordance with GAAP, and furnish to the Agent: (i) QUARTERLY FINANCIAL STATEMENTS. As soon as available and in any event within ninety (90) days after the end of each of the first three quarters of each fiscal year of the Transferor, copies of the Transferor's quarterly financial reports, certified by a responsible officer of the Transferor; together with a certificate from such officer certifying that no Termination Event or Unmatured Termination Event has occurred and containing a computation of, and showing compliance with, the financial restrictions contained in SECTION 7.1(H); (ii) ANNUAL REPORTING. Within ninety (90) days after the close of the Transferor's fiscal year, financial statements, prepared in accordance with GAAP for the Transferor, including balance sheets as of the end of such period, related statements of operations, shareholder's equity and cash flows, and reviewed by a nationally recognized accounting firm reasonably acceptable to the Agent and accompanied by a certificate of said accountants that, in the course of the foregoing, they have obtained no knowledge of any Termination Event or Unmatured Termination Event, or if, in the opinion of such accountants, any Termination Event or Unmatured Termination Event shall exist, stating the nature and status thereof. (iii) COMPLIANCE CERTIFICATE. Within forty-five (45) days after the close of the first three quarterly periods of the Transferor's fiscal year and together with the financial statements required hereunder, a compliance certificate signed by a 30 responsible officer of the Transferor stating that to the best of such Person's knowledge, no Termination Event or Unmatured Termination Event exists, or if any Termination Event or Unmatured Termination Event exists, stating the nature and status thereof. (iv) SHAREHOLDERS STATEMENTS AND REPORTS. Promptly upon the furnishing thereof to the shareholders of or the Transferor, copies of all financial statements, reports and proxy statements so furnished. (b) REPORTS TO HOLDERS AND EXCHANGES. In addition to the reports required by SUBSECTION (A) next above, promptly upon the Agent's request, copies of any reports specified in such request which the Transferor sends to any of its security holders, and any reports or registration statements that Servicer files with the Securities and Exchange Commission or any national securities exchange other than registration statements relating to employee benefit plans and to registrations of securities for selling security holders; (c) ERISA. Promptly after the filing or receiving thereof, copies of all reports and notices with respect to any Reportable Event defined in Article IV of ERISA which the Transferor, the Seller or any Originator files under ERISA with the Internal Revenue Service, the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or which the Transferor, the Seller or any Originator receives from the Pension Benefit Guaranty Corporation; (d) TERMINATION EVENTS. As soon as possible and in any event within five days after the occurrence of each Termination Event and each Unmatured Termination Event, written statement of the vice president and treasurer, chief financial officer or chief accounting officer of the Transferor setting forth details of such Event and the action that the Transferor proposes to take with respect thereto; (e) LITIGATION. As soon as possible and in any event within three Business Days of the Transferor's knowledge thereof, notice of (i) any litigation, investigation or proceeding which may exist at any time which could have a material adverse effect on the business, operations, property or financial condition of the Transferor, the Seller or any Originator or impair the ability of the Transferor or the Servicer to perform its obligations under this Agreement and (ii) any material adverse development in previously disclosed litigation; (f) PURCHASE AND SALE AGREEMENT/RECEIVABLES PURCHASE AGREEMENT. Promptly after receipt thereof, copies of all documents and other information delivered by either of the Originator or the Seller to the Transferor pursuant to either the Purchase and Sale Agreement or the Receivables Purchase Agreement; and (g) OTHER. Promptly, from time to time, such other information (including a listing by Obligor of all Pool Receivables), documents, records or reports respecting the Receivables or the condition or operations, financial or otherwise, of the Transferor as the 31 Agent may from time to time reasonably request in order to protect the interests of the Agent or any Purchaser under or as contemplated by this Agreement. Section 7.3. NEGATIVE COVENANTS OF THE TRANSFEROR. From the date hereof until the date, following the Commitment Termination Date, on which all Undivided Interests shall be reduced to zero and all other amounts owing hereunder shall have been paid, the Transferor will not, without the prior written consent of the Agent: (a) SALES, LIENS, ETC. Except as otherwise provided herein, sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to, any Pool Receivable or related Contract or Related Security, or any interest therein, or any lock-box account to which any Collections of any Pool Receivable are sent, or any right to receive income from or in respect of any of the foregoing. (b) EXTENSION OR AMENDMENT OF RECEIVABLES. Except as otherwise permitted in SECTION 8.6, extend, amend or otherwise modify the terms of any Pool Receivable, or amend, modify or waive any term or condition of any Contract related thereto unless such extension, amendment or modification (i) does not conflict with the Credit and Collection Policy and (ii) does not affect the collectibility of the related Receivable. (c) CHANGE IN BUSINESS OR CREDIT AND COLLECTION POLICY. Make any change in the character of its business or in the Credit and Collection Policy. (d) CHANGE IN PAYMENT INSTRUCTIONS TO OBLIGORS. Add or terminate any bank as a Lock-Box Bank from those listed in SCHEDULE 6.2(O) or make any change in its instructions to Obligors regarding payments to be made to Servicer or payments to be made to any Lock-Box Bank, unless the Agent shall have received notice of such addition, termination or change and duly executed copies of Lock-Box Agreements with each new Lock-Box Bank in a form satisfactory to the Agent. (e) AMENDMENTS TO PURCHASE AND SALE AGREEMENT/RECEIVABLES PURCHASE AGREEMENT. Amend, supplement, waive the application of any provision of, amend and restate or otherwise modify the Purchase and Sale Agreement or the Receivables Purchase Agreement except in each case (i) in accordance with the terms thereof and (ii) with the prior written consent of the Agent. (f) CORPORATE IDENTITY. At any time change its name, identity, corporate structure, location or jurisdiction of incorporation unless at least 10 days prior thereto the Transferor shall have delivered to the Agent UCC financing statements or other statements amending or otherwise modifying UCC financing statements filed hereunder in order to maintain a first perfected ownership interest in favor of the Agent on behalf of the Purchaser and the Bank Investors hereunder. Section 7.4. AFFIRMATIVE COVENANTS OF SERVICER. From the date hereof until the date, following the Commitment Termination Date, on which all Undivided Interests shall be reduced to zero, Servicer will, unless the Agent shall otherwise consent in writing: 32 (a) COMPLIANCE WITH LAWS, ETC. Comply in all material respects with all applicable laws, rules, regulations and orders with respect to the Pool Receivables and related Contracts. (b) PRESERVATION OF CORPORATE EXISTENCE. Preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification would materially adversely affect (i) the interests of the Agent or the Purchaser or any Bank Investor hereunder or (ii) the ability of Servicer or the Transferor to perform their respective obligations hereunder or under the Receivable Purchase Agreement. (c) FIELD REVIEWS. (i) At any time and from time to time during regular business hours, permit the Agent, or its agents or representatives, (A) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in the possession or under the control of Servicer relating to Pool Receivables, including, without limitation, the related Contracts and purchase orders and other agreements, and (B) to visit the offices and properties of Servicer for the purpose of examining such materials described in CLAUSE (I)(A) next above, and to discuss matters relating to Pool Receivables or Servicer's performance hereunder with any of the officers or employees of Servicer having knowledge of such matters; and (ii) without limiting the provisions of CLAUSE (I)(A) next above, from time to time on request of the Agent, permit certified public accountants or other auditors acceptable to the Agent to conduct, at Servicer's expense, a review of Servicer's books and records with respect to the Pool Receivables. (d) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Pool Receivables in the event of the destruction of the originals thereof), and keep and maintain, all documents, books, records and other information reasonably necessary or advisable for the collection of all Pool Receivables (including, without limitation, records adequate to permit the daily identification of each new Pool Receivable and all Collections of and adjustments to each existing Pool Receivable); such records to be retained by Servicer for such periods as are usual and customary and in accordance with the Credit and Collection Policy. (e) PERFORMANCE AND COMPLIANCE WITH RECEIVABLES AND CONTRACTS. At its expense timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Pool Receivables and all purchase orders and other agreements related to such Pool Receivables. (f) LOCATION OF RECORDS. Keep its principal place of business and chief executive office, and the offices where it keeps its records concerning the Pool Receivables, all related Contracts and all purchase orders and other agreements related to such Pool Receivables (and all original documents relating thereto), at the addresses of Servicer 33 referred to in SECTION 6.2(N) or, upon 30 days' prior written notice to each Agent, at such other locations in jurisdictions where all action required by SECTION 8.13 shall have been taken and completed. In addition, the Servicer shall provide not less than thirty (30) days written notice to the Agent and the Bank Investors prior to effecting any change in its form of organization or jurisdiction of organization. (g) CREDIT AND COLLECTION POLICIES. Comply in all material respects with the Credit and Collection Policy in regard to each Pool Receivable and the related Contract. (h) COLLECTIONS. Instruct all Obligors to cause all Collections of Pool Receivables to be deposited directly with a Lock-Box Bank. Section 7.5. REPORTING REQUIREMENTS OF SERVICER. From the date hereof until the date, following the Commitment Termination Date, on which all Undivided Interests shall be reduced to zero and all other amounts owing hereunder shall have been paid, the Servicer will, unless the Agent shall otherwise consent in writing, furnish to the Agent: (a) QUARTERLY FINANCIAL STATEMENTS. As soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Servicer, copies of the Servicer quarterly financial reports, on Form 10-Q, as filed with the Securities and Exchange Commission (or if the Servicer is no longer required to file such Form 10-Q, the Servicer shall furnish such financial reports containing the information typically found on Form 10-Q, certified by an Authorized Representative of the Servicer; together with a certificate from such Authorized Representative certifying that no Termination Event or Unmatured Termination Event has occurred and containing a computation of, and showing compliance with, the financial restrictions contained in SECTION 7.7; (b) ANNUAL FINANCIAL STATEMENTS. As soon as available and in any event within 90 days after the end of each fiscal year of the Servicer, a copy of the Servicer's Annual Report, on Form 10-K, as filed with the Securities and Exchange Commission (or if the Servicer is no longer required to file such Form 10-K, the Servicer shall furnish such financial reports containing information typically found on Form 10-K) and as reported on by nationally recognized independent certified public accountants on a consolidated (for the Originator only) basis; together with a copy of the year-end financial statements of each Originator (which need not be reported by independent certified accountants); and together with a certificate from an Authorized Representative of the Servicer certifying that no Termination Event or Unmatured Termination Event has occurred and containing a computation of, and showing compliance with, the financial restrictions contained in SECTION 7.7; (c) REPORTS TO HOLDERS AND EXCHANGES. In addition to the reports required by SUBSECTION (A) next above, promptly upon the Agent's request, copies of any reports specified in such request which the Servicer sends to any of its security holders, and any reports or registration statements that the Servicer files with the Securities and Exchange Commission or any national securities exchange other than registration statements 34 relating to employee benefit plans and to registrations of securities for selling security holders; (d) ERISA. Promptly after the filing or receiving thereof, copies of all reports and notices with respect to any Reportable Event defined in Article IV of ERISA which the Servicer or any Originator files under ERISA with the Internal Revenue Service, the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or which the Servicer or any Originator receives from the Pension Benefit Guaranty Corporation; (e) TERMINATION EVENTS. As soon as possible and in any event within five days after the occurrence of each Termination Event and each Unmatured Termination Event, written statement of the vice president and treasurer, chief financial officer or chief accounting officer of the Servicer setting forth details of such Event and the action that the Servicer proposes to take with respect thereto; (f) LITIGATION. As soon as possible and in any event within three Business Days of the Servicer's knowledge thereof, notice of (i) any litigation, investigation or proceeding which may exist at any time which could have a material adverse effect on the business, operations, property or financial condition of the Servicer or any Originator or impair the ability of the Servicer to perform its obligations under this Agreement and (ii) any material adverse development in previously disclosed litigation; and (g) AGREED UPON PROCEDURES. On or before 120 days after the end of each fiscal year of the Servicer, beginning with the fiscal year ending December 31, 2000, the Servicer shall cause a firm of independent public accountants (who may also render other services to the Servicer or the Transferor) to furnish a report to the Agent to the effect that they have (i) confirmed the Net Pool Balance as of the end of each Yield Period during such fiscal year, (ii) confirmed that the Receivables treated by the Servicer as Eligible Receivables in fact satisfied the requirements of the definition thereof contained herein, and (iii) such other matters as may be requested by the Agent in its reasonable discretion; except, in each case for (a) such exceptions as such firm shall believe to be immaterial (which exceptions need not be enumerated) and (b) such other exceptions as shall be set forth in such statement. (h) OTHER. Promptly, from time to time, such other information (including a listing by Obligor of all Pool Receivables), documents, records or reports respecting the Receivables or the condition or operations, financial or otherwise, of the Servicer as the Agent may from time to time reasonably request in order to protect the interests of such Agent or any Purchaser under or as contemplated by this Agreement. Section 7.6. NEGATIVE COVENANTS OF THE SERVICER. From the date hereof until the date, following the Commitment Termination Date, on which all Undivided Interests shall be reduced to zero and all other amounts owing hereunder shall have been paid, the Servicer will not, without the prior written consent of the Agent: (a) SALES, LIENS, ETC. Except as otherwise provided herein, sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any 35 Adverse Claim upon or with respect to, any Pool Receivable or related Contract or Related Security, or any interest therein, or any lock-box account to which any Collections of any Pool Receivable are sent, or any right to receive income from or in respect of any of the foregoing. (b) EXTENSION OR AMENDMENT OF RECEIVABLES. Except as otherwise permitted in SECTION 8.6, extend, amend or otherwise modify the terms of any Pool Receivable, or amend, modify or waive any term or condition of any Contract related thereto unless such extension, amendment or modification (i) does not conflict with the Credit and Collection Policy and (ii) does not affect the collectibility of the related Receivable. (c) CHANGE IN BUSINESS OR CREDIT AND COLLECTION POLICY. Make any change in the character of its business or in the Credit and Collection Policy. (d) CHANGE IN PAYMENT INSTRUCTIONS TO OBLIGORS. Add or terminate any bank as a Lock-Box Bank from those listed in SCHEDULE 6.2(O) or make any change in its instructions to Obligors regarding payments to be made to the Servicer or the Servicer or payments to be made to any Lock-Box Bank, unless the Agent shall have received notice of such addition, termination or change and duly executed copies of Lock-Box Agreements with each new Lock-Box Bank in a form satisfactory to the Agent. (e) MERGERS, CONSOLIDATIONS AND SALES OF ASSETS. (i) Consolidate with or be a party to a merger with any other corporation or sell, lease or otherwise dispose of all or any substantial part (as defined in paragraph (iv) of this Section 7.6(e)) of the assets of the Servicer and its Subsidiaries, PROVIDED, HOWEVER, that: (A) any Subsidiary may merge or consolidate with or into the Servicer or any Wholly-owned Subsidiary so long as in any merger or consolidation involving the Servicer, the Servicer shall be the surviving or continuing corporation; PROVIDED FURTHER HOWEVER, that under no circumstances shall the Transferor be permitted to merge with the Servicer; (B) any Person may consolidate or merge with the Servicer or a Subsidiary of the Servicer if at the time of such consolidation or merger and after giving effect thereto no Unmatured Termination Event or Termination Event shall have occurred and be continuing, and after giving effect to such consolidation or merger the Servicer would be permitted to incur at least $1.00 of additional Consolidated Indebtedness; (C) any Subsidiary may sell, lease or otherwise dispose of all or any substantial part of its assets to the Servicer or any Wholly-owned Subsidiary; (D) WCC may enter into TROL Leases; and 36 (E) the Servicer may sell for not less than book value the (i) business, assets and operations constituting the food service business of the Servicer and its Subsidiaries or (ii) assets of, or stock in, Chile. (ii) Permit any Subsidiary to issue or sell any shares of stock of any class (including as "stock" for the purposes of this SECTION 7.6(E), any warrants, rights or options to purchase or otherwise acquire stock or other Securities exchangeable for or convertible into stock) of such Subsidiary to any Person other than the Servicer or a Wholly-owned Subsidiary, except for the purpose of qualifying directors, or except in satisfaction of the validly pre-existing preemptive rights of minority shareholders in connection with the simultaneous issuance of stock to the Servicer and/or a Subsidiary whereby the Servicer and/or such Subsidiary maintain their same proportionate interest in such Subsidiary. (iii) Sell, transfer or otherwise dispose of any shares of stock of any Subsidiary except (A) the minimal amount necessary to qualify directors and (B) shares of stock of WCC provided that, after giving effect to any such sale of WCC stock, the Servicer shall own not less than 50% of the stock of every class issued by WCC or any Indebtedness of any Subsidiary, and will not permit any Subsidiary to sell, transfer or otherwise dispose of (except to the Servicer or a Wholly-owned Subsidiary) any shares of stock or any Indebtedness of any other Subsidiary, unless: (1) simultaneously with such sale, transfer, or disposition, all shares of stock and all Indebtedness of such Subsidiary at the time owned by the Servicer and by every other Subsidiary shall be sold, transferred or disposed of as an entirety; (2) the Board of Directors of the Servicer shall have determined, as evidenced by a resolution thereof, that the proposed sale, transfer or disposition of said shares of stock and Indebtedness is in the best interests of the Servicer. (3) said shares of stock and Indebtedness are sold, transferred or otherwise disposed of to a Person, for a cash consideration and on terms reasonably deemed by the Board of Directors to be adequate and satisfactory; (4) the Subsidiary being disposed of shall not have any continuing investment in the Servicer or any other Subsidiary not being simultaneously disposed of; and (5) such sale or other disposition does not involve a substantial part (as hereinafter defined) of the assets of the Servicer and its Subsidiaries. (iv) As used in this SECTION 7.6(E), a sale, lease or other disposition of assets shall be deemed to be a "substantial part" of the assets of the Servicer and its Subsidiaries only if the book value of such assets, when added to the book value of all other assets sold, leased or otherwise disposed of by the Servicer and its Subsidiaries (other than in the ordinary course of business) during the period 37 from and after the Closing Date to and including the date of the sale, lease or disposition in question, computed on a cumulative basis for said entire period, exceeds 10% of Consolidated Net Assets, determined as of the end of the immediately preceding Fiscal Quarter. (f) ACQUISITIONS. Enter into any agreement, contract, binding commitment or other arrangement providing for any Acquisition, or take any action to solicit the tender of securities or proxies in respect thereof in order to effect any Acquisition, unless (i) the Person to be (or whose assets are to be) acquired does not oppose such Acquisition and the line or lines of business of the Person to be acquired are substantially the same as one or more line or lines of business conducted by the Servicer and its Subsidiaries, (ii) no Unmatured Termination Event or Termination Event shall have occurred and be continuing either immediately prior to or immediately after giving effect to such Acquisition and, if the Cost of Acquisition is in excess of $5,000,000, the Servicer shall have furnished to the Agent and the Bank Investors (A) pro forma historical financial statements as of the end of the most recently completed Fiscal Year of the Servicer and most recent interim Fiscal Quarter, if applicable, giving effect to such Acquisition and (B) a certificate prepared on a historical pro forma basis as of the most recent date for which financial statements have been furnished pursuant to SECTION 7.5 giving effect to such Acquisition, which certificate shall demonstrate that no Unmatured Termination Event or Termination Event would exist immediately after giving effect thereto, and (iii) the Person acquired shall be a Wholly-owned Subsidiary, or be merged into the Servicer or a Wholly-owned Subsidiary, immediately upon consummation of the Acquisition (or if assets are being acquired, the acquiror shall be the Servicer or a Wholly-owned Subsidiary). (g) CORPORATE IDENTITY. At any time change its name, identity, corporate structure, location or jurisdiction of organization unless at least 10 days prior thereto the Servicer shall have delivered to the Agent UCC financing statements or other statements amending or otherwise modifying UCC financing statements filed hereunder in order to maintain a first perfected ownership interest in favor of the Transferor pursuant to the Receivables Purchase Agreement. (h) CHANGE IN BUSINESS. Engage in, or permit any Subsidiary to engage in, any business if, as a result, the general nature of the business, taken on a consolidated basis, which would then be engaged in by the Servicer and its Subsidiaries would be substantially changed from the general nature of the business engaged in by the Servicer and its Subsidiaries on the date hereof. Section 7.7. FINANCIAL COVENANTS OF THE SERVICER. (Additional terms used in this Section and not defined in APPENDIX A shall have the meanings ascribed to such terms in the Revolving Credit Agreement). (A) CONSOLIDATED NET WORTH. The Servicer will at all times keep and maintain Consolidated Net Worth at an amount not less than (i) 90% of the Servicer and its Subsidiaries Consolidated Net Worth at October 1, 2000 and (ii) as at the last day of each 38 succeeding Fiscal Quarter of the Servicer and until (but excluding) the last day of the next following Fiscal Quarter of the Servicer, the sum of (A) the amount of Consolidated Net Worth required to be maintained pursuant to this SECTION 7.7 as at the end of the immediately preceding Fiscal Quarter, plus, (B) 50% of Consolidated Net Income (with no reduction for net losses for any period but including earnings and losses attributable to outstanding Minority Interest) for the Fiscal Quarter of the Servicer ending on such day, plus (C) 75% of the Net Proceeds to the Servicer from the sale of shares of the Servicer's capital stock received during the Fiscal Quarter of the Servicer ending on such date, less (D) losses incurred during the restructuring of Chile, not to exceed $50,000,000, reduced by the amount of any realized tax credit. The calculation of this covenant shall be based upon the consolidated financial statements of the Servicer and its Subsidiaries, without giving effect to any Accounting Adjustments. (B) LIMITATIONS ON TOTAL DEBT. (i) The Servicer will not at any time permit the ratio of Consolidated Indebtedness to Consolidated Total Capitalization to be greater than .50 to 1.00. (ii) The Servicer and its Subsidiaries (other than WCC) will not, at any time, issue, incur, assume, be or become liable in respect of any Indebtedness other than (i) Indebtedness representing amounts received by the Servicer or any Subsidiary in exchange for the transfer of interests in trade receivables arising under this Agreement, (ii) the purchase of products, merchandise and services in the ordinary course of business, (iii) Indebtedness outstanding on the Closing Date, (iv) Indebtedness of a Guarantor to the Servicer or to another Guarantor, (v) Indebtedness arising under the Revolving Credit Agreement, (vi) the endorsement of registrable instruments for deposit or collection or similar transactions in the ordinary course of business, and (vii) other Indebtedness in an aggregate amount for the Servicer and all Subsidiaries (other than WCC) taken as a whole not greater than $30,000,000. (C) FIXED CHARGE COVERAGE RATIO. The Servicer will at all times keep and maintain at the end of any Four-Quarter Period the Consolidated Fixed Charge Coverage Ratio to be less than 1.50 to 1.00. ARTICLE VIII ADMINISTRATION AND COLLECTION Section 8.1. DESIGNATION OF SERVICER. WACKENHUT AS INITIAL SERVICER. The servicing, administering and collection of the Pool Receivables shall be conducted by the Person designated as Servicer hereunder ("SERVICER") from time to time in accordance with this SECTION 8.1. Until the Agent gives a Successor Notice (as defined in SECTION 8.2, Wackenhut is hereby designated as, and hereby agrees to perform the duties and obligations of, Servicer pursuant to the terms hereof. Section 8.2. SUCCESSOR NOTICE: SERVICER TRANSFER EVENT. Upon Wackenhut's receipt of a notice from the Agent of the Agent's designation of a new Servicer (a "SUCCESSOR NOTICE"), Wackenhut agrees that it will terminate its activities as Servicer hereunder in a manner 39 that the Agent reasonably believes will facilitate the transition of the performance of such activities to the new Servicer, and the Agent (or its designee) shall assume, until a new Servicer is appointed or designated, each and all of Wackenhut's said obligations to service and administer such Receivables, on the terms and subject to the conditions herein set forth, and Wackenhut shall use its best efforts to assist the Agent (or its designee) in assuming such obligations. The Agent will not give Wackenhut a Successor Notice until after (A) the occurrence of any Termination Event listed in clauses (a), (b), (c), (d), (e), (f), (k), (l) or (n) of Section 11.1, which, except in the case of clause (e), relates directly to the Servicer or, in the case of clauses (d), (f) or (l), any of its Subsidiaries, or (B) any other event which, in the reasonable opinion of the Agent, could have a material adverse effect on Wackenhut's ability to perform its obligations as Servicer hereunder (any such Termination Event or other event being herein called a "SERVICER TRANSFER EVENT"), in which case such Successor Notice may be given at any time in the Agent's discretion. If Wackenhut disputes the occurrence of a Servicer Transfer Event, Wackenhut may take appropriate action to resolve such dispute; PROVIDED that Wackenhut must terminate its activities hereunder as Servicer and allow the newly designated Servicer to perform such activities on the date provided by the Agent as described above, notwithstanding the commencement or continuation of any proceeding to resolve the aforementioned dispute. The Agent may at any time after the occurrence of a Servicer Transfer Event designate any other Person as successor Servicer hereunder. If at any time the Agent shall be servicing hereunder, upon the transfer of servicing by the Agent to any successor Servicer, the Agent shall no longer perform the duties of Servicer and shall have no further obligations or liabilities whatsoever in respect thereof. Section 8.3. SUBCONTRACTS. Servicer may, with the prior consent of the Agent, subcontract with any other person for servicing, administering or collecting the Pool Receivables, provided that Servicer shall remain liable for the performance of the duties and obligations of Servicer pursuant to the terms hereof. Section 8.4. DUTIES OF SERVICER. APPOINTMENT; DUTIES IN GENERAL. Each of the Transferor, Purchaser, each Bank Investor and the Agent hereby appoints as its agent the Servicer, as from time to time designated pursuant to SECTION 8.1, to enforce its rights and interests in and under the Pool Receivables, the Related Security and the Contracts. Servicer shall take or cause to be taken all such actions as may be necessary or advisable in accordance with the Credit and Collection Policy or otherwise at the direction or with the consent of the Agent to collect each Pool Receivable from time to time, all in accordance with applicable laws, rules and regulations, with reasonable care and diligence. Servicer shall adopt the Credit and Collection Policy for the servicing of the Pool Receivables. Section 8.5. ALLOCATION OF COLLECTIONS; SEGREGATION. Servicer shall set aside for the account of the Transferor, the Purchaser and each Bank Investor, their respective allocable shares of the Collections of Pool Receivables in accordance with SECTIONS 3.1 and 3.2 but shall not be required (unless otherwise requested by the Agent, and subject to SECTION 3.7) to segregate the funds constituting such portions of such Collections, or to segregate the respective allocable shares of Enterprise and the Enterprise Liquidity Provider and the Enterprise Credit Support Provider, as applicable, prior to the remittance thereof in accordance with said Sections. If instructed by the Agent, Servicer shall segregate and deposit with the Agent such allocable shares of Collections of Pool Receivables, set aside for the Purchaser, the Bank Investors, the 40 Enterprise Liquidity Provider and Enterprise Credit Support Provider and any other assignee from the Purchaser or any Bank Investor of any Undivided Interest, on the first Business Day following receipt by Servicer of such Collections in immediately available funds. Section 8.6. MODIFICATION OF RECEIVABLES. So long as no Termination Event or Unmatured Termination Event shall have occurred and be continuing, the Servicer may, strictly in accordance with the Credit and Collection Policy, (i) extend the maturity or adjust the Unpaid Balance of any Defaulted Receivable as it may determine to be appropriate to maximize Collections thereof; PROVIDED that, after giving effect to such extension of maturity, the Aggregate Required Allocations will not exceed the Required Allocations Limit, and (ii) adjust the Unpaid Balance of any Receivable to reflect the reductions or cancellations described in the first sentence of SECTION 3.3(A). Section 8.7. DOCUMENTS AND RECORDS. The Transferor shall, and shall cause the Seller, to deliver to Servicer, and Servicer shall hold in trust for the Transferor, each Originator, the Purchaser and the Bank Investors, in accordance with their respective interests, all documents, instruments and records (including, without limitation, computer tapes or disks) that evidence or relate to Pool Receivables. Section 8.8. CERTAIN DUTIES TO THE TRANSFEROR. Servicer shall, as soon as practicable following receipt, turn over to the Transferor (i) that portion of Collections of Pool Receivables representing its undivided interest therein, less, all reasonable and appropriate out-of-pocket costs and expenses of Servicer of servicing, collecting and administering the Pool Receivables to the extent not covered by the Servicer's Fee received by it, and (ii) the Collections of any Receivable which is not a Pool Receivable. Servicer shall, as soon as practicable upon demand, deliver to the Transferor all documents, instruments and records in its possession that evidence or relate to Receivables of the Transferor other than Pool Receivables, and copies of documents, instruments and records in its possession that evidence or relate to Pool Receivables. Section 8.9. LOCK-BOX ACCOUNTS. Upon the occurrence of any event which gives the Agent the right to take control of one or more Lock-Box Accounts, Servicer shall deliver to the Agent on a daily basis, a list setting forth those Collections held by Servicer and by each Lock-Box Bank and received as of the preceding Business Day, and designating such Collections as Collections in respect of Pool Receivables or as Collections not subject to this Agreement. Section 8.10. RIGHTS OF THE AGENT. (a) NOTICE TO OBLIGORS. At any time the Agent, in its discretion, after notice to the Transferor or Servicer, may notify the Obligors of Pool Receivables, or any of them, of the ownership of Undivided Interests by the Purchaser or the Bank Investors, as the case may be. (b) NOTICE TO LOCK-BOX BANKS. At any time following the earliest to occur of (i) the occurrence of a Termination Event, (ii) any of the Conditions Precedent shall not be satisfied and the Agent shall have requested implementation of the Settlement procedures set forth in SECTION 3.2, and (iii) the warranty in SECTION 6.1(1) shall no longer be true, the Agent is hereby authorized to give notice to the Lock-Box Banks, as provided in the 41 Lock-Box Agreements, of the transfer to the Agent of dominion and control over the lock-box accounts to which the Obligors of Pool Receivables make payments. The Transferor hereby transfers to the Agent, effective when the Agent shall give notice to the Lock-Box Banks as provided in the Lock-Box Agreements, the exclusive dominion and control over such lock-box accounts, and shall take any further action that the Agent may reasonably request to effect such transfer. Section 8.11. RIGHTS ON SERVICER TRANSFER EVENT. At any time following the designation of a Servicer other than Wackenhut pursuant to SECTION 8.1: (a) The Agent may direct the Obligors of Pool Receivables, or any of them, to pay all amounts payable under any Pool Receivable directly to the Agent or its designee. (b) Servicer shall, and shall direct the Seller and each Originator to, at the Agent's request and at the Servicer's expense, give notice of such ownership to each said Obligor and direct that payments be made directly to the Agent or its designee. (c) The Transferor shall, and shall direct the Seller and each Originator to, at the Agent's request (with the written consent of the Agent), (A) assemble all of the documents, instruments and other records (including, without limitation, computer programs, tapes and disks) which evidence the Pool Receivables, and the related Contracts and Related Security, or which are otherwise necessary or desirable to collect such Pool Receivables, and shall make the same available to the Agent at a place selected by the Agent or its designee, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections of Pool Receivables in a manner acceptable to the Agent and shall, promptly upon receipt, remit all such cash, checks and instruments, duly endorsed or with duly executed instruments of transfer, to the Agent or its designee. (d) Each of the Transferor, the Purchaser and the Bank Investors, as the case may be, hereby authorizes the Agent to take any and all steps in the Transferor's name and on behalf of the Transferor and the Purchaser, the Bank Investors, as the case may be, which are necessary or desirable, in the determination of the Agent, to collect all amounts due under any and all Pool Receivables, including, without limitation, endorsing the Transferor's name on checks and other instruments representing Collections and enforcing such Pool Receivables and the related Contracts. Section 8.12. RESPONSIBILITIES OF THE TRANSFEROR. Anything herein to the contrary notwithstanding: (a) None of the Agent, the Purchaser nor any Bank Investor shall have any obligation or liability with respect to any Pool Receivables, Contracts related thereto or any other related purchase orders or other agreements, nor shall any of them be obligated to perform any of the obligations of the Transferor, Wackenhut or any Originator thereunder. (b) The Transferor hereby grants to the Servicer and the Agent, for the benefit of the Purchaser and the Bank Investors, as the case may be, an irrevocable power of 42 attorney, with full power of substitution, coupled with an interest, to take in the name of the Transferor all steps which are necessary or advisable to endorse, negotiate or otherwise realize on any writing or other right of any kind held or transmitted by the Transferor or transmitted or received by the Purchaser or any Bank Investor, as the case may be (whether or not from the Transferor) in connection with any Receivable after the occurrence of any default by the Transferor hereunder or the occurrence of any Termination Event. Section 8.13. FURTHER ACTION EVIDENCING PURCHASES. (a) The Transferor will, and will cause the Seller to, from time to time, at its expense, promptly execute and deliver all further instruments and documents, and take all further action that any Agent may reasonably request in order to perfect, protect or more fully evidence the Purchases hereunder and the resulting Undivided Interests, or to enable the Purchaser, the Bank Investors or the Agent to exercise or enforce any of their respective rights hereunder or under the Certificate of Assignments. Without limiting the generality of the foregoing, the Transferor will upon the request of any Agent: execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate and will maintain such procedures as are necessary to permit daily identification of Pool Receivables and Eligible Receivables. (b) The Transferor hereby authorizes the Agent to file one or more financing or continuation statements on behalf of and for the benefit of the Agent, the Purchaser or the Bank Investors, as the case may be, and amendments thereto and assignments thereof, relative to all or any of the Pool Receivables and the Related Security now existing or hereafter arising in the name of the Transferor. If the Transferor fails to perform any of its agreements or obligations under this Agreement, the Agent may (but shall not be required to) itself perform, or cause performance of, such agreement or obligation, and the expenses of the Agent incurred in connection therewith shall be payable by the Transferor as provided in SECTION 14.1. (c) Without limiting the generality of SUBSECTION (A), the Transferor will, not earlier than six (6) months and not later than three (3) months from the fifth anniversary of the date of filing of the financing statements filed in connection with the Predecessor Agreement or any other financing statement filed pursuant to this Agreement or in connection with any Purchase hereunder, unless the Commitment Termination Date shall have occurred and all Undivided Interests shall have been reduced to zero: (i) execute and deliver and file or cause to be filed an appropriate continuation statement with respect to such financing statement; and (ii) deliver or cause to be delivered to the Agent an opinion of the counsel for the Transferor (or other counsel for the Transferor reasonably satisfactory to the Agent), in form and substance reasonably satisfactory to the Agent, confirming and updating the opinion or opinions delivered pursuant to the Predecessor Agreement (or any predecessor to the Predecessor Agreement) with respect to UCC matters and otherwise to the effect that all of the Undivided Interests hereunder continue to be first and prior perfected security interests. 43 Section 8.14. APPLICATION OF COLLECTIONS. Any payment by an Obligor in respect of any indebtedness owed by it to the Transferor shall, except as otherwise specified by an Obligor or otherwise required by contract or law and unless the Agent instructs otherwise, be applied as a Collection of any Pool Receivable or Receivables of an Obligor to the extent of any amounts then due and payable thereunder before such payment is applied to any other indebtedness of an Obligor. ARTICLE IX SECURITY INTEREST Section 9.1. GRANT OF SECURITY INTEREST. To secure all obligations of the Transferor arising in connection with this Agreement, the Certificate of Assignments and each other Agreement Document to which it is a party, whether now or hereafter existing, due or to become due, direct or indirect, or absolute or contingent, Indemnified Amounts, payments on account of Collections received or deemed to be received, fees and Earned Discount, in each case PRO RATA according to the respective amounts thereof, the Transferor hereby assigns and grants the Agent, on behalf of the Purchaser and each Bank Investor, a security interest in all of the Transferor's (i) right, title and interest (including specifically any undivided interest retained by the Transferor hereunder) now or hereafter existing in, to and under all the Pool Receivables, the Related Security and all Collections with regard thereto and (ii) rights, remedies, powers and privileges under and in respect of the Receivables Purchase Agreement. Section 9.2. FURTHER ASSURANCES. The provisions of SECTION 8.13 shall apply to the security interest granted under SECTION 9.1 as well as to the Purchases and all Undivided Interests hereunder. Section 9.3. REMEDIES. Upon the occurrence of a Termination Event, the Agent shall have, with respect to the collateral granted pursuant to SECTION 9.1, and in addition to all other rights and remedies available to the Purchaser, the Bank Investors, or the Agent under this Agreement or other applicable law, all the rights and remedies of a secured party upon default under the UCC. ARTICLE X [RESERVED] ARTICLE XI TERMINATION Section 11.1. TERMINATION EVENTS. If any of the following events ("TERMINATION EVENTS") shall occur: (a) Servicer (if Wackenhut) shall fail to perform or observe any term, covenant or agreement hereunder (other than as referred to in CLAUSE (II) next following) and such 44 failure shall remain unremedied for five Business Days or (ii) Servicer (if Wackenhut) or the Transferor (if not Servicer) shall fail to make any payment or deposit to be made by it hereunder when due; or (b) Any representation or warranty made or deemed to be made by the Transferor, Servicer or any Originator (or any of their respective officers) under or in connection with this Agreement, any other Agreement Document, or any Periodic Report or other information or report delivered pursuant hereto shall prove to have been false or incorrect in any material respect when made and, if such condition shall be amenable to remedy, such condition shall continue unremedied for a period of ten Business Days after (i) written notice thereof by the Agent or (ii) the Transferor, Servicer or such Originator has actual knowledge thereof; or (c) The Transferor, Servicer, Wackenhut or any Originator shall fail to perform or observe any other term, covenant or agreement contained in this Agreement or any other Agreement Document, on their respective parts to be performed or observed and any such failure shall remain unremedied for five Business Days after the date on which the Transferor, Servicer, Wackenhut or such Originator knew or should have known of such failure; or (d) A default shall have occurred and be continuing under any instrument or agreement evidencing, securing or providing for the issuance of indebtedness for borrowed money in excess of $100,000 of, or guaranteed by, the Transferor, Servicer, Wackenhut, any Originator or any Subsidiary of any thereof, which default if unremedied, uncured, or unwaived (with or without the passage of time or the giving of notice or both) would permit acceleration of the maturity of such indebtedness and such default shall have continued unremedied, uncured or unwaived for a period long enough to permit such acceleration and any notice of default required to permit acceleration shall have been given; or any default under any agreement or instrument relating to the purchase of receivables of the Transferor, Wackenhut, any Originator or any Subsidiary of any thereof, or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default is to terminate, or permit the termination of, the commitment of any party to such agreement or instrument to purchase receivables or the right of the Transferor to reinvest in receivables the principal amount paid by any party to such agreement or instrument for interest in receivables; or (e) An Event of Bankruptcy shall have occurred and remained continuing with respect to the Transferor, Servicer, Wackenhut, any Originator or any Subsidiary of any thereof; or (f) (i) Any litigation (including, without limitation, derivative actions), arbitration proceedings or governmental proceedings not disclosed in writing by the Transferor to the Agent, prior to the date of execution and delivery of this Agreement is pending against the Transferor, Servicer, Wackenhut, any Originator or any Subsidiary of any thereof, or (ii) any material development not so disclosed has occurred in any litigation (including, without limitation, derivative actions), arbitration proceedings or 45 governmental proceedings so disclosed, which, in the case of CLAUSE (I) or (II), in the opinion of the Agent, is likely to materially adversely affect the financial position or business of the Transferor, Servicer, any Originator or any Subsidiary of any thereof or impair the ability of the Transferor or Servicer to perform its obligations under this Agreement; or (g) The Aggregate Required Allocations shall at any time exceed the Required Allocations Limit; or (h) The Losses to Liquidations Ratio exceeds 2%; or (i) The average of the Deemed Default Ratios for any three consecutive fiscal months exceeds 2.5% or (j) The average of the Dilution Ratios for any three consecutive fiscal months exceeds 2.5%; or (k) There shall have occurred any event which materially adversely affects the collectibility of the Pool Receivables or there shall have occurred any other event which materially adversely affects the ability of the Transferor, any Originator or Servicer to collect Pool Receivables or the ability of the Transferor or Servicer to perform hereunder or the warranty in SECTION 6.1(L) shall not be true at any time; or (l) The Internal Revenue Service shall file notice of a lien pursuant to Section 6323 of the Internal Revenue Code with regard to any of the assets of the Transferor, Servicer, the Seller, any Originator or any Subsidiary of any thereof and such lien shall not have been released within 30 days, or the Pension Benefit Guaranty Corporation shall, or shall indicate its intention to, file notice of a lien pursuant to Section 4068 of the Employee Retirement Income Security Act of 1974 with regard to any of the assets of the Transferor, Servicer, the Seller, any Originator or any Subsidiary of any thereof; or (m) A Purchase and Sale Termination Event shall have occurred; or (n) The Wackenhut Family shall at any time, directly or indirectly, control less than 33 1/3% of the voting securities of the Transferor, the Seller, Servicer or any Originator; or (o) The Agent on behalf of the Purchaser and the Bank Investors, fail for any reason to have a perfected first priority security interest as described in SECTION 9.1. Section 11.2. REMEDIES. (a) OPTIONAL TERMINATION. Upon the occurrence of a Termination Event (other than a Termination Event described in SUBSECTION (A), (E), (F), or (P) of SECTION 11.1), the Agent may, or at the request of the Bank Investors, shall, by notice to the Transferor and the Purchaser declare the Purchase Termination Date to have occurred. (b) AUTOMATIC TERMINATION. Upon the occurrence of a Termination Event described in SUBSECTION (A), (E), (F) or (p) of SECTION 11.1, the Purchase Termination Date shall be deemed to have occurred automatically upon the occurrence of such event; 46 PROVIDED, HOWEVER, that with respect to any proceeding instituted against the Transferor pursuant to 11 U.S.C.ss.303 (an "INVOLUNTARY FEDERAL PROCEEDING"), the settlement procedures described in SECTION 3.2 shall become applicable upon the commencement of such Proceeding and no further Purchases or Reinvestments of Collections shall be made; and PROVIDED, FURTHER, that if such Involuntary Federal Proceeding is dismissed within 60 days after its commencement, and if no other Termination Event has occurred, then following such dismissal, the Commitment shall be reinstated as if the Purchase Termination Date had not occurred upon the commencement of such Involuntary Federal Proceeding. (c) TERMINATION EVENTS. The Agent shall not be deemed to have knowledge or notice of the occurrence of an Unmatured Termination Event or a Termination Event unless the Agent has received written notice from the Transferor specifying such Unmatured Termination Event or Termination Event and stating that such notice is a `Notice of Termination Event'. In the event that the Agent receives such a notice of the occurrence of an Unmatured Termination Event or Termination Event, the Agent shall give prompt notice thereof to the Purchaser and the Bank Investors. The Agent shall (subject to SECTION 12.2 hereof) take such action with respect to such Unmatured Termination Event or Termination Event as shall reasonably be directed by the Purchaser and the Bank Investors, PROVIDED that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Unmatured Termination Event or Termination Event as it shall deem advisable in the best interest of the Purchaser and the Bank Investors. (d) ADDITIONAL REMEDIES. Upon any termination of the Facility pursuant to this SECTION 11.2, the Agent, the Purchaser and the Bank Investors shall have, in addition to all other rights and remedies under this Agreement or otherwise, all other rights and remedies provided under the UCC of each applicable jurisdiction and other applicable laws, which rights shall be cumulative. Without limiting the foregoing, the occurrence of a Termination Event shall not deny to the Agent, the Purchaser or any Bank Investor any remedy in addition to termination of the Commitment to which the Agent, the Purchaser or any Bank Investor may be otherwise appropriately entitled, whether at law or in equity. ARTICLE XII THE AGENT Section 12.1. AUTHORIZATION AND ACTION. The Purchaser and each Bank Investor hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to such Agent by the terms hereof, together with such powers as are reasonably incidental thereto. The provisions of this ARTICLE XII are solely for the benefit of the Agent, the Purchaser and the Bank Investors, and the Transferor shall not have any rights as a third-party beneficiary or otherwise under any of the provisions hereof. In performing its functions and duties hereunder, the Agent shall act solely as the agent for the Purchaser and the Bank Investors, as the case may be, and does not assume nor 47 shall be deemed to have assumed any obligation or relationship of trust or agency with or for the Transferor, the Seller or any Originator or any of their respective successors and assigns. The Agent (which term as used in this sentence shall include its affiliates and its own and its affiliates' officers, directors, employees and agents): (a) shall not have any duties or responsibilities except those expressly set forth in this Agreement and shall not be a trustee or fiduciary for the Purchaser or any other Bank Investor; (b) shall not be responsible to the Purchaser or any Bank Investor for any recital, statement, representation, or warranty (whether written or oral) made in, or in connection with, any Agreement Documents or any certificate or other document referred to or provided for in, or received by any of them under any Agreement Document, or for the value, validity, effectiveness, genuineness, enforceability, or sufficiency of any Agreement Document, or any other document referred to or provided for herein or for any failure by any of the Transferor, or any other Person to perform any of its obligations thereunder; (c) shall not be responsible for or have any duty to ascertain, inquire into, or verify the performance or observance of any covenants or agreements by the Transferor or the satisfaction of any condition or to inspect the property (including the books and records) of the Transferor or any of its Subsidiaries or affiliates; (d) shall not be required to initiate or conduct any litigation or collection proceedings under any Agreement Document; and (e) shall not be responsible for any action taken or omitted to be taken by it under or in connection with any Agreement Document, except for its own gross negligence or willful misconduct. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. Section 12.2. AGENTS' RELIANCE, ETC. The Agent shall be entitled to rely upon any certification, notice, instrument, writing, or other communication (including, without limitation, any thereof by telephone or telecopy) believed by it to be genuine and correct and to have been signed, sent or made by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (including counsel for any of the Transferor or the Servicer), independent accountants, and other experts selected by the Agent. As to any matters not expressly provided for by this Agreement, the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Bank Investors, and such instructions shall be binding on all of the Bank Investors; PROVIDED, HOWEVER, that the Agent shall not be required to take any action that exposes the Agent to personal liability or that is contrary to any Agreement Document or applicable law or unless it shall first be indemnified to its satisfaction by the Bank Investors against any and all liability and expense which may be incurred by it by reason of taking any such action. Section 12.3. AGENTS AND AFFILIATES. Bank of America and its Affiliates may generally engage in any kind of business with the Transferor, Servicer, any Originator or any Obligor, any of their respective Affiliates and any Person who may do business with or own securities of the Transferor or any Obligor or any of their respective Affiliates, all as if Bank of America was not the Agent and without any duty to account therefor to the Purchaser, any Bank Investor or any other holder of an interest in Pool Receivables. Section 12.4. RESIGNATION OF AGENT. The Agent may resign at any time by giving notice thereof to the Purchaser, the Bank Investors and the Transferor. Upon any such resignation, the Agent and the Bank Investors which hold 50% or more by aggregate principal 48 balance of the Facility Limit shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Agent or the Bank Investors which hold 50% or more by aggregate principal balance of the Facility Limit and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Purchaser and the Bank Investors, appoint a successor Agent which shall be a commercial bank organized under the laws of the United States of America having combined capital and surplus of at least $100,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor, such successor shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges, and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article XII shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. ARTICLE XIII BANK COMMITMENT; ASSIGNMENT OF PURCHASER'S INTEREST Section 13.1. RIGHTS AS BANK INVESTOR. With respect to its Bank Commitment, Bank of America (and any successor acting as Agent) in its capacity as a Bank Investor hereunder shall have the same rights and powers hereunder as any other Bank Investor and may exercise the same as though it were not acting as the Agent, and the term "BANK INVESTOR" or "BANK INVESTORS" shall, unless the context otherwise indicates, include the Agent in its individual capacity. Bank of America (and any successor acting as Agent) and its affiliates may (without having to account therefor to the Purchaser or any Bank Investor) accept deposits from, lend money to, make investments in, provide services to, and generally engage in any kind of lending, trust, or other business with any of the Transferor and the Agent or any of their Subsidiaries or affiliates as if it were not acting as Agent, and Bank of America (and any successor acting as Agent) and its affiliates may accept fees and other consideration from any of the Transferor and its affiliates and the Agent or any of their Subsidiaries or affiliates for services in connection with this Agreement or otherwise without having to account for the same to the Purchaser or any Bank Investor. Section 13.2. INDEMNIFICATION OF THE AGENT. The Bank Investors agree to indemnify the Agent (to the extent not reimbursed by the Transferor), ratably in accordance with their PRO RATA portions of the Undivided Interests, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including attorneys' fees), or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent (including by the Purchaser or any Bank Investor) in any way relating to or arising out of this Agreement or any other Agreement Document or any of the transactions contemplated hereby or thereby or any action taken or omitted by the Agent under this Agreement or any other Agreement Document, PROVIDED that no Bank Investors shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Person indemnified. Without limitation of the foregoing, the Bank Investors agree to reimburse the Agent, ratably in accordance with their PRO RATA portions of the Undivided Interests promptly upon demand for any out-of-pocket expenses (including attorneys' fees) incurred by the Agent in connection with the administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in 49 respect of rights or responsibilities under, this Agreement and the other Agreement Documents, to the extent that such expenses are incurred in the interests of or otherwise in respect of the Bank Investors hereunder and/or thereunder and to the extent that the Agent is not reimbursed for such expenses by the Transferor. The agreements contained in this SECTION 13.2 shall survive payment in full of the Undivided Interests and all other amounts payable under this Agreement. Section 13.3. NON-RELIANCE. The Purchaser and each Bank Investor agrees that it has, independently and without reliance on the Agent or the Purchaser or any Bank Investor, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Transferor and the Agent and their Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent, the Purchaser or any Bank Investor, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under the Agreement Documents. Except for notices, reports, and other documents and information expressly required to be furnished to the Purchaser and the Bank Investors by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition, or business of the Transferor or the Agent or any of their Subsidiaries or affiliates that may come into the possession of the Agent or any of its affiliates. Section 13.4. PAYMENTS BY THE AGENT. Unless specifically allocated to a Bank Investor pursuant to the terms of this Agreement, all amounts received by the Agent on behalf of the Bank Investors shall be paid by the Agent to the Bank Investors (at their respective accounts specified in their respective Assignment and Assumption Agreements) in accordance with their respective related pro rata interests in the Undivided Interest, on the Business Day received by the Agent, unless such amounts are received after 12:00 noon on such Business Day, in which case the Agent shall use its reasonable efforts to pay such amounts to the Bank Investors on such Business Day, but, in any event, shall pay such amounts to the Bank Investors in accordance with their respective related pro rata interests in the Undivided Interest, not later than the following Business Day. Section 13.5. BANK COMMITMENT; ASSIGNMENT TO BANK INVESTORS. (a) BANK COMMITMENT. At any time on or prior to the Commitment Termination Date, in the event that the Purchaser does not effect a Purchase as requested under SECTION 1.1 then at any time, the Transferor shall have the right to require the Purchaser to assign its interest in the Aggregate Purchaser's Investment in whole to the Bank Investors pursuant to this SECTION 13.5. In addition, if at any time on or prior to the Commitment Termination Date the Purchaser elects to give notice to the Transferor of a Reinvestment Termination Date, the Transferor hereby requests and directs that the Purchaser assign its interest in the Aggregate Purchaser's Investment in whole to the Bank Investors pursuant to this SECTION 13.5 and the Transferor hereby agrees to pay the amounts described in SECTION 13.5(D) below. Upon any such election by the Purchaser or any such request by the Transferor, the Purchaser shall make such assignment to the Bank Investors and the Bank Investors shall thereupon be deemed to have accepted such assignment and shall assume all of the Purchaser's obligations hereunder. In connection with any assignment from the Purchaser to the Bank Investors pursuant to this SECTION 50 13.5, each Bank Investor shall, by the close of business (New York time) on the date of such notice of assignment, pay to the Purchaser (in immediately available funds) an amount equal to its Assignment Amount (it being understood that notwithstanding the foregoing assignment of the Aggregate Purchasers Investment, the Bank Investors, as assignees, continue to be obligated to fund Advances under Section 1.3 in accordance with the terms thereof and shall not have the right to elect the commencement of the amortization of the Purchasers Investment pursuant to the definition of "Reinvestment Termination Date" notwithstanding that the Purchaser had such right). Upon any such assignment, the amount set forth on the signature pages hereto next to each Bank Investor's name shall be deemed to be the final Commitment amount with respect to such Bank Investor. Upon any assignment by the Purchaser to the Bank Investors contemplated hereunder, the Purchaser shall cease to make any additional Purchases hereunder. (b) ASSIGNMENT. No Bank Investor may assign all or a portion of its interest in the Purchaser's Investment, the Receivables, and Collections, Related Security and Proceeds with respect thereto and its rights and obligations hereunder to any Person unless approved in writing by the Transferor, the Purchaser and the Agent. In the case of an assignment by a Bank Investor to another Person, the assignor shall deliver to the assignee(s) an Assignment and Assumption Agreement in substantially the form of Schedule 13.5(b) attached hereto, duly executed, assigning to the assignee a pro rata interest in the Purchaser's Investment, the Receivables, and Collections, Related Security and Proceeds with respect thereto and the assignor's rights and obligations hereunder and the assignor shall promptly execute and deliver all further instruments and documents, and take all further action, that the assignee may reasonably request, in order to protect, or more fully evidence the assignee's right, title and interest in and to such interest and to enable the Agent, on behalf of such assignee, to exercise or enforce any rights hereunder and under the other Agreement Documents to which such assignor is or, immediately prior to such assignment, was a party. Upon any such assignment, (i) the assignee shall have all of the rights and obligations of the assignor hereunder and under the other Agreement Documents to which such assignor is or, immediately prior to such assignment, was a party with respect to such interest for all purposes of this Agreement and under the other Agreement Documents to which such assignor is or, immediately prior to such assignment, was a party (it being understood that the Bank Investors, as assignees, shall (x) be obligated to fund Purchases under Section 1.3(c) in accordance with the terms thereof, notwithstanding that the Purchaser was not so obligated and (y) not have the right to elect the commencement of the amortization of the Purchaser's Investment pursuant to the definition of `Reinvestment Termination Date', notwithstanding that the Purchaser had such right) and (ii) the assignor shall relinquish its rights with respect to such interest for all purposes of this Agreement and under the other Agreement Documents to which such assignor is or, immediately prior to such assignment, was a party. No such assignment shall be effective unless a fully executed copy of the related Assignment and Assumption Agreement shall be delivered to the Agent and the Transferor. All costs and expenses of the Agent and the assignor and assignee incurred in connection with any assignment hereunder shall be borne by the Transferor and not by the assignor or any such assignee. No Bank Investor shall assign 51 any portion of its Commitment hereunder without also simultaneously assigning an equal portion of its interest in the Liquidity Provider Agreement. (c) EFFECTS OF ASSIGNMENT. By executing and delivering an Assignment and Assumption Agreement, the assignor and assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Assumption Agreement, the assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement, the other Agreement Documents or any other instrument or document furnished pursuant hereto or thereto or the execution, legality, validity, enforceability, genuineness, sufficiency or value or this Agreement, the other Agreement Documents or any such other instrument or document; (ii) the assignor makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Transferor or the Agent or the performance or observance by the Transferor or the Agent of any of their respective obligations under this Agreement, the other Agreement Documents or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, and such other instruments, documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Assumption Agreement and to purchase such interest; (iv) such assignee will, independently and without reliance upon the Agent, or any of its Affiliates, or the assignor and based on such agreements, documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Agreement Documents; (v) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement, the other Agreement Documents and any other instrument or document furnished pursuant hereto or thereto as are delegated to the Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto and to enforce its respective rights and interests in and under this Agreement, the other Agreement Documents, the Receivables, and the Contracts; (vi) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement and the other Agreement Documents are required to be performed by it as the assignee of the assignor; and (vii) such assignee agrees that it will not institute against the Purchaser any proceeding of the type referred to in SECTION 15.6 prior to the date which is one year and one day after the payment in full of all Commercial Paper issued by the Purchaser. (d) THE TRANSFEROR'S OBLIGATION TO PAY CERTAIN AMOUNTS; ADDITIONAL ASSIGNMENT AMOUNT. The Transferor shall pay to the Agent, for the account of the Purchaser, in connection with any assignment by the Purchaser to the Bank Investors pursuant to this SECTION 13.5, an aggregate amount equal to the Discount Factor to accrue through the end of each outstanding Yield Period plus all other Aggregate Unpaids (other than the Aggregate Purchaser's Investment). To the extent that such Discount Factor relates to interest or discount on Related Commercial Paper, if the Transferor fails to make payment of such amounts at or prior to the time of assignment by the Purchaser to the Bank Investors, such amount shall be paid by the Bank Investors (in accordance with their respective PRO RATA portion) to the Purchaser as additional consideration for the 52 interests assigned to the Bank Investors and the amount of the "Aggregate Purchaser's Investment" hereunder held by the Bank Investors shall be increased by an amount equal to the additional amount so paid by the Bank Investors. (e) DOWNGRADE OF BANK INVESTOR. If at any time prior to any assignment by the Purchaser to the Bank Investors as contemplated pursuant to this SECTION 13.5, the short term debt rating of any Bank Investor shall be "A-2" or "P-2" from Standard & Poor' s or Moody's, respectively, with negative credit implications, such Bank Investor, upon request of the Agent, shall, within 30 days of such request, assign its rights and obligations hereunder to another financial institution (which institution's short term debt shall be rated at least "A-2" and "P-2" from Standard & Poor's and Moody's, respectively, and which shall not be so rated with negative credit implications). If the short term debt rating of a Bank Investor shall be "A-3" or "P-3", or lower, from Standard & Poor's or Moody's, respectively (or such rating shall have been withdrawn by Standard & Poor's or Moody's), such Bank Investor, upon request of the Agent, shall, within five (5) Business Days of such request, assign its rights and obligations hereunder to another financial institution (which institution's short term debt shall be rated at least "A-2" and "P-2" from Standard & Poor's and Moody's, respectively, and which shall not be so rated with negative credit implications). In either such case, if any such Bank Investor shall not have assigned its rights and obligations under this Agreement within the applicable time period described above, the Purchaser shall have the right to require such Bank Investor to accept the assignment of such Bank Investor's Pro Rata portion of the Pool Balance; such assignment shall occur in accordance with the applicable provisions of SECTION 13.5(D). Such Bank Investor shall be obligated to pay to the Purchaser, in connection with such assignment, in addition to the Pro Rata portion of the Aggregate Purchaser's Investment, an amount equal to the interest component of the outstanding Commercial Paper Notes issued to fund the portion of the Aggregate Purchaser's Investment being assigned to such Bank Investor, as reasonably determined by the Agent. Notwithstanding anything contained herein to the contrary, upon any such assignment to a downgraded Bank Investor as contemplated pursuant to the immediately preceding sentence, the aggregate available amount of the Facility Limit, solely as it relates to new Purchases by the Purchaser, shall be reduced by the amount of unused Commitment of such downgraded Bank Investor; it being understood and agreed, that nothing in this sentence or the two preceding sentences shall affect or diminish in any way any such downgraded Bank Investor's Commitment to the Transferor or such downgraded Bank Investor's other obligations and liabilities hereunder and under the other Agreement Documents. (f) ADMINISTRATION OF AGREEMENT AFTER ASSIGNMENT. After any assignment by the Purchaser to the Bank Investors pursuant to this SECTION 13.5 (and the payment of all amounts owing to the Purchaser in connection therewith), all rights of the Agent set forth herein shall be deemed to be afforded to the Agent on behalf of the Bank Investors instead of the Purchaser. In the event that the aggregate of the Assignment Amounts paid by the Bank Investors pursuant to SECTION 13.5(A) is less than the Aggregate Purchaser's Investments on the date of such assignment, then to the extent payments made hereunder in respect of the Aggregate Purchaser's Investments exceed the aggregate of the Assignment Amounts, such excess shall be remitted by the Agent to Bank of America, or 53 such other person acting as collateral agent in respect of the Purchaser's Commercial Paper Note program. Section 13.6. RESTRICTIONS ON ASSIGNMENTS. Except as otherwise contemplated by SECTION 13.5, neither the Transferor nor the Purchaser may assign its rights hereunder or any interest herein without the prior written consent of the Agent, and the Purchaser may not assign any Undivided Interest (or portion thereof) to any Person without the prior written consent of the Transferor; PROVIDED, HOWEVER, that: (a) Enterprise may assign or grant a security interest in, any Undivided Interest (or portion thereof) owned by it to Bank of America, the Enterprise Liquidity Provider or the Enterprise Credit Support Provider (or any successor thereof by merger, consolidation or otherwise), any Affiliate of Enterprise (including any securitization vehicle managed by Bank of America) or such Enterprise Liquidity Provider or Enterprise Credit Support Provider (which may then assign any such Undivided Interest (or portion thereof) so assigned or any interest therein to such party or parties as it may choose); and without limiting the foregoing, the Purchaser may, from time to time, with prior or concurrent notice to Transferor and Collection Agent, in one transaction or a series of transactions, assign all or a portion of the Purchaser's Investment and its rights and obligations under this Agreement and any other Agreement Documents to which it is party to a Conduit Assignee. Upon and to the extent of such assignment by the Purchaser to a Conduit Assignee, (i) such Conduit Assignee shall be the owner of the assigned portion of the Purchaser's Investment, (ii) the related administrative and/or managing agent for such Purchaser will act as the Administrative Agent for such Conduit Assignee, with all corresponding rights and powers, express or implied, granted to the Administrative Agent hereunder or under the other Agreement Documents, (iii) such Conduit Assignee and its liquidity support provider(s) and credit support provider(s) and other related parties shall have the benefit of all the rights and protections provided to the Purchaser and its Enterprise Liquidity Support Provider(s) and Enterprise Credit Support Provider(s), respectively, herein and in the other Agreement Documents (including, without limitation, any limitation on recourse against such Purchaser or related parties, any agreement not to file or join in the filing of a petition to commence an insolvency proceeding against such Purchaser, and the right to assign to another Conduit Assignee as provided in this paragraph), (iv) such Conduit Assignee shall assume all (or the assigned or assumed portion) of the Purchaser's obligations, if any, hereunder and any other Agreement Document, and the Purchaser shall be released from such obligations, in each case to the extent of such assignment, and the obligations of the Purchaser and such Conduit Assignee shall be several and not joint, (v) all distributions in respect of the Purchaser's Investment shall be made to the applicable agent or administrative agent, as applicable, on behalf of the Purchaser and such Conduit Assignee on a pro rata basis according to their respective interests, (vi) the definition of the term "Commercial Paper Rate" with respect to the portion of the Purchaser's Investment funded with commercial paper issued by the Purchaser from time to time shall be determined in the manner set forth in the definition of "Commercial Paper Rate" applicable to the Purchaser on the basis of the interest rate or discount applicable to commercial paper issued by such Conduit Assignee (rather than the Purchaser), (vii) the defined terms and other terms and provisions of this Agreement and the other Agreement Documents shall be interpreted in 54 accordance with the foregoing, and (viii) if requested by the Agent or administrative agent with respect to the Conduit Assignee, the parties will execute and deliver such further agreements and documents and take such other actions as the Agent or administrative agent may reasonably request to evidence and give effect to the foregoing. No assignment by the Purchaser to a Conduit Assignee of all or any portion of the Purchaser's Investment shall in any way diminish the related Bank Investors' obligation under SECTION 13.5 to fund any Reinvestment not funded by the Purchaser or such Conduit Assignee or to acquire from the Purchaser or such Conduit Assignee all or any portion of the Purchaser's Investment. (b) The Purchaser may assign and grant a security interest in any interest in, to and under any Undivided Interest owned by it, this Agreement and the other Agreement Documents to Bank of America, as collateral agent or collateral trustee, and any successor in such capacity, to secure each such Purchaser's obligations under or in connection with its Commercial Paper Notes, the Enterprise Liquidity Agreement, the Enterprise Credit Support Agreement and certain other obligations of the Purchaser incurred in connection with the funding of the Purchases and Reinvestments hereunder, which assignment and grant of a security interest shall not be considered an "assignment" for purposes of SECTION 13.5(B), or, prior to the enforcement of such security interest, for purposes of any other provision of this Agreement. (c) The Transferor agrees to advise the Agent within five Business Days after notice to the Transferor of any proposed assignment by the Purchaser of any Undivided Interest (or portion thereof), not otherwise permitted under SUBSECTION (A), of the Transferor's consent or non-consent to such assignment. If the Transferor does not consent to such assignment, the Purchaser may immediately assign such Undivided Interest (or portion thereof), to Bank of America, the Enterprise Liquidity Provider or the Enterprise Credit Support Provider or any Affiliate of Bank of America, the Enterprise Liquidity Provider or the Enterprise Credit Support Provider. All of the aforementioned assignments shall be upon such terms and conditions as the Purchaser and the assignee may mutually agree. Section 13.7. RIGHTS OF ASSIGNEE. Upon the assignment by the Purchaser of any Undivided Interest (or portion thereof) owned by it in accordance with this ARTICLE XIII, (a) the assignee receiving such assignment shall have all of the rights of the Purchaser hereunder with respect to such Undivided Interest (or such parties thereof) and (b) all references to the Purchaser in SECTION 4.2 shall be deemed to apply to such assignee to the extent of its interest the Purchaser's Investment and the related Collections. Section 13.8. AUTHORIZATION OF AGENT. The Purchaser authorizes the Agent to, and the Agent agrees that it shall, endorse the Certificate(s) of the Purchaser to reflect any assignments made pursuant to this ARTICLE XIII or otherwise. Section 13.9. NOTICE OF ASSIGNMENT. The Purchaser shall provide notice to the Transferor and the Agent of any assignment of any Undivided Interest (or portion thereof) by the Purchaser to any assignee. 55 Section 13.10. EVIDENCE OF ASSIGNMENT; ENDORSEMENT OF CERTIFICATE. Any assignment of any Undivided Interest (or portion thereof) to any Person may be evidenced by an instrument of assignment in the form of SCHEDULE 13.5(B) or by such other instruments) or documents) as may be satisfactory to the Purchaser, the Agent and the assignee. The Purchaser authorizes the Agent to, and the Agent agrees that it shall, endorse its Certificate of Assignments to reflect any assignments made pursuant to this ARTICLE XIII or otherwise. Section 13.11. RIGHTS OF SUPPORT PROVIDERS. The Transferor hereby agrees that, upon notice to the Transferor, the Enterprise Liquidity Provider, the Enterprise Credit Support Provider and the collateral agent or collateral trustee referred to in SECTION 13.6(B) (collectively, the "ASSIGNEE PARTIES", each an "ASSIGNEE PARTY"), or any of them, may exercise all the rights of Bank of America (or Enterprise) respectively hereunder, with respect to Undivided Interests, and Collections with respect thereto, which have been assigned (or in which a security interest has been granted) to such Assignee Party, with respect to all Undivided Interests (or portions thereof), and Collections with respect thereto, which are owned by Enterprise (and not subject to an assignment or a separate security interest in favor of the Enterprise Liquidity Provider or Enterprise Credit Support Provider), and all other rights and interests of Enterprise, in, to or under this Agreement or any other Agreement Document. Without limiting the foregoing, upon such notice such Assignee Party may request Servicer to segregate its allocable shares of Collections, in accordance with SECTION 8.5, may give a Successor Notice pursuant to SECTION 8.2, may give or require the Agent to give notice to the Lock-Box Banks as referred to in SECTION 8.10(B), and may direct the Obligors of Pool Receivables to make payments in respect thereof directly to an account designated by them as referred to in SECTION 8.11(A) (provided that such Assignee Party shall designate a single account for the making of such payments with respect to any Pool Receivable), in each case, to the same extent as Bank of America (or Enterprise) might have done. ARTICLE XIV INDEMNIFICATION Section 14.1. INDEMNITIES BY THE TRANSFEROR AND SERVICER. (a) GENERAL INDEMNITY. Without limiting any other rights which any such Person may have hereunder or under applicable law, the Transferor hereby agrees to indemnify each of the Agent, the Purchasers, each Enterprise Liquidity Provider, each Enterprise Credit Support Provider, Bank of America, and each of Bank of America's Affiliates, their respective successors, transferees, participants and assigns and all officers, directors, shareholders, controlling persons, employees and agents of any of the foregoing (each an "INDEMNIFIED PARTY"), forthwith on demand from and against any and all damages, losses, claims, liabilities and related costs and expenses, including reasonable attorneys' fees and disbursements (all of the foregoing being collectively referred to as "INDEMNIFIED AMOUNTS") awarded against or incurred by any of them arising out of or relating to this Agreement or the ownership or funding of any Undivided Interest or in respect of any Receivable or any Contract, EXCLUDING, HOWEVER, (a) Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Indemnified Party or (b) recourse (except as otherwise specifically provided in this Agreement) for Defaulted Receivables or delinquent receivables. Without limiting the foregoing, the Transferor shall indemnify each Indemnified Party for Indemnified Amounts arising out of or relating to: 56 (i) the transfer by the Transferor of any interest in any Receivable other than the transfer of an Undivided Interest to the Agent on behalf of the Purchaser or the Bank Investors, as the case may be, pursuant this Agreement and the grant of a security interest to the Agent on behalf of Purchaser and the Bank Investors pursuant to SECTION 9.1; (ii) the breach of any representation or warranty made by the Transferor or the Seller (or any of their officers) under or in connection with this Agreement, any other Agreement Document to which such entity is a party, any Periodic Report or any other information or report delivered by the Transferor pursuant hereto, which shall have been false or incorrect in any material respect when made or deemed made and any losses, if any, relating to Receivables included in the Receivables Pool as Eligible Receivables that were 60 days or more past due on the date of their inclusion and any amounts relating to dilutions on Eligible Receivables included in the Receivables Pool; (iii) the failure by the Transferor or the Seller to comply with any applicable law, rule or regulation with respect to any Pool Receivable or the related Contract, or the nonconformity of any Pool Receivable or the related Contract with any such applicable law, rule or regulation; (iv) the failure to vest and maintain vested in the Agent, on behalf of the Purchaser and the Bank Investors, an undivided percentage ownership interest, to the extent of each Undivided Interest owned by them hereunder, in the Receivables in, or purporting to be in, the Receivables Pool, free and clear of any Adverse Claim, other than an Adverse Claim arising solely as a result of an act of the Agent, on behalf of the Purchaser or any Bank Investor, or any assignee therefrom (when used in this CLAUSE (iv), an Adverse Claim shall include any lien for taxes whether accrued and payable or not), whether existing at the time of any Purchase or Reinvestment of Undivided Interest or at any time thereafter; (v) the failure to file, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivables in, or purporting to be in, the Receivables Pool, whether at the time of any Purchase or Reinvestment or at any time thereafter; (vi) any dispute, claim, offset or defense (other than discharge in bankruptcy) of the Obligor to the payment of any Receivable in, or purporting to be in, the Receivables Pool (including, without limitation, a defense based on such Receivable's or the related Contract's not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise or services related to such Receivable or the furnishing or failure to furnish such merchandise or services; 57 (vii) any products liability claim or personal injury or property damage suit or other similar or related action arising out of or in connection with merchandise or services that are the subject of any Pool Receivable; or (viii) any tax or governmental fee or charge (including, without limitation, all intangibles and similar taxes and all other taxes, but not including taxes upon or measured by net income or profits or any portion thereof), all interest and penalties thereon or with respect thereto, and all out-of-pocket costs and expenses, including the reasonable fees and expenses of counsel in defending against the same, which may arise by reason of the purchase or ownership of any Undivided Interest, or any other interest in the Pool Receivables or in any goods which secure any such Pool Receivables. (b) SERVICER INDEMNITY. Without limiting any other rights which any such Person may have hereunder or under applicable law, the Servicer hereby agrees to indemnify each Indemnified Party, forthwith on demand from and against any and all Indemnified Amounts awarded against or incurred by any of them arising out of or relating to this Agreement or the ownership, servicing or funding of any Undivided Interest or in respect of any Receivable or any Contract, EXCLUDING, HOWEVER, (a) Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Indemnified Party and (b) recourse (except as otherwise specifically provided in this Agreement) for Defaulted Receivables and delinquent receivables. Without limiting the foregoing, the Servicer shall indemnify each Indemnified Party for Indemnified Amounts arising out of or relating to: (i) the breach of any representation or warranty made by the Servicer (or any of its officers) under or in connection with this Agreement, any other Agreement Document to which Servicer is a party, any Periodic Report or any other information or report delivered by the Servicer pursuant hereto, which shall have been false or incorrect in any material respect when made or deemed made and any losses, if any, relating to Receivables included in the Receivables Pool as Eligible Receivables that were 60 days or more past due on the date of their inclusion and any amounts relating to dilutions on Eligible Receivables included in the Receivables Pool; (ii) the failure by the Servicer to comply with any applicable law, rule or regulation with respect to any Pool Receivable or the related Contract, or the nonconformity of any Pool Receivable or the related Contract with any such applicable law, rule or regulation; and (iii) any failure of the Servicer to perform its duties or obligations in accordance with the provisions of Article VIII. Section 14.2. CONTEST OF TAX CLAIM; AFTER-TAX BASIS. If any Indemnified Party shall have notice of any attempt to impose or collect any tax or governmental fee or charge for which indemnification will be sought from the Transferor under SECTION 14.1(A)(VIII), such Indemnified Party shall give prompt and timely notice of such attempt to the Transferor and the 58 Transferor shall have the right, at its expense, to conduct or participate in any proceedings resisting or objecting to the imposition or collection of any such tax, governmental fee or charge. Indemnification hereunder shall be in an amount necessary to make the Indemnified Party whole after taking into account any tax consequences to the Indemnified Party of the payment of any of the aforesaid taxes and the receipt of the indemnity provided hereunder or of any refund of any such tax previously indemnified hereunder, including the effect of such tax or refund on the amount of tax measured by net income or profits which is or was payable by the Indemnified Party. Section 14.3. CONTRIBUTION. If for any reason the indemnification provided in SECTION 14.1 is unavailable to an Indemnified Party or is insufficient to hold an Indemnified Party harmless, then the Transferor shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by such Indemnified Party on the one hand and the Transferor on the other hand but also the relative fault of such Indemnified Party as well as any other relevant equitable considerations. ARTICLE XV MISCELLANEOUS Section 15.1. AMENDMENTS, ETC. Any provision of this Agreement or any other Agreement Document may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Transferor, the Servicer, the Purchaser and the Agent, as applicable (and, if ARTICLE XII or the rights or duties of the Agent are affected thereby, by the Agent); PROVIDED that no such amendment or waiver shall, unless signed by each Bank Investor directly affected thereby, (i) increase the Commitment of a Bank Investor, (ii) reduce the Aggregate Purchaser's Investment or rate of interest to accrue thereon or any fees or other amounts payable hereunder, (iii) postpone any date fixed for the payment of any scheduled distribution in respect of Aggregate Purchaser's Investment or interest with respect thereto or any fees or other amounts payable hereunder or for termination of any Commitment, (iv) change the percentage of the Commitments or the number of Bank Investors, which shall be required for the Bank Investors or any of them to take any action under this Section or any other provision of this Agreement, (v) release all or substantially all of the property with respect to which a security or ownership interest therein has been granted hereunder to the Agent or the Bank Investors, (vi) extend or permit the extension of the Commitment Termination Date, (vii) amend the definition of "Loss Reserve," "Dilution Reserve," or "Servicer's Fee Reserve," (viii) change the Concentration Limits or (ix) waive any Termination Events. In the event the Agent requests the Purchaser's or a Bank Investor's consent pursuant to the foregoing provisions and the Agent does not receive a consent (either positive or negative) from the Purchaser or such Bank Investor within 10 Business Days of the Purchaser's or Bank Investor's receipt of such request, then the Purchaser or such Bank Investor (and its percentage interest hereunder) shall be disregarded in determining whether the Agent shall have obtained sufficient consent hereunder. Section 15.2. NOTICES, ETC. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including Telex and facsimile communication) and shall be personally delivered or sent by certified mail, postage prepaid, or 59 by Telex, or by facsimile, to the intended party at the address or Telex or facsimile number of such party set forth under its name on the signature pages hereof or at such other address or Telex or facsimile number as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective, (a) if personally delivered, when received, (b) if sent by certified mail, three Business Days after having been deposited in the mail, postage prepaid, (c) if sent by overnight courier, one Business Day after having been given to such courier, (d) if transmitted by Telex, when sent, answerback confirmed, and (e) if transmitted by facsimile, when sent, receipt confirmed by telephone or electronic means, except that notices and communications pursuant to ARTICLE I shall not be effective until received. Section 15.3. NO WAIVER; REMEDIES. No failure on the part of the Agent, Bank of America, any Affected Party, any Indemnified Party, the Purchaser, any Bank Investor or any other holder of any Undivided Interest to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Without limiting the foregoing, each of Bank of America and any Enterprise Liquidity Provider or Enterprise Credit Support Provider is hereby authorized by the Transferor 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 indebtedness at any time owing by Bank of America, Enterprise Liquidity Provider or Enterprise Credit Support Provider to or for the credit or the account of the Transferor, now or hereafter existing under this Agreement, to the payment of any amounts owed by the Transferor hereunder to the Agent, any Affected Party, any Indemnified Party or the Purchaser, any Bank Investor or their respective successors and assigns; PROVIDED, HOWEVER, that none of Bank of America, Enterprise Liquidity Provider or Enterprise Credit Support Provider shall, through the exercise of such setoff or otherwise, obtain payment with respect to any amounts due to it (or their respective successors and assigns) which results in its or their receiving more than their PRO RATA share of the aggregate of such amounts due hereunder. Section 15.4. BINDING EFFECT; SURVIVAL. This Agreement shall be binding upon and inure to the benefit of the Transferor, the Servicer, the Agent, the Purchaser, the Bank Investors and their respective successors and assigns, and the provisions of SECTION 4.2 and ARTICLE XIV shall inure to the benefit of the Affected Parties and the Indemnified Parties, respectively, and their respective successors and assigns; PROVIDED, HOWEVER, nothing in the foregoing shall be deemed to authorize any assignment otherwise prohibited by this Agreement. This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until such time, after the Commitment Termination Date, as all Undivided Interests shall have been reduced to zero. The rights and remedies with respect to any breach of any representation and warranty made by the Transferor or the Servicer pursuant to ARTICLE VI and the indemnification and payment provisions of ARTICLE XIV and SECTIONS 4.2, 15.5 and 15.7 shall be continuing and shall survive any termination of this Agreement. Section 15.5. COSTS, EXPENSES AND TAXES. In addition to its obligations under ARTICLE XIV, the Transferor agrees to pay on demand: 60 (a) all costs and expenses incurred by the Agent, the Purchaser, each Bank Investor, Bank of America, the Enterprise Liquidity Provider, the Enterprise Credit Support Provider and their respective Affiliates in connection with the negotiation, preparation, execution and delivery, the administration (including periodic auditing) or the enforcement of, or any actual or claimed breach of, or any amendment to or waiver of any provision contained in this Agreement, the Certificate of Assignments and the other Agreement Documents, including, without limitation (i) the reasonable fees and expenses of counsel to any of such Persons incurred in connection with any of the foregoing or in advising such Persons as to their respective rights and remedies under any of the Agreement Documents, and (ii) all reasonable out-of-pocket expenses (including reasonable fees and expenses of independent accountants) incurred in connection with any review of the Transferor's books and records either prior to the execution and delivery hereof or pursuant to SECTION 7.1(C) ; and (b) all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement, the Certificate of Assignments or the other Agreement Documents, and agrees to indemnify each Indemnified Party against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. Section 15.6. NO PROCEEDINGS. The Transferor, the Servicer, Wackenhut (individually and not as Servicer) and Bank of America, individually and as Agent and each Bank Investor, each hereby agrees that it will not institute against the Purchaser or any Bank Investor or join any other Person in instituting against the Purchaser any insolvency proceeding (namely, any proceeding of the type referred to in the definition of Event of Bankruptcy) so long as any Commercial Paper Notes issued by the Purchaser shall be outstanding or there shall not have elapsed one year plus one day since the last day on which any such Commercial Paper Notes shall have been outstanding. The foregoing shall not limit the Transferor's right to file any claim in or otherwise take any action with respect to any insolvency proceeding that was instituted by any Person other than the Transferor. Section 15.7. BANK OF AMERICA PROGRAM CONFIDENTIALITY. Each party hereto (other than Bank of America) acknowledges that Bank of America regards the structure of the transactions contemplated by this Agreement, and by the Enterprise Liquidity Agreement and Enterprise Credit Support Agreement and its other program documents referred to therein, to be proprietary, and each such party severally agrees that: (a) unless Bank of America shall otherwise agree in writing, and except as provided in SUBSECTION (B), such party will not disclose to any other person or entity any of the following information (the "INFORMATION"): (i) any information regarding, or copies of, this Agreement or any transaction contemplated hereby, (ii) any information regarding the organization or business of Enterprise generally, or 61 (iii) any information regarding Bank of America which is designated by Bank of America to such party in writing or otherwise as confidential or not otherwise available to the general public; (b) such party will make the Information available to only such of its officers, directors, employees and agents who (A) in the good faith belief of such party, have a need to know such Information, (B) are informed by such party of the confidential nature of the Information and the terms of this SECTION 15.7, and (C) are subject to confidentiality restrictions consistent with this SECTION 15.7; (c) such party will use the Information solely for the purposes of evaluating, administering and enforcing the transactions contemplated by this Agreement and making any necessary business judgments with respect thereto; and (d) such party will, upon demand, return (and cause its representatives to return) to Bank of America, or to such other information provider as shall have furnished it with any Information (each an "INFORMATION PROVIDER"), all documents or other written material received from Bank of America or such other Information Provider which constitute or contain any Information described in Section 15.7(A)(I) or (II) above and all copies of such documents or other material in its possession or in the possession of any of its representatives, and will not retain any copy, summary or extract thereof on any storage medium whatsoever. (e) notwithstanding the foregoing each party may disclose any Information: (i) to its attorneys, consultants and auditors who (A) in the good faith belief of such party, have a need to know such Information, (B) are informed by such party of the confidential nature of the Information and the terms of this SECTION 15.7, and (C) are subject to confidentiality restrictions consistent with this SECTION 15.7, (ii) to any other party to this Agreement, for the purposes contemplated hereby or to any rating agency then rating the Commercial Paper Notes, (iii) subject to the other provisions of this SECTION 15.7, as may be required by any municipal, state, federal or other regulatory body having or claiming to have jurisdiction over such party, in order to comply with any law, order, regulation, regulatory request or ruling applicable to such party, or (iv) subject to the other provisions of this SECTION 15.7, in the event such party is legally compelled (by interrogatories, requests for information or copies, subpoena, civil investigative demand or similar process) to disclose such Information. (f) in the event that any party hereto or any one to whom such party or its representatives transmits the Information is requested or becomes legally compelled (by interrogatories, requests for information or documents, subpoena, civil investigative 62 demand or similar process) to disclose any of the Information, such party will (or will cause its representatives to): provide Bank of America with prompt written notice so that (A) Enterprise, Bank of America, or any other Information Provider may seek a protective order or other appropriate remedy, or (B) Bank of America may, if it so chooses, agree that such party (or its representatives) may disclose such Information pursuant to such request or legal compulsion. (g) unless Bank of America agrees that such Information may be disclosed, make a timely objection to the request or compulsion to provide such Information on the basis that such Information is confidential and subject to the agreements contained in this SECTION 15.7; (h) take any action as Bank of America or any other Information Provider may reasonably request to seek a protective order or other appropriate remedy, PROVIDED that, in connection therewith, such party shall have first received such assurances as it may reasonably request that Bank of America or such other Information Provider shall reimburse such party's or its representatives' reasonable costs and expenses or provide such other assistance as such party or its representatives may reasonably require; and (i) in the event that such protective order or other remedy is not obtained, or Bank of America agrees that such Information may be disclosed, furnish only that portion of the Information which is legally required to be furnished, and, provided such party (or its representative) is reimbursed or assisted as referred to in CLAUSE (H) above, exercise best efforts to obtain reliable assurance that confidential treatment will be accorded the Information. This SECTION 15.7 shall survive termination of this Agreement. Section 15.8. CONFIDENTIALITY OF THE TRANSFEROR INFORMATION. (a) Each party hereto (other than the Transferor) acknowledges that certain of the information provided to such party by or on behalf of the Transferor in connection with this Agreement and the transactions contemplated hereby is or may be confidential, and each such party severally agrees that, unless the Transferor shall otherwise agree in writing, and except as provided in SUBSECTION (B), such party will not disclose to any other person or entity: (i) any information regarding, or copies of, any Periodic Reports, and any non-public financial statements, reports and other information, furnished by the Transferor to the Purchaser, any Bank Investor or the Agent pursuant to SECTION 3.4, 7.1(C) or 7.2, or (ii) any other information regarding the Transferor, Servicer, Seller and any Originator which is designated by the Transferor to such party in writing or otherwise as confidential; the information referred to in CLAUSES (I) AND (II), above, furnished by the Transferor or any attorney for or other representative of the Transferor (each a "TRANSFEROR INFORMATION PROVIDER"), 63 is collectively referred to as the "TRANSFEROR INFORMATION"; PROVIDED, HOWEVER, the "TRANSFEROR INFORMATION" shall not include: (i) any information which is or becomes generally available to the general public or to such party on a nonconfidential basis from a source other than the Transferor or any other Transferor Information Provider, or which was known to such party on a nonconfidential basis prior to its disclosure by the Transferor or any other Transferor Information Provider, or (ii) general information regarding the nature of this Agreement, the basic terms hereof (including without limitation the amount and nature of the Purchaser's or any Bank Investor's Purchaser's Investment hereunder and of the recourse or other credit enhancement provided by the Transferor hereunder), the nature, amount and status of the Pool Receivables, and the current and/or historical ratios of losses to liquidations and/or outstandings with respect to the Receivables Pool, and the identity of the Transferor. (b) Notwithstanding SUBSECTION (A), each party may disclose any Transferor Information: (i) to any of such party's attorneys, consultants and auditors, and to any Enterprise Liquidity Provider, Enterprise Credit Support Provider, any dealer or placement agent for the Purchaser's commercial paper, and any actual or potential assignees of, or participants in, any of the rights or obligations of the Purchaser, Bank of America or any Enterprise Liquidity Provider or Enterprise Credit Support Provider under or in connection with this Agreement, who (A) in the good faith belief of such party, have a need to know such Transferor Information, (B) are informed by such party of the confidential nature of the Transferor Information and the terms of this SECTION 15.8, and (C) are subject to confidentiality restrictions generally consistent with this SECTION 15.8, (ii) to any rating agency that maintains a rating for the Purchaser's commercial paper or is considering the issuance of such a rating, for the purposes of reviewing the credit of the Purchaser in connection with such rating, (iii) to any other party to this Agreement, for the purposes contemplated hereby, (iv) as may be required by any municipal, state, federal or other regulatory body having or claiming to have jurisdiction over such party, in order to comply with any law, order, regulation, regulatory request or ruling applicable to such party, or (v) subject to SUBSECTION (C), in the event such party is legally compelled (by interrogatories, requests for information or copies, subpoena, civil investigative demand or similar process) to disclose such Transferor Information. 64 (c) In the event that any party hereto (other than the Transferor) or any of its representatives is requested or becomes legally compelled (by interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any of the Transferor Information, such party will (or will cause its representatives to): (i) provide the Transferor with prompt written notice so that (A) the Transferor or any other Transferor Information Provider may seek a protective order or other appropriate remedy, or (B) the Transferor may, if it so chooses, agree that such party (or its representatives) may disclose such Transferor Information pursuant to such request or legal compulsion; (ii) unless the Transferor agrees that such Transferor Information may be disclosed, make a timely objection to the request or compulsion to provide such Transferor Information on the basis that such Transferor Information is confidential and subject to the agreements contained in this SECTION 15.8; (iii) take any action as the Transferor or any other Transferor Information Provider may reasonably request to seek a protective order or other appropriate remedy, PROVIDED that, in connection therewith, such party shall have first received such assurances as it may reasonably request that the Transferor or such other Transferor Information Provider shall reimburse such party's or its representatives' reasonable costs and expenses or provide such other assistance as such party or its representatives may reasonably require; and (iv) in the event that such protective order or other remedy is not obtained, or the Transferor agrees that such Transferor Information may be disclosed, furnish only that portion of the Transferor Information which is legally required to be furnished, and, provided such party (or its representative) is reimbursed or assisted as referred to in CLAUSE (III) above, exercise best efforts to obtain reliable assurance that confidential treatment will be accorded the Transferor Information. This SECTION 15.8 shall survive termination of this Agreement. Section 15.9. CAPTIONS AND CROSS REFERENCES. The various captions (including, without limitation, the table of contents) in this Agreement are provided solely for convenience of reference and shall not affect the meaning or interpretation of any provision of this Agreement. Unless otherwise indicated, references in this Agreement to any Section, Appendix, Schedule or Exhibit are to such Section of or Appendix, Schedule or Exhibit to this Agreement, as the case may be, and references in any Section, subsection, or clause to any subsection, clause or subclause are to such subsection, clause or subclause of such Section, subsection or clause. Section 15.10. INTEGRATION. This Agreement contains a final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof 65 and shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof, superseding all prior oral or written understandings. Section 15.11. GOVERNING LAW. THIS AGREEMENT, INCLUDING THE RIGHTS AND DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. Section 15.12. WAIVER OF JURY TRIAL. THE TRANSFEROR AND SERVICER HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, THE CERTIFICATE OF ASSIGNMENTS, ANY OTHER AGREEMENT DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT OR DOCUMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING OR OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, THE CERTIFICATE OF ASSIGNMENTS OR ANY OTHER AGREEMENT DOCUMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT A JURY TRIAL. Section 15.13. CONSENT TO JURISDICTIONS; WAIVER OF IMMUNITIES. EACH OF THE TRANSFEROR AND SERVICER, THE PURCHASER, EACH BANK INVESTOR AND AGENT HEREBY ACKNOWLEDGES AND AGREES THAT: (a) IT IRREVOCABLY (i) SUBMITS TO THE JURISDICTION, FIRST, OF ANY UNITED STATES FEDERAL COURT, AND SECOND, IF FEDERAL JURISDICTION IS NOT AVAILABLE, OF NEW YORK STATE COURT, IN EITHER CASE SITTING IN NEW YORK CITY, NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, (ii) AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED ONLY IN SUCH NEW YORK STATE OR FEDERAL COURT AND NOT ANY OTHER COURT, AND (iii) WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING. (b) TO THE EXTENT THAT IT HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM THE JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID TO EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, IT HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER OR IN CONNECTION WITH THIS AGREEMENT. Section 15.14. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of 66 which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. Section 15.15. PURCHASER'S LIABILITIES. The obligations of the Purchaser hereunder are solely the corporate obligations of the Purchaser and no personal liability shall attach to or be incurred by Global Securitization Services LLC or any stockholder, employee, officer, director or incorporator of the Purchaser, and the Transferor and Servicer expressly waive any claim based on such personal liability. No recourse shall be had for an obligation or claim arising out of or based upon this Agreement against Global Securitization Services LLC or against any stockholder, employee, officer, director or incorporator of the Purchaser. This SECTION 15.15 shall not relieve any such Person of any liability it might otherwise have for its own gross negligence or willful misconduct. Section 15.16. AGENT'S LIABILITIES. The obligations of the Agent hereunder are solely the corporate obligations of such Agent and no personal liability shall attach to or be incurred by the Agent or any stockholder, employee, officer, director or incorporator of the Agent, and the Transferor and Servicer expressly waive any claim based on such personal liability. No recourse shall be had for an obligation or claim arising out of or based upon this Agreement against Bank of America or against any stockholder, employee, officer, director or incorporator of either of them; PROVIDED that, this SECTION 15.16 shall not relieve any such Person of any liability it might otherwise have for its own gross negligence or willful misconduct. Section 15.17. DELEGATION OF SERVICER'S DUTIES. Wackenhut, as Servicer, may at any time, with the consent of the Agent, delegate to an Affiliate of Wackenhut any of its servicing obligations hereunder, PROVIDED HOWEVER that no such delegation shall operate to relieve the Servicer of any of its liabilities hereunder. Section 15.18. CHARACTERIZATION OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. It is the intention of the parties hereto that the transactions contemplated hereby constitute the sale of the Undivided Interests, conveying good title thereto free and clear of any Liens to the Purchaser and the Bank Investors, as the case may be and that the Undivided Interests not be part of the Transferor's estate in an Event of Bankruptcy. If, notwithstanding the foregoing, the transactions contemplated hereby are deemed a financing, the parties intend that the Transferor shall be deemed to have granted to the Agent, for the benefit of the Purchaser and the Bank Investors and the Transferor hereby grants to the Agent, for the benefit of the Purchaser and the Bank Investors, a first priority perfected security interest in all of the Transferor's right, title and interest in, to and under the Receivables, together with Related Security and Collections with respect thereto and under the Receivables Purchase Agreement, and that this Agreement shall constitute a security agreement under applicable law. Section 15.19. EFFECT ON PREDECESSOR AGREEMENT. This Agreement amends and restates the Predecessor Agreement effective as of the date of this Agreement. This Agreement shall not effect a novation of the obligations of the parties to the Predecessor Agreement but instead shall be merely a restatement and, where applicable, an amendment of the terms governing such obligations; provided that this sentence shall not limit the effect of SECTION 15.20. The parties hereto hereby affirm, ratify and confirm all transactions pursuant to the Predecessor Agreement and the other Agreement Documents. From and after the date hereof, 67 any reference in any Agreement Document to the Transfer and Administration Agreement shall be deemed to refer to this Second Amended and Restated Transfer and Administration Agreement, as it may be further amended, supplemented or otherwise modified from time to time. Section 15.20. ASSIGNMENT BY EXITING BANK INVESTOR. (a) The Bank of Nova Scotia (the "EXITING BANK INVESTOR") hereby sells and assigns to Bank of America, National Association (the "REMAINING BANK INVESTOR"), without recourse and without representation and warranty, and the Remaining Bank Investor hereby purchases and assumes from the Exiting Bank Investor, an interest in and to all of the Exiting Bank Investor's rights and obligations hereunder and under the other Agreement Documents: (b) The Exiting Bank Investor (x) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (y) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement, any other Agreement Document or any other instrument or document furnished pursuant thereto or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or the Receivables, any other Agreement Document or any other instrument or document furnished pursuant thereto; and (z) makes no representation or warranty and assumes no responsibility with respect to the financial condition of any of the Transferor, the Servicer, the Seller or any Originator or the performance or observance by any of the Transferor, the Servicer, the Seller or any Originator of any of its obligations hereunder or under any other Agreement Document, or any instrument or document furnished pursuant thereto. (c) As of the date hereof (the "ASSIGNMENT EFFECTIVE DATE"), the Exiting Bank Investor shall relinquish its rights and be released from its obligations hereunder. (d) Each of the Transferor, the Purchaser and the Agent hereby consents to the foregoing assignment. - SIGNATURE PAGES FOLLOW - 68 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. WACKENHUT FUNDING CORPORATION, as the Transferor By: /s/ Ann Svoboda ------------------------------------- Title: Treasurer and Assistant Secretary ----------------------------------- 4200 Wackenhut Drive, No. 100 Palm Beach Gardens, Florida 33410 Facsimile: (561) 691-6456 Attention: Ann Svoboda Telephone: (561) 691-6723 THE WACKENHUT CORPORATION, as Servicer By: /s/ Ann Svoboda ------------------------------------- Title: Assistant Treasurer ---------------------------------- 4200 Wackenhut Drive, No. 100 Palm Beach Gardens, Florida 33410 Facsimile: (561) 691-6456 Attention: Ann Svoboda Telephone: (561) 691-6723 S-1 ENTERPRISE FUNDING CORPORATION, as Purchaser By: /s/ Kevin P. Burns ------------------------------------- Title: Vice President ---------------------------------- c/o Global Securitization Services 114 West 47th Street, Suite 1715 New York, New York 10036 Attention: Kevin Burns Telephone: (212) 302-5151 Facsimile: (212) 302-8767 S-2 BANK OF AMERICA, NATIONAL ASSOCIATION, as Agent By: /s/ W. Van Beek ------------------------------------- Title: Vice President IL1-231-16-07 231 South LaSalle Street Chicago, Illinois 60697-1407 Attention: Global Asset Backed Securitization Willem van Beek Telephone: (312) 828-3119 Facsimile: (312) 453-3410 Commitment: BANK OF AMERICA, NATIONAL ASSOCIATION, $76,500,000 as Remaining Bank Investor By: /s/ W. Van Beek ------------------------------------- Title: Vice President ILl-231-16-07 231 South LaSalle Street Chicago, Illinois 60697-1407 Attention: Global Asset Backed Securitization Willem van Beek Telephone: (312) 828-3119 Facsimile: (312) 453-3410 S-3 Commitment: The Bank of Nova Scotia, $0 as Exiting Bank Investor By: /s/ W. J. Brown ------------------------------------- Title: Vice President ---------------------------------- 600 Peachtree Street, N.E. Suite 2700 Atlanta, Georgia 30308 Telephone: (404) 877-1500 Facsimile: (404) 888-8998 S-4 APPENDIX A DEFINITIONS This is APPENDIX A to the Amended and Restated Transfer and Administration Agreement dated as of January 25, 2002 among Wackenhut Funding Corporation, The Wackenhut Corporation, and Enterprise Funding Corporation, Bank of America, National Association, as Agent and the Bank Investors (as amended, supplemented or otherwise modified from time to time, this "AGREEMENT"). Each reference in this APPENDIX A to any Section, Appendix or Exhibit refers to such Section of or Appendix or Exhibit to this Agreement. A. DEFINED TERMS. As used in this Agreement, unless the context requires a different meaning, the following terms have the meanings indicated herein below (terms used but not defined herein shall have the meanings set forth in the Revolving Credit Agreement): "ADJUSTED AVERAGE MATURITY" has the meaning set forth in APPENDIX B. "ADVERSE CLAIM" means a lien, security interest, charge, or encumbrance, or other right or claim of any Person other than (a) a potential claim or right (that has not yet been asserted) of a trustee appointed for an Obligor in connection with any Event of Bankruptcy or (b) an unfiled lien for taxes accrued but not yet payable. "AFFECTED PARTY," means each of the Purchaser, any Bank Investor, the Enterprise Liquidity Provider, each Enterprise Credit Support Provider, any other Person providing credit or liquidity support to the Purchaser, or any Bank Investor any permitted assignee of any Purchaser, any Bank Investor, Enterprise Liquidity Provider, Enterprise Credit Support Provider or such other Person, any assignee of any of the Purchaser's obligations to any Enterprise Liquidity Provider, any Enterprise Credit Support Provider, any holder of a participation interest in the rights and obligations of any Enterprise Liquidity Provider or Enterprise Credit Support Provider, the Agent, Bank of America, and any holding company of Bank of America. "AFFILIATE" when used with respect to a Person, means any other Person controlling, controlled by, or under common control with, such Person. "AGENT" has the meaning set forth in the preamble. "AGGREGATE UNPAIDS" means, at any time, an amount equal to the sum of (i) the aggregate Earned Discount at such time, (ii) the Aggregate Total Investment at such time, and (iii) all other amounts owed (whether due or accrued) hereunder by the Transferor to the Purchaser, the Bank Investors, or the Agent at such time. "AGGREGATE PURCHASER'S INVESTMENTS" means, at any time, with respect to the Purchaser or the Bank Investors, as the case may be, the sum of the Dollar amount of all of the Purchaser's Investments. "AGGREGATE PURCHASER'S SHARE" shall have the meaning set forth in SECTION 2.4(A). A-1 "AGGREGATE REQUIRED ALLOCATIONS" at any time means the sum of all Required Allocations of all Undivided Interests. "AGGREGATE UNPAID BALANCE" has the meaning set forth in SECTION 2.1 of the Purchase and Sale Agreement. "AGREEMENT DOCUMENTS" means this Agreement, the Purchase and Sale Agreement, the Receivables Purchase Agreement, the Certificate of Assignments, the other documents executed and delivered in connection with the Predecessor Agreement, and the documents executed and delivered in connection herewith from time to time. "ALTERNATE REFERENCE RATE" has the meaning set forth in APPENDIX B. "ASSIGNMENT AMOUNT" with respect to a Bank Investor shall mean at anytime an amount equal to the lesser of (i) such Bank Investor's PRO RATA portion of the Aggregate Purchaser's Investment at such time and (ii) such Bank Investor's PRO RATA portion of the aggregate Unpaid Balance of the Eligible Receivables in the Receivables Pool and (iii) such Bank Investor's unused Commitment. "ASSIGNMENT AND ASSUMPTION AGREEMENT" means an Assignment and Assumption Agreement substantially in the form of SCHEDULE 13.5(B) attached hereto. "ASSIGNMENT EFFECTIVE DATE" has the meaning set forth in SECTION 15.20(C). "AVERAGE MATURITY" has the meaning set forth in APPENDIX B. "BANK COMMITMENT" means (i) with respect to each Bank Investor party hereto, the commitment of such Bank Investor to make acquisitions from the Transferor or the Purchaser in accordance herewith in an amount not to exceed the dollar amount set forth opposite such Bank Investor's signature on the signature page hereto under the heading "COMMITMENT", MINUS the dollar amount of any Commitment or portion thereof assigned pursuant to an Assignment and Assumption Agreement PLUS the dollar amount of any increase to such Bank Investor's Commitment consented to by such Bank Investor prior to the time of determination, (ii) with respect to any assignee of a Bank Investor party hereto taking pursuant to an Assignment and Assumption Agreement, the commitment of such assignee to make acquisitions from the Transferor or the Purchaser not to exceed the amount set forth in such Assignment and Assumption Agreement MINUS the dollar amount of any Commitment or portion thereof assigned pursuant to an Assignment and Assumption Agreement prior to such time of determination and (iii) with respect to any assignee of an assignee referred to in clause (ii), the commitment of such assignee to make acquisitions from the Transferor or the Purchaser not to exceed the amount set forth in an Assignment and Assumption Agreement between such assignee and its assign. "BANK RATE" has the meaning set forth in APPENDIX B. "BUSINESS DAY" means a day on which both (a) Bank of America at its office in Charlotte, North Carolina is open for business and (b) commercial banks in New York City are not authorized or required to be closed for business. A-2 "CERTIFICATE OF ASSIGNMENTS" means the certificate of assignment, by the Transferor to a Purchaser, delivered in connection with the Predecessor Agreement (or the predecessor agreement), or any replacement certificate.. "COLLECTION ACCOUNT" shall have the meaning set forth in SECTION 3.3 (E). "COLLECTIONS" means, with respect to any Receivable, all funds which either (a) are received by the Transferor, any Originator or Servicer from or on behalf of the related Obligors in payment of any amounts owed (including, without limitation, purchase prices, finance charges, interest and all other charges) in respect of such Receivable, or applied to such amounts owed by such Obligors (including, without limitation, insurance payments that the Transferor, each Originator or Servicer applies in the ordinary course of its business to amounts owed in respect of such Receivable and net proceeds of sale or other disposition repossessed goods or other collateral or property of the Obligor or any other party directly or indirectly liable for payment of such Receivable and available to be applied thereon), or (b) are deemed to have been received by the Transferor, any Originator or any other Person as a Collection pursuant to SECTION 3.3; PROVIDED THAT, prior to such time as Wackenhut shall cease to be Servicer, late payment charges, collection fees and extension fees shall not be deemed to be Collections. "COMMERCIAL PAPER NOTES" means short-term promissory notes issued or to be issued by the Purchaser to fund its investments in accounts receivable or other financial assets. "COMMERCIAL PAPER RATE" has the meaning set forth in APPENDIX B. "COMMITMENT" has the meaning set forth in SECTION 1.1. "COMMITMENT TERMINATION DATE" has the meaning set forth in SECTION 1 .5(A). "CONCENTRATION LIMIT" has the meaning set forth in SECTION 2.3(B). "CONDITIONS PRECEDENT" has the meaning set forth in SECTION 5.2. "CONDUIT ASSIGNEE" shall mean any commercial paper conduit administered by Bank of America and designated by Bank of America from time to time to accept an assignment from the Purchaser of all or a portion of the Purchaser's Investment. "CONTRACT" means any writing evidencing a Receivable. "CREDIT AND COLLECTION POLICY" shall mean the Servicer's credit and collection policy or policies and practices, relating to Contracts and Receivables existing on the date hereof, and as modified from time to time in compliance with SECTION 7.3(C). "DEEMED DEFAULT RATIO" means the ratio (expressed as a percentage and rounded to the nearest 1/100 of 1%, with 5/1000th of 1% rounded upward) computed as of each Month End Date by dividing (i) the sum of (a) the aggregate Unpaid Balance of all Pool Receivables that were aged 151-180 days from the date of invoice as of such Month End Date and (b) without duplication, all Pool Receivables that during such prior month were transferred to attorneys and A-3 collections, by (ii) the aggregate sales made by the Seller and the Originators during the fiscal month that ended four fiscal months prior to such Month End Date. "DEFAULTED RECEIVABLE" means, without duplication, a Receivable: (a) as to which any payment, or part thereof, remains unpaid for 120 days or longer from the original invoice date for such Receivable, (b) with regard to which an Event of Bankruptcy has occurred and remains continuing, (c) as to which payments have been extended, or the terms of payment thereof rewritten, or (d) which consistent with the Credit and Collection Policy, would be fully reserved against or required to be sent to attorneys or collection agencies or would be charged-off the Transferor's or Servicer's books as uncollectible. "DESIGNATED OBLIGOR" means, at any time, any Obligor of the Transferor as to which the Agent has, at least three Business Days prior to the date of determination, given written notice to the Transferor that such Obligor shall be considered a Designated Obligor. "DILUTION" means a net reduction in the unpaid balance of a Receivable attributable to any non-cash item, including, without limitation, credits, rebates, billing errors, cash discounts, volume discounts, allowances, disputes, set-offs, counterclaims, chargebacks, returned or repossessed goods, sales and marketing discounts, warranties, credit memos and any other adjustments that are made in respect of Obligors but excluding any such reduction attributable to such Receivable becoming a Defaulted Receivable. "DILUTION RATIO" means the ratio (expressed as a percentage and rounded to the nearest 1/100 of 1%, with 5/1000th of 1% rounded upward) computed as of each Month End Date by dividing (i) the aggregate reduction in the Unpaid Balance of all Pool Receivables resulting from Dilutions during the fiscal month ending on such Month End Date, by (ii) the aggregate sales made by the Seller and the Originators during the fiscal month that ended two fiscal months prior to such Month End Date. "DILUTION RESERVE" has the meaning set forth in APPENDIX B. "DISCOUNT FACTOR" has the meaning set forth in APPENDIX B. "DOLLARS" and the symbol "$" means dollars constituting legal tender for the payment of public and private debts in the United States of America. "EARNED DISCOUNT" has the meaning set forth in APPENDIX B. "ELIGIBLE RECEIVABLE" means, at any time, a Receivable: (a) which has been originated by an Originator and sold to Wackenhut pursuant to (and in accordance with) the Purchase and Sale Agreement and has been sold by Wackenhut to the Transferor pursuant to (and in accordance with) the Receivables Purchase Agreement, and to which the Transferor has good title thereto, free and clear of all adverse claims; (b) which (together with the Collections), has been the subject of either a valid transfer and assignment from the Transferor to the Agent, on behalf of the A-4 Purchaser and the Bank Investors, all of the Transferor's right, title and interest therein or the grant of a first priority security interest therein (and in the Collections and Related Security) effective until the termination of this Agreement; (c) with regard to which the related service has been rendered and all other obligations performed by the Seller or an Originator, as applicable (except as permitted by SECTION 2.3(B)(III)), and which is generated by the Seller and the applicable Originator in the ordinary course of their respective business of providing Services and is required to be paid in full by the related Obligor within 60 days of the billing thereof; (d) which, (i) if the perfection of the Agent's, on behalf of the Purchaser and the Bank Investors, undivided ownership interest therein is governed by the laws of a jurisdiction where the Uniform Commercial Code -- Secured Transactions is in force, constitutes an account or general intangible as defined in the Uniform Commercial Code as in effect in such jurisdiction, and (ii) if the perfection of the Agent's undivided ownership interest therein is governed by the law of any jurisdiction where the Uniform Commercial Code -- Secured Transactions is not in force, the Transferor has furnished to the Agent such opinions of counsel and other evidence as has reasonably been requested, establishing to the reasonable satisfaction of the Agent that the Agent's undivided ownership interest and other rights with respect thereto are not significantly less protected and favorable than such rights under the Uniform Commercial Code; (e) which is a domestic Receivable, the Obligor of which is a United States resident, and is not an Affiliate of any of the Transferor or, the Servicer or any other party hereto (other than Bank of America); (f) the Obligor of which is not a Designated Obligor; (g) the Obligor of which is not the private sector Obligor of Defaulted Receivables aggregating more than 50% of such Obligor's total obligations to the Seller and each Originator; (h) which is not a Defaulted Receivable; (i) with regard to which the warranty of the Transferor in SECTION 6.1(1) is true and correct; (j) the sale of which (or an undivided interest in which) does not require the consent of or notice to the related Obligor under the related Contract and does not contravene or conflict with any law; (k) which is an account receivable representing all or part of the sales price of merchandise, insurance and services within the meaning of Section 3(c)(5) of the Investment Company Act of 1940, as amended; (l) which arises out of a current transaction, or the proceeds of which have been or are to be used for current transactions, within the meaning of Section 3(a)(3) of the Securities Act of 1933, as amended; A-5 (m) which is denominated and payable only in Dollars in the United States; (n) which arises under a Contract that has been duly authorized and that, together with such Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the Obligor of such Receivable enforceable against such Obligor in accordance with its terms and is not subject to any dispute, offset, counterclaim or defense whatsoever (except the discharge in bankruptcy of such Obligor); (o) which, together with the Contract related thereto, does not contravene in any material respect any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to usury, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which no party to the Contract related thereto is in violation of any such law, rule or regulation in any material respect if such violation would impair the collectibility of such Receivable; (p) which (i) satisfies all applicable requirements of the Credit and Collection Policy and (ii) complies with such other criteria and requirements (other than those relating to the collectibility of such Receivable) as the Agents may from time to time specify to the Transferor following thirty days, notice; (q) as to which the Agent has not notified the Transferor that the Agent has determined, in its sole discretion, that such Receivable (or class of Receivables) is not acceptable for purchase hereunder; (r) which, if originated by Wackenhut, was originated in The Wackenhut Corporation or Wackenhut Airline Services, Inc.; (s) which does not include any amount payable for sales taxes, Payroll taxes or any other tax; and (t) the related Obligor of which is not, directly or indirectly, an Affiliate of the Transferor or any Originator. "ENTERPRISE CREDIT SUPPORT AGREEMENT" means any agreement between Enterprise and the Enterprise Credit Support Provider evidencing the obligation of the Enterprise Credit Support Provider to provide credit support to Enterprise in connection with the issuance by Enterprise of Commercial Paper. "ENTERPRISE CREDIT SUPPORT PROVIDER" means any Person or Persons who are providing or will provide credit support to Enterprise in connection with the issuance by Enterprise of Commercial Paper Notes, together with the successors and assigns of any such Person or Persons. "ENTERPRISE LIQUIDITY AGREEMENT" means any agreement between Enterprise and the Enterprise Liquidity Provider evidencing the obligation of the Liquidity Provider to provide liquidity support to Enterprise in connection with the issuance by Enterprise of Commercial A-6 Paper Notes, as such agreement may be modified, amended, supplemented or restated from time to time. "ENTERPRISE LIQUIDITY PROVIDER" means any Person or Persons who are providing or will provide liquidity support to Enterprise in connection with the issuance by Enterprise of Commercial Paper Notes, together with the successors and assigns of any such Person or Persons. "ERISA" means the U.S. Employee Retirement Income Security Act of 1974, as amended from time to time. "EURODOLLAR RATE (RESERVE ADJUSTED)" has the meaning set forth in APPENDIX B. "EURODOLLAR RATE" means the interest rate per annum calculated according to the following formula: Eurodollar = Interbank Offered Rate + Applicable ------------------------------ Rate 1 - Reserve Requirement Margin "EVENT OF BANKRUPTCY" shall be deemed to have occurred with respect to a Person if either: (u) a case or other proceeding shall be commenced, without the application or consent of such Person, in any court, seeking the liquidation, reorganization, debt arrangement, dissolution, winding up, or composition or readjustment of debts of such Person, the appointment of a trustee, receiver, custodian, liquidator, assignee, sequestrator or the like for such Person or all or substantially all of its assets, or any similar action with respect to such Person under any law relating to bankruptcy, insolvency, reorganization, winding up or composition or adjustment of debts, and such case or proceeding shall continue undismissed, or unstayed and in effect, for a period of 60 consecutive days; or an order for relief in respect of such Person shall be entered in an involuntary case under the federal bankruptcy laws or other similar laws now or hereafter in effect; or (v) such Person shall commence a voluntary case or other proceeding under any applicable bankruptcy, insolvency, reorganization, debt arrangement, dissolution or other similar law now or hereafter in effect, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) for, such Person or for any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall fail to, or admit in writing its inability to, pay its Debts generally as they become due, or, if a corporation or similar entity, its board of directors shall vote to implement any of the foregoing. "EXITING BANK INVESTOR" has the meaning set forth in SECTION 15.20(A). "FACILITY" has the meaning set forth in SECTION 1.3(A) of the Purchase and Sale Agreement. A-7 "FACILITY FEE" has the meaning set forth in the Fee Letter. "FACILITY LIMIT" means an amount equal to $76,500,000. "FEDERAL RESERVE BOARD" means the Board of Governors of the Federal Reserve System, or any successor thereto or to the functions thereof. "FEE LETTER" has the meaning set forth in SECTION 4.1(A). "GAAP" or "Generally Accepted Accounting Principles" means generally accepted accounting principles, being those principles of accounting set forth in pronouncements of the Financial Accounting Standards Board, the American Institute of Certified Public Accountants or which have other substantial authoritative support and are applicable in the circumstances as of the date of a report. "GOVERNMENT OBLIGOR" means a department, agency, bureau, division or instrumentality of the United States of America or any state thereof or the District of Columbia or any county or municipal government chartered or otherwise existing by authority of any of the foregoing, or any department, agency, bureau, division or instrumentality thereof obligated to make payments with respect to a Receivable. "GROSS REVENUES" for any period means the gross revenues, determined in accordance with generally accepted accounting principles, of Wackenhut and its Subsidiaries for such period, determined on a consolidated basis after eliminating revenues attributable to outstanding Minority Interests. "HEADQUARTERS" shall mean the Transferor's office located at 4200 Wackenhut Drive, No. 100, Palm Beach Gardens, Florida 33410. "INDEMNIFIED AMOUNTS" has the meaning set forth in SECTION 14.1. "INDEMNIFIED PARTY" has the meaning set forth in SECTION 14.1. "INITIAL PURCHASER" means the Transferor as Initial Purchaser under the Purchase and Sale Agreement. "INFORMATION" has the meaning set forth in SECTION 15.7. "INFORMATION PROVIDER" has the meaning set forth in SECTION 15.7. "INTEREST COMPONENT" shall mean, (i) with respect to any Related Commercial Paper issued on an interest-bearing basis, the interest payable on such Related Commercial Paper at its maturity and (ii) with respect to any Related Commercial Paper issued on a discount basis, the portion of the face amount of such Related Commercial Paper representing the discount incurred in respect thereof (including any dealer commissions to the extent included as part of such discount). A-8 "INVESTMENTS" means all investments, in cash or by delivery of Property made, directly or indirectly in any Person, whether by acquisition of shares of capital stock, indebtedness or other obligations or Security or by loan, advance, capital contribution or otherwise; PROVIDED, HOWEVER, that "Investments" shall not mean or include routine investments in Property to be used or consumed in the ordinary course of business or investments in accounts receivable or notes receivable arising in the ordinary course of business. In valuing any investments for the purpose of applying the limitations set forth in this Agreement, such investments, loans and advances shall be taken at the original cost thereof, without allowance for any subsequent write-offs or appreciation or depreciation therein, but less any amount repaid or recovered on account of capital or principal. For purposes of this Agreement, at any time when a corporation becomes a Subsidiary, all Investments of such corporation at such time shall be deemed to have been made by such corporation, as a Subsidiary, at such time. "INVOLUNTARY FEDERAL PROCEEDING" has the meaning set forth in SECTION 11.2(B). "LETTER OF CREDIT" or "LETTERS OF CREDIT" shall have the meaning set forth in the Revolving Credit Agreement. "LOCK-BOX AGREEMENT" means a letter agreement between the Transferor and any Lock-Box Bank in form and substance satisfactory to the Agent. "LOCK-BOX BANK" means any of the banks holding one or more lockbox accounts for receiving Collections from Pool Receivables. "LOSS RESERVE" has the meaning set forth in APPENDIX B. "LOSS RESERVE DISCOUNT" has the meaning set forth in SECTION 2.1 of the Purchase and Sale Agreement. "LOSSES" means, at any time, with respect to the Receivables Pool, the sum of (x) all Receivables theretofore sent to attorneys or collection agencies to be collected plus (y), without duplication, all Receivables theretofore charged-off the Transferor's or Servicer's books as uncollectible. "LOSSES TO LIQUIDATIONS RATIO" means the percentage that (x) Losses during the three fiscal month period ending on the most recent Month End Date on all Pool Receivables owned by the Transferor was of (y) Collections of such Pool Receivables during such period. "MAXIMUM PURCHASE LIMIT" has the meaning set forth in clause (x) of SECTION 1.2(A). "MONTH END DATE" means the last day of each fiscal month. "NEGATIVE SPREAD FEE" has the meaning set forth in APPENDIX B. "NET POOL BALANCE" has the meaning set forth in SECTION 2.3(A). A-9 "NOTE FEE" has the meaning set forth in SECTION 4.1(B). "OBLIGOR" means a Person (including any Affiliate of such Person) obligated to make payments with respect to a Receivable. "ORIGINATOR" means, at any time, each Subsidiary of the Seller at such time a signatory to the Purchase and Sale Agreement. "ORIGINATOR RECEIVABLE" means the indebtedness owed to any Originator by any Obligor (without giving effect to any purchase under the Purchase and Sale Agreement by The Wackenhut Corporation and any purchase under the Receivables Purchase Agreement by Wackenhut Funding Corporation, in each case, at any time) under a Contract. "PERIODIC REPORT" means a report in substantially the form of SCHEDULE 3.4(A). "PERSON" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture, limited liability company or limited liability partnership, government or any agency or political subdivision thereof or any other entity. "POOL RECEIVABLE" means a Receivable in the Receivables Pool. "PREDECESSOR AGREEMENT" has the meaning set forth in the PREAMBLE. "PROGRAM FEE" shall have the meaning set forth in the Fee Letter; PROVIDED, HOWEVER, that if at any time the certificate furnished to the Agent pursuant to SECTIONS 7.5(A) or (B) hereof shall disclose that Consolidated Indebtedness exceeds 40% of Consolidated Total Capitalization and does not exceed 50% of Consolidated Total Capitalization, then 0.25% shall be added to the Program Fee set forth in the Fee Letter (such incremental amount, the "Step-up Fee") effective for the full fiscal quarter immediately following the calculation date of such covenant. "PROPERTY" means any interest in any kind of property or asset, whether real, personal or mixed, and whether tangible or intangible. "PURCHASE" has the meaning set forth in SECTION 1.1(A). "PURCHASE AND SALE AGREEMENT" means that certain Amended and Restated Purchase and Sale Agreement dated as of December 30, 1997 between the Seller as Initial Purchaser and Wackenhut Airline Services, Inc. and each other Affiliate of the Seller from time to time a party thereto, as the same may be amended and otherwise modified from time to time. "PURCHASE AND SALE INDEMNIFIED AMOUNTS" has the meaning set forth in SECTION 9.1 of the Purchase and Sale Agreement. "PURCHASE AND SALE INDEMNIFIED PARTIES" has the meaning set forth in forth in SECTION 9.1 of the Receivable Purchase Agreement. "PURCHASE LIMIT" has the meaning set forth in SECTION 1 .2(A). A-10 "PURCHASE PRICE" has the meaning set forth in SECTION 2.1 of the Purchase and Sale Agreement. "PURCHASE TERMINATION DATE" has the meaning set forth in SECTION 1.6. "PURCHASER" has the meaning set forth in the PREAMBLE. "PURCHASER RATE" has the meaning set forth in APPENDIX B. "PURCHASER'S INVESTMENT" has the meaning set forth in SECTION 2.2. "PURCHASER'S SHARE" has the meaning set forth in SECTION 2.4. "RATE VARIANCE FACTOR" has the meaning set forth in APPENDIX B. "RECEIVABLE" means (i) the indebtedness owed to any Originator by any Obligor (without giving effect to any purchase under the Purchase and Sale Agreement by the Seller at any time) under a Contract and sold by any such Originator to the Seller pursuant to the Purchase and Sale Agreement and sold by the Seller to the Transferor pursuant to the Receivables Purchase Agreement, and (ii) the indebtedness owed to the Seller by any Obligor (without giving effect to any purchase under the Receivables Purchase Agreement by the Transferor at any time) under a Contract and sold by the Seller to the Transferor pursuant to the Receivables Purchase Agreement, in each case whether constituting an account, chattel paper, instrument, investment property or general intangible, arising in connection with the sale or lease of merchandise or the rendering of Services by any Originator or the Seller, and includes the right to payment of any interest or Finance Charges and other obligations of such Obligor with respect thereto. "RECEIVABLE PURCHASE TERMINATION DATE" has the meaning set forth in SECTION 1.4 of the Receivable Purchase Agreement. "RECEIVABLE PURCHASE TERMINATION EVENTS" has the meaning set forth in SECTION 8.1 of the Receivable Purchase Agreement. "RECEIVABLES POOL" means at any time all then outstanding Receivables which (a) arose from or relate to a Contract, and (b) as to which the Obligors thereunder are Designated Obligors. If a Receivable is a Pool Receivable on the day immediately preceding the Commitment Termination Date, such Receivable shall continue to be considered a Pool Receivable at all times thereafter. "RECEIVABLES PURCHASE AGREEMENT" means that certain Purchase Agreement dated as of December 30, 1997, between the Seller and the Transferor, with respect to the purchase of the Pool Receivables by the Transferor, as the same may be altered or supplemented from time to time. "REGULATION D" means Regulation D of the Federal Reserve Board, or any other regulation of the Federal Reserve Board that prescribes reserve requirements applicable to nonpersonal time deposits or "Eurocurrency Liabilities" as presently defined in Regulation D, as in effect from time to time. A-11 "REGULATORY CHANGE" means, relative to any Affected Party: (a) any change in (or the adoption, implementation, phasein or commencement of effectiveness of) any: (i) United States federal or state law or foreign law applicable to such Affected Party; (ii) regulation, interpretation, directive, requirement or request (whether or not having the force of law) applicable to such Affected Party of (A) any court, government authority charged with the interpretation or administration of any law referred in CLAUSE (A)(I) or of (B) any fiscal, monetary or other authority having jurisdiction over such Affected Party; or (iii) generally accepted accounting principles or regulatory accounting principles applicable to such Affected Party and affecting the application to such Affected Party of any law, regulation, interpretation, CLAUSE (A)(I) or (A)(II) above; or (b) any change in the application to such Affected Party of any existing law, regulation, interpretation, directive, requirement, request or accounting principles referred to in CLAUSE (A)(I) , (a)(ii) or (A)(III) above. "REINVESTMENT" has the meaning set forth in SECTION 1.1(B). "REINVESTMENT TERMINATION DATE" means the second Business Day after the delivery by the Purchaser to the Transferor of written notice that the Purchaser elects to commence the amortization of its Purchaser's Investment or otherwise liquidate its interest in the Receivables Pool. "RELATED COMMERCIAL PAPER" shall mean Commercial Paper issued by the Purchaser the proceeds of which were used to acquire, or refinance the acquisition of, an interest in Receivables with respect to the Transferor. "RELATED SECURITY" means, with respect to any Receivable, Seller Receivable, or Originator Receivable, as the case may be: (a) all of the Transferor's right, title and interest in and to all Contracts or other agreements that relate to such Receivable; (b) all of the Transferor's interest in the merchandise (including returned merchandise), if any, relating to the sale which gave rise to such Receivable; (c) all other security interests or liens and property subject thereto from time to time purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise; (d) the assignment to any Agent, for the benefit of Purchaser and any assignee, of all UCC financing statements covering any collateral securing payment of such Receivable (but such assignment is made only to the extent of the interest of the Purchaser in the respective Receivable); and (e) all guarantees and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable whether pursuant to the Contract related to such Receivable or otherwise. The interest of the Purchaser in any Related Security is only to the extent of the Purchaser's Undivided Interest, as more fully described in the definition of an Undivided Interest. A-12 "REMAINING BANK INVESTOR" has the meaning set forth in SECTION 15.20(A). "REMAINING COLLECTIONS" has the meaning set forth in SECTION 3.1(A)(II). "REQUIRED ALLOCATIONS" has the meaning set forth in SECTION 2.1(A). "REQUIRED ALLOCATIONS LIMIT" has the meaning set forth in SECTION 1.2(B). "RESERVE REQUIREMENT" has the meaning set forth in APPENDIX B. "REVOLVING CREDIT AGREEMENT" shall mean that certain Credit Agreement, dated as of November 13, 2000, as amended through the date hereof (without giving effect to any further amendments thereto), by and among the Servicer, Bank of America, Scotiabanc Inc., First Union National Bank and certain other lenders. "RUN OFF DAY" for any Undivided Interest means any of (a) each day which occurs on or after the date designated by any Agent to the Transferor to be the "Run Off Commencement Date", provided such date is designated on at least one Business Day's notice during a time when any of the conditions set forth in SECTION 5.2 are not satisfied, and on or before the date, if any, designated by the Agent in its sole discretion on at least one Business Day's notice to the Transferor as the "Run Off Termination Date", and (b) each day which occurs on or after the Termination Date for such Undivided Interest. "RUN OFF DISCOUNT" has the meaning set forth in APPENDIX B. "RUN OFF PERIOD" means one or more successive Run Off Days. "RUN OFF SERVICER'S FEE" has the meaning set forth in APPENDIX B. "SCHEDULED COMMITMENT TERMINATION DATE" has the meaning set forth in SECTION 1.5(A). "SECURITY" shall have the same meaning as in Section 2(1) of the Securities Act of 1933, as amended. "Seller" means Wackenhut. "SELLER RECEIVABLES" means (i) the indebtedness owed to any Originator by any Obligor (without giving effect to any purchase under the Purchase and Sale Agreement by The Wackenhut Corporation and any purchase under the Receivables Purchase Agreement by Wackenhut Funding Corporation, in each case, at any time) under a Contract and sold by any such Originator to The Wackenhut Corporation pursuant to the Purchase and Sale Agreement, and (ii) the indebtedness owed to The Wackenhut Corporation by any Obligor (without giving effect to any purchase under the Receivables Purchase Agreement by Wackenhut Funding Corporation, at any time) under a Contract, in each case, and sold by The Wackenhut Corporation to Wackenhut Funding Corporation pursuant to the Receivables Purchase Agreement, in each case whether constituting an account, chattel paper, instrument, investment property or general intangible, arising in connection with the sale or lease of merchandise or the rendering of Services by any Originator or the Wackenhut Corporation, and includes the right to A-13 payment of any interest or Finance Charges and other obligations of such Obligor with respect thereto. "SERVICER" initially means The Wackenhut Corporation, and thereafter the Person determined pursuant to SECTION 8.1. "SERVICER TRANSFER EVENT" has the meaning set forth in SECTION 8.2. "SERVICER'S FEE" has the meaning set forth in APPENDIX B. "SERVICER'S FEE RESERVE" has the meaning set forth in APPENDIX B. "SERVICES" means (i) security related services (including, without limitation, physical security, investigations, transit security, nuclear site security, emergency protection and similar services) and (ii) corrections related services (including, without limitation, correctional facility guard, food and similar services). "SETTLEMENT DATE" means the last day of each Settlement Period. "SETTLEMENT PERIOD" for any Undivided Interest means (a) each period commencing on the first day of each Yield Period for such Undivided Interest and ending on the last day of such Yield Period; and (b) on and after the Termination Date for such Undivided Interest, such period (including, without limitation, a daily period) as shall be selected from time to time by the Agent or, in absence of any such selection, each period of thirty days from the next preceding Settlement Date; PROVIDED, HOWEVER, that (i) with respect to any Yield Period of one day (as described in CLAUSE (II) of the PROVISO of the definition of "Yield Period"), the related Settlement Period shall be the first day following such Yield Period; (ii) any Settlement Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day; and (iii) the last Settlement Period shall end on the date on which all Undivided Interests have been reduced to zero. "SOLVENT" shall mean, when used with respect to any Person, that at the time of determination: (i) the fair value of its assets (both at fair valuation and present fair saleable value) is in excess of the total amount of its liabilities, including, without limitation, contingent liabilities; (ii) it is then able and expects to be able to pay its debts as they mature; and (iii) it has capital sufficient to carry on its business as conducted and as proposed to be conducted. "SPECIAL CONCENTRATION LIMIT" has the meaning set forth in SECTION 2.3(C). A-14 "STEP-UP FEE" has the meaning set forth in the definition of "Program Fee." "SUCCESSOR NOTICE" has the meaning set forth in SECTION 8.2. "TERMINATION DATE" for any Undivided Interest means the Commitment Termination Date. "TERMINATION EVENT" has the meaning set forth in SECTION 11.1. "TRANSFEROR" has the meaning set forth in the PREAMBLE. "TRANSFEROR INFORMATION" has the meaning set forth in SECTION 15.8. "TRANSFEROR INFORMATION PROVIDER" has the meaning set forth in SECTION 15.8. "UCC" means the Uniform Commercial Code as from time to time in effect in the applicable jurisdiction or jurisdictions. "UNDIVIDED INTEREST" has the meaning set forth in SECTION 2.1. "UNMATURED TERMINATION EVENT" means any event which, with the giving of notice or lapse of time, or both, would become a Termination Event. "UNPAID BALANCE" of any Receivable means at any time the SUM of (x) the unpaid principal amount thereof, PLUS (y) the unpaid amount of all finance charges, interest payments and other amounts actually accrued thereon at such time, but EXCLUDING, in the case of CLAUSE (Y) next above, all late payment charges, delinquency charges, and extension or collection fees. "WACKENHUT" has the meaning set forth in the preamble. "WACKENHUT FAMILY" means (i) George R. Wackenhut, Ruth J. Wackenhut, Richard R. Wackenhut and other lineal descendants of George R. Wackenhut, the founder of Wackenhut; (ii) the spouses and lineal descendants of the persons named in clause (i); and (iii) the estates or legal representatives of the persons named in clause (i). "WCC" means Wackenhut Corrections Corporation, a Florida corporation. "YIELD PERIOD" means with respect to any Undivided Interest (or portion thereof): (a) the period commencing on the date of the initial Purchase of such Undivided Interest (or such portion) and ending such number of days thereafter (not to exceed 100 days) as the Agent shall select, after consultation with the Transferor, pursuant to SECTIONS 1.3(A); and (b) thereafter, each period commencing on the last day of the immediately preceding Yield Period for such Undivided Interest (or such portion) and ending such number of days thereafter (not to exceed 100 days) as the Agent shall select, after consultation with the Transferor; A-15 PROVIDED, HOWEVER, that (i) any such Yield Period (other than a Yield Period consisting of one day) which would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day (unless the related Undivided Interest shall be accruing Earned Discount at a rate determined by reference to the Eurodollar Rate (Reserve Adjusted), in which case if such succeeding Business Day is in a different fiscal month, such Yield Period shall instead be shortened to the next preceding Business Day); (ii) in the case of Yield Periods of one day for any Undivided Interest, (A) the Initial Yield Period shall be the day of the related Purchase; and (B) any subsequently occurring Yield Period which is one day shall, if the immediately preceding Yield Period is more than one day, be the last day of such immediately preceding Yield Period, and if the immediately preceding Yield Period is one day, shall be the next day following such immediately preceding Yield Period. The "RELATED" Yield Period for any Undivided Interest at any time means the Yield Period pursuant to which Earned Discount is then accruing for such Undivided Interest. B. OTHER TERMS. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9. C. COMPUTATION OF TIME PERIODS. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding". A-16 Schedule 2.3(c) FORM OF SPECIAL CONCENTRATION LIMIT CERTIFICATE Reference is made to that certain Amended and Restated Transfer and Administration Agreement dated as of January 25, 2002 (as at any time amended or otherwise modified, the "Agreement") among Wackenhut Funding Corporation, a Florida corporation, The Wackenhut Corporation, Enterprise Funding Corporation, Bank of America, National Association, as Agent, and the Bank Investors. Capitalized terms used herein have the meaning assigned thereto in the Agreement. For purposes of Section 2.3(c) of the Agreement, the following Special Concentration Limits shall be in effect for the period from January 25, 2002 until such time as the Administrative Agent delivers to the Transferor and the Servicer written notice of a change in the Special Concentration Limits: (a) Any Obligor rated BBB or Baa2 or better by Standard & Poor's Corporation and Moody's Investors Service, Inc., respectively, may have a Special Concentration Limit of 5% of the Aggregate Unpaid Balance of the Eligible Receivables in the Receivables Pool at any time. Transferor shall identify the specific Obligors to whom the Special Concentration Limits described above should be applied by such form of notice as the Agent may from time to time require. Date: BANK OF AMERICA, NATIONAL ASSOCIATION, ---------------------------- as Agent By: ------------------------------------- Its: ------------------------------------- Schedule 3.4(a) FORM OF PERIODIC REPORT A-2 Schedule 6.1(j) LITIGATION (TRANSFEROR) None. Schedule 6.1(n) LIST OF LOCATION OF TRANSFEROR'S BOOKS, RECORDS AND DOCUMENTS 4200 Wackenhut Drive #100 Palm Beach Gardens, Florida 33410 Schedule 6.1(v) TRADENAMES OF TRANSFEROR None. Schedule 6.2(l) LITIGATION (SERVICER) None. Schedule 6.2(n) LIST OF LOCATION OF SERVICER'S BOOKS, RECORDS AND DOCUMENTS 4200 Wackenhut Drive #100 Palm Beach Gardens, Florida 33410 Schedule 6.2(o) LIST OF LOCKBOX BANKS AND ACCOUNTS Bank Name Aba Account Number - --------- --- -------------- Bank of America - Global 111000012 3750156489 Bank of America - Global 111000012 3751772727 Schedule 13.5(b) FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT Reference is made to the Second Amended and Restated Transfer and Administration Agreement dated as of January 25, 2002 as it may be amended or otherwise modified from time to time (as so amended or modified, the "Transfer Agreement") among Wackenhut Funding Corporation, as transferor (in such capacity, the "Transferor"), The Wackenhut Corporation, individually and as servicer (in such capacity, the "Servicer"), Enterprise Funding Corporation, as purchaser (in such capacity, the "Purchaser") and Bank of America, National Association, as agent for Enterprise and certain financial institutions from time to time a party thereto as Bank Investors (in such capacity, the "Agent"). Terms defined in the Transfer Agreement are used herein with the same meaning. _______________________ (the "Assignor") and _________________________ (the "Assignee") agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, without recourse and without representation and warranty, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to all of the Assignor's rights and obligations under the Transfer Agreement and the other Agreement Documents. Such interest expressed as a percentage of all rights and obligations of the Bank Investors being equal to the percentage equivalent of a fraction the numerator of which is $_____________ and the denominator of which is the Facility Limit. After giving effect to such sale and assignment, the Assignee's Commitment will be as set forth on the signature page hereto. 2. [In consideration of the payment of $___________________, being _____% of the existing Aggregate Purchaser's Investment, and of $ ________________, being ____% of the aggregate unpaid accrued Earned Discount, receipt of which payment is hereby acknowledged, the Assignor hereby assigns to the Agent for the account of the Assignee, and the Assignee hereby purchases from the Assignor, a _____% interest in and to all of the Assignor's right, title and interest in and to the Aggregate Purchaser's Investment purchased by the undersigned on ______ ___, 20__ under the Transfer Agreement.][include if an existing Aggregate Purchaser's Investment is being assigned.] 3. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Transfer Agreement, any other Agreement Document or any other instrument or document furnished pursuant thereto or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Transfer Agreement or the Receivables, any other Agreement Document or any other instrument or document furnished pursuant thereto; and (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of any of the Transferor, the Servicer, the Seller or any Originator or the performance or observance by any of the Transferor, the Servicer, the Seller or any Originator of any of its A-2 obligations under the Transfer Agreement, any other Agreement Document, or any instrument or document furnished pursuant thereto. 4. The Assignee (i) confirms that it has received a copy of the Transfer Agreement, the Receivables Purchase Agreement and the Amended and Restated Purchase and Sale Agreement, together with copies of the financial statements referred to in Sections 7.2 and 7.5 of the Transfer Agreement, to the extent delivered through the date of this Agreement, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment; (ii) agrees that it will, independently and without reliance upon the Agent, any of its Affiliates, the Assignor or any other Purchaser and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Transfer Agreement and any other Agreement Document; (iii) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Transfer Agreement and the other Agreement Documents as are delegated to the Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; (iv) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Transfer Agreement are required to be performed by it as a Bank Investor; and (v) specifies as its address for notices and its account for payments the office and account set forth beneath its name on the signature pages hereof[; and (vi) attaches the forms prescribed by the Internal Revenue Service of the United States of America certifying as to the Assignee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Transfer Agreement or such other documents as are necessary to indicate that all such payments are subject to such rates at a rate reduced by an applicable tax treaty].1 5. The effective date for this Assignment shall be the later of (i) the date on which the Agent receives this Assignment executed by the parties hereto and receives the consent of the Transferor and the Agent, on behalf of the Purchaser, and (ii) the date of this Assignment (the "Effective Date"). Following the execution of this Assignment and Assumption Agreement and the consent of the Transferor and the Agent, on behalf of the Purchaser, this Assignment and Assumption Agreement will be delivered to the Agent for acceptance and, with respect to the Assignment and Assumption Agreement, recording by the Agent. 6. Upon such acceptance and recording, as of the Effective Date, (i) the Assignee shall be a party to the Transfer Agreement and, to the extent provided in this Assignment, have the rights and obligations of a Bank Investor thereunder and (ii) the Assignor shall, to the extent provided in this Assignment, relinquish its rights and be released from its obligations under the Transfer Agreement. 7. Upon such acceptance and recording, from and after the Effective Date, the Agent shall make all payments under the Transfer Agreement in respect of the interest assigned hereby (including, without limitation, all payments in respect of such interest in Aggregate Purchaser's Investment, Earned Discount and fees) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Transfer Agreement for periods prior to the Effective Date directly between themselves. - -------- 1 If the Assignee is organized under the laws of a jurisdiction outside the United States. A-3 8. This Assignment shall be governed by, and construed in accordance with, the laws of the State of New York. This Assignment may be executed in any number of counterparts and by different parties hereto in separate 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. Delivery of an executed counterpart of the signature page to this Assignment by telecopier shall be effective as delivery of a manually executed counterpart of this Assignment. IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Assumption to be executed by their respective officers thereunto duly authorized as of the __________ day of _______________, 20__. Remaining [NAME OF ASSIGNOR] COMMITMENT By: ------------------------------------- Name: Title: COMMITMENT [NAME OF ASSIGNEE] - ---------- $------------------ By: ------------------------------------- Name: Title: Address for notices and Account for payments: [Address] [Account] Consented to this ____ day of _________, 20__ BANK OF AMERICA, NATIONAL ASSOCIATION, as Administrative Agent By: ---------------------------------------- Name: Title. [TRANSFEROR] By: ---------------------------------------- Name: Title: Accepted this _________ day of ____________, 20__ BANK OF AMERICA, NATIONAL ASSOCIATION as Agent By: ---------------------------------------- Name: Title: A-4 EX-10.2 4 g74165ex10-2.txt AMENDED & RESTATED EXECUTIVE SEVERANCE AGREEMENT Exhibit 10.2 AMENDED AND RESTATED EXECUTIVE SEVERANCE AGREEMENT THIS AMENDED AND RESTATED EXECUTIVE SEVERANCE AGREEMENT ("Agreement") is made and entered into as of this 21st day of November, 2001, by and between The Wackenhut Corporation, a Florida corporation, its successor or successors, (hereinafter referred to as the "Company") and Alan B. Bernstein (hereinafter referred to as the "Executive"). The Executive is a key executive of the Company, and the Company desires to provide the Executive with an incentive to remain with the Company if concerns arise over a possible change in control. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the Company and the Executive agree as follows: 1. TERMINATION OF EXECUTIVE EMPLOYMENT. (a) PAYMENTS AND BENEFITS. If the Executive ceases to be employed by the Company for any reason (including the delivery of a written resignation to the Company by the Executive or his authorized representative on the Executive's or his estate's behalf) at any time during the 12 month period commencing on the date on which a Change in Control (as defined in Section 2 below) occurs, then (i) the Company shall pay the Special Termination Payment (as defined in Section 3 below) to the Executive (or his estate) within ten days after said termination, (ii) all awards granted pursuant to The Wackenhut Corporation Employee Long-Term Incentive Stock Plan and any other unvested stock options or other interests the Executive holds in the Company's stock or the stock of a subsidiary of the Company shall become fully vested, all restrictions on restricted stock units shall lapse, and all performance targets with respect to performance units or shares will be deemed to have been met as of the date the Executive's employment is terminated, (iii) the Company shall transfer all of its interest in any automobile used by the Executive pursuant to The Wackenhut Corporation Executive Automobile Policy (the "Executive Automobile Policy") and shall pay the balance of any outstanding loans or leases on such automobile (whether such obligations are those of the Executive or the Company) so that the Executive owns the automobile outright (in the event such automobile is leased, the Company shall pay the residual cost of such lease), (iv) the Company shall pay to the Executive, within ten days after said termination, an amount equal to the Deferred Compensation Payoff Amount defined below in full satisfaction of the Company's obligations under that certain Amended and Restated Senior Officer Retirement/Deferred Compensation Agreement between the Company and the Executive (the "Deferred Compensation Agreement"), (v) the Company shall continue to provide the Executive (and if applicable, his beneficiaries) with the Executive Benefits (as described in Section 4), at no cost to the Executive in no less than the same amount and, on the same terms and conditions as in effect on the date on which the Change of Control occurs for a period of 3 years after the date of termination of the Executive's employment with the Company, regardless of the cost to the Company, or, alternatively, if the Executive (or his estate) elects at any time in a written notice delivered to the Company to waive any particular Executive Benefits, the Company shall make a cash payment to the Executive within ten days after receipt of such election in an amount equal to the present value of the Company's cost of providing such Executive Benefits from the date of such election to the end of the foregoing 3-year period, and such present value shall be determined by reference to the Company's then-current cost levels and a discount rate equal to 120 percent of the short-term applicable Federal rate provided for in Section 1274(d) of the Internal Revenue Code (the "Code") for the month in which the Change in Control occurs; and (vi) the Company shall pay to the Executive, within 10 days after said termination, an amount equal to the sum of (a) the dollar value of vacation time that would have been credited to the Executive pursuant to the Company's Vacation Policy dated August 1, 1997, Number HR 350 (the "Vacation Policy") if the Executive had remained employed by the Company through the "Anniversary Date" (as defined in the Vacation Policy) immediately following his termination of employment, multiplied by a fraction, the numerator of which is the number of days which elapsed from the Executive's Anniversary Date immediately preceding the date of termination through the date of such termination, and the denominator of which is 365, plus (b) the dollar value of vacation time which the Executive was entitled to have taken immediately prior to the Executive's termination, which was not in fact taken by the Executive; the dollar value of vacation time referred to above shall be equal to the amount which would have been paid to the Executive by the Company during such vacation time had the vacation time in fact been taken by the Executive immediately prior to the Executive's termination. (b) RULES AND DEFINITIONS. (1) If the Executive dies during the 3-year period contemplated by clause (v) of the foregoing paragraph (a), the Company shall provide the Executive Benefits, to the extent applicable, to the Executive's estate, or make any applicable cash payments in lieu thereof to said estate. The Executive shall be deemed to be employed by the Company if the Executive is employed by the Company or any subsidiary of the Company in which the Company owns a majority of the subsidiary's voting securities. Notwithstanding anything else in this Agreement to the contrary, subsequent reemployment of the Executive by the Company or any successor of the Company following a Change in Control will not cause the Executive to forfeit any compensation or benefits provided in this Agreement. (2) The "Deferred Compensation Payoff Amount" is the sum of (i) an amount which will be sufficient to allow the Executive to purchase an annuity policy issued by a life insurance company which has the highest ratings from independent rating agencies (such as Standard & Poor's or A.M. Best) which will provide after-tax benefits in amounts which are at least equal to the after-tax benefits the Executive would have received had the Company paid the deferred compensation benefits to the Executive pursuant to the Deferred Compensation Agreement, with payments commencing no later than 30 days after the issuance of said annuity and at the same intervals as provided for in the Deferred Compensation Agreement (the "Annuity 2 Funding Amount"), plus (ii) the Deferred Compensation Gross-up Payment defined below. The Deferred Compensation Gross-up Payment is an amount which will cause the remainder of the Deferred Compensation Payoff Amount minus all Applicable Taxes (defined below) applicable to the Executive as a result of payment of the Deferred Compensation Payoff Amount, to be equal to the Annuity Funding Amount prior to deduction of any Applicable Taxes imposed with respect to the Annuity Funding Amount."Applicable Taxes" means all federal, state, local and other taxes, including income taxes, payroll taxes, and any other taxes, but not including any Excise Tax which is the subject of Section 3.a of this Agreement. The Deferred Compensation Gross-up Payment is intended to place the Executive in the same economic position with respect to the Annuity Funding Amount that the Executive would have been in if the Applicable Taxes did not apply. For purposes of determining after-tax benefits referred to in the definition of the Annuity Funding Amount above, the taxes to be taken into account shall be all applicable federal taxes assuming that the Executive is subject to taxation at the highest marginal rates. The payment of the Excise Tax Gross-up Payment provided for in Section 3.a, if applicable, shall be in addition to the Deferred Compensation Gross-up Payment referred to above. Upon payment of the Deferred Compensation Payoff Amount, the Company shall have no further obligation to make payments with respect to the Deferred Compensation Agreement. (3) With respect to any Executive Benefits which are health benefits subject to the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") ("Health Benefits") and for which continuation coverage under COBRA is elected by the Participant (at the Participant's expense), the Company shall provide the Executive with the Health Benefits (at its expense) contemplated by clause (v) of the foregoing paragraph (a) for a 3-year period beginning on the date continuation coverage under COBRA ends, provided that the Executive (or Executive's estate) does not elect to waive the Health Benefit in lieu of a cash payment as provided in clause (v) of the foregoing paragraph (a). If the Executive makes the election to receive the present value of said Executive Benefits under clause (v) of paragraph (a), the present value of Executive Benefits which are Health Benefits shall not be affected by any COBRA coverage, and this shall not impair the Executive's right to elect COBRA continuation as contemplated above. 2. CHANGE IN CONTROL. For purposes of this Agreement, a "Change in Control" shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied: (i) any "person" as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, (the "Exchange Act") (other than members of the Controlling Shareholder Group, the Company, any trustee or other fiduciary holding securities under any employee benefit plan of the Company, or any company owned, directly or indirectly, by the 3 shareholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities; (ii) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation or entity, OTHER THAN a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iii) the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (iv) the total combined voting power of the Company (or any successor entity) represented by shares of voting stock owned by members of the Controlling Shareholder Group is reduced to 30 percent or less. Notwithstanding the foregoing, in no event shall a Change in Control be deemed to have occurred, with respect to the Executive, if the Executive is part of a purchasing group which consummates a transaction causing a Change in Control. The Executive shall be deemed "part of a purchasing group" for purposes of the preceding sentence if the Executive is a direct or indirect equity participant in the purchasing company or group. The "Controlling Shareholder Group" includes (i) George R. Wackenhut, (ii) the spouse and lineal descendants of George R. Wackenhut, (iii) any trust whose only beneficiaries are persons described in the foregoing clauses (i) and (ii), and (iv) Affiliates of the persons described in the foregoing clauses (i), (ii) and (iii). An "Affiliate" of a person includes only a corporation, limited liability company, partnership, or similar entity where all of the voting securities or ownership interests of said entity are directly owned by such person. A "person" includes any natural person and any corporation, limited liability company, partnership, trust or other entity. 3. SPECIAL TERMINATION PAYMENT. For purposes of this Agreement, the "Special Termination Payment" shall mean an aggregate amount of money equal to the product of three (3) multiplied by the sum of the Executive's annual base salary as in effect at the time of the termination giving rise to the Special Termination Payment, or if greater the annual base salary in effect for the calendar year prior to the date of termination, plus the greater of (i) the annual bonus the Executive received during the preceding calendar year or (ii) the largest annual bonus the Executive would have received if his employment had not been terminated 4 in the calendar year in which his employment was terminated assuming that all targets and incentives are met (regardless of actual results and criteria). In the event that the Company does not pay the Special Termination Payment by the due date specified in this Agreement, then the unpaid amount shall bear interest at the rate of 18 percent per annum, compounded monthly, until it is paid. a. EQUALIZATION PAYMENT. If any of the Special Termination Payment will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or any similar tax that may hereafter be imposed), the Company shall also pay to the Executive in cash an additional amount (the "Excise Tax Gross-up Payment") such that the net amount retained by the Executive after deduction from the Special Termination Payment and the Excise Tax Gross-up Payment of any Excise Tax imposed upon the Special Termination Payment and any federal, state local and other taxes (including income taxes, payroll taxes, Excise Tax and any other taxes) imposed upon the Excise Tax Gross-up Payment shall be equal to the original amount of the Special Termination Payment, prior to deduction of any Excise Tax imposed with respect to the Special Termination Payment. The Excise Tax Gross-up Payment is intended to place the Executive in the same economic position he would have been in if the Excise Tax did not apply. The Excise Tax Gross-up Payment shall be paid to the Executive in full, at the time the Special Termination Payment is paid pursuant to Section 1 hereof. For purposes of determining the Excise Tax Gross-up Payment pursuant to this Section 3.a, the Special Termination Payment shall also include any amounts which would be considered "Parachute Payments" (within the meaning of Section 280G(b)(2) of the Code) to the Executive, including, but not limited to, all items listed in Section 1 of this Agreement to the extent that they are considered to be Parachute Payments such that the Company will absorb the full cost of any Excise Tax thereon and all taxes relating to the Company's absorption of any Excise Taxes. b. TAX RATES. For purposes of determining the amount of the Excise Tax Gross-up Payment, the Executive shall be deemed to pay Federal income taxes at the highest marginal rate of Federal income taxation in the calendar year in which the Excise Tax Gross-up Payment is to be made, and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the date of termination, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes. c. TAX CALCULATION. Simultaneously with the Company's payment of the Special Termination Payment, the Company shall deliver to the Executive a written statement specifying the total amount of all payments provided for in this Agreement, together with all supporting calculations. If the Executive disagrees with the Company's calculation of any of said payments, the Executive shall submit to the Company, no later than 30 days after receipt of the Company's calculations, a written 5 notice advising the Company of the disagreement and setting forth his calculation of said payments. The Executive's failure to submit such notice within such period shall be conclusively deemed to be an agreement by the Executive as to the amount of said payments. If the Company agrees with the Executive's calculations, it shall pay any shortfall to the Executive within 20 days after receipt of such a notice from the Executive, together with interest thereon accruing at the rate of 18 percent per annum, compounded monthly, from the original due date of the Special Termination Payment through the actual date of payment of said shortfall. If the Company does not agree with the Executive's calculations, it shall provide the Executive with a written notice within 20 days after the receipt of the Executive's calculations advising the Executive that the disagreement is to be referred to an independent accounting firm for resolution. Such disagreement shall be referred to an independent "Big 5" accounting firm which is not the regular accounting firm of the Company and which is agreed to by the Company and the Executive within 10 days after issuance of the Company's notice of disagreement (if the parties cannot agree on the identity of the accounting firm which is to resolve the dispute, the accounting firm shall be selected by means of a coin toss conducted in Palm Beach County, Florida by counsel to the Executive on the first business day after such 10 day period in such manner as such counsel may specify). The accounting firm shall review all information provided to it by the parties and submit a written report setting forth its calculation of the amounts provided for in this Agreement within 15 days after submission of the matter to it, and such decision shall be final and binding on all of the parties. The fees and expenses charged by said accounting firm shall be paid by the Company. If the amount of the payment actually paid by the Company was less than the amount calculated by the accounting firm, the Company shall pay the shortfall to the Executive within 5 days after the accounting firm submits its written report, together with interest thereon accruing at the rate of 18 percent per annum, compounded monthly, from the original due date of the Special Termination Payment through the actual date of payment of said shortfall. d. SUBSEQUENT RECALCULATION. In the event the Internal Revenue Service imposes an Excise Tax that is greater than the Excise Tax assumed for purposes of calculating the Excise Tax Gross-up Payment, the Company shall reimburse the Executive for the full amount necessary to make the Executive whole in accordance with the principles set forth above, including any interest and penalties which may be imposed. 4. EXECUTIVE BENEFITS. The term "Executive Benefits" means all health, dental, disability, life insurance, retirement and fringe benefits or programs now or hereafter established by the Company which cover the Company's executives or its employees, and applicable family members and which are in effect on the date on which a Change in Control occurs. The term "Executive Benefits" also includes, for purposes of Section 3, the value of the items provided for in clauses (ii) and (iii) of the first sentence in Section 1. 6 5. NON-COMPETITION. In the event that Executive's employment is terminated pursuant to Section 1 hereof and Executive timely receives payment of the Special Termination Payment, Executive agrees that for a period of 12 months after such termination of employment not to, directly or indirectly, own, manage, operate, control or participate in the ownership, management operation or control of, or be connected as an officer, employee, partner, director or otherwise with, or have any financial interest in, or aid or assist anyone else in the conduct of, any business (a "Competitive Operation") which competes with any business conducted by the Company, or by any group, division or subsidiary of the Company for which the Executive has had responsibility, in any area where such business is being conducted at the time of such termination. It is understood and agreed that, for the purposes of the foregoing provisions of this Section 5, no business which is conducted by the Company at the time of the Executive's termination and which subsequently is sold or discontinued by the Company shall be deemed to be a Competitive Operation within the meaning of this Section 5. Ownership of an amount not to exceed five percent (5%) of the voting stock of any publicly held corporation shall not constitute a violation hereof. 6. RELEASE AND INDEMNITY. The Company hereby fully and forever releases, acquits, discharges and holds the Executive harmless from any and all, and all manner of, actions and causes of action, claims, suits, costs, debts, sums of money, claims and demands, presently known or unknown, whatsoever in law or equity or otherwise, which the Company ever had, now has or may now have, or will have in the future, by reason of any matter, cause or thing whatsoever, from the beginning of the world and all times thereafter. The preceding sentence does not apply to any matters, events, actions, claims, damages or losses arising from, in connection with or relating to (i) any intentional illegal conduct of the Executive, or (ii) conduct of the Executive after the Executive ceases to be employed by the Company. The Company at all times shall indemnify, save harmless and reimburse the Executive, from and against any and all demands, claims, liabilities, losses, actions, suits or proceedings, or other expenses, fees, or charges of any character or nature, which the Executive may incur or with which they may be threatened with, arising from, in connection with, relating to or arising as a result of Executive's employment by the Company or any other relationship that the Executive has with the Company as an officer, director, agent shareholder or otherwise, including without limitation settlement costs and attorneys' fees and court costs at trial and appellate levels which the Executive may incur in connection with settling, defending against or resisting any of the foregoing. The Company shall pay to the Executive any amounts due with respect to said indemnity within 5 business days after the Executive issues a written demand therefor to the Company. The provisions of this section are an expansion of any rights that the Executive may have with respect to the subject matter, and no other agreement or arrangement which the Company may have that benefits the Executive with respect to the subject matter hereof shall be superseded or limited in any way as a result of the parties entering into this Agreement. 7 7. EXAMPLES. The operation of this Agreement is illustrated by the example set forth in Exhibit A attached hereto. Said example is not intended to limit the manner in which amounts payable hereunder are to be calculated. If other tax rates, taxes or other charges are applicable, the calculations shall be adjusted to achieve the same economic result to the Executive such that the Executive receives all payments under this Agreement free of costs represented by Excise Taxes or any taxes relating to the absorption by the Company of Excise Taxes, and also such that the Annuity Funding Amount is received free not only of Excise Taxes, but also of all other taxes arising with respect to the Annuity Funding Amount and the absorption by the Company of all such taxes. The assumptions set forth in the said example are for illustrative purposes only, and have no relationship to the actual amounts that may apply under this Agreement. 8. NOTICES. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when received at the address specified herein. In the case of Executive, notices shall be delivered to him at the home address which he has most recently communicated to the Company in writing. In the case of the Company, notices shall be delivered to the Company's corporate headquarters, and all notices shall be directed to the attention of the Company's Chief Executive Officer, with a copy to the Company's General Counsel. 9. NO MITIGATION. Executive shall not be required to mitigate the amount of any payment or benefit contemplated by this Agreement upon his termination of employment (whether by seeking new employment or in any other manner), nor shall any such payment or benefit be reduced by any earnings or benefits that Executive may receive from any other source. 10. MODIFICATION AND WAIVER. This Agreement shall not be canceled, rescinded or revoked, nor may any provision of this Agreement be modified, waived or discharged unless the cancellation, rescission, revocation, modification, waiver or discharge is agreed to in writing and signed by Executive and by the President or Chairman of the Board of the Company. No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time. 11. COMPLETE AGREEMENT. This Agreement supersedes all previous severance agreements entered into by Executive and the Company, including the Executive Severance Agreement entered into between the parties in the year 2000. Except as specifically provided in Section 1 of this Agreement, this Agreement does not affect any deferred compensation agreements, non-qualified retirement plans, or any other agreements entered into by the parties. 12. NO ASSIGNMENT. No right, benefit or interest hereunder, shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt or obligation, or to execution, attachment, levy or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any 8 action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void and of no effect. This Agreement is binding on all successors of the Company, whether by merger, consolidation, purchase or otherwise, and all references to the Company shall also include references to any such successor. 13. GOVERNING LAW. This Agreement shall be governed by, and construed and enforced in accordance with and subject to, the laws of the State of Florida applicable to Agreements made and to be performed entirely within such State, as to all matters governed by state law or, if controlling, by applicable federal law. 14. SEVERABILITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect. 15. LITIGATION; VENUE. Any action at law or in equity under this Agreement shall be brought in the courts of Palm Beach County, Florida, and in no other court (whether or not jurisdiction can be established in another court). Each party hereto waives the right to argue that venue is not appropriate in the courts of Palm Beach County, Florida. 16. EXPENSES. The Company shall reimburse the Executive for all legal and/or accounting expenses he incurs in connection with the execution, delivery and enforcement of his rights under this Agreement. 17. WITHHOLDING. All payments made pursuant to this Agreement will be subject to withholding of applicable taxes. 18. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. [Signatures on the Next Page] 9 IN WITNESS WHEREOF, the parties have executed this Amended and Restated Executive Severance Agreement effective the 21st day of November, 2001. SIGNED, SEALED AND DELIVERED EXECUTIVE: IN THE PRESENCE OF: /s/ Alan B. Bernstein - ----------------------------------- ---------------------------------- PRINT NAME OF WITNESS BELOW: Alan B. Bernstein - ----------------------------------- Date: November 20, 2001 ----------------------------- - ----------------------------------- PRINT NAME OF WITNESS BELOW: - ----------------------------------- THE WACKENHUT CORPORATION By: /s/ Richard R. Wackenhut ------------------------------- - ----------------------------------- ------------------------------- PRINT NAME OF WITNESS BELOW: - ----------------------------------- Name: Richard R. Wackenhut Title: President and Chief Executive Officer Date: November 21, 2001 - ----------------------------------- ----------------------------- PRINT NAME OF WITNESS BELOW: - ----------------------------------- 10 EXHIBIT A Page 1 of 2 This example assumes the following: (i) the Special Termination Payment in Section 1(a)(i)is $1.1 million; (ii) the Annuity Funding Amount provided for in Section 1(b)(2) is $2 million; (iii) the combined value of the benefits set forth in clauses (ii), (iii), (v) and (vi) of Section 1(a) for purposes of Code Section 280G is $100,000; (iv) all payments under this Agreement are "parachute payments" under Code Section 280G(b)(2)(A); (v) the Executive's base amount under Code Section 280G(b)(3)(A) is $300,000; (vi) the present value of the deferred compensation payments due to the Executive pursuant to the Deferred Compensation Agreement for purposes of Code Section 280G is $1,800,000; and (vii) payments made to the Executive under this Agreement are subject to a maximum federal income tax rate under Code section 1 of 39.1%, a payroll tax under Code section 3101 of 1.45%, and an excise tax under Code section 4999 of 20%, and no other taxes are applicable. Under these assumptions, the Deferred Compensation Gross-up Payment under Section 1(b)(2) of the Agreement is $1,364,171.57, the Deferred Compensation Payoff Amount under Section 1(b)(2) of the Agreement is $3,364,171.57, and the Excise Tax Gross-up Payment under Section 3.a is $1,249,263.15. The calculation of these amounts is set forth in the table set forth on the following page 2 of this Exhibit A. EXHIBIT A Page 2 of 2
A B C D E ----------- ------------ --------------- ------------- ----------------- INCREASED PRESENT VALUE EXCISE TAX SPECIAL OF DEFERRED GROSS-UP TERMINATION VALUE OF OTHER COMPENSATION PAYMENT 1 BASE AMOUNT PAYMENT BENEFITS FROM CELL E5 (B2+C2+D2-A3)XB12 ----------- ------------ -------------- ------------ ---------------- 2 300,000.00 1,100,000.00 100,000.00 1,564,171.57 1,249,263.15 3 DEFERRED PRESENT VALUE INCREASED COMPENSATION DEFERRED OF DEFERRED PRESENT VALUE ANNUITY GROSS-UP COMPENSATION COMPENSATION FOR OF DEFERRED FUNDING PAYMENT PAYOFF AMOUNT FOR 280G COMPENSATION 4 AMOUNT A5XB13 A5+B5 PURPOSES C5-D5 ------------ ------------- ------------- ---------------- -------------- 5 2,000,000.00 1,364,171.57 3,364,171.57 1,800,000.00 1,564,171.57 6 7 INCOME TAX RATE 0.39100 8 PAYROLL TAX RATE 0.01450 9 TAX RATE W/O EXCISE TAX B7+B8 0.40550 10 EXCISE TAX RATE 0.20000 11 TOTAL TAX RATE ON PARACHUTE PAYMENTS B9+B10 0.60550 12 EXCISE TAX GROSS-UP MULTIPLIER B10/(1-B11) 0.50697 13 INCOME TAX GROSS-UP MULTIPLIER B9/(1-B9) 0.68209
AMENDED AND RESTATED EXECUTIVE SEVERANCE AGREEMENT THIS AMENDED AND RESTATED EXECUTIVE SEVERANCE AGREEMENT ("Agreement") is made and entered into as of this 27th day of November, 2001, by and between The Wackenhut Corporation, a Florida corporation, its successor or successors, (hereinafter referred to as the "Company") and Robert C. Kneip (hereinafter referred to as the "Executive"). The Executive is a key executive of the Company, and the Company desires to provide the Executive with an incentive to remain with the Company if concerns arise over a possible change in control. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the Company and the Executive agree as follows: 1. TERMINATION OF EXECUTIVE EMPLOYMENT. (a) PAYMENTS AND BENEFITS. If the Executive ceases to be employed by the Company for any reason (including the delivery of a written resignation to the Company by the Executive or his authorized representative on the Executive's or his estate's behalf) at any time during the 12 month period commencing on the date on which a Change in Control (as defined in Section 2 below) occurs, then (i) the Company shall pay the Special Termination Payment (as defined in Section 3 below) to the Executive (or his estate) within ten days after said termination, (ii) all awards granted pursuant to The Wackenhut Corporation Employee Long-Term Incentive Stock Plan and any other unvested stock options or other interests the Executive holds in the Company's stock or the stock of a subsidiary of the Company shall become fully vested, all restrictions on restricted stock units shall lapse, and all performance targets with respect to performance units or shares will be deemed to have been met as of the date the Executive's employment is terminated, (iii) the Company shall transfer all of its interest in any automobile used by the Executive pursuant to The Wackenhut Corporation Executive Automobile Policy (the "Executive Automobile Policy") and shall pay the balance of any outstanding loans or leases on such automobile (whether such obligations are those of the Executive or the Company) so that the Executive owns the automobile outright (in the event such automobile is leased, the Company shall pay the residual cost of such lease), (iv) the Company shall pay to the Executive, within ten days after said termination, an amount equal to the Deferred Compensation Payoff Amount defined below in full satisfaction of the Company's obligations under that certain Amended and Restated Senior Officer Retirement/Deferred Compensation Agreement between the Company and the Executive (the "Deferred Compensation Agreement"), (v) the Company shall continue to provide the Executive (and if applicable, his beneficiaries) with the Executive Benefits (as described in Section 4), at no cost to the Executive in no less than the same amount and, on the same terms and conditions as in effect on the date on which the Change of Control occurs for a period of 3 years after the date of termination of the Executive's employment with the Company, regardless of the cost to the Company, or, alternatively, if the Executive (or his estate) elects at any time in a written notice delivered to the Company to waive any particular Executive Benefits, the Company shall make a cash payment to the Executive within ten days after receipt of such election in an amount equal to the present value of the Company's cost of providing such Executive Benefits from the date of such election to the end of the foregoing 3-year period, and such present value shall be determined by reference to the Company's then-current cost levels and a discount rate equal to 120 percent of the short-term applicable Federal rate provided for in Section 1274(d) of the Internal Revenue Code (the "Code") for the month in which the Change in Control occurs; and (vi) the Company shall pay to the Executive, within 10 days after said termination, an amount equal to the sum of (a) the dollar value of vacation time that would have been credited to the Executive pursuant to the Company's Vacation Policy dated August 1, 1997, Number HR 350 (the "Vacation Policy") if the Executive had remained employed by the Company through the "Anniversary Date" (as defined in the Vacation Policy) immediately following his termination of employment, multiplied by a fraction, the numerator of which is the number of days which elapsed from the Executive's Anniversary Date immediately preceding the date of termination through the date of such termination, and the denominator of which is 365, plus (b) the dollar value of vacation time which the Executive was entitled to have taken immediately prior to the Executive's termination, which was not in fact taken by the Executive; the dollar value of vacation time referred to above shall be equal to the amount which would have been paid to the Executive by the Company during such vacation time had the vacation time in fact been taken by the Executive immediately prior to the Executive's termination. (b) RULES AND DEFINITIONS. (1) If the Executive dies during the 3-year period contemplated by clause (v) of the foregoing paragraph (a), the Company shall provide the Executive Benefits, to the extent applicable, to the Executive's estate, or make any applicable cash payments in lieu thereof to said estate. The Executive shall be deemed to be employed by the Company if the Executive is employed by the Company or any subsidiary of the Company in which the Company owns a majority of the subsidiary's voting securities. Notwithstanding anything else in this Agreement to the contrary, subsequent reemployment of the Executive by the Company or any successor of the Company following a Change in Control will not cause the Executive to forfeit any compensation or benefits provided in this Agreement. (2) The "Deferred Compensation Payoff Amount" is the sum of (i) an amount which will be sufficient to allow the Executive to purchase an annuity policy issued by a life insurance company which has the highest ratings from independent rating agencies (such as Standard & Poor's or A.M. Best) which will provide after-tax benefits in amounts which are at least equal to the after-tax benefits the Executive would have received had the Company paid the deferred compensation benefits to the Executive pursuant to the Deferred Compensation Agreement, with payments commencing no later than 30 days after the issuance of said annuity and at the same intervals as provided for in the Deferred Compensation Agreement (the "Annuity 2 Funding Amount"), plus (ii) the Deferred Compensation Gross-up Payment defined below. The Deferred Compensation Gross-up Payment is an amount which will cause the remainder of the Deferred Compensation Payoff Amount minus all Applicable Taxes (defined below) applicable to the Executive as a result of payment of the Deferred Compensation Payoff Amount, to be equal to the Annuity Funding Amount prior to deduction of any Applicable Taxes imposed with respect to the Annuity Funding Amount."Applicable Taxes" means all federal, state, local and other taxes, including income taxes, payroll taxes, and any other taxes, but not including any Excise Tax which is the subject of Section 3.a of this Agreement. The Deferred Compensation Gross-up Payment is intended to place the Executive in the same economic position with respect to the Annuity Funding Amount that the Executive would have been in if the Applicable Taxes did not apply. For purposes of determining after-tax benefits referred to in the definition of the Annuity Funding Amount above, the taxes to be taken into account shall be all applicable federal taxes assuming that the Executive is subject to taxation at the highest marginal rates. The payment of the Excise Tax Gross-up Payment provided for in Section 3.a, if applicable, shall be in addition to the Deferred Compensation Gross-up Payment referred to above. Upon payment of the Deferred Compensation Payoff Amount, the Company shall have no further obligation to make payments with respect to the Deferred Compensation Agreement. (3) With respect to any Executive Benefits which are health benefits subject to the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") ("Health Benefits") and for which continuation coverage under COBRA is elected by the Participant (at the Participant's expense), the Company shall provide the Executive with the Health Benefits (at its expense) contemplated by clause (v) of the foregoing paragraph (a) for a 3-year period beginning on the date continuation coverage under COBRA ends, provided that the Executive (or Executive's estate) does not elect to waive the Health Benefit in lieu of a cash payment as provided in clause (v) of the foregoing paragraph (a). If the Executive makes the election to receive the present value of said Executive Benefits under clause (v) of paragraph (a), the present value of Executive Benefits which are Health Benefits shall not be affected by any COBRA coverage, and this shall not impair the Executive's right to elect COBRA continuation as contemplated above. 2. CHANGE IN CONTROL. For purposes of this Agreement, a "Change in Control" shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied: (i) any "person" as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, (the "Exchange Act") (other than members of the Controlling Shareholder Group, the Company, any trustee or other fiduciary holding securities under any employee benefit plan of the Company, or any company owned, directly or indirectly, by the 3 shareholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities; (ii) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation or entity, OTHER THAN a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iii) the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (iv) the total combined voting power of the Company (or any successor entity) represented by shares of voting stock owned by members of the Controlling Shareholder Group is reduced to 30 percent or less. Notwithstanding the foregoing, in no event shall a Change in Control be deemed to have occurred, with respect to the Executive, if the Executive is part of a purchasing group which consummates a transaction causing a Change in Control. The Executive shall be deemed "part of a purchasing group" for purposes of the preceding sentence if the Executive is a direct or indirect equity participant in the purchasing company or group. The "Controlling Shareholder Group" includes (i) George R. Wackenhut, (ii) the spouse and lineal descendants of George R. Wackenhut, (iii) any trust whose only beneficiaries are persons described in the foregoing clauses (i) and (ii), and (iv) Affiliates of the persons described in the foregoing clauses (i), (ii) and (iii). An "Affiliate" of a person includes only a corporation, limited liability company, partnership, or similar entity where all of the voting securities or ownership interests of said entity are directly owned by such person. A "person" includes any natural person and any corporation, limited liability company, partnership, trust or other entity. 3. SPECIAL TERMINATION PAYMENT. For purposes of this Agreement, the "Special Termination Payment" shall mean an aggregate amount of money equal to the product of three (3) multiplied by the sum of the Executive's annual base salary as in effect at the time of the termination giving rise to the Special Termination Payment, or if greater the annual base salary in effect for the calendar year prior to the date of termination, plus the greater of (i) the annual bonus the Executive received during the preceding calendar year or (ii) the largest annual bonus the Executive would have received if his employment had not been terminated 4 in the calendar year in which his employment was terminated assuming that all targets and incentives are met (regardless of actual results and criteria). In the event that the Company does not pay the Special Termination Payment by the due date specified in this Agreement, then the unpaid amount shall bear interest at the rate of 18 percent per annum, compounded monthly, until it is paid. a. EQUALIZATION PAYMENT. If any of the Special Termination Payment will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or any similar tax that may hereafter be imposed), the Company shall also pay to the Executive in cash an additional amount (the "Excise Tax Gross-up Payment") such that the net amount retained by the Executive after deduction from the Special Termination Payment and the Excise Tax Gross-up Payment of any Excise Tax imposed upon the Special Termination Payment and any federal, state local and other taxes (including income taxes, payroll taxes, Excise Tax and any other taxes) imposed upon the Excise Tax Gross-up Payment shall be equal to the original amount of the Special Termination Payment, prior to deduction of any Excise Tax imposed with respect to the Special Termination Payment. The Excise Tax Gross-up Payment is intended to place the Executive in the same economic position he would have been in if the Excise Tax did not apply. The Excise Tax Gross-up Payment shall be paid to the Executive in full, at the time the Special Termination Payment is paid pursuant to Section 1 hereof. For purposes of determining the Excise Tax Gross-up Payment pursuant to this Section 3.a, the Special Termination Payment shall also include any amounts which would be considered "Parachute Payments" (within the meaning of Section 280G(b)(2) of the Code) to the Executive, including, but not limited to, all items listed in Section 1 of this Agreement to the extent that they are considered to be Parachute Payments such that the Company will absorb the full cost of any Excise Tax thereon and all taxes relating to the Company's absorption of any Excise Taxes. b. TAX RATES. For purposes of determining the amount of the Excise Tax Gross-up Payment, the Executive shall be deemed to pay Federal income taxes at the highest marginal rate of Federal income taxation in the calendar year in which the Excise Tax Gross-up Payment is to be made, and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the date of termination, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes. c. TAX CALCULATION. Simultaneously with the Company's payment of the Special Termination Payment, the Company shall deliver to the Executive a written statement specifying the total amount of all payments provided for in this Agreement, together with all supporting calculations. If the Executive disagrees with the Company's calculation of any of said payments, the Executive shall submit to the Company, no later than 30 days after receipt of the Company's calculations, a written notice 5 advising the Company of the disagreement and setting forth his calculation of said payments. The Executive's failure to submit such notice within such period shall be conclusively deemed to be an agreement by the Executive as to the amount of said payments. If the Company agrees with the Executive's calculations, it shall pay any shortfall to the Executive within 20 days after receipt of such a notice from the Executive, together with interest thereon accruing at the rate of 18 percent per annum, compounded monthly, from the original due date of the Special Termination Payment through the actual date of payment of said shortfall. If the Company does not agree with the Executive's calculations, it shall provide the Executive with a written notice within 20 days after the receipt of the Executive's calculations advising the Executive that the disagreement is to be referred to an independent accounting firm for resolution. Such disagreement shall be referred to an independent "Big 5" accounting firm which is not the regular accounting firm of the Company and which is agreed to by the Company and the Executive within 10 days after issuance of the Company's notice of disagreement (if the parties cannot agree on the identity of the accounting firm which is to resolve the dispute, the accounting firm shall be selected by means of a coin toss conducted in Palm Beach County, Florida by counsel to the Executive on the first business day after such 10 day period in such manner as such counsel may specify). The accounting firm shall review all information provided to it by the parties and submit a written report setting forth its calculation of the amounts provided for in this Agreement within 15 days after submission of the matter to it, and such decision shall be final and binding on all of the parties. The fees and expenses charged by said accounting firm shall be paid by the Company. If the amount of the payment actually paid by the Company was less than the amount calculated by the accounting firm, the Company shall pay the shortfall to the Executive within 5 days after the accounting firm submits its written report, together with interest thereon accruing at the rate of 18 percent per annum, compounded monthly, from the original due date of the Special Termination Payment through the actual date of payment of said shortfall. d. SUBSEQUENT RECALCULATION. In the event the Internal Revenue Service imposes an Excise Tax that is greater than the Excise Tax assumed for purposes of calculating the Excise Tax Gross-up Payment, the Company shall reimburse the Executive for the full amount necessary to make the Executive whole in accordance with the principles set forth above, including any interest and penalties which may be imposed. 4. EXECUTIVE BENEFITS. The term "Executive Benefits" means all health, dental, disability, life insurance, retirement and fringe benefits or programs now or hereafter established by the Company which cover the Company's executives or its employees, and applicable family members and which are in effect on the date on which a Change in Control occurs. The term "Executive Benefits" also includes, for purposes of Section 3, the value of the items provided for in clauses (ii) and (iii) of the first sentence in Section 1. 6 5. NON-COMPETITION. In the event that Executive's employment is terminated pursuant to Section 1 hereof and Executive timely receives payment of the Special Termination Payment, Executive agrees that for a period of 12 months after such termination of employment not to, directly or indirectly, own, manage, operate, control or participate in the ownership, management operation or control of, or be connected as an officer, employee, partner, director or otherwise with, or have any financial interest in, or aid or assist anyone else in the conduct of, any business (a "Competitive Operation") which competes with any business conducted by the Company, or by any group, division or subsidiary of the Company for which the Executive has had responsibility, in any area where such business is being conducted at the time of such termination. It is understood and agreed that, for the purposes of the foregoing provisions of this Section 5, no business which is conducted by the Company at the time of the Executive's termination and which subsequently is sold or discontinued by the Company shall be deemed to be a Competitive Operation within the meaning of this Section 5. Ownership of an amount not to exceed five percent (5%) of the voting stock of any publicly held corporation shall not constitute a violation hereof. 6. RELEASE AND INDEMNITY. The Company hereby fully and forever releases, acquits, discharges and holds the Executive harmless from any and all, and all manner of, actions and causes of action, claims, suits, costs, debts, sums of money, claims and demands, presently known or unknown, whatsoever in law or equity or otherwise, which the Company ever had, now has or may now have, or will have in the future, by reason of any matter, cause or thing whatsoever, from the beginning of the world and all times thereafter. The preceding sentence does not apply to any matters, events, actions, claims, damages or losses arising from, in connection with or relating to (i) any intentional illegal conduct of the Executive, or (ii) conduct of the Executive after the Executive ceases to be employed by the Company. The Company at all times shall indemnify, save harmless and reimburse the Executive, from and against any and all demands, claims, liabilities, losses, actions, suits or proceedings, or other expenses, fees, or charges of any character or nature, which the Executive may incur or with which they may be threatened with, arising from, in connection with, relating to or arising as a result of Executive's employment by the Company or any other relationship that the Executive has with the Company as an officer, director, agent shareholder or otherwise, including without limitation settlement costs and attorneys' fees and court costs at trial and appellate levels which the Executive may incur in connection with settling, defending against or resisting any of the foregoing. The Company shall pay to the Executive any amounts due with respect to said indemnity within 5 business days after the Executive issues a written demand therefor to the Company. The provisions of this section are an expansion of any rights that the Executive may have with respect to the subject matter, and no other agreement or arrangement which the Company may have that benefits the Executive with respect to the subject matter hereof shall be superseded or limited in any way as a result of the parties entering into this Agreement. 7 7. EXAMPLES. The operation of this Agreement is illustrated by the example set forth in Exhibit A attached hereto. Said example is not intended to limit the manner in which amounts payable hereunder are to be calculated. If other tax rates, taxes or other charges are applicable, the calculations shall be adjusted to achieve the same economic result to the Executive such that the Executive receives all payments under this Agreement free of costs represented by Excise Taxes or any taxes relating to the absorption by the Company of Excise Taxes, and also such that the Annuity Funding Amount is received free not only of Excise Taxes, but also of all other taxes arising with respect to the Annuity Funding Amount and the absorption by the Company of all such taxes. The assumptions set forth in the said example are for illustrative purposes only, and have no relationship to the actual amounts that may apply under this Agreement. 8. NOTICES. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when received at the address specified herein. In the case of Executive, notices shall be delivered to him at the home address which he has most recently communicated to the Company in writing. In the case of the Company, notices shall be delivered to the Company's corporate headquarters, and all notices shall be directed to the attention of the Company's Chief Executive Officer, with a copy to the Company's General Counsel. 9. NO MITIGATION. Executive shall not be required to mitigate the amount of any payment or benefit contemplated by this Agreement upon his termination of employment (whether by seeking new employment or in any other manner), nor shall any such payment or benefit be reduced by any earnings or benefits that Executive may receive from any other source. 10. MODIFICATION AND WAIVER. This Agreement shall not be canceled, rescinded or revoked, nor may any provision of this Agreement be modified, waived or discharged unless the cancellation, rescission, revocation, modification, waiver or discharge is agreed to in writing and signed by Executive and by the President or Chairman of the Board of the Company. No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time. 11. COMPLETE AGREEMENT. This Agreement supersedes all previous severance agreements entered into by Executive and the Company, including the Executive Severance Agreement entered into between the parties in the year 2000. Except as specifically provided in Section 1 of this Agreement, this Agreement does not affect any deferred compensation agreements, non-qualified retirement plans, or any other agreements entered into by the parties. 12. NO ASSIGNMENT. No right, benefit or interest hereunder, shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt or obligation, or to execution, attachment, levy or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, 8 to effect any action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void and of no effect. This Agreement is binding on all successors of the Company, whether by merger, consolidation, purchase or otherwise, and all references to the Company shall also include references to any such successor. 13. GOVERNING LAW. This Agreement shall be governed by, and construed and enforced in accordance with and subject to, the laws of the State of Florida applicable to Agreements made and to be performed entirely within such State, as to all matters governed by state law or, if controlling, by applicable federal law. 14. SEVERABILITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect. 15. LITIGATION; VENUE. Any action at law or in equity under this Agreement shall be brought in the courts of Palm Beach County, Florida, and in no other court (whether or not jurisdiction can be established in another court). Each party hereto waives the right to argue that venue is not appropriate in the courts of Palm Beach County, Florida. 16. EXPENSES. The Company shall reimburse the Executive for all legal and/or accounting expenses he incurs in connection with the execution, delivery and enforcement of his rights under this Agreement. 17. WITHHOLDING. All payments made pursuant to this Agreement will be subject to withholding of applicable taxes. 18. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. [Signature on the Next Page] 9 IN WITNESS WHEREOF, the parties have executed this Amended and Restated Executive Severance Agreement effective the 27th day of November, 2001. SIGNED, SEALED AND DELIVERED EXECUTIVE: IN THE PRESENCE OF: /s/ Robert C. Kneip - ------------------------------------ ---------------------------------- PRINT NAME OF WITNESS BELOW: Robert C. Kneip - ------------------------------------ Date: November 27, 2001 ----------------------------- - ------------------------------------ PRINT NAME OF WITNESS BELOW: - ------------------------------------ THE WACKENHUT CORPORATION By: /s/ Richard R. Wackenhut - ------------------------------------ ------------------------------- PRINT NAME OF WITNESS BELOW: - ------------------------------------ Name: Richard R. Wackenhut Title: President and Chief Executive Officer Date: November 27, 2001 - ------------------------------------ -------------------------- PRINT NAME OF WITNESS BELOW: - ------------------------------------ 10 EXHIBIT A Page 1 of 2 This example assumes the following: (i) the Special Termination Payment in Section 1(a)(i)is $1.1 million; (ii) the Annuity Funding Amount provided for in Section 1(b)(2) is $2 million; (iii) the combined value of the benefits set forth in clauses (ii), (iii), (v) and (vi) of Section 1(a) for purposes of Code Section 280G is $100,000; (iv) all payments under this Agreement are "parachute payments" under Code Section 280G(b)(2)(A); (v) the Executive's base amount under Code Section 280G(b)(3)(A) is $300,000; (vi) the present value of the deferred compensation payments due to the Executive pursuant to the Deferred Compensation Agreement for purposes of Code Section 280G is $1,800,000; and (vii) payments made to the Executive under this Agreement are subject to a maximum federal income tax rate under Code section 1 of 39.1%, a payroll tax under Code section 3101 of 1.45%, and an excise tax under Code section 4999 of 20%, and no other taxes are applicable. Under these assumptions, the Deferred Compensation Gross-up Payment under Section 1(b)(2) of the Agreement is $1,364,171.57, the Deferred Compensation Payoff Amount under Section 1(b)(2) of the Agreement is $3,364,171.57, and the Excise Tax Gross-up Payment under Section 3.a is $1,249,263.15. The calculation of these amounts is set forth in the table set forth on the following page 2 of this Exhibit A. EXHIBIT A Page 2 of 2
A B C D E ----------- ------------ --------------- ------------- ----------------- INCREASED PRESENT VALUE EXCISE TAX SPECIAL OF DEFERRED GROSS-UP TERMINATION VALUE OF OTHER COMPENSATION PAYMENT 1 BASE AMOUNT PAYMENT BENEFITS FROM CELL E5 (B2+C2+D2-A3)XB12 ----------- ------------ -------------- ------------ ---------------- 2 300,000.00 1,100,000.00 100,000.00 1,564,171.57 1,249,263.15 3 DEFERRED PRESENT VALUE INCREASED COMPENSATION DEFERRED OF DEFERRED PRESENT VALUE ANNUITY GROSS-UP COMPENSATION COMPENSATION FOR OF DEFERRED FUNDING PAYMENT PAYOFF AMOUNT FOR 280G COMPENSATION 4 AMOUNT A5XB13 A5+B5 PURPOSES C5-D5 ------------ ------------- ------------- ---------------- -------------- 5 2,000,000.00 1,364,171.57 3,364,171.57 1,800,000.00 1,564,171.57 6 7 INCOME TAX RATE 0.39100 8 PAYROLL TAX RATE 0.01450 9 TAX RATE W/O EXCISE TAX B7+B8 0.40550 10 EXCISE TAX RATE 0.20000 11 TOTAL TAX RATE ON PARACHUTE PAYMENTS B9+B10 0.60550 12 EXCISE TAX GROSS-UP MULTIPLIER B10/(1-B11) 0.50697 13 INCOME TAX GROSS-UP MULTIPLIER B9/(1-B9) 0.68209
AMENDED AND RESTATED EXECUTIVE SEVERANCE AGREEMENT THIS AMENDED AND RESTATED EXECUTIVE SEVERANCE AGREEMENT ("Agreement") fpis made and entered into as of this 21st day of November, 2001, by and between The Wackenhut Corporation, a Florida corporation, its successor or successors, (hereinafter referred to as the "Company") and Philip L. Maslowe (hereinafter referred to as the "Executive"). The Executive is a key executive of the Company, and the Company desires to provide the Executive with an incentive to remain with the Company if concerns arise over a possible change in control. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the Company and the Executive agree as follows: 1. TERMINATION OF EXECUTIVE EMPLOYMENT. (a) PAYMENTS AND BENEFITS. If the Executive ceases to be employed by the Company for any reason (including the delivery of a written resignation to the Company by the Executive or his authorized representative on the Executive's or his estate's behalf) at any time during the 12 month period commencing on the date on which a Change in Control (as defined in Section 2 below) occurs, then (i) the Company shall pay the Special Termination Payment (as defined in Section 3 below) to the Executive (or his estate) within ten days after said termination, (ii) all awards granted pursuant to The Wackenhut Corporation Employee Long-Term Incentive Stock Plan and any other unvested stock options or other interests the Executive holds in the Company's stock or the stock of a subsidiary of the Company shall become fully vested, all restrictions on restricted stock units shall lapse, and all performance targets with respect to performance units or shares will be deemed to have been met as of the date the Executive's employment is terminated, (iii) the Company shall transfer all of its interest in any automobile used by the Executive pursuant to The Wackenhut Corporation Executive Automobile Policy (the "Executive Automobile Policy") and shall pay the balance of any outstanding loans or leases on such automobile (whether such obligations are those of the Executive or the Company) so that the Executive owns the automobile outright (in the event such automobile is leased, the Company shall pay the residual cost of such lease), (iv) the Company shall pay to the Executive, within ten days after said termination, an amount equal to the Deferred Compensation Payoff Amount defined below in full satisfaction of the Company's obligations under that certain Amended and Restated Senior Officer Retirement/Deferred Compensation Agreement between the Company and the Executive (the "Deferred Compensation Agreement"), (v) the Company shall continue to provide the Executive (and if applicable, his beneficiaries) with the Executive Benefits (as described in Section 4), at no cost to the Executive in no less than the same amount and, on the same terms and conditions as in effect on the date on which the Change of Control occurs for a period of 3 years after the date of termination of the Executive's employment with the Company, regardless of the cost to the Company, or, alternatively, if the Executive (or his estate) elects at any time in a written notice delivered to the Company to waive any particular Executive Benefits, the Company shall make a cash payment to the Executive within ten days after receipt of such election in an amount equal to the present value of the Company's cost of providing such Executive Benefits from the date of such election to the end of the foregoing 3-year period, and such present value shall be determined by reference to the Company's then-current cost levels and a discount rate equal to 120 percent of the short-term applicable Federal rate provided for in Section 1274(d) of the Internal Revenue Code (the "Code") for the month in which the Change in Control occurs; and (vi) the Company shall pay to the Executive, within 10 days after said termination, an amount equal to the sum of (a) the dollar value of vacation time that would have been credited to the Executive pursuant to the Company's Vacation Policy dated August 1, 1997, Number HR 350 (the "Vacation Policy") if the Executive had remained employed by the Company through the "Anniversary Date" (as defined in the Vacation Policy) immediately following his termination of employment, multiplied by a fraction, the numerator of which is the number of days which elapsed from the Executive's Anniversary Date immediately preceding the date of termination through the date of such termination, and the denominator of which is 365, plus (b) the dollar value of vacation time which the Executive was entitled to have taken immediately prior to the Executive's termination, which was not in fact taken by the Executive; the dollar value of vacation time referred to above shall be equal to the amount which would have been paid to the Executive by the Company during such vacation time had the vacation time in fact been taken by the Executive immediately prior to the Executive's termination. (b) RULES AND DEFINITIONS. (1) If the Executive dies during the 3-year period contemplated by clause (v) of the foregoing paragraph (a), the Company shall provide the Executive Benefits, to the extent applicable, to the Executive's estate, or make any applicable cash payments in lieu thereof to said estate. The Executive shall be deemed to be employed by the Company if the Executive is employed by the Company or any subsidiary of the Company in which the Company owns a majority of the subsidiary's voting securities. Notwithstanding anything else in this Agreement to the contrary, subsequent reemployment of the Executive by the Company or any successor of the Company following a Change in Control will not cause the Executive to forfeit any compensation or benefits provided in this Agreement. (2) The "Deferred Compensation Payoff Amount" is the sum of (i) an amount which will be sufficient to allow the Executive to purchase an annuity policy issued by a life insurance company which has the highest ratings from independent rating agencies (such as Standard & Poor's or A.M. Best) which will provide after-tax benefits in amounts which are at least equal to the after-tax benefits the Executive would have received had the Company paid the deferred compensation benefits to the Executive pursuant to the Deferred Compensation Agreement, with payments commencing no later than 30 days after the issuance of said annuity and at the same intervals as provided for in the Deferred Compensation Agreement (the "Annuity 2 Funding Amount"), plus (ii) the Deferred Compensation Gross-up Payment defined below. The Deferred Compensation Gross-up Payment is an amount which will cause the remainder of the Deferred Compensation Payoff Amount minus all Applicable Taxes (defined below) applicable to the Executive as a result of payment of the Deferred Compensation Payoff Amount, to be equal to the Annuity Funding Amount prior to deduction of any Applicable Taxes imposed with respect to the Annuity Funding Amount."Applicable Taxes" means all federal, state, local and other taxes, including income taxes, payroll taxes, and any other taxes, but not including any Excise Tax which is the subject of Section 3.a of this Agreement. The Deferred Compensation Gross-up Payment is intended to place the Executive in the same economic position with respect to the Annuity Funding Amount that the Executive would have been in if the Applicable Taxes did not apply. For purposes of determining after-tax benefits referred to in the definition of the Annuity Funding Amount above, the taxes to be taken into account shall be all applicable federal taxes assuming that the Executive is subject to taxation at the highest marginal rates. The payment of the Excise Tax Gross-up Payment provided for in Section 3.a, if applicable, shall be in addition to the Deferred Compensation Gross-up Payment referred to above. Upon payment of the Deferred Compensation Payoff Amount, the Company shall have no further obligation to make payments with respect to the Deferred Compensation Agreement. (3) With respect to any Executive Benefits which are health benefits subject to the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") ("Health Benefits") and for which continuation coverage under COBRA is elected by the Participant (at the Participant's expense), the Company shall provide the Executive with the Health Benefits (at its expense) contemplated by clause (v) of the foregoing paragraph (a) for a 3-year period beginning on the date continuation coverage under COBRA ends, provided that the Executive (or Executive's estate) does not elect to waive the Health Benefit in lieu of a cash payment as provided in clause (v) of the foregoing paragraph (a). If the Executive makes the election to receive the present value of said Executive Benefits under clause (v) of paragraph (a), the present value of Executive Benefits which are Health Benefits shall not be affected by any COBRA coverage, and this shall not impair the Executive's right to elect COBRA continuation as contemplated above. 2. CHANGE IN CONTROL. For purposes of this Agreement, a "Change in Control" shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied: (i) any "person" as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, (the "Exchange Act") (other than members of the Controlling Shareholder Group, the Company, any trustee or other fiduciary holding securities under any employee benefit plan of the Company, or any company owned, directly or indirectly, by the 3 shareholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities; (ii) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation or entity, OTHER THAN a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iii) the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (iv) the total combined voting power of the Company (or any successor entity) represented by shares of voting stock owned by members of the Controlling Shareholder Group is reduced to 30 percent or less. Notwithstanding the foregoing, in no event shall a Change in Control be deemed to have occurred, with respect to the Executive, if the Executive is part of a purchasing group which consummates a transaction causing a Change in Control. The Executive shall be deemed "part of a purchasing group" for purposes of the preceding sentence if the Executive is a direct or indirect equity participant in the purchasing company or group. The "Controlling Shareholder Group" includes (i) George R. Wackenhut, (ii) the spouse and lineal descendants of George R. Wackenhut, (iii) any trust whose only beneficiaries are persons described in the foregoing clauses (i) and (ii), and (iv) Affiliates of the persons described in the foregoing clauses (i), (ii) and (iii). An "Affiliate" of a person includes only a corporation, limited liability company, partnership, or similar entity where all of the voting securities or ownership interests of said entity are directly owned by such person. A "person" includes any natural person and any corporation, limited liability company, partnership, trust or other entity. 3. SPECIAL TERMINATION PAYMENT. For purposes of this Agreement, the "Special Termination Payment" shall mean an aggregate amount of money equal to the product of three (3) multiplied by the sum of the Executive's annual base salary as in effect at the time of the termination giving rise to the Special Termination Payment, or if greater the annual base salary in effect for the calendar year prior to the date of termination, plus the greater of (i) the annual bonus the Executive received during the preceding calendar year or (ii) the largest annual bonus the Executive would have received if his employment had not been terminated 4 in the calendar year in which his employment was terminated assuming that all targets and incentives are met (regardless of actual results and criteria). In the event that the Company does not pay the Special Termination Payment by the due date specified in this Agreement, then the unpaid amount shall bear interest at the rate of 18 percent per annum, compounded monthly, until it is paid. a. EQUALIZATION PAYMENT. If any of the Special Termination Payment will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or any similar tax that may hereafter be imposed), the Company shall also pay to the Executive in cash an additional amount (the "Excise Tax Gross-up Payment") such that the net amount retained by the Executive after deduction from the Special Termination Payment and the Excise Tax Gross-up Payment of any Excise Tax imposed upon the Special Termination Payment and any federal, state local and other taxes (including income taxes, payroll taxes, Excise Tax and any other taxes) imposed upon the Excise Tax Gross-up Payment shall be equal to the original amount of the Special Termination Payment, prior to deduction of any Excise Tax imposed with respect to the Special Termination Payment. The Excise Tax Gross-up Payment is intended to place the Executive in the same economic position he would have been in if the Excise Tax did not apply. The Excise Tax Gross-up Payment shall be paid to the Executive in full, at the time the Special Termination Payment is paid pursuant to Section 1 hereof. For purposes of determining the Excise Tax Gross-up Payment pursuant to this Section 3.a, the Special Termination Payment shall also include any amounts which would be considered "Parachute Payments" (within the meaning of Section 280G(b)(2) of the Code) to the Executive, including, but not limited to, all items listed in Section 1 of this Agreement to the extent that they are considered to be Parachute Payments such that the Company will absorb the full cost of any Excise Tax thereon and all taxes relating to the Company's absorption of any Excise Taxes. b. TAX RATES. For purposes of determining the amount of the Excise Tax Gross-up Payment, the Executive shall be deemed to pay Federal income taxes at the highest marginal rate of Federal income taxation in the calendar year in which the Excise Tax Gross-up Payment is to be made, and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the date of termination, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes. c. TAX CALCULATION. Simultaneously with the Company's payment of the Special Termination Payment, the Company shall deliver to the Executive a written statement specifying the total amount of all payments provided for in this Agreement, together with all supporting calculations. If the Executive disagrees with the Company's calculation of any of said payments, the Executive shall submit to the Company, no later than 30 days after receipt of the Company's calculations, a written 5 notice advising the Company of the disagreement and setting forth his calculation of said payments. The Executive's failure to submit such notice within such period shall be conclusively deemed to be an agreement by the Executive as to the amount of said payments. If the Company agrees with the Executive's calculations, it shall pay any shortfall to the Executive within 20 days after receipt of such a notice from the Executive, together with interest thereon accruing at the rate of 18 percent per annum, compounded monthly, from the original due date of the Special Termination Payment through the actual date of payment of said shortfall. If the Company does not agree with the Executive's calculations, it shall provide the Executive with a written notice within 20 days after the receipt of the Executive's calculations advising the Executive that the disagreement is to be referred to an independent accounting firm for resolution. Such disagreement shall be referred to an independent "Big 5" accounting firm which is not the regular accounting firm of the Company and which is agreed to by the Company and the Executive within 10 days after issuance of the Company's notice of disagreement (if the parties cannot agree on the identity of the accounting firm which is to resolve the dispute, the accounting firm shall be selected by means of a coin toss conducted in Palm Beach County, Florida by counsel to the Executive on the first business day after such 10 day period in such manner as such counsel may specify). The accounting firm shall review all information provided to it by the parties and submit a written report setting forth its calculation of the amounts provided for in this Agreement within 15 days after submission of the matter to it, and such decision shall be final and binding on all of the parties. The fees and expenses charged by said accounting firm shall be paid by the Company. If the amount of the payment actually paid by the Company was less than the amount calculated by the accounting firm, the Company shall pay the shortfall to the Executive within 5 days after the accounting firm submits its written report, together with interest thereon accruing at the rate of 18 percent per annum, compounded monthly, from the original due date of the Special Termination Payment through the actual date of payment of said shortfall. d. SUBSEQUENT RECALCULATION. In the event the Internal Revenue Service imposes an Excise Tax that is greater than the Excise Tax assumed for purposes of calculating the Excise Tax Gross-up Payment, the Company shall reimburse the Executive for the full amount necessary to make the Executive whole in accordance with the principles set forth above, including any interest and penalties which may be imposed. 4. EXECUTIVE BENEFITS. The term "Executive Benefits" means all health, dental, disability, life insurance, retirement and fringe benefits or programs now or hereafter established by the Company which cover the Company's executives or its employees, and applicable family members and which are in effect on the date on which a Change in Control occurs. The term "Executive Benefits" also includes, for purposes of Section 3, the value of the items provided for in clauses (ii) and (iii) of the first sentence in Section 1. 6 5. NON-COMPETITION. In the event that Executive's employment is terminated pursuant to Section 1 hereof and Executive timely receives payment of the Special Termination Payment, Executive agrees that for a period of 12 months after such termination of employment not to, directly or indirectly, own, manage, operate, control or participate in the ownership, management operation or control of, or be connected as an officer, employee, partner, director or otherwise with, or have any financial interest in, or aid or assist anyone else in the conduct of, any business (a "Competitive Operation") which competes with any business conducted by the Company, or by any group, division or subsidiary of the Company for which the Executive has had responsibility, in any area where such business is being conducted at the time of such termination. It is understood and agreed that, for the purposes of the foregoing provisions of this Section 5, no business which is conducted by the Company at the time of the Executive's termination and which subsequently is sold or discontinued by the Company shall be deemed to be a Competitive Operation within the meaning of this Section 5. Ownership of an amount not to exceed five percent (5%) of the voting stock of any publicly held corporation shall not constitute a violation hereof. 6. RELEASE AND INDEMNITY. The Company hereby fully and forever releases, acquits, discharges and holds the Executive harmless from any and all, and all manner of, actions and causes of action, claims, suits, costs, debts, sums of money, claims and demands, presently known or unknown, whatsoever in law or equity or otherwise, which the Company ever had, now has or may now have, or will have in the future, by reason of any matter, cause or thing whatsoever, from the beginning of the world and all times thereafter. The preceding sentence does not apply to any matters, events, actions, claims, damages or losses arising from, in connection with or relating to (i) any intentional illegal conduct of the Executive, or (ii) conduct of the Executive after the Executive ceases to be employed by the Company. The Company at all times shall indemnify, save harmless and reimburse the Executive, from and against any and all demands, claims, liabilities, losses, actions, suits or proceedings, or other expenses, fees, or charges of any character or nature, which the Executive may incur or with which they may be threatened with, arising from, in connection with, relating to or arising as a result of Executive's employment by the Company or any other relationship that the Executive has with the Company as an officer, director, agent shareholder or otherwise, including without limitation settlement costs and attorneys' fees and court costs at trial and appellate levels which the Executive may incur in connection with settling, defending against or resisting any of the foregoing. The Company shall pay to the Executive any amounts due with respect to said indemnity within 5 business days after the Executive issues a written demand therefor to the Company. The provisions of this section are an expansion of any rights that the Executive may have with respect to the subject matter, and no other agreement or arrangement which the Company may have that benefits the Executive with respect to the subject matter hereof shall be superseded or limited in any way as a result of the parties entering into this Agreement. 7 7. EXAMPLES. The operation of this Agreement is illustrated by the example set forth in Exhibit A attached hereto. Said example is not intended to limit the manner in which amounts payable hereunder are to be calculated. If other tax rates, taxes or other charges are applicable, the calculations shall be adjusted to achieve the same economic result to the Executive such that the Executive receives all payments under this Agreement free of costs represented by Excise Taxes or any taxes relating to the absorption by the Company of Excise Taxes, and also such that the Annuity Funding Amount is received free not only of Excise Taxes, but also of all other taxes arising with respect to the Annuity Funding Amount and the absorption by the Company of all such taxes. The assumptions set forth in the said example are for illustrative purposes only, and have no relationship to the actual amounts that may apply under this Agreement. 8. NOTICES. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when received at the address specified herein. In the case of Executive, notices shall be delivered to him at the home address which he has most recently communicated to the Company in writing. In the case of the Company, notices shall be delivered to the Company's corporate headquarters, and all notices shall be directed to the attention of the Company's Chief Executive Officer, with a copy to the Company's General Counsel. 9. NO MITIGATION. Executive shall not be required to mitigate the amount of any payment or benefit contemplated by this Agreement upon his termination of employment (whether by seeking new employment or in any other manner), nor shall any such payment or benefit be reduced by any earnings or benefits that Executive may receive from any other source. 10. MODIFICATION AND WAIVER. This Agreement shall not be canceled, rescinded or revoked, nor may any provision of this Agreement be modified, waived or discharged unless the cancellation, rescission, revocation, modification, waiver or discharge is agreed to in writing and signed by Executive and by the President or Chairman of the Board of the Company. No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time. 11. COMPLETE AGREEMENT. This Agreement supersedes all previous severance agreements entered into by Executive and the Company, including the Executive Severance Agreement entered into between the parties in the year 2000. Except as specifically provided in Section 1 of this Agreement, this Agreement does not affect any deferred compensation agreements, non-qualified retirement plans, or any other agreements entered into by the parties. 12. NO ASSIGNMENT. No right, benefit or interest hereunder, shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt or obligation, or to execution, attachment, levy or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any 8 action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void and of no effect. This Agreement is binding on all successors of the Company, whether by merger, consolidation, purchase or otherwise, and all references to the Company shall also include references to any such successor. 13. GOVERNING LAW. This Agreement shall be governed by, and construed and enforced in accordance with and subject to, the laws of the State of Florida applicable to Agreements made and to be performed entirely within such State, as to all matters governed by state law or, if controlling, by applicable federal law. 14. SEVERABILITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect. 15. LITIGATION; VENUE. Any action at law or in equity under this Agreement shall be brought in the courts of Palm Beach County, Florida, and in no other court (whether or not jurisdiction can be established in another court). Each party hereto waives the right to argue that venue is not appropriate in the courts of Palm Beach County, Florida. 16. EXPENSES. The Company shall reimburse the Executive for all legal and/or accounting expenses he incurs in connection with the execution, delivery and enforcement of his rights under this Agreement. 17. WITHHOLDING. All payments made pursuant to this Agreement will be subject to withholding of applicable taxes. 18. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. [Signatures on the Next Page] 9 IN WITNESS WHEREOF, the parties have executed this Amended and Restated Executive Severance Agreement effective the 21st day of November, 2001. SIGNED, SEALED AND DELIVERED EXECUTIVE: IN THE PRESENCE OF: /s/ Philip L. Maslowe - ------------------------------------ ---------------------------------- PRINT NAME OF WITNESS BELOW: Philip L. Maslowe - ------------------------------------ Date: November 20, 2001 ----------------------------- - ------------------------------------ PRINT NAME OF WITNESS BELOW: - ------------------------------------ THE WACKENHUT CORPORATION By: /s/ Richard R. Wackenhut - ------------------------------------ ------------------------------- PRINT NAME OF WITNESS BELOW: - ------------------------------------ Name: Richard R. Wackenhut Title: President and Chief Executive Officer Date: November 21, 2001 - ------------------------------------ --------------------------- PRINT NAME OF WITNESS BELOW: - ------------------------------------ 10 EXHIBIT A Page 1 of 2 This example assumes the following: (i) the Special Termination Payment in Section 1(a)(i)is $1.1 million; (ii) the Annuity Funding Amount provided for in Section 1(b)(2) is $2 million; (iii) the combined value of the benefits set forth in clauses (ii), (iii), (v) and (vi) of Section 1(a) for purposes of Code Section 280G is $100,000; (iv) all payments under this Agreement are "parachute payments" under Code Section 280G(b)(2)(A); (v) the Executive's base amount under Code Section 280G(b)(3)(A) is $300,000; (vi) the present value of the deferred compensation payments due to the Executive pursuant to the Deferred Compensation Agreement for purposes of Code Section 280G is $1,800,000; and (vii) payments made to the Executive under this Agreement are subject to a maximum federal income tax rate under Code section 1 of 39.1%, a payroll tax under Code section 3101 of 1.45%, and an excise tax under Code section 4999 of 20%, and no other taxes are applicable. Under these assumptions, the Deferred Compensation Gross-up Payment under Section 1(b)(2) of the Agreement is $1,364,171.57, the Deferred Compensation Payoff Amount under Section 1(b)(2) of the Agreement is $3,364,171.57, and the Excise Tax Gross-up Payment under Section 3.a is $1,249,263.15. The calculation of these amounts is set forth in the table set forth on the following page 2 of this Exhibit A. EXHIBIT A Page 2 of 2
A B C D E ----------- ------------ --------------- ------------- ----------------- INCREASED PRESENT VALUE EXCISE TAX SPECIAL OF DEFERRED GROSS-UP TERMINATION VALUE OF OTHER COMPENSATION PAYMENT 1 BASE AMOUNT PAYMENT BENEFITS FROM CELL E5 (B2+C2+D2-A3)XB12 ----------- ------------ -------------- ------------ ---------------- 2 300,000.00 1,100,000.00 100,000.00 1,564,171.57 1,249,263.15 3 DEFERRED PRESENT VALUE INCREASED COMPENSATION DEFERRED OF DEFERRED PRESENT VALUE ANNUITY GROSS-UP COMPENSATION COMPENSATION FOR OF DEFERRED FUNDING PAYMENT PAYOFF AMOUNT FOR 280G COMPENSATION 4 AMOUNT A5XB13 A5+B5 PURPOSES C5-D5 ------------ ------------- ------------- ---------------- -------------- 5 2,000,000.00 1,364,171.57 3,364,171.57 1,800,000.00 1,564,171.57 6 7 INCOME TAX RATE 0.39100 8 PAYROLL TAX RATE 0.01450 9 TAX RATE W/O EXCISE TAX B7+B8 0.40550 10 EXCISE TAX RATE 0.20000 11 TOTAL TAX RATE ON PARACHUTE PAYMENTS B9+B10 0.60550 12 EXCISE TAX GROSS-UP MULTIPLIER B10/(1-B11) 0.50697 13 INCOME TAX GROSS-UP MULTIPLIER B9/(1-B9) 0.68209
AMENDED AND RESTATED EXECUTIVE SEVERANCE AGREEMENT THIS AMENDED AND RESTATED EXECUTIVE SEVERANCE AGREEMENT ("Agreement") is made and entered into as of this 21st day of November, 2001, by and between The Wackenhut Corporation, a Florida corporation, its successor or successors, (hereinafter referred to as the "Company") and Sandra L. Nusbaum (hereinafter referred to as the "Executive"). The Executive is a key executive of the Company, and the Company desires to provide the Executive with an incentive to remain with the Company if concerns arise over a possible change in control. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the Company and the Executive agree as follows: 1. TERMINATION OF EXECUTIVE EMPLOYMENT. (a) PAYMENTS AND BENEFITS. If the Executive ceases to be employed by the Company for any reason (including the delivery of a written resignation to the Company by the Executive or her authorized representative on the Executive's or her estate's behalf) at any time during the 12 month period commencing on the date on which a Change in Control (as defined in Section 2 below) occurs, then (i) the Company shall pay the Special Termination Payment (as defined in Section 3 below) to the Executive (or her estate) within ten days after said termination, (ii) all awards granted pursuant to The Wackenhut Corporation Employee Long-Term Incentive Stock Plan and any other unvested stock options or other interests the Executive holds in the Company's stock or the stock of a subsidiary of the Company shall become fully vested, all restrictions on restricted stock units shall lapse, and all performance targets with respect to performance units or shares will be deemed to have been met as of the date the Executive's employment is terminated, (iii) the Company shall transfer all of its interest in any automobile used by the Executive pursuant to The Wackenhut Corporation Executive Automobile Policy (the "Executive Automobile Policy") and shall pay the balance of any outstanding loans or leases on such automobile (whether such obligations are those of the Executive or the Company) so that the Executive owns the automobile outright (in the event such automobile is leased, the Company shall pay the residual cost of such lease), (iv) the Company shall pay to the Executive, within ten days after said termination, an amount equal to the Deferred Compensation Payoff Amount defined below in full satisfaction of the Company's obligations under that certain Amended and Restated Senior Officer Retirement/Deferred Compensation Agreement between the Company and the Executive (the "Deferred Compensation Agreement"), (v) the Company shall continue to provide the Executive (and if applicable, her beneficiaries) with the Executive Benefits (as described in Section 4), at no cost to the Executive in no less than the same amount and, on the same terms and conditions as in effect on the date on which the Change of Control occurs for a period of 3 years after the date of termination of the Executive's employment with the Company, regardless of the cost to the Company, or, alternatively, if the Executive (or her estate) elects at any time in a written notice delivered to the Company to waive any particular Executive Benefits, the Company shall make a cash payment to the Executive within ten days after receipt of such election in an amount equal to the present value of the Company's cost of providing such Executive Benefits from the date of such election to the end of the foregoing 3-year period, and such present value shall be determined by reference to the Company's then-current cost levels and a discount rate equal to 120 percent of the short-term applicable Federal rate provided for in Section 1274(d) of the Internal Revenue Code (the "Code") for the month in which the Change in Control occurs; and (vi) the Company shall pay to the Executive, within 10 days after said termination, an amount equal to the sum of (a) the dollar value of vacation time that would have been credited to the Executive pursuant to the Company's Vacation Policy dated August 1, 1997, Number HR 350 (the "Vacation Policy") if the Executive had remained employed by the Company through the "Anniversary Date" (as defined in the Vacation Policy) immediately following her termination of employment, multiplied by a fraction, the numerator of which is the number of days which elapsed from the Executive's Anniversary Date immediately preceding the date of termination through the date of such termination, and the denominator of which is 365, plus (b) the dollar value of vacation time which the Executive was entitled to have taken immediately prior to the Executive's termination, which was not in fact taken by the Executive; the dollar value of vacation time referred to above shall be equal to the amount which would have been paid to the Executive by the Company during such vacation time had the vacation time in fact been taken by the Executive immediately prior to the Executive's termination. (b) RULES AND DEFINITIONS. (1) If the Executive dies during the 3-year period contemplated by clause (v) of the foregoing paragraph (a), the Company shall provide the Executive Benefits, to the extent applicable, to the Executive's estate, or make any applicable cash payments in lieu thereof to said estate. The Executive shall be deemed to be employed by the Company if the Executive is employed by the Company or any subsidiary of the Company in which the Company owns a majority of the subsidiary's voting securities. Notwithstanding anything else in this Agreement to the contrary, subsequent reemployment of the Executive by the Company or any successor of the Company following a Change in Control will not cause the Executive to forfeit any compensation or benefits provided in this Agreement. (2) The "Deferred Compensation Payoff Amount" is the sum of (i) an amount which will be sufficient to allow the Executive to purchase an annuity policy issued by a life insurance company which has the highest ratings from independent rating agencies (such as Standard & Poor's or A.M. Best) which will provide after-tax benefits in amounts which are at least equal to the after-tax benefits the Executive would have received had the Company paid the deferred compensation benefits to the Executive pursuant to the Deferred Compensation Agreement, with payments commencing no later than 30 days after the issuance of said annuity and at the same intervals as provided for in the Deferred Compensation Agreement (the "Annuity 2 Funding Amount"), plus (ii) the Deferred Compensation Gross-up Payment defined below. The Deferred Compensation Gross-up Payment is an amount which will cause the remainder of the Deferred Compensation Payoff Amount minus all Applicable Taxes (defined below) applicable to the Executive as a result of payment of the Deferred Compensation Payoff Amount, to be equal to the Annuity Funding Amount prior to deduction of any Applicable Taxes imposed with respect to the Annuity Funding Amount."Applicable Taxes" means all federal, state, local and other taxes, including income taxes, payroll taxes, and any other taxes, but not including any Excise Tax which is the subject of Section 3.a of this Agreement. The Deferred Compensation Gross-up Payment is intended to place the Executive in the same economic position with respect to the Annuity Funding Amount that the Executive would have been in if the Applicable Taxes did not apply. For purposes of determining after-tax benefits referred to in the definition of the Annuity Funding Amount above, the taxes to be taken into account shall be all applicable federal taxes assuming that the Executive is subject to taxation at the highest marginal rates. The payment of the Excise Tax Gross-up Payment provided for in Section 3.a, if applicable, shall be in addition to the Deferred Compensation Gross-up Payment referred to above. Upon payment of the Deferred Compensation Payoff Amount, the Company shall have no further obligation to make payments with respect to the Deferred Compensation Agreement. (3) With respect to any Executive Benefits which are health benefits subject to the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") ("Health Benefits") and for which continuation coverage under COBRA is elected by the Participant (at the Participant's expense), the Company shall provide the Executive with the Health Benefits (at its expense) contemplated by clause (v) of the foregoing paragraph (a) for a 3-year period beginning on the date continuation coverage under COBRA ends, provided that the Executive (or Executive's estate) does not elect to waive the Health Benefit in lieu of a cash payment as provided in clause (v) of the foregoing paragraph (a). If the Executive makes the election to receive the present value of said Executive Benefits under clause (v) of paragraph (a), the present value of Executive Benefits which are Health Benefits shall not be affected by any COBRA coverage, and this shall not impair the Executive's right to elect COBRA continuation as contemplated above. 2. CHANGE IN CONTROL. For purposes of this Agreement, a "Change in Control" shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied: (i) any "person" as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, (the "Exchange Act") (other than members of the Controlling Shareholder Group, the Company, any trustee or other fiduciary holding securities under any employee benefit plan of the Company, or any company owned, directly or indirectly, by the 3 shareholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities; (ii) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation or entity, OTHER THAN a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iii) the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (iv) the total combined voting power of the Company (or any successor entity) represented by shares of voting stock owned by members of the Controlling Shareholder Group is reduced to 30 percent or less. Notwithstanding the foregoing, in no event shall a Change in Control be deemed to have occurred, with respect to the Executive, if the Executive is part of a purchasing group which consummates a transaction causing a Change in Control. The Executive shall be deemed "part of a purchasing group" for purposes of the preceding sentence if the Executive is a direct or indirect equity participant in the purchasing company or group. The "Controlling Shareholder Group" includes (i) George R. Wackenhut, (ii) the spouse and lineal descendants of George R. Wackenhut, (iii) any trust whose only beneficiaries are persons described in the foregoing clauses (i) and (ii), and (iv) Affiliates of the persons described in the foregoing clauses (i), (ii) and (iii). An "Affiliate" of a person includes only a corporation, limited liability company, partnership, or similar entity where all of the voting securities or ownership interests of said entity are directly owned by such person. A "person" includes any natural person and any corporation, limited liability company, partnership, trust or other entity. 3. SPECIAL TERMINATION PAYMENT. For purposes of this Agreement, the "Special Termination Payment" shall mean an aggregate amount of money equal to the product of three (3) multiplied by the sum of the Executive's annual base salary as in effect at the time of the termination giving rise to the Special Termination Payment, or if greater the annual base salary in effect for the calendar year prior to the date of termination, plus the greater of (i) the annual bonus the Executive received during the preceding calendar year or (ii) the largest annual bonus the Executive would have received if her employment had not been terminated 4 in the calendar year in which her employment was terminated assuming that all targets and incentives are met (regardless of actual results and criteria). In the event that the Company does not pay the Special Termination Payment by the due date specified in this Agreement, then the unpaid amount shall bear interest at the rate of 18 percent per annum, compounded monthly, until it is paid. a. EQUALIZATION PAYMENT. If any of the Special Termination Payment will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or any similar tax that may hereafter be imposed), the Company shall also pay to the Executive in cash an additional amount (the "Excise Tax Gross-up Payment") such that the net amount retained by the Executive after deduction from the Special Termination Payment and the Excise Tax Gross-up Payment of any Excise Tax imposed upon the Special Termination Payment and any federal, state local and other taxes (including income taxes, payroll taxes, Excise Tax and any other taxes) imposed upon the Excise Tax Gross-up Payment shall be equal to the original amount of the Special Termination Payment, prior to deduction of any Excise Tax imposed with respect to the Special Termination Payment. The Excise Tax Gross-up Payment is intended to place the Executive in the same economic position she would have been in if the Excise Tax did not apply. The Excise Tax Gross-up Payment shall be paid to the Executive in full, at the time the Special Termination Payment is paid pursuant to Section 1 hereof. For purposes of determining the Excise Tax Gross-up Payment pursuant to this Section 3.a, the Special Termination Payment shall also include any amounts which would be considered "Parachute Payments" (within the meaning of Section 280G(b)(2) of the Code) to the Executive, including, but not limited to, all items listed in Section 1 of this Agreement to the extent that they are considered to be Parachute Payments such that the Company will absorb the full cost of any Excise Tax thereon and all taxes relating to the Company's absorption of any Excise Taxes. b. TAX RATES. For purposes of determining the amount of the Excise Tax Gross-up Payment, the Executive shall be deemed to pay Federal income taxes at the highest marginal rate of Federal income taxation in the calendar year in which the Excise Tax Gross-up Payment is to be made, and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the date of termination, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes. c. TAX CALCULATION. Simultaneously with the Company's payment of the Special Termination Payment, the Company shall deliver to the Executive a written statement specifying the total amount of all payments provided for in this Agreement, together with all supporting calculations. If the Executive disagrees with the Company's calculation of any of said payments, the Executive shall submit to the Company, no later than 30 days after receipt of the Company's calculations, a written 5 notice advising the Company of the disagreement and setting forth her calculation of said payments. The Executive's failure to submit such notice within such period shall be conclusively deemed to be an agreement by the Executive as to the amount of said payments. If the Company agrees with the Executive's calculations, it shall pay any shortfall to the Executive within 20 days after receipt of such a notice from the Executive, together with interest thereon accruing at the rate of 18 percent per annum, compounded monthly, from the original due date of the Special Termination Payment through the actual date of payment of said shortfall. If the Company does not agree with the Executive's calculations, it shall provide the Executive with a written notice within 20 days after the receipt of the Executive's calculations advising the Executive that the disagreement is to be referred to an independent accounting firm for resolution. Such disagreement shall be referred to an independent "Big 5" accounting firm which is not the regular accounting firm of the Company and which is agreed to by the Company and the Executive within 10 days after issuance of the Company's notice of disagreement (if the parties cannot agree on the identity of the accounting firm which is to resolve the dispute, the accounting firm shall be selected by means of a coin toss conducted in Palm Beach County, Florida by counsel to the Executive on the first business day after such 10 day period in such manner as such counsel may specify). The accounting firm shall review all information provided to it by the parties and submit a written report setting forth its calculation of the amounts provided for in this Agreement within 15 days after submission of the matter to it, and such decision shall be final and binding on all of the parties. The fees and expenses charged by said accounting firm shall be paid by the Company. If the amount of the payment actually paid by the Company was less than the amount calculated by the accounting firm, the Company shall pay the shortfall to the Executive within 5 days after the accounting firm submits its written report, together with interest thereon accruing at the rate of 18 percent per annum, compounded monthly, from the original due date of the Special Termination Payment through the actual date of payment of said shortfall. d. SUBSEQUENT RECALCULATION. In the event the Internal Revenue Service imposes an Excise Tax that is greater than the Excise Tax assumed for purposes of calculating the Excise Tax Gross-up Payment, the Company shall reimburse the Executive for the full amount necessary to make the Executive whole in accordance with the principles set forth above, including any interest and penalties which may be imposed. 4. EXECUTIVE BENEFITS. The term "Executive Benefits" means all health, dental, disability, life insurance, retirement and fringe benefits or programs now or hereafter established by the Company which cover the Company's executives or its employees, and applicable family members and which are in effect on the date on which a Change in Control occurs. The term "Executive Benefits" also includes, for purposes of Section 3, the value of the items provided for in clauses (ii) and (iii) of the first sentence in Section 1. 6 5. NON-COMPETITION. In the event that Executive's employment is terminated pursuant to Section 1 hereof and Executive timely receives payment of the Special Termination Payment, Executive agrees that for a period of 12 months after such termination of employment not to, directly or indirectly, own, manage, operate, control or participate in the ownership, management operation or control of, or be connected as an officer, employee, partner, director or otherwise with, or have any financial interest in, or aid or assist anyone else in the conduct of, any business (a "Competitive Operation") which competes with any business conducted by the Company, or by any group, division or subsidiary of the Company for which the Executive has had responsibility, in any area where such business is being conducted at the time of such termination. It is understood and agreed that, for the purposes of the foregoing provisions of this Section 5, no business which is conducted by the Company at the time of the Executive's termination and which subsequently is sold or discontinued by the Company shall be deemed to be a Competitive Operation within the meaning of this Section 5. Ownership of an amount not to exceed five percent (5%) of the voting stock of any publicly held corporation shall not constitute a violation hereof. 6. RELEASE AND INDEMNITY. The Company hereby fully and forever releases, acquits, discharges and holds the Executive harmless from any and all, and all manner of, actions and causes of action, claims, suits, costs, debts, sums of money, claims and demands, presently known or unknown, whatsoever in law or equity or otherwise, which the Company ever had, now has or may now have, or will have in the future, by reason of any matter, cause or thing whatsoever, from the beginning of the world and all times thereafter. The preceding sentence does not apply to any matters, events, actions, claims, damages or losses arising from, in connection with or relating to (i) any intentional illegal conduct of the Executive, or (ii) conduct of the Executive after the Executive ceases to be employed by the Company. The Company at all times shall indemnify, save harmless and reimburse the Executive, from and against any and all demands, claims, liabilities, losses, actions, suits or proceedings, or other expenses, fees, or charges of any character or nature, which the Executive may incur or with which they may be threatened with, arising from, in connection with, relating to or arising as a result of Executive's employment by the Company or any other relationship that the Executive has with the Company as an officer, director, agent shareholder or otherwise, including without limitation settlement costs and attorneys' fees and court costs at trial and appellate levels which the Executive may incur in connection with settling, defending against or resisting any of the foregoing. The Company shall pay to the Executive any amounts due with respect to said indemnity within 5 business days after the Executive issues a written demand therefor to the Company. The provisions of this section are an expansion of any rights that the Executive may have with respect to the subject matter, and no other agreement or arrangement which the Company may have that benefits the Executive with respect to the subject matter hereof shall be superseded or limited in any way as a result of the parties entering into this Agreement. 7 7. EXAMPLES. The operation of this Agreement is illustrated by the example set forth in Exhibit A attached hereto. Said example is not intended to limit the manner in which amounts payable hereunder are to be calculated. If other tax rates, taxes or other charges are applicable, the calculations shall be adjusted to achieve the same economic result to the Executive such that the Executive receives all payments under this Agreement free of costs represented by Excise Taxes or any taxes relating to the absorption by the Company of Excise Taxes, and also such that the Annuity Funding Amount is received free not only of Excise Taxes, but also of all other taxes arising with respect to the Annuity Funding Amount and the absorption by the Company of all such taxes. The assumptions set forth in the said example are for illustrative purposes only, and have no relationship to the actual amounts that may apply under this Agreement. 8. NOTICES. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when received at the address specified herein. In the case of Executive, notices shall be delivered to him at the home address which she has most recently communicated to the Company in writing. In the case of the Company, notices shall be delivered to the Company's corporate headquarters, and all notices shall be directed to the attention of the Company's Chief Executive Officer, with a copy to the Company's General Counsel. 9. NO MITIGATION. Executive shall not be required to mitigate the amount of any payment or benefit contemplated by this Agreement upon her termination of employment (whether by seeking new employment or in any other manner), nor shall any such payment or benefit be reduced by any earnings or benefits that Executive may receive from any other source. 10. MODIFICATION AND WAIVER. This Agreement shall not be canceled, rescinded or revoked, nor may any provision of this Agreement be modified, waived or discharged unless the cancellation, rescission, revocation, modification, waiver or discharge is agreed to in writing and signed by Executive and by the President or Chairman of the Board of the Company. No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time. 11. COMPLETE AGREEMENT. This Agreement supersedes all previous severance agreements entered into by Executive and the Company, including the Executive Severance Agreement entered into between the parties in the year 2000. Except as specifically provided in Section 1 of this Agreement, this Agreement does not affect any deferred compensation agreements, non-qualified retirement plans, or any other agreements entered into by the parties. 12. NO ASSIGNMENT. No right, benefit or interest hereunder, shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt or obligation, or to execution, attachment, levy or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any 8 action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void and of no effect. This Agreement is binding on all successors of the Company, whether by merger, consolidation, purchase or otherwise, and all references to the Company shall also include references to any such successor. 13. GOVERNING LAW. This Agreement shall be governed by, and construed and enforced in accordance with and subject to, the laws of the State of Florida applicable to Agreements made and to be performed entirely within such State, as to all matters governed by state law or, if controlling, by applicable federal law. 14. SEVERABILITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect. 15. LITIGATION; VENUE. Any action at law or in equity under this Agreement shall be brought in the courts of Palm Beach County, Florida, and in no other court (whether or not jurisdiction can be established in another court). Each party hereto waives the right to argue that venue is not appropriate in the courts of Palm Beach County, Florida. 16. EXPENSES. The Company shall reimburse the Executive for all legal and/or accounting expenses she incurs in connection with the execution, delivery and enforcement of her rights under this Agreement. 17. WITHHOLDING. All payments made pursuant to this Agreement will be subject to withholding of applicable taxes. 18. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. [Signatures on the Next Page] 9 IN WITNESS WHEREOF, the parties have executed this Amended and Restated Executive Severance Agreement effective the 21st day of November, 2001. SIGNED, SEALED AND DELIVERED EXECUTIVE: IN THE PRESENCE OF: /s/ Sandra L. Nusbaum - ------------------------------------ ---------------------------------- PRINT NAME OF WITNESS BELOW: Sandra L. Nusbaum - ------------------------------------ Date: November 20, 2001 ----------------------------- - ------------------------------------ PRINT NAME OF WITNESS BELOW: - ------------------------------------ THE WACKENHUT CORPORATION By: /s/ Richard R. Wackenhut - ------------------------------------ ------------------------------- PRINT NAME OF WITNESS BELOW: - ------------------------------------ Name: Richard R. Wackenhut Title: President and Chief Executive Officer Date: November 21, 2001 - ------------------------------------ --------------------------- PRINT NAME OF WITNESS BELOW: - ------------------------------------ 10 EXHIBIT A Page 1 of 2 This example assumes the following: (i) the Special Termination Payment in Section 1(a)(i)is $1.1 million; (ii) the Annuity Funding Amount provided for in Section 1(b)(2) is $2 million; (iii) the combined value of the benefits set forth in clauses (ii), (iii), (v) and (vi) of Section 1(a) for purposes of Code Section 280G is $100,000; (iv) all payments under this Agreement are "parachute payments" under Code Section 280G(b)(2)(A); (v) the Executive's base amount under Code Section 280G(b)(3)(A) is $300,000; (vi) the present value of the deferred compensation payments due to the Executive pursuant to the Deferred Compensation Agreement for purposes of Code Section 280G is $1,800,000; and (vii) payments made to the Executive under this Agreement are subject to a maximum federal income tax rate under Code section 1 of 39.1%, a payroll tax under Code section 3101 of 1.45%, and an excise tax under Code section 4999 of 20%, and no other taxes are applicable. Under these assumptions, the Deferred Compensation Gross-up Payment under Section 1(b)(2) of the Agreement is $1,364,171.57, the Deferred Compensation Payoff Amount under Section 1(b)(2) of the Agreement is $3,364,171.57, and the Excise Tax Gross-up Payment under Section 3.a is $1,249,263.15. The calculation of these amounts is set forth in the table set forth on the following page 2 of this Exhibit A. EXHIBIT A Page 2 of 2
A B C D E ----------- ------------ --------------- ------------- ----------------- INCREASED PRESENT VALUE EXCISE TAX SPECIAL OF DEFERRED GROSS-UP TERMINATION VALUE OF OTHER COMPENSATION PAYMENT 1 BASE AMOUNT PAYMENT BENEFITS FROM CELL E5 (B2+C2+D2-A3)XB12 ----------- ------------ -------------- ------------ ---------------- 2 300,000.00 1,100,000.00 100,000.00 1,564,171.57 1,249,263.15 3 DEFERRED PRESENT VALUE INCREASED COMPENSATION DEFERRED OF DEFERRED PRESENT VALUE ANNUITY GROSS-UP COMPENSATION COMPENSATION FOR OF DEFERRED FUNDING PAYMENT PAYOFF AMOUNT FOR 280G COMPENSATION 4 AMOUNT A5XB13 A5+B5 PURPOSES C5-D5 ------------ ------------- ------------- ---------------- -------------- 5 2,000,000.00 1,364,171.57 3,364,171.57 1,800,000.00 1,564,171.57 6 7 INCOME TAX RATE 0.39100 8 PAYROLL TAX RATE 0.01450 9 TAX RATE W/O EXCISE TAX B7+B8 0.40550 10 EXCISE TAX RATE 0.20000 11 TOTAL TAX RATE ON PARACHUTE PAYMENTS B9+B10 0.60550 12 EXCISE TAX GROSS-UP MULTIPLIER B10/(1-B11) 0.50697 13 INCOME TAX GROSS-UP MULTIPLIER B9/(1-B9) 0.68209
EX-10.9 5 g74165ex10-9.txt KEY EMPLOYEE LONG-TERM INCENTIVE STOCK PLAN Exhibit 10.9 KEY EMPLOYEE LONG-TERM INCENTIVE STOCK PLAN THE WACKENHUT CORPORATION As amended July 23, 2001 THE WACKENHUT CORPORATION KEY EMPLOYEE LONG-TERM INCENTIVE STOCK PLAN TABLE OF CONTENTS
ARTICLE SECTION PAGE - ------- ------- ---- 1. ESTABLISHMENT, PURPOSE AND DURATION ----------------------------------- 1.1 Establishment of the Plan 1 1.2 Purpose of the Plan 1 1.3 Duration of the Plan 1 2. DEFINITIONS AND CONSTRUCTION ---------------------------- 2.1 Definitions 1 2.2 Gender and Number 5 2.3 Severability 5 3. ADMINISTRATION 3.1 The Committee 5 3.2 Authority of the Committee 5 3.3 Decisions Binding 6 3.4 Procedures of the Committee 6 3.5 Award Agreements 6 4. SHARES SUBJECT TO THE PLAN -------------------------- 4.1 Number of Shares 6 4.2 Lapsed Awards 7 4.3 Adjustments in Authorized Shares 7 5. ELIGIBILITY AND PARTICIPATION ----------------------------- 5.1 Eligibility 7 5.2 Actual Participation 7
ii
ARTICLE SECTION PAGE - ------- ------- ---- 6. STOCK OPTIONS ------------- 6.1 Grant of Options 7 6.2 Option Agreement 7 6.3 Option Price 8 6.4 Duration of Options 8 6.5 Exercise of Options 8 6.6 Payment 8 6.7 Restrictions on Share Transferability 8 6.8 Termination of Employment Due to Death, Disability or Retirement 8 6.9 Termination of Employment for Other Reasons 9 6.10 Nontransferability of Options 9 7. RESTRICTED STOCK UNITS ---------------------- 7.1 Grant of Restricted Stock Units 9 7.2 Restricted Stock Unit Agreement 9 7.3 Vesting 10 7.4 Other Restrictions 10 7.5 Payment 10 7.6 Dividend Equivalents 10 7.7 Termination of Employment Due to Death, Disability or Retirement 10 7.8 Termination of Employment for Other Reasons 10 8. PERFORMANCE UNITS AND PERFORMANCE SHARES ---------------------------------------- 8.1 Grant of Performance Units and Performance Shares 11 8.2 Value of Performance Units and Performance Shares 11 8.3 Payment of Performance Units and Performance Shares 11 8.4 Form and Timing of Payment 11 8.5 Termination of Employment Due to Death, Disability or Retirement 11 8.6 Termination of Employment for Other Reasons 11 8.7 Nontransferability 12 8.8 Performance Measures 12 9. RIGHTS OF EMPLOYEES ------------------- 9.1 Employment 12 9.2 Participation 13
iii
ARTICLE SECTION PAGE - ------- ------- ---- 10. CHANGE IN CONTROL ----------------- 10.1 Stock Based Awards 13 10.2 Performance Based Awards 13 10.3 Pooling of Interests Accounting 13 11. AMENDMENT, MODIFICATION AND TERMINATION 11.1 Amendment, Modification and Termination 13 11.2 Awards Previously Granted 14 11.3 Compliance with Code Section 162(m) 14 12. WITHHOLDING 12.1 Tax Withholding 14 12.2 Share Withholding 14 13. REDEMPTION OF COMMON STOCK ON 14 ----------------------------- OF EMPLOYMENT ------------- 14. INDEMNIFICATION 15 --------------- 15. SUCCESSORS 15 ---------- 16. REQUIREMENTS OF LAW ------------------- 16.1 Requirements of Law 15 16.2 Governing Law 15
iv THE WACKENHUT CORPORATION KEY EXECUTIVE LONG-TERM INCENTIVE STOCK PLAN ARTICLE 1. ESTABLISHMENT, PURPOSE AND DURATION 1.1 ESTABLISHMENT OF THE PLAN. The Wackenhut Corporation (hereinafter referred to as the "Company"), a Florida corporation, hereby establishes an incentive compensation plan to be known as the "Key Executive Long-Term Incentive Stock Plan" (hereinafter referred to as the "Plan"), as set forth in this document. The Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options, Restricted Stock Units, Performance Units, and Performance Shares. Upon approval by the Board of Directors of the Company, subject to ratification within twelve (12) months by an affirmative vote of a majority of Shares of the Common Stock present and entitled to vote at the Annual Meeting at which a quorum is present, the Plan shall become effective as of August 1, 1991 (the "Effective Date"), and shall remain in effect as provided in Section 1.3 herein. 1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to promote the success, and enhance the value of the Company by providing incentives to Key Employees that will link their personal interests to those of Company shareholders, and provide an incentive for outstanding performance. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of Key Employees upon whose judgement, interest and special effort the successful conduct of its operations largely is dependent. 1.3 DURATION OF THE PLAN. The Plan shall commence on the Effective Date, as described in Section 1.1 herein, and shall remain in effect, subject to the right of the Board of Directors to terminate the Plan at any time pursuant to Article 12 herein, until all Shares subject to it shall have been purchased or acquired according to the Plan's provisions. However, in no event may an Award be granted under the Plan on or after the tenth (10th) anniversary of the Plan's Effective Date. ARTICLE 2. DEFINITIONS AND CONSTRUCTION 2.1 Definitions. Whenever used in the Plan, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized: (a) "Award" means, individually or collectively, a grant under this Plan of Nonqualified Stock Options, Incentive Stock Options, Restricted Stock Units, Performance Units or Performance Shares. 1 (b) "Beneficial Owner" shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act. (c) "Board or "Board of Directors" means the Board of Directors of The Wackenhut Corporation. (d) "Cause" means (i) willful and gross misconduct on the part of a Participant that is materially and demonstrably detrimental to the Company; or (ii) the commission by a Participant of one or more acts which constitute an indictable crime under United States Federal, state or local law. "Cause" under either (i) or (ii) shall be determined in good faith by a written resolution duly adopted by the affirmative vote of not less than two-thirds (2/3) of all the Directors at a meeting duly called and held for that purpose after reasonable notice to the Participant and opportunity for the Participant and his or her legal counsel to be heard. (e) "Change in Control" of the Company shall be deemed to have occurred if the conditions set forth in any one or more of the following paragraphs shall have been satisfied: (i) Any person (other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of Shares of the Company), is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; or (ii) During any period of two (2) consecutive years (not including any period prior to the execution of this Plan), individuals who at the beginning of such period constitute the Board (and any new Director, whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was previously so approved), cease for any reason to constitute a majority thereof; or (iii) The stockholders of the Company approve (a) a plan of complete liquidation of the Company; or (b) an agreement for the sale or disposition of all or substantially all the Company's assets; or (c) a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by 2 remaining outstanding or by being converted into voting securities of the surviving entity), at least 50% of the combined voting securities of the Company (or such surviving entity) outstanding immediately after such merger or consolidation. However, in no event shall a Change in Control be deemed to have occurred, with respect to the Participant, if the Participant is part of a purchasing group which consummates the Change-in-Control transaction. A Participant shall be deemed "part of a purchasing group..." for purposes of the preceding sentence if the Participant is an equity participant or has agreed to become an equity participant in the purchasing company or group (except for (i) passive ownership of less than 5% of the Shares of the purchasing company; or (ii) ownership of equity participation in the purchasing company or group which is otherwise not deemed to be significant, as determined prior to the Change in Control by a majority of the disinterested Directors). (f) "Code means the Internal Revenue Code of 1986, as amended from time to time. (g) "Committee" means the Nominating and Compensation Committee of the Board, or any other committee appointed by the Board to administer the Plan pursuant to Article 3 herein. (h) "Company" means The Wackenhut Corporation, a Florida corporation (including any and all subsidiaries), or any successor thereto as provided in Article 15 herein. (i) "Director" means any individual who is a member of the Board of Directors of the Company. (j) "Disability" means a permanent and total disability, within the meaning of the Code Section 22 (e) (3), as determined by the Committee in good faith, upon receipt of sufficient competent medical advice from one or more individuals, selected by the Committee, who are qualified to give professional medical advice. (k) "Employee" means any full-time, nonunion employee of the Company. Directors who are not otherwise employed by the Company shall not be considered employees under this Plan. (l) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor Act thereto. (m) "Fair Market Value" means the average of the highest and lowest price at which the Stock was traded on the five business days preceding the date of an awarded, 3 as reported on the consolidated tape of the New York Stock Exchange. (n) "Incentive Stock Option" or "ISO" means an option to purchase Shares, granted under Article 6 herein, which is designated as an Incentive Stock Option and is intended to meet the requirements of Section 422A of the code. (o) "Key Employee" means an employee of the Company, including an employee who is an officer of the Company, who, in the opinion of members of the Committee, can contribute significantly to the growth and profitability of the Company. "Key Employee" also may include those employees, identified by the Committee, in situations concerning extraordinary performance, promotion, retention, or recruitment. The granting of an Award under this Plan shall be deemed a determination by the Committee that such employee is a Key Employee. (p) "Nonqualified Stock Option" or "NQSO" means an option to purchase shares, granted under Article 6 herein, which is not intended to be an Incentive Stock Option. (q) "Option" means an Incentive Stock Option or a Nonqualified Stock Option. (r) "Option Price" means the price at which a share may be purchased by a Participant pursuant to an Option, as determined by the Committee. (s) "Participant" means a Key Employee of the Company who has an outstanding Award granted under the Plan. (t) "Performance Share" means an Award, designated as a performance share, granted to a Participant pursuant to Article 8 herein. (u) "Performance Unit" means an Award, designated as a performance unit, granted to a Participant pursuant to Article 8 herein. (v) "Period of Restriction" means the period during which the transfer of Shares covered by each grant of Restricted Stock Units is restricted in some way (based on the passage of time, the achievement of performance goals, or upon the occurrence of other events as determined by the Committee, at its discretion), and is subject to a substantial risk of forfeiture, as provided in Article 7 herein. (w) "Person" shall have the meaning ascribed to such term in Section 3 (a) (9) of the Exchange Act and used in Sections 13 (d) and 14 (d) thereof, including a "group" as defined in Section 13 (d). 4 (x) "Restricted Stock Unit" means an Award granted to a Participant pursuant to Article 7 herein. (y) "Stock" or "Shares" means the $.10 par value Series B common stock of The Wackenhut Corporation. (z) "Covered Employee" means a Participant who, as of the date of vesting and/or payout of an Award, as applicable, is one of the group of "covered employees", as defined in the regulations promulgated under Code Section 162(m), or any successor thereto. (aa) "Performance-Base Exception" means the performance-based exception from the tax deductibility limitations of Code Section 162(m). 2.2 GENDER AND NUMBER. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural. 2.3 SEVERABILITY. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. ARTICLE 3. ADMINISTRATION 3.1 THE COMMITTEE. The Plan shall be administered by the Nominating and Compensation Committee of the Board, or by any other Committee appointed by the Board consisting of not less than two (2) Directors who are not Employees. The members of the Committee shall be appointed from time to time by, and shall serve at the discretion of, the Board of Directors. No member of the Committee shall be eligible to participate in the Plan or any similar Plan of the Company or any of its Subsidiaries while serving on the Committee or shall have been so eligible at any time within one (1) year prior to his or her service on the Committee. 3.2 AUTHORITY OF THE COMMITTEE. Subject to the provisions herein and subject to ratification by the Board, the Committee shall have full power to select Key Employees to whom Awards are granted; to determine the size and types of Awards; to determine the terms and conditions of such Awards in a manner consistent with the Plan; to construe and interpret the Plan and any agreement or instrument entered into under the Plan; to establish, amend, or waive rules and regulations for the Plan's administration; and (subject to the provisions of Article 11 herein) to amend the terms and conditions of any outstanding Award to the extent such terms and conditions are within the discretion of the Committee as provided in the Plan. Further, the Committee shall have the full power to make all other determinations which may be necessary or advisable for the administration of the Plan. 5 3.3 DECISIONS BINDING. All determinations and decisions made by the Committee pursuant to the provisions of the Plan and all related orders or resolutions of the Board of Directors shall be final, conclusive and binding on all Persons, including the Company, its stockholders, employees, Participants, and their estates and beneficiaries. 3.4 PROCEDURES OF THE COMMITTEE. All determinations of the Committee shall be made by not less than a majority of its members present at the meeting (in person or otherwise) at which a quorum is present. A majority of the entire Committee shall constitute a quorum for the transaction of business. Any action required or permitted to be taken at a meeting of the Committee may be taken without a meeting if a unanimous written consent, which sets forth the action, is signed by each member of the Committee and filed with the minutes for proceedings of the Committee. No member of the Committee shall be liable, in the absence of bad faith, for any act or omission with respect to his or her services on the Committee. Service on the Committee shall constitute service as a Director of the Company so that members of the Committee shall be entitled to indemnification (as provided in Article 14 herein), and limitation of liability and reimbursement with respect to their services as members of the Committee to the same extent as for services as Directors of the Company. 3.5 AWARD AGREEMENTS. Each Award under the Plan shall be evidenced by an award agreement which shall be signed by an officer of the Company and by the Participant, and shall contain such terms and conditions as may be approved by the Committee, which need not be the same in all cases. Any award agreement may be supplemented or amended in writing from time to time as approved by the Committee, provided that the terms of such agreements as amended or supplemented, as well as the terms of the original award agreement, are not inconsistent with the provisions of the Plan. ARTICLE 4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS 4.1 NUMBER OF SHARES AVAILABLE FOR GRANT. Subject to adjustment as provided in Section 4.2 herein, the number of Shares hereby reserved for issuance to Participants under the Plan shall be three million one hundred and thirty five thousand eight hundred and forty four (3,135,844). The Board shall determine the appropriate methodology for calculating the number of Shares issued pursuant to the Plan. Unless and until the Board determines that an Award to a Covered Employee shall not be designed to comply with the Performance-Based Exception, the following rules shall apply to grants of such Awards under the Plan: (a) Stock Options. The maximum aggregate number of Shares that may be granted in the form of Stock Options, pursuant to any Award granted in any one fiscal year to any one single Participant, shall be one hundred thousand (100,000). (b) Performance Shares/Performance Units. The maximum aggregate payout (determined as of the end of the applicable performance period) with respect to Awards of Performance Shares or Performance Units granted in any one fiscal year to any one Participant shall be equal to the value of fifty thousand (50,000) Shares. 6 4.2 LAPSED AWARDS. If any Award granted under this Plan terminates, expires, or lapses for any reason, any Shares subject to such Award again shall be available for the grant of an Award under the Plan. 4.3 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, Stock dividend, split-up, Share combination, or other change in the corporate structure of the Company affecting the Shares, such adjustment shall be made in the number and class of Shares which may be delivered under Section 4.1 (including such single Participant limits), and in the number and class of and/or price of Shares subject to outstanding Options, Restricted Stock Units, Performance Units, and Performance Shares granted under the Plan, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargements of rights; and provided that the number of Shares subject to any Award shall always be a whole number. Any adjustment of an ISO under this paragraph shall be made in such a manner so as not to constitute a "modification" within the meaning of Section 425(h)(3) of the Code. ARTICLE 5. ELIGIBILITY AND PARTICIPATION 5.1 ELIGIBILITY. Persons eligible to participate in this Plan include all Employees of the Company, who, in the opinion of members of the Committee, are Key Employees. "Key Employees" may include Employees who are members of the Board, but may not include Directors who are not Employees. 5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the Committee may, from time to time, select from Key Employees those to whom Awards shall be granted and shall determine the nature and amount of each Award. No Employee shall have any right to be granted an Award under this Plan. ARTICLE 6. STOCK OPTIONS 6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan, Options may be granted to Key Employees at any time and from time to time, as shall be determined by the Committee. The Committee shall have complete discretion in determining the number o Shares subject to Options granted to each Participant. The Committee may grant ISOs, NQSOs, or a combination thereof. However, no Employee may receive an Award of ISOs that are first exercisable during any calendar year to the extent that the aggregate Fair Market Value of the shares (determined at the time the options are granted) exceeds $100,000. Nothing in this Article 6 shall be deemed to prevent the grant of NQSOs in excess of the maximum established by Section 422A of the Code. 6.2 OPTION AGREEMENT. Each Option grant shall be evidenced by an Option Agreement that shall specify the Option Price, the duration of the Option, the number of Shares to which the Option pertains, and such other provisions as the Committee shall determine. The Option Agreement also shall specify whether the Option is intended to be an ISO within the meaning of Section 422A of the Code, or a NQSO whose grant is intended not to fall under the Code provisions of Section 422A. 7 6.3 OPTION PRICE. The purchase price per Share covered by an Option shall be determined BY THE COMMITTEE, but, in the case of an ISO, shall not be less than 100% of the Fair Market Value of such Share on the date the Option is granted. An ISO granted to an employee who, at the time of grant, owns (Within the meaning of Section 425 (d) of the Code) Shares possessing more than 10% of the total combined voting power of all classes of stock of the Company, shall have an exercise price which is at least 110% of the Fair Market Value of the Shares subject to the Option. 6.4 DURATION OF OPTIONS. Each Option shall expire at such time as the Committee shall determine at the time of grant provided, however, that no ISO shall be exercisable later than the tenth (10th) anniversary date of its grant. 6.5 EXERCISE OF OPTIONS. Options granted under the Plan shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant. 6.6 PAYMENT. Options shall be exercised by the delivery of a written notice of exercise to the Secretary of the Company, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares. The Option Price upon exercise of any Option shall be payable to the Company in full either (a) in cash or its equivalent, or (b) by tendering previously acquired Shares having a Fair Market Value at the time of exercise equal to the total Option Price (provided that the Shares which are tendered must have been held by the Participant for at least six (6) months prior to their tender to satisfy the Option Price), or (c) by a combination of (a) or (b). The Committee also may allow cashless exercise as permitted under Federal Reserve Board's Regulation T, subject to applicable securities law restrictions, or by any other means which the Committee determines to be consistent with the Plan's purpose and applicable law. The proceeds from such a payment shall be added to the general funds of the Company and shall be used for general corporate purposes. As soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver to the Participant, in the Participant's name, Share certificates in an appropriate amount based upon the number of Options exercised. 6.7 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee shall impose such restrictions on any Shares acquired pursuant to the exercise of an Option under the Plan, as it may deem advisable, including, without limitation, restrictions under applicable Federal securities laws, under the requirements of any Stock exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares. 6.8 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY OR RETIREMENT. In the event the employment of a Participant is terminated by reason of death or 8 disability, any outstanding Options shall become immediately exercisable at any time prior to the expiration date of the Options or within one year after such date of termination of employment, whichever period is shorter, by such person or persons as shall have acquired the Participant's rights under the Option by will or by the laws of descent and distribution. In the event the employment of a Participant is terminated by reason of retirement (as defined under the then established rules of the Company's nonqualified retirement plan), any outstanding Options shall become immediately exercisable at any time prior to the expiration date of the options. In its sole discretion, and prior to the termination of the employment due to death, disability or retirement, the Committee may extend the period during which outstanding Options may be exercised. In the case of ISOs, the tax treatment prescribed under Section 422A of the Internal Revenue Code of 1986, as amended, may not be available if the Options are not exercised within the Section 422A prescribed time period after termination of employment. 6.9 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the employment of the Participant shall terminate for any reason other than for death, disability, retirement or for Cause, the Participant shall have the right to exercise Options that were vested in the Participant at the date of termination within the 90 days after the date of termination but in no event beyond the expiration of the term of the Option and only to the extent that the Participant was entitled to exercise the Option at the date of termination of employment. The Committee, in its sole discretion, shall have the right to extend the 90 days up to the expiration date of the Options. If the employment of the participant shall terminate for Cause, all outstanding Options immediately shall be forfeited to the Company and no additional exercise period shall be allowed, regardless of the vested status of the Options. 6.10 NONTRANSFERABILITY OF OPTIONS. No Option granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all Options granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant. ARTICLE 7. RESTRICTED STOCK UNITS 7.1 GRANT OF RESTRICTED STOCK UNITS. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Restricted Stock Units to Key Employees in such amounts as the Committee shall determine. 7.2 RESTRICTED STOCK UNIT AGREEMENT. Each Restricted Stock Unit grant shall be evidenced by a Restricted Stock Unit Agreement that shall specify the Period of Restriction, or Periods, the number of Restricted Stock Units covered by the grant, and such other provisions as the Committee shall determine. Each Restricted Stock Unit shall be equivalent in value to a Share of Common Stock. 9 7.3 VESTING. Each grant of Restricted Stock Units shall require the Participant to remain in the employment of the Corporation or a Subsidiary for a prescribed period ("Restriction Period"). The Committee shall determine the Restriction Period or Periods which shall apply to the share of Common Stock covered by each grant of Restricted Stock Units. 7.4 OTHER RESTRICTIONS. The Committee shall impose such other restrictions on any Restricted Stock Units granted pursuant to the Plan as it may deem advisable including, without limitation, restrictions based upon the achievement of specific (Company-wide, divisional, and/or individual) performance goals, and/or restrictions under applicable Federal or state securities laws. 7.5 PAYMENT. Upon expiration of the Restriction Period or Periods applicable to each grant of Restricted Stock Units, the Participant shall, without payment on his part, be entitled to receive payment in an amount equal to the aggregate fair market value of the shares of Common Stock covered by such grant on the date of expiration. Such payment may be made only in shares of Common Stock equal to the number of Restricted Stock Units with respect to which such payment is made. 7.6 DIVIDEND EQUIVALENTS. A Participant whose Restricted Stock Units have not previously terminated shall be entitled to receive payment in an amount equal to each cash dividend the Company would have paid to such Participant during the term of those Restricted Stock Units as if the Participant has been the owner of record of the shares of Common Stock covered by such Restricted Stock Units on the record date for the payment of such dividend. Payment of each such dividend equivalent shall be made on payment date of the cash dividend with respect to which it is made, or as soon as practicable thereafter. 7.7 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY OR RETIREMENT. In the event that a Participant's employment is terminated with the Company because of death, disability or normal retirement (as defined under the then established rules of the Company), any remaining Period of Restriction applicable to the Restricted Stock Units pursuant to Section 7.3 hereof shall automatically terminate and, except as otherwise provided in Section 7.4, the Shares issued in payment of the Restricted Stock Units shall be free of restrictions and freely transferable. In the event that a Participant terminates his employment with the Company because of early retirement (as defined under the then established rules of the Company), the Committee, in its sole discretion, may waive the restrictions remaining on any or all grants of Restricted Stock Units pursuant to Section 7.3 herein and add such new restrictions to Shares issued in payment of Restricted Stock Units as it deems appropriate. 7.8 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event that a Participant terminates his employment with the Company for any reason other than for death, disability or retirement, as set forth in Section 7.7 herein, during the Period of Restriction, then any Restricted Stock Units granted still subject to restrictions as of the date of such termination shall automatically be forfeited. In such event, the Participant shall not be entitled to receive any payment with respect to those Restricted Stock Units, except as provided in Section 7.6 herein, provided, however, that, in the event of any involuntary termination of the employment of a 10 participant by the Company other than for Cause, the Committee, in its sole discretion, may waive the automatic forfeiture of any or all such Restricted Stock Unit grants. ARTICLE 8. PERFORMANCE UNITS AND PERFORMANCE SHARES 8.1 GRANT OF PERFORMANCE UNITS AND PERFORMANCE SHARES. Subject to the terms and provisions of the Plan, Performance Units or Performance Shares may be granted to Participants at any time and from time to time as shall be determined by the Committee. The Committee shall have complete discretion in determining the number of Performance Units or Performance Shares granted to each Participant. 8.2 VALUE OF PERFORMANCE UNITS AND PERFORMANCE SHARES. Each Performance Unit shall have an initial value of one dollar ($1.00) and each Performance Share initially shall represent one share of Stock. The Committee shall set performance goals in its discretion which, depending on the extent to which they are met, will determine the ultimate value of the Performance Unit or Performance Share to the Participant. The time period during which the performance goals must be met shall be called a "Performance Period". 8.3 PAYMENT OF PERFORMANCE UNITS AND PERFORMANCE SHARES. After a Performance Period has ended, the holder of a Performance Unit or Performance Share shall be entitled to receive the value thereof as determined by the extent to which performance goals discussed in Section 8.2 have been met. 8.4 FORM AND TIMING OF PAYMENT. Payment in Section 8.3 above shall be made in cash, stock or a combination thereof as determined by the Committee. Payment may be made in a lump sum or installments as prescribed by the Committee. If any payment is to be made on a deferred basis, the Committee may provide for the payment of dividend equivalents or interest during the deferral period. 8.5 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY OR RETIREMENT. In the case of death, disability, or retirement, the holder of a Performance Unit or Performance Share shall receive pro rata payment based on the number of months service during the Performance Period but based on the achievement of performance goals during the entire Performance Period. Payment shall be made at the time payments are made to Participants who did not temrinate service during the Performance Period. 8.6 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event that a Participant terminates employment with the Company for any reason other than death, disability or retirement, all Performance Units or Performance Shares shall be forfeited; provided, however, that in the event of an involuntary termination of the employment of the Participant by the Company other than for Cause, the Committee in its sole discretion may waive the automatic forfeiture provisions and pay out on a pro rata basis based on the achievement of performance goals during the entire Performance Period; in the event the Committee chooses to make a pro rata payment, such a payment shall be made at the time payments are made to Participants who did not terminate service during the Performance Period. 11 8.7 NONTRANSFERABILITY. No Performance Units or Performance Shares granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution until the termination of the applicable Performance Period. All rights with respect to Performance Units or Performance Shares granted to a Participant under the Plan shall be exercisable during his lifetime only by the Participant or the Participant's legal representative. 8.8 PERFORMANCE MEASURES. Unless and until the Committee proposes for shareholder vote and shareholders approve a change in the general performance measures set forth in this Section 8.8, the attainment of which may determine the degree of payout and / or vesting with respect to Awards to Covered Employees which are designed to qualify for the Performance-Based Exception, the performance measure(s) to be used for purposes of such grants shall be chosen from among: (a) Return on Equity; (b) Earnings Per Share; (c) Operating Cash Flow; (d) Gross Revenue; (e) Income Before Taxes; (f) Net Income; (g) Return on Revenue; and (h) Stock Price Appreciation. The Board shall have the discretion to adjust the determinations of the degree of attainment of the pre-established performance goals; provided, however, that Awards which are designed to qualify for the Performance-Based Exception, and which are held by Covered Employees, may not be adjusted upward (the Board shall retain the discretion to adjust such Awards downward). In the event that applicable tax and / or securities laws change to permit Board discretion to alter the governing performance measures without obtaining shareholder approval of such changes, the Board shall have sole discretion to make such changes without obtaining shareholder approval. In addition, in the event that the Board determines that it is advisable to grant Awards which shall not qualify for the Performance-Based Exception, the Board may make such grants without satisfying the requirements of Code Section 162(m). ARTICLE 9. RIGHTS OF EMPLOYEES 9.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company. 9.2 PARTICIPATION. No employee shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award. 12 ARTICLE 10. CHANGE IN CONTROL 10.1 STOCK BASED AWARDS. Notwithstanding the remaining provisions of the Plan, in the event of a Change in Control of the Company, all Stock based awards granted under this Plan, including NQSOs, ISOs, and Restricted Stock Units, that are still outstanding and not yet vested, shall become immediately 100% vested in each Participant, as of the first date that the definition of Change in Control has been fulfilled, and shall remain as such for the remaining life of the Award, as such life is provided herein and within the provisions of the related individual Award Agreements. Within ten (10) business days after the occurrence of a Change in Control, the stock certificates representing payment of Restricted Stock Unit grants, without any restrictions or legend thereon, shall be delivered to the applicable Participants. 10.2 PERFORMANCE BASED AWARDS. Notwithstanding the remaining provisions of the Plan, in the event of a Change in Control of the Company, all performance based awards granted under this Plan shall be immediately paid out in cash, including Performance Units or Performance shares. The amount of the payout shall be based on the extent to which performance goals, established for the Performance Period then in progress, have been met up to the date of the Change in Control, or at target, whichever is higher. 10.3 POOLING OF INTERESTS ACCOUNTING. Notwithstanding any other provision of the Plan to the contrary, in the event that the consummation of a Change in Control is contingent on using the pooling of interests accounting methodology, the Board may take any action necessary to preserve the use of pooling of interests accounting. ARTICLE 11. AMENDMENT, MODIFICATION AND TERMINATION 11.1 AMENDMENT, MODIFICATION, AND TERMINATION. With the approval of the Board, at any time and from time to time, the Committee may terminate, amend, or modify the Plan. However, without the approval of the stockholders of the company (as may be required by the Code, by the insider trading rules of Section 16 of the Exchange Act, by any national securities exchange or system on which the Shares are then listed or reported, or by a regulatory body having jurisdiction with respect hereto), no such termination, amendment, or modification may: (a) Increase the total amount of Shares which may be issued under this Plan, except as provided in Section 4.3 herein; or (b) Change the class of employees eligible to participate in the Plan; or (c) Materially increase the cost of the Plan or materially increase the benefits to Participants; or (d) Extend the maximum period after the date of grant during which Options may be exercised; or (e) Change the provisions of the Plan regarding Option Price. 13 11.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment or modification of the Plan shall in any manner adversely affect any Award previously granted under the Plan, without the written consent of the Participant. 11.3 COMPLIANCE WITH CODE SECTION 162(m). At all times when Code Section 162(m) is applicable, all Awards granted under this Plan shall comply with the requirements of Code Section 162(m); provided, however, that in the event the Board determines that such compliance is not desired with respect to any Award or Awards available for grant under the Plan, then compliance with Code Section 162(m) will not be required. In addition, in the event that changes are made to Code Section 162(m) to permit greater flexibility with respect to any Award or Awards available under the Plan, the Board may, subject to this Article 11, make any adjustments it deems appropriate. ARTICLE 12. WITHHOLDING 12.1 TAX WITHHOLDING. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy Federal, state and local taxes (including the Participant's FICA obligation) required by law to be withheld with respect to any grant, exercise or payment made under or as a result of this Plan. 12.2 SHARE WITHHOLDING. With respect to withholding required upon the exercise of NQSOs, or upon the payment of Restricted Stock Units, or upon the payment of Performance Units or Performance shares (if paid in full or part in Shares), participants may elect, subject to the approval of the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares having a Fair market Value, on the date the tax is to be determined, equal to the amount required to be withheld. All elections shall be irrevocable, and be made in writing, signed by the Participant in advance of the day that the transaction becomes taxable. Share withholding elections made by Participants who are subject to the short-swing profit restrictions of Section 16 of the Exchange Act must comply with such additional restrictions in making their election. ARTICLE 13. REDEMPTION OF COMMON STOCK ON TERMINATION OF EMPLOYMENT As of the time of voluntary or involuntary termination of employment of a Participant and at the discretion of the Committee, Participant shall sell to the Corporation, and the Corporation shall redeem from the Participant, all of Participant's Shares, that are owned or have vested due to Participant's participation in the Plan. The redemption price for each Share redeemed shall be the average of the highest and lowest price at which the Stock was traded during the five business days preceding the date of the Committee's decision to redeem the Shares of a participant. The redeemed shares shall be transferred to the Corporation properly endorsed by the Participant free and clear of all claims, liens and encumbrances whatsoever. As used herein, the term "termination of employment" means the complete termination of employment. 14 ARTICLE 14. INDEMNIFICATION Each Person who is or shall have been a member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by him in connection with or resulting from any claim, action, suit or proceeding to which he may be a party or in which he may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him in settlement thereof, with the Company's approval, or paid by him in satisfaction of any judgment in any such action, suit or proceeding against him, provided he shall give the Company an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such Persons may be entitled under the Company's Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless. ARTICLE 15. SUCCESSORS All obligations of the Company under the Plan, with respect to Awards granted hereunder, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all substantially all of the business and/or assets of the Company. ARTICLE 16. REQUIREMENTS OF LAW 16.1 REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares under this Plan shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. 16.2 GOVERNING LAW. To the extent not preempted by Federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Florida. 15 EX-10.11 6 g74165ex10-11.txt NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN AS AMENDED EXHIBIT 10.11 THE WACKENHUT CORPORATION NONEMPLOYEE DIRECTOR STOCK OPTION PLAN (Effective April 28, 1995) AS AMENDED THROUGH FEBRUARY 09, 2001 Amendment to The Wackenhut Corporation Nonemployee Director Stock Option Plan EFFECTIVE: 2/9/01, Item 6.1 the Wackenhut Corporation Nonemployee Director Stock Option Plan be amended to read as follows: 6.1 Subject to the limitation on the number of shares subject to this Plan, each Nonemployee Director shall be granted an Option to purchase 5,000 Shares upon his or election and/or reelection to serve on the Board. Amendment to The Wackenhut Corporation Nonemployee director Stock Option Plan EFFECTIVE: 10/29/96, Item 6.10 of the Wackenhut Corporation Nonemployee Stock Option Plan to be revised as follows: 6.10 Termination of Service on Board for Others Reasons. If service of the Participants on the Board shall terminate for any reason other than for death or Disability, any outstanding Options held by the Participant shall remain exercisable at any time prior to their expiration date, or for ten years from the date of the grant of the Options, whichever is shorter. THE WACKENHUT CORPORATION NONEMPLOYEE DIRECTOR STOCK OPTION PLAN (Effective April 28, 1995) CONTENTS - --------------------------------------------------------------------------------
SECTION PAGE ARTICLE 1. THE PLAN 1.1 Establishment of the Plan 1 1.2 Purpose of the Plan 1 1.3 Duration of the Plan 1 ARTICLE II. DEFINITIONS 2.1 Award Agreement 2 2.2 Board 2 2.3 Code 2 2.4 Company 2 2.5 Disability 2 2.6 Exchange Act 2 2.7 Fair Market Value 2 2.8 Nonemployee Director 2 2.9 Option 3 2.10 Participant 3 2.11 Plan Administrator 3 2.12 Shares 3 ARTICLE III. ADMINISTRATION 3.1 The Plan Administrator 4 3.2 Authority of the Plan Administrator 4 3.3 Decisions Binding 4 ARTICLE IV. SHARES SUBJECT TO THE PLAN 4.1 Number of Shares 5 4.2 Lapsed Option Grants 5 4.3 Adjustments in Authorized Shares 5 ARTICLE V. ELIGIBILITY AND PARTICIPATION 5.1 Eligibility 6 5.2 Actual Participation 6
ARTICLE VI. NONQUALIFIED STOCK OPTIONS 6.1 Grants of Options 7 6.2 Limitation on Grant of Options 7 6.3 Award Agreement 7 6.4 Option Price 7 6.5 Duration of Options 7 6.6 Vesting of Shares Subject to Option 7 6.7 Payment 6.8 Termination of Service on Board Due to Death 8 6.9 Termination of Service on Board Due to Disability 8 6.10 Termination of Service on Board for Other Reasons 8 6.11 Nontransferability of Options 9 6.12 Restrictions on Share Transferability 9 ARTICLE VII. AMENDMENT, MODIFICATION, AND TERMINATION 7.1 Amendment, Modification, and Termination 10 7.2 Options Previously Granted 10 ARTICLE VIII. MISCELLANEOUS 8.1 Indemnification 11 8.2 Beneficiary Designation 11 8.3 Successors 11 8.4 Severability 11 8.5 Requirements of Law 11 8.6 Governing Law 12
ARTICLE I. THE PLAN 1.1 ESTABLISHMENT OF THE PLAN The Wackenhut Corporation, (the "Company"), hereby establishes an incentive compensation plan providing for the grant of nonqualified stock options to Nonemployee Directors, subject to the terms and provisions set forth herein. This plan shall be known as the Wackenhut Corporation Nonemployee Director Stock Option Plan (the "Plan"). Subject to ratification by an affirmative vote of a majority of Shares present and entitled to vote at the 1996 Annual Meeting at which a quorum is present, the Plan shall become effective as of April 28, 1995 (the "Effective Date"). 1.2. PURPOSE OF THE PLAN The purpose of the Plan is to promote the achievement of long-term objectives of the Company by linking the personal interests of Nonemployee Directors to those of Company shareholders, and to attract and retain Nonemployee Directors of outstanding competence. 1.3. DURATION OF THE PLAN The Plan shall commence on April 28, 1995 and shall remain in effect, subject to the right of the Board to amend or terminate the Plan at any time pursuant to section 7.1, until all Shares subject to the Plan have been purchased or acquired according to the Plan's provisions. However, in no event may an Option be granted under the Plan on or after April 27, 2005. 1 ARTICLE II. DEFINITIONS Whenever used in the Plan, the following terms shall have the meanings set forth below unless otherwise expressly provided. When the defined meaning is intended, the term is capitalized. The definition of any term in the singular shall also include the plural. 2.1 AWARD AGREEMENT Award Agreement means an agreement entered into by the Company and each Participant setting forth the terms and provisions applicable to Options granted under this Plan. 2.2. BOARD Board means the Board of Directors of The Wackenhut Corporation. 2.3 CODE Code means the Internal Revenue Code of 1986, as amended from time to time. 2.4 COMPANY Company means The Wackenhut Corporation and any successor organization as provided in section 8.3. 2.5 DISABILITY Disability means any disabling condition which entitles the Participant to disability benefits under the federal Social Security Act. 2.6 EXCHANGE ACT Exchange Act means the Securities Exchange Act of 1934, as amended from time to time. 2.7 FAIR MARKET VALUE Fair Market Value means the last closing sale price of a Share on or prior to the relevant date that is reported by the principal securities exchange on which the Shares are publicly traded. 2.8 NONEMPLOYEE DIRECTOR Nonemployee Director means any individual who is a member of the Board, but who has never otherwise been an employee of the Company. 2.9 OPTION Option means an option to purchase Shares granted under Article VI. Such Options are not intended to meet the requirements of Code section 422. 2.10 PARTICIPANT Participant means a Nonemployee Director of the Company who has one or more outstanding Options under the Plan. 2 2.11 PLAN ADMINISTRATOR Plan Administrator means the Compensation Committee of the Company's Board. 2.12 SHARES Shares means the series B common stock of the Company. 3 ARTICLE III. ADMINISTRATION 3.1 THE PLAN ADMINISTRATOR The Plan shall be administered by the Plan Administrator subject to the restrictions set forth in this Plan. The Plan Administrator may delegate to one or more individuals or a committee any of its powers and duties as Plan Administrator that it deems desirable. In this case, every reference in the Plan to the Plan Administrator shall be deemed to include these individuals or the committee as to matters within their jurisdiction. 3.2 AUTHORITY OF THE PLAN ADMINISTRATOR The Plan Administrator shall have the full power, discretion, and authority to administer this Plan in a manner which is consistent with its provisions. Except as provided below, the Plan Administrator shall have the exclusive right to interpret the terms and provisions of the Plan and to determine any and all questions arising under the Plan or in connection with the administration thereof, including, without limitation, the right to remedy or resolve possible ambiguities, inconsistencies, or omissions, by general rule or particular decision. However, in no event shall the Plan Administrator have the power to determine Plan eligibility, or to determine the number, the purchase price, the vesting period, or the frequency and timing of Options to be granted under the Plan to any participant. All such determinations are automatic pursuant to the provisions of this Plan. 3.3. DECISIONS BINDING All determinations and decisions made by the Plan Administrator pursuant to the provisions of the Plan shall be final, conclusive, and binding on all persons, including the Company, its stockholders, employees, Participants, and their estates and beneficiaries. 4 ARTICLE IV. SHARES SUBJECT TO THE PLAN 4.1 NUMBER OF SHARES Subject to adjustment as provided in section 4.3, no more than 275,000 Shares shall be eligible for purchase by Participants pursuant to Options granted under this Plan. 4.2 LAPSED OPTIONS GRANTS If any Option granted under this Plan terminates, expires, or lapses for any reason, any Shares subject to purchase pursuant to such Option shall again be available for the grant of an Option under the Plan. 4.3 ADJUSTMENTS IN AUTHORIZED SHARES In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, split-up, Share combination or other change in the corporate structure of the Company affecting the Shares, such adjustment shall be made in the number and class of and/or price of Shares subject to outstanding Options granted under this Plan, as may be determined to be appropriate and equitable by the Board, in its sole discretion, to prevent dilution or enlargement of rights. 5 ARTICLE V. ELIGIBILITY AND PARTICIPATION 5.1 ELIGIBILITY Nonemployee Directors shall be eligible to become Participants in accordance with section 5.2. 5.2 ACTUAL PARTICIPATION Subject to the provisions of Article VI, all Nonemployee Directors shall become Participants by receiving grants of Options upon election and/or reelection to serve on the Board. 6 ARTICLE VI. NONQUALIFIED STOCK OPTIONS 6.1 GRANTS OF OPTIONS Subject to the limitation on the number of Shares subject to this Plan, each Nonemployee Director shall be granted an Option to purchase 5,000 Shares upon his or her election and/or reelection to serve on the Board. 6.2 LIMITATION ON GRANT OPTIONS Other than those grants of Options set forth in section 6.1, no additional Options shall be granted under this Plan. 6.3 AWARD AGREEMENT Each Option grant shall be evidenced by an Award Agreement that shall specify the Option Price (as defined in Section 6.4), the duration of the Option, and the number of Shares available for purchase under the Option as set forth in this Plan. 6.4 OPTION PRICE The purchase price per Share available for purchase under an Option shall be equal to the Fair Market Value of such Share on the date the Option is granted. 6.5 DURATION OF OPTIONS Each Option shall expire on the tenth (10th) anniversary date of its grant. 6.6 VESTING OF SHARES SUBJECT TO OPTION Options granted under the Plan shall be 100 percent vested at all times. Participants shall be entitled to exercise Options at any time and from time to time, within the time period beginning on the date on which the Option is granted, and ending ten (10) years after the grant of the Option. 6.7 PAYMENT Options shall be exercised by the delivery of a written notice of exercise to the Secretary of the Company, setting forth the number of Shares with respect to which the Option is to be exercised. The Option Price (as defined in section 6.4) of any Option shall be payable to the Company in full in cash or its equivalent upon exercise. As soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver to the Participant, in he Participant's name, Share certificates in an appropriate amount based upon the number of Shares purchased pursuant to the exercise of the Option. 7 6.8 TERMINATION OF SERVICE ON BOARD DUE TO DEATH If a Participant dies while he or she is actively serving as a Nonemployee Director, any outstanding Options may be exercised by the Participant's legal representative or beneficiary any time before the earlier of -- (a) the expiration date of such Options; or (b) the second anniversary of the Participants death. 6.9 TERMINATION OF SERVICE ON BOARD DUE TO DISABILITY If a Participant incurs a Disability while he or she is actively serving as a Nonemployee Director, the Participant may exercise any Options that are outstanding at the time of such Disability before the earlier of -- (a) the expiration date of such Options; or (b) the second anniversary of the date of Disability. (If the Participant dies after incurring a Disability, but before the expiration of the exercise period described above, the Participant's legal representative or beneficiary may exercise any outstanding Options before the expiration of such period.) 6.10 TERMINATION OF SERVICE ON BOARD FOR OTHER REASONS If the service of the Participant on the Board shall terminate for any reason other than for death or Disability, any outstanding Options held by the Participant shall remain exercisable at any time prior to their expiration date, or for six months after the date the Participant's service on the Board terminates, whichever period is shorter. 6.11 NONTRANSFERABILITY OF OPTIONS No Option granted under this Plan may be sold, transferred, pledged, or assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all Options granted to a Participant under this Plan shall be exercisable during his or her lifetime only by such Participant. 6.12 RESTRICTIONS ON SHARE TRANSFERABILITY The Board may impose such restrictions on any Shares acquired pursuant to the exercise of an Option under this Plan, as it may deem advisable, including, without limitation, restrictions under applicable Federal securities laws, under the requirements of any Stock exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares. 8 ARTICLE VII. AMENDMENT, MODIFICATION, AND TERMINATION 7.1 AMENDMENT, MODIFICATION, AND TERMINATION The Board may at any time alter, amend, suspend, or terminate the Plan in whole or part. However, no amendment which fails to comply with the exemptions available under Rule 16b-3 of the Exchange Act, including any successor to the Rule, shall be effective. 7.2 OPTIONS PREVIOUSLY GRANTED Unless required by law, no termination, amendment, or modification of this Plan shall in any manner adversely affect any Option previously granted under this Plan, without the written consent of the Participant holding the Option. 9 ARTICLE VIII. MISCELLANEOUS 8.1 INDEMNIFICATION The Company shall indemnify each person against any and all claims, losses, damages, and expenses (including counsel fees) incurred by such individual for the exercise of any duties as Plan Administrator, whether singly or as a member of committee, and against any liability, including any amounts paid in settlement with the Company's approval, arising from the individual's action or failure to act, except when the same is judicially determined to be attributable to the gross negligence or willful misconduct of the individual. 8.2 BENEFICIARY DESIGNATION Each Participant under this Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to exercise the rights described in sections 6.8 and 6.9. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Plan Administrator and will be effective only when filed by the Participant in writing with the Plan Administrator during his or her lifetime. In the absence of any such designation, such rights may be exercised by the executor of the Participant's estate. 8.3 SUCCESSORS All obligations of the Company under this Plan, with respect to Options granted hereunder, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. 8.4 SEVERABILITY If a provision of this Plan shall be held illegal or invalid, the illegality or invalidity shall not affect the remaining parts of the Plan. The Plan shall be construed and enforced as if the illegal or invalid provision had not been included herein. 8.5 REQUIREMENTS OF THE LAW The granting of Options under this Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. 8.6 GOVERNING LAW To the extent not preempted by Federal law, this Plan, and all Award Agreements hereunder, shall be construed in accordance with the laws of the State of Florida. 10 CERTIFICATE OF ASSISTANT SECRETARY OF THE WACKENHUT CORPORATION The undersigned hereby certifies that he is the duly elected, qualified, and acting Assistant Secretary of The Wackenhut Corporation., a Florida corporation (the "Company"), and that as such, he is familiar with the facts herein certified and is duly authorized to certify the same and does hereby certify: 1. The foregoing is a true, correct and complete copy of the Wackenhut Corporation Nonemployee Director Stock Option Plan as amended; 2. AND THAT the foregoing is fully in accord with and pursuant to the Bylaws of the Corporation, and that the same is in full force and effect. IN WITNESS WHEREOF, I have hereto subscribed my name and affixed the seal of the Corporation on this February 25, 2002. /s/ F. E. Finizia --------------------------------------- (SEAL) F. E Finizia, Assistant Secretary (Authorized Officer) 11 EX-10.16 7 g74165ex10-16.txt DESIGNATED EXECUTIVE OFFICER BONUS PLAN EXHIBIT 10.16 THE WACKENHUT CORPORATION DESIGNATED EXECUTIVE OFFICER BONUS PLAN FOR FISCAL 2001 Eligibility and Eligibility in this plan is limited to the Designated Senior Participation Executive Officers, which presently includes the following: - Chairman of the Board and Chief Executive Officer - President and Chief Operating Officer Target Incentive For fiscal year 2001, the percentages defined for each Awards participant are shown below.
Target Incentive Award Position As a Percent of Base Salary -------- --------------------------- COB/CEO 50% PRES/COO 50%
Corporate Performance Performance Measures Participants Measures -------------------- ------------ Corporate Revenues 30% Corporate Income Before Tax 70% --- Total 100%
Definition of This definition excludes extraordinary items and changes in Corporate accounting principles, as defined by GAAP. Income Extraordinary items, as defined by GAAP, include items of a very unusual and infrequent nature, a good example of which is a loss incurred in the early extinguishment of debt. Changes in accounting principles as a result of new pronouncements or requirements issued by accounting authorities such as SEC, FASB, etc. Non-recurring and unusual items not included or planned for in the budgeted bonus targets may be excluded from the corporate income before income taxes, as defined, at the recommendation of management and at the discretion and agreement of the Nominating and Compensation Committee. Page 1 of 2 Award Based on performance achieved during the year, a Determination participant's award payout will be a function of performance against pre-established goals for each performance measure, as shown in the following chart: Performance Payout as Percent Achieved of Target Incentive Award ----------- ------------------------- Outstanding 150% Target 100% Threshold 50% Below threshold 0% Threshold, Target, and Outstanding performance levels will be defined at the beginning of each year for each performance measure. For 2000, the following applies: Threshold 80% of Target Target 100% (Budget) Outstanding 120% of Target Governance The Nominating and Compensation Committee of the Board of Directors of The Wackenhut Corporation is responsible for the administration and governance of the plan. Actions requiring Committee approval include final determination of plan eligibility and participation, identification of performance goals, and final award determination. The decision of the Committee shall be conclusive and binding on all participants. Page 2 of 2 EX-10.17 8 g74165ex10-17.txt SENIOR MANAGEMENT BONUS PLAN EXHIBIT 10.17 THE WACKENHUT CORPORATION SENIOR MANAGEMENT BONUS PLAN FOR FISCAL 2001 Eligibility and Eligibility in this plan is limited to the Senior Officers, Participation which presently includes the following: - EVP & President -- North American Operations Group - EVP -- Chief Financial Officer - SVP & President -- Wackenhut International, Inc. - SVP -- Corporate Planning & Development and President & CEO, Wackenhut Resources, Inc. - SVP -- Human Resources Target Incentive For fiscal year 2001, the percentages defined for each Awards participant are shown below.
Target Incentive Award Position As a Percent of Base Salary -------- --------------------------- EVPs 35% SVPs 35%
Corporate Business Unit Performance Performance Measures Participants Participants Measures --------------------- ------------ ------------- Corporate Revenues 30% 30% Corporate Income Before Tax 70% 30% Business Unit Service Profit 0% 40% --- --- Total 100% 100%
Definition of This definition excludes extraordinary items and changes in Corporate accounting principles, as defined by GAAP. Income Extraordinary items, as defined by GAAP, include items of a very unusual and infrequent nature, a good example of which is a loss incurred in the early extinguishment of debt. Changes in accounting principles as a result of new pronouncements or requirements issued by accounting authorities such as SEC, FASB, etc. Non-recurring and unusual items not included or planned for in the budgeted bonus targets may be excluded from the corporate income before income taxes, as defined, at the recommendation of management and at the discretion and agreement of the Nominating and Compensation Committee. Page 1 of 2 Award Based on performance achieved during the year, a Determination participant's award payout will be a function of performance against pre-established goals for each performance measure, as shown in the following chart: Performance Payout as Percent Achieved of Target Incentive Award ----------- ------------------------- Outstanding 150% Target 100% Threshold 50% Below threshold 0% Threshold, Target, and Outstanding performance levels will be defined at the beginning of each year for each performance measure. Discretionary For other plan participants, the CEO and COO may recommend Judgment an adjustment to an individual's incentive award to reflect individual performance. All recommended adjustments will be subject to review and approval by the Committee. Adjustments will be based on the following guidelines: Evaluation of Multiply Individual Performance Award By: ---------------------- --------- Outstanding 150% Normal Performance 100% Clearly below desired 0%-80% Governance The Nominating and Compensation Committee of the Board of Directors of The Wackenhut Corporation is responsible for the administration and governance of the plan. Actions requiring Committee approval include final determination of plan eligibility and participation, identification of performance goals, and final award determination. The decision of the Committee shall be conclusive and binding on all participants.
Page 2 of 2 EX-10.18 9 g74165ex10-18.txt FIRST AMENDMENT TO EMPLOYMENT AGREEMENT EXHIBIT 10.18 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT ("Amendment") is entered into on February 19, 2002, by and between THE WACKENHUT CORPORATION, a Florida corporation (the "Company"), and Richard R. Wackenhut (the "Executive"). PRELIMINARY STATEMENTS A. The parties previously entered into an Employment Agreement dated March 17, 2000 (the "Original Agreement"). B. The parties wish to amend the Original Agreement as provided herein. AGREEMENT NOW, THEREFORE, in consideration of the premises, the mutual covenants set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Except as expressly amended herein, the Original Agreement that was entered into as of March 17, 2000, remains in full force and effect. Without limiting the foregoing, the anniversary date of the Original Agreement contemplated in Section 1.b thereof shall remain March 17th. Unless otherwise defined, capitalized terms used herein shall have the meanings given to them in the Original Agreement. 2. Section 5 of the Original Agreement is hereby amended by deleting the text therein in its entirety and replacing it with the following text: "5. TERMINATION BY THE COMPANY. In the event the Company terminates Executive's employment for any reason other than death, the Company shall pay the Special Termination Payment (as defined in Section 8 below) to the Executive within ten days after said termination. In addition, upon such termination, (i) the Company shall continue to provide the Executive with the Executive Benefits at no cost the Executive in no less than the same amounts and on the same terms and conditions that would have applied had he remained employed by the Company for the remainder of the Employment Term, (ii) all awards granted pursuant to The Wackenhut Corporation Employee Long-Term Incentive Stock Plan and any other unvested stock options or other interests the Executive holds in the Company's stock or the stock of a subsidiary of the Company shall become fully vested, all restrictions on restricted stock units shall lapse, and all performance targets with respect to performance units or shares will be deemed to have been met as of the date the Executive's employment is terminated, (iii) the Company shall transfer all of its interest in any automobile used by the Executive pursuant to the Executive Automobile Policy and shall pay the balance of any outstanding loans or leases on such automobile (whether such obligations are those of the Executive or the Company) so that the Executive owns the automobile outright (in the event such automobile is leased, the Company shall pay the residual cost of such lease), (iv) the Company shall pay to the Executive, within 10 days after said termination, the present value of all cash payments pursuant to the Amended and Restated Senior Officer Retirement/Deferred Compensation Agreement entered into between the Company and the Executive dated March 17, 2000 (the "Deferred Compensation Agreement") as if the Executive had remained employed with the Company through the Retirement Date defined therein (the "Deferred Compensation Payoff"), in full satisfaction of the Company's obligations under the Deferred Compensation Agreement (the present value represented by the Deferred Compensation Payoff referred to above shall be calculated using a discount rate equal to the lower of the rate provided for in Code Section 280G(d)(4), or six and one-half percent (6.5%), and without regard to any mortality factors or related probabilities), (v) the Company shall pay to the Executive, within 10 days after said termination, an amount equal to the sum of (a) the dollar value of vacation time that would have been credited to the Executive pursuant to the Company's Vacation Policy dated August 1, 1997, Number HR 350 (the "Vacation Policy") if the Executive had remained employed by the Company through the "Anniversary Date" (as defined in the Vacation Policy) immediately following his termination of employment, multiplied by a fraction, the numerator of which is the number of days which elapsed from the Executive's Anniversary Date immediately preceding the date of termination through the date of such termination, and the denominator of which is 365, plus (b) the dollar value of vacation time which the Executive was entitled to have taken immediately prior to the Executive's termination, which was not in fact taken by the Executive; the dollar value of vacation time referred to above shall be equal to the amount which would have been paid to the Executive by the Company during such vacation time had the vacation time in fact been taken by the Executive immediately prior to the Executive's termination, and (vi) the Company shall pay to the Executive, within 10 days after said termination, additional compensation in an amount equal to $670,000 (the "Special Consideration Payment"). 2. Section 8.a of the Original Agreement is hereby amended by deleting the text therein in its entirety and replacing it with the following text: "a. EQUALIZATION PAYMENT. If any of the Special Termination Payment will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or any similar tax that may hereafter be imposed), the Company shall also pay to the Executive in cash an additional amount (the "Excise Tax Gross-up Payment") such that the net amount retained by the Executive after deduction from the Special Termination Payment and the Excise Tax Gross-up Payment of any Excise Tax imposed upon the Special Termination Payment and any federal, state, local and other taxes (including income taxes, payroll taxes, Excise Tax and any other taxes) imposed upon the Excise Tax Gross-up Payment shall be equal to the original amount of the Special Termination Payment, prior to deduction of any Excise Tax imposed with respect to the Special Termination Payment. The Excise Tax Gross-Up Payment is intended to place the Executive in the same 2 economic position he would have been in if the Excise Tax did not apply. The Excise Tax Gross-up Payment shall be paid to the Executive in full, at the time the Special Termination Payment is paid pursuant to this Agreement. For purposes of determining the Excise Tax Gross-up Payment pursuant to this Section 8.a, the Special Termination Payment shall also include any amounts which would be considered "Parachute Payments" (within the meaning of Section 280G(b)(2) of the Code) to the Executive, including, but not limited to, all items listed in Section 5 of this Agreement to the extent that they are considered to be Parachute Payments such that the Company will absorb the full cost of any Excise Tax thereon and all taxes relating to the Company's absorption of any Excise Taxes." 3. Section 8.b of the Original Agreement is hereby amended by deleting all references therein to "Gross-up Payment" and replacing all such references with "Excise Tax Gross-up Payment." 4. Sections 8.c and 8.d of the Original Agreement are hereby amended by deleting the text therein in its entirety and replacing it with the following text: "c. TAX CALCULATION. Simultaneously with the Company's payment of the Special Termination Payment, the Company shall deliver to the Executive a written statement specifying the total amount of all payments provided for in this Agreement, together with all supporting calculations. If the Executive disagrees with the Company's calculation of any of said payments, the Executive shall submit to the Company, no later than 30 days after receipt of the Company's calculations, a written notice advising the Company of the disagreement and setting forth his calculation of said payments. The Executive's failure to submit such notice within such period shall be conclusively deemed to be an agreement by the Executive as to the amount of said payments. If the Company agrees with the Executive's calculations, it shall pay any shortfall to the Executive within 20 days after receipt of such a notice from the Executive, together with interest thereon accruing at the rate of 18 percent per annum, compounded monthly, from the original due date of the Special Termination Payment through the actual date of payment of said shortfall. If the Company does not agree with the Executive's calculations, it shall provide the Executive with a written notice within 20 days after the receipt of the Executive's calculations advising the Executive that the disagreement is to be referred to an independent accounting firm for resolution. Such disagreement shall be referred to an independent "Big 5" accounting firm which is not the regular accounting firm of the Company and which is agreed to by the Company and the Executive within 10 days after issuance of the 3 Company's notice of disagreement (if the parties cannot agree on the identity of the accounting firm which is to resolve the dispute, the accounting firm shall be selected by means of a coin toss conducted in Palm Beach County, Florida by counsel to the Executive on the first business day after such 10 day period in such manner as such counsel may specify). The accounting firm shall review all information provided to it by the parties and submit a written report setting forth its calculation of the amounts provided for in this Agreement within 15 days after submission of the matter to it, and such decision shall be final and binding on all of the parties. The fees and expenses charged by said accounting firm shall be paid by the Company. If the amount of the payment actually paid by the Company was less than the amount calculated by the accounting firm, the Company shall pay the shortfall to the Executive within 5 days after the accounting firm submits its written report, together with interest thereon accruing at the rate of 18 percent per annum, compounded monthly, from the original due date of the Special Termination Payment through the actual date of payment of said shortfall. d. SUBSEQUENT RECALCULATION. In the event the Internal Revenue Service imposes an Excise Tax that is greater than the Excise Tax assumed for purposes of calculating the Excise Tax Gross-up Payment, the Company shall reimburse the Executive for the full amount necessary to make the Executive whole in accordance with the principles set forth above, including any interest and penalties which may be imposed." 5. New Section 21 is hereby added to the Original Agreement as follows: "21. NON-COMPETITION. In the event that Executive's employment is terminated pursuant to Sections 5, 6 or 7 hereof and Executive timely receives payment of the Special Termination Payment which is due to him, the Special Consideration Payment and other amounts due to him under this Agreement or otherwise, Executive agrees that for a period of 12 months after such termination of employment he shall not, directly or indirectly, own, manage, operate, control or participate in the ownership, management operation or control of, or be connected as an officer, employee, partner, director or otherwise with, or have any financial interest in, or aid or assist anyone else in the conduct of, any business (a "Competitive Operation") which competes with any business conducted by the Company, or by any group, division or subsidiary of the Company for which the Executive has had responsibility, in any area where such business is being conducted at the time of such termination. It is understood and agreed that, for the purposes of the foregoing provisions of this Section 21, no business which is conducted by the Company at the time of the Executive's termination and which subsequently is sold or discontinued by the Company shall be deemed to be a Competitive Operation within the meaning of this Section 21. Ownership of an amount not to exceed five percent (5%) of the voting stock of any publicly held corporation shall not constitute a violation hereof. If Executive breaches this Section 21, the Company will be entitled to recover the Special Consideration Payment from the Executive and any additional damages it may incur in accordance with applicable law." 6. New Section 22 is hereby added to the Original Agreement as follows: 4 "22. EXAMPLES. The operation of this Agreement is illustrated by the example set forth in Exhibit A attached hereto. Said example is not intended to limit the manner in which amounts payable hereunder are to be calculated. If other tax rates, taxes or other charges are applicable, the calculations shall be adjusted to achieve the same economic result to the Executive such that the Executive receives all payments under this Agreement free of costs represented by Excise Taxes or any taxes relating to the absorption by the Company of Excise Taxes. The assumptions set forth in said example are for illustrative purposes only, and have no relationship to the actual amounts that may apply under this Agreement." 7. Exhibit A attached hereto is added as Exhibit A to the Original Agreement. 8. This Amendment, the Original Agreement and the documents referred to herein and therein constitute the entire agreement of the parties and supersede all other agreements, both oral and written, between the parties with respect to the subject matter hereof and any previous understandings or modifications relating to the foregoing documents, whether oral, written or otherwise. [Signatures on Following Page] 5 IN WITNESS WHEREOF, the parties have caused this Amendment to be effective as of the date first written above. THE WACKENHUT CORPORATION By: /s/ G. R. Wackenhuut ------------------------------------- Name: G. R. Wackenhuut ------------------------------------ Title: Chairman of the Board ----------------------------------- EXECUTIVE /s/ Richard R. Wackenhut ----------------------------------------- Richard R. Wackenhut 6 EXHIBIT A PAGE 1 OF 2 This example assumes the following: (i) the Executive receives payments under this Agreement (other than the Deferred Compensation Payoff) and otherwise upon a termination equal to $17,250,000; (ii) the amount of the Deferred Compensation Payoff is $2,000,000; (iii) the total amount properly allocable for federal tax purposes to Executive's covenant not to compete is $3,000,000; (iv) the foregoing payments, other than the amounts allocable to the covenant not to compete, are "parachute payments" under Code Section 280G(b)(2)(A) and will require payment of an Excise Tax Gross-up Payment; (v) the Executive's base amount under Code Section 280G(b)(3)(A) is $1,350,000; (vi) the present value of the deferred compensation payments due to the Executive pursuant to the Deferred Compensation Agreement for purposes of Code Section 280G is $1,400,000; and (vii) payments made to the Executive under this Agreement are subject to a maximum federal income tax rate under Code section 1 of 38.6%, a payroll tax under Code section 3101 of 1.45%, and, to the extent of excess parachute payments, an excise tax under Code section 4999 of 20%, and no other taxes are applicable. Under these assumptions, the Excise Tax Gross-up Payment is $6,758,448.06. The calculation of this amount is set forth in the table set forth on the following page 2 of this Exhibit A. EXHIBIT A PAGE 2 OF 2
- -------------------------------------------------------------------------------------------------------------------- A B C D E - -------------------------------------------------------------------------------------------------------------------- 1 BASE AMOUNT (GIVEN) TOTAL PAYMENTS AMOUNT ALLOCABLE TO INCREASED PV OF EXCISE TAX RECEIVED OTHER THAN NON-COMPETE (GIVEN) DEFERRED GROSS-UP DEFERRED COMPENSATION COMPENSATION FOR PAYMENT PAYOFF (GIVEN) 280G PURPOSES ((B2-C2+D2 (B5-A5) -A2)XB12) - -------------------------------------------------------------------------------------------------------------------- 2 1,350,000 17,250,000 3,000,000 600,000 6,758,448.06 - -------------------------------------------------------------------------------------------------------------------- 3 - -------------------------------------------------------------------------------------------------------------------- 4 PV OF PAYMENTS UNDER DEFERRED COMPENSATION DEFERRED COMPENSATION PAYOFF AMOUNT (GIVEN) AGREEMENT FOR 280G PURPOSES (GIVEN) - -------------------------------------------------------------------------------------------------------------------- 5 1,400,000 2,000,000 - -------------------------------------------------------------------------------------------------------------------- 6 - -------------------------------------------------------------------------------------------------------------------- 7 INCOME TAX RATE 0.38600 - -------------------------------------------------------------------------------------------------------------------- 8 PAYROLL TAX RATE 0.01450 - -------------------------------------------------------------------------------------------------------------------- 9 TAX RATE W/O EXCISE 0.40050 TAX B7+B8 - -------------------------------------------------------------------------------------------------------------------- 10 EXCISE TAX RATE 0.20000 - -------------------------------------------------------------------------------------------------------------------- 11 TOTAL TAX RATE ON 0.60050 PARACHUTE PAYMENTS B9+B10 - -------------------------------------------------------------------------------------------------------------------- 12 EXCISE TAX GROSS-UP 0.5006257822 MULTIPLIER B10/(1-B11) - -------------------------------------------------------------------------------------------------------------------- 13 Note: references to letters and numbers (such as "B9") are to cells in this table. - --------------------------------------------------------------------------------------------------------------------
EX-21.1 10 g74165ex21-1.txt SUBSIDIARIES EXHIBIT 21.1 SUBSIDIARIES OF THE CORPORATION SUBSIDIARIES OF THE WACKENHUT CORPORATION American Guard and Alert, Inc. (Alaska) Save a Friend, Inc. (Florida) Titania Advertising, Incorporated (Florida) Titania Insurance Company of America (Vermont) Tuhnekcaw, Inc. (Delaware) Wackenhut Airline Services, Inc. (Florida) Wackenhut Australia, Pty., Ltd. (Australia) Wackenhut of Canada, Ltd. (Canada) Wackenhut Corrections Corporation (Florida) Wackenhut Educational Services, Inc. (Florida) Wackenhut Financial, Inc. (Delaware) Wackenhut Funding Corp. (Delaware) Wackenhut International, Incorporated (Florida) Wackenhut of Nevada, Inc. (Nevada) Wackenhut Resources, Inc. (Florida) Wackenhut Services, Incorporated (Florida) Wackenhut.com Online Store, Inc. (Florida) SUBSIDIARIES OF WACKENHUT INTERNATIONAL, INCORPORATED Groupo Wackenhut, S.A. de C.V. (Mexico) Instituto Wackenhut, S.A. (Ecuador) Inmobiliaria Wackenhut, S.A. de C.V. (Mexico) Inversiones Setecsa, S.A. (Panama) Peruana de Seguridad y Vigilancia, S.A. (PESEVISA) (Peru) Seguridad Electronica de Nicaragua, S.A. (Nicaragua) Seguridad Electronica, S.A. (Ecuador) Seguridad Tecnica, S.A. de C.V. (Honduras) Seguridad Wackenhut, S.A. de CV (Mexico) Servicios Generales Wackenhut S.A. de C.V. (Mexico) Wackenhut Russia A/O (Russia) Wackenhut Belize, Ltd. (Belize) Wackenhut de Bolivia, S.A. (Bolivia) Wackenhut Cameroon, S.A. (Cameroon) Wackenhut Central Europe GMBH (Germany) Wackenhut de El Salvador, S.A. (El Salvador) Wackenhut de Honduras, S.A. (Honduras) Wackenhut de Nicaragua, S.A. (Nicaragua) Wackenhut de Venezuela, S.A. (Venezuela) Wackenhut del Ecuador, S.A. (Ecuador) Wackenhut Dominicana, S.A. (Dominican Republic) Wackenhut France, S.A.R.L. (France) Wackenhut Gambia, Ltd. (Gambia) Wackenhut International, S.A. (Panama) Wackenhut Jamaica, Ltd. (Jamaica) Wackenhut Pakistan (PVT) Limited (Pakistan) Wackenhut Maritime Security, LTD (United Kingdom) Wackenhut Maghreb, S.A. (Morocco) Wackenhut Mozambique LTD (Mozambique) Wackenhut Neva (Russia) \ Wackenhut Paraguay, S.A. (Paraguay) SUBSIDIARIES OF WACKENHUT INTERNATIONAL, INCORPORATED (CONTINUED) Wackenhut Peru, S.A. (Peru) Wackenhut Puerto Rico, Inc. (Puerto Rico) Wackenhut S.A. (Costa Rica) Wackenhut Sakhalin (Russia) Wackenhut Santa Cruz, S.A. (Bolivia) Wackenhut Seges (Ivory Coast) Wackenhut Security United (Jamaica) Wackenhut Services S.A. de C.V. (El Salvador) Wackenhut Sierra Leone (Sierra Leone) Wackenhut S.A. de C.V. (Mexico) Wackenhut Transportadora de Valores, S.A. (Ecuador) Wackenhut Venzolana, SA (Venezuela) Wackenhut U.K. Limited (United Kingdom) Wackenhut Uruguay, S.A. (Uruguay) SUBSIDIARY OF AMERICAN GUARD AND ALERT Ahtna AGA Security, Inc. (Alaska) SUBSIDIARIES OF WACKENHUT CORRECTIONS CORPORATION Atlantic Shores Healthcare, Inc. Miramichi Youth Centre Management, Inc. Wackenhut Corrections (U.K.), Limited (United Kingdom) Wackenhut Corrections Corporation Australia Pty Ltd. (Australia) Premier Custodial Development LTD (United Kingdom) Canadian Correctional Management Inc. Wackenhut Corrections Design Services, Inc. Wackenhut Corrections Netherlands Antilles, N.V. Wackenhut Corrections Puerto Rico, Inc. WCC Development, Inc. (Florida) WCC/FL/01, Inc. (Florida) WCC/FL/02, Inc. (Florida) WCC Financial, Inc. (Delaware) WCC South Africa, PTY, LTD (South Africa) WCC Real Estate Holdings, LLC (Florida) SUBSIDIARIES OF WACKENHUT CORRECTIONS CORPORATION AUSTRALIA Wackenhut Correctional Services Pty Ltd. (Australia) Australasian Correctional Management Pty Ltd. (Australia) Premier Employment Services, PTY, LTD (Australia) Australasian Correctional Investment Pty Ltd. (Australia) Pacific Rim Employment PTY LTD (Australia ) SUBSIDIARIES OF WACKENHUT SERVICES, INCORPORATED Wackenhut Services, LLC (Colorado) Wackenhut Aviation, LLC (New Mexico) SUBSIDIARIES OF WACKENHUT RESOURCES, INC. WRI Employers Insurance, Inc. (Florida) WRI Staffing, Inc. (Florida) WRI II, Inc. (Florida) Oasis Outsourcing, Inc. (Florida) Oasis Outsourcing II, Inc. (Florida) Oasis Outsourcing III, Inc. (Florida) SUBSIDIARIES OF WACKENHUT RESOURCES, INC. (CONTINUED) Oasis Outsourcing IV, Inc. (Florida) Oasis Outsourcing V, Inc. (Florida) Oasis Outsourcing VI, Inc. (Florida) Oasis Outsourcing VII, Inc. (Florida) Oasis Outsourcing VIII, Inc. (Florida) Oasis Outsourcing IX, Inc. (Florida) Oasis Outsourcing Benefits, Inc. (Florida) Oasis Outsourcing Benefits II, Inc. (Florida) Oasis Outsourcing Benefits III, Inc. (Florida) Oasis Payroll Services, Inc. (Florida) Oasis Staffing, Inc. (Florida) Oasis Staffing II, Inc. (Florida) Oasis Staffing III, Inc. (Florida) Workforce Alternative, Inc. (Florida) King Employee Services, Inc. (Florida) EX-23.1 11 g74165ex23-1.txt CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accountants, we hereby consent to the incorporation of our report incorporated by reference in this Form 10-K, into The Wackenhut Corporation's previously filed Registration Statements on Form S-8 (Registration Statement File Nos. 333-59159, 333-11833, 333-11837, 333-46399, 333-80607, 333-38344, 333-65766, 333-65764, and 333-65800). ARTHUR ANDERSEN LLP West Palm Beach, Florida, February 26, 2002. EX-24.1 12 g74165ex24-1.txt POWER OF ATTORNEY EXHIBIT 24.1 POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitute and appoint Philip L Maslowe, Juan D. Miyar, Timothy L. McCormick, Robert L. Kilbride and Francis E. Finizia and each of them severally, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities to sign any and all reports on Form 10-K (Annual Report pursuant to the Securities Exchange Act of 1934) and any amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Julius W. Becton, Jr. Date: February 13, 2002 - ---------------------------------------- ----------------------------- Julius W. Becton, Jr., Director -1- POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitute and appoint Philip L Maslowe, Juan D. Miyar, Timothy L. McCormick, Robert L. Kilbride and Francis E. Finizia and each of them severally, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities to sign any and all reports on Form 10-K (Annual Report pursuant to the Securities Exchange Act of 1934) and any amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Carroll A. Campbell, Jr. Date: February 12, 2002 - ---------------------------------------- ----------------------------- Carroll A. Campbell, Jr. Director -2- POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitute and appoint Philip L Maslowe, Juan D. Miyar, Timothy L. McCormick, Robert L. Kilbride and Francis E. Finizia and each of them severally, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities to sign any and all reports on Form 10-K (Annual Report pursuant to the Securities Exchange Act of 1934) and any amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Anne N. Foreman Date: February 13, 2002 - ---------------------------------------- ----------------------------- Anne N. Foreman, Director -3- POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitute and appoint Philip L Maslowe, Juan D. Miyar, Timothy L. McCormick, Robert L. Kilbride and Francis E. Finizia and each of them severally, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities to sign any and all reports on Form 10-K (Annual Report pursuant to the Securities Exchange Act of 1934) and any amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Edward L. Hennessy, Jr. Date: February 13, 2002 - ---------------------------------------- ----------------------------- Edward L. Hennessy, Jr. Director -4- POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitute and appoint Philip L Maslowe, Juan D. Miyar, Timothy L. McCormick, Robert L. Kilbride and Francis E. Finizia and each of them severally, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities to sign any and all reports on Form 10-K (Annual Report pursuant to the Securities Exchange Act of 1934) and any amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Paul X. Kelley Date: February 13, 2002 - ---------------------------------------- ----------------------------- Paul X. Kelley, Director -5- POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitute and appoint Philip L Maslowe, Juan D. Miyar, Timothy L. McCormick, Robert L. Kilbride and Francis E. Finizia and each of them severally, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities to sign any and all reports on Form 10-K (Annual Report pursuant to the Securities Exchange Act of 1934) and any amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Nancy Reynolds Date: February 20, 2002 - ---------------------------------------- ----------------------------- Nancy Reynolds, Director -6- POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitute and appoint Philip L Maslowe, Juan D. Miyar, Timothy L. McCormick, Robert L. Kilbride and Francis E. Finizia and each of them severally, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities to sign any and all reports on Form 10-K (Annual Report pursuant to the Securities Exchange Act of 1934) and any amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Richard R. Wackenhut Date: February 13, 2002 - ---------------------------------------- ----------------------------- Richard R. Wackenhut, Director -7- POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitute and appoint Philip L Maslowe, Juan D. Miyar, Timothy L. McCormick, Robert L. Kilbride and Francis E. Finizia and each of them severally, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities to sign any and all reports on Form 10-K (Annual Report pursuant to the Securities Exchange Act of 1934) and any amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ George R. Wackenhut Date: February 13, 2002 - ---------------------------------------- ----------------------------- George R. Wackenhut, Director -8- POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitute and appoint Philip L Maslowe, Juan D. Miyar, Timothy L. McCormick, Robert L. Kilbride and Francis E. Finizia and each of them severally, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities to sign any and all reports on Form 10-K (Annual Report pursuant to the Securities Exchange Act of 1934) and any amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Alan B. Bernstein Date: February 13, 2002 - ---------------------------------------- ----------------------------- Alan B. Bernstein, Director -9- POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitute and appoint Philip L Maslowe, Juan D. Miyar, Timothy L. McCormick, Robert L. Kilbride and Francis E. Finizia and each of them severally, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities to sign any and all reports on Form 10-K (Annual Report pursuant to the Securities Exchange Act of 1934) and any amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ John F. Ruffle Date: February 13, 2002 - ---------------------------------------- ----------------------------- John F. Ruffle, Director -10- POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitute and appoint Philip L Maslowe, Juan D. Miyar, Timothy L. McCormick, Robert L. Kilbride and Francis E. Finizia and each of them severally, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities to sign any and all reports on Form 10-K (Annual Report pursuant to the Securities Exchange Act of 1934) and any amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Benjamin R. Civiletti Date: February 12, 2002 - ---------------------------------------- ----------------------------- Benjamin R. Civiletti, Director -11- POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitute and appoint Philip L Maslowe, Juan D. Miyar, Timothy L. McCormick, Robert L. Kilbride and Francis E. Finizia and each of them severally, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities to sign any and all reports on Form 10-K (Annual Report pursuant to the Securities Exchange Act of 1934) and any amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Thomas P. Stafford Date: February 13, 2002 - ---------------------------------------- ----------------------------- Thomas P. Stafford, Director -12- -----END PRIVACY-ENHANCED MESSAGE-----