-----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, IGGOOiGOb/OOGP28vT8XM7j9Evt6nOgMNsy+koJRBB1su62Mss3O6tf5Fjke8Ijv mciBmIq5O6CBc/8rwPGKYQ== 0000950144-98-002859.txt : 19980318 0000950144-98-002859.hdr.sgml : 19980318 ACCESSION NUMBER: 0000950144-98-002859 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19971228 FILED AS OF DATE: 19980317 SROS: NASD 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: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-05450 FILM NUMBER: 98567415 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 WACKENHUT CORPORATION FORM 10-K405 12/28/97 1 =============================================================================== 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 28, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO 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 pursuant 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 13, 1998, the aggregate value of 1,922,611 shares of Series A Common Stock and 8,884,540 shares of Series B Common Stock held by non-affiliates of the Registrant was $231,636,535. DOCUMENTS INCORPORATED BY REFERENCE Parts of the registrant's Annual Report to Shareholders for the fiscal year ended December 28, 1997 are incorporated by reference into Parts II and IV of this Report. Parts of the registrant's Proxy Statement for its 1998 Annual Meeting of Shareholders are incorporated by reference into Part III of this Report. =============================================================================== 2 PART I ITEM 1. BUSINESS GENERAL The Wackenhut Corporation (the "company") is a leading international provider of security-related and other support services and a leading developer and manager of privatized correctional and detention facilities. The company provides security services and other support services to commercial and governmental customers through its services business (the "Services Business"). Through its correctional business (the "Correctional Business"), the company also provides correctional and detention facility design, development and management services to governmental agencies. The company has approximately 56,000 full and part-time employees serving over 17,000 commercial and governmental customers through an extensive network of offices and operations in 48 states and approximately 50 countries. The company was incorporated in 1958 to continue the businesses that were originally established in 1954 by its Chairman and Chief Executive Officer, 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 core 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 third largest security services organization in the United States and is the leading United States-based provider of security services abroad. In addition to its core security-related services, which include guard and investigative 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, banks and other financial institutions and gated communities. CPOs are also used as supplemental law enforcement forces by public transportation authorities and other governmental entities. Custom Protection Officer is a Registered Service Mark of The Wackenhut Corporation. Moreover, in seeking to respond to the specialized needs of its larger clients, the company developed its national accounts ("National Accounts") program to provide customized security services on a national or regional level to large customers with multiple locations. The National Accounts program provides customers with a high level of service by providing a dedicated contact person with the company who is responsible for coordinating their accounts on a nationwide basis. 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 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 which is now operated exclusively through its 54% owned Wackenhut Corrections Corporation subsidiary ("WHC"). As of January 1998 WHC has contracts to manage 46 correctional and detention facilities, with a rated capacity of 30,144 beds. From December 29, 1991 to December 28, 1997, WHC's revenues increased from $37.9 million to $206.9 million and operating income increased from $1.7 million to $16.5 million, representing compound annual growth rates of 32.7% and 46.1%, respectively. As of February 27, 1998, WHC's total equity market capitalization was approximately $631.8 million. 2 3 The company has leveraged its management skills to expand into other support services in addition to its expansion into the Correctional Business. In 1992, the company entered into the foodservice business for correctional institutions. At December 29, 1996, only 14% of the correctional foodservice market has been privatized. Consequently, the company believes that as privatization of correctional food services continues to gain acceptance at state and local levels, the Correctional Foodservice Management Division will have opportunities for expansion*. In the third quarter of 1996, the company entered into the professional employer organization ("PEO") employee leasing business by establishing Oasis Outsourcing, Inc., a majority owned subsidiary. During 1997, the company continued to expand its market presence in these areas and, consistent with that strategy, Wackenhut Resources, Inc. (WRI), a subsidiary of the company, acquired the King Companies, in May 1997, and Professional Employee Management, Inc. (PEM Companies) in December 1997. Both companies are professional employer organizations and, in addition, a good percentage of the business of the King Companies is in the temporary staffing business. These two companies were combined with Oasis Outsourcing, Inc., under Wackenhut Resources, Inc., to form the Staffing Services Business. By the end of 1997, the Staffing Services Business, including PEM, had 15 offices and personnel in 35 states. In addition to the services, which 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, fire protection services, and airport services. BUSINESS STRATEGY The company's business strategy is focused on two primary objectives: (i) enhancing its position as a leading international provider of security and security-related services by distinguishing the type and quality of security services it provides; and (ii) using its security service expertise and contacts to offer other support services to its clients. Key elements of the company's business strategy are described below: * ENHANCE LEADERSHIP POSITION OF CORE SECURITY-RELATED SERVICE BUSINESS. 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; and (iii) well organized supervisory and feedback procedures. * DEVELOP SPECIALIZED SECURITY SERVICES. The company has identified and targeted National Accounts and CPOs as its primary growth areas in the security services business and seeks to expand its market position. 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 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 the correctional business and the foodservice business has provided it with the experience it believes will allow it to develop other specialized programs and support services such as professional employer organization, temporary services, building maintenance, supplemental police services, crash-fire-rescue services, fire protection services, and airport services. * GEOGRAPHIC EXPANSION. The company seeks to increase revenues and enhance earnings stability by continuing to expand its international presence. Historical revenue growth has been centered in Central and South America and, more recently, Western Europe. The company has also been expanding into Central and Eastern Europe, the former Soviet Union, the People's Republic of China and other countries in the Far - --------------------- * Refer to Forward Looking Statements included as Exhibit 13.0 - page 21 to this Form 10-K 3 4 East in an attempt to capitalize on recent economic developments and political reforms in these areas. The company believes this geographic diversity helps to protect its revenues and earnings from adverse regional economic and business cycles. In addition, the company believes that its far-reaching geographic presence in approximately 50 countries worldwide provides it with an advantage when pursuing contracts with multi-national corporations. * CORRECTIONAL SERVICES BUSINESS. WHC's objective is to enhance its position as one of the leading providers of privatized correctional and detention services. Key elements of WHC's business strategy include: (i) effective management of projects; (ii) selective development of new business opportunities; (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 BUSINESS. Professional employer organizations were founded to take advantage of the trend of small and medium size businesses to lease employees in order to cut costs and provide more and better employee benefits. With a national growth strategy, Wackenhut Resources plans a measured expansion into new markets and regions. Wackenhut Resources' strategy for growth is to seek a balance between employee leasing and temporary staffing. It is felt that this broader blend of human resources services will better meet the needs of our clients as outsourcing trends continue. In addition to internal growth the company seeks to increase its presence in staffing services through selective acquisitions such as the acquisitions of the King Companies, in May 1997, and Professional Employee Management, Inc. (PEM Companies), Florida in December 1997. * PURSUE SELECTED ACQUISITIONS. In addition to internal growth, the company's growth strategy includes selected acquisitions. MARKETS SERVICES BUSINESS. The private security-related services industry includes guard and investigative 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 and investigative services component, which also accounts for the largest portion of the company's revenues. Guard and investigative services are 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 and detectives. In contrast, contract services are provided to end users pursuant to contracts with independent security-related service firms such as the company. The company believes that the advantages to clients of using contract security service providers rather than providing services internally on a proprietary basis are three-fold: (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 BUSINESS. WHC views governmental agencies responsible for state correctional facilities in the United States and governmental agencies responsible for correctional facilities in the United Kingdom and Australia as its primary potential customers. WHC's secondary customers include the INS, other federal and local agencies in the United States and other foreign governmental agencies. STAFFING SERVICES BUSINESS. As a Professional Employer Organization (PEO), the staffing services group provides integrated human resource administration, such as payroll, management and risk management 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 4 5 compelling appeal to companies in the process of downsizing and reengineering. As a result of the acquisition of the King Companies, the staffing services group also entered the temporary staffing business. COMPANY ORGANIZATION The company's business can be divided into the Security Services Business, Correctional Business and Staffing Services Business. The Securities Services Business encompasses all commercial and governmental business of the North American Operations Group (including Wackenhut of Canada Limited) and the International Operations Group. The Security Services Business provides security-related and other support services. The Correctional Business, which consists exclusively of the business conducted through WCC, provides correctional and detention facility design, development and management services to government agencies. The Staffing Services Business provides employee leasing and temporary staffing services. Provided below is financial information for each business segment for Fiscal 1997, Fiscal 1996 and Fiscal 1995. The following table sets forth the contribution to consolidated revenues and operating income by each of the company's business segments. See Note 17 of Notes to Consolidated Financial Statements (which also includes a summary of domestic and international operations) included in Exhibit 13.0 to this Form 10-K.
FISCAL FISCAL FISCAL 1997 1996 1995 AMOUNT AMOUNT AMOUNT BUSINESS SEGMENT ------ ------ ------ - ---------------- (IN THOUSANDS) Revenues: Security Services................................. $ 828,974 $ 768,065 $ 697,301 Correctional Services............................. 206,930 137,784 99,431 Staffing Services................................. 90,898 207 - ------------ ------------ ------------ Total Revenues................................. $ 1,126,802 $ 906,056 $ 796,732 ============ ============ ============ Operating Income: Security Services................................. $ 20,281 $ 18,736 $ 20,500 Correctional Services............................. 16,545 9,731 7,229 Staffing Services................................. (272) (365) - Unallocated corporate expenses.................... (14,982) (11,032) (11,955) ------------ ------------ ------------ Operating Income before one time charges and impairment of assets and relocation costs....... 21,572 17,070 15,774 One time charges and impairment of assets........... (18,300) (750) - ------------ ------------ ------------ Total Operating Income................................. $ 3,272 $ 16,320 $ 15,774 ============ ============ ============
5 6 SECURITY SERVICES BUSINESS The Security Services Business is conducted through two separate operating groups: the North American Operations Group and the International Operations Group. The following table sets forth the contribution of each operating group to the total revenues and total operating income of the Security Services Business during Fiscal 1997, Fiscal 1996 and Fiscal 1995.
REVENUES ----------------------------------------------------------- FISCAL 1997 FISCAL 1996 FISCAL 1995 -------------- -------------- --------------- OPERATING GROUP AMOUNT % AMOUNT % AMOUNT % - --------------- -------------- -------------- --------------- (IN THOUSANDS) North American Operations Group Commercial accounts................................. $ 421,054 51 $ 379,362 49 $ 331,759 47 Government/regulated industries..................... 290,771 35 285,116 37 255,575 37 ---------- --- ----------- --- ----------- --- Sub-total North American Operations................. 711,825 86 664,478 86 587,334 84 International Operations Group......................... 117,149 14 103,587 14 109,967 16 ---------- --- ----------- --- ----------- --- Total Security Services Revenues.............. $ 828,974 100 $ 768,065 100 $ 697,301 100 ========== === =========== === =========== ===
OPERATING INCOME ----------------------------------------------------------- FISCAL 1997 FISCAL 1996 FISCAL 1995 -------------- -------------- --------------- OPERATING GROUP AMOUNT % AMOUNT % AMOUNT % - --------------- -------------- -------------- --------------- (IN THOUSANDS) North American Operations Group Commercial accounts................................. $ 14,251 70 $ 13,665 73 $ 12,486 61 Government/regulated industries..................... 5,846 29 6,328 34 5,136 25 ---------- --- ----------- --- ----------- --- Sub-total North American Operations................. 20,097 99 19,993 107 17,622 86 International Operations Group......................... 184 1 (1,257) (7) 2,878 14 ---------- --- ----------- --- ----------- --- Total Security Services Operating Income...... $ 20,281 100 $ 18,736 100 $ 20,500 100 ========== === =========== === =========== ===
NORTH AMERICAN OPERATIONS GROUP. The North American Operations Group has historically provided the majority of the company's consolidated revenues. This group provides security-related and other support services throughout the United States and Canada. The North American Operations Group is subdivided between commercial and government and regulated industry accounts. In conducting its Security Services Business, the company has adopted a quality management approach. General management responsibilities for each operating group is vested in a small group of managers located at company headquarters. Day-to-day management responsibility for each group is vested in 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 sites and carefully monitor operating results. COMMERCIAL ACCOUNTS. The company furnishes security officers (armed and unarmed) to protect its clients' property, in the United States and Canada, against fire, theft, intrusion, vandalism and other physical harm. Specialized security services offered by the company include executive protection, 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, fire-crash-rescue personnel, and investigative services for attorneys, financial institutions and retail and industrial businesses. The company will attempt to 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. 6 7 The company intends to emphasize attracting and retaining National Accounts that require security-related services on a national or regional level at multiple locations. Such clients include retail chains, banks, manufacturers and restaurant chains. Management believes that such clients value the flexibility and service provided by a dedicated single point of contact with the company through the National Accounts program. 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. CPOs perform such functions as prisoner transportation in Maryland and Colorado, neighborhood and downtown security in Florida, transit security in Wisconsin and California, and other supplemental law enforcement-related services. Management believes that services provided by CPOs 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. Contracts with private industry usually are for a one- year term. Most of these contracts are subject to termination by either party on 30 days prior notice. Billing rates are based on a specified rate per hour and generally are subject to renegotiations or escalation if related costs increase because of changes in minimum wage laws or certain other events beyond the control of the company. 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, nuclear power generating facilities and prison and jail commissaries. Wackenhut Services, Inc. ("WSI") provides security services primarily to United States federal government entities. Services provided by WSI range from basic security and administrative support to specialized emergency response. In the United States, WSI provides security-related services at 10 sensitive government installations. For example, the company has held the operations and maintenance contract for the Savannah River Site in South Carolina since 1983, the single largest government contract for security-related services. Since 1990, the company has managed the Rocky Flats Environmental Technology Site near Denver and since 1964, has managed the Nevada Test Site near Las Vegas. Since 1984, WSI has overseen training and resource development for the United States Department of Energy at the Central Training Academy in Albuquerque, New Mexico. 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. 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. The company's correctional foodservice business, the second largest in the industry, provides over 61 million meals annually to over 100 jail and prison facilities in 27 states throughout the United States. Food for regular, 7 8 therapeutic and religious diets is prepared using conventional or cook-chill methods. The company provides a quality assurance program that encompasses all aspects of the foodservice business. Specifically, the company provides product testing and menu development through its staff of nutritional experts, which includes professional dietitians. Also, to ensure high quality of service and product, facility audits are conducted on an on-going basis. The company bids for foodservice contracts and provides food services on a cost per meal basis. Complete foodservice management, commissary, laundry and janitorial programs are available to correctional clients. INTERNATIONAL OPERATIONS GROUP. The International Operations Group accounts for approximately 10% of the company's consolidated revenues. The International Operations Group's business is conducted primarily through Wackenhut International, Inc., ("WII"). Since its organization in 1967, WII has grown to include a network of subsidiaries, partnerships and affiliates in 45 countries. Management believes the company's international presence, through the operations of WII, is larger than any of its domestic competitors. The company believes that its risk exposure in international operations conducted through WII is reduced substantially by the fact that the vast majority of its international operations are structured through 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, central station monitoring, armored cars and janitorial services. The company believes that this experience will be valuable in assisting the company's domestic expansion into new support service areas. The company's goal is to increase its international presence by further developing existing markets and by expanding into new markets. Most recently, WII has expanded into Central and Eastern Europe, the former Soviet Union, the People's Republic of China and other countries in the Far East in an attempt to capitalize on recent economic developments and political reforms in these areas. 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 19 locations. WII also provides protective services at NASA space shuttle support sites in Africa. Major competitors of WII include large United States-based companies with operations overseas, sizable foreign concerns such as Group 4 and Securitas, and local and regional companies. CORRECTIONAL SERVICES BUSINESS The company's Correctional Services Business is conducted through the operations of WHC. WHC is a leading developer and manager of privatized correctional and detention facilities in the United States, the United Kingdom and Australia. WHC was founded in 1984 as a division of the company to capitalize on emerging opportunities in the private correctional services market. As of January 1998, WHC has contracts to manage 46 correctional and detention facilities with an aggregate rated capacity of 30,144 beds, 35 are currently in operation and 11 are under development by WHC. WHC offers governmental agencies a comprehensive range of correctional and detention facility management services from individual consulting projects to the integrated design, construction and management of correctional and detention facilities. In addition to providing the fundamental services relating to the security of facilities and the detention and care of inmates, WHC 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. The company believes that WHC'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 governmental agency at least one renewal option. 8 9 STAFFING SERVICES BUSINESS In the third quarter of 1996, the company entered into the PEO employee leasing business by establishing Oasis Outsourcing, Inc., a majority owned subsidiary. During 1997, the company continued to expand its market presence in this area and, consistent with that strategy, the company acquired the King Companies, in May 1997, and PEM Companies in December 1997. Both companies are professional employer organizations and, in addition, a good percentage of the business of the King Companies is in the temporary staffing business. These two companies were combined with Oasis Outsourcing, Inc., under Wackenhut Resources, Inc., to form the Staffing Services Business. By the end of 1997, the Staffing Services Group had 15 offices and personnel in 35 states. Wackenhut Resources is now one of the largest human resources firms in the Southeast with over 600 clients. In addition to internal growth, the company will seek to increase its presence in the employee leasing and temporary staffing markets through selective acquisitions and new marketing initiatives*. CUSTOMERS During Fiscal 1997, the Services Businesses provided services to more than 17,000 customers. The company's largest customer was the United States Department of Energy, which accounted for approximately 11% and 15% of the company's consolidated revenue in Fiscal 1997 and Fiscal 1996, respectively. Correctional contracts with governmental agencies of the State of Texas accounted for 32% and 39% of WHC's revenues in Fiscal 1997 and Fiscal 1996, respectively and Contracts with the State of Florida Correctional Privatization committee accounted for 13% and 9% of WHC's revenues in Fiscal 1997 and Fiscal 1996, respectively. The Staffing Services Business provides services to approximately 600 clients. COMPETITION The company is the third largest security and protective services organization in the United States and a leading provider of such services worldwide. The company competes domestically and internationally with Borg-Warner Security Company and Pinkerton's, Inc. The company also competes with numerous local and regional security services companies. The top five providers of services similar to those provided by the company account for less than 25% of the 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 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 domestically and internationally, such as Corrections Corporation of America, Correctional Services Corporation, Group 4 International Corrections Service, Securicor Group, U.K. Detention Services, Ltd., Cornell Corrections Corporation, and United States Corrections Corp. Some of the 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 addition, in some markets WHC may compete with governmental agencies that are responsible for correctional facilities. The company operates the staffing business mainly in Florida, which is one of three states with the largest concentration of PEOs. Although the overwhelming majority of PEOs are small, regionally based firms (the total number has been estimated at approximately 1,300), the company competes with other major companies such as Staff Leasing, Administaff and Vicam. - ------------------------ * Refer to Forward Looking Statements included as Exhibit 13.0 - page 21 to this Form 10-K 9 10 EMPLOYEES The Services Business' principal business is labor intensive, and is affected substantially by the availability of qualified personnel and the cost of labor. As of February 15, 1998, the Services Business had over 48,000 full and part-time employees, 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 the Security Service business are covered by collective bargaining agreements. Relations with employees have been generally satisfactory. At January 30, 1998, the Correctional Business had 6,301 full-time employees. The Correctional Business employs management, administrative and clerical, security, educational services, health services and general maintenance personnel. Employees at seven of WHC's Australian facilities are unionized. Staffing Services had approximately 200 administrative employees at December 31, 1997. BUSINESS REGULATIONS AND LEGAL CONSIDERATIONS The Security Services Business 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 the Correctional Business operates is subject to national, federal, state and local regulations in the United States, United Kingdom 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. The Staffing Services Business is subject to all 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. The company 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. 10 11 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. ITEM 2. PROPERTIES The company relocated its executive offices to The Wackenhut Center, a newly constructed building located at 4200 Wackenhut Drive #100, Palm Beach Gardens, Florida, in March 1996. The Wackenhut Center contains approximately 91,800 square feet and is leased from P.G.A. Professional Center, Ltd., for an initial term of 15 years, with consecutive options to extend the term of the lease for three additional five-year periods. This lease requires annual rental payments in the amount of $1,758,102 with no escalation during the initial 15-year term. WHC owns the land and a 66,000 square foot building in Aurora, Colorado, and the land and a 61,400 square foot building in Queens, New York, which are operated by WHC as detention centers under contracts with the United States Government and a 35,000 square foot building operated by WHC as a correctional facility under contract with the State of California in McFarland, California. In 1997, WHC purchased and renovated an 86-bed psychiatric hospital in Ft. Lauderdale, Florida. The company owns a 15,000 square foot warehouse building in Miami, Florida. In addition, the company owns two buildings in Ecuador and one each in the Dominican Republic, Costa Rica, Puerto Rico and Uruguay that are used for the operations of its foreign subsidiaries in those countries. All other offices of the company are leased. The aggregate annual rent for all non-cancelable operating leases of office space, automobiles, data processing and other equipment is approximately $10,055,000. 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, the various asserted claims and litigation in which the company is currently involved will not materially affect its financial position or future operating results, although no assurance can be given with respect to the ultimate outcome for any such claim or litigation. The foregoing opinion is based in part upon the fact that the company believes it has established adequate reserves for litigation contingencies in its financial statements in accordance with generally accepted accounting principles. 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. 11 12 EXECUTIVE OFFICERS OF THE REGISTRANT GEORGE R. WACKENHUT is Chairman of the Board and Chief Executive Officer of the company and has been since its inception. 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 also a director of WCC. Mr. Wackenhut 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 and Delinquency, and the Board of Visitors of the U.S. Army Military Police School and 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. Mr. Wackenhut received his B.S. degree from the University of Hawaii and his M.Ed. degree from Johns Hopkins University. Mr. Wackenhut is married to Ruth J. Wackenhut, Secretary of the company. His son, Richard R. Wackenhut, is President and Chief Operating Officer of the company and also a Director. RICHARD R. WACKENHUT is President and Chief Operating Officer of the company and a member of the Board of Directors and has been since April 26, 1986. Prior to that, Mr. Wackenhut was Senior Vice President of Operations from 1983 to 1986. He was Manager of Physical Security from 1973 to 1974. He 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 Director of Wackenhut del Ecuador, S.A.; Wackenhut UK Limited; Wackenhut Dominicana, S.A.; and several domestic subsidiaries of the company, including WCC. He is a member of the St. Thomas University Advisory Board. He is also 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 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 and Chief Executive Officer of the company, and Ruth J. Wackenhut, Secretary of the company. ALAN B. BERNSTEIN is Executive Vice President of the company and President, North American Operations Group and has been since April 27, 1991. 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; Acting President, Wackenhut Systems Corporation, 1983; Director of Integrated Guard Security, 1981; and Manager of Wackenhut Electronic Systems Corporation (Miami) from 1976 to 1981. He received his B.S.E.E. degree from the University of Rochester, and a M.B.A. degree from Cornell University. FERNANDO CARRIZOSA is Senior Vice President and President, International Operations Group and has been since January 28, 1989. Mr. Carrizosa was Vice President of International Operations Group from January 31, 1988 to January 28, 1989. He joined Wackenhut de Colombia in 1968 as Manager of Investigations. He was promoted to Manager of Human Resources, and then to Assistant to the President in 1974. He moved to Headquarters as a trainee in 1974, and was promoted to Manager of Latin American Operations in 1980, a capacity in which he served until 1983. Mr. Carrizosa also served as Executive Vice President of Wackenhut International, 1983 to 1984 and President of Wackenhut International, 1984 to 1988. He is a Director of several subsidiaries and affiliates of the company. He received a B.B.A. from Universidad Javeriana in Colombia, and a M.B.A. with honors from Florida International University in 1976. ROBERT C. KNEIP is Senior Vice President, Corporate Planning and Development of the company, and Chief Executive Officer of Wackenhut Resources, Inc. Since he joined the company in 1982, Dr. Kneip has held various positions in the company including Director, Power Generating Services; Director, Contracts Management; 12 13 Vice President, Contracts Management; and Vice President, Planning and Development. Dr. Kneip started the Staffing Services Business by establishing Oasis Outsourcing, Inc., a majority owned subsidiary of the Company in 1996 and continues to be a major factor 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. PHILIP L. MASLOWE is Senior Vice President and Chief Financial Officer of the company. He joined the company in August 1997. 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. From 1980 to 1991, Mr. Maslowe was with The Vons Companies, Inc., where he served as Group Vice President, Finance. Before joining Vons, he was audit manager with Price Waterhouse and Company. Mr. Maslowe is a graduate of Loyola University of Chicago and holds a M.B.A. from the J.L. Kellogg Graduate School of Management at Northwestern University. 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 Personnel Representative, 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 BBA degree in Personnel Management and Marketing from Florida International University. JAMES P. ROWAN is Senior Vice President General Counsel and Assistant Secretary of the company. He joined the company in 1979 as Assistant General Counsel, became Associate General Counsel in 1982 and a Vice President in 1986. He is an attorney admitted to the Bar of the States of Indiana, Iowa and Michigan. He holds degrees of B.S.C. (Accounting) and J.D. (Law) from the University of Iowa and a C.P.A. from the University of Illinois. RUTH J. WACKENHUT is Secretary of the company and has been since 1958. She is married to George R. Wackenhut, Chairman of the Board and Chief Executive Officer of the company and her son, Richard R. Wackenhut, is President and Chief Operating Officer of the company and also a director. GEORGE C. ZOLEY is Senior Vice President of the company and Vice Chairman and Chief Executive Officer of the Wackenhut Corrections Corporation. He has served as President and a Director of the Wackenhut Corrections Corporation since it was incorporated in 1988, and Chief Executive Officer since April 1994. Dr. Zoley established Wackenhut Corrections Corporation as a division of The Wackenhut Corporation in 1984, and continues to be a major factor in the company's development of privatized correctional and detention facilities business. Dr. Zoley has also served as a manager, director and then Vice President of Government Services for Wackenhut Services, Inc. from 1981 through 1988. Prior to joining Wackenhut Services, Inc., Dr. Zoley held various administrative and management positions for city and county governments in South Florida. Dr. Zoley has a Masters and Doctorate Degree in Public Administration. 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 21 of the Registrant's 1997 Annual Report to Shareholders, EXHIBIT 13.0. ITEM 6. SELECTED FINANCIAL DATA The information required by this Item is incorporated by reference to pages 22 through 23 of the Registrant's 1997 Annual Report to Shareholders, Exhibit 13.0. 13 14 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 24 through 29 of the Registrant's 1997 Annual Report to Shareholders, Exhibit 13.0. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is incorporated by reference to pages 30 through 42 of the Registrant's 1997 Annual Report to Shareholders, Exhibit 13.0, 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 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 1998 Annual Meeting of Shareholders, which has been 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 28, 1997 are incorporated by reference in Part II, Item 8: Consolidated Balance Sheets - December 28, 1997 and December 29, 1996 Consolidated Statements of Income - Fiscal years ended December 28, 1997, December 29, 1996 and December 31, 1995 Consolidated Statements of Cash Flows - Fiscal years ended December 28, 1997, December 29, 1996 and December 31, 1995 Consolidated Statements of Shareholders' Equity Notes to Consolidated Financial Statements - Fiscal years ended December 28, 1997, December 29, 1996 and December 31, 1995 With the exception of the information incorporated by reference from the 1997 Annual Report to Shareholders in Part II, Items 5,6,7,8, and Parts IV of the Form 10-K, the Registrant's 1997 Annual Report to Shareholders is not to be deemed filed as part of this Report. 2. Financial Statement Schedule 14 15 Schedule II - Valuation and Qualifying Accounts - Page 20 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: EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 Articles of Incorporation as amended (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995) 3.2 Bylaws currently in effect (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995) 4.1 Revolving Credit and Reimbursement Agreement dated December 30, 1997 by and among The Wackenhut Corporation, Nations Bank, N.A., ScotiaBanc, and SunTrust Bank, as Lenders, and NationsBank, N.A., as Agent 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 4.3 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) 4.4 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) 4.5 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) 4.6 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) 4.7 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) 15 16 4.8 LC account agreement, dated as of December 30, 1997, and made between The Wackenhut Corporation, a Florida Corporation and Nations Bank, National Association, a national banking association, as a Lender 4.9 Amended and Restated Guaranty and Suretyship agreement, dated as of December 30, 1997 10.1 Form of Deferred Compensation Agreement for Executive Officers (the "Senior Plan"): Alan B. Bernstein, Fernando Carrizosa, Robert C. Kneip, and Richard R. Wackenhut 10.2 Amendments to the Deferred Compensation Agreements for Executive Officers (the "Senior Plan"): Alan B. Bernstein, Fernando Carrizosa, Robert C. Kneip, and Richard R. Wackenhut 10.3 Executive Officer Retirement Plan (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995) 10.4 Amended and Restated Split Dollar arrangement with George R. and Ruth J. Wackenhut (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995) 10.5 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 31, 1995) 10.6 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 Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995) 10.7 Key Employee Long-Term Incentive Stock Plan dated July 1991 (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995) 10.8 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 29, 1996) 10.9 Amended Non-employee Director Stock Option Plan dated October 29, 1996 (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 29, 1996) 10.10 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 10.11 Summary description of the amendment to the Key Employee Long-Term Incentive Stock Plan effective as of January 28, 1997 13.0 Annual Report to Shareholders for the year ended December 28, 1997, beginning with page 21 (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 16 17 24.1 Powers of Attorney 27.1 Financial Data Schedule (for SEC use only) (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: March 16, 1998 ---------------------- Philip L. Maslowe SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER 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/ George R. Wackenhut* Chairman of the Board and Chief Executive March 9, 1998 - ----------------------------------------- Officer (principal executive officer) George R. Wackenhut /s/Philip L. Maslowe Senior Vice President and Chief Financial March 16, 1998 - ----------------------------------------- Officer Philip L. Maslowe /s/ Juan D. Miyar Vice President and Corporate Controller March 16, 1998 - ----------------------------------------- (principal accounting officer) Juan D. Miyar /s/ Julius W. Becton, Jr.* Director March 7, 1998 - ----------------------------------------- Julius W. Becton, Jr. /s/ Carroll A. Campbell* Director March 9, 1998 - ----------------------------------------- Carroll A. Campbell /s/ Richard G. Capen, Jr.* Director March 6, 1998 - ----------------------------------------- Richard G. Capen, Jr. /s/ Anne N. Forman* Director March 11, 1998 - ----------------------------------------- Anne N. Foreman /s/ Edward L. Hennessy, Jr.* Director March 13, 1998 - ----------------------------------------- Edward L. Hennessy, Jr.
17 18
SIGNATURE TITLE DATE --------- ----- ---- /s/ Paul X. Kelley* Director March 9, 1998 - ----------------------------------------- Paul X. Kelley /s/ Nancy Clark Reynolds* Director March 13, 1998 - ----------------------------------------- Nancy Clark Reynolds /s/ Geroge R. Wackenhut* Director March 9, 1998 - ----------------------------------------- George R. Wackenhut /s/ Richard R. Wackenhut* Director March 12, 1998 - ----------------------------------------- Richard R. Wackenhut *By: /s/ James P. Rowan Senior Vice President, General Counsel and March 16, 1998 - ----------------------------------------- Assistant Secretary James P. Rowan Attorney-in-fact
18 19 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in The Wackenhut Corporation's 1997 Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 11, 1998. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed above in Item 14(a)(2) of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 28, 1997 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 LLPs West Palm Beach, Florida, February 11, 1998. 19 20 SCHEDULE II THE WACKENHUT CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE FISCAL YEARS ENDED DECEMBER 28, 1997, DECEMBER 29, 1996 AND DECEMBER 31, 1995 (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 28, 1997: Allowance for doubtful accounts.................. $ 1,997 $ 1,249 $ 38 $ (571) $ 2,713 Valuation allowance - deferred tax asset......... $ 142 - - $ (81) $ 61 YEAR ENDED DECEMBER 31, 1995: Allowance for doubtful accounts.................. $ 1,268 $ 1,362 - $ (633) $ 1,997 Valuation allowance - deferred tax asset......... $ 162 $ - - $ (20) $ 142 YEAR ENDED DECEMBER 31, 1995: Allowance for doubtful accounts.................. $ 1,056 $ 863 $ (162) $ (489) $ 1,268 Valuation allowance - deferred tax asset......... $ 150 $ 12 - $ - $ 162
20 21 FINANCIAL REVIEW The Wackenhut Corporation and Subsidiaries Market for the Company's Common Equity and Related Stockholder Matters During the second quarter of 1996, the company sold 2,500,000 shares of its series B common stock in connection with a public offering at a price of $23.50 per share, before deducting underwriting discounts and commissions and estimated offering expenses. Net proceeds of $54,020,000 from the offering were used to repay the outstanding balance on the revolving loan, to repurchase a portion of the receivables sold under the accounts receivable securitization facility and for general corporate purposes. Regular quarterly dividends of $.065 per share on both its outstanding series A and B common stock were declared and paid for each of the four quarters of fiscal 1997 and 1996, respectively. The company intends to declare future quarterly dividends on series A and B common stock, depending on its earnings, financial condition, capital requirements and other relevant factors. The ensuing table shows the high and low prices for the company's series A and B common stock, as reported on the New York Stock Exchange, for each quarterly period during fiscal 1997 and 1996. The prices shown in the table have been rounded to the nearest 1/16th. The approximate number of record holders of series A and B common stock, as of March 2, 1998, was 682 and 722, respectively.
Fiscal 1997 Fiscal 1996 - --------------------------------------------------------------------------------------------------------------------------- Series A Series B Series A Series B - --------------------------------------------------------------------------------------------------------------------------- Quarter High Low High Low High Low High Low - --------------------------------------------------------------------------------------------------------------------------- First $ 19 $ 16-1/2 $ 15-3/4 $ 13-5/8 $ 20-3/8 $ 14-1/4 $ 17-1/8 $12-3/8 Second 19-3/8 15-3/8 20-7/8 13-3/4 31-1/8 18-3/4 27-7/8 14-3/4 Third 24-1/2 18-3/4 20-5/8 17-1/4 24-5/8 16-3/4 18-1/2 13-3/8 Fourth 24-11/16 19 22-7/8 16-7/8 20-5/8 14-5/8 17-1/4 11-7/8 - ---------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Forward-Looking Statements The management's discussion and analysis of financial condition and results of operations, corporate profile, letter to shareholders, corporate diversity, and the February 19, 1998 press release contain forward-looking statements that are based on current expectations, estimates and projections about the segments in which the corporation operates. These sections of the annual report also include management's beliefs and assumptions made by management. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," 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 corporation undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Future factors include 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 corporation's future business. 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. - -------------------------------------------------------------------------------- 21 22 The Wackenhut Corporation and Subsidiaries Selected Financial Data (in thousands 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 YEARS ENDED: (a) 1997 1996 - --------------------------------------------------------------------------------------------------------------------------- RESULTS OF OPERATIONS: Revenues $1,126,802 $906,056 Operating income (b) 3,272 16,320 Income before income taxes (b) 6,029 17,875 Income before extraordinary charge and cumulative effect of accounting change (b) 103 9,057 Extraordinary charge - early extinguishment of debt, net of income taxes Cumulative effect of accounting change for income taxes ------------------------- Net income $ 103 $ 9,057 - --------------------------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE - BASIC: (c) Income before extraordinary charge and cumulative effect of accounting change (b) $ .01 $ .66 Extraordinary charge - early extinguishment of debt, net of income taxes Cumulative effect of accounting change for income taxes ------------------------- Net income - Basic $ .01 $ .66 - --------------------------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE - ASSUMING DILUTION: (c) Income (loss) before extraordinary charge and cumulative effect of accounting change (b) $ (.01) $ .65 Extraordinary charge - early extinguishment of debt, net of income taxes Cumulative effect of accounting change for income taxes ------------------------- Net income (loss) - Assuming Dilution $ (.01) $ .65 - --------------------------------------------------------------------------------------------------------------------------- CASH DIVIDENDS PER SHARE OF COMMON STOCK: (c) Regular quarterly dividends $ .26 $ .26 Special dividend Total dividends $ .26 $ .26 - --------------------------------------------------------------------------------------------------------------------------- FINANCIAL CONDITION: Working capital $ 116,909 $148,076 Total assets 404,442 323,918 Total debt (d) 15,849 5,890 Shareholders' equity 146,839 148,229 - ---------------------------------------------------------------------------------------------------------------------------
(a) Fiscal years 1992 and 1987 included 53 weeks. (b) 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. as discussed in Note 2 of 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. (d) Includes current portion of long-term debt, notes payable and long-term debt. 22 23
1995 1994 1993 1992 1991 1990 1989 1988 1987 - --------------------------------------------------------------------------------------------------------------------------- $ 796,732 $ 726,753 $659,256 $615,378 $ 570,411 $521,191 $ 462,181 $400,996 $ 381,972 15,774 6,592 4,496 3,367 13,859 12,097 10,225 5,334 6,032 13,733 3,002 3,371 1,588 11,867 10,664 8,524 7,382 7,915 7,260 2,272 3,609 1,137 7,721 6,963 5,874 5,195 5,660 (887) (1,444) 7,370 - --------------------------------------------------------------------------------------------------------------------------- $ 7,260 $ 1,385 $ 2,165 $ 8,507 $ 7,721 $ 6,963 $ 5,874 $ 5,195 $ 5,660 - --------------------------------------------------------------------------------------------------------------------------- $ .60 $ .19 $ .30 $ .09 $ .64 $ .58 $ .49 $ .43 $ .46 (.08) (.12) .61 - --------------------------------------------------------------------------------------------------------------------------- $ .60 $ .11 $ .18 $ .70 $ .64 $ .58 $ .49 $ .43 $ .46 - --------------------------------------------------------------------------------------------------------------------------- $ .60 $ .19 $ .30 $ .09 $ .64 $ .58 $ .49 $ .43 $ .46 (.08) (.12) .61 - --------------------------------------------------------------------------------------------------------------------------- $ .60 $ .11 $ .18 $ .70 $ .64 $ .58 $ .49 $ .43 $ .46 - --------------------------------------------------------------------------------------------------------------------------- $ .24 $ .23 $ .23 $ .20 $ .19 $ .19 $ .19 $ .19 $ .19 .96 $ .24 $ .23 $ .23 $ .20 $ .19 $ .19 $ .19 $ 1.15 $ .19 - --------------------------------------------------------------------------------------------------------------------------- $ 51,865 $ 75,589 $ 56,163 $ 56,932 $ 48,599 $ 42,413 $ 40,635 $ 38,461 $ 35,588 197,927 212,757 211,297 192,236 172,093 164,085 157,681 150,318 130,439 6,502 42,756 67,940 63,990 47,650 46,850 51,325 47,058 10,600 62,904 57,459 47,362 47,587 42,847 37,865 33,616 30,528 39,653 - ---------------------------------------------------------------------------------------------------------------------------
23 24 The Wackenhut Corporation and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Tabular information in thousands) OVERVIEW The company is a leading provider of security-related and other support services to business and government and a developer and manager of privatized correctional and detention facilities. Also, in 1996, the company entered into the employee leasing and temporary staffing businesses. The company provides security-related, outsourcing and other support services through the security services business. Through the correctional business, the company provides correctional and detention facility design, development and management services to government agencies. The company's business is organized into four major groups: North American Operations, Wackenhut Corrections Corporation (NYSE: WHC), the company's 54% owned corrections subsidiary, International Operations and Staffing Services. The company is well established in its core security-related services business and has expanded into a range of other support services, which include construction, management and administration of correctional facilities, food services for correctional institutions, and more recently, employee leasing and temporary staffing. During 1997, the company continued to expand its market presence in these areas and, consistent with that strategy, acquired the businesses and certain assets of the Jim King Companies (King Companies) in Jacksonville, Florida in May 1997, and Professional Employee Management, Inc. (PEM) in Sarasota, Florida in December 1997. Both companies are professional employer organizations. During the fourth quarter of 1997, the company recognized a one-time pretax charge of $18.3 million ($11.3 million after income taxes, or $0.76 per common share). The one-time charge included a loss of $6.0 million ($3.8 million after income taxes) on the sale of the company's Australian security business. Also, as a result of a strategic review process and analysis, the company determined that deferred information systems costs and certain domestic and international investments were identified as impaired, resulting in a write-off of $12.3 million ($7.4 million after income taxes). These assets were not functional as part of the company's upgraded information technology platform or impaired due to their inability to generate future cash flows. The one-time charges will not result in any significant future cash requirements. RESULTS OF OPERATIONS The table on page 25 summarizes results of operations for the company's three business segments by organizational group. COMPARISON OF FISCAL YEAR 1997 TO FISCAL YEAR 1996 REVENUES Fiscal 1997 consolidated revenues increased $220.7 million or 24% over fiscal 1996. SECURITY SERVICES BUSINESS Fiscal 1997 security services business revenues increased $60.9 million or 8% to $828.9 million from $768.1 million in fiscal 1996. North American Operations Revenues of the North American Operations Group increased $47.3 million, or 7%, to $711.8 million in fiscal 1997 from $664.5 million in fiscal 1996. Within the North American Operations Group, revenues from commercial accounts represented approximately 59% of total revenues of the group in fiscal 1997 versus 57% in fiscal 1996. Revenues from government/regulated industries represented the other portion of revenues. Commercial account revenues increased 11% in fiscal 1997 over fiscal 1996, primarily due to the continued success of the group in developing its client base of national accounts, which increased 13% over the prior year, and marketing its higher level of quality security services of the Custom Protection Officer(R) (CPO), which increased 35% this year as compared to last year. Revenues of government and regulated industries increased 2% in fiscal 1997 over fiscal 1996. International Operations International Operations' revenues increased $13.6 million, or 13%, to $117.1 million in fiscal 1997 from $103.6 million in fiscal 1996. Revenues in Latin America and Europe continued to increase principally through expansion of the core businesses and diversification of services. In December 1997, the company sold its Australian security subsidiary, which had revenues of $13.8 million in fiscal 1997 and $13.7 million in 1996. CORRECTIONAL BUSINESS Fiscal 1997 correctional business revenues increased $69.1 million, or 50%, to $206.9 million in fiscal 1997 from $137.8 million in fiscal 1996. The increase, which reflects the dramatic growth in the industry, was due principally to the opening of seven domestic facilities and six foreign facilities. Design capacity of facilities in operation increased by 8,485 beds, or 69%, to 20,720 beds at year-end, up from 12,235 beds at the beginning of the year. Occupancy increased to 97.2% of capacity in fiscal 1997 from 24 25
1997 1996 1995 ------------------------ ---------------------- ----------------------- $ % $ % $ % ------------------------ ---------------------- ----------------------- REVENUES (a) SECURITY SERVICES North American Operations $ 711,825 63.2 $ 664,478 73.4 $ 587,334 73.7 International Operations 117,149 10.4 103,587 11.4 109,967 13.8 ------------------------ ---------------------- ----------------------- 828,974 73.6 768,065 84.8 697,301 87.5 CORRECTIONAL SERVICES 206,930 18.3 137,784 15.2 99,431 12.5 STAFFING SERVICES 90,898 8.1 207 0.0 ------------------------ ---------------------- ----------------------- CONSOLIDATED REVENUES $1,126,802 100.0 $ 906,056 100.0 $ 796,732 100.0 ------------------------ ---------------------- ----------------------- OPERATING INCOME (b) SECURITY SERVICES North American Operations $ 20,097 2.8 $ 19,993 3.0 $ 17,622 3.0 International Operations 184 0.2 (1,257) (1.2) 2,878 2.6 ------------------------ ---------------------- ----------------------- 20,281 2.4 18,736 2.4 20,500 2.9 CORRECTIONAL SERVICES 16,545 8.0 9,731 7.1 7,229 7.3 STAFFING SERVICES (272) (0.3) (365) (176.3) UNALLOCATED CORPORATE EXPENSES (14,982) (1.3) (11,032) (1.2) (11,955) (1.5) ONE-TIME CHARGE AND IMPAIRMENT OF ASSETS (18,300) (1.6) (750) (0.1) ------------------------ ---------------------- ----------------------- CONSOLIDATED OPERATING INCOME $ 3,272 0.3 $ 16,320 1.8 $ 15,774 2.0 ------------------------ ---------------------- -----------------------
(a) Represents percent of total revenues. (b) Represents percent of respective business related revenues. 96.8% in fiscal 1996, and total compensated resident days increased 45% to 5.2 million at the end of fiscal 1997 from 3.6 million for fiscal 1996. STAFFING SERVICES Staffing Services was started in the third quarter of 1996, and in May 1997, the company acquired the business and certain assets of the King Companies. Staffing Services revenues were $90.9 million for fiscal 1997. In December 1997, the company acquired the business and substantially all of the assets of PEM. The operating results of the company included the results of operations of the King Companies since May 1997 and PEM since December 22, 1997. PEM had revenues of approximately $200 million for its fiscal 1997. The company intends to continue developing the staffing services business through internal growth and acquisitions.* OPERATING INCOME Fiscal 1997 consolidated operating income was $3.3 million versus $16.3 million in fiscal 1996. Before the one-time charges, fiscal 1997 operating income of $21.6 million was $4.5 million, or 26%, higher than fiscal 1996 operating income of $17.1 million. SECURITY SERVICES BUSINESS Fiscal 1997 security services business operating income of $20.3 million increased $1.5 million, or 8%, from $18.7 million in fiscal 1996. North American Operations North American operating income remained essentially flat. However, operating results for the second half of 1996, benefited from a one-time reduction ("holiday") in health insurance costs and adjustments to insurance accruals of approximately $0.8 million. International Operations As previously discussed, the company sold its Australian security business and certain related assets in January 1998. The operating loss of Wackenhut of Australia was $1.6 million in fiscal 1997 and $2.5 million in fiscal 1996. International Operations operating income increased $1.4 million to $0.2 million in fiscal 1997 from a loss of $1.3 million in fiscal 1996. Excluding the loss of Wackenhut of Australia, International Group operating income was $0.5 million, or 44%, higher in fiscal 1997 versus fiscal 1996. The operating income of subsidiaries in Latin American and Europe continued to show significant improvements as a result * Refer to Forward-Looking Statements on page 21. 25 26 of increases in the core security business and diversification into other security-related services. CORRECTIONAL BUSINESS Fiscal 1997 operating income from the correctional business increased $6.8 million, or 70%, to $16.5 million from $9.7 million in fiscal 1996. Operating margin improved 0.9% as a percentage of revenues from 7.1% in fiscal 1996 to 8.0% in fiscal 1997. The improved results are attributable principally to increased profit contribution from new facilities, increased utilization of existing facilities and continued leveraging of overhead. STAFFING SERVICES Staffing Services operating loss was $272,000 in fiscal 1997, its first full year of operations, compared to a loss of $365,000 in fiscal 1996. CORPORATE EXPENSES AND INFORMATION SYSTEMS The increase in corporate expenses resulted principally from an increase in information technology costs in fiscal 1997 compared to fiscal 1996, as the company redesigns its systems hardware and software architecture. In addition, there was an increase in personnel related costs attributable to the return to fully-staffed levels after the relocation of the headquarters facility. During the current year, management reviewed the information systems requirements of the company and determined that the investment in deferred information systems costs was impaired. Consequently, the company wrote off its investment in deferred information systems costs in the fourth quarter of 1997. In addition, management developed a plan to address its future information systems needs and the Year 2000 issue. The preliminary estimate of the total costs to be incurred in new systems is approximately $21.0 million over the next two years, of which approximately $19.0 million will be capitalized and $2.0 million will be expensed. Capitalized costs will be amortized over the software's useful life. The company has not completely determined the effect of expenditures related to the year 2000 issue, but they are not expected to be significant and will be expensed as incurred.* EBITDA Fiscal 1997 EBITDA, defined as earnings before interest expense, income taxes, depreciation and amortization, was $20.8 million versus $30.2 million in fiscal 1996. Adjusted EBITDA, which excludes the one-time charges for both years, increased 26%, or $8.2 million, to $39.1 million from $30.9 million in fiscal 1996. As a percentage of revenues, Adjusted EBITDA improved to 3.5% from 3.4%. Neither EBITDA nor Adjusted EBITDA represents cash flow from operations as defined by generally accepted accounting principles. OTHER INCOME/EXPENSE Other income increased $1.2 million to $2.7 million in fiscal 1997 from $1.6 million in fiscal 1996, primarily due to the decrease in interest expense of $1.3 million. Borrowings under the accounts receivable securitization and revolving credit facilities were at a minimum during 1997, as cash from operations and cash proceeds from the 1996 public offerings of the company and Wackenhut Corrections were used for acquisitions, start-up and construction of new facilities. INCOME BEFORE INCOME TAXES Fiscal 1997 income before income taxes was $6.0 million, after deducting the one-time charge of $18.3 million, compared to $17.9 million in fiscal 1996. Before the one-time charge, income before income taxes was $24.3 million in fiscal 1997, compared to $17.9 million in fiscal 1996 for an increase of $6.5 million, or 36%. INCOME TAXES The combined federal and state effective income tax rate was 37.7% for fiscal 1997 and 35.3% for fiscal 1996. The higher effective rate in fiscal 1997 was due to decreases in the utilization of capital loss carryforwards and tax exempt income of the reinsurance subsidiary. MINORITY INTEREST EXPENSE Minority interest expense (net of income taxes) increased to $5.8 million in 1997 from $4.1 million in 1996, reflecting principally the increase in earnings of Wackenhut Corrections Corporation. EQUITY INCOME OF FOREIGN AFFILIATES Equity income of foreign affiliates (net of income taxes) increased $0.5 million, or 28%, to $2.1 million in fiscal 1997 from $1.6 million in fiscal 1996, primarily due to an increase in the income of the joint venture of Wackenhut Corrections in the United Kingdom. NET INCOME Net income was $103,000 for fiscal 1997, or $0.01 per share, as compared to $9.1 million, or $0.66 per share for fiscal 1996. Earnings per share on a diluted basis was a loss of $0.01 in fiscal 1997 compared to earnings per share of $0.65 for fiscal 1996. Net income for fiscal 1997 was reduced by the one-time charge of $11.3 million after income taxes, or $0.76 per share. 26 27 COMPARISON OF FISCAL YEAR 1996 TO FISCAL YEAR 1995 REVENUES Consolidated revenues increased 14% to $906.1 million in 1996 from $796.7 million in fiscal 1995. SECURITY SERVICES BUSINESS Security services business revenues increased 10% to $768.1 million in fiscal 1996 from $697.3 million in fiscal 1995. North American Operations Revenues of the North American Operations Group increased $77.2 million, or 13%, to $664.5 million in fiscal 1996 from $587.3 million in fiscal 1995. Revenues from commercial accounts represented 57% of the total revenues of the group in fiscal 1996 versus 56% in fiscal 1995. Commercial accounts revenue increased $47.6 million, or 14%, in fiscal 1996 over fiscal 1995, primarily due to the increase in revenues from national accounts and Custom Protection Officer(R) revenues, which increased by 25% and 15%, respectively. Revenues to the U.S. Government and regulated industries were 43% of total revenues of the group in fiscal 1996, versus 44% in fiscal 1995, and increased 12% during the same period. The increase was due principally to the acquisition of the business of the correctional Food Services Division of Service America Corporation, which was partially offset by the loss of the Strategic Petroleum Reserve contract with DynMcDermott and reductions in government funding at U.S. Department of Energy facilities. International Operations International Operations Group revenues decreased 6% to $103.6 million in fiscal 1996 from $110.0 million in fiscal 1995 due principally to the deconsolidation of the former subsidiary in Chile which is now a minority-owned affiliate. Revenues of the Chilean operations for the first nine months of fiscal 1995 amounted to $14.2 million. Excluding the effects of the Chilean operation, revenues of the International Operations Group were actually $7.8 million higher than in fiscal 1995 due to the increased revenues in Europe and Australia. CORRECTIONAL BUSINESS Correctional Business revenues increased 39% to $137.8 million in fiscal 1996 from $99.4 million in fiscal 1995. Of the increase in fiscal 1996 revenues, $35.4 million was generated by domestic operations and $3.0 million was generated by operations in Australia. The increase in domestic revenues in fiscal 1996 was primarily attributable to an increase in compensated resident days of 1.2 million resulting from the opening of new facilities and increased services to existing facilities. Compensated resident days of the Australian subsidiary of Wackenhut Corrections increased to 440,000 in fiscal 1996 from 420,000 in fiscal 1995. OPERATING INCOME Consolidated operating income increased to $16.3 million in fiscal 1996, after deducting $750,000 for relocation costs, from $15.8 million in fiscal 1995. Excluding the provision for relocation costs, consolidated operating income increased 8% in fiscal 1996 versus fiscal 1995. SECURITY SERVICES BUSINESS Operating income from the security services business decreased 9% to $18.7 million in fiscal 1996 from $20.5 million in fiscal 1995. The decrease in the operating income of the security services business can be attributed principally to the operating losses of Wackenhut of Australia Pty., Ltd. of $2.5 million in fiscal 1996. North American Operations The operating income of the North American Operations Group increased 14% to $20.0 million in fiscal 1996 from $17.6 million in fiscal 1995. There was a significant increase in the profit contribution of the core security-related business resulting from consistent profit margins and higher revenues. The group also realized a significant increase in operating profits principally due to the acquisition of Service America's food service unit. International Operations The International Operations Group had an operating loss of $1.3 million in fiscal 1996 compared to operating income of $2.9 million in fiscal 1995. The operating loss in fiscal 1996 was primarily due to: (i) the operating losses of $2.5 million from the new security services subsidiary in Australia, Wackenhut of Australia Pty., Ltd.; (ii) the decrease in operating income which resulted from the deconsolidation of the former subsidiary in Chile; and (iii) operating losses in the Czech Republic and other subsidiaries principally in Africa. CORRECTIONAL BUSINESS Wackenhut Corrections operating income increased 35% to $9.7 million in fiscal 1996 from $7.2 million in fiscal 1995. Of this increase, domestic operating income increased 58% to $7.1 million in fiscal 1996 from $4.5 million in fiscal 1995, reflecting the increase in compensated resident days. These increases in operating income were partially offset by higher overhead expenses of Wackenhut Corrections. Wackenhut Corrections international operating income decreased 3% to $2.6 million in fiscal 1996 from $2.7 million in fiscal 1995, attributable to higher operating expenses at Wackenhut Corrections' Australian facilities. * Refer to Forward-Looking Statements on page 21. 27 28 CORPORATE EXPENSES Corporate expenses decreased 8% to $11.0 million in fiscal 1996 from $12.0 million in fiscal 1995 as a result principally of cost reduction measures implemented this year. OTHER INCOME/EXPENSE Other income was $1.6 million in fiscal 1996 compared to other expense of $2.0 million in fiscal 1995. The increase in interest and investment income of $3.0 million in fiscal 1996 included interest income of approximately $2.1 million from the investment of the net proceeds of Wackenhut Corrections' public offering. Interest expense decreased by $590,000 in fiscal 1996 compared to fiscal 1995, primarily due to a decline in costs associated with the accounts receivable securitization facility which was repaid with the proceeds from the company's public offering. INCOME BEFORE INCOME TAXES Income before income taxes, which included a $750,000 provision for relocation costs in fiscal 1996, increased 30% to $17.9 million in fiscal 1996 from $13.7 million in fiscal 1995. INCOME TAXES The combined federal and state effective income tax rate was 35.3% for fiscal 1996 and 34.5% for fiscal 1995, respectively. The increase in the effective rate in fiscal 1996 was due to: (i) the statutory elimination of targeted job tax credits; (ii) a decrease in capital loss carryforward utilization; and (iii) a decrease in tax exempt income of the captive reinsurance subsidiary. MINORITY INTEREST EXPENSE Minority interest expense (net of income taxes) increased 75% to $4.1 million in fiscal 1996 from $2.4 million in fiscal 1995, reflecting principally the increase in earnings of and the public ownership in Wackenhut Corrections. EQUITY INCOME OF FOREIGN AFFILIATES Equity income of foreign affiliates (net of income taxes) increased 159% to $1.6 million in fiscal 1996 from $631,000 in fiscal 1995, primarily resulting from the increased earnings of security services affiliates in South America, the joint venture of Wackenhut Corrections in the United Kingdom and the inclusion of the corporation's equity income of the Chilean operations. NET INCOME Net income increased to $9.1 million in fiscal 1996, or $0.66 per share, after the $750,000 provision for relocation costs ($461,000 net of income taxes), compared to $7.3 million or $0.60 per share in fiscal 1995. INFLATION Management believes that inflation has not had a material effect on the company's results of operations during the past three fiscal years. Many of the company's service contracts provide for either fixed management fees or for fees that increase by only small amounts during the terms of the contracts. Since personnel costs represent the company's largest expense, inflation 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.* LIQUIDITY AND CAPITAL RESOURCES The company's principal sources of liquidity have been from funds from operations, borrowings under its credit facilities, and from net proceeds in connection with the public offering of the company's common stock. Cash and equivalents totaled $45.2 million at December 28, 1997, compared to $52.8 million at December 29, 1996. Of this cash and cash equivalents, $13.9 million serves as collateral for certain obligations of the company's captive insurance subsidiary. The company had additional sources of liquidity available in the form of a $40 million revolving line of credit (previously it was $50 million) which is available for letters of credit and under which the company may borrow up to $15 million under a swingline to meet short term liquidity needs, and a $60 million accounts receivable securitization facility. The total amount available to the company from its revolving credit and accounts receivable securitization facility is $100 million as of December 28, 1997, or an increase of $15 million over last year. Additionally, at December 28, 1997, the company's Wackenhut Corrections subsidiary had in place a $30 million revolving credit facility, which includes $5 million for the issuance of letters of credit, and a $220 million operating lease facility to acquire and develop new correctional institutions used in its business. At December 28, 1997, the company had $13 million outstanding under credit facility and $24.9 million outstanding in the form of letters of credit securing reserves of the captive reinsurance subsidiary and other corporate transactions. The unused portion of the revolving line of credit was $2.1 million. There were no balances outstanding under the accounts receivable securitization agreement at the end of fiscal 1997. Under the terms of the accounts receivable securitization facility, the company retains substantially the same risk of credit loss as if receivables had not been sold under this facility. At December 28, 1997, no amounts were outstanding under Wackenhut Corrections' revolving credit facility, but four standby letters of credit were outstanding in an aggregate amount of $0.22 million. 28 29 During the second quarter of 1996, the company sold 2,500,000 shares of its series B common stock in connection with a public offering. Net proceeds from the offering were approximately $54 million, which were partly used to repay the outstanding balance on the revolving loan, to repurchase receivables sold under the accounts receivable securitization facility and for general corporate purposes. In January 1996, Wackenhut Corrections sold 4,600,000 shares of its common stock in connection with a public offering. Net proceeds from the offering were approximately $52 million, which were partly used for the acquisition or renovation of correctional facilities, start-up costs, leasehold improvements, equity investments in correctional facilities or temporarily invested. In May 1997, the company purchased the King Companies of Jacksonville, Florida, a professional employer organization and temporary employment business, for approximately $10.7 million in cash and $0.8 million in shares of Wackenhut series B (non-voting) common stock. In December 1997, the company purchased the business and certain assets of PEM, a professional employer organization in Sarasota, Florida for an initial payment of $18.9 million in cash, together with a series of contingent earn-out payments which will become payable in cash or shares of the company's series B Common Stock (at the option of the company) based on performance. In no event, will the total purchase price exceed $50.7 million. In June 1997, Wackenhut Corrections purchased the Queens Private Correctional Facility in New York City, New York, a 66,000 square foot building currently being used by Wackenhut Corrections as a 200-bed federal detention facility, for $6.6 million. Wackenhut Corrections also has invested another $4.7 million to renovate the building. The company and Wackenhut Corrections anticipate making cash investments in connection with future acquisitions. In addition, Wackenhut Corrections will continue to use cash and its available sources of funds to finance start-up costs, leasehold improvements and equity investments in correctional facilities, if appropriate, in connection with undertaking new contracts.* Net cash generated by operating activities was $42.7 million in fiscal 1997 compared to $14.8 million in fiscal 1996. Cash used in investing activities amounted to $54.8 million in fiscal 1997, including capital expenditures of $27.7 million, which reflect the investment in facilities of Wackenhut Corrections and the purchases of equipment related to the provision of security-related services. Payments for acquisitions amounted to $30.1 million and included the acquisitions of the King Companies and PEM mentioned before. In addition, deferred costs, which include deferred start-up costs of Wackenhut Corrections amounted to $12.4 million. The net decrease in marketable securities of the company's captive reinsurance subsidiary was $7.6 million. Cash provided by financing activities amounted to $5.7 million including $8.4 million net proceeds from issuance of debt. Cash dividends paid in fiscal 1997 amounted to $3.8 million. 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 Wackenhut Corrections, possible acquisitions, investment in information systems and the payment of dividends. 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. As a result of the public stock offerings, both the company and Wackenhut Corrections significantly increased their borrowing capacity. In addition, management believes that cash on hand, cash funds from operations 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, both on a near term and long term basis.* MARKET RISK The company is exposed to market risks, including changes in interest rates and currency exchange rates. On occasion the company has entered into swap agreements to reduce the interest rate exposure associated with its bank borrowings (Note 1). In addition, Wackenhut Corrections is exposed to market risks arising from changes in interest rates with respect to a $220 million operating lease facility (Note 16). Based on the company's interest rate and foreign exchange rate exposure at December 28, 1997, a 10% change in the current interest rate or historical currency rate movements would not have a material effect on the company's financial position or results of operations over the next fiscal year.* * Refer to Forward-Looking Statements on page 21. 29 30 The Wackenhut Corporation and Subsidiaries Consolidated Statements of Income (in thousands except per share data) FISCAL YEARS ENDED DECEMBER 28, 1997, DECEMBER 29, 1996 and DECEMBER 31, 1995
1997 1996 1995 - ------------------------------------------------------------------ ---------- -------- -------- REVENUES $1,126,802 $906,056 $796,732 ---------- -------- -------- OPERATING EXPENSES Payroll and related taxes 835,651 657,275 587,644 Operating expenses 260,946 224,956 187,491 Depreciation expense 6,388 4,735 4,489 Amortization of intangible assets 2,245 2,020 1,334 One-time charges and impairment of assets 18,300 750 ---------- -------- -------- OPERATING INCOME 3,272 16,320 15,774 ---------- -------- -------- OTHER INCOME (EXPENSE) Interest expense (1,473) (2,766) (3,356) Interest and investment income 4,230 4,321 1,315 ---------- -------- -------- INCOME BEFORE INCOME TAXES 6,029 17,875 13,733 ---------- -------- -------- INCOME TAXES 2,271 6,311 4,742 MINORITY INTEREST, NET OF INCOME TAXES OF $3,816, $2,318, AND $1,217 5,753 4,140 2,362 EQUITY INCOME OF FOREIGN AFFILIATES, NET OF INCOME TAXES OF $1,359, $957, AND $383 (2,098) (1,633) (631) ---------- -------- -------- NET INCOME $ 103 $ 9,057 $ 7,260 ---------- -------- -------- EARNINGS (LOSS) PER SHARE: Basic $ 0.01 $ 0.66 $ 0.60 Assuming dilution $ (0.01) $ 0.65 $ 0.60 ---------- -------- -------- BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 14,746 13,636 12,132 DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 14,746 13,878 12,172 - --------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 30 31 The Wackenhut Corporation and Subsidiaries Consolidated Balance Sheets (in thousands except share data) DECEMBER 28, 1997 and DECEMBER 29, 1996
1997 1996 - -------------------------------------------------------------------------------- -------- -------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 45,168 $ 52,755 Accounts receivable, less allowance for doubtful accounts of $2,713 in 1997 and $1,997 in 1996 171,373 131,325 Inventories 10,270 10,082 Deferred taxes 3,548 252 Other 21,568 26,160 -------- -------- 251,927 220,574 NOTES RECEIVABLE 667 1,181 -------- -------- MARKETABLE SECURITIES AND CERTIFICATES OF DEPOSIT 7,772 14,753 -------- -------- PROPERTY AND EQUIPMENT, - at cost 72,280 46,726 - accumulated depreciation (15,810) (12,184) -------- -------- 56,470 34,542 DEFERRED TAXES 450 -------- -------- OTHER ASSETS Intangibles and deferred start-up costs 61,565 29,010 Investment in and advances to foreign affiliates, at cost 20,578 13,508 Other 5,013 10,350 -------- -------- 87,156 52,868 -------- -------- $404,442 $323,918 - -------------------------------------------------------------------------------- -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 2,508 Accounts payable 38,640 $ 20,488 Accrued payroll and related taxes 52,456 35,715 Accrued expenses 41,414 16,295 -------- -------- 135,018 72,498 -------- -------- RESERVES FOR LOSSES - casualty reinsurance subsidiary 45,786 43,806 -------- -------- LONG-TERM DEBT 13,341 5,890 -------- -------- DEFERRED TAXES 1,165 -------- -------- OTHER 15,528 11,372 -------- -------- COMMITMENTS AND CONTINGENCIES (note 16) MINORITY INTEREST 47,930 40,958 -------- -------- SHAREHOLDERS' EQUITY Preferred stock, 10,000,000 shares authorized Common stock, $.10 par value, 50,000,000 shares authorized in 1997 and 1996 Series A, 3,855,582 issued and outstanding in 1997 and 3,858,885 in 1996 386 386 Series B, 11,085,703 issued and outstanding in 1997 and 10,902,199 in 1996 1,109 1,090 Additional paid-in capital 125,248 120,703 Retained earnings 27,614 31,347 Cumulative translation adjustment (6,418) (4,128) Unrealized loss on marketable securities (69) Treasury stock at cost, 87,000 shares of Series B (1,100) (1,100) -------- -------- 146,839 148,229 -------- -------- $404,442 $323,918 - ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 31 32 The Wackenhut Corporation and Subsidiaries Consolidated Statements of Cash Flows (in thousands) FISCAL YEARS ENDED DECEMBER 28, 1997, DECEMBER 29, 1996 and DECEMBER 31, 1995
1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS PROVIDED BY (USED IN): OPERATING ACTIVITIES Net income $ 103 $ 9,057 $ 7,260 Adjustments - One-time charges and impairment of assets 18,300 Depreciation expense 6,388 4,735 4,489 Amortization expense 11,129 9,105 7,682 Provision for bad debts 905 1,362 863 Equity income, net of dividends (3,251) (2,130) (562) Minority interests in net income 9,569 6,458 3,579 Income tax benefit related to stock options 2,227 1,369 Other (2,509) (496) (424) Changes in assets and liabilities, net of acquisitions and divestitures (Increase) Decrease in assets: Accounts receivable (33,713) (20,566) (14,200) Inventories (5,699) (7,332) (5,460) Other current assets (4,141) 766 (5,244) Marketable securities and certificates of deposit (1) (35) 329 Deferred taxes (3,746) 5,918 4,529 Other (1,690) (411) (2,233) Increase (Decrease) in liabilities: Accounts payable and accrued expenses 31,788 (4,105) 7,055 Accrued payroll and related taxes 12,765 5,385 3,801 Reserves for losses of casualty reinsurance subsidiary 1,980 3,688 1,668 Deferred taxes (1,165) 1,048 (479) Other 3,455 944 710 --------- --------- --------- Net Cash Provided By Operating Activities 42,694 14,760 13,363 --------- --------- --------- INVESTING ACTIVITIES Net proceeds from public offerings of subsidiary's common stock 51,581 Net proceeds from exercise of stock options of subsidiary 1,650 766 1,147 Proceeds from notes receivable 9,486 Payments for acquisitions, net of cash acquired (30,090) (13,703) (2,606) Investment in and advances to foreign affiliates (3,327) (690) (1,410) Capital expenditures (27,692) (19,917) (6,857) Proceeds from sales (payments for purchases) of marketable securities 7,619 (9,081) 6,227 Deferred charges (12,397) (6,201) (7,430) Purchase of treasury stock (1,100) Sale of headquarters building 1,675 --------- --------- --------- Net Cash Provided By (Used In) Investing Activities (54,751) 1,655 (9,254) --------- --------- --------- FINANCING ACTIVITIES Net proceeds from public offering of company's common stock 54,020 Proceeds from the exercise of stock options 1,125 1,100 404 Proceeds from issuance of debt 51,738 11,142 314,365 Payments on debt (43,332) (11,792) (344,491) Dividends paid (3,836) (3,500) (2,909) Proceeds from sales (payments for repurchases) of accounts receivable (35,000) 35,000 --------- --------- --------- Net Cash Provided By Financing Activities 5,695 15,970 2,369 --------- --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,225) 185 (101) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,587) 32,570 6,377 CASH AND CASH EQUIVALENTS, at beginning of year 52,755 20,185 13,808 --------- --------- --------- CASH AND CASH EQUIVALENTS, at end of year $ 45,168 $ 52,755 $ 20,185 --------- --------- --------- SUPPLEMENTAL DISCLOSURES: Cash paid during the year for - interest $ 1,484 $ 2,774 $ 3,366 - income taxes 2,405 3,380 2,687 Non-cash financing and investing activities: Common stock issued in acquisition 842 Note received related to sale of headquarters building 9,000 - -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 32 33 The Wackenhut Corporation and Subsidiaries Consolidated Statements of Shareholders' Equity (in thousands except share data) FISCAL YEARS ENDED DECEMBER 28, 1997, DECEMBER 29, 1996, AND DECEMBER 31, 1995
1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCK Series A Balance, beginning and end of year $ 386 $ 386 $ 386 --------- --------- --------- Number of shares, end of year, 3,855,582 in 1997, 3,858,885 in 1996 and 1995 Series B Balance, beginning of year 1,090 827 579 Proceeds from stock offering 250 25% stock dividends effected in the form of stock splits in 1995 242 Common stock issued in acquisition 7 Proceeds from the exercise of stock options 12 13 6 --------- --------- --------- Balance, end of year 1,109 1,090 827 --------- --------- --------- Number of shares, end of year, 11,085,703 in 1997, 10,902,199 in 1996 and 8,272,887 in 1995 ADDITIONAL PAID-IN CAPITAL Balance, beginning of year 120,703 39,644 38,919 Proceeds from stock offering 53,770 Common stock issued in acquisition 835 Increase due to public offerings of subsidiary's common stock and exercise of stock options 370 24,833 327 Proceeds from the exercise of stock options 1,113 1,087 398 Tax benefit related to employee stock options 2,227 1,369 --------- --------- --------- Balance, end of year 125,248 120,703 39,644 --------- --------- --------- RETAINED EARNINGS Balance, beginning of year 31,347 25,790 21,681 Net income 103 9,057 7,260 Dividends (3,836) (3,500) (2,909) 25% stock dividend effected in the form of a stock split (242) --------- --------- --------- Balance, end of year 27,614 31,347 25,790 --------- --------- --------- CUMULATIVE TRANSLATION ADJUSTMENT Balance, beginning of year (4,128) (3,702) (3,552) Translation adjustment (2,290) (426) (150) --------- --------- --------- Balance, end of year (6,418) (4,128) (3,702) --------- --------- --------- UNREALIZED (LOSS) GAIN ON MARKETABLE SECURITIES Balance, beginning of year (69) (41) (554) Net unrealized gains (losses) for the year 69 (28) 513 --------- --------- --------- Balance, end of year (69) (41) --------- --------- --------- TREASURY STOCK Balance, beginning of year (1,100) Purchase of treasury stock (1,100) --------- --------- --------- Balance, end of year (1,100) (1,100) --------- --------- TOTAL SHAREHOLDERS' EQUITY $ 146,839 $ 148,229 $ 62,904 --------- --------- --------- DIVIDENDS PER SHARE Restated for the effect of the 25% stock dividend effected in the form of a stock split declared in 1995 $ 0.26 $ 0.26 $ 0.24 - -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 33 34 The Wackenhut Corporation and Subsidiaries Notes to Consolidated Financial Statements (Tabular information in thousands except per share data) FOR THE FISCAL YEARS ENDED DECEMBER 28, 1997, DECEMBER 29, 1996, AND DECEMBER 31, 1995 (1) Summary of Significant Accounting Policies Fiscal Year The company's fiscal year ends on the Sunday closest to the calendar year end. Fiscal years 1997, 1996 and 1995 each included 52 weeks. Basis of Financial Statement Presentation The consolidated financial statements include the accounts of the company and its subsidiaries, including its casualty reinsurance subsidiary. All significant intercompany transactions and balances have been eliminated in consolidation. The accounts of the captive insurance company have been included in unallocated corporate expenses for segment reporting. Certain prior year amounts have been reclassified to conform with current year presentation. Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles 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. Actual results could differ from those estimates. Minority Interest The minority interest expense represents principally the separate public ownership in Wackenhut Corrections Corporation, listed on the New York Stock Exchange as "WHC," and the ownership by foreign investors in several subsidiaries of Wackenhut International, Incorporated. Income Taxes The company accounts for its income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Earnings Per Share In 1997, the company adopted Statement of Financial Accounting Standards No. 128, Earnings per Share (SFAS 128). SFAS 128 requires the disclosure of basic and diluted earnings per share for periods ending after December 15, 1997 and restatement of prior periods to conform with the new disclosure format. The computation under SFAS 128 differs from the primary and fully diluted earnings per share computed under APB No. 15 primarily in the manner in which potential common stock is treated. 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, the weighted-average number of common shares outstanding is adjusted for the effect of all potential common stock. Cash and Cash Equivalents The company considers highly liquid investments purchased with a maturity of three months or less to be cash equivalents. 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. Revenues Revenue is recognized as services are provided. During fiscal years 1997, 1996 and 1995, the largest client of the company was the U.S. Department of Energy, accounting for approximately 11%, 15% and 17%, respectively, of the company's consolidated revenues. Fair Value of Financial Instruments The carrying amount of cash and cash equivalents, accounts receivable, other receivables, notes receivable, notes payable, accounts payable and long-term debt approximates fair value. 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. Interest Rate Swaps On occasion the company enters into swap agreements to reduce the interest rate exposure associated with a portion of its variable rate indebtedness. These agreements modify the interest characteristics of the company's variable rate indebtedness by synthetically converting a portion of the indebtedness to a fixed rate. The company does not utilize derivative financial instruments for trading or other speculative purposes. Interest earned (payable) under the interest rate swap is credited (charged) to interest expense using the accrual method. The related accrued receivable or payable is included in accounts receivable or accrued expenses. The fair market value of the swap agreement is not reflected in the financial statements. Derivative financial instruments terminated at a loss (gain) prior to maturity are (credited) charged to interest expense over the remaining original life of the derivative financial instrument. The company is a party to two offsetting interest rate swaps. The notional principal amount under both agreements was $81.2 million and the agreements expire in December 1998. Based on the interest rates in effect at December 28, 1997, the company was not exposed to a material loss in the event that either party failed completely to perform according to the terms of the contract. 34 35 Interest Rate Sensitivity Wackenhut Corrections is exposed to market risks arising from changes in interest rates with respect to a $220 million operating lease facility. Monthly lease payments under this facility are indexed to a variable interest rate. Management has determined that a 10% change in the current lease rate would have an immaterial effect on the company's pre-tax earnings over the next fiscal year. Stock-Based Compensation Plans The company has chosen to continue to account for stock-based compensation using the intrinsic value based method prescribed in APB Opinion No. 25. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the company's stock at the date of the grant over the amount an employee must pay to acquire the stock. Long-lived Assets Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" requires that long-lived assets, including certain identifiable intangibles and the goodwill related to those assets, be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset in question may not be recoverable. Management has reviewed the company's long-lived assets and has determined that there are no events requiring impairment loss recognition, other than those disclosed. Intangibles and Deferred Start-Up Costs Goodwill represents the cost of an acquired enterprise in excess of the fair market value of the net tangible and identifiable intangible assets acquired. Contract value represents the fair market value of existing contracts purchased in an acquisition. Goodwill and contract value are being amortized on a straight-line basis over 10 - 30 years. Project development costs consisting of direct and incremental costs paid to unrelated third parties that can be directly associated with a specific anticipated contract are deferred until the anticipated contract has been awarded. At the time the contract is awarded to the company, the deferred project development costs are either capitalized as part of the property and equipment or are amortized over five years as project development costs. Internal costs associated with securing new contracts are expensed as incurred. Project development costs are charged to general and administrative expenses when the success of obtaining a new contract is considered doubtful. Deferred start-up costs, which consist of costs of initial employee training, travel and other direct expenses incurred in connection with the opening of new correctional facilities, are capitalized and amortized on a straight-line basis over the lesser of the initial term of the contract plus renewals or five years. Deferred Software and Development Costs The company capitalizes purchased software which is ready for service and development costs related to the design and implementation of purchased and internally developed information systems software with a useful life of more than one year. The costs of computer software upgrades and maintenance are expensed as incurred. Deferred computer software costs will be amortized using the straight line method over the expected useful life of the product. Foreign Currency Translation Foreign currency transactions and financial statements (except for countries with highly inflationary economies) are translated into U.S. dollars at current exchange rates, except for revenues, costs and expenses which are translated at average exchange rates during each reporting period. Adjustments resulting from translation of financial statements are reflected as a separate component of shareholders' equity. 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 their local currencies into U.S. dollars creates translation adjustments which are included in the statements of income. (2) One-Time Charge During the fourth quarter of 1997, the company recognized a one-time pretax charge of $18.3 million ($11.3 million after income taxes or $0.76 per share). The one-time charge included a loss of $6 million ($3.8 million after income taxes) on the sale of the company's Australian security subsidiary. In addition, deferred information systems costs and certain domestic and international investments were identified as impaired as a result of the company's strategic review process and updated analysis, resulting in a write-off of $12.3 million ($7.4 million after income taxes). The one-time charge will not result in any significant future cash requirements. (3) Accounts Receivable Securitization In December, 1997, the company entered into a three-year agreement to sell, on an on-going basis, an undivided interest in a defined pool of eligible receivables up to a maximum of $60 million (formally $35 million). The costs associated with this program are based upon the purchasers' level of investment and cost of issuing commercial paper plus predetermined fees. Such costs are included in "Interest expense" in the consolidated statements of income. There were no accounts receivable sold under this agreement at December 28, 1997 and December 29, 1996. (4) Acquisitions In May 1997, the company purchased the King Companies of Jacksonville, Florida, a professional employer organization and temporary employment business, for approximately $10.7 million in cash and $.84 million in shares of Wackenhut Series B (non-voting) common stock. The acquisition of the King Companies was accounted for under the purchase method. The company recorded approximately $11.3 million of goodwill for the King Companies. In December 1997, the company purchased the business and certain assets of Professional Employee Management, Inc., a professional employer organization in Sarasota, Florida for an initial payment of $18.9 million in cash, together with a series of contingent 35 36 earn-out payments which will become payable either in cash or shares of the company's series B Common Stock (at the option of the company) based on performance. In no event, will the total purchase price exceed $50.7 million. The company recorded approximately $17.6 million of goodwill for Professional Employee Management, Inc. The results of operations for King and PEM have been included in the company's consolidated financial statements from the date of acquisition. The following unaudited pro forma information combines the consolidated results of operations of the company, King and PEM as if the acquisition had occurred at the beginning of the periods presented.
1997 1996 - ----------------------------------------------------------------------- Revenues $ 1,348,484 $ 1,118,367 Net Income 887 9,449 Per share - basic 0.06 0.69 Per share - assuming full dilution 0.05 0.67 - -----------------------------------------------------------------------
The unaudited pro forma results have been prepared for comparative purposes only and include adjustments for additional amortization expense as a result of goodwill and the related income tax effects. The pro forma results do not purport to be indicative of results that would have occurred had the combination been in effect for the periods presented, nor do they purport to be indicative of the results that will be obtained in the future. (5) Property and Equipment and Depreciation Methods Property and equipment are stated at cost, less accumulated depreciation. The company uses principally the straight-line method of depreciation for property and equipment. 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. The components of property and equipment and their estimated lives are as follows:
Years 1997 1996 - ---------------------------------------------------------------- Land $ 5,062 $ 2,234 Buildings and improvements 20 to 40 40,898 22,386 Equipment 3 to 20 15,205 12,195 Furniture and fixtures 3 to 20 6,489 5,090 Automobiles 3 4,626 4,821 -------------------- $72,280 $46,726 - ----------------------------------------------------------------
(6) Wholly Owned Casualty Reinsurance Subsidiary The company has a wholly owned casualty insurance subsidiary which reinsures a portion of the company's workers' compensation and general and automobile liability insurance. Incurred losses are recorded as reported. Provision is made to cover losses incurred but not reported. Loss reserves are computed based on actuarial studies and, in the opinion of management, are adequate. A summary of operations for the last three fiscal years is as follows:
1997 1996 1995 - -------------------------------------------------------------- Intercompany premiums $ 20,727 $ 18,624 $ 17,642 Loss expense (21,237) (19,101) (18,239) ------------------------------------ Underwriting loss (510) (477) (597) Investment income 2,918 2,667 2,245 ------------------------------------ $ 2,408 $ 2,190 $ 1,648 - --------------------------------------------------------------
Marketable securities and certificates of deposit, carried at fair value, consisted of the following at December 28, 1997 and December 29, 1996:
1997 1996 - ---------------------------------------------------------------- Fair Value Cost Fair Value Cost - ---------------------------------------------------------------- Municipal Bonds $3,168 $ 3,146 $ 2,061 $ 2,076 Government Bonds 3,504 3,526 6,228 6,243 Preferred Stock 1,098 1,100 3,964 4,040 Other 2,500 2,500 ------------------------------------------ $7,770 $ 7,772 $14,753 $14,859 - ----------------------------------------------------------------
The company has placed in trust, in favor of certain insurance companies, its marketable securities and $13.9 million in cash and cash equivalents, and has issued irrevocable standby letters of credit for $21.4 million. Municipal bonds mature from 2018 to 2026, government bonds mature in periods ranging from 3 to 25 years, and other marketable securities matured in 1997. As of December 28, 1997, the company's reinsurance subsidiary has specific restrictions on future purchases of marketable securities, and on withdrawals from the trust. (7) Investment in Affiliates Equity in undistributed earnings of foreign affiliates approximated $8,846,000 and $5,540,000 at December 28, 1997 and December 29, 1996, respectively, and is included in "Investments in and advances to foreign affiliates." The following is a summary of condensed unaudited information pertaining to foreign affiliates: - -------------------------------------------------------- Balance sheet items as of December 28, 1997 Current assets $ 55,563 Noncurrent assets 31,229 Current liabilities 39,721 Noncurrent liabilities 19,413 Minority interest liability 3,789 Income statement items for the fiscal year ended December 28, 1997 Revenues $184,933 Operating income 11,565 Net income before taxes 9,111 - --------------------------------------------------------
(8) Intangibles and Deferred Start-Up Costs Intangibles and deferred start-up costs at December 28, 1997 and December 29, 1996 consist of the following:
1997 1996 - ------------------------------------------------- Goodwill $34,199 $ 7,573 Contract value 15,586 15,586 Deferred start-up costs 21,550 11,962 Other 2,105 1,918 ------------------- 73,440 37,039 Accumulated amortization 11,875 8,029 ------------------- $61,565 $29,010 - -------------------------------------------------
36 37 In April 1997, the Financial Accounting Standards Board issued an exposure draft that proposed the issuance of a statement of position (SOP) on accounting for the costs of start-up activities. If adopted, this SOP would require the expensing of deferred start-up costs as incurred. The effects of adoption, which would affect principally deferred start-up costs of Wackenhut Corrections, would be reported as a cumulative change in accounting principle; thus, any costs previously capitalized would be written off at the time the SOP is adopted. The adoption of this SOP in 1998 would result in a pre-tax write-off of approximately $18.2 million (or $10.9 million after income taxes). (9) Notes Payable and Long-Term Debt At December 31, 1997, the company had an outstanding note payable of $2.5 million which represented short-term borrowings of an international subsidiary incurred for working capital, bearing interest at an average rate of 7.2%. The company intends to pay this note in full in 1998. Long-term debt consists of the following:
1997 1996 - -------------------------------------------------------- Revolving loan - 6.9% in 1997 and 6.1% in 1996 $12,950 $2,800 Other debt principally related to Wackenhut Corrections and international subsidiaries 391 3,090 ------------------ $13,341 $5,890 - --------------------------------------------------------
On December 30, 1997, the company entered into a revolving credit agreement under which the company may borrow up to $40 million (previously it was $50 million). Concurrently, at December 30, 1997, the company increased its accounts receivable securitization facility to $60 million (Note 3). The unused portion of the revolving line of credit was $2.1 million, after deducting $24.9 million in outstanding letters of credit. The interest payable is, at the company's option, a function of the applicable LIBOR or certificate of deposit rates. The agreement requires, among other things, that the company maintain a minimum consolidated net worth, as defined, and limits certain payments and distributions. In June, 1997, Wackenhut Corrections entered into a $30 million revolving credit facility with a syndicate of banks, which includes a $5 million line of credit for the issuance of letters of credit. The interest payable is a function of the prime rate, federal funds rate or LIBOR, depending upon fixed charge coverage ratios. The facility also limits certain payments and distributions. As of December 28, 1997, no amounts were outstanding under this facility, but outstanding letters of credit amounted to $0.22 million. The total amount of long term debt will mature in 1999. (10) Preferred, Common and Treasury Stock The board of directors has authorized 10 million shares of preferred stock. In October 1995, the board of directors declared a 25% stock dividend, effected in the form of a stock split. Prior periods' per share data have been restated. The stock dividends were paid in series B common stock to holders of the company's series A and B shares. Series B common stock has all the rights and privileges of the series A common stock with the exception of voting privileges. In early 1996, the board of directors increased the authorized shares of the company's common stock from 20 million shares to 50 million shares, with 3.86 million shares to be designated as series A common stock and 46.1 million shares to be designated as series B common stock. During the second quarter of 1996, the company sold 2.5 million shares of its series B common stock in connection with a public offering at a price of $23.50 per share, before deducting underwriting discounts and commissions and estimated offering expenses. During the second quarter of 1997, the company issued 69.2 thousand shares of its series B common stock in connection with the acquisition of the King Companies at a price of $12.15 per share. The board of directors has authorized the buy back of up to 0.5 million shares of series B common stock. At December 28, 1997 the company had bought back 87 thousand shares of series B common stock at an average price of $12.64. (11) 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 (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 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, from time to time to key employees, restricted stock and performance stock. Nonemployee directors of the company are eligible to participate in The Wackenhut Corporation nonemployee director stock option plan (directors' stock option plan). Under the directors' stock option plan, nonemployee directors are granted 2,000 stock options for series B common stock upon their election or reelection to the board of directors. Under terms of the directors' stock option 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 28, 1997, 1,331,005 shares of series B com mon stock were reserved for issuance, including 616,312 shares available for future grants or awards. Changes in outstanding non-qualified stock options for 37 38 series B common stock, as adjusted for a 25% stock dividend in 1995, are as follows:
1997 1996 1995 - -------------------------------------------------------------------------- Outstanding at beginning of year 597,255 557,818 391,568 Options granted 213,000 202,000 218,750 Options exercised (119,687) (129,312) (52,500) Options forfeited (21,875) (33,251) ------------------------------------ Outstanding at end of year 668,693 597,255 557,818 ------------------------------------ Exercisable at end of year 638,693 424,255 339,068 - --------------------------------------------------------------------------
Weighted average option exercise price on information for the fiscal years 1997, 1996 and 1995 is as follows:
1997 1996 1995 - ----------------------------------------------------------------- Outstanding at beginning of year $ 9.75 $ 7.98 $ 6.16 Granted during the year $15.77 $14.00 $10.80 Exercised during the year $10.56 $ 8.50 $ 6.16 Forfeited during the year $ 6.16 $10.69 $ ---------------------------- Outstanding at end of year $11.64 $ 9.75 $ 7.98 ---------------------------- Exercisable at end of year $11.30 $ 8.02 $ 6.16 - -----------------------------------------------------------------
Significant option groups outstanding at December 28, 1997 and related weighted average price and life information are as follows:
Grant Options Options Exercise Remaining Date Outstanding Exercisable Price Life (Years) - -------------------------------------------------------------------------- 04/30/94 192,193 192,193 $ 6.16 6 01/28/95 132,500 132,500 $10.80 7 01/31/96 150,000 150,000 $14.00 8 01/28/97 164,000 164,000 $15.25 9 08/09/97 30,000 $18.94 9 - --------------------------------------------------------------------------
The company applies APB No. 25 and related interpretations in accounting for its stock-based compensation plans. Accordingly, no compensation cost has been recognized for its stock option plans. Had compensation for the company's stock-based compensation plans been determined pursuant to SFAS No. 123, 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:
1997 1996 1995 - ------------------------------------------------------------------------------ Pro forma basic net income $ (643) $ 8,425 $ 6,708 Pro forma basic earnings per share $ (0.04) $ 0.62 $ 0.55 Pro forma diluted net income $ (746) $ 8,374 $ 6,708 Pro forma diluted earnings per share $ (0.05) $ 0.60 $ 0.55 Pro forma weighted average fair value of options granted $ 5.65 $ 4.81 $ 4.86 Expected life (years) 5 5 5 Risk-free interest rate 5.9%-6.3% 5.6% 7.4% Expected volatility 36.0% 36.0% 36.0% Quarterly dividend $ 0.065 $ 0.065 $ 0.075 - ------------------------------------------------------------------------------
As SFAS No. 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. (12) 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. The plan currently 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 7.0% and 4.0%, respectively. Total pension expense for 1997, 1996, and 1995 was $0.45 million, $0.42 million, and $0.33 million, respectively. The present value of accumulated pension benefits at year end 1997, 1996 and 1995 was $2.97 million, $2.44 million, and $1.90 million, 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 $100,000 to $175,000 payable upon retirement at approximately age 60 for a period of 20 years. In the event of death before retirement, annual benefits are paid for a period of 10 years. Benefits are funded by life insurance contracts purchased by the company. 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 1997, 1996 and 1995 was $0.59 million, $0.53 million, and $0.47 million, respectively. The liability for deferred compensation was $3.97 million and $3.48 million at year end 1997 and 1996, respectively and is included in "Other liabilities" in the accompanying consolidated balance sheets. (13) Income Taxes The provision (credit) for income taxes consists of the following:
Fiscal year ended 1997 1996 1995 - --------------------------------------------------------- Federal income taxes: Current $ 1,736 $(3,356) $ 581 Deferred (110) 8,590 3,578 -------------------------------- 1,626 5,234 4,159 State income taxes: Current $ 925 $ 319 $ 104 Deferred (280) 595 479 -------------------------------- 645 914 583 -------------------------------- Foreign $ 163 -------------------------------- Total $ 2,271 $ 6,311 $4,742 - ---------------------------------------------------------
38 39 Deferred income taxes resulted from timing differences in the recognition of revenues and expenses for tax and financial reporting purposes. The tax effects of the principal timing differences are as follows:
Fiscal year ended 1997 1996 1995 - ------------------------------------------------------------------------ Income of foreign subsidiaries and affiliates $ 2,247 $ 534 $ 1,336 Reserve for losses of reinsurance subsidiary (523) 4,854 (1,222) Reserve for claims of employee health trust (712) 779 (412) Headquarters building write-down 374 2,976 Deferred compensation (2,190) (765) (491) Depreciation 150 (8) (824) Amortization of deferred charges 2,152 2,339 2,601 Non-deductible reserves (5,315) (930) (40) Non-qualified stock options 3,724 2,289 Other, net 77 (281) 133 --------------------------------- $ (390) $ 9,185 $ 4,057 - ------------------------------------------------------------------------
The reconciliation of income tax computed at the federal statutory tax rate (34%) to income tax expense follows:
Fiscal year ended 1997 1996 1995 - ---------------------------------------------------------------------------- Provision using statutory federal tax rate $ 2,050 $ 6,077 $ 4,670 Capital loss carryforward utilization (241) (358) (330) Tax exempt interest (40) (128) (167) Other, net 247 193 21 2,016 5,784 4,194 --------------------------------- State income taxes, net of federal benefit 255 527 548 --------------------------------- $ 2,271 $ 6,311 $ 4,742 - ----------------------------------------------------------------------------
The components of the net non-current deferred tax asset (liability) at December 28, 1997 and December 29, 1996 are shown below:
Fiscal year ended 1997 1996 - ----------------------------------------------------------------------- Income of foreign subsidiaries and affiliates $(9,731) $(7,484) Deferred charges (5,039) (4,517) Reserve for claims of employee health trust 5,037 4,325 Deferred compensation 6,105 3,915 Reserve for losses of reinsurance subsidiary 2,161 1,638 Reserves for legal and other expenses 1,603 211 Depreciation 297 447 Capital loss carryforward 61 142 Other, net 17 300 -------------------- 511 (1,023) Valuation allowance (61) (142) -------------------- Deferred tax asset (liability), net $ 450 $(1,165) - -----------------------------------------------------------------------
The components of the net current deferred tax asset (liability) at December 28, 1997 and December 29, 1996 are shown below:
Fiscal year ended 1997 1996 - ----------------------------------------------------------------- Amortization of uniforms and accessories $(2,004) $(1,939) Amortization of deferred charges (1,631) Accrued vacation pay 2,204 1,374 Other reserves 4,979 817 -------------------- Deferred tax asset, net $ 3,548 $ 252 - -----------------------------------------------------------------
At December 28, 1997, the company had available a capital loss carryforward of $159,000 of which $129,000 expires in 1998 and $30,000 expires in 2000. At December 28, 1997, Wackenhut Corrections had federal and state net operating loss carryforwards of $4.62 million and $4.05 million, respectively. The federal net operating losses will expire between 2010 and 2011, while certain state net operating losses will expire between 2000 and 2011. Utilization of net operating losses in future years may be subject to annual limitations due to the ownership change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. Such limitations, if any, are not expected to impact the ultimate utilization of the carryforwards. The company's loss carryforwards are solely attributable to Wackenhut Corrections compensation deductions on its income tax return which were not recognized for financial accounting purposes. The exercise of non-qualified stock options which have been granted under the Wackenhut Corrections stock option plans give rise to compensation which is includable in the taxable income of the applicable employees and deducted by Wackenhut Corrections for federal and state income tax purposes. Such compensation results from increases in the fair market value of the Wackenhut Corrections 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. In the years ended December 28, 1997 and December 29, 1996, such deductions resulted in significant federal and state deductions which may be carried forward. Utilization of such deductions will increase additional paid-in-capital. (14) Wackenhut Corrections Corporation Public Offerings In January 1996, Wackenhut Corrections sold 4.6 million shares of common stock at an offering price of $12.00 per share. Net proceeds of approximately $51.6 million from the offering have been and will be used for possible future acquisitions, capital investments in new facilities, working capital requirements and general corporate purposes. After the offering, the company's ownership in Wackenhut Corrections was reduced to approximately 55%. During 1997, the exercise of 230,550 non-qualified stock options of Wackenhut Corrections reduced the company's ownership of Wackenhut Corrections to 54.1% at December 28, 1997. The board of directors of Wackenhut Corrections has granted non-qualified stock options to purchase common stock which, if fully exercised, would reduce the company's ownership in Wackenhut Corrections to approximately 52%. 39 40 (15) Earnings Per Share The table below shows the amounts used in computing earnings per share in accordance with SFAS No. 128 and the effects on income and the weighted average number of shares of potential dilutive common stock. The number of shares used in the calculations in 1995 reflect the declaration of a 25% stock dividend effected in the form of a stock split. The incremental shares from assumed conversions of the company's stock options in 1997 are not included because there was a loss, not income, available to common shareholders for purposes of computing the diluted earnings per share. The company has entered into an acquisition (Note 4) which may result in contingently issuable shares.
- ----------------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 ----------------------------------------------------------------------------------------- Per Share Per Share Per Share Income Shares Amount Income Shares Amount Income Shares Amount ----------------------------------------------------------------------------------------- Net Income $ 103 $9,057 $7,260 Basic EPS: Income available to common shareholders 103 14,746 $ 0.01 9,057 13,636 $ 0.66 7,260 12,132 $ 0.60 Effect of dilutive securities: Stock options 242 40 Stock options of Wackenhut Corrections (203) (51) Diluted EPS: Income (loss) available to common shareholders $(100) 14,746 $ (0.01) $9,006 13,878 $ 0.65 $7,260 12,172 $ 0.60 - -----------------------------------------------------------------------------------------------------------------------------------
(16) Commitments and Contingencies The nature of the company's business results in claims for damages arising from the conduct of its employees or others. In the opinion of management, there are no pending legal proceedings that would have a material effect on the consolidated financial statements of the company. The company leases office space, data processing equipment and automobiles under non-cancelable operating leases expiring between 1998 and 2017. The company entered into a lease for its new corporate headquarters in Palm Beach Gardens, Florida, in 1996. The lease requires annual payments of $1.8 million for an initial term of 15 years with 3 five-year options to extend the term of the lease. Rent expense for the fiscal years ended December 28, 1997, December 29, 1996 and December 31, 1995 was $10 million, $9.6 million, and $7 million, respectively. In December 1997, Wackenhut Corrections 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, Wackenhut Corrections unconditionally agreed to guarantee certain obligations of First Security Bank, N.A., a party to the aforementioned operating lease facility. As of December 28, 1997, approximately $69 million of properties were under development under this facility. The minimum commitments under these leases and the 15 year lease for the new corporate headquarters, are as follows:
Minimum Year Commitment - --------------------------------------------------------- 1998 $11,450 1999 9,680 2000 8,545 2001 7,405 2002 6,629 Thereafter 16,687 -------- $60,396 - ---------------------------------------------------------
(17) Business Segments Security services, correctional services and staffing services The company's principal segments are security services, correctional services, and staffing services. The security services provides security-related and other support services to commercial and governmental/regulated industries clients. A subsidiary of the company, Wackenhut Corrections Corporation, provides facility management and construction services to detention and correctional facilities. The staffing services provides employee leasing and temporary staffing services.
Fiscal year 1997 1996 1995 - --------------------------------------------------------------------------- REVENUES: Security services $ 828,974 $ 768,065 $ 697,301 Correctional services 206,930 137,784 99,431 Staffing services 90,898 207 ------------------------------------- Total revenues $ 1,126,802 $ 906,056 $ 796,732 - --------------------------------------------------------------------------- OPERATING INCOME: Security services $ 20,281 $ 18,736 $ 20,500 Correctional services 16,545 9,731 7,229 Staffing services (272) (365) Unallocated corporate expenses (14,982) (11,032) (11,955) One-time charges and impairment of assets (18,300) (750) ------------------------------------- Total operating income $ 3,272 $ 16,320 $ 15,774 - --------------------------------------------------------------------------- EQUITY INCOME (LOSS) OF FOREIGN AFFILIATES, NET OF TAXES: Security services $ 993 $ 1,029 $ 744 Correctional services 1,105 604 (113) ------------------------------------- Total equity income $ 2,098 $ 1,633 $ 631 - --------------------------------------------------------------------------- CAPITAL EXPENDITURES: Security services $ 2,867 $ 3,871 $ 3,959 Correctional services 23,965 12,476 2,720 Staffing services 294 85 Unallocated corporate 566 3,485 178 ------------------------------------- Total capital expenditures $ 27,692 $ 19,917 $ 6,857 - --------------------------------------------------------------------------- DEPRECIATION AND AMORTIZATION EXPENSE: Security services $ 10,088 $ 9,438 $ 7,891 Correctional services 6,303 3,532 2,303 Staffing services 385 3 Unallocated corporate expenses 741 867 1,977 ------------------------------------- Total expenses $ 17,517 $ 13,840 $ 12,171 - ---------------------------------------------------------------------------
40 41 - ----------------------------------------------------------------- IDENTIFIABLE ASSETS: Security services $171,288 $158,413 $ 98,057 Correctional services 139,203 106,811 38,840 Staffing services 45,137 961 Unallocated corporate 48,814 57,733 61,030 ---------------------------------- Total identifiable assets $404,442 $323,918 $197,927 - -----------------------------------------------------------------
DOMESTIC AND INTERNATIONAL OPERATIONS Non-U.S. operations of the company and its subsidiaries are conducted primarily in South America and Australia. Minority interest in consolidated foreign subsidiaries have been reflected net of applicable income taxes in the accompanying financial statements. The company carries its investment in affiliates (20% to 50% owned) under the equity method. U.S. income taxes which would be payable upon remittance of affiliates' earnings to the company are provided currently. A summary of domestic and international operations is shown below:
Fiscal year 1997 1996 1995 - --------------------------------------------------------------------------- REVENUES: Domestic operations $ 952,978 $ 760,038 $652,723 International operations 173,824 146,018 144,009 ---------------------------------------- Total revenues $ 1,126,802 $ 906,056 $796,732 - --------------------------------------------------------------------------- OPERATING INCOME: Domestic operations $ 17,085 $ 15,675 $ 11,407 International operations 4,487 1,395 4,367 One-time charges and impairment of assets (18,300) (750) ---------------------------------------- TOTAL OPERATING INCOME $ 3,272 $ 16,320 $ 15,774 - ---------------------------------------------------------------------------
- ------------------------------------------------------------------ EQUITY INCOME OF FOREIGN AFFILIATES, NET OF TAXES: Domestic operations International operations $ 2,098 $ 1,633 $ 631 ---------------------------------- Total equity income $ 2,098 $ 1,633 $ 631 - ------------------------------------------------------------------ CAPITAL EXPENDITURES: Domestic operations $ 19,588 $ 16,569 $ 2,911 International operations 8,104 3,348 3,946 ---------------------------------- Total capital expenditures $ 27,692 $ 19,917 $ 6,857 - ------------------------------------------------------------------ DEPRECIATION AND AMORTIZATION EXPENSE: Domestic operations $ 12,888 $ 9,678 $ 9,512 International operations 4,629 4,162 2,659 ---------------------------------- Total expenses $ 17,517 $ 13,840 $ 12,171 - ------------------------------------------------------------------ IDENTIFIABLE ASSETS: Domestic operations $368,349 $294,066 $141,431 International operations 36,093 29,852 56,496 ---------------------------------- Total identifiable assets $404,442 $323,918 $197,927 - ------------------------------------------------------------------
(18) Selected Quarterly Financial Data (Unaudited) Selected quarterly financial data for the company and its subsidiaries for the fiscal years ended December 28, 1997 and December 29, 1996 is as follows:
First Second Third Fourth 1997 Quarter Quarter Quarter Quarter - --------------------------------------------------------------------------------------------------- Revenues $242,134 $273,592 $294,885 $ 316,191 Income (loss) from operations (1) $ 4,000 $ 4,909 $ 6,680 $ (12,317) Net income (loss) $ 1,968 $ 2,508 $ 3,330 $ (7,703) Earnings (loss) per share - basic $ 0.13 $ 0.17 $ 0.23 $ (0.52) Earnings (loss) per share - assuming dilution $ 0.13 $ 0.17 $ 0.22 $ (0.53) - --------------------------------------------------------------------------------------------------- 1996 - --------------------------------------------------------------------------------------------------- Revenues $212,474 $222,904 $236,869 $ 233,809 Income from operations $ 2,063 $ 3,721 $ 5,224 $ 5,312 Net income $ 945 $ 1,907 $ 3,038 $ 3,167 Earnings (loss) per share - basic $ 0.08 $ 0.15 $ 0.21 $ 0.22 Earnings (loss) per share - assuming dilution $ 0.08 $ 0.14 $ 0.20 $ 0.20 - ---------------------------------------------------------------------------------------------------
(1) The results of operations in the fourth quarter were affected by a one-time charge of $18,300,000 (Note 2) 41 42 Report of independent certified public accountants To the Shareholders of The Wackenhut Corporation: We have audited the accompanying consolidated balance sheets of The Wackenhut Corporation (a Florida corporation) and subsidiaries as of December 28, 1997 and December 29, 1996, and the related consolidated statements of income, cash flows and shareholders' equity for each of the three fiscal years in the period ended December 28, 1997. 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 generally accepted auditing standards. 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 28, 1997 and December 29, 1996, and the results of their operations and their cash flows for each of the three fiscal years in the period ended December 28, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP West Palm Beach, Florida, February 11, 1998. Management's responsibility for financial statements To the Shareholders of The Wackenhut Corporation: The accompanying financial statements have been prepared in conformity with generally accepted accounting principles. They include amounts based on judgments and estimates. Representations in the 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 financial statements. The 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 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. /s/ George R. Wackenhut /s/ Philip L. Maslowe George R. Wackenhut Philip L. Maslowe Chairman of the Board Senior Vice President and and Chief Executive Officer Chief Financial Officer Palm Beach Gardens, Florida, February 11, 1998. 42 EX-4.1 2 REVOLVING CREDIT AGREEMENT 1 Exhibit 4.1 CONFORMED COPY AMENDED AND RESTATED REVOLVING CREDIT AND REIMBURSEMENT AGREEMENT by and among THE WACKENHUT CORPORATION, the Borrower NATIONSBANK, NATIONAL ASSOCIATION, as Lender and NATIONSBANK, NATIONAL ASSOCIATION, as Administrative Agent and SCOTIABANC INC., as Co-Agent December 30, 1997 2 TABLE OF CONTENTS ARTICLE I Definitions and Terms
1.01 Amendment and Restatement......................................................2 1.02 Definitions....................................................................2 1.03 Rules of Interpretation.......................................................21 ARTICLE II Revolving Credit Facility 2.01 Commitment....................................................................24 2.02 Amounts.......................................................................24 2.03 Interest Periods..............................................................24 2.04 Advances......................................................................24 2.05 Payment of Interest...........................................................26 2.06 Payment of Principal..........................................................26 2.07 Borrower's Account............................................................27 2.08 Notes.........................................................................27 2.09 Pro Rata Payments.............................................................27 2.10 Reduction in Commitment.......................................................27 2.11 Conversions and Elections of Subsequent Interest Periods......................28 2.12 Fees..........................................................................29 2.13 Deficiency Advances...........................................................29 2.14 Adjustments by Agent..........................................................29 2.15 Use of Proceeds...............................................................30 2.16 Extension of Revolving Credit Termination Date................................30 2.17 Swing Line....................................................................30 ARTICLE III Letters of Credit 3.01 Letters of Credit.............................................................32 3.02 Reimbursement.................................................................32 3.03 Letter of Credit Fee..........................................................35 3.04 Administrative Fees...........................................................35
i 3 ARTICLE IV Change in Circumstances
4.01 Increased Cost and Reduced Return.............................................37 4.02 Limitation on Types of Loans..................................................38 4.03 Illegality....................................................................39 4.04 Treatment of Affected Loans...................................................39 4.05 Compensation..................................................................39 4.06 Taxes.........................................................................40 4.07 Replacement Banks.............................................................42 ARTICLE V Conditions to Making Loans and Issuing Letters of Credit 5.01 Conditions of Initial Advance and Issuance of Letters of Credit...............43 5.02 Conditions of Loans...........................................................45 ARTICLE VI Representations and Warranties 6.01 Subsidiaries..................................................................46 6.02 Corporate Organization and Authority..........................................46 6.03 Financial Statements..........................................................46 6.04 Indebtedness..................................................................47 6.05 Full Disclosure...............................................................47 6.06 Pending Litigation............................................................47 6.07 Title to Properties...........................................................47 6.08 Patents and Trademarks........................................................47 6.09 Issuance is Legal and Authorized..............................................47 6.10 No Defaults...................................................................48 6.11 Governmental Consent..........................................................48 6.12 Taxes.........................................................................48 6.13 Use of Proceeds...............................................................49 6.14 ERISA.........................................................................49 6.15 Compliance with Law...........................................................49 6.16 Investment Company............................................................50 6.17 Hazardous Materials...........................................................50
ii 4 ARTICLE VII Borrower Covenants
7.01 Corporate Existence, Etc......................................................51 7.02 Insurance.....................................................................51 7.03 Taxes, Claims for Labor and Materials, Compliance with Laws...................52 7.04 Maintenance, Etc..............................................................52 7.05 Nature of Business............................................................52 7.06 Consolidated Net Worth........................................................52 7.07 Limitations on Total Debt.....................................................53 7.08 Fixed Charges Coverage Ratio..................................................53 7.09 Negative Pledge Clauses.......................................................53 7.10 Limitation on Liens...........................................................54 7.11 Restricted Payments: Joint Venture Investments...............................55 7.12 Limitation on Sale and Leasebacks.............................................56 7.13 Mergers, Consolidations and Sales of Assets...................................57 7.14 Guaranties....................................................................58 7.15 Transactions with Affiliates..................................................59 7.16 ERISA Compliance..............................................................59 7.17 Reports and Rights of Inspection..............................................59 7.18 Acquisitions..................................................................63 7.19 Additional Guaranties.........................................................63 7.20 Advances to WCC...............................................................63 7.21 Officer's Knowledge of Default................................................64 7.22 Suits or Other Proceedings....................................................64 7.23 Notice of Discharge of Environmental Complaint or Condition...................64 ARTICLE VIII Events of Default and Remedies Therefor 8.01 Events of Default.............................................................65 8.02 Notice to Holders.............................................................66 8.03 Acceleration..................................................................66 8.04 Agent to Act..................................................................67 8.05 Cumulative Rights.............................................................67 8.06 Allocation of Proceeds........................................................67 ARTICLE IX The Agent 9.01 Appointment, Powers, and Immunities...........................................69 9.02 Reliance by Agent.............................................................69 9.03 Defaults......................................................................70 9.04 Rights as Lender..............................................................70 9.05 Indemnification...............................................................70
iii 5
9.06 Non-Reliance on Agent and Other Lenders.......................................71 9.07 Resignation of Agent..........................................................71 9.08 Fees..........................................................................71 ARTICLE X Miscellaneous 10.01 Assignments and Participation................................................72 10.02 Notices......................................................................73 10.03 No Waiver....................................................................74 10.04 Right of Setoff..............................................................75 10.05 Survival.....................................................................75 10.06 Expenses.....................................................................76 10.07 Amendments and Waivers.......................................................76 10.08 Counterparts.................................................................77 10.09 Waivers by the Borrower......................................................77 10.10 Termination..................................................................77 10.11 Governing Law................................................................78 10.12 Indemnification..............................................................78 10.13 Agreement Controls...........................................................79 EXHIBIT A APPLICABLE COMMITMENT PERCENTAGES..................................... A-1 EXHIBIT B ASSIGNMENT AND ACCEPTANCE..............................................B-1 EXHIBIT C NOTICE OF APPOINTMENT (OR REVOCATION) OF AUTHORIZED OFFICER................................................................C-1 EXHIBIT D-1 BORROWING NOTICE (LOAN)..............................................D-1-1 EXHIBIT D-2 FORM OF BORROWING NOTICE--SWING LINE LOANS...........................D-2-1 EXHIBIT E FORM OF NOTE...........................................................E-1 EXHIBIT F [Reserved].............................................................F-1 EXHIBIT G-1 OPINION OF VICE PRESIDENT AND LEGAL COUNSEL..........................G-1-1 EXHIBIT G-2 OPINION OF COUNSEL TO THE GUARANTORS.................................G-2-1 EXHIBIT H FORM OF GUARANTY AGREEMENT.............................................H-1 EXHIBIT I COVENANT COMPLIANCE CERTIFICATE........................................I-1 SCHEDULE 1.01 EXISTING LCs.........................................................S-1 SCHEDULE 6.01 SUBSIDIARIES OF THE BORROWER.........................................S-2 SCHEDULE 6.04 DESCRIPTION OF INDEBTEDNESS AND LEASES...............................S-3 SCHEDULE 6.06 LITIGATION...........................................................S-5 SCHEDULE 7.10 EXISTING LIENS.......................................................S-6
iv 6 AMENDED AND RESTATED REVOLVING CREDIT AND REIMBURSEMENT AGREEMENT THIS AMENDED AND RESTATED REVOLVING CREDIT AND REIMBURSEMENT AGREEMENT, dated December 30, 1997 (the "Agreement"), is made by and among: THE WACKENHUT CORPORATION, a corporation organized and existing under the laws of the State of Florida and having its principal place of business located in Palm Beach Gardens, Florida (the "Borrower"); and NATIONSBANK, NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States, in its capacity as a Lender ("NationsBank"), and each other financial institution which may hereafter execute and deliver an instrument of assignment with respect to this Agreement pursuant to SECTION 10.01 (hereinafter such financial institutions may be referred to individually as a "Lender" or collectively as the "Lenders"); and NATIONSBANK, NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America and having a principal place of business in Charlotte, North Carolina in its capacity as agent for the Lenders (in such capacity, and together with any successor agent appointed in accordance with the terms of SECTION 9.7, the "Agent"). W I T N E S S E T H: WHEREAS, the Borrower, the Agent and the lenders signatory thereto (the "Prior Lenders") have heretofore entered into a Revolving Credit and Reimbursement Agreement dated January 5, 1995 (the "Prior Agreement") pursuant to which the Prior Lenders under the Prior Agreement made available to the Borrower a revolving credit facility of up to $60,000,000 and a letter of credit facility which is available under the Revolving Credit Facility of up to $60,000,000; and WHEREAS, the Borrower has requested that the Lenders amend and restate the Prior Agreement and the other Loan Documents in their entirety in order to provide a revolving credit facility of up to $40,000,000 which shall include a letter of credit facility of up to $40,000,000 and a swingline facility of up to $15,000,000 the proceeds of which revolving credit facility are to be used as provided in SECTION 2.15; and WHEREAS, the Lenders are willing to make such credit facilities available to the Borrower upon the terms and conditions set forth herein; NOW, THEREFORE, the Borrower, the Lenders and the Agent hereby agree as follows: 1 7 ARTICLE I DEFINITIONS AND TERMS 1.01 AMENDMENT AND RESTATEMENT. The Borrower, the Agent, and the Lenders hereby agree that upon the effectiveness of this Agreement, the terms and provisions of the Prior Agreement shall be and hereby are amended and restated in their entirety by the terms and conditions of this Agreement and the terms and provisions of the Prior Agreement, except as otherwise provided herein, shall be superseded by this Agreement. Notwithstanding the amendment and restatement of the Prior Agreement by this Agreement, the Borrower shall continue to be liable to the Agent and the Prior Lenders with respect to (and to the extent of) agreements on the part of the Borrower under the Prior Agreement to indemnify and hold harmless the Agent and the Prior Lenders from and against all claims, demand, liabilities, damages, losses, costs, charges and expenses to which the Agent and the Prior Lenders may be subject arising in connection with the Prior Agreement. This Agreement is given as a substitution of, and not as a payment of, the obligations of the Borrower under the Prior Agreement and is not intended to constitute a novation of the Prior Agreement. Except as otherwise selected by the Borrower by delivery of a Borrowing Notice prior to the Closing Date in accordance with the terms hereof, upon the effectiveness of this Agreement all amounts outstanding and owing by Borrower under the Prior Agreement as of the Closing Date, as determined by the Lenders, shall constitute Advances hereunder accruing interest with respect to Base Rate Loans under the Prior Agreement, at the Base Rate hereunder. The parties hereto agree that the Interest Periods for all Eurodollar Rate Loans outstanding under the Prior Agreement on the Closing Date shall be terminated, the Borrower shall make any payments required under SECTION 4.05 hereof to the Lenders. The Borrower shall furnish to the Agent Borrowing Notices for additional Loans as may be required in connection with the allocation of Loans among Lenders in accordance with their Applicable Commitment Percentages. Except as otherwise provided for by the Borrower by delivery to NationsBank of an Application and Agreement for Letters of Credit prior to the Closing Date in accordance with the terms hereof, upon effectiveness of this Agreement, all Letters of Credit issued for the account of the Borrower under the Prior Agreement as of the Closing Date shall constitute Letters of Credit hereunder. 1.02 DEFINITIONS. Unless the context otherwise requires, the terms hereinafter set forth when used herein shall have the following meanings and the following definitions shall be equally applicable to both the singular and plural forms of any of the terms herein defined: "Advance" means a borrowing under the Revolving Credit Facility consisting of the aggregate principal amount of a Floating Rate Loan or Fixed Rate Loan, as the case may be. "Affiliate" shall mean any Person (other than a Subsidiary) (i) which directly or indirectly through one or more intermediaries controls, or is controlled by or is under common control with, the Borrower, (ii) which beneficially owns or holds 5% or more of 2 8 any class of the Voting Stock of the Borrower or (iii) 5% or more of the Voting Stock (or in the case of a Person which is not a corporation, 5% or more of the equity interest) of which is beneficially owned or held by the Borrower or a Subsidiary. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of Voting Stock, by contract or otherwise. "Applicable CD Rate" means, for any CD Rate Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Agent to be the average of the bid rates quoted to the Agent at approximately 10:00 a.m. (or as soon thereafter as practicable) by two (2) or more certificate of deposit dealers of recognized national standing selected by the Agent for the purchase at face value of certificates of deposit of the Agent having a term (i) in the case of Fixed CD Rate Loans, comparable to such Interest Period and (ii) in the case of Floating CD Rate Loans, of ninety (90) days, and in each case, in an amount equal to the principal amount of such CD Loan to be made. "Applicable Commitment Percentage" means, for each Lender that portion of the Total Revolving Credit Commitment (including its Participations and its obligations hereunder to the Issuing Bank to acquire Participations) allocable to such Lender (i) with respect to Lenders as of the Closing Date, as set forth in EXHIBIT A attached hereto and (ii) with respect to any Person who becomes a Lender hereunder, as reflected in each Assignment and Acceptance to which such Lender is a party Assignee; provided that the Applicable Commitment Percentage of each Lender shall be increased or decreased to reflect any assignments to or by such Lender effected in accordance with SECTION 10.01. "Applicable Lending Office" means, for each Lender and for each Type of Loan, the "Lending Office" of such Lender (or of an affiliate of such Lender) designated for such Type of Loan on the signature pages hereof or such other office of such Lender (or an affiliate of such Lender) as such Lender may from time to time specify to the Agent and the Borrower by written notice in accordance with the terms hereof as the office by which its Loans of such Type are to be made and maintained. "Applicable Margin" means for each Eurodollar Rate Loan or CD Rate Loan, and with respect to the Unused Fee, that percent per annum set forth below, which shall be based upon the Fixed Charges Coverage Ratio for the Four-Quarter Period most recently ended as specified below:
Tier Fixed Charges Coverage Ratio Applicable Margin Applicable Unused Fee ---- ---------------------------- ----------------- --------------------- I Equal to or greater than 2.00 to 1.00 0.425% 0.150% II Equal to or greater than 1.75 to 1.00 0.500% 0.175% and less than 2.00 to 1.00 III Equal to or greater than 1.50 to 1.00 0.650% 0.200% and less than 1.75 to 1.00
3 9 The Applicable Margin and Applicable Unused Fee shall be established at the end of each fiscal quarter of the Borrower (each, a "Determination Date"). Any change in the Applicable Margin and Applicable Unused Fee following each Determination Date shall be determined based upon the computations set forth in the certificate furnished to the Agent pursuant to SECTION 7.17(F), subject to review and approval of such computations by the Agent, and shall be effective commencing on the date following the date such certificate is received (or, if earlier, the date such certificate was required to be delivered) until the date following the date on which a new certificate is delivered or is required to be delivered, whichever shall first occur; PROVIDED HOWEVER, if the Borrower shall fail to deliver any such certificate within five (5) days after the time period required by SECTION 7.17, then the Applicable Margin and Applicable Unused Fee shall be Tier III from the date such certificate was required to be delivered until the appropriate certificate is so delivered. From the Closing Date to the date following the date on which the compliance certificate required by SECTION 7.17(F) is delivered, the Applicable Margin and Applicable Unused Fee shall be Tier II. "Applicable Reserve Requirement" means, at any time, the maximum rate at which reserves (including, without limitation, any marginal, special, supplemental, or emergency reserves) are required to be maintained under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) by member banks of the Federal Reserve System against (a) in the case of Eurodollar Rate Loans, "Eurocurrency liabilities" (as such term is used in Regulation D) or (b) in the case of CD Rate Loans, non-personal Dollar time deposits in an amount of $100,000 or more. Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (i) any category of liabilities which includes deposits by reference to which the Eurodollar Rate or CD Rate (as the case may be) is to be determined, or (ii) any category of extensions of credit or other assets which include Eurodollar Rate Loans or CD Rate Loans. The Eurodollar Rate and the CD Rate shall be adjusted automatically on and as of the effective date of any change in the Reserve Requirement. "Applicable Unused Fee" means that percent per annum set forth in the table in the definition of Applicable Margin, which shall be based upon the Fixed Charges Coverage Ratio for the Four-Quarter Period most recently ended and shall be effective on the date set forth in the definition of Applicable Margin. The Applicable Unused Fee shall be established as set forth in the definition of Applicable Margin. "Asset Securitization Facility" means the asset backed commercial paper funded receivables securitization facility among Wackenhut Funding, the Borrower, as Servicer, and NationsBank as Managing Agent, providing for the sale by Wackenhut Funding of fractional undivided interests in trade receivables originated by the Borrower and certain of its Subsidiaries, provided that at no time shall the aggregate face amount of outstanding trade receivables of the Borrower and its Subsidiaries sold or otherwise transferred (in whole or in part) through such program exceed $75,000,000. 4 10 "Assessment Rate" means, for any day, the annual assessment rate (rounded upwards, if necessary, to the nearest 1/100 of 1%) which is payable by the Agent (in its individual capacity) to the Federal Deposit Insurance Corporation (or any successor) for deposit insurance for Dollar time deposits with the Agent (in its individual capacity) at its Principal Office as determined by the Agent. The CD Rate shall be adjusted automatically as of the effective date of each change in the Assessment Rate. "Assignment and Acceptance" means an Assignment and Acceptance in the form of EXHIBIT B (with blanks appropriately filled in) delivered to the Agent in connection with an assignment of a Lender's interest under this Agreement pursuant to SECTION 10.01. "Authorized Officer" means any of the Chairman, President, Senior Vice Presidents or Vice Presidents of the Borrower or, with respect to financial matters, the Treasurer or Chief Financial Officer of the Borrower or any other person expressly designated by the Board of Directors (or the appropriate committee thereof) of the Borrower as an Authorized Representative for purposes of this Agreement, as set forth from time to time in a certificate in the form attached hereto as EXHIBIT C; "Base Rate Loan" means all of the Loans for which the rate of interest is determined by reference to the Base Rate. "Base Rate" means, for any day, the rate per annum equal to the higher of (a) the Federal Funds Rate for such day plus one-half of one percent (.5%) and (b) the Prime Rate for such day. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective on the effective date of such change in the Prime Rate or Federal Funds Rate. "Board" means the Board of Governors of the Federal Reserve System (or any successor body). "Borrower's Account" means a demand deposit account number 3601603454, or any successor account with the Agent, which may be maintained at one or more offices of the Agent, or an agent for the Agent. "Borrowing Notice" means the telephonic request of the Authorized Representative to obtain an Advance or a Swing Line Loan Advance or to elect a subsequent Interest Period for or Convert a Loan or Loans of any Type hereunder, as the obtaining of such Advance, such election or Conversion of such Loan or Loans shall be otherwise permitted herein. Any Borrowing Notice shall be binding on and irrevocable by the Borrower, and shall be confirmed in writing within three (3) Business Days by an Authorized Representative in the form attached hereto as EXHIBIT D-1 or D-2, as applicable. "Business Day" means (i) with respect to any Type of Loan other than a Eurodollar Rate Loan, any day which is not a Saturday, Sunday or a day on which banks in the States of New York and North Carolina are authorized or obligated by law, executive order or 5 11 government decree to be closed, and (ii) with respect to any Eurodollar Rate Loan, any day which is a Business Day as described above, and on which the relevant international financial markets are open for the transaction of business contemplated by this Agreement in London, England, New York, New York, and Charlotte, North Carolina. "Capitalized Lease" means any lease the obligation for Rentals with respect to which is required to be capitalized on a consolidated balance sheet of the lessee and its subsidiaries in accordance with GAAP. "Capitalized Rentals" of any Person and as of the date of any determination thereof means the amount at which the aggregate Rentals due and to become due under all Capitalized Leases under which such Person is lessee would be reflected as a liability on a consolidated balance sheet of such Person. "CD Rate Loan" means all of the Loans for which the rate of interest is determined by reference to the CD Rate. "CD Rate" means, for any CD Rate Loan, the rate of interest per annum determined pursuant to the following formula:
CD = Applicable CD Rate + Assessment + Applicable Rate --------------------------------- Rate Margin 1 - Applicable Reserve Requirement
"Closing Date" means the date as of which this Agreement is executed by the Borrower, the Lenders and the Agent and on which the conditions set forth in SECTION 5.01 hereof have been satisfied. "Consolidated Current Assets" and "Consolidated Current Liabilities" means as of the date of any determination thereof such assets and liabilities of the Borrower and its Subsidiaries on consolidated basis as shall be determined in accordance with GAAP to constitute current assets and current liabilities, respectively. "Consolidated Funded Debt" means all Funded Debt of the Borrower and its Subsidiaries, determined on a consolidated basis eliminating intercompany items. 6 12 "Consolidated Net Income" for any period means the gross revenues of the Borrower and its Subsidiaries for such period LESS all expenses and other proper charges (including taxes on income and Interest Charges), determined on a consolidated basis after eliminating earnings or losses attributable to outstanding Minority Interests, but excluding in any event: (a) any gains on the sale or other disposition of Investments or fixed or capital assets, and any taxes on such excluded gains and any tax deductions or credits on account of any such excluded losses; (b) the proceeds of any life insurance policy except for proceeds received during such period with respect to deferred compensation plans to the extent that the Borrower or any Subsidiary recognized any expenses during such period with respect to such plans; (c) net earnings and losses of any Subsidiary accrued prior to the date it became a Subsidiary; (d) net earnings and losses of any corporation (other than a Subsidiary), substantially all the assets of which have been acquired in any manner by the Borrower or any Subsidiary, realized by such corporation prior to the date of such acquisition; (e) net earnings and losses of any corporation (other than a Subsidiary) with which the Borrower or a Subsidiary shall have consolidated or which shall have merged into or with the Borrower or a Subsidiary prior to the date of such consolidation or merger; (f) net earnings of any business entity (other than a Subsidiary) in which the Borrower or any Subsidiary has an ownership interest unless such net earnings shall have actually been received by the Borrower or such Subsidiary in the form of cash distributions; (g) any portion of the net earnings of any Subsidiary which for any reason is unavailable for payment of dividends to the Borrower or any other Subsidiary; (h) earnings resulting from any reappraisal, revaluation or write-up of assets; (i) any deferred or other credit representing any excess of the equity in any Subsidiary at the date of acquisition thereof over the amount invested in such Subsidiary; 7 13 (j) any gain arising from the acquisition of any Securities of the Borrower or any Subsidiary; and (k) any reversal of any contingency reserve, except to the extent that provision for such contingency reserve shall have been made from income arising during such period. "Consolidated Net Assets" means as of the date of any determination thereof, the amount of all Total Assets of the Borrower and its Subsidiaries after deducting all Restricted Investments and all items which in accordance with GAAP would be included on the liability side of a consolidated balance sheet, except deferred income taxes, deferred investment tax credits, capital stock of any class, surplus and Funded Debt. "Consolidated Net Worth" means at any time as of which the amount thereof is to be determined, the sum of the following with respect to the Borrower and its Subsidiaries (on a consolidated basis and excluding intercompany items): (i) the amount of issued and outstanding share capital, PLUS (ii) the amount of additional paid-in capital and retained income (or, in the case of a deficit, minus the amount of such deficit), MINUS (iii) the sum of the following (without duplication of deductions in respect of items already deducted in arriving at surplus and retained earnings): (A) all reserves, except legal reserves and other contingency reserves (i.e., reserves not allocated to specific purposes and not deducted from assets), which are properly treated as appropriations of surplus or retained earnings; (B) any treasury stock, capital stock subscribed and unissued and other contra-equity accounts; and (C) the cumulative amount of any net write-up of asset values after the date of the audit immediately preceding the Closing Date, PLUS or MINUS, as the case may be (iv) the cumulative effect of foreign exchange valuations. "Consolidated Total Assets" means as of the date of any determination thereof the total amount of all assets of the Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP. "Continue", "Continuation", and "Continued" shall refer to the continuation pursuant to SECTION 2.11 hereof of a Fixed Rate Loan of one Type as a Fixed Rate Loan of the same Type from one Interest Period to the next Interest Period. "Convert", "Conversion", and "Converted" shall refer to a conversion pursuant to SECTION 2.11 hereof or ARTICLE IV of one Type of Loan into another Type of Loan. "Current Debt" of any Person as of the date of any determination thereof means (i) all Indebtedness of such Person for borrowed money other than Funded Debt of such Person and (ii) Guaranties by such Person of Current Debt of others. "Default" means any event or condition, the occurrence of which would, with the lapse of time or the giving of notice, or both, constitute an Event of Default. 8 14 "Dollars" and the symbol "$" means dollars constituting legal tender for the payment of public and private debts in the United States of America. "Eligible Assignee" means means (i) a Lender, (ii) an affiliate of a Lender, and (iii) any other Person approved by the Agent and, unless an Event of Default has occurred and is continuing at the time any assignment is effected in accordance with SECTION 10.01, the Borrower, such approval not to be unreasonably withheld or delayed by the Borrower and such approval to be deemed given by the Borrower if no objection is received by the assigning Lender and the Agent from the Borrower within two Business Days after notice of such proposed assignment has been provided by the assigning Lender to the Borrower; PROVIDED, HOWEVER, that neither the Borrower nor an affiliate of the Borrower shall qualify as an Eligible Assignee. "Environmental Laws" means any federal, state or local statute, law, ordinance, code, rule, regulation, order, decree, permit or license regulating, relating to, or imposing liability or standards of conduct concerning, any environmental matters or conditions, environmental protection or conservation, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended; the Superfund Amendments and Reauthorization Act of 1986, as amended; the Resource Conservation and Recovery Act, as amended; the Toxic Substances Control Act, as amended; the Clean Air Act, as amended; the Clean Water Act, as amended; together with all regulations promulgated thereunder, and any other "Superfund" or "Superlien" law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA shall be construed to also refer to any successor sections; "ERISA Affiliate" means any corporation, trade or business that is, along with the Borrower, a member of a controlled group of corporations or controlled group of trades or businesses, as described in section 414(b) and 414(c), respectively, of the Code of Section 4001 of ERISA. "Eurodollar Rate" means the interest rate per annum calculated according to the following formula:
Eurodollar = Interbank Offered Rate + Applicable Rate --------------------------------- Margin 1 - Applicable Reserve Requirement
"Eurodollar Rate Loan" means Loans that bear interest at rates based upon the Eurodollar Rate. "Event of Default" shall have the meaning set forth in SECTION 8.01. "Existing LCs" means the letters of credit issued by NationsBank prior to the Closing Date and remaining outstanding as of the Closing Date, all as more particularly 9 15 described on SCHEDULE 1.01 attached hereto; "Federal Funds Rate" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; PROVIDED that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to the Agent (in its individual capacity) on such day on such transactions as determined by the Agent. "Fixed CD Rate Loan" means a CD Rate Loan for which the Borrower elects an Interest Period of 30, 60, 90 or 180 days pursuant to SECTION 2.03 hereof. "Fixed Charges" for any period means on a consolidated basis the sum of (i) 100% of all Rentals (other than Rentals on Capitalized Leases) payable during such period by the Borrower and its Subsidiaries (other than WCC), and (ii) all Interest Charges on all Indebtedness (including the interest component of Rentals on Capitalized Leases and the discount factor or other economic equivalent of interest under the Asset Securitization Facility) of the Borrower and its Subsidiaries (other than WCC) payable during said period by the Borrower and its Subsidiaries (other than WCC). "Fixed Charges Coverage Ratio" means the ratio of Net Income Available for Fixed Charges to Fixed Charges. "Fixed Rate Loan" means a Loan which is either a Fixed CD Rate Loan or a Eurodollar Rate Loan. "Floating CD Rate Loan" means a CD Rate Loan other than a Fixed CD Rate Loan. "Floating Rate Loan" means a Loan which is either a Base Rate Loan or a Floating CD Rate Loan. "Four-Quarter Period" means a period of four full consecutive quarter annual periods, taken together as one accounting period. "Funded Debt" of any Person shall mean (i) all Indebtedness of such Person for borrowed money or which has been incurred in connection with the acquisition of assets, including all payments in respect thereof that are required to be made within one year from the date of any determination of Funded Debt, whether or not the obligation to make such payments shall constitute a current liability of the obligor under GAAP, (ii) all Capitalized Rentals of such Person, (iii) all Guaranties by such Person of Funded Debt of 10 16 others, (iv) with respect to Funded Debt of the Borrower, the product of (x) the aggregate amounts available for drawing under all outstanding Letters of Credit and (y).50; and (v) to the extent not otherwise included in clauses (i) through (iv) above, outstanding amounts (together with interest paid thereon) received by the Borrower or any Subsidiary in exchange for the transfer of interests in trade receivables under the Asset Securitization Facility. "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. "Gross Revenues" for any period means the gross revenues, determined in accordance with GAAP, of the Borrower and its Subsidiaries for such period, determined on a consolidated basis after eliminating revenues attributable to outstanding Minority Interests. "Guaranties" by any Person means all obligations (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect, guaranteeing any Indebtedness, dividend or other obligation, of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, all obligations incurred through an agreement, contingent or otherwise, by such Person: (i) to purchase such Indebtedness or obligation or any property or assets constituting security therefor, (ii) to advance or supply funds (x) for the purchase or payment of such Indebtedness or obligation, (y) to maintain working capital or other balance sheet condition or otherwise to advance or make available funds for the purchase or payment of such Indebtedness or obligation, or (iii) to lease property or to purchase Securities or other Property or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of the primary obligor to make payment of the Indebtedness of obligation, or (iv) otherwise to assure the owner of the Indebtedness or obligation of the primary obligor against loss in respect thereof. For the purposes of all computations made under this Agreement, a Guaranty in respect of any Indebtedness for borrowed money shall be deemed to be Indebtedness equal to the principal amount of such Indebtedness for borrowed money which has been guaranteed, and a Guaranty in respect of any other obligation or liability or any dividend shall be deemed to be Indebtedness equal to the maximum aggregate amount of such obligation, liability or dividend. "Guaranty Agreements" means, collectively, (i) the Amended and Restated Guaranty and Suretyship Agreement executed and delivered by each wholly-owned Subsidiary of the Borrower as of the Closing Date and (ii) each Guaranty and Suretyship Agreement delivered pursuant to SECTION 7.19, substantially in the form of EXHIBIT H, as the same may be amended, modified or restated from time to time. 11 17 "Guarantors" means, collectively, (i) as of the date hereof, each wholly-owned domestic Subsidiary of the Borrower as listed on SCHEDULE 6.01 hereof, and (ii) thereafter, each Person who is required to execute and deliver a Guaranty Agreement pursuant to SECTION 7.19 hereof. "Hazardous Material" means and includes any pollutant, contaminant, or hazardous, toxic or dangerous waste, substance or material (including without limitation petroleum products, asbestos-containing materials and lead), the generation, handling, storage, transportation, disposal, treatment, release, discharge or emission of which is subject to any Environmental Law. "Indebtedness" of any Person means and include all obligations of such Person which in accordance with GAAP shall be classified upon a balance sheet of such Person as liabilities of such Person, and in any event shall include all (i) obligations of such Person for borrowed money or which has been incurred in connection with the acquisition of property or assets, (ii) obligations secured by any Lien upon property or assets owned by such Person, even though such Person has not assumed or become liable for the payment of such obligations, (iii) obligations created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person, notwithstanding the fact that the rights and remedies of the seller, lender or lessor under such agreement in the event of default are limited to repossession or sale of property, (iv) Capitalized Rentals under any Capitalized Lease, (v) Guaranties of Indebtedness of others, (vi) the Reimbursement Obligations, and (vii) outstanding amounts received by the Borrower or any Subsidiary in exchange for the transfer of interests in trade receivables under the Asset Securitization Facility in excess of the amounts repaid to the purchasers in respect of such purchase price from collections on such trade receivables. "Interbank Offered Rate" means, for any Eurodollar Rate Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the term "Eurodollar Rate" shall mean, for any Eurodollar Rate Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; PROVIDED, HOWEVER, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%). 12 18 "Interest Charges" for any period means all interest and all amortization of debt discount and expense on any particular Indebtedness for which such calculations are being made, and shall include without limitation the discount factor or other economic equivalent of interest arising under the Asset Securitization Facility. Computations of Interest Charges on a pro forma basis for Indebtedness having a variable interest rate shall be calculated at the rate in effect on the date of any determination. "Interest Period" for each Fixed Rate Loan means a period commencing on the date such Fixed Rate Loan is made or Converted and each subsequent period commencing on the last day of the immediately preceding Interest Period for such Fixed Rate Loan and ending, at the Borrower's option, (A) for any Fixed CD Rate Loan on the date 30, 60, 90 or 180 days thereafter as notified to the Agent by an Authorized Representative two (2) Business Days prior to the beginning of such Interest Period and (B) for any Eurodollar Rate Loan, on the date one, two, three or six months thereafter as notified to the Agent by the Authorized Representative three (3) Business Days prior to the beginning of such Interest Period; PROVIDED, that, (i) if an Authorized Representative fails to notify the Agent of the length of an Interest Period for any Fixed CD Rate Loan two (2) Business Days or for any Eurodollar Rate Loan three (3) Business Days, as the case may be, prior to the first day of such Interest Period, the Loan for which such Interest Period was to be deter mined shall be deemed to be a Base Rate Loan as of the first day thereof for an Interest Period ending on the following Business Day; (ii) if an Interest Period for a Fixed Rate Loan would end on a day which is not a Business Day, such Interest Period shall be extended to the next Business Day (unless in the case of any Eurodollar Rate Loan, such extension would cause the applicable Interest Period to end in the succeeding calendar month, in which case such Interest Period shall end on the next preceding Business Day); and (iii) there shall not be more than six (6) Interest Periods in effect on any day, provided that all Floating Rate Loans shall be treated as having the same Interest Period. "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. "Issuing Bank" means initially NationsBank and thereafter any Lender which is successor to NationsBank as issuer of Letters of Credit under ARTICLE III. 13 19 "Joint Venture Investment" means any Investment in an amount not to exceed $500,000 in any Person by the Borrower with any other Person or Persons which Investment is made in order to permit the Borrower to make bids with respect to government contracts for the providing of services by the Borrower of the type provided by the Borrower and its Subsidiaries on the date of this Agreement. "Letter of Credit" or "Letters of Credit" means a letter of credit issued by the Issuing Bank for the account of the Borrower or the Borrower and Titania in favor of a Person advancing credit, providing insurance or securing obligations on behalf of the Borrower or the Borrower and Titania, and shall include without limitation all Existing LCs. "Letter of Credit Account Agreement" means that Letter of Credit Account Agreement of even date herewith by and between the Borrower and the Agent, as amended and modified from time to time, providing for deposit of amounts of cash with the Agent. "Letter of Credit Facility" means the facility described in ARTICLE III hereof providing for the issuance by the Issuing Banks for the account of the Borrower or the Borrower and Titania of Letters of Credit in an aggregate stated amount at any time outstanding not exceeding the Total Letter of Credit Commitment. "Letter of Credit Outstandings" means, as of any date of determination, the aggregate amount remaining undrawn under all Letters of Credit plus Reimbursement Obligations then outstanding. "Lien" means any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, and including but not limited to the security interest lien arising from a mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" shall include reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances (including, with respect to stock, stockholder agreements, voting trust agreements, buy-back agreements and all similar arrangements) affecting Property. For the purposes of this Agreement, the Borrower or a Subsidiary shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement, Capitalized Lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes and such retention or vesting shall constitute a Lien. "Loan" or "Loans" means any of the Fixed Rate Loans or Floating Rate Loans, as the context may require. 14 20 "Loan Documents" means this Agreement, the Letter of Credit Account Agreement, the Notes, the Guaranty Agreements, any applications for issuance of Letters of Credit and all other instruments and documents executed or delivered to and in favor of any Lender or the Agent in connection with the Loans or the Letters of Credit as the same may be amended, modified or supplemented from time to time. "Minority Interests" means any shares of stock of any class of a Subsidiary (other than directors' qualifying shares as required by law) that are not owned by the Borrower and/or one or more of its Subsidiaries. Minority Interests shall be valued by valuing Minority Interests constituting preferred stock at the voluntary or involuntary liquidating value of such preferred stock, whichever is greater, and by valuing Minority Interests constituting common stock at the book value of capital and surplus applicable thereto adjusted, if necessary, to reflect any changes from the book value of such common stock required by the foregoing method of valuing Minority Interests in preferred stock. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" shall have the same meaning as in ERISA. "NationsBank" means NationsBank, National Association, and its successors. "Net Income Available for Fixed Charges" for any period means the sum of (i) Consolidated Net Income during such period (excluding, for the purpose of determining Net Income Available for Fixed Charges, revenues, expenses and other appropriate charges or adjustments attributable to WCC) PLUS (to the extent deducted in determining Consolidated Net Income), (ii) all provisions for any Federal, state or other income taxes made by the Borrower and its Subsidiaries (other than WCC) during such period, and (iii) Fixed Charges of the Borrower and its Subsidiaries (other than WCC) during such period. "Net Tangible Assets" means as of the date of determination thereof, the total amount of all Tangible Assets of the Borrower (excluding Subsidiaries) after deducting all Restricted Investments of the Borrower and all items which in accordance with GAAP would be included on the liability side of a balance sheet, except deferred income taxes, deferred investment tax credits, capital stock of any class, surplus and Funded Debt. "NMSI" means NationsBanc Montgomery Securities, Inc. and its successors. "Notes" means, collectively, the promissory notes of the Borrower executed and delivered to the Lenders as provided in SECTION 2.08 hereof in substantially the form attached hereto as EXHIBIT E, with appropriate insertions as to amounts, dates and names of Lenders. "Obligations" means the obligations, liabilities and Indebtedness of the Borrower with respect to (i) the principal and interest on the Loans as evidenced by the Notes, 15 21 (ii) the Reimbursement Obligations, and (iii) the payment and performance of all other obligations, liabilities and Indebtedness of the Borrower to the Lenders or the Agent hereunder, under any one or more of the other Loan Documents or with respect to the Loans. "Participation" means, with respect to any Lender and either a Letter of Credit or a Swing Line Loan, as the case may be, the extension of credit represented by the participation of such Lender hereunder in the Issuing Bank's liability in respect of a Letter of Credit issued by the Issuing Bank in accordance with the terms hereof, or in NationsBank's liability in respect of a Swing Line Loan made in accordance with the terms hereof. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Person" means an individual, partnership, corporation, trust or unincorporated organization, and a government or agency or political subdivision thereof. "Plan" means a "pension plan," as such term is defined in ERISA, established or maintained by the Borrower or any ERISA Affiliate or as to which the Borrower or any ERISA Affiliate contributed or is a member or otherwise may have any liability. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, and whether tangible or intangible. "Prime Rate" means the per annum rate of interest established from time to time by NationsBank as its prime rate, which rate may not be the lowest rate of interest charged by NationsBank to its customers. "Principal Office" means the principal office of NationsBank, presently located at Independence Center, 15th Floor, NC1-001-15-04, Charlotte, North Carolina 28255, Attention: Agency Services. "Reimbursement Obligation" means at any time, the obligation of the Borrower with respect to any Letter of Credit to reimburse the Issuing Bank and the Lenders to the extent of their respective Participation (including by the receipt of proceeds of Revolving Loans pursuant to SECTION 3.02) for amounts theretofore paid by the Issuing Bank pursuant to a drawing under such Letter of Credit. "Rentals" means and include as of the date of any determination thereof, all fixed payments (including as such all payments which the lessee is obligated to make to the lessor on termination of the lease or surrender of the Property) payable by the Borrower or a Subsidiary, as lessee or sublessee under a lease of real or personal property, but shall be exclusive of any amounts required to be paid by the Borrower or a Subsidiary (whether or not designated as rents or additional rents) on account of maintenance, 16 22 repairs, insurance, taxes and similar charges. Fixed rents under any so-called "percentage leases" shall be computed solely on the basis of the minimum rents, if any, required to be paid by the lessee regardless of sales volume or gross revenues. "Regulation D" means Regulation D of the Board as the same may be amended or supplemented from time to time. "Reportable Event" shall have the same meaning as in ERISA. "Required Lenders" means, as of any date, Lenders on such date having Credit Exposures (as defined below) aggregating at least 66-2/3% of the aggregate Credit Exposures of all the Lenders on such date; PROVIDED, that if any single Lender holds 66-2/3% or more (but less than 100%) of the aggregate Credit Exposure, then the term "Required Lenders" shall also mean at least two (2) Lenders. For purposes of the preceding sentence, the amount of the "CREDIT EXPOSURE" of each Lender shall be equal to the aggregate principal amount of the Loans owing to such Lender plus the aggregate unutilized amounts of such Lender's Revolving Credit Commitment (without regard to any outstanding Swing Line Loans) plus the amount of such Lender's Applicable Commitment Percentage of the aggregate undrawn stated amount of outstanding Letters of Credit and of the Reimbursement Obligations; PROVIDED that if any Lender shall have failed to pay to the Issuing Bank its Applicable Commitment Percentage of any drawing under any Letter of Credit resulting in an outstanding Reimbursement Obligation, such Lender's Credit Exposure attributable to Letters of Credit and Reimbursement Obligations with respect to all Letters of Credit shall be deemed to be held by the Issuing Bank of such Letters of Credit and, if the Lender who fails to so pay is any Lender other than NationsBank, such Lender's Credit Exposure attributable to Swing Line Loans shall be deemed held by NationsBank for purposes of this definition. "Restricted Investments" means all Investments in any Person, other than: (a) Investments by the Borrower and its Subsidiaries in and to Subsidiaries, including any investment in a corporation which, after giving effect to such investment, will become a Subsidiary; (b) Investments in (i) Commercial paper maturing in 270 days or less from the date of issuance and which, at the time of acquisition by the Borrower or any Subsidiary, is accorded one of the two highest ratings by S&P or Moody's.; (ii) Variable Rate Demand Notes of issuers whose commercial paper, at the time of acquisition, is accorded one of the two highest ratings by S&P or Moody's; or (iii) Direct obligations of any State of the United States of America or of any political subdivision thereof located in the United States of America and which, at the time of acquisition, is accorded one of the two highest ratings by S&P or Moody's, maturing in twelve months or less from the date of acquisition; (c) Investments in direct obligations of the United States of America, or investments in any Person, which Investments are guaranteed by the full faith 17 23 and credit of the United States of America, in either case maturing in twelve months or less from the date of acquisition thereof by the Borrower or any Subsidiary; (d) Investments in certificates of deposit maturing within one year from the date of issuance thereof, issued by a bank or trust company organized under the laws of the United States or any state thereof, having capital, surplus and undivided profits aggregating at least $100,000,000 and whose long-term certificates of deposit are, at the time of acquisition thereof by the Borrower or Subsidiary, rated A by S&P or Moody's; (e) loans or advances in the usual and ordinary course of business to officers, directors and employees for expenses (including moving expenses related to a transfer) incidental to carrying on the business of the Borrower or any Subsidiary; PROVIDED, HOWEVER that the Borrower may make up to an aggregate at any one time outstanding of up to $300,000 of such loans or advances which are not incidental to carrying on the business of the Borrower or any Subsidiary; and (f) receivables arising from the sale of goods and services in the ordinary course of business of the Borrower and its Subsidiaries; and (g) provided, however, that with respect to investments made by or on behalf of Titania, the following shall not be Restricted Investments: (1) Certificates of deposit, time deposits and banker's acceptances maturing within one year from the date of acquisition, issued by a bank or trust company organized under the laws of the United States or any state thereof, or any foreign bank whose branch is organized under the laws of the United States or any state thereof, having capital, surplus and undivided profits aggregating at least $100,000,000 and whose long-term certificates of deposit are, at the time of acquisition, rated at least A by S&P or Moody's; (2) Repurchase Agreements with any domestic bank with debt rated "AA" or better by S&P, or any foreign bank rated at least "AA" by S&P and "Aa" by Moody's; or repurchase agreements with such other Persons on such terms as the Borrower and the Agent shall agree in writing; provided the term of all such repurchase agreements is for one year or less; (3) Direct obligations of the United States of America, or Investments in any Person, which Investments are guaranteed by the full faith and credit of the United States of America; (4) Mortgage-backed securities issued by the United States Government or an agency or instrumentality thereof, having at the time of acquisition, a credit rating of at least AA by a nationally recognized rating service; (5) Bonds, notes and other direct obligations (other than those referred 18 24 to in clause (b), above) of any corporation domiciled in the United States of America, of a State of the United States of America, or of any sovereign or supranational institution whose obligations are denominated in United States dollars, at the time of acquisition rated at least A by a nationally recognized rating service. Obligations of sovereign or supranational institutions at the time of acquisition, shall be rated at least AA by a nationally recognized rating service; (6) Preferred stock obligations of any corporation domiciled in the United States of America, whose obligations at the time of acquisition are rated at least A by a nationally recognized rating service; (7) Shares in mutual funds that invest solely in investments of the types described in clause b(i), clause (b)(iii), clause (3), clause (4), clause (5) and/or clause (6) above and have assets in excess of One Hundred Million Dollars ($100,000,000); (8) Any Investments (other than the Investments set forth in clause (b) and clause (1) through clause (7) inclusive, above), provided that the aggregate fair value for all such investments shall not, at any time, exceed five percent (5%) of the aggregate fair value of all Investments set forth in clause (1) through clause (8) inclusive, above. For the purposes of this subsection (8) only, fair value shall mean the greater of book value or fair market value. 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. "Revolving Credit Commitment" means with respect to each Lender, the obligation of such Lender to make Loans to the Borrower up to an aggregate principal amount at any one time outstanding equal to such Lender's Applicable Commitment Percentage of the Total Revolving Credit Commitment as the same may be increased or decreased from time to time pursuant to this Agreement. "Revolving Credit Facility" means the facility described in ARTICLE II hereof providing for Loans to the Borrower by the Lenders in the aggregate principal amount of the Total Revolving Credit Commitment less the aggregate amount of outstanding Swing Line Loans and outstanding Letters of Credit and Reimbursement Obligations. 19 25 "Revolving Credit Termination Date" means the earlier of (i) December 29, 2000 or such later date to which the Revolving Credit Termination Date may be extended pursuant to SECTION 2.16, or (ii) such date as the Borrower may voluntarily terminate the Revolving Credit Facility by payment in full of all Obligations pursuant to SECTION 2.10(A) hereof. "Revolving Credit Outstandings" means, as of any date of determination, the aggregate principal amount of all Revolving Loans made pursuant to SECTION 2.01 then outstanding. "Revolving Loan" means Loans made by the Lenders to the Borrower pursuant to SECTION 2.01 hereof. "S&P" means Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies, Inc. "Security" shall have the same meaning as in Section 2(1) of the Securities Act of 1933, as amended. "Subordinated Funded Debt" means all unsecured Funded Debt of the Borrower which shall contain or have applicable thereto subordination provisions in form and substance acceptable to the Agent and the Required Lenders. The term "subsidiary" means, as to any particular parent corporation, any corporation of which more than 50% (by number of votes) of the Voting Stock shall be owned by such parent corporation and/or one or more corporations which are themselves subsidiaries of such parent corporation. The term "Subsidiary" shall mean a subsidiary of the Borrower (other than Wackenhut Funding). "Swing Line" means the revolving line of credit established by NationsBank in favor of the Borrower pursuant to SECTION 2.17. "Swing Line Loans" means Loans made by NationsBank to the Borrower pursuant to SECTION 2.17. "Swing Line Outstandings" means, as of any date of determination, the aggregate principal Indebtedness of the Borrower on all Swing Line Loans then outstanding. "Titania" means Titania Insurance Company of America, a corporation organized under the laws of Vermont and a wholly-owned Subsidiary of the Borrower. "Total Assets" means, as of the date of any determination thereof, the total amount of all assets of the Borrower and its Subsidiaries (less depreciation, depletion and other properly deductible valuation reserves);. "Total Capitalization" means the sum of (i) Consolidated Funded Debt PLUS (ii) Consolidated Net Worth. 20 26 "Total Letter of Credit Commitment" means an amount not to exceed the Total Revolving Credit Commitment. "Total Revolving Credit Commitment" means $40,000,000, as reduced pursuant to SECTION 2.10 hereof. "TROL Leases" means all tax retention operating lease agreements between WCC or any subsidiary of WCC, as Lessee, and First Security Bank, N.A., as Lessor, as amended, supplemented or modified from time to time. "Type" means any type of Loan (i.e. a Base Rate Loan, CD Rate Loan, or Eurodollar Rate Loan). "Voting Stock" means Securities of any class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions). "Wackenhut Family Group" means (i) George R. Wackenhut, Ruth J. Wackenhut, Richard R. Wackenhut and other lineal descendants of George R. Wackenhut, the founder of the Borrower; (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). "Wackenhut Funding" means Wackenhut Funding Corporation, a Delaware corporation. "WCC" means Wackenhut Corrections Corporation, a Florida corporation and a Subsidiary of the Borrower as of the Closing Date. "Wholly-owned" when used in connection with any Subsidiary means a Subsidiary of which all of the issued and outstanding shares of stock (except shares required as directors' qualifying shares) and all Funded Debt and Current Debt shall be owned by the Borrower and/or one or more of its Wholly-owned Subsidiaries. 1.03 RULES OF INTERPRETATION. (a) All accounting terms not specifically defined herein shall have the meanings assigned to such terms and shall be interpreted in accordance with GAAP. Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, the same shall be done in accordance with GAAP, to the extent applicable, except where such principles are inconsistent with the requirements of this Agreement. (b) Each term defined in Article 1 or 9 of the Florida Uniform Commercial Code shall have the meaning given therein unless otherwise defined herein, except to the 21 27 extent that the Uniform Commercial Code of another jurisdiction is controlling, in which case such terms shall have the meaning given in the Uniform Commercial Code of the applicable jurisdiction. (c) The headings, subheadings and table of contents used herein or in any other Loan Document are solely for convenience of reference and shall not constitute a part of any such document or affect the meaning, construction or effect of any provision thereof. (d) Except as otherwise expressly provided, references herein to articles, sections, paragraphs, clauses, annexes, appendices, exhibits and schedules are references to articles, sections, paragraphs, clauses, annexes, appendices, exhibits and schedules in or to this Agreement. (e) All definitions set forth herein or in any other Loan Document shall apply to the singular as well as the plural form of such defined term, and all references to the masculine gender shall include reference to the feminine or neuter gender, and VICE VERSA, as the context may require. (f) used herein or in any other Loan Document, words such as "hereunder", "hereto", "hereof" and "herein" and other words of like import shall, unless the context clearly indicates to the contrary, refer to the whole of the applicable document and not to any particular article, section, subsection, paragraph or clause thereof. (g) References to "including" means including without limiting the generality of any description preceding such term, and for purposes hereof the rule of EJUSDEM GENERIS shall not be applicable to limit a general statement, followed by or referable to an enumeration of specific matters, to matters similar to those specifically mentioned. (h) All dates and times of day specified herein shall refer to such dates and times at Charlotte, North Carolina. (i) Each of the parties to the Loan Documents and their counsel have reviewed and revised, or requested (or had the opportunity to request) revisions to, the Loan Documents, and any rule of construction that ambiguities are to be resolved against the drafting party shall be inapplicable in the construing and interpretation of the Loan Documents and all exhibits, schedules and appendices thereto. (j) Any reference to an officer of the Borrower or any other Person by reference to the title of such officer shall be deemed to refer to each other officer of such Person, however titled, exercising the same or substantially similar functions. (k) All references to any agreement or document as amended, modified or supplemented, or words of similar effect, shall mean such document or agreement, as the 22 28 case may be, as amended, modified or supplemented from time to time only as and to the extent permitted therein and in the Loan Documents. (l) Where any provision in this Agreement refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether the action in question is taken directly or indirectly by such Person. 23 29 ARTICLE II REVOLVING CREDIT FACILITY 2.01 COMMITMENT. Subject to the terms and conditions of this Agreement, each Lender severally agrees to make Advances to the Borrower from time to time from the Closing Date until the Revolving Credit Termination Date on a pro rata basis as to the total borrowing requested by the Borrower on any day determined by its Applicable Commitment Percentage up to but not exceeding the Revolving Credit Commitment of such Lender, PROVIDED, however, that the Lenders will not be required and shall have no obligation to make any Advance (i) so long as a Default or an Event of Default has occurred and is continuing or (ii) if the Agent has accelerated the maturity of the Notes; PROVIDED further, however, that immediately after giving effect to each Advance, the sum of the principal amount of Revolving Credit Outstandings plus Swing Line Outstandings plus Letter of Credit Outstandings shall not exceed the Total Revolving Credit Commitment. Within such limits, the Borrower may borrow, repay and reborrow hereunder, on a Business Day from the Closing Date until, but (as to borrowings and reborrowings) not including, the Revolving Credit Termination Date; PROVIDED, however, that (x) no Fixed CD Rate Loan shall be made less than thirty (30) days before the Revolving Credit Termination Date and no Eurodollar Rate Loan shall be made less than one month before the Revolving Credit Termination Date and (y) each Fixed Rate Loan may, subject to the provisions of SECTION 2.06, be repaid only on the last day of the Interest Period with respect thereto. 2.02 AMOUNTS. Except as otherwise permitted by the Lenders the aggregate unpaid principal amount of the Revolving Loans and Swing Line Loans from time to time outstanding, plus Letter of Credit Outstandings shall not exceed at any time, an amount equal to the Total Revolving Credit Commitment. Each Advance hereunder (i) for a Base Rate Loan shall be in an amount of at least $300,000, and (ii) for a Fixed Rate Loan shall be in an amount of $300,000, or an integral multiple thereof. 2.03 INTEREST PERIODS. Each Revolving Loan shall be, at the option of the Borrower specified in the Borrowing Notice furnished to the Agent pursuant to SUBSECTION 2.04 hereof, either a Base Rate Loan or a Fixed Rate Loan, which shall in each case be made or maintained by each Lender at its Applicable Lending Office. Base Rate Loans and Fixed Rate Loans may be outstanding at the same time, PROVIDED, however, there shall not be outstanding at any one time Revolving Loans having more than six (6) different Interest Periods; PROVIDED that all Base Rate Loans shall be treated as having the same Interest Period. No Revolving Loan may bear interest at the Floating CD Rate. 2.04 ADVANCES. (a) An Authorized Representative shall give the Agent (i) at least two (2) Business Days' irrevocable telephonic notice of each Fixed CD Rate Loan (whether representing an additional borrowing hereunder or the Conversion of borrowings hereunder from Base Rate Loans or other Fixed Rate Loans to Fixed CD Rate Loans) prior to 10:30 A.M.; (ii) at least three (3) Business Days' irrevocable telephonic notice of each Eurodollar Rate Loan (whether representing an additional borrowing hereunder or the Conversion of borrowing 24 30 hereunder from Base Rate Loans or other Fixed Rate Loans to Eurodollar Rate Loans) prior to 12:30 P.M.; and (iii) irrevocable telephonic notice of each Base Rate Loan representing an additional borrowing hereunder prior to 12:30 P.M. on the day of such proposed Base Rate Loan. Each such Borrowing Notice, which shall be effective upon receipt by the Agent, shall specify the amount of the borrowing, the Type of Revolving Loan, the date of borrowing and, if a Fixed Rate Loan the Interest Period to be used in the computation of interest. The Authorized Representative shall provide the Agent written confirmation of each such telephonic notice in the form attached hereto as EXHIBIT D-1 with appropriate insertions but failure to provide such confirmation shall not affect the validity of such telephonic notice. Notice of receipt of such Borrowing Notice shall be provided by the Agent to each Lender by telephone with reasonable promptness, but not later than 1:30 P.M. on the same day as the Agent's receipt of such notice. The Agent shall provide each Lender written confirmation of such telephonic confirmation but failure to provide such notice shall not affect the validity of such telephonic notice. (b) Not later than 3:00 P.M. on the date specified for each borrowing hereunder, each Lender shall, pursuant to the terms and subject to the conditions of this Agreement, make the amount of the Revolving Loan or Loans to be made by it on such day available to the Agent, by depositing or transferring the proceeds thereof in immediately available funds at the Principal Office. The amount so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available to the Borrower by depositing the proceeds thereof in immediately available funds, in the Borrower's Account. (c) Notwithstanding the foregoing, if the Agent receives telephonic or written notice from the Issuing Bank that a drawing has been made under any Letter of Credit prior to the Revolving Credit Termination Date, the drawing shall be paid by the Agent without the requirement of notice from the Borrower from immediately available funds which shall be advanced by the Lenders under the Revolving Credit Facility. If a drawing is presented under any Letter of Credit in accordance with the terms thereof notice of such drawing shall be provided promptly by the Issuing Bank to the Agent and the Agent shall provide notice to each other Lender by telephone. If notice to the Lenders of a drawing under any Letter of Credit is given by the Agent at or before 12:00 noon on any Business Day, each other Lender shall, pursuant to the conditions of this Agreement, make a Base Rate Loan in the amount of such Lender's Applicable Commitment Percentage of such drawing and shall pay such amount to the Agent for the account of the Issuing Bank at the Principal Office in Dollars and in immediately available funds before 2:30 P.M. on the same Business Day. If notice to the Lenders of a drawing under a Letter of Credit is given by the Agent after 12:00 noon on any Business Day, each Lender shall, pursuant to the terms and subject to the conditions of this Agreement, make a Base Rate Loan in the amount of such Lender's Applicable Commitment Percentage of such drawing and shall pay such amount to the Agent for the account of the Issuing Bank at the Principal Office in Dollars and in immediately available funds before 12:00 noon on the next following Business Day. Such Base Rate Loan shall be deemed made for a period ending on the following Business Day, which shall be extended automatically to the next succeeding Business Day unless and until the Borrower Converts such Base Rate Loan in accordance with the terms of SECTION 2.11 hereof. 25 31 2.05 PAYMENT OF INTEREST. (a) The Borrower shall pay interest to the Agent for the account of each Lender on the outstanding and unpaid principal amount of each Revolving Loan made by such Lender for the period commencing on the date of such Revolving Loan until such Revolving Loan shall be due at the then applicable Base Rate for Base Rate Loans, CD Rate for Fixed CD Rate Loans or Eurodollar Rate for Eurodollar Rate Loans, as designated by the Authorized Representative pursuant to SECTION 2.04 hereof or as otherwise provided herein; PROVIDED, however, that if any amount shall not be paid when due (at maturity, by acceleration or otherwise), such amount shall bear interest thereafter until paid (i) in the case of a Fixed Rate Loan, until the end of the Interest Period with respect to such Loan, at a rate of two percent (2%) above the then Fixed Rate for such Loan, and (ii) thereafter, and with respect to Base Rate Loans, at a rate of interest per annum which shall be two percent (2%) above the Base Rate or the maximum rate permitted by applicable law, whichever is lower, from the date such amount was due and payable until the date such amount is paid in full. (b) Interest on each Revolving Loan shall be computed on the basis of a year of 360 days and calculated for the actual number of days elapsed. Interest on each Revolving Loan shall be paid (a) quarterly in arrears on the last Business Day of each December, March, June and September beginning March 31, 1998 for each Base Rate Loan and Floating CD Rate, (b) on the last day of the applicable Interest Period for each Fixed Rate Loan and if such Interest Period extends for more than three months or 90 days, respectively, at intervals of three months or 90 days, as appropriate, after the first day of such Interest Period, and (c) upon payment in full of the principal amount of such Loan. 2.06 PAYMENT OF PRINCIPAL. (a) The principal amount of each Revolving Loan shall be due and payable in full on the Revolving Credit Termination Date. The duration of the initial Interest Period for each Revolving Loan shall be as specified in the Borrowing Notice. The Borrower shall have the option to elect the duration of subsequent Interest Periods and to Convert Revolving Loans in accordance with SECTION 2.11 hereof. If the Agent does not receive a notice of election of duration of an Interest Period or to Convert by the time prescribed by SECTION 2.11 hereof, the Borrower shall be deemed to have elected to Convert such Revolving Loan to (or Continue such Loan as) a Base Rate Loan for a period extending to the next succeeding Business Day until the Borrower notifies the Agent in accordance with SECTION 2.11. (b) Each payment of principal (including any prepayment) and payment of interest shall be made to the Agent at the Principal Office, for the account of each Lender's Applicable Lending Office, in Dollars and in immediately available funds before 12:30 P.M. on the date such payment is due. The Agent may, but shall not be obligated to, debit the amount of any such payment which is not made by such time to the Borrower's Account or any ordinary deposit account of the Borrower with the Agent. (c) The Agent shall deem any payment by or on behalf of the Borrower hereunder that is not made both (a) in Dollars and in immediately available funds and (b) prior to 12:30 P.M. (other than if such payment is made by a debit by the Agent to the Borrower's Account) to 26 32 be a non-conforming payment. Any such payment shall not be deemed to be received by the Agent until the time such funds become available funds. Any non-conforming payment may constitute or become a Default or Event of Default. The Agent shall give prompt telephonic notice to the Borrower and each of the Lenders (confirmed in writing) if any payment is non-conforming. Interest shall continue to accrue on any principal as to which a non-conforming payment is made until such funds become available funds (but in no event less than the period from the date of such payment to the next succeeding Business Day) at a rate of interest per annum which shall be two percent (2%) above the rate at which interest was payable on such Revolving Loan on the day immediately preceding the due date or the maximum rate permitted by applicable law, whichever is lower, from such due date until the funds become available. (d) In the event that any payment hereunder or under the Notes becomes due and payable on a day other than a Business Day, then such due date shall be extended to the next succeeding Business Day; provided that interest shall continue to accrue during the period of any such extension. 2.07 BORROWER'S ACCOUNT. The Agent shall render to the Borrower each month a Loan ledger statement and a copy of the statement of the Borrower's Account. The Borrower shall give the Agent written notice of its exceptions to any such statement within 45 days after such statement has been rendered to the Borrower. 2.08 NOTES. Loans made by each Lender shall be evidenced by, and be repayable with interest in accordance with the terms of, a promissory note payable to the order of such Lender in the amount of its Applicable Commitment Percentage of the Total Revolving Credit Commitment, which Note shall be dated the Closing Date or such later date pursuant to an Assignment and Acceptance and shall be duly completed, executed and delivered by the Borrower. 2.09 PRO RATA PAYMENTS. Except as otherwise provided herein, (a) each payment on account of the principal of and interest on the Revolving Loans, and fees (other than (i) payments on Swing Line Loans, which shall be retained by NationsBank, (ii) the Agent's fees payable under SECTION 9.11 hereof, which shall be retained by the Agent, and (iii) Letter of Credit fronting and administrative fees payable under SECTIONS 3.03 and 3.04 hereof, which shall be paid in respect of each Letter of Credit to the Issuing Bank) described in this Agreement shall be made to the Agent for the account of the Lenders pro rata based on their Applicable Commitment Percentages, (b) all payments to be made by the Borrower for the account of each of the Lenders on account of principal, interest and fees, shall be made without set-off or counterclaim, and (c) the Agent will promptly distribute payments received to the Lenders. 2.10 REDUCTION IN COMMITMENT. (a) The Borrower shall have the right from time to time (but not more frequently than once during each quarterly period), upon not less than ten (10) Business Days written notice to the Agent to reduce the Total Revolving Credit Commitment. The Agent shall give each Lender, within one (1) Business Day, telephonic notice (confirmed in writing) of such reduction. Each such reduction shall be in the aggregate amount of $5,000,000 27 33 or such greater amount which is in an integral multiple of $1,000,000, and shall permanently reduce the Revolving Credit Commitment of the Lenders pro rata. No such reduction shall result in the payment of any Fixed Rate Loan other than on the last day of the Interest Period of such Loan, unless amounts due, if any, under SECTION 4.05 are paid upon demand by the Agent. Each reduction of the Total Revolving Credit Commitment shall be accompanied by payment of the Notes to the extent that the sum of Revolving Credit Outstandings, Swing Line Outstandings, and Letter of Credit Outstandings exceeds the Total Revolving Credit Commitment, after giving effect to such reduction, together with accrued and unpaid interest on the amounts prepaid. (b) The amount of the Total Revolving Credit Commitment which shall be available to the Borrower shall be increased and decreased, from time to time by the stated amount of all Swing Line Outstandings and Letter of Credit Outstandings; PROVIDED, that the sum of the Revolving Credit Outstandings, Swing Line Outstandings and Letter of Credit Outstandings shall at no time exceed the Total Revolving Credit Commitment. 2.11 CONVERSIONS AND ELECTIONS OF SUBSEQUENT INTEREST PERIODS. Provided that no Default or Event of Default shall have occurred and be continuing and subject to the limitations set forth below and in ARTICLE IV hereof, the Borrower may with respect to Revolving Loans: (a) on two (2) Business Days' notice to the Agent on or before 10:30 A.M.: (i) elect a subsequent Interest Period for all Fixed CD Rate Loans having the same Interest Period to begin on the last day of the Interest Period for such Fixed CD Rate Loans; (ii) Convert Base Rate Loans to Fixed CD Rate Loans on any date; and (iii) Convert all Eurodollar Rate Loans having the same Interest Period to Fixed CD Rate Loans on the last day of the Interest Period for such Eurodollar Rate Loans. (b) on three (3) Business Days' notice to the Agent on or before 1:00 P.M.: (i) elect a subsequent Interest Period for all Eurodollar Rate Loans having the same Interest Period to begin on the last day of the Interest Period for such Eurodollar Rate Loans; (ii) Convert all Fixed CD Rate Loans having the same Interest Period to Eurodollar Rate Loans on the last day of the Interest Period for such Fixed CD Rate Loans; and (iii) Convert all Base Rate Loans to Eurodollar Rate Loans on any date. Notice of any such elections or Conversions shall specify the effective date of such 28 34 election or Conversion and the Interest Period to be applicable to the Revolving Loan as Continued or Converted. Each election and Conversion pursuant to this SECTION 2.11 shall be subject to the limitations on Fixed CD Rate Loans and Eurodollar Rate Loans set forth in the definition of "Interest Period" herein and in SECTIONS 2.01, 2.02 and 2.03 hereof. All such Continuations or Conversions of Revolving Loans shall be effected pro rata based on the Applicable Commitment Percentages of the Lenders. 2.12 FEES. (a) For the period beginning on the Closing Date and ending on the Revolving Credit Termination Date (or such earlier date on which the Revolving Credit Facility has terminated), the Borrower agrees to pay to the Agent, for the pro rata benefit of the Lenders based on their Applicable Commitment Percentages, an unused fee equal to the Applicable Unused Fee multiplied by the average daily amount by which the Total Revolving Credit Commitment exceeds the Revolving Credit Outstandings without giving effect to Swing Line Outstandings plus Letter of Credit Outstandings. Such payments of fees provided for in this SECTION 2.12 shall be due in arrears on the last day of each December, March, June and September beginning March 31, 1998 to and on the Revolving Credit Termination Date (or such earlier date on which the Revolving Credit Facility has terminated). Notwithstanding the foregoing, so long as any Lender fails to make available any portion of its Revolving Credit Commitment when requested, such Lender shall not be entitled to receive payment of its pro rata share of such fee until such Lender shall make available such portion. Such fee shall be calculated on the basis of a year of 360 days and computed for actual days elapsed. 2.13 DEFICIENCY ADVANCES. No Lender shall be responsible for any default of any other Lender in respect to such other Lender's obligation to make any Revolving Loan hereunder nor shall the Revolving Credit Commitment of any Lender hereunder be increased as a result of such default of any other Lender. Without limiting the generality of the foregoing, in the event any Lender shall fail to advance funds to the Borrower as herein provided, the Agent may in its discretion, but shall not be obligated to, advance under the Note in its favor as a Lender all or any portion of such amount (the "deficiency advance") and shall thereafter be entitled to payments of principal of and interest on such deficiency advance in the same manner and at the same interest rate or rates to which such other Lender would have been entitled had it made such advance under its Note; PROVIDED that, upon payment to the Agent from such other Lender of the entire outstanding amount of such deficiency advance, together with interest thereon, from the most recent date or dates interest was paid to the Agent by the Borrower on each Revolving Loan comprising the deficiency advance at the interest rate per annum for overnight borrowing by the Agent from the Federal Reserve Bank, then such payment shall be credited against the Note of the Agent in full payment of such deficiency advance and the Borrower shall be deemed to have borrowed the amount of such deficiency advance from such other Lender as of the most recent date or dates, as the case may be, upon which any payments of interest were made by the Borrower thereon. 2.14 ADJUSTMENTS BY AGENT. Notwithstanding the construction of "pro rata" to mean based on the Applicable Commitment Percentages and any provisions contained herein for the advancement of funds or distribution of payments on a pro rata basis, the Agent may, in its 29 35 discretion, but shall not be obligated to, adjust downward or upward (but not in excess of any applicable Revolving Credit Commitment) the principal amount of any Revolving Loan to be made by any Lender to the nearest amount which is evenly divisible by $100, and make appropriate related adjustment in the distribution of payments of principal and interest on the Revolving Loans. 2.15 USE OF PROCEEDS. The proceeds of the Loans made pursuant to the Revolving Credit Facility hereunder shall be used by the Borrower to provide for working capital needs of the Borrower, to provide Letters of Credit to the Borrower and Titania, and to fund other general corporate needs. 2.16. EXTENSION OF REVOLVING CREDIT TERMINATION DATE. At the request of the Borrower the Lenders may, in their sole discretion, elect to extend the Revolving Credit Termination Date then in effect for two successive periods of one year each. The Borrower shall notify the Lenders of its request for each such extension by delivering to the Agent and the Lenders notice of such request signed by an Authorized Representative not more than sixty (60) days nor less than thirty (30) days prior to the first (as to the first such extension period) or second (as to the second such extension period and provided that the Lenders shall theretofore have previously granted a one year extension) anniversary of the Closing Date. Approval of each such extension is at the sole discretion of the Lenders and is subject to approval by all of the Lenders. If the Lenders shall elect to so extend, the Agent shall notify the Borrower in writing within ninety (90) days of its receipt of such request for extension of the decision of the Lenders of whether to extend the Revolving Credit Termination Date. Failure by the Agent to give such notice shall constitute refusal by the Lenders to extend the Revolving Credit Termination Date. 2.17 SWING LINE. Notwithstanding any other provision of this Agreement to the contrary, in order to administer the Revolving Credit Facility in an efficient manner and to minimize the transfer of funds between the Agent and the Lenders, NationsBank shall make available Swing Line Loans to the Borrower prior to the Revolving Credit Termination Date. NationsBank shall not make any Swing Line Loan pursuant hereto (i) if to the actual knowledge of NationsBank the Borrower is not in compliance with all the conditions to the making of Revolving Loans set forth in this Agreement, (ii) if after giving effect to such Swing Line Loan, the Swing Line Outstandings exceed $15,000,000, or (iii) if after giving effect to such Swing Line Loan, the sum of the Swing Line Outstandings, Revolving Credit Outstandings and Letter of Credit Outstandings exceeds the Total Revolving Credit Commitment. Loans made pursuant to this SECTION 2.17 shall be limited to Floating CD Rate Loans. The Borrower may borrow, repay and reborrow under this SECTION 2.17. Unless notified to the contrary by NationsBank, borrowings under the Swing Line may be made in amounts which are integral multiples of $50,000 upon telephonic request by an Authorized Representative of the Borrower made to NationsBank not later than 12:30 a.m. on the Business Day of the requested borrowing. Each such Borrowing Notice, which shall be effective upon receipt by NationsBank, shall specify the amount of the borrowing, and the date of borrowing. An Authorized Representative shall provide NationsBank written confirmation of each such telephonic notice on the same day by telefacsimile transmission in the form attached hereto as EXHIBIT D-2, with appropriate insertions 30 36 but failure to provide such confirmation shall not affect the validity of such telephonic notice. Unless notified to the contrary by NationsBank, each repayment of a Swing Line Loan shall be in an amount which is an integral multiple of $50,000. If the Borrower instructs NationsBank to debit any demand deposit account of the Borrower in the amount of any payment with respect to a Swing Line Loan, or NationsBank otherwise receives repayment after 12:30 p.m. on a Business Day such payment shall be deemed received on the next Business Day. Swing Line Loans shall bear interest at the Floating CD Rate, and the interest payable on Swing Line Loans is solely for the account of NationsBank. Interest on Swing Line Loans shall be paid quarterly in arrears on the last Business Day of each December, March, June and September beginning March 31, 1998. The Swing Line Outstandings shall be evidenced by the Note delivered to NationsBank pursuant to SECTION 2.08 hereof. Upon the making of a Swing Line Loan, each Lender shall be deemed to have purchased from NationsBank a Participation therein in an amount equal to that Lender's Applicable Commitment Percentage of such Swing Line Loan. Upon demand made by NationsBank, each Lender shall, according to its Lender's Applicable Commitment Percentage of such Swing Line Loan, promptly provide to NationsBank its purchase price therefor in an amount equal to its Participation therein. Any Advance made by a Lender pursuant to demand of NationsBank of the purchase price of its Participation shall be deemed a Base Rate Loan until the Borrower Converts such Base Rate Loan in accordance with the terms of SECTION 2.11 hereof. The obligation of each Lender to so provide its purchase price to NationsBank shall be absolute and unconditional and shall not be affected by the occurrence of an Event of Default or any other occurrence or event. The Borrower at its option may request a Revolving Loan pursuant to SECTION 2.01 in an amount sufficient to repay the Swing Line Loan on any date and the Agent shall provide the proceeds of such Revolving Loan to NationsBank in the amount necessary to repay such Swing Line Out standings (which NationsBank shall then apply to such repayment) and credit any balance of the Revolving Loan in immediately available funds in the manner directed by the Borrower pursuant to SECTION 2.04(B) hereof. The proceeds of such Advances shall be paid to NationsBank for application to the Swing Line Outstandings and the Lenders shall then be deemed to have made Revolving Loans in the amount of such Advances. The Swing Line shall continue in effect until the earlier of (i) the occurrence of a Default, or (ii) the Revolving Credit Termination Date. 31 37 ARTICLE III LETTERS OF CREDIT 3.01 LETTERS OF CREDIT. The Issuing Bank agrees, subject to the terms and conditions of this Agreement, upon request of the Borrower to issue from time to time for the account of the Borrower or Titania Letters of Credit; PROVIDED, that (i) the Letters of Credit Outstandings shall not exceed the Total Letter of Credit Commitment and (ii) to the extent required by the Issuing Bank such request shall be accompanied by an application for letter of credit in form and content acceptable to the Issuing Bank. No Letter of Credit shall be issued by the Issuing Bank with an expiry date occurring subsequent to the Revolving Credit Termination Date. The Issuing Bank shall not issue any Letter of Credit if, after giving effect thereto, Letter of Credit Outstandings plus Swing Line Outstandings plus Revolving Credit Outstandings exceeds the Total Revolving Credit Commitment, without regard to any increase or decrease pursuant to SECTION 2.10(B). 3.02 REIMBURSEMENT. (a) The Borrower hereby unconditionally agrees to pay to the Issuing Bank on demand at its Applicable Lending Office (i) all amounts required to pay all drafts drawn or purporting to be drawn under the Letters of Credit issued by it and (ii) the face amount of each draft accepted by the Issuing Bank on the maturity date of such draft, or in the event of a Default or Event of Default, and any and all expenses of every kind incurred by the Issuing Bank in connection with the Letters of Credit and in any event and without demand to place in possession of the Issuing Bank (which shall include Advances under the Revolving Credit Facility if permitted by SECTION 2.04(C) hereof) sufficient funds to pay all debts and liabilities arising under any Letter of Credit. The Borrower's obligations to pay each Issuing Bank under this SECTION 3.02, and the Issuing Bank's right to receive the same, shall be absolute and unconditional and shall not be affected by any circumstance whatsoever. The Issuing Bank may charge any account, including the Borrower's Account, the Borrower may have with it for any and all amounts the Issuing Bank pays under a Letter of Credit, plus commissions, charges and expenses as from time to time agreed to by the Issuing Bank and the Borrower; PROVIDED that to the extent permitted by SECTION 2.04(C), amounts shall be paid pursuant to Advances under the Revolving Credit Facility. The Borrower agrees that the Issuing Bank may, in its sole discretion, accept or pay, as complying with the terms of any Letter of Credit issued by it, any drafts or other documents otherwise in order which may be signed or issued by an administrator, executor, trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, liquidator, receiver, attorney in fact or other legal representative of a party who is authorized under such Letter of Credit to draw or issue any drafts or other documents. The Borrower agrees to pay the Issuing Bank interest on any amounts not paid when due hereunder at the Base Rate plus two percent (2%), or such lower rate as may be required by law. (b) In accordance with the provisions of SECTION 2.04(C) hereof, the Issuing Bank shall notify the Agent (and shall also notify the Borrower) of any drawing under any Letter of Credit issued for account of the Borrower or the Borrower and Titania as promptly as practicable 32 38 following the receipt by the Issuing Bank of such drawing. In addition, each Issuing Bank shall notify the Agent of (i) any proposed issuance of a Letter of Credit, including the proposed stated amount thereof, (ii) any reduction or increase in the stated amount of any previously issued Letter of Credit, and (iii) any surrender, cancellation or expiration of any Letter of Credit. (c) Each Lender (other than the Issuing Bank) shall automatically acquire on the date of issuance thereof, or with respect to Existing LCs on the Closing Date, a Participation in the Issuing Bank's liability in respect of each Letter of Credit in an amount equal to such Lender's Applicable Commitment Percentage of such liability, and to the extent that the Borrower is obligated to pay the Issuing Bank under SECTION 3.02(A), each Lender (other than the Issuing Bank) thereby shall absolutely, unconditionally and irrevocably assume, and shall be unconditionally obligated to pay to the Issuing Bank as hereinafter described, its Applicable Commitment Percentage of the Issuing Bank's liability under such Letter of Credit. Prior to the Revolving Credit Termination Date, each Lender (including the Issuing Bank in its capacity as a Lender) shall, subject to the terms and conditions of ARTICLE II, make a Base Rate Loan to the Borrower by paying to the Agent for the account of the Issuing Bank at the Principal Office in Dollars and in immediately available funds, an amount equal to its Applicable Commitment Percentage of any drawing under a Letter of Credit, all as described and pursuant to SECTION 2.04(C). With respect to drawings under any of the Letters of Credit, each Lender, upon receipt from the Agent of notice of a drawing in the manner described in SECTION 2.04(C), shall promptly pay to the Agent for the account of the Issuing Bank, prior to the applicable time set forth in SECTION 2.04(C), its Applicable Commitment Percentage of such drawing. Simultaneously with the making of each such payment by a Lender to the Issuing Bank, such Lender shall, automatically and without any further action on the part of the Issuing Bank or such Lender, acquire a Participation in an amount equal to such payment (excluding the portion thereof constituting interest) in the related Reimbursement Obligation of the Borrower. The Reimbursement Obligations of the Borrower shall be immediately due and payable whether by Advances made in accordance with SECTION 2.04(C) or otherwise. Each Lender's obligation to make payment to the Agent for the account of the Issuing Bank pursuant to this SECTION 3.02(C), and the Issuing Bank's right to receive the same, shall be absolute and unconditional, shall not be affected by any circumstance whatsoever and shall be made without any offset, abatement, withholding or reduction whatsoever. If any Lender is obligated to pay but does not pay amounts to the Agent for the account of the Issuing Bank in full upon such request as required by this SECTION 3.02(C), such Lender shall, on demand, pay to the Agent for the account of the Issuing Bank interest on the unpaid amount for each day during the period commencing on the date of notice given to such Lender pursuant to SECTION 2.04(C) until such Lender pays such amount to the Agent for the account of the Issuing Bank in full at the interest rate per annum for overnight borrowing by the Issuing Bank from the Federal Reserve Bank. (d) Promptly following the end of each calendar month, each Issuing Bank shall deliver to the Agent, and the Agent shall deliver to each Lender, a notice describing the aggregate undrawn amount of all Letters of Credit outstanding at the end of such month. Upon the request of any Lender from time to time, the Issuing Bank shall deliver to the Agent, and the Agent shall deliver to such Lender, any other information reasonably requested by such Lender 33 39 with respect to each Letter of Credit then outstanding. (e) The issuance by the Issuing Bank of each Letter of Credit shall, in addition to the conditions precedent set forth in SECTION 5.01 hereof, be subject to the conditions that such Letter of Credit be in such form, contain such terms and support such transactions or obligations as shall be reasonably satisfactory to the Issuing Bank consistent with the Issuing Bank's then current practices and procedures with respect to similar letters of credit. All Letters of Credit (other than Existing LCs) shall be issued pursuant to and subject to the Uniform Customs and Practice for Documentary Credits, 1993 revision, International Chamber of Commerce Publication No. 500 and all subsequent amendments and revisions thereto. The Borrower shall have executed and delivered such other instruments and agreements relating to such Letter of Credit as the Issuing Bank shall have reasonably requested consistent with such practices and procedures. (f) Without duplication of SECTION 9.07 hereof, the Borrower hereby indemnifies and holds harmless the Issuing Bank, each other Lender and the Agent from and against any and all claims and damages, losses, liabilities, costs or expenses which the Issuing Bank, such other Lender or the Agent may incur (or which may be claimed against the Issuing Bank, such other Lender or the Agent) by any Person by reason of or in connection with the issuance or transfer of or payment or failure to pay under any Letter of Credit; PROVIDED that the Borrower shall not be required to indemnify the Issuing Bank, any other Lender or the Agent for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, (i) caused by the willful misconduct or gross negligence of the party to be indemnified, (ii) caused by the Issuing Bank's failure to pay under any Letter of Credit after the presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit, unless such payment is prohibited by any law, regulation, court order or decree, or (iii) paid or payable by any Lender under SECTIONS 2.14 or 9.10 hereof. (g) Without limiting the Borrower's rights as set forth in SECTION 3.02(F) above, the obligation of the Borrower to reimburse the Issuing Banks immediately for drawings made under Letters of Credit shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement and such Letters of Credit, under all circumstances whatsoever, including, without limitation, the following circumstances: (i) any lack of validity or enforceability of the Letter of Credit, the obligation supported by the Letter of Credit or any other agreement or instrument relating thereto (collectively, the "Related Documents"); (ii) any amendment or waiver of or any consent to or departure from all or any of the Related Documents; (iii) the existence of any claim, setoff, defense or other rights which the Borrower may have at any time against any beneficiary or any transferee of a Letter of Credit (or any persons or entities for whom any such beneficiary or any 34 40 such transferee may be acting), Agent, Lenders or any other person or entity, whether in connection with the Loan Documents, the Related Documents or any unrelated transaction; (iv) any breach of contract or other dispute between the Borrower and any beneficiary or any transferee of a Letter of Credit (or any persons or entities for whom such beneficiary or any such transferee may be acting), Agent, Lenders or any other person or entity; (v) any draft, statement or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; (vi) payment by the Issuing Bank under the Letter of Credit against presentation of a sight draft or certificate which does not comply with the terms of the Letter of Credit; (vii) any delay, extension of time, renewal, compromise or other indulgence or modification granted or agreed to by Agent, with or without notice to or approval by the Borrower in respect of any of the Borrower's indebtedness under this Agreement; or (viii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing. 3.03 LETTER OF CREDIT FEE. For the period beginning on the Closing Date and ending on the Revolving Credit Termination Date, the Borrower agrees to pay to the Agent, for the pro rata benefit of the Lenders based on their Applicable Commitment Percentages, a fee equal to the Applicable Margin for Eurodollar Rate Loans from time to time in effect times the stated amount of outstanding Letters of Credit. Such fees provided in this SECTION 3.03 shall be paid quarterly in arrears on the last Business Day of each December, March, June and September beginning March 31, 1998 and shall be calculated on the basis of a year of 360 days and computed for actual days elapsed. In the event that the risk based capital required to be maintained by the Issuing Bank for Letters of Credit securing performance by the Borrower or Titania shall be reduced below that required for Letters of Credit providing credit support, the Borrower, the Agent, the Issuing Banks and the Lenders may agree in writing without further amendment to this Agreement to an adjustment in the amount of the letter of credit fee payable with respect to such Letters of Credit securing performance. 3.04 ADMINISTRATIVE FEES. The Borrower shall pay to the Issuing Bank a fronting fee of 0.05% (5 basis points) per annum of the stated amount of all Letters of Credit issued by such Issuing Bank, such fee to be paid quarterly in arrears on the last Business Day of each December, March, June and September beginning March 31, 1998. The fronting fee shall be calculated on the basis of a year of 360 days and computed for actual days elapsed. The Borrower shall also 35 41 pay to each Issuing Bank administrative and other fees, if any, in connection with the Letters of Credit in such amounts and at such times as the Issuing Banks and the Borrower shall agree from time to time. 36 42 ARTICLE IV CHANGE IN CIRCUMSTANCES 4.01 INCREASED COST AND REDUCED RETURN. (a) If, after the date hereof, the adoption of any applicable law, rule, or regulation, or any change in any applicable law, rule, or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such governmental authority, central bank, or comparable agency: (i) shall subject such Lender (or its Applicable Lending Office) to any tax, duty, or other charge with respect to any Fixed Rate Loans, its Note, or its obligation to make Fixed Rate Loans, or change the basis of taxation of any amounts payable to such Lender (or its Applicable Lending Office) under this Agreement or its Note in respect of any Fixed Rate Loans (other than taxes imposed on the overall net income of such Lender by the jurisdiction in which such Lender has its principal office or such Applicable Lending Office and franchise taxes); (ii) shall impose, modify, or deem applicable any reserve, special deposit, assessment, or similar requirement (other than the Applicable Reserve Requirement utilized in the determination of the Eurodollar Rate and the CD Rate) relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, such Lender (or its Applicable Lending Office), including the Revolving Credit Commitment of such Lender hereunder; or (iii) shall impose on such Lender (or its Applicable Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting this Agreement or its Note or any of such extensions of credit or liabilities or commitments; and the result of any of the foregoing is to increase the cost to such Lender (or its Applicable Lending Office) of making, Converting into, Continuing, or maintaining any Fixed Rate Loans or to reduce any sum received or receivable by such Lender (or its Applicable Lending Office) under this Agreement or its Note with respect to any Fixed Rate Loans, then the Borrower shall pay to such Lender on demand such amount or amounts as will compensate such Lender for such increased cost or reduction. If any Lender requests compensation by the Borrower under this SECTION 4.01(A), the Borrower may, by notice to such Lender (with a copy to the Agent), suspend the obligation of such Lender to make or Continue Loans of the Type with respect to which such compensation is requested, or to Convert Loans of any other Type into Loans of such Type, until the event or condition giving rise to such request ceases to be in effect (in which case the provisions of SECTION 4.04 shall be applicable); PROVIDED that such suspension shall not affect the right of such Lender to receive the compensation so requested. 37 43 (b) If, after the date hereof, any Lender shall have determined that the adoption of any applicable law, rule, or regulation regarding capital adequacy or any change therein or in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such governmental authority, central bank, or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of such Lender's obligations hereunder to a level below that which such Lender or such corporation could have achieved but for such adoption, change, request, or directive (taking into consideration its policies with respect to capital adequacy), then from time to time upon demand the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. (c) Each Lender shall promptly notify the Borrower and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Lender to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the reasonable judgment of such Lender, be otherwise disadvantageous to it. Any Lender claiming compensation under this Section shall furnish to the Borrower and the Agent a statement setting forth the additional amount or amounts to be paid to it hereunder which shall be conclusive in the absence of manifest error. In determining such amount, such Lender may use any reasonable averaging and attribution methods. 4.02 LIMITATION ON TYPES OF LOANS. If on or prior to the first day of any Interest Period for any Fixed Rate Loan: (a) the Agent determines (which determination shall be conclusive) that by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate or CD Rate, as the case may be, for such Interest Period; or (b) the Required Lenders determine (which determination shall be conclusive) and notify the Agent that the Eurodollar Rate or the CD Rate will not adequately and fairly reflect the cost to the Lenders of funding Eurodollar Rate Loans or CD Rate Loans, as the case may be, for such Interest Period; then the Agent shall give the Borrower prompt notice thereof specifying the relevant Type of Loans and the relevant amounts or periods, and so long as such condition remains in effect, the Lenders shall be under no obligation to make additional Loans of such Type, Continue Loans of such Type, or to Convert Loans of any other Type into Loans of such Type and the Borrower shall, on the last day(s) of the then current Interest Period(s) for the outstanding Loans of the affected Type, either prepay such Loans or Convert such Loans into another Type of Loan in accordance with the terms of this Agreement. 38 44 4.03 ILLEGALITY. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to make, maintain, or fund Eurodollar Rate Loans hereunder, then such Lender shall promptly notify the Borrower thereof and such Lender's obligation to make or Continue Eurodollar Rate Loans and to Convert other Types of Loans into Eurodollar Rate Loans shall be suspended until such time as such Lender may again make, maintain, and fund Eurodollar Rate Loans (in which case the provisions of SECTION 4.04 shall be applicable). 4.04 TREATMENT OF AFFECTED LOANS. If the obligation of any Lender to make a particular Type of Fixed Rate Loan or to Continue, or to Convert Loans of any other Type into, Loans of a particular Type shall be suspended pursuant to SECTION 4.01 OR 4.03 hereof (Loans of such Type being herein called "AFFECTED LOANS" and such Type being herein called the "AFFECTED TYPE"), such Lender's Affected Loans shall be automatically Converted into Base Rate Loans on the last day(s) of the then current Interest Period(s) for Affected Loans (or, in the case of a Conversion required by SECTION 4.03 hereof, on such earlier date as such Lender may specify to the Borrower with a copy to the Agent) and, unless and until such Lender gives notice as provided below that the circumstances specified in SECTION 4.01 OR 4.03 hereof that gave rise to such Conversion no longer exist: (a) to the extent that such Lender's Affected Loans have been so Converted, all payments and prepayments of principal that would otherwise be applied to such Lender's Affected Loans shall be applied instead to its Base Rate Loans; and (b) all Loans that would otherwise be made or Continued by such Lender as Loans of the Affected Type shall be made or Continued instead as Base Rate Loans, and all Loans of such Lender that would otherwise be Converted into Loans of the Affected Type shall be Converted instead into (or shall remain as) Base Rate Loans. If such Lender gives notice to the Borrower (with a copy to the Agent) that the circumstances specified in SECTION 4.01 OR 4.03 hereof that gave rise to the Conversion of such Lender's Affected Loans pursuant to this SECTION 4.04 no longer exist (which such Lender agrees to do promptly upon such circumstances ceasing to exist) at a time when Loans of the Affected Type made by other Lenders are outstanding, such Lender's Base Rate Loans shall be automatically Converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Loans of the Affected Type, to the extent necessary so that, after giving effect thereto, all Loans held by the Lenders holding Loans of the Affected Type and by such Lender are held pro rata (as to principal amounts, Types, and Interest Periods) in accordance with their respective Revolving Credit Commitments. 4.05 COMPENSATION. Upon the request of any Lender, the Borrower shall pay to such Lender such amount or amounts as shall be sufficient (in the reasonable opinion of such Lender) to compensate it for any loss, cost, or expense (including loss of anticipated profits) incurred by it as a result of: 39 45 (a) any payment, prepayment, or Conversion of a Fixed Rate Loan for any reason (including, without limitation, the acceleration of the Loans pursuant to SECTION 8.01) on a date other than the last day of the Interest Period for such Loan; or (b) any failure by the Borrower for any reason (including, without limitation, the failure of any condition precedent specified in ARTICLE V to be satisfied) to borrow (other than by reason of the failure of a Lender or Lenders to make funds available without cause), Convert, Continue, or prepay a Fixed Rate Loan on the date for such borrowing, Conversion, Continuation, or prepayment specified in the relevant notice of borrowing, prepayment, Continuation, or Conversion under this Agreement. Any Lender claiming compensation under this SECTION 4.05 shall furnish the Borrower and the Agent a statement setting forth in reasonable detail the amounts to be paid to it hereunder and the determination thereof shall be conclusive absent manifest error. 4.06 TAXES. (a) Any and all payments by the Borrower to or for the account of any Lender or the Agent hereunder or under any other Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, EXCLUDING, in the case of each Lender and the Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender (or its Applicable Lending Office) or the Agent (as the case may be) is organized or any political subdivision thereof (all such non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings, and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable under this Agreement or any other Loan Document to any Lender or the Agent, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this SECTION 4.06) such Lender or the Agent receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law, and (iv) the Borrower shall furnish to the Agent, at its address referred to in SECTION 10.2, the original or a certified copy of a receipt evidencing payment thereof. (b) In addition, the Borrower agrees to pay any and all present or future stamp or documentary taxes and any other excise or property taxes or charges or similar levies which arise from any payment made under this Agreement or any other Loan Document or from the execution or delivery of, or otherwise with respect to, this Agreement or any other Loan Document (hereinafter referred to as "Other Taxes"). (c) The Borrower agrees to indemnify each Lender and the Agent for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this SECTION 4.06) paid by such Lender or 40 46 the Agent (as the case may be) and any liability (including penalties, interest, and expenses) arising therefrom or with respect thereto. (d) Each Lender organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Lender listed on the signature pages hereof and on or prior to the date on which it becomes a Lender in the case of each other Lender, and from time to time thereafter if requested in writing by the Borrower or the Agent (but only so long as such Lender remains lawfully able to do so), shall provide the Borrower and the Agent with (i) Internal Revenue Service Form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States, (ii) Internal Revenue Service Form W-8 or W-9, as appropriate, or any successor form prescribed by the Internal Revenue Service, and (iii) any other form or certificate required by any taxing authority (including any certificate required by Sections 871(h) and 881(c) of the Internal Revenue Code), certifying that such Lender is entitled to an exemption from or a reduced rate of tax on payments pursuant to this Agreement or any of the other Loan Documents. (e) For any period with respect to which a Lender has failed to provide the Borrower and the Agent with the appropriate form pursuant to SECTION 4.06(D) (unless such failure is due to a change in treaty, law, or regulation occurring subsequent to the date on which a form originally was required to be provided), such Lender shall not be entitled to indemnification under SECTION 4.06(A) OR 4.06(B) with respect to Taxes imposed by the United States; PROVIDED, HOWEVER, that should a Lender, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Lender shall reasonably request to assist such Lender to recover such Taxes at such Lender's expense. (f) If the Borrower is required to pay additional amounts to or for the account of any Lender pursuant to this SECTION 4.06, then such Lender will agree to use reasonable efforts to change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Lender, is not otherwise disadvantageous to such Lender. (g) Within thirty (30) days after the date of any payment of Taxes, the Borrower shall furnish to the Agent evidence of such payment. (h) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this SECTION 4.06 shall survive the termination of the Revolving Credit Commitments and the payment in full of the Notes. 41 47 4.07 REPLACEMENT BANKS. The Borrower may, in its sole discretion, on ten (10) Business Days' prior written notice to the Agent and a Lender, cause a Lender who has either (a) incurred increased costs or is unable to make Fixed Rate Loans, (b) failed to fund any requested Advance, or (c) made any claim for taxes under SECTION 4.06, to (and such Lender shall) assign, pursuant to SECTION 10.01, all of its rights and obligations under this Agreement to an Eligible Assignee designated by the Borrower which is willing to become a Lender for a purchase price equal to the outstanding principal amount of the Loans payable to such Lender plus any accrued but unpaid interest on such Loans, any accrued but unpaid fees with respect to such Lender's Revolving Credit Commitment and any other amount payable to such Lender under this Agreement; PROVIDED, HOWEVER, that any expenses or other amounts which would be owing to such Lender pursuant to any indemnification provision hereof (including, if applicable, SECTION 4.05) shall be payable by the Borrower as if the Borrower had prepaid the Loans of such Lender rather than such Lender having assigned its interest hereunder. The Borrower or the assignee shall pay the applicable processing fee under SECTION 10.1. 42 48 ARTICLE V CONDITIONS TO MAKING LOANS AND ISSUING LETTERS OF CREDIT 5.01 CONDITIONS OF INITIAL ADVANCE AND ISSUANCE OF LETTERS OF CREDIT. The obligation of the Lenders to make the initial Advance and of the Issuing Bank to issue the Letters of Credit is subject to the conditions precedent that the Agent shall have received, prior to the Initial Advance or the issuance of Letters of Credit (other than Existing LCs) in form and substance satisfactory to the Agent the following: (a) executed originals of each of the Loan Documents, together with all schedules and exhibits thereto in form and substance satisfactory to the Agent, NMSI, and the Lenders; (b) favorable written opinions of counsel to the Borrower dated the Closing Date, addressed to the Agent and the Lenders and satisfactory to Smith Helms Mulliss & Moore, special counsel to the Agent, substantially in the form of EXHIBIT G-1 attached hereto; (c) resolutions of the board of directors (or of the appropriate committee thereof) of the Borrower certified by its secretary or assistant secretary as of the Closing Date, appointing the initial Authorized Representative(s) and approving and adopting the Loan Documents, and authorizing the execution and delivery thereof; specimen signatures of officers of the Borrower executing the Loan Documents to which it is a party, certified by the Secretary or Assistant Secretary of the Borrower; (d) the charter documents of the Borrower certified as of a recent date by the Secretary of State of its state of incorporation; (e) the by-laws of the Borrower certified as of the Closing Date as true and correct by the secretary or assistant secretary of the Borrower; (f) certificates issued as of a recent date by the Secretary of State of the state of the incorporation of the Borrower as to the corporate good standing of the Borrower therein; (g) appropriate certificates of qualification to do business and of corporate good standing issued as of a recent date by the Secretary of State of each jurisdiction in which the failure to be qualified to do business could materially adversely affect the business, operations or conditions, financial or otherwise, of the Borrower; (h) favorable written opinions of counsel to the Guarantors dated the Closing Date, addressed to the Agent and the Lenders and satisfactory to Smith Helms Mulliss & Moore, special counsel to the Agent, substantially in the form of 43 49 EXHIBIT G-2 attached hereto; (i) resolutions of the board of directors (or of the appropriate committee thereof) of each Guarantor certified by its secretary or assistant secretary as of the Closing Date, approving and adopting the Loan Documents to be executed by such Guarantor, and authorizing the execution and delivery thereof; specimen signatures of officers of the Guarantor executing the Loan Documents, certified by the Secretary or Assistant Secretary of such Guarantor; (j) the charter documents of each Guarantor certified as of a recent date by the Secretary of State of its state of formation; (k) the by-laws of each Guarantor certified as of the Closing Date as true and correct by the respective secretary or assistant secretary of such Guarantor; (l) certificates issued as of a recent date by the Secretary of State of the state of the incorporation of each Guarantor as to the corporate good standing of the Guarantor therein; (m) appropriate certificates of qualification to do business and of corporate good standing issued as of a recent date by the Secretary of State of each jurisdiction in which the failure to be qualified to do business could materially adversely affect the business, operations or conditions, financial or otherwise, of each Guarantor; (n) closing statement; (o) notice of appointment of the Authorized Representative(s); (p) evidence of insurance complying with the requirements of SECTION 7.02 of this Agreement; (q) all fees payable by the Borrower on the Closing Date to the Agent and the Lenders; and (r) such other documents, instruments, certificates and opinions as the Agent or any Lender may reasonably request on or prior to the Closing Date in connection with the consummation of the transactions contemplated hereby. The obligation of the Lenders to make the initial Advance and of the Issuing Bank to issue the Letters of Credit is further subject to the condition precedent that in the good faith judgment of the Agent there shall not have occurred a material adverse change since December 31, 1996 in the business, assets, operations, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries, or in the facts and information regarding such entities as represented to date. 44 50 5.02 CONDITIONS OF LOANS. The obligations of the Lenders to make any Advance, and the Issuing Banks to issue Letters of Credit, hereunder subsequent to the Closing Date are subject to the satisfaction of the following conditions: (a) the Agent or, in the case of Swing Line Loans, NationsBank, shall have received a notice of such borrowing or request if required by SECTION 2.04 or 2.17 hereof; (b) the representations and warranties of the Borrower set forth in ARTICLE VI hereof and in each of the other Loan Documents shall be true and correct on and as of the date of such Advance or Swing Line Loan or issuance of such Letters of Credit, as the case may be, with the same effect as though such representations and warranties had been made on and as of such date, except to the extent that such representations and warranties expressly relate to an earlier date and except that the financial statements referred to in SECTION 6.03 shall be deemed to be those financial statements most recently delivered to the Agent and the Lenders pursuant to SECTION 7.17 hereof; (c) in the case of the issuance of a Letter of Credit, the Borrower shall have, upon request of the Issuing Bank, executed and delivered to the Issuing Bank an application and agreement for Letter of Credit in form and content acceptable to the Issuing Bank with such other instruments and documents as it shall request; (d) at the time of such Advance, Swing Line Loan or issuance of each Letter of Credit, no Default or Event of Default specified in ARTICLE VIII hereof, shall have occurred and be continuing; (e) immediately after giving effect to a Loan or Letter of Credit (i) the aggregate principal balance of all outstanding Loans and Participations for each Lender shall not exceed such Lender's Applicable Commitment Percentage of the Total Revolving Credit Commitment, and (ii) the aggregate principal balance of the sum of Revolving Credit Outstandings, Swing Line Outstandings and Letter of Credit Outstandings shall not exceed the Total Revolving Credit Commitment; and (f) immediately after giving effect to a Swing Line Loan the aggregate Swing Line Outstandings shall not exceed $15,000,000. 45 51 ARTICLE VI REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Lenders with respect to itself and to its Subsidiaries, to the extent indicated, that: 6.01 SUBSIDIARIES. SCHEDULE 6.01 attached hereto states the name of each of the Borrower's Subsidiaries, its jurisdiction of incorporation and the percentage of its Voting Stock owned by the Borrower and/or its Subsidiaries. Those Subsidiaries listed in Section 1 of said SCHEDULE 6.01 constitute Subsidiaries. The Borrower and each Subsidiary has good and marketable title to all of the shares it purports to own of the stock of each Subsidiary, free and clear in each case of any Lien. All such shares have been duly issued and are fully paid and non-assessable. 6.02 CORPORATE ORGANIZATION AND AUTHORITY. The Borrower, and each Subsidiary, (a) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation; (b) has all requisite power and authority and all necessary licensees and permits to own and operate its Properties and to carry on its business as now conducted and as presently proposed to be conducted; and (c) is duly licensed or qualified and is in good standing as a foreign corporation in each jurisdiction wherein the nature of the business transacted by it or the nature of the property owned or leased by it makes such licensing or qualification necessary. 6.03 FINANCIAL STATEMENTS. (a) The consolidated balance sheets of the Borrower and its consolidated Subsidiaries as of the Sunday closest to December 31 in each of the years 1995 to 1996, both inclusive, and the statements of income and retained earnings and changes in cash flows for the fiscal years ended on said dates accompanied by a report thereon containing an opinion unqualified as to scope limitations imposed by the Borrower and otherwise without qualification except as therein noted, by Arthur Andersen, LLP, have been prepared in accordance with GAAP consistently applied except as therein noted, are correct and complete and present fairly the financial position of the Borrower and its consolidated Subsidiaries as of such dates and the results of their operations and changes in their cash flows for such periods. The unaudited consolidated balance sheets of the Borrower and its consolidated Subsidiaries as of September 30, 1997, and the unaudited statements of income and retained earnings and changes in financial position for the nine-month period ended on said date prepared by the Borrower have been prepared in accordance with generally accepted accounting principles consistently applied, are correct and complete and present fairly the financial position of the Borrower and its consolidated Subsidiaries as of 46 52 said date and the results of their operations and changes in their cash flows for such period. (b) Since September 30, 1997, there has been no change in the condition, financial or otherwise, of the Borrower and its consolidated Subsidiaries as shown on the consolidated balance sheet as of such date except changes in the ordinary course of business, none of which individually or in the aggregate has been materially adverse. 6.04 INDEBTEDNESS. SCHEDULE 6.04 attached hereto correctly describes all Current Debt, Funded Debt and Capitalized Leases of the Borrower and its Subsidiaries outstanding on the Closing Date. 6.05 FULL DISCLOSURE. The financial statements referred to in SECTION 6.03 hereof do not, nor does this Agreement or any other written statement furnished by the Borrower to you in connection with the issuance of the Notes, contain any untrue statement of a material fact or omit a material fact necessary to make the statements contained therein or herein not misleading. There is no fact peculiar to the Borrower or its Subsidiaries which the Borrower has not disclosed to you in writing which materially affects adversely nor, so far as the Borrower can now foresee, will materially affect adversely the Properties, business, prospects, profits or condition (financial or otherwise) of the Borrower and its Subsidiaries, taken as a whole. 6.06 PENDING LITIGATION. Except as set forth in SCHEDULE 6.06, there are no proceedings pending or, to the knowledge of the Borrower threatened, against or affecting the Borrower or any Subsidiary in any court or before any governmental authority or arbitration board or tribunal which reasonably may result in a judgment in excess of $1,000,000 which judgment is either (i) not covered by insurance or insurance is contested, or (ii) not covered by reserves set aside by the Borrower in an amount equal to such judgment. 6.07 TITLE TO PROPERTIES. The Borrower and each Subsidiary has good and marketable title in fee simple (or its equivalent under applicable law) to all material parcels of real property and has good title to all the other material items of Property it purports to own, including that reflected in the most recent balance sheet referred to in SECTION 6.03 hereof except as sold or otherwise disposed of in the ordinary course of business and except for Liens permitted by this Agreement. 6.08 PATENTS AND TRADEMARKS. The Borrower and each Subsidiary owns or possesses all the patents, trademarks, trade names, service marks, copyright, licenses and rights with respect to the foregoing necessary for the present and planned future conduct of its business, without any known conflict with the rights of others. 6.09 ISSUANCE IS LEGAL AND AUTHORIZED. The issuance of the Notes and compliance by the Borrower and the Guarantors with all of the provisions of this Agreement, the Notes, the Guaranty Agreements and the Letter of Credit Account Agreement to which it is signatory-- 47 53 (a) are within the corporate powers of the Borrower or Guarantor a party thereto; (b) will not violate any provisions of any law or any order of any court or governmental authority or agency and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under the Articles of Incorporation or By-laws of the Borrower or any Guarantor or any indenture or other agreement or instrument to which the Borrower or any Guarantor is a party or by which it may be bound or result in the imposition of any Liens or encumbrances on any Property of the Borrower or any Guarantor; and (c) have been duly authorized by proper corporate action on the part of the Borrower and each Guarantor (no action by the stockholders of the Borrower or any Guarantor being required by law, by the Articles of Incorporation or By-laws of the Borrower or any Guarantor or otherwise), executed and delivered by the Borrower and each Guarantor signatory thereto, and this Agreement, the Letter of Credit Account Agreement, the Notes and the Guaranty Agreements constitute the legal, valid and binding obligations, contracts and agreements of the Borrower and each Guarantor signatory thereto enforceable in accordance with their respective terms. 6.10 NO DEFAULTS. No Default or Event of Default has occurred and is continuing. Neither the Borrower nor any Subsidiary is in default in the payment of principal or interest on any Funded Debt or Current Debt and is not in default under any instrument or instruments or agreements under and subject to which any Funded Debt or Current Debt has been issued and no event has occurred and is continuing under the provisions of any such instrument or agreement which with the lapse of time or the giving of notice, or both, would constitute an event of default thereunder. 6.11 GOVERNMENTAL CONSENT. No approval, consent or withholding of objection on the part of any regulatory body, state, Federal, or local, is necessary in connection with the execution and delivery by the Borrower or any Guarantor of the Agreement, the Letter of Credit Account Agreement, the Notes or any Guaranty Agreement, or compliance by the Borrower and the Guarantors with any of the provisions of this Agreement, the Letter of Credit Account Agreement, the Notes or the Guaranty Agreements. 6.12 TAXES. All tax returns required to be filed by the Borrower or any Subsidiary in any jurisdiction have, in fact, been filed, and all taxes, assessments, fees and other governmental charges upon the Borrower or any Subsidiary or upon any of their respective properties, income or franchises, which are shown to be due and payable in such returns have been paid. For all taxable years ending on or before January 1, 1996, the Federal income tax liability of the Borrower and its Subsidiaries has been satisfied and either the period of limitations on assessment of additional Federal Income tax has expired or the Borrower and its Subsidiaries have entered into an agreement with the Internal Revenue Service closing conclusively the total tax liability for the taxable year. The Borrower does not know of any 48 54 proposed additional tax assessment against it for which adequate provision has not been made on its accounts, and no material controversy in respect of additional Federal or state income taxes due since said date is pending or to the knowledge of the Borrower threatened. The provisions for taxes on the books of the Borrower and each Subsidiary are adequate for all open years, and for its current fiscal period. 6.13 USE OF PROCEEDS. The net proceeds of the Loans will be used as set forth in SECTION 2.15. None of the transactions contemplated in this Agreement (including, without limitation thereof, the use of proceeds from the Loans), will violate or result in a violation of Section 7 of the Securities Exchange Act of 1934, as amended, or any regulation issued pursuant thereto, including, without limitation, Regulations G, T, U, and X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II. Neither the Borrower nor any Subsidiary owns or intends to carry or purchase any "margin stock" within the meaning of said Regulation U. None of the proceeds from the Loans will be used to purchase, or refinance any borrowing, the proceeds of which were used to purchase any "security" within the meaning of the Securities Exchange Act of 1934, as amended. 6.14 ERISA. The consummation of the transactions provided for in this Agreement and compliance by the Borrower and the Guarantors with the provisions hereof, the Notes issued hereunder and the Guaranty Agreements will not involve any prohibited transaction within the meaning of ERISA or Section 4975 of the Internal Revenue Code. Each Plan complies in all material respects with all applicable statutes and governmental rules and regulations, and (a) no Reportable Event has occurred and is continuing with respect to any Plan, (b) neither the Borrower nor any ERISA Affiliate has withdrawn from any Plan or Multiemployer Plan or instituted steps to do so, and (c) no steps have been instituted to terminate any Plan. No condition exists or event or transaction has occurred in connection with any Plan which could result in the incurrence by the Borrower or any ERISA Affiliate of any material liability, fine or penalty. No Plan maintained by the Borrower or any ERISA Affiliate, nor any trusts created thereunder, have incurred any "accumulated funding deficiency" as defined in Section 302 of ERISA nor does the present value of all benefits vested under all Plans exceed, as of the last annual valuation date, the value of the assets of the Plans allocable to such vested benefits by an amount greater than $1,000,000 in the aggregate. Neither the Borrower nor any ERISA Affiliate is a member of or contributes to any multiple employer plan as defined in ERISA. Neither the Borrower nor any ERISA Affiliate is a participant in or is obligated to make any payment to a Multiemployer Plan. Neither the Borrower or any ERISA Affiliate has any contingent liability with respect to any post-retirement "welfare benefit plan" (as such term is defined in ERISA). 6.15 COMPLIANCE WITH LAW. Neither the Borrower nor any Subsidiary (a) is in violation of any law, ordinance, franchise, governmental rule or regulation to which it is subject; or (b) has failed to obtain any license, permit, franchise or other governmental authorization necessary to the ownership of its property or to the conduct of its business, which violation or failure to obtain would materially adversely affect the business, prospects, profits, properties or condition (financial or otherwise) of the Borrower and its Subsidiaries, taken as a whole, or impair the ability of the Borrower or any Guarantor to perform its 49 55 obligations contained in this Agreement, the Letter of Credit Account Agreement, the Notes or any Guaranty Agreement. Neither the Borrower nor any Subsidiary is in default with respect to any order of any court or governmental authority or arbitration board of tribunal. 6.16 INVESTMENT COMPANY. Neither the Borrower nor any Subsidiary is an "investment company," or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended (15 U.S.C. ss. 80a-1, et seq.). The application of the proceeds of the Loans and repayment thereof by the Borrower and the performance by the Borrower and the Guarantors of the transactions contemplated by the Loan Documents will not violate any provision of said Act, or any rule, regulation or order issued by the Securities and Exchange Commission thereunder, in each case as in effect on the date hereof. 6.17 HAZARDOUS MATERIALS. The Borrower and each Subsidiary is in compliance with all applicable Environmental Laws in all material respects. Neither the Borrower nor any Subsidiary has been notified of any action, suit, proceeding or investigation which, and neither the Borrower nor any Subsidiary is aware of any facts which, (i) calls into question, or could reasonably be expected to call into question, compliance by the Borrower or any Subsidiary with any Environmental Laws, (ii) which seeks, or could reasonably be expected to form the basis of a meritorious proceeding, to suspend, revoke or terminate any license, permit or approval necessary for the generation, handling, storage, treatment or disposal of any Hazardous Material, or (iii) seeks to cause, or could reasonably be expected to form the basis of a meritorious proceeding to cause, any property of the Borrower or any Subsidiary to be subject to any restrictions on ownership, use, occupancy or transferability under any Environmental Law. 50 56 ARTICLE VII BORROWER COVENANTS From and after the Closing Date and continuing until the Obligations have been paid and satisfied in full and this Agreement has been terminated in accordance with the terms hereof unless the Required Lenders shall otherwise consent in writing: 7.01 CORPORATE EXISTENCE, ETC. The Borrower will preserve and keep in full force and effect, and will cause each Subsidiary to preserve and keep in full force and effect, its corporate existence and all licenses and permits necessary to the proper conduct of its business, PROVIDED that the foregoing shall not prevent any transaction permitted by SECTION 7.15. 7.02 INSURANCE. The Borrower will maintain, and will cause each domestic Subsidiary to maintain, insurance coverage by financially sound and reputable insurers accorded a rating by A.M. Best Company, Inc. of A-XII or better at the time of the issuance of any such policy and in such forms and amounts and against such risks as are customary for corporations of established reputation engaged in the same or a similar business and owning and operating similar properties; PROVIDED, HOWEVER, that (i) if, during the term of any such insurance policy, the rating accorded the insurer shall be less than A-XII, the Borrower will, on the date of renewal of any such policy (or, if such change in rating shall occur within 90 days prior to such renewal date, within 90 days of the date of such change in rating), obtain such insurance policy from an insurer accorded such rating and (ii) notwithstanding the requirements of this SECTION 7.02, the Borrower or any such Subsidiary may (a) maintain self-insurance programs with respect to employee benefits such as medical and disability coverage and casualty risks on its Property; PROVIDED that any such programs are customary for corporations of established reputation engaged in the same or a similar business and owning and operating similar properties and the Borrower or the Subsidiary concerned shall maintain adequate and actuarially determined reserves for losses in an amount and manner approved by nationally recognized and reputable independent insurance consultants retained by the Borrower and (b) maintain any insurance policy or program as in effect on the Closing Date with Titania Insurance Co. of America, PROVIDED that such policies or programs are customary for corporations of established reputation engaged in the same or a similar business and owning and operating similar properties. The Borrower will cause each Subsidiary which is not organized under the laws of the Unites States or any state thereof to maintain in accordance with sound business practice, insurance coverage with financially sound reputable insurers in such forms and amounts and against such risks as are customary for corporations of established reputation engaged in the same or a similar business and owning and operating similar properties. The Borrower will not permit Titania Insurance Co. of America to enter into insurance or reinsurance relationships with any Person other than the Borrower or any Subsidiary, PROVIDED, that, notwithstanding the foregoing, the Borrower may permit Titania to maintain such relationships at such levels and in such amounts as are in effect on the Closing Date. 51 57 7.03 TAXES, CLAIMS FOR LABOR AND MATERIALS, COMPLIANCE WITH LAWS. The Borrower will promptly pay and discharge, and will cause each Subsidiary promptly to pay and discharge, all lawful taxes, assessments and governmental charges or levies imposed upon the Borrower or such Subsidiary, respectively, or upon or in respect of all or any part of the Property or business of the Borrower or such Subsidiary, respectively, all trade accounts payable in accordance with usual and customary business terms, and all claims for work, labor or materials, which if unpaid might become a Lien upon any Property of the Borrower or such Subsidiary; PROVIDED the Borrower or such Subsidiary shall not be required to pay any such tax, assessment, charge, levy, account payable or claim if (i) the validity, applicability or amount thereof is being contested in good faith by appropriate actions or proceedings which will prevent the forfeiture or sale of any Property of the Borrower or such Subsidiary or any material interference with the use thereof by the Borrower or such Subsidiary, and (ii) the Borrower or such Subsidiary shall set aside on its books, reserves deemed by it to be adequate with respect thereto. The Borrower will promptly comply and will cause each Subsidiary to comply with all laws, ordinances or governmental rules and regulations to which it is subject including, without limitation, the Occupational Safety and Health Act of 1970, the Employee Retirement Income Security Act of 1974 and all laws, ordinances, governmental rules and regulations relating to environmental protection in all applicable jurisdictions, the violation of which would materially and adversely affect the properties, business, prospects, profits or condition of the Borrower and its Subsidiaries or would result in any Lien not permitted under SECTION 7.13. 7.04 MAINTENANCE, ETC. The Borrower will maintain, preserve and keep, and will cause each Subsidiary to maintain, preserve and keep, its properties which are used or useful in the conduct of its business (whether owned in fee or a leasehold interest) in good repair and working order and from time to time will make all necessary repairs, replacements, renewals and additions so that at all times the efficiency thereof shall be maintained. 7.05 NATURE OF BUSINESS. Neither the Borrower nor any Subsidiary will 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 Borrower and its Subsidiaries would be substantially changed from the general nature of the business engaged in by the Borrower and its Subsidiaries on the date of this Agreement. 7.06 CONSOLIDATED NET WORTH. The Borrower will at all times keep and maintain Consolidated Net Worth at an amount not less than (i) 90% of Borrower and Subsidiaries Consolidated Net Worth at September 30, 1997 and (ii) as at the last day of each succeeding fiscal quarter of the Borrower and until (but excluding) the last day of the next following fiscal quarter of the Borrower, the sum of (A) the amount of Consolidated Net Worth required to be maintained pursuant to this SECTION 7.06 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) for the fiscal quarter of the Borrower ending on such day, plus (C) 52 58 75% of the net proceeds to the Borrower from the sale of shares of the Borrower's capital stock. The calculation of this covenant shall be based upon the consolidated financial statements of the Borrower and its Subsidiaries, including WCC. 7.07 LIMITATIONS ON TOTAL DEBT. (a) The Borrower will at all times keep and maintain Consolidated Funded Debt (excluding Funded Debt of WCC from Consolidated Funded Debt) in an amount not to exceed 40% of Total Capitalization. (b) The Borrower 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 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 Borrower or to another Guarantor, (v) Indebtedness representing amounts received by the Borrower or any Subsidiary in exchange for the transfer of interests in trade receivables under the Asset Securitization Facility in excess of the amounts repaid to the purchasers in respect of such purchase price from collections on such trade receivables, which shall at no time exceed $75,000,000 in aggregate amount outstanding, and (vi) additional Indebtedness not covered under clauses (i) through (v) in an aggregate amount for the Borrower and all Subsidiaries (other than WCC) taken as a whole not greater than $15,000,000. (c) Any corporation which becomes a Subsidiary after the date hereof shall for all purposes of this SECTION 7.07 be deemed to have created, assumed or incurred at the time it becomes a Subsidiary all Indebtedness of such corporation existing immediately after it becomes a Subsidiary. 7.08 FIXED CHARGES COVERAGE RATIO. The Borrower will at all times keep and maintain the ratio of Net Income Available for Fixed Charges, determined as of the last day of each fiscal quarter for the immediately preceding Four-Quarter Period, to Fixed Charges for such Four- Quarter Period, at not less than 1.50:1.00. 7.09 NEGATIVE PLEDGE CLAUSES. The Borrower will not, nor will it permit any Subsidiary to, enter into or cause, suffer or permit to exist any agreement with any Person other than the Agent and the Lenders pursuant to this Agreement or any other Loan Documents which prohibits or limits the ability of any of the Borrower or any Subsidiary to create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, PROVIDED that the Borrower and any Subsidiary may enter into such an agreement in connection with (a) property acquired with the proceeds of purchase money Indebtedness permitted hereunder, (b) the Asset Securitization Facility, and (c) Indebtedness incurred under WCC's Amended and Restated Credit Agreement dated December 18, 1997. 53 59 7.10 LIMITATION ON LIENS. The Borrower will not, and will not permit any Subsidiary to, create or incur, or suffer to be incurred or to exist, any Lien on its or their Property, whether now owned or hereafter acquired, or upon any income or profits therefrom, or transfer any property for the purpose of subjecting the same to the payment of obligations in priority to the payment of its or their general creditors, or acquire or agree to acquire, or permit any Subsidiary to acquire, any property or assets upon conditional sales agreements or other title retention, devices, except; (a) Liens for property taxes and assessments or governmental charges or levies and Liens securing claims or demands of mechanics and materialmen, PROVIDED that payment thereof is not at the time required by SECTION 7.03; (b) Liens of or resulting from any judgment or award, the time for the appeal or petition for rehearing of which shall not have expired, or in respect of which the Borrower or a Subsidiary shall at any time in good faith be prosecuting an appeal or proceeding for a review and in respect of which a stay of execution pending such appeal or proceeding for review shall have been secured; (c) Liens incidental to the conduct of business or the ownership of properties and assets (including warehousemen's and attorneys' liens and statutory landlords' liens) and Liens to secure the performance of bids, tenders or trade contracts, or to secure statutory obligations, surety or appeal bonds or other liens of like general nature incurred in the ordinary course of business and not in connection with the borrowing of money, PROVIDED in each case, the obligation secured is not overdue or, if overdue, is being contested in good faith by appropriate actions or proceedings; (d) minor survey exceptions or minor encumbrances, easements or reservations, or rights of others for rights-of-way, utilities and other similar purposes, or zoning or other restrictions as to the use of real properties, which are necessary for the conduct of the activities of the Borrower and its Subsidiaries or which customarily exist on properties of corporations engaged in similar activities and similarly situated and which do not in any event materially impair their use in the operation of the business of the Borrower and its Subsidiaries; (e) Liens existing as of the Closing Date and reflected in SCHEDULE 7.10 hereto, securing Funded Debt of the Borrower or any Subsidiary outstanding on such date; (f) [reserved]; (g) Liens securing Indebtedness of a Guarantor to the Borrower or to another Guarantor; 54 60 (h) the interests in trade receivables of the purchasers thereof created pursuant to the Asset Securitization Facility, to the extent the same may constitute Liens; and (i) Liens incurred after the Closing Date given to secure the payment of the purchase price incurred in connection with the acquisition of fixed assets useful and in tended to be used in carrying on the business of the Borrower or a Subsidiary, including Liens existing on such fixed assets at the time of acquisition thereof or at the time of acquisition by the Borrower or a Subsidiary of any business entity then owning such fixed assets, whether or not such existing Liens were given to secure the payment of the purchase price of the fixed assets to which they attach so long as they were not incurred, extended or renewed in contemplation of such acquisition, PROVIDED that (i) the Lien shall attach solely to the fixed assets acquired or purchased, (ii) at the time of acquisition of such fixed assets, the aggregate amount remaining unpaid on all Indebtedness secured by Liens on such fixed assets whether or not assumed by the Borrower or a Subsidiary shall not exceed an amount equal to 80% (or 100% in the case of Capitalized Leases) of the lesser of the total purchase price or fair market value at the time of acquisition of such fixed assets (as determined in good faith by the Board of Directors of the Borrower), and (iii) all such Indebtedness shall have been incurred within the applicable limitations provided in SECTION 7.07. 7.11 RESTRICTED PAYMENTS: JOINT VENTURE INVESTMENTS. (a) The Borrower will not except as hereinafter provided: (i) Declare or pay any dividends, either in cash or Property, on any shares of its capital stock of any class (except dividends or other distributions payable solely in shares of capital stock of the Borrower); (ii) Directly or indirectly, or through any Subsidiary, purchase, redeem or retire any shares of its capital stock of any class or any warrants, rights or options to purchase or acquire any shares of its capital stock (other than (x) in exchange for or out of the net cash proceeds to the Borrower from the substantially concurrent issue or sale of other shares of capital stock of the Borrower or warrants, rights or options to purchase or acquire any shares of its capital stock, (y) purchases or acquisitions of shares of Voting Stock of the Borrower which were issued pursuant to an employee stock plan, PROVIDED that the aggregate amount expended therefor does not exceed $250,000 in any one fiscal year of the Borrower, and (z) purchases or acquisitions of shares of Voting Stock of the Borrower after October 1, 1996 in the open market for an aggregate purchase of not to exceed $5,000,000, PROVIDED further, that such amounts expended shall not exceed that amount necessary in order to maintain beneficial ownership or control, directly or indirectly, of 50.1% (by number of votes) of the Voting Stock of the Borrower by the Wackenhut Family Group); 55 61 (iii) Make any other payment or distribution, either directly or indirectly or through any Subsidiary, in respect of its capital stock; (iv) Make any payment or distribution, either directly or indirectly or through any Subsidiary, of principal of any Subordinated Funded Debt prior to the date such payment shall be due; or (v) Make any Restricted Investments other than any Joint Venture Investments; (such declarations or payments of dividends, purchases, redemptions or retirements of capital stock and warrants, rights or options, Restricted Investments and all such other distributions being herein collectively called "Restricted Payments"), if after giving effect thereto the aggregate amount of Restricted Payments made during the period from and after December 30, 1997 to and including the date of the making of the Restricted Payment in question, would exceed the sum of (i) $5,000,000 plus (ii) 50% of Consolidated Net Income for such period, computed on a cumulative basis for said entire period (or if such Consolidated Net Income is a deficit figure, then minus 100% of such deficit). The Borrower will not declare any dividend which constitutes a Restricted Payment payable more than 90 days after the date of declaration thereof. For the purposes of this SECTION 7.11(A) the amount of any Restricted Payment declared, paid or distributed in Property shall be deemed to be the greater of the book value or fair market value (as determined in good faith by the Board of Directors of the Borrower) of such property at the time of the making of the Restricted Payment in question. (b) The Borrower will not make any Joint Venture Investment if after giving effect thereto the aggregate value of all Joint Venture Investments of the Borrower would exceed 10% of Consolidated Net Worth of the Borrower as of the date of the making of such Joint Venture Investment. 7.12 LIMITATION ON SALE AND LEASEBACKS. The Borrower will not, and will not permit any Subsidiary to, enter into any arrangement whereby the Borrower or any Subsidiary shall sell or transfer any property currently owned by the Borrower or any Subsidiary to any Person other than the Borrower or a Subsidiary and thereupon the Borrower or any Subsidiary shall lease or intend to lease, as lessee, the same property, PROVIDED, that the Borrower may sell and leaseback pursuant to TROL Leases. 56 62 7.13 MERGERS, CONSOLIDATIONS AND SALES OF ASSETS. (a) The Borrower will not, and will not permit any Subsidiary to, (i) consolidate with or be a party to a merger with any other corporation or (ii) sell, lease or otherwise dispose of all or any substantial part (as defined in paragraph (d) of this SECTION 7.13) of the assets of the Borrower and its Subsidiaries, PROVIDED, HOWEVER, that: (1) any Subsidiary may merge or consolidate with or into the Borrower or any Wholly-owned Subsidiary so long as in any merger or consolidation involving the Borrower, the Borrower shall be the surviving or continuing corporation; (2) The Borrower may consolidate or merge with any other corporation if (i) either (x) the Borrower shall be the surviving or continuing corporation or (y) the surviving corporation is organized and existing under the laws of the United States of America or any state thereof or the District of Columbia and such continuing or surviving corporation expressly assumes in writing, in form and substance satisfactory to the Required Lenders, all obligations of the Borrower under this Agreement, (ii) at the time of such consolidation or merger and after giving effect thereto no Default or Event of Default shall have occurred and be continuing, (iii) after giving effect to such consolidation or merger the Borrower or such surviving corporation, as the case may be, would be permitted to incur at least $1.00 of additional Consolidated Indebtedness under the provisions of SECTION 7.07(A); (3) any Subsidiary may sell, lease or otherwise dispose of all or any substantial part of its assets to the Borrower or any Wholly-owned Subsidiary; (4) the Borrower and its Subsidiaries may sell trade receivables or fractional undivided interests therein pursuant to and in accordance with the terms of the Asset Securitization Facility; and (5) WCC may enter into TROL Leases. (b) The Borrower will not permit any Subsidiary to issue or sell any shares of stock of any class (including as "stock" for the purposes of this SECTION 7.13, 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 Borrower 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 57 63 to the Borrower and/or a Subsidiary whereby the Borrower and/or such Subsidiary maintain their same proportionate interest in such Subsidiary. (c) The Borrower will not sell, transfer or otherwise dispose of any shares of stock of any Subsidiary (except (i) the minimal amount necessary to qualify directors and (ii) shares of stock of WCC provided that, after giving effect to any such sale of WCC stock, the Borrower shall own not less than 69% 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 Borrower 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 Borrower and by every other Subsidiary shall be sold, transferred or disposed of as an entirety; (2) the Board of Directors of the Borrower shall have determined, as evidenced by a resolution thereof, that the purposed sale, transfer or disposition of said shares of stock and Indebtedness is in the best interests of the Borrower; (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 Borrower 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 Borrower and its Subsidiaries. (d) As used in this SECTION 7.13, a sale, lease or other disposition of assets shall be deemed to be a "substantial part" of the assets of the Borrower 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 Borrower and its Subsidiaries (other than in the ordinary course of business) during the period 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. 7.14 GUARANTIES. The Borrower will not, and will not permit any Subsidiary to, become or be liable in respect of any Guaranty except the Guaranty Agreements. 58 64 7.15 TRANSACTIONS WITH AFFILIATES. The Borrower will not, and will not permit any Subsidiary to, enter into or be a party to any transaction or arrangement with any Affiliate (including, without limitation, the purchase from, sale to or exchange of property with, or the rendering of any service by or for, any Affiliate), except in the ordinary course of and pursuant to the reasonable requirements of the Borrower's or such Subsidiary's business and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than would obtain in a comparable arm's-length transaction with a Person other than an Affiliate. 7.16 ERISA COMPLIANCE. (a) The Borrower will not, and will not permit any Subsidiary to, permit any Plans at any time maintained by the Borrower or any Subsidiary to have any Unfunded Vested Pension Liabilities. As used herein "Unfunded Vested Pension Liability" shall mean an excess of the actuarial present value of accumulated vested Plan benefits as at the end of the immediately preceding Plan year of such Plans (or as of any more recent valuation date) over the net assets allocated to such Plans which are available for benefits, all as determined and disclosed in the most recent actuarial valuation report for such Plans. (b) All assumptions and methods used to determine the actuarial valuation of vested employee benefits under all Plans at any time maintained by the Borrower or any Subsidiary and the present value of assets of such Plans shall be reasonable in the good faith judgment of the Borrower and shall comply with all requirements of law. (c) The Borrower will not, and will not permit any Subsidiary to, cause any Plan which it maintains or in which it participates at any time to: (1) engage in any "prohibited transaction" (as such term is defined in ERISA); (2) incur any "accumulated funding deficiency" (as such term is defined in ERISA), whether or not waived; or (3) terminate any such Plan in a manner which could result in the imposition of a lien on any Property of the Borrower or any of its Subsidiaries pursuant to ERISA. (d) The Borrower will not, and will not permit any Subsidiary to, withdraw from any Multiemployer Plan if such withdrawal shall subject the Borrower or any Subsidiary to withdrawal liability (as described under Part 1 of Subtitle E of Title IV of ERISA). 7.17 REPORTS AND RIGHTS OF INSPECTION. The Borrower will keep, and will cause each 59 65 Subsidiary to keep, proper books of record and account in which full and correct entries will be made of all dealings or transactions of or in relation to the business and affairs of the Borrower or such Subsidiary, in accordance with GAAP consistently applied (except for changes disclosed in the financial statements furnished to the Lenders and the Agent pursuant to this SECTION 7.17 and concurred in by the independent public accountants referred to in SECTION 7.17(B) hereof), and will furnish to the Agent and each Lender (in duplicate if so specified below or otherwise requested): (a) QUARTERLY STATEMENTS. As soon as available and in any event within 45 days after the end of each quarterly fiscal period (except the last) of each fiscal year, copies of: (1) (i) consolidated balance sheets of the Borrower and its Subsidiaries and (ii) consolidating balance sheet of WCC as of the close of such quarterly fiscal period, setting forth in comparative form as to the consolidated balance sheets the consolidated figures for the fiscal year then most recently ended, (2) (i) consolidated statements of income of the Borrower and its Subsidiaries and (ii) consolidating statement of income of WCC for such quarterly fiscal period and for the portion of the fiscal year ending with such period, in each case setting forth in comparative form as to the consolidated statements of income the consolidated figures for the corresponding periods of the preceding fiscal year, and (3) (i) consolidated statements of cash flows of the Borrower and its Subsidiaries and (ii) consolidating statement of cash flows of WCC for the portion of the fiscal year ending with such quarterly fiscal period, setting forth in comparative form as to the consolidated statements of cash flows the consolidated figures for the corresponding period of the preceding fiscal year, all in reasonable detail and certified as complete and correct by an authorized financial officer of the Borrower; (b) ANNUAL STATEMENTS. As soon as available and in any event within 90 days after the close of each fiscal year of the Borrower, copies of: (1) (i) consolidated and consolidating balance sheets of the Borrower and its Subsidiaries and (ii) consolidated and consolidating balance sheets of WCC and its Subsidiaries as of the close of such fiscal year, and (2) (i) consolidated and consolidating statements of income and retained earnings and cash flows of the Borrower and its Subsidiaries and (ii) consolidated and consolidating statements of income and retained earnings and cash flows of WCC and its Subsidiaries for such fiscal year, 60 66 in each case setting forth in comparative form the consolidated figures for the preceding fiscal year, all in reasonable detail and, in the case of such consolidated statements, accompanied by a report thereon of a firm of independent public accountants of recognized national standing selected by the Borrower to the effect that the consolidated financial statements have been prepared in conformity with GAAP and present fairly, in all material respects, the financial condition of the Borrower and its Subsidiaries and WCC and its Subsidiaries, as the case may be, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards; (c) AUDIT REPORTS. Promptly upon receipt thereof, one copy of each interim or special audit made by independent accountants of the books of the Borrower or any Subsidiary and any management letter received from such accountants; (d) SEC AND OTHER REPORTS. Promptly upon their becoming available, one copy of each financial statement, report, notice or proxy statement sent by the Borrower or WCC to stockholders generally and of each regular or periodic report, and any registration statement or prospectus filed by the Borrower or any Subsidiary with any securities exchange or the Securities and Exchange Commission or any successor agency, and copies of any orders in any proceedings (other than immaterial regulatory proceedings relating to obtaining or maintaining licenses, permits or approvals by the Borrower or any Subsidiary) to which the Borrower or any of its Subsidiaries is a party, issued by any governmental agency, Federal or state, having jurisdiction over the Borrower or any of its Subsidiaries; (e) ERISA REPORTS. promptly upon the occurrence thereof, written notice of (i) a Reportable Event with respect to any Plan; (ii) the institution of any steps by the Borrower, any ERISA Affiliate, the PBGC or any other person to terminate any Plan; (iii) the institution of any steps by the Borrower or any ERISA Affiliate to withdraw from any Plan; (iv) a prohibited transaction; within the meaning of Section 406 of ERISA in connection with any Plan; (v) any material increase in the contingent liability of the Borrower or any restricted Subsidiary with respect to any post-retirement welfare liability; or (vi) the taking of any action by, or the threatening of the taking of any action by, the Internal Revenue Service, the Department of Labor or the PBGC with respect to any of the foregoing; (f) OFFICERS' CERTIFICATES. Within the periods provided in paragraphs (a) and (b) above, a certificate of an authorized financial officer of the Borrower stating that such officer has reviewed the provisions of this Agreement and setting forth: (i) the information and computations (in sufficient detail) required in order to establish whether the Borrower was in compliance with the requirements of SECTION 7.06 through SECTION 7.14, inclusive, and SECTION 7.20 at the end of the period covered by the financial statements then being furnished, and (ii) whether there 61 67 existed as of the date of such financial statements and whether, to the best of such officer's knowledge, there exists on the date of the certificate or existed at any time during the period covered by such financial statements any Default or Event of Default and, if any such condition or event exists on the date of the certificate, specifying the nature and period of existence thereof and the action the Borrower is taking and proposes to take with respect thereto, which certificate shall be in the form attached hereto as EXHIBIT I. The calculations contained in such certificate shall be based upon the consolidated financial results of the Borrower and its Subsidiaries, EXCLUDING the financial results of WCC except as set forth in SECTIONS 7.06 and 7.07(A). (g) ACCOUNTANT'S CERTIFICATES. Within the period provided in paragraph (b) above, a certificate of the accountants who render an opinion with respect to such financial statements, stating that they have reviewed this Agreement and stating further whether, in making their audit, such accountants have become aware of any Default or Event of Default under any of the terms or provisions of this Agreement insofar as any such terms or provisions pertain to or involve accounting matters or determinations, and if any such condition or event then exists, specifying the nature and period of existence thereof; (h) REQUESTED INFORMATION. With reasonable promptness, such other data and information including, without limitation, quarterly consolidating financial statements of the Borrower and its Subsidiaries of the type described in foregoing paragraph (a), as any of the Lender or Agent may reasonably request; (i) QUARTERLY SCHEDULES. Within the period provided in paragraph (a) above, a schedule of (i) outstanding Letters of Credit issued for the account of the Borrower and Titania, jointly, and (ii) investments held by Titania; Without limiting the foregoing, the Borrower will permit the Agent and the Lenders (or such persons as the Agent and the Lenders may designate), to visit and inspect, under the Borrower's guidance, any of the properties of the Borrower or any Subsidiary, to examine all of their books of account, records, reports and other papers, to make copies and extracts therefrom and to discuss their respective affairs, finances and accounts with their respective officers, employees, and independent public accountants (and by this provision the Borrower authorizes said accountants to discuss with the Agent and the Lenders the finances and affairs of the Borrower and its Subsidiaries) all at such reasonable times and as often as may be reasonably requested. The Borrower shall not be required to pay or reimburse the Agent or the Lenders for expenses which the Agent or the Lenders may incur in connection with any such visitation or inspection, PROVIDED, that if such visitation or inspection is made during any period when a Default or an Event of Default shall have occurred and be continuing, the Borrower agrees to reimburse the Agent and Lenders for all such expenses promptly upon demand. 62 68 7.18 ACQUISITIONS. The Borrower will not, and will not permit any Subsidiary, to enter into any agreement, contract or arrangement, providing for the acquisition of any Person or the assets of any Person where the amount to be paid exceeds $5,000,000 unless the Borrower shall have furnished to each Lender a certificate of an authorized financial officer of the Borrower (i) certifying that after giving effect to such acquisition there will be no Default or Event of Default hereunder, and (ii) containing calculations based upon the historical consolidated financial information of the Borrower and its Subsidiaries excluding WCC, demonstrating that after giving effect to the proposed acquisition the Borrower will not be in violation of any covenant contained in SECTIONS 7.06 through 7.08 hereof. 7.19 ADDITIONAL GUARANTIES. Not later than each date (a "Delivery Date") upon which the officer's certificate described in SECTION 7.17(F) is required to be delivered by the Borrower, cause to be delivered to the Agent for the benefit of the Lenders each of the following documents in respect of each domestic wholly-owned Subsidiary of the Borrower created or acquired after the Closing Date, as to whom such documents have not been delivered on a prior Delivery Date (a "New Guarantor"): (i) a Guaranty Agreement duly executed by such New Guarantor substantially in the form attached hereto as EXHIBIT H; (ii) an opinion of counsel to the New Guarantor (which opinion may be rendered by in-house counsel to the Borrower unless the Agent requests as to any particular New Guarantor that outside counsel be engaged to furnish the opinion) dated as of the date of delivery of the Guaranty Agreement provided in the foregoing clause (i) and addressed to the Agent and the Lenders, in form and substance reasonably acceptable to the Agent, which opinion shall include the opinions with respect to the New Guarantor and its Guaranty Agreement as are provided on the Closing Date with respect to Guarantors and Guaranty Agreements on such date pursuant to SECTION 5.01(H) hereof, and may include assumptions and qualifications of similar effect to those contained in the opinions of counsel to the Guarantors delivered pursuant to SECTION 5.01(H) hereof); and (iii) current copies of the charter documents, including partnership agreements and certificate of limited partnership, if applicable, and bylaws of such New Guarantor, minutes of duly called and conducted meetings (or duly effected consent actions) of the Board of Directors, partners, or appropriate committees thereof (and, if required by such charter documents, bylaws or by applicable laws, of the shareholders or partners) of such New Guarantor authorizing the actions and the execution and delivery of documents described in clause (i) of this SECTION 7.19 and evidence satisfactory to the Agent (confirmation of the receipt of which will be provided by the Agent to the Lenders) that such New Guarantor is solvent as of such date and after giving effect to the Guaranty. 7.20 ADVANCES TO WCC. The Borrower will not, and will not permit any Subsidiary, to make or maintain loans or advances to WCC, enter into Guaranties for the 63 69 benefit of WCC, make capital contributions to WCC or purchase securities from WCC, if, after giving effect to any such transaction, the aggregate amount of such outstanding loans and advances, Guarantied obligations, capital contributions and securities purchases shall exceed $1,500,000 in the aggregate. 7.21 OFFICER'S KNOWLEDGE OF DEFAULT. The Borrower will, and will cause each Subsidiary to, upon any officer of the Borrower obtaining knowledge of any Default or Event of Default hereunder or under any other obligation of the Borrower or any Subsidiary to any Lender, or any event, development or occurrence which could reasonably be expected to have a material adverse effect, cause such officer or an Authorized Representative to promptly notify the Agent of the nature thereof, the period of existence thereof, and what action the Borrower or such Subsidiary proposes to take with respect thereto. 7.22 SUITS OR OTHER PROCEEDINGS. The Borrower will, and will cause each Subsidiary to, upon any officer of the Borrower obtaining knowledge of any litigation or other proceedings being instituted against the Borrower or any Subsidiary or any attachment, levy, execution or other process being instituted against any assets of the Borrower or any Subsidiary making a claim or claims which is likely to result in damages in an aggregate amount greater than $1,000,000 not otherwise covered by insurance, promptly deliver to the Agent written notice thereof stating the nature and status of such litigation, dispute, proceeding, levy, execution or other process. 7.23 NOTICE OF DISCHARGE OF ENVIRONMENTAL COMPLAINT OR CONDITION. The Borrower will, and will cause each Subsidiary to, promptly provide to the Agent true, accurate and complete copies of any and all notices, complaints, orders, directives, claims, or citations received by the Borrower or any Subsidiary relating to any (a) violation or alleged violation by the Borrower or any Subsidiary of any applicable Environmental Law; (b) release or threatened release by the Borrower or any Subsidiary, or at any facility or property owned or leased or operated by the Borrower or any Subsidiary, of any Hazardous Material, except where occurring legally; or (c) liability or alleged liability of the Borrower or any Subsidiary for the costs of cleaning up, removing, remediating or responding to a release of Hazardous Materials. 64 70 ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES THEREFOR 8.01 EVENTS OF DEFAULT. Any one or more of the following shall constitute an "Event of Default" as such term is used herein: (a) Default shall occur in the payment of interest on any Note when the same shall have become due and such default shall continue for more than five days; or (b) Default shall occur in the making of any payment of the principal of any Note at the expressed or any accelerated maturity date; or (c) Default shall be made in the payment when due (whether by lapse of time, by declaration, by call for redemption or otherwise) of the principal of or interest on any Funded Debt or Current Debt (other than the Funded Debt evidenced by the Notes) aggregating $100,000 or more of the Borrower or any Subsidiary and such default shall continue beyond the period of grace, if any, allowed with respect thereto; or (d) Default or the happening of any event shall occur under any indenture, agreement or other instrument under which any Funded Debt or Current Debt aggregating $100,000 or more of the Borrower or any Subsidiary may be issued and such default or event shall continue for a period of time sufficient to permit the acceleration of the matur ity of any Funded Debt or Current Debt aggregating $100,000 or more of the Borrower or any Subsidiary outstanding thereunder; or (e) Default shall occur in the observance or performance of any covenant or agreement contained in SECTION 7.06 through SECTION 7.16, or in SECTION 7.18 through SECTION 7.20; or (f) Default shall occur in the observance or performance of any other provision of this Agreement which is not remedied within 30 days after notice thereof to the Borrower by the holder of any Note; or (g) Any representation or warranty made by the Borrower herein, or made by the Borrower or any Guarantor in any other Loan Document or in any statement or certificate furnished by the Borrower or any Guarantor in connection with the consu mmation of the issuance and delivery of the Notes or furnished by the Borrower or any Guarantor pursuant hereto or pursuant to any other Loan Document, is untrue in any material respect as of the date of the issuance or making thereof; or (h) Final judgment or judgments for the payment of money aggregating in 65 71 excess of $100,000 is or are outstanding against the Borrower or any Subsidiary or against any property or assets of either and any one such judgments has remained unpaid, unvacated, unbonded or unstayed by appeal or otherwise for a period of 30 days from the date of its entry; or (i) A custodian, liquidator, trustee or receiver is appointed for the Borrower or any Subsidiary or for the major part of the property of either and is not discharged within 30 days after such appointment; or (j) The Borrower or any Subsidiary becomes insolvent or bankrupt, is generally not paying its debts as they become due or makes an assignment for the benefit of creditors, or the Borrower or any Subsidiary causes or suffers an order for relief to be entered with respect to it under applicable Federal bankruptcy law or applies for or consents to the appointment of a custodian, liquidator, trustee or receiver for the Borrower or such Subsidiary or for the major part of the property of either; or (k) Bankruptcy, reorganization, arrangement or insolvency proceedings, or other proceedings for relief under any bankruptcy or similar law or laws for the relief of debtors, are instituted by or against the Borrower or any Subsidiary and, if instituted against the Borrower or any Subsidiary, are consented to or are not dismissed within 60 days after the institution of such proceedings; or (l) The Wackenhut Family Group shall own or control, directly or indirectly, less than 33.33% of the Voting Stock of the Borrower; or (m) any actual or asserted invalidity (other than by the Agent or the Lenders) of the Loan Documents. 8.02 NOTICE TO HOLDERS. When an Event of Default described in the foregoing SECTION 8.01 has occurred, or if the holder of any Note or of any other evidence of Funded Debt or Current Debt of the Borrower gives any notice or takes any other action with respect to a claimed default, the Borrower agrees to give notice within three Business Days of such event to the Agent and all Lenders; such notice to be in writing and sent by registered or certified mail or by telegram. 8.03 ACCELERATION. Upon the happening of any Event of Default, if such Event of Default or any other Event of Default shall then be continuing, (A) either or both of the following actions may be taken: (i) the Agent, with the consent of the Required Lenders, may, and at the direction of the Required Lenders shall, declare any obligation of the Lenders to make further Loans or issue Letters of Credit terminated, whereupon the obligation of each Lender to make further Loans or issue Letters of Credit hereunder shall terminate immediately, and (ii) the 66 72 Agent shall at the direction of the Required Lenders, at their option, declare by notice to the Borrower any or all of the Obligations to be immediately due and payable, and the same, all interest accrued thereon and all other obligations of the Borrower to the Lenders shall forthwith become immediately due and payable without presentment, demand, protest, notice or other formality of any kind, all of which are hereby expressly waived, anything contained herein or in any instrument evidencing the Obligations to the contrary notwithstanding; PROVIDED, however, that notwithstanding the above, if there shall occur an Event of Default under clause (j) or (k) above, then the obligation of the Lenders to lend hereunder shall automatically terminate and any and all of the Obligations shall be immediately due and payable without the necessity of any action by the Agent or the Required Lenders or notice to the Agent or the Lenders; and (B) The Borrower shall, upon demand of Agent, deposit cash with the Agent in an amount equal to the amount of any Letters of Credit remaining undrawn, as collateral security for the repayment of any future drawings under such Letters of Credit, and such amounts shall be held by Agent pursuant to the terms of the Letter of Credit Account Agreement. 8.04 AGENT TO ACT. In case any one or more Events of Default shall occur and be continuing, the Agent may, and at the direction of the Required Lenders shall, proceed to protect and enforce their rights or remedies either by suit in equity or by action at law, or both, whether for the specific performance of any covenant, agreement or other provision contained herein or in any other Loan Document, or to enforce the payment of the Obligations or any other legal or equitable right or remedy. 8.05 CUMULATIVE RIGHTS. No right or remedy herein conferred upon the Lenders or the Agent is intended to be exclusive of any other rights or remedies contained herein or in any other Loan Document, and every such right or remedy shall be cumulative and shall be in addition to every other such right or remedy contained herein and therein or now or hereafter existing at law or in equity or by statute, or otherwise. 8.06 ALLOCATION OF PROCEEDS. If an Event of Default has occurred and is continuing, and the maturity of the Notes has been accelerated pursuant to ARTICLE VIII hereof, all payments received by the Agent hereunder in respect of any principal of or interest on the Obligations or any other amounts payable by the Borrower hereunder shall be applied by the Agent in the following order: (a) amounts due to the Lenders pursuant to SECTIONS 2.12, 3.02(F), 3.03, 3.04, 10.06 and 10.12 hereof; (b) amounts due to the Agent pursuant to SECTION 9.11 hereof; (c) payments of interest, to be applied in accordance with SECTION 2.09 hereof; 67 73 (d) payments of principal, to be applied in accordance with SECTION 2.09 hereof; (e) payments of all other amounts due under this Agreement, if any, to be applied in accordance with each Lender's pro rata share of all principal due to the Lenders. 68 74 ARTICLE IX THE AGENT 9.01 APPOINTMENT, POWERS, AND IMMUNITIES. Each Lender hereby irrevocably appoints and authorizes the Agent to act as its agent under this Agreement and the other Loan Documents with such powers and discretion as are specifically delegated to the Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. The Agent (which term as used in this sentence and in SECTION 9.05 and the first sentence of SECTION 9.06 hereof 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 any Lender; (b) shall not be responsible to the Lenders for any recital, statement, representation, or warranty (whether written or oral) made in or in connection with any Loan Document or any certificate or other document referred to or provided for in, or received by any of them under, any Loan Document, or for the value, validity, effectiveness, genuineness, enforceability, or sufficiency of any Loan Document, or any other document referred to or provided for therein or for any failure by the Borrower 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 Borrower or the satisfaction of any condition or to inspect the property (including the books and records) of the Borrower or any of its Subsidiaries or affiliates; (d) shall not be required to initiate or conduct any litigation or collection proceedings under any Loan Document; and (e) shall not be responsible for any action taken or omitted to be taken by it under or in connection with any Loan 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. 9.02. RELIANCE BY AGENT. The Agent shall be entitled to rely upon any certification, notice, instrument, writing, or other communication (including, without limitation, any thereof by telephone or telefacsimile) 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 the Borrower), independent 69 75 accountants, and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until the Agent receives and accepts an Assignment and Acceptance executed in accordance with SECTION 10.01 hereof. 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 Required Lenders, and such instructions shall be binding on all of the Lenders; 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 Loan Document or applicable law or unless it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking any such action. 9.03. DEFAULTS. The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default or Event of Default unless the Agent has received written notice from a Lender or the Borrower specifying such Default or Event of Default and stating that such notice is a "Notice of Default". In the event that the Agent receives such a notice of the occurrence of a Default or Event of Default, the Agent shall give prompt notice thereof to the Lenders. The Agent shall (subject to SECTION 9.02 hereof) take such action with respect to such Default or Event of Default as shall reasonably be directed by the Required Lenders, 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 Default or Event of Default as it shall deem advisable in the best interest of the Lenders. 9.04. RIGHTS AS LENDER. With respect to its Commitment and the Loans made by it, NationsBank (and any successor acting as Agent) in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as the Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Agent in its individual capacity. NationsBank (and any successor acting as Agent) and its affiliates may (without having to account therefor to any Lender) 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 the Borrower or any of its Subsidiaries or affiliates as if it were not acting as Agent, and NationsBank (and any successor acting as Agent) and its affiliates may accept fees and other consideration from the Borrower or any of its Subsidiaries or affiliates for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. 9.05. INDEMNIFICATION. The Lenders agree to indemnify the Agent (to the extent not reimbursed under SECTION 10.12 hereof, but without limiting the obligations of the Borrower under such Section) ratably in accordance with their respective Commitments, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including attorneys' fees), or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted against the Agent (including by any Lender) in any way 70 76 relating to or arising out of any Loan Document or the transactions contemplated thereby or any action taken or omitted by the Agent under any Loan Document; PROVIDED that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Person to be indemnified. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any costs or expenses payable by the Borrower under SECTION 10.06, to the extent that the Agent is not promptly reimbursed for such costs and expenses by the Borrower. The agreements contained in this Section shall survive payment in full of the Loans and all other amounts payable under this Agreement. 9.06. NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender agrees that it has, independently and without reliance on the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and its Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Lender, 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 Loan Documents. Except for notices, reports, and other documents and information expressly required to be furnished to the Lenders 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 Borrower or any of its Subsidiaries or affiliates that may come into the possession of the Agent or any of its affiliates. 9.07. RESIGNATION OF AGENT. The Agent may resign at any time by giving notice thereof to the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders 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 Lenders, 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 IX 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. 9.08 FEES. The Borrower agrees to pay to the Agent, for its individual account, an annual Agent's fee in such amount as shall be agreed to from time to time, such fee to be paid in quarterly installments in advance on the last Business Day of each December, March, June and September, the first such installment to be paid on the first such date next following there being more than one Lender party to this Agreement. 71 77 ARTICLE X MISCELLANEOUS 10.01 ASSIGNMENTS AND PARTICIPATION. (a) Each Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Loans, its Note, and its Revolving Credit Commitment); PROVIDED, HOWEVER, that (i) each such assignment shall be to an Eligible Assignee; (ii) except in the case of an assignment to another Lender or an assignment of all of a Lender's rights and obligations under this Agreement, any such partial assignment shall be in an amount at least equal to $5,000,000 or an integral multiple of $1,000,000 in excess thereof; (iii) each such assignment by a Lender shall be of a constant, and not varying, percentage of all of its rights and obligations under this Agreement and the Note; and (iv) the parties to such assignment shall execute and deliver to the Agent for its acceptance an Assignment and Acceptance in the form of EXHIBIT B hereto, together with any Note subject to such assignment and a processing fee of $3,500. Upon execution, delivery, and acceptance of such Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of such assignment, have the obligations, rights, and benefits of a Lender hereunder and the assigning Lender shall, to the extent of such assignment, relinquish its rights and be released from its obligations under this Agreement. Upon the consummation of any assignment pursuant to this Section, the assignor, the Agent and the Borrower shall make appropriate arrangements so that, if required, new Notes are issued to the assignor and the assignee. If the assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Agent certification as to exemption from deduction or withholding of Taxes in accordance with SECTION 4.06. (b) The Agent shall maintain at its address referred to in SECTION 10.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Revolving Credit Commitment of, and principal amount of the Loans owing to, each Lender from time to time (the "REGISTER"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. 72 78 (c) Upon its receipt of an Assignment and Acceptance executed by the parties thereto, together with any Note subject to such assignment and payment of the processing fee, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of EXHIBIT B hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the parties thereto. (d) Each Lender may sell participations at its expense to one or more Persons in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Revolving Credit Commitment and its Loans); PROVIDED, HOWEVER, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Borrower shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, and such Lender shall retain the sole right to enforce the obligations of the Borrower relating to its Loans and its Note and to approve any amendment, modification, or waiver of any provision of this Agreement (other than amendments, modifications, or waivers decreasing the amount of principal of or the rate at which interest is payable on such Loans or Note, extending any scheduled principal payment date or date fixed for the payment of interest on such Loans or Note, or extending its Revolving Credit Commitment) and (iv) the sale of any such participation which requires the Borrower to file a registration statement with federal or state regulatory authorities shall not be permitted. (e) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time assign and pledge all or any portion of its Loans and its Note to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations hereunder. (f) Any Lender may furnish any information concerning the Borrower or any of its Subsidiaries in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants). 10.02 NOTICES. Any notice shall be conclusively deemed to have been received by any party hereto and be effective on the day on which delivered to such party (against receipt therefor) at the address set forth below or such other address as such party shall specify to the other parties in writing (or, in the case of telephonic notice or notice by telefacsimile, telegram or telex (where the receipt of such message is verified by return) expressly provided for hereunder, when received at such telephone, telefacsimile or telex number as may from time to time be specified in written or verbal notice to the other parties hereto or otherwise received), or if sent prepaid by certified or registered mail return receipt requested on the third Business Day after the day on which mailed, addressed to such party at said address: 73 79 (a) if to the Borrower: The Wackenhut Corporation 4200 Wackenhut Drive, Suite 100 Palm Beach Gardens, Florida 33410 Attention: James P. Rowan with a copy to Chief Financial Officer or Treasurer at the same address. (b) if to an Authorized Representative: at the address set forth for receipt of notices in the notice of appointment thereof. (c) if to the Agent: NationsBank, National Association Independence Center, 15th Floor NC1-001-15-04 Charlotte, North Carolina 28255 Attention: Agency Services Telephone: (704) 388-2374 Telefacsimile: (704) 386-9923 (d) if to NationsBank in its capacity as issuer of the Letters of Credit: NationsBank, National Association Independence Center, 15th Floor NC1-001-15-04 Charlotte, North Carolina 28255 Attention: International Letter of Credit Department (e) if to the Lenders: At the addresses set forth on the signature pages hereof and on the signature page of each Assignment and Acceptance. 10.03 NO WAIVER. No failure or delay on the part of the Agent or any Lender in the exercise of any right, power or privilege hereunder shall operate as a waiver of any such right, power or privilege nor shall any such failure or delay preclude any other or further exercise thereof. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law. 74 80 ' 10.04 RIGHT OF SETOFF; ADJUSTMENTS. (a) Upon the occurrence and during the continuance of any Event of Default, each Lender (and each of its affiliates) is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender (or any of its affiliates) to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement and the Note held by such Lender, irrespective of whether such Lender shall have made any demand under this Agreement or such Note and although such obligations may be unmatured. Each Lender agrees promptly to notify the Borrower after any such set-off and application made by such Lender; PROVIDED, HOWEVER, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Lender may have. (b) If any Lender (a "benefitted Lender") shall at any time receive any payment of all or part of the Loans owing to it, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Loans owing to it, or interest thereon, such benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Loans owing to it, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; PROVIDED, HOWEVER, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Borrower agrees that any Lender so purchasing a participation from a Lender pursuant to this SECTION 10.04 may, to the fullest extent permitted by law, exercise all of its rights of payment (including the right of set-off) with respect to such participation as fully as if such Person were the direct creditor of the Borrower in the amount of such participation. 10.05 SURVIVAL. All covenants, agreements, representations and warranties made herein shall survive the making by the Lenders of the Loans and the expiration of the Letters of Credit and the execution and delivery to the Lenders of this Agreement and the Notes and shall continue in full force and effect so long as any of the Obligations remain outstanding or any Lender has any commitment hereunder. Whenever in this Agreement, any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such party and all covenants, provisions and agreements by or on behalf of the Borrower which are contained in this Agreement and the Notes shall inure to the benefit of the successors and permitted assigns of the Lenders or any of them. 75 81 10.06 EXPENSES. The Borrower agrees (a) to pay or reimburse the Agent for all its reasonable and customary out-of-pocket costs and expenses incurred in connection with the preparation, negotiation and execution of this Agreement or any of the other Loan Documents, and the consummation of the transactions contemplated hereby and thereby, including, without limitation, the reasonable and customary fees and disbursements of counsel to the Agent, (b) to pay or reimburse the Agent for all of its reasonable out-of-pocket costs and expenses incurred in connection with any amendment, supplement or modification to, any of the Loan Documents (including due diligence expenses and travel expenses), and the consummation of the transactions contemplated thereby, including the reasonable fees and disbursements of counsel to the Agent, (c) to pay or reimburse the Agent and the Lenders for all their costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the Notes, the Guaranty Agreements and the Letter of Credit Account Agreement, including without limitation, the reasonable fees and disbursements of their counsel (including allocated cost of in-house counsel), (d) to pay, indemnify and hold the Agent and the Lenders harmless from any and all recording and filing fees and any and all liabilities with respect to, or resulting from any failure to pay or delay in paying, documentary, stamp, excise and other similar taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation of any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, and (e) to pay, indemnify, and hold the Agent and the Lenders harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement or in any respect relating to the transactions contemplated hereby or thereby, (all the foregoing, collectively, the "indemnified liabilities"); PROVIDED, HOWEVER, that the Borrower shall have no obligation hereunder with respect to indemnified liabilities arising from (i) the willful misconduct or gross negligence of the party seeking indemnification, (ii) legal proceedings commenced against the Agent or any Lender by any security holder or creditor thereof arising out of and based upon rights afforded any such security holder or creditor solely in its capacity as such, (iii) any taxes imposed upon the Agent or any Lender other than the documentary, stamp, excise and similar taxes described in clause (c) above or any tax resulting from any Regulatory Change, which tax would be payable to Lenders by Borrower pursuant to ARTICLE IV hereof, (iv) taxes imposed as a result of a transfer or assignment of any Note, participation or assignment of a portion of its rights or (v) any taxes imposed upon any transferee of any Note. The agreements in this subsection shall survive repayment of the Notes and all other Obligations hereunder. 10.07 AMENDMENTS AND WAIVERS. Any provision of this Agreement or any other Loan Document may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Lenders (and, if ARTICLE IX 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 all the Lenders, (i) increase the Revolving Credit Commitments of the Lenders, (ii) reduce the principal of or rate of interest on any Loan or any fees or other amounts payable hereunder, (iii) postpone any date fixed for the 76 82 payment of any scheduled installment of principal of or interest on any Loan or any fees or other amounts payable hereunder or for termination of any Revolving Credit Commitment, (iv) change the percentage of the Commitments or of the unpaid principal amount of the Notes, or the number of Lenders, which shall be required for the Lenders or any of them to take any action under this Section or any other provision of this Agreement or (v) release any Guarantor. 10.08 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such fully- executed counterpart. 10.09 WAIVERS BY THE BORROWER. In any litigation in any court with respect to, in connection with, or arising out of this Agreement, the Guaranty Agreements, the Loans, any of the Notes, any of the Letters of Credit, any of the other Loan Documents, the Obligations, or any instrument or document delivered pursuant to this Agreement, or the validity, protection, inter pretation, collection or enforcement thereof, or any other claim or dispute howsoever arising between the Borrower and the Lenders or the Agent, (i) the Borrower hereby waives the right to interpose any setoff, recoupment, counterclaim or cross-claim in connection with any such litigation, irrespective of the nature of such setoff, recoupment, counter-claim or cross-claim unless such setoff, recoupment, counter-claim or cross-claim could not, by reason of any applicable federal or state procedural laws, be interposed, pleaded or alleged in any other action and (ii) the Borrower and each Lender and the Agent hereby waive, to the extent permitted by applicable law, trial by jury in connection with any such litigation. 10.10 TERMINATION. This Agreement shall continue in full force and effect until terminated pursuant to the terms hereof; however, the Lenders shall have the right to terminate this Agreement immediately, at any time, during the continuance of an Event of Default under ARTICLE VIII hereof as provided therein. The termination of this Agreement shall not affect any rights of the Borrower, the Lenders or the Agent or any obligation of the Borrower, the Lenders or the Agent, arising prior to the effective date of such termination, and the provisions hereof shall continue to be fully operative until all transactions entered into or rights created or obligations incurred prior to such termination have been fully disposed of, concluded or liquidated and the Obligations arising prior to or after such termination have been irrevocably paid in full. Upon the termination of this Agreement, all Obligations (including, without limitation, the Loans and the Reimbursement Obligations) shall be due and payable without notice or demand. The security interests, liens and rights granted to the Agent for the benefit of the Lenders hereunder and under the other Loan Documents shall continue in full force and effect, notwithstanding the termination of this Agreement, until all of the Obligations have been paid in full after the termination hereof or the Borrower has furnished the Lenders and the Agent with an indemnification satisfactory to the Agent and each Lender with respect thereto. All representations, warranties, covenants, waivers and agreements contained herein shall survive termination hereof until payment in 77 83 full of the Obligations unless otherwise provided herein. Notwithstanding the foregoing, if after receipt of any payment of all or any part of the Obligations, any Lender is for any reason compelled to surrender such payment to any Person because such payment is determined to be void or voidable as a preference, impermissible setoff, a diversion of trust funds or for any other reason, this Agreement shall continue in full force and the Borrower shall be liable to, and shall indemnify and hold such Lender harmless for, the amount of such payment surrendered until such Lender shall have been finally and irrevocably paid in full. The provisions of the foregoing sentence shall be and remain effective notwithstanding any contrary action which may have been taken by the Lenders in reliance upon such payment, and any such contrary action so taken shall be without prejudice to the Lenders' rights under this Agreement and shall be deemed to have been conditioned upon such payment having become final and irrevocable. 10.11 GOVERNING LAW. (A) ALL DOCUMENTS EXECUTED PURSUANT TO THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING, WITHOUT LIMITATION, THIS AGREEMENT AND EACH OF THE LOAN DOCUMENTS SHALL BE DEEMED TO BE CONTRACTS MADE UNDER, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS AND JUDICIAL DECISIONS OF THE STATE OF FLORIDA. THE BORROWER HEREBY SUBMITS TO THE JURISDICTION AND VENUE OF THE STATE AND FEDERAL COURTS OF FLORIDA FOR THE PURPOSES OF RESOLVING DISPUTES HEREUNDER OR FOR THE PURPOSES OF COLLECTION. (B) IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER OR RELATED TO ANY LOAN DOCUMENT OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN THE FUTURE BE DELIVERED IN CONNECTION THEREWITH, THE BORROWER, THE AGENT AND THE LENDERS HEREBY AGREE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY AND HEREBY IRREVOCABLY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PERSON MAY HAVE TO TRIAL BY JURY IN ANY SUCH ACTION OR PROCEEDING. 10.12 INDEMNIFICATION. In consideration of the execution and delivery of this Agreement by the Agent and each Lender and the extension of the Revolving Credit Commitments and Swing Line, the Borrower hereby indemnifies, exonerates and holds the Agent and each Lender and each of their respective officers, directors, employees and agents (collectively, the "Indemnified Parties") free and harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities and damages, and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements (collectively, the "Indemnified Liabilities"), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to (a) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Loan or supported by any Letter of Credit; (b) the entering into and performance of this Agreement and any other Loan Document by any of the Indemnified Parties; 78 84 (c) any investigation, litigation or proceeding related to any environmental cleanup, audit, compliance or other matter relating to the protection of the environment or the release by the Borrower or any of its Subsidiaries of any Hazardous Material; or (d) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or releases from, any real property owned or operated by the Borrower or any Subsidiary thereof of any Hazardous Material (including any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under any Environmental Law), regardless of whether caused by, or within the control of, the Borrower or such Subsidiary, except for any such Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the relevant Indemnified Party's gross negligence or willful misconduct, and if and to the extent that the foregoing undertaking may be unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. 10.13 AGREEMENT CONTROLS. In the event that any term of any of the Loan Documents other than this Agreement conflicts with any term of this Agreement, the terms and provisions of this Agreement shall control. 79 85 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be made, executed and delivered by their duly authorized officers as of the day and year first above written. WITNESS: THE WACKENHUT CORPORATION /s/ KIMBERLY B. SALTRICK - ------------------------ /s/ EMILY A. SAMPLE By /s/ TERRY P. MAYOTTE - ------------------------ ------------------------------- Name: Terry P. Mayotte Title: Treasurer Signature Page 1 86 NATIONSBANK, NATIONAL ASSOCIATION, as Agent for the Lenders By /s/ JOHNS ELLINGTON -------------------------------- Name: Johns Ellington Title: Vice President Signature Page 2 87 NATIONSBANK, NATIONAL ASSOCIATION By /s/ JOHNS ELLINGTON -------------------------------- Name: Johns Ellington Title: Vice President Signature Page 3 88 SCOTIABANC INC. By: /s/ FRANK F. SANDER ------------------- Name: FRANK F. SANDLER ------------------------- Title: RELATIONSHIP MANAGER ------------------------- Lending Office: 600 Peachtree Street, N.E. Suite 2700 Atlanta, Georgia 30308 Wire Transfer Instructions: The Bank of Nova Scotia Liberty Plaza New York, New York 10006 ABA #026002532 Attention: Further Credit # 0735639 ScotiaBanc Inc. Reference: Houston/Atlanta Team Re Wackenhut Signature Page 4 89 EXHIBIT A APPLICABLE COMMITMENT PERCENTAGES
APPLICABLE LENDER REVOLVING CREDIT COMMITMENT - ------ COMMITMENT PERCENTAGE ---------------- ---------- NationsBank, National Association $25,000,000 62.5% Scotiabanc Inc. $15,000,000 37.5% ----------- ---- $40,000,000 100% =========== ====
A-1 90 EXHIBIT B ASSIGNMENT AND ACCEPTANCE DATED , 19 Reference is made to the Amended and Restated Revolving Credit and Reimbursement Agreement dated as of December __ 1997 (the "Credit Agreement") among Wackenhut Corporation, a Florida corporation (the "Borrower"), the Lenders (as defined in the Credit Agreement) and NationsBank, National Association, as agent for the Lenders (the "Agent"). Terms defined in the Credit Agreement are used herein with the same meaning. The "Assignor" and the "Assignee" referred to on Schedule 1 agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, without recourse and without representation or warranty except as expressly set forth herein, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor's rights and obligations under the Credit Agreement and the other Loan Documents as of the date hereof equal to the percentage interest specified on Schedule 1 of all outstanding rights and obligations under the Credit Agreement and the other Loan Documents. After giving effect to such sale and assignment, the Assignee's Commitment and the amount of the Loans owing to the Assignee will be as set forth on Schedule 1. 2. 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 Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any other instrument or document furnished pursuant thereto; (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under the Loan Documents or any other instrument or document furnished pursuant thereto; and (iv) attaches the Note held by the Assignor and requests that the Agent exchange such Note for new Notes payable to the order of the Assignee in an amount equal to the Commitment assumed by the Assignee pursuant hereto and to the Assignor in an amount equal to the Commitment retained by the Assignor, if any, as specified on Schedule 1. B-1 91 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in SECTION 7.17 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Lender 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 Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement as are delegated to the Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Credit Agreement are required to be performed by it as a Lender; and (vi) attaches any U.S. Internal Revenue Service or other forms required under SECTION 4.06. 4. Following the execution of this Assignment and Acceptance, it will be delivered to the Agent for acceptance and recording by the Agent. The effective date for this Assignment and Acceptance (the "Effective Date") shall be the date of acceptance hereof by the Agent, unless otherwise specified on Schedule 1. 5. Upon such acceptance and recording by the Agent, as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. 6. Upon such acceptance and recording by the Agent, from and after the Effective Date, the Agent shall make all payments under the Credit Agreement and the Notes in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and commitment fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement and the Notes for periods prior to the Effective Date directly between themselves. B-2 92 7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of Florida. 8. This Assignment and Acceptance 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 Schedule 1 to this Assignment and Acceptance by telecopier shall be effective as delivery of a manually executed counterpart of this Assignment and Acceptance. IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule 1 to this Assignment and Acceptance to be executed by their officers thereunto duly authorized as of the date specified thereon. B-3 93 SCHEDULE 1 to ASSIGNMENT AND ACCEPTANCE Percentage interest assigned: ________% Assignee's Commitment: $_______ Aggregate outstanding principal amount of Loans assigned: $_______ Principal amount of Note payable to Assignee: $_______ Principal amount of Note payable to Assignor: $_______ Effective Date (if other than date of acceptance by Agent): *_______, 19__ [NAME OF ASSIGNOR], as Assignor By: Title: Dated: , 19 _ [NAME OF ASSIGNEE], as Assignee By: Title: Lending Office: * This date should be no earlier than five Business Days after the delivery of this Assignment and Acceptance to the Agent. B-4 94 Accepted [and Approved] ** this ___ day of ___________, 19 _ NATIONSBANK, NATIONAL ASSOCIATION. By: Title: [Approved this ____ day of ____________, 19__ [WACKENHUT CORPORATION] By: ]** Title: ** Required if the Assignee is an Eligible Assignee solely by reason of clause (iii) of the definition of "Eligible Assignee". B-5 95 EXHIBIT C NOTICE OF APPOINTMENT (OR REVOCATION) OF AUTHORIZED OFFICER Reference is hereby made to the Amended and Restated Revolving Credit and Reimbursement Agreement, dated as of December __, 1997 (the "Agreement") among NATIONSBANK, NATIONAL ASSOCIATION, as Agent for certain Lenders signatory thereto, such Lenders, and THE WACKENHUT CORPORATION (the "Borrower"). Capitalized terms used but not defined herein shall have the respective meanings therefor set forth in the Agreement. The Borrower hereby nominates, constitutes and appoints each individual named below as an Authorized Representative under the Loan Documents, and hereby represents and warrants that (i) set forth opposite each such individual's name is a true and correct statement of such individual's corporate office (to which such individual has been duly elected or appointed), a genuine specimen signature of such individual and an address for the giving of notice, and (ii) each such individual has been duly authorized by the Borrower to act as Authorized Representative thereunder: Name and Address Corporate Office Specimen Signature - ------------------ ------------------- ------------------- - ------------------ ------------------- ------------------- - ------------------ ------------------- ------------------- - ------------------ ------------------- ------------------- - ------------------ ------------------- ------------------- Borrower hereby revokes (effective upon receipt hereof by the Agent) the prior appointment of ________________ as an Authorized Representative. This the ___ day of __________________, 19__. WITNESS: THE WACKENHUT CORPORATION _________________________ By_______________________________ _________________________ Title______________________________ C-1 96 EXHIBIT D-1 BORROWING NOTICE (LOAN) (SECTION 2.04) To: NationsBank, National Association, as Agent 150 S.E. Third Avenue Miami, Florida 33131 Reference is hereby made to the Amended and Restated Revolving Credit and Reimbursement Agreement, dated as of December __, 1997, (the "Agreement") among NATIONSBANK, NATIONAL ASSOCIATION, as Agent for certain Lenders signatory thereto, such Lenders and THE WACKENHUT CORPORATION. Capitalized terms used but not defined herein shall have the respective meanings therefor set forth in the Agreement. The Borrower through its Authorized Representative hereby confirms its prior notice of borrowing given to the Agent by telephone on ____________, 19__ to the effect that Revolving Loans or Conversions of Revolving Loans of the type and amount set forth below be made on the date indicated by deposit of such amount to the Borrower's Account:
Type of Loan Interest Aggregate (check one) Period(1) Amount(2) Date of Loan(3) - ------------ --------- --------- --------------- Base Loan _____ Fixed CD Loan _____ Eurodollar Rate Loan _____
- ----------------------- (1) For any Fixed CD Rate Loan 30, 60, 90 or 180 days and for any Eurodollar Rate Loan, one, two, three or six months. (2) (i) If a Base Rate Loan, in an amount equal to $300,000 or any integral multiple thereof, (ii) if a Fixed CD Rate Loan or Eurodollar Rate Loan, in a minimum amount of $300,000 or, if greater, in additional amounts which are integral multiples of $300,000 in excess thereof. (3) At least two (2) Business Days after date of telephonic notice if a Fixed CD Rate Loan and three (3) Business Days if a Eurodollar Rate Loan; may be same Business Day in the case of Base Rate Loans. D-1-1 97 The undersigned hereby certifies that: 1. No Default or Event of Default exists either now or after giving effect to the borrowing described herein; and 2. All the representations and warranties set forth in the Agreement (other than those expressly stated to refer to a particular date) are true and correct as of the date hereof except that the reference to the financial statements in SECTION 6.03 thereof are to those financial statements most recently delivered to you pursuant to SECTION 7.17 of the Agreement (it being understood that any financial statements delivered pursuant to SECTION 7.17(A) have not been certified by independent public accountants). This the ___ day of ____________, 19__. THE WACKENHUT CORPORATION By: _______________________________ Authorized Representative D-1-2 98 EXHIBIT D-2 FORM OF BORROWING NOTICE--SWING LINE LOANS To: NationsBank, National Association 150 S.E. Third Avenue Miami, Florida 33131 Telefacsimile: 305-___-____ Attention: Corporate Banking Department Reference is hereby made to the Amended and Restated Revolving Credit and Reimbursement Agreement dated as of December __, 1997 (the "Agreement") among the Wackenhut Corporation (the "Borrower"), the Lenders (as defined in the Agreement), and NationsBank, National Association, as Agent for the Lenders ("Agent"). Capitalized terms used but not defined herein shall have the respective meanings therefor set forth in the Agreement. The Borrower through its Authorized Representative hereby confirms its prior notice of borrowing given to the Agent by telephone on _____________, 199_ to the effect that Swing Line Loans in the amount set forth below be made on the date indicated by deposit of such amount to the Borrower's Account: Aggregate Amount (1) Date of Loan ---------- ------------ - ---------------- (1) Must be an integral multiple of $50,000. The undersigned hereby certifies that: 1. No Default or Event of Default exists either now or after giving effect to the borrowing described herein; and 2. All the representations and warranties set forth in the Loan Documents (other than those expressly stated to refer to a particular date) are true and correct in all material respects as of the date hereof as if made on and as of the date hereof except that the reference to the financial statements in SECTION 6.03 thereof are to those financial statements most recently delivered to you pursuant to SECTION 7.17 of the Agreement (it being understood that any financial statements delivered pursuant to SECTION 7.17(A) have not been certified by D-2-1 99 independent public accountants). D-2-2 100 3. After giving effect to Loans requested hereby, (i) the principal amount of outstanding Loans plus Letter of Credit Outstandings will not exceed the Total Revolving Credit Commitment and (ii) Swing Line Outstandings will not exceed $15,000,000. THE WACKENHUT CORPORATION By: --------------------------- Authorized Representative D-2-3 101 EXHIBIT E FORM OF NOTE 1 2 - --------------- [------------, -----------] _______________, 199__ FOR VALUE RECEIVED, THE WACKENHUT CORPORATION, a Florida corporation having its principal place of business located in Coral Gables, Florida (the "Borrower"), hereby promises to pay to the order of ----------------------------------- 3 (the "Lender"), in its individual capacity, at the office of NationsBank, National Association, as agent for the Lender (the "Agent"), located at 150 Southeast Third Avenue, Miami, Florida 33131 (or at such other place or places as the Agent may designate) at the times set forth in the Amended and Restated Revolving Credit and Reimbursement Agreement dated as of December __, 1997 among the Borrower, the financial institutions parties thereto as lenders (collectively, the "Lenders") and the Agent (as the same may be amended, modified or restated from time to time, the "Agreement" -- all capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Agreement), in lawful money of the United States of America, in immediately available funds, the principal amount of [----------------------------------------------]4 DOLLARS ($__________)1 or, if less than such principal amount, the aggregate unpaid principal amount of all Revolving Loans made by the Lender to the Borrower pursuant to the Agreement on the Revolving Credit Termination Date or such earlier date as may be required pursuant to the terms of the Agreement, and to pay interest from the date hereof on the unpaid principal amount hereof, in like money, at said office, on the dates and at the rates provided in ARTICLE II of the Agreement. - ------------------------------- 1 Insert Lender's pro rata share of Total Revolving Commitment in Arabic numerals. 2 Insert name of city of Lender's Principal Office. 3 Insert name of Lender in capital letters 4 Insert Lender's pro rata share of Total Revolving Credit Commitment in words. E-1 102 If payment of all sums due hereunder is accelerated under the terms of the Agreement or under the terms of the other Loan Documents executed in connection with the Agreement, the then remaining principal amount and accrued but unpaid interest shall bear interest which shall be payable on demand at a rate two percent (2%) per annum in excess of the rate at which interest was payable on such amount under the Agreement immediately preceding the date of such acceleration or the maximum rate permitted under applicable law, if lower, until such principal and interest have been paid in full. Further, in the event of such acceleration, this Note, and all other indebtedness of the Borrower to the Lender shall become immediately due and payable, without presentation, demand, protest or notice of any kind, all of which are hereby waived by the Borrower. In the event this Note is not paid when due at any stated or accelerated maturity, the Borrower agrees to pay, in addition to the principal and interest, all costs of collection, including reasonable attorneys' fees, and interest thereon at the rates set forth above. Interest hereunder shall be computed on the basis of a 360 day year for the actual number of days in the interest period. All Persons bound on this obligation, whether primarily or secondarily liable as principals, sureties, guarantors, endorsers or otherwise, hereby waive to the full extent permitted by law the benefits of all provisions of law for stay or delay of execution or sale of property or other satisfaction of judgment against any of them on account of liability hereon until judgment be obtained and execution issues against any other of them and returned satisfied or until it can be shown that the maker or any other party hereto had no property available for the satisfaction of the debt evidenced by this instrument, or until any other proceedings can be had against any of them, also their right, if any, to require the holder hereof to hold as security for this Note any collateral deposited by any of said Persons as security. Protest, notice of protest, notice of dishonor, diligence or any other formality are hereby waived by all parties bound hereon. E-2 103 IN WITNESS WHEREOF, the Borrower has caused this Note to be made, executed and delivered by its duly authorized officer as of the date and year first above written, all pursuant to authority duly granted. WITNESS: THE WACKENHUT CORPORATION By ----------------------------- Title ------------------------- - ------------------------- E-3 104 EXHIBIT F [Reserved] F-1 105 EXHIBIT G-1 OPINION OF VICE PRESIDENT AND LEGAL COUNSEL (SECTION 5.01) See attached. G-1-1 106 EXHIBIT G-2 OPINION OF COUNSEL TO THE GUARANTORS (SECTION 5.01) See attached. G-2-1 107 EXHIBIT H FORM OF GUARANTY AGREEMENT THIS GUARANTY AND SURETYSHIP AGREEMENT, dated as of _________ __, 199_ (the "Guaranty"), is made by _____________________, ____________________ (the "Guarantor"), to the parties named in Section 1 hereof. Except as otherwise defined herein, terms used herein defined in the Revolving Credit and Reimbursement Agreement referred to below shall be used herein as so defined. W I T N E S S E T H: WHEREAS, The Wackenhut Corporation, a Florida corporation (the "Borrower"), the banks party thereto (the "Lenders"), and NationsBank, National Association, as Agent (in such capacity and together with any successor agent in such capacity, the "Agent") have entered into an Amended and Restated Revolving Credit and Reimbursement Agreement dated as of December 30, 1997 (as at any time amended, modified or restated, the "Credit Agreement"); and WHEREAS, the Guarantor is a Subsidiary of the Borrower and has been or may be provided with advances from the Borrower or other working capital made available directly or indirectly by the Lenders under the Credit Agreement, and has thereby materially benefitted or will materially benefit from the loans made to the Borrower pursuant to the Credit Agreement; and WHEREAS, pursuant to the terms of the Credit Agreement the Guarantor is required to deliver this Guaranty; NOW, THEREFORE, in consideration of the premises, the Guarantor hereby agrees as follows: 11. GUARANTY AND SURETY. The Guarantor does hereby absolutely, unconditionally, continually and irrevocably for the benefit of the Agent and the Lenders (collectively, the "Beneficiaries"), guarantee and become surety for the full and timely payment when due (whether by acceleration or otherwise) (including amounts which, but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code (or any successor statute), would become due) of: A. All Obligations as defined in the Credit Agreement; and B. all other indebtedness, obligations and liabilities of the Borrower under written financing arrangements stated by the Guarantor and each of the Beneficiaries to be guaranteed hereby; H-1 108 in each case whether direct or indirect, joint or several, absolute or contingent, liquidated or unliquidated, now or hereafter existing, extended, renewed, replaced, refinanced or restructured, whether or not from time to time decreased or extinguished and later increased, created or incurred (all indebtedness, obligations and liabilities of the Borrower described in this SECTION 1 are collectively referred to as the "Guarantied Obligations"); PROVIDED, HOWEVER, that the liability of the Guarantor with respect to the Guarantied Obligations shall not exceed at any time the Maximum Amount (as hereinafter defined). The "Maximum Amount" means the greater of (X) the aggregate amount of all advances to or investments in the Guarantor made directly or indirectly with the proceeds of Loans under the Credit Agreement or (Y) 95% of (a) the fair salable value of the assets of such Guarantor as of the date hereof minus (b) the total liabilities of the Guarantor (including contingent liabilities, but excluding liabilities of the Guarantor under this Guaranty and the other Loan Documents executed by the Guarantor) as of the date hereof; PROVIDED FURTHER, HOWEVER, that if the calculation of the Maximum Amount in the manner provided above as of the date payment is required of the Guarantor pursuant to this Guaranty would result in a greater positive number, then the Maximum Amount shall be deemed to be such greater positive number. 1. GUARANTY OF PAYMENT. This is a guaranty of payment and not merely of collection. In the event of any default by the original obligor in payment or otherwise on any of the Guarantied Obligations, the Guarantor will pay all or any portion of the Guarantied Obligations due or thereafter becoming due, whether by acceleration or otherwise, without offset of any kind whatsoever, without any Beneficiary first being required to make demand upon the original obligor or pursue any of its rights against the original obligor, or against any other Person, including other guarantors (whether or not party to this Guaranty); and without being required to liquidate or to realize on any collateral security. In any right of action accruing to any Beneficiary, such Beneficiary may elect to proceed against (a) the Guarantor together with the original obligor or obligors; (b) the Guarantor and the original obligor or obligors individually; or (c) the Guarantor only without having first commenced any action against the original obligor or obligors. 2. RIGHT TO DEAL WITH GUARANTIED OBLIGATIONS. Subject to the terms and conditions of the Credit Agreement, any Beneficiary, without notice to Guarantor, may deal with any Guarantied Obligations and any collateral security therefor in such manner as it may deem advisable and may renew or extend the Guarantied Obligations or any part thereof; accept partial payment, or settle, release, compound, or compromise the same; demand additional collateral security therefor, and substitute or release the same; and may compromise or settle with or release and discharge from liability any other guarantor of any Guarantied Obligation, or any other Person liable to such Beneficiary for all or any portion of the obligations of any original obligor; all without impairing the liability of the Guarantor hereunder. 3. OTHER WAIVERS. Guarantor hereby unconditionally waives with respect to this Guaranty: (a) notice of acceptance of this Guaranty by any Beneficiary and any notice of the H-2 109 incurring by the Borrower of any Guarantied Obligation; (b) presentment for payment, protest, notice of protest and notice of dishonor to any party including the Borrower or the Guarantor; (c) any disability of the original obligor or obligors or defense available to the original obligor or obligors, including absence or cessation of any original obligor's liability for any reason whatsoever; (d) any defense or circumstances which might otherwise constitute a legal or equitable discharge of a guarantor or surety; and (e) all rights under any state or federal statute dealing with or affecting the rights of creditors. 4. SUBORDINATION. Until the Guarantied Obligations are paid in full and no Beneficiary is under any further obligation to lend or extend funds or credit which would constitute Guarantied Obligations, Guarantor hereby unconditionally subordinates all present and future debts, liabilities or obligations of the original obligor to such Guarantor to the Guarantied Obligations, and all amounts due under such debts, liabilities, or obligations shall, upon the occurrence and during the continuance of an Event of Default, be collected and paid over forthwith to the Beneficiaries on account of the Guarantied Obligations and, pending such payment, shall be held by the Guarantor as agent and bailee of the Beneficiaries separate and apart from all other funds, property and accounts of the Guarantor. Guarantor, at the request of any Beneficiary, shall execute such further documents in favor of such Beneficiary to further evidence and support the purpose of this SECTION 4. Guarantor hereby irrevocably waives and releases any right or rights of subrogation or contribution existing at law, by contract or otherwise to recover all or any portion of any payment made hereunder from the Borrower or any other guarantor. 5. REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to the Beneficiaries that: (a) no other agreement, representation or special condition exists between the Guarantor and any Beneficiary regarding the liability of the Guarantor under this Guaranty; nor does any understanding exist between the Guarantor and any Beneficiary that the obligations of the Guarantor under this Guaranty are or will be other than as set out herein; and (b) as of the date hereof, the Guarantor has no defense whatsoever to any action or proceeding that may be brought to enforce this Guaranty. Furthermore, the Guarantor affirms to the Beneficiaries that each of the representations and warranties contained in the Credit Agreement and made by the Borrower with respect to the Guarantor is true and correct. 6. NO WAIVER BY BENEFICIARIES. No failure or delay on the part of any Beneficiary in exercising any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof, or the exercise of any other right, power or privilege. Failure by any Beneficiary to insist upon strict performance hereof shall not constitute a relinquishment of its right to demand strict performance at another time. Receipt by any Beneficiary of any payment by any person on any Guarantied Obligation, with knowledge of a default on any Guarantied Obligation or of a breach of this Guaranty, or both, shall not be construed as a waiver of the default or breach. H-3 110 7. CONTINUING GUARANTY; TERMINATION. THIS GUARANTY IS A CONTINUING GUARANTY AND SHALL CONTINUE IN FULL FORCE AND EFFECT UNTIL SUCH TIME AS ALL GUARANTIED OBLIGATIONS SHALL HAVE BEEN INDEFEASIBLY PAID IN FULL (OTHER THAN GUARANTIED OBLIGATIONS IN THE NATURE OF CONTINUING INDEMNITIES OR EXPENSE REIMBURSEMENT OBLIGATIONS NOT YET DUE AND PAYABLE) AND NO BENEFICIARY SHALL BE UNDER ANY FURTHER OBLIGATION TO LEND OR TO ADVANCE FUNDS TO THE ACCOUNT OF THE BORROWER CONSTITUTING GUARANTIED OBLIGATIONS. 8. BENEFITS OF AGREEMENT. This Guaranty is freely assignable and transferable by the Beneficiaries to any permitted assignee and transferee of any Guarantied Obligation; however, the duties and obligations of the Guarantor may not be delegated or transferred by the Guarantor without the written consent of all Beneficiaries. The rights and privileges of the Beneficiaries shall inure to the benefit of their respective successors and assigns, and the duties and obligations of the Guarantors shall bind their respective successors and assigns. 9. EXPENSES; INDEMNITY. The Guarantor will upon demand pay to each Beneficiary the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which it may reasonably incur in connection with enforcement of this Guaranty or the failure by the Guarantor to perform or observe any of the provisions hereof. The Guarantor agrees to indemnify and hold harmless each Beneficiary from and against any and all claims, demands, losses, judgments and liabilities (including liabilities for penalties) of whatsoever kind or nature, growing out of or resulting from this Guaranty or the exercise by any Beneficiary of any right or remedy granted to it hereunder or under the other Loan Documents, other than such items arising out of the bad faith, gross negligence or willful misconduct on the part of such Beneficiary or an officer, co-officer, director, co-director, employee, co-employee, agent or co-agent thereof or breach of this Agreement by such Beneficiary or an officer, co-officer, director, co-director, employee, co-employee, agent or co- agent thereof. If and to the extent that the obligations of the Guarantor under this SECTION 9 are unenforceable for any reason, the Guarantor hereby agree to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. 10. AMENDMENTS, WAIVERS AND CONSENTS. No amendment or waiver of any provision of this Guaranty or consent to any departure by the Guarantor herefrom shall in any event be effective unless the same shall be in writing and signed by the Guarantor and the Agent (which execution by Agent shall be evidence that Agent has received the consent thereto of the Lenders required to effect such amendment or waiver), and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that no such amendment, waiver or consent shall (a) deprive any Beneficiary of the benefits generally of this Guaranty without the written consent of such Beneficiary, or (b) alter the provisions of this SECTION 10 without the written consent of all of the Beneficiaries. H-4 111 11. ADDRESSES FOR NOTICES. All notices and other communications provided for hereunder shall be in writing (including telecopy communication) and shall be sent by registered or certified mail, return receipt requested, or first class express mail or overnight courier, or by telecopy, in all cases with charges prepaid, and shall be effective when delivered against a receipt therefor or when telecopy transmission is confirmed, as the case may be. All notices shall be sent to the applicable party at the address stated on the signature page hereof or in accordance with the last unrevoked written direction from such party to the other parties hereto. 12. INTERPRETATION; PARTIAL INVALIDITY. Whenever possible each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. 13. MISCELLANEOUS; REMEDIES CUMULATIVE. Unless the context of this Guaranty otherwise clearly requires, references to the plural include the singular, the singular the plural and the part the whole and "or" has the inclusive meaning represented by the phrase "and/or." The section headings used herein are for convenience of reference only and shall not define, limit or extend the provisions of this Guaranty. All remedies hereunder are cumulative and are not exclusive of any other rights and remedies of the Beneficiaries provided by law or under the Credit Agreement, the other Loan Documents, or other applicable agreements or instruments. The making of the Loans to the Borrower and the issuance of Letters of Credit pursuant to the Credit Agreement shall be presumed conclusively to have been made, extended or issued, respectively, in reliance upon the obligations of the Guarantor incurred pursuant to this Guaranty. 14. GOVERNING LAW. This Guaranty shall in all respects be governed by the internal substantive laws of the State of Florida without regard to its choice of law principles. Guarantor hereby (i) submits to the jurisdiction and venue of the state and federal courts of Florida for the purposes of resolving disputes hereunder or under any of the other Loan Documents to which it is a party or for the purpose of collection and (ii) to the maximum extent permitted by applicable law, waives trial by jury in connection with any such litigation. 15. REPAYMENT OR RECOVERY. If claim is ever made upon any Beneficiary for repayment or recovery of any amount or amounts received in payment or on account of any of the Guarantied Obligations and any of the Beneficiaries repays all or part of said amount by reason of (a) any judgment, decree or order of any court or administrative body having jurisdiction over such payee or any of its property, or (b) any settlement or compromise of any such claim effected by such Beneficiary with any such claimant (including the original obligor), then and in such event the Guarantor agrees that any such judgment, decree, order, settlement or compromise shall be binding upon it, notwithstanding any revocation hereof or the cancellation of any Revolving Note or other instrument evidencing any Guarantied H-5 112 Obligation or any security therefor, and the Guarantor shall be and remain liable to the aforesaid Beneficiary for the amount so repaid or recovered to the same extent as if such amount had never originally been received by any such Beneficiary. 16. SET-OFF. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of an Event of Default (as defined in the Credit Agreement), Guarantor agrees that each Beneficiary shall have a lien for all the liabilities of the Guarantor upon all deposits or deposit accounts, of any kind, or any interest in any deposits or deposit accounts thereof, now or hereafter pledged, mortgaged, transferred or assigned to such Beneficiary or otherwise in the possession or control of such Beneficiary (other than for safekeeping) for any purpose for the account or benefit of the Guarantor and including any balance of any deposit account or of any credit of the Guarantor with such Beneficiary, whether now existing or hereafter established, hereby authorizing each Beneficiary at any time or times with or without prior notice to apply such balances or any part thereof to such of the liabilities of the Guarantor to such Beneficiary then past due and in such amounts as they may elect, and whether or not the collateral or the responsibility of other Persons primarily, secondarily or otherwise liable may be deemed adequate. For the purposes of this SECTION 16, all remittances and property shall be deemed to be in the possession of such Beneficiary as soon as the same may be put in transit to it by mail or carrier or by other bailee. 17. CREDIT AGREEMENT CONTROLS. In the event that any term of this Guaranty or of any other Loan Document (other than the Credit Agreement) conflicts with any term of the Credit Agreement, then the term of the Credit Agreement shall control. [Remainder of page intentionally left blank] H-6 113 IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered by its officers hereunto duly authorized as of the date first above written. WITNESS: --------------------------------------- - ------------------------ - ------------------------ By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- Address: ------------------------------- ------------------------------- ------------------------------- ------------------------------- Telephone No. ------------------ Telefacsimile No. --------------- H-7 114 NATIONSBANK, NATIONAL ASSOCIATION, AS AGENT FOR THE LENDERS WITNESS: By: - ----------------------- -------------------------------- Name: ------------------------------ Title: - ----------------------- ----------------------------- H-8 115 EXHIBIT I COVENANT COMPLIANCE CERTIFICATE NationsBank, National Association as Agent NationsBank Plaza 150 S.E. Third Avenue Miami, Florida 33131 Attention: Corporate Banking Department Reference is hereby made to the Amended and Restated Revolving Credit and Reimbursement Agreement dated as of December __, 1997 (the "Agreement") among The Wackenhut Corporation (the "Borrower"), the Lenders (as defined in the Agreement) and NationsBank, National Association, as Agent for the Lenders ("Agent"). Capitalized terms used but not defined herein shall have the respective meanings therefor set forth in the Agreement. The undersigned, a duly authorized and acting Authorized Representative, hereby certifies to you as of __________ [insert Determination Date] as follows: 1. CALCULATIONS:
A. COMPLIANCE WITH SECTION 7.06: CONSOLIDATED NET WORTH 1. CONSOLIDATED NET WORTH AT THE LAST DAY OF THE MOST RECENT FISCAL QUARTER $_________ 2. CONSOLIDATED NET INCOME X 50% $_________ 3. NET PROCEEDS OF SALE OF BORROWER'S CAPITAL STOCK X 75% $_________ 4. SUM OF A.1 + A.2 + A.3 $_________ 5. ACTUAL CONSOLIDATED NET WORTH $_________ REQUIRED: LINE A.5 MUST NOT BE LESS THAN LINE A.4 B. COMPLIANCE WITH SECTION 7.07: INDEBTEDNESS 1. CONSOLIDATED FUNDED DEBT: $__________ 2. FUNDED DEBT OF WCC $__________ 3. B.1 - B.2 $__________
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4. CONSOLIDATED TOTAL CAPITALIZATION $__________ 5. B.3 divided by B.4 ___________ 6. OUTSTANDING TRADE RECEIVABLES SUBJECT TO ASSET SECURITIZATION FACILITY $__________ 7. ADDITIONAL INDEBTEDNESS DESCRIBED IN SECTION 7.07(B)(VI) $__________ REQUIRED: LINE B.5 MUST NOT EXCEED .40. LINE B.6 MUST NOT EXCEED $75,000,000. LINE B.7 MUST NOT EXCEED $15,000,000. C. COMPLIANCE WITH SECTION 7.08: FIXED CHARGE RATIO 1. CONSOLIDATED NET INCOME $__________ 2. INCOME TAXES DEDUCTED IN ARRIVING AT C.1 $__________ 3. FIXED CHARGES $__________ 4. C.1 + C.2 + C.3 $__________ 5. RATIO OF C.4 TO C.3 ___ TO 1.00 REQUIRED: LINE C.5 MUST NOT BE LESS THAN 1.50 TO 1.00. D. COMPLIANCE WITH SECTION 7.11: RESTRICTED PAYMENTS 1. RESTRICTED PAYMENTS SINCE DECEMBER 30, 1997 $__________ 2. CONSOLIDATED NET INCOME SINCE DECEMBER 31, 1997 X .50 $__________ 3. D.2 + $5,000,000 $__________ 4. D.3 - D.1 $__________ LINE D.4 MUST BE EQUAL TO OR GREATER THAN 0.
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E. COMPLIANCE WITH SECTION 7.20: LOANS TO WCC 1. LOANS AND ADVANCES TO WCC $__________ SINCE CLOSING DATE REQUIRED: LINE E.1 MUST NOT EXCEED $1,500,000.
2. NO DEFAULT A. TO THE BEST KNOWLEDGE OF THE UNDERSIGNED, SINCE __________ (THE DATE OF THE LAST SIMILAR CERTIFICATION), (A) THE BORROWER HAS NOT DEFAULTED IN THE KEEPING, OBSERVANCE, PERFORMANCE OR FULFILLMENT OF ANY OF THE LOAN DOCUMENTS; AND (B) NO DEFAULT OR EVENT OF DEFAULT SPECIFIED IN ARTICLE VIII OF THE AGREEMENT HAS OCCURRED. B. IF A DEFAULT OR EVENT OF DEFAULT HAS OCCURRED SINCE __________ (THE DATE OF THE LAST SIMILAR CERTIFICATION), THE BORROWER PROPOSES TO TAKE THE FOLLOWING ACTION WITH RESPECT TO SUCH DEFAULT OR EVENT OF DEFAULT: ------------------------------------------------------------- (NOTE, IF NO DEFAULT OR EVENT OF DEFAULT HAS OCCURRED, INSERT "NOT APPLICABLE"). 3. ADDITIONAL SUBSIDIARIES LISTED ON THE SCHEDULE OF ADDITIONAL PERSONS ATTACHED HERETO IS A TRUE AND CORRECT DESCRIPTION OF ALL SUBSIDIARIES IN RESPECT OF WHICH THE BORROWER IS REQUIRED PURSUANT TO SECTION 7.19 OF THE AGREEMENT TO DELIVER OR CAUSE TO BE DELIVERED A GUARANTY AGREEMENT AND RELATED DOCUMENTS NOT LATER THAN THE DATE OF THIS CERTIFICATE, AND ALL DOCUMENTS SO REQUIRED TO BE DELIVERED IN RESPECT OF EACH SUCH PERSONS ARE DELIVERED TO YOU SIMULTANEOUSLY HEREWITH. THE DETERMINATION DATE IS THE DATE OF THE LAST REQUIRED FINANCIAL STATEMENTS SUBMITTED TO THE LENDERS IN ACCORDANCE WITH SECTION 7.17 OF THE AGREEMENT. IN WITNESS WHEREOF, I HAVE EXECUTED THIS CERTIFICATE THIS _____ DAY OF __________, 19___. ------------------------------------------- AUTHORIZED REPRESENTATIVE FOR THE WACKENHUT CORPORATION I-3 118 SCHEDULE OF ADDITIONAL PERSONS TO COMPLIANCE CERTIFICATE ___________________, 199__ [INSERT APPLICABLE DETERMINATION DATE] [PROVIDE FOR EACH SUBSIDIARY LISTED THE SAME INFORMATION FURNISHED ON SCHEDULE 6.01 OF THE AGREEMENT IN RESPECT OF SUBSIDIARIES] I-4 119 SCHEDULE 1.01 EXISTING LCS
L/C BENEFICIARY ISSUER NUMBER AMOUNT - ----------- ------ ------ ------ NATIONAL UNION FIRE NATIONSBANK, N.A. 41313 $21,391,997 INSURANCE COMPANY OF PITTSBURGH THAI FARMERS BANK NATIONSBANK, N.A. 40078 $ 39,200 WACKENHUT MOZAMBIQUE NATIONSBANK, N.A. 40644 $ 3,551 BANCO DE LARA-CARACAS NATIONSBANK, N.A. 900210 $ 200,000 VENEZUELA BANK OF AMERICA NT & SA NATIONSBANK, N.A. 911760 $ 1,200,000 ATHENS, GREECE THE HOME INSURANCE CO. NATIONSBANK, N.A. 913820 $ 591,292 RISCORP INSURANCE CO. NATIONSBANK, N.A. 920535 $ 523,797 CONTINENTAL CASUALTY NATIONSBANK, N.A. 920772 $ 704,500 (CNA) STATE OF NEVADA NATIONSBANK, N.A. 920942 $ 100,000 DIVISION OF INS.
120 SCHEDULE 6.01 SUBSIDIARIES OF THE BORROWER
PERCENTAGE OF VOTING STOCK OWNED JURISDICTION OF BY BORROWER NAME OF SUBSIDIARY INCORPORATION OR SUBSIDIARY ------------------ --------------- ------------------- AMERICAN GUARD AND ALERT, INCORPORATED ALASKA 100% DIVERSIFIED CORRECTIONAL SERVICES, INCORPORATED FLORIDA 100% TITANIA ADVERTISING, INCORPORATED FLORIDA 100% TITANIA INSURANCE COMPANY OF AMERICA VERMONT 100% TUHNEKCAW, INC. DELAWARE 100% WACKENHUT AIRLINE SERVICES, INC. FLORIDA 100% WACKENHUT CORRECTIONS CORPORATION FLORIDA 55% WACKENHUT EDUCATIONAL SERVICES, INC. FLORIDA 100% WACKENHUT FINANCIAL, INC. DELAWARE 100% WACKENHUT INTERNATIONAL, INCORPORATED FLORIDA 100% WACKENHUT OF NEVADA, INC. NEVADA 100% WACKENHUT SERVICES, INCORPORATED FLORIDA 100% WACKENHUT SERVICES LIMITED LIABILITY COMPANY COLORADO 100% WACKENHUT SPORTS SECURITY, INC. FLORIDA 100% WACKENHUT RESOURCES, INCORPORATED FLORIDA 100% SUBSIDIARIES OF WACKENHUT INTERNATIONAL, INCORPORATED WACKENHUT BELIZE LTD. BELIZE 100% WACKENHUT BOLIVIA BOLIVIA 85% WACKENHUT S.A. COSTA RICA 73% WACKENHUT DOMINICANA, S.A. DOMINICAN REPUBLIC 90% WACKENHUT DEL ECUADOR, S.A. ECUADOR 90% WACKENHUT GUATAMALA GUATAMALA 51% WACKENHUT DE HONDURAS, S.A. HONDURAS 80% WACKENHUT JAMAICA JAMAICA 51% WACKENHUT MEXICO SEGURIDAD MEXICO 54% WACKENHUT NICARAGUA NICARAGUA 51% WACKENHUT PARAGUAY S.R.L. PARAGUAY 80% PERUANA DE SEGURIDAD Y VIGILANCIA, S.A. PERU 70% WACKENHUT PUERTO RICO, INC. PUERTO RICO 100% WACKENHUT EL SALVADOR EL SALVADOR 90% WACKENHUT URUGUAY URUGUAY 75% WACKENHUT VENEZUELA VENEZUELA 51% WACKENHUT WITCORP FLORIDA 100% WACKENHUT ENGLAND ENGLAND 100% WACKENHUT FRANCE FRANCE 100% WACKENHUT CZECH REPUBLIC CZECH REPUBLIC 92% WACKENHUT AUSTRALIA AUSTRALIA 100% WACKENHUT RUSSIA RUSSIA 67% WACKENHUT GAMBIA GAMBIA 100% WACKENHUT JORDAN JORDAN 51% WACKENHUT PAKISTAN PAKISTAN 75% WACKENHUT CAMEROUN CAMEROUN 100%
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WACKENHUT MOROCCO MOROCCO 100% WACKENHUT SIERRA LEONE SIERRA LEONE 90% WACKENHUT MOZAMBIQUE MOZAMBIQUE 100% WACKENHUT IVORY COAST IVORY COAST 60% WACKENHUT CENTRAL AFRICAN REPUBLIC AFRICA 51% WACKENHUT GHANA GHANA 51% SUBSIDIARIES OF WACKENHUT RESOURCES, INCORPORATED OASIS OUTSOURCING, INC. FLORIDA 94% KING STAFFING, INC. FLORIDA 100% SOUTHEASTERN RESOURCES, INC. FLORIDA 100% WORKFORCE ALTERNATIVE, INC. FLORIDA 100% KING TEMPORARY STAFFING, INC. FLORIDA 100% WRI II, INC. FLORIDA 100% PROFESSIONAL EMPLOYEE MANAGEMENT, INC. FLORIDA 100%
122 SCHEDULE 6.04 DESCRIPTION OF INDEBTEDNESS AND LEASES (AS OF 12/29/97) 1. FUNDED DEBT OF THE BORROWER AND ITS SUBSIDIARIES DESCRIPTION AMOUNT - ----------- ------ REVOLVING CREDIT LINE FOR START-UP AND WORKING 5,621,820 CAPITAL FOR A CORRECTIONAL FACILITY IN AUSTRALIA. LINE EXPIRES IN JUNE 1998 AND IS FULLY SECURED BY L/C'S ISSUED BY LENDER'S PARENT. REVOLVING CREDIT LINE FOR WORKING CAPITAL FOR (EST.) 1,056,150 OPERATIONS IN CANADA FULLY SECURED BY PARENT ---------- GUARANTY. $6,677,970 ========== 2. CURRENT DEBT OF THE BORROWER AND ITS SUBSIDIARIES: NONE 3. CAPITALIZED LEASES OF THE BORROWER AND ITS SUBSIDIARIES: NONE 4. LETTERS OF CREDIT OUTSTANDING:
BENEFICIARY ISSUER LC NUMBER AMOUNT - ----------- ------ --------- ------ CREDIT LYONNAIS CREDIT LYONNAIS 940128LS917 (A$)1,000,000 AUSTRALIA LIMITED 940112LS895 (A$)3,500,000 (AUSTRALIAN DOLLARS) 950629LS888 (A$)50,000 950629LS889 (A$)4,000,000 950508LS367 (A$)50,000 BANCO SECURITY COMMERZBANK 1C015067878 $2,000,000 ATLANTA AGENCY
123 SCHEDULE 6.06 LITIGATION EXCEPT FOR ORDINARY ROUTINE AND NON-MATERIAL LITIGATION INCIDENTAL TO THE COMPANY'S BUSINESS, THERE ARE NO MATERIAL LEGAL PROCEEDINGS TO WHICH THE COMPANY OR ANY OF ITS SUBSIDIARIES IS PARTY OR OF WHICH ANY OF THEIR PROPERTY IS SUBJECT. 124 SCHEDULE 7.10 EXISTING LIENS WACKENHUT CORRECTIONS CORPORATION FLORIDA S/S WACKENHUT CORRECTIONS CORPORATION NEW YORK S/S (ORDINARY) NEW YORK S/S (FIXTURE) WACKENHUT CORRECTIONS CORPORATION NEW YORK, QUEENS COUNTY (ORDINARY) NEW YORK, QUEENS COUNTY (FIXTURE) WCC RE HOLDINGS, INC.. FLORIDA S/S WCC RE HOLDINGS, INC. COLORADO S/S (ORDINARY) COLORADO S/S (FIXTURE) WCC RE HOLDINGS, INC. COLORADO, ADAMS COUNTY (ORDINARY) COLORADO, ADAMS COUNTY (FIXTURE) WCC RE HOLDINGS, INC. CALIFORNIA S/S (ORDINARY) CALIFORNIA S/S (FIXTURE) WCC RE HOLDINGS, INC. CALIFORNIA, KERNS COUNTY (ORDINARY) CALIFORNIA, KERNS COUNTY (FIXTURE) EX-4.2 3 RECEIVABLES PURCHASE AGREEMENT 1 Exhibit 4.2 TRANSFER AND ADMINISTRATION AGREEMENT Dated as of December 30, 1997 Among WACKENHUT FUNDING CORPORATION, AS TRANSFEROR and THE WACKENHUT CORPORATION, INDIVIDUALLY AND AS SERVICER and ENTERPRISE FUNDING CORPORATION, AS PURCHASER and NATIONSBANK, N.A., AS AGENT 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I THE COMMITMENT SECTION 1.1. Commitment....................................................................2 SECTION 1.2. Purchase and Reinvestment Limits..............................................3 SECTION 1.3. Making Purchases from the Transferor..........................................3 SECTION 1.4. Number of Undivided Interests.................................................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...........................................5 SECTION 1.8. Limitation of Ownership Interest..............................................5 SECTION 1.9. Special Undivided Interests...................................................5 SECTION 1.10. Benefits of Agreement.........................................................6 ARTICLE II UNDIVIDED INTEREST AND PURCHASER'S SHARE SECTION 2.1. Undivided Interest............................................................6 SECTION 2.2. Purchaser's Investment........................................................7 SECTION 2.3. Net Pool-Balance..............................................................9 SECTION 2.4. Shares........................................................................9 ARTICLE III SETTLEMENTS SECTION 3.1. Non-Run Off Settlement Procedures for Collections..................................................................10 SECTION 3.2. Run Off-Settlement Procedures for Collections..................................................................12 SECTION 3.3. Special Settlement Procedures: Reduction of Purchaser's Investment, Etc...............................................13 SECTION 3.4. Reporting....................................................................16 SECTION 3.5. Payments and Computations, Etc...............................................16 SECTION 3.6. Dividing or Combining Undivided Interests....................................................................17 SECTION 3.7. Treatment of Collections and Deemed Collections..................................................................17 ARTICLE IV FEES AND YIELD PROTECTION SECTION 4.1. Fees.........................................................................18 SECTION 4.2. Yield Protection.............................................................19 ARTICLE V CONDITIONS OF PURCHASES SECTION 5.1. Conditions Precedent to Initial Purchase.....................................................................21
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SECTION 5.2. Conditions Precedent to All Purchases and Reinvestments............................................................24 SECTION 5.3. Additional Condition Precedent to Purchases....................................................................25 ARTICLE VI REPRESENTATIONS AND WARRANTIES SECTION 6.1. Representations and Warranties of the Transferor...................................................................25 SECTION 6.2. Representations and Warranties of the Servicer.....................................................................30 ARTICLE VII GENERAL COVENANTS OF THE TRANSFEROR AND SERVICER SECTION 7.1. Affirmative Covenants of the Transferor...................................................................34 SECTION 7.2. Reporting Requirements of the Transferor...................................................................37 SECTION 7.3. Negative Covenants of the Transferor. .......................................39 SECTION 7.4. Affirmative Covenants of Servicer............................................40 SECTION 7.5. Reporting Requirements of Servicer...........................................42 SECTION 7.6. Negative Covenants of the Servicer...........................................44 SECTION 7.7. Financial Covenants of the Servicer..........................................46 ARTICLE VIII ADMINISTRATION AND COLLECTION SECTION 8.1. Designation of Servicer......................................................48 SECTION 8.2. Successor Notice: Servicer Transfer Event........................................................................48 SECTION 8.3. Subcontracts.................................................................48 SECTION 8.4. Duties of Servicer...........................................................49 SECTION 8.5. Allocation of Collections; Segregation. .....................................49 SECTION 8.6. Modification of Receivables..................................................49 SECTION 8.7. Documents and Records........................................................49 SECTION 8.8. Certain Duties to the Transferor.............................................50 SECTION 8.9. Lock-Box Accounts............................................................50 SECTION 8.10. Rights of the Agent..........................................................50 SECTION 8.11. Rights on Servicer Transfer Event............................................51 SECTION 8.12. Responsibilities of the Transferor...........................................51 SECTION 8.13. Further Action Evidencing Purchases..........................................52 SECTION 8.14. Application of Collections...................................................53 ARTICLE IX SECURITY INTEREST SECTION 9.1. Grant of Security Interest...................................................53 SECTION 9.2. Further Assurances...........................................................53
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SECTION 9.3. Remedies.....................................................................54 ARTICLE X [RESERVED] ARTICLE XI TERMINATION SECTION 11.1. Termination Events...........................................................54 SECTION 11.2. Remedies.....................................................................56 ARTICLE XII THE AGENT SECTION 12.1. Authorization and Action.....................................................57 SECTION 12.2. Agents' Reliance, Etc........................................................57 SECTION 12.3. Agents and Affiliates........................................................58 ARTICLE XIII BANK COMMITMENT; ASSIGNMENT OF PURCHASER'S INTEREST SECTION 13.1. Rights as Bank Investor......................................................58 SECTION 13.2. Indemnification of the Agent.................................................59 SECTION 13.3. Non-Reliance.................................................................59 SECTION 13.4. Payments by the Agent........................................................60 SECTION 13.5. Bank Commitment; Assignment to Bank Investors....................................................................60 SECTION 13.6. Restrictions on Assignments..................................................64 SECTION 13.7. Rights of Assignee...........................................................64 SECTION 13.8. Authorization of Agent.......................................................65 SECTION 13.9. Notice of Assignment.........................................................65 SECTION 13.10. Evidence of Assignment; Endorsement of Certificate...............................................................65 SECTION 13.11. Rights of Support Providers..................................................65 ARTICLE XIV INDEMNIFICATION SECTION 14.1. Indemnities by the Transferor................................................66 SECTION 14.2. Contest of Tax Claim; After-Tax Basis........................................68 SECTION 14.3. Contribution.................................................................69 ARTICLE XV MISCELLANEOUS SECTION 15.1. Amendments, Etc..............................................................69 SECTION 15.2. Notices, Etc.................................................................69 SECTION 15.3. No Waiver; Remedies..........................................................70 SECTION 15.4. Binding Effect; Survival.....................................................70 SECTION 15.5. Costs, Expenses and Taxes....................................................71 SECTION 15.6. No Proceedings...............................................................71
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SECTION 15.7. NationsBank Program Confidentiality..........................................72 SECTION 15.8. Confidentiality of the Transferor Information..................................................................74 SECTION 15.9. Captions and Cross References................................................76 SECTION 15.10. Integration..................................................................77 SECTION 15.11. Governing Law................................................................77 SECTION 15.12. Waiver Of Jury Trial.........................................................77 SECTION 15.13. Consent To Jurisdictions Waiver Of Immunities...................................................................77 SECTION 15.14. Execution in Counterparts....................................................78 SECTION 15.15. Purchaser's Liabilities......................................................78 SECTION 15.16. Agent's Liabilities..........................................................78 SECTION 15.17. Delegation of Servicer's Duties. ............................................78 SECTION 15.18. Characterization of the Transactions Contemplated by this Agreement...............................................78 Appendix A Definitions Appendix B Calculation of Discount and Reserve Appendix C Definitions to Financial Covenants Schedule 2.3(b) Form of Concentration Limit Certificate Schedule 5.1(a) Form of Certificate of Assignments Schedule 5.1(h) Form of Lock Box Agreement Schedule 5.1(i) Form of opinion of Akerman, Sentersitt & Eidson, P.A. Schedule 13.5 (b) Form of Assignment and Assumption Agreement Schedule 5.1(p)(i) Purchase and Sale Agreement Schedule 5.1 (p)(ii) Amended and Restated Purchase and Sale Agreement Schedule 6.1(j) Litigation Schedule 6.1(n) Location of Transferor's books, records and documents Schedule 6.2(n) Location of Services, books, records and documents Schedule 6.2(o) Lock Box Accounts
v 6 TRANSFER AND ADMINISTRATION AGREEMENT Dated as of December 30, 1997 THIS IS A 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 assigns, and NATIONSBANK, N.A., a national banking association ("NATIONSBANK"), as agent for Enterprise and the Bank Investors (in such capacity, the "AGENT") and as a Bank Investor (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 1 7 case may be, to maintain its Purchaser's Investment fully invested in uncollected Pool Receivables. 5. NationsBank 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 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(B). 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 Facility Limit. 2 8 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 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) $60,000,000 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 11:00 a.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 11:00 a.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 (or, if then funding, an Enterprise Liquidity Provider or Enterprise Credit Support Provider, as applicable) 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 3 9 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 Investors Percentage of such Purchase Price (determined pursuant to SECTION 1.3(B)) in same day funds, and the Agent will make such funds immediately available to the Transferor at such office. SECTION 1.4. NUMBER OF UNDIVIDED INTERESTS. The number of Undivided Interests hereunder at any one time, after giving effect to any Purchase, Reinvestment, division or combination, shall not exceed 8 for the Purchaser, individually or for the Bank Investors, collectively. SECTION 1.5. COMMITMENT TERMINATION DATE. (a) The "COMMITMENT TERMINATION DATE" shall be the earlier to occur of (i) December 29, 1998 (herein, as the same may be extended, called the "SCHEDULED COMMITMENT TERMINATION DATE"), and (ii) the date of Termination of the Commitment pursuant to SECTION 1.7 or 11.2. (b) The then Scheduled Commitment Termination Date may be extended from time to time beginning with December 29, 1998, 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 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. As to the Purchaser or any Bank Investor (a) the "PURCHASE TERMINATION DATE" with respect to such entity shall be the earlier to occur of (i) the Commitment Termination Date and (ii) the date of termination of the Commitment with respect to Purchases by the Purchaser or the Bank Investors, as the case may be, pursuant to SUBSECTIONS (B) OR (C) HEREOF. (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 4 10 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. 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. 5 11 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) 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 + DR + LR + SFR -- ------------------------------- NPB NPB 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 2.02; DF = the Discount Factor of such Undivided Interest at such time, as determined pursuant to PART I of APPENDIX B; DR = the Dilution Reserve of such Undivided Interest at such time, as determined pursuant to PART II of APPENDIX B; 6 12 LR = the Loss 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. 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) 7 13 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. (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 Liquid ity 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 Interest described in CLAUSES (I) and 8 14 (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 LIMIT" for any Obligor or Government Obligor (Government Obligors in the aggregate may not exceed 15% of the Net Pool Balance at any time as set forth on Schedule 2.03(b)) 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. (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 in the form of SCHEDULE 2.03(B) delivered to the Transferor (it being understood that the most recent writing at any time delivered to the Transferor shall supersede each previous writing). (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 9 15 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 (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. (a) 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 10 16 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 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 11 17 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 deposit for the Agent to distribute funds in payment in full of the aforementioned amounts, the Agent shall distribute funds 12 18 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 (other than any adjustment permitted by SECTION 8.2(C) unless the Agent, the Purchaser or any Bank Investor, as the case may be, shall reasonably object thereto within 30 days of being informed thereof); 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. 13 19 (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 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, 14 20 (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 (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 15 21 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 SECTION [ ] hereof unless otherwise notified 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 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 16 22 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 SECTIONS 1.1 and 1.4 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. 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 17 23 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 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 letters dated the date the conditions precedent set forth in Section 5.1 are first satisfied, from the Agent to the Transferor (the "FEE LETTERS"). (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. 18 24 (c) DEALER FEE. The dealer fee is set forth in CLAUSE (II) of the definition of Commercial Paper Rate. SECTION 4.2. YIELD PROTECTION. (a) If (i) Regulation D or (ii) any Regulatory Change occurring after the date hereof: (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); 19 25 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 (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 20 26 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 INITIAL PURCHASE. The initial Purchase hereunder is subject to the condition precedent that the Agent shall have received, on or before the date of such Purchase, the following, each (unless otherwise indicated) dated such date and in form and substance satisfactory to the Agent: (a) A Certificate of Assignment for the Agent on behalf of the Purchaser, in substantially the form attached hereto as SCHEDULE 5.1(A); (b) A copy of the resolutions of the Board of Directors of the Transferor approving this Agreement, the Receivables Purchase Agreement, the Certificate of Assignments and the other Agreement Documents to be delivered by it hereunder and the transactions contemplated hereby, certified by its Secretary or Assistant Secretary; (c) a copy of the resolutions of the Board of Directors of Wackenhut approving this Agreement, the Receivables Purchase Agreement, the Purchase and Sale Agreement and the other Agreement Documents to be delivered hereunder and thereunder, certified by its Secretary or Assistant Secretary; (d) a copy of the resolutions of each Originator approving the Purchase and Sale Agreement and the other Agreement Documents to be delivered hereunder and thereunder and as certified by the Secretary or Assistant Secretary of each Originator; (e) A Good Standing Certificate for the Transferor, Wackenhut and each Originator issued by the Secretary of State or a similar official of the Transferor's, the Servicer's and each Originator's jurisdiction of incorporation and certificates of qualification as a foreign corporation issued by the Secretaries of State or other similar officials of each jurisdiction when such qualification is material to the transactions contemplated by this Agreement, the Receivables Purchase Agreement, the Purchase and Sale Agreement and 21 27 the other Agreement Documents, in each case, dated a date reasonably prior to such date; (f) A certificate of the Secretary or Assistant Secretary of each of the Transferor, Wackenhut and each Originator certifying the names and true signatures of the officers authorized on its behalf to sign this Agreement, the Purchase and Sale Agreement, the Receivables Purchase Agreement, the Certificate of Assignments and the other Agreement 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, Wackenhut or the applicable Originator, as applicable, a revised certificate meeting the requirements of this SUBSECTION (F)); (g) The Articles of Incorporation of each of the Transferor, Wackenhut and each Originator, 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, Wackenhut and each Originator, duly certified by the Secretary or an Assistant Secretary of the Transferor, Wackenhut and such Originator, as applicable; (h) Acknowledgment copies of proper Financing Statements (Form UCC-1 and in the case of clause (iv) below, Form UCC-3), filed on or prior to the date of the initial Purchase, naming (i) each Originator as debtor/seller, the Seller as secured party and the Transferor as assignee and filed in connection with transactions contemplated by the Purchase and Sale Agreement, (ii) the Seller as debtor/seller, the Transferor as secured party and the Agent as assignee and filed in connection with transactions contemplated by the Receivables Purchase Agreement, (iii) the Transferor as the debtor/seller of Receivables or an undivided interest therein and the Agent, on behalf of the Purchaser and the Bank Investors, as the secured party/purchaser, and (iv) the Transferor as assignor, and the Agent, on behalf of the Purchaser and the Bank Investors, as assignee, of the security interests evidenced by the financing statement(s) referred to in clause (i) above, or other, similar instruments or documents, as may be necessary or, in the opinion of the Agent, desirable under the UCC or any comparable law of all appropriate jurisdictions to perfect the Agent's interests in all Undivided Interests assigned to it on behalf of the Purchaser or the Bank Investors or otherwise created or arising hereunder; 22 28 (i) A search report provided in writing to the Agent by LEXIS Document Services, 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 filings were made pursuant to SUBSECTION (H) above 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); (j) Duly executed copies of Lock-Box Agreements with each of the Lock-Box Banks, in substantially the form attached hereto as SCHEDULE 5.1(H); (k) A favorable opinion of associate General Counsel for the Transferor, Wackenhut, each Originator and Servicer, in substantially the form of SCHEDULE 5.1(I); (l) A favorable opinion of Akerman, Senterfitt & Eidson, P.A.,covering certain bankruptcy and insolvency matters in form and substance satisfactory to Purchaser's counsel; (m) Such sublicenses as the Agent shall require with regard to all programs leased by the Transferor, Wackenhut, any Originator or Servicer and used in the servicing of the Receivables Pool; (n) Such powers of attorney as the Agent shall reasonably request to enable the Agent to collect all amounts due under any and all Pool Receivables; (o) A Periodic Report as of the most recent Month End Date; (p) Evidence (i) of the execution and delivery by Wackenhut and each Originator of the Purchase and Sale Agreement (substantially in the form attached hereto as SCHEDULE 5.1(P)(I)) and each other Agreement Document to be executed and delivered in connection therewith, (ii) of the execution and delivery by the Seller and the Transferor of the Receivables Purchase Agreement (substantially in the form attached hereto as SCHEDULE 5.1(P)(II)), and each other Agreement Document to be executed and delivered in connection therewith, and (iii) that each of the conditions precedent to the execution, delivery and effectiveness of the Purchase and Sale Agreement and each other Agreement Document has been satisfied; 23 29 (q) Executed Letter Agreement (Segregation of Funds) of even date herewith between Wackenhut Funding Corporation and NationsBank; (r) A computer tape or disc containing such information relating to each of the Pool Receivables the subject of the first Purchase hereunder as is satisfactory to the Agent; and (s) Evidence of the payment of all fees required to be paid prior to closing. 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 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 24 30 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. 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, with 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. (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, 25 31 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, 26 32 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. (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 G, 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 27 33 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, (ii) in favor of the Purchaser or any Bank Investor or the Agent 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; or (iii) in favor of NationsBank, or any successor, as described in SECTION 11.1. (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 chief place of business and chief executive office of the Transferor are located at the address of the Transferor referred to in SECTION 13.2, 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 8.5 has been taken and completed). 28 34 (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 6.1(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) SERVICING PROGRAMS. Any and all programs used by the Transferor or the Servicer in the servicing of the Receivables Pool are owned by the Transferor or the Servicer, as applicable, and not leased or licensed. (r) 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. (s) 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. (t) 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. (u) 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. (v) 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. 29 35 (w) 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 EXHIBIT 6.1(W) 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). (x) NO TERMINATION EVENT. No event has occurred and is continuing and no condition exists which constitutes a Termination Event or an Unmatured Termination Event. (y) 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 jurisdiction of its organization, with 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 30 36 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. (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 31 37 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. (h) FINANCIAL CONDITION. (x) The consolidated balance sheets of the Servicer and its consolidated subsidiaries as at September 30, 1997, and the related statements of income and shareholders, equity of it and its consolidated subsidiaries for the fiscal year then ended, copies of which have been furnished to the Agent, fairly present the consolidated financial condition, business, business prospects and operations of it and its consolidated subsidiaries as at such date and the consolidated results of the operations of it and its consolidated subsidiaries for the period ended on such date all in accordance with generally accepted accounting principles consistently applied, and (y) since September 30, 1997 there has been no material adverse change in any such condition, business, business prospects or operations except as described in SCHEDULE 6.2(H). (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. 32 38 (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 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(I). (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 located at its address referred to in SECTION 13.2, 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 8.5 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) 33 39 (or have been notified to the Agent in accordance with SECTION 7.3(D)). (p) SERVICING PROGRAMS. Any and all programs used by the Servicer in the servicing of the Receivables Pool are owned by it and not leased or licensed. (q) 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 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 34 40 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 Coopers & Lybrand or other 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. Keep its chief 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 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 8.5 shall have been taken and completed. (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. 35 41 (h) MINIMUM NET WORTH. The Transferor shall at all times maintain a minimum Net Worth of not less than 10% of the Net Pool Balance; (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 36 42 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 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 45 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 the vice president and treasurer, chief financial officer or chief accounting officer of the Transferor; together with a certificate 37 43 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; (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 the Transferor's chief financial officer 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 regis tration 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 38 44 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 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 39 45 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 8.2, 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 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 or location 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: (a) COMPLIANCE WITH LAWS, ETC. Comply in all material respects with all applicable laws, rules, 40 46 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) DUE DILIGENCE. Servicer shall permit the Agent and its authorized representatives to make, or cause to be made, on or prior to March 31, 1998, such reasonable investigation and physical inspections of the Servicer, its servicing facilities and its financial and legal condition as the Agent deems necessary or advisable. In connection with such inspection, the Servicer shall further permit the Agent and its authorized representatives (including legal counsel and independent accountants) upon reasonable notice to have full access to the properties, assets, personnel (including the Servicer's accountants) and its relevant books and records during reasonable business hours, and the Servicer will furnish the Agent and/or such representatives with such financial and operating data and other information and copies of documents with respect to the Receivables, and the servicing and the servicing operations of the Servicer as the Agent and/or such representatives shall from time to time reasonably request. (d) 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 41 47 Coopers & Lybrand or other 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. (e) 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. (f) 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. (g) LOCATION OF RECORDS. Keep its chief 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 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 8.5 shall have been taken and completed. (h) 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. (i) 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 42 48 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 the vice president and treasurer, chief financial officer or chief accounting officer of the Servicer; 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 con tained in SECTION 7.6; (b) ANNUAL FINANCIAL STATEMENTS. As soon as available and in any event within 90 days after the end of each fiscal year of the Transferor, 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 vice president and treasurer, chief financial officer or chief accounting officer 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 7.6; (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 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 43 49 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, prop erty 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) 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 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 8.2, extend, amend or otherwise 44 50 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) SOURCE OF BUSINESS. At any time permit more than 50% of the Transferor's aggregate consolidated revenues to be derived from businesses other than from the protective and/or correctional services business. (f) MERGERS, ACQUISITIONS, LINE OF BUSINESS. Be a party to any merger or consolidation, or purchase or otherwise acquire all or substantially all of the assets, or any stock of any class of, or any partnership or joint venture interest in any other Person, or, except in the ordinary course of its business, sell transfer, convey or lease all or any substantial part of its assets, or sell or assign with or without recourse, any receivables (other than pursuant hereto), or permit any Subsidiary to do any of the foregoing, PROVIDED, HOWEVER, that: (i) any Subsidiary may merge or consolidate with or into the Transferor 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; (ii) the Servicer may consolidate or merge with any other corporation if (1) either (x) the Servicer shall be the surviving or continuing corporation or (y) the surviving corporation is organized and existing under the laws of the United States of America or any state thereof or the District of Columbia and such continuing or surviving corporation expressly assumes in writing, in form and substance satisfactory to the Agent, all obligations of the Servicer under this 45 51 Agreement, (2) 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 (3) after giving effect to such consolidation or merger the Servicer or such surviving corporation, as the case may be, could incur at least $1.00 of additional Consolidated Funded Debt without causing Consolidated Funded Debt to exceed 60% of Total Capitalization; (iii) 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; and (iv) the Servicer and each Subsidiary may enter into, any agreement, contract or arrangement, providing for the acquisition of any Person or all or substantially all of the assets of any Person (however structured); but if the amount to be paid exceeds $5,000,000, the Servicer may do so only if it shall, at least 30 days prior to consummation of such transaction, have furnished to the Agent a certificate of an authorized financial officer of Seller (x) certifying that after giving effect to such acquisition no Unmatured Termination Event or Termination Event will have occurred hereunder, and (y) containing calculations conclusively demonstrating that after giving effect to the proposed transaction, and for the prior twelve months, if the transaction had been consummated at the beginning of such twelve month period, the Servicer will not be, and would not have been, in violation of any covenant contained in SECTIONS 7.3(F) and 7.3(G) hereof. (g) CORPORATE IDENTITY. At any time change its name, identity, corporate structure or location 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 here under in order to maintain a first perfected ownership interest in favor of the Transferor pursuant to the Receivables Purchase Agreement. 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 Appendix C). (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 46 52 Consolidated Net Worth at the Closing Date and (ii) as at the last day of each 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) 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. (B) LIMITATIONS ON TOTAL DEBT. (i) The Servicer will at all times keep and maintain Consolidated Funded Debt in an amount not to exceed 40% of Total Capitalization (excluding Funded Debt of WCC). (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 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 representing amounts received by the Servicer or any Subsidiary in exchange for the transfer of interests in trade receivables under the Asset Securitization Facility in excess of the amounts repaid to the purchasers in respect of such purchase price from collections on such trade receivables, which shall at no time exceed $75,000,000 in aggregate amount outstanding, and (vi) Indebtedness in an aggregate amount for the Servicer and all Subsidiaries (other than WCC) taken as a whole not greater than $15,000,000. (iii) Any corporation which becomes a Subsidiary after the date hereof shall for all purposes of this SECTION 7.7 be deemed to have created, assumed or incurred at the time it becomes a Subsidiary all Indebtedness of such corporation existing immediately after it becomes a Subsidiary. (C) FIXED CHARGES COVERAGE RATIO. The Servicer will at all times keep and maintain the ratio of Net Income Available for Fixed Charges, determined as of the last day of each fiscal quarter for the immediately preceding Four-Quarter Period, to Fixed Charges for such Four-Quarter Period, at not less than 1.50:1.00. 47 53 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 8.1(B), 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 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 the occurrence of any Termination Event listed in any of clauses (A), (E), (F), (G), (H), (I), (1) or (K) of SECTION 10.1 or any 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 48 54 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 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 49 55 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 Lock-Box Control Event (as such term is defined in the Letter Agreement (Segregation of Funds) of even date herewith between Wackenhut and NationsBank), Servicer shall deliver to the Agent, in its capacity as Lock-Box Segregation Agent thereunder, a list, referred to in such Letter Agreement as the Identification List, setting forth those Collections held by Servicer and by each Lock- Box Bank and received prior to said Business Day, and designating such Collections as Collections in respect of Pool Receivables or as Collections not subject to this Agreement. The Segregation Agent's duties shall be governed solely by the terms of such Letter Agreement and no other duties or terms shall be implied therein. 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(I) shall no longer be true, the Agent is hereby authorized to give notice to the Lock-Box Banks, as provided in the 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 50 56 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 the Transferor 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 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 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. 51 57 (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 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 13.1. (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 statement referred to in SECTION 5.1(F) 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: 52 58 (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 referred to in SECTION 5.1(I) (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 delivered pursuant to SECTION 5.1(I) with respect to the matters set forth in paragraph No. [ ] of EXHIBIT 5.1(I) and otherwise to the effect that all of the Undivided Interests hereunder continue to be first and prior perfected security interests. 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 8.5 shall apply to the security interest granted under SECTION 9.1 as well as to the Purchases and all Undivided Interests hereunder. 53 59 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 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 54 60 (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 of any Affiliate of either 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 of any Affiliate of either 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 Affiliate of any thereof; or (f) 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 Affiliate of any thereof, or (ii) any material development not so disclosed has occurred in any litigation (including, without limitation, derivative actions), arbitration proceedings or 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 Affiliate of any thereof or impair the ability of the Transferor or Servicer to perform its obligations under this Agreement; or (g) After any Settlement Date, the Aggregate Required Allocations shall exceed the Required Allocations Limit; or (h) The Losses to Liquidations Ratio exceeds 2%; or (i) Three-Month Default Ratio at any time exceeds 6%; or 55 61 (j) Three-Month Dilution Ratio at any time 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(N) 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 Affiliate 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 or any Originator; 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; or (p) The Aggregate Required Allocations shall at any time exceed the Required Allocations Limit. 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 shall, at the request, or may with the consent, of the Purchaser, by notice to the Transferor declare the Commitment 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 Commitment Termination Date shall be deemed to have occurred automatically upon the occurrence of such event; 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 56 62 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 Commitment Termination Date had not occurred upon the commencement of such Involuntary Federal Proceeding. (c) 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 or the general applicability of ARTICLE XIII hereof, 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 shall be deemed to have assumed any obligation or relationship of trust or agency with or for the Transferor or any Originator or any of their respective successors and assigns. SECTION 12.2. AGENTS' RELIANCE, ETC. Neither the Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or the Agent under or in connection with this Agreement (including, without limitation, the servicing, administering or collecting Pool Receivables as Servicer pursuant to SECTION 8.1), except for its or their own gross negligence or willful misconduct. Without limiting the generality of the foregoing, the Agent: (a) may consult with legal counsel (including counsel for the Transferor), independent 57 63 certified public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (b) makes no warranty or representation to the Purchaser, any Bank Investor or any other holder of any interest in Pool Receivables and shall not be responsible to the Purchaser, any Bank Investor or any such other holder for any statements, warranties or representations made in or in connection with this Agreement; (c) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of the Transferor or to inspect the property (including the books and records) of the Transferor; (d) shall not be responsible to the Purchaser any Bank Investor or any other holder of any interest in Pool Receivables for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, the Certificate of Assignments or any Agreement Document; and (e) shall incur no liability under or in respect of this Agreement by acting upon any notice (including notice by telephone), consent, certificate or other instrument or writing (which may be by facsimile or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 12.3. AGENTS AND AFFILIATES. NationsBank 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 NationsBank 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. ARTICLE XIII BANK COMMITMENT; ASSIGNMENT OF PURCHASER'S INTEREST SECTION 13.1. RIGHTS AS BANK INVESTOR. With respect to its Bank Commitment, NationsBank (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. NationsBank (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 Trans feror and the Agent or any of their Subsidiaries or affiliates as if it were not acting as Agent, and NationsBank (and any successor acting as Agent) and its affiliates may accept fees and other 58 64 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 PROVIDED, HOWEVER, or the transactions contemplated 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 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 59 65 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 2.1 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, at any time on or prior to the Commitment Termination Date (i) upon the occurrence of a Termination Event that results in the Commitment Termination Date or (ii) 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 13.6(D) below. Provided that the Net Asset Test is satisfied, upon any such election by the Purchaser or any such request by the Transferor, the Purchaser shall make such assignment and the Bank Investors shall accept 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 13.5, each Bank Investor shall, on the date of such assignment, pay to the Purchaser an amount equal to its Assignment Amount. 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 60 66 and the Agent. In the case of an assignment by the Purchaser to the Bank Investors or 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 Company 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 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, 61 67 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 Receiv ables, 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 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 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. 62 68 (e) DOWNGRADE OF BANK INVESTOR. If at any time prior to any assignment by the Purchaser to the Bank Investors as contem plated 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, respec tively, 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 this 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. 63 69 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 NationsBank, 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 NationsBank) 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 (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 NationsBank, 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 NationsBank, the Enterprise Liquidity Provider or the Enterprise Credit Support Provider or any Affiliate of NationsBank, 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) 64 70 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. 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 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 13.1 (collectively, the "ASSIGNEE PARTIES", each an "ASSIGNEE PARTY"), or any of them, may exercise all the rights of NationsBank (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 8.2(A), may give a Successor Notice pursuant to SECTION 8.1(A), may give or require the Agent to give notice to the Lock-Box Banks as referred to in SECTION 8.3(A), and may direct the Obligors of Pool Receivables to make payments in respect thereof directly to an account designated by them (provided that such Assignee Party shall designate a single account for the 65 71 making of such payments with respect to any Pool Receivable), in each case, to the same extent as NationsBank (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, the Enterprise Liquidity Support Provider, the Enterprise Credit Support Provider, NationsBank, each of and NationsBank'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: (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; 66 72 (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; (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 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. 67 73 (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 or (b) recourse (except as otherwise specifically provided in this Agreement) for Defaulted Receivables and Delinquent Accounts. 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)(IX), such Indemnified Party shall give prompt and timely notice of such attempt to the Transferor and the 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 68 74 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 above in this SECTION 14.3 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 Bank Investors, as applicable (and, if ARTICLE IX 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 or (vi) extend or permit the extension of the Commitment Termination Date. 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 69 75 communication) and shall be personally delivered or sent by certified mail, postage prepaid, or 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, NationsBank, 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 NationsBank 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 NationsBank, 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 NationsBank, 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 XIII 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 not 70 76 permitted by SECTION 13.1. 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 XIII, the Transferor agrees to pay on demand: (a) all costs and expenses incurred by the Agent, the Purchaser, each Bank Investor, NationsBank, 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 and NationsBank, individually and as Agent, 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 71 77 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. NATIONSBANK PROGRAM CONFIDENTIALITY. Each party hereto (other than NationsBank) acknowledges that NationsBank 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 NationsBank 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, this Agreement or any transaction contemplated hereby, (ii) any information regarding the organization or business of Enterprise generally, or (iii) any information regarding NationsBank which is designated by NationsBank 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 NationsBank, or to such other Information Provider as shall have furnished it with any Information, all documents or other written material received from NationsBank or such other Information Provider which constitute or contain any Information described in SUBCLAUSE (B) or (C) of CLAUSE (I) 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. 72 78 (e) Notwithstanding CLAUSE (I) of SUBSECTION (A), 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) 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 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 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 demand or similar process) to disclose any of the Information, such party will (or will cause its representatives to): provide NationsBank with prompt written notice so that (A) Enterprise, NationsBank, or any other Information Provider may seek a protective order or other appropriate remedy, or (B) NationsBank 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 NationsBank 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 NationsBank 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 NationsBank 73 79 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 NationsBank 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 (III) 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, 5.1(M), 5.1(N), 6.1(I), 6.1(J), 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"), 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 74 80 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 Investments or any Bank Investor's 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 such of the Enterprise Liquidity Provider, Enterprise Credit Support Provider, assignee, 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, Enterprise Liquidity Provider or Enterprise Credit Support Provider, NationsBank under or in connection with this Agreement, who (A) in the good faith belief of such party, have a need to know such the 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 the Transferor Information. (c) In the event that any party hereto (other than the Transferor) or any of its representatives is requested or becomes 75 81 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 the 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 the Transferor Information pursuant to such request or legal compulsion; (ii) unless the Transferor agrees that such the Transferor Information may be disclosed, make a timely objection to the request or compulsion to provide such the Transferor Information on the basis that such the 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 the 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 the 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 the 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 76 82 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 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 BE 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 ANY 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 IN 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. 77 83 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 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 Merrill Lynch Money Markets Inc. 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 Merrill Lynch Money Markets Inc. 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 NationsBank 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 78 84 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. - SIGNATURE PAGES FOLLOW - 79 85 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 -------------------------------------- Title ---------------------------------- 4200 Wackenhut Drive, No. 100 Palm Beach Gardens, Florida 33410 Facsimile: (561) 691-6648 Attention: Corey Glover Telephone: (561) 622-5656 THE WACKENHUT CORPORATION, as Servicer By -------------------------------------- Title ---------------------------------- 4200 Wackenhut Drive, No. 100 Palm Beach Gardens, Florida 33410 Facsimile: (561) 691-6648 Attention: Corey Glover Telephone: (561) 622-5656 ENTERPRISE FUNDING CORPORATION, as Purchaser By -------------------------------------- Title ---------------------------------- c/o Merrill Lynch Money Markets Inc. World Financial Center - South Tower 225 Liberty Street - 8th Floor New York, New York 10080 Attention: Stewart Cutler Telephone: (212) 449-7468 Facsimile: (212) 449-8939 80 86 NATIONSBANK, N.A., as Agent By -------------------------------------- Title: Senior Vice President 100 North Tryon Street 10th Floor Charlotte, North Carolina 28255 Attention: Structured Finance Group Michelle M. Heath Telephone: (704) 386-7922 Facsimile: (704) 388-9169 Commitment: NATIONSBANK, N.A., $61,200,000__________ as Bank Investor By -------------------------------------- Title: Senior Vice President 100 North Tryon Street 10th Floor Charlotte, North Carolina 28255 Attention: Structured Finance Group Michelle M. Heath Telephone: (704) 386-7922 Facsimile: (704) 388-9169 81 87 APPENDIX A DEFINITIONS This is APPENDIX A to the Transfer and Administration Agreement dated as of December 30, 1997 among Wackenhut Funding Corporation, The Wackenhut Corporation, and Enterprise Funding Corporation, and NationsBank, N.A., as Agent (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 hereinbelow: "ADJUSTED AVERAGE MATURITY" has the meaning set forth in APPENDIX B. "AGENT" has the meaning set forth in the preamble. "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, NationsBank, and any holding company of NationsBank. "AFFILIATE" when used with respect to a Person, means any other Person controlling, controlled by, or under common control with, such Person. "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. A-1 88 "AGREEMENT DOCUMENTS" means this Agreement, the Purchase and Sale Agreement, the Receivables Purchase Agreement, the Certificate of Assignments and the other documents to be executed and delivered in connection herewith. "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 2.5. "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. "ALTERNATE REFERENCE RATE" has the meaning set forth in APPENDIX B. "ASSIGNMENT AMOUNT" with respect to a Bank Investor shall mean at any time 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 unused Commitment. "ASSIGNMENT AND ASSUMPTION AGREEMENT" means an Assignment and Assumption Agreement substantially in the form of Exhibit B attached hereto. "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 A-2 89 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) NationsBank 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. "CERTIFICATE OF ASSIGNMENTS" means each certificate of assignment, by the Transferor to a Purchaser, in the form of EXHIBIT 5.1(A), evidencing an Undivided Interest. "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). A-3 90 "CONDITIONS PRECEDENT" has the meaning set forth in SECTION 5.2. "CONSOLIDATED FUNDED DEBT" means all Funded Debt of Wackenhut and its Subsidiaries determined on a consolidated basis eliminating intercompany items. (a) any gains on the sale or other disposition of Investments or fixed or capital assets, and any taxes on such excluded gains and any tax deductions or credits on account of any such excluded losses; (b) the proceeds of any life insurance policy except for proceeds received during such period with respect to deferred compensation plans to the extent that Seller or any Subsidiary recognized any expenses during such period with respect to such plans; (c) net earnings and losses of any Subsidiary accrued prior to the date it became a Subsidiary; (d) net earnings and losses of any corporation (other than a Subsidiary), substantially all the assets of which have been acquired in any manner by Wackenhut or any Subsidiary, realized by such corporation prior to the date of such acquisition; (e) net earnings and losses of any corporation (other than a Subsidiary) with which Wackenhut or a Subsidiary shall have consolidated or which shall have merged into or with Wackenhut or a Subsidiary prior to the date of such consolidation or merger; (f) net earnings of any business entity (other than a Subsidiary) in which Wackenhut or any Subsidiary has an ownership interest unless such net earnings shall have actually been received by Wackenhut or such Subsidiary in the form of cash distributions; (g) any portion of the net earnings of any Subsidiary which for any reason is unavailable for payment of dividends to Wackenhut or any other Subsidiary; (h) earnings resulting from any reappraisal, revaluation or write-up of assets; (i) any deferred or other credit representing any excess of the equity in any Subsidiary at the date of acquisition thereof over the amount invested in such Subsidiary; (j) any gain arising from the acquisition of any Securities of Wackenhut or any Subsidiary; and A-4 91 (k) any reversal of any contingency reserve, except to the extent that provision for such contingency reserve shall have been made from income arising during such period. "CONSOLIDATED NET WORTH" means at any time as of which the amount thereof is to be determined, the sum of the following in respect of Wackenhut and its Subsidiaries (on a consolidated basis and excluding intercompany items): (i) the amount of issued and outstanding share capital, PLUS (ii) the amount of additional paid-in capital and retained income (or, in the case of a deficit, minus the amount of such deficit), MINUS (iii) the sum of the following (without duplication of deductions in respect of items already deducted in arriving at surplus and retained earnings): (A) all reserves, except legal reserves and other contingency reserves (i.e., reserves not allocated to specific purposes and not deducted from assets), which are properly treated as appropriations of surplus or retained earnings; (B) any treasury stock, capital stock subscribed and unissued and other contra-equity accounts; and (C) the cumulative amount of any net write-up of asset values after the date of the audit immediately preceding the date of revolver, plus or minus, as the case may be (iv) the cumulative effect of foreign exchange valuations. "CONSOLIDATED TOTAL ASSETS" means as of the date of any determination thereof the total amount of all assets of Wackenhut and its Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles. "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 referred to in SECTION 8.2(A) and described in SCHEDULE A-1, and as modified from time to time in compliance with SECTION 7.3(C). "CURRENT DEBT" of any Person as of the date of any determination thereof means (i) all Indebtedness of such Person for borrowed money other than Funded Debt of such Person and (ii) Guaranties by such Person of Current Debt of others. "DEFAULTED RECEIVABLE" means, without duplication, a Receivable: (a) as to which any payment, or part thereof, remains unpaid for 120 days 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. A-5 92 "DELINQUENT RECEIVABLE" means a Receivable that is not a Defaulted Receivable and: (a) as to which any payment, or part thereof, remains unpaid for 60 days or more from the original invoice date for such Receivable; or (b) which, consistent with the Credit and Collection Policy, would be classified as delinquent by the Transferor. "DESIGNATED OBLIGOR" means, at any time, all Obligors of the Transferor except any such Obligor 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 not be considered a Designated Obligor. "DISCOUNT FACTOR" has the meaning set forth in APPENDIX B. "DOMESTIC CD RATE (ADJUSTED)" has the meaning set forth in APPENDIX B. "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 address 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 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 Transferor or an Originator (except as permitted by Schedule 2.3(b)), as applicable, and which is generated by the Transferor 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 30 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 A-6 93 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 parties hereto; (f) the Obligor of which is a Designated Obligor; (g) the Obligor of which is not the private sector Obligor of Defaulted Receivables aggregating more than 15% of such Obligor's total obligations to the Transferor and each Originator; (h) which is not a Defaulted Receivable; (i) with regard to which the warranty of the Transferor in SECTION 6.1(L) is true and correct; (j)(x) the sale of 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, and (y) in the case of Receivables generated by an Originator, the sale of which to the Transferor 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; (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); A-7 94 (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 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 A-8 95 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 C. "EVENT OF BANKRUPTCY" shall be deemed to have occurred with respect to a Person if either: (a) 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 (b) 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. "FACILITY" has the meaning set forth in SECTION 1.1 of the Purchase and Sale Agreement. "FACILITY FEE" has the meaning set forth in the fee letter. "FACILITY LIMIT" means an amount equal to $61,200,000. "FEDERAL RESERVE BOARD" means the Board of Governors of the Federal Reserve System, or any successor thereto or to the functions thereof. A-9 96 "FEE LETTERS" has the meaning set forth in SECTION 4.1(A). "FIXED CHARGES" for any period means on a consolidated basis the sum of (i) 100% of Rentals (other than Rentals on Capitalized Leases) payable during such period by Wackenhut and its Subsidiaries other than WCC and (ii) all Interest Charges on all indebtedness (including, without duplication, the interest component of Rentals on Capitalized Leases and the Earned Discount and fees and expenses payable under this Agreement) of Wackenhut and its Subsidiaries other than WCC payable during said period by Wackenhut. "FUNDED DEBT" of any Person shall mean (i) all Indebtedness of such Person for borrowed money or which has been incurred in connection with the acquisition of assets, including all payments in respect thereof that are required to be made within one year from the date of any determination of Funded Debt, whether or not the obligation to make such payments shall constitute a current liability to the obligor under GAAP, (ii) all Capitalized Rentals of such Person (iii) all Guaranties by such Person of Funded Debt of others,(iv) with respect to Funded Debt of Wackenhut, the product of (x) the aggregate amounts available for drawing under all outstanding Letters of Credit, and (y).50; and (v) to the extent not otherwise included in clauses (i) through (iv) above, the Aggregate Total Investments. "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. A-10 97 "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). "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. "INVOLUNTARY FEDERAL PROCEEDING" has the meaning set forth in SECTION 10.2(B). "LETTER OF CREDIT ISSUER" means NationsBank as issuer of a Letter of Credit. "LOCK-BOX AGREEMENT" means a letter agreement, in substantially the form of EXHIBIT 5.1(H), between the Transferor and any Lock-Box Bank. "LOCK-BOX BANK" means any of the banks holding one or more lock-box accounts for receiving Collections from Pool Receivables. "LOSSES" means, at any time, with respect to the Receivables Pool, the sum of (x) all Receivables theretofore fully reserved against by the Transferor or Servicer plus (y), without duplication, all Receivables theretofore sent to attorneys or collection agencies to be collected plus (z), 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. "LOSS RESERVE DISCOUNT" has the meaning set forth in SECTION 2.1 of the Purchase and Sale Agreement. A-11 98 "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 ASSET TEST" shall mean in connection with any assignment by the Purchaser to the Bank Investors of an interest in the Aggregate Purchaser's Investment pursuant to Section 13.5 hereof, that as of the day immediately preceding the day on which such transfer is to take effect, the Net Pool Balance shall be greater than or equal to the Aggregate Purchaser's Investment. "NET POOL BALANCE" has the meaning set forth in SECTION 2.3(A). "NET WORTH" shall mean the Net Pool Balance minus the Aggregate Purchaser's Investment minus the outstanding principal balance of the Initial Purchaser's Note minus all other liabilities of the Transferor. "NOTE FEE" has the meaning set forth in SECTION 4.1(E). "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. "PROGRAM FEE" shall have the meaning set forth in the Fee Letter. A-12 99 "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). "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 A-13 100 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. "REGULATORY CHANGE" means, relative to any Affected Party: (a) any change in (or the adoption, implementation, phase-in 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 (3) 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 A-14 101 (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 1.01(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 casey 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. "REMAINING COLLECTIONS" has the meaning set forth in SECTION 3.01(A)(II). "RENTALS", with respect to any lease, means and includes as of the date of any determination thereof, all fixed payments (including as such all payments which the lessee is obligated to make to the lessor on termination of the lease or surrender of the Property) payable by Wackenhut or a Subsidiary, as lessee or sublessee under a lease of real or personal property, but shall be exclusive of any amounts required to be paid by Wackenhut or a Subsidiary (whether or not designated as rents or additional rents) on account of maintenance, repairs, insurance, taxes and similar A-15 102 charges. Fixed rents under any so-called "percentage leases" shall be computed solely on the basis of the minimum rents, if any, required to be paid by the lessee regardless of sales volume or gross revenues. "REQUIRED ALLOCATIONS" has the meaning set forth in SECTION 2.01. "REQUIRED ALLOCATIONS LIMIT" has the meaning set forth in SECTION 1.02(B). "RESERVE PERCENTAGE" has the meaning set forth in APPENDIX B. "RESTRICTED INVESTMENTS" means all Investments in any Person, other than: (a) Investments by Wackenhut and its Subsidiaries in and to Subsidiaries, including any investment in a corporation which, after giving effect to such Investments, will become a Subsidiary; (b) Investments in (i) commercial paper maturing in 270 days or less from the date of issuance and which, at the time of acquisition by Wackenhut or any Subsidiary, is accorded one of the two highest ratings by Standard & Poor's Corporation or Moody's Investors Service, Inc.; (ii) Variable Rate Demand Notes of issuers whose commercial paper, at the time of acquisition, is accorded one of the two highest ratings by Standard & Poor's Corporation or Moody's Investors Service, inc.; or (iii) Direct obligations of any State of the United States of America or of any political subdivision thereof located in the United States of America and which, at the time of acquisition, is accorded one of the two highest ratings by Standard & Poor's Corporation or Moody's Investors Service, Inc., maturing in twelve months or less from the date of acquisition; (c) Investments in direct obligations of the United States of America, or investments in any Person, which Investments are guaranteed by the full faith and credit of the United States of America, in either case maturing in twelve months or less from the date of acquisition thereof by Wackenhut or any Subsidiary; (d) Investments in certificates of deposit maturing within one year from the date of issuance thereof, issued by a bank or trust company organized under the laws of the United States or any state thereof, having capital, surplus and undivided profits aggregating at least $100,000,000 and whose long-term certificates of deposit are, at the time of acquisition thereof by Wackenhut or any Subsidiary, rated A by A-16 103 Standard & Poor's Corporation or A by Moody's Investors Service, Inc.; (e) Loans or advances in the usual and ordinary course of business to officers, directors and employees for expenses (including moving expenses related to a transfer) incidental to carrying on the business of Wackenhut or any Subsidiary; PROVIDED, HOWEVER that Wackenhut may make up with aggregate at any one time outstanding, up to $300,000 of such loans or advances which are not incidental to carrying on the business of Wackenhut or any Subsidiary; (f) receivables arising from the sale of goods and services in the ordinary course of business of Wackenhut and its Subsidiaries; and (g) PROVIDED, HOWEVER, that with respect to investments made by or on behalf of Titania Insurance Company of America, a Vermont Corporation, the following shall not be Restricted Investments; (1) Certificates of deposit, time deposits and banker's acceptance maturing within one year from the date of acquisition, issued by a bank or trust company organized under the laws of the United States or any state thereof, or any foreign bank whose branch is organized under-the laws of the United States or any state thereof, having capital, surplus and undivided profits aggregating at least $100,000,000 and whose long-term certificates of deposit are, at the time of acquisition, rated at least A by Standard & Poor's Corporation or Moody's Investors Service, Inc.; (2) Repurchase Agreements with any domestic bank with debt rated 'AA' or better by Standard & Poor's Corporation, or any foreign bank rated at least 'AA' by Standard & Poor's Corporation and 'Aa' by Moody's Investors Service, Inc.; or repurchase agreements with such other Persons on such terms as Wackenhut and Agent shall agree in writing; provided the term of all such repurchase agreements is for one year or less; (3) Direct obligations of the United States of America, or Investments in any Person, which Investments are guaranteed by the full faith and credit of the United States of America; (4) Mortgage-backed securities issued by the United States Government or any agency or instrumentality thereof, having at the time of acquisition, a A-17 104 credit rating of at least AA by a nationally recognized rating service; (5) Bonds, notes and other direct obligations (other than those referred to in clause (b), above) of any corporation domiciled in the United States of America, or a State of the United State of America, or of any sovereign or supranational institution whose obligations are denominated in United States dollars, at the time of acquisition rated at least A by a nationally recognized rating service. Obligations of sovereign or supranational institutions at the time of acquisition, shall be rated at least AA by a nationally recognized rating service; (6) Preferred stock obligations of any corporation domiciled in the United States of America, whose obligations at the time of acquisition are rated at least A by a nationally recognized rating service; (7) Shares in mutual funds that invest solely in investments of the types described in clause (b)(i), clause (b)(iii), clause (3), clause (4), clause (5) and/or clause (6) above and have assets in excess of $100,000,000; (8) Any Investments (other than the Investments set forth in clause (b) and clause (1) through clause (7) inclusive, above), provided that the aggregate fair value for all such investments shall not, at any time, exceed five percent (5%) of the aggregate fair value of all Investments set forth in clause (1) through (8) inclusive, above. For the purposes of this subsection (8) only, fair value shall mean the greater of book value or fair market value. 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. "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 A-18 105 time when any of the conditions set forth in SECTION 5.02 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 1.02(A). "SECURITY" shall have the same meaning as in Section 2(l) of the Securities Act of 1933, as amended. "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 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 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 8.01(A). "SERVICER TRANSFER EVENT" has the meaning set forth in SECTION 8.01(B). "SERVICER'S FEE", has the meaning set forth in APPENDIX B. "SERVICER'S FEE RESERVE" has the meaning set forth in APPENDIX B. A-19 106 "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). "SUCCESSOR NOTICE" has the meaning set forth in SECTION 8.1(B). A-20 107 "TERMINATION DATE" for any Undivided Interest means the Commitment Termination Date. "TERMINATION EVENT" has the meaning set forth in SECTION 10.1. "THREE-MONTH DEFAULT RATIO" means the ratio (expressed as a percentage) computed as of any Month End Date by dividing (x) the aggregate Unpaid Balance of all Defaulted Receivables calculated as at each of the three most recent Month End Dates less Losses (without giving effect to CLAUSE (Z) of the definition thereof) at the three preceding fiscal Month End Dates by (y) the aggregate Unpaid Balance of all Pool Receivables calculated as at each of the three most recent Month End Dates less Losses (without giving effect to CLAUSE (Z) of the definition thereof) at the three most recent fiscal Month End Dates. "THREE-MONTH DILUTION RATIO" means the ratio (expressed as a percentage) computed as of each Month End Date by dividing (x) the aggregate reduction in the Unpaid Balance of all Pool Receivables arising from dilutive credits during the three immediately preceding fiscal months by (y) Collections of Pool Receivables received during such period. "TOTAL CAPITALIZATION" means the sum of (i) Consolidated Funded Debt PLUS (ii) Consolidated Net Worth. "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. A-21 108 "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 applicable Managing Agent shall select, after consultation with the Transferor, pursuant to SECTIONS 1.03 or 2.01(B); 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; 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. A-22 109 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-23 110 APPENDIX B CALCULATION OF DISCOUNT AND RESERVE This is APPENDIX B to the Transfer and Administration Agreement dated as of December 30, 1997 among Wackenhut Funding Corporation, The Wackenhut Corporation, Enterprise Funding Corporation and NationsBank, N.A. (as amended, supplemented or otherwise modified from time to time, the "Agreement"). Capitalized terms used in this APPENDIX B without definition have the meanings assigned to such terms in APPENDIX A or APPENDIX C to the Agreement. Each reference in this APPENDIX B to any Section refers to such Section of the Agreement. Each reference in this APPENDIX B to any Part refers to the part of this APPENDIX B so designated. PART I DISCOUNT FACTOR
Sub- PART TERM PAGE NO. - ---- ---- -------- A. Discount Factor................................................. B-2 B. Earned Discount................................................. B-2 C. Negative Spread Fee............................................. B-3 D. Run Off Discount................................................ B-3 E. Rate Definitions................................................ B-4 Alternate Reference Rate.................................. B-4 Bank Rate................................................. B-5 Commercial Paper Rate..................................... B-5 Domestic CD Rate (Adjusted)............................... B-5 Domestic CD Rate.......................................... B-6 Assessment Rate........................................... B-6 Reserve Requirement....................................... B-6 Eurodollar Rate (Reserve Adjusted)........................ B-8 Purchaser Rate............................................ B-9 F. Rate Variance Factor............................................ B-10
B-1 111 PART II LOSS RESERVE; DILUTION RESERVE
Sub- PART TERM PAGE NO. - ---- ---- -------- A. Loss Reserve B-10 B. Reserve Percentage.............................................. B-10 C. Dilution Reserve................................................ B-10 PART III SERVICER'S FEE RESERVE A. Servicer's Fee Reserve.......................................... B-11 B. Servicer's Fee.................................................. B-11 C. Run Off Servicer's Fee.......................................... B-10 PART IV ADJUSTED AVERAGE MATURITY A. Adjusted Average Maturity....................................... B-12 B. Average Maturity................................................ B-12
------------------------------------ PART I DISCOUNT FACTOR A. DISCOUNT FACTOR. The "DISCOUNT FACTOR" for a related Undivided Interest at any time in a Yield Period means an amount determined as follows: DF = ED + ROD WHERE: DF = the Discount Factor of such Undivided Interest at such time; ED = Earned Discount of such Undivided Interest accrued and unpaid at such time, as determined pursuant to PART I.B; ROD = Run Off Discount of such Undivided Interest at such time, as determined pursuant to PART I.D. B. EARNED DISCOUNT. The "EARNED DISCOUNT" for any B-2 112 Undivided Interest for each day in a related Yield Period means an amount determined as follows: ED = [PI x (PR + PF) x 1/360] + NSF (if any); ED = Earned Discount of such Undivided Interest (or such portion) accrued on such day; PI = the Purchaser's Investment of such Undivided Interest (or such portion) on such day, as determined pursuant to SECTION 2.02; PR = the Purchaser Rate for such Undivided Interest (or such portion) on such day, as defined in PART I.E.; PF = the Program Fee consisting of the fee as calculated pursuant to the Fee Letters; and NSF = the Negative Spread Fee for such Undivided Interest or such portion thereof) on such day, as defined in PART C. No provision of the Agreement shall require the payment or permit the collection of Earned Discount in excess of the maximum permitted by applicable law. Earned Discount for any Undivided Interest shall not be considered paid by any distribution if at any time such distribution is rescinded or must otherwise be returned for any reason. C. NEGATIVE SPREAD FEE. The "NEGATIVE SPREAD FEE" means, for each Undivided Interest (or portion thereof) for each day in any Yield Period during which any Run Off Day or Termination Date for such Undivided Interest occurs, the amount, if any, by which; (i) the additional Earned Discount (calculated without taking into account any Negative Spread Fee) which would have accrued on the reductions of the related Purchaser's Investment of such Undivided Interest (or such portion) during such Yield Period (as so computed) if such reductions had remained as Purchaser's Investment exceeds, (ii) the income, if any, received by the owner of such Undivided Interest (or such portion) from such owner's investing the proceeds of such reductions of Purchaser's Investment. D. RUN OFF DISCOUNT. The "RUN OFF DISCOUNT" for the related Undivided Interest at any time means an amount determined as follows: ROD = PI X (PR + RVF) X AAM --------------------- 360 B-3 113 WHERE: ROD = the Run Off Discount for such Undivided Interest at such time; PI = the Purchaser's Investment of such Undivided Interest at such time; PR = the Purchaser Rate for such Undivided Interest for a Yield Period deemed to commence at such time pursuant to PART I.E; AAM = the Adjusted Average Maturity of the Receivables Pool related to such Undivided Interest, as determined pursuant to PART V; and RVF = the Rate Variance Factor deemed to be in effect at such time, as determined pursuant to PART I.F. E. RATE DEFINITIONS. The "ALTERNATE REFERENCE RATE" means, on any date, a fluctuating rate of interest PER ANNUM equal to the higher of (a) the rate of interest most recently announced by NationsBank at its office in Charlotte, North Carolina as its reference rates from time to time, changing when and as said reference rates change (such reference rates are not necessarily the lowest or best rate charged by NationsBank) and (b) the Federal Funds Rate (as defined below) most recently determined by NationsBank plus 1.0% PER ANNUM. For purposes of this definition, "FEDERAL FUNDS RATE" means, for any period, a fluctuating interest rate PER ANNUM equal (for each day during such period) to (i) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York; or (ii) if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by NationsBank from three federal funds brokers of recognized standing selected by it. B-4 114 The Alternate Reference Rate is not necessarily intended to be the lowest rate of interest determined by BofA or NationsBank in connection with extensions of credit. "BANK RATE" for any Yield Period for the related Undivided Interest of any Purchaser or Bank Investor, as the case may be, means an interest rate PER ANNUM equal to the sum of (a) 0.50% PER ANNUM, PLUS (b) if the Fixed Charge Coverage Ratio is at such time less than 1.75:1, .15% PER ANNUM, PLUS (c) the Eurodollar Rate (Reserve Adjusted) of such Purchaser for such Yield Period; PROVIDED, HOWEVER, that if (i) it shall become unlawful for the Agent, any Enterprise Liquidity Provider or Enterprise Credit Support Provider to obtain funds in the London interbank eurodollar market in order to fund any Purchase or to maintain any Undivided Interest, or if such funds shall not be reasonably available to the Agent, Enterprise Liquidity Provider or Enterprise Credit Support Provider or (ii) there shall not be time prior to the commencement of an applicable Yield Period to determine a Eurodollar Rate in accordance with its terms, then the "BANK RATE" for any Yield Period for such Undivided Interest shall be equal to a rate of (x) 0.50% PER ANNUM, (y) the Domestic CD Rate (Adjusted) for such Yield Period PLUS (z) if the Fixed Charge Coverage Ratio is at such time less than 1.75:1, .15% PER ANNUM ("DEALER FEE"). "COMMERCIAL PAPER RATE" for any Yield Period for the related Undivided Interest means a rate PER ANNUM equal to the sum of (i) the rate or, if more than one rate, the weighted average of the rates, determined by converting to an interest-bearing equivalent rate PER ANNUM the discount rate (or rates) at which Commercial Paper Notes having a term equal to such Yield Period and to be issued to fund the Purchase of or to maintain such Undivided Interest by the Purchaser purchasing such Undivided Interest (including, without limitation, Purchaser's Investment and accrued and unpaid Earned Discount) may be sold by any placement agent or commercial paper dealer selected by the Agent, as agreed between each such dealer and the Agent, PLUS (ii) the greater of (A) the commissions and charges charged by such placement agent or commercial paper dealer with respect to such Commercial Paper Notes and (B) .05% times the face amount of such Commercial Paper Notes, expressed as a percentage of such face amount and converted to an interest-bearing equivalent rate PER ANNUM. "ASSESSMENT RATE" for purposes of this definition and for any Yield Period means the annual assessment rate per annum (rounded upwards, if necessary, to the nearest 1/100 of l%) applicable to NationsBank on its insured deposits, on the Business Day immediately preceding the first day of such Yield Period, under the Federal Deposit Insurance Act, determined by annualizing the most recent assessment levied on NationsBank by the Federal Deposit Insurance Corporation (together with any successor, the "FDIC" with respect to such deposits after giving effect B-5 115 to the most recent rebate granted to such Managing Agent by the FDIC with respect to deposit-insurance as well as the loss to NationsBank (determined in the good faith judgment of NationsBank) of the use of such rebate prior to the date a credit is taken by NationsBank with respect to such rebate. "RESERVE REQUIREMENT" means, for purposes of this definition and with respect to any Yield Period, a percentage (expressed as a decimal) equal to the daily average during such Yield Period of the aggregate reserve requirement (including all basic, supplemental, marginal and other reserves and taking into account any transitional adjustments or other Scheduled changes in reserve requirements during such period) specified under Regulation D, as applicable to the class of banks of which NationsBank is a member, at deposits of the types used as a reference in determining the Domestic CD Rate and having a maturity approximately equal to such Yield Period. "DOMESTIC CD RATE (ADJUSTED)" means, with respect to any Yield Period, a rate PER ANNUM equal to the sum (rounded upwards, if necessary, to the nearest 1/100 of 1%) of (A) the rate obtained by dividing (x) the Enterprise CD Rate for such Yield Period by (y) a percentage equal to 100% minus the stated maximum rate for all reserve requirements as specified in Regulation D (including without limitation any marginal, emergency, supplemental, special or other reserves) that would be applicable during such Yield Period to a negotiable certificate of deposit in excess of $100,000, with a maturity approximately equal to such Yield Period, of any member bank of the Federal Reserve System plus (B) the then daily net annual assessment rate (rounded upward, if necessary, to the nearest 1/100 of 1%) as estimated by NationsBank, the Enterprise Liquidity Provider or the Enterprise Credit Support Provider, as applicable, for determining the current annual assessment payable by it to the FDIC for insuring such certificates of deposit; WHERE, for purposes of this definition: "EURODOLLAR RATE (RESERVE ADJUSTED)" means, with respect to Undivided Interests owned or otherwise funded by NationsBank, Enterprise, any Enterprise Liquidity Provider or any Enterprise Credit Support Provider and with respect to any Yield Period for any related Undivided Interest (or portion thereof), a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of it) of (A) the rate obtained by dividing (i) the applicable LIBO Rate by (ii) a percentage equal to 100% minus the reserve percentage used for determining the maximum reserve requirement as specified in Regulation D (including without limitation any marginal, emergency, supplemental, special or other reserves) that is B-6 116 applicable to the Enterprise Liquidity Provider during such Yield Period in respect of eurocurrency or eurodollar funding, lending or liabilities (or, if more than one percentage shall be so applicable, the daily average of such percentage for those days in such Yield Period during which any such percentage shall be applicable) plus (B) the then daily net annual assessment rate (rounded upwards, if necessary, to the nearest 1/100 of 1%) as estimated by the Enterprise Liquidity Provider for determining the current annual assessment payable by the Liquidity Provider to the FDIC in respect of eurocurrency or eurodollar funding, lending or liabilities; WHERE: "LIBOR RATE" means, with respect to any Yield Period, the rate at which deposits in dollars are offered to NationsBank, the Enterprise Liquidity Provider or the Enterprise Credit Support Provider in the London interbank market at approximately 11:00 a.m. (London time) two Enterprise Eurodollar Business Days before the first day of such Yield Period in an amount approximately equal to the Purchaser's Investment for a related Undivided Interest to which the Eurodollar Rate (Reserve Adjusted) is to apply and for a period of time approximately equal to the applicable Yield Period. "ENTERPRISE CD RATE" means, with respect to any Yield Period for any related Undivided Interest owned or otherwise funded by NationsBank, Enterprise, any Enterprise Liquidity Provider or any Enterprise Credit Support Provider, the average of the bid rates determined by NationsBank, the Enterprise Liquidity Provider or the Enterprise Credit Support Provider, as applicable, per annum, at approximately 10:00 a.m. (New York City time) on the Business Day before the first day of such Yield Period for which such Domestic CD Rate (Adjusted) is to be applicable, of two or more New York certificate of deposit dealers of recognized standing selected by NationsBank, the Enterprise Liquidity Provider or the Enterprise Credit Support Provider, as applicable, for the purchase in New York from the Enterprise Liquidity Provider or the Enterprise Credit Support Provider, as applicable, at face value of certificates of deposit of the Enterprise Liquidity Provider or the Enterprise Credit Support Provider, as applicable, in an aggregate amount approximately comparable to the amount of Enter prise's Purchaser's Investment for the related Undivided Interest (or portion thereof) to which such Domestic CD Rate (Adjusted) is to be applicable and with a maturity approximately equal to the applicable Yield Period. "PURCHASER RATE" for any Yield Period for any related B-7 117 Undivided Interest (or portion thereof) of any Purchaser means: (a) in the case of an Undivided Interest (or portion thereof) of any Purchaser other than one referred to in CLAUSE (B) of this definition, the Commercial Paper Rate of such Purchaser for such Undivided Interest (or such portion) for such Yield Period; and (b) in the case of an Undivided Interest (or portion thereof) owned or funded by a Bank Investor, an Enterprise Liquidity Provider or an Enterprise Credit Support Provider, the Bank Rate of such Purchaser for such Undivided Interest (or such portion) for such Yield Period; PROVIDED, HOWEVER, that on any day when any Termination Event or Unmatured Termination Event shall have occurred and be continuing, the Purchaser Rate shall mean a rate PER ANNUM equal to the Alternate Reference Rate in effect on such day plus 2% PER ANNUM. F. RATE VARIANCE FACTOR. The "RATE VARIANCE FACTOR" means, during any Yield Period, such percentage PER ANNUM not exceeding 2% as the Agents may designate from time to time in their sole discretion. PART II LOSS RESERVE A. LOSS RESERVE. The "LOSS RESERVE" of any Undivided Interest on any day means the greater of (x) $3,000,000 and (y) an amount determined as follows: LR = RP x (PI + DF) WHERE: LR = the Loss Reserve of such Undivided Interest on such day; RP = the Reserve Percentage at the close of business of Purchaser on such day, as determined pursuant to PART II.B; PI = the related Purchaser's Investment of such Undivided Interest at the opening of business of Purchaser on such day, as determined pursuant to SECTION 1.3; and DF = the Discount Factor of such Undivided Interest at the close of business of Purchaser on such day, as determined pursuant to PART I.A. B-8 118 B. RESERVE PERCENTAGE. The "RESERVE PERCENTAGE" means, for the related Undivided Interest on any day, the greatest of (i) three times the most recent Three-Month Default Ratio, (ii) 1.5 times the percentage that the largest Special Concentration Limit set forth on SCHEDULE 2.3(C) bears to the then Aggregate Unpaid Balance of Eligible Receivables and (iii) 10%. C. DILUTION RESERVE. The "DILUTION RESERVE" for the related Undivided Interest on any day means an amount equal to the product of (x) the sum of the related Purchaser's Investment of such Undivided Interest at the close of business of Purchaser on such day, as determined pursuant to SECTION 1.03 and (y) the greater of (i) 2% and (ii) 1.5 times the highest Three-Month Dilutions Ratio calculated on the Month End Date for each of the six fiscal months preceding or ending on such day. PART III SERVICER'S FEE RESERVE A. SERVICER'S FEE RESERVE. The "SERVICER'S FEE RESERVE" for the related Undivided Interest at any time means an amount determined as follows: SFR = SF + ROSF WHERE: SFR = the Servicer's Fee Reserve for such Undivided Interest at any time; SF = the unpaid Servicer's Fee relating to such Undivided Interest accrued to such time and unpaid as determined pursuant to Part III B; and ROSF = the Run Off Servicer's Fee for such Undivided interest at such time, as determined pursuant to PART III.C. B. SERVICER'S FEE. The "SERVICER'S FEE" relating to any Undivided Interest accrued for any day means (i) an amount equal to (x) .50% PER ANNUM, TIMES (y) the amount of the related Purchaser's Investment at the close of business on such day, TIMES (z) 1/360; or (ii) on and after Servicer's reasonable request made at any time when the Transferor shall no longer be Servicer, an alternative amount specified by Servicer not exceeding (x) 110% of Servicer's cost and expenses of performing its obligations under the Agreement during the B-9 119 Yield Period when such day occurs, divided by (y) the number of days in such Yield Period. C. RUN OFF SERVICER'S FEE. The "RUN OFF SERVICER'S FEE" for any Undivided Interest at any time means an amount equal to (x) the related Purchaser's Investment at such time, TIMES (y) (A) the percentage PER ANNUM set forth in clause (i) (x) of the definition of "Servicer's Fee", or (B) if Servicer's Fee is calculated pursuant to CLAUSE (II) of such definition, the percentage PER ANNUM determined for each day by dividing the amount of the Servicer's Fee accrued for such day by the related Purchaser's Investment at the close of business on such day, multiplying the quotient by 360 and expressing the product as a percentage, TIMES (z) a fraction, the numerator of which is the number of days equal to the then Adjusted Average Maturity, and the denominator of which is 360 days. PART IV ADJUSTED AVERAGE MATURITY "ADJUSTED AVERAGE MATURITY" means, on any day, the product of (i) 2 times (ii) the Average Maturity for such day. "AVERAGE MATURITY" means, on any day, that time period (expressed in days) equal to the weighted average maturity of the Pool Receivables as shall be calculated by Servicer, as set forth in the most recent Periodic Report in accordance with the provisions thereof. If a Managing Agent shall disagree with any such calculation, such Agent may recalculate the Average Maturity for such day, which calculation shall, absent manifest error, be binding upon Servicer, the Transferor and Purchaser. B-10 120 APPENDIX C DEFINITIONS TO FINANCIAL COVENANTS (Cross references are to the Loan Agreement as defined herein). "ASSESSMENT RATE" means, for any day, the annual assessment rate (rounded upwards, if necessary, to the nearest 1/100 of 1%) which is payable by the Agent (in its individual capacity) to the Federal Deposit Insurance Corporation (or any successor) for deposit insurance for Dollar time deposits with the Agent (in its individual capacity) at its Principal Office as determined by the Agent. The CD Rate shall be adjusted automatically as of the effective date of each change in the Assessment Rate. "ASSET SECURITIZATION FACILITY" means the asset backed commercial paper funded receivables securitization facility among The Wackenhut Corporation as Seller, NationsBank as Agent and as Administrative Agent, providing for the sale by The Wackenhut Corporation and certain of its Subsidiaries of fractional undivided interests in trade receivables, provided that at no time shall the aggregate face amount of outstanding trade receivables of The Wackenhut Corporation and its Subsidiaries sold or otherwise transferred (in whole or in part) through such program exceed $75,000,000. "CD RATE" means, for any CD Rate Loan, the rate of interest per annum determined pursuant to the following formula: "CD RATE LOAN" means all of the Loans for which the rate of interest is determined by reference to the CD Rate. CD = Applicable CD Rate + Assessment + Applicable Rate 1 - Applicable Reserve Requirement Rate Margin "CONSOLIDATED NET INCOME" for any period means the gross revenues of The Wackenhut Corporation and its Subsidiaries for such period less all expenses and other proper charges (including taxes on income and Interest Charges), determined on a consolidated basis after eliminating earnings or losses attributable to outstanding Minority Interests, but excluding in any event: (a) any gains on the sale or other disposition of Investments or fixed or capital assets, and any taxes on such excluded gains and any tax deductions or credits on account of any such excluded losses; (b) the proceeds of any life insurance policy except for proceeds received during such period with respect to deferred compensation plans to the extent that The Wackenhut C-1 121 Corporation or any Subsidiary recognized any expenses during such period with respect to such plans; (c) net earnings and losses of any Subsidiary accrued prior to the date it became a Subsidiary; (d) net earnings and losses of any corporation (other than a Subsidiary), substantially all the assets of which have been acquired in any manner by The Wackenhut Corporation or any Subsidiary, realized by such corporation prior to the date of such acquisition; (e) net earnings and losses of any corporation (other than a Subsidiary) with which The Wackenhut Corporation or a Subsidiary shall have consolidated or which shall have merged into or with The Wackenhut Corporation or a Subsidiary prior to the date of such consolidation or merger; (f) net earnings of any business entity (other than a Subsidiary) in which The Wackenhut Corporation or any Subsidiary has an ownership interest unless such net earnings shall have actually been received by The Wackenhut Corporation or such Subsidiary in the form of cash distributions; (g) any portion of the net earnings of any Subsidiary which for any reason is unavailable for payment of dividends to The Wackenhut Corporation or any other Subsidiary; (h) earnings resulting from any reappraisal, revaluation or write-up of assets; (i) any deferred or other credit representing any excess of the equity in any Subsidiary at the date of acquisition thereof over the amount invested in such Subsidiary; (j) any gain arising from the acquisition of any Securities of The Wackenhut Corporation or any Subsidiary; and (k) any reversal of any contingency reserve, except to the extent that provision for such contingency reserve shall have been made from income arising during such period. "CONSOLIDATED NET WORTH" means at any time as of which the amount thereof is to be determined, the sum of the following with respect to The Wackenhut Corporation and its Subsidiaries (on a consolidated basis and excluding intercompany items): (i) the amount of issued and outstanding share capital, plus (ii) the amount of additional paid-in capital and retained income (or, in the case of a deficit, minus the amount of such deficit), minus (iii) the sum of the following (without duplication of deductions in respect of items already deducted in arriving at surplus and retained earnings): (A) all reserves, except legal reserves and C-2 122 other contingency reserves (i.e., reserves not allocated to specific purposes and not deducted from assets), which are properly treated as appropriations of surplus or retained earnings; (B) any treasury stock, capital stock subscribed and unissued and other contra-equity accounts; and (C) the cumulative amount of any net write-up of asset values after the date of the audit immediately preceding the Closing Date, plus or minus, as the case may be (iv) the cumulative effect of foreign exchange valuations. "DOLLARS" and the symbol "$" means dollars constituting legal tender for the payment of public and private debts in the United States of America. "EURODOLLAR RATE" means the interest rate per annum calculated according to the following formula: Eurodollar Rate = INTERBANK OFFERED RATE + Applicable Margin ------------------------------ 1 - Applicable Reserve Requirement "FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to the Agent (in its individual capacity) on such day on such transactions as determined by the Agent. "FIXED CHARGES" for any period means on a consolidated basis the sum of (i) 100% of all Rentals (other than Rentals on Capitalized Leases) payable during such period by The Wackenhut Corporation and its Subsidiaries (other than WCC), and (ii) all Interest Charges on all Indebtedness (including the interest component of Rentals on Capitalized Leases and the discount factor or other economic equivalent of interest under the Asset Securitization Facility) of The Wackenhut Corporation and its Subsidiaries (other than Wackenhut Connections Corporation) payable during said period by The Wackenhut Corporation and its Subsidiaries (other than WCC). "FIXED CHARGES COVERAGE RATIO" means the ratio of Net Income Available for Fixed Charges to Fixed Charges. "GAAP" or "Generally Accepted Accounting Principles" means generally accepted accounting principles, being those principles of accounting set forth in pronouncements of the Financial Accounting C-3 123 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. "GUARANTIES" by any Person means all obligations (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect, guaranteeing any Indebtedness, dividend or other obligation, of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, all obligations incurred through an agreement, contingent or otherwise, by such Person: (i) to purchase such Indebtedness or obligation or any property or assets constituting security therefor, (ii) to advance or supply funds (x) for the purchase or payment of such Indebtedness or obligation, (y) to maintain working capital or other balance sheet condition or otherwise to advance or make available funds for the purchase or payment of such Indebtedness or obligation, or (iii) to lease property or to purchase Securities or other Property or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of the primary obligor to make payment of the Indebtedness of obligation, or (iv) otherwise to assure the owner of the Indebtedness or obligation of the primary obligor against loss in respect thereof. For the purposes of all computations made under the Loan Agreement, a Guaranty in respect of any Indebtedness for borrowed money shall be deemed to be Indebtedness equal to the principal amount of such Indebtedness for borrowed money which has been guaranteed, and a Guaranty in respect of any other obligation or liability or any dividend shall be deemed to be Indebtedness equal to the maximum aggregate amount of such obligation, liability or dividend. "INDEBTEDNESS" of any Person means and include all obligations of such Person which in accordance with GAAP shall be classified upon a balance sheet of such Person as liabilities of such Person, and in any event shall include all (i) obligations of such Person for borrowed money or which has been incurred in connection with the acquisition of property or assets, (ii) obligations secured by any Lien upon property or assets owned by such Person, even though such Person has not assumed or become liable for the payment of such obligations, (iii) obligations created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person, notwithstanding the fact that the rights and remedies of the seller, lender or lessor under such agreement in the event of default are limited to repossession or sale of property, (iv) Capitalized Rentals under any Capitalized Lease, (v) Guaranties of Indebtedness of others, (vi) the Reimbursement Obligations, and (vii) outstanding amounts received by The Wackenhut Corporation or any Subsidiary in exchange for the transfer of interests in trade receivables under the Asset Securitization Facility in excess of the amounts repaid to the C-4 124 purchasers in respect of such purchase price from collections on such trade receivables. "INTEREST CHARGES" for any period means all interest and all amortization of debt discount and expense on any particular Indebtedness for which such calculations are being made, and shall include without limitation the discount factor or other economic equivalent of interest arising under the Asset Securitization Facility. Computations of Interest Charges on a pro forma basis for Indebtedness having a variable interest rate shall be calculated at the rate in effect on the date of any determination. "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. "LETTER OF CREDIT" or "LETTERS OF CREDIT" means a letter of credit issued by the Issuing Bank for the account of The Wackenhut Corporation or The Wackenhut Corporation and Titania in favor of a Person advancing credit, providing insurance or securing obligations on behalf of The Wackenhut Corporation or The Wackenhut Corporation and Titania, and shall include without limitation all Existing LCS. "LIEN" means any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, and including but not limited to the security interest lien arising from a mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" shall include reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances (including, with respect to stock, stockholder agreements, voting trust agreements, buy-back agreements and all similar arrangements) affecting Property. For the purposes of the Loan Agreement, The Wackenhut Corporation or a Subsidiary shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement, Capitalized Lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes and such retention or vesting shall constitute a Lien. "LOAN" or "LOANS" means any of the Fixed Rate Loans or Floating Rate Loans, as the context may require. C-5 125 "LOAN AGREEMENT" means the Amended and Restated Revolving Credit Reimbursement Agreement dated as of December 30, 1997 among the Wackenhut Corporation, NationsBank, N.A., as Lender and as agent. "MINORITY INTERESTS" means any shares of stock of any class of a Subsidiary (other than directors' qualifying shares as required by law) that are not owned by The Wackenhut Corporation and/or one or more of its Subsidiaries. Minority Interests shall be valued by valuing Minority Interests constituting preferred stock at the voluntary or involuntary liquidating value of such preferred stock, whichever is greater, and by valuing Minority Interests constituting common stock at the book value of capital and surplus applicable thereto adjusted, if necessary, to reflect any changes from the book value of such common stock required by the foregoing method of valuing Minority Interests in preferred stock. "NET INCOME AVAILABLE FOR FIXED CHARGES" for any period means the sum of (i) Consolidated Net Income during such period (excluding, for the purpose of determining Net Income Available for Fixed Charges, revenues, expenses and other appropriate charges or adjustments attributable to WCC) plus (to the extent deducted in determining Consolidated Net Income), (ii) all provisions for any Federal, state or other income taxes made by The Wackenhut Corporation and its Subsidiaries (other than WCC) during such period, and (iii) Fixed Charges of The Wackenhut Corporation and its Subsidiaries (other than WCC) during such period. "PARTICIPATION" means, with respect to any Lender and either a Letter of Credit or a Swing Line Loan, as the case may be, the extension of credit represented by the participation of such Lender hereunder in the Issuing Bank's liability in respect of a Letter of Credit issued by the Issuing Bank in accordance with the terms hereof, or in NationsBank's liability in respect of a Swing Line Loan made in accordance with the terms hereof. "PRINCIPAL OFFICE" means the principal office of NationsBank, presently located at Independence Center, 15th Floor, NC1-001-15- 04, Charlotte, North Carolina 28255, Attention: Agency Services. "RENTALS" means and include as of the date of any determination thereof, all fixed payments (including as such all payments which the lessee is obligated to make to the lessor on termination of the lease or surrender of the Property) payable by The Wackenhut Corporation or a Subsidiary, as lessee or sublessee under a lease of real or personal property, but shall be exclusive of any amounts required to be paid by The Wackenhut Corporation or a Subsidiary (whether or not designated as rents or additional rents) on account of maintenance, repairs, insurance, taxes and similar charges. Fixed rents under any so-called "percentage leases" shall be computed solely on the basis of the minimum rents, if any, required C-6 126 to be paid by the lessee regardless of sales volume or gross revenues. "SECURITY" shall have the same meaning as in Section 2(1) of the Securities Act of 1933, as amended. "SUBSIDIARY" means, as to any particular parent corporation, any corporation of which more than 50% (by number of votes) of the Voting Stock shall be owned by such parent corporation and/or one or more corporations which are themselves subsidiaries of such parent corporation. The term "Subsidiary" shall mean a subsidiary of The Wackenhut Corporation and The Atrium At Coral Gables, Ltd., a Florida limited partnership. "TITANIA" means Titania Insurance Company of America, a corporation organized under the laws of Vermont and a wholly-owned Subsidiary of The Wackenhut Corporation. "TOTAL CAPITALIZATION" means the sum of (i) Consolidated Funded Debt plus (ii) Consolidated Net Worth. C-7 127 Schedule 2.3(b) FORM OF SPECIAL CONCENTRATION LIMIT CERTIFICATE Reference is made to that certain Transfer and Administration Agreement dated as of December 30, 1997(as at any time amended or otherwise modified, the "Purchase Agreement") among Wackenhut Funding Corporation, a Florida corporation, The Wackenhut Corporation, Enterprise Funding Corporation, and NationsBank N.A. Capitalized terms used herein have the meaning assigned thereto in the Purchase Agreement. For purposes of Section 2.3(b) of the Purchase Agreement, the following Special Concentration Limits shall be in effect for the period from December 30, 1997 until such time as the Administrative Agent delivers to the Transferor and the Servicer written notice of a change in the Special Concentration Limits: 1. OBLIGOR LIMITS: (a) Any one 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 the Aggregate Unpaid Balance of the Eligible Receivables in the Receivables Pool at any time, PLUS (b) Any three Obligors rated BBB or Baa2 or better by Standard & Poor's Corporation and Moody's Investors Service, Inc., respectively, may each have Special Concentration Limits of 4% of the Aggregate Unpaid Balance of the Eligible Receivables in the Receivables Pool at any time, PLUS (c) Any five Obligors, regardless of rating, may each have Special Concentration Limits of 3% of the Aggregate Unpaid Balance of the Eligible Receivable in the Receivable Pool at any time. Transferor shall identify the specific Obligors to whom the Special Concentration Limits described in this Paragraph 1 should be applied by such form of notice as the Agent may from time to time require. 2. OBLIGOR CATEGORY LIMITS: (a) 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. 128 (b) 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 of the Aggregate Unpaid Balance of the Eligible Receivables in the Receivables Pool at any time. (c) The aggregate Concentration Limit for all Government Obligors shall be 15% of the Aggregate Unpaid Balance of the Eligible Receivables in the Receivables Pool at any time. Date:____________________ NATIONSBANK, N.A. By: -------------------------------- Its: ----------------------------- 2 129 SCHEDULE 5.1(a) FORM OF CERTIFICATE OF ASSIGNMENTS Reference is made to the Transfer and Administration Agreement, dated as of December 30, 1997 (the "TRANSFER AGREEMENT"), among the undersigned (as "SELLER"), Enterprise Funding Corporation (as the "Purchaser" or "Enterprise"), NationsBank, N.A., as agent for Enterprise and the Bank Investors (in such capacity, the "Agent") and The Wackenhut Corporation (as "Servicer"). Terms defined in the Transfer Agreement are used herein as therein defined. The undersigned hereby sells, assigns and transfers unto Enterprise each Undivided Interest purchased from the undersigned in one or more Purchases pursuant to the Transfer Agreement. Each Purchase by Enterprise from the undersigned of an Undivided Interest shall be endorsed by Enterprise on a grid with respect to each such Undivided Interest which has been or shall be attached hereto (and, upon such attachment, made a part hereof) or, at Enterprise's option, in the records of the Administrative Agent, and such endorsement shall evidence the ownership by Enterprise of the Undivided Interest; PROVIDED, that the failure of Enterprise (or the Administrative Agent on behalf of Enterprise) to make any such endorsement shall not void or otherwise impair any Purchase or limit the undersigned's obligations under the Transfer Agreement with respect to the Undivided Interests purchased. This Certificate of Assignments is made without recourse except as provided in the Transfer Agreement. This Certificate of Assignments is made pursuant to and upon all the representations, warranties, covenants and agreements on the part of the undersigned contained in the Transfer Agreement. This Certificate of Assignments is governed by and is to be construed and interpreted in accordance with the Transfer Agreement and the internal laws of the State of New York without regard to principles of conflicts of laws. Assignment by Enterprise of one or more Undivided Interests, or any portion thereof, is subject to the terms of the Transfer Agreement, including, without limitation, ARTICLE XIII thereof. Any such assignment shall be endorsed by Enterprise on the grid with respect to each such Undivided Interest attached hereto or, at Enterprise's option, in the records of the Agent, and such endorsement shall evidence the ownership by the assignee named therein of each Undivided Interest (or portion thereof) so assigned; PROVIDED, that the failure of Enterprise (or the Agent 130 on behalf of Enterprise) to make any such endorsement shall not void or otherwise impair any such assignment or limit the undersigned's obligations under the Agreement to the assignee with respect to any such Undivided Interest (or portion thereof) so assigned. Each reduction in Enterprise's Investment of each Undivided Interest as a result of the occurrence of a Run Off Day or day of partial liquidation as provided in SECTION 3.03(B) or (C) of the Transfer Agreement with respect to such Undivided Interest and each combination or division of one or more Undivided Interests shall also be endorsed by Enterprise on the grid with respect to each such Undivided Interest and each combination or division of one or more Undivided Interests attached hereto or, at Enterprise's option, in the records of the Administrative Agent, but the failure of Enterprise (or the Agent on behalf of Enterprise) to make any such endorsement shall not modify such reduction in Enterprise's Investment or such combination or division of one or more Undivided Interests. The undersigned hereby certifies on and as of the date of each Purchase that the conditions set forth in SECTIONS 5.02 AND 5.03 of the Transfer Agreement are fulfilled on such date. This letter agreement may be executed in counterparts each of which shall be deemed to be an original and all of which together shall constitute but one and the same letter agreement. IN WITNESS WHEREOF, the undersigned has caused this Assignment to be duly executed this , 199 . WACKENHUT FUNDING CORPORATION By ---------------------------------------- Title ------------------------------------ 2 131 Grid with Respect to Undivided Interest No. _____1 Attached to and Made a Part of Certificate of Assignments dated ________ __, 199__ from Wackenhut Funding Corporation to Enterprise Funding Corporation
Amount of Amount of Amount of Reduction Increase of Date of Enter- of Enter- Enter- Endorsed prise's Amount of prise's prise's Transaction Investment Assignment Investment Investment - ----------- ---------- ---------- ---------- ----------
- -------- 1 A separate grid should be attached reflecting each Undivided Interest as sold. 3 132 December 30, 1997 NationsBank, N.A. P.O. Box 277469 Atlanta, GA 30384-7469 Ladies and Gentlemen: Reference is made to our lock-box account No. 3750156489 maintained with you (the "ACCOUNT"). Pursuant to a Transfer and Administration Agreement (the "TRANSFER AGREEMENT") dated as of December 30, 1997, as the same may be amended or otherwise modified from time to time, among us, as Transferor, The Wackenhut Corporation, as Servicer (the "SERVICER"), Enterprise Funding Corporation, as a Purchaser ("PURCHASER") and NationsBank N.A., as a Bank Investor and as the agent for the Purchaser and the Bank Investors (in such capacity, the "AGENT"). We have assigned and/or may hereafter assign to the Agent, on behalf of the Purchaser and the Bank Investors, one or more undivided percentage interests in certain of the accounts, chattel paper, instruments or general intangibles (collectively, "RECEIVABLES") with respect to which payments are or may hereafter be made to the Account, and have granted to the Agent, on behalf of the Purchaser and the Bank Investors, a security interest in the undersigned's retained interest in such Receivables. Your execution of this letter agreement is a condition precedent to the continued maintenance by us of the Account with you. In accordance with the Transfer Agreement, we are hereby transferring to the Agent exclusive ownership and control of the Account, and we hereby transfer exclusive ownership and control of the Account to the Agent. The Agent has agreed to permit us to access the Account until such time as the Agent gives you notice that we shall no longer be permitted access to such Account, which notice shall be substantially in the form attached hereto as Annex A. 133 December 30, 1997 Page 2 We hereby irrevocably instruct you, at all times from and after the date of your receipt of notice from the Agent as described above, to make all payments to be made by you out of or in connection with the Account directly to the Agent, at its address set forth below its signature hereto or as the Agent otherwise in accordance with the instructions of the Agent. We also hereby notify you that, at all times from and after the date of your receipt of notice from the Agent as described above, the Agent shall be irrevocably entitled to exercise in our place and stead any and all rights in respect of or in connection with the Account, including, without limitations, (a) the right to specify when payments are to be made out of or in connection with the Account and (b) the right to require preparation of duplicate monthly bank statements on the Account for the Agent's audit purposes and mailing of such statements directly to an address specified by the Agent. Notice from the Agent may be personally served or sent to Telex, facsimile or U.S. mail, certified return receipt requested, to the address, Telex or facsimile number set forth under your signature to this letter of agreement, or to such other address, Telex or facsimile number which you provide the Agent in writing. If notice is given by Telex or facsimile, it will be deemed to have been received when the notice is sent and the answerback is received (in the case of Telex) or receipt is confirmed by telephone or other electronic means (in the case of facsimile). All other notices will be deemed to have been received when actually received or, in the case of personal delivery, delivered. By executing this letter of agreement, you acknowledge the Agent's ownership and control of the Account and its ownership of (in each case, on behalf of the Purchaser and the Bank Investors) and security interest in the amounts from time to time on deposit therein and agree that from the date hereof the Account shall be maintained by you for the benefit of, and amounts from time to time therein held by you as agent for, the Agent on the terms provided herein. The Account is to be entitled "NationsBank, N.A." as the Agent for Enterprise Funding Corporation and the Bank Investors". Except as otherwise pro- 134 December 30, 1997 Page 3 vided in this letter agreement, payments to the Account are to be processed in accordance with the standard procedures currently in effect. All service charges and fees with respect to the Account shall continue to be payable by us under the arrangements currently in effect. By executing this letter agreement, you irrevocably waive and agree not to assert, claim or endeavor to exercise, irrevocably bar and estop yourself from asserting, claiming or exercising, and acknowledge that you have not heretofore received a notice, writ, order or any form of legal process from any other party asserting, claiming or exercising, any right of set-off, banker's lien or other purported form of claim with respect to the Account or any funds from time to time therein. Except for your right to payment of your customary service charges and fees for the routine maintenance and operation of the Account and to make deductions for returned items, you shall have no rights in the Account or funds therein. To the extent you may ever have such rights, you hereby expressly subordinate all such rights to all rights of the Agent. You may terminate this letter agreement by canceling the Account maintained with you, which cancellation and termination shall become effective only upon thirty days' prior written notice thereof from you to the Agent. Incoming mail addressed to the Account received after such cancellation shall be forwarded in accordance with the Agent's instructions. This letter agreement may also be terminated upon written notice to you by the Agent stating that the Transfer Agreement pursuant to which this letter agreement was obtained is no longer in effect. Except as otherwise provided in this paragraph, this letter agreement may not be terminated or amended without the prior written consent of the Agent. Please acknowledge your agreement to the terms set forth in this letter agreement by signing the two copies of this letter agreement enclosed herewith in the space provided below, sending one such signed copy to the Agent at its address provided above and returning the other signed copy to us. 135 December 30, 1997 Page 4 Very truly yours, WACKENHUT FUNDING CORPORATION By: , Terry P. Mayotte Title: Accepted and confirmed as of the date first written above: ENTERPRISE FUNDING CORPORATION Purchaser By: Title: Acknowledged and agreed to as of the date first written above: NATIONSBANK, N.A. By: Title: Address for notice: 100 Southeast Second Street, 14th Floor FL7-950-14-06 Miami, FL 33131 Attention: Lourdes Viciedo Facsimile No.: 305/533-2463 136 ANNEX 1 TO LOCK-BOX AGREEMENT NOTICE OF EFFECTIVENESS DATED: ______________, 199_ TO: NationsBank, N.A. P.O. Box 277469 Atlanta, GA 30384-7469 ATTN: ______________________ Re: Lock-Box Account No. 3750156489 Ladies and Gentlemen: We hereby give you notice that the transfer of control of the above-referenced Lock-Box Account, as described in our letter agreement with you dated as of December 23, 1997 is effective as of the date hereof. You are hereby instructed to comply immediately with the instructions set forth in that letter. Very truly yours, WACKENHUT FUNDING CORPORATION By: -------------------------------- Title: ----------------------------- ACKNOWLEDGED AND AGREED: NATIONSBANK, N.A. By: -------------------------- Title: ----------------------- Date: ------------------------ P.O. Box 277469 Atlanta, GA 30384-7469 Attention: ------------------- Facsimile No.: ---------------- 137 EXHIBIT 13.5(B) Form of Assignment and Assumption Agreement Reference is made to the Transfer and Administration Agreement dated as of December 30, 1997 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 NationsBank, N.A., 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. i. [In consideration of the payment of $___________, being ___% of the existing Aqggregate 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 _______________, 19__ under the Transfer Agreement.][include if an existing Aggregate Purchaser's Investment is being assigned.] ii. 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 138 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 obligations under the Transfer Agreement, any other Agreement Document, or any instrument or document furnished pursuant thereto. iii. 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 Section 6.2 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 (vi) 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 (vii) 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 2 139 are necessary to indicate that all such payments are subject to such rates at a rate reduced by an applicable tax treaty].2 iv. The effective date for this Assignment shall be the later of (i) the date on which the Agent receives this Assignment executed by the 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. v. 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. (vi.) 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 them selves. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] - -------- 2 If the Assignee is organized under the laws of a jurisdiction outside the United States. 3 140 (vii.) This Assignment shall be governed by, and construed in accordance with, the laws of the State of New York. (i) 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 ______, 19__. Remaining [NAME OF ASSIGNOR] COMMITMENT By: ------------------------ Name: Title: COMMITMENT [NAME OF ASSIGNEE] $----------- By: ------------------------ Name: Title: Address for notices and Account for payments: [Address] [Account] 4 141 Consented to this __ day of _________, 199_ NATIONSBANK, N.A., as Administrative Agent By: -------------------------- Name: Title: [TRANSFEROR] By: -------------------------- Name: Title: Accepted this ____ day of _________, 199_ NATIONSBANK, N.A. as Agent By: -------------------------- Name: Title: 5 142 Schedule 6.1(n) List of Location of Records 4200 Wackenhut Drive #100 Palm Beach Gardens, Florida 33410 143 Schedule 6.2(n) List of Location of Records 4200 Wackenhut Drive #100 Palm Beach Gardens, Florida 33410 144 Schedule 6.2(o) List of Lockbox Banks and Accounts BANK NAME ABA ACCOUNT NUMBER - --------- --- -------------- NationsBank Customer Connection 111000012 3750156489 EX-4.8 4 LC ACCOUNT AGREEMENT 1 Exhibit 4.8 LC ACCOUNT AGREEMENT THIS LC ACCOUNT AGREEMENT (the "Agreement") dated as of December 30, 1997, and made between WACKENHUT CORPORATION, a Florida corporation (the "Pledgor"), and NATIONSBANK, NATIONAL ASSOCIATION, a national banking association, as a Lender ("NationsBank") and as Agent (in such capacity herein and together with any successors in such capacity, the "Agent") for the lenders (the "Lenders") party to the Credit Agreement (as hereinafter defined). W I T N E S S E T H: WHEREAS, the Pledgor, the Lenders, and the Agent have entered into that certain Amended and Restated Revolving Credit and Reimbursement Agreement dated as of the date hereof (as may hereafter be amended, restated, supplemented or otherwise modified from time to time in accordance with the terms thereof and in effect, hereinafter referred to as the "Credit Agreement"); WHEREAS, as a condition precedent to the Lenders' obligations to make the Loans or to issue Letters of Credit, the Pledgor is required to execute and deliver to the Agent a copy of this Agreement on or before the Closing Date; NOW, THEREFORE, in consideration of the foregoing and the agreements, provisions and covenants contained herein, the Pledgor and the Agent hereby agree as follows: Section 1. DEFINITIONS. Capitalized terms used in this Agreement shall have the following meanings: "COLLATERAL" means (a) all funds from time to time on deposit in the LC Account; (b) all Investments and all certificates and instruments from time to time representing or evidencing such Investments; (c) all notes, certificates of deposit, checks and other instruments from time to time hereafter delivered to or otherwise possessed by the Agent for or on behalf of the Pledgor in substitution for or in addition to any or all of the Collateral described in clause (a) or (b) above; (d) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Collateral described in clause (a), (b) or (c) above; and (e) to the extent not covered by clauses (a) through (d) above, all proceeds of any or all of the foregoing Collateral. "INVESTMENTS" means those investments, if any, made by the Agent pursuant to Section 5 hereof. "LC ACCOUNT" means the cash collateral account established and maintained pursuant to SECTION 2 hereof. "SECURED OBLIGATIONS" means (i) all obligations of the Pledgor now existing or hereafter arising under or in respect of the Credit Agreement or the Notes (including, without limitation, 2 the Pledgor's obligation to pay principal and interest and all other charges, fees, expenses, commissions, reimbursements, indemnities and other payments related to or in respect of the obligations contained in the Credit Agreement or the Notes) or any documents or agreement related to the Credit Agreement or the Notes; and (ii) without duplication, all obligations of the Pledgor now or hereafter existing under or in respect of this Agreement, including, without limitation, with respect to all charges, fees, expenses, commissions, reimbursements, indemnities and other payments related to or in respect of the obligations contained in this Agreement. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement. Section 2. LC ACCOUNT; CASH COLLATERALIZATION OF LETTERS OF CREDIT. (i) At any time, in the Agent's sole discretion, the Agent shall establish and maintain at the offices of NationsBank, National Association at 101 North Tryon Street, Charlotte, North Carolina, in the name of the Agent and under the sole dominion and control of the Agent, a cash collateral account designated as Wackenhut Corporation Cash LC Account (the "LC Account"). (ii) In accordance with ARTICLE VIII of the Credit Agreement, in the event that an Event of Default has occurred and shall not have been waived pursuant to SECTION 10.07 of the Credit Agreement and the Pledgor is required to pay to Agent an amount equal to the maximum amount remaining undrawn or unpaid under the Letters of Credit, the Agent shall, upon receipt of any such amounts, exercise the remedies set forth in SECTION 12 hereof and shall apply the proceeds as provided in ARTICLE VIII of the Credit Agreement. Any such amounts received by the Agent shall be deposited in the LC Account. Upon a drawing under the Letters of Credit in respect of which any amounts described above have been deposited in the LC Account, the Agent shall apply such amounts to reimburse NationsBank for the amount of such drawing. In the event the Letters of Credit are canceled or expire or in the event of any reduction in the maximum amount available at any time for drawing under such Letters of Credit (the "Maximum Available Amount"), the Agent shall apply the amount then in the LC Account designated to reimburse NationsBank for any drawings under the Letters of Credit less the Maximum Available Amount immediately after such cancellation, expiration or reduction, if any, FIRST, to the cash collateralization of the Letters of Credit if the Pledgor has failed to pay all or a portion of the maximum amounts described above, SECOND, to the payment in full of the outstanding Secured Obligations and THIRD, the balance, if any, to the Pledgor. (iii) Interest received in respect of Investments of any amounts deposited in the LC Account pursuant to clause (ii) of this SECTION 2 shall be delivered by the Agent to the Pledgor on the last Business Day of each calendar month or, if earlier, upon cancellation or expiration of or drawing of the Maximum Available Amount for drawing under the Letters of Credit, as the case may be, in respect of which such amounts were so 2 3 deposited; PROVIDED, HOWEVER, that the Agent shall not deliver to the Pledgor any such interest received in respect of Investments of any amounts deposited in the LC Account pursuant to this SECTION 2 if an Event of Default has occurred and shall not have been waived pursuant to SECTION 10.07 of the Credit Agreement or unless all outstanding Secured Obligations have been indefeasibly paid in full in cash. Section 3. PLEDGE; SECURITY FOR SECURED OBLIGATIONS. The Pledgor hereby pledges (or will cause to be pledged) to the Agent (for itself and on behalf of the Lenders) a first priority lien and security interest in, the Collateral, as collateral security for the prompt payment in full when due, whether at stated maturity, by acceleration or otherwise (including, without limitation, the payment of interest and other amounts which would accrue and become due but for the filing of a petition in bankruptcy or the operation of the automatic stay under Section 362(a) of the Bankruptcy Code), of all Secured Obligations. Section 4. DELIVERY OF COLLATERAL. All certificates or instruments, if any, representing or evidencing the Collateral shall be delivered to and held by the Agent pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance reasonably satisfactory to the Agent. In the event any Collateral is not evidenced by a certificate, a notation, reflecting title in the name of the Agent or the security interest of the Agent, shall be made in the records of the issuer of such Collateral or in such other appropriate records as the Agent may require, all in form and substance reasonably satisfactory to the Agent. The Agent shall have the right, at any time and without notice to the Pledgor, to transfer to or to register in the name of the Agent or any of its nominees any or all of the Collateral. In addition, the Agent shall have the right at any time to exchange certificates or instruments representing or evidencing Collateral for certificates or instruments of smaller or larger denominations. Section 5. INVESTING OF AMOUNTS IN THE LC ACCOUNT; AMOUNTS HELD BY THE AGENT. Cash held by the Agent in the LC Account shall not be invested or reinvested except as provided in this SECTION 5. (i) Except as otherwise provided in SECTION 12 hereof, any funds on deposit in the LC Account shall be invested by the Agent so long as no Default or Event of Default shall have occurred and shall not have been waived pursuant to SECTION 10.07 of the Credit Agreement, in cash equivalents. (ii) The Agent is hereby authorized to sell, and shall sell, all or any designated part of the Collateral (A) so long as no Default or Event of Default shall have occurred and shall not have been waived pursuant to SECTION 10.07 of the Credit Agreement, upon the receipt of appropriate written instructions from an Authorized Representative or (B) in any event if such sale is necessary to permit the Agent to perform its duties hereunder or under the Credit Agreement. The Agent shall have no responsibility for any loss in the value of the Collateral resulting from a fluctuation in interest rates or otherwise. Any interest on securities constituting part of the Collateral and the net proceeds of the sale or 3 4 payment of any such securities shall be held in the LC Account by the Agent. Section 6. REPRESENTATIONS AND WARRANTIES. In addition to its representations and warranties made pursuant to ARTICLE VI of the Credit Agreement, the Pledgor represents and warrants to the Agent (for itself and as agent on behalf of the Lenders), that the following statements are true, correct and complete: (i) The Pledgor will be the legal and beneficial owner of the Collateral free and clear of any Lien except for the lien and security interest created by this Agreement and the Credit Agreement; (ii) The pledge and assignment of the Collateral pursuant to this Agreement creates a valid and perfected first priority security interest in the Collateral, securing the payment of the Secured Obligations. Section 7. FURTHER ASSURANCES. The Pledgor agrees that at any time and from time to time, at the Pledgor's expense, the Pledgor will promptly execute and deliver (or cause to be executed and delivered) to the Agent any further instruments and documents, and take any further actions, that may be necessary or that the Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Section 8. TRANSFERS AND OTHER LIENS. The Pledgor agrees that it will not (a) sell or otherwise dispose of any of the Collateral, or (b) create or permit to exist any Lien upon or with respect to any of the Collateral, except for the lien and security interest created by this Agreement. Section 9. THE AGENT APPOINTED ATTORNEY-IN FACT. The Pledgor hereby appoints the Agent as its attorney-in-fact, with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, from time to time in the Agent's reasonable discretion to take any action and to execute any instrument which the Agent may reasonably deem necessary or advisable to accomplish the purposes of the Agreement, including, without limitation, to receive, endorse and collect all instruments made payable to the Pledgor or either of them representing any payment, dividend, or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same. In performing its functions and duties under this Agreement, the Agent shall act solely for itself and as the agent of the Lenders and the Agent has not assumed nor shall be deemed to have assumed any obligation towards or relationship of agency or trust with or for the Pledgor. Section 10. THE AGENT MAY PERFORM. If the Pledgor fails to perform any agreement contained herein, after notice to the Pledgor, the Agent may itself perform, or cause performance of, such agreement, and the expenses of the Agent incurred in connection therewith shall be payable by the Pledgor under SECTION 13 hereof. 4 5 Section 11. STANDARD OF CARE; NO RESPONSIBILITY FOR CERTAIN MATTERS. In dealing with the Collateral in its possession, the Agent shall exercise the same care which it would exercise in dealing with its own property of a similar nature, but it shall not be responsible for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not the Agent has or is deemed to have knowledge of such matters, (b) taking any steps to preserve rights against any parties with respect to any Collateral (other than steps taken in accordance with the standard of care set forth above to maintain possession of the Collateral), (c) the collection of any proceeds, (d) any loss resulting from Investments made pursuant to Section 5 hereof, or (e) determining (x) the correctness of any statement or calculation made by the Pledgor in any written or telex (tested or otherwise) instructions, or (y) whether any deposit in the LC Account is proper. Section 12. REMEDIES UPON DEFAULT; APPLICATION OF PROCEEDS. If any Event of Default shall have occurred and shall not have been waived pursuant to SECTION 10.07 of the Credit Agreement: (i) The Agent may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code (the "Code") as in effect in the State of North Carolina at that time, and the Agent may, without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any exchange or broker's board or at any of the Agent's offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices, and upon such other terms as the Agent may reasonably deem commercially reasonable. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten (10) days' notice to Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Agent shall not be obligated to make any sale of the Collateral regardless of notice of sale having been given. The Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (ii) Subject to the provisions of SECTION 2(II) hereof, any cash held by the Agent as Collateral and all cash proceeds received by the Agent in respect of any sale of, collection from, or other realization upon all or part of the Collateral shall be applied (after payment of any amounts payable to the Agent pursuant to SECTION 13 hereof) by the Agent to pay the Secured Obligations pursuant to ARTICLE VIII of the Credit Agreement. Any surplus of such cash or cash proceeds held by the Agent and remaining after payment in full of all Secured Obligations shall be paid over to the Pledgor or to whomsoever may be lawfully entitled to receive such surplus. Section 13. EXPENSES. In addition to any payments of expenses of Agent pursuant to the Credit Agreement or the other Loan Documents, the Pledgor agrees to pay promptly to the Agent 5 6 all the costs and expenses, including reasonable attorneys fees and expenses, which the Agent may reasonably incur in connection with (a) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, (b) the exercise or enforcement of any of the rights of the Agent hereunder, or (c) the failure by the Pledgor to perform or observe any of the provisions hereof. Section 14. NO DELAYS; WAIVER, ETC. No delay or failure on the part of the Agent in exercising, and no course of dealing with respect to, any power or right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Agent of any power or right hereunder preclude other or further exercise thereof or the exercise of any other power or right. The remedies herein provided are to the fullest extent permitted by law cumulative and are not exclusive of any remedies provided by law. Section 15. AMENDMENTS, ETC. No amendment, modification, termination or waiver of any provision of this Agreement, or consent to any departure by the Pledgor therefrom, shall in any event be effective without the written concurrence of the Agent. Section 16. NOTICES. Except as otherwise specifically provided herein, all notices which are to be sent to the Pledgor or Agent shall be given in accordance with the Credit Agreement. Section 17. CONTINUING SECURITY INTEREST; TERMINATION. This Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until all Secured Obligations (other than Secured Obligations in the nature of continuing indemnities or expense reimbursement obligations not yet due and payable) shall have been indefeasibly paid in full in cash, the commitments or other obligations of the Agent or any Lender to make any Loan under the Credit Agreement shall have expired and the Letters of Credit shall have expired, (b) be binding upon Pledgor, its successors and assigns, and (c) inure to the benefit of the Agent, the Lenders and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (c) and subject to the provisions of the Credit Agreement, any Lender may assign or otherwise transfer any Note held by it to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise. Upon the indefeasible payment in full in cash of the Secured Obligations (other than Secured Obligations in the nature of continuing indemnities or expense reimbursement obligations not yet due and payable) and the cancellation or expiration of the Letters of Credit and termination or expiration of all commitments and other obligations of the Agent and any Lender to make any Loan, Pledgor shall be entitled, subject to the provisions of SECTION 12 hereof, to the return, upon its request and at its expense, of such of the Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof. Section 18. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF FLORIDA WITHOUT REGARD TO ANY OTHERWISE APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY 6 7 INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF FLORIDA. UNLESS OTHERWISE DEFINED HEREIN OR IN THE CREDIT AGREEMENT, TERMS DEFINED IN ARTICLE 9 OF THE CODE ARE USED HEREIN AS THEREIN DEFINED. Section 19. CONSENT TO JURISDICTION. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST PLEDGOR WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT SITTING IN THE COUNTY OF BROWARD, STATE OF FLORIDA, UNITED STATES OF AMERICA AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PLEDGOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY AND JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT SUBJECT TO RIGHT OF APPEAL. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE PLEDGOR IN THE COURTS OF ANY OTHER JURISDICTION. Section 20. SUCCESSORS AND ASSIGNS. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party and all covenants, promises, and agreements by or on behalf of the Pledgor or by and on behalf of the Agent shall bind and inure to the benefit of the successors and assigns of the Pledgor, the Agent and the Lenders. Section 21. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties on separate counterparts and each such counterpart shall for all purposes be deemed an original, but all such counterparts shall together constitute but one and the same Agreement. The Pledgor and the Agent hereby acknowledge receipt of a true, correct, and complete counterpart of this Agreement. Section 22. SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Section 23. HEADINGS. This section headings in this Agreement are inserted for convenience of reference and shall not be considered a part of this Agreement or used in its interpretation. 7 8 IN WITNESS WHEREOF, The Pledgor and the Agent have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written. WITNESS: WACKENHUT CORPORATION - ---------------------- By: ------------------------------------ Name: Terry P. Mayotte Title: Treasurer - ---------------------- WITNESS: NATIONSBANK, NATIONAL ASSOCIATION, as Agent - ---------------------- By: ------------------------------------- Name: Johns Ellington Title: Vice President - ----------------------- 8 EX-4.9 5 AMENDED & RESTATED GUARANTY & SURETYSHIP AGREEMENT 1 Exhibit 4.9 AMENDED AND RESTATED GUARANTY AND SURETYSHIP AGREEMENT THIS AMENDED AND RESTATED GUARANTY AND SURETYSHIP AGREEMENT, dated as of December 30, 1997 (the "Guaranty"), is made by EACH OF THE UNDERSIGNED (each a "Guarantor" and collectively the "Guarantors"), to the parties named in Section 1 hereof. Except as otherwise defined herein, terms used herein defined in the Amended and Restated Revolving Credit and Reimbursement Agreement referred to below shall be used herein as so defined. W I T N E S S E T H: WHEREAS, The Wackenhut Corporation, a Florida corporation (the "Borrower"), the financial institutions party thereto (the "Prior Lenders"), and NationsBank, National Association, as Agent (in such capacity and together with any successor agent in such capacity, the "Agent") have heretofore entered into a Revolving Credit and Reimbursement Agreement dated as of January 5, 1995 (as at any time amended, modified or restated, the "Prior Credit Agreement"); and WHEREAS, as a condition to entering into the Prior Credit Agreement, certain Subsidiaries of the Borrower (the "Prior Guarantors") have heretofore entered into Guaranty and Suretyship Agreements dated January 5, 1995 (the "Prior Guarantys") pursuant to which the Prior Guarantors guaranteed the full and timely payment of all of the Borrower's obligations (as defined in the Prior Credit Agreement) pursuant to the terms of the Prior Credit Agreement; and WHEREAS, the Borrower and the Lenders have agreed to amend and restate the Prior Credit Agreement pursuant to the terms of that certain Amended and Restated Revolving Credit and Reimbursement Agreement dated as of the date hereof between the Borrower, the Agent and the Lenders (as from time to time amended, supplemented or restated, the "Credit Agreement"); and WHEREAS, each Guarantor is a Subsidiary of the Borrower and has been or may be provided with advances from the Borrower or other working capital made available directly or indirectly by the Lenders under the Credit Agreement, and has thereby materially benefitted or will materially benefit from the loans made to the Borrower pursuant to the Credit Agreement; and WHEREAS, pursuant to the terms of the Credit Agreement each Guarantor is required to deliver this Guaranty; NOW, THEREFORE, in consideration of the premises, each Guarantor hereby agrees as follows: 1. GUARANTY AND SURETY. Each Guarantor does hereby jointly, severally, absolutely, 2 unconditionally, continually and irrevocably for the benefit of the Agent and the Lenders (collectively, the "Beneficiaries"), guarantee and become surety for the full and timely payment when due (whether by acceleration or otherwise) (including amounts which, but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code (or any successor statute), would become due) of: A. All Obligations as defined in the Credit Agreement; and B. all other indebtedness, obligations and liabilities of the Borrower under written financing arrangements stated by each Guarantor and each of the Beneficiaries to be guaranteed hereby; in each case whether direct or indirect, joint or several, absolute or contingent, liquidated or unliquidated, now or hereafter existing, extended, renewed, replaced, refinanced or restructured, whether or not from time to time decreased or extinguished and later increased, created or incurred (all indebtedness, obligations and liabilities of the Borrower described in this SECTION 1 are collectively referred to as the "Guarantied Obligations"); PROVIDED, HOWEVER, that the liability of the Guarantor with respect to the Guarantied Obligations shall not exceed at any time the Maximum Amount (as hereinafter defined). The "Maximum Amount" means the greater of (X) the aggregate amount of all advances to or investments in the Guarantor made directly or indirectly with the proceeds of Loans under the Credit Agreement or (Y) 95% of (a) the fair salable value of the assets of such Guarantor as of the date hereof minus (b) the total liabilities of such Guarantor (including contingent liabilities, but excluding liabilities of such Guarantor under this Guaranty and the other Loan Documents executed by such Guarantor) as of the date hereof; PROVIDED FURTHER, HOWEVER, that if the calculation of the Maximum Amount in the manner provided above as of the date payment is required of such Guarantor pursuant to this Guaranty would result in a greater positive number, then the Maximum Amount shall be deemed to be such greater positive number. 1. GUARANTY OF PAYMENT. This is a guaranty of payment and not merely of collection. In the event of any default by the original obligor in payment or otherwise on any of the Guarantied Obligations, each Guarantor will pay all or any portion of the Guarantied Obligations due or thereafter becoming due, whether by acceleration or otherwise, without offset of any kind whatsoever, without any Beneficiary first being required to make demand upon the original obligor or pursue any of its rights against the original obligor, or against any other Person, including other guarantors (whether or not party to this Guaranty); and without being required to liquidate or to realize on any collateral security. In any right of action accruing to any Beneficiary, such Beneficiary may elect to proceed against (a) any Guarantor together with the original obligor or obligors; (b) any Guarantor and the original obligor or obligors individually; or (c) any Guarantor only without having first commenced any action against the original obligor or obligors. 2. RIGHT TO DEAL WITH GUARANTIED OBLIGATIONS. Subject to the terms and conditions of the Credit Agreement, any Beneficiary, without notice to any Guarantor, may deal 2 3 with any Guarantied Obligations and any collateral security therefor in such manner as it may deem advisable and may renew or extend the Guarantied Obligations or any part thereof; accept partial payment, or settle, release, compound, or compromise the same; demand additional collateral security therefor, and substitute or release the same; and may compromise or settle with or release and discharge from liability any other guarantor of any Guarantied Obligation, or any other Person liable to such Beneficiary for all or any portion of the obligations of any original obligor; all without impairing the liability of the Guarantor hereunder. 3. OTHER WAIVERS. Each Guarantor hereby unconditionally waives with respect to this Guaranty: (a) notice of acceptance of this Guaranty by any Beneficiary and any notice of the incurring by the Borrower of any Guarantied Obligation; (b) presentment for payment, protest, notice of protest and notice of dishonor to any party including the Borrower or any Guarantor; (c) any disability of the original obligor or obligors or defense available to the original obligor or obligors, including absence or cessation of any original obligor's liability for any reason whatsoever; (d) any defense or circumstances which might otherwise constitute a legal or equitable discharge of a guarantor or surety; and (e) all rights under any state or federal statute dealing with or affecting the rights of creditors. 4. SUBORDINATION. Until the Guarantied Obligations are paid in full and no Beneficiary is under any further obligation to lend or extend funds or credit which would constitute Guarantied Obligations, each Guarantor hereby unconditionally subordinates all present and future debts, liabilities or obligations of the original obligor to such Guarantor to the Guarantied Obligations, and all amounts due under such debts, liabilities, or obligations shall, upon the occurrence and during the continuance of an Event of Default, be collected and paid over forthwith to the Beneficiaries on account of the Guarantied Obligations and, pending such payment, shall be held by such Guarantor as agent and bailee of the Beneficiaries separate and apart from all other funds, property and accounts of such Guarantor. Each Guarantor, at the request of any Beneficiary, shall execute such further documents in favor of such Beneficiary to further evidence and support the purpose of this SECTION 4. Each Guarantor hereby irrevocably waives and releases any right or rights of subrogation or contribution existing at law, by contract or otherwise to recover all or any portion of any payment made hereunder from the Borrower or any other guarantor. 5. REPRESENTATIONS AND WARRANTIES. Each Guarantor represents and warrants to the Beneficiaries that: (a) no other agreement, representation or special condition exists between the Guarantor and any Beneficiary regarding the liability of the Guarantor under this Guaranty; nor does any understanding exist between the Guarantor and any Beneficiary that the obligations of the Guarantor under this Guaranty are or will be other than as set out herein; and (b) as of the date hereof, the Guarantor has no defense whatsoever to any action or proceeding that may be brought to enforce this Guaranty. Furthermore, each Guarantor affirms to the Beneficiaries that each of the representations and warranties contained in the Credit Agreement and made by the Borrower with respect to the Guarantor is true and correct. 6. NO WAIVER BY BENEFICIARIES. No failure or delay on the part of any Beneficiary 3 4 in exercising any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof, or the exercise of any other right, power or privilege. Failure by any Beneficiary to insist upon strict performance hereof shall not constitute a relinquishment of its right to demand strict performance at another time. Receipt by any Beneficiary of any payment by any person on any Guarantied Obligation, with knowledge of a default on any Guarantied Obligation or of a breach of this Guaranty, or both, shall not be construed as a waiver of the default or breach. 7. CONTINUING GUARANTY; TERMINATION. THIS GUARANTY IS A CONTINUING GUARANTY AND SHALL CONTINUE IN FULL FORCE AND EFFECT UNTIL SUCH TIME AS ALL GUARANTIED OBLIGATIONS SHALL HAVE BEEN INDEFEASIBLY PAID IN FULL (OTHER THAN GUARANTIED OBLIGATIONS IN THE NATURE OF CONTINUING INDEMNITIES OR EXPENSE REIMBURSEMENT OBLIGATIONS NOT YET DUE AND PAYABLE) AND NO BENEFICIARY SHALL BE UNDER ANY FURTHER OBLIGATION TO LEND OR TO ADVANCE FUNDS TO THE ACCOUNT OF THE BORROWER CONSTITUTING GUARANTIED OBLIGATIONS. 8. BENEFITS OF AGREEMENT. This Guaranty is freely assignable and transferable by the Beneficiaries to any permitted assignee and transferee of any Guarantied Obligation; however, the duties and obligations of the Guarantor may not be delegated or transferred by the Guarantor without the written consent of all Beneficiaries. The rights and privileges of the Beneficiaries shall inure to the benefit of their respective successors and assigns, and the duties and obligations of the Guarantors shall bind their respective successors and assigns. 9. EXPENSES; INDEMNITY. Each Guarantor will upon demand pay to each Beneficiary the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which it may reasonably incur in connection with enforcement of this Guaranty or the failure by any Guarantor to perform or observe any of the provisions hereof. Each Guarantor agrees to indemnify and hold harmless each Beneficiary from and against any and all claims, demands, losses, judgments and liabilities (including liabilities for penalties) of whatsoever kind or nature, growing out of or resulting from this Guaranty or the exercise by any Beneficiary of any right or remedy granted to it hereunder or under the other Loan Documents, other than such items arising out of the bad faith, gross negligence or willful misconduct on the part of such Beneficiary or an officer, co-officer, director, co-director, employee, co-employee, agent or co-agent thereof or breach of this Agreement by such Beneficiary or an officer, co-officer, director, co-director, employee, co-employee, agent or co-agent thereof. If and to the extent that the obligations of any Guarantor under this SECTION 9 are unenforceable for any reason, each Guarantor hereby agree to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. 10. AMENDMENTS, WAIVERS AND CONSENTS. No amendment or waiver of any provision of this Guaranty or consent to any departure by any Guarantor herefrom shall in any 4 5 event be effective unless the same shall be in writing and signed by such Guarantor and the Agent (which execution by the Agent shall be evidence that the Agent has received the consent thereto of the Lenders required to effect such amendment or waiver), and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that no such amendment, waiver or consent shall (a) deprive any Beneficiary of the benefits generally of this Guaranty without the written consent of such Beneficiary, or (b) alter the provisions of this SECTION 10 without the written consent of all of the Beneficiaries. 11. ADDRESSES FOR NOTICES. All notices and other communications provided for hereunder shall be in writing (including telefacsimile communication) and shall be sent by registered or certified mail, return receipt requested, or first class express mail or overnight courier, or by telefacsimile, in all cases with charges prepaid, and shall be effective when delivered against a receipt therefor or when telefacsimile transmission is confirmed, as the case may be. All notices shall be sent to the applicable party at the address stated on the signature page hereof or in accordance with the last unrevoked written direction from such party to the other parties hereto. 12. INTERPRETATION; PARTIAL INVALIDITY. Whenever possible each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. 13. MISCELLANEOUS; REMEDIES CUMULATIVE. Unless the context of this Guaranty otherwise clearly requires, references to the plural include the singular, the singular the plural and the part the whole and "or" has the inclusive meaning represented by the phrase "and/or." The section headings used herein are for convenience of reference only and shall not define, limit or extend the provisions of this Guaranty. All remedies hereunder are cumulative and are not exclusive of any other rights and remedies of the Beneficiaries provided by law or under the Credit Agreement, the other Loan Documents, or other applicable agreements or instruments. The making of the Loans to the Borrower and the issuance of Letters of Credit pursuant to the Credit Agreement shall be presumed conclusively to have been made, extended or issued, respectively, in reliance upon the obligations of the Guarantors incurred pursuant to this Guaranty. 14. GOVERNING LAW. This Guaranty shall in all respects be governed by the internal substantive laws of the State of Florida without regard to its choice of law principles. Each Guarantor hereby (i) submits to the jurisdiction and venue of the state and federal courts of Florida for the purposes of resolving disputes hereunder or under any of the other Loan Documents to which it is a party or for the purpose of collection and (ii) to the maximum extent permitted by applicable law, waives trial by jury in connection with any such litigation. 15. REPAYMENT OR RECOVERY. If claim is ever made upon any Beneficiary for repayment or recovery of any amount or amounts received in payment or on account of any of the Guarantied Obligations and any of the Beneficiaries repays all or part of said amount by 5 6 reason of (a) any judgment, decree or order of any court or administrative body having jurisdiction over such payee or any of its property, or (b) any settlement or compromise of any such claim effected by such Beneficiary with any such claimant (including the original obligor), then and in such event each Guarantor agrees that any such judgment, decree, order, settlement or compromise shall be binding upon it, notwithstanding any revocation hereof or the cancellation of any Note or other instrument evidencing any Guarantied Obligation or any security therefor, and each Guarantor shall be and remain liable to the aforesaid Beneficiary for the amount so repaid or recovered to the same extent as if such amount had never originally been received by any such Beneficiary. 16. SET-OFF. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of an Event of Default (as defined in the Credit Agreement), each Guarantor agrees that each Beneficiary shall have a lien for all the liabilities of each Guarantor upon all deposits or deposit accounts, of any kind, or any interest in any deposits or deposit accounts thereof, now or hereafter pledged, mortgaged, transferred or assigned to such Beneficiary or otherwise in the possession or control of such Beneficiary (other than for safekeeping) for any purpose for the account or benefit of such Guarantor and including any balance of any deposit account or of any credit of such Guarantor with such Beneficiary, whether now existing or hereafter established, hereby authorizing each Beneficiary at any time or times with or without prior notice to apply such balances or any part thereof to such of the liabilities of such Guarantor to such Beneficiary then past due and in such amounts as they may elect, and whether or not the collateral or the responsibility of other Persons primarily, secondarily or otherwise liable may be deemed adequate. For the purposes of this SECTION 16, all remittances and property shall be deemed to be in the possession of such Beneficiary as soon as the same may be put in transit to it by mail or carrier or by other bailee. 17. CREDIT AGREEMENT CONTROLS. In the event that any term of this Guaranty or of any other Loan Document (other than the Credit Agreement) conflicts with any term of the Credit Agreement, then the term of the Credit Agreement shall control. [Remainder of page intentionally left blank] 6 7 IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be duly executed and delivered by its officers hereunto duly authorized as of the date first above written. AMERICAN GUARD AND ALERT, INCORPORATED DIVERSIFIED CORRECTIONAL SERVICES, INCORPORATED TITANIA ADVERTISING, INCORPORATED TITANIA INSURANCE COMPANY OF AMERICA TUHNEKCAW, INC. WACKENHUT AIRLINE SERVICES, INC. WACKENHUT EDUCATIONAL SERVICES, INC. WACKENHUT FINANCIAL, INC. WACKENHUT INTERNATIONAL, INCORPORATED WACKENHUT OF NEVADA, INC. WACKENHUT PUERTO RICO, INC. WACKENHUT SERVICES, INCORPORATED WACKENHUT SERVICES LIMITED LIABILITY COMPANY WACKENHUT SPORTS SECURITY, INC. WACKENHUT RESOURCES, INCORPORATED KING STAFFING, INC. SOUTHEASTERN RESOURCES, INC. WORKFORCE ALTERNATIVE, INC. KING TEMPORARY STAFFING, INC. WRI II, INC. PROFESSIONAL EMPLOYEE MANAGEMENT, INC. WITNESS: - ----------------------- By: --------------------------------------- Name: Terry P. Mayotte Title: Treasurer - ----------------------- Address: The Wackenhut Corporation 4200 Wackenhut Drive, Suite 100 Palm Beach Gardens, Florida 33410 Telephone No. (305) 666-5656 Telefacsimile No. (305) 662-7366 Signature Page 1 of 2 8 NATIONSBANK, NATIONAL ASSOCIATION, AS AGENT FOR THE LENDERS WITNESS: - --------------------------- By: ------------------------------- Name: Johns Ellington Title: Vice President - --------------------------- Signature Page 2 of 2 EX-10.1 6 DEFERRED COMPENSATION AGREEMENT 1 Exhibit 10.1 DEFERRED COMPENSATION AGREEMENT THE WACKENHUT CORPORATION, a Florida corporation (Company) and Richard R. Wackenhut (Executive) hereby agree as follows: 1. EMPLOYMENT. Company will employ Executive as Senior Vice President or in such other positions as may be determined from time to time by the Board of Directors of Company and at such rate of compensation as may be so determined. Executive will devote his full energy, skill and best efforts to the affairs of Company on a full-time basis. It is contemplated that such employment will continue until November 11, 2007 (Executive's Retirement Date), but nevertheless either Company or Executive may terminate Executive's employment at any time and for any reason upon sixty (60) days written notice to the other. 2. RETIREMENT. In the event Executive's employment continues until his Retirement Date it shall thereupon terminate and, commencing with the first month after Executive actually retires, Company will pay executive $8,333.00 monthly for two hundred for (240) months. 3. TERMINATION OF EMPLOYMENT. A. If Executive terminates his employment with Company, or if Company terminates Executive's employment for "Cause" as defined in subsection C. below, prior to Executive's Retirement Date, Company will pay Executive monthly, commencing with the first month after Executive's Retirement Date and continuing for two hundred forty (240) months, an amount calculated by multiplying the monthly amount payable at retirement specified in Section 2 above by a fraction the numerator of which is the sum of the number of full years between the date of this Agreement and the date of termination of employment, and the denominator of which is the number four (4); provided however, in no event shall the amount paid per month exceed the amount payable under Section 2 of this Agreement. In the sole discretion of the Board of Directors of Company, periods of time during which Executive may be disabled may be treated as time of employment for purposes of this computation. B. If Company terminates Executive's employment for any reason other than "Cause" as defined in subsection C. below, prior to Executive's Retirement Date, Company will pay Executive monthly, commencing with the first month after Executive's Retirement Date and continuing for two hundred forty (240) months, an amount calculated by multiplying the monthly amount payable at retirement specified in Section 2 by a fraction the numerator of which is the sum of the number of full years between the date of this Agreement and the date of termination of employment plus one, and the denominator of which is the number four (4); provided however, in no event shall the amount paid per month exceed the amount payable under Section 2 of this Agreement. In the sole discretion of the Board of Directors of Company, periods of time during which Executive may be disabled may be treated as time of employment for purposes of this computation. 2 C. For purposes of this Agreement, termination for "Cause" is defined to mean gross or willful misconduct on the part of Executive in the performance of his duties as an employee of Company as determined by the Board of Directors of Company. 4. DEATH. If Executive dies before his Retirement Date and before termination of his employment with Company, Company shall pay Executive's named beneficiary (designated in Section 6 of this Agreement and hereinafter referred to as Beneficiary) a monthly amount of $8,333.00 commencing with the first month following death and continuing for one hundred twenty (120) months thereafter. In the case of death of Executive after termination of employment with Company, but before his Retirement Date, the Company shall pay to Beneficiary the lesser of a) a monthly amount determined by multiplying $8,333.00 by the applicable fraction from either subsections 3.A. or 3.B. of this Agreement, or b) 8,333.00, commencing with the first month following death and continuing for one hundred and twenty (120) months thereafter. If Executive dies within two hundred forty (240) months following his Retirement Date and while receiving payments hereunder, Company shall pay Beneficiary the payments which would have been made to Executive had he lived for the balance of said two hundred forty (240) month period. If Executive shall die by suicide prior to January 1, 1987, whether sane or insane, no payments shall be made by the Company. If the Executive shall die by suicide after December 31, 1986, the Company shall make such payments as would be required by this Agreement had Executive died at that time other than by suicide. 5. SMALL AMOUNTS. In the event the amount of any monthly payments provided herein shall be less than Twenty ($20) Dollars, the Company in its sole discretion may in lieu thereof pay the commuted value of such payments (calculated on the basis of the interest rate and mortality assumptions being used by The Northwestern Mutual Life Insurance Company of Milwaukee, Wisconsin, to calculate immediate annuity rates on the date of this Agreement) to the person entitled to such payments. 6. BENEFICIARY. The Beneficiary (or Beneficiaries) of any payments to be made after Executive's death, shall be as designated by Executive and shown on attached Exhibit A or such other person or persons as Executive shall designate in writing to Company. If no effective designation of Beneficiaries has been made by Executive, any such payments shall be made to Executive's estate. 7. RESTRICTIONS. Executive shall not at any time, either directly or indirectly, accept employment with, render service, assistance or advice to, or allow his name to be used by any competitor of the Company unless approved by the Board of Directors of the Company. Determination by the Board of Directors of the Company that Executive has engaged in any such activity shall be binding and conclusive on all parties, and in addition to all other rights and remedies which Company shall have, neither Executive nor Beneficiary shall be entitled to any payments hereunder. 8. INSURANCE. If Company shall elect to purchase a life insurance contract to provide Company with funds to make payments hereunder, Company shall at all times be the sole and complete Owner and beneficiary of such contract, and shall have the unrestricted right to use all amounts and exercise all options and privileges thereunder without knowledge or consent of Executive or beneficiary or any other 3 person, it being expressly agreed that neither Executive nor Beneficiary nor any other person shall have any right, title or interest whatsoever in or to any such contract. 9. SOURCE OF PAYMENTS. Executive, Beneficiary and any other person or persons having or claiming a right to payments hereunder or to any interest in this Agreement shall rely solely on the unsecured promise of Company set forth herein, and nothing in this Agreement shall be construed to give Executive, Beneficiary or any other person or persons any right, title, interest or claim in or to any specific asset, fund, reserve, account or property of any kind whatsoever owned by Company or in which it may have any right, title or interest now or in the future, but Executive shall have the right to enforce his claim against Company in the same manner as any unsecured creditor. 10. AMENDMENT. This Agreement may be amended at any time or from time to time by written agreement of the parties. 11. ASSIGNMENT. Neither Executive, nor Beneficiary, nor any other person entitled to payments hereunder shall have power to transfer, assign, anticipate, mortgage or otherwise encumber in advance any of such payments, nor shall such payments be subject to seizure for the payment of public or private debts, judgments, alimony or separate maintenance, or be transferable by operation of law in event of bankruptcy, insolvency or otherwise. 12. BINDING EFFECT. This Agreement shall be binding upon the parties hereto, their heirs, executors, administrators, successors and assigns. The Company agrees it will not be a party to any merger, consolidation or reorganization, unless and until its obligations hereunder shall be expressly assumed by its successor or successors. IN WITNESS WHEREOF the parties have executed this Agreement effective the 29th day of December, 1985. (Executive) (Company) THE WACKENHUT CORPORATION /s/ Richard R. Wackenhut By: /s/ George R. Wackenhut -------------------------- ------------------------- Richard R. Wackenhut President Attest: /s/ J. P. Rowan ---------------------- (CORPORATE SEAL) 4 DEFERRED COMPENSATION AGREEMENT THE WACKENHUT CORPORATION, a Florida corporation (Company) and Alan B. Bernstein (Executive) hereby agree as follows: 1. EMPLOYMENT. Company will employ Executive as Senior Vice President or in such other positions as may be determined from time to time by the Board of Directors of Company and at such rate of compensation as may be so determined. Executive will devote his full energy, skill and best efforts to the affairs of Company on a full-time basis. It is contemplated that such employment will continue until April 22, 2007, (Executive's Retirement Date), but nevertheless either Company or Executive may terminate Executive's employment at any time and for any reason upon sixty (60) days written notice to the other. 2. RETIREMENT. In the event Executive's employment continues until his Retirement Date it shall thereupon terminate and, commencing with the first month after Executive actually retires, Company will pay Executive $8,333.00 monthly for two hundred forty (240) months. See Section 10 of this Agreement concerning the right of Company to decrease the monthly amounts herein provided. 3. TERMINATION OF EMPLOYMENT. A. If Executive terminates his employment with Company, or if Company terminates Executive's employment for "Cause" as defined in subsection C. below, prior to Executive's Retirement Date, Company will pay Executive monthly, commencing with the first month after Executive's Retirement Date and continuing for two hundred forty (240) months, an amount calculated by multiplying the monthly amount payable at retirement specified in Section 2 above by a fraction the numerator of which is the sum of the number of full years between the date of this Agreement and the date of termination of employment, and the denominator of which is the number four (4); provided however, in no event shall the amount paid per month exceed the amount payable under Section 2 of this Agreement. In the sole discretion of the Board of Directors of Company, periods of time during which Executive may be disabled may be treated as time of employment for purposes of this computation. B. If Company terminates Executive's employment for any reason other than "Cause" as defined in subsection C. below, prior to Executive's Retirement Date, Company will pay Executive monthly, commencing with the first month after Executive's Retirement Date and continuing for two-hundred forty (240) months, an amount calculated by multiplying the monthly amount payable at retirement specified in Section 2 by a fraction the numerator of which is the sum of the number of full years between the date of this Agreement and the date of termination of employment plus one, and the denominator of which is the number four (4); provided however, in no event shall the amount paid per month exceed the amount payable under Section 2 of this Agreement. In the sole discretion of the Board of Directors of Company, periods of time during which Executive may be disabled may be treated as time of employment for purposes of this computation. 5 C. For purposes of this Agreement, termination for "Cause" is defined to mean gross or willful misconduct on the part of Executive in the performance of his duties as an employee of Company as determined by the Board of Directors of Company. 4. DEATH. If Executive dies before his Retirement Date and before termination of his employment with Company, Company shall pay Executive's named beneficiary (designated in Section 6 of this Agreement and hereinafter referred to as Beneficiary) a monthly amount of $8,333.00 commencing with the first month following death and continuing for one hundred twenty (120) months thereafter. In the case of death of Executive after termination of employment with Company, but before his Retirement Date, the Company shall pay to Beneficiary the lesser of a) a monthly amount determined by multiplying $8,333.00 by the applicable fraction from either subsections 3.A. or 3.B. of this Agreement, or b) 8,333.00, commencing with the first month following death and continuing for one hundred and twenty (120) months thereafter. If Executive dies within two hundred forty (240) months following his Retirement Date and while receiving payments hereunder, Company shall pay Beneficiary the payments which would have been made to Executive had he lived for the balance of said two hundred forty (240) month period. If Executive shall die by suicide prior to July 1, 1987, whether sane or insane, no payments shall be made by the Company. If the Executive shall die by suicide after June 30, 1987, the Company shall make such payments as would be required by this Agreement had Executive died at that time other than by suicide. See Section 10 of this Agreement concerning the right of Company to decrease the monthly amounts herein provided. 5. SMALL AMOUNTS. In the event the amount of any monthly payments provided herein shall be less than Twenty ($20) Dollars, the Company in its sole discretion may in lieu thereof pay the commuted value of such payments (calculated on the basis of the interest rate and mortality assumptions being used by The Northwestern Mutual Life Insurance Company of Milwaukee, Wisconsin, to calculate immediate annuity rates on the date of this Agreement) to the person entitled to such payments. 6. BENEFICIARY. The Beneficiary (or Beneficiaries) of any payments to be made after Executive's death, shall be as designated by Executive and shown on attached Exhibit A or such other person or persons as Executive shall designate in writing to Company. If no effective designation of Beneficiaries has been made by Executive, any such payments shall be made to Executive's estate. 7. RESTRICTIONS. Executive shall not at any time, either directly or indirectly, accept employment with, render service, assistance or advice to, or allow his name to be used by any competitor of the Company unless approved by the Board of Directors of the Company. Determination by the Board of Directors of the Company that Executive has engaged in any such activity shall be binding and conclusive on all parties, and in addition to all other rights and remedies which Company shall have, neither Executive nor Beneficiary shall be entitled to any payments hereunder. 6 IN WITNESS WHEREOF the parties have executed this Agreement effective the 29th day of December, 1985. (Executive) (Company) THE WACKENHUT CORPORATION /s/ Alan B. Bernstein By: /s/ Richard R. Wackenhut - ------------------------------ ------------------------------- Alan B. Bernstein President Attest: /s/ J.P. Rowan -------------------------- (CORPORATE SEAL) 7 DEFERRED COMPENSATION AGREEMENT THE WACKENHUT CORPORATION, a Florida corporation (Company) and Fernando Carrizosa (Executive) hereby agree as follows: 1. EMPLOYMENT. Company will employ Executive as Senior Vice President or in such other positions as may be determined from to time by the Board of Directors of Company and at such rate of compensation as may be so determined. Executive will devote his full energy, skill and best efforts to the affairs of Company on a full-time basis. It is contemplated that such employment will continue until September 30, 2003, (Executive's Retirement Date), but nevertheless either Company or Executive may terminate Executive's employment at any time and for any reason upon sixty (60) days written notice to the other. 2. RETIREMENT. In the event Executive's employment continues until his Retirement Date it shall thereupon terminate and, commencing with the first month after Executive actually retires, Company will pay Executive $4,166.00 monthly for two hundred forty (240) months. 3. TERMINATION OF EMPLOYMENT. A. If Executive terminates his employment with Company, or if Company terminates Executive's employment prior to Executive's Retirement Date but after March 30, 1994 Company will pay Executive monthly, commencing with the first month after Executive's Retirement Date and continuing for two hundred forty (240) months, an amount calculated by multiplying the monthly amount payable at retirement specified in Section 2 above by a fraction the numerator of which is the sum of the number of full years between the date of this Agreement and the date of termination of employment, and the denominator of which is the number ten (10); provided however, in no event shall the amount paid per month exceed the amount payable under Section 2 of this Agreement. In the sole discretion of the Board of Directors of Company, periods of time during which Executive may be disabled may be treated as time of employment for purposes of this computation. B. If Executive terminates his employment with Company prior to March 30, 1994, or if Company terminates Executive's employment for any reason prior to March 30, 1994, Executive shall receive no payments whatsoever under this Agreement. 4. DEATH. If Executive dies before his Retirement Date and before termination of his employment with Company, Company shall pay Executive's named beneficiary (designated as provided in Section 6 of this Agreement and hereinafter referred to as Beneficiary) a monthly amount of $4,166.00 commencing with the first month following death and continuing for one hundred twenty (120) months thereafter. In the case of death of 1 8 Executive after termination of employment with Company, but before his Retirement Date, the Company shall pay to Beneficiary the lesser of a) a monthly amount determined by multiplying $4,166.00 by the fraction determined from subsection 3.A. of this Agreement, or b) $4,166.00, commencing with the first month following death and continuing for one hundred and twenty (120) months thereafter. If Executive dies within two hundred forty (240) months following his Retirement Date and while receiving payments hereunder, Company shall pay Beneficiary the payments which would have been made to Executive had he lived for the balance of said two hundred forty (240) month period. If Executive shall die by suicide prior to July 1, 1990, whether sane or insane, no payments shall be made by the Company. If the Executive shall die by suicide after June 30, 1990 the Company shall make such payments as would be required by this Agreement had Executive died at that time other than by suicide. 5. SMALL AMOUNTS. In the event the amount of any monthly payments provided herein shall be less than Twenty ($20) Dollars, the Company in its sole discretion may in lieu thereof pay the commuted value of such payments (calculated on the basis of the interest rate and mortality assumptions being used by The Northwestern Mutual Life Insurance Company of Milwaukee, Wisconsin, to calculate immediate annuity rates on the date of this Agreement) to the person entitled to such payments. 6. BENEFICIARY. The Beneficiary (or Beneficiaries) of any payments to be made after Executive's death, shall be as designated by Executive and shown on attached Exhibit A or such other person or persons as Executive shall designate in writing to Company. If no effective designation of Beneficiaries has been made by Executive, any such payments shall be made to Executive's estate. 7. RESTRICTIONS. Executive shall not at any time, either directly or indirectly, accept employment with, render service, assistance or advice to, or allow his name to be used by any competitor of the Company unless approved by the Board of Directors of the Company. Determination by the Board of Directors of the Company that Executive has engaged in any such activity shall be binding and conclusive on all parties, and in addition to all other rights and remedies which Company shall have, neither Executive nor Beneficiary shall be entitled to any payments hereunder. 8. INSURANCE. If Company shall elect to purchase a life insurance contract to provide Company with funds to make payments hereunder, Company shall at all times be the sole and complete Owner and beneficiary of such contract, and shall have the unrestricted right to use all amounts and exercise all options and privileges thereunder without knowledge or consent of Executive or Beneficiary or any other person, it being expressly agreed that neither Executive nor Beneficiary nor any other person shall have any right, title or interest whatsoever in or to any such contract. 2 9 9. SOURCE OF PAYMENTS. Executive, Beneficiary and any other person or persons having or claiming a right to payments hereunder or to any interest in this Agreement shall rely solely on the unsecured promise of Company set forth herein, and nothing in this Agreement shall be construed to give Executive, Beneficiary or any other person or persons any right, title, interest or claim in or to any specific asset, fund, reserve, account or property of any kind whatsoever owned by Company or in which it may have any right, title or interest now or in the future, but Executive shall have the right to enforce his claim against Company in the same manner as an unsecured creditor. 10. AMENDMENT. This Agreement may be amended at any time or from time to time written agreement of the parties. 11. ASSIGNMENT. Neither Executive, nor Beneficiary, nor any other person entitled to payments hereunder shall have power to transfer, assign, anticipate, mortgage or otherwise encumber in advance any of such payments, nor shall such payments be subject to seizure for the payment of public or private debts, judgments, alimony or separate maintenance, or be transferable by operation of law in event of bankruptcy, insolvency or otherwise. 12. BINDING EFFECT. This Agreement shall be binding upon the parties hereto, their heirs, executors, administrators, successors and assigns. The Company agrees it will not be a party to any merger, consolidation or reorganization, unless and until its obligations hereunder shall be expressly assumed by its successor or successors. IN WITNESS WHEREOF the parties have executed this Agreement effective the 30th day of March, 1989. (Executive) (Company) THE WACKENHUT CORPORATION /s/ Fernando Carrizosa By: /s/ Richard R. Wackenhut --------------------------- ---------------------------- Fernando Carrizosa President Attest: /s/ J.P. Rowan ----------------------- (CORPORATE SEAL) 3 10 DEFERRED COMPENSATION AGREEMENT THE WACKENHUT CORPORATION, a Florida corporation (Company) and Robert C. Kneip (Executive) hereby agree as follows: 1. EMPLOYMENT. Company will employ Executive as Senior Vice President or in such other positions as may be determined from time to time by the Board of Directors of Company and at such rate of compensation as may be so determined. Executive will devote his full energy, skill and best efforts to the affairs of Company on a full-time basis. It is contemplated that such employment will continue until March 8, 2008, (Executive's Retirement Date), but nevertheless either Company or Executive may terminate Executive's employment at any time and for any reason upon sixty (60) days written notice to the other. 2. RETIREMENT. In the event Executive's employment continues until his Retirement Date it shall thereupon terminate and, commencing with the first month after Executive actually retires, Company will pay Executive $4,166.00 monthly for two hundred forty (240) months. 3. TERMINATION OF EMPLOYMENT. A. If Executive terminates his employment with Company, or if Company terminates Executive's employment prior to Executive's Retirement Date but after April 29, 1993, Company will pay Executive monthly, commencing with the first month after Executive's Retirement Date and continuing for two hundred forty (240) months, an amount calculated by multiplying the monthly amount payable at retirement specified in Section 2 above by a fraction the numerator of which is the sum of the number of full years between the date of this Agreement and the date of termination of employment, and the denominator of which is the number ten (10); provided however, in no event shall the amount paid per month exceed the amount payable under Section 2 of this Agreement. In the sole discretion of the Board of Directors of Company, periods of time during which Executive may be disabled may be treated as time of employment for purposes of this computation. B. If Executive terminates his employment with Company prior to April 30, 1993, or if Company terminates Executive's employment for any reason prior to April 30, 1993, Executive shall receive no payments whatsoever under this Agreement. 4. DEATH. If Executive dies before his Retirement Date and before termination of his employment with Company, Company shall pay Executive's named beneficiary (designated as provided in Section 6 of this Agreement and hereinafter referred to as Beneficiary) a monthly amount of $4,166.00 commencing with the first month following death and continuing for one hundred twenty (120) months thereafter. In the case of death of 1 11 Executive after termination of employment with Company, but before his Retirement Date, the Company shall pay to Beneficiary the lesser of a) a monthly amount determined by multiplying $4,166.00 by the fraction determined from subsection 3.A. of this Agreement, or b) $4,166.00, commencing with the first month following death and continuing for one hundred and twenty (120) months thereafter. If Executive dies within two hundred forty (240) months following his Retirement Date and while receiving payments hereunder, Company shall pay Beneficiary the payments which would have been made to Executive had he lived for the balance of said two hundred forty (240) month period. If Executive shall die by suicide prior to June 1, 1989, whether sane or insane, no payments shall be made by the Company. If the Executive shall die by suicide after May 31, 1989 the Company shall make such payments as would be required by this Agreement had Executive died at that time other than by suicide. 5. SMALL AMOUNTS. In the event the amount of any monthly payments provided herein shall be less than Twenty ($20) Dollars, the Company in its sole discretion may in lieu thereof pay the commuted value of such payments (calculated on the basis of the interest rate and mortality assumptions being used by The Northwestern Mutual Life Insurance Company of Milwaukee, Wisconsin, to calculate immediate annuity rates on the date of this Agreement) to the person entitled to such payments. 6. BENEFICIARY. The Beneficiary (or Beneficiaries) of any payments to be made after Executive's death, shall be as designated by Executive and shown on attached Exhibit A or such other person or persons as Executive shall designate in writing to Company. If no effective designation of Beneficiaries has been made by Executive, any such payments shall be made to Executive's estate. 7. RESTRICTIONS. Executive shall not at any time, either directly or indirectly, accept employment with, render service, assistance or advice to, or allow his name to be used by any competitor of the Company unless approved by the Board of Directors of the Company. Determination by the Board of Directors of the Company that Executive has engaged in any such activity shall be binding and conclusive on all parties, and in addition to all other rights and remedies which Company shall have, neither Executive nor Beneficiary shall be entitled to any payments hereunder. 8. INSURANCE. If Company shall elect to purchase a life insurance contract to provide Company with funds to make payments hereunder, Company shall at all times be the sole and complete Owner and beneficiary of such contract, and shall have the unrestricted right to use all amounts and exercise all options and privileges thereunder without knowledge or consent of Executive or Beneficiary or any other person, it being expressly agreed that neither Executive nor Beneficiary nor any other person shall have any right, title or interest whatsoever in or to any such contract. 2 12 9. SOURCE OF PAYMENTS. Executive, Beneficiary and any other person or persons having or claiming a right to payments hereunder or to any interest in this Agreement shall rely solely on the unsecured promise of Company set forth herein, and nothing in this Agreement shall be construed to give Executive, Beneficiary or any other person or persons any right, title, interest or claim in or to any specific asset, fund, reserve, account or property of any kind whatsoever owned by Company or in which it may have any right, title or interest now or in the future, but Executive shall have the right to enforce his claim against Company in the same manner as any unsecured creditor. 10. AMENDMENT. This Agreement may be amended at any time or from time to time by written agreement of the parties. 11. ASSIGNMENT. Neither Executive, nor Beneficiary, nor any other person entitled to payments hereunder shall have power to transfer, assign, anticipate, mortgage or otherwise encumber in advance any of such payments, nor shall such payments be subject to seizure for the payment of public or private debts, judgments, alimony or separate maintenance, or be transferable by operation of law in event of bankruptcy, insolvency or otherwise. 12. BINDING EFFECT. This Agreement shall be binding upon the parties hereto, their heirs, executors, administrators, successors and assigns. The Company agrees it will not be a party to any merger, consolidation or reorganization, unless and until its obligations hereunder shall be expressly assumed by its successor or successors. IN WITNESS WHEREOF the parties have executed this Agreement effective the 30th day of April, 1988. (Executive) (Company) The Wackenhut Corporation /s/ Robert C. Kneip By: /s/ Richard R. Wackenhut - ------------------------------ ------------------------------- Robert C. Kneip President Attest: /s/ J. P. Rowan --------------------------- (CORPORATE SEAL) 3 EX-10.2 7 AMENDMENTS TO DEFERRED COMPENSATION AGREEMENTS 1 (Exhibit 10.2) ADDENDUM TO DEFERRED COMPENSATION AGREEMENT This Addendum to the Deferred Compensation Agreement ("Agreement") is effective as of July 27, 1991 between The Wackenhut Corporation ("Company") and Richard R. Wackenhut ("Executive"). As a result of the action taken by the Board of Directors of Company at its meeting of July 27, 1991, the retirement benefit to Executive shall increase from $100,000 annually to $175,000 annually. This increased benefit amount shall apply only after the Retirement Date as defined in the Agreement between the parties, and shall not increase the amount payable to your Beneficiary(ies) in the event that you should die prior to reaching such Retirement date. All other terms of the Agreement between the parties hereto shall remain the same. IN WITNESS WHEREOF the parties have executed this Addendum effective July 27, 1991. EXECUTIVE COMPANY The Wackenhut Corporation /s/ Richard R. Wackenhut By: /s/ J. P. Rowan - ------------------------- --------------------- Richard R. Wackenhut Vice President Attest: /s/ T.J. Howard --------------------- (CORPORATE SEAL) 2 ADDENDUM TO DEFERRED COMPENSATION AGREEMENT This Addendum to the Deferred Compensation Agreement ("Agreement") is effective as of July 27, 1991 between The Wackenhut Corporation ("Company") and Alan B. Bernstein ("Executive"). As a result of the action taken by the Board of Directors of Company at its meeting of July 27, 1991, the retirement benefit to Executive shall increase from $100,000 annually to $150,000 annually. This increased benefit amount shall apply only after the Retirement Date as defined in the Agreement between the parties, and shall not increase the amount payable to your Beneficiary(ies) in the event that you should die prior to reaching such Retirement date. All other terms of the Agreement between the parties hereto shall remain the same. IN WITNESS WHEREOF the parties have executed this Addendum effective July 27, 1991. EXECUTIVE COMPANY The Wackenhut Corporation /s/ Alan B. Bernstein By: /s/ J.P. Rowan - ------------------------------ ------------------------------- Alan B. Bernstein Vice President Attest: /s/ T.J. Howard -------------------------- (CORPORATE SEAL) 3 ADDENDUM TO DEFERRED COMPENSATION AGREEMENT This Addendum to the Deferred Compensation Agreement ("Agreement") is effective as of July 27, 1991 between The Wackenhut Corporation ("Company") and Fernando Carrizosa ("Executive"). As a result of the action taken by the Board of Directors of Company at its meeting of July 27, 1991, the retirement benefit to Executive shall increase from $50,000 annually to $100,000 annually. This increased benefit amount shall apply only after the Retirement Date as defined in the Agreement between the parties, and shall not increase the amount payable to your Beneficiary(ies) in the event that you should die prior to reaching such Retirement date. All other terms of the Agreement between the parties hereto shall remain the same. IN WITNESS WHEREOF the parties have executed this Addendum effective July 27, 1991. EXECUTIVE COMPANY The Wackenhut Corporation /s/ Fernando Carrizosa By: /s/ J. P. Rowan, Vice President - ---------------------------- ------------------------------- Fernando Carrizosa Attest: /s/ T.J. Howard ------------------------------- (Corporate Seal) 4 ADDENDUM TO DEFERRED COMPENSATION AGREEMENT This Addendum to the Deferred Compensation Agreement ("Agreement") is effective as of July 27, 1991 between The Wackenhut Corporation ("Company") and Robert C. Kneip ("Executive"). As a result of the action taken by the Board of Directors of Company at its meeting of July 27, 1991, the retirement benefit to Executive shall increase from $50,000 annually to $100,000 annually. This increased benefit amount shall apply only after the Retirement Date as defined in the Agreement between the parties, and shall not increase the amount payable to your Beneficiary(ies) in the event that you should die prior to reaching such Retirement date. All other terms of the Agreement between the parties hereto shall remain the same. IN WITNESS WHEREOF the parties have executed this Addendum effective July 27, 1991. EXECUTIVE COMPANY The Wackenhut Corporation /s/ Robert C. Kneip By: /s/ J.P. Rowan, Vice President - ------------------- ------------------------------- Robert C. Kneip Attest: /s/ T.J. Howard -------------------------- (CORPORATE SEAL) EX-10.10 8 THIRD AMEND TO OFFICE LEASE 1 EXHIBIT 10.10 THIRD AMENDMENT TO OFFICE LEASE This Third Amendment to Office Lease is made this 10 day of December, 1997, by and between PGA PROFESSIONAL CENTER, LTD., a Florida limited partnership ("Landlord") and THE WACKENHUT CORPORATION, a Florida corporation ("Tenant"). WHEREAS, Landlord and Tenant are parties to that certain office Lease, dated April 18, 1995, as amended by amendments dated November 3, 1995 and August 1, 1996 (collectively, the "Lease"); and WHEREAS, Landlord and Tenant wish to modify the Lease as set forth herein. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. The foregoing recitals are true and correct and are incorporated herein by reference. 2. Capitalized terms used but not defined herein shall have the meanings given to such terms in the Lease. 3. The Lease is in full force and effect. Neither Landlord nor Tenant is in default thereunder, and to the knowledge of Landlord and Tenant, no event has occurred which would, with the giving of notice or the passage of time or both, constitute an event of default under the Lease. 4. Landlord hereby agrees to install, at Landlord's expense, 16 new air conditioning units within the Building in accordance with the specifications attached hereto as EXHIBIT "K." In addition, the above air conditioning units will be integrated into and made a part of the Trane energy management system previously paid for and installed by Tenant during the construction period but thereafter removed and/or deactivated by Landlord. Landlord agrees to reactivate the Trane energy management system to complete (or arrange for the completion of) the training of Tenant's employees in the operation of said system. The above work shall be completed no later than four (4) weeks from the execution of this Amendment except that Landlord shall be afforded an additional reasonable period of time to complete the employee training mentioned above. Tenant hereby acknowledges that, subject to Landlord's obligations as set forth in this Paragraph 4 and the items described on the Tenant's punch list dated July 10, 1997 attached hereto as SCHEDULE 1, which Landlord represents and agrees have been or will be repaired or corrected within four (4) weeks from the execution of this Amendment, Landlord has satisfied all construction obligations with respect to the initial construction of the Core Building and Demised Premises set forth in the Lease. 5. The Lease is hereby amended as follows: (A) JANITORIAL RESPONSIBILITIES: Tenant has agreed to assume the janitorial responsibilities heretofore performed by Landlord pursuant to Paragraph 8C of the Lease until such time 2 as Tenant elects, in its sole discretion, to return such responsibilities to Landlord. While such arrangement is in effect, Tenant agrees to provide janitorial services with respect to the Demised Premises at a level at least equal to that heretofore provided by Landlord. In consideration thereof, Tenant shall be given a reduction in annual minimum rent equal to $.65 per square foot of space within the Demised Premises for which Tenant is obligated to pay rent (Rentable Sq. Ft."), which as of the date hereof totals 91,759 sq. ft., but which shall be automatically increased to reflect any Additional Space within the Building hereafter leased by Tenant pursuant to Paragraph 39 of the Lease. The above reduction shall remain in effect until such time as Tenant elects to return to Landlord the janitorial responsibilities set forth in Paragraph 8C. Tenant agrees to give Landlord at least 90 days advance written notice of its election to return janitorial responsibilities to Landlord. Effective upon the date specified in Tenant's notice for the return of janitorial responsibilities to Landlord, the annual minimum rent payable by Tenant under the Lease shall be increased by an amount equal to $.65 per Rentable Sq. Ft. and Landlord shall again assume responsibility for janitorial services to the entire Demised Premises in accordance with Paragraph 8C of the Lease except that if Tenant desires additional janitorial services over and above those specified in Paragraph 8C, the increased cost attributable thereto shall be billed separately to the Tenant. (B) ADJUSTMENT TO ANNUAL MINIMUM RENT. In consideration of the Landlord's agreement to install, maintain and repair the additional air conditioning units specified in Paragraph 4 hereinabove, Tenant agrees that annual minimum rent shall be increased by $28,000 such that the annual minimum rent payable by Tenant for the Demised Premises (after taking into account the reduction set forth above for Tenant's assumption of janitorial responsibilities) shall be $19.16 per square foot per annum commencing as of December 1, 1997. Annual minimum rent commencing, December 1, 1997 shall be $1,758,102.44 or $146,508.54 per month (plus sales tax). (C) PROPERTY MANAGEMENT, ADMINISTRATION AND MAINTENANCE RESPONSIBILITIES. Tenant may elect, at any time and from time to time during the term of the Lease, to assume all or a part of the property management, administration and maintenance responsibilities performed by Landlord with respect to the Building or the Demised Premises. Within thirty (30) days after written notice of Tenant's intention to assume such responsibilities, Landlord will disclose to Tenant its expenditures with respect thereto for the two (2) preceding years and Tenant shall be given a reduction in minimum annual rent equal to the average cost incurred by Landlord over such two (2) year period for the particular responsibility(ies) Tenant elects to assume. Tenant may elect to return to Landlord all or a part of the responsibilities assumed by Tenant pursuant to this Paragraph upon at least 90 days advance written notice to Landlord, in which event annual minimum rent shall be increased by an amount equal to the reduction previously allowed for the particular item to be returned to Landlord. "Maintenance" as used in this Paragraph means preventative maintenance services, landscaping, elevator and air-conditioning repairs and other similar items and is not intended to include structural repairs or capital repair and replacement responsibilities, which shall at all times remain the obligation of Landlord pursuant to the Lease. Tenant agrees to perform the responsibilities assumed pursuant to this paragraph in a manner at least equal to the level of services previously provided by the Landlord with respect thereto. Should the standard of service fall below that previously provided by the Landlord, the Landlord, upon at least thirty (30) days prior written notice, may re-assume responsibility for such item 2 3 of service and eliminate the corresponding credit given to the Tenant. (D) EXPANSION OPTION. Provided Tenant is not in default at the time of exercise or at the time of commencement of the expansion option referred to hereinbelow, Tenant shall have the option to lease the entire premises known as Building B, PGA Professional Center (the "Expansion Premises") as more particularly described in the Amended and Restated Business Lease dated July 1, 1996, between Landlord and Catalfumo Construction, Ltd. (the "Catalfumo Lease"). To exercise the option, Tenant must give Landlord written notice of its intention to exercise the option no later than October 30, 2000. If Tenant elects to lease the Expansion Premises, then after such exercise and in any event prior to April 20, 2001, Landlord and Tenant shall negotiate in good faith and enter into an amendment to the Lease which shall incorporate the Expansion Premises therein and which shall provide that (i) the minimum annual rent for the Expansion Premises shall be the sum of $15.50 per sq. ft. plus operating expenses and real estate taxes, (ii) the term of the lease of the Expansion Space shall commence no later than June 30, 2001 (or such earlier or later date as may be mutually agreed to in writing between the parties) and shall expire on the same day as the lease expiration date stipulated in the Lease (as the same may be extended by any renewal options exercised in accordance with Paragraph 40 of the Lease), (iii) the base year for determining Excess Operating Expenses for the Expansion Premises shall be the year 2001, (iv) Tenant shall be allowed a 90 day period immediately following commencement to perform, install or construct, at Tenant's expense, any desired improvements to the Expansion Premises ("Tenant Improvements"), during which 90 day period no rent (which term shall include pass-through expenses for taxes, insurance and operating expenses) shall accrue or be payable by Tenant with respect to the Expansion Premises, and (v) all of the remaining terms and conditions of the Lease shall be applicable to the Expansion Premises, except that adjustments reflecting the increased total square footage demised under the Lease shall be made to the Tenant's Proportionate Share of Excess Operating Expenses, the number of additional parking spaces available for the exclusive use of Tenant with respect to the Expansion Premises shall be not less than ______ spaces, and the amount of any rent reduction then in effect for janitorial or other responsibilities of Landlord assumed by Tenant in accordance with Paragraphs 5A or 5C hereinabove. (E) BUILDING REPAIR. In addition to and not in derogation of the rights of Tenant under Paragraphs 8H and 18 of the Lease, Tenant shall have the right (but not the obligation) to effect emergency repairs of the Building or the Demised Premises for which Landlord is responsible under the Lease and to deduct the reasonable cost of doing so from the next payment of rent if (i) a reasonable likelihood exists that damage to person or property will result if repairs are not effected immediately, and (ii) Tenant gives telephonic notice thereof to Landlord prior to commencing such repairs (followed by concurrent written notice via facsimile transmission or hand delivery) and Landlord fails to take immediate action, (iii) Tenant utilizes, where practical under the circumstances, the contractor(s) recommended by Landlord (provided, however, that Tenant's inability to use the contractor(s) recommended by Landlord shall not prejudice the Tenant's right to deduct the reasonable cost of such repairs from the rent next coming due), and (iv) the cost of such repairs does not exceed $20,000 in the aggregate per event, unless Landlord has failed to undertake completion of such repairs immediately following the giving of a second written notice thereof by Tenant in which event no such limitation shall apply. 3 4 6. Except as hereby modified, the Lease remains in full force and effect. In the event of any conflict between the terms of the Lease and the terms of this Amendment, the terms of this Amendment shall govern. IN WITNESS WHEREOF, this Third Amendment to Office Lease has been executed as of the 10 day of December, 1997. LANDLORD: PGA PROFESSIONAL CENTER, LTD., a Florida limited partnership By: Jeffco Holdings International, Inc., a Florida corporation, general partner By: /s/ Dina Hashman ------------------------ Dina Hashman, President TENANT: THE WACKENHUT CORPORATION By: /s/ Robert C. Kneip -------------------- Robert C. Kneip Senior Vice President 4 EX-10.11 9 DEFERRED COMPESATION AGREEMENT 1 Exhibit 10.11 SUMMARY DESCRIPTION OF THE AMENDMENT TO THE INCENTIVE PLAN The following summarizes the material terms of the Amendment to the Incentive Plan effective as of January 28, 1997. INDIVIDUAL AWARD LIMIT. In order to possibly exempt future awards from the tax deductibility limitations of Code Section 162(m), the Amendment to the Incentive Plan provides that no more than one hundred thousand (100,000) shares under Option may be granted to any participant in any one fiscal year and that no more than fifty thousand (50,000) shares will be paid out under any Performance Share or Performance Unit award in any one fiscal year, to any Participant. This Amendment to the Incentive Plan does not authorize any additional shares for issuance under the Incentive Plan. Further this Amendment is not intended to increase future award sizes or otherwise alter the Nominating Compensation Committee's (the "Committee's") general practices in determining award sizes. MINIMUM VESTING PERIOD. As a result of recent revisions to Section 16 of the Securities Exchange Act of 1934, the minimum six-month vesting requirement on Options, Restricted Stock Units, Performance Units, and Performance Shares has been removed. Although removal of this provision is not intended to change the Committee's practice in establishing vesting schedules of awards, this provision will allow the Committee greater flexibility in designing future awards. PERFORMANCE MEASURES. The Performance Measures on which awards qualifying for an exemption under Section 162(m) are based shall be chosen from among the following: return on equity, earnings per share, operating cash flow, gross revenue, income before taxes, net income, return on revenue, and stock price appreciation. Although this provision is not intended to change the Committee's practice in establishing certain performance vesting requirements, this provision will allow the Committee flexibility in establishing performance goals while maintaining an exemption to the tax deductibility limitations imposed by Section 162(m). EX-21.1 10 SUBSIDIARIES 1 EXHIBIT 21.1 SUBSIDIARIES OF THE CORPORATION SUBSIDIARIES OF THE WACKENHUT CORPORATION American Guard and Alert, Inc. (Alaska) 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 Financial, Inc. (Delaware) Wackenhut International, Incorporated (Florida) Wackenhut of Nevada, Inc. (Nevada) Wackenhut Resources, Inc. (Florida) Wackenhut Services, Incorporated (Florida) SUBSIDIARIES OF WACKENHUT INTERNATIONAL, INCORPORATED Instituto Wackenhut, S.A. (Ecuador) Peruana de Seguridad y Vigilancia, S.A. (PESEVISA) (Peru) Seguridad Movil del Ecuador, S.A. (Ecuador) Seguridad Wackenhut, S.A. de CV (Mexico) Wackenhut A/O (Russia) Wackenhut Belize Ltd. (Belize) Wackenhut Bolivia, S.A. (Bolivia) Wackenhut Cameroon, S.A. (Cameroon) Wackenhut Central Europe GMBH (Germany) Wackenhut Czech, SPOL, S.R.O. (Czech Republic) Wackenhut de El Salvador, S.A. (El Salvador) Wackenhut de Guatemala, S.A. (Guatemala) 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 Pakistan (PVT) Limited (Pakistan) Wackenhut Maghreb, S.A. (Morocco) Wackenhut Mozambique Lda (Mozambique) Wackenhut Paraguay, S.A. (Paraguay) Wackenhut Puerto Rico, Inc. (Puerto Rico) Wackenhut S.A. (Costa Rica) Wackenhut Seges (Ivory Coast) Wackenhut Sierra Leone (Sierra Leone) Wackenhut U.K. Limited (United Kingdom) Wackenhut Uruguay, S.A. (Uruguay) WII/Sound and Security Engineering Co. (Jordan) SUBSIDIARY OF AMERICAN GUARD AND ALERT Ahtna AGA Security, Inc. (Alaska) 2 SUBSIDIARIES OF WACKENHUT CORRECTIONS CORPORATION Atlantic Shores Healthcare, Inc. Wackenhut Corrections (U.K.), Limited (United Kingdom) Wackenhut Corrections Corporation Australia (Australia) Wackenhut Corrections Canada, Inc. WCC Development, Inc. WCC Financial, Inc. (Delaware) WCC RE Holdings, Inc. (Florida) SUBSIDIARY OF WACKENHUT CORRECTIONS CORPORATION AUSTRALIA Australasian Correctional Management PTY, Limited (Australia) SUBSIDIARY OF WACKENHUT SERVICES, INCORPORATED Wackenhut Services, LLC. (Colorado) SUBSIDIARIES OF WACKENHUT RESOURCES, INC. Oasis Outsourcing, Inc. (Florida) King Staffing, Inc. (Florida) Professional Employee Management, Inc. (Florida) EX-23.1 11 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accountants, we hereby consent to the incorporation of our report included in this Form 10-K into the company's previously filed Registration Statements on Form S-8 File Nos. 33-59159, 33-67158, 333-11833, 333-11837 and 333-46399. ARTHUR ANDERSEN LLP West Palm Beach, Florida, March 17, 1998. EX-24.1 12 POWERS OF ATTORNEY 1 POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitutes and appoints Philip L. Maslowe, James P. Rowan and Juan D. Miyar and each of them severally, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities to sign any and all Reports of Form 10K (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 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 substitute substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Richard G. Capen, Jr. Date: March 6, 1998 - ---------------------------------- Richard G. Capen, Jr. Director 2 POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitutes and appoints Philip L. Maslowe, James P. Rowan and Juan D. Miyar and each of them severally, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities to sign any and all Reports of Form 10K (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 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 substitute substitutes, may lawfully do or cause to be done by virtue hereof. /s/ George R. Wackenhut Date: March 9, 1998 - ---------------------------------- George R. Wackenhut Director 3 POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitutes and appoints Philip L. Maslowe, James P. Rowan and Juan D. Miyar and each of them severally, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities to sign any and all Reports of Form 10K (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 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 substitute substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Paul X. Kelley Date: March 9, 1998 - ---------------------------------- Paul X. Kelley Director 4 POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitutes and appoints Philip L. Maslowe, James P. Rowan and Juan D. Miyar and each of them severally, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities to sign any and all Reports of Form 10K (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 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 substitute substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Julius W. Becton, Jr. Date: March 7, 1998 - ---------------------------------- Julius W. Becton, Jr. Director 5 POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitutes and appoints Philip L. Maslowe, James P. Rowan and Juan D. Miyar and each of them severally, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities to sign any and all Reports of Form 10K (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 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 substitute substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Richard R. Wackenhut Date: March 12, 1998 - ---------------------------------- Richard R. Wackenhut Director 6 POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitutes and appoints Philip L. Maslowe, James P. Rowan and Juan D. Miyar and each of them severally, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities to sign any and all Reports of Form 10K (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 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 substitute substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Edward L. Hennessy, Jr. Date: March 13, 1998 - ---------------------------------- Edward L. Hennessy, Jr. Director 7 POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitutes and appoints Philip L. Maslowe, James P. Rowan and Juan D. Miyar and each of them severally, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities to sign any and all Reports of Form 10K (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 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 substitute substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Nancy Reynolds Date: March 13, 1998 - ---------------------------------- Nancy Reynolds Director 8 POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitutes and appoints Philip L. Maslowe, James P. Rowan and Juan D. Miyar and each of them severally, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities to sign any and all Reports of Form 10K (Annual Report pursuant to the Securities Exchange Act of 1934) and any ammendments 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 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 substitute substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Carroll A. Campbell, Jr. Date: March 9, 1998 - ---------------------------- Carroll A. Campbell, Jr. Director 9 POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitutes and appoints Philip L. Maslowe, James P. Rowan and Juan D. Miyar and each of them severally, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities to sign any and all Reports of Form 10K (Annual Report pursuant to the Securities Exchange Act of 1934) and any ammendments 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 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 substitute substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Anne N. Foreman Date: March 11, 1998 - ------------------- Anne N. Foreman Director EX-27.1 13 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO FORM 10-K FOR THE YEAR ENDED DECEMBER 28, 1997. 1,000 12-MOS DEC-28-1997 DEC-30-1996 DEC-28-1997 45,168 7,772 174,086 2,713 10,270 251,927 72,280 15,810 404,442 135,018 13,341 0 0 1,495 145,344 404,442 0 1,126,802 0 1,122,281 0 1,249 1,473 6,029 2,271 0 0 0 0 103 0.01 (0.01) MARKETABLE SECURITIES AND CERTIFICATES OF DEPOSIT ARE CLASSIFIED AS NON-CURRENT ASSETS ON THE BALANCE SHEET. INCLUDES $21,568 OF OTHER CURRENT ASSETS. INCLUDES $45,786 RESERVE FOR LOSSES OF CASUALTY REINSURANCE SUBSIDIARY, $47,930 MINORITY INTEREST, AND $15,528 OTHER LIABILITIES. INCLUDES ONE TIME CHARGES AND IMPAIRMENT OF ASSETS OF $18,300. INCLUDES MINORITY INTEREST AND EQUITY INCOME OF FOREIGN AFFILIATES-NET OF INCOME TAXES OF $5,753 AND $(2,098) RESPECTIVELY.
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